Watching the Weather Vane

The U.S.'s economic winds last week were blowing, in weather-bureau terms, "variable."

Typical was the Ford Motor Co.'s annual stockholders' meeting in Detroit. First of all, President Arjay Miller got up and glowingly announced that the Fords had gone by at a wonderful rate in the first quarter of 1966: on sales of $3.2 billion, profits stood at a first-quarter record of $210 million, or 9% better than during the same period last year. Then Ford Chairman Henry Ford II rose and sent the winds gusting in the other direction. Blaming most of the auto industry's troubles on the safety squabble ("I have no other way to explain this abrupt drop"), Ford said that sales had fallen off by about 5% during April, and were down about 15% during the first ten days of May. This, said Ford, projecting his figures, meant that the company would fall considerably short in 1966 of the alltime-high marks in 1965 of $11.5 billion in sales and $703 million in earnings.

Wall Street seemed to hear only Henry. The day before, the Dow-Jones industrial average had surged back by 14.36 points for the best single day's gain in eleven months. Even now, as the Ford meeting was under way, stocks were still moving modestly upward. But hardly were the words out of Ford's mouth when the Dow-Jones went spiraling downward eight points, ended the day off 5.5 points and the week, in which there was reason to expect a real rally, up a mere .78.

Fair & Foul. To a nation that has become a community of economic weather-vane watchers, the Ford signals--now fair and, in virtually the next instant, foul--added to the uncertainty that, perhaps more than anything else, has been the dominating factor in the stock-market plunge that began last February. Contributing to that same uncertainty were various indexes released by the Government last week.

On the up--or as many consider it, inflationary--side were figures indicating that during 1966's first quarter, pretax corporate profits were 11% higher than a year ago. The gross national product, was up $16.7 billion to an annual rate of $714 billion, but Washington expects the pace to slow in the second quarter.

At the same time, figures released for April indicated that some of the swell was gone from the inflationary balloon. Unemployment was more or less static at 3.7%. Durable-goods orders declined 3% to $23.9 billion, and housing starts, after a good March, dropped 4%. Industrial production was up, but it was the smallest gain since last September.

Inflation by Anti-Inflation. The April figures would certainly suggest that inflation is no longer nearly so inevitable as it seemed only a few weeks ago. Yet no sooner did the slowdown statistics come through than out came the cost-of-living index. It is based on the U.S.'s last significant inflationary period--1957-59--and for April, as it had in the three previous months, it showed an increase. This time the index was up by 3.5%, to a level of 112.5, meaning that last month it required $112.50 to buy what a consumer was able to purchase for $100 during the base period. When added to the January-March increases, it represented the sharpest four-month hike in the cost of living in the last 15 years.

By most standards, this is inflation. Yet at the same time, those who looked closely at the figures could find room for argument. Food costs, which up to now had been leading the index upward, were stable in April. Major factors in the increase were the restoration of federal excise taxes on autos and telephone service plus recent hikes in mortgage interest rates. Thus, anti-inflationary measures were actually inflating the cost of living.

Amid all this, the U.S. business community, despite complaints about Government policies, still generally reckoned the nation's economy as being sound (see box, next page). And, as was often noted, more American citizens were living better than ever before, and even the paper losses suffered in the hypersensitive stock market could not conceal the fact that investors had, by and large, done wonderfully well over the last couple of years.

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