Across the U.S., 1957 will be remembered as the year with the dip at the end.
After racing ahead at close to 100% for much of 1957, production of all manufacturing industries dipped to 82% of total capacity. Between August and November, production measured on the Federal Reserve index dropped six points to 139. Steel skidded to less than 70% of capacity, though total production, estimated at 113 million tons for the year, almost matched boom year 1956.
Oilmen, grumbling about refinery stocks of 437 million bbl., one of the highest early winter supplies in history, chopped back production 5%. Appliances, autos, machine tools all felt a slowdown. Private housing starts dropped 10% to less than 1,000,000 new houses, for the first time since 1947. And as freight-car loadings fell 16% at year's end, railroads were in such a fever to cut rising costs and bolster sagging profits that the Pennsylvania and the New York Central, giants of the industry, talked longingly of merger.
Around the nation, there was a sprinkling of layoffs and forced "vacations"; Chrysler shut down major plants for the year's last two weeks, laid off some 60,000 workers, Ford another 35,000. As the jobless rose to about 3,700,000 in December (2,500,000 in December 1956), economists speculated that unemployment might hit 4,500,000 by midwinter.
The Record Setters. This statistical downtrend at year's end had economists and statesmen worried, particularly since some of the prophets saw the economy getting worse before it gets better. But even including the year-end dip, 1957 was a remarkable year for business. The U.S. economy had operated at forced draft for all but the final few months. And in so doing it produced what in many respects was the most prosperous year in history.
Scores of companies set new sales and profit records, and so many others came close to old records that 1957 easily topped the peaks of '56. The gross national product increased another 5% to an alltime high of $436 billion. Industrial production edged up to a record average for the year of 144; employment reached an alltime peak of 67.2 million before dropping at year's end; corporate assets swelled to $229 billion. Wages continued to rise. The average hourly pay rose from $2.05 in January to $2.10 near year's end. Despite worry over the squeeze on earnings from rising costs, industry's profits will probably wind up only slightly under last year's boom levels of $43 billion before taxes, $21 billion after taxes, while stockholder dividends (about $12 billion) exceeded 1956.
Boom Psychology. Such real accomplishments of 1957 were obscured by the fact that the U.S. suffered from an advanced case of boom psychology. Prosperity had become such a part of U.S. life that many Americans expected new records as regularly as payday. Any temporary downturn brought cries of disaster.
Anticipation of recession was scarier than the realization. When the production cuts finally started, the nation's mood gradually turned from nail-biting to cool appraisal. The quick shift in sentiment was clear on Wall Street, which for a change accurately reflected business opinion through 1957. In January and February, when the first gloom-sayers gave tongue, stocks tumbled 44 points to 454.82 on the Dow-Jones industrial average. Later, when it became apparent that the initial pessimism was overdone, the market soared to within only a quarter of a point of the alltime 521.05 high reached in 1956. Then in October, with the first signs of trouble, it came whistling down more than 100 points to a new 1957 low. At year's end it was backing and filling as investors tried to make up their minds what 1958 would bring.
Businessmen who had worried in May were calm in December. Steelmen sensibly pointed out that the nation's heaviest industry need not always operate at emergency throttle. "The auto industry no doubt could turn out 12 million cars a year if absolutely necessary," said a steel executive. "But when it produces only 6,000,000 cars, no one complains that it is operating at only 50% capacity." At times, businessmen even gave thanks for the breather. Frank Magee, president of Aluminum Co. of America, noting that aluminum has often been in short supply, said cheerfully: "For the first time in history, we can promise the potential user of aluminum a steady, dependable supply of metal."
A Pinch in Time. Many businessmen received the dip at year's end without alarm because they regarded it as a "recession as planned." As consumer prices had gone up month after month for the biggest rise (2.5%) in five years, the Federal Reserve Board, under tough-minded Chairman William McChesney Martin, worked with grim determination to keep the economy from growing too big, too fast. Martin stumped the nation preaching "inflation, not deflation, is the real danger." To check all phases of the buying jag--a rise in industrial expansion, piling up of business inventories and increases in consumer purchasing--the Fed squeezed tight on the nation's credit supply. As the demand for money kept rising, interest rates rose to the highest point since 1932. Even so, corporations floated some $12.7 billion worth of public securities. 16.5% more than ever before. As costs went up until they hit 4.5% for the biggest borrowers and 6% or more for smaller firms, many a corporation withdrew its issues and postponed plans for new plants.
