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The Midyear Economic
Report of the President
TRANSMITTED TO THE CONGRESS
July
1951
Together With a Report to the President
THE ECONOMIC SITUATION AT MIDYEAR 1951
By the
COUNCIL OF ECONOMIC ADVISERS
The Midyear Economic
Report of the President
TRANSMITTED TO THE CONGRESS
July 23, 1951
Together With a Report to the President
THE ECONOMIC SITUATION
AT MIDYEAR 1951
By the
COUNCIL OF ECONOMIC ADVISERS
UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 1951
Additional copies of this report are for sale by the Superintendent of Documents,
U. S. Government Printing Office, Washington 25, D. G.
Price of single copy, 65 cents
LETTER OF TRANSMITTAL
THE WHITE HOUSE,
Washington, D. C., July 23,1951.
The Honorable the PRESIDENT OF THE SENATE,
The Honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES.
SIRS: I am presenting herewith a Midyear Economic Report to the
Congress. This is supplementary to the Economic Report of the President
of January 12, 1951, and is transmitted in accordance with section 3 (b)
of the Employment Act of 1946.
In preparing this report, I have had the advice and assistance of the
Council of Economic Advisers, members of the Cabinet, and heads of
independent agencies.
Together with this report, I am transmitting a report, The Economic
Situation at Midyear 1951, prepared for me by the Council of Economic
Advisers in accordance with section 4 (c) (2) of the Employment Act of
1946.
Respectfully,
(in)
Contents
Page
THE MIDYEAR ECONOMIC REPORT OF THE PRESIDENT
Building our defenses
Strengthening the other free nations
Expanding and stabilizing the economy
Our production goals
Production aids
Our stabilization goals
Taxation
Public expenditures
Credit policy
Voluntary saving
Price and wage stabilization
Rent control
Summary of economic developments in the first half of 19 51 . .
1
4
6
11
12
13
13
14
15
15
16
17
18
19
THE ECONOMIC SITUATION AT MIDYEAR 1951 (a report to the President by the Council of Economic Advisers)
25
(V)
To the Congress of the United States:
Our economic problems in this country are now based mainly upon world
problems. Our economic tasks are heavy because of the weight of our world
responsibility.
To succeed in our economic job at home, we must understand fully
our job in world affairs.
This job is plain. By every means within our power, we must continue
the search for a just and lasting peace among all peoples.
We do not seek this peace through the medium of war. We do not seek
it through appeasement. And we do not seek it alone. We seek this peace
through the international cooperation of all who want sincerely to join in
the effort. On these terms, the door into a friendly association of nations
is open to all.
But the door is not open to aggression and conquest. To prevent that,
the combined strength of the free peoples must be made so great that no
aggressor will be able to destroy freedom in the world.
The security of the free world is not a matter of guns alone. It requires
also economic, political, and moral strength. The defense program of the
United States embraces all of these.
In the next days and weeks, the Congress will decide the future of this
comprehensive defense program.
In its consideration of military appropriations, the Congress will decide
whether we as a nation are going to achieve adequate security in the next
few years.
In its consideration of the Mutual Security Program, it will decide
whether we will continue to join boldly in marshalling the whole strength
of the free world in a common resistance to communist aggression.
In its consideration of the Defense Production Act, it will decide whether
we will channel our resources effectively to meet the demands of national
security.
In its consideration of that Act and of revenue legislation, it will decide
whether the line will be held against inflation.
Throughout the past year, we have been going through the transition
from a normal peacetime economy to a defense economy. Military production is increasing, and schedules are now becoming firm. The expansion
of the basic economy, to support the defense program, is moving forward,
and additional expansion goals for specific industries are being set. The
pattern of economic controls required by the defense program has been
generally established.
Where we go from here depends on the decisions made by the Congress.
We can drive ahead on the course of the present defense program, or we
can retreat.
The safety and welfare of our country require that we drive ahead.
This Economic Report is therefore a discussion of the kind of defense
build-up which we are now undertaking, and which I propose we continue
to undertake. It is also an analysis of the measures which have been
taken, or must be taken, to strengthen and stabilize the economy to support
that build-up.
We are engaged in a long-term effort.
The need for military strength did not begin with the Korean war.
Nor will it end when and if the fighting in Korea ceases.
The need for building strength was undergoing an urgent review before
the attack of June 25 on the Republic of Korea. That event precipitated
a quick and clear national decision to enlarge our military strength rapidly.
This course should have—and, though no doubt in smaller measure, would
have—been taken anyway.
We must be ever-mindful that the Soviet imperialists are relentlessly
pursuing a long-range plan. Their tactics change, but their strategy is
clear and persistent. That strategy is to probe for weak spots in the
strength or morale of the free people, and, if a weak spot can be found, to
strike another blow.
Whatever happens in Korea, we must take into account what is happening in Iran, on the borders of Yugoslavia, in Indo-China, and, most of all,
what we know to be going on inside the Soviet Union itself. The main
danger to world peace comes from the Soviet rulers, from the growing
military force at their disposal, and from their proved willingness to use
aggression to gain their ends. The military build-up of the Soviet Union,
which has been continuing since 1945, has no other purpose than to blackmail
the free world into submission to communist domination. Or, if the free
world lacks strength or determination to prevent it, the purpose is to
overrun its members one by one.
This is the central threat to our country, and to every free country in the
world. We cannot have peace unless this threat is overcome. That is the
purpose of our defense program.
This sustained effort on our part is something new in history. Free
men have always been willing to take up arms, and to do their utmost, in
a supreme crisis. But never before have free men in such large numbers
acted together in advance, to prevent a supreme crisis. Never before on
so vast a scale have free men assumed great risks voluntarily, so that
even greater risks may not descend upon them involuntarily. Never before has there been so deep and widespread in the hearts of mankind the
feeling that the price of peace is the willingness to fight for justice.
This is an effort of great hope and promise. It is a practical means by
which we can bring to reality the great vision of world peace under law.
But this effort—like any enterprise on a grand scale—will succeed only if
we put into it the resources, the sweat and toil, the unremitting force of
will, that it requires.
Our immediate plans must be flexible, as we constantly review our
progress in the light of changing conditions. Right now, for example,
we are reviewing our immediate goals for military strength, and it is quite
possible that we shall have to raise them in several important respects.
But our fundamental course is unaltered. The free world must build
the strength—moral, economic, and military—that is needed to deter aggression or, if aggression comes, to defeat it.
The greatest weakness we could disclose would be vacillation or lack of
determination. To win in the contest between justice and aggression, the
purposes of free men must be clear and persistent.
We must avoid shifting from one extreme of policy to another with every
new development—either international or domestic—when such developments do not alter the fundamental situation.
Immediately after the initial Korean aggression, there were some extremists both in military and economic affairs. In military affairs, these
extremists wanted immediately a 10-million-man armed force and a 100billion-dollar-a-year military budget. In economic affairs, there were some
extremists who wanted to freeze the whole economy in a strait jacket of controls more extensive than anything attempted during World War II.
Fortunately, the saving common sense of the American people avoided
these extremes. We embarked upon a substantial build-up of our military
strength, but without going on a total war footing. We started upon an
economic mobilization program which bore a sensible relationship to the
size of our defense effort and the likelihood of its long duration. This
economic mobilization included measures to expand production and to
control inflation. But it wisely did not attempt to mix full economic
mobilization with partial military mobilization. That would have gotten
our great productive economy all out of joint. It would have made us
weaker, not stronger.
Today, extremists are pulling in a diametrically opposite direction. At
the first signs of a let-down of the conflict in Korea, they have commenced
to clamor for a reduction in our defense program. On the economic
front, as soon as there is a slight softening of inflationary pressures, these
extremists are ready to discard the whole structure of inflationary controls
or shoot it full of holes.
If we were now to heed these extremists, it would be an even more
costly mistake than to have heeded the extremists of a year ago. We have
no reason to believe that the events in Korea have fundamentally changed
the basic Soviet intentions. The events at home have not removed the
need to expand our economic strength, or to overcome the basic inflationary
danger.
We must press on to build our defenses.
We must press on to strengthen the other free nations.
We must press on to expand production and prevent inflation.
Only by pressing forward can we make the vision of peace among all men
a lasting reality.
Building Our Defenses
Our defense program is designed to create substantial armed forces, ready
for action, plus the ability to enlarge those forces very rapidly if the need
arises. We have almost reached our first goal of 3/a million men and
women on active duty. But in the case of many types of weapons, we
have months and years of hard effort ahead, before we will have produced
enough modern equipment for our active forces, for helping to equip our
allies, and for the reserve stocks we need.
We have accomplished large increases in military production since the
Korean invasion. Deliveries of hard goods—such as aircraft, tanks,
weapons, and ammunitions—have more than tripled. Nevertheless, military output as a whole has moved up somewhat more slowly than scheduled.
This has been due partly to some shortages, such as in machine tools.
We have been "tooling up" thus far, but this stage is now well advanced.
From this point forward, every effort must be exerted to catch up with
production schedules and keep abreast of them.
In the cause of national safety, these schedules must be met.
Our total security program costs have now reached an annual rate of
more than 35 billion dollars. In terms of constant prices, this is almost
twice the level of a year ago, and 50 percent above the level of 6 months
ago. These costs are scheduled to increase to an annual rate of more
than 50 billion dollars by the end of this year, and to nearly 65 billion
by the middle of 1952. The proportion of the Nation's total output devoted to security purposes, which was about 6 percent before Korea and is
about 11 percent at present, will rise to approximately 15 percent by the end
of 1951, and will approach 20 percent by a year from now. (See chart 1.)
These outlays cover pay and subsistence for our military forces, deliveries of military goods to our own forces and our allies, economic aid
to other free nations, and other security expenditures. More than 85
percent of the total for the present fiscal year is allotted to building up
the military strength of this country. This includes the sums to be spent
on our military establishment, the atomic energy program, stockpiling, and
other domestic security programs.
The major part of the scheduled increase of almost 30 billion dollars in
the annual rate of security expenditures from the middle of this year to the
middle of 1952 will involve procurement of aircraft, weapons, tanks, and
CHART 1
GROSS NATIONAL PRODUCT AND
NATIONAL SECURITY PROGRAMS
1st HALF OF 1951 PRICES
During 1944 nearly one-half of. our total national output was
used for war purposes. The present national security program
will at the peak take about one-fifth of the nation's output of
goods and services.
100
BILLIONS OF DOLLARS
200
300
400
1940
FOREIGN MILITARY AND
ECONOMIC AID
TOTAL GROSS
NATIONAL
PRODUCT
(944
TOTAL NATIONAL SECURITY
2nd Qtr.
1950 U
2nd Qtr.
1951-^
2nd Qtr.
1952^
jy SEASONALLY ADJUSTED ANNUAL RATES.
SOURCE:
COUNCIL OF ECONOMIC ADVISERS.
other military end items, and some of the specialized equipment used in
their production. Within the next 12 months, hard goods deliveries are
scheduled to rise from a monthly rate of about 1 billion dollars to about
three times that amount. During the same period, aircraft deliveries are
to be tripled, and the tank-automotive program increased to four times the
present rate of deliveries.
Measured by costs and by the strain on the economy, this is a large
program. But it is a minimum program measured against the need, and
is well within our capacity. The accompanying Review by the Council of
Economic Advisers reveals in detail thatf with wise policies, our economy
can support this effort and yet remain sound and grow stronger. Compared
with the rise of almost 30 billion dollars in security outlays scheduled for
the coming 12 months, we expanded such outlays by about 75 billion dollars
(in terms of present prices) in the first year of our participation in World
War II. The program as now scheduled is not expected to absorb at its
peak more than about one-fifth of our total output, compared with almost
half in 1944. A year from now the program is expected to require about
11 million men and women directly or indirectly engaged in defense,
contrasted with about 25 million at the peak of World War II.
We cannot now be sure what our production needs will be beyond that.
If further aggression does not occur, we hope to be able, within two or
three years, to" level off our defense program, and to move on to a maintenance basis. At present, however, our principal concern is not with
maintaining military strength. Our principal concern is to build up military strength in the first place.
We have been moving toward interim goals for Army, Navy, and Air
Force strength. It now appears, as we review our strategic situation in
the light of world events, that these goals may need to be raised, whether
or not we have an armistice in Korea. The strategic and military studies
needed for such decisions have not been completed; if it is indeed necessary
to raise our sights, I shall later submit to the Congress requests for the
additional funds required.
Regardless of the need to lift our goals for the active military forces,
we must move full speed ahead toward our present goals.
Strengthening the Other Free Nations
The defenses of the free nations are inseparable. Our defenses are
bound up with the defenses of other free countries in every way—strategically, economically, morally—and their defenses are bound up with ours.
Due partly to historic events since the turn of the century, the United
States has greater economic strength and potential military power than any
ether nation. But with only 10 percent of the free world's population, and
only a fraction of its natural resources, our difficulties would be enormous
if we were cut off from the rest of the free world.
Western Europe, together with Turkey, has a population 80 percent
greater than ours, with a high proportion of skilled workers. It produces
one-third of the steel of the free world, one-fifth of the aluminum, and
nearly one-half of the coal. Moreover, areas outside the United States—
in many cases the economically underdeveloped countries—produce about
43 percent of the free world's crude petroleum and about half of its iron
ore. They produce about 70 to 80 percent of its lead, zinc, tungsten, and
rubber supply, and virtually all of its cobalt, manganese, nickel, tin, and
wool. We are vitally dependent upon imports for many of these products.
It would be a military disaster to us if these resources fell under hostile
domination.
6
But it is not only in terms of the possibility of world conflict that we
should view this problem. If we establish a secure peace, our prosperity
will be linked with that of other nations. The economic upbuilding of one
part of the world benefits also the other parts. As standards of production
and of living rise in one area, this provides more markets for the products of
other areas—and expanding production and markets are the lifeblood of
economic progress.
The moral aspects of this issue are even more important than the economic. The great need of the twentieth century is to achieve a steadily
improving morality to keep pace with growing technology. We must
cooperate with the rest of the free world because the future progress of the
free world is indivisible. Even if we could prosper in a world where others
did not, we could not live at peace in that kind of world.
The people of the United States should ever bear in mind the sobering
obligation to live up to the responsibility which our strength imposes.
The past four decades have been marked by two world-wide wars to resist aggression. In these previous wars, many of those now allied with us
poured out more blood, and more treasure relative to their resources, than
we did. They emerged from those fearful struggles for survival with economic handicaps which have lasted for a generation and longer. On the
other hand, the United States, because of geographic and other factors,
did not suffer such destruction.
At the end of World War II, the other free nations set about to repair
the ruin they had suffered. The Western European countries, mainly
through their own efforts, but with vital assistance from us, made a remarkable recovery. Their industrial production has by now mounted
above prewar levels by about 40 percent, and their total production by
more than 15 percent. On a per capita basis, the increase in their total production has been more than 5 percent above prewar levels.
This increase in production was greatly facilitated by economic aid
from the United States. In the three years after 1947, our foreign economic
aid to Western Europe totaled about 11 billion dollars. Over the same
period, the total annual output of these aided countries expanded by about
45 billion dollars.
Even with these increases in production, these nations could not notably
advance their standards of living. This was because they had to allot so
much of their resources to the rebuilding of productive capital equipment. In most instances, living standards did not begin to equal or surpass prewar levels until a year before the Korean outbreak. And just
when hope was bright, the new turn in the international situation required
these nations to redivert more of their resources to defense purposes. Our
European North Atlantic Treaty partners are doubling their military production in the course of one year, and many of them are committed to
continuing large increases in the future. Their defense expenditures are
CtiARf
$
MILITARY EXPENDITURES AS PERCENT OF
GROSS NATIONAL PRODUCT
CURRENT PRICES
Our European NATO partners, like ourselves, are devoting an
increasing proportion of their production to defense.
PERCENT
PERCENT
15
15
10
10
1951
— 1950
i
*'^
V
i
UNITED
TOTAL
UNITED
STATES
EUROPEAN
KINGDOM
NATO
COUNTRIES
^
FRANCE
OTHER
EUROPEAN
NATO
COUNTRIES
NOTE: MILITARY EXPENDITURES EXCLUDE SOME SECURITY EXPENDITURES, AND ARE ON A DISBURSEMENT,
RATHER THAN A DELIVERY, BASIS.
CALENDAR YEARS USED FOR UNITED STATES, FRANCE, AND FIVE OTHER COUNTRIES; FISCAL YEARS
USED FOR UNITED KINGDOM AND THREE OTHER COUNTRIES.
SOURCES: ECONOMIC COOPERATION ADMINISTRATION AND COUNCIL OF ECONOMIC ADVISERS.
being raised from less than 5 percent of their combined total output in
1949, and about 5% percent in 1950, to about 7l/2 percent in 1951. (See
chart 2.)
This is not as large an increase in defense outlays as we are making. But
the total economic situation in these other countries is very different from
ours. Compared with the period just before World War II, the goods
and services now available to the people in our country, for purposes other
than defense, have risen about 50 percent per capita in real terms. In
contrast with our situation, our European North Atlantic Treaty partners
now have available goods and services, for purposes other than defense,
less than 10 percent more per capita than in the period just before World
War II. This problem is even more clearly revealed by another compari-
8
CHART 3
PER CAPITA GROSS NATIONAL PRODUCT
AND MILITARY EXPENDITURES
PRE-WORLD WAR II AND POST-KOREA
1st HALF OF 1951 PRICES
Our defense expenditures, per capita, have increased since before
World War IE much more than those of our European NATO
partners, but our production available for other purposes has
risen much more than theirs, and is at a much higher per capita
level.
DOLLARS
2,500
DOLLARS
2,500
PER CAPITA GROSS NATIONAL PRODUCT
2,000
2,000
1,500
1,500
BOTHER EXPENDITURES FOR
X^GOODS AND SERVICES
1,000
,000
500
500
OTHER
EUROPEAN
NATO
COUNTRIES
NOTE: MILITARY EXPENDITURES EXCLUDE SOME SECURITY EXPENDITURES, AND ARE ON A
RATHER THAN A DELIVERY, BASIS.
CALENDAR YEARS USED FOR UNITED STATES, FRANCE, AND FIVE OTHER COUNTRIES;
USED FOR UNITEp KINGDOM AND THREE OTHER COUNTRIES.
DISBURSEMENT,
FISCAL YEARS
SOURCES: ECONOMIC COOPERATION ADMINISTRATION AND -COUNCIL OF ECONOMIC ADVISERS.
son. In the United States, total output per person, even after deducting
output for military purposes, is estimated at nearly $2,000 for 1951. Among
our European North Atlantic Treaty partners, the figure is estimated at
less than one-third as high as ours. Allowing for shortcomings of international income comparisons, this difference is striking. (See chart 3.)
Under these circumstances, these countries are obviously limited in the
amount of resources they can rapidly divert to defense purposes, without
undermining their economic and political stability, and thus playing into
the hands of communist minorities.
All of these factors have been taken into account, in the development of
our program to help strengthen the other free nations.
For this purpose, I have recommended appropriations of 8.5 billion
dollars for fiscal 1952. Of this amount, 6.3 billion dollars are to provide
military assistance to other nations of the free world where increased
military strength is needed to combat or forestall communist aggression or
subversion. Such assistance will consist primarily of planes, tanks, guns,
and other military weapons which must be produced in the United States
because they cannot be produced abroad within the required time. While
the largest portion of this aid will go toward filling the equipment needs
of our partners in the North Atlantic Treaty, substantial quantities are
also destined for countries in the Near East, Far East, and Latin America.
The remaining 2.2 billion dollars would consist of economic aid. Over
half of this amount would go to Western Europe, in order to create the
kind of economic strength which is necessary to support an increased
European rearmament effort, and to do this without sacrificing the political
and social stability required for security over the long run. This assistance
will permit the diversion of men, materials, and facilities from civilian
to military production, and aid the expansion of total production. Elsewhere in the world, where the problem is more economic than military,
such assistance will help the peoples to combat the poverty, disease, and
illiteracy on which communist subversion thrives. It will contribute, moreover, to a substantial expansion in the production of basic materials,
particularly strategic materials, which are essential to the economic and
military strength of the free world.
In addition to the materials and equipment provided under the Mutual Security Program, we are giving positive assistance, where necessary,
to the export of goods which represent the essential requirements of the
other free nations, and are paid for by them. And these exports will be
considerably larger than non-military supplies which we finance.
The magnitude of the proposed security program, including foreign
assistance, is well within the capacity of our productive resources. Proposed outlays for assistance to the other free nations over the next
year comes to less than 15 percent of our total security program, and to
only about 2 percent of our estimated total output during this period.
We can carry forward both the domestic and the foreign aspects of our total
security program, and still maintain domestic consumption and business
investment at high levels.
The determination of the size and scope of the aid program which we
should undertake this year has resulted from the same kind of careful
preparation which has gone into the development of our scheduled expansion of United States military forces. It is in fact an integral part of our
over-all security program.
10
For example, the military assistance I have recommended will make possible a rapid build-up in Western Europe of trained forces equipped with
modern weapons. The existence of such forces is essential to the security
of the United States. The cost to us of supplying equipment through our
aid program is only a fraction of the cost of raising a comparable force
ourselves.
The value of our aid programs, however, is far broader and more significant than simply a good investment in security. These programs will mean
that free men, in many countries, will be able to stand up against the threats,
the lies, the subversion of communist aggression. They will be. able to
defend themselves against bullets—and they will be able to combat communism's allies of poverty and hunger and sickness.
That is why our military and economic aid programs are as essential and
as urgent as any part of the work we are doing to build up the defenses
of freedom.
As we move forward with this program, we must continuously review
and, if necessary, revise it to assure maximum results. We must be sure
in the conduct of this program that other nations do their full share.
We are challenged by the hard task of a new kind of cooperation, based
upon a new kind of international situation. We must face these problems
of the future realistically and courageously.
Expanding and Stabilizing the Economy
During the past year, the growth of production in the American economy
has been very large. During the second quarter of 1950, our total output
was at an annual rate of about 300 billion dollars, measured in today's
prices. During the second quarter of 1951, measured in the same prices, our
total output rose to an annual rate of 330 billion dollars, or a real gain of
30 billion. This gain far exceeded the increased outlays for national
defense. Our economy is stronger now than it was when the defense
build-up started.
This growth in our productive power was not achieved without considerable inflation, partly because the measures for controlling inflation took
time to enact and get into operation. But since these measures have been
in full swing, we have continued to expand total output without inflation.
That is a salient fact about economic developments since the early part
of this year.
We are now in a position where, if the Congress enacts adequate legislation, we can continue to enlarge our defense efforts, to expand our productive capacity, and to hold inflation in check. I emphasize that our success
in these matters will depend on a series of legislative measures which the
Congress is now considering. If the Congress enacts sound and strong
legislation, as I earnestly hope it will, we can achieve our goals.
II
Our production goals
The Council of Economic Advisers estimates that we have the ability
to increase our total output by at least 5 percent within a year's time.
This goal is practicable, and we should strive to surpass it. Expansion of
output will make it possible to carry forward our security program with
less strain upon our economy. It will make it easier to raise necessary
tax revenues, and to restrain inflation. It will offer the prospect of reducing
irksome controls in due course, if the international situation does not
worsen. Increasing our basic productive capacity will place us in a
stronger position to mobilize fully and quickly if that necessity should be
forced upon us.
Manpower is our prime productive resource. Within a year, through
various programs for the voluntary mobilization of our manpower
resources, as well as through population growth, we should expand our
total labor force by 1^2 to 2 million persons. This expansion is entirely
possible, and with it there should be no general manpower shortage,
although there will be shortages in certain skilled trades, and in some industries longer hours will be needed.
A major obstacle to the further expansion of production is the shortage
of capacity in a number of key industries. It is not possible to expand
capacity in all directions at once. We must concentrate on assuring adequate capacity for military equipment, and on basic materials, transportation, and power. We must postpone those types of investment which
add least to our productive strength. We must relate our own expansion
of capacity to the capacity available in other countries, and to total potential supplies of basic materials.
A number of basic expansion programs have been prepared by the
defense agencies, and are now going forward under continuing review. In
steel, the program calls for an increase of capacity from 107 million ingot
tons annually now to nearly 120 million tons by the end of 1952. The aluminum program is planned to more than double our 1950 rate of output
by the end of 1953. The proposed electric power program looks toward
a 40 percent increase of generating capacity by the end of 1953.
These are only examples. Large-scale investment in tools and equipment for factory, farm, and transport must be continued for several years,
at or near the peak levels which have recently been reached. We must, for
a time, limit investment in non-essentials—as we are doing. But we must
be very careful in deciding what can be postponed and what cannot. The
strategy of a prolonged partial mobilization requires a much broader
production base than the strategy of total war.
For example, it is now more urgent than before that we begin at once
certain developmental projects—like the St. Lawrence seaway and power
project—which will not be completed for several years, but which are
especially needed in a defense economy. Furthermore, we must resume, as
12
soon as we can, some of the programs which can only temporarily be
curtailed without ultimate sacrifice of economic power. For example,
the expansion of educational and health facilities, of long-range resource
development and housing, as contemplated before the emergency, must
be resumed in time to avoid serious impairment of our national strength.
This is why we need a production advance on a very broad front. This
means more than the expansion of capacity and the improvement of
tools in a few select areas. It means the application of business acumen
and labor skills in a joint effort throughout the whole economy. It means
the joinder of new science and new technology with the industrial machine.
It means drawing upon all the resources, material and moral, which
reside within our system of enterprise and government.
Production aids
To encourage the necessary expansion of our productive capacity, the
Government is allocating scarce materials, and extending special aids
through direct loans, government guarantee of private loans, commitments to purchase, and rapid amortization of facilities for tax purposes.
These aids are becoming increasingly effective, in connection with specific
expansion programs.
The authority for these production programs, with the exception of tax
amortization, is included in the Defense Production Act. Renewal of
this authority is urgently needed in order to achieve our production goals.
Adequate funds are also required. In addition, the defense agencies should
be given certain additional production powers, such as the authority to
construct defense plants where this is essential to the mobilization effort.
Our stabilization goals
After the Korean outbreak, a wave of inflation swept over most countries. It was less serious in the United States than in some other places.
But even here, it raised living costs by 9 percent, and wholesale prices by
16 percent. This inflation encouraged speculation, and put heavy burdens
on many of our people. Those fortunate enough to have rising incomes
were able to maintain their living standards. But more than half the families of the Nation had no income gains between early 1950 and early 1951,
and almost one-fifth suffered actual declines.
During the past few months, there has been relative price stability.
Wholesale prices are now somewhat below the peak levels of last March.
Consumer prices are no longer soaring, although they rose slightly from
February to May.
The easing of the inflationary pressure since spring has been due partly
to larger civilian supply. It has also reflected higher taxes, credit restraints,
and the application of price and wage controls early this year. Moreover,
as the military situation improved, many consumers switched from frantic
buying to cautious buying, while businesses felt that some inventories were
excessive, and curtailed their orders.
These recent developments have led some people to think that the inflationary trend is ended. This is a dangerous assumption. We cannot
accept it as a guide to national policy.
The fundamental fact is that we must increase the annual rate of
national security expenditures by about 30 billion dollars during the next
year. In order to produce more airplanes, tanks, and other munitions, we
must continue the cutbacks which have been made in the production of
consumer and investment goods, and possibly make some further cuts.
While total consumer supplies cannot be expected to rise significantly,
incomes will continue to grow, because total production and employment
will and must continue to expand. It is estimated that, by a year from
now, personal incomes before taxes, measured at an annual rate, may rise
to a level 15 to 20 billion dollars above the current annual rate. If taxes
and saving are not sufficiently increased, there would thus be a growing
disparity between the incomes which people would desire to spend and the
supply of consumer goods. This disparity represents the inflationary gap.
If controls were to be relaxed, the inflationary gap would be greater—
probably very much greater. The price-wage spiral would again be set
in motion.
Inflation stimulates the production of many nonessential goods, thus pulling resources away from essential production. It favors some groups at
the expense of others. It lifts the cost of national defense, and shifts the
burden toward those least able to bear it. Inflation impairs the value of
peoples' savings, and undermines their willingness to save.
Winning the battle against inflation is an essential element in our
struggle for peace. The battle cannot be won by using only one of the
weapons available to us. Stabilization depends upon a combination of
measures, each of which reinforces the others.
Taxation
There is no more important single measure for combatting inflation,
under present circumstances, than the maintenance of a balanced budget.
The substantial increases in taxes adopted by the Congress since the
Korean outbreak have helped to stabilize the economy and aided in halting
the price rise. The public approval of these tax increases has demonstrated that the American people are ready to pay the price of protecting
our way of life.
Government expenditures for national security have risen from an annual
rate of 18 billion dollars (in present prices) before the Korean outbreak
to a current rate of about 35 billion dollars. It has been pointed out
that the annual rate of these outlays is scheduled to increase by about 30
billion dollars within the next 12 months. This increase, even when
accompanied by economy in other expenditures, is bound to result in
growing deficits under present tax legislation.
To put our security program on a pay-as-we-go basis, and to reduce
the inflationary pressure which this program will generate, we need an
increase in taxes of at least 10 billion dollars this year.
Such an increase in taxes, though heavy, would not interfere with needed
work and production incentives. It would be consistent with maintenance
of a good standard of living, and an equitable distribution of spendable
income. It would aid substantially in the stabilization of prices. It would
ease the problems of managing the huge national debt.
Public expenditures
We must also continue to pare down less essential or postponable public
spending. This is another avenue toward a balanced budget and toward
the control of inflation. The less urgent public activities of Federal, State,
and local governments should be reduced or retarded, until the security
build-up has passed its peak, or until our over-all productive power catches
up with the increased burden imposed by the security program.
In a protracted period of partial mobilization, the distinction between
defense and non-defense activities is not as clear as in a total war. The
strategy of our current defense effort is not to build maximum defensive
power at once. It is instead to build reasonable power, and to reinforce
it with the underlying productive capacity and basic economic strength
which will enable us to be ready for any problem of the future. That
underlying strength, for the long pull, includes education and training,
health services, development of natural resources, research, and scientific
progress. We must strike a careful balance, not doing as much of all of
these things as we ought to do in normal peacetime, but not doing so little
as to weaken ourselves for the long pull.
The budget which I have submitted to the Congress for the current fiscal
year represents a minimum program consistent with this policy. Further,
the spending activities of the Government are under continuous review.
Those which can be reduced without weakening the defense effort are being
reduced. Those which can be redirected to make a further contribution
to defense are being redirected.
Credit policy
Credit expansion contributed to the inflation of the past year. We must
prevent it from adding to future inflationary pressures. In the current
national emergency, when some types of credit extension are necessary in
order to increase production of certain essential defense and civilian requirements, while other types of credit extension defeat the purpose of the
mobilization program by permitting the expansion of production in unnecessary areas, it is essential to use credit controls as selectively as possible.
General credit measures reach areas not touched by selective credit measures, but they do not discriminate between activities which should be
supported, and those which need to be restrained. For this reason, effective
measures of selective credit control, such as regulation of consumer and
real estate credit, are needed. The legislative authority to impose them
should not be impaired.
One important merit in the selective credit controls is that they may be
loosened or tightened by prompt administrative action, in response to shifts
in the economic situation. This flexibility would be destroyed, if the
Congress by excessively detailed legislation were to narrow the range of
administrative discretion within which the Board of Governors of the
Federal Reserve System could operate in exercising selective credit controls.
I recommend that the Congress avoid unwise limitations upon the use of
an instrument which has clearly proved its worth.
I have recommended several times that the Congress authorize the placing
of margin requirements on speculative trading in commodity futures. I
repeat this recommendation now. Similar provisions for margin requirements in stock trading have proved very useful.
Authority to impose additional reserve requirements when needed would
strengthen the Federal Reserve System's influence over credit conditions
with minimum effects on the needs of debt management. I recommend
that the Congress give careful consideration to the plans for accomplishing
this purpose outlined in the attached Midyear Economic Review.
As a phase of the Government's credit policy, all major Federal lending
and loan guarantee programs have been revised, to minimize their inflationary impact and to contribute most to the defense effort.
I am also glad to note that lending institutions throughout the country,
and State and local governments, are cooperating in a voluntary credit
restraint program which has been initiated by private financial institutions under the sponsorship of the Board of Governors of the Federal
Reserve System.
Voluntary saving
Voluntary saving is an essential part of a well-rounded anti-inflationary
program. Without a large volume of voluntary saving, taxes high enough
to close the inflationary gap might reduce incentive and cramp production.
Also, without a large volume of voluntary saving, only the most severe
direct controls could prevent prices from being swept upward by a flood of
demand.
In addition, voluntary saving serves other purposes in our economy. It
provides a source of funds for investment. It adds to the family's sense of
security for the future. When the time comes to make the transition from
a defense economy to a peacetime economy, the prudent use of accrued
16
savings will help to maintain demand and employment during the changeover period.
The Government savings bond program is very important in the effort
to promote voluntary saving. The Treasury has carried on an intensified
payroll savings drive since shortly after the outbreak of hostilities in Korea.
Commencing on Labor Day, the Treasury will call upon all Americans to
do their part in a full-scale savings bond campaign which will reach into
every community and every home in the Nation. Because it is a voluntary
program, this effort must be made in the last analysis not only by the Government, but also by every voice that can be heard throughout the country.
Consideration should be given to developing voluntary savings plans in
connection with productivity wage increases. Such plans would help to
keep these increases out of the inflationary stream. This would be beneficial
to workers, who would not be trying to spend their additional income until
a time when they could spend it without driving up prices. These plans
should be tied in with the Savings Bond Payroll Deduction Program.
But voluntary saving is not a substitute for adequate taxation or other
inflation controls. Nothing could be more destructive of the willingness or
ability to save, than constantly rising prices. After other inflation controls
took hold earlier this year, and helped to stabilize prices, the rate of
voluntary saving moved very sharply upward.
Price and wage stabilization
Indirect measures for controlling inflation are vitally important. But
with inflationary pressures as large as those which we may face in the year
ahead, indirect controls are not enough. They must be buttressed by direct
price and wage controls.
The basic objective of price control now is to hold the general price
line. Ceiling prices should not be raised except where essential to provide
adequate production incentives to business, or to correct clearly inequitable
situations. As a general rule, price increases should not be approved, even
where some costs have risen, if the industry is earning a fair and equitable
level of profits. Just as some upward adjustments of some prices will be
needed, some rollbacks will be needed in selected cases, for example, where
prices or profits are excessively high. This is the practical way to maintain
adequate flexibility in the price structure, while holding the general price
line. This requires legislation which strengthens, not weakens, price control.
Wage stabilization requires a careful balance among three major objectives. First, it should seek to prevent an increase in total payrolls so large
that, after making due allowances for taxes and voluntary saving, they
would seriously inflate total demand. Second, it should provide adequate
incentives for increased productive effort, and redress serious inequities
in the wage structure. And third, it should minimize wage increases of a
kind which would require price increases.
The achievement of these objectives is the primary task of the Wage
Stabilization Board. In the January Economic Report, I expressed hearty
agreement with the principle that effective wage stabilization in a democracy requires the active participation and cooperation of management and
labor. This is being attained through the present Wage Stabilization
Board, which contains equal representation of those two groups and of
the public. In addition to its stabilization responsibilities, the Board is
empowered to handle labor disputes affecting the national defense program
if parties jointly submit their case for recommendation or decision. The
Board is also empowered to recommend a settlement in labor disputes certified by the President as threatening the progress of the national defense
program. The labor dispute responsibilities of the Board are the minimum
necessary for the mobilization effort.
Fair and practical wage policies are in process of development. This is
not a simple task. The Board has recognized that wages should be adjusted
to compensate for changes in the cost of living. Other wage adjustments
are also desirable, if hardships and inequities are to be dealt with, as required by the Defense Production Act. The Wage Stabilization Board has
taken steps to deal with the difficult problems of productivity allowances
and so-called fringe benefits. Within proper limits, productivity allowances
provide desirable incentives and can make a real contribution to the mobilization effort while some fringe benefits may be anti-inflationary. These
and many other problems must be solved in developing integrated wage
policies.
Rent control
The control of rents is important to the success of our mobilization effort.
As we expand output in different industrial areas, we have to attract
outside workers who would be repelled if rents were allowed to rise exorbitantly. Simple justice also requires us to protect the families of our soldiers,
who move to the areas where military camps are being reopened or expanded.
Despite the great postwar building boom, vacancy rates are very low,
while the expanded mobilization effort is creating new and large demands
for housing in many parts of the country. We cannot control prices and
wages effectively if rents are uncontrolled.
The rent control law now in effect was designed to permit orderly decontrol of all rents by this time. But it was not enacted in an environment of
great defense expansion. That effort is already seriously affecting the
housing supply in many areas. The new law that is being considered by
the Congress should be geared to the new needs of the defense effort. It
should permit effective control of rents, where an inflationary rise is threatened which would be harmful to the mobilization effort.
18
Summary of Economic Developments in the
First Half of 1951
In its second half year since the Korean outbreak, our economic mobilization for defense made heartening progress. Since the middle of 1950, the
economy's over-all output has increased at a faster rate than in any previous
postwar period. Price and wage inflation, rampant in the first weeks of
1951, was checked by the imposition of general price and wage controls at
the end of January. Soon thereafter, and partly as a result of this action,
inflationary pressure subsided temporarily as consumers moderated their
abnormal rates of buying. Government spending for defense and defense
production mounted at an accelerating pace, however, presaging a revival
of inflationary pressures later on. (See Chart 4.)
Both on the production and the stabilization sides, the record leaves room
for improvement.
Employment has increased substantially during the last year, with unemployment falling sharply, the total labor force growing at about twice
the normal rate, and our armed forces more than doubling. Nonagricultural employment, after expanding rapidly following the Korean outbreak, has been relatively stable in 1951, while agricultural employment
has continued its long-run, year-to-year decline. In June, total civilian
employment was 61.8 million—300,000 higher than in June 1950.
While there is not yet any over-all manpower shortage, we do face serious
shortages in certain skilled trades and professions, some of which have been
long-continuing.
Unemployment in the first 6 months of this year was 1.8 million lower
than in the same period last year. In June, it reached the lowest level for
any June since World War II—2.0 million. The average duration of
unemployment, as well as the number of people out of work, has declined.
Working hours, which lengthened considerably during the second half of
1950, declined somewhat during the first half of this year. In June, the
average workweek in manufacturing industries was 40.8 hours, compared
with 40.5 hours in June 1950, with all of the increase occurring in durable
goods industries.
Production of goods and services as a whole (as measured by gross national
product in constant prices) was more than 5 percent higher in the first
half of 1951 than in the second half of 1950, and about 10 percent above
the first half of last year.
Industrial production, which soared during the last 6 months of 1950,
increased from an index figure of 218 in December (1935-39= 100) to 223
in April. But since then, because of raw materials shortages, cutbacks, and
slackening of civilian demand, the over-all index has shown no change.
Continuing high rates of agricultural production indicate that our supply
CHART 4
EGDNOMIC INDICATORS
CHXkNGES FROM A YEAR AGO
PERCE NTAGE CHANGE
+ 10
PERCENTAGE CHANGE
__ EMPLOYMENT
pi
0
TOTAL
f;/;>;/.:]
CIVILIAN
EMPLOYMENT
f'-'-'-'-'i
l&v:!
r.-Vv.vj
-10 -
+ 10
0
°MRA/NBULE
NONAGRICULTURAL
EMPLOYMENT
EMPLOYMENT
^MANU-^
MANU-
MANUFACTURING
EMPLOYMENT
FACT URINO
EMPLOYMENT
LiiiJ
y-
AGRICULTURAL
EMPLOYMENT
I 1
1f
I
I
1
I
l | "7 -10
f l
I
1
'"i
-40
-40
UNEMPLOYMENT
-50
-50
+ 40 _ PRODUCTION
+ 40
m
+ 30
+ 20
+ 10
+ 10
-10
+ 30
\f Ii-
+ 20
0
M-
GROSS NATIONAL
INDUSTRIAL
PRODUCT
PRODUCTION
(1ST HALF OF ..
1951 PRICES)-^
~"
TOTAL
HHH
PRIVATE
/y
CONSTRUCTION-^
PRIVATE
RESIDENTIAL
-20
" PRODUCERS*
^^
^^
^^
PLANT AND
EQUIPMENT
EXPENDITURES
(NONFARM)-^
0
PUBLIC
CONSTRUCTION
"~
/x
+ 30 _ INCOME
-10
-20
_
+30
+ 20
+20
+ 10
+ 10
0
0
.
NATIONAL
INCOME^/
COMPENSATION
OF EMPLOYEES^
PERSONAL
DISPOSABLE
INCOME^
WEEKLY
AGRICULTURAL
EARNINGS
INCOME^
(MANUFACTURING)
^enr?-^
occnoc
"
TAXES^
-10
-10
+ 20 - PRICES
+20
+ 10
+ 10
0
0
ALL
COMMODITIES
FARM
PRODUCTS
FOODS
INDUSTRIAL
(OTHER THAN FARM
PRODUCTS AND FOODS)
ALL
ITEMS %/
FOOD
I/ CHA NGES FROM 1950, 2ND OTR..TO 1951, 2ND QTR. ALL OTHER CHANGES EXCEPT CONSUMERS* PRICES,
£/
CHANGE FROM JUNE
1950 TO MAY 1951.
SOURCE: APPENDIX B.
20
of foods in the year ahead should be at least as great as in the year just
passed, and fully adequate for normal requirements. The demand for food,
however, is unusually high. Fortunately, current crop prospects are encouraging. Production of cotton will be sharply expanded this year.
Prices at midyear 1951 were far above their levels a year earlier, reflecting largely the surge before the General Ceiling Price Regulation was
issued at the end of January.
Wholesale prices stabilized by mid-February, and tended down slightly
in the second quarter, returning by midyear to a level only slightly above
that at the time of the General Ceiling Price Regulation. In June, farmers
were, on the average, receiving prices equivalent to 106 percent of parity,
but there were wide differences among commodities. Throughout the
second quarter, wholesale industrial prices were in a very slow but steady
decline, and at midyear were at about their January level.
Consumers' prices, which were climbing about l*/a percent monthly in
the buying wave at the turn of the year, increased only 0.9 percent from
February to May, reaching in the latter month a level of 8.9 percent above
that of June 1950. Retail food prices were 2.5 percent higher than in
January. They moved down 0.3 percent in June, but were 11.7 percent
above June last year.
Wages continued to rise in the first half of 1951, but at a diminished
rate. Average hourly earnings in manufacturing, which had increased
over 8 cents an hour from July to December 1950, increased by almost
5 cents an hour from January to June of this year. Weekly earnings in
durable goods manufacturing advanced almost $3.00 during the first 6
months of 1951, but rose only 10 cents for workers in nondurable goods
manufacturing during the same period.
Work stoppages have not been a serious problem so far this year. While
the number of stoppages was higher than in the comparable period of 1950,
total man-days of idleness were at considerably lower levels.
Profits of corporations, before taxes (not adjusted for changes in inventory
valuations), are estimated to have reached a new record annual rate of 50
billion dollars in the first half of 1951. The level estimated for the second
quarter of 1951—481/% billion—is below the peak of nearly 52 billion
reached in the first quarter. It compares with 37J/2 billion in the second
quarter of last year. Corporate profits after taxes, reflecting higher tax
rates, averaged 22 1 /2 billion for the half year, compared with 19 billion in
the same period of 1950 and a peak rate of nearly 28 billion in the fourth
quarter of last year.
The net income of nonagricultural unincorporated business, after dropping off in the fourth quarter of 1950, reached a new peak in the first
quarter of this year, and then declined. The net income of farm proprietors moved steadily upward from mid-1950 to the spring of 1951,
reaching an estimated annual rate of 17 billion dollars in the second
21
quarter of this year. This was 5 billion higher than last year, but 1^4
billion short of the record level in the second quarter of 1948.
Money and credit developments in the first half of 1951, in contrast
with the general expansion occurring in the first 6 months after the
Korean outbreak, were divergent.
The privately held money supply (including demand and time deposits) ,
declined in the first quarter of the year, under the usual impact of personal
income tax payments, and then expanded in the second quarter.
The total loans of all commercial banks increased about 5 percent, or
nearly 3 billion dollars, between December 1950 and June 1951. During
the same period a year earlier, the increase was 4 percent; in the second'half
of 1950, it was about 17 percent. Mortgage credit continued to rise in
the first half of 1951, but at slower rates than in the last half of 1950, as
credit restrictions took hold. Consumer credit outstanding, after soaring 2.4 billion dollars in the second half of 1950, declined about 900 million
dollars in the first 6 months of 1951.
Personal income rose nearly 6 billion dollars (annual rate) in the first
quarter of 1951 and, advancing almost 6 billion more in the second quarter,
reached an annual rate of 250 billion. Despite the tax increase, personal
income after taxes rose from an annual rate of 215 billion dollars in the
last quarter of 1950 to 217/2 billion in the first quarter of 1951 and 223
billion in the second quarter.
Consumption expenditures, following roughly the same pattern as in
the last 6 months of 1950, spurted in the first quarter of 1951 to a record
annual rate of 208 billion dollars, and then declined to an estimated annual
rate of 203 billion in the second quarter of this year. In constant prices,
consumption in the first half of 1951 was about 2 percent less than in the
second half of last year.
Net personal saving, under the impact of the first quarter buying wave,
is estimated, in that quarter, to have amounted to only 4 to 5 percent of
disposable income. In the second quarter of 1951, saving apparently rose
to between 8 and 9 percent of disposable income—the highest rate of the
postwar period, but far below the rates attained during World War II.
Gross private domestic investment in the first half of this year reached
a record level of 62 billion dollars at a seasonally adjusted annual rate, 40
percent higher than in the same period last year, and 15 percent above the
second half of 1950.
Plant and equipment expenditures reached a new high in the second
quarter of 1951, nearly one-third above the corresponding quarter of
1950, with the increases concentrated in outlays for industrial facilities
directly or indirectly serving the security program.
From the Korean outbreak to May, the book value of inventories in
manufacturing and trade rose at a record rate. Inventory accumulation
slowed in the first quarter of 1951, but then in the second quarter rose again,
22
as sales failed to meet expectations. In May of this year, the ratio of inventories to sales dropped slightly, but was close to postwar highs. At the retail
level, the inventory-sales ratio was considerably above any previous postwar
figure.
While new construction activity was at a record level of about 32 billion
dollars (seasonally adjusted annual rate) in the first half of 1951, the most
striking change has been the increasingly sharp fall since February in
seasonally adjusted new private housing expenditures, as the credit controls
have begun to take hold. But private industrial and public construction
have far exceeded the levels of a year ago.
International transactions of the United States in the first half of 1951
reflected expansion of United States exports and leveling off in imports,
as our very heavy post-Korean buying eased somewhat. Our export surplus increased from an annual rate of 2.5 billion dollars in the fourth
quarter of 1950 to an estimated 5.8 billion in the second quarter of this
year.
Largely as a result of increased military aid, total net financing of foreign
transactions, including export of military equipment, by the U. S. Government rose from an annual rate of 4.5 billion dollars in the last quarter of
1950 to 5.1 billion in the second quarter of 1951. With the greater export
surplus, the outflow of gold and dollar assets from the United States was
greatly reduced.
In Western Europe, increasing need for imports raised the trade deficit
from an annual rate of 3 billion dollars in the final quarter of last year
to more than 5 billion in the first quarter of this year. Price inflation during
the first half of 1951 became more and more clearly a world-wide problem,
with most countries suffering greater post-Korean price increases than the
United States.
Government finances in the first 6 months of the year involved a temporary surplus of Federal receipts over expenditures, as the growth of defense
expenditures lagged for the time being behind the increase in taxes. The
budget surplus was 4.1 billion in the first half of calendar 1951, and 3.5
billion in the fiscal year ended June 30, 1951. The Government's total cash
receipts from the public, including social security and other transactions
as well as those appearing in budget accounts, exceeded payments to the
public in the first half of 1951 by 6.9 billion dollars, or by 3.9 billion when
adjusted for the seasonal peak in receipts in the first quarter.
Estimates of changes in State and local government finance indicate that
in the first half of 1951 the small deficit incurred by these governments in
the last 6 months of 1950 was virtually eliminated.
HARRY S. TRUMAN.
JULY 23, 1951.
The Economic Situation
at Midyear 1951
A Report to the President
By the
COUNCIL OF ECONOMIC ADVISERS
LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS,
Washington, D. C., July 20, 195 L
The PRESIDENT:
SIR: The Council of Economic Advisers herewith submits a report, The
Economic Situation at Midyear 1951, in accordance with section 4 (c) (2)
of the Employment Act of 1946.
Respectfully,
Chairman.
Contents
Page
1. REGENT TRENDS AND THEIR SIGNIFICANCE
The emergence of a defense economy
The general upsurge in demand, output, and prices
The rise in general demand
The rise in total output
The inflationary rise in prices
The fight to curb inflation
The lull in inflationary pressures
The lull in the growth of industrial output
The expansion of defense production
The underlying forces at midyear
II. THE SHAPING OF THE DEFENSE ECONOMY
Main objectives
Our economic potential
The World War II production achievement
The course of production from World War II to
Korea
Changes in output from mid-1950 to mid-1951
How much can we expand total output?
Major required adjustments in the use of the Nation's
resources
Major changes in the use of output, 1940 to 1944
The postwar period to mid-1950
Changes in the composition of the Nation's output
from the first half of 1950 to the first half of 1951...
Prospective changes in government outlays, private
investment, and consumption
The current national security program
Size of the security program
General character of the security program
The impact of military production programs on materials
The impact of the common security programs on
materials
The industrial build-up
Over-all investment objectives
Plant and equipment
Priorities in expansion
Expansion objectives in specific industries
29
33
33
34
34
38
39
41
42
43
44
45
50
50
51
53
55
58
60
63
64
66
67
67
68
68
70
71
73
75
75
78
78
82
II. THE SHAPING OF THE DEFENSE ECONOMY—Continued
Impact of the security program on consumption standards.
The growth of consumption, 1940 to 1944
Consumption in the postwar period
Consumption during the period of the new defense
build-up
III. ECONOMIC POLICIES FOR DEFENSE
Prime importance of economic programming
The production effort
Industrial production aids
Defense production aids and regional development. . .
Aids to agricultural production
Manpower build-up
International production and resources policies
The stabilization effort
The nature of inflation
Appraisal of prospective inflationary pressures
The strategy of stabilization
Tax policy
Curtailment of less essential Federal spending
State and local participation in the stabilization
program
Credit policy
Debt management
Price policy
Subsidies and food prices
Wage policy
Savings programs
The world-wide problem of inflation and stabilization.
IV. DETAILED ECONOMIC DEVELOPMENTS DURING THE FIRST HALF
OF 1951
The expanding economy
The labor force
Employment
Unemployment
Production
Industrial production
Agricultural production
Services
Prices
The inauguration of controls
,..
Wholesale prices under controls
Consumers' prices under controls
Page
88
89
90
94
97
97
99
100
109
110
112
114
120
120
122
125
127
136
137
137
142
144
151
154
159
159
162
162
164
164
166
167
168
169
170
170
170
171
175
IV. DETAILED ECONOMIC DEVELOPMENTS DURING THE FIRST HALF
OF 1951—Continued
Wages
Wage stabilization
Work stoppages
Profits
Money and credit
Money supply
Credit
'
Flow of goods and purchasing power
Personal income
Personal consumption expenditures
Personal saving
Business investment and
finance
Plant and equipment
Nonfarm inventories
Construction
Corporate
finance
International developments
Government fiscal operations
Progress of spending for national security program..
Cash payments by the Federal Government
Cash receipts of the Federal Government
State and local government
finances
The Nation's Economic Budget
Page
178
178
181
182
184
184
184
187
188
188
190
191
193
193
195
196
198
203
205
206
206
207
207
APPENDIXES
A. Statistical Tables Relating to the Nation's Economic Budget..
B. Statistical Tables Relating to Employment, Production, and
Purchasing Power
C. Lists of Text Tables and Charts in The Midyear Economic
Report of the President and The Economic Situation at Midyear 1951
211
223
275
I. Recent Trends and Their Significance
THE EMERGENCE OF A DEFENSE ECONOMY
T
HE invasion of South Korea a year ago decisively altered the course
of the United States economy. Until then, our major efforts since the
end of World War II had been concentrated on expanding civilian production to meet the high postwar level of demand swollen by the shortages built
up during the war, and on maintaining a high level of employment.
While furthering this peaceful task at home, we had not neglected the
economic plight of other free nations. We made a major contribution to
the rebuilding of the war-shattered economies of these nations.
By June 1950, the transition from the aftermath of war had been practically completed. In reaching this position, the path had not been easy,
marked as it was by a substantial inflation and many difficult problems
of readjustment. But the vigor and resiliency of our economy made it
possible to avoid the severe depression which so many had feared. In
fact, the downturn in 1949 was no more than a minor digression from
the postwar record of growth. The revival which quickly followed brought
the prospect of a period of economic stability, with growing levels of civilian
production, employment, and consumption.
With the Korean outbreak, we were confronted with the need to chart
a new path for the economy. If we were to avoid a new world war, or
be ready for one if it came, the obligation became clear to build up our defensive strength at a much more rapid rate and help our allies build theirs.
Only in this way could the free world make plain its resolve to resist aggression. Whether we shall be called upon to fight elsewhere than in Korea
depends upon plans of others. But the free world must be prepared. It
should not be lulled into complacency by ostensible changes in the strategy
of the aggressor nations. Only when it is compellingly clear that aggression
is no more to be feared can we afford to relax. We are moving into a
position of preparedness which may have to be maintained for years.
The long ordeal we are embarked upon requires steadiness of nerve and
iron patience, as much as material build-up in physical strength.
A basic requirement of national policy in these dangerous years is the
firm welding together of the elements of a strong defense economy. With
that, military power can be successfully organized as the bulwark of national security. Without it, military strength would languish for lack of
support from its economic roots.
33
This is the third semi-annual Review in which the Council of Economic
Advisers has faced the unusual problems of a partly mobilized economy.
A year ago, the economic problem implicit in the defense program was
already apparent as the response to the Korean aggression began to destroy
the economic balance of June 1950. Six months ago, the country was
contending with inflation, although defense mobilization was only beginning to have major direct impact on our resources. Most kinds of economic
controls existed only in rudimentary form.
In sharp contrast is the economic situation at midyear 1951. (See chart
5.) Four major features have marked the course of the economy during
the first half of this year: the brief renewal in January of the general upsurge
of demand and prices; the institution of a broad structure of economic controls; the temporary abatement of inflationary pressures; and the rapid
expansion of primary defense production. The economic prospect is now
further affected by the possibility of a quiescent situation in Korea, although
this does not affect the need for the defense build-up.
The Council must now examine the trend of the economy and the problems of national economic policy in a setting which is neither that of full
mobilization for war nor that of high-level, dynamic production and
employment in a peaceful world.
THE GENERAL UPSURGE IN DEMAND,, OUTPUT,, AND PRICES
Before the Korean attack, the economy had been rapidly recovering from
the 1949 recession. The index of industrial production had regained lost
ground and risen to the highest point since 1945. Wholesale prices had
also recovered, although for most commodities and especially for farm
products and foods they were below 1948 peak levels. Unemployment
had been reduced by more than 1 million below the peak of January 1950,
although it was still more than 1 million above the level of June 1948. The
economic outlook was for further growth in production, and a further
decline in unemployment.
The rise in general demand
The Korean attack and the response by the United States and the United
Nations added to an already highly active economy an unprecedented inci;ease in private buying. There were two distinct waves of consumer
buying, reflecting the changing fortunes of war in Korea. By early fall,
there were signs of some subsidence of the first wave; but following the
Chinese intervention on a massive scale in late November, the buying pressure was renewed. The record shows that consumer buying rose to an
all-time high in the third quarter of 1950, declined slightly in the fourth
quarter, was renewed with great vigor and reached still another all-time
high in the first quarter of 1951, and then declined again. (See appendix
table B-4.)
34
CHART 5
PRODUCTION, SPENDING, AND PRICES
SINCE MID-1950
While production,spending,and prices are now at much higher levels
than those of mid-1960,industrial production has been stable since the
first quarter. Consumer spending dropped in the second quarter of 1951,
and wholesale prices eased off slightly from March through June.
INDEX
INDEX
120
120
PRODUCTION
INDUSTRIAL PRODUCTION
2nd Qtr. 1950 = 100
110
110
100
100
3rd Qtr.
2nd Qtr.
4 th Qtr.
1st Qtr.
2nd Qtr.
CONSUMER, BUSINESS, AND
GOVERNMENT SPENDING^/
150 -
150
2nd Qtr. 1950 = 100
140
140
GOVERNMENT
EXPENDITURE
v/
130
BUSINESS
EXPENDITURE
130
/ — —..tL
/
• '—'
120
120
/ .'
CONSUMER
//
EXPENDITURE
HO
110
100
100
2nd Qtr
3rd Qtr
4th Qtr
1st Qtr.
2nd Qtr
130
130
120
- 120
-
100
A
M
J
J
A
1950
J/ INDEX BASED ON GROSS NATIONAL PRODUCT IN 1ST HALF OF 1951 PRICES
ZJ INDEXES BASED ON EXPENDITURES IN CURRENT PRICES
SOURCES: DEPARTMENT OF COMMERCE, B O A R D OF G O V E R N O R S OF THE FEDERAL RESERVE
SYSTEM, DEPARTMENT OF LABOR, AND COUNCIL OF ECONOMIC ADVISERS.
35
In July 1950, the increase in retail buying was 8.5 percent above that in
the preceding month. Retail sales in July and August exceeded the June
level by an amount equivalent to 1J4 percent of total sales in 1950. This
had great effect only because it was superimposed upon a high level of
consumer demand. It was followed by some reaction in the autumn, in
those lines of goods which consumers had stocked beyond their current
needs.
The expansion of private demand for goods came not only from consumers, but also from businesses. At first, it was not possible for business buying to keep up with consumer buying, and inventories declined
in July 1950. Thereafter, business inventories mounted steadily. Business demand was reflected also in the rate of expenditures for new plant and
equipment, which rose from an annual rate of 17.3 billion dollars in the
second quarter of 1950 to 23.3 billion in the fourth quarter, and to an
estimated 25.7 billion in the second quarter of 1951. (See appendix tables
B-20 and B-21.)
The growth in business demand was undoubtedly stimulated in part by
defense contracts, actual and anticipated, and by expectations of market
shortages and direct controls which would restrict the accumulation and
use of materials. The increased direct demand by the Government in
connection with the defense program was a relatively small part of the total,
during the first few months following the Korean outbreak. The Federal
Government was spending in all less than it had a year before, and was
running a cash surplus.
The annual rate of expenditures for security programs rose from 16.3 billion dollars in the second quarter of 1950 to 23 billion dollars in the fourth
quarter. These figures, however, do not fully reflect the impact of defense
activity. Expenditures occur, in the main, after production is completed.
Production takes time; and before production can begin, plans must be
drawn, contracts let, plants tooled up, subcontracting arrangements made,
material bought, and labor hired. Thus, much of the effort and resources
required for an expanding defense program must be expended many
months before they are matched by cash expenditures of the Government.
Yet the great increase in business spending which extended through the first
half of 1951, while conditioned by the defense environment, was running
far ahead of primary defense activity. It reflected a broad and ebullient
"boom" psychology, an expectation of enlarged market opportunities and
higher prices in an economy whose general expansion would be accelerated
greatly by international trends.
The financial environment at midyear 1950 and thereafter was very
favorable to this rise in private demand, because both liquid assets and bank
credit were plentiful. Between 1940 and 1950, the total of currency,
demand and time deposits, and Government securities owned by individ-
sj rose about 225 percent whereas as disposable personal income rose only
170 percent during the same period. In 1950, liquid assets of corporations
were at the highest level in history. The increased demand was financed in
part by drawing on liquid assets, in part by borrowing, and in part by the
increases in income which were the inevitable outgrowth of the larger
physical volume of production and the higher prices. (See appendix tables
B-30,B-31, andB-39.)
In addition, consumer borrowing rose at a record rate until Regulation
W was re-established in the fall. This action discouraged further expansion of instalment credit, and reduced the amount of credit involved
in those instalment sales which were made. Business also borrowed heavily.
Total business loans of all commercial banks rose 5 billion dollars, or 30
percent, between June and December 1950, and expanded 1.6 billion dollars,
or 7 percent, during the first quarter of 1951. Some of the rise in business
loans during the second half of 1950 was seasonal, but the rise in early 1951
came at a season when loans usually decline.
The uptrend in private demand was also supported by increased incomes.
The growth of personal income during the second half of 1950 was phenomenal. Contrasting the second and third quarters, the rise amounted to
about 5 percent. Contrasting the third and fourth quarters, there was a
further increase of 5 percent. The first quarter of 1951 brought an additional increase of about 3 percent, followed by an additional 2.5 percent in
the second quarter. (See appendix table B-7.)
The general upsurge in the desire to buy, backed by the funds to do
so, was responsive to the expansionary environment which existed at midyear 1950, and was greatly augmented by international developments. The
impelling reason for the spurts in buying during the third quarter of 1950
and the first quarter of 1951 was the expectation of shortages and price
increases. Consumers projected into the future the vivid memories of
lack of goods during and immediately after World War II. Businessmen foresaw glowing profit opportunities in brisk markets and rising prices.
In the intense reaction after the first Korean aggression, and again after
the Chinese onslaught, consumers and businesses alike tried, by prompt
private stockpiling, to protect themselves against the possibility of empty
shelves, rationing, quality deterioration, and rising prices. Fear of being
thwarted by the competing demands of others intensified the buying waves.
The ensuing inflation in prices led to anticipation of further price increases,
and accelerated the buying rush to beat the rise.
While these spurts have an important bearing upon the current outlook,
they are not more significant for the long run than the more permanent
trend reflecting more basic factors.
37
The rise in total output
Immediately after the Korean outbreak, it became clear that one of
our most important economic tasks was to expand production of essential
goods. The President's Midyear Economic Report in July 1950 opened with
these words: "Recent international events make it more important now
than ever before that we maintain and expand our strength on the home
front. For the sinews of all our strength, everywhere in the world, are found
in what we achieve here at home. We must make full use of our great
productive resources, our ever-improving industrial and scientific techniques, and our growing labor force. We must redirect a part of these
resources to the task of resisting aggression."
Viewing the past 12 months as a whole, the upsurge of demand has
been accompanied by a remarkable further increase in total production
from the high levels already existing in June 1950. The output of goods
and services in real terms, i. e., after full allowance for price changes, increased by about 10 percent, comparing the second quarter of 1950 with the
second quarter of 1951. (See chart 5 and appendix table B-3.) This
meant the highest peacetime level ever recorded, and exceeded the peak
year of World War II. It has been a major accomplishment of American
enterprise during the past year to meet the requirements of a growing
defense production, to invest at record rates in inventories and in new plant
and equipment, and at the same time to furnish the highest level of
consumption in history.
By far the largest part of the growth in output took place during the
first 7 months after the Korean aggression. The advance was spectacular. The index rose from a level of 199 (1935-39= 100) in June to 218 in
December, a rise of more than 9 percent, with a further jump to 221 in
January 1951. Total real output, however, rose by only about 4^ percent,
comparing the second quarter of 1950 with the fourth quarter.
Since initially the volume of total production grew more rapidly than the
volume of defense production, civilian production was also increasing.
New peaks were reached in the production of automobiles, washing machines, vacuum cleaners, and other consumer durable goods. The rate of
gross private domestic investment also continued to reach new peaks; a
substantial part of this was undoubtedly in preparation for defense production.
The unusual record of growth from June 1950 through January 1951
was sparked mainly by the increase in demand on the part of both
consumers and business, which has already been reviewed. The expansion
in output was accomplished in part by increased employment and longer
hours of work, and in part by greater productivity. Nonagricultural
employment rose 4.5 percent, comparing the first half of 1950 with the
second half. Average hours worked per week in manufacturing rose from
40.5 in June to 41.4 in December. Increased productivity has partly
resulted from programs for modernizing and expanding productive facilities,
which have been carried on since the end of World War II.
Industrial production expanded not only in the United States, but also
in other countries. This expansion has contributed to the current shortage of raw materials. Output in other countries has been rising since
World War II. New impetus was given by the rapid expansion of demand
in the United States after Korea, and the consequent sharp increase in
American imports. World industrial production outside the United States
and the Soviet Union, which had been rising prior to the outbreak of hostilities in Korea, has since risen somewhat more rapidly, exceeding the corresponding level of the year before by 15 percent. Production in Western
Europe averaged still higher during the first part of 1951.
In parts of Western Europe and even more in Japan, manpower and
plant are available or could be provided to permit further gains. A
limiting factor is raw materials. Although material supplies appear to be
sufficient to permit production at current or slightly increased rates, a substantial further growth of output in Western Europe is being hampered
by shortages of coal, sulphur, wool, high grade iron ore, steel scrap, and
nonferrous metals. This results somewhat from the fact that in 1950,
when the United States was building up inventories, some countries of
Western Europe were running down their inventories of many important
raw materials. But primarily, it reflects the failure of raw material producing capacity to grow sufficiently to meet the needs of the United States
and other industrial countries, when their economies are all operating
at high levels at the same time.
The inflationary rise in prices
Prices, which had risen moderately during the first half of 1950, began
to climb rapidly with the expansion of business and consumer demand
after the North Korean attack. The sharpest of the early advances occurred
in markets for raw materials, which responded quickly to the flood of
buying orders. Food prices, both wholesale and retail, reacted less violently
but moved up rapidly and substantially. Prices of industrial products went
up somewhat more slowly in the early weeks following the Korean outbreak, but had risen by about the same percentage as food by February
1951, when wholesale prices leveled off. The rise in consumers' prices,
which had begun in March 1950, was accelerated after Korea, and, lagging as usual behind wholesale prices, continued somewhat after the latter
had stabilized. (See appendix tables B-24 and B-25.)
The timing of price increases reflected the two great spurts in consumer
buying. There were sharp increases during the summer of 1950, then a
short period of relative stability during which some prices at wholesale
declined, followed by a sharp upward movement between November and
39
February. During January, the price advance was rapidly accelerating,
prompting issuance of the General Ceiling Price Regulation late that
month. Wholesale prices continued to rise for a few weeks, but later
declined somewhat, varying within a narrow range from the middle of
February through the balance of the half year.
The spread of price increases throughout the economy was primarily due
to very strong demand, but was also an adjustment of sales prices to rising
costs, the imitative reaction of businessmen to other price increases, and
an effort to anticipate and be in readiness for the later imposition of price
ceilings. Most manufacturers and merchants had an active sellers' market,
which gave promise of long duration. Believing that the increases in their
costs would not be temporary, they quickly brought prices into line with
costs. Expectations of direct control of prices encouraged this speedy
adjustment. Many firms raised their prices in anticipation of the cost increases without waiting for them.
A price increase for one commodity brought higher prices for other
commodities, with spiraling effect. Moreover, as the prices of consumers' goods rose and demand for workers increased, widespread upward
wage adjustments followed. The number and speed of these reflected
the number and strength of organized workers, and the presence of costof-living escalator clauses in many wage contracts. Business concerns
were in a financial position to grant large wage increases, and employers
wanted to lift their wage rates to a level favorable to the recruitment of
workers before controls took effect. The higher production costs, which
resulted from higher material prices and wage increases, led to still higher
sales prices and thereby entered into the spiral.
The inflationary price pressures were not limited to the United States.
The response of the free world to the Korean development created upward
pressures upon prices in many countries. Particularly, there was increased
demand for such materials as rubber, wool, tin, and woodpulp. The
influence of developments in the United States was augmented by the
actual and anticipated acceleration of defense expansion in Western Europe
and some other countries.
The result has been to generate an inflation of worldwide scope. Although the slackening in price rises here has been followed by some recent
slackening abroad, the rise of prices has gone to far greater lengths in most
other countries than it has in the United States. Contrasted with the 15
percent increase in our wholesale prices since the outbreak of Korean hostilities, nearly half the countries in Western Europe have suffered increases in
wholesale prices exceeding 30 percent since June of last year. In the case
of Japan, where there are special factors associated with its role as a staging
area for the Korean campaign, the increase through April exceeded 50
percent. The enormous price increases which have occurred constitute in
some countries a danger to political and social stability, and to the security
program of the free world.
4o
THE FIGHT To CURB INFLATION
The inflationary danger was recognized by the public and the Government immediately after the Korean outbreak, and a number of steps were
taken to meet it. The Defense Production Act was passed. Priorities and
export controls were placed on the flow of scarce materials essential to defense production. Measures to reduce civilian demand were designed. The
public was repeatedly informed that there was a plentiful supply of most
goods, and was urged not to buy more than necessary. All Federal Government programs were reviewed aiming at the curtailment, as far as
possible, of nondefense spending. A tax-reducing and adjusting measure
was turned into a major tax-increasing measure, an unprecedented achievement made possible by the close cooperation of all concerned. Later, the
excess profits tax was passed. Selective credit controls were imposed on the
purchases of new houses and consumer durable goods, and some general
measures of credit restraint were adopted to make credit less available for
nonessential purposes. Actions were also taken to achieve maximum expansion of domestic agricultural production.
"Indirect" measures are essential to counteract an excess of demand over
supply, and are therefore fundamental. But to deal with waves of mass
buying, financed by accumulated liquid savings, more direct and drastic
measures are also at times required, such as price and wage controls. The
legal powers to impose such controls were enacted in September 1950. By
then, the situation in Korea seemed more favorable, the wave of consumer
buying was dying down, and prices were leveling off. But the new wave
of mass buying, which followed the entrance of the Chinese into the conflict, again altered the outlook. On December 15, 1950, in declaring a
national emergency, the President announced the determination to impose
mandatory price and wage controls.
During December and January, administrative preparations were made
for this step. As a stopgap, the Government called for voluntary restraint,
and promulgated in December a set of voluntary pricing standards. These
measures undoubtedly had some usefulness, but public belief that mandatory controls were soon going to be applied probably accelerated the upward
price and wage movement. Confronted with this critical situation, and
despite the lack of an adequate administrative staff, the Office of Price
Stabilization late in January issued the General Ceiling Price Regulation.
In effect, this froze most prices at the highest levels at which deliveries had
been made during the period from December 19, 1950, through January
25, 1951. At the same time, a parallel order was issued freezing all wages
and salaries.
New and stronger measures of credit restraint were also brought to bear.
Member bank reserve requirements were increased, further attempts were
made to limit the amount of funds available for lending through a new
policy on open-market operations, regulations applying to loans for new
construction were broadened, margin regulations on stock exchange loans
were tightened, and the major classes of lending institutions were brought
into a voluntary program to limit lending for purposes not related to
mobilization objectives.
Meanwhile, the tremendous increase in general output, reviewed above,
was building a curb against inflation from the supply side. These productive achievements tended to be overlooked in the general public concern
with military difficulties on the battlefield and the evidence of inflation
on the homefront.
THE LULL IN INFLATIONARY PRESSURES
A feature of the first year of the security effort was that, just when defense
production began really to expand, a lull in inflationary pressures developed.
Beginning about mid-February 1951, buying slowed down and prices showed
signs of stabilizing. Real consumption expenditures (first half 1951 prices)
declined from an annual rate of 208.2 billion dollars in the first quarter
of 1951 to 203.0 billion in the second quarter. In the second quarter,
there was a softening of some markets, and many prices eased off from
their peaks.
Paradoxical as this slowing down may appear at first glance, it should not
have been surprising. The strong, sometimes even violent, spurts in buying
during July and August 1950, and again early in 1951, had important
emotional elements—the fear of early shortages and of rising prices. There
was some factual basis for this reaction, in that a greatly expanded security
program must add substantially to demand, and lead to a shift of resources
from civilian to defense purposes. But general public expectations of the
timing and degree of impact of the program proved to be incorrect. The
rush to buy on the part of consumers and business created the very situation
which had been feared. Prices did surge upward, and temporary shortages
began to appear, thus accentuating the rush to buy.
Two factors deprived this phase of the inflationary movement of its
momentum.
In the first place, the general freeze of prices late in January allayed
the fear of rising prices. Suddenly, there was no need to buy to beat the
price rise. With this pressure removed, other stabilization measures also
began to exert continually increasing restraint.
Second, the fear of early shortages was reduced by several developments.
There had been a large increase in the output of civilian goods since the
Korean outbreak. The effect of this growing supply was temporarily
obscured by the continuing rise in prices, and by fear that the war in Korea
might spread to a wider area. As the military situation improved and
stabilized, and as prices were brought under control, consumers realized
that the fear of immediate shortages had been exaggerated. Moreover, by
42
this time consumers had greatly increased their stocks of durable goods,
and many of them had spent a substantial part of their accumulated savings
or had gone into debt. In this situation, consumer buying began to slacken.
Since civilian production during the first quarter of 1951 continued at
or close to the peak rates achieved in 1950, the result was a continued high
rate of inventory accumulation, particularly at the retail level and especially of consumer durable goods. Retailers who since Korea had placed
larger orders than normal, to be sure of receiving an adequate supply, found
themselves with a flood of deliveries. These caused no difficulties, so long
as consumers continued to expand their purchases. But with the decline in
retail sales after mid-February, retailers became concerned. This was
enhanced by the failure of Easter sales to meet expectations. As a result of
slower sales and quicker deliveries, a substantial volume of involuntary
inventory accumulation took place. During the second quarter, retailers
cut new orders sharply and attempted to reduce inventories through
aggressive sales promotion. Particularly noteworthy was the temporary
war on privately-price-fixed items in New York and several other cities.
The chief effect of the lull has been a softening in some prices, and a
leveling off in some important business activity. Wholesale prices, which
had risen sharply to an all-time peak of 184.0 (1926=100) in March,
leveled off, and were down to 181.7 in June. A somewhat sharper drop was
experienced by prices of farm products, and by prices of some industrial
commodities, especially some textiles and some chemicals. Wholesale food
prices were down less than 1 percent from their peak. The most pronounced drop was in the prices of basic commodities, which had begun to
weaken in mid-February and fell by about 13 percent by the end of
June. The cost of living, however, was about 1 percent higher in May
than in February.
Just as the immediacy of the impact of the security program was exaggerated, there is now the danger that the significance of the present lull
may be similarly overestimated. To the extent that the lull has restored
buying to more normal proportions, its effect is all to the good. But to
the extent that it leads to a state of complacency about the future risk of
inflation, its effect is harmful. The current period of hesitation must be
seen in the perspective of the basic, longer-range factors affecting demand.
THE LULL IN THE GROWTH OF INDUSTRIAL OUTPUT
The lull in inflationary pressure has been accompanied by a slowing
down in the rate of growth of industrial production. The gross national
product in real terms has expanded about 5 percent from the fourth
quarter of 1950 to the second quarter of 1951, while the Federal Reserve
Board index of industrial production rose from an average of 216 to
an average of 223, an increase of 3.2 percent. (See appendix tables B-3 and
B-17.) Although the index has not increased in recent months, indus-
43
trial production has been running at very high levels. Consumption
expenditures, however, declined about 5 billion dollars (annual rate) from
the first quarter to the second quarter of this year. Associated with this
decline in consumption expenditures has been an offsetting increase in the
accumulation of inventories amounting to about 5 billion dollars (annual
rate) during the same period.
