A Troubling Tidal Wave

As consumers and businessmen continue to step up their buying, growing numbers of key industries are caught in a tidal wave of orders that is clogging production lines and slowing shipments. Such industries as steel, lumber and aluminum are operating at or close to capacity. In addition, more and more manufacturers with available space and equipment are unable to crank up facilities fast enough to meet the torrent of new business. The results are spreading shortages and a sharp upswing in industrial prices. These are classic symptoms of demand-pull inflation, in which too many dollars chasing too few goods bid up prices and wages until the economy bursts into a recession.

Last week the National Association of Purchasing Management reported that its members believe that the economy may be close to "running wild." No fewer than 73% of the buyers polled in the association's latest monthly survey disclosed that their industries were either operating "beyond capacity" or between 90% and 100% of their potential. A total of 95% of the buyers believed that prices would continue to rise in 1973, especially for such increasingly scarce items as copper, steel, zinc, transformers, electrical components, machine parts, wire, plastics and leather. Lags in production schedules, the survey notes, are forcing purchasing agents to order farther and farther in advance. For example, 21% of the buyers polled were ordering more than 180 days ahead in April, v. 14% in March and a mere 6% in December.

Despite the still high national unemployment rate of 5%, executives in such industries as textiles and autos report that they are having trouble hiring enough workers to keep production humming. This has led some economists to believe that because of the rapid increase in the numbers of women and teen-agers seeking jobs, a shortage of certain kinds of skilled labor can exist even with relatively high jobless rates. Shortages of raw materials are also impeding production. Joseph Barron, director of general purchasing for Ashland Oil Inc., puts it this way: "In the chemical field, there is not enough styrene because benzene is short; benzene is short because crude oil is short."

Big Surge. By far the biggest strain on production is the rapid surge in demand from consumers flush with rising incomes and businessmen raking in record profits. The steel industry is working at realistic capacity for the first time since the mid-1950s. Production has climbed to an unprecedented 3,000,000 ingot tons a week. Still, mills cannot keep pace with demand. Orders placed now for sheet steel will not be filled until August; buyers of stainless will have to wait even longer. Steelmen believe that customers are buying steel now before prices go higher. Last week U.S. Steel jacked up the cost of sheet and strip steels by an average 4.8%, effective June 15.

Textile manufacturers, who only a short time ago had substantial idle capacity, are going full tilt. Says Donald Comer Jr., of Avondale Mills in Sylacauga, Ala.: "We are using our machines 24 hours a day in three shifts." The auto industry is also racing flat out, but its dealers' stockpiles are nonetheless dwindling. Car makers like to keep about a 60-day supply of cars in transit or on dealers' lots. Now the supply covers sales for only 48 days.

The rush of orders is helping to push businessmen into a surge of modernization and expansion. The latest McGraw-Hill survey shows that corporations plan to spend $105.5 billion for new plant and equipment this year, a leap of 19% over last year, and about 5% higher than the Commerce Department was predicting two months ago. In plant investment, says Economist Walter Heller, "we have gone from an expansion to a boomlet to a boom." It should be restrained, he says, by suspending either the investment tax credit or the accelerated depreciation allowance.

Administration economists claim that the Government already has done all that will be necessary to cool the boom gently, by holding down the growth of credit and federal spending. Herbert Stein, chairman of the Council of Economic Advisers, is confident that the frenetic growth of the last two quarters will slow as the boom itself causes more tax money to be siphoned out of the economy (income tax collections grow automatically as pay and profits swell). Shortages of credit and climbing interest rates, in Stein's view, will cool the enthusiasm of businessmen wanting to borrow for further expansion. Perhaps--but meanwhile worries mount. Economist Beryl Sprinkel, an Administration supporter, spoke for many politicians, businessmen and consumers last week when he said, "This is the unhappiest boom I have ever lived through."

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