A Mixed Background

The week of the economic summit also brought a rare bit of good news: an easing of business borrowing costs. New York's Morgan Guaranty Trust Co., the nation's fifth largest bank, quickly followed by Chase Manhattan, the third largest, cut lending rates to the most credit-worthy corporations to 11 3/4%, from a record 12%. It was the first drop in this "prime" rate since March. Officers of First National City called the move premature. But the guessing among moneymen is that the other banks will eventually follow.

Otherwise, the business news continued gloomy. The stock market, which spurted two weeks ago on anticipation of the prune-rate cut, plummeted, reflecting disappointment that Morgan Guaranty's initiative did not take hold more quickly. The Dow Jones industrial average dropped 49 points during the week, to close at 622, beneath the twelve-year low of 627 touched in mid-September. The Commerce Department's "composite index of leading indicators"--those that supposedly give reliable clues to the future direction of the economy --fell 1.2% in August, its biggest monthly drop since December. It is still 5.7% above August 1973, but since this index is not discounted for inflation, the gain may be more apparent than real.

Inflation, especially of oil prices, pushed the U.S. trade deficit in August to $1.1 billion, the worst red-ink figure for any one month ever. According to Commerce Secretary Frederick Dent, the nation imported 10% less oil in August than it did a year earlier--but paid $1.7 billion more for what it did import. Higher prices for foreign steel and paper also added significantly to the import bill, underscoring the point that American consumers are being hurt by overseas inflation as well as by the domestic variety.

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