Full Speed Ahead?

The U.S. productive machine, long clogged by strikes and crippling shortages, was finally running in high gear. Last week Civilian Production Administrator John D. Small cheerily reported: "stop-&-go output" has been replaced by "continuous, high-level production." The pipelines would soon be full and, "if industrial peace continues, an enormous amount of consumers goods would soon pour out."

His report on July production danced with exhilarating figures:

P: Sewing machine shipments jumped 30% to 35,000; electric ranges jumped to 57,000; vacuum cleaners reached 197,000, more than 25% better than prewar.

P: By July lumber production was up to 3,150,000,000 board feet, high enough, said Small, to fill all veterans' priority housing orders.

P: Second-quarter production of stockings were up to 168 million pairs, a new postwar high; men's suits were being made at a rate of over 23,000,000 a year.

Some items still lagged. But overall production was still climbing. In August, nearly 363,000 autos and trucks were turned out, 9.67% better than in July. In this quarter, Small predicted, production might approach the peak of war production, a $142 billion a year rate. (The Federal Reserve Board reported that July production was 75% higher than the 1935-39 average.)

Trouble on the Rails. But trouble still loomed ahead. The steel industry, now booming along at about 90% of capacity, had only two weeks' supply of scrap on hand, might have to shut some mills soon. The biggest threat was a shortage of the railroad cars on which most of U.S. business rolls. Example: in Auburn, N.Y., International Harvester Co. was producing enough farm machinery to fill 45 freight cars a day, but only two empty cars a day were backing onto its sidings. The tremendous job of moving the bumper crops made the shortage worse. Millions of bushels of wheat were lying around on farms or spilling on the ground beside elevators (see cut) for lack of cars; the grain would take months to move.

ODT's harried director, J. M. Johnson, cried that it was "the greatest transportation crisis in 20 years." No less than eight Government agencies got busy trying to help the overloaded railroads with priorities for materials for new cars, new steps to speed up "turnarounds" of cars, etc. But enough new cars would be long in coming. ODT's Johnson predicted that the pinch would last till spring.

There were other signs of trouble. Warned the Department of Commerce: the value of inventories held by manufacturers alone had zoomed more than $600 million in July to an alltime high of nearly $18 billion.

Part of this was just a paper expansion due to increased prices or a normal increase necessitated by the increase in production, the delay in shipments. Some of it was probably caused by manufacturers stocking up in anticipation of higher prices. But what the Department of Commerce--and some businessmen--feared was that a sizable chunk was due to a decline in demand because of 1) high retail prices and 2) overproduction of certain items.

Trouble in Stocks. Nor was the stockmarket, the consensus of guesses on the business future, reassuring. For the second consecutive week it cracked badly. The Dow-Jones index of industrial stock prices fell 5.95 points in one day, the sharpest break since May 1940. By week's end it was down 8.56 points to 189.19. The decline was as steep as the one which signaled the collapse of the last big bull market in 1937 (see chart). (Some Gloomy Guses observed that the 1937 recession was also preceded by piling up of inventories.)

As usual, no one could explain the drop satisfactorily, nor when--and if--the market would go up again. The New York Times, noting that the sharpest slumps came between noon and 1 o'clock, cracked: "Could [the cause] be anything so elementary as alimentary?"

Best explanation was that businessmen, who had seen production repeatedly knocked flat by strikes and shortages, were now waiting to be sure of continued peak production before they cheered. And they also wanted to be sure that production would be profitable.

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