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, FEDERAL RESERVE BANK OF CLEVELAND ANNUAL REPORT/ECONOMIC REVIEW Contents Income Growth in the Fourth and Industrial Change 3 District Financial Statement 22-23 Directors and Officers 24-27 The Economic Review is published quarterly by the Research Department of the Federal Reserve Bank of Cleveland, Post Office Box 6387, Cleveland, Ohio 44101Free subscriptions and additional copies in reasonable quantities are available upon request. Material in the Economic Review may be reprinted provided the source is credited. Please provide the bank's Research Department with copies of reprinted materials. To Member Banks in the Fourth Federal Reserve District: We are pleased to present the 1978 Annual Report of the Federal Reserve Bank of Cleveland. This year's report traces the income growth and industrial change of the district since 1949. As part of the industrialized Midwest, the Fourth District is largely viewed as a manufacturing economy. National concerns such as rising inflation, oil and energy shortages, threats of recession, and controversies over wage and price controls, combine with local concerns over plant and mill closings and removals of national headquarters to present a picture of uncertainty about the direction of the regional economy. All of these areas indicate that an in-depth study of factors behind the apparent decline of the older industrialized areas is both appropriate and necessary. Remarks about outdated industrial equipment and changing consumer preferences do not provide an adequate explanation of the economy in transition; we must begin to look beyond the facile answers to the nature and causes of this economic change. The study describes some aspects of the economic change in the Fourth District since World War II. Of particular concern is the nature of the employment growth change that has occurred in the past thirty years. Each indus- try is examined further to determine the underlying factors that contribute to its performance and relate it to the overall growth of the district. The results of this study show that although the Fourth District has clearly experienced slow growth, even, in some industries, negative growth, the economic environment total collapse. Strengths have also emerged-for example, chemicals and petroleum. of the region is far from Further analysis is necessary, but the study is a first attempt to seek answers to the hard questions concerning regional economic growth. As such, it gives rise to a more balanced view of the Fourth District economy; where it has been and where it is going. We take this opportunity to thank the member banks, the directors and officers, and the bank personnel for their support which allowed us to meet our commitments for 1978. We look forward to your continued assistance and cooperation in meeting the responsibilities of the bank in the future. IN_'(~ Chairman of the Board Economic ReviewlAnnual Report 1978 y/£ .!Z- ~d;' :/ £i a-h-.President ERRATA page 10 The numbers 11 through 99 under Manufacturing, Durable Goods should read 1 through page 13 page 21 9. In the heading Structural and Competitive Effects Combined: Selected Ohio Industrued, substitute "I ndustries" for the final word. In the notation below the table, e = concentration of private nonagricultural employment in Ohio ... should read e* = concentration of private nonagricultural employment in Ohio ... 2 Federal Reserve Bank of Cleveland INCOME GROWTH AND INDUSTRIAL CHANGE IN THE FOURTH DISTRICT Roger H. Hinderliter Robert H. Schnorbus The Fourth District economy is primarily a manufacturing community-a part of the industrial heartland of the United States stretching from the east coast through the Midwest. The region's present economic role as a center of heavy manufacturing evolved over many years. Past industrial expansion created large interrelated complexes in steel, fabricated metals, mach inerv, and other industries, and placed the District among the highest income employers in the producers and largest nation. However, in the older industrialized regions of the country, including the Fourth District, the economic transition since World War II must be sketched in terms of relatively slower income growth and a relative loss of industry and employment. The resulting loss of income and jobs from recent mill closings in Youngstown, plant closings in Akron, and transfers of headquarters from Cleveland are symptomatic of the trend of post-war economic events in the Fourth District. Many factors underlie the post-war patterns of income growth and industrial change. Slower growth in the industrialized regions has been attributed to such influences as higher wages, greater unionization of the labor force, more stringent government regulation and taxation, loss of entrepreneurial skills, unfavorable weather, and environmental and social Economic Review/Annual Report 1978 decav.l Although the determinants of regional economic activity remain controversial, it is clear that income growth is related to industrial change. Long-run shifts of resources among industries, which alter the industrial composition of regions, are a primary channel through which income growth patterns are shaped. These shifts take place in a historical context. Regions have not developed at equal rates in the past, and regions that are now growing slowly were growing more rapidly 50 or 100 years ago. Long-run tendencies, however, must be expected to narrow discrepancies that have emerged among regions. In terms of income growth patterns, narrower discrepancies result as regional per capita incomes converge to a norm or average set by the national economv.F 1A discussion of possible determinants of regional economic growth and alternative models for measuring their effects is contained in Harry W. Richardson's, "Empirical Aspects of Regional Growth in the United States," The Annals of Regional Science (June 1974). 2Convergence over the longer term is a widely accepted hypothesis of regional economic behavior. A good discussion of long-term convergent income growth that highlights the issues involved may be found in Harry W. Richardson's Regional Economics (New York: Prager Publishers, 1969), pp. 347-357. The search for convergent growth has been a major theme in many past studies of regional economies. Two important studies that link income growth and industrial change are: Harvey S. Perl off et al., Regions, Resources and Economic Growth (Baltimore: The Johns Hopkins Press, 1960); and George H. Borts and Jerome l. Stein, Economic Growth in a Free Market (New York: Columbia University Press, 1964). This report describes the nature income growth and industrial change of in the Fourth District during the post-World War II period. In the next section, income growth patterns are examined for the District states. Personal and per capita income growth in Kentucky, Ohio, Pennsylvania, and West Virginia is compared to national patterns. Per capita income in Kentucky and West Virginia, which were slower to industrialize and move away from agricultural and mineral resource dependence, increased relative to the national average, while per capita income in Ohio and Pennsylvania fell. Following this, the relationship between income growth and industrial change is outlined. Then, industrial change, as measured by employment growth rates, is examined for 31 Ohio industries (or industry groups) which were selected as a case study. General trends of industrial change consistent with Ohio's relatively slow income growth are apparent, but some industries perform counter to the trends. To understand the diversity of industrial change more clearly, growth rates of the selected Ohio industries are broken down to indicate the forces affecting long-run industry performance and to identify strengths among industries. and weaknesses 3 Post-War Income Growth in Fourth District States In early development, periods the of availability economic of natural resources heavily influenced the location of economic activity in District states. Such natural advantages as water transportation networks stretching