Onward and Upward--More or Less

The background of the campaign debate over economics is a recovery that is progressing faster than most economists had expected. The Government this week will release its estimate of first-quarter real gross national product (total output of goods and services, discounted for inflation); it is expected to show a 6% to 7% gain at an annual rate. Retail sales jumped 2.8% in March, on top of a 1.6% rise in February; auto sales in the first ten days of April leaped 33% above the 1975 period. Industrial production rose by only .6% in March, but the January and February advances were revised upward to .8% and .7% respectively.

The figures point to a healthy, not wild recovery--but do contain a promise of further acceleration in the months to come. The fast pace of consumer spending and sales is keeping businessmen from rebuilding the inventories they slashed deeply last year. If sales stay strong, retailers will have to step up their orders for new goods to rebuild stockpiles so that they do not run out of items that customers want to buy. Result: production increases later this year that will be larger than expected.

The good news has caused the Ford Administration to revise its forecasts for the year slightly upward. It now expects real G.N.P. to rise 6.5% during all of 1976 and unemployment to drop below 7% by year's end. Earlier, official forecasts had anticipated a 6.2% G.N.P. increase and a year-end unemployment rate of 7% to 7.5% (the jobless rate had already dropped to 7.5% last month). Though the Administration does not intend to give its new predictions an official stamp, it is making no secret of its delight. Says Secretary of the Treasury William Simon: "This economy is so good there is almost nothing we could do to screw it up before the end of the year."

Simon is being too exuberant. There is a darker side to the picture: the Administration is forecasting a 6% inflation rate not only for 1976, but for 1977 and 1978 as well. For this year, such a rate would mark progress--prices rose about 8% in 1975--but for so long a period as three years a 6% inflation pace is clearly far too rapid. Yet the Administration's chances of reducing it have been lessened by its own labor policy, as exemplified by the Teamsters settlement early this month that ended a two-day strike (TIME, April 12).

Consistent with Inflation. Some White House officials put pressure on Secretary of Labor W.J. Usery, acting as a mediator, to get the strike settled. He did, but at the price of a contract that will raise wages and benefits 33% between now and 1979. President Ford declared that the settlement "does fit into our overall economic plans and forecasts for the next three years." That is the trouble: a 33% raise is indeed perfectly consistent with a continuing inflation rate of 6%.

The deal sets a bad precedent for the important negotiations coming up in the rubber industry (where contracts expire this week), construction and autos. Having given a kind of official imprimatur to the Teamsters settlement, Ford--and Usery, who will be involved in all the negotiations--cannot convincingly argue that any other union should accept a smaller one. Instead, the message of the Teamsters settlement is just the reverse: the Administration does not want any long strikes disrupting the recovery in an election year and is prepared to countenance--or maybe even lean on employers to accept--wage and benefit boosts averaging 10% or even 11% a year, if that should be the price of peace. That is a policy that may well cost the nation dear.

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