Cloudy, Possible Showers

In elevators, subways, reception rooms, in bars, clubs and smoking compartments, in all the places where U. S. businessmen habitually swap horseback opinions on the State of the Union, prime topic last week was the timeless question--How is Business? But it was not put in the usual form of a casual greeting. Not only had business failed to develop a normal autumn spurt: it was definitely on the down grade. The New York Times weekly business index has dropped steadily from above in. its Recovery high registered in the middle of August, to less than 105, lowest since last February. Everyone had heard disturbing tales of layoffs, close downs, price cuts, sudden cancelations, ominous inventories, dwindling backlogs. And if the stockmarket were any indication, the country was in for cloudy weather, possibly showers.

Sold to a standstill in the six-week slide that lopped off more than a year's gains, the stockmarket steadied last week, then rebounded feebly. By now it was crystal clear that whatever gave the market the first push downhill it would not have slid so far on a false alarm. But the market's barometric value is limited. It seldom indicates how much it will rain, or how long.

Hardly had the stockmarket quieted before a deflationary storm hit the world's metal markets. In London a bad break carried the price of tin to 56-c- per lb., down 10-c- from the year's high. Panicky selling spread to other metals, first in London, then the U. S. Two successive cuts in U. S. copper left the price at 12-c- per lb., compared to the March high of 17-c-. Zinc fell from 7 1/4-c- per lb. to 6 1/2-c- and lead to 6-c- per lb., having touched 7 1/2-c- early this year.

The drop in metals pretty well completed the deflation of last spring's commodity boom, the root of current business troubles. Cash wheat was down from $1.60 to $1.23 per bu.; corn from $1.58 to $1.21 per bu. ; cotton from 15 1/4-c- to 8 1/2-c- per lb.; rubber from 27-c- to 17 1/4 per lb.; steel scrap from $23.50 to $18 per ton; cocoa from 13-c- to 7-c- per lb.; turpentine from 50 1/2-c- to 30 1/2-c- per gal.

Taken alone, a general decline in commodity prices is a black, bearish, omen, for in the long run it indicates a dwindling world demand for goods. The present decline, however, seemed to be more of a temporary readjustment after manufacturers had been scared into overbuying early this year, both by fear of further rises and by fear of strike stoppages. For no unmanageable surpluses overhang markets, and if goods continue to go into consumption at close to the present rate, manufacturers may soon use up the materials they have on hand.

One thing in particular still threatened commodity prices, however, a drop in pound sterling, dominant currency of world commodities. Last week there was little indication that the pound would not remain reasonably stable, but there was fear that the franc, down last week to a new eleven-year low, might eventually topple the pound (see p. 24). In the long view, sinking foreign currencies may be inflationary, may lead to another cut in the dollar. But immediate effects, as Herbert Hoover liked to point out after Britain left gold in 1931, are sometimes unpleasantly deflationary.

While commodity prices have thus fallen from their spring peak, retail prices have continued on a steady upward trend, creating consumer resistance. Soaring prices have ripped the budding building boom to the point where residential construction for tho first time since Recovery is running behind the previous year. In physical volume, though not in dollars, retail trade has run behind 1936. More recently retail trade has perked up, but having stocked himself and his home against the rise--on the advertised advice of the merchants--the average citizen appeared in no hurry to splurge. Many a store remained overbought, many an industry is overproduced--notably steel and textiles. But curtailed production was already automatically correcting the over supply. Steel operations opened this week at only 66% of capacity, as against a spring high of 92%. Meantime U. S. industry as a whole is not overburdened with inventories. Indeed, Economics Statistics, Inc., specialists in supply & demand, declared last week: "The balanced supply-demand condition, the favorable commodity price relationship, and the current high level of purchasing power indicate that a marked expansion in business will be experienced during the next several months."

Though few businessmen were so sanguine, the fact remained that business sentiment was still far worse than actual business. As in 1924, or in 1927, U. S. Industry might be in a lull, but even the stockmarket, given to exaggeration though it notoriously is, had not suggested a 1929 deluge.

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