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Housing starts in January fell 18% below a year earlier, to an annual rate of 1.4 million, and they appear headed much lower. Buyers cannot afford mortgage interest rates that top 16% in some areas oi the country, and savings and loan associations are running out of money to lend. In the Chicago area, new home sales in February tumbled 30% below the 1979 level. Contractors are laying off so many workers that 60% of the area's construction labor force may be unemployed in two to three months. In Houston, starts are down 50%, and John Pace, president of the Greater Houston Builders Association, speaks gloomily of "tens of thousands of homebuilders across the nation who are going broke." Builders, he points out, generally have to borrow from banks at interest charges that are two or three points above the prime rate.
To date, these troubles have not been strongly reflected in the general economy. In fact, one of the reasons for accelerating inflation is that the mild recession economists have been predicting for well over a year—and that the Administration has been counting on to hold down prices —has stubbornly refused to arrive. Panicky consumer spending has kept the overall economy expanding.
There are some signs now that consumers are running out of the cash and credit to continue the buying binge. Retail sales dropped slightly in February, and installment debt in January made only a small increase. But fear is growing that when the long-delayed recession finally does hit, it will burst with far greater virulence than policymakers have been expecting.
A severe slump, of course, would reduce U.S. standards of living—and so would inflation if it continues at anything like the current pace. "In my opinion," said Marshall McDonald, chairman of Florida Power & Light Co., at a recent business conference in Miami, "we are going to have a situation in the next five to ten years that could force us to change our entire way of life." He implied to a startled audience that Floridians would not be able to afford air conditioning and added: "We are going to have to get used to sweat. That's right, sweat."
Much of the gloom being talked today may be exaggerated. But, at the very least, the nation is in for several years of trouble.
Inflation has built up such fearful momentum that it can be brought down only slowly and with much pain.
That pain might be less if Carter had acted earlier. If he had submitted a balanced budget in January, some of the worst shudders in the financial markets might have been avoided; they occurred largely because investors saw the original budget as lax and concluded that the Administration would do nothing effective to curb inflation. Even now, the President's plan is inadequate in many respects. Like his energy program, it flourishes a rhetoric of sacrifice and national duty but actually asks