STATE OF BUSINESS: A Tricky Time

To explain what is happening to the U.S. economy, the head of the nation's biggest retail firm last week used an old phrase: "rolling adjustment." The adjustment, said Charles H. Kellstadt, chairman of Sears, Roebuck & Co., is "more severe than anything since 1946.'' He predicted that it will last until spring but steadfastly declined to call it a recession. Said he: "I don't know exactly what they mean by a recession, but whatever a recession is. we're not in one now." Sears certainly is not: its sales are expected to rise 5% for the current fiscal year.

Many of Kellstadt's peers disagree with him about a recession, though almost all of them could sympathize with his impatience at economic semantics. While all economists have access to the same facts, they differ on what the statistics mean. To some, Kellstadt's rolling adjustment is actually a recession. Looking at the same facts, William F. Butler, vice president and economist of the Chase Manhattan Bank, last week took the view that the economy is not in a recession—but is headed for a moderate one late in 1960 or early in 1961. Butler says that the recession will run its course by mid-1961 or "possibly a bit later," warned U.S. businessmen to "fasten their seat belts for the economic turbulence ahead."

By contrast, an aggressively optimistic view came from U.S. Budget Director Maurice Stans: "We see no concern about the trend of business conditions. We think conditions are strong and improving considerably."

Not like the Past. What did Kellstadt mean by rolling adjustment? He meant that, while various areas of the economy, such as steel and inventories, are going through recessions of their own—and others may go through them in the near future—the total effect is not great enough to pull down the whole economy. Reason: the recessions are not happening all at once. This is in marked contrast to the 1957-58 recession, in which the adjustment, instead of rolling from industry to industry, hit all at the same time. There was a sharp rise in unemployment, heavy cutbacks in defense spending, a big drop in capital expenditures for plant and equipment, a sharp downturn in the gross national product, and a steady decline in inventory accumulation. All of these added up to a recession. At the present time, the worst situation is the cautious using up of inventories (instead of reordering) and the stubborn rate of unemployment (more than 5%). These troubles in themselves have not been strong enough to cause a precipitate general dip, indicating that the economy still has inherent basic health.