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DECEMBER 1 9 5 6

business

4v iew

DERAL RESERV

ANK OF
PHILADELPHIA




N SY LV A N IA IN TH E IN TER STA TE
PEDE FOR N E W IN D U S TR Y
P a rt I? The Stampede
time when most of the country's manufacturing was
in about a dozen favored industrial states including
Pennsylvania. In the post-war industrial building boom
all states are out for new plants. It's a regular stampede.

There wa

1 9 5 7 : FACTS, FIG URES, AND
W IS H F U L TH O U G H TS
Facts and figures buttress confidence in the business outlook.
1957 should be a good year, perhaps a $431 billion year.

CURRENT TREN D S
Christmas buying started late in the department stores,
but Third District merchants look for another good season.

Additional copies of this issue are available
upon request to the Department of Research,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pa.




PENNSYLVANIA IN THE
INTERSTATE STAMPEDE

1
Part I: The Stampede
Did you know that American manufacturers are

Oklavania is precisely the place for a new plant;

putting up more new plants than ever before in

how could the engineers have overlooked it! It has

our entire history? That is a fact. It can be proved

a salubrious climate, a sizable part of the coun­

with the help of numbers, and bye and bye we

try’s population within a moderate radius, abun­

shall do so.

dance of good, sparkling water, three trunkline

Did you know that every state in the Union is

railroads, lots of room for expansion, labor that

trying to outbid all other states to get the new

is reasonable, taxes a mere trifle, a land of oppor­

plants? Even the governors are getting into the

tunity. As progress goes, so goes Oklavania.

act. Suppose a “ blue chip” company is thinking

Why the boom in factory construction and

of putting up a new plant. The news leaks out

plant modernization? Why are all of the states

shortly after the board meeting adjourns. The next

and numerous cities going all out to get the new

day while the president is reading his mail, his

plants? How are the states and some of their cities

secretary hands him a visitor’s card and says,

going about the job of getting the new industrial

“ The Governor of Oklavania wishes to see you.”

establishments? The answers to these and some




3

b u s in e ss re v ie w

related questions will be sought in a series of

boardrooms, drawing rooms, pullman cars, legis­

articles of which “ Part I: The Stampede” might

lative halls, service clubs, women’s clubs. You may

well be the beginning. Where and when this ex­
ploration will end we do not exactly know our­

remember the story about Johnny who flunked in
spelling but got an “ A ” in Postwar Planning. The

selves, but we think we know how and why the

hard times of the thirties were still hard on the

stampede began.

minds of the people who bore scars of the Great
Depression. The collapse was regarded as the in­

STA G N A TIO N — TH E A N TEC EDENT
TO TH E STA M PED E

evitable consequence of World War I, so, wouldn’t
an even greater war bring about an even greater

Remember the dying days of the pre-atomic age!
At the time, we were in the midst of World War II.

postwar depression?

Everybody who could fight was in the armed

thing happened. Thus far at least, history did not

forces, and almost everybody else was busy mak­

repeat itself. On the contrary, we have “ never had

ing the weapons and wherewithal to win the fight

it so good” — to borrow a favorite phrase of

As everyone now knows full well, no such

and to live. Compared with a pre-war base year of

whichever party happens to be in power. Ever

peace, like 1939, the country’s economic activity

since the end of the war, we have had one long

had more than doubled; Government purchases

period of prosperity, with only a few minor inter­

of goods and services (swords and plowshares)

ruptions— one in 1949 and another in 1953-1954.

had increased sevenfold: and unemployment, a
pre-war curse, had virtually evaporated.
Almost half of the country’s toil was attribut­

R o llin g re a d ju stm e n t
The gloomy wartime prophets didn’t think about,

able to the war effort, that is, was accounted for

or underestimated, the war-born backlog of de­

by orders from Uncle Sam. This is in terms of

mand for automobiles, houses, household appli­

gross national product— a term so dear and

ances, and the war-born accumulation of purchas­

meaningful to economists and so dull and dumb­
founding to others.

Government bonds, and other savings. They also

Inasmuch as it took a great war to banish the

failed to foresee, or underestimated, the growth

scourge of unemployment, it was widely feared

and shift in population and the baby boom, the

ing power in the form of checking accounts.

that when the war prop would be kicked out from

newly acquired taste for beefsteak and hors

under the economy, unemployment would re­

d’oeuvres on the part of many people previ­

appear with all its loathsome evil. Post-war un­

ously accustomed to fatback and hominy, the

employment ranging from 6 million to 12 million

terrific wartime depreciation and obsolescence of

was widely predicted by some of the most re­

productive capacity, the foreign-aid program.

spected predictors— official and unofficial.

