Between the Halves

Last week, wheat sold at Liverpool for less than at any time on record, July corn sold at Chicago for less than at any time in six years, October cotton was quoted at New York for 1 1/2-c- less than the week before. The auto industry was in its summer stagnation period. And out from under U. S. business was knocked 1939's firmest prop: building's spurt to new monthly highs. The Annalist reported that building--earlier in the year up some 70% from the 1938 low (adjusted seasonally), and almost 25% from the 1937 high--had declined for the second successive month, to the lowest level since July 1938.

In this same week business' most sensitive barometer--the stockmarket as mirrored in the Dow-Jones industrial averages--enthusiastic over prospects for the second half of 1939, dashed off a sensational 6.1-point rise, reached its highest point since March (144.7 against 152.3 then). For the first week in six months the New York Stock Exchange had four 1,000,000 share days. All listed shares rose some two billions.

This was old-fashioned fun. The public bought and Exchange members, who in the last week in June made 66% of all short sales, scrambled to buy the shares that they had sold but did not own. Four tangible factors were credited with causing the market excitement:

1) Early in July, the French Government stepped into the copper market with an order for 50,000 tons, insisted that 29,000 tons of it be shipped immediately from U. S. stocks. This first installment was better than half of total domestic copper deliveries for any month this year. Fearing a runaway sellers' market, domestic buyers in the first three weeks of July bought over 160,000 tons, more than they had ordered in any single month since the flush days of October 1936 before President Roosevelt denounced high copper prices. This bid up the domestic price of copper from 10-c- to 10 1/4-c-.*

The U. S. copper industry was thus assured of a very active second half year, which was all Wall Street needed to know. But July 1 copper inventories were still high (340,000 tons, 80,000 above the high inventoried end of 1937) and even in a good month, U. S. copper consumption does not often exceed 80,000 tons. If forward buying books July's total copper orders to 200,000 tons or better, four or even five months' additional supply at present rate of domestic consumption will be added to inventories.

2) Production recovered sharply in steel, but there too the advance threatens to result in new inventory trouble. After an extra-seasonal July 4 drop, the steel rate snapped back first to 56.4% of capacity, then to 60%, its 1939 high, and the trade predicted 65% operations yet to come. This continued a June trend: ingots were still being stacked up in anticipation of rush orders from the auto industry late in the summer. After Labor Day it may turn out, however, that Detroit's fall steel needs are being filled now.

3) Sears, Roebuck & Co., sensation of 1939, reported that from June 19 to July 16, it grossed $44,573,662, 24.2% more than the same time last year, an alltime record for the period. Rural retail sales in general for June were up 13% from 1938, back to the June 1929 level. But mailorder, grocery, and other chains have done about this well throughout 1939, so their June record provided no new bullish argument. Offsetting their showing, June department-store sales were up only 6% from June 1938, while 21,437 independent retailers reporting to the Department of Commerce were up 8.7% from June 1938 but down 5.4% from May.

4) Most favorable of the four factors influencing the stockmarket was a general production advance from May's 92 on the Federal Reserve Index to 97 (still below last March's 98). This index is sensitive to steel operations but, despite the fact that a good part of its gain could be discounted for steel's optimism, the fact that it did rise portended a greater advance after Labor Day.

Appearances. Typical of 1939's first-half record were electric refrigerator sales: 1937 was a record year, with sales of 2,200,000 units; 1938 sales fell off to 1,190,000 units; characteristically January-May sales this year were up 40% from last year, at the rate of 1,600,000 for the year.

Last week business stood between the halves, trying to gauge the prospect for the second half by looking back at the reports of the first half which were just coming in. The retrospect looked cheerful--business volume up 40 to 60% over last year, 77 corporations reporting profits up 89.6% over the first half of 1938. But in such comparisons there were pitfalls:

The first half of 1938 was the bottom of a sharp depression, which made the first half of 1939 look rosy by contrast. The second half of 1938 was a rapid recovery, better than anything so far in 1939. The second half of 1939 may be as good as or better than its first half and still be disappointing by the same type of comparison which makes the first half look so rosy.

*When the copper market calmed down again, Kennecott exuberantly put the price up again to 10 3/8-c-

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