No Recession Is in Sight

The U.S. recovery is less boomy, but still brisk

All year long, the unemployment rate--that most sensitive of political barometers--has zigzagged across the nation's economic landscape, one month bringing hopes of an improving job market, only to cruelly crush them the next. Last week, as the Labor Department released the latest statistics, the jobless figure took another upward zig, rising .2 percentage points above July to 7.1% in August.

Almost all the increase occurred among the group that can least afford it; unskilled black workers and teen-agers of the underclass (TIME cover, Aug. 29). While the jobless rate for white workers remained stable at 6.1%, unemployment among blacks rose from 13.2% to 14.5%, matching the postwar record set 23 months ago. President Carter was reported to be "deeply concerned" and asked his chief economic aides to propose steps to a solution. The swelling of black unemployment surely will lead to more pressure for additional public works and job training programs.

Though the jobless figures were disappointing, the general state of the economy is fairly encouraging. After an unexpectedly high growth rate of 7% during the first six months, the economy has begun to settle back to a more sustainable tempo of expansion. Even though the index of leading indicators, which points toward the future direction of the economy, fell in July for the third straight month, the decline was just .2%. New factory orders also declined, though by an undramatic amount. Other major sectors of the economy continued to show strength, providing more evidence that the recovery is not about to lapse into a debilitating pause. Says Walter Heller, a member of TIME's Board of Economists: "There is no recession in sight."

The most heartening indicator is homebuilding, which is surging (see cover story). Retail sales are also holding up well. Buoyed by back-to-school buying, big store chains had an unusually busy August; at Sears, Roebuck, sales ran 15% above a year ago. The auto industry is outdistancing even some of the most cheerful predictions.

Of course, the main problem area in the recovery all along has been the persistently high rate of inflation. After having declined for two straight months, the Wholesale Price Index ticked up again in August, though only at an annual rate of 1.2%. The rise would have been higher had it not been for a continued slide in farm prices, which should show up in lower supermarket tags in the coming months. Many economists see signs of more price problems ahead as a result of a steady upward creep in the basic inflation rate, which has risen from around 5% in early 1976 to 6% or even 7% today. This is hard-to-combat, cost-push inflation, spurred in part by a surge in labor costs over the past year or so as many big unions have won fat new contracts.

If the underlying inflation level continues to inch up, it could begin to seriously erode the rate of real economic expansion. Members of TIME's Board of Economists expect a simmering down of growth during the final months of 1977 and throughout '78. David Grove, IBM's chief economist, expects declining growth rates--to 4.7% in the third quarter and 4.1% in the fourth. Beryl Sprinkel, a monetarist and executive vice president of Chicago's Harris Trust & Savings Bank, expects about a 3.5% growth rate in the last part of 1977. For next year the majority of the Board anticipates similar modest growth, which certainly would not be great, but also not bad for a mature economy.

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