With the holiday season rushing toward us at warp speed, the question for the nation’s merchants is whether the next five weeks will provide abundant joy or lumps of coal.
Early reports have been mixed, with a downbeat tally from Target Corp. sending a scare through investors. If consumers were to pull in their wallets and ignore the ho-ho-hos, focusing on skyrocketing heating bills, the year-end shopping season could reach an icy conclusion.
Overall, there have been mixed signals. The index of leading economic indicators, which is supposed to provide insights about the outlook for the economy over next half-dozen months, has been pointing down as well as up.
Economist Gina Martin expects a fresh report Monday to show a gain of 0.8 percent, more than reversing the drop of 0.7 percent a month earlier. Some of that setback was blamed on Hurricane Katrina, which robbed the economy of jobs and held back activity in construction, she said.
“Orders data has been quite volatile because of the hurricanes, but now we are starting to see the effects of rebuilding on the Gulf Coast,” said Martin, of Wachovia Corp. in Charlotte, N.C.
As for consumers, there is no question they will need to use credit cards to offset the upcoming surge in heating bills, she said. Even so, year-end sales will remain solid.
“The worry will come in February or March, when the heating bills begin to bite and credit card bills from the holidays come due,” Martin said. “If the economy starts to cool, the evidence will be seen by spring.”
With Americans struggling to pay mortgages, revolving credit bills, car payments and taxes, some economists believe this is no time for the Federal Reserve to be talking about higher interest rates.
Central bankers meet again in less than four weeks, amid widespread expectations they will raise the overnight lending rate for a 13th time since June 2004, to 4.25 percent.
There’s more to come, says economist Eugenio Aleman of Wells Fargo & Co. in Minneapolis.
Inflation remains a concern, he says, and “the Fed is not out of the woods yet. It will have to continue to tighten monetary policy during the next several policy meetings.”
Aleman looks for the short-term lending rate to hit 4.75 percent by March, further squeezing consumers.
The stock market has been inching ahead for the last month, rolling up gains of about 5 percent. Oil prices that fell to the lowest level in five months have helped lift the spirits of investors, who are hoping for a Santa Claus rally.
Flossmoor, Ill.-based investment adviser Richard Evans says the recent action on Wall Street, particularly new records for the Dow Jones transportation average, portends higher prices ahead.
“The stock market is still weighing higher interest rates, as has been the pattern all year,” Evans is telling investors, adding, “we fully expect that the eventual move higher will be one for the record books.”
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AP-NY-11-18-05 1901EST
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