Milford chronicle., 1960-01-08
The Business Outlook
BY Karl R B0pp, President
Federal Reserve Bank of
Philadelphia

Our economy in 1860 may rise
well above the half-trillion-dollar
plateau. This is predicted on the
assumption that production will
not be interrupted by any major
labor discord.
The prolonged shutdown in the
steel industry retarded the growth
of our economy last year in so doing
intensified the potential for new
activity now. The most powerful
stimulant to business in the inn
mediate future is the need to build
up inventories to present and pros
pective levels of sales, particularly
in the automobile and other steel
consuming industries. Their inven-
tories were seriously curtailed and
in many instances completely de-
pleted as result of the prolonged
steel strike. Now that basic steel
is back in production, the steel
fabricating industries are gearing
up to resume full-scale operations;
but there is a huge void to be filled
and it will take some months be-
fore inventories are restored to
their required levels. in the, pro-
cess, during which business will be
one of its own best customers,
there is real danger of an in
ventory boom of unhealthy proper
tions and the inevitable reaction.
Concern over the supply and
availability of steel had only minor
adverse effects on business expend-
itures for new plant and equipment
late last year, as the record shows,
but uncertainties about steel may
have injected an element of caution
in plans for future Outlays. Accord
ing to revised Commerce-SEC esti-
mates, manufactures plan to spend
during the first quarter of this
year at a seasonally adjusted an
nual rate of Is per cent above
their last years outlays. Tire Nc
Graw-Hill survey, covering esti-
mates for the entire year, points
toward prospective increase of
10 per cent for manufacturing in
dustries and 10 per cent for all
industries. 1t is rather generally
believed that expenditures will run
higher, provided there are no in
terruptions in the production or
shipment of steel. Companies re-
porting their financing plans indi-
cate that most of the funds needed
for capital spending are to come
from n ternal sources-retailed
earnings, depreciation and deple-
tion allowances; nevertheless, sub
OF a yir1c in oil
markets may be required.
Residential construction may not
measure up to the 1859 rate of
housing starts. Government insured
and guaranteed mortgages are no
longer so attractive to lenders as
they were some months ago. Com
mercial, industrial, and other forms
of nonresidential contraction, such
as hospitals, schools, and utilities,
however, appear to be headed to-
ward higher levels. Overall build
ing and construction, therefore,
may turn out to be stabilizing
rather than an expensive force in
the business outlook
Consumer spending, which sup
piled much of the underlying
strength of the economy in 1859, is
almost sure to play the major role
in whatever expansion takes place
this year. The automobile industry,
emerging from Interruptions caus-
ed by substantial redesigning of
new models and steel shortages :
is prepared for a 7-miIlion-car-
year. The home furniture and ap-
pliance industries are also antici-
pating larger markets, Spending