Surging Spirits May Be Crucial Economic Boost

The state of the economy is really “a state of mind,” declares Susan Mallen, a Bay Area businesswoman. And as she sees things from her party supply store, the state is finally improving.

“Now people feel there’s going to be a change, so they feel better and spend more money,” said Mallen, 30, in a sentiment shared by a growing number of Americans.

Indeed, of all the tantalizing signs that better days may be dawning for the U.S. economy, none could prove more crucial than a lasting rise in public confidence. Pollsters have detected a surge in consumer optimism since the presidential election, and many Americans are backing up their views with heftier holiday spending.

Interviews with a cross section of the public last week underscored this shift in the psychological climate, its tentative nature--and the rising expectations that will greet President-elect Bill Clinton when he takes office in January.

“I believe him, that we’ll have more jobs,” said Raul Sanchez, a 26-year-old forklift operator, eating lunch with his family at the Westminster Mall in Orange County.

Sanchez’s working hours recently were expanded to full-time, enabling his household to afford Christmas gifts this year. But the father of two isn’t ready to declare the economy cured--certainly not in California. Things are changing a bit, he said, “but it’s still hard.”

Houston bookkeeper Vivian Bertram, who has gotten only occasional work lately, offered a similar view as she went window-shopping with her mother near an ice skating rink.

“I feel a little more hopeful now that Clinton is in office, that things will pick up and I’ll be able to find a good-paying job,” said Bertram, 36. “Well, you hope that’s what will happen. I can’t afford another year like this one.”

The guarded change in attitude underscores the critical if shadowy relationship between the state of the economy and the public’s state of mind. Consumer spending propels two-thirds of the nation’s economic activity, so people’s moods can affect prosperity in very concrete ways.

Susan Mallen, for example, noted that many companies had held off making holiday party plans until after the election. “Now,” the shop owner said, “they’re telling us they want to go ahead.”

Few believe the economy’s demons have been exorcised fully. Worries about job security often lurk just beneath the shallow veneer of confidence, dozens of conversations in major U.S. cities last week made clear. In some places, there was very little confidence.

What’s more, just as the public mood affects the economy, the economy affects the mood. Experts wonder whether key building blocks of prosperity--jobs growth and income gains--are securely in place. Without them, today’s rally in confidence could burst like a bubble, echoing two other short-lived gains in spirits since the Persian Gulf War.

Despite Friday’s Labor Department report of an improved jobs picture in November, many corporations are continuing to cut costs, a strategy that will continue to generate fear in households that once felt immune from the economy’s ups and downs.

“I see a lot of people saying, ‘Now we’re on the right track, and isn’t Clinton lucky?’ ” said Jason D. Bram, an economist with the Conference Board in New York. “I’d rather have a couple more months of data before I fall in line with them.”

Karen M. Smith, a Salt Lake City homemaker, shared her own doubts while sipping coffee on a marble bench at a Denver mall. “For the first time in 27 years, he’s worried about his job,” she said of her husband, a telecommunications worker. “The economy is scary right now.”

Nevertheless, those who monitor the economy’s erratic track record agree that it seems steadier than earlier this year. The 3.9% growth pace from July to September was the most powerful three-month surge in almost four years. Flickers of new life in factories, construction, retailing and other sectors all have been detected in recent months.

Clinton’s election victory has transformed the atmosphere, as well. Just holding the election--regardless of the winner--swept away a source of uncertainty that had dragged on for months, analysts say.

Moreover, the balloting seemingly helped spirits in another way: It shut the book on the campaign, which had become a withering daily reminder of the economy’s wounds. Clinton, Ross Perot and the whole flock of White House hopefuls had bashed George Bush’s performance all year long.

“Ross Perot and everybody else seemed to be saying that the nation was a disaster,” said Theodore H. Tung, chief economist with National City Corp., a Cleveland-based bank holding company. “Now all that uncertainty is behind us.”

An Associated Press poll last week found that 47% of Americans now feel better about their prospects, compared to just 28% before the election. Late last month, an index of consumer confidence calculated by the Conference Board--though still at very low levels--took its largest jump of the year.

The business research organization also predicted that average Christmas spending would jump 6.5% this year, based on a survey of 5,000 households.

