Relieved of a Burden

It was more a truce than a treaty, but last week's steel settlement lifted a great burden from U.S. business, which had lived in dread and uncertainty for months about the possibility of a strike. The stock market climbed to three new records after the news, wound up the week with the Dow-Jones average standing at a robust 922. Most important, relief turned to a fresh wave of optimism as good economic news continued to pour in.

Auto sales in mid-April were 14% greater than a year ago, and Detroit's six-millionth car of the model year rolled off the production line three weeks ahead of the 1964 pace. Orders for machine tools hit a nine-month peak in March. U.S. industry is spending considerably more this year on plant expansion and new equipment than originally estimated; at the present rate, 1965 capital spending is expected to soar 15%, to more than $51 billion.

Industry will have no problem paying for its new plants: earnings reports for the first quarter have already shattered all records. General Motors rang up a 19% first-quarter gain (to $636 million) to seesaw ahead of A.T. & T. once again as the biggest profitmaker ever, and Ford raised its quarterly profits 39%. The airlines hiked their first-quarter profits 152%, led by Eastern Air Lines, which emerged from the red in 1964 to make an 8000% earnings rise in the first quarter. Fittingly, the steel companies led the pack; National was up 23%, U.S. Steel 43%, Youngstown 49%, Bethlehem 64%.

Constant Crisis. The steel companies and the Steelworkers Union agreed to a four-month extension of contracts only after Federal Mediator William E. Simkin threatened that he might specify the terms himself--and a few discreet calls were made from the White House. The cost to the companies, which will build an escrow fund to be used as part of the final settlement: 11 1/2-c- per hour effective this week, or a 2.6% raise, considerably lower than the industry had feared it would have to pay. Lyndon Johnson immediately telephoned his congratulations to the negotiators, taking care to include I. W. Abel, whose defeat of David McDonald for the Steelworkers' presidency was confirmed by union tellers later in the week.

Now the industry faces a new strike deadline: Sept. 1. Dave McDonald, who intends to contest Abel's election, immediately announced that the union considered the 11 1/2-c- figure only a "floor," will seek to get much more in the bargaining to come. In fact, McDonald had to ride out cries of a "tin cup" agreement in a stormy, three-hour union meeting before he got final approval for the settlement. After June 1, Abel will be the chief negotiator, and how hard he pushes for more will determine what happens in September.

Last week Abel said that he would be "tougher and firmer" than McDonald in the coming negotiations, but also added: "We will do everything humanly possible to avoid a strike." On the steel side, Wheeling Steel, the nation's tenth largest producer, agreed to abide by the final terms, but decided to withdraw from the eleven-company bargaining team. Norton Simon, the California industrialist who took over as chairman of Wheeling last year, complained that the steel industry "seems to live in a state of constant crisis. Wheeling can't afford that, and I doubt that the industry can either."

Still Uncertain. Speculation about the possibility of another crisis in September immediately became a key to economic activity in the months ahead. "The effect of the settlement," says Gardner Ackley, chairman of the President's Council of Economic Advisers, "depends upon how steel users read it. The steel situation is still one of the biggest uncertainties on the horizon." If users continue to fear a strike--or fear that a steel price increase will follow any final settlement--they will keep stockpiling, thus postponing any sharp cutbacks in steel buying and production at least until September. If they are betting on a strike-free settlement, their steel buying may taper off soon.

Because of the inevitability of some slack-off in steel--and because a growing number of economists see signs that the nation's 50-month-long expansion has finished its most buoyant ascent--Ackley and his aides are quietly trying to balance the widespread business optimism with some hard-eyed realism. Said Ackley: "We will not be led into the mistake of assuming that continuing gains at the recent rate are assured for the second half of the year." In the months ahead, Ackley feels, the automobile and steel industries cannot be counted on to supply further great gains. Any solid economic advances will then depend heavily on new stimuli, such as an excise tax cut and the scheduled hike of social security payments.

This file is automatically generated by a robot program, so reader's discretion is required.