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

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NOVEMB

^eP81 ^l^tia|

TIONS

[F CHICAGO

iW BY THE
if:*?*?:
I? *»

Post-Strike Business Trends
"Heavy” Industry Readjustments to Continue
Current and anticipated return of striking steel and
coal workers to their jobs, as well as re-employment of
many others made idle by these work stoppages, fore
shadows an important recovery movement in manufac
turing employment and general business during the re
mainder of the year. The ending of serious strikes, how
ever, does not in itself provide the basis for enduring high
levels of business activity. In a few months the more
fundamental trend of business should become evident.
Although the strikes may well have postponed some of
the remaining postwar readjustments from sellers to buy
ers markets, particularly in automobiles, steel, and many
types of heavy equipment, they clearly have not elimi
nated such eventual transitional problems.
Except for the post-strike recovery—-probably back
to September levels—changes in employment and busi
ness generally during early 1950 should be small. The
underlying direction of business, however, still seems to be
gradually downward, although admittedly a net result
of several mixed trends: (1) moderate weakness, partic
ularly in heavy industries, plant and equipment invest
ment, and some commodities, and (2) less pronounced
expansive elements, rooted primarily in expected larger
government outlays, construction, and some inventory
balancing.
Strong “props” for business in 1950 are not difficult
to find, but much more illusive are definite indications
of future expanded buying by private business and con
sumers. In short, business itself seems likely to continue
in a “defensive” buying period for some time, with gov
ernment showing most new buying initiative. Consumers
—with the greatest short-run buying power—are exer
cising caution, but responding well to lower prices and
credit inducements.
The mildness of the 1949 recession in this District
undoubtedly has resulted in considerable part from rec
ord automobile production, especially during the spring
and summer months. The automobile industry has ex
panded activity in its own assembly and parts plants and
has helped maintain the level of orders for steel and num
erous other basic materials. A further contribution to the
recent pre-strike upturn in employment, production, and
income was the resurgence of orders for certain other dur
able goods, e.g., major household appliances, television
sets, and specialized industrial equipment.
Prior to the steel strike, which began October 1, a
moderate upturn in Seventh District business had been
evident since midsummer. Most business measures, e.g.,
employment, production, income, and sales, showed
marked improvement during August and September. I he
rise seemed largely attributable to seasonal factors and
to some noticable amount of accelerated buying for in
ventory balancing. Since both of these developments are

of a temporary nature, it did not appear even before the
strike that the bottom of the postwar recession had yet
been reached. Moreover, numerous business executives
in this “heavy industry” region doubted that it had. De
valuation is the cause of some new fears, particularly for
export sales next year, also.
RECENT BUSINESS DEVELOPMENTS

Consumer Income, Spending, and Saving—Follow
ing the modest April-July dip, aggregate personal income
in the Seventh District was increasing slightly immedi
ately preceding the steel strike. Wages and salaries, which
constitute a somewhat larger proportion of personal in
come in this District than in the nation as a whole, ap
peared to be at or near the year-ago level.
Factory payrolls declined more rapidly than employ
ment during the spring and summer production drop,
since hours of work were reduced in many plants which
did not make sizable layoffs. However, seasonal increases
in construction activity combined with belated wage ad
justments in many nonmanufacturing establishments
softened the effects of the factory payroll decline.
Further countering the drop in factory payrolls, trans
fer payments—chiefly unemployment compensation—in
creased quite markedly. Likewise, the continued rise in
salaries of nonproduction workers, together with minor
gains in hourly wage rates of employed production
workers, supported total wage and salary income.
No major change in general wage rate patterns has
occurred in the mass production industries this year, but
(Continued on Page 6)

INDEXES

OF DEPARTMENT STORE SALES

UNITED STATES

AND

SEVENTH

FEDERAL RESERVE DISTRICT

BY MONTHS, SEPTEMBER 1945 - SEPTEMBER

1949

(1935-39 * 100)

UNITED

STATES

r\
SEVENTH FEDERAL
RESERVE DISTRICT

■ljJ.J...l.J_l. .1.1—LI

I I I I I I

I I 1 I I 1,

Meat and Meat Packing
Rising Production Trend Fails to Maintain Profits
The meat packing industry set a new dollar sales
record in 1948 which is likely to be approximated this
year. However, net earnings, which in 1948 were onethird to one-half below the unusually high levels of 1946
and 1947, in all probability will show further decline in
1949 with some prospects for recovery in 1950. No re
turn to the high profits of the inflationary years is con
templated.
Profit declines since early 1948 resulted from un
favorable price fluctuations, work stoppages, and a
squeeze on operating margins involving a combination of
higher costs, higher livestock prices, and growing con
sumer resistance to high meat prices. The financial po
sition of the industry has deteriorated somewhat during
the past two years, as both long- and short-term debt
rose from the 1947 low. Nevertheless, most longestablished firms in the industry continue to be stronger
financially than before the war.
The meat industry experienced its first major postwar
adjustments early in 1948, a full half-year before general
business turned downward. Although large-scale adjust
ments already have been made, further problems lie
ahead for meat packing. The profit outlook for the in
dustry in 1950, nevertheless, may be somewhat better
than in the current year because of a larger volume of
production already assured, and better prospects for
price stability and cost control.
RISING PRODUCTION AHEAD

Meat production in the calendar year 1949 is expected
to total about 22 billion pounds, slightly more than in
CHART

MEAT PRODUCTION
1935-49
BILLIONS OF POUNDS

TOTAL.

PORK

BEEF.

••38

*56

’ST

'59

‘99

LAMB AND MUTTON
*43

* PRELIMINARY ESTIMATE.
SOURCE: U.S. DEPARTMENT OF AGRICULTURE, BUREAU OF AGRICULTURAL ECONOMICS.

