JFK Attacks the Steel Industry

Fifty-five years ago tomorrow, President Kennedy attacked the steel industry. Gary Alexander explains the fallout.

Fifty-five years ago this week, on April 12, 1962, President John Kennedy held a special press conference to demand that the executives of U.S. Steel (and many other domestic steel companies) roll back their recently-announced $6 per ton price increase. He accused steel executives of being virtually traitorous in their “pursuit of private power and profit.” He said that the Department of Defense would only order steel from the firms that rolled back prices. Steel companies quickly complied, rolling back prices the next day.

By the next day, Friday the 13th of April 1962, the nation’s eight biggest steel companies surrendered to the President’s demands in quick succession: At 3:05 pm, Kaiser Steel was the first domino, followed by Bethlehem Steel at 3:21. U.S. Steel bowed at 5:25, followed by Republic Steel (5:57), Pittsburgh Steel (6:26), Jones & Laughlin (6:37), National Steel (7:33), and finally Youngstown Sheet & Tube (at 9:09).

That did not end the war of words. When it came time to announce U.S. Steel’s disappointing first-quarter 1962 earnings on May 7, CEO Roger Blough told his shareholders: “This concept is incomprehensible to me – the belief that Government can ever serve the national interest in peacetime by seeking to control prices in competitive American business, directly or indirectly, through force of law or otherwise.”

All through May of 1962, stocks kept falling. From its December 1961 peak at 741, the Dow fell by 29% in six months, to 525 by late June, 1962. It turned out to be the worst bear market to befall America in the 32-year expansion between 1942 and 1974. May 28, 1962 was the worst day on Wall Street since the 1929 crash. On that day, steel stocks dropped to 50% of their 1960 levels, as part of a long, long decline.

Steel companies weren’t price-gouging. Profits at U.S. Steel fell 61% from 1958 to 1963, with the biggest drop coming in 1962. The industry lost over 100,000 jobs from 1958 to 1960, including 70,000 jobs lost at U.S. Steel alone. Their profit margin was cut in half. While salaries in the steel industry rose 13% from 1958 to 1961, profits fell, as 85% of U.S. Steel’s 1961 profits were paid out in shareholder dividends.

In 1958, U.S. Steel was #4 in the Fortune 500, and Bethlehem Steel was #9. By 1985, U.S. Steel was in the process of changing its mix of businesses, emerging as USX Corp. The only pure steel company in the Fortune 100 in 1985 was Bethlehem Steel, ranked #68. Clearly, the U.S. steel industry was slowly dying.

The President killed an already-dying industry. By July 1962, the steel industry was working at just 55% capacity, vs. 70% in April, when the President attacked them. Very soon, Japan began to dominate the steel market, which was already beset by competition from non-steel construction products made from plastics, aluminum, cement, or glass. While the normal challenges of business are always present, the President’s attack contributed greatly to the decline of the U.S. steel industry over the next few decades.

As history shows, Presidents possess great powers to inspire or destroy when they propose to take any particular industry to the woodshed. Chances are, market forces are already disciplining those companies.

Posted by on April 11th, 2017 at 10:25 am


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