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A revie w b y the Fe d e ra l R e se rv e B a n k o f C h ica g o Business Conditions 1959 M a y Contents Employment gains in Midwest and nation 6 The declining small town? 11 The trend of business 2-5 Federal Reserve Bank of Chicago OF T he first third of 1959 revealed a picture of expanding business activity in nearly all areas and nearly all lines. Differences by re gion and industry relate almost exclusively to the degree of improvement rather than whether or not some betterment has occurred. Activity showed great vigor in the JanuaryMarch quarter. This is apparent when com parisons are made with either the somewhat depressed year-ago levels or the vastly im proved rates of the fourth quarter of last year. The sluggishness noted in the early months of several recent years was absent in 1959. Retail sales, seasonally adjusted, were up Most categories show gains in construction activity First quarter 1958 1959 Per cent change (million dollars) Residential......... . .3,420 4,347 Industrial............ . . 761 501 + 10 -3 4 Commercial. . . . . . 790 795 + 1 U tilities.............. . .1,176 1,186 + 1 Other private . . . . 941 979 Public................. . . 2,686 3,125 + 16 T o ta l.................. . .9,774 10,933 + 12 2 +4 BUSINESS 8 per cent from the year-ago total in the first quarter and 3 per cent from the improved level of the final period of 1958. Construc tion put in place was 12 per cent higher than year ago and 4 per cent above the OctoberDecember quarter. In February, new orders received by manufacturers, reflecting large ly but not exclusively the sharp gains in primary metals, were 24 per cent above a year ago and 7 per cent higher than in De cember. Employment gains have been excel lent during the first quarter and significant reductions in the jobless total have occurred (see pp. 6 to 11). Finally, personal income in March was at a rate 20 billion dollars or 6 per cent above that of twelve months earlier. Nearly half of this rise occurred in the first quarter of 1959. As midyear approaches, the principal un certainties in the business outlook pertain to the possibility of major work stoppages, the relatively large inventories of steel and auto mobiles, and the upward pressures on certain consumer and wholesale prices. Uncertainty, of course, is an ever-present feature of the business scene, even during periods of strong uptrends. C re d it b u y in g re v iv e s Consumers have once more been increas ing their use of instalment credit. For the first nine months of 1958, consumer instal ment credit declined by over 700 billion dol lars on a seasonally adjusted basis. This was only about 2 per cent of outstandings at the Business Conditions, M a y 1959 Total industrial output reached Housing starts spurt new high in March in business revivals per cent, 1947-49=100 millions start of the year. But such a decline was un precedented in the postwar period. Basically, this development reflected consumer caution in the face of an uncertain outlook for jobs and income. It was particularly significant in the case of automobiles. In November 1958, instalment credit in creased slightly, but, in each of the three succeeding months, the increase in outstand ings exceeded 300 million dollars per month, seasonally adjusted. If continued for an en tire year, this rise would be much larger than the increases in 1956 and 1957 but would fall far short of the spectacular auto mobile year of 1955. Thus, credit use figured appreciably in the 13 per cent increase in sales of durable goods stores at retail and the 24 per cent rise in retail deliveries of domestically produced new cars in the first quarter. Nevertheless, the proportion of new cars sold on credit was 56 per cent in the first two months of the year. This is about the same as in the correspond ing period of 1957 but is a somewhat lower proportion than last year. Credit buying of automobiles has been en couraged by an increasing willingness of lenders to lengthen maturities on instalment contracts. In early 1959, almost half of the loans on new cars granted by a sample of Midwest banks called for payments over periods exceeding 30 months. Two years ago less than 10 per cent of the contracts were written for terms beyond two and one-half years. In the Chicago area, the over-30 month category has accounted for only about 20 per cent of all new car loans recently. But maturities of that length were virtually non existent in Chicago two years ago. As in the case of mortgage loans, Midwest bankers have been somewhat more conservative in stretching maturities than their counterparts elsewhere in the nation. H o u sin g activity a t h ig h le ve l For the first three months of the year, new private housing starts are estimated at 288,000. This is 40 per cent more than in the corresponding period last