As if we needed more confirmation of economic slowing, the Conference Board has announced that its leading American index decreased 0.2% in December, its third consecutive monthly drop.

The biggest factor in the decline was fewer housing permits, but a fall-off in manufacturing working hours and in consumer expectations also contributed to the slide. Such readings should further bolster the case for President Bush’s $150 billion economic stimulus package. Indeed, bipartisan support for infusing cash into the economy seems likely to speed the legislative process along.

The question for investors is: How quickly can the American consumer be brought back to life? After years of stoking the worldwide economy, can the exhausted consumer be resuscitated in time to prevent a recession?

The Bush administration is certainly going to try. And, according to an economist with JPMorgan Chase, James Glassman, it may succeed. Mr. Glassman says the last time the consumer was propped up and spurred forward, only a few months lapsed between legislation being passed, tax credit checks being distributed, and consumer spending beginning to speed up. What a wonderfully responsive fellow the consumer is! Mr. Glassman is referring to the tax rebates that were passed in May 2001; checks were in the mail by July and August. In the fourth quarter, consumer spending rose 7.0% on an annualized basis, and the economy did not enter a recession. This pattern is expected to be repeated.

Mr. Glassman is also confident that the consumer will have a favorable wind at his back in the form of lower oil prices. He expects oil prices to drop, mainly because the impact of higher prices is already eliciting conservation measures that will surely depress demand and, ultimately, prices. Like many others, he ascribes much of the price spike in recent months to speculation, not fundamentals. To the extent that the consumer gets some cash freed up from a slide in the price of gasoline or home heating oil and from tax rebates, spending will surely get a lift.

Another factor breathing new life into our tired consumer is a drop in the cost of housing, and in interest rates. Higher vacancy rates mean lower rents, while lower interest rates soften the blow for those struggling with adjustable rate mortgages.

All this makes sense, follows historical patterns and should gladden the hearts of policy-makers. It may be premature, however, for investors to celebrate by piling back into downtrodden retail stocks.

Changes may be afoot in the retail landscape that an economic weakening could bring to the fore. First, the population is aging, and at some point even the wealthiest among us may be satiated. As people age, they tend to downsize their homes and buy less. Second, retailers overall, and in particular those selling luxury goods, have benefited from the tendency of even moderate-income folks to pine for the kinds of high-end goods on display in popular TV shows and on the Internet. As these buyers have “traded up,” producers of luxury goods have prospered, but they have also become more exposed to the gyrations of the economy.

The president of Unity Marketing, Pam Danziger, makes a living tracking the luxury goods market, which until recently has been the most durable segment of the consumer landscape. Recent soundings from numerous high-end vendors and from American Express, which targets relative wealthy consumers, have cast a shadow on this formerly resilient market. Ms. Danziger was not surprised.

Last fall, Unity Marketing published a piece detailing a drop in the confidence level of luxury consumers and projecting a decline in fourth-quarter outlays. Ms. Danziger measures the pulse of upscale goods buyers in her Luxury Consumption Index, which reflects the spending trends and sentiments of more than 1,000 consumers, who on average are 44 years old and have an income of $150,200. The index fell in the third quarter to its lowest level since 2004, after beginning to slide in the second three months of the year. A decline for two successive quarters, Ms. Danziger says, almost guarantees a fall-off in luxury spending, which is exactly what transpired in the final few months of 2007.

The decline was particularly acute in personal luxuries, especially fashion accessories, jewelry, and watches, and in important home categories. Ms. Danziger notes that it was the lower tier of luxury goods buyers that wobbled in the second half. The so-called super-affluent, with a household income higher than $150,000, went on spending at about the same rate as in the second quarter.

Instead of buying jewelry or handbags, Ms. Danziger says, many high-end consumers, especially baby boomers, are spending their money on experiences like travel or entertainment. “Let’s face it, a purse is only a purse, but a luxury experience is something to remember,” she says.

These trends are confirmed by a survey last fall conducted by the American Affluence Research Center, which reported that the only category targeted for increased future spending was vacation travel.

It is too early to tell if the aging of the population or caution from those buying luxury goods will impact near-term retail results. It is noteworthy that in the past decade there have been several periods, such as mid-2005, when the high-end consumer appeared to have backed off, concerned about the impact of Hurricane Rita, gasoline prices, and other economic issues. Time after time, such spenders have re-emerged several months later as sentiment improved.

The administration, and the market, will hope that the quick passage and implementation of an economic stimulus package will again reinvigorate the American spender. As the consumer ages, though, the bounce in his step may be slightly more restrained.

peek10021@aol.com