Consumers’ Mood Depends on Local Climate
As the economy slows, it is largely the American consumer who will decide whether a recession is at hand. If spending continues, the economy will almost certainly continue to grow. But consumer confidence varies around the country, reflecting local conditions. In the South and West, people are more upbeat; in New England and the mid-Atlantic region, the view is darker. Here is a look at what is shaping consumer attitudes in Pennsylvania and Texas.
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Tandem Staffing for Industry, a harshly lighted storefront space a few steps below street level, is the sort of urban hiring hall where every worker gets a Breathalyzer test before being dispatched to a job in the morning.
Manager Albert Mitrotz and a secretary had the place to themselves on a recent afternoon. A paper sign taped to the door discouraged drop-ins: “We will not be accepting applications until further notice.”
Industrial day workers, a reserve pool of unskilled or semiskilled labor that manufacturers tap when business is booming, are having a harder time finding work these days, even in Lancaster County, where the unemployment rate has been less than 3% for 37 months in a row.
Referrals are down 30% from a year ago, Mitrotz said, adding: “You’ve got to be in the right place at the right time now, whereas before there were a lot more jobs than people.”
As the bottom rung of the economic ladder, day workers are the first to feel a slowdown. The danger, said Antonio Callari, an economist at Franklin & Marshall College in Lancaster, is that the chill will spread as banks tighten credit and consumers--the economy’s real engine--pull back on spending.
There are signs hereabouts that the chill is indeed spreading. And that’s probably why this part of the country recorded such a steep plunge in consumer confidence in January, rivaling New England as the most downbeat part of the country.
Alone among the Federal Reserve System’s 13 regions, this one--eastern Pennsylvania, southern New Jersey and Delaware--reported “an actual decline in activity” during December in the most recent “beige book” survey of economic conditions. The rest of the country merely recorded slower growth.
Lancaster County is best known for its Pennsylvania Dutch religious communities, including the Amish, who shun automobiles and electricity, travel in boxy, one-horse buggies and grow tobacco on the rolling farmland one hour and two centuries away from Philadelphia.
But, perhaps surprisingly, manufacturing accounts for 27% of the jobs in this county of 450,000--nearly double the rate for Pennsylvania as a whole. Armstrong World Industries Inc., Alcoa Inc., farm-equipment maker New Holland North America Inc. and foam-cup maker Dart Industries Inc. run some of the big plants that dominate industry in and around the city of Lancaster.
As it happens, manufacturing is weakest sector in the region, where the Philadelphia Federal Reserve’s index of regional activity took the second-biggest drop in its 32-year history in January, plunging to the lowest level since 1990. Moreover, manufacturers’ forecasts are also pessimistic, “suggesting that the declines are not expected to be temporary,” the bank said.
The indicators continued to fall in the February report, released Thursday, but six-month forecasts were more optimistic.
Retail sales for the holiday season were below expectations, with apparel and jewelry sales particularly weak, the bank said, adding that merchants blamed the sales dip on “the absence of new products this year and a recent retrenchment in consumer confidence.”
At Angry, Young & Poor, a punk record and clothing shop a two-minute walk from Tandem Staffing in downtown Lancaster, co-owner John Shuba has noticed that “walk-in business has dropped off.”
Most of his sales are by mail order, and that business is holding up fairly well, he said, but “it’s not as brisk as it was a couple of years ago.”
Because his local customers are mainly high school students, Shuba acknowledged that hard times in manufacturing may have less to do with the slowdown than changing fashions in music and clothes.
Twenty miles east of Lancaster, in the heart of Pennsylvania Dutch country, the abrupt Jan. 19 shutdown of the area’s two largest cabinetmakers put 589 well-paid people out of work.
At least two or three of them immediately backed out of purchases of trucks or cars that were ready for delivery at New Holland Ford-Toyota, said Geoffrey Class, the dealership’s president.
“They said, ‘Maybe this isn’t the time,’ ” Class said.
Overall, however, business is “not much different than last year, maybe 5% slower,” he said.
Class would not be drawn into a detailed discussion, saying, “My concern is that if we advertise a problem, we’ll have a problem.”
Norma Kurtz of nearby Bowmansville already has a problem.
A 27-year veteran at Rutt Custom Cabinetry in Goodville, Kurtz lost her job when Rutt and its sister plant closed their doors last month after the company’s owners and their lender failed to agree on a credit extension. Experienced workers were making $15 an hour or more, well above the local average for the furniture industry.
“It makes me stop and think where I’m going to spend my next dollar, that’s for sure,” Kurtz said.
She and two co-workers spoke early this month while standing in a corridor in U.S. Bankruptcy Court in Reading, waiting for a hearing to determine when and whether they would receive their final paychecks.
One of the three, a man in his 20s who declined to give his name, said he already had dipped into his 401(k) retirement fund, less than two weeks after losing his job.
Back in Lancaster, Johnnie Jones already has kissed a good piece of his retirement savings goodbye.
Jones, 51, had 28 years at the Armstrong flooring plant when he and 62 co-workers got their pink slips last month.
Facing well over $1 billion in claims from nearly 200,000 asbestos lawsuits, Armstrong filed for Chapter 11 bankruptcy protection in December and announced its latest round of layoffs last month.
That was the second blow in a one-two punch for Jones. Like many of his co-workers, he had expressed faith in his employer by buying shares of the parent company, Armstrong Holdings, for his retirement account. After hitting an all-time high of $90 a share in April 1998, the stock plunged to 75 cents in December, although recently it has bounced back to about $4.
Jones’ stake, about 1,000 shares, “was something I was counting on for retirement. I’m not counting on it anymore.”
Jones has little confidence that he can land an equivalent job. “When you look around at the other manufacturers, you see them doing the same thing,” he said. “I’m going to have to watch my money a lot more than I used to.”
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Whither Confidence?
Consumer attitudes vary by region, as shown by movement of the confidence index in selected areas of the country since October, when economic news began to turn sour (1985 = 100):
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West South Central: Texas, Oklahoma, Louisiana, Arkansas
127.2
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Pacific: California, Oregon, Washington
117.9
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Nationwide: 114.4
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Middle Atlantic: New York, New Jersey, Pennsylvania
105.4
Source: Conference Board
