Evidence and Opinion

In 1937 U. S. industry experienced nine beautiful months, then the foulest final quarter on record. In 1938 U. S. industry experienced six months of stagnation, then six of brilliant recovery. It was logical to expect, therefore, that corporate earnings for 1938 would turn out to be substantially, but not appallingly, below 1937. By last week enough year-end statements were out to show that, with the inevitable exceptions, this was the case. Samples:

Utilities 1937 1938
American Tel. & Tel. $179,834,815 $152,037,000
Commonwealth & Southern 15,124,836 11,864,746
United Corp. 10,692,598 8,501,993

Railroads
Chicago, Burlington & Quincy 4,907,254 3,641,763
Norfolk & Western 31,799,281 20,013,686

Manufacturing
Caterpillar Tractor 10,168,689 3,235,709
Du Pont 88,031,943 50,190,827
Owens-Illinois Glass 9,351,627 5,382,000
Republic Steel 9,044,147 d7,997,825
U. S. Steel 94,944,358 d7,755,914
Westinghouse Elec. & Mfg. 20,126,408 9,052,773

Petroleum
Atlantic Refining 9,935,045 4,317,000
Sun Oil 9,544,085 3,085,110

Miscellaneous
Continental Baking 4,150,683 4,493,803 Liggett & Myers Tobacco 21,375,560 20,560,884
United Fruit 11,817,128 10,272,747
F. W. Woolworth 33,176,509 28,584,944

d:=deficit

Incomplete as mere earnings figures last week (major food, automobile and building companies had still to report), certain conclusions were inescapable. Steel's tumble was proof of how heavy industry has lagged in the recovery from Depression II. Caterpillar Tractor's drop reflected the slump in farm income. Conversely, Continental Baking's rise shows how industry's more rigid prices make for profits when highly elastic farm or other raw-material prices fall.

One of the most important facts revealed by year-end statements is inventory position. Last week, reviewing statements from 100 leading corporations (all having inventories of $1,000,000 or more), Manhattan's National City Bank found cause for optimism: their inventories were off an average of 10% from a year ago, 15% from the peak of the Depression II inventory glut in September 1937. Both in its evidence and its opinion. National City thus reflected the virtual consensus among businessmen that the inventory problem, so severe year ago, is now well in hand.

Businessmen habitually err, however, in regarding inventory size alone as an indication of business conditions. For, if demand is large, big inventories can readily be absorbed. But if production continues up regardless of demand, even small inventories may prove excessive. Last week a few economists were claiming that such is the case now. Economics Statistics, Inc. (of Manhattan) held that soaring industrial production, following last spring's depletion of inventories, had once more over-replenished inventories--enough to account for the current slump in industrial production and stock prices.

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