Full text of Basic Business News : May 21, 1957 to May 27, 1957

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Published Weekly by the FEDERAL RESERVE BANK of CLEVELAND

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May 21, 1957

to

May 27, 1957

CONSUMER PRICES
SET RECORD AGAIN

Consumer prices climbed in April for the eighth
month i n a row, setting another record, the Bureau
of Labor Statistics has reported. Ri sing food prices
wer e a major factor in t he increas e. The i ndex f or mid-April was 119.3,
us ing average prices in the years 1947- 49 a s a comparison base of 100.
The increa se from mid-March was 0 . 3%, and from April 1956, i t wa s 3.8%.
This meant that a typical family pai d $1 . 03 - 4/5 in April f or t he goods
and services that cost $1.00 in April last year. The April increase
means a 2-cent increase in hourly pay for some 1,400,000 factory workers whose wages are tied to the index by escalator clauses in their
wage contracts. More than 1,000,000 of- these workers are in the auto
industry, the rest working in farm machinery and electrical equipment.
These wage increases will start June 1. The index measures price
changes in a specific selection of goods and services commonly bought
by city wage earners and clerical workers. (N. Y. Times, 5/25 p.1)
FEDERAL RESERVE
BARS CREDIT CURD

The Federal Reserve Board has recommended that it
should not be given stand-by controls over consumer
credit in peacetime. In calling stand-by controls
"not now advisable", the Board said it felt "the broad public interest
is better served if potentially unstabilizing credit developments are
restrained by the use of general monetary measures and the application
of sound public and private fiscal policies.u The issue of the need
for control over consumer credit arose after the huge expansion in
1955 of this credit, mostly for automobiles. The staff of the Reserve
Board made an extensive study of the question and published the six
v olumes of results earlier this year. (N. Y. Times, 5/25 p . 13)
President Eisenhower and key Congressmen agreed no
' action is needed on stand-by consumer credit controls. The White House
offj_cially announced that the President will not ask the lawmakers for
authority to impose such curbs whenever needed, as he had suggested in
January 1956. (Wall St. J., 5/27 p.3)
Selection of these items does not imply this bank's guaranty of their accuracy,


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nor agreement with the views expressed .

Businessmen seem to be shaking off the early 1957
jitters over the near-term outlook for capital spending. While there are no signs of an early resumption of the upward climb in the total rate of capital spending, the
fears of an actual drop during the latter part of the year are diminishing. There are two chief reasons for the improvement in _sentiment.
First, the profit-squeeze seems to be developing more slowly than had
been anticipated. The Council of Economic Advisers has just issued
an upward revision in aggregate corporate profits both for the year
1956 and the first quarter of 1957. Second, new appropriations for
capital outlays during the first quarter of 1957 turned out much better
than had been anticipated. They were nearly as large as during the
first quarter of 1956 in contrast to the two preceding quarters when
the rate dropped quite substantially behind the corresponding periods
of a year earlier. (Luedicke. J. of Comm., 5/22 p.1)

CAPITAL SPENDING
JITTERS FADE

HOPES FOR TAX
REDUCTION DIMMED

Tax reduction sentiment on Capitol Hill was dampened
by a Congressional staff prediction that the Government will spend $1.2 billion more in fiscal 1958
than President Eisenhower has proposed. The forecast was issued about
the same time that the House Appropriations Committee was voting a $2.6
billion reduction in the defense budget for the coming fiscal year.
Congressional experts said in their report, however, that all cuts in
appropriations being made by the House and Senate won't keep spending
from soaring beyond the President's estimate of $71.8 billion. (Wall
St. J., 5/22 p.1)
President Eisenhower and House Speaker Rayburn pushed
the prospect of tax-cutting action farther into the future. After
an overnight switch of opinion, the Democratic Speaker said he considered it unlikely the House would vote on tax relief this year. The
Speaker reiterated his view that tax relief would be effective next
January 1. However, he said he thought final House action would be delayed until next year, rather than this year as he had indicated earlier. (Wall St. J., 5/23 p.5)
CORPORATE PROFITS
SHOW SLIGHr DIP

Corporate profits declined just a bit in the first
quarter of this year, according to preliminary estimates made by the Council of Economic Advisers.
Total profits before taxes are estimated at a seasonally adjusted annual rate of $46.5 billion, as compared with $46.7 billion in the
fourth quarter of last year. Total corporate profits actually showed
an increase from the fourth quarter to the first when the change in the
value of inventory is eliminated from the figures. On that basis,
fourth quarter (1956) profits stood at $43.4 billion and first quarter
(1957) at $43.9 billion at seasonally adjusted annual rates. (J. of
Comm., 5/21 p.4)

