Hearing the Sweet Ring of Prosperity

Of all the bright sounds of spring this year, few are more reassuring to businessmen and election-minded politicians than the persistent jangle of the nation's cash registers. From Maine to Southern California, Americans seem to have shucked their recession-bred caution and set off on a buying binge. The spending spree is swelling sales of almost everything from cars and clothing to houses and appliances, and it has become the biggest single booster behind the rapidly recovering U.S. economy.

Some signs of a leveling off in the rocketing rise in demand are now beginning to appear, but many experts expect the buying pace to remain brisk and salutary in the months ahead. A temporary easing of the sales upturn sometime soon would scarcely be unexpected. Says Paul J. Markowski, chief economist of Argus Research Corp.: "Consumers are merely pausing to reassess the situation. We had a big rush of spending in March, so a slowdown is not surprising."

How long such a slowdown might last seems to depend on what happens to prices. Says Sidney Jones, the Treasury Department's top economist: "The heart of consumer spending is confidence that inflation is under control, and the key to keeping people buying is to keep prices at a reasonable level." Right now, after slowing to a mild 2.9% early in the year, inflation is once again moving up slightly: in April the rate climbed to 4.9%, due largely to higher costs for food and fuel. As a result, several polls, including one by the Conference Board, a business-sponsored research concern, and another by Sindlinger & Co., a private forecast firm, show some recent slippage in "consumer confidence"--that is, Americans' willingness to spend savings or go into debt to buy goods.

Still, most economists forecast that inflation by year's end will be running at about 5% to 6%. Such a rate would be modest by the standards of recent years arid would not greatly dampen consumer optimism, especially if the current expansion in personal income continues to put more money in buyers' pockets. Already the rise in consumer installment credit for the first three months of the year ($3.9 billion) tops the increase for all of 1975 ($3.7 billion).

Auto Sales. The sweetest figures so far this year have been in retail sales. In April they climbed 14% above a year earlier, and now they are about 10% ahead of 1975. Pacing the boom is the dramatic pickup in auto sales, which are now racing at an annual rate of 9.2 million and show every sign of outdistancing even the most optimistic projections, to hit 10.6 million for the year, v. 8.2 million in 1975. Last week Detroit reported that auto sales for the ten days ending May 20 were up an impressive 53% over last year, to 310,800 cars.

For General Motors and Chrysler, the mid-May surge set new records. Only American Motors, which specializes in small cars, is faltering. Its mid-May sales were down 16%, reflecting what for automakers has become the most surprising development of the year. Convinced that Americans wanted smaller, more fuel-efficient cars, Detroit spent heavily to boost production of subcompacts. But with fears of fuel shortages and towering gasoline prices abating, the public is once again showing a marked preference for larger autos. GM is now selling about twice as many mid size cars as it did last year and a third more full-size models. GM's Oldsmobile Cutlass, an intermediate carrying a $4,500 base sticker price, is the industry's fastest seller. Chrysler's big winners are its Aspen and Volare compact and Cordoba intermediate models, and at Ford the mid-size Granada and standard Ford are leading the way. As a consequence, the Big Three are cutting back on their smallest models; GM has already slashed in half production of its $3,098 Chevette minicar.

Free-spending shoppers have also been flocking to department stores, kicking sales skyward for the first quarter, which for most retailers ends May 1. Sears Roebuck, the nation's largest chain, posted sales gains of 11.5% over the same period last year. J.C. Penney's volume was up 16%, Montgomery Ward's 9% and Kresge's 25%. At Neiman-Marcus, the Dallas-based specialty store, high-priced items are particularly hot; last week the chain sold two $24,000 custom-built Cadillac pickup trucks as Father's Day gifts. On a less exalted level, consumers are buying up big-ticket items such as furniture, stereos, refrigerators, washing machines and television sets. Merchants around the country report a spurt in sales of recreational equipment such as tennis, golf and boating gear, as well as "leisure suits" and other sporty clothing items.

Even the long-moribund housing market is feeling the first flush of recovery. Demand for both new and existing homes is outstripping supply in many parts of the country as families show a growing willingness to take on increased debt--and are finding mortgage money and home loans easier to get; mortgages at savings and loan associations on the East Coast can now be had for as little as 10% down. At the end of 1975, many economists were predicting an increase of about 25% in housing starts over last year's depressed total of 1.17 million. Now the experts are talking about gains of 35% or more.

All that is needed to clinch a vigorous and sustained recovery is a boost in spending by businessmen, who have been holding back through most of the year. Now they too may be opening up their wallets. Last year the McGraw Hill survey of business spending predicted that corporate outlays for new plant and equipment in 1976 would be essentially flat. The most recent revision of the study projects a rise in business spending of 4%--probably not too far under what would be needed to turn the recovery into a full-fledged boom.

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