Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, November 4, 1994 TAG: 9411040086
SECTION: BUSINESS PAGE: A12 EDITION: METRO
SOURCE: MAG POF| STAFF WRITER
DATELINE: LENGTH: Medium
Retailers are looking to improve on the 9 percent to 10 percent boosts they enjoyed in the Christmases of 1992 and 1993, telling themselves the economy is even healthier this year. You can see it in inventory figures, Orr said, that show merchants are stocking their shelves.
Orr, who was in Roanoke on Thursday from Charlotte, N.C., to speak to bank clients in Bedford, Blacksburg and Roanoke, said the last two holiday seasons were exceptional because so many people refinanced their homes in the preceding summers, closing in late fall.
Suddenly, at Christmas, these people had lower house payments and hence a lot of discretionary money in their pockets.
Without that extra boost this year, Orr said, people will splurge less.
So, Christmas will be good for merchants, but not good enough because it will not live up to expectations, Orr said. And the huge inventories that retailers have stocked will help bargain hunters, he added, because "after-Christmas sales will be good this year."
Orr told the bank's customers that rising short-term interest rates are good for Main Street - businesses producing goods and services - but contrary to the health of Wall Street, or the securities business.
Media stories state that rising interest is bad for business, he said, but that is contrary to the truth. The popular concept, he explained, confuses cause and effect. Rates go up because business is good.
Business operators should not worry about a jump in the prime rate, he said, because it means that the economy is healthy, so profits and sales will be up. Prime, the lowest rate banks charge their most creditworthy commercial customers, stood at 6 percent at this time last year and is 7.75 percent now, he said. He predicted prime will reach 9 percent or higher by this time next year.
Main Street worries needlessly about rising short-term rates, he said. It's Wall Street that should worry because money will flow out of stocks and bonds and into accounts paying the higher rate.
Declining short-term rates, on the other hand, signal a recession - so businesses should worry, Orr said. When rates fall, money flows into stocks and bonds.
Orr also termed it a myth that the Federal Reserve system controls short-term rates. Short-term rates are the price of money, Orr said. They go up when loan demand increases and go down when loan demand decreases.
He said that the pattern of interest rates over the 81 years since the Federal Reserve was founded in 1913 is identical with experience in the prior hundred years. They went up when business was good and fell when business was bad. All the Federal Reserve did, Orr said, was smooth out the curves in the natural economic cycle.
by CNB