Traders on the floor at the New York Stock Exchange.(Photo: Seth Wenig, AP)
Major stock indexes were edging lower Friday as lawmakers seek to thrash out a budget agreement. Investors also eyed a government report showing consumers cut back on spending last month with no growth in personal income.
Superstorm Sandy, which struck the Northeast coast late last month, skewed the Commerce Department's consumer spending report Friday was skewed by the storm that struck the Northeast coast late last month. Work interruptions reduced wages and salaries by about $18 billion at an annual rate. The storm affected 24 states.
Consumer spending dropped 0.2% in October. That's down from an increase of 0.8% in September and the weakest showing since May.
Stocks are slightly higher for the week. The Dow Jones industrial average is up 0.3%, the broader Standard & Poor's 500 index 0.6%. The market has fluctuated between gains and losses in recent days as news and comments filtered out from the budget negotiations in Washington.
Investors continue to be focused on the budget talks aimed at averting the "fiscal cliff" -- the sharp government spending cuts and tax increases scheduled to start Jan. 1. Economists say that those measures, if implemented, would push the U.S. economy back into a recession.
"Right now the market is just going to be held hostage as to what happens in the next five hours, versus what's going to happen in the next five years," said Dan Veru, chief investment officer at Palisade Capital Management, in Fort Lee, N.J.
In overseas trading, markets finished the day higher despite a report showing a record unemployment rate last month in the 17-nation European Union.
The euro held steady against the dollar Friday, while crude oil prices rose 40 cents to $88.47 a barrel. The price of gold was down $3.80, 0.2%, to $1,723.40.
Gold investors should be worried if Congress drives the nation over the fiscal cliff. But some argue that even the fiscal cliff won't hurt the yellow metal in the long term.
In theory, going over the fiscal cliff would be a huge setback to gold, which thrives on inflation fears. If Congress does nothing before Dec. 31, taxes will return to 2000 levels, raising the highest tax bracket to 39.6%. Big cuts in government spending will also take effect.
If you think that inflation is coming because of the nation's massive borrowing, you should fear the fiscal cliff. Falling off the fiscal cliff would slash federal spending by an estimated $65 billion in 2013 and $1.2 trillion over 10 years. Higher taxes could also reduce the amount the U.S. must borrow next year.
Most economists also predict that allowing tax increases and budget cuts in a weak economy would send the nation back into recession. Inflation typically falls in a recession.
But gold enthusiasts say the fiscal cliff would simply give investors a good buying opportunity. "The economy and the markets will be bailed out - the Federal Reserve and the European Central Bank will do what it takes," says Christopher Blasi, president of Neptune Global Holdings. That means printing more dollars, which is ultimately inflationary.
"The end result will be a gargantuan move in gold in the next few years," says James DiGeorgia, publisher of Gold and Energy Advisor. "I expect it to hit $5,000 an ounce."