Consequences of Clubmanship

Across the U.S., there are businessmen prepared to argue that the much-prophesied "1963 recession'' is already over even before 1963 arrives. Speaking in Washington, U.S. Chamber of Commerce President H. Ladd Plumley said: "One could almost say that we did, indeed, have a recession and are on the way to recovery." In New York, G.E. Chairman Ralph Cordiner sounded much the same note: "There has been quite a significant change in the economy . . . There's more resiliency now."

Most explicit exponent of the theory is Frederick A. Stahl, president of Manhattan's Standard & Poor's Corp. Argues Stahl: "Businessmen all work and operate in unison. They all belong to the same clubs, so business sentiment is pretty much developed through their exchange of ideas. Everybody was convinced by the President's stand on steel and the market drop that there would be a business recession. They began to adopt policies to protect themselves, such as cutting inventories and dropping unnecessary personnel." In effect, Stahl contends, businessmen took the steps they usually take after a recession has hit and as a result are now in shape for a recovery. "It's almost mass psychology," says he.

Rolling Reconsideration. Since the beginning of this year's third quarter, the economy has shown some peculiar dips that lend support to Stahl's retrenchment thesis (see chart). The industrial production index fell fractionally in October and stayed down in November. Business inventories dipped significantly in August. A number of industries have cut back on employment--most notably the steel industry, which has laid off nearly 73,000 workers since last March.

Despite all this, no one, including Stahl, was prepared to argue that 1962 was a recession year in the literal sense. Instead, businessmen talk of a slowdown, for which they have some fancy names. Jessie C. Clamp, director of corporate planning for General Mills, calls it a "rolling reconsideration of investment desires."

Too Refined. As yet, few businessmen seem to accept the notion that the economy is headed into another upsurge. Many corporate economists still think that there will be a slight downturn some time in the first half of next year. Those who are more optimistic about it predicate their optimism on an early and sizable cut in federal taxes. Says Tidewater Oil's President George F. Getty II: "If there is not a broadly based tax reduction by midyear, there is serious question in my mind whether business activity will rise in the second half."

Businessmen's anticipatory retrenchment this year came from increased fascination with the so-called leading indicators, says James M. Dawson, vice president of Cleveland's National City Bank.

"Even the Commerce Department started doing it this year in its monthly Business Cycle Developments," says Dawson. "From spring on, leading indicators dinned their dismal story, and as a result business worried most of the year."

It could even be that economic forecasting has reached the point where its validity is so generally accepted that businessmen move to cancel out the economists' predictions before anyone has a chance to see whether they will turn out right. "In this sense," says New York Economist Martin Gainsbrugh dryly, "forecasts are at times self-defeating."

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