By  on February 28, 1994

WASHINGTON -- The U.S. economy is expected to grow at a healthy pace in 1994, with incomes and employment rising, but the outlook is mixed on whether consumers are ready to go apparel shopping after more than a year of lackluster sales.

Economists say the improving climate is setting the stage for a potential comeback in apparel buying. But the rush on big-ticket items like cars and houses may continue to detract from the urge to freshen wardrobes.

Even with the disruptive effects of this year's winter storms and the Los Angeles earthquake, gross domestic product -- the nation's output of goods and services -- is expected to grow between 3 percent and 3.5 percent this year, up from 2.9 percent in 1993, economists said.

Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University, anticipates personal income growth of more than 6 percent this year, against 4.7 percent in 1993. Employer surveys find paychecks are getting fatter for the first time in five years, he noted.

Higher levels of employment also should help drive up incomes; analysts expect the unemployment rate to fall to between 6.2 percent and 6.4 percent by yearend, versus January's 6.7 percent rate.

Additional good news is that many white collar workers, who tend to spend more on clothing, are rejoining the labor market after losing jobs in the recession. However, an increase in "telecommuters," who work at home, and the growing popularity of office "dress down days" somewhat blunt the impact on apparel, said Sandra Shaber, a consumer analyst with the WEFA Group, Bala Cynwyd, Pa.

Despite scares to the contrary, economists generally predict inflation will remain under control through the year, with growth in the Consumer Price Index of between 2.5 percent and 3 percent, about the same as 1993's 2.7 percent. The shakiest segment of the economy is interest rates, the experts agreed. The Fed earlier this month raised the short-term Federal Funds Rate to 3.25 percent from 3 percent, where it had stood for five years, sending the financial markets into confusion.

Fed Chairman Alan Greenspan said the action was "low-cost insurance" against inflation designed to calm inflationary fears among investors and keep long-term interest rates steady. But the action was interpreted to mean inflation is a concern, giving long-term rates a push up.Greenspan later said the Fed would increase the funds rate again this year, and the figure may well go as high as 4 percent by yearend of 1994, several analysts said. Some also expect long-term rates to rise as the Fed pushes short-term rates up further, but not enough to markedly hamper economic activity.

Analysts differed sharply on whether 1993 consumption trends would continue, with consumers spending most disposable income on housing and durable goods like cars. In 1993, for example, spending on residential construction jumped 30 percent against 1992 and durables spending climbed 15 percent, while soft goods saw a meager 2 percent gain, said Thomas F. Carpenter, senior economist at ABS Capital Management Inc.

Spending on women's apparel rose only 3.2 percent in 1993 against 1992, compared with a 6 percent hike in 1992, Shaber noted. He predicted durables would continue to take top priority this year. "There's still such a backlog of demand for homes...and people don't start buying things for their houses for some months."

But Martin Regalia, chief economist with the U.S. Chamber of Commerce, expects the durables boom to bottom out. "I don't think there's enough income to support current levels. Plus [home] prices will go up because of rising lumber prices and a shortage of lots."

Several analysts noted that appealing new fashions will be necessary to spark any strong improvement in apparel sales.

"I think some of the people in fashion should be starting to ask what consumers want," Ratajczak said. "People are working more hours than ever before in history, so [the designers] have to concentrate on clothes people wear at work, rather than what they wear lazing around two days a year."

Rosalind Wells, retail analyst with NPD Group Inc., Port Washington, N.Y., forecast a pickup in apparel sales later in the year, as wardrobes wear out and the economy strengthens, especially if popular fashions emerge. "Apparel has been weak for so long," she said. "Especially if there's something that attracts people's attention, they'll be ready to buy."

Some industry-watchers also expect a comeback for apparel specialty stores either this year or in 1995. "I think we can expect some renewed life as they adapt and create," Shaber said. "There are all kinds of exciting new formats, I think, just on the horizon."Apparel store sales grew only 1.9 percent in 1993 against 1992, according to the Commerce Department, while department store sales rose 7.4 percent and general merchandise retailers posted 7.3 percent growth.

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