Milk Prices May Soar to $8 a Gallon

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Morning Money Memo…

Partisan gridlock in Congress may lead to sharply higher milk prices in the new year. It's the latest sign that the deep divide between Democrats and Republicans is having a direct impact on consumers and the economy. Milk prices could at least double in January if there is no agreement on farm price supports. The current fight over the $80 billion-a-year food stamp program is a big part of this. The farm bill money includes food stamps as well as farm subsidies. Without a deal, consumers in January could pay $8 for gallon of milk. Members of the House and Senate are set to begin negotiations this week on the five-year farm bill. Both sides are far apart on the sensitive issue of how much money to cut from food stamps.

The government shutdown ended two weeks ago and the budget showdown is over for now, but the impact on the economy may be felt for months. Consumer sales for September to be released tomorrow were probably flat. Consumer confidence fell in the weeks before the shutdown and is still below the average for this year. A new survey of economists for USA Today says more than half are less optimistic about growth prospects than they were three months ago.

Sales at most small- and medium-sized business are still growing but "that growth rate has been cut in half over the past 12 months," says Brian Hamilton, chairman of Sageworks, the financial company that follows results from privately owned firms across the country. "You couple the decrease of growth with the fact that we're four years into an economic expansion and you start bumping up against the mean average time of expansion."

Despite worries about the consumer economy, things are still humming along on Wall Street. The stock market had another strong week with new record highs for the S&P 500. The Nasdaq is the highest it's been in 13 years. The Dow climbed 61 points on Friday. The quarterly earnings season is about half way through and most companies so far have beaten analysts' estimates. Apple and Facebook are among the most closely watched reports this week. Apple today may announce that for a third quarter in a row earnings were less than they were the year before. The Federal Reserve will report September's industrial production numbers today. And the National Association of Realtors will release the pending home sales index for September.

Michigan's Governor Rick Snyder is set to testify today in a trial about whether Detroit can fix its finances in bankruptcy court. The decision on the city's eligibility may be weeks away. A key issue is whether the city held "good-faith" talks with creditors before the filing. Unions and pension funds say no. Detroit owes billions of dollars and is the largest city to file for bankruptcy.

Richard Davies Business Correspondent ABC News Radio Twitter: daviesnow