Springtime for Bears?

Out of hibernation last week came the first hungry bears of 1940 business. For three months these grizzly animals have growled to each other in their lairs that production could not be kept at or even near 1929 levels if: 1) capital goods production stagnated; 2) war exports lagged; 3) the boom rate of production rapidly ate up industry's backlogs of orders. Last week the bears were smirking.

They did not smirk because Sears, Roebuck (1939 sales: about 23% over 1938) and Montgomery Ward (1939 sales: about 15% over 1938) were reported holding nearly the same margin over 1939, although both announced higher prices for the spring. Nor because January retail grocery sales, best in rural areas, were running 5% ahead of 1939. Nor because retail auto sales declined less than half as much as is "normal" in January, kept 26.6% ahead of 1939.

But the superior expression on the face of the bears was noticeable when the Federal Reserve Board reported that although its December index of production was higher than for any month in history (thanks mostly to the durable goods industries), January production, instead of rising, was slipping from the peak. This was a sure indication that its index for January would be down from December's (seasonally adjusted) level of 128.

The stock market did not wait for the Federal Reserve announcement. The Dow-Jones Average of 30 Industrials, whose War II's high was 155.92, broke to a new wartime low of 144.65. Conspicuous among those leading the market down was Wall Street's No. 1 counter, U. S. Steel. From 1938 until last summer Big Steel was called the highest-priced stock on the board because its price was more than infinity times its (zero) earnings. Last week Dow-Jones estimated that the post-peace steel rush had netted Big Steel $2.70 a share for the year on its common (which would justify a price of $27 on the conventional ten-times-earnings basis). Steel responded by dropping from 59 to 56 7/8.

Meantime, the steel production rate was down to 82.2% from its pre-Christmas high of 94.4%. The composite price of scrap, a major barometer of steel, fell back from the war-boom peak of $22.50 a ton to $17.67--the mills were loaded, were not buying any more.

Three weeks ago Detroit steel jobbers, who had been the only ones to raise prices during the October delivery crisis, cut them $3-$5 a ton, back into line. Last week, a few harder-pressed little fellows put Detroit sheet prices $2 below the posted price of $44. The New York Journal of Commerce admitted that "inventories of many steel consumers [up 21% since Sept. i] are large enough to last a month or two at least . . . even longer if consumption of steel declines."

Other news which put smiles on the faces of bears:

Construction. The first three weeks of 1940 saw $159,299,000 of contracts awarded, 39% less than in 1939's first three weeks. Reason: Federal, State and municipal awards were down 37% (mostly due to drying up of PWA) to $111,159,000, more than offsetting a 27% gain in private awards to $48,140,000.

Oil. Gasoline exports, in spite of war, when last heard from were at least 30% below late 1938, with no new orders coming in. Gasoline inventories rose to a dizzy 84,326,000 barrels, partly because producers are having difficulty in curtailing gasoline production now that its byproduct, fuel oil, is in demand. Meanwhile, wholesale gasoline prices, cut three times since Dec. 1 (net cut: 3/8-c- a gallon) were dropped another 1/8-c-.

Copper. Not since October has the price of copper budged. At that time all leading producers put the price up to 12 1/2-c-. Last week the price was split three ways on the downside. Buyers were sitting tight and production was running on. So the No. 1 U. S. copper customs smelter, American Smelting & Refining Co., began taking odd-lot orders at 12 1/4-c-, while its competitors were hopefully holding out for 12 1/2-c-. Meanwhile, export copper and the price of a couple of marginal units slipped to 12-c-.

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