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A review by the Federal Reserve Bank of Chicago

Business
Conditions
1958 April

Contents
The swing to services

5

Another mild recession?

7

Midwest has big stake
in foreign trade

The Trend of Business

10

2-4

Federal Reserve Bank of Chicago

OF
employment, production and income have
continued to drift downward. By most meas­
ures, the current recession now approximates
the experience of 1948-49 and 1953-54.
During February, wage and salary employ­
ment, seasonally adjusted, dropped to 51.2
million— off 600,000 from January and 1.4
million from a year earlier. Industrial pro­
duction declined further and was 1 1 per
cent below the year-ago level. Personal in­
come, at an annual rate of 342 billion dol­
lars, was still above last year, but was over
5 billion dollars below last September’s rec­
ord level. In the early weeks of March, some
seasonal gains in construction employment
were noted, and the approaching Easter Pa­
rade was helping to boost traffic in depart­
ment stores. But the near-term trend of busi­
ness remained uncertain.
In v e n to r y a d ju stm en ts p ro c e e d in g

2

Inventory liquidation accelerated sharply
early in the current year and maintained a
persistent downward pressure on most meas­
ures of activity. In fact, one evaluation of the
rapidity of the inventory adjustment could
suggest an early end to the depressing effects
from that sector, assuming maintenance of
buying for final use.
Total business inventories declined 600
million dollars on a seasonally adjusted ba­
sis during the fourth quarter of last year.
January alone saw a further drop of about
the same amount. Although the move to hold
down inventories has been widespread, vir­




BUSINESS

tually all of the decline since September is
accounted for by manufacturers of durable
goods. It was those metal-using lines which
had accounted for a large portion of the
build-up of stocks in the two and one-half
years prior to last September. The reason is
simple. Hard goods production had risen
most during the boom and has fallen off the
most during the succeeding slowdown.
Steel production in the first quarter of
1958 totaled only about 19 million tons.
This was 40 per cent below the same months
of last year. However, steel pourings stabi­
lized in March after a year-long decline, and
orders have been improving since early this
year. Significantly, the types of steel, mainly
lighter products, which had been cut back

Capital expenditures boom
passes its peak
billion dollars

1950
'51
'52
'53
'54
'55
seasonally adjusted semi-annual totals, 1955-58

'56

'57
'58
(projected)

Business Conditions, A pril 1958

earliest are now showing some signs of
strengthening. The heavy items, such as
structurals and plate, which had been in
tight supply earlier have been readily avail­
able in recent months. The heavy plate out­
look is clouded by a court decision on rate
regulation which is causing a number of
planned pipe line projects to be deferred.
The better tone noted in steel orders has
also been evident in fabricated copper and
aluminum products. However, inventories of
copper and aluminum continue heavy, and
further reductions in output of these metals
may be indicated.
Another indication that some inventory
reduction plans may have been largely com­
pleted is seen in an improvement in demand
for minor capital goods and components,
such as welding equipment, small electric
motors, transformers and similar products.
Inventory adjustments usually can be made
most easily in products of this type.
The increase in defense procurement con­
tracts is beginning to exert some influence.
The evidence is most marked on the West
Coast, but there has been some pickup in
defense business in the Midwest also. Tool
shops and suppliers of parts have reported
some gain in orders from defense contrac­
tors.
C a p ita l sp e n d in g reduced

Business expenditure plans for new plant
and equipment have been revised downward.
A Department of Commerce— Securities Ex­
change Commission survey indicates that
businesses expect to spend 32 billion dol­
lars for new facilities in 1958, a decline of
5 billion dollars or 13 per cent from 1957.
Spending by durable goods manufacturers
is expected to be off 22 per cent. This pros­
pect was not unforeseen. New orders for
machinery of all types declined fairly stead


Inventories of hard goods
continue to rise relative
to sales through January

ily during 1957 and at year end were run­
ning 15 per cent below the rate of a year ear­
lier. Machine tool orders in January showed
a slight rise, but the amount of new orders
was only one-third of the year-ago figure and
one-fifth of the very high rate of two years
ago.
The cutback in investment plans is re­
flected also in a survey of manufacturing
firms’ authorizations of capital spending, re­
ported by Newsweek and the National Indus­
trial Conference Board. This survey indicates
that new plans approved in the fourth quar­
ter of 1957 were one-third below a year
earlier. Moreover, cancellations of spending
plans approved previously had increased.
Construction is another capital goods sec­
tor which is showing less vigor than had been
expected a few months ago. The value of
construction put in place declined slightly
on a seasonally adjusted basis in February,
and the number of private housing starts
nationally was estimated to have dropped to
an annual rate of 890,000, somewhat below

