Masonry Magazine May 1970 Page. 15
theWASHINGTONvire...
INFLATION HAS REPLACED RECESSION as the primary threat to economic stability and healthy business growth. The slowdown in sales and production appears to be bottoming out sooner than most forecasters were projecting. They aren't predicting that a new boom will be getting started in the second half of 1970. But a definite quickening in the tempo of activity is widely expected. Unfortunately, it could turn out to be a "profitless prosperity."
The current appraisal reflects a sharp reversal in thinking since the spring began. During March, the dominant concern was too much slowdown and climbing unemployment. But, now, the pendulum has swung the other way emphatically, too.
ANALYSTS THINK THAT THE ECONOMY IS EVEN FIRMING this quarter-though only mildly, to be sure. That's a change from the decline that occurred in the January-March period-12% in real terms, net of price increases. Now, the Federal Budget is becoming somewhat more stimulative. It will have a noticeable impact on personal income and, inevitably, on consumer spending.
Increased consumer spending was long expected to be a key contributor to the recovery that White House economists have been predicting since the start of the year. The step-ups were to be sparked by the increased and retroactive Social Security payments and the ending of the surtax on June 30.
THEN CAME THOSE FEDERAL PAY RAISES-made effective a year earlier by the postal strikes to reinforce the originally expected pluses. The full significance of all this extra income is only now being appreciated. But it cannot be overstressed: More spending means more output, more chewing up of materials, more need for credit, and even some rehirings of laid-off labor.
The fear is that this chain-reaction may go too fast, once it begins. Washington-wise observers are worried that the situation will be aggravated by still further increases in Federal spending, which could throw the 1971 Budget deep into deficit. At the least, the surplus has now vanished.
THERE IS ALSO WORRY ABOUT THE PSYCHOLOGICAL IMPACT of the pay hikes. Indeed, some analysts fear that the effect on psychology may be disastrous. The unions can hardly be expected to moderate their stiff wage demands when U.S. employees get more. They may even be encouraged to beef up requests. Businessmen will be more than ever moved to go through with their big plans to expand plant-inflationary plans by a desire for labor-saving equipment. And they will be more inclined to pass higher costs along by raising prices.
masonry May, 1970
All this doesn't have to grow into a new boom, though. Much depends on whether the coming deficit can be kept small. If so, the Budget could become a light drag again, late in the year, after the pay hikes have hit. The President, though, will have to prove again that he wants to hold the line.
MANY BUSINESSMEN FEAR THAT POLITICS NOW DOMINATES economic policymaking. In this view, checking the rise in unemployment is more important than checking inflation. This has been the history of Administrations of both parties. The burden of proof is on the President to disprove this now.
THE FEDERAL RESERVE MAY WELL HAVE TO END ITS MOVE to easier credit, to avoid fueling the incipient resurgence of inflation. This does not mean the recent relaxation will be reversed. That could cause a credit crisis. Besides, with only a modest amont of luck, the lid will not be blowing off. But it does look as though interest rates won't drop much in months ahead.
Indeed, yields on marketable securities have actually turned up again-partly because many firms have rushed in to sell bonds, to get needed cash while the getting was good. But psychology-fear of retightened money-played a large part.
THERE WILL STILL BE POOR BUSINESS FIGURES COMING ALONG this year, even though the readjustment is ending. Unemployment, for one, will rise, even with some rehiring; the number of workers seeking jobs is rising fast. The price indexes will keep showing large increases all through the year. Industry will be under pressure to protect profit margins by hiking prices.
Forecasters expect to find the trend especially hard to read in the next month or two... while the true direction that the economy will be taking for the rest of the year sorts itself out and finally emerges. For a time, every plus-figure will seem to have its own offsetting-and often confusing-minus.
LABOR EXPERTS ARE DISTURBED AT THE REBELLIOUS TONE of union members. Its spread shows no sign of ebbing. Public workers are the latest symptom. The rank-and-file freely ignore their leaders and turn down "fair" offers. Court bans do not seem to faze the angry workers. Wildcat strikes abound. Union leaders get in line and even outdo members, meaning tougher demands.
This spirit is beginning to interfere with business activity. The Teamsters walkouts have slowed steel and auto (Continued on page 24)
15