TOWARD the end of 1955, an enterprising Long Island businessman laid claim to a crater on the moon and started selling lots at $1 an acre. In short order 9,000 eager customers plunked down their money on the outside chance that they might in fact some day ride a rocket to the moon. In its own small way the Great Lunar Sale symbolized the buoyant mood, confident strength, and bright future of the U.S. economy. For 1955 was a year when the U.S. took its first step toward the moon: it went to work to launch the first earth satellite. And to Americans, who finished the greatest business year in history, nothing seemed too hard or impossible to produce.
By virtually every measure, 1955 showed the flowering of American capitalism. With barely 6 1/2% of the world's population the U.S. turned out well over 60% of its goods. Across the land the signs of limitless bounty were evident. Prosperity's bright star twinkled over Chicago, where the Pullman Building will be replaced by a 20-story skyscraper tinted gold; the star blazed briefly on Davy Crockett, who rocketed overnight into a $100 million moppet madness, on Ford's newborn $10,000 Continental--and on cigar makers, who had their best year since 1929 as 10 million Americans contentedly puffed 6.1 billion cigars. As 1955 ended, the U.S. could look back and truthfully say, as did Seattle Banker Miner Baker: "Anybody who can't find cause for at least selective optimism is just congenitally morose."
In 1955 the U.S. gross national product averaged $387 billion, a good 6% higher than 1953's alltime peak. Industrial production was some 10% better than last year and 3% better than the 1953 high. The hard work was well rewarded: corporate profits were a record $44 billion before taxes and $22 billion after taxes; dividends of $10.9 billion were $1 billion more than 1954; average weekly wages of $76 were at a new high.
Go West, Go East. In 1955 unemployment and depression were almost forgotten words. With 63 million employed and only 2.5 million jobless (many of them unemployable), one of the big shortages was manpower--and womanpower, as the number of working wives reached a record 11.8 million. Short-handed business men competed like football scouts for new talent. In Eastern newspapers a West Coast manufacturer pleaded, "Come to sunny Southern California," while in Los Angeles papers an East Coast plant advertised, "Come to smog-free Long Island."
With full employment and soaring paychecks, the U.S. had more money to spend ($303 billion) and spent more of it ($250 billion) than ever before. Savings tumbled to the lowest in five years ($16 billion) as confident consumers denied themselves nothing. In 1955 they bought: P:1,330,000 new homes, only 66,000 short of igso's alltime peak. P:7,250,000 new cars, 950,000 new trucks and buses, 10% better than igso's record. P:1,400,000 new air conditioners, 200,000 more than record 1954. P:7,600,000 new TV sets, 200,000 better than record 1950.
Credit for All. One of the big reasons for 1955's boom was credit; U.S. consumers went into debt at the fastest rate in history. Short-term consumer debt shot up to $36 billion, while long-term mortgage debt jumped to $88 billion, 380% greater than prewar levels. It was the year of the "no-no-down" payment mortgage (the builder pays the closing costs), the year when autos were funneled out with no money down, up to 42 months to pay. In Corpus Christi, Texas, movie houses even urged patrons to put admissions, popcorn and peanuts on the cuff, while in Omaha, one pet-shop owner went so far as to sell an orangutan on the installment plan.
At year's end, with U.S. personal debts at $800 for every man, woman and child in the nation, many businessmen shook their heads over credit's spectacular rise. Warned Salt Lake City Banker Walter E. Cosgriff: "Almost everyone is aware that if you increase the amount of steam required to pull a locomotive, you'd better be careful, or you'll blow the thing up." No one was more aware of this than the U.S. Government's monetary and fiscal experts. From the start, the Federal Reserve Board under Chairman William Mc-Chesney Martin kept a steady hand on the nation's economic throttles. The trick was to keep credit easy enough to have a full head of steam, so that the economy would clip along full speed, yet not blow up into an inflationary boom and bust. As credit soared, the FRB put on the brakes by boosting the rediscount rate to member banks, thus making borrowing more expensive.
Overall, the Government's controls kept the economy within the speed limits. Re-tall prices and the cost of living remained virtually at the 1954 level. Furthermore, few consumers went overboard into debt.
Though consumer credit jumped $6 billion in 1955, U.S. spendable incomes were climbing so fast (nearly 300% since 1939) that the debts were still only about 14% of income.
In 1956 the FRB hopes to hold the consumer-credit rise to $3 billion for a total of $39 billion. The enormous debt consumers already owe will make the FRB's job easier; repaying 1955's loans will soak up enough money to make people think twice before taking on new debts.
The Rise of Mass Marketeers. But credit was not the only power behind the boom. In 1955 businessmen saw the speedup of a revolution in U.S. merchandising methods as retailers learned to pare selling costs, thus get more goods to more customers.