Neither the pessimists nor anyone else could have

Postwar Planning was the talk of the times. The

foreseen the 38th Parallel, the Gaza Strip, the

phrase meant, “ What can we do now in the middle

localized “ hot wars”

of a war by way of planning to prevent an eco­

seemingly interminable “ cold war.”

and the worldwide and

nomic collapse after the w ar?” Everybody talked

But for the two moments of weakness, the post­

about postwar planning. It was heard not only in

war period has been one of persistent growth and

conventions of economists but everywhere— in

expansion. Whenever one or two lines of business

4




b u s in e ss re v ie w

TH E IN TE R S TA TE STA M PED E

activity were lagging, there was enough strength
in all other lines to keep the economy on the up

With so much industrial expansion going on, it is

and up. This process whereby the good almost

easy to see why one state after another joined the

inevitably outweighs the bad has come to be

stampede. A new industrial establishment is a new

known

source of income that enriches the people of the

as “ rolling readjustment” — a simple

phrase to describe a supple economy.
Behold a ll the new fa c to rie s!

state in many ways, it utilizes local resources, it
enhances real estate values, and, of course, is in
itself a new source of taxes. In short, a new indus­

One of the big wheels in the rolling readjustment

trial enterprise, if it prospers, looks like a jewel.

has been— and continues to be— plant expansion

An abundance of jewels, however, brings with it a

and modernization of equipment. Just take a trip

bundle of problems which the states may be over­

almost anywhere and you will be amazed to see

looking.

the number of bright, new, long and low factory

The railroads— so far as we can discover— were

buildings that are taking the place of the musty,

the first to appreciate the value of new industry

old, multi-story monstrosities of a generation ago.

and they were the first to do something about it.

Now, factory buildings come in all sizes and

A new industrial enterprise anywhere along the

they are used for a variety of purposes; so there

line of a railroad means additional carloadings —

would be little point in counting them. A better

bringing in building materials to build the factory

way to portray the fantastic and phenomenal

itself and the homes of the workers, and an

growth would be to turn to the figures of dollars

interminable list of necessities such as furniture,

spent for plant expansion and modernization.

food, etc., and also to carry out the manufactured

According to the surveys periodically con­

products of the enterprise. As early as 1889, the

ducted by the Department of Commerce and the

B. & 0 . had full-time “ industrial agents.” Now all

Securities and Exchange Commission all business

large railroads have industrial departments.

is currently spending $38 billion a year for plant

Chambers of Commerce were also among the

expansion and modernization. Manufacturing in­

early birds. Originally, their major interest was

dustries alone are spending $15 billion a year

centered largely around retail trade, but they were

which is in contrast with $7 billion spent in 1946.

quick to see that new industries help not only

For the entire period from 1946 to the present,

retail trade but also everything else.

total outlays by manufacturing industries come to

The electric utility is another natural to em­

$111 billion. That compares with $75 billion as

brace new industry with open arms. In a recent

the replacement value of the country’s manufac­

issue of the American Banker, Robert T. Lee, Area

turing facilities in 1944, according to an estimate

Development Manager of the Connecticut Light &

by the War Production Board. Even after allow­

Power Company, reminds us that as early as 1899

ing for dollar shrinkage, $111 billion of new plant

a California electric utility company was organ­

and machinery is still a fantastic record. Ten or

ized for the express purpose of providing power

11 years ago no one in his right mind would have

to pump water for the irrigation and development

dared to make a forecast of what has really come

of new agricultural areas. In those days, most in­

to pass.

dustrial concerns made their own power, but all




5

b u s in e ss re v ie w

that has since changed. Most industries now buy

buildings. Many additional industrial develop­

their power from an electric utility. Fully two

ment corporations were formed during the 1930’s

decades ago the Philadelphia Electric Company’s

when the universally “ foul weather” brought ad­

sales department actively began seeking new in­

ditional grief to blighted communities.

dustry, and more recently established a separate

Obvious drawbacks of local industrial develop­

set-up

ment corporations are their local nature and their

which is now typical of all progressive electric-

limited fund-raising abilities. A state agency has

power companies.

state-wide authority, state-wide administrative

industrial

development

department— a

machinery, and state-wide financial resources.
In d u stria l developm ent corporations

