Interesting Phase

A top Administration official scrutinized the U.S. economy last week and reported that it is in a "very interesting phase." What he really meant is that he and many fellow economists are genuinely baffled by the economy's performance. They have merely to look around them at the signs of economic hustle and bustle to observe the obvious health of the economy. Yet many of the key statistics that economists have used for years to measure the economy's health indicate that it is on the edge of a slow-up.

Last week the Federal Reserve reported that industrial production fell in May for the third straight month. Stocks suffered their biggest fall in five months, ended the week at 500, off eleven points on the Dow-Jones industrial average. Latest figures show a drop in new orders for durable goods and in average weekly hours worked in manufacturing.

Sensitive Signals. Such are the statistics that make up the "leading index," a sensitive collection of figures used by many economists to signal changes in the nation's business climate before they become generally noticeable. The index--and two other similar barometers--was developed by analysts of the National Bureau of Economic Research, including Raymond Saulnier, chairman of the President's Council of Economic Advisors, and Arthur Burns, former council chairman and now president of the bureau. Since it accurately foretold the 1947 and 1953 recessions, the index is now giving many an economist and businessman the recession jitters with its steady downward movement. Last week Dr. Reinhold Wolff, head of the University of Miami's business and economic-research department, predicted an "economic dip--perhaps one that will be quite sharp--pretty soon."

But the economy ignored both statistics and statements. If business were slipping, money should be easing; yet last week money was tighter than ever, reflecting a demand for funds to finance expansion. The Federal Reserve Board announced that record levels during May were maintained in construction activity, nonfarm employment, personal income and retail sales. Mortgage applications jumped to their highest level in several months, leading builders to hope for a summer upturn in lagging home building.

New Economy? Why the discrepancy between the economy's health and the gloomy statistical prognosis? One possibility is that a recession is actually on its way, but has so far been felt only in scattered soft spots. A more probable theory is advanced by the men who gather and analyze the statistical indexes. In the National Bureau of Economic Research's 37th annual report, published last week, Research Director Solomon Fabricant implied that the idea that business moves in up and down swings--the theory on which the statistical indexes are based--may no longer apply. The U.S. may well be moving in to a type of economy that pauses for breath, with little or no expansion, before it surges up again.

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