State of Business: The Looming Boom

“I hate the word ‘boom,’ ” said U.C.L.A. Economist Robert Williams last week. But for all his semantic fastidiousness, Dr. Williams—like many another forecaster—could find no better term to describe what the U.S. economy seems headed for. The real optimists had an even more hyperbolic word to describe what is coming: Superboom. By next spring, they predict, Berlin-inspired defense orders will strain U.S. productive capacity, and by Christmas 1962, the gross national product will soar to nearly $600 billion.

Not all businessmen agree. To justify their caution, the doubting minority point to a pair of continuing soft spots in the economy:

∙ CONSUMER SPENDING: Worried by the threat of unemployment—which is still running at a discouraging 7% of the workforce—Americans are spending only about 60% of their earnings on retail purchases, v. the traditional 62% to 65%. Store sales have been sluggish all year, fell again in July despite a rise in personal income.

∙ HOME BUILDING: Consumers are paying off old debts faster than they are incurring new ones—including mortgages. Housing starts were slow during the spring, spurted a bit in June, then dropped 5% in July.

Explosion in View. Optimists in rebuttal argue that the soft spots are temporary and offset by other factors. Since January, the average factory work week has been increasing—historically a tip-off that increased hiring is at hand. The decline in consumer spending and home building is more than made up for by increased Government spending and the rise in industrial construction. Other cheerful signs:

∙ MANUFACTURERS’ NEW ORDERS: They have risen 14% from their recession low and now exceed the rate of sales and shipments. Reported Iron Age last week: “Pressures for an explosion of the steel market are building up. There has been a general improvement of orders on a broad base in the past ten days.” Barring a long auto strike, the explosion could well come in September, when Detroit delivers its big steel orders for full-scale production of 1962 cars.

∙ MANUFACTURERS’ SALES : Polled before the Berlin crisis, manufacturers told the Commerce Department that they expected sales to rise more than $3 billion in the third quarter, to a total of $95 billion. New defense orders, pumping nearly $7 billion into the economy, should help sales even more.

∙ INVENTORIES : Manufacturers intend to add $1 billion to their stocks during the current quarter—which by itself will mean a $4 billion rise in the annual rate of G.N.P. Retail inventories also look bright.

Balance in Sight. The official view of Government economists is that the economy is solid, though not yet in a boom. But the Government has consistently underestimated the speed and scope of the 1961 rebound—and last week at least one top economic policymaker joined the boomsters. Budget Director David Bell, who expects federal spending to approach $91 billion in the next fiscal year, argues that the budget will nonetheless be balanced because tax revenues will increase as much as $10 billion—without an increase in tax rates. To do that, the economy would at least have to match the rebound year of 1959, when revenues jumped $10 billion as corporate profits rose by $9.4 billion, personal income by $23 billion, and G.N.P. by $38 billion.