Masonry Magazine May 1966 Page. 11
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WASHINGTON DOESN'T EXPECT RUN-AWAY INFLATION to engulf the economy. Officials at the White House are concerned over price increases, of course. They are watching the key indexes and will move to restrain if they must. But they hope to ride out the present storm. And they see some plus signs. So tax hikes are not in the cards for now, and maybe not for all of 1966.
Government economists admit the expansion is exceeding their forecasts. They have had to revise their estimates for 1966 upwards quite considerably because business activity in recent months has been advancing much faster than expected.
Every major sector of the economy is booming:
-Defense orders and spending are zooming. March saw a leap.
-Business spending for new plant is climbing very rapidly and will be limited only by the ability of suppliers to deliver.
-Consumer buying has spurted despite higher Social Security taxes lifting the sales of appliances, TV, apparel, etc.
BUT OFFICIALS REFUSE TO BE STAMPEDED into recommending a tax increase, even though numerous economists are urging one more loudly as time goes on. Johnson men give a long list of reasons for wanting time to decide. For one, the price hikes may be temporary. For another, there may be mileage yet in other policies wage-price guidelines release of commodities from the stockpiles and more cuts in non-defense outlay. It is also hoped that the President's calls for restraint will curb some of the inflationary oomph especially the plant and equipment spending that is generating so much heat.
Officials stress that the recent tax hikes haven't been felt yet the higher Social Security rates the restored auto and utility excises the speed in corporate payments. Tight money isn't through curbing either; credit will get scarcer.
But the strongest argument against action rests on the premise that tax increases may only begin to bite months from now, when fewer defense orders plus additions to plant weaken inflation fever. The turmoil in Saigon also weighs against any move now.
GOVERNMENT ECONOMISTS EXPECT TO SEE A SLOWER RATE OF RISE in business after the next two or three months barring any new escalation in Viet Nam. Business should still be very good. But there would be much less new zip if defense ordering levels off and investment in new plant slows as expansion goals are met. Consumers may save a little more of incomes, spend a bit.
CREDIT MAY YET GET TIGHTER STILL, if President Johnson keeps to his intention not to raise taxes. The credit managers at the Federal Reserve Board in Washington won't want to gamble that the recent surge in prices will soon be leveling off. If the indexes climb much more, these officials will move to reduce banks' lending scope even more to bring the supply of money closer into line with the goods and services the U.S. economy can produce.
A month ago, it seemed that credit had become tight enough. But that was before those strong first-quarter figures were known. Even given the need for more restraint though, any new tightening will be gradual so as not to trip a recession.
HOUSING ECONOMISTS ARE TURNING A BIT MORE OPTIMISTIC about the level of new home starts that is likely this year. They still don't believe that the 1.5 million total of 1965 will be reached. But they are beginning to feel that the figure won't go as low as 1.4 million despite some bad months early in the year and the growing scarcity of construction-loan and mortgage money. Activity in March turned up again, and contract awards have grown stronger. Some forecasters now think starts this year will top 1,450,000.
CORPORATE PROFITS ARE TOPPING FORECASTS, because of the boom times. That's the story the statisticians read from the first-quarter tabulations. It now looks as if net before taxes is running 9%-10% ahead of of a year ago. That's well below last year's 15% gain but better than the 6% first seen. Sales have been rising, and profit margins have been widening a bit because industry has been able to lift prices faster than its costs have been rising.
Economists now feel that industry will be able to hold its margins steady for the rest of this year, in spite of earlier misgivings. Productivity is rising at a better-than-expected clip, enough so to offset a slower rate of growth in sales.
Profits could top $82 billion this year, up from 1965's $75 billion. Firm in chemicals drugs textiles business equipment nonferrous metals are doing better than average.
SPENDING FOR NEW PLANT CAPACITY ISN'T SLACKENING, despite President Johnson's plea to businessmen to trim their expansion programs. The White House has received 75 replies pledging effort to cut. But too many projects are too far along. And many cutbacks are really decisions not to go ahead with still bigger programs than were originally blueprinted early this year.