Spending's in Style Now That Jobs Seem Secure
All year long, economists and government policy makers have been surprised at the strength of consumer spending. The chart at right shows a key underlying reason for that surprising robustnessÛÓthe strength of the 1994 job market.</br></br>Late in 1993, most forecasters predicted that 1994 would be a good year for the economy, with growth sufficiently solid to reduce the unemployment rate modestly. Instead, consumer purchases soared, especially for expensive, long-lasting goods, such aB new cars and furniture, and the economy took off. By last month the unemployment rate was down to 5.6 percent, compared with 6.7 percent in January.</br></br>The whole process fed on itself, in a fashion reminiscent of the burst of economic activityÛÓwhich economists sometimes call a ÛÏsnapbackÛÛÓthat usually comes immediately after a recession. More spending triggered more production, more production meant more jobs and more income yielded more spending.</br></br>Years ago, when he was a private economic consultant, Federal Reserve Chairman Alan Greenspan closely watched the layoff rateÛÓa figure that later fell victim to budget cuts at the Bureau of Labor StatisticsÛÓfor an early signal that a recession was about to end. Greenspan said that when the layoff rate began to fall and workers who had feared for their jobs began to relax, those still at work were apt to increase</br></br>PEOPLE WORRYING ABOUT LOSING THEIR JOB and being unable to ^ find another one generally area't eager to buy a new car or redecorate the house. One reason for this yearÛªs surge in consumer spending has been the perception that the job market is in much better shape than it was when economic recovery got going in iå£WÛÓ and 1992. Responses to the Conference BoardÛªs monthly consumer-ÐÊ Û¢" confidence survey reflect that improvement.