Economists agree that consumers hold the keys to the economy. They do not agree on what consumers are likely to do next.
Some think high debt levels and a weak job market will cause consumer spending to slide after the tax refund season ends this month. That would put a lid on the economy, inflation, and interest rates.
Durable goods was the strongest area of first-quarter consumer spending, up 7%. That is consistent with taypayers' using refunds to buy or put down payments on big-ticket items, pointed out economist A. Gary Shilling.
Such refund-financed spending is a one-time event and will be missing in the second half of the year since consumers have little additional spending capacity, according to Mr. Shilling, who heads his own economic consulting and investment advisory firm in Springfield, N.J.
Others disagree.
"Consumer spending is unlikely to slump when the refund season ends," according to William Dudley and other economists at Goldman, Sachs & Co., New York. "Refunds have only a mild effect on the timing of spending decisions but no discernible impact on the total."
They also disputed the notion that consumers are financially tapped out.
"Consumer debt burdens are exaggerated because they fail to take adequate account of the huge gains in household assets and net worth over the past year," they said.
Not surprisingly, Mr. Shilling and his associates and the Goldman Sachs economists belong to different schools of thought about where the economy is headed in the coming year.
"Going forward, our belief is that, because of consumer overextension, the economy will be able to crank out only slow growth," Mr. Shilling said. "If we are wrong, however, rapid growth will be quickly knocked on the head by the very inflation-averse Federal Reserve."
Mr. Dudley and the others at Goldman Sachs said they expect economic growth to remain strong in the second half - and perhaps even gain momentum, sustained by "excellent" consumer fundamentals and rising inventory investment.
Indeed, they think the economy will be strong enough to provoke the Fed into raising interest rates by late summer.
