Through good days and bad, the American consumer has gallantly carried the economy for more than five years, loading up on clothing, furniture, household items and, of course, gasoline.
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But the flush times are threatened, as interest rates continue to rise from a 46-year low. Recently they have hit levels not seen since 2000, crimping the urge to whip out credit cards.
Economist Brian Wesbury expects Thursday’s report of August retail sales to show a drop of 0.3 percent, reversing a whopping 1.4 percent gain a month earlier.
“Despite the weak numbers last month, there is no evidence that the consumer is rolling over. Looking at the current quarter, it appears that real growth in consumer spending will be a very solid 3 1/2 percent,” said Wesbury, of First Trust Advisors in Lisle. The ho-hum activity during August was mainly due to a drop in gasoline prices and tepid sales at auto dealerships.
“In general, spending has made a very nice rebound over the last several months,” he said. “With wage growth accelerating and joblessness at 4.7 percent, the consumer appears to be in good shape.”
Other news to watch:
– At a time when the fires of inflation were thought to be ebbing, a leap in payroll costs has raised eyebrows among members of the Federal Reserve. A report last week showed the tab for workers soaring at a 4.9 percent annual rate, far above expectations. The disappointing news increases a likelihood that central bankers will raise rates when they gather next week, said Chicago banker Kenneth Skopec of MB Financial Bank. It would mark the 18th time credit has been tightened in 27 months. “Inflation remains the Fed’s key concern, even though some sectors of the economy appear to be weakening. The real estate market is looking putrid,” he said.
– For the stock market, the opening week of September provided a note of gloom, as prices sagged on worries that the economy will slip steeply. Such a scenario would torpedo corporate profits. They already are starting to lose momentum, after rising at a 13 percent year-over-year rate in the most recent quarter, said Chicago investment analyst Dirk Van Dijk of Zacks Investment Research. “Overall, the third quarter is expected to deliver choppier results than the second,” he said. “That’s not to say that earnings won’t remain bullish, but we are expecting a material decline in comparable growth rates.”
–William Sluis, [email protected]