The Ointment and the Fly

Last week businessmen still rubbed their eyes after looking at the general indexes of business. They wanted to make sure that they were not being misled into a false boom, as in 1937, as again in 1939. Department-store sales for the four weeks ending Aug. 3 were 6% above last year. Automobile and chain-store sales were ahead. Most cheerful note of all was struck by the Federal Reserve Board, which last week published its long-overdue revised index of production. Adding 23 important but hitherto neglected industrial series (machinery, aircraft, liquor, rayon, chemicals, etc.) to its index, revising the weightings and employing a new base period (1935-39 instead of 1923-25), the Federal Reserve Board found business much better than its old index had shown. For June, the new index (if calculated as a percentage of 1923-25, like the old) would be 139, against the old index's 114.

In this optimistic ointment there was one fly, a major index which refused to conform: the figures for bank debits (checks drawn on deposit accounts). In 140 centres outside New York, these debits declined 14.3% during the last three weeks in July, a far more than seasonal recession. Such a drop in checks drawn must mean that fewer (or smaller) business transactions are being completed, that sales of goods and services have fallen off or that payment for them has been postponed.

As a measure of goods consumption, bank debits include too many other transactions to be reliable. But by the same token they measure general spending better than such partial indexes as retail sales. Bank debits include checks drawn by little businesses as well as big, the checks cashed by small employers to pay their help, the checks with which individuals pay their bills, etc. (Bank debits in 131 trade centres after seasonal adjustment recently declined so severely that it was the major factor which last week carried TIME'S Index of Business Conditions to a new two-year low.)

The fall of bank debits may be due to maladjustments in the total commercial picture which other signs and portents, whether of sales or production, do not catch. Some manufacturers, for example, may be having a slump in collections. Declining bank debits have corrected themselves before without serious consequences to business. They have also preceded serious business declines, as in 1937 and 1939. If underlying maladjustments do not soon correct themselves, the trend of bank debits may be ominous. Last week they provided a warning footnote to the cheerful uptrend of other indexes.

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