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The Score. In playing by ear, businessmen took note of the economics of military spending. Out of the big military appropriations, almost half would go for maintenance of the armed forces, soldiers' pay, food and clothing—which should cause little strain in a nation with vast food surpluses and idle textile mill capacity. Less than half the remainder would be spent on military "hardware" (tanks, planes, etc.), which would cut into production of civilian hard goods (cars, refrigerators, etc.). Since only part of the military appropriations would be spent in the current fiscal year, only about $14 billion would go for military hardware—roughly 15% of the current production of civilian hard goods ($93 billion). If & when spending reaches a rate of $45 billion, probably by the end of 1951, the military hard goods requirements would still be less than 25%. On the basis of present conditions, businessmen thought that civilian production in 1951, while well under 1950, would be considerably better in many products than in some postwar years.
Despite its first-quarter cutback, the auto industry still expected to produce at least 4,000,000 cars in 1951, only about 20% under 1949. Despite the dire predictions which wiped out the television industry every other week, television's own prodigy, Admiral Corp.'s Ross Siragusa, expected the industry to turn out as many as 5,000,000 sets, only three-quarters of 1950's production, but still about double 1949's.
The housing industry expected to turn out from 400,000 to 600,000 dwelling units. Johns-Manville's hardheaded Chairman Lewis H. Brown predicted that the U.S. could handle all the demands of rearmament with no more than a 10% to 15% cut in overall civilian production.
Bull Notes. The stock market, which usually mirrors what businessmen think will happen, took the same optimistic view of the future. After the slump following the start of the Korean war, the market had steadily climbed upward in a flurry of stock splits and extra dividends, paying only momentary attention to the scares of war, new taxes, controls, and the prospect that conversion to war production would mean smaller profits for many companies. Traders also thought that a smaller supply of civilian goods would mean higher prices and more inflation—and that stocks were a good hedge against inflation. At year's end, in the biggest sustained burst of trading of the year, the Dow-Jones industrial average rose to 235-41 (up 35.28 points for the year), only .06 points under the 1950 bull market high.
Fever Line. How high was the fever line of inflation? By year's end the rise had not lived up to the political hullabaloo over it. During the year, the Government's cost-of-living index rose about eight points (to 174), matching the rise in World War II's first year of U.S. fighting. But the increase was well behind 1950's 14% rise in wages. However, there would be further retail price rises because consumer prices had not yet gone up as fast as farm and wholesale manufacturing prices.