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review by the Federal Reserve Bank o f Chicago
Business
Conditions
I 9 6 0 July
Contents
The economy’s
changing money needs
5
Labor resources in the Sixties
10
The Trend of Business
2-5
Federal Reserve Bank of Chicago
THE
2
O p in io n s concerning the probable trend
of business activity diverged sharply at mid
year. On one hand, there are those who be
lieve that the stability which prevailed during
the second quarter will give way to a renewed
uptrend within a few months. At the other
extreme are those who believe that a re
cession is under way which may resemble
the declines which began in 1948, 1953 and
1957. The current disagreement, therefore,
reflects different evaluations of the nature of
the underlying trend at the present time.
Estimates of consumer outlays and busi
ness capital expenditures, which became
available in May and June, suggested some
what less strength in those sectors than had
been indicated earlier. The probable trend
in business inventories is another source of
uncertainty. In the first quarter, inventories
were being increased at a near record annual
rate of almost 11 billion dollars. Production
cutbacks in steel and some other sectors
slowed this growth substantially in April.
During June, it is probable that there was
little net addition to total business inven
tories. The purchasing agents for many busi
ness firms report that they are attempting to
keep inventories at minimum levels.
At the end of April, the book value of the
inventories of U. S. business firms was a
record 92.6 billion dollars, according to the
Department of Commerce. This was 4.2
billion or 5 per cent more than at the end of
November 1959. The rise in inventories
followed reductions in the August-November
OF
BUSINESS
period of last year when the steel strike cur
tailed production. Eighty-three per cent of
the rise in inventories from the November
low to April was in durable goods which
account for only about 55 per cent of the
total business inventory.
About three-fourths of the NovemberApril rise in durables was at the manufactur
ing level. It was widely distributed among
industries and about equally divided between
purchased materials, goods-in-process and
finished goods.
While business inventories were rising,
business sales about kept pace. As a result,
through April at least, no significant change
appeared in the relationship of inventories
to sales. Moreover, relative to sales, inven-
Build-up of business inventories may
end earlier than in previous upswings
billion dollars
Business Conditions, July 1960
tories were only a little larger than a year
earlier and considerably smaller than either
two or three years earlier. To find a period
when inventories bore about the same rela
tionship to sales as at present, it is necessary
to go back to 1955.
Inventories, relative to sales, were below
the ratios reached prior to the downturn in
business in 1957. For all types of business,
inventories in April were 1.48 times the
monthly sales, seasonally adjusted, comp a r e d w ith 1 .6 0 tim e s in A u g u s t o f 1 9 5 7 .
A u g u st
1957
A p ril
1960
2.22
1.57
2.11
1.42
1.74
.86
1.45
.79
2.0 4
1.16
1.84
1.08
M a n u fa c tu rin g
D u ra b le s
N o n d u ra b le s
W h olesale
D u ra b le s
N o n d u ra b le s
R etail
D u ra b le s
N o n d u ra b le s
If business sales decline, inventory-sales
ratios will rise because of the momentum
of the flow of goods to manufacturers from
raw material producers and to wholesalers
and retailers from manufacturers. The im
mediate consequence of a drop in general
activity usually is an “involuntary” increase
in business inventories. For this reason, stocksales ratios typically move up sharply in the
early stages of a business recession. Follow
ing the downturn in sales in August 1957,
inventories rose to 1.72 times the monthly
sales rate in March 1958.
Inventories of many firms and some major
industries appear to be high in contrast to
to the over-all situation. Household appli
ances, farm machinery, construction machin
ery and, of course, automobiles are or have
been in this situation. In most of these in
dustries, production cutbacks to correct the
inventory imbalance had been instituted prior
to mid-June.
In the case of automobiles, an inventory
of over 1 million cars is at least 10 per cent
higher than in any previous year. But the
car inventory passed the million mark last
March and has not dropped below that figure
since. Nevertheless, production schedules in
June were raised appreciably.
There are two explanations for the increase
in production of autos in the face of record
high stocks. First, important differences exist
in the adequacy of dealer supplies of various
models, depending upon consumer accept
ance and date of introduction. On the aver
age, there was a 45-day supply on June 1,
but, by models, the supply ranges all the way
from 8 to 80 days. Second, the automobile
industry appears to have shifted its view on
the size of a “normal” inventory. A few years
ago, anything over 30 days was considered
“heavy.” Now, a 45-day supply appears to
be acceptable.
