Masonry Magazine April 1973 Page. 8
theWASHINGTONvire...
THE POSSIBILITY OF A RECESSION in 1974 is beginning to surface in the thinking of economists in industry and government. They wonder whether the current boom isn't too strong to last. The economists are not so prone to talk of a well-balanced advance with few excesses as they were a few months ago. Instead, they see the shape of a classical and cyclical expansion that can top out this summer. Not all economists subscribe to this less encouraging outlook. Some feel activity can be geared down to sustainable growth rates.
At the moment, just about every sector of the economy has a rosy glow. Business' plans to invest in new facilities are large and growing. The long-expected surge in inventories still has not made the scene-implying that big additions to stocks still lie ahead. And the consumer is purchasing-autos, for example as if money is going out of style. Over-all, the strength is significantly greater than most economists had expected. And this is the big reason for the nervousness and concern that they are experiencing.
THESE ANALYSTS AREN'T CHANGING their economic forecasts for this year the specific rises they see in Gross National Product, employment and so on. There may be larger-than-expected gains early in 1973 and smaller ones later. The concerns really center on next year. Clearly, these experts are feeling more cautious than businessmen influenced by today's big orders and sales.
THE ANALYSTS ARE FOCUSING more on the inflation they expect in 1973. They now see more of it than they were projecting at the start of the year. The danger is that activity is moving too fast for control of inflation. The substantial increases in the price indexes are reinforcing this feeling. To be sure, most of the attention has concentrated on volatile food prices. But industrial commodity prices have been rising at a very rapid pace, too. The economists are well aware of the fact and it doesn't generate optimism.
What is more, expectations of resurging inflation are on the increase now. They reflect doubt over the value of the Phase III controls. And doubts can speed up inflation even more.
AS A RESULT, ECONOMISTS ARE BRACED for more credit curbs this year. Indeed, money is already as tight and interest rates are already as high as the peak most analysts had expected to see during the last two quarters. And there is no reason to believe that the tightening is over for this year. Tighter money may well have to back up the cooling effects of fiscal policy.
The President is determined to keep government expenditures under control, though it means battling with the Congress over every big spending measure. Over-all, the Budget for fiscal 1974, beginning on July 1, will be very, very tight.
BUT THERE IS A CONCERN that the restraint is being applied too late. The effects of a tighter monetary policy show up only after several months. And the impact of the better budgetary picture won't emerge till late 1973. So the expansion may surge ahead for some time unless the brakes are applied to the economy very forcefully soon.
THE GROWING RESTRAINT CAN HAVE A CHILLING EFFECT on economic activity. The consumer's appetite for more and more goods and services may well wane especially now that he has purchased so many new cars, appliances, TVs, etc. A tendency for sales to level out could change the thinking of businessmen. Industry would then find carrying large inventories increasingly burdensome, especially when the interest costs of holding large stocks climb higher.
PRODUCTION MIGHT WELL BE CUT BACK. Then cuts in hiring could follow. Over time, some of that new plant and equipment would not look so necessary. By early next year, real economic growth may be much slower than rates now. In fact, a complete lack of real growth for a short time might well prevail. In short, we would see the same sort of "boom-and-bust" as in the 1960s.
But most economists have not adopted this scenario at least not yet. They say nothing that has happened so far automatically means a recession. A great deal will depend on private and governmental responses in the months ahead.
FAVORABLE DEVELOPMENTS HAVE EMERGED in the collective bargaining area, but only time will tell if large wage settlements can be avoided this year. The nation's railroads and most unions reached agreement on a new contract, the first such settlement of issues before a bargaining deadline in history. The contracts call for only a 4% first-year wage boost for 500,000 workers, though the unions got the industry to pay the workers' Social Security tax.
This summer's crucial labor talks with the Teamsters may be smoother, too. The once-militant Chicago locals now agree to go along with a national agreement. They have twice forced beefing up such pacts by refusing to accept them.