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The Nixon Administration and its political opponents disagree less over what is likely to happen than over how elated the nation should feel about it. Nixon is billing 1972 as "a great year"; his critics say that the economy could and should have been performing much better much sooner. Both are correct. If the President had adopted wage-price guidelines two years ago, he might have avoided both the recession and the need for rigid controls. But largely because he did act —better late than never—the nation is heading into a strong recovery.
Members of TIME'S board expect that the gross national product will climb from last year's $1,050 billion or so to somewhere between $1,145 and $1,154 billion. The Board of Economists was the first group to predict a rise of close to $100 billion* (TIME, Oct. 4), and since then their estimate has been adopted by many experts until it is now the standard forecast. The tentative predictions of economists in the Administration, in the corporate world and the AFL-CIO are closely in line with those of TIME'S board. The major holdouts are Economists Henry Wallich and Pierre Rinfret, who foresee a gain of $85 billion. That itself would be a marked improvement over last year's $76 billion, though a severe disappointment to almost everyone. Wallich explains that he feels there are simply too many uncertainties about the strength of consumer spending and business inventory buying and capital investment to forecast a higher number.
The future seems more clear to backers of the consensus forecast. Its details:
REAL G.N.P.—not counting price increases—will rise by anywhere from 5.5% to 6.4%, or roughly twice as much as last year.
PRICES will register their smallest increase since 1968 or perhaps earlier. The board's predictions of this year's rise in the so-called G.N.P. deflator, the most comprehensive price index, range from 3.1% to 3.4%. That is not far above the rate that many economists think the U.S. can tolerate indefinitely. The wage-price freeze broke the economy's inflationary momentum, and Phase II shows promise of keeping wage-price pressures in check despite the ineffectuality of the Pay Board so far.
PERSONAL INCOME will grow 8% or more, and consumer spending will go up at least that much, even if the pattern of high savings continues. That is good news for retailers. Gordon Metcalf, chairman of Sears, Roebuck, predicts an 8½% jump in the nation's retail sales early this year. Ralph Lazarus, chairman of Federated Department Stores, expects a 12% gain for his company in 1972.
PROFITS before taxes will leap between 14% and 17%. The rise after taxes will be higher because corporations will be able to reduce their tax bills by an amount equal to 7% of what they spend on new machinery and construction. Giant companies —those with assets of about $1 billion or more — will report somewhat smaller gains to their shareholders. These giants maintained their earnings better than most other companies did during the 1970 recession and last year's creeping recovery, so they have less lost ground to make up. But the more volatile profits of many medium-sized and small companies should soar, and the Price Commission will scrutinize their margins less closely than those of large corporations.