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AGIO CARPETS
Pennsylvania has more carp et an d rug mills than any other state.
industry is un dergoin g revolutionary changes by utilizing
modert^man-made fibers and new high-speed tufting machines.
SPENDING PLANS SURVIVE
___________ Y LIQUIDATION
C a p ita l sp en din g plans o f P hiladelphia m anufacturers have
cha n ged little since last fa ll. Inventory liq uidation , how ever,
has becom e more w id e sp re a d than e x p e c te d .
CURRENT TRENDS
The present recession has not gone so fa r as the 1 94 9 recession.
Additional copies of this issue are available
upon request to the Department of Research,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pa.
Revolutionary changes are taking place in the
bought a small very ordinary-looking carpet that
carpet and rug industry. For many years not
turned out to have fantastic transport facilities;
much seemed to be happening in carpets and
no gas, no oil, no parking problems— all he had
rugs other than conventional semi-annual offer
to do was sit on the rug and express the wish
ings of new styles, minor improvements in tech
as to his destination and the carpet would in
nology of manufacture, and the perennial efforts
stantly transport him thither.
of manufacturers and distributors to sell more
none other than the bower of the unspeakably
His quest was
rugs— encouraged to some extent by the style
beautiful princess. The quest of American carpet
trend of wall-to-wall carpeting. Within the past
and rug manufacturers is profit. The question is,
few years, however, really remarkable changes
can the industry build enough magic into its
have taken place.
Wool, which for years was king of the carpet
domain, is encountering growing competition
products to gratify the wish.
The carpet and rug industry is the only major
division of the Pennsylvania textile industry in
from cotton and some of the new man-made fibers
which employment has increased since 1939. The
like rayon, acetate, saran, and others, which are
gain was 21 per cent, as pointed out in our Feb
blended with wool or substituted for wool. Man
ruary Business Review, whereas employment in
made fibers, with unique qualities of their own,
other branches of textiles declined from 24 to 60
open new opportunities in the design and con
per cent during this period.
struction of carpeting. Pile surfacing, either hand
or machine sculptured, produces effects of un
Metes and bounds
usual beauty which add to the variety of decora
tive floor covering available to present-day con
The Bureau of the Census label, “ Carpets, rugs,
and other floor coverings,” covers everything that
sumers. Recently, a new tufting machine has
covers floors, other than rubber goods. The term
been developed to make tufted rugs at an ever-
embraces, first, soft-surface coverings like wool
so-much faster rate than the age-old loom makes
carpets, rugs, and carpet yarns; second, hard-
woven rugs.
surface coverings like linoleum; and, third, a
Some of the world’s finest rugs and tales origi
miscellaneous classification of things like door
nated in 16th and 17th century India, Persia,
mats, art squares, etc., made principally of jute,
and Arabia. Remember the yarn about Prince
paper, or reeds, instead of wool. This article is
Houssain and his magic carpet, told in the Ara
concerned primarily with the first, the largest
bian Nights— how for forty purses of gold he
class— namely, the Woven Carpet and Rug In
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dustry, which uses wool as its principal raw ma
of the New York mills are the largest in the world,
terial. Incidentally, about the only difference
so New York outranks Pennsylvania in carpet
between a rug and a carpet is that a rug is made
production and employment.
to a predetermined size whereas a carpet is cut
from a roll at the length desired.
Have you any wool?
One reason why carpet making is an Atlantic
So big
Seaboard industry is that for years, carpets were
The carpet and rug industry is one of the smaller
made only of wool and what is more significant,
members of the great family of textiles. For com
pletely comparable data, unfortunately, it is nec
of imported wool. Not a pound of domestic wool
goes into carpets because domestic wool is too
essary to go back to the year 1947. In that year
soft, too fine, and too costly to go into rugs; hence
the carpet and rug industry of the United States
all of the carpet wools are imported, and have
consisted of only 95 of the textile industry’s more
been for many years. True, wool is wool, but
than 8,000 establishments. The industry employed
there are almost as many different kinds of wool
only 35,600 of the more than a million produc
as there are bonnets in the Easter parade.
tion workers in the textile industries of the coun
Quotations listed in the daily press reveal the
try. Value added by carpet and rug manufac
foreign origins of carpet wools. The following
turers was $217 million, in contrast with over
is typical:
B.A. 5s and 6 s.......................... S0.72-.75
$5 billion, value added, by all textile concerns. It
does not take a big industry to carpet the country.
In 1953, the industry turned out 67 million
Aleppo
.......................................... 86-.90
Indian y e llo w ................................83-.85
square yards of carpeting, which if sewed into
Indian super white....................... 87-.91
one huge rug would just about cover Manhattan
Awassi-Karadi w ash ed................. 85-.88
Island. By contrast, the cotton textile industry—
The first item above means that early in March
the largest member of the textile family— turned
1954, carpet wools from Buenos Aires in Argen
out almost 10 billion square yards of cotton prod
tina of the grade indicated were quoted at 72
ucts, enough to cover Manhattan with 145 layers
to 75 cents a pound, clean basis. Aleppo is the
of cotton fabrics.
New York City of Syria; and Awassi-Karadi wool
comes from Iraq.
