One out of three Americans plans to postpone or reduce a major purchase such as a house, car or vacation because of the recent stock market crash, the Los Angeles Times Poll has found, a prospect that economists fear could lead to a recession.
The market plunge also has made many Americans doubtful about the future and concerned about a possible recession, regardless of whether they own stock or not, the poll found. In fact, Americans who do not own stock are more inclined to cut back on spending as a result of the crash than those who lost money in the collapse.
The results of the poll--conducted by telephone with 2,463 individuals nationwide between last Thursday and Monday--represent the first time that spending intentions have been quantified and broken out specifically in relation to purchases of homes, cars and other big-ticket items after the crash.
Consumer spending--which accounts for about two-thirds of gross national product and thus is critical to the nation's economic health--had already been expected to slow down even before the market crash, in part because consumers appear to have worn themselves out from their high level of spending during earlier stages of the current economic expansion.
For the Record
Los Angeles Times Thursday November 5, 1987 Home Edition Part 1 Page 2 Column 6 National Desk 2 inches; 70 words Type of Material: Correction
A table accompanying a story in Wednesday editions on results of the Los Angeles Times Poll had one line mislabeled. The poll surveyed consumers on their spending plans in the wake of the stock market crash. Twenty-five percent of those surveyed said chances of a recession within the next 12 months are fairly low and 20% said they are very low. The poll showed that 31% plan to postpone or reduce a major consumer purchase while 66% said they would not change their spending plans and 3% said they are not sure.
But the high level (31%) of Americans indicating they would cut back purchases because of the market crash came as a surprise to some economists who said they did not expect that its effects would be felt as wide and as fast, particularly among those who do not own stock.
Most consumers normally do not adjust their plans that quickly in response to external events, said Allen Sinai, chief economist for the brokerage house of Shearson Lehman Bros. Such a finding does not bode well for the economy, he and other economists said.
"(That) response is a very quick reaction by consumers. It indicates a lot of consumers are scared by the stock market crash," Sinai said. "If (that) is the right number, then we're going to see very substantial weakness in consumer spending."
"There is not necessarily a one-to-one link between a stock market decline and a recession. The real link is what happens to consumer confidence," Times Poll Director I. A. Lewis said. Americans' caution as reflected in the poll "has got to have a negative effect on the economy."
Any potential consumer spending cutback now will come at a critical time for the economy. Consumers are entering the key Christmas shopping period, and many retailers already have ordered inventories. Any slowdown could result in reduced hiring, widespread price discounting and manufacturing slowdowns.
Also, U.S. auto manufacturers are entering the 1988 model year, following cut-rate financing programs for 1987 models that temporarily boosted sales. The ending of those incentives already was expected to slow consumer auto purchases, and any further slowdown could lead to layoffs and other production cutbacks.
"If you wanted to pick a good time to test consumer fears, this is it," said A. Gary Shilling, a New York economic consultant.
To be sure, Americans' caution could change to optimism if the stock market recovers or lower interest rates or other factors encourage consumers to increase purchases.
So far, evidence of actual spending cutbacks on homes, cars and other big-ticket items is growing but incomplete.
Car Leads List
According to the poll, the item that the highest number of consumers plan to postpone or reduce buying is a car (11%), followed by a house (10%), vacation (10%), dining out and entertainment (9%), Christmas presents (8%) and major appliances (5%). The totals exceed 31% because some people indicated that they would postpone or reduce buying of more than one item.
"That isn't going to be good for Detroit," Lewis said. "If people cut back on buying cars, that has a real ripple effect" throughout the economy.
Interestingly, only 31% of those who lost money in the crash plan to cut back on spending, compared to 33% of those without any stocks. That may indicate that the fear associated with the crash has been just as unnerving as the actual loss of wealth, economists suggested. It also may reflect the fact that non-stockholders tend to have lower incomes and thus may fear a recession and possible loss of their jobs more than higher-income individuals.
Stock Owners Buy More
However, the fact that many stock owners plan to cut back spending may be more significant, at least for its impact on big-ticket items. Stock owners, even though they represent only one in five Americans, buy about 70% of the new cars and homes purchased annually in the country, economists say.
Another reflection of consumer caution was the finding that about two in five Americans (43%) surveyed said now was a good time to wait on buying things they want and need, compared to only one in five (23%) who said it was a good time to purchase. The propensity to wait was higher among non-stockholders.