from the Great Lakes and the Ohio River Valley, abundant farm lands, and mineral deposits were important to the formation of early industries. Often, the locating industry was technologically tied to the resource, as with mines and farms, and costs were frequently minimized by locating the industry in the resource area, as with sawmills and iron works. As District states grew, their locational advantages offered favorable profit opportunities that attracted capital from the East and abroad to invest in the transport, processing, and service facilities needed to develop local resources. The exploitation of these resources laid the groundwork for the later formation of heavy manu- 4 facturing industries in the nineteenth and early twentieth centuries.F In states such as Ohio and Pennsylvania, where resources were abundant, early economic growth was rapid. Reinforcements through transportation improvements and market expansion sustained this growth for many years. Growth processes, however, involve many elements that influence regional economic activltv-Investrnent and employment incentives, product demand and distribution, technological progress, and resource cost and availability. These elements exert long·term influences on the mobility of productive factors (labor and capital), the diffusion of technology, and other equilibrating forces of the 3The interdependent elements important to economic growth in District states form an interesting but highly detailed economic history. For some elaboration, see: Roger H. Hinderliter, "The Origins of Commercial Banking in the Fourth Federal Reserve District," Federal Reserve Bank of Cleveland, Economic Review/Annual Report (1976). An illustration of the complexity of growth processes as they appeared to work in District states is provided by railroads. An important source of investment and growth themselves, railroads extended market access for a variety of goods produced in District states. The growing demand for rails directly increased the demand for iron and steel products and was an incentive for assimilating available technology within the primary metals industry. In addition, linkages were extended to such other industries important in District states as mach inery and fabricated metal products. See: Peter Temin, Causal Factors in American Economic Growth in the Nineteenth Century (London: MacMillan Press, 19751. pp. 42·43; and for developments relevant to the District, Louis C. Hunter, "Influence of the Market upon Technique in the Iron Industry in Western Pennsylvania up to 1860," Journal of Economic and Business History (1:1928·1929). market economy that ultimately ute to a narrowing discrepancies. As contrib- of regional economic these discrepancies between states narrow, income patterns tend to converge to an average which is representative of the national economy. By the beginning of the post-World War II period, the cumulative effects of development in Ohio and Pennsylvania had produced relatively high per capita incomes. Kentucky and West Virginia shared in the historical development to some extent but, in general, were slower than their larger neighbors to move away from primary product ( land or resource ) dependence. The tendency for regional incomes to converge was already apparent, indeed relatively fast growth in Ohio and Pennsylvania probably ended in the 1920's, when their share of personal income relative to the nation as a whole reached a peak. Since 1949, personal income in each of the District states has risen, but the states' combined share of total personal income in the United States has steadily declined from 15.1 percent in 1949 to 12.6 percent in 1977 (Table 1, section A). Although Pennsylvania experienced the most severe relative decline, income growth rates in Ohio and West Virginia average, were also below the national thus reducing the income shares of these states. Only Kentucky, with a strong surge of growth between 1963 and 1977, increased its share of personal income over the entire post-war period. Thus, personal income in Ohio and Pennsylvania for 1977 represented about Federal Reserve Bank of Cleveland TABLE 1 Income in the District States in the Post-War Period* 1949 (billions) Current $ A. Total Personal 1963 %of U.S. (billions) Current $ 465.2 205.8 (billions) Current $ % of U.S. 21.0 1.4 5.5 76.6 5.0 28.2 6.1 84.1 5.5 3.3 0.7 10.8 0.7 62.7 13.5 192.5 12.6 Ohio 5.7 5.8 25.4 Pennsylvania 14.6 7.1 2.0 1.0 31.0 15.1 West Virginia District Total 1.3 1,530.8 1.2 2.7 11.7 Kentucky B. Manufacturing % of U.S. Income Un ited States Fourth 1977 Wages and Salaries 44.6 0.4 0.9 1.0 1.0 3.5 Ohio 3.7 8.3 8.1 8.1 20.6 Pennsylvania 4.3 0.4 9.6 8.0 8.0 18.3 6.9 West Virginia 0.9 0.8 0.8 1.8 0.7 Fourth 8.8 19.7 17.9 17.9 44.2 16.6 United States Kentucky District Total C. Per Capita Personal 100.6 266.3 1.3 7.7 Income 2,468 United States 1,378 Kentucky 943 1,475 68 1,863 75 6,050 85 Ohio 107 103 7,157 101 Pennsylvania 1,403 102 2,545 2,468 100 7,132 101 West Virginia 1,032 75 1,835 74 5,825 82 1,342 97 2,384 97 6,900 97 Fourth District Average 7,077 Source: See Appendix *The Fourth District includes the state of Ohio in western Kentucky, and 56 counties 19 counties in western Pennsylvania and 6 counties in the panhandle of West Virginia. Income data are, however, for complete states. Economic Review/Annual Report 1978 5 The Relationship Between Income Growth and Industrial Change 5.0 and 5.5 percent, respectively, of the U. S. total, down from the 1949 proportions of 5.7 and 7.1 percent. West Virginia's share over the period fell to 0.7 percent from 1.0 percent, while Kentucky's share rose slightly to 1.4 percent in 1977 from 1.3 percent in 1949_ A similar pattern is indicated by manufacturing wage and salary data (Table 1, section B). Again, the evidence shows a steady decline in shares in the combined states, with the largest slippage occurring in Pennsylvania. Kentucky clearly benefited from growth in the manufactu ring sector. Measu red by the manufacturing wage bill, Ohio surpassed Pennsylvania in size, though Ohio's share of U. S. wages and salaries in manufacturing also declined from 1949. West Virginia, unlike Kentucky, did not generate growth through the manufacturing sector. To the extent that growth of absolute income does not reflect a narrowing of regional economic discrepancies, population movements provide an alternative adjustment. Thus, per capita income is an indicator that captures the propensity for absolute incomes to converge and for populations to shift among regions in search of more rewarding opportunities (Table 1, section C). Convergence of per capita incomes is indicated if state-to-national per capita income ratios approach unity. Between 1949 and 1977, both Kentucky and West Virginia approached unity from below, while Ohio and Pennsylvania approached it from above. West Virginia's population was virtually stable over the entire period, thus offsetting its slow growth of absolute income. 6 Income growth evidence from the District states is fully consistent with the convergence hypothesis of long-term regional economic development. The pattern of per capita income growth over the post-war period shows that all four states have drawn closer to the average per capita income in the national economy. These income growth patterns are linked to changes in the industrial makeup of the states. Two basic views of industrial change and its impact on regional income growth can be identified. According to one view, a regional economy progresses from a near-subsistence level of economic activity, dependent on production of primary products, to higher standards of living through increased employment in manufacturing and later through shifts into services, finance and related activities. The gradual evolution of the industrial composition of the regional economy raises income through the potential for larger and more rapidly growing markets and a more efficient allocation of resou rces. 4 Although all regions are expected to pass through the same sequence, regions may differ at any given time in their cumulative development and in their rate of progress through the various stages. 