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DECEMBER 1950
T H E
BUSINESS
REVIEW
FEDERAL
RESERVE
BANK
OF
PHILADELPHIA
DEFENSE — A BATTLE ON TWO FRONTS
A statement by Alfred H. Williams
NOTES ON REGULATION X
jSi«
AM1
Restriction of real estate credit
was designed to help restrain
inflation and to help divert some men
and materials from the housing
boom to defense production.
Alternative approaches to the
problem seemed more burdensome.
CAPITAL FOR THE WORKSHOPS OF
PHILADELPHIA
Capital expenditures for plant expansion
and modernization of equipment are again
on the increase in Philadelphia.
Local concerns are planning to spend
$110 million by September 1951.
That is 16 per cent more than the actual
outlays made during the preceding year.
Most of the contemplated expenditures
are going into plants making nondurables,
notably petroleum and other chemicals.
Little borrowing is required since
most concerns have adequate resources.
CURRENT TRENDS
October department store sales
were not in step with the expansion in
THE BUSINESS REVIEW
DEFENSE-A BATTLE ON TWO FRONTS
Communism is on the march and we in America are once again preparing to defend our freedom against
a foreign threat. But the heavy expenditures required threaten the stability of our economic structure. A
strong, stable economy at home is the keystone for effective action abroad.
These added defense requirements hit our economy when it is already riding the crest of a boom. Busi
ness and consumer spending, fed by a peak level of income after taxes and a record expansion of credit,
is already taxing our capacity to produce. The enlarged defense program now getting under way will
greatly intensify inflationary pressures. Defense production adds to incomes without adding to the supply
of civilian goods for these incomes to buy. As defense expenditures increase, the gap between total pur
chasing power and the supply of civilian goods widens. The result will be rising prices and inflation unless
positive steps are taken to mop up excess purchasing power.
One essential step in damping down the demand for civilian goods is for the Government to adopt a “payas-you-go-policy.” Sufficient income should be siphoned off by taxation to pay all of the costs of Government,
including defense. The recent increase in taxes was a step in this direction. Management of the Federal
debt should also be directed toward absorbing current income. Vigorous efforts should be made to sell
Savings Bonds and to channel other Treasury securities to non-bank buyers. The terms on refunding issues
should be attractive enough to induce reinvestment of the proceeds of maturing issues.
A second necessary step in preventing the demand for civilian goods from becoming excessive is to re
strict the use of credit. It is just as important to limit spending from future income as from current income.
The Federal Reserve System has already taken action to restrict expansion both in the total quantity of
credit and the use of credit for certain purposes. Regulations X and W help not only to restrain total
credit expansion, but also to reduce the demand for new home construction and for consumers’ durable
goods, thus facilitating the shifting of more men and materials to defense production.
These fiscal and monetary tools should be our first line of defense against inflation. They are more com
patible with the principles of a free economy and more suitable for a prolonged period of partial mobiliza
tion, such as seems to face us now. Direct controls by the Government, such as price control, wage control,
and rationing, interfere with the freedom of the individual in making many decisions. Neither do they
solve the problem of inflation; they merely suppress it. Unless drained off by fiscal and monetary policies,
excess purchasing power continues to accumulate and the problem of inflation must be faced as soon as con
trols are removed. Moreover, to rely on direct controls for a prolonged period might imperil the very
freedom we are spending billions to defend.
Effective action to check inflation and to maintain a stable economy is an essential foundation for a
strong national defense. Self-restraint, heavier taxation, and credit restrictions are a part of the price we
must pay to maintain our freedom. Higher taxes and credit restrictions are not added burdens which
would not have to be borne otherwise; rather, they represent less painful methods of meeting the burden
already imposed by foreign aggression. Our willingness to cooperate and to impose voluntary restraint is
a measure of the intensity of our desire to remain free. With unity of purpose and a sense of mutual respon
sibility, we can establish an impregnable defense.
(Sd^wl!
f^iUouu
President
Page 1
THE BUSINESS REVIEW
NOTES ON REGULATION X
Two months have passed since the issuance of Regula
tion X. For the first time, by action of Congress and the
President, the Federal Reserve System has been given
responsibility for the control of certain types of real estate
credit. Government has long had an interest in real estate
and real estate credit operations. The business community
and the general public have become accustomed to the ad
ministrative rules of the Federal Housing Administration
and the Veterans’ Administration in connection with loans
that are insured or guaranteed by those agencies. In view
of the long history of regulation in this field, it would ap
pear that the main concern attending the issuance of
Regulation X was not the fact that it is another regulation,
but the fact that it is a restrictive measure.
Why restrict real estate lending? For two basic, inter
related reasons: first, to help divert materials and man
power from the biggest housing boom this nation has
ever seen to defense purposes; second, to help restrain in
flation in the real estate field and in the economy generally.
Extremely “easy” credit, much of it guaranteed or in
sured, helped stimulate the demand for new housing in
1950. Outstanding home mortgage indebtedness has been
rising by about $5 billion a year, as compared with in
creases of about $2 billion a year during the prosperous
’twenties. Builders started about 1,400,000 housing units
during 1950 and, from all accounts, had no difficulty sell
ing them. With equally liberal credit terms and continued
high incomes, demand might have come near that level
again in 1951. But the best estimate that can be made
thus far indicates that after defense needs are met, mate
rials and manpower will be available for only 800,000
to 850,000 housing units.
The Alternatives
The difference between the supply of new homes and the
demand for them could be resolved in several ways. One
way would be to permit prices of materials and labor to
be bid up until the “surplus” buyers were priced out of
the market. To some extent this is what has happened
during the last year. “Over-scale” building wages are a
manifestation of it. The so-called “grey markets” are an
Page 2
other sign. In this process the Government, also a com
peting buyer, would be forced to spend much larger sums
of money; prices for existing real estate would be forced
to new highs; mortgage debt, based on inflated values,
would continue to climb at an accelerating rate, bringing
a growing headache to mortgage lenders and the danger
of heavy losses if the market should decline sharply.
A second alternative would be direct rationing of build
ing materials available after Government needs are met.
