Friday was a weird day on Wall Street.

First, the head of troubled Countrywide Financial predicted that the ongoing credit slump would lead to a recession. He also said that things would be better if the Federal Reserve lowered interest rates (isn't that how we got into this situation in the first place?)

My guess is that the Fed will probably cut interest rates, not by the .50 percent rate that many economists are predicting, but by a quarter-point. The Fed is historically loath to cut rates because Wall Street tells it  to. It's also reluctant to cut rates too much because of inflationary fears (they don't want money to become too cheap). The Federal Reserve Board next meets on September 18.

But wait. Later on Friday the U.S. Commerce Department reports that sales of new U.S. homes unexpectedly rose 2.8 percent to an 870,000 annual sales pace in July, reversing two months of declines. Analysts were expecting new home sales to dip to an 820,000 sales pace. New home sales in June were revised to an annual rate of 846,000 from the previously reported 834,000 rate.

It's early, but that's potentially great news for the economy. The housing and lending sectors are bleeding badly right now, and any sign showing a turnaround could be a real shot in the arm for both industries, which right now are struggling with big financial losses, heavy layoffs, and a general crisis of confidence.

Let's see what happens, but for now, there could be a glimmer of hope on the horizon.

 

I spent last week in Key West at a friend's house and had a great time.

Okay, outside of the fishing, snorkeling, and the plaque I should get from all the bar stool time I spent at the Green Parrot, I won't rub it in.

But on the flight back I read in the Miami Herald how consumer confidence in the Sunshine State was off three points this month. That seemed strange -- Florida is job-heavy and leads the country in new construction and new residents. That's not to mention the absence of a state tax.

So I read where nationally, consumer confidence was way up in May, fueled by optimism about the job market and the seeming ease in housing woes across the country.

So is Florida an aberration? I think so. Economic numbers spike up and down all the time, especially at the state and regional levels. Not so much with the national figures, where today the Conference Board reported that its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Wall Street numbers-crunchers had forecast the Index to fall to 104.5. The May reading was the highest since March when the index was at 108.2.

Most analysts are, as usual, hedging their bets. But I do note a sense of encouragement on consumer sentiment. "The short-term outlook remains cautious and rising gasoline prices are having a negative impact on consumers' inflation expectations," says Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. "(But) All in all, confidence levels continue to suggest growth, albeit at a slow pace."

Growth at a small pace after five years of high growth? I'll take that any day of the week. The economy can't be running on all cylinders all of the time -- there has to be periods of readjustment along the way. As long as such periods stay in positive territory, as we're seeing now, then we're in good shape.

 

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.
 

I'm blogging on the road today on the way to New York and noticed a nice piece from my old buddies at Newsmax.com (full disclosure: I used to write Newsmax's daily financial commentary from 2003-2005) on the jobs picture and on prospects for the U.S. economy.

I follow a wide variety of different business news and opinion sites and I'd slot Newsmax into the more right-of-center, pro-Wall Street publishers and that's perfectly fine. But lately, I've noticed a more bearish tilt coming from Newsmax, with more and more editorials touting tough economic times ahead. Again, no problem there - - I've penned a few blogs on these pages talking about the same scenario.

In today's editorial, Newsmax notes that  the U.S. Department of Labor reported that non-farm payrolls rose by 132,000 in May and that the unemployment rate held steady for the second month in a row at 4.5 percent. The payrolls report was cheered by Wall Street “experts” as an indication that the U.S. economy is healthy and that the bull market in equities is firmly intact.

But the financial gurus at Newsmax see these numbers as skewed, and  see any concuding U.S. economic scenario as anything but "healthy".

Says Newsmax: "While we agree that the employment report was favorable and that the U.S. economy is still expanding, a closer look at the payrolls report suggests the best days might already be behind us. And, the fact that the U.S. economy grew at an annualized rate of  only 0.7 percent during the first quarter of 2007 is certainly nothing to shout home about."

The editors point to the fact that the lion's share of May’s employment gains came from the service sector where 135,000 jobs were created, and the federal government, which added 40,000 jobs. At the same time, 24,000 jobs were lost in the retail sector, while the important manufacturing sector suffered a loss of 18,000 jobs.

