The Consumer Holds Tight

THE ECONOMY The Consumer Holds Tight The odds are growing against a consumer buying spree, which President Nixon had hoped would spur the nation's dawdling economy. Despite some tantalizing flashes of free-spending ebullience, the public's mood remains generally cautious, its purchasing habits basically frugal and its saving instinct surprisingly strong.

Mirroring the consumer's caution, businessmen are also keeping a tight rein on expenditures. "The projection for plant and equipment spending for the year has even been revised downward," says Economist Edward Boss of Chicago's Continental Illinois National Bank and Trust. "That is unusual for a recovery period." Spending for inventories is also sparing. Total business inventories in May rose about $630 million, roughly the same as in April. The cost of borrowing is rising; last week the Federal Reserve Board lifted its discount rate to banks by 1% to 5%. Many forecasters now believe that a general spending resurgence is unlikely before 1972 unless the inhibiting threats of inflation and high unemployment are reduced more rapidly.

Plans Down, Savings Up. In a study of consumer purchasing plans released last week, The Conference Board, a top economic research group, found that the public's buying intentions declined during May and June after rising sharply earlier this year. Of the 10,000 families that were surveyed, only 7.8% reported that they plan to buy a car within the next six months v. 8.8% in a March-April study. Plans to buy refrigerators, TV sets, washing machines and air conditioners also diminished. Says Board Economist Fabian Linden: "Everybody is waiting for the consumer to spend the economy back into high gear, but the consumer appears to be waiting for the economy to turn around first."

Consumers have been saving much more than anyone suspected. During the year's second quarter they put 8.4% of their disposable income into personal savings, the highest rate in 20 years. In St. Louis, the six major banks increased their savings deposits in this year's first half by $41 million v. $9,000,000 in the same period last year. Reports Vice President Howard Starks of Atlanta's Citizens and Southern National Bank: "People are not withdrawing their savings, and there are no indications that they are about to."

Buying Change. Business is up at some department stores, but overall retail sales are averaging only about 5% above last year's disappointing levels. Since prices have inflated about 5% in the past year, the actual volume of goods sold is about the same as in 1970. Says Harold Brockey, president of Rich's department store in Atlanta: "We look for no real upturn until 1972."

The mood of many consumers is echoed by Los Angeles Housewife Evelyn Banks: "You never know what else this Administration will bring, so you are just scared to get into debt."

Meanwhile, everybody is looking for a bargain. Moderately priced clothing, much of it imported from Taiwan or Spain, has become a major source of sales, particularly in wash-and-wear materials, which eliminate soaring costs of professional laundering and dry cleaning. "But," says Doug Middlebrook, a salesman at Mr. Guy, a Beverly Hills men's shop, "these days customers always ask the price before deciding to buy."

Evidence is growing that there is a basic switch in American buying habits, motivated by more than the wish to cut costs. Goods are rarely bought for status these days, but rather to express the lifestyle of the buyer. Whether fundamental or temporary, the new buying patterns are having important consequences: AUTOS. Though car sales got off to a fast start, and U.S. automakers still predict a record volume of 10 million sales this year, new-car sales in the first ten days of July dropped 12% below last year's level to the lowest rate in a decade. Americans are saving money and rejecting ostentation, buying more and more small cars. Imported cars, mostly small, took 16% of the domestic market in this year's first six months, up from 13.5% in the equivalent period last year. All together, sales of U.S. and foreign small and compact cars account for 35% of the U.S. auto business. HOUSES. Housing starts this year are running at 1,900,000 units, way up from last year, but people are buying much cheaper and smaller homes. Fewer houses are being built with full basements, garages and central air conditioning. Despite a 6.5% rise in building costs this year, the average price of a new house has risen only 1% to $25,300. Unless the trend turns around, builders will have to sell more and more cheap houses just to maintain their previous revenue levels.

DO IT YOURSELF. The need to conserve cash is playing a big part in the recent phenomenal sales growth of do-it-yourself items, from motorized grass mowers to leatherworking kits. More people are growing some of their own food. W. Atlee Burpee Co. reports that its vegetable seed sales are up 20% so far this year. Sales of home sewing materials are at record levels. Significantly, the number of teen-agers who have taken up sewing has increased by 90% in the past two years. The patterns that they most prefer are for leisure wear, especially hot pants.

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