1948 and one-fourth more than the average for the im
mediate prewar years 1937-41. During the first half of
the present year, production was about equal to the cor
responding period of 1948, but in the second half a sharp
increase in pork production is expected to raise total
meat volume for the year moderately above the 1948 out
put of 21.6 billion pounds (Chart 1).
The current upward trend in meat supplies reflects
expanding livestock production on farms and is largely in
response to abundant supplies of feeds on hand and in
prospect. High livestock prices, of course, have en
couraged the expansion.
For the year ahead, most of the increase in meat pro
duction will be pork, although a moderate increase in the
supply of higher grades of beef also appears probable.
Veal and lamb supply is expected to show little change
from current levels. The outlook is for over-all meat
volume in 1950 to exceed the current year’s level by as
much as five to eight per cent.
The declining trend since 1944 in numbers of live
stock on farms now has been reversed and moderate an
nual increases are expected over the next several years,
if feed supplies continue abundant. Although the num
ber of all cattle and calves on farms declined nine per
cent from 1945-48, beef cow numbers declined only three
per cent. Consequently, the productivity of the United
States beef cattle herd has been relatively well-main
tained. Total beef production in 1950 is expected to ap
proximate the 1949 volume.
Hog numbers declined seven per cent from the record
high in 1945 to January 1, 1948. It is possible, however,
to increase hog production more rapidly than for the
other common meat animals. The current recovery
started with the fall pig crop of a year ago. The 1949
spring pig crop, coming to market in large volume cur
rently, was 15 per cent larger than in 1948 and is ex
pected to result in a substantial increase in pork produc
tion in the fourth quarter of 1949 and the first quarter of
1950. Further increases in both hog and pork production
are anticipated.
This article is presented in lieu of a 1949 supplement to
A Financial and Economic Survey of the Meat Packing Indus
try, published by this Bank in 1946 with annual supplements
in 1947 and 1948. Suspension of comprehensive meat packing
financial data previously compiled and released by the Packers
and Stockyards Division of the U. S. Department of Agricul
ture prompts deferment of more extensive financial analysis
of the industry until new sources of data are developed. Finan
cial statements of 49 meat packing companies analyzed in this
study include those from published sources plus others supplied
by the Robert Morris Associates. Data are for the fiscal years
beginning in most cases on November 1.
Additional copies of this article may be obtained on request
to the Research Department, Federal Reserve Bank of Chicago,
Box 834, Chicago 90, Illinois.
’

Page 1

Sheep and lamb numbers are at the lowest level of
record. There has been a rapid fall from a record high
in 1942 to the current record low in 1949. There are in
dications that the decline has ended, but with no evi
dence yet that a substantial recovery in numbers is
under way.
MEAT DEMAND DECLINES

Although physical volume of meat processed by
packers can be projected with some accuracy upon the
basis of livestock on farms and expected marketings, dol
lar sales volume must depend upon variations in con
sumer demand for meat at the retail counter. Total
retail value of meat in 1949 probably will be about six
per cent below 1948, despite somewhat larger physical
volume, reflecting the lower level of prices prevailing in
most of 1949 (Chart 2).
During the first seven months of this year, wholesale
prices averaged 10 per cent below the same period of
1948 and prices at retail were down three per cent. Meat
prices in the second half of 1949, however, are further
below the year-ago level, largely as a result of the un
usually sharp upsurge of prices in mid-1948. Moderately
lower prices are in prospect for 1950.
Even though consumer income in the first eight
months of 1949 exceeded that of the corresponding
period in 1948 by 1.5 per cent, the over-all demand for
meat declined. This was evidenced by a reduction in
the proportion of disposable income spent for meat. Meat
expenditures accounted for 5.6 per cent of disposable in
come (personal income less taxes) in the first half of
1949, about equal to prewar, down from 6.1 per cent in
1948 and 6.3 per cent in 1947. This development prob
ably can be traced to such factors as the increasing
competition of other goods and services for consumer
expenditures, especially houses, automobiles, and instal
ment plan items which require continuing payments, and
a tendency, starting in the third quarter of 1948 for in
dividuals to save more of their income. The firmness of
meat prices currently, in the face of increasing supplies,
indicates that the decline in the demand for meat has
ceased, temporarily, at least.
A recent study of food consumption by city con
sumers1 points up the importance in the demand for
meat of total income level and its distribution among
consumers. Meat consumption of city families was 10
per cent higher in the spring of 1948 than in 1942 prin
cipally because of increased consumption by low income
families. For families in the lower third of the income
scale the increase in per capita consumption was 19 per
cent; for the middle third, three per cent; and for the
higher third, the same as in 1942. Per capita meat con
sumption increased little at family income levels above
$4,000.
Income level also influences the kind of meat con
sumed. Consumption of beef increases more rapidly
with increases in income than is true for pork but gains
for both level off above the $4,000 income level. Lamb,
however, is used by families with incomes of $7,500 and

Page 2

over in more than twice the quantity used by those with
incomes under $4,000. Veal consumption shows only a
slight increase with higher income. Demand for bologna,
frankfurters, ground beef, luncheon meats, and similar
products increases sharply with income up to the $3,000
to $4,000 level, then decreases as the higher income
families turn to more expensive cuts. Beef steaks and
roasts are used in twice the quantity among families with
incomes of $4,000 and over as by those with incomes
under $1,000.
PROFITS DECLINE

