More bad news regarding the housing market as the chickens are still coming home to roost for the inflated housing prices of the late 1990's and 2000's caused by unqualified people getting loans from banks and other lending institutions to buy houses they couldn't afford.
The economic impact of stagnant salaries will continue to impact the economy.
Here are the top financial stories of the day:
1) Stocks end gloomy 3rd quarter on a weak note-From the AP
The worst quarter for the stock market since the financial crisis ended on another down note.
Stocks fell broadly Friday on fresh signs that Europe's debt problems and the U.S. economy continue to languish. Makers of raw materials, industrial companies and banks -- which would have the most to lose if the economy turns sour -- had the biggest losses.
The Dow Jones industrial average dropped 240.60 points, or 2.2 percent, to 10,913.38. Hewlett-Packard Co. fell the most of the 30 stocks in the average, 5.6 percent. Aluminum maker Alcoa Inc. was close behind with a 4.9 percent decline. JPMorgan Chase & Co. fell 4.1 percent.
The broader S&P 500 index shed 28.98, or 2.5 percent, to 1,131.42. All 10 industry groups in the S&P 500 index fell.
The Nasdaq composite index fell 65.36, or 2.6 percent, to 2,415.40.
Markets have been wracked this summer by growing fears about a possible default by Greece and the increasing likelihood of a global recession. Uneven economic data have touched off sudden bouts of buying and selling. The Dow, S&P 500 and Nasdaq each lost more than 12 percent this quarter, the first time that's happened since the financial crisis crested at the end of 2008.
The S&P 500, the benchmark for most U.S. stock mutual funds, has lost 14.3 percent since July 1, the start of the third quarter. That's the biggest quarterly drop since the three months ended Dec. 31, 2008, when global financial markets seized up. Excluding that period, the S&P has not dropped that much in a quarter for nine years. The Dow dropped 1,500.96 points, or 12.1 percent, over the same time frame.
"The market has really seen some damage this quarter," said Mike Hurley, portfolio manager of Highland Trend Following Fund.
The weakness appears to be the start of a longer decline, Hurley said, because bonds are increasing in value and interest rates are low. Traders also are selling commodities such as oil, which would lose value in an economic downturn.
"Lower interest rates and commodity prices are definitely an indication that the market thinks economic activity is going to be weak," Hurley said.
Stocks in France, England and Germany fell on the latest signs of discord among European leaders. Germany and France proposed managing the region's shared currency through meetings of national leaders, rather than by centralized institutions. The head of the European Commission balked at the proposal.
Persistent squabbling over financial policy has been a major obstacle to achieving a lasting solution to Europe's debt crisis. France and Germany, the currency union's strongest economies, want countries to coordinate their spending and borrowing more closely. Other countries see that as a threat to their sovereignty.
Many European leaders and traders believe Greece will default in the coming weeks or months. Greece's lenders and neighbors are preparing as best they can to prevent that from causing a worldwide financial panic.
As a result, traders have reacted strongly to news and rumors out of Europe about how the crisis is being addressed. Markets gyrated wildly this summer in some of the most volatile trading on record. The Dow Jones industrial average swung more than 100 points in more than half of the trading days this quarter.
Traders also have made big moves in response to U.S. economic data, which has mostly suggested a slowdown. A recession in the U.S. looks increasingly likely, mainly because of Europe's struggles and signs of weakness in developing countries like China that have been driving global economic growth.
The government said Friday U.S. consumers spent slightly more in August, but earned less for the first time in nearly two years. That suggests that people are tapping their savings to pay for costlier gasoline and to offset lost wages. The savings rate fell to its lowest level since late 2009.
Micron Technology Inc. plunged 14 percent, the most of any company in the S&P 500 index, after the chipmaker disappointed investors with a quarterly loss. Analysts had expected a profit. Sales were hurt as the company transitions to selling a newer array of memory chips.
Ingersoll-Rand dove 13 percent after cutting its profit forecast for the third and fourth quarters. The machinery maker said North American sales of climate-control and security products have been weaker than expected.
Bank of America Corp lost 3.6 percent after Warren Buffett told Bloomberg Television that the bank's problems will take longer than a year to clean up.
Four stocks fell for every one that rose on the New York Stock Exchange. Volume was above average at 4.7 billion shares.
2) No Rise in Home Prices Until 2020: Bankers-From CNBC
Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday.
The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years.
Only 21 percent of respondents said they would.
The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.
In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.
Only 15 percent of respondents expect mortgage delinquencies to decline during that period.
“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation,” said Andrew Jennings, chief analytics officer at FICO.
Bankers concerns spread beyond the housing market.
A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans.
Small businesses are expected to continue face a challenging credit environment. More than one-third of respondents forecast an increase in delinquencies on small business loans.
Bankers also appear to be pessimistic about recovery in consumer spending, with 64 percent of respondents expecting credit card usage to remain below pre-recession levels for at least five more years.
Half of the respondents expect credit card balances to increase over the next six months, due to higher spending by some households and smaller monthly payments by others.
3) Smaller Paychecks Having a Big Impact-From The Wall Street Journal
Sluggish U.S. income growth isn't necessarily new. It just stings more these days.
On Friday, the Commerce Department is out with a potpourri of personal income, spending, saving and inflation figures for August. It could be a pungent mix: after-tax income is barely expected to grow, so even modest inflation will wipe out income growth in real terms.
No wonder spending is only expected to inch up about 0.2% for the month after a hefty 0.8% gain in July.
Households, after all, are far more reliant on paychecks (and government benefits) now than during the credit-fueled boom. Consumer credit as a percentage of personal spending, for example, rose from 18.4% in the early 1990s to a peak of 26.3% in December 2008.
It has since dropped sharply, notes Omair Sharif of RBS Securities. But with the level still at 22.8% as of July, "we're probably not even halfway through" the household debt-shedding process, he says.
That has two broad implications for consumer spending and, in turn, U.S. growth.
For one, consumption—still about 70% of the economy—is unlikely to grow any quicker than incomes for the foreseeable future. And income growth is anemic.
That isn't just a function of the recession. Real disposable income growth has been slowing for decades. It averaged 4.5% annual growth in the 1960s, 3.7% in the 1970s, about 3% in the '80s and '90s, and only 2.5% last decade. As of July, this measure was up just 1.2% from a year earlier.
Second is that while income growth will keep a lid on spending growth, the debt-shedding process acts as a drain. Every dollar of income that households use to pay down debt is a dollar that could have been spent.
That isn't to say it should have been; the quicker households lower their debt burdens, the better for the long-term health of the economy. For now, though, it means consumption will likely remain below its historical trend.
Indeed, RBC Capital Markets notes the stock-market swoon could even push spending into negative territory in the current third quarter.
That points to a weak trajectory for economic growth as well, which isn't encouraging for the labor market.
Further proof that there are no smelling salts to quickly revive the debt-laden economy.
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