Wonderful, but Worried

How is business? By that most popular of indicators--corporate profits--the answer last week was "Wonderful!" As third-quarter earnings came in, they made boom reading. But businessmen and economists who look beyond their profit records alone threw no hats in the air.

Most industries tended to maintain, if not raise, the dollar volume that had pushed first-half earnings to a peak. And most of the earnings were above last year's record heights. But some drops were shown by companies in such fields as food, textiles, retailing and electrical products. They were the first to feel a shift towards a buyers' market and consumers' balking at high prices. Thus, General Foods reported a third-quarter net of $4,463,255, or 5% less than in the same period last year.

American Woolen Co., which earned $21.86 a common share last year on a stock which sold at only $33 last January, slumped 31% during the first nine months of this year to $11,257,600. Railroads were still having their troubles. And aircraft companies, as expected, were in dismal shape. Douglas Aircraft, which usually manages to show a profit, has lost $1,170,037 so far this year.

Big-Board Bonanza. But the majority of the reports showed rises, many of them of whopping size over strike-ridden 1946. In steel, Republic led with a nine-month net of $23,111,631, up 143% over the same period last year. Other big gainers were Libbey-Owens-Ford Glass Co. (up 234% to a nine-month net of $8,727,826), Burroughs Adding Machine Co. (up 367% to $4,403,050), Container Corp. of America (up 67% to $8,002,641).

The New York Stock Exchange reported that in the first nine months this year, 805 companies listed on the Big Board paid dividends totaling $2,152,265,000, a rise of 21.5% over the total of dividends paid by the same companies in the same period last year.

The profits were enough to cause some viewing with alarm. At the New York Herald Tribune Forum, John G. Winant, ex-ambassador to Britain, warned that such "unprecedented profits in combination with the high cost of the necessities of life" created dissension at home and conflicted with U.S. foreign policy, thereby comprising a "new danger to private enterprise here and peace abroad." Many a profit-counter, busy with his books, was hardly bothered by such lofty considerations.

"Cataclysmic Consequences." Yet most businessmen and economists were more noticeably worried last week than they had been in a long while. R. H. Macy's President Jack Straus called on all businessmen to "fight for a lower level of prices." Murray Shields, vice president of the Bank of the Manhattan Co., declared that "recent developments have increased the risk that we shall experience an economic setback." Said the Federal Reserve Board's Menc S. Szymczak: the U.S. is now facing "the cataclysmic consequences of runaway inflation."

The nation's commodity and stock markets showed that they did not worry alone. The day after President Truman called a special session of Congress and stirred up talk of more commodity trading controls (see NATIONAL AFFAIRS), all grain prices on the Chicago Board of Trade skittishly dropped the permissible limit. They dragged many other commodities down with them. The New York Stock Exchange also had its worst one-day break in a month. The Dow-Jones industrial average slipped 1.97 points to 182.53, losing all the gains it had made in two weeks. With profits at such reassuring highs, what was making businessmen so nervous?

Certainly, there was no immediate prospect that the bottom would suddenly drop out of the economy. In September, the Bureau of Labor Statistics reported, new highs were reached both in industrial employment (43,000,000) and industrial wages (an average $50.42 a week). The Federal Reserve Board reported that industrial production also rose three points in September to 185% of the 1935-39 average, only five points below the postwar peak in March. And the Bureau of Agricultural Economics predicted that consumers were not likely to cut down their spending in 1948.

New Date. What caused some fright were the high prices and predictions of still higher prices to come. (General Motors' President C. E. Wilson said that next year's G.M. cars may cost up to 5% more than this year's.) Well aware that higher prices would nip buying power, 75 of 100 economists polled by the F. W. Dodge Corp. set a new date for a "mild recession"; it would begin next spring.

But the big worry, in most cases, was the fact that costs had driven the breakeven point (i.e., the volume at which a business starts to make money) much higher than ever before. "If steel operations were to decline to 80% of capacity," said National Steel's Chairman Ernest T. Weir, "there would be no profit under present costs." (Prewar break-even point of U.S. steel: 48%.) Though most businessmen keep their break-even points to themselves, they were plainly worried lest a small drop in volume lead to a big profit drop. Thus, even a "mild" recession might be something like a depression for many companies.

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