During World War II, Order L-41 gave us some experi
ence with this method. It would mean price control, and
allocation of labor and supplies by some central authority.
That authority would have to tell builders what to build,
where to build, when to build. It cannot work, of course,
unless price and wage controls and rationing are fairly
generally applied throughout the economy.
A third alternative is to restrict the demand for housing
by reducing the credit available to prospective purchas
ers. This is the method employed by Regulation X. It
is in this way, too, that Regulation W is meant to reduce
the demand for consumers’ goods. Together these two
“selective” credit controls may slow down the creation
of new purchasing power that is ultimately diffused and
which exerts upward pressure on prices throughout the
economy.
No one, least of all those who are responsible for ad
ministering Regulations X and W, believes that these selective controls can do the job alone. To be effective, they
must be coordinated with other measures in an integrated
program comprising general monetary controls and ap
propriate fiscal policies. While some degree of direct allo
cation of materials and limitation of resource use may be
unavoidable, depending upon the intensity of the defense
effort, Regulations X and W will go a long way toward
the creation of an adequate monetary-fiscal alternative to
all-out controls.
The Regulation Itself
The requirements of Regulation X with respect to lending
terms are three-pronged. They specify maximum loan
values, maximum maturities and certain amortization re-
♦
*
+
4
THE BUSINESS REVIEW
quirements. Any credit that is secured by “new construc
tion,” as the regulation defines it, or which is for the
purpose of “new construction,” is subject to the maximum
loan provisions, and no registrant may lend more than
the maximum allowed in any secondary form on any
collateral—with just one exception. Credit that is fully
secured by the loan value of a life insurance policy is
excluded from the prohibitions of the regulation.
The provisions of Regulation X are administered by the
Board of Governors and apply to “conventional” resi
dential real estate loans only—that is, to loans which are
not insured or guaranteed by any Government agency.
However, the concurrence of the Housing and Home
Finance Administrator had to be obtained in formulating
the regulation, and the Administrator, who has jurisdic
tion over Government-aided credit programs, had to see
to it, in turn, that the provisions of Regulation X were
applied as fully as was practicable to the FHA-insured and
VA-guaranteed loans. The G.I. retains a preference—
Congress, in the Defense Production Act, specified that
this was to be the case. But the result of close coordina
tion of the efforts of the Board of Governors and the
Housing and Home Finance Administrator has been the
issuance of rules and regulations that are in close con
formance on basic issues.
There are some rather important differences, however,
between Regulation X, covering conventional lending, and
the rules governing insured and guaranteed loans. The
Defense Production Act, upon which Regulation X is
based, provides that restrictions on “conventional” lend
ing shall apply to “new” residential building only, that is,
to new residences and major improvements and repairs
started after August 3, 1950. The Federal Housing Ad
ministration and the Veterans’ Administration have wider
authority, and in the case of loans guaranteed or insured
by them, the new provisions apply to existing as well as
“new” homes.
Another difference for lenders to bear in mind is a pro
cedural one. In the case of Government insured or guar
anteed loans, each application must, of course, be approved
by the agency concerned. Thus, the responsibility for
compliance with the rules in each individual case resides
to a large extent with the FHA or the VA. Once an appli
cation for loan insurance has been processed and has
been approved, the lender knows that the loan conforms
to the rules. If the loan does not conform, it is rejected.
In the case of “conventional” loans, however, the respon
sibility for observing Regulation X rests squarely on the
lender and the borrower. The Federal Reserve Bank is
not required to approve or disapprove each loan as it
is made. Real estate credit subject to Regulation X can
be arranged by lender and borrower, face to face, without
waiting on the opinion of a third party; but every reg
istrant under the regulation is responsible for observing
the provisions of the regulation and must maintain records
which show that he has observed them.
It is essential, therefore, that lenders understand the
mechanics of Regulation X. The Real Estate Credit
Departments of this Bank and of the Board of Gover
nors are making every effort to see that adequate infor
mation is widely distributed in this district. The Real
Estate Credit staff of the Federal Reserve Bank of Phila
delphia, headed by Herbert 0. Frey, Administrator, is
eager to clarify doubtful points whenever questions are
raised. The hundreds of queries received during the last
two months attest to a widespread and strong desire on the
part of bankers and other lenders to cooperate in the ad
ministration of real estate credit controls.
The Effects
The credit limitations imposed by Regulation X and the
FHA and VA vary in their impact on different segments
of the real estate market. Many conservative real estate
lenders, especially those whose statutory lending limits
are rather strict, will be little affected as far as their non
insured lending practices are concerned. Some com
munities where lending standards were high will be little
affected. But the regulation was meant to be restrictive
—it had to be to accomplish its purpose—and there is
no doubt that it will cut new building. Exactly how much
it will cut is difficult to say. Using the best information
available, it was designed to bring new housing starts
down to about 800,000 a year. If it becomes clear that
the terms of the regulation are undershooting or over
shooting the mark, or if defense requirements necessitate
a change in the goal, Regulation X can be liberalized or
tightened. The Federal Reserve Banks and the Board of
Governors will watch closely for indications that changes
are required.
Thus far it is almost impossible to gauge the effect of
Regulation X. Builders are still working on a large vol
ume of outstanding commitments and buyers can still
buy many new homes on the old, easy terms. It is ap
parent that long-range planning by builders has been cut
Page 3
THE BUSINESS REVIEW
considerably, but in all probability it will be late spring
before an adequate test can be made. Among the im
portant unknowns is the effect of higher down payments on
homes in the low-price bracket. Within the last year or
two, down payments on a very large proportion of such
homes have been considerably below the new minimum
requirements. Whether this means that all such buyers
will be put out of the market or not remains unanswered,
however. High incomes and large holdings of liquid as
sets may mean that the new requirements will bring a lot
of unused dollars out of the savings account—or out of
the mattress—and that homes will be purchased in larger
numbers than expected. We shall have to wait and see,
trying, in the meantime, to make the regulation work in
the hope that more drastic and more burdensome direct
controls can be avoided.
