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Economic Plateau Or Downturn? Data Are Izot Conclusive, but Need for Moderate Economic Stimulation Is Indicated

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Economic Plateau Or Downturn? Data Are Izot Conclusive, but Need for Moderate Economic Stimulation Is Indicated Economic Plateau or Downturn? Data are izot conclusive, but need for moderate economic stimulation is indicated. 8PENDING AND PRODUCTION have slowed in Selecting a recent “peak” month for comparison is recent months. Total spending for goods and services, arbitrary at tins time. A few indicators of economic which rose 8 per cent during 1966, increased at an es- activity, such as construction, reached a high about a timated 2 per cent rate from the fourth quarter last year ago. Some measures turned down during the fall, year to the first quarter this year. Government outlays and others have continued to go up. In this study continued to grow, but private spending, particularly October 1966 (fourth quarter for quarterly data) is by consumers, recorded some declines. Retail sales used as a tentative peak. Any other month from last decreased at a 1 per cent annual rate from September September to January might have been used with to February after going up 8 per cent in the previous slightly different results. year. The slower growth in spending has led to cutbacks Comparisons with Previous Cycles in production and to an increase of unused capacity. Spending has shown considerably more strength Prices have moved np at a slower rate, hut business than it did around the last three cyclical high points. inventories have risen to undesirable levels. Total real In the year ending with the fourth quarter last year output of goods and services is estimated to have total outlays for goods and services rose 8 per cent changed little since the fourth quarter compared with (Table I). They averaged a 5 per cent increase in the a rise of 4 per cent during 1966. Industrial production has declined at a 5.6 per cent rate since last October Table I after rising 9 per cent in the previous year, New con- CHANGES IN PRODUCTION AND SPENDING struction expenditures declined from $79 billion (an- Annual Roles of Change nual rate) early last spring to about $72 billion in re- 1 Total Spending Total Production’ cent months. Employment has continued to rise, although average hours worked per week have de- Year Before Peak Peak Quorter of Economic Activity creased since September. Fourth 1966 (hypothetical peak) 7.8 4.1 Interest rates have fallen markedly since early last Second 1960 3.7 2.0 fall. This decline reflects in part a contraction in Third 1957 6.1 2.4 the demand for credit accompanying the reduced de- Third 1953 5.9 5.0 mand for goods and services. Demands for credit and Average of 1960, 1957, and 3.1 interest rates usually decline in the early months of a 1953 peoks 5.2 recession. In recent months, rapid monetary expansion Plateau in Economic Activity mas’ have contributed to the lower rates. Third 1962 7.7 6.4 A full evaluation of the current trend in activity Quarter After Peak Peak Quarter of Economic Activity cannot he written for many months. Meanwhile, some Os insight may be gained by comparing recent develop- Fourth 1966 (hypothetical peak) 2.0* ments in the chief economic measures and public poli- Second 1960 —0.4 — 1.9 — 6.0 cies with their behavior around known peaks in eco- Third 1957 —4.2 —4.7 nomic activity. The last three high points of economic Third 1953 —5.3 Average of 1960, 1957. and activity, as selected by the National I3ureau of Eco- 1953 peaks —3.3 —4.2 nomic Research, are used; they were May 1960, July Ploteau in Economic Activity 1957, and July 1953, Such comparisons may be helpful Third 1962 5.5 3,7 in providing a perspective on recent developments, and may indicate an answer to the question of “plateau I Gross national product in current dollars. 2 Gross national product in constant dollars, or recession.” * Estirnatcd by Federal Reserve Ba,sk of 5t. Lossis. Page 2 Total Spending on Goods and Services Retail sales increased at a 1 per cent rate from Oc- tober to February. Declines were recorded in the first Gross Notional Product (Current Dollars) four months of the last three recessions. Pea ksrlOO 105 Production has also been stronger in the past year than it was around the last three business cycle peaks. In the year ending with the fourth quarter of 1966 100 total real output of goods and services went up 4 per cent (Table I). By comparison, the average gain in real production was 8 per cent in the final year of the previous three economic expansions. Since the fourth quarter of last year little net change is estimated to have occurred in overall output, while in the compara- ble periods of the last three recessions output declined, 90 on the average, at about a 4 per cent annual rate. ~4 -3 -2 -l 0 1 234 QUARTERS FROM PEAK Pea ksrlOO Pea kslOO Latestdata platted: Intquorterl9o7 estimated Real Output Saurce U 5. Dcpa rImsntof Corn me rce Gross Notional Product (Constant Dollars) Seasonally Adjusted last year of the previous three economic upswings. 