Show Good Year in 72 B J. J Business siness god ond FiB ck Forecast for gor 1912 A year ear ago our forecast for tor 1971 looked look ed hopefully toward a better belter business year than had prevailed in 1970 Unfortunately Un tIn fortunately the trouble spots we cited combined to frustrate the possibilities offered by the favorable forces For example the vexing problems of ot high unemployment underutilization of industrial in im productive capacity dangerous inflationary pressures the huge federal budget deficit and labor problems did indeed raise barriers to economic progress progress pro pro- gress gross in 1971 1971 Another 1971 Another Crisis Year As we look back upon 1971 therefore we can justly label it another crisis year just as liS 1909 1969 and 1970 had been Howe However vcr the crises of the previous two years were largely of a domestic economic economic eco nature albeit the burden of the Vietnam war was a contributing Influence ence once to the dislocations In 1969 the main villain was the grinding credit crunch in 1970 it was the harrowing corporate liquidity squeeze plus two major strikes and the surprise of the foray into Cambodia In 1971 the focal point was more the flight from the American dollar Inthe Inthe in inthe the leading foreign exchange markets of the free world This crisis had been building for many years and it also had been inexorably linked with a complex of other problems These included costS cost push inflation a steady weakening of the US U.S. foreign trade position and the thelong thelong thelong long succession of federal budget deficits its and imbalances in our international payments position which position which resulted from our foreign aid and military programs plus sizable private spending and investments investments in in- v vestments abroad There was also the aggravation of the long and costly strikes during 1971 but in the final analysis the real havoc was wrought by the dollars troubles Stabilization or Trauma In In a counteroffensive to combat the dollars dollar's woes to bridle the inflationary spiral and to revitalize the nations nation's economy the Nixon Administration took everyone by surprise by dramatically reversing its economic approach In Inthe Inthe Inthe the first phase of the new program President nt Nixon imposed a day 90 emer emergency erper- erper gency freeze upon prices wages and rents In addition he asked Congress to move to an earlier date the planned revision of the federal income tax structure so as to increase c consumer disposable income and to grant a tax credit for certain business capital ex ex- ex- ex He lie also Imposed a 10 percent percent per per- cent surcharge on certain imports of f foreign foreign for for- reign r- r eign goods Initially public reaction was yas favor favor- able The program was regarded as a positive step incoming to grips with wilh the vital problems afflicting the economy However the piecemeal fasion in which the second phase of the program was unveiled left consumers businessmen business business- men and investors in an uncertain frame of mind Doubts mounted as early lukewarm labor acceptance of the program turned to antagonism and as industrial activity consumer spending and unemployment failed to respond as quickly as had been anticipated Vestiges of Hope On the surface the disappointing economic economic economic ec ec- results of 1971 would seem to point to a year of inept failures A deeper analysis reveals grounds for a contrary view Even though business and employment did not respond as the Nixon Administration had anticipated there were extenuating circumstances which critics of the new economic game plan have been remiss in considering For example there was the protracted protract protract- ed up tie-up of West Coast ports and subsequently subsequently sub sub- a II virtual paralysis of East Coast and many Gulf Coast ports which exacted a toll on the economy In addition ad there were the coal and copper miners' miners strikes and the liquidation of strike hedge steel inventory stockpiles These retardant factors factors fac fac- tors would have exerted adverse influences influences even if the Administration had hadnot hadnot hadnot not for controls Furthermore the fainthearted miracle seekers and the opportunistic politicians pol pal may be premature in labeling the Nixon economic game plan an ex in futility There has not been enough time to guage the results of this program After Arter all Congress has been agonizingly slow in acting on those facets facets fac ets of the program which are arc beyond the jurisdiction of the President Year 1971 of Solid Progress At this outset of the new year therefore there fore the staff of Babson's Reports views view constructively the prospect of what lies In store for the economy We Weare Weare Weare are hopeful that the Administrations Administration's economic game plan will jell sufficiently to encourage businessmen and consumers ers to off their cocoons of cautiousness cautious ness and assume a more optimistic per Such an improvement in public public pub pub- lic lie confidence after the long of uncertainty of the past three years should produce a definite pattern of business business bus bus- iness Improvement It would be well not to expect an Immediate immediate immediate im im- mediate return