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A review by the Federal Reserve Ban k of Chicago Business Conditions 1963 June Contents Trends in banking and finance— banking in spotlight again The growth of industrial production 3 10 B U S IN E S S C O N D I T I O N S is published monthly by the Federal Reserve Bank of Chicago. George W . Cloos was primarily responsible fo r the article "Th e Growth of Industrial Production” and George G. Kaufman fo r "Tre n d s in Banking and Finance— Banking in Spotlight Again". Subscriptions to Business Conditions are available to the public without charge. For information con cerning bulk mailings, address inquiries to the Federal Reserve Bank of Chicago, Chicago 90, Illino is. Articles may be reprinted provided source is credited. B u sin e ss C o n d itio n s, June 1963 in banking and finance B an kin g in sp otlight a g a in I n any modern society production is highly specialized and consumers purchase most of their needs from others. Convenient and efficient financing must be available at each stage of production and distribution if the economy is to function satisfactorily. Financial establishments, therefore, are “everybody’s business.” These institutions not only provide necessary money and credit but also provide a means by which the sav ings of many individuals are channeled into productive investment, essential to the na tion’s further growth and development. In addition, a nation’s monetary and credit facilities form a convenient means through which public policies, designed to help achieve full employment and stable prices, can be transmitted to the private economy. Because, therefore, the performance of the economy is closely tied to that of the financial institutions, there is widespread interest in the performance of banks and other financial establishments and in the public policies affecting them. In recent years, this interest has resulted in several comprehensive reviews of the coun try’s financial institutions and markets by prominent study groups. Three major reports have been completed within the past two years. In June 1961, the Commission on Money and Credit (CMC), a group of prominent citizens drawn from all major sectors of American life, published a report based on an extensive study of the entire financial sys tem. In the fall of last year, a committee ap pointed by the Comptroller of the Currency and consisting mostly of representatives of national banks reported a sizable list of pro posed changes in existing policies affecting the national banks. Last month, a cabinetlevel committee appointed by the President of the United States and headed by Walter Heller, the Chairman of the Council of Eco nomic Advisors, completed a review of many aspects of our financial structure. On a smaller scale, studies are conducted more or less continuously by congressional commit tees, individual economists, members of the financial community and others. The present wave of studies, unlike simi lar ones in the past, does not stem from any obvious weakness in the financial structure. The relative mildness of the changes proposed by the studies attests to the soundness and effectiveness of the prevailing establishments and practices. Rather, the investigations originate from a desire to test whether a financial structure designed largely to ac commodate the needs of the thirties (when much of the legislation currently applicable to commercial banks was enacted or substan tially amended) can also accommodate ade— continued on page 8 3 F ed eral Reserve Bank o f C h icag o - Summary of existing regulations Commission on Money and Credit 1. A. M O N ETA R Y POLICY O P E R A TIO N S O F T H E FEDERAL RESERV E S Y S TE M K - Reserve requirements The Board of Governors may vary reserve requirements on de mand deposits of member banks of the Federal Reserve System The range within which reserve requirements on de mand deposits of member banks can be varied between 10 and 22 per cent for Reserve City banks and 7 and should be set so that the needs of a growing ecom- a 14 per cent for Country banks. Current requirements are 16'/j omy can be met. Tentatively suggested 8 to 18 per and 12 per cent, respectively. Reserve requirements for nonmember cent range. ^ " banks are determined by the respective state statutes and may or may not be equal to the requirements applicable to member banks. Reserve requirements on time and savings deposits at member -♦ Requirements on time and savings deposits should banks may vary between 3 and 6 per cent. The current require be eliminated. Pending such change, banks should * ment is 4 per cent. be permitted to hold reserves in the form of Treas ury securities not exceeding five-years in maturity.^ Banks are classified as Reserve City or Country banks according to geographical location and character of business. Uniform reserve requirements should be establishea ‘ for all banks regardless of geographical location. V. v r B. Federal Reserve discounting * f Federal Reserve Banks normally make advances to member banks for periods not exceeding 15 days on promissory notes secured by Treasury securities (notes may be renewed) and for periods not * exceeding 90 days on promissory notes secured by "eligible" paper. Advances on promissory notes secured by collateral not considered "eligible" and payable in not more than four months may be made at a "penalty" rate of not less than Vi of 1 per 4 cent above the discount rate. Federal Reserve Banks may also discount certain "eligible" notes, drafts and bills for member V banks. With the exception of agricultural paper, which may have ■0 a maturity not exceeding