3

Federal Reserve Bank of Chicago

the reduced level of early 1957. Unfavorable
weather conditions— heavy snows and low
temperatures in many parts of the country—
undoubtedly accounted for a part of this cut­
back, but apparently were not the sole cause.
Construction contract awards for January
were 10 per cent below last year in the U.S.
and were off 30 per cent in the Midwest.
Moreover, all major categories participated
in this decline, including the residential com­
ponent. Construction outlays in 1958 may
well exceed 1957 for the year as a whole, as
estimated by the Department of Commerce
and Bureau of Labor Statistics last Novem­
ber, but the industry will have to overcome
a slow start.
R etail tr a d e tre n d s

In February, retail trade fell about 3 per
cent from the January level, to an annual
rate of 16.2 billion dollars. For the first time
since October 1954, consumer takings at
retail were below their year-earlier figure.
Although most categories were affected by
slower buying, the greatest impact has been
in larger goods which often involve consumer
credit. The following table indicates the vari­
ation in dollar volume results among retailing
groups in the nation during February:
Per cent change
February 1958 from February 1957
Total

-

1

Grocery stores

+

8

Eating & drinking places

-

4

General merchandise

-

2

Apparel

-

1

Furniture & appliance

-

9
9

Lumber & hardware

-

Automotive

-1 4

Service stations

+ 6
+ 10

Drug stores

4

New car deliveries for the first two months




of the year, according to Ward’s, were 26 per
cent below the 1957 period and the lowest in
six years. These results, too, undoubtedly
were influenced by adverse weather condi­
tions.
In early March, department stores were
reporting some improvement in sales over
the corresponding year-ago period. In part,
this could be a reaction from a depressed
February and, in part, it may reflect the
earlier date of Easter this year. It is estimated
that the earlier Easter could account for
something on the order of a 6 per cent rise
in department store sales in March relative
to March last year.
As usual, sales trends of particular firms
and products have not followed the same
pattern as total retail sales. Producers of cer­
tain new models of refrigerators, washing
machines and hot water heaters, for example,
have reported excellent consumer accept­
ance. Some retailers have attributed unsatis­
factory sales to inadequate inventories, par­
ticularly of moderately priced merchandise.
Despite the slackening of income, employ­
ment and spending which has occurred in
recent months, the consumer price index
continued to rise through January. The in­
crease was due in part to reduced supplies
of meat animals and fresh fruits and vege­
tables, the latter resulting from abnormal
weather in areas of the South.
The Survey of Consumer Finances, re­
leased in March by the Federal Reserve
Board, indicates that individuals are some­
what more uneasy about economic prospects
than in other recent years. Substantially
fewer families expect to buy new cars or
new homes this year, and intentions to buy
furniture and appliances are also down
slightly. However, consumers are more flex­
ible than businesses in their buying plans
and may change more quickly.

Business Conditions, A pril 1958

The swing to services
D u r i n g the final quarter of 1957, con­
sumer spending for goods and services de­
clined 1.2 billion dollars from the record
summer pace. Although the decline repre­
sented only a small fraction of the 284 bil­
lion annual spending rate chalked up in the
third quarter, it was the first since the reces­
sion months of late 1953.
In all three postwar recessions to date,
the pattern of consumer spending has shown
at least one notable similarity: While per­
sonal outlays for goods have declined in
each business downturn, the decrease has
been offset in part by a continued upward
movement in spending on services. For ex­
ample, combined purchases of consumer du­
rable and nondurable goods dropped 2.3
billion dollars, at an annual rate, between
the third and fourth quarters of last year,
while service outlays rose 1.1 billion. This

Services capture increasing share
of consumer dollar since 1947
per cent

offsetting movement in spending for services
reflects the robust and persistent growth of
such expenditures throughout the postwar
period.
Im p re ssiv e g a in s

