The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
A review by the Federal Reserve Bank of Chicago Business Conditions 1958 Ju n e Contents "W h a t recession?" 5 The "Fed" reports 7 Interest rates show Meat on the table, sharpdecline its price is up The Trend of Business 10 14 2-5 Federal Reserve Bank of Chicago OF 2 S i g ns that the downtrend in business may have reached bottom are accumulating, but are not yet conclusive. It now appears that personal income moved up slightly in March and April despite a continued fall in wage and salary receipts. Retail sales ceased to decline in March and rose appreciably in April. Farm income showed gains largely as a result of high livestock prices, and pros pects for a bumper wheat crop were stimu lating retail sales in areas afflicted with drought in recent years. Employment continued to decline in April, but at a much slower rate than during the first quarter of the year. Industrial production dropped again in that month, but improve ment was beginning to appear in some im portant lines such as steel. In short, the busi ness decline was taking on some of the ear marks of the “rolling adjustments” of the earlier postwar years, with increases in some sectors offsetting, in part, declines elsewhere. Recently released data show total spend ing, the gross national product, to have fallen over 10 billion dollars between the fourth quarter of 1957 and the first quarter of the current year. This is a faster rate of decline than the 7 billion dollar drop regis tered in the fourth quarter of last year, follow ing the peak reached in the third quarter. In six months, the decline in total spending has totaled 4 per cent. In the 1948-49 and 1953-54 recessions, the drop in over-all spending was only about 3 per cent during the first two quarters of the downturn, and BUSINESS that proved to be all or nearly all of the de cline in both cases. In the April-June period of 1958, it ap pears that consumer spending will be main tained near the first quarter rate. Govern ment and state and municipal spending have continued to rise. The remaining major area of spending is business investment. There is little question, judging by new orders, con struction contract awards and surveys of managements’ plans, that outlays on new plant and equipment will continue to fall in the second quarter and probably longer. In ventory liquidation is likely to continue also, but not at the extremely rapid annual rate of 9 billion dollars which occurred in the first quarter. Any reduction in this rate of liqui dation would tend to serve as an offset to capital goods spending. On balance, it appears unlikely that the second quarter will see a substantial drop in general economic activity. This does not necessarily mean that a plateau, if, indeed, one is being formed, is necessarily the pre lude to a sharp rise in business such as began in 1949 and 1954. In fact, the “standard forecast” calls for only a moderate rise, at best, in activity during the remainder of 1958. On the other hand, the possibility that a plateau might merely provide the spring board for a plunge to still lower depths as in 1930 and 1931 is generally discounted. Builtin stabilizers, including unemployment com pensation, pensions and price supports, to- Business Conditions, June 1958 gether with the expectation of active inter vention on the part of the Government if needed and a strong financial structure dif ferentiate the current environment from that of 28 years ago. Only a general financial collapse could produce a decline in activity as extensive and prolonged as 1929-32 and this possibility is generally believed to be remote. The financial structure — the heart of the economic mech anism— has continued to function effectively. The suspensions and bankruptcies of banks and other financial houses which ac Largest inventory declines occurring in lines which saw most build-up companied economic declines prior to World War II have been absent from the postwar scene. Furthermore, sober financial practices have held business bankruptcies, particularly of large organizations, well below the rates prevailing during the 1920’s, although some rise has occurred from the low levels of early postwar years. C a p ita l g o o d s continue d o w n The part being played by producers’ dur able goods — machinery and equipment — in the current recession has been widely publicized. Spending on these items dropped 10 per cent be tween the first quarter of 1957 and the first quarter of 1958, and there is ample reason to expect a further substantial decline. New orders have picked up in certain lines, machine tools for example, but they are still far be low current shipments, and back logs of unfilled orders continue to decline. Surveys of business plans indicate further declines in production of industrial machin ery and railroad equipment, and it is expected that a substantial decline in outlays on electric gen erating equipment will occur next year. The farm machinery indus try, on the other hand, has been improving, continuing a trend evident during 1957. It has been suggested recently that developments in capital goods mark this recession as a different sort from those experienced in 1948-49 and 1953-54. Those de clines are said to have been “in ventory” and “defense cutback” recessions in contrast to the cur- 3 Federal Reserve