nine months, the maturity of the notes, drafts and bills may not exceed 90 days. * Discount rates are set by the Board of Directors of each Federal Uniform discount rates and administrative standards Reserve Bank subject to the "review and determination" of the should be established at all Federal Reserve Bank*. Board of Governors of the Federal Reserve System. The determination of the discount rate should be vested in the Board of Governors. C. Payment of interest on deposits All commercial banks whose deposits are insured by the Federal Authority to regulate interest rates on time and Deposit Insurance Corporation are prohibited from paying interest savings deposits should be placed on a standby . on demand deposits and may pay interest on time and savings basis. deposits only within the limits determined by the Federal Reserve should be permitted. System for member banks (Regulation Q) and by the FDIC for 4 * nonmember banks. Differentiation among types of deposits “ * B u sin e ss C o n d itio n s, June ► 1963 Recommendations Committee on Financial In stitu tio n s A dvisory Committee on Banking r ----------------------------------------- Reserve requirements on demand deposits of member banks Reserve requirements on demand deposits should be gradu Ih o u ld be reduced to 10 per cent and the range within ated according to volume o f demand deposits. The require which the Board of Governors can vary the requirements ments should be imposed on deposits at nonmember as well narrowed to between 8 and 12 per cent. as member banks. ■w ir *■ Requirements on time and savings deposits should be elimi- Reserve requirements on time and savings deposits should i*ated. Pending such change, requirements should be re be continued at member banks and extended to duced to 3 per cent. member banks. non ■w U n ifo rm reserve requirements should be established fo r all banks regardless of geographical location. Uniform reserve requirements should be established fo r all banks of like deposit size regardless of geographical location. Collateral e lig ib ility requirements fo r advances should be All commercial banks should have access to the discount liberalized to "secured to satisfaction" of Federal Reserve window. Banks. All advances should be fo r periods of 90 days, ►"penalty" discount rate should be eliminated and all ad vances made at the regular discount rate. #■ * * > r it •t ^Authority to regulate interest rates on time and savings A uthority to regulate interest rates on time and savings deposits should be placed on a standby basis and trans deposits should be placed on a standby basis. D iffe re n ti ferred to the Treasury Department. ation among deposits should be permitted according to type, holder, maturity or other characteristics. 5 Federal Reserve Ba nk o f Chicago Summary o f existing regulations Commission on Money and Credit -------------------------------------------D. • 'V. Federal Reserve membership All national banks are required to be members of the Federal All insured commercial banks, whether state or na Reserve System. State chartered banks may become members by tional, should be required to become members. meeting prescribed requirements. > II. COM M ERCIAL BA N K S A. Lending, investing and borrowing ^ - Banks are subject to limitations on the ir lending, investing and bor Banks should be given greater fle xib ility with re rowing activities according to the laws applicable to the respective spect to their lending, investing regulatory agencies—Comptroller of the Currency, Federal Re activities, e.g., restrictions which impede lending serve System, FDIC and state banking authorities—-and the regula over a w ider geographical area than at present tions issued by these agencies. should be liberalized. B. and borrowing Taxation Commercial banks are permitted to deduct annually from taxable Commercial income fo r bad debt reserves an amount based on their average savings and loan associations should be subject to banks, mutual savings banks and* loss experience on loans over a 20-year period. The total reserve Federal income tax in a way that insures com-^ may not exceed three times this amount. For all banks, such re petitive equality. serves are currently equal to about 3 per cent of loans. > Savings and loan associations and mutual savings banks may de ► >-: 1 duct annually fo r losses on qualifying real estate loans an amount not exceeding 60 per cent of taxable income until the total reserve is equal to 6 per cent of qualifying real estate loans outstanding. 4 Alternative methods based on loan-loss experience are also permitted. C. % Branching 4 State banks are permitted to establish branches where state laws All commercial banks should be permitted to e£ permit but only within the state of operation. National banks may tablish branches within "tra d in g " areas irrespective establish branches subject to the same limitations applicable to of state boundaries. 4 state banks by state law. M D. Supervision and regulation 4 Prim ary authority relating to Federal supervision and examination All authority relating to supervision and examina is divided according to type o f bank. The Comptroller o f the Cur tion of banks at the Federal level should be tran.fi rency has jurisdiction over national banks, the Federal Reserve ferred to the Federal Reserve System. System over state member banks and the Federal Deposit Insur ance Corporation over state nonmember banks whose deposits are insured by the FDIC. State jurisdiction over state banks. 