As Americans pause for the final day of holiday revelry, they look ahead to a year that may portend an economic slowdown.
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Those who expect less-than-stellar growth say other parts of the globe haven’t kept pace with activity on our shores, while rising interest rates are becoming a drag.
The wild card is consumers, who show few signs of exhaustion but are deep in debt and heavily dependent on the job market. If hiring were to stall, expenditures could stagnate.
The consensus estimate for job growth in December is 200,000. But Chicago economist Robert Dederick predicts Friday’s employment report will show payrolls growing by 225,000 positions, on top of 215,000 in November, while joblessness ticks down a notch, to 4.9 percent. Dederick said consumers are, indeed, pulling back.
“The primary reason for growing caution by consumers is the housing market, which is past its peak and is sliding over the edge,” said Dederick, of RGD Economics. “That means the household sector of the economy is beginning to lose some of its mojo.”
The good news is that businesses are beginning to pick up the slack, he said.
“Corporate spending will be very critical in 2006, and it appears that businesses are stepping up to the plate,” Dederick said.
That means additional spending for equipment and more hiring, he said.
Other news to watch next week:
– The mystery about the strength of holiday shopping will be largely resolved Thursday, when discount and department store sales are totaled for December. Optimists are calling for a robust gain of about 5 percent from last year, including sales over the Internet and gift cards. Without those components, sales were up by about 3 percent. Merchants have complained that the holiday shopping season suffered from a lack of compelling clothing trends and must-have electronic items.
– Watch for Tuesday’s report of December car and light-truck sales to indicate that no dramatic turnaround is near for sagging car sales. Major carmakers’ best hope for fresh revenue hinges on new products, and an array of offerings is likely to appear at January’s Detroit Auto Show. Analysts say it is do-or-die time for the industry.
– Chicago investment manager Marshall Front said 2006 will find corporate profit expanding “in the high single digits.” Front, of Front Barnett Associates, said investors must look past the Federal Reserve’s interest rate campaign, which should end within a matter of months. “It’s time to see what the economy will look like when the central bank has completed its tightening effort,” said Front. “The major factor for the year ahead is that American workers will continue to boost their productivity, which translates into additional growth in profits.”
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