In the upscale Cherry Creek Shopping Center near downtown Denver, some consumers seemed to be shaking off years of recession worries. Connee McAllister, a real estate agent, drove 60 miles from her home in Greeley to splurge on ski equipment for her children, golf wear for her husband, cocktail dresses for herself and embroidered pillows for her friends.

“Last year I probably spent $1,500 to $2,000. This year I’m spending about double, and I can do it with a free mind,” said McAllister, 46, who enjoyed a boom year in Colorado’s real estate market. “I could even spend $8,000--but I won’t.”

The holiday spirit extended all the way to the Cook’s Nook in Atlanta, a small shop that smells of brewing coffee and features specialty items such as imported knives and cakes soaked in whiskey. Hopeful store managers this year ordered more merchandise than usual for the holiday season.

Customers “were on the verge of being optimistic, but Clinton was that clicker,” said Donald Crank, a sales associate. “People just needed a little kick in the behind.”

In light of such comments, some wonder if the public is engaged in a mass delusion, if lofty expectations and sober realities are on a collision course that could put intense pressure on Clinton to stimulate the economy early next year.

Many economists are forecasting growth in the 2% to 3% range next year, a level that might improve employment only modestly--and have little effect on the lingering problems facing defense, commercial real estate and other industries.

“Americans may expect too much from a Clinton Administration, and could easily sour if results aren’t quickly noticeable,” cautioned the DRI-McGraw Hill forecasting firm in a report last week.

Clearly, many consumers who have witnessed the economy’s recent stop-and-go pattern are hedging their bets. Even those who feel a bit more secure are refraining from frivolous or extravagant spending.

At Houston’s upscale Galleria mall, Mary Ann Heffernan, 48, offered her own interpretation of the mixed feelings during a break from shopping.

“They want to take a vacation now--but by car, not by plane, where before they planned to stay at home,” said Heffernan, a nurse whose shopping bag was bulging with gifts. “They want to buy something--maybe not at Neiman-Marcus, but somewhere.

“I think the economy is not getting worse. It’s staying the same,” Heffernan said. “But with a new President in office, you hope there will be some sort of change, and that makes you feel more optimistic.”

For all the news about economic recovery, conditions vary markedly in the country, and national statistics obscure continuing distress in Southern California and parts of the Northeast.

At Westminster Mall near Los Angeles, Sandra Dehle was at work in With This Ring, a jewelry shop that advertised diamonds at 20% off. Last month, the store overhauled its format, she explained, bringing in items that cost as little as $100. Prices used to start in the $1,250 range.

“Last year, everybody seemed to be hit out of the blue by bad news,” said Dehle, 35, the store manager. “This year, we’re understanding that this is reality.”

Even in Seattle, which has weathered the recession better than many parts of the country, regional concerns are looming. State officials last week reported a leap in the unemployment rate to 7.6%. Boeing, the giant aerospace employer, has recently hinted of more cuts in production around the Puget Sound area next year.

“I don’t think the economy is moving yet,” said Bob Scher, 59, on a shopping trip to the tony Bellevue Square mall near Seattle. “I don’t believe what I read.” Scher’s doubts were forged through experience. He recently had to take early retirement from his job as a purchasing agent after his employer of 22 years, a home-improvement retailer, went bust.

“I took a chance and voted for this Administration coming in,” he added cautiously. “We’ll see what happens.”

At the opposite corner of the country, Victoria Hatcher, 28, also was worried.

“Everything is very expensive to buy,” she said, cradling her 3-month-old daughter in her arms during a break from shopping at the Aventura mall in North Miami Beach. “We need to increase the minimum wage.”

But Hatcher, a security guard, also has rising hopes--and knows exactly where she’s looking for results. “I feel better now because of the election,” she said. “I voted for Clinton.”

Contributing to this story were Times staff writers Jonathan Weber in San Francisco, Victor F. Zonana in New York and Anne Michaud in Orange County; correspondent Ted Johnson in Orange County, and Times researchers Ann Rovin in Denver, Doug Conner in Seattle, Tracy Shryer in Chicago, Edith Stanley in Atlanta, Anna M. Virtue in Miami and Lianne Hart in Houston.