The prospect of higher taxes and deeper spending cuts under President Clinton's economic plan seems to have dampened consumers' spirits -- and spending -- this month.
The index of consumer confidence released yesterday by the Conference Board, a business research group, fell a surprisingly sharp 6 points this month, to 62.6, after an 8-point decline in February.
In all, two-thirds of the post-election surge in the confidence measure had evaporated, as fewer consumers said this month that they expected their incomes to improve in the next six months, and more foresaw a decline.
"I don't think anyone expected him to raise taxes only on the top 1 percent of income earners," Michael Gould, chairman of Bloomingdale's, said in a recent interview, referring to the reaction to Mr. Clinton's plan for cutting the budget deficit in a Feb. 17 speech to Congress. "Nonetheless, there's been a real softening after his speech."
Economists say consumers seem to think the president's plan to cut the deficit is apt to slow economic growth.
Consumers were gloomier this month despite signs that jobs might be getting a little more plentiful. Another Conference Board survey released yesterday -- one that covers help-wanted advertising in 51 major newspapers -- showed that advertising for job openings jumped in last month, especially in the South and Midwest.
Retailers said that March sales essentially mirrored the slump in spirits, with ferocious winter storms adding to consumers' woes. According to the latest report from Johnson Redbook, which surveys more than 25 retailers every week, sales in the month's first four weeks were nearly a percentage point lower than in February. And analysts expect uniformly downbeat reports from the nation's largest retail chains next week.
But consumers had already turned more cautious before the bad weather hit. In January and February, the Commerce Department reported earlier this week, consumer spending grew roughly half the robust rate of last fall -- a 2.8 percent annual rate vs. 5.1 percent.
"My CEOs and I all have this sense that there are additional things on customers' minds," said George R. MrKonic, the executive vice president for specialty retailing at Kmart who overseas seven of the company's national specialty chains, including Waldenbooks and Builders Square. Even stores that were not in the storms' paths complained of mediocre results, he said. "That's one piece of evidence that something else was going on in March."
The Conference Board's consumer confidence measure does tend to zig and zag more than another widely followed consumer poll. But the University of Michigan survey for the first half of March, released to clients last week, also showed an erosion in expectations since December -- although the Michigan decline looks a lot less alarming than the Conference Board's 15-point drop over thelast three months.
"Consumers clearly recognize the improving economy, and they're still quite positive about current conditions," Richard Curtin, director of the University of Michigan's Surveys of Consumers, said. "But they are also re-evaluating how quickly things are going to get better."
Although expectations for a rebound in April and the rest of the year remain, the current state of consumer finances seems to point to the modest 3 percent gains in consumer spending that the Blue Chip consensus of economic forecasters has been predicting.
"Taxes are a very sensitive issue," Fabian Linden, director of the Conference Board's Consumer Research Center, said. "Because Bush had the Treasury withhold less from people's paychecks, people realize that they are going to have to pay more on April 15."
Further, the trend of inflation and long-term interest rates -- which, when declining, enables homeowners to refinance mortgages and reduce their monthly bills -- is no longer downward. And the savings level is near an all-time low, making it less likely that consumers can squeeze savings further to finance big increases in buying.
Most important, wages and salaries have been growing sluggishly, partly because the unemployment rate has been just inching down and partly because lots of companies, worried about holding down costs, are still reluctant to hand out raises.