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April 22, 1941
Chairman Eccles
Emile Deepres
Attached are a short memorandum analysing the earnings
outlook for the steel.industry in 1941, and a longer memorandum
prepared early this year reviewing the wa^e prior relationships
in the industry.
The steel industry's first quarter's earnings, converted
to an annual basis, would amount to about $420,000,000, or an annual
rate of return of 13% on book value. This compares with profits
of '269,000,000, equivalent to an 8 ^ rat? of return in 1940. The
recent wage increase will raise the industry's coats by about
$80,000,000 during the idlimtei of t h i s y i » .
In addition, somewhat
higher trices will be oaid for some raw materials. O the other
n
hand, expansion in volume of operations is likely to continue, though
at a gradual rate. Leaving aeide a possible, sharp increase in excess
profits taxes, the industry should earn close to 1400,000,000 in
1941, or about 12^ on book value, if steel -orices are held to present
levels.
April 22,
H. C. Barton, Jr.
KECENT CHANGES IN WAGE, PRICE ±MI) rKOFIT
B2UTI0XSHX?S IB 1HB bTML INDCTSTKY
On the basis of preliminary data it appears that the steel industry earned about $105,0JO,000 in the first quarter of 1941. These
profits amount to en &miu£4- rate of return on capital stock and surplus
of about 13$. An income statement for the industry comparing 1940 experience with that of the first quarter of 1941 is shown in the following table.
Value of shipments
Wages
Other costs 1/
Profits
Rate of return on capital stock and surplus
Millions of dollars
1940
1941
194C
(first querter rate)
4,100
2,959
731
914
1,909
2,766
269
420
If prices actually realized by steel producers are held to present levels, experience during the remainder of 1941 niay not be quite so
favorable from an earnings standpoint. Factors making for higher total
costs are (1) the ten-cent an hour wage advance effective for most of
the industry in April, (2} t possible increase in the excess profits tax,
and (3) somewhat higher prices for some materials, particularly coal.
On the other hand, continued gradual expansion in volume of output will
tend to increase profits.
Taking all these factors into account it seems likely that steel
profits in 1941 will be in the neighborhood of 1400,000,000, an increase
1/ Other costs include taxes. The proposed 30^ rate eppears to hove been
generally used in the first quarter as the basis for accruals.
V
-2-
of tibout #130,000,000 over 1940 • even after the cbsorpticn of about
$30,000,000 in wage rate increccee. At this level the rate of return
would be about 12^» s figure about the seme ss in 1929 t&4 higher than
any year oince then.
CONFIDENTIAL
February 18, 1941
WAGE-PRICE RELATIONSHIPS IN THE STEEL INDUSTRY
H* C# Barton, Jr#
and
Guy !• Hunn
Efforts to maintain stable prices are being made in connection
with the defense program, and questions are being raised concerning the
effects on prices of increases in wage rates which now seem lilrely to occur • Does every wage increase necessitate a price increase?
If not, what
are the relationships between wages and prices and what sort of wage policy
is consistent with an effort to maintain stable prices?
The relationship of wages and prices in the steel industry is of
particular interest because of the substantial uniformity of price quotations
throughout the industry, the insistence of a number of industry spokesmen
that prices must be raised if wage increases are granted, and because price
rises in a basic commodity like steel are likely to induce increases elsewhere in the economy• TJage-price relationships in steel are of immediate
interest, moreover, because a considerable number of union contracts expire
before Spring. About 75% of the industry is now organized and wage increases
are being sought in negotiations which are already under way*
It is not a purpose of the present memorandum to recomnend levels
for wages, prices or profits in the steel industry* Nor is it intended to
deal with the many theoretical issues involved in changes in wage rates,
such as capacity of consumer goods industries, wage differentials and income
distribution, taxation and other aspects of fiscal policy*
The memorandum
is limited to an analysis of relationships between 7/ages and prices in the
-2steel industry and to consideration of some of the quantitative aspects
of differing levels of wages* prices and profits during the coming year.
