Measuring the midyear slump

In 1967 it cost the average American family only $100 to buy what it costs $ 271.30 to buy today. Revulsion against high prices has brought an anti-inflation high interest rate in Washington that is felt throughout the world. In effect, President Reagan and his advisers have assigned the conquest of inflation to the Federal Reserve Board, headed by Paul A. Volcker.

The squeeze of high interest has helped put a brake on inflation. But at the same time, it has brought hesitancy to the bond market, a sharp decline in values on the stock market, and a contraction in the economy. The widely watched Dow Jones average of 30 blue chip stocks, which hit 1,015 last March, is around 924 this week -- a paper loss of around 9 percent.

America's international trading partners at the Ottawa summit complained of the high interest charges. It is a rising political issue at home, where the high cost of borrowing money has restricted the housing, automobile, and other consumer-oriented industries. Fed Chairman Volcker is spending much of his time testifying before congressional committees.

Political charges also are escalating between Republicans and Democrats as Congress wrestles with the combined budget and tax cut programs. The charges involve the 35 million recipients of social security. In effect the political process is making major decisions that affect everybody's pocketbook: It is apportioning benefits and burdens in a reshuffle of economic priorities.

It is a difficult period for politicians, who note that with a "pro-business" administration in the White House, the financial markets are nevertheless registering uncertainty over the temporary consequences of the economic package.

Latest government statistics show the following score card.

Inflation: While prices continue to rise, the rate of increase shows a gratifying decline. As measured by the gross national product implicit price deflator, the inflation rate has dropped sharply, from 9.8 percent in the first quarter to only 6 percent in the second. Food and energy prices rose slower, contributing to the decline.

Real output: In contrast to a surprisingly swift increase of 8.6 percent at an annual rate in the first quarter of 1981, the nation's output of goods and services fell at a rate of 1.9 percent, seasonally adjusted, in the second quarter. One antidote for inflation is to surfeit the market with goods. A difficulty is that the very weapon of combating inflation -- charging more interest for borrowed money and credit -- sends up business costs, which, in turn, check the output of goods. In updating its forecast, the administration said "little or no real output growth is expected during the remainder of the year."

Earnings: A lot of Americans are falling behind in the race between higher prices and lagging incomes. The US Labor Department in a separate report measures this pocket- book shrinkage for June in what it calls "real gross average weekly earnings." When the rise in paychecks was compared with the rising cost of living, there was a drop of 0.2 percent in "real" earnings.

How did the typical "Jones family" fare? This is the theoretical average American family of four with one wage earner, wife, and two children. Mr. Jones feels the pinch. As an average worker he lost 2 percent of his spending power in the last year. Such a situation produces pressure for higher wages and possible strikes if the industry is organized.

At a press conference, US Commerce Secretary Malcolm Baldrige took note of the current contraction and said that "the months ahead are likely to be difficult for business." He said that realistically he did not expect any real economic growth in the July-August- September quarter. He agreed that this is "a definite slowdown." Economists are using a stronger word: under title "A New Recession May Have Begun," Merrill Lynch Economics Inc. sees "a rising possibility" of recession if interest rates don't come down soon.

From the political viewpoint, it would be better for President Reagan to have the business slowdown over (if indeed there is one) and to have the recovery under way before next fall's congressional elections. By that time inflation might be further checked. The administration is trying to cushion the cutback of federal programs, including social security, by reducing taxes.

Democrats criticize details of the administration's program, but there is no all-out attack on the central thesis that government deficits help produce inflation. A difficulty in the present situation is the unprecedented peace time armament expansion, which puts a heavy burden on the budget.

"Sustained monetary restraint by encouraging greater confidence in the price outlook will in time help bring interest rates lower," Chairman Volcker has said. "Fundamentals of the situation suggest rates should be going lower." He indicates he expects improvements within a year.

So far the banks, bond market, and Wall Street, however, haven't got the message. Banks have been raising their charges on borrowers, and stocks have hit an air pocket in recent trading.

There is no sign, however, th at the Reagan administration plans to change its course.