The slackening in the vigor of industrial expansion during the past
6 months has been due to three sets of causes: first, some industries had
reached capacity; second, some industries were forced to reduce output
because of limitations on the nondefense use of metals or other raw materials;
and, third, some industries faced a drop in demand.
Steel is one of the industries in which output has been limited by existing
plant capacity. Steel capacity is being increased, but the expansion
necessarily will be slow.
At present, about 8 percent of the gross national product is going into new
nonfarm plant and equipment, so that industrial capacity is rising significantly. Expansion programs in bottleneck areas such as steel, aluminum,
power, and transportation equipment are particularly effective in raising
our productive potential.
The main raw materials bottlenecks have been metals, including steel,
copper, lead, zinc, aluminum, and tin. It has been necessary to restrict
the use of these materials. Such restrictions account^ in part for recent
decreases in the output of automobiles, washing machines, refrigerators, and
other durable goods.
However, some industries have been operating at less than capacity levels
because of the market situation. Large inventories, and in some cases
reduced demand, appear to explain recent drops in output in a number of
industries, notably textiles, shoes, and liquor.
THE EXPANSION OF DEFENSE PRODUCTION
Primary defense production, which started slowly following the Korean
outbreak, has been picking up speed, and is now rapidly moving ahead.
The increase in defense production involves conversion of many facilities
being used in other ways. In addition, it requires substantial industrial
expansion. The Government has employed a number of incentives for encouraging expansion in the desired industries. Accelerated tax amortization reduces some of the risks of investment. Defense loans are available
where financing is needed. Long-term purchase contracts and standby purchase agreements help give assurance that the plant will have a market.
In the second half of 1950, there were large increases in the output of
many goods and services which are necessary in a defense economy. The
index of machinery production increased from 262 in June to 321 in
December (1935-39= 100). Chemical products jumped from 261 in June
to 283 by the end of the year.
44
There was little increase in deliveries to the Government of finished
defense products during the second half of 1950. In the first 6 months of
1951, however, deliveries of military goods and military construction have
increased rapidly, and have now reached a level of 1.5 billion dollars a
month, which is more than three times the monthly rate before the Korean
outbreak. Large further increases are ahead. The Second Quarterly
Report of the Director of Defense Mobilization indicates that the delivery
rate is scheduled to rise to 4 billion dollars a month within a year.
The total security program took 6 percent of the gross national product
in the second quarter of 1950, 8 percent in the fourth quarter of 1950, and
10 percent in the second quarter of 1951. According to the present schedule,
it will increase further to about 15 percent in the last quarter of 1951.
(See chart 6.) We have greatly enlarged the production of aircraft and
combat vehicles, electronic equipment, and other military goods. Defense
production of all kinds will mount rapidly in the future. It takes time
to work out specifications, draw up contracts and subcontracts, and get
production lines organized. Much of the tooling up and other preliminaries has now been accomplished.
THE UNDERLYING FORGES AT MIDYEAR
As the Council seeks to appraise the economic outlook at midyear, the
most important factors to be considered are the prospective levels and
CHART 6
THE EXPANDING SECURITY PROGRAM
the security programs represented 10 percent of our
national output in the second quarter of this year. A year
from now they will take nearly 20 percent, according to
schedule.
-SECURITY EXPENDITURES (PERCENT OF GNP)
2nd Qtr.
I960
2nd Qtr.
1951
NOTE: BASED ON DATA ADJUSfEO TO 1ST HALF 1931 PRICES.
SOURCE: COUNCIL OF ECONOMIC ADVISERS.
45
2nd Qtr.
1952
trends in the security program, in business investment, and in consumer
demand. The relationship between the total of these forms of demand
and the available supplies of goods will mainly determine the nature and
intensity of the stabilization problem to be met.
Powerful international tensions continue to dominate domestic economic developments. The President and the governmental agencies
charged with responsibility for national security have made clear that the
security program should continue as planned, regardless of the outcome
of negotiations in Korea. The reason compelling this conclusion is clear.
To stop the aggression of the Soviet Bloc in Korea is not to prevent aggression elsewhere. Since 1945, the Soviet aggressors have sought to create
political and economic instability in nearly all non-Soviet countries. When
conditions seemed right, the aggressors have used military threats and
actions. Such tactics have been particularly successful in China, but were
resisted in Iran, Greece, Turkey, Berlin, Indo-China, and Korea. If we
falter or relax in our security build-up, it is reasonable to expect that this
would prompt a renewal of pressures at other points. Only through
strength can we succeed in proving that aggression does not pay.
The rate of defense production is rapidly increasing. During the second quarter of 1951, the output for security reached an annual rate of
over 35 billion dollars. Under present schedules, we are to achieve an
annual rate of almost 65 billion dollars a year hence. It is manifestly impossible to accomplish such an enlargement of the security program, without
placing strains upon many parts of the economy. Our total output cannot
be increased as rapidly, during the next year, as the security program. In
the case of many vital commodities, the increased security requirements
will greatly reduce the amounts available for other purposes.
A large increase in defense spending, to the extent that it is not offset by
reduced spending in the private sector of the economy, will greatly increase
the incomes of consumers and businessmen. With increasing defense expenditures, the Council would expect the number of people gainfully
employed to rise, hours of work and overtime payments to increase, and
wage rates to creep upward even under an effective wage stabilization
program.
A rising level of defense production and consumer spending stimulates
business demand for plant and equipment, which has been running at alltime peak rates. In fact, the most recent declarations and surveys of
business intent reveal that affirmative policies must continue to be used
to bring the total of private investment downward toward a less inflationary level. By weeding out nonessential investment, this can be done
without impairing the high level of investment in plant and equipment
required to keep our economy strong enough to support the defense burden.
Thus, with these fundamental forces at work, strong restraint on both
business investment and consumer spending is required if a new inflationary
movement is to be avoided.
46
There are, to be sure., some substantial uncertainties in the picture.
Many people have interpreted the opening of negotiations for a cease-fire
in Korea as evidence of a fundamental change in the economic outlook.
This would be a correct interpretation only if the schedules for our basic
defense build-up were to be substantially altered, and this is not the
intent of national policy. Nonetheless, the cessation of hostilities in Korea
could have important intermediate effects upon the climate of public
sentiment which conditions the economy.
There might, for example, be important effects on consumer spending,
which does not always follow a predictable pattern, particularly in the
short run. Durable and semi-durable consumers' goods were purchased
at an exceptionally high rate for a good many months in the second half
of 1950 and early in 1951. The immediate necessity for consumers to buy
such goods has accordingly been somewhat reduced. Although personal
disposable income rose by more than 5 billion dollars (annual rate) from the
first to the second quarter, personal consumption expenditures dropped by
more than 5 billion, resulting in an increase of over 10 billion in personal
saving. At the same time, there was an increase of 5 billion dollars (annual
rate) in inventories, probably much of it involuntary. No one can forecast
precisely how long the lull in consumer expenditures may continue.
If consumers should interpret the international developments to mean
that there will be plenty of goods at lower prices, there might for a time be a
substantial decline in purchases, despite rising personal income. It does
not seem probable, however, that this would continue for long, even in
the absence of any new alarming international developments which might
start a new spurt in buying. The pressures to buy the necessities and
comforts of everyday living are very strong in the case of most families.
In the longer run, changes in prospective incomes are as good a measure
as there is available of changes in prospective spending. In the second
half of 1950, disposable personal income was at an annual rate about 14
billion dollars higher than in the first half of that year. In the first half of
1951, it was at an annual rate 9 billion dollars higher than in the second half
of 1950. In the second half of this year and on into next year, this growth
is likely to be very substantial.
Businessmen, likewise, are in a position to decide whether to continue
with their plans for a very high level of business investment. They could,
if they chose, substantially reduce their plans, even below the point where
restrictions would have to be placed upon them. This is certainly a possibility to be reckoned with, but we believe that on balance it is not likely
to occur. The interests of business lie in maintaining a high level of investment, to meet both the demands of the defense program and of the civilian
economy. Even in the ultimate event of a general and more permanent improvement of international relations, the basic expansion programs
which have been outlined by those in charge of the mobilization effort would
47
not result in any general overexpansion of facilities. There is hardly any
important expansion program for basic industrial commodities which exceeds the sound needs of an expanding peacetime economy. If it should
become possible at some later time to reduce our defense goals, the expanding output of steel and other commodities could find ample markets in the
unsatisfied needs of our own people and in the expansion of world trade.
The high level of saving which will be generated by an effective stabilization program, and the opportunity of reducing the very high level of taxation if and when defense needs dwindle, will help support markets during
such a transition period.
Businessmen also recognize that they have a large responsibility to conform their investment plans to the level and composition which will fulfill
the strategy of the defense program. This responsibility is particularly
heavy, because private expansion is now being relied upon much more
heavily and public investment in plant much less heavily than during
World War II. To falter in this responsibility would jeopardize national
security in the event of a more critical situation later.
The analysis we are advancing may be stated in this form: First, there
is nothing in the international situation to justify a basic alteration of
course, and the build-up of the security program will be continued. Second,
while carrying out the security program will require that total business
investment be cut substantially below the all-time peak rate of recent
months, nonetheless such investment must be encouraged to remain at levels
which will still be very high by past standards. Otherwise, we could not
build the necessary industrial complement to our growing military strength.
And third, the pursuit of these needed military and industrial objectives
will in itself augment consumer incomes, which already are high enough to
be potentially inflationary, even though there has been some lull in buying
during recent months.
Although the Council recognizes the existence of some uncertainty in the
immediate economic outlook, even with the continuation of the security
program as planned, the uncertainty is mostly a question of short-range
timing. The precise length and depth of the lull are difficult to forecast,
and we do not attempt to do so. It seems highly probable that the underlying inflationary pressure developing from the defense program will expand
to serious proportions, as production under that program increases.
With civilian incomes in the aggregate likely to rise much more rapidly
than civilian production, the basic forces are inflationary even though the
current erratic buying on the part of consumers or businesses may prevent
these underlying forces from manifesting themselves in any particular month
or even for a few months. Over a longer period, which is of greater significance for national policy, civilian incomes rising faster than civilian production will generate inflation, unless there is an effective containment program.
For such a program, we cannot rely mainly upon the further increases in the
rate of voluntary saving which would be required to do the job alone. The
rate of saving has already increased greatly in recent months, and this
increase itself has been in large part the reaction of the public to the fact
that other anti-inflationary measures were initiated and have been taking
hold.
In any event, the implications for policy are clear. The only safe course
is to be continually prepared to meet expanded inflationary pressures to the
extent they arise. An ineffectual program, by removing assurances against
new breaches in the price line, would bring danger of repetition of past
spurts in consumers' buying, and resultant inflationary pressures even beyond
expectations based on rising levels of incomes. It takes time to put measures
into operation and to make them effective. For example, those who say
that price and wage controls were established too slowly should be the last
to reduce the power to impose those controls; it takes time to build up
administrative organizations capable of effectively applying controls. All
our equipment should be in good order to fight the fires of inflation. When
they are burning vigorously, it is too late to start getting ready. It would
be a most unwise gamble now to deprive the economy of reinforcements
against inflation.
In the following sections of this Review, we undertake to fill in these
general conclusions with more specific details, both as to the shape of the
economic outlook and as to necessary measures.
49
II. The Shaping of the Defense Economy
MAIN OBJECTIVES
T the present time, our principal task is to make ourselves more secure
and help to make the rest of the free world more secure. This involves a two-fold economic objective. First, we must speedily build up and
equip armed strength. This includes, as a current objective, maintaining our own armed forces at 3.5 million military personnel, producing the
increased quantities of armaments and military equipment needed for our
expanded forces, and helping other free nations to build up their military
strength. The second and equally important part of our two-fold task is to
keep our economy strong by assuring an adequate flow of civilian goods,
and to make it stronger for the great challenge now confronting us—and
the even greater challenge which could arise—by expanding our total
output and by adding even more to our productive capacity or industrial
potential. In addition, we need to help other free nations in further
developing their economic strength.
Each element in this effort is a necessary part of the whole program. By
rebuilding our military power, we hope to deter aggression and prevent a
major war. Since it would be imprudent to dismiss the possibility that
actions of hostile powers might bring about such a conflict, it is necessary
to lay the foundation for the rapid achievement of full mobilization should
that become necessary. Helping other free nations build up their military
and economic strength is also vital, because our security is bound up with
the rest of the free world, just as its security is bound up with ours. This
interdependence takes many forms—military, economic, political, and
psychological. On the economic side, we are to a growing extent dependent on foreign countries for a large fraction of our supplies of certain
important raw materials, while the industrial capacity of other countries
is a vital element in the common capacity to produce military goods.
The economic significance of these security objectives in present planning is highlighted by the fact that the national security programs are
scheduled to rise from an annual rate of about 35 billion dollars in the
second quarter of 1951 to nearly 65 billion dollars in the corresponding
period of next year.
It should be observed that this is not, in the Council's judgment, a
maximum program. To be sure, the maximum practicable size of a
A
defense program cannot be determined completely by the primary purpose
of achieving national security; it is necessarily limited by the size and
strength of the economy, by the willingness of the people to incur sacrifices, and by the prospective duration of the emergency. In a short,
intensive effort, the expansion and even the replacement of industrial
equipment can be omitted, but if this were done in a long-continued effort,
the productive machine would break down.
In this Review, however, the Council is not concerned with what could
be the maximum size of a security program. We are confident that the
program which has been adopted is readily sustainable, as will clearly
appear in the pages which follow. The practical problem now confronting the country is what implications this defense program has for the Nation, and what steps need to be taken to achieve the defense program,
while at the same time maintaining the strongest possible civilian economy.
To promote a strong civilian economy, while at the same time building
up our defenses, requires both the expansion of productive power and the
maintenance of economic stability. These objectives are often mutually
supporting. For example, increasing production by increasing the number
of people at work, and the hours worked, makes it possible to meet the
needs of the defense program with more goods remaining for civilian use.
However, increases in production through expanding industrial plant and
equipment require the use of labor, materials, and existing plant, which
otherwise would be largely available to make goods directly for consumers.
Rapid industrial build-up is thus likely to make the task of maintaining
economic stability immediately more difficult. But for the future, it makes
that task easier, particularly if it results in greater productivity and the
removal of production bottlenecks.
In determining the rate of industrial build-up to be encouraged, it
is thus necessary to consider the feasibility of holding down or reducing
consumer spending. Moreover, we must constantly appraise the use of
resources, and take appropriate action to effect the necessary changes.
Decisions concerning resource use made on a piecemeal basis are likely either
to overshoot or undershoot feasible goals, and to cause great waste and loss
of strength by unsound allocation of resources. Only by comprehensive
programming of requirements and supplies is it possible to arrive at a
rational balance among objectives, to determine whether in total they are
feasible, and to shape carefully the individual components of our composite
of military and economic strength.
OUR ECONOMIC POTENTIAL
To sustain a large defense effort, we must accelerate the expansion of
our total output, and we must expand a few specific types of capacity to
levels even beyond those likely to be used in the short run, except in case
of war. A large increase in the output of basic industrial and agricultural
51
CHART 7
GROWTH IN PRODUCTION, 1940-44
The total production of goods and services in 1944 was about 60 percent
higher than in 1940. The increase was much greater in industrial production
which rose 90 percent,and especially in the durable goods industries)
where output in 1944 was more than 150 percent above the 1940 level.
INDEX, IST40»IOO
I N D E X , 1940 » 100
250
250
200 ~
~ 200
- 150
TOTAL PRODUCTION
,
OF GOODS AND SERVICES-^
100
I N D E X , 1940= 100
300
3CXO
INDUSTRIAL PRODUCTION
COMPONENTS
250
250
200
200
^S
S-
TOTAL INDUSTRIAL
PRODUCTION
DURABLE
MANUFACTURING
NONDURABLE
MANUFACTURING
150
••••*
....•
150
••••••**
100
1940
NJJEX
BASED ON GROSS NATIONAL PRODUCT
100
1944
IN 1ST HALF OF 1951 PRICES.
SOURCES: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, DEPARTMENT
OF AGRICULTURE, AND COUNCIL OF ECONOMIC ADVISERS.
commodities, both here and abroad, will make it possible to maintain a large
security program with a progressively lighter strain upon our economy, and
on that of the free world generally. It would also permit within several
years, provided that the international situation does not worsen, the resumption of improvement in living standards in the United States and elsewhere
in the free world. On the other hand, if output in the United States were
to increase no faster than the 2l/z percent average annual increment which
was achieved between 1946 and the Korean outbreak, the impact of the
defense program would be prolonged. By increasing our capacity to produce military items and certain key materials even more rapidly than we
increase actual output, we can have a large reservoir of power to draw upon
quickly if critical events should require fuller mobilization.
Both the World War II experience and the postwar experience have
direct bearing on what we are able to do, and how we can best proceed
to do it.
The World War II production achievement
From 1940 to 1944, the total national output (measured in real terms)
increased about 60 percent, industrial production by nearly 90 percent, and
the production of durable goods, including military goods, by more than 150
percent. (See chart 7.) While these figures need to be qualified because
of the many difficulties of measuring wartime production, nonetheless the
achievement exceeded all expectations. (See also appendix tables B-2,
B-16, and B-17.)
A major factor in this growth was the much fuller utilization of our
manpower resources. Between 1940 and 1944, the total labor force rose
from 56 million to 66 million, and the proportion of the population of
working age in the labor force rose from 56 percent to 63 percent. (See
chart 8.) Civilian employment rose by 6J^ millions, while the armed forces
were increased by almost 11 million; of this 175/2 million increase, 55 percent reflected growth in the labor force, and 45 percent reflected a reduction in unemployment from about 8 million to less than 1 million. During the same period, the workweek for factory workers was lengthened from
about 38 hours to about 45, providing the equivalent of about 2l/z million
additional production workers. (See chart 9 and appendix table B-13.)
Although increases in labor productivity can be measured only roughly,
output per man-hour is estimated to have increased about twice as fast
between 1940 and 1944 as it did on the average over the previous 4
decades. This was partly a byproduct of bringing resources into intensive
use, and partly a result of the changing composition of the national output.
The wartime production achievement also required a large expansion of
productive capacity. From 1939 through 1945, total manufacturing capacity increased by approximately 30 percent. (See chart 18, page 79.)
The capacity increase in machinery producing industries was about 50
53
CHART 8
EXPANSION OF THE LABOR FORCE, 1940-44
An increase in the labor force of 10 million and a reduction in
unemployment of over 7 million made it possible to increase the
armed forces by almost II million and also increase nonagricultural
employment by 7 million, contrasting 1940 with 1944.
MILLIONS OF PERSONS*
80
LABOR FORCE
MILLIONS OF PERSONS*
80
TOTAL
-UNEMPLOYMENT
60
-ARMED FORCES
60
AGRICULTURAL
"EMPLOYMENT
40
40
NONAGRICULTURAL
^EMPLOYMENT
20
20
1940
1944
PERCENT
80
PERCENT
80
PARTICIPATION! RATE
(TOTAL LABOR FORCE AS PERCENT
OF NONINSTITUTIONAL POPULATION*)
60
60
40
40
20
20
1940
*I4
1944
Y E A R S OF AGE AND OVER.
SOURCE: DEPARTMENT OF COMMERCE.
54
CHART 9
INCREASES IN LABOR INPUT AND OUTPUT,
1940-44
The major factor in our wartime productive achievement was the intensive utilization of our manpower resources.
INDEX,1940*100
I
1
1
1
1
T
EMPLOYMENT, INCLUDING ARMED FORCES
1940 :gx::gSg::S^
1944
HOURS WORKED PER WEEK
1940
1944
PRODUCTIVITY (GNP PER MAN-HOUR)*
1940 t::::::::::::::::::::::X:::::::::::::::::::::::::::::::::::::::::::::::::::::::::l
1944
TOTAL PRODUCTION OF GOODS AND SERVICES *
1940 X
1944 |
*INDEX
SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.
percent, in chemicals about 70 percent., and in electric power somewhat
more than 30 percent.
Except in periods of full mobilization of resources, such as was reached
during the latter part of World War II, the limits on the expansion
of output are in practice seldom, if ever, reached. Within a surprisingly
short time, seemingly impossible materials and facilities problems can be
overcome. This was demonstrated not only by our own wartime experience, but by Britain's and Germany's as well.
The course of production from World War II to Korea
From the 1944 peak to 1946, the total national output in real terms
dropped about 15 percent, and the index of industrial production fell
nearly 30 percent. A large part of this decline reflected the change-over
to peacetime products. At the same time, there was a shortening of the
average workweek in all branches of employment by about 5 percent, and in
manufacturing industries by more than 10 percent. Despite a large contraction in the total labor force, the return of military personnel to civilian life
increased civilian employment.
55
CHART 10
CHANGES IN LABOR INPUT AND OUTPUT
The rise in output during the period from 1946 to the first
half of 1950 mainly reflected the gain in labor productivity. Since
mid-1950, employment has risen substantially and productivity has
continued to increase gradually.
INDEX, 1946 « 100
O
EMPLOYMENT, INCLUDING ARMED FORCES
1946
I960, 1st Half
1951, 1st Half
HOURS WORKED PER WEEK
1946
I960, 1st Half
1951, 1st Half
PRODUCTIVITY (GNP PER MAN-HOUR)*
1946
1950, 1st Half
1951, 1st Half
TOTAL PRODUCTION OF GOODS AND SERVICES '
1946
1950, 1st Half
1951, 1st Half
*
INDEX BASED ON GROSS NATIONAL PRODUCT IN
1ST HALF OF 1951 PRICES.
SOURCES: DEPARTMENT OF COMMERCE, DEPARTMENT OF LABOR,
AND COUNCIL OF ECONOMIC ADVISERS.
From 1946 to the first half of 1950, the gross national product (measured
in terms of first half of 1951 prices) rose from an annual rate of 270 billion dollars to 294 billion, an increase of nearly 9 percent, while industrial
production increased 11 percent. The rise in output occurred mainly from
1949 to 1950.
This postwar rise in output was the result of increases in productivity, since the increase in total employment was offset by the further
shortening of the average workweek. (See appendix table B-ll.) Output per man-hour appears to have risen about 2 to 2/2 percent a year—
a somewhat larger rate of increase than had occurred during earlier
periods of peacetime prosperity. (See chart 10.) The equipping of
workers with better productive facilities was mainly responsible for this
gain in productivity. During the period, manufacturing capacity appears
to have been increased a little more than 6 percent a year on the average.
Electric power capacity rose somewhat faster, and much larger increases
CHART 11
CHANGES IN PRODUCTION
Compared with the first half of last year, all major sectors of
production are much higher. Production in the durable
manufacturing goods industries in the first half of 1951
averaged 25 percent higher than in the first half of 1950
and 43 percent higher than in 1946.
INDEX, I946el00
INDEX, 1946 = 100
150 |
140
1 150
-
130 —
120
-
-
120
-
110
TOTAL PRODUCTION
, .
IDF GOODS AND SERVICES J/ /
100
I N D E X , 1946=100
150
INDEX, 1946 = 100
150
INDUSTRIAL PRODUCTION COMPONENTS
140 -
130 -
- 120
no
100
1st Half
1951
\J BASED ON GROSS NATIONAL PRODUCT IN 1ST HALF OF 1951 PRICES.
ZJ BASED ON ANNUAL DATA.
SOURCES' BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM , DEPARTMENT OF
AGRICULTURE, AND COUNCIL OF ECONOMIC A D V I S E R S .
57
took place in the chemical, oil, machinery, and automobile industries. (See
chart 18, page 79.) Despite these large increases, however, throughout
most of the period a shortage of capacity restricted the growth of many
types of output.
We thus found ourselves in mid-1950 with a productive plant so far superior to what we had at the peak of World War II that we were clearly in a
position to exceed by far the 1944 production record, if we moved toward
fuller utilization of our manpower and material resources.
Changes in output from mid-1950 to mid-1951
The decision last summer to undertake a greatly enlarged security program made it again necessary to step up the expansion of national production and productive capacity. Although we were at that time well on our
way toward full employment, there was a remarkable expansion of output
in the ensuing year. Short-term changes in total output cannot be precisely
measured, but it appears that the total national product as well as industrial
production increased considerably more in the 12 months following the
Korean outbreak than they had in the entire period from 1946 through the
first half of 1950. (See chart 11.)
Comparing the first half of 1950 with the first half of 1951, the
gross national product expanded from 294 billion dollars to 324 billion
dollars (annual rates, measured in first half of 1951 prices), an increase
of about 10 percent. From June 1950 to the beginning of 1951, total
industrial production rose 11 percent. This sharp rise in output was due
to fuller utilization of the labor force, and continuing large increases in
productive capacity. Since January, the index of industrial production
has shown little increase, partly because a number of firms were changing
over to defense production, partly because of shortages of some specific
materials, and also because the defense program did not move up fast
enough to more than offset a moderate slackening in some types of private
demand which occurred during the first half of the year. The total
national output of goods and services, however, continued to expand during the first half of this year. (See appendix tables B-3 and B-17.)
The expansion in the total labor force and reduction of unemployment
during the past 12 months have permitted an expansion of 1.6 million
in civilian employment, while at the same time the armed forces were
built up nearly to the 3.5 million objective. The expansion in the total
labor force has been much greater than the normal yearly increase. (See
chart 12 and appendix table B-ll.)
In manufacturing, the workweek was lengthened about an hour during
the second half of 1950. In the first 6 months of this year, however,
there appears to have been no further lengthening of hours in most sectors
of the economy. In the nondurable goods manufacturing industries, there
has been a larger than seasonal decline in average working hours, brought
CHART 12
CHANGES IN THE LABOR FORCE
The labor force continued to increase after 1946, with a particularly
sharp rise following the Korean outbreak. The labor force growth
and the reduction of unemployment since the first half of 1950
made it possible to approach the armed forces goal and to
increase civilian employment at the same time.
MILLIONS OF PERSONS*
80
MILLIONS OF PERSONS*
80
LABOR FORCE
TOTAL
60
AGRICULTURAL
^EMPLOYMENT
60
40
40
NON'AGRICULTURAL
EMPLOYMENT
20
20
1946
1st Half
1950
1st Half
1951
PERCENT
80
80
PARTICIPATION RATE
(TOTAL LABOR FORCE AS PERCENT
OF NONINSTITUTIONAL POPULATION*)
60
60
40
40
20
20
1946
1st Half
1st Half
1950
1951
*14 YEARS OF AGE AND OVER.
SOURCE: DEPARTMENT OF COMMERCE.
59
about by a slackening in the demand for soft goods. (See appendix table
B-13.)
At the time of the Korean outbreak, there was little idle capacity in the
economy, measured by normal peacetime standards. Material shortages
were an obstacle to further increases in total output both here and abroad.
But under the impetus of the defense program, we have considerably expanded productive capacity, and have brought existing capacity into more
intensive use. During the past 12 months, total private investment in
industrial, transport, and utility plant and equipment amounted to 18 billion
dollars (measured in terms of first half of 1951 prices). In terms of the
same price level, such expenditures had averaged 16 billion dollars annually
during the previous 3J/2 years. Manufacturing capacity has probably
expanded 8 percent or more since June 1950. In the same interval, there
have been considerably larger increases in the output of such basic essentials as electric power, petroleum, copper, aluminum, and synthetic rubber.
How much can we expand total output?
This appraisal of our economic growth during the war and postwar periods
is important for* evaluating our future opportunities for economic growth.
In many respects, the problems involved in increasing output are now
different from and more difficult than those we faced in 1940, when
resources were much less intensively utilized than at the present time.
On the other hand, our future opportunities for growth cannot be assessed
simply by extrapolating the rate of economic expansion achieved between
World War II and mid-1950. Expansion of output is now much more
urgent; measures for accomplishing this can and should be much more fully
exploited.
Before turning to a discussion of feasible output objectives, it should
be emphasized that these objectives do not represent predictions. Actual
changes in output can be influenced by a variety of unforeseeable circumstances. We are concerned, rather, with describing our output potential,
as a means of supplying the necessary quantitative background for a more
detailed analysis of major policy problems. The projections described
here represent conservative estimates of what can be accomplished by the
fuller utilization of our manpower and material resources.
Over the whole first half of this year, the total gross national product was
at an average annual rate of 324 billion dollars. In terms of first half of 1951
prices, the annual rate of gross national product at midyear 1951 was in the
neighborhood of 330 billion dollars, or about 10 percent above the level of
a year ago. Measured in terms of this same price level, it now appears
that we should be able to increase total output by 5 percent or more
during the coming 12 months, bringing the gross national product to
an annual rate of over 345 billion dollars by the middle of 1952. (See
chart 13.) Over the following year, the opportunities for further growth
will probably diminish somewhat as resources are brought into still
60
fuller use. But it should be feasible also to realize during that period a
further increase of at least 4 percent in total output. Thus, over the next
2 years, we should be able to increase total output at least twice as fast
as we did during the period from 1946 through the first half of 1950.
Expansion of our economy at this rate will require that as a nation we
work harder and longer, and devote considerable resources to economic expansion, necessarily at the expense of current consumption. But there is
little doubt of our ability to do so. The actual course of production over the
next several years will depend, more than on any other single factor,
on whether our security program moves forward as now contemplated.
If we were compelled to undertake a much larger security program, there is
little doubt that, by harder exertion, output could be expanded faster.
In estimating tne oojectives for total output, it is assumed that industrial
production will have to increase at a somewhat greater rate than the
CHART 13
GROSS NATIONAL PRODUCT
1st HALF OF 1951 PRICES
Total output increased 10 percent, comparing the second
quarter of I960 with the second quarter of 1951. Over the
next year it should be possible to increase total output by 5
percent or more.
BILLIONS OF DOLLARS*
BILLIONS OF DOLLARS*
OBJECTIVE FOR
INCREASED OUTPUT
TOTAL
300
200
300
200
PERSONAL
CONSUMPTION
EXPENDITURES
100
100
PRIVATE GROSS
DOMESTIC INVESTMENT*.
GOV'T PURCHASES OF
GOODS AND SERVICES .
AND NET
v*"
FOREIGN INVESTMENT
NOW
YEAR
AGO
* SEASONALLY A D J U S T E D A N N U A L RATES.
SOURCE: COUNCIL OF ECONOMIC ADVISERS.
61
YEAR
HENCE
nation's total output of goods and services, and that the largest increases
will have to occur in industries producing military goods and basic materials.
It is also essential that most types of agricultural output be expanded.
Expanding total output by 5 percent or better from the middle of 1951
to the middle of next year would involve substantial manpower requirements. As unemployment is already at a low level, these requirements
would have to be met by further expansion of the labor force and lengthening of the workweek in some industries. In this respect, the manpower situation is now much tighter than at the beginning of World War II, when
almost half of the additional labor requirements could be met by a reduction of unemployment. On the other hand, the strength of the armed
forces is now near the 3.5 million objective, and nearly all of the further
expansion in the labor force will be available to provide additional civilian
workers.
Under present circumstances, it would be desirable to meet additional
labor requirements primarily through expansion of the labor force. Training a large number of workers would place us in a better position to
accelerate quickly the expansion of military output, should that become
necessary. Over a mobilization period which might be long-lasting, an
increase in the number of people at work is a more promising source of
additional output than is the lengthening of working hours. There is
little doubt that we still have large underutilized resources of manpower in
the economy, including housewives without young children, older people,
members of minority groups, and the handicapped—many of whom would
welcome the opportunity to work. Some women with children can also
be drawn into employment, if community care facilities are provided.
Placing major emphasis on labor recruitment would mean that the total
labor force would average some 1J/2 to 2 million persons larger in the first
half of 1952 than it did in the corresponding period of 1951. Of this increase, some 600,000 would come from the growth in the population of
working age. The proportion of the total population of working age in
the labor force would rise to about 60 percent. This compares with a labor
participation rate of 63 percent in 1944, and slightly above 58 percent in
the pre-Korean period.
Even if the labor force is substantially expanded, however, it still may
be necessary to lengthen the workweek further in a number of industries.
This will be the case if more serious shortages of some types of equipment
develop, or if adequate numbers of skilled workers cannot be quickly trained.
It is desirable that a longer than normal workweek not be accompanied by
modification of protective legislation and practices with regard to overtime
hours and pay. At the same time, a number of people who have held parttime jobs may seek and be able to find full-time employment, thus further
lengthening the average of hours worked.
Over an extended period of 5 to 10 years, we should be able, through a
sustained high level of investment in expansion and modernization of productive facilities, through worker-training programs, through the stimulation of industrial research, and through other means, to increase labor
productivity at a faster rate than we realized during past peacetime periods.
Even though the results may not be immediate, all of these means should
be used as fully as possible. But in a period as short as a year or two,
it is extremely conjectural to project productivity advances. Several factors
may adversely affect productivity during the next few years. Substantial numbers of untrained workers will be taken into the labor force;
frequent changes in the designs of military equipment will interrupt production; material shortages may hamper industrial efficiency. On the
other hand, as defense production increases, there will be a shift in the
composition of output towards higher productivity industries, and the
bringing of our resources into fuller use may of itself encourage productivity.
In projecting total output, the Council has assumed that over the next 2
years we cannot count on productivity gains of more than 2 percent annually.
The most important physical limitation on increasing output at the
present time is not the availability of manpower, but rather shortages of
basic materials and power. The major investment programs needed to
permit the realization of the production objectives outlined above are
discussed below in the section on "The Industrial Build-Up." Failure to
overcome these basic capacity limitations would seriously restrict our opportunities for economic growth for a number of years, and thereby prolong
the burden of a large security program. As the Western European nations
are in a similar position, we cannot overcome the materials limitation
simply by increasing our share of the total free world consumption. We
need to place considerable reliance on increasing the output of scarce
materials both in this country and abroad.
MAJOR REQUIRED ADJUSTMENTS IN THE USE OF THE NATION'S RESOURCES
During the intensification of our productive efforts in World War II, and
again during the redirection of that effort after the war, there occurred
major changes in the shares of our national output taken for public and
consumer use and business investment. These changes reflect in broad
outline the shifts which were accomplished in the use of our resources.
The accomplishment of our current security objectives, including the expansion of our capacity to produce, is again requiring major shifts in resource
use. These changes will not be nearly so severe as those which occurred
during and immediately after World War II, but they will nevertheless
be important in their impact upon the economy. A general description of
these required adjustments will serve to indicate the major tasks of production and stabilization policy. This general description will be followed
by a detailed analysis in later sections.
63
Major changes in the use of output, 1940 to 1944
In 1940, before the outbreak of war in Europe had a major effect upon
our economy, total government purchases of goods and services and "net
foreign investment" amounted to about 30 billion dollars (in terms of first
half of 1951 prices), taking about 15 percent of the national output. The
total of government purchases plus net foreign investment roughly
measures the portion of the national output not available for private
domestic use. During the following 4 years, the rise in output taken
for war purposes increased the annual rate of these expenditures by 119
billion dollars (in first half of 1951 prices), bringing the total in 1944 to
149 billion, or about 45 percent of the national output.
As chart 14 and table 1 show, practically the entire increase in the
Nation's output during this period was taken by the combined expansion
in government purchases and net foreign investment. The moderate increase in personal consumption was nearly offset by the contraction of gross
private domestic investment.
TABLE 1.—Changes in the major components of the gross national product,
1940 to 1944
[First half of 1951 prices]
Change, 1940 to 1944
Major component
Gross national product
Billions of
dollars
--
.. --
Government purchases of goods and services, and net foreign investment
Personal consumption expenditures
Gross private domestic investment
Percentage
+121
+62
+119
+18
-17
+393
+13
-56
Source: Council of Economic Advisers. For further details, see appendix table B-3.
The expansion of war expenditures from 1940 to 1944—over 135 billion
dollars, in terms of first half of 1951 prices—was greater than the 119
billion dollar increase shown in total government purchases and net foreign
investment combined. Federal nonwar expenditures and the expenditures
of State and local governments declined. A large part of the war expenditures went for the production of war materiel, shipbuilding, the building
of war plants, and military construction—which took in 1944 more than
half the Nation's steel output. As we were cut off from many important sources of imports, and as our economic assistance to Allied nations
increased, the total export surplus rose to nearly 6 percent of the 1944
national product. From 1942 through 1944, more than one-half of our
total exports in each year were made available through lend-lease.
The rise in total output and the compression of investment—particularly
inventory accumulation—were sufficient to permit an increase of more than
10 percent in the level of consumption. This increase was represented by
64
CHART 14
CHANGES IN COMPOSITION OF
GROSS NATIONAL PRODUCT SINCE 1940
1st HALF OF 1951 PRICES
During World Warn, Government expenditures increased greatly, persona I
consumption rose, and business investment declined markedly. Since
mid-1950, both Government expenditures and business investment increased
markedly, while consumption expenditures remained practically constant.
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
400
400
350
-
- 350
300
-
- 300
250
-
- 250
PERSONAL
CONSUMPTIONEXPENDITURES
200
- 200
GROSS
150
PRIVATE
DOMESTIC
INVESTMENT
-
100 -
GOVERNMENT
PURCHASES
OF GOODS AN
SERVICES AND
NET
FOREIGN
INVESTMENT
PERSONAL
CONSUMPTION
EXPENDITURES
GROSS PRIVATE
DOMESTIC
INVESTMENT
50 -
- 50
GOVERNMENT
PURCHASES
OF GOODS AN
SERVICES AND
NET FOREIGN
INVESTMENT
1940
1944
1946
1st
2nd
Half*
1950
* S E A S O N A L L Y ADJUSTED ANNUAL
SOURCE:
RATES
COUNCIL OF ECONOMIC
ADVISERS
1st
Half*
1951
types of consumer output which did not directly compete with war production for scarce materials. But as a proportion of the national output,
consumption declined from about 70 percent in 1940 to 50 percent in 1944.
As types of investment not needed for the war effort were practically eliminated, gross private domestic investment declined from 15 percent to less
than 5 percent of total output. Government investment in industrial facilities was substantial, however, raising the total of such investment considerably above the prewar level. (See chart 17, page 76.)
The postwar period to mid-1950
From the 1944 war production peak to 1946, the annual rate of total government purchases and net foreign investment fell by more than 100 billion
dollars. The proportion of total output taken for these uses declined from
47 to 17 percent. Despite this contraction, however, total output fell
much more moderately than had been generally expected. The impact
of the decline in war expenditures was cushioned by substantial increases
in both business investment and personal consumption expenditures. From
1944 to 1946, total consumption expenditures and gross private domestic
investment increased by 57 billion dollars (in terms of first half of 1951
prices). The combined proportion of the national output rose from a little
over one-half to nearly five-sixths. (See chart 14 and appendix table B-3.)
From 1946 through the first half of 1950, there were no major changes
in the relationship of the major components of the national output. (See
chart 14.) Gross private domestic investment in equipment, construction,
and additions to business inventories increased from 42 billion dollars
to 50 billion (measured in first half of 1951 prices); personal consumption expenditures rose from 183 billion dollars to 203 billion. Their
proportion of the national output increased moderately. Total government
expenditures and net foreign investment declined both relatively and absolutely. This was brought about mainly by a reduction in the total export
surplus. With the rapid progress of reconstruction and recovery abroad,
the export surplus of goods and services had been falling steadily since 1947.
The total level of output reached in the first half of 1950 was about 50
percent greater than the Nation's output in 1940. The proportion taken
for consumption was about the same as in 1940. Gross private domestic
investment was a somewhat larger proportion of total output; government
expenditures and net foreign investment combined took a smaller proportion of the national product. Despite the fact that we were maintaining
a much larger military establishment and still continuing a large foreign
assistance program, total Federal expenditures for goods and services took
only 8 percent of the gross national product in the first half of 1950, compared with 7 percent in 1940. The relative increase in cash outlays was
somewhat greater, as cash payments included interest payments on the
national debt and veterans' benefits.
66
Changes in the composition of the Nation's output from the first half of
1950 to the first half of 1951
Comparing the 6-month period preceding the Korean outbreak with
the first half of 1951, the total national output rose from 294 billion dollars
to 324 billion. (All of these comparisons are at an annual rate in terms
of first half of 1951 prices, as shown in appendix table B-3 and chart 14.)
About half of the 30 billion dollar increase in total output was represented
by expansion of government expenditures and net foreign investment,
Of the 15/2 billion dollar increase in these outlays, nearly 14 billion was
represented by the expanding security program. The other half of the
increase in total output went mainly into private investment, especially
inventory accumulation. Consumer expenditures, in real terms, after the
subsidence of the post-Korean buying waves, were only slightly higher in
the first half of 1951 than during the first half of 1950.
During the past year, therefore, the security programs have not required
a net diversion of resources from other uses. The portion of the increased
total output taken for security purposes was not so great as to prevent
a large expansion of output for other purposes.
Prospective changes in government outlays, private investment, and
consumption
Realization of our security objectives will require that, during the next
year, there must be a contraction in total output available for consumption and gross private domestic investment. The scheduled increase in
security programs, as described earlier, would raise total government
expenditures by about 28 billion dollars from the first half of 1951 to the
first half of 1952. Even if we are successful in expanding total output
by 5 percent or more, there still would have to occur a reduction in output available for nonsecurity purposes. If the increase were 5 percent,
the contraction would have to be 10 to 15 billion dollars. In other
words, even if we achieve a sizeable expansion of total output, almost
half of the increase in output for security purposes would have to be
met by a diversion of resources from other uses, including public nondefense
activities.
The largest contraction may be expected in gross private domestic investment. During the first half of 1951, this total was at an annual rate of
62 billion dollars, and will probably be reduced by something in the neighborhood of 15 billion dollars by the first half of 1952. The major reasons
for the projected decline are, first, that inventory accumulation is expected
to decline markedly as business comes to expect greater price stability, and
as inventory and credit controls become more effective; and second, that
some types of investment in construction and equipment will be limited or
postponed because of the nonavailability of materials either for construction
or operation of new facilities. On the other hand, despite the projected
67
decline in total gross private domestic investment from recent levels, investment in productive facilities should be maintained at a rate as high as
or higher than in most recent years, though not as high as in early 1951.
The effort to increase output will have to be undertaken without the
impetus given workers by the large increase in consumption which ordinarily
accompanies a more intensive labor effort. Even if we are successful in
increasing total output by 5 percent or more over the next year, realization
of our security objectives will prevent average family consumption from
rising significantly. Consumption may decline as a proportion of the total
national output from 69 percent in the first half of 1950 to about 64 percent in the first half of 1951, and about 62 percent in the first half of
1952. At the same time, there almost certainly will be a large rise in spendable income, mainly associated with the increase in employment and output.
As will be elaborated in Part III, the inevitably disproportionate developments in incomes and consumer supplies are of major significance in assessing
the magnitude of the inflation problem.
THE CURRENT NATIONAL SECURITY PROGRAM
The two preceding sections have set forth our general objectives for
economic expansion, and the general nature of the economic adjustments
which should be accomplished during the next year. We can expand
total output by 5 percent or more, comparing the middle of this year with
the middle of next year, if as a nation we work harder and longer, and
concentrate the build-up of our industrial capacity in certain key sectors of
the economy. Even if we expand total output by 5 percent, however, the
build-up in our national security programs would require a sizeable diversion of resources from other uses.
This section describes in greater detail the nature of the security program,
with respect both to its domestic and international economic implications.
In the following two sections, the nature of the required industrial build-up
will be elaborated, and the adjustments which will have to be made in less
essential types of public and private investment, and in our consumption
standards, will be described in further detail.
Size of the security program
During the second quarter of 1951, total security expenditures, measured
in terms of deliveries of military goods for our forces and our Allies, military
payrolls, and expenditures on other foreign aid and domestic security
programs, reached an annual rate of over 35 billion dollars. In terms of
constant prices, the total was nearly double the pre-Korean level, and
50 percent above the rate reached in the fourth quarter of 1950. As shown
in table 2, these expenditures are scheduled to increase to an annual rate
of over 50 billion dollars in the fourth quarter of this year and nearly 65
billion dollars in the second quarter of 1952. Detailed programs have not
68
as yet been worked out for the period beyond June 30, 1952, but it is now
contemplated that the rate of expenditures will be even higher in the fiscal
year 1953. The share of our total output used for security purposes would
rise from about 11 percent during the second quarter of 1951 to more than
15 percent in the fourth quarter of this year, and to a take of almost 20
percent in the second quarter of 1952.
TABLE 2.—National security program: deliveries
of military goods and other
expenditures1
[First half of 1951 prices, seasonally adjusted annual rates]
National security
expenditures
Period
Billions of
dollars
1944
1950— Second quarter
Fourth quarter
1951— Second quarter8
Scheduled:
1951— Fourth quarter
1952— Second quarter..
_
_
Percentage
of gross
national
product
141.7
45
18.1
23.6
35.7
6
8
11
52.0
64.0
»15
»19
1
2
Includes certain work put in place and accumulation of inventories for the military account.
Estimate based on incomplete data.
3 Approximate.
Sources: Bureau of the Budget, Department of Defense, and Council of Economic Advisers.
It is important to note that these estimates of the timing of the program
are based on the value of scheduled deliveries, rather than on expected
Treasury expenditures. Neither deliveries nor payments furnish a wholly
satisfactory measure of the economic impact of Government procurement,
which begins to be felt as soon as—and even before—contracts are placed.
Owing to the lag in expenditures behind deliveries, the total value of
deliveries will be somewhat greater than actual Treasury disbursements
during the period of program build-up. Thus, for the fiscal year 1952,
it is estimated that the value of goods delivered to the military services,
including certain work put in place and accumulation of inventories for
military account, will be in the neighborhood of 4 billion dollars greater
than expenditures.
Reaching these objectives will involve serious production problems.
The types of equipment which we are now producing or preparing to produce are generally much more complicated than World War II military
equipment. Moreover, in a mobilization which is defensive in purpose
and therefore protracted, it is undesirable to stabilize weapon designs to
the extent which would be appropriate in wartime. For this reason, we
shall not be able to realize all the production economies which might accompany an all-out effort. The highly specialized nature of some of the
equipment will result in serious difficulties in obtaining adequate component supplies. A serious machine tool problem has already developed,
just as it did during World War II. Because of these and other difficulties, military production has not moved up as fast as was earlier
contemplated.
Nevertheless, there can be no doubt that these programs, measured by
their rate of build-up and by the level which would finally be reached,
are well within the capabilities of our economy. Compared with the rise
of almost 30 billion dollars in security expenditures scheduled for the coming
12 months, we increased war expenditures by no less than 75 billion dollars
(in terms of first half of 1951 prices) in the first year of our participation
in World War II. The present program is expected to absorb not more than
20 percent of our national output at its peak, compared with 45 percent in
1944. A year from now the program is expected to require about 11 million men and women directly or indirectly engaged in defense activity (including those in the armed services). This figure compares with about
25 million at the peak of World War II.
General character of the security program
More than 85 percent of the total security budget for fiscal 1952 is for
building up the military establishment of this country, and providing our
North Atlantic partners with military assistance. The foreign economic
aid programs, as proposed by the President, will decline further in fiscal
1952, to about 5 percent of the security budget. The remainder will
be divided among stockpiling, atomic energy, and other security-related
programs. (See chart 15.)
The current major objectives for strengthening our military establishment
are fivefold: First, to maintain our armed forces at a strength of 3.5 million
men; second, to provide for equipping and maintaining the equivalent of 24
army divisions; third, to build the Air Force toward the objective of
95 air wings; fourth, to maintain an active naval fleet of over 1,100 ships
with the necessary aircraft and supporting elements, and the Fleet Marine
Force of 25/3 divisions with essential aircraft and supporting units; and
fifth, to establish a defense production base which could be expanded very
rapidly in the event of full mobilization.
Though the foreign aid expenditures represent a relatively small part of
the total program, they are of great importance to the realization of
our policy objectives in the international field. The expenditures for
foreign military and economic aid in fiscal 1952 represent a major part of
our most essential export requirements, but do not include export of
essential goods to countries which can pay us out of their own resources.
Even though such exports do not involve financial aid, and may in fact
be paid for by shipment of goods to us, they constitute a high-priority
demand upon our total production and in some cases upon our supply of
scarce goods.
TO
CHART 15
FEDERAL BUDGET EXPENDITURES
Security programs took 57 percent of budget expenditures in fiscal
1951. They are scheduled to take 70 percent in fiscal 1952.
BILLIONS OF DOLLARS
100
BILLIONS OF DOLLARS
100
FISCAL YEARS
80
1952,
ESTIMATED
80
60
60
1951
TOTAL*
1950
40
40
ALL OTHER
PROGRAMS
20
OTHER SECURITY
PROGRAMS
*—'
20
DEPT. OF DEFENSE
AND MDAP fe—9*
SOURCES: TREASURY DEPARTMENT AND BUREAU OF THE BUDGET.
The impact of military production programs on materials
The impact of expanding security outlays on the economy is accentuated
by the fact that a large part of the increase is represented by outlays for
military equipment, defense production facilities, and military construction. At the end of June, about 32 billion dollars of military orders were
outstanding. Military orders are currently being placed at the rate of about
4 billion dollars a month. Deliveries of military hard goods, which include items of major procurement such as aircraft, tanks, and ammunition, as well as some machine tools and equipment used in defense plants, are
scheduled to rise from a rate of about 1 billion dollars in June of this
year to about 3 times that level next June. Within the same period,
aircraft deliveries are scheduled to be tripled, and deliveries of tanks
and automotive vehicles increased to 4 times the level of this June. More
than half of the increase in total hard goods deliveries is scheduled to take
place by the end of this year. (A more detailed description of our military
production targets appears in the Second Quarterly Report of the Director
of Defense Mobilization.)
Military and public industrial construction is scheduled to increase to
an annual rate of about 6 billion dollars by the summer of 1952, which
is approximately equal to 20 percent of the present near-record volume
of total public and private construction. A large part of this construction
will be in the form of training facilities and airfields.
Peak material requirements for these programs will necessarily precede
the peak of scheduled deliveries of equipment. Chart 16 shows the expected
military requirements for copper, steel, and aluminum as percentages of
total anticipated supply. Since a substantial increase in supply is planned in
the case of steel, and an even larger percentage increase in the case of
aluminum, the period of maximum stringency in these materials will have
passed before the peak rate of deliveries is attained. If military production
objectives are attained, the percentage of our steel, aluminum, and copper
supplies going for military uses will have to increase very rapidly between
the second quarter of this year and the first quarter of 1952. The estimates
in chart 16 do not include stockpiling requirements, which are sizeable for
copper and aluminum. Moreover, the impact of military requirements is
CHART 16
MILITARY REQUIREMENTS FOR BASIC METALS
PERCENT OF EXPECTED SUPPLY
The proportion of steel, copper, and aluminum supplies taken for
military production will nearly double within the next year.
PERCENT
PERCENT
20 ~
1951
NOTE: EXCLUDES REQUIREMENTS FOR STOCKPILING.
SOURCE :
DEPARTMENT OF DEFENSE
1952
even greater in the case of some specific shapes and types of these metals
than the over-all figures disclose.
For many of the materials required in the military production programs,
we are largely—and in some cases almost wholly—dependent on imported
supplies. No less than 70 of the strategic materials comprising the stockpiling program come wholly or partly from foreign sources. Other security
programs and essential civilian needs add further to our requirements for
these materials. Even with limitation of nonessential uses, major increases
in imports are needed in commodities such as cobalt, copper, iron ore, nickel,
manganese, crude petroleum, tungsten, and zinc.
The impact of the common security programs on materials
In addition to the increased requirements arising from our domestic
security programs, and from our program of military aid to our Allies,
there are other essential requirements of foreign countries which must be
met as part of the effort to attain the free world's security objectives. A
large part of the common security program consists of the expenditures
which the other North Atlantic Treaty countries are making out of their
own resources for their military establishments. They must buy capital
equipment and raw materials to support this expansion of military production. Foreign countries must buy equipment to maintain and expand capacity to produce raw materials which are in short supply, and to provide power,
transport, and other facilities to support the operation of such productive
capacity. Goods are also needed to maintain the civilian economies and
political stability of friendly foreign countries, to reduce the dependence
of some of them on unfriendly countries, and to support development projects in some areas where development of resources will strengthen social
cohesion and the will and ability to resist aggression.
These requirements, like our own, must be met from the total production
of the free world. They include not only United States goods financed with
our foreign economic aid, but also goods purchased from the United States
which the importing countries finance themselves, as well as goods they produce themselves or purchase from other foreign countries which help supply
the United States economy. Where they involve scarce goods, the problem
is to increase production; and, if that is not sufficient, to limit nonessential
uses throughout the free world.
The estimating of free world supplies and requirements for major raw
materials is now in process, through the International Materials Conference
and other channels. On the basis of present estimates, it appears that in
the coming 12 months there will be shortages of aluminum, cobalt, copper,
zinc, nitrogen, sulfur, tungsten, molybdenum, nickel, iron ore, petroleum,
steel, tin, wood pulp, and perhaps a number of other materials. Despite
increased production of many scarce commodities, it will be necessary to
control nonessential consumption. Agreement has recently been reached
73
on interim plans for international allocation of sulfur, tungsten, and
molybdenum.
The United States consumes very large proportions of the free world's
total production of many basic commodities. As a result, relatively small
percentage cuts in our consumption may alleviate appreciably the pressure upon supplies available for other countries. Our share of free world
consumption has in most cases increased considerably since before the
war, although in many cases our contribution to the total production of
the free world has also increased. This is shown in table 3 below and in
appendix table B-18.
TABLE 3.—United States consumption and production of selected commodities as
percentages of free world production
[Percent]
193S i
Commodity
Items not largely imported:
Bread grains
- Coarse grains . ._ _
._
Cotton
Fats and oils 3
_
__._ _
_..
Fertilizer (nitrogenous)
Lumber
_
_
Meat
—
Sulfur:
Native
All forms
_
__
_ _ ..
Items imported in substantial quantities:
Aluminum
„ __ _
Cohalt«
Coffee (green)
s
Copper
_
_
Iron ore
Lead*
Manganese ore
Newsprint
__
Nickel »
Petroleum
Rubber (natural and synthetic)
Sugar (raw equivalent)
Tin*
_
Tungsten «
Wood pulp (mechanical and chemical)
Wool .
Zinc *
1950 »
1951/52
production
Consumptions
Production
Consumption 2
Production
19
21
50
55
21
11
41
31
18
54
51
32
31
72
36
24
54
46
33
28
66
39
24
54
55
35
30
66
38
77
66
43
93
56
89
54
27
63
63
55
61
51
4
48
30
26
18
40
31
(4)
53
22
27
33
30
32
25
31
43
51
62
59
28
45
23
40
20
38
(4)
31
31
24
1
12
70
17
13
33
11
34
54
64
56
65
68
62
53
27
65
65
52
32
55
(4)
38
51
29
4
11
57
20
16
23
43
6
33
50
38
49
29
4
11
(4)
55
15
(4)
46
6
32
*2 Other years used for some commodities. For further details, see appendix table B-18.
Apparent consumption (production plus imports minus exports), except for some commodities, noted
in appendix table B-18, for which estimates of actual consumption are used. Additions to domestic stocks
are included in apparent consumption.
* Includes butter and peanuts.
<5 Not available.
Production represents metal content of mine production.
Source: Compiled by the Department of State.
From the point of view of the United States, the limitation of nonessential uses of some commodities will be necessary to make goods available
for export and for essential domestic use, and to limit the need for imports. In general, it appears that the exports of commodities in short
supply in the United States will be small in relation to total United States
production of those commodities. The highest proportions exported are
74
likely to occur in the cases of cotton and sulfur. In the case of sulfur,
our production will fall substantially short of export requirements and
normal domestic demand.
In foods, export requirements are not expected to be a major determinant of domestic supplies. The level of civilian food consumption in the
United States during the next 12 months will be determined largely by
this year's crop production. The major imported foods, such as coffee
and cocoa, are likely to be plentiful.
THE INDUSTRIAL BUILD-UP
Over-all investment objectives
The special needs of the present emergency impose certain objectives
for domestic investment. For the immediate future, the objectives are to
assure adequate and sufficiently maintained capacity for direct military production, exports essential to our security, and essential domestic civilian
needs; and in addition, to build up reserve capacity for items which will be
needed in greatly increased quantity if international conditions become more
critical. Over a somewhat longer period, it is likewise important to provide
the investment in facilities essential to the rapid over-all growth of the
national economy, and thus make it possible to remove direct restrictive
controls on civilian consumption, while continuing to support the military
establishment in a high state of readiness and making our contribution to
the security and progress of the free world.
A primary basis for this continued growth is a high level of investment
in more and better capital goods. It is evident, however, that the current
level of business demand for equipment and construction materials could
not be met without delaying the build-up of military power or disrupting the
civilian economy. While the maintenance of a high level of investment is
imperative, the composition of investment must shift to reflect the urgency
of some types and the postponability of others.
Both the level and the composition of investment have changed Strikingly
since 1940. (See chart 17.) During World War II, the physical volume
of gross private domestic investment dropped to less than 40 percent of the
1940 level. Nonindustrial construction was severely curtailed, to save materials and labor. Private investment in industrial facilities was likewise
at a fairly low level after 1941, but this reflected the fact that a substantial
part of the industrial expansion of the period took the form of Governmentowned plants and equipment. The total rate of investment in industrial
facilities, both private and public, rose to an all-time record in 1942, and
then fell off rapidly.
In comparison, the period from 1946 to the middle of 1950 showed a
much larger share of resources going into private investment than was
the case during World War II. This reflected both Government with-
75
CHART 17
GROSS PRIVATE DOMESTIC INVESTMENT
1st HALF OF 1951 PRICES
Business investment has risen rapidly during the past year. Increases
in equipment purchases and in the rate of inventory accumulation
account for the entire growth in total business investment from the first
half of I960 to the first half of 1951.
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
20
70
GOVERNMENT OUTLAYS FOR
INDUSTRIAL AND INDUSTRIAL
SERVICE FACILITIES.
JULY 1, 1940 TO JULY 1,1945
1940
41
42
* CHANGE NEGATIVE
-^SEASONALLY ADJUSTED ANNUAL RATES.
MOTE: INDUSTRIAL CONSTRUCTION'INCLUDES MANUFACTURING, *IN!N«. AND PUBLIC UTILITIES.
SOURCE: COUNCIL OF ECONOMIC A D V I S E R S .
76
drawal from the industrial facilities field, and the availability of materials
and equipment for nonwar types of expansion and modernization.
Nonfarm housing construction outlays, adjusted to first half 1951
prices, rose rapidly from the 1946 level of 6 billion dollars to well over
double that annual rate in the first half of 1950. Nonresidential private
construction, on the same price basis, jumped quickly in 1946 to a
level exceeding anything since 1929, and held that level with only moderate
changes throughout the succeeding years. Producers' durable equipment
purchases, already at an all-time high in 1946, increased 28 percent further
by 1948; and after a moderate let-down in 1949, were again approaching a
new record in the months before Korea. Accumulation of business inventories was more rapid than usual in 1946 and again in 1948, but gave way
to temporary liquidation in the 1949 recession.
During the 12 months which have elapsed since Korea, gross private
domestic investment has claimed a record share of total national output: nearly 19 percent, compared with less than 9 percent in the period
from 1940 to 1944, and about 15 percent in the period from 1946 to the
middle of 1950. Comparing the first half of 1951 with the first half of
1950, the physical volume of total gross private domestic investment
increased 25 percent; that of inventory accumulation 181 percent; producers' durable equipment purchases 21 percent; and construction other
than residential and farm 16 percent. The volume of residential and farm
construction, after reaching an all-time high in the second half of 1950, was
9 percent lower in the first half of 1951 than in the corresponding period of
1950. (See appendix table B-5.)
This unprecedented level of all-round private investment, made possible
by the ample financial resources available, was induced by the upsurge
in consumer demand following the Korean outbreak; by the widespread
desire to hasten construction and equipment projects and to accumulate
inventories in anticipation of increasing shortages and higher prices; and, in
the more recent part of the 12 months' period, by the actual impact of
defense orders and the stimulus of Government aids to expansion. Restrictions through credit terms, materials control, and direct licensing of some
types of construction, have been reflected in actual reductions of some forms
of investment only during the past few months.
During the next few years, fulfillment of our objectives will entail a
further curtailment of those types of investment which contribute least
to our productive strength. This includes residential, commercial, recreational, and also some kinds of industrial construction. Inventory accumulation likewise should be kept at a minimum, and should represent
a considerably smaller drain as the military production program
levels off. Total outlays for industrial, utility and transport expansion,
however, should be encouraged to continue at levels somewhat higher than
in 1950.
77
The pattern of investment for 1951 and 1952 is likely to be intermediate
between that of full peacetime prosperity and that of peak full-war mobilization effort, such as in 1942 and 1943, when Government investment was
very great.
Plant and equipment
Expansion and modernization of productive facilities is, for the next
few years, the crucial sector of investment. Such investment provides the
capacity needed to meet our security and growth objectives. But this
type of investment calls for much more steel and other scarce items, dollar
for dollar, than do other types such as housing or commercial building.
Moreover, related types of capacity expansion must be kept in balance,
and we must avoid waste of resources in setting up facilities for which
adequate materials will not be available to support their operation.
It is especially important, therefore, that programs of facilities expansion be evaluated as carefully as possible with regard for their contribution
to needed production, their properly balanced relationship, and the magnitude of their short-term drain on resources.
Our manufacturing capacity was being expanded during the five years
following World War II at an average rate of 6 percent a year. (See
chart 18.) A roughly similar rate of expansion prevailed in the electric
power industry. The total capital outlays involved, for expansion plus
modernization and replacement of manufacturing facilities, averaged about
7y2 billion dollars a year, which at first half of 1951 prices would be the
equivalent of about 9 billion dollars. Nearly four-fifths of the total nonfarm plant and equipment outlays were spent in the mining, manufacturing, transport, and utilities fields. (See appendix table B-20.) Despite
the impressive increase in capacity during this period, our productive
capacity appeared to be, in mid-1950, close to full utilization by normal
peacetime standards.
The growth of total national product, set forth as a realizable objective in
a previous section of this Review, is estimated to call for a continued
growth of industrial capacity at a rate at least equal to the 6 percent
annual average of the postwar period, and a level of total outlays for plant
and equipment roughly comparable to that of 1950. Considerably larger
outlays would be involved, if business went ahead with investment plans
on the scale suggested by surveys made at the end of 1950 and early this
year.
Priorities in expansion
Within this total amount of investment in facilities expansion, a greatly
increased share should be devoted to the kinds of expansion most urgently
needed.
First in priority is the capacity expansion needed to produce the military supplies for existing security programs, with a margin for a possible
78
CHART 18
EXPANSION IN INDUSTRIAL CAPACITY
1939 TO END OF 1951
Capacity in most major industries increased faster in the
postwar period than during World War n. Business plans for
1951, as reported early this year, reflected a further
acceleration of expansion.
INDEX, 1939 = 100
INDEX, 1939*100
400
400
TOTAL AND DURABLE MANUFACTURING
350 -
350
300 -
300
250 -
250
200 -
200
150
AUTOS JP^J>^••T*^
i
••?***•
^*— STEEL
»«-*•
I
JAN.
1946
1939
100
DEC. DEC.
1950 1951-^
INDEX, 1939*100
INDEX, 1939 & 100 .
400
400
TOTAL AND NONDURABLE MANUFACTURING
-
- 350
300 -
- 300
250 -
- 250
'200 -
- 200
350
100
1939
JAN.
1946
•ABASED ON EXPECTATIONS AS REPORTED IN EARLY 1951.
SOURCE: MCGRAW-HILL PUBLISHING COMPANY.
79
DEC.
1950
DEC.
quick step-up to full war production schedules, should the need be imposed on us. In the period from 1940 to 1945, this type of capacity expansion absorbed a large share of the Nation's investment of both private and
public funds. About five-eighths of the total outlays for expansion of manufacturing facilities was in the field of aircraft, ships, ordnance, combat and
other motorized vehicles, and chemicals (including aviation gasoline and
synthetic rubber) amounting to more than 25 billion dollars at first half
of 1951 prices. In those areas, the bulk of the investment was Federally
financed.
The present program for expansion of capacity for direct military items
is considerably less extensive. This reflects not merely the lower level of
military procurement now contemplated, but also the fact that we have a
substantial reserve of suitable plants used in World War II. Reequipment
and reactivation of a large share of these reserve facilities was started in
1950, and the further program now envisaged runs mainly in terms of
such action rather than the building of new plants. The major Government industrial plant construction program is that of the Atomic Energy
Commission.
The Department of Defense plans to spend approximately 6 billion dollars, from fiscal 1951 and 1952 funds, for expansion of facilities for production of specialized military items, components, and materials. Threefourths of this represents purchase of equipment, a major part of which
will be installed in privately-owned structures. Expansion of aircraft production facilities will absorb nearly half the total sum.
In addition, a much smaller though substantial private investment in
equipment and structures for war materiel production is under way. Its
magnitude is roughly indicated by the fact that tax amortization certificates
have been requested for nearly a billion dollars of private investment in
aircraft and other munitions production facilities, and already issued on
nearly 400 million dollars. In addition, a substantial part of the contemplated private investment in facilities for electrical, electronic, and other
equipment, and in other basically civilian-type industries, is designed to
provide capacity to serve military needs.
Outside the sphere of facilities expansions directly needed for military
production, there are some other types of investment also deserving of high
priority because they are designed to augment the supply of materials,
products, and services on which our all-around productive strength and
its growth depend. Our general objectives will also require expansion
of some of our basic industries to sustain the economy in readiness for full
mobilization. This will include expansion of capacity for producing
aluminum and other light metals, requiring substantial additions to electric
power capacity in some areas; provisions for increasing our supplies of steel,
copper, ferro-alloys, and several other metals and minerals; and enlargement of our transportation capacity. Expansion of supplies available
80
from foreign sources is an important aspect of several of these programs.
Goals are taking shape for the principal expansion programs, and substantial progress has been made toward their realization. The status of
some of these programs will be outlined below.
In cases such as aluminum and certain alloy metals and chemicals, the
production of war materiel itself will absorb a large part of the supply.
This is true also of certain steel mill products, and even of electric power
in a few specific areas. In the case of such basic types of capacity as
transport equipment, petroleum production and refining, and power and
steel in the aggregate, the case for expansion at this time rests on the
desirability of maintaining the strength of our productive system in general, and not allowing the immediate demands of civilian consumers to
inhibit the longer-range growth on which both our military security and
our economic welfare ultimately depend.
But in a period when resources are scarce, we cannot afford to promote
or even permit all types of investment which make some contribution to total
output of any sort. Some kinds of output will be more important than others
during the next few years, and some kinds of investment will make a more
effective and useful contribution to output than do others.
In judging what kinds of capacity expansion—in addition to those kinds
closely related to short-run security needs—may deserve special consideration in this situation, relevant considerations include these:
(a) Expansion at bottlenecks is more quickly productive than
expansion of facilities which cannot be fully utilized for some time
to come. For example, expansion of retail store capacity in a community already fairly adequately served in this respect merely lowers
the degree of utilization of that type of capacity and contributes little
to total output. As another example, expansion of any type of final
processing capacity, over and above what can be supplied with materials, is relatively unproductive. On the other hand, increased supplies of certain machine tools will remove an important production
bottleneck.
(6) In general, expansion of domestic productive capacity should
not be pushed when there is a safe and economical alternative of
utilizing similar idle facilities in friendly countries abroad. Such
utilization can avoid unnecessary drains on scarce resources to build
facilities here, while at the same time helping to strengthen the
economies of those countries.
(c) One purpose of the increase of general civilian supplies is to
make possible the relaxation of irksome and costly controls, and to
help in curbing inflation. Easing of shortages of cost-of-living items,
which give rise to cumulative inflationary pressure, should presumably
be rated high in this category. The need, however, is primarily for
81
larger capacity to produce the basic materials going into such items
rather than for larger final processing capacity.
(d) Easing of materials shortages which severely restrict opportunities for small business is desirable, wherever feasible.
Expansion objectives in specific industries
Progress has been made in recent months toward resolving the broad
picture of prospective production requirements into objectives and programs for the expansion of capacity for specific products. A brief examination of some of the most important of these objectives and programs will
indicate the pattern of expansion which is taking shape, its impact on
current shortages and subsequent contribution to supplies, and some of
the necessary interrelations among programs.
Although a substantial part of the contemplated expansion represents
definite business plans and projects, with various types of Government assistance already approved or pending, the goals are still not finally established
in most cases, and much remains to be done in firming-up and scheduling
individual expansion projects.
Apart from the expansion of capacity for making finished munitions—
discussed at an earlier point—the expansion programs which have been
formulated and set in motion are mainly designed to meet the urgent need
for larger supplies of metals and other basic materials, energy sources, and
transportation.
Steel, copper, and aluminum occupy a special role in the programming
of production expansion. All are in short supply, particularly the last two,
and all have such pervasive and important uses throughout the economy
that now, as in World War II, their allocation through the Controlled
Materials Plan is the main basis for production controls. . These three metals,
however, by no means represent the only areas of major shortage where
accelerated expansion is needed. Important expansion programs are being
formulated and put into effect in such fields as petroleum production and
refining, electric power, transportation, chemicals, and metalworking.
In the light of these programs, it is evident that the pattern of plant
and equipment expenditures will show quite a sharp break with the past.
The impact of Government programs in aid of facilities expansion will fall
primarily in certain industries where there is a clear need for accelerated
expansion. Investment in iron and steel, petroleum products, chemicals,
transportation, and electric and gas utility facilities accounts for roughly
two-thirds of the outlays for which tax amortization certificates of necessity
have been requested, and about the same proportion of the amount of certificates thus far granted. (See table 7, page 102.) The magnitude of
expansion goals suggests investment in these industries, over the next 2 or 3
years, running considerably above the 1950 rate of 8 to 8*/2 billion dollars.
Capacity expansion in machinery, nonferrous metals, ordnance, pulp and
paper, and a number of other important industries also is being actively
stimulated, and is absorbing an increasing share of resources.
With a large step-up in the rate of expansion and investment in these
major fields, and with the supply of materials inadequate for any great
increase in over-all plant and equipment outlays, investment in fields of
lower priority must clearly fall considerably short of the 1950 level, and
still farther below the levels originally contemplated in business plans for
1951 as reported in surveys made earlier this year. To make the higherpriority expansions possible, it is necessary to restrain the investment outlays of other lines of business, notably trade and recreational services, food
processing, apparel, and a variety of manufacturing industries where capacity is already reasonably in line with the supplies of material which can be
made available to those industries under shortage conditions.
Iron and steel. The programs in this area involve ore mining and transportation facilities, coke ovens, blast furnaces and steel furnaces, and still
other related types of investment such as refractories plants. There are
difficult problems of keeping the various interrelated programs in step so that
capacity at all stages can be utilized as fully as possible.
The expansion under way in the steel industry is expected to increase
total ingot capacity to nearly 120 million tons by the end of 1952, compared
with 107 million tons at present. This program will require 2 to 3 percent of
the supply of steel and about the same proportion of the copper supply over
this period. It will involve private investment outlays of about 4 billion
dollars, which represent not only a large increase over the pre-Korean rate
of investment in this industry, but also a sizeable part of total prospective
outlays for industrial facilities.
To accomplish this expansion in the time proposed will tax the ability of
producers of specialized heavy equipment and components. Full utilization of the expanded steelmaking capacity will also mean increased
demand for metallic materials and fuel. It is hoped to meet this demand by taking advantage of recent technical improvements which
increase the effective capacity of blast furnaces, by expanded direct use
of high-grade imported ores in open-hearth steel furnaces, by increasing
ore production and imports, and by collecting more scrap.
Increased scrap collections, and increased use of Lake Superior highgrade ores, are both only temporary contributions to the supply of materials. By 1953, an estimated 150 million short tons a year of iron ore will be
required, compared with 123 million in 1951. To meet this requirement,
it will be necessary to step up the rate of production at the Lake Superior
mines, which will hasten the depletion of that source. Increased dependence
on imported ores over the longer run appears inevitable. New mines in
Venezuela and Liberia will furnish substantial amounts of ore before 1953,
and Labrador is expected to become an important source by about 1956.
Beneficiation of low-grade taconite ores is not expected to contribute sub-
83
stantially to total supply for some years. To provide for efficient use of new
ore sources in supplying our major inland steel production areas in the face
of a decline in Lake Superior ore supply, initiation of the St. Lawrence
Seaway project is an urgent need.
With a sufficient supply of materials to support full utilization of the
planned steelmaking capacity, the output of finished steel mill products,
which rose from 74 million tons in 1950 to an annual rate of about 82
million in the first half of 1951, could rise by 4 or 5 million tons in each
of the next 2 years.
Military and atomic energy requirements for finished steel under present programs are expected to reach by about mid-195 2 a peak annual rate
at least 12 million tons higher than in 1950, and 5 to 6 million tons higher
than in the first half of 1951. Since the supply of steel can grow by only
about the same amounts, total nonmilitary uses of steel must be held down
to about the 1950 level through most of 1952 at least. In some specific
shapes of steel, such as structural shapes and plates, there are much more
serious stringencies than the over-all figures disclose.
The use of steel in machinery and equipment for expansion, conversion,
and upkeep of productive facilities has increased considerably above 1950
levels, and cannot be reduced much during the next year or two if our
industrial build-up objectives are to be met. Even after allowance for an
expected reduction in the amount of steel going into inventories, it appears
that substantially less steel will be available than in 1950 and early 1951
for consumer durable goods and the less essential types of construction.
Substantial cuts have already been made in most of these uses.
With adjustments of this character, the shortage of steel need not significantly impair the maintenance and build-up of our national security during
the next few years. If national defense programs continue in subsequent
years at levels now contemplated, the squeeze on consumer durable goods
and nondefense construction should begin to relax by 1953; and continuation of steel capacity expansion at a more moderate rate thereafter should
make possible a fairly rapid return to free use of steel. Expansion of
finished steel output to about 90 million tons in the next few years—which
would require full utilization of about 120 million tons of ingot-producing
capacity—would support continued economic growth, residential and public contraction on at least as large a scale as in 1950, and the satisfaction
of normal demands for consumer durable goods.
Aluminum. The expansion program proposed by the Defense Minerals
Administration calls for increasing primary aluminum production by
775,000 ingot tons, or 108 percent, from the 1950 level of 719,000 tons.
This would mean a total output objective of 1,494,000 tons by the end
of 1953, to be achieved mainly by construction of new capacity. Reactivation of existing stand-by plants will provide 79,000 tons of
the increase, and 62,000 tons will come from improvements increasing
output at facilities now in operation. The capital outlays involved are
estimated at over 750 million dollars, compared with very small investments in such facilities in the postwar period. Approximately half of this
expansion program is already assigned to aluminum companies, with tax
amortization approved.
The expansion of aluminum capacity is given further support by Government contracts guaranteeing a 5-year market for the output of specified new
facilities.
More than two-thirds of the aluminum capacity expansion is planned for
the Gulf Southwest states, and will use electricity generated from natural
gas. Because of the need to bring this production in speedily, these locations near the gas fields have been desirable. However, for longer-range
additions to capacity, cheaper aluminum can be produced by means of
hydroelectric power, which may be developed in large quantities and at low
cost on the Columbia and St. Lawrence Rivers and at Canadian and
Alaskan sites.