Such an agency easily fits into the state govern­

An industrial development corporation is an

ment and can be built right into the governor’s

amorphous organization that may or may not sell

cabinet, as it is in Pennsylvania and some other

stock, that may or may not acquire property but

states. These agencies go under various names,

it transacts business or incites others to do so and

such as a Development Commission or a Planning

it has a definite purpose. It is created to diagnose

Council or the Department of Commerce. By

community needs and to supply or obtain finan­

latest count, 46 of the 48 states have such agencies.

cial aid for prospective new or expanding local

Some of these agencies are children of adversity

industry. When oil, and later gas, became the

and others are the offspring of prosperity— the in­

popular fuels for space heating, the anthracite

dustrial building boom. Emergence of the state

region of eastern Pennsylvania became a problem

agency not only enlarged the geographical extent

area. The once flourishing industrial communities

of area development, but also introduced the op­

in these regions endured hard times, out of which

portunity to round out industrial development

grew the industrial development corporation.

with basic long-range planning.

One of the earliest to be organized was the
Scranton

Industrial

Development

Company,

founded in 1914. Wilkes-Barre’s Wyoming Indus­

TH E M O DUS O PERA N D I
For reasons that are quite apparent, each state

trial Development Fund was established in 1939

agency, no matter what it is called, has a two-fold

for the purpose of bringing in new industry to

purpose of inducing new industries to come in and

employ hard-coal miners out of work in that area.

of preventing industries from moving out of the

Altoona Enterprises, Inc., was formed in 1946 be­

state. The modus operandi takes many forms.

cause the shift from coal-burning steam locomo­

Some of the earlier inducements took the form of

tives to oil-burning Diesels left Altoona, a predom­

land grants, freedom from taxes or preferential

inantly railroad carshop town, in bad shape. For

rates for a number of years, or rent-free buildings,

further analysis and re-analysis of activities of

etc. Cities and smaller communities, not the states,

industrial development corporations in the Third

first used such devices.

Federal Reserve District, see our Business Review

State agencies, as they now operate, are headed

for December 1949 and December 1952. In brief,

by the best talent the states can afford or that the

industrial development corporations usually build

legislatures think they can afford. The top admin­

plants for companies that lack the capital or do

istrator is likely to be a member of the governor’s

not wish to tie up their limited capital in land and

cabinet. He is a man with experience, vision, and

6




b u s in e ss re v ie w

drive. He thinks like an engineer, acts like a real-

attract particular industries to attain industrial

estate salesman, talks like a politician, and looks

diversification.

more relaxed than he is. He must be conversant

stresses the state’s leading port— like the port of

with

statistics,

Boston in Massachusetts, or the port of Indiana

weather and taxes, timetables and water tables,

anticipating the opening of the St. Lawrence Sea­

area

planning,

research

and

Occasionally,

the

advertising

freight rates and wage rates, and all the other

way. In the state of Washington attention is being

things that influence a company’s choice of a

directed toward port improvement for the purpose

location.

of attracting industry.

It pays to a d ve rtise

vertising over and above the conventional types.

One of the things that almost every state and many

Tennessee and Florida, for instance, have issued

cities are doing is advertising their desirable lo­

attractive and well-illustrated brochures that tell

cational features in leading business newspapers

the story in colorful glory. Nevada also issues a

and magazines. You could not have failed to see

booklet of basic data which is sent out to pros­

some of these ads because they are quite plentiful.

pective clients, together with a personal letter from

The ads no longer follow a standard pattern as

the executive mansion.

Other states have devised unique forms of ad­

they once did, in which the name of any state or

Kentucky conducts site-seeing tours to show de­

city could have been inserted without much twist­

sirable sites available in the Blue Grass State. New

ing of the truth. The present tendency is for each

Jersey issues an analysis of taxes in the major

area to call attention to its own particular out­
standing advantages. Arizona stresses its healthful

Eastern Seaboard states. When it comes to taxes,
however, Puerto Rico, which is also in the com­

climate, conducive to keeping absenteeism at a

petition, has all the states licked. Her ads point out

minimum; a group of electric-power companies

that corporations locating in Puerto Rico are

in Arkansas, Louisiana, and Mississippi calls at­

exempt from federal corporate income taxes. A

tention to “ the forest products you need are in

corporation in the United States with a net profit

the middle South.” Missouri’s Division of Re­

after taxes of $29,500 would have a net profit of

sources and Development says, “ Splendid water-

$50,000 in Puerto Rico. A company with a net

plenty sites for industry in river-rich Missouri” ;

profit of $485,500 after taxes would have a net

Georgia’s Department of Commerce says, “ More

profit in Puerto Rico of a cool million dollars.

power to help you save production and distribu­
tion costs by locating in Georgia,” and another