Bank of Chicago rent situation which is “more deeply en trenched.” It is apparent that producers’ durable goods utilize resources which are not easily shifted to other lines. Labor and ma terials utilized for new business buildings, on the other hand, can be absorbed readily in other types of construction. Actually, the pattern of spending on capi tal goods in the earlier postwar recessions was not strikingly unlike the present. The difference is one of degree and not of kind. In both of the earlier recessions, the decline in spending on producers’ durable goods continued for six successive quarters — long after the upturn in total spending. In the first instance — 1948-49 — the decline was 16 per cent, in the second — 1953-54 — 14 per cent. Doubtless, the present movement will go well beyond the 10 per cent reduction registered by the first quarter, but this need not preclude a leveling off and subsequent gradual rise in the economy. A 10 per cent variation in equipment spending amounts Producers' durable goods spending slumped in earlier recessions also billion dollar change from preceding quarter 4 1956 to a change in total national product of less than 1 per cent. Is con fid e nce s h a k e n ? The importance of the state of business and consumer psychology in initiating or reinforcing trends in production and spend ing is obvious enough. But gauging the state of confidence currently is another matter. The strong price trend in the stock market despite sharply lower corporate earnings suggests that investors have not given up faith in an early revival of sales and profits. A recent poll of business executives taken by Dun and Bradstreet indicates that 41 per cent expect third-quarter sales to exceed the same period last year, and only 19 per cent foresee lower levels. Probably the best meas ure of consumer psychology is indicated by current data on purchases of homes, mer chandise and services. Here, April data sug gest improvement. One way in which the current recession is different from the earlier postwar declines is that it has been steeper and more widespread than had been anticipated. Moreover, the early, massive intervention on the part of the Government in an “election year,” which was almost taken for granted, has not taken place. This experience contrasts with 1948-49 and 1953-54 when the reductions in total output and employment were less severe and of shorter duration than most observers fore saw. The mildness of these earlier recessions has helped to maintain confidence in the face of adversity. It is widely believed that the economy has become shock resistant to a high degree. Nevertheless, as a result of the develop ments of recent months, many consumers and businessmen are evaluating the longerrun future more cautiously and have been Business Conditions, June 1958 attempting to restore liquidity positions. Spending decisions, particularly those which involve the incurrence of debt, are being made with less of the sanguine view that mistakes cannot be serious in a setting of a rising tide of inflationary prosperity. Fore casters, doubtless, are tending to lower their sights on 1960, 1965 or 1970. This change in long-run confidence will not be easily overcome and constitutes one of the barriers to a rapid resurgence of activity in the months ahead. “W h a t recession?^ X n the midst of the nation’s sharpest postwar decline in business activity, some cities and states, even whole regions, have expe rienced only limited dips in income and em ployment. For the most part, these areas lie south of the Ohio River and west of the Mississippi. They are characterized, in the main, by a relatively heavy reliance on farm income and a smaller than average propor tion of employment in durable goods indus tries. This latter sector has accounted for the bulk of the drop in manufacturing produc tion. In the Seventh Federal Reserve District, various cities and the state of Iowa as a whole stand out as “centers of resistance.” Cities in this region which report fairly good levels of employment relative to last year include Des Moines, Quad Cities, Waterloo, Dubuque, Madison, Racine and Green Bay. Milwaukee and Kalamazoo also were not far from the honor roll in the spring. Farm incom e rises In the Midwest, as elsewhere, most of the areas of greatest strength owe their good fortune to the improvement in farm income. U.S. net realized farm income is expected to be 5 to 10 per cent higher in 1958 than last Insured unemployment rises least in Iowa April 1957 April 1958 Per cent of Per cent covered change employment (thousands) Illinois . . . 69 180 + 160 6.4 Indiana 38 96 + 153 8.2 Iowa . . . . 11 17 + 55 3.8 Michigan . 