6 banking authorities have primary -4 B u sin e ss C o n d itio n s, June 1963 Recommendations A dvisory Committee on Banking Committee on Financial In stitu tio n s Compulsory membership fo r national banks should be con Membership should continue to be compulsory fo r national t in u e d . (A strong m inority, however, favored voluntary membership.) banks and voluntary fo r state banks. All banks should, however, be subject to Federal Reserve reserve require ments and have access to the discount window. Banks should be given greater fle xib ility with respect to Lending and investing alternatives should be broadened their lending, investing and borrowing activities, e.g., limits without abandoning the specialization of financial institu on bank lending to any one borrower should be raised tions. W ith in statutory guidelines, many detailed regula from 10 per cent of unimpaired capital and surplus to from tions presently in the statutes should be le ft to the dis *-10 to 15 per cent of capital, surplus and undivided profits. cretion of the supervisory authorities. «^Tax deductible reserves fo r bad debts should be permitted up to 5 per cent of outstanding loans. ■* -v R a tio n a l banks should be permitted to establish branches Federal w ithin 25 miles o f principal office within state of operation branching legislation with a view to developing a more » regardless of state law. and state governments should review present rational pattern while preserving competition and avoid ing excessive concentration. ► All authority relating to supervision and examination of Existing agencies should strive fo r greater cooperation and ^national banks (including form ation and expansion of hold coordination of regulation standards and procedures, with ing companies) should be transferred to the Comptroller reviews at the discretion of the President and, if uniformity * of the Currency. j All authority relating to supervision and examination of still not being achieved, consideration given other alterna tives including consolidation of supervisory agencies. state banks should be transferred to the FDIC. The FDIC •^should be reorganized and transferred to the Treasury Department. *- Authority to approve branches of state banks should rest exclusively with state authorities. 7 Federal Reserve Bank o f Chicago Summary of existing regulations ________________________________ Commission on Money and Credit ----------------------------------------------- V K III. N O N B A N K FIN A N C IA L IN S T IT U T IO N S A. Reserve requirements A The Federal Home Loan Bank Board may vary reserve require Direct Federal Reserve controls should not be ex ments on share capital or deposits o f member savings and loan tended to nonbank financial institutions. 9 ■ associations and savings banks between 4 and 8 per cent. Current requirements are 7 per cent and may be satisfied by either cash or U. S. Government securities. Reserve requirements fo r non member institutions are determined by the respective state statutes. Reserve requirements on nonbank financial institutions are im posed prim arily fo r liquidity purposes and need not be changed in sympathy with Federal Reserve monetary policy. B. Payment of interest and dividends on deposits and share capital A few states regulate interest and dividend payments of state Standby authority to regulate dividends and in chartered nonbank financial institutions. Federally chartered sav terest rates should be imposed on savings banks ings and loan associations are not subject to dividend regulation. and savings and loan associations. Maximum rates need not be identical fo r diffe re nt kinds of institu 0 Vt tions or fo r d iffe re n t kinds of accounts. ►> C. Branching State chartered savings banks and savings and loan associations A ll mutual savings banks and savings and loan as are permitted to establish branches where state laws permit but sociations should be permitted to establish branches only within the state of operation. Federally chartered institutions w ithin "tra d in g " areas irrespective of state boun are not limited in establishing branches by Federal law. As a daries. matter of policy, however, the Federal Home Loan Bank Board ^ 4 permits Federal savings and loan associations to establish branches only in those states in which state law does not explicitly prohibit A other financial institutions from establishing branches. M 8 BANKING — continued from page 3 quately the needs of the Sixties. Since the Thirties, the economy has undergone spec tacular changes. The recent investigations, therefore, have been concerned primarily with pinpointing those areas where some up dating of current regulations, policies or practices may be advisable. The stated objectives of the three major studies differed somewhat. The Commission on Money and Credit undertook to examine “the adequacy of the nation’s monetary and financial structure and its regulation and control,” while the Advisory Committee to the Comptroller (popularly referred to as the Saxon committee) was concerned primarily with the functioning of the national banks. The Committee on Financial Institutions B u sin e ss C o n d itio n s, June 1963 Recommendations Committee on Financial In stitu tio n s A dvisory Committee on Banking Cash reserve requirements sim ilar to those imposed on time and savings deposits at commercial banks should be ex tended to share capital at savings and loan associations and deposits at mutual savings banks. Standby authority to regulate dividends and interest rates should be imposed on savings banks and savings and loan associations. D ifferentiation among accounts should be permitted according to type, holder, maturity or other characteristics. Upon completion of a review o f branching standards