Slowdown and the Consumer

With a certain note of cheer that the Administration's deflationary policy is finally working, Commerce Department officials reported last week that the economy's growth ground to a halt in the last three months of 1969. The gross national product increased by $10.3 billion in that period but, after price increases were taken into account, there was no "real" growth. Other signs of slowdown were plentiful. In December, industrial production declined for the fifth straight month, and new housing starts dropped slightly to an annual rate of 1,245,000, which was the year's lowest point. At the same time, personal income made its smallest gain of the year. Just when all this will really bring inflation under control remains to be seen. Last week Bethlehem Steel, for example, posted 5% price increases for some of its products.

One big reason for the economy's slowdown is that U.S. consumers are beginning to strike back at inflation with their ultimate weapon: refusal to buy. U.S.-made cars are what consumers are most conspicuously not buying. Last fall, automen gambled that they could raise prices an average of 6% and still keep sales high. They lost. Though sales of less expensive imports continue to rise, dealers have sold fewer U.S.-made cars for the past three months than a year earlier. Sales were off almost 10% in December and 22% in the first ten days of January. Detroit reduced production last month to 611,700 cars, the lowest output for any December since 1960, but the cutback was not enough to keep dealers from being overstocked. They have enough unsold cars to last 60 days at the current sales rate v. a 49-day supply only a month earlier. In an effort to revive sales, automakers are sponsoring unusually lavish contests for dealers. For example, the 500 Chevy dealers who sell the most cars in this year's first two months will win free trips to Europe with their wives.

The consumer resistance movement is hurting all kinds of retailers. Christmas business was disappointing, and in 1969 as a whole the actual unit volume of retail sales declined. Prospects are little better for the first half of 1970. The National Retail Merchants Association predicts that sales will rise about 4% to 5% from last year's first half, but selling prices will go up by about the same amount, so volume will show no real gain. Personal incomes will increase by $8 billion in this year's first six months as a result of the decrease in the surtax and the increase in Social Security benefits; Government officials are counting on this infusion of cash to help keep the business slowdown from turning into a recession. But U.S. consumers may be waiting for better values before really opening their wallets again.

Some Price Cuts. A few such values are beginning to appear. Sears, Roebuck did not raise prices on the great majority of the hundreds of thousands of items in the spring-summer catalogue that it is now mailing to 12 million customers; indeed, the company reduced prices by 5% to 10% on a few hundred items. Botany Industries cut suggested retail prices on two fall lines of men's suits, starting them at $100 and $150, compared with $115 and $165 last year. As yet, these scattered reductions represent only the beginning of a minor countertrend to inflation. Most department stores say they are not reducing prices by any unusual amount in their current January sales. There is some potential for further cuts because retailers who experimented with unusual sales before Christmas were both pleased and surprised by the results. Says Donald Buckingham of Los Angeles, president of the Robinson's department-store chain: "We found that the public responded more to price reductions than to any other form of promotion." Retailers may yet rediscover the oldest sales axiom of all: the way to increase business is to decrease prices.

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