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Form F. R. 131 BOARD • F GOVERNORS FEDERAL RESERVE SYSTEM Office Correspondence To Chairman Eccles Date yflhmnry ?.Q, ItKQ Subject: Bmile Desnres On Saturday morning I attended another meeting a t Secretary W a l l a c e ' s o f f i c e , a t which Messrs. E z e k i e l and G i l b e r t were a l s o p r e s e n t . The discussion d e a l t p r i n c i p a l l y w i t h G i l b e r t ' s m a t e r i a l on the business o u t l o o k , but a t the close of the discussion the Secretary said t h a t although i t had been decided t o await t h e P r e s i d e n t ' s r e t u r n before presenting recommendations to him, he wanted t o have a f u l l y developed set of recommendations on tap f o r use a t the opportune t i m e . He asked G i l b e r t to o b t a i n Secretary Hopkins' views concerning t h e r e l a t i v e p o l i t i c a l f e a s i b i l i t y of the measures enumerated on pages 3 , 4 , and 5 of the attached memorandum, and he asked me t o f i n d out your judgments on t h i s p o i n t . He s a i d t h a t i n h i s discussion w i t h Secret&ry Hopkins, Secretary Jackson, and you, the consensus was t h a t the program should be cut down to t h e bone. E z e k i e l has asked me t o come to h i s o f f i c e tomorrow morning t o help i n drawing up a new memorandum. Attachment £0 ECONOMY, DEBTS. AND BUSINESS Aside from p o l i t i c a l maneuvering, the current economy or i r e i n Congress i s based upon two factors* ( l ) The b e l i e f t h t business i s improving and w i l l continue to improve under the stimulus of war orders, (<) The c o n v i c t i o n t h t increased public debt i s dangerous, coupled w i t h an unwillingness t o increase taxes i n an e l e c t i o n year. These f a c t o r s should change s i g n i f i c a n t l y i n the ne«r f u t u r e . Business a c t i v i t y i s already d e c l i n i n g sharply, and the dscline seems l i k e l y t o continue t o considerably lower l e v e l s . This w i l l c h i l l the recent o p t i m i s t i c expectations concerning business trends. Business recession i n t u r n w i l l change the a t t i t u d e toward economy. Whatever ths f e a r of expanding f e d e r a l debt, the f e a r of de^r^ssion i s greater. A w i l l i n g n e s s t o spend f o r recovery w i l l develop as soon as t h i s f e s r r e a l l y takes h o l d . I t i s v i t a l l y important t h a t the a d m i n i s t r a t i o n be prepared t o take aggressive measures t o h a l t the d e c l i n e . This w i l l demonstrate t o the country ones more the a d m i n i s t r a t i o n ' s capacity f o r leadership and i t s readiness a t a l l times t o develop the type of p o l i c y which ths s i t u & t i o n demands. The Business Outlook I t i s now clear t h a t the surge i n a c t i v i t y since the outbreak o f war was p r i m a r i l y reduction f o r inventory accumulation. Of ths increase o f $1100 m i l l i o n s of investment expenditures which occurred i n the l a s t quarter of 1939, inventory accumulation c o n s t i t u t e d #950 m i l l i o n s , or about 36jG. While investment i n i n v e n t o r i e s i s s t i l l going on, i t i s sharply diminished. Th© other f a c t o r s &re not increasing r a p i d l y enough t o o f f s e t t h i s decline and a c t i v i t y i s therefore f a l l ing o f f . The only question a t the present i s tha extent and duration o f tha d e c l i n e . The rosy views of business prospects were based on the f e l l upt u r n , which c a r r i e d the Federal Reserve index from 102 i n August t o 128 i n December. The Hew Tear was f o l l o w e d by a s l i g h t h e s i t a t i o n , and now l ^ m r r j has seen a d i s t i n c t slackening t o about 110 a t ths present time. Present export, investment, and inventory prospects lead t o an expectation o f f u r t h e r d e c l i n e , w i t h the bottom coming i n mid-year o r even l a t e r , and w i t h the low p o i n t f a l l i n g between 80 and 100. The higher f i g u r e would hold i f there i s no inventory l i q u i d a t i o n and i f exports axeeed 1939 l e v e l s by l } t o 2 b i l l i o n s . I f t w o - t h i r d s of the recent a d d i t i o n s t o i n v e n t o r i e s are l i q u i d a t e d , and i f the exp o r t increase i s only 1 t o 1 b i l l i o n s , the lower l e v e l of A c t i v i t y might be reached. At b e s t , the decline would c a r r y production and employment back about t o where wa were before the war was declared and a t worst would plunge us f a r l o * e r . Prompt a c t i o n i s c a l l e d f o r i f the present decline i s t o ba cheoked before i t reaches such dangerout p r o p o r t i o n s . 1/ 2 / Tha analysis o f investment and export rjorospects on which these b u s i ness forecasts are based i s given i n Appendix 1* Had December l e v a I s been maintained, n a t i o n a l income would now be running a t a 75 b i l l i o n d o l l a r l e v e l . Ins tend, i t i s now running a t a 71 b i l l i o n l e v e l , and a»y touch - s low as a 65 b i l l i o n l e v e l by mid-summer* The recovery seems l i k e l y t o be resumed a t l e a s t by the f o u r t h q u a r t e r , since inventory recessions, l i k e inventory booklets, are s h o r t l i v e d * Thr t recovery, however, w i l l roh&bly be ouch slower i n tempo thaa t h e t of l a s t f a l l , and w i t h as much export stimulus as seems p r o bable w i l l hardly r i s e above 110 i n 1940, even i f the net c o n t r i b u t i o n o f the Government i s not s i g n i f i c a n t l y reduced by budget slashing* \J War demands, thus, have l i t t l s promise o f producing s u b s t a n t i a l recovery* I f the war should end suddenly, however, there *omld Instead be a disastrous collapse* The Immediate Propram The business outlook i s , thus, a choice between an immediate s u b s t a n t i a l downturn, i f present budgetary and Congressional i n t e n t i o n s are followed* or only a moderate downturn, followed by quicker recovery, i f prompt f e d e r a l a c t i o n i s taken on an adequate scale. The country i s a f r a i d of increasing debt, but i t i s n * t a f r a i d o f f e d e r a l spending, and i t supports spending f o r p a r t i c u l r projects* &J A new program of f e d e r a l spending without increasing the debt can be developed by drawing