of boom conditions for forthe forthe forthe the economy as a whole The fight against inflation Will require continuing vigilance and therapy and with the large reservoir of idle productive capacity capacity capac ity lly in American Industry the task of paring unemployment will require pat fence The Nixon Administrations Administration's economic economic economic ec ec- program was not set forth as one which would produce deflation de do- Elation but rather one which would restrain restrain restrain re re- re- re strain pressures for Cor solid progress in the economy as opposed to the illusory gains of recent years when price Inflation accounted for much of the advance So to the extent that inflation is curtailed Babson's Babson's Bab Bab- sons son's Reports forecasts that 1972 will emerge as a period of genuine achieve achieve- ment Less Worrisome Climate The primary characteristic which the staff start of Babson's Reports expects will mark 1972 and enable the economy to regain regan its forward thrust in the next twelve months is an anticipated casing easing in certain troublesome areas The major major major ma ma- jor labor groups groups are arc tied to year multi-year contracts and the next go around is not scheduled until 1973 Hence on the labor front it will be a year of relative quiet on the part of the major unions whose walkouts can be quite debilitating to the economy To further brighten the background picture for the coming year we anticipate no real money and credit worries for the better better better bet bet- ter part bf of 1972 Even as demand for money and credit increases in pace with the projected improvement improvement improvement im im- im- im provement in economic activity the monetary auti authorities are arc well situated to pump in additional credit to meet legitimate business needs thus obviating obviating obviating ting the likelihood of another restrictive credit crunch Corporate liquidity in general has been bolstered quite significantly significantly signi signi- during the past two years thus except for the marginal companies which have trouble securing credit under under under un un- un- un der most circumstances the threat no longer looms of businesses being pushed to the wall We must also remember that even though the tax incentives have been extremely extremely extremely ex ex- slow in gaining congressional approval it is very likely that initial benefits to the economy will be seen by bythe bythe bythe the end of the first quarter of 1972 Moreover the Administration will strive to impart more zip to the economy economy economy ec ec- onomy because of the national elections coming up in the fall of 1972 Probably one method will be to increase attempts to stimulate trade with hitherto restricted Communist countries One thing is true however however- that the Nixon Administration in girding gird ing for elections does docs not have havethe havethe havethe the latitude to stimulate the economy which other incumbent Administrations have had in the past due to the grave budget deficit problem Nevertheless the background climate prevailing pre ailing should produce a greater willingness willing willing- ness to spend on the part of consumers Some pickup in retail trade surfaced in the latter part of 1971 albeit on a spotty basis Improved consumer demand demand demand de de- mand higher inventory requirements as asa asa asa a result of a more buoyant level of oC general business and the incentive of the investment tax credit should bring management thinking around toward policies em emphasizing the expansion of ot spending The Iffy Features At this this' I ju juncture there are some Important Im portent iffy aspects to the 1972 outlook As 1971 drew to a close however some of ot these vital issues did take a turn for tor forthe forthe the better belter But until they are actually resolved these adverse factors will exert exert ex ert crt some dampening influence e on public sentiment The most important of these is the monetary situation The leading free world nations have about achieved a meeting of the minds but it will require require re re- quire a little time to hammer out the currency realignment program in its fi final lI nal nap form Corm for ratification by the countries countries coun tries involved Until catlon is complete and the monetary realignment Is in operation the American dollar overseas overseas over over- seas will undoubtedly be held suspect sus sus' suspect and as a result foreign commerce will not be a able ble to show in its best light Another Iffy area concerns the ma machinery machinery chinery pf of Phase two Will it be successful sue suc in keeping inflation in check or ordo ordo ordo do the generous concessions to labor laborin in the initial rulings of the Pay Board portend an Inevitable loss of effectiveness effective ness in the fight light against Inflation Also will labor groups revolt against the game plan and provoke widespread general gener al strikes For the record we are aru hopeful that union leaders will bend benj enough to give Phase Two some latitude to operate A third area of uncertainty is of a military nature We refer to the at that one of the world trouble spots will suddenly lose its limited scope overnight and become the cause celebre in the jockeying for supremacy of the three