CONSUMER SPENDING UNCERTAIN IN FACE OF JOB CUTS

HACKENSACK, N.J. -- Dinesh Gandhi's finances are summed up in thefinal two words of a form letter he received this week from NewJersey's unemployment insurance office: "Benefits Exhausted."

Gandhi, 58, had to leave his job as a state surveyor in March forhealth reasons. His wife lost her assembly-line job at a batteryfactory when it closed in May. The Elmwood Park, N.J., family ismaking do on the salary of Gandhi's son, an engineer.

"If we have less money, how can we afford to spend on what wewant?" asked Gandhi, whose family has eliminated restaurant meals,clothing purchases and other discretionary spending to maintain itsbudget.

With U.S. employers continuing to cut jobs, Gandhi's question isthe same one facing many consumers, the sector seen as the primaryengine for powering the nation's economy out of its current funk.

On Wednesday, the day Gandhi got his letter, American Expressannounced it would cut 5,000 jobs; manufacturing company TextronInc. 1,600; supermarket chain Albertson's Inc. up to 1,600; andinsurer Safeco Corp. 1,200.

The unemployment rate rose from 3.9 percent in October to 4.5percent in June. But so far consumer spending, which accounts fortwo-thirds of the economy, has held up.

Even so, some observers among them Federal Reserve chairman AlanGreenspan worry that the drumbeat of layoff announcements threatensconsumer optimism.

"While most survey measures suggest consumer sentiment hasstabilized recently, softer job markets could induce a furtherdeterioration in confidence and spending intentions," Greenspan saidWednesday in testimony before Congress.

Much of the evidence so far is to the contrary.

Low interest rates have persuaded more consumers to buy homes,usually a sign of deep-rooted optimism. Sales of new homes in Maywere 1 percent higher than in April and 9 percent higher than May2000. Sales of existing homes rose 2.9 percent in May.

U.S. auto sales in June fell 4 percent from the same month lastyear, but are still strong enough to the put the industry on trackfor its third-best year ever.

The Consumer Confidence Index has rebounded for two consecutivemonths, showing that while many Americans are wary of currentcircumstances, they believe rosier economic days are ahead.

Consumers have curbed their spending at many retailers,particularly department stores and apparel chains.

"Clothing is my big problem. I've always been a fashion freak,but I'm trying to cut back on clothing. I am," said Debra Dosch, aNew Yorker who lost her job as a design coordinator in recentcutbacks at Calvin Klein.

But many analysts are doubtful layoff announcements will shakeconsumers enough to derail an economic recovery.

"Consumer confidence has held up remarkably well given the surgeof layoffs, and that may have to do with the fact that consumershave gotten used to layoff announcements," said Mark Vitner,economist for First Union Corp. in Charlotte, N.C.

Many of those announcements are just now taking effect, puttingconfidence and the spending it engenders at risk in coming months.But tax-cut checks that will begin arriving in the mail this monthand falling gas prices should bolster consumers and give them moremoney to spend at just the right time, Vitner said.

Layoffs have had only a limited impact on spending because manyof the job cuts have been concentrated in a few sectors, liketechnology and autos, said Joel Naroff of Naroff Economic Advisorsin Holland, Pa.

Some recent announcements have hinted of a broadening to otherindustries. But Naroff says he doesn't expect the cuts to spread. Aslong as they remain concentrated and many people find new jobseasily, consumers should give the economy the push it needs toimprove, he said.

His outlook finds support with Catherine Stellin, who lost herjob as a sales executive with Internet consultant Scient Corp. inMay. She's trimmed her spending on everyday expenses, but stillplans a trip to Italy, because the job market seems full ofopportunities.

"I can't hold up the economy on my own, but I'm still trying,"Stellin said. "I'm just not wasting money like I was before."

But some analysts say layoffs could start weighing on moreconsumers, many of whom have already reached their spending limits.

"I don't think consumers are in any position to turn thingsaround," said Carl Steidtmann, chief economist atPriceWaterhouseCoopers LLC. "Companies are going to continue torationalize their businesses to get back to profitability, and thatmeans more job cuts. It really knocks sort of the last leg out fromunder (consumers)."

Consumers have little in the way of savings and are submerged indebt. By spending so enthusiastically, they've already done aboutall the economy could ask of them and are likely to curb theirspending in coming months, Steidtmann said.

For the economy to recover, businesses must regain the strengthto begin spending again, and the best that can be expected fromconsumers is that they maintain their spending long enough for thatto happen, he said.

At the Gandhi home, most of the income including an expected$900 in federal tax rebates will go toward paying off bills andcovering medical insurance premiums, not the kind of expendituresthat pump the air back into the economy.

But Dinesh Gandhi retains the optimism that many economists saywill be necessary to give a recovery time to bud.

"This little money will help us," he said of the tax checks. "I'mthinking I'll get something. I don't believe in pessimism."