Making Progress Slowly

In its determined campaign to make 1971 the year of economic turnaround, the Nixon Administration hoped to start off fast. Last week the preliminary first quarter results showed that the gross national product scored by far its biggest three-month dollar increase in history, rising $28.5 billion over last year's fourth quarter, which was severely depressed by the strike at General Motors. The G.N.P. ran at an annual rate of $1,018 billion in the first quarter, compared with $959.5 billion in the first quarter of 1970. Though the early 1971 jump was strong, it was less than the $30 billion average quarterly rise needed to reach a 1971 G.N.P. of $1,065 billion --the recovery target set by President Nixon late last year. Some of the other quarterly results left doubt that the economy, even though finally moving again, has gathered much momentum.

Two-thirds of the gain in G.N.P. was due to catch-up orders in the auto industry after the strike. The trend of overall industrial production was disappointing. After increasing early in the quarter, factory output fell in February and rose only .2% in March, to 165.2% of the 1957-59 base. Moreover, some of the quarter's steel production was merely the result of hedge buying by customers against the likelihood of a strike in August. General Motors, for example, is building a 90-day steel supply, compared with its normal 30-day stockpile. Steel customers are thus creating a built-in slack for the industry later in the year, whether or not it is actually hit by a walkout.

A second brake on the turn-around is the continuing caution of consumers, who saved a high 7.2% of their income during the quarter. They have begun to buy some expensive items, notably houses and cars. Compared with the same period last year, auto sales rose 13% in March and a record-setting 32% in the first ten days of April, keeping alive Detroit's hopes for a 10-million-car year. But in retail stores, appliances, furniture and other consumer durables are selling slowly. Says Ralph Lazarus, chairman of Federated Department Stores: "The trend has not improved in big-ticket merchandise. If it continues this way, we will have an increase only in apparel sales this year."

"Inflation Alert." What continues to disturb buyers is unemployment and inflation. The G.N.P. price index rose at an annual rate of 5.2% in the first quarter v. 5.9% in last year's fourth quarter. Last week President Nixon's Council of Economic Advisers condemned the 13% wage increase recently won by steelworkers in the can industry as "clearly in excess of" productivity gains. The council warned that any such settlement granted to workers in the steel industry at large during this summer's negotiations could be ruinous to the industry's competitive position abroad. This was the first CEA "inflation alert" that sought to influence a pending contract, and it thus brought Nixon one reluctant step closer to forming an official incomes policy. As he continues to pursue the goal of a healthy economy long before Election Day 1972, the President may well have to take more decisive steps.

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