Alan Greenspan, the President and Congress may all have a hand in setting economic policy, but it's the consumer who truly controls the action. When shoppers hesitate, the economy chokes.
So the recent downturn in consumer confidence, which has been the fodder of talk shows and magazine covers, is understandably worrying L.A.-area businesspeople who had grown accustomed to a free-spending populace the past few years.
Last week, the New York-based Conference Board's consumer index showed an unexpected upward blip, but one month does not a trend make. So what are L.A. businesses doing to convince shoppers who account for two-thirds of all economic activity not to put on the brakes too hard?
They are doing what businesses have done for generations: Cutting deals, cutting costs and adapting.
At the Jim Falk Lexus auto dealership in Beverly Hills, general sales manager Art Wedmore Jr. can now cozy up to prospective buyers and tout a $399 payment on a new IS300 sedan. He's hoping the lower monthly bill will entice otherwise wary would-be car buyers.
"Even though we haven't suffered a serious decline on our sales, we are gearing up for a slowdown in the luxury car market," he says.
The $34,000 IS300 sedan is a favorite of the 30-something crowd. Wedmore speculates that the Nasdaq meltdown is the culprit behind lower sales.
"The reason for slow sales is that we sell a number of these cars to customers between the ages of 35 and 40, who may have been affected by the stock market," he says.
Other car dealers agree. Sales are off 10 percent at Alhambra Mazda, and general sales manager Jack Chen says the erosion started "since the markets began their decline last year."
Other salespeople find themselves hustling harder to keep the deal-flow thick.
Jeff Morgan, an industrial broker with CB Richard Ellis Inc., experienced a "flood" of Wall Street money last year, which kept even the industrial sector hopping, as buyers and lessees were flush with loot. This year marks a "return to more rational growth," he says. As a result, he has returned to such practices as cold calling, renewing client contacts and personally dropping in on potential and past clients to possibly snag business.Bond sales
Mark Tabit, branch manager for Prudential Securities in Century City, is brokering a lot more bond sales, rather than stocks, reflecting new investor skittishness.
"We have done more in bond sales in the last three or four months than in the last three or four years," Tabit said.
The recent economic bad news has been especially troubling to consumers because they had been softened by nothing but boom times for nearly a decade, says Stan Plog, a veteran market survey expert and chairman of Granada Hills-based BTLogic, a business research shop. "People are now so sensitive to the market. It was an eight- or nine-year cycle (bull market and economic expansion), so many of these people have never experienced a downturn," he said.
And with half of Americans now playing Wall Street up from 10 percent in the 1960s the stock market is the new big boy on the consumer confidence block, he pointed out.
Consumer confidence can become a self-fulfilling prophesy.
"We can talk ourselves into these things (recessions)," said David Hannah, chief executive of Reliance Steel & Aluminum Inc. in Los Angeles, a major distributor and finisher of metal products. "There is all this negative press, and then negative discussions. Then, when the (stock) market goes down, people do not feel as wealthy and they do stop buying."
While Hannah's business is one step removed from the consumer he sells to manufacturers and construction firms he watches consumer confidence for its telling effect on sales in future seasons.
"The big-ticket items do use metal automobiles, buildings, washing machines. Metal demand goes down when people stop spending."
When sales slow, employers lay off workers. When workers lose wages, they spend less. A downward spiral ensues, as Southern California witnessed in excruciating detail in the early 1990s.The University of Michigan's survey of consumer sentiment has recently exhibited a sharp collapse that accelerated at the start of 2001, reaching a five-year low in February. The index is off nearly 20 percent since last May.
But not all business leaders concede that there is a real slowdown in the works. Some assert that there is only a cooling off from what was the strongest economy in memory.
David Rosenthal, author of a weekly commentary on the economy and co-founder of the West Los Angeles-based Curtis-Rosenthal Inc. real estate appraisal service, said that most L.A.-area real estate markets are in good shape.
"This time around, there is not a lot of overbuilding, like there was in the late 1980s," said Rosenthal. Back then, many loans on real estate went sour, hurting lenders and owners. Any downturn in real estate during this cycle, said Rosenthal, is likely to be brief.Negative press
Many business leaders, including Plog, Hannah and Rosenthal, cite negative business press as a contributor to lowered consumer confidence, and thus the possibility of a recession.
"The unemployment rate is still low (below 5 percent in Los Angeles County), and consumers are still spending, and real estate is solid why doesn't the media make more of those facts?" asks Rosenthal.
Many leaders also gently chide President George W. Bush for too often indulging in recession talk.
Benjamin Mark Cole is a contributing reporter. Chris Sieroty is a staff reporter.
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