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APRIL 1951
A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO
The Trend of Business
A Temporary Easing of Upward Pressures
A minor abatement of upward pressures has charac
terized general business trends during recent weeks. The
price rise has slowed down, particularly at the raw mate
rial and wholesale levels. Order bookings are accumu
lating less rapidly. Consumer purchases still are strong,
and personal income continues to rise, but scare buying
psychology has subsided, at least temporarily. Produc
tion continues high, and finished inventories, particular
ly of most hard goods, are described as ample. In some
lines, such as television sets and refrigerators, sales and
advertising efforts are being intensified.
These developments are of insufficient magnitude to
warrant comparison with softening tendencies which took
place during the first half of the year in 1947 and 1948.
Although declines occurred during the, February-April
periods of those years, the spring developments did
not accurately portend the trend for the year as a whole.
No declines have yet appeared in over-all measures of
business for 1951, and in view of the large scale military
expenditures and extensive outlays for business plant and
equipment to come later in the year, the outlook is still
one of inflationary pressure.
BUSINESS MEASURES CONTINUE STRONG
Prices—Consumer prices have continued to move
upward during recent weeks, but at somewhat slower
rates. Direct price controls and relaxed pressures on basic
commodities appear to be reflected in this trend. The
weekly U.S. Bureau of Labor Statistics Wholesale Price
Index dropped very slightly from mid-February to mid
March. Declines in the prices of farm products and foods
were responsible for the change. However, during the
same period, prices of most items comprising the Basic
Commodity Index underwent minor softening. In the
light of the more specific price controls soon to be im
posed, these developments may indicate slower price
movement in the months ahead.
NO LABOR SLACK
UNEMPLOYMENT
INSURANCE
RAW
Employment—Seasonally adjusted employment con
tinued at record high levels during March. This was un
doubtedly a reflection of record civilian production upon
which has been superimposed some military production,
and of substantial tooling up of plants for future produc
tion of war goods. There was evidence in Seventh Dis
trict plants, however, that production of civilian goods
is not undergoing quite as much pressure as existed in
previous months. Most employers are retaining their
standards when hiring new workers—an indication that
manpower pressures are not unduly great—and declines
in overtime have been quite generally reported.
Consumer Purchases—Department store sales in the
Seventh District continue above the year-ago level, by
about 25 per cent on a dollar basis. A significant part of
this increase results from price rises during the year, but
unit sales undoubtedly are above last year. Reports in
dicate, however, that consumers are showing less urgency
to buy durable goods. Stocks of major household ap
pliances are being displayed in large volume, and this
fact appears to have dampened somewhat the earlier
consumer notions of imminent shortages. Used car sales
continue slow, and stocks of some makes of new cars
at dealers’ showrooms have increased, but these are ex
pected seasonal developments.
Inventories—Stocks of processed parts and sub
assemblies have continued to increase, in addition to the
rise in stocks of finished goods. Most raw materials,
however, remain tight. Much of the shortage of basic
raw material supply appears to relate to distribution.
Obviously, manufacturers are getting, or previously
have stocked these supplies—else production could not
continue at current rates. High production during recent
months unquestionably has been at the expense of raw
materials inventories in many cases. In light of recent
indications that production cutbacks may not be as
great as earlier expected, many businessmen are taking
a “new look” at their finished and in-process inventories.
MATERIAL PRICES HALT CLIMB
CLAIMS
BASIC
SEVENTH DISTRICT STATES
COMMODITY
INDEX*
(AUGUST 1939 ■ 100)
THOUSANDS OF CLAIMS
PER CENT
1950
SALES CONTINUE HIGH
DEPARTMENT STORE SALES
COMPARED WITH YEAR AGO*
PER CENT CHANGE
”
1951
-
-
JANUARY
FEBRUARY
MARCH
SOURCE: U S. BUREAU OF EMPLOYMENT SECURITY.
1950
FEBRUARY
* DAILY INDEX NUMBERS FOR 28 COMMODITIES
SOURCE: US BUREAU OF LABOR STATISTICS.
* SEVENTH DISTRICT SALES.
MARCH
1950: Year of the Big Loan Rise
Chicago Banks Lead District Loan Boom But Lag in Profits
Throughout much of the postwar period member
banks in the Seventh Federal Reserve District have been
setting new records in one year and breaking them in
the next. The year 1950 was no exception. Most previous
highs toppled in quick succession as District banks helped
to finance the rising tempo of pre-mobilization activity
after the outbreak of hostilities in Korea, Bank asset
totals grew and the increase placed more deposit money
at the disposal of Seventh District businesses and con
sumers than ever before in history. Earnings rose even
faster under the influence of large and higher-yielding
portfolio holdings. Behind all these developments, of
course, lay the spectacular increase in bank loans.
the last half of the year was used to finance additional
investment in inventories, needed as a result of larger
physical holdings as well as higher materials prices. More
over, as is usual in a period of sharp rise in prices and
business activity, the primary producers and processors
who borrow principally in major financial centers were
among the first to require additional funds. Consequently,
586 million, or 90 per cent, of the total second half
District rise in business loans centered in five major
financial centers in the area—Chicago, Des Moines, De
troit, Indianapolis, and Milwaukee. Chicago banks alone
accounted for 473 million of this increase.
