After-Christmas sales crucial
By William Sluis
Chicago Tribune
The holiday is ended, the turkey is reduced to leftovers and the gift wrap is headed to the curb. What next? It's time for shoppers to head back to the malls.
Merchants are hoping that Americans, gift cards and bargain fliers in hand, will stomp into the stores for after-Christmas sales. If enough buyers show up, a holiday that displayed more ho-hum than ho-ho-ho still might have a happy ending.
Conversely, if spending doesn't start to show some immediate zip, analysts are beginning to fret that 2005 will show a lower rate of economic growth than the 3.5 percent that has been widely forecast. Last quarter, the economy expanded at a robust 4 percent clip.
An important barometer of the nation's mood occurs tomorrow, with the December consumer confidence index based on a survey from the Conference Board.
On Friday, a similar report from the University of Michigan showed a jump to a reading of 97.1 from 92.8 in November.
Chicago economist Carl Tannenbaum said that consumer attitudes remain an area of concern.
"Americans are struggling with high energy bills, especially when the monthly heating bill arrives in the mail. The experience can be quite painful," said Tannenbaum, of LaSalle Banks.
Consumers at the low end of the income scale are struggling in particular, he said, as they make payments for mortgages and sport utility vehicles. That helps explain tepid holiday sales among the nation's discount stores, notably at Wal-Mart, according to Tannenbaum.
"Americans have spent 15 years moving into larger homes and bigger cars, but these costs are coming home to roost," he said.
Another factor that is affecting consumer confidence, in Tannenbaum's view:
"After strong indications that the job market was recovering, the latest employment report showed that conditions were a bit less upbeat."
In the wake of five interest rate hikes in a little more than five months, many analysts believe the Federal Reserve has additional monetary tightening on the agenda for next year.
Arguing against such action are economies overseas, particularly in Europe and Japan, which are nearly stagnant.
Chicago economist William Hummer says there is little doubt that members of the Fed will boost short-term rates by another quarter-point, to 2.5 percent, when they meet in early February.
"Unless there is evidence of an unexpected slowdown, a concept that is highly dubious, they are committed to keep moving, at least toward a rate of 3 percent," said Hummer, of Wayne Hummer & Co.
Further hikes later in the year "are consistent with all of the rhetoric we are hearing" from Fed Chairman Alan Greenspan and officials of the Fed's regional banks, Hummer said. "At this point, their job is not finished."
Careful scrutiny will attend Wednesday's report of November resales of existing homes, because two other reports, the month's housing starts and new-home sales plummeted in a shocking fashion.
Homebuilders were quick to pooh-pooh the construction numbers, which sank more than 13 percent to a 1.771 million-unit annual rate, well below expectations. It was the lowest level in 18 months.
Next came a report that November new-home sales fell 12 percent, including a whopping 39 percent in the Midwest. Skeptics said the number appeared to be a statistical aberration.
The question for now is whether a real-estate bubble is about to burst, or whether the housing industry will remain atop a plateau, after building nearly 2 million new units in 2004.
The stock market is in the midst of a Santa Claus rally, paying no mind to the fact that the jolly old gent has returned to the North Pole.
Next up for Wall Street are reports of fourth-quarter corporate earnings, which will roll out in less than two weeks. Investors are wondering whether two years of double-digit profit growth can continue. Some believe bottom lines can see only a meager improvement next year, as the Fed's rate hikes begin to take a chomp out of results.
