Is a Recession Now Inevitable?

Economists who insisted that there was no link between consumer confidence and consumer spending always seemed like people whistling past the graveyard. That's especially true after today's retail-spending and consumer-confidence numbers.

In case you've been sharing a cave with Bin Laden and missed the news, retail sales ex-autos fell 0.4 percent in August, the Commerce Department reported. That was the steepest decline since September 2006.

Meanwhile, the RBC Cash Index showed consumer confidence tumbled to 71.1 this month from 89.3 in August. It was the lowest point since May 2006, when gasoline prices began to soar.

And people don't see things getting better—for themselves or anyone else—any time soon. Consumer sentiment about the future fell to 14.4 this month—the fourth-weakest reading on record—from 43.9 in August.

This survey of 1,000 people, conducted earlier this week by the market-research and polling firm Ipsos, comes amid the housing-market slump and a surprise decline in the jobs market—two pillars of consumer confidence and spending.

"Americans have a dim view of their current financial situation and an even bleaker view of their future prospects," said T. J. Marta, Economic and Fixed Income Strategist for RBC Capital Markets. "Although some of the factors weighing on consumers could dissipate in coming weeks, the decline in confidence is consistent with our view that U.S. economic growth will moderate through the remainder of the year."

The question facing the Fed as it meets next week now seems to be less about whether it will cut interest rates, but whether an interest-rate cut will matter.

by Mark Stein