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BESffi* 8 TEfrEXECUTIVE OFFICE OF THE PRESIDENT D-E COUNCIL OF ECONOMIC ADVISEES AD .M NOT KIATJr; M ATI ON October l$p 19$2 Tos The P r e s id e n t From: C o u n c il o f Economic A d v ise r s S u b je c t: Q u a r te r ly Report on t h e Eeonos&c S it u a t io n Th® Economy During the Third Q uarter General developments The Council stated in its Midyear 1952 Economic Review that if ths main components of total demand followed the course which seemed most likely at the time, " 0 o 0 the outlook is for a period of high pros perity in the near future without dangerous inflationary pressures .*11 It is possible to summarize the general developments of ths past three months in terms of that, statement: total output remained virtually at its second quarter level: prosperity continued high; and while inflationazy pressures? persisted, general pries movements were not significant enough to suggest that the stability of the econoagr was being endangered 0 But this broad pietur© does not reveal two striking features of the quarter: the sharp reduction of many forms ©f activity as the steel strik® progressed from June through July and the rapid recoveries achieved after the strike, when production of some ccsnjodities exceeded prestrike levels 0 When the third cparter ©pasted , the output of steel had been pulled down from a weekly level ©f more than 2 ,000,000 tons t© a os re 300,000 toraso But Just before the quarter ended, production established a jesqw record of 2 ,160,000 tens a week, a record which has since been exceededP Automobile and truck assemblies dropped from ths weekly average of 115^000 units during the month before the strike to 27^000 units during the week ended July 19o (Vacations and change~@ver 3 In isodels also helped to cut production) But recoveiy v/as speedy 0 During the week ended September 20, 138,000 unit© were assembled, the largest massber in IS monthsp Industrial production also clearly showed the effect of the banked steel furnaces and various st?ike™lndu s®d eurtailiaes5fc3o The index had already slipped down 3 percent in June; during July it dropped 5 percent 0 But by September it had sore than recovered* climbing t© the postwar peak of 223 percent ( 19 3 ^ 3 ^ ^ 0 0 } 9 which had been attained in April 1951° Gross national productt at seasonally adjusted annual rates, did not increase significantly during the third quarter as a whole* However9 there was a moderate rise in consumer buying D which seemed to be gaining strength near the end of the quartsr0 It showed up entirely in soft goods and services*, as spending for durable goods was reduced0 Private investment increased slightly; the rate of government purchases of goods and services was unchanged; and , for ths third consecutive quarter^ net foreign investmant dec lined0 The in flu e n c e o f the strike extended t o income and even to c r e d i t 0 Xn July*, t o t a l p e rso n a l income d e c lin e d about 3 b i l l i o n d o l l a r s (s e a so n a lly a d ju s te d ann ual r a te jj, w ith most o f t h s drop accounted f o r by la b o r in-* come* alth o u g h other m ajor components showed minor d e c lin e s * By A u g u s t9 howeverg t o t a l p e rso n a l income topped th e June f i g u r e 0 Labor income jumped i n August t o an ann ual r a t e n e a r ly 2 b i l l i o n d o l l a r s above th e June l e v e l p w h ile farm incams and t r a n s f e r payments contin ued t o f a l l o Consumer i n sta lm e n t c r e d it soared t o a record monthly rat© a f t e r the su sp en sion o f R e g u la tio n W in May, a