“ Redding up” fo r company

Southern state points out that it has, “ a business­

When the Pennsylvania Dutch housewife invites

like state government.”

guests, she engages in extensive preparations by

Some states, heretofore predominantly agricul­

way of dusting the house, sweeping it clean, and

tural, are seeking a better-balanced economy by

removing all the conventional household flotsam

inviting any and all kinds of industry. An example

and jetsam. Then she cooks and bakes, sets out

is Mississippi, long known for its B.A.W.I.— or

the company china, and cuts flowers from her gar­

balanced-agriculture-with-industry— plan. Some­

den for the vases. The entire process is called

times a state, but more likely a city, topheavy in

“ redding up.”

one line of industry, does selective advertising to




In similar fashion the various states are busily

7

b u s in e ss re v ie w

preparing for company and the “ redding up”

gether with such other appurtenances as are neces­

process consists of the same two major types of

sary to convert a cow pasture into a desirable plot

preparation. The one type of preparation, which

on which to build. The well planned Industrial

might be called negative, is the removal of ob­

Park is concerned not only with good physical ar­

stacles. The other, which might be called positive,

rangements but also insures compatibility of

is setting forth the best wares or even buying

tenants.

new ones.

Some states are now setting up Development

First, let’s consider the negative types of “ red­
ding up.” Some states, like Washington and Mas­

Credit

Corporations,

such

as

various

cities

sachusetts, are launching port-improvement pro­

York’s Development Credit Corporation is said to

grams to facilitate the inflow and outflow of the

be the largest. The Wisconsin Development Credit

raw materials and finished products in local,

Corporation, which is privately financed and oper­

throughout the country established long ago. New

interstate, and international commerce. North

ated, provides industrial expansion risk capital

Carolina is busily engaged in reexamining its tax

not available through normal bank channels. The

structure to see whether it can be made more pal­

Pennsylvania Industrial Development Authority

atable to industry. Louisiana has approved tax

is empowered to make second-mortgage loans to

exemptions on industrial property valued in ex­

community, nonprofit corporations in labor-sur­

cess of a certain amount, which is said to have

plus areas. The state of Maine is considering a

borne fruit in the way of bringing in some new

plan somewhat analogous to this in which the con­

industrial firms. Kansas proposes to exempt pur­

struction of industrial buildings is to be stimu­

chases of machinery and equipment from state

lated by a plan of mortgage insurance similar to
FHA.

sales and use taxes.
Kansas is also proposing to take action in the

The various plans mentioned above are not a

way of various forms of positive “ redding up.”

complete enumeration, but a representative sam­

The Sunflower State is considering, among other

ple of some of the things the states are trying to

things, an amendment to the state constitution en­

do by way of preparing for company.

abling it to engage in water conservation and
flood-control projects. New Hampshire is going in

Looking into the m irro r

for Industrial Parks. The legislature has author­

Research is the more conventional and elegant

ized a million dollars of state credit to start an

word to convey what we mean by looking into the

Industrial Park Authority with power to develop

mirror insofar as a state is concerned. Some states,

industrial sites and buildings for sale to private

as a preliminary step toward inducing new indus­

concerns. Use of state funds is contemplated only

try, engage in research; in fact, almost all states

for initial development, with the money to be re­

engage in research if the term is used in its broad­

turned to the state as projects are completed. An

est and most charitable sense. There are, however,

Industrial Park is a plot of land suitable for in­

various kinds or degrees of intensity of research

dustrial sites that is not only set aside by the state

depending upon who does it and what is paid for

for that purpose but also developed, that is, laid

it. A state, like an industrial concern, may buy a

out in plots of various size— the whole Park hav­

little $10,000 block of research— sometimes re­

ing streets, gas, water, and sewage mains, to­

ferred to as a “ quickie” — or it may buy a big

8




b u s in e s s re v ie w

block that costs a million dollars or more. The

up a program designed to bring in new industry.

choice depends upon how deep you want to dig

Probably one reason why so few states engage

and how much time and money you have for the

in genuine research is because research is slow

“ diggins.”

and requires a lot of thinking. Politicians, like

Almost all states issue economic data about the

businessmen, want action, results— and they want

state. Much of this information comes right out

them in a hurry. No amount of research will pro­

of the Census volumes, and the work of collecting

duce miracles. Nevertheless, states might do well

the figures you want and putting them together in

to look into the looking glass because self-analysis

booklet form might be termed “ research” in its

is a prerequisite for industrial development.

