Consumers Keep On Cruising

Consumers are striking it rich - and boosting the outlook for scores of retailers and consumer companies.

At gas stations, drivers are filling up tanks at the lowest levels since the early 1990s - sometimes less than $1 a gallon.

And at the bank, Americans are signing new or refinanced mortgages aided by the lowest interest rates in years.

Even cruise lines - "Titanic" notwithstanding - are sharing the wealth of the consumer economy.

"What's happening with the consumer is absolutely amazing this late in the business cycle," says Dean Ramos, managing director at Dain Rauscher, a Minneapolis investment house.

The current economic expansion celebrates its seventh anniversary this month, yet consumers show no signs of fatigue.

Their confidence in the economy stands at a 30-year high, shored up by record stock-market gains, rising incomes, and high employment.

It all translates into spending: Americans now plunk down more than $3 trillion annually on goods and services, and, for now at least, there are no signs that the buying party is coming to an end. In fact, an infusion of low-cost imports from Asia could add fuel to the fire.

Here in New York, college student Tom Jason purchased a new camcorder because the "price was so good. I couldn't have gotten it this low six months ago."

"We just bought a new refrigerator that we've needed," says Angela Brooks, who lives north of Seattle. "We might have been able to hold off a while. But retail prices have become incredibly low; we paid $395 for a full-sized unit that should have cost at least $50 more."

No one predicts that consumer spending is about to explode, Mr. Ramos says. But what's remarkable is that consumers are still willing to load up their shopping carts.

"What is happening now is the opposite of what you should expect to see after [seven] years of economic growth," Ramos says. "In a typical business cycle, consumers would now be pulling back and sales would be slowing. But everything continues to look very strong."

New-home sales surged more than 10 percent in January as the supply of unsold homes fell to a record low.

Sales of general merchandise, apparel, and furniture alone should rise 3 percent to about $700 billion this year, says Kurt Barnard, who tracks retailers for "Barnard's Trend Report."

The National Association for Business Economics (NABE) sees personal-spending up 3.1 percent this year, revised upward from a November forecast of 2.7 percent. Last year, spending rose 3.3 percent.

Residential investment (new housing, repairs, remodeling, brokerage commissions) should rise 4 percent this year; again, that's up from a November projection of 2 percent, according to the NABE. And it's well ahead of last year's 2.8 percent pace.

Economists expect the consumer - and the economy - to slow in 1999.

Federal Reserve Chairman Alan Greenspan referred ominously last week to "storm clouds ... heading our way" from a slowing Asian economy.

Problems over there could lead to slower sales for some US companies eventually.

But for America in 1998, "Happy days are here again," says Jos Rasco, an economist at Hoenig & Co., a New York investment house.

"Save some money and spend some money. Really!" he says. (For tips on how to do that, see consuming passion, Page B7)

"I see many people waiting to get a 'good buy' on high technology and consumer-electronic items. But prices are relatively low. Now's the time to do some upgrading," Mr. Rasco says.

"Import [prices] in general, particularly from Asia, are now down about 5 percent in price," says Rao Chalasani, chief investment strategist at Everen Securities in Chicago. "For consumers, that is equivalent to a tax cut of about $50 billion to $60 billion."

That means more money in the pocket, which can be used for purchases or saving and investing.

Similarly, mortgage refinancing puts more cash in millions of hands.

And gains in the stock market, though creating mostly "paper profits" (gains in share price, not spending money), have a very real impact, Mr. Chalasani adds. Almost 50 percent of US households now own stocks or mutual funds. When the market goes up, millions of people feel richer.

Retail stores, eager to tap into that added sense of wealth, compete for shoppers by offering promotions and discounts.

Stores most likely to benefit this year, says Barnard, include discounters, selected general-merchandise firms, such as Sears, a few warehouse chains, and "very, very upscale stores."

Discounters he favors this year include Wal-Mart, Target, and Dollar Stores; warehouse stores include BJ's Wholesale Club and Costco; upscale emporiums include Saks, Neiman Marcus, and Tiffany's. He also likes apparel sellers TJX (parent of TJ Maxx), Nordstrom, and May Department Stores, which includes the Lord & Taylor chain.

Stock analysts offer similar views.

"People are either going for top quality or good value," says Natalie Broshu at Merrill Lynch. That squeezes mid-range stores.

In specialty stores, retail analyst Beth Richard at Everen Securities likes Best Buy, in consumer-electronics, and AutoZone, a seller of auto parts.