A batch of disappointing economic reports is leading some investors to worry that what appeared to be a short-term slowdown could turn into a longer-lasting downturn.
Signs of slowing growth in the U.S. manufacturing sector and in private-sector employment prompted the biggest one-day sell-off in the U.S. stock market since August, taking the Dow Jones industrial average down 279.65 points, or 2.2%.
Many investors had attributed disappointing economic data in recent weeks to short-term disturbances such as the rise in oil prices early in the year and disruptions caused by the Japanese earthquake.
"The stock market has been discounting a lot of bad data as just temporary," said Jim O'Sullivan, chief economist at MF Global in New York. "The numbers today raised the credibility of the possibility that there's more going on than just a temporary slowdown."
Combined with a report Tuesday pointing to a fresh low in U.S. home prices, Wednesday's numbers raised fears of a slowdown in consumer spending, which accounts for most of the country's economic output.
"The economy is going to continue to stumble through the second half of the year," said Steven Ricchiuto, chief economist at Mizuho Securities USA.
Wall Street's losses Wednesday erased gains recorded in the preceding four trading days.
The Dow, which closed at 12,290.14, has fallen 4.1% since reaching a three-year high in April. But the blue-chip index is still up 6% this year. The broader Standard & Poor's 500 index, which lost 2.3% on Wednesday, remains up 4.5% year to date after dropping 3.6% from its April peak.
Some economists contend that even if stocks continue to fall in the short term, the pieces are in place for the economy to keep growing.
"It strikes me that what's going on around the world is just normal fluctuations in data rather than something more worrisome," said Neal Soss, chief economist at Credit Suisse.
Investors on Tuesday had shrugged off the release of the Standard & Poor's/Case-Shiller index, which showed average home prices nationwide falling back to levels last reached in 2002. The Dow on Tuesday jumped 128 points.
But that was followed Wednesday by the Institute for Supply Management's index of activity in the factory sector, which suggested the slowest rate of growth since 2009. The decline in the gauge, which is based on a survey of manufacturing executives, was notable because manufacturing has been leading the economic recovery in many areas of the country. Growth in that sector often can signal growth in other industries, such as transportation, warehousing and retailing.
Also Wednesday morning, payroll processing giant ADP reported that private-sector firms added only 38,000 net new jobs, less than one-fourth the increase estimated on average by analysts.
The ADP report led many economists to lower their estimates of May's increase in overall U.S. payrolls, which the Labor Department is to release Friday. By late Wednesday, 87 economists surveyed by Bloomberg were expecting on average an increase of 170,000 jobs last month after April's gain of 244,000.
The ADP and Institute for Supply Management numbers get a lot of attention because they are among the first indicators of the economy's health in the preceding month. But they also aren't considered as reliable as much of the data that come out in the following days and weeks.
The slowdown fears are mounting just as the Federal Reserve is ending a stimulus program that has injected $600 billion into the economy through the central bank's purchases of Treasury bonds.
Further weak economic data could generate speculation about a new Fed stimulus program, but some analysts called such a move unlikely.
There are now a "limited number of policy bullets available out of Washington," said David Shulman, senior economist with the UCLA Anderson Forecast.