Masonry Magazine August 1966 Page. 11
theWASHINGTONvire...
THE BUSINESS UPTURN IS ENTERING A MAJOR NEW PHASE, with significant implications for the economy in 1967. There has been a subtle change in the boom's underpinnings in recent months. The private sector is losing some of its steam. Consumer and business spending, though still rising at a steady clip, is no longer dominating the picture. More and more, the escalation in military production for the war in Viet Nam holds the key to the outlook.
Everything suggests that the business expansion will still keep rolling for the rest of this year. Gains in sales and production will continue to be large. Demands for credit will be strong. And the threat of inflation will persist.
But the possibility of a slowdown at some point in 1967 is very real. Just when it comes will depend on the level of Viet Nam expenditures established by President Johnson.
MEANWHILE, THE PACE OF THE BUSINESS RISE IS QUICKENING
again, after the slower growth of the second quarter. The restraining influences that were so influential last spring are wearing off-the Social Security tax increases. the stepped-up withholdings and the immediate impact of tightened credit. Now, new stimulation is coming along the beginning of Medicare payments... pay raises for Federal Government personnel... and the new auto models. Most important of all, defense spending is still rising.
You won't see a return to the feverish, unsustainable rates of last winter, though-not this year. The pace will end up somewhere between those of the first and second quarters.
OFFICIALS IN WASHINGTON ARE INCREASINGLY CONCERNED
over several soft spots they see in the future. They recognize these weaknesses as potential sources of trouble, and they are taking them into account in the longer-range thinking. The possibility of a slowdown colors the fiscal and credit policies that are now being followed and may be adopted in months to come.
-Inventories are surging. Output may have to be cut soon.
-Home starts are slumping as mortgage money grows scarcer.
-Auto sales, though still quite high, are now below peak.
-Investment in new plant is expected to top out next year.
-Phychology is turning less ebullient...not so optimistic.
RECENT HEAVY CONSUMER SPENDING HAS LEFT
no backlog of unfilled wants to cushion the impact of a leveling in plant-building. When such activity does ease, Viet Nam alone will be sparking the economy. But what if Viet Nam levels out? Economists think some slack could develop after mid-1967.
The U.S. military effort in Viet Nam has not peaked yet. Another 100,000 troops and large amounts of material are still to be committed. But spending and economic impact precede actual field impact... and may soon be topping out.
Defense expenditure jumped in the second quarter ... faster than projected. It is now closer to the top. So the rise that's due in the next 12 months seems likely to be less than that which the economy experienced during the past 12.
THE PRESIDENT WILL ASK CONGRESS FOR EXTRA MONEY
for defense when he sends up his new Budget in January. It will be a supplemental appropriation to round out the unrealistic figure he originally set for the current fiscal year, which began July 1. The precise amount isn't set yet. Much depends on what the Communists choose to do. But it is certain to be at least $5 billion... and very possibly considerably more.... if the fighting escalates.
As noted, these funds may not spur business much.
-They are needed just to maintain the spending rates that have already been achieved. Otherwise, the Pentagon may run out of vitally needed cash sometime in the spring.
-Tax increases may be requested by the President to supply the required funds. He won't want to see the deficit rise again. Then, too, the November elections will be history. But the tax hikes are "iffy"... especially if soft spots last.
THE GOVERNMENT WILL RELY MAINLY ON TIGHT MONEY
to curb excess demand during the rest
(Continued on page 35)
MASONRY August, 1966 11