Are Jitters Justified?

Instead of starting the usual summer rally that brokers had expected, the stock market last week saw its sharpest shake-out since May. By week's end, the Dow-Jones industrial average registered a net loss of almost five points. There was just enough bearish talk in the air to make some traders jittery.

If not jittery, one of Wall Street's shrewdest traders, Floyd Odlum, had at least turned cautious. After unloading Consolidated Vultee (TIME, April 6) just before its stock broke, Odlum's Atlas Corp. was 38% in cash and Government securities (total: $68 million), and at Atlas' annual meeting last week he told the stockholders that he intended to keep it that way for "weeks or months" while he took a breathing spell. In short, Odlum seemed to be betting he could buy stocks lower later on.

What was there to the talk about recession? Undoubtedly, there were some soft spots in the economy:

P: A rise in auto inventories to a new postwar high of 13.2 cars a dealer.

P: Repossessions of television sets have been on the rise for months.

P: Steelmen, optimistic about fourth-quarter orders only a few weeks ago, were revising their estimates downward as much as 10% to 12%.

P: Mortgage money shortages were cutting home building (e.g., 96,000 starts in July v. 104,000 a year ago).

P: Business failures' shot up in July to the highest number for that month (724) since 1942.

P: With manufacturers' inventories at a record $45 billion, some manufacturers have started to pare down. Ford is warning its suppliers to buy raw materials only three months in advance of production, instead of five.

What did all this add up to? Few businessmen thought it was anything more than what they called it: isolated soft spots. Some of the biggest, like Du Pont's President Crawford H. Greenewalt, were strongly optimistic. Said Greenewalt: "There is in my opinion no more reason to credit current pessimism than there was to take to the woods in 1945." The facts bore him out. Business was still expanding vigorously, as evidenced by A.T. & T.'s plans to offer $625 million in convertible debentures, the largest single new financing issue in U.S. corporation history.

Business, the Commerce Department reported, was also breaking other records. The nation's output of goods and services was at an alltime high rate of $372 billion, unemployment was the lowest for any July since the Korean war began, and consumer spending was still keeping pace with the steady rise in personal incomes. Manufacturers' order backlogs, down about $5 billion from the September peak, still are almost four times as great as before Korea. Even such sick industries as textiles were showing signs of recovery. In ironic contrast to the pessimism of cautious capitalists like Odlum, the C.I.O.'s top economist, Stanley Ruttenberg, felt sure that the boom would roar on unabated all year.

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