While the major financial media continues to focus on the credit crunch that is affecting the banking system, they may be overlooking a more troublesome development: The credit crunch is also starting to affect the consumer.

For example, consumer spending fell to an annualized increase of only 1.4 percent in July — the slowest since September 2006 and well below the average increase of 7.0 percent over the past six months. This is a very important development because consumer spending accounts for 70 percent of the nation's total output of goods and services.

Meanwhile, huge increases in the number of home foreclosures over the past several months suggest consumers will continue to tighten their purses, as the employment situation weakens and consumers' wealth deteriorates.

Foreclosures almost doubled during July, rising to 179,599 from 92,845 in the same period a year ago. The situation is likely to worsen over the coming months, with RealtyTrac expecting 2 million foreclosures to be filed for the full year in 2007.

As foreclosures rise, home values are expected to continue to deteriorate as banks unload the homes they take over onto a market that is already experiencing a record level of unsold homes. For example, the inventory of new homes currently available for sale is expected to remain unsold for the next nine months.

This record level of unsold homes led the National Association of Realtors to announce last week that home values are on track to experience their first annual decline since the Great Depression of the 1930s; new home prices have already fallen 6.5 percent over the past six months.

Sir John Templeton first warned in the pages of Financial Intelligence Report that housing prices could fall up to 50 percent. Go here now.

These falling home values are significantly reducing consumers' wealth — real estate holdings account for the largest percentage of household wealth. Meanwhile, the recent declines in stock prices are also causing consumers' wealth to deteriorate.

With consumer incomes rising only modestly, their debt levels near all-time highs, and their wealth declining, there's a good chance consumer spending will continue to fall over the coming months.

A good example of how consumers have begun to cut back on their shopping at the local mall came from last month's retail same-store sales reports, as aggregate same-store sales at the nations' retail chains during June were the worst since March 2003.

My research indicates that same-store sales will continue to deteriorate and that the holiday shopping season this winter will be the worst since 2002, as banks tighten their lending standards and more than a million adjustable-rate mortgages reset to significantly higher rates.

But, instead of waiting for these developments to occur and for stock prices to fall, you might want to start reading our Financial Intelligence Report, which focuses on covering these types of events before they unfold.