The Morning After

(8 of 9)

Prices & Productivity. Last week, as the recession appeared near the bottom of the slide, few thoughtful businessmen were anxious to force the tired bull to his feet too soon. They fear the speedy return of inflation, since prices, which normally drop in a recession, have held up surprisingly. Though many retail prices and some wholesale items dropped, the level of the nation's basic commodities is unchanged. The reason, say businessmen, is the organized labor philosophy that good business or bad, wages—and thus prices—must go up every year. Therefore, steelmen refuse to cut prices, not only because they say it would not improve business, but also because they face an automatic 7% wage increase next July 1; Detroit refuses to lower auto prices largely because it must renegotiate auto contracts this summer, expects that it will have to grant the U.A.W. a boost.

What labor has not learned is that just as businessmen must suffer from reduced business and lower profits, so labor must also bear some of the cost of a business downturn. Businessmen fear that the U.S. will not be on solid ground for an upturn until the wage spiral is broken, and productivity, which has not been rising as fast as wage rates, catches up. Said Industrialist and longtime Federal Reserve Chairman Marriner Eccles: "Organized labor has already jeopardized its interests by pricing many of its goods and services right out of the market."

Businessmen are trying to trim as much fat as possible from their own operations. U.S. Steel is setting up its first incentive program for salesmen; in the good old days steel salesmen spent their time explaining why customers had to wait for steel, they must now get out and sell. With a tighter economy, companies are also replacing marginal workers with more efficient hands. Los Angeles' Broadway-Hale Stores has cut employment 7% so far this year, and expects a 4.6% sales decrease. Yet by improving the work force and reducing overhead. President Edward W. Carter expects to keep profits steady.

New Markets. U.S. industry is well aware of the need for finding new markets for its surplus capacity, which is partly due to a miscalculation; the new plants in many cases have proved capable of turning out more goods than expected. U.S. Steel is still budgeting $665 million this year for further expansion; Inland Steel is going right ahead with its $280 million program. Said Big Steel's Vice President and Comptroller W. A. Walker: "It is not prudent or intelligent of management to halt expansion when things are poor. It is easier to build now. You get more for your money, although prices aren't down too much. But it's easier to get materials now."

Like other corporations, the steel companies have their eyes on the steady expansion of markets not only by finding new uses for their products but because of the population increase. New households are being formed at the rate of 800,000 a year. In the 1960's, the increase will jump above 1,000,000 as the war babies reach marriageable age.