This indicates that housing, on the margin, is affecting the consumer. Fleeting days of stabilization in the stock market does not mean that the consumer is on track. He isn't, and neither is housing. However, the rest of the world, seems to be doing fine. Which is why the US dollar is so weak, and markets are so bifurcated. Our economy, instead of leading, is only following the strength in the world.
And that's the problem with the Fed. They need to be ahead of the curve, instead of behind it; they are following, not leading. A .50 basis point cut in the fed funds is not baked into the market. That's why the market is so jittery. There is an acceleration of weakness in the consumer; and a cut by the Fed will help psychology, and lower costs in the economy.
However the opening pressure on the markets is not just from weak retail sales as weakness in futures existed before that number came out. It wasn't from markets in Asia which were strong, but from pressure in the European markets, which were weak. The catalyst was a run on Northern Rock, PLC, one of the UK's largest mortgage lenders. The Bank of England (BoE) directly intervened provided emergency funding to Northern Rock.
Yesterday, BoE governor Mervyn King bragged about their hard-line stance and said, "The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior. That encourages excessive risk-taking, and sows the seeds of a future financial crisis." In this last credit crisis the ECB injected $353 billion, while the BoE only injected $8.8 billion to the markets.
Today the shoe was on the other foot, as the mortgage contagion hit the UK, and the BoE had to act today, after bragging yesterday. Our Fed had it's own comeuppance last month, and today hardliner King from the BoE got his. But that's a central banker for you. They recognize a problem only when the whole world does.
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