Reading the Clues

For the experts who are trying to determine where the U.S. economy is going, the clues last week were like the first four-fifths of a mystery novel: challenging but pointing to no clear solution. Some who looked at the overall economic figures found reason for gloom in their further decline. Others who studied the earnings of individual businesses found the picture not nearly so clear-cut, the gloom not nearly so pervasive.

Total personal income rose slightly to hit a record in September, but the rise was deceptive: most of it was due to increased social security, unemployment and veterans' payments, while wages and salary income fell $400,000,000 because of drops in employment and working hours. September retail sales fell about 1% from August, hovering only 1% above strike-ridden September of 1959. For the second month in a row, U.S. industrial production slipped in September, falling a point to a 1960 low of 107 of the 1957-based index; the August decline, in turn, was revised downward to two points instead of the one point previously estimated. Thus, the three-point drop in two months was almost as sharp as monthly changes during the early stages of the last recession in 1957-58. Reflecting the uneven pace of the U.S. economy, there were declines in the output of steel and other primary metals, while production advances were chalked up by autos, TV sets and home radios.

Growth Areas. The slowing in the economy means that overall third-quarter corporate profits will be down from the second quarter; many a company was so reporting. Yet companies situated in strong growth areas--particularly those that deal most directly in essential goods and services to the consumer--are enjoying better business than ever. The biggest U.S. business, A.T. & T., installed 700,000 new telephones in the third quarter to push the total in use past 60 million. The number of long distance calls climbed 6%. The result, announced A.T. & T. President Frederick R. Kappel, is that his company's earnings rose 10-c- per share from last year to $1.40 for the third quarter.

Third-quarter earnings of Consolidated Foods Corp. soared 13% to 50-c- per share v. 44-c- last year. Spurred by what Chairman Neil McElroy called "the rather exceptional progress" being made by Procter & Gamble's Duncan Hines cake-mix sales, P. & G.'s estimated third-quarter sales and earnings were going along at about last year's 5% growth rate.

The quest for new products and more efficiency was a boon to some companies, a temporary check on the earnings of others. Benefiting from the office automation boom, IBM profits soared $5,000,000 in the third quarter over the same period in 1959, lifted per-share earnings for the nine months to $6.51 v. $5.57 last year. Aided by 70% load factors on its new jets, which now carry 56% of United's passengers, United Air Lines made a steep climb; President William A. ("Pat") Patterson announced record third-quarter earnings of $1.97 per share, up from $1.74 a year ago. Ford, riding the compact crest, announced an extra quarterly dividend of 30-c-.

Development & Performance. But the profits of the nation's largest electrical manufacturer, General Electric, fell 20% in the third quarter before it was hit by a strike of its production workers. G.E. Chairman Ralph J. Cordiner explained that the drop was caused partly by "a general softening of prices. Large household appliances are selling today at 1951-52 levels" (see below). G.E. has also increased spending for research and development, said Cordiner, "lowering earnings on current business" in expectation of "a very favorable impact" on G.E.'s future business.

New product development troubled Polaroid too. President Edwin H. Land said that development costs for an electric-eye camera and a new film that develops in 10 seconds reduced third-quarter earnings to 41-c- per share, down from 67-c- a year ago. But the problems were solved, both products are now being shipped to dealers, and Land predicted that 1960's volume and profits would set new records.

A good test by which to judge the performance of a company during a period marked by greater competition and a falling off in demand in some industries was posed by Thomas B. McCabe, president of Scott Paper and onetime chairman of the Federal Reserve Bank. In the paper industry, where earnings were mixed, Scott reported earnings up 10.6% to 79-c- a share on only a 5% increase in sales. The reason for Scott's performance, said McCabe, was "outstanding sales performance, production efficiencies and effective efforts to reduce costs."

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