Car-centric country is feeling the pinch

For those who dream of owning a cliff-top eyrie overlooking the Golden Gate bridge, it could soon be time to buy. Few indicators better illustrate the American economy's present wobbling fortunes than San Francisco's property market. The number of sales in the Bay area tumbled by 31% in July. Prices are still steady, defusing any suggestion of a crash, but while sellers once dictated the pace, the era of bargaining has returned.

In a nation where prosperity is deeply entwined with home ownership, real estate tends to be an early sign of things to come. The National Association of Realtors provided sobering news this week with figures showing a 7% annual fall in home sales. Lawrence Yun, the NAR's senior economist, said: "The housing market has carried the economy in recent years with robust sales and strong prices - it provided consumers with confidence to go out and spend. Now the housing market is cooling, it would indicate an overall weakness."

The picture is still patchy. One commentator made much of a "tale of two villes" - prices fell by 11% in Danville, Illinois, but jumped by 18% in Jacksonville, Florida, during the second quarter. Mr Yun said: "Roughly two-thirds of the country by population is experiencing a sales decline. The other third is experiencing an increase."

Anticipating weakness, the Federal Reserve opted to hold interest rates this month, ending two years of successive rises. Economic growth slowed from 5.6% in the first quarter to 2.5% in the second. The New York-based Conference Board, which puts together a compilation of economic indicators, announced on Thursday that its index fell by 0.1% in July, reversing a 0.1% rise in June. While manufacturing hours, stock prices and consumer confidence remained relatively strong, it said there were warning signs with building permits, unemployment figures and capital investment.

Ken Goldstein, the board's economist, said: "The good news may be that this is as bad as it gets - things may not soften much more. The bad news is that it might not get much better until 2007 at the earliest." Although many blame high oil prices, Mr Goldstein said it was time for the good times to waver. "This is a starting-to-age, late middle-aged economic explosion. You can't stay above average all the time."

Early warning signs have prompted two of America's biggest retailers - Wal-Mart and Home Depot - to take a cautious tone. Wal-Mart pointed the finger at fuel prices, saying less affluent customers were rationing petrol and taking fewer trips to its out-of-town stores. Home Depot was more general, saying merely that it was softening its forecasts because of "mixed economic signals".

The jobs market remains fairly stable. Some economists believe the US is near to full employment. Whether that remains the case - with fuel at more than $3 a gallon (42p a litre), America's car-centric economy is feeling the pinch.