The Economy: Optimism Reinforced

There was a perceptible upgrading of optimism last week, and a growing con viction that U.S. business can roll forward without pause in 1965. The buoyant mood was apparent in Washington, where some of the nation's leading economists, testifying before the Joint Congressional Economic Committee, almost unanimously predicted uninterrupted expansion. The bullish sentiment was obvious on Wall Street, where the stock market rebounded strongly from last month's fall. In the second heaviest trading in more than a year (7,100,000 shares in one day), the Dow-Jones industrial average rose every day, climbing 18 points to a near-record 903.

The feeling was most apparent in the millions of U.S. stores and factories, where the everyday indicators of economic performance were pointing up. Auto sales in mid-February ran 19% above the high levels of a year ago, and automakers talked increasingly of a 9,000,000-car year. Steel production reached an alltime high—2,757,000 tons in a week. Though steel and autos will almost certainly ease off from those record rates, there are many other muscular forces in the economy. Last week gains were reported in building permits, manufacturing orders, retail sales, personal income, employment, profits, dividends and capital spending.

Crossed Fingers. At the Joint Economic Committee hearings, Economist Seymour Harris of the University of California at San Diego pointed out that eleven of 15 so-called "leading indicators" are on the rise. Said Budget Director Kermit Gordon: "The present healthy expansion will keep going through a fifth consecutive year." About the only word of caution came from Raymond J. Saulnier, who had been President Eisenhower's chief economist; pointing to a rapidly lengthening work week and "incipient inflation," he said that the economy shows signs of "overheating," and he warned, "Don't push your luck too far." To which Gardner Ackley, President Johnson's chief economist, replied: "We have our fingers crossed."

Government economists realize that their buoyancy may be only short-term, certainly do not rule out a slight tapering by year's end. To head off inflation and help to reduce the balance-of-payments deficit, the Federal Reserve Board is slowly tightening credit. Budget Director Gordon disclosed last week that, in 1965, the combination of higher federal spending and further tax cuts will pump an additional $8 billion into the economy, while increased prosperity will boost the federal tax intake by $6 billion. That will make for a net $2 billion federal stimulus to the economy, most of which will take effect in the year's second half.

To Move Slag Heaps. A prime source of uncertainty remains the steel-labor situation, but even that seemed a bit clearer last week. Because the results of the United Steelworkers' bitter presidential election battle are still being contested, AFL-CIO President George Meany—probably with a nudge from Lyndon Johnson—took the unusual step of recommending that the union postpone its May 1 strike deadline. Though Steelworkers' President David J. McDonald rejected the idea as "premature and prejudicial," many businessmen figured there would indeed be a delay—and that the extension for additional negotiations might well lessen chances of a strike.