year. More over, it is equal to the record of the same 3 Federal Reserve Bank of Chicago months of 1955 and somewhat higher than the equivalent period of 1950. These lastnamed years were, by some margin, the high est on record for home building, both for the first quarter and on an annual basis. Conventional financing has been carrying the main burden of the rise in home con struction. Only about 30 per cent of the housing starts in early 1959 were financed by FHA or VA mortgages. In the corres ponding period of 1955, about 50 per cent of all mortgages were insured or guaranteed. FHA-insured financing accounted for about the same proportion, approximately 20 per cent, in both years. VA loans, on the other hand, which are restricted to a maximum in terest rate of 4% per cent, have accounted for only 8 per cent of the total in the cur rent year, compared with 30 per cent in the early months of 1955. The VA loan has never been as significant in the Midwest as in some other areas of the nation such as the West and Southwest. Here, as elsewhere, conventional mortgage money seems to be readily available, although rates Inventory build-up under w a y will it rival earlier upswings? billion dollars 4 continue to strengthen and the 6 per cent loan has become increasingly common. More and more the large-scale builder who is able to develop new tracts of land is becoming a vital factor in the Midwest. These builders depend on working arrangements with one or more financial organizations to furnish siz able blocks of capital for financing the con struction and purchase of new homes. In v e n to rie s rise fu rth e r Aggregate business inventories began to rise in the fourth quarter of 1958. Through February, however, the pace of the inven tory increase had not yet exceeded the rate of rise in business sales. This was true even in the durable manufacturing industries when taken as a group. In the 1954-57 period, total business in ventories rose consistently for almost three years. The duration of this movement was not untypical of business upswings. In early 1959, the book value of total business in ventories was about 1.5 times current sales. This relationship is about the same as it was in the spring of 1955 and well below the ratio prevailing in most other recent years. In the first quarter of 1959, inventory growth was contributing to aggregate de mand for goods at a moderate annual rate of about 4 billion dollars, not far from the long-run growth trend. This is about the rate of rise which developed in the early months of 1955. In that year, a further in crease to a rate of about 7 billion dollars occurred. But inventory policy has probably already played its major role in the business revival. From the first quarter of 1958 to the first quarter of 1959, the switch from inven tory liquidation to accumulation accounted for about one-third of the 38 billion rise in the annual rate of output of goods and serv ices. Thus, by far the largest share of the Business Conditions, M a y 1959 impact from the turn in the inventory cycle has already been absorbed. In fact, attention has centered recently on the prospective re ductions in inventories of steel and autos. On April 1, auto dealers had 830,000 domestically-produced cars on hand or in transit. This was only 30,000 less than the previous year. But since sales in March were a third greater than last year, this supply represented only 44 days’ sales as compared with 62 a year ago. The auto sales picture has been mixed. Some models, particularly smaller cars, have been in strong demand, while inventory-in duced production cutbacks for some models were occurring as early as February. In gen eral, the auto inventory situation appears about as comfortable as in any year since 1955. According to Iron A ge, additions of about 5 million tons will be made to user stocks of finished steel in the second quarter. Accre tions of this magnitude, it is believed, would bring the total up to about 20 million tons. Although many users of steel are building their holdings to a 90- or 100-day supply, others are maintaining only normal require ments or less, either because they do not ex pect the supply to be cut off or because they are unable to order steel for delivery before the strike deadline. The over-all impact of an important steel strike or a large inventory build-up followed by liquidation without a strike will be known only in retrospect. Nevertheless, it is of in terest to note that the steel strikes of 1949. 