Consumers loosen purse strings. Stock shock is past, buying and borrowing are in again

Just when everyone assumed that the most durable economic expansion in the United States since World War II was finished - heralded by last year's stock market plunge - along comes new evidence suggesting that the American economy still has a lot of spark: Consumers, feeling flush with cash and steady job prospects, are once again disdaining savings for purchases. In the process, they are providing a much-needed, although perhaps short-term, boost for scores of major businesses, from autos to imports. Whether the spending bent proves temporary or extends into next year, it is clear that consumer confidence is once again strong. The Conference Board's index of consumer confidence jumped sharply in May - putting it at its highest level since the late 1960s.

Bolstered by recent downturns in unemployment - although civilian unemployment in May edged up slightly, to 5.6 percent - millions of consumers are either thinking about taking on, or are taking on, substantial new debt. Many economists, however, still wonder how much new debt consumers can absorb, given the already high current debt levels. Consumer debt, including home equity loans, now represents close to one-fifth of disposable income in the US, according to Merrill Lynch & Co.

For the moment, though, consumers appear to be upbeat, judging by the findings of the Conference Board, a business-oriented research group here. The board's consumer confidence index jumped 3 percent in May, to 119.2 percent, from 115.7 percent in April. The key, according to Jason Bram, an economist with the board, appears to be the job factor. ``If people feel secure in their jobs,'' Mr. Bram says, ``or believe that there are enough jobs in the economy to take care of them should they lose their current position, then they feel like spending. And people now feel good about the job situation in general.''

The Conference Board index is not the only evidence of upbeat consumer attitudes. The Survey Research Center at the University of Michigan has found a similar pattern. ``Consumer confidence has recovered from last October's stock market crash much faster than anyone anticipated,'' says an official of the center. Last October, the center's index of consumer sentiment came in at 89.3 percent; in November, it dropped to 83.1 percent; it rose slightly in December to 86.8 percent.

In March of this year, however, the latest month for which complete figures have been released, the center's index stood at 94.6 percent. The number is said to have dropped slightly in April, but then risen again in May.

Interest rates are apparently not working against consumer sentiment, for now, at least. Among financial services professionals, including those on Wall Street, there is a growing feeling that ``interest rates may have peaked or are close to peaking,'' says Monte Gordon, a vice-president at the Dreyfus Corporation.

Yet, for the ``average consumer,'' there is a feeling that interest rates have not yet peaked, Bram says. ``Most people, up to two-thirds of all consumers, expect interest rates to go up in the months ahead,'' he says. ``Only 10 percent, according to our polling, expect rates to go down.''

For consumers, a peak in interest rates - or a reduction - could mean savings of hundreds of dollars on such big-ticket items as cars and household appliances, which would prompt additional spending. For businesses, it could mean savings of millions of dollars on new plant construction or other capital projects, allowing businesses to be less inclined to cut payrolls as a way of reducing fixed costs.

One of the questions put to consumers by Michigan's Survey Research Center is whether or not this is a good time to buy a house, a car, or large household durables. In March, 71 percent said yes to a house, 62 percent said yes to a car, and 71 percent saw it as a good time for durables. The main reason for buying a house or durables now, according to a university spokeswoman, is the feeling that interest rates and prices are now fairly low, and that a selection is available.

According to some preliminary estimates, borrowing appears to have actually increased since mid-May, when major banks boosted their prime interest rate from 8.5 percent to 9 percent.

In April, according to the Federal Reserve Board, consumer credit jumped by 7 percent on an annualized basis, although that was down slightly, from a 10 percent annualized rate in March.

``The delinquency rate on home mortgages is moving downward,'' Bram says. ``That's a good thing for spending, since it means people will feel more free to turn to consumer products.''