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Consumers: cutting edge of US recovery

By Lucia MouatStaff correspondent of The Christian Science Monitor / January 21, 1982



Chicago

Suggestion: If you already know how much you will save or spend of the tax cut coming your way in July, please tell an economist.

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Many of these professionals are fully convinced that it is the consumer who will lead the nation to economic recovery -- when it comes. After all, they note , consumer spending accounts for well over 60 percent of the gross national product.

But the bizarre mix of economic challenges facing consumers in recent months, from high interest rates to the lack of growth in real income, leaves many of these veteran analysts without a precise forecast of just how consumers will pull off the expected rescue.

''The business of this economy is producing goods for the consumer -- when he doesn't do well, no one does well,'' confirms Robert Dieli, a vice-president with Continental Bank's Economic Research Department. ''But because consumers have really been on the defensive for the last couple of years and have had so many problems, it's very hard to predict exactly what direction the initial thrust of spending will take. . . . Some will pay off bills. Some may buy cars. And some will invest in individual retirement accounts.''

Even so, many economists are convinced that it is primarily consumer spending rather than saving (the key aim of the Reagan administration's tax cuts) which will ultimately stimulate the economy toward at least a modest recovery. They cite the added income from the July tax cut, buoyed by slowing inflation, the moderating trend in interest rate levels, cost-of-living hikes for social security recipients, and other small shifts as combining to effectively increase the consumer's buying power.

''Our feeling is that the preponderance of the tax cut's effect will be to stimulate spending rather than saving,'' says Richard Berner, head of the Washington office of Wharton Econometric Forecasting Associates Inc. He estimates that consumers may stash away only 25 percent of their ''new'' money for a rainy day as opposed to the 75 percent or better which the Reagan administration hopes for.

Yet even those most confident that consumer spending will clear the way to economic recovery stress that taxpayers must also save some of their gains to achieve the needed forward momentum. And most count it inevitable.

''It's not a question of whether the savings rate will jump in July, but of how much,'' says Dr. Sandra Shaber, senior consumer economist with Chase Econometrics, the economic forecasting arm of the Chase Manhattan bank. ''We expect that a good part of that extra income will be spent, but when tax rates go down, people do save more. And a sustained recovery hinges on savings rates going up modestly. One of the ironies of the current situation is that the consumer hasn't had enough money to save -- he hasn't felt wealthy enough.''

While consumer spending has often led economic recoveries in past years, Elisabeth Allison, senior economist with Data Resources Inc. in Lexington, Mass. , insists the consumer is being asked to play a more delicate and complex role than ever before. For the Reagan ''game plan'' to work, she says, consumers must work ''harder and smarter'' to increase productivity and save more, preferably in long-term stocks or bonds, to help stimulate investment.