Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 7, 1991 TAG: 9103070526
SECTION: BUSINESS PAGE: B-7 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
So far, policy-makers hoping for a quick end to the recession are clutching at faint signs of a rebound in those two key consumer sectors, although they concede their anecdotal evidence could turn out to be wrong.
Federal Reserve Chairman Alan Greenspan told members of Congress on Wednesday that he was encouraged by reports last week following the end of the war that customer traffic had picked up in auto showrooms and in real estate offices.
While cautioning against reading too much into these preliminary reports, he said they did "raise the possibility that stronger consumer demand may be emerging."
Economists say it is not a coincidence that Greenspan is closely watching car and home sales for signs of a turnaround. Traditionally, these two interest-rate-sensitive segments of the economy lead the way out of recessions, and analysts don't believe this time will be any different.
So far, however, the actual reports on sales have remained bleak.
In January, new-home sales fell 12.3 percent to their lowest level in 8 1/2 years, while sales of existing homes dropped 7 percent.
The initial news for February hasn't been much better. Sales of cars and light trucks fell 8.9 percent in the latter part of the month from the same period a year ago.
But Greenspan noted Wednesday that all of this information came while the country was at war. He said the key to the future lies in spending decisions made now that peace has returned.
A sampling of consumer sentiment taken since last week's cease-fire in the gulf provides mixed signals.
A weekend survey by USA Today suggested that the end of the war may not revive consumer spending. Only 27 percent of the 802 people polled said the end of the war would make them more willing to spend money.
However, a Washington Post-ABC News poll published Wednesday said that 71 percent of 1,215 people polled said they believed the end of the war would have a positive effect on the nation's economy.
Consumer sentiment is considered crucial to getting the country out of the recession because consumer spending accounts for two-thirds of total economic activity.
The Bush administration is forecasting that the nation will emerge from the recession sometime in the April-June quarter.
However, private analysts say that forecast may be optimistic.
Allen Sinai, chief economist of the Boston Co., noted that home sales were still falling in January. He said the overall economy does not normally begin to show improvement until four to six months after home sales start to recover.
For this reason, Sinai said the recession could well last until mid-summer or later. He said the Fed will likely be forced to cut interest rates once or twice more to stimulate consumer borrowing.
Some analysts worry that consumers are so heavily burdened by debt that they may not be willing to take on further obligations, regardless of where interest rates go. In addition, banks, concerned about rising numbers of bad loans, are tightening up their own lending standards.
A trade group, the American Financial Services Association, reported Wednesday that personal bankruptcies climbed 16 percent last year to 718,107, their biggest increase since 1986.
by CNB