1952 and 1956 did not prevent a further rise in general activity to new highs after the settlements were reached. Is price sta b ility th r e a te n e d ? During the twelve-month period ending in March, the indexes of consumer and Average consumer prices steady since early 1 958 as food declines offset further rise in other items per cent. 1947-49=100 wholesale prices, the major barometers of “the purchasing power of the dollar,” have traced almost perfectly horizontal lines. In dividual prices have risen or fallen during the period, but these movements have tended to offset one another. In mid-April, market prices for hogs, sugar, wheat and coffee were appreciably below last year. Copper, tin, rubber and, particularly, hides were considerably higher. Recently, wholesale prices on building ma terials, clothing and shoes have been in creased by amounts ranging up to 10 per cent at wholesale. Declines have occurred in the case of petroleum products and steel scrap. Under the competitive conditions that are expected to prevail in the months ahead, price changes in both directions undoubtedly will continue. During recent months, the off setting movements of declining food prices and rising prices for services and industrial commodities have resulted in stability in the over-all price indexes. 5 Federal Reserve Bank of Chicago Employment gains in Midwest and nation 6 Employment, rising from the winter low, showed much more than a seasonal gain in March. The improvement reflected a very sharp rise in construction and other outdoor activities, expanding employment in primary metals and most metal-working industries, and modest but widespread increases in many other sectors. As of mid-March, 63.8 million persons were at work. This was 2.4 per cent, or 1Vi million, above March 1958 and nearly equal to the record March level of 1957. And the picture is expected to show additional im provement. Secretary of Labor, James P. Mitchell, has estimated that employment by October will reach 67 million with unem ployment falling below 3 million. These pro jections compare with 65.3 million employed and 3.8 million unemployed in October 1958. While the total number of persons at work has recently returned to approximately the pre-recession level, the civilian labor force— number employed plus those seeking work— has grown by about 1.4 million during the two years, March 1957 to March 1959. Consequently, as of mid-March, unemploy ment, seasonally adjusted, was equal to 5.8 per cent of the labor force, compared with 3.9 per cent in March 1957. An important factor in the continued rela tively high unemployment has been the fail ure of industrial employment to regain and surpass its pre-recession level. Although total output of manufacturing firms set new record highs in February and March, total employ ment in manufacturing was about 6 per cent below the March 1957 figure. Output of non durables as a group is well above the pre vious record output, having regained its pre recession volume as early as last summer. Output of durables (very important in most Midwest areas), however, was still some what below the seasonally adjusted record set as far back as December 1956. Output and employment in major manu facturing industries are compared in the ac companying chart over one-year and twoyear periods. March 1957 was near the pre recession peak for total manufacturing out put. March 1958 was close to the recession low. In March of the current year, employment in all major industry groups, except furni ture and chemicals, was below the figure of two years ago. However, production was appreciably higher in all industry groups except machinery and transportation equip ment. Comparisons with one year ago show some rise in employment for all categories and production increases ranging between 7 and 62 per cent. Increases in manufacturing and construc tion employment in recent months have played a key role in reducing the number of unemployed males 25 years of age and over. Since the number of adult males in the labor force has been relatively constant in recent years, any changes in employment have about an equal effect on unemployment in this sector of the labor force. Longer-term unemployment continued relatively high in Business Conditions, M a y 1959 March with 1.5 million persons reported as having been out of work for 15 weeks or longer. This type of unemployment tends to be concentrated among workers formerly employed in durable goods industries and among those over 45 years of age. panying table for three selected periods. The March 1957 designation reflects labor mar ket conditions in these District centers be fore the impact of recession was evident nationally. The weakest period of employ ment during the recent downturn is reflected in the July 1958 designations; March 1959 L a b o r m a rk e ts c lassifie d is the latest date for which classifications are available. As an aid in appraising employment trends The story of recession and recovery is in local areas, the Bureau of Employment somewhat different for each city since each Security prepares a bimonthly classification “makes it living” in a different way. Those of labor markets. For each labor market areas with large proportions of employment area, a number of factors, including the ra in nonmanufacturing activity or in the pro tio of unemployment to total labor force, duction of nondurables generally had the expected labor requirements in the next two smaller declines in the 1957-58 downturn. to four months and the probable effects of From the first quarter of 1957 to the first seasonal or temporary factors, are evaluated. quarter of 1958, U. S. manufacturing em A letter designation— A, B, C, D, E or F— ployment declined by 7.8 per cent; non is assigned to each area to characterize the manufacturing employment declined only over-all composite of information. 