The disappointing July retail sales report was a reminder that the

economic recovery is likely to be uneven. Instead of rising 0.6 percent

as expected, sales fell 0.1 percent from June.

The Cash for Clunkers program did play a positive role as motor vehicle and parts dealers enjoyed a 2.8 percent increase. But the impact was not as great as anticipated. And excluding motor vehicle sales, retail activity slumped

by 0.6 percent, well below the expected flat reading.

In fairness, some of the weakness resulted from lower gasoline prices

and no one is complaining about that. But, there was little else to

cheer about inside the report, reminding all that the trajectory and

sustainability of economic recovery is very much in question if the

consumer sector does not play at least a supporting role.

Chinese stocks decline

A period of consolidation, especially after the 15 percent

uninterrupted rise from July 10, became increasingly likely as the

positive effects of second quarter earnings season began to fade and

the low volume days of late summer approached. Ominously, Chinese

stocks had recently begun to falter on concerns that economic stimulus

was being scaled back. On July 29, the Shanghai Composite index fell a

sharp 5 percent as fears of curtailed bank lending first surfaced.

After official denials, the index recovered and by August 4 had

established a new high.

However, doubts persisted, and from the close on August 4 through

August 14, the index had slid 12 percent from its peak. As trading got

underway to begin this week, the Shanghai index plunged an additional

5.7 percent, bringing its correction to an amazingly swift decline of

17 percent in just nine trading sessions.

But the weakness in China has been watched anxiously in other markets

since it was China that first managed, through stimulus, to reverse the

effects of the global slowdown and return growth to an annualized pace

of 8 percent. If China were to slow, the thinking goes, then a critical

engine of growth to the global economy might not be as solid as

believed.

Despite what might well be the start of a correction in stock prices,

it is unlikely that China would do much to slow its growth. It went to

great lengths to revitalize it and would have little reason to reverse

course, either economically or politically. Of course, China is likely

pleased that an emerging stock market bubble is being pierced, but not

its economy.

What Will the Path be to Recovery

In the final analysis, it will be the economic data that reveals the

path of the recovery, not short term movements in overheated markets.

However, living through those movements can certainly cause one’s

anxiety level to increase.

Paul Rendine is a financial consultant with Ameriprse Financial Inc.

He can be contacted at 800-759-2083 or at his e-mail address at

quoteman3@aol.com with any comments or questions.