RETAIL SALES
Homeward bound
Americans suffer a disconnect when they are fed a steady diet of economic doom-and-gloom.
While they certainly are concerned about fellow workers being handed their hats by corporations engaged in cutbacks and layoffs, most consumers continue to flock to the shopping malls and car dealerships. That’s a main reason the economy has managed to avoid recession.
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Yet not all is well among retailers, who wonder how long the buying pace can be maintained by shoppers who worry about their jobs and may be deep in hock to credit card companies.
Without consumers, the economy would be hard-hit, because retail spending affects about two-thirds of overall activity.
Expect Friday’s report on August retail sales to show a rise of 0.2 percent, or even a bit more, after a flat number in July. Without weakening car and light-truck sales, August would show a rise of 0.4 percent.
So says Chicago economist Diane Swonk, who added that consumers have turned their attention “away from filling their garages, to filling up their homes. Many of them have bought new places to live in recent months and are buying new furniture and household items.”
Swonk, of Bank One Corp., said back-to-school sales are turning out better than expected, helped in part by government tax rebate checks that have begun to arrive. Consumers are even buying fair amounts of denim clothing.
“In short, Main Street is hanging in there, even as Wall Street suffers,” Swonk said. “Americans haven’t stopped spending.”
PRODUCER PRICES
Creeping upward
The August report on wholesale inflation, or producer price index, is due out on Friday, and don’t expect a repeat of the 0.9 percent drop in July. For that matter, don’t expect a repeat of the 0.4 percent decline in June.
Most analysts are looking for a mild gain of about 0.2 percent.
Chicago banker Kenneth Skopec says the lack of inflation paves the way for members of the Federal Reserve to reduce interest rates by another quarter-point, to 3.25 percent, when they gather Oct. 2.
Skopec, of Mid City Financial Corp., which is merging with MB Financial Inc., said “the Fed is nearly obligated to move rates another step lower.”
He said there is disappointment that tax rebate checks and lower income tax rates haven’t had the effect of immediately stimulating economic activity across the board.
“This is a problem for Fed Chairman Alan Greenspan, because for many years he was seen as walking on water,” Skopec said.
“At this point, Greenspan is encountering criticism that the current rate cuts are having little effect and that the Fed raised rates too much last year.”
He said that for now the central bank is on watch for signs of trouble in the real estate market because “the decline in the stock market has created a plunge in paper wealth. We are seeing mortgage delinquencies at a nine-year high. That’s scary.”
TRADE DEFICIT
Dollar bashing
Worth tabbing are reports on July consumer credit on Monday; the second-quarter current account, or trade deficit, on Wednesday; and August industrial production and capacity utilization on Friday.
Of the group, watch for the trade numbers, which are likely to show an annual shortfall growing beyond $400 billion.
That gap could mean additional grief for the dollar, which has been slipping against foreign currencies, as trading nations grope for ways to find new customers in a global market stuck in the doldrums.
EQUITIES
No rest for weary
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There was a time when the stock market could rest easy after Labor Day, secure in the knowledge that October was weeks distant. But in the current climate on Wall Street, worries about corporate earnings won’t go away. In the next three weeks, such concerns will grow.
Investment manager Steve Young said that “human nature prevents investors from buying when the situation looks dismal, as it does now.”
But Young, of Banc of America Capital Management in St. Louis, added, “Despite investors’ fears, the economic environment is transitioning toward one that favors an upturn in stocks. Any signs of earnings stabilization could potentially do wonders for stock prices.”