0.5 per cent. During the same period, em The classification of major labor areas in ployment in durable goods manufacturing the Seventh District is shown in the accom fell 10.7 per cent while employment in n o n d u ra b le goods Largest employment declines occurred m a n u fa c tu rin g d e clined 3.7 per cent. in manufacturing and durable goods production In the Seventh Fed per cent, 1957=100 per cent, 1957=100 eral Reserve District, Des Moines and Ma dison are representa tive of those cities with large proportions of the labor force en gaged in nonmanufac turing activity. The change of classifica tion, from “B” to “C”, reflected only mild w eakening in their labor markets. Both cities showed their weakest employment , 7 Federal Reserve Bank of Chicago situation in March 1958. Yet the declines from March 1957 to March 1958 were only 2.7 per cent for Des Moines and 2.3 per cent for Madison. The relatively large pro portions of employment in government serv ice, trade and finance cushioned the declines in these areas. The pickup in employment came relatively early in centers where employment is pre dominantly in the production of nondurables and in nonmanufacturing activities. Employ ment in nondurable goods manufacturing continued to improve during the first quarter of 1959 and output reached a new high. A — Critical labor shortage, unem ploym ent In nonmanufacturing lines, employment has exceeded first quarter 1957 levels. A similar picture of slight recession de clines occurred for the Quad Cities, Racine and Waterloo. Here the stability may be traced in part to a different source. Rising farm income and farm machinery production ( “What recession?” Business Conditions, June 1958) helped to offset employment de clines elsewhere in these economies. But many Midwest communities experi enced much larger declines in employment. And, even though recovery has been substan tial for most areas, employment in many cen- le ss than 1.5 per cent, sizable labor gains expected, cur rent labor shortage not due to seasonal B— Job seekers, opportunties unem ploym ent slightly between in and m ay be significant C hicago B D D Q uad C ities C C C 2.9 per P eoria B E C R ockford B C C seasonal. betw een increases in 1959 job Indiana Fort W ayne C E D Indianapolis B D C no S outh B end C F D un Terre H aute E D D C edar R apids B C B D e sM oines B C C D C — Job seekers slightly m ore than job openings, unem ploym ent M arch 1958 of cent, som e increases in em ploym ent expected, labor shortage July 1957 Illinois factors. excess 1.5 M arch 3.0 and 5.9 per em ploym ent cent, expected, em ploym ent m ay be partly seasonal. Iowa D — Job seekers in excess of em ploym ent job openings, betw een 6.0 and 8.9 per cent, un expect M ichigan no significant labor increase surplus not E— Job openings, or declining due to seasonal seekers considerably em ploym ent, Battle C reek C D Detroit C F F Flint C F D G rand R apids C F E Kalam azoo C C C D factors. m ore than job unem ploym ent betw een 9.0 and 11.9 per cent, declining em ploym ent or no significant increase Lansing C E M uskegon D F F Saginaw C E D in labor requirem ents expected, labor surplus not due to seasonal factors. F— Job openings, seekers substantially unem ploym ent declining em ploym ent labor requirem ents or 12.0 in per excess no significant expected, current job W isconsin K enosha D D C increase in M adison B C C M ilwaukee B D C R acine C D C or labor not due to seasonal or temporary factors. 8 of m ore, cent surplus Business Conditions, M a y 1959 ters in the spring was still well below both the 1956 and 1957 levels. Fort Wayne, South Bend, Detroit, Flint, Grand Rapids, Lansing and Saginaw, even with substantial improve ment, had fewer employed than in 1956. However, economic adjustments usually do not occur quickly, or at the same rate in all sectors. Also, employment gains tend to lag gains in output, at least in the early stages of an upturn. As activity begins to pick up, hours worked per week are increased and output per hour usually rises quite rapidly as a result of improvements in production proc esses initiated during the downturn and the early stages of recovery. Since March 1958, average weekly hours of factory workers have