Economic Outlook: Who's willing to shop?

Investors worldwide will look at U.S. building starts Tuesday as a signal that the U.S. consumer is ready to put hammer and nail into an economic recovery.

The U.S. consumer is the great unknown. Consumers can be lead to water with low interest rates and tax breaks but it remains to be seen how much they are willing to drink.

Estimates generally place the consumers' role in the U.S. economy at 70 percent or higher. In the global economy, U.S. consumers are sometimes estimated to make up 20 percent of the pie.

Housing could send a strong signal consumers are ready to spend as new homes beg to be filled with rugs, lamps, chairs, cribs, toys, bicycles and appliances. In the general scheme of things, the adage could be, build a house, sell a lawn mower.

But, consumers are stressed, unemployed and contemplating huge losses in the portfolios they were counting on to get them through retirement, economists say.

U.S. consumers, in fact, are putting money away at a faster rate than before the recession, tucking away 5.2 percent of their disposable income in the second quarter, compared to 1.2 percent saved in the first quarter of 2008.

"The household sector has never been so stressed," RGE Monitor Chairman Nouriel Roubini told The Washington Post recently. "Savings has to go much higher, and that is going to slow growth of consumption even once incomes start growing."

Savings, of course, translate to pulling dollars out of circulation. The McKinsey Global Institute reported 1 percent increase in the savings rate pulls $100 billion out of the economy.

Despite these signals, economists predict housing starts increased in July after rising 3.6 percent in June compared to May.

In Washington, the U.S. Treasury and the Federal Reserve said Monday they would extend the Term Asset-Backed Securities Lending Facility for six months. The program was designed to ease restrictions for automobile and credit card lending, an effort met so far with mixed results.

In a recent Fed study, about 30 percent of senior loan officers indicated their firms would tighten restrictions on both commercial and consumer loans. Fifty-five percent of banks said restrictions would remain tight well into 2010, The New York Times reported.

Asian and Europe markets showed signs of regaining losses after a Monday's sharp downturn.

China's Shanghai composite rose 1.4 percent Tuesday; the Hang Seng index in Hong Kong rose 0.84 percent. The Nikkei 225 in Japan gained 0.16 percent. In Australia, the S&P/ASX fell 0.15 percent.

In Europe, in midday trading, the FTSE 100 in Britain rose 0.7 percent. The DAX 30 in Germany rose 0.61 percent. In France, the CAC 40 rose 0.59 percent, while the pan-European DJStoxx 600 rose 1.03 percent.

In Germany, where the economy grew 0.3 percent in the second quarter, investor confidence surged in August, ZEW Research said

The ZEW Indicator for Economic Sentiment rose 16.6 points, reaching 56.1, a value "well above the indicators historic average of 26.5," ZEW said in a statement.