The leaders of the new mass selling system were the discount houses. They spread across the U.S., hawking everything from canoes to canape trays at 20% to 30% under list price. Their sales soared so high that, while profit margins were small, overall profits were big.
Old-line retailers had scoffed at the discount houses, but 1955 proved that they are here to stay. The big, old stores had to give up old-fashioned ideas of high markups and open up outlying warehouses where customers could pick up goods at cut-rate prices. Even such diehard Fair Traders as W. A. Schaeffer Pen Co. and McGraw Electric's Toastmaster division either abandoned their Fair Trade principles or started backing down. And last week General Electric chopped appliance prices as much as 30% right down the line.
The new philosophy of mass selling brought greater sales than ever before to the U.S. auto industry. Dealers who once got markups of 25% now slashed profit margins as low as 3% per car. In the race for the No. 1 spot, Chevrolet turned out 1.8 million cars, edged out Ford by 65,000. But the comeback story of the year in the auto industry was Chrysler. After slumping to 12.9% of the market in 1954, President Lester Lum ("Tex") Colbert poured $250 million into racy new styling, fired up his dealers to get out and sell the mass market. Result: Chrysler wound up 1955 with 17% of the auto market for its four-car line. In the comeback earnings topped $70 million for the first nine months, 19 times better than 1954.
Automation & Expansion. With big discounts and rugged competition, businessmen looked for new ways to cut manufacturing costs. Throughout 1955 the price of labor rose steadily and material expenses edged up. A few passed on their costs to retailers; but most looked for other solutions. One good way to cut costs was by automation, and U.S. businessmen busily installed new pushbutton machines to produce everything from auto engine blocks to electronic printed circuits. To make carbon dioxide, Liquid Carbonic Corp. spent $1.5 million for a new, completely automatic plant in Oakland, Calif, in which two highly skilled technicians produce as much as was formerly turned out by 50 men. At the start of 1955, such automated factories were a great worry to U.S. labor leaders, who feared widespread unemployment. But as they took a harder look at automation, the fears began to fade. If the U.S. standard of living keeps expanding, as everyone expects, the great problem will be a continuing labor shortage.
As a result of continuing expansion, 1955 brought the greatest construction activity of all time: $42 billion for industrial, residential and public construction--with $16 billion in new houses. Though U.S. families increased by 600,000, new homes in 1955 went up twice as fast. But while the demand may drop off slightly next year, the fact is that the U.S. still does not have enough of the kind of houses to suit its well-heeled population. With better jobs than ever before, homeowners are no longer content with their first $10,000 to $15,000 "efficiency" dwellings, now want $20,000 and $30,000 homes. As a result, 1955 saw the growth of "trade-in" housing, where builders operated like auto dealers, swapped new houses for old.
Just as homeowners in 1955 pushed their living scale up a notch, so U.S. businessmen were no longer content with existing facilities. In their steady drive to produce more, they laid out $28 billion for new plants and equipment in 1955, 5% more than 1954. California's economy grew with gold-rush speed. In the San Fernando Valley a citrus farmer was tempted to take $3,500 an acre from a housing developer for his 40 acres, but an expert advised him to wait. A few weeks later, the farmer was back with a mile-wide grin. Said he: "I just wanted you to know that I've sold my land for $7,500 an acre." California's gain was once the East's loss, but 1955's economy was big enough for everyone. In Ohio the growth was little short of phenomenal. The Cleveland area alone counted nearly $500 million in new expansion. Samples: a $31 million Union Carbide & Carbon titanium plant, the world's biggest; a $30 million Ford engine plant expansion, making Cleveland second only to Detroit in Ford's future.
Stretching eastward from Cleveland, the plants and rail yards reached 50 miles to Ashtabula, Ohio, spread south so fast that the road to Akron, 30 miles away, will be a solid line of industry within ten years.
The Urge to Merge. But for some, the road to profits by new construction was too costly, too timeconsuming. Another way was to merge. In 1955 a record 750 companies merged, and both the Government's antitrust lawyers and Congress fretted about the effects on competition. Yet it was the Government's own tax policy that encouraged the trend. With high corporation taxes, expansion-minded companies looked around for weak firms with tax-deductible losses to balance their gains. With even higher income-tax rates it was also a good way for the individual businessman to sell out for a relatively low capital-gains tax and retire with a fortune. As a prime example of how mergers worked in 1955, Textron, Inc., after years of trouble, merged with Robbins Mills for its modern, high-capacity plants, added on American Woolen Co. for its $30 million tax loss carry-forward. Result: the new Textron American, Inc. boosted not only its textile business but expanded into electronics, machine parts, upholstery, and turned a $5.1 million profit for igss's first three quarters v. a $16.6 million loss the year before.
