Some Hope Amid a Decline

By HP-Time

The Administration offered its mildly optimistic vision of the future last week in two key documents--the budget and the yearly forecast by the President's Council of Economic Advisers. The CEA 's official view is that the economy is now in decline and that the U.S. will produce less in the first quarter of 1974 than in the final quarter of last year. But, fairly soon, things will get better and the nation will avoid a recession. By spring the economy will start to pick up. By midsummer inflation will slow. By year's end the economy mil again be expanding rapidly, and unemployment will be coming down.

The CEA expects the present sizzling 9% rate of increase in living costs to cool to a more bearable 4.5% in the year's second half because big increases in food and fuel prices will be "behind us." It sees unemployment, which jumped to 5.2% last month, climbing to nearly 6% in the next few months. By midyear, the CEA believes, business activity will quicken as consumers adjust to the disruptive effects of the energy emergency and begin to spend again. A steady increase in capital spending by businessmen--the CEA expects a 12% growth this year--and a substantial boost in defense outlays are expected to contribute to the economy's resurgence. The council anticipates a high, if unspecified rate of wage increases because so many people have lost ground to inflation and will not be bashful about asking for raises in order to keep up with prices.

Under Chairman Arthur Burns, the Federal Reserve Board is making credit easier to get in order to bolster the economy, and short-term interest rates are declining. The prime lending rate could tumble from 9 1/2 to about 7 1/2 by late spring. Mortgage rates are falling too, but will stay well above 8%. The board's actions will provide increasing stimulus as the year wears on.

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