An Atlantic Seaboard industry
Before China went Communistic, we imported
Most of the country’s carpet mills are east of the
a lot of carpet wools from China. In 1953, more
point where eastbound jet pilots shut off their
than half of our carpet wools came from Argen
motors so that they do not overshoot the Atlantic
Coast. There is only one mill west of the Missis
tina. New Zealand wools rank next in importance,
sippi, and most mills are within 200 miles of the
eastern seaboard.
ports. Carpet wools from these two countries may
be regarded as the “ bread-and-butter wools,” that
Pennsylvania has more carpet mills than any
is, the big-tonnage wools. To continue the anal
accounting for about one-tenth of last year’s im
other state; it had 40 of the country’s 95 mills,
ogy, the honey, strawberry jam, and other special
as reported in the last census. New England had
preserves to sweeten the bread-and-butter wools
23, and the state of New York had 14; but three
come from places like India, Pakistan, Syria,
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IMPORTS OF CARPET W O O L S —
1953*
in some distant corners of the world have stand
ards of business conduct unlike our own. Im
ports of wool from Communistic countries are
strictly forbidden; but it is not always easy to
keep out Communistic wool masquerading as a
friendly wool. Then there are exchange difficulties,
blocked and depreciated currencies. Once there
has been a meeting of minds as to quality and
quantity, there is the inevitable haggling over
price. No wonder the American rug manufac
turers leave the buying and importing of foreign
wools to the country’ s 25 or 30 special dealers who
know their way around the world. Philadelphia is
the country’s carpet-wool center and the leading
point of import.
Jute, the principal backing or base material
used in the manufacture of rugs, also comes from
Iraq, Iran, Afghanistan, the United Kingdom,
abroad— chiefly Pakistan.
Yugoslavia, Italy, and other far-away places.
W ool from Argentina, though good for carpet
making, is just a little too soft; other types of
Between Delaware Avenue
and Fifth Avenue
wool must be added to give the necessary lift.
Each country produces wool having its own
stevedores unload bales of wool at Philadelphia’s
A lot of things take place between the time the
unique characteristics with respect to qualities like
Delaware Avenue waterfront and the time the in
strength, length of fiber, kinkiness, wiriness, color,
terior decorator conducts a customer through one
resistance to abrasion, and so forth. A carpet
of New York’s Fifth Avenue color rooms where
manufacturer never uses wool from one country
the very latest multi-colored creations in floor
alone; he blends wool from various sources to
coverings are on exhibit.
get the precise combination of qualities desired.
The wool that comes out of the bale at the fac
Price, or cost, of course, is another element never
tory in, let us say, Bridgeport, Pennsylvania, is
overlooked in the blending process.
Buying wool is a tricky business, especially
just the way it went into the bag in Bagdad—
dirty, greasy, and smelly. The first job is to wash
foreign wools, and the process is full of pitfalls.
it. This is done in the scouring department, which
Carpet wool, as you might guess, comes into this
is equipped with long, narrow, steel tanks full of
country duty free, but it is bonded under care
water, wool, and scouring compounds. This is
ful Treasury regulations to assure that all such
where blending is done, and when the wool
wool really goes into carpets and not into blank
emerges it is as clean and fluffy as new-fallen
ets or other products. The obstacles to buying
snow. A slight amount of oil is added to replace
foreign wool are many. Certain countries impose
the natural grease washed out, which gives the
export licenses or other controls. Wool merchants
wool a nice “ hand” and a wooly kind of fragrance.
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A tour through a carpet mill affords an oppor
you that the outstanding feature of the loom is
tunity to observe a nice blend of the creative
the endless chain of punched cards mounted on
arts, skilled craftsmanship, and machine technol
the top that automatically plays the pattern into
ogy. “ What goes on here?” you ask the guide, as
the rug.
you see a rapidly vibrating bar lifting from a re
finished except for shearing, steaming, inspection,
Upon leaving the loom, the rug is
volving drum a thin cloud of wool. As if by magic,
and packing for shipment.
the gossamer film emerges in the form of a con
To be sure, on the tour through the factory you
tinuous thick, rope-like strand of wool. The
guide tells you that this is the carding depart
missed many of the fine points and perhaps some
of the major intermediate operations such as
ment, where the seemingly hopelessly tangled mass
of fibers becomes an endless strand of fibers
dyeing, spooling, twisting, cop-winding (prepar
ing yarn for the shuttles), beaming, and loom
placed in neatly parallel formation. In the spin
dressing (setting up the loom for operation) ; but
ning department, you see men walking to and fro
one is not expected to learn the whole trade on
following the mule carriage, or women at the
one trip through the works. As a matter of fact,
spinning frames where thousands of spinning
rug weaving is a highly skilled trade and it takes
spindles impart the final drawing and twist to
months before the boss will permit a learner to
the yarn.
go it alone on one of these $20,000 looms.
In the next department, the weaving shed, you
Mills, like rugs, come in all sizes. It takes at
are confronted with compound magic, where the
least one loom to go in business; the largest mills
din and clatter of hundreds of flying shuttles force
have about a thousand looms each. Mill size also
your guide to resort to impromptu manual sign
depends upon whether the manufacturer buys or
language, and you are more or less on your own
spins his own yarn. An integrated concern in
to observe what goes on. The looms are neatly
this business is one that does both spinning and
arranged in rows with an expert operator in
weaving.
charge of each.
grated; that is, spin some of their own yarn re
Inch by inch, hour by hour,
beautiful rugs with multi-colored floral decora
quirements
tions slowly take form and wind on the beam by
Some, of course, are partially inte
spinners.
