COLUMN ONE : Recession: Case of Bad Attitude? : President Bush says people should be more confident--and that would restore economic vigor. But consumers cite layoffs and lost wages.


To President Bush, the trouble with the nation’s lagging economy sometimes seems to boil down to a case of bad attitude--consumers getting the jitters from listening to media doomsayers and the Democrats. “There ought to be, in my view, given the economic place where we stand now, more confidence,” the President says.

“It’s a good time to buy a house,” he exhorts. “It’s a good time to buy a car. Interest rates are substantially lower.”

George Bush, meet Chuck Fiegle.

To Fiegle, of Chuck’s Auto & Diesel in Smyrna, Ga., Bush has it all wrong: People are frightened, all right, but they have good reason to be. Buy a car? Out back of Fiegle’s shop, there are six cars waiting for their owners to come up with money to put down as deposits for needed repairs.


“There are more people doing without health insurance, without car insurance, without house insurance, without any insurance at all,” says Fiegle. “They are flat scared.”

Judy W. Semper of Orange, N.J., agrees.

The 33-year-old mother of two works as an accountant for New Jersey Transit, but she gave up her part-time job as a real estate agent because it seemed no one could buy houses any more. Feeling an economic squeeze, Semper is trying to put a little more of her income into savings against the possibility of even rougher times ahead. Credit cards are now for emergencies only.

“Consumers are not paranoid,” she says. “It could only get better if the government stops lying and stops blaming it on consumer confidence.”

Economists say Semper and Fiegle have a point. “Confidence alone is not holding the economy down. It’s lack of income, lack of jobs, lack of profit,” says Allen Sinai, chief economist of Boston Co. “No one in their heart of hearts is going to feel good about spending if the economic fundamentals are negative.”

“I do not believe there is any evidence at all that consumer pessimism is responsible for the weakness of the economic recovery,” adds Barry P. Bosworth, who directed the Council on Wage and Price Stability under President Jimmy Carter. “People are pessimistic, but they are pessimistic for good reason. . . . Today, most economists discount psychological factors as a cause of recession.”

By some measures, times are not so terrible; indeed, economists say this has been one of the mildest downturns since World War II.


October unemployment stood at 6.8%, more than three percentage points lower than at the depths of the 1982 recession. Gross national product in the third quarter rose 2.4%, showing its first gain since the current recession began in mid-1990. And personal income in September edged up.

But other, more recent signs are ominous. First-time jobless claims this week were up by 14,000. Sales of both new and existing homes were down in September. Other indicators of economic vigor--factory orders, auto sales and durable goods purchases--have fallen as well.

With such mixed signals, analysts are having trouble even finding a label that explains what is happening to the economy now.

Noting the third-quarter increase in GNP, Bush told reporters Friday: “It is not recession. It is not--does not fit the definition of recession. And yet you have plenty of people around saying we are in recession.”

At the same time, that 2.4% rise in GNP was only half the percentage economists generally see in a recovery.

“I use words like ‘punky, crummy recovery,’ ” Sinai says. Some are warning that the economy is in danger of toppling into a second downturn, or “double-dip” recession.


Bush is far from the first politician to see consumer malaise as the root of economic troubles.

As the Great Depression gripped the country in the early 1930s, historian Arthur M. Schlesinger Jr. wrote, President Herbert Hoover tried pep talks, and even asked Will Rogers to come up with a joke that would discourage people from hoarding. Hoover told singer Rudy Vallee: “If you can sing a song that would make people forget their troubles and the Depression, I’ll give you a medal.” And of poet Christopher Morley, he requested “a great poem. . . . Sometimes a poem can do more than legislation.”

Even Franklin D. Roosevelt declared that the only thing to fear was fear itself. But economists note that there is a big difference between the dire situation that F.D.R. faced almost 60 years ago and the jam that Bush is in now.

“A lot of people forget that when Roosevelt said that, he had a lot of things in motion,” said Donald Ratajczak of Georgia State University in Atlanta. Roosevelt established new social safety nets to cushion the economic pain, and put 8.5 million of the unemployed to work on government projects.

Bush’s hands are tied by the record $350-billion deficit projected for this fiscal year, which began Oct. 1. The national debt is so high that interest payments alone will sap more than $200 billion from the public coffers--more than eight times as much as this country will spend on education, and more than 16 times the amount spent fighting the war on drugs.

After a bitter struggle, Congress and the President agreed last year on a two-year budget that would seek to bring the deficit under control by requiring that any additional spending be offset by new taxes.


