Consumers, Battered by Housing Downturn and Credit Crunch, Slow Spending in September

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Economists are worried that consumers, the main support for the economy, may cut back on their visits to the malls in coming months as they struggle with the housing slowdown, tighter credit and now record-high oil prices.The Federal Reserve on Wednesday cut a key interest rate for the second time in six weeks in an effort to make sure the economy does not tumble into a recession. However, the central bank also expressed concerns that surging oil prices could fan inflation pressures. Oil prices have soared to record highs in recent days.

The news about inflation from the consumer spending report was good. Prices paid by consumers on the Fed’s preferred inflation gauge rose a moderate 0.2 percent in September, excluding food and energy. This measure is up 1.8 percent over the past 12 months, inside the Fed’s comfort zone of increases in core inflation of between 1 percent and 2 percent.

But analysts believe that growth will slip to less than half that level in the current quarter and the first three months of 2008 under the impact of the worst housing downturn in more than two decades, which has rattled consumer confidence.

Many economists see the next few months as the maximum danger point when the economy could slip into a full-blown recession. However, analysts still believe the chances are good that the country can avoid a downturn because they believe the Fed will help matters by cutting rates further should economic data weaken more.

By Martin Crutsinger

http://biz.yahoo.com/ap/071101/economy.html

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