Masonry Magazine June 1970 Page. 11
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There is no reason to change forecasts of a moderate quickening in business activity in the second half. Latest statistics all but rule out the renewed boom some saw when the postal strike brought big pay increases for all Federal employees and knocked the U.S. Budget into deficit again. But deficits are stimulative, and this one will work against a recession.
What has happened to economists' thinking over the past month is a weakening in the degree of confidence they have in their forecasts. The picture is more confused partly as a result of the stock market sinking spell. You can't be sure what it has done to consumer and business plans to spend and invest.
The gloom over the economy was overdone, in the view of many leading economists in government and in industry. These analysts are convinced that the pessimism out-ran the realities of the business situation. They believe that today's troubles are, in good part, psychological. Few see a serious recession. Most still expect to see some abating of inflation by year-end.
Political developments, like clear-cut measures to wind down the fighting more quickly, could do a lot to restore optimism.
There is a crisis of confidence in the way the economy is being run. This may not be the President's fault. He did inherit a roaring inflation. Restoring stability just could not be accomplished without "slowing pains." Nixon's plan for a gradual slowdown of inflation was expected to take time.
But the White House did underestimate the strength of this inflation. Perhaps the surtax should not have been ended. Then, the move into Cambodia brought new fears of big jumps in war spending... of huge deficits... of renewed inflation. The slump in profits has made even the President's ardent backers in industry turn skeptical on the business outlook.
The weakened confidence seems certain to affect economic decisions. Caution will dominate. This should soon be showing up in orders and sales. Consumers feel poorer because rising prices cut into their purchasing power and because the stocks decline has eroded wealth and feelings of well-being.
Rising layoffs also bring nervousness. People tend to put a rein on buying.
Business is already cutting appropriations for new plant and equipment and is stretching out work on expansion projects that have already started. With money still so tight, many companies will not rush in to build inventory high, either.
But economists advise against exaggerating the impact of pessimism. The restraint on consumer and business spending may yet be a healthy thing. It may be just what is needed to prevent a new highly inflationary upsurge. Don't forget: Consumers are enjoying big increases in disposable income-income after taxes. And they'll spend a lot of it, if history is any guide.
This can offset the negative impact of inflation and lowered stock prices. Things will stabilize, ending up perhaps less brisk than the income jumps may imply, but noticeably better than the extreme pessimism of the spring would indicate.
The deficit will probably be bigger in the coming fiscal year than the $1.3 billion the President forecast in May, after revising his initial January estimate. Some uncontrollable spending like interest on the U.S. debt-will run higher, if interest rates don't come down. But President Nixon has vowed to cut other programs, to offset such increases, just as he did in the year just passing into history. It is the revenue side that may go wrong-lower tax receipts and failure to vote Nixon's ethyl-lead tax.
But there is less to fret about in this sort of development. Weakness in receipts neatly offsets weakness in the economy.
There will still be some poor figures before any turn comes, though-further climbs in unemployment, further lags in profits. In the last half, however, those consumer spending increases should be starting to take hold. The economy could well be growing at an annual rate of 3% by the year-end. By contrast, the first quarter showed a decline of 3%, net of price change.
Money will remain scarce for the rest of the year, despite the fact that the credit-controlling Federal Reserve is letting supply expand again. The desire for "liquidity" that is, to build up (Continued on page 25)