Harder Times in the U.S.

While the Europeans generally hope to suffer only a mild slowing of economic growth, U.S. business continues to reel downward. Initial indicators showed last week that the American economy in the second quarter is declining at roughly an 8% annual rate, the second steepest drop since the Depression and the worst since early 1975, when the nation's business plummeted 9.1%. Labor Secretary Ray Marshall predicted that unemployment could reach 8.5% early in 1981, much higher than the 7.2% peak that the Administration had originally forecast. Housing continued to be one of the economy's weakest sectors, as new home starts plunged 11% to an annual rate of a meager 920,000 units, the lowest since February 1975. Once again in May, wages and salaries failed to keep pace with inflation.

Unwilling to leave bad enough alone, the Carter Administration last week began stepping up plans to stimulate the economy. Plans for a 1981 tax cut, for weeks the worst-kept secret in Washington, finally began leaking out. Though its size and shape are unknown, officials have said that the President could well announce a tax reduction as early as July, at the time of the midyear budget review. The tax cut could take place next Jan. 1.

The Administration last week also appeared to be bending to House pressure for a major public works program, though any jobs that might be created would only provide aid for the economy next year, after the worst of the recession is likely to be over. Texas Senator Lloyd Bentsen, chairman of the Joint Economic Committee, criticized antirecession spending to create federal jobs. Said he: "Recent studies have raised questions about the timing of the program, its effectiveness in employing the unemployed, and its overall impact on the nation's economy." As the Western Europeans have shown, the best program for achieving consistent and relatively low-inflation growth is a firm, steady hand on the policy tiller.

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