Calm Before the Boom

Businessmen who have wondered when --if ever--those "Soaring Sixties" would finally begin to soar got a bullish answer last week from Secretary of the Treasury Douglas Dillon. Said Dillon: ''It is probable that by this time next year, our economy will be in high gear. We may well be in the midst of an economic boom."

By boom Dillon meant a gross national product that would skip from the current rate of $512 billion to $530 billion by this year's final quarter and to $570 billion at the end of 1962--perhaps even generating enough profits and tax revenues for a tax cut next year. In its semi-annual forecast out this week, FORTUNE reached much the same conclusions. It predicted that by Christmas of 1962 the U.S. will see a $575 billion G.N.P. and a near-record 25% jump from the recession low in the Federal Reserve Board's Industrial Production Index. Suggesting that unemployment may well drop below the Administration's "acceptable" rate of 4% by the end of next year, FORTUNE added: "It is a real question whether there will be enough productive capacity for the economy's demands by late 1962."

Soft Spots. Government economists agreed that a fast upswing will begin this fall--but they also expected some summer sluggishness in between. Reason: the here-and-now U.S. economy has nearly as many soft spots as a well-matured cantaloupe. The stock market is on a high but flat plateau. Steel production is trending down into its normal summer doldrums. Price discounts have softened not only steel but copper, aluminum, rubber, paper and chemicals. Most sluggish of all is the industry that since World War II has customarily led the U.S. out of its recessions: housing.

After a rise earlier this year, private, nonfarm housing starts in May are down to an annual rate of 1,276,000, v. 1,322,000 at the comparable stage of the 1958 recovery. The whole housing market, says the National Association of Home Builders, shows "a pervasive lack of vigor."

Profound Changes. The dip is due to some profound changes in the U.S. housing market. Conventional mortgage credit rates recently dropped from an average 6.3% to 6%, but for the first time since World War II, a credit loosening has not triggered a new building-buying spurt. Most economists take this as a sign that the nation has pretty well built itself out of the long postwar shortage of homes. In the 1950s, family formations averaged only 830,000 per year, but builders put up houses at an annual rate of 1,200,000 to 1,600,000. Now, because of the 1930s' low birth rates, fewer people are entering the so-called "first stage of home ownership"--the 28-30 age bracket.

As a result, today's housing market now centers on the "secondary buyer," such as the homeowning World War II veteran, who wants to upgrade to a bigger and better house. "Quality" houses are selling well, but crackerboxes in far-out neighborhoods are slow indeed to move. Says President Jack Hoffman of Chicago's F & S Construction Co.: "The shelter mar ket has disappeared. The days when you could simply sell a roof to put over someone's head are finished."

With the shelter market ended, the prospect is that housing starts will rise slowly over the next several years, helped along by the generous and inflationary housing bill that passed the House last week (see THE NATION). Though some builders doubt that the bill will move significant numbers of new low-income buyers into the suburban housing market, it should generate many new urban renewal projects. But for its next real boom in housing, the nation will almost certainly have to wait until the late 1960s, when children born during World War II are old enough to start house hunting.

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