Shoppers hang on to wallets as economic slump worsens

The American consumer, who last year spent money as if it were going out of style, has become tight-fisted. To no one's great surprise, tighter credit, rising unemployment, and near agreement among economists that the country has entered a recession, have shaken consumer confidence and brought a downturn in spending on goods.

Retail sales, adjusted for inflation, tumbled 8.1 percent from January to April, led by falling sales of automobiles and building materials, reflecting the slump in the housing market. That is a sharp drop, points out economist Nat Eisenberg of First City Bancorporation of Texas, considering retail sales for a comparable period of time during the height of the 1974-75 recession dropped only 5.9 percent.

For the most part, economists and business analysts say consumers have simply grown much more selective in how they spend their money.

As is typical in an economic downturn, the first area where people cut back on spending is costly durable goods, like automobiles, refrigerators, and furniture.

"People will replace these kinds of items if they absolutely have to. But they tend to hold on to them for another year if they can and just repair them, if necessary," said Robert Mooney, chief economist for J.C. Penney Company.

Mr. Mooney says sales of these items are already suffering and will likely continue to depress for many months. Overall, J. C. Penney has forecast that for the year, general merchandise sales nationally will decline 1 percent.

But less spending on big-ticket items has, for the time being, meant a relatively healthy market for do-it-yourself home repair and improvement products.

"We are less impacted during a recession than most sectors. People spend more time at home and more money upgrading their homes," said William F. Reilly, president of the home Center Division of W.R. Grace & Co.

Mr. Reilly expects real gains in sales for 1980 at the company's 225 home center stores, despite overall cutbacks in consumer spending.

Mr. Mooney reports that at Penny stores, hardware goods and do-it-yourself merchandise are, indeed, selling well. "It's tied to the housing market," where high prices and continuing high mortgage rates (although they are falling now in most areas) have slowed new home sales and forced consumers to stay put and improve the homes they already own, he says.

Nondurable goods, such as food and clothing, also are selling relatively well compared to durable items, despite slower overall consumer spending.

Consumer economist Martin Duffy of Data Resources Inc. says it is typical of the early stage of a economic downturn.

"Consumers make adjustments to maintain their standard of living. They cut back on big purchases that can be deferred, but they try t sustain nondurable expenditures, like for food away from home and clothing, that reflect their life style," he explained. Eventually, though, sales of many of these goods also will deteriorate, Mr. Duffy asserts.

Data Resources forecasts that retail sales of durable goods will fall 2 percent this year in real terms, while nondurables will remain flat compared with last year. Women's apparel -- one example of how some nondurable items hold up even during recession -- will show a 3.5 percent increase in sales this year, the economic consulting firm predicts.

The last sector to feel the effects of consumer spending cutbacks will be services -- insurance payments, rent, legal fees, school tuition and the like. Most of these expenses are "fixed commitments," points out Fabian Linden, director of consumer economics at the Conference Board, and thus are not as subject to discretionary spending cuts.

Indeed, often in a recession these expenses keep rising, forcing consumers to make even sharper spending reductions on goods.

Mr. Mooney expects entertainment spending to remain strong this year as consumers seek leisure outlets in an increasingly bleak economic environment. Also, he sees the sharply higher cost of gasoline discouraging vacation travel and encouraging more spending on home entertainment products, like portable backyard swimming pools, sports equipment, and video games.

But virtually no sector of the economy will escape completely the impact of a recession and the drop in consumer income and spending.

"There is really no such thing as recession-proof industry," asserts Mr. Linden.