The comparatively poor earnings picture for the meat
packing industry in 1948 was influenced heavily by the
experience of the “big four,” ( Swift, Armour, Wilson, and
Cudahy) whose earnings after taxes declined from 14.7
to 5.6 per cent of net worth from 1947 to 1948. Earnings
of medium' size firms (i.e., with assets from 5 to 50 mil
lion dollars) declined slightly from 12 to 11 per cent of net
worth, while those of small firms (under five million in
assets) dropped sharply from about 15 per cent to less
than four.
The favored position of the medium firms continues
a tendency noted in previous studies. Since meat pack
ing profits began to decline, the most stable earnings
have been reported in all size classes by concerns using
last-in-first-out method of inventory valuation (LIFO)3
and possessing low debt-equity ratios.
Most industries recorded their greatest profits in
history last year. The National City Bank reported that
although 1948 earnings of a selected group of manufac
turing industries were 22 per cent greater in 1948 than in
1947, earnings of the meat packing firms included in the
group suffered a 46 per cent decline (Chart 3).
1 "Meat Selections of City Families,” U. S. Department of Agriculture, Bureau of
Agricultural Economics, Commodity Summary No. 1, August 1949.
a The size classifications used in this study approximate those of previous supple
ments except that the 1941 asset base has been abandoned in favor of 1948.
8 See Business Conditions, February 1948 for a fuller discussion of LIFO.

CHART

1935-49
(1935—39=100)
PER CENT

DISPOSABLE INCOME PER CAPITA

t^vXv-Xl

RETAIL VALUE OF MEAT CONSUMED PER CAPITA

——

I95S '3S

CONSUMPTION OF MEAT-POUNDS PER CAPITA
RETAIL PRICE OF MEAT PER POUND

*37

CHART

PROFIT TRENDS,

1939-48

MEAT PACKING COMPANIES COMPARED WITH ALL MANUFACTURING
(AS A PERCENTAGE OF NET WORTH)

ALL
V MANUFACTURING

MEAT PACKING

changes resulted from lowered profitability of the in
dustry. Net earnings dropped from 1.6 to 1.0 per cent
of the sales dollar, and taxes from 1.4 to 1.1 per cent.
Higher livestock prices, wages and supply costs ac
counted for most of the drop in taxes and net profits.
In view of the price, production, cost experiences of
packers, a reduction in operating results for the current
fiscal year starting November 1, 1948, can now be antici
pated. A price break in February again caused some
inventory losses and narrowed profit margins. Prospects
for the 1950 fiscal year should show some improvement
as wage rates in the industry appear to have stabilized,
temporarily at least, and a large supply of livestock can
be expected, permitting an effective use of fixed assets.
BALANCE SHEET ANALYSIS

The financial position of the meat packing industry,
particularly the large companies, deteriorated to some
extent during 1948. Working capital now provides less
adequate coverage for current liabilities and long-term
Inventory losses played a major part in the declining debt has increased in importance. In general, the in?
1948 profits of the meat packing industry. The drop in dustry is still financially strong relative to prewar be
wholesale meat prices in February of that year was more cause of large earnings retentions in the past few years.
than 17 per cent and inventory losses of meat packers, Several firms discontinued dividend payments during the
particularly those not using LIFO were large. This ex past year, which might have jeopardized their newly won
perience was avoided, in part, by those firms which cor credit status.
rectly anticipated that prices would recover later in the
Despite a 10 per cent rise in current assets and an in
year. February is a month of high inventories for most crease in the dollar amount of net working capital, from
packers, especially those handling large quantities of pork 1947 to 1948, current assets of the 49 companies studied
products. In some cases these inventories were well over dropped from 2.7 to 2.4 times current liabilities (see
the base quantities covered by LIFO.
Chart 4). A 50 per cent rise in bank borrowings was
A strike called by the United Packinghouse Workers largely responsible. Almost all of this increase in cur
(CIO) at some of the plants of the major packers in rent debt was incurred by the firms with assets in excess
March 1948 lasted until late May and added to the losses of 10 million dollars. Most small packers restrained new
occasioned by the price break. Smaller packers, many of borrowing during 1948 and some reduced bank indebted
which did not experience work stoppages, gained con ness outstanding at the end of 1947. The lowered earn
siderable production volume during the strike, largely at ings of the large firms probably accounts for most of this
the expense of the large firms. In large part, this con difference between size groups.
dition explains the relatively unfavorable earnings re
Owners’ equity, measured by reserves and net worth
sults of the large firms in 1948.
on balance sheets in meat packing corporations, fell from
Operating profit margins for most firms declined in 62 per cent of total assets in 1947 to 57 per cent in 1948.
1948 both as a percentage of sales and in cents per pound Lower worth to debt ratios for the industry were the re
of product, in part, at least, because of increased oper sult largely of changes in the statements of large packers.
ating costs. Average hourly earnings of production Long-term debt increased about 35 per cent, but this
workers in meat packing have been approximately 31.40 could be traced mainly to a 40 million dollar bond issue
per hour since April 1948, 10 to 20 cents higher than the by Armour and 35 million dollars in debentures of various
rates prevailing during 1947. In addition, packers had to maturities by Swift. Interest rates on the longer terms,
provide for larger depreciation allowances on new equip 3 Vz per cent in the case of Armour despite unfavorable
ment, heavier interest charges on increased debt, and earnings, and 2% per cent for Swift, reflect long-run
higher prices for supplies and livestock. Consumer re confidence of the capital market in the meat packing in
sistance to higher meat prices prevented packers from dustry. Worth to debt ratios of the smaller firms, for the
passing on all of these higher costs, with the result that most part, remained constant or moved upward slightly.
profit margins for 49 companies included in the present
In the first six months of 1949, Dun and Bradstreet
study declined from about 1.5 per cent of sales in 1947 reported 12 failures among “Meat Products” manufac
to less than half that amount in 1948, despite the higher turers (including non-slaughtering firms). During the
over-all dollar volume of sales.
first half of 1946, only one such firm failed. In the corre
Distribution of meat packing revenues varied little sponding periods of 1947 and 1948, failures totaled six
between the years 1947 and 1948, according to estimates and five respectively. Considering that the number of
by the American Meat Institute (see table). Principal meat packing establishments recorded by the Census of
* BASED UPON SAMPLE OF 49 COMPANIES.
""SSfoBft DCE|TYRTST00fF«AEw'?^IURE' PACKE"S AKD