In the case of steel, user inventories were
not rebuilt to the level industry experts had
thought probable at the start of 1960. But
it is certain that production of steel as of
mid-June, at 60 per cent of capacity, was
well below current consumption, estimated
to be in the neighborhood of 75 per cent of
capacity. As a result, a cessation of the cut
backs in user inventories of steel would
necessitate a higher rate of steel output. Such
a development was confidently expected to
materialize no later than August. One steel
firm has indicated that operations would be
higher in July than in June, a contraseasonal
development in an industry which usually
features a slowdown due to vacations in that
month.
The aluminum industry also has reported
3
Federal Reserve Bank of Chicago
shipments lower than anticipated, in part,
because consumers have been reducing in
ventories. Industry sources indicated that
this movement was reaching an end in late
May.
Over-all, the rate of business inventory
accumulation slowed greatly during the first
half of 1960. Business firms were stressing
efficiency of inventory management to cut
costs and help maintain or improve profit
margins. An easy supply situation for virtu
ally all gqods made this possible.
While total inventories generally do not
appear to be excessively high, it is conceiv
able that some decline could occur. This is
unlikely, however, unless a drop in total
business sales occurs. Inadequate inventories
can mean lost sales and reduced profits.
Jobs in seasonal rise
Total employment rose by over 1 million
in May, to a record 67.2 million. This rise
New claims for unemployment
compensation exceed 1959, lag 1958
is considered to be of normal seasonal pro
portions.
The increase in jobs over a year earlier
was 1.2 million. But the number of farm
workers declined 600,000. Therefore, nonagricultural employment was 1.8 million over
the previous year. Nonagricultural employ
ment had risen by the same amount between
May 1958, near the recession low, and May
1959. Despite this rise in employment, un
employment—at 4.9 per cent of the labor
force—was the same in May 1960 as a year
earlier. The reason is found in the fact that
the labor force has increased as rapidly as
employment during the past year. In the
twelve months, May 1958 to May 1959,
there was only a small rise in the labor force.
As a result, the gain in employment during
that period brought a sharp decline in
unemployment.
The trend of employment in the Midwest
has not been as strong in recent months as
in the nation generally. Layoffs in April and
May were concentrated in the durable goods
industries, which are dominant in these states.
In the early part of the year, new claims for
unemployment compensation had been well
below the same period a year earlier. Start
ing with March, this trend was reversed. The
increase in unemployment claims for May
is shown in the accompanying chart. In all
District states except Illinois, the rise in
claims was in excess of the national average.
But in all the states, claims were still con
siderably less than in the same weeks of
1958.
Capital e x p e n d itu re plans sta b ilize
In June, the Government issued a new
survey of business plant and equipment ex
penditure plans, superseding the report re
leased in March. In total, the survey shows
planned outlays for the year at 36.9 billion
Business Conditions, July 1960
dollars—off 170 million from the earlier
estimate. The gain over 1959 is now ex
pected to be 13 per cent rather than 14 per
cent as projected three months earlier.
The difference between the two estimates is
insignificant. However, in previous years of
rising outlays, there has been a tendency for
spending estimates to be raised somewhat as
the year moved on. Last year provided an
example. The largest reductions, 10 per cent
or more, were reported for motor vehicles,
electrical machinery and petroleum products.
Significant increases were reported for food
processing, textiles and mining.
There have been complaints that new
orders for capital goods are not materializing
as fast as would be expected in view of the
reported plans for capital expenditures.
Domestic sales of machine tools have not
shown much strength, and orders booked
by some producers of construction machinery
have declined. Also, demand for trucks has
fallen off somewhat from the very high level
in the early months of this year. The latter
situation is understandable in that first-half
truck production—725,000 units—was far
ahead of any year since 1951. However,
there has been excellent demand for “line”
pipe, chemical and petroleum processing
equipment and a variety of other capital
goods.
One reason for the supposed contrast be
tween spending plans and orders for machin
ery and equipment may be that, in view of the
highly competitive conditions prevailing,
buyers are holding back new commitments
as long as possible in an attempt to benefit
from any price reductions.
