Stocks are once again tumbling as talk of increased regulation is underway on Capital Hill. Fresh data on the nation’s manufacturing sector didn’t help either as it came in below market forecasts.

As of 1:10 pm, the S&P 500 is down a whopping 2.01% on the day, or 21 points lower at 1,035. The Dow had shed 160 points, or 1.65%, to 9,552. Not to be outdone, the Nasdaq is trading 2.50% lower, or 53 points down, at 2,069. 

Early this morning Ben Bernanke, chairman of the Federal Reserve, told a congressional panel that an oversight council created by various regulatory should be established. 

The new council, and not the Fed, would “monitor and identify emerging risks to financial stability across the entire financial system,” “identify regulatory gaps,” and “coordinate the agencies' responses to potential systemic risks,” he said.

“We should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole,” Bernanke told the House Committee on Financial Services.

The chairman’s testimony is line with his earlier calls for what he termed “macroprudential” oversight. But, critics will be pleased that he is calling for a new council rather than for the Fed to assume greater power.

Data Recap:

The day began on a soft note with poor results from the weekly jobless claims report.

Forecasters were expecting 537k claims. The weekly figures can be volatile so it’s no real surprise, only disappointment that another downward surprise was not in store. The prior week’s level, revised up 4k to 534k, was the lowest since early July.

The good news was that continuing claims ― the tally of those still receiving benefits ― fell 70k to 6.090 million.

Offsetting a negative reaction from that report, optimistic numbers were published in the personal income & outlays report.

Income levels went up 0.2% in August, doubling the consensus forecast, while the prior month’s level was given a bump in revisions too. 

The same report also showed consumption climbing. Consumer spending jumped a total of 1.3% in the month, two-tenths more than Wall Street’s forecast and a full percentage higher than in July. Spending on durable goods climbed 5.3% owing to car sales, while nondurable goods saw a 2.3% gain, and the services sector advanced 0.4%.

“This is an amazing show of strength by consumers,” said Sal Guatieri from BMO. “Still, due to the weak jobs and income backdrop, tight credit standards and high debts, consumers are likely to return to the pit-stop in Q4 in the absence of another “cash-for-(insert favoured sector here)” program.”

However, at 10:00 came the most important data point of the day. The ISM manufacturing survey fell three tenths to 52.6, well below Wall Street forecasts.

“After a strong month in August, manufacturing industries showed a fairly pronounced deceleration in September,” said Brian Bethune from IHS Global Insight. He said the dip in the index“reflects the underlying reality that when you strip away the various fiscal stimulus programs and measures, there is not much underlying strength in spending in the economy.”

The index did still point to growth in the manufacturing sector for the month, however.

“While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13,” said Norbert Ore, chairman of the Institute for Supply Management’s survey committee. 

New orders fell relative to August but continue to show robust strength with a 60.8 reading. Production is also lower but is still well above the 50-threshold indicating growth at 55.7. Employment was little changed, down 0.4 points to 46.2, which indicates contraction but not a total hemorrhaging of the jobs sector.

Not that it had much mitigating impact on markets, but other data released at 10:00 was more positive.

The Pending Home Sales Index rose 6.4% in August to its highest level in more than two years. In the last 12 months signed contracts have advanced by 12.4%.

“The rise in pending home sales shows buyers are returning to the market,” said Lawrence Yun, chief economist at the National Association of Realtors, who publish the report. 

Yun was cautious in his predictions however, noting that not all deals are closing on time “because of long delays related to short sales, and issues regarding complex new appraisal rules.”

In a related report, construction sector improved by 0.8% in August, in contrast to expectations that it would fall 0.1%. But spending in July fell by a whopping 1.1% in the new estimates, compared to the original projection of -0.2%.

What’s really going on in the market can’t be seen in the headline alone. The main trend is that residential housing is heading upwards, including a 4.7% gain in August. But non-residential and government construction on weighing heavily on the index. Non-residential activity slipped 0.1% in August, while and public spending fell 1.1%.

As busy as today was, the most important data point of the week won’t be released until tomorrow morning. The employment situation report is supposed to show that 170,000 jobs were lost last month, compared to 216,000 in August.