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The economy is expected to get a big lift from consumer spending, which is likely to pick up smartly in the months ahead, especially for major appliances, furniture and household goods. Corporate profits, though still behind those of a year ago, have risen from their lows of early 1975 —and so, say Heller and George Perry, an economist with the Brookings Institution, business spending for new plant and equipment will also pick up. The auto industry, which has been more deeply depressed than almost any other for the past two years, has begun to turn round. Auto sales in October jumped 23% above those for the same month of 1974, as the 1976 models got off to a swift start in dealer showrooms. Car purchases next year are expected to rise to 9.5 million or 10 million, including imports—below the record 11.5 million autos sold in 1973 but well above this year's expected total of 8.7 million.
On the darker side, housing, one of the nation's most important industries, remains in the doldrums. Largely because of continuing high prices and towering mortgage interest rates, forecasts for housing starts this year have been repeatedly scaled down, from 1.75 million initially to 1.5 million and now 1.2 million. Nor is the outlook for 1976 much better: starts are expected to go no higher than about 1.6 million, v. 2.4 million in 1972.
The deadliest shock to the economy would be a return of sustained double-digit inflation. That likelihood is not easy to gauge. The October leap in wholesale prices seems to have been partly a statistical fluke, caused by difficulty in calculating seasonal adjustments. M. Kathryn Eickhoff, vice president and treasurer of the New York economic consulting firm of Townsend-Greenspan, suggests that the real annual rate of increase may be only about half the 23.9% reported. Still, the October jump was disquieting: it involved not only metals and cars but also farm products, lumber, textiles, clothing, furniture and household durables, all of which climbed substantially in price. For 1976, the Administration is predicting a rise in consumer prices of less than 6%.
There is a lingering fear that the Federal Reserve Board will choke off the recovery by following a parsimonious money policy. The board has pledged to increase the nation's money supply by 5% to 7½% a year, but during October the money stock actually went down. Lately, though, the board seems to have been easing its stance. Last week, in what experts interpreted as confirmation of the new trend, Chairman Arthur Burns told the Senate Banking Committee that the Federal Reserve would now follow a "course of moderation" in order to promote recovery. Already, as a result of the board's gingerly move toward expansion, interest rates are inching down: banks' prime rate on loans to blue-chip corporations has dropped from 8% to 7¼% in the past eight weeks. Heller believes that as the economy rebounds, the Federal Reserve will be forced to take an even more accommodating position, and will expand money supply as much as 8½% a year.