NEW YORK (AP) -- After a decade of spending rather than saving, consumers are showing mulish signs -- deciding to save at the very time the White House and the Federal Reserve want them to spend.
The message from Washington is spend, spend, spend to avoid recession, but the message from retailing, entertainment, travel and some other industries suggests consumers aren't cooperating.
A big exception so far has been in purchases of cars and houses, both beneficiaries of repeated interest-rate cuts. But even in these areas, concern exists that sales today might be at the expense of future years.
The lack of consumer cooperation is understandable -- uncertainty, fear, layoffs and a delayed response to earlier warnings that a zero savings rate posed threats to household financial security.
A more detailed examination indicates the so-called wealth effect also is involved. The sense of wealth, the security it offered, accounted for much of the bursts of spending and the decline in savings in the 1990s.
Experience shows that when households feel wealthy, as from rising home values and stock prices, they spend rather than save. A rule of thumb indicates that a dollar rise in wealth cuts saving by four cents.
Housing wealth has largely maintained its role in the wealth effect, although easy borrowing via equity loans may have tempered its impact, but the precipitous decline in stock valuations may have been underestimated.
That, at least, is indicated from research by economist Peter Hooper showing that the importance of stocks in household assets has risen in recent years, offsetting some of the sense of wealth from housing.
Based on his study, Hooper, who works for Deutsche Bank, foresees a substantial increase in savings and, as a consequence, a drag on economic growth.
If he is correct, it is likely that the Federal Reserve might have a bigger than anticipated job on its hands, meaning it might have to lower interest rates still more to entice consumers back to the marketplace.
Nothing is certain in economics, of course, but in the meantime only a few segments of the consumer marketplace are holding their own against the economic weakness -- cars and housing being the most notable examples.
Zero-interest financing of automobiles has helped keep that market more vigorous than even carmakers had anticipated. And housing is being influenced by some of the easiest financing ever offered in that market.
But, while easy payment terms are an effective inducement for consumer to buy rather than save, they are only one element in decision-making. Psychology and consumer confidence inevitably enter into considerations.
Though studies suggest consumer confidence may be improving, it is still rendered tenuous and fragile by the uncertain atmosphere of the war against terrorism.
In the meantime, you can hardly blame consumers for saving -- finally -- after years hearing messages and warnings that they were saving too little for emergencies, tuitions and pensions.
The message finally sank in, with the most unfortunate timing, and it might take all the tax and interest-rate inducements of government to turn it around.
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