The Economy: A Question of Stability

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Because price and wage stability has been one of the chief ingredients of the current economic advance—now 54 months long—the Administration takes a dim view of anything that might endanger it. Lately the direction of prices and wages has become a cause for quiet concern in Washington. Last week Lyndon Johnson brought that concern into the open by attacking as "disastrous" a pending bill to give all federal workers a 4½% pay raise and demanding restraint from steel management and workers in their crucial bargaining (see THE NATION). Said the President: "There must be continued cost and price stability in our economy."

Rising All Over. Very few economists expect an outbreak of inflation unless the Vietnamese war intensifies. The economic forces that create sweeping price rises have so far not converged. Supply is still ahead of demand, even though industrial plants are running close to 90% of capacity. Two further dampeners to runaway inflation: keen competition from foreign industries, and multiplying competitive pressures at home resulting from industry's vast outlays for new plant and equipment. Nonetheless, Washington has reason for concern. Despite the absence of concerted inflationary forces to date, the plain fact is that prices and wages are rising all over.

The rises spread across both consumer and industrial areas of the economy. The consumer price index last week inched upward to a record 110.2% of the 1957-59 average (up a modest 1.9% from a year earlier), largely because of the higher costs of auto insurance, home ownership and meat. Without the recent federal excise tax cuts—75% to 80% of which have been passed on to the consumer—the index would have pushed even higher. Wholesale prices rose to a new record in July, gaining 2.5% over a year ago. Raw-material prices have risen 10% in the past year, helping push up the average of industrial prices by 1.4%. Economists find none of these increases alarming, but each of them means higher costs for someone.

Dearer Martinis. The price of furniture and of men's clothing will rise about 5% in the fall, and several major shoemakers last week announced the industry's first general price rise in six years: about 5% on low-priced shoes and much more—up to $2 for a $20 pair—on higher-priced lines. Although food prices are expected to edge down again after their startling climb, people are generally paying more for meals in restaurants; some restaurants even tack apologetic little notices onto the menu announcing that they must add an extra charge to steak, crab or lobster dinners. The prices of drinks are edging up too; in expensive Manhattan restaurants, a martini now mixes at $1.40. Going to the movies is a steadily more expensive pastime, and seats for Broadway musicals will soon smash the $10 barrier; one show will charge $11.90 this fall.