Earning a Raise

Treasury Secretary Douglas Dillon, a Wall Street Republican seldom given to extravagant statements, breathed bullishly last week. Tax cut or no, he predicted to the House Ways and Means Committee, the U.S. gross national product will climb well beyond $600 billion in next year's first quarter, and the economy will keep on expanding through 1964's first half. Turning to the present, not the future, Dillon reckoned that in 1963's third quarter, corporate profits rose 11% from a year ago to an annual rate of $27 billion after taxes, close to the peak of $27.8 billion reached during the Korean war. The Government expects that profits will continue to gain during the rest of the year (see chart).

Profits have, in fact, been going up for ten quarters. This is a remarkable performance because, in previous cycles of recession and recovery since World War II, profits fell off after an average five quarters of expansion. What is different this time? Strong sales, steady production costs, a general sharpening of management techniques and a payoff from automation.

The General Gain. Last week General Motors reported that it earned more in this year's first three quarters than any company ever has in a similar span--$1.08 billion--and that G.M. third-quarter profits rose 12% over last year's level to an eight-year high of $208 million. U.S. Steel Chairman Roger Blough announced earnings so far this year of $150 million, 22% above the first nine months of troubled 1962.

Of 901 corporations tabulated by First National City Bank, 56% reported earnings up from the previous quarter, and for all, nine-month profits were 12% higher than last year. The Wall Street Journal surveyed 26 industries, found earnings were higher than in last year's third quarter for all but cement companies, chain groceries and papermakers. Spectacular successes were noted by airlines (Pan Am and TWA both had record earnings). Oil companies, notably those with major overseas operations, showed brisk earnings; Sinclair alone had a 76% rise to $45 million for the first three quarters.

The People's Share. To the delight of U.S. investors, some of the profits were promptly shared. In October, 105 companies raised their dividends, reported Moody's Investors Service. So far this year, 937 companies have boosted dividends. Last week IBM increased its dividend by 250 for the second time in 1963, to $1.25 a share. Deere & Co., with profits up 30% in a bumper crop year, raised its dividend a nickel to 600, declared a year-end extra of 350 and proposed a two-for-one split.

Executives will also divert much of the fresh cash to expand and improve their plants. McGraw-Hill's annual survey of capital spending plans, out this week, predicts that businessmen's capital budgets in 1964 will jump 6% to $42 billion. Other economists foresee increases in capital spending up to 8%--which would help to keep the expansion going.

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