41n "higher stages" of development, economic activity is more widely diversified and productivity gains are associated with increased labor skills and accumulation of physical capital. Moreover, it is generally true that the potential for market growth is greater in manufacturing and service activities than in agricultural commodities or other primary products. For an expanded treatment of this topic, see: Edgar M. Hoover and Joseph L. Fisher, "Research in Regional Economic Growth," in Problems in the Study of Economic Growth (New York: National Bureau of Economic Research, 1949', pp, 180-188. Another view, derived from industrial location theory, emphasizes specialization in production at an early date in a region's development. Specialization irnpl ies that a region devotes large amounts of resources toward the production of "export" goods, and the industries that emerge from specialization form an export base which becomes the sustaining force behind long-term growth. Regions differ initially by the amount and quality of their natural resources that support economic activity and by the extent to which those advantages contribute to specialization. Over time, as natural advantages are exploited, specialization in export industries is reinforced by growth of the market for exported goods, additions of infrastructure, and economies of scale in the production of regional exports.f Despite their differing historical perspectives, these two approaches are not mutually exclusive views of regional economic developrnent.f Together, they identify key interrelated elements that link relative income growth and measures 5Gains in regional economic activity are therefore associated with benefits of large scale production. As the industries in which a region is specialized expand, other activities are attracted in support of the export base. Labor and capital growth are thus spread over a broader set of industries. See: Douglass C. North, "Location Theory and Economic Growth," Journal of Political Economy (June 1955', pp. 251-256. 6For a sy nthesis of these approaches to regional growth, see: J. C. Stabler, "Exports and Evolution: The Process of Regional Change," Land Economics (February 19681. Federal Reserve Bank of Cleveland Industrial Change: Employment Growth Rates of Ohio Industries of industrial change. In the first view, industrial change is accompl ished through internal employment shifts, that is, relative changes in the distribution of employment among industries within a region. The rise of manufacturing relative to agriculture and, more recently, shifts to service-type activities typify this distributional change. Such rearrangements are accompanied by more efficient allocation important growth. of resources and are thus an influence on regional income In the second view, industrial change is accompl ished through external employment shifts among regions, that is, through changes in the concentration of employment in one region relative to other regions or to the nation as a whole. In a region where particular industries are growing faster (or slower) than is typical for those industries in the national economy, the concentration of employment is rising (or failing). Because large concentrations of employment signify areas of special ization where a region is likely to produce for export as well as for its own consumption, changes in concentration reflect changes in a export base and, consequently, in the flow of export income? region's changes 7A region that is relatively large, like Ohio and Pennsylvania among Fourth District states, will generally have large concentrations of employment in many industries simply because of absolute size. Whether these concentrations are significant in an export-generating sense is another matter. Measures of specialization are therefore evaluated against a standard of "self-sufficiency" to determine export capacity. It is assumed that in any industry a self-sufficient region will have a concentration of employment equal to the proportional size of the region in the national economy and export industries will exceed this standard. Economic Review/Annual Report 1978 Income growth is associated with a variety of cumulative effects that alter the distribution or concentration of employment within a region. To illustrate the details of industrial change that underlie the broad patterns of income growth, Ohio, the only state completely enclosed in the Fourth District, is used as a case study. export base. With the railroads, no specialization facturing had developed. exception of in nonmanu- of all U. S. rubber industry jobs were located in Ohio. Thus, in 1949, Ohio was specialized to a high degree in rubber. A high degree of specialization also existed If employment in all Ohio industries grew at the same rate as employment in the national economy, the distribution and concentration of employment would not change. Like the Red Queen in Through the Looking Glsss, each Ohio industry must grow at the rate set by the national average of all industries just to maintain relative employment positions. Faster (or slower) growth implies a relative shift of jobs toward (or away from) Ohio and changes industrial composition in the state. Of course, few industries exactly match national growth. Deviations from the national average may be associated with two types of events. First, some industries in Ohio and elsewhere may participate in a general flow toward or away from the output of those industries. These "structural" effects relate to changes in the supply and demand mix in the national economy that affects industries differently. On the supply side, changing technology could in stone/clay/glass, primary and fabricated metals, nonelectrical machinery and electrical equ ipment; all with employ- benefit some industries relative to all others, while on the demand side, something as simple as changing consumer ment concentrations exceeding 10 percent. Other manufacturing industries-furniture, transportation equipment, paper and printing/publishing--though less prominent, were also constituents of the tastes could unevenly affect industry growth prospects. Structural effects thus pull Ohio industries along in the wake of national economic movements and, in the process, alter the distribution of employment in the state. By 1949, more than 6 percent of the nation's private nonagricultural jobs were located in Ohio (see Appendix, Table A-1). The distribution of employment was almost evenly split between manufacturing and nonmanufacturing activities, but it was in manufacturing that large concentrations of employment and important areas of specialization had developed. The rubber industry provided about 3 percent of Ohio jobs, a smaller distribution than several other manufacturing and nonmanufacturing industries in the state, but more than 25 percent Secondly, deviations from the national average rate of employment growth are produced by different growth rates in Ohio industries relative to the same industries located elsewhere. These "competitive" effects relate to such factors as 7 differences in production costs, the ability to assimilate available technology, and local market demand. The primary metals industry, for example, could expand faster (or slower) in Ohio than primary metals in the nation and the state's economy would therefore be better (or worse) off as a result of its relative own industry growth, regardless of the overall condition of metals. Competitive effects thus measu re regional differences in individual industries' performance, and, in their simplest form, alter both the distribution and concentration of employment. Viewed in this manner, employ- structural and competitive components may be either positive or negative. However, if observed growth in any industry is just equal to national growth, the structu ral and competitive components must sum to zero. If an industry is growing faster than the national rate, structu ral and competitive components must sum to a positive number, while adjusted growth less than the national rate requires a negative