on the several unspent reserves of the Treasury and by expending some of the current a c t i v i t i e s on a s e l f - f i n a n e i n g basis outside the budget. I n a d d i t i o n , several other forms of i n v e s t ment can be m a t e r i a l l y expanded w i t h only n e g l i g i b l e budgetary cost* The only way to get expenditures increased q u i c k l y i s through r e l i e f expenditures, the stamp plan, and F*S.A. I n a d d i t i o n , though, ws have t o provide measures a t ones which are s l o - e r to take h o l d , i f we are t o s a t i s f y the u b l i o insistance on an approach to budget b a l ancing* To do t h i s , we must show t h a t the immediate program covers not only renewed d i r e c t spending, but also provides f o r an expanding volume o f a c t i v i t y , which i s not based d i r e c t l y on f e d e r a l s ending from ths r e g u l r budget* }J The a n a l y s i s o f investment and export prospects on which these business forecasts are based i s given i n Appendix 1* "ij See ths opinion surveys i n Appendix 2* -3- Elements p r o v i d i n g prompt stimulus t o consuxaptlon expenditures: 1 . Develop o u t - o f - t h e - b u d g e t f i n a n c i n g f o r a c t i v i t i e s already under way. self-liquidating (a) Restore the W> m i l l i o n f o r R.S.A. back t o E.F.C. f i n a n c i n g as proposed i n the budget. (b) Authorize farm S e c u r i t y A d m i n i s t r a t i o n t o p u t the best t h r e e - q u a r t e r s o f i t s r u r a l r e h a b i l i t a t i o n loans and a l l o f the tenant purchase loans on a s e l f f i n a n c i n g b a s i s , by the sale of debentures t o 4.F.C. or t o t h e p u b l i c . ($230 m i l l i o n s a y e a r , ) 2 . Expand the ii.F.A. r o l l s t o three m i l l i o n s , and expand M . f . A . and C. J.C. correspondingly, and from t i l l s l e v e l taper o f f g r a d u a l l y as employment develops as an outgrowth of the o t h e r measures. 3* Expand the stacep p l a n t o enlarge food and t e x t i l e consumption of low-income groups. i 4 . d u ^ t h e old-age j>s^r6XPtax by l/2$ u n t i l such t i n e as old-age outpayiaents become equal t o t a x r e c e i p t s . (The old-age reserveisQriow adequate f o r contingencies. TJe can a f f o r d a lower t a x r a t e u n t i l b e n e f i t payments increase j a t e - 5. The immediate increase i n expenditures can be maintained w i t h o u t any a d d i t i o n a l borrowing by (a) Drawing upon t h e cash balance o f the Treasury. (b) Making f u l l use of the s i l v e r p r o f i t . ( c ) U t i l i s i n g some o f the g o l d i n the s t a b i l i z a t i o n f u n d . Three b i l l i o n s could be drawn f r o m these t h r e e sources w i t h o u t i m p a i r i n g t h e cash p o s i t i o n o r t h e o p e r a t i o n of t h e s t a b i l i z a t i o n fund. i / S e e Appendix 3* Section 1 . 2/^ee Appendix 3 , Section 2 . Elements providing f o l l o w - u p expansion! 1. I n t e r . s i f y e f f o r t s t o speed up p r i v a t e investment i n housing. Hie f i e l d of low-cost housing i s e s p e c i a l l y promising and the f u l l f o r c e of Government encouragement should be placed behind the d r i v e t o promote i t . a. Exii&nd p u b l i c c o n s t r u c t i o n , w i t h the budget assuming only the annual i n t e r e s t and amortization charge. (1) The 8.8.H.A, has demonstrated how annual grants covering p a r t or a l l of i n t e r e s t and amortization have enorraous leverage on the volume of investment. Add an a d d i t i o n & l $500 m i l l i o n of construction to ti^e U.S.H./u a u t h o r i z a t i o n a t an annual budget cost of only million. (2) The proposed h o s p i t a l b u i l d i n g program a i g h t s i m i l a r l y be financed, on a g r e a t l y enlarged volisue of c o n s t r u c t i o n , by a very small annual appropriation• Authorise a renewal of public works construction o f the P . r . i U type, but based on annual subsidy of the t!.?.H.A, t y p e , and w i t h l o c a l or f e d e r a l loans o u t side the f e d e r a l budget, 1 / a. Urge shortenii of b e n e f i t s Y b e n e f i t s . ^ g / X ^ ^ i s would l a r g e Increase i h s b e n e f i t pi pressure i s needed t o taring (Favored both by A.F. of L . and 5. Correct the d e f l a t i o n a r y e f f e c t s cf the Social Security program ( i n s o f a r as they cannot be eliminated by s docrease of p a y r o l l taxes and/or increase of b e n e f i t s ) by i n v e s t i n g the reserves i n s e c u r i t i e s t h a t represent newly constructed works under the Governmentli investment program, which would not otherwise be constructed. This would meet the spurious but widely held view t h a t there should be r e a l assets t o guarantee the S o c i a l Security funds* r X / See Ap endix 3 , Sec. 4., f o r d e t a i l s 2 j See Appendix 3 , Sec. 3» by e rats d u r a t i o n of an imoedlats t im iediats n t u a l state a c t i o n . .0.) 1 / •• 5 * 6. Broaden the e l i g i b i l i t y t o r e c e i v e old-age pensions, by modifying the e l i g i b i l i t y l i m i t a t i o n s , p r e f e r a b l y by granting a small pension t o - 1 1 r e t i r e d persons 65 or over. At present, h a l f of those over 65 who paid old-age taxes are i n e l i g i b l e f o r b e n e f i t s because of t e c h n i c a l l i m i t a t i o n s . A / 7. Reduce the annual budget charge f o r debt service by modifying Treasury p o l i c y t o reduce i n t e r e s t costs on the d e b t . (a) (b) , Use more s h o r t - t e r m m a t u r i t i e s and leBS long-term bonds i n r e f i n a n c i n g maturing p u b l i c o b l i g a t i o n s . (There i s no j u s t i f i c a t i o n f o r s h i f t i n g t o l o n g term o b l i g a t i o n s m l e s a we believe the l o n g - t i m e trend of i n t e r e s t r a t e s i s upward.) Reduce the present l i m i t o f §10,000 a year t o one purchaser o f Baby B.?nds, t o $1,000 a y e a r . (Tha higher r & t e on these bonds c o n s t i t u t e s an i n t e r e s t subsidy t o savors. Savings o f over $1,000 a year cannot be made by low-income f a m i l i e s , and do not deserve a subsidy.) border-Vroam O^Uffflfc Unless measures such as those suggested above are taken, tha longer-term outlook i s not b r i g h t . With any expenditures the b e l l i gerent 3 seem l i k e l y t o make here, and