OTHER LOANS SHOW STEADIER RISE
BUSINESS BORROWINGS BOOM
Actually, loan expansion in District banks had pro
ceeded at a relatively moderate pace during the first half
of 1950. The increase in that period was not quite 210
million dollars, mostly in banks outside the major finan
cial centers. After June 28, however, the picture changed
abruptly. Total loans of District banks rose by an un
precedented 940 million in the final six months of the
year.
The greatest element in this change was the widely
publicized upsurge in lending to commercial and indus
trial concerns. Business loan totals had contracted slightly
(although less than usual) in the first half of the year,
but expanded by a record 654 million between June and
December as the need for funds by businesses rapidly
outgrew the limits of their internal resources. Roughly
half of the increase in District business borrowing in
CHART
THE
AT
LOAN
SEVENTH
While the swelling total of loans to business was the
center of attention in the late months of 1950, the com
bined increases in other forms of bank lending added
nearly as large a total to bank earning assets over the
entire year. Expanding in slower but steadier fashion,
loans on real estate and loans to individuals shared
about equally in the one-half billion dollar increase in
all other types of loans between December 1949 and
December 1950.
The larger share of the increase in real estate loans
came in the late summer months. This was more the
result of usual seasonal developments than of reaction
to the international conflict. A six per cent increase
in loans on farm land and an 11 per cent growth in
loans on commercial property between June and De
cember may have reflected in part increased selling
and construction activity as a result of the Korean war,
I
RISE OF 1950
DISTRICT
MEMBER
BANKS
MILLIONS OF DOLLARS
7001------------------------------------
MILLIONS OF DOLLARS
--------------------------------------1700
COMMERCIAL
____ BY TYPE OF LOAN
BY
AREA
CHICAGO
REAL
ESTATE
ALL
OTHER
CONSUMER
WISCONSIN
INDIANA
ILLINOIS
EXCLUDING
- CHICAGO
AGRICULTURAL
Page 1
but the dollar total of these increases was small. Bor
rowing on residential property—four-fifths of total Dis
trict real estate lending—was apparently as much dis
couraged as encouraged by the prospect of partial de
fense mobilization. Such loans increased 22.5 per cent
during the year, but this large rise was a natural result
of the record levels of residential construction which
were maintained throughout the first nine months of
1950. In the final quarter, mortgage credit extensions
dropped off considerably, but this resulted primarily
from the usual seasonal decline in construction which
has marked every postwar year except 1949. The im
position of Regulation X, restricting terms of housing
credit, had little effect in holding down late 1950
mortgage lending because of the existence of a large
backlog of preregulation financing commitments.
CHANGES
IN EARNING ASSETS AND DEPOSITS
SEVENTH DISTRICT MEMBER BANKS
CUMULATIVE, DECEMBER 1949- DECEMBER 1950
MILLIONS OF DOLLARS
MILLIONS pF DOLLARS
DEMAND
OEPOSITS
REGULATION W SLOWS CONSUMER BORROWING
Much more apparent in the year’s statistics were the
effects of Regulation W upon consumer instalment bor
rowing. Loans to consumers had grown steadily in im
portance in all classes of District banks since the war,
and in 1950 banks both in the major financial centers
and outside increased their instalment loans outstanding
by about one-third. A 40 per cent increase in retail auto
mobile instalment lending and a 60 per cent increase
in other retail instalment lending helped to raise total
bank loans to individuals past the billion dollar mark
by the end of the year. Almost all of the year’s 231
million increase, however, occurred before the tightening
of allowable terms on consumer credit in mid-October. In
the first six months of 1950, loans to individuals rose
107 million, primarily in banks outside the major financial
centers. In the following three months, the rate of ex
pansion was twice as rapid, concentrated over this period
in the major urban centers where consumer buying was
most pronounced. In the final quarter of 1950, loans
to consumers, made for the most part under stricter
credit terms, grew by only 22 million. Such a rise was
still in contrast to the year-end declines of the earlier
postwar years, but the slow-down in late 1950 was much
sharper than in late 1949.
Almost the only increase of modest proportions
among the major types of bank lending during 1950 was
in loans to farmers. Farm credit granted by District
banks increased only nine per cent over the past year.
Even within this category, however, substantial in
creases occurred but were offset by a drop in Govern
ment-guaranteed crop loans. Because of high and rising
prices for farm products, loans to farmers guaranteed
by the Commodity Credit Corporation and secured by
stored crops totaled only 16 million dollars at the yearend, 34 million below a year ago. On the other hand,
partly because they did not resort to CCC financing and
partly because of large dollar purchases of livestock and
machinery, farmers increased their direct borrowing from
banks by 53 million, or 30 per cent, during the year. A
substantial part of this increased credit was extended by
rural banks in the fall months, when a good many farmers
2
Digitized for Page
FRASER
JAN.
FEB.
MAR.
APR
MAY
JUNE
GOV’T.
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
were purchasing new stocks of high-priced feeder cattle
before disposing of current holdings.