Martin's policy was so bitterly opposed by such easy moneymen as Texas Democrat Wright Patman and Tennessee Democrat Estes Kefauver that Congress made halfhearted attempts to investigate the Fed. But by and large, thoughtful businessmen supported Martin and his aims, though they kept their fingers crossed. No one was quite sure that the Fed could use its credit tools delicately enough to nip the bubble on the boom without popping the boom itself. When the Fed applied one last turn of the screw in August with a 1/2% (to 3 1/2%) boost in the discount rate, i.e., the rate the Fed charges member banks for loans, many businessmen thought it was too much, and said so. The inflationary pressures had already eased considerably. Finally, Martin conceded the point, dropped the rate back to 3%, as interest rates in general began to decline. Yet at year's end the ever-cautious Fed was moving very slowly to make credit more plentiful. The consumer price index, still rising, was up .4% in November, biggest rise in five months, and 1,000,000 workers will get cost-of-living pay raises of 5-c- an hour next month.
The Busy Buyers. Had FBR's Martin pinched too hard, too long? Those who looked especially at the drop in production thought so. But those who looked elsewhere suspected that many companies were being overcareful.
In 1956 businessmen were so encouraged by rising sales that they added $5.9 billion to inventories to be sure they would not be caught short of goods. In 1957 the inventory increase was sharply slowed; businessmen added only $1.9 billion. More important, that trend was reversed in the final months of the year. Industry cut production so rapidly that, instead of adding, business began to reduce inventories. This meant that the U.S. was consuming goods faster than it was ordering new supplies, even though consumers managed their purchases without going so heavily in debt as they had in the previous year. Consumer debt, which rose $3.2 billion in 1956 to $41.8 billion, increased by only $1.5 billion in 1957. The drop in inventories also demonstrated that the U.S. consumer, sometimes scared by Sputnik, often confused by the recession talk, but always well supplied with cash, was still buying almost as eagerly as ever --even if he did make a great show of economizing. Retail sales for the year were up nearly 5%, and Christmas sales, after a slow start, almost exactly matched 1956's alltime record. They came up fast in the final days: Manhattan's R. H. Macy reported the first day in department store history in which sales were substantially above $2,000,000.
King-Size Necessities. With more money to spend (personal income rose to $343 billion v. $326.9 billion in '56), the U.S. spent more of it ($280 billion) than ever before on a shopping list of modern-day necessities that included 6,400,000 TV sets, 4,000,000 phonographs and hi-fi sets, 5,308,000 automatic washing machines, dryers and ironers and a big budget for fun. Example: nine years ago Detroit Auto Dealer Everett Kircher raised $100,000 to install a ski lift on Boyne Mountain in Michigan. Today Boyne Mountain has a heated swimming pool, private golf course, two snowmaking machines and a second ski lift near by. Hotels and motels are jammed, and the whole area is booming. "It's better than a plant," says local banker Robert A. Campbell, whose deposits rose $1,000,000 to a total of $6,500,000 during the year. "The dollars just spread out to every phase of the local economy."
To the great joy of consumers, "list price" became almost a meaningless phrase in 1957. Stores, big and little, shaved prices to meet competition, notably that of the discount houses. But price alone was no guarantee of success in 1957's hotly competitive marketplace. With more choice than ever before, customers shopped for style as well. While G.M. slipped back from 51.5% to 44.4% of the auto market, Chrysler's jet-finned new models jumped from 15.4% to 19% of the market, and Ford's crisp styling apparently nudged it ahead of Chewy into the No. 1 sales spotlight for the first time since 1935.
The emphasis on price and style was a major preoccupation for the host of new men moving up to top rank. At year's end Westinghouse, whose "Shape of Tomorrow" pushed its sales of major appliances up 15% v. a 4% drop for the industry, rewarded Executive Vice President Mark W. Cresap Jr., 47, one of "Shape's" prime movers, with the presidency; longtime Boss Gwilym Price remained chairman. Every industry looked for new competitive talent. To exploit new markets at home, John L. Burns, 49, took over at Radio Corp. of America as Frank Fosom neared retirement; with more exploration abroad, William Whiteford stepped up to replace Gulf Oil's retiring Boss Sidney A. Swensrud. And when General Dynamics Chairman John J. Hopkins died, the man who moved in to tie the corporation's many divisions together was Frank Pace, 45, onetime U.S. Budget Director and Secretary of the Army. Even Madison Avenue admen, whose accounts were swimming back and forth like salmon, changed their lures. At year's end Ben C. Duffy, president of Batten, Barton, Durstine & Osborn and probably the best-liked man along Madison Avenue, decided to retire after a long illness. His heir: Charles H. Brower. 56, a top idea man, who lost the $8 million Revlon account in September, said he would "just go out and get eight new $1,000,000 accounts," has already caught $4,000,000.
