Optimism v. Facts

The crystal-ball gazers who try to chart the course of the U.S. economy usually hedge any predictions with plenty of ifs and buts. Last week the U.S. got a refreshingly different kind of forecast from Carrol M. Shanks, president of the Prudential Insurance Co., second biggest in the U.S. (first: Metropolitan Life). Said Insuranceman Shanks: "I'm optimistic. We're pretty close to the end of the downgrade, and we should see an upturn before long. Steel production will start up in March, if not sooner, because steel sales have been running ahead of production; so will textile production and most durable goods for the same reason." What's more, said Shanks, the stock market will go up also. "I am personally going to put any money I have available into stocks because I don't want to miss the present market."

Despite President Shanks's clear optimism, it was still hard for most businessmen to see signs of an early upturn. Steelmen themselves, whose plants operated at less than 60% of capacity throughout much of January, expect no improvement in February. Detroit's worried auto men reported that January production of 489,357 units was down 8.5% from December and 23.7% lower than January 1957. As business cut back buying, the Federal Reserve announced that commercial and industrial loans in 94 major cities tumbled another $218 million for the week, making a total $1.8 billion reduction since mid-1957. In turn, the big sales finance companies chopped their interest rates by another 1/2% (total reduction this year: 1 1/8%) for the sharpest cut in years. A day later, commercial dealers followed with a 1/8% reduction on short-term notes. One gainer was the U.S. Treasury, whose refinancing operations were helped by declining interest; Treasury's short-term rates went to 1.583% last week, down better than two points from the 24-year high of last October.

Around the U.S., economists and businessmen talked increasingly of a tax cut to spur the U.S. economy. But those who looked beyond short-term statistics and noted the vast increase in future Government spending cautioned against any such massive help. Said Treasury Secretary Robert B. Anderson: "I can conceive of situations where tax reductions might be brought into play to help the resumption of economic growth. But it is our judgment that the present condition does not warrant such action." In that he was in tune with FRB Chairman William McChesney Martin Jr., who still regards inflation as a major danger. Added Martin: "If I'm right in thinking that this strong, robust economy is suffering from overexertion, nothing can prevent the recovery of the patient--unless you give him a hypodermic that leads him to try to overexert himself again."

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