Masonry Magazine July 1970 Page. 15
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BUSINESS ANALYSTS ARE TONING DOWN THEIR FORECASTS for the last half of the year. They still see a pick-up in activity in coming months. But the improvement is now expected to be quite modest-even sluggish. Sales will be up, inventory work-offs will end, and industrial production should rise. But the pace won't be brisk enough to reduce the unemployment rate. On the brighter side, interest rates will edge down some more, the pressure of inflation may ease up, and the harsh profits squeeze could well relax.
This picture reflects a considerable shift from six or eight weeks ago. The difference is a measure of the weakening in confidence that has developed. The stock market shows this and helped bring it on. The latest figures on jobs, output, and income confirm the nervous psychology so widely felt.
BOOM PSYCHOLOGY HAS FINALLY FADED, after lasting for so long after the things that caused the boom had gone. Until early spring, many kept on believing that the business slowdown would be short and shallow, with rapid growth resuming this summer. When the budget moved into the red-helped by those big retroactive Federal pay raises-renewed inflation seemed assured.
But tight budgets and tight money had done their work well. Excess demand for men, money, and machines had been killed by the fall of '69. Cost-push inflation, though, kept eating into profits. The stock market gave way. Confidence broke.
ECONOMISTS SEE ONLY MODEST SOURCES OF LIFT operating in the months ahead. Business outlay for new plant and equipment has begun to turn down. Consumers say they intend to spend cautiously, according to recent surveys. Home-building will pick up, but it will take time to assemble land and labor after so much depression. There is no great incentive to build inventory.
Some analysts now think that this year will see virtually no growth at all, over-all. The first quarter saw total output of goods and services-Gross National Product -fall 3% after washing out price increases. The second quarter leveled out. Gains of 12% in each of the last two periods and that's all that is expected-would only make up for early shortfalls.
THE BASIC NATURE OF THE ECONOMY HAS BEEN CHANGING. The country is no longer in a war build-up, though the war isn't over. The two forces that generated the late boom-business investment and defense spending have now peaked out. More and more economists are saying that with so much new and efficient plant-the problem in coming years could be too little demand.
Some experts question this. They see plenty of demand from consumers and a government eager to clean up the cities and to tackle pollution. But businessmen should fully consider the possibility that the sluggish forecast will prove right.
THE NEED FOR CREDIT MAY FALL SIGNIFICANTLY in months ahead, if the upturn does turn out modest. What is more, the money-controlling Federal Reserve might deem it wise to try to speed up the pace-to cut unemployment-by making credit more easily available. The decline in interest rates that began in mid-June could carry on and clip another point from current levels.
THINGS SHOULD BEGIN LOOKING UP ON THE INFLATION FRONT this summer. Admittedly, hopeful official forecasts have proven duds over the past year. But some new forces, absent until the past few months are now operating the higher levels of unemployment and significant increases in productivity. Corporate profits could turn up again, as a result, and help stock prices.
Few officials see much progress from the President's latest anti-inflation program-his inflation alerts and his new Productivity Commission. This panel is supposed to show how to lift output per manhour-and it may have some success in time. But it isn't expected to help much in the short run. Rather, progress will result from natural economic forces.
PRODUCTIVITY IS NOW RISING-IN MANUFACTURING, as many figures show, and elsewhere in the economy, too, no doubt though data are hard to get. This contrasts with 1969, when there was no gain because of labor hoarding; businessmen were slow to lay off, because many expected an imminent upturn. As a result, as wages spurted 6-7% last year, unit labor costs jumped 4.5%.
The cost increases had to be passed along in higher prices, to keep earnings from being squeezed even harder than they were. This explains why inflation accelerated last year, even though sales were beginning to level out or decline.
BUT INDUSTRY HAS BEEN LAYING OFF EXCESS LABOR recently-dishoarding. Payrolls have been down more than output. So productivity has been rising at a rate of 4% a year since January a very different story from last year. What is more, the climb appears likely to continue on for many more months, as the upturn increases production while relatively few workers are added. Employees will work fuller weeks; efficient new plant will give more output. Unit labor costs could well stabilize after having leveled since January.
masonry
July, 1970
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