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Spending Impact Of Sept. 11 Not As Severe As Anticipated

<?XML:NAMESPACE PREFIX = CS /><CS:BOLD>WASHINGTON -- The financial position of consumers was not as devastated by the Sept. 11 terrorist attacks as many had feared, although the aftermath did have a "sobering effect" on spending, as consumers turned...

WASHINGTON — The financial position of consumers was not as devastated by the Sept. 11 terrorist attacks as many had feared, although the aftermath did have a “sobering effect” on spending, as consumers turned to increasing savings and paying down debt.

That was the message delivered Tuesday by the Consumer Federation of America and Bank of America, which co-sponsored a national opinion survey in mid-February of 1,000 households.

“Either terrorism has not affected the thinking about their finances or it has made them more financially cautious,” said Stephen Brobeck, executive director of the CFA at a press conference announcing the results. “The number who have become more financially prudent greatly exceeds the number who have become less so.”

According to the survey, consumers are less worried about their financial status today than they were a year ago.

“In light of the economic slowdown, terrorism and the Enron meltdown, we find this trend rather surprising,” said Brobeck.

Lynn Reaser, chief economist at Banc of America Capital Management, said economic conditions at the end of 2000 “started to fall off of a cliff,” whereas today, conditions are beginning to improve. She said Sept. 11 caused Americans to reassess their priorities and shore up their balance sheets.

“Individuals seem less willing to take financial risks and are adopting a more conservative approach to spending and living,” Reaser said.

Respondents indicated that they placed greater importance on personal savings and paying down consumer debt after Sept. 11, while placing less emphasis on buying expensive luxury goods or spending more money on lottery tickets, the survey revealed.

The demographic group that took the biggest hit was the 25-to-34-year-old, according to the survey.

“The findings show that two-thirds of all households said they are in a good financial situation, but we are concerned about the one-third of the population that feels it is in a precarious financial situation,” said Reaser.

That one-third is comprised mainly of low-to-middle-income families, defined as those with under $35,000 in annual income, and the 25-34 age group.

With the two-thirds driving the economy, Reaser claimed that consumer spending, which many economists initially predicted would be negative in the first quarter, will instead be positive.

She pointed to a number of bright spots, including “dramatic” declines in interest rates, better-than-expected retail sales — though she acknowledged heavy discounting at retail — lower tax rates, strong auto sales and falling energy prices.

“The economy is in the process of recovering,” said Reaser. “We believe it is going to be a moderate recovery because we don’t have the pent-up demand.”

The one snafu could be the curtailed spending of the younger generation. Reaser said: “The overall economy is driven by the two-thirds that is still able to spend, but that one-third could be the weak link in the economic expansion.”