For the year as a whole, total loans increased 28
per cent in Chicago and the other four major financial
centers, compared with a 20 per cent rise in all other
banks in the District. Moreover, between the end of May
and the end of December, loans in reporting member
banks in the District’s leading centers rose nearly onethird more rapidly than did loans of all reporting banks
in larger centers throughout the nation. Thus, banks in
the District’s major financial centers led not only out
lying banks in this District, but also the average for
the nation’s leading cities, in the loan boom of 1950.
SQUEEZE ON GOVERNMENT HOLDINGS
The very high levels of financial activity in 1950
placed District banks in need of funds during most of
the year. Three major demands for funds appeared:
(1) the usual seasonal decline of deposits in the first
quarter of the year, (2) sizable security offerings by
state and local governments and business corporations,
and (3) the need for reserves to support growing totals
of deposits created in the process of loan expansion
after midyear. To satisfy these competing demands, Dis
trict banks whittled down their holdings of U S. Gov
ernment securities in uneven fashion as the year prog
ressed.
Deposit withdrawals for income and other tax pur
poses cut District demand deposit totals by over 700
million dollars between January 1 and March 29. Par
ticularly because of large-scale withdrawals for more than
a few days in avoidance of April 1 personal property tax
assessments, Chicago member banks alone experienced a
deposit loss of 628 million, and accounted for 300 million
of the 334 million net sales of Government securities by
District member banks during this period. Despite com
plete replacement of these deposit losses in the succeed
ing three months, original levels of Government holdings
were never fully restored.
Loan demand, starting to grow rapidly in June, soon
began to make renewed liquidation of Governments neces
sary. The major portion of this liquidation came in
September, when District banks redeemed and sold 333
million of Governments during the period of Federal
Reserve market support in connection with Treasury re
funding operations. Some of the funds thus obtained
were temporarily retained in anticipation of increases in
percentage reserve requirements, but by the end of the
year most free cash reserves had been absorbed by the
large loan and deposit expansion of late fall. In addition,
throughout the year banks engaged in moderate but
steady switching operations out of Governments and into
state, municipal, and corporate securities. By the yearend, District holdings of “other” securities had risen 285
million, primarily in Michigan and Illinois banks.
Over the year as a whole, District banks disposed nf
554 million of Government securities, five per cent of
their total holdings. Because both early deposit drains
and second-half loan expansion were most pronounced in
Chicago, liquidation by banks in that city was twice as
great as the District average. On balance, only Indiana
banks outside Indianapolis, Michigan banks outside De
troit, and banks in Des Moines were small net purchasers
of Governments over the year.
HIGH ACTIVITY BOOSTS EARNINGS
Holdings of a larger and higher-yielding total of earn
ing assets funneled a record 458 million of gross earnings
into District banks during the past year. Salary costs
and other expenses continued to mount, and a record
sum was paid in taxes, but the reported 105 million of
profits after taxes was still a postwar high. When al
lowance is made for tax-deductible additions to loan re
serves being made by many banks under the permissive
regulation of the Bureau of Internal Revenue, 1950 net
profits considerably exceeded the previous all-time peak
of 108 million set in 1945.
As the accompanying table indicates, banks in Des
Moines, Detroit, Indianapolis, and Milwaukee reported
the greatest gain in profitability. Loan income in these
banks advanced 20 per cent, and net current earnings
rose 23 per cent. Chicago banks reported an increase in
loan earnings only half as large, but the unusually small
rise in their expenses enabled the gain in net operating
earnings by these banks to match the District average.
In nonoperating accounts, banks outside Chciago re
ported actual losses and charge-offs lower than a year
ago, while making only moderate changes in deductions
for bad debt reserves. Accordingly, net profits after taxes
for these banks were reported one-sixth higher than
1949 levels, in spite of sharply higher income tax levies.
Chicago banks, on the other hand, again reported large
nonoperating profits and recoveries but more than offset
the gain in this category by very large increases in addi
tions to bad debt reserves. Consequently, with higher
income tax liabilities, Chicago bank profits after taxes
dropped 11 per cent below a year ago.
This drop in net profits stands in surprising contrast
to the large increase in loans at Chicago banks during
the year. In part, of course, this contrast is illusory,
resulting from the “bookkeeping” reduction in profits
produced by large additions to loan valuation reserves.
More importantly, however, much of the income-creating
effect of the fall loan expansion will be carried over into
1951. The general rise in interest rates last fall will
also serve primarily to raise bank incomes in 1951. Both
these influences will affect banks in Chicago more than
others in the District and should thereby tend to pro
duce a relative improvement in the earnings position of
Chicago banks in the current year.
EARNINGS, EXPENSES, AND PROFITS OF SEVENTH DISTRICT BANKS
1950 COMPARED WITH 1949
(Amounts in millions of dollars)
Item
Interest and discount on loans.........
Interest on U. S. Government
securities..............................................
Total earnings.........................................
Total expenses........................................
Net current earnings.............
