- Consumer confidence plunged in December, but not evenly
across the population. The nation's more affluent families are turning
out to be the most pessimistic, apparently because of the sinking stock
market. The less affluent, not as heavily invested in stocks, are not yet
so directly affected by the slowing economy.
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- Those are the latest findings of the Consumer Research
Center at the University of Michigan. Released yesterday, the survey is
the most authoritative reading so far of how Americans are reacting in
the Christmas season to the slowing economy and, in reacting, contributing
to the slowdown.
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- "Not many people have yet personally experienced
the slowing economy except through the stock market," said Richard
T. Curtin, director of surveys for the Consumer Research Center. "But
they are getting negative signals in the workplace, from their neighbors
and in the mall. Then they listen to the news and hear someone confirm
what they are concerned about."
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- That more or less describes Nancy Ward, a 47-year-old
paralegal interviewed while shopping at Faneuil Hall Marketplace in Boston.
The slowdown for her is apparent in the workplace. "My husband and
I do real estate law, so we do a lot of closings, and we are seeing closings
slowing down," she said, explaining that she is more price conscious
now when she shops. "I've also been reading in the papers that there
are a lot of layoffs in the bigger companies, so it is just a matter of
time."
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- For all the signs of a slowdown, there are strengths,
too. While the University of Michigan reported the fall-off in confidence,
the Commerce Department said yesterday that personal income was holding
up, as was consumption, despite a slowdown in Christmas sales. Personal
income rose 0.4 percent in November, and consumption expenditures increased
0.3 percent. Although outlays for merchandise fell, spending on services
more than offset the decline.
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- The confidence index fell to 98.4 this month from 107.6
in November, the fourth-largest one-month drop since the survey went monthly
in 1978. The three larger drops came before the 1980 and 1990 recessions.
While the pessimism was broad- based in those years, this time it is mainly
among households with annual incomes of more than $50,000 the households,
in sum, with much of their wealth invested in stocks. These are America's
biggest spenders, and cutbacks on their part because of declining confidence
could indeed hurt the economy.
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- Households with less than $50,000 in annual income, on
the other hand, are just beginning to turn pessimistic. "Their strong
income and job prospects led them to overlook rising gasoline prices,"
Mr. Curtin said, "but now they are beginning to feel threatened at
work" and the news media reports amplify their worries.
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- Trying to talk an economy up or down is hardly a new
phenomenon. Franklin Roosevelt's fireside chats during the Depression were
a famous attempt to lift spirits and encourage economic activity. Until
they did an about-face this fall, corporate executives, Wall Street forecasters
and Federal Reserve policy makers were publicly bullish. The Clinton administration
never missed an opportunity to point proudly to the booming prosperity,
and now it says the Bush camp is making matters worse by calling attention
to the slowdown and to the risk of recession. The Bush camp wants to suggest
that a recession would be President Clinton's fault.
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- Mr. Bush said Thursday that he was simply being a realist
in considering the dangers ahead, "and if there are warning signs
on the horizon, we need to pay attention to them." But Gene Sperling,
President Clinton's economic adviser, said the Republicans were "creating
anxiety" unnecessarily.
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- "As one moves from a campaign to running the government,"
Mr. Sperling said, "part of the transition is understanding that you
are not just an outside commentator but what you say can itself have an
impact on confidence and stability, and talking down your own economy is
a serious mistake."
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- Can an economy in fact be talked down? Can pessimism
publicly expressed be self-fulfilling? Neither Mr. Curtin nor Lynn Franco,
his counterpart at the Conference Board, which also surveys consumer confidence,
finds much evidence yet that people are responding to pessimistic talk.
What is more, random interviews yesterday with shoppers in Seattle and
Boston turned up little evidence that people were altering their behavior
as a result of pessimistic news media reports.
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- "I honestly believe there is a downturn, but it
is at the beginning so it does not really affect you yet," said James
Simpson, 32, a real estate developer in Phoenix, visiting in Seattle. He
added that he sold all his stocks six months ago, which is why he is not
feeling an effect.
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- Still, if bad news persists, the impact will come, according
to Thomas Smith, a director of the National Opinion Research Center at
the University of Chicago. "What we are hearing has the potential
for weakening consumer confidence," he said. "But I don't think
the message has been taken into the hearts and minds of the American people
so far."
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- The impact from talking down an economy comes gradually;
it takes time for the pessimistic talk to be measurable in the consumer
confidence numbers, but eventually it has an effect, said Daniel Yankelovich,
chairman of DYG, a polling firm.
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- Norbert Schwarz, a University of Michigan psychologist,
describes the process. "It is impossible," he said, "to
consider all the information that is relevant; so people truncate the information
search early, as soon as they have a few bits of information that seem
relevant." That makes them vulnerable to pessimistic media reports.
"The reports increase the accessibility, as we call it, of pieces
of similar information already in memory," he said.
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- Much depends on the eye of the beholder. "You can
tell two different stories about this economy," Dr. Schwarz said.
"You can emphasize the sharp slowdown, as we are doing, or you can
say that while growth has slowed, the economy is still strong. I am from
Germany where they consider 2 or 2.5 percent growth like we have here very
good. Depending on which aspect you are focusing on, people's confidence
comes out very differently."
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- The economy is in fact hurting, no matter what the perspective.
Indebtedness hangs over consumers and corporations. Capital spending is
weakening, loans are harder to obtain and defaults are rising. But even
after sharp declines, car sales and home construction two economic pillars
are as high as they were in the 1980's. And while layoffs abound, so
do jobs; the unemployment rate is a very mild 4 percent.
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