Best Gain in Years

Outsprinting even the most optimistic forecasts, the gross national product burst ahead in this year's April-June quarter, expanding at a prodigious rate of 8.9% in real terms--the biggest three-month gain in six years. The performance was doubly encouraging because of a marked slowdown in the pace of inflation, to 2.1% v. 5.5% in the year's first quarter. Overall, the Commerce Department reported last week, the second quarter G.N.P. grew by $29.9 billion, to an annual rate of $1,139 billion. Herbert Stein, chairman of the President's Council of Economic Advisers, was elated: "This is the best combination of numbers to be released on one day in this decade--I won't say in the Christian era."

Stein doubts that such an exceptionally high real growth can be sustained, but he has many reasons for his conviction that 1972 will be a strong year. Other indicators:

> The Consumer Price Index rose only .1% in June, seasonally adjusted. Food prices climbed .2%. But inflation is likely to edge up again this fall because of higher food prices, increases in interest rates and small rises in durable goods as demand moves ahead.

> Industrial production inched up by .3% in June, about the same as in May. Administration economists insist that this sluggishness is only temporary.

> Housing starts last month, though slightly fewer than the month before, ran at an annual rate of 2.3 million units, and a record year is almost certain.

> Consumers are spending more and saving less. The rate of personal savings in the second quarter fell to 6.6%, down from 7.2% in this year's first three months.

Reflecting the economic surge, profits are rising smartly and are likely to show an after-tax gain of some 18% this year over 1971. While second quarter earnings declined at some major companies--including Alcoa, Republic Steel and Magnavox--most corporations reported significant improvements over last year's second quarter. A sampling of the biggest increases: Colorado Interstate up 38%, Metromedia 50%, Honeywell 64%, St. Regis Paper 81% . Alltime high earnings for any quarter were registered by Xerox (up 19%) and IBM (up 22%). A sure sign of a reviving economy was the improved earnings of the airlines. In June, Pan Am posted its first monthly profit since last October. TWA, American and United all bobbed back from recent losses and registered profits in the second quarter.

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