While gloom has settled over the stock market and much of the world seems headed into a deep recession, the American consumer remains a picture of positive thinking. If shoppers are worried about economic threats at home or abroad, they're not showing it.

This is welcome news for an economy that depends on consumer spending for about two-thirds of its output. The outlook for exports may be dismal, but recent surveys show that Americans still have a sunny view of their own financial health. Consumer confidence is near a 10-year high.

But it was even higher earlier this year, according to surveys by the Conference Board, which tracks consumer confidence.

The stock market slump, the Clinton scandal, a new wave of terrorism and currency crises abroad all appear to be taking their toll. And as confidence goes, so goes consumer spending especially on big-ticket durables like cars and luxury items. When does the news get so bad that shoppers start worrying and stop shopping?

Economists who track Southern California business activity say the region hasn't reached that point, at least not yet. But they aren't so sanguine about what lies ahead.

In its latest report, for example, UCLA's Anderson Forecast expects a "mild downturn" that could affect consumer spending.

Tom Lieser, executive director of the forecast group, noted that the Conference Board's Pacific Region Consumer Confidence index, seasonally adjusted by UCLA researchers, "was down quite a bit" in the past four months from 139.4 in April to 131.6 last month.

The index measures consumer confidence against a baseline of 100 set in 1985. The 10-year high was 146 in October 1989.

Lieser noted that the Expectations Index, which provides a window into future economic activity, slipped even more than the confidence index in August.

"That may indicate we're in for some weakening," he said.

Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles, keeps track of consumer sentiment by going to a mall every weekend.

"Consumers still seem to be happy," he said. But he added, "This is something you have to watch constantly; it can turn on a dime."

The latest projection from the EDC, done in July, shows a 4.1 percent hike in taxable retail sales this year for Los Angeles County.

"We were a little more cautious about 1999," he said, forecasting a 3.5 percent increase for that year. And his optimism has been waning.

"If I went back and did (the forecast) today," he said, "I would be even more cautious."

The older the forecast, it seems, the rosier the view. A Los Angeles County employment outlook issued in May by California State University, Long Beach, showed retail sales rising by 4.8 percent this year and 7 percent in 1999. Joseph Magaddino, chair of the Economics Department at Long Beach, said those projections were based on job data from the first quarter of the year.

A new report, with data current to the third quarter, will come out in November. "You have so many uncertainties out there," he said, from presidential scandals to the threat of a dock workers strike at the end of June. Then there's "the usual suspect, Asia."

The financial troubles in Japan and East Asia haven't made much impact yet on consumers' attitudes or pocketbooks. But California, with its Transpacific business ties, is more vulnerable than most other U.S. regions to a weakening of Asian demand for its products.

Stuart Gabriel, a professor of finance and business economics at the University of Southern California, says the L.A. area's exposure to the effect of an Asian downturn is about twice that of the country as a whole. When Federal Reserve Chairman Alan Greenspan "talks about storm clouds forming across the Pacific and moving in our direction," he said, "they're going to dump on Southern California."

Gabriel says structural problems in Japan and other Asian economies will take a long time to work out. "The financial crises have eased," he said, "but the consequences of the crises, in the form of recession, are just beginning."

Magaddino is concerned about Asia, too especially Japan, which makes up 20 percent of the world's output.

"If there's continued deterioration in Japan," he said, "that is not good news for Southern California."

But Magaddino doesn't expect any big effect on employment in the Los Angeles area. Consumer spending slows when jobs get scarce and workers start to fear layoffs. But Magaddino says local businesses will first try to absorb their Asian losses out of their profits before laying off workers.

If business owners believe the overseas troubles might end soon, they don't want to be short of skilled workers when demand turns up again. He also said that, based on anecdotal evidence, some Southern California companies can prop up profits by shifting sales from Asia to Latin America. But the longer the Asian slump drags on, he said, the more likely it is that job growth will slow.

Loss of income from a layoff or, in milder cases, from the expected raise or bonus that didn't materialize is one cause of lower consumer spending. Gabriel lists two others: a loss in non-liquidated wealth, such as stocks or home equity, and the shock of some unforeseen event that creates economic or political uncertainty, like the Iraqi invasion of Kuwait in 1990.

Surprises like the latter are, by definition, impossible to forecast. But it's easy to see what will happen after a sharp drop in the stock market: A lot of people will feel poorer and less eager to shop.

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