Masonry Magazine July 1973 Page. 21
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THE SIGNS OF A BUSINESS SLOWDOWN are becoming more numerous and more convincing. Economists in government and industry believe that some of the forces behind the boom have definitely lost their steam. What is more, even a partially effective Phase IV will help slow inflation. But is the expansion slowing quickly enough to head off boom-and-bust? That's the worrisome question for the economists. They just don't know for sure yet. The statistics due out in the coming month or so will tell the true story.
But at least the broad trend is unmistakable...a trend to less vigor. It is visible in series after series of figures.
* Industrial output rose only 0.5% in May, smallest gain in 10 months. What's more, April's increase was revised down.
* Auto sales have come off the record pace of January-April.
* Retail sales are weaker now, especially deflated for price increases. The surge of the first quarter has softened.
* Personal income slowed its rise again in May, the third month in a row. The advance in manufacturing wages eased.
Some additional, important evidence of slowdown:
* Home-building has definitely turned down, despite May's jump in starts. Building permits, indicators of future starts, have been falling steadily. The record high level of residential construction had provided substantial thrust.
* Business outlay for new plant may rise more slowly than earlier forecast. A new government survey shows a slight cutting back in plant spending this year. A big jump had been expected to keep the economy rolling, taking up much of the slack economists were projecting for consumption.
ECONOMISTS FEEL GROSS NATIONAL PRODUCT -output of goods and services- slowed to a second-quarter gain of 5% to 6%, down from 8.6% in the first. These figures refer to "real" growth, after washing out price increases. Hopefully, there will be even smaller increases in this quarter and next. If they do materialize, it will mean that the U.S. economy is gearing down to a healthy, sustainable rate of growth. There'd be no recession in 1974. It wouldn't be necessary to impose a tough money crunch to check inflation.
SUCH SLOWING IN EXPANSION should cut demands for goods and services. Specifically, it could head off over-buying by consumers and businessmen. That could do a lot, by itself, to ease some of the inflationary pressures. The price freeze and Phase IV will also moderate the surging price advance.
The inflation rate has fallen to about 2% during the freeze. The temporary hold-down could brake inflation psychology.
BUT SOME ARE QUESTIONING WHETHER this lovely scenario will come true. Some economists.. while admitting that some slowing is now taking place. doubt whether it will be enough to bring the economy in for a soft landing. They point out that the economy is now operating very close to capacity. Many industries simply can't keep up with the strong advance in ordering.
So some of the slowing may result from an inability to fill orders rather than actual cooling from less underlying demand. That is the kind of thing that keeps inflation pressure on.
THESE ANALYSTS AREN'T SURE the recent statistics are all that rosy. For example, fear of shortages and of a post-freeze price bulge could start a new surge of consumer buying in months ahead. and a new surge in growth. Such buying could induce some of the feared over-investing by businessmen.
Those surveys of plant and equipment spending may prove to be too low. And substantial strength may well lie ahead from a big build-up in inventories by businesses.
Business investment could keep the economy rolling on into 1974. Sharp cut-backs in production would inevitably follow, especially if tight money is needed to avoid worse trouble. The recession many economists fear might hit early in 1974.
A SURGE IN INDUSTRIAL MATERIALS PRICES may erupt with the end of the freeze. Economists fear big increases in copper, steel, paper, and crude oil. Prices of these commodities are sharply on the rise throughout the world-because of the strong demands generated by economic expansions everywhere. Thus, the anti-inflation machinery being operated under the new Phase IV will quickly be placed under strain as firms seek to pass on higher costs.
In fact, industrial commodity prices have already risen (Continued on page 32)
masonry
July, 1973
21