Automation's Dividends

Last week's flow of strong earnings reports would probably not drown out the U.S. businessman's perennial plaint about "the profits squeeze," but it did show that well-managed companies can do very nicely even in a non-boom year. Since 1960, with its second-half sag, was no boom year either, some gains in 1961 profits were predictable. But, in fact, substantial increases over 1960 profits were common in oil, chemicals, business machines, electrical equipment and even railroads. Pre-tax profits for U.S. business as a whole increased from $45 billion in 1960 to $46.1 billion last year, and by year's end they were just above an annual rate of $50 billion--which is more than the combined gross national products of Italy, Ireland and Israel.

A prime reason for the rise in profits was the onrush of cost-cutting automation. GENERAL ELECTRIC, which for the past six years has been spending 85% of its capital budget on new machines and only 15% on plants in which to put them, saw its earnings swell 21% to $242.5 million last year. (Archrival WESTINGHOUSE was also automating rapidly, but its profits slid from $79 million to $45 million, due largely to a slump in the heavy electrical apparatus market that accounts for 50% of Westinghouse's sales v. only 25% of G.E.'s.)

Oil Gushes. The tools of automation made notable profits for a few of their producers. IBM enjoyed a 23% profits rise to $207 million, in part because "there was a substantial increase in outright sales of data-processing equipment." (By contrast, MINNEAPOLIS-HONEYWELL, which rents most of its computers instead of selling them, and thus must wait longer to earn back its heavy development costs, reported earnings off 5% to $25 million.) SMITH-CORONA MARCHANT managed to buck a slow market for its typewriters by swinging into production of small computers and by automating its assembly lines; the company boosted profits to $1,600,000 in the last half of 1961, up 147% from the same period in 1960. Automation actually made jobs at Smith-Corona Marchant because the company had to hire more workers to handle its increased business--but, says a spokesman: "We would have had to hire one-third more people than we actually did in order to get the same production using our old methods."

Some of the best yearly profits were rung up by the oil industry, where machines now run entire refineries and petrochemical plants. JERSEY STANDARD gained 10% to $758 million, TEXACO 10% to $430 million, STANDARD OF INDIANA 6% to $154 million. Said Senior Vice President George James of SOCONY MOBIL, whose net jumped 16% to $211 million: "Staff reduction is primarily responsible. We have been carrying on an intensive job method study, then offering early retirement plans wherever we can weed out unneeded workers."

Steel Hardens. One notable dissenter insisted that, in his business, labor costs were rising faster than automation savings. Reporting 1961 earnings of only $190 million--a 37% drop from 1960--Chairman Roger Blough of U.S. STEEL contended that steel's labor costs have risen twice as fast as productivity since the industry's last price hike in 1958. Last year's fourth quarter was a shocker at U.S. Steel: the company's production spurted all the way from 4,300,000 tons in the third quarter to 7,000,000 tons in the fourth, but profits, instead of rising, dropped from $52 million to $47 million as hourly wage costs went up 13-c- under the Steelworkers' three-year contract.

Many steel industry analysts, noting that U.S. Steel is anxious to gain a strategic edge in forthcoming wage negotiations, professed astonishment that Big Steel could have done so badly in a quarter when other steel companies were booming. And profit gains for 1961 were reported by U.S. Steel's two major competitors, BETHLEHEM STEEL (up 1% to $122 million) and REPUBLIC STEEL (up 8% to $57 million).

Autos Climb. Last year's rosier fourth quarter shored up the earnings reports of many of the nation's industrial giants. The fast getaway in 1962 auto models sent GENERAL MOTORS' fourth-quarter earnings up 41% to $365 million--the highest three-month profits ever for G.M. or any other U.S. manufacturer.

The glow of the year-end reports--and expectations of better things to come--prompted 200 U.S. companies to declare dividend increases during January. The National Industrial Conference Board queried another 173 top companies, found that 85% of them expect profit gains this year. Equally optimistic is Treasury Secretary Douglas Dillon, who predicts that pre-tax profits in 1962 will rise 23% to $56.5 billion, topping by nearly $10 billion 1959's record $46.8 billion.

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