Pit Bull of a Recession Hangs On : * Economy: Consumer confidence drops in January, while last year’s growth in workers’ income was the smallest in four years.
Americans turned more pessimistic about their financial and job security this month despite lower interest rates aimed at helping the economy, a widely followed consumer confidence survey said Tuesday.
The Conference Board’s consumer confidence index, which had leveled off in December after sharp declines the previous two months, fell again in January, largely on anxiety over future employment and business conditions. The index is at its lowest level since the 1981-82 recession.
In a separate report, the Labor Department said workers’ wages and benefits--restrained by the recession--rose just 4.3% in 1991, the smallest gain in four years.
Economists said the business research group’s report is especially significant because it shows that Americans aren’t responding to some of the most affordable borrowing costs in two decades. The findings underlined consumer reluctance to take out loans for homes, cars and appliances in sufficient numbers to stimulate the economy out of recession.
Economists said many consumers are holding back, saving their money in case they need it for essentials.
“I think individuals are focusing more on the further deterioration of the job market and their own families’ financial situation,” said Gary Ciminero, chief economist at Fleet-Norstar Financial Group in Providence, R.I., the biggest bank in economically battered New England.
“Job prospects, job concerns continue to mount. That’s what’s driving things,” he said. “It should be patently obvious that interest rate cuts haven’t worked.”
Federal Reserve Board Chairman Alan Greenspan, who orchestrated dramatic interest rate reductions last year to encourage borrowing, has said that the moves should be sufficient to get the economy growing.
By some reckonings, the economy is in the 18th month of recession, which would make it the longest slump since the Great Depression.
The Conference Board index is based on responses to questions sent to 5,000 households nationwide on subjects ranging from home-buying plans to job availability.
It is considered a useful barometer of American consumers’ mood. Consumer spending is critical to a revival of the economy because it accounts for two-thirds of all economic activity.
The Conference Board said the January consumer confidence index was 50.4, a loss of 2.1 points from December. The index is calculated on a 1985 base of 100.
It has slid dramatically from its 81.1 level of last March, when consumer confidence reflected a euphoric mood following the Persian Gulf War.
In October, the index took an especially acute dive, falling to 60.1 from 72.9 the month before. It slid to 52.7 in November before stabilizing somewhat in December.
Only 6.4% of all respondents in January considered business conditions good, while 51% said they were bad, the survey showed. Those figures are weaker than the preceding month.
In the wages and benefits report, 1991’s 4.3% rise was below 1990’s 4.9%, the Labor Department said.
Most of the slowdown last year was due to smaller wage gains for government workers, whose compensation lagged behind private industry for the first time since record-keeping began a decade ago.
The last time total compensation gained so slowly was in 1987, when the increase in wages and benefits was 3.6%.
“The good news is labor costs are under control. The bad news is that employees are broke,” said Michael Evans, head of a Washington-based economic consulting firm.
Because the rate of inflation fell to 3.1% in 1991--roughly half its rate the prior year--workers faced less erosion of their spending power last year, said Don Ratajczak, economist at Georgia State University.
How Confidence Has Plunged
The Conference Board’s index of consumer confidence, now 50.4, is made up of two components: Consumers’ sentiment about their present economic situation, and their future expectations. It’s the present situation component that is particularly depressed. Here’s a look at present situation indexes, by region.
Confidence index (present situation) (1985 equals 100) Region Aug. Oct. Dec. Jan. Mountain 53.3 67.0 38.0 38.1 West North Central 52.6 47.8 36.3 32.4 East South Central 50.8 40.3 42.5 31.5 East North Central 49.9 39.8 25.8 25.6 West South Central 36.7 30.1 22.4 24.7 Pacific 72.9 53.8 31.4 22.8 South Atlantic 50.7 34.6 22.5 20.8 Mid-Atlantic 24.7 19.8 10.8 11.5 New England 7.5 2.0 3.8 0.9 NATIONAL 45.1 31.0 22.5 22.1
Source: Conference Board
Consumer Confidence Falls Again
From a monthly survey of 5,000 U.S. Households
Index: 1985 = 100
Jan., 1991: 55.1
Jan., 1992: 50.4
Source: Conference Board