The economy’s
changing money needs
The
American public’s holdings of liquid
assets—money and financial assets readily
convertible into money—have risen fairly
steadily in the postwar period. Total nonbank
holdings of bank deposits, currency, savings
bonds, savings and loan shares and short
term Treasury obligations will pass the 400
billion dollar mark this year. Although the
growth in the total has been steady, the “mix”
has changed significantly in recent years.
Most noticeable, the vast growth in eco
nomic activity since World War II has been
accompanied by only modest growth in what
is usually referred to as “the money supply”
—the public’s holdings of currency and de
mand deposits. Total output is now two and
one-half times the level of early 1946, and
the total volume of checkbook spending is
relatively even higher. Yet the money supply
has increased only about one-third in the past
fourteen years. At the end of April 1960, the
money supply, at 139.4 billion dollars, was a
billion dollars less than a year earlier, al
though GNP was about 6 per cent higher.
How and why has this happened? Ob
viously, the money supply has been used
with increasing intensity to accommodate
the much greater increase in the volume of
transactions. Recently, the rate of turnover
of the demand deposits component of the
5
Federal Reserve Bank of Chicago
money supply has been nearly twice the rate
at which deposits were used at the beginning
of the postwar period. A major reason for
the slow growth in the money supply, and for
the rapid growth in money’s turnover, has
been the attractiveness of substitutes for
demand deposits and currency—other liquid
assets having the attributes of money.
Individuals, businesses, and other holders
of liquid assets have chosen, in recent years,
to add more to their holdings of “near
monies” than to their holdings of money.
Holders of demand deposits have been at
tracted to time deposits, savings and loan
shares, short-term U. S. Government secu
rities and other liquid assets, by high interest
rates. At the same time, many businesses and
some individuals have minimized checking
account balances carried to cover operating
requirements.
Typ e s o f n e a r m onies
In a sense, any financial asset is an altern
ative to demand deposits for individuals and
businesses with funds not immediately needed
for consumption or operations. The closest
substitutes for money, however, are those
financial assets which are highly liquid—
that is, which can be converted into money
readily at little or no cost. High on the scale
of “moneyness” are nonmarketable financial
assets which ordinarily can be redeemed at
a fixed value without delay, and
marketable securities of high
Holdings of money— demand deposits and
quality which have a broad mar
currency— have declined relative to
ket in which price fluctuations are
total liquid financial assets
relatively small. Classifying some
per centj/
liquid assets as near monies and
other as less close substitutes for
money is essentially an arbitrary
decision.
As a form of liquid reserves,
commercial bank time deposits
are probably the closest substi
tutes for demand deposits or cur
rency. Time deposits, like demand
deposits, are legal obligations of
a bank to creditors. Moreover, on
regular savings accounts, the
major type of time deposit, banks
in practice honor withdrawal re
quests without exercising their
right to require a waiting period
between the request and payment.
Time certificates and other types
of time accounts can be redeemed
Currency and demand deposits as a per cent of total liquid
at maturity or after a notice
assets (sum of currency, demand deposits, time deposits, sav
period
of usually thirty days.
ings shares, U.S. savings bonds and short-term direct U.S.
Funds
placed with savings and
obligations) .
Business Conditions, July 1960
The growth in individuals’ holdings of near money has declined since the end of
1 958 although holdings of near money have increased relative to money
per cent change from year ago in holdings of near monies by individuals
per cent
loan associations and credit unions represent
equities, not creditor claims on the associa
tions. However, such associations ordinarily
endeavor to redeem their shares on demand.
Consequently, share accounts, along with
U. S. savings bonds, are often used as a
repository for liquidity. But, like time de
posits, share accounts and savings bonds are
not money in the narrow sense of the term
since they must be changed into currency or
demand deposits before being spent.
Also in the category of so-called near
monies are Government securities with nearterm maturities, usually arbitrarily taken to
include those maturing within a year. Such
securities are more actively traded than any
other assets, and their short maturities limit
the price fluctuations.
Together these money and near money
assets in the hands of the public aggregated
395 billion dollars at the end of April 1960.
About two-thirds of the total was in the near
monies. Over the past decade, the total has
increased by nearly 50 per cent. During this
period, the money supply narrowly defined
has risen by less than 30 per cent.
In d ivid u a ls tu rn to n e a r m onies
Close to 80 per cent of the total stock of
near monies now is held by individuals, as
Federal Reserve Bank of Chicago
8
distinct from businesses, state
and local governments and other
holders of liquid assets. The shift
to near monies by individuals
has extended over the past sixty
years, though with some interrup
tions. In the booming 1920’s,
gains in deposits at mutual savings
banks and time deposits at com
mercial banks were on the whole
greater than those in money.
