Milford chronicle., 1959-01-02
The Business
Outlook For 1859
BY Karl r BOpp, President
Federal Reserve Bank of
Philadelphia

January is an appropriate time
to appraise the business outlook.
The month is named after the Ro-
man god of gates and doors, of be-
ginnings and endings, of looking
forward and looking backward.
Perhaps our task Of looking ahead
should begin by looking over our
shoulders; 1t Is easier to see than
to foresee.
Business activity thrives on
spending 1.-The buying and selling
of goods and services. Most Of the
spending is done by three great
groups Of people-consumers, busi-
nessmen, and government The past
and prospective behavior Of these
groups Is the key to the business
outlook.
Government spending is on the
increase and is almost sure to rise
beyond current levels Federal
Government purchases of goods
and services have been advancing
as a result of larger defense OUT
lays, pay increases to civilian and
military personnel, and heavier out
lays for farm price supports. Busi-
ness activity is stimulated also by
Federal Government payments for
\ purposes other than goods and SER
vices, Among these are old age and
survivors insurance benefits,
grants-in-aid to state and local
governments, special housing as
distance, and interest payments on
the public debt The excess of ex-
penditures over receipts, according
to latest estimates available, is ex-
pected to produce a deficit for fis
cal 1863 of approximately $12 bill
lion.
IL is also a reasonably safe pre-
diction to say that state and local
government expenditures for goods
and services will continue to rise.
Unabated pressure continues for
new hospitals. highways, schools,
and other facilities as a result of
population growth, high and rising
incomes, large-scale shifts to sub
urban areas, and the increasing
Importance of younger age groups
in the population.
The business outlook is always
influenced by attitudes and actions
OF businessmen themselves. Busi-
ness Is naturally responsive to
long-term investment policies and
highly sensitive to inventory poll
cies.
Throughout most, If not all, of
1858 inventories were being re-
duced but the important thing to
observe is that the rate of liquida-
tion was sharply curtailed as the
year progressed. Between the first
and the third quarters, inventory
liquidation was cut in half, which
reduced the depressing effect from
this sector by SIS billion. Strength
is expected from this source as
liquidation gives way to accumula-
tion-a development that seems inn
minent If, in fact, it has not occur
red already.
At this juncture, business invest
ment in plant and equipment takes
on somewhat neutral aspect in
the business outlook. Capital ex-
penditures changed very little
since mid-1958 and total outlays in
1859 are expected to change very
little from the 1858 expenditures.
according to the latest McGraw-
Hill survey. Our own local survey,
which points downward for 1869,
lends no support to the belief held
by some that capital outlays may
give us a pleasant surprise.
Residential construction was an
expansive force last year with the
help of Federally underwritten pro-
grams and easier credit. Experts
In the housing field are only mod
erately optimistic about residential
construction In the new year.
Housing starts may equal or per-
haps slightly exceed those of last
year, but dollar volume of resi-
Dental construction could go a
bit higher owing in part to rising
costs.
The biggest unknown quantity
In the business outlook is the con-
sumer, and he also throws the
greatest weight. Dollar-wise, con-
sumner spending is twice as large
as the spending by business and all
branches OF government combined.
What are the prospects in this all
important sector?
Since last spring, consumer
spending has been on the increase
bat consumers have been selective
in their increased spending. Con-
sumner purchases of nondurables
have been rising daily steadily,
and outlays for services have main
tanned persistently strong. up
ward trend partly because of ris-
ing rentals. utility rates, and medi-
cal costs.
Spending for durables, especial
1y new automobiles, has not been
up to expectations. Automobiles
seem to have lost their charm, and
It is still too early to tell whether
the newly designed 1859 models
have what il takes to bring sales
up to the 1856 and 1857 levels, not
50 mention the 1865 all-time rec
ord.
Some inkling of prospective con-
sumcr behavior is revealed in last
falls survey of consumer attitudes.
Compared with year earlier, more
consumers said they were better off
. financially, showed somewhat
greater disposition to spend, and
looteE forward to better times.
The consumer has been the "he-
ro" of past recessions. In 1949, in
1858. and again in 1857. the decline
In consumer spending WAS signifi-
cantly shorter and shallower than
the decline in overall business ac-
tfvity. In each instance, consumer
spending bounced back fast with
salutary effects upon the economy.
IL the same pattern repeats in the
l-llll.n.lf r.auiual we shall d. ,roIl