The American consumer has ridden to the rescue of corporate revenues for years. Buoyed by highly valued homes that served as virtual ATM machines, consumers indulged their appetite for goods and services, particularly consumer electronics and computer-related devices. That's starting to change. As the economy slows, there are signs that the pace of consumer spending is not only slowing, but actually shrinking fo The American consumer has ridden to the rescue of corporate revenues for years. Buoyed by highly valued homes that served as virtual ATM machines, consumers indulged their appetite for goods and services, particularly consumer electronics and computer-related devices. That’s starting to change. As the economy slows, there are signs that the pace of consumer spending is not only slowing, but actually shrinking for the first time in years. Bad news for consumer-oriented tech companies? Of course. But don’t think that enterprise IT providers are necessarily exempt. Spending ripples through the economy; dollars spent at restaurants may ultimately result in the purchases of inventory management software from Oracle, or servers from Sun for use at corporate headquarters. American Express, for example, is an enormous consumer of enterprise software, hardware, and services, but with late payments on the rise, the giant credit card company could well dial back IT spending. Signs of retrenchment Earlier this week, Bear Stearns analyst Andy Neff lowered price targets and earnings estimates for a number of hardware, data storage, and imaging companies he tracks, saying, “Recent economic data has highlighted weakness in [the] consumer [sector], which often spreads to the enterprise [sector].” Other analysts cut estimates for online retailers, including Amazon.com. Making matters a lot worse from Wall Street’s perspective was Intel’s anemic fourth-quarter earnings report and a downright disappointing outlook for the first quarter. But there was even more bad news this week. Consider the economic news released Tuesday by the departments of Labor and Commerce. Wholesale inflation last year shot up by the largest amount in 26 years, while retailers suffered their worst December shopping season in five years. And in a third report, the federal government said that inventories held by businesses rose 0.4 percent in November, reflecting big increases in stockpiles held by manufacturers and wholesalers. That news, coupled with more bleeding by Citigroup, prompted an ugly sell-off on Wall Street, completely erasing the gains of Monday’s “Big Blue rally,” even before Intel’s bombshell. That pushed the market even further into negative territory. Even the wealthy are cutting back ChangeWave Research, which does periodic polls, found, in its latest survey of 4,600 people employed in business, medicine, and technology, that consumers are planning to spend less this year than in the past. What’s more, the poll revealed that belt-tightening is occurring across all income levels — even among respondents who earn more than $150,000 per year. In the November survey, 21 percent of those with annual incomes over $150,000 said they were planning to cut spending in the coming year; by January that number had increased to 33 percent, the most significant backward jump in the history of the poll, said Paul Carton, research director for ChangeWave. Europe may be next Meanwhile, there are some signs that the weakness in the United States and Japan is spreading to Western Europe, said Bear Stearns’ Neff. Indeed, European retail sales fell the most in at least 10 years in November as rising food and energy costs sapped consumer confidence. Retail sales declined 1.4 percent in November from a year ago, the biggest drop since at least 1997, according to wire service reports from Europe. That’s unsettling. Sales to Europe and Asia have been key to strong performances by the largest technology vendors, many of whom derive more than 50 percent of revenue from foreign sales. IBM, for example, delivered a robust quarterly report this week, built in part on strong foreign sales, which in turn were boosted by the weak dollar. A few bright spots To be sure, there are bright spots.It’s possible that fears of a European slowdown are exaggerated. Intel CEO Paul Otellini said during a post-earnings conference call with analysts that European sales were up 22 percent sequentially. So far, he says, Intel has not seen significant signs of slowdown in Europe. Apple, for one, bucked the holiday ebb tide with strong computer sales, although Wall Street was not happy with iPhone sales that topped 4 million units, well below the most bullish expectations. It’s still not certain that we are headed for a recession, but the raft of bad consumer news is very worrisome, and it is not at all clear where IT investors and employees will find a safe harbor. I welcome your comments, tips, and suggestions. Reach me at bill_snyder@infoworld.com. Technology Industry