Today almost two out of every five dol­
lars of consumer expenditures involve pay­
ment for services, including items which
range from rent and railroad travel to hair­
cuts and hospital care. Service expenditures
include all those consumption outlays for
which no physical product is received in
return.
The growing importance of consumer
spending for services is evident in both abso­
lute and relative terms. Measured in dollar
amounts, service expenditures have more
than doubled in the past ten years. This
compares with a 70 per cent increase in
outlays for consumer durable goods and a
50 per cent pickup in spending for non­
durables.
As a share of the consumer dollar, service
outlays have moved from a low of 31 per
cent in 1947 to almost 38 per cent in 1957.
Immediately after the war, spending on du­
rable goods jumped sharply as these goods
became generally available again, though in
subsequent years such outlays have taken a
fairly stable fraction of consumer spending.
On the other hand, the proportion of expen­
ditures going for soft goods has been declin­
ing steadily since its wartime peak.
Prices sh o w p e rsiste n t rise

J---I---L
1929

‘35

'40




’50

Concurrent with the increase in consumer
spending for services has been a large in-

5

Federal Reserve Bank of Chicago

Rent and household operation

but education and personal business
show larger relative gains in
consumer service outlays since 1 9 4 7

account for half of
"service” dollar . . .

private education
and research
personal business
rent
household operation
personal care
religion and welfare
activities
medical care
recreation
transportation
Clothing care

6

crease in prices. Since 1947, service prices
have climbed 38 per cent, while prices of
nondurables rose 18 per cent and hard goods
advanced 15 per cent. As. measured by the
Bureau of Labor Statistics’ consumer price
index, increases for individual service cate­
gories have varied widely (see chart). Hospi­
tal fees and transit fares have more than
doubled, while residential gas and electricity
rates have risen only about 16 per cent.
But even after adjusting for the effects of
higher prices, expenditures for services have
increased substantially. In terms of constant
prices, consumer outlays for services have
risen almost 50 per cent in the past ten
years; spending for durables has increased
almost as much, and nondurable spending
has gone up about one-fourth. If adjusted
further, for the growth in population, it
appears that consumers have boosted their
consumption of services by about 25 per




cent per capita in real terms over the past
decade.
G a in s a c ro ss th e b o a rd

The increasing proportion of consumer
spending allocated to services has not been
the result of a spurt in outlays for any one
or two categories. On the contrary, most of
the major service groups show expenditure
gains on the order of 10 0 per cent or more.
Particularly notable increases have been
scored by outlays for rent and personal
business.
The “rent” category includes payments
made by tenants and the imputed rental
value of owner-occupied homes. The post­
war trend toward homeownership has helped
to boost the imputed rent item, although
presumably at the expense of actual rent
payments. Since 1947, the figure for imputed
— continued on page 14

Business Conditions, A p ril 1958

Another mild recession?
T h r e e times since the end of World War II
the American economy has receded tempo­
rarily from its fast postwar pace — first in
1948-49, then in 1953-54 and most recently
in 1957-58. Perhaps the most pressing eco­
nomic question in recent months has been
how deep and how long will the current
downturn be. There is, of course, no sure­
fire answer. It is interesting, nevertheless, to
compare today’s developments with the ear­
lier downturns, to note similarities and dif­
ferences between the present and the past.
Comparisons with earlier periods are com­
plicated by the fact that many changes have
occurred during the intervening years. Pro­
ductive capacity has been expanded greatly;
the pace of technological advance has varied
for the different sectors; and markets, of
course, are always in a state of flux. Foreign
competition in some sectors is now more
effective than at any time since the end of
World War II. Adjustments in defense spend­
ing continue to be made in response to re­
appraisals of needs. The backlog of demand
for new construction— public and private—
which helped pull some industries out of the
earlier recessions, is now more fully satisfied.
And new products and changing tastes have
altered the competitive position of still other
industries in their battle for profitable shares
of consumer expenditures.
There is yet another difficulty in making
direct comparisons between the present and
past periods. Neither of the first two postwar
downturns came at precisely the same time
in the year as the present one. Since the econ­
omy is subject to seasonal as well as cyclical
fluctuations, the differences in timing alone



