(8 of 10)
The guarded optimism—and awareness of a possible readjustment—were themselves good guarantees against disaster. They warded off excesses. One of the reasons for the slip in business toward the end of 1953 was that businessmen were cautiously ordering less, working down their inventories. The inventories, while still enormous ($78 billion), were equal to only 1.6 times monthly sales, just about the pre-Korea average. And at year's end, as inventories kept dropping, purchasing agents looked for a business upswing before 1954 was many months old, as business started to restock. However, the backlog of unfilled orders still stood at $61 billion at year's end, more than twice the pre-Korea total.
There were other evidences of built-in stability. Despite U.S. industry's investment of $80 billion in new plants and equipment in the last three years, businessmen plan to expand at the rate of $27.9 billion a year in the first quarter of 1954, only 1% below 1953's record rate. Businessmen would prefer much less Government spending and an end to deficits (estimated U.S. deficit next fiscal year: $3 billion). But they also recognize that arms spending of $38 billion will be a big stabilizing influence.
Even the stock market has a kind of built-in stability, since by old yardsticks stocks are cheap. The stocks in the Dow-Jones industrials average are selling at little more than ten times earnings v. 20 times earnings in 1929. And on top of that, many U.S. corporations, if they were to liquidate, would actually pay their stockholders more in cash than their stocks are selling for.
There is also cause for optimism in the tax cuts that go into effect this week. The 10% cut in personal income taxes will release $1.9 billion for consumer spending; the death of the excess profits tax provides a well-padded corporate cushion against a sales drop. Sales of General Motors, for example, could drop as much as 37% in 1954, and the automaker would still end up with net profits as good as in 1953. General Electric, even with some drop in sales, could boost its earnings to $7.50 a share this year v. an estimated $5.50 in 1953. (In anticipation, traders have pushed G.E.'s stock up 20 points to $87 in the past six months.)
Competition Coming
Despite all this, competition in 1954 will be fierce. Last year saw one big auto merger (Kaiser-Frazer and Willys), and heard rumors of another (Hudson and Nash); 1954 may bring more of the same as independents battle to keep their share of the market. Meanwhile, General Motors' Harlow Curtice plans to spend $300 million in expanding production.
For many companies, there will be trouble in 1954 because of the ever-changing nature of U.S. business itself. While change is one of the nation's greatest strengths, it is also dangerous for those who do not change with the economy. In 1953 oil surpassed coal as the No. 1 source of U.S. power, but that does not mean that the petroleum industry can sit back complacently. Natural and manufactured gas are coming up even faster, in ten years have more than doubled their share of the energy supply (to 25%) against a rise of only a few percentage points for oil (1953 share: 35%).