Financial Headline News for Tuesday 8/2

The blue-chip index had its eighth consecutive day of decline, which is the longest since October 2008. It has lost more than 700 points during the skid, dating back to July 22. What a surprise since QE2 ended on June 30th which was artificially inflating stock prices all along.

Another day another piece of bad economic news. Today the Commerce Department released consumer spending data which showed a drop to its lowest level since September 2009.

Everyday seems more and more likely a double dip recession is under way.

Here are the top financial stories of the day:

1) Stocks now down for year as economic concerns grow-From the AP

A sell-off is erasing all of the year's gains in the stock market.

The Standard & Poor's 500 lost 2.6 percent Tuesday as investors grew increasingly concerned about the economy. The benchmark index is now at its lowest point of the year.

A report that consumers cut their spending in June for the first time in two years added to a series of weak economic indicators have pushed stocks lower for seven straight days.

The S&P is closing down 33 points to 1,254. The Dow Jones industrial average is down 266, or 2.2 percent, to 11,867. The Nasdaq is down 75, or 2.8 percent, to 2,669.

Four stocks fell for every one that rose on the New York Stock Exchange. Volume was higher than average at 5.3 billion shares.

2) Americans cut spending for first time in 20 months-From the AP

Americans cut back on their spending in June for the first time in nearly two years and their incomes grew by the smallest amount in nine months, a troubling sign for an economy that is barely growing.

Consumer spending dropped 0.2 percent in June, the Commerce Department said Tuesday. Excluding falling prices for such items as energy and food, consumer spending would have been unchanged in June.

Incomes rose 0.1 percent. It was the weakest growth in income since September, reflecting anemic hiring this spring.

Stock futures were trading lower after the report was released.

High gas prices and unemployment have squeezed household budgets this spring, leading to tepid overall economic growth in the April-June quarter. The economy expanded at an annual rate of 1.3 percent in the second quarter after only 0.4 percent growth in the first three months of this year. The combined growth for the first six months of this year was the worst since the recession ended two years ago.

Many Americans are cutting back on purchases of cars, furniture, appliances and electronics. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Employers have responded by reducing hiring. The economy added just 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.

The government issues its July employment report on Friday.

Declining growth and rising unemployment have raised concerns that the country could fall back into a recession.

Many analysts are still hopeful that growth will rebound in the second half of the year. They expect auto production and sales to pick up once supply chain disruptions ease. Many auto dealers reported shortages of popular models after Japan's March 11 earthquake limited production of parts. That cut into auto sales.

But the turnaround may not come for a while. Manufacturers had their weakest growth in two years in July, according to the Institute for Supply Management.

The private trade group of purchasing executives said Monday that its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. The reading was the lowest since July 2009 — one month after the recession officially ended.

And gas prices remain high, even after coming down from their peak of nearly $4 a gallon in early May. The average price for a gallon was $3.70 on Tuesday — 14 cents higher than a month ago and almost a dollar more than the same month last year.

Some economists have begun to trim their forecasts for the second half of the year. Economists at Capital Economics said they had cut their outlook for second half growth to 2 percent, down from a previous forecast of 2.5 percent growth in the second half of this year.

3) Signs of a Double-Dip Have Emerged: Meredith Whitney-From CNBC

Analyst Meredith Whitney said she's seeing signs of a double-dip as cities and towns continue to get squeezed by cuts in federal funding.

This is certain to get worse as Congress and President Obama try to work out a deal on the debt ceiling, she said.

"I never envisioned we would come to this point where Congress couldn't agree on raising the debt ceiling or we'd be in this dire situation politically," the head of Meredith Whitney Advisory Group told CNBC Monday.

"Our GDP number on Friday was an indication that states and local governments, which make up 12 percent of GDP, are really pulling back," she added. "We're certainly in a double dip on housing," which is putting "enormous pressure on the economy."

The states most tied to housing have had to cut social programs and raise taxes, which, in turn, pushes home values down even further, she said. Those states with "clean" balance sheets in areas she calls "the emerging markets of the United States" attract more business, have more tax surpluses and don't have to raise taxes.

Some states are in bad shape because they relied so heavily on federal stimulus money, which ran out at the end of June, she said. Forty-six states have passed balanced budgets that include big cuts.

"This affects the macro environment, this affects employment, this affects spending, this affects every corporation within the United States because so many corporations are reliant on contracts from state and local governments," Whitney said. "So this [debt crisis] situation in D.C. exacerbates it, but the states are in a bad situation even without the situation in D.C.

Another reason she is predicting a double-dip is layoffs, citing 50,000 jobs cut just on Wall Street, with thousands more by nonfinancial firms including Merck (NYSE: mrk).

"All industries will [cut staff] and then it will get really bad when the state and local governments really start to impact the corporations" when they are forced to cut back on issuing contracts, she said.

Whitney, who predicted a wave of municipal defaults earlier this year worth upwards of $100 billion, stood by her predictions.

Her call on defaults "is playing out exactly as I thought it would," she said, but she stressed that "muni bond defaults are just a product of overspending and overleveraging the system. The call is so much bigger than what happens in the municipal bond world."

Quote of the Day from Dave Ramsey.com:

America is unique because it offers you an economic ladder to climb. And here's what's exciting: It is the bottom of the ladder that is crowded, not the top. — Jim Rohn