Peering deeper into the future, the folks at Newsmax say that job growth is actually in full retreat, and the U.S. economy in full retreat mode right behind. "Job creation has slowed considerably since March 2006. Even more important, the number of hours worked by  manufacturing production workers has been trending significantly lower over the past year. Not surprisingly, we rarely (if ever) hear the major financial media or Wall Street “experts” comment on these trends."

The editorial also notes that the help-wanted sections of major newspapers are in decline, as well (although I would argue that's because fewer people rely on newspapers for their information these days, a fact reflected in subscription losses from major U.S. newspapers across the board.) But, as Newsmax points out, on-line job board ads fell by 2% last month, as well.

I'm inclined to agree with Newsmax that the rosy scenario painted by the U.S. Department of Labor, based on the last jobs report, ain't so rosy. We've had six years of sustained growth and we could well be topping out. And if we were, the jobs picture would be the first  place to go to verify that.

But, as Newsmax proves, you have to do a little digging first to get the real story.

 

They say a happy employee is a productive employee.

But this summer, with gasoline prices inching up toward $4 per gallon, cash-strapped employees don't have much to smile about.

Here's some proof. According to Wayne Hochwarter, a professor of management at Florida State University's College of Business, Americans' work attitudes have been negatively impacted by the rising price of oil and gas.

In a FSU study of 1,000 workers across the U.S., 60% of employees say that the price of gas has significantly reduced the amount of money they have to spend on other things, while 45 percent reported the need to pay off debts more slowly or not at all. Additionally, 26 percent indicated that the cost of gas has necessitated going without basics such as heat or air conditioning, or even cutting back on food purchases, over the past few months.

What's more, Hochwarter reports that those most affected by gas prices tended to experience stress both on and off the job. Such stress include: negative views of work and the company, sluggishness, antagonistic behavior, feeling overwhelmed and sadness.

"Most of these effects can be attributed directly to distraction while at work," Hochwarter said. "Those I've talked to spent a significant amount of time worrying about their financial situation."

Hochwarter also asked whether employees felt alone in their sacrifices or if their company had to tighten its belt as well.

"Certainly, only a handful of employees noted that their company changed plans or had to go without because of the price of gas — even companies that rely heavily on fuel for their operations," he said.

That could spell trouble for small businesses. The FSU study reports that those employees most affected by gas prices who did not see the company sacrificing were less committed to getting things done while at work. Compared to those who felt that their company was doing without, those who felt alone in their sacrifice:

• Were 15 percent less committed to the company.
• Had job performance levels that were 12 percent lower.
• Were 20 percent less willing to stay late or work extra if needed.
• Were 25 percent less likely to give "maximum effort.

"The price of gas has contributed to the perceptions of many that they are simply never going to get ahead," Hochwarter said.

Not a good report for small businesses. From what Hochwarter found, when employees feel they can't get a fair shake in the consumer marketplace, their work tends to suffer. That could make your bottom line suffer, as well.

 

Maybe the housing bubble won't "burst" after all.

This after more news from the real estate sector, where the U.S. Commerce Department reports that  Sales of new U.S. homes rose 16.2 percent in April, the sharpest climb in 15 years, while prices fell a record 11 percent. 

Are we seeing a 'rebound" effect, where lower home prices are luring buyers back into the market in droves -- a trend that seems to be backed by the Commerce Dept. report?

It sure looks that way. 

According to Commerce, new single-family home sales rose to an annual rate of 981,000 units from a revised rate of 844,000 in March. Wall Street analysts were expecting April sales to rise to an 860,000 unit pace from a previously reported rate of 858,000 units in March. In April, the median sales price of a new home fell $28,500 to $229,100 from $257,600 in March. There were 538,000 new homes for sale in April, a fall from the 546,000 reported in March. It would take 6.5 months to clear that inventory at the current sales pace, less than the 8.1 months recorded in March.

Later today we should get another bellwether indicator on the future of the U.S. housing market. Existing home sales, which represent 85 percent of the housing market, should rise as well.  According to a report this morning from Reuters, analysts are expecting April existing home sales to rise to 6.14 million unit pace from the 6.12 million in March.

If that comes to pass, then we should expect to see a reduction in the "doom and gloom" bubble-burst stories coming from the U.S. media. It's about time.