Consumers seen as key to revival Lacking other ideas, economists look to spending

October 05, 1992|By New York Times News Service

WASHINGTON -- Sometimes a burst of consumer spending lifts the nation out of recession. Sometimes a pickup in housing construction does the trick. Sometimes business investment gives the economy the needed push forward.

And with the dollar so weak, many economists and government officials have been hoping that exports, for the first time, would pave the way to a robust recovery.

But all these engines of economic growth have stalled or malfunctioned. So, lacking anywhere else to turn, many economists are looking to that abiding American hero, the consumer, for a push-start.

All that is needed, they say, is a surge in consumer confidence, which remains low. Then consumers would start spending again. Because consumer spending accounts for two-thirds of the nation's economic output, that would get factories humming again.

"The reason they're not spending is they're concerned about their own and their families' prospects and job security," said Humphrey Taylor, president of Louis Harris & Associates. "Until these concerns change, . . . confidence is going to stay low."

What will it take to lift consumers out of the dumps?

A cornucopia of proposals have urged government to do more to cheer up consumers. They include an aggressive round of interest rate cuts by the Federal Reserve going well beyond the Fed's previous cuts, new tax incentives to stimulate investment, and a multibillion-dollar public investment program that would put Americans back to work.

The push for a large public works program got a lift yesterday from economic advisers to Gov. Bill Clinton and Ross Perot. Appearing on NBC's "Meet the Press," Robert Reich, an adviser to Mr. Clinton, and John P. White, author of Mr. Perot's deficit-reduction plan, called for stimulus if the economy does not pick up soon.

Previous administrations often used fiscal stimulus to propel the nation out of recession. But many Bush administration officials and economists have opposed this approach because it would increase the deficit.

On "Meet the Press," Richard G. Darman, the administration's budget director, said he favored some acceleration of planned spending to speed growth, but he added, "If we became much too loose-minded in the short-term, we would just compound the long-term problem."

But economics handicappers say fiscal stimulus and other new government efforts to end the slump appear highly unlikely soon.

Still, one thing is clear: if consumers don't get out of their funk soon, the economy will remain in a funk for months. Many forecasters fear that growth will remain anemic well into 1993, languishing far below the 3 percent rate needed to cut the jobless rate significantly.

Some economists say the election results might make a big difference for consumer confidence. Some say Mr. Clinton, simply as a new presence in the White House, could give a psychological lift to depressed consumers and businesses.

But Jason Bram, a consumer research expert at the Conference Board, argued: "If the 48 percent who voted for the new president feel more confident, and the 42 percent who voted against don't, it's not going to have a big effect."

The economy appears to be caught in a vicious circle. When Americans trim their spending, sales weaken, pushing Corporate America to lay off workers and hold the line on pay increases. This in turn squeezes household incomes, contributing to a downward spiral.

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