Imports of aluminum from Canada are expected to furnish 15 to 20
percent of the supply of primary metal this year; but any enlargement of
imports must await the further expansion of production facilities.^
Our direct national security needs for aluminum accounted for less than
one-tenth of requirements in 1950, but will take about half the supply in
1952. With the contemplated expansion program and the requirements
entailed in the present defense program, including the strategic stockpile,
civilian use of aluminum will have to be restricted until 1953, but can expand
thereafter along a growth trend rising at the rate of 5 percent a year from
1950. This trend projection appears conservative in the light of the past
rate of increase in aluminum use. Any over-supply appears unlikely in view
of the known opportunities for extensive and economical substitution of
aluminum for copper, a metal which seems likely to remain in short supply
for an indefinite period. Substitution for steel is also important, especially
in military uses.
Under full mobilization at any time in the near future, military requirements for aluminum would increase greatly, and would force a much more
drastic cutback in civilian use.
Copper. In contrast to steel and aluminum, the possibilities for increasing our supplies of copper are severely limited. It is estimated that by
1953 the total supply available to this country, including imports, can be
increased by only 15 percent over 1950, and then only by carrying forward investment programs both in this country and abroad, and by purchases above present ceiling prices. The contemplated investment in domestic copper mines, amounting to about 250 million dollars, will hardly
more than stave off an actual decline of production arising from depletion.
By 1953, it is hoped to increase imports, which in 1950 accounted for about
40 percent of our supply of new copper, by at least one-fourth above the
1950 level.
85
On the basis of the current partial mobilization program, and a curtailment of copper use in consumer durable goods by 40 percent from the
high level of the first half of 1950, supplies of copper might be balanced
with requirements for the next few years. However, the need for additional supplies is acute if any allowance is to be made for growth in civilian
use, and much more acute should full mobilization become necessary.
The latter eventuality would require extremely severe restriction of civilian
demand.
Over the longer run, the most promising solution of our copper problem
lies in the development of adequate substitutes in both civilian and military
uses. Aluminum is the most promising substitute; but no relief from that
source is in sight until after 1953, even under presently planned defense
programs.
Petroleum and refined products. The program formulated by the Petroleum Administration for Defense calls for a 15 percent increase in domestic
producing and refining capacity in the 3-year period 1951 to 1953. This
is designed to leave modest margins of spare capacity by 1953, assuming
no curtailment of imports, and allowing for a roughly doubled military
demand plus a continued increase in civilian demand.
The program is aimed at achieving a larger margin of capacity in crude
production than in refining, because of our present partial dependence
on crude imports, and because it is difficult to gauge accurately in advance
the success of exploratory drilling operations in actually developing new
production. A much larger margin is to be provided in the case of facilities for special components needed for aircraft fuel, to provide for
needs during the first year of a possible war while still further expansion
of such facilities would be in progress.
To achieve the projected capacity increases, it would appear that the
investment outlays of the petroleum industry would run moderately higher
during the next three years than in either 1949 or 1950, even in the absence
of further cost increases. The difficulty and expense of exploratory drilling
are gradually increasing, which implies a rising cost of maintaining the
growth of oil production capacity and proven reserves.
The petroleum expansion program involves a large drain on critical
materials, especially steel. Including oil and gas production, refining,
transportation, storage, and marketing facilities, the expansion programs
will require nearly 10 percent of the entire prospective supply of steel
over the next 3 years.
A full-scale war, or continued political difficulties in the Middle East,
might result indirectly in a sharp reduction of our imports, now furnishing
about an eighth of our supply. Even with present imports, war requirements would be so substantial that civilian rationing would immediately
become necessary. Between 1941 and 1944, civilian consumption was
reduced by about 12 percent under rationing. Since any great reduction
86
in civilian use of petroleum products would interfere with maintenance
of transportation services, heating, and industrial production, the capacity
expansion now planned appears to be an essential precaution.
Electric power. Power demand, as measured by the seasonal peak load,
increased 60 percent between December 1945 and December 1950. Despite a large building program during these years, the reserve margin is
now less than 10 percent. The presently proposed expansion would provide
for meeting the expected December 1953 peak load with the 15 percent reserve margin which is considered adequate. The reserve position in certain
regions of the country, especially the Pacific Northwest and parts of the
Southeast, is much more critical than nationwide estimates show.
The proposed program calls for a 40 percent increase of electric utility
generating capacity—from 70 to 97 million kilowatts—during the 3-year
period 1951 to 1953. A significant part of this expansion is needed for
expanded production of light metals and radioactive materials for national
security purposes. The total outlays for generating plants and associated
transmission and other facilities are estimated at 11 to 12 billion dollars.
Most of this will be spent by private utility companies, whose outlays are
expected to run roughly a third higher, on an average yearly basis, than
in 1949 and 1950.
This electric utility expansion program would take, during the 3 years
1951 to 1953, about 2J/2 percent of the total supply of steel, 6 percent of the
supply of aluminum, and 17 percent of the supply of copper. The relatively
heavy demands which the power expansion program places on basic and
scarce materials and critical equipment items indicate the need for periodic
re-evaluation of the various segments of the program, to make certain that
the more essential projects get the right of way. However, the fundamental and indispensable role of electric power in the economy, especially
the wide variety of its uses, means that a deficiency of electric power would
pose a serious threat to the whole production expansion program.
Although power requirements would not be very much greater under full
mobilization than under the presently planned defense programs, wartime
experience here and abroad has demonstrated the extreme practical difficulties of curtailing less essential uses.
_.-—
Other programs. In addition to these large and basic programs, there
are numerous others which, though of less general importance in American
industry, are vital at specific points.
One of the needed materials is manganese, necessary in the steel industry. At present, nine-tenths of our supply of metallurgical manganese is
imported. The expected increases in domestic production and imports
during the next 2 or 3 years will satisfy our metallurgical requirements but
will not permit stockpile objectives to be met in full. Substantial additional
supplies might be made available after 1953 from low-grade ore deposits
and small mines, and particularly from the wide application of technological
87
improvements in the recovery of manganese from slags. These processes,
now in the experimental pilot-project stage, appear very promising.
Sulfur, in the form of sulfuric acid, is essential in a wide range of industries, including fertilizers, petroleum, chemicals, paints, and iron and steel.
In other forms, it is used in pulp manufacture and other processes. The
proposed expansion program is designed to increase sulfur supply by about
700,000 long tons, or 12 percent over the 1950 domestic output, by the
end of 1953. The cost of this program may run in the neighborhood of
20 million dollars, on a portion of which application has been made for
tax amortization assistance. Domestic demand alone, at present prices,
would probably increase considerably more than the proposed expansion
of output. A balancing of supply with domestic and essential export needs
will call for wider use of conservation and recovery methods, and the
expansion of production of sulfur from pyrites, both here and abroad.
A plan to cope with the shortage of sulfur throughout the free world by
voluntary international allocations has just been worked out by the International Materials Conference, which recently announced such allocation
plans for molybdenum and tungsten as well.
Nitrogen is essential for fertilizers, industrial explosives, and other industrial uses, and—especially in full-scale war—for military explosives. The
expansion program proposed by the National Production Authority calls for
increasing domestic production capacity for synthetic ammonia from 1.6
million tons of nitrogen content at present to about 2.3 million by the end
of 1953. Of this increase, 0.2 million could be achieved by reactivation of
a relatively high-cost Army reserve plant. The proposed expansion would
involve capital outlays of about 130 million dollars.
With this program, the requirements as estimated by the National Production Authority could be met during the period 1951 to 1953 under the
presently planned mobilization program. Further expansion of supply, to
about 2.5 million tons by the end of 1953, would be needed, however, if
enough nitrate fertilizer were to be made available to produce feed to keep
meat production at present levels without further drawing upon grain
reserves. An all-out war would give rise to a heavy additional demand for
nitrogen for the manufacture of explosives.
IMPACT OF THE SECURITY PROGRAM ON CONSUMPTION STANDARDS
While the defense effort is being pushed to peak levels, important changes
in composition of consumer goods production will take place, although total
consumption will probably be relatively stable near the present level, which
is about 12 percent above that of 1946.
In this respect, the period will be considerably different from the early
phases of the World War II mobilization period. Consumption rose 8 percent between 1940 and 1941, and increased in all subsequent years except
1942. A brief review of the war and postwar period will reveal notable
CHART 19
CHANGES IN PERSONAL
CONSUMPTION EXPENDITURES
1st HALF OF 1951 PRICES
Total consumption expenditures, in constant dollars, have
increased 12 percent since 1946, with expenditures for
durables rising 40 percent.
BILLIONS OF DOLLARS
250
200 -
BILLIONS OF DOLLARS
250
- 200
150 -
too -
SOURCE- COUNCIL OF ECONOMIC ADVISERS.
progress in raising standards of consumption throughout the population over
the last 10 years, and indicates that a period of slower progress, or even
curtailments in consumer goods in the next year or two, would still leave
us well off as a nation. (See chart 19.)
The growth of consumption, 1940 to 1944
By 1940, the output of consumption goods had risen by 40 percent from
the depth of the depression, although there were still substantial numbers
unemployed. Relatively large additions were made in stocks of automobiles
and durable household goods in consumers' hands; in 1940, 3.7 million automobiles, 2.7 million electric refrigerators, and 1.6 million washing machines
were purchased. As shown in chart 20, per capita consumption of nondurable goods and services in 1940 was about 20 percent below present
levels. As the war progressed, per capita consumption of nondurable
goods and services rose in every successive year, though due to difficulties of
measurement the estimates may overstate the actual increase. Despite large
shipments of food to our Allies abroad, the diet of the American family
improved a great deal. While the production of metal-using consumer
appliances was virtually eliminated after 1941, purchases of furniture and
other types of consumer durable goods increased.
Not only did per capita consumption of most goods and services rise
during the war, but the output of the American economy was more broadly
distributed among all segments of the population. Depressed areas practically disappeared, and migration from regions of lower productivity and
lower employment helped to raise the living standards of the neediest
groups. Economic opportunities for the underprivileged were enlarged.
Vastly expanded employment opportunities allowed the number of persons contributing to family income to increase, thus helping to raise the
income of many families at the lower end of the income scale.
Between 1941 and 1944, there was a marked improvement in the relative status of the lower income segments of the population, particularly
families of two or more. As shown in table 43 the average income of the two
fifths of families (excluding single person households) at the bottom of
the income scale increased by nearly 50 percent from 1941 to 1944, after
allowance for price changes. This compares with a 28 percent increase
for all income groups, and an increase of 19 percent for the top fifth
of families. Rationing was a further factor improving the ability of the
lower income groups to compete for consumption goods during the war
period.
TABLE 4.—Changes in the distribution of family income, before taxes, 1941 to 1944 *
Families and single
persons
Families ranked
from lowest to
highest income
Percentage of total
money income
1941
All families..
Lowest fifth
Second fifth
Thirdfifth..
Fourth fifth
Top fifth..
1944
Families of two or more
Percentage of total
money income
1941
1944
Average money income Percentage
(first half of 1951 prices) increase in
income.
1941 to
1941
1944
1944
100.0
100.0
100.0
100.0
$4,085
$5,227
28
3.5
9.1
15.3
22.5
49.6
3.6
10.1
16.3
23.0
47.0
3.9
9.6
15.6
22.1
4.5
11.0
16.6
22.5
45.4
796
1,960
3,187
4,514
9,968
1,177
2,874
4,338
5,882
11, 867
48
47
36
30
19
48.8
* Includes family allowances and pay of armed forces living at home.
Sources: Council of Economic Advisers (1941) and National Bureau of Economic Research (1944).
Consumption in the postwar period
The standard of living is largely determined by the current flow of nondurable goods and services, and the stock of housing and durable equipment.
In the postwar period, it has been raised largely through an increased
flow of services and large additions to the supply of homes, automobiles, and household appliances. (See chart 21.) The per capita
consumption of nondurable goods apparently reached a peak in 1946,
CHART
20
PER CAPITA CONSUMPTION EXPENDITURES
1st HALF OF 1951 PRICES
Real per capita consumption rose throughout most of the war
and postwar period. In 1950, it was nearly one-third higher
than in 1940.
DOLLARS
1,400
DOLLARS
38$
'^
1,200
V-v:
$v
1,000 - ' V;
vv.
;</
w
$&
•-'•' ' "»
'-^'
'VC
'i V
;
// ;-
600 - "':\;;.
"'#;
">V
<.', -''
3f t
~&
\f
.' :^>:
200
'.
>Y'/'
;\" ,\;
- 'vl?
o'V!
**'
<?S'
A>i
''"-;>!
k/^;'
^'-* ; :,
41
1940
'2?-
IS
1
1^1:'
^P
^;'-£^
;%§
i
f>j£i
^
44
$*»$
^
46
45
DOLLARS
800
S3
;':;.\;
1 1,200
1j
?S: Sf
;* *:-,
§1
'Hr- ,
c
fl
l;; ;
%
:') 'i
y;>v=
>K1
-\S:
i\f.>"
i''',^'
^>'%>
''lx*
V>t >:
'f^
^';*i'
JlS
&i?
^
;^;>i
^fe
*-,
^
-y ; - 800
'" •"*'«*.
';V.t'
C'^rr - 600
:
"t^,'/~ ,'
ft
S?:
•\4 H
\y}"
/&''•?
"t%^
^5
47
:
-%
^"4
SK
t<i?
«i;:i
1,000
v
^
'-•"V;-"
_
;
'C>/ "
'^'
'Vyp
^ % st-'
^-'A;
^L'
H^}
- 400
'V:P
! ',-* ' N
Hi - 200
'iH
c
i^Sc
f^J
-^^
%£&*,
48
49
50
0
DOLLARS
800
^^^^
^—7"""
PER CAPITA EXPENDITURES
FOR DURABLE GOODS AND SERVICES
600
K|
sp 58
*';;-»
^3>
:t;|^
c^%.
-^^
}^
11
'^f
>^:'
43
/v' -
,'*H
CV'=
42
w
'^
i
^v
'/l^lr
^ff>-'
- /.
- '"- '-
.:t;--
5"V-f
^
?/^J
s
Ky.
>4
|f
,'*v*.
74;"
H"^;
:
; ?5 ;.
:^C
. ,-s'^
V '''
'V
^V'- *
^",v
•'K
•'£ •
0
;
x,'/;5'
\'\;;'
S
>>'>' y
S
v4\
c'x
^.;vr
•/;>: '
'4
:
v ; j '/K
800 - .V;.V-
400
1,400
TOTAL PER CAPITA CONSUMPTION FXPFwniTURFS
^X****-^NONOURABLE GOODS
"" 600
~
--'"""><r>—
400
«•
»•
200
400
200
DURABLE
++
GOODS V^^—" —
•^ ^\
V
\
O
40
1
-- *•••• — '
|
|
1
1
42
44
46
1
1
48
1
PER CAPITA EXPENDITURES
FOR NONDURABLE GOODS AND FOOD
1
1
1
1
1
1
i
I
I
1
1
50
SOURCE: COUNCIL OF ECONOMIC ADVISERS.
40
42
44
46
48
50
0
and has since declined somewhat, although it is doubtful whether the
estimates fully reflect the degree of product improvement which has
occurred since the war. On the other hand, the per capita consumption
of services has moved steadily upward since 1946, as it did during World
War II. (See chart 20.)
The average rate of construction of new nonfarm dwelling units was only
about 300,000 units annually during the period 1942 to 1945, including
many of temporary types, and the production of automobiles and other
major appliances was severely restricted. Thus, at the end of the war, there
was an urgent need for new housing and improvement of existing housing;
a high percentage of automobiles on the road were near the end of their
useful life; and stocks of other appliances were being depleted. Notable
progress has since been made in remedying these deficiencies. In 1950,
only 5.6 percent of families were living doubled up with other families,
compared with 6.8 percent in 1940 and 8.6 percent in 1946. Automobile
ownership has significantly expanded. In 1940, there was a car for every
4.8 persons; by the end of the war, there was only one car for every 5.4
persons; at present there are about 3.7 persons per car. Twenty-eight
million homes had washing machines at the beginning of this year, compared with only 13^2 million in 1939; and the number of homes with electric refrigerators has almost tripled. Most homes now have a radio, and
almost one in four has television.
The more nearly equal distribution of income which was attained during
the war has been largely preserved during the postwar period. Although
statistics on the distribution of income are not entirely comparable for
the prewar, war and postwar periods, the evidence is fairly clear that the
postwar distribution is less concentrated than the prewar distribution. Approximate stability in the distribution of income since 1946 is indicated by
both of the main bodies of available data—the Census Bureau's Current
Population Reports on Consumer Income and the Federal Reserve Board's
Surveys of Consumer Finances. The distribution of income for postwar
years is shown in table 5.
TABLE 5.—Distribution of income in the postwar period
Percentage of total morley income
1946
All farpjly units
Lowest
fifth
Second fifth
Third fifth
Fourth
Top fifth
100
fifth
.
1
Includes
2
1950*
1948
4
H
16
22
47
100
4
H
16
22
47
100
4
H
16
23
46
single-person families.
Preliminary.
Sources: Survey of Consumer Finances, Board of Governors of the Federal Reserve System (1946, 1950)
and Council of Economic Advisers, based on data from Bureau of the Census (1948).
.._'"'
92
CHART 21
PRODUCTION OF SELECTED
CONSUMER DURABLE GOODS
Cutbacks in civilian production of 30 percent from first half of I960
rates would permit passenger car output of almost 5 million units
per year, and household appliance production near 1949 levels.
MILLIONS OF UNITS
10
5
MILLIONS OF UNITS
10
-
- 5
ELECTRIC WASHERS
10
ELECTRIC REFRIGERATORS
10
[771
10
ELECTRIC AND GAS RANGES
1940
1948
1949
1950
10
1st 2nd
Half^/
1950
SOURCES: AUTOMOBILE MANUFACTURERS'ASSOCIATION, MCGRAW-HILL PUBLISHING COMPANY,
AND DEPARTMENT OF COMMERCE.
93
Consumption during the period of the new defense build-up
If the production goals outlined in previous sections are realized, there
will still be opportunity for further increases in some types of output for
consumers during the next year or two. The output of many types of
nondurable consumer goods and services can be expanded, while the production of housing and of durable goods is expected to be sufficient to take
care of the population growth and some replacement. Exact estimates of
the degree of expansion which will take place in the output of nondurable
goods, or of curtailments in durable goods, are of course impossible. In the
first place, projections included here assume that targets for defense production will be met, although many factors may accelerate or retard progress
toward these targets. Secondly, the extent to which total output can be
increased depends on the willingness of more people to enter the labor
force; on willingness to work longer hours; and on some unforeseeable
factors, such as the influence of weather conditions on crops and the availability of imported raw materials. Further, it is impossible to anticipate
in detail the policy decisions which will distribute the burden of necessary
cuts among consumption, private investment, exports, and public programs.
Making such assumptions as seem reasonable for all these factors, it
appears that per capita consumption of food can be maintained at levels
as high or higher than in 1950, as can consumption of clothing, shoes, and
other nondurable goods. The output of many types of services can be
substantially increased, as during World War II. On the whole, it seems
likely that increased demands for nondurable goods and services will draw
forth moderate increases in output, despite the diversion of material and
manpower to defense industries. Those types of consumer output which
will be adversely affected by the resource needs of the security programs
are housing and consumer durable goods, including automobiles, household
appliances, and television and radio sets.
Credit restrictions on new housing have been established with the object
of reducing construction to an annual rate of 850,000 nonfarm dwelling
units (a level which may be substantially exceeded in 1951, because of the
backlog of commitments existing at the beginning of the year). The 850,000
new units would provide dwellings for the expected 400,000 to 500,000
increase in new families each year, with a substantial margin for retirement of substandard units, abnormal demands in defense areas, and other
needs. Thus, while additions to housing may not always be of the most
desirable types from the standpoint of meeting the needs of a defense
economy, the quantity of new housing, together with improvement of
existing structures, insures that housing accommodations will not deteriorate during the period of defense build-up.
However, more attention needs to be concentrated, not only upon proper
location, but also upon proper pricing relative to the need. Much more
94
of the housing should be built to sell or rent within the means of defense
workers. This involves, among other things, a larger volume of low-rent
publicly financed housing.
The outlook for metal supplies indicates that the needs of defense procurement and essential investment will not require, by the end of this year,
a greater reduction in the use of scarce metals in consumer durable goods
than 30 to 40 percent, measured against the first half of 1950. After
adjustment for the effects of the Chrysler strike in early 1950, a cut of this
order would permit the production of passenger cars at an annual rate of
4^2 to 5 million units, compared with an estimated 5J/2 million this year,
6.7 million in 1950, and 5.1 million in 1949.
The effect of cuts in the supply of metals for major items of household
equipment, ranging from 30 to 40 percent of the first half of 1950 rate,
is shown in chart 21. The estimates are largely illustrative, since numerous
factors could influence actual production levels in addition to the current allocation of materials. However, it can be seen that a 30 percent
cutback would permit output near the levels of 1949 for electric refrigerators, electric and gas ranges, and electric washers. In terms of experience prior to 1950, this is a very high level of production. Maintenance
of supplies at these levels would be more than adequate to equip new
dwellings and to permit normal retirements of over-age units.
In summary, the output of consumer goods will be adequate to maintain high consumption levels in the United States under present defense
programs, but at the cost of a greater labor effort, and some sacrifice of
leisure time. Consumers will not, however, be able to translate all of their
increases in money income into additional consumption. Some goods will
be produced in quantities inadequate to meet demand, and some degree
of quality deterioration may take place. The variety and attractiveness of
some goods will suffer, as substitutes are used and skilled labor becomes
more scarce.
For most families, only some inconvenience is involved in meeting our
national objectives. For others, however, there will be real hardship.
Even in normal times, many groups of the population hardly participate in
what we like to regard as the American standard of living. In 1950, as
shown in table 6, 28 percent of the families had incomes below $2,000, after
taxes, and an additional 18 percent had incomes between $2,000 and $3,000,
after taxes. While these income groups contain relatively large proportions
of single-person families and of farm families with non-money income, it
is obvious that very large groups still live in relative poverty.
95
TABLE 6.—Distribution of families by income level, before and after Federal income
tax* 1950
After tax
Before tax
Money income
Percentage
Percentage Percentage
money
money Percentage
of families ofincome
of families ofincome
All families ....
Under $1,000
$1,000 to $1.999
$2,000 to $2,999
$3,000 to $3,999
$4,000 to $4,999
$5,000 to $7,499
$7,500 to $9,999
$10,000 and over
.
*•>
-_.
100.0
100.0
100.0
100.0
11.5
15.2
15.6
17.9
12.7
17.7
4.8
4.4
1.2
5.7
9.7
15.6
14,2
26.3
10.4
16.9
11.6
16.4
17.7
19.7
13.6
14.3
4.0
2.7
1.4
6.8
12.3
18.8
16.6
23.4
9.5
11.2
J Families include single-person families. Income tax liabilities have been estimated from data on
family income and composition.
NOTE.—Detail may not add to totals due to rounding. Figures in this table are not comparable with
those shown in table 10, page 132, which are based on a distribution by spending units rather than family
units.
Source: 1951 Survey of Consumer Finances, Board of Governors of the Federal Keserve System.
Some of the poorer groups of the population have already benefited by
the defense effort. The competition for labor will create better employment opportunities, and in some families, working wives will augment the
family income in the coming period. The defense effort properly gives
relatively more income to those who can work longer hours or take jobs in
higher-paying defense industries. Changes in income distribution are
inevitable in a time of economic readjustment.
On the other hand, a spiraling process of general price and wage increases
entails a general redistribution of earning power, which cannot be justified
by the need to get out more production or to change its composition.
This process leaves behind those groups who are not in a position to
take jobs or to obtain wage increases, such as retired persons, annuitants,
disabled veterans depending on pensions, and all other fixed income groups.
This is particularly unfortunate because fixed income recipients are disproportionately concentrated in the lower income brackets. Between early
1950 and early 1951, when personal income rose by about 13 percent,
half the population did not obtain any increase in income. In fact, 18
percent had decreases in income.
These considerations point to the need for a firm policy of price and
wage stabilization. But the fact that there are difficult problems involved
in distributing the burdens of a defense program does not by any means
imply that much greater cuts could not be made in civilian output than
are now contemplated. Durable consumer goods production could be cut
to a minor fraction of its present rate, and the output of nondurable goods
and services reduced substantially without damage to health or morale,
if the international situation required. By contrast, the degree of sacrifice
associated with our present objectives appears relatively minor.
III. Economic Policies for Defense
PRIME IMPORTANCE OF ECONOMIC PROGRAMMING
In the Council's December 1950 Annual Report to the President, entitled
"The Economics of National Defense", and in its January 1951 Annual
Economic Review, the need for programming of requirements and supplies
was emphasized. Although substantial progress has since been made by
the defense agencies toward this programming operation, the Council feels
called upon once again to emphasize its vital importance.
"Programming", as we use the term, does not mean the central planning
characteristic of the economic operations of some other countries. It means
simply that, in a defense emergency, the Government is necessarily affecting
the whole economy in so many important ways that it has the high responsibility to see to it that these various operations are harmonious and guided
by a vigilant logic.
Such a programming operation involves four main tasks.
First of all, it involves the application of an economic strategy, which fits
together insofar as feasible the various major parts of the national effort.
The military build-up, the stockpiling effort, the measures for international aid, the actions to build up our own industrial facilities, and the
steps designed to limit civilian consumption, do not exist in separate worlds.
They must all be conducted at the same time within the American economy,
and in the aggregate they are limited and conditioned by our economic
resources. Thus, there must be a continuing effort to keep these various
major parts of the effort in balance, although the relative size of these different parts may vary from time to time, depending upon the working
hypothesis as to whether we are engaged in a long drawn out struggle or
moving quickly toward an ultimate crisis. This first phase of the programming operation might be called the clear defining of major goals, and the
testing of their feasibility one against the other.
Second, the programming operation involves a continuing determination
of how these major goals are to be reached. What part can be accomplished through expanding supplies? What part needs to be accomplished
through reducing demand? In this aspect, programming involves the constant testing of various economic policies and detailed actions in terms of the
basic objectives which they are designed to achieve.
This aspect of programing involves both production and stabilization.
The two are interconnected, and success in both is essential for success
97
in either. In one sense, the ultimate aim is production. The products of
industry, not their price tags, fill the armories and commissaries of our
Armed Forces. Yet in large measure the stability of the price and income
structures conditions the will and capacity to produce. Without stability,
production is disrupted and serious incentive-sapping inequities crop up.
It is just as true, particularly for a protracted effort, that genuine stabilization requires expanding production. Stabilization means holding demand
as closely as feasible to the supply of available goods, and this can be
done more easily if the supply increases.
While production and stabilization efforts are complementary, there can
be some points of conflict between them. If production were the only
objective, we might make extensive use of price and wage increases as
incentives, but this would destroy stabilization. Conversely, rigid and singleminded price and wage stabilization, or tax and credit programs directed
exclusively to a narrow anti-inflation objective, might cripple essential
defense and civilian production. The harmonizing of production and
stabilization is part of the programming task.
Third, programming involves scheduling and timing. Not only must
the major goals be defined with such clarity as is attainable, but in
addition the relative speed at which these various major goals are to be
attained must be borne in mind. Otherwise, vast and unnecessary dislocations in production and employment could be caused by cutting back on
some things faster than others are increased; or damage to the defense effort
could result from not cutting back on some things fast enough to satisfy
military and related requirements.
Fourth, programming involves a reasonably complete and continuous
synthesis or inventory at one central point of all the important facts about
the progress of the whole effort, so that those concerned with policy may
have immediate access to what is happening as a guide to what needs to be
done. Without this opportunity to look at the whole picture as it evolves,
great disparities or deficiencies could arise without being detected in
advance.
Programming, in short, is nothing more nor less than the application of
sound and tested business methods to the business of national defense, which
is the biggest business that we are now undertaking, and by far the most
vital. The progress thus far made in programming, while encouraging,
should be carried further. And because it is at the core of the whole
effort, energy and determination should be concentrated upon it even more
than upon important segmental operations of production or stabilization.
For, in the final analysis, production and stabilization actions must be
guided by this kind of programming.
While the Government must lead in this programming effort, its success
depends very heavily, as the Council has frequently said, upon voluntary
cooperation. The detailed measures to increase production, to control
prices and wages, to restrain credit, and to stimulate saving, can be greatly
facilitated through the constructive cooperation of unions, farm organizations, business and consumer groups, and local governments. Such cooperation may best be achieved if each group has an opportunity to participate
in the programming action which gives meaning and direction to all of these
other efforts.
THE PRODUCTION EFFORT
A year ago, the nation's security program was absorbing about 6 percent
of the economy's total production. Under present plans, the figure is
expected to approach 20 percent a year hence. This assumes that total
production, which has increased 10 percent during the past year, can be
increased at least another 5 percent during the coming year. The increase in total production from the first half of 1950 to the first half
of 1951 has made it possible to increase outlays for national security, for
facilities expansion, and for civilian consumption all at the same time.
Without such an increase in total production, it would have been necessary to curtail business investment and consumption by about one-tenth
from the present level. A further curtailment of one-tenth would be necessary if the scheduled increases in national security programs during the next
year had to be met without a further increase in production. A rise of 5
percent in total output over the next year should make it possible, not only
to meet the scheduled 30 billion dollars increase in national security expenditures during the next year, but also to add to capacity in at least some of the
most essential industries, and to avoid a reduction in consumption.
To meet the national security objectives, it is essential that the goals
outlined in Part II of this Report be attained, and that economic programs
and policies be shaped to this purpose. These goals may be summarized as
follows:
1. An increase in total output of 5 percent, or better, from the
middle of 1951 to the middle of 1952.
2. An increase of something like 4 percent in total man-hours
of work over this period. Most of this increase should result
from expansion of the labor force by l/ 2 to 2 million. Some lengthening of the workweek will be necessary in some industries. Increased
labor productivity should make an additional contribution of some 2
percent to expansion of total output.
3. Expansion of productive capacity in such basic industries as iron
and steel, aluminum, chemicals, fuels, energy, and transportation
facilities, requiring outlays of 20 to 30 billion dollars during the
next 2 years. In addition, expansion of specialized facilities for military
production will come to about 7 billion dollars.
99
4. Effective development and utilization ot foreign as well as domestic resources of basic raw materials, and their allocation in line with
comparative urgency of demand.
5. Restrictions on many types of consumption, business investment,
and Government spending.
Industrial production aids
To promote the acceleration and redirection of production, the Government has in the past year, under the authority of the Defense Production
Act and related legislation, taken action to guide the flow of materials; to
aid some producers in financing their expansions of both working capital
and fixed investment; to reduce the risks and enhance the prospective level
and stability of earnings of some producers; to promote the wider and
prompter adoption of new technology; and to broaden the participation
in defense-related production by business enterprises both large and small.
Some of the production aids are being applied abroad as well as at home,
to enable friendly nations to increase their contribution to the common
cause.
Materials controls. The most common limiting obstacle to production
has been the relatively scarce supply of certain materials, mainly metals.
This will continue, and control of materials flow is increasingly the key to
the redirection of production.
In the initial year of the defense effort, while the drain on materials for
national security was still small, a series of partial controls over key materials
was instituted. They began with a limitation on accumulation of inventories. This was quickly followed by the granting of a general priority
for defense production orders, later supplemented by grants of specific
limited priority assistance to certain defense-supporting production and
capacity-expansion programs. At the same time, the use of certain scarce
materials, such as aluminum, in less essential products was curtailed by
restriction orders. Conservation of scarce materials and the use of substitutes were promoted by controls over product specifications (e. g., for containers). Some uses of scarce materials were prohibited outright, and a
few materials in shortest supply were placed under complete allocation.
The National Production Authority has been able to stave off a repetition of the breakdown of the priority system which occurred during World
War II. To meet the increasing stringency of materials supplies, it is now
achieving a transition to the comprehensive allocation and scheduling of
key metals use through the Controlled Materials Plan.
Department of Defense programs for facilities expansion. A basic problem in this area of production is expansion of capacity, since the aim is to
provide a wide enough margin to permit a quick step-up in the event of
all-out war. A core policy underlying defense procurement is to balance
100
deliveries of end items with needs for equipping the active forces for the
initial phases of mobilization. Preparation for possible full mobilization
requirements is to take the form of quickly expansible production, rather
than large reserve stocks of military end items. The Department of Defense
is now carrying out a facilities expansion program involving primarily the
purchase, conversion, and modernization of production equipment in both
privately-operated and Government-operated industrial plants. Funds are
generally authorized only when privately-financed expansion cannot be obtained, even with one or more of the Federal aids provided in the Defense
Production Act and the Revenue Act of 1950.
Steps have been taken to meet the particular administrative issues and
subsequent settlements posed by this program. Problems arise particularly where Government-owned and privately-owned equipment and
structures are locally integrated in such a way as to make severance impracticable. During World War II, numerous additions to privatelyowned facilities, which were financed by the services, proved to be relatively
useless in the postwar period. The inevitable result was that, when the
supply contracts were terminated, the Government faced the problem of
disposal with no bargaining position. The only feasible prospective purchaser was the owner of the facility, and the cost of dismantling exceeded
the best obtainable offer to purchase.
These problems will not be as serious under the present defense program as
during and after World War II. Nevertheless, to protect the Government's
irrterest and bargaining power more adequately, the Department of Defense
has adopted a new policy on facilities contracts. Nonseverable facilities of
such a nature as not to be disposable to third parties must in general be
located on Government-owned or Government-controlled land, except
where (1) the contractor agrees to purchase the facilities on expiration of
the contract at actual depreciated cost, or (2) the estimated useful life of
the facilities will not extend beyond the expiration of the contract.
Financial assistance through loan guarantees and direct loans. The program for loan guarantees by Government procurement agencies, administered through the Federal Reserve System under authority of the Defense
Production Act, is designed primarily to aid producers otherwise hampered
by lack of working capital. Where aid is required for the financing of fixed
investment or developmental work, the Defense Production Act also authorizes direct Government loans (including participation in and guarantee
of private bank loans).
The amount of financial assistance extended under these programs is
shown in table 7. About three-fourths of the total direct loan assistance,
including participation by the Reconstruction Finance Corporation, has
gone to expansion of the production and initial processing of basic materials.
IQI
TABLE 7.—Summary of tax amortization necessity certificates, and direct loans and
loan guarantees under Defense Production Act, by type of production, through
June 1951
[Millions of dollars]
Certificates of necessity for tax
amortization
Type of production
Total
Basic materials production and fabrication, total
Iron and steel
Chemicals
- .
Petroleum products
Pulp and paper
Nonferrous ore mining
._
Iron ore mining
Coal and coke -.
Refractories
__
Textiles
Cement and concrete products
Other
Finished products, total
Aircraft
Machinery and components
Electric and electronic equipment
Ordnance, tanks, guns, and ammunition
Automotive and tractor equipment
and components
Other
Transportation and storage
- _. Public utilities
Miscellaneous
Proposed
investment
Direct
loans
Percentage (including Loan guarratio of
suppleantees
Tax amor- tax amormental
tization
tization
RFC parallowed allowed to ticipation)
proposed
investment
7,562
5,199
69
116
5,057
2,391
658
537
372
372
245
146
117
68
53
48
49
796
301
265
104
3,521
1,699
367
416
221
292
164
114
96
57
28
33
33
569
212
182
78
70
71
56
77
60
78
67
78
82
84
52
69
67
71
71
69
75
87
84
1
3
63
48
77
1
55
9
1,036
523
150
41
7
752
256
101
74
82
72
49
68
2
656
0)
(J)
(0
0)
i
8
i
(0
8
24
8
10
4
2
2
I'
1
Not available.
2 Less than $500,000.
NOTE.—Detail will not necessarily add to totals because of rounding.
Data for necessity certificates and direct loans are cumulative through June 25; the loan guarantee figure is cumulative through June 30.
Source: Defense Production Administration and Board of Governors of the Federal Reserve System.
The Reconstruction Finance Corporation, under its own authority, has
also made additional loans of about 95 million dollars during the 12 months
ending June 30, 1951, to aid the expansion of defense production facilities.
These are not included in table 7.
Encouragement of supply through purchase contracts. Government
procurement contracts are being used to promote the expansion of production in three different ways.
First, the negotiation of a long-term contract providing some protection
against the risk of market collapse is an important aid to expanded production, applicable primarily in the case of staple raw materials which can be
stored. Such contracts have been used in procurement for the strategic
stockpile here and abroad, and under the Defense Production Act have also
been extended to the purchase of materials for direct use in production. A
somewhat similar principle underlies the Government program of pool
102
orders for machine tools, which is designed to secure the fullest utilization
of tool-making capacity by encouraging subcontracting and more efficient
scheduling of output.
Second, procurement contracts may, under the Defense Production Act,
properly make provision for Government payment of part or all of the costs
of developmental or research work or facilities expansion necessary for
the fulfillment of the contract.
Third, the placing of procurement contracts can be an important aid to
the expansion of production by enlisting the resources of small or new producers, who otherwise might be left idle and unproductive. In this way, the
necessity of devoting scarce resources to costly and time-consuming facilities
expansion can be reduced. This is discussed more fully in a later section on
small-business aspects of production aids.
Tax amortization. The most important and most broadly applied aid to
facilities expansion in the current mobilization effort is the granting of certificates of necessity, under the Revenue Act of 1950, which permit a
producer to charge off for tax purposes part or all of the cost of certified
new production facilities over a 5-year period. Table 7 gives a summary
of the operations of this program.
At the outset of the mobilization program, speed was of the essence, and
certificates of necessity were granted with the objective of getting the
expansion of needed facilities under way as rapidly as possible. At the
present time, a careful review and reappraisal of the program is being
undertaken in the light of expansion progress and goals.
The tax amortization program is designed to provide, where necessary,
an incentive to proceed rapidly with facilities expansion and conversion
required in our industrial build-up. It offers the producer earlier recovery
of his investment, thus providing some protection against unusual uncertainty regarding the economic life of the new facilities. The certificate
holder gets a substantial reduction in income and excess-profits tax liabilities during the initial 5 years. This helps him not only because some tax
liabilities are deferred, thus improving his short-term financial position and
credit-worthiness, but also because some of the deferred taxes may never have
to be paid at all, in the event that tax rates are lower after the initial 5
years, or in the event that the taxpayer's earnings position puts him in a
lower tax bracket in that later period.
Wear and tear and obsolescence of facilities represent, of course, a genuine
element of capital cost, which is properly recognized in determining fair
prices in the negotiation and renegotiation of procurement contracts.
Under present circumstances, such costs may be abnormally high in the
case of special-purpose facilities needed for peak military output. These
price determinations should be made separately from the granting of
amortization for tax purposes.
103
In view of the varying degrees of necessity for assistance, a wide latitude
for administrative discretion in operating this program is essential. The
5-year write-off privilege has in nearly all cases been allowed on only a
part of the new investment, varying according to type of facilities, as shown
in table 7. The issue of a certificate of necessity, in itself, has not been
recognized by the Economic Stabilization Agency as establishing an allowable amortization cost factor in the adjustment of price ceilings.
The direct cost of the program to the Government, including tax revenue
foregone and, in some cases, higher prices paid on procurement items,
is only a fraction of the amount of the certificates issued. A possible offset
to these direct costs arises to the extent that total investment and taxable
incomes are increased by the tax amortization program.
Regardless of the ultimate effect of the program on tax collections, the
important thing is to assure that it will play its proper role in relation to
alternative devices, and that it be so administered as to make the Government's contribution as effective and economical as possible.
No one is in a position to say how much of the investment receiving this
type of aid would have taken place in the absence of the necessity-certificate
program. It seems reasonably evident, however, that the use of certificates
has been of important assistance in expediting investment in the desired
lines. This conclusion is based partly on scattered statements of producers
to the effect that their expansion projects have been contingent on this
assistance. In part, it is based on the rate of plant and equipment investment since the program was authorized.
Choice of alternative production aids. Proper use of the various available
devices for stimulating high-priority investment calls for expert and objective judgment. The best means of assistance to use in a given case is not
necessarily the one preferred by the applicant, nor the one found administratively most convenient. It is important to minimize the ultimate public cost
involved, and to tailor the assistance given in individual cases insofar as
feasible to the factors actually limiting the ability and willingness of business to expand. Although it may be appropriate, in some cases, to grant
both tax amortization and additional assistance in other forms, such as
direct loans, the tax amortization privilege is not properly to be regarded as
a badge of preferred status to be given on a blanket basis or as a prerequisite
to other assistance. In many cases, the promotion of expansion is more
properly left to alternative devices. In the case of long-lived facilities of
normal peacetime types, where presumptive usefulness does not depend
directly on the operation of a high-gear defense program, long-term Government loans or loan guarantees often provide sufficient aid and incentive.
These devices provide financial aid, where necessary, while also providing
for ultimate full recovery of principal and interest. In another category of
cases, the chief deterrent to adequate expansion is uncertainty as to longrun prices and markets, although the product is a staple and durable mate-
104
rial. Many cases in this category involve production of commodities bought
by the Government for stockpile and other defense purposes, and this introduces an important factor of uncertainty into market prospects. In such
cases, long-term purchase commitments are an appropriate device for the
stimulation of the necessary investment.
The alternative to private investment, with Government aid, is construction of industrial facilities by the Government. While this plan was
extensively used in World War II, it is less extensively needed now, because
the emergency is less acute, and because business is now in far better position
to do the preponderance of the necessary expansion job. Nonetheless,
public authority to construct certain industrial facilities, subject to appropriate safeguards, is a highly desirable reserve power. When uncertainty
as to the utilization of the expanded facilities after the emergency is
extreme, the cost of inducing private construction may be too great. In
some other instances, private assent to undertake the job may not be
attainable with sufficient speed no matter what the available inducement.
There may also be some cases where the inducement to private construction
may cost the Government far less if the reserve power to proceed by other
methods is available.
Technological assistance and conservation of materials. Coupled with
assistance on the market and financial side, there is need for increasingly
active pursuit of technological development and materials conservation.
The search is being intensified for new industrial techniques, which will
save scarce materials vital to defense by utilizing them more carefully
or by substituting more plentiful materials for them, or which will develop new sources of supply. In other instances, new processes or products will have similar beneficial results. For example, the minerals development program is being carried forward vigorously in the hope of discovering
new ore sources and new metallurgical processes, which would enable lower
grade ores to be utilized.
Research and experimental programs, for instance in synthetic liquid
fuels, in the use of lower grade woods, or in more efficient processes in the
steel industry, whether carried on under public or private auspices, should
not be slackened, for they may result in large savings of relatively scarce
materials. All such Government programs, to the degree feasible, are being
redirected toward defense needs, particularly for the long pull, in which
increasing shortages of many critical minerals, metals, and other items,
including some agricultural items, threaten to limit our security and economic growth. This is true of such programs as those of the Bureau of
Mines, the Bureau of Standards, and the Agricultural Research Administration. Certain programs intimately connected with defense may properly
be financed by defense appropriations.
Perhaps more significant for the short run, and also of great importance
for the longer period ahead, is the further application of direct materials
105
conservation measures. Specific limitations have already been placed on
the use of such scarce items as tin for containers. Percentage cutbacks in
the permitted use of various scarce metals have stimulated substitution and
other forms of conservation.
The interagency Conservation Coordinating Committee has taken
steps to encourage conservation of critical materials, and to relieve pressure
on inadequate plant facilities through standardization, simplification, and
substitution. The program for conservation in construction, which includes
dimensional coordination, standardization of structural elements, and gradual unification of building codes, can result in substantial savings of materials and labor now going into construction. Projects to provide substitutes
and conserve the use of scarce materials are well advanced. Promising
community-wide conservation activities in industrial plants are being sponsored, and individual companies are furthering this kind of work in their
own plants.
Similar conservation activities in World War II brought substantial savings in scarce materials, equipment, and inventories. After the war, however, many practices involving standardization and other forms of materials
conservation were dropped. The chance for recapturing and extending
these gains now exists, and can be accomplished by means of energetic cooperation between industry and Government.
During World War II the Office of Production Research and Development helped greatly by directing and coordinating scientific and engineering
research to strengthen war production, making fullest use of existing research
facilities. The solution of numerous critical technical production problems,
including those involving substitute materials or new processes or products,
was hastened by this service.
Preoccupation with immediate defense requirements should not cause us
to overlook longer range requirements. This is especially true of natural
resources development policies and programs necessary for maintenance
and expansion of a strong, enduring resource base. The Materials Policy
Commission, appointed by the President last January, is giving careful
study to the national and international aspects of these problems. In particular, basic data, investigation, and survey programs should be sustained as
a basis for future resources development.
Small business participation in production. The many thousands of
smaller producing enterprises furnish a substantial part of total output, and
have an even more than commensurate importance in terms of the preservation of competitive opportunity and individual initiative. In a situation
which calls for the fullest practicable utilization of our resources, it is
essential that the small business sector of the economy be encouraged to
make its full contribution.
106
The firm policy underlying military procurement is that qualified small
business concerns must be given an opportunity to participate in military
procurement and to find a proper place either at the prime contract level,
or at the subcontract level, whichever enables them to make their best contribution to the defense effort.
Many of the major items of military equipment, such as aircraft, tanks,
heavy guns, and aircraft carriers, cannot possibly be supplied directly by
small manufacturers, although small business concerns can and do make
many of the parts going into such equipment. While small business firms
have received only about 22 percent of military prime contracts, they have
received about 40 percent of the contracts for those items which small business can produce. The extent of subcontracting to small firms is indicated
by a recent study of Air Force prime contracts which showed that 75 percent
of the resulting subcontracts went to such concerns.
At best, however, the shift to a defense economy tends to make the competitive position of small firms more difficult. Items of military procurement
are generally required quickly and in large quantities, which gives an
advantage to the larger and better known suppliers. Small firms generally
are also less well equipped to finance expanded production, and to formulate
and present applications for Government assistance in such expansion.
Moreover, when materials become scarce, the small firm is often at a
disadvantage in retaining its sources of supply or finding others.
Another important factor, often overlooked, is that the types of industry
which expand most in a mobilization phase are characterized by relatively
large business units. The present pattern of expansion consequently offers
less opportunity to small business than would arise from a uniform acrossthe-board expansion of all types of output. This point is evidenced by
table 8, which brings out the lesser relative importance of smaller firms in
those types of manufacturing which predominate in the defense build-up.
TABLE 8.—Importance of small business in selected defense-related
industries
Percentage of
total employees
working in firms
with fewer than
500 employees,
March 1948 »
Industry
All manufacturing industries
41
Machinery (except electrical)
_
Chemicals and allied products
Primary metal industries.
_ _ __
Electrical machinery, equipment and supplies
Products of petroleum and coal __.
Ordnance and accessories
Transportation equipment
_•__
_ _
._
36
29
19
17
14
13
10
1
Employees include those with taxable wages under the old-age and survivors' insurance program for
fanuary-March 1948.
Source: Federal Security Agency.
107
It should be noted that the figures in table 8 measure the relative importance of smaller firms in terms of employment. In terms of amounts
of capital invested, these same smaller firms represented considerably lower
percentages of the respective industry totals.
The above considerations partly explain why3 even with legislation and
policies directed to promotion of small business participation, larger firms
have received the preponderance of the direct Government orders and
assistance. For example, the manufacturing firms with fewer than 500
employees had received only about one-fifth of the amount of prime military procurement contracts, as noted above, and about one-ninth of the
amount of certified tax amortization. Allowance should be made for the
fact that much of the defense work of small business is done on subcontracts.
Government policy in assisting small business involves administrative
action on many fronts—procurement placement, materials allocation,
financing, and technical and informational services.
Definite steps have been taken by the Defense Production Administration
to insure greater participation by small business in the prime contract and
subcontract awards. An Executive Committee for Small Business has been
organized to develop procurement policies which will form the basis of
instructions to the contracting officers in the field. The development of
regional offices in the National Production Authority, for the purpose of
working with contracting officers in the field, is expected to aid small business in obtaining both prime contracts and subcontracts. The procurement
agencies have also taken definite steps to bring qualified small business producers into the defense effort. These steps include: placing small business
specialists in procurement offices to find and put into use small firms' facilities; development of procurement procedures to encourage prime contractors to subcontract to small firms as much as possible; and dissemination
of information to small firms, as well as others, concerning Government
needs and the manner in which both prime and subcontract business can be
obtained.
In the administration of materials controls, a special effort is being made
to counteract the handicaps facing small firms. In general, small-quantity
requests for controlled materials are processed earlier, and approved for a
larger percentage of the amounts requested, than the large-quantity applications. Priorities and allocations to warehouse distributors have also helped
to maintain a flow of materials to the small producers who depend on such
distributors.
Probably the most important help to small business in the present situation is the activity of business itself, and of local and regional development
groups, in mobilizing information on small business resources and opportunities. In many areas this type of private initiative is showing notable
results, in aiding Government agencies to broaden the base of the defense
production effort and to avoid unnecessary dislocations of employment.
108
Defense production aids and regional development
The requirements of speed and long range security in the defense mobilization mean that customary economic factors governing the location of productive facilities have to be modified in certain cases. As was pointed out
in the Council's Review of 6 months ago, two general types of dispersion
appear desirable: the avoidance of over-concentration of industrial facilities
within individual industrial and labor market areas, and the regional decentralization which looks toward the further development of cores of economic
strength in the less developed regions.
Federal aids for the expansion of industrial facilities, and also the awarding
of defense contracts and subcontracts3 are important instruments for guiding
the location of new facilities as well as related manpower and services.
Table 9 compares for the major regions of the country the impact of the
defense program, as indicated by approved tax amortization certificates and
military prime contracts, with the regional distribution of industrial activities
in 1947.
TABLE 9.—Regional impact of the defense program, compared to regional
economic activities in 1947
[Percentages of United States totals]
Region
Tax amorti- Expenditures
zation cerfor new
tificates applant and
proved as of equipment
May 7, 1951
in 1947
United States
New England
Middle Atlantic
East North Central
West North Central
South Atlantic
East South Central
West South Central
Mountain
Pacific
- _
Military
added
prime con- Value
by manutracts July
facture in
1950-March
1947
19511
100.0
100.0
100.0
100.0
7.8
7.6
10.4
26.9
26.3
10.6
26.0
34 6
4.2
92
3.7
3.9
9
69
24.8
21 6
22.3
32.7
84
11.5
2.0
7.0
18.1
58
4.5
4.4
4.0
8.0
1.3
8.2
6.1
63
1.5
2.8
7
19 0
i Excludes small and certain other kinds of contracts. Contracts usually cite address of contractor's
main office, which may not be located in the same region in which the work will actually be done.
Moreover, a considerable, but unknown, portion of prime contracts are subcontracted out to firms which
may be located in other regions. Therefore, the above data should be used with greatest care.
Sources: Department of Commerce and Defense Production Administration.
To date,, no satisfactory means has been found for screening defense plant
expansion and defense contracts for their locational desirability. To do
this would require that workable standards or criteria be developed, against
which to judge each particular defense plant or contract decision. Because
of the enormous variety of economic and security factors having locational
significance, any such standards would have to be flexible and at the same
time be administratively feasible.
A checklist of points to be taken into account would include: planned
dispersal of industrial facilities and activities for security reasons as determined by the National Security Resources Board, the Office of Defense
109
Mobilization, the Department of Defense, the Federal Civil Defense Administration, and other appropriate agencies; fullest possible utilization of
manpower, particularly in those areas and categories of skill, industry, sex,
or age where under-utilization is prevalent; maximum utilization of existing
and potential natural resources, plant, and equipment; extent of disruption
to established patterns of living and of housing and community facilities
and services; to the extent possible, the solution or amelioration of underlying economic and social problems such as chronic underemployment,
lack of industrial diversification, overcrowding of population, and substandard housing; and, of course most important, speed and efficiency in getting
the needed defense work done. Many defense production facilities and
activities do not admit of much choice in location. Those which do,
however, should be located in the light of criteria worked out along the
lines suggested above.
Certain large public developments, having both regional and national
significance, are greatly needed for their contribution to national security
and economic growth several years from now. Notable among these is the
St. Lawrence seaway and power project which, when finished, will furnish
1,880,000 kilowatts of electric power capacity, to be divided equally between Canada and this country, and will provide a major water route to
Great Lakes ports for the shipment of Labrador iron ore and other items.
Although this project will not help until it is completed several years
from now, the decision has to be taken soon if we are to have the power
and the iron ore even then, when both will be more urgently needed than
at the present time.
The outlook for severe shortage of electric power continues in several
parts of the country, most seriously in the Pacific Northwest. Beginning
of new projects planned and budgeted for this year, and now being considered by Congress, cannot be put off without delaying the time at which
ever-increasing demands for power in that region may be met under
conditions of adequate reserves.
It will be necessary also to assure that the construction of necessary power
transmission lines be carried on in step with the construction of new generating capacity. In line with traditional public power policy, the Federal
Government should be in a position to deliver power from its dams to
publicly and cooperatively owned utilities, to insure that users get electricity
at low developmental rates. This means essentially the authority to build
transmission lines to load centers, and to negotiate suitable contracts for
transmission over privately owned lines.
Aids to agricultural production
As Part II of this Review indicated, our national security program requires a continuing expansion of total agricultural production, with much
HO
larger increases for some crops than for others. This expansion must be
accomplished with a smaller labor force on farms, and with shortages of
some materials which are essential to farm production and to food
processing.
The farm labor force dropped from 9.6 million persons in 1939 to 7.5
million in 1950. Further decreases are in prospect, as farm workers take
higher paid jobs in defense industries. With a declining labor force on
farms, output of agricultural products has been maintained only by the
greatly increased use of fertilizers, insecticides and pesticides, farm
machinery, electricity, and other labor-saving materials and supplies. Still
further use of these will be required for additional increases in output. Specifically, it is essential to increase nitrogen production capacity substantially
and quickly; to give high priorities to agricultural needs for machinery and
spare parts; to increase substantially the output of insecticides and pesticides;
and to assist farmers to obtain essential labor during peak seasonal needs.
Rural electrification has helped to increase farm output. The present
shortage of copper and power prevents the full development of the rural
electrification program. Nevertheless, it will be prudent to supply necessary material and power to those projects which are of the greatest importance in increasing farm output.
We must continue to emphasize conservation and development measures,
designed to maintain the productivity of our farm land and to increase
the yield of crops. Land reclamation projects, now nearing completion,
will add to our farm output. With a heavy demand for lumber and wood
pulp, we should proceed with the rapid construction of forest access roads,
especially in the West.
These efforts are needed to assure a sustained expansion of farm output
over a period of several years. The immediate supplies of farm products
are adequate. Per capita food supplies in 1951—52 are expected to be
slightly larger than those of last year. The current wheat harvest is running better than had been previously expected and according to the July 10
crop report, crop prospects are generally good. Meat and other livestock
products are in strong demand, and some production increases would be
desirable. But this would require more feed. Thus, the principal immediate problem is that of increasing our supplies of corn and other feeds.
With good weather, a start may be made toward replenishing reserves
during the coming year.
Studies are under way to determine guides for agricultural production
in 1952. National, State, and county Agricultural Mobilization Committees are cooperating in this work, and will carry on an intensive educational
program to inform farmers of these guides, and to help them make needed
adjustments to keep output and requirements in balance.
Ill
Manpower build-up
Comparing the first half of 1950 with the first half of 1951, the total
labor force expanded by about 1% million. We have nearly reached our
armed forces goal and have maintained our civilian labor force near the
pre-Korea level. Employment in civilian industry is about 1.6 million
above the pre-Korea average. Unemployment was drawn down from an
average of 3.9 million to 2.1 million during the first half of 1951. To date,
there has been no evidence of a general manpower shortage. Neither
employment nor hours of work have shown significant increases during
the past half year.
During the next half year, we should add about 2 million additional
workers to our defense production. About 1 million of these would have
to be drawn from persons not now in the labor force. Others must become
a part of the defense effort through the conversion of civilian goods industries to defense production; still others must change from their present jobs
to industries working on defense orders. Securing these additions and
shifts may prove difficult.
Shortages in scientific and health professions, and of workers trained
in skills required by some of the defense industries, exist and will
increase. Thus, although it would be inappropriate to recommend now
manpower policies for a general manpower shortage, it is important to
take such actions as are feasible to meet the specialized problems of skill
shortages and shortages within particular labor market areas. The situation
is particularly critical where both types coincide.
While we cannot afford to be complacent about our manpower resources,
we should not go to the other extreme of being unduly alarmed about possible future difficulties. We should time our efforts to encourage the entrance of workers into the labor force, so that the new entrants will find
that jobs are available for them. We should not increase hours indiscriminately, without considering whether this would interfere with the very
necessary training of additional workers to help in the long-run job of
defense production. The Interagency Manpower Committee, which
advises the Director of Defense Mobilization, has issued a statement dealing
with problems involved in lengthening the workweek. We must plan our
manpower program in such a way that we provide for the needs of the
next year, and at the same time lay the foundation to meet the contingency
of full mobilization if that should become necessary.
The Council concurs in the view that the manpower program should
be voluntary. Compulsion, particularly for a long drawn out effort, is
undesirable.
Various agencies of the Government are taking action to deal with different aspects of the manpower problem under their usual powers. The
Department of Labor has been using its clearance machinery for out-ofarea recruitment with increased frequency. The Department is also en-
112
couraging employers to relax unnecessary hiring specifications on age limits,
sex, experience, and physical requirements.
The Wage Stabilization Board has adopted a policy which recognizes
that some wage increases may be necessary in rare and unusual cases, to
enable employers in essential industries to recruit and maintain an adequate
labor force.
Regional and area labor-management committees, established by the
Secretary of Labor, are expected to play an extremely important role in
the labor market areas in which significant defense manpower problems
exist or impend, advising and assisting community action. The committees offer advice principally on three categories of problems—elimination of wasteful turnover; bringing about the fullest use of local labor
supply in a given geographic area in order to minimize immigration of
labor, and thus reduce the strain on community facilities; and identifying
unused plant capacity and local pools of labor, which might be utilized in
defense production.
While these devices have been established to develop manpower policy
and to coordinate activities, we are still in the "tooling-up" stage. It is
necessary now to move forward with a manpower program involving four
main measures.
One important step is the improvement of the present program designed
to prevent area labor shortages, and to relieve those that have already developed or may develop. On the preventive side, the availability of labor
supply and of related housing and community facilities and services should
be given greater weight in the locating of new defense plants, and in the
channeling of defense contracts and subcontracts. This should be part of an
improved system for taking economic and security locational factors into
account. Where the shortages cannot be relieved sufficiently by such
measures, and where additional workers have to be brought in, causing
overcrowding, high turnover, and inefficiency generally, a program
of aid for housing and community facilities and services will prove helpful.
Recommendations for additional forms of indirect and, if necessary, direct
Federal aid for facilities and services as well as housing have been presented
to Congress in the Defense Housing and Community Facilities and Services
bill.
A second step in the manpower program today should be toward further
conservation and development of essential professions and skills. Since
we are faced with an emergency which may last for many years, it obviously is necessary to begin now the education and training of professional and scientific personnel in those physical and social sciences in
which the supply will be most seriously short two or more years from
now. These include virtually all of the major health professions, such as
doctors, dentists, and nurses; many types of scientists and engineers; and a
growing number of skilled trades, particularly in the metalworking and
electrical trades. There are also serious shortages of farm labor and elementary school teachers. To meet these problems requires, among other things,
joint action of military and civilian authorities to share the existing supply
of key personnel to assure optimum distribution. It requires additional
advisory services to employers, to help increase the productivity of their
workers. It requires also the expansion of the long-term supply of scarce
professions and skills, through expanded education and training. A program
of Federal aid to medical education and nursing training is particularly
needed. Efforts to redirect on-the-job training programs and public school
vocational education toward defense needs should be intensified. The
apprentice training program should also be enlarged.
The third step should be the development of better statistics, to show
more clearly the manpower situation, both from the demand and the supply
sides. This requires more definite and detailed manpower requirements
data, derived from specific production programs. These data should not
only show total needs, but also should indicate the type of workers needed,
the skills which will be required, and the location of the need. There is
room also for more specific information concerning the number of workers
in our economy who are trained in particular skills, and the number of
persons not presently in the labor force who could become available for
work.
The fourth step is the development of manpower data for the total free
world effort, and of programs to improve the use of manpower by the
cooperating countries. A major contribution could be made to total free
world production if greater effort were devoted, especially in Western
Europe, to improving the utilization and productivity of manpower through
facilitating the mobility of labor, work training, and similar measures,
although the major scope for increasing productivity in many countries
lies in improving capital equipment and productive techniques.
International production and resources policies
The problems of production, conservation, and distribution of goods are
not merely problems of the United States economy. They involve the
whole free world. The need for an integrated use of free world resources
should be a major factor in determining the best course to pursue in many
matters which we customarily think of as "domestic."
The raw materials problem. Because the shortage of raw materials is a
main factor limiting the growth in output of finished goods in the world
today, these shortages are one of the most important economic problems
facing the free world. The solution of this problem along international
lines requires cooperation among the countries of the free world, to increase
production and availability of materials in short supply, and to assure
their most effective use. To meet this problem, an International Materials
114
Conference was set up early this year, consisting of a central group and
seven commodity committees concerned with sulfur, cotton and cotton
linters, tungsten and molybdenum, manganese, nickel, and cobalt, pulp
and paper, wool, and copper, lead, and zinc. The countries participating
in the Conference account for 80 to 90 percent of the producing and consuming interests of the free world in the commodities concerned. Outside
the International Materials Conference, the United States has met with
other countries to consider problems of the international distribution of
tin and rubber.
These committees have obtained information on past and near-term
future production and requirements. They have studied, and in some
cases already recommended to governments, measures for increasing production and conserving supplies. In most cases, these measures alone will
not suffice to close the gap in supplies. The committees have therefore
also undertaken to work out acceptable procedures for equitable distribution
of current supplies. Agreement has been reached among the governments
concerned on specific third quarter allocations of sulfur, tungsten, and
molybdenum. An emergency allocation of newsprint has also been recommended, to meet certain specially urgent needs. With respect to the other
commodities, allocation measures are still under study. Many problems
remain to be solved. There is a tendency for each country to press for
allocation of commodities over the supply of which it has no control, and to
resist allocation of commodities which it does control. The problems of
increasing supply, limiting consumption, and securing equitable international distribution are complex. They involve questions of the treatment of
stockpile requirements, definition of defense requirements, and the impacts
upon prices, normal trading arrangements, and future market positions.
One of the major factors hindering international agreement is the background of surpluses and relatively low prices of primary materials between
the two world wars, and a consequent uncertainty on the part of producing countries as to the duration of high demand for these materials. Because
of this uncertainty, there is some reluctance to accept measures which would
reduce the demand for, or the prices of, these commodities. Similarly, there
is reluctance to increase production. Some producing countries fear that the
expanded output may become surplus after the period of rapid build-up in
free world defenses has ended.
While this lack of confidence in the future demand for raw materials is
quite natural, in view of the depressed raw materials prices during the interwar decades, shortages were appearing in several of the major raw materials
even before the current defense program. The period shortly before the
Korean outbreak was the first time in a long period that there was any test
of the adequacy of the free world's raw material supplies to support simultaneous high levels of production in all the industrial countries. It should
be borne in mind that, during the war and early postwar years, Europe's
demand for raw materials had been below the levels corresponding to full
production, and that in 1949, after a considerable recovery in Western
European and Japanese production, there was a temporary slump in United
States raw material purchases. With the resumption of the upward trend
during the first half of 1950 in the United States as well as in Western Europe
and Japan, there was some evidence that the long term demand-supply
situation for some of these commodities is favorable to producers. Expanded production appears necessary to support long-term growth, as
well as current emergency demands.
In cases where fear of the future makes producers reluctant to expand
production, and makes their governments reluctant to take price-restraining
action, the Council believes that serious consideration should be given to
providing producers of selected materials both here and abroad with some
form of assurance limiting market declines for restricted periods in the
future. During the past two decades, our farm price support policies have
demonstrated that assurance as to minimum prices can be effective in
stimulating increased production. In the present emergency, the Government has offered to purchase at a price below the present market all domestically produced tungsten concentrates which cannot be sold elsewhere,
until a specified quantity is obtained or until July 1, 1956, whichever occurs
first. Besides providing for the needs of future growth, the assurance given
by devices of this general character may favorably influence the attitudes of
other countries in present negotiations.
We could probably get better price terms during the present defense
period if the market risk factor could be taken out of the producers' price.
Minimum prices and long-term contracts at reasonable prices stand an
excellent chance of providing a good investment for the United States, since
the goods involved are storable.
Other measures to further the expansion of world production have been
discussed in the Second Quarterly Report of the Director of Defense
Mobilization.
It is clearly not enough to secure increased production of essential imports. It is also necessary to maintain our access to them. During
the past half year, there have been difficulties in obtaining a number of
essential imported commodities, owing to the fact that their prices in world
markets have risen above domestic price ceilings. In some cases, where
the material is not an important part of the cost of the goods in which it is
used, it will be possible to meet the problem by exempting the commodity
from price control. In other cases, it would be desirable for the Government to purchase imported articles and resell them at domestic ceiling
prices. Such purchase and resale operations, however, require legislative
authority and provision of the necessary funds.
Export control and allocations policy. It was pointed out in Part II of
this Review that our security requires that goods be made available to meet
116
certain important foreign as well as domestic uses. In a situation where
many goods will be in short supply, this requires a mechanism for making
goods available for essential exports. At the same time, a mechanism is
required for restraining less essential exports of scarce goods. The control
instruments for restraining and for assisting exports are now available.
Export controls are exercised under the authority of the Export Control Act
of 1949. This Act was recently renewed until June 30, 1953. The means
for providing positive assistance to exports are priorities and allocations,
exercised under the Defense Production Act of 1950.
To provide policy guidance for the mechanisms for restraining or assisting exports, the Director of Defense Mobilization has recently set forth
the general principles which should govern the export or retention of
scarce supplies. His statement lays down specific guides, without attempting to rate the separate priorities, as objectives to be pursued by regulatory agencies in the United States Government. Allocations should be
made in such a manner that supplies contribute most to military production
and other aspects of mobilization, essential civilian requirements in the
free world, lessened dependence of the free nations upon supplies from the
Soviet bloc, and prevention of political deterioration in areas essential to the
combined strength of the free world.
After requirements of high essentiality have been met, the allocation of
remaining supplies should take into account the effects upon the respective
civilian economies of the broad contribution which each area or country
makes toward common defense, including direct military production, increased political and economic strength, and control of inflation of world
prices. Individual countries differ widely in their ability to make such contributions; the objective should be an equitable distribution of the burdens.
These principles help carry out the recommendations adopted last winter by
the Economic and Social Council of the United Nations, and the more
detailed agreements reached subsequently by the Foreign Ministers of the
American Republics.
To carry out these principles effectively, estimates of essential foreign
as well as domestic requirements are needed. Without such estimates, production needs cannot be properly gauged, and the need for curtailing nonessential uses cannot be properly evaluated. At present, fairly firm estimates of Western European requirements are available, largely because of
knowledge obtained in the three years of operation of the European Recovery Program. But greater progress is needed in evaluating the specific
requirements of other countries, to which three-quarters of our exports go.
This evaluation is in some respects more difficult than in the cases of the
Western European countries, owing to the fact that less information is
available. But this fact increases the need to study such requirements
more closely.
117
Foreign aid. The ability of the Western European nations to undertake
large and rapid expansion of their defense establishments is partly a political question, but it has important economic aspects. These arise from the
fact that expansion of their defense production, besides requiring enlargement of total production, will severely limit the goods available for domestic
consumption and investment and to some extent their exports. These
countries cannot build up their stock of military equipment unaided, within
the time required by their planned increases in troop strength. This is
partly because of technical factors relating to the kinds of goods they are
equipped to produce, but also because the required curtailment of consumption and investment would be too great. The populations of most of these
countries have been under constant economic and psychological pressure
for more than a decade. Rapid and steady progress had brought recovery
within their grasp, just at the time when the need for a rapid rebuilding of
defenses became clear. In all of these countries the narrow margin of
reserve economic strength, and in some of them political and social tensions,
limit the degree to which they can subject themselves to renewed strains
without undermining their economic strength or even their political stability.
In the economically underdeveloped countries, there is a serious and
chronic deficiency in total production. Their living standards are far
lower than those of the industrial countries of the world, and in most cases
there had been little if any improvement between World War II and the
Korean outbreak. Some countries had even suffered a further deterioration of living standards. This situation, combined with intensified nationalism, and in some cases with problems arising from newly won independence, has led to increased tension and political as well as economic
instability.
Our policy regarding aid to other countries should be considered against
this background, modified by the effects of recent world economic
developments.
In this connection, the sharp rise in world prices and demand following
the Korean outbreak has had effects of major significance. The rise of raw
material prices has been much greater than that of finished goods prices.
Broadly speaking, there has been some redistribution of income from countries which are substantial net importers of raw materials to countries which
are substantial net exporters of such materials. In many of the raw material
producing countries, a great expansion of income has occurred in the export
industries. These countries are undergoing an expansion not only of money
incomes, but also in most cases of real national incomes. The effect of world
economic developments in the past year has been to reduce the need for
external financial assistance of many of these countries, although there are
important exceptions, notably India. The prospect is that their main concern will be the availability of essential imports, rather than the means
of paying for them. It should be realized, however, that a portion of
118
their increased earnings will accrue to foreign owners rather than to the
exporting countries themselves; that the distribution of the remaining
benefits as between the underdeveloped countries bears little relation to
the relative intensity of their economic needs; and that the internal inflations
.which in some cases are accompanying the large increases in export income
may have disruptive and dangerous economic and social effects.
In countries dependent on imports for a major portion of their raw materials, such as most of the Western European countries and Japan, the rapid
rise of import prices has meant a pushing up of costs. Where export prices
have risen less, as is typical in these countries, it has also substantially offset
the effects of increased production on the volume of goods available for
domestic use. It will be recalled that, when hostilities broke out in Korea,
production in Western Europe had largely recovered and was increasing in
Japan as well, although a need for adequate foreign markets still persisted
and there continued to be some competitive weakness. The first economic
effect of the Korean outbreak and the boom in the United States economic
activity was to increase the dollar earnings of many foreign countries, including many industrial countries. In some quarters, this was taken as an
indication that their dollar problems were ended. So far as some of the
rearming industrial countries are concerned, however, the initial improvement in their balance of payments positions is somewhat deceptive as an
indication of the fundamental effect of rearmament, and the increase in
their holdings of gold and dollar assets may be even more so. As was
indicated by the Council last January, there were reasons for thinking
that the improvement in the balance of payments positions of the countries
building up their defenses might be temporary. The prices they had to
pay for necessary imports were rising more rapidly than their export prices.
Moreover, it seemed clear that when the expansion of their defense production got under way on a large scale, it would press hard upon their
resources, making necessary an increase in the quantity of their imports
and limiting their ability to export, while at the same time subjecting them
to inflationary pressure.
In the past half year, these difficulties have been materializing. The
more rapid rise of import than of export prices has been a major factor in
widening Western Europe's trade deficit, which had previously been declining steadily, from an annual rate of 3 billion dollars in the last quarter of
1950 to more than 5 billion in the first quarter of 1951. At the same time,
various European countries in the North Atlantic Treaty Organization
have increased their planned rate of defense expenditures from approximately 4.5 billion dollars a year prior to Korea to almost 8 billion in 1951,
and higher spending rates are projected for subsequent periods. Thus,
the rapid expansion of free world defenses is increasing the demands upon
the resources of Western European countries, and is again making it difficult
119
for them to meet their essential requirements without outside aid. This
is true despite the continuing growth in Western European production.
Because of the strains of increased defense needs, and the political and
economic problems they create, the President has requested the Congress
to authorize and appropriate 8.5 billion dollars for foreign aid for the fiscal
year 1952, a much larger sum than would otherwise have been required.
Of this total, 6.3 billion dollars is intended to finance the procurement of
military end-items for shipment abroad, and 2.2 billion is for economic aid in
the form of grants. The major portion of both military and economic aid is
for Western Europe. A build-up of Western Europe's defensive strength
to the necessary size and with the necessary speed cannot be achieved solely
through military production in the Western European countries. It requires the shipment of large amounts of military production from the
United States. Economic aid is equally necessary. Without it Western
Europe would either be unable to build up its own defense production on
the scale and in the time required to deter and to resist aggression, or would
be under severe internal economic pressure which would threaten its stability or its power to sustain a long-run defensive effort. Technical assistance and aid for specific projects to economically underdeveloped countries
are necessary to assist in increasing their economic strength. This aid will
also have the effect of helping to expand the production of scarce materials
needed by the free world. Such aid will be financed partly by grants and
partly by Export-Import Bank loans. To permit the Export-Import Bank
to perform its role, the President has recommended an expansion of its
lending authority by 1 billion dollars.
THE STABILIZATION EFFORT
The nature of inflation
Stated most simply, inflation develops when there is a general excess of
demand over supply at current prices. But this statement does not penetrate very deeply into the manner in which inflation is generated or how
it affects the economic and social structure. A fundamental feature of
the inflationary process is its uneven impact upon prices and incomes. While
prices and incomes rise on the average, they do not rise uniformly. Many
incomes do not rise at all. Those whose incomes outrun the price rise may
even benefit from the inflation. But the many millions who are unable to
advance their money incomes, or who are holding fixed dollar assets, are
injured. Under some circumstances, a moderate rise in the general level
of prices and wages stimulates production; but when resources are being
intensively used, this stimulus is not likely to be needed. And in a period
when a rapid shift toward defense production is required, those activities
which may be stimulated by such a rise may well be nonessential. Moreover, one price or wage increase which may provide a desirable incen-
120
tive often leads to other price and wage increases, and initiates an inflationary spiral. Spiraling inflation does not create wealth but only changes
its distribution, not on the basis of one's contribution to output, but on the
basis of one's strength and bargaining position in the complex of market
forces.
Thus inflation destroys the existing balance among the various groups
in our economy. It generates a hectic inter-group scramble to maintain
or improve one's position, in which speculation thrives, hoarding is encouraged, and social strife is stimulated. It creates inequities, disorganizes
markets, disrupts production, raises the costs of the security program, and
impairs the motive to save. Such a process is bad at all times. It is intolerable when the need is to concentrate all energies on national security.
Since a rise in prices reflects the gap between supply and demand, it
has been said that price rises are only the result and not a cause of
CHART 22
CONSUMER INCOME AND DEMAND,
AND PRICE INCREASES
Consumption in real terms is almost the same as a year ago, but because
of higher prices the cost of goods and services consumed has increased
about 7.5 percent.
BILLIONS OF DOLLARS*
BILLIONS OF DOLLARS*
300
300
200 —
— 200
100 —
— 100
1951
I/EXPENDITURE DUE TO PRICE INCREASE SINCE 2ND QUARTER I960.
SOURCES: DEPARTMENT OF COMMERCE* AND COUNCIL OF ECONOMIC ADVISERS.