sum (see Inset). Employment growth rates of Ohio ment growth rates in Ohio industries contain three pieces of information--the performance of an industry relative to the national standard, and the structural component and competitive component of that pertormance.f Individually, the cultural employment during these periods is taken as the national growth component and serves as the standard of comparison for Ohio industries. The strength of an industry's growth relative to the national standard is indicated by 8Th is analysis. referred to as "sh ift/ share." is descriptive rather than determinative. but it does present a comparative framework for measuring industry performance. The technique adopted in this study is the classical form introduced by Perl off. et al., Regions, Resources and Economic Growth. In this form, competitive components are gross effects in the sense that they alter both the distribution and concentration of employment. Extensions of the analysis proposed by J. M. Esteban-Marguillas, "A Reinterpretation of Shift/Share Analysis," Regional and Urban Economics (August 1972) and examined further by Henry W. Herzog. Jr. and Richard J. Olsen, "ShiftShare Analysis Revisited: The Allocation Effect and the Stability of Regional Structures," Journal of Regional Science (December 1977), suggest "normalization procedures" that would reduce competitive effects to a net impact on concentration. Because the separate net effects on distribution and concentration are less important here than the overall compositional changes. the simple framework was adopted. 9The value of any growth rate depends on the base selected for computing the percentage change. The values shown in Chart 1 and used hereafter are an average of rates computed from the initial period and rates computed from the terminal period. 8 , the position of an industry relative to the dotted diagonal lines (135 degree), three industries are shown in Chart 1 (see pp. 10-11) for two post-war subperiods, 1949-1963 and 1963-1977.9 The rate of growth of total (U. S.) private nonagri- 7 of wh ich are labeled in Chart 1 for reference. Industries on any common diagonal (e.g., paper and printing/publishing in 1949-1963, or services and bituminous coal mining in 1963-1977) have the same growth rate. The structural component is measured by the vertical distance from the origin and the competitive component by the horizontal distance. Thus, for example, industries located in the upper right-hand quadrant of the Chart are characterized by a faster growth rate than the national economy, and both the structural and competitive components make positive contributions to the performance. The 31 Ohio industries that are plotted on Chart 1 fall into three classifications: about an equal number in each subperiod matched or surpassed the national growth rate; experienced zero or negative growth; and fell onto the middle ground between zero growth and the expansion rate of the national economy. As would probably be expected, the economic problems that Ohio encountered after World War II do not appear as a uniform decline in industrial capability. Some industries have accomplished much in terms of expanding employment opportunities. In 1949-1963, for example, banking, other finance, and transportation equ ipment were especially robust growth industries, and in 19631977, services and bituminous coal mining were prominent growth industries. Federal Reserve Ban k of Cleveland a whole. INSET A Technique of Regional Industry Analysis The employment growth rate of any industry in a region can be decomposed into three parts: the national growth component, the structural component and the competitive component. The national 9rowth component is the rate of growth in total (U. S.) employment. This captures the influence of the larger economy and serves as the standard of comparison. The structural component is the rate of employment growth for an industry in the nation as a whole, minus the national growth component. This captures the influence of shifts within the national economy (e.g., from manufacturing industries to nonmanufacturing This captures the extent to which a regional industry enjoys an advantage (or suffers a disadvantage) relative to the same industry outside the region. thus experiencing faster (or slower) growth than is characteristic of the industry in general. Algebraically. an observed rate of employment growth in ariy industry within a region (gi) may be represented as an identity-- the sum of the national growth component (gn), structural component (gs), and competitive component (gc): gj = gn + 9s + 9c To focus on the contributions of the structural and competitive components of industry growth, the identity may be slightly rearranged: industries). The competitive component is the difference between the rate of employment growth in a region's industry and the growth for that industry in the nation as Economic Review/Annual Report 1978 9i 9n 9s gn gc gn --1.0 =-+- This relationship Chart 1. is (gn> 0) diagrammed in The general course of employment growth indicated by Chart 1 emphasizes nonmanufacturing industries as the more rapidly growing areas of the Ohio economy. Services, banking, other finance, other transportation/public utilities (which includes communications, air travel and other functions) and some trade industries expanded employment at fairly rapid rates. Negative growth industries in nonmanufacturing are few and only rail roads consistently contracted employment over both subperiods. This contrasts to the performance in manufacturing industries where employment contracted in several industries, most notably textiles/apparel, other nondurable goods, manufacturing (primarily leather products) and furniture. In industries where Ohio was specialized and enjoyed an export advantage, including primary metals in 1949-1963 and electrical equ ipment in 1963-1977, negative growth rates were also registered. Although general tendencies are apparent in Ohio industry performance, it is important to qualify these tendencies. Some industry growth rates were fairly constant but others, like electrical equipment in manufacturing and other finance in nonmanufacturing, change substantially. A number of other industries experience clear, if less substantial, differences in employment growth rates between 1949-1963 and 1963-1977 subperiods. 9 CHART 1 Industry Growth Rates in Ohio •7 Manufacturing Durable 1- 11. -. 2 9c/9t; ~'. 14 23e ' •• 20 Lumber/wood '. 33. Stone/clay/glass 44. Primary metals •• •• :21 ". 55. Fabricated metals 66 . Nonelectrical • • ies 99 . Instruments •... •. 30 16 mach inerv 77. Electrical equ ipment/suppl 88. Transportation equipment -Ie • /I products 22. Furniture ..~ -1_ Goods 10. Other durable "• goods sr= 29n Nondurable Goods 11. Food 12. Textile/apparel gj= g;" -3- 13. Paper 14. Printing/publishing gj= --4 - 15. Chemicals it 16. Petroleum 17. Rubber 18. Other nondurable goods -5- -6- • -3 -2 • -1 29 • lis IOn I 2 • 3 1949-1963 On= 1.62 % per year 10 Federal Reserve Bank of Cleveland Nonmanufacturing Transportation/Public -. Utilities 1- 19. Railroads 20. Electricity/gas/sanitary services 21. Other transportation/pu bl ic uti Iities -. 26. '. 7~ '~::" "'2.9 •• Trade 22. Wholesale 23. General merchandise 24. Apparel retail retail . 2,.· . • --, - 72 25. Other retail Finance/Services 78 -2- . • 9i= 29n' 79 26. Banking . 27. Other finance 28. Services -3- . 