Businesses still not spending
By William Sluis
Chicago Tribune
Americans have been told the same story for months: Keep up a torrid spending pace, and soon businesses will join in, buying new equipment and rebuilding payrolls. Voila! An economic recovery will finally be in place.
Reality has told a slightly different tale. While consumers have held up their end, buying truckloads of goods to fill ever-growing homes, corporations have been reluctant to unfurl their share of long green.
The result is a stop-and-go economy in which plenty of concerns remain.
Yet, consumers aren't giving up for now. Economist Lynn Reaser is looking for Wednesday's report on July retail sales to show a solid advance of 1 percent, on top of the 0.5 percent gain in June.
"Car and light-trucks sales were quite strong last month, and retailers are reporting much better results. Even department stores are enjoying renewed sales of such items as swimsuits and summer wear," said Reaser, of Banc of America Capital Markets in St. Louis.
Many households have begun receiving government rebate checks of $400 per child, she said, "and part of that money is making its way into cash registers."
About the only downside, Reaser said, is that rising long-term interest rates are holding back the refinancing of mortgages, which had been a font of ready cash.
Even so, Reaser expects consumers will shop with gusto as autumn approaches. For now, she added, "Americans will show a lot of buying activity during the back-to-school season, which is one of the most important of the year for retailers."
Members of the Federal Reserve Open Market Committee will meet tomorrow to discuss monetary policy, but don't look for much action. Economist Tim O'Neill says the Fed, which last reduced short-term interest rates in late June, will remain on hold.
"Numbers over the last month have been mostly pointing to a sustained economic recovery," said O'Neill, of Chicago's Harris Bank and its parent, BMO Financial Group.
One bit of good news in recent weeks, he said, is that a rise in confidence by both consumers and businesses has reduced fears the economy may slip into another funk.
As for worries about businesses buying new equipment, O'Neill said, they are nearly over. "The second quarter of this year demonstrated there has been a turnaround in business capital spending, which is providing a much-needed boost," he said.
O'Neill said a statement by the Fed after the meeting about the balance of risks "is likely to adopt a more positive tone about the economy's prospects for the months ahead."
The week's reports include the June trade deficit and July producer price index Thursday; and the July consumer price index on Friday.
Trade is the figure to watch. With the annual shortfall running somewhere near $500 billion, any bad news could set off fresh shock waves for the embattled dollar.
The dog-days jitters that have afflicted the stock market in the opening sessions of August have investors wondering whether autumn has arrived early. Is the calendar about to suddenly flip and reveal October, usually one of the most volatile months of the year?
Bannockburn, Ill.-based mutual fund manager Henry Van der Eb doesn't see investors getting overly nervous, but he sees few signs of another big rally soon. Part of his concern is that stocks still aren't cheap.
"At this point, the stock market is very dependent on the job market, and new positions just aren't being created. Businesses are shipping their work overseas," said Van der Eb, of the Gabelli Mathers Fund.
Manufacturers are sending work to China, while some service-sector companies are eyeing India, he said.
"Even though the recession was officially over in late 2001, we have lost another 1 million jobs since then," Van der Eb said. "It is unprecedented for the economy to lose so many jobs when it is in recovery."
For the stock market to have another sustained rally and for jobs to be restored, economic growth will need to exceed 4 percent for about two years, he said. In the most recent quarter, the economy grew at a 2.4 percent rate.
