High-Level Stagnation

For the U.S. economy it was a week when solid accomplishment was overshadowed by unsettling portents.

More and more of the indicators that businessmen watch for a clue to the shape of things to come were leveling off--a phenomenon that characteristically indicates that a period of recovery is coming to an end and a period of recession lies a few months ahead. The industrial production index in June barely managed to inch its way up from May's 117.5 to 117.8. June's $700 million increase in total personal income was the smallest for any month since January, and factory workers' income actually declined by $200 million. The gross national product, which had been expected to be zinging along at an annual rate of better than $565 billion by June, rose only $7 billion in the second quarter to a disappointing $552 billion. Only in Detroit did the prospects look continuingly bright: although auto sales were unseasonably low in June, Ford, Chevrolet and Rambler all reported uncommonly high sales for the first ten days of July.

Long on Shorts. Disconcerted by the overall news, the stock market--itself a leading indicator of sorts--slipped haplessly downward. Despite a feeble rally toward week's end, it closed on Friday with the Dow-Jones industrial average at 577.18, a loss of more than 13 points for the week. From the New York Stock Exchange came news that the number of shares borrowed by short sellers had risen by mid-July to the highest level (5,159,000 shares) in nearly four years. This was a sure sign that many Wall Streeters were betting that the market is going down farther, since it indicated that they expect to pay the borrowed shares back at lower prices.

So engrossed were the economic pundits in these disquieting developments, that less notice was paid to the daily outpouring of second-quarter earnings reports from the nation's corporations. These, for the most part, were overwhelmingly good. Items:

sb GENERAL MOTORS' sales of $4 billion and earnings of $402 million (equal to $1.41 per share) were the highest ever reported by any U.S. manufacturing corporation for a single quarter.

sb Du FONT'S second-quarter sales of $631 million were the highest in its history, and its earnings rose to $2.52 per share, v. $2.15 last year. Du Pont is starting a $50 million program to expand its nylon plants.

sb Sounding a sour note that is likely to be echoed by some other steel producers, YOUNGSTOWN SHEET & TUBE reported that its second-quarter earnings were down to $1.28 per share from $1.32 per share a year ago.

sbTEXACO'S profits rose 14.3% above last year to 82^ a share, to give the oil company record first-half earnings of $1.73 a share; STANDARD OIL OF CALIFORNIA also profited from bigger crude oil and natural gas sales to boost its first-half earnings 5%, to $2.25 a share.

sb For the 15th consecutive quarter, the MAGNAVOX Co. reported both sales and profits up. This time, Magnavox's gross rose 50% over last year's level, to $44.5 million, while its profits jumped a whopping 62%, to $1,850,000.

Moderation's Cost. Perhaps the economy is in fact flattening out in preparation for the next downturn. Perhaps, too, as some economists have suggested, the U.S. has been so successful in moderating the ups and downs of the business cycle that its economy has lapsed into a state of semi-stagnation. If so,, it is, in the phrase increasingly heard around Washington, high-level stagnation.

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