If you listen to the talking heads on CNBC or read the financial headlines in the mainstream media, you're probably under the delusion that the U.S. consumer is still spending briskly at the mall and that the economy is therefore poised for continued growth.

The "rah! rah!" came after Wal-Mart reported that its third-quarter earnings "beat analysts' expectations."

What a surprise! Wall Street analysts had previously lowered their earnings estimates for Wal-Mart because they recognized that sales at the world's largest retailer had slowed dramatically over the past few months.

And then — alakazam! — Wal-Mart beat those lowered estimates. As usual, few in the mainstream media mentioned that Wal-Mart recently discounted 15,000 items and began offering other incentives three weeks prior to the normal winter holiday shopping season in an effort to lure shoppers away from other chain stores.

The Wall Street cheerleaders also overlooked the fact that Wal-Mart has lowered prices on 20 percent more items than at this point a year ago.

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Today's retail sales report from the U.S. Department of Commerce paints a different picture, as total retail sales (including higher-priced gasoline sales) rose only 0.2 percent during October compared to the previous month.

October's modest sales gain follows a sequential monthly gain of 0.7 percent in September.

Meanwhile, sales at retailers of furniture, sporting goods, general merchandise, books, music, and general merchandise all fell during October.

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In fact, sales at the nation's chain stores rose during October by the smallest percentage (on a year-over-year basis) since 1995.

A vast array of economic indicators suggests that consumers will continue to curtail their spending during the months ahead.

For example, most stock market pundits cheered last month's employment report.

However, they failed to mention that manufacturers and construction companies cut 21,000 and 5,000 jobs, respectively, during September. Over the past twelve months, employers in these economic sensitive industries reduced their workforces by 327,000.

Although the overall employment situation improved during September, the bulk of new jobs came from hotel and food service, public education, healthcare services and temporary employment services, generally lower paying jobs compared to those in the manufacturing and construction industries.

Meanwhile, new claims for unemployment benefits — a key leading economic indicator - have risen significantly since the beginning of June.

As a result of the deteriorating employment picture — and declining home values - consumers' confidence in future economic conditions and their job security has fallen sharply over the past several months. This is a very important development, because consumer spending is largely determined by consumers' expectations of economic conditions.

If you're interested in learning more about the deteriorating retail environment and how to profit from the slowdown in consumer spending, I suggest you read the November edition of The ETF Strategist. Click here for a trial subscription.

Editor's note:
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