The Economy: Consumer Crosscurrents

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As the big-buying Christmas season begins, there are crosscurrents in the mood of the U.S. consumer. On one hand, the Commerce Department reported last week that fewer consumers than a year ago plan to buy such "heavy" items as houses, expensive household appliances, or cars, though the tens of thousands of people at the annual Detroit Auto Show certainly seemed enthusiastic. On the other hand, J. C. Penney, Associated Dry Goods, R. H. Macy and Gimbels reported all-time-high earnings for the quarter ending in October, and most major retailers predict a green, green Christmas. Behind these contradictions is the fact that the consumer—the driving force in the U.S. economy, with spending twice as high as all Government outlays and corporate capital investment combined —is changing his buying habits.

Luxurious Demand. "Consumer spending is not falling, but it is shifting —from autos to services, from appliances to apparel,'' says Commerce Department Economist Louis Paradise. The housing collapse has hurt markets for furniture, floor coverings, refrigerators and washers. Yet retailers note substantial increases in demand for costly clothes, furs and diamonds, despite a nervous stock market which could be expected to cut sales of luxury goods. Sales of color TV sets will climb from 2,750,000 last year to about 4,750,000; actually, TV makers could do much better were they not slowed by shortages of tubes, copper and wooden cabinets. Meanwhile, Americans have escalated spending for services by 8.5% this year, partly because of higher prices, but mostly because of greater desire for comfort, convenience and better-quality living. The nation's medical bill is up 11% to $25 billion, and annual spending on TV-radio repairs is $1 billion.

Macy's Board Chairman Jack Straus expects to sell 4% to 5% more goods this Christmas than last, and most other retailers forecast the same. They are optimistic because the consumer is reliable: he regularly spends well over 930 out of every $1 that he takes home, and his purchasing goes up as his earnings go up. The National Industrial Conference Board reckons that, after he spends for necessities and such "fixed" savings as social security payments and pension-fund contributions, the consumer has more than 40% of his income left over for "discretionary" spending or investment; much of it goes for luxuries.

Fatter Wage Hikes. The consumer's income this year will rise at least $40 billion, thanks to more jobs, higher pay and lots of overtime work, as well as higher interest rates on savings deposits, fatter social security checks and Medicare benefits. University of Michigan Economist George Katona, one of the nation's top consumer experts, says that consumers are worried about tight money and inflating prices—the cost of living jumped last month by another four-tenths of 1%, is 141% above the 1957-59 average. But they are still basically bullish. Reason: most of the thousands of people whom Katona surveys expect wage hikes in 1967 to equal or even exceed the raises that they got in 1966.