Masonry Magazine May 1973 Page. 29
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THE ECONOMY MAY BE FACED WITH SERIOUS TROUBLE in the months ahead as a result of the business boom. Government and industry economists are raising their forecasts for the year-mainly because of the vigor in retail sales. And the strength in consumption has put off the expected inventory build-up. Most economists had looked for business activity to tail off after mid-year. Now, a pronounced slowdown may well not show up for another quarter or two. But, when it comes, it may be somewhat steeper than previously expected.
Strength in retail sales has been far stronger than first anticipated. Store volume was exceptionally brisk in March. And so were new car sales. But even more significant was a revision of January and February data. January's advance was originally reported at 2.9% above the previous month. Now, it appears the increase was actually a whopping 3.3%.
The February change was even larger. The preliminary data showed a disappointing decline of 1%. Statisticians now say that sales actually rose-by a solid 1% over January. And March sales came in with another good-sized gain-2% over February. Many economists expect April to show added gains.
IT ADDS UP TO THE LARGEST, MOST RAPID SURGE in retail sales on record. Consumer spending in the first quarter jumped at a $28 billion annual rate. That was 6% ahead of the already strong sales figure in the fourth quarter. The sales helped account for the huge gain in the Gross National Product-the total output of goods and services-during this year's opening quarter.
Most economists were expecting to see the annual rate move up by 10% or 11%. But the advance was a whopping 14%-plus. That strength in consumption accounted for the difference.
BUT IT'S WHAT THIS FORESHADOWS FOR THE REST OF 1973 and in 1974 that interests and alarms the economists. Their concern is quite simple: Business didn't add very substantially to inventory in the first quarter, not while the consumer was grabbing off so much of this economy's output. What's more, the inventory advances that were registered were very inflated by the sharply higher prices that showed up in the first quarter-6% or so.
Actual physical additions to business inventories were really quite modest, over-all. And the inventory-to-sales ratio has dropped to the lowest level in more than 10 years.
THIS IS THE SORT OF TREND THAT ACTIVATES INDUSTRY to boost ordering, to make sure that it doesn't lose sales by not being able to meet demands. Most economists had anticipated a large buildup in inventories this year, but they expected that it would have taken place and be tailing off by now. The extraordinarily high final sales have caused their projections to err. The result may be that the economy continues rocketing along past mid-year.
The inventory buildup when it comes-may make the economy extremely vulnerable to further excesses. Economists still expect the consumer's spending to ease up in the last half. His attitude is already souring. But they see a potential that businessmen may overshoot the mark on inventories.
ECONOMISTS FEAR THAT THE CLASSIC BUSINESS-CYCLE PATTERN may now recur. Once businessmen discover demand has softened, they'll cut their ordering. Production would begin to slow-perhaps significantly as backlogs decline. And the unemployment rate would no longer slide; it would be edging up again. Most analysts do not say that a recession is already inevitable for 1974. They feel, though, that everything must go right over the next few months. And a lot will depend on what the government does with economic policies.
INCREASING RESTLESSNESS IN LABOR'S RANKS IS NOW STARTING to appear in direct reaction to the latest run-ups in consumer and wholesale prices. AFL-CIO President Meany is already a constant critic of White House policy. And union men are alarmed at what inflation is doing to their real earnings. Since fall, average hourly earnings of workers-deflated for the inflation have actually edged down slightly. The typical employee in manufacturing with three dependents, has a smaller real income now than he did in October.
NEVERTHELESS, THE ODDS ARE AGAINST A NEW SURGE of big wage contracts. Rather, leaders will seek to protect their members in several other ways. The big unions will ask increasingly for cost-of-living escalator clauses, which transmit transmit the advances in the price indexes directly to higher wages. So base wage rate increases the unions will ask for won't seem that large. There will be greater emphasis on reopening clauses in union demands, too. This will enable labor to go all out in catching up when controls are over.
One way or another, the price increases the economy is now experiencing will inevitably end up in higher labor costs.
A MAJOR BATTLE IS BREWING IN CONGRESS over a hike in the minimum wage. Organized labor is up in arms over the Nixon Administration's new proposal-par-
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masonry
May, 1973
29