For more than a year, Steven E. Zipperstein, a government lawyer from West Los Angeles, and his wife, also a lawyer, have put off buying a new car.
"During the mid-1980s, we might have bought it, but for the last year or so we've been more cautious," Zipperstein said, adding that only now are they gaining enough confidence in the economy to go through with the big-ticket purchase.
The couple, expecting their third child shortly, have been avoiding other major expenditures as well, such as hiring a plumbing contractor. Instead, they repaired the plumbing themselves, saving an estimated $1,500.
For months, consumers, who account for about two-thirds of the nation's spending, have been expected to lead the economy out of recession with a big burst of buying. Despite occasional pick-ups in home sales and other purchases, that hasn't happened in any substantial way.
The consumer is remaining cautious even though interest rates, which have been falling throughout 1991, are at their lowest levels in several years. And the Federal Reserve Board on Friday moved to push rates down even further.
Monthly payments on adjustable-rate mortgages are plunging at the fastest pace ever, putting thousands of extra spending dollars in the pockets of homeowners. Fixed-rate mortgages have dropped more than 1% in the last year. Financing rates on car loans are falling.
So how come people aren't spending more?
The answer comes in several parts. Consumers remain nervous about job security. They already have too much debt and don't want to take on more. Disposable income and savings have not been growing. And the equity in their homes, a financial cushion that has provided psychological comfort in hard times, is of increasingly uncertain value.
Until those fears abate, many economists believe, spending is likely to remain sluggish even as interest rates fall.
It will not be easy. Many consumers are holding back because of uncomfortably high unemployment levels. The last few months have been marked by numerous layoffs in white-collar professions such as accounting, law, banking, communications and the securities business that previously were thought to be relatively insulated from a downturn.
"Four out of every five people are employed in the service sector, which is undergoing a massive restructuring. People who have never before been threatened by a business cycle are finding themselves staring at the prospect of unemployment," said Irwin L. Kellner, chief economist with Manufacturers Hanover Bank in New York.
On Thursday, First Interstate Bancorp disclosed that it will slash its work force by 3,500, or 10%. Job losses stemming from BankAmerica Corp.'s pending acquisition of Security Pacific Corp. have been estimated at 10,000 to 20,000.
Economists also debate whether some big-ticket purchases, such as autos, are very interest-rate sensitive at all. Detroit frequently offers rock-bottom financing. Nationwide, the average auto loan now goes for 11.17%, down from 11.87% a year ago. Still, auto sales remain slow.
"I have been looking at the rates our credit union charges for auto loans, and they have dropped down to about 8%, which is the lowest I can remember them being in a long time. Does that encourage me to buy? No," said Robert Giannangeli, a Sherman Oaks resident who works in public affairs for the Internal Revenue Service.
Kellner, the Manufacturers Hanover economist, argues that price, not financing, is the key to auto sales.
"The problem with cars is that they are simply too damn expensive. The average family has to give up half a year's income to buy a car. Twenty years ago, it only cost about 17 weeks pay to buy the average car," Kellner said.
Not that lower interest rates aren't having some positive effect on spending. Homeowners with adjustable-rate mortgages, or ARMs, have seen their payments tumble over the last year.
A couple with $200,000 left on their home loan would pay $163 a month less today than they would a year ago if that loan is tied to the 11th District Cost of Funds Index, the measurement most commonly used by California lenders to set ARM rates. Those savings are likely to flow back into the economy, economists believe.
"Right now, people are so pinched that any improvement in their cash flow has an impact. This is going to be spent, not saved," said Joseph Wahed, chief economist with Wells Fargo Bank.
Officials with the Federal Home Loan Bank of San Francisco, which compiles the rate, estimate that $200 billion in mortgages nationwide are tied to the index and that the drop in the index over the last year translates into about $2 billion more for consumers to spend. Still, it's not enough to make a big dent in the economy.
"We need big guns to get this economy moving. This is just a rifle," Wahed said.
Frank E. McCormick, a Bank of America senior economist, said he doesn't see consumer confidence and spending worsening so much as leveling off and returning to where it was in early 1990 before Iraq's invasion of Kuwait and the Persian Gulf War.
Some experts argue that consumers are actually harmed by the lower interest rates because what consumers are paid on their deposits is dropping even faster than loan rates.
A recent survey by Consumer Action in San Francisco of big California banks showed that the average interest rate paid on a certificate of deposit declined by nearly one-fourth since last January, but rates on a variety of loans either stayed the same or dropped at a far lower pace.
Paying off debt has been another priority for a lot of people, the legacy of heavy borrowing when times were good in the 1980s. Government statistics show household debt at $835 of every $1,000 in income. In addition, taxes are taking an increasingly bigger bite out of incomes--about $1 out of every $3 spent at the gasoline pump in California now goes toward taxes.
Needless to say, few people are eager to increase their borrowing.
"I am a very conservative consumer myself, and most of the people I talk to are the same way," said Paul Havemann, vice president of HSH Associates, a New Jersey company that tracks interest rates. "I look at these rates and think that I could borrow, but how would I pay it back?"
Cutting Bank Loan Rates
Any trend toward improvement in the economy is anemic, the government said, and the Federal Reserve moved to ease credit: BORROWING:
Discount rate: To boost the economy, the Federal Reserve cut its discount rate, the interest it charges on loans to banks, to 5% from 5.5%, the lowest level in 18 years.
Prime rate: Morgan Guarantee, First Interstate and other major banks dropped their prime lending rates--interest charged on loans to their best corporate customers--to 8% from 8.5%. THE INDICATORS:
Retail sales: The Commerce Department says retail sales fell 0.7% in August--the steepest drop since a 1.3% plunge last January, when the economy was still deep in recession.
Inflation: The Labor Department reports that the consumer price index rose 0.2% in August, signaling that inflation pressures are small.