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I*.f H OCTOBER. 1948 * 7 **' ‘f* 'k- *.*> •<* y* ;■ -m --A ma m %» yx .V*r* 4K'' ' , «i, ■' f^ >wjg£g* iBSidpfjg !*«SiS m f i#yiwiMi *&*■>■ <0 Wm ^ . BUSINESS COND ITIONS A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO Meat Packing Financial-Economic Trends Some Sales Earnings Decline Foreseen for 1948 The meat packing industry established new all-time records in dollar sales and earnings in 1947, which prob ably will not be equaled during the present year because of recurrent shortages in livestock supplies, work stop pages affecting the largest producers, and rising costs. By most measures, however, the industry continues to be in a strong position, with favorable prospects for sustained over-all high demand and prices during the coming year. Meat packing, along with many other industries, now is experiencing numerous small-scale adjustments in out put, demand, and prices as part of the gradual shift to more normal conditions following the sharp operating and financial distortions of the war and immediate post war years. But, it seems likely that another year will elapse before prices become more stahlized. Without rationing and price control, a noticeable narrowing occurred in the spread of earnings between the large and the other meat packing firms during 1947. The former companies acquired a greater proportion of available livestock supplies with resultant higher profits than in the previous year when livestock flow was dis torted considerably from more normal marketing channels. Because of the more than two-month shutdown of the large packing plants and some others during March-June of this year, however, it is expected that 1948 earnings of many medium and small companies will reflect relative gains over the large companies, and thus again widen the earnings spread between these groups of firms. PRODUCTION DOWN IN 1948 The supply of livestock available to the meat packing industry for slaughter and processing during 1948 has been below the very high level of 1947 and apparently will continue in reduced volume for the remainder of the year and well into 1949. The feed stringencies causing liquidation of livestock in recent years will disappear with completion of the 1948 harvests. Record crop produc tion, with reduced inventories of livestock on farms, will result in an all-time peak in feed per animal for the com ing feeding year. Under these conditions farmers are expected to expand livestock production as rapidly as possible with a substantial general increase in the output of meat, which will begin to appear in the fourth quarter of 1949. EARNINGS PATTERNS*2 During 1947 the more than 6S0 slaughtering meat packers which reported the results of their operations to the Packers and Stockyards Division of the U. S. Depart ment of Agriculture had average earnings of 15.9 per cent on net worth, compared with 15.2 per cent in 1946. This slight over-all gain resulted from the strong showing of the large meat packers which increased their earnings more than one-third during their 1947 fiscal year. In contrast, earnings of the small and very small companies, while remaining well above those of the large packers, nevertheless fell by over 40 per cent during the year. Although total commercial slaughter rose only about five per cent in 1947, the return of livestock to more normal marketing channels following price decontrol en abled the large packers to increase their tonnage by onefourth. As a consequence, the aggregate tonnage handled by companies in the remaining size groups fell. Meat packing retained its position as a relatively low earnings industry in 1947 with return on net worth ranking fourth lowest among the 45 manufacturing indus tries included in the financial studies of the National City Bank of New York. Meat packing earnings, moreover, were five percentage points below the average for all manufacturing corporations. The working capital of the meat packing industry ex panded moderately, about seven per cent, during 1946-47, continuing the same rate of increase experienced during the preceding year. The industry’s current ratio continued to fall fairly generally in 1947, with current assets drop ping from about three to 2.7 times current liabilities. Cash and marketable security holdings declined substan tially, especially among the very small concerns. This trend reflected the shift in current assets to the less liquid form of higher dollar inventories and receiv ables, in turn traceable in large part to rising prices. Pointing to the increased difficulty the industry has had in financing its operations from insufficient internal sources of funds, a substantial and fairly general rise has occurred in bank borrowings, with an increase of almost 60 million dollars for the large packers during 1947. Accounts payable increased 50 per cent, but tax liabilities showed little change. JThe four size groups of meat packing companies used as the basis of analysis in terms of 1941 total assets are: very small, under 1 million dollars; small, 1 to 5 million; medium, 5 to 35 million; and large, 35 million and over. 2Earnings are net after taxes but before reserves for possible inventory losses as a percentage of net worth. This brief article summarizes a more comprehensive study entitled “A Financial and Economic Survey of the Meat Pack ing Industry, 1948 Supplement.” Financial conclusions are based largely upon data compiled by the Packers and Stockyards Division of the U. S. Department of Agriculture, the Robert Morris Associates, and allied published sources. Copies of this supplement, as well as of the original study and 1947 Supplement, may be obtained upon request to the Research Department, Federal Reserve Bank of Chicago, Box 834, Chicago 90, Illinois. ** ERRATUM The third sentence in the last paragraph on page 3 of the September 1948 issue of Business Conditions should read as follows: During the past few j^ears, especially the last three, good grade slaughter steers have commanded a larger pre mium over medium steers than choice and prime over good, and medium steers have commanded even larger premiums over common grade. Seventh District Population Trends Five States Parallel National Gain Since 1940 Since 1940, the population of the Seventh Federal Re serve District states, Illinois, Indiana, Iowa, Michigan, and Wisconsin, is estimated to have increased by more than two million persons, to about 24.5 million. This 10 per cent gain is at least as large as the comparable national increase during the past eight years. An above average postwar population expansion has more than offset a small wartime decline