Fairy Tale

The machine tool industry--which makes the machines with which other industries make goods--is no monster economic unit. In a peak year it may gross $200,000,000, about as much as the automobile industry (cars and trucks) grosses in an average month. But it is a key unit --when other industries stagnate it stagnates, when others expand it is busy. For ten years the machine tool industry has lived mainly on orders from 1) the automobile industry; 2) foreign buyers (British, Japanese, German) who wanted to make goods at home instead of buying from the U. S.; 3) more recently the U. S. aircraft industry (see p. 63) and the Government. Last week it provided a good cue to the new state of U. S. business--a state which two months ago would have sounded like a fairy tale.

All plans for holding the machine tool industry's annual show (scheduled for Oct. 4-13 at Cleveland) were abandoned. Reason: too much business. Cleveland's Monarch Machine Tool Co. sold seven of 14 machines it had planned to exhibit at the show. The company has orders enough to keep running 20 hours a day for four months. National Acme Co. in Cleveland, sold eight of its machines built for the show, was running 24 hours a day (60% of its backlog is for export). A manufacturer of presses sold 32 of them (at $400 to $3,000 apiece) between 8 o'clock one morning and 3 o'clock that afternoon. Lathes of the type used in arsenals could not be had at any price. Prices jumped 12 1/2% on tools that could still be had. Dealers from Canada to Texas looked out for secondhand machines.

This was typical. The first week of war started a speculative scramble for all kinds of commodities; the second week saw the scramble spread to capital goods. Yet most materials manufacturers, who will have to buy billions of dollars of new machinery if sustained war business materializes, were still wary about tying cash up in fixed plant except where old machinery would not do. Nor was the export boom, that has been expected ever since the armament race began five years ago, any more evident than in the past. As Cartoonist Herb Block allegorized (see cut), a war boom is not the best foundation for prosperity.

But War II was in its second week, and that was all hundreds of U. S. businessmen wanted to know. They began buying everything in sight, lest belligerent Europe or the U. S. Army & Navy beat them to it. Business' race-track class blindly bought stocks; its carriage trade bought durable goods. Some of the carriage trade's most notable shopping:

P:Last month the U. S. railway equipment industry took orders for five locomotives, 315 freight cars, no passenger cars, 6,500 tons of rail. Last week, No. 1 U. S. Rail Tycoon Martin Withington Clement of the $2,322,408,000 Pennsylvania announced that his railroad is in the market for 20 electric locomotives, 2,500 freight cars, 18 passenger cars, 80,000 tons of rail. Total : $1,7,000,000 of new capital investment (75% to be paid for by the sale of equipment trust certificates), but only a beginning for the Pennsylvania which has 58,380 unserviceable freight cars, plans eventually to electrify its main line further west, faces the largest modernization outlay of any U. S. railroad.

P:Other orders from the industry which has been most backward of all in replacing obsolete equipment: Seaboard Airline bought nine Diesel locomotives, 14 stainless steel streamlined coaches. Illinois Central scraped $8,000,000 out of its bare larder for ten Diesels, 1,500 coal cars, 1,000 boxcars. Wheeling & Lake Erie ordered about 500 new hopper cars to handle coal and ore freight from the Great Lakes. Embarrassed by heavy food orders, Great Northern, Northern Pacific, Union Pacific and Southern Pacific had the Association of American Railroads flash emergency orders to all roads to return 15,000 heavy steel boxcars on lease throughout the country. Union Pacific ordered material for its shops to build 2,000 boxcars. Chicago, Milwaukee & St. Paul announced that it would build up to 2,000 cars in its shops, Burlington 1,000. North Western sped up its buying of 800 cars. The Canadian Government announced it would spend $25,000,000 (mostly in the U. S.) for new rolling stock. Typical result: Youngstown Steel Door upped its operating rate from 25% to 75% of capacity, on orders for 1,000 freight cars, doors and sides for another 2,000 cars.

Besides such rolling stock orders: Louisville & Nashville ordered 30,000 tons of steel rails; Atlantic Coast Line, 8,500 tons; New York Central, 5,000 tons; Seaboard, 5,000 tons; Illinois Central, 2,000 tons. If traffic becomes heavy this rail equipment buying will just begin to scratch the surface of what is needed.

P:The price of steel raw materials began to follow the pattern of War I. Of the alloying metals which the U. S. imports, quotations stopped on manganese ore, ferromanganese promptly jumped $20 a ton, tungsten five dollars a ton, tin gained 26-c- a pound in 15 days, before all quotations stopped.

P:Exporters and U. S. users raced for supplies of steel scrap, bid the price up from under $16 a ton to $19. Pig iron, halfway product between iron ore and steel, is the alternate raw material to scrap; manufacturers pushed the price up $2 a ton, to $20.61 average. Significantly the advance in pig iron was started by erstwhile No. 1 & No. 2 steel price cutters--National Steel and Bethlehem, the quickest to change with conditions.

P:These price increases were profitable to the largest steel companies, who sell pig-iron as well as steel, who are taking inventory profits on manganese and other alloying materials bought prewar. Smaller steel companies, consumers in iron processing industries, both buyers of pig iron for fabricating, groaned. General Motors, which is cutting its 1940 car prices, tried frantically to buy 100,000 tons of foundry iron for 1940 motor blocs before the price increase, was still trying afterward. Pig iron sellers accepted only fractions of such big orders, cannily demanded whatever price prevails at the time of shipment.

P: One reason for last week's steel rush was uncertainty about steel prices occasioned by mysterious bustling of steel executives around Big Steel's President Ben Fairless, who has been smiling foxily out of the corners of his eyes for months in anticipation of just such a steel scare. In famine months salesmen (mostly the independents) run the industry, in feast months productionmen. Last week Productionman Fairless cannily hired as Vice President in Charge of Sales Avery C. Adams, the No. 2 salesman of Big Steel's best friend among the independents, Inland Steel--whose No. i Salesman Joseph L. Block does handsomely under all kinds of conditions. Having hired a salesman, Mr. Fairless spoke on prices. He reaffirmed U. S. Steel's prices until December 31 (i.e., set a deadline for shipments to auto companies of steel bought at cut-rate prices last June). After December 31 shipments will have to be paid for at the then prevailing price. This stand was meant to slow down the rush, and show that Steel does not mean to profiteer. Actually it increased the anxiety of many steel buyers to get as many months' future supply as they could obtain by year end. Noting this, some sharper steel independents announced no fourth quarter prices, began considering slapping on "extras" for prompt delivery.

P:The Steel industry acquired a new attitude: indifference to inquiries for export because of: 1) red tape involved in packaging, shipping, collecting; 2) as much domestic business as steelmen wanted and great pressure to take care of old customers. Result: The British Government tried to place an order for 200,000 tons, didn't get it.

This file is automatically generated by a robot program, so reader's discretion is required.