CAPITAL FOR THE WORKSHOPS OF PHILADELPHIA
“Spare money is called capital.” So once said the great
English playwright who was also a socialist, vegetarian,
and capitalist. Had he been as great an economist as he
was a playwright, he would not have confined his defini
tion of capital to footloose cash, because capital is more
than just spare cash.
Most capital is in the form of land, buildings, machin
ery, elevators, rolling stock, storage tanks, inventories,
nails, scissors, hammers and ladders, and all the other
paraphernalia of production. Everything the waterworks
owns is its capital no matter who owns the waterworks.
Trees in the forest are capital and so are trees on the
farm. In the United States there are exactly 1,182 dif
ferent kinds of trees—an amazing variety. There might
be almost as many varieties of capital in the forest of
American industry if anyone took the trouble to make a
count.
Economists divide all capital into two major classes—
circulating and fixed. Commercial bankers deal in the
former and investment bankers, the latter. The rest of
this article is about fixed capital. More precisely, it is
about capital being tied up or invested in the workshops
of Philadelphia.
Almost everybody knows that Philadelphia is one of
the country’s greatest centers of manufacturing. Curiously,
nobody knows just how much capital is invested in the
city’s 5,244 manufacturing enterprises. Worse still, no one
ever will know because it is forever changing. The term
“fixed capital” is really a misnomer. There is probably
nothing less fixed than fixed capital. It is always increas
ing and decreasing simultaneously; increasing by way of
physical additions and appreciation, decreasing by way
of physical destruction, natural deterioration, and also
depreciation and obsolescence. Sometimes, additions are
Page 4
ahead of deductions; at other times, additions fall behind.
Matters like appreciation, depreciation, and obsoles
cence border on the metaphysical; they are the happy
hunting grounds of the accountants. But gross additions
by construction of new plant or installation of new equip
ment are subject to census enumeration and special sur
vey. This Bank has just completed its fifth annual survey
of capital expenditures made by manufacturing concerns
in Philadelphia, as one means of finding out whether our
local economy is driving upstream or drifting down. As
always, we share the findings with you.
A SUMMARY
1. Manufacturing concerns in Philadelphia are planning
to spend $110 million on new plants and new equip
ment in the year ending mid-September, 1951. This
is considerably more—16 per cent—than was actually
invested during the year ended mid-September, 1950.
The increase halts the downward trend of investment
programs which began after 1947.
2. Producers of soft goods are contemplating the greater
part of the total new outlays; expenditures by the pro
ducers of hard goods will be practically unchanged.
3. The bulk of the new money will again go for replace
ment and modernization of existing facilities, but the
percentage earmarked for construction will be in
creased.
4. Capital needs will again be financed largely from in
ternal sources. Past earnings, retained current profits,
and depreciation reserves will make up 90 per cent of
the funds used for capital expansion.
5. Actual capital expenditures during the past year topped
the budget estimates made in September, 1949, by
12 per cent.
THE BUSINESS REVIEW
ESTIMATED CAPITAL EXPENDITURES - MANUFACTURING INDUSTRIES IN PHILADELPHIA
(In thousands of dollars)
Nov. 1947
to
Sept. 1948
Oct. 1948
to
Sept. 1949
Oct. 1949
to
Sept. 1950
To be spent
within next
year
All manufacturing .................................................................................................
Durable goods industries....................................................................................
Nondurable goods industries...........................................................................
130,130
28*431
101,699
111,261
32,833
78,428
94,895
31,623
63,272
110,033
31,893
78,140
Food and tobacco.................................................................................................
Textiles ..................................................................................................................
Apparel ..................................................................................................................
Lumber and furniture........................................................................................
Paper and printing..............................................................................................
Chemicals and petroleum..................................................................................
Leather ..................................................................................................................
Iron and steel.....................................................................................................
Non-ferrous metals ............................................................................................
Machinery (incl. electrical)...........................................................................
Transportation equipment.........................................................................
Miscellaneous.......................................................................................................
19,589
24,784
1,028
1,141
26,052
25,460
449
6,684
833
11,031
7,648
5,431
15,680
23,882
2,538
1,283
12,358
17,738
955
8,513
494
13,486
7,035
7,299
16,432
11,598
1,020
1,065
7,929
20,074
1,210
3,949
2,438
14,781
8,277
6,122
17,947
10,682
858
831
8,351
31,793
735
5,143
901
15,359
7,396
10,037
6. Manufacturing employment is considerably above that
of September a year ago and is expected to rise fur
ther for some months to come.
Capital Expenditures in 1951
The $110 million earmarked for the current year’s plant
expansion and installation of new equipment is $15 mil
lion, or 16 per cent, more than was invested during the
year ended in September, 1950. There is really nothing
phenomenal about the amount of the increase, but it is
the first increase in three years, as the table shows. Spend
ing for plant and equipment in this area is again up to the
’49 level but still considerably below 1947, when an in-
CAPITAL EXPENDITURES BY PHILADELPHIA
MANUFACTURERS
MILLIONS
MILLIONS
TOTAL
EQUIPMENT
CONSTRUCTION
1947
1948
1949
1950
1951
( PLANNED')
vestment peak of $153 million was reached. Peak expen
ditures on a nation-wide basis, you may recall, occurred
in 1948. Those were the days when the big talk in the
press was the Marshall Plan, the “cold war,” the ade
quacy of our steel capacity, and the big basing point con
troversy. Some of those issues have since cooled off and
others have gotten hotter.
Which Industries Are Spending the Money?
Manufacturers of nondurables will be responsible for al
most all of the contemplated increase in capital expendi
tures during the coming year. Also, over 70 per cent of
the total of the estimates has been planned by the indus
tries making soft goods such as apparel, textiles, chemi
cals and petroleum products, food, tobacco, paper and
printing, and leather products. On the other hand, pro
ducers of durables expect to spend just about the same
amount ($32 million) on construction and equipment in
1951 that they spent during the year just past. There are,
however, exceptions in both major groups, indicated in
the accompanying chart.
