Consumer Jitters Thwart US Economic Recovery

IF MORE Americans found comfort in improved job prospects, higher wages, or better yields on their investments, the United States economy would get stronger. But unemployment worries and a steady, if slowing, decline in personal income have practically stalled the nation's economy. Economists say that consumer reluctance to spend money has undercut the housing and manufacturing sectors - both key to economic revival.According to revised US Department of Commerce figures released this week, consumer spending remains weak, leaving business managers to draw down their already-lean inventories rather than replenish them. The gross national product (GNP) shrank by 0.1 percent from the first quarter to the second quarter of this year, continuing the slide for the third consecutive quarter. The New York-based Conference Board, surveying 5,000 households across the country, reported on Tuesday that its consumer-confidence index fell this month to 76.3 percent from 77.7 percent in July. Economists say the decline is a measure of public pessimism about jobs and business conditions. Consumers' unwillingness to make large purchases, from cars to homes, is a drag on recovery: Consumer spending accounts for two thirds of the nation's economic activity. "If consumer confidence numbers are a prelude to what average Americans can or will do, then there's no indication that they're going to loosen their purse strings," says Glenn Forman, director of economic and business planning services at the Conference Board. Housing starts rebounded from March's first-quarter register, "but levels still remain dismal," says Sung Won Sohn, chief economist at Minneapolis-based Norwest Corporation, a financial services company. Compared with 2 million new homes a year just five years ago, the construction industry will be fortunate if it builds 1 million new homes this year. Sales of existing homes are down. The residential and commercial real estate market is largely saturated. All related industries are suffering, from cons truction materials to home furnishings. US products continue to find hospitable markets abroad, which helps offset the slack demand at home. The trade deficit fell last quarter to $15.6 billion, its lowest level in eight years. Dr. Sohn says last month's surge in US durable-goods orders cannot be sustained. One reason, he says, is that the recent boost in auto sales is due not to a general increase in demand but to fleet sales based on concerns that 1992 models will have higher price tags. Belt-tightening individual consumers are not the manufacturers' primary targets now. "In the past, Detroit has used consumer rebates to entice purchasers, but now they're offering factory-to-dealer rebates. The dealers are in turn offering ve ry attractive leasing arrangements to consumers." This development best demonstrates the consumer's tentativeness, he says: "It's more economical to lease than to buy." Not even the aircraft industry, a pillar of US industrial strength, can be taken for granted. Decreased defense spending will affect producers of military hardware. And even commercial producers are vulnerable. With falling demand from the US, Japan, Britain, and the Netherlands - all countries where the airline industry is shrinking - carriers may cut back on their options to buy planes, Sohn says. The fact that business in general is paring down its reserves doesn't mean there will be a big surge in or ders for durable goods such as washing machines, televisions, and other big-ticket items, Sohn says. Mr. Forman agrees. "Consumers are still tentative, and businesses are looking to them to take the lead. Businesses aren't stocking up shelves in anticipation of strong consumer demand," he says. "When inventories are depleted, further sales will necessitate new production." The negative GNP news on Wednesday renewed hopes on Wall Street. Sales reached record highs with the prospect that the Federal Reserve Board will lower interest rates in order to nudge the economy along. "The Fed has the one lever left," Sohn says. Lower long-term interest rates "would stimulate the interest-rate-sensitive portions of the economy, such as housing and consumer spending. But the lower interest rates help if you have a job or you think you'll have a job in a few years." A rate reduction, however, is unlikely to lure people affected by massive corporate layoffs or fears of joblessness to buy. Edward Brennan, chairman of financially troubled Sears, Roebuck and Co., says the recession has taken a toll on the company's revenues, "especially the sale of durable goods, which account for roughly two-thirds of Sears domestic merchandising revenues." The balance sheet will improve "if improvements in the economy, the housing market, and consumer confidence materialize as anticipated." The Conference Board index says consumers are "less optimistic in their expectations for the months ahead."

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