DIVISION,

Page 3

Manufactures increased substantially over the period
1939-47, the failure record is remarkably good.
Capital expenditures for the meat packing industry in
1947, according to the U. S. Bureau of the Census, were
67.6 million dollars. This amounted to about seven dol
lars of capital outlay for every hundred dollars of value
added by manufacture; the comparable figure for all man
ufacturing establishments was close to nine dollars. The
comparative showing for meat packing firms is creditable
considering that the industry is not highly mechanized
and was afflicted with over-capacity problems before the
war. Most of the capital outlay has been for moderniza
tion, replacements, and more efficient plant location. Plant
accounts of the major packers indicate that capital ex
penditures in 1948 were slightly more than those of 1947,
but it is likely that they have fallen off during the cur
rent year both because of completion of programs and
lower earnings retentions.
OTHER RECENT DEVELOPMENTS

Foreign commerce in meat and livestock is not ex
pected to significantly affect domestic prices or rates of
consumption in 1950. In recent months imports have
been much less than in the corresponding months of 1948,
when beef and veal imports from Canada temporarily
reached substantial volume after that country lifted its
restrictions on exports. In the first half of 1949, United
States exports and imports of meat were approximately
in balance and at a very nominal level, with exports ac
counting for less than one per cent of domestic produc
tion, a usual condition. United States export controls on
meats, meat animals, and meat products were removed
in August 1949, but effects on export volume are not
likely to be important in the year ahead.
Cold storage locker plants in operation at mid-1949
totaled 11,245, according to a U. S. Department of Agri
culture survey, an increase of 628 in the year. The in
crease was the smallest for any year since 1943 and with
the exception of two years the smallest since annual re
ports were started in 1938. There are indications that
many areas have all the plants they can support. Com
petition has forced the closing of a few plants, although
many others continue to enjoy an expanding volume of
business. There is some tendency for established plants to
add slaughtering facilities. The number of cold storage
locker plants and over-all locker capacity seems likely to
continue to increase in the year ahead but probably at a
still more reduced rate.
Self-service retailing of meats seems to be here to stay
—“it’s no passing fancy”. This is the conclusion of a re
search study reported by the Michigan Agricultural Ex
periment Station. It is estimated that the number of
stores in the United States operating on a 100 per cent
self-service basis will approximate 1,500 by the end of
1949, compared with 178 in April 1948.*
The major items which attract consumers to this type
of meat retailing are the ready availability of weight and
price information, ease of shopping, and ability to exam4 Sam Teitelman, "Stlf-Service Meats.” The national Trovisiomr, May 14, 194?.

Page 4

PERCENTAGE DISTRIBUTION OF THE
MEAT PACKING INDUSTRY SALES DOLLAR
Item

1948*

1947

1939

Livestock and other farm products. ..
Gross margin..........................................
Wages and salaries............................

79.8
20.2
9.6
3.4
2.1
1.1

79.6
20.4
9.4
3.1
2.0
1.4

72.3
27.7
14.1
3.3
3.8
1.1

3.0
1.0
100.0

2.9
1.6
100.0

4.2
1.2
100.0

Transportation...................................
Taxes...................................................
Depreciation, sales, expense, and
Net earnings...........................................
Total...................................................

^Preliminary.
SOURCE: Packers and Stockyards Division USDA and American Meat
Institute.

ine the meat. Objections reported by some consumers
concern mainly freshness of the meat, being fooled about
excess fat or bone, somewhat higher prices, and the lack
of availability of cuts to meet specialized demands.
Retailers report that several technical problems re
main to be solved and that they have some difficulty in
anticipating the demands of their customers. They insist,
however, that packaged meats are priced no higher than
comparable meat sold over the counter. Sales of pre
packaged frozen meat continue in relatively small volume.
A further uncertainty centers around labor require
ments. Organized meat cutters have frowned on this
development in retailing. This may effectively limit its
adoption in many areas.
Canned meat production in the first seven months of
1949 was moderately below the year-ago level, but only
one-half the high level output achieved during the war
years. However, continuation of an enlarged domestic
market for these products was indicated since production
was two to three times the prewar volume.
Lard poses a problem of increasing proportions. Pro
duction in 1948 totaled 2,368 million pounds; in 1949 pro
duction may be 300 to 500 million pounds more, and with
increasing hog production under way even larger lard
supplies are forthcoming. Lard prices have declined sharp
ly in the past year and the outlook is for even lower levels.
Exports in 1949-50 probably will not reach the record
level of 1944, with the result that the supply available
for domestic consumption probably will be larger than in
the past year necessitating either increased carry-over
or higher per capita consumption.
Farmers and meat packers alike have devoted much
attention to the possibilities of enlarging the domestic
market for lard, and reducing the production of lard rela
tive to pork. Improved lard products have been offered
consumers in limited quantity but at relatively high
prices. As an increased volume of such products is mar
keted their price is likely to approximate the price of lard.
This would enlarge the total lard market in part, at least,
at the expense of competing fats and oils. Hogs which
produce high proportions of “lean cuts” are available.
Rapid adoption by farmers of the breeding, production,
and marketing practices necessary to yield “lean pork”
probably will not be experienced, however, until hog

