Business: Braking Time?

Like a doctor who finds a patient in good health but warns him against his tendency to overeat, some of the nation's economists have concluded that U.S. industry would be wise to curb its boundless appetite. The Federal Reserve Board, noting that business borrowings for expansion are heavier than they have been since 1953, decided the time had come to apply a mild brake before the boom gets out of hand. The brake: a boost in the rediscount rate from 1½ to 1¾ Since this is the rate at which member banks borrow from the Federal Reserve, the rise will make it more expensive to do so. This is expected to act as a slight restraint on expansion plans, thus keep U.S. industry from spreading itself too thin. The First National City Bank took a look at the two industries that have paced the boom, and warned: "One need not be a pessimist to see a decline ahead in automobile and steel output." At current production rates, said National City, automakers are turning out cars at a yearly rate of 9,000,000 units, almost 2,500,000 more than the most bullish estimate of 1955's production. As for steel, the bank noted that 26.9% of the industry's output is being taken by automakers, and cautioned: "Any setback in auto production will . . . cut considerably into steel output." It cannot go on without a letup, said the bank. "At some point . . . [either] labor troubles, inventory adjustments or model changes ... is likely to be a temporary source of weakness." The National Industrial Conference Board backed up this view: by midyear, "sales and production of 1955 models in the eight months since November 1954 will have come close to exhausting the 1955 model market." Furthermore, said N.I.C.B., it looks as if home building has reached "at least a temporary plateau" at 1,400,000 starts, meaning that the boom may get no additional lift from construction this year. And March steel production was so high that, for the first time since 1953, N.I.C.B. thought "a substantial degree of inventory rebuilding was occurring," thereby reducing one of the sources of demand that might take up part of the slack when automakers cut their buying. Even as these reports were being issued, metal prices began to sag a bit. Steel scrap, critically short a few weeks ago, fell $2 a ton, and scrap copper declined 1½¢ to 2¢ a Ib.