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Analysts Now Fear Retreat in US Consumer Spending

A weaker than expected jobs report drove U.S. stocks lower Friday. The U.S. unemployment rate climbed to 4.9 percent in August, from 4.5 percent in July, reaching a four-year high.

The Dow Jones Industrial Average plunged 235 points, more than two percent, to 9,606. The broader Standard and Poor's 500 index dropped 20 points, 1.8 percent, to its lowest level in three years.

The tech-weighted Nasdaq composite held up relatively well, giving up one percent. Leading chipmaker Intel announced third-quarter earnings would be at the lower end of estimates. But it said the semiconductor industry looks like it is starting to recover.

But stocks generally, especially retailers, were hit by the unemployment figures. Analysts say the market worried that consumer spending will decline if more people lose jobs, delaying even more an economic recovery.

The Dow Industrials are down more than three percent for the week. The Nasdaq is more than six percent lower. A meeting of the U.S. central bank, known as the "Fed" or Federal Reserve Bank, is still a few weeks away. But already Wall Street analysts are looking to the "Fed" to come to the rescue with more interest rate cuts.

"The Fed's got to be inclined to ease monetary policy forever. And I say 'forever' kind of tongue-in-cheek. But it's really the only game in town right now," said Market strategist Paul McCulley. The Fed has got to be geared toward getting us out of this moral equivalent of a recession.

Economist Nicholas Perna agrees. He thinks the U.S. central bank is well aware of its critical role, and interest rates will be coming down again for the eighth time this year. "Some people say they'll do this before the next meeting. I think the Fed is likely to wait until the October second Open market Committee meeting," he said. "But I think the odds are quite high, at least a quarter point, if not more, at that meeting."

Some economists are not alarmed by the unemployment numbers, which they consider a lagging indicator. In other words, after the record number of corporate layoffs this year, the data, they say, are just now catching up with reality.

Other reports have shown that consumer spending, so far, remains relatively brisk, despite the weakening labor market.