Productivity in the Steel Industry
Expansion of American industry has accompanied the sale of more
goods at lower prices to consumers, many of whom are the wage earners in
industry itself«
The basic economic factor underlying wage increases, price
reductions, or both, is increasing productivity*
Productivity, usually ex-
pressed in terms of output per manhour, has for years been rising in prac~
tically all industries for which data to measure its course are available•
Output has increased more than manhours of employment, and thus progressively
less labor is required to produce a given quantity of goods•
Overall data illustrating tho increasing productivity of labor
employed directly in the iron and steel industry are shown in chart 1# The
general growth in the output per manhour' index \J shown on the chart reflects
the long-run tendency of output per manhour to rise as a result of improved
technology, industrial management, and development of higher skill in the
working force. Year-to-year variations about this broad movement reflect
short-run changes in efficiency resulting from fluctuations in the level
of operations• Thus, while year-to-year changes in the output per manhour
series reflect in part fluctuations in production, its dominant upward movement reflects increasing productivity*
In both 1919 and 1939, for example, production was relatively
high, but during the interval output per manhour increased 166 percent,
Construction of index described in statistical appendix* Adjustment has
been made in the production and output per manhour figures for changes
in types of steol produced•
CHART I
PRODUCTION, EMPLOYMENT AND OUTPUT PER MANHOUR IN THE STEEL INDUSTRY
INDEX
INDEX
ANNUAL INDEX NUMBERS, 1919=100
300
300
y
250
/
250
f
OUTPIJT PE R MANHOUR
200
200
r
r
150
I
^
A
••
\
••
•*
•
• •
100
m
/
"•
\
\
\
\
...-•••
•. PRC IDUCTION
% ••
9
•
\
•
••
•
<
••
•
150
/
:
•
•
•
•
•
•
m
100
•
•
\
\
\
\
50
w
•
% *
•
*
y
*
»
\
*
>
N
\
\
V
50
^ ++ "
VNHOURS OF EMPLOYMEI ^T
1920
1922
1924
1926
1928
1930
1932
1934
1936
1938
1940
-3-
indicating fairly closely the rise in productivity that occurred in the last
two decades* Comparison of years with high operating rates, such as 1920
and 1940, or with low operating rates, such as 1921 and 1938, shows similar
increases in productivity. This upward trend was scarcely interrupted by
the decline in operations between 1929 and 1932, when production dropped
74 percent and output per manhour declined only 4 percent•
Recent Changes in Output per Manhour
The production and manhours indexes shown in chart 2 on a quarterly basis reflect the sharp changes in output that have occurred during the
past seven years* Over this period production has risen more than manhours,
and output per manhour has increased accordingly*
The output per manhour
index based on these data is shown a s the broken line in chart 4«
.
A part of this rise in output per manhour reflects changes in the
kinds of steel produced that occurred after the outbreak of war in Europe•
Exports of the less highly fabricated steel products, such as billets and slabs,
have risen sharply and production of these products has increased more rapidly
than has production of the more highly fabricated products such as wire and
tinplato. Fewer manhours per ton are required to produce these semi-finished
products than are needed for more highly fabricated products and it is partly on this account that the total tonnage of steel produced has recently
risen so much more rapidly than employment. These differences in manhour
requirements are shown in chart 3#
The number of manhours required to manufacture a gross ton of the
various classes of steel products ranged from 14 for ingots, billets, blooms,
etc., to 58 for tinplate during 1934-35, when these data were compiled by
the Bureau of Labor Statistics. These data havo boon used in constructing
CHART Z
PRODUCTION AND EMPLOYMENT IN THE STEEL INDUSTRY
1935-39 AVERAGE -100
INDEX
180
160
140
120
MANHOURS OF EMPLOYMENT
100
80
60
40
40
