FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT • • It is now clear that by March 7 specula- tive investment in. Wall Street had over- reached itself. The stock market had been rising throughout 1954 against the econo- mic indices partly because the investor anticipated that the reduction in corporate taxation would maintain net earnings and dividends, partly because he felt that the recession would not spiral into a depression and would end as soon as de-stocking had run its course. The investor was right. Cash dividend payments by all American cor- Porations rose 8 per cent, last year. De- stocking came to an end in the last quarter of 1954 and the sharp recovery in the steel and automobile industries suggests that stocking-up has been going on in anticipa- tion of trouble from the labour unions. From its low level of around 60 per cent. in the summer of last year steel output has spurted to over 90 pet cent. and automobile output this month may even beat the June, 1950, record of 720,000 cars. Like the ad- vance in the stock market this pace is too hot to last. As soon as this activity in the steel and automobile industries turns down, what fresh stimulus can be given to the American economy? The budget is a neutral influence, the Department of Com- merce predicts that business expenditures on new capital goods will rise only 1 per cent., and the long-sustained building boom must sooner or later slacken off. According to the National City Bank of New York, the number of new households formed in the three years to April, 1954, was about 2.2 millions, while the number of new 'dwelling units' started was 3.3 millions. In other words, for every new family formed If houses were built. There are certain weaknesses in the American situation which make one less optimistic of the 1955 recovery. Unemploy- ment has not fallen as much as the rise in output promised. (This may be due to the increasing automation in factories.) Mr. Leon Keyserling, who was chief economic adviser to President Truman, warned the Congressional Joint Economic Committee that the US is in a long-term trend of rising chronic unemployment.' The CIO econo- mists prophesy an increase in the numbers unemployed this year. Professor Hansen, of Harvard, denies that 'there is any solid ground for believing that we are on the way back to our growth track.' All things considered, this is not likely to be an out- standing boom year for the American economy. It may have difficulty in holding its recovery. And this may be a blessing for us in Britain. Our balance of payments and our terms of trade would have gone more against us if an American boom had turned commodity prices upwards. Mr. Butler must be as pleased with the Wall Street set- back as President Eisenhower.
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