ATI
District Member Banks
Per Cent
1950 Change From
1949
1950
Per Cent
Change From
1949
Other Four Centers*
Balance of District
1950
Per Cent
Change From
1949
1950
Per Cent
Change From
1949
196.5
+14.7
60.8
+9.3
42.6
+20.3
93.1
+ 16.0
155.0
457.8
291.4
166.4
+3.2
+9.7
+5.7
+17.5
60.5
168.5
106.3
62.2
+3.9
+8.0
+2.9
+17.9
36.3
96.3
61.9
34.4
+3.5
+ 12.0
+6.6
+23.1
58.1
193.0
123.2
69.8
+2.2
+ 10.0
+7.6
+ 14.5
(-$8.5)
-4.1
-4.4
(+$.9)
-8.6
(+$.7)
44.6
104.6
+39.1
+3.7
17.4
40.7
+33.9
-11.0
10.5
19.5
+74.0
+17.1
16.7
44.4
+28.2
+ 15.2
37.5
+6.1
16.7
+2.1
7.7
+7.2
13.0
+ 11.0
Losses and charge-offs (—)
or recoveries and profits (+), net. . -17.1
Taxes on net income.............................
Net profits after taxes..........................
Cash dividends declared
on common stock..............................
Chicago
(-$10.1)
* Des Moines, Detroit, Indianapolis, and Milwaukee.
Page 3
Meat Price Controls Reappear
Are Meatless Days on the Horizon1
Most discussions of present day living costs tend to
center on meat, reflecting the important position of this
item in consumer budgets. Over and above its actual
importance in budgets and diets, however, there has been
a tendency to make meat a symbol of the “cost of liv
ing,” a barometer of the general well-being of consumers.
Most Americans like meat and, although they may object
vigorously to rising meat prices, are willing to spend a
substantial portion of their income to obtain it.
Meat supplies, unfortunately, do not change rapidly
in response to increased demand. This results in large
price increases such as occurred in the last half of 1950
and the early months of 1951. These, of course, were
distasteful to consumers and resulted in the imposition
of ceilings on meat prices. With ceilings in effect, mem
ories of the meatless days and “black market” episodes
experienced during and following World War II are re
vived. Thus, a question is raised as to whether we are
again on the brink of a similar situation.
Factors tending to maintain a strong demand situa
tion for meat include the indicated cutback in consumer
durable goods production, a large amount of liquid assets
available for spending, rising levels of employment and
payrolls, and an over-all large supply of money in circu
lation. The rapidly increasing population and the in
crease in size of the armed forces will also contribute to
increased meat demand.
Offsetting factors in the demand for meat would in
clude measures, such as increased taxes, tending to de
crease consumer incomes. In addition, an increase in
saving would leave less current income available for buy
ing meat. Increased competition from other foods, eggs,
for example, or abundant supplies of civilian goods in
general, would also serve to lessen the demand for meat.
A widespread and sustained boycott of high meat prices
by housewives could also decrease demand. However,
there is little indication at this time that any of these
factors will develop sufficiently to overshadow those
supporting increased demand.
DEMAND FOR MEAT MAY RISE FURTHER
MEAT SUPPLIES WILL INCREASE
Meat has in recent years recaptured its pre-World
War I popularity. Per capita consumption of red meat
exceeded 163 pounds in 1908 but declined steadily over
the succeeding three decades and averaged only 126
pounds for the drouth-ravaged 1935-39 period. The 1940
average was 142 pounds and with the advent of World
War II, consumption per capita continued to rise, reach
ing 155 pounds in 1947, but declined moderately to 145
pounds in 1950.
Poultry meat (chicken and turkey) consumption per
capita was a record 34 pounds in 1943, but was down to
31 pounds in 1950. The record year for all meats was
1944 when nearly 185 pounds were consumed. This
compares with 176 pounds in 1950 and a prospective 180
pounds for the current year.
The retail value of meat consumed per person is a
reasonably good indicator of meat demand and normally
is between five and six per cent of disposable income.
This fell below 4.5 per cent during World War II, but
available data probably are not reliable for this period
since such relationships were greatly influenced by price
controls, rationing, and unreliable reporting due to
“black market” operations. Following the removal of
price controls in 1946, the percentage relationship rose
well above six per cent for both 1947 and 1948. In 1949
and the first half of 1950, retail value was at about an
average relationship to incomes, but increased in the
second half of the year. With rising Government expend
itures for defense mobilization, demand in 1951 should
continue very strong, both in terms of actual dollar ex
penditures for meat and in relation to consumer income.
Page 4
Meat production (excluding poultry) was a record
25.2 billion pounds in 1944, but dropped to a postwar
low of 21.4 billion in 1948. Production has increased
steadily since then, to 22.3 billion in 1950 and with 23.4
billion in prospect for the current year. The indicated
1951 production is five per cent above that of last year
and seven per cent below the peak year of 1944. This
forecast is based on the increased numbers of meat ani
mals, particularly beef cattle and hogs, and the feeding
of livestock to heavier weights.
Poultry meat production in 1950 totaled 4.7 billion
MEAT PRODUCTION
1935-39 AVERAGE, 1941,1950, AND 1951 FORECAST
OF POUNDS
BILLIONS OF POUNOS
'AVERAGE
AND VEAL
(EXCLUDING LARD)
LAMB
AND MUTTON
FORECAST
CHICKEN
AND TURKEY
SOURCE.U.S. DEPARTMENT OF AGRICULTURE,BUREAU OF AGRICULTURAL ECONOMICS.