la r g e p r o p o r tio n o f the new lo a n s g o in g t o bu yers o f autom obileso But in A u gu st, a s th e sto c k s o f many autom obile d e a le r s were exhausted^ in sta lm e n t c r e d it retu rn e d t o a more l e i s u r e l y r a te o f growtho The se a s o n a l r i s e i n b u sin ess lo a n s was h e ld down f o r a time^ w ith d e c l in e s i n lo a n s t o m anufacturers o f m etals and. m e ta l prod u cts p a r t l y o f f s e t t i n g th e growth o f lo a n s f o r th e m arketing o r p r o c e s s in g o f farm cropso W hile many h o w s o f work were l o s t d u rin g th e t h ir d q u a r te r * th e r e was no v e r y g r e a t change i n th e number o f workers w ith jo b sa C iv ilia n employment t o t a l e d about 6203 m illio n i n Septem ber, and unemployment f e l l t o lo 4 m illio n * th e lo w e st month3y l e v e l o f th e postw ar periodo The s t r u c tu r e o f p r i c e s was r e l a t i v e l y s t a b l e d u rin g th e t h i r d qu artero The in d e x o f consumer©0 p r ic e s wa3 about 1 percen t h ig h e r on August 15 th a n on June 1 5 9 w ith food p r ic e s l a r g e l y r e s p o n s ib le fo r th e r i s e 0 However j, d u rin g th e month o f September 9 foo d p r ic e s s lip p e d down= ward0 W holesale p r ic e s * which had been drop ping more or l e s s s t e a d i l y f o r & months# r o s e s l i g h t l y i n bo th J u ly and A u^ isto On t h e b a s is o f th s w eek ly index^ hc&rever* w h o le sa le p r i c e s d e c lin e d i n S ep tem b er M i l i t a r y e x p e n d itu re s E x p e n d itu re s by t h e Department o f Defense fo r i t s own m i l i t a r y fu n c t i o n s and fo r f o r e ig n m i l i t a r y a id dropped s h a r p ly i n A u gu st, and w h ile t h e y rebounded i n Septem ber, t h e y did not axmed th e l e v e l o f J u l y 0 The t o t a l .fo r th e t h i r d q u a rte r — th e f i r s t q u a r te r o f f i s c a l 1953~~waa 11,,4 b i l l i o n d o lla r s o T h is was 200 m illi o n below e x p e n d itu re s i n th e p r e v io u s q u a r te r j, and. f a r below th e le v a L t h a t seemed n e eessa sy t o reach th e f i s c a l y e a r t o t a l o f around 52 b i l l i o n d o l l a r s s a s e s tim a te d in th e August Gadget RevieWo Ass was in d ic a te d abovoj, w h ile th e dom estic demand f o r our p rod u cts was on the whole r e l a t i v e l y s t a t io n a r y d u rin g the t h i r d q u a rter* f o r e ig n demand f e l l o f f * During J u ly and A u g u stp t o t a l m erchandise e x p o rts fro®, th e U nited S t a t e s d e c lin e d s u b s t a n t i a l l y below t h e l e v e l o f th e f i r s t h a l f o f t h i s y e a r ; and th e y were a l s o below t h e l e v e l o f t h e t h i r d q u a rte r o f 1951o The d e c lin e from th e f i r s t h a l f was p r im a r ily i n volume 9 a s th e r e was l i t t l e change i n th e a v e ra g e o f e x p o rt p r ic e so The g r e a t e s t d e c r e a se s were; i n Uo S* e x p o r ts o f fo o d and raw m a t e r ia ls 9 r e f l e c t i n g in c r e a se d s u p p lie s o f th e se commodities i n o th e r p a r t s o f th e w o rld 0 However 9 n e a r ly a l l c a te g o r ie s o f a b o r t s vrere s i g n i f i c a n t l y a f f e c t e d because o f th e f a c t t h a t a number o f our b e s t f o r e ig n custom ers ex p e rie n c e d b a la n ce o f payments d e f i c i t s and imposed r e s t r i c t i o n s on im p orts a s one msans o f c o r r e c tin g th e d e f i c i t s * U n ited S t a t e s im ports du rin g June and J u ly were somewhat below th o s e o f th e comparable