major powers There is adequate pre pro in each of the now known tinder tinderboxes tinderboxes tinderboxes boxes namely the Middle East SouthEast SouthEast South South- East Asia and India and Pakistan Indeed In deed the list could well grow even longer long long- er if the rest of the Arab world should gang up on Jordan and if Northern Ireland becomes Britain's Vietnam Let Letrus Lettus rus ms hope the attempts of the Nixon Administration Administration Ad Ad- ministration to establish rapport with Russia and Red China the winding down of American participation in tte Vietnam Vietnam Vietnam Viet Viet- nam conflict and our thus far resolute stance against being drawn into the Israeli Arab brink of war problem will provide a calming influence and keep these trouble spots from the breeding grounds for World War III Inflation Versus Deflation The shift in Nixons Nixon's economic strategy last summer never did include a goal of deflating the economy Rather the object was to restrain the dangerous pace of inflation which had been accelerating aced aced- crating during 1969 1909 1970 and the first half of 1971 Therefore once again the staff start of Babson's Reports rules out deflation deflation deflation de de- de- de in the coming year However we no longer regard inflation as Public Enemy No 1 as we did in our forecasts forecasts forecasts fore fore- casts for 1970 and 1971 But it would be unrealistic to expect an equilibrium between inflationary and deflationary forces Instead what we look for is a moderate degree of inflation inflation inflation tion on 1 both oth price and cost fronts Buffers Buffers fers against a a return to inflation hyper are expected to be the monitoring on the part of the Federal Government and for the better belter part of the year the carryover of s 's record farm production production production pro pro- plus the large reservoir of unused industrial productive capacity One most remember also that despite the generous wage concessions to the coal miners the railroad signalmen and others the major labor union contracts are going into either their second or third years In year multi-year contracts the labor cost increase is usually front end loaded which means that almost half the total increment of the contract is granted in the first year so that each of the succeeding two years has substantially substantially smaller labor cost increases by comparison The most difficult area of inflationary potential which faces the country in that of public finance The Federal Government in the fiscal year which ends June 30 1972 will find it hard to improve on the horrendous- horrendous deficit of billion for the fiscal year ended June 30 1971 Indeed unless Congress shows greater spending restraint the federal budget is in jeopardy of falling into the red by well over 30 billion in inthis inthis this fiscal year ear As the next fiscal year unfolds President Nixons Nixon's inability to hold overspending to a tolerable level might haunt him and the Republican Party in n the elections of 1972 Dollar Devaluation The Babson's Dabson's Reports staff forecasts a devaluation of the American dollar in 1972 1912 We figure that a devaluation in ft L r I II i C l r 1 I j u. u i I.- I. t l- l is MRS JACK Sue Holmes Is receiving the Arctic Kitty Cat snowmobile given Thursday of last week In Downtown Vernal by Milt Searle of Milts Milt's Merchandise Mart the vicinity of ot 7 percent would be practical prat We figure that a devaluation Inthe in inthe inthe the vicinity of 7 per cent would be practical However this move is likely to be only a of a national multi-national currency realignment program to come cometo come cometo cometo to gips with the stagnation of international inter Inter- national commerce which has resulted from the world monetary turmoil The strong currencies of Europe and Japan will probably be officially revalued revalued revalued re re- re- re valued upward and In the process the 10 percent surcharge on imports which the US U.S. imposed last summer will be phased out The term devaluation implies the probability of a a loss of public confidence along with chaotic h business and investment c conditions condi condi- However the American public has been conditioned to the prospect of or orde devaluation devaluation de de- valuation in recent years and more mor particularly par over the past year or so Therefore Therefore Therefore There There- fore since devaluation does not affect the value of consumer purchasing power here at home the loss will be e evident in buying power abroad for businessmen and travelers we forecast that no traumatic or or protracted turbulence turbulence lence will ensue Instead the beneficial aspects of the total currency realignment program should be a net plus for the American economy since we should gain gaina a more equitable position in n world trade and since our burden of military assistance assistance assis assis- tance to the now well-to-do well NATO nations is likely to be shared shared albeit albeit grudgingly grudgingly grudgingly-by by those countries over which we have held a protective um urn brella Building and Construction saved The residential building picture saved saved sav ed the bacon for 1971 Strength was centered largely in iIi housing 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