The economic news had rarely looked so discouraging. National production in the first quarter dropped more sharply than at any time in the past 16 years. Consumer prices continued to spiral up at a dizzying double-digit rate. Interest rates on some bank loans hit an alltime high. If the new figures had been deliberately chosen to do so, they could hardly have underscored better the dimensions of the job that faces Federal Energy Chief William Simon, who was nominated last week to be Secretary of the Treasury. Simon may end up with more responsibility than anyone except President Nixon for dealing with the triple threat of economic downturn, inflation and credit squeeze.
The most eye-opening statistic of the week was that real output of goods and services in the first quarter fell at an annual rate of 5.8%. If output goes down again in the current quarter, many politicians surely will be talking about a second Nixon recession-and an inflationary one at that. There were other downbeat indicators: industrial production in March fell for the fourth straight month, and is now 2.8% below its November peak; housing starts last month were 36% below a year earlier. The declines did little to break the grip of inflation. Consumer prices in March shot up at a compound annual rate of 14%. Banks across the country raised their prime rate on business loans to an unprecedented 10%%.
Cruel Dilemma. Despite the glum news, the worst of the economic downturn is probably over. The March drop in industrial production was smaller than any of the previous three declines; auto sales in early April were down only about half as much as earlier in the year; the housing slump appears to be bottoming out; and U.S. industry plans heavy capital spending. Because the Arab oil embargo has ended, most economists expect real G.N.P. in the current quarter to be "flat"-that is, up or down only a trifle. While that would scarcely be an achievement to crow about, it would mark a considerable improvement over the first quarter. Still, the persistence of galloping inflation presents Simon and other federal planners with a cruel dilemma: they must somehow find ways to contain the price rises without restraining the economy so much as to abort a recovery from the weak first quarter.
It is not a dilemma to be celebrated , —and so perhaps it was fitting that the announcement of Simon's elevation was remarkably low-key. The introduction of a new senior Cabinet member is normally one of Washington's more established rituals; the President himself usually presides at a special press conference with the smiling appointee at his side. Last week's announcement, by contrast, had all the pageantry of a White House laundry pickup. Neither Nixon nor Simon was even there. Deputy Press Secretary Gerald Warren slipped the news in at the regular 11 a.m. White House press briefing and acknowledged only after questioning that the President was "extremely proud" to nominate Simon.