Contrary to the plans of most concerns in the nondur
able lines, capital outlays by firms in the textile industry
are being curtailed, and reductions are indicated for the
apparel and leather industries. In the durables, there is
no uniform trend. Planned increases in expenditures by
the iron and steel and machinery industries are almost
completely offset by the anticipated reductions of other
members of the group.
Not all manufacturing groups covered by the survey
are of equal importance in this area. Chemical and
Page 5
THE BUSINESS REVIEW
petroleum companies are again the biggest investors, as
they were last year. Their $32 million expansion pro
gram represents about 30 per cent of total estimated spend
ing; in fact, they plan to spend about as much as all the
city’s producers of durable goods together. The food and
tobacco and machinery groups are next in importance,
accounting for 16 and 14 per cent, respectively. The city’s
textile mills are to spend twice as much as the city’s steel
mills. That looks good for textiles, but then Philadelphia
has long been noted as a textile center.
Financing Capital Expenditures
CAPITAL EXPENDITURES 1950 AND 1951
1
CHEMICALS AND PETROLEUM
FOOD AND TOBACCO
MACHINERY (including ELECTRICAL)
TEXTILES
TRANSPORTATION EQUIPMENT
PAPER AND PRINTING
MISCELLANEOUS
toward more construction activity. For instance, the pro
ducers of chemical and petroleum products, while budget
ing roughly one-third more on construction than was spent
last year, have practically doubled their scheduled outlays
for new equipment. This may be due in part to the heavydepreciation customarily experienced in that industry. It
may also be noted that in textile mills only about oneseventh of their scheduled outlays are going into new
plant. This industry, unlike petroleum refining, for ex
ample, has a notorious flexibility of capacity depending
upon whether it operates in one, two, or three shifts.
V77777777K
IRON AND STEEL
NONFERROUS METALS
ACTUAL I960
LEATHER
PLANNED 1951
LUMBER AND FURNITURE
APPAREL
There will be no appreciable change during the coming
year in the sources of funds used for capital expenditures.
Manufacturers will rely upon their own resources—funds
derived from years of profitable operation—for about 90
per cent of the required amounts. In the 1946 survey, by
way of contrast, respondents reported that they expected
to use their own money for only 56 per cent of require
ments. Apparently, most firms are in a better financial
condition than they were four years ago.
Although industry generally is well off financially, there
are noteworthy differences in financial independence from
one industry to another. The lumber and furniture manu
facturers intend to borrow about 40 per cent of tbeir
requirements from the banks, but the transportation equip
ment and apparel firms, not a penny.
MILLIONS B
Construction vs. Equipment
Although the largest portion of capital investment funds
will continue to be spent on equipment rather than on
construction in 1951, there will be a shift in the relative
importance of the two categories with greater emphasis
upon building. About 44 per cent of all outlays is sched
uled for plant additions and modernization, as compared
to only 36 per cent in 1950. The ratio of construction to
equipment is expected to remain unchanged in the dur
able goods industries; it is the nondurables where in
creased construction is to take place. Expenditures in this
group are about equally divided between new plant and
new equipment. Significant factors in the changing pro
portions are the increases in construction estimates of
food and tobacco, and paper and printing industries.
Not all industries, of course, conform to the trend
Page 6
SOURCES OF FUNDS FOR CAPITAL EXPENDITURES
TO BE MADE WITHIN THE NEXT YEAR
Per cent
Own
Banks
Other
All manufacturing.....................................
Durable goods industries......................
Nondurable goods industries.............
90
91
89
7
8
7
3
1
4
Food and tobacco...................................
Textiles ....................................................
Apparel ....................................................
Lumber and furniture..........................
Paper and printing................................
Chemicals and petroleum...................
Leather.....................................................
Iron and steel.........................................
Non-ferrous metals ..............................
Machinery (including electrical) ....
Transportation equipment .................
Miscellaneous.........................................
88
90
100
61
91
87
90
87
77
90
100
100
12
8
2
(a) Less than .5 per cent
39
9
5
10
13
23
8
(a)
8
2
THE BUSINESS REVIEW
Anticipated and Actual Expenditures for 1950
Changing business conditions presumably caused business
men to revise capital investment plans during the past year.
Not only were total expenditures 12 per cent above original
estimates, but the proportions spent on construction and
equipment were revised.
The largest upward revisions were made by the pro
ducers of machinery, both electrical and non-electrical.
Expansion and improvement of facilities in this branch
were due in large measure to the exceptional demand for
television and other household plug-ins. Capital outlays
also were stepped up beyond original estimates by the
paper makers, printers, and textile people. In Philadel
phia, paper makers are predominantly so-called converters,
that is, producers of finished paper products rather than
manufacturers of raw stock.
In most industries the upward revisions were on equip
ment rather than on construction; in fact, total industry
construction fell behind original plans, as already indicated.
Actual construction fell short of plans by the greatest
amount in the chemical and petroleum groups. Contrary
to the general trend, actual construction outlays were
greater than planned in textiles, lumber and furniture,
paper and printing, leather, non-ferrous metals, machin
ery, and transportation equipment, but in some of these
industries the excess of actual over contemplated outlays
was small, probably due to rising prices raising construc
tion costs.
Capital Expenditures on a National Scale
Because of the difference in the period of time covered
by our local survey and the national surveys, only a gen
eral, not a precise, comparison can be made. Our local
survey is in line with latest estimates released by the Se
curities and Exchange Commission, which indicate an
upward turn in capital expenditures. Planned capital out
lays for the last quarter of 1950 had been raised $1 billion
by reason of the Korean War stimulus. Outlays by manu
facturing concerns in the last half of 1950 are now expected
to hit an all-time high. Expenditures in the last quarter
of this year, which corresponds with the first quarter of
our local survey for 1951, are estimated to be at a level 17
per cent above that of the last three months of 1949. If
this trend continues into next year, the nation’s capital
outlays in 1951 will, like those locally, be above those of
1950. Expenditures by the country’s manufacturers dur
ing 1950 were estimated at $6.7 billion at the beginning
of the year. They are now expected to reach $7.8 billion
-—an increase of almost 16 per cent compared with our
local advance of 12 per cent. However, one big difference
in the national and local trends is quite apparent. Phila
delphia firms did not top the preceding year’s expendi
tures in 1950 as did nationwide expenditures.
