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Shaken consumers come back
Minna Koolkin trooped out to the Ikea store in Schaumburg on Thursday with a mission: She needed to furnish her new apartment with throw pillows, a clothes hamper and picture frames.
The 19-year-old Chicagoan was as shaken as anyone else by Tuesday's horrific attacks on the World Trade Center and Pentagon, but she also was determined to get back to normal as quickly as possible. "I definitely feel differently about life and how quickly it can come and go," Koolkin said. "But you have to go on."
Everyone from President Bush to Federal Reserve Chairman Alan Greenspan is hoping that millions of other U.S. consumers feel the same way. To keep the U.S. economy from slipping into a full-fledged recession, Americans must keep spending on new clothes, cars, housing and travel, they agree. After all, consumer spending constitutes two-thirds of the economy.
But even before the deadly attacks in New York and Washington, the engine of consumer spending was sputtering, thrown off by spikes in unemployment and a volatile stock market. Just a month ago, consumers gave their most pessimistic assessment of the current economic situation in more than four years.
That was before Tuesday's events, which turned stores and shopping malls into virtual ghost towns Wednesday. Many sales associates busied themselves straightening racks or catching up on paperwork as they waited for shoppers who never showed up. By Thursday, however, that began to change.
Weary of being cooped up at home in front of their TVs, U.S. shoppers began returning to stores and cautiously spending money, a sign that Tuesday's attacks may not damage retail spending as much as some experts originally feared.
Although the mood was still understandably subdued, crowds began roaming along Michigan Avenue's Magnificent Mile late in the week. Woodfield mall, the area's largest, reported shopper traffic in the evenings had returned to normal levels as entire families came out to shop together.
Crate & Barrel, the home accessories and gift retailer, also saw shoppers coming back--even to its Madison Avenue store in New York, which was closed Tuesday and Wednesday.
"If you've got to go to a wedding, you still need to buy a wedding present," said Bette Kahn, Crate & Barrel spokeswoman.
Indeed, a large number of Americans appear to be heeding pleas by New York Mayor Rudolph Giuliani and President Bush to go on with normal activities such as dining out, attending the theater and shopping. And that has some economists arguing that the New York disaster may not push the U.S. economy into a painful recession that would end a nearly decade-old expansion.
The U.S. is a wealthy nation and can afford to rebuild the devastated southern tip of Manhattan, said Diane Swonk, chief economist for Bank One Corp.
"Whenever something like this happens, we have a big disruption in economic activity, and then the cost of the cleanup ends up stimulating the economy on net," she said.
Swonk believes it is inaccurate to compare the current situation to what happened during the 1991 Persian Gulf war. Back then, an already sluggish economy beset by $40-per-barrel oil was pushed into recession when frightened consumers pulled back on spending.
A better analogy, Swonk believes, is the Cuban missile crisis in 1962 or the assassination of President John F. Kennedy in 1963. Although Americans' sense of security was shattered by both events, neither derailed the beginning of what then was the longest economic expansion of the postwar period. That period of prosperity has been surpassed only by the expansion that started in the early 1990s.
Sherry Cooper, global economic strategist with the Bank of Montreal, agrees with Swonk's assessment. She believes the economy will go through a "short and shallow downturn, followed quickly by a strong rebound."
Other economists aren't as confident. Stephen Roach, chief economist of Morgan Stanley, for instance, calls the combination of weak economic fundamentals and a terrorist shock "a lethal combination for the American consumer."
Tuesday's events "could well be the tipping point to the recession of 2001," he predicts.
To be sure, disasters have a mixed effect on consumer spending, retail experts say. In New York, there undoubtedly will be a boom period for retailers of office furniture, copiers and office supplies as businesses once located in the World Trade Center set up new locations. That will be offset, wholly or in part, by the downturn in business for hundreds of retailers located in the cordoned-off area and the thousands of merchants that curtailed their operating hours.
Around the country, millions of consumers will have one of two divergent reactions about spending, predicts retail consultant Cynthia Cohen. Some will think they shouldn't buy anything frivolous or fun, such as sexy fashions or big-screen TVs, while people are hurting.Others will decide that the disaster is a clarion call to spend more time with their families or finally pursue some personal goal.
"You'll have dads saying, `I'm not working this Saturday. I'm going to buy a baseball mitt and teach my son to throw.' Or you'll have moms saying, `I've been putting off going to a yoga class, and I'm going to go out and buy the yoga pants I need,'" Cohen said.
Some consumers confess they are feeling both impulses at once. LaGrange resident Danyell Upchurch couldn't imagine shopping after Tuesday's events, but by Thursday, she was in the Orland Square mall in south suburban Orland Park returning something she bought the day before.
"At first I thought I better save my money, that the stock market is going to crash because we're going to war. But that was Tuesday," said Upchurch, a child-care worker. "On Wednesday I turned off the TV and went out shopping. I didn't hold off."
Still, the mood in many stores and malls continues to be downbeat. And on balance, industry experts agree the negative psychological fallout will likely dampen what already was a soft retail environment.
"In the near term, consumers are not going to be willing to spend very much, and they won't go for big shopping sprees in the malls because of the lack of security," said Walter Loeb, veteran New York retail consultant.
But longer term, he believes the economy will spring back to health faster because of pent-up consumer demand and pump-priming by the Federal Reserve and Congress. There may even be another tax cut to spur spending, he believes.
"Our shopping for the holidays will be strong, and maybe stronger than I originally figured," he said.
Indeed, a survey of 250 households by Chicago's Leo J. Shapiro and Associates a mere 10 hours after the destruction found that many felt the assault would affect their lives, but few felt it would actually change the way they live.
Ninety percent of the survey respondents expressed confidence they could sustain their income at current levels or increase it.
However, in the attack's aftermath, many Americans have tempered their hopes of getting ahead, Shapiro said. Those who were looking forward to an easier time by next September diminished, falling to 21 percent from 43 percent. Those who thought they could save more in the coming year also dropped, to 28 percent from 48 percent.
Retailers said they will have a better read on consumers' mind-sets after the weekend, when many families do their shopping. And it's not as though retailers were expecting a great fourth quarter anyway.
With the economy in a slump for most the year, retailers were planning for a worst-case-scenario holiday season. They've kept their inventories tight and been careful about future orders. That caution may be their salvation, retail experts say.
Tribune staff writers Raoul V. Mowatt and Nancy Munson and Reuters news service contributed to this report.