"Rapid Recovery"

From the Federal Reserve Board in Washington last week came the rosiest FRB comment yet on the comeback from the recession. Said the FRB: "Rapid recovery in economy activity continued in August. Industrial and construction activity, nonfarm employment and consumer buying rose further." The FRB index of industrial production rose three points in August, to 137% of the 1947-49 average, has regained more than half of the recession loss. Furthermore, the FRB found that it had underestimated the production climb in June and July, had to revise those figures upward.

With such proof of recovery before it, the FRB last week continued tightening credit, gave the New York, Cleveland, Richmond and St. Louis Federal Reserve Banks permission to up the discount rate from 1 1/4% to 2%, continuing the upward move initiated by the San Francisco Reserve Bank (TIME, Aug. 25). The earlier rises brought no change in the prime rate (i.e., the interest charged customers with blue-chip credit), which is set by New York banks that make 20% of bank loans to business. But as soon as the New York Federal Reserve Bank raised its discount rate, New York banks increased the interest on prime loans from 31% to 4%. Other banks around the country promptly boosted their prime rate also.

Other recovery notes:

P: Commercial and industrial failures reported for the week ending Sept. 4 dropped to 191 v. 237 for last year's Labor Day week, the lowest all year.

P: Steel output for August rose to 7,285,-ooo tons from 6,420,000 tons in July, and mills scheduled operations for the week at 65.4% of capacity, the highest rate all year.

P:New cars in dealers' hands dropped to 515,000 at the end of August v. 663,000 when the month began, close to a normal supply for the first time in a year.

Despite such notes of cheer, the Federal Reserve Bank of New York, which has frequently disagreed with the economic views of the FRB, remained cautious. While recovery is undoubtedly under way, said the New York bank, the vigor and steadiness of the uptrend is still uncertain.

"To sustain the revival of business activity there will have to be a rising trend in final demand. Consumer spending will be of crucial importance"--and this will depend chiefly on the public reception of the '59 cars.

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