The Puzzled Economy

When asked to characterize the present state of the economy--is it good? will it get worse?--the men who are closest to it take refuge in jargon. Economist George Cloos of the Chicago Federal Reserve Bank prefers that ripe-sounding phrase "high-level stagnation." Swift & Co. Economist Willard Arant calls it "high-level stability." Professor J. Keith Butters of the Harvard Business School thinks that the economy is in "a sidewise movement" after "an inadequate recovery." One top corporate economist calls the present economy "a rolling kind of thing"; another figures it is in "a sputtering phase"; and still another calls it "the pause that recesses." Probably the most succinct characterization comes from Chairman Walter S. Baird, of Boston's Baird-Atomic, Inc., who sighs, "The economy is puzzled."

Puzzled indeed. As President Kennedy learned when he surveyed and discussed the multitudinous business barometers last week, an expert could study one set of indicators and conclude that the economy would continue to expand, then ponder over another set and conclude that recession looms ahead. Right now the economy is expanding--but not so robustly as many businessmen think it should in this stage of recovery.

Three Concerns. The factory work week during July averaged 40.4 hours, highest for any July since 1950, reported the Labor Department. But the average stood at 40.8 hours in April, has been declining for three months. Personal income rose in July to a record $442 billion; but that was a disappointing gain of only .3% over June.

Retail sales--up 2% in July to $19.5 billion--look good, though they are down a shade from April's record $19.6 billion. The Federal Reserve Board's latest survey of consumer buying intentions concludes that spending by the public is beginning to level off. Says University of Michigan Economist George Katona: "The consumer's mood is sober because of three persistent concerns: the recurrence of recession, the relatively high unemployment, and the cold war."

Two Possibilities. "We can talk ourselves into a recession if we are not careful," says General Electric President Gerald L. Phillippe. A number of businessmen believe the economists are too gloomy, and not only because executives often think it is good business to be optimistic. Housing starts have risen 30% from the recession low of early 1961, are now booming along at an annual rate of 1,500,000. Auto sales are brisk, if not so brisk as in 1955. Government spending is rising, if not so fast as a few months ago. Says RCA President Elmer W. Engstrom, whose company enjoyed record first-half earnings: "In the experience we are having, the economy continues to be good. But we sense in the air a certain amount of confusion and uncertainty.'' Engstrom's attitude reflects a widespread ambivalence among businessmen, who report good earnings for themselves, but worry about the worries of others.

John Kennedy's chief economist, Walter Heller, got out on no limbs, but managed to sound bearish last week. "A continued period of modest upward movements or leveling is one reasonable possibility," said he. But when he went on to mention another possibility, he came close to violating the unwritten rule that a presidential economist never predicts a recession. Said Heller: "We cannot rule out the alternative possibility that the recent slowdown in expansion represents advance warning of an economic decline."

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