Full text of Business Conditions (Federal Reserve Bank of Chicago) : January 1949

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BUSINESS CONDITIONS
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A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO

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JANUARY 1949

The Issues in Farm Price Supports
Conflict Revived
At what level and on how many farm products will the
Government assume responsibility for supporting prices?
In recent weeks this question involving the politics and
economics of agriculture is back in the headlines. The
Agricultural Act of 1948, passed in the closing days of
the last regular session of the 80th Congress and re­
viewed in the September issue of Business Conditions,
was generally accepted prior to the November election
as the answer to this important question for the years
immediately ahead. Recent public statements by U. S.
Department of Agriculture officials indicate a willingness,
however, to reconsider the price support provisions of
the 1948 Act with a view to increasing the responsibility
of the Federal Government in this area. These develop­
ments appear to indicate a change in view from that
commonly attributed to the Department of Agriculture
during the past several years.
The present program of agricultural price sup­
ports developed historically through a series of legislative
actions, commonly with the backing, or at the insistence,
of farm organizations, which progressively reduced the
area within which the Secretary of Agriculture could
exercise discretion in determining the minimum levels at
which supports could be set. In general, the wisdom of
such actions was questioned by USDA officials.
Now, however, this position of the Agriculture De­
partment apparently has been reversed. The Agricultural
Act of 1948 provided that beginning with 1950 crops and
production there was to be a relatively wide range in
the level at which prices of individual commodities
would be supported (from 60 to 90 per cent of parity),
the level of supports depending largely on supply con­
ditions but with current levels of support at 90 per cent
of parity generally being the ceiling. In addition to
this the parity formula was to be “modernized” to
reflect more current cost and demand conditions. These
provisions of the Act were supported by all the major
general farm organizations, by top officials of the Depart­
ment of Agriculture, and, in principal, by the President.

desirable way to adjust excess production, also, that it
could operate to discourage soil conservation.
Perhaps nothing explains this shift in position quite
as much as some very intriguing aspects of the recent
national elections. There has been some tendency to
ascribe the victory of the Democratic party to the
activities of politically organized “labor” groups. While
this manifestation of our political democracy was no
doubt a very important factor in the over-all Democratic
success, analysis of the vote by states suggests that
labor’s political efforts are much more to be credited
with the election of Democratic senators and congress­
men than with the victory of the President.
With a close vote in many states where the electoral
votes were much desired prizes, the farm vote played a
vital, if not indeed a decisive, role. In some important
farm states the electoral votes that went to Presi­
dent Truman can be credited to the rural vote which
tipped the scales. This was true of Iowa, Ohio, Wisconsin,
Illinois, and Missouri—all states in which the margin
of votes for Mr. Truman in the industrial areas (pre­
sumably the labor vote) was smaller than that polled by
Mr. Roosevelt in 1944, while the net vote in rural areas
won by Mr. Truman was larger than the 1944 returns
for Mr. Roosevelt.
Secretary of Agriculture Brannan in his speech to the
American Farm Bureau convention in December ascribed
the rural support for the Democratic slate to four factors.
These were: (1) failure of the 80th Congress to ratify
the International Wheat Agreement; (2) the ban in the
Commodity Credit Corporation charter on the owner­
ship or leasing of storage facilities; (3) dissatisfaction
with the record of Congress on cooperatives, soil con­
servation, and rural electrification; and (4) the demand
of farmers generally for more specific assurance as to future
price supports. He said he thought the farm vote was
one of fear of depression and unequal treatment.
A factor in the revived controversy over price sup­
ports is the decline of more than 10 per cent in the farm
price level since mid-July. While farmers themselves
HIGHER SUPPORTS INVITED
have been saying for many months that the recent
high prices could not be expected to last long, the actual
Speeches and statements of Department of Agri­ arrival of the declines has touched off a somewhat pan­
culture officials in recent weeks, however, appear to be icky mood in some farm quarters. Secretary Brannan in
an invitation to farmers to seek legislation providing his Farm Bureau speech said he did not believe that the
higher and more rigid levels of price support than are economy “has to” adjust downward from current high
provided for in the 1948 Act. The Secretary of Agricul­ levels, and indicated that if contraction or downward
ture has indicated a willingness to lend his support to adjustment does come, “we are not going to start it with
bring about “stronger” (higher) price supports. In fact the farmer. . . .if it doesn’t start with the farmer it may
he even went further and said, “I consider it my job to not get started at all.” He also expressed the view that
help obtain and maintain parity at all times.” Another a stable farm price and income level would go a long
Department official has stated publicly that it is his way toward stabilizing the economy.
opinion that reducing price supports would be an un­
(Continued, on Page Eight)



1948 in Review—Some 1949 Prospects
Spreading Buyers Markets Expected
Did the postwar boom reach its peak in 1948?
During the past 12 months, allowing for seasonal
factors, sustained upward movement appears to have
halted in many key economic measures, e.g., commodity
prices, consumer prices, industrial production, manufac­
turing employment, new residential building “starts,”
cash farm income, expenditures by manufacturing firms
for new plant and equipment, railroad carloadings, and
department store sales. New- all-time records, however,
seemingly were still being set at the close of 1948 in
such other measures as gross national product, personal
income, corporate profits, and most forms of credit.
The evidence at hand does not permit a final answer
to the question posed at the outset. But, there is reason
nevertheless to believe that 1948 witnessed at least
the beginnings of a .general leveling in business and em­
ployment.
Despite growing indications of weakness in specific
lines as abnormal “sellers markets” shift—often abruptly
—to more normal buyers markets, over-all prospects for
1949 continue favorable. The outlook for the new year
now seems most appropriately phrased in terms of a
broad “sidewise” movement, with most general mea­
sures of business likely to remain fairly close to their
current levels during much, if not all, of the year.
Since some slackening in the upward pace of private
spending now seems to be under way, the level of gen­
eral business activity in the Seventh Federal Reserve
District and the nation this year should be influenced
primarily by: (1) the magnitude of government—Federal,

