US economy may be in for a buying breakthrough
Boston — This is a time when economists are rooting for the spenders. Donald H. Straszheim, of Wharton Econometric Forecasting Associates, calls consumer spending ''the missing link'' in the recovery. Lawrence Chimerine, an economist with Chase Econometric Associates, asks, ''What is wrong with consumers?'' And Otto Eckstein, chief economist with Data Resources Inc., says consumers have regained their confidence.
Consumers buy about two-thirds of the nation's output of goods and services. So economists watch retail sales with a special fascination. What has made them anxious in recent months is that retail sales have not been vibrant. In the first quarter, sales were up less than one-tenth of 1 percent over the final quarter of 1982. The prolonged recession, with its high and pervasive unemployment, has severely inhibited consumer buying, according to an analysis by NFO Research Inc., of Toledo, Ohio.
NFO Research surveyed 5,000 families across the country and found that 24 percent of all wage earners were unemployed at least once during the past 12 months. Moreover, the average stint of unemployment was nearly 19 weeks, longer than in any previous postwar recession.
Fabian Linden, executive director of the Conference Board's Consumer Research Center, notes: ''While some of the financial hardship suffered by the jobless is offset by unemployment benefits, the damage is frequently sizable. In some instances, it amounts to 25 percent or more of a household's annual earnings, especially where the husband is out of work. Considerable time is often required for a household to make up its economic losses and repair the psychological damage of an extended period of unemployment.''
Because more people were without a job for so long in this recession, the Conference Board (which sponsored the survey) expects it could take longer than in previous recoveries for consumers to become ''a significant force at the retail counters.''
But there are signs that consumers are becoming more confident. Surveys of confidence by both the Conference Board and the University of Michigan show some of the largest gains ever recorded in their March reports. The Michigan survey shows consumers more cheery about the prospects for both the national economy and their personal finances. The Conference Board survey indicates consumers have more ambitious buying intentions, with automobiles and other consumer durables included.
Economists Chimerine and Straszheim offer several other reasons for predicting a resurgence in consumer spending:
* Purchasing power will accelerate sharply. Mr. Chimerine expects real disposable income - after inflation and taxes - to grow at a 4 percent rate during the rest of the year. That, he explains, is because of continued modest inflation rates, large tax refunds now being distributed, the third installment of the tax cut in July (it will still amount to at least $22 billion even if capped by Congress at $500 or $700 per taxpayer), the extension of unemployment benefits, and small gains in employment.
Wharton's Mr. Straszheim says that unemployment has clearly peaked and that those who have managed to hold on to their jobs should become increasingly confident of keeping them.
Already, personal income increased a strong 0.6 percent in March.
* Households have relatively low debt levels. Their debt repayments relative to current income have declined. So many families should be able to absorb new debt to buy cars or other goods.
* The sharp increase in stock and bond prices, plus a turnaround in home prices in several areas, has dramatically bolstered household net worth.
Notes Chase's Mr. Chimerine: ''While the marginal propensity to consume out of wealth is far less than out of income, the increase in wealth has been so large that some increases in spending are likely.''
* While still high, some consumer loan rates have finally begun to decline. If inflation edges up, real interest rates - those after removing inflation - could decline somewhat and reduce the incentive to save.
* The modest improvement in house construction should contribute to spending for household durables - washing machines, refrigerators, etc.
Mr. Chimerine speaks of a ''pent-up demand'' for many goods and services that , with increased financial means, should be translated into a gradual acceleration in consumption this year.