Consumers retrench, labor market weak

By Joanne Morrison

WASHINGTON (Reuters) - Consumers cut their spending in February and the labor market continued to weaken, suggesting the pillar that had supported the economy's expansion may be giving way.

Retail sales unexpectedly fell 0.6 percent last month, while the ranks of workers remaining on state unemployment benefit rolls hit the highest level in nearly two and a half years in the final week of February, government reports on Thursday showed.

Now, the growing credit crunch that has wreaked havoc on Wall Street is settling in on Main Street. On this front, U.S. home foreclosure filings in February edged down from January but were a whopping 60 percent higher than a year earlier, real estate data firm RealtyTrac said on Thursday.

The surge in foreclosures from a year earlier indicated that the cycle has yet to hit its peak, the firm said.

Consumers, who fuel roughly two-thirds of U.S. economic growth, held back on spending in a wide range of areas amid surging food and energy costs and a decline in wealth as home values tumbled.

"This is a downward spiral consistent with a recession," said Kurt Karl, chief economist at Swiss RE in New York. "Because consumer prices are so elevated, we're seeing the hits on the consumer. They can't finance it and we've got a credit market crunch."

Many Wall Street firms believe the economy is already in recession. The chairman and chief executive of JPMorgan, Jamie Dimon, on Wednesday warned that further deterioration in the housing market, which is suffering the worst performance since the Great Depression, is expected and will be unprecedented.

"Financial conditions are getting more extreme," Dimon said, adding that more is needed from the Federal Reserve and the Bush administration to ease the growing financial crisis.