updated 3/31/2008 9:01:06 AM ET 2008-03-31T13:01:06

Wall Street finished the week with a decline Friday as the financial health of the consumer came into focus following a report that showed personal spending at its weakest growth in 17 months and a profit warning from J.C. Penney Co. The major indexes turned in a mixed performance for the week.

Major Market Indices

After weeks of concentrating on credit problems and interest rates, the market was forced to pay attention to the consumers who drive economic growth. The Commerce Department said consumer spending ticked up a paltry 0.1 percent last month, in line with Wall Street’s expectations. But that news and the profit warning from J.C. Penney raised concerns about the well-being of consumers.

Investors felt some relief after the government said an important inflation gauge tied to consumer spending rose only 0.1 percent when excluding often-volatile energy and food costs. The reading — the Federal Reserve’s preferred measure of inflation — is up 2 percent over the past 12 months. With so-called core inflation back within the Fed’s target of 1 percent to 2 percent, it could be easier for the central bank to justify further interest rate cuts without fear of adding too much money to the economy and driving up prices.

Trading was fairly muted following days of volatility that sent stocks sharply higher early in the week and then plunging near the end. Investors were able to set aside some concerns about the effects of the credit crisis on the financial sector, but that gave them more time to think about the economy.

“I’m viewing a day like today as sort of a continuation from where we were a month or two ago,” said Les Satlow, portfolio manager at Cabot Money Management in Salem, Mass. “The U.S. recession concerns have resurfaced. They never went away but there was the beginning of the sense that this recession was going to be shallow and maybe a bit benign.”

The Dow Jones industrial average fell 86.06, or 0.70 percent, to 12,216.40, suffering its third straight decline.

Broader stock indicators slipped. The Standard & Poor’s 500 index fell 10.54, or 0.80 percent, to 1,315.22, and the Nasdaq composite index fell 19.65, or 0.86 percent, to 2,261.18.

For the week, the Dow fell 1.17 percent and the S&P 500 dropped 1.07 percent. The Nasdaq, which had a sharp rally in recent weeks and trended above the other major indexes, finished up 0.14 percent.

“This has almost been a week of pause,” said Jack Caffrey, equities strategist at JPMorgan Private Bank, saying investors are witnessing a calm before the storm of first-quarter earnings in April. “The markets didn’t move all that much. And more importantly, volumes were noticeably lower.”

Friday’s session was the next to last for what has been a dismal first quarter. Many investors are likely eager to close the books on the losses and start fresh on Tuesday.

Investors will have plenty of economic data to pore over next week as the market tries to determine if the country is indeed in the midst of a recession. Perhaps most watched will be Friday’s Labor Department report on payrolls, which economists surveyed by Thomson Financial/IFR predict fell by about 50,000 in March after a 63,000 drop in February. Economists also predict the unemployment rate will rise back up to 5 percent from February’s 4.8 percent.

The market will also be monitoring the Institute for Supply Management’s national manufacturing report on Tuesday. Economists expect a shallow contraction for March, similar to February.

Wall Street will also get a snapshot of the service sector with a second ISM report on Thursday. It is also expected to contract in March from February.

Falling stock valuations sent bond prices higher Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.45 percent from 3.52 percent late Thursday. The yield notched down to 3.44 percent in after-hours trading.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $1.96 to settle at $105.62 a barrel on the New York Mercantile Exchange.

With the near implosion of Bear Stearns Cos. behind the market, investors have been watching the usual set of indicators — such as oil and other data — to determine the economy’s health. And, as Wall Street tries to determine the degree to which the economy is slowing, any news that consumers are less willing to reach into their wallets is unwelcome. Consumer spending accounts for about 70 percent of U.S. economic activity.

J.C. Penney’s warning gave investors a reason to be concerned. The retailer predicted a first-quarter profit of 50 cents per share, down from an earlier target of 75 cents to 80 cents. The stock fell $3.04, or 7.5 percent, to $37.48.

It dragged the rest of the retail sector lower. Kohl’s Corp. fell $2.19, or 4.9 percent, to $42.33. Higher-end retailers lost ground as well. Macy’s Inc. slid $1.39, or 5.9 percent, to $21.97, while Nordstrom Inc. declined $1.97, or 5.7 percent, to $32.62.

Declining issue led advancers by a 2 to 1 basis on the New York Stock Exchange, where consolidated volume came to 3.59 billion shares compared to 3.90 billion on Thursday.

The Russell 2000 index of smaller companies fell 9.21, or 1.33 percent, to 683.18.

Overseas, Japan’s Nikkei stock average rose 1.71 percent. Britain’s FTSE 100 fell 0.43 percent, Germany’s DAX index fell 0.28 percent, and France’s CAC-40 declined 0.50 percent.

For the week
The Dow Jones industrial average ended the week down 144.92, or 1.17 percent, at 12,216.40. The Standard & Poor’s 500 index finished down 14.29, or 1.07 percent, at 1,315.22. The Nasdaq composite index ended the week up 3.07, or 0.14 percent, at 2,261.18.

The Russell 2000 index finished the week up 1.76, or 0.26 percent, at 683.18.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 13,255.14, down 81.43 points, or 0.61 percent, for the week. A year ago, the index was at 14,365.45.

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