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BUSINESS
Economy Marks Time Steel strike causing enormous losses, yet outlook for business this year remains excellent A T THIS WRITING, the steel strike has
lasted three weeks and lias caused un told losses of millions of dollars in wages and sales. The strike might have been avoided if industry representatives had agreed to a 15-day extension of talks beyond the contract termination date with the proviso that any wage awards be retroactive to July 1. Indus try objected on the grounds that price adjustments could not be made retro active as well. It almost seems that the strike was fated on the basis of a wide divergence in labor's contract de mands and in industry stipulations re quiring an extension of trie contract period to five years. The steel strike causes a loss of slightly more than 2 million tons for every week it is in progress. While steel inventories had been accumulated during the second quarter, they are not sufficient to withstand a production
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stoppage of extensive duration. Esti mates made by Steel magazine show that 3 5 % of consumers would b e af fected seriously by the strike if the walkout continued for 30 to 4 5 days; 55% if it continued as long as 60 days; and an additional 10% if the strike lasted u p to 90 days. A strike of less than SO days would affect only 15% of steel consumers, while the au tomobile industry has enough steel on hand to complete the 1956 model run and to start production on new models, the magazine concludes. • Strike Duration. Economic pres sures on steel workers and on consum ers along with others involved in aux iliary industries begin to mount and work toward arbitration of divergent views. Prospects are that the strike will be settled after Aug. 1 and before Sept. 1. After settlement, steel indus try operations will run at top levels to
allay the shortages now developing, shortages which will probably be most acute in flat rolled steel. • Record Yean Sinclair Weeks hedged a prediction that 1956 would be an excellent business year, a little better than last yew, to a n assumption that the steel strike would b e short lived. As Secretary of Commerce» Weeks announced revisions i n figures for Gross National Product which were placed at annual rates of $401.9 billion for the fourth quarter o f 1 9 5 5 and $403.4 billion for the first quarter of this year. Thus the $40O-billion-mark was achieved last year, and President Eisenhower is on record to the effect that the next 10 years will see a level of $500 billion reached. ί Outlook. A midyear survey by Fortune magazine produced an opti mistic outlook for 1957. The current readjustment appears to have its roots in an overexpansion of inventories and of production, particularly in the auto mobile industry, and is greater than should b e expected in the vacation months of the year, The rise in Gross National Product predicted by Fortune will begin in the fourth quarter, 1956, and total about $20 billion b y the end of 1957. The rise i s expected to b e gradual, unlike the rapid upsurge in 1955 business activity. In arriving at the forecasted rise of $20 billion in GNP, the business equa tion involves the following assumptions·
First, that defense spending will rise $1.5 billion a year, while total government (including state and local) spending will increase from $107 billion t o $114 billion. Second, the federal cash budget surplus which amounted to $ 5 billion for the last fiscal year will d e crease slightly as spending goes u p ; this assumes no tax reductions. Tnird, capital outlays which have been rising at a rapid pace of about $4 billion a year will show a tendency to taper off by mid-1957. Fourth, growth in inventories at the recent pace of over $ 4 billion will contract to a more modest rate approximating $ 2 billion in 1957 to support the larger economy. Fifth, home building and public works construction projects will increase at the rate of $3 billion as credit loosens and as school and highway programs accelerate. Sixth, increases in wages, more than can be offset by gains in productivity, will produce price inflation of the order of 1 to 2% a year. Seventh, savings will hold at present rates, but incomes will advance at the rate of $10 to $ 1 2 billion a year over the next 12 to 18 months. Eighth, consumer spending will show a 39fc gain in line with larger incomes, also in line with the normal growth rate for most consumer goods such as foods, etc. Ninth, a loosening of credit may be expected during the latter half of this year to support the upswing in business, but the need for additional borrowing for private purposes may b e reduced. And tenth, exports will show very little rise if any at all next year. • Chemicals. The healthy picture painted reflects many things: confidence which has permeated the business atmosphere and induces people t o spend future income yet still plan ahead; a degree of momentum which has permitted the economy to grow at a 4% annual rate with only minor interruptions; and the impetus provided b y technology which has fueled the boom. Chemical industry, no longer an infant yet far from a mature segment of the economy, contributes more than its share to industrial growth and is rewarded by a basic growth in production of 6 to 7% a year. Monthly sales volume still approximates $2 billion as shown in the charts, and the inventory position has not as yet become burdensome at 1.7 months' sales. However, the rate of inventory gain ought not to continue at the pace of recent months, for July and August sales should suffer a decline and force production cutbacks. CHART CREDITS: Sales (Chemical and Allied Products vs. All Manufacturing) , Phenolic Plastics, Vinyl Resins, Cellulose Acetate Plastics—Department of Commerce.
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