The Well-Heeled No-Show

Of all the broad economic indicators in which businessmen put store, few can jiggle their pulses more than the state of consumer spending. Because what the U.S. public buys accounts for two-thirds of all spending, the consumer has only to shell out an extra 3 1/2% to give the same boost to the economy as a 15% rise in business spending or a 21% increase in federal outlays. Last week it was disappointingly apparent that, in the general pageant of recovery, the consumer is still waiting in the wings, refusing to come onstage to make the show an unqualified hit. September retail sales, announced the Commerce Department, dropped one-quarter of 1% from the August level to $18,166,000,000 (see chart).

September Song. What made the no-show so disheartening was the hope of government and industry economists that September would bring the consumers into the act in a big way. Every economic fact about the consumer seemed to point to it: his income is up 4% over February's low, he is paying off old bills at such a rate that credit outstanding has dropped 2% from last December's high--and his savings accounts are bursting. Despite all this, says baffled Commerce Department Economist Louis Paradiso, retail sales "still reflect the same kind of sluggishness we have had all along, but now it seems to be hanging on too darned long. It's a puzzler."

To try to explain away their puzzlement, economists drag out a raft of possible reasons for the wayward consumer, including unseasonable September heat and storms, less aggressive selling by auto dealers fearful that Detroit strikes might leave them with no cars to deliver, and a 2% drop in August housing starts that meant less demand for heavy appliances. But a more basic explanation comes from University of Michigan Economist George Katona, whose Survey Research Center believes that the consumer has lost much of his confidence in the resiliency of U.S. business. "Not surprising," says Katona, "after two recessions [1958 and 1960-61] occurring in fairly rapid succession." Added to this is a fundamental shift of consumer spending from hard and soft goods to such services as travel, culture, health, beauty, insurance and brokerage fees--none of which show up on the businessman's ledger in the same solid way as the purchase of goods.

No Chronic III. Few economists believe that there is anything chronically wrong with retail sales. Katona says that his latest study finds consumer sentiment finally leaning toward the buy side, especially in autos and appliances, but he does not expect the buying trend to show up noticeably until November and December. Bolstering Katona's optimism were indications from builders of a September pickup in new home sales that will eventually filter down to appliance makers. Another bit of encouragement for the fall retail season: the strike at Ford Motor Co. seemed near an end as the company agreed on a three-year contract last week with the United Auto Workers, and at week's end pressure was mounting for dissident Ford locals to fall in line.

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