20
20
1934
1935
1936
1937
1938
1939
1940
-4-
a quarterly index l/ of changes in output per manhour that
would have been
expected had there been no change in output per manhour within any individual
class of steel, in other words, changes in overall output per manhour resulting from changes in the composition of steel output. By dividing this
index into the index of actual output per manhour shown on chart 4, there is
obtained an adjusted index, shown on chart 4 by a heavy line, which reflects
the increase in output per manhour arising from increased production and
productivity but not that from changes in the kinds of steel produced*
The rise in the adjusted output per manhour index has been fairly
steady except for the interruption caused by the sharp doclino in operations
during the latter part .of 1937 and the first part of 1938•
It corresponded
closely to the unadjusted index until the last quarter of 1939, and since
then has risen much loss*
Over the seven-year period, output per manhour,
as adjusted, rose about 45 percent, and botvfcon the first half of 1937 and
the last half of 1940, 7/hen operations were at similar high levels, productivity increased by about 17 percent*
Wage Costs
In this section data on the physical aspects of rising productivity
in the steel industry are translated into financial terns in which value corresponds to tonnage and total wages to manhours* Changes in value and wages
reflect, of course, changes in prices and wage rates* Finally, wages per
dollar of steel shipped, that is wage costs, are calculated*
Increasing productivity tends to lower wage costs per dollar of
output• This tendency is modified by changes in average wages and in average prices*
1/ See statistical appendix for the method followed in constructing this index*
CHART 3
MANHOURS REQUIRED PER GROSS TON OF STEEL PRODUCTS
INGOTS, BILLETS, ETC
STRUCTURAL SHAPES
CONCRETE REINFORCING BARS
MERCHANT
BARS
BLACKPLATE
WHEELS.AXLES.ETC.
PIPE. TUBING
MANHOURS PER TON
CHART 4
OUTPUT PER MANHOUR IN THE STEEL INDUSTRY
1935-39 AVERAGE^100
INDEX
140
130
120
110
100
110
OUTPUT PER MANHOUR
ADJUSTED
OUTPUT PER MANHOUR
100
90
90
80
80
70
ADJUSTED FOR CHANGES IN
COMPOSITION OF TOTAL TONNAGE
1934
1935
70
1936
1937
1938
1939
1940
-5Indexes of average hourly wages paid and of average prices realized per ton of steel l/ are shown in chart 5#
They reflect changes in
the composition of employees and of steel tonnage as well as changes in
wage rates and list prices. Even when wage rates are constant there are
fluctuations in average hourly v/ages reflecting variations in the number
of workers employed at differing pay scales, variations in the degree of
activity in high and in low wage concerns, and changes in the amount of
overtime worked #
Factors affecting average prices aro even more numerous* In
addition to changes in list prices thcro are frequently changes in the volume
of steel sold below list prices, changes in freight basing points, and changes
in extras and deductions for various kinds and quantities of steel delivered•
These changes affect the amount realized by a mill from the sale of a particular product. Beyond this are the changes in composition of tonnage sold
that affect the average yield on total tonnage.
The sharp decline in average prices shorm for tho third quarter
of 1940, for example, came at a time when list prices were practically constant but when somo increases wore being mado in extras and v/hon export prices
were generally rising. During this quarter, however, exports and domestic
shipments of semi-finished (relatively low priced) products expanded markedly
and the decline in average price was mainly tho composite result of this
change in tho kinds of products sold.
Tho principal movements in average wages and average prices, however, reflect changes in v/ago rates and in list prices. Two wage rato increases of about ton percent oach, the latter mainly confined to tho organized
1/ See statistical appendix for methods of constructing these indexes.