can result in accelerated (or retarded) rates
of decline in individual measures of business
activity. This problem is overcome in part
by using data in the comparisons which are
adjusted in such a manner as to eliminate
“usual” seasonal changes. Notwithstanding
these shortcomings, a review of the behavior
of a number of the economic indicators dur­
ing recent recessions helps to place current
developments in perspective.
Selected economic indicators are plotted in
the charts on pages 8 and 9 covering a time
period of twenty-four months, twelve months
preceding and twelve months following the
dates when the economy as a whole appeared
to reach peak levels of activity: November,
1948; July, 1953; and August, 1957.
Three broad measures of economic activ­
ity are shown in the top panel on page 8.
Of these three, industrial production moved
down slightly more rapidly in the six months
from August to February than it did during
the six months following the 1948 and 1953
peaks. Retail sales, though off almost 5 per
cent from the summer high, had not deterio­
rated as much as in the 1953-54 recession.
In the first postwar decline in business activ­
ity, retail trade traced a fairly stable sales
pattern.
In all three periods new orders started to
decline several months before the drop-off
in most other indicators. To keep production
going, firms whittled down their backlogs of
unfilled orders. And inventories continued to
rise for a while. Currently, unfilled orders
are lower than they were in 1953, but new
orders are higher.
— continued on page 1 0

7

Business Conditions, A pril 1958

Federal Reserve Bank of Chicago

Postwar recessions compared—selected business indicators
(changes during twelve months preceding and following tops of booms)
billion dollar*
GROSS

|
NA TIO N A L

jrzf

PRODUCT

pqrctftt, 1947-49 svqroq*' 100
CRUDE
MATERIALS

Srdqtr
(957

1956-58

4 th qtr
1948
1 9 4 7 -4 9

i l l

1 i i t i i i i




l„.;1 I I I

D

EQUIPMENT

MANUFACTURING
AND TRADE INVENTORIES

thousand unit*
A200

38

AVERAGE HOURS WORKEDMANUFACTURING (unadjusted)

NEW DWELLING UNITS

Federal Reserve Bank o f Chicago

Recession? continued from page 7
The level of unemployment was higher
when the current recession began than it was
in either 1953 or 1948. And the average
hours worked was slightly lower. In February,
unemployment exceeded the peaks reached
in either of the preceding periods. As is usual
in a cyclical adjustment, much of the unem­
ployment is concentrated among the younger
and relatively less skilled workers in durable
goods industries. The number of people em­
ployed, reflecting the growing size of the
labor force, has been at a higher level than
it was during the earlier recessions.
In all three recessions, the prices of crude
materials declined before the downturn in
general activity, though in 1957 the decline
was relatively mild. Prices of semi-processed
and processed goods, however, have shown
quite different patterns in each recession pe­
riod. In 1953, prices of these goods remained

firm, while in 1957 they have continued to
rise. This is in contrast with 1948 when such
prices declined.
In both 1948 and 1953, corporate profits
reached peaks at about the same time as gen­
eral business. In 1957, however, corporate
profits started to turn down before the over­
all level of activity receded.
New plant and equipment expenditures,
have turned down sharply from their third
quarter peak. Estimates for the second quar­
ter of 1958 place the level of plant and equip­
ment expenditures at 32.5 billion, roughly 5
billion below its peak level.
In both the 1948 and 1953 declines, con­
struction recovered rapidly and gave a strong
boost to the upturn in general activity. In re­
cent months, the number of “new housing
units” started has been running at a lower
rate than in 1954. In dollar terms, however,
the over-all construction activity is higher.

Midwest has big stake
in foreign trade

10

S a le s of goods and services to overseas
customers increased in 1957 for the fourth
consecutive year. Despite a decline from an
exceptionally high level in the initial two
quarters of last year, exports showed a 3
billion dollar gain over the 1956 level and
accounted for more than a fourth of the rise
in domestic output.
Although the 19 billion dollars of mer­
chandise exports is equal to only 8 per cent
of domestic output of movable goods, these




shipments, together with the 5 billion in U.S.
services bought by foreign customers, appear
relatively large when compared with many
important sectors of domestic demand. Ex­
port sales exceeded by a considerable mar­
gin consumer outlays on autos and auto
parts and expenditures on residential con­
struction. In addition, they nearly equaled
business spending on new machinery and
equipment. According to Department of
Commerce estimates, 4 Vi million persons, 7