90 305 +240 15.2 25 55 + 120 6.2 1,577 3,592 + 128 8.1 .. Wisconsin . U.S............. year. If the change in farm inventories is in cluded, the current year is likely to be the second in a row to show such improvement. In terms of the current situation, agriculture is the only large sector which has moved against the general downward trend. The improvement in the farmer’s position is reflected in the build-up in his holdings of time deposits, which in March were 8 to 10 per cent above last year in Midwest states. But he is also buying more vigorously than other groups in the population. This is partic 5 Federal Reserve Bank of Chicago ularly true in the case of his production goods — farm machinery and, in the Midwest, ferti lizer. Also, sales of consumer goods to farm ers are holding up much better than is true for consumers generally. This helps to main tain income in those areas which supply farmers with goods and services. W h y fa rm incom e is h ig h e r The explanation for the strength in farm income is twofold: first the early months of the year saw a reduction in the supply of meat animals marketed, and, second, con sumers have shown a willingness to increase the proportion of their spending which goes to the grocery store. The recent coincidence in the low points of the production cycles for both hogs and cattle is quite unusual. Moreover, farmers have deferred marketings of hogs and cattle in an effort to utilize supplies of high moisture corn from the 1957 crop which could not be placed under Government loan. As a result, beef and pork production in the first quarter averaged 9 per cent below the same period Farm income in two-year rise as other income declines from peak per cent, 1953-55 -100 last year. Because of reduced supplies and strong retail demand, hog prices averaged 16 per cent higher than a year ago and cattle prices were up 33 per cent. Unlike many other industries, the demand for most agricultural products is relatively inelastic. That is, if consumer income is maintained, a reduced supply of the product means an increase in cash receipts to the pro ducers. This development has been particu larly marked in the case of Iowa, the fore most meat producing state. Iowa’s farm cash receipts exceeded 1957 by 13 per cent in the first two months of 1958. The gain is helped, of course, by the relatively low figures of last year. In Wisconsin, cash receipts were 5 per cent higher. In Illinois, Indiana and Michi gan, receipts were about 5 per cent lower, due in part to the large marketings of grains in the year-ago months. Meat prices are expected to decline in coming months as the number of livestock marketed increases. Some economists with meat packing firms expect that beef prices will be down 15 to 20 per cent from recent levels by the late autumn. Pork prices, too, are expected to decline, probably somewhat more than seasonally. These developments, however, are not expected to prevent farm income from sales of meat animals from showing a significant gain for the year as a whole. In addition, the nation’s wheat farm ers are expecting to harvest a bumper crop during 1958 and Government price supports will prevent a sharp price reduction. Hence, income from that crop may show a substan tial gain. C h aracte ristics o f sta b le a r e a s The Midwest contains some of the most depressed centers in the nation and some of the most stable. There are few, if any, siz— continued on page 15 Business Conditions, June 1958 The “FecT reports ccnp X he Board of Governors of the Federal Reserve System shall annually make a full report of its operations to the Speaker of the House of Representatives, who shall cause the same to be printed for the information of Congress.” So states Section 10, paragraph 7, of the Federal Reserve Act. The report covering operations for the calendar year 1957 has recently been transmitted by the Board. Because 1957 saw the topping out of the recent boom and the start of the most severe business setback of the postwar era, the record of monetary action in that year is of particular interest. The report begins with a summary of general business developments and the ac companying credit environment. It charac terizes the first three quarters of the year as being dominated by inflationary pressures and continued heavy credit demands, cul minating in “the highest levels of interest rates in more than two decades” before the cyclical turning point was reached. “During the fourth quarter, economic recession set in,” accompanied by “rapid readjustment in financial markets.” Perhaps the most interesting feature of the report — principally because it is an exclu sive one — is the record of policy actions of the Federal Open Market Committee. This committee, composed of the seven members of the Board of Governors and five Reserve Bank presidents, formulates the directive which guides the System’s open market oper ations. Changes in the wording of this direc tive may signal significant changes in mone tary policy. The Board’s report describes in full the alterations in the directive and traces Major business indicators remained strong through summer the rationale behind committee decisions in either changing or not changing its wording from meeting to meeting. As the year opened, the directive called for transactions with a view “to restraining inflationary developments in the interest of sustainable economic growth, while recog nizing additional pressures in the money, credit, and capital markets resulting from seasonal factors and international condi tions.” Perusal of the entire record shows an alertness to possible deterioration in the busi ness situation throughout most of the year, but the basic policy of restraining inflation was maintained through the third quarter. Reduction in the pressure on bank reserves 7 Federal Reserve Bank of Chicago began in October, and by year end a policy of aggressive resistance to recessionary forces was in effect. Changes in the directive and in the stated intentions as to its interpretation are sum marized