and
buy
some
from
specialized
the feet of the operator. To the tyro, a big broadloom looks like a prehistoric player-piano with
Pennsylvania— the carpet keystone
out a keyboard. Indeed, the many-colored strands
The country’s first carpet mill was established in
of yarn are inserted automatically to create the
1791 in Philadelphia during George Washington’s
pattern in a manner somewhat analogous to the
first term. Philadelphia owes its early rise and
principle of a player-piano.
growth as a carpet manufacturing center to the
Entering the finishing department, where it is
fact that it soon became the leading metropolis,
again possible to hear the guide speaking, you are
with the largest population of hereditary artisans
told what you saw. It was a Jacquard loom weav
and operators, with probably the highest level of
ing a Wilton (a vari-colored, deep-pile rug) —
manual skills in the country. In Massachusetts
the kind that sends luxuriance through your body
and Connecticut, carpet making also got an early
when you walk over the rug— named after the city
start as a by-product of the woolen and worsted
in England where it originated. The guide tells
industry. Coarse grades of wool discarded by the
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weavers of cashmeres and broad cloths were
ing center.
Meanwhile, manufacturers in New
utilized there by the carpet manufacturers.
York and Massachusetts forged ahead. In 1899,
In 1839, Erastus Bigelow succeeded in invent
only one-eighth of the carpeting produced was in
ing a power loom to weave ingrain carpets (a
the form of rugs, but by 1914 rugs were three-
double fabric pileless carpet) that excelled those
fourths of all carpeting.
woven on hand looms. During the next few years
To this day, Philadelphia and other Pennsyl
he adapted power weaving to the manufacture of
vania carpet mills are small and moderate in size,
Brussels carpeting (a looped pile carpet, first
in contrast with the big New York mills. Although
made in Brussels, Belgium). Thus Erastus Bigelow
Pennsylvania has almost three times as many mills
became the patron saint of the industry.
as New York, Pennsylvania mills employ only two-
Philadelphia mills were somewhat slow in shift
thirds as many workers. That the big mills are the
ing from hand to power looms, unlike their New
most successful does not necessarily follow, of
England and New York competitors. As a matter
course. More about this after considering other
of fact, one reason why the New York mills grew
pertinent characteristics of the business.
so big was their ownership of the original patent
rights on the machinery.
In the early 1870’s,
however, several large mills in the Kensington
Rugs are apparel for floors
section of Philadelphia put in power looms on
Although many developments of great importance
which patent rights had expired. By 1889, Phil
in the carpet industry are of recent origin, it is
adelphia is said to have had seven power looms
not to be assumed that the industry was dormant
for every hand loom.
between World War I and our time. Things were
happening all right, and the kind of an “ upseydownsey” life a rug manufacturer leads is revealed
Major developments between 1899 and 1914
were as follows:
1. Displacement of cheaper ingrain carpets
by more expensive fabrics.
2. Substitution of rugs for continuous floor
coverings.
DISPOSABLE IN C O M E COMPARED W ITH W O V E N
CARPET A N D RUG SALES 1 9 2 1 -1 9 5 2
CARPET & RUG SALES
M ILLIO N S $
DISPOSABLE INCOME
BILLIO N S $
3. The growing popularity of hardwood
floors.
4. Higher standards of living and more
exacting canons of good taste.
5. Mechanical improvements making it pos
sible to weave pile fabrics in large dimen
sions more economically.
These developments affected the geography of the
industry. Philadelphia manufacturers made the
mistake of sticking to ingrain carpets too long
when demand was definitely shifting to the newer
types of pile fabrics. This hastened the decline of
Philadelphia as the country’s carpet manufactur
0
I I I I I I I I I I .......................I I I I I I ! I I I I I I 0
1921
'29
'32
'41
'45
'52
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in the chart of carpet and rug sales and disposable
income of the United States. It is apparent that
PRICE OF ARGENTINE CARPET W O O L 1 9 4 9 -1 9 5 3
PER POUND
there is some relationship between the amount of
money people have to spend and how much of it
they spend on rugs; but the relationship is not
quite so close as the carpet people would like to
see it. One reason is that replacement of a rug is
so easily postponed. A good rug will wear and
wear and wear if the family budget does not
permit replacement on schedule. If family fi
nances compel a choice between a new car and
new rugs, the new car usually wins. When people
are short on cash, as they were during the early
thirties, rug sales lag.
When people are flush, rug sales leap, as they
did after World War II. Many a rug is a thing of
beauty, but no rug is a joy forever. Carpeting is
apparel for floors and, like personal apparel, it
serves a dual purpose— utility and adornment.
There are times when considerations of beauty
40
t i l I I I I 11 111 I I I I I I 11 I H I 1 11 i 1 I I I 1 1 I I I ! I 1 I 11 1 I I I I I U U U J
1
1949
1950
1951
1952
1953
source: the commercial bulletin
and 67 cents in January 1950, jumped to $1.68 by
December 1950, and in March 1951 soared to
$2.25 a pound.
Enter rayon
rise above mere utilitarian purposes; at other
times, beauty must give way to utility. And so
What a grand opening for rayon at 40 cents a
carpet and rug manufacturers “ shoot the chutes.”
pound! Producers of rayon and cellulose acetate
During World War II, carpet and rug mills
seized the opportunity, and put their technicians
turned their textile facilities to making canvas
to work to develop fibers specially adapted for
goods such as tarpaulins, truck covers, hospital
carpeting.
tents, and similar war equipment; and their ma
with either all rayon or acetate facing, or wool
chine shops turned out machine-gun parts and
blended with rayon or acetate.
other warlike hardware. For the time being, rug
making was secondary— and rugs in use became
Rug manufacturers made carpeting
Enter cotton
What a grand opening for 45-cent cotton, so
threadbare.