marketing procedures are adjusted so as to reflect more
adequately the relative value of such hogs in market
prices.
Other significant developments in the market for ani
mal fats include the rapidly expanding use of detergents
in the soap field and of chemical emulsifiers or “bread
softeners in the baking industry. These developments
may have important adverse effects on prices of animal
fats. Synthetic detergents used in households accounted
for 20 to 25 per cent of all packaged soap and other deter
gents sold during 1948, compared with two per cent in
1945 and about 10 per cent in 1946. Production of syn
thetic detergents is expected to show further large in
creases over the next several years, in part at least, at the
expense of soap. The use of “bread softeners” in bakery
products probably would decrease the demand for lard
and is opposed for this and other reasons by several inter
ested groups.
The continuing westward march of the meat packing
industry closer to sources of supply continued during the
period 1939-47 as revealed by the recently released Cen
sus of Manufactures. Illinois is still well in the lead if
volume is measured by the “value added by manufac
ture,” but Iowa, the second state, narrowed the gap con
siderably. Iowa is actually ahead in total pounds of
dressed meat produced, but the auxiliary processing op
erations are more important in Illinois. Biggest strides
forward proportionately have been made by Nebraska
and Texas, which rose from tenth and thirteenth to fourth
and sixth places, respectively, from 1939 to 1947. The
states which have slipped the most relatively are New
York and Ohio.
Greatest changes in the proportion of meat packing
done within states were recorded for Illinois, which
dropped from over 19 to less than 13 per cent, and Ne
braska, which almost doubled its proportion of the total,
to six per cent. As a group, the West North Central states
(Minnesota, Iowa, Missouri, Nebraska, and Kansas) now
account for 34 per cent of all meat production as against
28 per cent for the East North Central states (Ohio, In
diana, Illinois, Michigan, and Wisconsin). In 1939 the
standings of the two areas were approximately reversed.
CHART

DISTRIBUTION OF ASSETS

AND LIABILITIES

49 MEAT PACKING COMPANIES, 1947 AND 1948
ASSETS

LIABILITIES
PER CENT

CASH AND
MARKETABLE SECURITIES

NOTES PAYABLE

RECEIVABLES AND
OTHER CURRENT ASSET5

ACCOUNTS PAYABLE
FEDERAL INCOME TAXES
OTHER CURRENT LIABILITIES
LONG TERM LIABILITIES

INVENTORIES

PLANT AND

OTHER

EQUIPMENT ^30.3^

'30.2

NON-CURRENT

1947

1948

fT»C1/rWeSor'rTC*^lo!5tTeTNTS 0F meat packins firms an° cred,t

Federally inspected plants which distribute products
across state lines show an increase in meat production
in 1949 relative to production in non-Federally inspected
establishments. This increase is in part a reflection of the
effects on output of work stoppages which were common
in the larger plants in the spring of 1948. There is also
some indication that the large wartime and early postwar
gains in output of small slaughtering establishments,
which for the most part operated without Federal inspec
tion, are disappearing as the larger, well-established firms
regain their “normal” share of the industry’s output.
Labor conditions in the meat packing industry now
appear relatively stable, as the approximately 200,000
workers continued at their jobs through August 11, 1949,
expiration date for contracts with the three important
unions—the United Packinghouse Workers (CIO), the
Amalgamated Meat Cutters and Butchers Union (AFL),
and the National Brotherhood of Packinghouse Workers
(Independent). Negotiations for a new contract were re
cently concluded between one of the large companies and
the CIO and AFL unions acting in concert (an unprece
dented action). The agreement runs to August 11, 1950,
but provides for reopening on February 15, 1950, for fur
ther negotiations on wages. The contract is expected to
set a pattern for the industry. Major changes include de
creased differentials between outlying and city plants as
well as between skilled and unskilled jobs, and increased
disability, severance pay, and vacation benefits.
Hourly earnings of production workers in meat pack
ing, as reported by the Bureau of Labor Statistics, are
about 13 cents above the figure for food processors of all
types and slightly above the average rates for all manu
facturing industries. The unions claim that seasonal vari
ations in employment require still higher pay to com
pensate for shorter hours and layoffs. There is consider
able opposition to the introduction of incentive pay plans,
although management contends that higher productivity
justifying wage increases can best be achieved by such
means.
An anti-trust suit was filed by the Department of
Justice in September 1948 seeking to force the large pack
ing companies to abandon certain buying and selling prac
tices and to break up the “big four” into 14 separate
companies. According to the FTC the assets of Armour
and Swift in 1947 accounted for almost 55 per cent of the
net capital assets of all meat packers, and of Wilson and
Cudahy, almost 15 per cent, making a total for the “big
four” of about 70 per cent of the industry. A check of
earnings statements reveals that in 1947 the “big fomr”
accounted for 5.5 billion dollars of the industry total of
9.4 billion dollars of sales or close to 60 per cent. (The
proportion was somewhat lower in 1948 because of the
strike.)
The Government has offered publicly little new evi
dence to support its case; the original complaint cited
alleged abuses dating back 50 years. However, on Novem
ber 4 the court ruled against motions by the defendants
that the case be dismissed, but restricted evidence pre
sented by the Government to developments and practices
since 1930. No date for the trial has been set.
Page 5

POST-STRIKE BUSINESS TRENDS
(Continued from. Inside Front Cover)

