Business: Tantalizing Figures

Among the measurements of economic outlook anxiously awaited by U.S. businessmen are the inventory and sales figures of U.S. manufacturers. Last week the Commerce Department issued the latest figures—and set off a spate of speculation about their meaning.

At first glance, Wall Street concluded that the figures were bearish. Manufacturers' new orders, which had risen in December, declined 3% in January from December, though they were still 4% above a year ago. Since new orders usually tell what businessmen think is going to happen, this seemed to say that business could not be as good as expected. Adding to the bearish impression was a continued rise in inventories at a higher rate than had been anticipated; manufacturers piled up another $750 million in inventories in January (about the same as December) to bring the total to $53.2 billion, the highest level in more than two years. Many economists feel that if inventories continue to pile up at that rate —cutbacks in production will have to be made, especially if sales drop.

So far, manufacturers' sales showed no signs of doing so. They were still running at their December high of $30.8 billion, were 9% ahead of last January. Furthermore, economists pointed out that the ratio of sales to inventories—which they consider more important than the independent figures—was above a year ago.

Did the figures have a meaning? The Commerce Department, which compiled them, said frankly that it did not know whether the economy was still on the rise, had leveled off, or had dropped a bit. The trouble was that the figures were for only a single month, were already more than a month old, and had been badly distorted by the steel strike, which caused manufacturers to rebuild their depleted inventories in a great hurry, thus bunch the orders in November and December.

For these reasons, the Commerce Department expects it will have to wait for another month or two before any significant change in business conditions can be charted. Even if inventories reach a peak and stay there, the effects on the economy could be a long time in coming. The monthly business letter of the First National City Bank of New York pointed out that inventory accumulation in the last business cycle reached its peak in the final quarter of 1955. Yet gross national product continued to rise through the third quarter of 1957—two years longer.