With the end of the war there was a terrific
chronically abundant in the United States that
stored-up demand and, as one manufacturer said,
Uncle Sam is always bailing out farmers buried
“ at that time any piece of burlap would sell if it
under mountains of the stuff!
had printing on it.”
“ seen her chance” and took it.
On top of the war-end’s
Cotton likewise
replacement demand came the original-equipment
Cotton rugs, especially throw rugs, had been
demand, stimulated by the great building boom.
made long before this by what is virtually a
Then came the Korean war, and wool prices
separate industry; but when wool prices became
“ jumped over the moon.” Argentine carpet wools,
prohibitive, the old-line, wool carpet industry
which sold for 37 cents a pound in January 1948
beckoned to cotton.
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b u sin ess re v ie w
Enter rayon’s cousins
You should see the speed with which carpet
What was there to prevent acrilan, dacron,
emerges from this machine— about twenty times
dynel, nylon, orlon, saran, and other synthetics
as fast as on a Velvet loom and almost fifty times
Certainly,
as fast as on a Wilton loom. All that needs to be
there was no harm in trying, and some of these
done after the tufted carpet comes off the machine
man-made fibers met with moderate success—
is to rubberize the underside to anchor the tufts,
especially nylon and saran.
plus the usual inspection and mowing the loops
from coming to the banquet table?
All these competing fibers, of course, have in
wool a redoubtable competitor to dethrone, and
if a cut pile is desired.
Production of tufted
carpeting is gaining steadily year after year.
we are not saying that wool was or will be de
throned, but the fight of the fibers is interesting
to watch— especially from the sidelines.
Some of these fibers have special qualities of
outstanding character.
Cotton is plentiful and
cheap; nylon is tough and versatile; rayon is
MANAGEMENT PROBLEMS
Earlier it was said that the carpet and rug indus
try is undergoing a kind of revolution; the revolu
tion has also multiplied management problems for
manufacturers'.
easily dyeable and steady in price. Saran is the
most washable of all the fibers— ink inadvertently
Styling and selling
spilled on a saran rug can be completely removed
with a damp cloth as easily as wiping the egg
How the carpet and rug industry has changed!
stain off the baby’s face. There is always wool,
however— which is resilient, abrasion-resistant,
After ingrains went out of style, carpet fabrics
and deeply anchored in tradition, though some
pile construction usually of solid color), and
times a bad actor, price-wise.
Axminster predominated and they varied chiefly
were all rather similar. Wilton, Velvet (a warp
according to quality. The implanted pattern or
design may have been added through the use of
Enter tufted carpets
colored yarns or of colors printed thereon. Today,
Along with cotton came the tufted rugs, most of
there is a variety of machinery, a profusion of
which are made with cotton facing. A tufted rug
fibers which react differently to dyes, modern
is not made on a loom, but on a tufting machine
ideas of design, together with a variety of con
which looks somewhat like a cross between a
structions and surfacing techniques. Rugs, like
stripped-down loom and a big telephone switch
motion pictures, now come in technicolor and
board.
three dimensions.
In action it sounds like Paul Bunyan’s
sewing machine. A roll of canvas fabric is fed
Marketing begins with styling. Strange as it
into the machine and as the fabric passes under
may seem, it is hard to tell precisely where patterns
the needle bar, extending across the width of the
and designs originate. Early handwoven Orientals
fabric, cotton tufts are sewed right into the fabric
featured such designs as floral forms and arabes
by as many as 900 needles buzzing simultaneously.
ques in Turkish carpets; birds and leaping quad
Strands of yarn from spools mounted on a creel
rupeds in Persian rugs; medallions in carpets
behind the machine are fed to each needle through
from Chinese Turkistan; and arches are pre
small metal tubes converging on the needle bar.
dominant features in prayer rugs.
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In a rug, the fabric is part of the pattern. There
facture the kind of rugs that people will buy, but
has developed in the last decade or so a “ style”
also to know when and how to buy wool. Raw
more closely approximating American in origin
materials make up from one-third to one-half of
and nature than anything prior thereto. It is a
the cost of making a rug. That is enough reason
style that calls for a product of a rather simple
to buy carefully, and there are others.
nature, usually in soft colors which tie in the
The manufacturer has his money tied up in wool
fabric itself with the pattern. We have yet to see
for a long time— six or eight months may roll by
a pattern featuring an atom smasher or “ hot dog”
between the time he buys the wool and the time
vendors pushing their way through the crowds
he gets paid for the finished rugs. It is hard to
in a football stadium, but maybe that is only
keep raw wool inventories at a minimum in view
De
of the fact the materials come from remote places
signers must know, of course, what looms can do,
in southern and eastern hemispheres. W ool flows
but new machines and new synthetics have vastly
into the United States every month of the year.
because we have not been around much.
enlarged styling potentialities.
Sometimes the heaviest imports arrive in October
ing rugs and carpets. This is one of our oldest
and sometimes in January. Prices usually decline
from mid-February until May or June and rise
industries, and marketing— except in periods like
during late summer and autumn except for a
that immediately after the war— is a constant
slight dip at the time of the November Argentine
uphill battle. New industries and products like
clip.
