Economic View Profit Squeeze Suggests Capital Outlay Decline
pOR the past six weeks in-A vestors and investment analysts have been visibly expressing in the stock market their disappointment with the current rate of corporate earnings. Simultaneously, the business analyst is making ms own analysis of the economie effects of these earnings.</br></br>While the earnings statement of most companies for the second quarterly period are yet to be published, the pattern revealed so far justifies a significant generalization. In most instances the rate of sales for the second quarter was not bad, reflecting the fact that the broad measurements of business activity were close to the highest on record. Gross National Product for the second quarter, at an annual rate of $505 billion, was slightly higher than the first period of the year and was a little more than 3 per cent higher than a year earlier. The FRB Index of Industrial Production was only a shade lower than the high record rate of the first quarter and was about the same as the second quarter of</br></br>HOWEVER. EVEN though many companies are recording modest year-to-year increases in sales, they are turning in lower profits. There is an evident inability to recover higher costs by raising prices. We have here a very significant that ample supplies and ample</br></br>The interpretation of this condition by investors was reflected in the stock market last week by the fact that some of the choicest blue-chip issues recorded new low prices for the year and, in some instances, for last year too. The New York Times stock price average dropped to the lowest point since the autumn of 1958. As this article is being written on Friday, the Dow Jones industrial stock price average had not yet penetrated the significant low points recorded in March and May, although they were heading in that direction.</br></br>In brief, investment managers are beginning to express their skepticism about the justification for price/earnings ratios which are still historically high, if we are going to be operating over the intermediate term in an economy that shows distinct signs of becoming more competitive than any time in the entire postwar period.