105 105 From the fourth quarter last year to the first quarter of 1967 total spending rose at an estimated 2 per cent annual rate, while in the first quarter of the last three recessions spending declined at an average 3 per cent 100 100 rate. Government expenditures both for Vietnam and for 95 welfare programs have bolstered total spending in the 95 past two years. Retail sales have shown less strength. Since sales fluctuate widely from month to month, the recent movements in retail sales are compared 90 90 -4 -3 -2 -l 0 I 2 3 4 with the average movements of the three previous QUARTERS FROM PEAK cycles in the accompanying chart. Latest data platted: 51 quarter 1967 estimated Source, US. Department ofCommerce Retail sales rose at a 8 per cent annual rate in the eight months ending with October 1966 (Tahle II). By Industrial production, about one-third of total pro- comparison, the upward trend in retail sales since 1947 duction of goods and services, rose at a 6.5 per cent has been 5 per cent per year. Sales rose at an average rate in the eight months ending October 1966. The 8.7 per cent rate in the eight months before the last increase was faster than the 4.7 per cent per year three business cycle peaks. growth trend in production since 1947. The gain was virtually the same rate as in the eight months preceding Retail Sales the July 1958 peak in business activity (Table II). By Pea ks100 PeokslOO contrast, output rose little on balance in the last phase 105 Seasonally Adjssled 105 of the two more recent upswings in economic activity. Industrial production was virtually unchanged in the eight months before July 1957. Production did fluctuate I 965~67 100 100 before the May 1960 peak, but most of the movement ——— resulted from the steel strike which occurred in the —5- - Average of 1959-61, fall of 1959. 1956-58, and 952-54 95 95 Although production has slowed since last October, JULY53 the decline has been more moderate than was the av- JULY57 MAY’60 erage in the first few months of the last three reces- oci:oo sions. Industrial production decreased at a 5.6 per cent 90 - .12 -9 -o -3036912 90 annual rate from October to February. By comparison, MONTHS FROM PEAK it fell at an average 18 per cent rate in the correspond- Latest data plotted, February preliminary Saurce:U.S, DepartmentofComrserce ing periods of the last three recessions. Page 3 Industrial Production Payroll Employment Pea ksrloo Pea kslOO Pea ksrlOO Pea kszlOO 105 105 105 100 100 100 95 95 90 90 95 85 85 90 80 80 .3 03 12 .12 -9 -6 .3 0 3 6912 MONTHS FROM PEAK MONTHS FROM PEAK Latest data plotted, March preliminary Latestdata platted: February preliminary Source: U.S. DepartmentalLabar Employment trends have been much stronger in the 4 per cent annual rate, double both the trend since past year than around the upper turning points of the 1947 and the average growth in the eight months pre- past three business cycles (Table II). From Februaty ceding the last three peaks in economic activity. Four to October of last year payroll employment rose at a to six months before each of the last three recessions employment reached a high level and moved on this Table II plateau until the turning point or later; during the past CHANGES IN SELECTED ECONOMIC INDICATORS year there has been no significant pause in the upward trend of employment. Annual Rates of Change Payroll employment has gone up at a 5 per cent rate Industrial Payroll Personal since last October, whereas the number of workers on Retail Sales Production Employment Income payrolls declined in the first four months of each of the last three recessions. The average rate of decline Eight Months Before Peak Peak Month of for the three four-month periods was 2.6 per cent. Economic Activity Other indicators of economic activity tend to con- October 1966 (hypothetical peak) 3.0 6.5 4.0 8.0 firm the evidence emerging from the above measures May 1960 2.4 8.6 * 3.1 7.0 that economic activity in the past year has probably July 1957 6.5 1.0 0.6 5.5 been stronger than at periods around the three most July 1953 2.2 6.2 2.1 5.2 recent cyclical peaks. While construction activity has Average of 1960, been relatively weak in the past year, other indicators, 1957, and 1953 peaks 3.7 5.3 1.9 59 such as personal income (Table II), have continued Plateau in Economic Activity to rise at rapid rates, according to latest data available.
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