increased from 38.6 to 40.1 nationally. Rise in weekly hours slows increase in factory employment during early phase of recovery per cent, 1957 =100 Cyclical o r lo n g -r u n a dju stm en ts? For many cities in eastern Michigan, the more pronounced cyclical swings in employ ment and unemployment since 1953 have been accompanied by an upward trend in the proportion of the labor force unemployed. This area may be adjusting not only to shortrun shifts in the markets for their products but also to possible longer-run changes. F or exam ple, when defense spending shifted from emphasis upon tanks and heavy trucks to missiles and electronic devices, the localities of defense production shifted also. And the effects spread to the parts and ma terials suppliers as well as the prime con tractors. Excess labor and plant capacity in some Seventh District areas can be traced to this kind of shift in demand. In some of the same areas, additional long-run adjustments are occurring as a result of decentralization of auto production and, temporarily at least, what appears to be a scaling down by con sumers of the relative importance of expen ditures for automobiles. An important side effect is the shifting pattern of demand for automobiles. This shows up in the employ ment pictures in the “home cities” of Ameri can Motors and Studebaker Packard. Keno sha, in particular, has forged ahead of its 1957 level of employment and shows a rap idly improving situation. Long-run changes in the demand for labor occur also as a result of advances in produc tion techniques. As additional jobs are “mechanized,” surpluses of certain types of labor may develop in individual areas. The impact upon employment may be similar to a shift in the demand for products produced in the area. Displaced workers must shift to other jobs in the same community, often re quiring the development of new skills, or move to other areas where jobs are available. No community is immune to possible ad justments to long-run or secular changes in demand for its goods. And, very often, a decline in the demand for one type of product is not accompanied with increased demand for another commodity that can be produced efficiently utilizing resources in the same lo- 9 Federal Reserve Bank o f Chicago Production increases outstrip employment gains in all major industries per cent change, march 1957 to march 1959 -15 -10 -5 0 +5 ♦10 ♦ 15 a furniture and fixtures chemicals and petroleum textiles and apparel primary metals paper and printing rubber and leather food and tobacco total manufacturing fab ricated metal products transportation equipment electrical machinery nonelectrical machinery cality. The employment situation in most areas will usually reflect the effects of both cyclical and longer run forces. Unfortunately, it is not possible to identify the relative im portance of each, especially as it may affect employment prospects for individual skills or even individual workers. O n e o f th re e 10 Cedar Rapids is the only Midwest area— others are Washington and Honolulu— which carried a “B” classification in March, signify ing that unemployment is low and that there are slightly more job opportunities than job seekers. With seasonal gains late in 1958 in food processing, which accounts for 15 per cent of Cedar Rapids employment, and later increases in earth-moving equipment and electrical equipment, unemployment has been reduced to a low level. The “B” desig nation is the same as in March 1957. Five other Midwest areas— Racine, Ke nosha, Kalamazoo, Terre Haute, and the Quad cities area in east central Iowa and northwest Illinois— carried designations in March which were equal to or more favora ble than two years earlier. Between July 1958 and March 1959,12 of the 22 classified Business Conditions, M a y 1959 areas in the Seventh District had been up graded by at least one letter designation. Employment gains through the spring have been concentrated in durable goods manu facturing lines, both in the Midwest and in the nation. These include such industries as farm machinery, construction equipment, household appliances, railroad equipment, autos, trucks and trailers, and, of course, steel. These were the industries which had experienced the greatest declines and which have now bounced back, exceeding previous highs in some cases. In the spring and summer, important sea sonal increases in employment will occur in construction, food processing and recrea tional activities. But continuance of the broad employment upswing in many Mid west centers will depend on further improve ment in the hard goods industries which pro vide the income supporting workers in trade, service and related lines. Reductions in employment during the third quarter are almost certain in steel and automotive industries. However, new orders for most manufactured goods have been strong and backlogs