Economic Reports Making Consumers Increasingly Wary
Consumer attitudes about the U.S. economy edged lower in November and are close to the gloomiest depths reached in the 1982 recession, the Conference Board reported Tuesday.
The finding, which raises new questions about the Christmas shopping season, came on a day of mostly downbeat economic news. A large majority of business economists said the U.S. economy has entered a recession, and new reports said sales of existing homes fell in October and that the U.S. trade deficit widened in the third quarter.
“All these things combined point in the same direction--that we’re getting deeper and deeper into an economic recession,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “Now, we’re really talking about how long and deep the recession is going to be.”
The notable exception to the dreary list was a sharp rise in auto sales during November, U.S. car makers reported.
“Despite the drop in consumer confidence, there’s still evidence that consumers are spending,” said David Wyss, an economist with DRI-McGraw Hill in Lexington, Mass.
Indeed, how comfortable Americans feel parting with their money in the coming months will help determine the severity of the downturn, because consumer spending accounts for two-thirds of U.S. economic activity.
By one recent gauge, consumers may pull back. Public confidence in the economy slipped a bit further in November, following sharp plunges since the Persian Gulf crisis began in August, according to a survey by the Conference Board, a business research organization in New York.
The board’s index of consumer confidence now stands at 61.5, sharply down from the year-ago level of 115.1.
“It is likely that the Persian Gulf crisis and pending tax increases have contributed to the precipitous decline in consumer spirits,” said Fabian Linden, executive director of the board’s Consumer Research Center. Concerns about unemployment and the shaky financial system also have eroded public optimism about the economy, analysts said.
The flagging spirits spark worries about this year’s Christmas shopping season, a crucial period for many retailers. Wyss predicted that the season would be essentially flat or “pretty bad but not terrible” for retailers. “Americans have to be awfully scared to put their plastic away,” he maintained.
To the surprise of some, Americans have continued to spend for cars, albeit at a slower pace than last year.
On Tuesday, U.S. auto makers said mid-November sales of cars made in North America were 18% higher than last year, with gains for the Big Three--General Motors, Ford and Chrysler--of 16.2%. Car sales are down for the year, however, by 3.3% for all U.S. auto makers and 8.3% for the Big Three.
While signals from the auto industry have been mixed, the message from the housing market has been clear: Times are tough. Sales of existing homes dropped 4.7% in October, falling to the lowest level in nearly six years, the National Assn. of Realtors reported.
The median price of an existing house declined 1.7% to $92,800 in a reflection of the fragile market. (In the western United States, the median price was $140,600, up 4.4% from September. Sales in the West were down 5.8%. In California, the home resale market gained 2.2% in October, the California Assn. of Realtors reported Monday.)
“Consumer confidence is a major concern. It’s affecting housing, it’s affecting autos, it’s affecting retail sales,” said John Tuccillo, chief economist at the realtors association in Washington.
The varied signs of economic frailty have finally persuaded an erstwhile optimistic group, the National Assn. of Business Economists, that a recession has begun. In a survey released Tuesday, three out of four business economists said the United States slipped into a recession sometime between July and November. Two-thirds expect the slump, triggered by soaring oil prices, to last up to six months.
“Our best guess is the recession will be short--two quarters or less--and the decline shallow,” said Richard Rippe, president of the association and chief economist at Dean Witter Reynolds Inc.
Also on Tuesday, the Commerce Department released a compilation of trade data, which showed that the U.S. trade deficit widened 29% to $29.8 billion between July and September. Consumer Confidence November, ‘89: 115.1 November, ‘90: 61.5 Source: Conference Board Existing Home Sales Nationwide November, ‘89: 3.56 October, ‘90: 3.02 Source: National Assn. of Realtors TRADE BALANCE Quarterly U.S. merchandise trade deficit on a balance-of-payments basis excluding military sales, in billions of dollars 3rd Quarter: -29.75 billion Source: Commerce Department