121
inflation, and that it is futile to "suppress" inflation by controlling prices.
This is a misleading oversimplification. For through the dynamic
interaction of prices, incomes, and spending, price increases are not only
end results of the inflationary process, they are integral moving parts of
the inflationary mechanism. A price rise creating the expectation of
further price rises stimulates the demand of buyers, and thus helps to bring
about anticipated price rises. This raises the income of sellers, leads to
demands for higher wages, and thus further stimulates inflationary pressure.
Properly stated, the problem of stabilization policy is to seek out and
contain the sources of inflationary pressure wherever they exist. The
sources of such pressure usually are diverse. A rise in the ratio of private
spending to production available for private buying may result from a
diversion of production into national security programs without a commensurate diversion of incomes into higher taxes or savings. Private
spending, even without an increase in incomes, may also result from a
reduction of savings out of current income, from the spending of past
savings, or from credit expansion. A rise in incomes in turn may be the
consequence of rising prices, and then, in a secondary movement of the
spiral, cause further price rises. In shaping and adjusting the stabilization
program, it is essential that these sources of inflationary pressure be comprehensively identified, and their relative importance properly assessed.
Only by this means can we find the take-hold points for policies adequate
and effective in a particular situation.
Appraisal of prospective inflationary pressures
Previously in this Review, the Council traced the trends within the
economy during the 12 months following the Korean outbreak. It pointed
out that, while there were two buying waves set off by events in Korea, the
inflationary trend resulted from demand, backed by ability to buy, expanding more rapidly than production. As more spendable dollars became
available in ratio to the available volume of goods, prices rose; and, in turn,
price increases were among the factors producing further increases in other
incomes.
Comparing the second quarter of 1950 with the same quarter of 1951,
the total wage and salary bill increased by 26.7 billion dollars. Farm prices
and noncorporate business income also rose, contributing to an expansion
of total personal income of about 33 billion dollars (all annual rates).
Some of this increase in income was absorbed by taxes, partly in consequence
of the increase in personal tax rates on October 1, 1950; but despite these
higher rates, spendable income after taxes advanced 25 billion dollars or
almost 13 percent. (See appendix table B-9.) During the same period,
prices increased, partly because of demand in general rising faster than supplies, partly because of cost and price raising in anticipation of expected
shortages and controls. It is estimated that consumers in the second quarter
122
CHART 23
PRIVATE INVESTMENT AND
ITS FINANCING
While the rate of real investment expanded by about 25 percent
from second quarter of I960 to the second quarter of 1951,
expenditures in current prices rose by more than one-third.
BILLIONS OF DOLLARS*
BILLIONS OF DOLLARS*
75
75
TOTAL FUNDS
AVAILABLE FOR
INVESTMENT*
TOTAL GROSS
PRIVATE
r
DOMESTIC
INVESTMENT
UNDISTRIBUTED
CORPORATE
PROFITS
50
50
CAPITAL
CONSUMPTION
ALLOWANCES-^ I
PHYSICAL
INVESTMENT
IN 2ND
Q U A R T E R 1950
PRICES
25
25
FINANCING
FROM PAST
INTERNAL
SAVING AND
EXTERNAL
SOURCES
2nd Qtr.
3 r d Qtr.
st Qtr.
1950
SEASONALLY
2nd Qtr.
1951
ADJUSTED ANNUAL RATES
•^INCLUDES INVENTORY VALUATION ADJUSTMENT AND CAPITAL CONSUMPTION ALLOWANCES ON NONCORPORATE
CAPITAL, INCLUDING RESIDENCES
SOURCE? DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS
of 1951 were spending (at an annual rate) 15 to 20 billion dollars more
on account of the increase in prices since Korea. Allowing for price changes,
the net effect of the expansion of incomes was to raise consumers' real
buying power by less than 5 percent above the level before Korea. (See
chart 22 and appendix table B-10.)
During the same period, as chart 23 shows, the increase in business
demand for capital goods and for inventory accumulation was a very important factor in the rise in aggregate demand. This business demand also
outran supplies and drove up prices. In consequence, while the rate of
real investment was expanded by about 25 percent, the expenditures in
current prices rose by one-third.
123
At the same time, while the national security program expanded rather
slowly during its first months, the rate of deliveries for the defense program
was almost twice as high in the second quarter of 1951 as in the first few
weeks after Korea. Total public outlays for goods and services were 40
percent higher in real terms, but due to price increases were about 53 percent higher in current dollars.
In appraising the prospect for further inflationary pressures, main consideration must be given to likely trends in spending, in funds available for
spending, and in lines of supply.
(1) The national security program, as now scheduled, calls for an increase of defense outlays (even assuming no further rise in prices) which
would bring the annual rate of spending by the middle of 1952 to about
30 billion dollars higher than the present annual rate. In contrast, total
output is expected to increase by about 15 billion during the same period.
The Council's analysis of prospective inflationary pressures is based on the
carrying out of this program at presently planned levels.
(2) During the second quarter of this year, total gross private domestic
investment was at an annual rate of 64 billion dollars. Even subtracting
the 14 billion dollars which went for inventory accumulation, about 37
billion dollars at an annual rate was applied to business and farm construction and equipment, and almost 11 billion to residential construction.
Despite recent and prospective increases in taxes, the current and prospective earnings and financial position of most business concerns could support a
still higher level of plant and equipment investment, and businessmen report
plans for such an increase.
(3) The expansion of output shown to be desirable and feasible in Part
II of this Review will entail increased employment and longer hours. Even
under an effective wage and price stabilization program, which is assumed
in this analysis, there will have to be some increases in wage rates to correct
inequities, to draw workers into defense work, and to provide reasonable incentives. The incomes of unincorporated businesses and of self-employed
professional people may fluctuate for some time, but the level by the
middle of 1952 is likely to be higher than it is now. Preliminary crop
reports indicate that farm production goals envisaging a 5 percent rise
in output will be met. Farm income will rise substantially in 1951, and
is expected to remain at higher levels in 1952. Taking all of these components together, it is a reasonable though very rough estimate that, if
defense schedules and essential business investment needs are met, the total
of personal incomes may expand by 15 to 20 billion dollars (annual rate)
between now and the middle of next year. Over a sweep of time as long as
a year, regardless of variations from quarter to quarter, it seems extremely likely that such an increase in personal incomes distributed broadly
among almost all income groups would translate itself into a desire in the
aggregate to spend more money. Even if one-third of the additional
124
income went into taxes and savings and only two-thirds were translated
into efforts to spend it, there would be an increase in consumers' ^ability
and desire to spend by about 10 to 15 billion dollars.
The three main factors of demand which have just been listed must
now be measured against the realistic estimate of a possible increase in
total production of 5 percent or better during the next 12 months. Such
an increase in total production, which would amount to about 15 billion
dollars, compares with a projected increase in security programs of 30
billion dollars. This indicates the need to curtail civilian demand,
whether for investment or consumption, by a considerable amount. Investment could be substantially reduced by a sharp decline in the rate of
inventory accumulation. Curtailment of residential construction as well
as of nonessential business construction and equipment purchases needs
to be continued. With such reductions in investment, it should become
possible to maintain consumer supply in the aggregate approximately at
present levels. Thus, it becomes clear that under the impact of the security program there will be a swelling of personal incomes and demand without
a commensurate increase in consumer goods supply. This discrepancy will
be sufficient to generate, and in all probability will generate, a renewal of
strong inflationary pressures which will require a rounded containment
program.
There may be a wide margin of error in these estimates. While they
are based on fundamental aspects of an economy in a state of partial mobilization, other circumstances could alter the timing of intermediate events.
For example, the rate of saving is very volatile. If people believe that
there will be no serious scarcities and that prices will be held, they are
likely to refrain from extraordinary buying. Under such circumstances,
business may wish to liquidate accumulated inventories. In that event,
the expansion of the security program may be offset or more than offset
for a while by a temporary contraction in private demand. If, on the other
hand, some new evidence of international tension should develop, another
wave of scare buying by consumers and business could put additional
pressures on prices.
No one can appraise all of these variables, which might accent a shortrange movement in either direction. But national economic policy should
be geared fundamentally to the strong undercurrent of basic factors. These
basic factors underscore so heavily the prospect for more inflationary pressures, at some time well within the next year, that national economic policy
should be on guard against this paramount danger.
The strategy of stabilization
The essence of sound stabilization policy in the present period is the
integration of a combination of policy instruments. No single line of defense against inflation will do the job. Instead we must have a defense in
125
depth. As a matter of fact, at least five major lines of defense against
inflation already have been erected and now must be maintained. Given
the size of the inflation problem in prospect, the battle will not be won at
any one of these lines alone. Moreover,, strong support of stabilization
at any one of them assumes an effective combination of policy instruments.
1. The most fundamental cause of inflation we are facing is that a rising
defense effort leads to the creation of additional incomes, without a corresponding increase in the supply of civilian goods. Therefore, the most
fundamental approach to economic stabilization consists in an effort to
offset some of the rise in incomes by additional taxes. This brings disposable income into closer correspondence with available civilian supply.
Taxation of corporate profits also is important, not only because it is
prerequisite for effective wage stabilization, but also because it reduces
funds for business spending.
There is, however, no workable tax program which in itself could qualify
as a sufficient anti-inflation policy at the present time. Exclusive reliance
on tax increases as a means of checking inflation might call for such
drastic increases when Government expenditures were near their peak that
work and management incentives might be seriously damaged. Without
simultaneous price and wage controls, moreover, drastic tax increases might
be shifted forward to prices, or might lead to demands for compensating
wage and other income rises. In this case, the tax measures would be
largely self-defeating.
2. Another source of inflationary pressures is additions to purchasing
power through the use of credit. The effect of higher taxes in reducing
business and consumer spending out of income can be offset in part or
more than offset by spending financed with credit. Therefore, a policy
of credit restraint is a necessary complement of proper tax policy. One
approach to credit restraint is by general measures, such as open market
operations, discount rates and reserve requirements, designed to restrict
the over-all supply and availability of credit, and by voluntary credit
restraint programs. The effects of such measures, however, do not discriminate sufficiently between essential and less essential activities. General
credit restraint must therefore be supplemented by selective credit regulations, applicable to fields where credit practices are standardized, such as
the financing of consumer goods, especially durables, residential and commercial construction, securities listed on the stock exchanges, and commodities traded on futures markets.
3. In the case of business spending, an effective method of enforcing
restraint is the direct control of production of goods available for purchase.
Limitation orders and allocations of such basic materials are designed primarily to assure that scarce resources are made available to highest priority
use. In addition, these measures limit business investment for less essential
purposes, and thereby contribute to economic stabilization.
126
4. In the case of the consumer, if tax increases cannot be expected to
bear the whole burden of closing the income gap, then obviously there is an
urgent need for doing everything possible to limit the increase in spending
out of rising disposable incomes. The fourth line of defense which we must
reinforce is that of saving. We seek two things: first, to encourage positive
saving out of current income; second, to discourage and restrict so-called
consumer "dissaving/' whether the latter takes the form of expenditures out
of past savings or of consumer credit expansion.
5. Our final line of defense against inflation consists of price and wage
controls. Such controls reinforce the other phases of stabilization strategy
already outlined. In the first place, both wage and price controls restrain
the growth of incomes before taxes, thus reducing the job of income absorption through taxation. The continuance of price and wage controls as
income-restraining devices was one of the basic assumptions of the foregoing analysis of prospective inflationary pressures. If business prices,
farm prices, and wages were allowed to spiral upward, each would add
to incomes, and each would provide additional impetus for the others.
It is not possible to estimate the magnitude which such dynamic income
generation might attain in any given period, since this would depend upon
the speed with which the changes interacted. But it is a process which,
with the present volume of liquid assets in the economy, could easily reach
dangerous proportions. Only an effective, simultaneous policy of price and
wage stabilization can give assurance against the creation of such an inflationary spiral, arising either from the price or the wage side.
Thus price and wage controls support the other elements of stabilization
strategy. Conversely, price and wage controls would be doomed unless taxation, credit controls, and savings programs, hold the inflationary pressure
down to manageable proportions. Only if we use a variety of policies
in complementary fashion can we hope to do the job which should be
done, with justice to all of our interrelated objectives.
Tax policy
In a period of defense mobilization, taxation is more than a means of
financing the necessary expansion of governmental outlays. It is also a
positive instrument of Government economic policy. In fact, it is one of
the most serviceable policy instruments to be used at the present time.
On the basis of the previous analysis of the short-range and long-range
objectives of the defense mobilization effort, we may conclude that the primary requisites for an adequate tax program for the period ahead are as
follows: (1) it should at least provide sufficient revenue to cover the cost
of the national security programs, so that a further growth in the public
debt will not be necessary; (2) it should make a substantial contribution to
economic stabilization; and (3) it should conform to the general principle
that the tax burden should at all times be imposed in accordance with the
127
ability of individual taxpayers to bear it, and in a manner which will preserve work and production incentives.
The January 1951 Economic Report was emphatic in stating that the
existing legislation is far from adequate in terms of the financial requirements of the mobilization effort, notwithstanding the enactment by the last
Congress of two revenue-raising measures with a combined yield of 9 to 10
billion dollars a year at present income levels. New tax legislation has been
under active consideration by the present Congress since February, when the
President, in a special tax message, called for early enactment of higher tax
rates to yield at least 10 billion dollars annually, and for the enactment later
of the additional amounts needed to keep the defense program on a pay-aswe-go basis. As passed by the House of Representatives, the tax bill falls
about 3 billion dollars short of the amount called for by the President; and
the increases will become effective at later dates than recommended.
Unless the bill is revised upward and passed within the immediate future,
it will probably fail to cover the fiscal year 1952 budget deficit^ and will not
adequately support the stabilization program.
The tax increases proposed by the President, together with those enacted by the last Congress, are in conformity with the tax policy requisites set forth above. They will satisfy immediate revenue requirements,
while preserving adequate work and production incentives. They will
operate to limit spending in those income ranges where the bulk of
spending is done, while distributing the burden in reasonable accord with
ability to pay.
The budgetary outlook and the need for heavier taxes. Difficulties arise
in a period such as the present in deciding how large a revenue program is
warranted on the basis of the budgetary outlook. There are more uncertainties than usual in estimating, on the expenditure side, the rate of acceleration of Federal spending, and, on the receipts side, the extent of the
increase in revenues in response to changes in personal and business incomes. A further consideration is that Government expenditure programs
generate demands for goods and services several months in advance of
the actual disbursement of Federal funds. Holders of Government contracts must order materials and equipment and hire labor before they
can begin to produce. Final payments are not made by the procurement
agencies until it is certified that the terms of the contract have been met,
which is usually dependent upon actual delivery or verified work in place,
including the accumulation of inventories. It is estimated that the amount
of net accounts payable by the Federal Government to business concerns
as a result of work done or in process was over 2 billion dollars at the close
of the fiscal year 1951. These payables are of significance in assessing the
relation of formal budgetary balance to the growth of inflationary pressures.
The budget surplus of 3% billion dollars in the fiscal year just ended
is a source of gratification, but we cannot be complacent on this score.
128
The surplus is the product not only of the higher tax rates which became
effective in the latter half of calendar year 1950, but also of the inflation
of prices and incomes since Korea. The fact that a limited inflation may
create the appearance of budgetary strength is a paradox inherent in the
inflationary process.
The budgetary outlook is for rising receipts, but for more rapidly rising
expenditures. In the absence of new tax legislation, the tendency will be
for expenditures to exceed receipts by increasing amounts during the fiscal
years 1952 and 1953. The quarterly movement of budget receipts and
expenditures and the public debt is shown in chart 24 for the period since
the beginning of 1950.
Military expenditures, including military end-items shipped to our allies,
were at an annual rate of about 29 billion dollars during April-June of
this year. By the same quarter of next year, they are expected to rise to an
annual rate of between 50 and 55 billion dollars, according to current
budget expenditure estimates. The advance in the rate of total budget
spending during the same period will be larger than the increase in military
expenditures, due in part to the expansion in the atomic energy program
and in various defense production activities.
With present taxes and the scheduled increases in expenditures, it is
estimated that the deficit will rise to an annual rate (seasonally adjusted)
in excess of 15 billion dollars by the end of the current fiscal year, compared
with about a 2-billion-dollar rate in the quarter just closed. This estimate
makes liberal allowance for the effect of increasing national income on tax
revenues. With Federal expenditures for the fiscal year 1953 expected to
total between 80 and 90 billion dollars, compared with the fiscal 1952
estimate of 68 billion, an even larger deficit rate is indicated for that year.
As was emphasized when the 10-billion-dollar program was first presented, it is a minimum program which, if speedily enacted, would meet
the immediate revenue needs. The tax bill passed by the House of Representatives, which is estimated to yield about 7 billion dollars in a full year of
operation, will not satisfy pay-as-we-go requirements. With the effective
dates provided in the House bill, the yield will be only 4% billion dollars
in the fiscal year 1952.
Taxation as an instrument of economic stabilization. The major contribution of taxation to economic stabilization is through its direct and indirect
effects on spending. Under the assumptions made with respect to the
various factors which will determine the trend of production, income, and
expenditures, a rise in personal income of 15 to 20 billion dollars was indicated for the period a year hence. Considerably more than the 10-billiondollar tax program would be needed to absorb the additional spending
which would be created by a growth in income of this magnitude. The
effect of additional revenue changes on the "inflationary gap" will ordinarily
be much less than doilar-for-dollar. A part of the tax increase will be paid
129
CHART 24
FEDERAL BUDGET RECEIPTS EXPENDITURES,
AND THE PUBLIC DEBT
The large budget surplus in the first quarter of 1951, when heavy
income tax payments fell due, was followed by a budget d e f i c i t in
the second quarter. The public debt was reduced by about 2 b i l lion dollars during the year ended June 30, 1951.
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
20
15
15
NET BUDGET RECEIPTS
-6
M
BUDGET
10
20
QUARTERLY TOTALS
EXPENDITURES
10
2
3
1950
1951
BILLIONS OF DOLLARS
265
END OF QUARTER
BILLIONS OF DOLLARS
265
260
260
DEBT
255
255
250
250
I
2
I
3
4
1950
1951
CALENDAR YEARS
SOURCE: TREASURY DEPARTMENT.
130
out of idle savings, for example, rather than out of funds that would otherwise be spent. To the extent that this occurs, the anti-inflationary effects
are less direct than when active funds are tapped; nevertheless, the effects
should not be disregarded. If the same amount of funds had to be supplied
by Government borrowing, debt management and credit control problems
would tend to be aggravated.
The President's February tax message recommended an immediate increase in personal income taxes to bring in 4 billion dollars annually in
additional revenue, increases in selective excise taxes to yield an additional
3 billion dollars, and an increase in corporate income taxes to yield 3 billion
dollars. The first two of these recommendations would have a direct impact
on the growth of consumer spending power, either through a reduction in
the disposable income of individuals (i. e., the amount of income available
to individuals after payment of personal taxes) or through the absorption
of purchasing power as money is spent on goods and services subject to
Federal excises. The increases in excises would also tend to divert some
spending away from those taxable items which require for their production
raw materials which are expected to be in particularly short supply.
The proposed increases in corporate taxes will contribute to stabilization,
through a reduction in dividend payments, and by curtailing the supply
of funds available for corporate spending or investing. The increases are
also needed because excessively high profits after taxes increase pressure for
wage increases of a size and character that would not be consistent with
over-all stabilization objectives.
Relation to consumer spending. Some evidence as to the probable antiinflationary effectiveness of last year's increase in the individual income tax,
and of the increase in the individual income tax and excises included in
the 10-billion-dollar tax proposal, can be obtained from an analysis of
the indicated source of the additional tax payments by broad income
groups. It is important to know the extent to which the additional payments will come from those income groups which normally account for
the bulk of the spending in consumer markets. While this is not the sole
criterion for appraising the tax proposals, nor even the most important of
the several criteria which must be applied, it is a means of gauging the
probable effect on consumer spending.
The results of this analysis are summarized in table 10.
At money income levels in prospect for the fiscal year 1952, the income
range between $3,000 and $7,500 a year will include about half of all spending units, and somewhat more than half of total money income before taxes.
This is the broad middle income range where higher taxes, if properly distributed, can yield significant amounts of additional revenue and result in
a nearly equivalent reduction in consumer spending, without making serious
inroads upon essential living standards. Much of the saving in this income
range" takes the form of insurance commitments and mortgage repayments.
TABLE 10.—Actual and proposed increases in individual income and excise taxes, by
income group, estimated for fiscal year 1952
(Percentage distribution]
Annual money income
All income
groups
Item
Actual and proposed increases since Korea in individual income and excise taxes
_
.. . _
Spending units..
_
Money income before taxes
Consumption expenditures (assuming "normal" spending habits) .
Under
$3,000
$3,000 to
$7,600
Over
$7,500
100
100
100
10
41
15
53
49
54
37
10
31
100
21
56
23
EXPLANATORY NOTE.—The distribution of spending units and money income before taxes
is based upon the distribution in the 1950 Survey of Consumer Finances sponsored by the
Board of Governors of the Federal Reserve System. The upward shift in spending units
from 1949, which is the year covered by the 1950 Survey, to the fiscal year 1952, was
estimated under the assumption that the projected rise in total income was distributed proestimated distribution of the actual and proposed increases in individual income and
excise taxes was calculated as follows: (1) The increases in the individual income tax
were obtained by adjusting the average Federal income tax liability, expressed as a percentage of money income in each income class in 1949, for the rate changes in the
Revenue Act of 1950 and for the further advance proposed by the Treasury; (2) the
proposed increases in excise taxes were distributed partly on the basis of the distribution
of consumption expenditures and partly on the basis of detailed information on expenditure patterns for commodities covered in the Treasury's tax proposals. In view of the
limited current information about family size and composition, taxpaying status, and
consumption expenditures, it was not possible to make refined adjustments for the tax
changes at each income level. Nevertheless, it is believed that the results shown in
the table are adequate for use in terms of broad income groupings.
There is no comparable taxpaying capacity in the income group below
$3,000, even though this group will include approximately two-fifths of all
spending units, because the surplus of income over minimum living costs
is very small for this group. The price rise has already brought serious
hardship to many families in this group, particularly to those near the
bottom of the scale, who are often dependent upon fixed incomes such as
pensions and insurance payments.
At the other end of the income scale are single persons and families earning more than $7,500 a year. Only one-tenth of the spending units are
estimated to come within this highest income group, but they will receive
31 percent of total money income before taxes. The highest tenth of
the population will account for an estimated 50 percent of the total Federal income liability under the rates in effect before last year's revenue
legislation. This group is responsible for the bulk of the net personal saving
in the economy, and for almost one-fourth of total consumer spending.
Additional tax levies on these persons will come partly out of reduced
savings, but families with incomes in the lowest part of this range will be
obliged to limit their consumption expenditures.
The significance of the estimates in the table is to show that more than
one-half of the combined total of increases in the individual tax enacted last
fall and increases in the individual income and excise taxes proposed by the
President, will come from the broad middle range where the contribution to
132
economic stabilization would be especially helpful. Approximately onetenth of the increases (mostly in the form of steeper excises) will come from
the group under $3,000, and less than two-fifths from the group over $7,500.
The preceding estimates of the tax distribution do not, however, allow
for the corporate income and excess profits taxes, which account for 40
to 45 percent of the total actual and proposed increases since Korea. These
taxes are likely to have a more than proportionate effect, in relation to
income, on the group over $7,500, because of the concentration of stock
ownership in this income range. Ordinarily, increases in the corporate
taxes tend to reduce dividend payments and retained profits. To some
extent, they also affect prices and costs, although this effect would be
especially limited in a period of price control.
Relation of tax increases to rising incomes. The impact of personal
income tax increases on individual taxpayers is greatly affected by whether
their incomes are rising, standing still, or falling. The same defense effort
which requires heavier taxes is also creating larger incomes and profits.
Despite the heavier personal income taxes provided by the Revenue Act
of 1950, there have been large increases since the Korean outbreak in
personal incomes after payment of taxes. Comparing the first half of
1950 with the same period this year, we find that disposable personal income
rose from 197 to 220 billion dollars.
The rise in personal income after taxes is expected to continue. It was
estimated above that, under the impact of the increase in production and
in national security spending, personal incomes may rise by 15 to 20 billion dollars over the next year, and disposable income by 2 to 3 billion
dollars less than this amount, allowing for present tax rates. Such a rise in
disposable income would be several times larger than the proposed increase
of 4 billion dollars in the individual income tax, and about twice as large as
the proposed increase of 7 billion dollars in the individual income tax and
the excises combined. For the population as a whole, therefore, these taxes
would not prevent a further rise in disposable income.
This point can be developed further by referring to some illustrative
calculations of the effect on particular taxpayers of the proposed income tax
increases, taking different assumptions as to changes in their current dollar
incomes. When ranked by size of income, the middlemost spending unit
in this country had an annual money income of approximately $3,000 in
the period just before the start of fighting in Korea. By the first half of
1952, the average consumer undoubtedly will have a substantially higher income; on the basis of the projections presented in this Report, which allow
for wage rate changes, longer working hours, new entrants into the labor
force, and other prospective changes, the average family income would be
15 to 20 percent higher than in the second quarter of 1950. A family of four
with a $3,000 income would have paid $54 in Federal income taxes before
Korea. If we assume a 15 percent rise in income, this family would have
$3,450 before payment of taxes and, under the proposed rate increases, its tax
liability would rise to $175 (compared with $121 under the rates in effect
before Korea). The family's income after taxes, therefore, would be $3,275,
or $329 more than what it had before Korea when both income and taxes
were lower. In other words, the assumed rise of 15 percent in income before
taxes would mean a rise of 11.2 percent in income after taxes for this family.
If a rise of 20 percent is assumed, the indicated rise in income after taxes is
15.2 percent. If we take a married person with two dependents who was at
the $4,000 level before Korea, the increase in income after taxes would be
10.0 percent with a 15 percent rise in income and 14.1 percent with a 20
percent rise.
While, on the average, income after personal taxes will probably rise
under the impact of the defense program, even with the proposed individual
income tax increases, many families with relatively fixed incomes will have
no alternative but to adjust to a lower level. Even when disposable income
rises, this does not necessarily mean an improvement in the individual's
real income position and in his standard of living. In measuring real
income, price rises must be taken into account.
Impact of heavier taxes. It is always easy to find reasons why taxes
should not be raised, or why they should be raised in a different manner
than that proposed. Recent months have provided no exception in this
respect. The statements of witnesses before the House Committee on
Ways and Means reflect sharply divergent views, with virtually every
feature of the proposed tax program being severely criticized by some
group or other, often for very different reasons.
Among the matters over which concern has been expressed is the question of whether the tax proposals are consistent with the need to preserve
adequate work and management incentives. This is an important consideration, since our production planning and economic control programs
rest on the assumption that further increases in total output will be possible
in the months ahead as more workers are drawn into the labor force, the
workweek lengthened, and productivity continues to rise. Will these avenues for increased production be closed if the tax proposals are enacted?
Under the proposal for the individual income tax, the actual tax liability at any given money income level would generally be lower than under
the highest wartime rates. This results because of higher personal and
dependency exemptions than during the war, and because of the adoption of
income splitting in 1948 which gave substantial benefits to married persons,
particularly in the higher income brackets. Whatever evidence is available suggests that considerably higher wartime rates would have been
possible in the United States, without any serious damage to work and
investment incentives. It would seem, therefore, that the proposed rates
are wholly consistent with the need to attract new entrants into the labor
force, to provide sufficient inducements to earn more pay by working
134
longer hours, and to encourage necessary investment and entrepreneurial
undertakings.
Incentive questions also arise under the corporation and excess profits
taxes. The rates proposed for the regular corporate income tax are considerably higher than the peak wartime rates; on the other hand, both the
rates under the excess profits tax proposal and the proposed maximum
effective rate limitation of 70 percent are below the peak wartime levels.
Moreover, the accelerated amortization provisions ease the impact of these
rates on businesses undertaking defense-related facilities expansion. Perhaps these rate comparisons, however, are less important than other considerations, such as the large number of profit opportunities in a high production defense economy, the relatively low business risks that are ordinarily
involved, and the generally satisfactory level of business profits that would
prevail even after full allowance for the proposed tax increases.
It is important to realize that the economic decisions of businesses and
individual workers are always tempered by psychological factors. When
taxpayers are convinced of the necessity and fairness of a particular tax
program, they will be more ready to carry the heavier tax load and to work
longer and harder and invest more time and capital, even though an increased share of additional earnings must be paid in taxes.
Another set of questions about the 10-billion-dollar tax program revolves
around the general point as to how closely taxes are approaching the limit
of what workers and business can bear. If the ratio of all Federal, State,
and local taxes combined to national income were taken as a measure of
the tax burden, it would appear that the present burden would be about the
same as that reached during World War II. Such a comparison, however,
provides a highly misleading measure of the real economic burden in the
two periods. The economic burden is more accurately measured by the
proportion of total national production diverted to war or defense purposes,
and by the aggregate volume of goods and services remaining for civilian
purposes, since taxes finance but do not create this burden.
At the peak of the war, the military program took 45 percent of the gross
national product, or somewhat over twice the maximum percentage which
will be required for the defense mobilization program as now conceived.
With the present program and the projected increase in production, it is
estimated that about 1,330 dollars of goods and services per capita will be
available for personal consumption during the first half of 1952, compared
with 1,130 dollars (measured in today's prices) during the years 1943 to
1945. With a far lower economic burden at present than during the war,
we are paying about the same proportion of our national income in taxes.
The significance of this fact is that our present tax policy represents a
decision to face the burden on a current basis, which is desirable for a
partial and possibly protracted mobilization.
135
The ratio of taxes to income is a general measure of the extent to
which the Government, through the use of fiscal measures, has taken steps
to curtail private spending and thereby reduce inflationary dangers. The
more closely such spending is brought into line with available supplies, the
better the opportunities for achieving an equitable sharing of the economic
burden.
The economic burden of a prolonged defense mobilization effort is not
determined by the method of financing. If the size of the tax bite is
lowered through borrowing, there will be more liquid asset accumulation,
but not any more goods and services for consumers to buy; and the requirements for debt service and debt retirement will be increased in the postemergency period when those who are now in the armed forces will share
with the rest in paying the necessary taxes.
While a tax-income ratio which is higher than at present by the amount
of the 10-billion-dollar tax proposal will not mean any heavier economic
burden for the country as a whole, it must be recognized that the tax
increases may nevertheless bear heavily upon families living on fixed
incomes. Such families, together with low-income families generally, are,
however, also the groups which would be hardest hit by an inflationary
price rise which the tax increase will aid in preventing. The earlier comparison of the proposed tax increases with the projected aggregate rise
in income shows that enactment of the tax proposals will not prevent the
majority of families and single individuals from ending up with larger
disposable incomes in terms of current dollar amounts, although not
necessarily in terms of actual purchasing power.
Curtailment of less essential Federal spending
Full attention should continue to be given to the possibility of further
savings in budget expenditures, since such savings will contribute to the
pay-as-we-go objective and aid the stabilization program. Soon after the
start of fighting in Korea, the President took steps to curtail Federal spending for less essential public works and other programs, and to review all
budget requests against the more exacting criteria which must be applied
in an emergency period. These steps have resulted in important savings.
Some of the reductions which have already been made will not be fully
reflected in expenditures until the fiscal year 1953 or later. This is true,
for example, of the reductions in authorizations for rural electrification
loans, and grants to States for hospital construction. The expenditures
in the 1952 Budget for these programs will be made almost wholly from
funds obligated in prior years. In the case of some other construction
programs, it has been necessary to bring about a significant shift of emphasis
to projects which are vitally important to the national security effort.
National security programs, veterans' benefits, and interest on the public
debt account for more than 85 percent of all Federal expenditures in the
136
fiscal year 1952. A large part of the remaining expenditures are for such
programs as public assistance grants, price support activities, mortgage
purchases by the FNMA, and grants for public roads; programs of these
types are fixed by law and are not subject to budgetary or appropriation
control in any single year. It is readily apparent that very large reductions
in expenditures are not possible in the absence of legislation requiring major
curtailments in programs specifically prescribed by law.
While economy should be practiced, it should be true economy. The
short-sighted stripping down of essential services, such as educational and
health services would be inconsistent with building our economic strength.
That strength depends upon human resources even more than upon plant.
State and local participation in the stabilization program
During World War II a special effort was made by State and local
governments to conduct their own financial affairs in such a manner that
they supported, or at least did not counteract, the national stabilization
program. Organizations representing these governments formulated
specific policy recommendations to guide State and local actions, and these
recommendations were extensively applied in the day-to-day operations
of government.
Once again it has become important that State and local governments
follow policies consistent with national needs and objectives. To the extent
feasible, these governments should restrict new and regular expenditure
programs to activities which will best promote national defense and security.
Whenever State and local tax revenues exceed immediate needs, the surplus
should be used in ways which will both harmonize with efforts to restrain
inflation and reduce the future financial problems of the State and local
governments. Debt financing should, of course, be held to a minimum, and
debt repayment should be encouraged. As described in the section on debt
management and credit policy, State and local governments are already
cooperating in the Voluntary Credit Restraint Program.
Credit policy
The significant rise in the general price level, since the outbreak of
hostilities in Korea, has been accompanied by a rapid expansion in private
credit, particularly bank loans. The loans of all commercial banks increased
by more than 9^2 billion dollars in the 9-month period ending March 31,
1951. The sharp expansion in loans was halted in April and May, when
the combined loan increase for the 2 months amounted to about 100 million
dollars. At that time of the year, there is usually a seasonal downturn in
business loans.
As we enter the second half of 1951, a new upsurge in bank loans may
be at hand, partly because of the seasonal requirements of some indus-
137
tries, and partly because of the growing needs of expanding defense production. If we can strengthen the restraints upon prices, inventory
accumulations, new housing construction, and the output of some nonessential durable goods, the total demand for loans may abate, even though
loans to expand defense production will increase. But at this time, there
are no signs of that abatement. The problem of restraining bank credit
appears to be again very real.
In shaping our credit control measures, it is essential that we assess the
credit expansion problem accurately, and adopt restraint policies designed
to meet the specific requirements of the present national emergency.
The primary cause of the inflation in the past year has been the unprecedented rush for goods by business and consumers, generally in anticipation
of the effects of the expanding national security program. This extensive
demand for goods has been financed in several ways. It has been financed
out of expanding current incomes, by the liquidation of savings out of past
income, and by credit expansion. Financing by credit expansion has been
facilitated by the large amounts of Government securities held by financial
institutions, and by the fact that these institutions could sell their holdings
to the Federal Reserve System to obtain loanable funds. Accordingly, a
more stringent policy of general credit restraint on the part of the Federal
Reserve would have tended to reduce the total amount of purchases by
making it somewhat more difficult to finance a portion of these purchases.
But in view of the alternative methods of financing available, it is evident
that any feasible Federal Reserve policy would only have tempered the
over-all demand for goods, and would not have curbed it sufficiently to
have prevented much of the rise in prices which has occurred.
In the current national emergency, measures of general credit restraint
must be supplemented by selective measures. General credit measures do
not distinguish between essential borrowing and nonessential borrowing.
The fact that some credit extension serves a useful purpose in helping us
to reach our defense goal as rapidly as possible, while other credit extension
is less useful or even harmful, makes it necessary to use credit controls as
selectively as possible. Selective controls, such as those imposed on consumer credit, real estate credit, and credit for security markets have a
direct impact on nonessential credit extension, and so have a continued
usefulness in the mobilization period. General credit controls reach to
areas not touched by selective credit measures.
Outside the area of selective credit controls, direct controls over the
production of goods also reduce the demand for credit by curtailing the
goods which are available for purchase with borrowed or other funds. Selective means of restraining credit expansion must always be supplemented
by direct controls of materials. Many firms can pay for much or all of their
investment in plant and equipment without borrowing. Withholding of
138
credit from some firms, while others were able to resort to other means of
finance, would not assure the balanced growth of production required by
mobilization.
Selective credit controls. Because of the need of curtailing credit for
some purposes, while funds have had to be made available for other purposes—and sometimes in increasing amounts—credit policy has made use
of several selective controls. These controls are intended to restrict credit
for the purchase of certain kinds of goods, especially those the output of
whicE must be curtailed to help divert scarce materials to production for
the security programs. Such controls help to keep demand more nearly
in balance with smaller supplies. They also limit somewhat the expansion
of the money supply which accompanies lending by commercial banks,
and to that extent hold down the rise in spending pressures.
The first step in applying selective control was the tightening in July
1950, at the request of the President^ of the terms of residential mortgages guaranteed or insured by Government agencies. In October, under
authority derived from the Defense Production Act, the Federal Reserve Board, with the concurrence of the Housing and Home Finance Administration, imposed regulations on conventional mortgages on new oneand two-family houses. At the same time, the terms of Government insured or guaranteed mortgages on similar houses, both old and new, were
brought into conformity with the Board's regulations. In January 1951,
the Board's regulations and a comparable tightening of Government terms
were extended to three- and four-family houses and apartments. In February, the Board also applied regulations on loans for most new commercial construction.
The selective control of residential mortgage credit was intended, with
the complement of restrictions on the use of some materials used in construction, to reduce new housing starts during 1951 about one-third below
the record level of 1950. Results at first were disappointing. New starts
in January 1951, including public housing units, which are not subject to
these controls, were nearly 10 percent above January 1950. A large backlog of financing commitments had been entered into, before the October
controls became effective. This, along with the continued availability
of building materials, and the desire of builders to undertake as much
construction as possible before materials controls could have a real impact, have been largely responsible for delaying the effect of this selective
control. In the second quarter of 1951, however, housing starts were about
25 percent below the level of the same period last year, and it now appears
probable that some progress toward the announced goal of curtailment is
being achieved.
In September 1950, also under the authority provided by the Defense
Production Act, the Federal Reserve Board placed regulations on instal-
139
ment loans for the purchase of automobiles and certain other consumer
durables. The terms of the regulations were stiffened in October. The
purpose of these regulations is similar to that of the controls on housing and
commercial construction credit. The consumer instalment credit regulations were, however, more immediately effective. Total instalment credit,
which had expanded about 10 percent during the third quarter of 1950,
was held to a rise of less than 1 percent during the fourth quarter. During
the first half of 1951, instalment credit outstanding declined about 600
million dollars, or 4.5 percent, compared with a rise of 1.2 billion dollars
during the same period of 1950. The drop in total instalment credit
reflects not only the effect of the regulations, but also the influence of other
factors which have caused consumer demand to subside somewhat from the
high levels reached after Korea.
The authority of the Board of Governors to regulate mortgage credit
would be more effective, if expanded to cover old houses. Mortgages
guaranteed or insured by Government agencies on both new and old houses
are already subject to terms comparable to those of the Federal Reserve
Board's regulations, which under the present law apply to new units only.
The restraint of conventional borrowing for the purchase of old houses
would not, of course, assist in directing materials to defense production;
but it would help to check inflation. Furthermore, funds to make the
higher down payments required on new houses are often obtained by selling
old houses under very liberal credit terms.
It is desirable that Congress provide authority for placing margin requirements on speculative trading in commodity futures. Such legislation
would further strengthen credit policy in combating inflation. It would
apply to commodity markets a principle of regulation imposed more than
15 years ago on the securities markets.
Voluntary credit restraint program. On March 9 of this year, a
voluntary credit restraint program, including the major financial institutions throughout the Nation, was instituted by the Board of Governors
of the Federal Reserve System, pursuant to Section 708 of the Defense
Production Act. A statement of principles to be used by all lenders as a
guide in distinguishing between essential and nonessential loans has been
distributed to all of the participants in the program. The test for desirable
lending in the present national emergency was declared to be whether
a particular loan would commensurately increase or maintain production,
processing, and distribution of essential goods and services.
A National Committee, under the direction of a member of the Board
of Governors of the Federal Reserve System, has been established as a
general supervisory body, as well as some 40 regional committees covering
all sections of the country. The statement of principles of the program
serves as an over-all guide to lending institutions in their lending activities.
140
In cases, however, in which lending institutions are doubtful as to whether
a particular loan request can be granted within the framework of the program, the regional committees stand ready to act as the ultimate judge.
The continuing effort to make the program of voluntary credit restraint
more effective should receive the full and active support of private and
Government lenders. Voluntary restraints have the selectivity so necessary
during the mobilization period. In order that the campaign of voluntary
control may be as effective as possible, it is necessary that the lending
policies of Government agencies continue to be kept in conformity with
those of private institutions. It is also essential that the voluntary credit
control committee be guided at all times by the production goals set by
mobilization agencies.
Lending activities of Government agencies. At the same time that
Government insured or guaranteed residential mortgages were tightened,
other Government owned or sponsored lending agencies were requested to
reorient their lending policies to the needs of defense. New programs of
defense financing have provided credit for the expansion of defense production, whenever needed funds have not been obtainable from private
sources. Credit for purposes not related to military or essential civilian
output has been curtailed.
As has been observed in the discussion of the voluntary credit control
program, it is necessary that the lending policies of Government agencies
adhere to the guides established for private lending agencies, if the voluntary program is to work effectively. This requires that the various Government agencies continue to scrutinize their lending activities with the
utmost care.
Reserve requirements. Early this year, the Board of Governors of the
Federal Reserve System raised the reserve requirements of member banks
2 percentage points against net demand deposits, and 1 percentage point
against time deposits. This action raised the reserve requirements of member banks to the full limit authorized by statute, except for an additional 2
percentage points which may be imposed on net demand deposits held by
central reserve city banks—New York and Chicago.
Additional authority to control bank reserves would be a valuable means
to restrict credit under several possible conditions. Any such new authority
over reserves should be adaptable to meet varying circumstances. It is also
imperative that any additional requirements for bank reserves imposed by
the Federal Reserve should be such that they do not have a disruptive effect
on the market for Government securities.
The report of the President's Committee on Credit Policy recommended
that, as an emergency measure, legislation be sought to empower the Federal Reserve authorities for a limited period to impose additional reserve
requirements. The report suggested that two plans had the greatest
promise, namely: (1) the loan expansion reserve plan and (2) the primary
reserve plan with a Government securities feature, which provides for addi-
141
tional required reserves with the option, under conditions to be prescribed
by regulation, of holding the additional reserves in the form of cash or
Government securities.
The report of the President's Committee also recommended that, in view
of the emergency, any additional reserve requirements should apply to all
insured banks; and that the feasibility of permitting non-member insured
banks to hold the additional reserves in balances with their correspondents should be explored. Broadening of the authority in this manner would
increase its effectiveness, and would avoid placing on member banks a disproportionate share of the burden of checking inflation.
We believe these recommendations should be adopted.
Use of executive authority. The authority exists under emergency
legislation for the President by executive order to put a positive limit on
the volume of loans which may be made. These powers are available
should the situation with respect to credit expansion become critical.
Debt management
The policies and operations of the Treasury, in the management of the
public debt, have a significant bearing on the stability and well-being of the
Nation's economy. The successful merging of revenue measures and
borrowing programs, in such a way as to make the most effective contribution to the productive powers of the Nation, is one of the most difficult and
most important problems on the domestic front.
A weapon of great importance for keeping inflationary forces under
control is a debt management program which is directed toward placing
the largest possible proportion of Government securities in the hands of
nonbank investors, and reducing the proportion held by the commercial
banking system. In the last half of the calendar year 1950, nonbank
holdings of Government securities reached an all-time peak, while holdings
of the commercial banking system declined to a new postwar low. This
was accomplished despite the fact that the over-all decline in the amount
of public debt outstanding was less than 1 billion dollars during this
period. The policy of reducing bank holdings of Government securities
was aided during the first 6 months of 1951 by the existence of a budget
surplus. Because of the prompt action of the Congress in enacting two
new revenue-producing measures within a few months after the outbreak
of aggression in Korea, the Federal Government operated with a budget
surplus during the first year of mobilization. Receipts during the fiscal
year which ended on June 30, 1951, exceeded expenditures by 3 5/2 billion
dollars. The surplus from January through June 1951 was, in fact, 4.1
billion dollars. A part of this surplus was used to reduce the amount of
total debt outstanding; and a large part of this reduction occurred in the
holdings of the banking system.
Unfortunately, it will not be possible in the period ahead to continue to
reduce the total amount of debt outstanding. In the absence of new tax
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legislation, the budget of the Federal Government for the current fiscal
year would show a deficit of about 10 billion dollars.
In this situation, the most that the Treasury can hope to do is to continue
to emphasize its program of shifting holdings of Government securities out
of the banking system into the hands of nonbank investors. This objective
can be furthered by continued careful attention to the sources of funds
available for investment in Government securities; and a continuation of
the program of carefully selecting new and refunding issues of securities
which are suitable to the needs of the various investor classes.
An important measure in carrying out this policy is the savings bond
program. The Treasury has carried on an intensified payroll savings campaign—to reach the expanding incomes of consumers and so draw inflationary funds from the spending stream—since shortly after the present
disturbed international situation was forced upon us. The Secretary of
the Treasury announced just a few days ago that a Nation-wide savings
bond drive would get under way commencing on Labor Day.
Since the Federal Government operated with a budget surplus for the
fiscal year 1951 as a whole, all of the debt operations of the Treasury
during the year were, on net balance, refunding operations. They were of
considerable significance, and in the first half of 1951 varied in character.
At the request of the Treasury, the Congress enacted legislation which
permits holders of maturing Series E bonds to maintain their investment
in these bonds and continue to earn interest on their face amounts for up
to 10 additional years. This is an important step in providing an incentive
for individuals to maintain the savings which they hold in this form.
On March 4, 1951, the Treasury announced that it would exchange a
portion of its outstanding long-term marketable bonds for a new nonmarketable issue. A new investment series of 2% percent, 24-29 year
nonmarketable bonds was offered in exchange for the outstanding 2l/2
percent marketable bonds of June 15 and December 15, 1967-72. Nearly
13.6 billion dollars of the outstanding amount of 19.7 billion dollars of
the two marketable issues was exchanged for the new nonmarketable issue.
The Treasury also announced, on May 14, 1951, a new series of Treasury
savings notes, and the discontinuance of the sale of old Series D savings
notes. The new notes are similar to the old series, except that the interest
return will run from 1.44 percent, if the notes are held for 6 months or
less, to 1.88 percent if the notes are held for the full 3-year term. This
compares with 0.98 percent for 6 months, and 1.40 percent for 3 years, on
the old issue.
In June, another large refunding operation was carried through. An offer was made to exchange the 1.6 billion dollars of 2% percent partially
tax-exempt Treasury bonds called for redemption on June 15, and the 8.4
billion dollars of 1*4 percent Treasury notes maturing July 1, into 9y2
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month, 1% percent certificates of indebtedness. More than 9.5 billion
dollars, or nearly 95 percent, of the maturing issues were exchanged for
the new security.
In the first week of the new fiscal year, the Treasury started a "new
money" borrowing program by asking for tenders on its weekly Treasury
bill offering, in an amount 200 million dollars in excess of the maturing
issue. Already 800 million dollars of "new money" has been borrowed
in this fashion. There will continue to be deficit financing in the period
ahead. The exact amount depends upon the magnitude and nature of
the new taxes provided by the Congress. But in any event the amount
will be substantial. Its successful financing will require a confident and
stable condition in the market for Government securities.
On July 12, the Secretary of the Treasury announced the first large
refunding operation of the current fiscal year. An 11-month, 1% percent
certificate of indebtedness was offered in exchange for the 5.4 billion
dollars of 1*4 percent notes maturing on August 1.
Price policy
Earlier in Part II of this Review, the Council indicated why price control is an essential feature of an effective stabilization program, particularly
during the early stages of the very large defense build-up. We also
expressed the view that the economic outlook does not now justify the abandonment or weakening of price control. But price control, and other measures, should be geared to the kind of mobilization which we are now undertaking, its likely duration, and its probable impact upon the economy. The
problem is to find the most practical kind of price control for the situation
now confronting us.
Progress of price stabilization to date. There have been three stages in
the progress of price stabilization thus far: (1) the initial period, when major
reliance was placed on voluntary restraint, in combination with general
measures to reduce demand; (2) the imposition of direct, mandatory controls by the issuance of the general freeze in late January; and (3) the subsequent "interim" period of adjustment.
With the passage of the Defense Production Act, the task was begun
of organizing an Economic Stabilization Agency and Office of Price Stabilization to be ready if direct controls should later prove to be required.
Prior to the issuance of the General Ceiling Price Regulation in late January,
the Government had increased taxes, imposed credit restrictions, and established a number of controls over the flow of scarce and essential materials.
Moreover, business, labor, farmers, and consumers had repeatedly been
urged to exercise restraint in their buying and selling, and in their price and
wage policies. Price increases of raw materials and commodities at wholesale, which got under way in the summer of 1950, were checked near the end
of the third quarter as the Communists were driven back in Korea. For
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6 weeks before the blow from the Chinese, the wholesale price index
advanced very slowly. The course of prices of basic raw materials had
changed from an upward rush to a series of fluctuations.
The Chinese intervention in late November created a new situation, and
made positive the necessity for intensified mobilization efforts. It also set
into motion a new wave of price increases. Several direct actions were
taken to curb price advances. Efforts were redoubled to provide an
adequate staff for the Office of Price Stabilization. Meanwhile, a set of
Voluntary Pricing Standards was announced; meetings were held with producers of a number of basic industrial commodities to explore ways of stabilizing prices in those fields; and several hundred large firms were requested
to give prior notice of intended price increases. Earlier, the first price ceiling regulation had been issued, controlling manufacturers' prices of new
automobiles. The great difficulties encountered in building up staff hampered and delayed the development of more effective price control.
In spite of the conscientious efforts of many sellers to comply with the voluntary standards, the price increases continued apace. In response to this
situation, and in spite of a still short-handed staff, the Office of Price Stabilization in late January issued the General Ceiling Price Regulation freezing most domestic prices. There were some major gaps in the coverage of
this regulation, required by the farm provisions of the Defense Production Act and by the complexities of applying a freeze-type regulation
to all kinds of markets. A companion regulation freezing wages and salaries was issued simultaneously, as required by the Defense Production Act.
This action was in sharp contrast to the development of price control in
World War II, which began with selective controls and subsequently culminated in the General Maximum Price Regulation some 14 months
later, with wages remaining uncontrolled for several months more.
A general price freeze, however, cannot be more than a stopgap measure.
The third stage in the evolution of price stabilization has therefore been
the effort to introduce necessary flexibility.
During the past five months, four broad areas of activity may be distinguished : (1) the issuance of margin-type regulations for most commodities
sold at retail, and many sold at wholesale; (2) the development of "interim"
regulations calling for new ceiling prices to be computed by adding to preKorea prices the subsequent increases in costs of labor and materials (but
not including overhead cost increases) with a view to the restoration of
pre-Korea gross seller margins for most manufacturers, and at the same
time providing for rollbacks of prices which had advanced excessively; (3)
the institution of a group of regulations covering specific commodities, at the
primary market level, and largely in dollars-and-cents terms—e. g., soybeans,
scrap metals, hides and skins, cotton, cocoa, coffee, and wool; and (4) the
issuance of the beef regulation, the first tailored regulation setting dollars-
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and-cents ceilings from the primary to the consumer level with more such
regulations to come.
The establishment of margin-type regulations at retail and wholesale was
designed to relieve distributors of the squeeze created by the lag between
prices and replacement costs, establishing a more normal margin structure by
rolling back excessive margins, and preparing a firm foundation, particularly
in the case of food, for the future development of dollars-and-cents price
ceilings. Margin-type regulations permit the pass-through of cost increases
into retail prices; likewise, they require retail prices to be reduced when costs
have been reduced. The effectiveness of a margin regulation at retail in
maintaining stable prices depends on the effectiveness with which suppliers'
prices are stabilized. The structure of the plan is strongly influenced by considerations of practicality. Thus the maintenance of dollars-and-cents
gross margins would lead to less price increase than the percentage mark-up
formula. However, specified dollars-and-cents mark-ups, like dollars-andcents price ceilings, are workable only in highly standardized commodity
areas where changes in products are infrequent, which rules out their use in
a major sector of the broad market territory covered by the present wholesale and retail regulations.
Another major step has been the program to reprice manufactured goods.
The general manufacturers' formula, in essence, sets new ceiling prices by
permitting manufacturers to add to their pre-Korea prices only increases in
labor and material costs occurring after July 1, 1950. The regulations also
provide that cost increases after specified dates shall not be included. In
the case of labor increases, the cutoff date is March 15; in the case of
materials, the dates vary. Since one manufacturer's price is frequently
another manufacturer's cost, the intention is to require recalculation to
take account of the changes in costs brought about by the first calculations
under the manufacturers' regulations themselves. The manufacturers'
formula would require rollbacks, where prices being charged were in excess
of the ceiling prices as computed under the formula. The effective date of
the manufacturers' regulations has been postponed, pending the renewal
of the Defense Production Act.
At the time of the price freeze, many cost-price and interprice relationships were untenable from any continuing point of view. Price relationships are rarely, if ever, in complete equilibrium, but the wide variations
in the rates of different price increases prior to the price freeze had greatly
distorted earlier, more normal relationships. The distortions involved
serious inequities among businesses. Much more important for the future
of the economy, many of the distortions had to be corrected if goods were
to continue to move through the markets in the large volume required
for a high employment economy in general and a defense economy in
particular. Much of the effort reflected in the price orders thus far issued
to modify the general price freeze has been directed to reestablishing tenable
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relationships among relative prices. By combining some adjustments
upward with some rollbacks, the general purpose has been to correct
inequities and disparities with a minimum impact on the general price
level. Once this interim action has been completed, it should be possible
to hold firmly the great majority of prices without further adjustment.
Upon completion of its "interim" phase, the price-control effort should
look to the development of a program geared to future requirements.
The time is a particularly appropriate one, therefore, for considering what
the central principles of such a program should be.
Principles for further price control. Generally speaking, stability of the
general price level is a desirable objective. The exceptions to this rule occur
(a) after a severe deflation when a general upward movement of the price
structure is a necessary component of economic recovery, and (b) in a
period-when general downward price adjustments are needed to maintain
maximum employment and production.
Since the Korean outbreak, neither of these extreme situations has occurred, and neither is foreseeable in the near future. A general upward
movement has not been and is not now needed3 because, broadly speaking,
profits have supplied ample funds and incentives to sustain a level of business investment even higher than would be desirable. A general downward
movement of prices, while very desirable from the viewpoint of consumers,
would not be consistent with the business sentiment required for a vigorous
expansion of production, especially in those commodities where rising costs
have caught up with rising prices. Price stability is conducive to defense
planning and to business planning. Also, the erratic behavior of consumers
is minimized if they anticipate price stability.
After the general price freeze in late January, no further price action
would have been urgent if price stabilization were the only objective to be
sought. But price stability cannot be the only objective, since we cannot
disregard other vital objectives such as equity and reasonable balance in the
price structure and the maintenance and expansion of necessary production.
These objectives depend upon some flexibility, even under stabilization.
Consequently, in the period ahead, the question is not whether the pattern
of ceiling prices will need to be modified, but rather how it should be
modified and under what circumstances.
Formulae to allow prices in general to rise after a price freeze would be
needed only if the freeze worked general hardship or inequity or operated
upon the financial position or intentions of wide segments of business in a
manner inconsistent with necessary productive expansion and fair returns
upon investment and effort. Only if this happened or threatened would
other objectives outweigh the gains to be derived from general price stability
in a defense emergency. Since this contingency has not arisen and is not a
foreseeable prospect, the problem now is not to devise formulae for general
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price increases, but rather to take steps which modify the price freeze at
those points where modification is urgent.
These modifications, however, should not allow the exceptions to obscure
the general rule that the price line in the main should be held. Although
some price increases are needed to restore balance or to provide incentives
and encourage production, the argument that they are needed for this
purpose is often pushed too far. Price stability, in the main, achieves equitable results and encourages production, by discouraging inventory speculation and thus tending to increase the output of final goods; by facilitating
the system of priorities and allocations; by spurring cost reduction techniques; and by reducing the causes of labor disputes.
Some specific prices may have to be adjusted for reasons of fairness or
in order to increase the flow of production of specific commodities, in which
an expansion is particularly desired to promote the defense effort. A number of these price adjustments will relate to goods purchased by the armed
forces, and will be made in the process of contract negotiation. Some of
them, however, may be required in other goods as well. It may be necessary
to upset old cost-price relationships which have been in relatively stable
equilibrium, in order to achieve the dynamic result of expanding particular
lines of production.
Finally, incentives to efficiency must be adequate to assure that resources
will produce the maximum total volume of production. Under the price
adjustments, efficient firms should be rewarded, not penalized. Treating
all producers of a commodity as a unit should be helpful in this respect.
In a few industries, notably some of the mineral industries, it may be so
important to expand that special encouragement must be given to high-cost
producers. Such encouragement should be given through carefully designed
subsidies for increased production rather than through price increases.
The incentives argument always has an appeal, and in some cases quite
validly so. But reasonable incentives do not require realization of the highest profit aspirations that anyone might be able to make good on in a free
market under inflationary pressures. Nor should price be regarded as the
retarding factor, in those situations where necessary production is in fact
retarded by other conditions such as unavailability of materials or manpower. There are many instances where more careful programming, and
more effective and expeditious allocations to the right places, will do far
more to break bottlenecks in production than price increases, and with less
danger to the structure of inflation control. In the main, price increases to
provide incentives cannot be a general rule if there is to be effective stabilization. Such increases should be processed as special cases.
There will be pressures to raise other prices, particularly as various costs
get out of line. Thus, a wage increase that is not accompanied by an
equal or greater increase in productivity gives rise to pressure for upward
price adjustments. It is clear that if prices are to be stabilized, wages must
be stabilize^ also. However, it does not follow that every increase in costs,
whether of labor or other factors, must be followed by an increase in
prices. If the upward spiral is not to continue indefinitely, it is important
that this not happen.
If an industry, despite increases in costs, still has funds and incentives
adequate or more than adequate to bring forth desirable production, price
adjustments upward are in the main unnecessary. The absorption of
increases in costs without price increases is a large part of the history of our
industrial and technological progress, and is particularly important during a
period when general price stabilization is essential. On the other hand, the
denial of price increases to an industry or business which has not experienced
cost increases may nonetheless be injurious to the defense program and the
national economy, if that particular industry or business genuinely needs
more incentives to do its job.
This does not mean that business costs are irrelevant to price policy; it
does mean that the adjustment of prices upward or downward on an arbitrary basis in response to cost changes, without consideration of the over-all
financial position of the industry or business after taking account of these
changes, is much too narrow an approach to the basic issues underlying
price adjustments under price control. The more appropriate approach
is to take account of cost factors along with other relevant factors.
The machine tool industry is perhaps a good example of a case where the
application of a cost formula did not provide adjustments needed in view
of the vast expansion now required of that industry. The problem was met
by the issuance of a special price regulation for machine tools, providing a
liberal basis for the calculation of price adjustments.
The allowance of price adjustments on a more or less automatic basis
to cover changes in costs is sometimes likened to cost-of-living adjustments
in wages. But the resemblance is only superficial. Gost-of-living adjustments do not of themselves permit any increase in real wages; they simply
recognize that price inflation is neither an equitable way of reducing wages
nor conducive to high morale. Such cost-of-living adjustments are not
inconsistent with other restraints which prevent wages from rising as they
would rise in a free market under defense conditions which make labor very
scarce. In contrast, the allowance of price adjustments on a more or less
automatic basis, to cover changes in costs, regardless of profit margins, would
probably tend to push profits higher and higher in ratio to other incomes,
and would reject the principle of absorption of some cost increases which
has been typical of American business progress.
To be sure, wages affect business costs, and consequently business prices
cannot be stabilized if wages and farm prices move upward without restraint.
This is one reason why an effective stabilization program must deal with
wages as well as business prices. Nonetheless, stabilization efforts must
move forward in each sector of the economy simultaneously, instead of
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each sector waiting for some other sector to be completely stabilized first.
A sound stabilization program should not permit further price increases
to result automatically from cost increases, but instead should determine
whether the cost increases are of a magnitude to impair adequate earnings
related to production needs and incentives.
The foundations for this approach have been laid in the Economic
Stabilization Administrator's letter of April 21 to the Director of Price
Stabilization, outlining a longer-range price policy. This letter directs the
price control agency, as a general rule after the completion of "interim"
adjustments, not to permit any general increase in ceiling prices for any
industry unless its present rate of profits before taxes is below 85 percent of
its profits in the three best years in the period 1946 to 1949, adjusted for
changes in net worth. This formula is based on the present excess profits
law. The directive also ensures that future cost increases will be absorbed
to a reasonable extent, and will not automatically form the basis for future
price increases.
The Council is not in a position to evaluate whether this formula is correct
in detail, or whether the profit level set forth in this formula is necessarily
the most desirable one. The formula does, however, offer the prospect
of putting price control on a more sustainable basis under current and foreseeable conditions. Since the formula is on an "industry" basis, it needs
to be accompanied by standards permitting individual manufacturers to
receive relief where they need it in line with production objectives or
considerations of equity. Initial action has been taken in this direction.
As part of the transition from the interim stage of price stabilization
just indicated, regulations tailored to the needs and complexities of different
industries should be developed as rapidly as possible. This will have the
added advantage of permitting more effective compliance and enforcement.
In particular, it is necessary to develop many more dollars-and-cents
ceilings, especially at the consumer level.
Thus, the Council feels that price policy should now focus upon holding
the line in general, while specific energies should be dedicated to the swift
working out of adjustments in those limited situations where additional
production incentives are required and cannot otherwise be achieved, or
where elementary fairness requires adjustments in limited instances. While
some rollbacks may be essential, and while some other actions may be
needed for equitable reasons, they should not be allowed to divert energy
from the policy of holding the price line in general. This policy would in
the judgment of the Council commend itself to the public and serve the
needs of the kind of defense mobilization now under way.
A coordinated relationship between price and production controls is
necessary to assure that they do not work at cross purposes. Production
controls should be used to facilitate stabilization. During World War II,
a serious problem was the dropping of low-priced lines and their upgrad-
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ing to higher price lines. This was particularly troublesome in apparel
and house furnishings. Up to now, the problem in these fields has been
the large rise in prices generally, rather than the dropping of low-priced
lines. However, this problem may appear first in consumer durable
goods, with heavy cuts in civilian uses scheduled for steel, copper, and
aluminum. This problem bears close watching. The need for such coordination has been recognized in a directive of January 26, 1951 issued by
the Director of Defense Mobilization, which instructs the production
agencies to cooperate with the OPS in ensuring an adequate supply of
essential and low priced consumer goods.
One of the most inflationary sectors of the United States price structure
since the Korean outbreak has been the extreme rise in basic imported raw
materials. Basic raw materials form the group whose prices are most sensitive to changes in demand. It is obvious that, as long as these are free to
move, they are a source of great difficulty in holding the price line, and in
keeping down the cost of the defense effort. At present, most of'these
prices are below the peaks reached early this year. However, as long as
world-wide demand for these products continues greater than normal
because of the mounting defense program of the free world, there is always
the possibility that they will resume their upward flight.
In the case of these commodities, we are faced with a real dilemma.
We can put rigorous control on their prices when sold in the United States.
But if we do so, we run the risk that the domestic level will be enough
below the world level to prevent us from obtaining an adequate supply.
If we follow rising world prices, we introduce a major factor of instability
into our economy. Ideally, international allocation at reasonable prices
would achieve effective stabilization, and assure the free nations of a fair
share of these basic commodities. These problems are being discussed at a
number of international conferences, with a view to arriving at the best
methods of handling these problems. The international allocation agreements recently arrived at for tungsten and molybdenum include price
provisions.
Meanwhile, in two cases, tin and natural rubber, the United States Government has taken over the importing function. Prices of these commodities have declined, in part because of the more orderly buying procedures, in part also because of the lower levels of current United States
purchasing. In the event, however, that international agreements cannot
be arrived at, and the price rise of imported materials is resumed, it may be
necessary to use subsidies in some cases to prevent unfavorable repercussions
on the domestic price levels.
Subsidies and food prices
The major function of price in a free economy is to induce the production of the goods desired by the people, in the volume they demand and are
willing to pay for. When, as at present, circumstances require that prices
be put under control, one of the major principles determining price policy
is the achievement of maximum production, particularly of goods most
needed for the defense program. Another method of stimulating production, which is an alternative to higher prices, is for the Government to pay
the producer a subsidy in addition to the price he receives from his customers. The funds to pay subsidies come out of Government revenues, that
is, out of taxes instead of out of prices. In some kinds of situations, the
granting of subsidies is preferable as a production stimulant to permitting
price increases, while in other kinds of situations subsidies are undesirable.
The clear occasion for the use of subsidies to induce needed production
is where it is necessary to secure supplies from high-cost sources of production, which will not respond to the price offer which is bringing the bulk
of the needed output into the market. Where the high-cost producer can be
clearly identified, and it is therefore possible to determine the differential
in price which is required to cover his extra cost, the subsidy payment is not
only permissible, but it is an excellent method to obtain additional supplies. If a piarket price of $1.00 per unit is high enough to lead to the
production and sale of 1 million units of a necessary commodity, but
the production of an additional 100,000 units would require a price of
$1.25, there is no justification in a period of emergency for permitting
a demand for 1,100,000 units to bring about a market price of $1.25 for
the entire supply, if it is possible to pay the extra 25 cents only to those who
are burdened by the higher cost.
The need for use of subsidies to minimize market price increases becomes
more acute as the pressure of demand upon scarce supplies builds up, and
as increasingly high-cost sources of additional supply have to be tapped.
The principle of differential subsidies to marginal supplies is particularly
applicable, and it should be applied freely^ in the case of minerals. Highcost mines can be brought into production in most mining fields if a higher
price is paid. Current output, yielding a satisfactory profit at current
prices, will continue without an increase in price, and the mine operator
should not be given windfall profits because the national need for additional
supplies in an emergency period compels the payment of higher prices
for additional supplies. The high-cost production can be identified, the
amount of additional payment therefor can be determined, and it should
be paid in the form of a subsidy while the general market price is held.
The same policy is proper in the case of imported commodities, both minerals and other goods. Where higher-cost imported goods must supplement the domestic supply of the same commodities in order to meet essential
requirements, the domestic price should be held and subsidies in the necessary amount should be paid to the importer. The high-cost supplier is, in
such a case, easily identified, and the necessary differential is readily determined. The policy may well be extended further with respect to some
I52
imported goods, where they constitute the entire supply and are important
elements of cost. In order to limit the effect upon the cost of domestic
production into which foreign materials enter, it is sound policy in some
cases for the Government to fix a low price on the sale of imported materials
and to absorb the loss. These policies were applied in many cases during
World War II.
The question has also arisen as to whether subsidies should now be used
generally to hold down the price of food, by making payments to farmers in
lieu of price increases which otherwise might be necessary to obtain an
adequate volume of farm production.
First of all in this connection, it is necessary to say something about farm
prices and incomes in general, and about the national policy of farm parity
and farm price supports.
There has been some tendency in recent years to misinterpret the trend
of farm prices and farm incomes. Farm prices are more volatile than
many other prices, and respond more sensitively to market changes. While
they have at times moved upward more rapidly than other prices, they tend
to move downward much more rapidly whenever any softening occurs in
the general economic situation. Farm income declined much more rapidly
than other major incomes in the 1949 recession, and even though farm
income has risen substantially in the past year, a case can hardly be made
that, by sound criteria, farm income as a whole is high in comparison
with other incomes, although there are exceptions in the case of some farm
commodities.
This being the case, there would seem to be no reason to tamper fundamentally with the parity principle, even in the course of the stabilization
effort. Even in that effort, a fair relationship among groups should be
maintained, and the parity principle does not operate to confer unjust
benefits upon farmers as a whole.
Insofar as farm prices rise above parity, they can be subjected to controls
the same as other prices, except where this is prevented by special legislation. The Council does not favor such special exemptions.
This brings us to the view that the maintenance of the parity principle,
and of the customary farm price support program, is not inconsistent with
effective stabilization on a fair basis. Parity prices of farm products rise
and fall with the index of prices paid by farmers. If nonfarm prices are
held, the parity index can rise only to the extent that there are increases in
prices of feeds and other farm products bought by farmers. Insofar as the
price of food to the consumer is determined by many other factors besides
the price paid to the farmer, the effort to stabilize the consumer's food prices
cannot be limited to a consideration of farm prices.
Since the stabilization effort should be permitted to control farm prices
when they shoot above parity, the only sound basis for refraining from such
control would be if higher prices are necessary to stimulate an adequate
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volume of farm production. The case for subsidies, therefore, must rest
on the ground that it is better to hold the farm price line and pay subsidies
to stimulate the needed production. There was such a program of food
subsidies during World War II, applying particularly to meat and dairy
products, which involved payments of about 4 billion dollars. The
rationale of this program was that it was necessary to prevent the spiralling
effect upon wages and other costs of production if higher prices were paid
for these food commodities in order to bring about the necessary volume
of supplies. The record made a good case for the argument that the cost
of the food subsidies was very much less than the cost in higher prices to
consumers would have been, if market prices had been relied upon to bring
forth the necessary goods.
However, a uniform subsidy, paid to all producers of a commodity in
general use, should not be hastily substituted for a rise in price as an
incentive to adequate production for a period of partial mobilization as
long as now is in contemplation. It is more appropriate to an emergency
situation of seemingly more defined length, and when the pressure on supplies is more similar to the World War II situation than is now the case.
At this time, it would not be prudent to embark upon a program to pay
general food subsidies. There is now no marked deficiency in the supply
of foods. The necessary increase in food production requires the liberal
fulfillment of the needs of farmers for machinery, fertilizer, and labor.
Supplying these needs, which we have ranked as equal with any of the
demands of the defense program, is under present circumstances sounder
than a general program of subsidy payment. Under changed circumstances, it would be appropriate to consider general food subsidies. The
Council's analysis points to the danger of renewed and increased inflationary pressures. The recent floods are a reminder that food supplies are never
certain. As the President said in his Message of April 26 to the Congress:
"If we find that we cannot hold the line on food prices with powers recommended here, we shall need to consider legislation authorizing the use of
other devices, including limited food subsidies, to prevent necessary price
increases from being reflected in rises in the cost of living."
Wage policy
Discussion of wage stabilization policy should differentiate clearly among
three main aspects of the wage problem. These three aspects are: wages
as an incentive and reward to workers for their efforts and as a factor in
the movement of manpower; wages as a factor in consumer purchasing
power; and wages as a major element in business costs. The difficult problem of wage stabilization is to achieve a wage policy which will permit wages
to perform their function as incentive an/i reward for production and treat
workers fairly, while holding to a minimum the contribution of wages to
higher prices. Wage increases may contribute to rising prices in two ways,
154
by adding to consumer spending power and by adding to business costs.
In considering wages as incentive and reward to workers, and as a factor
in consumer purchasing power, it should be remembered that there are
three distinct approaches to holding down consumer demand: (1) prevent
incomes from rising, (2) siphon off income through taxation, and (3) encourage larger savings. All three are needed in a stabilization program. The problem of wage stabilization is sometimes discussed as if
the first of these approaches were the only one available to hold down the
demand of workers for consumer goods to the supplies available. But this
imposes an impossible burden on wage policy, for it might follow that there
should be no increase in the total of real wages during the next year or so,
since consumer supplies cannot be increased appreciably due to the defense
effort. Such a wage policy would be unattainable in fact, and insupportable even if it could be attained. With the employed growing in
number, and with hours increasing in some industries, such a policy would
require both a reduction in wage rates and a reduction in the real earnings
of the average employee. This would be incompatible with the concept of
wages as an incentive and reward to workers, or with fairness or industrial
peace. In an expanding economy, it would result in other types of income
moving forward while individual wages were reduced. It would represent
a decision that, if a large portion of total income throughout the economy
must go into savings to prevent inflation, only an unduly small fraction of
this saving opportunity should accrue to wage earners. And such an unworkable policy, as applied to wages, would be compounded by the fact
that increased personal income taxes cut heavily into take-home pay in
any event.
Consequently, the essence of sound wage stabilization is to place considerable restraint upon swelling wage incomes, but not to impose such
restraints as would disregard the function of wages as a reward and incentive
for employees.
For the kind of partial mobilization period which now confronts us, the
major elements in a sound wage stabilization policy seem to be the following:
First, Government action under current conditions should be directed
toward restraining wage increases of the magnitude which an economy operating at such high levels of production could afford, if the defense output
were not so great as to cut into rising standards of living.
Second, wage adjustments should be approvable at regular intervals to
cover past increases in the cost of living. Maintenance of real wages during
inflation cannot in fairness be disallowed. It is unlikely that any free
government can successfully hold wages rigid if it is not successful in holding the line on the cost of living; and insofar as that line is held, the
so-called "escalation" of wages is reduced to minor significance. As a
corollary of this, however, it should be frankly recognized that "escalation"
155
of wages does become one of the moving factors in the spiral of inflation if
the cost of living is not substantially stabilized; and, therefore, holding
the line on the cost of living is essential to stabilization on the wage side
as well as on the price side,
Third, a more difficult problem is presented as to whether wage increases
should be permitted to reflect increases in productivity. Many workers, for
example, those paid on a piece-rate basis, already receive higher wages when
their productivity increases. Farmers and businesses receive higher incomes
as their productivity increases. Neither production nor morale would be
furthered, if large segments of workers were denied a return for their
contribution, and they do make a very real contribution, to increased
productivity.
However, if no restrictions whatsoever were placed upon wage increases based upon "productivity", wage stabilization would become almost
impossible. Wage increases of any size might be negotiated and denominated as "productivity gains". Such gains, first obtained in particular
sectors of the economy, would under a stabilization program tend to become
generalized throughout the economy. Restraints need to be put on wage
increases of excessive magnitude, because if such large wage increases
became a general pattern, they would build up excessive inflationary pressure on the consumer side. In addition, while they might not require price
increases in some strongly situated industries, they would when generalized
require price increases in many other industries. Thus, in allowing productivity gains, certain safeguards merit consideration. In the first place,
some limits should be set upon the size of these arrangements, and effort
should be made to relate them to realistic appraisal of the amount of
lowered unit labor costs. In the second place, more leadership and effort
should be directed, not only toward providing just reward for increased
productivity, but also toward doing everything possible to achieve increased
productivity. Both labor and management can make great contributions
toward this end. The Government may legitimately encourage them to
do so, when the national need is imperative, and when the Government
in the course of a wage stabilization program is being asked to allow
incentives toward this end. In the third place, so long as there cannot be
a general expansion of consumer goods, a policy of allowing productivity
gains should be combined with efforts to stimulate voluntary plans for
translating at least a portion of these increments of income into savings
rather than into immediate spending. The possibilities along this line have
been very inadequately explored, and much more vigor should be directed
toward them.
Fourth, the wage freeze of January 25 generated a wide variety of inequities, many of which have not yet been eliminated. Obviously, the
Wage Stabilization Board should seek to define types of inequities so that
such situations can be dealt with promptly under uniform general policies.
156
However, not all cases of hardship or inequity can be anticipated by general
regulations. If the mandate of Congress is to be followed, there must
continue to be some independent appraisal, unless the claims of hardship
or inequity are to be summarily dismissed.