simplest form.
HOW

A somewhat higher form of research is the util­

A CITY LIFTED ITSELF

O U T OF TH E D O LD RUM S

ization of not only readily available Census data
but all other sources of information. A seasoned

In the matter of bringing new industry into the

researcher is familiar with the multitudes of

area, a number of cities have done a better job

sources, has a sufficiently discriminating mind to

than most, if not all, of the states. One of the best

appraise their reliability, and is also familiar with

city plans is that of Toledo.

the well-recognized tools and techniques of re­
search procedure.
To the best of our knowledge, few, if any, states

W h e n Toledo w as in tu rm o il
Time was when Toledo was in trouble! It was an

are engaging in research consistent with their

automobile parts town and its business “ upsy-

sovereign dignity or, if they are, the results have

downsyness” was rocked still harder by labor-

not yet come to public attention. Some states,

management difficulties— called labor trouble by

however, have taken at least the first step, namely,

management or management trouble by labor. In

taking stock of their resources and perhaps their

short, Toledo was a town full of trouble.

liabilities. A number of states have hired compe­

So, one day about 10 years ago in a downtown

tent research personnel, but all too often the re­

Toledo hotel room, three men had a vision. One

search budget is inadequate and too much of the

man was a merchant, one was a manufacturer,

time of the research people is taken up by other ac­

and the third was a producer and purveyor of

tivities, like answering telephone calls, writing let­

kilowatts. The dream they dreamed was the

ters, entertaining callers, or almost anything other

Toledo Industrial Development Commission—

than research. A number of states, including Penn­

T.I.D.C.

sylvania, farm out certain research projects to col­

Next, they called a meeting of the city’s leading

leges or universities either within or outside the

labor leaders in a bigger room of the same hotel,

state. For example, one research project farmed

but a room not big enough to include the press. At

out by Pennsylvania is a special study of wood

that meeting there was some plain talk— some­

utilization because Pennsylvania has, among other

thing to the effect that we in Toledo are all in the

things, considerable timber resources. Wyoming’s

same boat; we can either sail or sink, but which­

State Natural Resources Board is planning to call

ever it is we’ve got to go together. The result of

in, on a consulting basis,, one of the country’s

all the talk was the T.I.D.C., of which labor

leading professional research organizations to set

bought a share, the Toledo Blade bought a share,




9

b u s in e ss re v ie w

and industry bought the biggest block. Man-days

Most of the time, however, the executive secre­

lost by strikes declined from 233,000 in 1946 to

tary

32,000 last year. Still not quite perfect sailing but

prospective new industry for Toledo. Toledo has

much smoother.

an Industrial Park — an 89-acre plot of choice

The T.I.D.C. headquarters aren’t much to look
at— just a small office on the fourth floor of a
downtown building that houses an executive sec­
retary and an office secretary. A half partition that
separates the two occupants gives an air of semi­
privacy to the visitor calling on the executive sec­
retary, and there’s not much else in the office
except a few chairs for guests.

is hurrying

somewhere

in quest

of

a

industrial land strategically located alongside an
interchange of the Detroit-Toledo Expressway.
More than two dozen new industries have come
into Toledo as a result of the efforts of the T.I.D.C.
When not busy following a “ lead,” the executive
secretary goes to Detroit, Chicago, or elsewhere
and makes “ cold calls” at the head offices of the

A little and unimposing office, to be sure, but it

largest companies, doing missionary work for

is the headquarters of a big idea. The big idea that

Toledo. He himself will admit that this is not the

the little office houses is that Toledo can be made,

most productive way of finding “ hot” prospects,

and was made, an attractive town for industry.

but by this method he occasionally scoops one up.

The Toledo Plan has two basic planks, namely,

When the executive secretary of an organization

industrial peace and industrial progress.
If a new building goes up in Toledo with glass
girders and there is a jurisdictional strike about
to break out involving the steel workers and the
woodworkers, who theretofore had had the girder
business to themselves, the executive secretary

like T.I.D.C. has the complete backing of the city
government and the leading newspaper and the
leading industrialists and the bankers and the
labor leaders, success is guaranteed.
There are other cities that have done or are

hotfoots it to the scene of battle formation and

doing remarkably well in attracting new industry.

says, “ Remember the Toledo Plan. There will be

But this must be deferred because we want to turn

no strike.” — or something to that effect, and usu­

our attention to Pennsylvania. That will be the

ally there isn’t.

subject of the next instalment.

