Consumers Look Weak for Fall

Falling gasoline prices are certainly good news for consumers, the main reason economists expect the University of Michigan to report a slight improvement in its consumer-sentiment index, also due Friday. But gas prices are still 30% higher than a year ago, and consumer sentiment is still near its lowest level since 1982.

Meantime, the effects of income-tax rebate checks are fading. Credit is tightening. The unemployment rate has jumped to its highest level since 2003. In short, consumer spending is due for a sharp slowdown.

Investors in retail stocks are hearing none of it. The Dow Jones Wilshire U.S. Retail index has gained 15% since mid-July to nearly its highest level of the year, trouncing the broader market. Shares in retailers, from discounters such as Wal-Mart Stores to fancy department stores such as Macy's, have gone along for the ride. They could be in for a fall, too.

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