fairly numerous minor rate increases have taken place
in smaller plants and in nonmanufacturing lines. Gen
eral wage rate increases were approved in late spring and
early summer for building trades workers in many Mid
west cities. Other recent wage increases have occurred
chiefly in the food, printing, paper, petroleum, street rail
ways, and trucking industries, but have averaged prob
ably not more than five cents per hour. However, while
the number and size of such increases have been dis
tinctly smaller than in previous postwar years, a sharp
rise in non-wage benefits is apparent. The latter has little
direct effect upon personal income or expenditures, but
does add to the fixed costs of business and thereby tends
to reduce other forms of business outlays.
Consumer purchases continued at high levels during
the first nine months of this year. Estimated total Sev
enth District retail sales were less than two per cent
below those of the comparable period of 1948. Dollar
sales of new automobiles were 45 per cent greater than
during January-September 1948; department store sales
of radio and television sets were about 25 per cent higher;
residential construction nearly equalled year-ago levels;
and sales of foodstuffs declined only slightly.
Significant declines in sales of electrical appliances,
housefurnishings, apparel, and most other soft lines oc
curred, however, particularly during the summer months.
The slump in sales for most of these lines was reversed
in August and September not only for seasonal reasons,
but also as the result of more aggressive selling policies.
After a rather poor first quarter, department store
sales increased substantially in April, reflecting the usual
seasonal rise. After Easter, however, sales tended persis
tently downward through July, declining to a low point
about 15 per cent below July of last year. This slump was
nullified by the subsequent recovery, however, and sales
in September were only three per cent below the same
month in 1948. Most major department store lines fol
lowed a similar or even more pronounced movement, in
cluding apparel, housefurnishings, appliances, and radio
and television sets. Total sales for January-September
inclusive this year were about six per cent below the
comparable period of 1948.
Consumer credit terms have weakened considerably
on both listed and unlisted items since expiration of Reg
ulation W at the end of June, and consumer response to
such relaxation has been noticeable. Many of the larger
stores continue to quote terms of 10 per cent down and
maturities of two years or less. A rapidly increasing num
ber of retailers, however, are selling on the basis of nomi
nal or no down payments. Some instalment sales, espe
cially those featuring the “meter plan,” have maturities
in excess of two years. The weakening of credit terms to
date, however, appears to be characterized somewhat
more by the lowering of down payments than by the ex
tension of maturities.
Net new additions to consumer savings through im
portant institutional channels in the District are down
more than seasonally from the high levels of the first

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Federal Reserve Bank of St. Louis

quarter of this year. Estimated net new savings (i.e., in
cluding savings deposits, life insurance payments, savings
and loan share accounts, and savings bonds) during the
second quarter were about 35 per cent, and during the
third quarter, 58 per cent, below the first-quarter inflow.
Total new savings for the year to date, however, are
estimated to be 18 per cent above those of the compara
ble period of last year. Thus, the more-than-seasonal de
cline witnessed earlier this year was primarily a reflection
of the unusually high level of saving during the first quar
ter. In addition, the somewhat lower level of personal
income and increased unemployment experienced during
the summer months were contributory factors.
Consumer indebtedness has increased sharply during
the past three or four months. Outstanding consumer in
stalment loans of banks in this District have risen about
14 per cent since March, and are now eight per cent high
er than at the end of last year. Outstandings of other
consumer lenders have exhibited a similar, although less
marked movement. In addition, automobile paper out
standing has been increasing very rapidly as car sales
remain near record levels. The volume of other credit
paper has resumed its earlier rise since July, as a result of
some improvement in demand and easier credit terms for
major household appliances and furnishings.
Construction—A marked increase in Seventh Dis
trict total construction contract awards—both residential
and nonresidential—took place in August and Septem
ber. However, the recent spurt merely brings this Dis
trict up to its normal postwar proportion of the nation’s
construction volume, and to a level about seven per cent
below the comparable months of 1948. Nonresidential
construction volume has been supported considerably by
public building, consisting chiefly of schools and hospitals.
Both selling prices and building costs in the residential
field appear to have stabilized. Although building ma
terials prices declined slightly during the first half of 1949,
chiefly in lumber and other wood products, increases in
hourly wage rates apparently have nullified most of the
CHART

AUTOMOBILE
BY

PRODUCTION

MONTHS, 1946-49
THOUSANDS OF UNITS

THOUSANDS OF UNITS

TOTAL

PASSENGER

CARS

COACHES AND TRUCKS

i J-L).
1946

1947

1948

N FACTORY SALES OF ALL UNITED STATES PRODUCERS.
SOURCE: WARD'S AUTOMOTIVE REPORTS.

CHART

STEEL INGOT PRODUCTION
UNITED STATES AND CHICAGO DISTRICT
OPERATING RATES BY MONTHS * 1946-49
PER

CENT OF CA PACITY

PER

CENT OP CAPACITY

'•CHICAGO
DISTRICT
UNITED STATES-

1-1.J..I I I I.

1.1 1 I I 1 I I 1 I I

1946

-I. l I I i

1947

# DATA REFER TO MID-MONTH WEEKLY RATE.
SOURCE: THE IRON AGE.

effects of this price decline upon construction costs.
During the spring and summer months, sales of newly
finished houses lagged behind completions, but more ac
tive buying during September and October seems to have
reduced the overhang of unsold houses substantially. Re
cent sales activity is particularly marked in residences
costing less than $12,000. Many local observers believe
that the more active buying market will have a salutary
effect upon late fall starts, and that the increased sales
account in part for the gain in residential building per
mits issued during August and September.
No significant number of public housing units is likely
to be started during the months immediately ahead. How
ever, certain relocation projects in Chicago, totaling about
1,200 units, are either in process of construction or will
get under way during the next six months. Also, both
Detroit and Milwaukee have projects on which construc
tion should start soon. Under the newly enacted public
housing legislation this District could start as many as
10,000 dwelling units during the next calendar year—
about 15 per cent of all urban units authorized during the
last 12 months—but numerous problems of local and Fed
eral approval seem likely to reduce the figure sub
stantially (see Business Conditions, August and Septem
ber 1949).
Manufacturing Industries—A definite increase both
in employment and production characterized August and
September in District manufacturing industries. The low
point in the slide-off which took place from November
1948 to midsummer 1949 occurred in July. The AugustSeptember increase apparently brought production and
employment back to about the April 1949 level, but still
under last year’s peak.
Durable goods industries, which had been declining for
approximately 10 months, participated importantly in the
August-September production increase. This was partic
ularly true of foundries and other metal-fabricating
plants, but also included many producers of finished con

