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Well, the numbers are finally in and the US retail sector had its worst holiday season in 5 years. Economists had been predicting this even before the 2007 holiday shopping season kicked into gear. Actually, anyone paying any attention at all to the dire economic news — sub-prime mortgage mess, turmoil in the credit markets, and ever rising food and energy prices, could have seen this coming from way off

It was only a matter of time before the US consumer started putting a clamp on spending.

That consumers have held in there this long is either a testament to American resiliency or just further evidence that Americans are living well beyond their means. Take your pick.

So what does a worsening economy and a slowdown in consumer spending mean for IMers?

First, let’s take a look at a small slice of consumer spending, a micro-slice actually, from my own IM business.

I have posted previously that I’ve noticed an extreme drop off in conversions for a niche market that only last year at this same time was quite profitable for me. I won’t reveal the nature of this niche market here, but I think it could be an indication of things beyond just that market. It could possibly be the “canary in the coal mine” in terms of how certain consumers are reigning in their spending for a wider range of discretionary items. The net effect, if my hunch is right, could be a slow down across the board for this broader market as well as related industries.

Like everything else concerning economics, only time will tell if your forecasts (wild ass guesses in most cases) were anywhere near accurate.

I think economists cover their predictions by referring to the “lagging indicators”.

From a broader perspective, our markets in IM break down into consumer staples and discretionary items. There is also a sub-class under discretionary items that is somewhat unique to the IM market itself and I’ll discuss that a little later on.

For now, let’s take a look at what it is we sell or promote as affiliate marketers online.

Despite a slowing economy that involves a range of bad things for consumers — tighter credit, decreasing home values, falling stock prices, and job loss, consumers still need the bare necessities in order to sustain life. I think you know what most of these are. Of course, one’s definition of essential items can vary wildly.

Whereas many people will agree that food and medicine are vital products for sustaining life, others will make a strong case that Hannah Montana tickets and their monthly NetFlix subscription are just as essential. Even more so, if a pre-teenage daughter is involved in the case of Hannah Montana tickets.

Products vital to sustaining life and making that life somewhat comfortable are what is known as “consumer staples“. If you’re in a product from this category, you may see some softening, but it should not be extreme. Do bear in mind though, that products in this category, as a group, tend to be extremely competitive for affiliate marketers. Just have a look at contact lenses and diabetic supplies for evidence of the carnage that exists for these kinds of products online.

The category of consumer products that are non-essential, fall into the area of “discretionary spending“. These are basically items that people spend their disposable income on for entertainment and relaxation. The price range for these products is enormous. From the nickel and dime items like iTunes downloads and video games to big ticket luxury items like vacation packages and top of the line golf clubs costing several thousand dollars.

However, the old adage that the rich keep getting richer has never been more true.

So while the rest of us middle class slobs start counting our pennies during tough economic times, the more well to do among us merely chuckle and keep on treating themselves like royalty. Therefore, it might prove fruitful to try your hand at very high end products aimed at this wealthy class of online consumers with money to burn during an economic slow down.

It’s the lower to medium-priced items that typically get left on the shelves when consumers start feeling squeezed.

However, there are no hard and fast rules for this either. People love their iTunes and unlimited DVD and video game rentals, so perhaps these products will continue to sell briskly throughout an economic downturn.

The one category that straddles the line between consumer staples and discretionary items is the IM market itself.

It’s no secret that more and more people are going online each month to attempt to earn money. I have a feeling that this trend will begin to accelerate as more people start feeling the economic squeeze in terms of higher prices for essential items and begin to lose their jobs through layoffs. Many of these people will be completely new to online marketing and will be in a hurry to get started. Unfortunately, many of them will fall victim to predatory IMers out to make a quick buck.

Nevertheless, a large and eager market continues to grow in this space.

And lest we forget, the world is a much smaller place today than before the dawn of the WWW and as such, our economies are inextricably inter-connected. The economic pain that the US is feeling now is also being experienced  around the world. There is no escaping it unless you’re fortunate to live in an isolated village deep in the rain forest somewhere.

It also amuses me that economists and the talking heads on CNBC are debating whether or not the US will plunge into a recession this year.

Hello? We’re already in one, so wake up and smell the coffee.

The only question remaining now is how severe it turns out to be and how long it will stick around.

In the mean time I need to go and dump some more stocks from my portfolio.