RETAIL SALES
Buyers unruffled
Experts have been humming a simple, repetitive tune for the better part of two years: If the consumer doesn’t bend, the economy won’t break.
During that same time, while the music stopped for dot-coms and some segments of American industry, solid consumer spending kept many sectors in harmony.
Yet as the nation emerges from a recession that many found difficult to measure, doubts remain about the recovery’s staying power. But some of the experts are still trotting out the same ditty: Don’t worry, be happy.
That brings us to Tuesday’s government report on April retail sales. Chicago economist Brian Wesbury is looking for a solid gain of 0.8 percent. Much of the advance stems from auto sales, which boomed last month, he said, or the gain would have been only 0.3 percent.
“At this point, the consumer is in much better shape than following past slowdowns,” said Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm.
He noted that in the last recession in 1991, joblessness peaked at 7.8 percent, while it is currently 6 percent, its highest level in the current cycle.
Wesbury said that last month’s sales elicited grumbling from some retailers, who were affected by an early Easter.
But overall, Wesbury said: “Sales are due to move higher from here. Americans still have financial firepower; so there is additional spending ahead.”
TRADE GAP
Shaky imbalance
More Top Picks Best Clip On Magnifiers For Glasses
Worries about the trade deficit have been pushed to the back burner for years, and don’t expect too much anguish over Friday’s results for March.
Economist Sung Won Sohn describes the trade gap as “an accident waiting to happen,” although the picture might improve slightly in the short term.
“The dollar is at long-term risk from the huge trade imbalance, and harm that could befall the currency could occur quite suddenly,” said Sohn, of Wells Fargo & Co. in Minneapolis.
For now, however, he expects the latest report will show the chasm narrowing slightly, to $30 billion from $31.5 billion in February.
“Imports have moved up more rapidly than exports, as our economy has recovered,” Sohn said. “But we are seeing growing demand, especially in Asia, for aircraft and such capital items as semiconductor equipment.”
A wild card, he said, is oil: any further hike in prices, or additional growth of demand in the United States, could worsen the trade dilemma.
CONSUMER PRICES
Pressures building
Economists who fret about inflation have pointed to the dollar’s recent decline as well as a leap in gold and petroleum prices as evidence that pressures are building. But Friday’s report on April wholesale prices eased those concerns. A 3.2 percent drop in food costs overwhelmed a rise in energy during the month, for an overall decline of 0.2 percent.
That prompted the experts to scale back their expectations for Wednesday’s report on the April consumer price index. They now are looking for a gain of about 0.2 percent. Their bottom line: Corporations have lost pricing power.
On Thursday, April’s housing starts are expected to show a bounceback, to an annual rate of about 1.70 million from 1.65 million in March.
In February, amid unusually warm winter weather, they soared to a rate of 1.79 million. With long-term mortgage rates holding below 7 percent, few analysts expect housing to show any serious setback in the near term.
Other reports due out this week include March business inventories and April industrial production and capacity utilization, all on Wednesday.
EQUITIES
Struggling to rally
A glum stock market fought its way back from the depths late last week, following a run of losses that erased big chunks of the gains rolled up post-Sept. 11. With first-quarter corporate profits out of the way, however, some on Wall Street are willing to bet that the rest of this year will see a gradual improvement in both earnings and the mood of investors.
Flossmoor investment manager Richard Evans says a seasonal factor favors investors: “Many market declines have ended in May, and we may have seen the bottom,” he said.
Investors have grown tired of the recent gloom, he said, but it will take a solid rally of one or two months before they are at ease.
“What it will require is a meaningful bounce,” Evans said, “hopefully ahead of Memorial Day.”