THAT SINKING FEELING

By JOHN GREENWALD BERNARD BAUMOHL AND JANE VAN TASSEL/NEW YORK

RUTH STAFFORD HAD BIG PLANS THIS year for Kiva Container Corp., a fast-growing maker of corrugated packing boxes whose sales jumped 15% in 1994. But when business began to stall in recent weeks, Stafford had to think again. She put off spending $500,000 on new equipment and adding nine workers to her payroll of 60. "Our customers are reluctant to buy boxes because they are beginning to see their own orders slow,'' says Stafford, president of the Phoenix, Arizona, company. "And that's a big change from what we had been seeing.''

It's a signal as well that the U.S. economy may be starting to slacken after one of its most vigorous years in a decade. Packaging may be unglamorous, but it's a business many economists track as a harbinger of the future. When companies see unsold tables, toys and toasters piling up on their shelves, one of the first things they do is quietly cancel orders for packaging material. But the accelerating pace of such cutbacks in January could not be reflected in the backward-looking data released so far this year, including last week's report that the economy expanded at a brisk 4.5% clip in the fourth quarter of 1994.

Even Alan Greenspan, the inflation-stalking chairman of the Federal Reserve Board, concedes that the six interest-rate hikes he engineered last year have been exacting a price on the economy. "It's clear that the very torrid rate of increase in economic growth which we experienced through the latter part of 1994 is starting to slow down,'' Greenspan told Congress last week. But he left little doubt that the nation's 5.4% unemployment rate, among other signs of continuing strength, was putting pressure on him to raise interest rates further-probably as early as this week. Greenspan's goal: to pull back economic growth to a more modest 2.5% pace and thereby forestall inflation.

Such attempts at fine-tuning worry many economists, who fear the Fed may ignore weakening conditions and spoil the four-year-old recovery. "We are right now at the inflection point in the economy," says William Spears, managing director of Spears, Benzak, Salomon & Farrell, a New York City investment firm. "Most of the growth in this business cycle is behind us. Fed policy will have an important bearing on how the economy pans out the rest of the year." Concurs Robert Brusca, chief economist for Nikko Securities: "It looks, smells and tastes like a slowdown. Common sense should reinforce this view."

Much evidence comes from big-ticket items like autos and housing, among the first to be clobbered by rising interest rates. The past three years were heady ones for Detroit, which saw car and truck sales climb 8% in 1993 and an additional 8.6% in 1994. But with sales expected to grow just 3% this year, automakers are scaling back production schedules and idling plants. Ford, which had declared three temporary closings in January, said it would also shut a Canadian plant that makes full-size Crown Victorias for a week beginning Monday, and close a Ford Thunderbird and Mercury Cougar facility in Ohio for two weeks.

Home sellers too have begun to notice a disturbing trend. While contractors built 1.45 million new houses in 1994, making it the busiest period in six years, they are finding their most recent units hard to fill. According to the National Association of Home Builders, only 7.2% of its members reported a high volume of looker traffic in January, compared with 35.7% in January 1994-when severe winter weather in the Midwest and Northeast kept many prospects out of the market. "We are beginning to see a pretty sizable buildup in the inventory of unsold new homes,'' worries David Seiders, chief economist of the builders group.

Growing inventories have plagued retailers too since they stocked up in anticipation of a strong Christmas season. December sales fell 0.1% from the level of November, even though stores slashed prices to lure shoppers. "The most impressive evidence of a slowdown in the economy is the weakness in retail sales," says Lacy Hunt, chief economist for HSBC Securities. "Retailers are terribly overstocked despite the massive discounting." That is partly because rising interest rates have been making it more costly for already overburdened consumers to borrow and spend. Americans took out a hefty $120 billion in new loans last year, increasing consumer debt to a record $891 billion. Much of that buildup came from low- and middle-income borrowers, whose earnings have shown little or no growth after adjusting for inflation.

Such concerns have helped darken the outlook for executives like Stafford. Instead of the strong earnings she once expected, Stafford looks for profits at her company to be "stagnant or slightly down this year.'' Meanwhile, she is keeping her expansion plans on hold for at least six to nine months. She may know by then whether Greenspan has indeed trimmed growth by the amount he intended-or sent the recovery packing.

-By Bernard Baumohl and Jane Van Tassel/New York