Are the nation's consumers tapped out?

The answer to that question is important not only for bankers, but as a guide to the future strength and direction of the economy.

Consumer credit has grown sharply over the past several years. Recently, however, delinquency rates have been edging up, and job growth has plummeted.

"We went on a credit card borrowing spree late last year. A lot of marginal borrowers were taken on, and now they are having some difficulties making payments," said Philip Braverman, chief economist at DKB Securities Corp., New York.

"That helped inflate retail sales, but the jobs and the incomes aren't there. And if those aren't there, the economy cannot be sustained by credit indefinitely," he said.

The Federal Reserve's Open Market Committee will be mulling these trends tomorrow as it meets to assess business conditions and consider whether to change interest rates.

Consumer spending underpins two-thirds of the nation's economy, as measured by gross domestic product.

"I keep my eye on consumers. Wherever they're going, that's where the economy is going," said economist and money manager A. Gary Shilling.

Consumer borrowing and spending during the final half of last year sparked strong GDP growth and led the inflation-wary central bank to apply the brakes by raising rates more than the financial markets had expected.

GDP growth nearly ground to a halt in the second quarter this year, and the Fed lowered rates a notch in July. Recently, however, the economy has appeared to quicken again, with the usual help from consumers.

"The consumer is never really quite tapped out in our economy," said Allen Sinai, chief global economist for Lehman Brothers, New York. "Trendwise, consumer spending rises about 2.5% a year after inflation."

Mr. Sinai said his analytical yardstick of how healthy U.S. consumer balance sheets are shows they "have deteriorated somewhat from a year ago but are in far better shape than they were five years ago."

Lehman Brothers' index of consumer financial positions rose to an estimated 209.9 in the first quarter, up from 205.6 at the end of 1994 and up from its cyclical low level of 181.4 at the end of 1993.

The weighted index is composed of eight debt and debt-related variables. High levels of the index indicate high levels of consumer financial stress and predict lower consumer spending than otherwise would occur.

Since the low in the fourth quarter of 1993, the index has risen only slowly, Mr. Sinai said, surrendering less than a third of the improvement seen in consumer balance sheets since the fourth quarter of 1990.

"The one thing that sticks out like a sore thumb is consumer installment debt," the economist said. It has risen from 16% of disposable income in May 1993 to 18% in February 1995.

But Mr. Sinai thinks a sizable chunk of this growth may be due to the trend toward using credit and charge cards as a means of settling transactions previously handled by cash or checks.

Still, some other economists are wary.

"I divide consumers into 'debt haves' and 'debt have-nots,'" said Sung Won Sohn, chief economist at Norwest Bank, Minneapolis.

Much of the recent addition to consumer debt was incurred by the debt haves, consumers who generally are already carrying a significant amount of debt, including credit card debt.

On top of a softening job market, he said, consumers are getting a double whammy of rising interest payments on installment debt and rising taxes as a share of take-home pay. "This limits the consumers' ability to spend, thus limiting economic growth."

Not that the Norwest economist expects a recession to begin soon. He and Mr. Braverman both anticipate subpar growth by the economy will prompt the Fed to begin cutting interest rates again later this year.

Indeed, Mr. Braverman thinks the Fed will have to keep slicing rates through next year to keep the slow-chugging economy from sputtering into recession.

The DKB economist thinks a recession is possible next year, a presidential election year, "which would make life miserable for both the Fed and the politicians."

Mr. Shilling, who is based in Springfield, N.J., also sees a good chance of a recession, perhaps a deep one, beginning at the end of this year.

"Consumers are cautious because of the lack of job openings resulting from ongoing corporate restructuring, defense cuts, and the delayed effects of earlier Fed tightening," he said.

"Given their high levels of debt," he noted, "they seem likely to curtail outlays enough to precipitate the usual chain of recessionary events."

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