With Wall Street and the world economy wobbling nervously, much of the globe’s weight is falling on the shoulders of American consumers. Can they maintain their breathless pace of buying? The question is particularly pertinent for down-and-out Asian countries, who are trying to pull themselves out of a financial morass by latching onto U.S. consumers and their credit cards. A test of the situation comes out Wednesday, with December retail sales. Chicago economist John Silvia says it will show a gain of 0.8 percent, far stronger than was expected around Christmas. “Store activity was very strong after the holiday, and car sales also contributed more than expected,” says Silvia, of Kemper Funds. “There is no way Americans can carry the entire world economy, ” he says. “Already, more than half of imported consumer goods imports come from Asia, excluding Japan.” Silvia says a bright spot is that imported items, notably apparel, will go down in price.
CONSUMER PRICES
FUZZY PICTURE
The inflation picture has become so muddled that even Federal Reserve Board Chairman Alan Greenspan, normally a bulwark against rising prices, is cast in the unfamiliar role of warning about its alter image, deflation. That adds to the concern over Tuesday’s report on the December consumer price index. Chicago economist Brian Wesbury says it will show prices unchanged, “which would mean the rise in CPI for 1997 would be only 1.6 percent, the lowest yearly rise since 1986.” Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, says that if food and energy are excluded, last year’s inflation rate would be the lowest since 1965. “For 1998, it appears inflation will rise by only 1 to 1.5 percent,” says Wesbury. “Were it to fall any lower, it would create pressure for the Fed to reduce interest rates.”
CORPORATE PROFITS
ASIA A DOWNER
It’s the season for rolling out fourth-quarter corporate profits, with numerous surprises on the upside. But widespread pessimism has set in among investors, who seem to think problems in Asia outweigh the good earnings news at home. For what it’s worth, most analysts are calling for fourth-quarter earnings to be up about 8 percent from a year earlier.
WALL STREET
DEFLATION SCENARIO
After last week’s sell-offs in the stock market, which shaved 384.62 points, or 4.8 percent, off the Dow Jones industrial average, some analysts said the world is headed for price deflation, which hasn’t been seen on a grand scale since the Great Depression. But Chicago investment manager Marshall Front says predictions of deflation overlook the fact that “62 percent of the U.S. economy is in the service sector, where prices continue to move up moderately.” Front, of Trees Front Associates Inc., says a dramatic drop in oil prices “is serving as the equivalent of a global tax cut. At some gas stations, gasoline has fallen to 99 cents a gallon.” And, he says, “the money supply, in this country and elsewhere, is growing very rapidly.”
