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Show Brigham City, Utah December Thursday, 25, 1975 8 BOX ELDER JOURNAL, however, augur well for Gains forecast for 1976 (Continued from Page One) duction capacity in many industries and of consumers and businessmen militate against free and unrestricted price markups. But this barrier against inflation will be increasingly difficult to maintain as 1976 proceeds. The cumulative effects of boosts in labor costs, shipping charges, and other operating expenses will gradually offset some of the benefits of higher production and sales, squeezing profit margins to such an extent that only compensating price boosts can alleviate the situation. Also, continuing massive deficits in the federal budget will add potent fuel to inflation, both psychologically and to the degree that such deficits are monetized. We envision inflation averaging some 7 percent in 1976. the cautious buying policies Less Dominant in 1976 Inventories Sudden changes in the policy of business toward inventory holdings in the year ahead will not be the dominating influence on economic activity that they have been in the past two years. The Arab oil embargo created fear of supply shortages and price increases. The ensuing splurge of inventory accumulation served to buoy 1974s business for the better part of the year before it was realized that consumers had altered their spending pattern and that high borrowing costs were negating the cost benefits of stockpiling. The resultant turnabout in policy in favor of retrenchments in inventory holdings and bank loans triggered the sharp slump in industrial activity in late 1974 and early 1975. And, here again, in some segments of the economy businessmen overreacted. So, as signs of a loosening of consumer purse strings were seen, overly deep slashes in inventories had to be corrected It was this move to replenish stocks of raw materials and finished goods which brought about the unexpectedly early and steep business climb starting in the second quarter of 1975. pronounced swings in business inventories are not likely to be repeated in Such 1976. There may be some stockpiling early in the year to hedge against the debilitating of effects of a possible protracted tie-u- p the nations trucking industry by the Teamsters early next spring, but for the most part labor negotiations during the year ahead do not involve industries which inwould require intensive strike-hedg- e ventory accumulation. Moreover, the somewhat more liberal consumer spending pattern is neither d nor extensive enough to encourage merchants to load up. And manufacturers and retailers still haunted by memories of the surplus goods of the past 18 months are not anxious for a repeat of that fiasco. deep-roote- Industrial Production The last major cyclical uptrend in industrial production peaked in the latter part of 1973. Except for a moderate adjustment, factory operations were sustained near that top level for almost a year owing to the scramble of inventories. Finally, however, the stagnation in consumer demand forced a drastic liquidation of surplus stocks during the second half of 1974 and triggered the nosedive in production. In the six months encompassing the final quarter of 1974 and the first quarter of 1975, the economy was battered by an awesome sequence of events: Production curtailments, shortened workweeks, employe layoffs, and plant closings. But since the upturn last May, the Federal Reserve Index of industrial production has advanced steadily and somewhat more steeply than was thought likely a year ago. What with the gathering momentum of the fledgling recovery phase, 1976 makes its debut enjoying a brisk pace of factory operations. While the strength is not evenly spread across the industrial spectrum, the cyclical advance of automobile output and the more positive signs in the home building sector are optimistic. Consumer demand for apparel, appliances, and home furnishings is also contributing to the industrial improvement. So even with allowances for possible strike interruptions, it now looks as if 1976 can manifest an overall upward trend, although factory production may not exceed the close-to-- 3 percent long-tergrowth rate of the economy. Year-to-yecomparisons are likely to be most impressive during the first four months since corresponding 1975 figures were in the cyclical trough of the recession. Thereafter, gains will narrow even as d factory operations continue to make progex strikes. This may not seem ress impressive, but a predominantly upward trend at approximately the rate of the nations basic growth is surely far more acceptable than the adverse experiences suffered in parts of the past two years. Business Capital Spending A more ambitious projection of both the real GNP and industrial production is not warranted at this time since business capital expenditures for the expansion of productive capacity are likely to remain limited. such spending, particularly when superimposed upon powerful consumer demand and aggressive inventory accumulation, is a prerequisite for a business surge of boom proportions because it takes this type of activity to hike demand sharply for manpower and materials. But there is still a sizable amount of productive potential in American industry either underutilized or idle. Until the e production is felt and impetus of business confidence is again running strong, it is unlikely that budgets for capital investments will be liberablized to any appreciable extent. This may apply especially to 1976 inasmuch as the high level of factory operations will doubtless be reached in the second half when profit margins will feel increasing pressure and the monetary climate may well present a considerably less expansive posture. True, politcal overtones will be strong in much of the new year, and there may well be a push for business capital expenditure , incentives. Capital spending policies, however, are not likely to anticipate any such favorable legislation but rather to wait and see. The total of capital spending in 1976 may top that of 1975, but the edge should be small and contain a substantial inflationary content. It should be noted, too, that many such outlays will be for compliance with enfull-scal- vironmental improvement regulations rather than for raising production. So, this aspect of ecnomic activity in 1976 should prove to be more of a sustainer of business than an upthruster. Corporate Profits Corporate profits in 1975 did better than had been anticipated because of the unexpectedly sharp and early business recovery and the decline in some raw materials costs. With the prospect of even further advances in business during the new year, corporate profits after taxes could well run 20 percent above the 1975 levels. Most of the gains are likely to occur early in the year, however, as the bite of costs will tend to deepen as the year proceeds. Profit margins will find it difficult to move up along with the higher level of sales in the second half of the year since the cost squeeze will tighten and interest rates will likely be on the upswing again. The widest gains will be chalked up in the early months of 1976 because the comparisons will be made with the recession lows in profits. Also, the business advance will still be in that stage year-to-ye- where productivity improvements, increased use of idle facilities, and strict cost controls will help to provide favorable profits. In an effort to speed up the economy as an antidote to the high level of unemployment, it is a reasonable bet that the federal corporate tax structure will be kept as it was in 1975. Any broad sweeps of the threatened tax reform will not take place in 1976 although there are likely to be hikes in levies by some states and municipalities. Possible Labor Pitfalls be a busy year for new labor contract negotiations. In fact, parleys are scheduled to hammer out fresh labor agreements virtually from the beginning through to the very end of the year. Among the talks will be those involving workers in clothing, electrical machinery, construction, and retailing. But the most crucial for the economy as a whole will be in trucking and automotive production. Both these lines have effects on the economy, and they are also rated as pattern setters for other bargaining sessions in 1976 and subsequent years. While some labor observers express hope that depleted war chests of labor groups and flattened pocketbooks of workers because of the recession and inflation may discourage long and bitter walkouts, this is by no means certain. Labor representatives cite the costly spurt in living costs since the last contracts were signed, and they seek not only compensatory wage hikes but also raises 1976 will in anticipation of further inflation. Demands of union leaders will, moreover, be heightened because of a healthier business climate along with the issuance of good corporate profits reports. But managements will be mindful of their profit margins and put up sufficient resistance to hold final wage settlements in the 6 percent-1percent range. Even though raises will average less than union leaders seek, there will be a persisitent push for such costly fringe 0 concessions as health and death insurance, shorter hours with the same pay, more liberal vacations and holidays, and other benefits. Employment and Personal Income The seasonally adjusted unemployment rate, as a percentage of the total civilian labor force, peaked at 9.2 percent in mid-Ma- y of 1975. Total employment slipped only about 3 percent on a seasonally adjusted basis. Both barometers were slow in recovering, which was not unusual in view of the fact that curtailed workweeks are normally lengthened before additions are made to work forces. In 1975, unemployment will continue to ease only grudgingly and will do well to recede to the 7 percent mark by years end. Employment, on the other hand, can climb to new peak levels even without a sizable public make work program. The disparity between the jobless and the employment sectors will be a reflection of the expansion in the total labor force. With the lengthening of workweeks and the beefing up of staffs as the business advance makes further headway, personal income figures should make good reading in 1975. Wage boosts will also help 1976 totals. Wages and Prices The expected advance in business for the year ahead will mean gains in pay rates, employment and the length of the workweek. So, 1976 consumers earned income should post sizable increases which, in turn, will stimulate consumer confidence and demand. While price increases have been a matter of deep concern this past year, the impact was far less burdensome than in 1974. Markdowns to spur consumer demand and lower costs for some key raw materials helped restrain the overall price advance. 1976 will not be as fortunate, however, as the business uptrend will inevitably bring a price pattern. With new wage boosts in labor contracts, there will be added price pressures. Any imperilment of 1976 crops could move prices sharply highe.r, and lurking in the background also is the threat of new hikes in the prices of OPEC oil. Soviet Union or alter its calm approach to the Middle East. However, success in both objectives will remain in the tenuous category in 1976. The SALT talks have made little progress of late, and civil strife in Lebanon and Angola may impose new strains on relations. Still, Babsons foresees no direct conflict between the superpowers over the year ahead. In the realm of world trade, the outlook is encouraging. True, gains in imports will likely exceed those in exports. But American business can benefit from the currently stronger dollar, and also from the fact that the domestic rate of inflation is so much lower than that prevailing