appli* cable to national banks, Federal savings and loan associa tions should be subject to the same standards as national banks. A * was directed “to take the recommendations of the Commission on Money and Credit as a point of departure and to determine what changes, if any, are desirable in the Federal Government’s approach to private financial institutions in order to contribute to eco nomic growth and stability, remove apparent inconsistencies, inequities and impediments in the financial structure.” Selected recommendations of the three groups are summarized on pages 4-9 along with a brief statement of the relevant laws, regulations and policies currently in force. On some points, only two of the groups sub mitted recommendations. For the most part, only those recommendations which propose changes in the prevailing structure or legisla tion are included in this summary. 9 Federal Reserve Bank o f Chicago The growth of industrial production Xndustrial production in the United States has increased more than 80 per cent since 1947, for an annual growth rate of 4 per cent.1 But in the latter part of the postwar period, between 1957 and 1962, the rise was somewhat less rapid— about 3.2 per cent per year. However, the index increased sharply in 1962 and further gains have occurred thus far in 1963. Industrial production provides a useful W h a t is industrial production? The Federal Reserve Board's index of indus trial production, often referred to as "the FRB index," is one of the economic barometers commonly consulted to determine the current trend of economic activity. It shows United States output in physical, as opposed to dollar terms, in manufacturing, mining and electric and gas utilities. First published in 1927, the FRB index has undergone several major re visions, most recently in 1959. Successive revisions have broadened the coverage, in troduced new seasonal adjustments and taken into account changes in relative importance of various industries. The index and its com ponents are published as percentages of the level during a base period— now the average of the years 1957-59-—which is set equal to 100. Each month the index and its components are published in the F e d e r a l R e s e rv e B u lle t in and in the release “ Business Indexes." De tailed information on the method of prepara tion of the FRB index along with historical data are available in I n d u s t r i a l P r o d u c tio n , 1 9 5 7 - 5 9 B a s e (1962, 172 pp., $1.00 per copy) obtainable from the Division of Administrative Services, Board of G overnors of the Federal Reserve System, Washington 25, D. C. 10 measure of short-term changes as well as longer-term growth in an important sector of economic activity. The index includes the output of factories, mines and electric and gas utilities. It does not include activity in other major industries such as agriculture, trade, transportation, construction, services and government. The industries included in the index ac count directly for about 35 per cent of all economic activity. Goods and utility products — taken at the value at which they reach final users, including trade markups, transporta tion costs, financing and other charges— ac count for more than 60 per cent of total spending (gross national product). During business cycles industrial produc tion tends to fluctuate more than over-all activity, principally because of the rather steady growth of service industries and gov ernment. Over periods of several years, how ever, industrial production and gross national product adjusted for price changes have risen, more or less, proportionately. In d u stry p a tte rn s v a r y The postwar years have seen mixed pat terns among industries as the accompanying charts indicate. Some lines, such as chemi cals, have shown continuous substantial growth; some, such as business equipment, have moved upward in stages, interrupted by declines; others, such as steel and autos, have fluctuated sharply and have not regained highs set in the mid-Fifties, and still others, ’Growth rates, here and elsewhere in the article, are the compounded annual rate of rise from the beginning to the end of the period. B u sin e ss C o n d itio n s, June per cent, 1957-59=100 such as coal mining, have trended downward. Trends in three major components of in dustrial production—manufacturing, mining and electric and gas utilities—are shown in chart 1. Manufacturing output has moved very closely with total industrial production; in fact, the two lines when superimposed hardly can be distinguished. There are two reasons: first, manufacturing accounts for 86 per cent of the total index and, second, the slow rise in mining has been largely offset by the rapid rise in electric and gas utilities. Total output of mines (including oil and gas wells as well as minerals) rose only 31 per cent between 1947 and 1962 and was virtually the same in the latter year as in 1957. Output of utilities, on the other hand, increased substantially in each postwar year and in 1962 was more than two and one-half times the 1947 level. The contrast between output trends in mining and in utilities spotlights some of the major features of the postwar United States economy. First, imported minerals, such as iron ore and crude oil, have been supplying an increasing proportion of consumption. Second, the most rapid growth in manufac turing has occurred in such industries as chemicals and electronics which utilize rela tively small quantities of the materials pro duced by the extractive industries compared with the value of the final product. Mean while, the utilities have benefited from the strong trend toward the use of