are building again. Gov ernment reports suggest further gains in hir ing by the capital goods and metal fabricat ing industries in the months ahead. For the year as a whole, the Department of Com merce estimates that sales of durable goods will exceed 1958 by 12 per cent with sizable increases expected for all major categories. The declining small town? TX he small town by and large has not par The outlook for all small towns is ob ticipated in the rapid expansion of the Amer ican economy and the growth in the country’s population during the past two or three dec ades. In Iowa, Illinois, Indiana,' Michigan and Wisconsin, the number of people living in towns with population under 2,500 and located outside large urbanized areas re mained relatively constant from 1930 to 1950. The smallest communities, those with fewer than 1,000 inhabitants, had 4 per cent fewer people in them in 1950 than in 1930. In contrast, the communities over 2,500 in the states of the Seventh District increased in population by 20 per cent from 1930 to 1950. Is the small town becoming an anach ronism in the modern economy? Is its stagna tion or decline inevitable? viously not the same. Communities are like people— no two are exactly alike and their futures differ. To appraise the prospects for an individual community, one must under stand how it makes its living at present. That is, what types of economic activities occur in the town? What gives vitality to such eco nomic endeavor? The Io w a sm all to w n An examination of 53 Iowa communities ranging in population from around 100 to 30,000 indicates some of the typical eco nomic features of small towns in the rural Midwest. The small Iowa community is an island surrounded by farms. The salient as pect of its economic life is its dependence on 11 Federal Reserve Bank of Chicago 12 this agricultural environm ent. In 53 Iowa communities the composition Many people who have long since of employment differs with size left the farms or small towns in per cent of total employment which they were reared recall the 100 town as the principal, if not the all other only, “trading post” for the sur rounding farmers. It was the place wholesale manufacturing where farm output was sold, where store goods were bought, and where, in many instances, there were small-scale manufac turing activities involving agri cultural products or supplying farmers’ needs. Small towns in Iowa still re tain these economic functions, under 500 250 to to 250 but farmers no longer need trade ,000 500 exclusively in their own nearby communities by population size towns, as they had to fifty years ago. With the great improvements The observer should not be misled into in transportation, larger trading centers with thinking that the extent of manufacturing in more varied merchandise lines have become a community is an indication of the degree accessible to farmers from relatively distant to which the town is independent of its points, and it is now often advantageous for agricultural environment. A major part of farmers to sell their output in more distant manufacturing activity for these towns is the centers. Also, farm-oriented manufacturing processing of agricultural products. For has increasingly concentrated in the larger larger communities, better than one-third of centers. As a result, the smallest Iowa com manufacturing activity centers around agri munities seemingly have been left behind. cultural processing. For the smaller towns, The composition of employment in a com especially those under 500, virtually all of munity is perhaps the best indication of the their manufacturing employment is farmway in which a town’s economy functions. oriented. For this group of 53 Iowa communities, there The smallest Iowa towns may have feed is a great deal of variance in employment composition. In general, retail, service and mills and creameries because of the abund ance of readily available agricultural raw wholesale activities are more important to the community the smaller the size of the materials. However, the area in which the town. In contrast, manufacturing activity is small town buys its raw materials and in unimportant as an employer in the smallest which it sells its manufactured products is towns— it accounts for 40 per cent of em limited. Therefore, these enterprises are usu ployment in the Iowa towns studied with ally small and manufacturing is not an im populations over 5,000 but only 3 per cent portant part of the smaller town’s economy. of total employment in the towns under 250. Nor is it a growing part of the small town’s Business Conditions, M a y 1959 economic activity. Because of declines in population and improvements in transporta tion, the size of the area in which feed sales are made or from which the milk supply is drawn often has been further restricted. Advantages of scale But the trend in the