any u h l i c a c t i o n the budget now p r o v i d e s , 1941 a t best w i l l be no more prosperous than 1937. Unemployment w i l l continue t o grow almost as f a s t as the number o f employables increases—600,000 a y e a r . Evan w i t h a c t i o n along the l i n e s suggested, a longer-term program i s necessary t o provide more fundamental t e c h n i ues both t o increase consumption and s t i m u l a t e new investment. I n general, rsuch a program must place more emphasis on increasing t a x a t i o n of income which would otherwise ba hoarded, and on f e d e r a l support of s o c i a l expenditures which would otherwise be n e g l e c t e d . Such methods would make i t p o s s i b l e t o approach a balanced budget w i t h s a f e t y . Possible elements o f such a l o n g - t i m e program, and methods f o r p o p u l a r i s i n g i t t o tha p u b l i c , are presented i n Appendix 4 . X / See Appendix 3 , Sac. 2 . APPBIDIX I . Tfca fhygtlxmam cut-J^po* The decline o f busiaeas a c t i v i t y t h a t v* .a foree s t l a a t iioptaF.be? is » U under way* I t i s acr* «Xet*r t h a t the isurge i n a c t i v i t y oinee the outbreak o f wir baaed upon inventory aceretgOUtioa* Of the i n t r a a e t o f $1100 a i U t o s o f investment expenditures >®ourr&4 i n the i s o t quarts*? o f 1919* Inventory a e m t u i e t t c a m m t i t t t t s d f9$0 a l l l lima o r sbeut 86 percent. Investment i n i n v e n t o r i e s I s s t i l l on, but the ri>te o f eeeeemlation I s i h a f ^ l f U ^ k M * Ot^er Investment i s not Increasing rapidly to o f f s e t tfels decline and a c t i v i t y i s t h e r e f o r e f a l l i n g o f f . The caly question a t t h e present tlsui i s the extant awt duration o f the decline* On an o p t i m i s t i c e a t t a s t e , n c c u a l n o inventory und as i»crsn<*e i n exports o f f l | - t o b i l l i c n a year o v r r the Feda^&l Reserve adjusted index' i&ould decline f i a s ttec D c i s r b s r fei^t- o f 128 t© 100 i n the t h i r d e m r t e r j thi<? decline t i l l be a caane- uenee of t i e ssssattcm o f iBv«iBtoty cocuMdLetlra rctl&er than juay a^sntt n t i a l t K w 8 « i « n i n t i e l e s s v o l a t i l e inveetnent f n e t e r r u On s pccgtaiastle estin&te* aawrat§ia& tfect apppcstiaetcly i - v - t h l r d a the Inventories reeently M i s a * l a ted w i n be l i and t h a t satporte w i l l lMNPCf.se by to billion, the 1 Reserve- isd^x <*U1 f a l £ -itf** j^r t^thb^'Slie©^ o f in i'sirquarter* At b e e t , the d e c l i n e would e&r*y pvoductioa flsaploy^sat about beck t o triers we were before the war m e declared a t were* wouIC plunks us Par lower* Bad Bccstj&ft? l e v e l « bests maintained, n a t i o n a l i&co-ac m m l d sow be running * * a #75 b i l l i o n l e v e l * Instead, i t i n naming t% a #71 b i l l i o n l e v e l and msgr touch as low m a |65 b i l l i o n l e v e l by r-td~*uw*er» Cfcsrt I chocs the reside o f InvsctsMsat trends cm y&ieh tkeac extruse eatla&tec are based «ad the intermediate t r e n d between the estrogen o f t h i s raago* The Indses of production t h r e a p has also been d r a m on t h i s chart t o sJ o* I t s clone r e l a t i o n s h i p t o the i n v ^ t - ent t o t a l * taventorfo* At the outbreak o f war, i s v e a t o r l a c wars s t i l l a t a level9 As t t s up p e r - 1 a f t section o f Chart XX i&<-<rot t i e 193*5 d e c l i n e wiped out cfcout 1 / 3 o f the 1934*193? ctrsaco* A f t e r outbreak o f m r , i n v e n t o r i e s &4fcaCo6 sharply tnd 'by fcbc end o f 1939 ^ e r e only ^ ->erc*at below the end o f 1937 l e v ^ l * Changes i n the p h y s i c a l vclu?.e o f I s r t t M M shov *v§n m r e c l e a r l y t h e e l t u a t l o a e x i s t i n g a t the end o f 1939* The u p p e ^ r i ^ h t sect i o n o f Chart XI indScotes t h a t aoct o f the decline i n i n v e n t o r i e s I n the l a s t q u a r t e r o f 1917 and the f i r s t h a l f of 193S* @laco & large ^roporti'••••• r-'' u.v 'incline i n value due t o the deelir.e i n p r i s e s , the d e c l i n e i n ?olue*e was «?ven d i a l l e r t l ^ n the decline In villus* ths middle o f 1938 t o t i e middle o f 1939, the Inereas* i n inventory roXwse was r e l a t i v e l y sesall* A f t e r the ou*br@?%k of war, tiie rate of inventory ascu l a t i c n ^na stepped up ra i d l y , and i n Bosorber i t vsjs as grm t as at any t i s t * during t h e 1937 booklet* the o f the y e n r , the voius»e o f inv«ttorlee exseeded the 1957 peak* At the present t i n e production s t i l l exceeds coneumption, and i n v e n t o r i e s are s t i l l r i s i n g * As shown i n Chart I I I , production was f a r above c o n s u m p t i o n i n the l a s t p a r t o f 1 9 3 9 * Since then, i t h&» f a l l e n sore sharply than consumption and promises t o close the gap w i t h * l a the next few months* The c r i t i c a l question i s w i l l inventory l i q u i d a t i o n occur when accumulation stops? Our o p t i m i s t i c assumption i s based on the view, which i s widely h e l d , t h a t business f i r m s desire t o hold l a r g e r Inventories as a kind o f war r i s k Insurance and t h a t there w i l l be no l i q u i d a t i o n of inventories despite the decline i n a c t i v i t y * On the basis o f data repreeented i n Chart I I I , a decline i n the production index of about 12 points i s required t o b r i n g accumulation t o an end, even on the eesumption t h a t consumption w i l l be sustained* This i s equivalent t o a 17 or 18 point decline i n the Federal Reserve index* The decline w i l l , o f course, have t o be l a r g e r i f consumption also aovee downward, A decline e f t h i s magnitude w i l l probably a f f e c t consumption and other f a c t o r s adversely so t h a t the movement w i l l have to be somewhat l a r g e r a t best* Our pessimistic assumption i s based upon the view t h a t a l a r g e p a r t o f the Inventory accumulation derived from hope f o r , or f e a r o f , p r i c e increases* Prices were driven up sharply i n Septeaber by these very hopes and f c a r e , but the upward movement has since been reversed* As i s i n d i c a t e d i n the lower section of Chart I I , prices of f o o d s t u f f s and i n d u s t r i a l raw m a t e r i a l * have been f a l l i n g s t e a d i l y since the middle o f Deoember and h^ve l o s t about h a