BY virtually every economic measure, 1956 was the greatest year in history. Yet many Americans hardly seemed to notice the amazing performance of the mightiest economy mankind had ever known. Just as the nation was once resigned to a depression psychology, the U.S. was now in the heady grip of a prosperity psychology. The great American boom was almost a standard part of U.S. life, no more surprising than the automakers' ads plugging the "two-car family''--a status more and more Americans achieved in 1956.
Only when measured against the production and consumption of the rest of the world was the size of the boom clearly apparent. In 1956, with barely 6 1/2& of the world's population, the U.S. produced--and rapidly consumed--60% of the world's goods. The U.S. spent more on highways alone than the entire value of Norway's economy; its new homes were worth more than the entire economy of Spain, its new cars more than the combined economies of Mexico, Denmark and Australia. Surveying their bounty, Americans could say with President Thomas Coulter of Chicago's Association of Commerce and Industry: "We've never had it so good."
With a record 65 million employed, the gross national product rose 6% to an alltime high of $412 billion, better by $9 billion than most seers had forecast. Al most every American shared in the unparalleled prosperity. Unemployment was down to 2,463,000 in November, and workers were eagerly baited, cajoled and lured into jobs by ads and employment agencies from coast to coast. The shortage was not only of brawn, but also of brain. Some years ago Planemaker Boeing, for example, needed one engineer for every 15 employees. By this year the ratio was down to one engineer for every ten--and Boeing was desperately searching for more engineers.
The Big Payoff. Part of the cost the U.S. paid for such prosperity was rising prices. The cost of living, stable for three years, edged up 2.4% to 117.8 on the 1947-49 index. Some of the rise was due to higher food prices, which meant that the U.S. farmer, who often complains that he has been the forgotten man of the boom, was finally coming out of his slump. Thanks to increased consumption and an $8.5 billion Government investment in price-support and soil-bank aid, farm income showed a 4% rise, the first upswing in four years. Yet few consumers felt a real pinch. Workers' paychecks jumped 4% for the year, twice the increase in their living expenses. Everywhere, Americans had more money to spend ($325 billion) and spent more of it ($265 billion) than ever before on a shopping list that included 6,700,000 TV sets, 12,500,000 radios, 4,500,000 washing machines, 1,640,000 home dryers. Though sales of durable goods slipped some 5%, consumers bought so much more in soft goods (food, clothes, etc.) that overall retail sales jumped 2% for the year, including 1,102,000,000 tranquilizing pills (six pills for every man, woman and child in the U.S.) for those who worried about paying their bills.
The surprising fact was that having bought as never before, U.S. consumers still had money left over to pay off some of the huge installment debt that they ran up in 1955. Though total consumer credit rose some $3 billion to a new high of $41 billion, the increase was only half last year's $6 billion increase. And in October, for the first time in two years, auto repayments passed new auto loans. Said San Francisco Retailers Credit Association Manager Frank Caldwell: "The average consumer is a smart person; he is not obligating himself too heavily."
Critics Silenced. Yet the biggest news of 1956 was not the consumer's spending; it was the splurge of the U.S. businessman. After pouring a record $28 billion into plant expansion in 1955, business boosted the kitty another 25% in 1956, wound up spending $35 billion for new plants and facilities plus another $9 billion for new office buildings, furnishings, etc. In so doing, U.S. industry passed a major milestone. For the first time since the big arms buildup of Korea, peacetime capital outlays passed military spending, despite an arms budget of $36 billion in 1956. It was a final answer to foreign critics such as Australian Economist Colin Clark, who had called the U.S. boom a depression-prone economy, propped up only by armament spending.
Every businessman could tick off the chief reason for expansion--a population that was growing at the rate of 11,000 births every 24 hours, 1,000,000 new families formed every year, an expected population of 190 million by 1965. Most important, while the population grew 25% since 1939, consumer spending has almost tripled. The average household spent $2,000 annually in 1939. In 1956 it spent $5,500, and it will increase the total to $6,500 by 1965. Thus, in Florida, Florida Power & Light Co. laid down what it thought was a grandiose expansion program of $332 million in 1952. Says Chairman McGregor Smith: "A couple of years ago we raised it to $410 million. Last year we raised it again to $435 million. Now we have set a new figure at $496 million. And that's just the beginning."
