Masonry Magazine August 1973 Page. 17
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A BUSINESS RECESSION is by no means inevitable late this year or in 1974, in the view of a growing number of government and industry economists. Despite the dramatic slowdown reported in the second quarter, most analysts see considerable evidence that substantial economic expansion will continue. They believe that recent figures overstate the extent of current slowing. Indeed, they feel that this quarter will come in stronger than the second.
Preliminary figures show that real economic growth last quarter rose at a seasonally adjusted annual rate of 2.6%-in contrast with the first quarter increase of 8.6%.
TO SOME EXTENT, STATISTICAL FLUKES appear to account for the decline in output last quarter. The April-June period may have seemed weaker than it really was because some of its gains were counted in the first quarter. What's more, many economists believe that some of this slowdown may have reflected capacity limitations in many industries. Business firms simply could not increase production sufficiently to meet ever-increasing orders. Many economists feel real growth will eventually turn out to be nearer 5%.
So analysts aren't ready to conclude that the economy will remain so tranquil in the months ahead. On the contrary, they still see substantial vigor in the near-term outlook.
BUSINESS STILL PLANS TO SPEND BIG for plant and equipment for the rest of this year. Recent surveys of corporate spending plans show little inclination among businessmen to curtail projects in response to the slowing economy. Many economists won't rule out a big speed-up in inventory-building, either, noting that inventories are still at very low levels, historically. What's more, the beckoning export market may limit the business contraction as foreign orders offset the decline in domestic orders for many products.
These economists aren't saying the strong pace of the first quarter will be repeated during the current quarter. But they don't see a recession as inevitable very soon, either.
PHASE IV MAY PROVE notably more successful against inflation than seemed likely when it was first announced. To be sure, the widely expected post-freeze bulge in food and other prices has made it hard to believe that progress is coming. But the new rules could well slow the rate of increase, squeezing profits in the bargain. Most analysts agree, though, the Phase IV won't be yielding substantial results until late this year or during 1974.
The President's new program is clearly an improvement over what we had. Officials have avoided some pitfalls that made Phase III such a failure. For one thing, Phase IV was offered as a series of tough price controls, a far cry from the "go-out-and-raise-prices" attitude clearly implied last January.
Officials haven't offered grand promises of instant success, either. Instead, they stress more realistic goals and the big need for patience. Finally, there are no assurances of quick termination of the program. The President indicated he'd like to end the controls this year. But officials are predicting openly that Phase IV will last into next year.
A NEW PRICE-CONTROL CONCEPT promises to curb price increases. Businessmen can pass through their costs only on a dollar-for-dollar basis. Industry can only recoup the increased costs of materials, machines, labor. Firms may not add their full mark-up-maintaining profit margins to costs.
Business can't even pass on costs incurred over the last year or 18 months. Only those being absorbed since the beginning of this year can be passed through to prices.
HOPEFULLY, IN TIME, WE'LL SEE a decelerating spiral of price rises. The margin of profit on increased costs will be reduced at each successive state of the production and distribution cycles in the months just ahead. And the inflation rate might begin to slow down to more tolerable levels, as each company passes on a little less, compared with before the freeze.
BUT THE PRICE INDEXES won't look encouraging for the next few months. Forces at work to raise prices had not shown themselves fully up to June; many companies had not yet taken full advantage of Phase III leeway. Quite apart from the post-freeze bulge, the effect of shortages and still-high demand still looms. Food prices are sure to keep rising for several months. Most officials concede that they will not begin to flatten until next year. What's more, Washington can't control prices of internationally traded items. So prices of copper, tin, rubber and other basic materials should be rising.
The indexes won't be zooming at astronomical rates in coming months, but a steady rise is inevitable until late this year.