Growing Appetite

In four important areas, new statistics gave further evidence last week that the U.S. economy is turning upward:

P: Retail sales, becalmed since last September, rose briskly during June at a dozen major chains. Sears, Roebuck and J. C. Penney both announced an 8% sales gain for the month, while Interstate Department Stores, with 107 outlets in 83 cities, experienced a 14% rise in volume. The increases spread across many fields. Sales of the Grand Union grocery chain rose 9%, those of the Walgreen drug chain 15%, those of the S. S. Kresge variety chain 31.5%.

P: Appliance sales, after months in the doldrums, perked up. Many dealers reported sales 10% to 20% above levels of a year ago despite higher price tags (General Electric increased prices on most of its line by 3% in mid-May).

P: New auto sales, which gained in May over a year ago, had another advance last month to a point 4.2% above their June 1966 mark. The welcome rebound left the industry only 9.2% behind its record 1966 sales pace during the first half of this year, even with the disastrous first quarter, when new-car purchases slumped more than 20%. The acceleration caught Detroit by surprise, with production schedules throttled down. The resulting drain on stocks in the hands of dealers here and there created shortages of such popular models as Chevrolet Camaros, Mercury Cougars and Plymouth Furys.

P:Factory orders advanced by a sharp 4.1% in May in what the Commerce Department called "the first significant improvement since the first of the year." The more cautious--or pessimistic--analysts feel that these forces may do no more than offset such drags on the economy as declining plant-and-equipment spending and inventory liquidation. They figure that the economy has lost too much momentum to rebound strongly any time soon. Many other economists consider that the consumers' renewed appetite could turn things around quite quickly. So far this year, consumers have been paying off old bills and pouring their spare cash into savings at a record rate. One evidence: last week's Federal Reserve Board report that consumer installment credit rose only $193 million in May, the smallest increase in five years. But that could swiftly be changed by the kind of spending reported in recent weeks, which could send ripples across the entire economy--especially in heavy industries that have substantial idle capacity.

Steel production, for example, sank to 62 million tons in the first six months of this year, for its lowest first half since 1964--in great part because of dwindling orders from the auto industry, steel's biggest customer. But an upturn in Detroit's August orders for 1968 auto models has brightened steelmakers' outlook. U.S. Steel Corp.'s new president, Edwin H. Gott, last week predicted a normal steel output during the July-September quarter, followed by "material improvement" in the final quarter of this year.

Though steel men consider rising imports (which reached a record 11% of the U.S. market last year) a serious threat requiring higher tariffs, they remain vigorously bullish about their longterm future. Gott expects a 40% increase in demand for steel products within ten years. Other steel executives foresee rapid technological advances helping to restore profits and recapture lost markets. Second-ranking Bethlehem Steel Corp., for one, has just announced plans to install its first continuous-casting unit in Johnstown, Pa., at a cost of $13 million. Last week fourth-ranking Armco Steel took options on 1,500 acres near Houston for a major expansion.

In many segments of the economy, from steel to retailing, rising demand could well contribute to rising inflation. Soaring costs have cut profit margins sharply this year, and despite higher revenues the prospect is that total corporate profits will go up little, if at all. Thus even a modest jump in orders is likely to trigger price increases to offset the profit squeeze.

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