9i= 9;;. -4- 9i='6 Mining/Construction 29. Bituminous coal mining 30. Other mining 31. Construction ---5 - Key: gi = Industry growth rates gn = National growth component gs = Structural component gc = Competitive component gi gs gc --1.0=-+gn gn gn Source: I -3 -2 • -1 I lis /9n 2 • 3 1963-1977 gn = 2.50 % per year See Appendix Economic Review/Annual Report 1978 11 Structural and Competitive Components of Ohio Industry Growth The components structural of and employment competitive growth expand the picture of Ohio industry performance and further sharpen the perspective on regional industrial change. In some cases, the structural component of growth, indicated by the vertical position on Chart 1, is qu ite large, often the dominant influence on Ohio industry performance. For example, large negative structural effects clearly account for the lack of overall growth in railroads. In both subperiods, the Ohio railroad industry experienced negative growth, essentially because of general shifts away from rail transport throughout the United States. On the other hand, strong employment growth in banking and in services in both subperiods was related primarily to the forces that caused banking and services to expand rapidly in the national economy. In the earl ier su bperiod of 19491963, it is difficult to identify any general model of structural components among the Ohio industries. Of 14 industries with positive structural growth components (those lying above the horizontal axis on Chart 1), six were in durable goods manufacturing, three in nondurable goods manufacturing, and five in nonmanufacturing. The durable goods industries included fabricated metals, nonelectrical machinery, electrical equ ipment, and transportation equ ipment; nondurable goods industries included rubber. All of these industries were among the areas of Oh io's export specialization in 1949. In the earlier 12 subperiod, then, national economic events working through structural effects were favorable to a number of Oh io industries, several of which were areas of specialization. This changed in 19631977. In the later subperiod, structural effects clearly favored nonmanufacturing industries. Competitive effects on industry performance reflect the extent to which Ohio industries outpaced (or fell behind) their counterparts in the nation. The competitive component of employment growth rates, measured in the horizontal dimension on Chart 1, can reinforce or offset the structural component. Bituminous coal mining in Ohio, which experienced the most severe structural drag on growth in the 1949-1963 subperiod, nevertheless performed considerably better than coal mining in general. On the other hand, textiles/apparel in Ohio, which also experienced unfavorable structural effects on growth in the 1949-1963 subperiod, faced a serious competitive disadvantage that pulled the overall employment growth rate down further. In the 1949-1963 subperiod, competitive components of employment growth rates were positive in nine Ohio industries (those lying to the right of the vertical axis). Transportation equipment experienced highly favorable competitive effects on growth and Ohio's specialization in transportation equipment increased as a result of expansion in the earlier post-war subperiod. Another im- enjoyed a high degree of specialization at the beginning of the subperiod had a competitive advantage. Negative competitive growth rate components were largest for electrical equipment and rubber, but stone/clay/glass, primary and fabricated metals, and nonelectrical machinery in Ohio all expanded employment more slowly than these industries did in the nation. In 1963-1977, eight industries grew faster in Ohio than in the nation as a whole. Several industries with positive competitive components of growth in the earl ier subperiod retained or even improved their competitive advantage. These included bituminous coal mining, other transportation/public utilities, and petroleum. Chemicals emerged as a relatively strong industry in Ohio, as did instruments. In nonmanufacturing, services and general merchandise retail trade had positive, though relatively small, competitive components of growth. On balance, it was again true in 1963-1977 that few Ohio industries expanded employment faster than their national counterparts, and no industry of specialization did so. Transportation equipment lost its competitive edge--the Ohio industry expanded no faster than transportation equipment in general. Even so, some areas of strength were apparent; Ohio chemicals and petroleum were notable growth centers in the later subperiod, as was the collection of industries in other transportation/public uti Iities. portant industry that grew faster in Ohio than in the nation was petroleum. Several nonmanufacturing industries, banking and other finance among them, experienced modest positive competitive effects on growth. No industry in which Ohio Federal Reserve Bank of Cleveland Structural and Competitive Effects Combined: Selected Ohio Industrued Structural and competitive components of employment growth are indicators of Ohio industry performance. These growth rate components imply changes in the distribution and concentration of employment and are related to state income growth. Although the forces underlying industrial change are more difficult to specify, the growth rate components are suggestive evidence of where to look for the key determinants of industry performance. At this level of analysis, judgments on performance retain a highly speculative quality. Even so, two basic observations from the analysis can be emphasized. To a greater extent than either overall employment growth rates or the structural component of these rates, the competitive component in Ohio industries underscores the state's economic problems in the post-war period. Few Ohio industries, whether manufacturing or nonmanufacturing, experienced favorable competitive effects on growth. Moreover, employment growth rates and their structural and competitive components shift over time. To extend these observations, a subset of industries is examined further, and, for emphasis, growth rates and their components are compressed into a single diagram (see Chart 2 pp.14-15). Economic Review/Annual Report 1978 Shifts in the structural and competitive components of employment growth rates emphasize the structural rearrangement away from manufacturing that has intensified in recent years (Chart 2, section A). Competitive effects on employment growth rates, however, generally improved between 1949-1963 and 1963-1977. As already noted, chemicals and petroleum in the 1960's and 1970's were among Ohio's fastest growing industries. The driving force behind these industries' performance is to be found to a greater extent in production and market characteristics of the local industries than in charactistics of the national economy. In the major durable goods industries of export specialization, the largest shifts between subperiods in Ohio occurred in transportation equipment and electrical equipment. After World War II, transportation equipment appeared as the most rapidly expanding durable goods industry in the Ohio economy. The early post-war growth was accompanied by structural pull from the national economy. More significantly, expansion stemmed from competitive growth of the Ohio industry. However, a substantial decline in the structural component of growth and a loss of competitive advantage in 1963-1977 left the industry in Ohio with an employment growth rate below that of the national economy. Automobiles and auto parts are the largest product lines in the Ohio industry and post-war developments are likely to be associated with factors influencing the automobile markets. In the later subperiod increased popularity of imported autos is an obvious structural factor contributing to slower expansion. The source of the competitive decline in the 1963-1977 subperiod, is however, less clear. Electrical equipment experienced a strong structural pull on growth during the earlier post-war subperiod, perhaps attributable to the electronics boom after the war. If this was the cause, however, the Oh io industry was on the periphery; it may have benefited from spill-overs, but it expanded at a much slower rate than the industry as a whole. In 19631977, the structural pull on electrical equipment dissipated and the growth rate relative to the expansion of total jobs in the national economy fell. However, there was some increase in the competitive component of employmeht growth in Ohio's electrical equipment industry. Thus, although employment growth in electrical equipment slowed in the United States in the later subperiod, and the Ohio industry expanded more slowly still, Ohio producers were able to improve their position relative to the overall industry. To some extent, it appears that position was technological areas where passed earl ier. the improved competitive accomplished by acquiring capabilities in electronics Ohio industries were by- 13 CHART 2 Changes in Industry Growth Rates: 1949-1963 to 1963-1977 A. Manufacturing 3. Stone/clay/glass 1- 4. Primary metals 5. Fabricated metals 6. Nonelectrical machinery 7. Electrical equipment/supplies 8. Transportation 9c/9n / equipment 15. Chemicals 16. Petroleum 17. Rubber -1_ ..... 