The Economy: The Rattles in the Engine

• Share

(9 of 10)

Not Dead—But Confused. The current indecision in Washington is hitting Wall Street where it hurts—right in the Dow-Jones. True, the Dow may be a bad gauge that exaggerates the market's swings; even so, stocks have fallen so far that in relation to corporate earnings, they are 13% lower than at the nadir of the 1962 market break. Brokers are holding almost $2 billion in cash for their customers, and mutual funds are holding another $2 billion in cash. No matter how much they might like to move in and scoop up bargains, they are of little disposition to do so until they get a straight statement of Washington's policies. Says Kenneth Ward, a partner in Hayden, Stone: "The first good news would be a statement by the Administration that taxes would not be increased. Then the other question would be—what will Bill Martin do?" The probable answer: if Johnson does not hike taxes, the Fed's Martin will very likely raise interest rates again.

The point is that Wall Street's bull is not dead—it is just confused—and businessmen are nowhere near as nervous as investors. Despite the G.M. cutback, U.S. Steel executives believe that 1966 will be a record year for steel shipments. The steel industry had prepared in its 1966 projections for a mild auto downturn, now intends to exploit the reduction in demand from Detroit to build up its below-normal inventories and meet a bulging backlog of orders from other customers. In other areas, Alcoa chieftains stick by their earlier forecast of a record year for aluminum, and Westinghouse Electric's biggest headache is trying to meet a two-year backlog of utility-industry orders. The Business Council last week offered these projections:

> The gross national product, which soared at an annual rate of 10% in the first quarter, will rise 8% for the year to $732 billion.

> Industrial production, which jumped at a 12% rate in the first quarter, will also rise 8%, to 154% of the 1957-59 average.

> Prices, which advanced at a 4% pace in the first quarter, will go up by a tolerable 2.8%—almost the same as last year.

General Motors President Roche expects that his gigantic corporation will continue to exercise a key role in the country's continuing expansion. Says he: "While there may be minor valleys as we go along, we think that basically the long-trend picture is for continuation of growth—not only in our own industry but also in the economy of the country and the economy of the free world." Among the reasons for his optimism: "We have good economic conditions, we have population growth, and we have a tremendous growth in the number of multicar families. I don't know whether car sales are going to be as high as last year or not, but they're not going to miss it by far. The total will be very close to 9,000,000."