Trend of Manufacturing Employment
In harmony with the general trend, local manufacturing
employment increased from September, 1949, to Septem
ber, 1950. Expansion took place in both major manufac
turing divisions—durables and nondurables. Our survey
reveals that producers of durable goods, who had the
smaller number of workers in the aggregate, had the
greater increase in employment. However, all individual
groups, with the exception of apparel, chemicals and pe
troleum, and transportation equipment, reported gains
over a year ago. The machinery industries, so important
in this area, showed the most substantial rise in actual
numbers. Employment in the chemical and petroleum in
dustries continued to be rather stable. Those are the firms
that made the largest capital outlays last year and are
apparently the leaders also this year.
EMPLOYMENT BY
PHILADELPHIA MANUFACTURING FIRMS
In thousands of persons—
Sept. Sept.
1949
1950
(Actual)
Dec. March
1950
1951
(Estimated)
All manufacturing ..........................
Durable goods industries.............
Nondurable goods industries...
325
129
196
345
141
204
353
144
209
358
147
211
Food and tobacco........................
Textiles ...........................................
Apparel...........................................
Lumber and furniture.................
Paper and printing........................
Chemicals and petroleum...........
Leather ...........................................
Iron and steel...................................
Non-ferrous metals......................
Machinery (inch electrical) .. .
Transportation equipment.........
Miscellaneous.................................
40
38
30
5
44
19
8
34
6
54
27
20
41
40
29
6
45
19
9
38
7
62
26
23
40
41
32
6
46
19
9
39
8
63
26
24
40
41
34
6
45
19
9
40
8
64
27
25
Most industries anticipate further employment increases
during the next year. Several of them expressed concern
over possible shortages of skilled workers in the future.
Producers of nondurables expect employment to rise con
siderably until the end of the year and thereafter the rate
of advance will slow up. Producers of durables report that
a steady rise is expected for some months to come.
Page 7
THE BUSINESS REVIEW
INFERENCES
The facts you already have as above reported. They are
based on just a sample, but a good one. Half of the firms
polled were, as usual, too busy to reply but the half that
did reply represent all major classes of Philadelphia en
terprise in manufacturing. Few of the respondents made
verbal comments, so we shall have to make our own in
ferences from the facts supplied.
Last September a year ago, Philadelphia manufacturers
said they were going to spend so much on plant, but they
spent less; so much on equipment, but they spent more;
so much on both, but they spent more. Why? Primarily
because the profit outlook improved in the ensuing year.
When the September ’49 poll was taken businessmen had
not yet completely recovered from whatever it was that
hit them in the first half. But with vacations ending, cour
age returned and each succeeding month picked up more
strength. People kept on borrowing, building, and spend
ing. The profit outlook continued to improve. Probably
the chief reasons why outlays on plant construction failed
to exceed the estimates were the shortages of cement and
steel—indispensable building materials.
According to the latest survey, Philadelphia industrial
ists are planning to step up their 1951 outlays, particularly
for plant expansion, above last year’s expenditures. This
may be interpreted to mean that local businessmen expect
improved profit-making opportunities. The most apparent
change in the business outlook is, of course, the increased
Page 8
purchases by the Federal Government for national de
fense. However, it is easy to credit Korea too much for
our prosperity at home. Most of our prosperity arises
not from fighting abroad but “fighting” at home for the
goods and services that are scarce relative to the abundance
of dollars.
Capital expansion in Philadelphia, unfortunately, is not
being planned over a broad industrial front. Almost onethird is confined to one industry group—chemicals and
petroleum. Three reasons are in evidence. First, it is one
of the largest Philadelphia industries and therefore re
quires more capital to hold its position. Second, it is one
of the most highly mechanized industries. Just visit a
modern petroleum refinery and you will understand why
oil refining stands at the top of American industries in
capital investment per worker. Third, chemicals gener
ally and petroleum in particular are comparatively young
industries. They still have the vigor of youth character
ized by rapidly changing technology and expanding mar
kets.
Since the end of World War II, manufacturing con
cerns have spent about a half billion dollars on plant
expansion and equipment modernization. This looks like
an impressive performance, but there is really no standard
of measurement. Perhaps local businessmen should have
spent more to preserve the city’s reputation as an industrial
center. Industrialization of communities nearby seems to
be taking place at a faster rate, which may be more desir
able for all concerned.
THE BUSINESS REVIEW
CURRENT TRENDS
The steady rate of gain of business indicators which characterized recent months in the Philadelphia Federal Reserve
District slowed up somewhat in October. Output of oil and coal rose; in the industrial field, production, employment,
and payrolls increased, but only moderately. On the other hand, bank loans, deposits, and investments showed no change,
and department store sales fell from September levels. Construction declined because of a reduction in building other
than residential; however, even with the cutback, the total volume of construction was well above that of 1949. Nation
ally, the consumer price index extended recent gains and a new all-time high was reached. In Philadelphia, prices were
unchanged and still 0.6 per cent below the record set in August and September of 1948.
Although there was a slackening of new orders in October, Pennsylvania manufacturers enlarged labor forces and length
ened working hours in their endeavor to expand production. The durable goods industries rather than the nondurable
concerns did most of the stepping-up, but activity in both major divisions was well above the level of last October. Com
pared with last year, increases are most pronounced in hard goods, but allowance must be made for the coal and steel strikes
which depressed production in the fall of 1949.
Department store sales declined again in October but were above those of last year for the fifth consecutive month. While
sales were going down, stocks were going up. Consequently, some department stores have an unusually large volume
of merchandise on their shelves. With near-record employment and disposable income at a new peak, considerable op
timism regarding Christmas selling prevails. Apparently, merchants have stocked up in anticipation of a holiday busi
ness of huge volume.
The increase in business loans at weekly reporting banks in the Third District, while larger in November than in the pre
ceding period, was much slower than during the summer months. Real estate and consumer loans continue to expand. Invest
ments, which previously had been declining, increased through November 22, but decreased substantially in the last
week of the month.
