Stocks tumbled Friday after the government said personal income fell last month by the largest amount in nearly three years while consumer spending slowed. The Dow Jones industrials lost more than 170 points.
The technology-heavy Nasdaq composite index was hit especially hard after a disappointing profit report from computer maker Dell.
The Commerce Department reported that personal income fell 0.7% in July -- much more than the 0.1% decline expected by analysts on average.
Consumer spending rose a modest 0.2%, as expected, after a 0.6% increase in June. After adjusting for inflation, spending fell 0.4% in July.
"The income numbers are a reminder that the economy is going to look worse before it gets better," said Robert Dye, senior economist at PNC Financial Services Group.
The Dow, which started off with a three-day advance of nearly 330 points, fell 171.63 points, or 1.5%, to 11,543.55.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 17.85 points, or 1.4%, to 1,282.83. The Nasdaq fell 44.12 points, or 1.8%, to 2,367.52.
The Russell 2000 index of smaller companies fell 8.29 points, or 1.1%, to 739.50.
Declining issues outnumbered advancers Friday by nearly 2 to 1 on the New York Stock Exchange. Volume was light, as it was all week. That may have exacerbated the market's volatility.
For the week, the Dow and the S&P 500 each fell 0.7% and the Nasdaq sank 2%. For all of August, the Dow rose 1.5%, the S&P 500 gained 1.2% and the Nasdaq added 1.8%.
Yields on government bonds climbed Friday. The benchmark 10-year Treasury note rose to 3.81% from 3.78% late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
Oil futures fell 13 cents to $115.46 a barrel on the New York Mercantile Exchange as traders charted the path of Hurricane Gustav toward the Gulf of Mexico and its oil rigs and refineries.
Dell shares fell $3.48, or 14%, to $21.73 on its earnings report late Thursday and cautious comments about spending in the tech sector. Chip maker Marvell Technology Group fell after its third-quarter revenue forecast fell short of Wall Street's estimate. The stock lost 65 cents, or 4.4%, to $14.11.
Fannie Mae and Freddie Mac slumped anew Friday after big gains earlier in the week. Fannie Mae sank $1.11, or 14%, to $6.84, while Freddie Mac fell 77 cents, or 15%, to $4.51.
Stocks rallied overseas. Key indexes climbed 2.4% in Japan, 0.6% in Britain and 0.5% in France.