McCarthy says sales of big ticket items will be especially important. The Friday, the government will report on July durable goods orders, which economists expect to be up 1%. McCarthy says consumers are likely to cut back on spending for more expensive items before reducing purchases of staples like food, clothing and gasoline.
August auto sales are also expected to be down more than 5% from a year ago. According to C&W Research, which polls potential new car buyers, more than 17% of consumers contemplating a car purchase will delay the purchase because of housing-related issues. That’s more than double the number of consumers who were in the same situation last year.
This week, several big retailers posted improved quarterly earnings but were mostly cautious about the rest of the year.
"Weakening consumer spending has been weakening further," says Kimberly Greenberger, retail analyst at Citigroup. "We haven't seen mall traffic as disappointing since the last recession in 2001."
One Positive: Paychecks
Amid all the signs of weakness is a major positive: people are still getting paychecks.
"A low unemployment rate continues to keep enough cash in consumer's pockets," says Britt Beemer chairman of America's Research Group, a private consumer research and marketing firm.. "There's hardly any job cuts, and no one is seeing massive layoffs and that's a positive."
Still, incomes are being stretched further than ever. In addition to higher gasoline prices and interest rates, "65% of consumers complain about higher prices at the supermarket," says Beemer. "Everyone is feeling pressures."
The next few months could be critical. Citigroup's Greenberger expects solid back-to-school spending, but "overall spending appears to be tightening," she says. "And we could see a continuing trend in that direction, particularly as we get into the holiday season."
Beemer agrees that holiday sales are likely to be slow, with year over year growth at only about "2%." That, he says, could leave a number of smaller retailers closing their doors in the New Year.
Stone & McCarthy's Ward McCarthy isn't expecting a recession, but warns the Fed will need to lower interest rates to help consumers and the overall economy. "We need the Fed to act," he says.
"In terms of evidence of consumers falling off a cliff, it would raise downside risks for the economy," says Michael Darda, chief economist at MKM Partners. "But the jury is still out. This is not the time to write off the consumer or economic growth."