THE ECONOMY: A Breather

"The economy," said the President last week, "is in effect taking a breather after a long surge of rising effort of all kinds that have produced almost a miraculous upsurge in productivity and prosperity of America." The state of business last week: mixed. The reason: the U.S.'s sharp campaign to kill inflation was beginning to take hold, beginning to hurt.

That well-publicized public thermometer, the stock market, sank at week's end with the chill caused by the news that railroad freight-car loadings—a key index of business activity—were down from last year's levels (see BUSINESS). Manufacturers' sales for September were down too. The Business Advisory Council of the Department of Commerce had predicted a gradual decline of industrial activity until late in 1958, an upturn thereafter. The Federal Reserve Board reported an easing in business borrowing for new projects.

But the extrasensitive thermometers and barometers missed a point or two that the old-fashioned Farmer's Almanac would understand. Fundamentally, the U.S. was still more productive and prosperous than any nation in history. Even as the barometers quivered, pacemaking industries—oil, steel, aluminum—were showing record nine-month performances. "Progress," said U.S. Steel's Board Chairman Roger M. Blough, is "very definitely on the plus side." National income was at national all-time highs, and this prosperity was spread across the populace—from wage earner to farmer—at a level never before equaled.

The one real danger to the long-range soundness of the U.S. economy in 1957 was inflation. As inflation eased—albeit painfully—the economy was strengthened. Labor Secretary James Mitchell noted hopefully that the breather might encourage big labor to show "restraint" in framing next year's wage demands. "The illusion of prosperity that may be gained from inflation," said Treasury Secretary Robert Anderson in Detroit, "cannot safely be substituted for real economic progress . . . There are a few who unwisely regard sound money merely as an ideal. They unwisely suggest that we would do best with a just slightly unsound money; that a 'little' inflation is needed to tantalize the economy, to keep it running at full tilt." But such a policy "would create uncertainties, and arouse expectations of further cost and price inflation that would make sound economic growth impossible."

The U.S. had only to look at its past (see chart) to get the valid direction of its economic future. The economy was—and would continue to be—a husky and growing thing to meet the needs and demands of not only a husky and growing nation, but an increasingly hungry, ambitious, developing free world—a world that might soon be urgently in need of the kind of defense from dictatorship that only that economy could furnish.