p e rio d o f l a s t y e a r a s d e c l in e s in p r i c e s abroad* p r i m a r ily o f raw m a te r ia ls d more than o f f s e t an in c r e a s e i n the p h y s i c a l q u a n t i t ie s o f goods e n te r in g th e countryo The low l e v e l o f our im ports foreshadow s contin uance o f th e cu rren t lo w l e v e l o f our e x p o r ts and th e r e b y se r v e s t o underscore the need t o f in d msans o f in cr e a sin g ou r im ports i f we a r e t o h e lp oth er c o u n tr ie s i n becoming more s e lf - s u p p o r t in g w ith a minimm o f s t r a i n on our econom y The Economic O utlook The econom ic o u tlo o k f o r th e n ex t 6 t o 9 months does n o t a p p ea r t o be g r e a t l y d i f f e r e n t from t h a t o u tlin e d i n th e Council® s M idyear Review, The r i s e i n e x p e n d itu re s f o r n a tio n s.! s e c u r ity d u rin g th e p resen t f i s c s ,1 y e a r , w h ile p ro b a b ly m od erately l e s s th an was e x p e c te d i n J u l y p w i l l c o n tin u e t o be th e most im p ortan t l i f t i n g elem ent i n th e t o t a l de mand f o r goods and s e r v ic e s * The in d ic a t io n s o f th e most r e ce n t s u r v e y s o f investm ent in t e n t io n s a r e t h a t b u s in e s s in vestm en t w i l l c o n tin u e a t o r n ear i t s f i r s t h a l f o f 1952 l e v e l o The chances o f d e c lin e b e fo r e th e m iddle o f n e x t y e a r have been redu ced by th e s t e e l strike® s e f f e c t o f pushing th e a v a i l a b i l i t y o f m a t e r ia ls f o r sase p r iv a t e investm en t from t h i s h a l f y e a r i n t o th e n ext h a lf yearc The com parative s t a b i l i t y o f b u sin e ss in v e n t o r ie s d u rin g th e t h i r d q u a r te r h e lp s t o con firm oar view a t m idyear t h a t th e y e a r -lo n g d e c lin e i n in v e n to r y b u ild in g which began i n tb s t h i r d q u a r te r o f 1 9 5 1 was a t an end,, and s u g g e s ts t h a t some n s t in v e n to r y buying ®ay ke In s t o r e du rin g t h e 'n e x t q u a rte r o r two©. In th e f i r s t h a l f o f 1953» t h e r a t e ©f housing c o n s tr u c tio n may -be s l i g h t l y lo w er th an i n th e f i r s t h a l f o f 19 5 2 o T o t a l consumer income w i l l be r i s i n g 9 p a r t l y because o f wage in c r e a s e s 9 andj, w ith a F e d e r a l cash d e f i c i t o f around 7 b i l l i o n d o l l a r s i n p ro sp e ct <=> <4 “ f o r f i s c a l 19 5 3 ^ t h s amount o f t o t a l p r iv a t e income a v a i la b le f o r spending w i l l be somewhat g r e a te r than b e fo r e 0 S in c e t h e r e i s no s p e c i f i c reason f o r e x p e c tin g th e r a te o f sa v in g t o change s i g n i f i c a n t l y ^ consuner spend in g w i l l p r o b a b ly in c r e a s e m od erately i n s t e p w ith th e in c r e a s e i n d i s p o sa b le income 0 The p a ssin g o f th e autom obile s h o r ta g e s r e s u l t i n g from th e s t e a l s t r i k e nay r e s u l t i n a f a i r l y 3 i s a b l e p ic k -u p i n consumer d u rab le goods pu rch ases b e fo r e th e end o f t h i s year<. F i n a l l y * i t seems u n l i k e l y t h a t U0 S* e x p o rts w i l l r i s e above p r e ssn t l e v e l s $ e x c e p t f o r se a so n a l f a c to r s o In suma t o t a l demand w i l l p ro b a b ly con tin ue t o grow enough t o p re clu d e any g e n e r a l s o f t n e s s i n th e N a tio n 9s m arkets d u rin g most or a l l o f th s n e x t 9 months* I t i s tr u e t h a t th e co n tin u in g expan sion o f c a p a c i t y f o r m a te r ia ls p ro d u ctio n and f o r sees