TOTAL
MEAT
pounds, about double the 1935-39 average and nearly
four per cent above the 1949 production. Production is
estimated to increase slightly in the current year mainly
because of increased commercial broiler operations.
Ample poultry meat supplies, of course, would tend to
exert a downward pressure on prices of beef and pork.
Cold storage holdings of red meats in public, private,
and semi-private cold storage houses and meat packing
plants on January 31 totaled 958 million pounds, about
13 per cent above a year earlier and 15 per cent above
the 1946-50 average for the same date. Including cold
storage holdings of chicken and turkey meat of slightly
over 275 million pounds on the same date, total meat
stocks were 1,233 million pounds, a little over four per
cent of expected total meat production of 28.1 billion
pounds this year (see accompanying chart). However,
these stocks do not take into consideration meat supplies
in the many cold storage lockers, deep freeze units, and
refrigerators owned by farmers and other consumers, for
which reliable statistics are not available. These larger
than usual storage holdings may reduce the effects of the
seasonal decline in production during the summer.
The demand for meat probably will continue to
increase relatively more rapidly during 1951 than total
meat production. Price increases on effectively controlled
markets will, of course, be at a minimum. However, a
“black market” in meats appears almost certain if de
mand increases further and present and prospective price
controls are no more effective than during and after
World War II. The four to five per cent increase in
total meat production will not be uniform throughout
the year. Supplies should increase moderately from now
until midyear with a seasonal decline likely in July,
August, and early September. This latter period will
severely test meat price controls, for, in addition to
seasonally reduced meat supplies and the expected rise
in consumer income, the effects of a shortage of civilian
goods will probably show up more than before. After
mid-September, a large part of the year’s increase in
meat will be available, and supplies should be more
nearly in balance with demand.
MORE CONTROLS COMING
Meat shortages during World War II encouraged a
great increase in livestock slaughtering outside of usual
market channels and reduced considerably the supplies
available to Federally inspected packers, the only ones
authorized to make interstate meat shipments. This led
to severe shortages in centers outside surplus producing
areas. In order to combat this situation, compulsory
licensing of slaughterers and identification of all meat
sold were made mandatory. Meat rationing was also
undertaken, and some attempts were made to limit farm
slaughter. However, these measures were far from fully
effective and the “black market” flourished.
Why were “black market” operations attractive?
Primarily because public support for the price and ration
controls was weak and because public agencies kept con
trols to a minimum. These agencies lacked the man
power, experience, and, in some cases, the legal authority
to set up the necessary controls at all levels of processing
and distribution. Concessions made to satisfy various
groups plus the failure to centralize the administration
of controls in a single agency were also vital factors con
tributing to the situation. Little or no social condem
nation of violators occurred, and most operators appar
ently felt that the profitableness of the “black market”
more than repaid the inconvenience of the light penalties
imposed on them when detected. Furthermore, large num
bers of consumers had no qualms about seeking out
“black market” supplies.
•
The Economic Stabilization Administration’s (ESA)
order of January 26 put all meats under price control,
ceilings being set at the highest prices of the December
19-January 25 period. Live animal prices were not con
trolled directly, but controls on meats do provide some
indirect control of livestock prices. In an order issued
February 9, slaughter of meat animals was prohibited by
anyone not in the slaughtering business between January
1, 1950, and February 9, 1951. All slaughterers, except
farmers, were to be licensed by ESA by March 15. New
comers to the slaughtering business will be granted a
license only by showing they are essential.
Starting April 1 each slaughterer will be given a quota
based upon his 1950 slaughter experience. In order to
combat an increase in farm slaughter and to keep the
present pattern of meat distribution as stable as possible,
a farmer is prohibited from selling meat to anyone for
resale unless the buyer secured meat from him in 1950.
Also, a farmer may not sell more than 3,000 pounds of
meat in any six month period and his meat sales must
not exceed those of the same period a year earlier.
Other controls include a quota designed to force
packers and other distributors to make the same geo
graphic distribution of products as they made in 1950.
Controls on live animal prices are expected to be an
nounced soon; in fact, some slaughter houses have threat
ened to cease operations unless live animal prices are
controlled. They insist that buying livestock at un
controlled prices and selling meat under ceilings are
inconsistent policies and will invite “black markets.”
Despite present regulations to keep distribution of
meat in legitimate channels, it will be difficult to con
trol slaughtering by farmers and small butchers. There
fore, it seems we are once again following the general
pattern of the World War II experience. If so, rationing
is one of the next steps; in fact, there is little likelihood
of meat price controls being effective unless accom
panied by rationing and strict policing of regulations to
keep meat in legitimate trade channels. There is some
doubt, however, that the staff necessary for effective
policing will be provided. Therefore, “black market”
operations in meat may become again a serious problem
in the American economy, since meat production prob
ably will not increase as rapidly as demand. In this cir
cumstance, unless primary reliance is on monetary and
fiscal measures rather than direct price controls as a
means of minimizing inflationary increases in income,
meatless days are likely to reappear.
