Rays of Light for Retailers

And, of course, gas prices aren't the only headwind for consumer spending. The slowing housing market, high consumer debt levels and the negative savings rate are all threats that loom for economic growth.

The latest housing figures were anything but pretty. The National Association of Realtors reported late last month that existing homes sold the lowest level in 2 1/2 years, while the inventory of homes on the market reached a record high. The Census Bureau reported seasonally adjusted sales of new single-family homes in July fell roughly 22% from a year earlier.

Perhaps the most worrisome aspect of the housing reports was the jump in unsold inventories. The seasonally adjusted estimate of new houses for sale at the end of July rose to the highest-ever level of 568,000, up from 566,000 at the end of June. If inventories continue to build, prices will ultimately start falling. If consumers that have garnered most of their spending power from the increased value of their homes in recent years start to realize their assets are worth less than they thought, a profound change in spending habits could be in order.

According to Howard Davidowitz, chairman of a retail consulting and investment banking firm called Davidowitz & Associates, roughly 40% of home buyers in the last two years took out high-risk mortgages with no money down. Meanwhile, he estimates that $2.7 trillion worth of mortgages will be reset at higher prices in the next two years.

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