Masonry Magazine August 1969 Page. 15
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The next 30 to 60 days will bring clearer signs of business slowing, say influential government economists. Even the most cautious analysts and officials usually reluctant to go along with mere forecasts now expect to see the long-awaited turn this fall. A majority has now become impressed with the pattern of evidence the cumulative impact of scattered statistics that all point to definitely milder, less inflationary growth of the economy.
The signs are not yet conclusive, to be sure. But they are generating increasing fear of a recession among President Nixon's economic advisers. Indeed, the credit-controllers at the Federal Reserve Board fiercest inflation-fighters of them all are now debating when and how to back off from their current and extremely restrictive monetary policies.
This doesn't mean that inflation is over or has even been slowed significantly. Checking the wage-price spiral will take a long time. But rapidly rising prices and costs are obscuring the vital, underlying trends. They are inflating sales figures as well as every dollar measure of economic activity. There is a lingering momentum, kept going by rising union demands and by jumping raw material prices. It is forcing those big increases in the price indexes increases that are not justified by strength of demand.
Economists stress that this sort of spiral does not have to keep barreling along forever. Its vigor is now eroding... slowly, but surely... as the latest developments demonstrate.
The evidence of cooling can be found these days in every key sector of the economy... even though it may take an economist's eye to pick it out. Retail sales, for example, have flattened out have even declined a little. Sure, production has been strong. But much of it has gone into inventory. This just can't go on. Inventory build-ups always lead to cuts in output.
And there is slack in other areas of the economy, too:
-Federal spending has leveled off. Defense is slipping.
-Housing starts have been declining steadily since January.
Only spending for new plant capacity keeps fueling the boom.
But there are signs now that even plant spending is turning weaker. Chrysler is cutting expansion because it expects a slow-down to cool sales. U.S. Steel is reviewing its plans, too. And a major computer-leasing firm has decided not to buy new machines for leasing because of high money costs. Government economists hear that quite a few more cut-backs are on the way.
This is what government restraint has been out to achieve all along. That has been the purpose of the surtax and of the tightening of money. Officials have been attempting to convince industry there is no need to rush ahead to build capacity not needed now, because costs won't keep zooming.
The economy's real growth has been slowing markedly for some time now though the large price rises have tended to obscure this fact. Washing out the price increases, you find that real physical growth rose only 2.3% in the second quarter of this year, compared with 6.5% in 1968's first half. For the first half of 1970, economists see no real growth even a recession.
Fear of a recession keeps growing steadily among government analysts. It's still a minor concern. Most experts believe that one will not develop. But the danger exists specifically, a danger that money will be kept tight for too long; a slide may develop strong momentum before officials realize. Statistics take time to compile and largely tell what happened a while back.
Tight money achieves its impact after a lag of as long as six or nine months. In other words, current efforts to curb the economy will be coming to fruition next spring. But that will be when business activity has slowed and may be needing some stimulation to avoid a long, serious slump.
Thus, the authorities at the Federal Reserve must adjust course before the statistics fully show the desired slowing down. Officials want something in the way of signs of give before reversing field. But they know they can't wait for absolute proof. So a tentative shift toward easier credit could be authorized by "Fed" officials early in the fall.
Booming business in Europe and Japan is adding to inflation problems in this country. The good times are generating heavy demand for such (Please turn page)
masonry
• August, 1969
15