CHART 5
AVERAGE PRICES AND AVERAGE WAGES IN THE STEEL INDUSTRY
1935-39 AVERAGE^ 100
INDEX
130
90
80
80
—i
70
70
60
60
1934
1935
1936
1937
1938
1939
1940
-6portion of the industry, were made during late 19S6 and early 1937 and are
clearly reflected in the average hourly wage series shown in chart 5« There
have been several minor changes in list prices but the principal increases
occurred in the latter part of 1936 and the first part of 1937, and the
main decline in the middle of 1938 • These changes in list prices are reflected in the level of the average price series shown in chart 5, but the
rise in the price of steel shipped became effective somewhat later and the
decline somewhat earlier than tho dates on which changes in list prices
were announced•
Data on average hourly wages and on the total number of manhours
worked have already beon examined separately*
Their movements are roflocted
compositcly in the indox of total wages paid shown on chart 6*
Similarly,
movements in average realized prices and in tho tonnage of steol shipped
are reflected in the value of shipments index also shown in chart 6*
The
composite result of changes in all four factors (average wages, total manhours, average prices, and volume of shipments) are reflected in the index
of wages paid per dollar of steel shipped, shown in chart 7»
During 1935, 1936 and the first half of 1937 wages paid per dollar
of steel shipped remained fairly constant. During this period output per
manhour was rising fairly steadily*
The decline in wage costs that rising
output per manhour tends to bring was offset by increases in average wages
in 1934 and by decreases in average prices during 1935 and the first part of
1936 • In the latter part of 1936 and the first half of 1937 there was an
increase in wages sufficient to offset both the continued rise in output
per manhour and an increase in prices#
During the middle of 1937 there was a considerable rise in wages
paid por dollar of steol shipped and tho higher level reached was for the
CHART 6
WAGES PAID AND VALUE OF SHIPMENTS IN THE STEEL INDUSTRY
1935-39 AVERAGE'100
INDEX
INDEX
180
180
160
'— 160
A
140
S IMNS //\|\
HP E T
100
—
80
60
40
i
/
jl
/
120
//
I
\
I
j/
VAGES
/=
\
/
-
140
/
120
us
100
80
60
\7\
40
20
20
1934
1935
1936
1937
1938
1939
1940
-7-
most part maintained until the beginning of 1939• This reflected the drop
in output per manhour accompanying the sharp decline in operating rates during
the last half of 1937 • Average prices advanced further and remained high
during the low level of operations in late 1937 and the first half of 1938,
but they only partly offset low output per manhour, and wage costs remained
high*
Since the beginning of 1939, the amount of wages paid per dollar
of steel shipped has declined substantially, and during the latter part of
1939 and throughout 1940 wage costs were lower than at any other time in the
past seven years• This decline in wage costs reflected mainly rising output
per manhour, wages and prices having been generally stable• The sharp docline in average prices during the third quarter was, as has already been
indicated, a reflection of the -unusually large quantity of lower-priced
products shipped, but these products also required fewer manhours per ton,
and wage costs per dollar of steel sold did not rise*
From current levels wage costs per dollar of product could rise
considerably (whether as a result of price decreases, wage increases, or a
drop in manhour output) and still remain below the average prevailing from
the beginning of 1934 through the first three quarters of 1939•
Other Costs and Profits
Although it appears to be possible to increase wage rates considerably or to decrease prices somewhat without raising wage costs per dollar
of product above the average of recent years, it might be that other costs
would be prohibitive• Detailed analysis of other costs such as those for
raw materials, salaries, depreciation allowances, interest, and taxos is
beyond the scope of this memorandum*
It is possible, however, to determine
CHART 7
WAGES PAID PER DOLLAR OF STEEL PRODUCTS SHIPPED
INDEX
1 9 3 5 - 3 9 AVERAGE=100
INDEX
120
120
K
no
IOO
V
—\—
Vv
r
A
100
\
90
90
80
80
70
70
1934
1935
1936
1937
1938
1939
1940
-8-
fairly accurately the composite movements of such cost factors by deducting
from the total value of products shipped the sum of wage costs and profits•
Net earnings, or profits, of 31 steel companies are shown in
chart 8. These data cover total earnings of the companies, from whatever
source derived, while all the other data used in this memorandum cover specif#
ically the operations of the iron and steel industry* All the 31 companies
produce iron and steel products but some of them are also engaged in mining,
shipbuilding, and other nonsteel producing lines. For this reason their net
earnings figures, shown in the chart, cover earnings from their nonsteel as
well as from their steol operations. On the other hand, only a part of the
total earnings from iron and steel manufacturing are accounted for directly
in the combined income statements of these 31 companies sinco there are many
other concerns in the industry.