and enabled the five District states to regain their collective prewar “share” of about 17 per cent of the national population. Contrary to population developments in the Far West, but more typical of most other regions, the bulk—nearly 90 per cent—of the population gain in the Seventh Dis trict since 1940 is attributable to natural increase, i.e., excess of births over deaths, rather than to in-migration. Since the end of the war, however, there has been a notice able increase in the number of persons moving into the industrial centers of certain of the District states from other areas, and particularly into Illinois, Michigan, and Wisconsin. CHART ESTIMATED i POPULATION * 1940 -48 JULY I FIGURES DISTRICT PER STATES AND UNITED STATES PER CENT UNITED STATES I *• '•■■■■■■■•••■■•‘DISTRICT STATES SEVENTH FEDERAL RESERVE DISTRICT STATES ILLINOIS MICHIGAN INDIANA * EXCLUDING ARMED FORCES OVERSEAS. X* ALLOWS ONLY FOR NATURAL INCREASE FROM 1947 SOURCES: U S. BUREAU OF THE CENSUS AND STATE VITAL STATISTICS DIVISIONS. CENT The postwar peak in the birth rate and in the natural rate of population growth appears to have been reached last year. The outlook, however, is for further substantial absolute gains in population from excess births over deaths for many years. The war and postwar upsurge in births represents a new major factor of strength in the economic life of the Seventh District and the nation, already reflecting, and pointing to still more, greatly enlarged needs for goods, services, housing, and similar items in coming years than could be foreseen before the war. The era of a “stationary” or “declining” population, it seems likely, has been pushed ahead into the next century in contrast to prewar pre dictions of such an occurrence in the 1980’s. The recent and current population gain, however, also greatly in tensifies many current problems of shortages of facilities to meet the educational and social as well as economic needs of the people. RECENT DISTRICT DEVELOPMENTS The latest official population estimates of the U. S. Bureau of the Census relate to July 1, 1947, but there is considerable interest in appraising subsequent popu lation trends in this unsettled postwar period. On the basis of the Census Bureau estimates, the Seventh Dis trict states by mid-1947 are seen to have just about equaled the national population growth following 1940, but only after a rather consistent lag during both the war and early postwar years (see Chart 1). Scattered unofficial estimates of the number of persons now living in the District states rather uniformly show further important gains relative to the nation generally during the 15 months since the last Census Bureau sample count. These more recent estimates are reliable to the extent that they are based upon official birth and death statistics among the respective states, but are less defen sible insofar as they include rough measures of migration. Without allowing for in-migration, however, which is generally held to have continued at a fairly steady rate, the natural increase alone since July 1947 indicates a population gain for the District states of close to 400,000 persons. Such an increase is equivalent to the addition of a city roughly the size of Indianapolis to the District population during a period of slightly more than a year, and emphasizes the importance of population increase as a powerful current economic force in the Midwest. The remainder of this analj^sis is based largely upon the Census Bureau data to July 1947 because of their more reliable method of estimation. Nevertheless, sufficient evidence already has been presented to show that these official estimates are now low and may well obscure some Page 1 greater-than-average recent population gain in the states of the Seventh District. INDIVIDUAL STATE CHANGES While no one of the District states now has a smaller population than before the war, considerable variation in population growth has occurred among them (see Chart 2). Most of the 1940-47 increase took place in Michi gan, 806,000; Illinois, 477,000; and Indiana, 406,000 per sons. Wisconsin added only about 100,000, and Iowa only half this amount. Percentage increases in population were: Michigan, 1S.3; Indiana, 11.8; Illinois, 6.0; Wis consin, 3.5; and Iowa, 2.1. The corresponding increases for the five states were 8.3, and for the nation, 8.6 per cent. This pattern of growth reflects rather clearly the lo cations of the heaviest population concentrations in the industrial states, and also that manufacturing expansion was a strong attraction to newcomers during the early years of the war and after hostilities ceased. During the two years after July 1, 1945, the U. S. Bureau of the Census estimates that the annual net migration into the five District states was about 145,000 persons. Most striking was the in-migration estimate of 106,000 persons for Illinois, which was almost as large as the 108,000 estimate for California. Postwar migration into Michigan and Indiana has continued at lower rates than during the war and immediate prewar years. Wis consin temporarily at least has reversed a previous strong out-migration movement, and Iowa appears to be con tinuing to lose population through migration at about the same rate as during the war and the immediately pre ceding years. The contribution of net natural increase to the popu lation of the District, as indicated, has been due almost entirely to more births rather than to any significant lowering of the death rate. The number of births in the five states increased from 17.3 per 1,000 inhabitants in 1940 to a war peak of 21.3; subsequently declined to 19.6 in 1945; reached a new high of 24.7 in 1947; and currently is about 22. Throughout this eight-year period, the Dis trict states birth rate has been slightly under the national rate. Although natality statistics long have tended to associate the highest birth rates with the more agricul tural areas, Michigan had the greatest number, 26.4, of births per 1,000 population among the five District states in 1947 and is presently only slightly under the Wisconsin level of 25.6. The death rate, in the District states currently is about 10.3 per 1,000 inhabitants, virtually unchanged since the end of the war, and fractionally under the 10.8 level in 1940. The District rate rather consistently has been slightly higher than the national rate, with Illinois mortality trends an important element underlying this general relationship. The population gain since 1940 in the east north central region of the country, comprising all of the Dis trict states except Iowa, plus Ohio, has been greater than in any other region except the