Consumer demand, the locomotive of the Reagan years, is in caboose position as this recovery (if it is a recovery) chugs along uncertainly. What is driving the economy is the manufacturing sector. As September began, the Commerce Department was able to report rising construction and a solid 6.2 percent jump in new orders for manufactured goods, a key component in what is now a six-month upward trend in the government's index of leading indicators.
Compared with most other recent economic upturns, however, there is little sign of a return of the consumer to the marketplace. Many Americans are cautious, uncertain, hoarding their assets. The Conference Board's consumer confidence index jumped smartly from a recession low as the gulf war ended in March, but has since stalled. The result: softness in retailing, car sales, housing -- all springboards of strength in past recoveries.
The hesitation rippling through the economy is a reflection of the peculiar nature of the 1990-91 recession. It was a recession marked by a combined crisis in the thrift, banking and insurance industries and by huge layoffs of white-collar workers, many of them in managerial and professional jobs with money to spend, who never expected to be in unemployment lines. Because they do not share the cyclical fatalism of blue-collar workers, they have darkened the country's mood.
With wage levels, unemployment rates and length of the working week remaining soggy, the nation's disposable income, as well as the inclination to use it, have been negatives during this period of turnaround. Because inventories are low and demand for manufactures is relatively strong, the fourth quarter will clearly break out of the downward cycle which made the recession "official." But until consumers are able and willing to increase spending, the outlook will remain shaky.
So far, President Bush has rightly tried to hold down deficits by spurning budget-busting initiatives. But if the economy remains weak, Democrats may wind up helping his re-election prospects by stimulating the economy with extended unemployment benefits and other domestic spending. Congress will be the place to watch; early 1992 is the time to watch as the new Bush budget goes to Congress and primaries begin.