There is some evidence, however, that the nonsteel earnings of
the 31 companies included in the figures are roughly equivalent to steel
earnings of all other companies not included in the figures. Earnings of
the 31 companies have ranged from 71 to 84 percent of earnings of the much
larger number of companies ("comprising more than 95/£ of the capacity and
production of the industry") that report to the American Iron and Steel
Institute#l/ These reporting companies paid from 80 to 83 percent of their
1/ Earnings o f 31 companies are annual totals of data shown on chart 8.
i
Earnings of the "more than 95 percent" sample taken for the years
1S34 and 1935 from the first table in the Annual Statistical Report
for 1935 published by the American Iron and Steel Institute. Because
the Institute data refer to a changing sample of firms from one annual report to the next, data for the years after 1935 are totals
derived by applying to the 1935 and later derived figures the percent change between the pairs of annual figures covering identical
firms published in each subsequent annual report•
CHARTS
NET EARNINGS OF 31 STEEL COMPANIES
MILLIONS OF DOLLARS
MILLIONS OF DOLLARS
00
100
/
/
80
60
1
40
20
0
/
A
A
/
J
\J
1934
60
40
/
\
j
V
f
/
20
/
V
20
80
-20
1935
1936
1937
1938
1939
1940
total payrolls to employees engaged in steel making.l/ Assuming that this
distribution of payrolls is a rough indication of the extent to which the
total earnings of steel companies are derived from their steel operations,
it would appear that roughly 80 percent of all steel company earnings are
derived from steel making, which is about the same percentage that profits
of the 31 companies are of all steel company profits* Total earnings of
the 31 companies shown on chart 8 may, therefore, be nearly equal to the
portion of the total earnings of all steel companies that is derived from
mnufacturing steel*
Such a largo part of steel profits is covered directly by the
31 companios, moreover, that evon if the rate of return to these companies
on their steol business is considerably different from that of other steel
making concerns and even if the distribution of profits between steel-making
and other lines is considerably different from that of payrolls, the effects
of these differences on the profits series would be slight. For this reason
the figures shown on chart 8, though referred to as profits of 31 companies,
probably indicate reasonably accurately, in their general movements, the
changes in earnings of the steel "industry" and they are in this sense comparable with the other data used in the memorandum.
A series for other costs was derived by adding wages in the steel
industry to these profit figures and subtracting the total from the total
value of steel shipments. This series, also, while probably reasonably
1/ Total payrolls for (December) 1934 and 1935 taken from the first table
in the Annual Statistical Report for 1935 of the American Iron and Steel
Institute and carried forward by means of link relatives computed from
total payrolls figures in subsequent annual reports* Salaries and wages
paid to employees engaged in the manufacture of iron and steel products
compiled by the American Iron and Steel Institute and published on page
33 of Ponton1 s Almanac, 1940-1941 #
-10accurate in its general movements, may not be precise in its quarterly
fluctuations, since its accuracy depends on the profits series• The other
costs series, moreover, includes a substantial amount of payment for personal
services•
Some of these payments are direct, as in the case of the approxi-
mately $40,000,000 a quarter paid in salaries to employees engaged in stocl
manufacture which are excluded from the series for wages; and some are indirect, such as the salaries and wages to employoes of raw materials producers • At times, particularly when profits are high as in the fourth quarter
of 1940, the other costs series probably includes an element of profit, sinco
more than adequate reserves arc set aside and expenses ordinarily capitalized
arc charged against current income* These limitations in the data should be
borne in mind when examining chart 9, in which wages, other costs, and profits
are shown as percentages of the total value of shipments and in considering
the conclusions in the final section of the memorandum*
The influence of items of overhead cost are apparent in the movements of the series for other costs per dollar of sales shown in chart 9 #
Other costs decline as activity rises and increase as activity falls* Raw