Far West states, i.e., Cali fornia, Oregon, Washington, Arizona, Utah, and Nevada. IMPLICATIONS OF NEW GROWTH The more than 12 million population gain in the nation and over two million in the District states since 1940 constitute a new “wave” in the broad population movement. Not only has there been a generally unforeseen population growth in recent years, but this increase itself points to still further cumulative expansion in future generations. Since a growing population is an important factor influencing the secular or longer-run level of busi ness activity, it is to be expected that the war and post war natural increase in population, plus expected further in-migration, will serve to extend into the 21st century the present underlying upward trend in most basic economic measures. A sharply expanded population has many favorable short- and longer-run implications for business, but it also poses many acute problems as well, particularly when accompanied by prosperous-inflationary general business conditions. A seriously inadequate housing sup ply obviously has been made much more critical by the rising birth rate as well as by larger per capita personal income. Moreover, the housing problem cannot be ex pected to reach “solution” without further substantial residential building. Numerous other illustrations of the direct effects of a rapidly enlarged population can be found, ranging from extreme shortages of school and local transit facilities to mounting new demands for food, clothing, and the many allied goods and services needed by small children. Many business executives in this District now are planning their long-range production and sales programs to meet the needs of the World War II and postwar “wave” of natural population increase. This “wave” has already begun to reach the grammar school level, will affect high school enrollments in the middle and late 1950’s and early 1960’s, and thereafter pass into college and mar riageable age groups. CHART NET GAIN SEVENTH IN 2 CIVILIAN POPULATION FEDERAL RESERVE DISTRICT STATES 1940-47 200 FIVE 400 600 THOUSANDS 600 IOOO I2QO 1400 1600 I8QO 2000 STATES MICHIGAN ILLINOIS INDIANA NATURAL INCREASE (BIRTHS LESS DEATHS) WISCONSIN NET LOSSES FROM OUT-Mil TI0N AND ARMED FORCES. NET IN-MIGRATION LESS LOSSES TO ARMED FORCES. SOURCE: U.S. BUREAU OF THE CENSUS. Milwaukee’s Industrial Output Reflects New Plants Value of Manufacturing Production at All-Time High » The Milwaukee industrial area1 has added about a sion programs, and are concluding in many cases that quarter billion dollars worth of new factories and equip the risks are too great. Local exceptions to this conclu ment to its over-all industrial plant in the last decade. sion include the large brewers, who continue to announce This huge outlay consists primarily of the war-built sizable expansion plans, in many cases involving the plants for the manufacture of metals and machinery, and demolition of present obsolete structures. the postwar expansion in the food and beverage industry. The high dollar volume of manufactured products at Partly because of this expansion, and partly because of present is to be accounted for to a very considerable the more intensive use and modernization of existing extent by the general inflation. However, the more in plants, the value of output in manufacturing is now at an tensive use of prewar facilities and the modernization of estimated annual rate of nearly two billion dollars, a equipment in previously existing plants, when combined total which is over three times that of the prewar year with the outlays for new plant, have accomplished an 1939. However, the nature of the expansion in both facili approximate doubling of Milwaukee’s physical production ties and production has been such as to retain the funda in the current year as compared with 1939. The increase mental product pattern existing in Milwaukee before the for the nation as a whole has been about 90 per cent for war period. the same period. The expenditure of nearly 250 million dollars in the Milwaukee continues to produce largely the goods for past decade ranks Milwaukee above such roughly com which it has long been known, i.e., machinery for farms, parable areas in population size as Cincinnati and Balti factories, construction work, and mines; auto frames, and more, but below others, e.g., Buffalo, Cleveland, and motorcycles; shoes, hosiery, and gloves; lastly but not Minneapolis-St. Paul. The current ranking of Milwaukee least—beer. To be sure, certain new manufacturing lines is largely the result of higher-than-average postwar have become established during the war and postwar capital expenditures more than compensating for lower- years, the most important of which are electrical appli than-average outlays for war plants. ances and x-ray equipment. Also, some of the existing As has been true in the nation generally during the firms have altered their product mix, but these changes first half of the current year, the local trend of contract have not been of sufficient magnitude to bring about im awards for new industrial plants, while continuing high, portant differences in the area’s over-all pattern of physi nevertheless has been markedly downward in comparison cal production. with the same months of 1946 and 1947. In view of the continued increases in construction costs, this means that POSTWAR PLANT EXPANSION2 Milwaukee firms, like those in other industrial centers, are balancing the prospects for increased markets against During the three years since the end of the war, ex the extremely large outlays required to carry out expan- penditures for constructing and equipping new plants and additions in Milwaukee have totaled approximately 65 million dollars, an amount which tops the like expendi TABLE 1 tures in the areas here selected for comparison (see ESTIMATED DOLLAR VOLUME Table 1), and ranks the local area 13 among all industrial OF NEW INDUSTRIAL PLANT AND EQUIPMENT centers in the nation. This high volume, when adjusted SELECTED INDUSTRIAL AREAS, 1940-48 for construction cost increases, is greater than in any three_______________(In millions of dollars)_______________ year span during the prewar decade and about equals the June 1940 June 194J Totjl Area to to amount expended during the 1926 to 1929 period. June 194J Tune 1948 Of particular significance to the area’s future is the San Francisco................... 386.6 363.8 22.8 fact that nondurable goods industries have accounted for about 75 per cent of all industrial expansions in the Buffalo ....... -..................... 