Diamonds from the Laboratory. While the U.S. consumer spent heavily in 1957, the businessman outdid him, plunked down $37 billion for new plants and equipment (plus $1.5 billion more for new offices), and devised one of the major props under the U.S. economy. Steel expanded 5% to 141 million tons annually; aluminum added 2% to its capacity, synthetic rubber 14%. Oil and chemicals both spent record amounts for expansion. Serving them all. the nation's utilities grew at compound rates, increased their outlays 28% to $6.3 billion, and in the process added 7% to U.S. generating capacity. Among the additions: the first full-scale atomic power plant, which Pennsylvania's Duquesne Light Co. put in operation at Shippingport to serve eventually the needs of 120,000 customers.
As in past years, much of 1957's expansion was for new production to catch up with blossoming markets or to supply new markets created by research. Industry laid out a staggering $7.3 billion for research and development, some 20% more than ever before. Every businessman knew that the money will eventually flood back to industry, as laboratory oddities turn into new consumer products. General Electric learned to make synthetic diamonds so cheaply that they will soon start competing with natural stones for industrial use. It also developed the first really practical telephone-TV system, plans to install the first one at a military base next spring. American Gilsonite licked the problem of making gasoline in quantity from rock, built a $14 million plant for commercial production. Science could even give humdrum old materials an exciting new lease on life. For years U.S. Borax & Chemical Co. mined borax for use as a household cleanser. Today Boron is a new wonder element, used in everything from drugs to super-powered rocket fuels.
The Road Ahead. At the beginning of 1957, businessmen and economists were unanimous about the outlook: the first six months would be great, but then there might be trouble. At the beginning of 1958, the crystal-ball gazers are once more unanimous--but with a difference: the new year will see a sharp dip during the first half, followed by an upturn in the last six months, helped along by big increases in Government spending. Will the first-half softening lead to price cuts in key industries? The answer seems to be no. Few industries, as demand eased, were talking of price cuts. Instead, they were hastily chopping production, keeping inventories down and, like their customers, living from hand to mouth while they waited for business to improve.
One notable example is steel, which is learning to operate like a short-order restaurant. Not since 1942 have users ordered steel on such short lead times: six weeks for heavy construction beams, two weeks for sheet metal for automobiles. In turn, steelmen were producing just enough to meet delivery schedules. They were well aware that any sudden economic upturn would not catch them without production capacity. But it could catch customers short on steel. As long as customers continue to buy only for immediate needs, steel may not rise above 75% of rated capacity before June, but the industry expects a 5% to 10% rise from then on, expects to turn out 105 million to 115 million tons for the year as a whole. Construction value will probably increase 5% to a record $49.6 billion, including a hefty 8% boost in housing due largely to easier credit.
On the downside, automen are not only fudging their earlier estimates of 6,100,000 new cars next year. They sold about 5,800,000 in 1957 and at year's end estimated sales of about 5,500,000 in 1958. As for the troubled railroads, they will see still another 5% to 7% drop in passenger traffic, while freight car loadings will show a continuing, but smaller (less than 10%), decline than in 1957. U.S. industry's headlong expansion will taper off in 1958; industry will invest only $34.5 billion in new plants and machines, down 7% from 1957. Autos, aluminum, machinery and many others are planning fewer additions. But utilities, which never caught up in 1957, will have to pile on another $200 million increase to $6.5 billion next year. Many steelmen are also pushing ahead despite lower operating levels. Says Inland Steel Co.'s President Joseph L. Block, who earmarked $280 million for a three-year expansion program: "We plan for continued growth because we believe we are a growth company in a growth industry in a growth country."