sumer durables. Production and employment in non
durable goods likewise registered more-than-seasonal
gains since July. Improved orders for clothing, shoes,
and paper products, among the consumer goods, and for
chemicals and petroleum, among the producer goods, seem
to account for most of the rise.
Finished inventories of most manufacturers in both
steel-using and non-steel-using lines had been worked
down quite substantially by the end of July. The pre
strike increase in orders from manufacturers plus inter
rupted output therefore has resulted in a relatively low
level of finished goods stocks among producers.
Agriculture—Cash farm income in this District has
been relatively stable during recent months, failing to
make the usual large seasonal rise common to this period
of the year. Consequently, farm income lagged behind the
year-ago level by 12 per cent for the first seven months
of 1949. The decline, relative to a year ago, has been in
receipts from livestock and livestock products. Counter
ing this decline, however, was a 10 per cent rise in re
ceipts from crop marketings, reflecting the large 1948
corn crop.
The dominant items in farm income in this District
fall into the livestock category, with meat animals, dairy
products, poultry, and eggs accounting for about threefourths of cash farm income in comparison with 56 per
cent for the nation. Cash farm receipts from these live
stock items recently have been below year-ago levels.
This is largely the result of price declines, since the vol
ume of marketings has changed little from 1948.
Financial obligations of farmers, both short-term and
mortgage debt, are up from a year ago and are expected
to rise further in the year ahead. Farmers’ deposits in
country banks have not changed materially.
Business Attitudes and Plans—A poll of a cross
section of Seventh District business executives immedi
ately prior to the strikes showed relatively little revival
of optimism concerning the business outlook over views
held three months previously. The summer-early fall
upturn was largely attributed to seasonal factors and
minor inventory balancing. Excessive business caution
earlier in the year is admitted generally, but there is no
apparent move to a less cautious attitude now.
Plant and equipment expenditures are certain to be
lower this year than in 1948, with even greater reductions
in prospect for the year ahead. Many manufacturing and
commercial firms have completed their modernization and
expansion programs, and some others have announced
cutbacks in what were considered definite plans because
of lowered demand prospects and less favorable earnings
results.
Financial Position of Business—Business in general
remains strong financially. Capital outlays are less than
last year, wages have not risen appreciably, and inven
tories have fallen both in price and physical volume.
Money provided by depreciation on new, high-cost plant
and equipment and declining inventory purchases has
tended to offset the drop in retained earnings. On bal
ance, the pressure upon business cash positions has eased
Page 7

during the past year and made possible the repayment
of substantial amounts of bank loans.
As business activity, employment, and inventories
began to rise in August, commercial loans of weekly re
porting banks ended their half-year decline. The sub
sequent rise has been slight, and on November 2 business
loans of weekly reporting banks in the Seventh District
were 15 per cent below the start of the year.
Although bankers do not seem to have tightened
short-term credit appreciably, some firms have experi
enced difficulty in obtaining or retaining lines of credit,
particularly for periods exceeding one year. The RFC
reports a doubling of inquiries in the Chicago office com
pared with last year. Also, there is some recent evidence
of increased interest in credit advances under section 13b
of the Federal Reserve Act.
Although District businesses are failing at more than
double the year-ago rate, according to Dun and Bradstreet, the number of business deaths is still somewhat
below the national average and well below prewar rates.
The current underlying tone of financial strength in Dis
trict business is reflected in the fact that April marked
the high tide in business failures for the year and the
trend since then has been down.
EFFECTS OF STRIKES

Unless final settlements of the controversial steel and
coal negotiations are prolonged much further, it seems
probable that most lost production will be regained in the
next few months through expanded output schedules.
There can be no doubt, however, that some production
and sales, not to mention a good deal of income, has been
permanently lost as a result of the strikes. These stop
pages—particularly in steel—have adversely affected gen
eral business volume and industrial production in the
Seventh District during October and November. Many
observers seem to feel, nevertheless, that strike-caused
declines represent “deferred” rather than lost produc
tion, because of unsatisfied demand for durable goods.
Strike consequences to the families and communities
directly concerned have been of far-reaching significance,
but the secondary effects upon other parts of Midwest
business have been felt only recently. Unemployment in
surance claims in the five states comprising the Seventh
District increased only slightly during the latter weeks
of October, indicating that no significant spreading of job
lessness had taken place during the first month of the
shutdowns. Recent sizable layoffs in Milwaukee, Chicago,
and Detroit, however, appear to portend a considerably
larger volume of secondary unemployment during the
current month.
Some 90,000 Midwest workers—about 70,000 of whom
are in the Chicago-Indiana industrial area have been
idled directly by the stoppage in basic steel plants. Un
favorable effects upon general business have been sharp
est, of course, in Gary, Indiana, and other adjacent com
munities comprising the Chicago steel district. Total re
tail sales in these communities are reported to have
shrunk markedly, with some lines experiencing drops of

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Page 8
Federal Reserve Bank of St. Louis

50 per cent or more in sales volume. Vastly increased
relief loads have developed in Lake County, Indiana, and
Cook County, Illinois.
Although relatively few centers in the Seventh Dis
trict have experienced direct adverse effects from the
coal shutdown, indirect consequences promise to be great
unless production is resumed at a high rate soon. Because
of an Interstate Commerce Commission order induced
by the coal shortage, Midwest railroads, like others in the
nation, have reduced the number of passenger trains with
resultant furloughs of railroad workers. Dealers’ supplies
for residential use by the end of October had reached a
point requiring voluntary rationing to consumers. Idle
steel mills had sufficient coal for at least six weeks’ pro
duction earlier this month.
Although steel inventories of many manufacturers
are extremely tight, particularly for the flat rolled items,
there appears to have been no general “panic buying” on
the part of such users. Since steel inventories are badly
out of balance, many buyers do not feel that it is worth
while to stockpile certain items wherever available when
others needed for their production are unobtainable.
This is in contrast to the earlier postwar period in which
many users stockpiled whatever steel items they could
get for what appeared to be speculative inventory pur
poses. Basically, the prolonged shutdown of most steel
mills has made steel buying in any quantity virtually im
possible.
Unquestionably, the adverse effects of the strikes
upon general Midwest business will last for several
months. If no substantial decline from third-quarter
levels in steel consumption occurs, roughly five months
output at near capacity operation would be needed to
bring steel inventories back to pre-strike size and balance.
Whether third-quarter steel demand will persist, however,
in light of shrinking demand for automobiles and ma
chinery is a basic question. Nevertheless, a considerable
period of high level steel production is in prospect. The
weeks immediately ahead seem inevitably to reflect the
CHART

