Masonry Magazine May 1968 Page. 12
theWASHINGTON wire...
THE ECONOMY IS HEADING TOWARD A SUPERBOOM, and there is a very real question whether Washington can slow it down enough to avoid an inflationary binge and a subsequent recession. This is not just scare talk, either. The first quarter saw a change of great significance in the economy. The consumer loosened his pursestrings. New demands will spur an already too-rapid tempo of business activity. Production will increase. And the rise in the price indexes already very worrisome could accelerate dangerously.
The economy expanded at a record rate during the January-March period. Total output of goods and services-Gross National Product-rose at an annual rate of 10%. Even after washing out price increases, the rise was 6%, a lot more than the 4% gain in industrial capacity. The new pressure comes at a time when skilled labor is still quite scarce.
THE OVER-ALL FIGURES DON'T TELL THE FULL STORY. That can be found only by looking at the components; they document that shift by consumers. Retail sales took off, after a sluggish performance in second-half 1967. First-quarter volume topped a year ago by 7%. For March, the gain was 9%. Part of the rise reflected income spurts from higher wages but not all.
People decided to salt away less of their take-home pay, even though incomes were going up. Historically, people save more at first when their pay is increased. But not this time. Instead the savings rate dropped from 7.5% last fall to 6.8%. And the trend is expected to continue.
THE SURGE IN CONSUMPTION HELD DOWN INVENTORY ACCUMULATION by business. Stores were cleaned out of many items. Businessmen ended up with less in stocks in the warehouse or on the shelf than they had originally set out to build up. Now they are stepping up their ordering. They are trying to get inventory back into line that is, to meet their earlier targets.
Indeed, to be ready to handle the extra demand, many firms are planning to shoot for higher inventories than before. Such decisions will prompt a chain-reaction on production, borrowing, incomes, further buying, and on demand for credit.
THE ECONOMY IS STILL FEELING THE THRUST of rising defense spending, and the preliminaries to peace talks do not promise any turn-around soon. The developing burst of demand from the consumer means additional pressure on top of the very heavy military requirements for equipment and services.
Economists say that a savings rate of about 5½% is "normal"; this was what individuals put aside out of take-home pay during the 1960-66 period. Then the rate shot up during the "minicession" last year. If it falls back to normal, some $7 to $8 billion in buying would spur the economy even more.
And now there's the possibility of still further demands. Industry is lifting its plant-expansion targets. Latest surveys show only moderate increases so far-intentions to spend 8% more than in 1967, instead of just 5%. But this is the way all capital spending booms always get under way.
THE IMPACT OF THESE DEMAND PRESSURES COULD BE GRIM for the domestic economy and the U.S. international position as well. Government efforts to reassure European bankers of the country's economic health could flounder. Another gold crisis, and even dollar devaluation, is still a possibility.
-Imports would jump more in response to higher prices here and the inability of American producers to satisfy demand.
-Exports would become less competitive in the world market, and the trade balance could slip to the minus side again.
-Our payments balance would sink still further into the red, threatening to undo the agreements to maintain the dollar.
-Prices would soon be rising at a 5% per year rate or more, both on the Consumer and Industrial Wholesale Indexes.
THE RISING TEMPO RULES OUT ANY SAG IN THE ECONOMY in the second half, as seemed so likely to many several months ago. The scramble to build up inventory alone assures this, even though steel users may be ordering less after August 1... whether there is a settlement with the union or a strike. The size of gains in the future rests on what is done to slow things down.