| Show II INs III ss lId and financial forecast for 1974 1974 1974 to be year for courage and faith in country economy Shortly after publication olour of ol our 1973 forecast a vital change in the ground rules occurred when the Administration suddenly put into effect Phase 3 of ol its economic game plan With fear of ol inadequacies of food and feed supplies already driving prices upward this unexpectedly early shift In policy sent many other prices soaring In our forecast of a year ago we warned against succumbing to th the outright optimism on rn 1973 then prevailing citing inflation as as' as a possible pocket of serious trouble Despite some problems n no no one could predict factory output retail retell trade profits employment personal income and business capital expenditures expenditures expenditures achieved the lofty results we projected Except for limitations limitations' of productive cap capacity city and transportation 1973 could have seen n larger gains ina Change In LifeStyle LifeStyle Life LifeStyle Style Ahead The staff of ol Babson's Reports now detects signs of a period of change JD in the life lUe style of or the nations nation's populace For an aD Indefinite indefinite indefinite in in- definite time rising costs coat along with inadequate supplies of fuel and aDd energy could force alterations alterations- in iD demand and aDd living habits just as l high g prices and short supplies of ol food lave have ve forced changes in iD our diet Industrial and aDd commercial establishments and even eveD the nations nation's international posture could be affected Use of oft lett leisure rel t tune time l 1 sprit d consumer Abe be influenced L. L Even protection of the the environment could become l less ss imperative On the tle positive si side e however the might of ol the country's research and technology will wUl be brought to bear most forcefully upon the fuel and energy problems Some Letdown For 1974 Even before the energy shortage had reached acute proportions there were increasing increasing in in- creasing signals that the cyclical rise in economic activity w was s aging aling In 1973 tl this s year three had already encountered production capacity limitations in one ODe industry after af another aDother of a nature not Dot easily remedied Then TheD came the fuel shortage to cinch matters So with interest rates at stratospheric levels and credit supplies still stringent some letdown seems seems seems' inevitable for 1974 A At this juncture Uret its ma magnitude is in large measure upon how haw long and aDd how onerous the curtailment of oil supplies turns out to be Even EveD if U the spigots were soon turned on oi on again we w would uld not DOt be likely to escape without same some industrial and aDd commercial disruptions while consumers mi might ht tug their pUrse purse strings tighter because of impaired employment and aDd income prospects Thus us an economic setback of ol wider widar scope than thaD a growth recession seems imminent v No Doubt About Inflation atlon Almost gas a critical fo to businessmen consumers businessmen consumers and traumatic tr um tic period on SCore score inflation virulent and visible along a broad front In the theOPI theof OPI opinion OD of ol the Babson's Reports staff the only uncertainty is the degree of inflation that will be seen in 1974 It Is too much to toh to h hope pelt it will be mild in tn view of ol the ongoing escalation of oL fuel costs COlts along with the inevitable hikes in other fields Also the second phase of at year multi labor pacts signed In IIi 1973 will automatically boost wages nearly as much as in the past year as could any new pacts negotiated over the next 12 m months Many will be augmented augment d by by raises guaranteed under living cost cOlt I escalation clauses As As' of now naw we forecast t tan an inflation ris rise of approximately el 6 S percent in iD 1974 Here are some of the reasons for this seemingly mOd moderate rate projection Interest rates rates' may already have crested created over I for fori this c cycle cle monetary authorities are not Dot likely to completely abandon their inflation anti credit stance unless inflation is superseded by by- threat of a deeper recession than thaD ISnow is now naw anticipated beleaguered beleaguer d consumers will win display sharper price rice resistance and arid the cool cooling of domestic and foreign industrial activity should hould ease 11 the feverish scramble for raw materials and commodities l Less Leas Pr Pressure ure On The Labor Front No Noose one can caD blame the UI unions O l solely for the acute cute inflationary pressures of ol 1973 T To their credit labor leaders were moderate in new c contract contract demands demands' and aDd t the danger f i ff fraught calendar clenda r pawed passed J sequence of or haar harmful strikes sequence I S ea Looking ahead 1974 will wUl be bethe the lightest of the year three q cycle le that recurs in iD major labor contract expirations with the steel industry virtually alone Inthe in inthe inthe the spotlight There will be numerous secondary UI unions Ons at atthe atthe atthe the bargaining table but none with the clout of the United Steelworkers The severe in consumer prices will make the steel group bargain more aggressively but the expected sag sag- in ID