349.6 24.2 325.4 postwar period. This trend has the effect of partially Minneapolis - St. Paul.... 338.4 46.6 291.8 restoring the further imbalance toward durable goods 224.5 MILWAUKEE................. 61.0 163.5 facilities which occurred during the war plant construc tion period. Paced by the large building and equipment 218.4 198.6 19.8 Cincinnati ...................... programs of the major brewers, the food and kindred 143.3 38.3 Baltimore .......................... 181.6 products industries have been responsible for the bulk of this postwar nondurable goods expansion. New grain SOURCES: County Data Book, 1947, supplement to The Statistical Abstract. Engineering News Record, as compiled and reported by The Territorial Informa tion Department of Commonwealth Edison and Associated Companies, Chicago, Illinois, adjusted for undercovcrage and equipment expenditures. includes Milwaukee County only unless otherwise specified. 2"Plant expansion” as used here refers only to new structures and additions. Alterations not resulting in additional floor space are excluded. Page 3 elevators, malting houses, bottling plants, stock and expenditures necessary to rehabilitate them to peacetime fermentor houses, packaging and storage facilities, and uses have been large, they cannot be considered as new power plants—all integral parts of the huge local brewing postwar “capacity” in the broad economic sense used operations—in themselves have accounted for nearly 20 here. Furthermore no complete information is available million dollars in new and expanded plant and equipment. as to the magnitude of these rehabilitation expenditures Other nondurable goods industries in which facilities in Milwaukee or elsewhere. have been increased significantly since the end of the war Over and above the building and equipping of new are paper products (especially boxes) and chemical pro factories and additions, very large expenditures have ducts (chiefly paint). Minor additions to capacity also been made in replacing worn-out and obsolete machines have occurred in shoe manufacturing, printing, and num in existing plants. The total of such expenditures when erous other small industries producing goods of the non added to the estimated amounts spent for new capacity durable type. would undoubtedly result in an aggregate Milwaukee The strong emphasis on new facilities in the nondur outlay for manufacturing facilities considerably higher able goods lines is explainable by the fact that throughout than the figures in Table 1. Unquestionably, Milwaukee’s the war years these industries not only were unable to physical capacity to produce goods, because of this re carry out normal replacement of worn-out and obsolete placement and modernization process, has increased to a plant and equipment, but also could not keep abreast of much greater extent than is indicated by the actual new growing demands for their products. At the same time, plant and its equipment. But, the exact amount is not the great demand of the war years could be met only by known. overworking the existing plant and machinery. It is not surprising, therefore, that these industries, particularly TRENDS IN MANUFACTURING PRODUCTION the brewers, have led in expansions during the postwar An estimated annual total of 1.9 billion dollars worth period, nor that they are the ones who have announced still larger programs to be undertaken during the coming of goods is currently being turned out of Milwaukee’s factories. This aggregate—about one per cent of the months. Among the metals and machinery industries—Mil national total—is 3.4 times the 556 million dollar total waukee’s real stand-by in basic employment and produc of local output in 1939. The value of all manufactured tion—postwar expansions have been minor and widely products for the nation as a whole is presently estimated scattered. No truly major project in this field has been to be 3.2 times the 1939 level, giving Milwaukee a some started since the end of the war. This is to be expected what higher-than-average increase for the past decade. The previously described expansion in new manufac in view of the fact that virtually all of the war-built plants were in this category. Most large war plants have turing facilities, combined with the improved productivity been converted to peacetime products and at least one of modernized, as distinct from new plants, has played more is scheduled for such conversion soon. While the an important part in this tremendous rise in product TABLE 2 ESTIMATED VALUE OF INDUSTRIAL PRODUCTION MILWAUKEE INDUSTRIAL AREA,1 1939-48 (In millions of dollars) Industry 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948* Total.......................................................... 556 690 1,014 1,334 1,656 1,603 1,669 1,536 1,900 1,900 Durable goods3...................................... 307 400 627 848 1,135 1,243 1,119 881 1,151 1,180 Iron and steel.................................... Electrical machinery......................... Nonelectrical machinery.................. Transportation equipment including automobile parts........................... Other durable goods4........................ 58 30 121 67 43 145 151 68 222 194 97 304 232 110 385 212 137 418 199 136 392 233 109 331 281 148 429 284 158 440 71 27 90 35 139 47 205 48 347 62 410 66 325 67 160 48 231 62 240 5S Nondurable goods................................. 249 290 387 486 520 560 550 655 749 720 Food................................................... Textiles and apparel......................... Printing............................................. Leather.............................................. Other nondurable goods5.................. 122 27 26 34 40 136 32 36 29 57 188 45 38 40 76 254 56 41 51 84 265 58 47 63 87 291 62 47 72 S3 263 73 51 71 92 313 84 60 77 121 332 95 68 101 153 310 102 65 92 151 iMilwaukee County. *1948 estimates are annual rate based upon first seven months and reflect Important work stoppages earlier In the year. JOrdnance production Is Included within the normal peacetime product classification of the producing company. ^Includes nonferrous metals; lumber; furniture; and stone, clay, and glass products. 8Includes tobacco, rubber, paper, chemicals, petroleum and coal, and miscellaneous industries. SOURCES: Estimated from data provided by the U. S. Department of Commerce, U. S. Bureau of Labor Statistics, Milwaukee County Office of the Wisconsin Employment Service, and Wisconsin Industrial Commission. Page 4 VALUE OF INDUSTRIAL PRODUCTION BY MAJOR CATEGORIES MILWAUKEE INDUSTRIAL AREA-!