(3 of 10)
One result of the continuing boom on boom was that money started to run short, credit tightened, and interest rates rose. Treasury Secretary George Humphrey chose this occasion to float a new $2 billion bond issue with the highest rate (3¼%) that any U.S. bond had carried in 20 years. With this formal notification that the "easy money" policy of the Democratic Administration was ending, the money shortage worsened; three-to five-year Government security rates rose from 2.6% to 2.9%. As credit tightened throughout the economy, builders complained about the new shortage of mortgage money, retailers warned darkly of a sales slump if the hard money policy continued, the stock market jiggled to a year's low of 255, thus pushing dividend yields up to 5.8%, in line with the rising trend of Government bond interest (see chart). George Humphrey did not need to be told what to do; he cut the interest rate on his next issue, while the Federal Reserve Board reduced bank reserve requirements to make more credit available.
With this shot in the arm, the economy resumed its forward drive. Retail sales reached a new record, and production kept rising. In the face of this economic strength, the truce in Korea had little noticeable effect, except on the stock market, which started to rise. Not till October was there any significant slackening in the steady rise of production; then it began to edge downward as the makers of autos, appliances, refrigerators, etc., began to trim their output, which in most cases had already exceeded their fondest hopes for the full year. Those who had feared that any step down from boom heights would mean a disastrous fall were proved wrong; the steps were orderly and gradual. Although prices officially showed little change, the shrewd buyer of autos and other hard goods could almost quote his own price, sometimes down as much as 30%. At year's end, layoffs were higher than in three years.
Despite uncertainties, the stock market kept on rising, and at 283 on the Dow-Jones industrials average, was only 3% below the year's peak. More important, there was little slackening in overall retail buying. In a last-minute Christmas rush, sales reached a new yearly peak. And though year-end steel production, at 66.6% of capacity, was the lowest (except for strike shutdowns) in three years, U.S. Steel's Ben Fairless was not alarmed.
Said he: "U.S. Steel is backing its confidence in this country's economic future by an investment of approximately $300 million during 1954 in [new] facilities."
Geography Lesson
In 1953's economic growth, many of the parts grew faster than the whole. California continued to lead the nation in its rate of expansion. Though the moviemakers were still caught on the horns of their 3-Dilemma, the other industries of fast-growing Southern California had become so diversified that Hollywood's slump was insignificant. The volume of building in the Los Angeles area alone (nearly $1 billion) was larger than the combined 1952 total of Chicago, Detroit, Houston, Dallas, Philadelphia, New Orleans, Denver, Baltimore and Boston.