PERCENTAGE CHANGES IN KEY BUSINESS INDEXES. 1947-48
SEVENTH FEDERAL RESERVE DISTRICT AND UNITED STATES

INDEXES
CONSTRUCTION PERMIT V
VALUATION - NON RESIDENTIAL

CONSTRUCTION PERMIT-'
VALUATION-RESIDENTIAL

DEPARTMENT STORE
STOCKS

state, and local—expenditures, and (2) business expect­
ations and closely linked spending plans. Stepped-up
government outlays for defense, overseas aid, public
buildings, highways, and related purposes—depending
upon timing—could readily offset weaknesses developing
from declining business and consumer demand. More­
over, new and continued overlapping of public and pri­
vate requirements for certain types of manpower and
materials could easily bring further upward price pres­
sures.
Business expectations as to profits and sales have
experienced numerous broad swings since the end of the
war. In recent months the pendulum has veered toward
the “uncertain,” “pessimistic,” or “wait and see” side.
The action of the new Congress on tax matters in par­
ticular promises to have a crucial bearing upon business
planning, especially by large organizations, during 1949.
While the general level of business during the first half
of the year is likely to be influenced more by plans
already made than by current decisions, any widespread
changes in expectations during coming weeks will be re­
flected in aggregate sales and employment developments
in the second half.
The seasonal “let-down” during the early months of
the year, largely absent during the war and 1946-47,
probably will be more pronounced in 1949. The afterChristmas lull in consumer buying, the need to make
substantial tax payments, weather conditions, and many
similar factors promise to play their part in firmly re­
establishing this well-known prewar seasonal pattern—
unless inventory liquidation continues to stimulate sales.
To what extent can a seasonal upturn or revival be
expected by spring or early summer? If business manage­
ments continue to make readjustments line by line with­
out panic to “new normal” selling conditions dictated by
price-quality conscious buyers, and unexpected adverse
developments do not offer new discouragements to busi­
ness plans, the possibility of a new “wave” of optimism
in the business community by midyear would seem good.
NEW RECORDS SET IN 1948

CONSUMERS* PRICES^
IN LEADING CITIES
AVERAGE WEEKLY EARNINGSi/
OF PRODUCTION WORKERS
■■ 7TH
DEPARTMENT
SALES

STORE

COMMERCIAL, INDUSTRIAL,
AND AGRICULTURAL LOANS
IN LEADING CITIES
MANUFACTURING V
EMPLOYMENT

J/ SOURCE: u s. bureau of labor statistics.




DISTRICT

mi UNITED STATES

Despite pessimism in some quarters at the outset of
1948, many new all-time records were established in busi­
ness and employment. Belief that the much heralded
“postwar recession” would set in during the year was
rooted largely in the expected adverse impact of many
developments continuing to appear on the business scene,
e.g., rising consumer resistance to “high” prices, dis­
appearing backlogs of demand, threatening burdensome
agricultural output, and falling exports.
Hindsight clearly shows that the economy had much
more strength than was generally anticipated, not merely

Page 1

because of stepped-up planned and actual expenditures
by government, but primarily because private outlays
continued to climb—contributing to, as well as reflecting,
full employment conditions and powerful inflationary
forces. The persistent caution which generally permeated
the investment and business community during the year,
however, again helped immeasurably to keep the boom
conditions from becoming more unmanageable.
Although cushioned somewhat more than certain
other sections of the nation to spreading business read­
justments because of its concentration of “scarce” goods
manufactures, the Seventh District business in 1948
nevertheless was a part of, and influenced by, all of the
principal economic and political developments which
attracted national attention. These included: (1) the
sharp drop in farm commodity prices, (2) falling ex­
ports, (3) third round, wage increases and initiation of
fourth round demands, (4) support of the Government
bond market and heavy Federal Reserve purchases from
non-banking institutional investors, (5) rising short-term
interest rates, (6) war scare and defense program, (7)
record grain crops, (8) basing point price decisions, (9)
continuing shortages of several critical materials, e.g.,
steel and cement, (10) higher member bank reserve re­
quirements, (11) reimposition of consumer credit regu­
lation, (12) growing scarcity of equity funds and mort­
gage credit, (13) post-election uncertainty and attendant
sharp decline in security market prices, (14) leveling to
slightly declining consumer prices, and (15) lagging
Christmas sales, which finally surged upward to es­
tablish new dollar records for many stores, and helped to
restore confidence in future business conditions.
The year 1948 will be remembered generally as the
one in which the broad shift from abnormal war and
postwar demand to more “normal” buyers markets be­
came evident. To many people 1948 was another year of
“postwar recession” which did not materialize. Numerous
individual lines, however, did experience considerable
“slump” or even “depression”—in the words of their own
spokesmen. In 1949 “selling” should become more diffi­
cult and “buying” much easier—for those who can afford
to pay the prices asked.
On the supply side, the year just ended, taken as a
whole, created new records in virtually every business
measure, although during the closing months in certain
cases some declines were evident. In both the Seventh
District and the nation more people were employed,
more goods produced, more income received, more funds
spent, and greater profits made by business and distri­
buted to investors than in any previous year. Prices,
both at wholesale and retail, reached all-time highs, in­
dicating the continued strength on the demand side, and
caused dollar measures to advance more than comparable
physical indexes.
For the nation as a whole, industrial production ad­
vanced about three per cent above 1947, and the Seventh
District gain is estimated to have been at least as large.
This District was particularly favored because of the
strong demand for the products of many of its principal
industries, i.e., automobiles, steel, petroleum, farm and