16 -2- -3- 9j= gn --4 - -5- ---6 I -3 I I -1 -2 lis I gn 2 Key: 1949-1963 14 growth rate Source: See Appendix 1963-1977 growth rate Federal Reserve Ban k of Cleveland I 3 B. Nonmanufacturing 19. Railroads 21. Other transportation/public utilities 1- 22. Wholesale trade 37 23. General merchandising retail trade 26. Banking 9c/9n 27. Other finance 28. Services 29. Bituminous coal mining ---1 _ 31. Construction -2- gi~ gri· -3- --4- --5 - -6I -3 Economic Review/Annual Report 1978 -2 • -1 29 • 2 • 3 15 The remainder of the durable goods manufacturing industries where Ohio was highly specialized in 1949 recorded improved competitive components of employment growth rates in 1963-1977, and generally higher overall growth rates relative to the national average as well. These heavy industries have often been characterized as burdened with aging or obsolete capital facilities and as vulnerable to market incursion by foreign producers or substitute products. Evidence developed for Ohio in the early 1970's suggests the possibility that obsolete productive facilities in primary metals may have exceeded 40 percent of total capacity, and obsolescence in stone/clay /glass, fabricated metals, and nonelectrical machinery may have been between 20 and 30 percent. These estimated obsolescence rates are high, relative to the nation; an aging capital stock may well be an ongoing problem for Ohio industries.10 Considering such circumstances, Ohio industries may have done well to improve their position. 10Rubber also had estimated obsolete facilities in excess of 20 percent, but so did chemicals, a more rapidly expanding industry. The smallest proportion (6 percent! of obsolete capital was in transportation equipment. See: Wilford L. L'Esperance and Arthur E. King, "The Age Distribution of Ohio's Manufacturing Plant and Equipment," Bulletin of Business ReSllsrch, Part I (April 1975), p. 4; Part II (May 1975), p. 4. 16 Shifts in employment growth rates between the earlier and later subperiods among nonmanufacturing industries in Ohio form a diversified pattern between the earlier and later subperiods, and general tendencies are less readily identifiable (Chart 2, section B). Structural drag eases in some industries (railroads), but begins to affect others (construction). At first glance, many of these structural changes seem to be associated with the energy problems that emerged in the early 1970's. Railroads continued to be faced with competition from other modes of transportation, government regulation of freight rates, labor problems and deteriorating capital stock; nevertheless, they benefited from heavier traffic through increased coal shipments in the 1970's. The decline in the structural growth component of the construction industry reflects, in part, the withering away of the interstate highway program. The largest structural change that occurred among all Ohio industries was the shift in bituminous coal mining. Ohio coal mines were relatively strong competitors in both subperiods, but the elimination of the large structural drag in the 1963-1977 subperiod, especially from 1972 on, transformed the industry's employment growth prospects. The importance of exogenous situation shocks to industries is most apparent in coal mining. The energy crisis benefited coal mining even if it did not benefit the economy in general. The developments in coal also suggest the possibility of interdependence among the structural and competitive forces that affect industrial change. Ohio mines enjoyed a larger competitive edge in the depressed markets of 1949-1963 than in the more buoyant setting of the later subperiod. As coal's importance as an energy source grew, even marginal facilities presumably shared in the gains. Of course not all structural changes are the effects of sudden shocks that quickly change industry behavior. Indeed, most such changes are long-term movements that affect industries gradually. Perhaps the most widely recognized aspect of long-run industrial change is the post-war shift into service-type activities. Banking, other finance services and some trade industries were growth centers in the post-war economy of Ohio as well as throughout the nation. Structural effects were the dom inant influences on their growth rates and it is likely that labor intensive production processes were im- Federal Reserve Ban k of Cleveland Summary and Conclusions portant determinants of these industries' growth.11 However, competitive components of growth rates have been relatively small in the Ohio industries. The competitive component became positive in services and in general merchandise retail trade in the 1963-1977 subperiod, but it became negative in banking and other finance. Thus, although Ohio participated in the general movement toward services, finance, and trade, it did not develop any consistent advantage in these individual industries. Service-type activities, at least to some extent, are anchored to the local market, and competitive advantages that would contribute to more rapid expansion of Ohio industries may be difficult to develop independent of this market. Other transportation/public utilities in Ohio (which includes a number of activities), is an exception. The competitive component of growth in this industry group increased substantially in the 1963-1977 subperiod. Unfortunately, it cannot be determined where the strength lies. Trucking/warehousing and communications, the largest members of the industry group, appeared to expand in Ohio at about the same rate as in the nation as a whole, but information is very sketchy and further analysis is necessary. 111n a detailed study of the service industry, Fuchs concluded that relatively slow increases in output/labor ratios were instrumental in the growth process (i.e.. a given expansion of service output seems to require more labor than does manufacturing output). See: Victor R. Fuchs, The Service Economy (New York: National Bureau of Economic Research, 1968),pp. 3-5. Economic Review/Annual Report 1978 Industrial change between 1949 and 1977 in Ohio produced a substantially different industrial composition (Appendix, Table A-1). The distribution of employment shifted toward nonmanufacturing activities, which accounted for over 60 percent of Ohio's jobs in 1977. Distributional gains were largely confined to industries in the trade and finance/services groups, which benefited from the structural effects working through the national economy. Concentration of employment in Ohio also changed significantly between 1949 and 1977. By 1977, private nonagricultural employment in Ohio was 5.3 percent of the nation's total, down nearly a full percentage point from 1949. In the industries of high specialization in 1949, employment concentrations were all lower by 1977. Concentration in electrical equipment declined by 55 percent, and the measured degree of specialization was reduced as a result of this large shift away from Ohio manufacturers. In rubber, employment concentration fell by 44 percent and in the other key manufacturing industries the relative decline ranged from 11 percent in primary metals to 28 percent in nonelectrical machinery. Yet, in each of these industries, Ohio retained a high degree of specialization. A few Ohio industries ran counter to the trend. Transportation equipment strengthened, and here Ohio developed a high degree of specialization by 1977. The expansion in transportation equipment was, however, a result of the strong performance in 1949-1963, and more recent growth has been less robust. Chemicals held its own in terms of concentration and Ohio's petroleum industry increased its employment concentration fairly substantially between 1949 and 1977. Employment in Ohio's nonmanufacturing industries generally increased, but concentration remained low and, in most cases, decreased. Coal mining strengthened sufficiently to develop moderate export specialization for the state by 1977. Ohio banking and services were less concentrated in 1977 than in 1949, and other finance remained unchanged. Structural and competitive effects on industry employment growth have been complex, and vary from industry to industry. General observations about industrial change that emphasize. only structu ral developments, such as the switch from manufacturing to nonmanufacturing activities, at best tell only part of the story. Competitive effects on regional industries are equally important and must also be carefully considered in an analysis of industrial performance. 