- The Washington Times - Friday, October 28, 2005

NEW YORK (AP) — Stocks tumbled yesterday, slicing 115 points from the Dow Jones Industrial Average after a larger-than-expected drop in durable-goods orders raised new questions about the economy and corporate profits.

Wall Street saw the Commerce Department’s report on durable goods — big-ticket items designed to last at least three years — as another in a series of signs that consumer spending could dry up and further harm an already decelerating economy. Orders for durable goods fell 2.1 percent in September, far more than the 1.5 percent drop economists had forecast.

“We’re starting to see some slowing in the economy,” Dirk van Dijk, director of research at Zacks Investment Research Inc. “I don’t think we’re going into a recession, but [Federal Reserve Chairman nominee Ben] Bernanke is going to have his hands full.”

Investors also remained concerned that the Fed, in raising interest rates to curb inflation, will further slow economic growth and company earnings by making capital more expensive for companies looking to expand. The Fed next meets Tuesday and is widely expected to raise the nation’s benchmark lending rate by a quarter percentage point to 4 percent.

The Dow fell 115.03, or 1.11 percent, to 10,229.95.

Broader stock indicators also lost ground. The Standard & Poor’s 500 Index dropped 12.48, or 1.05 percent, to 1,178.90, and the Nasdaq Composite Index lost 36.24, or 1.73 percent, to 2,063.81.

Crude oil futures moved higher. A barrel of light crude settled at $61.09, up 43 cents, on the New York Mercantile Exchange.

Bonds rose solidly, with the yield on the 10-year Treasury note falling to 4.55 percent from 4.59 percent late Wednesday. Bonds were pummeled in the early half of the week as investors worried about interest rates and inflation. The U.S. dollar was lower against other major currencies in European trading. Gold prices were higher.

In other economic developments, new home sales rebounded at a faster-than-expected pace in September, rising 2.1 percent. However, new home sales are well below the year’s highs and the median price of new homes sold last month fell by 5.7 percent, indicating that the booming housing market may be slowing.

Traders are watching home sales carefully, worried that a decline in housing prices might curb consumer spending. Outgoing Federal Reserve Chairman Alan Greenspan has said borrowing against homes added $600 billion to consumers’ spending power last year.

Even if home sales stay strong, investors will continue to worry about consumer spending. In a report Wednesday, Lehman Brothers called rising home prices, low mortgage rates and declining energy prices “props to consumer spending” that could weaken or collapse at some point in 2006.

A halt to the Fed’s policy of consistent interest rate increases could prevent that, but much of the volatility in the market over the past two weeks comes as investors debate whether the Fed is ready to stop raising rates, or will keep going as still-high energy costs stoke inflation.

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