Masonry Magazine May 1969 Page. 17
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MANY ECONOMISTS SEE A CHANGE IN THE BUSINESS CLIMATE going on right now. Expectations of inflation are no longer quite so unshaken. There is a growing feeling that the long-awaited slowdown in economic activity has already started. To be sure, this has been said before too many times in the past year. But, these days, there is a persuasive reason for the belief. The succession of restraints imposed on the economy is now enormous. Its sheer weight is exerting a cumulative drag on sales, orders and investment.
You can see evidence of the shift in psychology in what is probably the most sensitive barometer of all -the financial markets. Bond prices, which in the past have risen ahead of business weakness, had some firm run-ups this spring. Those who buy bonds decided that business activity was really going to slow that credit needs would ease and interest rates dip.
THE NEW MOOD IS EMERGING DESPITE THE STRENGTH the economy showed in the first quarter. Most experts had looked for the anticipated cooling to show up early in 1969. But inflation had gained too much momentum. Both consumers and businessmen were still buying too briskly still making it easy for industry to raise prices and unions to win out-sized wage hikes.
The Nixon team was worried that the boom would end in a bust. Stepped-up moves to cool things naturally followed. On the monetary side, the authorities are bearing down hard on banks' ability to lend. And on the fiscal side, the cuts in U.S. spending, the call for repeal of the 7% investment credit, and extension of the surtax will shrink buying power.
OFFICIALS EXPECT TO SEE UNMISTAKABLE SIGNS OF SLOWING by mid-summer. What are they watching for? Not a sudden disappearance of all evidence of inflation, certainly. And not an overnight flattening of the price indexes, either. But they hope for a noticeable abating of these very demands that have encouraged both business and labor to push for higher prices and wages.
Specifically, the authorities will be waiting for:
-A decline in consumer buying of durables-autos, TV sets.
-A cut-back in expansion plans of business, which have been threatening to give inflation another boost during 1969.
-A drop in demand for money at banks and the bond market.
masonry
May, 1969
REPEAL OF THE 7% INVESTMENT CREDIT WON'T REDUCE spending for plant by very much-not this year and maybe not in 1970, either. For one thing, orders placed before the repealer was requested will keep machinery makers and contractors busy for months ahead. And next year, need for capacity, plus fear of rising costs, could generate increases in the total spent.
More of the impact will center on corporate profits. Net after taxes will be hit to the tune of $3 billion-a 5%-a-year bite. The extra revenue will offset uncontrollable hikes in U.S. outlays and help preserve the Budget surplus.
A more compelling restraint on spending for new plant and equipment this year may prove to be the llimited supply of credit to be available and the shortage of skilled labor.
CORPORATE PROFITS NOW SEEM TO BE LEVELING OFF-perhaps as a prelude to some decline in the second half. Repeal of the investment credit will be only one of the reasons. Another: The slowing in business activity that will raise unit costs as sales flatten out. What's more, the slowing will no doubt make it harder for business to raise prices to cover increased costs.
Preliminary tabulations of first-quarter earnings statements show gains of roughly 8% above the comparable period of last year. But there was no real pick-up over the last three months of '68. Further, more than 25% of publicly reporting companies registered declines in the January-March period.
Some analysts believe profits may now be lagging year-before performance during this very quarter. Most, though, think that the economic pace isn't slowing enough for this yet. They do not expect dips to appear until the third quarter.
THE RISE IN INTEREST RATES MAY BE PEAKING, as borrowers and lenders finally begin to believe that the inflation is really going to be checked. So long as skepticism was strong, investors shunned long-term commitments. Rates climbed even higher, as heavy demand outstripped the supply of money. But, now, the many anti-inflationary measures are making (Continued on page 20)
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