17 Data Append ix Industrial change has not been uniform over time. In the case of Ohio industries, both structural and competitive components of industry growth rates generally shifted between the subperiods for which they were examined. In particular, competitive disadvantages, measured by relatively slower growth in Ohio industries, were often reduced in the faster-paced economy of the later subperiod. In Ohio, this was especially true for manufacturing industries. One reason may be that the long-term growth process leaves a residual amount of marginal capacity which, in a fast-moving economy, can be brought into production. The image of the Fourth District economy, and in particular, the State of Ohio, is that of a region in relative economic decline. In a sense, evidence presented in this study confirms that image. The evidence suggests, however, that the nature of the regional economic transition is often misinterpreted. Convergence to a national standard is clearly indicated by post-World War II income seem to be great because both the distribution and concentration of employment have been gradually adjusting away from the manufacturing industries where the highest degree of specialization had historically developed. However, specialization in heavy manufacturing was determined early in Ohio's economic development and will continue to be its economic foundation in the future. Further research of the factors determining the structural and competitive components of growth rates in these specialized industries will provide valuable insights into the ongoing growth process of the Fourth District. Data Sources The income and employment data developed for this study were compiled from the following sources: Table 1 U. S. Department of Commerce, Bureau of Economic Analysis (Local Area Personal Income) U. S. Department of Commerce, Bureau of the Census (Current Population Reports, Series P-25) Chart 1, Chart 2, Appendix U. S. Department Labor Stastistics Earnings) Ohio Bureau (Employment, Ohio) of Table A-1 Labor, Bureau of (Employment and of Employment Services Hours and Earnings in patterns in District states, but convergence does not mean a collapse of the regional economy. There are, of course, burdens associated with any economic transition. In a state like Ohio, these may 18 Federal Reserve Ban k of Cleveland Industry Definitions The analysis of employment growth rates utilized establishment survey employment data for Ohio and the nation at three periods in time: 1949,1963, and 1977. The three years were selected to yield comparable time intervals for the analysis and to provide cyclically similar points that minimize short-term impacts on employment levels. To focus on industrial composition in the private sector, government employment was subtracted from nonagricultural employment to obtain a measure of total employment for the study. With the exception of the miscellaneous "other" categories, which are balancing groups in each aggregate sector, two-digit SIC's were selected as the appropriate level of industry disaggregation. In part, this was dictated by data availability and by the method of analysis itself. A preferred industrial breakdown would perhaps correspond more closely to specific markets or product lines, but such delineations are seldom attained, even at higher SIC classification levels. Further, in shift/share analysis the results seem to depend on the level of industrial aggregation of the data. As the number of industrial categories is broken down more finely, eventually reaching an individual firm or plant definition, the Economic Review/Annual Report 1978 competitive component will tend to vanish.12 Even though they represent a larger collection of products under a single classification than might be desirable, two-digit SIC's appear to be a reasonable empirical compromise. Revisions and Adjustments to the Data The income data (Table 1) were revised extensively at the source in 1974, but no attempt has been made in this study to adjust for the revision back to 1949. Prior to 1974, the Bureau of Economic Analysis computed its estimates of "Personal Income and Components" on a place of residence basis. In 1974, the method of compiling personal income figures was changed to a place of work basis in order to provide a proxy for 12See, especially: David B. Houston, "The Shift and Share Analysis of Regional Growth: A Critique," Southern Economic Journal (April 19671, pp. 579-580. A firm or plant definition of "industry" or "sector" would, of course, be quite different from a market or product line definition. Although disaggregation along firm or plant lines would ultimately result in uniqueness between a region and the nation, and hence in a vanishing competitive component, it is not at all clear that such dissaggregation is a meaningful proposition. industry output at the state level. Because of backdating, the revision was available for 1963 as well as 1977; but the old series was used for 1949. The employment data were comparable except for SIC classification in 1977. The national employment data for 1949, 1963 and 1977 were derived from the same source and therefore used the same SIC classifications. Ohio data for 1949 and 1963 were comparable to the national data. In 1977, Ohio revised its industry groupings to conform with the 1972 SIC classifications. In order to modify the 1977 Ohio data to conform with the national data, an overlap ratio to, adjust for differences between the 1967 and 1972 SIC classifications was constructed using the following formula: Overlap Ratio equals: January 1976 Ohio employment January 1976 Ohio employment (1967 SIC) (1972 SIC) This overlap ratio was computed for each industry grouping and multiplied by that grouping's 1977 employment average to derive an annual figure in 1967 SIC terms. Industrial Composition 1949 and 1977 Industrial composition in Ohio is tabulated for 1949 and 1977 in Table A-1. 19 TABLE A-1 Industrial Composition in Ohio 1949 and 1977t 1977 1949 Distribution Private Nonagricultural Concentration 48.7 7.9 Durable Goods 33.5 0.5 1.0 2.9 7.5 5.4 10.4 1.5 Lumber/wood products Furniture Stone/clay/glass Primary metals Fabricated metals Instruments 6.7 4.7 3.5 0.4 Other durable goods 0.9 Nonelectrical machinery Electrical equ ipment/suppl ies Transportation equipment Nondurable Goods 11. 12. 13. 14. 15. 16. 17. 18. 20 Food Textile/apparel Paper Printing/publ ishing Chemicals Petroleum Rubber Other nondurable goods Distribution 15.2 3.8 1.8 1.3 2.2 1.6 0.4 3.3 0.7 7.5 13.4 15.5 14.2 13.3 12.6 6.7 3.9 5.2 5.2 4.9 1.8 7.0 7.0 6.1 4.3 27.8 3.5 Concentration Specialization 5.3 6.2 Employment Manufacturing 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Specialization HNS MS HS HS HS HS HS MS MNS MNS MNS HNS MS MS MNS MNS HS MNS 37.1 6.8 26.2 0.3 0.5 1.8 4.6 4.4 8.1 1.8 3.5 10.0 13.7 10.9 9.6 5.7 8.5 3.8 3.8 5.9 3.1 4.3 0.6 0.6 10.9 2.1 0.7 1.1 1.7 1.8 0.4 2.9 0.2 4.8 4.3 1.1 5.6 5.6 6.1 6.5 15.5 2.0 HNS MNS HS HS HS HS MS HS MNS MNS MNS HNS MS MS MS MS HS HNS Federal Reserve Bank of Cleveland 1949 Distribution Nonmanufacturing Transportation/Public 19. 20. 21. Utilities Railroads EIectric ity /gas/san itary services Other transportation/publ ic uti Iities Concentration 51.2 5.1 7.8 3.9 1.3 2.6 4.6 6.6 5.8 3.0 Trade 21.7 5.4 22. 