The promise of high profits also saw a new type of industrialist rise to prominence in 1955--the empire builder who put together his kingdom by buying stock to take over sickly or tired companies. To some, they were mere "raiders," who might often liquidate a company for its cash. But the raiders regarded themselves as leading a revolt of the stockholders. Right or wrong, they put the pressure on industry's managers to produce or get out. In the proxy war of the year, Financier Louis Wolf son (Washington's Capital Transit, New York Shipbuilding, etc.) fought a losing battle to take over Montgomery Ward. But the overall effects of his fight were good. At 81, Chairman Sewell Avery finally stepped down; in came a younger management. Result: Ward sales increased 10%, dividends were raised 12%, and the company proposed a two-for-one stock split.
Down on the Farm. The only real weak spot in IQSS'S economy was farming: U.S. farmers were--or thought they were--in serious trouble. All year long Agriculture Secretary Ezra Taft Benson manipulated the Government's farm controls, imposed flexible price supports, acreage allotments, marketing quotas. But he was running a losing race against the technology of farming. With bigger machines, better seed and fertilizer, farmers produced enough to feed a much bigger population, and the nation's surpluses mounted--14.5 million bales of cotton, 938 million bu. of wheat, 3.2 billion bu. of corn. Inevitably, farm prices skidded, and gross farm income dropped to $32.6 billion, down $4.5 billion in four years.
But mass migration to the cities has cut the farm population, and per capita farm income has dropped only about 9% from the 1953 peak. Big farmers with enough land and machines to cut costs are hold ing up, while the small, often inefficient farmer is being squeezed out.
In short, the farmer was more a political than economic problem. But in an election year no one expected the problem to become smaller or the expense of supporting crops any less. To trim the mounting surpluses, Secretary Benson was mulling over a sheaf of plans for more crop sales abroad, a soil conservation plan that would take land out of production. But a conservation plan would cost an estimated $500 million, and the U.S. already has $7.5 billion tied up in crops. Moreover, the new plans called for more and more restrictions on how farmers tilled their land. Thus, it looked as if the farmer might soon have to make a choice: place himself almost completely under the control of the Government, or turn to the ways of the free market and develop new and cheaper ways of selling his products just as manufacturers had.
Atoms & Responsibilities. In 1955 the Government loosened its tight hold on the development of nuclear energy. Encouraged to go it alone, power companies poured $150 million into half a dozen nuclear power plants with up to 250,000 kw. capacity. On the Colorado Plateau alone, the new demand for uranium built the fledgling industry into a $100 million mining complex. Yet for all the expansion and new-found reserves, the uranium deposits uncovered so far, estimated the Atomic Energy Commission, will last the U.S. only until 1962.
The atomic-powered plane, considered a far-off dream only a year ago, was progressing so fast that the optimists predicted one would be in the air within three years. And the airplane industry itself, the second biggest U.S. industry (750,000 employees), grew on a chain reaction of defense and commercial contracts. As the year neared its end, the commercial jet age was dawning. The U.S. grabbed the lead in the production of the new 575 m.p.h. airliners just as it had led the world in piston-engined planes. From 13 airlines, both U.S. and foreign, Boeing already had orders for 72 jets and Douglas had signed contracts for 102.
With the new technologies came new demands on U.S. companies, forcing them to train higher-caliber workers, pour millions more into research. While business men and educators had once been mutually suspicious of each other, businessmen now turned to the colleges for help. In 1955 the University of Denver Research Institute grew to a staff of 120 scientists helping firms in the Rocky Mountain area, while the Stanford Research Institute was busy with 250 different West Coast projects. Another way for business to get brainpower was to help colleges over their financial hurdles. In 1955 U.S. companies increased their educational grants to some $80 million. Even businessmen themselves were going to school, learning everything from technical skills to the principles of leadership in an expanding economy.
In this new era U.S. businessmen also showed an increasing sense of responsibility to the community. It was Ford who granted the first guaranteed annual wage to auto workers. And it was Ford, long a citadel of private ownership, that through its first public stock issue in history recognized a responsibility to share its control, secrets and profits with the U.S. at large. Where other businessmen once rose angrily at union demands for fringe benefits, now they quietly increased pensions, medical benefits, provided longer vacations with pay. At year's end, the combined pension funds totaled $22 billion. As a frosting on the cake, some 300 U.S. companies in 1955 had stock purchase plans involving 2,000,000 U.S. workers.
Many another low-salaried worker went out and bought stock on his own. While hundreds of thousands of new investors ventured into Wall Street, the bull market galloped on. With peak earnings and a near-record number of stock splits (72) for the year, stocks on the New York Stock Exchange bounced up and up, and on the final day broke through the previous high to wind up at 488.40 on the Dow-Jones industrial average. The tally: 79.51 points in 1955, and the highest level in history.
