Treasury Secretary Michael Blumenthal warned yesterday that the current economic recovery does not appear to be self-sustaining and raised the possibility of a slowdown, "such as occurred early last year."
While the economy appears to have rebounded after had winter weather, it is not strong enough to generate many new jobs without President Carter's stimulus program, Blumenthal told the Senate Budget Committee.
"We fear that the economy over the full year 1977 would grow at only 4.5 to 4.75 per cent, leaving the unemployment rate significantly above 7 per cent at year-end," if Carter's $31.6 billion, two-year tax rebate and jobs package is not enacted, Blumenthal testified.
Government economic statistics published yesterday, meanwhile, pointed to continued - if modest - gains:
Factories operated during February at 80.7 per cent the previous month, according to the Federal Reserve Board. In primary processing industries, the rate of utilization rose to 80.4 per cent from 79.9 per cent.
Personal income of Americans rose 1.2 per cent in February when more than 1 million workers returned to jobs they lost temporarily during the record cold weather in the Midwest, South and East. The COMMERCE Department said income from all courses rose $17.1 billion at a seasonally adjusted annual rate to $1.458 trillion. The January increase, also at the adjusted annual rate, had been only $1.5 billion.
Business inventories increased by $2.7 billion in January the third consecutive monthly gain. Sales fell by 1.3 per cent, indicating that inventories were accumulated in the face of diminished sales activity, the Commerce Department reported. The sales decline was attributed to the winter weather.
Led by a 9.9 per cent increase in automobile sales, nationwide retail sales last week were up 3.5 per cent from the previous week to a seasonally adjusted $13.39 billion. Last week's sales were 11 per cent higher than the same period in 1976 - surpassing the average 9 per cent year-to-year gains in early 1977.
Earlier government data on housing starts and industrial production also have shown recovery from the January weather dip.
However, Blumenthal said yesterday, these signs were only a temporary reaction to a temporary situation. What is lacking in the current recovery is "a strong rebound in private business investment . . . We recognize the economy's need for a faster rate of investment in new plant and equipment. But we also recognize that business investment decisions depend in very large measure on a reasonable prospect of a sustained growth in consumer demand," Blumenthal asserted.
Carter's $50 tax rebate is the best way to stimulate consumer spending, he added. In 1977, some 87 per cent of the propsed stimulus comes from tax reduction and 13 per cent from higher federal spending while in the following year, the emphasis changes and 49 per cent would come from federal outlays, Blumenthal testified.
He forecast budget deficits of $68 billion for fiscal 1977 and $58 billion in fiscal 1978, which begins next Oct. 1. Counting other federal deficits not included in the budget, the Treasury will have to raise $73 billion of net cash this fiscal year and nearly $66 billion in fiscal 1978, he said.