The Price of Prosperity

While most other nations are battling inflation, the U.S. has enjoyed relatively stable prices for six years. Last week a round of price hikes in several key industries raised some doubts about how long this will continue. Youngstown Sheet & Tube tested the steel market by posting an increase of 4%, and by week's end almost all the major steelmakers had followed with boosts that covered one-third of the industry's output. At the same time, industry leader Alcoa joined in price hikes that have raised the cost of aluminum as much as 3 1/2% , and two major plate-glass makers raised prices about 7%. Lately, prices have also risen for lead, chemicals, paper, tires and textiles. The National Association of Purchasing Agents says that there were more price rises in September than in any other month in the past two years.

A year or two ago, when the Kennedy Administration was pleading for a price hold-down, such activity might have been taken as a sure sign of the beginning of more inflation. As things stand now, most economists feel that the real danger of inflation has not arrived--yet. In the current price rises, they read a healthy confidence by businessmen that business will continue to improve and that the market will therefore stand the hikes. This is all the more remarkable because the current business expansion is now 32 months old and should, by all the textbooks, be growing weary. Though previous postwar recoveries have petered out after an average of 36 months, Washington expects that the gross national product will rise $10 billion or so in this year's fourth quarter, to a record $595 billion; the Bank of America forecasts a $611 billion figure by next June.

Detroit's Fast Start. President Kennedy's chief economist, Walter Heller, predicts that business will remain strong at least through the first quarter of 1964, and much longer if there is a tax cut. Even more bullish are such other eminent economists as Harvard's John V. Lintner ("There are no weaknesses in evidence") and the Bank of America's Charles Haywood ("We're just not predicting a recession for 1964"). Businessmen are also talking expansively. Says Acme Steel President George Griffiths: "I'm very optimistic about the first six months of 1964. And if the tax reduction is put into effect, the whole year looks promising."

Some reasons for optimism:

sbAUTOS. The '64 models are off to a fast start. In September's last ten days, auto sales were up 33% from the equivalent period last year, when most of the new cars were also introduced.

sbSTEEL. Buoyed by brisk orders from the automakers, production has increased for six straight weeks, is just above 60% of capacity.

sbINDUSTRIAL PRODUCTION. Though it slid almost one point in August to 125.6% of the 1957-59 average, it will show a gain for October--probably to a record--because of increasing auto and steel output.

sbPROFITS. Government economists expect that increasing demand and rising prices will help corporate earnings after taxes to grow from an annual rate of $26.8 billion in the second quarter to a record $28 billion or more in the fourth quarter.

sbCAPITAL SPENDING. Stimulated by higher profits, businessmen lately have been boosting their budgets for expansion and modernization by $1 billion to $2 billion a quarter. In the fourth quarter, capital spending is expected to reach a record annual rate of $41 billion.

Washington's Big Help. Naturally, the economy also has its sore spots. Among them: a recent dip in housing starts, the continuing gold outflow, and unemployment, which rose seasonally in September from 5.5% to 5.6% of the work force. But most businessmen are not paying too much attention to such figures. They are convinced that President Kennedy will keep the economy moving during Election Year 1964. He may. But the U.S. economy still operates by the basic rules of the free marketplace--and the consumer, not the politicians, will have the last word.

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