This reassessment of the economic situation and prospects does not have to be a long one. There was no reflation in the Budget, and nothing has happened to alter the main framework of the forecast for national output published three months ago. In our view, in the absence of policy changes, output during 1967 will be rising at a rate around 2 per cent a year. (The rise, comparing the two calendar years, will be much less than this—perhaps about 1 per cent.) Unless there has been a sharp downward break in the trend of underlying productivity observed in recent years, this output forecast implies that unemployment will be rising perhaps by 8-10 thousand a month (wholly unemployed, seasonally adjusted).

The growth of world industrial production slowed down in the fourth quarter of last year and in spite of relatively mild weather in Western Europe there must have been an actual fall in the first quarter of 1967. The change of trend has been most marked in West Germany, but also has affected a number of other countries, including the United States and the United Kingdom.

The publication on 5 April 1967 by the Department of Economic Affairs and the Treasury of the paper containing a proposal for a regional employment premium is a notable event for at least two reasons. In the first place it establishes an important precedent in what is essentially the budgetary field by putting forward a government proposal for public discussion in advance of the introduction of any specific measure of legislation. In the second place it provides a brief and lucid analysis of the problem of the development areas as a background for the proposals that it develops.

In 1960 and 1961, the National Institute Economic Review published some articles on the car industry, on the demand for certain consumer durables, and on the demand for energy; all of them included forecasts for the years 1965 and 1970. The present article conducts a post-mortem on the performance of these forecasts so far : in particular, it compares the forecasts for 1965 with the actual figures. It then goes on to revise the forecasts for 1970—and in some cases to extend them—taking account of what has happened in the last five years.

Both the models whose performance is reviewed here(1) made use of the concept of a ‘depreciated stock’, and consisted of a relationship between income and other variables and depreciated car stock. To quote the original article : “ Most forecasts of demand normally attempt first to establish some historical relationship between movements in the consumption of the commodity in question, and changes in incomes and relative prices; these relationships are then used for forecasting. With cars (as with other durables) there is a difficulty about the concept of consumption. A car is not ‘consumed ‘immediately upon purchase; it lasts a considerable number of years. Further, for cars (unlike most other durables) there is a big secondhand market.”

The original article was prepared during 1960 and published in November of that year; it dealt with the prospects, up to 1970, for sales of television sets, refrigerators, washing machines and vacuum cleaners. Its main conclusion was that “ the period of rapidly expanding sales is over for these four appliances. Taking them together, sales rose about 18 per cent a year (at constant prices) from 1950 to 1955, and 15 per cent a year from 1955 to 1959; the prospect for 1959 to 1965 is for a rise of 2½-5 per cent a year, with no acceleration likely in 1965-70. Output is likely to go up a little more slowly than sales, since supplies were rising well above sales in 1959 ”.

The original article, prepared in 1960 and published in September of that year, took as its initial text the statement of the National Coal Board in April 1956 : “ Even in the longer term, the problem of overproduction for the coal industry can scarcely arise ”. The article was concerned to try to explain the divergence, from 1956 onwards, in the movement of gross domestic product on the one hand, and the demand for energy and particularly for coal on the other (chart 9). The two main explanations of the divergence were that the temperature in the 1956-59 period was higher than average, and that fuel efficiency improved much faster than before. As a by-product of these calculations, some conditional forecasts were made for total energy demand and coal demand in 1965 and 1970. These forecasts took three rates of growth of gross domestic product, in real terms—2, 3 and 4 per cent—and three rates of fuel-efficiency improvements—at 1950-59 rates, at 1957-59 rates, and a further slow improvement in fuel efficiency rates. The main conclusion about the future was that “ it would need a very slow rate of efficiency improvement, and a very rapid rate of increase in national output, for the demand for energy to reach 300 million tons (coal equivalent) by 1965; this is still the official estimate. It also does not seem likely that the demand for coal will rise over the next five years ”.