Milford chronicle., 1962-01-12
THE BIG ISSUES
OF NEW YEAR


disturbingly high, however, and
sales to consumers were sluggish
until the fourth quarter At the
years end, consumer spending had
strengthened markedly, but too
many people still were unemploy-
ed.
The business recovery undoubt-
edly will continue into 1862. But
the advance needs to be strong
and long, for the country's in
dustries are hardly operating at
standard speed; they could eff
ficiently proc uce e considerably
more, if the demand developed. The
combination of unemployed people
and underemployed plants epito-
mizes the difficult problem h
United States economy faces in
1962-how to build the business
recovery of 1861 into an extended
period of economic growth.
A key factor in economic growth
is how much businesses spend for
better equipment and more eff
ficient plants. Like many other
aspects of the 1861 recession, the
decline in capital expenditures was
of short duration. A precipitate de-
cline in the first quarter was fol-
lowed by fast recovery, so that
the seasOnally adjusted dip was far
less pronounced than in previous
postwar business declines This
fact obscure1 a more significant
one, however. Capital expenditures
have been sluggish since the great
upward thrust in 1856 and 1857
The peak achieved in 1860 was
low-lower than in 1957-and fol-
lowed a slow rise through 1859.
Therefore, even the shallow drop
in 1861 reduced expenditures to a
level too low to sustain salts
factory rate of economic growth.
Capital outlays respond to de-
mand. When spending by con-
sumerS, businesses, and govern
ments increases, incentives to in
vest likewise increase, and actual
outlays of funds follow along in
due course. The naturalization OF
a new surge of capital investment
and the strong impetus that it
would provide in the latter part OF
1862 and in 1868 depends, there
fore, on the course of spending,
particularly consumers spending
Spending by consumers has fall
tered in recent years except in
one ategory-services. Sales of
durable goods particularly were
about the same in 1861 as in 1855;
therefore, they declined on a per
capita basis. Sales of nondurables
increased during the same period,
but with considerable fluctuation
they actually dipped a little in
1858 and 1860. But C on m er s.
spending for services has n
creased rapidly and with remark
ably small fluctuations. T h e
facts reflect transitions in the ma
ture of consumer demand. There
has been a shift away from what
used to be the standard items
things like automobiles and ap-
pliances-toward the new and diff
ferent, which often takes the form
of a non-thing-a concert or a va
cation, for example. This shift of
demand explains a good deal of
the Overcapacity that has built up
in manufacturing industries.
There is no question that con-
sumers in total have the incomes
and savings for renewed spend
ing. A key question in 1862 will
be whether their purchases of
goods will expand sufficiently to
spark capital spending revival.
Intense competition in all lines
characterized the business climate
in 1861, and another dose of the
same is in store for this year,
Corporate profits have not grown
so fast as have sales or incomes
over the past decade; the current
rise in profits represents only the
swing up from the recession. Com
panies have no illusions about the
necessity to compete; this pro-
duces pressure to cut costs every
where, and the effect is to chan
mel investment funds into modern
ization of facilities. Only about
one-th'rd of industry's investment
now goes into added capacity.
1t is we'll that capital investment
is going primarily into cost-cutting
new equipment, for we face strong
international competition The u
nited States still maintains it's ira
ditional export surplus, but in re-
cent years this surplus has not
been sufficient to offset the total
of our Government expenditures |
and private investment a b road |
Foreign countries have modern |
lied their industrial plants faster
than we, so that competition from
lOw-cost industries Overse
threatens to reduce the export sur
plus which even now does not off
set the outflOws of United States
dollars spent abroad by the mill
tary, in foreign aid, and by in
dividuals and corporations invest
ing overseas. Obviously, to main
tain and, if possible, increase this
surplus is a matter of national