Holiday sales are going well in the United States. Consumers aren't in a "Bah! Humbug!" mood.
But there's a fly in the soup. Call it the Wal-Mart factor.
While overall spending is up this Christmas season and high-end retailers are doing a banner business, sales at Wal-Mart stores have been relatively sluggish. The discount giant has blamed internal mistakes in strategy and tactics. But the dichotomy hints at a more important trend: the growing inequity in incomes, a decades-long phenomenon.
This yawning chasm makes future growth a little more challenging, some economists say, although that's a controversial point.
In the short run, any drag on the economy is so small, it is hard to detect.
In the first full week after Thanksgiving, spending was up 19.3 percent from the same week the year before, according to figures provided by Visa USA. Part of that rise may stem from Americans' increasing reliance on credit cards. But the bulk of the growth comes from increased consumer spending.
The Visa record shows Americans spending increasing amounts on "discretionary" items - travel and entertainment, home furnishings, home and garden, and so on - despite growing piles of consumer debt. E-commerce was up 34.1 percent in that week from 2003.
"It's not what we saw in 1999," at the height of the 1990s boom, says Wayne Best, head of economic analysis for Visa. "But it looks to be a good Christmas. Consumers are feeling comfortable with their financial condition."
Yet many middle-class families just don't have spare money to spend heavily on holiday gifts, some economists say.
"Consumers are a little more strapped," says Jose Rasco, an economist in New York with Merrill Lynch, a major investment banking firm.
Moreover, the growing income inequality has become clearer this year to retailers.
While Wal-Mart stores have recorded weak growth, luxury items are flying off the shelves at high-end retailers such as Neiman Marcus.
"The low-end stores are getting squeezed because their customers are getting squeezed," says David Wyss, chief economist for Standard & Poor's, a financial information firm in New York.
In the past 10 years, families in the top 20 percent in income have done extremely well. Despite the brief recession early in this decade and the burden of rising energy prices over the last year, the bottom 20 percent of households did OK over the decade, too. But the middle class has been struggling to keep up, adding debt, saving little.
The personal savings rate in October dropped to 0.2 percent of disposable (after-tax) income, the second lowest on record. Debt is "stopping consumers from a spending binge," says Scott Hoyt, an economist with Economy.com.
Servicing household mortgage and consumer debt takes 13 percent of disposable personal income today, up from under 11 percent in 1994.
The increasing income gap between the rich and the rest of Americans worries liberal economists. Income inequality in the US stands higher than in any other advanced nation.
"The more plutocratic we become, the more lethargic the overall economy is going to become," says James Galbraith, an economist at the University of Texas in Austin.
"The [Bush] tax cuts exacerbated the situation," complains Mr. Wyss.
Most economists see reasonable growth next year in gross domestic product, that is, total output of goods and services. Mr. Hoyt forecasts a 3.5 percent rise after inflation. That matches the consensus of more than 50 economists, compiled by Blue Chip Economic Indicators. The growth is slower than the 4.5 percent anticipated for 2004.
The economic prospects are good enough that when Federal Reserve policymakers meet Tuesday in Washington, they are expected to raise short-term interest rates another quarter of a percentage point to 2.25 percent. Their goal will be to prevent any reawakening of inflation.
The latest numbers have been mixed.
Payrolls rose a meager 112,000 in November. Weekly wages fell a bit after inflation. Employers announced layoffs of 104,530 workers in November, notes Challenger, Gray & Christmas, Inc., an international outplacement firm.
Such trends aren't good signs for growth in consumption, notes Wyss.
Also on the negative side: Stimulation from the tax cuts is running out. Investment spending by business has stepped up this year, from an 8 percent growth rate in real terms in the first quarter to a 17 percent rate in the third quarter. But a special accelerated-depreciation tax break runs out at the end of the year, raising questions as to whether business will continue this happy investment pattern in 2005.
On the positive side, the decline in the value of the dollar on foreign exchange markets opens the door for more American exports. But Merrill Lynch's Mr. Rasco sees only a "modest improvement" in exports in 2005, partly because of some recent slippage in oil prices.
"It's a start," holds Rasco.