Page 2




construction machinery, and heavy electrical equipment.
Advances in production were somewhat greater than
the rise in number of persons employed, indicating a
trend toward greater output per worker. Over-all em­
ployment in both the nation and the District advanced
roughly two per cent during 1948. Nationally the in­
creases occurred in manufacturing and construction,
whereas in this District new workers were added chiefly
in the trade and service fields.
Principally because of the above-average proportion
of workers in strongly unionized and high wage metal
working industries, factory employees weekly earnings
in 1948 in the Seventh District of $59 continued above
the national level of $54. Aggregate personal income in
the District is estimated to have exceeded 35 billion
dollars during the year, an increase of about 10 per cent
over 1947.
Consumer prices in the Seventh District are now
about four per cent above a year ago compared with a
three per cent gain generally. The principal price rises
during the year occurred in clothing, fuel, and in the
miscellaneous group, with the over-all slight decline in
cost of living since mid-1948 attributable almost ex­
clusively to lowered food prices.
Seventh District construction activity continued at a
high pace throughout 1948, roughly 30 per cent above the
previous year in dollar terms. The District, however,
lagged behind the 45 per cent increase for the nation,
no doubt because of the feverish building boom in
several other regions.
Consumer buying patterns in 1948 reflected the con­
tinued further shift toward more essential goods and
services, from nondurables to durables, and generally to
lower priced lines becoming more readily available. While
total 1948 sales were ahead of 1947, during the closing
months of the year there was a definite narrowing of
gains over the year-ago level. Evidence of at least partial
CHART

2

SELECTED MEASURES SHOWING LEVELING TENDENCIES
UNITED STATES
(1939-

100)
PERCENT

PER CENT

FARM PRICES
DEPARTMENT STORE
SALES

250 INDUSTRIAL
PRODUCTION
(SEASONALLY A0JUSTE0)

CONSUMER.
PRICES

SEPT

1945
1/SOURCE:U.S. BUREAU Of LABOR STATISTICS.

market saturation at prevailing prices for many goods
and particularly appliances also continued to grow. Con­
sumers showed a distinct willingness to spend when
confronted with goods and services having price-quality
attractiveness, and also a readiness to use credit ex­
tensively.
Lack of credit posed few problems for most business
managements and consumers during the past year, al­
though funds generally were less readily available than
during the previous year. Seemingly, credit tightening
was greater in the Seventh District than elsewhere. The
principal field in which credit restraint had a noticeable
effect upon business operations was in real estate. This
appeared to reflect a general feeling among many mort­
gage lenders that present real estate values are danger­
ously inflated, and that mortgages commonly are much
less attractive than alternative investments which have
shorter maturities and often higher yields. Bank loans
to business closed the year at an all-time high, but the
Seventh District 1947-48 increase of one per cent was
considerably under the national rise of five per cent for
weekly reporting banks. Reintroduction of consumer
credit regulation in September was followed by some
slowing in the rate of increase in this type of credit, but
new all-time records continue to be set.
EVALUATING THE OUTLOOK

Whether 1949 will be a “good” year will depend not
alone upon the general course of business, but also upon
the position and viewpoint of whoever makes the judg­
ment. As already indicated, 1948 was an unprecedented
year of peacetime prosperity, by virtually all accepted
measures—yet not all lines nor individuals fared as well—
they never have—as the average.
The underlying conviction that present business and
employment levels are unduly and artificially high un­
questionably permeates much of the business community
in this District and elsewhere. Almost any sign of appar­
ent weakness, including return to prewar seasonal buy­
ing patterns, understandably raises grave concern about
the imminence of a sharp downturn, and indeed in par­
ticular fields this has occurred. In most business circles
a “sidewise” movement is interpreted as standing still,
and the forerunner of trouble, for seemingly either there
must be expansion or contraction. In many respects gen­
eral business moved “sidewise” in 1948, and there is
reason to expect a continued rough over-all balance of
forces of inflation and deflation for some months. Con­
sequently, business expectations—which play a key role
in determining the level of aggregate investment and
employment—may well remain clouded and uncertain
for some time to come. Definite indication of policies of
the 81st Congress and either more strong inflation or
general recession apparently would “clear the air” for
many people.
It is not surprising under these circumstances to
find that forecasts of 1949 business currently run the
gamut from continuing inflation to substantial recession.
On the one hand, there is the strong possibility of larger