23. 24. 25. 4.9 3.7 1.2 11.9 4.5 5.9 5.0 5.8 Services 15.3 0.7 2.6 12.0 5.0 4.1 4.2 5.3 Mining/Construction 6.4 29. 30. 31. Other mining 0.8 0.4 Construction 5.2 4.8 4.8 1.8 5.6 Wholesale General merchandise retail Apparel retail Other retail Finance/Services 26. 27. 28. Banking Other finance Bituminous coal mining 1977 Specialization Distribution Concentration Specialization 62.8 4.7 MNS 6.0 0.9 1.0 HNS 4.0 4.6 6.2 4.9 4.3 25.6 5.8 4.1 1.0 14.7 5.0 4.7 5.7 4.2 5.0 26.4 MNS 1.5 3.7 21.2 4.7 3.9 4.2 4.9 MNS 4.8 0.4 3.8 7.4 MS 0.3 4.1 1.8 3.8 MNS MS MNS MNS MNS MNS MNS MNS HNS MNS MS MNS MNS MNS MS MNS MNS MNS MNS MNS HNS t Distribution is the percentage of Ohio employment in each industry. Concentration is the percentage of U.S. employment in each industry located in Ohio. Specialization is measured by comparing the concentration of industry employment in Ohio to concentration of total employment in Ohio: Let e = concentration of employment in individual Ohio industries e = concentration of private nonagricultural employment in Ohio [the proportional the Ohio economy) Then HS = High Specialization: e/e*> 1.5 HNS = High Nonspecialization: e/e*<0.5 MS = Moderate Specialization: 1.0<e/e*< 1.5 MNS = Moderate Nonspecialization: 0.5<e/e*<1.0 Economic Review/Annual Report 1978 size of 21 Comparison of Earnings and Expenses Total Current Earnings Net Expenses ..... $ Current Net Earnings 1978 694,814,242 41,962,628 1977 $ 564,269,128 40,378,337 652,851,614 523,890,791 25,033 1,026,394 25,033 1,026,394 10,852,014 42,982,973 58019 4,185,456 12,589,053 48,584 53,893,006 16,823,093 53,867,973 15,796,699 4,522,400 4,057,700 Additions to Current Net Earnings: All Other ..... Total Additions Deductions from Current Net Earnings: Loss on Sales of U.S. Government Securities (Net) Loss on Foreign Exchange Transactions (Net) All Other . Total Deductions Net Deductions Assessment for Expenses of Board of Governors Net Earnings before Payments to U.S. Treasury $ 594,461,241 $ 504,036,392 Dividends Paid . . . . . . . . . . . . . . . . . Payments to U.S. Treasury (Interest on F.R. Notes) Transferred to Surplus $ 5,408,170 584,291,421 4,761,650 $ 5,142,729 496,089,263 2,804,400 $ 594,461,241 $ 504,036,392 Total 22 Federal Reserve Bank of Cleveland Comparative Statement of Condition ASSETS Dec. 29, 1978 Gold Certificate Reserves Special Drawing Rights Certificates Coin .......... $ 921,035,900 112,000,000 32,976,197 Dec. 301 1977 $ 933,870,100 107,000,000 39,702,072 Loans to Member Banks Federal Agency Obligations - Bought Outright U.S. Government Securities: Bills Notes Bonds 3,508,654,478 4,565,303,131 1,037,381,316 3,478,894,000 4,227,966,000 740,668,000 Total U.S. Government Securities 9,111,338,925 8,447,528,000 9,799,496,323 9,119,048,000 808,062,973 23,137,140 298,083,638 (437,629,820) 460,882,397 22,825,499 140,423,451 (41,750,722~ Total Loans and Securities 31,050,000 657,107,398 .. Cash Items in Process of Collection Bank Premises ......... Other Assets . . . . ..... Interdistrict Settlement Account Total Assets ....... 1,550,000 669,970,000 $11,557,162,351 $ 10,782,000,797 8,551,157,177 $ 7,986,742,657 LIABILITIES Federal Reserve Notes $ Deposits: Member Bank - Reserve Accounts U.S. Treasurer - General Account Foreign ..... Other Deposits . Total Deposits Deferred Availability Cash Items Other Liabilities ... Total Liabilities 1,797,890,606 388,312,886 17,229,500 35,6402685 1,649,739,882 450,724,792 23,710,200 43,8222984 2,239,073,677 2,167,997,858 445,532,329 137,838,568 361,023,439 92,199,543 $11,373,601,751 $ 10,607,963,497 CAPIT AL ACCOUNTS Capital Paid in Surplus . . . . . . Total Liabilities and Capital Accounts Economic Review/Annual Report 1978 91,780,300 91,780,300 $ 11,557,162,351 87,018,650 87,018,650 $ 10,782,000,797 23 Federal Reserve Bank of Cleveland Officers WILLISJ. President WINN WALTER H. MacDONALD First Vice President JOHN M. DAVIS Senior Vice President and Economist ROBERT D. DUGGAN Senior Vice President WILLIAM H. HENDRICKS Senior Vice President ROBERT E. SHOWALTER Senior Vice President DONALD G. BENJAMIN Vice President JOHN E. BIRKY Vice President GEORGE E. BOOTH, Jr. Vice President PAUL BREIDENBACH Vice President and General Counsel R. JOSEPH GINNANE Vice President HARRY W. HUNING Vice President R. THOMAS KING Vice President ELFER B. MILLER General Auditor THOMAS E. ORMISTON, Jr. Vice President LESTER M. SELBY Vice President and Secretary HAROLD J. SWART Vice President DONALD G. VINCEL Vice President OSCAR H. BEACH, Jr. Assistant Vice President MARGRET A. BEEKEL Assistant Vice President THOMAS J. CALLAHAN Assistant Vice President and Assistant Secretary GEORGE E. COE Assistant Vice President PATRICK V. COST Assistant General Auditor JOHN J. ERCEG Assistant Vice President and Economist ROBERT J. GORIUS Assistant Vice President NORMAN K. HAGEN Assistant Vice President JAMES W. KNAUF Assistant Vice President BURTON G. SHUTACK Assistant Vice President ROBERT VAN VALKENBURG Assistant Vice President ROBERT F. WARE Assistant Vice President and Economist CHARLES F. WILLIAMS Assistant Vice President As of April 1, 1979 24 Federal Reserve Bank of Cleveland Federal Reserve Bank of Cleveland Directors Chairman ROBERT E. KIRBY Chairman and Chief Executive Officer Westinghouse Electric Corporation Pittsburgh, Pennsylvania Deputy Chairman ARNOLD R. WEBER Provost Carnegie-Mellon University Pittsburgh, Pennsylvania JOHN W. ALFORD Chairman of the Board and Chief Executive Officer The Park National Bank Newark, Ohio JOHN A. GELBACH Chairman of the Board Central National Bank Cleveland, Ohio J. L. JACKSON President Falcon Coal Company Inc. Lexington Kentucky EVERETT L. MAFFETT President and Chief Executive Officer Eaton National Bank and Trust Co. Eaton, Ohio WALTER J. ROBB, Sr., Chairman and Senior Partner Proctor, Robb & Company Granville, Ohio HAYS T. WATKINS Chairman and President Chessie System Cleveland, Ohio CHARLES Y. LAZARUS Chairman The F. & R. Lazarus Co. Columbus, Ohio Member, Federal Advisory Council MERLE E. GILLIAND Chairman of the Board and Chief Executive Officer Pittsburgh National Bank Pittsburgh, Pennsylvania As of April 1, 1979 Economic Review/Annual Report 1978 25 Pittsburgh Directors Branch Chairman G. J. TANKERSLEY President Consolidated Natural Gas Company Pittsburgh, Pennsylvania WILLIAM E. BIERER President Equibank N.A. Pittsburgh, Pennsylvania' WILLIAM H. KNOELL President Cyclops Corporation Pittsburgh, Pennsylvania ROBERT W. FISCUS President and Chief Executive Officer The Savings & Trust Company of Pennsylvania Indiana, Pennsylvania LLOYD M. McBRIDE President United Steelworkers of America Pittsburgh, Pennsylvania R. BURT GOOKIN Vice Chairman and Chief Executive Officer H. J. Heinz Co. Pittsburgh, Pennsylvania PETER MORTENSEN President F.N.B. Corporation Sharon, Pennsylvania Officers ROBERT D. DUGGAN Senior Vice President WILLIAM R. TAGGART Vice President PAUL E. ANDERSON Assistant Vice President JOSEPH P. DONNELLY Assistant Vice President CHAR LES A. POWE LL Assistant Vice President As of April 1, 1979 26 Federal Reserve Bank of Cleveland Cincinnati Branch Directors Chairman LAWRENCE H. ROGERS, II President and Chief Executive Officer Omega Communications, Inc. Cincinnati, Ohio MARTIN B. FRIEDMAN President Formica Corporation Cincinnati, Ohio LAWRENCE C. HAWKINS Senior Vice President University of Cincinnati Cincinnati, Ohio WALTER W. HILLENMEYER, Jr. Chairman and Chief Executive Officer First Security National Bank and Trust Company Lexington, Kentucky ELDEN HOUTS President The Citizens Commercial and Trust Company Celina, Ohio Bank WILLIAM N. LIGGETT Chairman of the Board and Chief Executive Officer First National Bank of Cincinnati Cincinnati, Ohio SISTER MICHAEL LEO MULLANEY President St. Joseph Hospital Lexington, Kentucky Officers ROBERT E. SHOWALTER Senior Vice President CHARLES A. CERINO Vice President JEAN H. DEAN Assistant Vice President ROSCOE E. HARRISON Assistant Vice President DAVID F. WEISBROD Assistant Vice President JERRY S. WILSON Assistant Vice President As of April 1, 1979 Economic Review/Annual Report 1978 27
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