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Fed up?

Business | Every release of economic data over the next two months will elicit two very different responses

Issue: "2004 Election: GOP's encore," Aug. 28, 2004

As President Bush and challenger John Kerry traverse the country, one issue likely to help determine the outcome of the election is one which they cannot control: the state of the economy.

Come Election Day, the small number of undecided voters will likely cast their ballots based on where they believe the U.S. economy is headed. That's why every release of economic data over the next two months will elicit two very different responses.

For example, when the economy created a lower-than-expected number of jobs last month, Mr. Bush said the "economy is strong and getting stronger." In responding to the administration's comment that the economy had turned the corner, Mr. Kerry said, "It must have been a U-turn."

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Meanwhile, the Federal Reserve is raising interest rates to keep inflation at bay, but that may also slow the rate of growth. The only question is, how much?

While Mr. Kerry has remained relatively quiet about the rate hikes, Mr. Bush has supported Fed chairman Alan Greenspan's decision. That's a far different approach than the one taken by Mr. Bush's father, who blamed Mr. Greenspan for hurting his 1992 campaign by failing to cut rates quickly enough to generate a strong recovery before Election Day.

Will the outcome be different this time, as well?

Toys aren't us

If Toys "R" Us sells its toy division, which is a distinct possibility after the company outlined major restructuring plans this month, the company will have come full circle.

Despite its position as the nation's second-largest toy retailer, Toys "R" Us has been battered in recent years by price wars from discounters, particularly industry leader Wal-Mart. "How do you make a profit in a business where margins are so squeezed?" said consultant Chris Byrne. "Ironically, this is what Toys "R" Us was doing in the '60s and '70s, as they were trumping all the regional toy chains."

Since the mid-1990s, though, when Wal-Mart ramped up its toy department, Toys "R" Us sales have been inconsistent. In the past year, the company's U.S. revenues fell 4 percent to $6.48 billion, prompting plans to reduce operating expenses by more than $125 million by 2005.

Founded by Charles Lazarus in 1948 as a single baby-furniture store in Washington, D.C., the now $11.6 billion company with nearly 1,500 stores around the globe appears ready to shift its focus back to its roots-its more profitable Babies "R" Us stores.

The 200 Babies "R" Us stores, which sell cribs, bedding, and other baby accessories, posted sales of $1.76 billion last year, up nearly 11 percent.

Balance Sheet

  • While Wal-Mart and Target were posting higher profits, Kmart announced plans to ax 200 jobs at its headquarters near Detroit. Kmart, which emerged from bankruptcy in May 2003 with about 1,500 stores-600 fewer than before-has greatly improved its financial picture by selling its valuable real estate.
  • General Motors will begin building Cadillacs in China this year, joining a race by foreign luxury-car brands to sell to the country's newly rich elite. The Cadillac CTS sedans will sell for $63,170, more than double the car's U.S. base price of $31,345.
  • The federal budget deficit hit a record $395.8 billion in July, a 22 percent increase as compared to the first 10 months of last year's fiscal year. But the outlook is better than previously thought. The Bush administration says the deficit for the 2004 budget year, which ends Sept. 30, should be $445 billion. That's significantly lower than the $521 billion gap it had estimated earlier this year.
  • Gateway Inc. will outsource several technical and manufacturing units by Sept. 30, laying off hundreds of workers in Kansas City and North Sioux City, S.D. By year's end, the personal-computer and consumer-electronics company plans to trim its employee ranks to about 2,000, down from 7,400 at the end of last year and 24,600 at the end of 2000.

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