Masonry Magazine March 1968 Page. 15
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ECONOMISTS ARE BEEFING UP THEIR FORECAST FOR BUSINESS in the second half. The big reason for the change is the prospect of higher war outlays. This is going to add to the strain on skilled manpower and other resources. You won't see that decline in activity that was once considered so certain. Rather, the U.S. is heading for a boom. Inflation will persist and worsen.
The new second-half size-up is a relatively new development. Until recently, most government analysts were very concerned. They feared that Federal expenditures would level off after mid-year and that the strike-hedging in steel inventories would then give way to liquidation. Consumer buying alone wouldn't be enough to maintain the thrust of the first half.
Now the government's role is certain to remain stimulative. There is even doubt that steel inventories will melt away quickly after a settlement-or a strike. The record shows users did not slash stocks following the 1965 strike threat.
THE KEY QUESTION ON WAR SPENDING is not will it rise but how much. All signs point to a big jump the weaknesses shown by the Red offensive the Pueblo incident. unrest in the Middle East, and Russian missile gains. Talk of sending 50,000 to 100,000 more men to Viet Nam isn't idle chatter. Most informed guesses put the supplemental defense spending cost at around $5 billion-far more than President Johnson estimated in his January budget.
The impact of this spurt in spending will be substantial in many ways. Some forecasters even predict a repetition of the strains that were so great in 1966-the year of big inflation.
The Federal deficit will exceed $20 billion without a surtax or a spending cutback. Such borrowing means high money rates.
Wages and prices would accelerate their already rapid climb. Labor leaders will be forced by the rank-and-file to meet the fat auto-industry gains. Industry will try to fatten profits.
The balance of payments will continue deep in the red; more imports are being sucked in while high prices hurt exports.
THE RISING BUSINESS TREND WILL NOW SHOW AN UNBROKEN LINE throughout the year.
Gains expected in the total output of goods and services -the so-called Gross National Product-will be nearly equal, quarter by quarter. Here's the way this best single measure of over-all activity would shape up:
-In the first quarter, GNP is rising at $18 billion a year. A third reflects price hikes. But real growth is big, too.
-In the second quarter, the climb could be a shade faster.
-In the third period (and the fourth), a $15 billion gain is seen. Until recently, there had been widespread fears that these gains would fall to as little as $10 billion.
THIS BRIGHTER FORECAST IS NOT A UNIVERSAL VIEW by any means. There are some economists who still do not see the second-half business upsurge. They see no evidence that consumers will go on a spending spree. And they worry about new surveys showing cautious plant-expansion plans. They see signs of softness in the dips in new orders and in lagging bank-loan use.
THE PRESIDENT ISN'T EXPECTED TO PUT THE U.S. ON A WAR FOOTING, despite the greater war effort. It might take a "second front" in Korea for that. For the moment, controlled escalation remains the policy-gradual increases in pressure to make the North Vietnamese crack and to avoid involving Russia.
THIS MAKES IT HARDER TO GET A SURTAX PAST THE HOUSE. Despite hints that key lawmakers have mellowed, rank-and-file members still oppose action. Many in "swing" districts-neither solidly Democratic nor rock-ribbed GOP-fear they can be beaten by an opponent who hits "softness" on the tax issue.
Congressional mail shows a great many voters are dead-set against the surtax. Some don't like the war. Others feel the pinch of the many increases in state, local, and Social Security payroll taxes of the past few years. These taxes, plus price rises, have absorbed much of recent pay hikes.
Congress may switch if war spending surges and prices rise more steeply. Don't rule this out. But the President will have to wrap his tax in the flag to make any headway. And even then he still might not achieve all he is asking for.