Buyers Lead, Bosses Lag

EARLY in the economic recovery, consumers and businessmen both displayed a mood of great caution. Consumers saved money at near-record rates, and corporate executives continued or even intensified penny-pinching programs to reduce costs. Today the more important of these groups has come around to all-out optimism; consumers have gone on a spending spree and are plunging into debt at the fastest pace ever to finance it. They have caught up with the bullish projections of economists, while businessmen are still lagging a bit behind.

Consumer spending has been moving up all year. Personal-consumption expenditures rose $15 billion or more in each of the first three quarters of 1972, to a third-quarter annual rate estimated at close to $730 billion; the increases have been half again as great as the rises in 1971. Lately buying has become even more aggressive. "It's almost as if Aug. 1 was a magic date--sales have picked up so well since," says John Brunelle, vice president of San Francisco-based I. Magnin department stores. Alvin Ferst, vice president of Rich's in Atlanta, agrees: "I cannot lay my finger on a concrete reason, but there has been a general resurgence of spending."

Merry Christmas. The increase is spread over many lines of merchandise. Sears, Roebuck sales nationally are running more than 8% ahead of a year ago but Sears managers cannot pick out any special items as being responsible for most of the gain. "The consumer seems to be spending across the board, and that is when you can count on a good Christmas," says Philip Hawley, president of Broadway-Hale Stores, which owns Bergdorf Goodman's in Manhattan, the six Neiman-Marcus outlets, and 52 stores in California. Many retailers estimate that Christmas sales will run 8% to 10% ahead of last year. Some store managers seem to think that they can sell almost anything.

One sign of the general air of affluence: Neiman-Marcus, avid to appear as the champion of the most conspicuous consumption imaginable, includes in its Christmas catalogue an offering extraordinary even by its standards. It will sell plaster dummies priced at $3,000 each, with a limit of two to a customer; the buyer must lie down for half an hour while a complete plaster mold is made of his face and body, and store men record him laughing and saying yes (or crying and saying no) on a tape that is inserted into the dummy. What consumers can do with the dummies after all that bother, the Neiman-Marcus nabobs do not say; one waggish suggestion is that a wife could take a dummy of her husband to a party, while the flesh-and-blood husband stayed home watching TV, and few if any guests would notice.

To bankroll their spending, consumers have dipped into their savings. The savings rate dropped from a peak of 8.6% of personal income in the second quarter of 1971 to just over 6% in the third quarter this year, though bankers now sense that it is starting to rise again. An unprecedented amount of consumer buying is on the cuff. Consumer credit went up more than $1 billion in each of the last six months tabulated; the rise in August, the latest month reported, tied May's record $1.4 billion. The Bank of America reports its BankAmericard volume running an extra-high 35% ahead of a year ago. The willingness of consumers to go into debt is perhaps the strongest of all indications of their new confidence.

Businessmen have much more than the consumer surge to cheer about. They recognize that the dollar is rallying on world money markets, that U.S. productivity is rising, and that labor seems less militant than it was some months ago. Such long-troubled industries as machine tools and farm equipment are rebounding. "It is getting harder and harder for businessmen to cry," says Walter Wriston, chairman of New York's First National City Bank. "A lot of them cried early that the results of the anti-inflation program were not good. They worried about profits; they worried about consumer demand. Now they cannot look at the third-quarter sales and profit reports without beginning to believe the numbers." Harvard's Otto Eckstein, a member of TIME's Board of Economists, estimates that third-quarter profits after taxes rose about 17% above the 1971 period.

Still, corporate executives are not quite as ebullient as consumers are. Both William May, chairman of American Can, and F. Perry Wilson, chairman of Union Carbide, describe the business mood as no more cheery than "cautious optimism." Executive after executive queried by TIME concedes that business is indeed improving, but goes on to discourse anxiously about potential trouble spots: ballooning federal deficits, continuing inflationary pressure, rising interest rates, the gap between U.S. imports and exports. Few businessmen will admit to increasing capital-spending budgets further or building up inventories faster than absolutely necessary to keep up with rising sales.

This very caution is a hidden reserve asset for the economy. When businessmen finally recognize that the recovery is for real, their orders and production will likely pick up even more smartly than now. David Grove, an IBM vice president and member of TIME's Board of Economists, speculates that a Viet Nam settlement might set off a surge in stockmarket prices and businessmen's investment, especially for inventories, and a further rise in consumer spending. Each of those trends then would reinforce the others. "I think there are a lot of optimistic vapors around," Grove says. "All that it takes is a spark to ignite them."

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