A Pickup in Momentum

By now, it is scarcely news that the economy is climbing out of recession; but last week brought fresh evidence that the recovery, at least for the moment, is proceeding faster than expected and some of the darkest clouds hanging over it are dispersing.The signs:

> The Federal Reserve Board cut bank reserve requirements, in effect allowing banks to increase their loans to consumers and businessmen by about $2 billion. The action will help calm money markets that had been nervous about the W.T. Grant Co. bankruptcy and the continuing financial woes of New York City. It is also an unmistakable sign that the board is easing its recent tightfisted monetary policy, and will let the nation's money supply grow enough at least to hit its own announced target of 5% to 7 1/2 a year. That, in turn, should ease fears that high interest rates will choke off the recovery: last week Southwest Bank of St. Louis cut its prime rate on business loans from 8% to 7 3/4%.

> Industrial production in September rose 1.9% above August, to 116.2% of the 1967 average. That is the largest gain for any month in almost eleven years. Steel, chemicals and other heavy industries led the advance, rising more than 3%; output of consumer goods gained a more modest 0.9%.

> Trade and manufacturing inventories increased $1.3 billion in August, after a drop of nearly $8 billion between January and July. While some further depletion in total business stocks is still possible this fall, the August figures indicate that businessmen have worked off most of the enormous stocks of unsold goods that had been dragging down production in late 1974 and early 1975, and they are now swinging from inventory cutting to inventory rebuilding.

> Total sales of all businesses climbed 1.7% from July to August: 0.3% for retailers, 1.3% for wholesalers, 2.7% for manufacturers. The August gain totaled $2.9 billion, or more than twice as much as inventories increased. That means the ratio of inventories to sales declined. To keep this key ratio from dropping too far, businessmen may have to build up their stockpiles faster if sales remain strong. The new orders should give a further boost to production.

> Sales of new cars jumped 12.7% above a year ago during the first ten days of October, only the second time this year that auto sales have run ahead of 1974. American Motors reported a 25.3% increase, General Motors 16.7%, Ford 15.7%; only Chrysler showed a decline (of 14%). More significant, the period was the first during which nearly all 1976 car models were available to buyers; the sales gain indicated that price increases averaging roughly $200 on '76 cars are not turning off would-be buyers to anything like the extent that price boosts of about $450 on the '75s did twelve months ago. Last fall slumping sales at the start of the 1975-model run gave an early signal that what had been a mild recession was turning into a nosedive; this year climbing sales at the start of the new auto model-year could be a sign that recovery is gaining more strength than was foreseen.

> As a kind of grand finale to all the signs of quickening, White House officials indicated that real gross national product--total output of goods and services, discounted to remove the effects of price increases--grew at an annual rate of roughly 10% during the third quarter. Official preliminary estimates will be released this week. During the second quarter, the first in which faint signs of recovery were visible, real G.N.P. rose at an annual rate of 1.9%; in the first quarter, the bottom of the recession, it plunged at an annual rate of 11.4%.

None of last week's signs dispelled the fear of some economists that the recovery will run out of steam in mid-1976. But the indicators at least proved that right now the recovery is for real.

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