materials costs, which generally move in an opposite direction, seem to be
less important than overhead. At current peak levels of operations other
costs are near the lows of the entire period*
That they are somewhat above
the last quarter of 1936 and the first three quarters of 1937 may reflect a
longer-run tendency of other costs to rise as the steel industry becomes
more highly mechanized and as taxes increase* This rise has not boon sufficient to offset the decline in wage costs, however, and profits per dollar
of sales are slightly higher than at any time in the period*
CHART 9
WAGES, OTHER COSTS AND PROFITS PER DOLLAR OF STEEL SHIPPED
PER CENT
PER GENT
100
100
80
80
60
60
40
40
WAGES
20
20
-20
-20
1934
1935
1936
1937
1938
1939
1940
-11-
Implications for T e g and Price Policy
fte
It appears from chart 9 that other costs have not offset the
decline in wage costs and that they have both been declining fairly
steadily for the past two and a half years•
VJith current orders for steel exceeding the capacity of the industry and with unfilled orders amounting to several months of peak production, a continuation of output at the lovol of the fourth quarter of 1940
would seem to be a minimum forecast for 1941. In the following table the
experience of the steel industry in 1940 is compared ydth an approximate
income statement for 1941 which is based on the assumption that volume,
prices, wages and other costs in the industry are unchanged from fourthquarter 1940 levels•
Millions of dollars
1941 (at rate of
fourth-quarter 1940)
x
Total value of shipments
Wages
Other costs
Profits (31 companies)
2,966
781
1,921
3,539
891
2,334
264
364
It is not the purpose of this memorandum to suggest a "proper"
rate of return on investment for the steel industry, "just" prices for
steel consumers, or "fair" wages for employees• If, however, fourthquarter 1940 conditions prevail in 1941, the rate of return on the capital
stock and surplus invested in the steel industry will be between 11 and
12 percent^ As is indicated by chart 10, this figure is considerably above
the rate of return in any of the preceding seven years•
The prospective earnings of the stool companies in 1941 may be
distributed in a number of ways»
They may bo all retained or paid to stock-
holders, a part of thorn may be distributed through higher taxation and government expenditure, or their total amount may bo reduced by higher wages or
CHART 10
RATE OF RETURN ON INVESTED CAPITAL OF 31 STEEL COMPANIES
PER CENT
PER CENT
12
10
8
i'
\
I
A
A
-2
A
\ >f
'\/
W
I
V
r
V
/
/
A /
A /
/\- ^
/
/^
/,
/
/
/
10
8
/
\
/
V
1934
12
-2
1935
1936
1937
1938
1939
1940
-12lower prices•
No computations are needed to illustrate the effects on a consolidated "income statement" for the industry of retention of earnings,
payments to stockholders or taxation• The quantitative aspects of higher
wages and lower prices may be illustrated by the following examples* In
the first a wage increase of 10% is assumed, the amount reported to bo
sought by the unions in current negotiations• It is applied in the follows
ing example to tho entire industry rathor than to tho organized portion of iti
Vfagos lO^o higher during 1941:
Millions of dollars
3,589
980
2,334
275
Total value of sales
Wages
Other costs
Profits (31 companies)
With total wages increasing 10^, from 891 to 980 million dollars, profits
decline from 364 to 275 million dollars• The remaining profits, however,
constitute a return of 9% on the invested capital of the 31 companies, a
figure above that for any of the preceding seven years«
The position of
industry spokesmen who say that under present conditions a wage increase
necessitates a price increase is tenable only if it is agreed that 9%
profits are inadequate.
The following example illustrates tho effects on prospective 1941
earnings of a 2^%> decline in average realized prices. A decline of this
magnitude would reduce prices nearly to the average, shown on chart 5, for
the years 1934-36 and to a level substantially below the 1937 peak*
Roalizod prices Z^% lowor in 1941:
Total value of shipments
Wages
Other costs
Profits (31 companies)
Millions of dollars
3,499
891
2,334
274
The 274 million dollars of profits remaining after an assumed 2%%
decline in prices would also constitute a return of about 9% on the investment of the 31 companies included in chart 10•
STATISTICAL APPENDIX
Chart 1. Production, Employment, and Output per Manhour in the Steel
Industry, Annual Index Numbers, 1919 - 100.
