Spending Less & Saving More

As far as merchants are concerned, one of George Washington's more productive accomplishments was being born on February 22. Daddies are home, mothers can shop, and the day has become an oasis on the wintry sales route from Christmas to Easter. As a result, Washington's Birthday sales have become an extravaganza of bargains, and shoppers last week lined up early outside many a store, waiting for a crack at 99-c- typewriters or $7 television sets. By day's end smiling storekeepers reported sales up as much as 20% over the same day last year.

The increase was a welcome relief not only for stores but for the economy as a whole. Retail sales have generally been running at their slowest pace in two years. The decline is sharpest in such durable-goods lines as autos, where production is at its lowest point since 1961. Detroit last week reported a 21.4% drop in auto sales for the second ten days of February. The decline has also been felt in such nondurables as clothing and household goods, which in the final quarter of 1966 showed their slowest sales gains in three years. Moreover, food purchases, which have been steadily growing at the rate of at least $1 billion a quarter in recent years, showed virtually no gain in the final three months of last year.

Uncertainty & Replenishment. One reason for such drop-offs is resentment about the rising cost of goods and services. Although the gross national product climbed last quarter by $14 billion, a third of the rise merely represented higher prices. Consumers spent an additional $5 billion on services in the last quarter, but two-thirds of that increase was the result of higher costs for the services performed. Other reasons for the drop in sales are uncertainty over Viet Nam, credit restrictions caused by last fall's tight-money crisis and, as far as autos are concerned, customer worries about safety. Last week the safety problem loomed anew for Detroit: Ford announced that it is recalling 217,000 Thunderbirds, Falcons, Fairlanes, Comets, Mustangs and Cougars because of possible flaws in their power brakes or power steering.

Perhaps the most significant factor is that the U.S. consumer, who had to dip into savings last year to cover increased costs and higher taxes, is now replenishing his bank account. Personal saving rose in the fourth quarter of 1966 to $30.4 billion, or 5.9% of disposable income, and is now running at an even higher rate of 7% . Last week, in an effort to attract some of these funds, President Johnson and Treasury Secretary Henry Fowler launched a campaign to sell "Freedom Shares." To be sold only to people who buy regular Government bonds, the new notes will mature in 4 1/2 years and pay 4.74% v. 4.15% and 7 years for a Series E bond.

Puzzling Parade. Consumer sales resistance puzzles economists because it represents a paradox. Employment and personal income are now at record peaks. Employment in January rose to 65,3 million people, and the unemployment rate is a microscopic 3.7%; meanwhile, income rose another $5.5 billion last month to a total of $607 billion. When these two indicators turn so bullish, consumers are in more of a mood to spend and the President's Council of Economic Advisers, for one, believes that they soon will. The council anticipates a rise of $8 billion to $10 billion in the G.N.P. this quarter, much of it triggered by renewed buying as the weather turns warmer.

Other economists, however, are not so optimistic. The Federal Reserve Board calls it "a strong possibility" that the G.N.P. will rise only about $6 billion, which would merely reflect an anticipated 3% increase in prices, and many private economists are convinced that the slowdown in consumer spending is the bellwether of recession. They point to other classic signals: new factory orders fell 5.1% in January to $22.7 billion, inventories have grown, and many industries are cutting work weeks. Executives, moreover, are trimming their budgets and capital-spending plans. The Commerce Department reported last week that businessmen have reduced anticipated capital spending by $2.3 billion from last fall's estimates and cut their budgets $330 million, mainly because they lost the 7% investment tax credit.

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