Strong -- But Sluggish

Official Washington last week acknowl edged what most businessmen have long realized: there is no boom in view.

"Slightly off," said Commerce Secretary Luther Hodges of the first-quarter figures, which show the gross national product bobbing along at $548 billion to $550 bil lion instead of the hoped-for $553 billion.

"Below expectations," admitted John Ken nedy. The President quickly added: "We look for a strong and continued expan sion throughout the year and into 1963." But he revealed his doubts about the vigor of the economy by asking Congress for a $600 million emergency public-works program to make jobs in almost 1,000 depressed areas.

Where's the Standout? Washington feels uneasy because business is expand ing only about one-fourth as fast as it did at the beginning of the recovery. Two-thirds of the current recovery was made in the four months from March through June of 1961 v. only one-third in the eight months from July through February.

This would be less disconcerting had not the New Frontier, in hopes of stimulating confidence, unleashed its prediction that the 1962 G.N.P. would soar by almost $50 billion, to $570 billion-- a prospect that now looks less likely by the day.

The economy is sluggish simply because no industry is a standout performer. Good excuses are plentiful: January and Feb ruary weather was worse than usual this year. Homebuilding has slipped for four straight months. Construction outlays are at a ten-month low. Steel is pouring at 82% of capacity, and a lot of that reflects hedge-buying in recent weeks against the possibility of a strike. Store sales are fairly bright, but setting no records. Car sales are brisk--but not so brisk as they were in booming 1955-57, when the population was much smaller.

Which Way Up? Certainly, the cornu-copic U.S. economy could start surging in a hurry. But what sector would lead it upward? Here are some possibilities being talked about by Kennedy's advisers : INVENTORY SPENDING. Walter Heller, chief of the President's Council of Economic Advisers, figures that the current rate of trade and manufacturing sales would justify a further $3 billion rise in inventories this year. But Heller appears to be ignoring the fact that businessmen are operating with much leaner inventories than in times past. Computers permit them to schedule stocks more closely to day-to-day sales; stable prices and plentiful capacity have removed the old fears of inflation and shortages.

CAPITAL SPENDING. U.S. industry is producing at only 83% of capacity, but much of the idle plant is obsolete, and U.S.

businessmen must invest boldly if they are to keep ahead of Europe and Japan.

There is plenty of capital to spend: the cash reserves of U.S. business have grown about $3 billion in the past year, interest rates are easy, and the reserves of banks have swollen since savings rates were raised from 3% to 4% this year. But capital spending for the year is expected to rise only to $37.2 billion, which is just a shade above the 1957 peak.

CONSUMER SPENDING. "The conditions are there for a further take-off in consumption," says Heller. Personal income is at a record of $2,000 per capita after taxes, and last year consumers added $20 billion to their liquid assets. But the Federal Reserve Board's quarterly survey of consumer buying intentions shows marked drops from early-1960 levels in plans to buy durable goods.

What to Do? Even though there is no immediate prospect of recession, Kennedy seeks his own means of spurring the economy. Some harsh disciplines prevent him from employing the customary Democratic devices. He cannot cut interest rates without worsening the outflow of gold to higher interest havens overseas, and he cannot promote massive Government spending programs without unduly distending his budget. He has thus turned to the relatively modest alternative of public works for the depressed areas.

What Kennedy aims to aid are the "islands of unemployment" such as the melancholy textile towns of New England, the played-out coal regions of Appalachia,' and the planemaking centers of the Pacific Coast. The President figures that the Government could rapidly create up to 200,000 jobs in these depressed areas by helping to finance construction and mod ernization of hospitals, roads, sewers and the like. But while these projects can be started quickly, they are also fairly quickly finished--meaning that the jobs they generate will be only temporary.

As a result, though even a temporary alleviation of unemployment in the depressed areas is desirable, the proposed $600 million outlay can scarcely be expected to act as an effective stimulus to the total national economy. At the same time, if it passes Congress, the new program will add to the growing likelihood of yet another federal budget deficit in fiscal 1963--a circumstance unlikely to enhance confidence in the U.S. economy either at home or abroad.

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