Covers blast furnaces, steel works and rolling mills. Production and manhours indexes, 1919-36 based on data in Production, Employment
and Productivity, 1PA National Research Project, Part II, page 99, table 29.
Production index of the National Research Project based on Census and
American Iron and Steel Institute data for pig iron and 31 steel products
combined by means of estimated value added weights. Manhours series covers
wage earners only and is based on BLS employment data and 3LS and NIC3 average
weekly hours. Production and manhours indexes carried forward from 1936
by means of Institute data described under Chart 2. Output per manhour index
through 1936 obtained by dividing production index by manhours index; carried
through 1940 by means of annual averages of adjusted output per manhour
series shown in Chart 4«
Because the production index through 1936 is a composite of all
important classes of steel weighted according to the estimated value added
to each by manufacture and because of adjustment in the output per manhour
series since 1936, the output per manhour series throughout is free from
the influence of changes in the composition of the products covered.
Chart 2. Production and Employment in the Steel Industry; 1935-39
average * 100.
Based on American Iron and Steel Institute data. The production
and manhours figures used ax^e reported by substantially the same list of
companies and these companies have nearly the entire ingot and steel for
castings capacity shown by the Census. Institute production figures, avail-
able only on a quarterly basis prior to April 1940, cover steel produced
for sale, excluding intra-industry shipments. Manhours figures are totals
of reported wage-earner manhours in blast furnaces, steelworks, and rolling
mills. A small element of nonccmparability between the production and manhours data arises from the exclusion of iron and steel castings from the
production series.
Production index shown on Chart 2 is based on daily averages of
quarterly 'Institute figures for total net tons using a 7^day week and three
holidays; July 4, Labor Day (1/2 holiday prior to 1937 and full holiday,
1937 to date), and December 25* Since the index is computed from the
total tonnage figure rather than from weighted figures for the various
individual classes of steel products, it contains no allowance for changes
in the composition of tonnage. Manhours index is based on daily averages
of quarterly figures with the same working day and holiday allowances as
for production.
Chart 3. Manhours Required per Gross Ton of Steel Products.
Data, taken from a study of 15 concerns made by the Bureau of Labor
Statistics and published in the Monthly Labor Review for May 1935. Data
are for manhours of wage earners in the manufacture of the various steel
products with the mills operating at between 55 and 60 per cent of capacity.
The absolute number of manhours required for each class of product
varies with the level of operation of the industry and with changes in
productivity, but the relative requirements of the various classes probably
remain fairly stable except when a technical innovation, such as the
continuous rolling mill, is introduced which affects mainly one class. Even
•with this quoJLifi cation, however, the data are sufficiently accurate to
serve as weights in obtaining an index of total manhour requirements
resulting fron changes in the composition of steel tonnage#
Chart 4« Output per Manhour in the Steel Industry; 1935-39 average * 100.
Unadjusted index obtained directly from production and manhours
indexes shown on Chart 2 #
The index adjusted for changes in the composition of steel tonnage
was obtained by dividing the unadjusted index by a quarterly index of
choiges in output per manhour resulting from changes in composition of
total tonnage# This adjusting index was obtained by (a) multiplying
quarterly Institute figures for the tonnage of each class of steel produced
by data (shown on Chart 3) for manhours per ton required for the corresponding class; (b) adding the results for all classes; and (c) dividing the
aggregate manhours by total tonnage produced*
Chart 5. Average Prices and Average Wages in the Steel Industry;
1935-39 average • 100.
Index of average wages based on quarterly totals of Institute
total monthly wages divided by quarterly totals of Institute figures for
total hours worked by wage eCvrners, which yields average hourly earnings,
quarterly. Covers wage earners in blast furnaces, steelworks, and rolling
mills.
Index of average prices derived by dividing total value of shipments, shown in index f o m on Chart 6, by total tons produced for sale
shown in index form on Chart 2. The index is thus in effect one of realized
prices for individual classes of steel weighted by the volume of each class
shipped. Sharp drop in average prices in third quarter of 1940 reflects
changed composition of shipments*
Chart 6 # Wages Paid and Value of Shipments in the Steel Industry j
1935-39 average * 100.
