Brandon Milles and his wife keep constant track of their stock portfolio, and the turmoil in the markets has them slightly spooked. The couple's investment holdings lost 10 percent of their value in recent weeks.

Milles said it's time to make some changes.

"We'll probably cut back on spending and accelerate the payment of our debts," said Milles, a 36-year-old insurance professional in St. Paul.

Their reaction is the sort of response that has economists a bit spooked.

Milles' behavior is an example of "the wealth effect," where people's spending changes in proportion to the health of their investment portfolios. In the wake of the debt ceiling deadlock, Standard & Poor's downgrade of U.S. debt, and the languishing jobs market, the wealth effect could thwart an economic recovery or worsen the country's shaky financial straits.

Few experts question the existence of the wealth effect, but the debate surrounds its ability to move the economy.

"How much impact does it have? What's more important now is the income effect," said Brian Jacobsen, Wells Fargo's chief portfolio strategist. "We need jobs."

Virtually no one would argue the need to reduce unemployment. But some of the country's foremost financial analysts and advisers see skittishness among investors that could be cause for concern.

As the stock market crashed on Monday following the downgrade in the U.S. credit rating, Tim Leach, the chief investment officer for wealth management at Minneapolis-based U.S. Bank, quickly put together a conference call with any of his company's investment clients who chose to participate. Roughly 1,000 people dialed in.

"There is a very high level of anxiety in investors I've spoken to," Leach said.

"On the apprehension scale," Leach said, investor anxiety today feels a lot like it did when the subprime lending bubble burst in 2008 and forced the country into its worst economic crisis since the 1930s. The foreboding belies the fact that corporations are in better shape than they were three years ago, while households have reduced their debt loads.

"Based on economic fundamentals, what's happened in the market is an overreaction," said Russell Price, a senior economist at Minneapolis-based Ameriprise Financial.

With political turmoil and debt problems adding to the threat of a second recession, perception may have overtaken principles. Retail sales were solid in July, and the stock market rallied the final two days of last week. Yet according to a Reuters/University of Michigan survey released Friday, consumer confidence slipped to levels lower than the 2008 recession. "This is nearly a record low -- next only to the Iranian hostage crisis and oil embargo of the late '70s and early '80," according to the Econoday resource center.

People who saw huge portions of their life savings evaporate in the stock market crash of 2008 are now nervous enough to prematurely bail out of the economy in a kind of once-burned, twice-shy response, Leach said. "Investors are quicker to sell and ask questions later," he said. "This is no doubt going to have a dampening effect on some consumer spending going forward."

Bob Moffitt, a 52-year-old communications professional from Blaine, has tried to avoid such traps. He rarely looks at his 401(k) retirement account. Moffitt, who is in the market for a car, has made a special effort not to check his net worth in the past week.

"I never consider where index funds are when I consider whether to buy a car," he said.

Moffitt's behavior is not considered typical. The time most people pay closest attention to their investment portfolios is when something bad happens, said Patrick Gray, the managing director of taxable trading at Minneapolis-based Piper Jaffray.

"Psychologically, it hurts," Gray said. "You take a look and say, 'I've just lost 10 percent. I have to spend less.'"

How much less defies an answer. The less a person has invested, the less the wealth effect, Gray said. Plus, the stock market's troubles have brought down the price of oil. Cheaper gas prices could offset the wealth effect, Gray noted.

Collectively, stocks in the American and world markets have lost trillions of dollars in value since mid-July. U.S. unemployment remains above 9 percent. Debt levels in the U.S. and the world need to be reconciled. And members of the U.S. House and Senate remain unwilling to compromise on what almost every financial expert believes is necessary economic reform.

"Everyone agrees that we have to raise taxes and cut spending," said Piper Jaffray's Gray. "In that sense, S&P may have done us a favor."

Jim Spencer • 202-408-2752