Big Rise in Unemployment in the U.s

There was a rise in unemployment in the US last month from 3.7 per cent to 4 per cent. This, according to the Department of Labour, was the biggest increase in unemployment for over a year. The total number of unemployed in May was 2,900,000, a rise of 140,000 since April, This rise in unemploy~ ment is a reflection of the slow down in the US economy that took place in April.and May. A survey of the National Association of Purchasing Agents reported reduced rates of growth for new orders and production. It was also reported that there has been a slow down in price rises, and a moderation in inventory accumulation, One of the factors in this situation has been the decline in motor car sales. This began in April and continued in May, deliveries for the latter month being ten per cent down on a year ago. Another factor has been the tightening of the money market. Credit is dearer since the Federal Reserve Bank increased its discount rate, General Motors announced on June 9th that its Chevrolet division will close down two of its assembly plants this month, and a third one on July Ist. The reason given was for plant rearrangement and modernisation. However, it is clear that the present state of the economy has been the primary factor here. From the point of view of the Johnson administration the situation is very delicate. Harlier in the year there had been a great deal of discussion (reported in THE WEEK) about the possibility of tax increases to disinflate the economy. It had been feared that the cost of the Vietnam war would have inflationary effects on the economy. However, there has now been a slowing down of the economy without such moves. Now it seems that, far from being a problem, war expenditure has not been able to maintain the US economy. This problem for Johnson is being onrumers by the US balance of parvebte position. Readers will be aware that European bankers, etc., have been urging the US to eliminate its trade deficit. The war in Vietnam is estjmated to have a 700 million ¥ effect on balance of payments: Indirectly because of multiplier effects this is likely to be 1,500 million % this year. This means that Johnson will be faced with a choice of taking measures to correct the balance of payments in other directions - further restrictions on US business spending overseas, etc. - which may have the effect of a further slowing down in the US economy, and indeed may trigreer a recession. The fact that sterling is still under pressure, and devaluation is still a possibility means that confidence in the dollar is that much less. The possibility of increasing public expenditure (other than on arms) to help offset any effects that balance of payments correctives might have is not great. Firstly because Congress is notoriously difficult in granting appropriations for civil expenditure by the Federal Government. Secondly because those monies voted last year were not all used, various agencies have reported that they underspent by as much as from 100million to 200 million dollars, Therefore there still remains a question mark over the prospects for the US economy this year, and concommitently on the British economy.