Show orn Sh GearS Gurs' 1 By GEORGE HAGEDORN The three half year old business expansion continues with no discernible loss of mo mo- But a significant change in its character is oc oc- oc- oc A dur CONSUMER-dur a b 1 l e s boom has changed into a capi capi- goods tal-goods boom but not as asyet asyet asyet yet into an inventory boom In its early stages the rise was sparked chiefly by increased increased in in- creased consumer spending for durables automobiles a and n d household appliances and for housing Currently however the leading factor is the rise in business expenditures for plant and equipment OF COURSE both consumer spending including non dur ables and services as well as durables and and business spending spending spending spend spend- ing have been rising through through- out Generally speaking in any movement in m business conditions conditions condi condi- consumer spending and spending move in the 1 I same direction But we can usually see certain certain cera tain particular sectors of the economy leading the procession procession procession sion while other sectors move in the same way but at a n slower slow slow- er pace We then conclude at least in the absence of evidence evidence evidence evi evi- dence to the contrary that the fastest moving parts of the economy are creating the conditions conditions conditions con con- in which h the other economic economic economic eco eco- sectors ar are ing IN THE first stage of the bu business iness rise which began in 1961 consumer spending led the therise therise therise rise while capital spending increased increased in increased in- in creased less rapidly Between 1961 and 1962 the gross national nation nation- al product increased by 72 per cent Expenditures for consumer durables rose by per c cent nt and residential construction increased increased increased in in- creased by per cent But expenditures by business for plant and equipment rose by only 86 per cent tent THE STORY during the past pastI I 12 months has been somewhat different In the second quare of tel ter of spending consumer spending far for durable goods and for housing hous house ing big was 82 per cent higher than in the same period a year ago This was approximately in inline inline inline line with wHit no no longer much ahead of the the 71 per cent rise in gross national product The real leader during this latter period has been capital spending Outlays for new plant and equipment have increased by per cent This is as almost almost almost al al- al- al most twice as fast as the growth in the economy genera gener ally THUS OUR economic expansion expansion expansion sion gradually assumes the character of a capital goods boom This was to be expected as production levels began to encroach on available capaci capaci- ty During any prolonged expanSion expansion expansion sion economists usually economists usually watch for the point at which it turns into an inventory boom This is the phase when an increasing increasing increase ing proportion of current production production production pro pro- goes into stockpiles rather than out to final pur pur- chasers OUR CURRENT rise however er gives no indication on that itis itis it itis is even approaching that point In fact during the first half of 1961 1964 I the rate of inventory accumulation was lower than at any time since 1961 There is no reason to suppose suppose suppose sup sup- pose that capital spending is about to reach unsustainable levels or that this new stage in inthe inthe inthe the business rise is necessarily a step toward its termination In fact an expansion in productive productive pro pro- capacity is essential to provide the base for further growth |