Business Conditions, A pril 1958

Many Midwest products heavily dependent on foreign markets
selected commodities,per cent of output exported

per cent of manufacturing payrolls
in Sevent

0

100

10

____

20__________ 30

40

I
tractors
construction machinery

MACHINERY

diesel type engines
other agricultural
machinery
refrigerators

TRANSPORTATION
EQUIPMENT

civilian aircraft
trucks and buses
railroad cars

FOOD AND
FOOD PRODUCTS

automobiles
wheat
fats and

METALS AND
METAL PRODUCTS

oils

milk, condensed
and dried
cheese
copper
iron and steel products

OTHER

penicillin
chemical fertilizers
synthetic rubber

per cent of the labor force, gain their liveli­
hood directly or indirectly from export trade
and domestic distribution of imports.
In the M idwest. . .
The Midwest has a particularly big stake
in U.S. export trade. First, a large share of
industrial exports are produced in Midwest
factories. Second, much of the agricultural
exports are either grown or processed in this
region. Third, as a major transportation cen­
ter, many of the commodities exported are
either shipped through the area to coastal
ports or transferred directly to overseas car­
riers operating in the Great Lakes. These
direct shipments will doubtless become in­
creasingly important with the completion of
the St. Lawrence Seaway.



Exports bulk particularly large in many of
the hard goods lines produced in the Mid­
west. For example, the latest annual figures
indicate that one-fifth of all motor truck sales
are made to overseas customers. Over a
quarter of the tractors produced in the U.S.
are exported, and foreign purchases of other
farm machinery represent about 13 per cent
of over-all demand. Shipments abroad of
construction equipment aggregate 26 per
cent of total production, and overseas sales
take 11 per cent of the output of machine
tools.
In each of these industries, Midwest firms
predominate. The five Seventh District states
account for 35 per cent of the total payroll
of machinery manufacturers in the U.S., 35
per cent for transportation equipment pro-

11

Federal Reserve Bank of Chicago

ducers and 29 per cent for metals and metal
products firms. During 1957, these industries
exported almost half of total U.S. nonagricultural overseas shipments.
Among the agricultural products, the top
spot in value of exports has alternated in
recent years between cotton and wheat.
While virtually none of the cotton is pro­
duced in the Midwest, a good part of the
wheat is grown and processed in this area.
Com and fats and oils also provide sub­
stantial volumes of exports. Foreign pur­
chases of U.S. fats and oils totaled 600 mil­
lion dollars in 1957, largely soybean oil and

Export sales show larger relative
gains than most other sectors since 1953

12



animal fats. Over 50 per cent of U.S. soy­
beans are grown in Illinois, Indiana and
Iowa, and Midwest farms and meat packing
plants are important sources of animal fats.
N o n c o m p e titiv e im ports

Any form of commercial trade, whether it
be between states, regions, or nations, can­
not be a one-way street. American exporters
generally want to be paid for their merchan­
dise or services in dollars, a currency that
can be spent domestically. The major source
of dollars to overseas buyers of U.S. prod­
ucts is, of course, their earnings on goods
and services sold to this country. A dollar
spent for imported goods will in the normal
course of events return as a purchase of U.S.
products by foreign customers.
The preponderant share of imports enter­
ing the United States do not compete direct­
ly with the output of domestic producers.
Three-fifths of total merchandise imports
consist of crude and semimanufactured raw
materials. A large share of these materials
are virtually nonexistent in this country:
tin, nickel, natural rubber, jute and flax fiber,
raw silk, diamonds, manganese and bauxite,
for example. In other cases, such as news­
print, imports supplement inadequate domes­
tic supplies. The continued efficient produc­
tion of many important industrial commodi­
ties is dependent on foreign sources. For in­
stance, all of our manganese— essential to
steel output— and three-quarters of the baux­
ite from which aluminum is produced, are
imported.
An additional one-fourth of U.S. imports
represent foodstuffs, a large part of which
are commodities that cannot be economically
grown domestically. Of the 3 billion dollars
in food imports in 1957, coffee accounted
for 1.4 billion and tea, cocoa, bananas and
spices an additional 400 million. The United

