The Morning After

(4 of 9)

THE WEST COAST is in recession only by contrast with its 1957 boom. The San Francisco Chamber of Commerce reported its general business index down 2.6% from last year but still 6% ahead of 1956. Despite a 58,000-man drop in the aircraft industry, most of which is concentrated around Los Angeles, total employment in the area is only 18,000 short of the near-record 2,497,000 high of last January. Wages ($95.91 weekly) are rising, and personal income for the state is predicted at $357 billion this year, up 3%. Business failures are down, and builders expect a good year, with a 10% increase of 100,000 new homes in Southern California. Said a furniture-store executive in Fresno, Calif., where aircraft and other layoffs have increased unemployment by 50%: "We were scared to death. But we haven't been hurt; those who work hard at selling are doing all right."

THE NORTHWEST, in recession for two years because of poor lumber business, is getting more of the same. Plywood prices have been hanging at a historic low of $64 per 1,000 sq. ft., and industry-wide unemployment is up to 50,000 v. 38,000 at this time last year. One encouraging sign is that in the last fortnight a sudden rush of orders has swamped the industry, pushed some prices up to $72 per 1,000 sq. ft. Another good omen: builders report a construction spurt, with 50% more new houses either on the drawing boards or ready for concrete-pouring than last year at this time. Nevertheless, retail sales are down 2% area-wide, and autos are deep in the doldrums. "We're not really alarmed as yet," said a Seattle Chrysler-Plymouth dealer. "But if there isn't a real upsurge in March, you'll be able to see me sweat from 20 ft. away."

The $21 Billion Cut. Looking back, the U.S. could easily spot the reasons for recession. A minority of economists and businessmen blame the Federal Reserve's tight-money policy. But the majority praise the FRB, consider its use of the credit tools better than ever before, praise the speed with which it loosened credit when business began to slide. Actually, tight credit was only one factor in the slump. The economy has been in rolling readjustment for years, some areas slowing down while others steamed ahead. For a long time, the pluses far outstripped the minuses. But beginning last July, so many big adjustments all piled in so fast in the next six to eight months that the nation's overall demand for goods and services dropped well below the supply: ¶ Defense spending, which had edged up in 1957's first eight months to a yearly rate of $42 billion, was cut in the last four months to a rate of $36 billion as the Defense Department desperately tried to keep within its budget. Cut in spending rate: $6 billion.

¶ Foreign trade slumped from an export rate of $26.9 billion annually in 1957's second quarter to $24.8 billion in the fourth quarter as foreign nations fought to lick their own inflation, tried to save gold and dollar reserves. Cut in demand: $2 billion.