Reaching for the Peak

The break in the stock market at the news of President Eisenhower's stomach upset last week (see NATIONAL AFFAIRS) lasted no longer than the President's brief illness. The first sketchy reports touched off a brief, orderly selling wave: the Exchange ticker ran late, and stocks on the Dow-Jones industrial average slipped 4.91 points in an hour. But when the White House issued a reassuring bulletin, stocks turned quickly around, made up all but a 1.87-point fraction of the day's loss, then climbed steadily higher on each successive day. At week's end the average stood at 511.79, up 6.16 points to a new high for the year, and within easy range of the historic 521 peak set in April 1956.

The strength of the market was based on the health of the economy. The Labor Department reported that employment in mid-May rose by 900,000 to 65.2 million employed. Unemployment, at 2,700,000, was holding stable at last year's level. New plants for new markets had already pushed the construction industry to a five-month total of $19.2 billion, 5% more than in record 1956. Private housing, down 17% so far this year, showed a sharp upturn to an annual rate of 990,000 new housing starts in May, leading hard-pressed builders to hope for a 1,000,000-home year in 1957 after all. Detroit's automakers, who so far this year have made 4% more cars and 2% fewer sales than in 1956, will produce 517,000 new cars in June, 20% more than in 1956. Biggest gainer: Chrysler, whose May sales topped 1956 by 29.8%, and whose share of the market now totals 19% v. 16% last year.

Despite some soft spots, the main problem for the U.S. was still inflation. Testifying before a joint congressional committee last week, Federal Reserve Board Chairman William McChesney Martin noted that prices were climbing steadily (TIME, May 18), said firmly that there is no question of easing credit at the moment. Top officials of the U.S. Chamber of Commerce also predicted in Washington last week that prices will continue to climb for the rest of the year, though perhaps at a slower rate than formerly.

When will inflationary pressures ease? Reserve's Martin did not give an opinion, but both Budget Director Percival Brundage and Treasury Secretary George Humphrey testified that Government spending, a prime inflationary factor, is on the increase, largely for defense. The new spending will trim the fiscal 1957 budget surplus to $1.2 billion instead of the predicted $1.7 billion. Next twelvemonth the Government may spend even more, possibly as much as $1.5 billion more than the estimated $71.8 billion budget. What all this means is that despite pleas from every quarter the U.S. cannot even consider a tax cut this year or next. The earliest date for a cut would be January 1959, and then only if the Government succeeds in checking its spending and inflation. Said Brundage: "For the present, I believe that our major fiscal objectives should be to maintain a budget surplus and continue reductions in the public debt, with reductions in the present high tax rates only when our budget surplus and the economic outlook justify them."

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