To be sure, styling is just one phase of market
electronics, helicopters, air conditioning, tele
In addition to seasonal fluctuations in prices of
vision, and automobiles, by the very nature of
wool there are also sharp cyclical fluctuations,
their newness, find it easier to capture the con
sumer’s dollar. The long-run trend in per capita
as already observed. Not only does the size of the
clip vary from one country to another,, but also
consumption of rugs is downward. Around the
from one season to another in the same country.
turn of the century the industry produced one
Furthermore, there are substantial variations in
square yard of wool carpeting per capita; in re
the quality of the clip because of variations in
cent years, the output has been less than half a
climate and other natural causes. Sharp buyers
square yard per capita. Carpet and rug people go
watch the Philadelphia and Liverpool markets
the automobile industry’s annual model change
closely and vary their buying policies accordingly.
one better by having a spring and fall showing
If they think the time propitious, they load up
of new lines, but that is a practice of long standing.
heavily and when they think prices are too high
Perhaps the revolutionary changes now taking
they let their inventories run off and operate on
place in the industry may arrest or reverse the
a hand-to-mouth basis. We heard of one Pennsyl
declining trend in per capita consumption. We
vania manufacturer whose profits are derived
shall see.
largely from strategic wool buying. Differences
in wool-buying policies are reflected in the finan
Buying and inventories
cial statements. For example, in 1952 the ratio
of inventories to total assets ranged from 30 to
To make money in the rug business, it is necessary
50 per cent among the various companies in the
not only to have the ability to design and manu
industry— large, medium, and small sized. Of
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course, inventory policies are also influenced by
over 3 million square yards. Although this is only
future expectations of the rug market.
about 5 per cent of domestic production, carpet
manufacturers nevertheless do not like it.
Prices and imports
Rugs come in all prices. Retail prices range from
Profits and prospects
as low as $6 a square yard for a cotton broadloom
It is impossible to say just how profitable the rug
to as much as $40 a square yard for a Chenille.
industry is because so many of the companies
Price depends upon construction, materials, and
are relatively small, family-owned concerns that
workmanship. Rare works of art like the so-called
do not publish financial statements. Judged by
Spring and Winter Carpet of Khusraw, which
published statements, however, it appears that
was an 84-foot square job for the royal palace,
1946 was one of the best recent years, based upon
are “ out of this world.” Woven into the design
reports of net earnings expressed as a percentage
was a formal garden with water courses; blossom
of sales. In that year the ratios ranged from 3 to
ing fruit trees, green meadows in solid emeralds,
13 per cent. During succeeding years,, reported
and birds in pearls embellished this fabulous rug
earnings were generally lower, and in 1951 and
— appraised at $200 million. Here we are not
1952 deficits were reported by some of the com
speaking of rare works of art, but the United
panies. This seems to indicate that the post-war
States carpet and rug industry as defined at the
“ honeymoon” is over, that the carpet and rug
outset.
manufacturers— like producers of other textiles—
It is difficult to portray price trends in rugs.
are again facing severe competition and hard
There are so many different kinds and construc
tions— some manufacturers sell direct to retailers,
going in their quest for profits. This was freely
admitted by the manufacturers we consulted.
others sell through distributors, and on occasion
There is no clear-cut evidence that the large
the issue becomes still more confused when price
companies have an advantage over their smaller
changes in different directions are announced
competitors. We asked the president of one Penn
simultaneously. Late last year, for example, one
sylvania concern, that has been in business for
many years, what size company he would set up
large manufacturer announced price reductions
when other manufacturers posted higher prices.
if he had to do it all over and start in business
There must have been differences of opinion about
today. He replied that he would not go into the
the outlook and perhaps also differences in
carpet business; but, on second thought, he said
inventories.
he would set up a small integrated mill. There
One thing on which carpet manufacturers seem
does seem to be a trend toward integration in
to be agreed is the tariff. They don’t like it. It
recent years. Some of the smaller concerns that
was reduced from 60 per cent ad valorem in 1930
had been in the habit of buying their carpet yarns
to the present 25 per cent in line with the national
have bought spinning mills or set up their own
policy of promoting trade with other nations. As
spinning departments. With the advent of synthe
a consequence, more carpets are coming into this
tics some of the large mills have acquired facilities
country from Belgium, the United Kingdom, Italy,
for manufacturing their own rayon fibers. In
France, and other countries. Total imports of
tegration has the advantage of greater control over
machine-made rugs last year amounted to a little
the whole operation.
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b usin ess re v ie w
The giants may enjoy advantages that go with
such as the reduced cost per square yard obtained
advertising, marketing, large-scale buying, and
from long runs on a standard construction before
finance; however, the smaller producers seem to
a loom has to be knocked down and redressed for
have more flexibility in an industry where styling
another pattern.
and craftsmanship may conceivably pay off better
facturer does not have the headaches that go with
than mass production. Style is gripping the indus
large inventories of finished goods in regional
Moreover, the smaller manu
try harder than ever, and with the multiplicity of
warehouses all over the country. Whatever the
new fibers and new constructions now available
advantages or disadvantages of small-scale opera
there is diminishing opportunity to cash in on
tion, Pennsylvania manufacturers seem to be
some of the benefits of large-scale production,
holding their own in the competitive struggle.
CAPITAL SPENDING PLANS SURVIVE
INVENTORY LIQUIDATION
A re-survey o f planned outlays by Philadelphia manufacturers
Manufacturers in the Philadelphia metropolitan
when the spot check of spending plans started
area still expect to make capital outlays in line
with the record volume planned last fall. But
there was some feeling that we might have to drink
inventory liquidation has been more widespread
economic
than they anticipated in September and it does not
people were expecting, rather than experiencing.
those words. They were spoken at a time when
readjustment
was
something
most
appear to have run its course. This, in brief, is
Declines in employment and working time had not
our conclusion after a spot check of local concerns.
started; neither had inventory liquidation.
