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Economists: Christmas Sales Will Fall Unless They Rise

12:00 AM, Nov 23, 2013 • By IRWIN M. STELZER
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·     The strong stock market in recent months has had what economists call “a wealth effect” -- many people feel and indeed are richer. The Fed takes credit for this, as its zero-interest rate policy is driving investors into riskier assets such as shares, which are doing quite well, thank you Mr. Bernanke. Whatever the reason, wealthier consumers -- those who already own shares and houses -- are more rather than less likely to hit the shops, which is why retailers are looking to high-end merchandise to make their season. “It does feel like a higher-end, lower-end kind of story. The upper-income consumer is faring much better and will spend more,” Ken Perkins, president of Retail Metrics told The New York Times.

·     Thanks in part to the increase in oil and gas supplies resulting from fracking, petrol prices have fallen to their lowest level in almost three years, and the cost of natural gas has plummeted. That frees up money used to fill vehicle tanks, and keeps heating prices down, both the equivalent for consumers of a tax cut.

·     White House predictions that the recent government shut-down would slow the recovery have proved over-blown, to put it mildly, causing an up-side surprise in job creation last month. Late payments to furloughed workers -- turning the short lay-offs into paid vacations -- will give those workers a bit of a cash pile to use for everything from flat screens to play stations to toys.

·     Higher home prices are encouraging consumers to visit Home Depot and Lowe’s stores to buy the stuff that upgrades their now-more-valuable properties. This is not good news for apparel sellers, who are already marking their goods down by 40 percent, with more price cuts to come.

·     Consumers have paid down large amounts of debt, and enter the shopping season with stronger balance sheets than in recent years. That will almost certainly make them more willing to whip out their credit cards.

To say this is a difficult fight to call is to put it mildly. There is little sign that the politicians will abandon their battles, never mind the collateral damage they are inflicting on the economy. And the optimists’ catalogue of private sector strengths can be matched item for item by the pessimists’ list. My bet is on the private sector and on what repeated presidents like to call “the good sense of the American people,” the expression of which might not come until November 2014. We’ll know more when the tally of Christmas sales is in. 

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