consumer goods p ro d u ctio n w i l l p e r m it fu r t h e r growth ©f 3 u p p lie 3 0 And, w h ile deiram prom ises t o keep p a c e p th e tim in g o f t h i s demand growth w i l l depsnd l a r g e l y on th e tim in g o f in = c r e a s e s in d e fe n se spending,, I f most o f t h e in c r e a s e i n n a t io n a l s e c u r i t y e x p e n d itu re s planned f o r th e rem ainder o f t h i s f i s c a l y e a r should come i n t h e n e x t q u a rte r o r two^ i t would be p o s s ib le f o r problems o f g e n e r a l economic t r a n s i t i o n t o a defen se Ml e v e l - o f f t o b e g in t o emerge b e fo r e m idyear0 However., th e more l i k e l y p ro sp ect i s t h a t demand w i l l remain i n near b a la n ce w ith su p p ly throughout th e n ext 9 monthso A l l o f t h i s outlook^ moreover* i s based on th e assum ption o f no un s e t t l i n g t u r n o f e v e n ts in t e r n a t io n a lly * Islhen one removes t h i s assumption and t r i e s t o w eigh economic r i s k s r a th e r th a n economic p r o b a b i l i t i e s p th e n c l e a r l y we m s t remain on th e a l e r t a g a in s t th e dangers o f i n f l a t i o n * Development s abroad co u ld b rin g about a new wave o f consume r haying and in v e n t o i y accu 2su lation0 V/ith th e econosgr o p e r a tin g a t abou t f u l l c a p a c it y i n most a r e a s v and w ith the l e v e l o f employment v e r y h ig h p laost o f th e fo r c e o f such an a c c e le r a t e d in c r e a s e i n p r iv a te den&rsd would be q u ic k ly tu rn ed upon p r ic e s o Economic P o l i c i e s IS w S f x I) I35 V su *s?.m admins* S in c e th s o u tlo o k f o r th e r e m in d e r o f t h i s y e a r and th s f i r s t o f n e x t y e a r seems t o be about a s we saw i t i n July*, no m ajor a l t e r a t i o n s i n th e Midyear Economic S e vie w 9s sh o r t-r u n p o l i c y r e c o m e n d a tio n s a r e n eces sa ry * I t i s p la in t h a t t h i s i s not y e t th e tim e f o r any le t-d o w n or f e e l i n g o f “h a v in g a r r iv e d ^ 15 in e i t h e r our d efen se p ro d u ctio n ©r s t a b i l i z a t i o n e f f o r t 80 The fUrfcher and im portant b u ild -u p s s t i l l t o be accom plished i n m i l i t a r y o u tp u t and i n th e m o b ilis a t io n b a s e 5 and th e fu r t h e r i n f l a t i o n a r y r i s k s which t h e y m y e n t a i l , s t i l l have c h r o n o lo g ic a l p r i o r i t y o v e r td m t* e v e r problem s a l e v e l e d - o f f d e fe n se program may l a t e r b r in g s F i r s t a s t o s p e c i f i c p o lic ie s ^ i t now seems d e s ir a b le t o h o ld th e l i n e on ta x e so I t would be in a p p r o p r ia te t o a s k fo r t a x r e d u c tio n s a t th e . I 6* / - 5f i r s t o p p o rtu n ity i n th e f i r s t f i s c a l y e a r a f t e r Korea which w i l l show a cash d e f i c i t — and a s i z a b l e ©ne0 On th e o th e r hand, i t would s c a r c e ly seem e i t h e r f e a s i b l e o r e c o n o m ic a lly j u s t i f i a b l e t o a s k f o r a d d i t i o n a l t a x e s a t th e o u ts e t o f th e n e x t C on gress„ Second 5 both i n th e cu rren t s i t u a t i o n and more p a r t i c u l a r l y i n view o f the e v e r p r e s e n t p o s s i b i l i t y o f some new " in c id e n t ,f i n th e i n t e r n a t io n a l s i t u a t i o n , th e a r s e n a l o f a n t i - i n f l a t i o n a r y weapons w i l l be i n adequ ate so lo n g a s a u t h o r it y t o impose c o n tr o ls on consumer and mortgage c r e d i t i s la c k in g o P re p a ra tio n s should be made fo r r e q u