The Road Ahead. For the future the big question is: Can the U.S. keep up the pace? Never was there such unanimity of opinion among businessmen. Said Inland Steel's President Joseph Block: "If ever there was a time when a short-range prediction was safe, this is it. The first six months of 1956 should establish another new high in steel production with at least 60 million tons." Said George A. Fuller construction company's President Lou R. Crandall: "Construction volume will go up 4% or 5%." Said Pure Oil Co.'s Rawleigh Warner: "1956 will be the best year, volume-wise, that oil ever had." One of the few blue notes came from Edward Eagle Brown, chairman of Chicago's First National Bank. He was uneasy because things were just too good. Said Brown: "Personally, I'm scared by the present universal optimism."
Actually, few economists think it possible for the economy to keep rising with the same speed of 1955. But though the U.S. may rest to digest what it has already produced--and the breather may stir up cries of "recession"--the forecasts for 1956 are impressive by any standard. For 1956, Administration economists predict a total G.N.P. of $403 billion, 4% higher than 1955. Personal income is expected to jump to around $310 billion, about half the 1955 advance, while savings hold steady at the 1955 rate. Though industrial production will not equal igss's 11 % jump, it is expected to edge up. The Government's budget, unbalanced in 1955, may still not balance in fiscal 1956, although the Administration hopes to turn in a surplus, with the possibility of tax cuts by midyear. What may throw it off is current military spending, slated for a $500 million rise to $34.5 billion, then another $1 billion rise in fiscal 1957. For years, U.S. defense chiefs worried that the nation might not be able--or willing--to carry the necessary burden. But as the gross national product has increased, the burden has shrunk until it is less than 10% of the gross U.S. output, a load that has proved easy to carry.
Costs & Cars. One peril of prosperity in 1956 will be inflation. Prices are already inching up. Industrial materials are climbing, with producers of steel, copper and aluminum complaining about higher costs, and probable increases of 4% to 5% during the first six months of 1956.
As costs and prices rise, sales in some lines will slip. With tightening credit, plus the fact that consumers bought so much in 1955, both appliances and autos are in for a rugged buyer's market. With 710,000 cars on hand, dealers' inventories were already the highest in history in December, and some dealers report sales down as much as 40%. Auto production is already being cut, and output will probably drop to 7,000,000 units, 1,000,000 less than in 1954. Says a Portland, Ore. Ford dealer: "We're giving July discounts in the first five weeks. What are we going to do next summer? Sell 'em at cost?"
Some estimates for other industries: P: 7,400,000 TV sets (including 150,000 to 300,000 color sets), some 200,000 less than 1955.
P:1,600,000 air conditioners, 200,000 more than in 1955.
P:1,000,000 home freezers, same as in 1955 P:4,000,000 washing machines, 200,000 less than in 1955.
Despite the leveling off, U.S. businessmen will keep building for future markets without letup. Merely to keep pace, industry will lay out a record sum for new plants and equipment in 1956. The forecast: $33 billion, $5 billion more than in 1955. Example: the Southern Co., which controls utility companies in four Southeastern states, will pour $220 million into 88 new power projects.
How far can the economy expand? In 1955 businessmen were told that the U.S. presented an almost limitless market for industry. Said W. G. Paul, president of the Los Angeles Stock Exchange: "Do you believe every housewife has all the labor-saving devices she wants and can afford? Has her husband all the mechanical gadgets he wants and can afford? We can look forward to 1956--and even as far as 1965--with confidence of bigger and better markets." For doubters General Electric President Ralph J. Cordiner had an answer. Said he: "The basic factors sustaining the growth of our economy should be well understood everywhere by now--our rapidly growing population, our insatiable desire for improved standards of living, and the steadily higher levels of disposable income. In each of these areas the future is written for all to see."
Hand to the World. President Cordiner could have added a fourth factor. Both to keep its own economy strong and help bring the benefits of free enterprise to humanity, the U.S. needs foreign trade. Slowly, barriers are being reduced and trade is increasing. U.S. exports in 1955 jumped 12% to $14.3 billion, while imports of $11.3 billion set a new record in 1955, are slated for a big increase in 1956.
Beyond the trade figures, the flow of knowledge and ideas between nations increased in 1955. Never before did so many businessmen go abroad or pour so much money into foreign investment. With World Bank loans standing at $2.4 billion, U.S. business laid out $1.5 billion for new plants overseas, sent out teams of dam and bridge builders, steel and oilmen, automakers and electronics technicians to help teach foreign businessmen American secrets. Partly as a result of the spending, foreign nations were able to almost eliminate the troublesome "dollar gap" between what they buy and sell to the U.S.: in igss's third quarter, the U.S. received $4.7 billion from exports and investments abroad, but paid out $5.3 billion in U.S. dollars to foreign nations.
With untold resources at hand, with vast markets at home and in the world beyond, the U.S. could look on 1956 as an opportunity to help itself and the world achieve continuing prosperity. It was a challenge for bold and imaginative men. But as 1955 showed, not even the moon seemed too far out of reach.
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