Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, July 5, 1995 TAG: 9507050029
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
DATELINE: LENGTH: Medium
No more. Consumers aren't about to lose their position as the most important segment of the economy, but they see things differently these days: Business is upbeat but consumers are not.
The split shows up repeatedly, most recently during last week, when on successive days the Conference Board reported a sharp drop in consumer confidence, and a Dun & Bradstreet survey of executives found optimism.
Still another survey, also by the Conference Board, may provide a clue to one of the reasons why: While business expands and jobs are created, the rate of job growth may not be comparable to the business expansion.
Downsizing, attended by huge reductions in personnel, continues. Moreover, some older manufacturing skills have become outdated, forcing workers into lower-pay retail service jobs.
For three straight months, the board's help-wanted advertising index has fallen, a finding that coincides with surveys indicating a high level of worker insecurity. Business efficiency these days means lean payrolls.
While the split is glaringly obvious, it is sometimes difficult to accept by those who have observed a correlation of many years between the outlook of executives and that of consumers. But it is there for all to see.
Albert Sindlinger, whose Wallingford, Pa., firm measures consumer financial conditions and attitudes, thinks the split began rather abruptly at the end of 1990.
For the previous six years, he says, his index of household finances, called Household Money Supply, was in ``almost a perfect marriage'' with the National Association of Purchasing Management index.
At that point they divorced, he says, leaving the corporate purchasing agents fairly optimistic but households mired in insecurity and financial problems. Since then, ``they just aren't living together anymore,'' he says.
Job insecurity isn't the only reason offered. Among many of the securely employed, for example, wages have been stagnant or barely rising, while corporate profits have been strong and rising over the past two years.
Another reason for the split seems to be related to the growing world economy. Years ago, increases in corporate spending for equipment and plants generally benefited the United States. Now, plants and jobs may be exported.
While some economists believe the spread between consumer and executive attitudes may be temporary, or cyclical, people such as Sindlinger and some of his clients tend to think of it as semi-permanent and structural.
The economy generally moves in cycles from slow-growth or recession to recovery, expansion and sometimes to boom and inflation. The pattern is familiar to economy watchers, and most of their analyses are in that context.
Structural changes are rarer, and involve changes in the ingredients of the business cycle. The end of World War II meant a vast structural change. The end of the Cold War with the Soviet Union was another.
The structuralists say the economy is still in that latter stage, marked by reduced military spending and vast changes in competition, marketplaces, payrolls, regions, and certain industries, such as those with low wages.
As a consequence it is marked also by a divergence in views between consumers and producers, a split that someday may be resewn but which, for now, represents a significant but poorly recognized change from the old days.
The poor level of recognition - the confusion of a major structural change with a normal cyclical change - says Sindlinger, explains in part why so many people expect the consumer to maintain the economic expansion.
Consumers, he says, think, save, spend and vote with their pocketbooks, and their pocketbooks aren't in very good shape. Neither is their outlook. They don't see things the way business does.
by CNB