Business: The Pre-Election Pulse

Among some healthy-looking numbers, a sad September surprise on prices

During his campaign stop in slump-plagued Youngstown, Ohio, last week, Jimmy Carter pointed to a batch of upbeat statistics and happily assured a group of steelworkers that the battered U.S. economy is "recovering very well." But only four days later, and with little more than a week remaining in Campaign '80, the Government itself reported a shocker that was sure to keep the President's economic stewardship a prime concern of voters on Nov. 4—and push inflation squarely onto center stage again as the nation's No. 1 problem.

After five months of decline, which brought the rise in consumer prices down from a peak of 18.2% in January, February and March to 8.7% in August, the inflation, rate did a power turn in September and hurtled right back up into double digits. During the month, prices rose by 1%, which was the highest increase since June and translates into a compound annual inflation rate of 12.7%. The surge was led by food prices, which are climbing partly as a result of the damage wrought by the summer drought on crops and livestock herds. The cost of cars also jumped sharply, as did that of clothes and health care.

While the inflationary spurt was not entirely unexpected—early last week one top White House economic aide was already telling newsmen that the new numbers could "look bad for us"—it will raise fresh doubts about the policies espoused by both Carter and Ronald Reagan. In his effort to spread cheer about the preelection economy, the President declared that "the severe recession that we anticipated has not been nearly so severe as we thought." In fact, the Administration had purposefully tipped the economy into recession in order to curb the runaway rise in prices. Yet, as the September figures made plain, the tactic has failed.

As for Reagan, he latched onto the bad inflation news to defend his own economic crowd pleaser: a $36 billion 1981 tax cut that more than a few economists fear could intensify the price spiral. Reagan had begun talking up a tax cut last winter and spring when the economy started plunging into recession. But in his 30-minute televised economic address late last week, he attacked the President for permitting a near doubling in the so-called misery index (see box) that Carter had badgered Gerald Ford with during the 1976 campaign, and argued in effect that big new cuts would now curb inflation as well as unemployment.

Instead of drawing to a close against a backdrop of lengthening unemployment lines and deepening recession, as Democrats had feared and Republicans had expected, the campaign is climaxing with the economy perking up again. After a spring and summer of wary hesitation, consumers are starting to spend again and retail sales are inching up. A July-through-September survey of 1,600 top executives by New York's Conference Board research group shows business confidence itself to be improving.

Though few businessmen or bankers anticipate very much more than a sluggish and lackluster year ahead, most regard even that as an improvement over what might have been. Reports George Cloos, economist for the Federal Reserve Bank of Chicago: "There is not the gloom and despair that existed last spring. Some of the fear is gone."