Bernanke says the economy is growing more slowly than expected. Big Ben said the Fed is ready to do more-lucky us!
A sign of the times-parents are cutting down on diapers.
Here are the top financial stories of the day:
1) Nasdaq jumps 3%: Stocks end higher after late rally-From the USA Today
Stocks dramatically surged higher at the end of trading, after earlier wavering and threatening to fall into a bear market for the first time since the financial crisis.
At the close, the Dow Jones industrial average, Standard & Poor's 500 and Nasdaq all gained. The Dow jumped 1.4%, gaining 153 points to settle at 10,808.71, while the S&P 500 gained 2.3% and the Nasdaq shot up 3%.
The early day selloff, sparked by rising fears Greece may be careening closer to default, moderated in the morning following comments by Federal Reserve chairman Ben Bernanke.
While stocks may be attempting to narrowly avoid the informal definition of bear, which is a 20% decline from the recent high, investors are already treating it like a bear, says Chris Johnson of Johnson Research Group. "By almost any measure, we are in a bear," he says.
Stock trend
Dow Jones industrial average, five trading days
With the steady diet of bad news, such as the political wrangling over the U.S. debt ceiling and now the debt woes in Europe, investors have had little reason to buy stock, he says.
Investors will be closely watching the 1100 level for the S&P 500. If that level can hold, Johnson says, that will give some investors courage that stocks might be hitting a bottom.
In Europe, Germany's DAX was down 3% while the CAC-40 in France fell 2.6%. The FTSE 100 index of leading British shares fell 2.6%.
Shares in Franco-Belgian bank Dexia bore the brunt of the selling in Europe as investors grew increasingly concerned about its survival in its current form despite government promises to prop up the bank and insure every cent of its deposits.
With the markets bracing for a Greek debt default soon, investors are concerned about what bonds Europe's banks are holding and banks themselves have become reluctant to lend to one another.
In Brussels, Dexia's share price was down more than 18%, prompting France and Belgium to voice their support for the bank as it tries to engineer a way out of its current crisis.
2) Bernanke says economic recovery close to faltering-From the AP
Federal Reserve Chairman Ben Bernanke says the economic recovery "is close to faltering" and the central bank is prepared to take further steps to support it.
The economy is growing more slowly than the Federal Reserve had expected, Bernanke said Tuesday before the congressional Joint Economic Committee. He said the biggest factor depressing consumer confidence is poor job growth.
"We need to make sure that the recovery continues and doesn't drop back and that the unemployment rate continues to fall downward," Bernanke said.
Stocks came off their morning lows after Bernanke inferred that the Fed could adopt additional stimulus measures in the coming months. The Dow Jones industrial average had fallen more than 200 points but recovered most of those losses to be down only 64 points at midday.
Bernanke offered his grim assessment after the economy barely grew in the first half of the year and it created no net jobs in August. Consumer confidence fell this summer to the lowest point since the recession. Europe's debt crisis has also intensified.
After their September meeting, Fed policymakers warned of significant downside risks to the economic outlook. As a result, the Fed voted to shift $400 billion of the Fed's investment portfolio from short- to longer-term Treasurys to try to drive down long-term rates.
In August, the Fed said it planned to keep short-term rates at record lows until at least mid-2013, assuming the economy remained weak.
Both decisions drew three dissenting votes on the Fed's policy committee. The three dissents, all from regional Fed bank presidents, were the most dissents in nearly 20 years.
Republican leaders in Congress also urged Bernanke and the Fed against taking action to lower rates. The GOP lawmakers and Bernanke have clashed in recent months over how best to invigorate the economy.
On Tuesday, Bernanke wasn't shy in offering Congress more advice: He reiterated his warning that lawmakers should not cut spending sharply while the economy is weak.
In a speech in Cleveland last week, Bernanke called long-term unemployment a "national crisis" and said Congress should take further steps to address it. Bernanke noted that about 45 percent of the unemployed have been out of work for at least six months -- a level previously unseen in the six decades since World War II.
In that speech, Bernanke said there was only so much the Fed's interest rate policies could achieve. He said that long-term unemployment, budget deficits and the depressed housing market were three priority areas that Congress should address.
Tuesday is the first time Bernanke is discussing his economic outlook with lawmakers since he delivered the Fed's twice-a-year economic report to Congress in July. In that testimony, Bernanke laid out steps the central bank could take to support economic growth.
One of the remaining options is a third round of bond buying that would expand the Fed's holdings of securities, already at record levels. Another is reducing the interest the Fed pays banks for their excess reserves. That step would be intended to reduce the incentive for banks to keep their money at the Fed. So they might lend more.
The central bank's next policy meeting is scheduled for Nov. 1-2. Because the economy is still struggling to grow, many private economists think the Fed will take some further step to try to reduce the risk of another recession.
