Newspaper article The Christian Science Monitor

Americans Put Away Their Wallets ; as Economy Generates Fewer Jobs Than Expected, Consumer Spending and Confidence Are Down

Newspaper article The Christian Science Monitor

Americans Put Away Their Wallets ; as Economy Generates Fewer Jobs Than Expected, Consumer Spending and Confidence Are Down

Article excerpt

Maybe it was the high gasoline prices, maybe the cool weather. Whatever the reason, consumers seem to have slowed down their buying last month - a trend that, if it continues, could have an adverse effect on the economy.

In fact, some economists believe the consumer pause is already acting as something of a brake on the economy, even as the Federal Reserve Board begins to tighten.

"We are slowing down a little bit," says Paul Kasriel, an economist at Northern Trust Company in Chicago. "But, as far as we can tell, there is no indication the economy is falling off a cliff."

In what may be a sign of a slowing economy, the Labor Department reported last Friday that the economy generated only 112,000 new jobs in June, down from 235,000 in May. This may be one reason why more Americans in surveys continue to say jobs are harder to find. As consumers feel more confident about the job market, they are more willing to spend.

What happens to consumers is important to the economy, since consumption represents about two-thirds of economic activity. Over the past two years, the consumer has helped to keep the economy moving while business investment has lagged. Any significant slowdown in consumer spending would be considered a bad sign for the economy.

"If consumer spending suffers, business spending is not big enough to pick up the slack," says Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis. "Consumer spending must be maintained at a reasonable pace."

Economists warn that consumer spending ebbs and flows, and looking at it over a short term may be misleading. "It would take a dramatic slowdown to derail the economy," says Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Lack of consumer enthusiasm is particularly pronounced in car lots and some chain stores, such as Wal-Mart and Target. Economists think some of the slowdown may be related to higher gasoline prices, which could cause consumers to be less than enthusiastic about gas guzzlers.

The higher gas prices may have also kept some people from making trips to the mall, which could account for why companies such as Wal- Mart are seeing slower sales. "People are spending, but it's at the BP or Shell station," Mr. Kasriel says.

Some consumers may also start to notice the rising interest rates, which could be reflected in credit card payments. Last week, the Federal Reserve Board raised interest rates 1/4 of a percentage point. For most people this won't be a big problem, but for lower- income individuals, Mr. Sohn says, it undoubtedly will. …

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