THE ECONOMY: The Old-Fashioned Way

On the edge of a Christmas buying season which had been expected to break all records, U.S. retailers last week broke forth in a rash of unseasonal clearance sales. Reason: for three weeks in a row, their dollar volume had fallen below the level of a year ago. To step it up, they marked down prices and bulged the newspapers with ads of eye-popping bargains.

Retailers’ worries were the customers’ delights. In Cleveland, a $25 Thanksgiving dinner for eight was thrown in with every refrigerator bought from Sears, Roebuck & Co. In Chicago, washing machines were offered at $50 below list price. Manhattan stores trimmed prices of women’s dresses, furs, shoes, gloves, millinery, hosiery from 25% to 50%. Even the carriage trade’s Hattie Carnegie, who ordinarily does not stress prices, advertised a clearance sale of hats at $10 & up.

King Customer. What had caused the drop in retail sales? Most retailers blamed the unseasonal warm weather. But Fred Lazarus Jr., president of the Federated Department Stores, Inc., thought the trouble was something more than that. His chain had just increased its profit 27%—on a sales increase of only 13.6%—to a record of $12 million for the year ended in October. But, like others, Federated felt the November slump. Said Lazarus: “The market has become a buyers’ market. The day of honest-to-goodness merchandising is back.”

In some cases (notably soft goods and furs) retail prices had fallen close to wholesale levels. The reason was that the cost of materials had fallen but manufacturers and wholesalers, loaded with goods made at higher costs, were still trying to get the old prices. Retailers wanted new stock at prices reflecting present costs. To move old stock they were trimming price tags to that level. Nevertheless, Lazarus felt that price cuts and better quality goods would boost December sales enough to take up November’s slack, and more.

The customer was approaching kingship again in more fields than retail trade. His unwillingness to buy overpriced houses had caused new construction to fall off 12 %—more than seasonal—in October. And many high-priced houses had had “for sale” signs on them for months. Some housing materials might soon be cheaper. The lumber industry, whose record production had begun to back up in the yards, had already trimmed wholesale prices; yet production was still ahead of sales.

King Competition. In New York City, where home-delivered milk had soared to 25½ ¢ a quart, consumption had dropped and worried dairy farmers asked the Department of Agriculture to cut farm milk prices. The farm equipment industry, which will do a record $2 billion business this year, was finally catching up with its huge backlog of orders. Small tractors, once scarcer than autos, could now be bought off dealers’ floors.

All this made businessmen cautious, though few were talking recession. The U.S. was turning out more goods than ever before; in the third quarter, the gross national product hit a new high annual rate of $256 billion, up $5.5 billion from the previous quarter.

In the third quarter, the disposable income of consumers (the amount they had left after taxes) had also hit a new high annual rate of $193.7 billion. Furthermore, they had managed to save more of it ($15.2 billion v. $11.7 billion the previous quarter). And the cost of food, which had taken such a big proportion of most families’ budgets, was coming down a little. In October, for the first time since March, the Government’s cost-of-living index showed a drop of .5%. This gave consumers more money to spend, but they seemed determined to get the most for their money. Nobody who believed in old-fashioned competition could complain about that.