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The market also proved that the new economy is so big and so diverse that many industries once considered the driving forces can slow down without bringing a traffic jam throughout business. The tobacco companies, the supermarket chains, drug and electronics companies all had record or near-record years despite recession. Investors reacted by driving P. Lorillard up 175% to 89 at the high; General Foods went from 50¼ to 79½ Federated Department Stores from 30⅛ to 54¾ Pfizer, Merck. Schering, and Carter Products posted 68% to 114% gains. One spectacular performer riding a recession boom: Zenith Radio hit a high of 208½ for a 209% gain since spring.
At year's end some Wall Street professionals worried that the Bull had overreached himself, that the market had gone too high too fast. A few years ago, a stock that was selling for 15 times its earnings was considered expensive. At year's end the price-earnings ratio for industrials on Moody's index stood at 21, and for many stocks it was much higher, e.g., IBM is selling at 47 times earnings. Viewed at current earnings, the market may indeed be too high, reflecting a hedge against more inflation as well as a hope of sharing in the growth of the economy. But it is not too high in the light of the earnings investors think they can expect. Nevertheless, some experts expect a pause or short drop for the Bull to catch his breath. The pessimists fear a major shakeout. They could be right only if the nation's reading on its new economy is wrong. And in 1958 the economy's reaction to recession earned it a well-deserved vote of confidence.
Time to Digest. In the sense that the drop was the fastest and deepest, the recession was the worst since World War II. The gross national product lost $19.8 billion in six months. It was also the most carefully reported, closely analyzed and best understood of the three postwar recessions. Everyone knew the basic causes: businessmen, expanding at fantastic rates ever since World War II, had to slow down; the economy needed time to sit back and digest all the new capacity. Plant expansion, roaring along at the rate of $37.8 billion in 1957, dropped to $29.6 billion in 1958. Businessmen who had been accumulating inventories at the rate of $2.2 billion annually decided they had too much on their shelves; they cut back drastically, almost $5.5 billion for the year.
The immediate reaction of many politicians and businessmen was to call for the classic remedies. They cried for tax cuts, a mammoth government make-work program, many more billions for old-age pensions and unemployment aid. All year long the Eisenhower Administration staunchly resisted temptations to buy its way out of recession, although it speeded up and enlarged present housing and social security programs as antirecession measures. It gave the economy's carefully built-in stabilizers a chance to work and relied on the nation's own basic good health to recover from the slump.
As manager of the nation's money supply, the Federal Reserve Board operated its credit tools with a delicate touch, lowering member-bank discount rates and reserve requirements. But there was no