largest of the 53 Iowa communities, especially those over 5,000 in population, has been somewhat different. Larger markets resulting from increases in population and greater ease of transport have resulted in some increase over time in food processing. Moreover, other types of manu facturing activity which place emphasis upon the sales to farmers of such items as farm machinery, fertilizers, feed or seed are more favorably located in the larger town. Devel opment of larger-scale operations which im prove efficiency dictate expansion in existing centers in contrast to the establishment of new small plants elsewhere. Moreover, the larger communities with their already established advantages of a larger labor supply, transportation facilities, better streets or cheaper water and electricity can attract other types of manufacturing ac tivity, materials suppliers, specialized busi ness services and a whole range of comple mentary activities in the retail and service trades. Being able to provide more efficiently a wider range of the desired goods and serv ices to the rural areas, the larger town’s mar kets expand to cover more and more of the countryside. There are some unusual manufacturers for which transport costs for both raw materials and finished goods are very minor. They can be produced wherever the businessman who has developed the product happens to be located. Thus, the production of valentines, tally cards and screen patches, for example, in small Iowa towns is almost completely un related to the natural advantages of these communities. It is upon such chance elements as these that some individuals base their hopes of arresting the decline of small towns. How ever, the efforts of the inventor, promoter or founder of such concerns will ordinarily be exercised in the more advantageous en vironment which is most commonly available in larger communities. Thus, hopes for grow ing employment opportunities in small towns are more soundly based if they can be tied to the natural advantages of the town. "Bulking up” farm output Almost every small Iowa town has some portion of its labor force engaged in the wholesaling of agricultural products. The assembler of farm products is the wholesaler of the small community and almost all small Iowa towns have grain elevators and live stock buyers. Even the smallest communities have developed these wholesale functions because of the advantages of “bulking up” the output of many small producers before further handling. Wholesale employment, at 10 per cent of total employment in towns under 500 and 7 per cent of total employment in towns under 1,000, is almost entirely composed of farm product assembly. It would seem that with increasing agricultural output the small com munity would tend to play a more important role in this area. However, the methods of handling livestock have already tended to reduce the farmer’s use of the local livestock buyer. He has found that it is easier to ship by truck directly to the market and to make use of the livestock commission broker located there. With the increase in grain output, a greater role for grain elevators in small towns would he expected. Even if more grain were stored 13 Federal Reserve Bank o f Chicago Size of community influences the make-up of retail employment. . . per cent of retoil employment per cent of retail employment per cent of retail employment per cent of retail employment 10 ' 20 _ APPAREL AND ACCESSORIES MISCELLANEOUS RETAIL population |over 5 ,0 0 0 1 11.000 to 5 ,0 0 0 2 5 0 to 5 0 0 I Iunder 2 5 0 1 5 0 0 to 1,000 in small towns, there would be little increase in actual employment. Moreover, in per forming the function of an assembler of grain for shipment elsewhere, the small town elevator may be at a competitive disadvan tage. The farmer with a higher grade of grain prefers to ship to larger terminals, if not too distant, where grades are segregated and where, therefore, the price received is higher. Unless the small town elevator operator can do likewise, grain handling will probably continue to decline in some towns. The rural trading area 14 The small town is in the position of find ing its highly important rural trading area slowly eroding. The advent of rapid and easy automobile transportation has made the larger communities with their wider range of goods, services and recreational activities seem relatively “close by.” Like a two-edged sword, the loss of trading areas forces a re duction in the goods and services which can be offered profitably, and, in turn, the reduc tion in shopping alternatives makes the larger communities seem even more attractive. The effect of town size on the range of goods and services sold is amply illustrated by the distribution of employment in retail and service establishments in the 53 Iowa towns. Retailers selling specialized goods, or infrequently purchased “big