Reappraisal

Last week the stockmarket was running into the fourth week of a dragging decline. This week a number of developments including the French elections (see p. 22) and President Roosevelt's "economics" speech (see p. 13) caused the sharpest recession since July 1934, with representative stocks dropping from one to nine points on the New York Stock Exchange. Since early April the Standard Statistics stock average has dropped from 124.9 to 110.9. After more than a year of rising prices such a reaction was not precisely surprising. However, the market's downward drift was accompanied by something more than long faces in brokers' boardrooms.

Having delivered a remarkable crescendo of pleasing facts & figures for nearly a year, U. S. Business had apparently decided to make a thoroughgoing reappraisal of the business outlook. Trade statistics were at Recovery highs. Corporate earnings for the March quarter were impressive, the first 108 companies to report showing a 43.5% average increase in profits over the same period last year. But here & there first quarter results failed to justify the hopes expressed in high prices for their stocks. And with the normal spring rise in business approaching a peak, both businessmen and speculators were, as usual, concerned with neither past nor present but with the future.

Among easily discernible evidences that Recovery was still pretty ragged were three prime Federal Reserve Board indices: 1) industrial production during the March quarter fell less than 5% short of the 1923-25 "normal"; 2) employment, however, was only about 84% of that normal; 3) payrolls lagged at about 73%.

While the divergence in these figures might be explained in part by increased business efficiency, they did not indicate that U. S. industry was making any sizable dent on unemployment or that relief expenditures would be soon reduced. With such fundamentals as these on their desks once more, U. S. businessmen began their reappraisal.

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