■■■■■■■■■■■■■■■■■■■■■■

10




b u s in e s s re v ie w

1957: FACTS, FIGURES,
AND WISHFUL THOUGHTS
Confidence is wonderful!

such it absorbs about 19 per cent of our national

It’s frequently the difference between a cham­

output. This spending is up about $3 billion from

pion and an “ also ran.” It gives a sense of assur­

1955, but is still short of the level reached in 1953.

ance, and actions reflect it. Those who have it are

Government spending breaks into two main parts

able to do and say things that others wouldn’t

— Federal, and state and local. After declining

attempt.

sharply in 1954, Federal spending levelled in 1955

When confidence pervades large groups of

and 1956. State and local government spending

people, like businessmen and consumers, it usu­

has been increasing by about $2 billion or so each

ally means good things ahead. Buying plans are

year since 1946.

stronger for it. New ideas find favorable recep­
tion. Larger totals loom on the horizon.

Federal spending in 1 9 5 7

But, like all good things, too much confidence

Major decisions within the Administration con­

is bad— real bad. It causes champions to lose to

cerning Federal spending for the next fiscal year

third-raters. It replaces calm self-assurance with

have yet to be made. But looking forward to cal­

swaggering braggadocio. When it plagues large
groups like businessmen and consumers, it means
trouble ahead.
The question is, “ When is confidence overcon­
fidence?” One answer might be, when it is not
solidly based; in other words, when facts and fig­
ures are forgotten and when wishful thinking
underlies confidence, look out!
This year almost everyone seems confident
about the business outlook— so confident as to
cause just a little apprehension. Is it overconfi­
dence? Let’s see; let’s take a look at the facts and
figures, dreams and wishful thoughts behind the
confidence in the business outlook.
A convenient way to do this is to take the econ­

endar year 1957 it is difficult to see how spending
could be reduced. The only question seems to be,
“ How much higher will it g o ? ”
All indications point toward higher spending
for both military and civilian purposes. As far as
the military is concerned, price increases alone
suggest higher totals. In addition, new inter­
national tensions might enlarge the defense pro­
gram somewhat and swell allowances for foreign
aid. Over-all, spending on national security could
rise by about $2 billion next year.
1957 will be the first year to feel the full impact
of the National Highway legislation. Although
this spending will be treated as a special trust fund

omy apart, sector by sector, and analyze the

outside the administrative budget, aid to high­

prospects.

ways may hike Federal spending by $500 million
or so in 1957.
G O V ERN M EN T SPEN D IN G

To sum it up, it looks like Federal spending for

All Government spending for goods and services

goods and services could rise by $3 billion in

in 1956 will probably total about $80 billion; as

1957 to $50 billion.




11

b u s in e ss re v ie w

Sta te and local governm ent

BUSINESS SALES AND INVENTORIES

spending in 1 9 5 7

INDEXES, 1 9 4 7 -4 9 = 100

State and local government spending may also be
stepped up somewhat as a result of the Federal
highway program. The details of this program call
for participation by state and local governments.
Spending on schools should also be strong in 1957.
And, of course, higher wage and construction
costs will put pressure on the costs of all these
programs. An increase of at least $2 billion in
state and local spending seems probable.
The possible increases in Federal, and state and
local spending add up to about $5 billion. This
would take total Government spending from about
$80 billion in 1956 to $85 billion in 1957.
B U S IN E SS IN V E STM EN T

Source: C o m m erce

Business spending in 1956 will probably total
about $50 billion. It accounts for about 12 per

lion worth— just as they own a gigantic block of

cent of total spending. When total economic activ­

plant and equipment. The important point as far

ity expands or contracts, this kind of spending

as the outlook is concerned is whether this stock

frequently shows the sharpest rates of change.

will be augmented or depleted. When businessmen

It is sometimes difficult to understand why busi­
ness spending, as represented in Gross National

invest in more inventory the effect is to add to
total spending and quicken business activity.

Product accounting, is smaller than either Gov­

Since the end of 1954, businessmen have been

ernment or consumer spending. It is because

adding to their inventory totals. In spite of this

G.N.P. measures final product only, and that part

consistent accumulation of inventory, business­

of G.N.P. assigned to business spending includes

men’s stock-sales ratios are lower than in most

only those goods which businessmen themselves
will hold or make final use of. Businessmen invest

recent years. Of course, any slowing in sales could

in and make final use of capital equipment in

ring this, it would appear that inventory spending

make the stock-sales ratios look sick fast. But bar­

order to be able to produce, and this is measured

will not fall off rapidly in 1957. In fact, it is pos­

as business spending. In addition, business must

sible that the uneasy world situation and rising

hold inventory and to the extent this inventory

prices could set off a speculative spree of buying

increases or decreases, it is counted as business

in the early months of the year.

investment or disinvestment.

