Consumers in a Squeeze

Still spending, but also cutting fun, frills and other nonessentials

Before I'll pay what they want me to I'll just live without it, 'Cause I'll never doubt, You can't ration nothing I ain't done without.

So go the lyrics of a new country-and-western ditty that has come out of Atlanta and was written by Georgia's Lieutenant Governor Zell Miller. Miller's lament may never make the Top Forty, but a great many of his countrymen surely share his gloom about having to "do without." As in past times of leaping prices and deepening economic slump, Americans are taking seriously the task of cutting back their household budgets.

Typically, the first question is what necessities are really necessary. Even in a pinch, most Americans are reluctant to cut expenditures for such practical aspects of their lives as tuition, rent, utility bills and essential or even vacation travel. In consequence, they start out by trimming what economists call discretionary spending: buying things that are fun, frills or otherwise not absolutely essential to daily life and work.

Such cutting seems to become more imperative each month. The Government reported last week that consumer prices rose 1% in July, which is an annual rate of 13.1%, and thus extended the present stretch of double-digit inflation to a full seven months. At the same time, the spending power of Americans has continued to decline. Mostly because of inflation, but also because taxes have been creeping upward, the actual buying power that people have been getting from the money in their paychecks has declined by nearly 4% over the past twelve months. So more and more, almost as a matter of survival, discretionary spending is being cut back.

Compared with past downturns, some of the current cutting is following unusual patterns. In previous recessions, forms of entertainment and diversion such as books, records and movies flourished during hard times because they were relatively inexpensive. But they are no longer so cheap, and therefore no longer recession-proof.

With the average novel costing close to $10 and other books priced at $15 to $18 or more, hard-cover sales are down by nearly 10% compared with last year; even "quality" paperbacks selling in the $4 range are gathering dust on publishers' bookshelves.

Sales of records, meanwhile, are off even more sharply. Some stores are reporting sales declines of as much as 40% this year; with albums now costing $9 or more, many music buffs have stopped buying, or have discovered that they can save money by tape-recording their friends' records.

Some signs of rebellion over climbing movie-ticket prices are also appearing. When some of Atlanta's first-run theaters raised the cost of admission from $3.50 to $3.75 this summer (it has risen in New York City to as high as $5 for some movies), smaller houses in more remote shopping centers began drawing sizable crowds by cutting prices to as low as 99-c- for recent but hardly fresh offerings like Rocky II.

Anong other things that consumers say they are cutting down--or out--are charitable contributions, entertaining at theaters (now that even many off-Broadway tickets are up to $13.50 or more) and eating out. Recoiling at restaurant bills that can easily reach or exceed $25 for just one at lunch, more office workers are brown-bagging their midday meal or seeking out a growing number of health-oriented restaurants that ignore or play down booze and beef. The price of a single martini has risen in some Manhattan restaurants to more than $3, an extortionate sum that is only slightly below the wholesale cost to an establishment of an entire fifth of vodka or gin. Clothes purchases are being postponed. The Claude Herrons of Atlanta took their annual two-week vacation at the seashore this summer, but Mrs. Herron has been staying clear of the stores. Says she: "I refuse to pay $30 for a blouse. They can keep it."

Some seeming nonessentials, however, seem to remain much in demand. Says Lewis Katcher, a research director at the Sutro & Co. brokerage firm in San Francisco: "Yacht sales will remain strong but sailboats will be down," a sign that while millionaire boatowners remain secure weekend sailors are financially vulnerable. Then again, as always in recessionary times, women are continuing to buy cosmetics regardless of cost. At the fancy Georgette Klinger skin care salons in New York, Chicago, Beverly Hills and Bal Harbour, Fla., sales of treatments and assorted preparations have continued to rise at 20% per year. But this year, reports Owner Klinger, people are economizing by "buying larger quantities--two and three quarts of skin care products rather than one."

As the current slowdown continues, the danger will be that consumers will not just cut discretionary spending but also begin to forgo other purchases that would have a broad effect on the economy. Even now, studies show that consumer "confidence" is near its lowest level in 30 years. Because spending by individuals on all sorts of goods and services accounts for fully two-thirds of the nation's gross national product--far more than spending by Government and business combined--a sharp retrenchment in purchases of autos, houses and other big-ticket items would surely deepen the shallow recession that many economists believe has already begun.

But such a retrenchment has yet to appear. While the automakers are currently suffering through a sharp slump, retailers are reasonably happy. In fact, retail sales in July were actually 11% above what they had been in the same month last year, though much of that increase simply reflected higher prices. Moreover, Americans are still piling on installment debt at the brisk rate of $5 billion a month. Indeed, by the end of June they were in the hole for a record total of $292.5 billion, which is hardly a sign of consumer panic.

What serious retrenching has occurred so far has been highly selective. Says Georgia State University Economist Donald Ratajczak, speaking about the status of retail sales: "The discount and the high quality lines are good; the in-between is dead. Top and bottom are where the action is." Translation: in marked contrast with their behavior during past economic slowdowns, people are not closing their wallets entirely but are scrambling for bargains, on the one hand, and, on the other, scooping up top quality, long-lasting goods at any price.

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