The Economy: Upturn

Most economists, businessmen and congressional experts expressed only varying degrees of doubt last January when Gardner Ackley and the Council of Economic Advisers peered at their G.N.P. projections and predicted that the economy would heat up again so much by mid-1967 that a deflationary 6% surtax on personal and corporate income taxes would be necessary. At that time, with many economic indicators turning downward, there seemed to be little reason for such a forecast. Last week, however, Ackley & Co. had visible evidence to support their vision.

Policy & Performance. In recent weeks the indicators have been moving unmistakably upward. Housing, the great industrial invalid of 1966, has begun to recuperate (see following story). Retail sales have revived, partly because of an early Easter and strong March department-store sales but mostly because the U.S. consumer has replenished his savings and is spending again. Unemployment, in spite of a dip in the factory work week, has failed to increase, and, in the most reassuring indication of all, Ackley pointed out that "we have been encouraged by the apparent speed of the inventory adjustment, with accumulation actually falling to zero in February." The latest of the leading indicators for March verified the trend: personal income rose $3.4 billion to a record level of $613.1 billion at a seasonally adjusted rate.

Ackley and the Administration could take credit for part of the turnaround. Faced with unmistakable signs of recession, the Administration in the past months has shoveled funds into mort gages and freed money to speed federal construction programs. The Federal Reserve Board, meanwhile, cut the discount rate and has generally moved to make money easier. At the same time, a lag in domestic spending has almost been covered this year by an upswing in defense spending; in the first quarter $3 billion more was spent on military needs than had been anticipated. Altogether, said Ackley, fiscal and monetary policy are now more stimulative than they have been since the Korean War.

Discounting the Drop. Many an economist, businessman and politician, though heartened by the figures, still had to be shown. But not the stock mar ket. Investors have largely discounted falling profits; no sooner did Chrysler Corp. announce a 71% drop in earnings than Chrysler stock went up. What interests the market now is the general economic outlook. On Administration reassurances that it is going to get better, the Dow-Jones industrial average rose for seven straight trading sessions, closed last week at 883.18.