Economy Sends Off Warning Flares

Homes and condos are seen offered for sale Tuesday, Sept. 25, 2007, in Oakland, Calif. Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years. The National Association of Realtors said that sales of existing single-family homes dropped by 4.3 percent in August, compared to July. Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002. (AP Photo/Ben Margot) (Ben Margot - AP)

Such anxiety is further heightened by a weakened outlook for September sales.

Based on a weak weekly sales report, The International Council of Shopping Centers on Tuesday trimmed its September same-store sales growth estimates to between 2.0 percent to 2.5 percent, from the previous 2.5 percent. Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.

And two of the nation's leading retailers _ discounter Target Corp. and home improvement merchant Lowe's Cos. _ both tempered their sales forecasts on Monday.

The Washington-based National Retail Federation last week predicted total holiday sales will be up 4.0 percent for the combined November and December period, the slowest growth since a 1.3 percent rise in 2002.

Holiday sales rose 4.6 percent in 2006 and growth has averaged 4.8 percent over the last decade.

"Our forecast has built in weak consumer confidence and the tough housing market," said NRF spokesman Scott Krugman, "If anything, this tells us that our forecast is in the right direction in terms of being so cautious."

While the Fed's decision last week to cut its interest rate by half a point was meant to soften the impact of the housing woes on the overall economy, economists say it won't do much to help spending this holiday.

Wall Street chose to interpret Tuesday's data as possible evidence the Fed could use to support a case for more rate cuts.

The Dow Jones industrial average rose 19.59, or 0.14 percent, to close at 13,778.65, clawing back from a more than 60 point decline after the opening.

Broader stock indicators were mixed. The Standard & Poor's 500 slipped 0.52, or 0.03 percent, to 1,517.21, while the Nasdaq composite rose 15.50, or 0.58 percent, to 2,683.45.

There might be some relief for homeowners with adjustable rate mortgages tied to the prime rate that are poised to reset soon, but it could take six to 12 months for consumers to feel the cumulative effect of the rate cut, said Diane Swonk, chief economist at Mesirow Financial in Chicago.

How well spending holds up hinges on the job market, economists said.

"The question is, do we add jobs?" said Scott Hoyt, director of consumer economics at Moody's Economy.com. "If we do we should see modest growth in consumer spending."

Economists say they'll monitor the labor market, which saw its first drop in job creation in four years in August, for signs of weakness. Economists expect the job market to add 100,000 jobs in September when the Labor department reports its data on Oct. 5. Meanwhile, the unemployment rate is expected to inch up to 4.7 percent from 4.6 percent in July.