defense and other Government expenditures, raising the
threat of further resource allocations and perhaps price
and other controls as well. On the other hand, virtually all
the “signals” handed down from the past indicating a
business reaction just ahead have been flashing for
months.
Actually too little is known about the operations of
any economy with a gross national product of over 250
billion dollars for anyone to say with certainty how
vulnerable or secure the present over-all business situa­
tion may be. Most detailed studies of the structure and
workings of the national economic system relate to the
past when the tempo was slower and many prominent
political and economic forces now operating were absent.
Moreover, a basic question might be raised whether
present national economic policy points to further in­
crease in civilian living standards as well as full provi­
sion for defense, without the latter making serious inroads
upon the former as in the past.
Whether there will be more inflation or a general
recession, or some offsetting middle-ground development
in 1949 will depend largely upon the direction, timing,
and extent of movement in the following key factors:
(1) private investment and demand, (2) government
expenditures, (3) wage rates, (4) credit extension, and
(5) agricultural output. In addition, allowance also must
be made for any of a number of possible developments
which, on the one hand, might aggravate present or create
new shortages, or which, on the other hand, might serve
to “shock” business and consumer expectations. Neither
appreciably more inflation nor sharp recession now ap­
pears as probable, in any all-inclusive sense, as a com­
bination of many offsetting features of both developments.
There can be no question but that the inflationary
tempo of the postwar years has slowed down significantly,
but many strength factors and political and institutional
“supports” seem likely to persist and cannot be ignored.
Preliminary reports of intentions point to continued
high private investment during at least the first half
of 1949, and the President’s messages and the announce­
ments of state and local government leaders give every
indication of a marked rise in government investment.
Consumer response to attractively offered goods and
services during and since the Christmas buying period
suggests heavy sales for the products of manufacturers
who can give consumers what they want at prices they
can afford to pay. A late Easter such as in 1949 typically
means better-than-average retail sales. These and numer­
ous other considerations seem to indicate that a good
deal of strength still underlies the general business sit­
uation in the immediate future, serving to offset at least
a substantial part of the spreading weaknesses now so
clearly noticeable in many fields.
Careful attention to the level and nature of Govern­
ment expenditures and the course of business expecta­
tions, particularly with respect to new capital equip­
ment outlays, appears to provide the earliest possible
insight into what actually will happen. To date, read­
justments in business have been severe for some, but
healthy for the nation generally.

Page 3

Department Store Readjustments in 1948
Sales and Stocks Highest on Record
A return to more nearly prewar retailing patterns at
department stores is strongly indicated by the 1948 trend
of leveling sales, heavier inventories, expanding credit,
slower collections, and lighter outstanding orders for
goods. Competition for the consumer dollar is here again.
Promotional sales are becoming more frequent. Buyers
are shopping once more for the best possible price-quality
combination in merchandise—even with unprecedented
disposable incomes.
Notwithstanding the sales decline in November and
early December 1948 from corresponding levels of the
year previous, dollar sales reached an all-time high of
1,956 million at department stores in the Seventh Dis­
trict. This marked the ninth consecutive annual record
and the tenth continuous yearly rise in department store
sales. The year’s sales volume also culminated the lar­
gest five-year expansion in recorded Seventh District
department store statistics, as it was only in 1943 that
sales for the first time topped the one billion dollar level.
Although 1948 cumulative sales monthly have aver­
aged from 10 to seven per cent above the year-ago vol­
ume, there were some indications of downturns from
time to time. In each successive quarter of 1948, there
was further evidence of readjustment in department
store sales to more normal seasonal buying practices.
The first quarter, marked by rapid price advances,
saw sales rise 10 per cent above the level of the same
quarter of 1947. Some of this gain can be attributed to
the traditional white goods sales held on a large scale
for the first time since the end of the war and to an early
Easter season. At the half year mark, gains over a year
ago had narrowed to eight per cent, influenced by a later
Easter in 1947 but counterbalanced by the renewed con­
fidence in business arising from the Marshall Plan, the
new defense program, and lower personal income taxes.
The same events carried total sales through the third
quarter despite weaknesses in hard goods lines. Sales in
the final quarter were marked by an early lull in Christ­
mas spending at department stores. This slight slowdown
in sales caused some concern, and was attributed to a
return to prewar patterns of Christmas shopping, de­
layed buying for lower prices, unseasonable weather,

new instalment credit regulations, and post-election re­
action by higher income groups.
To a great extent, increased dollar, not physical, vol­
ume sustained sales during 1948. A comparison of sales
and price movements emphasizes this, as do the stocksales ratios in selected departments.
SHIFT IN DEPARTMENTAL PATTERN

Consumer resistance to higher prices occasioned by
increased cost of food and housing strengthened sales in
economy store goods. In fact, basement totals advanced
at nearly twice as fast a rate as did main store sales.
Of the main store departments, women’s and misses’
apparel sales increased by the widest margin during
1948, with style changes playing a major role in this in­
crease. Some significance may be attached to the failure
of household furnishing totals to keep pace with wearing
apparel sales. Discouraging price increases and consumer
belief that household goods were not of prewar quality or
sufficiently improved to warrant purchase may have led
to some postponement of the buying of housefurnishings,
but not women’s apparel. Contrary to year-ago trends,
more sales activity was apparent in furniture and bed­
ding than in major appliances and radios, records, mus­
ical instruments, and accessories. Men’s clothing sales
declined from year-ago levels as a result of high prices
and a much lessened demand.
Further evidence that the era of less indiscriminate
spending is over may be found in the changing pattern of
sales by departments. Except for men’s apparel, sections
which sold goods of a more ’’practical nature outsold
those which featured the so-called luxury goods. The
majority of housefurnishings sections, both hard-goods and
CHART

DEPARTMENT

I

STORE SALES AND STOCKS, 1946-48

SEVENTH FEDERAL RESERVE DISTRICT
SEASONALLY ADJUSTED, 1935-39 AVERAGE "100
PER CENT

PER CENT

SALES

ESTIMATED ANNUAL DEPARTMENT STORE SALES
(In millions of dollars)

Year
1945
1946
1947
19481

Seventh
District
1,294
1,676
1,844
1,956

Chicago

Detroit

372
480
520
540

194
246
278
297

Indian­
apolis
73
91
96
100

iPrellmlnary.
NOTE- Estimates of the annual department store sales are based on the correspond­
ing Indexes which are compiled and released currently by this Bank.




