Show BUSINESS end and the tho STOCK MARKET by BABSON'S REPORTS INC Copyright 1971 THIRD QUARTER BUSINESS OUTLOOK In spite of ol occasional expressions of doubt it does docs look as though the bottom of the 1970 1969 recession was established establish establish- ed during the final quarter of 1970 with an upturn effected during the first half of this year The recovery process however has been considerably less vibrant than was earlier anticipated This is particularly true in r real al terms without regard for the artificial stimuli brought about by strike post-strike recovery and the upward pressures of inflation Nevertheless even without such unnatural unnatural unnatural unna unna- tural energizers the economy has displayed displayed displayed dis dis- played an increasing number of signs ol of recovery among these at atthe atthe atthe the present time are improved activity in residential building and a pickup in consumer spending Unresolved Major Maior Problems There are arc still some soft spots in the economic fabric which are arc preventing faster laster and more widespread progress Business expenditures for lor new plant and equipment have for lor example been rather severely curtailed for lor several quarterly periods While dollar outlays have recently been running slightly ahead of a year ago this gain is largely due to inflation In other words buying of capital in terms of physical physical phys phys- ical units is probably already trailing last year reflecting a substantial excess in productive capacity Unemployment and price inflation remain remain remain re re- re- re main vexing problems Odds are that both will remain extremely sensitive areas over the near term The Administration Administration Admin Admin- may in fact be forced to resort resort resort re re- re- re sort to additional pump-priming pump measures measures mea mea- while simultaneously trying to curb inflation Labor Relations Rule This Quarter Unlike the first two quarters of 1971 the current three-month three span is destined to suffer from the constraints brought about by strikes Industries production retail trade employment and personal income will all be seriously affected if the strikes are arc long drawn out in copper W West st Coast shipping and steel Even if the copper and steel in industries in are arc subjected only to token walkouts they will still have to work off hea heavy y strike-hedge strike inventory stockpiles Regardless of what actually happens in inthis inthis inthis this labor relations labor relations field the business recovery recovery re re- re covery will almost certainly proceed at ata atIt a It slower pace than was the case during the first half of 1971 It does not however seem likely that the economys economy's upturn will actually be reversed An encouraging degree of support support sup sup- port should continue to stem from residential residential re re- re building and at least to some extent from consumer buying It should also be remembered that government spending at all levels will score increases in this quarter Limited Upside Progress If labor problems do not prove too restrictive re reo Gross National Product should still be able to chalk up a mild gain in both current and constant deflated dollars All in all all industrial production will do well to post a modest advance The value of capital spending on the part of business is expected to show little change while the physical volume is likely to dip below that of a II year ago Corporate profits ex prolonged labor ups tie-ups should be able to top the results of the first two quarters of 1971 although al though not by much Total employment should shade l higher gher in this quarter but again not to any appreciable extent There is not likely to be an equivalent drop in hl the jobless ranks since the labor force is growing faster than Industry can absorb new employees into its ranks A key question today is what track the nations nation's consumers will take Barring Darring prolonged work stoppages personal income in come could well trend materially higher during this quarter Replacement demand is sharply on the increase and consumers consumers ers have a good backlog of savings on hand Thus some appreciable advance may lie ahead for retail trade provided strikes are not overly severe |