business I could lighten some of this this' pressure Then too too- the cl close se relationship lie between weeD labor and aDd management in trying to do away with crisis bargaining Install in stell stall is an experiment that may maywell maywell w well ll pay payoff off orf Gross GrOll National P Product The staff of B Baboons Babson's Reports looks for a 5 percent increase in inthe inthe inthe the Gross National Product Incurrent in incurrent incurrent current dollars for 1974 as compared with 1973 1973 primarily as a reflection of ol higher prices If lithe the fuel and energy shortages aie are not ultra-severe ultra in iD the winter months year early-year economic activity could be bolstered by existing backlogs of unfilled orders Capital outlays aDdi and aDd i government spending will be bethe bethe the backbone of ol GNP while the prime boosters of or the past two years inventory ry accumulation accumulation ac ac- and aDd consumer consumer spending will will wUl exert a largely negative influence The GNP will probably be more deceptive in 1974 than for many a year with inflation making any gain gaiD gainin in iD tl the e current current cUrre t dollars figure illusionary All ry r All All in all real GNP so expressed ed in ih inc constant c do dollars e currently b based s d an i 1958 shade off 1 percent from the 1 1973 level The quarterly figures Continued on Page PageS 8 s d. d Continued from i Page Ig 1 are an like likely to dart chart a downward path for lor the first three quarters of out the year and while we are hopeful of 01 an upturn In the final three months this is I. by no means mean certain It does look as though we will experience a true recession at least two successive quarters of decline in the real GNP Industrial Production If U we we can esca escape pe pea a protracted petroleum lm shortfall industrial production may not suffer ufler too badly but 8 a decline seems Inevitable for lor part of l the year Key areas area's have already felt the sudden repercussions from the luel fuel cri crisis ls The downtrend In home building will hurt manufacturers of 01 building products and home furnishings Painfully high consumer pl prices es and the Intense Intene need to conserve fuel and energy will produce areas of 01 both strength and weakness in the consumer durables field time Leisure products boats recreation vehicles skis snowmobiles pleasure aircraft will suffer suller from Irom the crunch of 01 lauce scarce and high cost fuel all as aswell well as from consumers' consumers need to establish spending priori priorities ties Auto production is already I suffering from lack of demand for lor gas gal guzzlers There will willbe be high priority on certain ce items which were once nonessential but are now a must such as siding i and doors a and d supplemental i stopgap heating space units c Auto parts parts' replacements should enjoy higher demand esp especially where a cars car's idleness does not necessarily mean longer life Ille fo for some some ome parts tires for instance tend to correlate with miles driven Raw materials and energy supplies permitting there should be no letup in output of material and Ind components for lor power generation and Ind 1 transmission equipment for oil dl and ps gas exploration offshore and onshore While the pattern have formed farmed the bulk of or the slide in business willbe will willbe be be centered center d an in 1974 Cona Consequently the Federal Reserve Index of of production IDlY may well average Ive ag 5 6 percent below belay that of 1973 and thep the p 01 the exi existing ting climate suggests tl th the drop r could ld be a a bit more possibly 8 6 percent per per- per cent F Farm m Prospects Prospects' The Thee e economy momy should derive some some support from Irom the agricultural bo boon boom m While thelow thelow the thelow low supply levels of most agricultural commodities commodities' in relation to d domestic and foreign demand the push is ison on onto atto to expand farm fann production Acreage previously idled under the Soll Bank plan of price stabilization is being put back to work Considering the prices prices' key farm commodities are commanding the high allocation rating the Administration is asking o on fuel luel supplies for farming purposes and the present lush farm incomes incomes in in- comes comes demand for lor agricultural machinery ry and implements I Is extremely brisk With a little help from Mother Nature in important crop areas the expansion of f acreage put to seed assures a new record crop outturn in 1974 There boul also tb some Increase in lin livestock and poultry supplies over ver the next 12 months The picture as a whole promises more reasonable food prices particularly after lifter the 1974 growing season is well under underway way A Penny Saved c. c is Is Not Not Good For Business s. s Although consumers have been a bulwark against recessions for tor nearly three decades they may not be the stopper this time Spending willbe will willbe willbe be hurt by weakened consumer confidence soaring living costs and the burden burnen of installment payments Now the high cost of both heating and transportation fuel luel along with gasoline shortages may limit shopping jaunts Neighborhood plazas mini-plazas and local Iota retail outlets will benefit from this