For Mary Bell Grempler's Towson-based real estate chain, falling interest rates have always brought a spurt in home-buying activity.
But not this year.
So when the Federal Reserve Board cut its trend-setting discount rate yesterday, Ms. Grempler was unimpressed. "It's not the jump-start that we all want for the economy," she groaned.
In an attempt to stimulate the flagging economy, the Federal Reserve cut the discount rate from 5.0 percent to 4.5 percent, the lowest level in 18 years. The drop in the discount rate, the interest the Fed charges commercial banks for loans, quickly translated into cuts in the prime rate charged by major U.S. banks and should soon exert downward pressure on many fixed and adjustable-rate consumer loans.
Even so, Ms. Grempler and other Baltimore-area business leaders say consumers' fears about the economy are running so deep these days that rate cuts alone won't convince them to start buying again.
"I think people are scared. The middle-class person, the yuppie or the newly married couple with children -- they're all concerned about making ends meet," said Jack Luskin, chairman of Luskin's Inc., a Columbia-based consumer electronics chain.
Although local business leaders think job fears will continue to inhibit consumer spending, they anticipate some relief in their own borrowing costs. Many inventory-financing loans and other business debts are pegged to the prime rate, and costs in these areas will inevitably fall.
At Valu Food, for instance, President Louis Denrich said that he expects rates to go down on the $2 million the local supermarket chain is borrowing from Chase Bank of Maryland to expand its chain through the purchase of several Santoni's stores.
Likewise, Archway Motors Inc., the Ford dealership in Baltimore, will see a reduction in the carrying costs it pays on the $2 million in inventory it finances through Ford Motor Credit, said Alan Abramson, Archway's president.
Still, lower inventory costs are small compensation for the dampened demand that is troubling those who work in auto showrooms, where cars are moving off the floors slowly these days.
"As it's written in the 'Great Manual of Life,' inventory should turn six times a year. If it turns four times a year now, we're lucky," Mr. Abramson said.
Consumer confidence in the economy has fallen to such a low level that lower interest rates alone will have little impact on buying behavior, Mr. Denrich predicted.
"I think it's a situation where they're trying to close the barn door after the animals are all out," he said. "Consumer confidence has hit an all-time low, and it's very hard to recover."
The same point was made by Mr. Luskin, who predicts a rebound in consumer confidence is at least a half-year away.
There's a mind-set that's developed that's going to be awfully hard to change in the next six months. There's a pervading sense of fear on behalf of the consumer about spending money '' on practically anything they can do without."
The statistics on unemployment may be no worse than they were during past recessions, but local business leaders say that the public is more afraid than in the past. They offer two explanations: the number of white-collar workers who have lost their jobs, and the perception that many jobs have been lost permanently.
Another major difference between this and other recessions is that consumers and business leaders are troubled by weakness in the financial services sector.
"I've been through four or five recessions, and this is truly unique. . . . If you want to borrow money, you're restricted quite a bit," Mr. Luskin said.