The Nation’s privately owned money supply increased $1.3 billion in October and was more than $5 billion larger than
a year ago. Most of this increase was in demand deposits, reflecting the rise in bank loans. The rate of demand deposit
turnover was down slightly but still considerably above a year ago.
Third Federal
Reserve District
SUMMARY
United States
Per cent change
Per cent change
October
1950 from
mo.
ago
OUTPUT
Manufacturing production. .
Construction contracts..........
Coal mining..............................
EMPLOYMENT AND
INCOME
Factory employment.............
October
1950 from
mo.
ago
10
mos.
1950
from
year year
ago
ago
Sales
Stocks
Per cent
change
Oct. 1950
from
Per cent
change
Oct. 1950
from
Per cent
change
Oct. 1950
from
mo.
ago
mo.
ago
mo.
ago
mo.
ago
year
ago
year
ago
+ 1* + 26* + 1*
+ 3* + 47* + 7*
+ i
+ 23
+ 6
- 9 + 5 + 6
+ 6 + 21
mo.
ago
year
ago
+ 9
+ 39
+ 9
+ 29
+ l + 40 + 1 + 64
+ 8
+ 14
- 1 + 306 - 4 + 506
0 + 15 + 4
year
ago
year
ago
Per cent
change
Oct. 1950
from
+ 1 + 190 + 13 + 353
- 3
+ 40
+24
+ 5
+ 20
- 3
- 6
+u
+ 5
+ 12
+ 5
+ 3
+ 13
+ 1 + 5 + 4
+ 2 + 21 +10
0 - 4 + 5
0 - 8 + 3
0 + 22 +20
Of
0 + 11 + 2
0
#t + 1 + 4
+ 3t
+ 2 +
4 + 3 + 21
-5
+4
+ 17
+ 18
+ 17
Philadelphia......................
0
0
0
0
- 1
Lancaster...........................
+ 1 +
8 + 3 + 21
-2
+6
+ 14 + 26
+ 10
+ 15
Reading..............................
+ 1 + 13 + 5 + 27
-5
+5
+ 19
+ 2
+22
+ 12
+32
—8
+4
+ 13 + 10
+ 3
+ 13
-9
+2
+ 16
0 +
Wilkes-Barre.....................
+ 9
+ 2
+ 18
+ 14
+ 17
+ 8
‘Pennsylvania
••Adjusted for seasonal variation. fPhiladelphia.
- 1
+ 16
9 + 4 + 23
0
0 +
8
+ 6
+ 16
+ 1 + 24 + 4 + 41
OTHER
Payrolls
+ 3 + 60 + 2 + 86
PRICES
Consumers................................
L.heck
Payments
Employment
Per cent
change
Oct. 1950
from
LOCAL
CONDITIONS
+ 2* + 32* + 4* + i + 27 + 12
- 5 + 28 + 38 -10 + 16 + 45
+23 +ii + 8 + 8 + 194 + 16
TRADE**
Department store sales......... -10
Department store stocks.. .. + 3
BANKING
(All member banks)
Deposits.....................................
Loans..........................................
Investments..............................
U. S. Govt, securities.........
Other........................................
year
ago
10
mos.
1950
from
year
ago
Department Store
Factory*
- 5
+ 20
9 -11 + 29
+ 5
+ 29
+ 9
+26
-11 +
+ 2 + 24 + 13
York....................................
+ 4 + 13 +ii + 31
-8
-1
+ 14
+ 20
+ 17
♦Not restricted to corporate limits of cities but covers areas of one or more counties.
Page 9
THE BUSINESS REVIEW
EMPLOYMENT AND INCOME
MEASURES OF OUTPUT
Per cent change
Oct. 1950
10 mos.
from
1950
from
month
year
year
ago
ago
ago
MANUFACTURING (Pa.)....................
Durable goods industries........................
Nondurable goods industries.................
+ 2
+ 3
+ 1
+ 32
+ 61
+ 7
+ 4
+ 4
+ 3
Foods......................................................
Tobacco........................................................
Textiles.........................................
Apparel.........................................................
Lumber.........................................................
Furniture....................................................
Paper.............................................................
Printing and publishing...........................
Chemicals.....................................................
Petroleum and coal products.................
Rubber..........................................................
Leather.........................................................
Stone, clay and glass................................
Primary metal industries.......................
Fabricated inetal products ....................
Machinery (except electrical)...............
Electrical machinery.................................
Transportation equipment....................
Instruments and related products.........
Misc. manufacturing industries.............
+
+
+
+
+
+
+
+ 12
0
- 5
+ 7
+ 4
+ 23
+ 25
+ 9
- 2
+ 15
+ 37
+ 43
+ 5
+ 19
+ 275
+ 66
+ 29
+ 20
- 2
+ 24
+ 14
- 1
- 9
+ 6
+ 3
+ 4
+ 30
+ 9
- 2
+ 3
+ i
+22
0
+ 1
+ 13
+ 5
- 1
+ 4
-19
+ i
+ 9
COAL MINING (3rd F. R. Dist.)*..
Anthracite....................................................
Bituminous..................................................
+23
+ 26
+ 4
+ ii
- 2
+ 680
+ 8
+ 8
+10
CRUDE OIL (3rd F. R. Dist.)**....
CONSTRUCTION — CONTRACT
AWARDS (3rd F. R. Dist.)t...........
Residential...................................................
Nonresidential............................................
Public works and utilities.......................
+
+
+
+
+
+
+
-
2
8
1
5
5
3
1
4
1
0
5
3
8
1
3
7
3
5
+ 6
- 5
+ 3
- 9
-18
+ 15
+ 1
+
+
+
-
+ 38
+ 80
+ 33
+ i
28
57
47
23
*U.S. Bureau of Mines.
**American Petroleum Inst. Bradford field.
fSource: F. W. Dodge Corporation. Changes computed from
3-month moving averages, centered on 3rd month.
Pennsylvania
Manufacturing
Industries*
Indexes
(1939 avg. =100)
All manufacturing.. . .
