CONSUMERS dug their wallets out in the second quarter of 1993.
As a result of the buying, the government reported the second quarter gross domestic product (GDP) grew by 1.6 percent, up from 0.7 percent in the first quarter.
Although the improvement is good news for the economy, the rate of increase was lower than expected by Wall Street economists and the Federal Reserve Board. Last week, Federal Reserve Board Chairman Alan Greenspan told Congress that he expected the second quarter growth rate to be 2.5 to 3 percent. The numbers may yet be revised upward when the government gets more precise information.
"The numbers point to the fact the economy is growing at a moderate pace," says Ian Borsook, senior economist at Merrill Lynch & Co. Mr. Borsook says the main surprise in the report is the drop in inventories, particularly in the auto sector. "Sales look very robust compared to production. The auto companies will have to increase production if the current sales rate continues," Borsook says.
If the sales trends continue, the momentum could carry over to the third and fourth quarters as well.
Economist Robert Brusca of Nikko Securities Company International Inc. is predicting that third quarter real GDP will grow by 3.5 percent and the fourth quarter by 3 percent. He says consumer spending will keep the economy moving.
Economists expected some improvement in the second quarter. Business spending on plant and equipment remains strong. The capital spending spurt is in large part due to firms' desire to improve productivity, says economist Martin Regalia of the US Chamber of Commerce in Washington. "That's a reason employment growth has not been there," he explains.
There has also been an uptick in orders for durable goods, such as automobiles and commercial jets. On Wednesday, the government reported durable goods orders in June edged up 3.8 percent, following three months of decline.
Order books are looking positive in Detroit in part, auto executives say, because consumer mortgage refinancing is running at a record level. Lower mortgage payments are giving Americans more disposable income.
Home appliances also posted higher sales, stimulated by adverse weather. The Association of Home Appliance Manufacturers reports that room air conditioner sales in June surged by 44 percent. Joyce Viso, a spokeswoman for the association, says that the industry expects shipments to improve about 3 percent over last year.
There is some anecdotal evidence that some nondurable goods may also be starting to experience a spurt. Expressions Inc., an upper-end furniture retailer, reports that store-to-store sales are up 15 percent over the past 10 weeks. Ken Kwit, chief executive officer of the New Orleans-based company, says that he has never seen a greater period of consumer volatility: "It seems like almost any event can spur or stifle sales."
Furniture-parts manufacturer Rhyne Lumber Company in Newport, Tenn., has also experienced a jump in sales. The sales increase, combined with the heat and humidity, has prompted the company to hire new workers instead of running overtime. "I waited as long as possible before hiring but it's hard to get people to do overtime in an efficient way in 100 degree temperatures and stifling humidity," says Patrick Williams, the general manager.
The economy continues to show a negative side as well. The Conference Board, a business group in New York, reports its Help Wanted Index, which measures advertising for jobs, fell in June. "As long as major corporations continue to make layoff announcements, no substantial improvement in labor market activity is likely," says Ken Goldstein, an economist with the organization.
In fact, last week IBM announced it would lay off 50,000 workers from its worldwide labor force. Combined with earlier programs, IBM said it expects to shed 85,000 workers, or 28 percent of its work force, in 1993 and 1994.