THE ECONOMY could be said to have a split personality.
On one hand, interest rates are at record lows, U.S. productivity is better than ever and a strong dollar has made imported goods more affordable. Exactly the stuff to pull people into stores.
On the other hand, unemployment is rising, several sectors are in recession, salaries are increasing modestly, if at all, and companies are slashing costs and jobs. Hardly the stuff to bring shoppers into stores.
But amid this seeming paradox are huge bargains for those with disposable income or who aren't afraid of kicking up their debt a notch.
Prices are falling on everything from shoes to furniture to dishwashers to electronics, which have dropped by as much as half in the past five years, experts said.
"I have seen nothing like it," said James W. Paulsen, chief investment officer at Wells Capital Management in Minneapolis. "All of the old rules we used to guide economic policy have been totally obliterated."
Camcorders, which started at $450 four years ago, cost half that today, according to the latest Consumer Reports Buying Guide. A top-of-the-line vacuum cleaner selling for $1,500 in 1999 can be bought for $200 less. And a high-end 32-inch television, which went for $3,000 in the same period, now costs $2,700.
"It is a great time to be a consumer," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C.
Even cars, one of the most expensive big-ticket items, have fallen in price with the help of low interest rates.
Since 1997, the cost of a new car has dipped about 4 percent, according to the Consumer Price Index. Rebates, discounts and zero-percent financing have made cars a better deal than they were four or five years ago, experts said.
A new four-door Chevrolet Cavalier sedan, for example, costs about $13,900 with interest after taking a $2,000 cash allowance, compared with about $14,000 for the similar model in 1998.
"If you really wanted to put a pencil to it ... just think about how much ... [dealer incentives knock off] the monthly payments," Paulsen said. "It is just amazing. I can even see people who can't hardly help themselves when they look at cars."
It doesn't mean that everything can be bought for less today. A top-of-the-line washing machine that cost $1,100 in 1999 retails for about $1,300 now, according to the Consumer Reports Guide.
Even in cases like that, economists say, consumers are still getting a bargain because the products are better made, easier to use and last longer.
"You are not talking about the same machine," said Ken Goldstein, economist at the Conference Board, the business research group in New York. "They are paying more for that item, but what they are getting for that extra cash is a better machine. ... What they are really buying is quality and buying probably at a bargain price."
Economists say there are several factors applying pressure on retail prices, and among the most important are inexpensive overseas labor and a strong dollar, which have opened the floodgates of cheap imports.
"China, which is sort of the Wal-Mart of the commodity world, can produce it, ship it and deliver it for less money than anyone else," said Thomas F. Carpenter, chief economist at ASB Capital Management Inc. in Washington. "In that sense, China is exerting a lot of downward pressure on global commodity prices."
Richardson Brothers Co. a furniture manufacturer in Sheboygan Falls, Wis., has felt the pressure from exports, forcing price cuts the last three years.
"The competition is so ferocious," said Daniel P. Masters, president of the company.
A queen-size bed that sold for $2,616 last year, he said, now goes for $2,288, down more than 12 percent.
Masters has reduced costs and is relying more on technology. Normally, such savings would be pocketed and used to build the business. Today, they are passed along to consumers in the form of lower prices.
"In my 25 years in the furniture industry ... the consumer can buy more product with more choice ... for less money," Masters said.
While lower prices mean bargains for consumers, some economists worry that, if left unchecked, the results could be disastrous for the economy. The country, they said, could enter into a period of "deflation," or sustained reduction in prices.
As prices fall, manufacturers reduce the amount of goods that they sell because of shrinking profit margins. In turn, they lay off workers to control costs and try to keep income above break even. Since consumers expect prices to keep falling, they refuse to buy and wait for further declines, which only extends the cycle.
"You can have too much of a good thing," said Carpenter, the ASB Capital economist.
"It is very important that the brakes be put on deflation before it gets too deeply entrenched. The risk to the consumer is you end up with economic stagnation."
But many economists expect prices to stabilize.
Vitner, the Wachovia economist, said the country should be able to avoid deflation because the economy is growing, consumers are spending and the Federal Reserve Board's lowering of interest rate should fuel expansion.
He believes consumers will continue to benefit from declining prices through next year.
And Vitner marvels at the low prices of electronic products, like flat-screen TVs, which cost about a third less than what they did a year ago.
A state-of-the-art 42-inch flat-screen TV, which sold for about $6,750, last year, goes for $4,737 today.
"It is an unusual time," Vitner said. "We have an economy that is just wonderful for the consumer."