in the brief digest on these pages. Besides the shift in open market policy, of course, the System has utilized all the other anti-recession weapons at its disposal. Use of these other instruments — reductions in the discount rate, in reserve requirements and in margin requirements — has been mainly in the current calendar year. These steps taken in 1958 are not covered by the Board’s re port, but are included in the digest. Since the decision to ease credit in November, the discount rate has been lowered in four steps, — continued on page 10 Digest of Federal Reserve policy actions, January 1 9 5 7 -M a y 1958 Kind and degree of change Date Effective* January 8 FOMC1 action Directive on open market operations maintained ob jective of "restraining inflationary developments in the interest of sustained economic growth" but added "while recognizing unsettled conditions in the money, credit and capital markets and in the international situation." March 5 FOMC action Revised "while recognizing unsettled conditions . . . " to "while recognizing uncertainties in the business outlook, the financial markets, and the international situation." August 9 Discount rate Increased from 3 to 3V 2 per cent August 20 FOMC action Directive calling for restraint renewed without change but "with the understanding that the System Account would have latitude for flexibility in providing re serves during the next few weeks." September 10 FOMC action Directive again renewed but with understanding that "in the immediate future doubts would be resolved on the side of less rather than greater restraint." October 22 FOMC action Directive again renewed but the Committee agreed that policy "should tend on the easier side from where it had been in recent weeks." November 12 FOMC action Revised directive from "restraining inflationary de velopments" to "fostering sustainable growth in the economy without inflation, by moderating the pres sures on bank reserves." November 15 Discount rate December 17 FOMC action Reduced from 3 Vz to 3 per cent Revised directive to "cushioning adjustments and mitigating recessionary tendencies in the economy." M B B m illion dollars, reserves commercial billion dollars 110 commercial bank earning assets V net borrowed reserves )Qn feb mar apr may ju w ^ ju ly ! / change from corresponding month a year-ago ; : January 16 Margin requirements Reduced from 70 to 50 per cent January 24 Discount rate Reduced from 3 to 2 3 per cent A February 27 and March 1 Reserve requirements Reduced Vi per cent on demand deposits A t CRC banks from 20 to 19 Vi percent A t RC banks from 18 to17 Vi A t Country banks from 12 to 1 1Vi March 7 Discount rate Reduced from 2 3 to 2 V4 per cent A March 20 and April 1 Reserve requirements Reduced Vi per cent on demand deposits At CRC banks from 19 Vi to 19 per cent At RC banks from 17 Vi to 17 A t Country banks from 1 1 Vi to 1 1 April 17 Reserve requirements Reduced Vi per cent on demand deposits At CRC banks from 19 to 18 Vi per cent Discount rate Reduced from 2 Vi to 1 % per cent Reserve requirements Reduced Vi per cent on demand deposits From CRC banks from 18 Vi to 18 per cent From RC banks from 17 to 16 Vi April 18 April 24 * For discount rate changes, date effective at Reserve Banks first announcing change. 1 Federal Open Market Committee Federal Reserve Bank of Chicago "F e d " reports continued from page 8 from 3 Vi to l 3 per cent. Moreover, succes A sive reductions in reserve requirements against demand deposits have released rough ly 1.5 billion dollars of reserves. This, plus the effect of open market operations, has permitted an easing in the free reserve posi tion of member banks of close to 1 billion dollars since the end of October, in addi tion to providing the base for a 7 billion dollar expansion in bank assets and de posits. Interest rates show sharp decline (C o n su m e r and wholesale price indexes have not receded along with business activity in recent months. But one set of prices im portant to all sectors of the economy has declined sharply — the prices paid for the use of money and capital. Since the peaks reached by interest rates in the fall of last year, both supply and demand factors have contributed to substantial easing in the mar kets for both short- and longer-term credit. Successive moves by the Federal Reserve to augment the supply of bank reserves to gether with continued heavy or even rising flows of savings have increased the supply of loanable funds. On the demand side, busi ness needs for credit have slackened with the reduction in inventories and the tapering off of plant and equipment outlay plans. A fa s t decline — 10 The rapid easing in credit conditions after the onset of recession in mid-1953 has been given a good deal of credit by many observers for the mildness of that setback and the economy’s swift recovery. Since last fall, the easing in credit — as evidenced by the de cline in interest rates — has been even more pronounced than it was four years earlier. In fact, the recent drop in rates has been as rapid as any in the country’s financial history. For example, the rates on short term Treasury obligations (maturities under one year) have declined about two-thirds since last fall. In contrast, such rates fell only about 45 per cent over a seven-month period from their mid-1953 peaks. Similarly, the rates on prime