Consumers running out of steam?
By Hope Yen
Associated Press
After dodging two rounds of layoffs at his company last fall, Jason Edmonds decided to splurge on a new $5,700 high-definition television with money saved by refinancing his mortgage. But now, Edmonds and his wife are cutting back.
"We're going to sit tight and try to save some money," said Edmonds, 36, a technology consultant in Portland, Ore.
The Edmonds' spending helps explain the nation's remarkably mild recession despite widespread layoffs and depressed corporate profits.
But their newfound restraint begs the question: How long will the spending last?
It is a question that resonates in consumers' stories across the nation. People are buying electronics, even while acknowledging higher debt and shrunken stock portfolios. They worry about losing their jobs, but not enough to snap up low interest, or in some cases no interest, deals on homes and automobiles.
The results have been striking: The U.S. economy grew by a faster-than-expected 1.4 percent rate in the final quarter of 2001, rebounding sharply from the 1.3 percent third-quarter loss following the Sept. 11 attacks.
Consumers ratcheted up spending on costly manufactured goods, such as cars, at a rate of 39.2 percent in the fourth quarter, the biggest increase since 1986. Total consumer spending rose at a brisk 6 percent rate, the largest gain since 1998.
Economists now say the recession, which officially began a year ago, has probably ended and may be recorded as the mildest in U.S. history.
"For most people in the country, the economic picture is fairly decent and doesn't seem too likely to get any worse," said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston.
Low-interest rates in recent months have spurred home-buying, foreboding continued spending as owners seek new furnishings and appliances. Sales of existing homes in January rocketed to a rate of 6.04 million, a 16.2 percent increase from December.
Zero-percent financing spurred auto sales of 17.18 million vehicles last year, making 2001 the second best vehicle sales year in history despite a drop-off immediately after the Sept. 11 attacks.
Even so, economists — including Federal Reserve chairman Alan Greenspan — caution that America's buying frenzy can't last. Greenspan predicts a subdued recovery.
"Spending by the household sector held up well and proved to be a major stabilizing force," he said Wednesday in testimony before Congress. "As a consequence, although household spending should continue to trend up, the potential for significant acceleration in activity in this sector is likely to be more limited than in past cycles.
If Greenspan is right, there may already be some warning signs.
After rising two straight months, consumer confidence took a larger-than-expected dip in January, hurt in part by concerns about layoffs and accounting scandals at Enron Corp. and Global Crossing Ltd. Economists believe it's a temporary dip, but acknowledged continued volatility in the months ahead.