Last September, manufacturers in this area
Last month, in analyzing employment trends in
told us they planned to spend $372 million on
Pennsylvania from September 1953 to January
plant and equipment during the ensuing year.
1954, we found that work forces in factories in
This represented an increase of 18 per cent over
the Delaware Valley area declined by about 6 per
actual outlays made during the preceding twelve
cent. This was in excess of the less than 1 per cent
months. In commenting on the difference between
slip in employment forecast by manufacturers in
spending plans for inventories and those for
the capital expenditure survey of this Bank last
capital equipment, we said in our November 1953
September. The rather large difference made us
Business Review: “ Capital expenditures change
wonder whether capital spending plans have been
less dramatically. Like icebergs, they build up
affected by the changed business climate. We also
slowly and melt away slowly.”
wondered whether inventory trimming in the area
12
Quite frankly,
b u sin ess re v ie w
had been more widespread and persistent than the
September survey indicated.
As a result, the Bank selected a representative
SPENDING PLANS SET IN SEPTEMBER
HAD FIRMED BY MARCH
PER CENT OF REPORTING
FIRMS
sample of the manufacturers in the area that re
ported to us last fall and asked them three basic
questions: (1) Has there been any change in
your planned expenditures for plant construction
and equipment?
(2)
Seasonal considerations
aside, what has been your inventory policy since
September? (3) What are your inventory plans
for the next few months ? This is what we learned:
Capital spending programs haven’t melted
At the half-way point— March 1954— last fall’s
spending intentions for new plant and equipment
show a surprising degree of firmness. As the
chart indicates outlays were proceeding just about
as orginally planned in slightly over 60 per cent
but one-fifth of those interviewed plan to spend
of the sample covered. Almost one-quarter of
less than the amounts earmarked last September.
the firms told us their capital outlay programs
had been revised upward in the past six months.
Among producers of nondurable goods the in
tention is to spend about the same, or even more
Only 15 per cent apparently had seen or experi
than, the sums programmed six months ago.
enced anything in the subsequent business situa
About three-quarters of them expect to stick to
tion that warranted a downward adjustment of
their original plans. Nearly one-fifth of them have
initial spending plans for the year ending Septem
raised their sights on capital outlays to be made
ber 1954.
in the year ending next September. Less than one-
Manufacturers of durable goods appear more
tenth of the manufacturers of nondurables covered
prone to change their minds about capital outlays
in our sample have discovered any reason for mak
than producers of nondurables. This, to be sure,
ing downward revisions in their plans.
is a logical reaction to the changing business pic
As between large and small concerns there is
ture of the past six months. Readjustments in the
little difference in the case of those whose plans
durable goods industries have been especially
have not changed. Slightly over 60 per cent of
pronounced. Employment declines have been on
the firms in both categories indicate the firmness
a larger scale; cutbacks in working time have been
of their September 1953 spending intentions.
sharper, and inventory liquidation thus far has
Twice as many large manufacturers, however,
been more widespread. About half of the durable
expect to increase outlays as contemplate reduc
goods producers are adhering to their original
tions. Among small producers the percentages
spending plans. Over one-quarter of them are
are 17 per cent for heavier spending as against
allocating more funds for plant and equipment,
22 per cent for curtailment.
13
b usin ess re v ie w
Many more pared inventories
than intended
who actually followed that policy. There appeared
There is little doubt that manufacturers were
small as compared with large firms projected
overly “ bullish” in reports on prospective inven
inventory policy.
to be little difference in the accuracy with which
tory buying last September. As the chart shows,
twice as many manufacturers trimmed inventories
in October, November, and December as reported
such intentions. Also, a larger percentage of firms
increased inventories. About two in five pro
STOCK LIQ U ID A T IO N GATHERED SPEED
IN THE FIRST QUARTER OF 1 9 5 4
PER CENT OF REPORTING
FIRMS
ducers who said that aside from normal seasonal
changes they would probably maintain stocks,
decided against that policy.
Apparently, these
producers were actually announcing a “ wait and
see” policy in September, and many did not like
what they saw.
Durable goods firms seemed to have had a better
idea of what was in store for them than makers
of nondurables. One out of three in the durable
goods group last September expected to trim
inventories, and about 46 per cent did just that.
Of the makers of nondurables, only one in seven
teen intended to cut stocks, as against one in three
FORECASTS WERE MORE “ BULLISH”
THAN ACTUAL INVENTORY POLICY
PER CENT OF REPORTING FIRMS
M AINTAIN
INCREASE
DECREASE
Inventory liquidation has increased
Stock cutting, which was widespread in this area
in the final quarter of 1953, persisted and even
picked up momentum over the first three months
of this year. About two in five manufacturers
trimmed stocks in the September to December
period, whereas nearly half cut inventories over
the first quarter of this year— seasonal considera
tions aside. The smaller proportion of manufac
turers who added to their holdings was about the
same in both quarters. As a result, there was a
reduction in the percentage of firms that main
tained inventories.
A rather sharp cleavage between manufacturers
of durable and nondurable goods was apparent.
In both quarters, a higher percentage of durable
M AINTAIN
14
INCREASE
DECREASE
goods makers reduced inventories.
