A Mixed Springtime

Not only housing starts, but some other key indicators last week showed that the economy is surging into spring with the vigor of a baseball rookie. Despite the bitter winter, total U.S. output of goods and services rose 5.2% during the first three months of the year, up smartly from the 2.6% rate in the last quarter of 1976. Inflation slowed; consumer prices in March rose at an annual rate of 7.4%, v. 12.7% in February and 10% in January. March industrial production took its biggest jump in 19 months--1.4%--and personal income scored its largest increase in almost two years, to a record $1.486 trillion. But corporate profits, one of the most important indicators of all, were mixed. Overall they were strong, but in contrast to last year, when huge profit gains were almost universal throughout American industry, there were enough lackluster and downright poor reports to make the quarter less than cause for applause in the trading pits.

Most disappointing to Wall Street analysts was the performance of IBM, which has become expected to ring up big gains every quarter. This time its net income rose only 5.3% from the first quarter of 1976, in part because of price cutting. The report helped send the Dow Jones average of 30 industrial stocks down 8 points in one session. Steel was off; Republic, the industry's fourth largest producer, reported a $6.2 million loss for the period, caused largely by winter natural-gas shortages and transportation difficulties. Chemical company earnings were down, despite rising sales. Union Carbide was off 20%, to $81.5 million. Du Pont, the largest producer, registered earnings of $121 million, 12% below a year earlier. Chairman Irving S. Shapiro said depressed prices of synthetic fibers hurt.

Companies whose earnings were cramped by last winter's gas shortage are pressing plans to prevent recurrences. Steelmaker Allegheny Ludlum, whose first-quarter earnings were cut to less than half of what they were last year, is going further than most. It has begun to drill its own gas wells in Ohio and Pennsylvania, build stockpiles of oil, and redesign furnaces so that they can be easily switched from gas to oil, propane and even tar. Says Chief Executive Robert J. Buckley: "We are working vigorously to have far greater capability next year and in the long-term future to deal with such an energy crisis, for we are well aware that it could happen again."

Many Did Well. Yet for each downbeat performance, there were many companies that did well. Xerox, struggling against stiff competition in the copier field from Eastman Kodak, IBM and Savin, posted a 12% earnings rise, to $91.6 million, about equal to total company revenues 15 years ago. American Telephone & Telegraph, which last year became the first U.S. company to earn more than $1 billion in a single quarter, did it again in the recent quarter. Earnings were $1.09 billion, up 26%. Polaroid, expected to introduce its long-awaited instant movie camera at its annual meeting this week, earned $14 million, a 33% increase.

A number of companies showed dramatic advances. B.F. Goodrich's earnings leaped 87%, largely because of strong tire sales. General Telephone & Electronics' net was up 53%, mainly because the rising value of the Canadian dollar made profits of its Canadian operation, when converted into U.S. dollars, take a big jump. American Airlines turned a $ 1.4 million profit for the quarter, v. an $8.8 million loss for the same period last year. It was the line's best first quarter in nine years, and it mirrored the recovery of the U.S. airline industry generally as higher fares, stable fuel prices and greater numbers of passengers boosted revenues and earnings.

Overall, first-quarter profits should be up 16% over last year's period (see chart), paced mainly by brisk retail sales generally and strong auto sales in particular. The Big Three automakers will report first-quarter earnings this week, and they are expected to be good. For the year, profits should be up 20%, according to some projections. That is not as good as the 30% or so for 1976--but then nobody expected those gains to continue; last year's profits were rebounding from recession. The present level of profits still leaves many U.S. corporations awash in cash. That enables company treasurers happily to shun bank loans--too many of them angrily remember the stiff bank lending rates of 12% in 1974--and finance expansion internally.

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