Never in peacetime had business worked so hard, yet fallen so far behind demand for many of industry's products. Detroit's automakers alone poured $1.7 billion into expansion in 1956, but at year's end were embarrassed by a shortage of 1957 models. Railroads shelled out $1.3 billion for expansion, and were plagued by one of the greatest freight-car shortages in history. Utilities and mining expanded by $6 billion, and were still beset by complaining customers.
The most severe shortage of all was in steel, caused by the longest steel strike since 1952 (10 million tons lost) and record spending ($44 billion) for new buildings. Everywhere, from Manhattan's jagged skyline to San Francisco's rolling hills, the steel skeletons of new skyscrapers were etched against the sky. And at year's end the industry was faced with new demands from the feast-and-famine shipbuilding industry, which has enjoyed its biggest year since the Korean war with 1,567,661 tons of new shipping on order or on the ways. The Suez crisis, plus the trend to the null supertankers, flooded U.S. yards with orders --even if no one was sure when the steel would arrive. In 1956 steelmen spent $1.2 billion to expand. At year's end they planned to spend $2 billion more if the Government would allow them fast tax write-offs on the new plants.
Big-City Dreams. Across the land the prosperous face of the U.S. took on a new look as businessmen marched into rural areas where industry had never set foot before, transforming crossroads towns into fast-growing cities. For years the sleepy little town of Twinsburg (pop. 1,250), Ohio, huddled on a road between Akron and Cleveland, was nothing more than a village square, a bank, a cluster of stores. This year Chrysler Corp. moved in with an $85 million body plant and jobs for 3,500. Now Twinsburg has big-city dreams. The town fathers are planning a $600,000 high school and a big shopping center, are putting up a 1,000-unit housing project, a sewage plant, and the state is building a four-lane highway from factory to town.
To finance the enormous expansion, business has had to make some sacrifices. Profits slipped to $41 billion before taxes v. $42.7 billion in 1955 as 40% of all net earnings was set aside, largely for new plants and machines. Says Republic Steel Vice President Norman W. Foy: "Our policy is hard on stockholders, but there is no alternative." Though dividends were up slightly to $12 billion v. $11.2 billion in 1955, they were still only 60% of profits compared to the 75% that corporations consider the normal payout to stockholders. As one result, Wall Street's bull market did not reflect the boom. It climbed to a high of 521.05 on the Dow-Jones industrial average in April, then slipped back 50 points, and at year's end was just about where it started.
Profits were also nipped by the squeeze between rising wages and a slower rise in productivity. The nation's output per man-hour has risen an average of 3% every year since World War II; in 1956 it increased only an estimated 1.7%. One trouble was strikes, which cost the U.S. 37 million man-days, the most since 1952. But mainly, the U.S. economy was simply outgrowing its labor force. Despite 900,000 new additions in 1956, industry was scraping the bottom of the labor barrel, was often forced to employ marginal--and yet highly paid--workers. In the long run, businessmen are sure they can solve the problems. They know that productivity rises unevenly, that money spent to increase efficiency takes time to show up in the statistics. Thus, they expect the huge spending in 1956 to give productivity a big boost in future years.
The Blessings of Automation. "You've got to keep getting costs down to stay alive," says Bell & Howell President Charles H. Percy. "For example, our lowest-priced camera was $49.95 back before the war. Workers on the assembly line were paid 40-c- an hour--I know because I was one of them. At the end of the war, we priced out the same camera with assembly-line labor at $2 an hour, and the price came close to $100." What Bell & Howell did was develop a better camera, increase its production-line efficiency 400% by putting in more machines, and sell the camera for $39.95, some 20% less than the prewar price.
