Masonry Magazine August 1974 Page. 10
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PESSIMISM ABOUT THE CHANCES of licking inflation any time soon is growing among economists in government and industry. They don't mean to be defeatist over regaining price stability. But, increasingly, they see only modest and inadequate progress this year and, probably, for a substantial period beyond this year as well. Inflation is just too strong and deeply rooted to yield to any quick solutions. It's going to take several years not just a matter of months before the current inflation burns itself out.
There are a number of reasons for the spreading gloom about inflation. The immediate causes, of course, are the recent spurts in the price indexes. Both wholesale and consumer prices have been rising at 10-13% annual rates. The very steep decline in farm prices seems to be over; they are rising sharply again. And industrial prices keep soaring. Economists are still hopeful that inflation will ease in coming months. But they don't expect much. At best, the rate of inflation will decline to 7% or 8% by year-end.
BUT PROSPECTS LOOK VERY BLEAK for cracking below this hard-core rate. Economists fear a 7-8% rate will become a permanent part of the landscape. Very ominously, the current demand-inflation is going into a cost-push phase. Wage hikes have begun to accelerate as workers try to catch up with prices. Hourly earnings of production workers rose at a 12% rate in May and June. In the previous 12 months, when controls were in effect, pay rates rose 7%.
Further, productivity (output per manhour) may well rise slowly-at less than 3% a year. This means jumps in unit labor costs of 7% or so. Industry will have to pass the higher labor costs through to higher prices of products. The worry is that a spiral will get going, with higher labor costs bringing higher prices, which in turn will prompt higher wages again, and on and on it will go.
THERE JUST DOESN'T SEEM TO BE any new or encouraging cure in sight. The Administration is trying to cut the budget, but with limited prospects. Some officials privately question if there'll be any spending cuts at all. The Federal Reserve System is doing the most to contain the rapid inflation, with a tight-money policy which has brought on record-high interest rates. But this approach will require years to let the inflation fires burn out.
And some analysts fear that the Fed's efforts could soon be derailed. Its popular support may not continue, especially if unemployment climbs to 6% as it well may in months ahead.
THE PESSIMISM DOESN'T MEAN WASHINGTON is ready to give up the fight. The gloom may have the effect of stirring policy-makers to greater efforts. The additional worry may also strengthen the hand of the Federal Reserve allowing it to hang in with a tough credit policy in the face of criticism.
BUT THE SHARP RISE IN INTEREST RATES may be about over for this cycle. Government analysts see little added gains against inflation from new hikes. With the economy now so weak, the credit-controlling Federal Reserve System doesn't want to risk causing a serious recession by overdoing its restraint.
INTEREST RATES MAY ACTUALLY DECLINE, once inflation starts to ease. But financial experts don't believe that money costs will fall dramatically. There will still be far too much inflation to permit sharp rate declines. For example, the banks' prime lending rate could well decline to perhaps below 11% by the end of this quarter and perhaps to about 94% by year-end.
Home mortgage interest rates, though, are likely to remain quite high. They may drop by a quarter point to say, 95%.
THE VARIABLE-RATE MORTGAGE will receive a renewed push in Congress. The Federal Home Loan Bank Board will make another stab at selling the idea, where interest rates on home loans move up and down with the money markets. The proposal was dropped two years ago on lenders opposition. They argued that no one would sign up if the rate could always rachet up unpredictabily. But the Bank Board now believes the time is right to press the plan again. Money rates are high, mortgage cash scarce, and lenders are losing deposits.
The new plan assures borrowers only limited rate boosts, once a year or so. Final action may not come until 1975.
THE LEGALITY OF SECONDARY BOYCOTTS has just been limited by NLRB-the National Labor Relations Board. It has barred union boycotts of items that are the economic mainstay of a party that is a neutral in a dispute. Traditionally, the secondary boycott has been considered permissible only when unions were asking the public to shun particular products being struck. Courts have refused to approve the use of boycotts damaging others as well.
masonry August, 1974