Fifth, fringe benefits, such as private pension plans, should not be treated
in the same category as wage increases, because they do not result in an
increase in take-home pay, and consequently do not enlarge the immediate
spending stream. They have the advantage of providing scope for collective bargaining, which is limited in other respects under a stabilization
program. However, while fringe benefits do not add immediately to
inflationary pressures on the consumer side, they are not generally needed
to stimulate production, and, consequently, they should be held within a
range where they do not add sufficiently to business costs to require price
increases. This requires consideration, not only of whether a particular
business can grant fringe benefits without cost increases, but also whether
the general business area into which these fringe benefits are likely to
expand quickly if started in one place can absorb them without price
increases.
A wage policy along these general lines would cause total wage incomes
to rise moderately during the next year or two, during a period when goods
available for consumer use cannot be increased substantially because of the
size of the defense program. But this disparity, if it is not permitted to
become excessive through too loose a wage policy, should be corrected
through appropriate tax policy and through inducements to voluntary
saving. To try to handle the whole problem through an excessively restrictive wage policy would lose more by way of production incentives and
worker morale than it would gain by way of stabilization. A balance must
be struck between production and stabilization objectives, between necessary
restraint and necessary incentives.
There remains to be considered the question of whether a wage policy
along these general lines would be consistent with reasonable price stability.
The answer to this question calls for analyzing separately the different
phases of wage policy. Productivity increases, surrounded by the general
safeguards suggested above, and held in the neighborhood of the average
productivity gain for the economy as a whole, should be capable of absorption
without price increases in most industries. That is the meaning of a genuine
productivity gain. Fringe benefits, as has been indicated, should be held to
a size that can be covered by business earnings without price increases; if the
cost of private pension plans and similar devices needs to be passed on to the
general consumer, then it would be better to finance such protection through
taxes and embody it in the public social security system. Cost of living adjustments are required for reasons of fairness, whether or not they involve
price increases; but if the cost of living line is held, this problem should not
be substantial. In the case of wage adjustments to correct inequities and
substandards of living, or draw manpower into essential production, these
actions need to be taken whether or not they necessitate price increases. In
these instances, if properly administered, the necessity for the wage increases
to help the economy to function efficiently outweighs the desirability of absolute and inflexible price stability. In general, if price increases are granted
only where earnings are inadequate to stimulate production, and are not
granted automatically whenever certain cost increases occur, the pursuit
of the general wage policy indicated above would be consistent with the
achievement of the price stabilization policy previously discussed.
The Council is fully aware of the difficult administrative and policy issues
which have thus far prevented the development and enunciation of a
rounded wage policy. The thorny issues confronting the Wage Stabilization
Board should not be minimized.
Allowing for this, the Council feels that the further clarification of wage
policies, toward which the Wage Stabilization Board is moving, is in the
best interests of labor, management, and the general public. It would protect workers from the popular misimpression that wage stabilization is being
undermined whenever there are departures from early regulations which
were not intended to be a complete or durable wage policy. It would afford
management a greater sense of stability regarding the general contours of
wage developments than is possible so long as each major case tends to be
construed by a part of the public as a new wage policy outside of any
central frame of reference. It would be helpful to the informed public by
providing a complete statement of wage policies just as soon as it can be
formulated.
Such a statement would not deprive the Wage Board of its ability to
handle new and hard cases on a pragmatic basis. It would not stultify
collective bargaining, but on the contrary might make clearer the ambits
within which collective bargaining can make a great contribution to the
defense effort. It might even leave more play for collective bargaining
than is now the case, by highlighting a few ground rules consistent with
stabilization. The development of such a statement would not even
prevent changes in wage policies, whenever new experience or altered
conditions dictated the need. In a full-scale war, wage stabilization may
command a degree of public support which permits each new case to be
handled on a purely ad hoc basis. But wage stabilization in a partial mobilization does not automatically command that degree of public support. It
can win that support only if it makes clear to the public at large the underlying reasons for what it is doing, and the soundness of these reasons in
terms of the well-being of the economy as a whole. In the judgment of the
Council, there is no way, short of a rounded and defined statement on wage
policies, to accomplish this vital objective.
158
Savings programs
The degree of inflationary pressure that results from an excess of disposable income over the available volume of goods depends largely on the
rate of voluntary personal saving. In general, the higher the rate of saving, the less the inflationary pressure. The form in which accumulations
of personal savings are held is also important. If savings are invested in
homes or in the physical assets of businesses, they become a source of
demand much as if they had been spent on consumer goods.
The fraction of his income that an individual will save depends on
various personal and social factors. Judging from past experience, if the
proper atmosphere of price stability is maintained, campaigns to promote
additional saving can have considerable effect in increasing the savings
of certain groups and, accordingly, the total amount of saving. The rate
of saving is also increased by shortages of some goods and by various kinds
of direct controls. A higher rate of personal savings which results from
this cause does not in itself reduce inflationary pressure; it merely measures
or reflects the success of the controls. It is particularly important that
such savings be converted into savings bonds or similar assets to hold down
their future inflationary potential.
Some types of assets are more liquid than others; and it is desirable
that as large a part of additions to saving as possible be converted into
those types of financial assets which are least likely to be converted into
demand for goods in the short run. Savings bonds are an especially suitable form of investment for this purpose, particularly since there is an
incentive—in the form of a gradually increasing effective rate of interest—
to hold these bonds to maturity. The campaign to promote the sale of
United States savings bonds to individuals, particularly through payroll
deduction plans, should be accordingly broadened and intensified. Bond
campaigns add to total saving, and serve to convert holdings of money into
less liquid assets.
Credit controls, by holding down the growth of consumer credit, can contribute to a high net rate of personal saving. Moreover, repayments of
previously incurred debt also contribute, since a decrease in the volume
of total consumer credit is made possible in most cases by less spending
out of current income, that is, by positive saving.
The world-wide problem of inflation and stabilization
It was pointed out early in this Review that, in the past year, the price
inflation generated by the rise in world demand has gone much further in
most other countries than in the United States. (This fact is shown in
table 11 and in appendix table B-27.) In Western European countries
increases in wholesale prices since the Korean outbreak are, in 13 out of 16
cases, 20 percent or more, and in 7 they are 30 percent or more. This
contrasts with 16 percent in the United States. Because the economies of
159
TABLE 11.—Range of wholesale price increases in foreign countries since June 19501
Number of countries in range
Range of percentage increases
Total
Oto9
10 to 19
20 to 29..
30 to 39
40 and over
9
13
12
10
2
Western All other
Europe
1
2
6
7
8
11
6
3
2
1
To the latest date for which data are available.
Source: Appendix table B-27.
these countries have been under great strain, and because in some of them
the political and social situation is tense, inflation raises not only the question of equitable distribution of the economic burden of defense; it also
raises the grave question of the ability of their governments to carry
through the needed defense programs and maintain political stability.
Similar questions affecting political stability and the security of the free
world also arise from the acute inflations in some of the countries outside
Western Europe.
,
This whole complex of questions is one of our major national security
problems. The President's request for economic aid for foreign countries
is designed to take it into account. The foreign aid program, however, can
alleviate only the worst of the strains on the economies of countries receiving aid. Even with it, these countries will remain subject to intense
inflationary pressures. In many of them, the rise in domestic prices has
substantially exceeded the rise in the prices of the goods they trade in
world markets, indicating that a considerable element of the inflation
has been of domestic origin, even though it may have been set off by
events which occurred outside. But in many other countries, the pressure
comes mainly from world prices which they are powerless, individually, to
control by purely domestic policies. It should be realized that in many
countries, for example most of those in Western Europe, the value of merchandise imports or exports prior to the post-Korean price rise amounted
to between one-fifth and two-fifths of their gross national products. This
contrasts with less than 4 percent in the United States, where the influence
of prices for foreign-traded goods is much less important.
The main burden of dealing with these pressures must fall upon the individual countries themselves. In Western Europe, the problem is particularly difficult because, in nearly all cases, the monetary inflation has been
accompanied by a deterioration in the terms of trade which tends to reduce
the supply of goods available for domestic use. Nearly all the Western
European countries have taken action to restrict credit. In many of
them tax revenues (including local government and social insurance taxes)
already amount to about one-third of gross national product, contrasted
160
with about one-quarter in the United States. In some other cases, tax
administration constitutes so serious a problem that tax increases of a type
which would not raise the cost of living and set off new wage demands
might be ineffective,, and the governments concerned are not in a position
to solve the problem of administration quickly. These are the very countries which have suffered sustained and progressive declines in the value of
money over a long period of time and in which, consequently, the public
willingness to save (in forms other than goods) is weakest and the reaction
of expectations of price rises is quickest.
In view of this difficult situation, plus the fact that the basic problem is
a general excess of world demand over supply, anti-inflationary action by
all free nations is desirable. The knowledge that other nations were engaging in similar action would give each nation greater confidence that its own
efforts would not be futile. The United States can greatly assist in the
success of such a free world effort. As by far the largest single consumer
of the world's production and the major importer of world-traded goods,
we can exert great influence upon inflationary pressures. If we do not,
only limited success can be attained by other nations. Thus, international
considerations greatly reinforce the already strong domestic need for
vigorous anti-inflationary action. In addition to action by example, the
United States should exert its influence through international organizations, and in any other ways it properly can, to persuade others to take
vigorous anti-inflationary action.
161
IV. Detailed Economic Developments During
the First Half of 1951
After general control of prices and wages was ordered on January 26,
1951, the forces of the free market were limited in dominating and directing
the course of the economy. While consumers and businessmen have been
but little restricted as yet in making their own choices as to the volume and
direction of their expenditures and investments, their decisions as to employment, production^ and investment are no longer based upon the expected
normal effects of free market forces.
THE EXPANDING ECONOMY
The measurement of the economy's production, in money terms, is found
in the estimate of the gross national product, which is the sum of expenditures for personal consumption, for private domestic investment, for government purchases of goods and services, and for net foreign investment. All
of these items being money figures directly affected by changes in prices,
they must be recalculated in constant prices in order to derive an index of
the volume of goods and services actually produced.
In the second half of 1950, rising prices and rapidly increasing production combined to accelerate the rapid increase in gross national product
which accompanied the recovery from the recession of 1949. In the second
quarter of 1950, gross national product in current prices rose to the record
level of a seasonally adjusted annual rate of 275 billion dollars. In the third
quarter, it sprang upward to 287 billion, and in the fourth quarter to 304
billion. The rise in the first quarter of 1951 was almost equally rapid, to
319 billion, and the estimate for the second quarter is 329 billion. (See
appendix table B-l.)
About three-fifths of the increase in gross national product in the first
quarter of 1951 was due to price changes. The real growth in the economy
in that period was about 2 percent. The estimated increase of about 10
billion dollars in the annual rate of gross national product in the second
quarter requires much smaller adjustment, price changes having been
much less rapid, and a real growth in the neighborhood of 3 percent is
indicated. (See appendix table B-3.)
162
CHART
25
CIVILIAN LABOR FORCE
Since mid I960,the civilian labor force has not increased,largely because
men were being drawn into the armed forces. Nonagricultural employment
has increased 2.1 million from the first half of 1950 to the first half of
1951, while-agricultural employment has declined.
MILLIONS OF PERSONS*
MILLIONS OF PERSONS*
70
70
30
20-
20
10
10
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J
1948
1949
1950
1951
Unemployment, as a percent of civilian labor force,fallowed a declining
trend from the February 1950 high of 7.6 percent to a postwar low
of 2.6 percent in May 1951.
PERCENT
10
10
UNEMPLOYMENT
AS PERCENT OF CIVILIAN L/XB OR FORCE
T:
V
££
X
X-
£
•-
1 •^ sb; iltei^
ix|:'.:-
••••
•:•: :•:•
% •:•* £ «
x
sk
;4::i
:::j::j::jj::v;
x1*3xfe: '•X
:
::
: ::
X
X;
V,
::::
1948
v,
;X
>
•;•;
- 5
X FJ
v rn
7T|
v
:j
'.;
|
:•
1
v!
xj
SOURCE: DEPARTMENT OF COMMERCE.
163
ihrll
Ivf ; I :;fX;
x
1950
1949
ji:
:?
•:•:
'I-
•^•14 YEARS OF AGE AND OVER.
:•:
X T
|
v!
5 -
xl:J:fe:
195)
THE LABOR FORGE
Employment
There has been a considerable increase in employment and in the number
of persons in our labor force since the Korean outbreak. In the first
half of 1951, the total labor force, including the armed services, averaged
about 1*4 million higher than in the first half of 1950. Only about /a percent more of the population 14 years old and over were in the labor force in
the first half of this year than in the first half of 1950. (See chart 25 and
appendix table B-ll.)
Civilian employment averaged 60.2 million in the first half of 1951 and
reached a level of 61.8 million in June, which represents an increase of
300,000 workers over June 1950. Since January of this year, due mainly
to the seasonal increases characteristic of agricultural employment, civilian
employment has increased 2.8 million.
Nonagricultural employment, after expanding rapidly in the last half
of 1950, has been relatively stable. At an average level of 53.4 million
during the first 6 months of 1951, nonagricultural employment was
2.1 million higher than during the same period a year before. It is now at a
level of 53.8 million workers, having increased 800,000 in the first 2
months of the year, after which it remained steady. The rise from January
to June was largely the result of a seasonal increase in construction.
Despite the increased demand for food and fibers, agricultural employment has continued its long-run decline, averaging 500,000 lower during
the first half of 1951 than in the comparable period a year before. In June
about 8.0 million persons were engaged in farm work, this being a period
of high seasonal farm employment. However, this level is more than a
million lower than in June 1950.
The build-up of the armed services was the most significant development
affecting the labor market during the first half of 1951. Although the total
labor force expanded substantially because of continued increases in the
armed forces, the civilian labor force averaged 62.3 million during the first
half of 1951—about the same as in the first half of 1950.
Despite the new labor market demands arising from mobilization, there
is not now a general manpower shortage, although a few important labor
market areas are tight. The most pressing manpower problem arises out
of shortages that prevail in certain key, skilled occupations, notably those
in metal-working industries. There are also serious shortages within the
professions of doctors, dentists, and nurses, and many kinds of scientists
and engineers.
Manufacturing employment averaged 1.7 million higher during the first
6 months of 1951 than in the first 6 months of 1950, both durable and nondurable goods industries showing increases. The larger increase was during
the second half of 1950. The smaller gains this year, which brought total
164
CHART 26
CHANGES IN NONAGRICULTURAL
EMPLOYMENT
The largest increases in employment during the past year were
in durable goods manufacturing, in contract construction, and
in government. Employment increased much less in nondurable
goods industries and in finance and service, and declined in mining.
-5
PERCENT CHANGE, JUNE I960 TO JUNE 1951
0
+5
-HO
+15
DURABLE GOODS
MANUFACTURING
CONTRACT CONSTRUCTION
GOVERNMENT
TRANSPORTATION AND
PUBLIC UTILITIES
FINANCE AND SERVICE
NONDURABLE GOODS
MANUFACTURING
TRADE
MINING
SOURCE: DEPARTMENT OF LABOR.
manufacturing employment to a level of 15.9 million persons in June, have
been almost entirely confined to industries manufacturing durables. Employment in contract construction during the first half of 1951 was 360,000
higher than a year ago, and employment was up the same amount in trade.
Government employment exceeded the level during the comparable period
last year by 425,000. (See appendix table B-12 and chart 26.)
There was a considerable lengthening of the average workweek during
the second half of 1950. During early 1951, however, changes became very
irregular. From June 1950, the average workweek in manufacturing industries increased from 40.5 hours to 41.4 in December, and then dropped to 41.0
in January. During the first half of 1951 it remained close to that level.
Hours in duarble and nondurable manufacturing showed contrary trends.
165
While average hours in durable manufacturing varied between 41.5 and
42.0 a week during the first half of 1951, indicating that a considerable
amount of overtime was being worked, hours in nondurable manufacturing
declined from 40.2 hours a week in January 1951 to 39.4 during June. (See
appendix table B-13.)
In contrast to the overtime scheduled in some industries, about 9.8 million persons were working less than 35 hours a week in February 1951.
However, the majority of these were employed part-time through choice.
Only about 1.1 million persons with full-time jobs were on reduced work
schedules because of economic factors. Pointing up the vast improvement
in the general labor market situation over the past year, the proportion in
this part-time group who were working shorter hours because of cutbacks
resulting from declines in business activity dropped to 46 percent in February of 1951 from 61 percent in November and 80 percent in February
1950. On the other hand, roughly 40 percent of the group working parttime in February 1951 because of economic reasons were on reduced hours
because of material shortages, compared with around 10 percent in the same
period of 1950.
Unemployment
The increase in employment in the first half of this year over the first half
of 1950 was made possible primarily through a reduction of unemployment
rather than by net additions to the civilian labor force. During the first
6 months of last year, unemployment averaged almost 3.9 million. It
averaged only slightly over 2 million during the first 6 months of this year,
a reduction of almost 2 million in the number of unemployed. In May
1951, unemployment at 1.6 million had reached its lowest postwar level.
There was, however, a seasonal increase in June, mostly students hunting
for summer jobs, which brought the total number of persons unemployed
to almost 2 million. (See chart 25 and appendix table B-l 1.)
There have been some instances of unemployment resulting from
conversion to defense production, although to date none has developed
on a large scale. In most cases, displaced workers have had no difficulty
in finding other jobs. With unemployment at its present low level, and
new jobs continuing to open up, conversion unemployment should not
reach serious proportions.
In addition to the decline in unemployment from the first half of
1950 to the first half of 1951, there have been important changes in
the duration of unemployment. In June 1950, the average duration of
unemployment for those persons who reported they were unemployed at the
time of the survey was 12 weeks. In June 1951, the average duration
was 8 weeks. In the first half of 1950, about 37 percent of the unemployed
reported that they had been without work for 4 weeks or less; in the first
half of 1951, almost 50 percent of the unemployed had been without
166
work for 4 weeks or less. The "hard core" of unemployment also declined: in the first half of 1950, 11.6 percent had been without work for
26 weeks or more, but in the first half of 1951, less than 8 percent had
been without work that long.
Unemployment compensation claims reflected the drop in unemployment. From a weekly average of around 245,000 initial claims in June 1950,
they dropped to about 195,000 in June 1951. Total weeks of unemployment claimed dropped by almost 40 percent from June 1950 to June
1951. In June 1950, they averaged about 1,565,000 a week, but in June
1951 the weekly average was around 945,000.
PRODUCTION
The total output of goods and services (i. e., the gross national product
corrected for changes in prices) reached record postwar levels in the first
half of 1951, and was about equal to the peak war year of 1944. (See
chart 13, page 61.)
CHART 27
INDUSTRIAL PRODUCTION
After rising sharply throughout 1950, the total index of
industrial production was stationary from April through June
of this year.
INDEX, 1935-39 s 100
300
INDEX, 1935-39 * 100
300
250 ~
- 250
200 -
200
150 -
-
too
«nn I i i i i i \
J F M A M J J A S O N D J F M A M J J A S O N O J F M A M J J A S O N D J F M A M J
1948
1949
1950
SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.
150
167
1951
Industrial production
The index of industrial production, which was 199 in June 1950 (193539=100), four points higher than the highest level reached in 1948,
dropped to 196 in July, and then advanced rapidly as business was invigorated by the pressures of semimobilization policies. It reached 218 in
December; and in January 1951 the advance to 221 marked continued
substantial progress in economic expansion. After remaining at that
level in February, the index rose to 222 in March and to 223 in April, where
it remained for 3 months. (See appendix table B-17 and chart 27.)
The stability of industrial production since March reflects a combination of three factors affecting various industries. Some industries had
reached practical capacity, and could expand only slowly. Some were
affected by restrictions on the use of metals. Finally, some industries
were unable to find markets for greater output.
Table 12 compares the May output of several industries with peaks
reached since the beginning of 1950. The particular industries listed in
table 12 were selected because trade comments suggest that the decline in
output in these cases probably was due to the inventory situation or to a
weakness in current demand rather than to a shortage of raw materials.
TABLE 12.—Output of selected industries, May 1951 compared with 1950—51 peak
[1935-39=100, adjusted for seasonal variation]
1950-51 peak
May 1951
Industry
Index
Furniture
_ - Cotton consumption
Rayon deliveries
Carpet wool consumption
Apparel wool consumption
Shoes
Confectionery
Malt liquor
Whisky
Cigars
BitnTTifnniis f^O^l
Anthracite coal
_--
_ _ -
_ _ _
175
163
378
U38
U57
110
U28
157
117
105
126
81
198
175
397
228
179
133
158
185
178
127
151
108
Month
October 1950
_ .
March 1950
December 1950 . _
October 1950
October 1950
September 1950
August 1950
January 1950
March 1950.
_._
March 1950
January 1950
March 1950
Percentage
decline
from peak
to May
1951
11.6
6.9
4.8
39.5
12.3
17.3
19.0
15.1
34.3
17.3
16.6
25.0
i April 1951 data.
Source: Board of Governors of the Federal Reserve System.
Irregular increases were registered in the durable goods sector through
the first quarter of this year. The expansion occurred chiefly in those
industries producing directly or indirectly for the defense program. Producers of machinery continued to increase their output sharply. The
iron and steel industry produced at record levels while continuing to add
to productive capacity. Production of two other basic metals—aluminum
and copper—increased. In the first quarter of this year, primary production of aluminum was about 12 percent above the average for 1950.
The industry produced at the full capacity of active plants, and productive
capacity was being increased through reactivation of plants used in the
168
last war as well as through new investment. Output of refined copper
showed a limited increase, with production 2 percent higher than in 1950.
The aircraft and shipbuilding industries continued to expand rapidly.
Freight car production increased from a level of 5,700 cars in December
to about 7,000 in March. In the second quarter, the volume of production
had reached the level of current capacity in some of the basic industries.
Output of machinery, of nonferrous metals, and of iron and steel has
remained about stable since March.
Consumers' durable goods production generally has fallen considerably
since the beginning of 1951. In the first quarter, most consumer durable
goods industries, although at a high level of production, were below the
peak levels of output of the second half of 1950, when the upsurge of
consumer demand pushed production to record highs. In the second
quarter, there were cutbacks in the output of most major products, the
largest decline being in television sets.
The total output of nondurable goods has declined somewhat since the
beginning of the year. There has been a steady rise in the output of chemicals and allied products, largely synthetic rubber and industrial chemicals,
under the impetus of defense needs. Output of textiles, however, has
fallen, in part as a result of strikes in the industry in the spring, and also
because of easing of consumer demand.
Average output of minerals in the first half of 1951 showed a small rise
from the second half of 1950. Crude petroleum production has been
at record levels, with output at over 6,000,000 barrels a day since early
April. The mining of iron, copper, and zinc has also increased.
Output of electric power has been well above last year, but in the
second quarter of 1951 the margin of increase over 1950 fell below that
of the first part of the year.
Agricultural production
Domestic supplies of foods in the coming year will probably be at
least as great as those of last year and fully adequate to meet normal
requirements. The problem is the unusually high demand for meats and
other relatively expensive foods. A further increase above the already
high levels of meat production would either reduce our feed supplies or
require an expansion of feed production.
The July 10 crop report indicates that prospects for 1951 crops improved
greatly since the previous month. The total planted acreage is the
largest since 1933, and present indications are that yields may be among
the largest in recent years. The wheat crop is expected to be well over
1 billion bushels, and greater than the crop of last year. The corn prospects are especially good, present indications pointing to a crop of 3.3
billion bushels compared to 3.1 billion bushels last year. Cotton acreage this year is 58 percent greater than last year's small acreage, and is
almost a million acres more than called for in the agricultural guides.
169
Services
Personal expenditures (corrected for price changes) for services rose
about ll/2 percent from the second half of 1950 to the first half of 1951.
This compares with an increase of over 2 percent from the first to the
second half of 1950. (See appendix table B-3.)
PRICES
The year 1951 opened on a floodtide of price increases resulting from
heavy buying that followed the Chinese intervention. The rise was almost
as rapid as that which occurred in July, following the first outbreak in
Korea, and it spread more generally through the price structure. To halt
the upsurge, a general price freeze was imposed on January 26. By midFebruary, prices had leveled off; and while there were moderate uptrends in some markets and downtrends in others, they remained remarkably stable for the next 2/2 months. In the second quarter, some
easing in prices developed as consumer spending dipped moderately and
as businessmen became concerned about the rate of accumulation of
inventories.
Since Korea, the major movements in prices have been as follows: from
June to the issuance of the General Ceiling Price Regulation in January,
consumers' prices rose 6.6 percent; the monthly index of wholesale prices
rose 14.5 percent; the daily price index of 28 "sensitive" primary market
commodities rose 45.8 percent. From the issuance of GCPR to midyear,
wholesale prices rose 0.9 percent, and prices of primary market commodities showed a net drop of 11.8 percent; and from January to May, consumers' prices rose 2.1 percent.
The inauguration of controls
Between mid-December and mid-February the average price increase
for the 28 basic commodities covered in the daily primary market price index
was 9 percent. During the same period, the all-commodity wholesale price
index rose 5 percent. Among its components, wholesale farm prices increased 8 percent, wholesale foods 5 percent, and wholesale industrial prices
3 percent. The consumers' price index rose almost 3 percent between
December 15 and February 15. (See charts 28 and 30.)
The pace of price inflation during December and January forced the
decision for an early price freeze. The General Ceiling Price Regulation,
although containing certain exemptions, primarily in the case of farm
commodities, froze most prices in the economy at the highest levels at which
deliveries had been made between December 19 and January 25. As the
first general step since Korea in a mandatory control program (automobiles
had been controlled earlier), GCPR was unprecedentedly broad in its
coverage.
170
While the institution of price controls was a major factor in halting the
rise in prices in February, there were other important factors at work: the
improvement in the military situation in Korea; the delay in cutting back
the production of consumer durable goods, and the consequent continuing
ample supply of civilian goods; the record Government cash surplus
during the first quarter; and the credit restrictions.
Since January, the Office of Price Stabilization has been mainly concerned with building an organization and with shifting away from the
stop-gap freeze to regulations designed to iron out the more serious distortions and inequities which were frozen into the price structure by GGPR.
Wholesale prices under controls
Although most prices were frozen late in January, the price advance
continued until mid-February, primarily because of increases in the areas
left uncontrolled, mainly agricultural products. But the control of other
prices exerted a stabilizing effect on these prices also. (See appendix
table B-25.)
TABLE 13.—Changes in wholesale prices
Percentage change
Korean outCeilKorean
break to Gen- General
ing Price
eral Ceiling
to
to outbreak
June
1951 1
Price Regu- Regulation
June 1951 »
lation i
Commodity group
All commodities
Farm products
Grains
._
Livestock,.
Foods
_ Meats
Other than farm products and foods .
Hides and leather products
Textile products
Fuel and lighting materials
Metals and metal products
Building materials
__
Chemicals and allied products
Housefurnishing goods..Miscellaneous
-
- ._
__ _ _
_
+14.5
+0.9
+15.5
+17.1
+10.2
+12.7
+12.4
+8.3
+14.5
+28.6
+30.3
+2.9
+9.1
+11.9
+26.2
+18.9
+24.1
+2.3
-4.3
+5.8
+2.3
+5.3
+.1
-1.8
-.3
+1.0
+.4
-.2
—1.1
+2.6
—.5
+19.7
+5/5
+19.2
+14.9
+14.1
+14.7
+26.3
+29.8
+3.9
+9.5
+11.6
+24.8
+ 22.1
+23.5
i June 1950 used for date of Korean outbreak, and January 1951 used for General Ceiling Price Regulation.
Source: Department of Labor. (See appendix table B-25.)
Wholesale prices of farm products, more volatile than other domestic
prices during the first half of 1951, rose 8 percent between December and
February as livestock prices increased sharply. Eventually, with livestock
prices up even more but grains down, farm prices reached a peak one-half
percent higher in March. Their course then became uneven but slightly
downward, and at midyear they were at a level 2.3 percent above that of
January. (See chart 28 and table 13.)
Farm prices rose somewhat more than nonfarm prices immediately
following GGPR because farm products below parity in price are exempt
from price control under the Defense Production Act when sold in raw
171
CHART 28
WHOLESALE PRICES
Wholesale prices reached a peak in the first quarter. In the second
quarter, farm and industrial prices declined with the larger drop in
farm prices; food prices fluctuated within a moderate range.
INDEX, 1926 = 100
220
I N D E X . 1 9 2 6 «100
220
200
*-
200
-
180
- 160
140
-
-
120
-
- 120
140
100
100
J F M A M J J A S O N D J F M A M J J A S O N O J F M A M J J A S O N D J F M A M J J /
1949
1948
1950
PERCENTAGE CHANGES
DECREASE
INCREASE
ALL COMMODITIES
FARM PRODUCTS
FOODS
OTHER THAN FARM
PRODUCTS AND FOODS
(INDUSTRIAL PRODUCTS)
_!/PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS, EXCEPT
SOURCE: DEPARTMENT OF LABOR ( E X C E P T AS NOTED).
172
FOR TOTAL.
1951
or unprocessed form. At the time GCPR was issued, most of the major
farm commodities, with the exception of cotton, wool, soybeans, and
livestock, were selling below their parity prices. Furthermore, prices
of farm commodities selling above parity were not included in the
GCPR, pending the issuance of special regulations. As a practical matter,
the freeze technique of price control is not a very workable or effective
one for most farm marketings. Accordingly, OPS has applied specific
dollars-and-cents ceilings at the farm level on several commodities where
effective control is particularly required. The more important actions
have affected cotton, wool, and soybeans. Control of producers' prices
has been approximated in the case of cattle where average buying prices
have been established for beef packers.
In their relation to parity, farm prices moved over a wide range in
the first half of 1951. After reaching an all-time high of 313 (191014=100) in February, the Department of Agriculture's index of prices
received by farmers dropped by June to 301. The index of prices paid by
farmers meanwhile rose gradually during the first 4 months of the year and
remained unchanged during May and June. The parity ratio relating to
these two indexes, which moved above 100 immediately after the Korean
outbreak, reached a post-Korean peak of 113 in February and by June had
declined to 106. (See appendix table B-26.) There were wide variations
among commodities. Thus, beef cattle, wool, cotton, and lambs continued
well above parity. Rice, butterfat, and hogs were very close to parity.
Some farm commodities were considerably below it.
Wholesale food prices registered a net increase of 4.1 percent in the
first half of 1951 and at midyear were 2.3 percent above their GCPR
level. They reached a high in February about 5 percent above the December level, and have not regained that point since. Wholesale meat prices—
the single most important and, from the point of view of control, the most
critical element in the food group—jumped 9 percent between December
and February, but thereafter fluctuated in a relatively narrow range.
The markets which the wholesale index covers contain several production and distribution levels, and since the price controls now developed are
roughly adapted to particular levels, there is no single pattern of controls
in the "wholesale food" area. For those foods which move directly from
the farmer to the consumer without processing, what is said above about
the control of farm prices applies. With the exception of those processing
industries which have since been removed from GCPR and subjected to
other regulations, food processing is subject to the general freeze, with
provision for a dollars-and-cents pass-through of any increases in farm
prices which were below parity at the time of the freeze. Among the
exceptions, the selling prices of beef packers have, since May, been subject to dollars-and-cents ceilings. In addition, producers of nonseasonal
(mostly dry) groceries are to be subject to the General Manufacturers'
173
CHART 29
WHOLESALE PRICES
OF INDUSTRIAL PRODUCTS
Industrial prices reached a peak in the first quarter. In the second
quarter declines occurred in prices of textiles, chemicals, hides and
leather, and building materials. Metal prices generally stayed at
about their ceilings.
INDEX, 1 9 2 6 = 1 0 0
250
I N D E X , 1926 > I O O
250
225 -
- 225
200 -
- 200
125
100
O N D J F M A M J J A S O N D J F M A M j l /
J F M A M J J A S O N D J
1948
1949
1950
1951
250
250
225 -
- 225
200
- 200
125 -
- 125
100
100
J F M A M J J A S O N D J F M A M J J A S O N D | J F M A M J J A S O N D] J F M A M J V
1948
1949
1950
•M- ALL COMMODITIES OTHER THAN FARM PRODUCTS AND FOODS.
.!/PRELIMINARY E S T I M A T E S BY COUNCIL OF ECONOMIC A D V I S E R S .
SOURCE.DEPARTMENT
OF L A B O R ( E X C E P T
AS
NOTED).
174
1951
Regulation when it goes into effect. Wholesale food distribution, still partly
under GCPR, is now subject to a few dollars-and-cents ceilings, the major
case being that of beef. The principal technique of control at this level since
April, however, has been that of fixed percentage mark-ups as specified by
OPS. Such margins, which approximate those established by OP A during
World War II, are differentiated by type of wholesaler.
Industrial prices in the first half of 1951, while following the same pattern
as the other wholesale price groups, have been the least volatile. They
rose 3 percent between December and February, and rose fractionally
in March. Thereafter, they were in a slow and steady decline, dropping about 1 percent during the second quarter. Among the industrial
commodity groups, the prices of metals and metal products have been
extremely stable throughout the half year. Building materials and fuel and
lighting materials rose moderately in the first quarter and declined slightly
in the second; textile and allied products rose briskly during the first quarter
and have dropped moderately since; and chemicals and allied products have
been subject to considerable price fluctuations—mainly because of variations in prices of fats and oils. (See chart 29.)
The general price behavior of raw materials is more clearly indicated
by the limited daily index of primary market commodities than by the overall wholesale index, because the latter covers successive processing and
distributive levels. Just as the daily index far outstripped the other measures
of price inflation from last June to February^ so it has been the most
emphatic in recording the downward tone of prices since that time. Since
February 16, the prices of the 28 "sensitive" primary market commodities
have dropped on the average about 15 percent.
The pattern of price control of manufactured commodities was to be
set by the General Manufacturers' Regulation, issued in late April, and was
to have been effective in July. This pattern was followed in similar regulations which have been issued for the machinery, cotton and wool textiles,
apparel, and shoe manufacturing industries. The objective of these regulations is, by sweeping action, to remove the principal distortions and
inequities of the general freeze by restoring the same relationships between
manufacturers' costs for labor and manufacturing materials on the one
hand, and, on the other, the prices which existed in the pre-Korea base
period. However, at midyear the application of these regulations was
suspended, pending renewal of the Defense Production Act.
Consumers3 prices under controls
In the three months ended February 15, consumers' prices rose at an
average rate of 1.4 percent monthly. As with the other price indexes,
the trend of the consumers' price index changed at this point. From midFebruary to mid-March, it advanced 0.4 percent; from March to April,
there was virtually no change; and in May consumers' prices again rose
0.4 percent, mainly as the result of seasonal movements in some fresh
175
CHART 30
CONSUMERS' PRICES
Consumers' prices continued to reach new record levels in the
first half of 1951, but since the institution of price controls,
the rise has been very moderate. Rents maintained their
postwar rate of increase.
INDEX,
INDEX, 1935-39 » 100
1935-39 = 100
240
240
220 -
- 220
200 ~
200
180 -
- -180
160 -
- J60
140 -
- »40
120
- 120
100
100
J F M A M J J A S O N O J F M A M J
1948
J A S O N D J F M A M J
1949
J A S O N D J F M A M J
1950
PERCENTAGE CHANGES
DECREASE
INCREASE
KOREAN OUTBREAK TO GCPR
ALL ITEMS
|; 2.1 ]
Q G P R TO MAY I9SI
KOREAN OUTBREAK TO MAY 19 SI
FOOD
APPAREL
RENT
-^PERCENTAGE CHANGE TO JUNE 1951
SOURCE: DEPARTMENT OF LABOR.
176
1951
fruit and vegetable prices. On May 15, consumers' prices as a whole
were 2.1 percent higher than they were in January before the general
freeze. (See table 14.) Retail food prices, which had dipped slightly in
April, were 2.5 percent above the January level; apparel prices were up 2.8
percent; and housefurnishings prices were up 2.5 percent. Rents in May
were 1.7 percent higher than in January; there was little change in the
charges to consumers for fuel and public utilities. Preliminary estimates
indicate that from May 15 to June 15 retail food prices declined 0.4 percent.
(See chart 30 and appendix table B-24.)
TABLE 14.—Changes in consumers' prices
Percentage change
Korean
General
outbreak
Ceiling
to General Price ReguCeiling Price
lation to
Regulation » May 1951 1
Item
Korean
outbreak to
May 1951 »
_
+6.6
+2.1
+8.9
Food
Apparel
Rent
Fuel, electricity, and refrigeration
Housefurnishings
Miscellaneous..-
+9.3
+7.5
+1.8
+3.0
+12.2
+4.9
+2.5
+2.8
+1.7
+.2
+2.5
+1.8
+12.0
+10.5
+3.4
+3.2
+15.0
+6.7
All items
_
_ _
_
1
June 15, 1950, used for date of Korean outbreak, and January 15, 1951, used for General Ceiling Price Regulation.
Source: Department of Labor. (See appendix table B-24.)
Retail trade in the first half of 1951, and particularly in the second
quarter, was marked by the most aggressive merchandising since the Korean
outbreak. Retailers, especially in the consumers* durable goods area,
resorted more extensively to liberal discount and trade-in policies and to
clearance sales in order to move their heavy inventories. Much of such
"effective" price reduction, it should be noted, is not fully reflected by
the consumers' price index. The most dramatic instance of aggressive
merchandising was the price war among New York City department stores,
touched off in late May by a decision of the United States Supreme Court,
which opened a big hole in the State price maintenance laws. In New
York City where, before this episode, department store sales had approximated 1950 levels, sales jumped to 25 percent above the preceding year's
level in the first week of the "war" and continued to show a considerable
bulge during the first half of June even after the price slashing had largely
subsided.
By midyear, most sectors of retail trade had been withdrawn from the
General Ceiling Price Regulation and were in most cases subject to price
controls of the percentage mark-up variety. This was true of the majority
of goods that may be roughly characterized as the "department store
type/' of most dry groceries and some perishable foods at retail, and of
177
restaurant prices. Beef was the only major retail commodity subject to a
dollars-and-cents ceiling. Most building materials, farm implements, retail
services, and some other categories were still subject to the December 19January 25 freeze prescribed by GGPR.
WAGES
The first half of 1951 saw an abatement of the most rapid upward movement of wages and salaries in the postwar period. Labor
income (wages, salaries, and other labor income), which reached the annual
rate of 158 billion dollars in the final quarter of 1950 after rising 16 billion
in 6 months, rose over 10 billion to a rate of 168.5 billion in the second
quarter of 1951.
The customary indicators of wage earnings show a slow-down in the rate
of increase. From July to December 1950, average hourly earnings in
manufacturing increased by over 8 cents an hour; from January to June
1951, they increased by almost 5 cents an hour, with earnings in durable
goods industries advancing by 5% cents an hour. (See chart 31 and appendix table B-14.) While hourly earnings in all manufacturing industries
continue to rise, in real terms (as measured by changes in the consumers'
price index) they increased by only l/ 2 cents between January and June
1951. Real hourly earnings in durable goods industries rose almost 2 cents
while real earnings in nondurable goods remained constant.
The rate of increase in weekly earnings was also slower in 1951. Average
weekly earnings in all manufacturing industries increased by almost
$4.70 between July and December 1950, but by about $1.70 between
January and June 1951. Weekly earnings of workers in durable goods
manufacturing increased by almost $3.00 during the first half of 1951,
chiefly as a result of wage rate increases. Earnings of workers in nondurable goods manufacturing rose by only 10 cents during the same period;
the reason was the drop of almost 1 hour in average weekly hours during
1951, which largely offset wage increases. (See appendix table B-15.)
Real weekly earnings rose by about 25 cents in all manufacturing between
January and June 1951. In terms of real wages, weekly earnings in durable
goods industries were more than $1.40 higher in June than in January
1951, but real weekly earnings in nondurable goods industries dropped by
$1.20 between January and June.
Wage stabilization
The pattern of wage negotiations during the first half of 1951 was greatly
influenced by the actions of the Wage Stabilization Board. Almost every
wage negotiation was conducted with an eye toward the Board's regulatory
actions, whether the regulations had already been issued or were merely
anticipated.
178
CHART 31
WAGES AND HOURS
ALL MANUFACTURING INDUSTRIES
Average hourly earnings for all manufacturing industries
rose throughout 1950 and thus far in 1951. Since January,
the average workweek has decreased. Average w e e k l y
earnings increased very slightly.
DOLLARS
(PRODUCTION AND
RELATED W O R K E R S )
DOLLARS
1.65
1.65
1.60 —
1,60
J
F
M
A
M
J
J
A
S
O
SOURCE: DEPARTMENT OF LABOR.
179
N
D
J
F
M
A
M
J
During the period immediately preceding the wage freeze, an unusually
high number of wage settlements took place. It is estimated that at least
600,000 manufacturing workers and probably twice that number in nonmanufacturing and government employment received increases during
the month before the freeze. In many instances, formal reopening dates
or termination dates were advanced in order to negotiate settlements
before the anticipated freeze. The terms of the settlements varied considerably; in some cases provisions for future adjustments in the form of
cost-of-living escalator clauses or deferred increases were included in the
contracts.
On January 26, 1951, the Economic Stabilization Administrator issued
General Wage Stabilization Regulation No. 1, which froze wages, salaries,
and other compensation at the level prevailing on January 25 and provided
that no wage rate at a higher level could be paid without prior approval
of the Wage Stabilization Board. Following the issuance of Regulation No.
1, the Board issued a series of clarifying regulations which (1) exempted
from the freeze agreements reached before January 25 which were to take
effect within 15 days; (2) exempted actions raising wage rates in order to
comply with minimum wage regulations; (3) exempted employees of nonFederal government units from Federal wage controls; and (4) clarified
the status of merit increases and incentive pay under wage stabilization.
On February 27, the Economic Stabilization Administrator issued
General Regulation No. 6. It provides that those workers who had not
yet received wage increases of 10 percent over the level of January 15,
1950, may be permitted increases in wage and fringe benefits up to 10
percent. For the purpose of determining whether the increases already
received by workers equal 10 percent, fringe benefits negotiated prior to
January 25, 1951, are to be excluded. The Regulation also directs that
consideration be given to granting wage increases in "rare and unusual"
cases (those in which wage incentives are needed to attract labor to
defense industry) and in situations where inequities exist. Regulation
No. 8, which was issued on March 1, provides that cost-of-living clauses
contained in contracts executed on or before January 25, 1951, will b§
allowed to continue in operation even if the 10 percent limitation is exceeded as a result. The Board has also issued a regulation pertaining to
the establishment of wage scales in new plants, and so-called "tandem
wage increases" which occur when wage rates in one type of work or
plant consistently follow a pattern established elsewhere. These regulations are modified by two others. Wage increases granted to employees
of religious, charitable, and educational institutions are permitted without
Wage Board approval. The Board also in effect exempted the majority of
farm workers from wage controls by providing that farm wages may be
increased up to a level of 95 cents an hour without Board approval.
180
The Economic Stabilization Administrator has established a five-man
board of public members to develop a stabilization policy affecting compensation of executive, administrative, professional, and certain sales and supervisory employees. In general, the authority of the board extends to the
salaries of employees who are exempt from the overtime-work provisions
of the Fair Labor Standards Act.
The Wage Stabilization Board has been confronted with a series of major
cases in which both employers and employees agreed to wage increases
and then petitioned the Wage Stabilization Board for approval.
In the first, and one of the most significant of wage cases, the Wage
Stabilization Board decided in mid-May to allow the meat-packing workers a
9-cent increase, of which the major part was in excess of the 10-percent
formula. These workers had received wage increases of 11 cents an hour
during 1950. The Board held that it would not be fair to penalize the parties to the agreement because they used a broad form of reopening clause
rather than a cost-of-living provision. Later an additional 2 cents was
allowed for bracket adjustments.
In late May and in June, the Board made several important decisions. In early June, the Board gave the go-ahead signal for increases
provided in productivity or "annual improvement" clauses in contracts
typical of the automobile industry, by ruling that payment of a scheduled 4-cent increase would be permissible even when it exceeded the
10 percent ceiling, if the increase could be granted without an accompanying price increase. Most automobile companies announced that
their workers would receive the increase. On June 7, an over-ceiling
wage increase of 15 percent was approved for Atlantic Coast shipbuilding
workers on the grounds that shipbuilding wage rates were abnormally
low in the base period. On June 28, an increase of 9 cents an hour was approved for 44,000 Westinghouse workers under the "tandem" provision.
In this case, the standard for the 9-cent increase had been set by the
General Electric Company in March.
Work stoppages
Both the number of work stoppages beginning during the first 5 months
of 1951 and the number of workers involved were higher than in the
comparable period of 1950. However, man-days of idleness resulting
from stoppages were considerably less during this period in 1951 than in
1950. From January through May 1951, there were about 8.8 million
man-days of idleness or 0.23 percent of estimated working time in all industries. During the same period in 1950, idleness amounted to 0.62 percent
of working time, or about 21.7 million man-days were lost as the result of
work stoppages.
181
PROFITS
After rising steadily through 1950 and reaching unprecedented levels in
the first quarter of 1951, the trend of profits was moderately downward
in the second quarter. In the second quarter of 1951, corporate book
profits before taxes (not adjusted for inventory valuation) were running
at an estimated annual rate of 48.5 billion dollars, compared with 37.5
CHART 32
CORPORATE PROFITS
Corporate profits before taxes reached an all-time peak in the first quarter
and declined moderately in the second quarter of this year. Profits after
taxes have declined since the fourth quarter of I950;reflecting the
full effects of the new tax rates.
BILLIONS OF D O L L A R S *
BILLIONS OF D O L L A R S *
60
60
20 -
- 20
10 -
10
1948
* SEASONALLY
ADJUSTED
1951
ANNUAL
RATES.
•^ NO A L L O W A N C E FOR INVENTORY VALUATION ADJUSTMENT.
•^ PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.
SOURCE: DEPARTMENT OF COMMERCE
( E X C E P T AS NOTED).
billion a year earlier and with the peak rate of 51.8 billion in the first
quarter of 1951. (See chart 32.)
There was a somewhat sharper decline in corporate profits after taxes,
since they reflected the full effects of the higher corporate taxes passed
in 1950. In the second quarter of 1951, corporate profits after taxes (not
182
adjusted for inventory valuation) were running at an estimated annual
rate of 22.0 billion dollars compared with 20.6 billion a year earlier, and
with the peak rate of 27.8 billion in the fourth quarter of 1950. The
second quarter profits after taxes represented almost 4.5 percent on sales and
over 9 J4 percent on net worth compared with almost 5 percent and almost
9.5 percent, respectively, a year ago.
The net income of nonagricultural unincorporated business and the professions has since mid-1950 moved in a much less regular fashion than
corporate profits. After reaching a peak in the third quarter of 1950, the
net income of this group declined in the fourth quarter and then rose again
to a new peak in the first quarter of 1951. It declined sharply in the second
quarter, when it was running at an estimated 24.0 billion dollars before taxes
(not adjusted for inventory valuation). This compares with 22.9 billion a
year earlier and with the peak rate of 27.3 billion in the first quarter of 1951.
The net income of farm proprietors moved steadily and sharply upward
since the Korean outbreak in response to the higher level of farm prices
and increased marketings. In the second quarter of 1951, net income
of farm proprietors before taxes was at an estimated annual rate of 17.1
billion dollars, compared with 12.2 billion a year ago, a rise of 4.9 billion or 40 percent. The peak had been reached in the second quarter of
1948, when farm income was at an annual rate of 18.6 billion dollars.
The shifting trends in the economy which marked most of the last 6
months and the differential impact of the growing security program were
reflected in the divergent profit trends by industries. During the first
quarter of 1951, substantial increases in profits before taxes were reported by the following manufacturing industries: fabricated metal products, machinery, paper and allied products, chemicals, and petroleum.
The largest declines were reported by producers of electrical machinery,
transportation equipment, and motor vehicles and parts.
From first quarter data, it appears that small manufacturers (those with
assets less than 1 million), fared relatively as well as large concerns on a
before-tax basis, but somewhat better on an after-tax basis. In general,
the excess profits tax now in effect has a greater impact on larger than upon
smaller firms.
The current rate of profits provides, in general, ample inducement to
expand output and capacity. In spite of the large increase in corporate
taxes, the current level of profits continues to be almost as large a source of
funds as in any previous period. In the first half of 1951, the net availability of funds from profits after allowing for corporate taxes and changes
in the cost of replacing inventories was at an annual rate of 16.9 billion dollars, compared with 17.0 billion in the first half of 1950, and with
18.3 billion in the second half. (Appendix tables B-34 through B-38 give
details on profits.)
183
MONEY AND CREDIT
Money supply
Total money supply, including Government deposits with Federal Reserve
banks and commercial and savings banks, which had increased 0.8 billion
dollars during the first half of 1950, and 5.9 billion during the second half,
or a total of about 4 percent for the year, rose only about 0.3 billion during
the first half of 1951. The expansion of loans and investments of the entire
banking system, including Federal Reserve bank holdings of Government
securities, which had the effect of lifting the money supply, was in part
offset by other factors, mainly a substantial gold outflow during the first
quarter. (See appendix table B-30.)
In the first quarter of 1951, the privately-held supply of money (adjusted demand and time deposits, including those of governments other
than Federal, and currency outside of banks) declined from 176.9 billion
dollars to 172.5 billion. The weekly index of wholesale prices rose from
177.0 to 183.9 in the same period, and the index of consumers' prices
advanced from 178.8 in mid-December to 184.5 in mid-March. Both the
drop in money supply and the rise in consumers' prices were exceptionally
rapid.
The opposite direction of changes in money supply and changes in
prices in the first quarter of 1951 was an illustration of the uncertain
relationship between the two in short periods. This phenomenon appeared
repeatedly in quarter-year and half-year periods between July 1946 and
July 1950. At the close of 1947, money supply was 170.0 billion dollars
and it stood below that level throughout the ensuing 8 months of inflationary
price advance. In the meantime, the index of wholesale prices rose from
163.2 to 169.8, and the index of consumers' prices advanced from 167.5
to 175.2.
A decline in the privately-held money supply is a characteristic of the
first quarter of the year, particularly since World War II. The concentration of income tax payments in the first quarter has required heavy
transfer from private deposits in banks to Treasury account. In the first
3 months of 1951, when Federal cash receipts exceeded expenditures by
6.9 billion dollars, the reduction in private bank deposits was exceptionally heavy.
With the conclusion of March tax payments, the privately-held money
supply began to increase, rising by about 0.8 billion dollars in April, 0.4 billion in May, and 0.7 billion in June. Price advances, which had persisted in
the first quarter despite the decrease in money supply, gave way to relative
stability in price after March, during a period when the money supply
expanded.
Credit
During the first half of 1951 the major kinds of private credit outstanding, after 6 months in which all had been carried upward, were
subject to a complex of forces that resulted in widely divergent changes.
Credit restraints, direct controls of prices, wages, and materials, the rising
credit needs of defense industries, seasonal factors, and the subsidence
of anticipatory demand were responsible for changes in the pace and even
in the direction of movement of the several classes of credit.
Total loans of commercial banks rose nearly 3 billion dollars, or about
5 percent, between December 1950 and June 1951, compared with 1.8
CHART 33
BANK LOANS AND INVESTMENTS
At midyear 1951, total commercial bank loans and investments were about
at the December I960 level. A decline in bank holdings of U.S.
Government securities during the first six months of 1951 was offset
by an increase in loans and investment in other securities.
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
150
150
50
25
25
1948
1949
I960
195!
END OF MONTH
SOURCE•• BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.
billion dollars, or 4 percent, during the same period a year before. During the second half of 1950, total loans expanded 7.4 billion, or about 16
percent. However, total earnings assets of commercial banks showed no
change between the end of 1950 and mid-1951, as the growth of loans and a
moderate increase in investment in other securities were offset by a decline
in holdings of Government obligations. (See chart 33 and appendix table
B-29.)
The changes in total bank loans since Korea largely reflected the behavior of commercial and industrial loans. Business loans declined
185
CHART 34
CONSUMER CREDIT
Consumer credit outstanding declined during the first half of
1951 almost as much as it had expanded during the first half
of 1950. Both charge accounts and instalment credit have
dropped since December 1950.
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
25
25
20
20
TOTAL CONSUMER CREDIT
V
15
OTHER CONSUMER CREDIT
15
10
10
J F M A M J
J A S O N o l j F M A M J
1948
J A S O N o l j F M A M J J A S O N D l j F M A M j i /
1949
1950
1951
END OF MONTH
SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (EXCEPT AS NOTED).
about 100 million dollars, or less than 1 percent, during the first half of
1950; jumped nearly 5 billion dollars, or 30 percent, during the second
half; and rose nearly 2 billion, or about 8 percent, during the first half
of 1951.
Seasonal declines are usual during the first 6 months of the year, and
normally attain their maximum rate during the second quarter. There
was no seasonal fall during the first half of 1951, as a whole, because increased borrowing, especially by defense industries, more than offset the
effect of seasonal repayments. Business loans expanded during the first
quarter, declined slightly between March and May, and resumed their
climb in June.
Outstanding farm mortgage loans of all lenders, which had risen about 8
percent during 1950, continued to increase during the first half of 1951,
though at a somewhat reduced rate. Nonfarm residential mortgage credit
continued to rise during the first months of 1951, at a rate greater than that
of the same period of 1950, but substantially under that of the second half
186
of 1950. Credit restrictions have operated to slow down the rate of growth,
and the current trend would keep the total for the year well below the 20
percent expansion of 7.8 billion dollars during 1950.
In contrast with other forms of private credit, consumer credit outstanding showed a net decline in the first 6 months of 1951. During the
first half of 1950, consumer credit outstanding expanded 0.9 billion dollars,
or 5 percent; during the second half it soared 2.4 billion or nearly 14
percent; between December 1950 and June 1951, it dropped about 0.9
billion or 4.5 percent. The difference in the direction of movement of
consumer credit, comparing the first half of 1950 with the first half of 1951,
is largely accounted for by the 1.2 billion dollar expansion of instalment
credit during the former period and the 0.6 billion contraction during the
later. (See chart 34 and appendix table B-28.)
FLOW OF GOODS AND PURCHASING POWER
The substantial increase in the volume of production in the first half of
1951 lifted national income from the seasonally adjusted annual rate of 253
billion in the second half of 1950 to 274 billion in the first half of 1951.
(See appendix table B-6.)
Among the constituent elements of national income, the one contributing
most to the rise was compensation of employees, which increased from
an annual rate of 165.2 billion in the final quarter of 1950 to 172.1
billion in the first quarter of 1951, and to 177.1 billion in the second quarter.
The increase in private payrolls was from 130.3 billion to 138.0 billion, and
to this there was added an increase from 7.6 billion to 8.4 billion in
supplementary income from enlarged social security benefits and from
expanding private pension programs. The largest proportionate increase
was in government payrolls, which expanded from an annual rate of 24.8
billion to 28.0 billion during the half-year as a result of the growth of the
military forces and of civilian employment by the Federal Government
under the defense program.
Corporate profits have been discussed above. After adjustment for the
increase in costs of goods in inventories, but before deduction for income
taxes, corporate profits increased from an annual rate of 42.2 billion
in the fourth quarter to 42.9 billion in the first quarter. For the second
quarter-year, they are estimated at an annual rate of 46 billion.
The other large constituent elements in national income are income of
farm proprietors and professional and unincorporated business incomes.
Income of the latter group increased from an annual rate of 23.0 billion
dollars in the fourth quarter to a rate of 24.1 billion in the first quarter,
but it is estimated that it declined to 23.7 billion in the second quarter.
Income of farm proprietors continued its advance which began following
the Korean outbreak, rising from an annual rate of 15.0 billion in the second
half of 1950 to 16.8 billion in the first half of 1951.
I87
Personal income
Personal income, the principal elements of which are wages and salaries,
interest, profits of unincorporated businesses, corporate dividends, and government payments of social security and other benefits, increased from an
annual rate of 238.5 billion dollars in the closing quarter of 1950 to 244.1
billion in the first quarter of this year, and to 250.0 billion in the second
quarter. Personal taxes, which must be deducted from personal income in
order to determine the volume of disposable personal income, have increased
greatly as the higher tax rates have become fully effective. In the first half
of 1951, they rose to an annual rate of 26.9 billion dollars, compared with
an annual rate of 21.6 billion in the second half of 1950. The increase in
Federal personal income taxes was from an annual rate of 18.9 billion to
a rate of 24.1 billion. Notwithstanding this larger burden of income
taxes, disposable personal income climbed from an annual rate of 215.2
billion dollars in the last quarter of 1950 to 217.5 billion in the first quarter
of 1951, and to 222.8 billion in the second quarter. (See chart 35 and
appendix tables B-7 through B-10.)
Personal consumption expenditures
Consumers' spending in the first half of 1951 repeated the phenomenon
appearing in the second half of 1950, when spirited buying had little connection with changes in personal income and when, in the closing months
of the period, the decline in the volume of buying was contrary to the direction of change in income. In each instance, a wave of buying induced
by emotional response to events outside the field of income, buying power,
and markets brought about changes in prices which no forecast of income
changes could have indicated. In each case, the behavior of consumers
generated forces of inflation which did not disappear when the surge of
buying subsided.
In July 1950, it was the original outbreak in Korea which touched off
heavy consumer buying, largely directed to consumer durable goods which
people believed might become very scarce when production was channeled
into military equipment. The second surprising surge of consumer buying
(seasonally adjusted) reached its crest in January, after a holiday season
of only moderately vigorous buying and more than 5 weeks after the Chinese
attack in Korea. It was probably due to popular disillusionment about
the prospect of an early end to fighting in Korea following serious setbacks
to United Nations' forces.
The index of department store sales, seasonally adjusted (1935-39= 100),
rose from 290 in May 1950 to 362 in July, and, after receding, climbed to
the same level in January. The upward jump, equally vigorous in each
incident, was each time followed by a sharp decline. The continued
appearance on merchants' shelves of abundant stocks of goods in each
period allayed consumers' fears of shortages, but the course of decline in
188
CHART 35
PERSONAL INCOME
Personal income in the second quarter of this year was 33
billion dollars higher than in the same period last year. All
components of income increased, with the exception of
transfer payments.
BILLIONS OF D O L L A R S *
BILLIONS OF DOLLARS*
250
250
200 -
- 200
150 -
- 150
100 -
- 100
(SALARIES, WAGES, AND OTHER LABOR INCOME)
* SEASONALLY ADJUSTED ANNUAL RATES
•I/OTHER INCOME CONSISTS OF RENTS,INTEREST, AND DIVIDENDS.
^PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.
SOURCE: DEPARTMENT
OF COMMERCE (EXCEPT AS NOTED).
buying was more rapid in 1951 than in 1950. The department store index
fell to 291 in October and to 290 in November, after the July peak. After
the January rush to 362, it fell to 291 in March. The general price control
order issued late in January, and the simultaneous improvement of the
military situation in Korea, were important factors in dissipating the
popular mood which had led to buying in anticipation of higher prices and
shortages of goods.
Brief as was the January buying surge, it lifted the volume of personal
consumption expenditures in the first quarter of 1951 to the record level
of 208.5 billion dollars (annual rate), compared with 205.7 billion in the
final quarter of 1950. The ensuing lull reflected a quiet market but not
a receding market. The level of consumption expenditures was estimated
to be at an annual rate of 202.6 billion in the second quarter of the year.
(See appendix tables B-4 and B-9.)
Personal saving
In the estimates of national income, the figure of personal saving differs
from all others in that it is not estimated directly, but is a residual figure
which cannot be checked against direct information until later. The
principal uses to which personal saving is put are additions to liquid assets
such as cash, bank deposits, and Government bonds; additions to other
securities; increases in private insurance reserves; investment in homes;
net repayments of indebtedness; and increases in the physical assets of
personal businesses and farms.
Current estimates of personal saving, being residual figures of relatively
small size, are disproportionately distorted by small percentage errors in
the estimates of the very large items of disposable personal income, and
consumers' expenditures. They must be used with caution in an analysis
of the economic situation and in formulating national economic policies.
The estimate of personal saving at the seasonally adjusted annual rate
of 9.3 billion dollars in the first quarter places it well below the postwar
peak of 16.8 billion in the last quarter of 1950. In the second quarter
of the year, personal income increased and, as the higher tax rates were
not great enough to match the increase in income, consumers' disposable
income also increased. The estimated decline in personal consumption
expenditures left a residual amount of personal saving of 19.8 billion dollars
(annual rate). (See appendix table B-9.)
While the estimate of the extraordinarily large increase in personal
saving in the second quarter of 1951 must be accepted with reserve, the
importance of the conditions underlying the estimate must not be undervalued. Even with relative stability in wage rates in coming months,
the operation of the defense program will bring about a steady increase
in personal income, only a part of which will be taken by increased taxation.
If in the same period the limitations upon the supply of consumers' goods
stable prices combine to hold down consumers' expenditures, there
190
will inevitably be an increase in personal saving. This was the situation
which, with the added influence of rationing, accounted for the enormous
saving during World War II. The present defense program will not affect
consumer buying in the same degree, but it will undoubtedly lead to a
substantial increase in saving.
TABLE 15.—Liquid savings by individuals *
[Billions of dollars,~not seasonally adjusted]
1950, first
quarter |
Type of saving
Currency and bank deposits
Savings and loan associations
Private insurance reserves
Securities:
United States savings bonds
Other U. S. Government
State and local governments
Corporate and other
Liquidation of debt:
Residential mortgage debt
Other debt
_ _
-__
_ _
__
_
-0.8
.4
1.1
-2.2
.5
.4
.2
.3
— 3
— 1.3
—1.5
1.3
Q
.5
Total liquid saving
1951, first
quarter
.3
1.1
.4
-, 1
.7
.8
i Includes saving of unincorporated businesses, trust and pension funds, and nonprofit institutions.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Securitiesland Exchange Commission.
During the first quarter of 1951, the latest period for which data are
available, liquid saving by individuals decreased about 0.8 billion dollars,
compared with an increase of about 1.3 billion during the first quarter
of 1950. As is shown in table 15, the principal factor in the decline was
an unusually large drop in holdings of currency and bank deposits, reflecting
heavy payments of personal income taxes.
BUSINESS INVESTMENT AND FINANCE
During the first half of 1951, gross private domestic investment in construction, equipment, and additions to inventory rose to the all-time record
level of 62 billion dollars at a seasonally adjusted annual rate. This was
an increase of 40 percent from the first half of 1950 and 15 percent from
the second half. (See chart 36 and also appendix table B-5.)
These increases were more rapid than the growth of total national output. In the second quarter of 1951, gross private domestic investment
absorbed 19 percent of gross national product, compared with 17 percent
a year earlier.
Most of the increase in total investment over the past year was accounted
for by increases in purchases of producers' equipment and by faster accumulation of business inventories. Residential construction outlays in the
first half of 1951 were at substantially the first half of 1950 level, while
other construction rose 20 percent.
At midyear 1951, outlays for plant and equipment were still rising under
the impetus of a general demand for facilities expansion and the selective
191
CHART 36
BUSINESS INVESTMENT
Gross private domestic investment,already at a record
level just before Korea,has since risen rapidly. Equipment
purchases and additions to inventory are at very high levels.
BILLIONS OF D O L L A R S *
BILLIONS OF DOLLARS*
70
20 -
.
- 20
10 -
- 10
NET CHANGE IN I
BUSINESS INVENTORIES
-10
-10
1951
" S E A S O N A L L Y ADJUSTED
ANNUAL RATES.
^ P R E L I M I N A R Y ESTIMATES BY COUNCIL OF ECONOMIC A D V I S E R S .
SOURCE
DEPARTMENT
OF COMMERCE
(EXCEPT AS NOTED).
192
stimulus of some urgently needed expansion programs. Inventory accumulation had not been halted, but housing construction was falling off,
partly as a result of credit restrictions.
Plant and equipment
Nonfarm business expenditures for new plant and equipment have continued on a rapidly rising trend during the past 12 months. In the second
quarter of 1951, the total volume of these outlays was at a new high, nearly
one-third above the corresponding quarter of 1950. (See appendix tables
B-5 and B-20.)
There have been marked differences in the behavior of the different
major types of plant and equipment investment since Korea. Although
the desire to expand and improve facilities has been intense in all sectors,
the greatest acceleration has occurred in outlays for industrial facilities.
In manufacturing, the outlays in the second quarter of 1951 were 74 percent higher than a year earlier, and in transportation facilities, 50 percent
higher. In the trade, service, communications, and miscellaneous group,
the increase was 23 percent. These changes reflect, in part, the effect of
selective controls and aids designed to give priority to the expansions closely
related to urgent defense needs, which lie largely in the industrial, transport
and utility fields. Investment in electric utility expansion showed only a
moderate increase, but this may be accounted for by the longer time
required for building the heavy equipment needed for expansion in that
field, as well as by severe shortages of copper and aluminum and the limited
capacity of equipment producers. Furthermore, investment in electric
utilities has been at a high level since World War II.
The emphasis on capacity expansion resulting from demands of the
defense program is also shown in the fact that an increased proportion
of plant and equipment outlays is going for plant construction. On the
basis of sample surveys of expansion plans, and also the expansion goals
for some specific defense-related industries discussed in Part II, it is
evident that the increase of industrial capacity is proceeding considerably
faster than it did during the prosperous period between World War II
and mid-1950.
The remainder of 1951 is likely to show a continuation of the trend
to more selective industrial expansion and some decline in investment
outlays in the trade and service field as the impact of materials shortages
and controls increases. A survey of investment expectations made by
the Securities and Exchange Commission and the Department of Commerce during the second quarter of 1951 suggests a third-quarter level
of total nonfarm plant and equipment outlays about equal to that of the
second quarter, and 36 percent higher than in the third quarter of 1950.
Nonfarm inventories
Unusually rapid accumulation of inventories has prevailed since last fall.
During the third quarter of 1950, the initial post-Korean buying rush de-
pleted nonfarm inventories at an annual rate of 1.8 billion dollars. But as
production spurted ahead, inventories were built up rapidly. Stimulated
by the large rise in demand and prices, and haunted by the fears of
shortages, business generally placed large orders to ensure an uninterrupted flow of supply. In the fourth quarter, inventories were being
accumulated at the very high annual rate of 10.6 billion dollars.
During the first half of 1951, and especially during the second quarter,
much of the accumulation was involuntary in character as sales failed to
meet expectations. The rate of accumulation dropped to 8.1 billion dollars
during the first quarter of 1951, but rose again to 13.2 billion during
the second quarter of 1951. An "excess" of inventories developed in consumer goods at the retail level, particularly in consumer durable goods,
where the fears of shortage had been greatest. But this situation did not
bring about a decline in total output, as it had done in 1949. The rapid
growth of the national security program forestalled this. By June 1951,
inventories were being readjusted in many areas to bring them in line with
the current rate of sales.
Since the Korean outbreak, the book value of inventories in manufacturing and trade, seasonally adjusted, has risen at a record rate. By May
1951, the book value amounted to 69.9 billion dollars compared with 54.2
billion in June 1950, a rise of nearly 30 percent. Well over one-half of this
rise reflected replacement of inventories at higher prices and less than half
reflected physical accumulation.
Retail inventories grew at about the same rate as those in manufacturing, rising 30 percent from June 1950 to May 1951, while manufacturing
inventories rose 29 percent. However, there were significant differences
in trends. Durable goods inventories of retailers rose about 41 percent,
while those of manufacturers advanced about 32 percent. On the other
hand, retail inventories of nondurable goods advanced about 23 percent
while manufacturers' inventories rose about 28 percent.
Retailers bought heavily in consumer durable items in anticipation of the
much sharper impact of the defense program upon that area. Since production of consumer durable goods was maintained much longer than anticipated, and there was some falling off in sales in the second quarter,
inventory accumulation of these items took place.
While there was a substantial increase in manufacturers' inventories
from May 1950 to May 1951, most of it was in purchased materials and
goods in process. Finished goods inventories rose 14 percent, mainly in
the first half of 1951. The rise in purchased materials and goods in
process was 43 percent, but the bulk of this accumulation took place in the
second half of 1950. The rise in the first half of 1951 has been much
slower, in part because of the stabilization of prices, in part also because
of the restrictions on inventory accumulation of essential materials instituted by the National Production Authority. Inventories of goods in process
have continued to grow steadily.
194
The ratio of inventories to sales a year ago was somewhat lower than in
most previous periods. It declined further during the summer as sales
expanded. But by the end of the year, it was higher than in June. By
April of this year, it had advanced to about the 1949 level, which was the
highest ratio of the postwar period but well below most prewar levels.
In May, the ratio dropped slightly because of an improvement in the manufacturers' inventory sales ratio. The retail inventory-sales ratio showed
the greatest rise and is currently well above any previous postwar figure.
(See appendix tables B-21, B-22, and B-23.)
Construction
Total new construction activity in the first half of 1951, including both
private and public, has been at a record level of about 32 billion dollars
on a seasonally adjusted annual rate basis. This exceeds the rate in
the first half of 1950 by nearly 20 percent, and that of the second half of
1950 by about 8 percent. (See appendix table B-19.)
A major part of these increases reflects higher construction costs. The
cost increases, especially prominent in lumber and in plumbing and heating items, average about 12 percent from the first half of 1950 to the
first half of 1951.
The rising trend of construction outlays was halted in the spring of
this year, and by June the seasonally adjusted rate of total construction had
fallen back below the January level. In recent months private construction—accounting for about 70 percent of the total—has been dropping
substantially, while public construction has declined only slightly.
Over the past year, construction has come increasingly under the direct
or indirect influence of Government controls. A Presidential directive of
July 1950 ordering the tightening of FHA and veterans' housing credit
terms was followed by Regulation X; prohibitions on certain types
of recreational construction; the imposition of priorities on materials for
essential defense use; limitation orders on the use of specific scarce materials
including copper and aluminum; a permit system on commercial construction; the licensing of all projects using more than 25 tons of steel;
and the application, beginning in July 1951, of the Controlled Materials
Plan to the use of steel, copper, and aluminum.
Controls have helped to curtail new private residential building and certain types of recreational and commercial construction, especially during the past few months. It is to be expected that increasing priority
demands for materials, particularly steel, and more comprehensive and effective controls over their use, will bring further curtailment of these and
other types of construction not urgently needed for defense.
The most striking change in the first half of 1951 has been the increasingly sharp fall in new private housing expenditures, on a seasonally adjusted basis, from a February high. In the first 6 months of this year,
an estimated 575,300 total new nonfarm dwelling units were started,
195
including both private and public, about 17 percent less than in the corresponding period of 1950. This number was swollen by an abnormally
large number of publicly financed starts in June, when local housing
authorities rushed to get as many units as possible under way before the
end of the fiscal year, lest the Congress drastically curtail the public
housing program for fiscal year 1952.
The recent downward movement indicates that the backlog of housing
construction commitments made before the credit control restriction program went into effect has been largely worked off, and that the credit regulations are increasingly showing their effect. Increasing difficulties in
getting scarce building supply items, and the requirement that building
of units with more than 2,500 square feet be authorized by NPA, will
further retard the rate of new construction in this field. Even so, it is
probable that total housing starts for 1951 will run somewhat above the
original objective of 800,000 to 850,000.
Private industrial construction, under the impact of the defense build-up
and the very high level of business activity, shot up by more than 50 percent,
on a seasonally adjusted basis, during the first 6 months of 1951. The
average rate of outlays in that category during that period was more than
double the average rate during the first half of 1950, and about 50 percent
above the rate during the second half of 1950. In view of the very large
industry plans for facilities expansion for the remainder of 1951, and some
large private and public programs extending into subsequent years, it
appears certain that private industrial construction will remain at a high
level and probably rise somewhat further.
New public construction in the first 6 months of 1951 was running about
30 percent higher than in the corresponding period of 1950. In addition
to the rapid step-up in military and naval construction, there have been
increases in most of the other categories, especially residential and nonresidential building. Highway construction outlays are moderately higher
than a year ago.
Corporate finance
During the first half of 1951, corporations used a record volume of
funds to finance expansion of their fixed and working capital. Total uses
of funds amounted to 21 billion dollars, 50 percent above the first half of
1950. About 30 percent of the total was for inventory financing. The
rise in the book value of corporate inventories during the first 6 months of
the year amounted to about 6.5 billion dollars, compared with a 1.5 billion
dollar increase in the corresponding period of 1950. The financing of
plant and equipment took about 3 billion dollars more than during the
first half of 1950. (See chart 37 and appendix table B-39.)
More than half of the additions to capital was financed with funds from
internal sources. Corporate retained earnings amounted to about 6.5 billion
dollars during the first half of the year, 1.4 billion larger than during the
CHART
37
SOURCES AND USES OF CORPORATE FUNDS
In the f i r s t half of 1951, corporate expansion of fixed and working
capital totaled a record 21 billion dollars, with about half financed
out of retained earnings and other internal sources.
BILLIONS OF DOLLARS
5
SOURCES
10
15
RETAINED
EARNINGS
DEPRECIATION
RESERVES
OTHER SOURCES
USES
PLANT AND
EQUIPMENT
%&&%&^
OUTLAYS
CHANGE IN
INVENTORIES
OTHER USES
±1 PROFIT ESTIMATES FOR 2ND QUARTER 1931 BY COUNCIL OF ECONOMIC ADVISERS.
NOTE: EXCLUDES FINANCIAL CORPORATIONS.
SOURCES:
DEPARTMENT OF COMMERCE ESTIMATES BASED ON SECURITIES AND EXCHANGE
COMMISSION AND OTHER FINANCIAL DATA (EXCEPT AS NOTED).
corresponding period of last year despite the increase in corporate tax
rates and moderately larger dividend disbursements. A rise in depreciation allowances partially reflected accelerated amortization of some types of
facilities begun in 1950.
Although corporations did not resort to external financing to the same
extent as during the second half of 1950, nonetheless they continued to expand their bank borrowings and trade and mortgage debt substantially.
Whereas there is usually some contraction of corporate indebtedness to
banks during the first 6 months of the year, this year corporations expanded
their borrowings by 2 billion dollars. The expansion of bank loans to cor-
197
porations during the whole of 1950 was 2.5 billion dollars. The total increase in trade and mortgage debt was more than three times as large as
that during the first half of 1950. On the other hand, the volume of funds
obtained from the securities markets was only moderately larger than
during the first half of 1950.
INTERNATIONAL DEVELOPMENTS
During the late months of 1950 and the first half of 1951, the first worldwide economic impact of the Korean outbreak began to weaken. The rapid
increases in the quantity of United States imports of industrial products
and in the market prices of raw material imports tapered off, and in some
cases there were declines. At the same time, the effects of free
world rearmament asserted themselves in other nations. Foreign demand
for United States exports increased rapidly; the foreign trade positions of
most other countries that are rearming stopped improving and in some
cases began to deteriorate; and the extent of price rises in most other counCHART 38
EXPORTS AND IMPORTS
OF GOODS AND SERVICES
During the past year, rapidly rising exports have increased
the United States export surplus.
