Recent economic data shows only a slight slowing in consumer spending but those numbers are misleading.  Higher prices are to blame for this, so while Americans may be spending the same amount of money, they are getting much less for their dollars than they did a year ago.

While some of it’s inflation, the weakness in the dollar also plays a large part in this because of the American consumer’s propensity for purchasing imports.  With the Fed forced to slash interest rates to cope with the growing credit crisis, the situation is not expected to improve anytime soon.

Americans are feeling the strain, especially in states like California and Florida.  With foreclosure rates at three times the national average, the housing bust has hit these regions especially hard.

Consumer confidence is at the lowest its been in years and we aren’t even technically in a recession yet.  People are having to spend a larger percentage of their disposable income on necessities like food and energy, whose prices have soared over the last year.

Many retailers are struggling as more and more Americans grow worried about inflation and job security.  While the economic stimulus package will provide a little relief, it is becoming increasingly unlikely that we will be able to spend our way out of this economic downturn.

While a lack of liquidity in the credit markets are providing a natural break in spending, many Americans are also tightening their belts with the prospects of recession on the horizon.  Consumer spending has slowed considerably over the last few months and it’s having a noticeable effect on the economy.

It is unfortunate that it takes this kind of situation for people to finally start thinking about saving money.  The amount of debt we have in our society is ridiculous.  For many people, their idea of budgeting is the limit on their credit cards.  The government is no better with the national debt at $9 trillion and rising.

It can be difficult to save money in our over commercialized society.  We are being constantly bombarded with marketing spam at every level, when you watch television or surf the web, we even get it from text messages on our cell phones now.

As ridiculous as it sounds, the current economic climate actually seems to encourage more debt.  Rising inflation and low interest rates greatly favors debtors rather than savers.  This can be misleading however, since our economy doesn’t exist in a vacuum.  With the dollar falling to record lows, the relative wealth of our economy compared to the other nations of the world is taking a serious beating.

It is really the savings rate of a society that builds up wealth over time for an economy.  Over the years, our society’s savings rate has dwindled and the accumulation of debt has grown to epic proportions.

As much it would help the economy for us to spend our way out of a recession, is that really the best thing for us as individuals or as a society?  Debt and credit can be powerful tools to help leverage your financial situation, too much of it however can be disastrous.  You need only look to our highly leveraged financial system to see how that is working out now.

As it looks more and more likely that the economy will enter a recession in the upcoming months, many Americans are wondering how bad it will get.  The root of our current economic troubles, the housing market, continues to grow worse.  Housing prices fell again last month as an increase in foreclosures adds to the glut in supply in the market.

The economy lost jobs for the second month in a row as stocks fell to their lowest level in nearly two years.  The Labor Department reported that 63,000 jobs were lost for the month of February following the 22,000 in losses for January.

The Dow fell under for 12,000 for the first time since August of 2006 as bad economic data and high oil prices sent stocks tumbling.  Earlier in the week oil rose to over $105 as OPEC announced it was maintaining it’s production at their current levels.

Energy prices are expected to continue rising, but how high can the price of oil go? Some analysts are saying $120 but there are others who say it could top $150 by the end of the year.  European Central Banks announced this week that they were not cutting interest rates and futures traders are now betting that the Fed will cut rates by 75 basis points later this month.  This will put enormous downward pressure on the dollar in exchange markets and force the price of dollar denominated assets like oil upwards.

The high price of oil is starting to take it’s toll on consumer spending as well.  It is estimated that every $1 increase in the price of oil costs Americans an extra $100 Billion a year.

Amidst all the gloomy economic news is the specter of inflation.  The Fed has had no choice but to put it in the back burner as it slashes rates in an effort to keep the economy from stalling.  As the credit crunch worsens it has had to pump more and more cash into the money supply to compensate.  This week it announced it was making in as much as $200 billion more available to banks as it increased it’s Term Auction Facility amounts from $30 billion to $50 billion.

There is a real threat that we could be entering into an era of stagflation that could last for quite a bit.  I would say that until the housing market starts to improve, we really have no idea how long this economic downturn could last.