Business: Competition Goes Global

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As a result, new orders for durable goods fell 3.3% in June, and throughout the three summer months industrial production remained sullenly flat. By the end of the second quarter, economists in such major corporations as General Electric were urging their companies to base their planning on the assumption that the economy would turn down late in 1962 or early in 1963.

Raising Keynes. But what went down did not stay down. A fortuitous combination of actions by business, the public and the Administration, plus the happenstance of foreign affairs, changed the mood. The Administration launched a drive, at first greeted with great suspicion, to regain business confidence. It began paying attention to one of the lesser-known dicta of British Economist John Maynard Keynes, an intellectual godfather of the New Deal. The Keynes' dictum: "Short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit."

In July, as it had long promised, the Treasury authorized businessmen to claim greater tax-free depreciation allowances on their existing plant and equipment, and thereby gave them more cash to spend on the new machines they needed to match their European and Japanese competitors. In September, at the President's urging, Congress approved a 7% income tax credit for corporations investing in new equipment. Then, in the most important economic legislation of the year, Congress passed the Trade Expansion Act, giving the President wide powers to bargain down tariffs. In vivid testimony to their rejection of economic isolationism, U.S. businessmen generally applauded the Trade Act. Said Chairman Carl Gilbert of Gillette: "The Trade Expansion Act has done much to heal the break between the President and business."

Cuba & Comeback. The first sizable sign of a business upswing came in October, when Detroit rolled out a high-styled line of '63 cars that had more built-in maintenance than the '625—at the same price. The new models were gobbled up by a public that was earning record income and had fattened its savings accounts with money from stocks sold during the crash. Auto production in the fourth quarter climbed to 2,000,000 cars, higher even than the great record year of 1955.

This late-year surge gained speed after the Cuban crisis. In board rooms around the country, businessmen were impressed that President Kennedy had talked even tougher to Khrushchev than to Roger Blough. Heartened too by signals of economic upturn, managers stepped up their spending for plants and machines in the fourth quarter to a record yearly rate of $38.4 billion. On Wall Street the big mutual funds and pension funds moved back into the stock market (though badly singed small investors continued to spend their money elsewhere), and the market recouped 55% of its $96 billion paper loss. The mood in business changed profoundly: instead of looking for a sharp recession in 1963. most economists foresaw only a slight dip in the first half, and some predicted an unbroken rise.