Masonry Magazine May 1974 Page. 15
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THE BUSINESS RECOVERY SEEMS MORE CERTAIN EVERY DAY. Many economists in government and industry agree that the recession will reach its end this quarter. The question now is: How vigorous will the developing pick-up in activity be? There's considerable divergence of views about the speed of the rise. The White House is predicting a fairly brisk upturn by year-end. But many analysts believe the upturn will remain rather weak through 1974.
Economists are encouraged by the bright cast of the recent statistics. Businessmen are investing in new plant and equipment at a very bouncy pace. Machine-tool shipments have been especially strong; indeed, they have been setting new all-time records. Retail sales are up, including autos.
The early-year slump was almost all energy-related. Many analysts are now convinced of that. The weakness has not spilled over to other areas or been turned into a classic, widely-spread recession. A solid, sustainable base for a recovery after mid-year has materialized to a very real extent because of the end of the oil embargo by the Arabs.
BUT THERE ARE STILL QUITE A FEW UNCERTAINTIES clouding the outlook. How fast will consumers increase buying of appliances, furniture, apparel? How keen will they be to buy the big cars that Detroit still has in stock? And what inroad is the rampant inflation making on consumer buying power? Will people be so ready to buy when squeezed by increased gasoline prices?
THE PRESIDENT'S ECONOMIC ADVISERS ARE STILL VERY OPTIMISTIC for '74. They forecast a recovery early this year, when the statistics were dreary. Now, these experts find confirmation in the lastest rosy figures. They see real Gross National Product-total output of goods and services deflated for price hikes-reaching 4%-a-year by the fourth quarter. and a good 1974.
This would put growth back to the levels that, in the past, have permitted healthy, noninflationary long-term expansion.
GROWING CREDIT RESTRAINT WILL HAVE A DAMPENING EFFECT on activity. Some interest rates are at all-time peaks as the recovery gets under way, in sharp contrast to past periods when low rates stimulated business growth. Monetary tightness should keep the housing sector sluggish for some time. High yields on market securities are luring funds from savings institutions. As savings flows drop off, lenders will be less willing to make mortgages.
Weakness in home-building could, over time, have an adverse effect on consumer purchases of furniture and appliances.
BUT MOST ANALYSTS ARE PROJECTING A SLOWER RECOVERY RATE during 1974. They think the consumer will go slow. He will be buying some more big cars, but the high price of gasoline will prevent a real surge in auto deliveries. Rising inventories won't play a classic stimulative role, either. Inventory surges sparked past upturns. But stocks are large now and may fall in 1974.
A SAUCER-LIKE ECONOMIC TREND WOULD RESULT-not a sharp, rapid upturn. Real GNP would still move higher. But the rate of rise might not get above say. 2% or so by the fourth quarter. This wouldn't be sufficient to absorb the new workers coming into the labor force. So, unemployment could hit 6%.
INTEREST RATES ARE LIKELY TO STAY HIGH for some time yet. That will be good news for investors eager to lock away the extremely rich yields. But it's bad news for businessmen in need of money to operate and expand. The credit-controlling Federal Reserve has pushed up all interest rates by moving to and maintaining a fairly restrictive monetary-policy posture. And the Fed shows no sign yet that it is ready to back off from tightness.
Officials feel the best way to slow inflation is to restrain early in a pickup, and hold on even if it means living with some economic slack for a time. It would take more than one or two signs of economic weakening to lead to a jettisoning of restraint before tightness has had time to cool inflation.
So the cost of borrowing may hold near all-time highs for a while. The banks' prime lending rate won't crack very soon.
RENEWED JAWBONING IS REPLACING WAGE-PRICE CONTROLS to curb prices. The Administration will try to hold down inflation by threats and appeals. Such practices were a standard policy before controls were imposed in 1971. Officials are still worried about an outburst of prices with controls over. Many are privately painting a gloomy picture of the post-controls outlook.
So they are warning businessmen about the consequences of big boosts, claiming these can provoke Congress to pass new, tougher forms of controls.
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