The Big Shadow of Retailing

The Big Shadow of Retailing

As retailing goes, so goes the whole economy.

At least that's the way things have turned out in the past. Some economists have long seen retailing as a leading indicator; a good way to forecast economic growth. A dip in the retail sector often presages a drop in gross domestic product in the coming months, they say.

So when the nation's retailers last week posted weaker-than-expected September sales -- collectively a 1 percent rise in stores that were open for at least a year -- all sorts of worries surfaced. The trouble with housing and the larger credit crunch, combined with a slowdown in retailing, seemed to point to a sluggish period of economic output in general, and who knows, maybe even a recession.

The consensus among economists, as measured by a WSJ.com survey, however, is that optimism about the economy is on the rise. The latest survey showed that the chance of a recession moved lower -- the first decrease since June. Expectations for payroll growth and corporate profits also increased for the first time in a while, according to the report.

It's possible, of course, that retailers' woes might be a one-month aberration. Then again, the economists were polled before the new retailing numbers came out. And that straw in the wind is clearly pointing down.

Helping Hands for Homeowners

It was inevitable that an increase in home mortgage foreclosures would compel Washington politicians to bail out as many homeowners in trouble as possible. That's what politicians do, after all.

Hence the latest conflict in the nation's capital: Democrats want to do a lot, and the Bush administration, lately on a fiscal-limits jag, wants to do not as much.

Last week, House Democrats tried to one-up President Bush on proposals that would help homeowners faced with rapidly increasing mortgage rates. The House approved a measure that would use various mechanisms to add up to $900 million a year to a new affordable housing fund. In response, the White House threatened to veto the legislation because it was too costly.

Still, the White House was interested in doing more. Treasury Secretary Henry M. Paulson Jr. announced last week that a new mortgage industry coalition would work to help homeowners avoid foreclosure. The coalition marks an expansion of the administration's efforts to help out, which started in August with a decision to alter the Federal Housing Administration insured-loan program so that more people could qualify for FHA-insured loans.

Delinquency and foreclosure rates on so-called subprime loans have doubled in the last year, and those troubles are expected to worsen in coming months. What does that mean? The arms race to help out has only just begun.

Private-Equity Scores

Private-equity firms knew that something would eventually happen in Washington to make lawmakers come after them. They were simply getting too big and rich to stay out of the limelight for long. That's why they set up their first lobby group, the Private Equity Council, late last year.

But they got into trouble sooner than they feared. By spring, lawmakers were introducing legislation that would raise their taxes, and the buyout firms had to redouble their efforts. The council and individual firms hired a who's who of the capital's best-connected lobbyists and tax experts and conducted a massive campaign.

It worked. Senate Majority Leader Harry Reid (D-Nev.) has privately told the firms that the Senate will not raise taxes on private equity managers this year. Chalk one up for Goliath.