The Federal Reserve wants consumers to stop spending so much money on big-ticket items such as refrigerators and cars. And shoppers are heeding the message, but only half-heartedly.
For the past six months, the growth in sales of durable goods in the Washington region has slowed as the cost of borrowing has gone up. Despite this pattern, economists still expect durable-goods sales to increase for the third consecutive year. The rate of increase, however, will not reach the record pace set in the two previous years.
In the Washington region, durable-goods sales rose a paltry 0.9 percent in June, compared with the previous month, adjusted for seasonal changes in the economy, according to estimates from George Mason University's Enterprise Center. Month-to-month sales activity has fluctuated from a gain of 7.5 precent in February to a 1 percent drop in April.
In the first half of the year, durable-goods sales have risen at an annual rate of nearly 12.5 percent. Most economists don't expect spending to continue at that pace, saying it is more likely that the increase for all of 1999 will be only 10.5 percent above the rate for 1998.
"There is some softening in consumer confidence, and increases in interest rates may discourage big-ticket purchases," said Stephen Fuller, a professor of public policy at GMU.
Fuller said several local builders expect there will be fewer new-home sales in September and October, a time they normally get a bounce, because mortgage interest rates recently have risen to about 8 percent. That means fewer sales of new furniture and large appliances, too.
The total number of residential construction permits in May for the Washington-Baltimore-Hagerstown region, an indicator of future building activity, fell for the first time since last November, according to statistics compiled monthly by Regis J. Sheehan & Associates of McLean.
"There are signs that the nation's economy has begun to cool," said Anirban Basu, economist at RESI, a research institute of Towson University. "If home sales slow, and the data suggest that they will, durable-good sales can only be expected to slow further."
Basu isn't forecasting a recession, but he expects the economy to lose more ground toward the beginning of 2000. He believes that some consumers are tapped out. One byproduct of the rate increase, he said, is that it lowers the dollar's value against foreign currencies, making imports more expensive and depressing the appetite of consumers for such goods.
But some economists believe momentum still exists in the economy for strong durable-goods sales. They said consumers still were confident about an economy that has brought a tight labor market and increased wages. They also were optimistic about their personal wealth as the stock market continues to surge.
Economists said even the Fed's decision last week to raise the rate that financial institutions charge one another on overnight rates will have little effect on whether consumers decide to buy that new dining room table, for example.
"Spending growth will slow," said Mark Zandi, chief economist for RFA Dismal Sciences in West Chester, Pa. "It almost has to, coming off the extraordinary performance over the past two years. But there are still reasons for consumers to buy."
Zandi said lenders still are aggressively extending credit. "We're going from boom times to good times. We've been through an extraordinary period when consumers were outdoing themselves," he said.
Zandi also said he doesn't expect that the Fed's rate increase will have much of an effect on the sales of non-durable goods such as clothing and jewelry. Under that scenario, retailers can expect a good Christmas shopping season.
CAPTION: Will Big Ticket Sales Slump? (This graphic was not available)