Masonry Magazine May 1975 Page. 21
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The recession is going to end soon—sooner than most businessmen may think. That is the growing belief among economists these days. In fact, many think the turn is now at hand. Industrial output could well be rising again before the spring is over. And a moderate, healthy recovery may be on its way by the end of the year. This is a lot brighter picture than seemed likely even a month or so ago. But it will have some dark spots: the cost of money will be rising and the unemployment rate will stay high.
There are now clear signs on every hand that the downturn is slowing. And a bottoming is the necessary preliminary to the beginning of an upturn. Drops in employment and hours in manufacturing were smaller in March. Housing starts and building permits fell only slightly. And industrial output was down only a third as much in March as in recent months.
What's more, inventory is being run off much faster than expected. Stocks dropped at a $15 to $20 billion annual rate over the first quarter. Most economists had expected the great liquidation to occur in the second. A very sharp inventory run-off is a prerequisite for a rise in production. With sales holding up, industry must boost production just to keep abreast.
Also, consumer spending has held up well in the past few months. Excluding autos, retail sales have posted four straight months of increase. Of course, auto deliveries are down, as expected—hopefully just a post-rebate drop.
Now, the economy is getting the added stimulation from the tax cuts. Some $8 billion in tax-rebate checks are now rolling out to the taxpayers. And withholding rates on 1975 incomes have been reduced by a sizable amount. Consumption will get a hefty increase as people start spending the rebates. Further gains in production will follow as business pushes to meet demands.
Housing may begin to recover, spurred by the tax credit on new homes. The $2,000 tax break could quickly relieve the over-hang of unsold houses—some 400,000 nationwide. Home builders would then be willing to push construction again.
The start of the recovery means an end to the slide in interest rates. The credit-controlling Federal Reserve has halted its push for easier money. It sees no real need to foster lower rates with the upturn about to begin. What is more, the supply of money is now growing at a quite rapid rate again. The Federal Reserve is expecting further strong increases in the money supply.
Some of the tax rebates will go into demand balances, adding to the stock. By the summer, the recovery may be generating expanding demands for money.
Net, economists are much more confident about the outlook at this time. Some think industrial output could bottom and begin rising in June. Those who don't see the turn till the third quarter are now the pessimists. This quarter could well see a flat trend in real Gross National Product—total output of goods and services, before price increases are reckoned in.
The third quarter is likely to see moderate pluses rather than no-gain the earlier expectation. And real activity should be rising at a 4% to 5% rate in the fourth quarter.
Pushing interest rates lower would be risky. It would bring higher money growth, setting the stage for a resurgence of inflation later in 1976. The real question now is: How long before short-term interest rates go up? At some point, the Fed must turn less accommodative and nudge rates higher as rapid monetary expansion continues and threatens a new wave of inflation.
But long-term rates could come down after rising sharply in March and April. The big volume of corporate offerings may begin to slow after mid-year. And less inflation will make investors more willing to accept lower yields on long issues.
Unemployment will rise further, despite the better economic outlook. Then, it seems likely to be steady at a high level for many months yet. The jobless rate appears certain to top 9% during 1975—perhaps even 9½%. Another sizable jump is likely in June when students enter the labor force.
Many economists expect unemployment to hold at high levels into 1977. They note that business will be very conservative in its hiring practices. The 1975 profits outlook is poor. Many firms will try to restore margins. As the recovery takes shape, firms will at first lengthen their work weeks. Then, there will be an extension of overtime hours with current work forces. Re-hiring—and that's what cuts the unemployment rate—will come very slowly.
Many employers have learned how to get along with reduced work forces. They won't decide easily to sacrifice the labor-cost economies that hard times have forced on them.