WASHINGTON (MarketWatch) -- Consumer spending, the backbone of the U.S. economy, has been battered, if not broken.
The worsening recession is now in a self-reinforcing downward spiral, as the weak economy leads to reduced spending and tighter credit, leading to further job losses and even less spending.
"Weakness has spread from housing to Wall Street to Main Street," wrote economists for UBS. "It is now effectively feeding on itself."
"The sharp slide in economic activity that began in October looks to have deepened in November," wrote Seamus Smyth, an economist for Goldman Sachs.
Economists have been lowering their forecasts for growth in light of the sharp drop off in November. The median forecast for fourth-quarter growth is now negative 4.1%, with negative 2.9% expected for the first quarter. Most economists don't see a rebound in growth until next summer.
The economic data calendar in the coming week won't be as jammed back as it was last week, and the data aren't likely to be as horrific as the disastrous employment report and Institute for Supply Management indexes. It would take a lot to shock markets and policymakers.
"This week's slate of numbers should continue to do their best to squelch any remaining vestiges of holiday cheer, but will not provide investors with any news that they didn't already know," said Meny Grauman, an economists for CIBC World Markets.
The big number in the coming week arrives Friday with the release of the retail sales report for November. Economists surveyed by MarketWatch are expecting another big drop in seasonally adjusted sales of around 2% after sales plunged 2.8% in October.
We're already braced for bad news. Here's what we already know:
The chain-store sales index marked its largest decline on record in November;
Auto sales fell to their lowest level in decades; and
Gasoline prices continued to plummet.
"The holiday season is upon us," wrote economists at Wachovia, but consumers are feeling strapped by declining wealth, growing worries about their job and reduced access to credit. For many retailers, the two months at the end of the year should be the busiest and most wonderful time of the year. The sharp contraction in spending is coming at the worst possible time for them.
The chain-store sales index probably overstated the weakness. Because Thanksgiving fell so late in the month, fewer holiday shopping days were included in the November report. However, the government's report does adjust for the timing of the holiday.
Still, Holiday sales will likely decline for the first time on record, falling as much as 2%, said Wachovia's economists.
"Real consumer spending on goods and services is projected to fall at a 4.5% pace in the fourth quarter, its sharpest decline since the spring of 1980," wrote Brian Bethune and Nigel Gault, economists for IHS Global Insight.
The other big news in November was falling prices, which are perhaps one of the few silver linings in an otherwise dire economy (unless you are a producer of commodities, in which case falling prices are your second biggest worry after falling demand).
Prices of goods and services imported into the U.S. likely fell 5% in November, largely because energy prices fell an additional 20% or so. Economists for J.P. Morgan are forecasting a 1% drop in non-fuel import prices.
The producer price index should also reflect the historic drop in crude oil prices. Economists in our survey expect the PPI to fall 2.0% in November after a 2.8% drop in October. Core prices -- which exclude food and energy goods -- likely rose 0.1%.
With oil prices dropping, the U.S. trade deficit probably continued to narrow in October, the economists said. The median forecast calls for a narrowing in the trade gap to $52.5 billion from $56.5 billion in September, as U.S demand for imported goods has been falling faster than foreign demand for U.S.-made goods. However, exports will be depressed by the impact of the strike at Boeing.
