Mixed Symptoms

At his first presidential press con ference last week, Richard Nixon placed the nation's economic problems on his list of matters that "require urgent attention." Promising "some fine tuning of our fiscal and monetary affairs to control inflation," the President expressed considerable concern over the rate at which prices are rising. "We believe it is possible to control inflation without in creasing unemployment in any substantial way," said Nixon. But he warned:

"Unless we do control inflation, we will be confronted eventually with massive unemployment, because the history of economic affairs in this and other countries indicates that if inflation is allowed to get out of hand, eventually there has to be a bust."

Inflationary Strains. The U.S. economy is indeed moving much too fast for its own good, and three Washington reports last week reflected the resulting strains. They showed the fastest price escalation since 1951, the lowest export surplus since the Depression and the highest interest rate on a Government security since the Civil War. The Labor Department reported that in December, consumer prices rose to a point 4.7% above the same month in 1967. That was the sharpest year-to-year increase since prices rose by 5.8% in the first winter of the Korean War. For 1968 as a whole, the rise in the cost of living came out to 4.2%, the largest since the 8% increase of 1951 and far ahead of the 3.2% inflation of 1967. On the average, Americans paid $12.37 for the same goods and services that cost them $10 a decade ago.

They will pay more in future months.

The December rise, reflecting mainly higher cost of food, medical care and rent, amounted to only 0.2% over the November level--one of the lowest in creases in 23 months of inflation. But rising wholesale costs of such items as metal and lumber will continue to ripple through the economy in higher price tags on consumer items.

The meager 1968 trade surplus, only $726 million last year compared with $7.8 billion as recently as 1964, is an other painful result of inflation. Although the total volume of U.S. exports actually rose, climbing domestic price levels attracted a torrent of imports. If some $2.5 billion of U.S. exports paid for by Government aid are excluded, the nation actually suffered a trade deficit last year.

The soaring cost of borrowing, which hit consumers two weeks ago when the interest rate on FHA and VA mortgages jumped from 61% to a record 71%, forced the Government itself to pay a stiff price for money. To refinance some $14 billion of federal debt, the Treasury had to offer 61% interest on 15-month notes and 61% interest on seven-year notes, the highest rates on such gilt-edged securities since 1865.

Signs of Slowdown. Amid such continuing symptoms of inflation, there were a few signs that the economy could be starting to slow down. Many of its so-called "leading indicators"--statistics that point to future trends--have stopped rising. Normally, such change portends a general slackening in about six months. The Commerce Department reported last week that Americans, who had saved only 6.3% of their incomes in the free-spending third quarter of 1968, socked away 6.9% last quarter. The figures confirm what retailers have already noted: a drop in consumer buying. Now, as expected, the squeeze seems to be spreading to auto sales. Chrysler sales are down 12% from early last year, when strikes at Ford and General Motors gave the company an unusual advantage. To bring inventories in line with current sales, Chrysler will lay off 32,000 men for as long as two weeks and reduce its February output by 25% from its originally scheduled 140,000 cars. Ford has been curtailing production of its top-of-the-line Continental Mark IIIs and Thunderbirds.

Still, there is no sign that Detroit will have to retreat very much from its early predictions of sales of 9,300,000 cars this year. General Motors captured 55% of the market during the first 20 days of last month with sales of 204,083 cars, and last week Chairman James Roche disclaimed any intention of reducing G.M.'s output in the next few weeks.

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