Page 5
Michigan Leads District in Population Growth
Seventh District Mirrors National Trends in 1950 Census
The resumption of population growth experienced by
the nation during the 1940’s was paralleled by similar
trends in the Seventh Federal Reserve District, according
to preliminary counts now available from the 1950 Cen
sus of Population. The increase of nearly 19 million per
sons from 1940 to 1950 for the whole country amounted to
about 14 per cent, and the 2.7 million increase for the
District was likewise about 14 per cent. Today, as in
1940, the District contains about 15 per cent of the
country’s inhabitants.
The growth pattern has differed significantly from
state to state, as well as within each of the five District
states. The population of the District portions of Illinois,
Indiana, and Wisconsin, which contains at least fourfifths of the total for each of the states, increased by
percentages approximating the District average—12 per
cent in Illinois, 16 per cent in Indiana, and 11 per cent
in Wisconsin. Iowa’s population remained at virtually the
same level throughout the period, increasing by less than
three per cent. In Michigan’s lower peninsula, on the
other hand, the increase was considerably greater than
typical for this region—about 22 per cent.
An analysis of population changes by intra-state eco
nomic areas which have relatively homogeneous agricul
tural, industrial, social, and demographic characteristics
reveals a trend toward greater concentration in industri
alized areas. Thus, gains of more than 10 per cent were
recorded in southern and eastern Michigan, southeastern
Wisconsin, northeastern Illinois, the northwest corner of
Indiana and central Indiana, and a twelve-county section
in eastern Iowa. Substantial losses occurred, however, in
southern and western Iowa and in parts of southwestern
and central Wisconsin. The largest increases were in
Michigan, reflecting the wartime and postwar expansion
of manufacturing industries in the cities in the eastern
and southern portions of that state. This general change
in the population pattern of the Midwest should prove
to be of great advantage in the immediate future, when
the manpower demands of manufacturing industries will
be important to the rearmament effort.
Recently released figures on the population of stand
ard metropolitan areas indicate that the District is pre
dominantly an urban-oriented region. A standard metro
politan area consists of at least one city of 50,000 or
more, the county containing the city, and any other
contiguous counties closely integrated economically with
the city. Almost 62 per cent of the population of this
five-state area now resides in such metropolitan areas, as
compared with slightly less than 60 per cent in 1940.
For the nation as a whole, the corresponding figure is
about 55 per cent currently. Within the District total,
the fraction ranges from about one-fourth in Iowa through
Page 6
somewhat less than half in Indiana and Wisconsin to be
tween 70 and 80 per cent in Michigan and Illinois (see
the accompanying chart).
In all of the District states, the metropolitan area
population increased more rapidly during the 1940’s than
did the total population. This continued a long-term trend
toward increasing urbanization. Every census since 1880
has shown a decline in the percentage of the population
in rural areas and an increase in the percentage in metro
politan areas. In 1880, about two-thirds of the popula
tion of the District states was rural and only about
one-tenth lived in the larger urban areas. At present, the
rural population is less than one-fourth of the total. The
decline in the relative position of the rural population
has been most spectacular in Illinois and Michigan, but
it has been of major importance in the other three states
as well.
Within the metropolitan areas, the increase during
the last decade was considerably greater percentagewise
in the suburban and other outlying sections than in the
central cities themselves. In the Chicago area, for ex
ample, the increase amounted to about 6 per cent in the
city and about 31 per cent in the outlying sections. For
the Detroit area, the corresponding changes were 13 and
51 per cent. Of the 29 metropolitan areas included par
tially or wholly in the District, the pattern was reversed
in only two cases. In one of these, a change in Census
procedures produced this result.
POPULATION
IN
THE SEVENTH DISTRICT
1940
AND
(IN
1950
MILLIONS)
ILLINOIS
6,591,832
3,230,316
INDIANA
2,788,910
SEVENTH DISTRICT
(IN MILLIONS)
3 22,061,33 8
mm2?12'598
IOWA
19.406.389
2,538,268
6,008,387
MICHIGAN
4,932,562
2,840,150
IN STANDARD
METROPOLITAN AREAS
WISCONSIN
2.554,617
note:
includes
FEDERAL
only that
RESERVE
part
of
each
DISTRICT.
SOURCE: u. S. BUREAU OF THE CENSUS.
state
located
within
the
seventh
Anticipatory Buying Influences 1950 Retail Sales
Durable Goods Lines Lead Retail Trade Expansion
The immense volume of consumer spending at retail
stores during 1950 set many records. Concurrently,
equally important developments occurred in the compo
sition and seasonal variation of spending. These devel
opments are illustrated by trends in (1) department store
sales before and after the start of the Korean War, (2)
sales of durable versus nondurable goods, and (3) con
sumer demand during the year’s two waves of anticipa
tory buying.
Changing sales patterns developed against a back
ground of greatly increased consumer demand during 1950
resulting in rapidly rising total sales of consumer goods.
The increased desire of consumers to spend after mid
year was supported by the high levels of current income
received and by the use of past and future income by
those who had liquid assets upon which to draw or credit
against which to borrow.
Although new records were set in many areas of con
sumer spending during the year, total department store
sales in the District as well as the nation fell slightly be
low the record dollar volume of 1948. Department store
sales in Detroit and Indianapolis last year were slightly
in excess of 1948 totals. However, Chicago sales were be
low 1948, and Milwaukee sales were about the same.