The Gold-Plated Recession. In a growth country, the predictions are for growth, despite a recession in the early months of 1958. The gross national product will probably rise at least $1 billion. Technically, the economy will "recede" or move sideways. But if recession is defined even in the mild terms of the 1953-54 slump, it will still be a gold-plated recession. At that time, gross national product dropped by $6.3 billion; industrial production dipped 15 points on the FRB's index, more than most economists foresee for 1958; unemployment then rose to 5% of the labor force, not the 4.5% estimated as the peak for 1958. Moreover, total employment (which tumbled 975,000 in 1954) is expected to rise by the end of '58 above the total at the end of '57. Economists look to the changing nature of the U.S. economy to push the employment totals higher--and also cut back the rise in unemployment. As industry puts up new plants incorporating automation, production line workers play a steadily decreasing role, now total only 20.4 million of the labor force.
While production-line workers are usually trimmed fast to meet any fall in sales, the payrolls in service industries, on the other hand, are slower to feel an economic change. Every year, the service industries have been absorbing more workers to serve the nation's growing market for leisure and travel, to sell its growing volume of goods and keep its millions of gadgets in operation. The growth in service workers since 1950: from 26.5 million to 32.3 million.
Though no one wants unemployment, coldly statistical economists can find some virtue in it. expect the U.S. to benefit through increased productivity. In 1957 productivity rose barely 1%, lagging behind wages. In 1958 it should rise sharply, not only because the new plants built by industry are more efficient but because increased competition for jobs should make everyone work a little better. Moreover, as jobs grow scarcer, wages will flatten out. While the Autoworkers' Walter Reuther still talks of demanding a four-day workweek and other plums, wage demands will be tougher to win from management, whose bargaining position has been strengthened by the economic downturn and the scandals in labor's own house that have cost it heavily in public opinion. As a result, the new year may see some angry clashes over the bargaining table, particularly in aircraft and auto industries, where long-term contracts run out. Labor experts expect a rash of strikes next year, unlike 1957, which saw only 16 million man-days lost through strikes, the lowest figure since World War II.
As the boom eased in the U.S., it was also easing around the world, bringing a drop in the demand for U.S. goods. The record dollar value of U.S. exports ($19.5 billion in 1957) and imports ($12.7 billion) may slip less than 5% in 1958. One of the major battles of 1958 will be over U.S. tariff walls and reciprocal trade pacts, with traders insisting that the U.S. does not buy enough and protectionists insisting that it buys too much. Yet in 1957, an encouraging answer to critics who say the U.S. does not trade enough was the case of foreign automakers: they boldly invaded Detroit's home grounds, boosted their sales of small cars by 110% to 235.000. Beyond trade, world-minded businessmen, who once looked only at U.S. gross national product but now talk of ''gross world product." will keep up their record flow of capital abroad. In the past two years. U.S. overseas investments soared from $1.7 billion annually to $3.8 billion annually.
The New Age. In 1958 the problems and opportunities abroad will pale beside those in another undeveloped area: the almost uncharted reaches of upper space. Post-Sputnik, the U.S. is determined to surpass the Russians in the new age of space. Obvious meaning to the economy: a sharp rise in Government spending.
As a start, Defense Secretary Neil McElroy intends to boost defense spending at least $1 billion in the first six months. For fiscal 1959, there will probably be another boost of at least $2 billion (to $41 billion for actual defense spending), plus a $5 billion boost in the obligational authority for future defense contracts. The Administration hopes to hold down the totals by cutting such items as the farm program and aid to veterans, but few politicos think it will be successful. If anything, spending on the farm program--a huge $5 billion in 1957--may rise in 1958 to keep surplus food from collapsing the market. At year's end the 1958 harvest of the winter wheat crop was estimated at a near record of 906 million bu., 28% above the year before and one more sad reminder of the failure of the farm program to cut surpluses. With revenues estimated at $73.5 billion--or less--next year and a budget of $73 billion to $74 billion, the U.S. will probably be in for deficit financing and, as Treasury Secretary Robert Anderson conceded, a long-delayed rise in the $275 billion national debt.
The new spending also means that inflation, which dogged the U.S. throughout 1957, will still be present in 1958. The defense speedup may well take up all the deflationary slack in the U.S. economy, and push on from there. While missiles do not require the mountainous raw materials of tanks and planes, they need more and higher-paid skills, on an ever-spreading base. In turn, this means more money in the pockets of consumers for more autos, more appliances, more luxuries of all kinds.
