The Times Poll : Crash Makes Many Fearful About Future

One out of three Americans plans to postpone or reduce a major purchase such as a house, car or vacation because of the recent stock market crash, the Los Angeles Times Poll has found, a prospect that economists fear could lead to a recession.

The market plunge also has made many Americans doubtful about the future and concerned about a possible recession, regardless of whether they own stock or not, the poll found. In fact, Americans who do not own stock are more inclined to cut back on spending as a result of the crash than those who lost money in the collapse.

The results of the poll--conducted by telephone with 2,463 individuals nationwide between last Thursday and Monday--represent the first time that spending intentions have been quantified and broken out specifically in relation to purchases of homes, cars and other big-ticket items after the crash.

Consumer spending--which accounts for about two-thirds of gross national product and thus is critical to the nation’s economic health--had already been expected to slow down even before the market crash, in part because consumers appear to have worn themselves out from their high level of spending during earlier stages of the current economic expansion.

But the high level (31%) of Americans indicating they would cut back purchases because of the market crash came as a surprise to some economists who said they did not expect that its effects would be felt as wide and as fast, particularly among those who do not own stock.

Most consumers normally do not adjust their plans that quickly in response to external events, said Allen Sinai, chief economist for the brokerage house of Shearson Lehman Bros. Such a finding does not bode well for the economy, he and other economists said.

“(That) response is a very quick reaction by consumers. It indicates a lot of consumers are scared by the stock market crash,” Sinai said. “If (that) is the right number, then we’re going to see very substantial weakness in consumer spending.”

“There is not necessarily a one-to-one link between a stock market decline and a recession. The real link is what happens to consumer confidence,” Times Poll Director I. A. Lewis said. Americans’ caution as reflected in the poll “has got to have a negative effect on the economy.”

Any potential consumer spending cutback now will come at a critical time for the economy. Consumers are entering the key Christmas shopping period, and many retailers already have ordered inventories. Any slowdown could result in reduced hiring, widespread price discounting and manufacturing slowdowns.

Incentives Ended

Also, U.S. auto manufacturers are entering the 1988 model year, following cut-rate financing programs for 1987 models that temporarily boosted sales. The ending of those incentives already was expected to slow consumer auto purchases, and any further slowdown could lead to layoffs and other production cutbacks.

“If you wanted to pick a good time to test consumer fears, this is it,” said A. Gary Shilling, a New York economic consultant.

To be sure, Americans’ caution could change to optimism if the stock market recovers or lower interest rates or other factors encourage consumers to increase purchases.

So far, evidence of actual spending cutbacks on homes, cars and other big-ticket items is growing but incomplete.

Car Leads List

According to the poll, the item that the highest number of consumers plan to postpone or reduce buying is a car (11%), followed by a house (10%), vacation (10%), dining out and entertainment (9%), Christmas presents (8%) and major appliances (5%). The totals exceed 31% because some people indicated that they would postpone or reduce buying of more than one item.

“That isn’t going to be good for Detroit,” Lewis said. “If people cut back on buying cars, that has a real ripple effect” throughout the economy.

Interestingly, only 31% of those who lost money in the crash plan to cut back on spending, compared to 33% of those without any stocks. That may indicate that the fear associated with the crash has been just as unnerving as the actual loss of wealth, economists suggested. It also may reflect the fact that non-stockholders tend to have lower incomes and thus may fear a recession and possible loss of their jobs more than higher-income individuals.

Stock Owners Buy More

However, the fact that many stock owners plan to cut back spending may be more significant, at least for its impact on big-ticket items. Stock owners, even though they represent only one in five Americans, buy about 70% of the new cars and homes purchased annually in the country, economists say.

Another reflection of consumer caution was the finding that about two in five Americans (43%) surveyed said now was a good time to wait on buying things they want and need, compared to only one in five (23%) who said it was a good time to purchase. The propensity to wait was higher among non-stockholders.

Also showing caution was the more than half (52%) who said they were doubtful about the future after the market crash, compared to 29% who were unconcerned and 12% who were confident of the future.

About 31% of those who do not own stocks said that the impact of the market crash would be bad for them, the same percentage as those with more than $3,000 of stocks.

Most Optimistic

Despite their personal financial concerns, most of those polled were optimistic about prospects for the economy generally. About 65% of those surveyed think the odds are less than 50% that a recession would start in the next 12 months. Even stockholders who lost money in the crash were optimistic, as 64% of them thought the odds were better than 50-50 against a recession.

Of the 19% of those surveyed who own stocks, 46% lost money in the recent decline, 39% broke even, 6% made money and the rest were not sure.

But those who lost money in the crash were generally not discouraged about the market. While the bulk (69%) of those losers said they do not plan to change the level of their stock investing, 17% plan to increase while 12% plan to pull back.

“You hear a lot of whistling past the graveyard,” Lewis said in explaining the optimism of the losers, noting that people tend to think that what they are doing is good, regardless of whether the results are bad.

Respondents for the telephone poll represent a cross section of the American population. The margin for error is 3 percentage points in either direction, Lewis said.