The feeling for investors yesterday morning was probably similar to that experienced by someone turning a corner to discover their house on fire. Wal-Mart, one of only two members of the Dow Jones Industrial Average to have made gains last year, missed expectations for December sales and management trimmed the outlook for earnings. Shares in the world's largest retailer dropped 7 per cent in a directionless market. If a discounter - until now a beneficiary of shopper thriftiness - is struggling, the outlook for consumer spending must be bleak indeed.

Certainly the holiday season was the toughest the current generation of shopkeepers can remember. The International Council of Shopping Centers reported a 2.2 per cent decline in US retail sales for November and December, the worst performance since at least 1970 when they started keeping count. With discounting continuing into the new year, any glimmer of hope for retail margins now relies on the industry contracting - an almost unknown phenomenon at the national level.