Most experts feel that a few more billions for defense in fiscal 1959 will be only a starter, since the U.S. has not yet faced up to the fantastic cost of building an on-the-firing-line array of missiles. Nor has it faced up to the enormous cost of some of the other space projects now being discussed, such as a manned satellite. No missileman doubts that the U.S. will have to engage in such projects; all assume the Russians are working on them.
Since 1946, missile spending has skyrocketed from $70 million to $3 billion annually. But in actual fact, the U.S. intermediate (IRBM) and intercontinental (ICBM) missile programs are still in the experimental stages. Intermediate missiles alone may cost the U.S. $7 billion; the bigger, 5,000-mile Atlas ICBM will cost $8 billion to $10 billion in the next decade or so before it is superseded by something better. And missile programs themselves will get bigger and more expensive.
Totting up the bill for the next ten to 20 years, defense experts estimate that arms will probably rise $3 billion each year for the next seven years at least, since the economy must produce not only missiles but conventional arms. At year's end a group of eminent scientists urged that the U.S. spend at least $1 billion annually on space research alone.
Some projects and prices:
P: Anti-missile missile--$6 billion to $7 billion.
P: Manned satellite--$3 billion to $4 billion.
P: Manned rocket to the moon--$5 billion.
The price tag is high, but the U.S. can well afford its leap into space. A study by the National Planning Association projects a gross national product of $470 billion by 1960. On that basis, the U.S. could spend $54 billion annually on defense and count it as only 11.5% of G.N.P., far less than the 14.7% Korean war rate. Living standards could still rise faster than during the last decade. A second N.P.A. study assumes defense spending of $64 billion annually by 1960. Again, it would take only 13.6% of the predicted national product, and the U.S. could enjoy the same annual increase in living standards it has today, though taxes might rise temporarily.
Brains & Frying Pans. The new age of space promises entire new industries working not just for the military but for the benefit of all. Even in its earliest stages, the U.S. space program absorbs the efforts of more than 50,000 companies spread across the length and breadth of the U.S., from giant planemakers to tiny, ten-man electronic plants producing magnetic memory-drums for missile guidance systems. Atlas missile contracts alone spread through 5,000 U.S. companies, calling forth new ideas and better skills everywhere. Yesterday's $2-an-hour production line worker can be trained for a job in electronics that pays $5 an hour --or, if he has a bright idea, he can set up shop himself and build his own million-dollar business.
In Skokie, Ill., two bright young scientists named Leonard and Albert Sperry started out during World War II with an idea for electronic information-gathering systems for civilian and military customers. Today, the Sperrys' Panellit, Inc. builds monitoring devices for the Army's Jupiter ballistic missile, is at work on a portable atomic reactor, and produces a series of central control systems for atomic submarines, oil refineries and electric utility plants. Estimated 1957 sales: $9,000,000, up 25% from 1956. In the same way, Chicago's Cook Electric Co. made full use of a dozen new developments in electronics, atomic isotopes, plastics and ceramics, will see sales grow from $24.6 million in 1956 to $30 million or better next year. Says President W. C. Hasselhorn: "We compare our philosophy with that of a motion picture studio, where the stars are the main assets, and the talents the principal source of income. Our stars are scientists and their talent our income."
Inevitably, the fruits of the space race will filter down to every corner of U.S. life. The same electronic brain that guides a missile can run a factory machine or operate a household gadget; the superhard nose-cone ceramic for an ICBM makes a fine lining for a blast furnace, a good construction material, or a housewife's frying pan. The nation's radio and TV sets will have tiny, shockproof tubes that never wear out; there will be rocket airliners, rocket freighters and rocket mail ships.
Upward Track. The flight path ahead is clear. Yet the U.S. economy, like the first early missiles themselves, may experience some failures and disappointments before it gets on the upward track again. For many companies, the initial months of 1958 may produce sharp production cuts, painful layoffs and lower profits. But if the fall is sharp, the bounce back may be even faster. For better or for worse, defense spending will quickly provide new thrust for the lagging business pace. Beyond, there is the many-sided U.S. economy, in which a fall in one industry is often balanced by a rise in another. Autos may slump next year, but the enormous highway program, which started slowly in 1957, will pick up momentum, producing new demands for men, machines and materials in 1958. Railroads are down, but housing has already had its recession and, since it was on the way up at year's end, should pick up more next year. Overlaying all, there is the mighty U.S. populace, whose growth is estimated at the rate of about 2,000,000 new consumers each year, and whose appetite, even in the record year with the dip at the end, knew no bounds.
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