Masonry Magazine August 1975 Page. 23
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A brisk business upturn is now being forecast by some of the leading economists in the country, one that will exceed the predictions of only a sluggish recovery that most analysts still expect. This minority view has been expressed before. But now there are new statistics to bolster this line of thinking to make a more normal type of bounce-back seem plausible.
These optimists include such top government officials as Federal Reserve Chairman Arthur Burns, the nation's credit-controller, and Chairman Alan Greenspan of the President's Council of Economic Advisers; both are leading experts on the business cycle. Prominent Democratic economist Arthur Okun, chief adviser to former President Johnson, is also one of the optimists who is expecting a quite rapid rebound.
The analysts are cheered by the economy's performance last spring, and what this implies for the remainder of the current year and into 1976. Data for real Gross National Product-total output of goods and services showed that the first quarter's sharp decline practically ground to a halt. The 0.3% fall-off of April-June was far below January-March's 11.4% slump.
What is more, there was a substantial improvement in the rate of inflation. It fell from 8.4% a year in the first quarter to 5.1%. That, in turn, was the second consecutive decline.
But most important was the very sharp slide of business inventories. The decline reached a $33.7 billion annual rate the steepest liquidation, relative to the U.S. Gross National Product, since the end of World War II. A big snap-back on the inventory front now seems certain, economists agree. Consumer spending has held up remarkably well, even during recession months. It is now strengthening significantly, mainly because of those tax rebates. And personal savings have also been increasing, leaving people with plenty of cash to spend in coming months, a hopeful omen for the recovery outlook.
Businessmen will find that their stocks are too low relative to their sales. That will mean more new ordering in the months ahead and increases in production and hiring as well.
Business will get a bang, even if rebuilding only gets up to normal. To judge from past cycles, a normal rise in inventories these days would see stocks growing at a $15 billion-a-year clip late in 1975 or early in 1976. But, in shifting from a decline of $33.7 billion to a rise of $15 billion, there would be a swing of close to $50 billion with an impact far greater than most of the economists around the country have yet begun to appreciate.
As a result, spending for new plant should expand in response to the rise in consumption and inventories. The upturn could start early in 1976 and signal a sustained climb in outlays.
Home-building will be the laggard area in the recovery. There are still too many unsold apartment units hanging over the market to permit a rapid rebound in this most volatile sector of the industry. But this does not mean there won't be any quickening. The large accumulating supply of mortgage money, plus the 5% tax credit that Congress voted, will encourage a moderate increase in activity. It will help over-all recovery a little.
SPECIAL REPORT: The Outlook For Tax Reform
Plans to ease business' tax burden face a rough road in Congress. Lawmakers wonder how the government could afford new tax cuts for industry, especially when the budget deficit this fiscal year may exceed $60 billion. They stress that the nation's tax base has been badly eroded by past cuts. And labor no longer sees a need for tax cuts to provide capital and jobs.
Nevertheless, a compromise bill can become law in 1975. The House Ways and Means Committee plans to write a bill by fall. Part will be designed to spur formation of capital, and part will deal with such matters as taxation of gifts and estates.
Several suggestions have been offered to ease the load on business. While it is much too soon to predict with certainty which will get through, here are some of the plans now under consideration by the tax-writing panel.
* A cut in the corporate income-tax rate from the maximum 48%. This is the fastest way of spurring business spending. But a cut to 42% would cost the government S6 billion a year.
* Phasing out the double taxation of dividend income, one of the biggest restraints on investment. An abrupt end would be prohibitive. But a phase-out would likely be bearable.
* Liberalizing depreciation of business equipment further.
* Making permanent the current 10% tax credit for investment
* Easing the tax on capital-gains-perhaps by graduated rates that fall from today's 35% maximum to 14% after 15 years.