However, during the depression,
lower interest rates and lessened
confidence in financial institutions
led to a general decline in savings
balances. Reflecting the rise in
personal income and the scarcity
of goods during World War II,
holdings of the near monies rose
at an accelerated pace. The newly
introduced U. S. savings bonds
accounted for a very large portion
of the increase.
The much faster growth of near
monies than of money during the
postwar period is attributable to
several factors. In general, indi
viduals have been induced, by
high returns and prospects of
capital gains, to shift away from
money to other financial assets,
including common stocks as well
as the liquid assets considered
here. Higher interest rates have
been the principal attraction of
the near monies. This is reflected
partly in the falling off in demand
deposits and the surge in time
deposits immediately following
the announcement by banks of a
boost in the rate paid on time
funds. The apparent increase in
the sensitivity of individuals to
Additions to holdings of money declined in
1959, while additions to near money rose
dollar change
-4
0
1
+4
I
I
+8
+12
+16
+20
I--------------1--------------1--------------1
N e t add itio ns to currency and demand de po sits
a ll
h o ld e rs
in d i v i d u a ls V
□
c o rp o ra te
n o n fin a n c ia l bu sin e ss
{
1958
state and local government
o th er
all
nonin dividuals
h o ld e r s
1959
i n d i v i d u a ls
^ corpo rate
n o n fin a n cial b u sin e ss
o th e r s < sta te and local government
N e t add itions to n e a r m oney
other n o n in d iv id u a ls ^
all h o ld e rs
]
in d iv id u a ls
1958
o th e r s
]
all h o ld e rs
i n d i v i d u a ls
1959
o th e rs
N e t add itio ns to n e a r m oney by typ e
sa v in gs bo n ds
all h o lde rs
sho rt-term
----- —------ - ------- j----------- 1----------------------- 1
tim e d e p o sit s
| savings shares|
US securities'^
I
in d iv id u a ls
oth ers
m ~ ]
s a v in g s bonds
a ll
h o ld e rs
in d iv id u a ls
1958
t im e ^ d e p o sits
| sav in gs sh a re s" short-term U S. securities
IE
1959
o th e rs
Mncludes farms and unincorporated businesses as well as
consumers.
■’Mostly nonbank financial institutions and foreign residents
and governments.
Business Conditions, July 1960
rates of return shows up also in the rapid
growth in recent years of the higher-paying
media—savings and loan associations and
credit unions. In addition, savings and loan
associations have pursued aggressive promo
tion policies in the postwar period.
Savings in the near monies has been stimu
lated also by such special techniques as pay
roll savings plans and the bank plans cover
ing automatic regular transfers of specified
sums from the demand to the savings account
of a customer. Then, too, holders of larger
savings balances seem more prone to shift
among alternative media, and the average
size of balances has been rising along with
family incomes in the postwar period.
On the other hand, with the increased
availability and use of instalment credit,
consumers have been under less pressure to
accumulate demand deposits or currency,
by r e d u c in g th e ir n e a r m o n e y h o ld in g s , o r
otherwise, in anticipation of durable goods
purchases. The shorter intervals between pay
periods and the greater speed in check clear
ing, too, have worked in the direction of re
ducing the amount of funds temporarily held
in currency and checking accounts.
During 1959, individuals’ holdings of cur
rency and demand deposits increased less
than 1 per cent, while their holdings of near
monies rose 5 per cent. The comparable
1958 figures are higher—5 per cent and 8
per cent, respectively.
As these figures reveal, the pace of the
growth in individuals’ holdings of liquid
assets slowed down during 1959. When un
employment was increasing and income pros
pects were uncertain during late 1957 and
early 1958, individuals reduced their spend
ing and stepped up their additions to liquid
reserves. But when the business climate im
proved in late 1958 and 1959, the growth of
liquid asset holdings was slowed by increased
spending on goods or by transfers into Treas
ury notes and bonds and corporate securities.
The increase in individuals’ holdings of
demand deposits and currency during 1959
slackened more than the growth in their near
money holdings. As a result, the downward
drift in the ratio of money to total liquid
asset holdings of individuals was slightly
larger in 1959 than during the previous year.
