Full text of Student Research File : Council of Economic Advisors' First Quarter Review for the President, 1949, File 14, Folder 5, Item 1

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April 6, 19-49

MBMQBAHDUM

TO*

The P r e s id e n t

FROM:

The C o u n c il o f Economic A d v ise r s

SUBJECT*

F i r s t Q uarter (194-9) Beview

(Mr.

C la r k ab sen t)

The f i r s t q u a r te r o f 1949 co n tain ed a m ixture o f tre n d s
which makes i t hard to c h a r a c te r iz e the q u a r te r by a sim ple l a b e l or
to d is c e r n th e immediate o u tlo o k w ith c l a r i t y .

The

am b igu ity

and

la c k

o f c o n c lu s iv e e v id e n c e in th e s i t u a t i o n may be in d ic a te d by a b r i e f ex­

and

am ination o f employment, p ro d u ctio n and b u sin e ss a c t i v i t y ,
.

Employment in January and February

p r ic e s .

1949

d e c lin e d

more than in January and February 194B, but employment in March
cre a se d more than in March 19 4 3 .

F u rth e r, in each

of the

1949

in ­

f i r s t th r e e

the

months o f t h i s y e a r , employment was h ig h e r than in each o f

fir s t

th r e e months o f l a s t ye ar*
B earin g th e se f ig u r e s in mind, and n o tin g p a r t i c u l a r l y th e
March 1949 in c r e a s e o f alm ost h a l f a m illio n in employment, i t
to sa y t h a t th e employment s i t u a t i o n i s s t i l l

s tro n g *

On

at 3,167,000

fa ir

th e o th e r hand,

th e growing la b o r fo r c e has n o t been s u f f i c i e n t l y absorbed
in c r e a s e in unemployment, which stoo d

is

in March

to prevent
1949#

an

con­

t r a s t e d w ith 2,440,000 in March 19 4 3 , alth o u gh unemployment d e c lin e d
s l i g h t l y from F ebruary

to

March 1949*

Another

month or

two

more c l e a r l y w hether the upswing in employment d u rin g March




should
and

th e

reveal

d e c lin e in unemployment v i l l be continued or w hether the trend o f
Jan uary and February was o f more than seaso n a l s i g n i f i c a n c e .
P rod u ctio n and B u sin ess A c t i v i t y ,
th e f i r s t q u a r te r o f
ago.

1949

I n d u s t r i a l p ro d u ctio n in

averaged 2 .6 p e r c e n t below the l e v e l s o f a y e a r

Taken a lo n e , t h i s d e c lin e i s n o t o f co m p ellin g s i g n i f i c a n c e , because

some s h i f t s in th e p a tte r n o f a c t i v i t y were to be expected as we moved f a r ­
th e r from postw ar r e co n v e rsio n toward more normal peacetim e p a tte r n s *

For

in d i v id u a l i n d u s t r i e s , d a ta a v a i l a b le f o r th e f i r s t two months o f t h i s
y e a r show iro n

and

s t e e l o u tp u t up to

13

p e r c e n t and autom obile in d u s tr y

o u tp u t up 5 p e r c e n t, c o n tra ste d w ith th e f i r s t two months o f 1948, w h ile
d e c r e a s e s o f more than 10 p e r c e n t were r e g is t e r e d
t e x t i l e s and p r o d u c ts , and rubber p ro d u cts.
q u a r te r o f

1949

in lumber and p r o d u cts,

B e t a i l s a le s in the f i r s t

were s l i g h t l y below l e v e l s o f l a s t y e a r in d o l l a r t e r n s ,

and du rin g March th e low er l e v e l o f r e t a i l s a le s compared w ith a y e a r ago
was p a r t i c u l a r l y e v id e n t in c e r t a in r e g io n s .

Some p a r t o f th e d i f f e r e n c e

between l a s t s p r in g sad t h i s may be due to th e f a c t t h a t E a s te r comes
abou t th r e e weeks l a t e r t h i s y e a r , but a l l f a c t o r s c o n s id er e d , i t

seems

t h a t th e re has been a moderate weakening in consumer demand.
During th e f i r s t two months o f

1949»

new o rd ers r e c e iv e d by

m anufacturers ran about 8 p e r c e n t below th e corresp on d in g months o f l a s t
year*

In February

1949,

ord ers were about a t th e same l e v e l a s in January

and th e r e i s no g e n e ra l e vid e n ce o f a suddenly generated d e c l i n e .
absence o f any s e r io u s break in th e p ro d u ce rs1 d u rab le f i e l d

The

i s in d ic a te d

by a March su rve y o f m achinery producers in which o n ly 3 p e r c e n t o f th e
respondents th ou gh t t h a t th e re had been a r e c e n t in c r e a s e in c a n c e l l a t i o n s .




- 3 Two months

earlier,
P r ic e s .

14 had answered

the

question in the affirmative.

same

Between the end o f December and the

with the

a l l w h o le sa le p r ic e s d e c lin e d 2 .5 p e r c e n t,
s a le p r ic e s o f farm produ cts and o f fo o d s.

end

o f March, over­

decline

la r g e s t

in whole­

P r ic e s o f a g r i c u l t u r a l p ro d u cts

moved down s h a rp ly u n t i l e a r l y February, even below government support l e v e l s
in some c a s e s .

A sharp rebound reco vered h a l f o f the l o s s s in c e January 1 .

