Masonry Magazine October 1975 Page. 17
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A GOOD, LASTING RECOVERY THROUGH 1976 STILL SEEMS LIKELY, in spite of the doubts that have arisen lately among many economists and businessmen. Different assessments of the consumer's role and his psychology explain the variance in outlook. The pessimists question if he will maintain his buying beyond early 1976. But government officials expect him to keep the upturn going. They see no boom, but they see no premature petering out, either.
Consumers have so far led the way out of this worst of post-war slumps. They increased spending as real purchasing power rose briskly last quarter, aided by the substantial tax cuts voted by Congress last spring. Retail sales climbed fairly steadily during the spring and through the summer. Even auto sales, an early weak spot, have been improving lately.
Consumer buying has led to a sharp liquidation of business inventories, forcing firms to step up production of goods.
EVEN PESSIMISTS SEE A FAIRLY GOOD SECOND HALF of this year. And some can visualize further strength in the very early months of next year. On this score, they don't differ much with Administration men in Washington. Few of these believe that consumer confidence has been irreparably damaged. For now, people are still buying at a very good clip, hard goods and soft.
BUT THINKING BEGINS TO DIVERGE as analysts look ahead to mid-1976. There is rising concern that the upturn will lose its thrust after mid-year. The doubters fear that the impact of the tax rebates will begin to abate. And continued inflation, plus tight money, could also be taking their toll.
SOME QUESTION JUST HOW LONG consumers will keep increasing their spending. They argue that the new surge in inflation must inhibit buying. Real income is already threatened again by the spurts in prices of basics. There is the danger that consumers will have to spend more on necessities. The current inflationary surge is centered in higher food and fuel prices products that the consumer must continue to buy regardless of going prices. This leaves less spendable income available for purchases of other items.
Consumption can stay up for a while as real income begins to lag. But families just will not keep spending more than they earn for very long. And if they cut expenditures, business investment in inventories and new plant will be slowed, too. There will be nothing to keep the expansion going in 1976. The economy could be going into a slide again by mid-year.
masonry • October, 1975
POLICY-MAKERS IN WASHINGTON ARE MORE OPTIMISTIC. They include the President's top economic adviser and the chairman of the credit-controlling Federal Reserve Board-both among the nation's best business-cycle experts. Their views deserve special weight because they led the pack in forecasting an early and quite vigorous recovery-in its initial stages, at any rate.
These officials think the recent inflation surge will prove temporary. Food prices appear to be stabilizing. And the number with jobs is rising, forestalling a drop in spending. Further, momentum has a way of accelerating. Auto-buying, inventory-building, and capital spending could catch fire.
NOTE THE MULTIPLYING SIGNS OF VIGOR supporting the optimistic view. Indeed, most of the indicators that have been coming in over the past month or two have proven significantly stronger than even the optimists expected.
* Employment increased more than a half-million this summer.
* Personal income is rising fast with more people working.
* Retail sales volume, as noted, has been climbing steadily.
* Inventories now seem lower, as the sharp run-off slows.
* Industrial output is rising briskly, hinting more new jobs.
And note, too, that the leading indicators have had the biggest gains in years. These are statistics that rise or fall before the entire economy. At the moment, then, these indicators suggest there are more gains to come.
ADMINISTRATION ECONOMISTS ARE CONVINCED that Gross National Product-total output of goods and services net of the effects of price increases will rise at a 7%-a-year rate for the rest of this year and on through 1976. That's not quite a boom, but it's still a very solid upturn from recession. It contrasts sharply with the view of those who expect a faltering in 1976.
THE OPTIMISTS ARE BETTING ON EXTENSION of the individual income-tax cuts voted last spring. But withholdings may still go up when 1976 begins. The Ford Administration keeps arguing for caution on the part of Congress. (It even mutters extension might not be necessary with recovery under way.) But, in the end, the White House is likely to support a tax-cut extension. There is