STATE OF BUSINESS: High Costs & Mixed Prophecies

After remaining fairly steady for six months, the cost of living rose to a new record in April. The consumer price index jumped to 126.2 of the 1947-49 average, reported the Bureau of Labor Statistics last week, almost 2% above a year ago. The rise resulted chiefly from a 1.5% increase in food prices, which account for about 30% of the index. "This does not mark the beginning of a strong upward trend," said Arnold Chase, chief of the bureau's price division, although he expects the index to rise gradually through the summer. The rise means automatic wage increases of 1¢ or 2¢ an hour for more than 1,000,000 workers with escalator clauses in their contracts.

The only significant decline in the price index was made by used cars, for a reason that boded well for the rest of the economy: the continued spurt in new-auto sales. In the middle ten days of May,new-car sales climbed 6.6% over the same period last year, hitting the best selling rate (more than 22,000 daily) since 1955. Sales are now moving at an annual rate of 6,700,000 cars (including imports), which would make 1960 the second biggest car year in history. Scheduled production for June is 631,000 cars, the highest volume for any June since the record year of 1955.

In other areas of the economy, the picture was not nearly so bright: ¶ New construction in May rose 10% over April to $4.5 billion, but was still 5% lower than May last year. Construction spending for the year so far: $19.6 billion, 2% below the first five months of 1959. ¶ Freight carloadings declined for the third week in a row, largely because of the cutback in steel production. ¶ Machine-tool orders dropped sharply, continuing a downward trend.

Both the housing and plywood industries blamed their slowdown on a tight money market, but last week the Federal Reserve Bank permitted more banks to expand their lending capacity, continuing a definite easing of money policy that has quietly been taking place.

This week the National Association of Purchasing Agents reported that 47% of its members believe that the second half of 1960 will be better than the first half. Thirty-nine percent saw no change, and only 14% predict that it will be worse.