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No Recession? Nixon's Economic Report, supported by the findings of his Council of Economic Advisers, forecast both less inflation and less growth for the economy this year than last. Gross national product should rise about 5½% to $985 billion, the CEA predicted, compared with the too swift 7.7% expansion during 1969. The trick, of course, is to keep the anti-inflationary slowdown from growing into a grave economic slump. Last week, stock prices, often an advance indicator of broader economic trends, fell to their lowest level since November 1963 (see BUSINESS). Still, Nixon told his news conference at week's end: "I do not expect a recession to occur." Thanks to his "real" budget surplus, he added, "the time is coming" when the Federal Reserve Board can relax its monetary restraints. "I'm not saying what the Federal Reserve ought to do," said the President, but if money remains too tight for too long, "we will have a recession."
Nixon has good reason to be hopeful that the Federal Reserve may soon begin to loosen its rein on the nation's money supply and credit. Presidential Counselor Arthur Burns, who was sworn in last week as Reserve Board chairman to succeed William McChesney Martin, has been the chief Administration advocate of stringent federal economies. Reason: he feels that monetary policy has been bearing too much of the burden in combatting inflation.
For the longer run, Nixon enunciated a strategy that seems to juggle the economic variables in favor of price stability rather than growth or low unemployment. "Personal freedom," he said, "will be increased when there is more economy in government and less government in the economy." Over the next five years, federal revenues are scheduled to shrink from 20.8% to 19.6% of the gross national product. Thus the Nixon Administration will have little to spend for new social programs in the '70s unless it makes massive cuts in defense costs or decides to reverse the trend in federal taxation.
Even by 1975, the "national nest egg," as the Administration dubs the prospective leeway for increasing federal outlays, will amount to a mere $22 billion, or 1½% of the nation's total output of goods and services. That is based on the CEA's optimistic prediction that inflation will be brought under control by the end of 1971, with price increases cut to the rate of 1½% a year. After that, the council foresees a resurgence of real economic growth (4.3% a year) and unemployment declining to a moderate 3.8% of the labor force.