THE United States consumer - strapped with excessive personal debt, apprehensive about losing a job, worried about the future - is unable to provide the economic "kick" necessary to help shove the US economy into faster growth, economists say. Nor do they see anything on the horizon to change that scenario this year.
Low consumer confidence continues to be a major impediment to faster economic growth. Consumer spending constitutes roughly 68 percent of US gross national product. Yet "consumers are scared," says David Wyss, an economist with DRI/McGraw-Hill, an economic consulting firm in Lexington, Mass.
The main problem, Mr. Wyss says, is the lack of real growth in personal income. Income growth "is flat, just keeping pace with inflation. US consumers are spending their little hearts out; it's just that they don't have enough additional income" to help expand US economic activity. To get that added income, Wyss says, the economy needs to generate more jobs. Yet many businesses, far from adding workers, are seeking to cut costs to bolster earnings.
Consumer confidence is rising, however, reflecting the slow recovery under way. The Index of Consumer Sentiment, published by the University of Michigan, rose to 79.2 percent in May, up from 77.2 percent in April and 67.5 percent in January. The index measures how consumers currently feel about the economy. A somewhat similar index, published by the Conference Board, is also showing improvement.
"Clearly, the indexes are moving in the right direction," says a University of Michigan spokeswoman.
"Some occasional businesses are starting to hire people here and there, which increases public confidence" says Rosemary Scanlon, chief economist for the Port Authority of New York and New Jersey, a major employer in the New York metropolitan area. "But still, new job growth remains very limited."
With personal income gaining slowly at best, consumers are unable to make many big-ticket purchases, from cars to refrigerators. Nor are consumers able to save much, putting away slightly in excess of 5 percent of income, well below the 15 to 20 percent savings rates of some nations in Europe and Asia.
Low consumer confidence - and spending - has several immediate negative effects on the economy:
* Sluggish retail sales, although they have risen slightly of late, are forcing larger chains to slow hiring, while some companies are laying off seasonal employees. But an expanding retail sector is important, since it tends to hire part-time workers and homemakers whose jobs help keep families from slipping deeper into debt.
* Several of the nation's largest industries - autos, housing, and light manufacturing - are directly linked to consumer spending. But when consumers keep their wallets shut, companies in these sectors continue to shrink payrolls.
Total household debt - what individuals and families owe to others - is at record levels - about 93 percent of disposable income according to DRI/McGraw-Hill. About three-fourths of that total represents home mortgage debt. But the debt level has been shooting upward in the past decade, rising from around 80 percent of disposable income at the beginning of the 1980s.
During the past two years alone, household debt rose by 10.2 percent, outstripping take home pay, which rose 9.5 percent.
Consumers have trimmed installment debt, which has been declining as a percentage of income since 1989. But what may be happening, says Wyss of DRI, is that Americans are merely shifting debt from installment accounts to home equity debt. Second mortgage debt, including home equity loans, jumped by almost $30 billion last year.
How then can the US economy be jump-started?
"That will require action outside the whole consumer area," Wyss says, including encouraging investment and boosting exports.