Earnings: Up

After two months of milling around indecisively, U.S. investors last week went on a buying spree that sent the stock market charging up. On one day alone, a record 1,360 issues were traded on the New York Stock Exchange, well over 6,000,000 shares changed hands, and the Dow-Jones industrials index climbed 9.14 points to 723.74--just a shade below its alltime peak of 726.53 in early September. At week's end, still on the rise, the market was up to 724.83.

Wall Street professionals found plenty of reasons for the rise: brisk auto sales, some cooling of the Berlin crisis, and the expectation of more Government spending in the wake of last week's Democratic election victories. But the sharpest spur to the market came from General Motors Corp., which raised its annual dividend from $2 to $2.50 per share by declaring its first year-end extra dividend since the record auto-sales year of 1955. Avowedly based on the prospect of fast year-end auto sales--because of the August auto strike, G.M.'s third-quarter earnings were off 1.5% from a year ago--the G.M. dividend not only gave a $143 million Christmas bonus to 867,000 stockholders but also buoyed up confidence throughout the economy.

Short Fall, High Bounce. Many other companies also boosted dividends. Jersey Standard added a nickel, fattening the pocketbooks of its 665,000 owners by $11 million. Boeing, Brunswick and U.S. Gypsum also announced raises. In all, dividend payments by U.S. corporations are expected to grow from an annual rate of $14.3 billion in the third quarter to more than $15 billion in the fourth.

Behind the dividend spurt are a pair of cheering facts about corporate profits: 1) they slipped less during the recent recession than in any other since World War II, and 2) they have snapped back better than in any other postwar recovery. From an annual rate of $47.4 billion in first-quarter 1960, pre-tax profits slid steadily to $40 billion in first-quarter 1961. Virtually all that loss came in the manufacturing sector. But with manufacturing leading the way, the rate went back up to $45.5 billion in second-quarter 1961, then moved on to $47 billion in the third quarter. In the current quarter, Government economists are looking for a new record of more than $50 billion.

Aside from a few well-publicized laggards, including most domestic oil producers and airlines, virtually all key industries have shared in the profit rise: chemicals, railroads, utilities, food, construction, steel. Last week substantial third-quarter increases over earnings a year ago were reported by American Can, Western Union, North American Aviation, W. R. Grace, Borden, Allied Paper and a fistful of others.

Bankroll for Expansion. Historically, corporate profits in the U.S. rise as employment does. At present, with the unemployment rate at a stubborn 6.8%, corporate earnings are running about 9% of the gross national product. Government economists figure the rate could jump to 10% if management, encouraged by the prospect of rosier earnings, decided to step up production enough that it must significantly increase hiring. If the Administration prediction of a $565 billion G.N.P. by next June is borne out, that would mean an annual corporate profit rate of $56 to $57 billion. And with that much money in its pockets, U.S. industry might well set off a new boom in spending on plant and equipment.

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