State of Trade

The most generally accepted and widely quoted single figure on the rise and fall of U. S. business is the Federal Reserve Board index of industrial production. In this index the normal 100 is Calculated on the years from 1923 through 1925. Since that time the population of the U. S. has increased 13%. and living standards have presumably advanced. Disregarding the advance in living standards, Cleveland Trust Co.'s famed Vice President Leonard P. Ayres recently declared that "we shall not be much in error if we consider 113 to be normal now." The latest Reserve Board figure (April) was an even 100. In 1929 it touched 119.

In the past three months U. S. business activity has continued to mount. The New York Times's weekly index, which does make allowance for longtime upward trends, has been above 100 for several weeks. Power production last week was the highest on record, exceeding even the previous high set last December when nights were long and there was no daylight saving. U. S. railroads last week loaded 690,716 freight cars, 21% more than in the same week of last year. Steel mills were operating at 74% of capacity, and even U. S. Steel Corp. was expected to show appreciable earnings for its common stock in the June quarter. Automobile production for June may reach 450,000 units, about 100,000 more than early estimates.

Meantime the stockmarket has gradually moved up to its old New Deal high made last April. At that time a general reappraisal of the business outlook seemed in order and stock prices subsequently suffered their first serious setback in more than a year (TIME, May 4). Significant to market chartists, nevertheless, is the fact that the recent recovery has not been a strong enough to carry the stock averages through their old tops.

Even a flock of favorable dividend actions last week failed to spur the market over its previous high. Westinghouse Electric raised its annual rate ($3 to $4). Young Walter Paul Paepcke's Container Corp. declared a 25-c- payment, its first in five years, and Texas Pacific Coal & Oil a 25-c- payment, its first in more than eight years. Harry Ford Sinclair's Consolidated Oil went on a regular 60-c- annual basis with promises of extras. U. S. Smelting & Refining raised its periodic payments from $1 to $2.

Some of this dividend rush was attributed to the new tax law penalizing undistributed earnings. Chrysler Corp. was whooped to a new high since 1929 ($112 per share) on talk of fatter payments at the next dividend meeting. But while the tax law would evidently tend to liberalize dividend policies, its long-range effect upon stock prices was no clearer than the law itself. The prime factor in stock prices remains earnings, not dividends.

But. What concerned the stockmarket most last week was the imminence of a more than seasonal summer slump. Automobile production is bound to taper off as motormakers prepare new models for November showings. Iron Age was pessimistic on steel operations after the July 4 shutdowns, reporting: "Heavy consumer buying from a number of sources is admittedly prompted by fear of labor trouble (see p. 16) as well as by higher third-quarter prices. . . . It cannot be denied that a large proportion of production during June has been borrowed from July and August."

Also worried by Labor was the Annalist, which suggested: "It is easily possible to overemphasize the importance of strikes in the general business outlook. There have been numerous instances where strikes . . . have actually improved the statistical position of. an entire industry by curtailing production. . . . But there is much to indicate that the problem of labor relations constitutes one of the danger spots in the business outlook for the next few months."

Employment still lags far behind production, latest Reserve Board index figure being about 85 compared to 100 on industrial output. Payrolls are even farther behind, at about 80. Contra-seasonal gains in factory employment and payrolls were reported last week, much to the "surprise" of Secretary of Labor Perkins, who said the increase was a "symbol of underlying confidence." Notable was the fact that payrolls' in heavy industry showed a 26% gain over May 1935. According to the Bureau of Agricultural Economics, the number of hired hands per 100 U. S. farms increased from 73 in the spring of 1935 to 89 in the last planting season. Average farm wages, with board & room, rose from $19.11 per month to $20.89. Farm income was running at the highest level since 1930. Drought, particularly in the Northwest, is the weak spot in the current farm picture.

Nevertheless. Any loss in purchasing power in drought areas will be more than offset by spending of Bonus money. Economists are beginning to believe that indirect Bonus influences will eventually be greater than the effects of immediate spending. Even if a large proportion of the $1,900,000,000 Bonus bonds are not cashed, their possession will induce freer spending of regular income. Industries which will benefit most are clothing, building, radio, refrigerators, electric appliances, automobiles.

Without the Bonus, the subcellar fundamentals of Supply & Demand are still in favor of better business. As a result of Government spending purchasing power has exceeded general demand for nearly three long years. Inventories have declined steadily. In the opinion of Economics Statistics Inc., continuation of Government spending "will soon, if it has not already done so, reduce inventories to such a low point that it will be necessary for production to be increased not only in line with current demand but at an even faster rate in order that inventories may be replenished." Continued this specialist in supply & demand:

"This means that over a period of the next six months to a year, production must be increased considerably, which will automatically increase employment, total payrolls, demand for farm products and other raw materials--all of which will cause higher wholesale commodity prices. . . . It is [also] our opinion that the above trends will be continued irrespective of political conditions. Basic economic forces are now so definitely working toward this upward trend that acts of either political party will have little influence on the total volume of business during the next six to nine months." A summer slump resulting from a slackening in steel and motors would merely make subsequent expansion "even more pronounced."

This file is automatically generated by a robot program, so reader's discretion is required.