Stocks Sliding, but Sales Aren't
Many Consumers Feel Wall Street's Woes Haven't Hit Home
By Robert E. Pierre and Kari Lydersen
Washington Post Staff Writers
Saturday, July 20, 2002; Page A01
CHICAGO -- The cash registers were ringing as customers carted off televisions, bicycles and VCRs, prompting one belt-high youngster to tell his father, "I've never seen so many people here," as they left the Wal-Mart in suburban Bridgeview.
On Michigan Avenue downtown, Maureen Messina said she might be scaling back her discretionary spending -- but only because she had just bought a new house in the suburb of Oak Park. "I'm aware of the economy and I pay attention to it," she said, "but I'm not really worried."
In a week when the Dow Jones industrial average closed at a four-year low and anxiety over corporate accounting scandals mounted, the impulse to buy remained somewhat constant. Area stores appeared full, and shoppers were active.
In fact, said Michael Miller, chairman of the economics department at DePaul University, consumers rarely cut their spending unless they believe their own jobs are threatened. Wall Street's week may have been anxiety-provoking, it hasn't yet led to personalized fear.
"There are lots of people who think the economy and the stock market are one and the same," he said. "They're not. There are not many households that are not going to eat next week because the stock market goes down. It's an insufficient source of income."
The national groups that monitor attitudes on the economy say consumer confidence remains above historical averages. Consumers don't have blind confidence that the economy will return to the robust growth of recent years, these groups said, but they haven't stopped spending because they don't expect a full-scale recession.
The New York-based Conference Board surveys 5,000 households each month for their views on business, employment and family income now and in the future. Since a significant slump after the Sept. 11 terrorist attacks, the indicators have generally risen, with strong showings in each of the past four months. Numbers for July are not yet available.
"It's kind of been bouncy," said Lynn Franco, director of the group's consumer research center. "Up in January, down in February . . . but still at levels associated with growth. The most important factor to keep an eye on is the labor market, because jobs are the primary source of income. If they feel secure, they're going to spend."
Consumer spending, which makes up about two-thirds of gross domestic product, is considered the broadest measure of economic strength. Spending took a big dip in September but rebounded in October and grew slightly from January through April, said Greg Key, a spokesman with the Commerce Department's Bureau of Economic Analysis. In May, the latest month for which statistics are available, spending was essentially flat.
Since September's attacks, the unemployment rate has remained fairly steady, usually between 5.5 and 6 percent, according to the Bureau of Labor Statistics. In June, the rate was 5.9 percent.
Retail sales, meanwhile, rose 1.1 percent in June after dropping by the same figure in May, according to the Commerce Department.
At shopping centers around this city -- whether fashionable stores downtown or suburban strip malls -- consumers seemed to be doing their part to keep the economy moving. Many said the upheaval on Wall Street and in corporate boardrooms was on their radar, but it wasn't exactly causing them to hoard money for a rainy day.
"Consumers have lost some of their optimism, but they have never adopted a pessimistic view of the economy," said Richard Curtin, director of Surveys of Consumers, a University of Michigan-based group that studies attitudes toward the economy.
Experts contend that few people are so concerned that they won't snatch up a good bargain, such as zero-interest car loans or a low-interest mortgage on a home they needed to buy anyway. Some consumers have curbed discretionary spending because of worry that earnings on their retirement accounts won't be as strong as they thought.
Joan Scott, who lives on Chicago's far West Side, is one of those consumers. "I just try to buy what I really need," said Scott, 47, who has worked as a security officer in Chicago public schools for 23 years. "The way things are going, I'm just trying to hold on to what I've got. There are so many people without jobs."
Still others haven't changed a thing, relieved that they haven't been personally affected and confident the gloomy news won't last forever.
Diane Gedik, 38, a paralegal who lives in the Chicago suburbs, said she hadn't changed her spending habits. "Fortunately, my job wasn't affected," she said. "I also have a child with special needs, which changes your perspective on life. You live for today and worry about tomorrow when it gets here."
Leslie Jones, 41, a suburbanite who runs her own business in contracting administrative services, said her life hadn't changed much either. "But I am more hesitant to put money in stocks," she said. "I've really been worrying about the corporations going under, like WorldCom. Lots of people are losing their jobs."
But this type of worry does not readily translate into reduced consumer spending, said Miller of DePaul.
Experience has shown that what happens in the stock market is not always a good indicator of how well the economy will perform. In the current situation, Miller said, widespread panic has been largely averted because most people are invested in the stock market for retirement rather than immediate income.
That's the case for Messina, 38, who works for the Cook County medical examiner's office. "I've lost a lot of money in my retirement account, but they tell you not to worry, that it's just on paper," she said. "I'm not retiring for 20 years, so I'm going to listen to that. They say not to panic, that the worst thing you can do is pull your money out."
But that doesn't mean that no one was worried.
Trudy Beckett, a graphic designer at a newspaper who was visiting from Fernandina Beach, Fla., said she has cut back drastically on her shopping habits.
"I usually would have three or four shopping bags," said Beckett, 44, who was carrying a small Harley-Davidson shopping bag as she browsed the stores on Michigan Avenue. "We stopped going out as much. We only go out about once a month."
Kimberly Ryan, who works in investor relations at William Wrigley Jr. Co., has been getting plenty of nervous calls from her clients about the stock market.
"A lot of people who have already invested are making phone calls asking why is this happening and what should they do," said Ryan, 31, who lives in a suburb south of Chicago. "People are very nervous, judging from the 40 or 50 calls a day I get."
Ryan said she had cut down on her spending. "I've tried to slim down," she said. "I don't go to movies as much. I try to do things with my friends that are home-based."
© 2002 The Washington Post Company
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