Durable goods
Nondurable goods
Employment
Oct.
1950
(index)
Per cent
change
from
mo.
ago
Average
Weekly
Earnings
Payrolls
year
ago
Oct.
1950
(Index)
Per cent
change
from
mo.
ago
Average
Hourly
Earnings
%
1950
year
ago
%
year
ago
1950
year
ago
139
+ i + 26 369
+ 3 + 47 $59.44
+ 16
1.457
+10
161
+ 2 + 50 405
+ 3 + 77
64.68
+ 18
1.561
+ 9
+ 15
52.45
+ 10
1.312
+
+
+
+
+
14
13
32
36
15
51.42
36.12
53.94
39.56
45.35
53.51
59.98
+ 15
+ 10
+ 11
+ 10
+ 9
+ 8
1.244
.914
1.327
1.069
1.054
1.220
1.368
118
Furniture....................
Paper...........................
Printing and
Chemicals...................
Petroleum and coal
products....................
Rubber........................
Leather.......................
Stone, clay and
glass ...........................
Primary metal
industries.................
Fabricated metal
Machinery (except
electrical)..................
Electrical
322
89
87
140
176
154
145
+ 3
0
0
+ 3
+ 2
+ 2
308
246
+ 4 263
+ 1 391
+ 19 459
+ 25 447
+ 6 404
119
145
— 2 — 2 299
0 + 12 394
3 + 4
+ i + 25
71.25
64.49
+ 12
1.792
1.531
+ 7
156
245
93
- 1 + 45 391
+ 10 + 33 671
0 + i 248
- 2 + 44
+ 6 + 48
+ 5 + 15
75.32
67.90
45.64
- 1
+ 12
+ 14
1.848
1.652
1.153
- 2
+ 4
+10
139
+ 5 + 10 371
+ 8 + 27
61.36
+ 15
1.512
+ 8
134
+ 1 + 207 335
0 + 301
69.51
+ 31
1.716
+ 7
176
+ 1 + 54 457
+ 77
61.75
+ 16
1.472
+ 8
224
+ 3 + 17 588
+10 + 37
66.63
+ 17
1.533
+ 6
258
Textiles.......................
Apparel.......................
0
+ 4 + 19 562
+ 5 + 24
60.91
1.476
+ 2
Transportation
equipment................ 142
Instruments and
related products . . . 173
Misc. Manufacturing
I ndustries................. 150
- 2
+ 11
+ 5
+ 6
+ 6
+ 5
+ 3
+ 12
+ 7
+ 9
+ 9
+ 3
- 2 - 11 352
- 4 ~
1
70.47
+ 11
1.794
+ 7
+ 3 + 16 463
+ 8 + 32
61.23
+ 13
1.483
+ 6
+ 10 +
+ 14 + 22
53.03
+ 13
1.214
+ 7
9 390
♦Production workers only.
TRADE
Per cent change
Third F. R. District
Indexes: 1935-39 Avg. =100
Adjusted for seasonal variation
Oct.
1950 Oct. 195 0 from
(Index)
month
year
ago
ago
SALES
Department stores......................
Women’s apparel stores.............
Furniture stores...........................
279
211
-10
- 8
- 7*
+ 7
0
+ 2*
STOCKS
Department stores......................
Women’s apparel stores.............
Furniture stores...........................
283p
243
+ 3
+ 1
+ 9*
Sales
10 mos.
1950
from
year
ago
+23
+ 19
+ 24*
+6
-7
+8*
Departmental Sales and Stocks of
Independent Department Stores
Third F. R. District
Stocks (end of month)
% chg. % chg. % Chg.
Oct.
10 mos. Oct.
1950
1950
1950
from
from
from
year
year
year
ago
ago
ago
Ratio to sales
(months’
supply)
October
1950
1949
Week
Week
Week
Week
ended
ended
ended
ended
November 4.................
November 11...................
November 18..........................
November 25..........................
♦Not adjusted for seasonal variation.
Page 10
Per
cent
change
from
year
ago
11
- 2
+ 9
10
p-preliminary.
+ 5
+ 3
+25
3.3
2.8
Main store total.............................................................
Piece goods and household textiles........................
Small wares...................................................................
Women’s and misses’ accessories............................
Women’s and misses’ apparel..................................
Men’s and boys' wear................................................
Housefurnishings.........................................................
Other main store.........................................................
+ 6
0
+ 2
+ 4
+ 1
+ 9
+ 11
~ 1
+ 5
+ i
+ 2
+ 2
- 5
+ 5
+ 17
- 1
+ 25
+ 26
+ 24
+ 26
+ 16
+ 21
+ 32
+ 27
3.6
4.0
4.6
3.8
2.4
4.6
3.2
5.0
3.0
3.1
3.8
3.1
2.1
4.1
2.7
3.9
Basement store total....................................................
Domestics and blankets...........................................
Small wares...................................................................
Women’s and misses’ wear.......................................
Men’s and boys’ wear................................................
Housefurnishings.........................................................
Shoes...............................................................................
+ 2
+ 15
- 8
0
+ 8
- 1
- 2
- 2
+ 10
+ 6
- 7
+ 2
+ 2
- 1
+ 22
+40
+ 16
+ 20
+23
+ 28
+ 9
2.3
2.6
2.7
2.0
2.9
2.3
3.1
1.9
2.2
2.1
1.6
2.5
1.7
2.8
Nonmerchandise total..............................................
Recent Changes in Department Store Sales
in Central Philadelphia
Total — All departments............................................
+ 3
+ 3
THE BUSINESS REVIEW
CONSUMER CREDIT
BANKING
Receiv
ables
(end of
month)
Sales
Sale Credit
% chg. % chg. % chg.
Oct.
10 mos.
Oct.
1950
1950
1950
from
from
from
yearago yearago yearago
Third F. R. District
MONEY SUPPLY AND RELATED ITEMS
United States (Billions $)
- 1
+ 7
+20
+ 13
+37
Changes in—
four
weeks
year
Money supply, privately owned..........................................
173.0
+ 1.3
+ 5.3
Demand deposits, adjusted.................................................