NONAGRICULTURAL
UNITED

EMPLOYMENT

STATES AND SEVENTH DISTRICT STATES
BY MONTHS,

1946 -49
MILLIONS

MILLIONS

^ TOTALUNITED STATES

MANUFACTURINGUNITED STATES

TOTAL-SEVENTH DISTRICT STATES

MANUFACTURING-SEVENTH DISTRICT STATES

i. 1 til i-i-L
ii46
SOURCE-

1947

1948

1949

U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.

CONSTRUCTION
UNITED

STATES* AND
BY

MILLIONS

1,100

CONTRACTS

SEVENTH

to be a generally sidewise to slightly downward trend
once the temporary post-strike upturn subsides.

AWARDED

FEDERAL RESERVE

DISTRICT

364 QUESTIONS FOR 19S0

MONTHS, 1946-49

DOLLARS

MILLIONS OF

------ —-----

DOLLARS

~— 1,100
------ 1,000

UNITED STATESTOTAL CONSTRUCTION

I
UNITED
RESIDENTIAL

STATESCONSTRUCTION

RESIDENTIAL
— I-

SEVENTH >/ *

—V------------- *

^DISTRICT-TOTAL CONSTRUCTION

*DATA ARE F0R 37 STATES EAST OF ROCKY
SOURCE: F. W. DODGE CORPORATION.

MOUNTAINS.

lestricted production schedules of many steel users as
they await supplies needed for working inventories.
There is little doubt that the Christmas trade will
suffer losses in the areas directly affected by the strikes
and probably also in those which experienced the sec
ondary showdown. Furthermore, sales of some durable
goods items may be depressed as a result of inventory
shortages in the retail stores. The results of the strike
upon Midwest retail sales, therefore, probably will be re
flected in a worse-than-expected fourth quarter followed
by a better-than-expected first quarter of the coming
year. Some Christmas sales seem likely to be irretriev
ably lost.
BUSINESS OUTLOOK

Before the steel strike, business in this District by
most measures was roughly 5-10 per cent below last year’s
peak and perhaps 2-5 per cent above the early summer
low. The strikes, together with seasonal declines and
continued postwar readjustments, seem to have wiped
out the short-lived recovery and reduced business and
employment to levels not far from the previous 1949 lows
in May-July.
Recent business developments, in short, have been the
result of such mixed forces as: (1) severe work stoppages
in steel and coal; (2) moderate declines in capital ex
penditures, agricultural income, and consumer buying;
(3) sustained high activity in Government expenditures,
construction, and industrial exports; and (4) some re
newed business buying, particularly in soft goods lines
to balance depleted inventories. In the period ahead, it
is likely that post-strike expansionary forces will be evi
dent primarily in the industries most severely affected,
that most of the aforementioned moderate declines will
continue, and that at least some of the non-Government
sustaining elements will weaken. The net result promises

As always, numerous unexpected developments can,
and m all probability will, alter in some degree the con
clusions reached here with respect to business prospects
for the months immediately ahead. It is essential, there
fore, to appraise continually the key factors which seem
most likely to influence the course of general business. At
the present time these factors appear to be:
1. Restocking of inventories. Unless some new, im
portant, upward change occurs in the level of consumer
spending, must not the recent wave of new orders in cer
tain lines and accompanying expansion in production and
employment subside, especially after the post-strike ef
fects have disappeared? The trend on new orders should
provide insight into this situation.
2. Business capital expenditures. Will the widely
held view in business that “expansion programs are al
most over” show up distinctly in the official estimates
next year? Or, will more stablized construction costs and
greater incentives to reduce costs lead to a new wave of
industrial projects?
3. Prices. There appears to be widespread belief that
prices will not fall much further next year. Could this be
wishful thinking, stemming at least in part from general
reluctance to reduce prices? The vulnerability of prices
to further declines must not be overlooked. Actually,
should moderate price cuts be feared? Might they not
stimulate expanded consumer buying?
4. Devaluation. Recent monetary value changes have
caused relatively little shock and apprehension among
District business leaders. The course of United States
exports must be studied carefully to detect the impact
of devaluation upon sales and prices of American goods,
domestically and in international markets. If devalua
tion is to achieve its purpose, must not the net result be
unfavorable to business in this country?
5. Automobile industry. An end to sellers’ markets
for the most popular cars widely foreseen for 1950 can
only mean further readjustments in business and em
ployment. Can product ingenuity and mass merchandis
ing, however, extend the automobile boom longer than
now expected?
6. Consumer buying. What underlies the observed
increased caution in consumer spending? Lower income?
End of most urgent demands? Lack of confidence in fu
ture job security? With large accumulated savings, G.I.
Insurance refunds due, increased availability of credit,
and better price-quality combinations offered, might not
consumers generally see no economic advantage in post
poning purchases much longer?
7. Government expenditures. Does Russia’s posses
sion of the atomic bomb mean greatly expanded defense
preparations? To what extent will the expansionary ef
fects of deficit financed increases in Government expendi
tures be offset by declines in private commitments be
cause of fears of higher taxes and more regulation?

SEVENTH FEDERAL

IOWA

RESERVE DISTRICT

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

FRASER