Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 24, 1991 TAG: 9102220694
SECTION: BUSINESS PAGE: E-1 EDITION: METRO
SOURCE: Daniel Howes
DATELINE: LENGTH: Long
"By feeding the public the idea that we're in a recession, I think the public tends to grab on to their purse strings and not buy as much," said the owner of Givens Books.
Not a surprising sentiment. Nor is the second-hand book dealer alone.
Andrew Kaplan, president of Dominion Car Co., said while more people are browsing his lot - traffic in the showroom picked up "literally the day after the war started" - only half as many people are actually buying cars.
Closings are down about 50 percent from the usual February pace. Yet Dominion "had an extremely good January," Kaplan said. "Surprisingly so. My expectations were that January would be more of the same."
R. Lee Mastin, a partner in the real estate firm Mastin Kirkland Bolling Inc., tells a similar story. "It's been good. As a matter of fact I've been so busy it's scary." Busy showing houses, that is, not busy getting contracts signed.
"In a good market, if you show as many houses as I'm showing you'll get more signed contracts," he said, adding that his January business was "close to average."
Roanoke Valley businesses are expressing a concern nagging nearly all American firms that depend on consumer spending. Has incessant news of economic declines and the Persian Gulf War scared consumers to the point that they exaggerated, even produced, the recession? Just how fragile is consumer confidence in the wake of bad news?
Both Kaplan and Mastin said they sense an unspoken anxiety in their customers. People don't verbalize their reasons for not buying, Mastin said, "they just keep you on hold." He and Kaplan don't hear about fears that jobs held today might not be there next month. Yet the air seems thick with uncertainty.
"Most people don't lose their job in a recession," said Alan Gayle, chief economist for Crestar Bank in Richmond. "But most people change their spending patterns in a recession. When people get bad news, that affects confidence. The consumer becomes more defensive financially. He is less likely to incur new debt and he's more likely to retire old ones."
Though consumer confidence is devilishly difficult to measure - especially broken down by a specific region - Crestar is seeing weaker demand for car and home loans despite dropping interest rates, Gayle said. Again, that signals consumer uncertainty.
"The type of economic news covered does tend to influence the way people view the world," Gayle said. Consumers considered the 1987 stock market crash to be a Wall Street problem, he said, so they didn't change their behavior. But an abrupt, 25-cent-per-gallon increase in gas prices hits closer to home.
Before the Saddam Hussein-inspired oil spike came the slowdown in the construction and housing industry, a go-go sector through much of the past decade. It's a slice of the economy with which many can identify. So when housing - generally a leading economic indicator - goes down the tube, journalists, their beloved "analysts" and consumers take note.
And they begin to react.
"When people read negativisms it makes them - consciously or unconsciously - ingest that information and then act on it," said Mastin, the realty broker.
Bad news is easy news, Gayle said, insisting that recession reporting should include sectors succeeding despite the downturn. "To the extent you focus heavily on the negative to the exclusion of the positive creates an unbalanced view."
Increasingly, reporters and editors seem to be accepting the proposition that what they write and how they present it really does affect the way consumers behave. Less prevalent is the neutral, unforgiving: "We just report the news."
But let's not forget how businesses behave in hard times. Joseph Sirgy, a specialist in consumer behavior at Virginia Tech's R.B. Pamplin College of Business, pointed out that many companies begin to cut advertising costs at the first sign of a business slowdown.
"Advertising and promotion are the tools that business has to spur consumer demand," he said. "But the reality out there is that when times get tough, advertising is the first to go."
The first to arrive in bad times seems to be a desperate search for someone - or something - to blame. Some point to Wall Street, others the Reagan-Bush leadership and its profligate ways.
A few, mostly economists, mention the acquisitive American consumer, who incurred unprecedented debt during the past decade. And everyone seems to agree that Saddam's grab of Kuwait certainly helped push uncertain economic times to bad ones.
Add to that widespread manufacturing layoffs; huge state and federal budget deficits; instability in U.S. financial institutions; unparalleled consumer and corporate debt, and flat growth in real income versus the growing cost of homes and other financial assets.
"You can increase [consumers'] level of discomfort," said Crestar's Gayle, "but you can't change the facts."
by CNB