BUSINESS

Economy in Good Shape Forecasts for 1956 business indicate peak year but some let-down in activity after midyear

A HE BUSINESS PICTURE looks very good for 1956. Economists look for 1956 to top 1955, but al l display conservatism about prospects for activity during the latter half of the current year. What­ever the predictions, the facts of the matter are that 1956 is a presidential election year, and much depends on congressional "politicking" and particu­larly on t h e identity of the presidential candidates. Also, there will be con­tinual upward pressure on prices and especially strong pressure for wage in­creases. Politicians will have many fits between now and election day re­solving trie influences on voters of higher prices versus higher wages. In a boiling election year, the August Federal Reserve Board will be hard pressed to follow the bare dictates of good, sound economic policy which may require strict controls on credit and the supply of money.

some signs of economic indigestion per­haps around midyear. At that point, the FRB will probably be willing to relax austerity in the money market and, in fact, provide some stimulus to the economy, within the limits of its ability to do so.

• NICB Report. The National In­dustrial Conference Board predicted a breakthrough in gross national prod­uct to better than $400 billion, pos­sibly as high as $410 billion during the first half of the year, unemployment of 2.5 million, a rise of 1.5 points in the wholesale price index but no change in the consumer products price index. Elements of strength as we enter 1956, according to the report, are the hard core for expansion, further accumula­tion of inventories, pressures of popu­lation resulting in increased state and local spending, and the possibility of tax relief. The NICB economist •^ointed to increasin0" si^ns of strain

and stress in the economy, and thought the second half of 1956 would bear careful watching.

A Du Pont economist at the meet­ing predicted a 5 % decline in textile production in the second half. Such a decline may serve to cool, for a time, d ie boom in synthetic fiber expansion.

• Declme of !%* An estimate of $398 billion for gross national product in 1956, starting higher and ending lower, is made by Fortune. The de­cline during the year in CNP is esti­mated at only 1%, and expectations are for a completion of this "high-level readjustment" by the end of the year. Business will turn up in 1957. Basic considerations governing these projec­tions involve a rapid rise in business inventories coupled with some limita­tions in consumer spending as debt re­payments mount. Industrial produc­tion now seems to be at a peak, and a downturn seems inevitable. Fortu­nately, capital outlays are increasing to what appears to be a record high. The latest Department of Commerce survey shows that businessmen expect a con­tinuation in the rise in new plant and equipment expenditures from seasonally adjusted rates of $29.5 billion in the third quarter of 1955 to estimated rates of $31 billion and $31.5 billion in the fourth quarter and first quarter of 1956, respectively. Unadjusted rates for the chemicals and allied products industries were $239 million, $300 million, and $294 million resOectiveh7.

2 7 8 C & E N J A N . 16, 1956

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PROCESS

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PHENOLIC PLASTICS l a n d Other Tar Ariel Resincl

V INYL RESINS CELLULOSE ACETATE PLASTICS

Production, Millions o f Pounds Production Millions o f Pounds

Production, Molding and Extrusion Materiols , Sheets, Rods, a n d Tube, Millions of Pounds

CHEMICAL I»K1€ES

~£* AtL WHOLESALE COMMODITIES PRICE INDEXES. 1947-1949 = 100

NOV. 111.2

NOV. 106.6

130

120

no 100

90

ALL WHOLESALE COMMODITIES

CHEMICAL PRICES (INCLUDES ALLIED PRODUCTS)

1953 1954 1955

1954 1955 1954 1955

SEPT. 42.2

SEPT. 61.0

SEPT. 12.7

1954 1955

Larger unemployment is predicted up to the level of 4 million by- the year end, and relatively stable prices and wage costs.

• Automobiles. It is hard to vis­ualize production and disappearance (into owner channels) of almost 8 mil­lion automobiles last year. Certainly, the fortunes of the auto industry mean a great deal to chemical process in­dustries as paint, glass, rubber, metals, etc. For the current year, car produc­tion will taper off to the level of 7 mil­lion cars, predicted by General Motors, while Fortune estimates new car sales at 6,250,000 versus 7.4 million last year. The Secretary of Commerce figures auto production at 4,250,000 during the first half year.

Economists are saying that t h e cyclic durable goods industries will fare poorly in 1956. These industries would include autos, tires, and appliances for the most part. Notwithstanding their reduced consumption of steel, the steel industry looks for very good business, aided by record construction expendi­tures for new plant and equipment The nation's steel-making capacity is rated at 128 million tons, a gain of only 2 % over a year ago. Tlie indus­try's per capita capacity is now up to 1547 pounds versus 1320 in 1950, and it does not appear to be sufficient. Certainly the chemical industry is feel­ing the pinch today as steel require­ments for new plant capacity are not readily forthcoming.

• Chemicals. Progress in rJhe chemi­cal industry in 1956 will probably not be up to standard, and certainly will not come anywhere near matching the amazing recovery of 1955. The in­dustry moves ahead of the economy as a whole, but it is so closely integrated to the economy that progress is dis­tinctly affected by the economic out­look and climate. In the absence of another durable goods boom, the chemical industry will have to make up for some lost business in these seg­ments of the economy by gains in sales to capital goods industries (users of plastics, for example) and to consumer goods industries as petroleum, textile, food, and tobacco. Last >^ear, con­struction expenditures for chemicals and allied products were at a low ebb, reaching just over $1 billion. Conse­quently, capacity additions will not provide a relatively large increment of sales gains. As a result, sales gains for the chemical industry may be very modest at an average of 5% t o produce an estimated industry total of about $24.5 billion for 1956.

CHART CREDITS: Chemical Prices vs. All Wholesale Commodities—De­partment of Labor; Vinyl Resins, Cellu­lose Acetate Plastics, Phenolic Plostics-Department of Commerce.

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J A N . 16, 19 5 6 C & Ε Ν 2 7 9

BY THE

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