NEW YORK — Only weeks after it seemed the stock market was on the road to recovery and the economy might soon follow it, the Dow Jones industrial average tumbled more than 350 points Thursday to a 21-month low as the price of oil topped $140 a barrel and worries grew about the financial health of U.S. consumers.
The bruising decline followed a recent barrage of bad economic news that added to concerns that many Americans -- deep in debt and having trouble borrowing more money from banks already reeling from loan losses -- could be forced to rein in their spending for years to come.
Consumers' expectations for the economy over the next six months are at their lowest level in at least four decades, a survey released this week said. Home prices in major U.S. cities skidded 15% in the last 12 months, according to another recent report. The price of oil is up 45% this year. And last month, the U.S. jobless rate jumped to 5.5% as employers trimmed their payrolls for a fifth consecutive month.
"They're getting hit from all sides," Paul Kasriel, chief economist at Northern Trust Co. in Chicago, said of consumers. "The unemployment rate is going up. One of their principal elements of net worth -- their house -- is going down in value at a pace it's never gone down before in the postwar period. And of course they're getting hit with higher food and energy prices. That's a pretty tough combination."
Those woes have cast doubt on the economy's ability to rebound in the second half of the year, which many on Wall Street had expected as recently as a month ago. The hope was that a mix of Federal Reserve interest-rate cuts, tax rebates and a winding down of losses at financial institutions would trigger a midyear rally in the stock market.
But the rate cuts and rebates have had only a modest effect so far, and many financial firms still are bleeding red ink. Meanwhile, the run-up in oil has stoked inflationary pressures, and global economic growth -- the supposed elixir that would offset U.S. weakness -- has shown signs of sputtering.
Adding to the angst was the Federal Reserve's decision Wednesday to end its 10-month string of interest-rate cuts. The Fed is caught in a difficult spot: afraid to stir up inflation by lowering rates but fearful of stunting the economy by raising them.
That means the economy probably will have to work through its problems on its own, a slow process that doesn't bode well for the stock market or the job market in the near term, experts say.
