Good & Getting Better

Economists and businessmen are in considerable agreement in their predictions for 1962. In the language dear to the canny winegrowers of Burgundy, they foresee a good year but not a great one. Almost all hands predict that the gross national product will rise this year from $521 billion to somewhere around $560 billion, an increase of 7%. The industrial production index should climb from its recession low of 102 in February last year to better than 120 by year's end. And forecasters have the comforting conviction that consumer prices will probably inch upward by only 1%, meaning that 1962's growth would be real rather than inflationary (see chart).

All this, said Secretary of Commerce Luther Hodges, just adds up to "sound economic progress." A forum of 14 economists convened by the National Industrial Conference Board predicted "moderate growth." Said one. Economist Murray Shields: "1962 will be a good year with quite a flock of new highs, but it will not be a boom year."

For the economists the favorable signs for 1962 are tempered by some big "ifs." There remains the high level of unemployment (about 6%), the international payment balance, a chance of labor stoppages, particularly in the steel industry, which negotiates contracts this year.

Actually there are new signs that the prospects for business are already good and getting better. Some businessmen last week were privately admitting that volume and profits were ahead of what they have publicly indicated. One big transportation company, surprised by a fat year's end profit, decided to "bury some of it" in a contingency fund. An electronics firm, doing unexpectedly well at year's end, decided to set aside 6% of sales income as what it calls a hedge against inventory adjustment. Fact was that in the waning weeks of 1961 and in the first week of 1962, indicators pointed upward more sharply than prognosticators, using their most recent but still lagging statistics, had anticipated.

Consumers jamming department store aisles contributed to a post-Christmas buying surge that pushed sales 8% over a year ago. As last-quarter auto statistics flowed into head offices, Chevrolet, Cadillac, Rambler and Chrysler last week found that they had achieved alltime highs. And Ward's Automotive Reports predicted that production in January would be the best in two years. U.S. Steel's Roger Blough foresaw the steel industry entering 1962 on what he called "the strongest order and production note in two years." During January steel mills will be at 85% of capacity (v. 50% a year ago). Sales of appliances, gasoline and housing are all expected to increase by 4% in 1962--and these are conservative estimates.

In what all manufacturers agree should be a tough competitive year, capital investment in new and more efficient machinery will play a big role. Most economists predicted that capital spending for new plants and equipment could jump 13-15%. The figure could go higher if the Administration can push through legislation for a proposed $1.5 billion tax credit for companies investing in new plants and equipment. William F. Butler, vice president for economics at the Chase Manhattan Bank, guardedly put the case for more-than-moderate optimism: "There are two chances in ten that business investment will really take off next year, but part of the law of probabilities is that the improbable occasionally happens."

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