The consumer declines to be the economic catalyst

Posted: Thursday, June 21, 2001

NEW YORK (AP) -- This isn't the way it was supposed to be. The consumer was to have lifted the economy into the sunshine, but it isn't happening, and you don't need the Fed to tell you.

You can hear it in the resistance to sales of expensive homes in spite of great mortgages rates, in the sluggish demand for computers, in the ''for rent'' signs at summer resorts and in the conversations at cookouts.

More ominously, you can see it in the rising rate of mortgage delinquencies, in the continued low savings rate, in the hesitancy to buy stocks and in the fog that has settled over the entrepreneurial spirit.

Consumers, on whom so much depends, aren't responding to incentives in the same way as a couple of years ago, when confidence in the present was strong and belief in the future even stronger.

Now, the latest Federal Reserve survey suggests consumers have retreated to a wait-and-see mode. Hesitancy has replaced action, and low interest rates and rebated taxes can't seem to nudge them into motion.

A few years ago the news was about spectacular economic growth, amazing electronic gadgetry, real and sizable income increases, great opportunities for workers and entrepreneurs.

Now it's about layoffs, unexpectedly weaker corporate earnings, business failures, a dangerous stock market. Once believed invincible, the economy is now known to be vulnerable. Who worried two years ago about not having enough affordable energy?

Not that the economy is that bad. The jobless rate is still very low, inflation seems to be controlled, and many companies are producing good profits. And if you can believe the futurists, the best is to come.

But the emphasis today is different. Uncertainty underlies all.

The Fed survey of conditions in its 12 districts revealed an expansion that has slowed to a near standstill, with consumer spending notably sluggish, a conclusion supported by a separate Commerce Department report.

This confirms one of the worst fears of the Fed, explained several times by chairman Alan Greenspan, that the recovery from the downturn depends heavily on retaining a positive mood among consumers.

So, what will it take to induce the consumer to take the lead -- to be a catalyst in the recovery? The question generally evokes a spontaneous response: Another interest rate cut when the Fed meets on June 26 and 27.

However, rates cuts -- there have been five since January -- have so far had disappointing results: spurts, but little sustained, activity. And the feeling that another cut is forthcoming is so widespread that it might already have been discounted.

The full, but simple, answer might very well be that consumers will shed their fears and move into action when they darn well get around to it. They've been leaders in the past, and feel they've been burned. They are likely to be only reluctant catalysts, their motto being, ''you first.''

The time for consumers to act might be when they see business putting its house in order, the stock market acting responsibly, government getting its act together, leadership demonstrating its credibility and the media focusing on what's good about the economy.

End adv for Sunday, June 17

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