Index of wages paid based on monthly Institute figures for total
wages. Covers blast furnaces> steelworks* and rolling mills.
Index of value of shipments based on two quarterly series linked
together and then adjusted to the levels shown by the Census of Manufactures
for value of steelworks and rolling mill products produced for sale. An
element of noncomparability between the wages and the value series arises
from exclusion of cast-iron products from the value series.
The first quarterly series covering 1934-38 Twas obtained by
multiplying the Institute figures for net tons of the various classes of
steel produced for sale by the corresponding or most nearly related mill
net yield (price) figure published by the U«S. Steel Corporation in its
TNEC papers* Volume II* pages 78-90* except in the co.se of tinplate* for
which quoted base price was used. Mill net yield figures reflect not only
the relatively infrequent movements of quoted prices but also the many reductions and extras charged in actual transactions. The U.S. Steel Corporation!s
data, as well as covering directly a substantial portion of the sales of
the industry* are also representative of much of the remainder because of
the "wide variety of its products and its position of price leadership.
The second quarterly series used was based on value of stoe3. shipments as reported by over 75 per cent of the industry to the Department of
Commerce for 1939 and 194-0. Shipments data for the Iron and Steel group
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are published monthly in a release, "Industry Survey", prepared in the
Division of Business Review of the Bureau of Foreign and Domestic Commerce*
The data for steelworks and rolling mills separately were supplied on a
confidential basis.
These two quarterly series were linked by the change in total value
between the fourth quarter of 1938 and the first quarter of 1939 indicated
by Institute data for production of various classes of steel multiplied
by quoted base prices for the corresponding classes*
The linked series was then raised to the levels shown by the
Census of Manufactures for value of steelworks and rolling mill products
produced for sale in 1935, 1937, and 1939• The upward adjustment averaged
17 per cent in 1935j 23 per cent in 1937, and was constant .at 27 per cent
during 1939 and 1940,
Chart 7* Wages Paid per Dollar of Steel Products Shippedj
1935-39 average « 100 #
Index of -wages paid per dollar of steel products shipped obtained
by dividing the index of wages paid shorn on Chart 6 by the value of shipments index shown on Chart 6,
Chart 8* Net Earnings of 31 Steel Companies*
Covers all firms with blast furnace, steelworks and rolling mill
capacity which publish regular quarterly earnings statements. These firms
include approximately 90 per cent of the ingot capacity* 87 per cent of
the hot rolling capacity, and 78 per cent of the cold rolling capacity
reported by the American Iron and Steel Institute, (Institute coverage of
production corresponds fairly closely with Census coverage*)
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Net earnings are after all taxes, depreciation and depletion,
and interest charges but before dividends.
Chart 9. Wages, Other Costs, and Profits per Dollar of Steel Shipped.
Wages, other costs, and profits expressed as percentage of value
of shipments* Value of shipments and wages series same as in Chart 6 #
Profits series seme as net income shown in Chart 8. Other ,costs series
computed by subtracting "wages and profits series fran shipments series.
The main movemonts shown by the three series are probably fairly
accurate. Accuracy of the level of the profits series, however, and
consequently of other costs, is somewhat uncertain. Profits are compiled
from reports of 31 companies rather than for the entire industry. Included
in the net earnings of these companies* however* is an undetermined cmount
of profit from nonsteel operations such as mining* shipping, and cement
manufacture. The other costs series, therefore, includes the other costs
of all companies minus profits of the 31 companies from nonsteel operations
plus all profits of other companies. If profits of the 31 companies from
nonsteel operations are about equal to total profits of all other steel
companies* as is suggested on page 9 of the text* both the profits and other
costs series are substantially accurate.
Chart 10 # Rate of Return on Invested Capital of 31 Steel Companies.
Earnings shovai in Chart 8 expressed as per cent of total capital
stock (caramon and preferred) and surplus of the same companies as of end of
preceding year. Data on capital and surplus compiled from Moodyfs Manual of
Investments.
