State of Trade

Last week, having rounded out a twelve-month rise without serious interruption, the stockmarket paused for breath. The first anniversary of the Roosevelt bull market passed with no such elated demonstration as that which carried the Dow-Jones industrial stock averages to a flat 300 on the last trading day of 1928. Indeed, the peak of the present rise was registered two weeks before when the averages touched 158.7, a clear gain of 64% from the 1935 low of 96.7. The Dow-Jones railroad stock average showed an even more spectacular gain for the year--85%. Largely because they did not reach their Depression lows until after the Public Utility Act was introduced into Congress a little over a year ago, the utility averages scored a year's gain of no less than 133%.

For months every broker's board room has harbored its disgruntled delegation of "sold-out bulls"--traders who bought for the advance but were scared by its speed. They took good profits, then wryly watched their favorite issues double, treble, sometimes quadruple in value after they had disposed of them. Some stocks stood still, some are now far below their recent highs and a few actually declined. But, after each little dip in the market, prices in general have gone up & up & up.

During the worst of the Hitler war-fright the market looked as if it might take a bad tumble. Yet by last week it had regained composure, and prices were nearly back to the highs of the previous fortnight. To the first flood news last week the market was impervious, though later when it was realized that first-half earnings would have to be revised downward for the industrials, utilities and railroads affected, quotations began to soften. What the stockmarket will do next is anybody's guess. But what U. S. business will do for the next few months was reasonably clear.

From the Blue Eagle's death last May to the peak of the autumn upswing, the Annalist index of business activity' rose from 79.3 to 94.8, highest point since the spring of 1930. In the first two months of this year the Annalist index lost about 40% of that 1935 gain, partly because of bad weather, partly because of a sharp drop in automobile production after the year-end. Having passed its winter low, U. S. business was once again on the rise last week, and, though flood conditions will undoubtedly distort the standard business indices for a few weeks, consensus was that the spring upswing would be more than seasonal.

Retail Trade, usually the first to suffer from bad weather, was conspicuously good throughout the winter. February chain-store sales were as much as 14% above the same month last year. The Federal Reserve Board reported department store-sales last month up 13% from the year before, gains ranging from 5% in the Minneapolis Reserve district to 22% in the Cleveland district. In the past few weeks wholesalers have been swamped with orders. That curious figure, the Fairchild index of Buyers' Arrivals in Manhattan, was nearly 15% above the same week a year ago. Retail merchandise deliveries in the New York metropolitan area, comprising at least one-tenth of the total U. S. retail market, were up 10% for the first two weeks of this month. Except in flood regions, where there would be little if any, Easter trade was expected to be the best in years.

Production. Continuing its slow recovery, the steel industry was last week operating at 61% of capacity, highest level in nearly six years. The sudden four-point spurt last week was attributed to announcement of second-quarter price lists with fixed discounts for big orders, an innovation which, in effect, raised steel prices after the end of the month (TIME, March 23). Figures this week will show a temporary relapse for the good reason that no inconsiderable portion of the industry's capacity was under water. Favorable was the fact that flood losses will require new steel, particularly for bridges.

Power production statistics will also gyrate for a while as a result of the floods, but they have been, and probably will be soon again, setting all-time records. Automobile production, having run as low as 62,000 cars and trucks per week in February, is now approaching 100,000 units per week. The oil industry is ready for a motoring season which will establish a new record for gasoline consumption.

Building. Already talking in exaggerated terms of its long-awaited boom, the building industry will get an extra fillip from reconstruction work in flooded areas. Zero weather caused more than a seasonal decline in February building, but F. W. Dodge Corp. reported that contracts for the first two months of 1936 were 98% above the same period of 1935. Brick production in the Hudson River area leading U. S. brick district, has been running 500% ahead of a year ago. So moved by these building portents was B. (for Bertie) C. (for Charles) Forbes, Hearst-paper business pundit, that he wrote last week:

"Possession of a home still--happily--is the ambition of most couples founding a family, at least outside of our largest cities. Fulfillment of this noble instinct has been lamentably thwarted during recent years. But it has not been killed, by any means. Building did more than anything else to revive activity and prosperity in Britain. It promises to do the same here."

Railroads were unable to furnish complete carloading figures last week because of disrupted service and communication. So far this year freight traffic has run about 7 1/2% ahead of the same period in 1935. And railroad buying, normally an " enormous factor in U. S. economics, is being felt, particularly in the steel industry. Thus far in 1936 the carriers have bought 358,842 tons of rails as against 158,392 tons in the same months last year; 17,913 freight cars as against 830; 73 locomotives as against 9; 37 coaches as against 0. Employment in locomotive works showed the biggest January-February gain of any U. S. industry--18%. Bumper crops, predicted for 1936, will lift earnings of Western roads.

Money. U. S. Comptroller of the Currency O'Connor was pleased to report to President Roosevelt last week that deposits in national banks were at an all-time high. Presumably Mr. O'Connor did not stress the point that these deposits had been inflated by Government borrowing and spending. Meantime, through the fiscal mysteries of central banking, the Treasury's huge March operations reduced excess bank reserves no less than $620,000,000 in one week. For the past few months the Treasury has been deliberately manipulating its balances to hold down excess reserves, the total last week being nearly $1,000,000,000 below the record reached last autumn. While excess reserves and their invitation to inflation have currently faded as a fighting banking topic, they have not faded for good & all. As the Government spends its new money, reserves will gradually rise again.

Cheer. Meantime U. S. business has peppered the Press with items of good cheer. Cleveland machinery makers are three months behind on their orders. February burlap consumption rose 1,000,000 yd. to 61,000,000. Manhattan hotel rentals increased 11% over a year ago. Michigan and Wisconsin iron mines returned to five-day weeks in anticipation of the most active year since 1930. Mergers, deals and expansion plans have again become regular news (see p. 80). J. P. Morgan & Co. restored all Depression salary cuts.

Biggest question mark confronting both business and the stockmarket was not the extent of the spring rise but what will happen after the rise has run its prosperous course. By that time the business atmosphere may be thickening with campaign politics. There is no sound historical evidence that Presidential-election years are worse for business than other years. But both business and the stockmarket will be almost pathologically conscious of politics in 1936.

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