Dow falls on jobless, factory reports

WASHINGTON -- The U.S. economy is having growing pains.

Discouraging new reports on unemployment and manufacturing Thursday reinforced worries that job losses and meager factory output will make for a weak recovery as the nation climbs out of the worst recession in decades.

Stocks tumbled in response. The Dow Jones industrial average had its worst day since early summer, falling 203 points to 9,509. Just last week, it was within shouting distance of 10,000.

"The economy is not moving quickly from recession to expansion. It is moving in a very halting way," said Mark Zandi, chief economist at Moody's Economy.com. "Given the severity of the downturn, we are not going to come roaring back."

First-time jobless claims rose more than expected last week to a seasonally adjusted 551,000, the Labor Department said. Economists viewed it as a sign that employers remain reluctant to hire.

Economists think the economy lost 180,000 more jobs in September. The unemployment rate is expected to climb from 9.7 percent to 9.8 when the government releases its monthly report today .

And factories are struggling to mount a rebound. A gauge of manufacturing activity came in at 52.6 for September, the Institute for Supply Management said - enough to signal growth for a second month but still down from August.

The gloom on Wall Street to start the fourth quarter came despite encouraging signals on consumer spending and construction.

Construction spending rose 0.8 percent in August, including the biggest increase in housing activity in nearly 16 years. But spending for office buildings, hotels, shopping centers and government projects all declined.

Consumer spending rose a bigger-than-expected 1.3 percent in August, the best gain since October 2001, when the country was recovering from the Sept. 11 terrorist attacks. But about a third of that increase came from the government's Cash for Clunkers program.

Once the trade-in program ended, car sales fell back. General Motors and Chrysler said Thursday that their sales fell more than 40 percent in September. Ford reported a 5.1 percent drop.

The August spending report showed personal incomes continue to lag: They edged up 0.2 percent, helped by a July increase in the minimum wage .

Economists fear weak income growth means that the jump in consumer spending won't last. Consumer spending is vital for a sustained recovery because it accounts for about 70 percent of all economic activity.

The jump in spending and the much smaller gain in income sent the personal savings rate down to 3 percent in August, from 4 percent in July. Analysts think Americans will keep saving more in the months ahead.