The main event in the next week will be the much anticipated vote by the Senate on the massive healthcare reform bill, which is expected to pass on a hairline 60-40 vote on Thursday, December 24, just in advance of the Christmas recess. The Senate and House versions of the healthcare reform bill now will go into conference in January, and there are some major differences to iron out—particularly the "public option" on providing subsidized healthcare insurance (which was removed from the Senate version) as well as the controversial proposals for raising tax revenues.

The defense authorization bill is also expected to be passed before recess. This bill will be heavily laden with earmarks—holiday presents that Congress is going to shower on itself—but more importantly for the economy, the bill will incorporate an extension of the time period during which persons can apply for extended unemployment insurance benefits and related COBRA heath insurance support under the ARRA fiscal stimulus legislation that was passed in early 2009.

The defense bill reportedly will also incorporate a two-month patch that delays the implementation of a scheduled reduction in Medicare reimbursements to physicians. Ultimately, Congress is expected to pass a bill with a permanent fix to these scheduled reductions in Medicare reimbursements. That bill, combined with another recent administrative change to billing for physician administered drugs under Medicare, will add about $330 billion over 10 years to the price tag for healthcare reform.

Thus, assuming only modest slippage in the tax base for the revenue provisions of the healthcare bill, and that CBO estimates on the costs of expanded Medicaid and subsidized insurance coverage are reasonably accurate, the entire package of healthcare reform proposals would cost roughly $300 billion over 10 years.

Economic reports next week will be sparse, but tilted on the positive side. The December Conference Board indicator of consumer confidence is expected to see a solid upward bounce, similar to what was already reported by the University of Michigan survey just in advance of Christmas.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, December 29 – Conference Board Consumer Confidence (Dec.)

• IHS Global Insight: 56.0
• Consensus: 53.0
• Last Actual: 49.5 (Nov.)

What to Look For

• The Conference Board's Consumer Confidence Index is expected to rise from 49.5 in November to 56.0 in December, reaching its highest level since September 2008 (but only half its July 2007 level).

Implications

Rising incomes, diminishing job losses, a continuing stock market rally, and widespread price discounting are bringing some holiday cheer to consumers. Although recent winter storms and cold weather could hurt some chain store retailers this December—there should be some offsetting sales increases through the direct online channels—the recovery in consumer spending should continue. We expect moderate gains in real incomes and consumer spending in the year ahead.