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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40607)	1/12/2004 11:30:05 PM
From: Johnny Canuck	Read Replies (2) \| Respond to of 69442

Consumer Spending Outlook Stays Solid Monday, January 12 WASHINGTON -- Consumers will not cut spending as interest rates rise and the mortgage refinance boom fades, according to a report due out today. That conclusion counters fears that the most important part of the economy, consumer spending, will soon abate. Consumer spending has held up through the economic downturn that began in 2001 and is largely credited with keeping the economy moving in the last three years. Many economists attribute the continued spending to the boom in mortgage refinancing as interest rates hit historic lows. So-called cash-out refinancings, where homeowners extract money from the increase in their home values, have been very popular. Some private sector economists, including those at Goldman Sachs, Wells Fargo and Lehman Bros., have cautioned that a decline in refinancing could sap consumer-spending strength. In a USA TODAY survey of 60 economists in December, one-third said the decline in mortgage refinancing would hurt the economy in 2004. But researchers at the Federal Reserve Bank of New York say that although consumers have been paying for new cars, remodeling projects and other goods and services with their home equity the past few years, those consumers would be making the same purchases with other types of credit if interest rates on the home-equity lines were not so low. For example, a consumer who bought a car in 2003 with money from his cash-out refinancing might have still bought the same car but would have taken out a bank loan or charged it on his credit card. The economists came to this conclusion by looking at income levels and debt levels, which have declined outside of housing debt. The New York Fed economists also argue consumers have been using their home-equity lines to pay down higher-interest debt, putting them in a better position to spend going forward. Plus, they say higher interest rates won't come until the economy is doing better and jobs are being created anyway, conditions that foster consumer spending. All of this is good news for the economy, because consumer spending accounts for 70% of all U.S. economic activity. ''Clearly, everyone is trying to come up with an assessment of how strong growth is going to be in 2004, and the consumer is going to play a key role in that,'' New York Fed economist Richard Peach says. ''The home-equity withdraw has simply been a change in the means by which households are financing purchases they otherwise would have made. But they would have financed those purchases with higher-cost consumer debt or by drawing down liquid assets,'' he says. Peach, along with authors Margaret McConnell and Alex Al-Haschimi, say 2003 was the largest wave of refinancing ever, noting that more than one out of every four mortgages were refinanced. To see more of USAToday.com, or to subscribe, go to usatoday.com