l f the previous advance* The downward t r e n d of new orders Indicates t h a t the busineee community fears t h a t t h i s trend v i l l continue* The losses t h a t w i l l be incurred w i t h f a r t h e r p r i c e r e d u c t i o n s , e s p e c i a l l y i f f i n i s h e d - p r o d u c t p r i c e s are a f f e c t e d , create pressure f o r l i q u i d a t i o n * I n the pest every inventory booalet has been f o l l o w e d by a period of sharp l i q u i d a t i o n * I t i s probably t r u e t h a t not a l l the i n v e n t o r i e s accumulated since the outbreak of war w i l l have t o be l i q u i d a t e d * Our assumption t h a t 2/3 of t h i s increase w i l l be l i q u i d a t e d say be somewhat p e s s i m i s t i c , but I t i s c e r t a i n l y w i t h i n the bounds of reason. This would r e q u i r e a maximum f a l l of the production index on Chart I I I t o a l e v e l perhaps 6 or 7 p o i n t s under the index o f consumption* This would be equivalent t o a f u r t h e r decline o f 9 or 10 points i n the Federal Reserve index* This t o t a l d e c l i n e i s so l a r g e i n magnitude t h a t the other Investment f a c t o r s must be adversely a f f e c t e d * This w i l l c o n t r i b u t e f u r t h e r t o decline i n a c t i v i t y * This whole process I s merely the p a t t e r n of the l a s t part of 1939 i n reverse* jypftrtf Jfttt » f t f o r e i g n Balanfif From the outbreak o f war t o the end of November, our export f i g u r e * gave mo c l e a r i n d i c a t i o n of war s t i m u l a t i o n . The s i g n i f i c a n c e of the sharp increase i n December and the f a i l u r e of the usual seasonal d e c l i n e t o appear i n January, however. 1m unmistakable. The export t o t a l f o r January, w i t h some documents s t i l l missing, i s $350 m i l l i o n * Exports i n Deceeber were $357 m i l l i o n and i n January 1939 were 1210 m i l l i o n . Some of the • 3 increase i n the l a s t two months represents goods v&leh would hare moved out e a r l i e r but f o r the embargo- While a strong stimulus i s evident, t h e r e f o r e , I t i s not aa powerful as the f i g u r e s i n d i c a t e * I f f i g h t i n g becomes i n t e n s i f i e d i n the spring, with perhaps extension of the war t o other f r o n t s , the volume of exports i n 1940 reach a l e v e l t o f-2 b i l l i o n i n excess o f the t o t a l of about billion i n 1939« This i s the most o p t i m i s t i c forecast that has come to our attention* Even i f the war continues on the pre a eh t ecale, w i t h neither side f e e l i n g t h a t the balance of power i s d e f i n i t e l y i n i t s favor and w i l l i n g t o r i s k heavy losses i n a l a r g e - s c a l e o f f e n s i v e , the attempts of the b e l l i g e r ents t o strengthen themselves and t u r n the balance i n t h e i r favor may y i e l d a l e v e l o f exports #1 t o b i l l i o n higher than 1939* While siore pessimist i c views are held i n some quarters, information concerning commitments by b e l l i g e r e n t s seams t o j u s t i f y the estimate of #1 b i l l i o n as a minimum i n crease, i f the war continues. The increase i n a b o r t s w i l l not be r e f l e c t e d f u l l y i n the net f o r e i g n balance* I n the p a s t , increases i n exports have only increased the net f o r e i g n balance by i / 4 t o 1/3 of the increase i n exports. Taking i n t o account the decrease i n export capacity o f the b e l l i g e r e n t s and the decrease o f t o u r i s t expenditures, however, i t i s reasonable t o assume t h a t the increase of exports w i l l increase the f o r e i g n balance by something above £0 percent of the t o t a l increase i n exports. The o p t i m i s t i c e s t i matvw f o r 1940, t h e r e f o r e , assumes that the net f o r e i g n balance * i i i c h was $780 m i l l i o n i n 1939, w i l l increase to #1,500 m i l l i o n . The pessimistic estimate assumes an increase t o only | i , 2 5 0 m i l l i o n * Producers Sftpcnfotiirop f o r Scui F .ent During the l a s t quarter o f 1939 orders f o r equipment reached a very high l e v e l * Owing t o the l a g o f production behind orders, t h i s l a r g e increase w i l l carry over i n t o the f i r s t quarter of 1940, which may reach a peak about as h i ^ i as the peak reached i n the second quarter of 1937* From t h i s h i g h l e v e l of output f o r the f i r s t q u a r t e r , however, soiie decline must occur* I k e decrease i n i n d u s t r i a l a c t i v i t y , by decreasing the p r o p o r t i o n o f presssnt capacity u t i l i z e d , i s discouraging new equipment i n s t a l l a t i o n * Furtheisaore, the s o f t e n i n g of prices i s discouraging any tendency t o a n t i c i p a t e f u t u r e requirements* New orders i n t h i s f i e l d have been f a l l i n g o f f very r a p i d l y . December new orders f o r i r o n and s t e e l were 13 percent below Hovesher and were 20 percent below December, 193&; f o r e l e c t r i c a l .machinery they nere 21 percent down; and f o r t r a n s p o r t a t i o n equipment, down 36 percent. Backlogs o f u n f i l l e d orders, which reached a peak i n Nove**ber, are being r a p i d l y reduced despite the current decline i n o p e r a t i o n . The sharp bulge end d e c l i n e i n new orders since the outbreak o f war i s almost i d e n t i c a l * i t h the p a t t e r n established i n e a r l y 1937* Only a reversal i n the trend of new orders, t h e r e f o r e , a spurt such as might occur i f the war reached a considerably l a r g e r scale, would j u s t i f y our o p t i m i s t i c assumption w i t h regard t o the l e v e l of equipment expenditures. 