While many Americans are occupied with fall football games and the prospect of lighthearted Halloween high jinks, the nation’s retailers are focused three months hence. That’s when they’ll be toting up results from another holiday spending season, their key to profitability. At this point, the outlook for the year-end buying spree is clouded, as consumers cope with the high price of gasoline and home heating fuel, higher interest rates, and a heavy load of debts. However, Chicago economist Brian Wesbury says Friday’s report on September retail sales will point to solid buying, with a gain of 0.4 percent. Even so, Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, said that for retailers, “There are more dark clouds on the horizon than bright sky.” He said the auto industry is nearing a peak, and “a near-record level of rebates are needed to rev up sales.” As for overall year-end activity, Wesbury believes debt-conscious consumers will stir up only modest sales gains for retailers.
FEDERAL RESERVE
LOAN WORRIES GROW
Members of the Federal Reserve met quietly last week, without taking action on monetary policy. But they issued a statement saying they remain on watch against inflation, in light of tight labor markets. Chicago banker Kenneth Skopec said central bankers have another worry looming, in the form of a growing number of troubled loans and rising defaults. “There have been hints by members of the Fed that they fear the quality of credit has declined,” said Skopec, of Mid City Financial Corp. “The banking industry has done just about everything you can name that is contrary to prudent lending practices. By this time next year, a lot of the resulting bad loans will need to be written down.”
INFLATION
CORE RATE STILL BENIGN
This week’s inflation news rolls out Friday, with the September producer price index. It could be a stunner, with economists at Banc of America Securities in San Francisco predicting a rise of 0.5 percent. However, they anticipate a gain of only 0.1 percent when energy and food are excluded. Economist Steven Wood said it is the latter number that is worth weighing because “the relatively benign growth of core inflation is of key importance.” He said the year-over-year rate of wholesale price increases, with food and energy excluded, is running at only about 1 percent.
HOLIDAY WEEK
BETTER MOOD ON HORIZON
Government offices and some banks and businesses are closed Monday for Columbus Day, but the stock market will trade normally, although it is also Yom Kippur. The bond market is closed, and the regular weekly auction of short-term Treasury bills will take place Tuesday. Meanwhile, Wall Street has spent the last few weeks in the grasp of bears, as investors have wallowed in a variety of worries. Despite that, Chicago investment manager Marshall Front says the mood of investors should lift as October fades from the calendar. “We have endured a very choppy market for the last 18 months or so, but things will improve around the time of the elections and toward year-end,” said Front, of Front Barnett Associates. “By then, we will perceive a clear end to Fed rate increases, and people will be looking ahead to reduced rates in 2001.”
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