ARE CONSUMERS SPENDING MORE ON THE WRONG THINGS?
Without doubt, consumer spending has been one of the economy's stronger suits this year, rising by $119.1 billion, or a 4.8% annual pace, since December. Economist William V. Sullivan Jr. of Dean Witter Reynolds Inc. points out, however, that the spending pickup has been "concentrated in categories that give little promise of the multiplier effects that spurred job creation and income growth in past expansions."
For one thing, Sullivan points out that a third of the rise was spent on housing services and household operations--areas that were dominated by a big jump in the "imputed" rental cost of owner-occupied housing and by higher utility bills for electricity and natural gas. And some 27% of the total increase went for medical care--mainly higher doctor fees and hospital outlays, which seem to reflect continuing high medical-care inflation.
At the same time, Sullivan notes, the notion that auto sales are roaring ahead seems highly exaggerated. Indeed, personal expenditures on new cars were actually lower in July than last December, while used-car purchases are up at only a 3.8% annual rate--"and used-car sales do far less for the economy than spending for new vehicles."
"Unfortunately," says Sullivan, "the strongest areas of consumer spending appear to be either those over which consumers have little control, such as medical care or utility bills, or those which do not generate large job gains."GENE KORETZ