5 Jore r e a l i s t i c a l l y c o n s i d e r s , the decline should be auoh l a r g e r . The increase i n exports cannot o f f s e t the decrease i n product i o n f o r i n v e n t o r i e s * With excess capacity increasing and prices f a l l i n g , the decrease i n equipment ex endituree from the f i r s t quarter high i s l i k e l y t o be as r a p i d as the increase a f t e r the outbreak of war. This would s t i l l y i e l d a l e v e l f o r 1940 about 4 percent higher than 1939, and would allow f o r continued high l e v e l i n such l i n e s as a i r p l a n e s , s h i p b u i l d i n g , and machinery. The range established by these estimates i s shown on Chart I ? . I n the case of p l a n t expenditure* even more d e f i n i t e l y than i n t h a t of equipment expenditures there i s a l a g behind new orders. The l e v e l of new orders rose almost constantly through 1939 and expenditures i n the f i r s t quarter of 1940 s ould be higher than i n the l a s t quarter of 1939* A c o n t i n u a t i o n of t h i s upward trend would reach & high by tha l a s t quarter of 1940 approximately as high as the 1937 peak l e v e l s . On the other hand, a c t i v i t y w i l l d e c l i n e i f the present trend i n new orders continues. P r i v a t e n o n - r e s i d e n t i a l c o n s t r u c t i o n contract awards i n January 1940 sere reported to be about equal t o January 1939• This represents a s u b s t a n t i a l decline from the l e v e l reached i n tha l a s t q u a r t e r * With business volume f a l l i n g o f f there would be l i t t l e incent i v e f o r a d d i t i o n a l p l a n t expenditures and a d e c l i n e t o the l e v e l of ths f i r s t quarter of 1939 would not be unreasonable i n the l i g h t of the f o r e going analyses of tha other investment f a c t o r s . The year as a whole would i n t h i s case again be s l i g h t l y higher than the corresponding t o t a l f o r 1939. Qovqrpqeftt Pont^u.UyT? The net government c o n t r i b u t i n w i l l undoubtedly be lower i n 1940 than i t was i n 1939* T&iless there i s a d e f i i t e change i n p o l i c y , the f i r s t quarter of 1940 w i l l be perhaps $30 m i l l i o n lower than ths l a s t quarter of 1939 and the second quarter w i l l be down about |150 m i l l i o n or approximately 17 percent. A s t i l l f u r t h e r decline i s i n ros; ect f o r the t h i r d q u a r t e r , even on the assumption t h a t the budget w i l l stand as o r i g i n a l l y recommended by the President. T h e r e a f t e r , on t h i s same assumpt i o n , the f o u r t h quarter should show a recovery about t o the l e v e l of tha second q u a r t e r . I f a p : r o p r i a t i o n s are slashed, however, both the t h i r d and f o u r t h quarters should be somewhat l o w e r . Ho attempt has bean .a&de t o taka t i s i n t o account i n p r o j e c t i n g estimates i n t o 1940. The currant r a t a o f expenditures and the budget recommended have been assumed t o ba tha d e t e r mining f a c t o r s * flftgjflqrfUal totftatttAffl The trend i n r e s i d e n t i a l c o n s t r u c t i o n has been almost continuousl y upward sines 1934* 1939 was g e n e r a l l y higher than 193S, but by tha and o f the year tha margin over 193* had been wiped out* This l e v e l l i n g o f f during 1939 ap >e*re h i g h l y s i g n i f i c a n t i n conjunction w i t h other factor®. The stlmulue provided by the FHA program of low i n t e r e s t charges and toz*e favorable amortization was l a r g e l y absorbed i n b r i n g i n g construction t o t h i s Levelj the market hs« bc«n nearly saturated w i t h res e c t to houses i n the 15000-410,000 price range, which wag the revs.lent range under t h i s program* According t o the l a t e s t f i g u r e s , a p p l i c a t i o n s f o r mortgage i n surance have f a l l e n o f f considerably, and on t h i s basis & considerable decline i n the volume of construction could occur during 1940. The ranges i n d i e ted on Ch r t XV assums th-.t 1940 may be as tsmch as 10 ercent below 1939 or 10 i>ercent above, the l a t t e r implying merely en extension of the upward trend of the l a s t few years. ponsusere Dtyefof G y f l j With production f a l l i n g as a r e s u l t of the eollapee of the i n ventory boom, prospects f o r 1940 cannot be considered favorable as compared w i t h the l e v e l re ched i n the l a s t quarter of 1939* Incomes w i l l be impaired a t l e a s t t o the extent of any a d d i t i o n a l unemployment t h a t occurs* Purchases of consumers* durable goods are u s u a l l y snore s e n s i t i v e than i n comes, > nd move w i t h the l e v e l of a c t i v i t y * I f the decline i n a c t i v i t y corresponds t o our pessimistic resumption as t o the other investment f a c t o r s , i t i s l i k e l y t h a t 2/3 of the advance from the 1938 low w i l l be lost* Assuming, as i s sometimes argued, t h - t the Ion - t e r m trend i n consumers1 equipment purchases i s s t i l l upw r d and t h a t a large backlog e x i s t s , the d e c l i n e from the ye&r-end e&k might be Somewhat less than the corresponding decline i n a c t i v i t y . At b e s t , however, a decline from the l a s t quarter should be expected. An o p t i m i s t i c estimate might place t h i s d e c l i n e e t only h a l f the increase i n the l a s t quarter of 1939, which would leave the year as a whole 5 percent above 1939* 7,'PW- jnvefftaffirt iTod-.itflvf Activity. The attached t a b l e s show the q u a r t e r l y t o t a l f o r a l l the invest-' ment f a c t o r s discussed above from 1935 t o 1939 and estimates f o r 1940* There are three sete of estimates f o r 1940* The f i r a t of these i s based upon the most o p t i m i s t i c assumptions concerning businees trends, fcs d i e cussed above* The t h i r d ect of estimates i s b^ sed upon the - o a t pessiwilH t i e estimates concerning trends i n these f a c t o r s * Together these two seta o f estimates eetablUfli the range w i t h i n wiiich the t o t a l i s l i k e l y t o f a l l . The second set of estimates i s the mid-point between these two extremes* As Chart I i n d i c a t e s , production s t best i s l i k e l y t o reach a l e v e l i n the neighborhood of 105 i n the second and t h i r d quarters and to approach 100 c l o e e l y f o r a t l e a s t one month. I t may, on the other hand f a l l t o the neighborhood of 80 i n the t h i r d quarter and i n t h a t case i s l i k e l y t c get below 90 f o r a t l e a s t one month* A decline of t h i s magnitude would have very serious conseouences and i rob b l v c o u l d be checked o n l y as the decline of 1937-3*1*® ehee*e*| that i s r by Increased government outlays* I f the Fara S e c u r i t y Admini3 t r & t i on were authorized t o sake s e l f l i , u i d a t i n g loans up t o ^250,000,000, the money could be used approximately as f o l l o w s I A* ^150,000,000 f o r R e h a b i l i t a t i o n Loans. These l o a n