situation Since neighborhood neighborhood neigh shopping tends to beless be beless beless less extravagant than that done in the impulse-buying impulse supermarkets we foresee a period during which consumers will channel more of 01 their disposable able income into savings and debt repayment Long Loog term this is healthy and lays lay the gr groundwork for the next cyclical upbeat in the economy but wt the short-run short impact is s negative Less consumer spending p will I mean reduced inventory buying with perhaps some backup of goods j Employment Personal Employment Personal Income I Aggregate personal Income Income during 1974 1914 will not not show the vigor of 01 the past two years yean ears It will be up but boosted more by transfer payments social security unemployment compensation etc than by earned Income Salaries and wages and income income in in- come of or proprietorships and partnerships will average lower than In 1973 because of the slower business pace Support will come however from wage hikes In year multi union pacts new agreements and in built-in cost of cost of living adjustments Employment faces laces reductions In 1974 and the jobless rate could average 6 8 percent but may run as as much muchas as 7 percent at the topmost point As AI in the early years of this decade unemployment willbe will willbe willbe be difficult dimwit to shrink because of the flood of 01 new new workers Into the labor pool pooi Building And Construction While the nations nation's housing needs are still enormous tight and costly money has snuffed out the boom after the high rate of f residential starts In 1972 and the first half hall of 01 1973 Government figures on building permits I issued give no hint hintor of or early improvement In this sector which utilizes so much manpower and materials Resumption of f vitality must await a longer spell of 01 anti anti- recession credit policy than the past six weeks By late spring of f 1974 or sometime during the summer residential building should bottom out probably near the million 11 annual rate and thereafter the economy can n derive much-heeded much support from this source For 1974 as u a whole new new residential starts should approXimate 13 million units Industrial and commercial construction bolstered overall building activity for lar a good load part of 1973 But high costs s supply shortages and now the lack lacko of f clarity as to consumer consumer spending lg plans and aDd shopping patterns are cause some hesitancy for lor nonresidential building during cUring th the coming year year Corporate C Profits And And Dividends da daThe The i amazing 1973 gains in overall business profits after alter taxes were were due to basic and unc uncomplicated business principles and not to profiteering on the tM part of f corporate enterprises as claimed by some unthinking critics Fact is we saw what happens happen to profits when hen plant and equipment operate at full lull capacity and there is is' little simultaneous throat cut-throat price competition For 1974 however the outlook is less promising In general genera we we cannot count on the strong demand cf of the past year and costs will continue to move upward The situation will be worsened if II fuel luel allocations prevent profitable use of operating facilities But barring extremes net corporate profits should dip about 14 percent overall with the greatest y year year-to-year art year slippage in the first half of 1974 But some firms notably those with related food-related operations operation may even stack up favorably vs Va vs 1973 because of 01 the afflictions afflictions af af- fil they suffered at least part of 01 last year year- As to dividend disbursements disbursements disburse disburse- ments if II operational disruptions are not overly severe corporate dividends can 1 k Increase again In 1974 1914 The reason for lor this Is that hat anti Inflation rules permitted only a tiny slice of 1972 and 1973 profits to o be paid out Politics Politics Domestic Domestic And International Politics caused a good deal of f the uneasiness and uncertainty which marked 1973 The unending sequence of 01 shocks In connection with the Investigations Investigation on Capitol Hill Hili make any reasonable forecast of political prospects for lor 1974 an exercise In futility It Is to be hoped that the biennial con congressional g resa res' a 0 n a I a and n d gubernatorial elections upcoming upcoming upcoming up coming next fall lall will produce some semblance of 01 reason to replace the chaotic circus While those most eager to have the President impeached may have lessened their efforts just how much of ora a a working relationship between the Administration and Congress will be restored is questionable Past election years have usually brought forth some productive efforts on Capital Hill Hili these will be most vitally needed in 1974 There should beno be beno beno no federal tax increases except on the Social Security impost Inthe in inthe inthe the year ahead While the start staff of 01 Babson's Baboons Reports is hopeful that there will be no resumption of 01 fighting lighting in the negotiations leading to more stable conditions there will be arduous Arabs will doubtless use their oil nil strategy as an overhanging threat for lor years year I to come |
