Signs of Cheer for Christmas

THE Administration's economic policies are headed for a critical test this week: the start of the Christmas shopping season. Besides their importance to retailers and manufacturers, holiday sales are a sensitive gauge of the public's mood. The pace of production and employment for months to come could well be determined by how many shoppers pick up that extra gift or two. All the experts have been carefully waiting for the tightfisted U.S. consumer to start spending again and thus lead the economy to the "great year" that Richard Nixon has promised for 1972.

The prospects are relatively bright. Says J.C. Penney's President C.L. Wright: "We think that Christmas sales will be pretty darn good. Not a boom, but better than last year." Ralph Lazarus, chairman of the Federated Department Stores chain, sees a sales increase in the fourth quarter of 12% over last year or, excluding price increases, a real growth of 91%. Otto Eckstein, a member of TIME'S Board of Economists, also estimates that the real growth in retail sales for Christmas will be about 9%. Including inflation, a First National Bank of Chicago study reports that sales for Christmas and the first half of 1972 will climb by as much as 12% in chain stores and by up to 20% in discount houses.

Sales are already quickening. Department-store volume jumped during October and early November by 14% over the same period last year. Buying has been brisk on the West Coast, the Northeast and in the South, but rather spotty in the Midwest. Partly as a result of the housing boom, which lifted sales of higher-priced, higher-profit items like appliances and home furnishings, durable goods sales are up a hefty 31% from November of last year. Clothing sales are also strong because the old mini-midi-maxi battle is over, opening the way for more apparel sales to women. More important, because double knits and other new fashions are catching on, men have been buying more clothes this fall than last.

Saving Less. Fully half of the rise in total retail sales is due to record buying of cars. This year more than 10.1 million U.S. and foreign cars will be sold, up 16% from strike-stalled 1970. Ford and Chrysler officers predict that next year will be equally strong.

At long last Americans are putting less into their savings accounts. The savings rate dropped from 8.2% in the second quarter to 7.7% in the third quarter. The decline was partly due to a slowdown in the growth of personal income caused by the wage freeze. People did not get their expected raises, but they continued to spend at least as much as before, and so saved less.

Beyond that, consumer confidence is growing. Albert Sindlinger, a top market researcher, surveys 2,300 families a week around the nation, asking them to forecast whether their own incomes as well as the local job situation and business conditions will be higher or lower six months hence. His "forecast index" of consumer confidence rose from this year's low of 117.4 in July to 128.5 in mid-November, the highest since late 1969. Because the upturn began in early September and it takes at least three months before the consumer mood is translated into purchases, Sindlinger figures that a substantial rise in spending should start this month. The first signal that consumers have finally shed their fears for the future, he says, will come when the stock market picks up, which he expects around mid-December. After plunging for weeks, the Dow Jones industrial average jumped 18 points, to 817 last Friday. Though news of a possible settlement on the world monetary scene helped, the chief cause was technical: a drop in selling volume.

Unlike consumers, businessmen are buying cautiously. They added only a paper-thin $300 million to their inventories in the third quarter. Economists reckon that inventories are as low as they can go, are bound to rise, and will thus be a propellent force in the months ahead. So, too, may be capital spending. Businessmen hardly increased their outlays for plant and equipment this year. But McGraw-Hill projects a 7% increase for next year, and the research economists at Lionel D. Edie Co. forecast a 9% gain. In past economic recoveries, these capital forecasts have been on the low side, and businessmen have roughly doubled their predicted outlays as signs of economic revival become more visible. If consumers buy as much as expected, businessmen's spending--which so far has been a lagging indicator in this recovery --may really open up.

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