/ 1939, 1944, AND 1948 PER CENT PER CENT IOO - ALL OTHER 14 0 TRANSPORTATION EQUIPMENT AND AUTOS KIP FOOD AND CLOTHING psss ::::;:329 :|yj 22.7 W23.6 26 2 ::::::::::::::::::::: _ METALS AND MACHINERY KS' MILLIONS $556 1939 TOTAL 9 44 1948 $1,900 J/ MILWAUKEE COUNTY. & DISTRIBUTION AS OF FIRST SIX MONTHS, 1948. SOURCES: ESTIMATED FROM DATA PROVIDED BY THE U.S. DEPARTMENT OF COMMERCE, U.S. BUREAU OF LABOR STATISTICS, MILWAUKEE COUNTY OFFICE OF THE WISCONSIN EMPLOYMENT SERVICE, AND WISCONSIN INDUSTRIAL COM MISSION. value. Furthermore, the general inflation, here as else where, has caused value, as differentiated from ■physical volume, to increase still more markedly. One other factor, however, appears to have a bearing upon greater-than-average local increase in both employ ment (see Business Conditions, August 1948) and pro duction; that is, the apparent fact that Milwaukee had more unused plant capacity and labor in 1939 than many other industrial areas. As a result, the area’s relative position is favored by comparisons which employ the commonly used “base” date of 1939. By the same token, moreover, larger-than-average war and postwar gains from an unusually low prewar level of activity may suggest somewhat more cyclical vulnerability for the area than would be expected in certain other industrial centers. The metals and machinery industries bring more income to the Milwaukee area than any other category of production. Likewise, these industries have had the greatest output growth, both absolute and relative, dur ing the war and postwar years. Estimated value of all products from these industries has more than quad rupled since 1939, reaching a current total of about 900 million dollars. The industries producing food, clothing, and shoes also have shown significant increases in ab solute terms, but are no longer as important relatively in providing basic income to the area (see Table 2 and accompanying chart). Likewise, the output of transportation equipment, and automobile parts, now carries a more important place in Milwaukee’s production total than was true before the war, having a present value which is estimated to be 240 million, but represents a lesser proportionate in crease from prewar than was true for manufacturing as a whole. The bulk of this production is tied to the auto mobile parts and equipment industries, since railroad equipment, aircraft, and shipbuilding manufactures are very minor in the area. The rest of Milwaukee’s industries, including lumber, furniture, paper, printing, chemicals, building materials, petroleum, and miscellaneous lines, contribute approxi mately 14 per cent of all manufactured products when measured in dollar terms. In total, this broad group of industries turns out products valued at about a quarter billion dollars, a marked increase from the prewar level. Like the other major industrial areas in the Seventh District, such as Detroit, Indianapolis, and Chicago, Milwaukee depends heavily upon manufacturing for its economic life. In this respect it differs from such centers as Atlanta, Boston, Kansas City, San Francisco, or Seattle in which trade and transportation assume more relative importance. About half of all wage and salary incomes in Milwaukee are dependent directly upon the production from factories, and thus the value of manu facturing output is of particular significance to local prosperity. RAW MATERIALS AND MARKETS Railroads and common-carrier motor trucks handle much of the in-bound raw material and out-bound finished product traffic of Milwaukee, a situation which causes the area’s manufacturing firms to be affected importantly by rising freight rates. The principal raw materials used in local production are: pig iron and semi finished steel, processed nonferrous metals, grain and other farm products, hides and leather, basic textiles, and lumber. Since these are brought from both nearby and more distant points, the pattern of freight rate increases becomes an important element of cost in Milwaukee’s production. The area contains no basic steel plants—that is, no blast furnaces, open hearth operations, or convertors. The considerable number of gray iron and steel foundries and steel fabricating plants, however, comprise an im portant part of the area’s manufacturing production, and obtain their raw materials, basic steel and iron, from Chicago, Pittsburgh, and other steel centers. Because of this dependence upon outside areas for basic steel, the emerging changes in supplier-consumer relationships, made necessary by the widespread aban donment of multiple basing point pricing practices, are being watched with great care. There is still considerable uncertainty, however, about both the proper interpre tation and full implication of the new Supreme Court ruling. F.o.b. mill or other newly adopted pricing systems are not expected locally to have as disruptive effects on the over-all economy of the area as seems likely in the case of many other industrial centers. By local estimate, about 75 per cent of the users already obtain their basic steel from Chicago producers. However, the remaining 25 per cent of firms which have been buying steel from more distant mills on Chicago basing point prices are expected to be more directly and adversely affected as supply-demand relationships become more normal. Page 5 The Units of Local Government—II The Demands of Urbanization for Public Expenditures Among the factors that have accounted for the steady purchasing power, state and local costs as having in growth of taxation and public expenditure in the past creased between three and four times. several decades, the increase in urbanization has been generally neglected. Though war is far and away the GROWTH OF URBANIZATION largest single determinant of the existing level of over-all public expenditure, the demands of urbanization rank The accompanying tables have been compiled and along with requirements for education, welfare, and pub arranged to measure the growth and present extent of lic streets and highways as major cost conditioning factors. urbanization in the Seventh District states. These facts These factors have particular relevance to the functions are evinced by classifying the population in each state and responsibilities of state and local government. Local for the decades since 1880 according to place of residence, government has absorbed much of the increase in the i.e., (1) within a metropolitan district (with subclasses cost of education, a portion of that attributable to wel for the central cities, satelite cities, and unincorporated fare, better highways and streets, and nearly all of that areas), (2) within a city, village, or town outside of a due to the fact that a steadily increasing proportion of metropolitan district, and (3) in rural territory.1 * 3 4 the nation’s population resides in urban