For more than 14 bumpy months, the U.S. economy has been headed in one dismal direction: down. Now, slight to moderate improvements in several indicators lead many economists and businessmen to say that while the economy is still skidding, it is declining at a slower rate. The belief is widespread, though not unanimous, that it will probably hit bottom in three or four months. Summed up Donald C. Miller, executive vice president of Continental Illinois Bank: "Over the past ten days or so, we seem to be picking up better feelings, some end to the steady drumbeat of bad news."
Part of that news remains as bad as ever. Testifying to the Senate Budget Committee last week, Alan Greenspan, the President's chief economist, forecast that the real gross national product would drop at an annual rate of more than 10% in the current quarter. That would be the fifth straight quarterly decline as well as the sharpest contraction for any quarter since World War II. Industrial production in February alone was off 3%, making five successive months of decline. Greenspan, who had previously predicted that unemployment would peak at 8.5%, now said that it would climb higher than that and possibly hit 9% before going down some time this summer. Even so, he held to his earlier conviction that the recession will bottom out just after midyear—or possibly just before.
Other policymakers and private economists increasingly feel that the recession's low will be reached around June or July. A few predict that it could come as soon as April. One major reason is a rise in consumer confidence, owing in part to the rapid fall-off in the rate of inflation, from 12% late last year to slightly more than 6% now. Rising confidence, a key to recovery psychology, has buoyed the stock market. The Dow Jones industrials have jumped 22% in two months on heavy trading volume. Albert Sindlinger's Consumer Confidence Index turned up in mid-January from a record low, and nearly doubled in February, when 40% of those polled said that they felt economic conditions would improve. The figure is still quite low, but the rise is one of the sharpest ever.
Among other signs of a slowdown in the economy's decline:
> Initial claims for state unemployment-compensation benefits have fallen from 970,000 in early January to 568,600 in early March, showing that fewer people are being laid off.
> New orders for manufactured goods fell 2% in January, but the drop was much smaller than December's decline of 9.3%.
> Retail sales volume rebounded sharply in January and rose by another one-half of 1% in February. Automobile sales held firm during the first ten days of this month despite the end of most of the manufacturers' promotional rebate programs.
> Business inventories dropped in January, the first monthly decline in more than four years and the biggest since 1961. This is an important sign that business is reducing its bloated stocks of goods, opening a way for increased production.
>The long-suffering housing market is showing some signs of firming (see story next page), and interest rates are continuing to decline.
> Capital-spending plans have been increased lately in several industries —nonferrous metals, paper, food and textiles.
When will the recovery itself come?