Feeding the Bears

Everybody thinks that profits are just a problem for management and that no one else has to worry. But profits determine the level of employment, plant and equipment spending, and Government revenues. You cannot have a turnaround in the economy until you have a turn-around in profits.

--Economist Leif Olsen, vice president, First National City Bank

The pattern of first-quarter profits made clear last week that such a turnaround had not yet occurred. A preliminary tabulation of 692 corporations by New York's First National City Bank showed that profits in 1970's first quarter declined 7% from the same quarter last year. As usual, manufacturers bore the brunt of a business slowdown. Their profits fell 9% from a year ago, and 13% compared with the last quarter of 1969. The sharpest losses were in electrical equipment, largely because of last winter's three-month General Electric strike, and in steel, building materials and aerospace. The decline, however, was far from uniform. Companies in the food, drug, nonferrous-metal, office-equipment and instrument industries tallied sizable gains.

The first auto company to report was Chrysler Corp., which posted a first-quarter loss of $29.4 million. Chairman Lynn Townsend told shareholders that Chrysler is now operating in the black again after trimming its inventory of unsold autos, but he could offer no assurance that this situation would continue throughout the second quarter. Hanging over all the automakers, besides the sluggish economy, is the threat of a strike this fall. Last week a United Auto Workers convention in Atlantic City authorized locals to speed up collections for the union's strike fund, which is already large enough to finance at least a five-week walkout against any one company.

Uneven Effects. The mini-recession has had uneven effects across the economy. Airlines suffer immediately from corporate cost-cutting. Trans World Airlines reported a $40 million loss for the quarter, partly caused by the work slowdown on the part of air-traffic controllers during March. RCA, hurt by a decline in sales of television sets and other consumer items, had a profit drop of 36%, to $27 million. Oil-company earnings so far have generally decreased.

The aerospace industry, clobbered by heavy cutbacks in Government spending, had hard going. Lockheed's quarterly earnings fell a steep 45%, to $5.1 million; Martin Marietta's net decreased 23%, to $4.1 million. Last week Richard Walker, president of North American Rockwell's Los Angeles division, decreed a salary cut for himself and for 2,000 of North American's non-union employees.

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