Masonry Magazine July 1974 Page. 15
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BUSINESS ACTIVITY WILL SHOW A SHADE LESS STRENGTH in the second half than economists were forecasting only a month or so ago. The analysts in government and industry aren't predicting a recession, though they will not rule one out. But they are paring down even their limited expectations. The latest evidence suggests a weaker outlook in nearly every major sector. The rampaging price indexes seem to be having an adverse impact on business. Specifically, the tight Federal Reserve money policy is slowing things down.
To be sure, the economists never did forecast a very strong recovery. Even last January, they were predicting only a moderate second-half upturn. But now their forecasts are clearly too helpful, given recent trends. Some of those strengths counted on last winter just haven't materialized.
FOR ONE THING, CONSUMERS JUST AREN'T BUYING at a very vigorous pace. Auto sales are especially disappointing. They have not rebounded as briskly as was hoped for by economists, in the wake of the Arab oil embargo's end. Car sales in the second quarter were only slightly better than in the first. Even sales of small cars have fallen short of expectations-an ominous note.
Retail sales other than autos haven't shown much strength. They fell in deflated terms every month in 1974 except May. The effects of lags in real income are showing up clearly.
BUSINESS SPENDING FOR NEW PLANT DOESN'T LOOK AS BRISK now, either. The latest survey of capital spending plans suggests a moderate trimming. Outlays in the second half may rise only 5% from the first, instead of 74%, the projection by businessmen in the previous Commerce-SEC spending survey.
This tends to confirm the softness apparent in new orders for capital goods. They have been demonstrating a puzzling lack of bounce for some five months now. The lift investment by business was supposed to bring may not be entirely realized.
HOME-BUILDING WILL BE MAKING NO MAJOR CONTRIBUTION to the recovery. High interest rates on securities are luring money out of mortgage lenders-making them much less able to make commitments to home-builders and buyers. And builders are responding by cutting back the very traditional pattern. The level of housing starts is off 38% from a year ago and may drop more.
Building permits, a key indicator of future activity, fell 19%, April to May, foreshadowing plenty of weakness ahead. And the President's mortgage-financing plan won't help much.
masonry
• July, 1974
THE TONING-DOWN OF ECONOMIC FORECASTS
IS RELATIVELY MINOR so far, The experts aren't making large-scale revisions in their projections-yet-though a tight-money policy carried on too long could worsen the situation. But economists do feel that the second-half recovery will be quite feeble.
Many analysts now look for a meager 1% to 2% rate of real economic growth-total output of goods and services net of price increases this second half. That compares with the 2% to 3% seen only one month or so ago by economists and the 3%-4% seen by the President's Council of Economic Advisers.
THE WHITE HOUSE MAY OFFER A TAX-REVI-
SION PROPOSAL before year's end. It would be a balanced package of personal tax cuts and business incentives. The Nixon Administration wants to aid key industries, like paper and steel, to build new plant. These and other lines are critically short of capacity. Officials are sure new additions will have a beneficial effect on inflation. Past tax policy has helped investment but stressed stimulating consumption. Accelerated depreciation is one of the ideas now getting White House study.
Officials know they must include individual relief to "sell" Congress. It is simply impossible politically to push through tax breaks for business without supporting tax cuts for individuals, especially for middle and low wage-earners.
THE BIG TASK IS FINDING WAYS TO OFFSET
THE MONEY DRAIN of tax cuts. The Treasury would lose many billions of dollars annually in tax receipts. The White House opposes liberals' loophole-closing, revenue-raising changes. Revising the tax treatment of capital gains might offset some of the loss. Administration officials may favor a sliding scale for capital-gains rates: the longer an asset like stocks or real estate is held, the lower the rate.
This would encourage investors to sell assets they have held for many years. Increased sales would provide more revenue.
BIG BOOSTS IN SOCIAL SECURITY TAXES ARE
INEVITABLE in coming years. Both employers and workers will be forced to pay much higher payroll taxes. The present Social Security system has run into serious financial problems, mainly because of the declining birth rate, which-if the trend continues-will significantly alter the ratio of workers that are supporting retirees.
Some of the problem can be handled by switching money from Medicare. That fund is already running a
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