The New Environment

In the face of bleak talk about the U.S. economy, Treasury Secretary Robert Anderson, who has a good record in calling the economic turns, last week took a strong and positive position. Speaking before the joint meeting of the International Monetary Fund and the World Bank in Washington, Anderson said: "It is my view that the outlook for economic activity in this country is favorable, both for the near future and for many years ahead."

What has happened to the U.S. economy, said Anderson, is no recession but "fundamental readjustments: I refer to the fact that the economic environment of 1960 is a new environment. After almost 20 years of recurrent inflationary pressures, it is understandable that a free economy would have to undergo some deep-seated adjustments once appropriate fiscal and monetary policies had struck down both the fear and the fact of inflation." The adjustments, added Anderson, "provide the base for a long period of sustainable, noninflationary growth.''

"Underlying Strength." Anderson pointed out that the adjustment has been largely caused by the drop in buying for inventories; they have skidded from an annual rate of accumulation of 11.4 bil lion in the first quarter to about zero in the third. "This sharp decline in inventory spending is the key fact in our domestic business picture, and accounts for the relative stability of industrial production in 1960, despite a substantial expansion in final demand." Now, said Anderson, with the rate of inventory decline arrested in August, "the inventory adjustment appears to be nearing completion." He also found it "heartening" that total output, personal income, total employment and other key areas of the economy had not been hard hit by the adjustment, saw this as proof of "the basic underlying strength of the U.S. economy." Said Anderson: "Businessmen can now make plans and calculate costs on the basis of a reasonably stable dollar."

Most economists agree with Anderson's thesis of readjustment and the existence of a new economic environment. But many part company with him on how far the adjustment has gone, whether it is over, and whether inflation is dead or only sleeping.

Good, for a Change. Despite the disagreement, the week's business news--for a change--was encouraging. The Commerce Department reported that manufacturers' new orders in August rose 2% over July, ending a two-month decline and taking the sting out of a decline in manufacturers' sales for the sixth straight month. Machine-tool orders soared 32% over July for the best rise of the year, partly because of pending price increases of from 4% to 10%. Construction put in place in September continued to move upward. Department-store sales snapped back from a three-week decline, rose 2% over last year across the nation. Pointing up the price stabilization point. Detroit's new models came on the market at or below last year's prices. And at week's end the stock market staged a rally.

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