s , averaging about 3500 each end bearing 5 per cent i n t e r e s t , would be nade t o approxim^tely 300,000 needy f a r a f a m i l i e s , who are unable t o o b t a i n adequate c r e d i t elsewhere* Loans would be used f o r the purchase o f seed, f e r t i l i s e r , l i v e s t o c k , t o o l s , and other equipment needed t o enable these people t o make a l i v i n g from the land* FSA now has on hand uiore than 400,000 a p p l i c a t i o n s f r o a f a m i l i e s e l i g i b l e and i n need o f rehabi i t a t i o n loans* Such l o a n s , now aade f r o a r e l i e f funds, are proving about SO per cent c o l l e c t i b l e ; and losses are l a r g e l y concentrated i n the Great Plains states which have s u f f e r e d repeated and severe droughts* Under the proposed .urogram, only those loans which are 100 per cent recoverable would be made from s e l f - l i u i a a t l n g funds} w h i l e the poorer r i s k s would be 'candled w i t h emergency r e l i e f funds* I f any loan made f r o a s e l f - l i j u i d s t i n g funds should become s e r i o u s l y d e l i n q u e n t , i t could bs t r a n s f e r r e d t o the energsncy r e l i e f account* I t i s estimated t h a t a t l e a s t 75 per cent of a l l r e h a b i l i t a t i o n loans could be classed as e n t i r e l y s e l f - l i q u i d a t i n g . B* $100,000,000 f o r Tenant Purchase Loans These l o a n s , averaging about $5,000 each, would be aade t o ap-aroximately 20,000 t e n a n t s , sharecroppers, and f a r a l a b o r e r s , t o enable thea t o buy farias. FSA now has on hand 143,000 a p p l i c a t i o n s , although requests f o r loans have been accepted i n l e s s then h a l f of the n a t i o n ' s a g r i c u l t u r a l c o u n t i e s . Current c o l l e c t i o n s i n d i c a t e t h a t these loans would be 100 per cent repayable, a t three per cent I n t e r e s t over a 40-year period* I t i s estimated t l i a t a t l e a s t a t h i r d of the sonsy advanced f o r r e h a b i l i t a t i o n loans would be spent f o r c o n s t r u c t i o n or durable goods, such ss f a r a machinery and canning equipment; and t h a t about 25 per cant o f tha Tenant Purchase loans would be used f o r c o n s t r u c t i o n and r e p a i r o f b u i l d i n g s , f e n c i n g , t e r r a c i n g , and land improvement. Appendix Section 2 pldr-Affc Insurance I t i s estimated t h a t during the f i s c a l year 1941 the excess of r e c e i p t s over outpayments from the old-age and survivors t r u s t fund w i l l amount t o nearly $600,000,000, i n c r e a s i n g the accumulated reserve from H,750,000,000 a t the beginning of the f i s c a l year t o $2,330,000,000 on June 30, 1941* Old-age b e n e f i t payments are estimated a t only 1100,000,000 i n f i s c a l 1941 • the excess of p a y r o l l t a x r e c e i p t s over b e n e f i t payments Involves a corresponding d r a f t upon incomes and p a r t i c u l a r l y upon the buying power o f the lower and middle income groups. Since the groups c i i i e f l y a f f e c t e d consume c u r r e n t l y a l l or n e a r l y a l l o f t h e i r income, t h i s d r a f t upon incomes d i r e c t l y produces a n e a r l y equivalent c o n t r a c t i o n i n the volume of consumer purchasing} when account i s taken of the i n d i r e c t , cumulative e f f e c t s of the primary curtailment i n consumer demand, the t o t a l curtailment i n n a t i o n a l income a t t r i b u t a b l e t o the p i l i n g up of i d l e reserve funds s u b s t a n t i a l l y exceeds i n amount the current additions t o these funds. The r e s t r i c t i v e e f f e c t upon national income exerted by our present old-age insurance system can be relieved through a l i b e r a l i s a t i o n of the present stringent provisions regarding e l i g i b i l i t y for benefits of persons reaching age 65, preferably by granting a small pens ion t o a l l r e t i r e d persons of 65 or over. Many persons reaching age 65, even though they have suffered payroll deductions under the old-age pension system, are i n e l i g i b l e for any benefits whatever under that system, because t h e i r earnings i n covered employment have been either too low o r too i n t e r m i t t e n t t o n»et the present e l l p i b l i t y requirements. A l t e r n a t i v e l y , t h i s d r a i n on consumer buying power would be reduced through a lowering from 2 per cent t o 1 per cent of the present t a x on p a y r o l l s , w i t h t h e p r o v i s i o n t h a t tha lowered t a x r a t e should remain i n e f f e c t u n t i l outpayments from the t r u s t fund become equal t o receipts. This reduction would reduce consumption taxes by over 1300,000,000 i n f i s c a l 1941. I t would s t i l l permit a gradual growth i n the old-age and survivors insurance t r u s t f u n d , which i s already mora than adequate as a contingency reserve. —4" Appendix 3 , Section 3 Unemployment Insurance Zt i e estimated t h a t the balances of States i n tha unemployment insurance t r u s t fund, which t o t a l e d $1,510,000,000 on December 31, 1939, w i l l r i s e from $1,600,000,000 t o $2,380,000,000 during f i s c a l 1941. The experience of tha State employment insurance system has already c l e a r l y shown t h a t i n the r e l a t i o n s h i p between taxes and b e n e f i t s t h a system i s , f o r most s t a t e s , needlessly u n l i b e r a l . Employers* groups are u r g i n g l e g i s l a t u r e s t o reduce taxes, and labor organisations, both A,F, of L , and C . I . 