In recent weeks, several leading congressmen have proposed breaking that budget agreement and spurring the economy with a tax cut. But those ideas immediately sent shivers through the credit markets, where long-term interest rates rose on fears of renewed inflation. Higher interest rates are precisely the wrong medicine for a faltering economy.

The legacy of the Ronald Reagan presidency, Ratajczak said, is that years of massive deficit spending have left the federal government unable to stimulate the economy with such traditional fiscal tools as big tax cuts or jobs programs.

The Federal Reserve has tried to do its part by cutting short-term interest rates by roughly a third over the past two years. The idea is to encourage more borrowing and spending, but the banking system is too weak from the excesses of the 1980s to plunge headlong into new lending, and nervous consumers are trying to get rid of their debts, not accumulate more.

Doug Halsne, a church pastor in Lindenhurst, Ill., is longing for a new Honda Accord, but for the next couple of years his 1987 Oldsmobile will have to do. “Personally, as a family, we’re striving to get out of debt,” he said. “We want to be debt free with exception of the house,” a fixer-upper that they bought two years ago for $78,000.

While paying off what they owe is a wise move in the long run, “you cannot have a robust increase (in economic activity) while consumers are liquidating debt,” Treasury Secretary Nicholas F. Brady said in a recent interview.

“If we have faith in the system, which I do, it will be faster coming back,” Brady added.

Yet the public’s economic spirit took another plunge last week, as the Conference Board, a business research organization, reported that its October index of consumer confidence fell by 17%.


“People are very concerned about jobs. That’s really where it’s all at,” said Fabian Linden, executive director of the Conference Board’s Consumer Research Center.

Stephanie Cardwell, 41, lost her job as a chef when the restaurant business began drying up in Colorado Springs, Colo. Her husband is still working, but his company, which produces computer software for the defense industry, has had layoffs as well.

Despite the enticement of the “50% off” signs in a moderate-price Denver jewelry shop last week, Cardwell looks, but does not buy. “Our Christmas shopping has been completely curtailed,” she said. “We’ve decided to give money for hunger relief in everyone’s name, instead of buying gifts.”

Even people whose own jobs are looking pretty secure are getting nervous when they look around them. Karen Armstrong, a 31-year-old waitress in Warren, Mich., was shocked earlier this month when she heard that her brother had lost his job as a phone salesman.

“I just read the papers for the coupons, so I guess maybe I didn’t know how many people were getting laid off,” she said. “The guy across the street is due to get laid off next week. It’s just a hard time. It’s a hard time for everyone.”

What has many people unsettled is not just how many are losing their jobs, but who they are. Where cyclical layoffs are accepted as a fact of life in blue-collar manufacturing, today’s economic slump has produced a larger share of joblessness in white-collar services.


Now, the layoffs are happening at such corporate behemoths as Time-Warner, Citicorp, IBM and American Express Co. “These were companies that were always thriving. They verged on institutions,” Linden said. “The notion of Time Inc. firing a lot of people is a shocker.”

The federal government work force--traditionally, one of the most recession-proof--has shrunk by more than 11% since the recession began last year; by comparison, it declined less than 3% during the 1982 downturn.

Moreover, once people lose their jobs in a period of prolonged economic sluggishness, they tend to stay unemployed. Fully 20% of the respondents to a recent Conference Board survey said that one or more people in their household had lost a job in the last 12 months, with the average period of joblessness being almost six months.

“Monthly unemployment figures, while accurate, understate the story,” Linden notes.

For many Americans, the real estate slump is shaking their confidence in the value of their biggest asset--their home. At a time when fewer and fewer people trust the stability of the Social Security system or their own pension plans, many had assumed that their house would be the nest egg that would tide them through retirement.

As Betty Cooper locks up Kay’s 5 & 10 Cent Store in Atlanta at closing time, the veteran sales clerk takes note of her own personal economic indicators.

“We have not had the first layaway for Christmas,” she said. “People are just looking around and buying mostly cigarettes and snacks. . . . There are more people coming in for handouts than buying.”


So while Bush cajoles consumers to perk up, economists say their attitudes may be the best barometer of what is really happening.

As Sinai puts it: “The person in the street has a far better fix on how things are than Washington or the economists.”

Contributing to this story were staff researchers Edith M. Stanley in Atlanta; Tracy Shryer in Gurnee, Ill.; Audrey Britton in New York; Ann Rovin in Denver, and special correspondent Mike Clary in Miami.