Business Conditions, A pril 1958

States is in these in­
U. S. balance of payments, 1957
stances completely de­
pendent on foreign
foreign nations used
sources of supply.
to spend for.
dollars obtained from.
But not all imports
are so clearly non­
competitive. In some
cases, there is keen
com petition between
domestic and foreign
producers in specific
sale of merchandise
industries, just as there
is between individual
domestic producers in
S. merchandise
the same industries.
A nd th e re a re in ­
stances when imports
have caused domestic
u n e m p lo y m e n t, a l­
th o u g h th e a re a of
com petition is rela­
and services
tively small. The De­
p a r t m e n t of C o m ­
merce estimates that
only 2 out of the 13
U.S investment
billion of merchandise
abroad, interest
and services
receipts a U.S gifts
imports compete di­
rectly with the prod­
ucts ofU.S. producers.
But, such competition
U.S Government
investment, interest
grants
payments 8 other
becomes more appar­
transactions
ent during periods of
gold sales
declin ing do m es tic
output and employ­
ment. With full em­
ployment and rising
output, resources released as a result of in­
policy. Over the course of the past two and
creased imports may quickly shift into other
a half decades, U.S. tariffs have been reduced
uses. In periods of excess capacity, however,
considerably. The average rate on dutiable
the adjustment process is more difficult.
imports has been cut in half, with the major­
It is in this type of setting— one in which
ity of the decline coming in the recent post­
capital and labor is not fully employed—
war period. Furthermore, the reductions
that Congress is again reviewing U.S. trade
have been widespread— the minimum aver


13

Federal Reserve Bank of Chicago

age drop in rates on the sixteen
Income from exports exceeds
tariff groupings being about 40
important sectors of domestic outlays
per cent.
awnimni—
Tariffs still average 12 per cent
of dutiable imports. Thus, there is
considerable room for further re­
exports of goods and services
(excluding interest and Investment income)
duction if such action should be
deemed desirable. While it is very
residential construction
difficult to pinpoint the increase
furniture and household
in imports that might result from
equipment purchases
any specified reduction of tariffs,
auto and auto ports
it was recently estimated that
outlays by consumers
complete suspension of all duties
other private construction
would mean a rise in U.S. mer­
apparel expenditures
chandise imports on the order of
8 to 17 per cent. At the higher
business purchases of capital
equipment
figure, this would represent about
one-half of 1 per cent of U.S.
production of goods and services.
Any increase in imports re­
sulting from a reduction in tariff or other
productive capital equipment and the result­
cause, however, would probably be concen­
ing high output per worker.
trated in particular industries and initially
As an important agricultural and manu­
would, at least in part, be at the expense of
facturing area for many of the products in
competing domestic producers. But a rise in
demand in both the industrialized and the
U.S. payments for imported goods and serv­
underdeveloped nations of the free world,
ices should ultimately stimulate an equiva­
the Midwest is in a key position to benefit
lent boost in exports, or foreign investment
from any expansion of foreign commerce.
here, the alternative being a persistent build­
The completion of the St. Lawrence Seaway
up of idle foreign dollar balances. Moreover,
is expected to further augment Midwest em­
wage rates tend to be highest in the major
ployment and investment opportunities in
export industries, reflecting greater use of
overseas commerce and its related services.

Services continued from page

14

6

rent of owner-occupied dwellings has in­
creased almost 2 Vi times, compared with
a doubling in the dollar amount of rent paid
by tenants.
Among the major items in the personal
business group are interest payments on
consumer debt, and financial, legal and life




insurance services. Interest payments rose
the most in this group, reflecting the postwar
trend toward increased credit buying of con­
sumer durables such as autos and household
appliances.
Transportation and recreation, on the
other hand, are two service categories for
which expenditures showed relatively small

Business Conditions, A pril 1958

The " w h y " o f im puted re n t
Consumption expenditures for shelter,
which are included in service outlays, con­
sist of the actual rent paid by tenants for
residential housing and an "im puted re n t"
for owner-occupied dwellings. Imputed rent
is the estimated amount of rent a home
owner could obtain if he rented out his
home instead o f living in it himself. This
im putation provides comparable treatm ent
between tenant-occupied and owner-occu­
pied housing in the national income and
expenditure accounts. In 1957, about 10
billion dollars was paid out for shelter by
tenants, whereas about 21 billion was esti­
mated by the Department of Commerce to
be the rental value of owner-occupied

