The Long Gain

On April 1 the U.S. economy will begin what should turn out to be its 38th straight month of expansion --the longest peacetime period of gain in three decades.

The rise is much stronger than the 52-month expansion that came in the midst of the Depression of the 1930s, and is already longer than the 35-month boom of the mid-1950s. Both of those previous expansions ended with sharp drops; but today there is little worry that the U.S. has had it too good for too long and thus may face a jarring business decline.

The important indicators are rising (see box), yet none so fast that they cause concern. Last week, as reports came out heralding important gains in industrial production, personal income, auto sales and housing, many businessmen and economists were no longer taking seriously the old textbook notion that a modern economy can scarcely expect three consecutive years of record auto production, or four straight years of plump times. Said Chief Presidential Economist Walter Heller: "The expansion should continue well into 1965."

General Motors Chairman Frederic Donner figured that what is good for the U.S. is good for G.M., and vice versa. Dedicating a remarkable new plant at Fremont, Calif.--a factory that spews out Buicks, Pontiacs, Oldsmobiles, Chevies and two kinds of trucks from the same assembly line--Donner jovially sprang the news that the world's biggest manufacturer has just begun its most ambitious expansion in history.

Over the next two years, GM spend $1.2 billion to retool for new models and nearly $2 billion to build three new plants and enlarge and improve three dozen existing ones, many of which are producing to the limit. The spending will create 50,000 new jobs at G.M.--and thousands more for its suppliers and construction contractors. Donner predicted "continued dynamic growth for our industry," said that G.M. is gearing up for what should be a normal market of 10,000,000 cars and trucks a year by 1970. That is certainly a conservative estimate, considering that sales ran at an annual rate of 8,400,000 cars in the first 70 days of this year.

Pleasant Surprise. Businessmen everywhere are spending; American Telephone & Telegraph alone will invest more than $3 billion in plant and equipment in 1964. Many economic experts believe that capital budgets will rise more than the anticipated 10% this year--largely because they expect that the tax cut will inspire the U.S. public to spend more. The cuts will average out to $133 a year for each wage earner. It is still too soon to measure how much of his saving the consumer will spend, but early signs are hopeful.

Federal Reserve Chairman William McChesney Martin Jr., who depends on his personal impressions of the economy almost as much as on all the statistics, was surprised at how much the tax cut increased his own paycheck* and figured that other people will be just as pleasantly surprised. A quick check with department store executives in Los Angeles, Dallas, Cleveland and Detroit convinced him last week that sales are in for a substantial lift.

Another hopeful sign is that business policymakers still have much confidence in President Johnson--confidence that they denied to John Kennedy. "The business community likes the way Johnson

got the budget down under $100 billion." explains Chairman Henry Clay --Alexander of Morgan Guaranty Trust. "Getting the tax bill passed created a favorable impression." The whole mood of business has bettered considerably since January. "Confidence in the business outlook is stronger than at any time in the past four years," said the Morgan Guaranty's monthly letter.

Rankling Problem. Last week there also appeared one of the rare glimmers of hope for solving the nation's most rankling economic problem: unemployment. Though nonfarm employment usually drops by as much as 350,000 in February, it actually rose by 80,000 last month, to 56.9 million Americans at work in shops, offices and factories. Walter Heller expects that the business expansion will reduce the rate of unemployment from 5.4% to 5% or below by year's end. That would still be short of the Administration's goal of 4% , and the nation would still have to work at finding 3,000,000 jobs a year--1,000,000 for new workers and 2,000,000 for those displaced by technological changes.

Even so, Walter Reuther said last week that his United Automobile Workers would go to the bargaining table next July "under the most favorable set of circumstances in our history."

This week the U.A.W.'s convention at Atlantic City will debate how much to ask for, and the likelihood is that the union will demand a package increase of about 5%, much more than the rough 3.2% guideline that the Administration suggested in January as reasonable and noninflationary. One of the Administration's greatest concerns now is that other labor chiefs will demand at least as much as Reuther. That--combined with a big increase in purchasing power, a big federal deficit and a continuing policy of easy money--could bring on inflation and end the U.S.'s six-year period of relative price stability. With such a prospect in mind, President Johnson in his speech this week to the Auto Workers, and Heller in a talk to the Economic Club of Detroit, will plead for restraint all around on prices and wages.

Prices have already begun to creep up. Rises were posted last week for copper, glass containers, aluminum, and some chemicals, but Administration economists argue that unemployment and the fact that industry is still operating at 85% to 87% of capacity will hold increases within bounds. Taking a longer look, a few economists and businessmen worry that taxes have been cut too much in one lump. That, they say, raises the danger of an overexpansion later in 1964 which could lead to a day of reckoning some time next year. For the present, however, the only major question is how good 1964 will be.

*Martin, who earns $20,500 a year, collected $30 more on his biweekly paycheck.

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