End of the Year?

In the exhilarating hum of high production and few strikes, everyone seemed to have forgotten the ugly word: recession. Last week, they were sharply reminded of it. The Bureau of Agricultural Economics stared into its crystal ball and found it filled with dark clouds. Unless steps are taken to bolster purchasing power, said BAE, the U.S. will probably have a recession toward the end of this year.

When--and if--it comes, wholesale food prices, said BAE, may tumble 15 to 20% below last December's average. At the same time there may be a 20 to 25% drop in farm prices. But BAE felt that industrial production would hold up pretty well. It estimated a decline of only 5 to 10%.

Principal factor on which BAE based its slump prediction was the declining volume of consumer purchasing power. In July 1945, real wages & salaries were a whopping 205% of the 1935-39 average, because prices had been held down while pay rose. By last December, real wages had dropped to 168% of the prewar average, because the rise in prices was outstripping wage increases. And the value of real wages was still shrinking. Wages & salaries, the backbone of consumer demand, had been 70% of all income payments in July 1945. By last December they had fallen to 59%.

Sales have been held at high levels by the spending of wartime savings and installment buying, said BAE. But wartime savings of many consumers are gone. The only hope of averting the recession, in BAE's opinion, is an early drop in prices. This would keep up purchasing power.

The day after this gloomy talk, the stockmarket had its sharpest one-day drop in six months. The Dow-Jones industrial averages fell 4.83 points to 177.05 and continued to slide down 1.21 points the following day. Wall Streeters, who have lately been blaming the "international situation" for the jittery market, promptly put some of the blame on BAE. But commodity prices, which have risen so sharply recently that many besides BAE think they are in for a bad fall, kept right on rising. March wheat futures hit a new 27-year high of 2.64 1/4 a bushel. How high would they go? How could prices be brought down quickly?

At week's end, Fowler McCormick, chairman of the board of International Harvester Co., showed how, in a way everyone could understand. As Young Henry Ford had two months ago, Fowler McCormick cut the prices of his products (tractors, trucks, farm machinery) a round $20,000,000 a year, almost 5% of his gross sales. Harvester is not worried about a drop in sales--yet. But, said McCormick: "We decided to give the benefit [of high earnings] to customers rather than stockholders or employees because the time is here to recognize customers as an integral part of a business. Our present wage-price-profit mechanism is out of date. All industry finds itself in the same situation. . . . We have done something for our stockholders . . . and we have done plenty for our employees. Now we must try to be equitable in our treatment of the third group--our customers."

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