All year long, the new technology of automation raced ahead. With servo-mechanisms and electronic pushbutton controls, Jones & Laughlin Steel made seven tons of tin-plate steel in barely three minutes v. eight hours a few years ago. Automation, plus other new machines requiring little labor, which had been viewed by unionists as a bogey in 1955, also began to show labor more of its blessings in 1956. Says Board Chairman J. W. Corey of Cleveland's fast-growing Reliance Electric & Engineering Co.: "The new machines require smarter, better-trained people. Some of our people working at lathes and milling machines are earning $1,000 a month."
But businessmen realized that automation for automation's sake alone was not a cure-all for rising costs. The new machines were not only costly to operate; they were expensive to buy; e.g., General Electric's automated electric-motor production line at Schenectady, N.Y. cost $7,000,000 to build. But in the highly competitive economy, no one dared fall behind. Warned G.E.'s President Ralph J. Cordiner: "Such investments are a risk--a major risk. But failure to make the investment may be an even greater risk. The race to keep up with market growth, technological advance and competition has sharply increased the costs of accelerated obsolescence."
Once plants wore out gradually, and new products were slow in coming. But in 1956's expanding economy, where research kept finding new products and new markets, years were cut off a plant's productive life span. U.S. business and Government poured some $5 billion into research in 1956, spent one-third of all capital expenditures to make the new products that science uncovered. "A few years hence," says Agriculture Department Economist Nathan Koffsky, "about one-tenth of manufacturing companies' sales will be from products that were not made last year."
How Big Is Too Big? Expansion not only accelerated obsolescence; it also accelerated industry's trend to bigness. The big companies were the ones who could best afford the billions for research and new and more efficient machines. Even some big businesses suddenly discovered that they were not really big enough to compete successfully with the biggest. Both American Motors, with $260 million in assets, and Studebaker-Packard, with $158 million, ended up with heavy losses as General Motors, Ford and Chrysler captured 96% of the auto market.
What was happening in autos was happening in other industries. Appliance makers worried about the day when the industry will be dominated by six or eight big companies. "Even in the relatively young TV industry," says Motorola President Robert Galvin, "there will be fewer companies, but they will be healthier." Trying to compete with giants, big and little alike merged and diversified, becoming giants themselves.
To Government lawyers, the mushrooming growth of bigness in 1956 raised a prime question: How big is too big? Trying to solve the riddle, the Justice Department's Antitrust Division filed suit against 54 mergers, more than in any year since 1949. The problem was how to let big business expand to meet the needs of the growing economy without destroying the climate for new and small businesses on which the future health of the nation depends. Though new business starts were 14% higher than 1955, business failures increased even more--to 17%. At year's end a major test case filed by the trustbusters to block the merger of Bethlehem Steel (No. 2 steelmaker) and Youngstown Sheet & Tube (No. 6) gave businessmen hope that the courts would lay down a new philosophy to guide the growth of the giants as well as protect the midgets.
Johnny Appleseed. The argument over bigness was only a whisper compared to the uproar over tight money. Even if few understand all the complexities of the Federal Reserve Board actions to curtail credit buying, everyone in some way felt the effects. Business borrowing costs soared as high as 6% as FRB's discount rate on loans to member banks was raised to 3%, the highest point since the 1930s. Home mortgage rates jumped from 4 1/2% to a peak 6% in some areas. As housing starts slipped to 1,100,000 in 1956, down 200,000 in a year, builders loudly blamed the money pinch. But there were dissenting voices. They argued that another reason for the slide was that the industry had failed to meet the increasing demand for better houses, that the day of the roof-at-any-price was gone, and that in the future the builder would have to entice buyers with better models just as auto and appliance makers do.
Despite a slowdown in housing and a few durable-goods industries, notably autos, the Federal Reserve all year long made a determined attempt to hold down spending. Stumping the nation with the fervor of a Johnny Appleseed, FRB Chairman William Martin pleaded with businessmen to take another hard look, and perhaps cut down on expansion and their demands for credit. "Creating more money will not create more goods," he argued. "It can only intensify demands for the current supply of labor and materials. That is outright inflation."
