Masonry Magazine February 1973 Page. 27
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THE U.S. ECONOMY may well see a rip-roaring business boom this year. Economic activity is moving along at an extraordinarily rapid tempo now a pace much stronger than even the optimists were forecasting just a month or two ago. Fiscal and monetary restraint is now being applied to brake the developing exuberance. But economists are worried that these policies may may not be applied vigorously enough and that it may already be very, very late.
It's hard to find a sector of the economy that is showing any weakness. Practically every incoming statistic points up the rapidity of the current advance in business activity.
CLEAR, UNMISTAKABLE SIGNS OF STRENGTH keep emerging with each month. Industrial production continues to register very impressive increases. It has been advancing at a 10%-a-year rate for the last several months now. The volume of new orders to manufacturers for durable goods also holds high. This indicates continued healthy advances for production in coming months. Retail sales are still very strong following the records set at Christmas; sales are 10% above a year ago, with less attributable to price increases.
There are some other pluses pointing to a potential boom:
* Auto and truck sales are hitting new peaks in most months.
* Employment is making big gains, and unemployment is falling. The number of jobs is growing at a 3.3 million annual rate.
* Inventory building is picking up steam, with more gains due.
* Housing starts continue brisk, with no signs of tapering.
REAL ECONOMIC GROWTH reached a whopping 812%-a-year rate last quarter. By contrast, 4½% to 6% would be deemed normal at this stage of an upturn. This momentum is expected to carry on through the first half of this year. In fact, some economists are worried that an even brisker pace is emerging. They suspect that a period of stepped-up inventory accumulation lies ahead. And business outlays for for new plant and equipment are really starting to roll.
Economisis had assumed the expansion would begin to slow by mid-year. Home-building was expected to falter. And it was felt that the consumer would cut his spending and save more.
WHAT'S MORE, FEDERAL SPENDING will be rising more slowly for a while, reflecting the President's efforts to battle inflation by paring the Budget. Expenditures in fiscal 1973 will not exceed Nixon's $250 billion target even if it takes shuffling of outlays and some gimmickry to make the goal. And the next Budget will be neutral for the economy, though also in deficit.
Monetary policy also will become even more restrictive in the months ahead. The Federal Reserve wants to slow the economy to more sustainable growth. The credit-controllers are moving interest rates steadily higher now, in hopes of discouraging consumers and businessmen from deciding to spend too much.
THERE ARE NOW DOUBTS that the slowing will occur as soon as expected. And things may be so much stronger that planned restraints won't be enough. After all, this year's Budget deficit will still be large over $20 billion. That much red ink will still be providing stimulation to business activity. And the effects of monetary restraint are felt only after months of delay.
BUSINESS SPENDING COULD CARRY the economy through 1973 at high rates of growth, even if consumer spending falters and housing eases at mid-year. In fact, some analysts see the worst of all possible worlds emerging soon-all sectors gaining steam simultaneously and creating an old-fashioned boom.
ECONOMISTS ARE VERY WORRIED about a resurgence of inflation this year. The Consumer Price Index is still climbing at a disturbing 32%-a-year rate. Wholesale prices, which soon show up in consumer prices, are rising faster. What's more, this year will be a very tough one for collective bargaining. Contracts affecting 4.5 million workers come up for negotiations in 1973. Union officials have said they plan to aim for big wage and fringe boosts. And talks might be in progress at a time of continued gains in food prices.
There's no certainty that controls can be effective in 1973, now that formal wage-price curbs have been shelved in favor of voluntary compliance (except for problem areas in the food, health, and construction industries). The Administration has a "stick in the closet" to fight big increases. It can roll back excessive price hikes and halt payment of big wage gains.
BUT ECONOMISTS WONDER how tough the White House will be on violators. They fear many firms will boost prices now that mandatory controls are off. Out-sized wage increases also are possible under the new Phase III program. Economists feel President Nixon, to keep labor's support for the controls, will look the other way when new contracts call for pay increases over 52%.
(Continued on page 34)
masonry
February, 1973
27