The U.S. economy and stock market ended one of the grimmer weeks of the year, as disappointing retail sales figures released Friday combined with other dismal data to heighten fears that the nation's nascent recovery is stalling.
The retail report, which came only days after the Federal Reserve announced a new effort to prop up the economy, fueled growing concern that the U.S. is in danger of falling into a double-dip recession.
Rising anxiety was apparent worldwide this week. U.S. unemployment claims ticked up. The Chinese economy, a steady consumer of U.S. and global exports, showed signs of cooling. The Bank of England cut its economic growth estimates for Britain through next year, citing planned government budget cuts to reduce deficit spending. And investors huddled into the perceived safety of U.S. Treasury bonds even as yields skidded to a 16-month low.
Most economists believe a dip back into recession — as well as an equally debilitating bout of deflation, or broadly falling prices — will be avoided. But many have nonetheless warned that the prospects are rising, and say the more probable scenario isn't much more appealing: a protracted economic malaise with imperceptible growth and stubbornly high joblessness.
"We are mired in a jobless recovery, and the government has run out of ammunition to help out the economy," said Sung Won Sohn, an economics professor at Cal State Channel Islands. "The current situation doesn't look very good."
The data come at a time when lawmakers in Washington are bickering over the need for — and affordability of — a second stimulus package. Last year's $787-billion stimulus is widely credited with preventing a far sharper downturn. But the spending programs it financed are winding down, and cash-strapped local governments nationwide have been resorting to layoffs and other cost-cutting measures.
The consternation has shown in the stock market, where the Dow Jones industrial average fell for the fourth day in a row Friday and ended the week down 3.3%. The blue-chip indicator has dropped 8% since its recent high in late April.
Investors are worried that the inability to boost employment at this point in the recovery will constrain consumer spending and ultimately weigh on corporate profits. Corporations have notched impressive earnings over the last year and are sitting on large cash reserves. But much of their bottom-line improvement has stemmed from cutting costs rather than an upswing in demand.
"They've really chopped costs down, but now we're seeing a slowdown in revenue growth, and people are saying, 'How are they going to drive profits higher in that environment?' " said Brian Bethune, an economist at IHS Global Insight in Lexington, Mass.
Investors have fled to Treasury bonds. The yield on the benchmark 10-year T-note slumped to 2.68% Friday from nearly 4% in early April. That's welcome news to potential home buyers, as it helped drag the rate on a 30-year fixed-rate loan this week down to 4.44%.
Even so, the Fed took a step Tuesday to bolster the economy by announcing that it would resume buying Treasury bonds, a program it launched in 2009 to help bring down long-term interest rates.
It was largely a symbolic gesture, given the vast size of the government-bond market. But the upshot was unmistakable: The central bank wants to show it is standing sentry against the risk of a double dip.
Economists with Goldman Sachs Group Inc. said in a report that a double dip is unlikely, but nevertheless pegged the chance of one at 25% to 30%, which it termed "unusually high."
Those fears were aggravated by the retail-sales numbers. Though the Commerce Department reported a 0.4% rise in sales in July, the improvement was due entirely to rising gasoline prices and pent-up demand for cars. Sales would have fallen 0.1% without those items.
Feeling the pinch is Cinema Secrets, a family-owned store in Burbank that sells theatrical supplies and cosmetics. As times grew tough, makeup and holiday costumes became unaffordable luxuries for many households. The store's sales are about half what they were two years ago, according to owner Maurice Stein.
In far better times, the 76-year-old would be hustling to prepare for Halloween, stocking his shelves with faux broken bones, Frankenstein neck bolts and bottles of fake blood. This year he's trimming orders. His financial ledger is the scariest thing in the store.
"This is supposed to be our busiest time of year," Stein said. "If we're only down 35%, I'd consider that good news."
He hasn't been able to pay his three children — who help him run the shop — in a year. Two have lost their homes to foreclosure. Stein's daughter has moved back home: Living with her parents was the only way for her to stay afloat. They all rely on Stein's Social Security checks and credit cards to pay the bills.