Showing Some Real Muscle

The recovery is proving to be powerful, but it could set off more inflation

Walter Heller, who served as chairman of President Kennedy's Council of Economic Advisers, likes to keep track of the words that his fellow economists and the press use to describe the business outlook. At last count, he had compiled a list of 60 adjectives applied to the emerging recovery. The tone of the list has been changing dramatically. Only six months ago, Heller says, economists were calling the recovery "weak, wobbly, puny, pokey, measly, muted and miserable." Now, however, the rebound has suddenly become "rapid, robust, snappy, surging, brisk, bullish and a barn burner."

Economists have good reason to rearrange their vocabulary. Upbeat statistics, from strong department-store and auto sales to improved housing starts, suggest that consumers are regaining their confidence faster than expected, and surprised forecasters are rushing back to their computers to come up with rosier predictions. Last week the Commerce Department released a preliminary "flash" estimate that the U.S. gross national product was growing at a 6.6% annual rate, after adjustment for inflation, during the April-June quarter, up from 2.6% in the year's first three months. Many economists believe that second quarter G.N.P. growth may actually hit a sizzling 8% annual rate because they think that once the final figures are in, June will prove to have been an exceptionally strong month.

The auto industry is one of the biggest gainers. Sales of American-made cars in the second ten days of June were up 73% over the same period a year ago. But the automakers also got some potentially bad news last week. The Supreme Court ordered the National Highway Traffic Safety Administration to reconsider its decision to free automakers from a requirement that they equip future cars with automatic seat belts or airbags. The safety devices could cost the automakers up to $1,100 per car, which would be added to the sticker price.

The Administration last week was basking in the sunny economic figures. President Reagan told a group of congressional leaders that "our economic game plan is working" and will lead to a "strong recovery." Martin Feldstein, chairman of the Council of Economic Advisers, said that G.N.P. growth for the entire year could reach 5.5%, nearly double the 3.1% that the White House forecast in January. "The odds are," said Feldstein, "that [the recovery] is going to continue into next year and beyond." The business community was equally elated. Said Jack Albertine, president of the American Business Conference, an organization of medium-size companies: "This is the most robust recovery this economy has seen since the early 1960s."