Politics Makes It the Major Issue

STATE OF THE ECONOMY

The No.1 argument in this election year is about economics. According to Democrat Adlai Stevenson, a "shrinking" U.S. economy is in a state of "stagnation" and heading for disaster. To describe the economy the Republicans have another word--stabilization; they feel that the ups and downs under the Democrats have been ironed out. To most economists, neither stabilization nor stagnation properly describes the state of U.S. business. Says Manhattan's National City Bank: "The level course of business appears to be a breathing spell in which the economy is shaking down . . . making price and inventory adjustments, and gathering strength for another rise."

Even the most ardent Republican readily admits that the U.S. has been through a recession. But despite the Democrats' gloomy cries about a "secondbest year," the most remarkable fact about the dip is that it was just about the mildest recession in U.S. history. While in some places, notably in Detroit and in New England's mill towns, unemployment has been acute, in terms of the total work force it has been small. The highest jobless total was 3,700,000 v. more than 4,000,000 in 1949. Last week the Government reported the figure at 3,099,000, virtually unchanged for three months straight. Industrial production, which has also held steady for the past few months, never dropped more than 10% and stayed well above the 1949 level. At the "depth" of the recession, gross national product was at an annual rate of $356 billion, only $9 billion below the alltime high of 1953 and $99 billion above the 1949 level.

This year's recession was unusual for another reason: many industrial indexes showed no drop at all. Stock prices not only pushed to new 25-year peaks (the Dow-Jones industrial average rose 24% in the past year), but the construction industry has continuously racked up new records. Last week the Commerce Department reported September construction at an alltime high of $3.6 billion. Personal savings hit an estimated $8.2 billion in the first half v. $6.7 billion in the first six months of 1953. Retail sales have kept almost level with last year, and spending for plant and equipment (at $26.7 billion) is down only 6%.

Last week even the industries that were hardest hit by the recession were bouncing back. The steel industry, which has been poking along at less than 70% of capacity for nine months, noted a marked upswing in orders. Pittsburgh Steel scheduled a rise in its operations from 80% to 100%, and President Avery C. Adams said: "I'm terribly optimistic." For the hard-hit textile industry, Burlington Mills' Chairman Spencer Love announced that the "turning point" has been reached.

A big reason for the rebound is that businessmen, who make their dollars-and-cents decisions without regard to politics, are betting on an expanding prosperity. Those who were scared by all the recession talk a year ago and decided to stop ordering while they used up their inventories have stepped up buying again. Auto dealers, who were overloaded with cars a year ago, seem confident that they will be able to clean out their stock to make way for the 1955 models.

Another reason for the pickup is the Administration's fiscal policy. Fifteen months ago, while the boom still was pushing up prices, the Administration tightened up on credit. As soon as business showed signs of contracting, the Government nimbly reversed its policy, followed through with more liberal housing laws and the biggest tax cut in history ($7.5 billion). The change in policy cost the Administration a balanced budget. But, just like the Truman Administration, the Republicans thought a balanced budget not worth paying for with more jobless, less business expansion and falling sales.

The strange nature of this year's recession--with some industries still setting new records while others are in trouble--is the best evidence that the economy is neither "stable" nor "stagnant," in the sense of being motionless. With such new industries as air conditioning and color television still in their infancy, and with new consumers being born at the rate of 10,700 a day, most economists believe that it would be difficult indeed for the U.S. economy to become stagnant. What has actually happened, in the view of Harvard's Economist Sumner Slichter and others, is that the U.S. economy has become so complex--and strong--that the parts no longer necessarily move in the same direction all at once. In the future, different industries may have their individual ups and downs, but built-in props (e.g., pension plans, long-term management planning and investment, social security and an ever-increasing need for hospitals, highways and other public works) give the economy a cushion such as no nation has ever had before. Says Slichter: "The old-fashioned business cycle is being destroyed."

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