Consumer spending is flagging for the first time since the early 1990s. Adjusted for inflation, retail sales fell in August and July. Again, however, the declines are less than those of previous downturns.
What happens next will be critical.
Consumers are somewhat insulated from Wall Street's immolation. Most don't own stock in Lehman or Fannie or AIG, although larger stock market declines this year have hurt retirement accounts. But if scary headlines, rising joblessness, expensive energy and continuing declines in home prices send consumers into a further funk, the downturn will be much more severe than many believe.
For years rising housing prices financed an American spending spree that appears to be coming to an end. If spending only treads water and doesn't plunge, the economy may still escape the kind of recession last seen in the early 1980s.
Lenders will be critical. Now that credit has dried up on Wall Street, Washington must not only supply cheap money to traditional banks but also persuade them to lend it to creditworthy customers.
Speaking of Washington, that's where the long-term risk to the U.S. economy lies.
The Federal Reserve and Treasury are taking on huge new liabilities to bail out investment banks, and they're taking on an equal load to rescue consumers. (People are already talking about another fiscal stimulus - financed again with money borrowed from China, Japan and other creditors.)
One day this country's mounting debt will cause a collapse of the dollar, sky-high interest rates and maybe even bond default by the U.S. government (which won't get bailed out by anybody).
But the consumer is the immediate risk. If addressing the short-term consumer problem means worsening the long-term threat to national solvency, so be it. Because if consumers stumble, Wall Street's problems will become even worse.
