America’s Gold-Plated Recession

Press, Volume XCIX, Issue 29382, 8 December 1960, Page 20

America’s Gold-Plated Recession

[By

ALEX FAULKNER,

in the "Daily Telegraph.’’ Republished

For some time now the American economy has been rather like a man wondering whether he is getting a bad cold. Are the threatening symptons as ominous as they feel, or will they clear up and go- away? And will the new doctor in the White House make things better or worse? In the last few weeks general agreement, with an occasional dissenting opinion, has been reached on the diagnosis. The high hopes of last January have not been realised. Whether it be called a dip, a pause, a downturn, a recession, or a high-level stagnation, “It” xs definitely with us, and is now accepted as unwelcome but inevitable until mid--1961. "It” so far has proved only mildly discomforting. The most popular yardstick, total spending, shows a decline of less than onehalf of 1 per cent, from the record annual rate established in the second quarter of this year. Industrial production was unchanged in October after falling a little in September, and although it remained 7 per cent, above the 1957 level, it was 3 per cent, below the average for the first half of 1960, and this fallingoff is expected to remain a feature of the next six months. Consumer Goods Sales of consumer goods are holding up well, with sales in retail stores showing a rise of 2 per cent, in October. Incomes are at a record level, and rising. Cutbacks in the manufacture of television sets, radios and appliances were off-set last month by an increase in car production, and car sales have been booming, partly because the 1961 models were launched well ahead of the usual time in October. Steel production this pxonth is expected to sink to 47.5 per cent of capacity. In this rather mixed picture, the darkest spot is unemployment, which jumped up to an official figure of 3,579,000, or 6.4 per cent, of the working force, in October, and by mid-January may reach 5.2 m. , Confusion of Statistics This statistic is a misleading one, as the "Saturday Evening Post” pointed out recently, for it is based on questions put once a month by the Census Bureau to some 35,000 sample families who are asked whether they are out of work and looking for work. It may thus include the teen-ager seeking a baby-sitting job, and omit the man in a depressed area who has given up in despair. The slow but sure inflation of living costs is another evil which no revival of ' production will automatically cure. In New York the cost of living index has gone up 11.2 per cent, since President Eisenhower was elected eight years ago, but as wages have risen in many sectors the people who are most keenly aware of this are these living on fixed incomes. It has been estimated that some 800 different sets of statistics are now being used to measure the state of the economy, so it is not surprising if there is some confusion about the direction it is taking. Typical verdicts include: Dr. Raymond Saulnier, chief economic adviser to the President: “On the basis of the evidence as I read it, our economy is in a good position to make a major advance.” Mr S. Clark Beise, president of the Bank of America in San Francisco: "On balance we appear to be in a breathing period after substantial increases. I believe this is preparatory to once again moving ahead.” Mr Alexander Sachs, industrial consultant: “The current dip in business will be short and mild.” Dr. John Linter, Harvard professor of business administration: “A recession of substantial proportions is in the making.” “A Gentle Sag” The Federal Reserve Bank of New York, in its review for November, finds that “the over-all effect has been to produce a gentle sag throughout much of the economy,” and believes that “an unsepctacular period of adaptation [may! yet have some distance to go.” The "Journal of Commerce,” which is always astute in these matters, writes: “The downturn in business activity, under way since last spring, has not been checked as a result of settling the uncertainty over the election. •• • The new administration

undoubtedly will endeavour to reverse the downtrend.

“However, since no one really knows the true underlying nature of the current ‘recession’—that is, whether it is mild, moderate, or severe—there is no way of knowing how effective any particular counter-recessionary measures may be?’ Mr N. White, financial editor of the “Christian Science Monitor,” takes issue with businessmen who are gloomy about the situation, and maintains that the only recession has been “in hopes of a quick sizzling upturn from 1959.” The United States, he argues, is not in a recession at all. “Its economy is not running at full or boom capacity. It is not straining, but is moving at the most rapid pace in its history, and by the close Of the year the records will be historically high. "Despite all the talk and speculation about the dollar, it is still the world’s strongest investment medium . . . The new President will take over a country in good shape.” Recovery By Mid-1961?

What of the coming months? Mr George Champion, chairmanelect of the Chase Manhattan Bank, shares the most common informed view in calling the present state of affairs a “mild readjustment,” and expects it' to be over by the middle of 1961. Mr Jack Straus, chairman of Macy’s, one of the giants of the department world, told stockholders this month that he expected a further dip in the first half of 1961, followed by a recovery which would make next year’s business conditions, on average, no worse than this year’s. “We are certainly now in a period of adjustment,” he said, “but we do not anticipate any drastic economic decline. Certainly this seems to me a very poor time to try to talk ourselves into a serious recession,—which, of course, we might do if we tried hard enough.” One important factor of what American industry expects in the coming year is the estimate of what .it plans to spend on new plants and equipment in 1961. According to the McGraw-Hill Publishing Company’s autumn survey, the total is -£12,500m., or 3 per cent, less than will be spent this year. This certainly reflects the current lower level of business activity (manufacturing companies were operating on an average, at 79 per cent, of capacity in September, which was substantially below their operating rate last December), but at the same time it is interesting to find that the manufacturing segment of industry expects a 3 per cent, rise in the physical volume of sales next year. A cautious view was taken by the Department of Commerce in its first 1961 business forecast, issued this month, in which it was assumed that the nation’s output of goods and services total output of goods and services would remain at about 1960 A severe recession in Canada, the possibility of which is causing much concern, would have a great impact on the United States. Effect of New President How is the arrival of a new President likely to affect all this? It has been said that business conditions make Presidents, but that Presidents don’t make business, and this old maxim may hold true in spite of Mr Kennedy’s conviction that America has been stagnating, and that he is the man to start it moving again. During the campaign Mr Nixon claimed that the election promises of his opponent would raise Federal expenditure by upwards of £ 20,000 m. over the next four years, but Mr Kennedy’s response was that the increased tax yield from a greater national Output would pay for the benefits he wants without inflation. In any case, the business community discounts election promises and is inclined to believe that Mr Kennedy will prove more conservative in the White House than he was on the hustings. Rash Acts Unlikely In fact, fears that President Kennedy will follow the Roosevelt model and become the bogy of Wall street are at the moment completely quiescent There is a growing conviction amongst businessmen that he will not act rashly, and that he truly believes an America prosperous in all its parts is essential to the realisa-

by arrangement]

tion of his social and international aims. President Eisenhower has already taken steps to deal with the balance of payments problem which his successor would undoubtedly have taken if the matter had been left to him. He will cartainly seek means of Stimulating the economy, very probably by spending more on defence and on social welfare. He might try the paradoxical miracle of reducing taxes temporarily at the same time. From everything he said during the election campaign, and with full allowance for the ephemeral nature of undertakings given at such a time, it seems certain that he will act with the energy to banish the ghost of what has been called a goldplated recession. From everything that is so far known about him he seems likely to do so with a proper appreciation of the futility of killing the goose that lays the golden eggs.