Masonry Magazine August 1970 Page. 14
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A NEW AND VERY DIFFERENT ERA IS OPENING for the American economy-one with important implications for policies of government and businessmen. The boom of the late Sixties is definitely over, and its like will not be seen for many years to come. Forecasters in government and industry are now predicting a period of restrained activity and substantially less inflation.
This is not to say that the U.S. faces more recession. Most analysts believe that the economy will turn up this summer and fall. But growth will be only moderate, price increases will be smaller, and interest rates will decline even more.
THE NEW CLIMATE REFLECTS PEAKING OUT of the two very dynamic forces that generated the late inflationary boom in the first place. On one hand, defense spending, which ballooned Federal budgets and budget deficits, has turned down. Outlays for Viet Nam have dropped from a peak of $29 billion year before last to an estimated $15 billion for this year. Even if things only level out now, this once-dominant thrust will no longer be operating.
Business spending on new plant and equipment has now turned down, too. Tight money, and the lower sales it has brought, curbed industry's zest for expansion. Damage to confidence from the slide in stocks also dampened eagerness to invest.
THERE WILL STILL BE A NUMBER OF PLUS-FORCES AT WORK in the economy. Consumer incomes continue to rise and families will continue to spend more. Home-building promises to improve, though other kinds of construction slow. And state and local governments will step up spending as money gets easier. So activity will rise, but not enough to bring unemployment down in a hurry.
Many economists believe that the problem now is how to keep economic resources working, how to keep all the new plant that's coming on stream busy, how to find jobs for all the new workers entering the labor force. Even the most hopeful do not see unemployment falling to 4% before next summer.
INFLATION IS SURE TO BE AFFECTED by this generally calmer climate. This may be hard to accept after past forecasts of abatement proved wrong. But times do change. Note that faith in an ever-continuing business boom-seemingly so unshakable a scant three months ago-has now largely vanished. Many analysts feel that you will soon be looking back at the current rate of inflation-5% a year and will be wondering why you felt it would last.
Hopeful signs of abating inflation are starting to appear:
-Wholesale Prices are rising more slowly-less than 2% in second quarter, down from nearly 52% in the first. Prices of industrial materials-lead, rubber, wool-have softened.
-Productivity in manufacturing has started to rise again-at a greater than 3% a year rate, after no growth in 1969. This will help brake the steady climb in unit labor costs.
BUSINESS WILL HAVE TO KEEP A TIGHT REIN ON COSTS from here on out, to protect and rebuild profit margins in the new era of more modest sales growth and continued large wage hikes. Recent trimming of payroll and other fat brought the productivity gains. Economists say the efforts must go on.
THE AUTO NEGOTIATIONS WILL SHOW HOW TOUGH industry is ready to get. The union demands are huge maybe more than 8%-a-year in wages, retirement after 30 years with a $500 a month pension, fatter unemployment benefits. And there will be a list of seemingly small but expansive fringe demands. But hottest bargaining will center about unlimited cost-of-living increases.
The hard-pressed industry says that it simply cannot pay all this. But the new Auto Workers chief must top other unions gains his first year. This explains all the betting on a strike. A big labor victory will set higher goals for other unions. Progress against inflation may be slowed a little.
THE WHITE HOUSE IS NOW TRYING HARD TO RESTIMULATE the economy, now that inflation seems to be yielding to past restraints. Many Administration officials are not as confident of a brisk pick-up in business activity as their public statements would lead one to believe. Too many things could go wrong, and the politically dangerous unemployment could go still higher.
The work-offs of inventories that were such a drag on the economy in the first quarter may not end this summer; the stock-market break and the jumps in unemployment have made borrowers cautious about spending their increased incomes. And now that business spending for new capacity is topping out, officials cannot be sure that it won't start to slide.
Most analysts don't think this will happen. But it could. The President and his advisers don't dare take the chance. This is why getting things moving again has top priority in government planning these days, rather than inflation.
THE PRESIDENT IS NOW WILLING TO SEE A DEFICIT in the Federal budget for this fiscal year, even though he may not welcome it as some of his advisers do. (Certain officials would say that a moderate deficit is even necessary to generate an upturn sufficiently rapid to reduce