WASHINGTON, Aug 24 (AFP) - Consumers, the heart of the American economy, are showing signs of flagging in a worrying development 10 weeks ahead of November 2 elections, analysts said Tuesday.
"I think we are in the process of a slowdown in the consumer. I don't think it's a disastrous slowdown but there is a slowdown going on," said Lehman Brothers chief US economist Ethan Harris.
On Monday, Wal-Mart, the world's biggest grocer with 1.5 million employees worldwide, cut its forecast for August sales growth to a maximum two percent from two-four percent previously, citing Hurricane Charley's destruction and disappointing back-to-school sales.
Wal-Mart alone accounts for nearly 10 percent of US retail sales.
Sales at major US retail chains edged barely higher last week, likely crimped by high gasoline prices, a survey showed Tuesday.
On Tuesday, the International Council of Shopping Centers (ICSC) and UBS Warburg jointly cut a forecast for sales growth at major retail chains in August to 2.5 from 3.0 percent.
It was the latest in a series of disappointments.
US consumer spending, accounting for two-thirds of economic activity, fell 0.7 percent in June, government figures showed, the steepest monthly plunge since the September 11, 2001 terrorist attacks.
Analysts fear such signs of weakness may be repeated.
"Slower consumer spending may become the norm," said Wells Fargo Bank economist Scott Anderson.
Many households were facing tighter finances, with weak employment growth, Anderson said. Indebtedness was at high levels because of the lure of low interest rates, and real disposable (after-tax) income growth was deteriorating, he said.
An array of factors, some more durable than others, appeared to be weighing on consumption.
Oil prices, which hit an all-time in New York on Friday, were denounced last week by Treasury Secretary John Snow as being the equivalent of a "tax on the economy."
According to an ICSC survey, high gasoline prices affected spending by 35 percent of respondents.
One by one, the buttresses of consumption have been lost.
"You had the consumer boosted by a lot of kind of gimmick stimuli over the last two years: multiple tax cuts, cash taken out of their mortgages, zero percent loans for autos and other durables, and all of those gimmicks have given us a nice solid rate of consumption in the face of a droopy economic recovery," said Lehman Brothers' Harris.
"But they are beginning to fade."
With a high US budget deficit, consumers seem unlikely to receiving rich tax rebates any time soon.
"I think the consumer had already started to be the caboose (last wagon on the train) rather than the engine," Harris said.
It is the reverse of the situation since the 2001 slowdown, when consumers drove economic growth and timid companies dragged behind, freezing investment and hiring.
"We have already seen in the data the beginning of the passing of the baton from consumers to the business sector," Harris said.
Lehman Brothers forecasts annualised economic growth of 3.5 percent in the second quarter of 2004, with consumer spending acting as a slight drag, offset by solid business spending on capital equipment.
"It is a little disappointing after a long period of mediocre performance for the whole economy from the point of view of the Fed and what the incoming politicians would like to see," Harris said, alluding to the closely fought November 2 presidential elections.