Recovery by August?

Putting their fingers to the wind, after first running their eyes up and down the latest charts, Government economists last week set the date when they expect the recovering economy to regain its former peak: the end of August. If their calculations are right, the recovery would be one of the swiftest in recent U.S. history, following a recession that already ranks (in percentage of decline) as the mildest. Measured by the Federal Reserve Board index of industrial production, recoveries to pre-recession highs since 1919 have taken between five months and 17 months (see chart). If the present recession reached its low point in February, as most economists feel it did, the recovery time now predicted in Washington would set a near record of six months.

A perking up of most economic indicators gave some weight to the economists' projection. Auto sales in April climbed 3% from March (though they were still 17% under April 1960), and car production reached a new high for the year. Iron Age, the magazine of the steel industry, reported that a strong upturn in the steel market is making it more difficult for customers to get delivery on rush orders. Confirming an earlier Commerce Department report, a new McGraw-Hill survey shows that industry's capital spending plans for 1961 have been revised upward a bit since last fall. Even unemployment, the economy's most serious long-range problem, declined slightly more than seasonally between mid-March and mid-April.

Shallow Cycle. Despite such signs, the optimism of those who look for a six-month recovery is by no means universally shared. "It would be premature," warned the First National City Bank of New York in its monthly letter, "to assume that recession problems are all behind us and that a rapid climb lies ahead." For one thing, the present uncomfortably high rate of unemployment (6.8%) is expected to continue for some time. Particularly disturbing is the behavior of inventories, which are not turning around as quickly as economists had hoped. Inventory cutting in the first quarter continued at the rate of more than $4 billion, a sum that would immediately be pumped into the economy if only manufacturers stopped subsisting on their stocks and began to buy.

These somewhat dampening factors did not disturb Presidential Economic Adviser Walter Heller and his colleagues so much as the fear that the recovery, no matter how quickly it comes, may be as mild as the recession. If that proves to be the case, the U.S. would find itself in the ironic position of experiencing under Kennedy the Eisenhower goal of flattening out the entire economic cycle, ending violent swings in the economy. This is a prospect that thoroughly frustrates the Kennedy Administration, which feels that Government spending is the main force now at work in the economy and the chief hope for stimulating growth and solving the unemployment problem.

Also Guerrillas. Still convinced that it is vital for the U.S. to step up its rate of growth, Kennedy task forces are at work on a new report that is expected to call for a more aggressive Government spending program. This is in addition to proposed increased spending on space exploration and guerrilla warfare forces--programs which, though urged as defense rather than economic measures, would obviously have impact on the economy. But when it comes to programs whose only declared purpose is to spur the economy, Congress and a tax-conscious public are apt to balk, convinced--no matter what the economists say--that even a moderate recovery is evidence that things are going just the way they should.

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