ticket” items, require trading areas with sizable popula tions. Thus, employment in apparel, furniture and appliance stores and by automobile deal ers declines sharply in importance along with the size of the town. In contrast, gasoline stations provide proportionately more jobs in smaller towns, since the trading area afforded by a rural crossroads is typically sufficient to make a gas station a profitable operation. Business Conditions, M a y 1959 . . . and of service employment per cent of service employment per cent of service employment per cent of service employment 30 r per cent of service employment 40 r population |over 5 ,0 0 0 □ 3 ,0 0 0 to 5,0 0 0 |2 5 0 to 5 0 0 | | under 2 5 0 35 0 0 to 1,000 Because of the existence of large depart ment stores, the general merchandise group of stores accounts for an important share of total retail employment in larger Iowa towns. For small communities the trading area is hardly enough to support a depart ment store, but the general store becomes its counterpart. By providing a variety of goods, the general store, in effect, combines the demand for a number of products, and the total sales volume is large enough to make the operation pay. 15 Federal Reserve Bank of Chicago 16 The least vulnerable small towns are those located in virtual isolation many miles from other communities. These towns have found their trading areas less encroached upon by large communities and tend to provide a wider range of goods and services than towns of similar size but located closer to other communities. Although the smallest Iowa towns are far from being regional service centers, service employment is relatively important to them. Almost 35 per cent of total employment in towns under 250 and 29 per cent of total employment in towns under 1,000 are en gaged in providing some type of service to the community and its surrounding agricul tural area. This is largely due to the small town’s role in education, churches and social organizations. Proximity to the consumer of these services is vital, and the small town has in the past served with ease the rural population surrounding it. But declining trade areas are also making inroads into this important area of activity. Personal services such as cleaning, laundry, barber and beauty shops, medical services, legal services and banking services require larger populations than are available to most of the smallest communities. Consequently, the smaller communities are providing fewer and fewer of these services. This is also true for medical and health facilities. In the larger towns, 6 per cent of total employment is in medical and health facilities, while the small est communities cannot support doctors and hospitals. A significant source of employment in these small Iowa towns is education. For towns under 1,000, 17 per cent of the total employees are school teachers, janitors or educational supervisors. For communities under 500 in population, 19 per cent, and in towns under 250, 23 per cent of total em ployees are similarly occupied. For larger communities, the public or private school should remain an important part of economic activity. But the outlook for the smallest towns is not as clear cut. The advantage of the small town in providing educational facil ities for the children of the surrounding rural population has tended to decline with the advent of the school bus. To reduce costs and improve facilities, some consolidation of schools has occurred. If this trend continues, smaller towns not well located in terms of the distribution of school age children will no longer be called upon to provide this service. For the smallest communities, a reversal of recent trends in their economic roles does not appear to be “in the cards.” The small towns that are the exception will be either satellites of an urban center or located in virtual isolation with respect to other com munities. Even in the latter case, they will provide employment only in a limited range of ac tivities which take the maximum advantage of the agricultural environment. The general store and the gasoline station will remain as a necessary or convenient part of the rural landscape— as complements to the grain storage bins, the creamery, the repair shop and possibly the school and church. B u sin ess C o n d itio n s is p u b lis h e d m o n th ly b y th e fed era l reserve bank of Ch ic a g o . S u b s c r ip tio n s a re a v a ila b le to th e p u b lic w ith o u t ch a rg e. F o r in fo rm a tio n c o n c e rn in g b u lk m a il in gs to b a n k s, b u sin e ss o rg a n iz a tio n s a n d e d u c a tio n a l in stitu tio n s, w rite : R e se a rc h D e p a r t m e n t, F e d e r a l R e s e r v e B a n k o f C h ic a g o , B o x 8 3 4 , C h ic a g o 9 0 , Illin o is. A r tic le s m a y b e r e p r in te d p r o v id e d so u r c e is c re d ite d .
@FedFRASER