The War and Navy Departments now estimate that by a year from now we still will need a strength of about 2 million including officers, for the armed forces—­Army, Navy, and Air.  I have reviewed their estimates and believe that the safety of the Nation will require the maintenance of an armed strength of this size for the calendar year that is before us.

In case the campaign for volunteers does not produce that number, it will be necessary by additional legislation to extend the Selective Service Act beyond May 16, the date of expiration under existing law.  That is the only way we can get the men and bring back our veterans.  There is no other way.  Action along this line should not be postponed beyond March, in order to avoid uncertainty and disruption.

DOMESTIC AFFAIRS

I. THE ECONOMIC OUTLOOK

Prophets of doom predicted that the United States could not escape a runaway inflation during the war and an economic collapse after the war.  These predictions have not been borne out.  On the contrary, the record of economic stabilization during the war and during the period of reconversion has been an outstanding accomplishment.

We know, however, that nothing is as dangerous as overconfidence, in war or in peace.  We have had to fight hard to hold the line.  We have made strenuous efforts to speed reconversion.  But neither the danger of a postwar inflation nor of a subsequent collapse in production and employment is yet overcome.  We must base our policies not on unreasoning optimism or pessimism but upon a candid recognition of our objectives and upon a careful analysis of foreseeable trends.

Any precise appraisal of the economic outlook at this time is particularly difficult.  The period of demobilization and reconversion is fraught with uncertainties.  There are also serious gaps in our statistical information.  Certain tendencies are, however, fairly clear and recognition of them should serve as background for the consideration of next year’s Federal Program.  In general, the outlook for business is good, and it is likely to continue to be good—­provided we control inflation and achieve peace in management labor relations.

Civilian production and employment can be expected to increase throughout the next year.  This does not mean, however, that continuing full employment is assured.  It is probable that demobilization of the armed forces will proceed faster than the increase in civilian employment opportunities.  Even if substantial further withdrawals from the labor market occur, unemployment will increase temporarily.  The extent to which this unemployment will persist depends largely on the speed of industrial expansion and the effectiveness of the policies of the Federal Government.

Along with extraordinary demand there are still at this time many critical shortages resulting from the war.  These extraordinary demands and shortages may lead to a speculative boom, especially in the price of securities, real estate, and inventories.