Return to Caution

Using computer studies and other arcane gauges, most economists continue to forecast a strong business upturn this year. The consumer, however, measures his well-being by less sophisticated yardsticks: take-home pay, store prices and job opportunities. In these terms, the first two months of 1972 have given scant reason for ebullience. The result is that consumer spending, which spurted briefly last year, has again flattened out.

Partly because of strong early Christmas buying, retail sales in November rose 1.7% over the previous month, but in December they fell 1.2% from the month before. Preliminary figures for January show that, excluding auto sales, retail volume rose only .5% above December. The January increase over a year earlier was 6%, which does not amount to much when discounted for price increases. At the same time consumers continue to bank their money; the personal-savings rate last year ran at an abnormally high 8%, and there is no indication that it has diminished so far this year. If this pattern continues, the rise in U.S. gross national product this year could fall $5 billion below the $98 billion predicted by the White House and many private economists.

One reason that consumers are being frugal is that many have less money to spend. The Bureau of Labor Statistics reported last week that workers' average weekly earnings dropped by $1.35 in January, to $129, because of a decline in hours worked. On top of that, increases in Social Security taxes, state and local taxes and federal income tax withholding rates slimmed many paychecks. In some cities, rises in transit fares, rents and utility rates have further cut into the cash that consumers have available to spend in stores.

Wooing Vote. The Consumer Price Index in January climbed by a seasonally adjusted .3%, a middling rise. But meat prices, a matter of prime concern to consumers, jumped 1.5%. Retail food prices for 1972 are expected to increase 4%. Wooing the farm vote, Agriculture Secretary Earl Butz recently told audiences of farmers: "We are trying to get farm prices up--and you haven't seen anything yet."

The housing boom is still lifting sales of furniture and appliances in much of the country, notably the Midwest. But in California, where a slowdown in housing starts has been predicted, San Fernando Furniture Galleries Manager Chet Steinman reports that "people are not separating themselves from their money because they are not sure of the economic policy of the country."

Even so, Manhattan's Morgan Guaranty Trust Co. last week warned against undue pessimism. Its reasoning: with savings so high, spending could quickly turn brisk again if there were a bunching of favorable news.

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