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Whether the Penn Central failure foreshadows further trouble for the U.S. economy remains to be seen. Most bankers and economists consider chances of a money crisis to be slight, but they add a crucial qualifier: provided there is no unexpected series of bankruptcies among big companies. When the federal financial managers last year severely restricted the money supply in order to hold back inflation, they knew that there would be some business failures—though they hardly expected the world's largest transportation company to go under. By most measures, the recession so far has been mild, and it has succeeded in breaking an inflationary psychology. In May, the wholesale price index rose at an annual rate of 1.2%, after four straight months of 3.6% gains. Profit-starved companies have been reducing their capital spending and inventories, and such moves should help relieve the squeeze on corporate cash during the next few months.
Meanwhile, consumers are accumulating a great deal of spending power, which could later help to revive the economy. The personal savings rate has rebounded. Personal income, already increased by raises in social security benefits and Government pay, will rise further with expiration of the 5% income tax surcharge this week. Most important, the Federal Reserve has been feeding money into the economy at a brisk though uneven rate since February. But since it usually takes nine months for a change in money policy to turn the economy around, business is not likely to start picking up until late this year or early in 1971.