THE RATE OF GROWTH of real consumption expenditures accelerated in
the third quarter of 1968, precisely the quarter in which the 10 percent tax
surcharge first became effective. This development contradicts the majority
of the forecasts in existence at that time, and marks the end of the first
Golden Age of modern forecasting. It is now well known that consumer
spendinrg was virtually the only source of growth in the third quarter of
1968-indeed, real final sales, excluding consumption, rose by only $0.3
billion, while consumption jumped by $9.2 billion (1958 dollars). In the
fourth quarter of 1968, while the rest of the domestic economy went on a
spending spree, consumer expenditures actually fell in real terms. Sad to
say, this did not mark the consumers’ return to “normalcy.” One quarter
later, with real disposable income rising by a bare half-billon dollars under
the load of retroactive surcharge liabilities, consumer spending jumped by
more than $5/4 billion ( 1958 dollars). Those analysts who focus attention
on the stability of the saving rate must surely have turned paranoid during
the past few years.
