Consumer spending is clearly on the wane, and the slowdown suggests to some economists that a downturn in overall business conditions is near.

Last week the government reported that retail sales rose by a weaker- than-anticipated 0.3% in September, while sales in August were revised to a zero gain.

That news and a 0.3% rise in the producer price index were key factors in the Federal Reserve's decision to cut interest rates Thursday.

The retail sales figures cover the late-summer back-to-school selling period, which retailers rank second in importance behind the yearend holidays.

"It is pretty clear that the consumer spending spree is behind us," said Sung Won Sohn, chief economist at Norwest Corp., Minneapolis. "We may well be looking at a less merry Christmas."

Overall, third-quarter consumer spending slipped to just half the pace of six months earlier, said economist Stan Shipley of Merrill Lynch & Co.

Consumer spending is closely watched because it makes up two-thirds of total U.S. economic output. Lower spending quickly raises the specter of a downturn and possible recession.

Discretionary spending on home-related big ticket items-furniture and appliances-has rapidly lost strength. It fell 0.2% in September after a zero showing in August, in sharp contrast to sequential monthly gains of more than 1% earlier in the year.

Excluding auto sales, which were distorted by the impact of the General Motors strike, sales were essentially flat in August and September and may even have fallen by some measures, the Norwest economist said.

Spending may be faltering because its two powerful drivers-the strength of the job market and the stock market-have both faltered, the economists suggested.

"Job growth is now slowing and income growth will son follow," Mr. Shipley said. "The recent stock market correction should temper consumer spending in the months ahead."

The "wealth effect" from the stock market's moves on consumer spending is hotly debated among economists. The recent shift in consumer spending coincides with the market's sharp change in course since July, but it parallels other trends. "From 1990 to the recent peak, household net worth in equity shot up by $10 trillion," Mr. Sohn said. "Econometric estimates show that about 20% of consumer spending is explained by the wealth effect."

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Economists at primary dealers firmly expect the Federal Reserve to lower the federal funds rate another 25 basis points nextmonth, and many are looking for a further 25-basis-point cut in December.

All 27 of 32 primary dealers in a Dow Jones Newswires/CNBC survey expect the Fed to follow Thursday's cut with a further lowering of rates by yearend. Twenty-three of the 27 expect the Fed to cut the Funds rate 25 basis points at its next meeting, on Nov. 17. That would be the third cut in six weeks.

Another three-Dresdner Kleinwort Benson, HSBC, and Merrill Lynch-think the November cut could be as much as 50 basis points. Salomon Smith Barney said it was "a toss-up" whether the Fed would take the quarter-point off in November or December.

A majority of the firms surveyed-16 of 27-expect a fourth quarter-point cut at the Fed's scheduled Dec. 22 meeting.

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