Buttoned Up

The stock market, which has felt weak in the knees for some time, took a slight header last week. It was pushed down by American Telephone & Telegraph Co., which announced a $500 million issue of convertible bonds, and American Woolen Co., world's biggest woolen firm, which passed its dividend. Since A.T. & T.'s new issue would dilute the present stock, traders rushed to sell. A.T. & T., normally steady, dropped two points. American Woolen dropped three points to 30; for minutes, trading had to be stopped before a bid could be found. The unloading of stocks spread and, in three days, the Dow-Jones industrial averages dropped 7.81 points to 258.49, lowest level in three months and the sharpest break since October. But at week's end, the market gained back nearly half its losses.

Actually, the market was only reflecting the uncertainty of large segments of U.S. business. For months, economists had been forecasting a slowdown in the first and second quarters, when civilian output would be deeply cut before arms orders could fill the slack. But the slowdown seemed a little worse than expected. The cotton and wool industries were in the doldrums; the rayon industry was in the first real depression in its history. New steel capacity would soon be coming in at the rate of about 1,000,000 tons a month, and there was talk that the shortage of some types of steel had ended. Even aluminum was becoming more plentiful.

Churches & Jails. From Washington came more signs that the materials pinch was easing. The General Services Administration, which took over natural rubber buying when prices soared a year ago, turned the job back to private industry. Natural rubber was piling up and the price dropped from 80-c- to 38-c- a lb. NPA, which had planned to turn down 645 building applications for churches, firehouses, jails, etc., gave the projects a green light because of the easier steel supply.

The stretch-out in the arms program began to look like a yawn-out. The military, which had been placing orders at a $5-billion-a-month clip last October and had planned to settle down to $4 billion a month, was now issuing contracts for only $2.8 billion a month. Actual deliveries of military goods, instead of increasing, were running at a rate of only $2 billion a month, unchanged since last September. Furthermore, though the U.S. was expected to run a deficit of $14 billion this fiscal year, it was temporarily running a cash surplus--another deflationary factor.

Treading Water. Despite the slowdown, there was no general sense of gloom. But with retail sales lagging 6% below the scare-buying period of 1951, there was a feeling of caution, except where big bargains were offered (see below). The trouble was, said the Commerce Department, that people were unaccountably saving money at a record peacetime rate of $20 billion a year, instead of spending it. Said a Chicago businessman:"People are scared to move out and do things. There is too much insecurity over Korea and the election in people's minds. Everybody is buttoning up."

All this did not mean that the U.S. economy was in for any serious slump. Few businessmen thought that the buttoning-up would last indefinitely. In addition, industry still planned to spend a record $21 billion on expansion in 1952, v. $19 billion in 1951. And the big inventories which businessmen had piled up by scare buying last year were gradually being sold off. Last week the Labor Department predicted that in the next two years, 3,500,000 new jobs will open up, thanks largely to the defense program. But no one expected a pickup in business, predicted for the last half of the year, to offset completely the heavy corporate taxes. In a headline on one company's operations, the New York Times summed up for many:

OHIO BELL CO. GAINS IN ALL BUT PROFITS.

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