The Billion-Dollar Question

The start of Korean truce talks poses a multibillion-dollar question for U.S. businessmen. The question: How will the prospective Korean cease-fire affect the U.S. economy?

Few thought that it would cut arms production--at first. With $41 billion in arms orders already placed, industry has enough to keep it busy for months at the current rate of output of $1.5 billion a month. And orders continued to pour out of Washington last week at the rate of $4 billion a month; NPA went right ahead cutting back civilian production. In Detroit alone 63,000 autoworkers were laid off as production dropped to 95,825 units, second lowest in 18 months.

Slowdown? But there are already signs that in the long run, a cease-fire would slow the pace of rearmament (see NATIONAL AFFAIRS). Although Defense Chief Charles E. Wilson insists there must be no letup, Government officials who have publicly backed Wilson's campaign to complete the defense program by mid-1953 now privately say it might better be stretched out to 1954 or 1955. Economy-minded Congressmen, already calling for a closer check on military spending, have plumped for a cut of $1 billion to $2 billion in next year's $49 billion schedule of defense spending. Furthermore, the 3,000 military procurement officers might cut back spending without any pressure from Congress. With the urgency being eased by peace, the military men might continue experimenting and developing new weapons, rather than rushing into production with present models.

If defense spending eases, the economy will still be well buttressed by the $24-billion-a-year industrial plant expansion program. Truce or no truce, businessmen show no signs of shelving plans for new rolling mills, pipelines, cement plants. In fact, cuts in military production will release a greater supply of raw materials, give an even greater boost to factory expansion.

A ceasefire, however, will certainly hit one soft spot in the economy: retail trade. Merchants who have been depending on a stepped-up arms program to pinch supplies and clear out their overloaded shelves, now will probably be overloaded for months, or, as some say optimistically, "till the pickup in the fall." Retail sales, which have been unimpressive for some time, last week were 2% below 1950. Many prices were due to drop. Last week St. Louis' Brown Shoe Co., Inc., one of the biggest U.S. shoe manufacturers, cut prices 9%, and other shoemakers got in step.

Down & Up. Commodity prices, one of the best measures of prices to come, started sliding from their peaks two months ago, have taken their biggest tumble in the last two weeks. The Dow-Jones Spot Commodity Price Index closed the week at 198.16, an 18-point drop in eight weeks. In the futures markets, prices of cotton, wheat and other crops were running 13% lower than in May.

The stock market, which dropped a year ago on the outbreak of war, dropped again when faced with the prospect of a truce. When the Russians suggested a cease-fire two weeks ago, the Dow-Jones industrial averages fell 2.56. Wall Streeters were not so much afraid of peace as wary of any drastic change. They rushed to turn their stocks into cash, in order to be set for anything that might happen. Last week, as definite truce talks were arranged, the market got back on its feet. In the sharpest rise of the year, the Dow-Jones industrial average jumped 7.63 in three days, closed the week at 250.01. To Wall Streeters, it looked as if the boom was well shored up and that peace--if it came--would almost certainly be bullish.

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