increases. While airplane and auto travel
have grown rapidly in popularity in the post­
war period, most other forms of transporta­
tion have not fared as well. Consumer spend­
ing for air travel and auto repairs and insur­
ance rose substantially, but outlays for local
and intercity public transportation have
shown very little increase. Even though
transit fares have more than doubled since
1947, total consumer expenditures for local
bus-and-railway travel have remained stable.
Technological change, in the form of tele­
vision, appears to have had a profound im­
pact on expenditures for recreation. The
yearly bill for radio and television repairs
rose from 140 million dollars in 1947 to
perhaps 850 million last year. Meanwhile, ad­
missions to motion picture theaters dropped
roughly 300 million dollars or 18 per cent in
the face of a 33 per cent rise in movie ticket
prices and a 19 per cent gain in the nation’s
population. Over-all, service expenditures
for recreation held fairly stable in relative



importance, after declining from the high
levels established during the war and early
postwar years.
In other ways, too, technological change
has left its imprint on the do-it-for-me boom.
For instance, the washing machine has done
much to slow spending for laundry services.
Yet, more clothes are probably getting more
washing than ever, thanks to the tremendous
increase in purchases of automatic washers
and the continued annual renewal of the
large population of “kids in three-cornered
pants.” Also, advances in food processing,
preservation and packaging have greatly re­
duced preparation time in the home. Ready
to stir and bake, brown and serve, thaw and
eat foods have helped to slow the growth in
service outlays for hired domestics, while
expanding outlays for goods.
The se rvice g r o w th In p e rsp e ctive

Though service outlays have gained mark­
edly in importance during recent years, they
still account for a somewhat smaller propor­
tion of personal consumption expenditures
than in 1929, and a substantially smaller
proportion than during the early Thirties.
In one-third of the years since 1929, serv­
ices have taken a larger share of the con­
sumer dollar than in 1957. Thus, service
outlays — while having undergone sustained
growth since 1947 — do not now account
for an unprecedented share of consumer
expenditures.
Behind the relatively mild cyclical changes
in outlays on services is the fact that both
prices and consumption of many components
of the service group are fairly insensitive to
short-term changes in disposable income.
This is in contrast to many other consump­
tion outlays, especially purchases of hard
goods. As might be expected, current outlays
for shelter, household utilities, hospital care

15

Federal Reserve Bank of Chicago

16

and expenditures for religion seem
"Do-it-for-me” boom marked by sharp
to be least affected by changes in
but varied price gains over past decade
total personal income.
Some of the “insensitivity” of
service expenditures springs from
the regulated character of service
prices. Transit fares, auto insur­
ance rates, railroad fares, resi­
dential telephone and gas and
electricity rates, for example, are
all regulated by government agen­
cies. Rents, too, were largely
under government control during
the early postwar period.
When weighing the likelihood
of a further advance in spending
on services, it seems evident that
there are strong forces which may
continue to bolster this consump­
tion category. In the past decade,
price increases have figured prom­
inently— though by no means
exclusively — in the rapid and
persistent rise in consumer spending for serv­
— haircuts, shoe repairs and physician’s care,
ices. The rise in service prices has been to
for example — the service is essentially a
some extent a “catching up” process. Prices
personal one, with manpower virtually the
of service items rose much less between 1939
sole resource used. In others, such as auto
and 1945 than prices of goods.
repairs and hospital care, the potential for
mechanization appears to be small. Hence,
Also helping to explain the persistent rise
in service prices is the large proportion of
in providing many of the services demanded
labor relative to other costs. In some instances
by American consumers, there has been only
limited opportunity to offset the rise in wage
rates with productivity gains, as in manu­
facturing. This does not hold true for all
Bu siness C o n d itio n s is published monthly by
services, however. Electric power, gas and
the federal reserve bank o f Chicago . Sub­
telephone, for example, have experienced a
scriptions are available to the public without
large rise in consumption and with relatively
charge. For information concerning bulk mail­
small price increases. Nevertheless, it ap­
ings to banks, business organizations and edu­
pears that prices of services (and goods)
cational institutions, write: Research Depart­
which are not readily susceptible to advances
ment, Federal Reserve Bank of Chicago, Box
in mechanization may continue to experience
834, Chicago 90, Illinois. Articles may be rean upward trend in prices relative to prices
of other goods and services.
printed provided source is credited.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102