Reason for Optimism

Evidence of business improvement was apparent in many key areas of the economy last week:

The steel industry increased production for the sixth time in as many weeks, climbed to an average operating rate of 60.5%, the highest level this year. Part of the increase might be a hedge against a possible July price rise, and production may drop again when summer vacations start taking effect. Yet there was enough of a general pickup to convince many a steelman that he should fire up idle furnaces, rehire laid-off workers. While steel's 1958 recession has lasted for longer than the drop in 1949 (see chart), it shows a close similarity to the slide in 1953-54.

Auto sales, which had poked along in May, showed a sudden 13% spurt in the last ten days and pushed the month's totals to 394,000 units, the best level of the year. With good weather helping sales, dealers managed to pare their inventories to 755,000 cars.

Construction showed a $400 million gain to $4.1 billion in May--and gave the Northwest's troublesome lumber industry real hope for better business. Though output is down 10% from last year, lumbermen talk encouragingly of a second-half push that might carry the industry 2% or 3% ahead of 1957.

Retail sales continued surprisingly strong. The Census Bureau estimated April sales at $16.3 billion, and a level 2.5% over March. But the ratio of sales to inventories was still considerably higher than a year ago, which meant that businessmen will probably continue to cut their inventories until the ratio finally gets back in line.

Unemployment showed its first more-than-seasonal decline since the recession began (see NATIONAL AFFAIRS). Said a top Administration economist: "As far as the current indicators are concerned, it is at least a flattening out. As far as the forward-looking indicators are concerned, there is evidence of improvement. I think they justify an optimistic outlook."

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