MIDYEAR 1970 has been a kind of deadline for the Nixon Administration's economic "game plan." If inflationary recession is to give way to a combination of renewed business growth and slower price increases in time to save Republicans from November election troubles, the first signs must begin showing up now. They are doing just that, but the harbingers of a turn have not yet brought any loud cheering. At best, success for the game plan seems likely to be bought at painful cost—in corporate financial distress, in labor turmoil and, worst of all, in the resurgence of a nationalistic import protectionism that threatens to plunge the world into a trade war.
Price Break. The tone of business news has changed. Last week the Government reported that housing starts rose 11% in June, and industrial production in June dropped less than half as much as in May. More important, after six months of decline, real gross national product steadied in the second quarter. (Real G.N.P. rose at an annual rate of .3%, but the increase was so tiny as to be statistically insignificant.) As Administration officials had hoped, the engineered business downturn seems to have been prevented from skidding into a deep recession by a mix of remedies: higher Social Security payments, Government wage boosts and a Federal Reserve policy of again expanding the nation's money supply.
There are also grounds for optimism that the downturn has at last eased inflation. The nation's most comprehensive price index, the G.N.P. deflator, rose at an adjusted annual rate of 4½% in the second quarter, v. 5½% in the previous three months. Most of the decline reflected technical factors rather than basic change, but at least inflation has not grown worse. The consumer has felt little relief yet, but economists are encouraged by a recent drop in the wholesale price index of sensitive commodities, including eggs and meat. The stock market reflected the new atmosphere as the Dow-Jones industrials rose 35 points, to a week's end close of 735.
Yet any conclusion that the economy is bound to improve sharply at any time soon would be wildly premature. Many companies are still caught in a tough cash squeeze. The New York Stock Exchange, for example, disclosed last week that ten of its member brokerage firms are being liquidated. A business recovery could also be stopped dead by an auto strike in September. Labor militance has been aggravated by the economic downturn, and wage raises are as inflationary as ever. The Administration had expected just the opposite effect. Last October, a top Government economic planner asserted: "If I were a labor leader, I would not look for those 8% settlements any more." The statement only proved his incapacity to be a labor leader. Union contract settlements in 1970's first quarter averaged exactly 8%, v. 6.7% in the equivalent period last year, and the average undoubtedly rose in the second quarter.