BILLIONS OF 'DOLLARS*
25
BILLIONS
OF DOLLARS*
25
EXPORTS OF GOODS
AND SERVICES^
10 -:
-
10
IMPORTS OF GOODS
AND SERVICES-*'
5
*
-
- 5
ANNUAL RATES
y INCLUDES INCOME ON INVESTMENTS.
2/ PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS.
SOURCE: DEPARTMENT OF COMMERCE
(EXCEPT AS NOTED).
tries surpassed the rise in the United States. (See appendix tables B-40
through B-47 for detailed statistics on international transactions.)
These shifting influences were reflected in the international transactions
of the United States, through a rise of about 4.3 billion dollars in the annual
rate of exports of goods and services from the second half of 1950 to
the first half of 1951, and a moderation of the rise in imports of goods and
services. The increase of these imports by an annual rate of 1.7 billion
dollars resulted from a large rise in the first quarter of 1951, followed
by a leveling off in the second quarter. As a result of these changes, the
export surplus rose from an annual rate of 1.5 billion dollars in the
second half of 1950 to an estimated 4.1 billion in the first half of 1951. The
niost significant part of this expansion occurred from the first to the second
quarter of 1951, when the surplus rose from an annual rate of 2.3 billion dollars to one estimated at 5.8 billion, the highest level since the widespread
tightening of import restrictions and the currency devaluations in 1949.
These changes are shown in table 16 and chart 38.
TABLE 16.—United States exports and imports of goods and services
[Billions of dollars]
Period
1946
1947
1948
1949
1950
_.
. .
Annual rates:
1950— First half _.
Second half
1951— First half
.
.
2
Exports of
goods and
services *
Imports of
goods and
services 1
14.7
19 8
17.0
16 0
14.4
7.0
83
10.3
96
12.1
7.8
11 5
6.7
64
23
13.6
15.3
10.5
13.8
3.1
1.5
19.6
15.5
4.1
Surplus of
exports
1
Includes income on foreign investments.
2 Estimates based on incomplete data; by Council of Economic Advisers.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce, except as noted.
These shifts in our international goods and services transactions were
almost wholly the result of changed transactions in goods. The rise in the
dollar value of merchandise imports, which had begun with our economic
recovery well before the outbreak of hostilities in Korea but had been
sharply accentuated after it, continued during the first quarter of the year,
when both the physical quantity and the dollar value of imports surpassed
previous peaks. In the second quarter, however, this rise came to a halt.
The halt was the foreign trade counterpart of the leveling off of consumer
buying which characterized the United States private economy quite generally during the first half of this year.
Most of the rise in the dollar value of merchandise imports reflected
price increases. During the early months of this year, prices of many of
199
bur major imports were stabilized by controls or market forces, and some
have declined. Prices of rubber, tin, and wool fell by 19, 40, and 70 percent,
respectively, from their post-Korean peaks, although at midyear they were
still far above their pre-Korean levels. Despite these declines, however, average prices of imported goods actually received in this country were still rising
in April, the latest date for which import price figures are available. (See
chart 39.) It was a reduction in the quantity of imports that caused their
dollar value to stop rising.
CHART 39
PRICES OF IMPORTS
Average prices of imports continued rising,despite declines
in current market prices for some major imports.
INDEX, SefTEMBgft 1
200
INDEX, SEPTEMBER 1949 = 100
200
180
ISO
I60
160
•~-^•
CRUDE FOODSTUFFS ^ s > f %
I40
I40
«.
/
CRUDE*
X ^•<»~S MATERIALS
^*:%
I20
120
(00
lOO
80
80
S
O
N
O
J
F
M
A
M
J
J
A
S
O
N
O
J
F
M
A
M
J
-'ACSO INCLUDES MANUFACTURED FOODSTUFFS AND FINISHED MANUFACTURES, NOT SHOWN ON THIS CHART.
SOURCE*
DEPARTMENT OF COMMERCE.
In contrast to the behavior of imports, the dollar value of our merchandise exports rose rapidly in February, March, and April. This rise
was more the result of growing physical quantities than of the rise in export
prices. Part of the increase in the quantity of exports was attributable
to increased shipments of military equipment to Western Europe under the
Mutual Defense Assistance Program, but most of it was the result of
generally increased demand for United States goods of all kinds on the
part of those foreign countries which had higher incomes and more ample
supplies of dollar exchange. Partly because of these more ample dollar
200
supplies and partly because of fear of shortages and price rises, foreign
import restrictions have been considerably relaxed since mid-1950, particularly in the Western Hemisphere and Asia, and in some cases imports
from the United States have been directly encouraged. Thus, to a considerable extent the rise in foreign demand had the same basic anticipatory
character as the post-Korean rise in domestic demand.
The increase in import prices since the first half of 1950 has far exceeded
the rise in export prices, as table 17 shows. Although in actual dollar
values our merchandise imports in the first half of 1951 were at a rate
55 percent higher than in the first half of 1950, they were only 15 percent
higher in terms of average quantity. In the case of exports, the rise in quantity was 28 percent.
TABLE 17.—Index of average prices in United States foreign trade*
[First half of 1950=100]
Import
prices
Period
Export
prices
Ratio of
import to export prices
1950— Third quarter
F ourth quarter
110
120
102
109
108
109
1951— First quarter 2
Second quarter
131
136
115
119
114
114
1 Figures represent average unit values of recorded merchandise trade.
2 Estimates based on incomplete data; by Council of Economic Advisers.
Source: Department of Commerce, except as noted.
With the stepping up of programs to strengthen national defense, controls over exports in short supply were again imposed. These controls
have been intensified in recent months. To limit the drain on domestic
resources and to distribute the limited quantities available among the
importing countries in accordance with essential needs, quantitative export
ceilings have been established for copper, aluminum, zinc, iron and steel
scrap, hides and skins, cotton, sugar, inedible molasses, bronze, hard bristles,
diamonds, cattle and horse hair, lead, nickel, petroleum oils and greases,
iron and steel products, tinplate, wool, and a number of other products.
The strain of our increased domestic demand on free world supplies was
considerably alleviated by increased domestic production of several important materials that we import. From the first half of 1950 to the first
half of 1951, we doubled our production of synthetic rubber and raised
our production of aluminum and crude petroleum by over 20 percent
in each case. We also increased exports of coal to Western Europe
and increased our shipments of wheat to India from 93,000 long tons in
the fourth quarter of 1950 to 152,000 and over 500,000 long tons, respectively, in the first and the second quarters of this year.
Increased exports of military end-items were accompanied by an expansion of military aid to foreign countries. Economic aid to the United
Kingdom and to Ireland under the European Recovery Program was
suspended early in the year^ but economic aid to other countries was
201
increased slightly. As a result mainly of increased military aid, total net
Government financing of foreign transactions rose from an annual rate of
4.0 billion dollars in the second half of 1950 to one of 4.7 billion in the
first half of 1951. In the second quarter of 1951 it was less than the
total United States export surplus, which, as has already been noted, expanded rapidly from the first to the second quarter. This was a reversal
of the relation between aid and the export surplus which had prevailed
since mid-1949, when our export surplus was less than our foreign aid.
From mid-1949 to the first quarter of 1951, there was a large outflow of
gold and dollar assets from the United States to other countries. The
outflow was particularly heavy during the third quarter of 1950 when,
in addition to a virtual disappearance of our export surplus, there was a
large but short-lived speculative outflow of United States private capital.
(See appendix table B-40.) Gold and dollar assets were being accumulated
by foreign countries, largely by the sterling area and Canada, but also by a
number of countries in Latin America and Southeast Asia, at an annual
rate of 4.3 billion dollars in the 9 months after mid-1950. This accumulation abated to a rate of about 3.0 billion dollars in the first quarter of
1951, but at the end of March it was sharply cut, and in the second
quarter of the year it amounted to an annual rate of only about 200 million
dollars.
While United States demand for imports abated, Western European
countries began to feel the effect of free world rearmament and the
strain upon their resources which it will involve. Increased import prices
were accompanied by purchases of larger quantities of imported goods,
partly to replenish reduced inventories and partly in anticipation of increased requirements of their own expanding defense programs. The
resulting rapid rise of imports, combined with some reduction of exports,
enlarged Western Europe's trade deficit from an annual rate of over
3 billion dollars in the last quarter of 1950 to one of more than 5 billion
dollars in the first quarter of this year. As table 18 below indicates, this
was a reversal of an improvement which had been occurring since 1949.
TABLE 18.—Foreign merchandise trade of Western Europe with rest of world1
[Billions of United States dollars]
Imports 2
Period
1948
1949
1950 . — .
Annual rates:
, 1950— First quarter
Second quarter
Third quarter
Fourth quarter
1951— First quarter
.
_.
Exports
Excess of
imports
13.5
12.8
11.4
6.9
7 3
7.5
6.6
55
39
10.9
11.4
10.8
12.4
14.4
6.5
6.8
7.5
9.4
9.1
4.4
4.6
33
3.0
5.3
1 Trade of metropolitan countries participating in European Recovery Program with all nonparticipating
countries.
2
Imports are on a c. i. f. basis.
Source: Economic Cooperation Administration.
202
An even more dramatic effect of the past year's economic developments
and a more universal and potentially dangerous one was the setting off of
a world-wide price inflation. The magnitude of the price rises which have
occurred in various foreign countries was indicated in table 11, page 160.
This table shows that most countries of the world have suffered increases
in wholesale prices greater than the United States, in some cases far
greater. The actual increases and the annual rates of increase are shown
in appendix table B-27. Countries depending largely upon imports for
their raw materials and exporting manufactured goods were generally
affected by rises in both import and export prices. In most of them import
prices rose more, restricting the quantity of goods available for their
domestic use. This was the case in most of the countries of Western Europe
and in Japan. In the case of the countries exporting primarily raw materials, the main causal factor in their inflations has been the increase of
export prices. This has brought about an expansion of incomes which has
spread through their whole economies. In contrast to the situation in
the raw material importing countries, export prices have risen more rapidly
than import prices and there has consequently been a rise of national income in physical as well as money terms. The inflations in some of these
cases may nevertheless be disruptive in their internal economic and social
effects.
GOVERNMENT FISCAL OPERATIONS
Net budget receipts of the Treasury, which exclude the payments of
taxes for Federal Old-Age and Survivors' Insurance and refunds of receipts,
were 29.7 billion dollars in the first half of 1951. (See table 19.) This
was the largest amount ever collected in a 6-month period. Budget
expenditures were 25.6 billion, leaving a surplus of 4.1 billion in the first
half year. There had been a small deficit in the preceding 6 months,
so that the budget surplus for the fiscal year ended June 30, 19515 was
3.5 billion dollars.
TABLE 19.—Federal budget receipts and expenditures, the General Fund balance, and
the public debt
[Billions of dollars]
Calendar year 1950
Item
Total
Federal budget accounts:
Net receipts
Expenditures
- -
- -~
Surplus (-}-) or deficit ( — )
General Fund balance *
Public debt outstanding *
..
i End of period.
Source: Treasury Department.
203
Calendar
year 1951,
First half Second half first half
37.8
38.3
19.4
19.2
-.4
4.2
256.7
18.5
19.1
29.7
25.6
+.2
-.6
+4.1
5.5
257.4
4.2
256.7
7.4
255.3
,
CHART 40
FEDERAL CASH RECEIPTS FROM
AND PAYMENTS TO THE PUBLIC
Total cash receipts were considerably larger than payments
during the first half of 1951,resulting in a near-record
cash surplus.
BILLIONS OF DOLLARS*
BILLIONS OF DOLLARS*
70 |
170
CASH RECEIPTS
60
60
-OTHER CASH RECEIPTS
50
50
40
40
30
30
•INCOME AND
PROFITS TAXES
20
20
10
10
0
0
60
60
CASH PAYMENTS
50
50
-OTHER CASH
PAYMENTS
40
40
30
30
20
20
-MILITARY AND
INTERNATIONAL
10
10
Jl
w^
^
s
0
0
•HO
•HO
CASH SURPLUS (+) OR DEFICIT
(-)
0
0
-10
-10
1st Half
2nd Half
I960
I960
1st Half
1951
VTES.
SOURCES.TREASURY DEPARTMENT AND BUREAU OF THE
204
BUDGET.
The public debt declined from 256.7 billion dollars at the end of December 1950 to 255.3 billion at the end of June 1951. During this same
period, there was a substantial increase in the Treasury's General Fund
balance from 4.2 billion to 7.4 billion. (See tables B-31 and B-32 for
changes in the kinds of Government securities outstanding and in the
distribution of ownership.)
There are large amounts of both receipts and expenditures, principally
in the Old-Age and Survivors' Insurance and other trust funds, which are
not included in the conventional budget accounts. They have an important
effect upon the economy because they represent an actual flow of funds
being paid into or withdrawn from the Treasury. The consolidated cash
totals of receipts and payments are shown in tables 20 and 21. In the first
half of 1951, the excess of cash receipts was 6.9 billion dollars, or considerably more than the budget surplus. The cash surplus of 7.6 billion dollars
in fiscal 1951 compares with a cash deficit of 2.2 billion dollars in fiscal
1950. Chart 40 shows Federal cash receipts and payments in terms of
seasonally adjusted annual rates.
Progress of spending for national security program
The largest changes on the expenditure side of the budget were associated with the national security program. As shown in table 20, cash
payments for the military services rose from 7.6 billion dollars in the
second half of 1950 to 12.3 billion dollars in the first 6 months of this
year. There was also an increase in outlays for international security and
foreign relations, mostly due to the rise in expenditures for Mutual Defense
Assistance. The national security program includes, in addition, larger
expenditures for atomic energy, Defense Production Act activities, and
other functions, but these are not shown separately in the table.
TABLE 20.—Federal cash payments to the public, by function
[Billions of dollars]
Calendar year 1950
Function
Total
First half
Second
half
Military services
._
International security and foreign relations
Veterans' services and benefits
Social security, welfare, and health
Agriculture and agricultural resources
Interest
Other
Deduction from Federal employees' salaries for retirement
Clearing account for outstanding checks and telegraphic
reports
_ __ _
_
13.6
3.9
8.9
3.3
1.3
4.2
7.2
6.0
2.1
5.9
1.5
1.2
2.1
3. 6
7.6
1.8
3.0
1.8
.1
2.1
3.6
-.4
— 2
-.2
-.1
-.3
+.3
Total Federal cash payments to the public
42.0
21.9
20.1
i Estimates based on incomplete data.
Less than 50 million dollars.
Note.—Detail will not necessarily add to totals because of rounding.
Source: Treasury Department and Bureau of the Budget.
3
205
Calendar
year 1951,
first half *
12.3
2.5
3.0
2.2
.4
2.1
3.4
-.2
2
()
25.7
Funds obligated by the military services were considerably larger than
the actual amount of expenditures. A total of 48 billion dollars was obligated during the fiscal year 1951 for the military functions of the Department of Defense and for Mutual Defense Assistance. Expenditures for
these same categories amounted to about 20 billion dollars.
Cash payments by the Federal Government
Total cash payments to the public were 25.7 billion dollars in the first
half of this year. This was the highest rate of expenditures since the latter
part of 1945, when demobilization and reconversion expenses were heavy.
There have been major declines during the past twelve months in cash
expenditures for veterans' benefits, aids to agriculture, and unemployment
insurance. The principal increases, apart from the national security programs, have been in certain housing and home finance activities and
social security benefits. In the latter case, the increases reflected the
liberalization of benefits in accordance with the Social Security Act amendments approved in August 1950.
Cash receipts of the Federal Government
Gash receipts of 53.5 billion dollars in the fiscal year 1951 compare with
the previous high of about 50 billion dollars in the fiscal year 1945. This
record volume of Federal receipts reflected the increase in incomes and
profits, and the increase in tax rates.
TABLE 21.—Federal cash receipts from the public, by source
[Billions of dollars]
Calendar year 1950
Source
Total
Direct taxes on individuals
Direct taxes on corporations
Employment taxes _
_
Excises and customs
Surplus property receipts.
Deposits by States, unemployment insurance
Veterans' life insurance premiums- _ . _ _ - _ _ - _
Other
Less* Refunds of receipts
Total Federal cash receipts other than borrowing.
First half
Calendar
year 1951,
Second half first half i
19.2
9.9
3.4
8.6
.2
1.2
.5
1.5
-2.2
11.2
5.0
1.7
3.9
.1
.5
.2
.7
-1.8
8.0
5.0
1.7
4.8
.1
.6
.2
.8
-.3
16.4
9.1
2.2
4.5
.2
.7
.3
.9
-1.8
42.4
21.5
20.9
32.6
1
Estimates based on incomplete data.
Note.—Detail will not necessarily add to totals because of rounding.
Source: Treasury Department and Bureau of the Budget.
As shown by the estimates in tables 21 and 22, Federal cash receipts were
substantially higher in the first half of 1951 than in the last 6 months of 1950,
even after adjustment for seasonal factors.
206
State and local government finances
Both the receipts and payments of the State and local governments
increased during the first 6 months of 1951. The estimated rise in receipts
was somewhat larger than the rise in payments, with the result that the
small deficit incurred by these governments in the previous period was
virtually eliminated. These trends are shown in table 22.
TABLE 22.—Government cash receipts from and payments to the public
[Billions of dollars, seasonally adjusted annual rates]
Calendar year 1950
Receipt or payment
Total
Cash receipts:
Federal
.
State and local
. __
Total cash receipts
Cash payments:
Federal
State and local
Total cash payments
Surplus (+) or deficit (-):
Federal
State and local _
. .
Total, surplus (+) or deficit (— )
Calendar
year 1951,
first
half i
First half Second half
42.4
18.3
41.7
17.6
43.2
19.1
59.3
20.2
60.8
59.3
62.3
79.5
42.0
19.3
43.7
19.0
40.5
19.7
51.5
20.3
61.4
62.6
60.2
71.8
+.3
-1.0
-2.1
-1.4
+2.6
-.6
+7.8
-.6
-3.4
+2.1
+7.7
i Estimates based on incomplete data.
Note.—Detail will not necessarily add to totals because of rounding.
Source: See appendix table A-5.
The increase in receipts was chiefly the result of the expansion of the
tax base brought about by the general rise in business activity. While a
number of new taxes have been adopted by States and localities so far in
1951, and rates of many existing taxes have been raised, relatively few of
these changes became effective during the first 6 months of the year. The
rise in expenditures, which is due to higher materials costs and wage rates,
as well as to a continued growth in regular governmental programs, has
caused more and more attention to be given to possible ways of adding to
revenues. (Appendix tables A-5 through A-8 give details of government
finance.)
THE NATION'S ECONOMIC BUDGET
Table 23, the Nation's Economic Budget, shows the receipts and expenditures of major economic sectors for 1950, by half years, and the first
half of this year. All estimates are seasonally adjusted annual rates. As
shown in this table, the outstanding economic development of the second
half of 1950, compared with the first half, was the growth in private incomes
and expenditures, particularly business investment, while government cash
payments declined. The most significant single factor was the rise in private
207
TABLE 23.—The Nation's Economic Budget, calendar years 1950-51
[Billions of dollars, seasonally adjusted annual rates]
1950, first half
Economic group
1950, second half
1951, first half 1
Receipts
Excess
of receipts
Exor Rependi- •(+)
extures pendi- ceipts
tures
(-)
Excess
of receipts
ExRe(+)or
pendiexceipts
tures penditures
(-)
175.1
195.5
203 8
88.8
15.8
16.4
197.4
211.2
220.2
Excess
of receipts
Ex- (+)or
pendiextures penditures
(-)
CONSUMERS
Disposable income arising
from current production
Government transfers and net
interest payments
Disposable personal income..
Consumption expenditures.
Personal net saving (+)..
~~I86.~7~
+10.7
2(XJ.~4~
+10.7
"205.T
+14-6
BUSINESS
Retained receipts
Gross private domestic investment
Excess of receipts (+)
or investment (— )
29.4
30.6
30.0
53.8
44.0
61.8
-28.8
—14.6
-SI. 2
INTEENATIONAL
Cash loans abroad
Net foreign investment
Excess of receipts (+)
or investment (— )
—.8
./
.3
-3.0
— 1.6
-.9
+1.2
+3.1
+1.4
GOVERNMENT
Tax payments or liabilities . 64.4
Adjustment to cash basis
—5.1
Cash receipts from the public^.
Purchases of goods and
services
Government transfers
-8.9
79.6
68.8
69.S
44.3
15 9
40.7
21.9
Cash payments to the public* Excess of receipts (-}-)
or payments (— )_
88.4
75.1
—12.8
62.6
57.2
14.6
71.8
60.2
+7.7
+2.1
-3.4
ADJUSTMENTS
For receipts relating to
gross national product
Other adjustments
Gross national product.
+1.0
+1.0
+4.9
+4.9
269.7
269.7
-5.0
+18.9
295.6
-5.0
+18.9
295.6
+1.0
+6.7
+1.0
+6.7
323.8
323.8
1
2
Estimates based on incomplete data; second quarter by Council of Economic Advisers.
Consolidated cash^statement (including trust accounts) for Federal, State, and local governments.
NOTE.—Items relating to current production of goods and services are shown in roman type. Transfer
payments and receipts and subtotals including them are in italics; they are not included in the gross national
product.
Detail will not necessarily add to totals because of rounding.
Source: See appendix A.
business investment, which increased by 10 billion dollars over the level of
the first half of the year. Consumer expenditures increased by more than
13 billion dollars, about equal to the rise in disposable income.
From the second half of 1950 to the first half of 1951, the expansion in
government expenditures was almost as large as that of business and
consumers combined. Consumer expenditures rose by less than income^
208
which raised personal saving to the highest level for any half-year since
the war. Business investment continued to rise from the last half of 1950,
but at a more moderate rate than last year. A large part of the increase
was in inventories, a substantial portion of the increment reflecting an
unexpected decline in demand on the part of consumers. Business receipts
did not change greatly, since higher taxes more than offset gains in corporate profits before tax. Consequently, the excess of business expenditures
over receipts rose from the already exceptional levels of 1950.
While the rise in personal saving offset in part the increase in funds
needed by business to finance increased investment expenditures, there was
a net inflationary impetus arising from the private sectors of the economy
in the first half of this year. However, the rise in the government surplus
helped to restrain inflationary tendencies. Gash receipts rose from a seasonally adjusted annual rate of 62 billion dollars to almost 80 billion from the
second half of 1950 to the first half of 1951, and the cash surplus expanded
from 2 billion to 8 billion. While this change resulted in part from higher
corporate and personal incomes, it also reflected higher taxes, and for that
reason helped to restrain inflationary forces.
209
Appendix A
Statistical Tables Relating to the Nation's
Economic Budget
CONTENTS
Page
A-l.
A-2.
A-3.
A-4.
A-5.
The Nation's Economic Budget, calendar years 1950-51....
Consumer account, calendar years 1950-51
Business account, calendar years 1950-51
International account, calendar years 1950-51
Government account (Federal, State, and local), calendar
years 1950-51
A-6. Federal cash receipts from the public other than borrowing,
calendar years 1950-51
A-7. Federal cash payments to the public by function, calendar
years 1950-51
A-8. Federal cash payments to the public by type of recipient and
transaction, calendar years 1950-51
211
215
216
216
217
218
219
219
220
The Nation's Economic Budget
The Nation's Economic Budget provides a comprehensive view of national economic activity by major economic groups: consumers, business, government, and "international." The receipts and expenditures of these
groups and the net addition to or absorption of saving for the first and second halves of calendar year 1950 and the first half of 1951 are shown in
table A-l.
Column 1 indicates the major flow of receipts or income. Receipts are
divided into two categories: income from current production and receipts
of transfers and interest. The total of incomes from current production
(shown in roman type and adjusted for the statistical discrepancy between
total receipts and expenditures) equals current output, or the gross national product.
Expenditures for current output and government transfer payments are
shown in column 2. The gross national product comprises only the expenditures for current output. Government expenditures lor goods and
services (i. e., expenditures for current output) plus government transfer
payments equal government cash payments.
Government cash transfers, on the expenditures side in column 2, are
shown as receipts by consumers and by foreign countries and international
institutions in column 1. The sum of these transfer receipts is approximately equal to government transfer payments in the accompanying table.
Some discrepancy is due to the use of somewhat different bases for measurement of various components of receipts and payments. For example,
government interest payments are recorded on a cash basis; interest receipts
of consumers are recorded on a net accrual basis and include interest paid
by government corporations. The difference resulting from the two
methods of estimating is included in the adjustment item (line 20).
Column 3 shows the excess of receipts ( + ) or expenditures (—) for the
various accounts: personal net saving, the government cash surplus or
deficit, the excess of international receipts or investment, and the excess
of gross investment over business receipts. The total excess of receipts in
some accounts must equal the total excess of expenditures in others, since
national income and product are conceptually equal. Personal net saving,
for example, which represents an excess of receipts, must be matched by an
excess of investment by business or by a government deficit, or both.
(Also, the adjustments made in column 1 must be carried over into column
3 in order to complete the balance between the positive and negative items.)
While the summary table on the Nation's Economic Budget gives a comprehensive view of recent economic changes, additional detail on receipts
213
and expenditures is needed for analytical purposes, as is shown in the tables
that follow. More complete statistics for recent years on national income
and product and their components will be published in a National Income
Supplement to the "Survey of Current Business," July 1951. Data relating
to the cash budget of the Federal Government is from the Budget of the
United States. The Council's Economic Review of January 1950, appendix A, contains a more extended discussion of the Nation's Economic
Budget and the following tables.
214
TABLE A-l.—The Nation's Economic Budget, calendar years 1950-51
[Billions of dollars, seasonally adjusted annual rates!
1950, first half
Economic group
1950, second half
Excess
of receipts
ExRe- pendi- (+)or Receipts tures
exceipts
penditures
(-)
1951, first half *
Excess
of re-
ceipts
Expendi- (+)or
extures penditures
Receipts
(-)
Excess
of receipts
Ex(+)or
pendiextures penditures
(-)
CONSUMERS
Disposable income arising
from current production..
Government transfers and net
interest payments
199.5 --
175.1
act) <a
Disposable personal income. . 197.4
Consumption expenditures.
~~I86.~7~
Personal net saving (+)+10.7
203.8
-
16.8
16. 4
211.2
220.2
200.4
"205~6~
+10.7
+14.6
BUSINESS
Retained receipts
Gross private domestic investment
Excess of receipts (+)
or investment (—}
29.4
30.6
30.0
53.8
44.0
-14.6
61.8
-31.2
-23.8
INTERNATIONAL
Cash loans abroad
Net foreign investment
Excess of receipts (+)
or investment ( — )
,1
— ,2
.3
—3.0
-1.6
+1.4
-.9
+1.2
+8.1
GOVERNMENT
Tax payments or liabilities
Adjustment to cash basis
Cash receipts from the public.
Purchases of goods and
services _ _
Government transfers
64.4
-5.1
69.8
79.6
62.3
44.3
40.7
21.9
Cash payments to the public
Excess of receipts (+)
or payments ( — )
88.4
-8.9
75.1
-12.8
57.2
14.6
16 9
62 6
71.8
60 2
—8.4
+7.7
+2.1
ADJUSTMENTS
For receipts relating2 to gross
national product
Other adjustments 3
Gross n a t i o n al
product
+1.0
+4-9
269.7
__
+1.0
+4.9
269.7
-5.0
+12.9
-5.0
+12.9
295.6
295.6
+1.0
+1.0
+6.7
323.8
+6.7
323.8
i Estimates based on incomplete data; second quarter by Council of Economic Advisers.
a These adjustments bring the estimates on the receipts side into agreement with those on the expenditures
side of the accounts. They include the statistical discrepancy less "subsidies less current surplus of government enterprises." The statistical discrepancy represents the difference between the two independent estimates of gross national product: income received from current output and expenditures for this output.
"Subsidies less current surplus of government enterprises" are included in national income, but not in the
gross national product.
3 "Other adjustments" are net and are the amount necessary for balancing the excess of receipts (+) with
the excess of expenditures (—). They are required because some items of government cash payments are
either not recorded in private receipts at all (such as purchases of existing assets), or they are recorded in a
different time period from that in which payment is made. Government cash receipts also include some
items not deducted from private incomes, or deducted in a different period.
NOTE.—Items relating to current production of goods and services are shown in roman type. Transfer
payments and receipts and subtotals including them are in italics; they are not included in the gross national
product.
Detail will not necessarily add to totals because of rounding.
Sources: Based on the national income and product statistics of the Department of Commerce and on
Federal cash receipts from and payments to the public estimated by the Bureau of the Budget and the
Treasury Department. See also footnote 1.
215
TABLE A-2.—Consumer account, calendar years 1950—51
[Billions of dollars, seasonally adjusted annual rates]
1950
Receipts or expenditures
1951,
first
half i
First
half
Second
half
146.4
13.7
22.3
9.2
13.4
.8
138.7
12.4
21.5
8.1
13.0
.7
154.2
15.0
23.1
10.2
13.8
.8
166.2
16.8
23.9
9.2
13.8
.8
205.8
194.4
217.1
230.7
4.7
2.7
11.6
4.7
5.3
12.3
4.7
.2
10.9
4.8
.3
11.3
Equals* Total personal income
Less: Personal tax and nontax payments --
224.7
20.5
216.7
19.3
232.8
21.6
247.0
26.9
Equals: Disposable personal income
Less: Personal consumption expenditures *._
204.3
193.6
197.4
186.7
211.2
200.4
220.2
205.6
+10.7
+14.6
Total
Personal income arising from current production of goods and services:
Wage and salary receipts and other labor income
. _ ._
Farm proprietors' income
__.
_
Business and professional income 2
Dividends .
Private interest and rental income
Business transfer payments
.. _
Total
-
-
Plus:
Net interest paid by government
Dividend on National Service Life Insurance
Other government transfers to individuals
Equals: Personal net saving (-}-)
+10.7
+10.7
ADDENDUM
Personal income arising from current production
Less: Personal tax and nontax payments
- - - - ._ _
Equals: Disposable income arising from current production
205.8
20.5
194.4
19.3
217.1
21.6
230.7
26.9
185. 3
175.1
195.5
203.8
1
2
Estimates based on incomplete data; second quarter by Council of Economic Advisers.
Includes adjustment for inventory valuation.
• For detail, see appendix table B-4.
NOTE.—Detail will not necessarily add to totals because of rounding.
TABLE A—3.—Business account, calendar years 1950—51
[Billions of dollars, seasonally adjusted annual rates]
1950
Receipts or investment
Corporate profits before tax
Less: Corporate tax liability *
Dividend payments
._
Equals: Corporate undistributed profits
Plus* Capital consumption allowances 3
Corporate inventory valuation adjustment *__
1951,
first
half i
Total
First
half
Second
half
41.4
34.7
48.0
50.2
18.6
9.2
15.6
8.1
21.5
10.2
27.5
9.2
13.6
11.0
16.2
13.5
21.2
—5.1
20.4
—2.0
22.0
—8.2
22.8
-5.7
Equals: Retained business receipts from current production
29.7
29 4
30.0
30.6
Less: Gross private domestic investment 8
48.9
44.0
53.8
61.8
22.1
12.6
95
22 5
43
20 8
11 8
90
20 2
31
23.4
13.4
10 0
24 8
56
23 0
11 8
11 2
27 0
11 8
—19 2
—14 6
—23 8
—31 2
Construction
Residential (nonfarm)_._
Other private construction
Producers' durable equipment..
Change in inventories
_
__
Equals: Excess of receipts (+) or investment (— )
1 Estimates based on incomplete data; second quarter by Council of Economic Advisers.
2
Federal and State corporate income and excess profits taxes.
34 Includes capital consumption allowances on noncorporate capital, including residences.
The adjustment measures the excess of the value of the change in the volume of nonfarm business inventories, valued at average prices during the period, over the change in the book value.
« For additional detail, see appendix table B-5.
NOTE.—Detail will not necessarily add to totals because of rounding.
216
TABLE A—4.—International account, calendar years 1950—51
[Billions of dollars, annual rates]
1950
Receipts or investment
Total
U. S. Government cash long-term loans (net)2
Plus: Cash payments
to International Monetary Fund and International Bank 3
.__•
Equals: U. S. Government cash loan transfers (foreign receipts)
Surplus of exports of goods and services
Less: Net unilateral
transfers: •
Government8. ._ _
Private
Equals: Net foreign investment
_
_
__
Excess of receipts (-{-) or investment (— )
1
2
First
half
Second
half
1951,
first
half*
0.2
0.3
o
-.5
-.1
-.2
.1
.3
2 3
3.1
1.5
4.1
4.1
4.3
.5
4.0
.5
4.5
.4
.5
0.3
0.1
4
()
-2.3
-1.6
-3.0
g
+2.2
+1.4
+3.1
+1.2
Estimates based on incomplete data; second quarter by Council of Economic Advisers.
Includes only cash withdrawals under loan agreements. Does not include noncash transactions such
as lend-lease and surplus property credits.
*In I960, the International Monetary Fund returned 262 million dollars in cash to the U. S. Treasury in
exchange
for United States notes.
4
Less than 50 million dollars.
• Net unilateral transfers are included with Government or private expenditures for goods and services. For
example, remittances (gifts) made by American citizens to relatives or charitable groups abroad are included
with consumer expenditures. Government aid in the form of grants is included in Government purchases
of goods and services. Thus, net unilateral transfers must be deducted from the export surplus to avoid
double
counting.
6
Unilateral aid included in appendix table A-8 is on a Daily Treasury Statement basis and is gross.
NOTE.—Detail will not necessarily add to totals because of rounding.
217
TABLE A—5.—Government account (Federal, State, and local), calendar years 1950—51l
[Billions of dollars, seasonally adjusted annual rates]
1950
Receipts or expenditures
Total
Receipts:
Tax and nontax payments or liabilities:3
Federal
_.
State and local
50 5
19.4
Total
Adjustment to cash basis:
Noncash receipts *
Excess of cash receipts over tax liabilities or payments *
Cash receipts from the public
Expenditures:
Purchases of goods and services:
Federal
State a n d local
.
_ _ _ _
Total
Other government payments:
Transfers to individuals
- Cash interest payments to public 6
- . _ - _ .
Loans to foreign governments and subscriptions to International Bank and International Monetary Fund (net) 7
All other «
— __
Total
Cash payments to the public
Cash surplus (+) or deficit (—)
. _ _ __
First
half
45 7
18.7
Second
half
55 2
19.9
1951,
first
half 2
67 4
21.0
69 9
64 4
75.1
88 4
—1 3
—7.8
—1 4
—3.8
—1 3
—11.6
—1 5
—7.4
60.8
59 3
62.3
79.5
22 8
19.7
21 4
19 2
24 2
20 0
36 0
21.2
42 5
40 7
44 3
57 2
14 3
4.2
17 6
4.2
11.1
4.2
11.6
4.2
-.1
.5
—.2
.4
.1
.5
.3
—1.5
14.6
18.9
21.9
15.9
61.4
62.6
60.2
71.8
— 6
—3.4
+2.1
+7.7
42 4
42.0
41 7
43.7
43 2
40.5
59 3
51.5
+ 3
—2.1
+2.6
+7.8
18.3
19 3
17.6
19.0
19.1
19.7
20.2
20.3
— 1.0
— 1.4
-.6
-.1
ADDENDUM
Federal:
Cash receipts
Cash payments
Surplus (-{-) or deficit (— )
State and local:
Cash receipts
Cash payments
_
-
Surplus (+) or deficit (— ) _ __ _
1 This table reconciles cash receipts and payments to the public with estimates of government receipts
and expenditures included in the national income and product accounts. Cash receipts or payments
represent the consolidated cash accounts of the Federal Government, including the trust funds, and Statelocal governments. All intragovernmental transactions are excluded. The receipts of government corporations and the Post Office are offset against expenditures and the net expenditure included as a cash payment.
SJrants-in-aid to State and local governments are included as a cash payment of the Federal Government
and not included as either a receipt or payment of the States or localities.
2 Estimates based on incomplete data.
3 Personal and indirect business tax payments, corporation tax liabilities (including excess profits tax
liabilities), and contributions for social insurance.
* Consists of deductions from government employees' salaries for retirement funds, and government contributions
to retirement funds, National Service Life Insurance and U. S. Government Life Insurance funds.
5
Includes excess of corporation tax receipts over liabilities and excess of personal tax receipts over payments. Negative figure indicates excess of tax liabilities over cash receipts. Cash receipts also include some
items of miscellaneous receipts not included in tax and nontax payments, such as receipts from sales of surplus
property.
8
Does not agree with net interest paid by government (appendix table A-2) which is on a net accrual
basis
and includes interest paid by government corporations.
7
See appendix table A-4, International account.
8
Includes all other cash payments less noncash payments for goods and services. Other cash payments
include net payments by government corporations (except capital formation), net prepayments (deliveries
in advance of payments being subtracted), and the excess of checks paid over checks issued. Noncash
purchases of goods and services include deductions from government employees' salaries for retirement funds
and the government contribution to such funds.
NOTE.—Detail will not necessarily add to totals because of rounding.
218
TABLE A-6.—Federal cash receipts from the public other than borrowing, calendar years 1950-51
[Billions of dollars, seasonally adjusted annual rates]
1950
Cash receipts
Direct taxes o n individuals
_ _ _ _
Direct taxes on corporations
Employment taxes
Excises and customs
Surplus property receipts
Deposits by States, unemployment insurance
. _ ._ _ .
Veterans' life insurance premiums
Other
Less: Refunds of receipts
Total Federal cash receipts from the public
1951,
first
halfi
Total
First
half
Second
half
19.2
9.9
3.4
8.6
.2
1.2
.5
1.5
-2.2
18.7
9.9
3.4
8.6
.3
1.1
.5
1.3
-2.2
19.7
9.9
3.5
8.8
.1
1.3
.4
1.6
-2.2
26.9
17.2
4.1
9.2
.3
1.4
.6
1.9
-2.3
42.4
41.7
43.2
59.3
* Estimates are based on incomplete data and exclude the effects of proposed tax legislation.
NOTE.—Detail will not necessarily add to totals because of rounding.
TABLE A—7.—Federal cash payments to the public by function, calendar years 1950—51
[Billions of dollars, seasonally adjusted annual rates]
1950
Function
Total
Military services
_
International security and foreign relations
Veterans' services and benefits .
Social security welfare and health
Agriculture and agricultural resources
__
Interest
Other
. .
. ._
Deduction from Federal employees' salaries for retirement
Clearing account for outstanding checks and telegraphic reports
Total Federal cash payments to the public
i Estimates based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding.
219
13.6
First
half
Second
half
1951,
first
halfi
1.3
4.2
7.2
—.4
—.1
12.0
4.1
11.7
3.1
2.4
4.2
7.2
-.4
-.7
15.3
3.7
6.3
3.6
.2
4.2
7.2
-.4
.5
24.6
5.0
6.1
4.5
42.0
43.7
40.5
51.5
3.9
8.9
0
O
.7
4.2
6.9
-.4
-.1
TABLE A-8.—Federal cash payments to the public by type of recipient and transaction, calendar
years 1950-51
[Billions of dollars, seasonally adjusted annual rates]
1950
Cash payments
Total
Direct cash
payments for goods and services, excluding military
services: J
Payments to individuals for services rendered:
Civilian wages
and salaries (excluding Post Office):
Federal 3
Grants- and loans-in-aid for performance of specified services, net *
-Total
Payments to business for goods and services:
Public works:
Federal
Orants-in-aid and loans for public works
Other goods and services8
Payments to foreign countries and international institutions
for goods and services
Total
Loans and transfer payments to individuals:
Social insurance and public assistance:
Federal employees' retirement benefit payments
Old-age and disability benefit payments
Unemployment insurance benefit payments
Orants-in-aid for public assistanceReadjustment benefits, pensions, and other payments to veterans6..
Loans to8 home owners, net
- Interest _. ._
Other •
Total
-
Loans, Investments, subsidies and other transfers to business and
agriculture:
Farmers:
Price support, net (including supply program)
__
International Wheat Agreement
Other loans and direct subsidies to farmers
Business:
Home mortgage purchases from financial institutions
Loans, net
Direct subsidy payments
Subsidy arising from the postal deficit
_
Interest 8 . - - _
Total
Loans and transfer payments to foreign countries and international
institutions:
European Recovery Program loans and grants _
Other loans (net withdrawals)
Other grants 10
Subscriptions to the International Bank and Monetary Fund (net
cash withdrawals)
Total
Military services— cash payments for goods and servicesn ._
Clearing account for outstanding checks and telegraphic reports
Total Federal cash payments to the public
See footnotes on following page.
220
First
half
Second
half
1951,
first
half*
2.6
2.7
2.6
.9
.9
.9
1.0
3.5
3.6
3.5
3.7
1.7
.6
.8
1.7
.5
.5
1.7
.7
1.0
1.9
.6
1.1
2.8
.1
.1
.2
.1
3.2
2.7
3.7
3.7
.3
1.3
1.5
11
7.7
—.2
.3
1.5
.9
12
4.9
—.3
1.3
11
3
2 2
.9
12
5.2
1.3
.7
.3
1.1
2.0
1i
10.5
—.2
1.2
.3
13.5
16.3
10.8
10.9
1.0
.1
.8
—1.0
.1
6
—.6
.1
.8
.4
.1
(7)
.1
.7
.4
(7)
1.3
— 2
6
2.9
6
3.0
.4
—.1
(7)
6
29
4 8
60
3 5
4.3
2.9
(7)
11
3.4
.1
1.0
2.4
—.1
12
2.6
.2
21
—.3
—.5
38
4o
36
49
13.3
11.7
15.0
24.0
(7)
(7
(7)
(7)
.4
(7)
.6
2.9
(7)
—.1
— .7
.5
— 1
42 0
43 7
40 5
51 5
i Estimates based on incomplete data; second quarter by Council of Economic Advisers.
• Differs from the national-income concept of "government purchases of goods and services" by excluding, in addition to military services, farm price-support expenditures, and unilateral aid to foreign countries. Grants to States and localities for public works, here included as a Federal expenditure, would be
included in the national income accounts as a State and local expenditure. There are other less significant differences between the two concepts.
' Excludes payroll deductions for Federal employees' retirement.
4
Includes all grants-in-aid and loans to public bodies for purposes other than public works and public
assistance. Includes, in addition, one-third of Federal expenditures for veterans' tuition, books, and
supplies.
8 This figure is obtained as a residual by deducting all other expenditures from total cash payments to
the public. Owing to the fact that data are incomplete for fiscal year 1951, the residual is subject to a
high marein of error.
• Includes cashing of terminal If ave bonds, retired pay of military personnel, and National Service and
Government life insurance refunds and benefits in addition to veterans' pensions and readjustment
benefits.
Includes only one-third of payments for veterans' tuition, books, and supplies.
7
Less than .50 million dollars.
s Includes a small amount of interest on tax refunds in addition to interest on the public debt. Interest
paid to business includes over 100 million dollars of interest paid each year by the Federal Government
to State and local governments. Interest in appendix table A-2 is net, and is on an accrual rather than a
cash basis; it includes interest paid by State and local governments and by Government corporations.
• During the period shown, represents in large part some of the transactions of the Federal Home Loan
Banks.
10 Includes expenditures for the Mutual Defense Assistance Program.
11 Excludes retired pay and redemption of Armed Forces leave bonds which are included above as payments to veterans.
Note.—Detail will not necessarily add to totals because of rounding.
221
Appendix B
Statistical Tables Relating to Employment,
Production, and Purchasing Power
CONTENTS
income or expenditure:
Gross national product or expenditure, 1929-51. . .
Gross national product or expenditure in 1939 prices, 1929-50
Gross national product or expenditure in first half of 1951 prices,
1929-51
B-4. Personal consumption expenditures, 1929-51
B-5. Gross private domestic investment, 1929-51
B-6. National income by distributive shares, 1929-51
B-7. Personal income, 1929-51
B-8. Relation of national income and personal income, 1929-51
B-9. Disposition of personal income, 1929-51
B-10. Total and per capita disposable personal income in current and first
half of 1951 prices, 1929-51
Employment and wages:
B—11. Labor force, employment, and unemployment, 1929—51
B—12. Number of wage and salary workers in nonagricultural establishments,
1929-51
B—13. Average weekly hours in selected industries, 1929-51
B-14. Average hourly earnings in selected industries, 1929-51
B-15. Average gross weekly earnings in selected industries, 1929—51
Production and business activity:
B-16. Physical production index of goods and selected services, 1929-51 . . . .
B-17. Industrial production index, 1929-51
B-18. Percentage changes in production and consumption of selected commodities, United States and other free world, 1939 to 1950
B-19. New construction activity, 1929-51
B-20. Business expenditures for new plant and equipment, 1929-51
B-21. Inventories and sales in manufacturing and trade, 1939-51
B-22. Manufacturers' inventories by stage of fabrication and as ratios to
sales, 1946-51
B—23. Sales, stocks, and outstanding orders at 296 department stores,
1939-51
Prices:
B-24. Consumers' price index, 1929-51
B-25. Wholesale price index, 1929-51
B-26. Indexes of prices received and prices paid by farmers, and parity ratio,
1929-51
B-27. Percentage increases in wholesale prices in the United States and
foreign countries since June 1950
....
National
B-l.
B-2.
B-3.
223
Page
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
Money, banking, and credit:
B-28. Consumer credit outstanding, 1929-51
B-29. Loans and investments of all commercial banks and weekly reporting
member banks, 1929-51
B-30. Deposits and currency, 1929-51
B-31. Estimated ownership of Federal securities, 1939-51
B-32. United States Government debt—volume and kind of securities,
1929-51
B-33. Bond yields and interest rates, selected years, 1929-51
Corporate profits and finance:
B-34. Profits before and after tax, all private corporations, 1929-51
B-35. Sales and profits of large manufacturing corporations, 1939-51
B-36. Relation of profits before and after taxes to stockholders' equity,
private manufacturing corporations, by industry group, 1949-51...
B-37. Relation of profits before and after taxes to sales, private manufacturing corporations, by industry group, 1949-51
B-38. Relation of profits before and after taxes to stockholders' equity and to
sales, all private manufacturing corporations, by size class, 1949-51.
B-39. Sources and uses of corporate funds, 1947-51
International transactions:
B-40. International transactions of the United States, 1948-51
B—41. United States Government grants, other unilateral transfers, and loans
to foreign countries, 1948-51
B-42. United States merchandise export surplus, by area, 1936-38 quarterly
average and 1947-51
B-43. United States merchandise exports, including reexports, by area,
1936-38 quarterly average and 1947-51
B-44. Indexes of quantity and unit value of United States domestic merchandise exports, by economic class, 1936-38 quarterly average and
1947-51
B—45. United States general merchandise imports, by area, 1936—38 quarterly average and 1947-51
B—46. United States merchandise imports for consumption, by economic
class, 1936-38 quarterly average and 1947-51
B—47. Indexes of quantity and unit value of United States merchandise imports for consumption, by economic class, 1936-38 quarterly average
and 1947-51
Summary:
B-48. Changes in selected economic series since 1939 and 1950
224
Page
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
Statistical Tables Relating to Employment,
Production, and Purchasing Power
TABLE B-l.—Gross national product or expenditure, 1929-51
[Billions of dollars]
Gross
national
product
Period
GovernPersonal
Gross
pur
consumpprivate
Net foreign ment
chases oftion exdomestic investment goods
and
penditures investment
services
1929
103.8
78.8
15.8
0.8
8.5
1930
1931
1932
1933
1934
90.9
75.9
58.3
55.8
64.9
70.8
61.2
49.2
46.3
51.9
10.2
5.4
.9
1.3
2.8
.7
.2
.2
.2
.4
9.2
9.2
8.1
8.0
9.8
72.2
82.5
90.2
84.7
91.3
56.2
62.5
67.1
64.5
67.5
6.1
8.3
11.4
6.3
9.9
—.1
-.1
.1
1.1
.9
9.9
11.7
11.6
12.8
13.1
101.4
126.4
161.6
194.3
213.7
72.1
82.3
91.2
102.2
111.6
13.9
18.3
10.9
5.7
7.7
1.5
1.1
-.2
-2.2
-2.1
13.9
24.7
59.7
88.6
96.5
1945
1946
1947
1948
1949
215.2
211.1
233.3
259. 0
257.3
123.1
146.9
165.6
177.9
180.2
10.7
28.7
30.2
42.7
33.0
-1.4
4.6
8.9
1.9
.5
82.8
30.9
28.6
36.6
43.6
1950
282.6
193.6
48.9
-2.3
42.5
_
1935 •
1936
1937
1938
1939
1940
1941
1942
1943
1944
.
_..
.
.
.
.
Seasonally adjusted annual rates
1950— First half
Second half
1951— First baif i
1950— First quarter
Second quarter
Third quarter..
Fourth quarter
1951 — First quarter
Second quarter *
_
.
269.7
295. 6
186.7
200.4
44.0
53.8
_
323.8
205.6
61.8
-.9
57.2
__
264.4
275.0
287.4
303.7
184.7
188.7
202.5
198.4
40.1
47.9
47.3
60.2
-1.7
-1.6
-3.2
-2.7
41.3
40.1
40.8
47.8
318.5
329.0
208.2
203.0
59.6
64.0
-2.3
.5
52.9
61.5
.
-1.6
-3.0
40.7
44.3
i Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of
Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
225
TABLE B-2.—Gross national product or expenditure in 1939prices, 1929-50l
[Billions of dollars, 1939 prices]
Personal consumption
expenditures
Period
Gross private domestic
investment
Total
gross
naPro- Change
tional
New ducin
er?'
prodDur- NondurconServuct Total able able ices Total struc- dur- business
able invengoods goods
tion equipment tories
Government purchases of goods
and services
PriNet
vate
forgross
eign
na-1
in!
vestState tion'
prodFedment Total eral and uct 2
local
1929
85.9
62.2
8.0
29.1 25.1 14.9
7.4
6.1
1.5
0.8
7.9
1.3
6.6
81.5
1930
1931
1932
1933.
1934
78.1
72.3
61.9
61.5
67.9
58.6
56.6
51.8
51.1
54.0
6.4
5.3
3.9
3.8
4.4
27.7
27.5
25.2
24.9
27.0
24.5
23.9
22.7
22.4
22.6
10.1
5.9
1.1
1.6
3.5
5.4
3.8
2.1
1.5
1.7
4.8
3.3
1.9
2.0
2.7
-.2
-1.1
-3.0
-1.8
-.8
.6
.3
.2
.1
.3
8.7
9.4
8.9
8.7
10.1
1.5
1.6
1.7
2.3
3.1
7.3
7.8
7.2
6.4
7.0
73.5
67.7
57.4
56.5
62.0
1935
19361937
1938
1939
73.9
83.9
87.9
84.0
91.3
57.2
62.8
65.0
63.9
67.5
5.4
6.6
7.0
5.7
6.7
28.6
31.8
32.9
33.4
35.3
23.2
24.4
25.1
24.8
25.5
6.7
9.3
11.4
6.3
9.9
2.2
3.1
3.8
3.3
4.9
3.6
4.8
5.5
3.9
4.6
.9
1.4
2.1
-1.0
.4
-.1
2
!i
1.0
.9
10.1
11.9
11.4
12.7
13.1
3.0
4.9
4.4
5.3
5.2
7.1
7.1
6.9
7.4
7.9
67.6
76.4
80.9
76.4
83.7
1940
1941
1942
1943
1944
100.0
115.5
129.7
145.7
156.9
71.3
76.6
75.8
78.0
81.1
7.7
8.9
5.7
5.0
4.6
37.1
40.1
41.3
42.6
44.5
26.5
27.6
28.8
30.4
32.0
13.7
17.1
9.3
5.4
6.6
5.4
6.1
3.3
1.9
2.0
6.0
7.2
4.4
3.6
5.1
1.2
2.3
3.8
.7
-.4
1.6
-.1 -2.1
-.5 -2.2
13.8
21.1
45.0
64.3
71.3
6.1
13.8
38.3
58.2
65.4
92.1
7.7
7.3 108.2
6.7 | 116.5
6.1 125.3
6.0 133.0
1945
1946
1947
1948
1949 .
153.4 86.3
138.4 95.7
138.6 98.3
143.5 100.3
143.5 102 9
5.3
10.4
12.3
12.6
12 9
47.9
50.2
49.5
49.7
504
33.2
35.2
36.4
38.0
39.6
8.3
20.3
19.3
22.7
17.8
2.6
6.0
6.9
8.0
7.9
6.7
9.9
11.8
12.6
11.6
-1.0 -1.8
4.4
2.7
4.8
.6
2.1
1.4
-1.7
.6
60.6
19.6
16.1
19.2
22.2
54.6
12.8
8.5
10.9
13.0
6.0
6.8
7.6
8.2
9.2
129.7
125.6
128.8
133.7
133.2
1950
154.3 108.7
15.5
51.7
41.6
24.8
9.4
13.2
20.8
11.0
9.8
143.8
2.2
1
See "Survey of Current Business," January 1951, and the National Income Supplement to the "Survey,"
July 1951, for explanation of conversion of estimates in current prices to those in 1939 prices.
2 Total gross national product less compensation of general government employees.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
226
TABLE B-3.—Gross national product or expenditure in fast half of 1951 prices, 1929-51l
[Billions of dollars, first half of 1951 prices]
Personal consumption expenditures
<o
Total
gross
national
product
Period
3
03
t3"g
|
•a £
o "to O.
bJO
cu
be
1
H
32
fi
®s.
I
1
i
& 1
e
5?
'>
§*
•a
O
$_t
PH
1929
166.3 117.5 16.1 62.8 38.6 32.5 18.6
11.1
1930
1931
1932
1933
1934
149 5 110.2 12.9 59.6 37.7 21.3 13.7
139.6 106.4 10.6 59.2 36.6 14.2 9.7
118.5 97.2 7.9 54.4 34.9 3.5 5.3
116.4 95.9 7.7 53.8 34.4 3.3 3.7
128.5 101.9 8.9 58.2 34.8 5.8 4.2
8.8
5.9
3.5
3.6
4.9
_
Government purchase? of goods
and services
Gross private domestic investment
.a
1
§ cc
S-c
•°2
Net
foreign
in.vest
ment
Federal
K*»
ll
o p
OJ4-»
~3
eg
•t>
o
bx>
§
£3
O
*03
£
2.8 -0.6 16.9
-1.2
-1.4
-5.3
-4.0
-3.3
-.7
-1.2
-1.2
-1.4
-.9
18.7
20.2
19.0
18.6
21.7
3o
fr
.2
*
.»-> 0>
08
fc
ii
CQ
2.9
(2)
14.0
3.2
3.5
3.6
5.0
6.8
(2)
(2)
(2)
(2)
(2)
15.5
16.7
15.4
13.6
14.9
142.7 108.1
161. 1119.4
170.8 123.6
163.5 121.7
178.7 128.6
10.8
13.3
14.1
11.5
13.5
61.6
68.7
71.0
72.1
76.0
35.7
37.4
38.5
38.1
39.1
195. 9 136.1
228.4 146.7
261.1 144.6
294.2 148.5
316.7 154.4
15.4
17.9
11.4
10.0
9.3
80.0
86.4
89.0
91.8
95.9
40.7
42.4
44.2
46.7
49.2
14.8 5.5 6.5 2.8 -2.1 21.9 6.7 (2)
18.3 7.8 8.8 1.7 -2.4 25.8 10.7 (2)
24.8 9.5 10.0 5.3 -2.1 24.5 9.7 (2)
13.9 8.4 7.2 -1.7
27.6 11.7 (2)
21.8 12.3 8.4 1.1 (3) 28.3 11.4 2.8
5 29.8 13.5 4.8
29.5 13.6 10.9 5.0
36.7 15.4 13.1 8.2 -LO 46.0 30.4 24.7
20.6 8.3 8.0 4.3 -2.9 98.8 84.5 80.1
11.3 4.8 6.7 -.2 -7.1 141.5 128.5 126. 2
12.9 5.0 9.3 -1.4 -7.6 157.0 144.3 141.7
1945
1946
1947
1948
1949
307.0 164.7
270 3 183.0
269 1 187 5
278.5 190.7
278 3 195.5
10.6
20.8
24.7
25.2
25.9
103.1
108.1
106.8
107.2
108.8
51.0
54.1
56.0
58.3
60.8
16.3 6.6 J2.2 -2.5 -7.3 133.3 120.4 118.8 12.9
41. tf-15.2' 18.0 8.4f 3.0 42.7 28.2 24.9 14.5
39.3 17.3 21.5
7.3 35.0 18.8 15. 3 16.2
47.2 20.1 23.0 4.1 -1.1 41.7 24.1 17.5 17.6
37.0 19.8 21.2 -4.0 -2.5 48.3 28.6 20.7 19.7
1950
300.2 206.3 31.0 111 4 63.9 52.6
1935
1936
1937
1938
1939
-
1940
1941
1942.
1943
1944
- - -
15.2
15.1
14.8
15.9
16.9
16.3
15.6
14.3
13.0
12.7
24.1 4.8 -3.9 45.2 24.3 19.3 20.9
)«~i 5
Seasonally adjusted annual rates
23.7
•',fr I
1950— First half
Second half
293.6 203.2 28.8 111.2 63.2 49.6 23.0 22.4
306.8 209.5 33.2 111.7 64.6 56.0 24.4 25.8
4.2 -3.8 44.6 23.6 18.0 21.0
5.7 -4.2 45.7 25.0 20.6 20.7
1951— First half
323.8 205.6 29.2 110.8 65.6 61.8 23.1 27.0 11.8 -.9 57.2 36.1 31.8 21.2
1950— First quarter.
Second quarter
Third quarter
Fourth quarter
288.0 202.2
299.1 204.2
301.0 213. 1
312.6 205.7
1951— First quarter
Second quarter
319.1 208.5 31.6 111.6 65.3 59.8 23.9 26.6 9.3 -2.3 53.1 32.0 27.9 21.1
328.5 202.6 26.9 109.9 65.8 63.8 22.2 27.4 14.2
.5 61.6 40.1 35.7 21.4
28.6
28.9
36.2
30.2
111.1
111.3
112.7
110.7
62.5
64.0
64.2
64.8
44.9
54.2
50.0
61.9
22.7
23.4
24.6
24.2
21,. 0 1.2 -4.2
23.7 7.1 -3.5
26. 1 — . 7 —4 6
25.6 12.1 -3.9
45.1
44.0
42 5
48.9
24.1
23.1
21.9
28.1
17.8
18.1
17.5
23.6
21.0
20.9
20.6
20.8
' Estimates based on preliminary data. These estimate? represent a rough conversion of the Department
of Commerce series in 1939 prices. (See appendix table B-2.) This was done by major components, using
the implicit price indexes for the first half of 1951 as a base. Although it would have been preferable to redeflate the series by minor component?, this would not substantially change the results except possibly for
the war years, and for the series on changes in business inventories.
2 Not available.
3 Less than 50 million dollars.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of
Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Council of Economic Advisers.
227
TABLE B-4.—Personal consumption expenditures, 1929-51
[Billions of dollars]
Durable goods
Nondurable goods
Services
Total
exAutomopendiHoustures Total biles Other Total Food' Clothing 2 Other Total ing* Other
and
parts
Period
1929
78.8
9.4
3.2
6.1
37.7
19.7
9.2
8.9
31.7
11.4
20.2
1930
1931
1932
1933
1934.
70.8
61.2
49.2
46.3
51.9
7.3
5.6
3.7
3.5
4.3
2.2
1.6
.9
1.0
1.4
5.1
4.0
2.8
2.5
2.9
34.1
29.0
22.7
22.3
26.7
18.1
14.8
11.4
11.5
14.3
7.9
6.8
5.0
4.6
5.6
8.1
7.4
6.4
6.2
6.9
29.5
26.6
22.8
20.6
20.9
11.0
10.2
9.0
7.8
7.5
18.5
16.4
13.8
12.7
13.4
56.2
62.5
67.1
64.5
67.5
5.2
6.4
7.0
5.8
6.7
1.9
2.3
2.4
1.6
2.1
3.3
4.1
4.6
4.1
4.6
29.4
32.9
35.2
34.0
35.3
16.3
18.5
20.0
19.0
19.3
5.9
6.5
6.7
6.6
7.0
7.2
7.9
8.6
8.4
8.9
21.7
23.3
24.9
24.7
25.5
7.6
7.9
8.4
8.7
8.9
14.1
15.4
16.5
16.0
16.5
72.1
82.3
91.2
102.2
111.6
7.9
9.8
7.1
6.8
7.1
2.7
3.3
.7
.8
.9
5.1
6.4
6.4
6.0
6.2
37.6
44.0
52.9
61.0
67.1
20.7
24.4
30.5
35.3
38.9
7.4
8.8
11.0
13.7
15.3
9.5
10.8
11.4
11.9
12.9
26.6
28.5
31.2
34.4
37.4
9.2
9.9
10.6
11.1
11.7
17.4
18.7
20.6
23.3
25.7
123.1
146.9
165.6
177.9
180.2
8.5
16.6
21.4
22.9
23.9
1.1
4.2
6.6
7.5
9.4
7.4
12.4
14.8
15.4
14.5
74.9
85.8
95.1
100.9
98.7
43.0
50.3
56.6
59.7
58.6
17.1
18.6
19.1
20.1
18.9
14.8
16.9
19.4
21.1
21.2
39.7
44.5
49.1
54.1
57.6
12.2
13.0
14.6
16.5
18.1
27.5
31.4
34.5
37.6
39.5
193.6
29.2
12.2
17.0
102.3
60.9
18.8
22.6
62.1
19.9
42.2
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
I960-
_
.
-
.
.
..
-
Seasonally adjusted annual rates
1950— First half.
Second half
1951— First half
4
1950— First quarter
Second quarter _
Third quarter
Fourth quarter
1951— First quarter
Second quarter 4
"
186. 7
200.4
26.4
31.8
10.9
13.6
15.6
18.3
99.4
105.2
59.2
62.6
18.2
19.4
22.0
23.2
60.8
63.4
19.5
20.3
41.4
43.0
205.6
29.2
12.0
17.2
110.8
67.0
19.8
24.0
65.6
21.0
44.6
_ 184.7
188.7
202.5
198.4
26.3
26.6
34.3
29. -1
10.4
11.4
14.3
12.9
15.9
15.2
20.0
16.5
98.4
100.4
105.5
104.9
58.7
59.7
62.6
62.7
17.9
18.5
19.6
19.2
21.8
22.2
23.3
23.0
60.1
61.6
62.7
64.0
19.3
19.7
20.1
20.5
40.8
41.9
42.6
43.5
208.2
203.0
31.5
27.0
12.5
11.5
19.0
15.5
111.5
110.0
67.0
67.0
20.4
19.2
24.1
23.8
65.2
66.0
20.9
21.2
44.3
44.8
1 Includes alcoholic beverages.
Includes shoes and standard clothing issued to military personnel.
3 Includes imputed rental value of owner-occupied dwellings.
« Estimates based on incomplete data; second quarter by Council of Economic Advisers.
2
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of
Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
228
TABLE B-5.—Gross private domestic investment, 7929-57
[Billions of dollars]
Nonfarm producers' Farm equipment and
Net change in busiconstruction
plant and equipment
ness inventories
Total
Resi- Other
dential prigross
priconNonstruc- vate
vate
farm
conContion
domesConafter
Equip- struc- (non- struc- Total revalu2 strue
tic Total i EquipTotal
4
Farm
ment tion farm)! * tion •
ment tion i •
investation
ment
adjustment
Period
1929
15.8
1930
1931
1932
1933
1934
10.2
5.4
.9
1.3
2.8
1935
1936
1987
1938
1939
0.8
0.3
2.8
.9
.5
.3
.3
.4
.7
.4
.3
.3
.3
.2
.1
O
0
1.4
12
.5
.3
.5
.4
.2
.1
.1
1.0
1.3
1.9
1.4
1.7
.6
.8
1.0
.8
.8
.5
.6
.8
.6
.6
.1
.2
.2
.2
.2
.7
1.1
1.4
1.5
2.7
.1
.9
.1 1.0
.2 2.3
.2 -1.0
.2
.4
.4
2.1
1.8
-1.1
.3
.5
-1.1
.5
.1
.1
2.1
2.7
1.7
1.1
1.6
1.0
1.3
1.0
.9
1.2
.8
1.0
.7
.6
.9
.2
.3
.3
.3
.3
3.0
3.4
1.8
10
.8
.2 2.3
.3 3.9
.1 2.1
(7) -.9
.1 -.8
2.0
3.4
.8
-.5
-.3
.2
.5
1.3
-.4
-.5
1.1
1.4
2.4 -1.6
2.5
3.8
3.2
4.6
3.4
4.7
.3
.9
1.3
1.4
1.3
11
4.0
6.3
86
8.3
.2 -.7
.6 6.1
. 7 -.8
1.0 5.0
1.3 -3.2
-.6
6.3
1.4
3.7
-2.5
-.1
-.2
-2.2
1.3
-.7
4.3
3.6
.8
3.1
5.6
2.8
4.4
.4
1.2
0.5
5.6
4.2
7.6
4.6
2.5
2.3
3.1
4.3
2.8
1.6
1.6
2.2
3.4
1.8
1.0
.7
.9
6.1
8.3
11.4
6.3
9.9
3.8
5.2
6.6
4.7
5.7
2.9
3.9
4.7
3.4
4.0
1940
1941
1942
1943
1944
13.9
18.3
10.9
5.7
7.7
7.4
9.3
5.8
4.6
6.3
5.3
6.6
4.1
3.5
4.7
1945
1946
1947
1948
1949
30.7
28.7
30.2
42.7
33.0
8.7
15.5
20.3
23.4
22.0
2.4
6.3
10.7 - 4.8
14.6
5.7
16.7
6.7
15.6
6.4
1950
48.9
25.6
18.8
• •• ' &
6.8
4.8
3.6
1950— 1st half
2d half
44.0
53.8
23.0
28.2
16.8
20.9
6.2
7.2
4.6
5.0
3.4
3.8
1.2
1.2
11.8
13.4
1.5
1.6
1951— 1st half 8
.
.
_...
9.8
1.1
1.2 12.6 1.5
',.1
Seasonally adjusted annual rates
1.6
1.8
-0.3
-.3
(7)
-1.4 -1.7
-2.6 -2.6
-1.6 -1.3
-1.1
'.2
-.2
.3
61.8
31.0
22.8
8.2
5.4
4.2
1.2
11.8
1.8 11.8
10.6
1950— 1st quarter.... 40.1
2d quarter... 47.9
3d quarter
47.3
4th quarter ... 60.2
22.0
24.0
27.5
28.9
15.8
17.8
20.5
21.3
6.2
6.2
7.0
7.5
4.3
4.8
5.2
4.8
3.1
3.6
4.0
3.7
1.2
1.2
1.2
1.1
11.2
12.4
13.7
13.1
1.5 1.1
1.5 5.1
1.5 -.7
1.6 11.8
1.1
4.4
-1.8
10 6
1951— 1st quarter....
2d quarter *__
30.4
31.6
22.4
23.2
8.1
8.4
5.3
5.5
4.1
4.3
1.2
1.2
12.9
10.7
1.7 9.3
1.9 14.3
8.1
13.2
59.6
64.0
°,
-1.3
1.2
7
()
i!i
1.2
1.2
1.1
i Items for 1945 and earlier years are not comparable with those for later years, nor with figures shown in
appendix
tables B-19 and B-20.
3
Total producers' durable equipment less "farm machinery and equipment" and farmers' purchases of
"tractors" and "business motor vehicles." These figures assume that farmers purchase 85 and 15 percent,
respectively,
of all tractors and motor vehicles used for productive purposes.
3
Industrial buildings, public utilities, gas- and oil-well drilling, warehouses, office and loft buildings,
stores, restaurants, and garages. Includes hotel construction prior to 1946 only.
4 Farm construction (residential and nonresidential) plus "farm machinery and equipment" and farmers'
purchases of "tractors" and "business motor vehicles." (See footnote 2.)
5fl IncI udes construction of hotels, tourist cabins, motor courts, and dormitories since 1946 only.
Includes religious, educational, social and recreational, hospital and institutional, miscellaneous nonresidential, and all other private.
' Less than 50 million dollars.
• Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised scries of national iocome and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of
Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
229
TABLE B-6.—National income by distributive shares, 1929-51
[Billions of dollars]
Business and professional income
and inventory
valuation
Inadjustment
Total Comcome
pennation- sation
of
al
In- farm
Inemin- ofploycome
venprotory priecome1 ees 2
of
Total unin- valu- tors
corpo- ation
rated adenter- justprises ment
Period
Corporate profits
and inventory
valuation
adjustment
Rental in
come
In- Net
of
Corpo- ven- interperrate
tory
sons Total prof- valu- est
its ation
before adtax « justment
10.3
1929
87.4
50.8
8.3
8.1
0.1
5,7
5.8
1930
1931
1932
1933
1934
75.0
58.9
41.7
39.6
48.6
46.5
39.5
30.8
29.3
34.1
7.0
5.3
3.2
2.9
4.3
6.3
4.7
2.9
3.4
4.3
.8
.6
.3
-.5
-.1
3.9
2.9
1.7
2.3
2.3
4.8
6.6
3.6
1.6
2.5 -2.0
2.0 -2.0
2.1
1.1
56.8
64.7
73.6
67.4
72.5
37.1
42.7
47.7
44.7
47.8
5.0
6.1
6.6
6.3
6.8
5.0
6.2
6.7
6.1
6.9
-.1
t
(«)
.2
—.2
4.9
3.9
5.6
4.4
4.5
2.3
2.7
3.1
3.3
3.5
3.0
4.9
6.2
4.3
5.8
81.3
103.8
137.1
169.7
183.8
51.8
64.3
84.9
109.2
121.2
7.7
9.6
12.6
15.0
17.2
7.8
10.2
12.9
15.1
17.2
-.1
-.6
-.4
-!l
4.9
6.9
10.5
11.8
11.8
3.6
4.3
5.4
6.1
6.5
1945
1946
1947
1948
1949
182.7
180.3
198.7
223.5
216.7
123.0
117.1
128.0
140.2
139.9
18.7
20.6
19.8
22.1
20.9
18.8 -.1
22.4 -1.8
21.3 -1.5
22.5 -.4
20.3
.(>
12.5
14.8
15.6
17.7
13.0
1950
239.0
153. 3
22.3
23.8 -1.6
13.7
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
- -
_..
9.8
0.5
6.5
3.3 3.3
-.8 2.4
-3.0
1.0
.2 -2.1
1.7 -.6
6.2
5.9
5.4
5.0
4.8
3.2
5.7
6.2
3.3
6.5
-.2
-.7
(4)
1.0
-.7
4.5
4.5
4.4
4.3
4.2
9.2
14.6
19.9
24.3
24.0
9.3 -.1
17.2 -2.6
21.1 -1.2
25.1 -.8
24.3 -.3
4.1
4.1
3.9
3.4
3.1
6.3
6.6
7.1
7.5
7.5
19.2
18.3
24.7
31.7
30.5
19.7 -.6
23.5 -5.2
30.5 -5.8
33.8 -2.1
28.3
4.1
3.0
2.9
3.5
4.3
4.9
8.0
36.2
41.4 -5.1
5.4
34.7 -2.0
48.0 -8.2
5.2
5.6
Seasonally adjusted annual rates
12.4
15.0
7.8
8.2
32.6
39.8
25.6 -1.8
16.8
8.2
44.4
50.2 -5.7
5.6
21.3 -.2
22.9 -1.0
26.4 -3.2
24.8 -1.8
12.5
12.2
14.3
15.8
7.8
7.8
8.1
8.4
30.5
34.8
37.4
42.2
31.9
37.5
45.7
50.3
-1.4
-2.7
-8.3
-8.2
5.2
5.3
5.5
5.6
27.3 -3.2
24.0 -.3
16.4
17.1
8.3
8.2
42.9
46.0
51.8 -8.9
48.5 -2.5
5.6
5.7
1950— First half
Second half
225.0
253.0
145.4
161.2
21.5
23.1
22.1 -.6
25.6 -2.5
1951— First half *
273.6
174.6
23.9
1950— First quarter _ _
Second quarter _
Third quarter
Fourth quarter _
219.3
230.6
245.8
260.1
142.2
148.6
157.3
165.2
21.1
21.9
23 2
23.0
269.4
.. .. 277.8
172.1
177.1
24.1
23.7
1951 — First quarter 8
Second quarter
1 National income is the total net income earned in production by individuals and businesses. The concept of national income currently used differs from the concept of gross national product in that it excludes
depreciation charges and other allowances for business and institutional consumption of durable capital
goods, and indirect business taxes.
2 Includes wage and salary receipts and other labor income (see appendix table B-7), and employer
and employee contributions for social insurance (see appendix table B-8).
* See appendix table B-34 for corporate tax liability (Federal and State income and excess profits taxes)
and corporate profits after taxes.
4 L*'ss than 50 million dollars.
« Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
230
TABLE B-7.—Personal income, 1929-51
[Billions of dollars]
Total
personal
income
Salaries,
wages,
and other
labor
income 1
1929
85.1
50.5
19.7
13.3
1.5
76.8
8.3
1930
1931
1932
1933
1934
76.2
64.8
49.3
46.6
53.2
46.3
39.2
30.5
29.0
33.8
15.7
11.8
7.4
7.2
8.7
12.6
11. 1
9.1
8.2
8.6
1.5
2.7
2.2
2.1
2.2
70.0
60.1
46.2
43.0
49.5
6.2
4.7
3.1
3. 6
3.7
1935
1936
1937
1938
1939 .
59.9
68.4
74.0
68.3
72.6
36.8
42.1
45.9
42.8
45.7
12.1
12.6
15.4
14.0
14.7
8.6
10.1
10.3
8.7
9.2
2.4
3.5
2.4
2.8
3.0
53.4
62.8
66.5
62 1
66.3
6.5
5.6
7.5
6.2
6.3
1940
1941..
1942
1943
1944
78.3
95.3
122.7
150. 3
165.9
49.5
61.5
81.4
104.5
116.2
16.3
20.8
28.4
32.8
35.5
9.4
9.9
9.7
10.0
10.6
3.1
3.1
3.2
3.0
3.6
71.5
86.1
109.4
135.2
150.5
6.8
9.2
13.3
15.1
15.4
1945
1946
1947
1948
1949
171.9
177.7
191.0
209.5
205.1
116.9
111.1
122.3
134. 9
134.2
37.5
42.0
42.4
47.3
41.4
11.4
13.2
14.5
16.0
17.1
6.2
11.4
11.8
11.3
12.4
155.7
158.8
170.8
187.1
187.6
16.2
18.9
20.2
22.4
17.5
1950
224.7
146.4
44.0
19.3
15.1
206.6
18.1
18.4
11.8
200.0
213.1
16.6
19.8
Perio-1
.
.
Proprie- Dividends
and
Transfer
tors' and personal
rental J
payments
interest
3
income
income
Nonagricultural
personal
income *
Agricultural
income
Seasonally adjusted annual rates
1950— First half
Second half
216.7
232.8
138.7
154.1
41.6
46.4
18.0
20.5
1951— First half «
247.0
166.2
48.9
19.6
12.4
225.8
21.2
1950— First quarter
Second quarter...
Third quarter
Fourth quarter. _.
