News: Analysis & Commentary: THE ECONOMY
`I'LL TAKE THAT, AND THAT, AND THAT'
It's a rare occasion when Tricia Seifert splurges. The 35-year-old Dallas lawyer went without living-room furniture for 12 years, and the kitchen table was one that her husband Charles Hummel had bought secondhand just after college. But three months ago, Seifert and Hummel, a petroleum engineer, plunked down more than $3,000 on a new mattress, an Ethan Allen sofa, a pine kitchen table, and patio furniture. Still to come: living-room chairs and an East Coast jaunt. "We're buying things which we'd delayed buying for five years," Seifert says.
Listen closely, and you can hear the sound of cash registers ringing and whirring across America. And what a sweet sound it is to the nation's retailers, who for months have watched nervously as consumers cowered on the sidelines, beset by worries of higher interest rates and unemployment. On July 14, the Commerce Dept. reported that retail sales were up 0.7% in June. That comes on the heels of a 0.9% rise in May, revised up from 0.2%. Total sales in June were $196 billion, up 5.9% from a year earlier. "Spending has turned around phenomenally," says Diane Swonk, an economist at First Chicago Corp. "I think we've shaken off the hangover."
Make no mistake: The nascent belt-loosening hardly portends a sequel to the spend-happy 1980s. But consumer confidence is slowly inching upward (chart). And the recent better-than-expected performances in such diverse sectors as autos, building materials, apparel, and furniture are helping allay fears of a looming recession. "There's good momentum building into the third quarter," says Chris P. Varvares, an economist with Laurence H. Meyer & Associates in St. Louis.
GREATER PAYOFFS. Indeed, business inventories rose just 0.4% in May, the slowest pace in five months; construction activity is back on track, and factory orders are humming. But Stephen Kovacs could have told you that. Kovacs, 40, who lives in Pembroke Pines, Fla., and owns a debt-collection agency, says the deadbeats that keep him in business aren't exactly plentiful these days. "When the economy is doing well, I have fewer accounts--but they are more collectible," Kovacs says. Kovacs' ability to collect has helped him lease a new Mercury Villager minivan and a Lexus LS400, and complete a $7,000 landscaping job at his suburban Miami home.
GREEN DAY. Confidence in the economy's vitality--plus declining interest rates and a raft of late tax refunds from the Internal Revenue Service--has brought shoppers back into stores. Target Stores, Dayton-Hudson Corp.'s discount chain, is racking up strong sales of children's apparel, music, movies, and books, thanks to such Hollywood blockbusters as Pocahontas and Batman Forever. L.L. Bean Inc., the privately held Freeport (Me.) catalog retailer, says its sales are 20% ahead of last year. Wal-Mart Stores Inc. reported a net sales increase of 13.8% for the five weeks ended June 30, compared to the same period a year ago. "We expect more of the same for the rest of the year--low inflation and moderate sales increases," says J.J. Fitzsimmons, Wal-Mart's vice-president of finance.
Strong auto sales accounted for a big chunk of June's retail sales gain; without Detroit, in fact, the increase would have been just 0.3%. And several new-model launches, coupled with lower interest rates, could keep car dealers hopping. "The industry is setting the stage for a strong launch in the fall," says Joseph Phillippi, an auto analyst with Lehman Brothers Holdings Inc.
Sales of autos and other products, though, are being propped up with heavy rebates and other incentives. Consider the case of Denise and Tom Drobek. The suburban Detroit couple have been holding their wallets tight, having just purchased a three-bedroom brick house in Troy, Mich., as well as a new jet-ski. But last month, the Drobeks wandered into a local Ford dealership and spotted a well-equipped, new 1994 F-150 pickup, marked down $4,000 to $14,700. The Drobeks decided that the $323 monthly payment was "definitely affordable" and made the buy, financing it with a five-year loan.
Not all consumers are buy-
ing. Worried that the U.S. is heading for a replay of the 1987 stock-market crash, Martin J. Pucher, a director of operations for DMX Inc., a television music system based in Littleton (Colo.), says he is wary of assuming any short-term debt or making frivolous purchases. He's even considering trading in the four-wheel-drive Toyota he currently leases and purchasing a cheaper car he can own free and clear. "I see a crash in the next year," says Pucher. "I want to be liquid. I want to reduce debt."
Indeed, some economists believe that consumer debt threatens to block a prolonged rebound. In the first quarter of this year, such debt--credit-card and other installment bills--totaled 80% of disposable income, says David A. Levy, vice-chairman of the Jerome Levy Economics Institute. That's up from about 50% in the mid-1980s. "Income is already being diverted away from new purchases to pay for old ones," Levy says. "The question is how long consumers will be willing to add to their growing debt burden." Retailers hope it's just a little bit longer.By Ron Stodghill II in Chicago, with bureau reports