OK, I was afraid of this . . .

It's one thing to see a handful of homeowners crying in their beer over their adjustable-rate mortgage payments going up.

If my Dad taught me one thing, it's buyer beware. So I only have so  much sympathy.

But it's quite another when that guy's friends and neighbors start  fretting about the housing market - - and start putting the breaks on  their spending habits. That's what's happening with the all-important Consumer Confidence  Index, which is falling for the first time in a while. According to the Conference Board, its consumer confidence index fell sharply in August (to 105.0 from 112.6 in July), as home values continued to decline, stock prices dropped, and employment growth slowed.

A handful of other measures of investor confidence also declined during August, including the ABC/Washington Post consumer confidence index and the University of Michigan ’s consumer expectations index —  a key leading economic and stock market indicator.

That's disturbing news for small businesses, which could soon feel the pinch of decreased consumer spending. It's not going to help the stock market, either. Historically, when consumer confidence wanes, stock market performance suffers, as well.

I wish I could say that the economic environment will get any better soon. The most recent S&P/Case-Shiller home price index shows  that U.S. home prices fell by a record amount in the second quarter, as banks tightened their lending standards and home sales fell.

So what we have now is a perfect storm brewing that threatens the U.S. economy. Lousy credit, a decline in consumer confidence, and a struggling stock market all combine to spell bad news for the U.S. economy. To me, consumer confidence is particularly worrisome. The Consumer Confidence Index accounts for 70% of all spending in the U.S. -- to see it in retreat is a real red flag.

One sure sign that the Conference Board numbers are for real is in the second-quarter numbers from Wal-Mart and Home Depot. Both are bellwethers of consumer spending trends and both are reported lousy second quarter sales and earnings, as consumers significantly reduced their discretionary spending. Wal-Mart’s same-store sales rose by the smallest amount (1.9 percent) since the company began tracking same-store sales in 1980, while Home Depot’s second-quarter same-store sales fell 5.2 percent.

The storm is brewing. Could be time to batten down the hatches.