commercial paper have fallen over 50 per cent recently, but in the com parable 1953-54 period declined only about 20 per cent. Long-term rates too have de clined more rapidly in the current than in the earlier recession; for example, the yields on high-grade municipals declined about 25 per cent and 20 per cent, respectively, in the two periods. Thus the costs and availability of credit and capital have changed swiftly, to a financial climate which can foster the in creased use of credit for a resurgence in pro duction, income and employment. A fte r a slo w rise — The drop in the price of money since September and October has been a good deal faster than was the rise under the preceding conditions of heavy credit demands and re strictive monetary policies. Money market rates — the yields on such instruments as short-term Treasury issues, prime commer- Business Conditions, June 1958 Recent decline in rates sharper than in 1 9 5 3 -5 4 recession rate or yield-per cent cial paper and directly placed finance com pany paper — were last at current levels back in the winter and spring of 1955. It took them thirty months or more to rise as much during the boom as they have fallen during the last seven or eight months. Market rates on money market instruments are now quite generally less than half as high as they were at their peaks. Market yields on longer-term securities issued by the Treasury, state and local gov ernments and corporate borrowers have not fallen nearly as far as money market rates but nonetheless have declined much faster than they had risen in 1955, 1956 and early 1957. Bond yields have dropped one-half to three-quarters of a percentage point, rep resenting a decline of about one-sixth for long-term Treasury issues, one-eighth for high-grade corporate issues and nearly onefourth for high-grade state and local gov rate or yield - per cent ernment bonds. Most, if not all of these de clines had occurred by late January. Thus, in four or five months, bond yields declined as much as they had risen in the previous year. Back in the fall when rates were at their highs, the differences between yields on short- and long-term instruments were un usually small. In mid-October, market yields on 90-day Treasury bills and Treasury bonds maturing or callable in ten years or more were roughly equal, at 3.6 to 3.8 per cent, and rates on intermediate Treasury issues — in the 9 to 12 month and 3 to 5 year classes — were higher, around 4.0 per cent. Rates on prime 4 to 6 month commercial paper were fractionally higher than yields on highgrade corporate bonds. The much sharper drop in short- than in long-term rates since then has restored the spread in rates usual during much of the past 20 years. Treasury 11 Federal Reserve Bank of Chicago bill yields are now only about 30 per cent of the yields on long Treasury bonds, for example. Yields on long-term instruments almost always fluctuate less widely than those on short-term obligations, in part because a large change in the price of a long-term security is equivalent to a small change in yield. In recent months, the heavy volume of new long-term financing has also operated to limit declines in market rates. In the first four months of 1958, new money municipal offer ings were at record rates and corporate offer ings at near record rates. In addition, since mid-November the Treasury has added nearly 8 billion dollars to the market supply of Treasury bonds in the course of refunding and cash financing operations. B a n k cred it shifts Changes in bank portfolios reflect the change in credit markets. At the weekly re- Rates drop sharply from fall peaks, especially on short-term instruments porting member banks in leading cities, busi ness loans reached a peak in late September. From then until the end of April, business loans declined by almost 2.5 billion dollars. Meanwhile, holdings of U. S. Government securities rose by around 5.5 billion dollars. The contrast with these banks’ experience in the corresponding 1956-57 period is sharp. From late September 1956 to the end of April 1957, business loans rose nearly 2 billion dollars and holdings of Governments declined slightly. Also, in the recent period, the weekly reporting banks increased their holdings of other securities, largely munici pals, by over 1.2 billion dollars, while a year earlier holdings of other securities declined by about 200 million dollars in the compar able period. Thus, in recent months, with the slack demand for business loans and the eas ing of bank reserve positions due to monetary policy measures, bank purchases of securi ties have contributed to the strength in the markets for Governments and municipals, and to the reductions in their market yields. Moreover, recent changes in bank portfolios indicate greater credit ease than was the case in the 1953-54 recession. From the seasonal peaks reached in the fall of 1953, business loans at the weekly reporting banks had fallen by about 1 billion dollars by the spring of 1954, but holdings of Governments and other securities had risen only about 1.5 billion dollars, far less than the 6.7 bil lion dollar September 1957 to April 1958 rise. In consequence, total loans and investments at these banks declined during the winter and spring of 1954 by about 1.5 billion dollars, while Business Conditions, June 1958 on April 30 of this Long-term