IBM Gauges the Climate

To predict the likely 1970 performance of the U.S. economy, IBM executives last week set their computers to work. They fed in the latest economic statistics and some assumptions, and the computers came out with what sounded like a weather-bureau forecast of precipitation probabilities. In IBM's book, the four possibilities, and the chances of them, are:

Continued Boom 10%

Recession 15%

Minor Recession 20%

Slow Growth, But No Recession 55%

The actual outcome, says IBM Vice President David Grove, who is a member of the TIME Board of Economists, depends mostly on a couple of factors: how much businessmen will spend for new plant and equipment and how much the reduction and later elimination of the 10% tax surcharge will stimulate consumer spending. That raises the four possibilities:

1) If consumers spend most of their tax savings, and businessmen stick to their current plans to increase capital investment by 7% or 8%, the gross national product would probably rise to $988 billion or more, v. $932 billion in 1969. Result: a boom.

2) If consumers use the tax reduction to increase savings rather than spending, and a credit crisis forces businessmen to cut capital spending rather than raise it, GNP would rise only to about $966 billion. Higher prices would account for all the "growth," but real output would fall enough to produce a recession--worse than 1960-1961, not so bad as 1957-58.

3) If businessmen raise capital spending a bit, but consumers save rather than spend, GNP would come to $970-$975 billion. In that case, the nation would suffer a minor recession--at least according to the current technical definition of a "recession" as a drop in real output for two successive quarters.

4) What Grove thinks will really happen--his 55% shot--is that consumers will spend their tax savings, but businessmen will increase plant and equipment outlays only by about 3%. The computers, which translated Grove's assumptions into specific GNP figures, calculated that the total would then be between $975 billion and $988 billion, most likely around $981 billion, or 5% above 1969. Grove, who interpreted the computers' findings, says that such a GNP range would mean slow growth in real output and a profit squeeze--but no recession.

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