For the third time in 10 days, American markets and investors have received a reminder of the fragile state of the current recovery and market boom, but the warning has again been ignored.

After US consumer spending and consumer credit fell in June, retail sales had a surprise fall in July, leading to fears of more bad news for the month in coming weeks as consumers (who account for 89% of private sector spending) keep their wallets shut for all but essentials.

And no-one better illustrated this than retail giant Wal-Mart, whose US sales were weaker than expected as consumers shied away from buying at the world’s biggest and cheapest retailer.

Wal-Mart’s same store sales in the US fell 1.2% in the second quarter as not even this well regarded giant could get shy consumers to spend. Profits were a bit better and are projected to grow over the rest of the year, but it’s tough.

Wal-Mart’s news took the market by surprise as the retailer has built up a reputation in the slump of being the shop where the cash-conscious come to save.

US sales fell 1.2%, despite the retailer forecast a rise of up to 3% in the June quarter. The company said this drop was put down to consumers being “more selective” in buying discretionary items and to stronger deflation in grocery prices than expected. Wal-Mart executives said they had also underestimated the positive impact of last year’s US tax rebate checks on year-earlier sales comparisons from the June quarter of 2008.

Still, the Wal-Mart team wasn’t alone: the 0.1% fall in total retail sales last month across the US compared with a revised (upwards) gain of 0.8% in June, but excluding cars, petrol and food, core sales dropped 0.4%, which was the fifth fall in a row.

US consumers are cash-short and many have little or no credit (or are of a mind to borrow to do so). America’s “cash for clunkers” program of car buying subsidies had an impact, without it, sales would have suffered a sharper fall.

Excluding a 2.4% rise in car sales and a 0.6% gain in clothing purchases, most other retail categories suffered sales declines. Sales of building materials fell 2.1%, electronics purchases fell 1.4%, department store sales slumped 1.6% and sales at general merchandise stores dropped 0.8%. Furniture sales fell 0.9% and sales at food and beverage sellers declined 0.3% in the month.

But as disturbing as the fall in retail sales was, the struggling housing sector had more bad news.

Housing prices may have stopped falling in the past five months (and rose slightly in the last three), but that’s being driven from the rising tide of foreclosure sales and the usual Spring-Summer selling season.

Those foreclosures continue to do significant damage to American homeowners, so it’s no wonder the likes of Deutsche Bank are speculating that 48% of all US home mortgages could be underwater in two years’ time, against the present level of 26% (which is a crippling figure when you think of it).

RealtyTrac, which handles foreclosed homes, said there were more than 360,000 properties with foreclosure filings in July, up 7% from June and 32% from a year ago. In fact, one in every 355 US homes had at least one filing during July.

RealtyTrac revealed that more than 87,000 properties were repossessed by lenders, effectively sending many families out of their homes in July.

The company said there have been a total of 464,058 repossessions so far this year to the end of July. That means over 1.5 million Americans have lost their homes so far in 2009, a terrible toll and one now blithely ignored by Wall Street, which caused many of these problems in the first place.

Until that reverses and improves dramatically, the recovery in America will be floating on weak supports.