On the other hand, there is little reason to be­
lieve the inventory build-up next year will be as

In ve nto ry spending in 1 9 5 7

large as in 1956. The stock-sales ratios, though

At any given time businessmen hold a tremendous

lower than in most recent years, are not so encour­

volume of inventory— at present around $86 bil-

aging as they were last year at this time.

12




b u s in e s s re v ie w

Weighing the signs of strength and the poten­

1956. If this is the case and if inventory invest­

tial weaknesses of the outlook for inventory spend­

ment declines by S2 billion, total business spend­

ing requires a fine touch. Perhaps as good an

ing may be about $51 billion next year.

estimate as any would be that we’ll have little if
any net accumulation of inventory in 1957. This

CO NSUM ER IN V E S TM E N T IN HO USIN G

means that in 1957, spending on inventory will be

Most people view money spent for new housing

weaker and have a minus $2 billion effect on total

as different from other kinds of consumer spend­

spending.

ing. It’s more like an investment. In the past this
kind of spending has fluctuated violently like busi­

P la n t and equipm ent e xp e nd iture s

ness investment spending. Since 1946, however,

ne xt year

housing expenditures have not shown the sharp

A good part of the inflationary tendencies that

changes of earlier years.

cropped up in 1956 came from the strong surge of

In 1956, housing starts will probably total about

business spending on capital equipment. By the

1.1 million. This represents a 17 per cent decline

end of this year capital spending will probably be

from a year ago. But spending on housing should

about 20 per cent higher than in 1955.

be around $15.5 billion for the past year; a de­

Despite this very substantial rise in 1956, there

cline of just 7 per cent from 1955. Larger homes

seems to be good reason to expect some further

and higher costs have prevented spending from

gain in capital spending in 1957. New orders for

reflecting the full impact of the decrease in starts.

capital equipment and non-residential construc­
tion contract awards, both of which precede

Housing in 1 9 5 7

actual spending, have been running above year-

Most builders seem to feel that the actual rate of

ago comparisons. In addition, shortages of steel

house buying is being determined by mortgage

and some other materials plus a scarcity of engi­

credit availability. Whether or not this is true,

neers and skilled construction labor may delay,

tight money probably did slow home building in

until 1957, some spending programmed for 1956.

1956. It is likely to continue to do so in the early

Finally, preliminary surveys of businessmen’s in­

months of 1957. It appears that for the near

tentions indicate continuing strength in this
spending.

future, home builders will have to adjust them­

This is not to say the rise in capital spending
in 1957 will be as large as this year. It probably

selves to this situation. Credit probably will be
available only on stricter terms and higher rates
than in earlier postwar years.

won’t. Tight money should inhibit some spending.

Even assuming an easier money market, it is

The tendency for profit margins to narrow in

difficult for many outside the industry to see a

some fields may slow spending somewhat. A con­

jump in housing starts. The number of new house­

comitant of this is the fact that for some firms,

holds being formed continues below the number of

costs are rising faster than prices of finished

new houses being built, older homes in many areas

goods.

are getting noticeably harder to sell and, in gen­

These influences may slow capital spending in
the latter part of 1957, but the year as a whole
will probably total about S3 billion higher than




eral, the urgency to buy is lessened by the in­
creased availability of housing.
Still, home builders have some good plus factors

13

b u s in e ss

r e v ie w

working for them. Larger families, lots of moving

The outlook fo r consumer spending

around of industry and people, and higher living

On the surface at least, the outlook for consumer

standards come immediately to mind.

spending seems stronger than a year ago at this

The plus and minus factors pretty much offset

time. Consumers seem to be in somewhat healthier

each other. Next year may see some further slight

condition as far as instalment debt is concerned,

decline in housing starts, but expenditures will

savings are larger, incomes are still rising, and

probably hover around the 1956 level.

automobile changeovers are more extensive.

C O NSUM ER SPEN D IN G

Certainly there seems every reason to suspect
that the seemingly never-ending upward march of

Consumer spending is nearly twice as large as

spending on nondurables and services will con­

government, business and consumer investment

tinue into 1957. Higher price tags and rising pop­

spending combined. So this spending throws a lot

ulation make this a good bet.

of weight in total spending. A small percentage

Consumer spending on durable goods, in the

increase in consumer spending can counterbal­

doldrums for much of 1956, should snap out of it

ance larger percentage declines in the other cate­

next year. A good Christmas season of buying

gories, and vice versa.

will probably

Each year since 1939 consumer spending has

plaguing some

shake out inventory problems
appliance

people. Automobile

increased. The increase in 1956 will probably be

people already have put their inventory house in

more than $10 billion. In 1955 consumer spend­

order.

ing jumped $18 billion.

