US consumer buying has remained brisk, surprising economists

A year ago, a number of economists were saying that the average consumer's pocketbook was worn to a frazzle. Consumers, whose purchases account for about two-thirds of total national output, would become more tightfisted. As a result, the economy would slow down if not falter. As it happens, the economy has run at a modest pace since then. But it certainly hasn't been because consumers failed to reach into their wallets and purses. Consumer spending has been growing at a 5 percent annual rate so far this year.

Cash registers, less likely to ring these days, certainly have been flashing electronic numbers in quick order.

Stephen S. Roach, an economist with the New York investment banking firm of Morgan Stanley & Co., talks of the ``extraordinary buying binge that is twice the average gain that normally occurs in the fourth year of an expansion.''

That consumer spending deluge is a bit embarrassing for Mr. Roach and his boss at Morgan Stanley, John D. Paulus. They were among that group of economists talking about its drying up last year.

Today they are again asking whether consumers are ``living on borrowed time.'' Mr. Paulus predicts consumer spending could grow only 1 or 2 percent next year -- definitely a drought.

Last year's mistake in forecasting consumer spending was annulled by several factors, Paulus explains. The oil price drop gave people about a $28 billion income windfall, of which they spent some $20 billion on consumer goods.

The drop in interest rates also helped. Some homeowners have refinanced their houses at lower interest rates or taken out new home equity loans. About one-quarter of the cash removed from home equity has been spent, the rest invested, Paulus calculates.

Further, cut-rate financing of auto loans has stimulated new car sales, perhaps by as much as $6 billion. It may also be that the nondeductibility of state sales taxes from federal income tax after this year has prompted some consumers to buy large-ticket items in 1986 rather than in '87. It could mean a saving of $300 to $400 on a car.

Some of these factors may now turn negative, Paulus figures. Auto prices, with interest charges up and the tax deduction gone, could be 11 percent higher. Oil could be more expensive. The boom in ``discretionary spending'' on such items as cars and home improvements could be coming to an end, having borrowed in a sense from 1987.

Moreover, consumers are even more indebted than a year ago.

Installment debt climbed to a record 19.4 percent of disposable personal income in August.

Estimates by the Federal Reserve Bank of New York show debt service payments for the combined total of mortgage and consumer installment credit rising from just below 15 percent of disposable income in 1983, shortly after the last recession, to about 17.6 percent nowadays.

Because of such numbers, Paulus predicts a weak 1.8 percent growth rate for national output next year.

Nonetheless, there is room here for disagreement. Charles A. Luckett, an economist with the Federal Reserve Board in Washington, says: ``There is nothing in these [debt] numbers that would compel me to say that consumer spending is going to drop off sharply.''

The consumer debt specialist concedes that there has been an increase in the delinquency rate on consumer loans and that consumer debt is historically high.

But, he notes, economists don't know how that debt is distributed among the population, whether it is concentrated in relatively few hands or spread among many, whether it is held more by the poor or the well-to-do, or whether longer loan maturities and the spread of home equity loans have changed the picture.

Acknowledging that the numbers are hard to interpret, Mr. Luckett still concludes that consumers could just decide to spend merrily next year and fool Paulus and Roach again.