consumer slowdown is expected to drag US gross domestic product growth to below 1 per cent (annualised) in the current quarter from the 3.9 per cent rebound in the third quarter. More easing by the Federal Reserve is likely. Much more. We would not be surprised to see Fed funds go as low as 2 per cent. Segments of the stock market have begun to price in our macro view. The S&P 500 is up almost 3 per cent this year, but financials have fallen 16 per cent and consumer cyclicals are down 11 per cent.

The next leg is likely to see a spillover into areas of the market and the economy that historically respond to shifts in consumer spending. In real terms, consumer spending has risen for an unprecedented 63 consecutive quarters, far surpassing the 1980s boom. This amazing development attests to the powerful effects of easier monetary policy, fiscal largesse, booming home prices and widespread credit availability.

But the run up in energy prices is really starting to bite, one reason why consumer confidence has started to slide. Oil's move above $90 a barrel is akin to a tax hike on the US economy, which imports 10m barrels of crude daily. Traditional rules of thumb would suggest that, if current levels are maintained, energy prices alone will drain as much as 1.5 percentage points from consumer spending. Petrol prices at $3 a gallon is more than 80 cents higher than a year ago. This is equivalent to a $100bn tax hit. Heating oil futures just hit a record $2.62 a gallon – up more than 60 per cent since the start of the year. The Department of Energy is estimating the average home heating bill will increase by 22 per cent this winter to $1,785 from $1,466 last year.

Meanwhile, a visible slowing of the jobs market is under way. Payroll growth is running barely above 1 per cent year-on-year, the slowest since spring 2004. Just three broad sectors are creating jobs – government, health/education and leisure/accommodation. About 60 per cent of the employment pie is shedding jobs: financial services, manufacturing (with 2m jobs linked to housing), retailing and residential construction, which has shed more than 50,000 jobs in the past two months. Keep in mind, there has never been a time when the unemployment rate rose 1 percentage point or more without a recessionary backdrop unfolding.

In the housing market, September was a watershed. Builders cut housing starts to a decade-low 1.19m (annualised rate), and there are still 4.4m unsold homes for sale, 16 per cent more than a year ago. This points to sustained deflation pressure and lower sales volumes. Housing starts could be forced as low as 800,000 to clear the market.

Housing is a $23,000bn asset class, but this market is going to be under pressure for years and the deepest retrenchment from the negative wealth effect has yet to be felt by consumers.

The record surge in US house prices made households feel richer and willing to spend more of their after-tax earnings. No other cycle has seen consumer spending growth so wildly exceed personal income growth – by nearly a full percentage point annually over the past six years. Since late 2001, households' debt-to-disposable income ratio has surged from 100 per cent to a record of 136 per cent. In six years, the personal sector tacked on as much debt as the prior 40 years combined. This has been the most pronounced credit cycle in history, but this process is now in reverse and will prove to be a multi-year adjustment.