Midsummer Slump

Everyone knew that some segments of U.S. industry had been in a summertime slump. Last week businessmen learned how deep the slump was. During the second quarter, the nation's production of goods & services hit a record annual rate of $325.6 billion (up 20% from a year before). But in July, the Federal Reserve Board's index of industrial production dropped seven points, to 215, the first drop this year. Some of the drop was caused by vacations and floods. But much of it resulted from production cutbacks by makers of television sets, refrigerators, etc., who were waiting for dealers to clear their overstocked shelves.

TV sales were off as much as 80% from last year and still showed few signs of recovering. To perk them up, Crosley, Motorola and Sentinel last week cut prices from $20 to $80 on their 1952 models, and even RCA and Admiral, which had held out against price cuts in the past, planned to go along. Other metal users found sales just as slow: with the deadline already past for filing CMP applications for fourth-quarter metals, the government had got requests from less than half of the eligible producers; the rest apparently still had enough to carry them through.

The big soapmakers, who had already cut wholesale prices once in July, cut them again by 3% to 5%. All wholesale prices had edged lower again, and retail food prices had dropped 1% in the last half of July. Even houses--especially the older, higher-priced ones--were beginning to move down. Deflation was not a local phenomenon; in far-off New Zealand, the price of wool broke 70% in a week, and

U.S. suitmakers and carpetmakers expected it to go still lower.

Despite this, there were some hints of higher prices to come. General Motors decided to join the parade of other automakers asking for a boost on the basis of increased costs. With the new cost-of-living wage formula (see NATIONAL AFFAIRS), higher costs and prices were in the wind. The Joint Committee on the Economic Report took a look in its crystal ball and predicted: "The pressures for higher prices [in the next two years] are not speculative but fundamental; [they] arise out of increases in basic costs and demand . . ." But last week, with many prices still softening, U.S. businessmen kept a wary eye on their buying and waited to see for themselves.

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