While the subprime mortgage fallout continues to dominate the news headlines, many investors appear to be overlooking some important underlying economic developments, including the significant slowdown in consumer spending and dismal business investment expenditures.

Earlier today, the mainstream financial media focused on a report from BNP Paribas, France's largest bank, whereby the bank announced that it halted withdrawals from three investment funds. BNP Paribas stated that it couldn't fairly value its holdings due to losses resulting from the U.S. subprime mortgage market.

Although the announcement from BNP Paribas, and recent reports from other financial institutions concerning the sub-prime mortgage market, shouldn't be dismissed, events such as these are merely "shocks" to the financial market. These types of shocks rarely have lasting effects when the economy is strong.

The problem, however, is that the U.S. economy is not strong at this time. Rather, the economy has weakened considerably over the past year. And today's same-store sales reports from the nation's major retail chain stores clearly reveal the degree to which consumers are feeling the effects of the slowing economy.

For example, 44 retail chain stores had reported their July same-store sales as of 11:00 a.m. today and only 25 percent of those stores reported that their sales had improved (by more than 2 percent) from the same month a year ago. This is by far the smallest percentage of retain chain stores to report same-store sales increases since March 2003.

With disposable income gains falling during each of the past three months, home values continuing to decline, and consumer debt levels near all-time highs, there's a good chance consumers will continue to tighten their pocketbooks in the months ahead. And, with consumer spending accounting for approximately 70 percent of GDP, the outlook for the economy going forward appears to be nowhere near as good as what the government would have you believe.

So, as I've warned you in the past, you might want to lighten up on your equity holdings and start to prepare for the beginning of a new a bear market.