Recession WatchThe prevailing view on Wall Street is that the economy, and stocks in particular, are poised to run higher again if only Bernanke & Co. get out the way. The conventional wisdom is that the economy is merely slowing down a bit, not stalling. But the bearish camp, which believes an economic slowdown is just around the bend, has been slowly winning new converts. The bears are focused on the cooling of the housing market, rising oil prices and dwindling investor confidence. The bears argue that consumer borrowing has been driving economic growth, and that once the consumer starts spending less, the economy will falter. To be sure, the economic doomsayers have been predicting the demise of the consumer for many years. But most had also predicted it would take a year or so for consumers to use up all the cash they had taken out of their homes during the mortgage-refinancing boom. The next six months could be telling.
Retail SalesThe surest way to tell if consumers are feeling a pinch in their personal finances is by looking at retail sales. And the second half of the year just happens to be the most critical period for retailers. In the late summer and fall, clothing retailers bank on back-to-school sales to fill their coffers. The fourth quarter, of course, is the most important one for all retailers, as merchants look for a buoyant holiday shopping season to put them firmly in the black. If the doomsayers are right, the first indication of trouble could come in the third quarter, when retailers tell us how the back-to-school shopping season is going. Third-quarter retail sales should be a good indicator of whether this holiday shopping season will be a merry one for retailers.