As Americans try to recover from packing in too many holiday hamburgers, hot dogs and barbecue, not to mention chilled lager, few are worried about the dangers of a spending binge. Yet ever-vigilant members of the Federal Reserve, on watch against economic indigestion, are monitoring consumer behavior, especially when it comes to heavy consumption with credit cards. The central bankers have already provided one relatively weak antidote for such behavior: higher interest rates. The Fed boosted its short-term barometer Wednesday by a quarter-point, to 5.0 percent. Whether additional antacid is on the way will depend in part on whether Americans cool their spending enthusiasm. Watch for clues Thursday, when retail chains report June discount- and department-store sales. Widely followed retail forecaster Kurt Barnard said the report will indicate that volumes will have grown 3 percent to 5 percent, which will be impressive because “last year’s June sales were very strong.” Barnard, who runs a consulting firm in Upper Montclair, N.J., said the Fed’s efforts to slow retail spending won’t have an effect anytime soon. “Consumer habits are very difficult to break, and American spending is in a very strong pattern that won’t evaporate overnight,” he said. “We see robust spending continuing at least into the year 2000.”
EARNINGS
DOUBLE-DIGIT GROWTH?
No sooner will investors go back to work on Tuesday than they will be confronted by second-quarter corporate earnings. For the most part, the news should be good. Chicago investment manager William Hummer is looking for “double-digit earnings growth for the second quarter, and an overall advance for this year of 8 percent.” Hummer, of Wayne Hummer & Co., said upside earnings surprises “should help ignite a nice summer rally in stocks, although there will be some crosswinds. Earnings disappointments have been met with ferocious punishment. The market is priced to perfection.” He said companies have watched their margins improve because the economy remains stronger than expected, while wages and salaries have grown slowly. Later in the year, however, Hummer expects a squeeze on earnings, both from interest rates and higher costs.
INTEREST RATES
MORE HIKES POSSIBLE
The outlook for interest rates darkened somewhat Friday, when the Labor Department reported that the economy added 268,000 jobs last month, suggesting no slowdown is in sight. Many economists said the report means the Fed will raise rates again no later than early autumn. But Chicago economist Brian Wesbury said tightening credit is the wrong policy. In a report to clients, Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, cited the housing market, noting, “New-home sales are down 16.7 percent at an annual rate during the first five months of this year, while existing-home sales have fallen at a 13 percent annual rate.” Additionally, he said, “the median price of a new home fell by 2.2 percent in the 12 months ended in May, while the median price of an existing home was up just 3.3 percent.”
4TH OF JULY
HOLIDAY CLOSINGS
Stock, bond, commodity, futures and options markets, along with government offices and some businesses, are closed Monday in observance of the Independence Day holiday. The weekly auction of Treasury bills will be held Tuesday.
