Masonry Magazine February 1971 Page. 15
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THE RECOVERY IN BUSINESS ACTIVITY hoped for this year has now begun. But economists in government and industry worry that the rise will not be as brisk as suggested by official forecasts, by the rhetoric about expansion. The signs clearly point to a rebound in activity in the current quarter. But a number of analysts have questions about the economy's vigor later on. They are concerned that the tempo won't pick up enough to cut unemployment.
The President is dedicated to getting the economy moving once again. He has repeatedly made this clear. In fact, he has now gone so far as to abandon his commitment to the concept of a balanced Budget -an idea deeply ingrained in GOP philosophy.
BUT NIXON IS NOT THROWING ALL CAUTION TO THE WINDS. He still means to avoid a new boom-new excesses-by keeping the Budget deficit in bounds. This caution, though, will tend to keep the expected growth only moderate. Gains in output may only match those in new workers-leaving joblessness high.
Nixon's advisers dispute this. They feel growth can be big enough to cut substantially into unemployment, even this year, let alone in 1972. They believe that a brisk growth of the money supply will assure an up-turn even with a "safe" deficit. And they are pushing for such rapid money growth.
Only time will tell which appraisal turns out to be the more valid. Democratic economists point out that Administration economic forecasts for last year were a long way off the mark.
NIXON'S ADVISERS HAVE GIVEN A DEFINITE ROLE to a big Federal budget. They hope a jump in Federal outlays will help to take up some of the slack. Therefore, the President is ready to see another big deficit in fiscal 1972, the new government accounting year beginning July 1. But he is not willing, up to now, to go beyond the $15 billion deficit looming for this fiscal year.
This leads many economists-both in and out of government, to question the impact the budget will have on the economy. It may be only a bulwark against further weakness, they say, rather than new stimulus that will push the economy forward.
MONETARY POLICY IS EXPECTED TO STAY MODERATELY EASY throughout 1971. The Federal Reserve will meet legitimate credit needs, as business expands. It will not rush to choke off a recovery by withholding the needed money. In fact, the "Fed" is allowing the money supply to grow at a 6%-a-year rate. Economists point out that this growth rate is high by historical standards.
But the money managers are not going to push monetary policy too fast. Unreasonable rates of money-supply growth would risk unhealthy side-effects, such as renewed inflation. The "Fed" doesn't think pumping up credit can do the job alone.
TO BE SURE, BIG JUMPS IN PRODUCTION ARE PROJECTED for this quarter. Predictions center on a boost in the rate of output of goods and services the so-called Gross National Product of $25 billion a year, an 11% gain. Adjusting out price increases, this figure should deflate to $18 billion. But that would still mean a very healthy rate of real growth of, say, 7%.
THE LARGEST PART OF THE SURGE IN OUTPUT WILL COME in durable goods much of which will go to build inventory. In addition to the auto catch-up, there'll be stockpiling of steel, as users hedge against a possible strike. Home-building also promises further strength in response to easier money. State and local outlay is also increasing again because money is available. And defense spending should begin to level off-removing a drag on activity.
But other sectors of the economy still look weak. Plant and equipment spending by corporations remains soft, despite the liberalized depreciation allowances announced by the Treasury. And business inventories are increasing faster than sales.
BUT ECONOMISTS WORRY ABOUT THE TREND after General Motors catches up. What will happen after steel production adjusts to strike-generated demand? And what if the rise in home-building begins to slow down later this year? Real GNP could very well be turning more sluggish once again by mid-summer. The rate of the economy's growth-net of price hikes could decline to 3%.
To be sure, that would be a lot better than the nо-growth that characterized last year. But it would not be enough to make large reductions in the present high jobless rate.
THE CONSUMER HOLDS THE KEY TO THE TREND after the first quarter ends. But surveys show that he is still nervous about the outlook, still worried that he (Please turn page)