The Boom Continues

Abstract

In our last analysis of the economic situation ("Boom, Bust, Depression," October 1955), we pointed out that the boom, which was then in a rather hectic phase, rested on two unquestionably shaky foundations: a rapid expansion of consumer debt, particularly for the purchase of automobiles and new houses, and a heavy volume of private investment of which a relatively large proportion was then going into inventory accumulation. Investment in plant and equipment (fixed investment) was rising only very moderately, and government purchases of goods and services were still declining from the peak reached in 1953. "What all this adds up to," we wrote, "is that since the end of last year [1954] American consumers have gone on a buying spree, plunging heavily into debt to finance the purchase of new houses, cars, household appliances, and so on; and that businessmen have caught the spirit, loading their shelves with materials and goods in anticipation of still more buying." In view of the obviously self-limiting nature of this process, we concluded that the stage was being set for a downturn which we thought might be rather sharp but which, because of factors that need not concern us here, we did not expect to be deep or catastrophic.

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