0 , , are advocating- more adequate b e n e f i t s . It is u r g e n t l y desirable t h a t the J o c i a l Security Board should exert a l l i n f l u e n c e which can a p p r o p r i a t e l y ba brought t o bear t o secure tha » araendir^ of State laws regarding unemployment insurance b e n e f i t s . Since l e g i s l a t i v e a c t i o n i s r e q u i r e d i n each State separately, r e s u l t s cannot ba s w i f t l y achieved, but a vigorous s t a r t ought, nevertheless, t o ba made a t once, f o r both economic and p o l i t i c a l reasons. Liberalization of benefits might best take the form o f a lengthening of t h e maximum period during vrfdch benefits can ba drawn, now 16 weeks i n most States, Such l i b e r a l i z a t i o n might wall be accompanied by an approach to nationalising the unemployment compensation system, the present structure of vtiich involves tha p o s s i b i l i t y of serious inequities between States, D i f f i c u l t i e s may arise when regional variations i n business conditions substantially deplete unemployment funds i n a few States while reserves continue to accumulate i n others, unless benefits are held down i n those States where employment fluctuates most widely. -5- Appendix 3 f Section 4 Extension of PPSWH*A* type of racing I n an e f f o r t t o o b t a i n the stimulating, e f f e c t s of s u b s t a n t i a l non-Federal p u b l i c works expenditures and a t the same time avoid the heavy charge on the Federal budget t h a t l a i n v o l v e d under the P*W«A« system o f 45 per cent cash g r a n t s , i t i s proposed t h a t s p e c i a l inducement t o l o c a l governments t o continue p u b l i c c o n s t r u c t i o n p r o j e c t s be f u r n i s h e d by g i v i n g a subsidy i n th© form o f Federal annual c o n t r i b u t i o n s t o s e r v i c i n g the debts i n c u r r e d by m u n i c i p a l i t i e s i n the f i n a n c i n g of cueh p r o j e c t s . The Federal Government 1 s c o n t r i b u t i o n t o m u n i c i p a l i t i e s mi f e ht be ^ i v e n i n an annual amount e u a l t o 50 per c*mt of the annual debt s e r v i c e on m u n i c i p a l borrowings i n c u r r e d t o f i n a n c e the c o s t o f the p r o j e c t s . These annual Federal payments would be made both on loans made t o the m u n i c i p a l i t i e i by the P u b l i c Sorks A u t h o r i t y of the United States and on loans obtained elsewhere, p r o vided t h a t the r t t e of i n t e r e s t on th© l a t t e r loans would n o t exceed 3 per c e n t . The i n t e r e s t r a t e charged by the U. 3 . Public Works A u t h o r i t y would a l s o be 3 par c e n t . The P u b l i c Works A u t h o r i t y would be a u t h o r i s e d t o o b t a i n c a p i t a l funds f o r the making of such loans through the s a l s of i t s own o b l i g a t i o n s , c a r r y i n g a Government guarantee. The main reason f o r annual c o n t r i b u t i o n s i s t h a t t h i s method spreads the c o s t over the l i f e o f t h s p r o j s e t i n s t e a d o f t r e a t i n g the whole c a p i t a l o u t l a y as a charge against the c u r r e n t y e a r ' s budget* Aopendfo A II. Long-time f i s c a l program. P a r a l l e l i n g t h i s program of immediate a c t i o n shouiu be a longer time program of continuing p o l i c y , t o be followed i n succeeding Congresses. The country i s alarmed about the s t e a d i l y r i s i n f e debt, and wants an approech towards a balanced budget. This can be accomp ished safely by a iong-time program which .includes t 1 . Tax reorganisation t o produce mor© taxes, w i t h less pressure on consumption and more encouragement f o r investment. The t a x program of the Federal Government should be modified as r a p i d l y as possible t o diminish taxes now pressing on consumption and t o Increase taxes on incomes no* going i n t o i d l e hoards. This s h i f t i n the tax program should make i t jo&sible to oecre&se the net c o n t r i b u t i o n and approach a balanced budget w i t h s a f e t y . (a) Close the loopholes i n the present income tax laws. (b) Tax r a t s s on the .dddle-incume brackets should be increased. (c) Impose a tax on war p r o f i t s as soon as the recovery begins t o take h o l d ; under present conditions large excess p r o f i t s i n the l i m i t e d f i e l d s r e c e i v i n g war orders merely go i n t o i d l e surpluses and snake no f u r t h e r c o n t r i b u t i o n t o recovery. (d) Taxes which bear on consumption should be diminished as a d d i t i o n a l revenue from the above taxes begins t o accrue. (e) Cease the issuance of tax-exempt s e c u r i t i e s . 2 . Expand the r nge of continuing f e d e r a l grants t o provide annual grants t o states i n a i d of s o c i a l programs. (a) At f i r s t , these mi^ht cover grants f o r ne< f i e l d s f o r which well-m tured programs and aide-spread support have already been developed, i n c l u d i n g education, p u b l i c h e a l t h , and c h i l d w e l f a r e . (b) Subsequently other areas of expanded s o c i a l service a i a h t be developed, such as broad r e c r e a t i o n a l and j u v e n i l e welfare programs. 3 . As n a t i o n a l income r i s e s pest 80 b i l l i o n s , Slid f e d e r a l revenues r i s e and r e l i e f needs d e c l i n e , make a s t a r t i n paying o f f past debts, but be c a r e f u l not t o c o n t a c t f e d e r a l expenditures t o the p o i n t where businees a c t i v i t y i s cnecked and income might again f a l l . - 2 - No program of f i s c a l p o l i c y alone can provide a s o l u t i o n t o a l l our i l l $ . F i s c a l p o l i c y iti the most e f f e c t i v e recovery weapon t h a t the New Deal has yet devised. I t cannot, however, rovids an answer t o the problems of concentration of f i n a n c i a l power and t o the p r i c e and production p o l i c i e s of monopolistic corporations, srith which the T.N.E.G. has been g r a p p l i n g . An e f f e c t i v e f i s c a l p o l i c y , aggressively and broadly f o l l o w e d , can hold th© f o r t while we work out s o l u t i o n s t o these l a r g e r problems. F i s c a l operations alone could r a i s e our n a t i o n a l Income t o 80 t o 90 b i l l i o n s a yenr, and hold i t there f o r a ten or f i f t e e n year breathing s p e l l , i n which we might l e a r n how t o deal w i t h the l a r g e r i n d u s t r i a l problem. III. Long-time educational e f f o r t necessary. Current surveys of opinion i n d i c a t e t h a t ape? ding i s not nearly so unpopular ason^ the general p u b l i c , an tihe ne -spacers hove led Centress t o b e l i o v e . Both on farms and i n c i t i e s , a l a r g e m a j o r i t y of the p u b l i c approves spending f o r p a r t i c u l a r purposes, and only a m i n o r i t y oppose even spending i n general. (Note Appendix 2 . ) Yet i t s t i l l remains t r u e t h a t most persons would probably answer RYesp t o the quest i o n , "Should we balance the budget?" An educational program should l a y major emphasis where the r e sistance i s least—on the human value of r e l i e f , C.C.C., N.Y.A. and farm programs, on the general welfare i n s o i l and n a t u r a l resource conservation, and on the s o c i a l value of p u b l i c works and services. At the seae t i m e , continuing education on the general problem i s needed. As the program o u t l i n e d above goes i n t o e f f e c t and we move toward f u l l recovery, popular support can be expected t o expand, r e gardless of any propaganda measures t h a t the opposition may r e s o r t t o . I n the shorter term, however, i t i s important t h a t the p u b l i c be educated on the nature of Government debt and sold on the immediate necessity f o r f u r t h e r d e f i c i t s . The temporary nature of the d e f i c i t s under the new program can be emphasized. Amon^ the p o i n t s t o be used i n s e l l i n g the program may be l i s t e d the f o l l o w i n g ! 