Masonry Magazine March 1974 Page. 15
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DOUBTS ABOUT THE PERFORMANCE of the economy in the last half of this year are becoming widespread. Analysts in both industry and government now find official projections too optimistic. They don't say flatly that a brisk second-half rebound won't take place. But they are no longer sure that this scenario is a cinch possibility. The experts are not certain that all the expansive factors being counted on will be as strong as hoped for. Greater-than- expected weakness in business figures is creating skepticism.
The economic statistics have been mostly gloomy for several months now. Clearly, consumer spending is being adversely affected by the oil shortage; the sharp slump in car sales demonstrates that. And general merchandise is also spotty. Total retail sales are flat, after adjusting out inflation.
Home-building, too, is feeling the impact of the shortage of fuel. Because of the gasoline and heating-oil problem they foresee in the suburbs, many people are not looking for new houses. Mortgage money is easier, but buyers are cautious. Many seem to be waiting for mortgage interest rates to drop.
INVENTORIES ARE A POTENTIAL DANGER. They have been climbing fast, while sales have been falling. A part of this increase has been voluntary-a very healthy development in sectors that have been experiencing shortages. In spots, though, shortages have bottlenecked production; as a result, the stocks of goods in process of manufacture, plus other items, have piled up.
But some of the accumulation was unwelcome...particularly in autos. This helps account for the recent slide in the employment numbers and the drop in industrial production.
THE CONCLUSION: ACTIVITY OVER-ALL IS WEAKER than had been expected. The current recession now seems likely to last longer and cut a bit deeper. Originally, economists were expecting a negligible drop in the first quarter in Gross National Product. total output in real terms, net of price hikes. The business slowdown was due to bring a slide at a rate of only 1% a year. The second quarter would be flat, followed by a recovery in the second half.
Now, the economists can see real GNP drop at a 3% to 4% rate in the first quarter. The second quarter would see a minus sign, too, but perhaps not quite as large as in the first. The second-half upturn would turn out to be very moderate.
ECONOMISTS ARE WORRYING about a change in the nature of the slowdown. The weakness that was originally prompted by shortages of oil and materials could worsen, with demand-rather than supply-becoming the critical factor. Slowings caused by inadequate supplies are cutting incomes of many workers. And the current inflation is eroding buying power of what they are earning.
ANALYSTS FEAR THAT CONSUMER SENTIMENT may stay sour for some time. In fact, the psychology may deteriorate further in the months still ahead. People might start to spend less even less than reduced incomes call for. Rather, they may try to build up savings. in case they are laid off, too.
That can cut sales further in the consumer durables sector. The weakness would then gather momentum as the months pass.
BUSINESS SENTIMENT COULD BE COOLED some by pull-backs by consumers. There is no sign of that yet. This should be emphasized strongly right now. But, as noted, business inventories are rising, as sales keep slowing down. If those inventories keep piling up much longer, business ordering will drop. Production will fall further... bringing more cutbacks in employment totals.
The recovery in the last half would be affected-made more sluggish. Instead of 1974 output being slightly up, after averaging all four quarters, it might be down some. The unemployment rate could very easily climb higher than 6%.
THERE IS STILL SOME HOPE for a solid recovery, to be generated by three forces: Sales of autos could jump as the oil embargo ends, bringing more gasoline and as the manufacturers step up production of small models. Home-building would bounce back, too, as money becomes even more available, mortgage rates come down, and buyers adjust to fears about the shortages. Spending by business for new plant would turn in very substantial advances- as companies go all out to break difficult bottlenecks with new capacity.
BUT THE ECONOMISTS ARE NOT SURE these areas will turn up on schedule. Or, even if they do, whether the recovery will turn out sufficiently strong. The experts have very few doubts about business expenditures for new plant. But they worry about too little consumer spending for new cars, new homes, appliances, furniture, clothing and a long list of other goods and services.
This new, more pessimistic size-up is by no means a universal opinion. A number of economists still believe
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