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Consumer Spending Expected To Slip Following Market Crash

October 28, 1987

NEW YORK (AP) _ Rolls-Royces are still selling, even an occasional crocodile-skin suitcase, but analysts say the stock market crash, which consumed $500 billion of wealth in a single day, could worsen an already sluggish year for consumer spending.

″The loss of wealth for many people will result in spending cuts,″ said Lawrence Chimerine, president of Wefa Group, a private economic forecasting service in Bala Cynwd, Pa.

The bad news was delivered early to some retailers.

″We’ve noticed a difference,″ said Mike Console, an employee at an Acura car dealership in Manhattan. The Acura is a luxury model manufactured by the Japanese automaker Honda.

Some customers who had already placed orders ″are going into a holding pattern,″ Console said.

However, Mercedes-Benz of North America has not seen any impact on its sales, company spokesman Fred Chapman said.

At Christie Brothers Corp., in Manhattan’s fur district, customer traffic has been down 10 percent since the market’s collapse, said Constantino Christie, the company’s president.

At Fred Joaillier, a jewelry firm on Rodeo Drive in Beverly Hills, Calif., customers are taking a wait-and-see approach on large purchases, but sales of smaller items haven’t suffered, employee Sergio Baril said.

And at the Thomas Cook Travel service in the World Trade Center, just a few blocks from Wall Street, vacation counselor Orly Jellinek said customers have made some cancellations they blamed on the market.

But many people don’t appear worried about committing large sums of money for luxuries. Rolls-Royce dealerships in Beverly Hills and New York reported business has been excellent over the past week.

At Bijon, a Beverly Hills clothing store, one man bought a suitcase covered in crocodile skin for $100,000 the day after the plunge, said store manager Manijeh Messa.

″He said the market was bad, but he was comfortable buying the suitcase,″ Messa said.

Less fortunate types, even those who don’t own stocks, may be less sanguine, Chimerine said.

″This has created a lot of fear in people,″ the economist said, adding that ″the average person, worried about their IRA or pension account″ will become more cautious.

Consumer confidence dipped only slightly following the market’s plunge, according to the Conference Board, a business research organization.

Its Consumer Confidence Index, compiled from a survey taken Oct. 22-25, fell to 110.4 from 116.9 during the first two weeks of the month. The latest period follows the stock market’s historic collapse on Oct. 19, when stocks lost more than $500 billion in value.

The prospect of Americans reducing their spending presents a major problem for the economy since consumer spending accounts for two-thirds of the gross national product, the broadest measure of the nation’s economic health.

Just the anticipation of lower spending could be dangerous, said Jeffrey Edelman, a retail industry analyst for the investment firm Drexel Burnham Lambert Inc.

″The real question is whether companies, manufacturers and retailers get scared to death and begin cutting back indiscriminately, which would force a slowdown in the economy,″ Edelman said.

A drop in spending would be bad news for the nation’s retailers, who, along with the government, have reported sluggish sales for much of the year. On Monday, the Commerce Department said spending fell a sharp 0.5 percent last month.

Whether a spending slowdown would carry over to the Christmas season - when retailers earn half their annual profits - depends on the economy, especially on employment trends, Edelman said. Consumers who are working are more inclined to spend.

Analyst Walter Loeb of Morgan Stanley & Co., while saying ″people may not be buying a fur coat,″ said he did not expect to see a major impact on consumer spending.

He noted that retail sales generally are slow in October and early November. And when the Christmas season arrives, he expects the consumer to spend ″because he’s a sentimentalist and because he’s working.″

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