The Road Ahead

At the University of Michigan's annual Conference on the Economic Outlook last week, 108 topflight experts assembled for one of the year's most important business gatherings and gave their forecasts for 1958. As usual, the opinions spread across the full spectrum. But while in past years the great majority saw nothing except boom on boom, this time the prevailing forecast was for a downturn--though a minor one. Of 68 conference members answering a poll on 1958 business, most agreed that business would slip a bit until well into 1958, with an upturn starting late in the year. Only five expected a steady rise throughout the year; only four predicted a continuous decline. Said Leonard Smith, commercial research manager for U.S. Rubber Co.: "This is one of those modern recessions where no one feels much pain. I am convinced that it's not going to be very deep."

The Booming Recession. Getting down to specifics, the forecasts hardly looked like a "recession" at all. Prices will probably go up 1%. Gross private investment is expected to decline some 5%, and corporate profits will be lower: some $41 billion before taxes, or about 3% less than 1957. But gross national product will stay level at this year's record $439 billion, and industrial production, as measured by the Federal Reserve's index, will only slip 1.5% or 2%, a barely noticeable drop compared to the 5% or 6% decline the U.S. experienced during the so-called 1954 recession. Unemployment will also increase, yet only by 400,000 to a total of 3,200,000, once again well below the 4,500,000 to 5,000,000 unemployed (7% of the labor force) that most economists consider the earmark of a true, economy-cramping recession.

Narrowing the focus still further, Economist Dexter M. Keezer, director of the McGraw-Hill Publishing Co. Economic Department, predicted that house building, down this year, will rise 10% to a total $16 billion in 1958, balancing in part a 7% decline (to $34.5 billion) in plant expansion. And by 1960--"perhaps before," added Keezer--"investment in new plant and equipment will be heading for another record."

"Pure Bunk." The most serious worry for 1958 is the Government's continuing tight-money campaign in the face of an economic slide, however slight. Speaking before the American Finance Conference in Washington last week, White House Economic Advisor Gabriel Hauge assured businessmen that the Administration is ready to cushion any downturn with "flexible policies, adapted to changing conditions." It was flatly untrue, said Hauge, that the Government was out to cause a "little recession," to keep the economy healthy. "I want to label that for what it is--pure bunk. Nor does this Administration believe that a little inflation is either a good or a necessary thing; our economy does not need to run a slight temperature to remain healthy."

But if no one was trying to bring on a recession, the words from Washington sometimes sounded that way. Stepping to the rostrum at the same meeting, William McChesney Martin Jr., the independent-minded boss of the independent-minded Federal Reserve, made clear that he thinks a business decline must inevitably follow an inflationary surge of the sort that has hit the U.S. in the past two years. And he gave no hint that the Fed was getting ready to change its tight-money policy in order to stop the dip. Said Martin: "If you think that any time a decline reaches a certain point, we can just step in and stop it, you have misunderstood the workings of our entire system. Declines have to occur from time to time when mistakes in judgment have been made--when there has been waste and extravagance and incompetence and inefficiency. The only way we have of eliminating it is by taking losses occasionally. This is a loss as well as a profit economy."

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