Indebted Consumers Postpone Spending

CONSUMERS - whose personal spending constitutes the largest portion of the United States gross national product - are sending out a message now being heard loud and clear: ``No extra spending, for the moment, thank you.'' Consumers are ``concerned with the outlook for the economy,'' says Cynthia Latta, an economist with DRI-McGraw Hill, an economics consulting firm based in Lexington, Mass. ``Many families and individuals are already burdened with debt, so they're simply postponing the purchase of discretionary goods.''

The impact of that reluctance to spend, market experts note, is being felt throughout the economy, reflected not only in a higher savings rate, but by sagging car and housing sales, minimum sales by retail outlets, and rising apprehension among makers of big-ticket durable goods such as refrigerators and dishwashers. While stingy consumer spending means a slowing of the economy - thus creating conditions for a lowering of the overall inflation rate - it also raises the risk of recession. Any unexpected shock to the economy, says Ms. Latta, could conceivably do just that.

``Consumers represent the main propelling force for determining the future direction of growth'' in the US, says Heiko H. Thieme, investment strategist and consultant with Deutsche Bank Capital Corporation, based in New York. But, says Mr. Thieme, ``consumers are clearly holding back.''

Thieme notes that ``for the first time since the recession of 1981 and 1982, retail sales have declined overall for three consecutive months.'' Part of the reason, says Thieme, is that consumers are ``still concerned about the high unemployment rates of the 1980s.'' Since most families now find it necessary for both husband and wife to work, any slight change in economic circumstances works against individual confidence in the future.

Moreover, some recent signs of growth, such as the recent jump in big-ticket durable goods orders, are not as strong as they look, Thieme says. Durable goods orders jumped 3.9 percent in May, after falling 4.2 percent in April. But the May figure, Thieme notes, was in large part based on an increase in airplane orders. In fact, if you take out the transportation component of the indicator entirely, manufacturing orders jumped only 1.8 percent - hardly a spectacular number.

Stock market analysts stress that given current softness in spending, many consumer durable companies look somewhat speculative, although, of course, there are always such recession-resistant firms as grocery chains and entertainment companies such as Walt Disney.

Still, the consumer durable sector ``has done quite poorly for much of this year,'' says Christine Callies, a technical strategist with Cowen & Co., Boston. Investors have been taking profits in a number of the consumer-oriented companies. And while some firms will continue to post steady growth - discounters such as WalMart, for example - she does not find much momentum within the consumer sector as a whole.

That doesn't mean, Ms. Callies notes, that there will be new damage done to the durable goods and consumer groups. A number of the stocks are now trading at low price levels in relation to the past year and not too much more reduction in share prices is expected, she says.

But that is not enough reason to buy such stocks. Callies contends that two conditions must be present. First, there must be the potential ``for limited downside damage to the stock `` - i.e., an assurance that the share price won't suddenly fall. Second, there ``must be a potential for growth.'' And that, she says, is the current challenge in the consumer sector, particularly for makers of big-ticket durables such as cars, washing machines, or other appliances. She does expect some growth within the sector. But it will be on an individual company basis.

What will get consumer confidence - and consumer spending - back on track? Mr. Thieme says he believes the Federal Reserve Board will eventually have to lower interest rates. Thieme, for his part, feels that the Fed has overstated the inflation threat.