more energy per unit of goods produced and from the in creasing utilization of energy in the form of electricity and natural gas—generally con sidered superior to coal and fuel oil for many business and consumer uses. Within the manufacturing segment of in dustrial production, the rise in output of durable goods (those principally composed of metal) and nondurables (soft goods such as apparel and chemicals) has been about the same for the entire 1947-62 period (chart 2). However, in each of the years most affected by the postwar recessions— 1949, 1954, 1958 and 1961—output of the hard goods declined sharply. Purchases of dura bles, such as autos, refrigerators or machine per cent, 1957-59 =100 1963 Federal Reserve Ba nk o f Chicago per cent, 1957-59=100 tools, which involve substantial initial outlays and relatively long useful lives, often can be postponed. Most nondurables, however, must be replenished continuously. The final products of industrial produc tion are grouped into two categories—equip ment (including defense), which accounts'for one-third of the total, and consumer goods, which account for two-thirds (chart 3). Be tween 1947 and 1962 output of equipment rose more than output of consumer goods, partly because of the increase in military procurement starting with the Korean War. Since the mid-Fifties, the increase in output of equipment and consumer goods has been similar. Equipment output, however, dropped sharply in the 1957-58 recession in contrast with a very small decline for consumer goods. R ap id g r o w th in d u strie s Impressive gains have been scored in the postwar period in chemicals, electrical equip ment and commercial equipment (chart 4 ).2 Since 1947, output in these industries has 12 2Electrical equipment and commercial equipment include some components which are in both groups of industries. about tripled. Between 1957 and 1962 the average annual rate of growth was 6 per cent for electrical equipment and 8 per cent for chemicals and commercial equipment. These rapidly growing industries have pro duced some of the most spectacular new products. Chemicals include materials in corporated into plastics, synthetic fibers, detergents and pharmaceuticals. Electrical equipment includes output of electrical gen erating and transmission apparatus, com munications equipment and components for missiles and space exploration. Commercial equipment is highlighted by the giant com puters and a broad array of other data processing machines which have mechanized many clerical jobs. S h ifts in consum er g o o d s Production of consumer goods has risen fairly steadily in the postwar period with only slight setbacks in recession years. But some per cent, 1957-59 = 100 B u sin e ss C o n d itio n s, June per cent, 1957-59 = 100 components have shown large fluctuations. Particularly good auto years—such as 1950, 1955 and 1960—have tended to be followed by years in which production declined sharply (chart 5). The postwar car market has been influenced by many special factors. These include: labor strife and other difficulties that slowed the build-up in output after VJ day; the restriction of production during the Korean War; the easing of credit terms dur ing 1955; and the increase in imports in the late Fifties. Nevertheless, the underlying trend has been upward. Since 1947 auto out put has grown almost twice as fast as total industrial production although between 1957 and 1962 the increase in autos was only slightly greater than the over-all rise. Output of all types of appliances com bined has trended upward somewhat less erratically than that of autos in the postwar period, but recession years have brought sub stantial declines. For the entire postwar period, output of appliances has risen faster than total industrial production. Trends, however, differed for various appliances. Although production of appliances was at a record high in 1962, most of the major types reached their individual highs, as meas ured by the index, some years earlier. For washing machines the peak was 1956, for refrigerators and stoves it was 1950. There has been a trend toward electric ranges with production at a record in 1962 whereas gas range production reached a high in 1948. Production of both types of stoves combined has been fairly stable for the past decade. Television output in 1962 was far below the level of the 1950-56 period when most fam ilies were acquiring their first sets. Among the consumer hard goods, house hold furniture has shown the most vigorous growth since the mid-Fifties. Apparently, many families delayed the purchase of furni ture until other needs such as appliances and autos had been satisfied. In contrast with purchases of hard goods, consumer buying of less durable or perishable items has risen fairly steadily in the postwar years (chart 6). Apparel output has in creased continuously with only minor reac tions while processed food has followed a stable uptrend. Automotive gasoline also has gained consistently and more rapidly than per cent, 1957-59 =100 1963 Federal Reserve Ba nk o f Chicago per cent, 1957-59 =100 apparel or food. Output of soft goods has risen considerably faster than population, re flecting steadily improving living standards. P rivate in v e stm e n t 14 Private fixed investment has fluctuated much more than consumer purchases in post war booms and recessions. Trends in output of business equipment and construction ma terials are shown in chart 7. For the entire postwar period, as well as the years since 1957, production of business equipment has risen slightly less than total industrial produc tion. The gain in construction materials