in many other nations. Soviet-America- ' firm-to-high- er Election Year Considerations Political campaigns will have a definite effect on the economy during the new year, since all aspirants will focus mainly on economic problems. The Administration will devote most of its attention to alleviating the plight of the jobless as well as the farmers. Of course, the power struggle on the Hill will continue. Potential Dangers on F oreign Scene The Administration shows little inclination to cease its quest for detente with the n Interest Rates Money Supplies Because of the worries over unemployment, it is unlikely that the monetary authorities will change their current policy during the better part of 1976. Money and credit will be kept sufficient to meet business needs and to accommodate the Treasurys financings. Once inflationary forces regain the ascendancy, however, the money supply may once again be curtailed as an move. The Babson staff looks for short-termoney rates to hover near present levels in the early part of 1976. With the approach of spring there should be an upswing continuing until late in the year, but the high may not quite reach the 10 percent level. Since longer-terinterest rates have receded only modestly in 1975, they will move up only a trifle in 1976. But with the anti-inflati- money firming of homebuilding, mortgage toward can be expected to move upward the 10 percent mark. Stock and Bond Outlook Some easing of the New York City fiscal crises in the waning weeks of 1975 made it on possible for the stock market to wind up a constructive note. hence, the early part of 1976 should enjoy an optimistic climate. Over the year as a whole, however, the on heavy labor agenda will keep investorsWith inflation. of will fear as the edge, but not a prospects favoring a good stock lusty business year, an upsurge in Dow the drive to enough prices virgorous Jones Industrial Average significantly above the 1000 mark is unlikely. barring an For the same reasons in evidence now not adverse development the DJIA is not likely to move materially below the 800 level. At this juncture there is a good supply of and attractively priced common stocks convertible securities for investors oriented toward the growth and appreciation of their capital funds. And many of these issues offer reasonably rewarding yields. Investors who require a high income that is also well protected have a substantial selection of bonds and preferred stocks from which to choose. In recent years the emphasis of the investment fraternity has shifted to quality and value, with a healthy measure of income. This attitude is likely to persist in 1976, and individual investors would do well to follow suit. materially. Overall, personal income could gain as much as 12 percent over that of 1975, and disposable income should not be far behind. Consumer and Government-SpendinAlthough inflation was a big factor turnover totals, consumer responded to the betterment Capri Beauty Salon in demand in economic conditions and prospects over the past year. With the outlook for business, employment, and personal income enjoying a distinctly healthier tone (except for the threat of labor disruptions), 1976 is expected to see more liberal spending on the part of consumers. In current dollars, consumer expenditures should cross the trillion-dolla- r mark, but high prices will temper the improvement on a unit volume basis. year-to-ye- Such a large part of the spending of dollar will be gobbled up by hefty allocations for food, shelter, clothing, and energy that there will be scant leeway for lower priority segments. Locked in by inflation and social programs, public spending at all government levels will more higher in 1976. The federal government, particularly, is saddled with prior com- J Have a Merry Christmas and Happy New Year We hope you enjoy everything this wonderful season has to offer. Thank you, friends. Thanks for your past patronage, but we regret to inform that Wednesday Dec. 31 will be our last day in business. 333 North Main Brigham City Brigham Floral & Gift mitments. Hence, mounting pressures for fiscal responsibility are not likely to do more than pare some appropriations, and force curtailment and postponement of some lavish and items. Therefore, another huge federal deficit looms for calendar 1976, despite the moderating influence of an increase in tax revenues. Building and Construction After a sharp two-yeslump during which the seasonally adjusted annual rate of private housing starts tumbled from 2.5 million units to somewhat less than 1 million units, an improvement in mortgage credit supplies spawned an upturn for home building in 1975. But even when the full years total is tallied, it will be well below the 1972 record and even less than the poorest showing of recent years. Babsons forecasts new housing starts of some 1.3 million units in 1975. construction will also improve steadily, but the gains will not be substantial and will lend business only mild support. Nonre-sidenti- MCA RECORDS MCA RECORDS al Farm Prospects was a fine year for agricultural output, but farmers did not fare well in terms of income. High operating costs and the embargo on grain exports held net farm income far below expectations relative to the bumper 1975 crop. 1975 There will be a good carryover of key with the worldwide food shortages weather conditions will be crucial in the coming crop year. harvests for 1976, although Better fertilizer supplies and costs, Mcrrv Oiristmas tltay you and yours be greatly f blessed by the spiritual radiance of Christmas. For your valued patronage we express sincere Yuletime thanks. ln the spirit of the season 723-216- You're friends from First Security Bank we hope everybody has the happiest of holidays wherever you spend it! Your kind patronage is appreciated. 9 Bills Mobile Service Center 498 So. Main m NORTH M BfHOHAM ei!V, UTAH i |