Masonry Magazine February 1967 Page. 17
the WASHINGTONwire...
THERE'S GUARDED BUT SUBSTANTIAL OPTIMISM about the business outlook for the second half among economists in business and government. It is not getting as much attention as the concern over the trend that's likely during the months immediately ahead. But the more hopeful feeling seems solidly based, nevertheless. The expectations of a bounce-back later in the year are in considerable contrast to the pessimism that was dominant only recently.
At the moment, the economy is delicately balanced between inflation and deflation. But it is slowing. Government policy will be stimulative in months ahead, though. Spending will run ahead of revenues And money is becoming easier.
THE KEY PROBLEM IS TO LIMIT THE RE-ADJUSTMENT in inventories that is just getting under way. The uptrend in sales of civilian goods slowed down. But production has not. So goods have been piling up. And businessmen are reducing ordering. But it takes time to slow the production lines. In the meantime, industry has been getting deliveries it no longer wants-so-called "involuntary accumulation." It has already begun to cut back its ordering.
The reduced ordering will be showing up in layoffs and lower production during the remainder of this winter and spring. Inventories won't actually fall. But they will be going up more slowly till reviving sales make them more comfortable.
Other slowdowns will compound the inventory impact:
-Defense expenditures are now rising a lot more moderately.
-Business spending for new plants has already begun to level.
-Consumer buying of autos and appliances, etc., is lagging.
ALL THIS IMPLIES THAT THE ECONOMY WILL GROW 2-3% in the first half, instead of the 5%% rate of 1966. This could hardly be called a recession. But it does make economists and policymakers in Washington quite nervous. The trend could feed on itself... hurting confidence and bringing more cuts.
In short, the danger of a recession does exist, though it might not be great.
The President's Budget is carefully designed to offset this softening for a long time. Then... as tax increases take effect, fiscal policy is supposed to rein in more gently on the more vigorous expansion that's foreseen. There is more spending hidden in the Budget than the deficit figures imply; it will be masked by asset sales, which count as offsets to spending.
THE FEDERAL RESERVE HAS SHIFTED TO EASIER MONEY to supply the credit necessary to support a faster tempo in the economy. Officials want to act while there is still time to influence the trend in housing, especially. They concede that they may not have the power to prod people into borrowing and spending, but they want to make sure that the severe restraints those drags that slowed the business expansion last year are not operating now.
So economists see the way clear for that second-half pick-up. Slimmed down inventories will lead to an upturn in ordering. Social Security benefits will increase. These factors will build on the base of moderate gains in defense and in new plant spending. And home-building will be reviving rapidly.
But the trend toward easier money is even more important far more so. It began when the Federal Reserve reversed its tight-money policy last fall. Now, mortgage lenders are getting funds again in quite respectful amounts. They are not rushing out to lend until they get a little more cash.
THE RATE OF NEW HOME STARTS COULD SPURT by the last quarter of 1967. The experts are talking of a seasonally adjusted annual rate of 1,500,000. That would put activity back to the level of early 1966-still well below the all-time peak of 1,800,000-plus, but well above the current 1,100,000.
Recovery in home-building foreshadows better (Please turn to page 20)