areas. The population designated as rural is that presumed The multifarious expressions used to emphasize or de- not to require those government services associated with emphasize the cost of government give widely varying concentrations of population in towns and cities. It con impressions of the magnitudes involved. Confronted with sists principally of farmers and their families living on apparently conflicting facts, one is almost certain to be farms, but also includes persons living in resort areas bewildered, if not misinformed, should he seek an under particularly in Wisconsin and Michigan, in the coal standing beyond the statement of the bald billions of mining region of southern Illinois, and, in the past three government expenditures and taxation. Not more than decades, a growing number of persons residing on the a few can be satisfied with such unvisionable magnitudes. periphery of the smaller incorporated communities and Most persons need something with which to compare the along paved rural highways. cost of government and the burden of taxation. The These data indicate that in 1880 nearly two-thirds of usual frames of reference are comparable conditions in the population in the District states lived in rural areas, other times and places. but that in 1940 three-fourths were urban dwellers. The Comparative contemporary finance is the best avenue differences among the states are indicated (see Table 2) for scientific investigation but is all too often made useless by the contrast between Illinois and Iowa; in Illinois the by insufficient attention to evaluating the conditions re proportion of rural population shrank from 55 to 15 per quisite to comparability. Most persons find it easier to cent during the period, whereas in Iowa the decline was employ comparisons in time, to relate their situation xTo a limited degree the proportion of the population shown as living in incorpor ated places is affected by varying formal statutory prerequisites to incorporation im today with that of a year ago, a decade ago, in their posed by the several states. There arc no restrictions on the incorporation of villages Iowa and Indiana, a fact reflected in the count of small communities in both father’s time, or even their grandfather’s time. Such in states. In Wisconsin the minimum requirement is a population of 150 in an area of square mile, in Michigan 250 residents in an area of % square mile, and in comparisons, if they do not extend too remotely, have one-half Illinois 300 persons in an area of less than two square miles. Prior to 1919 in Wis and prior to 1917 in Michigan a resident population of 300 was the minimum the advantage that they involve an implicit recognition consin qualification for incorporation of villages. In Illinois the present population require of many of the modifications that must be introduced to ment of 300 was adopted in 1872, lowered to 200 in 1923, and to 100 in 1927, and restored to 300 in 1937. There were no changes in the statutory restrictions in give significance to the results. The crudest sort of com Indiana and Iowa during the period under consideration (1880-1940). minima for cities range from 1,000 in Illinois and 1,500 in Wisconsin parison in time, for example, would be one which would Population to 2,000 tn Indiana, Iowa, and Michigan. Area specifications are added in Michigan (not less than 500 persons per square mile) and Illinois (an area not exceeding four note that in the five states of the Seventh District a square miles for the population minimum). In Indiana and Michigan, villages may half century ago, the public expenditures of state and become cities without fully complying with these requirements. FOOTNOTES TO TABLE ON OPPOSITE PAGE local governments aggregated 100 million dollars where 'Following are the districts identified by the central cities and the years in which they as today the total is close to 2,700 million dollars. are included: Chicago (Illinois portion, 1880-1940), St. Louis (Illinois portion, 1880 1940), Davenport-Rock Island-Moline (Illinois portion, 1920-40), Decatur (1930-40), This comparison ignores changes in population and Rockford (1920-40), and Springfield (1910-40). includes the following districts identified by the central cities: Chicago (part in the price level to mention two important qualifications. Indiana, 1890-1940), Louisville (part in Indiana, 1880-1940), Evansville (1890-1940), In this same interval, the population in the area increased Fort Wayne (1910-40), Indianapolis (1880-1940), South Bend (1910-40), and Terre Haute (1910-40). more than 100 per cent and the price level in the neigh 3Consists of the following identified by the central cities: Davenport-Rock IslandMoline (area in Iowa, 1920-40), Omaha-Council Bluffs (area in Iowa, 1880-1940), borhood of 200 per cent. If fairly simple adjustments Sioux City (area in Iowa, 1920-40), Cedar Rapids, (1930-40), Des Moines (1890-7940), are made to take these facts into account instead of and Waterloo (1940). 4Is composed of the following districts identified by the central city: Detroit (1880 showing state and local expenditures as having increased 1940), Flint (1920-40), Grand Rapids (1890-1940), Kalamazoo (1930-40), Lansing (1920-40), Saginaw-Bay City (1910-40). 26 times, they will show, in terms of the number of BFollowing are the districts included identified by their central city: Duluth-Superior (part in Wisconsin, 1900-40), Madison (1930-40), Milwaukee (1880-1940), and Racinepersons in the area and in terms of dollars of equivalent Kcnosha (1920-40). Page 6 TABLE 1 GROWTH IN URBANIZATION IN SEVENTH DISTRICT STATES 1880-1940 Area District States All Other Cities, Villages, and Incorpo10,000-50,000........................................... 1,000-10,000.............................................. Illinois Metropolitan Districts'............................. All Other Cities, Villages, and Incorpo10,000-50,000........................................... 1,000-10,000............................................. Under 1,000.............................................. Indiana Total................................................................... All Other Cities, Villages, and Incorpo10.000-50,000........................................... 1.000-10,000............................................. Under 1,000.............................................. Iowa All Other Cities, Villages, and Incorpo10,000-50,000........................................... 1,000-10,000............................................. Michigan Total................................................................... All Other Cities, Villages, and Incorpo- Wlsconsin All Other Cities, Villages, and Incorpo- Page 7 Note: See opposite page for footnotes. 