Looking Up All Over

Once again that modern miracle--the capitalist, citizen-controlled U.S. economy --confounded the doubters. Only a few months ago President Kennedy had uttered bleak warnings of recession. Academicians and government brain-trusters talked worriedly of "high-level stagnation." When the economy got bouncy late last year, they said it was only a "last gasp." Some gasp. As of last week, almost all indicators were still on the rise--and the surge had very little help from government.

Even the Kennedy Administration was beginning to feel a bit bullish, and Treasury Secretary Douglas Dillon expressed the official optimism. Said he in a Washington speech to the U.S. Chamber of Commerce: "Our prospects for the year are relatively better than most observers had expected. If the improvement continues, our estimated revenues may well be more than we estimated in January--perhaps by as much as a billion dollars."

"So Good So Long." At that, Dillon may have been too cautious--if current statistics are an accurate standard. Personal income has risen more than $4 billion so far this year to a record $452 billion--and, rather than putting the money away, consumers have spent 94% of it. A big beneficiary has been the auto industry. As of April, sales of new cars were running at an annual rate of 7,500,000. This should give Detroit its second 7,000,000-year (previously reached only in 1955) and follows 1962's impressive 6,900,000 sales. Exults one auto executive: "We've never had it so good so long." Retail sales, also climbing steadily, rose another 2% to $20.7 billion in the quarter.

More significantly, the strength in sales is starting to feed back into the industrial pipeline. Industrial production recently jumped a full percentage point to a record Federal Reserve Board Index of 120.4. Unfilled orders, which had been dropping steadily for a year, rose almost $2 billion. Steel mills are operating at their highest levels in three years. Construction of new housing is up 17%.

The stock market reflected the resurgence. The Dow-Jones industrial index last week reached 721.09--up 185.33 from the low point after last May's historic dive. Corporate profits rose nearly 7% in the first quarter above a year ago and are expected to maintain near-record levels through the new quarter.

Toward $600 Billion. The net result is that the gross national product grew by $8.5 billion through March, should climb another $10 billion by the end of June. Since it started at $563.5 billion in January, the present rate of increase would push G.N.P. close to $600 billion by year's end. While few experts are quite that optimistic, most now foresee a year-end figure far above the Kennedy Administration's January estimate of $578 billion.

One healthy indication that the economy's current strength may extend well into 1964 is that capital investment in new plants and equipment is expected to increase some 7% this year. General Motors, for example, will spend $520 million for expansion, up $100 million from last year; Ford $120 million, up $20 million; Chrysler $40 million, more than double that of a year ago.

There are, of course, soft spots--especially in the persistently high rate of unemployment, which has not been below 5% in five years. There were hopeful signs in March, when the rate dropped from February's 6.1% to 5.6%--but last month it began to climb again. Most economists would agree with the Administration that a tax cut might help. But there is great disagreement about the form the tax cut should take.

Chase Manhattan Bank Chairman George Champion, for example, claims that the Kennedy proposals "put too much emphasis on stimulating consumption," when, in fact, "consumers have increased their spending by no less than $70 billion in the past five years." Corporations need a bigger share of any tax cut, he contends, to spur investment. There is even more controversy over the Administration's proposals for continued high Government spending, which would bring a budget deficit of $10.9 billion.

All By Itself. The deliberate deficit represents a reversal in President Kennedy's thinking. During his first year in office, Kennedy was so convinced that the budget should be balanced that he proposed to raise taxes, if need be, to prevent a deficit. By mid-1962 he and his advisers had changed their minds, were advocating a "quickie" tax cut to pep up the economy; but even then Kennedy did not argue that a deficit in itself was a virtue.

Most of the Congress-passed economic actions taken so far by the Kennedy Administration have admittedly been of the stopgap variety--a higher minimum wage, aid to distressed areas, extension of unemployment benefits, expanded public works, etc. They probably have not hurt the basic economy, but neither have they helped it much. Yet since Kennedy would certainly be blamed for recession, he can just as certainly claim credit for resurgence. And the way the U.S. economy is doing all by itself may make John Kennedy look very good in 1964.

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