Shape of the Recovery

Now that everyone seemed to be taking for granted that the recession has reached its low point. Government economists began nervously eying the quality of the recovery. Aside from a quickening of business confidence, they had a few definite signs to go by--a slight increase in steel orders, department store sales up 5% in Easter week, auto sales for March up 15%. Of the twelve leading indexes, e.g., raw-material prices, that the National Bureau of Economic Research uses to measure the business cycle, nine have already turned upward. Said Walter Heller, chief of the President's Council of Eco nomic Advisers: "We assume that the leveling-off is near at hand. But that's the beginning, not the end of our problem. All along, we have felt that the performance of the economy during the recovery phase will determine whether we can get the economy back to full production."

Cautious Forecast. The chief fear among Government planners is that the recovery will be as moderate as the recession, which was the mildest since World War II (gross national product dropped less than i%). Now they anticipate, at least for 1961, even less of an upturn than the one that followed the 1958 recession, when the G.N.P. jumped $50 billion in the year after the recession ended--but still got poor marks for vigor from the economists. In a cautious economic fore cast, Government economists predict that the G.N.P. will rise from its present estimated $500 billion to $502 or $503 billion in the second quarter, may reach $520 billion by year's end. That would make the year's average $509 billion.

As confidence in the recession's end spreads, much of the boost will come from businessmen curtailing their inventory liquidation, the biggest factor in the G.N.P. slump. In the next quarter, the rate of inventory liquidation is expected to ease to about $2 billion, providing a solid lift for the economy. But that turnaround would not be as great as in 1958, when the inventory rate swung from minus $7 billion in the first quarter to plus $3 billion in the fourth. Nor do economists look for any strong spurt in housing starts, which have helped pave the way for all previous postwar recoveries.

Serious Problem. Concern over continued unemployment has now replaced achievement of growth as the dominant theme in the Kennedy Administration's economic thinking. Part of the concern is political: the Administration clearly recognizes that the specter of unemployment is an effective lever for pushing its economic programs through Congress. But it also fears that the business upturn will not make any appreciable dent in the U.S.'s 5,500,000 unemployed, 1,800,000 of whom have been out of work for 15 weeks or more. Last week the Labor Department announced that, while the total of jobless in the month ending in mid-March declined by 200,000, the decline was less than seasonal. Unemployment now stands at 6.9% of the total work force. Paradoxically, employment rose more than seasonally to a new March record of 65.5 million, up 1,249,000 over a year ago.

To date, the Administration's programs for spurring an upturn and improving unemployment have had little but psychological impact--which can be important, but is rarely decisive. Most of its efforts came so near the end of the recession that they had little time to take hold. The chief weapon that Kennedy plans to use to push the recovery is a controversial deficit-spending program aimed at helping to create 10.5 million new jobs, which Labor Secretary Arthur Goldberg last week called essential if the economy is to move forward with vigor. Already, Bureau of the Budget experts have forecast a record peacetime budget of $87 billion for fiscal 1963. The Administration does not expect easy sledding in Congress with its deficit-spending program, frets over the number of Congressmen who are still guided by the Eisenhower Administration's "copybook maxims" of balanced budget.. The New Frontiersmen have adopted the philosophy that budgets should be in balance during an extended period of time rather than year by year. Still Fluttering. The Administration has so far concerned itself with short term palliatives. It has extended unemployment compensation, injected more cash into the economy through increased veterans' life-insurance benefits, is working on a $92 million aid-to-depressed-areas bill. Last week President Kennedy ordered the Small Business Administration to cut interest rates from 5 1/2% to 4% on loans to small businesses in areas of heavy unemployment. This week he will send Congress a tax revision message that will call for more than $1 billion in incentive tax deductions for businesses investing in new equipment. Such programs are hard enough to get through Congress. But the Administration itself thinks that they are not enough to provide a real recovery instead of just an upturn. Its further ideas are still being talked out, still fluttering about on paper, still to be codified into plans and legislation.

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