Masonry Magazine September 1966 Page. 16
Washington Wire
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rise-say, three or four years more.
The experts feel we will have to be extremely lucky to avoid a bust. But they don't expect such good luck. The economy will have to go through a wringer at some point. Business activity may actually decline. But no one can say when.
THE "NEW ECONOMICS" IS UNDERGOING A CRUCIAL TEST-one that will have considerable meaning for business. The test is: Can it cope with inflation? Manipulating tax rates can spur activity. But if it cannot dampen a boom because of political arguments against tax hikes it will be discredited. Congress may be unwilling to cut taxes the next time a slowdown threatens. The U.S. will have lost a worthwhile weapon for assisting economic growth.
FEAR OF INFLATION IS A LOT DEEPER IN WASHINGTON than Administration hesitation may lead you to think. Concern about rising prices permeates the government, the White House included. Officials do not want to alarm the public before elections, but they no longer regard inflation as a potential threat. It is here... now... today. No matter what action is taken in months ahead, it will travel a long course before it finally comes under control.
THERE WILL BE A LOT MORE LABOR TROUBLE THIS FALL than seemed likely a few months ago. With few major contracts set for bargaining in the months ahead, big clashes were not expected until 1967, when many basic industries negotiate. But the union rank-and-file won't wait. Members want gains now. Some don't want to mark time until existing agreements end. There is talk of slow-downs and wild-cat strikes though contracts are still in force.
Wages increases averaged 3.8% in manufacturing in the first half of 1966... despite the wage guide-posts. But now the unions demand 5% even more in building and the services. With labor tight, they know their bargaining power is high.
THE CLIMB IN PRICES WILL ACCELERATE because of the push from wages, though that won't be the only factor responsible. The climate is favorable for posting increases because the demand for goods is strong. For many, it is a seller's market. Wholesale industrial prices have risen at an annual rate of 32%-plus in recent months. Some fear the pace may speed up to 5%.
All signs say higher prices on major consumer durables this fall-in many cases, the first such hikes in years. The new autos will be up $125 or more refrigerators, 3-4%... air conditioners, 4-6% furniture, 3-5%... color TV, 7-8%. In some instances, extra features will help sell the jump.
TIGHT MONEY IS FINALLY GOING TO SLOW BUSINESS BORROWING, in the view of many officials and financial experts. Up to now, its restrictive impact has centered in home-building and state-local money-raising. Business firms have been able to obtain much of the credit they need... at higher interest rates, of course. Banks have managed to get funds to keep on making loans, even though the Federal Reserve has been curbing the money supply's growth. They did so mainly by offering higher interest rates to depositors to attract money.
But this source is dwindling. Many banks have reached the limit they are allowed to offer-52%. Other seekers after money are willing to pay more finance companies and even the U.S. government. Banks can still get cash from selling securities they own...at good-sized losses. But there are still practical limits to this. Increasingly, the banks will have to give business less than requested and even say "no."
RISING COSTS THREATEN TO END THE RISE IN PROFITS for many companies in many industries. A major squeeze on margins has been predicted several times in the past year or so. But it failed to materialize. times in the past year or so. Earnings just kept on climbing and quite substantially. But now the surge seems waning.
Prices are not likely to rise fast enough to offset cost increases, even though many lines will still be able to pass such cost increases along to consumers for a while. Before too many months, though, new capacity and consumer resistance could limit price freedom. What's more, with operations at capacity, productivity gains will be lower.
STILL MORE AMERICAN ESCALATION IN VIET NAM is being openly rumored in Washington these days. It will go beyond levels the public is expecting. A while back, U.S. troop strength was supposed to peak at about 400,000 men. But now you hear talk of 500,000 or 600,000-perhaps before the end of 1967. They would be used to clear guerillas from populous areas of the South. All this rests on the as-
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MASONRY. September, 1966