Reading Economic Tea Leaves

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GENERIC economy steady, arrows up and down with lines, ben franklin 100 dollar bill, and wall street trader
AP / CBS

Thanks to a late year rally, the stock market closed out 2004 in positive territory. For the year, the Dow gained more than 3 percent and the NASDAQ was up more than 8 percent. But how will the economy do in 2005?

Wall Street analysts believe the economy is on an upswing, but many Americans aren't seeing the benefits. There's a growing divide between the haves and have-nots, reports CBS News Correspondent Trish Regan.

While traders believe it's going to be a good year, small business owners aren't convinced. Regan went back to George Bosler's wine shop in New York City -– where CBS News has gone for the past three years -– for an informal indicator of how the economy is likely to fare in the coming year.

For 2005, it's the tale of two economies, Regan reports: one with people who have the money to spend, and the other with people struggling just to get by.

"I think people who have the buying power and want good wines -- they're going to buy. People who are a little worried about their jobs, they may temper down a little bit," Bosler said.

For the millions of Americans still looking for work, a $5, $10 or $20 bottle of wine is a luxury.

"Have we had an increase in jobs?" wine shopper Linda Korpi asked. "And when they report the increase in jobs, they are reporting very low paying jobs. Do you know what it's like to make five dollars or six dollars an hour?"

Economists worry that there aren't enough new jobs being created for middle class workers.

"The vast majority of jobs in the middle, that giant middle that would really help bolster consumer confidence, that's where we've been lacking," said Mark Vitner, a senior economist at Wachovia.

Meanwhile, the war in Iraq and budget shortfalls have caused the federal deficit to swell to an all-time high.

Princeton University professor and New York Times columnist Paul Krugman says this could make foreign investors nervous: "The big risk is that we'll lose the confidence of the international financial markets. We're counting on mostly foreigners to buy that debt. What if they decide America is looking too much like a banana republic?"

If that were the case, the Federal Reserve Board would have no choice but to jack up interest rates in order to keep foreign investors from taking their money out of the U.S. That could mean higher credit card rates -- bad timing, considering many Americans are already maxed out on plastic.

There are bright spots for 2005, Regan noted. Consumer confidence is up, and overall the economy grew by 4 percent this past year. But the question now is: Will that growth and confidence put more Americans back to work in 2005?