Clouds Over Economy Unlikely to Clear Soon

The U.S. economy is like an overcast fall day: neither hot nor cold, with a chance of worsening weather.

The cloudy state of the economy has put the Federal Reserve in a fix. The central bank seems increasingly willing to take another stab at stimulating the economy, but only if growth clearly appears to be faltering.

The game plan of the Fed will capture much of the economic spotlight this week as central bankers gathers for their annual retreat at Jackson Hole in Wyoming. Wall Street will be looking for clues on whether the Fed is ready to pull the trigger.

What could influence the Fed is another weak consumer spending report. Consumer spending has fallen two straight months, the first time that’s happened since the tail end of the last recession.

Earlier data on retail sales, however, suggests consumer spending rose modestly in July. Economists surveyed by MarketWatch forecast spending to rise 0.3% in July.

“Lower gas prices during the summer gave consumers a boost,” said economist Michael Gapen of Barclays Capital. “Income growth has somewhat improved and the savings rate has risen.”

The savings rate moved up to 4.4% in June from just 3.2% last winter.

What’s less certain is whether consumers will continue to spend at a modest clip over the rest of the year. The U.S. is not growing very fast, companies are reluctant to hire, the global economy has hit a rut and a political stalemate in Washington has businesses on edge.

Deep cuts in federal spending and higher taxes are slated to kick in on Jan. 1, 2013 unless Washington rescinds them, but chances of a compromise appear remote until after the presidential election in November