From an economic standpoint, the holiday buying season will probably be better than most people expect. Currently, there's more good news than bad news on the horizon for consumers.

The bad news is that interest rates will place a significant burden on the estimated $1-trillion in mortgage money that is about to be refinanced, as home owners move from variable- to fixed-rate mortgages.

Even a rather modest 20% increase in monthly costs could put a significant number of homeowners out on the street. For in addition to the increase in mortgage payments, they have to worry about the property taxes and insurance premiums that are due this quarter and next.

The consumer groups most affected are those with what I like to call “perfect” cash flow: Whatever flows into the household also flows out — without hesitation. There are two primary groups in this category — those who spend everything they earn just to survive, and the elderly on fixed or near-fixed incomes. The result will likely be increased foreclosures and forced sales of existing homes so that people can meet their financial obligations.

But since both of these groups will be unable to cut back on what they buy, the net impact on overall consumption will not be significant. With modest inflation, they may have to rearrange what they buy and how often they buy it, but they will still have to spend all the income they receive. Therefore, we'll see no drop in demand from these particular consumers. The inflation-adjusted value of the goods purchased may decline, but only modestly.

There's another group of consumers, however, who represent the mainstay of the economy. These are the hourly workers who are making ends meet, albeit with difficulty. Hourly wages have recently outpaced inflation, which is a reversal of what we've come to expect. This means that hourly workers can buy more with the money they're earning.

Unfortunately, though, as the growth rate for the economy as a whole slows down, the number of hours they are able to work each week is declining. Consequently, this group is not gaining much in terms of their ability to add to household wealth from current income.

For another group of consumers, however, increases in property values have led to substantial increases in household wealth. Although refinancing of homes remains at high levels, it is down from recent peaks.

In many housing markets, the concern over loss of value has been significantly overstated. Most declines have been less than 5%, and we expect stability to return by the middle of 2007. And those markets that are truly overheated are much more likely to have a negative impact on speculators than on the average homeowner, who had no intention of selling anyway.

In general, this consumer group is poised to purchase more aggressively than many expect during the upcoming holiday season. The exception will be areas of the country where jobs are being cut, which will result in a decline in consumption. But on a national level, that will be more than offset by regions where unemployment rates are below 2%.

The wealthier consumers may have seen cutbacks in bonus checks in recent years, but the increase in the value of their equities will more than make up for it. In fact, during the past six months this consumer segment has been moving back into the luxury goods market in a big way.

In sum, consumption will rise during the fourth quarter by more than most predict — and along with it, so will truck traffic.