Martin's lectures on self-discipline sounded strange to businessmen, who for years had heard little except expansion talk from Washington. But as the year progressed, those who disliked Martin in May, when he boosted discount rates in the face of slipping business in housing and autos, loved him in December, when the new pressures under the boom started pushing prices higher all along the line. Though tight money hurt some businessmen, almost all backed Martin. They were well aware that one big reason the boom had stayed healthy so long was because of FRB's careful control of money, plus the willingness of business to go along with the Martin policy and to exercise its own selfdiscipline. Most businessmen have cautiously kept their inventories in line with sales, their efficiency improving and a weather eye out for storm signals.
Plateau in Michigan. Listening to the nation's strong, steady heartbeat, many businessmen and economists bravely stated that the U.S. has reached a new economic plateau, can eliminate the boom-and-bust cycle by the wise jase of credit and the help of such built-in safeguards as social security, unemployment benefits and the "guaranteed annual wage." In 1956 Michigan gave a heartening example of how these recession cushions work.
When Detroit's automakers skimped on their model changes, brought out only face-lifted 1956 cars after 1955's record year, sales plummeted 20% to 5,900,000 cars. As companies slashed production, unemployment in Michigan skyrocketed to 259,000 workers, one out of every ten. And yet retail buying did not fall off. Searching for a reason, economists noted the auto industry's high pay levels (average weekly pay: $108.94), which permitted savings for just such a rainy day, and state unemployment compensation and the auto industry's guaranteed annual wage, which together made up a big chunk of the worker's full-time pay. They could have added a fourth reason: a firm belief by Michiganders in the basic good health of the economy, and the temporary nature of the layoffs. This persuaded workers to go on buying, and retailers to extend credit. As a result, many Michigan retailers sold as much as--or more than--they did in 1955.
1957 & Beyond. For 1957 the question is: How high will the boom climb? At year's end the forecasters were unanimous and optimistic for 1957. Their predictions: given peace abroad, 1957 should be the best year ever, with no letup, at least through 1957's first half, though there may be a leveling-off period in the final half year. Gross national product should reach a new peak of $430 billion, some $20 billion more than 1956, though half the growth may be in the form of price rises. Production will clip along close to 146 on the 1947-49 index (up 3 points over 1956), personal income will rise to $350 billion (up $25 billion), disposable income to $300 billion (up $15 billion), all new records.
As in 1956, one of the problems is how far and how fast industry should expand. After 1956's staggering pace, many economists expect some slowdown, but it will be only a relative decrease in the rate of growth. The forecast is for a huge $39 billion addition to industry's plant and facilities, some $4 billion more than 1956's alltime peak. Everywhere, from New England, where little Northeast Airlines will spend $17 million for new turboprop transports, to Northern California, where Container Corp. of America, Lockheed and Douglas Aircraft, General Electric and Bethlehem Steel's West Coast subsidiary will spend millions more for new plants, business will keep on expanding.
With unemployment already low and expected to remain low, with credit already tight and expected to get tighter, with prices already high and expected to rise another 4%, the big danger for 1957, like 1956, will be inflation. At year's end steelmen kicked off another round of price increases by hiking prices on many items for the second time in six months. As for Government spending, though the Administration hopes to balance its budget again next year and turn in a surplus of $1.5 billion, the outlays in most major areas will increase. The budget will rise some $2 billion to $72.5 billion, with much of the jump coming from a $40 billion outlay for defense. Enormous federal, state and municipal public-works programs, many of them for schools and roads, will put even more pressure on shortages of money, manpower and materials. Thus there is little chance--or reason--for tax cuts in 1957, and little hope that the Federal Reserve will loosen credit, at least until business expansion lets up and the scramble for lendable funds eases off.