STOCKS

Mil­
waukee
94
124
132
145
1946

1947

textiles, exhibited equal or higher totals than during 1947.
Women’s apparel groups reflected similar trends. Small
wares and accessories on the other hand changed only
slightly, and in some instances the goods sold in these
sections were in much smaller volume then during the
preceding year. Fur sales declined by the greatest mar­
gin, followed by records and sheet music, candy, negli­
gees, fine jewelry, and luggage.
CREDIT INFLUENCES SALES

Credit sales undoubtedly also played an important
part in boosting the total in 1948. Stores advertised for
CHART

2

DEPARTMENT STORE SALES BY MAJOR DIVISIONS
SEVENTH FEDERAL RESERVE DISTRICT

charge account customers and toward the end of the year
informed buyers of their instalment facilities for purchase
of major appliances and furniture. As a result, credit
sales accounted for a larger portion of the total than
for the several previous years.
With the reinstatement of Regulation W on Sep­
tember 20, 1948, controls were imposed again over in­
stalment sales of certain durable goods. The regulation’s
effect on department store credit sales is somewhat un­
certain since it does not directly affect charge sales,
which make up the bulk of credit transactions. It has
probably affected, however, such sections as major house­
hold appliances, domestic floor coverings, and furniture
and bedding which are subject to control. It is to be
noted also that both instalment and charge collection
ratios have slowed down to about those of 1941.

1941 ■ 100

INVENTORIES IN CLOSER BALANCE
------- MAIN STORE
-------BASEMENT

PER CENT

APPAREL-

------- WOMEN'S AND MISSES'
-------MEN'S AND BOYS' WEAR

------- PIECE GOODS
-------HOUSEFURNISHINGS

PER CENT

The accumulation of inventories during 1948 which
reached the largest dollar volume on record in the
Seventh District department stores, in general, has been
moderate. Much of the increase has been a result of
stockpiling as well as advancing prices. On the whole,
the rise of stocks on hand has been slightly higher than
the volume of sales, but not of sufficient magnitude to
be considered excessive so long as sales are sustained at
or near present levels. Postwar shortages of most goods
have been overcome, but few goods seem to have been
accumulated in undue amounts.
During February through November of 1948, the ratio
of end-of-month stocks to sales during the month (num­
ber of months supply) remained above year-ago levels
for the total of all departments and the merchandising
divisions of men’s and boys’ wear, ready-to-wear ac­
cessories, and housefurnishings (May through November
only). The yearly average stock-sales ratios for all mer­
chandising divisions, however, were below the prewar
1941 ratios with the exception of women’s and misses’
apparel. In general, smaller stock-sales ratios are the rule
in the Seventh District as the stores are within easy
reach of most centers of supply.
The increasing availability of merchandise, better de­
liveries, more sources of supply, and greater conservatism
on the part of store management have been factors in
reducing the volume of outstanding orders of goods to
levels substantially below those of 1946.
OUTLOOK FOR 1949

NOTE: 1948 BASEO ON FIRST ELEVEN MONTHS.




The consumer reaction to price and quality of mer­
chandise at department stores will most likely be the
dominant factor determining the" trend of sales for 1949.
The majority of retailers, however, are optimistic about
the over-all sales level during coming months, although
less so about particular items. With general income pros­
pects favorably for the period immediately ahead, no
sharp decline in sales appears imminent, although cer­
tain weak spots probably will develop.

Page 5

Public Employment
Ten Per Cent of Labor Force on Government Payrolls
Slightly more than six million Americans, exclusive times as great. Although state employment is less than
of the armed forces, are currently employed by the one-third of local employment, state expenditures are
Federal, state, and local governments. In the boom year about half those of the local units, and state tax re­
1948 these jobs constituted between nine and 10 per ceipts are slightly greater than local.
cent of the 60-odd million persons in a labor force which
These relations reflect the different character of the
in turn was about 40 per cent of a total population of expenditures of the three levels of government. Grants
to the states and transfer payments comprise a very large
148 million.
For the last decade, the number of persons on the pay­ portion of Federal expenditures; this category includes
rolls of all units of government has been comparatively direct payments to veterans, social insurance benefici­
stable in relative terms—between 12 and 15 per cent of aries, and holders of the national debt. Payments to
nonagricultural employment. The use of nonagricultural business for purchases of goods and services, which com­
employment instead of total employment is required for prise another large portion of Federal expenditures,
comparative purposes because of the lack of reliable create private rather than government employment. An­
data on the latter for years preceding 1940. The higher other large component of the Federal budget consists of
rates occurred in 1945 when Federal employment was payments to the 1.4 million members of the armed forces,
at its peak and when private employment was low due who are not classified as public employees.
to the manpower needs of the armed forces in the earlier
The three functions which consume most of the funds
part of the year and reconversion lay-offs in the latter.
of state governments do not require large payrolls; high­
Currently, public employment is relatively lower than way construction is usually done by private contractors,
at any time since 1938. This is due to the postwar shrink­ whose employees are not included in the enumeration of
age in Federal employment and the postwar expansion public employment; most of the school money appropri­
of private employment, and is in spite of the recent ated by the states appears as grants to the local govern­
increase in state and local employment. In view of the ments; and welfare expenditures may also be grants to
absolute and relative magnitude of public employment, the local units—if not, they appear as direct payments
it is not surprising that its character and cost have been to the pensionees.
and probably will continue to be subjects on which major
The local governments are the major employing units
attention is focused. Much public attention has neg­ because they operate the common school systems, own
lected one or more of the factors pertinent to the problem, and manage a variety of utility enterprises, offer fire
including the distribution of employment among the and police protection, and maintain a large part of the
various levels of government and among the services road and street systems.
and agencies within each level, the character of the work
Since 1940 Federal employment has almost doubled,
performed by different classes of public employees, and
the comparative compensation levels both within and
among public jurisdictions.
PUBLIC EMPLOYMENT
APRIL

