More than ever, the outlook for the U.S. economy is linked to consumer spending. But consumers have gotten harder to predict-and banking deregulation may be a big reason why.

The United States still has vastly more banks, and consequently far more lenders, than any other country, noted economist Rosanne M. Cahn of Credit Suisse First Boston Corp.

At the same time, deregulation and competition have sharply reduced profits per transaction for lenders, leading to financial innovations like asset-backed securities and aggressive marketing of credit as means to build volume and revenue.

"There are too many lenders and too few borrowers," she said. "Under that circumstance, it is incumbent upon the borrower to say no."

However, the economist noted, "If history and human nature are a guide, they will cut back on debt only when they must."

Retail sales have slackened for three months, but economists have noted in this decade a tendency for the nation's consumers to go on buying binges, then retreat roughly every third quarter.

With the economy in general, and job market in particular, running at a strong clip, Ms. Cahn and others expect the pattern to repeat itself, with a pickup in spending this summer.

"The sluggish spring pace of consumer spending has all the hallmarks of a temporary respite," said Ian Shepherdson, chief economist at HSBC Markets Inc., New York.

"Consumer confidence is at a 28-year high, supported by a strong job market," pointed out economist Larry J. Wipf of Norwest Corp., Minneapolis.

Consumer credit and retail sales have in the past moved in a cyclical pattern. Ms. Cahn suggested that that may have been partly due to banking industry regulations.

Federal Reserve Regulation Q, which capped rates that banks and thrifts were allowed to pay on deposits, effectively curtailed the supply of loanable funds whenever market interest rates exceeded the Regulation Q ceilings.

Regulation Q was once "the primary recession-causing mechanism," Ms. Cahn noted. It was phased out in the 1980s after the inflation of the 1970s caused market rates to spiral and sparked heavy deposit outflows.

Only one recession has occurred since the demise of Regulation Q. Economists did not detect much change in the consumer cycle during the 1990-91 downturn, but whether consumer psychology, particularly as it relates to job security, now governs the credit and consumer spending cycles is not fully established.

Ms. Cahn acknowledged that "many measures of debt usage or debt distress are at anxiety-provoking levels" but said things may not be as bad as conventional wisdom suggests, with household financial assets in solid condition.

The major reason for that is the booming stock market, which has piled up capital gains for many consumers.

Nicholas S. Perna, chief economist of Fleet Financial Group, said the "wealth effect" of the bull market ought not to be underestimated. Indeed, he said, "the equity run-up is fanning an economy that is already close to overheating."

One estimate of the wealth effect holds that $1 of increased household net worth prompts 5 cents more spending in the succeeding two years. "While this seems pretty small, the wealth generated by the stock market boom has been awesome," Mr. Perna said.

But he warned that the wealth effect can work both ways. "A serious (market) correction might drag the economy down as consumers and businesses tighten up."

Several things could prompt a market correction, he noted, including a Fed rate hike. "Another factor might be a broad drop in the dollar exchange rate, which would accelerate inflation and make U.S. stocks and bonds less attractive to foreigners," he said.

"How about a crisis of confidence over President Clinton's many legal woes?" he suggested. "And then there are the surprises and shocks which, by definition, are unpredictable." u

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