How will the retreat of the American consumer affect the stock market? Has the recent drop (can you say "crash," gentle reader?) in stock market valuations given us an opportunity to find value? Are we at the bottom, or is there more pain? Let’s dive in.

The Consumer Weakens

Retail sales have fallen for the last 3 months, at an unprecedented annual rate of 2%.

Auto sales are down - for many companies, they're down more than 30% (Volvo is down 50%). And it may get worse. GMAC, the financing arm of General Motors (GM), has announced it won’t lend to anyone whose credit score isn’t 700 or more. Only 58% of Americans qualify. Unless auto companies underwrite loans with guarantees, cheap auto financing is a thing of the past for a large chunk of the consumer marketplace.

Auto companies are abandoning leasing programs and other traditional marketing avenues in search of increasingly elusive profits. Two years ago, you could buy for little or no money down. Now, many dealers are requiring an average of 12% down. While this makes sense, it’s definitely a change.

And it’s not just in the US. Auto sales throughout Europe are significantly off, especially in countries that had their own version of the US housing bubble.

Falling consumer and retail sales aren’t surprising, given the fact that almost 1 million jobs have been lost in the last 12 months, bringing unemployment to 6.1%. California, a bellwether state, has seen its unemployment rise to 7.7%. That’s a (sadly) reasonable target for nationwide unemployment. Back-of-the-napkin analysis suggests that means at least another million jobs will be lost this cycle.

The drop in consumer sales is also showing up in retailers' share prices and shopping-mall REITs. Many are down to prices last seen 12 to 16 years ago, with price drops far below the market averages. Think Vegas is immune? MGM Mirage (MGM) and Trump (TRMP) are down 90%.

It’s reasonable to ask why this time is unique. In the 2001-2002 recession, we lost a lot of jobs, but consumer spending didn’t go down. Predicting the demise of the American consumer has been a favorite pastime of bearish analysts for over 50 years. But they’ve always been wrong. The American consumer has proven resilient through feast and famine, war and peace. But the data and circumstances suggest this time may be different.