A Question of Degree

Just about everybody was busy last week comparing the recession of 1954 with that of 1949.

Winfield W. Riefler, Federal Reserve Board economist, reported that the FRB's industrial-production index would probably go down another two points in February from the January figure of 125 (1947-49 = 100). That would mean, said Riefler, that output since the postwar peak last October has dropped about as much as it did in the first four months of the "exceptionally mild" setback in 1948-49-Economist Edwin G. Nourse, who was head of President Truman's Council of Economic Advisers during the 1949 recession, told Congress what the current figures mean to him. "We do not have adequate ground for counting on a seconder third-quarter recovery," said he. "Remedies against further downturn, though impressive, are as yet unproven and difficult of application."* Nourse advocated a quick switch in the Administration's tax programs to give more relief to individuals, particularly in "the lower-income brackets, where spending pressure for the necessaries of life is greatest."

Even government agencies cannot agree whether unemployment now totals 2,300,000 or 3,000,000. Hence, it is difficult to compare 1954 unemployment with that in 1948-49. But in other aspects, the two periods are remarkably similar. In both cases, production started down in October, dropped nearly 10% by February. In both cases, retail sales dropped 20% from October to February (not much out of line with normal seasonal trends).

But there are two big differences:

P:The first is that the 1954 economy is at such a high peak that sales and production, even after four months of decline, are still above the levels from which they started to fall in 1948.

P:The second and more important difference is the trend in inventories. In 1948-49, business did not cut its buying until sales started to fall; then the stop-orders caused a drop in production. This time retailers cut their buying in anticipation of declining sales, and that started production down last October. The result is that inventories have already dropped by some $2 billion since October, whereas the decline in inventories in 1948-49 did not start for a full seven months after production began to drop.

Since many retailers have been living on their inventories and will soon have to order again, some businessmen think that the setback has about run its course.

In its monthly survey, the National Association of Purchasing Agents found that "production shows signs of recovering." Ward's Automotive Reports said that for the first ten days of February, auto sales rose over January's best ten-day period, the first such rise in four months. Tele vision manufacturers reported that sales were better in the first five weeks of 1954 than in the same 1953 period.

*In Wall Street there were also plenty of bears. The New York Stock Exchange reported that short interest had risen 158,477 shares in a month to a 22-year high of 2,722,944 by the middle of February. However, many of those who sold stocks short were merely protecting profits until the present clouded outlook clears. For example, an investor with a paper profit in a stock sells it short. If the stock falls, the loss is made up by his gain on its short sale.

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