N e a r m oney use by businesses
Businesses, unlike individuals, have step
ped up their additions to near monies during
recent boom periods. This results largely
because short-term Government securities
have been the predominant type of near
money held, and yields on marketable secu
rities have risen sharply in recent periods of
prosperous business. Additions to near
monies may mean reductions in demand
d e p o s its . In d iv id u a ls , in c o n tr a s t, h o ld o n ly
small amounts of Treasury bills, though their
use of this near money instrument seems to
have been stimulated during the past year.
Corporations, in their efforts to use de
mand deposits more efficiently, have also
increased their use of time and share ac
counts. Their holdings of these assets, how
ever, remain small relative to their holdings
of short-term Government securities.
The use of time and share accounts by
businesses has varied with short-term market
rates. The sharp expansion in time deposits
during the period of declining business in
early 1958 was in part attributable to the
much larger relative gains in corporate as
compared to personal time deposits. The
switches by investors between time and share
accounts on the one hand, and Government
securities on the other, reflect their response
to changing interest rates on the various kinds
of near monies over the course of the busi
ness cycle.
9
Federal Reserve Bank of Chicago
During 1959, bank deposits and currency
owned by corporations remained virtually
unchanged. Holdings of Government secu
rities, however, rose by about 4 billion dollars,
with some of the new purchases in the highyielding, short-maturity issues. Rising interest
rates during most of the year made invest
ment of temporarily idle funds in short-term
Government securities increasingly attractive.
The ratio of commercial bank deposits and
currency to total liquid assets held by cor
porations rose in 1958 but fell during 1959.
Over the longer postwar span, money has
not declined steadily relative to near monies
in the liquid reserves of corporations, as has
been the case with individuals. The money-
to-total liquid asset ratio of corporations has
been volatile, declining in 1953, 1957 and
1959, but increasing in all other years since
1951. In absolute terms, corporate holdings
of liquid assets have risen substantially since
1945. However, the opportunities for profit
able investment in new plant and equipment,
inventories, and receivables have exerted
downward pressures on total liquidity posi
tions. Corporate treasurers have worked to
minimize cash requirements by close atten
tion to cash inflows and outflows, but the
economies effected have appeared more in
increases in assets used directly in the busi
ness operations than in increases in holdings
of near money assets.
Labor resources in the Sixties
10
T . 500 billion dollar annual rate of
output of goods and services in the first
half of 1960 was an appropriate beginning
for a decade optimistically billed by some
as the “Soaring Sixties.” Although not every
one is equally confident about the economic
prospects for the current decade, there is
general agreement that a large potential for
continued economic growth does exist.
Many of the projections of rapid economic
growth are based upon the expectation that
population will increase nearly 3 million a
year during the current decade. This, it is
said, will boost the demand for all kinds of
goods and services as well as the capacity
to produce them. Demand, however, does not
necessarily move hand in hand with popula
tion; it can and often does show large swings
quite independent of changes in the total
number of consumers.
On the other hand, population, insofar as
it affects the size of the work force, is one of
the limiting factors in economic growth.
Also, in an economy in which it is public
policy to promote “maximum employment,”
it may be said that an expanding labor force
“requires” economic growth—or increasing
leisure, or both.
From the standpoint of the potential labor
supply in the 1960’s, the most significant
feature is that the number of persons of
working age, which grew slowly during the
last decade, will be growing rapidly. The
large number of babies born' during the
Forties will be reaching maturity. The popu
lation age 14 and over will increase by about
Business Conditions, July 1960
24 million in the next ten years—more than
in the twenty years, 1940-60.
While the population of working age dur
ing the next ten years can be estimated quite
accurately—it is already in being and esti
mates probably would be changed signifi
cantly only by unusual developments as to
death rates or emigration—the prospective
actual number of workers for any given year
is much less precise. This is because of shifts
in the proportion of the population which is
“economically active”—that is, working or
seeking work.
W h o are th e w o rk e rs ?
The official statistics on employment and
unemployment are based upon national sur
veys taken monthly during the week which
includes the fifteenth day of each month.
Everyone age 14 or over is considered to be
employed if, during the survey week, he (1)
did any work at all either as a paid employee
or in his own business, profession or farm,
or (2) worked 15 hours or more as an unpaid
Distribution of the population
of working age, 195 9
worker on a farm or in a family business.
