Masonry Magazine February 1968 Page. 23
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THE BUSINESS EXPANSION IS PICKING UP SPEED. Indeed, the most recent government figures show greater-than-expected gains. There are some soft spots: consumer spending is lagging a little and is worrying some economists. But, over-all, the pluses are dominating. It looks as if a boom is developing. The threat of inflation, which could worsen the dollar's troubles, is growing. Any new burdens on the economy, such as ground fighting in Korea would impose, would call for full controls.
The list of rising indicators has become quite impressive.
-Employment is up extra-seasonally; joblessness is way down.
-Production has been expanding at a sparkling 1½% a month.
-New orders for durable goods are showing a strong uptrend.
-Investment in new plant is slated to surge in this quarter.
And prices are escalating on all fronts, except at the farm.
MUCH OF THE CURRENT UPSURGE CENTERS IN INVENTORIES. A full fledged build-up is under way. Business is accumulating stocks at a $10 to $11 billion-a-year rate. It is beginning to remind analysts of 1966, when an extraordinary pile-up out-ran sales and consumption. A period of adjustment followed-the business slowdown that dragged through the first half of 1967.
Auto-makers and their suppliers are piling up materials and components, preparing for a surge of output to make up for strike losses. Steel-users are ordering extra tonnage to hedge against the possibility of a strike starting in August.
A SPURT IN CONSUMER BUYING IS COUNTED ON TO ABSORB the inventories now being accumulated. It would be set off by sharp increases in incomes, from several sources: the higher minimum wage that took effect February 1... the enlarged Social Security benefits beginning March 1 extensive overtime in high-wage industries... government pay raises and union wage increases.
The record shows that people tend to spend additions to their incomes. Economists are betting it will happen this time.
CONSUMERS AREN'T EXACTLY BUYING THEIR HEADS OFF these days, though. Retail sales have been a trifle lack-luster-auto sales more than a trifle. Many families are uncertain about the war and what it is going to lead to. Or, maybe, rising prices are eating up income gains, cutting buying power. Rising payroll taxes and state and local levies are shrinking incomes, too.
Anyway, people are saving at a record high 7½% of income as against a normal 5%. That clips some $12 billion from sales the difference between a dull year and a fine one. But the betting is that rising incomes will spark a buying surge.
SOME ECONOMISTS FEEL THE UPSURGE WILL BE SHORT. Too much of today's strength looks temporary. Those increases in income will soon be losing their steam. The auto build-up will end this spring. And steel users will start living off inventory-slashing orders once the strike date passes.
Meanwhile, with war spending slowing its rise, the Federal role will be less stimulative. And home-building is going to slip a bit because of high mortgage rates and tight money.
ECONOMISTS ARE NOT PREDICTING A BUSINESS SLUMP in the second half-or anything like one. Rather, what they see is a lessened rate of growth. For example, they see industrial production rising by 6% in the first half. But, in the last six months, the rate of expansion is forecast as only 2%. Unless there is a major escalation in the military sector-in, say, Korea-the economists find it hard to see where any great new lift can come from.
This is one reason so many Congressmen have had persistent doubts about the wisdom of a tax hike to slow things down.
NOTE THE FORECAST OF A GOOD GAIN IN CORPORATE PROFITS implicit in the President's new Budget for fiscal 1969. His economic advisers see a total of $87 billion-before taxes. That would be a gain of a little more than 8½% over the $80 billion of 1967. By contrast, profits declined by $3.7 billion last year, as rising costs and sluggish sales nipped margins.
Government economists are basing the improvement they see on the spurt in consumer sales they expect. In addition to the effect of volume, there'll be gains in productivity from high rates of capacity (Continued on page 30)
masonry
February, 1968
23