yields less responsive year total loans and to changed credit conditions in v e s tm e n ts of th e weekly reporters were per cent about 2.5 billion dol lars higher than at last fall’s peak. I n te r e s t rate s on short-term bank loans to business respond a good deal more slowly th a n do ra te s on m oney an d c a p ita l m arket instrum ents, due to the large num ber of loans made on terms which are “con ventional” for individ ual institutions. But even here, the decline has been noticeable. In the first 15 days points, with the exception of rates on inter of March, rates for all sizes of business loans mediate Governments which declined much were below those in September and Decem more sharply. For the short-term obligations, ber of 1957, with the largest declines in rates this represented a relatively small portion of on the larger loans. For all short-term busi the total decline of 2Vs to 2 Vi percentage ness loans, the average rate in 19 large cities points from mid-November levels to present declined from 4.85 per cent to 4.49 per cent. yields. However, about two-thirds of the total With the reduction in the prime rate since decline in market yields on capital market that time, average rates have undoubtedly instruments had occurred by the end of December. declined further. In contrast, a year earlier, From then until the next announced Fed bank rates on short-term business loans changed little from the fall of 1956 to the eral Reserve action, the cut in discount rates in late January, short-term rates eased fur spring of 1957, the changes mostly increases. ther. The reductions ranged from one-fourth Tim ing o f d eclin es of a point for commercial paper to about Most money and capital market yields had three-fourths of a point for Treasury bills. receded somewhat from their September and The yields on municipal and corporate bonds October peaks by the time the shift in also declined, but by lesser amounts, and Federal Reserve policy to the less restrictive were approximately at current levels by that posture was signalled in the reduction in the time. Long-term issues have fluctuated in a discount rate in mid-November. During the relatively narrow range since then, except for next six weeks, until the end of 1957, most a further easing in yields on long Treasury market rates declined .30 to .40 percentage issues in late March and April. 13 Federal Reserve Bank of Chicago In contrast to the relative stability in long issues, money market yields have experi enced most of their decline from the fall peaks since the January action. The declines ,in short-term rates were particularly sharp between then and the reduction in reserve re quirements at the end of February, ranging from .80 to 1.15 percentage points. In March and April, along with successive Federal Reserve reductions in discount rates and reserve requirements, the rates paid by prime private borrowers — the rates on commer cial and finance company paper and the prime rate at large banks — declined moder ately further, but the yields on shorter Treas ury issues declined only slightly on balance. M eat on the table, its price is up supplies of meat animals and the R.educeddesire of consumers to have meat continuing 14 per cent below the corresponding year-ago months. Imports of both meat and cattle have increased, but this has had only a minor on their tables have resulted in a persistent effect on total domestic supplies. Retail rise in meat prices since last November. prices in March were 16 per cent above Allowing for “usual” seasonal effects, the March 1957. The effects of reduced levels of price advance dates back to the winter of employment and wage income on the demand 1955-56 when larger supplies severely de for meat have been more than offset by the pressed livestock prices, provided bargains at reduced supply. Consumer expenditures for retail meat counters and caused farmers to meat apparently have been running about 5 scale down future production. per cent above the first quarter of 1957. Meat output in January-March was 8 Important exceptions to the general trend in meat prices in recent months are provided by Meat prices respond to supply changes chicken and fish. Ready-to-cook million pounds per cent, 1947-49=100 frying chicken, for example, has been available at retail stores at prices only slightly above yearago figures, while fish prices have shown diverse changes with some kinds higher and other kinds lower than in March 1957. The per capita supply of meat is estimated to total 151 pounds in 1958, plus about 32 pounds of poultry. For. the “red” meats, 1954 1955 1956 1957 this would be the smallest supply Business Conditions, June 1958 since 1951; including poultry, the smallest since 1954. But the gap between current and year-ago supplies has been narrowing, and output of meat in the second half of 1958 is expected to be somewhat larger than in the preceding year. Thus, some price decline is indicated. A large number of cattle is being fattened for market; the number on feed April 1 was a record and 12 per cent above April 1957. Even though there is a strong move to with hold cattle for herd expansion, the beef supply should show some gain in the re mainder of 1958. Hog production has turned upward and the pork supply is expected to exceed the year-ago volume in succeeding months. As to poultry, the production