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TREASURY BILL
YIELD 3 .12'4

Uncle Sam's short-term borrowing costs went up, halting the downward trend of the last four weeks. Investors who bought the Treasury's latest issue of
short-term bills will get an average yield of 3.12~. This compared
with 2.894~ the week before, which had marked the fourth successive
drop in the rate from mid-April. Offic i als attributed the interest
rate increase to the fact that the latest issue was for $1.8 billion
in order to refund a like amount coming due at this time, while last
week's offering "rolled over" only $1.7 billion. other factors affecting this latest offering included an "upward movement" in the
money market during last week as well as the scheduled offering on
Wednesday of $1.5 billion in ll9-day tax anticipation bills. {Wall
St. J., 5/22 p.16)
MACHINE TOOL
ORDERS SLACKEN

Machine tool makers' incoming business in April fell
to the lowest level in two yea.rs; shipments held near
the three-year high attained in March. New orders
last month totaled $51 million--down le!/, from March and 35~ below
April 1956. Trade sources ascribed the decline to lagging demand from
the automotive field, and a pause in equipment replacement programs of
many other big customers. But a check with lea.ding tool builders revealed a general expectation, based on the present rate of inquiries,
that bookings will be on the upgrade in the final half of 1957. {Wall
St. J., 5/23 p.1)
STEEL ORDERS UP,
PRICE RISE SLATED

A reversal of the steel order decline that has
been under way for several months was reported by
some producers at the opening of the American Iron
and Steel Institute's 65th general meeting. The decline has primarily
affected light flat-rolled steel products, particularly cold-rolled
sheets, which are used in large tonnages by the auto industry. However, despite signs of improvement, a number of executives conceded
that the production rate is likely to slip further during the summer
vacation season. These officials repeated earlier assertions that
steel prices are going up on .July 1, and some of them predicted that
the rise might be larger than the $5 to $7 a ton that has frequently
been conjectured. Some suggested that the increases should be a minimum of $8.50 a ton--to offset the boost in labor costs that are to
become effective on that date. An increase of $8.50 a ton would duplicate the 1956 price advance, which amounted to 6-1/4%. {Lally and
Keller. Wall St. J., 5/23 p.3)
I.B.M. NEW SHARES

International Business Machine Corp., the world's
largest maker of business office equipment, today
began offering its 34,ooo stockholders the right
to subscribe to 1,050,223 new common shares at $220 a share, totaling

TarAL $231 MILL.ION

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$231,000,000. It is I.B.M.'s first public financing since 1925, and
the second largest offering of new equity shares underwritten by Wall
Street since the passage of the Securities Act of 1933. The largest
was General Motors' stock offering in 1955 of $328,500,000. The Ford
Motor Co. common stock sale in 1956 is counted in Wall Street as a secondary, that is a sale of stock already outstanding, rather than new
stock. (Brophy. N. Y. Herald Trib. 5/22 II p.3)
NATIONAL CITY PLANS
STOCK INCREASE

The directors of the First National City Bank of
New York have approved a proposal for increasing
capital funds $120,000,000 by sale of 2 million
new shares at $60 a s hare. The increase will raise total capitalization of the b ank and City Bank Farmers Trust Co. (its trust affiliate))
to about $722,000,000, not including unallocated reserves. Howard C.
Sheperd, FNCB chairman, pointed out that the number of shares of $20
par value would be increased from 10 million to 12 million. A special
meeting of stockholders will be held June 24 to vote on the proposed
increase. Upon approval, the additional shares will be offered to
shareholders pro rata on a basis of one new share for each five shares
held as of June 24. (Amer. Bkr., 5/22 p.1)
SHORT INTEREST DROPS;
STOCK LOANS GROW

Two barometers of investor sentiment,. the short
interest and debit balances of customers,
changed importantly during the past month as
stock prices improved. Both sets of figures were reported by the New
York Stock Exchange. The short position as of May 15 dropped to
2,964,249, the lowest since February 15. Net debit balances of customers of member firms totaled $2.8 billion at the end of April, an
increase of $79 million for the month. The increase in debit balances
marked a re-entry of customers into the market, while the decrease in
the short position represented a decrease in pessimism and a covering
by shorts. (J. of Comm., 5/21 p.5)
ELECTRIC

Electric power use posted its biggest weekly gain in four
months. Output last week topped 11.5 billion .kilowatt hours.
This was a gain of 208 million kwh. over the prior week and
5.9°/o above the year-earlier level. The week-to-week increase was the
largest since the week ended January 19 when it amounted to 229 million
kwh. (Wall St. J., 5/23 p.1)

POWER

FARM CASH

The Department of Agriculture has reported that farm
cash marketings in the first four months of 1957 totaled $8.4 billion, up 3~ from the year earlier figure.
Total receipts from cash marketings in April were about $1.9 billion,
up 3~ from those of April 1956, because of higher average prices.
(N. Y. Times, 5/24 p.39)

MARKETINGS

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