YOU WERE.
As Long As Americans Work, They'll Spend
Jun 16 9:24am ET
By Jonathan Nicholson
WASHINGTON (Reuters) - A funny thing happened to economist Ken Goldstein amid the U.S. economic slowdown.
One recent Sunday night, he picked up a copy of "The Original Kings of Comedy" at his local Blockbuster video store, headed toward the counter -- and promptly reconsidered when he saw the enormous line-up of renters. With 15 minutes to go before an appointment, Goldstein put the video back and left.
"I don't need to see it that bad," said Goldstein, who works for The Conference Board in New York. He told the story to illustrate a point: consumers, beset by whatever misgivings they may have about the future and burdened with sluggish stock gains and rising debt, continue to spend.
"At a certain point, waiting for the slowdown in consumer spending in 2001 is like waiting for Godot," Goldstein said, referring to Samuel Beckett's existential play about two men waiting for a third who never shows up.
Consumer spending -- which makes up two-thirds of U.S. economic activity -- has slowed in 2001, but has by no means stalled out. Its best month showed a 1.1 percent gain seen in January. That was followed by a minuscule 0.1 percent rise in February. In April, the latest month for which data is available, spending grew by 0.4 percent.
May retail sales figures, set for release Wednesday, will provide the latest gauge of spending. Economists in a Reuters poll forecast that retail sales rose 0.2 percent in May after a revised jump of 1.1 percent in April.
How consumer spending holds up may hold the key to whether the longest running U.S. economic expansion endures or finally sputters out in its 11th year.
Tax cuts could help make the difference between a sharp erosion in spending and a gradual recovery.
However, even now, economic worries seem to be the last thing on shoppers' minds, if a recent random sampling of consumers in Washington D.C. is representative.
Washington resident Phyllis Cooper said she's become a bit more careful about her spending, but hasn't cut back much.
"If I'm shopping, I have something in mind I'm looking for," she said, adding that she planned to use her tax rebate buy a couch.
JOBS TRUMP WEALTH?
Economists' explanations of why people spend are varied. The decision to pull out one's wallet is influenced, they say, by a variety of factors, ranging from confidence in the future to household debt and the performance of stock holdings.
But the best harbinger of spending, say economists, is whether a consumer has a job that pays decently.
"It's really jobs and income that drive consumer spending, more than anything," said Rosalind Wells, chief economist with the Washington-based National Retail Federation.
Relatively low levels of joblessness, combined with slow but steady income gains, will keep spending moving ahead.
Unemployment was 4.4 percent in May, down slightly from April and low by historical standards. Income growth has averaged 0.5 percent a month in 2001 -- not spectacular, but not recessionary either.
But prominent policymakers are growing worried about debt burdens and the so-called wealth effect, among them Federal Reserve Chairman Alan Greenspan.
Household debt service is nearing a record high, according to Fed data. The central bank estimated debt service payments ate up 14.29 percent of disposable income in the fourth quarter of 2000, only slightly below the record 14.38 percent seen in the fourth quarter of 1986.
And then there's the wealth effect, the idea that consumers spend more as their stock values rise and they feel wealthier -- and vice versa. Fed Chairman Alan Greenspan alluded to this in a May 24 speech, saying, "We can expect the decline in wealth that has occurred over the past year to restrain household spending relative to growth of income, just as the previous increase gave an extra boost to household demand."
Others say the wealth effect has been overplayed. Pete Kretzmer, senior economist with Banc of America Securities in New York, said the stock surge was so quick, it's unclear how much ended up as "extra" spending that will now reverse.
And Mike Niemira, senior economist with Bank of Tokyo-Mitsubishi in New York, downplayed the immediate danger posed by consumer debt. "It's a worry, but not an immediate one," he said.
VIEW FROM THE AISLES
Consumers shopping on a recent afternoon said they have also not yet decided what to do with an estimated $40 billion in income tax rebate checks coming their way by the end of September. Those should boost consumption -- if they're spent instead of saved.
Robin Hennix, a Minneapolis, Minn. attorney vacationing in Washington, said she intends to use her tax rebate to pay off some bills. While she was keeping an eye on the economy, Hennix said she doesn't know anyone personally who has been hit by the slowing economy.
"People are maybe worrying more than they have to," she said. |