has lagged behind the total index. While each of the postwar recessions is clearly evident, output of construction ma terials has tended to decline less than that of equipment. Once started, construction proj ects usually are completed. Moreover, credit became easier to obtain in recessions and supported various types of construction, especially housing. Production of business equipment declined 5 per cent between July 1960 and March 1961. However, there was no decrease between 1960 and 1961 on an annual average basis as in the case of autos and other dura ble goods. There were a number of reasons. The 1960 recession started in the late spring and ended in February 1961 and was rela tively mild. In addition, exports of machinery and equipment rose in both 1960 and 1961. Farm machinery and equipment produc tion rose sharply in 1962 to the highest level in three years. Nevertheless, production re mained well below the rate of the 1948-53 period when net farm income was higher and planted acreage was greater than in recent years. The trend in output of farm machinery and equipment contrasts sharply with the vigorous growth in output of the commercial fertilizers that farmers have been employing in steadily increasing amounts. C om pe tition a m o n g ind ustrie s The fact that production in a number of domestic industries has trended downward after reaching a peak in the late Forties or early Fifties can be explained, in part, by the growth of competing products. Output of wood containers has declined B u sin e ss C o n d itio n s, June per cent, 1957-59 =100 sharply. The rise in natural gas, until re cently at least, has been limited by the rate of expansion of transmission facilities. Annual production of iron and steel has been fairly stable since 1959 (chart 12). Production in each of these years, however, was well below the annual average for 195057 for a number of reasons. Larger imports, weight-saving design and material improve ments and the less rapid growth of steel-using industries relative to the rest of the economy provide part of the answer. But growth in the use of alternative materials such as aluminum and cement and plastics also has been a sig nificant factor. Future prod u ction tre n d s substantially while paperboard production has risen sharply with short interruptions since the early postwar period (chart 9). Producers have turned increasingly to card board cartons in preference to wood crates. Wool fabric production rose last year but remained far below the levels of the early postwar period when American men were re stocking their wardrobes (chart 10). Man made fabrics—nylon, dacron, acrilon and others— have taken over an increasing share of the market not only for clothing but also for carpets, upholstery and industrial fabrics. Production of cotton fabrics also has been affected by the synthetics. In contrast with wool, cotton fabric output was at a new high by a slight margin in 1962. One of the most spectacular contrasts be tween industries is found in the trends of out put of bituminous coal and natural gas (chart 11). Natural gas has been favored as a fuel not only by home owners but also by indus trial plants and utilities. In addition, natural gas has been used increasingly as a raw ma terial in the production of various chemicals and plastics for which demand has risen Over the postwar period the population of the United States has increased at an aver age rate in excess of W 2 per cent annually. During the same period industrial production has increased more than twice as fast. Only in 1949, 1954 and 1958 did output decline on a year-to-year basis. In every other post- per cent, 1957-59 = 100 1963 Federal Reserve Ba nk o f Chicago war year, production not only rose but reached successive record highs. The growth of production during the post war period has varied greatly by industry. In some there have been declines because com peting products have been introduced and public requirements and private tastes have changed. Growth in total production obvi ously does not assure continued gains for all individual industries. It is often suggested that the United States economy has grown at a slower rate since 1957 than in the postwar period as a whole. This is borne out by the industrial produc tion index. However, further analysis shows that this is because of extremely rapid ex pansion in the early postwar years. Between 1947 and 1953 the annual rate of rise in out put averaged 5.6 per cent under the stimulus of postwar backlogs of demand and, later, by the Korean conflict. For the years 1953-57 per cent, 1957-59=100 per cent,1957-59=100 the rate of growth in output dropped to 2.5 per cent per year. But the nation was not entering a period of “stagnation.” Rather, between 1957 and 1962 the annual rate of growth in industrial production increased to 3.3 per cent. The recent period shows further improvement if recognition is given to de velopments thus far in 1963. Capacity to produce has increased even faster than output during the postwar period. At the end of 1962, according to a McGrawHill survey, manufacturing industries were operating at about 83 per cent of capacity compared with an average “preferred” rate of 92 per cent. Capacity, moreover, is ex pected to increase an additional 4 per cent in 1963. Clearly, there is room for a substantial further rise in output. The months and years ahead may reveal that the “flattening of the growth curve,” discussed so extensively in the early Sixties, reflected mainly the tempo rary effects of the recessions which reached their troughs in 1958 and 1961.
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