Also, the
b usin ess re v ie w
number of nondurable goods makers cutting in
ventories did not change in the periods measured.
S T A T IS T IC A L
Just about the same proportion of nondurable
The Fairless Works development of the United
States Steel Corporation at Morrisville, Pennsyl
vania, has been excluded from our annual surveys
of capital expenditures. This statement was con
tained in the results of the survey published in the
November 1953 Business Review. W e feel that
the point should be stressed in reporting on the
latest spending intentions of manufacturers in the
Philadelphia metropolitan area.
firms— about one in three— whittled stocks in the
first quarter of this year as in the latter part of
1953. On the other hand, the proportion of dur
able goods manufacturers cutting back increased
from 46 per cent to 59 per cent.
Measured by size of firm, there was little differ
ence in the policies followed by small and large
manufacturers before the turn of the year. About
N O TE
39 per cent in each case trimmed stocks. Experi
ence thus far this year, however, is sharply differ
Of the firms questioned, about 38 per cent say
ent. The proportion of small firms paring inven
they will cut back purchases. This is about the
tories has dropped to about one in three, but
same proportion as actually followed that policy
roughly one-half of the large units cut back stocks.
in the final quarter of 1953, but is below the
proportion cutting back in the first quarter of
Still the trim is not close enough
this year.
Despite the widespread whittling away of stocks
Durable goods firms have done the most cutting
that has taken place, about three and a half times
thus far, and they anticipate that the situation is
going to stay that way. About 49 per cent of the
as many manufacturers forecast further decreases
rather than increases in their inventory buying.
durable and 26 per cent of the nondurable con
cerns say they see stock cuts ahead. The differ
ence between the plans of large and small firms
MORE DECREASES EXPECTED
N O W TH AN LAST SEPTEMBER
is wide indeed. Of the large firms in the survey,
PER C ENT OF REPORTING FIR M S
45 per cent intend to liquidate more inventory as
against 22 per cent of the smaller units.
A comparison between last September’s fore
cast and this one in March indicates that many
more manufacturers now say they are going to
decrease inventory buying. About the same pro
portion as in the fall has decided to step up stock
purchases. Experience seems to suggest that many
of those indicating they are going to maintain
buying actually may be adopting a wait-and-see
policy.
After September, most of those who
changed their plans cut inventory buying, appar
ently in response to the slide in business activity.
If business barometers should edge upward over
M AINTAIN
INCREASE
DECREASE
the next few months, it is likely that many who
15
b usin ess re v ie w
say they are going to stand pat will add to their
than a year ago, appear firm. Inventory trimming,
although it is more widespread and persistent than
holdings.
expected, has not achieved epidemic proportions;
Conclusion
neither has it run its course. Apparently, the
The picture that emerges from this survey is not
moderate decline in business activity that has
clear cut, but on balance it seems to be one of
taken place has not appreciably shaken manufac
strength. Capital spending plans, which are higher
turers’ confidence.
CURRENT
TRENDS
The current recession compared with 1 9 4 9
More and more business analysts seem to be
still mixed. The preceding article provides a good
getting up enough courage to predict that the re
example; businessmen seem optimistic about capi
cession will be over soon. Some say business will
tal expenditures but somewhat pessimistic about
level off, others that it will increase, sometime
inventories.
after mid-year. They admit, however, that evi
Mixed trends, of course, are typical of business
dence thus far is not conclusive; the situation is
most of the time. It is only because we have gone
Percentage change
Current
recession
1953
peak to
latest
figure
These show a more unfavorable
than in 1949:
Number of months
Current
recession
1949 recession
Peak to
trough
During same
number of
months as
in current
period
1953
peak to
latest
figure
1949
recession
Peak to
trough
picture
Unemployment ..............................................
Retail saies .....................................................
— 221
|
—
—
5
+
185
♦
-f
93
*
5
12
16
*
—
10
—
II
—
10
7
12
-|—
—
—
—
43
3
2
2
I
+ 120
—
6
—
9
—
5
—
8
+ 102
—
5
—
4
—
4
—
3
13
7
5
7
5
7
9
11
12
16
*
12
11
12
Th is shows ab o ut the same picture as 1949:
Industrial production ..................................
These show a better picture than in 1949:
Business failures ...........................................
Employment ....................................................
Inventories ......................................................
Personal income ...........................................
Wholesale prices ...........................................
These have recovered their 1953 losses:
New c onstruction...........................................
Stock p ric e s......................................................
* No clear turning points evident.
16
+
+
I
I*
♦
—
17
—
13
*
b usin ess re v ie w
M illio ns $
10 INDICATORS
of current business compared
with the 1949 recession
1953-54
1948-49 —
—
Billions $
M illions $
I ndex
EMPLOYMENT
56
55
Index
Billions $
INVENTORIES
60
75
Number
BUSINESS
Billions $
17
b usin ess re v ie w
through so many years when almost everything
ably higher level than it was at the time
seemed to be going up, and because we are now
the 1949 recession began. Unemployment is
watching all available information so closely, that
greater, but these figures should be inter
we are especially aware of the diversity among
preted cautiously because of seasonal influ
various indicators.
ences and recent revisions in the data.
The first column in the table on page 16 illus
Moreover, it should be remembered that the
trates this diversity quite clearly. In this column,
labor force today is considerably larger than
percentage changes for ten important statistical
it was in 1949 and that unemployment at
series have been computed from the 1953 peak
the start of the current recession was lower
(not necessarily the same for all series) to the
than at the start of the 1949 recession.
latest available figure. The range is quite wide.
