A screen displays the tracking of the Dow Jones Industrial Average for the day's trading following the closing bell on at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., February 9, 2018. REUTERS/Andrew Kelly
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At least, there's little sign that the correction in the Dow Jones industrial average -- it dropped 10 percent from its peak late last month -- will squeeze the economy.Stock prices rose, and so did consumer spending.What economists call the "wealth effect" is the phenomenon that occurs when growing home values and stock prices make people feel richer and more secure. Households tend to spend down some of that wealth, thereby boosting the economy.One trend that may shield the broader economy this time is that, according to many analysts, the wealth effect is smaller than it was before the recession.The sharp rise in share values in the past year -- before the past week's correction -- added about $8 trillion in household wealth.Most economists, though, say stock prices would have to fall much further for these depressive effects to kick in.The economy will likely now expand 2.6 percent in 2018, Feroli estimates, up from a previous forecast of 2.2 percent.Others, too, think the economy will remain resilient unless the stock market keeps falling.
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