EMPLOYMENT BY LEVELS OF GOVERNMENT

In October 1948 local governmental units accounted
for one-half of total public employment (see Table 1).
The Federal Government employed slightly more than
one-third of the six million public employees, and the
states had fewer than one million. The two largest com­
ponents of the local government total were, respectively,
school teachers and city employees. The inclusion of a
large group of employees of such municipal enterprises
as water, power, and transportation systems accounts in
part for the size of city employment.
The relative positions of the levels of government with
respect to employment are in contrast to their relative
importance when measured by expenditure and taxation.
Federal expenditures are more than twice as great as the
state-local total, and Federal tax receipts are almost three

Page 6




1940-48
MILLIONS

MILLIONS

FEDERAL

CIVILIAN EMPLOYMENT

STATE AND LOCAL
NON-SCHOOL EMPLOYMENT

STATE AND LOCAL
SCHOOL EMPLOYMENT

SOURCE: U. S. BUREAU

OF

THE CENSUS.

TABLE 1
PUBLIC EMPLOYMENT, OCTOBER 1948
(Number of persons in thousands)

Unit

Total

School

All units.................
Federal1.................
State...................
Local.......................
City....................
County...............
Other local.........

6,074
2,103
962
3,009
1,239
491
1,279

N.A.
N.A.
286
1,289
207
64
1,018

1 Civilian employment only.
N.A.—Not available.
SOURCE: U. 8. Bureau of the Census.

Non­
school
N.A.
N.A.
677
1,720
1,031
427
262

Per Cent
of Total
100.0
34.6
15.8
49.5
20.4
8.1
21.1

reflecting wartime expansion, while total state and local
employment has increased less than 17 per cent. However,
the accompanying chart indicates a marked upward trend
in the state and local personnel since the end of the war.
EMPLOYMENT BY FUNCTION

From the standpoint of function, education in institu­
tions of higher learning and elementary and secondary
school systems accounts for one-fourth of total public
employment. The 854,000 Federal civilian workers em­
ployed in connection with the military establishment,
and in additon to the uniformed services, are the second
largest functionally-defined group of public employees.
The Federal postal service, with 488,000 persons, ranks
third.
Almost 75 per cent of the Federal payroll is for
functions which are generally regarded as of primary
importance—defense, the postal service, and veterans
affairs. The total payroll is approximately one-fifth of
all Federal expenditures. If the payroll for all other Fed­
eral agencies were eliminated, the budget would be re­
duced by less than five per cent. The opportunities for
major Governmental economies through reduction of
employment must be realized, therefore, by reductions in
personnel within the three principal functions.
EMPLOYMENT WITHIN THE DISTRICT

In general, the amount of public employment in
Seventh District states correlates well with the popula­
tion of the states (see Table 2). Exclusive of the relative­
ly large number of Federal employees in Illinois, both
per capita Federal and per capita state-local employment
exhibit a narrow range within the District states. Iowa
and Wisconsin, the states with the smaller populations,
have the higher per capita figures for state-local em­
ployment. This is due in part to the relatively high level
of school employment in Iowa, and to the large amount
of municipal enterprise employment included in the
local government total in Wisconsin. Because of the
absence in the District of such large concentrations of
Federal employment as exist in the District of Columbia,
California, and New York, Federal employees constitute
a smaller percentage of total government personnel in
the Seventh District than they do in the nation as a
whole. Furthermore, in the District states local govern­



ment units are more important, both numerically and
funcionally, than in many other states.
COMPETITIVE AND NON-COMPETITIVE POSITIONS

The personal services which governments buy not
only cover a wide variety of skills and training but also
are separable into other categories related to conditions
of employment that are pertinent to public employment
policy. Statistical comparisons in this sphere unfortunately
are limited by the lack of detailed information breaking
down employment totals in terms of character of work
performed. A very large number of public employees, such
as office workers and maintenance and building employ­
ees, perform services almost identical with those which
they would perform for any other employer, public or
private. An indication of the numerical importance of
this group is the fact that non-supervisory clerical em­
ployees and maintenance employees, including janitors,
firemen-oilers, operating engineers, and elevator operators,
comprise more than one-fifth of the total employment
of the jurisdictions which provide all local government
services in Chicago. In many agencies of the Federal and
state governments this type of employment is even more
significant. The Bureau of Internal Revenue, with more
than 50,000 employees, had at the beginning of 1948
over 23,000 clerical employees—over 40 per cent. The
Interior Department, which has an exceptionally large
amount of employment in the CPC (Crafts-ProtectiveCustodial) service classification, planned to have about
8,000 clerical employees, 13 per cent of the total employ­
ment of the Department, in mid-1948.1 In purchasing
these services, a unit of government is but one among
a large number of buyers, and in order to recruit a suf­
ficient number of employees the price (salary) it offers
must be roughly equivalent to the market price.
A second group of employees holds jobs that are more
or less peculiar to the functions performed by govern­
mental units. These are typified by teachers, policemen,
firemen, and many classes of professional employees.
This group is particularly important in local government
*The data for Chicago local governments are from the Civic Federation’s Study,
Salary Rate Structure of Local Governments of Chicago (November 1948); those for
the Bureau of Internal Revenue are from Investigation of the Bureau of Internal
Revenue, Report of Advisory Group, Pursant to Public Law 147, 80th Congress; and
those for the Interior Department are from Interior Department Appropriation Bill
for 1948, Hearings before the Subcommittee of the Committee on Appropriations,
House of Representatives, First Session, Part 1, 80th Congress.

