This country's producers may no longer set the standard for the world, but when it comes to consuming, the United States still has no equal. Led by the biggest consumer of them all, the federal government, buyers managed to wake the economy up a bit in the third quarter of the year after six months of languor. Now, however, forecasters are worrying that the consuming public may not be up to the job of keeping the economy moving.
The trouble, of course, is that the public, like the government, has been buying on time. Last month, as consumers splurged on new autos, personal savings hit a historic low. That one month might not be so disturbing if it hadn't come right on the tail of another near record low for savings in August -- and a declining trend over many months before. The government, meanwhile, has been boosting measured GNP by stepping up spending on surplus farm commodities and defense -- again with borrowed money.
The administration naturally prefers to highlight the positive side of this profligacy -- the modest rise in personal income and measured output. But even the government's economists admit that private consumers, at least, can't be counted on to keep on buying at the current pace. With savings already near rock bottom, economists are focusing on a new worry -- the slim pay raises that most workers can expect in the coming year.
Only a few years ago, with inflation in high gear, wage restraint was considered a good sign for the economy. Now, however, with inflation-adjusted wages already as low or lower than they were in the early '70s -- and with the economy hooked on high consumption for its fuel -- small pay hikes may result in economic stall.
One way out of the bind might be to jack up wages. But companies can't afford to do that because profits are already poor and because productivity gains have been abysmal. Foreign competition, made worse by the overvalued dollar, is part of the trouble. And the big budget deficit has a role to play in that situation too. But another big factor is that business investment, apart from relatively short-lived items such as computers and business autos, has also been lackluster: last quarter it actually fell.
How did the consumer come to play so central a role in the current economic situation? Whatever happened to the supply-siders' promise that, spurred by tax incentives, producers, savers and investors would move to center stage?