I n d u s t r i a l p r i c e s d e c lin e d

the

. 7 p e r c e n t durin g

f i r s t q u a r te r o f

alth o u g h m e ta ls and m etal p rod u cts reached a peak in February,
tim e th e y have d e c lin e d .

Consumer p r ic e s between December

s in c e which

and

February (th e

The

March f ig u r e s are n o t y e t a v a i la b le ) d e c lin e d 1.4- p e r c e n t.

1949,

g e n e ra l

d e c lin e in p r i c e s thu s f a r has been moderate and th e re i s no sig n

that

p a n ic has grip p ed th e m arkets.

The

fo r e g o in g resume in d i c a t e s t h a t

the

need

to

be considered.

an o th er sp u rt

of

in fla tio n .

i s e q u iv o c a l, and th re e p o s s ib le l i n e s o f developm ent

of

F i r s t , th e r e i s th e p o s s i b i l i t y

economic situation

p r e se n t

T h is seems l e a s t l i k e l y u n le ss th e Congress v o t e s la r g e a p p r o p r ia tio n s n o t
o f f s e t by new t a x e s .
and to spend l e s s ,

Consumers have r e c e n t ly shown

and i f t h i s mood changes

in m arket demand because p e r so n a l incomes

there

a

d i s p o s i t io n to save more

could

remain very

be a

tin u e d to make in vestm en ts a t a h ig h r a t e .

be

The

reduced to n e g l i g i b l e

crop o u tlo o k i s alw ays u n c e r ta in

These f a c t o r s do n o t perm it us to r u le o u t

th e p o s s i b i l i t y , alth o u gh th e re i s d e c r e a s in g l i k e li h o o d ,




f a r con­

Wage in c r e a s e s , i f moving beyond in c r e a s e s

in p r o d u c t i v i t y , m ight be i n f l a t i o n a r y .
alth o u g h i t now lo o k s p ro m isin g .

thus

Government e x p e n d itu re s w i l l

in c r e a s e , and w ith o u t in c r e a se d ta x e s th e su rp lu s w i l l
p r o p o r tio n s o r become a d e f i c i t .

Businessmen,

h ig h .

w h ile t a l k i n g in terms o f u n c e r t a in ty and h e s i t a t i o n , have

m arket in c r e a s e

of

an oth er sp u rt

o f in fla tio n .
Second, th e re i s

th e p o s s i b i l i t y t h a t the s u b s t a n t i a l downturn

in b u sin e ss a c t i v i t y p r e d ic te d or fe a r ed f o r s e v e r a l y e a r s may d evelo p
w ith in

fully.

1949.

Much

depends upon

a t t i t u d e s which have n o t y e t c r y s t a l l i z e d

The u n c e r t a in ty o f businessmen cou ld le a d to s u b s t a n t i a l c o n tra c ­

tio n t io n o f in vestm en t

and

p ro d u ctio n .

The more e x te n s iv e p r ic e r e a d ju s t ­

ments t h a t w i l l be n e c e ssa r y a s more and more m arkets become b u ye rs' m arkets
may be h ard er to e x e cu te s k i l l f u l l y and may cause more r e p e rc u ssio n s in
employment and prod u ctio n than th o se which have thus f a r taken p la c e .
fu tu r e c h a r a c te r o f consumer responses i s

s t i l l hard to a p p r a is e .

The

Because

o f th e more ambiguous economic s i t u a t i o n , we f e e l t h a t th e magnitude o f t a x
in c r e a s e s proposed a t th e b e g in n in g o f th e y e a r should be r e c o n sid e r e d .
T h ird i s the hoped f o r fu r th e r p r o c e ss o f p r ic e adju stm ent in a
maimer to f a c i l i t a t e th e c le a r i n g o f m arkets w ith o n ly moderate tem porary
d ep artu re from maximum l e v e l s o f employment and p r o d u ctio n .

Thus f a r , t h i s

p r o c e ss o f h e a lt h y adjustm e n t has taken p la c e in a more o r d e r ly snd con­
s t r u c t i v e fa s h io n than many p eo p le a n t ic ip a t e d and we may f in d o u r s e lv e s
hanging up an u n p a r a lle le d record o f t r a n s i t i o n from a postw ar boom to a
p e rio d o f s t a b l e p r o s p e r it y w ith o u t in te r v e n in g hard tim e s .

The Government

by word and deed should exten d e v e r y f e a s i b l e encouragement to t h i s p r o c e s s
o f a d ju stm e n t.
In v ie w o f th e se th r e e p o s s i b i l i t i e s ,

the C o u n c il w i l l need to ex­

amine th e e v o lv in g economic s i t u a t i o n f o r anoth er month o r two b e fo re making
f u r t h e r p r o p o s a ls w ith r e s p e c t to th e economic program recommended in Jan u ary.
M eanwhile, w£ a re c o n c e n tr a tin g our a t t e n t io n upon more com prehensive d e v e lo p ­
ment o f the s t a b i l i s a t i o n d e v ic e s s tu d ie s which we have had under way s in c e
e a r l y 1947 in ord er t h a t we may be f u l l y prepared w ith adequate recommenda­

t io n s i f s e r i o u s l y u n fa v o r a b le developm ents in l e v e l s
http://fraser.stlouisfed.org/
Federal Reserve Bank
of St. Louis shmild occur o r be c l e a r l v in d ic a te d *
rhifrMnn

o f employment and p r o -