His faux beard barely hiding a look of apprehension, the department store version of Santa is bearing a sizable weight this holiday season. Unless the spending spirit ignites consumers, and soon, the Yuletide may not be all that merry for the old gent after all. Forecasters say purchasing thus far has only been lukewarm; they are betting on a last-minute blitz by consumers, already laden with debt, to lift retailers. An important indicator will roll out Thursday, with November retail sales. Chicago economist Brian Wesbury looks for a gain of 0.4 percent, or 0.2 percent when auto sales are excluded. “Americans are doing plenty of buying, but many prices are falling,” he says. “Even so, when the holiday season is over, it will show a gain of 4.5 to 5 percent from last year.” Such results, says Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, should bring smiles to Santa’s visage.
TRADE DEFICIT
WIDENING FEARS
The Commerce Department’s report Wednesday on the third-quarter current account deficit, or trade gap, will be carefully monitored because of fears that things can only get worse. Economists are warning that in coming months, slower growth around the Pacific Rim will mean weaker demand for U.S. exports as Asian businesses cut spending or fail. At the same time, imports will likely continue to flood U.S. shores, hurting domestic manufacturers, as Asian producers cut prices to attract dollars and stabilize their troubled economies.
PRODUCER PRICES
NO PRESSURE ON FED
Don’t look for much in the way of inflation in Friday’s report on the November producer price index; Chicago economist William Hummer says it will show a gain of 0.1 percent, fortifying the Federal Reserve in holding interest rates steady when policymakers meet Dec. 16. Hummer, however, says the rapid pace of economic growth, even in the absence of price inflation, is disturbing to the Fed. “There are no real signs of a U.S. slowdown,” he says. “If it weren’t for the crisis in Asia, there is no question the Fed would raise rates. But for now, the central bank’s hands are tied.” Hummer, of Wayne Hummer & Co., says there likely will be added pressure on the Fed to boost rates early next year. “Otherwise, sooner or later, there is a risk the central bank will lose credibility.”
CORPORATE EARNINGS
LOOKING FAR AHEAD
With the days of 1997 down to a precious few, investors in the stock market are looking ahead to next year, amid considerable trepidation over the prospects for corporate earnings. Chicago investment adviser Rao Chalasani says such anxieties appear overdone. “We expect earnings growth next year to slow to perhaps only 4 percent,” he says in his latest report to clients. But Chalasani, of Everen Securities Inc., says profit growth should expand to 7 percent in 1999. “By the beginning of the second quarter of next year, investors may be willing to focus more on 1999 earnings,” he says. That would give stocks a chance to move higher.
