Consumer spending still strong

January 09, 1995|By New York Times News Service

Billy Belford, a nurse's aide in Portland, Ore., has big plans for 1995. Feeling "pretty secure" about his job, Belford, 22, is ready to spend some money.

"Jan. 20 is payday," he said. "That day I have an appointment to go look at a car."

The holiday season might have disappointed many retailers, especially in apparel, who were forced by intense competition and too much inventory to cut prices and profits. But in fact, with incomes, jobs and confidence way up, the American consumer is still going strong.

Cars have been rolling off dealers' lots at the fastest rate since the late 1980s. Chain-store sales during the holiday shopping season were up a solid 5 percent or so from December 1993, even with all the price cutting going on. And total consumer spending rose about 4 percent after inflation last year, faster than in all but two years in the shopaholic 1980s.

"What gives spending some underlying momentum and makes it look solid is that consumers are generally looking toward their communities, jobs and shopping centers and seeing strength," said Richard Curtin, who runs the University of Michigan's monthly survey of consumers.

Indeed, consumer confidence, which slipped in the middle of the year, wound up as high at the end of 1994 as it was at the beginning, when the University of Michigan index reached a five-year high.

Whether consumers will be able to sustain their current pace for the whole year is a matter of some debate. For one thing, the Federal Reserve raised interest rates six times last year, and seems ready to do so again at the end of the month.

The many shoppers with adjustable-rate mortgages and adjustable-rate credit cards soon see their interest payments rise as past increases catch up.

The recent pace of spending, faster than the growth of Americans' income, is itself a reason for wondering when consumers will run out of gas. But for now, many Americans seem to have the means and the confidence to keep spending.

And is there any reason to think that the brake of higher rates will work more quickly than the accelerator of sharply lower rates did in 1990? Remember, too, that higher interest rates also increase interest income.

Ricardo Gonzalez, 37, a shop steward at a General Motors plant in Detroit, is enjoying a new sense of security with the auto industry's boom. Mr. Gonzalez, who is married and has two children, has worked plenty of overtime. He is now driving a 1995 Cutlass Supreme, is moving into a four-bedroom house that costs four times what his old one is worth and is going to college part time.

Eileen Petriccione, a customer-service agent at DHL Worldwide Express, the courier service, is not the mall regular she once was.

She and her new husband, Mike, who live in Mamaroneck, N.Y., went to a pot-luck dinner at a friend's house on New Year's Eve, instead of spending a few hundred dollars at clubs, and she paid for most of her Christmas purchases in cash.

Nonetheless, with a secure job and a sparsely furnished apartment, Ms. Petriccione is planning to buy some living-room furniture. Last fall, she and her husband spent $3,500 on a bedroom set.

Barbara Swanson is an artist and mother of two in New York City. At Christmas her family acquired electronics, clothes and toys. But even though Ms. Swanson is no impulse buyer -- she had her 20-year-old refrigerator repaired instead of replacing it -- she spent the first week of the new year hunting for a new computer that could play compact disks and provide color graphics.

Consumers are feeling better than they have in years mostly because of an abundance of jobs and greater job security. Job growth was solid all last year, and the unemployment rate is now as low as it has been at any time since the early 1970s.

The economy created 3.5 million jobs and the pace, around 275,000 a month, has not really slowed yet. The figures for December, released Friday, reported a gain of 256,000, after a November increase of nearly 500,000 jobs. And business hiring plans are upbeat.

"The big thing here is that there seems to be a feeling that there's going to be a job tomorrow," said Frank R. Anderson Jr., of Sir Walter Chevrolet in Raleigh, N.C., where the unemployment rate is 3.3 percent. "Even with the higher cost of money, it's an up economy."

All those jobs, plus record factory overtime and modestly rising pay, have pushed up income faster than inflation. After-tax income, after inflation, grew 4 percent year in the 12 months ended in November, twice as fast as in 1993.

Forecasters expect after-tax income to keep growing this year, even if the tax cuts that politicians have promised do not add many dollars or do not materialize until 1996.

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