ECONOMISTS AGREE SHOPPERS WILL KEEP RIGHT ON SPENDING

Byline: Jennifer Owens

WASHINGTON — Wages are up, prices are down, the dollar is strong — what’s not to love?
And while many economists are currently predicting a slight slowdown in the nation’s overall economic growth for the second half, most say they expect consumers to keep on spending.
“I don’t think we’re going to see the kind of sales growth in the second half we did in the first half,” when warm weather boosted sales, said Ira Silver, chief economist for J.C. Penney Co. “But that doesn’t mean that it’s going to be bad. It’s just not going to be as good.”
Rosalind Wells, chief economist for the National Retail Federation, agreed. “This year, so far, has been going gangbusters and we can’t keep that up.”
Indeed, retailers this year recorded one of their healthiest quarters in almost a decade. “The retailers have finally begun participating in the good economy,” Wells said.
According to government statistics, consumer spending on all categories of goods revved up 6.1 percent in the first quarter over 1997’s fourth quarter, which posted a 2.5 percent increase during the previous one. Meanwhile, the economy’s growth bounded ahead by a 4.8 percent annual rate in the first quarter, following 3.1 percent growth in the fourth quarter.
Such numbers make Ken Goldstein, an economist with the Conference Board in New York, particularly bullish about the year in total and the second half.
With jobs plentiful and wage growth expected to continue, consumer spending should grow by 4 percent during 1998 as adjusted for inflation, with spending on apparel moving a little faster at 6 percent for the year, Goldstein said. He added, however, that growth in apparel consumption — still being a cyclical thing — should slow to about 2.8 percent in 1999.
“The worst thing” that could happen this year would be a stock market crash, and even that wouldn’t be “a big deal,” according to Goldstein.
That’s because even if stock values drop 25 to 35 percent, rising home values should keep consumers somewhat content with their asset balance sheets, Goldstein said.
However, other economists are hardly as ready to dismiss the stock market as a key factor.
At Kurt Salmon Associates in New York, Peter Harding, vice president and worldwide director of marketing, said the question for the second half is whether the stock market will keep growing.
“Certainly, the strong market has given consumers confidence to spend,” he said. Likewise, a “stock hiccup” could weaken that confidence. “I don’t think anyone’s expecting a major crash, but in 1987 [after the stock market crash] we saw a significant slowdown in the upper end of the market and it’s been the upper market that has been particularly healthy.”

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