Skittish Consumer Is Economy's Biggest Concern

The spendthrift American helped keep the U.S. economy out of a recession. But with the nation preparing itself for a protracted battle against terrorism, already-skittish consumers might become the economy's biggest problem.

It used to be that tax rebates, easing by the Federal Reserve and low inflation basically assured consumer resilience. But with the shock of the Sept. 11 attacks, uncertainty involved with fighting an underground enemy, the possibility of more layoffs, experts say, consumption is in danger.

In a report issued Monday, Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter, revised his forecast for the American consumer, citing last Tuesday's terrorist attacks on U.S. soil. "Prior to those tragic events, I thought consumer spending growth was bottoming," Berner wrote. "Now, however, I believe the shocks from the recent terrorist attacks will tip the balance in the other direction. Consumer spending likely will weaken through year-end." Berner said he hasn't "officially updated" his forecast for gross domestic product as it's "premature to do that."

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