e s t in g p a t th e e a r l i e s t o p p o r tu n ity p th e r e s t o r a t i o n o f th e s e powers b y th e C o n gre ss0 T h ir d , i t i s im portant t o keep c o n s ta n t ly i n mind th e need f o r re new al o f th e D efense P ro d u ctio n A c t ° s m a te r ia ls c o n tr o ls p r o v is io n s b e fo re t h e y e x p ir e a t th e end o f n ex t Jun©0 In th e e ven t o f some new i n t e r n a t io n a l " in c id e n t j,” a r e a d y = to -g o a l l o c a t i o n s program and o r g a n iz a tio n would be a t th e v e s y core o f e s s e n t i a l a c t io n 0 And even w ith no f u r t h e r d is r u p tio n , o f th e i n t e r n a t io n a l s i t u a t i o n 9 some p o r tio n s o f the m a te r ia ls and p rod u ctio n programs o f th e A c t— n o t a b ly 9 c o n tr o l o v e r c r i t i c a l Band 1 m a t e r i a l s ^ - w i l l need t o remain o p e r a tiv e f o r some tim e 0 F o u rth , and perhaps most u rgen t i n term s o f immediate p o l i c y p la n n in g 9 a d i f f i c u l t and com plicated problem i s shaping up in th e f i e l d o f p r i s e and wage c o n tr o ls * Due t o v a s t in c r e a s e i n our p r o d u c tiv e power, which has been a roost im portant f a c t o r i n h o ld in g i n f l a t i o n i n cheeky th e O f f i c e o f P r ic e S t a b i l i s a t i o n has been a b le t o suspend a number o f p r i c e c e i l i n g s 0 T h is i s o b v io u s ly .a h e a lth y tr e n d i n term s o f th e lo n g -ra n g e i n t e r e s t s o f our k in d o f econoirdc system* I t i s t o be hoped t h a t th e co n tin u in g growth o f our p r o d u c tiv e power w i l l e n a b le a c c e le r a t io n o f t h i s p r o c e s s w ith ou t e x c e s s iv e r i s k s 0 A t the same time*, we should be m in dful t h a t t even i f t h e c e i l i n g suspensions now i n th e m i l l are com pleted by th e end o f th e y e a r , i t i s e stim a te d t h a t ite m s r e p r e s e n tin g som ething l i k e p er cert, o f th s Consumers6 B r ic e In d ex and 70 p ercen t o f th e W holesale P r i c e In d ex M i l l s t i l l be. under o p e r a tin g c o n t r o ls cm January lo M oreover $ t h e r e i s l i t t l e in th e economic o u tlo o k t o i n d i c a t e s i g n i f i c a n t market s o fte n in g d u rin g th e n e x t few months0 W hile th e o u tlo o k beyond A p r i l 30 , 1953 ^ th e tim e now e s t a b lis h e d by law for th e te r m in a tio n o f p r i c e and wag© c o n t r o l, seems t o i n d ic a t e f u r t h e r e a sin g o f some i n f l a t i o n a r y pressures^ t h e in t e r n a t io n a l s i t u a t i o n fo r a lo n g t i n e t o com w i l l be u n c e rta in * C o n se q u e n tly ? we f e e l t h a t th ou gh t and p la n n in g should non be d i r e c t e d ' toward t h e a d m in is tr a tiv e and l e g i s l a t i v e m echanics f o r m a in ta in in g th s a u t h o r it y and a b i l i t y t o c o n t r o l p r ic e s and wages beyond n e x t A p r il* In v ie w .o f m a n ife st u n c e r t a i n t i e s not o n ly i n t h e economic b u t a l s o i n th e « 6 - l e g i s l a t i v e s itu a tio n *, i t i s to o e a r ly t o ju d g e w ith an y p r e c is io n e x a c t l y what form th e re q u e st fo r th e c o n tin u a tio n o f t h i s a u t h o r it y should t a k o c A l t e r n a t i v e s w orthy o f c o n s id e r a tio n in c lu d e th e e x te n s io n o f th e c u r r e n t la v j3 or some more l im it e d form o f o p e r a tin g p r ic e and wage c o n tr o ls &©~ companied b y broad stand by a u t h o r i t y 0 Rsspe c t f u l l y subm itted J3
@FedFRASER