Summer Surge

"Despite a paucity of favorable news, the stock market had a good session yesterday under the leadership of steels," reported the New York Times one day last week. It was the understatement of the week. With 650,000 steelworkers on strike and 90% of the industry shut down, there seemed little cheer for Wall Street's traders; yet they scrambled to buy. Along with steels, oil and aircraft stocks pushed higher, and the 1956 bull market went up on three of the four trading days. By week's end the Dow-Jones industrial average stood at 504.14. The rise of 11.36 points in the week put the market at the highest level since early May and well within striking distance of the alltime 521.05 high in April.

Pinches & Prices. Why all the optimism? Part of it was the absence of any real bitterness in the steel strike, even though other industries also started to feel the pinch. The Pennsylvania Railroad, which gets 30% of its revenues from the steel industry, imposed a 10% pay cut on all nonunion employees. Some 90,000 other workers in rail, truck and water transportation industries were laid off. To keep defense plants running, the Government clamped a freeze on certain steel stocks, ordered warehouses to ship them only to defense contractors. Yet it would still be several weeks before any real pinch was felt, and no one was crying crisis.

In Pittsburgh neither union nor management seemed anxious enough for a speedy settlement to make concessions. Federal mediators met with United Steelworkers' Boss David J. McDonald and U.S. Steel's Vice President John A. Stephens, came away saying only that they would "be in touch." The workers themselves seemed unworried. Said one grizzled crane operator: "I guess I can eat and sleep no matter how long the strike lasts."

Most steelmen also appeared unconcerned. Industry reports put current steel inventories at close to 18 million tons, although it is unevenly distributed. Steelmakers, who have worried about the effects of a big price boost to pay for a wage increase, might well feel that users would swallow the boost more easily with lower stocks on hand. Some small steel companies unaffected by the strike had already raised prices from $6 to $16 a ton; a short breathing spell would help smooth the ground for an industry-wide boost later.

Changing Tune. The biggest reason for the stock market's optimism was the brightening tone of the whole economy. The mood was evident not so much in statistics--though they were bolstering--as in the thoughts and words of businessmen themselves. Previously, forecasters had predicted a second-half readjustment; now the talk was of continuing good business with perhaps even a slow, steady rise to the end of the year. As the Manhattan First National City Bank noted: "Business reports through June have been sufficiently favorable to moderate the pessimism which appeared after the disappointing automobile news in mid-April. Recent reports indicate no spread and perhaps some improvement in the soft spots."

Detroit's automakers reported that they had lopped another 100,000 cars off their inventories, that sales were steady with prospects of still more improvement in July. And in other lines, U.S. consumers continued to buy at record rates. Retail sales across the U.S. in June were 11% higher than June 1955, steamed into July with a 10% bulge over the same week in 1955. To the sensitive ears of Wall Street's traders last week, the quickening business pace meant but one thing: buy.

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