Masonry Magazine April 1969 Page. 17
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THE TEMPO OF BUSINESS ACTIVITY IS GOING TO BE CURBED in the period ahead, if Federal policies still have any punch. The Nixon Administration is upset at the failure of past steps to break the prevailing inflationary psychology. Earlier optimism about an imminent cresting of the wage-price spiral has been punctured. Now, the White House means to get tough. It is assigning top priority even over help for the cities -to cooling the boom.
Today's over-riding concern about inflation is a switch by Washington. Until just a few weeks ago, the Nixon team was talking confidently of a gradual slowing. The authorities even thought they saw some preliminary signs of softening.
But then came a series of boomy business statistics.
-New plant: Latest surveys project a 14% jump in spending.
-New orders: Businessmen are buying, despite high inventory.
-Retail sales: They have firmed, after months of softness.
-Incomes: They're zooming, setting the stage for a splurge.
CLEARLY, INFLATIONARY PSYCHOLOGY STILL DOMINATES the U.S. economy. There is a persistent, dogged conviction that prices will keep moving up. Basic decisions are made with inflation in mind "to beat out price rises." Too many feel that capacity or goods that aren't needed today will turn out to be bargains tomorrow because material and construction costs will zoom.
Nixon's economic advisors vow that this psychology must be killed, once and for all. They no longer talk so much of gradual slowdown. They're set to get rough. The strategy is to move ahead against the inflation on two major fronts.
THE PRESIDENT IS AIMING FOR A BIGGER BUDGET SURPLUS, for one thing. His predecessor set the goal at $31½ billion for fiscal '70, starting July 1. But the President now hopes for $42 billion...despite higher expenditures for items he cannot control. Some public works projects will be deferred. Most of the cuts will come from defense spending other than for Viet Nam. The inflationary drag, though, won't be having much impact before the fall.
Tighter money will have a bigger impact...one that will be felt this spring. The cumulative effect of Federal Reserve actions is increasingly denying credit to state and local governments, would-be home-buyers, and small businessmen.
Interest rates needn't move higher to discourage borrowers. The present record levels are making them think twice. But the "Fed" is also curbing the flow of loan funds to banks, to force rationing of credit and reduced business activity.
THERE ARE LIMITS BEYOND WHICH NEITHER NIXON nor Congress will go, to be sure, to check the inflation. For example, neither is prepared to impose price and wage controls, which interfere with free functioning of markets. Nixon has made it clear he does not even like the old voluntary guideposts.
The White House is also reluctant to remove the 7% credit granted for investment in new capacity. Nixon doesn't feel the credit should be used to make the economy stop and go.
WHEN WILL THE ANTI-INFLATION DRIVE FINALLY PAY OFF? By late spring, in the view of a number of economists in the government and outside as well. This doesn't mean that prices will suddenly stop their rise. Disinflation does not work that way. But some significant turning points may be reached. A raft of business figures employment, sales, new orders, etc.- could lose their zip all at once, in delayed response to past tax and credit restraint.
But most important of all, psychology will shift. Business would be less prone, in making decisions, to assume that the inflation will roar on. Industry will move slowly in raising prices. Unions will find it harder to win big wage hikes.
UNEMPLOYMENT COULD GO ABOVE 4%, as a result of the greater efforts to stop inflation. A while ago, 4% was all the White House would accept. But now continued inflation is considered a bigger danger than a recession. U.S. officials now talk privately of accepting the levels of unemployment that seemed tolerable in earlier, less properous times-say 42% or even 5%.
Some analysts very much a minority-still believe that inflation is cresting... right now. The fact that figures don't show it is attributed to the usual lag behind actual activity. This group notes that the
masonry • April, 1969