2.
Unemployment has more than tripled, business
declines have not been so severe as in the
failures are up by two-fifths, and industrial pro
comparable time period during the 1949 re
duction has declined 10 per cent. But incomes,
cession. Unemployment, again, is an excep
employment, inventories and prices have declined
only moderately. Construction and stock prices
time, whereas in 1949 they never did really
have been rising for some time, and have more
fall off. Industrial production has dropped at
than recovered their 1953 declines. The London
about the same rate as in 1949. Construction
Most of the indicators show that the
tion. Retail sales also have gone down this
Banker, discussing the contrast between declining
fell very little in both periods, but somewhat
business and a bull market in stocks, entitled its
more in the current period; very recently,
article, “ This Booming Recession.”
however, it has more than recovered its 1953
But is this really a “ booming recession” ? To
decline. All the other indicators show a more
answer this question, many analysts turn to 1949.
favorable experience.
That is the only recession still strong in most
have not declined to speak of.
memories. We have shown in the other columns
in the table and in the charts, therefore, a com
parison of the current recession with 1949. The
second column in the table gives the percentage
change from peak to trough for each series in
Prices, particularly,
3. These figures suggest that the current
decline has not yet gone so far nor lasted
so long as the 1949 decline.
These are facts, and while they might be altered
1949. The third column shows the percentage
somewhat by a different choice of indicators or
change for 1949 during the same number of
turning points, they seem fairly clear cut. How
months for which we have figures on the current
they should be interpreted is up to the reader. The
recession. The fourth column shows the number
most accurate conclusion probably is that while
of months from the peak to the latest figure avail
an analysis like this can shed some light on the
able on the current recession and the fifth column
question “ How bad is the current recession?” , it
gives the number of months from peak to trough
cannot answer the questions, “ How far will it go,
in 1949.
and how long will it last?” It shows mainly that
The table and charts reveal these facts:
1.
Practically all the indicators show that
the economy is now operating at a consider
18
all areas of the economy not only do not behave
in the same way at the same time, but also not in
the same way at different times.
F OR THE R E C O R D . . .
Factory*
Third Federal
Reserve District
Per cent change
SUMMARY
Un ted States
Per cent change
February
1 95 4 from
O U TP U T
M a n u fa ctu rin g p ro d u c tio n . . .
0*
C onstruction c o n tra c ts !........... + 5
C o a l m in in g ................................ - 8
TRADE**
D epartm ent store sales............
2
mos.
1954
from
year year
ago
ago
February
19 5 4 from
-1 2 * -1 2 *
- 4 - 9
-1 7
-1 3
mo.
ago
+ 1
+ 4
-8
- 9
+ 11
-1 2
Stocks
Sales
LO C A L
CH AN GES
Per cent
change
February
195 4 from
8
7
-1 0
-1 *
0*
-
9 * - 8*
_ 9 * _ 9*
-1
-
8
-
7
+ 1
0
-
+ 2
-
3
3
-
Per cent
Per cent
change
change
February
February
195 4 from 19 5 4 from
year
ago
mo.
ago
-2
+
-
-1 0
year mo.
ago ago
Per cent
change
February
1 95 4 from
y e a r mo.
a g o ago
Per cent
change
February
195 4 from
year mo.
ago ago
-1
-1 1
-
-2
-1 3
-1 1
0
+ 6
-
1 -1 2
-
6
8
year
ago
6 +
1
-
1
5
Lancaster. . . .
0
P h ila d e lp h ia .. - 1
-
5
1
-
5
-1
-
-
6
+ 3
R e ading...........
-
6
0
-
0
-1
-1 0
+ 16 +
5 +
2 + 14
0 -
6 + 15 +
1 -
5 +
-
4 -
6 + 13 -
7 -
6 + 11
+
2 -1 4
-
1
-
7
8
+
+
3 3 0
6§ +
-1
2
8
3
3
0
3§
-1
-2
+ 2
-8
1t
0
0
+ 1
+
+
+
+
+
+
+
+
2
4
3
2
6
10
+
+
+
+
3
4
2
2
4
8
3
0
8 -
1
+
+
1
1
+
+
1
1
Of
+
1+ +
*Pennsylvania {P h ila d e lp h ia §20 C ities
* * A d ju s te d fo r seasonal va ria tio n . {Based on 3-month moving averages.
2
+ 2
T re n to n ............ - 2
-1 2
0
W ilk e s -B a rre . + 3
-
7
+ 7
-
6 +
5 -
3 +
W ilm in g to n ...
2
PRICES
Payrolls
mo.
ago
year
ago
B A N K IN G
( A ll member banks)
D e posits........................................ + 1
+
Loans............................................. + 1
+
Investments..................................
0
0
U.S. G ovt, securities..............
O th e r ......................................... + 1
C heck payments......................... — 5§ +
Consum er.....................................
Check
Payments
Employ
ment
-1
mo.
ago
EM PLOYM ENT A N D
IN C O M E
Factory em ploym ent..................
2
mos.
195 4
from
year
ago
Departm ent Store
- 1
-
5
-2
-
4 +
8 +
7 + 16 +
5 -
7 +11
Y o rk .................
-1
0
+ 1
+
2 -
5 +
1 +
4 -
1 -
3 +
+
1
-1 8
+ 11 - 1 6 +
1 -1 1
- 1 0 + 10
8
* N o t restricted to corp o ra te limits o f cities but covers areas o f one or
more counties.
19
@FedFRASER