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Mr, kccles

These are some notes that I made on
the train yesterday by way of showing the
relative importance of the construction
problem in the present and prospective
economic picture.
I have several persons at work
on some charts and other supporting evidence, and 1 am myself working on the
program that you discussed with me over
the telephone on Saturday night.
I hope that you were not inconvenienced by the telephone call; I called
you as soon as 1 received your message,
but I did not remember until afterward
that the time was then an hour later in
lashing ton than in Chicago.



At the end of the eighk-year period extending from the
autumn of 1929 to the autumn of 1957—a period divided more or
less equally between depression and recovery—building construction,
which is ordinarily regarded as the country!s No* 1 industry,
remains in a state of severe depression. The failure of this
industry to revive in common with other major industries—or, put
another way, its long-continued lag far behind most other industries—is the crux of the problem of extending the area of industrial production and employment on the one hand and of capital
expenditure and investment on the other.
Except for two other lagging but smaller areas of heavy
industry—namely, public-utility plant and equipment and railroad
maintenance and equipment—the recovery of the past four years has
been all that it might reasonably have been expected to be without
the impetus that could have come only from a much larger volume of
building construction. Even in the case of the railroads, the
lack of revenues ordinarily derived from the movement of raw
materials and manufactured products entering into building construction has been a retarding factor in expenditures for labor,
materials, and rolling stock.


There is thus a very real element of cause and effect
between the prolonged lag in building construction and such other
cmicial problems as the following:
!• The failure of business generally to expand beyond
the limits reached earlier in the present year.
2. The recent slowing down of industrial production
and retail trade*
5. The failure of bank deposits to turn over at a more
rapid rate and of a larger volume of capital funds
to find an outlet in productive enterprise.
4. The lag in national income and in Federal, State,
and local revenues.
5. The recurrent

Treasury deficits, the unbalanced

Federal budget, and Federal, State, and local expenditures for unemployment relief•
It would be an exaggeration even to suggest that the lag
in building construction is the only important cause of these several
adverse factors. It is not an exaggeration, however, to say that it
is the principal cause, the most deep-rooted, and one that must be
dealt with in a vigorous and decisive way before an appreciable
improvement in business and employment can be forecast for 1958.
Without a much larger volume of construction and employment
than is now in prospect during the next building season (say from the

-3middle of March to the middle of October) the general Dusiness
outlook for 1933 is unfavorable as compared with the conditions
of 1936 and 1937. Given a much larger volume of "building construction, the outlook would be appreciably altered for the better.
As a matter of economic ana social policy, therefore,
the practical question from the point of view of the Administration
is whether the Federal Government—by administrative procedure, by
legislative action, by informal negotiation and leadership, or by a
combination of these functions—can first remedy the conditions
which account for the depressed state of the construction industry
and then provide more effective means for its stimulation.