STATE OF BUSINESS: Good–So Far

Highballing along with a fine head of steam, the U.S. economy rolled into fall at near top speed. Latest statistics from Government and industry showed that production, employment and the earnings of the nation’s corporations were all at high levels. Overhanging this bright picture of performance so far this year was a cloud cast by the effects of the steel strike, which will be felt for weeks to come (see below).

The first trickles of third-quarter earnings reports from industry’s accountants were uniformly good. Thanks to big defense orders and strong consumer sales, General Electric Chairman Ralph Cordiner was able to announce record nine-month earnings of $189,512,000, up 17% to $2.16 per share for the nation’s biggest electrical-equipment firm. Giant International Business Machines had a nine-month profit of $102 million, up 10%. Drugs, retailing and food companies all were up, with cheery reports from R. H. Macy & Co., Upjohn Co., Kroger Co. Ford Motor was doing so well that it declared a 60¢ extra dividend, the first since public sale of its stock in 1956.

Behind the earnings lay a record of solid September production despite the steel strike. Last week the Federal Reserve Board announced that industrial production dropped one point on the index from August to September, was seven points from the pre-strike high of 155 set in June. Nonfarm employment was holding even at around 52 million, while total unemployment declined to 3,200,000, or 5.6% of the labor force; not counting the 500,000 steel strikers, unemployment had increased only about ½% since the 5% low set in July. Personal income in August dropped only about $2.6 billion from the $381.6 billion peak, and retail sales were only $2 billion down from the $220 billion record rate set in July.

Economists were cheered by the signs of the U.S. businessman’s confidence in the future. The latest survey by the Commerce Department and the Securities & Exchange Commission, taken after the strike, showed a significant boost in industry’s plans for new plant and equipment expenditures. With more money going for industrial plants and public works, capital investment should rise to an annual rate of $35.3 billion in the final quarter of 1959. $1 billion more than the third-quarter rate and $5 billion more than a year ago.

The Federal Reserve made it clear that the steel strike would have a sharp impact on the overall statistics in the next reports. Only after the strike’s effects have been weathered—and the worst are yet to be felt—will the economy get back to full speed ahead. Said FRB: “The underlying demands support the view that settlement of the strikes will be followed by a marked rebound in business activity.”