Masonry Magazine February 1975 Page. 7
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ECONOMISTS AREN'T PREDICTING a quick recovery in business activity, even with the tax cuts Congress is now drafting. The cuts will be a clear-cut plus for the economy, to be sure, whatever their final form. But many analysts in government and industry don't see the momentum of the downturn checked until at least the middle of the year and perhaps later than that. Even then, easier credit conditions and lower interest rates will be needed.
But prospects for progress against inflation are improving, if the President's energy program doesn't derail the trend.
OVER-ALL, THOUGH, THE BUSINESS PICTURE remains bleak. Clearly, the economy has deteriorated more rapidly than most analysts had expected. The latest numbers make dismal reading. Almost no plus-figure is visible. It's no wonder there's such agreement on the need for stimulative tax cuts. The President is now pressing for action as hard as any liberal Democrat.
The economy's slump in the last quarter was a shocker - down at a rate of 9.1% a year. And the first quarter has seen further declines. The spring may bring a bit more weakness. Here are the reasons for the caution about an upturn:
* Consumer buying is lagging. Inflation is eroding wage gains.
* Factory orders are being cancelled, as consumer demand sags.
* Business investment is being slashed as final sales slump.
* Home-building remains in its depression deepest in years.
* Unemployment is soaring. on the economy's general weakness.
THE WHITE HOUSE IS HOPING that recovery will get going by mid-year. Officials expect home-building to begin the recovery with a gradual upturn; savings are flowing into thrift institutions, making them willing lenders. Then, certain self-correcting forces will be following up with more firming. Consumers, with purchasing power aided by declining inflation, will be set to spend again; they'll have paid off debts and be needing cars or clothes.
Similarly, by then, businessmen will have worked down their excess inventories. They will have to begin replacing their depleted stocks, just to be able to keep on doing business.
BUT SELF-CORRECTING FORCES con't turn a slide around by themselves. The downturn has too much momentum. There is too much slack in many areas. Natural forces alone would take years to get the necessary 4%-a-year growth that would just keep unemployment from rising... let alone begin to shrink. That is why some major external spur is needed to get things moving again. And the one push the President and Congress can give is the cuts in taxes.
DIFFERENCES BETWEEN the President and Congress on taxes aren't vital as far as recovery is concerned. The amounts desired are similar enough. The majority Democrats, though, will give more to the lower-income groups. Business will get less though the investment credit will be hiked to 10%.
Congress may tinker with the timing the President proposed, as well as with the details the distribution of benefits-he suggested. But the net economic impact won't be boosted significantly by the changes that Congress finally dictates.
MANY ECONOMISTS THINK that the cuts will generate only a moderate degree of stimulation to business activity this year. The purchasing power released may be enough to check the slide. But it would not spark a surge. The experts offer several reasons for their caution:
* The cuts are smaller than before, given the economy's size.
* Consumers won't see any tax rebates until well into spring.
* Splitting rebates makes each part too small for a big buy.
* The cuts will be temporary, and much of such cuts is saved.
* Lack of Confidence about jobs will help induce saving.
MONEY WILL ALSO HAVE TO BE MADE EASIER to help the economy turn up. The credit-controlling Federal Reserve will have to take more decisive steps to supplement cuts in taxes. But "Fed" officials won't hit the panic button in the sense of abandoning all caution and ballooning the supply of money. They will still keep a wary eye on the possibility of rekindling inflation.
The money supply has been lagging below rates that are deemed appropriate for a weak economy. (Too tight money helped bring on the recession and could prolong it.) Then, too, the "Fed" must help finance those huge Treasury deficits; that means supplying the money so that banks and others can buy bonds.
masonry
February, 1975
7