Total retail sales during the first part of 1950 followed
the usual seasonal pattern quite closely in both the na
tion and District (see Chart 2). Monthly totals were for
the most part slightly higher than in the corresponding
months of 1949 but substantially below the record post
war levels of 1948. In general, consumer spending ap
CHART
I
COMPARISON OF DEPARTMENT STORE SALES
AT MAJOR DISTRICT CITIES
ADJUSTED INDEXES, 1948-51
(1935-39-100)
PERCENT
PER CENT
INOIANAPOLIS
V DETROIT
CHICAGO
MAR.
JUN. SEPT. DEC.
1946
MAR.
I i i I i i
JUN. SEPT. 0EC.
1949
MAR.
JUN. SEPT.
1950
NOTE: ALL DATA SUBJECT TO REVISION OF SEASONAL FACTORS.
DEC
peared to be recovering from the relatively mild reces
sion of 1949, and it was generally felt during the first
two quarters that 1950 would be a “good” year for re
tail stores, but probably not a record one.
SALES ERRATIC DURING SECOND HALF OF 1950
In contrast to the comparative mildness of events
which characterized the first six months of the year, the
second half was studded with far-reaching developments,
any one of which would have been capable of drastically
affecting consumer spending. Fighting broke out in Korea
toward the end of June, Regulation W was put into
effect in September and strengthened in October in an
effort to restrain the rapid expansion of consumer credit
which was providing an important part of the funds for
anticipatory buying by consumers. Tax rates on personal
incomes were raised during the last quarter of the year
and an excise tax was placed upon sales of television sets
effective November 1. Late in the year, Communist
China entered the battle in Asia. During December, ex
tremely bitter weather brought to a close one of the most
unpredictable six-month periods in many years. This
combination of events, plus rapid price increases and
growing rumors of coming austerity, produced two periods
during which retail sales, especially at department stores,
abandoned their usual seasonal pattern and took off
skyward.
On the basis of the usual postwar seasonal sales pat
tern, June sales at department stores are usually slightly
below those of May, followed by a considerable drop to
two of the least active months of the year, July and Au
gust. From August to the end of the year, monthly sales
can be expected to increase markedly.
The divergence from this seasonal pattern in the
eventful months following Korea is indicated in Chart 2.
Department store sales during July, instead of falling
sharply, as would normally be expected, actually rose
moderately. This fact accounts for the great rise in July
in both the national and District adjusted indexes of de
partment store sales, reflecting the anticipatory buying
which resulted from the Korean affair. During August,
department store sales remained abnormally high, but
the trend of sales in the District and nation diverged,
the former rising, the latter falling. In September, season
ally adjusted sales dropped from the abnormally high
level of the summer months, and in October and Novem
ber recovered rapidly. December sales in both the Dis
trict and nation increased seasonally, even more than
would be expected, to a new record for the month.
Although dollar sales always drop spectacularly from
peak Christmas levels, January 1951 sales on a seasonally
adjusted basis not only exceeded December figures but
Page 7
CHART
2
DEPARTMENT STORE SALES - DISTRICT AND NATION
1948-51
UNADJUSTED AND ADJUSTED FOR SEASONAL VARIATION
(1941-100)
PERCENT
PER CENT
UNITED STATES
— ADJUSTED
.......... UNADJUSTED
SEVENTH DISTRICT
ADJUSTED
J
£
..........— UNADJUSTED ______ |J.
some extent, from a tendency toward the purchase of
higher quality apparel. Second, style change promotional
activity has been less vigorous than immediately follow
ing the war.
Although many reasons are offered for the continued
strong demand for consumer durables, the following ap
pear to be most important. First, the postwar housing
boom has increased the demand for durable goods with
which to furnish and equip the new households. The
increase in the number of family units during the same
period has augmented this sector of the demand. Second,
high incomes make possible a greater proportion of
spending for “luxury” durables.
TWO WAVES OF ANTICIPATORY BUYING COMPARED
— 300
1950
# JANUARY 1951 FIGURES FOR THE UNITED STATES ARE PRELIMINARY.
equaled the all-time peak of last July for the nation as a
whole. This wave of scare buying subsided somewhat in
February and March, but sales continued to exceed those
of 1950 by a substantial margin.
DURABLES VERSUS NONDURABLES
As has been the case during the postwar period in
general, 1950 sales of nondurable goods failed to keep
pace with those of durables. This trend is shown in Chart
3 for department stores and in Chart 4 as it appears at
other types of retail outlets. At department stores, the
radio-television category displayed the greatest strength,
with household appliances trailing. The rise in furniture
sales over the past five years has been moderate but
steady. During 1950, all three categories advanced, the
increase in radio-television and household appliances be
ing spectacular. Sales of household appliances and fur
niture at outlets other than department stores displayed
comparable trends.
Sales of nondurables at department stores and other
establishments present an entirely different picture. Not
only have they failed to share in the postwar surge of
durables sales, but in some categories 1950 sales set a
record postwar low. Needless to say, with spectacular
exceptions, nondurables did not participate importantly
in the forward buying which occurred in 1950.
