Tough Customer

Perhaps the best characterization of the current bend in the business cycle came last week from a top Washington economist: ''This was an inventory recession, and so far it looks like an inventory recovery." The recession had certainly started with inventory reduction, and the earlier than expected recovery this spring was set in motion by a modest return to stockpile buying. But what bothers economists now is the growing conviction that inventories are up about as far as they are going to go because of the businessmen's new drive to keep stocks in closer balance with sales (TIME, June 9).

What else will supply a fresh lift for business? Economists are banking on help from increased Government spending, which will rise by some $2 billion this year and even faster next year. But if the 1961 recovery is to be brisk, something more is needed. For that extra thrust, economists are looking hopefully toward the free-spending American consumer.

Higher Savings. Consumer spending is a paradox: it stood up better than most other indicators during the recession, but thus far it has lagged somewhat behind the recovery curve. Last week the Commerce Department announced that seasonally adjusted retail sales rose 1% from May to June, something less than hoped for. Sales were actually down 1% from June of 1960, and durable goods were off a full 5% from the pace a year ago. Among the notable laggards are autos and appliances, hardware and furniture. Says Louis Paradiso, the Commerce Department's chief statistician: "This time there is more lag than usual between the actual turn-around of the economy and the American consumer's believing that it has happened. He takes more convincing than he did in the past."

The consumer certainly has money to spend--if he wants to. Average weekly factory wages rose to a record $94.24 last month, up $2.64 from a year ago. But savings have risen still faster, from 7.1% to 8% of earnings. If the experience of past recessions holds true, the savings will begin to be spent as soon as the public feels confident that a new boom is in the making. Consumer optimism is already on the rise, reported the University of Michigan's reliable survey of consumer buying intentions last week. Asked if it was a "good time to buy," 44% said yes for cars, 42% said yes for houses--a significant shift of opinion from six months ago. Only intentions to buy major appliances remain disappointingly low.

Longer Hours. "People in all walks of life," concluded the Michigan survey, "realize that business trends have turned up and anticipate further improvement." About the only restraint to optimism is profound public worry over high (6.8%) unemployment. But even that persistent problem may be abating. As industrial production in June climbed to within a fraction of its prerecession peak, the average factory work week jumped to 40.1 hours, its prerecession level. To judge by past recessions, employers put their workers on longer weeks just before they hire new hands, and a marked rise in hours worked is followed by a spurt in employment an average of four months later.

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