The economy slowed to an annual growth rate of just 0.9 percent in the first six months of this year. Forecasters think growth will rebound only slightly in the final half of this year -- to an annual rate of 2 percent to 2.5 percent.
Growth at that pace would be far too weak to significantly lower the unemployment rate. The rate remained stuck at 9.1 percent in August, a month when employers didn't add any jobs at all.
On Friday, the government will issue the jobs report for September.
3) How Tough Are Times? Parents Cut Back Diapers-From The Wall Street Journal
The tight U.S. economy has turned even essential goods into luxuries. Now consumer-goods companies are seeing something they thought would never come to pass: Parents are buying fewer diapers.
Spending on children has traditionally held steady in times of recession, including the most recent one, with parents sacrificing other items rather than scrimping on their children's hygiene or happiness.
But as the economy continues to sputter, recent data show diaper sales are slowing and sales of diaper-rash ointment are rising.
The volume of diapers sold in the U.S. slipped 1% in the four weeks ended Sept. 4 from a year earlier, extending a string of similar or steeper declines stretching back to August 2010, according to Consumer Edge Research, whose retail-sales tracking doesn't include Costco Wholesale Corp. or Wal-Mart Stores Inc. Dollar sales fell nearly 3%, indicating parents are both cutting back and trading down to cheaper private labels.
Dollar sales of diapers in the four weeks fell 4% at Huggies maker Kimberly-Clark Corp. Procter & Gamble, maker of Pampers and Luvs, saw dollar sales drop 2.5%. Even generics were down, with sales of private-label diapers slipping 0.5%.
The U.S. birth rate has declined since 2007, and it isn't clear how much of the drop in diaper buying is due to penny pinching and how much results from fewer kids. Changing technology—more absorbent diapers, for example—also make comparisons difficult. Finally, the cohort being surveyed is always changing because parents buy diapers for a few years and then move on.
Still, Consumer Edge Research analyst Javier Escalante sees economic pressure behind the data. "This has never happened in this country before—this is a very rare circumstance," says Mr. Escalante, adding that the fact that people are having fewer babies is itself a strong indicator that the economy is influencing parental behavior. "That's a huge decision."
Meantime, sales of diaper-rash ointment have increased 8% over the past year, according to market-research firm SymphonyIRI. Analysts and pediatricians say the higher sales likely reflect either less frequent changes or a shift to lower quality diapers.
Most pediatric clinics don't keep statistics on benign conditions like diaper rash, but doctors in poorer areas say they see the long-stumbling economy starting to take a clear toll on children's health.
Anjali Rao, a pediatrician at Northwestern Memorial Physicians Group in Chicago, says she has seen a 5% to 10% spike in diaper-rash cases this year. Daniel Taylor, a pediatrician at St. Christopher's Hospital for Children in Philadelphia, says he and his colleagues have heard from a growing number of parents that they must choose between buying diapers and paying for food and heat.
"We're definitely seeing major effects of the economy: Diapers are very expensive, and the longer you sit in a dirty diaper, the more likely the chances of an infection," Dr. Taylor says.
Diapering a child six times a day costs about $1,500 a year, according to diaper makers, so it isn't hard to see how it could become a burden on families dealing with chronic unemployment or struggling to cover rising costs.
P&G Vice Chairman Dimitri Panayotopoulos, a father of seven, noted at a conference earlier this year that the new "wetness indicator" on Pampers Swaddlers has saved his family unnecessary diaper changes because "you don't have to take the diaper off. You can just see the indicator, and you know if the baby is wet."
P&G says its research shows parents are also potty training children earlier to save cash as economic uncertainty deepens.
Eric Seidel, vice president of the Huggies brand, says lower birthrates account for most of the drop in sales, with fewer babies for three consecutive years affecting sales in every diaper size. But he also saw a decline—less than 1%—in the number of diapers used per baby last year. "That's one macro driver—we look at that as contraction," Mr. Seidel says. "But all of our data show that is not a big driver."
To appeal to the frugal consumer, companies are adjusting their products and marketing. To bring down the overall cost of diapers, P&G has increased the number of diapers in some brands' packaging, and it's offering more coupons via monthly newspaper inserts and direct mail, spokeswoman Jennifer Chelune says.
To encourage Pampers sales, P&G launched a rewards program that lets customers amass points they can spend on gifts.
Sandy Gill, a mother in Chicago, says she spoiled her children through hard times until her husband was laid off in May. Since then, she says, she has started combining Web coupons with store coupons, loading up on free samples at the doctor's office and writing "sob story" letters to her favorite baby-formula company to get discount vouchers. "Anything that's on sale, I'll buy," she says.
Quote of the Day from Dave Ramsey.com:
The task of the leader is to get his people from where they are to where they have not been. — Henry Kissinger
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