Now Back to the Consumer

In the weeks between the March collapse of Bear Stearns and the latest crisis at Fannie Mae and Freddie Mac, there was barely time to get back to worrying about the economy's other big uncertainty: consumer spending.

It may be less dramatic than the bad news exploding out of the financial sector lately, but a slow leak in consumer optimism is arguably a bigger risk to the U.S. economy. Barring some new calamity (bank failures, anyone?), the discussion will most likely turn back to strategies for propping up American shopping habits.

Broadly, the consumer is still doing OK. Pepsi, McDonald's, and Wall Street favorites like Panera Bread all posted strong second-quarter same-store sales.

Still, today's signals in the form of warnings from retailers were troubling.

Costco slashed its forecasts, predicting earnings will be "well below" estimates of $1 a share. It blamed inflation—and high energy prices in particular—for trimmed margins and lowered gasoline sales.

Costco's warning follows similar ones by Supervalu and Safeway, two of the nation's largest grocers.

The problem is that the latest round of results include the impact of $50 billion worth of government stimulus checks issued in April and May that may be starting to wear off.

The bigger issue now is figuring out how to support spending through the rest of the year.

Which brings us to the day's other big story: President Bush drops his opposition to the housing bill.

Good. The plan, which includes some $15 billion in tax breaks including $7,500 credits for first-time home buyers, is really the next attempt to keep consumers from cutting back on spending that remains by far the biggest contributor to American economic growth at a time when unemployment and inflation are still on the rise.

The sooner any housing plan passes, the better off we'll all be.