Indianapolis Star and news services report
August 4, 2004

Employment in metropolitan Indianapolis slipped by 1,500 jobs in June as consumer spending nationwide dropped by the largest amount in any month since the terrorist attacks in September 2001.

Meanwhile, overall personal income -- which includes wages, salaries and income from dividends, interest, rents, self-employment and other sources -- rose by 0.2 percent in June, the slowest monthly increase in more than a year, the U.S. Commerce Department reported Tuesday. But personal income was flat after adjusting for inflation and taxes, the report showed. Wages and salaries fell after adjusting for inflation.

Economists figured spiking gasoline prices, rising interest rates and slower job growth set back spending on automobiles and other goods and services. Throughout the nation, June consumer spending declined 0.7 percent compared to a year earlier, the Commerce Department reported Tuesday.

"There is no reason to think that spending isn't (going) to come back in July," Cary Leahey, a Deutsche Bank Securities economist in New York, told Bloomberg News.

The 0.7 percent decline in spending was the first since September 2003 and the largest drop since September 2001.

The decline was led by a cutback in spending on automobiles and other big-ticket durable goods. Spending on durable goods declined by 5.9 percent in June, compared with a 3.7 percent rise in May. For nondurables such as food and clothes, spending dipped by 0.3 percent, following a 1.4 percent increase. Spending on services rose by 0.2 percent, down from a 0.3 percent increase.

"Maybe some households are putting some money in the cookie jar, seeing as over 80 percent of the general public see higher interest rates and hence higher monthly debt-servicing bills ahead," said Merrill Lynch chief economist David Rosenberg. "Perhaps concerns are intensifying over what seems to be a semipermanent high-energy-price environment."

Other economists said worries about job creation continue. Metro Indianapolis employment among retailers, hotels, restaurants and state government offices declined by about 4,400 jobs in June compared to a year earlier.

Even though the Indianapolis area had about 14,000 fewer jobs in June than January, according to Ball State University, economists say it is not clear the economy is headed for a recession.

"I don't know if we have enough facts in front of us to know if it's really softening," said economist Carol Rogers of Indiana University's Indiana Business Research Center in Indianapolis.

Established retailers have shed workers as business went to the expanding superstores such as Costco and Target, Rogers said, but that does not mean consumer spending is sharply falling in Indianapolis.

"Our business has been about the same," said Lasheryl Reed, assistant manager at Simply Fashions, a women's apparel store on Indianapolis' Northwestside where many customers now favor clothing for work rather than dressier styles. "They are dressing a little different," Reed said. "I say more business casual. It's not the sexy look."

Tuesday's report is consistent with a string of other economic data in June -- including the employment report, retail sales and industrial production -- that suggested the economy took a bit of a breather during that month.

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