TABLE 2
ESTIMATED PUBLIC EMPLOYMENT IN
SEVENTH DISTRICT STATES, OCTOBER 1948
(Number of persons in thousands)
Unit
All governments. .
Federal.....................
State and local
School..................
Non-school.........
State
School..................
Non-school.........
Local
By function
School.............
Non-school...
By government
City..................
County............
Other...............

Illinois
320
100

Indiana
120
25

Iowa
105
17

77
143

46
54

39
50

71
109

38
69

272
425

8
32

9
14

8
11

13
22

11
10

50
88

70
111

37
40

32
38

58
87

29
58

226
335

55
14
109

22
16
40

15
11
43

76
20
47

42
18
27

211
79
266

Michigan Wisconsin
212
126
32
19

Total
889
192

Page 7

employment. The total demand, both public and private,
for this type of services is limited, and there is often
very imperfect knowledge of job opportunities elsewhere
on the part of these employees. Moreover, residence
requirements imposed by many local units limit mobility.
In,additon, the specialized nature of the skills acquired
in and for these jobs by experience and training cannot
be applied readily to positions in private employment.
During the depression period the relative attractiveness
of this type of public employment made it possible to
attract exceptionally well-qualified, employees. Present
salary levels, accrued pension rights, and inertia have
not been sufficient to retain many of these employees
even though retraining and loss of position status are
involved.
A third group comprises executive or management
employees. Here again there is a large degree of direct
competition for services with private industry buyers,
and self-employment, which tends to raise the price of
the services. However, usually governments have not met
the bids of private industry and often have been content
with an inferior grade of management services. This
tendency has been mitigated by the fact that certain
non-economic factors have increased the attractiveness
of government service to the sellers of these services,
the prospective top-level employees themselves. Thus,
governments may be able to secure competent manage­
ment employees at salaries somewhat less than those of
private industry. This mitigating influence to some extent
is effective in many lower echelons of public employment,
and might make relatively lower salary levels possible
in categories other than that of management employees.
SALARY INCREASES IN PUBLIC EMPLOYMENT

The maintenance of the relative economic positions of
public employees through the salary increases granted
since the end of the war is a facet of the whole problem
of public employment about which there has been much
discussion. In general, average monthly earnings of
government employees have failed to keep pace with the
rise since 1941 in the cost of living and in the earnings
of workers in manufacturing industries.
In many governments, salary increases generally com­
parable to the three postwar rounds of wage increases
in private industry did occur, as the following average
monthly earnings data show:
April
1945

April
1946

April
J947

April
1948

All governments ... $169 $174 $193 $207
Federal ...................
179 198
230 240
State and local ....
144 155
170 189
These adjustments usually have been the results of
positive legislative action. The Federal Government, for
example, granted substantial increases in the summers
of 1945, 1946, and 1948. In most states, salary increases
were last considered in the early months of 1947, when
44 legislatures met. The issue undoubtedly will be raised
in the next few months, during which time these 44
legislatures again will be in session.

Page 8




THE ISSUES IN FARM PRICE SUPPORTS
(Continued from. Inside Front Cover)

In view of these developments it appears that the
farm price support issue has been revived by the urgency
of the above mentioned political and economic consider­
ations, that some farm leaders have mounted their
chargers ready to do battle, but that as yet no clear-cut
plan or strategy has been worked out that will meet the
demands of the farmer and at the same time have suf­
ficient rationality to prove acceptable or palatable to
other interests in Congress and in the country.
There are, however, indications of current thinking
about what the supports “should” be. The Production
and Marketing Administration of the Department of
Agriculture in December sponsored a national meeting
of representatives of their state and county personnel
who have handled many of the Federal agricultural pro­
grams in recent years at the state and county levels.
These representatives presume to speak for three million
farmers. At this meeting a Committee on Price Supports
recommended that: (1) prices of the basic commodities
wheat, corn, cotton, peanuts, rice, and tobacco be sup­
ported at not less than 90 per cent of parity, and that
acreage allotments and marketing quotas be used to
bring supply into balance with demand at the support
price level; (2) provisions be made for mandatory 90
per cent support of prices for other agricultural com­
modities in which producers agree on and put into
effect a plan for production or marketing controls or
other techniques which would either limit production or
dispose of surpluses which might occur; (3) price sup­
port at 75 per cent of parity on agricultural commodities
for which producers make an effort to develop a program
which would control supplies or provide for surplus dis­
posal; and (4) that for all other agricultural commod­
ities price support be determined by the Secretary.
This represents a substantial change of view since
April 1948, when a committee from this same group
recommended mandatory price support at from 75 to
90 per cent of parity for basic commodities, and from 60
to 90 per cent of parity for other farm products but
with the support being the same as for the basic com­
modities for any product which producers had developed
an effective program of acreage allotments and marketings
quotas or other techniques for effectively controlling
production or marketing.
FEAR CONSEQUENCES OF HIGH LEVEL SUPPORTS

