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The year 1940 opened and closed in gloom. Around Labor Day 1939, Business had begun to prepare for big orders. Assuming that World War II would resume where World War I had stopped, manufacturers started buying frantically from each other in order to be ready. The FRB production index headed straight up; then—when the export orders failed to materialize—it dived. So 1940 opened to the twinge of a familiar business headache: inventory trouble, just like stagnant 1938's.
Suddenly everything changed. First Finland, then the rest of Scandinavia was blocked off. The price of unbleached sulfite pulp in the U. S. jumped $6.60 a ton. Two months later, with Holland, Belgium and France gone, and Italy in, the U. S. had lost an export market (including Scandinavia) amounting to $568,000,000 in 1939. The stockmarket broke 35 points from May 1 to June 15, lay paralyzed with fear. But the U. S. swung into the greatest production boom in its history.
The signal for it came not from Business, but from events. Within 15 days of France's fall, the Army & Navy began to dump orders of $41,000,000 a day in industry's lap. The important fact about these orders was that they were for capital goods. For the first time in more than a decade, industry's prime mover—capital-goods expansion—agitated the indexes again. The steel rate soared from 60% of capacity (April) to 92% in September. At 11:30 p.m., on Dec. 9, steelworkers finishing the second shift also finished an era. They cast the years 60,835,000th ton of ingots, and thereby put 1940 ahead of the previous peak steel year of 1929. The FRB production index, its base broadened by FRB statisticians in August, touched its all-time high two months later, kept on going up. Confidence was not an issue; the only issue was production, and that fast.
There were three striking paradoxes of the 1940 boom:
1) For the first time in ten years, unemployment ceased to be U. S. Problem No. 1. Yet even this month there were still some 8,000,000 unemployed. At the same time, many industries complained of a skilled-labor shortage. Perhaps, like Britain, the U. S. could not absorb all its unemployed because its industrial mobilization never would be complete.
2) Agriculture is the one sector of the U. S. economy that depends heavily on exports. Farm crops were also the chief U. S. export which, in 1940, the rest of the world could not buy. Many farm surpluses in 1940 were higher than ever; for farm prices, "parity" remained just a slogan. Yet farm income for the year was estimated at $9 billions, highest since 1937. Thanks were due less to the production boom than to Government aid of $1,300,000,000.
3) Eeriest paradox of all was Wall Street. A capital-goods boom was under way with almost no help at all from private investment. The corporate securities markets did $1,666,805,000 of refundings during eleven months of 1940, but raised only $660,799,000 of new money. As the year ended, Wall Street, its best barometer, was huddled in the storm cellar with Confidence.