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Investors paused to catch their breath Thursday, one day after the stock market suffered its worst drop of the year. Market indexes were flat as investors digested mixed signals about prospects for the U.S. economy.


Consumer spending — a key pillar of the economy — remains strong. Retail sales jumped by 0.7% in July, according to the 

. After a slow start at the beginning of the year, retail sales have grown for the last five months — a sign that consumers are still feeling good about the economy, with 

Walmart, the world's biggest retailer, also reported solid sales in the second quarter and 

 for the rest of the year.

News from the manufacturing sector is less encouraging. 

 slumped in July, with factory output falling 0.4%. The U.S. manufacturing sector is more dependent on exports than the much larger services side of the economy. As a result, factories have suffered more fallout from rising trade tensions. 

Disappointing news about manufacturing in China and a report that Germany's economy shrank in the second quarter helped trigger 

 on Wall Street Wednesday. The Dow Jones Industrial Average and the S&P 500 both fell about 3%. 

Investors were also spooked by news that the yield on 10-year Treasury notes dipped below the yield on 2-year notes — an unusual situation that historically has been a warning sign of a looming recession.  

Some observers cautioned that this "inverted yield curve" could be a false alarm in this instance.

"I would really urge on this occasion it may be a less good signal" of a recession, former Federal Reserve Chair Janet Yellen told 

.  "I think the U.S. economy has enough strength to avoid that."


Business and Economic News

Scott Horsley

Author

Investors paused to catch their breath Thursday after the stock market suffered its worst drop of the year the day before. Consumer spending is still strong, despite signs of a looming recession. 

Stock markets take a breather after steep drop

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