It may be assumed that farmers, not unlike other
occupational groups, desire as high and stable a level of
income as can be attained. Why, then, did the major
farm organizations support enactment of the flexible price
support provisions of the 1948 Act knowing full well that
these provisions would reduce from present levels the
average at which prices of most products would be sup­
ported over a period of years? While many factors in­
fluenced this decision, the outstanding consideration, no
doubt, was the realization that high and rigid support
prices would induce production of surpluses, and these

surpluses would unavoidably result in acreage allotments,
marketing quotas, penalties, and extensive direct Gov­
ernment control of agricultural production, processing,
and distribution—a degree of regimentation that alarms
many farmers and farm leaders.
There was opposition, of course, to the authorization
of price supports below wartime levels, centered for the
most part among farmers of the southern states, notably
producers of cotton, tobacco, and peanuts. Producers of
these commodities, or at least their leaders, apparently
have decided that they want prices supported at high
and stable levels even though it does require extensive
Government control over production and marketing.
Tobacco interests, in fact, obtained special consideration
in the 1948 Act by obtaining adoption of an amendment
providing for support of tobacco prices at 90 per cent
of parity for any crop for which marketing quotas were in
effect. Some producers of specialty fruit, vegetable,
and nut crops, located largely in the eastern and western
states, desired more specific price support provisions for
their products than were provided in the 1948 Act. These
commodity interests are expected to spearhead a drive
on the new Congress for revision of the 1948 legislation—
the southern groups seeking high and rigid price sup­
port and the specialty crops groups seeking some pro­
vision for mandatory price support for their products.
This drive appears now to be invited by Department of
Agriculture officials.
Senator Thomas from Oklahoma and Representative
Cooley from North Carolina, who are slated to become
Chairmen of Senate and House Agriculture Committees
in the new Congress, have stated their opposition to the
flexible price support provisions of the 1948 Act on the
ground that it “gives farmers least protection when they
need it most.” Senator Thomas has declared his inten­
tions to lead a fight to keep the mandatory 90 per cent
price support program in effect after 1949 even if it
means returning to crop production controls.
Views on the other side of the price support issue have
also been expressed in high places. Senator Aiken, co­
author of the Agricultural Act of 1948, in speaking to
the annual Farm Bureau meeting said that the choice to
be made was between the rigid support road to regimen­
tation and the flexible price support road to free enter­
prise. He indicated his belief that the national economy
may stand or fall on the outcome of this issue. He also
warned that consumer reaction to rigid, high level sup­
ports might jeopardize all price support programs.
Corn Belt farmers and the dairy and poultry pro­
ducers of the northeastern states probably will resist
efforts for a continuation in peacetime of the wartimeproduction incentive level of 90 per cent price supports.
Most of the production of Corn Belt farms is marketed
in the form of livestock products on which price support
programs have been relatively unimportant or little used.
Also, production control programs of the type which
have been employed in the past are relatively inflexible
and not well adapted to feed-crop-livestock farms. Live­
stock and poultry producers in feed-deficit areas such as
the Northeast understandably object to a high level of



price support for the feed grains which they must pur­
chase from surplus grain areas. Farmers in these areas
apparently are more inclined to view the price support
program as a mechanism to protect them from disas­
trously low farm product prices and bankruptcy rather
than a guaranteed market at a profitable price level. One
prominent veteran farm leader has advocated and en­
couraged development of a program which would em­
phasize using crop capacity to expand the production
and consumption of livestock products and which pre­
sumably would avoid the need for price support and
production control for all feed crops. Plans of this kind,
designed to stimulate demand and use, have certainly
the merits of being constructive as to use of resources,
although they too are relatively untried and may have
more definite limitations on their effectiveness in “solv­
ing farm problems than their most enthusiastic pro­
ponents recognize.
WILL BE DEBATED, OUTCOME UNCERTAIN

These differences in point of view and in evaluation
of the consequences to individual farmers, agriculture,
and the whole economy appear to be shaping up for
vigorous debate in the 81st Congress. The probable out­
come cannot be indicated with any degree of certainty
at this time. If changes are made, however, they probably
will be in the direction of (1) higher and less flexible
support prices than are provided for in the 1948 Act (2)
mandatory support prices for more products than are
now covered, (3) provision for more complete Govern­
mental control over production and distribution of com­
modities for which prices are supported, (4) increased
storage capacity and larger carry-over stocks for cornmod, ties which can be stored for relatively long periods
of time, and (5) provision for subsidizing the consump­
tion of products brought into surplus supply by the higher
support price level. All of these points, except for the
higher levels of price support, were recommended to the
0th Congress by the Department of Agriculture It
fTvoTahl n°W Thar tuhe ,DePartment> taking a relatively
favorabH view of the longer-term economic outlook is
willing to be committed to the support of farm product
prices at relatively high levels if it is provided with ad­
ditional authority to control production and consumption
But these developments are genuinely upsetting to
many close students of the agricultural economy and to
many sincere friends of the farmer who have worked and
hoped for programs that they believe would in the longrun be to the best interests of not only agriculture but
the entire economy. When the Agricultural Act of 1948
was passed, it was generally regarded as a step toward a
more rational peacetime program for agriculture even
though ,t was recognized that there were flaws and’weaknesses in the legislation that time might expose and ex
penence might correct. Whether the current wave of
agitation for high and inflexible price supports will keep
the major long-run features of the 1948 Act from going
into effect and being tested in practice only future de­
velopments will reveal.




SEVENTH FEDERAL

IOWA
ILL ■ INO

RESERVE DISTRICT