216.3
217.1
227.3
238.3
135.6
141.8
150.3
157.9
41.4
41.8
45.6
47.2
17.6
18.4
19.6
21.4
21.7
15.0
11.8
11.9
199.5
200.6
208.5
217.7
16.8
16.5
18.8
20.6
1951— First quarter
Second quarter 5_.
244.1
250.0
163.8
168.5
48.8
49.0
19.2
20.0
12.3
12.5
223.2
228.5
20.9
21.5
1
Differs from "compensation of employees" in appendix table B-6, in that it excludes employer and
employee contributions to social insurance. Includes wage and salary receipts and other labor incomecompensation for injuries, employer contributions to private pension and welfare funds, pay of military
reservists not on full-time active duty (pay for full-time active duty included in military wages and salaries), directors' fees, jury and witness fees, compensation of prison inmates, Government payments to
enemy prisoners of war, marriage fees to justices of the peace, and merchant marine war-risk life and injury
claims.
2
See appendix table B-6, for major components.
3
See appendix table B-34, for dividend payments.
* Nonagrictiltural income is personal income exclusive of net income of unincorporated farm enterprises
farm wages, agricultural net rents, agricultural net interest, and net dividends paid by agricultura
corporations.
fi
Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
231
TABLE B-8.—Relation of national income and personal income, 1929—51
[Billions of dollars]
Plus:
Less:
CorpoExcess
rate
of
Nation- profits Contri- wage
al
and in- butions acincome vento
tory social cruals
valu- insur- over
disation ance burseadjustments
ment
Period
Net
Gov- interBusi- Equals:
ernPerest
ness sonal
rrent paid
Divi- trans- income
trans- by dends
fer
fer
paypay- governments
ments ment
1929
87 4
10 3
0 2
0.9
1.0
5.8
0.6
85.1
1930 . .
1931
1932
1933
1934
75.0
68.9
41.7
39.6
48.6
6.6
1.6
-2.0
-2.0
1.1
.3
.3
.3
.3
.3
1.0
2.0
1.4
1.5
1.6
.0
.1
.1
.2
.2
5.5
4.1
2.6
2.1
2.6
.5
,6
.7
.7
.6
76.2
64.8
49.3
46.6
53.2
1935
1936
1937
1938
1939
56.8
64 7
73.6
67.4
72.5
3.0
4.9
6.2
4.3
5.8
.3
.6
1.8
2.0
2.1
1.8
2.9
1.9
2.4
2.5
.1
1
.2
.2
.2
2.9
4.6
4.7
3.2
3.8
.6
.6
.6
.4
.5
59.9
68.4
74.0
68.3
72.6
81.3
103.8
137.1
169.7
183.8
9.2
14.6
19.9
24.3
24.0
2.3
2.8
3.5
4.5
5.2
2.7
2.6
2.7
2.5
3.1
.3
.3
.5
2.1
2.8
4.0
4.5
4.3
4.5
4.7
.4
.5
.5
.5
.5
78.3
95.3
122.7
150.3
165.9
132.7
180.3
198.7
223.5
216.7
19.2
18.3
24.7
31.7
30.5
6.1
6.0
5.7
5.2
5.7
5.6
10.9
11.1
10.5
11.6
3.7
4.4
4.4
4.5
4.6
4.7
6.8
6.6
7.3
7.6
,5
.6
.7
.7
.7
171.9
177.7
191.0
209.5
205.1
239.0
36.2
7.0
14.3
4.7
9.2
.8
224.7
1940
1941
1942
1943
1944
1945
.
1946
1947
1948
1949— „
,.
_
.
1950
0.2
-.2
0)
0)
(0
0)
0)
0)
Seasonally adjusted annual rates
I960— First half
Second half
225.0
253.0
32.6
39.8
6.7
7.2
1951 — First half *
273.6
44.4
8.4
1950— First quarter
Second quarter
Third quarter
Fourth quarter
219.3
230.6
245.8
260.1
30.5
34.8
37.4
42.2
6.6
6.8
7.0
7.4
269.4
277.8
42.9
46.0
8.3
8.6
1951— First quarter. 8
Second quarter _
__ _ .
_ __
0)
(0
0)
0)
0)
8
8
17.6
11.1
4.7
4,7
8.1
10.2
.7
.8
216.7
232.8
11.6
4.8
9.2
.8
247.0
21.0
14.2
11.0
11.1
4.7
4,7
4.7
4.7
7.8
8.4
9.4
11.1
.7
.7
.8
.8
216.3
217.1
227.3
238.3
11.5
11.7
4.8
4,8
8.8
9.5
.8
.8
244.1
250.0
1
Less than 50 million dollars.
« Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.--The figures beginning with 1948 are based on the revised series of national income and product
of the Department of Commerce. For detail, see the "National Income Supplement to the Survey of
Current Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
232
TABLE B-9.—Disposition of personal income, 1929-51
[Billions of dollars]
Less:
Personal Personal
tax
and
income
nontax
payments
Period
Less:
Equals:
Equals:
Disposa- Personal
Personal
conble
sumption
net
personal expendi- saving
income
tures
Net
saving as
percent
of disposable
personal
income
1929
85.1
2.6
82.5
78.8
3.7
4.5
1930
1931
1932
1933
1934
762
64.8
49 3
46.6
53.2
2.5
1.9
1.5
1.5
1.6
73.7
63.0
47.8
45.2
51.6
70.8
61.2
49.2
46.3
51.9
2.9
1.8
-1.4
-1.2
-.2
3.9
2.9
-2.9
-2.7
-.4
59.9
68.4
74.0
68.3
72.6
1.9
2.3
2.9
2.9
2.4
58.0
66.1
71.1
65.5
70.2
56.2
62.5
67.1
64.5
67.5
1.8
3.6
3.9
1.0
2.7
3.1
5.4
5.5
1.5
3.8
1940
1941
1942
1943
1944
78.3
95.3
122.7
150.3
165.9
2.6
3.3
6.0
17.8
18.9
75.7
92.0
116.7
132 4
147.0
72.1
82.3
91.2
102.2
111.6
3.7
98
25.6
30.2
35.4
4.9
10.7
21.9
22.8
24.1
1945
1946 .
1947
1948.
1949
171.9
177.7
191. 0
209.5
205.1
20 9
21.5
21.1
18.6
151.1
158.9
169. 5
188.4
186.4
123.1
146.9
165. 6
177.9
180.2
28.0
12.0
3.9
10.5
6.3
18.5
7.6
2.3
5.6
3.4
224.7
20.5
204.3
193.6
10.7
5.2
.
-
1935
1936
1937
1938
1939 . .
_
1950
is. 8
Seasonally adjusted annual rates
1950— First half .
Second half
1951— First half i_.
... _
_
_ ~
....
1950— First quarterSecond quarter...
Third quarter
Fourth quarter
1951— Frst quarter
.. ..
Second quarter * .
_.
216.7
232.8
19.3
21.6
197.4
211.2
186.7
200.4
10.7
10.7
5.4
5.1
247.0
26.9
220.2
205.6
14.6
6.6
216.3
217.1
227.3
238.3
19.0
19 5
20.2
23.1
197. 3
197.5
207.1
215.2
184.7
188.7
202.5
198.4
12.5
8.9
4.6
16.8
6.3
4.5
2.2
7.8
244.1
250.0
26.6
27.2
217.5
222.8
208.2
203.0
9.3
19.8
4.3
8.9
i Estimates based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product of
the Department of Commerce. For detail, see the "National Income Supplement to the Survey of Current
Business," July 1951.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
233
TABLE B—10.— Total and per capita disposable personal income in current and fast half of 1951
prices, 1929-51
Total disposable
personal income
(billions of dollars)
Per capita disposable
income (dollars)
Period
Current
prices
First half
of!951
prices 1
Current
prices
First half
of 1951
prices l
Population
(thousands)2
1929
82.5
123.9
678
1,017
121, 770
1930
1931
1932
1933
1934
73.7
63.0
47.8
45.2
51.6
115.9
110.7
95.6
94.8
102.0
599
508
383
360
408
942
892
766
755
807
123,077
124. 040
124. 840
125. 579
126, 374
58.0
66.1
71.1
65.5
70.2
112.0
126.1
130.7
123.1
133.2
456
516
552
505
536
880
985
1,015
948
1,018
127, 250
128,053
128. 825
129. 825
130, 880
75.7
92.0
116.7
132. 4
147.0
142.0
162.5
184.1
191.6
203.0
573
690
866
968
1,062
1,075
1,218
1,365
1,401
1,467
132, 114
133, 377
134, 831
136, 719
138, 390
151.1
158.9
169.5
188.4
186.4
201.2
196.4
191.1
201.5
202.0
1,080
1,124
1.176
1,285
1,250
1,438
1, 389
1,326
1,374
1,354
139, 934
141,398
144,129
146. 621
149, 149
204.3
217. 8
1,347
1,436
151, 689
1935
1936 _-.
1937
1938
_.._
1939— _
1940
1941 . .
1942
1943
1944
1945.
1946
1947
1948
1949 .
_
.
.
1950
Seasonally adjusted annual rates
1 950— First half
Second half
_
3
__.
197.4
211.2
214.8
220.7
1, 307
1,387
1,422
1,449
151,038
152,317
220.2
220.2
1,434
1,434
153, 594
1950— First quarter
Second quarter
Third quarter.
Fourth quarter
197.3
197.5
207.1
215.2
215.6
214.0
217.8
223.5
1,308
1, 305
1,362
1,409
1,429
1,414
1, 432
1,463
150,847
151,390
152,068
152, 774
1951— First quarter-.3
Second quarter _
217.5
222.8
217.7
222.6
1,418
1,447
1,419
1,445
153,396
154,010
1951— First half
1
Dollar estimates in current prices divided by an over-all price index for personal consumption expend!
tures. This price index was based on Department of Commerce data shifted from a 1939 base.
2 Estimated population of continental United States including armed forces overseas; annual data as of
July 1 and quarterly and semiannual data as of middle of period.
s Estim.tes based on incomplete data; second quarter by Council of Economic Advisers.
NOTE.—The figures beginning with 1948 are based on the revised series of national income and product of
the Department of Commerce. For detail, see the "National Income Supplement to the Survey of Current
Business," July 1951.
Sources: Department of Commerce and Council of Economic Advisers.
234
TABLE B-ll.—Labor force, employment, and unemployment, 1929-51
Civilian labor force
Total
labor
force
(including
armed
forces) *
Period
Armed
forces i
Total
civilian
labor
force
Employment a
Total
Agri- Nonagricultural cultural
Unemployment
Unemployment
as percent of
total
civilian
labor
force
Thousands of persons, 14 years of age and over
Monthly average:
1929
49, 440
260
49, 180
47, 630
10, 450
37, 180
1,550
3.2
50, 080
50. 680
51, 250
51, 840
52, 490
260
260
250
250
260
49.820
50, 420
51, 000
51, 590
52, 230
45. 480
42. 400
38. 940
38, 760
40,890
10. 340
10. 290
10, 170
10, 090
9,900
35. 140
32,110
28. 770
28, 670
30, 990
4,340
8.020 I
12. 060
12.830
11, 340
8.7
15.9
23.6
24.9
21.7
1935
1936
1937
1938
1939
53, 140
53, 740
54, 320
54. 950
55,600
270
300
320
340
370
52, 870
53, 440
54.000
54, 610
55,230
42, 260
44,410
46, 300
44.220
45, 750
10, 110
10, 000
9.820
9,690
9,610
32, 150
34,410
36, 480
34, 530
36, 140
10. 610
9,030
7,700
10, 390 !
9,480
20.1
16.9
14.3
19.0
17.2
1940 — _
1941
1942
1943
1944
56. 030
57, 380
60. 230
64. 410
65, 890
390
M70
3. 820
8,870
11, 260
55. 640
55. 910
56. 410
55. 540
54, 630
47, 520
50. 350
53, 750
54, 470
53, 960
9,540
9,100
9.250
9,080
8,950
37.980
41.250
44. 500
45. 390
45, 010
8,120
5. 560
2.660
1,070
670
14.6
9.9
4.7
1.9
1.2
1945
1946
1947
1948
1949
65, 140
60. 820
61,608
62. 748
63, 571
11, 280
3,300
1,440
1.306
1,466
53,860
57, 520
60.108
61,442
62, 105
52,820
55. 250
58, 027
59, 378
58, 710
8,580
8.320
8,266
7,973
8,026
44. 240
46. 930
49, 761
51.405
50,684
1.040
2.270
2.142
2.064
3,395
1.9
3.9
3.6
3.4
5.5
1950
64,599
1,500
63, 099
59, 957
7,507
52, 450
3,142
5.0
63. 776
65, 422 .
1.347
1, 653
62, 429
63,769
58, 555
61, 358
7,233
7,781
51, 322
53, 578
3,874
2,410
6-2
3.8
(3)
62,254
60, 189
6,744
53, 446
2,065
3.3
62, 835
63. 003
63, 021
63, 513
64. 108
66,177
65. 742
66, 204
65. 020
65. 438
65. 453
64, 674
1,408
1,366
1, 346
1.330
1,320
1,311
1,315
1.337
1.453
1.734
1,941
2,136
61,427
61. 637
61. 675
62. 183
62. 788
64. 866
64. 427
64. 867
63. 567
63. 704
63, 512
62, 538
56, 947
56. 953
57. 551
58. 668
59. 731
61. 482
61.214
62, 367
61,226
61. 764
61. 271
60, 308
6,198
6.223
6.675
7,195
8,062
9.046
8,440
8.160
7.811
8.491
7, 551
6,234
50. 749
50. 730
50, 877
51.473
51, 669
52. 436
52. 774
54. 207
53.415
53. 273
53. 721
54, 075
4,480
4,684
4.123
3.515
3.057
3.384
3.213
2,500
2,341
1,940
2,240
2,229
7.3
7.6
6.7
5.7
4.9
5.2
5.0
3.9
3.7
3.0
3.5
3.6
00
(3)
8(')
61. 514
61.313
62. 325
61. 789
62. 803
63, 783
59,010
58. 905
60. 179
60. 044
61. 193
61, 803
6.018
5,930
6.393
6,645
7,440
8,035
52. 993
52. 976
53, 785
53. 400
53. 753
53,768
2,503
2,407
2,147
1.744
1,609
1,980
4.1
3.9
3.4
2.8
2.6
3.1
1930 -.
1931
1932
1933
1934
-.
-_-
1950— First half
Second half
(3)
1951— First half
1950— January
February
March
April
May
_
June
July
Aueust
September
October
November
December
1951 — January
February
March
April
May
June -
_
..
(3)
(33)
(3)
()
(33)
(3)
()
1 Data for 1940-50 exclude about 150,000 members of the armed forces who were outside the continental
United States in 1940 and who were therefore not enumerated iti the 1940 census. This figure is deducted by
the Census Bureau from its current estimates for comparability with 1940 data.
2 Includes part-time workers and those who had jobs but were not at work for such reasons as vacation,
illness, bad weather, temporary lay-off, and industrial disputes.
3 Not available.
\
NOTE.—Labor force data are based on a survey made during the week which includes the 8th of the month.
Detail will not necessarily add to totals because of rounding.
Sources: Department of Labor (1929-39) and Department of Commerce (1940-51).
235
TABLE B—12.—Number of wage and salary workers in nonagricultural establishments, 1929—51l
[Thousands of employees]
Total
wage
and
salary
workers
Period
Monthly average:
1929
Manufacturing
Total
Non- MinDur- duraing
able
ble
goods goods
GovTransernCon- portament
tract tion
ServFi(Fedconand Trade* nance ice » eral,
struc- public
State,
tion utiliand
ties
local)
31, 041
10, 534
C)
0
1,078
1,497
3, 907
6,401
1,431
3,127
3,066
29, 143
26. 383
23. 377
23. 466
25, 699
9,401
8,021
6,797
7,258
8,346
(')
(»)
(')
(')
(')
C)
(')
8
1,000
864
722
735
874
1, 372
1,214
970
809
862
3,675
3.243
2. 804
2.659
2,736
6,064
5,531
4.907
4.99Q
5,552
.398
.333
,270
,225
,247
3.084
2,913
2 6«2
2.614
2,784
3,149
3,264
3 225
3.167
3,298
26. 792
28. 802
30. 718
28. 902
30, 287
8,907
9.653
10. 606
9,253
10, 078
8( )
4,683
5,394
888
937
1,006
882
845
912
1,145
1,112
1. 055
1,150
2,771
2. 956
3,114
2.840
2,912
5,692
6.076
6, 543
6. 453
6,612
,262
.313
,355
.347
,382
2, 883
3,060
3. 233
3,196
3,321
3,477
3 662
3.749
3 876
3,987
32, 031
36, 164
39. 697
42, 042
41, 480
10, 780 5,337
12. 974 6,945
15.051 8.804
17,381 11,077
17, 111 10, 858
5,443
6.028
6.247
6,304
6,253
916
947
983
917
883
1,294
1.790
2.170
1, 567
1,094
3.013
3.248
3,433
3. 619
3,798
6,940
7.416
7,333
7.189
7,260
,419
,462
,440
,401
,374
3,477
3.705
3,857
3.919
3,934
4.192
4.622
5.431
6.049
6,026
1945...
1946
1947
1948
1949
40, 069
41, 412
43, 371
44, 201
43, 006
15, 302
14, 461
15, 247
15. 286
14, 146
9,079
7,739
8,373
8,315
7,465
6.222
6,722
6.874
6,970
6,681
826
852
943
981
932
1,132
1,661
1.982
2.165
2,156
3,872
4,023
4,122
4,151
3,977
7,522
8,602
9, 196
9.491
9,438
,394
,586
,641
,716
1,763
4.055
4,621
4, 7F6
4.799
4,782
5.967
5.607
5,454
5,613
5,811
1950
1930
1931...
1932
1933.
1934
1935
1936
1937.
1938
1939
1940
1941
1942
1943.
1944
.
.
(*)
3
()
(')
(»)
(8)
(»)
(3)
(3)
44, 124
14,884
8,008
6,876
904
2,318
4,010
9,524
1,812
4,761
5,910
42. 710
1950-First half
Second half— 45, 538
14,220
15, 549
7,568
8,449
6,653
7,100
870
939
2.070
2,565
3,903
4,117
9,281
9,766
1,797
1,827
4,746
4,776
5,822
5,998
1951— First half < _ _ _ _ 45, 841
15,902
8,914
6,988
921
2,429
4,117
9,640
1,860
4,728
6,245
1950—January
February
March
April
May
June
July
August _
September
October
November
December
42, 125
41, 661
42, 295
42. 926
43', 311
43, 945
44. 096
45.080
45. 684
45, 898
45, 873
46, 595
13, 980
13. 997
14, 103
14, 162
14. 413
14, 6K6
14, 777
15, 450
15,685
15. 827
15, 765
15, 789
7,342
7.324
7,418
7,548
7,809
7,964
7,978
8,294
8,423
8, 618
8,664
8,717
6,638
6.673
6,685
6.614
6,604
6.702
6.799
7. 156
7,262
7,209
7.101
7,072
«861
«595
938
939
940
946
922
950
946
939
938
937
1,919
1.861
1.<W7
2.076
2.245
2,414
2. 532
2.629
2. 626
2,631
2,571
2,403
3.869 9,246
3. 811 9,152
3.873 9.206
3,928 9. 346
3,885 9.326
4,023 9.411
4,062 9.390
4.120 9,474
4.139 9,641
4,132 9, 752
4,123 9,896
4,125 10, 443
1,772
1,777
1,791
1.803
1,812
1.827
1,831
1, 837
1,827
1,821
1,820
1,828
4,701
4,696
4.708
4,757
4.790
4.826
4.841
4,827
4.816
4,757
4,723
4,694
5,777
5,742
5, 769
5,915
5,900
5,832
5.741
5,793
6.004
6,039
6,037
6,376
1951 —January
February
March
April *
May <
June 4
45. 246
45,390
45, 850
45,960
46, 191
46,410
15, 784
15. 978
16,022
15, 928
15,839
15,864
8,742
8,877
8,969
8,977
8, 959
8,960
7,042
7,101
7,053
6, 951
6,880
6,904
932
930
924
910
912
917
2,281
2.228
2.326
2,472
2. 592
2,674
4,072
4,082
4,112
4,132
4,139
4,164
1,831
1,839
1,854
1,865
1,875
1,893
4.666
4,657
4,682
4. 743
4,787
4,830
6,083
6,122
6,217
6.292
6,377
6,373
9. 592
9. 554
9,713
9.618
9.670
9,695
i Includes all full- and part-time wage and salary workers in nonagricultural establishments who worked
or received pay during the pay period ending nearest the 15th of the month. Excludes proprietors, selfemployed persons, domestic servants, and personnel of the armed forces. Not comparable with estimates
of nonagricultural employment of the civilian labor force reported by the Department of Commerce
(appendix table B-11) which include proprietors, self-employed persons, and domestic servants, which
count persons as employed when they are not at work because of industrial disputes, bad weather, or temporary lay-offs, and which are based on an enumeration of population, whereas the estimates in this table
are based on reports from employing establishments.
* Data for the trade and service divisions, beginning with 1939, are not comparable with data shown for
earlier years because of the shift of the automotive repair service industry from the trade to the service
division.
* Not available.
« Estimates based on incomplete data.
» Data reflect work stoppages in bituminous coal mining.
NOTE.—Detail will not necessarily add to totals because of rounding.
Adjustments have been made to levels indicated by data of unemployment insurance agencies and the
Bureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 benchmark levels, thereby providing consistent series.
Source: Department of Labor.
236
TABLE B-13.—Average weekly hours in selected industries, 1929-51
Manufacturing
Bitumi- BuildClass I
ing
steam Tele- Wholenous
Retail Hotels
con(yearsale
Nonrail- phone trade
trade round)
coal
Durable
strucTotal goods durable mining tion
roads
goods
Period
Monthly average:
1929
44.2
0)
0)
38.4
0)
44.8
0)
0)
0)
(0
42.1
40.5
38.3
38.1
34.6
0)
0)
32.6
34.8
33.9
0)
0)
41.9
40.0
35.1
33.5
28.3
27.2
29.5
27.0
0)
0)
0)
0)
0)
(0
0)
0)
0)
0)
(0
0)
0)
i1)
0)
0)
0)
(0
0)
&•
43.1
41.1
38.9
38.8
40.4
1935
1936-.
1937
1938
1939
36.6
39.2
38.6
35.6
37.7
37.3
41.0
40.0
35.0
38.0
36.1
37.7
37.4
36.1
37.4
26.4
28.8
27.9
23.5
27.1
30.1
32.8
33.4
32.1
32.6
41.1
42-5
43.2
42.5
43.4
0)
0)
38.8
38.9
39.1
0)
0)
10
0)
0)
o
8
8
<ro
0)
1940
1941
1942
1943
1944
38.1
40.6
42.9
44.9
45.2
39.3
42.1
45.1
46.6
46.6
37.0
38.9
40.3
42.5
43.1
28.1
31.1
32.9
36.6
43.4
33.1
34.8
36.4
38.4
39.6
44.0
45.6
46.9
48.7
49.1
39.5
40.1
40.5
41.9
42.3
8
8(0
0)
0)
0)
0)
0)
0)
0)
0)
0)
0)
43.4
40.4
40.4
40.1
39.2
44.1
40.2
40.6
40.5
39.5
42.3
40.5
40.1
39.6
38.8
42.3
41.6
40.7
38.0
32.6
39.0
38.1
37.6
»37.3
36.7
48.5
45.9
46.3
46.1
43.5
(2)
39.4
37.4
39.2
38.5
0)
0)
0)
40.3
40.3
40.4
0)
0)
45.2
44.3
44.2
1930
1931
1932
1933
1934
. .
. . .
_ .
1945
1946
1947
1948
1949
V1)
(')
41.0
40.9
40.7
8(0
80)
40.5
41.2
39.7
35.0
36.3
40.8
38.9
40.7
40.5
43.9
1950— First half
Second half. _
39.9
41.1
40.5
41.8
39.1
40.2
32.3
36.1
35.4
37.1
40.5
41.0
38.7
39.1
40.4
40.9
40.4
40.6
43.9
43.9
1951— First half *.._
40.9
41.8
89.8
34.5
36.4
0)
38.9
40.7
40.0
43.4
39.7
February
39.7
March
39.7
April
39.7
May..
.
39.9
40.5
June
July
40.5
41.2
August
September- _.
41.0
October
41.3
November. . . 41.1
December
41.4
40.0
401
40.2
40.7
40.8
41.3
41.1
41.8
41.7
42.1
41.8
42.2
39.4
39.3
39.2
38.5
38.9
39.5
39.8
40.5
40.1
40.3
40.3
40.5
«24.5
»25.4
39.2
36.0
34.1
34.7
34.6
35.5
35.5
36.1
36.4
38.5
34.8
33.7
34.5
35.6
36.5
37.0
36.9
37.6
36.7
37.4
37.3
36.7
39.8
39.8
41.6
39.9
40.2
41.9
39.4
42.7
40.5
41.8
41.4
40.0
38.5
38.6
38.5
38.7
38.9
39.1
39.4
39.3
39.6
39.4
38.0
39.1
40.6
40.3
40.3
40.1
40.4
40.6
40.9
40.9
40.7
40.9
40.8
41.2
40.4
40.4
40.3
40.2
40.4
40.9
41.2
41.1
40.4
40.3
40.0
40.7
43.9
43.8
43.8
44.0
44.1
43.8
43.8
44.0
43.8
44.0
43.7
43.9
41.0
40. fl
41.1
41.0
40.7
40.8
41.5
41.6
41.9
42.0
41.7
41.9
40.2
40.0
40.0
39.6
39.3
39.4
37.6
34.1
33.6
34.0
33.4
(0
36.7
35.3
35.8
36.8
37. 6
0)
42.2
41.2
42.0
0)
0)
(')
38.9
39.2
38.9
38.7
38.9
(0
40.8
40.6
40.6
40.7
40.9
(0
40.3
40.1
39.7
40.0
39.9
0)
43.4
43.2
43.3
43.5
43.4
'(')
1950
1950— January
1951—January
February
March
April *
May<
June *
> Not available.
* Average for year not available because new series was started in April 1945. Beginning with June 1949
data relate to nonsupervisory employees only.
*4 Not strictly comparable with previous data.
Estimates based on incomplete data.
* Data reflect work stoppages, or 3-day workweek.
NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in railroads, and for nonsupcrvisory employees in other industries. Data are for payroll periods ending closest to
the middle of the month except in railroads whore monthly data are used.
Adjustments have been made to levels indicated by data of unemployment insurance agencies and the
Bureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 benchmark levels, thereby providing consistent series.
The half-year data are straight arithmetic averages of the monthly figures and not strictly comparable
with the annual averages which have been weighted by data on man-hours.
Source: Department of Labor.
237
TABLE B-14.—Average hourly earnings in selected industries, 1929—51
Manufacturing
Period
Total
Monthly average:
1929
'___
$0. 566
Bitumi- Build- Class I
"Retail Hotels
nous in? con- strain TVle- Wholesale
(yearstruccoal
railtrade round)!
Dura- Nonphone trade
ble
durable mining tion
roads
goods goods
(8)
(22)
(2)
()
(2)
$0 497 $0. 420
.472
.427
. 556
.515
(2)
(22>
( 2)
()
(2)
$0. 795
.530
.529
.577
.584
.582
.745
.794
.8-F6
.878
.886
1.019
.724
.808
.947
1. 059
1.117
.602
.640
.723
.803
.861
.883
.993
.059
.139
.186
1. 023
1.086
1. 237
1 350
1.401
1.111
1. l.r>6
1.292
1.410
1.469
.552
.515
.446
.442
.532
1935
1936
19?7
1938
1939
.550
.5G6
.624
.627
.633
.577
. 58^
.674
.686
.698
194Q
19 H
1942 . _
1943
1944 _ .
.661
.729
.853
om
.
$0. 681
.684
.647
.520
.501
.673
1P30
1931
19.°.2
1933
1934 _.
1945
1946
1947
1948
1949
(')
$0.636
(2)
(2)
(2)
f2)
(2)
(2)
(2)
(22)
(2 )
()
(2)
(2)
.644
.651
.600
. 595
.602
§
8
.815
.824
.903
.90S
.932
.651
.659
.676
.712
.714
(22)
()
$0. 774
.816
.822
.958
1.010
1.148
1. 252
1.319
.717
.751
.824
.897
.938
.904
1.015
1.171
1. 278
1. 325
.240
1.379
.401
1.473
. 636 1.681
1.898 « 1.848
1,941
1.935
8
(2)
(2)
(2)
8
()
2
(2)
(2^
(22)
()
(2)
8
8
8
8( )
.827
.820
.843
.870
.911
(2)
(2)
(22)
(2)
()
(2)
(2)
(22)
(2)
()
(2)
.942
1.116
1.170
1. 309
1.419
0)
1.124
1.197
1.248
1.345
$1. 268
1. 359
1. 414
(22)
()
$1.009
1.088
1.137
$0. 650
.7 n 9
.743
8
2
(2)
(22)
(2)
(2)
()
(2)
(«>
1. 465
1.537
1,378
2.010
2. 031 « 1. 549
1.398
1.483
1.176
.771
1950— First hn If
Second half...
1.432
1.494
1. 497
1.570
1.354
1.399
1.991
2.016
1.900 « 1. 544
2. 065 8 1. 554
1.382
1. 414
1. 456
1.508
.156
.194
.758
.784
1951— First half «...
1.576
1.655
1.467
2.186
2.161
(2)
1.455
1.567
.241
.806
1950—January
February
March
April
May
June
July
August _
September
October
November...
December
1.418
1.420
1.424
1.434
1.442
1.453
1.462
1.464
1.479
1.501
1.514
1.543
1. 485
1.483
1.486
1.499
1.509
1.522
1.533
1.539
1.562
1.577
1.587
1.619
1.343
1.350
1. 353
1.355
1.358
1. 305
1.375
1.374
1.379
1.404
1.419
1.443
1.933
1.962
2.009
2.022
2.005
2.015
2.014
2.001
2.026
2.022
2. 013
2.020
1.976
1.988
1.995
1.986
1.998
1.995
2.006
2.021
2.067
2.082
2.093
2.120
1.550
1.567
1.532
1.546
1.536
1.532
1.553
1.533
1.560
1.544
1.561
1.575
1.380
1.391
1.376
1.381
1.381
1.386
1.395
1.392
1.409
1.426
1.422
1.440
1.432
1.446
1.453
1.466
1.463
1.476
1.494
1.489
1.497
1.508
1.519
1.541
.153
.145
.148
.156
.162
.175
.189
.192
.200
.199
.198
.187
.753
.765
.755
.756
.756
.761
.765
.771
.783
.788
.795
.801
1951— January.
February
March
April 8...
May 6
June 8
1.555
1.561
1.571
1.579
1.586
1.604
1.630
1.639
1.654
1.660
1.664
1.685
1.456
1.458
1.460
1.466
1.476
1.488
2.038
2.219
2.222
2.234
2.219
(2)
2.135
2.157
2.163
2.170
2.182
(2)
1.608
1.687
1.702
(2)
1.450
1.469
1.453
1.450
1.451
(2)
1.555
1.567
1.567
1.575
1.573
(2)
.237
. 236
.233
.248
.253
(2)
.804
.811
.801
.806
.806
(2)
1950
8
nents only; additional value of room, board, uniforms, and tips not included.
Not available.
* Not available. Series beginning April 1945 includes only employees subject to provisions of the Fair
Labor Standards Act and is not comparable with preceding series which includes all employees. Beginning
June
1949, data relate to nonsupervisory employees.
4
Not strictly comparable with previous data.
5
Preliminary average; does not include any retroactive wage payments.
• Estimates based on incomplete data.
NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in railroads, and for all nonsupervisory employees in other industries. Data are for payroll periods ending closest
to the middle of the month except in railroads where monthly data are used.
Adjustments have been made to levels indicated by data of unemployment insurance agencies and the
Bureau of Old-Age and Survivors Insurance through 1947, and have been carried forward from 1947 benchmark levels, thereby providing consistent series.
The half-year data are straight arithmetic averages of the monthly figures and not strictly comparable
with the annual averages which have been weighted by data on man-hours.
Source: Department of Labor.
3
238
TABLE B-l 5.—Average gross weekly earnings in selected industries > 1929-51
Manufacturing
Period
Total
Monthly average:
1929
$25. 03
Bitumi- Build- Class I
nous ing con steam Tele- Wholesale
Dura- Noncoal
strucrailphone trade
ble
durable mining tion
roads
goods goods
$27. 22
$22.93
Retail Hotels
(yeartrade round)
*
$25. 72
(2)
$28.49
(2)
(')
(2)
(2)
(22)
(2)
(2)
(22)
(22)
()
(22)
(2)
(')
(2)
(2)
1930
1931
1932..
1933
1934
23.25
20.87
17.05
16.73
18.40
24.77
21.28
16.21
16.43
18.87
21.84
20.50
17.57
16.89
18.05
22.21
17.69
13.91
14.47
18.10
()
$22. 97
27.76
26.76
23.34
23. 09
24.32
1935
1936, _
1937
19.18
1939
20.13
21.78
24.05
22.30
23.86
21. 52
24.04
26.91
24.01
26.50
19.11
19. 91
21.53
21.05
21.78
19.58
22.71
23.84
20.80
23.88
24.51
27.01
30.14
29.19
30.39
26.76
28.01
29.20
30.26
30. 99
1940
1941
1942...
1943
1944
25.20
29 58
36. 65
43.14
46.08
28.44
34.04
42.73
49. 30
52.07
22.27
24 92
29.13
34.12
37.12
24.71
30.86
35. 02
41.62
51.27
31.70
35.14
41.80
48.13
52.18
1945
1946
1947
1948
1949
44.39
43.82
49.97
54. 14
54.92
49.05
46.49
52.46
57. 11
58.03
38.29
41.14
46.96
50.61
51.41
53. 73
52.25
58.03
56.24
66. 59
63.30
72.12 < 68. 85
63. 28
70.95
()
8 ()
§ 8
$29. 81
(')
31.53
31.94
(22)
()
31.55
34.25
38.65
43.68
46.06
32.44
32.74
33. 97
36.30
38.39
(22)
(2)
()
0)
(2)
45.69
51.22
54.17
60.34
61.73
(3)
44.04
44.77
48.92
51.78
(2)
(2)
(*)
8
8
(2)
(22)
()
(2)
(22)
()
(32)
( 2)
()
8
8
(22)
()
(')2
(2)
(2)
(2)
()
1
$51. 99
55.58
57.55
$40. 66
43.85
45.93
?!
(')
0)
$29. 36
31.41
32.84
59.33
63.32
54.71
70.35
73.73
8 63. 20
54.38
60.36
47.63
33.85
1950-First half
Second half..
57.08
61.38
60.68
65.59
52.99
56.32
64.50
72.78
70.34
76.60
s 62. 57
« 63. 67
53.52
55.33
58. 80
61.68
46.76
48.50
33.26
34.38
1951— First half e...
64.48
69.14
58.32
75.41
78.77
(2)
1950
—
56.61
63.82
49.65
34.93
1950 —January ._
February
March
April
Mav .
June
July
August
September
October
November
December
56.29
56.37
50.53
56.93
57.54
58.85
59.21
60.32
60.64
61.99
62.23
63. 88
59.40
59.47
59.74
61.01
61.57
62.86
63.01
64.33
65.14
66.39
66. 34
68.32
52.91
53.06
53. 04
52.17
52.83
53.92
54.73
55.65
55.30
56.58
57.19
58.44
47. 36
i 49. 83
78.75
72.79
68.37
69.92
69. 68
71.04
71.92
72.99
73.27
77.77
68.76
67.00
68.83
70.70
72.93
73.82
74.02
75.99
75.86
77.87
78.07
77.80
61.69
62.37
63.73
61.69
61.75
64.19
61.19
65.46
63.18
64.54
64.63
63.00
53.13
53.69
52.98
53.44
53.72
54.19
54.96
54.71
55.80
56.18
54.04
56.30
58.14
58.27
58.56
58.79
59.11
59.93
61.10
60.90
60.93
61.68
61.98
63.49
46.58
46.26
46.26
46.47
46.94
48.08
48.99
48.99
48.48
48. 32
47.92
48.31
33.06
33.51
33.07
33.26
33.34
33.33
33.51
33.92
34.30
34.67
34.74
35.16
1951 —January
February
March
Aprils
May 6
June 6
63.76
63.84
64.57
64.74
64.55
65.44
67.65
68.18
69. 30
69.72
69. 39
70.60
58.53
58.32
58. 40
58.05
58.01
58.63
76.63
75.67
74. 66
75.96
74.11
(2)
78.35
76.14
77.44
79.86
82.04
(2)
67.86
69.50
71.48
(22)
(a )
()
56. 41
57.58
56.52
56.12
56.44
(2)
63. 44
63.62
63. 62
64.10
64.34
(2)
49.85
49.56
48.95
49.92
49.99
(a)
34.89
35.04
34. 68
35.08
34.98
(»)
7
1
8
Money payments only; additional value of room, board, uniforms, and tips not included.
Not available.
* Not available. Series beginning April 1945 includes only employees subject to provisions of the Fair
Labor Standards Act and is not com parable with preceding series which includes all employees. Beginning
June
1949, data relate to nonsupervisory employees.
4
Not strictly comparable with previous data.
«fl Preliminary average; does not include any retroactive wage payments.
Estimates based on incomplete data.
7
Data reflect work stoppages, or 3-day workweek.
NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in railroads, and for all nonsupervisory employees in other industries. Data are for payroll periods ending closest
to the middle of the month except in railroads where monthly data are used.
Adjustments have been made to levels indicated by data of unemployment insurance agencies and the
Bureau of Old-Age and Survivors Insurance through 1947. and have been carried forward from 1947 benchmark levels, thereby providing consistent series.
The half-year data are straight arithmetic averages of the monthly figures and not strictly comparable
with the annual averages which have been weighted by data on man-hours.
Source: Department of Labor.
239
TABLE B-16.—Physical production index of goods and selected services, 1929—51
[1935-39=100 i]
Production of
selected services
Production of goods
Nonagrictiltural production
Period
Weights: »
Total
Nonagricultural
AgriTotal
cultural
proproduction
of goods duction
100.0
Total
Industrial
production
19.5
78.0
100.0
65.6
81.6
9.0
11.1
5.8
7.2
Construction
Electric
and gas
utilities
TeleTrans- phone
porand
tation telegraph
1929
110
97
113
110
157
88
nT
no
1930
1931
1932
1933
1934
95
84
68
72
74
95
104
101
93
79
95
79
60
67
73
91
75
58
69
75
132
109
68
50
59
87
84
76
77
81
104
89
73
76
83
106
101
91
84
86
87
99
110
93
109
96
85
108
105
106
85
103
111
90
110
87
103
113
89
109
70
102
103
103
121
87
97
104
100
111
88
101
110
95
106
90
98
102
102
108
1940
1941
1942
1943
1944
122
153
184
205
201
110
114
128
125
130
125
162
197
225
218
125
162
199
239
235
127
162
168
95
61
123
141
158
183
191
117
146
185
220
230
115
126
135
143
147
1945
1946
1947
1948
1949
178
161
174
183
174
129
134
129
141
140
190
168
185
193
182
203
170
187
192
176
63
115
133
157
166
187
188
214
243
248
217
198
208
209
190
158
182
196
207
212
138
220
1935
1936
1937
1938
1939
- -
_-.
__
_ _
1950
1950— First half
Second half
1951— First half «
194
8
(3)
208
200
196
276
212
(44)
()
198
218
189
211
194
200
269
283
203
221
(4)
230
222
202
306
243
.8
(3)
1 All half-year data have been seasonally adjusted except the electric and gas utilities for which no satisfactory
adjustment factor is available.
2
Computed from the Department of Commerce national income data. The weight factors are percentages of the national income for each industry to the total for the 5 industries. The agriculture weight
excludes net rents paid by landlords living on farms, imputed rents, and subsidy payments. The weight
for construction has been adjusted to include force account and other construction done outside of the contract construction industry, the weights for other industry groups to exclude such construction. Manufacturers and minerals of the industrial production index were weighted into the total indexes separately
but only the total industrial production index is shown here. See appendix table B-17 for the individual
components of the index of industrial production.
3 Not available.
* Because of the extreme seasonal nature of agricultural crop production, only an annual index has been
computed.
s Estimates based on incomplete data.
NOTE.—A composite index of production of goods and services has not been compiled because of the
inadequate data for measuring the production of services. The only service production data used were for
transportation and for communications by telephone and telegraph. Data for measuring such services
as wholesale and retail trade, finance, insurance, real estate, Government, and communication other than
telephone and telegraph were inadequate for separate indexes and for an index for all services other than
transportation, telephone, and telegraph.
Sources: Based on the following data:
Agricultural production: Department of Agriculture index'of farm output which measures the physica
volume of farm production for human use.
Industrial production: Federal Reserve index of industrial production.
Construction: Department of Commerce value of new construction activity deflated by their index of
construction costs and converted into relatives with 1935-39 as 100.
Electric and gas utilities: Based on the following series: Electric power produced by utilities as reported
by the Federal Power Commission, and sales'of manufactured and mixed gas to consumers as reported by
the American Gas Association. The two series are converted into relatives with the average for the period
1935-39 as 100. The relative series are combined into an index with electric power given a weight of 85
and gas 15, the respective percentages of the revenues of each of the utilities to the total revenues produced
by both in the base period 1935-39.
Transportation: Department of Commerce index of transportation;
Telephone and telegraph: Based on Department of Labor production indexes for 1935-49 and on a series
of Works Progress, Administration for 1929-34. These indexes are for class A telephone carriers and the
principal wire-telegraph and ocean-cable carriers which file annual reports with the Federal Communications Commission.
240
TABLE B-17.—Industrial production index, 192Q-51
[1935-39=100, adjusted for seasonal variation]
Period
Monthly average:
1929
Total
industrial
production
Manufactures
Minerals
Total
Durable Nondurable
110
110
132
93
107
1930
1931
1932
1933
1934
91
75
58
69
75
90
74
57
68
74
98
67
41
54
65
84
79
70
79
81
93
80
67
76
1935
1936
1937
1938
1939
87
103
113
89
109
87
104
113
87
109
83
108
122
78
109
90
100
106
95
109
112
97
106
1940
1941
1942
1943
1944
125
162
199
239
235
126
168
212
258
252
139
201
279
300
353
115
142
158
176
171
117
125
129
132
140
1945
1946
1947
1948
1949
203
170
187
192
176
214
177
194
198
183
274
192
220
225
202
166
165
172
177
168
137
134
149
165
135
1950
200
209
237
187
148
1950—First half....
Second half..
189
211
198
220
220
254
181
193
138
158
1951—First half»...
222
233
274
199
163
1950—January
February—
March
April
May
June
July
August
SeptemberOctober
November...
December. _.
183
180
187
190
195
199
196
209
211
216
215
218
221
221
222
223
223
223
192
192
194
199
204
208
206
218
220
225
224
229
209
207
211
222
231
237
235
247
251
261
260
268
179
180
181
180
181
184
181
195
194
196
195
197
130
118
144
140
145
151
144
159
163
166
160
157
231
232
234
234
233
268
271
277
278
276
277
201
201
199
198
198
197
164
158
158
164
165
167
1951—January
February
March
April
Mayi
June*
i Estimates based on incomplete data.
Source: Board of Governors of the Federal Reserve System.
241
Table B-18.—Percentage changes in production and consumption of selected commodities, United
States and other free world, 7939 to 1950
[Percent]
Production
Commodity
United
States
Commodities in which United States is substantially
self-sufficient:
Bread grains '3 5
Coarse 3grains
_ __ _.
Cotton
Fats and oils 8 . _ _
_
. . .
Fertilizer (nitrogenous)
Lumber..
...
.
8
Meat
Sulfur —native
Commodities of which United States has substantial
imports:
Aluminum... .
.
Cobalt •9
Copper
3
Coffee (green)
_
_.
Iron ore
.
Lead 9
Manganese ore _ .
NewsprintNickel 9
Petroleum
Rubber: Natural and synthetic1° +
Natural only
__ _.
Sugar
(raw equivalent)
9
Tin
__
Tungsten 9
Wood 3 pulp (mechanical and chemical)
...
Wool9
Zinc
Consumption *
Other free
world
United
States
+43
+47
+148
+11
+14
+10
-9
+52
-50
+3
-31
7+30
7+237
+340
+560
+6
+59
+560
+266
+27
+34
-24
+64
+402
+25
+90
+4
+343
+4
+56
47, 500
+24
+15
+74
-26
+6
--8g
-20
-18
+31
+10
+14
+172
+89
+85
+35
-+437
+14
+9
+14
+5
+39
'+54
+59
7+33
+158
Other free
world 2
87-32
+11
7+57
(<)
(«)
+17
-20
-40
-14
-7
-20
-15
+108
7+53
+96
+123
+144
+64
+50
+91
7+112
7 +22
(«)
+57
+80
+75
7+71
+60
(44)
()
7+26
+50
-35
+91
7+79
7+74
+1
-35
7+22
-8
1 Apparent consumption, i. e., production plus imports minus exports, except as noted in footnote 7.
2 Estimated.
» Change from 1935/36 to 1939/40 average to 1950/51.
4
Not available.
8• Barley, corn, and oats.
7 Change from 193-V36 to 1938/39 average to 1950/51. Oil-content basis. Includes butter and peanuts.
Represents estimated actual rather than apparent consumption.
«9 Change from 1937/38 to 1941/42 average to 1950/51.
Production represents metal content of mine production.
10
This very high percentage results from the low absolute level of production of synthetic rubber in
1939.
Source: Compiled by the Department of State.
242
TABLE B-19.—New construction activity, 1929-51
[Value put in place, millions of dollars]
Private construction
Public construction
Total
Resi- NonNonnew
residencondenMili- resiTotal
tial
den- High- Other
struc- pri- buildtial Other
Total
tary
pri- 2
tion
tial
public and
ways pubvate
vate 1 ing buildlic'
ing
naval build(non- (noning
farm) farm)
Period
8,307 3,625 2,694 1,988 2,486
19
659
1,266
542
1930
1931
.
1932
1933
1934 _ _
8,741
6,427
3,538
2,879
3,720
5,883
3,768
1,676
1,231
1,509
2,075
1,565
630
470
625
2,003
1,099
502
406
456
1,805
1,104
544
355
428
2,858
2,659
1,862
1,648
2,211
29
40
34
36
47
660
612
415
230
363
1,516
1, 355
958
847
1,000
653
652
455
535
801
1935
1936
1937
1938
1939
4,232
6,497
6.999
6,980
8,198
1,999
2,981
3,903
3, 560
4,389
1,010
1,565
1,875
1,990
2,680
472
713
1,085
764
786
517
703
943
806
923
2, 233
3,516
3,096
3,420
3,809
37
29
37
62
125
328
701
550
672
970
845
1,362
1,226
1,421
1,381
1,023
1,424
1,283
1,265
1,333
8,682
11,957
14,075
8 301
5,259
5,054
6,206
3,415
1,979
2,186
2.985
3,510
1,715
885
815
1,025
1,482
635
233
351
1,044 3,628
1,214 5, 751
1,065 10, 660
861 6, 322
1,020 3,073
385
1,620
5,016
2,550
837
615
1,646
3,685
2,010
1,361
1,302
1,066
734
446
362
1,326
1,419
1.225
1,316
513
5, 633 3,235
12,000 9,638
16, 627 13,131
21,572 16,665
22, 584 16, 181
1,100
4,015
6,310
8,580
8,267
1,020
3,341
3,142
3,621
3,228
1,115
2,282
3,679
4,464
4,686
2,398
2, 362
3,496
4,907
6,403
690
188
204
158
137
937
354
599
1,301
2,068
398
895
1,514
1,856
2,129
373
925
1,179
1,592
2,069
3,777
4,412
7,113
177
2,402
2,350
2,184
2.410
2,290
2,210
2,158
1929
10, 793
_.
1940
1941
1942.
1943
1944
1945
1946
1947
1948
1949
.
_.
.
_
27,902 20, 789 12,600
1950
Seasonally adjusted annual rates
1950— First half.
Second half
26,542 19, 576 11, 794
29, 262 22, 002 13, 406
3,366
4,188
4,416
4,408
6,966
7,260
124
230
2,222
2,582
1951
30, 756 21, 796 11, 798
First half
5,228
4,770
8,960
728
3,326
2,430
2,476
1950 — January
February
March
A pril
May _ _
June
July .
August .
September
October
November _
December
25, 140
25, 764
___ 26. 640
27. 000
26,916
_ 27, 792
28.164
28. 884
29, 532
29.748
29,976
29, 268
18, 144
19, 188
19, 320
19, 716
20. 244
20. 844
21.612
22, 080
22, 320
22, 320
21.996
21, 684
10,488
11, 544
11,556
12. 000
12.312
12.864
13. 488
13. 812
13, 932
13. 608
12, 936
12, 660
3. 252
3.324
3.288
3,324
3,480
3.528
3,672
3,804
3,996
4, 320
4,644
4,692
4.404
4,320
4,476
4,392
4,452
4,452
4,452
4,464
4,392
4,392
4,416
4,332
6.996
6.576
7, 320
7,284
6.672
6,948
6. 552
6.804
7.212
7,428
7,980
7,584
156
132
120
120
108
108
108
168
216
276
288
324
2.100
2,196
2,184
2,196
2, 364
2.292
2,160
2.256
2.508
2.772
2,880
2,916
2, 460
2.076
2,820
2, 736
2.004
2,364
2,256
2, 304
2,376
2,172
2,520
2,112
2,280
2.172
2.196
2,232
2,196
2, 184
2,028
2.076
2,112
2.208
2,292
2,232
1951 — January
Febiuary
March _
April
May__
June
30, 012
30, 864
32. 064
31. 740
__ _ 30.216
29, 640
21.900
22. 896
22. 992
22, 152
20, 652
20,184
12, 588
13. 236
12. 936
11,892
10. 308
9,828
4,740
5,028
5,256
5,412
5,484
5,448
4,572
4, 632
4,800
4.848
4,860
4,908
8,112
7,968
9.072
9,588
9,564
9,456
432
468
576
792
1,032
1,068
3,060
3, 000
3,204
3,504
3,612
3,576
2.328
2,172
2,808
2,700
2,328
2,244
2.292
2,328
2,484
2,592
2,592
2,568
1
Excludes construction expenditures for crude petroleum and natural-gas drilling, and therefore does not
agree
with the new construction expenditures included in the gross national product.
2
Includes public utility, farm, and other private construction, not separately sh »wn.
3 Includes residential, sewer and water, miscellaneous public service enterprises, conservation and development, and all other public construction not separately shown.
Sources: Department of Commerce and Department of Labor.
243
TABLE B-20.—Business expenditures for new plant and equipment, 1929-51
[Millions of dollars]
Manufacturing and mining Transportation
Period
Total i
Total
ManuRailfactur- Mining .road
ing
Other
1929
9,165
(')
(«)
840
(4)
7,610
4,712
2,608
2,137
3,080
3,596
2,541
1,435
930
992
1,460
(')
1930
1931
1932
1933
1934
4
8
8
(*)
(')
(33)
(3)
()
865
360
164
101
218
3,738
5,077
6,730
4,520
5,200
1,790
2,450
3,330
1,830
2,310
(33)
(3)
()
0)
1,930
0)
(')
(')
(8)
380
166
306
525
238
280
6,490
8,190
6,110
4,530
5,210
3,140
4,080
3,170
2,610
2,890
2,580
3,400
2,760
2, 250
2,390
560
680
410
360
500
440
560
540
460
580
1945
1946
1947
1948
1949
6,630
12,040
16, 180
19, 230
18,120
3,650
6,470
8,150
9,140
7,990
3,210
5,910
7,460
8,340
7,250
440
560
690
800
740
1950
18,560
8,900
8,220
680
.
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
-_
-.-
.
Electric
and gas
utilities
Commercial
and
miscellaneous *
4,729
280
(«)
(44)
(4)
()
(44)
()
(44)
()
(44)
()
480
390
340
260
190
280
550
710
680
540
490
1,980
2,490
1,470
730
970
550
570
910
1,320
1,350
320
660
800
700
520
630
1,040
1,900
2,680
3,140
1,480
3,300
4,430
5,390
5,120
1,140
440
3,170
4,920
()
8
8
(44)
( 4)
(4)
()
4,204
2,917
1,514
1,044
1,402
1,782
2,321
2,875
2,452
1,850
Annual rates, not adjusted for seasonal variation
1950— First half
Second half
1951— First half*
1950— First quarter
Second Quarter
Third quarter
Fourth quarter
1951— First quarter
Second quarter •
Third quarter *. .
16,060
21, 080
7,380
10, 440
6,770
9,680
610
760
1,060
1,210
23,180
12, 210
11, 400
810
14, 800
17,310
18, 800
23,330
6,680
8,080
8,910
11, 950
6,100
7,440
8,190
11, 160
580
640
720
790
20,650
25,700
. 25, 610
10, 550
13, 860
13, 960
9,820
12, 970
13, 100
730
890
860
1
340
540
2,820
3,510
4,460
5,380
1,490
530
3,410
5,540
930
1,190
1,140
1,280
320
360
490
580
2,610
3, 030
3,280
3,740
4,260
4,650
4,980
5.780
1,210
1,770
1,660
500
560
610
3,010
3,810
4,010
5,380
5,700
5,470
Excludes agriculture and outlays charged to current account.
* Commercial and miscellaneous include trade, service, finance, and communication for all years shown.
Prior to 1939, miscellaneous also included transportation other than railroad, and electric and gas utilities
which
are not available separately for these years.
1
Not available separately for years prior to 1939.
< Included in commercial and miscellaneous prior to 1939.
»Estimates for second and third quarters of 1951 are based on anticipated capital expenditures reported
by business in a survey made during May and early June.
NOTE.—These figures do not agree with those shown in column 2 of appendix table B-5 and included in
the gross national product estimates of the Department of Commerce, principally because the latter cover
certain equipment and construction outlays charged to current expense. Figures for 1929-44 are Federal
Reserve Board estimates based on Securities and Exchange Commission and other data.
Detail will not necessarily add to totals because figures are rounded to the nearest 10 million dollars.
Sources: Securities and Exchange Commission and Department of Commerce (except as noted).
244
TABLE B-21.—Inventories and sales in manufacturing and tradet 1939-51
[Adjusted for seasonal variation]
8
3
03 M W
^ O3 en
Millions of
dollars
e»
8
a
Ratio of average
inventories to
monthly sales *
«
<U O
b£+>
03
t*
•«
Retail trade
Inventories *
Millions of
dollars
Ratio of ai
inventori
monthly sal
CQ
Wholesale trade
Inventories *
OT
£
m
Millions of
dollars
Ratio of average
inventories to
monthly sales '
Inventories *
Period
Manufacturing
Inventories >
Millions of
dollars
Ratio of average
inventories to
monthly sales *
Total manufacturing
and trade
1939 .
20, 172 11,109
1.73 11,465
5,100
2.11
3,175
2,505
1.21
5,532
3,504
1.53
1940
1941
1942
1943
1944
22,184
28, 772
31,013
31,143
30, 887
12, 520
16,412
19, 240
22,372
24,084
1.68
1.53
1.60
1.36
1.30
12, 819 5,852
16, 960 8,168
19, 287 10. 425
20,098 12. 822
19, 507 13, 788
2.06
1.78
1.77
1.61
1.45
3,325
4,182
3, 858
3.684
3,980
2,802
3,620
4,012
4,273
4,561
1.16
1.03
1.02
.86
.86
6,040
7,630
7,868
7,361
7,400
3,866
4,624
4,803
5,277
6,735
1.47
1.46
1.71
1.38
1.31
1945
1946
1947
1948
1949
30, 571
42, 389
50, 794
56, 756
51, 608
24.181
27, 576
33, 581
37, 003
34, 857
1.27
1.29
1.41
1.46
1.56
18,390
24. 498
28,920
32, 276
28, 879
1.48
1.66
1.71
1.72
1.85
4,638
6,665
8,653
9,511
9,031
4,983
6.601
7,754
8,355
7,509
.82
.81
1.03
1.09
1.23
7,543 6,315
11,226 8,358
13, 221 9,909
14,969 10.837
13,698 10, 682
1.20
1.11
1.22
1.32
1.34
1950—.
12,883
12,617
15, 918
17, 811
16, 666
61, 569 39, 615
1.38 34, 061 19, 574
1.54 10, 754
8,354
1.14 16,754 11,687
1.28
1950: First half.... 54,241 36, 724
Second half. 61,569 42, 498
1.43 30,028 17, 874
1.34 34, 061 21, 337
1.64 9.493
1.46 10, 754
7,652
9,019
1.20 14,720 11,198
1.10 16, 754 12, 142
1.26
1.29
1951: First half*.. 69,926 45, 203
1.45 38,824 23,063
1.57 11,988
9,581
1.18 19, 114 12, 559
1.44
1950: January
February.-.
March
April
May
June
. ..
July
August
September. .
October
November, .
December. _.
52, 024
51, 825
52, 484
52,905
53, 553
54, 24]
53, 243
54,496
56,404
58,660
60, 269
61, 569
34, 244
35, 305
36, 599
35, 645
38, 652
39, 896
41, 982
45, 275
42, 142
41,821
41,318
42. 452
1.51
1.47
1.43
1.48
1.38
.35
.28
.19
.32
.38
.44
.44
29. 035
28,990
29, 073
29.384
29. 659
30, 028
29. 830
29, 858
30, 732
31, 770
33, 007
34, 061
16,216
16, 877
17, 797
17,206
19, 309
19, 838
20,269
22, 956
21, 154
21, 246
21,112
21, 284
1.79 8,991
1.72 9, 035
1.63 9,129
1.70 9,384
1.53 9.478
1.50 9,493
1.48 9,288
1.30 9,562
1.43 9,879
1.47 10, 193
1.53 10, 475
1.58 10,754
7,173
7, 327
7,677
7,359
8,016
8,359
9,013
9,637
8,855
8.816
8,819
8,974
1.26
1.23
1.18
1.26
1.18
1.13
1.04
.98
1.10
1.14
1.17
1.18
13, 998
13,800
14,282
14, 138
14.416
14, 720
14, 125
15,076
15,793
16, 697
16, 787
16, 754
10, 855
11, 101
11,125
11, 080
11,327
11,699
12, 700
12,682
12, 133
11, 759
11,387
12,194
1.28
1.25
1.26
1.28
1.26
1.25
1.14
1.15
1.27
1.38
1.47
1.38
1951: January
February ...
March *
April*
May*
63.388
64, 424
66. 454
68, 476
69, 926
46, 655
45. 356
45,196
43, 546
45, 261
.34
.41
1.45
1. 55
1.53
34, 928
35, 474
36.415
37, 849
38, 824
23,166
22, 646
23. 399
22, 389
23, 715
1.49
1.55
1.54
1.60
1.62
11,038 10, 182
11, 133 9,635
11,397 9,473
11, 651 9,132
11, 988 9,481
1.07
1.15
1.19
1.26
1.25
17, 422
17, 817
18, 642
18, 976
19, 114
13,307
13, 075
12. 324
12. 025
12, 065
1.28
1.35
1.48
1.56
1.58
1
Book value, end of period.
* Monthly average shown for year and half-year and total for month.
* Average inventories based on centered averages of end-of-period figures.
* Estimates based on incomplete data.
NOTE.—The inventory figures in this table do not agree with the estimates of "change in business
inventories" included in the gross national product since they cover only manufacturing and trade rather
than all business, and show inventories in terms of current book value without adjustment for revaluation.
Source: Department of Commerce.
245
TABLE B—22.—Manufacturers'
inventories by stage of fabrication and as ratios to sales, 1946-51
[Not adjusted for seasonal variation]
Total manufacturing ,
Period
Book value of
inventories at
end of period
(billions of
dollars)
Nondurable goods industries
Durable goods industries
Book value of
inventories at
end of period
(billions of
dollars)
Ratio of average inventories
to monthly
sales *
Book value of
inventories at
end of period
(billions of
dollars)
Ratio of average inventories
to monthly
sales i
Materials
and
goods
in
process
Finished
goods
Materials
and
goods
in
process
Finished
goods
Materials
and
goods
in
process
Finished
goods
Materials
and
goods
in
process
Finished
goods
Materials
and
goods
in
process
1946
1947
1948 .
1949
17 4
19 7
20.8
17.7
7.2
9.3
11.6
11.3
8.8
10.1
10.9
8.9
2.7
3.7
4.5
4.4
1.58
1 51
1.41
1.44
0.50
.52
.56
.68
8.6
9.7
9.9
8.7
4.5
5.6
71
7.0
0.94
.95
.94
.93
Finished
goods
0.48
.54
.60
.73
1950
22.6
11.8
11.4
4.3
1.11
.51
11.3
7.2
.85
.63
1950— First half ....
Seconci half. .
18.0
22.6
11.8
11.6
9.4
11.4
4.6
4.3
1.17
1.06
.58
.44
8.7
11.3
7.2
7.2
.88
.83
.70
.58
1951— First half*...
25.6
13.2
13.3
5.1
1.15
.43
12.2
8.1
.98
.61
1950— January
February
March
April
May
June
July
August
_.
September...
October
November...
December
17.8
17 8
17.8
17.8
17.9
18.0
18.5
19.0
19.8
20.7
21.6
22 6
11.5
11 4
11.4
11.4
11.6
11.8
11.3
10.7
10.7
10.8
11 3
11.6
8.9
9.0
9.0
91
9.3
9.4
9.5
9.7
10 0
10.3
10.8
11.4
.5
5
.6
.6
.6
4.6
4 4
4.1
4.0
4.1
4.2
4.3
1.34
1.32
1.12
1.19
1 09
1.03
1.19
.97
1.04
.98
1.10
1.09
.66
.66
.56
.60
.55
.51
.57
.43
.43
.39
.43
.42
8.9
8.8
8.8
8.7
8.7
8.7
9.0
9.3
9.7
10 4
10.8
11.3
7.0
6 9
6.8
6.8
6.9
7.2
6.9
6.6
6.6
6.7
7.1
7.2
.94
.94
.84
.92
.85
.83
.82
.71
.79
.81
.91
.95
.75
.73
.65
.71
.67
.68
.65
.52
.55
.54
.59
.62
1951—January
February
March 2
April *
May *
23.6
24.1
24.7
25.3
25.6
11.7
11.7
12.0
12 5
13.2
11.8
12.1
12.5
12.9
13.3
4.4
4.6
4.6
4.8
5.1
1.14
1.21
1.06
1.18
1.20
.43
.46
.40
.44
.46
11.8
11 9
12.2
12.4
12.2
7.3
7.2
7.4
7.7
8.1
.91
1.00
.94
1.06
1.02
.57
.61
.57
.65
.65
1 Average inventories based on centered averages of end-of-period figures.
2 Estimates based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce.
246
TABLE B-23.—Sales, stocks, and outstanding orders at 296 department stores, 1939-51
Reported data
(millions of dollars) *
Period
Monthly average:
1939
Sales
(total for
month)
Stocks
(end of
month)
128
344
Derived data
(millions of dollars)!
OutNew
standing Receipts
(total
orders
orders
for
(total for
(end of
month) month) month)
(2)
Ratio
Stocks
to sales
130
(2)
2.69
2
Orders
to sales
Orders
to stocks
(2)
(2)
1940
1941
1942
1943.
1944
136
156
179
204
227
353
419
699
509
535
108
194
263
530
560
137
165
182
203
226
()
170
192
223
236
2.60
2.69
3.35
2. 50
2.36
0.79
1.24
1.47
2.60
2.47
0.31
.46
.44
1.04
1.05
1945
1946
1947
1948
1949
255
318
337
352
333
563
715
826
912
862
729
909
552
465
350
256
344
338
356
331
269
327
336
335
331
2.21
2.25
2.45
2.59
2.59
2.86
2.86
1.64
1.32
1.05
1.29
1.27
.67
.51
.41
1950
347
941
466
361
370
2.71
1.34
1950— First half
Second half
298
396
872
1,011
333
600
305
416
317
423
2.93
2.55
1.12
1.52
.38
.59
1951— First half 3
324
1,149
483
372
348
3.55
1.49
.42
195Q— January
February
March _.
April
May
June
July
Ausust
September
October .
November
December
256
247
320
318
330
317
292
331
370
361
403
616
788
854
920
930
906
833
789
918
1,029
1.169
1,203
957
390
393
326
271
248
369
693
755
702
593
442
412
255
313
386
328
306
244
248
460
481
501
437
370
348
316
319
273
283
365
572
522
428
392
286
340
3.08
3.46
2.88
2.92
2.75
2.63
2.70
2.77
2.78
3.24
2.99
1.55
1.52
1.59
1.02
.85
.75
1.16
2.37
2.28
1.90
1.64
1.10
.67
.49
.46
.35
.29
.27
.44
.88
.82
.68
.51
.37
.43
1951— January
February
March
April
May
337
286
347
313
338
994
1,094
1,218
1,246
1,195
658
656
467
339
293
374
386
471
341
287
620
384
282
213
241
2.95
3.83
3.51
3.98
3.54
1.95
2.29
1.35
1.08
.87
.66
.60
.38
.27
.25
%
.50
1 Not adjusted for seasonal variation.
2
Not available.
3 Average of data for first 5 months.
NOTE.—These figures are not estimates for all department stores in the United States. Figures for sales,
stocks, and outstanding orders are based on actual reports from the 296 stores. Receipts of goods are derived from the reported figures on sales and stocks. New orders are derived from estimates of receipts and
reported figures on outstanding orders.
Semiannual and annual data on receipts and new orders cannot be derived directly from the monthly
averages of sales, stocks, and outstanding orders.
Source: Board of Governors of the Federal Reserve System.
247
TABLE B-24.—Consumers* price index, 1929-51
For moderate-income families in large cities
[1935-39=100]
Period
1929
. _
1930
1931
1932
1933
1934
..
.
.
.
All
items
Food Apparel Rent
Fuel,
elec- HouseMisceltricity, furand re- nish- laneous
frigerings
ation
122 5
132.5
115 3
141.4
112 5
111.7
104.6
119 4
108.7
97 6
92 4
95.7
126 0
103.9
86 5
84 1
93.7
112 7
102.6
90 8
87 9
96.1
137.5
130.3
116 9
100 7
94.4
111 4
108.9
103 4
100 0
101.4
108 9
98.0
85 4
84 2
92.8
105.1
104.1
101 7
98 4
97.9
98 1
99 1
102 7
100 8
99 4
100 4
101 3
105 3
97 8
95 2
96 8
97 6
102 8
102 2
100 5
94 2
96 4
100 9
104 1
104 3
100 7
100 2
100 2
99 9
99 0
94 8
96 3
104 3
103 3
101 3
98 1
98 7
101.0
101 5
100.7
100 2
105 2
116 6
123 7
125 7
96 6
105 5
123 9
138 0
136 1
101 7
106 3
124 2
129 7
138 8
104.6
106 4
108 8
108 7
109.1
99 7
102 2
105 4
107 7
109 8
100 5
107 3
122 2
125 6
136 4
101 1
104 0
110 9
115 8
121 3
128 6
139 5
159 6
171.9
170 2
139 1
159 6
193 8
210.2
201 9
145 9
160 2
185 8
198 0
190 1
109 5
110 1
113 6
121.2
126 4
110 3
112 4
121 1
133 9
137 5
145 8
159 2
184 4
195. 8
189 0
124.1
128 8
139 9
149.9
154 6
1950
171 9
204 5
187 7
131 0
140 6
190 2
156 5
1950— First half
Second half
168 8
175.1
198 0
211.0
184 9
190.5
130 1
132.0
139 8
141.4
185 1
195.4
154 9
158.0
1935
1936
1937
1938
1939
_
. . . .
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
_
. _
„- —
-.
- -
-
.- .
1951— First half 1
_
184.0
225.7
202.2
134.5
143.8
210.4
163.8
1950— January 15 .
February 15
March 15...
April 15
May 15
June 15
July 15
August 15 . _
September 15
October 15
November 15
December 15
168 2
167 9
168.4
168 5
169 3
170.2
172 0
173 4
174 6
175.6
176 4
178.8
196 0
194 9
196. 6
197 3
199 8
203.1
208.2
209 9
210 0
210.6
210.8
216.3
185 0
184 9
185.1
184 9
184 7
184.6
184 5
185 7
189 8
193. 0
194 3
195.5
129 4
129 7
129.8
130 1
130 6
130.9
131.3
131.6
131 8
132.0
132.5
132.9
140 0
140 1
140 3
140 3
138 8
139.1
139 4
140 2
141 2
142 0
142 5
142.8
184 7
185 2
185.3
185 4
185 0
184 8
186 1
189 1
194 2
198 7
201 1
203.2
155 1
155. 1
155.0
154 7
155 1
154.6
155. 2
156.8
157 8
158 3
159 2
160.6
1951—January 15. _ . ._
February 15
March 15
April 15
May 15
June 15
181.5
183 8
184.5
184.6
185 4
221.9
226 0
226.2
225 7
227 4
3
226. 8
198 5
202 0
203 1
203 6
204 0
1 a
()
133. 2
134 0
134.7
135 1
135 4
143 3
143 9
144 2
144 0
143 6
207 4
209 7
210 7
211 8
212 6
162.1
163 2
164.3
164.6
165 0
.
(2)
i Estimates based on data available through May 15, except for food.
available.
Estimate based on a survey of 8 cities.
Source: Department of Labor.
8
Not
1
248
(2)
(2)
(2)
(2)
TABLE #-25.—Wholesale price index, 1929-51
[1926=100]
Monthly average:
1929
1930
1931
1932
1933
1934
. .
. .
1935
1936
1937
1938
1939
1940.—
1941
1942
1943
1944
&
e
* o<
£
B
H
e
•2-S
9|
11
•2 ft
"3
S3
PM
«
Miscellaneous
3
&
95.3 104.9
99.9
91.6 109.1
90.4
83.0 100.5
95.4
94.0
94.3
82.6
86.4
73.0
64 8
65.9
74.9
88.3
64.8
48.2
51.4
65.3
90.5
74.6
61.0
60.5
70.5
85.2 100.0
75.0 86.1
70 2 72 9
71.2 80.9
78.4 86.6
80.3
66.3
54.9
64.8
72.9
78.5
67.5
70.3
66.3
73.3
92.1
84.5
80.2
79.8
86.9
89.9
79.2
71.4
77.0
86.2
88.7
79.3
73.9
72.1
75.3
92.7
84.9
75 1
75.8
81.5
77 7
69.8
64 4
62 5
69.7
80.0
80 8
86.3
78.6
77.1
76.8
80 9
86.4
68.5
65 3
83.7
82. 1
85.5
73.6
70 4
77.9 89.6
79 6 95 4
85.3 104.6
81.7 92.8
81.3 95.6
70.9
71.5
76.3
66.7
69.7
73.5
76 2
77.6
76.5
73.1
86.4
87.0
95.7
95.7
94.4
85.3
86.7
95.2
90.3
90 5
79.0
78.7
82.6
77.0
76.0
80.6
81 7
89.7
86.8
86 3
68.3
70 5
77 8
73.3
74 8
78.6 67.7 71.3
82.7
87.3
98.8 105.9 99.6
103 1 122 6 106.0
104.0 123.3 104.9
83.0
89 0
95.5
96.9
98.5
100.8
108.3
117.7
117.5
116.7
73.8
84.8
96.9
97.4
98.4
71.7 95.8 94.8
76.2 99.4 103.2
78.5 103.8 110.2
80.8 103.8 111.4
83.0 103.8 115.5
77.0 88.5
84.4 94.3
95.5 102.4
94.9 102 7
95.2 104.3
77.3
82 0
89.7
92 2
93.6
128.2
148.9
181.2
188.3
165.5
99.7
109.5
135.2
151.0
147.3
118.1
137.2
182.4
188.8
180.4
Of)
. .
•eC'O
s
1 3
If *%
Housefurnishing
goods
1
1
Chemicals and
allied products
Period
Jh
Building materials
All commodities
0 ther tlian farmprocLucts ajad foocIs
A
100.1 84.0 104.7 117.8
116.3 90.1 115.5 132.6
141.7 108.7 145.0 179.7
149.8 134.2 163.6 199.1
140.4 131.7 170.2 193.4
95.2
101.4
127.3
135.7
118.6
104.5
111.6
131.1
144.5
145.3
1945
1946
1947
1948
1949
105.8
121.1
152.1
165.1
155.0
1950
161.5 170.4 166.2 153.2 191.9 148.0 133.2 173.6 206.0 122.7 153.2 120.9
1950— First half
Second half
1951— First
182.6 200.2 186.0 171.5 234.3 180.8 137.8 188.4 227.4 145.9 178.0 142.3
„
1951— January
..
February.. . ..
March
April. .
May.
June * _
151.4
152.8
152.7
152 8
155 9
157 3
162 9
166.4
169.5
169.1
171.7
175 3
154.7
159 1
159. 4
159. 3
164 7
165 9
176 0
177 6
180 4
177.8
183.7
187 4
154.8
156.7
155. 5
155.3
159 9
162.4
171 4
174.6
177.2
172.5
175.2
179 0
145.8
146.0
146.1
146 3
147 6
148 7
151 6
155.5
159 2
161.5
163.7
166 7
179.3
179.0
179.6
179.4
181 0
182 6
187 2
195.6
203 0
208.6
211.5
218 7
138.5
138.2
137.3
136.4
136 1
136 fl
142 6
149.5
158 3
163.1
166.8
171 4
131.0
131.5
131.5
130.9
131 9
132 6
133 5
134 2
134 9
135.3
135.7
135 7
168.5
168 7
168.6
168.8
169 9
171 9
172 4
174 4
176 7
178.6
180 4
184.9
191.6
192.8
194.2
194.8
198 1
202 1
207 2
213.9
219 7
218.9
217 8
221 4
115.3
115.0
116.2
117.0
116 4
114 5
118 1
122.5
128 7
132.2
135.7
139 6
144.9
145.2
145.5
145.8
146 6
146 9
148 7
153.9
lf>9 2
163. 8
166 9
170 2
110.0
110 0
110.7
112 6
114 7
114 7
119 0
124 3
127 4
131.3
137 6
140 5
180.1
183.6
184.0
183.6
182.9
181.7
194.2
202.6
203 8
202.5
199.6
198.6
182.2
187.6
186 6
185.8
187.3
186.3
170.3
171.8
172 4
172 3
171.7
170.5
234.8
238 2
236 2
233.3
232.6
230.6
178.2
181. 1
183 2
182 8
181.9
177 6
136.4
138. 1
138 6
138.1
137.5
137.8
187.5
188 1
188 8
189 0
188.8
188.2
226.1
228.1
228 5
228 5
227.8
225.6
144.5
147.3
146 4
147.9
146.4
142.9
174.7
175.4
178 8
180 1
180.0
179.3
142.4
142 7
142 5
142 7
141.7
141.7
i Estimates based on incomplete data.
Source: Department of Labor.