The Big Ifs. Studying the credit and manpower problems, some experts cite some big ifs to temper their long-range optimism with short-range caution that the boom is not foolproof. They see trouble 1) if businessmen get careless and overbuild their inventories, or hike prices too high too fast; or 2) if labor's demands for wage boosts outrun the economy's ability to pay. If the U.S. can get past those ifs and is not blinded by its prosperity psychology, even the chronic pessimists see a Technicolored future. Onetime C.I.O. Economist Robert R. Nathan, who after World War II predicted a depression with 8,000,000 jobless, found at year's end that "the age of automation holds promise of an unprecedented increase in output per man-hour. Certainly, with appropriate policies, our gross national product can increase $15 to $20 billion a year during the balance of this decade, and probably more thereafter."
In 1952 the National Planning Association published a study forecasting the U.S. economy in 1960, decided that the gross national product might hit a rate of $425 billion by then. The goal will probably be reached during the first quarter of 1957. As a result, businessmen are raising their expansion sights.
Republic Steel is projecting markets as far ahead as 1965. By then, it expects auto production to hit 10 million cars annually. Steel consumption will rise 36% in the appliance industry, another 34% in the office and household furniture, hospital equipment and toy industries. To meet the new demand, steelmen plan a 25% increase in their capacity by 1965, another 25% by 1975. Others are just as optimistic. Planemakers, who have the biggest backlog ($3.5 billion) of civilian plane orders in their history, feel that they are just getting started. "Of course I'm bullish," says Boeing President William McPherson Allen, moving his finger along an upward-slanted line on a chart. "The volume of airline traffic is bound to go up like this each year, between 10% and 15%. The jet will tend to accelerate it by shrinking the world by 40%."
Like Allen, thoughtful businessmen in industry after industry, from farm machines to appliances, see few limits to the products they can sell. "A million new families are being formed every year," says an Admiral Corp. official, "and normal replacement on top of that gives us our market." The same 1,000,000 families, plus the fact that 300,000 houses are torn down and must be replaced each year, should give housebuilders a continuing market of 1,300,000 new houses annually a few years from now.
In the burgeoning U.S. economy of the future, products that now seem adequate will become rapidly obsolete. Once a road was considered acceptable as long as it went somewhere. Now the nation's vast highway network is rapidly becoming as obsolete as the model T. The $33.5 billion, 13-year Government highway program will start bringing it up to date in 1957. And states everywhere are adding billions more for new turnpikes, secondary roads, and enormous elevated crossovers such as Pittsburgh's five-level parkway interchange designed to eliminate traffic and bottlenecks and speed travel. In California, for example, the state highway commission has been gouging away at the Santa Monica Mountains near Los Angeles. In places, it is cutting to a depth of 350 ft., and will remove 15 million cubic yards of earth--5,000,000 truckloads--to lay a gently graded four-lane highway 5-3/10 miles through the mountains to Los Angeles. All to cut 1-4/10 miles off the old route across the mountains, and thus, in 1957, save 3 1/4 minutes in the driving time it takes workers to get to their jobs.
The World & the Dream. Beyond America's growing population, there is the entire world, much of it underdeveloped, opening up new markets for U.S. products, new supplies of raw materials for U.S. factories, new opportunities for U.S. capital. In 1956 exports jumped $2.5 billion to a new record of $17 billion. Imports climbed to $13 billion--another record. Moving abroad in increasing numbers, businessmen have just begun to tap new foreign markets. What can be accomplished was shown by Firestone Tire & Rubber Co. After 30 years of growing rubber in Liberia, Firestone has an annual payroll of 25,000 workers on its plantations, is the largest trainer of productive skills in the country. It accounts for 39% of the Liberian government's total revenues, more than 70% of the value of its exports, 35% of its dutiable imports. In the process, Firestone has raised the Liberian standard of living and stimulated productive efficiency, research and development--all at a profit to itself. At year's end Firestone reported profits of $60 million, an increase of 10% over last year's and the greatest in the history of the rubber industry.
The vision of increasing plenty that Firestone and other American companies were exporting to the world was a reflection of the American dream that was passionately held at home. It was nothing less than the elimination of poverty as a fact of human life. In the U.S. of 1956, the breadth of the land, the untapped richness of its resources, the growth of its population, the optimism of its people, all suggested that American, capitalism was rapidly approaching that age-old goal.
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