1900 1890 1910 1880 1920 1930 1940 Number of Population Number of Population Number of Population Number of Population Number of Population Number of Population Number of Populat on Incorporated Incorporated Incorporated Incorporated Incorporated Incorporated Incorporated (000’s) (000’s) (000’s) (OOO’s) (000’s) (000’s) (000’s) Places Places Places Places Places Places Places 15,709 4,589 3,947 487 155 2,666 90 9 81 14,060 3,122 2,730 5,554 1,981 2,565 1,008 5,597 3,064 90 903 2,071 5,136 1,816 2,358 962 5,984 2,576 80 816 1,680 4,518 1,558 2,133 827 6,420 2,010 1,109 87 5 82 6,486 3,470 2,969 430 71 1,066 69 3 5,639 2,616 2,304 935 *AO o2 4,822 1,943 1,755 731 2 DO 1,562 529 734 299 1,212 1,022 27 313 682 1,701 556 816 329 1,315 997 1,578 881 oo 1,319 525 41 5 36 — 484 24 147 313 — 3,239 483 28 5 23 —■ 455 19 159 277 — 2,930 884 623 205 56 471 22 946 363 450 133 1,100 917 13 5 8 — 904 16 180 708 — 2,471 418 381 13 24 900 11 4 7 — 889 14 188 687 — 2,404 312 291 9 12 475 56 7 49 — 419 21 159 239 4,842 2,807 2,155 468 184 452 27 6 21 3,668 1,613 1,390 155 68 973 415 443 115 1,061 425 19 156 250 21,121 10,237 7,805 1,925 507 3,396 166 23 143 18,120 5,546 2,118 2,432 996 5,338 3,230 95 951 2,184 —■ 7,897 5,019 3,799 1,034 186 1,126 150 7 143 7,631 4,857 3,767 958 132 1,641 561 778 976 22 275 679 — 22,257 10,887 8,003 2,117 767 1,140 157 7 150 — 983 26 285 672 — 529 44 5 39 — 485 23 155 307 — 3,428 1,268 767 352 149 931 17 6 11 — 914 15 190 709 — 2,538 524 463 25 36 475 58 7 51 5,256 3,035 2,203 525 307 — 3,187 123 15 108 3,545 279 28 251 — 3,266 99 901 2,266 — 3,588 299 29 270 — 3,289 108 948 2,233 — 5,856 2,279 2,483 1,094 5,514 1,237 1,090 489 454 147 1,070 1,067 308 382 377 947 748 329 99 1,022 453 421 148 1,041 1,051 336 438 277 1,002 — 5,830 881 258 1,048 313 456 279 1,044 983 396 467 120 1,072 417 22 170 225 — 1,025 440 473 112 1,196 513 23 4 19 3,138 1,041 771 181 89 502 19 4 15 2,939 979 754 157 68 452 13 3 10 2,632 690 557 82 51 490 22 148 320 1,033 481 396 156 1,064 483 16 140 327 938 385 397 156 1,022 439 16 135 288 876 352 377 147 1,066 — 2,057 8 134 1,271 1 20 710 noo Aoe 290 1,560 208 2,701 635 479 119 37 402 16 2,516 449 15 166 268 — 837 674 17 2 2 — 833 15 165 653 — 1,445 1,621 36 5 31 9,634 1,012 828 67 117 3,444 1,104 1,712 628 6,238 1,585 37 530 1,018 2,448 636 1,321 491 6,174 3,826 1,180 1,100 659 19 1 io 3,078 591 503 33 55 1,035 640 807 175 428 204 1,680 290 12 1 11 1,978 124 75 30 19 231 1,611 350 2,192 14 228 57 18 16 156 53 26 845 240 471 134 1,221 386 14 149 223 — 841 293 43 115 1,372 332 10 115 207 — 606 178 322 106 1.351 278 7 92 179 — 462 134 243 85 1,392 2,225 130 116 3 11 684 2,232 102 88 462 1,913 78 72 — 6 321 1,625 20 18 —2 1,000 352 383 265 1,095 436 18 4 14 — 418 20 154 244 — 2,810 739 674 30 35 377 10 1 9 — 367 16 119 232 2,334 469 374 65 30 — 11,718 2,036 1,798 120 118 909 370 415 124 1,162 804 339 339 126 1,061 2 —■ 680 171 497 — 883 259 395 229 1,247 384 9 2 7 — 375 17 157 201 — 2,421 417 374 9 34 261 7 1 6 —— 254 16 101 137 — 2,069 357 285 40 32 831 308 416 107 1,173 644 283 281 80 1,068 — — 460 123 328 —— 305 2 2 — 301 13 134 154 — 209 2 1 1 —— 207 11 98 98 — — —■ 320 631 189 280 162 1,204 93 221 . — 2,094 309 266 4 39 220 3 1 2 — 217 7 97 113 — 671 234 354 83 1.114 1,693 234 204 3 27 501 174 281 46 958 ■ 131 1 1 — — 130 6 70 64 — 440 126 209 105 1,165 1,637 140 116 4 20 445 121 256 68 1,052 1,316 137 116 — 21 294 80 185 29 885 from 72 to 37 per cent. In fact, rural population as here defined has even declined in absolute numbers in Illinois, Indiana, and Iowa, and changed but little in Michigan and Wisconsin since 1900. In both 1930 and 1940 the rural population in each of the District states was between one and one and one quarter million persons, and during the entire period 1880-1940 approximately six (5.4 to 6.4) million persons in the five states did not require urban services. Though there has been a great change in the character and cost of rural government in these 60 years, principally in the provisions for education and roads, urbanization has re quired a steadily expanding list of services for a larger and larger proportion of the population in addition to being affected by the factors increasing rural government costs. During these decades when the rural population re mained comparatively unchanged, urban residents in creased five-fold—from 3.4 to nearly 17.0 million persons. Moreover, such population growth far from being uniform ly distributed geographically occurred in the larger cities and in metropolitan areas—the very large cities with their satelite towns, villages, and adjacent unincorporated areas—where its impact on local services and their fi nancing had the least chance of being effectively dealt with. The inherited form and organization of local government was not designed to meet the needs of such vast concentrations of population, and the political machinery of the states with its rural bias was not re sponsive enough to adapt existing institutions of local government into units capable of coping with the problem. To overcome the unconscious habit of visualizing the comparative magnitude of state and local expenditures as proportional to area, the accompanying chart has been drawn simulating the shape of the Seventh District states but scaled according to the density of population. The areas on this map represent numbers of persons and not square miles. The impression conveyed is a measure of the degree to which population is concentrated in cities and governmental expenditures even more so. The data in Table 1 on metropolitan districts utilize such Census materials as are available and extend the concept of the metropolitan district back for two decades to provide some additional perspective on the develop ment of urbanization in the area. A metropolitan district is defined by the Census of 1940 as a thickly settled territory in and around a city or group of cities of 50,000 population or more.” The areas adjacent and contiguous to the central cities are those in which the density of population is greater than 150 persons per square mile; these areas are in fairly large indivisible units: i.e., entire townships, cities, villages, or incorporated towns. In the Middle West, metropolitan districts follow township lines excepting where munici- PER OR CONCENTRATION OF POPULATION IN METROPOLITAN AREAS TERLOO \RO AMAZOO DAVEN COUNCIL MOINES RO ISLAND 500,000 PERSONS Tha approximate outlines of the Seventh District states and their metropolitan districts are SPRINGFI drawn to a scale of population CENTRAL instead of land area. CITY