TIME Presents a New Index

With this issue TIME begins publication of a new production index to measure U. S. industrial trends in a world now guided by war economics.

Today U. S. industry has almost reached a war footing. The factors that normally affect the course of business--consumer spending, inventories, expansion and contraction of credit, etc.--have been dwarfed by the great new factor of military necessity. Production has in effect been pegged by the Government for non-economic reasons much as foreign-exchange rates were pegged during World War I.

Under these circumstances TIME'S previous index, which for two years has measured the underlying soundness of business conditions through the medium of money and banking figures, has parted company with the major trend of business activity and become primarily a weekly warning of the reckoning which may follow the rearmament boom--an indication of the level of business which would be justified if economic factors again became the dominant influence on business. Meantime the important question of the hour is: how much is the U. S. industrial machine producing?

TIME'S new index provides an up-to-the-minute weekly answer to this question --the same question that is answered three to six weeks later by the most authoritative and widely used of all business indices, the Federal Reserve Board's index of production. But the FRB index reports on production only twelve times a year, sometimes making an advance estimate of a month's production level in the second week of the following month, issuing a "preliminary" (substantially correct) figure a week or ten days later, and releasing the final figure only in the second month after the production takes place.

TIME'S new production index will give businessmen each Thursday an estimate of the production level in the week ended the previous Saturday. In the following issue, this figure will be made final. Thus businessmen will have 52 prompt recordings of the trend and level of industrial production throughout the year.

TIME'S object is not to provide another and different measure of production, but to provide frequent, up-to-date reports on the same thing (production) in the same terms as the FRB index. For that reason the TIME production index is not only calibrated on the same scale as the FRB's index, but the FRB is used as a basis in its calculation so that there can be no long-term deviation.

The FRB index is a composite of 81 series which measure production in 33 industries. Very few of those series are available weekly. TIME'S index is a composite of only three factors: steel ingot production, electric power consumption, and freight carloadings, all available weekly. Of these three, only steel is also a constituent of the FRB index. But power and carloadings fluctuate in line with activity in so many other industries that TIME'S index indirectly represents as broad a cross-section as the FRB. Calculated back for the past six years, the monthly average of TIME'S weekly index has never deviated from the FRB index by more than 4%, and its average deviation is less than 1.5%. TIME'S index can about eleven times out of twelve be relied on to point the trend of the FRB, and even, within limits, to forecast the FRB figures.

But forecasting the FRB is not the TIME index's chief value. It will give businessmen a sensitive, sound, up-to-date weekly measure of how production is going.

TIME'S index was formulated and prepared in consultation with the editors by E. W. Axe & Co. Inc., well-known statistical and investment advisory firm, which assembles up-to-date data in more than 2,500 different statistical fields. These range from a monthly series on business activity in Japan to weekly series on call money rates, stockmarket averages and the price of hides. From this vast statistical storehouse, TIME will select each week or so whichever chart is of special interest in the light of the week's news. This week, for example, TIME prints (in addition to its new production index) a graph of the recent increase in commercial bank loans, which have been spurred by defense to their first boom in ten years.

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