of broilers, too, is increasing. During recent months, the number of broiler chicks hatched exceeded the corresponding months of 1957 by 11 per cent, and the number of eggs in incubators May 1 was up 20 per cent. "Recession?" — continued from page 6 able areas in which employment in the spring exceeded last year. Two of the areas in the Midwest in which the decline in over-all em ployment has been quite small are Madison and Des Moines. Madison is the seat of the state govern ment and the state university, and contains a substantial service industry catering to the surrounding territory. Des Moines also has substantial employment in finance, trade and other service lines. The service indus tries, including finance and trade, have main tained employment close to last year’s levels. In addition, Des Moines has some farm ma chinery manufacturing and both cities are centers of relatively large trading areas. Man ufacturing employment in both of these cities is down over 10 per cent from last year. But manufacturing accounts for only about onefourth of total employment as contrasted with 40 to 50 per cent in most other Midwest centers. In Milwaukee, March employment was off only 4 per cent from a year ago, about the same as Des Moines. However, the con tinued drop in orders for capital goods may affect this center more severely as the year moves on. Terre Haute and Kenosha have witnessed very little decline in employment compared to last year. However, in these areas unem ployment was then very high. So they can hardly be classed as bright spots. Kenosha is holding up better than other auto centers because of the rising sales of the Rambler automobile. Farm m a c h in e ry im p ro v e s The Seventh District contains about threefourths of the nation’s farm machinery indus try. An upswing in production and sales of these goods has been largely responsible for maintaining a number of centers in the above average group. The Quad Cities area, which includes Davenport in Iowa and Rock Island, Moline and East Moline in Illinois, appears strong relative to most other Midwest centers for the first time in several years. Farm machin ery accounts for about half of manufacturing employment there, and this industry reported the number of persons on its payroll in March to be about 10 per cent above 1957. Over all manufacturing employment in the Quad Cities, including the important Rock Island Arsenal, is down only 2 per cent from last year. This experience can be contrasted with 15 Federal Reserve Bank of Chicago drops of over 20 per cent in Detroit and Flint, 9 per cent in the nation as a whole. In Waterloo, Iowa, where the principal employers are a large packing house and a tractor plant, employment during March was less than 2 per cent below a year ago. The payroll of the meat packer was lower. But this was about balanced by increases in farm machinery and equipment. Waterloo, there fore, is one of those centers where the ques tion, “What recession?” is likely to be asked. In Dubuque, another Iowa city heavily de pendent upon a packing plant and a farm machinery operation, the picture is similar. Racine, Wisconsin, also can thank its farm machinery firms for maintaining total em ployment within a close margin of last year. Racine has two important farm equipment producers which account for almost onethird of the city’s manufacturing. Unfortunately, there are no current figures on employment and output for the farm ma chinery industry in the nation as a whole. Official data group this industry with tractors used in construction and mining. For several years following 1951, the expansion of con struction machinery tended to hide the de cline in farm machinery. During the past year, the table has been turned — a sharp decline in road-building equipment has ob scured the rise in production of farm equip ment. Bu sine ss C o n d itio n s is published monthly by the federal reserve bank o f Chicago . Sub 16 scriptions are available to the public without charge. For information concerning bulk mail ings to banks, business organizations and edu cational institutions, write: Research Depart ment, Federal Reserve Bank of Chicago, Box 834, Chicago 90, Illinois. Articles may be reprinted provided source is credited. Bank debits show Iowa strong relative to other District states Sales of farm machinery improved during April, according to trade reports. Neverthe less, seasonal layoffs in the industry in the next few months could cause some of the centers now reporting a relatively stable em ployment situation to slip to a lower position. However, it now appears that 1958 as a whole will see some rise in the production and sales of farm machinery. This repeats the 1957 performance when factory ship ments of implements and tractors to U. S. dealers were about 15 per cent higher than in 1956. This rise was offset in part by a de cline in exports which usually account for about one-third of the industry’s volume. Food processing is also important in many of the centers which have seen relatively small declines in employment. Although these industries tend to be relatively stable, meat packing employment was down 7 or 8 per cent from last year in March, in both Iowa and in the U. S. as a whole. This was because of the drop in receipts of meat ani mals. All other types of food processing were within 1 per cent of last year.