Earnings: High but Still Low

The world's biggest manufacturer had bracing news last week. General Motors said that earnings during this year's first nine months set a record of $962 million. The picture was also bright for the nation's largest defense contractor. General Dynamics snapped back from a loss of $143 million in 1961 to post a profit of $34 million during 1962's first nine months. Much of the comeback resulted from General Dynamics' decision to write off the losses from its Convair 880 and 990 jets in a single year (1961) instead of spreading them over several years, and its prudent use of tax advantages. But the black ink also reflected a newly lean, hard look in the company's top management.

Rising Dividends. Other companies also did well. Totting up the profits of 944 top corporations, Manhattan's First National City Bank figured that earnings averaged 9% higher in this year's third quarter than in the same quarter of 1961. Almost every industry showed some gain: autos spurted 67%, electrical equipment and electronics 24%, textiles 19%, oil 15%. But the profit squeeze was still pinching. Profit margins usually slump in the slow, summery third quarter: this year they went down on average from 6.2-c- on the dollar during the second quarter to 5.6-c- in the third.

The dip showed up less in dividends. Last month 165 companies increased their dividends, as against 154 in October of 1961. The biggest exception was the steel industry, now pouring at only 60% capacity. Three of the top five companies slashed their dividends. Last week Chairman Roger Blough grimly announced that U.S. Steel was paring its quarterly dividend, from 75-c- to 50-c-, for the first time since the Depression year of 1938. For the whole industry, profit margins plunged from 5.5-c- on the dollar in the third quarter of last year to 2.7-c- in this year's third quarter.

Heightening Competition. Steel is depressed largely because its customers are steadily switching to such cheaper, lighter or tougher substitutes as concrete, aluminum, plastics and glass. In construction, with the increased use of reinforced concrete, the use of steel dropped from 12.5 million tons in 1957 to 9.3 million tons last year.

Many steelmen had hoped that this slack would be taken up by the auto industry, steel's biggest customer, which is heading toward its best year since 1955. Detroit would have been buying more steel lately--though not enough to revive the whole industry--had it not bought so much last winter as a hedge against a possible steel strike. Those supplies took quite a while to melt down. The automakers' stockpiles of steel are now close to the bone, and Detroit at long last is beginning to increase its orders.

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