With the dollar riding high, worries about America’s trade deficit sound like negative echoes from a much earlier era. Indeed, politicians are fond of citing a robust global economy. But such happy pronouncements ignore the nagging reality that the worsening trade shortfall, which is approaching $450 billion annually, is clearly unsustainable. One British analyst recently reported it is at its worst since 1816–at its most astonishing level in nearly two centuries. A fresh look at the situation occurs Tuesday with the trade report for September. Economist Sung Won Sohn expects it to show the chasm widening, to $30.2 billion from $29.4 billion in August. “Imports should be substantial for the month, partly because of rising prices for crude oil,” said Sohn, of Wells Fargo & Co. in Minneapolis. He said exports of U.S. capital goods, including phone equipment and fiber-optic cable, are slowing, partly because of the dollar’s strength. Meanwhile, he said, “business managers are complaining, worrying and crying” over the difficulty of selling U.S. goods overseas.
FEDERAL RESERVE
NAGGED BY ENERGY, LABOR
Last week’s statement by Federal Reserve policymakers that they will hold interest rates steady prompted some analysts to predict that the central bankers will soon loosen their tight grasp on monetary policy. But Chicago investment manager William Hummer isn’t so sure. “Members of the Fed have consistently been hawkish. They remain skeptical about the tame inflation story,” said Hummer, of Wayne Hummer & Co. He said policymakers are concerned that energy prices could take another spike higher, and that labor compensation costs will continue to edge upward. He sees only about a 50-50 chance the Fed will say they are neutral about the inflation outlook after they meet Dec. 19.
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HOLIDAY SALES
NERVOUS, BUT SPENDING
For retailers, this week sounds the starting gun for the holiday shopping spree. On the plus side, the nation’s unemployment rate is at a 30-year low, incomes are rising and home ownership is up. Exerting a downward pull are the lackluster activity on Wall Street, the Fed’s half-dozen rate hikes over the last 17 months, and high levels of consumer debt. Energy prices have skyrocketed, car sales are off and Americans have nearly forgotten the concept of saving. Despite the mixed picture, most analysts believe sales between now and year-end will rise by nearly 5 percent from the same period in 1999.
EQUITIES
SANTA FLIES PAST FALL FUNK
With reporting season for third-quarter corporate profits now in the rear-view mirror, and the political climate growing (hopefully) a bit more friendly, the stock market should be ready to let the holiday good times roll. Unfortunately, market fundamentals remain murky, with only a few weeks remaining before another round of earnings warnings. It was the last warning period, in September, that torpedoed a late-summer stock rally and sent the market into a funk from which it has yet to recover.
Meanwhile, stock, bond, commodity, futures and options markets, along with federal offices, banks and many businesses, will be shut Thursday for Thanksgiving Day. On Friday, trading will be curtailed, with the stock market closing at noon Chicago time.