Masonry Magazine January 1970 Page.15
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CONSUMERS MAY BE READY TO SPEND A LITTLE MORE FREELY in months ahead. Few economists look for anything like a buying spree the kind of surge that would start the economy climbing again at a rapid clip. But there is ground for hope that gradually reviving consumer confidence will convert the recent sluggish movement in retail sales to a solid plus for the business outlook.
The uncertain course of the economy has made the consumer cautious. The increase in unemployment has made many nervous about the security of their jobs. The stock market break of last spring has led some to feel less affluent-less able to buy. And confusion over skirt lengths has kept many women on the sidelines, waiting for a clear fashion trend to show.
CONSUMER BUYING HAS ONLY INCHED AHEAD since last winter, measured in dollars of constant purchasing power. The gains appear especially modest because the consumer is in such excellent shape to spend. Over the past year, his disposable income-after taxes-has gone up by a fat 10% and may even be heading toward a record $50 billion increase. Stepped-up wage and Social Security benefits-plus retroactive increases have boosted spending power.
There's also a potential plus in the fact that consumers have been saving at a near-record rate-7½%. A 5% to 6% rate is normal. Sooner or later, the savings rate will come down as families adjust to higher incomes. A drop of only 1% in the savings rate means an instant $7 billion increase in spending.
ECONOMISTS ARE CONVINCED THAT THE CONSUMER WON'T CONTINUE saving at such a prodigious rate much longer. They are betting that he is going to step up his spending in response to his better income-savings position, as his confidence revives. The questions that are still to be answered at this time are when will the pick-up become visible, and how far will it go?
Recent surveys of consumer attitudes indicate that consumer confidence is gradually reviving. They show that pessimism over the economic outlook bottomed in July. Past experience indicates that consumers accelerate their spending three to six months after bottom is reached. Thus, the long-awaited upturn in spending could be expected to begin sometime soon.
MOST RETAILERS HAVE NOT BEEN OVERLY ENTHUSIASTIC about the prospects for the Christmas season. At best, it could be a good holiday period but not a great one. Some expressed optimism based upon spotty September and October sales. But others see a continuation of the lackluster performance until well into next year. And if there is no pick-up in consumer outlays this Christmas, the hoped-for upturn will have to wait until next Spring, when the combination of Easter buying and car sales show what they can do.
A settlement of the auto strike will end at least one drag on consumer confidence, and let the pressure of piled-up savings show up in freer spending. But it could be well into 1971 before the first signs of strength appear. Once the dam bursts, consumption should accelerate gradually. Over time, this will foster business spending for plant and inventory and lift the economy slowly and steadily to full employment.
A SIGNIFICANT EASING IN THE SUPPLY OF CREDIT is beginning to show up. So far, it has been centered in the short-term area, reflecting a weakening in the demand for business loans and the Federal Reserve's less restrictive monetary policy. Many banks are more inclined to lend now. Businessmen who have been rejected for loans earlier may find this a good time to try again.
Bank loan demand has leveled off. It is actually weak in some areas of the country. Loan volume is estimated to have declined at a 10%-a-year rate during September. In contrast, loans were rising at a better than 11% clip in September 1969.
The easier credit climate has been showing up in several ways:
-Borrowers find themselves welcome again at banks these days.
-Loan officers are again contacting firms turned away earlier.
-Some banks will discuss types of loans rejected a year ago.
-Many banks are relaxing the terms at which they will lend.
LONG-TERM RATES WON'T STAY HIGH MUCH LONGER in a sluggish economy. Cash-hungry corporations have kept bond sales heavy, rebuilding liquidity. But the new-issue volume could well taper off after the turn of the year. Slow business has cut need for external funds. And bank loans are cheaper. Short-term interest rates are already down measurably from the spring peaks. Leading banks have twice cut the prime rate charged to their best customers. Some analysts predict a further cut from today's 7½% prime rate next year.