Transcripts

Wall Street Is Becoming A Casualty of the Mideast Conflict

SUSIE GHARIB: Stocks sold off for the third straight day, bringing the weekly loss for the Dow to 350 points. The Dow plunged 106 points today and the NASDAQ lost 16. Investors sold stocks as Middle East tensions escalated and oil prices closed just above $77 a barrel, a new record high. Adding to the negative sentiment, news that retail sales fell unexpectedly in June. As Suzanne Pratt reports, Wall Street is now getting worried about the consumer.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: American consumers are the cornerstone of the U.S. economy, with their spending accounting for about two-thirds of all U.S. economic activity. Today, fresh data helped to raise questions about the resilience of U.S. consumers. First, the government reported that retail sales fell one-tenth of one percent in June, well below expectations. And June`s weakness followed a tiny increase the month before.

DAVID WYSS, MOODY`S: It looks to me like the consumer is starting to feel a little bit of a squeeze. You look at these numbers-- they were down 0.1 percent, despite a 1.1 percent increase in gasoline stations sales. That`s the problem. People are spending their money at the gas station.

PRATT: On top of that, consumer attitudes also appear to be floundering. The University of Michigan`s preliminary reading on consumer sentiment in July was 83, down from June`s final reading of 84.9.

WYSS: Consumers don`t like what they`re seeing. Most of the declines that we saw were in their assessment of current conditions. Their expectations remain pretty strong. They think things are going to improve, but right now they`re feeling squeezed.

PRATT: Experts say consumers are feeling squeezed, not just because of higher gas prices, but because the housing market is weakening. In addition, higher interest rates are increasing debt burdens for many Americans. But most economists believe record oil prices remain the biggest problem for U.S. consumers. And, with still higher energy prices expected in the coming months, discretionary consumer spending is likely to suffer. Nevertheless, most experts say even if the U.S. economy cools, the Federal Reserve will still hike rates again at its August 8 meeting. That`s because they say policymakers are most concerned about the rising cost of energy.

DREW MATUS, LEHMAN BROTHERS: The consumer is likely to pull back a little bit, maybe a little bit more than we were anticipating. However, it also increases inflation, so it just puts additional pressure on the Fed, who is already worried about inflation pass-through from higher energy prices, to really work to contain inflation going forward.

PRATT: Most economists agree the U.S. consumer is feeling pinched from all sides. But, most also predict the U.S. consumer may be surprisingly resilient, particularly because wages and salaries are finally starting to rise. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.