Second Thoughts

The first business assessment of the blowup at the summit was made by the stock market. At the news from Paris the market shot up, paced by heavy buying in missiles and electronics stocks. While the tape ran late for a total of three hours on two successive days, trading reached its heaviest volume--5,240,000 shares--in more than a year and a half.

Wall Streeters were counting on a big hike in defense spending, but when Washington took pains to refute this talk, investors had some sober second thoughts. They began to sell the defense stocks, turned their attention to such old favorites as leisure-time stock and such neglected issues as rails and oils. Total effect: the market advanced to 625.24 on the Dow-Jones industrial average, up 12.21 for the biggest one-week gain in six weeks.

"A Few Billions." Wall Street's second thoughts posed the same question that most U.S. businessmen were asking: Would defense spending really be stepped up? Said Bureau of the Budget Director Maurice H. Stans: "I don't think the summit will have any effect on the defense budget. The difference is that, given disarmament agreement and significant lessening of tensions, we would have been able soon to reduce spending. Now this will not be possible."

Many in both Wall Street and Washington still felt that some rise in defense was likely. The Defense Department's statement last week--that no increase in defense spending is needed--got a cool reception from Congress. Such plans as Army modernization and the Polaris program should be reviewed, said Georgia's Senator Richard Russell even if it adds "a few billions" to the defense budget.

To many businessmen involved in defense work this meant that, whether or not spending jumped, they could at least stop worrying about promised orders that they had feared might be canceled. Said Tom Bay, marketing manager of Fairchild Semiconductor Corp.: "The military has been holding back, particularly on advanced programs. Now they may feel they need to go ahead." Said Dean Wooldridge, president of Thompson Ramo Wooldridge: "I think the odds are more strongly in favor of increased defense spending than they were two weeks ago, particularly in the small-war area."

No Scare. With all the talk and market activity, neither the market nor U.S. businessmen were basically affected in their stance by the collapse of the summit. "The American business community has been scared so often," says Inland Steel Chairman Joseph Block, "that a scare doesn't have any real effect any more. We go on an even tenor." Actually, businessmen agreed that the summit explosion came just when the market was due for a rise, and just when the mood of U.S. businessmen was changing. Says Chevrolet Boss Edward N. Cole: "The pessimism about our economic health which prevailed just a few weeks ago has largely disappeared. There now seems to be general agreement that business activity will improve slowly throughout the year."

There was good reason for the shift. The Federal Reserve Board's index of industrial production, mirroring the nation's total factory output, held level at 109 in April. Personal income rose to a new high of $397.5 billion in April, jumping $3.5 billion for the month, in contrast to an average monthly gain so far this year of only $600 million. Paced by Chrysler and General Motors, auto production last week hit a three-month high of 156-578 cars-pushing total 1960 production above 3,000,000--17% ahead of 1959.

The auto industry will have to maintain record production levels in May and June to keep up with the continuing surge in sales. In the first ten days in May they were the best for any ten-day period in four years. The National Automobile Dealers' Association reported that U.S. auto dealers had their best first quarter in five years, were averaging an operating profit of $70 per new car sold v. last year's $63, despite lower markups on compact cars. With the compacts doing so well, General Motors made it official that it will offer three new ones: a Buick called the Special, a Pontiac called the Tempest, and an Oldsmobile called, for reasons that puzzled even some Olds executives, the F-85.

The consensus of businessmen was that the consumer would go right on buying, despite international tensions. Businessmen themselves may change their buying habits. So far this year, they have kept inventories at a minimum, largely because of tight money and anxiety over the business situation. Now they might well start to build them up again, not only to meet the promise of better business but to be on the safe side in case of any new international crises.

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