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After gyrating wild weeks, the stock market lurched lower Wednesday, falling to the lowest point in nearly six years, as concern spread that the economy could be facing a chronic debilitating decline in prices.
The Dow Jones industrial average closed below 8000 for the first time since early 2003, after nine reports painted a picture sinistră economy and increased occurrence of deflation, which would put more strain on hard-pressed businesses and workers.
Labor Department reported that prices of consumer goods and services fell by a record amount in October, while another report showed that a measure for home building fell as the fourth month, the lowest level in the 49 years that the government kept that data.
While most consumers may welcome the idea that things become cheaper, economists deflation is a “nightmare. It was an attribute of depression and Japan’s so-called lost decade in the 1990s. A big worry is that it be hard to head off the impact of interest rate cuts by the Federal Reserve, forcing policy makers to use other tools to try to revive the economy.
The consumer price index, a measure of how much you pay for groceries by American entertainment and other goods and services, fell 1 percent in October, at a rate ANNUAL 3.7 percent, according to the Department of Labor . It was the largest one month decline in 61 years of the index and the lowest ANNUAL gain since October last year.
Much of the decline could be traced to a decrease of 14 percent of the price of gasoline, but the cost of other goods - including clothing, milk and vegetables - also fell sharply.

Vice-chairman of the federal, Donald L. Kohn, said that the risk of deflation, defined as a “general decline in prices, remained mild, but increased. “Whatever we thought the risk was four or five months ago, I think it is higher now, even if it is still small,” said Mr. Kohn, in response to a question after a speech. The Fed, he added, would aggressively, if necessary, to prevent a broad decline in prices.

Stocks fall began shortly after 10 am and how much their land below the day before tumbling sharply in the last hour of trading. Broad Standard & Poor’s 500-stock index closed 6.1 percent, to 806.58, falling to a low below is set on Oct. 27. The index is now only 37 points above its low in October 2002. Dow fell 427.47, or 5.1 percent, to 7997.28.

Financial shares led the market down, with Citigroup falling by more than 23 percent and Bank of America closing 14 percent. General Motors and Ford Motor Company also tumbled as prospects for aid sinistră federal packed forgotten. “That’s a little scared enough investors,” said Saturday Stovall, chief equity strategist at Standard & Poor’s Equity Research. “GM and Citigroup, two companies concerned are now on the ropes.”

In the credit market, the price of bonds and corporate debt backed by commercial mortgages plummeted, while government bonds rallied as investors sought safe. The yield on the 10-year Treasury, which moves in the opposite direction from its price, fell to 3.32 percent from 3.53 on Tuesday.

Analysts say a sustained decline in consumer prices would be terrible for the economy. Enterprises that cut prices to attract buyers are likely to have on workers to set as well. They may also have little left over to creditors or shareholders pay.

Prices are falling outside the United States too. Consumer prices fell in the UK, France, Germany and elsewhere in Europe in October, and prices were flat in September in Japan, which fought on and off deflation for almost two decades.

The decrease in consumer prices is all the more remarkable this summer, because many economists were concerned about inflation and the outlook for stagflation, where inflation and unemployment rise simultaneously, contrary to their usual relationship. “It’s funny that just a few months ago everyone was wringing their hands over inflation,” said Nariman Behravesh, chief economist at Global Insight. “It’s gone. It’s over.”

But that concern was quickly dashed in large part because of a steep drop in prices. Crude oil prices, for example, have fallen more than 63 percent from their July peak of $ 145.29 a barrel, to $ 53.62 on Wednesday. The national average price for unleaded gasoline is now $ 2.05 a gallons, down from $ 2.92 in May from a month earlier, according to AAA, the auto club.

In fact, it now seems clear that entering a nation is more modest era after several years of remarkable.

For example, room rates at luxury hotels, fell from 5.4 percent in the 28 days ending on November 15 - in contrast to an increase of 1.3 percent, at rates of midscale hotels that do not serve food, Estimated Smith Travel Research, a firm that studies the industry. Over all, hotel prices have fallen 1.6 percent in October, according to the Labor Department.

High-end retailers are resorting to drastic cuts to lure customers into stores. Executives from Nordstrom, store chain, said on a recent conference call with analysts that the company reduced prices on more than 800 styles of clothing for an average of 22 percent.

Airfares, which have been increasing energy prices, with this summer, are now sliding as airlines struggle to fill more seats on popular routes. The average price of a one-way ticket is about 20 percent down from July, at 107 U.S. dollars in mid-November, according to Harrell Associates, a firm that tracks the airline industry.

However, the so-called price index base - which excludes energy and food - was a more modest 0.1 percent. Prices of goods and services, such as meat, alcohol, health care and education rose in October.

“It would take significant and persistent contraction in the economy to push the basic inflation in negative territory,” said Dean Maki, economist at Barclays Capital in New York. “We do not think is likely, especially given the aggressive policy response from the fed and treasury.”

Federal has already cut its benchmark interest rate by 1 percent from 5.25 percent last year and has been lending hundreds of billions of dollars to banks and corporations in recent months to revive market credit. Treasury has also pumped nearly 300 billion $ in banks and other financial firms.

The Fed is anticipating further significant slowdown in the economy. A report released on Wednesday shows that in 2009 it now expects the Fed to increase 1.8 percent to minus 1 percent, down from a previous forecast growth of 1.9 percent to 3 percent .

Even if the objective of Fed interest rate is almost zero, economists say there is more than the central bank and the government can do to revive the economy. In a speech in 2002, before he was chairman of the Fed, Ben S. Bernanke said the central banks could fight deflation by buying longer-term Treasury bonds and mortgage-backed securities to drive interest rates.

“The Fed will weather the liquidity in the financial system if it is to ask or not, just go and purchase of assets and the printing of money to make,” said Alan D. Levenson, chief economist at T . Rowe Price. “If you jam the pocket money in the world, they will spend it.”

Moreover, lawmakers in Washington are also expected to pass a significant fiscal stimulus package in January, after a new administration and Congress to take power. Policy makers could head to reduce spending hundreds of billions of dollars in tax breaks, infrastructure projects and other initiatives.