Truce Tremors

When the first Korean truce rumors spread through Wall Street last week, stock prices suffered the worst break in two months. Government bonds, which had been slipping for weeks, skidded some more. The Dow-Jones industrial average slumped 4.65 points to 267.63, lowest since last October. Then, as the week wore on, and reports of an impending truce became official, prices steadied. With the help of some buying by the Federal Reserve, Government securities also firmed up. Once again, the stock market showed that it is not peace that scares stock traders so much as uncertainty.

What will peace do to U.S. business? Where does the U.S. economy stand? Banker Marriner Eccles, onetime chairman of the Federal Reserve Board, had one answer: "We're at the top of our boom now, and there are heavy deflationary pressures. Shortages are giving way to surpluses. More consumer goods will be produced than are sold. The home-building peak has passed . . . Exports are falling off rapidly . . ." Nevertheless, he expected little change for the rest of the year in business, neither "further inflation nor deflation."

All but Dead. In general, there was little worry over the effects on business of a truce. The stock market, for example, seemed to have a cushion against a further sharp decline. Many investors who had been selling stocks and taking their profits at higher levels were looking around for likely buys at last week's lower prices. Furthermore, on the basis of past performance, companies could suffer some drop in profits without any damage to their dividends. Prewar, corporate dividends averaged 74% of earnings, whereas recently they have averaged only 58%. Another hopeful market portent; despite Dwight Eisenhower's plea for extension, the excess profits tax seemed all but dead come June 30 (see NATIONAL AFFAIRS).

For the rest of the economy, said a top Government economist last week, "the 1953 outlook is brighter now than it was two months ago." There were plenty of figures to back up Washington's optimism. In May, the Commerce Department reported, department-store sales hit the highest level ever, except in the war-scare months of July 1950 and June 1951. Personal income was still rising, industrial production (242 on the Federal Reserve index) was within a hair of its peacetime high, and a record of $12.6 billion in new construction was started in 1953's first five months, up 6% from a year ago. The labor market reflected the boom conditions: in April, said the Labor Department, layoffs were at the rate of nine per 1,000 employees, a new postwar low for the month, and hirings (at 42 per 1,000) were well above 1952.

Vote of Confidence. Here and there, some warning signals flew. Auto sales were high, but peak production (at an annual rate of 6,450,000 cars) had pushed dealers' inventories to the highest levels in many months and used-car lots were full. Appliance stocks were piling up in some cities. In Detroit, a price war broke out among the big stores knocking 25% off Westinghouse roasters and General Electric portable mixers.

Despite these signs of lower prices ahead, businessmen themselves were still optimistic--and willing to bet their money that the boom would continue. In the third quarter, reported SEC, U.S. industry plans to spend $7.1 billion on new plants and equipment, about the same as the second quarter. At that rate, total outlays for the first nine months should run 7% above the same period in 1952--a $20.5 billion vote of confidence in the future.

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