Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 25, 1990 TAG: 9003232801
SECTION: BUSINESS PAGE: B-3 EDITION: METRO
SOURCE: GREG EDWARDS BUSINESS WRITER
DATELINE: LENGTH: Medium
Slow consumer spending may explain why two-fifths of 50 Roanoke Valley residents polled by this newspaper said they expect a recession within the next year.
Retail sales in the valley in the past two years increased 4.5 percent and 4.1 percent. When inflation is taken into account, however, any growth is virtually wiped out.
We're seeing some weaknesses in the Roanoke Valley and in Virginia, says Dominion Bank economist Glenn Bowman. Considering Virginia has one of the nation's more robust economies, the current circumstances take on a greater significance, he said.
The unemployment rate in the valley is among the lowest in the state (3.6 percent in January) and the valley workforce has been growing at a modest rate. What, then, explains the lack of vitality in consumer spending?
The current economic expansion is well into its eighth year. Because things have been good for so long, there's no pent-up demand for consumer goods, Bowman said.
Consumers have become more conservative. Of the valley residents polled by the newspaper, two-thirds said they had no plans to make major purchases in the next year.
However, valley retailers are looking for sales to improve during the second half of this year, said Larry Poteat, president of the Credit Marketing and Management Association in Roanoke. "Overall they feel pretty good about the future," he said.
Consumers have slowed their purchases for some months now but that's a good sign, Poteat said. It indicates people are paying off their debts.
The retail sales slump might indicate consumers have reached the limit of what they are willing to borrow or the amount of debt they are able to pay back with current income.
People are beginning to realize that borrowing is not as attractive as it was during the heyday of inflation, Bowman said. People are carrying high debt levels and high interest rates discourage more borrowing.
But Bowman points out that the U.S. economy has always been heavily dependent on credit. "That's the reason our standard of living has been so much higher," he said.
National figures are showing the debt burden is at a high, said Robert Stauffer, an associate professor of economics at Roanoke College. Debt service takes such a large chunk, people don't have money to spend on other things, he said.
But Stauffer cautioned that the debt statistics may mislead. If people are using their credit cards for convenience and paying off the balance each month, then the debt levels look higher than they really are.
Installment credit outstanding in the United States in 1989 was $716.5 billion, according to the Federal Reserve Board. That was 140 percent more than the $297.6 billion outstanding in 1980. By comparison, however, installment credit grew by almost 190 percent between 1970 and 1980.
The tax laws in most countries are set up to penalize consumption, but U.S. laws are designed to do the opposite and to encourage the accumulation of debt, Bowman noted. True, he said, the 1986 tax laws eliminated the deductions for consumer credit but people picked up on the loophole provided by home equity loans.
Despite the record-breaking upturn in the peacetime economy, debt poses serious risks and costs for the future, Stauffer recently wrote. "High levels of indebtedness can turn a recession into something a lot more serious," he said.
In fact, bankruptcy filings in Western Virginia increased sharply in 1989. Last year, 6,947 bankruptcy petitions were filed in Western Virginia compared with 5,974 petitions a year earlier. While business bankruptcy filings last year were only the third highest of the decade, total filings were 16 percent above the next highest year, 1987.
by CNB