Picking Up Speed

Having slowed down to round a curve that could have led to recession, the U.S. economy now is on the straightaway and picking up speed. Last week the stock market, which reacts today to what investors expect of tomorrow, climbed to an eleven-month peak.

After flirting with the psychological 900-point barrier for nearly two weeks, the Dow-Jones industrial average leaped across it by bounding 5.18 points in one day to 901.95. By week's end, the index forged ahead to 905.96, for a week's gain of 8.91. That was its highest closing since May 4, 1966, and a comeback of 22% from last October's low.

Third Best Year. Wall Street's bullish mood was encouraged by figures from Detroit and Washington. Auto sales, after a 21% decline during the first three months of 1967, jumped sharply in April to a level only 3.4% below their year-earlier pace. "The spring upturn we've been waiting for is with us," says Chrysler Chairman Lynn Townsend, who now predicts that a minimum of 8,200,000 new-car sales will turn 1967 into the third best year in the industry's history. He adds: "People seem to have decided there isn't going to be a recession after all."

New orders placed with factories rose modestly in March, the Commerce Department reported last week. And manufacturers' inventories showed their smallest gain ($311 million) in almost two years, as rising retail sales eased economists' worry over the "inventory overhang." Says President Robert Williams of Youngstown Sheet & Tube: "Customer stocks of steel have come down pretty well. We have seen the bottom of our operating curve." Says Alcoa President John Harper: "We feel the economy will gather strength. We expect the aluminum industry to grow faster than the economy."

Too Much Optimism? There are of course businessmen and economists who take a dimmer view. "I don't see the consumer as any more confident," insists Retailer Ralph Lazarus, president of Federated Stores. "His real income is not rising. He's worried about layoffs, prices, taxes, high interest rates and the course of the war." Federal Reserve Board Governor Dewey Daane says bluntly: "The current optimism has gone too far."

Last week former Commerce Secretary John Connor, now president of Allied Chemical Corp., advised President Johnson to drop his proposal for a 6% income-tax surcharge later this year--a move strongly backed by many other businessmen, who argue that the increase would stifle business recovery. With or without higher taxes, Socony Mobil Oil Chairman Albert Nickerson predicts nothing more than "very moderate" economic gains this year, partly because "private industry is sluggish, but all levels of Government spending are up."

Among economists and businessmen alike, today's foremost worry is how to keep wage escalation from becoming inflationary as the economy regains its momentum. "The major question is not whether we avoid a downturn, but what kind of advance we are likely to have," says Raymond Saulnier, who was chairman of President Eisenhower's Council of Economic Advisers and is now a Columbia University economics professor. Because the upturn will begin with low (currently 3.6%) unemployment, "it is virtually bound to be inflationary," insists Arthur Burns, another Eisenhower CEA chairman, now chairman of the National Bureau of Economic Research.

Economist Walter Heller, CEA chief under both Kennedy and Johnson, gives the economy "a fifty-fifty chance of overheating" by winter.

Back to Guideposts. To forestall that peril, incumbent CEA Chairman Gardner Ackley last week called for a "revival and strengthening" of the Administration's moribund wage-price guideposts. "The breathing space in price pressures will not last," he warned. "An upward trend in costs has been masked by declining prices for food and raw materials. And last year's price increases have still not worked their way fully through our cost-and-price structure."

Having abandoned last year's 3.2% guidepost in January, Ackley did not suggest what limit on wage or price increases would be fitting now. But he conceded that "most wage settlements" in 1967 will exceed gains in productivity. Without more voluntary restraint, he argued, the U.S. will stabilize prices only by the "disaster" of continuous peacetime price and wage controls or "higher unemployment--some say 5%--than the American people will or should tolerate."

Thus, for all the economy's signs of zing, lifting the nation's genuine prosperity to a higher level will require some delicate footwork--both in and out of Washington.

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