STATE OF BUSINESS: Holding Power

If the U.S. economy last week showed few signs of steady advance, it also demonstrated the sturdy holding power that has resisted any sharp slide. The Federal Reserve Board’s index of industrial production, which many economists feared might dip noticeably in October, stayed just about steady at 107, the same as September, but 3% below the average for 1960’s first half.

Personal income in October rose to a new record, further building up a force that eventually may give the economy the energy it needs to leap ahead. Department-store sales for the last week climbed to their highest level in 1960, though still running 2% behind last year. Most businessmen are hopefully predicting the best Christmas sales in history. Even housing construction, which had been sliding, surprisingly turned around against seasonal trends and rose 15% in October.

Losing Glamour. The most active area of the economy remained car sales, which ended a record October and pushed ahead to establish yet another record in the number of cars sold per day in the first ten days in November—6.4% ahead of the same period in record 1955. But the signs were growing that the hot-selling compacts may be losing some of their glamour; despite the addition of four new brand names, they seemed stalled at 29.2% of the market. Ford’s compacts, which had been accounting for 41% of company sales last June, were down to 35.7% in November’s first ten days. Compacts represented 16% of General Motors’ sales, 28% of Chrysler’s.

Despite the fast sales, the industry had one big worry—a backlog of 913,807 cars in early November, a record for the date and a hike of 58,130 units from the month before. Chrysler, which has had more than its share of the backlog despite improved sales, this week plans to shut down three plants for a week for “an adjustment of field inventories.” Chrysler also suffered a casualty in the decline of the medium-priced car; it announced that the DeSoto, in production for 32 years, would be discontinued this month because of steadily shrinking sales (less than 3,000 1961 De-Sotos have been built).

Upturn in ’61. Looking over the economy’s resiliency in the face of sluggish business, the Commerce Department’s chief statistician, Louis Paradise, predicted that the business slowdown will end and a fresh upturn will begin after mid-1961. “I don’t think it’s at all clear at the moment that we are headed for any serious downturn,” said Paradise. Paradise’s views were echoed by George Champion, president of the Chase Manhattan Bank, who will take over as chairman Jan. 1. He sees the U.S. economy undergoing a “mild readjustment” that should be over by the middle of 1961. Said he: “We can’t go along spending more than $12 billion a year for new products and processes, as the economy has been doing, and not need new buildings and machinery.”

One key to what 1961 may hold is business planning for new plant and equipment. Last week a nationwide survey by the McGraw-Hill Publishing Co. revealed that business now plans to spend $35.1 billion for new plant and equipment next year. That would be 3% less than this year, but the drop was so small that it stilled economists’ fears that business might drastically curtail its spending—and it left a very narrow gap that could easily be bridged if business turns up.