Several reasons have been advanced for the failure
of sales of most nondurable goods to participate to any
great extent in the postwar boom. First, the early avail
ability of such items and the high level of disposable per
sonal income which has been an integral part of the
postwar period allowed consumers to fill the backlog
of demand for nondurables which existed in the early
postwar years. Current demand originates principally
from replacement needs, increasing population and, to
Page 8
The first wave of anticipatory buying was concen
trated in July and August. During these two months,
consumers flocked to stores to buy goods, principally
durables, which they feared would soon rise in price or
be in short supply. During the third quarter of 1950, the
nation’s retail sales were almost 18 per cent in excess
of the corresponding period of the previous year. This
was in contrast to a modest six per cent year-to-year
gain for the second quarter.
The list of goods which were hard to obtain during
the second World War is startlingly similar to the list
of goods on which consumers concentrated their spending
during this period—automobiles and accessories, nylons,
white goods, and some types of foods. In terms of dollars
spent and length of the anticipatory wave, durables con
stitute the most important part of this list.
In the District, increases from year-ago levels of de
partment store sales were led by sales of radios, television,
and phonograph departments, with major appliances,
furniture, domestic floor coverings, and household textiles
lagging behind. For example, July sales of major houseCHART
3
SALES OF DURABLE AND NONDURABLE GOODS
AT DISTRICT DEPARTMENT STORES
UNADJUSTED INDEXES, 1946-51
(1941 AVERAGE MONTHLY SALES -100)
PER CENT
1,0001------------ 1
DURABLES:
*
I
—------- FURNITURE
-- ---------HOUSEHOLD APPLIANCES
------------ RADIOS AND TELEVISION
800 — NONDURABLES:
------------ WOMEN'S AND MISSES' ACCESSORIES
------------WOMEN'S AND MISSES1 APPAREL
------------MEN'S AND BOYS' WEAR
600 -
* JANUARY I9SI FIGURES ARE ESTIMATED.
CHART
4
RETAIL SALES AT SELECTED STORES
SEVENTH FEDERAL RESERVE
DISTRICT
{1947* IOO)
PER CENT
PERCENT
FURNITURE STORES
APPAREL STORES
HOUSEHOLD APPLIANCE
last for many more months, since production of war
materials at anticipated rates will interfere in many
areas with the output of civilian goods. Increased per
sonal incomes and declining civilian production will place
great upward pressure on prices, despite the tempering
effect of possible increases in tax rates.
The consumers’ lot is not to be too unhappy a one,
however, since production of most important consumer
goods should be at worst comparable to pre-World War
II levels and probably close to most postwar years ex
cept 1948 and 1950. Consumer stocks of durable goods
are at all-time highs, and there is little prospect that
they will decline in the months to come. It is possible
that the production of consumer goods will return to
levels comparable to 1950 within several years, assuming
that the defense program is not expanded more than now
anticipated, that contemplated new productive facilities
are completed and utilized, and that efforts to minimize
inflation are reasonably successful.
CHART
hold appliances, including refrigerators, washers, stoves,
ironers, and cabinets, were more than double those of the
corresponding month of 1949. Boosted by the long-run
trend toward increased television set sales, July sales of
the merchandising division of radios, television, and
phonographs were over ISO per cent above July 1949.
Muslins and sheeting sales were over 120 per cent above
the previous year, and hosiery was up over 130 per cent.
In general, then, the July-August period was charac
terized by consumer eagerness to acquire goods which
were hard to get during World War II. The dollar
volume of sales was remarkable only because it was
unseasonable; it did not approach the high sales volume
which occurred during the Christmas season. A com
parison with July and August of 1948, a year of similar
total sales volume, shows the same general pattern as
dees a comparison with 1949, but the magnitudes are
not so great in the former case (see Chart 5).
The second wave of unseasonably high levels of
buying occurred in December 1950 and January 1951.
During this period, consumers concentrated their pur
chases on a wider range of products than during the
July-August period. What preference they did show
was primarily for better-known brands and for quality
goods. At District department stores, sales of only a few
minor categories failed to show increases over the cor
responding month of 1949 and 1950, although the average
excess was smaller than during the July-August period.
On the other hand, piece goods and household textiles
showed greater gains in all components than they showed
during August. By the end of March, this wave of an
ticipatory buying appeared to be tapering off, although
sales were still much higher than those of March 1950.
THE PLIGHT OF THE CONSUMER
At present, consumers are acquiring goods at near
record rates. It is difficult to see how this situation can
DEPARTMENT
5
STORE
SALES
SEVENTH FEDERAL RESERVE DISTRICT
PERCENTAGE
total
CHANGE FROM
CORRESPONDING MONTHS IN 1948
sales
MAIN STORE
m,//////////A
BASEMENT
PIECE GOODS AND
HOUSEHOLD TEXTILES
SMALL
WARES
JULY 1950
AUG. 1950
DEC
WOMEN'S AND MISSES’
ACCESSORIES
WOMEN'S AND MISSES
APPAREL
MEN'S AND BOYS' WEAR
HOUSEFURNISHINGS
1950
SEVENTH FEDERAL
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IOWA
ILLjINO
RESERVE DISTRICT
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