Time deposits..........................................................................
Currency outside banks.......................................................
89.4
59.1
24.6
+ 1.3
0
0
+ 5.1
+ .6
- .4
21.5*
-1.8*
+ 12.6*
Department stores
+ 3
+ 10
+ 1
Oct. 25
1950
Turnover of demand deposits..............................................
Commercial bank earning assets.........................................
+ 3
+ 23
+ 5
- 2
+ 16
+ 13
Loans made
Loan Credit
Third F. R. District
+23
Loan
bal
ances
out
standing
(end of
month)
% chg. % chg. % chg.
Oct. 10 mos.
Oct.
1950
1950
1950
from
from
from
year ago year ago year ago
Consumer instalment loans
Commercial banks......................
Industrial banks and loan companies........................
Small loan companies................................
Credit unions.........................................
+28
+ 3
— 34
+ 13
+ 57
+ 7
-36
+27
+ 9
+ 12
+ 12
+ 36
124.5
+ .8
+ 5.0
U.S. Government securities................................................
Other securities.......................................................................
49 9
62.5
12.1
0
0
- 5.0
+ 1.9
Member bank reserves held..................................................
Furniture stores
Cash...................................................................................
16.6
0
+
.5
Required reserves (estimated)............................................
Excess reserves (estimated)................................................
15.9
.7
+ .1
- .1
+
-
6
.1
Changes in reserves during 4 weeks ended October 25
reflected the following:
Net payments by the Treasury.....................................
Gold and foreign transactions........................................
Decrease in Reserve Bank holdings of Governments.
Decrease in other Federal Reserve Bank credit. ...
Increase of currency in circulation...............................
Effect on
reserves
+ 7
— 3
— 1
— 2
— 1
Change in reserves....................................................
0
♦Annual rate for the month and per cent changes from month and year ago
at leading cities outside N. Y. City.
PRICES
OTHER BANKING DATA
Oct.
1950
(Index)
Index: 1935-39 average =100
Nov. 22
1950
Per cent change
from
month
ago
year
ago
Weekly reporting banks—leading cities
United States (billions $):
Loans—
Commercial, industrial and agricultural...................
Changes in—
four
weeks
year
210
234
218
199
Consumer prices
United States....................................................
Philadelphia......................................................
175
174
205
189
147
211
155
Clothing...........................................................
F uel......................................................
Housefurnishings...........................................
Weekly Wholesale Prices—U.S.
(Index: 1935-39 average =100)
Week ended
Week ended
Week ended
Week ended
November
November
November
November
7..........................
14..........................
21..........................
28..........................
All commodities
Farm
producls
211
212
212
213
239
241
243
244
17.0
2.2
5.2
.2
5.8
+ .f>
+ .1
+ .1
0
+ .i
+ 3.2
+ 2
+ .9
0
+ 1.5
30.4
39.6
77.9
+ .9
- .5
+ i
+ 5.8
- 2.8
+ 2.7
609
45
141
7
379
+ 14
+ 6
+ 7
+ 3
+ 126
+ 12
+ 38
- 3
+ 73
Total loans—gross......................................................... 1,181
Investments..............................................................
1,731
Deposits............................................................................
Wholesale prices—United States..................
Farm products.................................................
Real estate.......................................................................
To banks....................................................
All other..............................................................................
+ 32
+ 24
+ 26
+ 246
- 97
+ 146
0
-1
+ 11
+ 11
+i
+n
Total loans—gross.........................................................
Investments..............................................................
Deposits..................................................................... .
+1
0
+ 4
+ 3
Third Federal Reserve District (millions $):
Loans—
Commercial, industrial and agricultural...................
+i
+1
+4
+1
+ 2
Foods
219
223
224
225
+ 10
Other
200
200
200
200
Real estate...................................................................
To banks............................................................................
All other.........................................................................
Member bank reserves and related items
United States (billions $):
Member bank reserves held.......................................
Reserve Bank holdings of Governments..................
Gold stock..........................................................
Money in circulation......................................................
Treasury deposits at Reserve Banks.........................
16.6
19.3
23.1
27.5
.5
Federal Reserve Bank of Phila. (millions $)
Loans and securities........................................................ 1,294
Federal Reserve notes.................................................... 1,638
Member bank reserve deposits.........................
769
Gold certificate reserves...............................
1,256
Reserve ratio (%)..............................................
49.2%
+
+
+
+
+
+
-
0
.1
.2
.3
.i
U
23
22
1
-4%
+
+
+
.6
1.6
1.4
.1
.i
+
+
+
+
-
82
27
26
8
19%
Source: U.S. Bureau of Labor Statistics.
Page 11
*
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THE THIRD FEDERAL
RESERVE DISTRICT
»
TABLE OF CONTENTS-1950
THE
BUSINESS
REVIEW
FEDERAL
RESERVE
BANK
OF
PHILADELPHIA
The Business Outlook: Short- and Longer-Run
..........................................................................................
Money Can Easily Get Out of Hand
...................................................................................................................................
January
February
Quest for Stability
......................................................................................................................................................................................................................
Tools of Federal Reserve Policy
March
................................................................................................................................................................
April
.......................................................................................................................................................................................................................................
April
Deposit Survey
Stability—A Mutual Responsibility
...........................................................................................................................................................
May
Cement Stacks Are Smoking on the Lehigh
June
Financial Strength of Business
June
.........................................................................................................................
...........................................................................................................................................................................
Boom, Bust, or Balance: A Mid-Year View
...................................................................................................................
Korean Crisis and Business
The Broiler Peninsula
...........................................................................................................................................................................
August
......................................................................................................................................................................................................
August
The Anatomy of the Building and Mortgage Boom
..................................................................
September
Pennsylvania Petroleum: A Sketch in Oil
.............................................................................................................
V-Loans
July
1950 Model
—
................................................................................................................................................................................
October
November
Defense—A Battle on Two Fronts
...........................................................................................................................................
December
Notes on Regulation X
......................................................................................................................................................................................
December
Capital for the Workshops of Philadelphia
...............................................................................................
December
@FedFRASER