Stocks tumbled on more bad news for the U.S. economy on Thursday.
The Labor Department reported a rise in the cost of living in July as well as an increase in initial claims for jobless benefits. U.S. stocks opened sharply lower following that news and a slump in European markets that was led by declines in bank stocks.
The National Association of Realtors and Philadelphia Federal Reserve delivered more bad news. Existing home sales, which had been expected to rise, fell 3.5 percent in July, according to the NAR. Factory activity in the mid-Atlantic, measured by the Philly Fed index, slumped to the lowest levels it had reached since March 2009.
The result was a tumultuous day for markets. The Dow Jones industrial average tumbled more than 500 points within the first 45 minutes of trading but pared losses through the afternoon and closed below 11,000, down 419 points. The S&P 500 stock index and the Nasdaq composite also surged in the final hour to close above session lows. The S&P lost 53 points, or 4.46 percent, and Nasdaq dropped 131 points, or 5.22 percent.
Together, Thursday's data paints a grim picture for the economic recovery.
First, cost of living: The Consumer Price Index, which measures the change in prices of goods and services, rose 0.5 percent in July, according to the Labor Department.
The CPI had been expected to rise just 0.2 percent after dropping 0.2 percent in June, according to Reuters. The year-over-year change remained at 3.6 percent in July for the third consecutive month.
Gasoline costs were responsible for about half of the increase, climbing 4.7 percent after falling for the previous two months. Food costs, led by dairy and fruit, also contributed to the gain.
The core CPI, which excludes volatile food and energy items, rose 0.2 percent, in line with economists’ expectations. On Wednesday, a Labor Department report showed that prices for producers had climbed twice as much as economists expected, led by higher costs for tobacco, light trucks, and pharmaceuticals.
Second, jobless claims: The Labor Department released data indicating that initial claims for jobless benefits had climbed back over the 400,000 threshold that, economists say, claims must drop below to dent unemployment. Jobless claims for the week ending August 13 rose to 408,000 from the previous week's upwardly revised 399,000.
Economists surveyed by Reuters had predicted claims to increase this week to 400,000.
The four-week moving average, a less-volatile gauge of labor-market health, continued to inch toward 400,000, falling to 402,500 from last week's revised average of 406,000.
Besides the worsening picture of higher prices and unemployment, fewer home sales and a decline in factory activity also was reported.
Lawrence Yun, National Association of Realtors' chief economist, attributed the decline in existing home sales to a tension between favorable affordability conditions and banks offering financing only to the most highly qualified borrowers. The large share of creditworthy borrowers that are being ignored by the banks "represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs," Yun said.
Factory activity in the mid-Atlantic unexpectedly contracted, falling to –30.7 in August from 3.2 in July to the lowest level since March 2009, according to the Philadelphia Federal Reserve. A reading above zero indicates growth. Investors look to the Philly Fed report for hints of the national manufacturing figures, which will be released by the Institute for Supply Management on September 1.
There was a little bit of good news on Thursday. Leading indicators measured by the Conference Board, a private research group, grew 0.5 percent in July. The Conference Board said it expected the economy would continue to grow slowly through the end of the year.
That news was lost amid the bleak indicators and concerns over European economies. And even the Conference Board added that "with the exception of the money-supply and interest-rate components, other leading indicators show greater weakness—consistent with increasing concerns about the health of the economic expansion."