On Balance

To the statisticians in Washington's Labor Department, the U.S. economy never looked healthier or in finer balance.

Employment last week was at a record peak for spring (61.5 million) and so were wages (average factory earnings of $1.74 an hour, up 10-c- over a year ago). In 1953's first quarter, the building industry showed a 6% gain in new construction over 1952's first quarter -- a strong indication for continued prosperity.

In an orderly fashion, deflation continued to melt away some of the economy's excess fat. The cost of living had dropped enough by last week to bring pay cuts, ranging from 1-c- to 3-c- an hour, for more than 2,000,000 workers, whose escalator contracts are tied to the cost of living. But most workers accepted the cut without protest.

Clouds. Despite the statisticians, a few clouds troubled the spring air. Used-car dealers, whose sales usually jump with the warm weather, were worried over the number of cars on their lots. But new cars were still selling briskly, and dealers' inventories (nine cars apiece) were not considered high. A bigger question was how fast consumers will continue to buy the mounting flood of 1953 models pouring out of the plants; production has now reached a record rate of 7,000,000 cars a year.

The public has plenty of money in its pocket. National income rose, in the first quarter, to a rate of $304 billion v. $288 billion in the 1952 period. Nevertheless, some economists worried about the "danger" of consumer credit, which is now at an alltime peak of $24 billion. Many a lender, notably the Bank of America, biggest in the world, began to tighten up on small loans, as businessmen talked of a possible recession if an end to the Korean war brought sharp cutbacks in rearmament orders.

Sunshine. Was there any justification for such a fear? Last week the House-Senate Economic Committee gave a reassuring answer. Vermont's Senator Ralph Flanders, the committee's vice chairman, reported that its own staff and the Administration's economic advisers are agreed that "direct identifiable expenditures on Korea account for only 10% of military spending, or $4-$5 billion a year . . . Private investment plans should not be altered by a Korean truce from the [present] high levels, [and] there is no evidence of excess capacity in industries where additional investment is now planned, e.g., electric power . . . Present inventories are not considered excessive relative to rates of sales, [and] consumer expenditures seem likely to continue stable to rising."

In short, said the committee, the only thing which could cause a recession is the fear of one. That could happen, said Flanders, only if employers, anticipating Government cutbacks, retrench more than the facts justify.

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