- The Washington Times - Sunday, September 26, 2004

NEW YORK (AP) — When nervous consumers hold on to their money, Wall Street gets nervous about profits. So the question investors hope will be answered in the coming week is: Just how nervous are consumers these days?

Two readings on consumers are due — the Conference Board’s consumer confidence survey and the University of Michigan’s Consumer Sentiment Index — and there is reason to believe Americans aren’t willing to spend as freely as businesses would like.

First, a surge in oil prices, which set an all-time high on Friday, has been seen widely as a kind of tax on consumers, reducing the amount of money they spend on goods and services.

That, in turn, threatens corporate profits at a time when companies are dealing with higher energy costs. If consumers aren’t spending money, it is harder for companies to raise prices to compensate. Thus, profits shrink.

Economists have forecast a slight rise in consumer sentiment in both reports. Should the data come in lower than expected — indeed, if they don’t far surpass the forecasts — the market reaction is likely to be negative.

Hit with the rise in oil prices and a spate of third-quarter profit warnings and disappointing earnings, stocks fell sharply last week, nearing their early August lows. For the week, the Dow fell 2.3 percent, while the S&P; and the Nasdaq both lost 1.6 percent, marking Wall Street’s worst overall week since early August.

Wall Street expects the Conference Board’s Consumer Confidence Index, due tomorrow, to climb to 100.0 in September from 98.2 in August. Likewise, economists expect the Michigan index, due out Friday, to rise from 95.8 in August to 96.5 this month.

Other reports this week include a Commerce Department report today on new home sales. Economists expect a slight rise in home sales, as historically low interest rates outweigh consumer nervousness.

On Thursday, the Commerce Department will report on personal income and personal spending for August. Wall Street is expecting a climb in income but less growth in spending as consumers contend with higher gas prices and higher unemployment after the hurricanes in Florida.

The final gross domestic product reading for the second quarter is due Wednesday. The GDP is expected to have grown 3 percent — decent economic expansion, but still less than the 4 percent to 4.5 percent economists had anticipated in the beginning of the year.

Also Friday, the Institute for Supply Management will release its Purchasing Managers Index, a measure of business buying and the wholesale market. Wall Street is expecting a 58.3 reading on the index for September, down from 59 in August, as higher fuel costs led to a dip in business spending.

After a profit warning earlier this month from the Coca-Cola Co., Pepsico Inc. and its chief bottler, Pepsi Bottling Group Inc., will both issue earnings reports this week. Pepsico on Thursday is expected to post earnings of 65 cents per share, up from 57 cents a year ago. The company’s stock is up just 3.9 percent year to date, having fallen from a late July peak of $55.71 to close Friday at $48.32.

Pepsi Bottling’s earnings, due tomorrow, were expected to come in at 70 cents per share, up from 67 cents per share in the year-ago quarter. The stock is up 11.3 percent so far this year, but dropped from a 52-week high of $31.40 in late July to Friday’s closing price of $26.99.

Investors are likely to look closely at any guidance the two companies might give on upcoming profits to see whether soft demand for Coke will cause similar problems for Pepsi .

Other companies of note issuing earnings this week include drugstore chain Walgreen Co. today, expected to earn 31 cents per share, and Research in Motion Inc., the makers of Blackberry e-mail pagers, which is forecast to earn 43 cents per share.

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