Today, we get two more pieces to add to the puzzle image of the economy: (1) how much are people buying, and (2) where are prices going? Both are moving in the right direction -- retail sales are up, and prices are rising -- but too slowly. So the new puzzle pieces look like all the old puzzle pieces, and the image that's coming into view is of a tortoise-like recovery, a weakovery.

Retail sales and consumer prices are important indicators of the economy, because they're a thermometer for the American Consumer, that 300 million-wallet entity that historically drives two-thirds of the economy. The good news for retail is that sales grew in July after falling in June. The bad news is that excluding autos, sales of just about everything -- furniture, clothing, appliances, general merchandise, etc --  declined.

The inflation picture looks the same. Like salt, inflation is good in pinches. Steadily rising prices and wages reflect an economy with churn. But the 12-month change for core prices -- which excludes food and energy -- remained slight, the lowest since January 1966.

It's as boring and pointless to talk about one month's statistics as it is to stare an oblong puzzle piece with a fuzzy image. But put the pieces together, and the fuller image is clear, and clearly bad. Even as corporate profits consistently please Wall Street, the economy is languishing underneath their bottom line. Wall Street likes earnings reports. But at some point, it will demand consistent revenue growth, not just profit growth which can be disguised by temporary cost cutting. Nobody expects the housing market, a nucleus around which consumption and construction spin, to have a good second half of the year. Expect the administration to shift its focus to our homes and the consumer in the next few months.

That's my piece. Here's your Business Breakfast.


Economists on the Rest of 2010: Wall Street equity strategists see a stock rally in the second half, even as economists see headwinds aplenty for the U.S. economy. [Bloomberg BW]


Retail Is Like Everything Else: Getting Better, But Really Slowly: Excluding autos, gasoline and building materials, sales dropped in July after a 0.3 percent rise in June. [Bloomberg]


Paul Ryan Has an Op-Ed! He's not "arbitrarily rationing" health care. So is he rationally rationing health care? [WaPo]


Surprise: Generals Not Warm to Military Austerity: Of all the spending cuts and budget battles the Pentagon is confronting, none is causing more angst than Defense Secretary Robert M. Gates's vow to start getting rid of generals and admirals.  [WaPo]


The Euro-Zone is Growing. How? Germany. Strong demand from around the world for German exports helped Europe's largest economy grow 2.2% between April and June--the fastest quarterly rate since reunification in 1990. [WSJ]
