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.

Therefore, our chief worry still is inflation.  While we control this inflationary pressure we must look forward to the time when this extraordinary demand will subside.  It will be years before we catch up with the demand for housing.  The extraordinary demand for other durable goods, for the replenishment of inventories, and for exports may be satisfied earlier.  No backlog of demand can exist very long in the face of our tremendous productive capacity.  We must expect again to face the problem of shrinking demand and consequent slackening in sales, production, and employment.  This possibility of a deflationary spiral in the future will exist unless we now plan and adopt an effective full employment program.