When & If, It Should Be Mild & Brief

WITH the boom still picking up speed, most U.S. economists have stopped worrying about the present, started looking into the future to answer a prime question: When will the U.S. have another recession? They have little doubt that a slowdown will come. "One of the outstanding facts of the postwar economy is the re-emergence of the classic business cycle," says Presidential Economic Adviser Don Paarlberg. Other economists throughout the land are in surprising agreement that business will boom into 1960, slump somewhat in 1961.

They based their forecast on the fact that each postwar cycle has had two or three years of expansion, followed by one or two years of contraction. The current boom got under way 17 months ago, and the key indicators are cycling ahead of schedule. Manufacturers' new orders snapped back to pre-slump peaks in 13 months v. 17 months in the 1953 slump, 16 months in the 1948 slowdown; personal income recovered peak levels in 14 months v. 16 months in the other two postwar recessions. Last week the Commerce Department announced that spending for new plant and equipment will hit an annual clip of $35.4 billion in the fourth quarter (against a 1957 peak rate of $38 billion and a 1958 slump low of $30 billion); many crystal-bailers see a pace close to $40 billion in 1960. "Here's what will happen next," says Vice President Russell H. Metzner of Cleveland's Central National Bank. "The cost of living will rise. Hard goods will be immediately affected because a bigger share of consumer spending will go to the cost-of-living items [mostly soft goods]. And then we will have a drastic reduction in inventories and capital expenditures. I expect to see the downturn in late 1960 or early 1961." -

Economists worry that businessmen tend to "bunch up" their investments, overspend for capital goods and inventories in good times. "The up-and-down cycle exists simply because businessmen do not believe it exists," says a top Washington economist. "They base capital-spending decisions on a straight-line projection. Because business has been good in recent months, they figure it will never slack off."

On the other hand, some economists are suspicious of such pat theories. They argue that the economic future is not necessarily a precise reflection of the past, that steps have already been taken to keep expansion from getting out of hand. "One way to moderate a recession," says Chase

Manhattan Bank Economist William Butler, "is to moderate the boom."

Tight money is already doing it. "Now it will be impossible for business to accumulate excessive inventories." says Vice President Loren M. Whittington of Cleveland's Society National Bank. "Business has to get money for inventory and capital spending by borrowing. But banks are pretty well loaned up." Inventory buying has already begun to level off. In 1959's first half, manufacturers boosted inventories by a near-record $2.9 billion, raised the total to $52.1 billion, fast approaching the alltime high of $54.2 billion in mid-1957. But in July, inventories rose by only $100 million. The steel strike is another major factor in slowing inventory buying. "Steel is having its recession right now," explains a steel company economist. "Deferred demand will mean good and profitable business for us at least through 1960."

Economic slowdowns from one cause or another are inevitable, says Economist Paarlberg. They are the price of economic progress. The economy does not grow in a smooth upward curve, but in a series of jumps. It has become so big and dynamic that when one of its major segments slacks off the pace, another segment begins to pick up speed. For these reasons, many economists believe that any future downturns are bound to be milder and briefer than in the past. Furthermore, the economy's built-in stabilizers are becoming steadily more effective. Unemployment funds and pension plans are rapidly covering more people with more dollars. The Federal Reserve Board has learned about increasing or cutting the money supply to help control the economy.

Riding the economic cycle is an old sport of the economists. But none can foresee the events of the future that can easily knock the best theories on the head. In the last recession the U.S. was helped because it stepped up defense spending after the Soviet Sputnik. In a 1961 recession, if the U.S. has a balanced budget--as now seems possible--the Government will be in a position to cut taxes to spur spending.

In any case, if the U.S. economy does start to slide in 1961, there will be a strong source of recovery not present in the last three recessions--the World War II baby boom. By 1962, the war babies will start coming into the market in big numbers for cars, houses, boats, etc., are expected to provide vast new markets in the booming '60s.

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