President Carter's chief economic adviser told the Detroit Economic Club yesterday that the growth in the nation's money supply may have to be larger in the months ahead to assure continuation of economic recovery.
Economic Council Chairman Charles L. Schultze, in a speech reiterating cautious optimism, urged the business community not to fret over faster growth of the money supply.
He said that instead of focussing attention exclusively on the rate of change in the money supply, businessmen also must keep in mind the relationship betwen money supply growth and money "velocity" - the rate at which money is used, or turned over.
Although he couched his discussion of the money supply in terms of an advisory to "the business and financial community," it was clear he was addressing Dederal Reserve Chairman Arthur F. Burns the administration's concern that a timid monetary policy could choke off a recovery in which all signs are not favorable.
Schultze in essence repeated the overall assessment he delivered Sept. 14 to the American Newspaper Publishes Association, saying that "the recovery shows few if any signs of economic aging."
But he conceded there were some weak spots in the economy, and again passed up the opportunity to restate the administration's formal mid-year estimate that the economy would grow by 5 per cent in 1978.
A council source conceded yesterday that "since mid-year, uncertainties (about the economic outlook) have been growing."
A more candid exposition of the CEA's views on the economic outlook was contained in a Treasury memorandum sent to the White House Sept. 2 in connection with tax reform proposals.
That document cities the CEA's 5 per cent forecast for 1978, and says it assumes no shortfall in federal budget expenditures. It then continues:
"The CEA has estimated that if outlays fall short of the estimates by $7 to $10 billion, as seems possible, real growth next year is more likely to be in the 4.5 pe cent range.
"The CEA believes in any event that the principal risks for the next year ar on the downside, even if there is no federal expenditure shortfall. For example, interest rates may rise more than allowed for, business investment may display less strength than assumed, or the personal savings rate may continue to climb."
The memo added that "there is a possibility that without some additional fiscal stimulus around the middle of next year, economic growth may slow apprciably in the late 1978. The unemployment rate would then stop declining and could begin creeping up agains."
Schultze's speech yesterday made no reference to the more pessimistic assessment of the Sept. 2 memo, nor did it suggest that any tax or other stimulus might be needed to follow the jobs-stimulus program now beginning to work its way into the economy. The memo, in fact, says that no public mention should be made of "an emergency tax reduction."
Schultze's reference to the money supply question noted that the first two years of recovery were supported by relatively moderate money supply increases, coupled with a rapid increase in velocity. But he said that recent slowing in economic growth might indicate a more normal pace of money turnover.