Members of the armed forces are not counted
among the employed; individuals who have
jobs but are not working during the survey
week because of vacation, illness, bad
weather or labor disputes, are considered to
be employed.
The economically active population of
working age—the “labor force”—includes
the employed, the members of the armed
forces and those unemployed who are look
ing for work. Although the size of the labor
force is frequently used to denote the num
ber of people available for work, it does riot
always accurately reflect the labor supply. In
part, this is because the number of persons
who would work at any given time varies
somewhat with the availability of jobs.
Also, youngsters under 14 are not included
in the labor force. Although most children
under 14 are enrolled in school, many hold
part-time jobs during the school year and
full-time jobs during the summer; a limited
number may be employed full-time through
out the year. During the summer
months of 1950, it was estimated
that over 1 million children age
10 to 13 had some kind of job.
Furthermore, women keeping
house are not considered to be
employed or part of the labor
force. But others hired to perform
the same work are included as
a part of the employed labor
force.
The inclusion of the self-em
ployed in the labor force is, in
general, vague and somewhat
arbitrary. While women keeping
house are excluded, artists and
authors are included if they are
working at their trade even though
their products may not be salable.
u n e m p lo y e d
I k e e p in g h o u s e
sc h o o l
o n o th e r
11
Federal Reserve Bank of Chicago
ditions of high labor demand, women keep
ing house and young people attending school
often are attracted into employment. Also,
many “unable to work” because of physical
or other handicaps find that jobs suited to
their capacities are available.
The location of new businesses and resi
dential areas also influences decisions rela
tive to entering the labor force. A new plant
in a suburban community, for example,
usually attracts a number of the local women
into jobs. In general, the reasons given for
not working—keeping house, going to school,
unable to work, not interested in work—are,
in part, only alternatives to not knowing
about or finding the kind of work, the loca
tion, the compensation or the hours that
would be convenient or attractive.
The greatest flexibility occurs in the
younger groups, between 14 and 24. In
creased military requirements tend to ex
pand the proportion of this age group em
ployed and in the armed forces. Many young
men who previously were in school or not
Changes in th e la b o r supply
The proportion of the working-age popula
tion employed or looking for work is con
stantly changing. In an average month in
1959, 52.5 per cent of the working age popu
lation was employed, 3 per cent was unem
ployed and 2 per cent was in the armed
forces. In other words, 57.5 per cent of the
population age 14 and over was economically
active. During World War II, a much larger
proportion of the population was employed,
unemployed or in the armed forces. In 1944,
for example, these groups included 61.9 per
cent of all persons age 14 and over.
The utilization of the population during
war cannot, of course, be considered normal,
but less striking fluctuations also occur in
peacetime. The economically active propor
tion of the population age 14 and over de
clined from 58.5 per cent in 1956 to 57.5
per cent in 1959. The proportion in the
armed forces was smaller in 1959, and the
proportion unemployed was larger than in
1956. If the same pro
portion as in 1956 had
The reasons for not working change
been economically ac
with shifts in the job market
tive in 1959, total em
ployment in the latter
year would have been
about 1.3 million more
than it was.
These fluctuations
in the labor force are
accompanied by shifts
in the reasons given
for not working and
illustrate the flexibility
in the total number
that may be drawn
into employment from
a population of any
given size. Under con
per
cent
of
p o p u la tio n o v e r
n o t w o r k in g
14
50
12
1941
'4 3
'4 5
'4 7
[
I k e e p in g h o u s e
■
u n e m p lo y e d
'4 9
'5 1
I S
g o in g to s c h o o l
|
I o t h e r , in c lu d in g
re tir e d
u n a b le t o
'5 3
w o rk
'5 5
'5 7
'5 9
Business Conditions, July 1960
interested in working come into the labor
force, and the proportion unemployed de
clines. Similar but less dramatic changes
occur in the proportion of the younger people
who seek employment during periods of highlevel economic activity during peacetime.
Fluctuations in the proportion of younger
people in the labor force appear to result
largely from shifts in the availability of jobs.
The major working group, men 25 to 65
years old, is much more consistently in the
labor force. Most of them have important
family responsibilities. If laid off, they usually
do not leave the labor force but seek another
job and during this period are included in
the unemployed segment of the labor force.
