The Recession Is Over, But...

TECHNICALLY, the recession of 1970 ended late last year or early this year, when the nation's total output began again to grow faster than its rate of inflation. But is real prosperity back on the scene? In some key parts of the economy, a state approaching prosperity has indeed returned, yet this year's first-quarter results were far from evidence of fast or full recovery. Says Economist Robert B. Johnson, vice president of Wall Street's Paine, Webber, Jackson & Curtis: "It's quite true that the economy is turning the corner. But one thing is sure--it isn't doing it on two wheels."

Whatever the speed, wheels are clearly leading the way. Compared with last year, General Motors' post-tax earnings in 1971's first quarter jumped 75%, to $610 million, capping the heaviest quarterly sales in its history. That was largely the result of a buying splurge following the lengthy auto workers' strike, but G.M. reports that pent-up demand has now been wholly satisfied. Profits also climbed sharply at Ford (up 37%, to $169 million) and at Chrysler, which reported first-quarter earnings of $10.8 million v. a loss of $27.4 million in the equivalent period last year.

Major firms in the oil, tobacco, railroad and electronic industries scored profit gains as well. Still, the overall earnings growth is hardly spectacular, especially since it is computed against a bad first quarter in 1970. Alan Greenspan, a Republican economist close to the Administration, estimates that overall after-tax profits for the year's first three months rose only about 3.9% above those of a year ago.

Construction Spurt. There are a number of more favorable portents. The long-reticent U.S. consumer may finally be in a shopping mood: retail sales for mid-April were 7% above those for a year ago, and last week Motorola reported a 65% jump in unit sales over April 1970. A continuation of the high level of residential building and a sudden spurt in other construction (up 6% for March on the Dodge index) encourages hope that the owners of all this new living and working space will decide to buy furniture and appliances for it in the not-too-distant future.

The steel industry is thriving, though not for very encouraging reasons. Its customers are stockpiling against the possibility of a strike beginning Aug. 1. Before then, industry leaders expect to be operating at flat-out capacity and to surpass their alltime quarterly production record of 28.5 million tons. Partly because of that pace, the nation's economy is expected to show a gain in the second quarter but then enter a sluggish third quarter, when the steel mills will be either shut down by a strike or slowed down while customers live off their stockpiles.

Cautious Hiring. President Nixon is taking every opportunity to buoy up business confidence. Last week he told 3,000 delegates to the annual meeting of the U.S. Chamber of Commerce that "we are on our way to a period of solid, sustainable expansion." Nixon's words held little succor for one group of increasingly dejected Americans--some 5.2 million unemployed workers, the largest number of jobless citizens in the U.S. since 1941. The depressed aerospace and defense giants do not plan to hire in the foreseeable future. There are currently 352,000 Viet Nam veterans on the jobless rolls, and they will continue to have trouble finding work; so will this June's college graduates. Defenders of the President's economic policies, pointing out that there is always a lag between a business recovery and new hiring, maintain that the current 6% unemployment rate will soon shrink. But it may well do so more slowly than in past recessions.

Gradual Climb. Though the Administration's policies have failed the unemployed, they have apparently helped spark confidence among investors. Over the past eleven months, the Dow Jones industrial average has soared 49%. Most analysts expect at least a modest downward "correction" during the next few months, and indeed the index fell six points last week, closing at 942. Even if there is a bigger drop ahead, the market is widely expected to pass the long anticipated milestone of 1,000 by year's end.

There are few mystical breakthroughs expected for the rest of the economy, and that is just how the Administration now seems to want it. "What we need is a gradual climb in the rate of growth, a gradual decline in the rate of unemployment," Treasury Secretary John Connally said recently. "The last thing we need is a volatile type of economy in this country." Any big surge, he fears, would reignite the consuming fires of inflation--and the specter of sharply rising costs remains businessmen's No. 1 worry.

Others complain that because of Nixon's gradualist policy, the economy remains stunted. "What we are headed for is a period of limping prosperity," says Economist Lester Greene of the University of San Francisco. "Unemployment will continue to be a nagging problem, and we will also have a profit squeeze as a way of life." Many Democrats are urging the President to stimulate the economy by adopting right now the income tax cuts scheduled for 1972 or even by reinstating the 7% investment tax credit. Says Arthur Okun, former chairman of the Council of Economic Advisers: "The chance of getting the brisk economy that the country needs is less today than several months ago. 1971 will be a year of distinct but distinctly modest recovery." Whether the right word is "modest" or "gradual," it is certainly far from "boom."

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