STATE OF BUSINESS: Happy Holidays

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As the Christmas selling season started, retailers beamed last week at the prospect of record volume. The U.S. consumer, who has spent freely and faithfully all through the year's downs and ups, was opening his pocketbook as never before. Sales in the nation's chain stores scored the year's biggest gain in October, up 7.1% over October of 1957. For the first ten months, chain store sales topped the brisk 1957 pace by 4.1%.

Payrolls were growing fatter because basic industries continued to pick up: In autos, settlement of most strikes affecting Chrysler and American Motors plants helped boost output to 141,072 cars, 20% above the week before and 13% higher than any week in 1958. In rails, freight carloadings nudged year-ago levels for the first time since August 1957.

In communications, American Telephone & Telegraph President Frederick R. Kappel said the decline in new phone installations was reversed in September and "business is on the way up." Betting heavily on the future, A.T. & T. will spend $2 billion on construction next year for the fourth year in a row.

Yet there were scattered signals of slowdown. After a steep rise in recent months, steel production leveled to 74.3% of capacity, slightly below the rate of early November. No major production gains are expected unless and until automakers speed their steel orders. Applications for FHA mortgage insurance on new homes slipped 14% from September to October, a sign that housing starts may dip later.

One top Government economist predicted that defense orders will taper off after their recent spurt. Viewing the expected softening in housing and Pentagon procurement, he said: "We may be entering a period of somewhat more sober views of our economy, maybe a feeling of some disappointment. This will not be because our economy is declining. It will be, if it develops, because our economy is not expanding as rapidly as some of this recent exhilaration has suggested it would do. The fault will not lie with our economy but with our views of it."