STATE OF BUSINESS: The Free Spenders

As Labor Day approached, the U.S. was in a spending mood. The freest with their funds were those who pinched pennies most tightly only a few months ago: U.S. industries. Last week Washington economists reported a fresh surge in expenditures for new plant and equipment. Capital investment has climbed from an annual rate of $30.6 billion in the first quarter to $32.3 billion in the second to a brisk $33.4 billion, may well hit $35 billion in the fourth quarter—if a prolonged steel strike does not sabotage the economists’ projections.

Long-Range Challenge. One reason for the rise is that U.S. industry rolled into 1959 with more than $18 billion in capital funds that can be invested in inventories or plants. Industries have piled inventories so high (adding at an annual rate of $10.4 billion in the second quarter alone) that economists feel they will now begin to channel their funds into new plants to meet consumers’ rising demands. That does not mean that the inventory boom has spent itself; inventories have moved up close to the peak level of January 1957, but sales have moved up even faster.

The capital-goods boom is triggering a burst in spending for heavy construction. The F. W. Dodge Corp. reported that construction-contract awards in 1959’s first seven months jumped 11% to $22.5 billion. The new lift in heavy construction comes at an opportune time, just as builders are warning that tighter mortgage money may slow the pace of home starts, now a near record 1.300,000 a year. Overall construction is moving 12% ahead of last year, at an annual rate of $55 billion; builders expect it to rise to at least $57 billion in 1960. Says Chairman Melvin H. Baker of Buffalo’s National Gypsum Co. (1958 sales: $163 million): “Seldom if ever has an industry looked forward to such bright prospects as does the construction industry. Despite all the talk of overcapacity, the U.S. today is actually greatly underequipped to meet the long-range challenges of more people, better living standards and new production techniques.”

Personal Finance. A key sign of better living standards is the steady rise in consumer spending, which has jumped $20 billion in the last year to its present record of $311 billion; consumer durable goods alone account for $44 billion. By next spring, consumer buying is expected to top $325 billion annually—as much as the total gross national product a decade ago. To spur the rise, personal income, up $20.6 billion in the past year, is expected to jump almost $20 billion in the next twelve months.

U.S. buyers are also borrowing heavily to get the goods they need, boosted consumer credit by $2 billion in this year’s first half to $46.7 billion. Much of it is financing new cars. August car sales, which usually slow down in anticipation of new models, ran faster than July’s, probably topped 500,000. For the fourth quarter, automakers are scheduling production of 1,900,000 new cars, up 41% from last year. By next spring, they expect to be selling at an annual rate of 7,200,000, within a bumper’s reach of 1955’s alltime record.