No economic boon seen in fast gulf victory War counteracts benefits of lower interest rates


NEW YORK -- Recent declines in short-term interest rates, supposedly a tonic for the slow economy, have not invigorated consumer confidence, recent surveys suggest.

Bank economists interviewed last week said the gulf war dominates consumer psychology and continues to depress consumer confidence. Moreover, the economists see little on the domestic scene that could spark a quick upturn in confidence, which would spur retail spending and help pull the country out of the recession.

Falling interest rates might take six months to have an impact, the economists noted.

"Aside from manufacturers of American flags and yellow ribbons, no one is benefiting from the gulf war," said Carol Leisenring, executive vice president and chief economist at CoreStates Financial Corp. in Philadelphia.

"I do not know how to predict it," Ms. Leisenring said. "I sense people are feeling sufficiently worried, depressed and cautious because of the situation over there. I think everyone is home watching CNN."

Surveys by the Conference Board in New York and the University of Michigan have shown profound declines in consumer confidence since last summer. Confidence has generally fallen further since the outbreak of war last month.

Some parts of the country have been hit harder than others.

Regional comparisons in the Conference Board survey show consumer confidence is lowest in the Northeast, but close behind are the mid-Atlantic region and the Southeast. (Confidence in the Northeast actually improved slightly in January.)

In the Pacific West, Rocky Mountain and Upper Midwest regions, confidence has declined the least.

Few economists place great stock in consumer-confidence surveys, but the severity of the declines has prompted fresh appreciation of the surveys since last fall.

In the fourth quarter of 1990, and in January and February of this

year, weakness in auto sales and retailing exceeded expectations, and the weakness has been compounded by the war, Ms. Leisenring said.

Even so, she and other economists including Wells Fargo & Co.'s Gary Schlossberg in San Francisco cited some anecdotal evidence from the housing market that consumers might be starting to at least look -- if not buy -- again.

Because mortgage rates have fallen substantially, consumers are finding housing easier to afford than in any year since 1977, Mr. Schlossberg said. As a result, both he and Ms. Leisenring say, they are hearing from real estate agents that consumers are starting to appear in greater numbers at open houses and other sales events.

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