Women, 25 to 65, are a much more flex
ible component of the labor force—in part,
because keeping house is not considered em
ployment. Women may leave the labor force
because of a decline in availability of jobs,
change in marital status or husband’s earn
ing capacity or addition of children to the
The number of w o rke rs age 25 to
4 4 will not increase substantially
in the 19 6 0 ’s
millions
30
-
14-19
2 0 -2 4
2 5 -4 4
4 5 -6 4
6 5 8 over
family. Also, some women enter the labor
force in order to earn money for special
purposes. They may desire additional funds
to release the family from a temporary
financial “bind,” to purchase new furniture
or to provide the down payment for a house.
After the goal is secured, they leave the
job market.
A b ility and w illin g n e ss to w o rk
While the level of economic activity and
the military requirements for manpower can
cause many people to be drawn into the
labor force, the limits to this flexibility in
labor supply are determined by many other
factors. Changes in the proportion of the
population able and willing to work will
depend upon such things as the age distribu
tion of the population and the attitudes and
laws concerning overtime, education, Social
Security, dependent children, retirement,
child labor and the roles of women workers
and the aged.
The proportion of the working-age popula
tion in school and hence not available for
full-time employment has increased, in part
because of rising income and the expanding
desire for education, and also because of an
increase in the number, age 14 to 17. These
are more likely to be in school than to be
employed.
People over 65, more important numeri
cally and as a proportion of the total popula
tion in 1959 than ever before, are being
utilized less intensively. The proportion un
able to work because of mental and physical
illness has declined substantially, but the
proportion “not desiring to work” has in
creased rapidly. Private pension plans, Social
Security and high levels of personal income
and savings in the past two decades have
made it possible for more of those 65 and
over to retire. However, the receipt of a
13
Federal Reserve Bank of Chicago
pension does not always mean that these
people leave the labor force.
Th e wom an w o rk e r
One of the most dramatic and widely
publicized trends in employment has been
the increased proportion of women working.
A number of factors has been responsible.
With modern appliances, housework requires
less time. The declining birth rate of the
1930’s meant that fewer women were “tied
down” by child care in the 1940’s and could
be drawn into employment. The length of the
work day and the work week have been
shortened, making it possible for many
women to work and still do the usual house
hold tasks.
There has been an increase in educational
attainment for women and an expansion in
the number of clerical jobs. The population
shift from rural to urban areas and the loca
tion of factories and trade centers in or near
suburban residential communities have made
it easier for women to find employment.
A major force speeding the entry of
The number of people reaching 1 8
will rise sharply in the mid-Sixties
m illio n s
women into the labor force was the tremen
dous surge in requirements during World
War II. After the war, women retained many
of their newly won positions in American
industry.
This has been especially evident for the
older women. The younger women have
tended to leave their jobs to rear children
and do housework. But once the children
are grown, many of them have again obtained
employment. The number of women work
ing, age 14 to 44, has increased only about 7
per cent since 1950, but the number over
44, for whom care of children is not likely to
prohibit employment, increased over 50 per
cent between 1950 and 1960.
La b o r supply to climb
If the same proportion of the population
age 14 and over were to be employed in 1965
as in 1959, almost 71 million people would
be at work, and by 1970 the number
would rise to 76.8 million— an increase of
over 11 million from the 1959 level. How
ever, if the demand for labor were very
strong, comparable to 1956, employment
would be on the order of 72.5 million in
1965 and 78.5 million in 1970.
The only group in which the total number
of workers is not likely to increase signifi
cantly during the 1960’s is the age 30 to 44
category. The low birth rates of the 1930’s
will be reflected in the declining number of
people in this age group during the early
years of the decade. Typically, a high propor
tion of the men of these ages is employed,
and little expansion can be expected even at
high levels of economic activity. Further
more, increased employment of women can
not be expected to boost the number of
workers in this age sector unless there are
important changes in the current patterns of
marriage and birth rates.
Business Conditions, July 1960
The most impressive feature of
The relative importance of various
the decade is likely to be the large
industries in the job market, 1959
number of young people entering
per ce n t o f to ta l em ploym ent, 1959
0
5
10
the labor force. Because of the
high birth rates after World War
II, the number of young people
available for work will rise
sharply. Those age 18 to 21 will
increase from less than 10 million
in 1959 to nearly 15 million by
1970. Each year during the cur
rent decade 2.6 to 3.8 million
persons will reach 18, and many
of them will be seeking work for
the first time. Even with increases
in college enrollment, this group
will provide a large growth in the
potential labor supply.
