A Nudge on the Turn

After months of recession, U.S. business had finally hit bottom and started to climb once more. Leading indicators edged upward, farmers were entering a new period of prosperity, the all-important U.S. consumer was beginning to regain his appetite (see below). As business gathered new momentum, the events in Lebanon and Iraq would surely introduce a new influence. The expected effect: an additional nudge forward.

Few businessmen expect the crisis to trigger a vast, Korea-like boom with accompanying inflationary spiral. Lebanon is not Korea; the U.S. is not in a war, and the Government is making no hasty plans for big stockpiles, material allocations or other controls. At the moment, the effect of Mid-East upheaval is more likely to show itself in a subtle, psychological change in the business climate rather than in any dramatic turnabout.

The experts think that inventory liquidation, still proceeding at a fantastic $7 billion annual clip, will level off rapidly, perhaps even reverse into a modest inventory accumulation. The uncertainties of international affairs will cause many a manufacturer, wholesaler and retailer to think twice before eating more deeply into his stocks. The wise businessmen will tend to keep inventories level, or increase them a bit as a hedge against possible emergency. Said a Cleveland machine tool manufacturer: "Our story to customers is that now is the time to buy before we get jammed." In the same way, businessmen look for industrial expansion, now in the doldrums, to pick up speed again. Many companies, particularly in heavy industries, can be expected to examine their present capacity with an eye to future contingencies, dust off expansion plans they had previously deferred during the recession.

In sum, many economists see a clear turn from the deflation and recessionary oversupply of recent months toward the old and familiar situation of shortages and inflation.

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