Slumping More Slowly

There is no such thing as an economic equinox. There are thousands of corners, millions of corners. Each household went into the recession at a different time. Some never did. And it's the same with business. We are at a stage where some things are still going down, some things are even, and some things are going up.

Thus did Secretary of Labor John Dunlop sum up the import of an unusually large number of economic statistics released last week. As he indicated, they were mixed, but even that marked somewhat of an improvement over the uniformly downward trend of recent months. More important, the figures confirmed earlier hints that the economy's slide, while still continuing, is far less steep (TIME, March 24).

Those results encouraged some Government officials and businessmen to speculate that the recession is bottoming out and an upturn can be expected shortly. General Motors President Elliott M. Estes went so far as to say, "The recovery is under way." That statement is certainly premature. More likely, the economy will struggle at about the present level for a few more months until it accumulates enough strength and vigor for an upsurge. "The economy now is like a plane pointed upward after losing altitude," says Walter Heller, who was chief economic adviser to both President Kennedy and President Johnson. "It is pointed up all right, but it is still losing altitude."

Superficially, last week's most important indicator showed unrelieved gloom. During the first quarter, real gross national product--that is, output of goods and services minus price increases--fell at an annual rate of 10.4%. That was the biggest quarterly drop since the Government began keeping those figures in 1947. Moreover, it marked the fifth consecutive quarter of decline.

Shrinking Inventories. But the drop was caused almost entirely by the largest sell-off ever in inventories; manufacturers, wholesalers and retailers disposed of $18 billion worth of unwanted stockpiles of goods. Since the working off of inventories is a prerequisite to economic recovery, most economists were not unduly worried by the magnitude of the G.N.P. decline. In addition, says Alan Greenspan, President Ford's chief economic adviser, "if we had monthly data on real G.N.P., they would show a large decline from January to February, a more moderate decline from February to March, and since then only a small decline."

Other key and sometimes contradictory indicators:

> Industrial production, which has been declining sharply for the past five months (down 3.5% in December), dropped only 1 % in March.

> Personal income continued to increase in March, though its rate of growth did not equal February's. Industrial payrolls, reversing a four-month-long decline, gained at an annual rate of $300 million in March.

> Retail sales in March rose in all major categories except autos. Car sales, which have been skidding since the end of the rebate campaigns, dropped 29% below the year-ago level during the first ten days of April. Nonetheless, auto production is rising, and many furloughed workers have been recalled because of the industry's success in working down its inventory of unsold cars. Economists expect that the checks from the $8.1 billion tax rebate, which will begin to reach consumers within a few weeks, will put new strength into retail sales.

> Housing, one of the recession's most severely hurt victims, continued to limp along in March; the number of housing starts dropped slightly below February levels to the appallingly low annual rate of 980,000. In California alone, 23% of the labor force in the construction industry is jobless. Housing executives hope that the new federal tax credit of up to $2,000 for buyers of new homes will eventually generate some business. Also, since a record influx of funds continues to pile up in savings institutions, mortgage money is becoming more plentiful and interest rates are going down.

For most economists, the question no longer is whether but when the upturn will begin. Robert R. Nathan, who is head of his own economic consulting firm, expresses a gloomy outlook; he warns that the economy must still undergo severe readjustments, most notably in further inventory reductions. "To get too gleeful now is like saying, 'Great, we don't have cancer, just a serious infection.' " Nathan expects that if an upturn does take place this year, it will not occur until the fourth quarter.

Arthur Okun of the Brookings Institution reckons that the bottoming-out process could begin as early as this month or as late as October. "Once we get started, we will have a lot of bounce-back," predicts Okun. "By the fourth quarter, I am willing to bet we will see very strong gains." William Tongue, a University of Illinois economist, expects the recovery to take the shape "not of a

V but of a U. And the rise on the other side is going to be quite rapid."

Some economists actually are already concerned that an overheated recovery could imperil the nation's significant progress in reducing the rate of inflation, which now stands at 8%, v. 14.4% only four months ago. The main worry is that if the recovery fails to reduce the disastrous unemployment rate, now at 8.7%, Congress will institute new spending programs, which in turn would fuel a resumption of inflation. "We have literally sown the seed for the upturn," says Murray Weidenbaum, a former Assistant Secretary of the Treasury. "Let's not flood it with more federal spending."

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