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RETAIL SALES

FOCUS ON SPENDING TRENDS

William Sluis June 12, 2000

As the hoo-ha over Y2K fades into the dim recesses of time, economists are noting a disturbing trend: Just about every month since the non-crisis ended, Americans are displaying less and less spending gusto. Blame a half-dozen interest rate increases by the Federal Reserve, blame the springtime blahs or blame too much credit card debt. Who knows? But if the trend lasts much longer, the experts may call it an economic slowdown.

Tuesday's report on May retail sales will shed more light on how severely Americans are scaling back. Chicago economist Robert Dederick is looking for a paltry gain of 0.1 percent or, when car sales are excluded, a modest advance of 0.3 percent. But he is unwilling to say that Americans are ready to zip their wallets.

"Vigor in the consumer sector has, indeed, been waning over the last three months," said Dederick, a consultant to Northern Trust Co. "However, this is simply a return to normalcy after what can only be described as a spree in late '99 and early 2000." He expects spending to pick up once more through the summer and fall. In the meantime, when Fed policymakers meet later this month, Dederick said they "are likely to stay on hold. However, they will announce a bias toward raising rates," to keep everyone alert.

CONSUMER PRICES UPWARD PRESSURE FEARED

Worries about price pressures are centered largely on gasoline and oil, but Wednesday's report on the May consumer price index will add to concerns that costs are on the march throughout the economy. Chicago economist William Hummer expects it to rise 0.3 percent, or 0.2 percent when food and energy are excluded. Unlike Dederick, he believes the Fed will boost rates a quarter-point on June 28. "Members of the central bank expect inflation for this year to be up about 3.25 percent, so they will want keep the pressure up," said Hummer, of Wayne Hummer & Co. "The Fed wants to send a signal that this is no time for complacency." Hummer said policymakers are increasingly concerned that inflation is worsening in the service sector, a byproduct of the extremely tight labor market.

HOUSING A SLOWDOWN IN STARTS

Although the housing industry is in no danger of tumbling off a cliff, analysts increasingly believe it has peaked. That adds focus to Friday's report on May housing starts, which are expected to slip marginally from the 1.63 million unit annual pace of a month earlier. As recently as February, construction was taking place at a whopping 1.82 million unit rate.

WALL STREET TRANSPORTS, UTILITIES

The stock market has displayed only a feeble effort at a summer rally, but there isn't much pessimism on Wall Street. Flossmoor investment adviser Richard Evans is telling clients to look at two groups of stocks. "Our assumption is that the Dow Jones transports will give a bull market signal by surpassing 3000," he said in his latest Renaissance Report newsletter. They finished Friday at 2790.17. Meanwhile, he added, "the utilities have been very stout. There are not any major market declines when the utilities are advancing in such a strong fashion." Evans said the rally in utilities suggests "the current market weakness is primarily a technology bubble-popping event."

http://www.chicagotribune.com/business/printedition/article/0,2669,SAV-0006120019,FF.html

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-- (Dee360Degree@aol.com), June 12, 2000