RETAIL SALES
`Reasonable track’
During the long, not-so-hot days of summer, economists have been puzzling over what has happened to the American consumer. As sales in stores and auto dealerships began weakening, the experts first blamed cooler-than-normal weather, then a surge in the price of gasoline.
Others said consumers are overburdened by high housing costs, chained to a mountain of mortgage debt.
In recent weeks, back-to-school sales, which are considered a surefire way to pull customers into stores, have been less than stellar. The question is whether the rapid approach of autumn will get people spending with their former gusto.
Economist Lynn Reaser expects Tuesday’s report of August retail sales to show a tiny gain of 0.1 percent, following an advance of 0.7 percent a month earlier. When auto sales are excluded, August will show a gain of 0.2 percent, she said.
“Auto sales weakened last month after a big push propelled by incentives in July, while back-so-school sales came up somewhat short of expectations,” said Reaser, of Banc of America Capital Markets in St. Louis.
A dip in gasoline prices helped boost sales elsewhere, she said, but discounters saw only small gains while stores catering to high-end buyers fared better.
Reaser’s bottom line: “Consumer spending remains on a reasonable track, and there are expectations that holiday sales will be solid.”
More Top Picks Best Vinyl Cutting Machines For Crafters
FEDERAL RESERVE
Another quarter point
Only nine days remain before members of the Federal Open Market Committee gather to discuss interest rates, and economists are looking for additional action on monetary policy.
The Fed has boosted its benchmark federal funds rate, the interest that banks charge each other on overnight loans, from a 46-year low of 1 percent to 1.5 percent in the last three months.
Economist Scott Pedowitz says there is more than a 90 percent chance that central bankers will boost the rate by a quarter point at the meeting Sept. 21.
“It also is quite likely that the Fed will raise the rate another quarter point in November,” he said. The November move would put rates at 2 percent, “which has been an unofficial target for months,” Pedowitz said. “After that, members of the Fed will take time to re-evaluate.”
Ahead of their meeting, central bankers will need to consider Thursday’s report of the August consumer price index, said Pedowitz, of Commerzbank Securities in New York City.
He expects it to show a modest gain of 0.2 percent for the month.
“The biggest price drops we have seen are for cars and light trucks. Gasoline and food prices also have reversed,” Pedowitz said.
However, he said it is noteworthy that despite a pause last month, raw materials prices have shown huge increases over the last 12 months.
EQUITIES
Room to advance
The stock market often endures choppy trading in September, which risk-averse investors view as one of the year’s toughest times for making money. Compounding the problem, the next few weeks are when companies typically warn of earnings shortfalls.
Chicago investment manager Marshall Front says much of the bad news already is out of the way, because “the stock market already has discounted the fact that we had a significant slowdown in economic activity this summer.”
He expects third-quarter results to be up 12 percent to 14 percent from a year earlier, less torrid than the 25 percent profit gains reported earlier in the year.
But Front, of Front Barnett Associates, says companies are providing strong guidance for the remainder of 2004.
“Profits are well ahead of the levels seen during the days of the stock market bubble,” he said. “Companies have repaired their balance sheets and are sitting on a lot of cash, so there is still room for stock prices to head higher.”