Continued Uneasy Prosperity

THE ECONOMY

Meeting to ponder the U.S. economy, twelve experts gathered under the auspices of the National Industrial Conference Board, emerged with predictions of a brisk first half, a slower second half, and for the year as a whole a satisfactory expansion in spite of unsettled periods. In summary, like 1967, it will be "another year of worrisome, uneasy prosperity."

First-Half Bulge. In its chronology, however, the new year will be almost a complete reversal of 1967, when a mini-recession created sluggish first and second quarters before the economy began to come back. During first-and second-quarter '68, the NICB forum agreed, auto sales will rebound from effects of the Ford strike and other auto-industry slowdowns. Auto production, plus some stockpiling of steel in anticipation of a steel industry strike, will keep mills humming.

The experts considered it inevitable that the momentum would decrease in the second half. Altogether, businessmen facing higher taxes and costlier credit will be spending about $85 billion on new plants and equipment by year's end--little more than they invested last year. The G.N.P. will grow 7.5% from an estimated $784 billion to $842 billion on a seasonally adjusted basis, but only half the increase will be real. The rest will be higher prices caused by what NICB Economist Martin R. Gainsbrugh* described as a move "from creeping to cantering inflation" and due directly, the economists agreed, to "fiscal deficits of tremendous proportions."

Fix-Up Work. The inflation, however, should diminish somewhat by midyear and the overall increase in the consumer price index, as a result, will be about 3.4%. Steadier prices plus high employment--but with younger unskilled workers a drug on the market--could put the consumer in a spending mood, depending on tax increases. Consumer spending on goods and services will increase during the year, with the greatest increase--7.5% to an average $218 billion--again in the service area. Housing expenditures should reach about $27 billion by the fourth quarter, or roughly the same as last year, but could go higher if mortgage money loosens up. Without such mortgage funds, more Americans will decide to renovate older houses, and there will be a further increase in what the Bank of America's Hoadley calls "fix-up" work.

The NICB forum, which has been unusually accurate in 22 years of such forecasts, warns that three factors temper optimism about 1968. One is the fact that it is a presidential election year, when the economy often holds up its growth temporarily to await the outcome of the voting. Another is the federal surtax, which the panel expects to come and which will affect both profits and personal spending. The most difficult factor to gauge is defense spending, which is due to rise during the year about $7 billion to $80 billion. Were peace to be negotiated in Viet Nam, the economy would swing to a vastly different peacetime basis. In the event of a broader war, not only would defense outlays increase even more, but inflation would switch from a canter to a gallop.

* In the group headed by Gainsbrugh: N.Y.U. Professor Solomon Fabricant, Du Pont Economist Ira T. Ellis, Michigan U. Professor Paul W. McCracken, American Airlines Vice President George P. Hitchings, Bank of America Vice President Walter E. Hoadley, U.S. Steel Economist William H. Peterson, N.Y.U. Professor Jules Backman, Bankers Trust Vice President Roy L. Reierson, Ragnar D. Naess of Naess & Thomas, investment counselors, Commerce Department Economist Louis J. Paradiso, and James W. Knowles, research director of the Congressional Joint Economic Committee.

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