Overview

By John Kelly Bonnie Sales Co. Arcata. Ca.

f ET'S try to t-t get a more solid footing in projecting the direction of the economy for the balance of this year and 1974. To begin with, we are all going to have to look through the same binoculars. The economic assumptions for the fiscal 1974 budget seems to be as follows:

(I) PRIVATE HOUSING STARTS. I.80 million housing starts should be realized in 1974. This represents about al37a decline from the estimated 1973 start level. The main reason for this drop off is due to the increased cost of money rather than any slackening of demand. We feel that projections made by many economists are too pessimistic, and that quarterly trends are most likely to behave according to the UCLA housing forecast.

Seasonally adjusted annual rates in millions of units:

L973

4th Quarter l.B0

(3) GNP GROWTH. There should be a IOTo growth posted - 4Torcalgrowth and67o inflated. We should see a slow-down in CNP growth in 1974, but not a recession.

(4) COST OF MONEY. Short term rates have seen their peak and should decline early in each quarter of 1974, and we are seeing a decline now. Long term rates which lagged short term rates are presently cresting and will begin their descent in the first quarter of 1974. In fact, I think we have seen this starting to descend already. As you can see in the present monetary policies, every attempt is being made to avoid a credit crisis as experienced in 1969 and 1970. Present strategy has been to increase the cost of money to dampen the demand pull of inflation, and at the same time, to sustain the flow of funds through intermediaries. We therefore anticipate that by mid-1970 housing should beein to flex its muscle asain.

Story at a Glance

Slight slowdown to our strong inflation . . .1O/"jump in GNP . money will continue to decline farm income up 12o/", employment up nearly 2/" . . more spending for plant improvement.

(5) FARM INCOME. Farm income should continue to increase in 1974 about 127o.

(6) EMPLOYMENT. Civilian employment inl974 should increase about 1.97o over 1973. It will be a healthy employment environment with unemployment hovering at about 5.27o lev el v er sus I97 3 4.87o level.