The Upturn That Feels Like a Slump

ECONOMISTS and consumers seldom see eye to eye on the state of business, but rarely have they been so far apart as they are today. To most economists, who judge what is happening by broad statistical indexes, the signs are increasingly clear that business is coming out of an inflationary downturn into a period of gradual but steady production growth and slower price rises. To many consumers, who reason from personal experience, the economists are talking gibberish; they expect a continued combination of recession and sharp inflation. The odd thing is that, in at least a few important respects, both are probably right.

The conviction that the economy is past the worst of its troubles began growing among professional observers in early summer, and has been greatly strengthened by the latest data. The Government's index of leading indicators--those measures that tend to move ahead of the general business trend --gained 1.6% in July, the sharpest increase since April 1969. Thanks to a drop in farm prices, the wholesale price index fell 0.2% in August, its first decline on a seasonally adjusted basis since April 1967. That would seem to promise a continuation of recent slowdowns in retail price rises. The consumer price index in both June and July rose at a seasonally adjusted annual rate of 3.6%, down from 6% or more last winter. Some interest rates have declined significantly, as the Federal Reserve Board continues a moderate expansion of the nation's money supply. Wisconsin, which sold a tax-exempt bond issue in late May at an average interest cost of 6.67%, successfully marketed another last week for 5.32%.

Converting the Skeptics. The cheery economic news had an immediate effect on Wall Street. Since Aug. 13, the Dow-Jones industrial average has climbed 59 points before leveling off as a result of profit taking; the average closed last week at 766, v. a May low of 631. Some mutual funds and other institutional buyers were purchasing aggressively lest they miss the start of a new bull market.

The latest evidence seems to have convinced even skeptical economists that business is indeed about to emerge from almost a year of falling production and profits, fast price rises and sky-high borrowing costs. Lionel D. Edie & Co., a New York economic consulting firm, cautioned clients in mid-August that the indicators showed no clear signal, but its latest advisory predicts a recovery starting in the fourth quarter. Dr. F. Thomas Juster, vice president of the National Bureau of Economic Research, which decides what business movements should be deemed "recessions," says he now doubts that the bureau will call the present trend by that politically charged name.

Consumer Gloom. On the other hand, 58% of the consumers queried in a mid-August Louis Harris poll said that the nation is in a recession and they see no early recovery. They have no confidence in the forecasts of an ebbing of inflation either. Some 44% of those questioned in the latest poll, released last week, told Harris interviewers that they expected prices to rise faster than their own incomes in the next few years; only 9% predicted that their pay would go up more than prices do.

Consumers have considerable reason for their gloom. The business downturn, even if it is too mild to merit the term "recession," can still cause widespread and severe economic pain. Last week Honeywell, Lockheed-Georgia and Western Electric announced new layoffs, and several retail chains reported large declines in second-quarter profits or a loss. No less than 21% of the people polled by Harris reported that their own households had been affected by layoffs, cuts in overtime or reductions in regular work weeks; 30% told Harris that their own standard of living had dropped in the past year.

Unemployment, now 5% of the labor force, stands at a five-year peak, and many experts predict a small additional rise this fall. Among those most affected are young people, who face difficulty getting hired at all. One unexpected result is that the Marines are attracting higher-quality volunteers. "They get out of college and can't find a job, so they join," says General Lewis Walt, assistant commandant. "We hope we can keep some of them."

The human stories behind the trends and statistics convey a feel of hard times. Pete Carnes, 35, a Broomfield, Colo., draftsman, has just lost his third job in 14 months. After eleven years of steady work for Chrysler Corp., he was laid off by the company's space division at Cape Kennedy in June 1969. He sold his Florida house at a $2,000 loss and disposed of some Chrysler stock, Government bonds and a small boat to finance a move to Colorado. He was hired by a research firm, but that job lasted only six months. After six weeks of unemployment, he landed a probationary job with an instrument firm, at $300 a month less than he had once earned with Chrysler. Last week, as that job ended, Games' savings were almost gone and his wife planned to seek work.

Kris Johnson, 23, an electronics technician in Redmond, Wash., is working only four days a week now, and his income has dropped 15%. He and his wife have given up moviegoing in favor of getting together with friends for beer and popcorn, and the Johnsons are growing a vegetable garden to cut food bills. Johnson gave his wife a choice of giving up either bowling or driving to reduce expenses; she chose to continue bowling, so last week he sold the family's 1966 Galaxie, keeping a 1962 Buick. "I think this is the time to liquidate whatever you can," he says. "Everyone says the economy is getting better, but I just don't see it."

Economic Rebound. On the basis of the economists' predictions, Nixon Administration officials are beginning cautiously to claim victory for their "game plan" of controlling inflation without a sharp recession. "Encouraging" was the word that Chief Economic Adviser Paul McCracken used over and over in talking to the press after a meeting between Nixon and his economic-policy quadriad at the Western White House in San Clemente. Even Walter Heller, former head of the Council of Economic Advisers, speaking at week's end to a Texas seminar organized by his old boss, Lyndon Johnson, conceded that "the worst is over." Heller added a cautionary note: "Consumers must be perked up for a fairly strong economic rebound" to occur. At present, such a recovery of consumer confidence is nowhere in sight. Says George Allen, 53, a Seattle engineer on layoff from Boeing: "When I am back at work, I'll know that the economy has turned around. I can't tell it by looking at some chart someone has drawn up."

This file is automatically generated by a robot program, so reader's discretion is required.