Economic data look mild, but feeling is gloomy

Even if the worst case doesn’t play out, consumer anxiety about home equity has a direct impact on the economic outlook because consumer spending accounts for about 70 cents of every dollar of GDP.

Some retailers reported Thursday that spending perked up in April after months of dismal sales. But the gains were concentrated among discounters like Wal-Mart and Costco. Consumers are still shying away from stores selling clothes and other non-necessities; most mall-based apparel stores struggled last month.

Spending has already been crimped by higher food and energy prices. And though job losses shrank in April, American workers saw their hours cut back and average hourly earnings pretty much flat. If you factor in the effects of inflation, wages have begun heading into negative territory. The last time that happened was in 2001, the start of the last U.S. recession.

“It’s clear that households have very little spending firepower at the moment through their inflation-adjusted paychecks,” said Credit Suisse chief economist Neil Soss.

Consumers are getting a boost from tax rebates that are being paid out to some 130 million households. But the sharp jump in gasoline prices already has taken a huge bite of that spending power.

All of which has some economists worried that the economy may not have hit bottom yet.

“There's good reason why confidence is as low as it’s been since 1982,” said Mark Zandi, chief economist for Moody's Economy.com. “It can go lower. Gasoline prices are going to continue to rise. House prices aren't going to stop falling. We haven't seen the end of the job losses. I don't see any reason why we should expect consumer spending to not weaken even further.”  

So far the surprising bright spot in the U.S. economy has been the manufacturing sector, especially companies that do strong business in exports. The weak dollar gets most of the credit, but the strength in exports has gone a long way toward offsetting the sharp decline in the housing market and the periodic freeze-up of the credit markets that provide the lifeblood for the economy.

Strong export demand has also kept inventories relatively lean, which means that even if the economy continues to slow, businesses are less likely to get stuck with a lot of unsold merchandise. Big inventory backlogs often prolong a recession even after the pace of sales begins to pick up again. If inventories stay lean, that could speed the economy’s rebound when business picks up again.

And just as they’ve kept inventories lean, businesses also have kept their payrolls fairly tight during the economic expansion that began in late 2001. That could help limit job losses during the current downturn.

A lot will also depend on whether homeowners stuck in mortgages due to reset to higher payments in the next few years can refinance into more affordable loans. While Congress has debated a number of solutions, the government has been relying on borrowers and lenders to work out new terms voluntarily.

“The trouble with the voluntary restructurings is there's nobody to talk to,” said Feldstein. “Sure, if your mortgage was taken out with a local bank that kept that mortgage, yes, you can sit down and talk. But if it has been securitized and (sold off to investors), there’s nobody there on the other side. That's why the Treasury's proposal in that direction has had so little impact.”

Also in msnbc.com business Housing’s woes are bringing on a backlash Still no sign yet of a bottom in home prices ConsumerMan: Capricious credit card rates Can I skip premium and use regular gasoline?   Video: For middle class, a struggle to get by

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