THE AMERICAN economy was not only beginning to expand rapidly last spring, but far more rapidly than seemed possible a couple of months ago. The growth rate reported yesterday by the Commerce Department for the spring quarter, a ringing 8.7 percent annually for the GNP, deserves to be taken as a sign of real strength in the cycle now beginning.
That in turn will give great hope to the many millions of people, by no means all or even most of them Americans, who have suffered from this long and deep recession. Americans bear great responsibilities in the management of their economy. When it goes awry, the greatest hardships fall on the poorer countries that move to its rhythm.
This surge of growth is being led entirely by a rapid increase in personal spending by private citizens. The money spent on personal consumption and invested in houses over the spring more than accounted for the leap in final sales. It is a conventional Keynesian response to the powerful stimulus of a very large federal budget deficit. There was a time when the Reagan administration derided Lord Keynes and his followers as outmoded and inflationary. But in the current season, the White House takes its successes where it finds them.
Amid all of the cheering, you will shortly begin to hear an undertone of concern about the unexpected speed that the recovery seems to be reaching. In a country with such recent and costly experience with inflation, the question of inflationary dangers will shortly come up. Put bluntly: should public policy begin to move to slow the recovery down a little for safety's sake? The best answer is that it has already happened, in a very modest degree, with the slight tightening of the money supply by the Federal Reserve Board since mid-May. Interest rates are already a little higher than they were in the spring, during the three months when that remarkable 8.7 percent rate was being achieved. The rise in the rates is not enough to chill the recovery, but it suffices to reassure everyone that the possibility of accelerating inflation, however remote it might seem at the moment, does not go unnoticed.
Against this show of sudden strength, there are a couple of points of real weakness that need to be noted. Business investment is still very low--significantly lower, incidentally, than when Mr. Reagan took office. That is not hard to explain, since investment generally runs low in recessions. But it is a reminder that this recovery is not following the Reagan script. Even more serious, American exports dropped again during the spring. A strong recovery cannot be sustained for long unless growth quickly resumes abroad.