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Economic track ahead is anyone's guess

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published August 11, 2002


Say "double dip" and I used to conjure up the pleasurable summertime images of a two-scoop ice cream cone or the down-up-down thrill of riding a roller coaster.

No more. With the weakened stock market gyrating between triple-digit losses and gains, waning consumer confidence, the corporate frauds du jour and wobbling job security, double dip is taking on a more ominous economic meaning.

"This past spring most economists were calling the recession over and a recovery, albeit a sluggish one, well on the way," said Chris McCarty, who directs the monthly consumer confidence survey of Floridians for the University of Florida's bureau of economic and business research. "Now some economists are talking about the possibility of a double-dip recession."

"The chance of a second dip has risen," said Standard & Poors economist David Wyss in his August analysis of the economy, "but it remains below 50 percent." But all bets are off if there is more stock market turmoil, another act of terrorism or a war in the Middle East.

Even if a double dip occurs, don't panic. Out of the past six recessions, five featured more than one dip. Two recessions (1973-75 and 1981-82) were triple-dippers. Despite the added pain, we bounced back from all of them.

Is consumer spending, the key engine of economic growth over the past two years, about to wither? Are we heading for a rendezvous with another recession?

St. Petersburg Times reporters last week asked similar questions of folks, ages 19 to 87, around the Tampa Bay area. Viewpoints differed . But many of the people interviewed acknowledge they feel less secure, are more likely to spend less in the coming months and are scanning the stock markets for any real signs of recovery.

Those sentiments do not mean people will stop buying what they need or even what they really want. And longer term, most of those we spoke to expressed optimism that the resilient U.S. economy eventually will rebound to more familiar territory: prosperity and expansion.

Until then, however, people are preparing for leaner times and more often making do with what they have. Sometimes the nation's waffling economy can be plain frustrating.

"I seem to be spending more and not getting anywhere," says 60-year-old Erma Griffin of Tampa, who works for a travel agency. "It's like you're in a tunnel."

Griffin's spinning-her-wheels outlook captures the mood of a growing batch of state and national economic data that, combined, are raising the prospects of reduced consumer spending and a double-dip recession:

* Slipping confidence: Consumer confidence among Floridians fell five points from 94 in June to 89 in July, the same level registered shortly after the events of Sept. 11, said the University of Florida survey. The largest drop in July's index was the component measuring Floridians' perceptions of U.S. business conditions over the next year, which fell by 8 points to 76.

In a national survey of consumers, the Conference Board said its consumer confidence index, which declined in June, was down again, sharply, in July. "The erosion in consumer confidence represents a significant deterioration in consumer attitudes," said Lynn Franco, Conference Board research director. Translation? Consumers are poised to curb their spending in the absence of some positive change in the economy.

* Rising debt: The amount that Americans owe on loans for houses, cars, credit cards and other purchases adds up to nearly 100 percent of their annual income after taxes. That's up from 75 percent in 1992, after the last recession ended.

* Cutting back on plastic: Nearly half of U.S. consumers say they will take on less debt because of heavy losses in their stock portfolios, says a monthly survey of credit card use. The Cambridge Consumer Credit Index fell from a level of 63 in July to 56 in August. That indicates more consumers are less willing to take on new debt, and consequently, less willing to spend.

Here's another barometer of a spending cutback. Consumer electronics retail giant Best Buy Co. warned last week that profit in the current quarter would fall more than a third short of its original projection. While other retailers are reporting less dramatic shrinkages in sales, Best Buy stands out because consumers have had a love affair for electronic gadgets. Until now. Best Buy says it saw weakness "across the board, across all store brands, all products lines and all geographies."

* Weaker job outlook: The U.S. economy managed to generate a scant 6,000 new jobs in July. Is that so bad? It is if you consider Wall Street economists had expected an increase of 69,000 jobs.

Though few businesses made significant job cuts in July, temp agencies experienced a big drop -- of 35,000 jobs -- after four consecutive months of increases. None of this helps workers' sense of job security. In fact, employee confidence decreased sharply in July, slipping five points to 61 from 66 in June, according to the new Gallup/UBS Employee Outlook Index. The index had a baseline of 71 when it was launched in April.

* Rock-bottom interest rates: The Federal Reserve meets Tuesday to discuss the economy and consider whether short-term interest rates need adjusting. Only four weeks ago, the Fed was expected to raise rates to help brake the reviving economy and control inflation. Now most Fed observers do not expect any change in rates, and some on Wall Street were even clamoring for a rate cut.

But the Fed is running out of room. It has dropped its benchmark interest rate (now 1.75 percent) so low already -- to the lowest level in 40 years -- that reducing rates further would do little to stimulate an economy awash in record-low mortgage rates and 0 percent financing on cars. The result? The Fed may only cut rates again in response to some genuine economic emergency.

Still ready to keep spending?

Early on, Morgan Stanley chief economist Stephen Roach emerged as the maverick in warning of the possibility of a double-dip recession. He was also one of the first to predict last year's recession. Roach puts the odds of a double dip at 66 percent.

Others are leaning Roach's way. "The buzzword now is double-dip recession," Jim Herrick, head of equity trading for Robert W. Baird & Co., said last week. "There are plenty of worrisome signs out there," veteran economist Henry Kaufman, whose bearish sentiments earned him the nickname "Dr. Doom" on Wall Street, wrote last week in the Wall Street Journal. "The risks of a double dip are very real."

Still, plenty of other economists remain more bullish. William Poole, president of the Federal Reserve Bank of St. Louis, puts the odds of falling back into a recession as "very, very small."

In the final analysis, consumers will continue to spend if they feel confidence in a complex formula that addresses the following issues.

Will I still have my job next month or next year? Can my company stay strong and compete in these tough times?

Will the national economy pull out of the doldrums or muddle along? Will the international economy settle down? Will corporate scandals and accounting fraud ever end? Can I trust my bosses and political leaders to do the right thing?

Will this country end up in a big Middle East war? Is Latin America falling apart or just going through another wave of economic chaos?

And last but not least: Shouldn't I purchase a new SUV since I see a new one in my neighbor's driveway?

Answering all those questions makes for a tall order. And a tough call on a predicting a double dip.

Right now, the national mood is pretty gloomy. Too gloomy, suggests a Business Week magazine editorial. "Americans are working themselves into a state of high anxiety this summer," it states. "August angst is replacing holiday fun as people fret about the future. It's as if we have shifted from irrational exuberance to irreversible depression."

Today marks Fed chairman Alan Greenspan's 15th anniversary as head of the nation's central bank. In this unusually challenged economy, I doubt all that experience will make his job of understanding irrational consumers much easier.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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