Evening star., 1939-08-17
Markets Position
Is Static While
Business Advances
Divergence Between
Two Cannot Long
Continue, Says Observer
BY GEORGE T. HUGHES,

NEW 1ONh, Aug. I'LL COll-
parison is made of the business sit
uation today with that of year ago
and then a similar comparison made
for the stock market, a striking
discrepancy appears.
Take business first The Federal
Reserve Boards index of produc-
ton stood at II in June, 1898. In
July, it had advanced to 81. In
June, this year, the figure (revised)
was 98. The July figure has not
been announced at this writing.
There was, therefore, a spread be-
tween June, 1888, and June. 1889, Of
q points in favor of the latter year.
The same result is obtained If
we take Barrons business index,
which stood at 1875 as of August 5
this year and at 562 on the cor
responding date year ago. In
other words, business activity is pro-
ceeding on much higher level to-
day that it was at this time in 1888.
A Look at Stock Market.
Now, let us look 'at the stock
market, for the measure of which
the DoW-Jones industrial averages
offer the most convenient scale. The
stock market closed last week at
1892 compared with 1862 on that
date a year ago On the preceding
day this year, it had been as low
as 1877 %, or only trifle over point
above the 1888 mark.
In other words, the stock market
is just about where it was year
ago, while business has gained any
where from 20 to 80 per cent, de-
pending on which index the COM
putation is based. Business is much
better than the stock market is will
ing to admit.
From this showing, it is possible
to argue in several ways and even
reach contradictory conclusions. 1t
can be held that the market, exer-
cising its traditional forecaSting
function, is saying that busines is
going to decline from here out. The
causes of the predicted recession
vary according to the commentator.
Inc fTeS1OcnLS s view.
The President is on record as eX-
pecting a setback which. he says.
will be due to defeat of his spend
ing-lending proposal and to refusal
of Congress to amend the neutrality
law.
Others, not satisfied with that
diagnosis, believe that the New
Deals restrictive policies are suf-
ficient to reverse the trend, ignor-
ing the fact that the improvement
already registered has been achieved
under these same policies and in
spite Of them.
Perhaps this writer does not state
the case for the pessimists quite
fairly or fully, because, possibly, he
does not share their views.
A more logical explanation of the
tagging action of the stock market
is the repressive influence of the
European crisis, which, however,
does not seem to affect business as
it does security prices. 1t may
be that the market hesitates solely
because it cannot see the way out
for Europe, not because it antici-
pates slowing down of business.
Divergence Can't Continue.
One thing is sure. The divergence
between business and the markets
cannot continue indefinitely. Either
industry will come down to the
market, or the market will come
I'm to industry
This column does not see any
reason to change its repeatedly ex-
pressed opinion that war will be
averted, but, again, it is only an
opinion subject to revision, when
and as necessary 1t can be stated
on the other hand, that there is no
sign of an impending let-down In
business. There are weak spots, to
be sure, but that is always true.
Steel operations are at the high
of the movement, and that with
the automobile demand yet to come
The index of new machine tool
orders is also at new peak, up 1913
points in July to 239. In July, 1888
it stood at 1876. Earnings state
ments continue to show large gains
over year ago.
AS far as domestic affairs are
concerned, the burden of proof is on
the doubters.