94 7
100 3
115.5
120 5
112.3
153.8 160.5 157.4 146.8 180.2 137.2 131. 6 169.4 195.6 115.7 145.8 112.1
169 2 180 5 175.0 159.7 204 1 158.6 134 9 177.9 216.5 129.5 160.4 130 0
half 1
1950 —January
February
March
April .
May
June
July
August _
September
October
November
December
106 2
130.7
168.7
179.1
161.4
249
TABLE B-26.—Indexes of prices received and prices paid by farmers, and parity ratio, 1929-51
[1910-14=100]
Prices
received
Period
Monthly average:
1929
1930.
1931
1932
1933
1934
-
1935,..
1936.1937
1938
1939
1940
1941
1942.
1943
1944
—
__
1945
1946
1947
1948
1949.....
—
Prices paid
(including interest, taxes,
and wage
rates)
Parity
ratio *
148
160
125
87
65
70
90
151
130
112
109
120
67
58
64
75
109
114
122
97
95
124
124
131
124
122
93
78
77
100
123
158
2192
2196
124
132
151
170
182
81
93
105
113
108
2206
2234
275
285
249
189
207
239
259
250
109
113
115
110
100
256
255
100
1950—First half
Second half
241
272
250
260
96
105
1950
1951—First half
306
280
110
1950—January 15
February 15 _ _
March 15
April 15
May 15..
June 15
July 15
Aujrust 15
September 15.
October 15
November 15_
December 15. .
235
237
237
241
247
247
263
267
272
268
276
286
248
248
250
250
253
254
256
257
260
261
263
265
95
96
95
97
103
104
105
103
105
108
1951—January 15
February 15 _ _
March 15
April 15
May 15
_.
June 15
_-
300
313
311
309
305
301
272
276
280
283
283
283
110
113
111
109
108
106
i Ratio of prices received to prices paid (including interest, taxes, and wage rates).
a Includes subsidy payments between October 1943 and June 1946.
Source: Department of Agriculture.
250
TABLE B-27.—Percentage increases in wholesale prices in the United States and foreign countries
since June 1950
Percentage increase
from June 1950 to
latest date
Country
United States
Africa and Near East:
Algeria
Egypt
Iran
Iraq
Israel
Lebanon
Morocco
Tunisia
Union of South Africa
Actual
Annual
rate
16
16
Latest date
June 1951
February 1951
April 1951
May 1951
April 1951
February 1951
May 1951
April 1951
March 1951
May 1951
__
_
_
Western European countries:
Austria 1
_
Belgium
Denmark
France
Germany (Federal Republic)*..
Greece
_
Ireland
Italy..
_
Netherlands
Norway
Portugal.
_
Spain.
Sweden
_
Switzerland__.
Turkey
United Kingdom
May 1951
May 1951
May 1951
May 1951
April 1951
May 1951
April 1951
April 1951
April 1951
June 1951
April 1951
April 1951
April 1951
May 1951
March 1951
May 1951
Latin America:
Argentina *
Brazil
Chile
Costa Rica
__
Cuba <___
Dominican Republic
El Salvador
Guatemala
Mexico
Nicaragua
Peru
_
Venezuela.
___
November 1950
April 1951
February 1951
May 1951
February 1951
May 1951
December 1950
May 1951
May 1951
December 1950
May 1951
May 1951
Pacific and Far East:
Australia
India..__
_
Indochina.
Japan.
New Zealand
Philippines
Thailand
_
_____
_._
61
_
Other:
Canada
Finland
March 1951
May 1951
April 1951
April 1951
December 1950
May 1951
March 1951
May 1951
May 1951
1 Covers basic materials only.
Covers producers' prices of industrial products.
* Cost-of-living figures.
«Retail food figures.
NOTE.—-For many countries, figures are for capital or principal city only.
Sources: International Monetary Fund and United States Economic Cooperation Administration.
2
251
TABLE B-28.—Consumer credit outstanding, 1929-51
[Millions of dollars]
Instalment credit
Total
consumer
credit
End of period
1929 ..
6,252
Total
3,158
Automobile
sale credit
1,318
Other »
Charge
accounts
Other
consumer
credit 2
1,840
1,749
1,345
1,271
1,051
861
770
783
5,570
4,636
3,493
3,439
3,846
2,688
2,204
1, 518
1,588
1,860
928
637
322
459
576
1,760
1,567
1,196
1,129
1,284
1,611
1,381
1,114
1,081
1,203
1935 .
1936—
1937
1938
1939. .
4,773
5,933
6, 513
6,128
7,031
2,622
3,518
3,960
3,595
4,424
940
1,289
1,384
970
1,267
1,682
2,229
2,576
2,625
3,157
1,292
1,419
1,459
1,487
1,544
859
996
1,094
1,046
1,063
1940
1941
1942
1943. .
1944
8,163
8,826
5,692
4,600
4,976
5,417
5,887
3,048
2,001
2,061
1,729
1,942
482
175
200
3,688
3,945
2,566
1,826
1,861
1,650
1,764
1,513
1,498
1,758
1,096
1,175
1,131
1,101
1,157
1945...
1946
1947
1948
1949
5,627
8,677
11,862
14,366
16,809
2,364
4,000
6,434
8,600
10,890
227
544
1,151
1,961
3,144
2, 137
3,456
5,283
6,639
7,746
1,981
3,054
3,612
3,854
3,909
1,282
1,623
1,816
1,912
2,010
1950
20,097
13,459
4,126
9,333
4,239
2,399
1950—January
February
March
April
May
June
July
August
September.
October
November
December
16,368
16, 159
16,338
16,639
17,077
17,651
18,295
18, 842
19,329
19, 398
19, 405
20,097
10,836
10,884
11, 077
11, 322
11,667
12, 105
12, 598
13,009
13, 344
13,389
13, 306
13,459
3,179
3,256
3,355
3,470
3,600
3,790
3,994
4,107
4,213
4,227
4,175
4,126
7,657
7,628
7,722
7,852
8,067
8,315
8,604
8,902
9,131
9,162
9,131
9,333
3,506
3,233
3,211
3,241
3,290
3,392
3,527
3,636
3,741
3,703
3,739
4,239
2,026
2,042
2,050
2,076
2,120
2,154
2,170
2,197
2,244
2,306
2,360
2,399
19, 937
19, 533
19,379
19,123
19, 184
19,200
13, 252
13,073
12,976
12,905
12, 913
12,900
4,056
3,990
3,946
3,934
3,977
4,000
9,196
9,083
9,030
8,971
8,936
8,900
4,248
4,010
3,938
3,744
3,790
3,800
2,437
2,450
2,465
2,474
2,481
2,500
1930 1931
1932
1933 .
1934
1951—January
February
March
April *
May 3
June 3
—.
._ _ __
._
i Includes other sale credit and loans, including repair and modernization loans insured by Federal Housing Administration.
* Includes loans by pawnbrokers, service credit, and single-payment loans under $3,000 made by commercial banks. The single-payment loan item was revised in November 1950 to exclude loans over $3,000.
See Federal Reserve Bulletin for November 1950, pp. 1465-1466.
* Estimates based on incomplete data; June by Council of Economic Advisers.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Board of Governors of the Federal Reserve System (except as noted).
252
TABLE B-29.—Loans and investments of all commercial banks and weekly reporting member banks,
1929-51*
[Billions of dollars]
Weekly reporting
member banks
All commercial banks
End of period s
1929—June4
1930—June*
1931—June*
1932—June *
1933—June*
1934—June *
Total
loans
and
investments
49.4
_
Investments
Loans
Total
35.7
13.7
U. 8. Gov- Other
ernment securiobligaties
tions
4.9
Total
loans
(net)
Commercial, industrial, and
agricultural
loans 3
8.7
16.7
(5)
(»)
(88)
(6)
()
(8)
(«)
(«)
48.9
44.9
36.1
30.4
32.7
34.5
29.2
21.8
16.3
15.7
14.4
15.7
14.3
14.0
17.0
5.0
6.0
6.2
7.5
10.3
9.4
9.7
8.1
6.5
6.7
17.0
14.7
11.3
8.9
8.5
34.6
39.5
38.3
38.7
40.7
14.9
16.4
17.1
16.4
17.2
19.7
23.1
21.2
22.3
23.4
12.7
15.3
14.2
15.1
16.3
7.0
7.8
7.1
7.2
7.1
8.2
9.2
9.4
8.4
8.8
43.9
50.7
67.4
85.1
105.5
18.8
21.7
19.2
19.1
21.6
25.1
29.0
48.2
66.0
83.9
17.8
21.8
41.4
59.8
77.6
7.4
7.2
6.8
6.1
6.3
9.4
11.4
10.3
10.8
13.0
5.3
7.1
6.3
6.4
6.5
1945
1946
1947
194g
1949
124.0
114.0
116.3
114.3
120.2
26.1
31.1
38.1
42.5
43.0
97.9
82.9
78.2
71.8
77.2
90.6
74.8
69.2
62.6
67.0
7.3
8.1
9.0
9.2
10.2
15.9
819.4
23.3
25.6
24.9
7.2
« 11.3
14,6
15.6
13.9
_
1935_june *
1936
1937
1938
1939
1940
1941
1942
1943
1944
-
5.1
4.2
4,7
1950
126.7
52.2
74.4
62.0
12.4
31.4
17.9
1950—January
__ .
February
March
_. _.
April May
__
June
July
. .
August
September _ .
October
November
_
December. _
121.2
120.6
120.3
120.3
121.2
121.8
122.3
123.3
123.6
124.5
125.4
126.7
42.9
43.1
43.7
43.8
44.1
44.8'
46.0
47.3
48.9
49.9
51.5
52.2
78.3
77.5
76.6
76.5
77.1
77.0
76.3
76.0
74.6
74.6
73.9
74.4
68.0
67.1
65.8
65.5
66.1
65.8
65.0
64.2
62.5
62.5
61.7
62.0
10.3
10.4
10.8
11.0
11.0
11.2
11.4
11.8
12.1
12.1
12.1
12.4
24.5
24.7
24.9
25.0
25.0
25.6
26.4
27.3
28.5
29.4
30.6
31.4
13.9
13.8
13.8
13.4
13.4
13.6
14.0
14.7
15.7
16.5
17.1
17.9
1951—January
February . . ._
March
April ..
May
June *_„, , -.,_, _ _
125.1
125.0
125.7
125.4
125.1
126.6
52.7
53.5
54.4
54.4
54.5
55.0
72.3
71.5
71.3
71.0
70.6
71.6
60.0
59.1
58.8
58.5
58.1
59.0
12.4
12.4
12.6
12.6
12.5
12.6
31.5
32.2
32.7
32.7
32.4
32.9
18.1
18.7
19.2
19.2
19.0
19.2
i Excludes mutual savings banks.
* For all commercial banks last reporting date within period; for weekly reporting member banks, reporting date nearest end of period.
• Includes open-market paper.
4
June data are used because complete end-of-year data prior to 1936 are not available for United States
Government obligations.
* Not available prior to May 12,1937, when the loan classification was revised.
• Series revised to extend coverage. Previous figures not strictly comparable.
f Estimates for all commercial banks based on incomplete data; by Council of Economic Advisers.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Board of Governors of the Federal Reserve System (except as noted).
253
TABLE B-30.—Deposits and currency, 1929-51
[Millions of dollars]
End of period >
Total de- U. S. Govposits and ernment
currency deposits/
Deposits adjusted and currency (privately held
money supply) *
Total
Currency
outside
banks
Adjusted
demand
deposits *
Time
deposits '
1929
54,742
187
54, 555
3,557
22,809
28, 189
1930
1931
1932
1933—
1934
53,572
48,379
45,370
42, 551
48,106
324
518
516
1,019
1,836
53,248
47,861
44,854
41,532
46,270
3,605
4,470
4,669
4.782
4,655
20,967
17, 412
15,728
15, 035
18, 459
28,676
25,979
24,457
21, 715
23,156
1935
1936
1937
1938
1939
52, 726
57, 595
56, 781
59,878
64,733
1,453
1,235
966
1,812
1,480
51, 273
56,360
55, 815
58,066
63,253
4,917
5,516
5,638
5,775
6,401
22. 115
25; 483
23,959
25,986
29,793
24, 241
25, 361
26, 218
26, 305
27,059
1940
1941
1942
1943—
1944
71,129
79, 098
100,500
123, 391
151, 428
1,121
2,762
9,201
11,003
21, 203
70,008
76, 336
91,299
112, 388
130,225
7,325
9,615
13,946
18,837
23,505
34,945
38,992
48, 922
60, 803
66,930
27, 738
27,729
28,431
32, 748
39,790
1945
1946
1947
1948
1949
176,378
167, 500
172, 330
172, 693
173, 851
25, 585
3,496
2,322
3,574
4,070
150,793
164,004
170,008
169, 119
169, 781
26,490
26, 730
26, 476
26,079
25, 415
75, 851
83,314
87, 121
85,520
85,750
48, 452
53,960
56, 411
57,520
58, 616
_
1950
180, 574
3,657
176, 917
25, 398
92, 272
59, 247
1950—January
February
March
April
May
June, .,.
, ,
July
August
September
October
November
December
. .
1951—January
February
March
April
May
June V . „.. , ~ - , . , -
173, 600
172, 800
172, 400
172, 500
173,000
174, 715
174, 400
175, 500
176, 400
176, 300
177, 400
180, 574
3,900
4,600
5,300
4,100
3,800
4,751
4,100
4,500
4,800
3,500
3,500
3,657
169, 700
168,200
167, 100
168,400
169, 200
169, 964
170, 200
171,000
171, 600
172, 800
173, 900
176, 917
24, 500
24, 700
24,600
24,600
24, 700
25, 185
24,400
24, 500
24,500
24,600
24,900
25,398
86, 400
84,500
83,200
84,300
85,000
85,040
86,500
87, 400
88,000
89,200
90,300
92, 272
58,700
59,000
59, 300
59, 500
59, 500
59, 739
59,400
59, 100
59,000
59, 000
58,700
59, 247
178, 800
178, 900
179,900
179,800
179, 100
180,900
3,600
4,700
7,400
6,500
5,400
6,500
175, 200
174, 200
172, 500
173,300
173, 700
174, 400
24,600
24,600
24,400
24,600
24,900
25,000
91,600
90,600
89, 000
89, 500
89, 500
89,900
59,000
59,000
59, 100
59,200
59, 300
59,500
1
Last reporting date during the period.
* Includes United States Government deposits at Federal Reserve Banks and commercial and savings
banks, and, beginning with 1938, includes United States Treasurer's time deposits, open account.
«Includes
deposits and currency held by State and local governments.
4
Includes demand deposits, other than interbank and United States Government, less cash items in
process of collection.
'«Includes deposits in commercial banks, mutual savings banks, and Postal Savings System, but excludes
interbank deposits.
«Estimates based on incomplete data; by Council of Economic Advisers.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Board of Governors of the Federal Reserve System (except as noted).
254
TABLE B-31.—Estimated ownership of Federal securities, 1939-51
[Billions of dollars—par values1]
Gross debt and guaranteed obligations outstanding
End of period
Held by public
Held by
U.S.
GovernState
Total* ment
Total and
Com- Federal
local mercial
agencies held
by governReserve
4
and trust public
8
banks
banks
ments
funds
Nonbank
private
corpoIndirations viduals6
and
associations «
47.6
6.5
41.1
0.4
15.9
2.5
12.2
10.1
1940
1941
1942
1943
1944
50.9
64.3
112.5
170.1
232.1
7.6
9.5
12.2
16.9
21.7
43.3
54.7
100.2
153.2
210.5
.5
.7
1.0
2.1
4.3
17.3
21.4
41.1
59.9
77.7
2.2
2.3
6.2
11.5
18.8
12.8
16.8
28.2
42.0
56.8
10.6
13.6
23.7
37.6
52.9
1945
1946
1947
1948
1949
278.7
259.5
257.0
252.9
257.2
27.0
30.9
34.4
37.3
39.4
251.6
228.6
222.6
215.5
217.8
6.5
6.3
7.3
7.9
8.0
90.8
74.5
68.7
62.5
66.8
24.3
23.3
22.6
23.3
18.9
66.4
60.5
68.8
56.5
58.0
63.7
63.8
65.3
65.4
66.2
1950
256.7
39.2
217.5
7.8
61.8
20.8
60.5
66.7
1950—January..
_
_
February
March .
.
April
May
June.
_ _ _ _ ._
July
August
September
October
November
. __
December.-
256.9
256.4
255.7
255.7
256.4
257.4
257. 6
257.9
257.2
257.0
257.1
256.7
39.0
38.4
37.6
37.3
37.4
37.8
38.0
38.1
38.9
39.0
39.2
39.2
217.9
218.0
218.1
218.4
219.0
219.5
219.6
219.8
218.4
217.9
217.9
217.5
8.0
8.0
8.4
8.4
8.3
8.2
8.3
8.3
8.2
8.1
8.1
7.8
67.4
66.4
64.9
65.2
65.8
65.6
64.6
64.1
62.2
62.2
61.5
61.8
17.8
17.7
17.6
17.8
17.4
18.3
18.0
18.4
19.6
19.3
19.7
20.8
58.4
59.2
60.6
60.2
60.6
60.3
61.3
61.6
61.2
61.2
61.5
60.5
66.3
66.6
66. 6
66.8
67.0
67.2
67.4
67.4
67.3
67.2
67.2
66.7
1951 —January
February
March
April
May?
June 7
256.1
256.0
255.0
254.7
255.1
255.3
39.6
39.7
39.8
39.9
40.3
41.0
216.6
216.2
215.2
214.9
214.8
214.3
7.8
7.9
7.9
7.9
8.0
8.0
59.8
58.9
57.8
58.5
57.9
58.5
21.5
21.9
22.9
22.7
22.5
23.0
60.8
60.9
60.2
59.4
60.2
58.8
66.6
66.7
66.4
66.3
66.2
66.0
1939 .
_
1 United States savings bonds, series A-D, E, and F, are included at current redemption values.
2 Securities issued or guaranteed by the United States Government, excluding guaranteed securities
held
by the Treasury.
3
Includes trust, sinking, and investment funds of State and local governments and their agencies, and
Territories and possessions.
< Includes commercial banks, trust companies, and stock savings banks in the United States and in
Territories
and possessions; excludes securities held in trust departments.
6
Includes insurance companies, mutual savings banks, savings and loan associations, nonprofit institutions, corporate pension trust funds, dealers and brokers and foreign accounts in this country. Beginning
with December 1946 the foreign accounts include investments by the International Bank for Reconstruction and Development and the International Monetary Fund hi special non-interest-bearing notes issued
by6 the United States Government. Beginning with June 30,1947, includes holdings of Federal land banks.
Includes partnerships and personal trust accounts.
f Estimates based on incomplete data; by Council of Economic Advisers.
NOTE.—Detail will not necessarily add to totals because of rounding.
Source: Treasury Department (except as noted).
255
TABLE B-32.—United States Government debt—volume and kind of securities, 1929-51
[Billions of dollars]
Interest-bearing public debt
Gross Marketable public Nonmarketable
public
issues
public issues
Nonin- Fully
guardebt and
terest anteed
guaranSpecial3 bearing
securiteed
Treasdebt
issues
ties
issues i Short- Treasury United
States taxury
term
and
bonds
savings
issues'
bonds savings
notes
End of period
1929
16.3
3.3
11.3
0.6
0.3
1930
16.0
17.8
20.8
24.0
31.5
2.9
2.8
5.9
7.5
11.1
11.3
13.5
13.4
14.7
15.4
.8
.4
.4
.4
.6
.3
.3
.4
.4
.5
0.2
3.1
35.1
39.1
41.9
44.4
47.6
14.2
12.5
12.5
9.8
7.7
14.3
19.5
20.5
24.0
26.9
0.2
.5
1.0
1.4
2.2
.7
.6
2.2
3.2
4.2
1.0
.7
.6
.5
.6
4.5
4.7
4.6
5.0
5.7
50.9
64.3
112.5
170.1
232.1
7.5
8.0
27.0
47.1
69.9
28.0
33.4
49.3
67.9
91.6
3.2
6.1
15.0
27.4
40.4
2.5
6.4
8.6
9.8
5.4
7.0
9.0
12.7
16.3
.6
.5
.9
1.4
1.8
5.9
6.3
4.3
4.2
1.5
278.7
259.5
257.0
252.9
257.2
78.2
57.1
47.7
45.9
50.2
120.4
119.3
117.9
111.4
104.8
48.2
49.8
52.1
55.1
56.7
8.2
5.7
5.4
4.6
7.6
20.0
24.6
29.0
31.7
33.9
2.4
1.5
2.7
2.2
2.1
.6
.3
.1
.1
(*)
1950
256.7
58.3
94.0
58.0
8.6
33.7
2.4
(<)
1950—January __ .
February
March
April
May
June ..
_
July
_ .
August
September
October
November
December
256.9
256.4
255.7
255.7
256.4
257.4
257.6
257.9
257.2
257.0
257.1
256.7
49.9
49.8
51.5
51.6
52.0
52.4
52.2
52.2
56.9
56.0
55.9
58.3
104.8
57.0
57.2
104.8
102.8
57.3
102.8
57.4
102.8
57.5
102.8 ' 57.5
57.6
102.8
57.5
102.8
57.4
96.7
96.7
58.0
96.7
58.0
94.0
58.0
7.9
8.0
8.0
8.1
8.3
8.5
8.6
8.9
8.9
9.0
8.9
8.6
33.5
32.9
32.1
31.8
81.9
32.4
32.5
32.7
33.4
33.5
33.7
33.7
2.0
2.0
2.2
2.2
2.2
2.2
2.1
2.1
2.2
2.2
2.2
2.4
(<)
(<)
<)
1951 —January _
February
March
April . . . .
May
June
256.1
256.0
255.0
254.7
255. 1
255.3
57.4
57.4
57.4
57.4
57.4
58.9
58.0
57.8
57.8
57.7
57.6
57.6
8.7
8.7
8.3
8.1
8.2
7.8
34.0
33.9
33.5
33.6
34.0
34.7
2.4
2.6
2.4
2.4
2.4
2.4
1931
1932
1933
1934
1935
1936
1937
1938
1939
—
1940
1941
1942
1943
1944.
1945
1946
1947
19481949
_
_
94.0
94.0
94.0
80.5
80.5
78.8
?
3)
4
3*)
«)
(4)
8(*)
8
i Total includes Postal Savings bonds, depositary bonds. Armed Forces leave bonds, and Treasury
investment bonds, not shown separately.
* Includes Treasury bills, certificates of indebtedness, and Treasury notes.
3
Issued to United States investment accounts; these accounts also held 6.3 billion dollars of public marketable and nonmarketable issues on June 30,1951.
* Less than 50 million dollars.
Source: Treasury Department.
256
TABLE B-33.—Bond yields and interest rates, selected years, 1929-51
[Percent per annum]
United States Government
security yields—New York
Period
3-month
9-12
Treas- month
ury
2
issues
bills i
Average:
1929
1933
1935
1937
1939
(3)
0.515
.137
.447
.023
Average
Prime Bankers Federal
of rates
charged commeraccept- Reserve
cial
Corporate by
Bank
ances.
banks
Aaa
paper,
90
discount
on
shortTaxable
bonds
rate
—
term
daysbonds (Moody's) loans- months- New
New
New
15 years
York
selected
York
and over
York
cities
(44)
()
(«)
(«)
(*)
(85)
()
0)
8
4.73
4.49
3.60
3.26
3.01
(')
(66)
(6)
()
2.1
5.85
1.73
.76
.94
.59
5.03
.63
.13
.43
.44
5.16
2.56
1.50
1.33
1.00
1941
1943
.103
.373
(4)
0.75
(«)
2.47
2.77
2.73
2.0
2.6
.54
.69
.44
.44
1.00
U.OO
1945
1946
1947
1948
1949
.375
.375
.594
1.040
1.102
.81
.82
.88
1.14
1.14
2.37
2.19
2.25
2.44
2.31
2.62
2.53
2.61
2.82
2.66
2.2
2.1
2.1
2.5
2.7
.75
.81
1.03
1.44
1.48
.44
.61
.87
1.11
1.12
n.oo
1.218
1.26
2.32
2.62
2.7
1.45
1.15
1.59
1950— First quarter
Second quarter
Third quarter
Fourth quarter
1.118
.166
.233
.353
1.14
1.19
1.27
1.44
2.24
2.31
2.34
2.38
2.58
2.61
2.63
2.67
2.60
2.68
2.63
2.84
1.31
1.31
1.47
1.71
1.06
1.06
1.18
1.31
1.50
.60
.61
.75
1951 — First quarter
Second quarter
.400
.532
1.67
1.84
2.42
2.61
2.70
2.90
3.02
3.07
1.96
2.20
1.51
1.63
.75
.75
.
...
I960
'1.00
1.00
1.34
1.50
i Rate on new issues within period.
3
Includes certificates of indebtedness, when outstanding in proper maturity range, and selected note and
bond
issues.
3
Treasury bills were first issued in December 1929.
< Not available before August 1942.
«Taxable bonds in this classification were first issued in March 1941.
« Not available on same basis.
7 From October 30,1942, to April 24, 1946, a preferential rate of 0.50 percent was in effect for advances
secured by Government securities maturing or callable hi one year or less.
Sources: Treasury Department, Moody's Investors Service, and Board of Governors of the Federal
Reserve System.
257
TABLE B-34.—Profits before and after tax, all private corporations, 1929-51
[Billions of dollars]
Corporate profits after tax
Corporate
profits
before
tax
Corporate
tax
liability 1
9.8
1.4
8.4
5.8
2.6
3.3
-.8
-3.0
.2
1.7
.8
.5
.4
.5
.7
2.5
-1.3
-3.4
-.4
1.0
5.5
4.1
2.6
2.1
2.6
-3.0
-5.4
-6.0
-2.4
-1.6
1935
1936
1937
1938
1939
3.2
5.7
6.2
3.3
6.5
1.0
1.4
1.5
1.0
1.5
2.3
4.3
4.7
2.3
5.0
2.9
4.6
4.7
3.2
3.8
1940
1941
1942
1943
1944
9.3
17.2
21.1
25.1
24.3
2.9
7.8
11.7
14.4
13.5
6.4
9.4
9.4
10.6
10.8
4.0
4.5
4.3
4.5
4.7
2.4
4.9
5.1
6.2
6.1
1945
1946
1947
1948
1949
19.7
23.6
30.5
33.8
28.3
11.2
9.6
11.9
13.0
11.0
8.5
13.9
18.5
20.7
17.3
4.7
5.8
6.6
7.3
7.6
3.8
8.1
12.0
13.6
9.7
1950
41.4
18.6
22.8
9.2
13.6
Period
1929
1930
1931 .
1932
1933
1934
. -
Total
Dividend
payments
Undistributed
profits
-.6
-.3
W
-.9
1.2
Seasonally adjusted annual rates
I960— First half ..
Second half
1951— First half »
. --
1950—First quarter _
Second quarter
Third quarter
Fourth quarter
1951— First quarter
Second quarter *
. -_
34.7
48.0
15.6
21.5
19.0
26.5
8.1
10.2
11.0
16.2
50.2
27.5
22.6
9.2
13.5
31.9
37.5
45.7
50.3
14.4
16.9
20.5
22.5
17.5
20.6
25.2
27.8
7.8
8.4
9.4
11.1
9.7
12.2
15.8
16.7
51.8
48.6
28.5
26.5
23.3
22.0
8.8
9.5
14.5
12.5
i Federal and State corporate income and excess profits taxes.
» Minus 8 million dollars.
' Estimates based on incomplete data; 1951 by Council of Economic Advisers.
NOTE.—No allowance has been made for inventory valuation adjustment. See appendix table B-6 for
profits before tax and inventory valuation adjustment.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
258
TABLE B—35.—Sales and prof ts of large manufacturing corporations, 1939—51
[Millions of dollars]
Durable goods industries
(106 corporations) »
Period
Nondurable goods industries
(94 corporations) *
Profits
Profits
Sales
Sales
Before taxes After taxes
Before taxes After taxes
6,748
734
597
3,843
476
400
1940
1941
1942
1943
1944 ..
8,750
12,806
15, 362
20,633
22,085
1,226
2,175
2,326
2, 389
2,192
830
982
782
755
726
4,257
5,485
6,408
7,607
8,263
617
980
1,069
1,293
1,339
443
538
438
506
520
1945—
1946
1947 ..
1948
1949
18, 161
12, 387
19, 502
23, 591
23,914
1,288
607
2,312
3,107
3,192
574
295
1,355
1,836
1,888
8,371
8,940
11, 313
13, 364
12,790
1,133
1,426
1,787
2,208
1,843
555
968
1,167
1,474
1,211
29, 240
5,191
2,540
14,710
2,701
1,510
1939
_
1950
Totals for period, not adjusted for seasonal variation
1950— First half
Second half
13, 200
16, 039
2,136
3,055
1,187
1,353
6,704
8,005
1,085
1,615
660
850
1950— First quarter
Second quarter
Third quarter. _
Fourth quarter
6,004
7,196
7,851
8,188
896
1,240
1,403
1,652
494
693
777
576
3,251
3,453
3,939
4,066
504
681
782
833
307
353
468
382
1951— First quarter 2
8,375
1,381
530
4,280
840
368
1
See Federal Reserve Bulletin, June 1949, and subsequent issues, for similar data for the following industry groups: primary metals and products, machinery, automobiles and equipment, foods and kindred
products,
chemicals and allied products, and petroleum refining.
2
Estimates based on incomplete data.
NOTE.—Detail will not necessarily add to totals because of rounding
Source: Compiled by the Board of Governors of the Federal Reserve System and based on published
reports of various industrial corporations.
259
TABLE B-36.—Relation of profits before and after taxes to stockholders' equity, private manufacturing corporations, by industry group, 1949-51
Percentage ratio^of profits (annual rate) to stockholders'
equity
1950
Industry group
1949
total
Total
1951,
first
First Second Third Fourth quarter
quarter quarter quarter quarter
Before Federal taxes
18.6
27.9
19.6
24.8
31.2
35.6
32.8
Food... .
Tobacco manufactures
.
Textile mill products
Apparel and finished textiles
Lumber and wood products ..
19.5
20.2
13.0
13.2
14.2
22.2
21.3
22.9
18.1
29.6
15.6
16.4
18.0
11.6
16.8
20.4
19.2
17.2
10.4
28.4
28.8
25. 2
26.0
26.4
38.0
23.6
24.4
29.6
23.6
34.4
20.8
20.4
29.6
22.0
34.0
Furniture and fixtures
Paper and allied products
Printing and publishing (except newspapers).
Chemicals and allied products
Products of petroleum and coal
14.7
17.3
19.0
21.2
15.2
27.1
28.5
20.1
32.6
19.3
15.6
20.8
20.4
25.2
12.8
23.6
23.2
16.8
28.4
16.8
29.2
28.8
24.0
36.4
20.4
39.2
40.4
19.2
40.0
26.8
34.4
44.0
21.6
40.8
23.2
Rubber products
_
Leather and leather products
Stone, clay, and glass products
Primary nonferrous metal industriesPrimary iron and steel industries
13.6
11.0
21.3
13.0
17.0
31.0
19.3
33.1
25.5
28.2
14.8
10.8
20.4
16.0
20.0
21.2
12.8
32.4
22.0
26.8
38.0
25.2
39.2
26.8
29.2
47.6
28.0
39.6
36.4
36.4
43.2
22.4
36.4
32.0
34.8
Fabricated metal products
Machinery (except electrical and transportation)
,__
Electrical machinery
Transportation equipment (except motor vehicles)
Motor vehicles and parts
17.7
29.1
18.4
24.8
34.0
38.0
37.6
19.2
32.3
25.9
41.6
18.4
29.2
24.4
31.2
26.8
41.2
33.6
62.4
34.8
47.2
12.6
37.7
18.9
53.2
12.0
39.2
17.6
55.2
19.2
58.8
26.8
58.4
19.6
46.0
19.9
30.9
20.8
26.0
33.2
43.2
33.6
29.6
35.6
34.8
All private manufacturing corporations .
Instruments; photographic and optical goods;
watches and clocks
Miscellaneous manufacturing (including ordnance)
._
12.5
22.7
10.0
14.8
After Federal taxes
All private manufacturing corporations-
11.6
15.4
12.0
15.6
17.6
16.4
14.8
Food
Tobacco manufactures..
Textile m ill products
Apparel and finished textiles
_
Lumber and wood products.. . .
11.8
12.6
7.6
7.5
9.1
12.3
11.5
12.7
10.1
17.5
9.2
10.0
10.8
6.4
10.4
12.4
12.0
10.4
5.2
18.0
16.4
13.2
14.4
16.4
22.8
11.6
10.8
14.8
12.0
18.4
10.0
9.6
14.4
11.6
17.2
Furniture and fixtures
Paper and allied products.. .
Printing and publishing (except newspapers).
Chemicals and allied products
Products of petroleum and coal
8.2
10.7
11.4
13.2
11.9
15.2
16.2
11.5
17.8
13.9
8.4
12.8
12.8
15.6
10.0
15.2
14.4
9.6
17.6
13.2
16.0
16.4
14.4
20.8
14.0
20.4
20.8
9.6
17.2
18.0
16.0
18.4
10.0
17.2
14.4
Rubber productsLeather and leather products .
Stone, clay, and glass products
Primary nonferrous metal industries
Primary iron and steel industries
8.7
6.2
13.1
8.1
10.0
16.9
10.9
17.7
15.0
14.3
9.6
6.4
12.4
10.4
11.6
13.6
7.2
20.0
14.8
16.0
22.4
14.8
22.0
16.0
15.2
21.6
15.2
16.0
19.2
14.0
18.8
10.8
16.0
16.0
13.6
10.4
16.0
11.2
15.6
19.2
17.6
17.6
11.6
13.6
14.1
20.9
10.8
17.2
14.8
18.4
14.8
22.0
15.6
25.2
15.2
18.4
7.8
22.1
10.0
25.3
7.2
22.8
10.4
32.4
10.0
28.8
12.4
16.8
9.2
17.2
12.1
16.7
12.8
16.0
18.8
19.2
14.4
7.2
12.3
5.2
8.4
16.8
18.4
16.4
.
Fabricated metal products.
Machinery (except electrical and transportation) ...
Electrical machinery
Transportation equipment (except motor
vehicles) .
Motor vehicles and parts
Instruments; photographic and optical goods;
watches and clocks
..
Miscellaneous manufacturing (including ordnance)
Sources: Federal Trade Commission and Securities and Exchange Commission.
260
TABLE B-37.—Relation of profits before and after taxe$ to sales, private manufacturing corporations,
by industry group, 1949-51
Profits in cents per dollar of sales
1950
Industry group
1949
total
1951,
first
Second
Third
First
Fourth
quarter
Total quarter quarter quarter quarter
Before Federal taxes
9.3
12.8
10.1
11.8
13.5
14.9
13.5
5.5
8.2
7.0
3.7
9.2
6.1
9.0
10.5
5.0
15.9
4.8
7.4
9.0
3.5
11.2
5.6
8.1
8.9
3.3
15.2
7.5
10.1
11.4
6.3
18.6
6.3
10.0
12.2
6.0
17.2
5.4
9.1
11.9
5.4
17.7
Furniture and
fixtures
_
Paper and allied products
Printing and publishing (except newspapers).
Chemicals and allied products
Products of petroleum and coal
5.9
10.6
7.4
13.2
12.0
9.0
15.4
7.9
18.8
14.9
5.9
12.3
8.5
15.6
10.7
8.4
13.6
6.8
17.1
13.5
9.5
15.6
9.4
20.5
15.2
11.4
18.9
7.0
21.1
19.1
10.5
19.8
8.3
20.9
16.5
Rubber'products _
Leather and leather products
Stone, clay, and glass products
Primary nonferrous metal industries
Primary iron and steel industries
5.9
3.9
13.9
11.1
11.1
10.6
6.5
18.8
17.3
15.5
6.6
4.2
14.1
13.5
12.7
7.8
4.9
18.9
15.9
15.1
11.4
7.4
20.5
17.1
15.7
14.7
8.7
20.5
21.1
17.8
13.0
6.9
19.7
18.2
16.5
Fabricated metal products
Machinery (except electrical and transportation)
Electrical machinery
Transportation equipment (except motor
vehicles)
Motor vehicles and parts
8.7
12.4
9.7
11.4
13.0
14.4
14.5
10.6
9.3
13.3
14.3
10.7
11.3
12.6
11.7
13.6
14.0
15.6
18.6
15.0
15.1
6.3
13.5
8.9
17.5
6.2
15.3
8.6
17.8
9.3
18.0
10.8
18.3
7.9
14.0
11.6
15.9
12.6
14.3
16.8
18.7
16.0
6.2
10.4
5.5
7.7
12.5
13.7
13.8
All private manufacturing corporations.
Food
Tobacco manufacturers _ _
Textile mill products
Apparel and finished textiles
Lumber and wood products
Instruments; photographic and optical goods;
watches and clocks . _
Miscellaneous manufacturing (including
ordnance)
After Federal taxes
5.8
7.1
6.2
7.4
7.6
6.9
6.1
Food.
Tobacco manufactures
Textile mill products - . .
Apparel and finished textiles
Lumber and wood products
3.3
5.1
4.1
2.1
5.9
3.4
4.9
5.8
2.8
9.4
2.8
4.6
5.4
1.9
7.1
3.4
5.0
5.2
1.6
9.7
4.3
5.4
6.5
3.9
11.1
3.0
4.4
6.1
3.1
9.2
2.6
4.3
5.7
2.8
9.1
Furniture and fixtures
Paper and allied products..
..
Printing and publishing (except newspapers).
Chemicals and allied products
Products of petroleum and coal
3.3
6.5
4.5
8.2
9.4
5.1
8.8
4.5
10.3
10.7
3.2
7.5
5.4
9.6
8.2
5.4
8.4
3.8
10.6
10.7
5.3
9.0
5.6
11.7
10.5
6.0
9.7
3.5
9.2
13.0
4.9
8.3
3.9
8.8
10.2
Rubber products
_
Leather and leather products
Stone, clay, and glass products
Primary nonferrous metal industries
Primary iron and steel industries
3.8
2.2
8.6
6.9
6.5
5.8
3.7
10.1
10.2
7.9
4.2
2.5
8.6
8.5
7.5
5.0
2.7
11.7
10.5
9.0
6.6
4.3
11.6
10.2
8.2
6.6
4.7
8.3
11.1
6.9
5.7
3.3
8.5
9.0
6.4
5.1
6.8
5.9
7.1
7.3
6.7
6.7
All private manufacturing corporations-
. -
Fabricated metal products
Machinery (except electrical and transportation)
Electrical machinery
_
. _.
Transportation equipment (except motor
vehicles)
Motor vehicles and parts
_ _ . ..
Instruments; photographic and optical goods;
watches and clocks
Miscellaneous manufacturing (including
ordnance)
.
. „, ,^
6.4
5.7
7.3
7.2
6.4
6.7
7.7
7.0
7.6
7.5
7.3
7.5
6.6
5.9
3.9
7.9
4.7
8.3
3.7
8.9
5.1
10.5
4.S
8.8
5.0
5.3
3.7
5.2
7.0
8.6
7.7
8.9
9.4
8.4
6.9
3.6
5.6
2.9
4.5
7.0
7.0
6.6
Sources: Federal Trade Commission and Securities and Exchange Commission.
26l
TABLE B-38.—Relation of profits before and after taxes to stockholders' equity and to sales,
all private manufacturing corporations, by size class, 1949-51
1950
1949
total
Assets elass
(thousands of dollars)
First
quarter
Total
Second
quarter
Third
quarter
Fourth
quarter
1951,
first
quarter
Ratio of profits before Federal taxes (annual rate) to stockholders' equity
All sizes
1 to 249
250 to 999
1.000 to 4,999
5,000 to 99,999
109,000 and over
._
18.6
9.8
14.1
15.4
17.7
26.8
27.9
17.1
23.5
25.2
27.7
29.5
19.6
8.8
13.2
17.2
18.4
21.6
24.8
15.2
21.2
21.6
23.6
27.2
31.2
26.4
30.4
28.8
31.2
32.0
35.6
16.8
28.4
32.8
36.8
36.8
32.8
23.6
28.8
33.2
34.4
32.0
Profits before Federal taxes in cents per dollar of sales
All sizes
1 to 249
250 to 999
1 000 to 4,999
6,009 t o 99,999 .
100,000 and over
.
_
.
9.3
2.6
5.2
6.5
9.0
11.8
12.8
4.3
7.9
9.5
12.5
15.5
10.1
2.5
5.1
7.3
9.5
12.8
11.8
4.2
7.4
8.5
11.3
14.4
13.5
6.2
9.8
10.3
13.3
16.0
14.9
3.8
8.7
11.0
14.9
18.2
13.5
5.4
8.8
10.9
13.8
15.4
Ratio of profits after Federal taxes (annual rate) to stockholders' equity
All sizes .
1 to 249
250 to 999.
1,000 to 4,999
5,000 to 99,999
100,000 and over .
11.6
4.9
7.8
8.9
10.9
13.5
15.4
10.5
13.2
14.0
15.2
16.4
12.0
4.0
7.2
10.0
11.2
13.6
15.6
9.6
12.8
13.2
14.8
17.2
17.6
19.2
18.8
16.4
17.2
17.6
16.4
8.0
14.0
16.0
17.6
16.4
14.8
14.4
14.8
15.6
15.2
14.4
Profits after Federal taxes in cents per dollar of sales
All sizes
1 to 249
250 to 999
1,000 to 4,999 . .
5,000 to 99,999
106,000 ana over
_
5.8
1.3
2.9
3.8
5.5
7.6
7.1
2.6
4.4
5.2
fl.9
8.6
6.2
1.1
2.7
4.2
5.8
8.1
7.4
2.7
4.4
5.2
7.0
9.2
7.6
4.5
6.0
5.9
7.4
8.9
Sources: Federal Trade Commission and Securities and Exchange Commission.
262
6.9
1.9
4.3
5.4
7.1
8.2
6.1
3.3
4.5
5.2
6.0
7.0
TABLE B-39.—Sources and uses of corporate funds, 1947-51l
[Billions of dollars]
19 50
Source or use of funds
Uses:
Plant and equipment outlays
Inventories (change in book value) _ .
Change in customer receivables
Cash and U. 8. Government securities
Other current assets
Total uses
Sources:
Internal:
Retained profits and depletion allowances.
Depreciation allowances
Total internal sources
External:
Change in trade debt
Change in Federal income tax liability. -Other current liabilities
Change in bank loans
Change hi mortgages
Net new issues
1951,
first
Second half 2 3
half*
1947
1948
1949
1950
15.0
17.4
4.2
4.2
1.9
16.1
-4.3
-.6
3.0
—.2
17.2
7.6
10.0
5.0
.5
7.3
1.5
2.7
2.0
2
9.9
6.1
7.3
3.0
.3
10.5
6.5
3.0
1.0
7.1
7.6
1.0
—.1
(4)
First
half »
30.6
27.7
14.0
40.3
13.7
26.6
21.0
11.6
6.2
12.8
6.2
9.1
7.0
13.0
7.5
5.2
3.8
7.8
3.7
6.5
4.4
16.8
19.0
16.1
20.5
9.0
11.5
10.9
1.1
.5
-2.2
-2.0
—.1
—1.9
.7
5.3
5.9
7.2
1.0
2.5
.8
3.7
.6
2.0
.4
-.4
.3
2.3
5.3
5.2
.6
2.9
.5
1.4
2.4
1.6
.5
2.0
1.0
2.7
4.4
2.3
1.0
2.6
.6
4.4
(4)
1.1
.8
5.9
Total external sources
15.3
9.4
-.2
21.1
5.2
15.9
10.2
Total sources
32.3
28.4
15.9
41.6
14.2
27.4
21.1
1.7
.7
1.9
1.3
.5
.8
.1
Discrepancy (sources less uses)
i Excludes banks and insurance companies.
3 Not adjusted for seasonal variation.
34 Preliminary estimates based on incomplete data; by Council of Economic Advisers.
Less than 50 million dollars.
NOTE.—Detail will not necessarily add to totals because of rounding.
Sources: Department of Commerce estimates based on Securities and Exchange Commission and other
financial data (except as noted).
263
TABLE B-40.—International transactions of the United States, 1948-51
[Millions of dollars]
1951
1950
Type of transaction
Exports of goods and services:
Recorded goods
Other goods l
1948
total
1949
total
Second Third Fourth
First Second
First
Total quarter
quarter quarter quarter quarter1 quarter 1
12, 653 12,051 10,273
693
286
385
2,366
73
2,510
105
2,451
47
2,947
159
3,329
79
4,100
130
Total goods
13, 346 12,337 10,658
Services
_ _ _ _ _ _ _ 2,246 2,232 2,024
Income on in vestments _-- 1,375 1,405 1,743
2,439
455
363
2,615
526
385
2,498
519
477
3,106
524
518
3,408
590
443
4,230
665
455
3,257
3,526
3,494
4,148
4,441
5,350
Total exports
16,967 15,974 14, 425
Imports of goods and services:
Recorded goods
Other goods *
7,124
698
6,622
444
8,852
463
1,889
71
1,931
76
2,390
143
2,642
173
3,029
170
2,950
150
Total goods
Services
_ _ _
Income on in vestments. __
7,822
2,162
284
7,066
2,184
353
9,315
2,376
437
1,960
494
76
2,007
577
125
2,533
751
90
2,815
554
146
3,199
589
83
3,100
705
95
9,603 12,128
2,530
2,709
3,374
3,515
3,871
3,900
Total imports
Surplus of exports of goods
and services:
Recorded goods
Other goods * _ _
10,268
5,529
-5
5,429
-158
1,421
-78
477
2
579
29
61
-96
305
-14
300
-91
1,150
-20
Total goods
5,524
Services
84
Income on investments. _ _ 1,091
5,271
48
1,052
1,343
-352
1,306
479
-39
287
608
-51
260
-35
-232
387
291
-30
372
209
1
360
1,130
-40
360
6,371
2,297
727
817
120
633
570
1,450
Total surplus of exports _
Means of financing surplus of
exports of goods and services: *
Liquidation of gold and
dollar assets by foreign
countries
, _ __„_
Dollar disbursements by:
International Monetary Fund
International Bank.__
United States Government sources: *
Unilateral transfers.. _
Long- and short-term
loans
United States private
sources:
"Remittancfis
Long- and short-term
capital 5
6,699
780
-60 -3, 645
-459
203
176
99
38
-20
37
-12
17
4,157
5,321
4,120
886
647
164
678
522
481
856
589
Total means of financing
7,736
Errors and omissions
-1, 037
7,156
-785
1,316
2,453
-156
-679
-1, 544
-745
-963
-55
11
—8
2
7
-10
16
1,023
1,122
865
1,110
1,040
1,220
82
39
37
6
57
50
123
124
107
127
110
100
42
182
836
256
186
190,
816
-89
799
18
295
-175
543
90
654
-84
1,505
-55
» Estimates ba«ed on incomplete data; second quarter by Council of Economic Advisers.
J
Includes goods sold to or bought from other countries that have not been shipped from or into the
United
States customs area, and other adjustments.
3
All
figures for means of financing are on a net basis.
4
For detail, see appendix table B-41.
& Excludes purchases or sales of obligations issued by the International Bank for Reconstruction and
Development.
Source: Department of Commerce (except as noted).
264
TABLE B-41.—United States Government grants, other unilateral transfers, and loans to foreign
countries, 1948-51
[Millions of dollars]
1951
1950
Type of aid
1948
1949
First Second Third Fourth First Second
Total quar- quar- quar- quar- quar- quarter
ter
ter
ter
ter^ ter i
Unilateral payments:
Military aid programs:
Mutual defense assistance
program
516
Greek-Turkish aid. ..
349
62
171
5
Chinese aid
71
44
EGA programs:
European Recovery Program. 1,397 3,730 2,719
Other
92
96
114
Army Civilian Supply Program *. 1,468 1,082
500
7
Point Four assistance
Philippine Rehabilitation Act... 130
203
166
2
Interim aid and post-UNRRA ._
627
International Refugee Organization and other United Nations
relief organizations
84
117
104
Other
107
122
157
Total unilateral payments
Less: Unilateral receipts
(2)
5
35
2
3
66
12
()
140
g
1
305
7
2
754
45
122
1
39
829
44
138
1
27
546
9
113
4
34
590
16
127
1
66
595
27
75
1
4
(2)
23
39
23
33
24
25
14
25
14
37
(2)
(2)
322
3
(3)
(2)
(3)
(2)
(2)
0)
(2)
4 362
'205
5 585
264
4 295
175
1 065 1,173
42
51
904
39
1 153 1 078
38
43
(2)
(2)
4,157
5,321
4,120
1,023
1,122
865
1,110
1,040
1,220
300
476
454
428
163
163
193
56
50
30
58
49
41
28
44
39
83
168
30
2
2
6
3
9
26
20
12
28
22
6
6
11
2
21
5
2
1
3
1
3
1
3
2
8
Total long-term loans and
investments ..
_. 1,416
443
Less: Repayments
679
205
414
287
127
51
116
97
95
59
76
80
127
60
((2)5)
973
474
127
76
19
36
—4
67
-87
173
37
6
20
1
10
-10
5,968 4,284
1,105
1,161
902
1,116
1,097
Equals: Net unilateral payments .
Long-term loans and investments:
United Kingdom loan.
_.
EGA programs
Export-Import Bank loans
_.
Surplus property credits, including ship sales
Raw-materiaFcredits to occupied
areas
United Nations building loan
Other
Equals: Net long-term loans
and in vestments
.
Outflow of short-term capital (net)
Total net unilateral payments,
loans and investments
5,043
(2)
(2)
(2)
50
1,270
i Estimates based on incomplete data: second quarter by Council of Economic Advisers.
» Not available.
* Less than 500 thousand dollars.
< Includes disbursements by EGA from funds appropriated under the Army Civilian Supply Program,
Source: Department of Commerce (except as noted).
265
TABLE B-42.—United States merchandise export surplus, by area, 1936-38 quarterly average
and 1947-51
Period
Total
Other
merchandise Canada 1 Western
Hemiexport
sphere
surplus
ERP
countries*
Other
Europe
Asia 2
Australia
and
Oceania
Africa
Millions of dollars
Quarterly average:
1936-38
1947
1948
1949
1950S
119
2,396
1,382
1,357
355
27
246
88
102
14
-7
449
215
114
-73
130
1,150
802
808
405
2
73
1
6
-13
-61
312
183
238
-39
13
41
-3
18
-16
15
123
98
71
-33
1949— First quarter
Second quarter
Third quarter
Fourth quarter
1,549
1,775
1,218
888
94
188
125
2
175
160
109
12
910
1,000
668
656
8
13
2
1
283
291
218
160
20
11
25
13
60
112
70
41
1950— First quarter
Second quarter
Third quarter »
Fourth quarter «
477
579
61
305
rj
51
2
9
-87
23
-209
-21
537
520
265
301
-12
-10
-12
-17
97
17
-83
-189
-12
-14
-17
-22
-38
-7
-57
-28
1951 — First quarter 8
Second quarter *
300
1,150
-219
(•)
301
(6)
-1
(6)
-121
(8)
-38
(fi)
-47
(8)
(8)
93
Percentage of total
Quarterly average:
1936-38
1947
1948
1949
. .
I960'
100
100
100
100
100
22.7
10.3
6.4
7.5
3.9
-5.9
18.7
15.6
8.4
-20.6
109.2
48.0
58.0
59.5
114.1
1.7
3.0
.1
.4
-3.7
-51.3
13.0
13.2
17.5
-11.0
10.9
1.7
-.2
1.3
-4.5
12.6
5.1
7.1
5.2
-9.3
1949—First quarter
Second quarter
Third quarter
Fourth quarter
100
100
100
100
6.1
10.6
10.3
•2
11.3
9.0
8.9
1.4
58.7
56.3
54.8
73.9
.5
.7
.2
.1
18.3
16.4
17.9
18.0
1.3
.6
2.1
1.5
3.9
6.3
5.7
4.6
1950— First quarter
Second quarter
Third quarter 3
Fourth quarter 3
100
100
100
100
-1.5
8.8
3.3
3.0
-18.2
4.0
-342. 6
-6.9
112.6
89.8
434.4
98.7
20.3
-2.5
-1.7
2.9
-19.7 -136. 1
-5.6 -62.0
-2.5
-2.4
-27.9
-7.2
-8.0
-1.2
-93.4
-9.2
1951 — First quarter 3
100
31.0
-73.0
100.3
-40.3
-12.7
-15.7
-.3
12 Includes Newfoundland and Labrador.
Turkey is included with ERP countries and excluded from Asia. Exports to and imports from Germany are included with those of ERP countries, and, in the postwar period, relate almost wholly to trade
with the three western zones.
3 Data by area exclude, while total exports include, "special category" exports. For this reason, the export
or import surplus by area will not add to the total export surplus in these periods. For the amount of
"special category" exports, see table B-43, footnote 3.
* Estimates based on incomplete data; by Council of Economic Advisers.
«Not available.
NOTE.—Detail will not necessarily add to totals because of rounding. See also footnote 3.
Source: Department of Commerce (except as noted).
266
TABLE B-43.—United States merchandise exports, including reexports, by area, 1936—38 quarterly
average and 1947-51
Total
l
exDorts
including Canada
reexports
Period
Other
Australia
ERP
Western
Other
and
Africa
Hemi- countries2 Europe Asia 2 Oceania
sphere
Millions of dollars
Quarterly average:
1936-38
1947
1948. _
1949
1950S
742
3,835
3, 164
3,013
2,568
115
528
486
490
504
136
1,017
841
725
703
282
1,324
1,046
1,019
720
31
118
49
41
34.
122
561
507
534
370
23
80
38
49
36
32
205
196
155
90
3,338
3,376
2,695
2,643
472
571
473
444
837
740
671
653
1,160
1,190
843
884
42
46
35
39
611
593
483
448
54
50
47
44
163
186
142
130
1950— First quarter
Second quarter
Third quarter 3 8
Fourth quarter
2.366
2,510
2,451
2,947
397
530
505
583
640
668
706
797
777
763
587
756
33
35
37
33
399
381
334
365
37
38
30
38
84
96
79
103
1951— First quarter 3
Second quarter *
3,329
4,100
622
(5)
863
(5)
815
(s)
62
(5)
471
(s)
44
120
(5)
1949— First quarter
Second quarter
Third quarter
Fourth quarter
_
_.
(fi)
Percentage of total
Quarterly average:
1936-38
1947
1948
1949 5
1950
100
100
100
100
100
15.5
13.8
15.4
16.3
19.6
18.3
26.5
26.6
24.1
27.4
38.0
34.5
33.1
33.8
28.0
4.2
3.1
1.5
1.4
1.3
16.4
14.6
16.0
17.7
14.4
3.1
2.1
1.2
1.6
1.4
4.3
5.3
6.2
5.1
3.5
1949— First quarter
Second quarter
Third quarter
Fourth quarter
100
100
100
100
14.1
16.9
17.6
16.8
25.1
21.9
24.9
24.7
34.8
35.2
31.3
33.4
1.3
1.4
1.3
1.5
18.3
17.6
17.9
17.0
1.6
1.5
1.7
1.7
4.9
5.5
5.3
4.9
1950— First quarter
Second quarter
Third quarter 3
Fourth quarter 8
100
100
100
100
16.8
21.1
20.6
19.8
27.0
26.6
28.8
27.0
32.8
30.4
23.9
25.7
1.4
1.4
1.5
1.1
16.9
15.2
13.6
12.4
1.6
1.5
1.2
1.3
3.6
3.8
3.2
3.5
1951— First quarter 3
100
18.7
25.9
24.5
1.9
14.1
1.3
3.6
-.
1
Includes Newfoundland and Labrador.
8
Turkey is included with ERP countries and excluded from Asia. Exports to Germany are included
with those of ERP countries and, in the postwar period, relate almost wholly to exports to the three western
zones.
8
Data by area exclude, while total exports include, "special category" exports. For this reason, exports by area will not add to total exports hi these periods. "Special category" exports amounted to 173
million dollars in the third quarter of 1950, 272 million in the fourth quarter, and 333 million in the first
quarter
of 1951.
4
Estimates based upon incomplete data; by Council of Economic Advisers.
5
Not available.
NOTE.—Data hi this table cover all merchandise, including reexports, shipped from the United States
customs area to foreign countries, including, in 1947 to 1951, goods destined to United States armed forces
abroad for distribution in occupied areas as civilian supplies.
Detail will not necessarily add to totals because of rounding. See also footnote 3.
Source: Department of Commerce (except as noted).
267
TABLE B—44.—Indexes of quantity and unit value of United States domestic merchandise exports,
by economic class, 1936—38 quarterly average and 1947—51
[1936-38=100]
Total
domestic
exports
Period
Crude
materials
ManufacCrude
tured
foodstuffs i foodstuffs
i
Semimanufactures
Finished
manufactures
Quantity indexes
Quarterly average:
1936-38
1947
1948
1949
1950
100
275
214
219
193
100
123
100
126
128
1,00
397
362
435
287
100
478
350
297
237
100
203
144
150
127
100
332
257
250
225
233
243
200
201
129
155
93
125
495
438
440
368
317
366
235
271
162
167
144
128
264
269
236
229
1950— First quarter
Second quarter
Third quarter
Fourth quarter
181
194
184
209
125
143
112
128
284
271
264
325
213
250
224
230
121
126
125
135
207
220
220
251
1951—First quarter 2
Second quarter
222
261
1949— First quarter
Second quarter
Third quarter
Fourth quarter
_.
(3)
112
(3)
454
(3)
247
131
(')
(3)
277
Unit value indexes
Quarterly average:
1936-38
1947
1948
1949
1950
100
188
200
186
180
100
195
223
212
220
100
248
255
225
193
100
218
223
177
151
100
169
184
174
170
100
182
193
184
179
1949— First quarter
Second quarter
Third quarter
Fourth quarter
194
188
182
179
216
212
212
208
233
233
216
214
191
175
175
163
184
179
165
164
190
186
181
177
1950— First quarter
Second quarter
Third quarter
Fourth quarter
177
175
180
191
206
212
226
245
196
190
192
196
151
142
162
169
164
166
168
184
179
175
177
187
1951— First quarter 2
Second quarter
202
210
(3)
263
(3)
203
(3)
185
(3)
203
(3)
195
i Export indexes of crude and manufactured foodstuffs, particularly those of unit value in 1950, are influenced by sales of large quantities of food products at prices considerably below market quotations.
Such exports include sales from Government-owned surplus and shipments on which subsidies were paid
by the Department of Agriculture.
* Estimates based on incomplete data; by Council of Economic Advisers. For unit value, April used
as indicative of entire quarter.
3 Not available.
NOTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of
changes in average prices has been eliminated. The indexes of unit value provide a measure of change in
the average prices at which trade transactions are reported in official foreign trade statistics, including
change in average prices that result from changes in the commodity composition of trade. The indexes
for 1947 to 1951 are based on data which include goods destined to the United States armed forces abroad
for distribution to civilians hi occupied areas.
Source: Department of Commerce (except as noted).
268
TABLE B-45.—United States general merchandise imports, by area, 1936-38 quarterly average
and 1947-51
Total
general
imports
Period
Canada i
Other
Western
Hemisphere
ERP
countries
Other
Europe
Asia a
Australia
and
Oceania
Africa
Millions of dollars
Quarterly average:
1936-38
1947
1948
_
1949 .
I960
622
1,439
1,781
1,656
2,213
88
282
398
388
490
143
568
626
611
776
152
174
244
211
315
30
45
48
35
47
183
249
324
296
409
10
39
41
31
52
17
82
98
84
123
1949— First quarter
Second quarter
Third quarter
Fourth quarter
1,789
1,601
1,478
1,755
378
383
348
442
662
580
562
641
250
190
175
228
34
33
33
38
328
302
265
288
34
39
22
31
103
74
72
89
1950—First quarter
Second quarter
Third quarter
Fourth quarter
1,889
1,931
2,390
2,642
404
479
503
574
727
645
915
818
240
243
322
455
45
45
49
50
302
364
417
554
49
52
47
60
122
103
136
131
1951—First quarter. 3
Second quarter
3,029
2,950
529
<«)
1,082
(«)
514
(4)
63
(4)
592
(<)
82
167
(4)
(<)
Percentage of total
Quarterly average:
1936-38.
1947
1948
100
100
100
100
100
14.1
19.6
22.3
23.4
22.1
23.0
39.5
35.1
36.9
35.1
24.4
12.1
13.7
12.7
14.2
4.8
3.1
2.7
2.1
2.1
29.4
17.3
18.2
17.9
18.5
1.6
2.7
2.3
1.9
2.3
2.7
5.7
5.5
5.1
5.6
100
100
100
100
21.1
23.9
23.5
25.2
37.0
36.2
38.0
36.5
14.0
11.9
11.8
13.0
1.9
2.1
2.2
2.2
18.3
18.9
17.9
16.4
1.9
2.4
1.5
1.8
5.8
4.6
4.9
5.1
I960— First quarter.
Second quarter..
Third quarter
Fourth quarter
100
100
100
100
21.4
24.8
21.0
21.7
38.5
33.4
38.3
31.0
12.7
12.6
13.5
17.2
2.4
2.3
2.1
1.9
16.0
18.9
17.4
21.0
2.6
2.7
2.0
2.3
6.5
5.3
5.7
5.0
1951— First quarter
100
17.5
35.7
17.0
2.1
19.5
2.7
5.5
1949
1950
1949—First quarter
Second quarter..
Third quarter
Fourth quarter
._ _
_.
*Includes Newfoundland and Labrador.
»Turkey is included with ERP countries and excluded from Asia. Imports from Germany are included
with those of ERP countries and, in the postwar period, relate almost wholly to imports from the three
western zones.
3 Estimates based on incomplete data; by Council of Economic Advisers.
* Not available.
NOTE.—Data in this table cover all merchandise received in the United States customs area from foreign
countries. General imports include merchandise entered immediately upon arrival into merchandising
channels, plus entries into bonded customs warehouses.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
269
TABI*E B-46.—United States merchandise imports for consumption, by economic class, 1936-38
quarterly average and 1947—51
Total
imports
for consumption
Period
Crude
materials
Crude
foodstuffs
Manufac- Semimanu- Finished
tured
manufacfactures
foodstuffs
tures
Millions of dollars
Quarterly average:
1936-38
1947
1948
1949
1950
615
1,416
1,773
1,648
2,186
190
441
537
463
617
85
254
318
333
437
95
164
183
185
224
126
311
408
355
531
120
246
327
311
376
1949— First quarter
Second quarter
Third quarter
Fourth quarter
1,757
1,590
1,501
1,744
503
449
424
478
340
302
287
403
182
198
194
167
396
336
306
381
336
305
290
315
1950— First quarter
Second quarter
Third quarter .._
Fourth quarter - . _
1,873
1,908
2,349
2,614
536
516
635
781
423
347
516
463
185
213
275
224
417
481
544
683
312
352
378
462
1951—-First quarter
Second quarter *
2,957
2,850
(2)
925
(3)
642
(2)
256
(2)
664
(2)
470
Percentage of total
Quarterly average:
1936-38
1947. .
1948
1949
1950
100
100
100
100
100
30.9
31.1
30.3
28.1
28.2
13.8
17.9
17.9
20.2
20.0
15.4
11.6
10.3
11.2
10.2
20.5
22.0
23.0
21.5
24.3
19.5
17.4
18.4
18.9
17.2
1949— First quarter
Second quarter
Third quarter _._
Fourth quarter
100
100
100
100
28.6
28.2
28.2
27.4
19.4
19.0
19.1
23.1
10.4
12.5
12.9
9.6
22.5
21.1
20.4
21.8
19.1
19.2
19.3
18.1
100
100
100
100
28.6
27.0
27.0
29.9
22.6
18.2
22.0
17.7
9.9
ll.fi
11.7
8.6
22.3
25.2
23.2
26.1
16.7
18.4
16.1
17.7
100
31.3
21.7
8.7
22.5
15.9
1950— First quarter
Second quarter . Third quarter
Fourth quarter
1951 — First quarter
_
* Estimates based on incomplete data; by Council of Economic Advisers.
2 Not available.
NOTE.—Imports for consumption include merchandise entered immediately upon arrival into merchandising or consumption channels, plus withdrawals from bonded customs warehouses for consumption.
Detail will not necessarily add to totals because of rounding.
Source: Department of Commerce (except as noted).
270
TABLE B-47.—Indexes of quantity and unit value of United States merchandise imports for
consumption, bv economic class, 1936—38 quarterly average and 1947—51
[1936-38=1001
Total
imports for
Crude
consump- materials
tion
Period
Crude
foodstuffs
Manufactured foodstuffs
Semimanufactures
Finished
manufactures
Quantity indexes
Quarterly average:
1936-38
1947
1948 . . _
1949_.._
1950
100
108
123
120
146
100
129
139
125
152
100
96
109
119
113
100
83
91
97
117
100
130
149
143
219
100
84
103
101
125
1949— First quarter
Second quarter .
Third quarter
Fourth quarter
121
116
111
131
129
118
116
136
121
116
104
135
93
105
100
88
140
129
130
169
105
98
94
106
1950— First quarter
Second quarter. .. ..
Third quarter
Fourth quarter
137
136
154
158
152
140
156
161
121
94
125
111
98
113
143
113
189
213
220
247
107
119
125
147
1951— First quarter
Second quarter * .
163
158
_ .
(2)
161
(2)
149
(2)
126
(2)
225
(2)
141
Unit value indexes
Quarterly average:
1936-38
1947
1948
1949
1950 . .
...
100
213
235
224
243
100
180
203
195
214
100
311
343
330
454
100
208
212
202
203
100
191
217
198
193
100
245
266
258
252
_
235
224
220
217
206
200
193
185
330
306
324
352
205
199
205
201
225
208
187
180
267
261
258
249
1950— First quarter
Second quarter
Third quarter
Fourth quarter
223
229
248
270
185
194
215
255
410
433
485
491
199
199
203
210
176
179
197
220
245
248
253
262
1951— First quarter
Second quarter *
295
308
1949— First quarter
Second quarter.
Third quarter
Fourth quarter
(2)
302
(2)
508
(2)
214
(2)
234
(2)
278
i Estimates based on incomplete data; by Council of Economic Advisers. For unit value, April used as
in dicative of entire quarter,
a Not available.
NoTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of changes
in average prices has been eliminated. The indexes of unit value provide a measure of change in the average
prices at which trade transactions arc reported in official foreign trade statistics, including changes in average
prices that result from changes in the commodity composition of trade.
Source: Department of Commerce (except as noted).
271
TABLE B—48.—Changes in selected economic series since 1939 and 1950
1939=100
Source:
Appendix
Table
No.
1950
Economic series
Total
B-l.... Gross national product
.
Personal consumption expenditures
Gross private domestic investment .
Government purchases of goods
and services . .
B-3.._. Gross national product in first half of
1951 prices
_
Personal consumption expenditures
Gross private domestic investment Government purchases of goods
and services...
_ .
First
half
Second
half
Percentage increase *
1951,
first
half*
1950, first 1950, sechalf, to ond half,
1951, first to 1951,
half
first half 2
310
295
324
355
20.1
9.5
287
494
277
444
297
543
305
624
10.1
40.5
2.6
14.9
324
311
338
437
40.5
29.1
168
164
172
181
10.3
5.5
160
241
158
228
163
257
160
283
1.2
24.6
-1.9
10.4
160
158
161
202
28.3
25.2
330
321
310
304
349
337
377
365
21.6
20.1
8.1
8.3
B-7- — Personal income
Disposal personable income _
Personal net saving
310
291
396
298
281
396
321
301
396
340
314
541
14.0
11.6
36.4
6.1
4.3
36.4
B-10... Per capita disposable personal income:
Current prices
First half of 1951 prices
251
141
244
140
259
142
268
141
9.7
.8
3
B-6
National income
Compensation of employees
B-11-- Labor force, including armed forces
Civilian labor force
Employment
_ _
Agricultural
Nonagri cultural. . . .
Unemployment
B-15... Average gross weekly earnings:
Manufacturing
Durable goods
Nondurable goods
Building construction
._
B-16... Physical production index of goods
Agricultural
Nonagricultural. _
3.4
-1.0
3
116
114
131
78
145
33
115
113
128
75
142
41
118
115
134
81
148
25
()
113
132
70
148
22
2.8
-6.8
4.1
-46.7
249
239
251
243
239
229
243
231
257
248
259
252
270
261
268
259
12.9
13.9
10.1
12.0
178
130
189
(3)
(3)
180
(33)
()
198
(33)
()
209
0,2
8'5.5
(3)
-.a
(3)
N
()
-2.4
-1.9
-13.3
-.2
-14.3
5.1
5.4
3.6
2.8
B-17... Industrial production
Durable manufactures
Nondurable manufactures
Minerals
B-19... New construction
Private
Residential (nonfarm)
Nonresidential
Other private
Public
...
183
217
172
140
173
202
166
130
194
233
177
149
204
251
183
154
17.5
24.5
9.9
18.1
5.2
7.9
3.1
3.2
340
474
470
481
478
187
324
446
440
428
478
183
357
501
500
533
478
191
375
497
440
665
517
235
15.9
11.3
.0
55.3
8.0
28.6
5.1
-.9
-12.0
24. 8
8. 2
23.4
B-20... Business expenditures for new plant
and equipment
Manufacturing
357
426
309
351
405
502
446
591
44.3
68.4
10.0
17.8
305
297
339
303
357
384
333
334
269
262
299
266
331
350
305
320
305
297
339
303
383
418
360
347
347
339
378
346
407
452
382
358
28.9
29.3
26.3
29.9
23.1
29.0
25.2
12.2
13.6
14.0
11.5
14.1
6.4
8.1
6.2
3.4
173
215
187
126
188
170
208
184
125
183
176
222
190
127
193
185
237
201
129
208
9.0
14.0
9.4
3.4
13.7
5.1
7.0
6.1
1.9
7.7
B-21__. Inventories, end of period
Manufacturing..
Wholesale trade
Retail trade
Sales
Manufacturing
Wholesale traote .
Retail trade
B-24.,. Consumers* price index: All items
Food
Apparel
Rent
Housefurnishings.
See foettnotes at end of table.
272
TABLE B-48.—Changes in selected economic series since 1939 and 1950—Continued
1939=100
Source:
Appendix
Table
No.
1950
Economic series
B-25... Wholesale price index: All commodities
.
.
.
Farm products
Foods.
Other than farm products and
foods .
B-26... Prices received by farmers
Prices paid by farmers (including interest, taxes, and wage rates)
Percentage increase *
Total
First
half
Second
half
209
261
236
199
246
224
219
276
249
1951,
first 3
half
237
307
264
1950, first 1950, second half,
half, to
1951, 8first to 1951,
first half «
half
18.7
24.7
18.2
7.9
10.9
6.3
188
181
196
211
16.8
7.4
269
254
286
322
27.0
12.5
12.0
7.7
209
205
213
230
B-28... Consumer credit outstanding, end of
period _.
Instalment credit . .
286
304
251
274
286
304
273
292
8.8
6.6
-4.5
-4.2
B-29... Loans and investments of all commercial banks , end of period
Loans
Investments in U. S. Government
obligations
311
303
299
260
311
303
311
320
3.9
22.8
-.1
5.4
-10.3
-4.8
380
404
380
362
B-34... Corporate profits:
Profits before tax..
Profits after tax
Dividend payments
Undistributed profits
637
456
242
1133
534
380
213
917
738
530
268
1350
772
452
242
1125
44.7
18.9
13.6
22.7
4.6
-14.7
-9.8
-16.7
B-43... Merchandise exports, including reexports
. _.
*346
*329
<364
4501
52.3
37.6
B-45... General merchandise imports
*356
*307
4405
4481
56.5
18.8
i Changes are computed from data as reported and therefore may differ slightly from changes computed
from the indexes shown here.
> Estimates based on incomplete data.
»Not available.
41936-38 average=100.
273
Appendix C
Lists of Text Tables and Charts in the
Midyear Economic Report of the President
and the Economic Situation
at Midyear 1951
CONTENTS
G-l. List of text tables
C-2. List of charts
277
278
275
C-l.
List of Text Tables
Table
No.
page
1. Changes in the major components of the gross national product, 1940 to 1944.
64
2. National security program: deliveries of military goods and other expenditures
69
3. United States consumption and production of selected commodities as percentages of free world production
74
4. Changes in the distribution of family income, before taxes, 1941 to 1944....
90
5. Distribution of income in the postwar period
92
6. Distribution of families by income level, before and after Federal income tax,
1950
96
7. Summary of tax amortization necessity certificates, and direct loans and loan
guarantees under Defense Production Act, by type of production, through
June 1951
102
8. Importance of small business in selected defense-related industries
107
9. Regional impact of the defense program, compared to regional economic
activities in 1947
109
10. Actual and proposed increases in individual income and excise taxes, by
income groups, estimated for fiscal year 1952
132
11. Range of wholesale price increases in foreign countries since June 1950
160
12. Output of selected industries, May 1951 compared with 1950-51 peak
168
13. Changes in wholesale prices
171
14. Changes in consumers' prices
177
15. Liquid saving by individuals
191
16. United States exports and imports of goods and services
199
17. Index of average prices in United States foreign trade
201
18. Foreign merchandise trade of Western Europe with rest of world
202
19. Federal budget receipts and expenditures, the General Fund balance, and the
public debt
203
20. Federal cash payments to the public, by function
205
21. Federal cash receipts from the public, by source
206
22. Government cash receipts from and payments to the public
207
23. The Nation's Economic Budget, calendar years 1950-51
208
277
C—2.
List of Charts
Chart
No.
1. Gross national product and national security programs
2. Military expenditures as percent of gross national product
3. Per capita gross national product and military expenditures
4. Economic indicators
5. Production, spending, and prices since mid-1950
6. The expanding security program
7. Growth in production, 1940-44
8. Expansion of the labor force, 1940-44
9. Increases in labor input and output, 1940-44
10. Changes in labor input and output
11. Changes in production
12. Changes in the labor force
13. Gross national product
14. Changes in composition of gross national product since 1940, 1st half of 1951
prices
15. Federal budget expenditures
16. Military requirements for basic metals, percent of expected supply
17. Gross private domestic investment, 1st half of 1951 prices
18. Expansion in industrial capacity, 1939 to end of 1951
19. Changes in personal consumption expenditures, 1st half of 1951 prices
20. Per capita consumption expenditures, 1st half of 1951 prices
21. Production of selected consumer durable goods
22. Consumer income and demand, and price increases
23. Private investment and its
financing
24. Federal budget receipts, expenditures, and the public debt
25. Civilian labor force
26. Changes in nonagricultural employment
27. Industrial production
28. Wholesale prices
29. Wholesale prices of industrial products
30. Consumers' prices
31. Wages and hours, all manufacturing industries
32. Corporate profits
33. Bank loans and investments
34. Consumer credit
35. Personal income
36. Business investment
37. Sources and uses of corporate funds
38. Exports and imports of goods and services
39. Prices of imports
40. Federal cash receipts from and payments to the public
278
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165
167
172
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198
200
204
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