STATE OF BUSINESS: Laggards Catch Up

Last May U. S. business activity ended its minor early 1940 slump, began to turn up. During the summer, as recovery quickened with the defense program, more & more businessmen began increasing their inventory commitments, began thinking about plant expansion. By Labor Day, traditional milepost of the business year, business was rolling along, gathering boom momentum. A few chronic laggards remained behind. One was oil, the victim of a production war between the States. Another was cotton, practically shorn of its export markets, hopelessly overproduced for the market left to it. Another was corn, also export-dependent, whose only records these days are set in terms of surpluses. Two others, much more significant, were the stockmarket, which measures business confidence, and construction, without whose participation no boom lasts long. Last week (subject to many a prayer for England) the up-or-down question on both these important fronts was tentatively being decided in favor of the bulls.

Stockmarket. Last week the market cast off its summer fears. In only four full trading days it traded 3,280,000 shares, rose four points on the Dow-Jones industrial average for the second week in a row. Before the week’s end the average was up to 134.54, only 14 points below where it had been before it fell in May with Flanders. Index of last week’s market spirits: money was going back into the highest-grade disappointment of recent years, New York Central common (up 11 points), and other more frankly speculative rails.

An interesting light on Wall Street’s recent mood was thrown last week by SEC’s figures on who bought what: from May 10 to July 27, when the averages were recovering from their Blitzkrieg low of around 110, the Street professionals had their minds on Europe, were on balance sellers of stocks (680,269 shares net). In brilliant contrast for once was the performance of the small fry who trade in odd lots: beginning May 10 they bought 1,153,000 shares more than they sold. Not until August did the pros take over the buying initiative. By last week they were resigned to the fact that they had missed a 15-to 25-point market, were trying to make up for lost time.

Construction. In 1937, again in 1939, consumer-goods booms collapsed before construction could get started. This time, defense is starting a construction boom before the consumer-goods industries reach their peak. Engineering construction contracts will probably total $3,500,000,000 in 1940, against $3,000,000,000 in 1939 and $4,000,000,000 in 1929. At a volume of around $80,000,000 a week they are already running slightly better than the 1929 rate. Items:

> Cleveland’s famed Arthur G. McKee reported that so far in 1940 its contracts are 85% above the whole of 1939. Chief customers: steelmakers and oil refineries.

> Cleveland Electric Illuminating Co. has started an $8,200,000 increase in capacity, East Ohio Gas is investing $1,000,000 in new storage facilities, Standard Oil of Ohio is building a new refinery.

> In Detroit, Chrysler, Lincoln-Zephyr, Briggs, Monsanto are doing $27,000,000 worth of plant expansion.

> In Chicago, Buda Co. (Diesels) is building $600,000 worth of plant additions, Bastian-Blessing (capital-goods specialties) and Sherwin-Williams (paints) are spending $500,000 apiece, Continental Can, Dixie-Vortex (paper containers) and Campbell Soup $200,000 each.

> In Pittsburgh, U. S. consumer-server No. 1, Sears, Roebuck & Co., decided to build one of its largest stores. In spite of the heavy-industry boom, Pittsburgh builders gave Sears credit for the largest job undertaken there in a decade.

Consumption. Other evidence indicated that defense was carrying U. S. consumers from a potato level of subsistence toward a butter level. In defense-rich Chicago, wholesale trade was 12-15% ahead of 1939, women’s dress sales were 15-30% ahead. Nationwide department-store sales in August were 10% ahead of a year ago, only 11% under August 1929. Sears, Roebuck continued to lead the procession with a 22% gain over August 1939. Most bullish note: retail managements have been as gloomy as Wall Streeters about prospects, have kept inventories low. Since August buying by stores was 30% below July, continued retail sales gains should boom consumer-goods production.

Production. Already under way, in fact, was a rush for merchandise. First to feel t as usual was the cotton textile market, here orders for future delivery—protection against empty shelves—totaled 100,000,000 yards, equal to five weeks’ production. The liveliest textile industry, rayon, is producing 23% ahead of the first eight months of 1939, nevertheless maintaining shipments out of inventories, In the sensitive hide and leather markets, sales expanded, and the rush bid hides up ¾¢ to 1¢.

Even in the sorry wheat market, flour millers decided to cover their future needs, ,hereby rallying the price from 71¢ to 76¢. The never bashful packers raised their prices on dressed meats as the pickup in trade activity reached them.

Sick, volatile and afraid of what Washington may do is the copper industry. But last week the copper market enjoyed its busiest day on record, selling 113,106 tons (previous record: 106,101 tons, July 21, 1936). Part of this was due to a price increase. As usual the price booster was Copperman No. 3, Phelps Dodge’s Louis S. Cates, who moved the market up ½¢ a pound to 11½¢. Booster Gates has been wrong on his market many times, and no Phelps Dodge price sticks until Coppermen 1 and 2, Anaconda’s Cornelius F. Kelley and Kennecott’s Steve Birch, stamp it O.K. This time (with one eye on Washington) they did. Figuring this was just a starter, their customers bought in a rush.

In Washington, meanwhile, Administration economists got busy measuring the accumulation in inventories, the seriousness of price increases up & down the economy to date. If Defense Advisory Commissioner (in charge of prices) Leon Henderson sees any signs of overproduction trouble, he will doubtless make himself heard.