1 . The cost of stopping d e f l a t i o n i s n e g l i g i b l e i n contrast w i t h the cost of d e f l a t i o n . The country i s obviously b e t t e r o f f «>hen i t s c i t i z e n s are employed i n producing u s e f u l goods than rhen they are i d l e and i n want. 2 . The program i s designed t o f u r t h e r the expansion of markets. The b e n e f i t s of Government expenditures are f e l t , t h e r e f o r e , by every stratum of toe community. Every d o l l a r of Government expenditures represent a t l e a s t s d o l l a r o f r e c e i p t s by some business - 3 - f i r m j i t i s o r d i n a r i l y m u l t i p l i e d several time:*. On the average, each d o l l a r added t o Government ex penditure h&» increased n a t i o n a l income by three t o f i v e d o l l a r s , 3» The budget comes i n t o balance as the n a t i o n a l income i n creases, I t cen be ksnt i n balance only ii" the economy can be kept i n balance. This i s assured by the program o u t l i n e d . Debt represents only one side o f the ledger and the assets on the other ide also ought t o be taken i n t o account. O f f s e t t i n g t h s increase i n debt t r e tremendously valuable aasets, such as schools, roads, and u t i l i t i e s . Many people kno>v l i t t l e or nothing about sisaly recent public improvements, euch p& sewer p r o j e c t s . Publicise these a>5f?ets and t h e i r values t o s p e c i f i c section? of the country and s p e c i f i c communities, 5, Kmnhasiae t h a t there i s no danger of bankrupts, the Federal Government, The present debt could be increased tremendously i t h o u t endangering the Government1a c r e d i t . On the other h?nd, i n s i s t t h a t the Government w i l l not have t o r e s o r t t o t h i s c r e d i t un er the new program and t h a t i t s c r e d i t w i l l t h e r e f o r e remain good i n c l e i ' l n i t e l y , 6 , I^&ph&size t h a t r i s i n g debt does not mean i n f l a t i o n , A d o l l a r today w i l l buy mu h more than a d o l l a r would i n 1929 • So long as many men are without Jobs, heavy expenditures mean more goods and more employment, and not higher p r i c e s , 7 , Our n a t i o n a l debt i s very low compared ^ i t h France's and England's and taxes also are low compred w i t h those c o u n t r i e s . CHART /. I N D U S T R I A L PRODUCTION A N D TOTAL I N V E S T M E N T , QUARTERLY, 1935-1940 ( A d j u s t e d f o r Seaso/to/Yoaafron) /A/VESTMENT M/LL/ONS Of PER 7,0 PROOUCT/ON DOLLARS QUARTER 0 / 9 23 ~/925-J 0 O O / 5 0 /40 •m •• • •• /mf ' m •f •m m ••M mf / 6 , 0 0 0 PRC >DUCT/a •/ — / • M 5,0 OO / M •• ••• • 4tOOO • X *"* / /s \ //vyest, M M M M •• • • • •• 1 11 •• 11 •• 11 •• I1•• 11 •• 11 •• 11 •• 1• ^ 3o / ZO I / O mm / O O •mm m \ WENT •y / / 90 \ 8 0 3,0 0 0 TO 6 o 2,0 0 0 SO 40 3 O JtOOO 2O O 1935 936 1937 1938 939 1940 D D.40 -5I i n v e n t o r y V a l u e s and T r e n d * , 1935-39 (Dun & B r a d s t r e e t s and U . S . D e p a r t m e n t o f Commerce). N o t e . - - V a l u e o f i n v e n t o r i e s (Dun k B r a d s t r e e t s s e r i e s ) , f o r J a n u a r y 1 , 1940 was e s t i m a t e d b y t h e D e p a r t m e n t o f Commerce upon t h e b a s i s o f changes i n sample d a t a d u r i n g t h e l a s t h a l f o f 1 9 3 9 . The m o n t h l y i n d e x o f t o t a l i n v e n t o r i e s i n t e r m s o f J a n u a r y 1 , 1936 d o l l a r s i s based upon t h e Dun t B r a d s t r e e t s s e r i e s ; a d j u s t m e n t s f o r w h o l e s a l e p r i c e t r e r d s , and I n t e r p o l a t i o n s f o r m o n t h l y f i g u r e s h a r e been made by t h e D e p a r t m e n t o f Commerce. T h i s i n d e x a l s o has b e e n a d l u s t e d f o r s e a s o n a l v a r i a t i o n s . VALUE OF INVENTORIES, UNADJUSTED JANUARY I, 1936 = 100 | ! 140 MANUFACTUR/NG^f;-. 130 I i ! TOTAL- i 120 // / /jr 110 J? aV WHOLESAL/NG PHYSICAL VOLUME OF INVENTORIES, SEASONALLY ADJUSTED JANUARY I, 1936 = 100 140 A / •• ... / <// \ \ „ SRETA/L/NG 100 90 JAN I, 1935 JAN I, JAN I, '36 '37 Indexes o f Spot Market JAN I, U l LY I JAN I, JULY I, JAN I, '38 '38 '39 '39 '40 1935 Daily Frices 1936 1937 1938 o f 1£ F o o d s t u f f s and 16 Raw I n d u s t r i a l C o r j r . o d i t i e s , A u g u s t 3 1 , 1S39 r u a r y 7 , 1940 ( u . S . ^ S u a r t n e - i t o f L a b o r ) 1939 Feb- CHART /. INDEXES OF PHYSICAL V O L U M E OF PRODUCTION, CONSUMPTION, AND I N V E N T O R I E S CONSUMER GOODS (ADJUSTED OF FOR SEASONAL V A R I A T I O N ) PERCENT OF AVERAGE 1929 C O N S U M P T I O N 120 • • •• •I •• Prod uciioni 00 •4 > • : • • • • Tm V • • • • •• • • • y ^ • T % T * V • ^Consumpf • ion t ' v v / r m ^ •• / ' •• ••• 80 6 o —-- Inventories 4 0 — *• ™ ^ 20 aa. 40-so 19 3 5 1936 1937 1938 1939 194-0 CHART /. (Adjusted for Seasonal Variation) Consulners Durabi ks • • • • • • • • • • • • • • • • • •• • « % • •• •• • • • • »• • • • •• • w *. • •• • •. • .• • \ Equip m en1~ P/a n f y — ' ... ... • \i« • • • • • • INVESTMENT FACTORS 1935 1936 1937 1936 1939 1940 CHART /. INVESTMENT FACTORS (Adjusted for Seasonal Variation) MILLIONS OF DOLLARS PER QUARTER IIOO 1600 r < s o WRNMENt r NET / c m<m/Burm 1200 1000 / •/ •00 \ •• : • • • •• • • • • • • • s% •• 1 § 400 * •• • •• WES /NYENTa /• •v , • •I •• • •• t # v..,-- • *»* • •• •• • •»• -v x V V / / •• * : /iO/fE/6/V » •• •• f • \ a ^ \• • -200 * "l AALANCE • •• •• •• •• \& •: r i- • • •• • ~ W " -400 -600 \ • I : v -800 -1000 1935 1936 1937 1938 1939 1940 DD-40-4* 3/74
@FedFRASER