LOUISVILLE' METROPOLITAN AREA OUTSIDE OF CENTRAL CITY tortion in the shape and size of the respective LOUISv states and cities indicate comparative den sities of population. Page 8 The dis palities extend across township limits on the outer fringe, then the municipality boundaries in the more remote township are used. The practice of including an entire contiguous town ship—usually 36 square miles—if its average density is 150 persons per square mile distorts both the shape and size of the metropolitan areas. The density requirement is attained by greater concentrations along the channels of transportation and is offset by a typically rural popu lation elsewhere. The geographic configuration of popu lation congestion and its bearing on the services and cost of municipal government can hardly be adequately explored by reference to metropolitan area statistics, but they may furnish the initial clues to further investigation. WHY CITIES NEED MORE GOVERNMENT Urbanization adds to government costs by creating conditions with which only community action can effec tively cope. It also eliminates the practicability of satis fying many wants by private expenditure, and accentuates an awareness of comparative social conditions, thus stimulating the reliance on government to raise directly or indirectly the lower scales of living. The major impact of urbanism, however, may well be on the future, not the present or past, costs of government. This is due partly to the potential burdens of the growing obsolescence of residential, business, and industrial facilities and the present inability of the cities to anticipate or control future private investment so as to minimize public costs. Illustrative of the present differences in the demands upon rural and urban government are such major items in municipal budgets as the provision of an adequate water supply and the disposal of sewage, garbage, and other wastes. In rural areas where the population is com paratively dispersed such facilities as are required to furnish these services are ordinarily provided by private expenditure with very little, if any, government assistance or supervision. In cities, there is no generally acceptable alternative to public performance of functions of this character. Fire and police protection, two other major items of city expenditure, also are significantly affected by con centration of population. While the causes of fire and infractions of legal rules are not confined to the cities, they are more numerous in such areas, and the insulation of distance to the spread of fire and crime is analogous to the quarantine to prevent the spread of disease. A society might well insure its fire, crime, and disease losses with a dispersed, rural population, but it could -The 1.940 definition of a metropolitan district has undergone some modification since the concept was introduced in 1910. In that year these urban areas were known as "metropolitan districts” or "cities with adjacent areas.” The former were defined as central cities with a population of more than 200,000 plus the civil divisions (in corporated places and townships in the Middle West) within 10 miles of the central city and having a population density of HO persons per square mile. The "cities with adjacent areas” were similarly defined except that the central city population requirement was over 100,000 and less than 200,000, and no density qualification was imposed for the adjacent territory. In 1930 the minimum population for the central city was reduced to 50,000, the concept of the city with contiguous areas discontinued, and the metropolitan areas were determined according to the outline of suburban development. In the accompanying tables, cities and their adjacent territory are treated as metro politan areas as far back as the central city qualification under the current definition (50,000 population) obtains. The areas used to compile metropolitan district popu lations in the years 1880 and 1890 and in later years for districts that did not qualify for the earlier census definitions of metropolitan areas, are, with some minor ex ceptions, the initially determined boundaries of the district. never afford to do so with large concentrations of popu lation in which any one of these hazards could quickly get out of control. The effect of urban community life on the social con science and the prevalence of self-reliance can only be advanced as relevant factors affecting urban costs but with no indication of their quantitative significance. Unquestionably the cultural evolution in the United States has been affected by social contacts facilitated by urban life. From the cities has stemmed much of the demand for social legislation and government expenditure to improve the condition of the poorest portions of our population. Urban life involves far more interdependence than 19th century or even present day rural life. Occupational specialization is one of the major assets of the modern economic system, but city dwellers are peculiarily ex posed to its hazards—technological change, the trade cycle, and occupational inflexibility. Thus the urbanite is less self-reliant both because of the role he plays in the economic system, and because his entire environment is one in which he looks to others to provide so large a proportion of his wants. Often he may confuse areas in which self-help is a more effective measure than government aids and policies. All of the foregoing elements have been gradually adding to the dimensions of the demands for the services of local units of government. Despite Federal and state participation, particularly in the fields of highway facili ties, education, and social security, expenditures of urban local units for these services have continued to expand. TABLE 2 PERCENTAGE OF TOTAL POPULATION IN URBAN AND RURAL AREAS 1880-1940 Metropolitan Districts Year All Other Cities, Other In Unin Villages, and Rural corporated corporated Incorporated Places Areas Towns Total Central Cities Seventh District 1940 1920 1900 1880 49 39 22 11 35 32 19 9 10 5 2 1 4 2 1 1 26 30 32 25 25 31 46 64 Illinois 1940 1920 1900 1880 64 54 40 19 48 46 36 16 13 6 3 1 3 1 1 2 21 26 27 26 15 20 33 oo Indiana 1940 1920 1900 1880 37 30 12 6 22 21 ft 4 10 7 2 2 5 2 32 32 33 23 31 38 oo 71 Iowa 1940 1920 1900 1880 21 13 4 1 18 12 4 1 37 43 56 72 Michigan 1940 1920 1900 1880 58 44 17 8 Wisconsin 1940 1920 1900 1880 33 26 17 10 *Less than .5 per cent. T * — * 42 44 40 27 42 38 16 7 10 4 * * 6 2 1 1 19 27 34 27 23 29 49 65 24 21 14 9 6 3 2 — 3 2 33 33 31 23 34 41 52 67 1 * 2 1 — — 1 1 SEVENTH FEDERAL RESERVE DISTRICT
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