BOY, THAT AMERICA PLACE SOUNDS PERFECT:

Happy holidays ahead (Peter Morici, 10/12/06, Asia Times)

Signs of recovery in consumer sentiments emerged after the North American Labor Day (September 4), as large retail chains were surprised by robust apparel sales.

Gasoline prices peaked in August, and falling prices are putting more spendable income in consumer pockets. Moreover, housing values are still up about 50% over the past five years. Even with a moderate pullback in the housing market, Americans are much wealthier than they were two and five years ago.

The key question is: Will Americans focus on the recent modest decline in home prices and save more, or will they focus on the longer-term gains they have enjoyed and are likely to sustain?

If consumers focus on the recent decline in home prices, savings performance will improve and economic growth could slow to 2% or less. If consumers focus on their longer-term housing gains, holiday sales will prove stronger than retailers have predicted.

My bet is that falling gasoline, heating-oil and natural-gas prices will be enough to ignite shopper enthusiasm, and holiday sales will be robust and beat conservative early-September forecasts.

Although housing construction will stay below boom levels through 2007, non-residential construction looks to be strong, and industrial capacity utilization levels have reached levels that require significant new investments in plant, equipment and software.

Overall, falling gasoline prices will give new life to the aging economic expansion, and growth will recover to about 3.2% in 2007. At that pace, labor markets will exhibit enough slack that wages will not threaten to reignite inflation.

Federal deficit now lowest in 4 years (MARTIN CRUTSINGER, 10/11/06, AP)

The federal budget deficit, helped by a gusher of tax revenues, fell to $247.7 billion in 2006, the smallest amount of red ink in four years.

The deficit for the budget year that ended Sept. 30 was 22.3 percent lower than the $318.7 billion imbalance for 2005, handing President Bush an economic bragging point as Republicans go into the final four weeks of a battle for control of Congress. [...]

"These numbers show that we have now achieved our goal of cutting the federal deficit in half and we've done it three years ahead of schedule," Bush told reporters at a Rose Garden news conference.

Posted by Orrin Judd at October 11, 2006 12:57 PM