(9 of 10)
Some glimmerings of trends that could produce an upturn are visible. The Federal Reserve has eased off on its credit squeeze, interest rates are dropping and money is once more beginning to flow back into savings and loan associations. Eventually that should help housing and such allied industries as furniture and appliances—though not for many months, because S and Ls have to repay debts before they can start making new mortgage loans. The strike of 120,000 coal miners, which has badly deepened the recession in the past few weeks, seems on its way to an end; the United Mine Workers Bargaining Council finally accepted a new contract last week and sent it out for a membership vote. Administration economists think that they see signs—more trustworthy than the many false ones of the past—that inflation is at last beginning to abate. Those signs are only beginning to show up in the price indexes, but prices of copper and some other metals have fallen lately and the Council of Economic Advisers is getting some reports of under-the-table deals by manufacturers to sell at a discount goods that they cannot move at high list prices.
Suffer Along. More than by anything else, though, the shape of the recession from here on and the timing of the turn-around will be determined by what happens to inventories—the unsold goods and supplies that businessmen have on hand. Although production is dropping, it will be some time before business can work off those inventories; Chrysler, for example, has a four-month supply of unsold cars on lots and in showrooms. Sometimes the lag involved in pulling inventories into line with sales produces what is known as a V-shaped recession: production plunges until inventories are sold, then shoots up again when new orders are placed. That could occur this time, but it seems more likely that the inventories will be worked off slowly and rebuilt equally slowly and that the turn-around will be barely noticeable when it comes.
Another reason for expecting a slow recovery is that the Administration and the Federal Reserve are determined not to be stampeded into "reflating" the economy by sharp increases in either Government spending or the money supply or through big tax cuts. Though the Federal Reserve has again stoked up the flow of money into the economy, Chairman Burns has not abandoned his long-term goal of holding the increase to a moderate 5% to 6% a year. The Administration, despite hot political criticism, is convinced that it must let the economy suffer along until there are some signs more convincing than those now apparent of a letup in inflation.
Brutal View. That view reflects a conviction that recession is being caused not just by Government action to stop inflation but by inflation itself. Certainly, one reason for the debacles of the housing and auto industries is that the prices of homes and cars have climbed out of the reach of many consumers.
Administration economists worry that the national economic debate is being put into terms that are too simplistic: "Are you fighting inflation harder than recession?" In their opinion, healthy growth cannot be resumed until the U.S. can dig out the inflationary expectations that have seeped into almost every cranny of the economy.