The increase in the number of
workers age 45 to 65 in the
1960’s will probably come, for the most part,
changing mix of demand for goods and
from increased employment of women. At
services and the sectors in which machinery
can be substituted for manpower. Possibly,
the current employment rates, the number
of women in this age category working is
recent shifts may provide some suggestion
likely to increase 1.3 million by 1970, and,
as to probable trends in the Sixties.
if the trend toward greater participation con
During the 1950’s, employment in both
tinues, the increase will be even greater.
agriculture and mining declined substan
Although the number age 65 and over will
tially. Agricultural employment dropped 22
continue to increase during the decade, their
per cent—from 7.5 million to 5.8 million.
greater financial ability to take it easy may
Relatively, the decline in mining was some
effectively limit any increase in the total
what larger—24 per cent—but total employ
number working. If, however, the demand
ment in this sector is much smaller. Those
for well-trained workers were strong, this
declines reflected rapid progress in mechani
age group could supply some of the addi
zation and other technological advances,
tional needs. There has already been some
since total output in both industries increased
indication that when these people can be
substantially. It seems quite apparent that
used effectively, there is a relaxation of re
an even smaller labor force will be required
tirement rules.
to produce agricultural products in the cur
rent decade.
Th e changing job " m i x ”
Construction employment was higher pro
The future distribution of employment by
portionately in 1959 than it had been in
industries cannot be foreseen with any degree
1950. However, the peak had been reached
of clarity. This will be determined by the
earlier, in 1956.
g o v e rn m e n t
fin a n c e
s e r v ic e
c o n s t r u c t io n
tra d e
m a n u fa c t u r in g
tr a n s p o rta tio n a
p u b lic
u t ilit ie s
a g r ic u lt u r e
m in in g
15
Federal Reserve Bank of Chicago
In 1950, the proportion of total employ
ment accounted for by manufacturing was
slightly more than 25 per cent; in 1959, it
was somewhat less. Between these years, the
proportion rose as high as 28 per cent in
1953, when defense production reached a
peak. The proportion of workers in manu
facturing runs substantially above 25 per
cent in industrial centers, of course, but for
the nation as a whole it has remained at about
one in four.
Altogether, the industries which produce
goods dropped from 43 per cent of total em
ployment in 1950 to 39 per cent in 1959, a
sizable shift within the span of a decade.
During the same period, industries which
produce services, including transportation,
public utilities, trade, finance, government
and other services, rose from 44 to 49 per
cent of the total. Except for transportation,
employment in all service groups increased
more rapidly than total employment. The rise
in relative importance of services reflects
both the shift in consumer expenditures and
the slower rate of progress in mechanizing
the production of services as compared with
goods, education and medical services, for
example. It is quite possible, therefore, that
the tendency for employment to rise relatively
in this sector will continue in the Sixties.
B u s i n e s s C o n d i t i o n s is pu blish ed m o n th ly b y
the federal reserve bank of Chicago. Sub
scription s are available to the pu blic w ith ou t
charge. F or in form ation con cern ing bulk m ail
ings to banks, business organ ization s and edu
cational institutions, w rite: R esearch D ep a rt
m ent, F ederal R eserve Bank o f C hicago, B ox
834, C hicago 90, Illinois. A rtic le s m a y be re16
p rin ted p ro v id ed sou rce is credited.
Employment growth in the Fifties
led by "service” industries
per
c e n t c h a n g e , o v e ra g e
a n n u a l e m p lo y m e n t,
1 9 5 0 -5 9
If the changing occupational structure of
the 1950’s continues through the current
decade, the need for professional, technical,
office and sales workers will be growing much
more rapidly than the need for people in
skilled, semi-skilled, and unskilled jobs. The
rapidly growing occupations require more
training and education than the manual
operations, and the middle-age groups are
more likely to have acquired these qualifica
tions.
The growth potential of the American
economy during the current decade will be
strengthened as a result of the larger growth
in labor force. But with the addition coming
largely in the young and unskilled, there
may be problems of matching the supply with
the needs. Also, the shift in consumer spend
ing with greater emphasis on services may
require that a larger proportion of the labor
force be utilized in sectors where produc
tivity is relatively low with less promise of
rising sharply than in the goods-producing
sectors.
@FedFRASER