MOOD: A Growing Cloud of Doubt

Fear of recession, persistently high prices and disillusion with Administration economic policies are causing more and more Americans to view the economic future with a deepening sense of worry. This growing uncertainty was underscored last week by a report on the University of Michigan’s latest survey of consumer attitudes, which noted that “never before in the 25 years that the surveys have been conducted has consumer pessimism been so widespread.”

Between the end of 1972 and last month, when the latest study was completed, the consumer-confidence index plummeted 19 points to 71.8. That was a much sharper decline than in the 1969-1970 period just preceding the worst of the last recession. The report asserts that public gloom about all kinds of shortages and weaknesses in national leadership will soon show up in substantially reduced buying trends and that “a recession by early next year is possible, perhaps even probable.”

Echoing this view, Economist Milton Friedman, a leading conservative, said that there is a “good chance” of a recession next year. Consumer prices, Friedman contended, would probably continue to climb 6% or 7%, only slightly less than the thoroughly oppressive level of 8% estimated for this year. The Government announced last week that living costs rose at an annual rate of 3.6% in September, a steep drop from the explosive 22.8% increase in August. Even so, Assistant Secretary of Commerce Sidney Jones declared that inflation is “still awful.”

Indeed, inflation is already cutting into some consumer buying plans, especially for durables such as television sets and washing machines. For the second month in a row, retail sales slumped in September, and new-car sales for the first ten days of October were down 16% from the equivalent period last year.

Another source of concern: the private housing field, which accounts for a major proportion of sales of durable goods, continues to take a hammering because of tight mortgage money and towering interest rates. New housing starts in September plunged 14.7% to an annual rate of 1,763,000 units, the sharpest drop in 13 years.

One bright spot is that interest rates, after climbing to record levels in August and September, are now declining. Treasury bills sold last week at a rate of 7.19%, down from a peak of 9.01%, and commercial paper was 9½%, down from 10½%. Most important, Manhattan’s First National City Bank dropped its prime bank rate to businessmen from 10% to 9¾%, and other banks soon followed its lead. It was the first decline in the prime in nearly two years.

Part of the reason for the rate drop is that the Federal Reserve Board has gingerly loosened its supertight money policy in recent weeks, though Chairman Arthur Burns insists that the board is not yet ready to greatly relax its reins on credit. Even more important in making borrowing cheaper has been the weakening in loan demand as the economy declines.

Some Strengths. Though there is growing evidence that the peak of the boom has passed, the economy remains relatively strong. Last week the Government disclosed that from July to September, the nation’s total output of goods and services increased 3.6%, up from the unusually small gain of 2.4% in the second quarter. Many experts believe that the nation can still escape an all-out recession. TIME’S Board of Economists predicts that, discounting inflation, the economy for the whole of next year should expand by 2% to 3%—about half of this year’s gain—though growth will probably hover at 1% or less for one or two quarters. This forecast anticipates such strengths as lavish spending by businessmen for new plant and equipment and a continuing surge in exports of both farm goods and industrial items.

Still, even the most optimistic predictions are for some increases in the jobless rate and a decline in corporate profits next year. These painful side effects would not be entirely wasted, however, if the Administration could take full advantage of the business slowdown to snuff out inflation. And that goal could be best accomplished by a more rigorous application of Phase IV wage-price controls than the Administration has yet seen fit to attempt.