Show BABSON'S I Quarter Business On the eve of the vital fourth quarter business expansion with a strong assist from inflation inflation inflation in in- is continuing IN MOST instances comparisons comparisons comparisons com com- with a year ago are favorable The duration and extent of this expansion will vill depend on fiscal and monetary monetary monetary mone mone- tary policy the trend of capital capital capital cap cap- ital outlays the income and attitudes of consumers and the course of our involvement in Vietnam For the October December period our Babson Forecast for the economy is moderately bullish Careful analysis of pertinent factors point to more pluses than minuses even though much of the gain over overa a year ago will reflect inflationary inflationary inflationary in in- pressures Industrial Production While digestion of heavy strike-hedge strike steel inventories a less exuberant advance in total outlays for plant and equipment and other selected economic dislocations or setbacks setbacks setbacks set set- backs will likely curb the upturn upturn upturn up up- turn in the Federal Reserve Index of Production over the next three months we feel the trend will still be up quarter Fourth-quarter comparisons sons with the 1967 p period should approximate-and approximate could even somewhat the exceed-the current current current cur cur- rent five percent increase over overa a year ago Gross National Product This economic measuring gauge will edge higher in coming coming coming com com- ing months We are sticking to our earlier prediction that the GNP will round out the year by showing an average increase over 1967 of better than 8 percent The fourth- fourth quarter gains will provide additional additional additional ad ad- stimulus for retail trade in the pre holiday buying buying buying buy buy- ing season Money Supply And Interest Rates FAILURE OF the surcharge tax to cool the inflationary plus fires-plus the unwillingness of and the Congress to slash federal spending-practically spending assures assures assures as as- a powerful demand for loans of all kinds this autumn Once again the money managers managers managers man man- agers the Federal Reserve are left standing alone to blunt the onslaughts of rising costs and prices But we look for no determined action by the Fed until after elections And any move toward curtailment could hardly have an impact on the economy until 1969 HENCE WE expect interest rates to hold around historical historical- ly high levels Any decline willbe will willbe willbe be moderate However availability availability availability avail avail- ability of at accommodations a should price present no problem problem problem lem for sound borrowers Capital Outlays Despite pro probable able cutbacks from earlier expectations business business business bus bus- iness spending for new plant and equipment promises to continue continue continue con con- expanding through the closing months of this year Best bet is that for 1968 as a whole the increase in capital outlays versus a year earlier will be about four percent the federal tax surcharge not not- withstanding A plus but no strong support for the economy Farm Prospects A moderate but very welcome welcome welcome wel wel- come boost in farm prices has occurred in recent months This together with a large volume of farm marketing and anda a 10 percent increase in government government government gov gov- payments to farmers augurs well for quarter fourth-quarter results PRODUCTION expenses are I still moving to higher ground I Although they are slated to top those of last year by nearly 15 billion they will be outpaced outpaced outpaced out out- paced by cash receipts and government payments Look for net realized tarm farm income to be at least five percent above the billion billion billion bil bil- bil- bil lion attained la last year with income per farm possibly topping topping top top- I ping the figure Foreign Affairs Outlook Despite heavy casualties inflicted inflicted inflicted in- in in in- I this summer on the North Viets and the Viet Cong their resolve to fight on appears appears ap ap- appears ap- ap pears strong The odds favor no immediate easing but President President President Pres Pres- ident Johnson will certainly push for a dramatic pre elec tion breakthrough AN AGREEMENT with Hanoi calling for mutual escalation de-escalation or perhaps even a fire cease-fire should certainly not be ruled out But even if peace or the early promise of should peace-should come cutbacks in military spending would be slow to fol fol- fol- fol low THE TIIE CZECHOSLOVAK occupation occupation occupation oc oc- oc- oc by Russia the in increasingly increasingly increasingly in- in hostile attitudes of Israelis and Arabs and our commitments in other areas dictate a continued firm U. U S. S military posture and continued high defense expenditures Impact Of Tax Surcharge So far the braking effect upon the economy of the ten percent federal tax surcharge has been but faintly discern discern- ible Inflation predominates unleashed by the of wages and prices a still rising money supply and expanding expanding expanding ex ex- ex- ex total government ex- ex ex ex- DURING THE TIlE coming three months the impact of the tax surcharge on business will be minimal Ultimately the effect on individuals will be more noticeable though it will vary depending upon size of income and other considerations in including including including in- in the ratio of debt to assets At any rate the tax surcharge surcharge surcharge sur sur- sur- sur charge will do no more than slow the advance in business during the October-December October period Currently the number of employed employed employed em em- in the nation tops the year-ago year figure by 13 million and only about three one half percent of the labor force is unemployed FOR THE TIIE final three months of the year we are forecasting at least a normal seasonal rise in employment and we predict that unemployment will be somewhat further down Salary and wage income will trend moderately higher but the outlook for prices is less encouraging Wholesale quotes on balance are edging upward upward upward up up- ward propelled by higher costs HOWEVER upcoming price increases will be at a slower rate than earlier in the year Their effect on consumer buying buy buy- ing ing intentions should be offset as s boosts in total personal income income income in in- in- in come outpace price advances Consumer Income And Purchasing Power Among the more favorable aspects of general business especially as it affects retailers retailers retailers re re- re- re is the continued smart in total personal in- in come-an come which makes consumer consumer buying the most important important im im- important im- im single factor in the still sizable forward momentum of the economy PERSONAL income rose 55 billion in July to a seasonally adjusted annual rate of billion-a billion boost of 94 percent in a year Preliminary appraisal suggests suggests suggests sug sug- sug- sug that additional gains were made in August STILL FURTHER boosts are assured for the fourth quarter Purchasing power was never higher but it could be at ator ator ator or near a cyclical top Installment Debt We view with misgiving the nations nation's installment debt which has been moving up at what may prove to be too fast a clip However we do not feel that the danger point will be reached this year LARGE THOUGH the increase increase increase in in- in- in crease has been-and been likely as further advances are we are still some distance from froma a total that would be out of line with rising employment and disposable personal in in- in come However soaring installment installment installment debt could well be a serious problem sometime in 1969 Christmas Business The additional strength in industrial production and Gross National Product which we are forecasting for the final quarter quarter quarter ter of this year together with increased liquidity of consumers consumers ers as a whole should assure good gains in yuletide trade over and above the records set setin setin setin in 1967 A SIX PERCENT boost in dollar volume compared with last years year's fourth quarter appears appears appears ap ap- ap- ap pears fully supportable though not all retailers can hope to reach this goal Of course a good deal of the perhaps increase as much as will one be due to higher prices Profit margins will be thinner than a year ago necessitating necessitating necessitating stricter cost control all along the line if profits themselves are to be maintained maintained main main- tamed at satisfactory levels |