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The jump in interest rates—as high as 10½% on mortgage loans in California—has forced many families to postpone indefinitely their dreams of buying a new or bigger house. Though corporate profits on the whole are still rising smartly, interest costs and inflated operating expenses are driving a growing number of businesses to the wall. Pan American World Airways (1973 revenues: $1.4 billion), plagued by an inflation-induced drop in travel and a rocketing rise in jet-fuel costs, may be unable to pay its bills unless it gets a Government subsidy of $10 million a month. Nationwide, more than 5,000 businesses failed in the first half of 1974, leaving unpaid bills of more than $1.5 billion, almost 50% more than the liabilities of businesses that went bust in the comparable period of 1973. Builders and textile and apparel manufacturers are going broke the fastest.
Slight Ease? The chief cause of the zoom in interest rates has been the Federal Reserve Board's parsimonious policy. The board has held the growth of the nation's money supply to an annual rate of less than 5%—nowhere near enough to meet the credit demands of an inflationary econ, omy. Now there are some signs I that the board, realizing the shaky state of business, is becoming a trifle more generous; at minimum, it has stopped twisting the money tourniquet ever tighter. That small bit of good news was enough to touch off a Friday stock market rally that sent the Dow Jones industrial average up 22 points, to 679.
Still, the Dow was down eight points on the week, and has dropped 99 points in the first three weeks of the Ford presidency. That exactly reverses what had been expected; predictions were once widespread on Wall Street that when President Nixon left office and was replaced by a Chief Executive capable of taking strong action to right the economy, the Dow would jump 100 points.
Even if Friday's rally should continue, share prices have a long, long way to climb before investors can feel flush again; at last week's close, the Dow was more than 35% below its alltime high of 1051, reached on Jan. 11, 1973. The plunge has occurred not because of any enormous wave of selling but through a day-to-day crumbling of prices on moderate volume—"panic on the installment plan" in the words of Wall Street's gallows wits.
The dive of the Dow index, which is made up of 30 blue-chip issues, only begins to tell the story. Since the January 1973 highs, the index of all shares traded on the New York Stock Exchange has fallen 42%, the index of all issues on the American Stock Exchange has plunged 46%, and a popular average of over-the-counter stocks (those not listed on an exchange) has plummeted 54% (see chart). And this has occurred at a time when all other prices have been rising. Market Analyst Raymond F. DeVoe of Spencer Trask & Co. figures that share prices, adjusted for changes in the dollar's purchasing power, dropped 86% during the 1929-32 collapse (consumer prices were falling then, along with stocks). Between the end of 1968 (from which many traders date the present bear market) and last month, he calculates, the price of an average share traded on the New York Stock Exchange, adjusted on the same basis, fell 79%.