Table 11: Forum Outlook Expectations, 1969 (Continued) cease-fire or a termination of the surtax. Only two individuals, I believe, have the surtax expiring, while a third has it halved at midyear. As for the impact of a truce on the economy, only a minority expect defense spending to be lower than it is currently. The lowest figure for defense spending by yearend '69 is $74 billion, or about $5 billion less than the prevailing rate. Where we differ significantly is over the profile of private investment as the year matures. The first, and by far the most popular, model is saucer shaped, with some decline in the rate of growth in the first half and then a sharp step up in the rate of growth in the second half. Well over half the participants foresaw this trend. The gross national product on this basis would be about $900-$910 billion at midyear, equivalent to a rise of about 6%, on an annual basis. It would then accelerate to an annual rate of about 8% to reach $935-945 billion by yearend. The second model is an inverted saucer with a bit more rapid growth rate in the first than in the second half. One such model submitted has the GNP up to $908 billion by midyear but only $929 billion by yearend. The third model displays a straight line growth throughout the year, or something resembling it. This model, too, at yearend hits $940 billion-but with little, if any, quarterly change. The range highlights the disparities in models. The lowest estimate for mid-'69 is $901 billion; the highest, $915 billion. By yearend the lowest is $929 billion; the highest, $948 billion. Even so, the bulk of the projections tend to cluster around the average of $906 billion for midyear and about $936 billion for the fourth quarter. On this basis, the collective expectation of the Forum is for a rise of 6%-62% in national output in 1969, with the rate of growth slowing to about 5% in the opening half and then speeding up to 7% as the year closes. For the year 1969 as a whole, the gross national product is placed at $915 billion, as against $860 billion in 1968. The rate of increase in 1969 would average only about 6.5% compared with a rise of nearly 9% in 1968. In real terms the Forum anticipates an increase in the volume of national output of about 3.5%. Real GNP in 1968, in contrast, rose by about 5%. Somewhat similar trends are evident in the other related measures. The FRB Index, which is put at around 166 currently, shows little, if any growth through mid-1969. The highest figure is 168. In fact, two measures have industrial production lower at that time than it is now. By yearend, however, the average approaches 170, ranging from 166 low to a high of 172. The majority have production in the second half in the 170-to-172 range, in conformity with the saucer model of sharper growth. In 1968, industrial production advanced by about 4%; for 1969, that growth rate is reduced to barely 1.5%. The Forum is almost as one in anticipating less inflation in 1969 than in 1968. Consumer prices, for example, mounted by fully 4.5% this year but only a 3% rise may emerge next year. Even more in point, the wholesale price index, which usually leads in reflecting change, is kept almost constant in most of the models submitted. The current quarterly average is about 109.5, and the mid-1969 average is only 110.1; the change over the year is little more than 1%, much less than in the consumer price index. The implicit price index is perhaps the best measure of prices in general, emerging as it does from a comparison of national output in terms of current and constant dollars. It therefore reflects changes in prices paid not only by consumers but also by industry and government. That measure rose by about 3.8% in 1968. The Forum expects the rise to slow to about 3%-3.5% in 1969. The unemployment rate anticipated by the Forum does not support the widely heralded conclusion that a slowing up in the rate of growth in 1969 will be accompanied by an alarming bulge in unemployment. The unemployment rate for the fourth quarter of '68 is put at about 3.7%. For the middle of 1969 the unemployment figures fall within the 3.5%-4.5% range. Seven of the eleven estimates submitted had mid-'69 unemployment at or below 4.1% (also the average for the group). By yearend the rate was lower than at midyear, the average being 4%. I have already indicated the Forum's belief that defense expenditures would show little change in 1969. For the second quarter of 1969 the average still centers at $80 billion, the current rate. Indeed, nearly over half of those responding had defense expenditures higher in the second half of 1969. The highest estimate is nearly $85 billion, and eight participants anticipated the bill for defense by yearend '69 would still be at least $80 billion. That then is the Forum's pattern for 1969-further economic expansion around a 6% to 6.5% rate, with the majority believing that growth will be less pronounced in the first half than in the second. Sector Account Projections Turning to the outlook for the major sectors of GNP, our consumption specialists had personal consumption outlays ascending throughout the year, in accord with GNP, to reach about $590 billion in the fourth quarter of '69. This is comprised of little improvement in durables expenditures from the recent third quarter outlays. Paul McCracken labeled those as artificially high and I have accepted his estimate of $86 billion for 1969. Ira Ellis had expenditures for nondurables rising by 6.6% to $252 billion by yearend. Finally, George Hitchings expected at least another 8% burst in service spending and that brings us within hailing distance of the $590 billion total for individual purchases of goods and services. It's far more difficult to fill in the blanks for gross private domestic investment because of differing views, but the total that I would suggest as a first approximation is $135 billion. This incorporates an extremely good housing year, marking the onset of the housing boom we've all awaited but which never came thus far in the 1960's. I pushed Walter Hoadley hard and I think I have his agreement for posting an annual rate of $33 billion for the housing component of GNP. The estimate for plant and equipment is necessarily a compromise. It's an average of the lower figures Lou Paradiso offered us and the higher figures from our survey of capital appropriations and the McGraw-Hill and other recent surveys. Somewhat reluctantly, I've entered $95 billion for plant and equipment outlays, or only a 6% increase over the capital spending currently. On inventories, there's little reservation about Lou Paradiso's projections. I've entered $6 billion to $7 billion of inventory accumulation for fourth quarter '69; that, when added to housing and plant and equipment, gives us an aggregate of $.35 billion for private investment. On net foreign exports, Roy Reierson anticipated little, if any, improvement in our trade balance in 1969. Lacking any foreshadowing series for this sector, I entered the $3.5 billion surplus which we still managed to show in the third quarter of 1968. Finally, the trend of the governmental sector is not as readily grasped for 1969 as in past years. Jim Knowles and Louis Paradiso, for example, believed defense expenditures would be higher at yearend '69 than now. Only two members of this Forum thought they would be lower. I accept Louis' figure with some reservation. I hope a ceasefire or truce may be reached in 1969, and if it is I believe that it will lead to a significant cut in defense expenditures before the year is out. That, however, is a personal reservation. I've incorporated the total of $108 billion, suggested by Jim and Lou, for Federal purchases of goods and services. To this is then added $110 billion of state and local. That yields $218 billion, a bit higher, for example, than George Hitchings' public component of about $215 billon. Adding up the sectors produces gross national expenditures by yearend 1969 of $945 billion. What this suggests is that demand pressures may be greater than is implied in our earlier consensus in which the GNP was placed at only $938 billion. |