Interest Rate Decline Draws a Cool Reaction : Economy: Observers say the recession has made skeptics out of consumers and businesses.

Many small business owners, consumers and lenders reacted coolly Thursday, with recession-nurtured skepticism, to the Federal Reserve’s latest attempt to spur the economy with a drop in interest rates.

The Fed dipped its benchmark discount rate from 3.5% to 3%, the lowest level in 29 years. The nation’s major banks responded by lowering their prime lending rates from 6.5% to 6%. The moves are aimed at encouraging spending and borrowing--particularly for big-ticket items. Many consumer loans are pegged to the prime, and their rates are expected to decline.

“Big deal,” Bernard Davis, a business consultant specializing in real estate loans, said of the Fed’s action. “At this point the problem is the lack of employment, period. If you’re not sure you’re going to have a job or if you don’t have a job, what difference does it make?”

Given rising unemployment and widespread unease about the economy, Davis and others doubt that any consumer rush to take advantage of lower interest rates will materialize.

“A lot of people are either afraid to take out a loan they can’t repay, or their economic circumstances have diminished to the point they can’t qualify for a loan,” said Daniel Feiman, vice president of Western Bank in Beverly Hills. “I’m afraid that it isn’t going to do much until businesses garner some confidence that the economy’s going to improve.”

Frank Ures, president of American Pacific State Bank in the San Fernando Valley, said that those businesses most likely to profit from the dip in rates are those already planning to expand or to take out loans. “Usually it’s the people who have a delayed need--they’ve been thinking about it for quite some time,” he said.

One such business is Catalina Foods, a Santa Ana-based tortilla-making company owned by Richard and Laurie O’Brien. The O’Briens plan to visit bankers as early as next week, seeking up to $200,000 in new loans and credit lines to replace the higher-interest start-up loans they took out in 1989.

“We can reduce our overall indebtedness,” Richard O’Brien said. “If things don’t get better, we’ll have lower costs, and if the economy continues to improve, we’ll be able to move ahead that much faster.”

But some businesses say consumers remain wary in the current economy.

Eric Beck, general sales manager at Airport Honda, said that even after notable drops in interest rates, “it’s at least 30 days before we see any benefit, and then it’s not significant.”

In fact, Beck said, car purchases increase most dramatically when interest rates start to rise. “That’s when you see the rush of people coming in thinking, ‘Oh, better get this car before the rates go up.’ ”

Mortgage lenders are slightly more optimistic about the possible effect of the rate cuts on home sales. Mortgage rates Thursday approached their lowest levels in nearly two decades, as both public and private lenders cut their rates.

The Department of Veteran Affairs reduced its maximum loan interest rate to 8%, from 8.5%, and the Federal Home Mortgage Corp. said average interest rates for 30-year fixed mortgages dropped to 8.29% this week. Further drops can be expected in coming weeks as the latest interest cuts take hold.

Thomas Hammond, chairman of Hammond Co., a Newport Beach-based mortgage banking firm with retail offices throughout California, said the Fed’s cut and a frenzy of mortgage trading enabled him to pare nearly three-tenths of a point from the annual percentage rate on a conventional fixed-rate loan Thursday.

“When we opened for business this morning, our typical 30-year fixed-rate conventional was 8% and 1.5 points, for an annual percentage rate of 8.159%,” he said. At noon, the base rate had dropped to 7.75% and 1.5 points, for an annual percentage rate--which is what the consumer actually pays--of 7.9%.

Despite these dips, some real estate brokers tempered their optimism.

“It’ll help, but it isn’t going to make the world turn around,” said Stanley Shapiro, president of Century 21’s Beverlywood office. “There’s nothing out there that’s going to make a person who couldn’t qualify before qualify” now.