The Watchword: Caution

"The present mood of business is caution. There's been a slow climb to a very comfortable plateau on which businessmen make money and wage-earners have plenty to spend. The climb is over. The national economy could take plenty of lumps and remain where it is." Thus Harry Stoll, president of Chicago's Mandel Brothers department store, last week summed up the mood of many businessmen. Despite the slump in auto sales, tight money and sagging farm income, the nation's economy was actually holding up fine. Industrial production steadied at 142, only two points off December's peak. But caution was the watchword.

The need for it was underlined by the soft spots in the nation's business, and the blame for them fell on the Federal Reserve Board's tight-money policy. In Washington, Joseph B. Haverstick, president of the National Association of Home Builders, noted that the mortgage squeeze had caused a 20% drop in April housing starts. "The trend is still sharply downward," he said. "Unless there is some immediate improvement in the financing picture, the outlook for the remainder of the year is not hopeful."

General Motors President Harlow Curtice demanded that the FRB ease credit. Curtice cut his 6,500,000 forecast of auto production to 5,800,000, blamed the drop on tight money. Said he: "I still believe the Federal Reserve Board's policy is not warranted and should be reversed, and promptly."

Treasury Secretary George Humphrey, who had privately opposed the boost in discount rates, now publicly said that it was unnecessary and that "natural conditions" would have checked any trend toward inflation.

No Time for Margin. At the semiannual meeting of the Commerce Department's Business Advisory Council, the nation's top industrialists worried that tight money might force cutbacks in industry's expansion plans. Said Scripto's President James V. Carmichael: ("There's no question the tightening of credit has put a slight damper on our long-range planning." Department Store (Daniels & Fisher) President Joe Ross worried that the money shortage might cut back on Denver's "tremendous growth." Complained Ross: "The cost of expansion is prohibitive because of the money rates." But few businessmen had been forced to alter building and modernization plans. Actually, the elimination of marginal industrial expansion had been one of FRB's chief aims. With 1956 capital expenditures running 30% ahead of last year's rate, much expansion could be postponed without damage to the economy.

No Cause for Tears. Despite Harlow Curtice's complaints, most auto dealers were not adversely affected by the tight money. One of Michigan's biggest dealers estimated that three out of every five loan applications were being turned down, but good credit risks had little trouble. Most dealers blamed last year's mammoth production and this year's poor weather for the sales slump. Said San Francisco's Ellis Brooks, a big Chevrolet dealer: "Everybody cries a little bit, even with a loaf of bread under his arm."

And not even everybody was crying. Predicted Sears. Roebuck & Co.'s Board Chairman T. V. House: "There is a likelihood of some drop in the third quarter, due to a slower rate of inventory buying, but the expectation is that the fourth quarter will regain today's level in volume. If there is an increase in price, the value of total production will be above the current high level."

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