V for Velocity

In gauging the strength of a business recovery, economists are fond of using the letter V to describe the pattern made on the graphs by a fast and vigorous comeback, the letter U to describe a slow one. Last week, for the first time since the 1960-61 recession began to wane, there were some cautious bets on V. On Wall Street the switch was reflected in growing confidence that the stock market is in for a new and sustained advance.

If evidence of a V-shaped recovery increases, it will inevitably affect the decisions of U.S. businessmen in two areas that could give the economy another boost: hiring and stockpiling.

Already jobs are multiplying faster than they did early in the recovery from the 1958 recession. The Labor Department last week reported that between mid-April and mid-May, employment rose 1,044,000 and unemployment fell 194.000. Most of the new jobs simply reflect the normal spring surge in hirings. But five major industrial centers lost their unhappy rating as areas with substantial (6% or more) unemployment, leaving 96 on the list. And in April, for the first time in a year. U.S. factories hired more men than were laid off or quit.

Quick Shift. Inventory, another major indicator of business sentiment, is showing stronger signs of improvement. In the first quarter of 1961, overall business inventories (including retail inventories) were being cut at an annual rate of $4.5 billion. Estimates for the second quarter indicate that the annual rate of inventory reduction may have been cut to $1 billion or even less. After a seven-month decline, manufacturers' inventories rose about $100 million in April--a sign that inventories now react more quickly than before to changes in the economic climate. In past recessions, an upturn in manufacturers' inventories has usually lagged five or more months (see chart) behind an upturn in industrial production; this time the lag was only a month.

To some economists, the shorter lag suggests that there have been basic changes in the inventory policy of U.S. business--that with the aid of computers and other new control techniques, businessmen are gearing inventory changes more closely to sales shifts and seeking to avoid the costs of high inventories. Says Louis Paradise, chief statistician for the Commerce Department: "Evidence is widespread that caution is now being used in inventory accumulation."

Lighter Burden. As yet, economists are not sure whether the shift means a permanently lower level of inventories or simply that inventory will henceforth be a more sensitive index. And they have one caution about the momentum of inventory accumulation: if the auto industry cuts back its high dealer inventories (which now stand at 941,000 cars) to make way for 1962 models, overall inventories may be robbed of real improvement in the third quarter. But if the inventory turn-around continues, it will ease the economy of a heavy weight. Not long ago. Statistician Paradiso estimated that gross national product in the second quarter would hit an annual rate of $505 billion. Now, because of inventory improvement, he has raised his estimate to $510 billion.

This file is automatically generated by a robot program, so reader's discretion is required.