DEBT DOESN'T STOP SHOPPERS

Byline: Jennifer Owens

WASHINGTON--Their debt might be growing faster than that of most groups, but middle-income consumers still seem willing to spend money, and most analysts say they show no sign of stopping soon.
"The level of hand-wringing over the level of debt is out of proportion [with what's really happening]," said Ken Goldstein, an economist with the Conference Board in New York. "There are people who are really hurting and communities that are really hurting, but that doesn't describe the average person or the average community."
At least one moderate-price retailer agrees: "Information that is out there in the market does not seem to indicate that people are cutting back and making more planned purchases," a J.C. Penney spokeswoman said. She added, however, that the department store chain has not studied whether a specific connection exists between consumer debt and purchases.
What is known is that consumer debt has steadily edged up over the past year, from $1.1 billion in January 1996 to $1.2 billion this past January, an 8.3 percent rise. According to the Commerce Department, this debt remains nearly evenly split among auto loans, revolving credit and financing for costs such as education, vacations and boats. In all, outstanding consumer credit now accounts for 21 percent of the nation's disposable personal income. But Goldstein says such figures are only half the story.
The other side is consumer assets, such as stocks and home value, which are increasing in value faster than inflation.
For example, Goldstein said, home price appreciation was up 5 percent in February compared with a year ago, while overall inflation for the same period registered at 3 percent.
"That's why despite the level of debt, there is no drag on purchases," Goldstein said. "It's a story that needs to be debunked."
Goldstein also noted that statistics released Monday by the Commerce Department show that personal disposable income increased by $48 billion, or 0.8 percent, in February against January, while spending increased by $18.4 billion, or 0.3 percent, during the same month.
Year-to-year figures show an even greater gap between increasing disposable income and spending. According to Commerce, disposable income rose 6 percent higher in February, compared with a year ago, while spending was up 2.8 percent.
"So, in fact, while a lot of people are concerned that consumer debt is rising, the Federal Reserve is raising interest rates because spending is not slowing," Goldstein said. At the U.S. Chamber of Commerce, Deputy Chief Economist Robert Barr agreed, noting that with unemployment low and job growth high, "there's no reason to say that there's going to be a lightening of consumer spending."
Barr said outstanding consumer credit may be high, compared to personal income, but interest rates on that debt still remain lower than during the last recession. Rising interest rates could eventually squeeze consumer dollars, but Barr said, "It would probably effect durable goods more than non-durables. With apparel and perishable goods, you generally are going to buy it anyway."
Eventually, though, such high-riding debt will only hurt retail business, said Carl Steidtmann, chief economist and director of research for Management Horizons, a division of Price Waterhouse. "In the long run, I think it will have a big impact. At the next recession, it means that it will be probably longer and harder than it would have been without the debt."
That's because, he said, consumers will be spending their money paying off debt instead of shopping.
Times are already hard, however, for some moderate apparel shoppers, who say they are combating high credit card bills by holding off on apparel purchases. For example, Candy Allen of Silver Spring, Md., who works at the Montgomery Mall Foot Locker in Bethesda, Md., said she has begun wearing her older clothes to stretch her wardrobe. For anything new, she said, "I've been paying cash because my charges are over the wall. I've been buying a lot less because the prices are so high. I can't afford it."
Across the country, Meg Bennet, 31, a Los Angeles makeup artist, could relate.
"I've been trying to pay my credit card debt for the last three years," she said. "And I've just managed to pay off my cards." To do it, Bennet said, she delayed buying clothes or furniture.
Not all shoppers interviewed were avoiding apparel or their credit cards, however. Kathy Ridley of Oxon Hill, Md., said dressing a fashionable teen-age daughter has raised her credit debt in recent years. For herself, Ridley has bought fewer clothes in recent years but said that her rising debt level had little to do with her choice.
"I guess I'm just not interested in the wild colors that are out," she said.
Not so with Shirley Colvin, a mother of grown children, who also lives in Silver Spring.
"The retailers love me," she said with a laugh. "My husband says I should have a black belt in shopping."
Shopping at Penney's at Montgomery Mall, Colvin said she uses credit cards to buy clothes for herself and her daughters, but pays off her purchases each month.
"I've never had a balance on a credit card bill," she said. "I'm very careful."
Colvin is just the kind of shopper fueling the rise in consumer debt, said Rosalind Wells, chief economist for the National Retail Federation.
"They use those cards, and they use them for everything, like food shopping...but they pay them off," said Wells.
While consumer debt has been rising, she added, so has their ability to repay it.
"When consumers go and use their credit card and develop debt, it's usually because their incomes are going up," she said. "Some consumers are having trouble with debt to be sure, but most are not."
Those are encouraging words, but at Chorus Line, a women's and girl's moderate resource in Los Angeles, president Andrew Cohen said he links rising consumer debt with his company's decision to lower prices.
"It's just a fact that if you owe more, you spend less," Cohen said.
That's why, he said, stores are becoming more aggressive about promotional activities and in their purchases from vendors.
"They are attempting to leverage the best prices from us," Cohen said. "Stores are consistently engaging in buying the lowest possible prices."
In response, Chorus Line has lowered its price points by 10 to 15 percent over the past two years with the help of improved sourcing.
"The consumer spending market is constantly tested for its competitiveness," Cohen said. "And we all need to work diligently on creating prices that make sense to consumers."
Norty Sperling, president of Norton McNaughton, a moderate-price firm in New York, noted that he sees "high personal debt as a sign of consumer confidence."
"I don't think people are adding more debt unless they felt they could pay for it, and they felt their income was rising," he said. "Right now inflation has been held in check and unemployment is low."
Still, Sperling said, prices are the top concern among moderate consumers. That's why he hasn't raised his in the past four years.
"We definitely have to be consistent with our pricing," said Sperling.
At Norton McNaughton, pants wholesale from $17.50 to $20, while jackets wholesale from $30 to $40. Sweaters are $15 to $22.50.
Marc Abramson, vice president of Requirements, another New York moderate sportswear firm, agreed with Sperling that mounting debt among consumers is a sign of confidence in their financial situation.
"I'm seeing that more consumers are charging apparel purchases, and I think it is a good sign," he said. "However, when they reach their maximum, apparel purchases are always the first to get cut out. I believe that we offer a good value on our clothes, which can weather the ups and downs of the cycle."
Requirement's jackets wholesale from $24.99 to $59.99.
Goldstein of the Conference Board said that after three years of declining women's apparel prices, cost is not the only issue for moderate apparel shoppers.
"By all standards, that stuff should be flying out the door," Goldstein said. Instead, women "have caught on to 'the guy thing' of owning three suits with different shirts and ties."
"It has to do with this whole idea of getting used to a work wardrobe that is much more functional than five to 10 years ago," he added.
It's a trend that will hurt moderate apparel retailers the most, Goldstein said. They may "have wonderful stuff and a wonderful staff, but women are bypassing this and going to Wal-Mart."

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