On the Level

Echoing through the halls of Congress, in Washington's Government agencies and the nation's corporate boardrooms, the great debate of 1957 is about the complicated balance of the U.S. economy. Which way will it tip? Not even the men in charge of the nation's economic policies can agree. The Federal Reserve Board still warns of inflation as the consumer price index keeps climbing (see NATIONAL AFFAIRS). Yet an equally august body, the President's Council of Economic Advisers, argues that the danger of inflation has passed. Last week in Washington, a single, persistent note began to carry above the hubbub of disagreement. Its message: the greatest economic boom in U.S. history may be starting to show its age.

Few economists argue that a severe downturn is imminent--the U.S. economy still shows too much vigor for that. But the boom psychology that has nurtured high-riding confidence for more than two years is sensitive to the least faltering in the economic indexes. Last week there was enough evidence of a flattening out in the boom, added to the cutback in Government spending, to send the stock market spinning (see below) and to have an unsettling effect on businessmen and economists alike.

Industrial production and manufacturers' new orders have slipped during the year. The strong upward movement of business investment, which has pushed up the economy since the end of 1954, appears to be slowing; expenditures for new plants and equipment this year are rising at a slower rate. Home construction is dillydallying along at lower levels, and economists foresee no strong upturn in the near future. While the dollar growth in gross national product sets new peaks each quarter, inflation now accounts for more than half of each advance. Much of the increase in personal income, which continues to set new records each month, is also offset by higher price levels. The. experts believe that people may develop a resistance to industry's high-priced products, which in turn takes more oomph out of the boom.

With interest rates at their highest levels in more than 25 years, the Federal Reserve, whose tight-money policy was designed to offset the very real danger of runaway inflation and its disastrous consequences, is now starting to look around the next bend. Testifying before the Senate Finance Committee last week, Chairman William McChesney Martin Jr., who still emphasizes the perils of inflation, permitted himself a guarded hint that he thinks his policy may have succeeded. Said Martin: "I think savings are increasing rapidly. I am inclined to think we are reaching a leveling-out process, and interest rates may stabilize and even decline."

Most economists agree that a leveling-out would be a healthy thing for the U.S. economy. As the economy grows bigger, only the foolish believe that it can keep piling a 10% gain on 10% gain every year. But even if business activity continues to taper off during the remainder of 1957--and most areas of the economy, e.g., retail sales, new construction, are still booming--it could quickly start upward again. A Government tax cut. predicted for next year, would encourage business investment. And any loosening of the money market could stimulate more home construction, trigger postponed borrowing by business and state and local governments.

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