With the price of filling their tanks threatening to break above an astronomical $3.50 a gallon, Americans may be running out of gas when it’s time to open their wallets for a midsummer visit to the discount store.
Budgets are crimped, even as retailers prepare to trumpet their annual back-to-school buying season.
Adding to consumer worries: higher interest rates that are flattening prices for real estate, making home-equity borrowing a less appetizing method for stamping out credit card debt or for acquiring the keys to a new set of wheels.
Get ready for some of the concerns about spending to ease Friday, when the government reports June retail sales. Economist Brian Wesbury expects a gain of 0.7 percent, partly because auto sales have rebounded.
“Some discounters, notably Wal-Mart, had weak numbers last month, but others, including Target and J.C. Penney, were awesome,” said Wesbury, of First Trust Advisors in Lisle.
Spending trends point to continued strength, and talk of a slowdown is just talk, he added.
“There is no reason to suspect that the consumer is tapped out. Wage growth has been very strong, employers still are hiring, and consumer confidence is improving,” Wesbury said.
What else to watch:
– Economists who worry about the trade deficit, which topped $700 billion a year, say the only thing that could cause it to narrow would be economic slippage on this side of the oceans. Numbers for the May trade gap are due out Wednesday, and most analysts expect it to widen from the $63.4 billion shortfall a month earlier. In April, as oil hit a record price, imports of autos and auto parts increased, as did shipments of consumer goods from China. That helped to push America’s total deficit with China to $17 billion, up 9.4 percent from March.
– Second-quarter corporate profits will roll out in a heavy fashion during the next three weeks. Watch for results to show a year-over-year gain of just about 10 percent, which would make the quarter the 14th in a row of double-digit profit increases, says Chicago investment manager Marshall Front. Since the expansion began in 2001, “operating earnings for blue-chip companies have doubled, but their stocks have risen by only 12 percent,” said Front, of Front Barnett Associates. He expects earnings to continue expanding at a year-over-year growth rate of 8 percent to 10 percent for the remainder of 2006.
–William Sluis, [email protected]