All in all, it would not be surprising if total
consumer spending reached $280 billion next

GROSS NATIONAL PRODUCT

year. This would be about $16 billion higher than
in 1956 and would mean consumer spending again

B IL L IO N S $

would represent about 65 per cent of total spend­
I

I

G O VER N M EN T

1

I

B U S IN E S S

$431

ing.
IT ADDS U P TO A GOOD YEA R IN 1 9 5 7
What this all seems to mean is that 1957 may be
a fine business year.
Add up the sectors as projected here and they
total about $431 billion. This is an increase of $21
billion. In 1956, total spending was about $20
billion higher than in 1955. Some of the increase
in total spending in 1956 reflected higher prices.
Probably the same will be true in 1957.
But not everything about 1957 will be similar
to 1956. Within the totals some different areas
may exhibit strength or weakness. Automobile

1949

1950

1951

195 2

Source: C om m erce

14




1953

1954

1955

1 956(E )

1957

and appliance makers will possibly have more
pluses on their records. Capital equipment makers

b u s in e s s

re v ie w

may face a slower growing market. Farmers may

tions show the probable course of government

hop out of the middle of the cost-price squeeze

spending. A past correlation between automobile

that has been pressing them.

sales and manufacturers’ spending on major me­

An economy such as ours, where we try to

chanical and styling innovations leads some to

maintain as much freedom as possible, makes

feel this may be a record or near record year for

these kinds of shifts inevitable. New industries and

car dealers. And many other indicators point up­

products come into the market. Business shifts

ward too.

resources from areas of lesser to areas of greater

So there are facts and figures behind the con­

demand. Some industries are growing while others

fidence in the outlook. While not so apparent,

are shrinking. Investment decisions are adjusted

there are also dreams and wishful thoughts. Busi­

to changing conditions.

ness spending on plant and equipment continues
to rise. Some industries are increasing expendi­

CONCLUSION

tures despite a decline in sales in 1956. The auto­

At the beginning of this article we talked about

mobile industry is one. Suppose along about the

confidence and over-confidence. We said we’d

middle of 1957 it becomes apparent that automo­

take a look at the “ facts and figures, dreams, and

bile sales won’t be much, if any, better than 1956.

wishful thoughts behind the confidence in the

What will that do to confidence? Will it make

business outlook.” It is now obvious that there are

what the automobile people have now look like

a lot of facts and figures behind the confidence.

overconfidence?

Lead series like non-residential construction

Next year should be a good year, maybe a $431

contract awards and new orders for capital equip­

billion year as we have projected. But at this time

ment bolster confidence in future business spend­

next year if some of the dreams and wishful

ing. Stock-sales ratios tell us that inventories are

thoughts haven’t been fulfilled, business activity

not out of line. Budget documents and appropria­

may be in the process of changing direction.

CURRENT

TRENDS

Business news remains predominantly favorable

approaches, bringing the important Christmas

at both the national and local levels. In the Phila­

buying season, expressions of continuing opti­

delphia Federal Reserve District, signs of increas­

mism heard in many quarters seem justified.

ing strength have appeared in some sectors of the

Employment changes in our major industrial

economy since early fall. A remarkable degree of

areas have continued narrow, particularly in the

stability persists in most others. As the year end

manufacturing sector. Working time and earnings,




15

b u s in e ss

re v ie w

however, have risen at both factories and anthra­

District for their early impressions of the current

cite mines in Pennsylvania. More pronounced

season’s business— and this is what they tell us:

seasonal gains in activity are apparent in various
trade and service lines. And many of our farmers

C hristm as buying sta rte d late

are winding up an agricultural season that prom­

Shopping for gift merchandise seems to have

ises better returns than seemed likely earlier.

started later than usual this year. Some depart­

Building and construction, measured in contract

ment store people describe business volume as

awards, remains about the only area of weakness

“ unimpressive” in the first full week following

in the local picture.

Thanksgiving. Others appear even less enthusias­

A tte ntio n focuses on re ta il sales

that brought little response unless they were store­

tic, calling attention to early promotional events
to

wide affairs. Thus, even shopper attendance seems

Christmas — is the time when business observers,

to have fallen short of expectations at some stores.

The current

period — from

Thanksgiving

usually watching developments in many sectors of

Surprisingly, not too much significance is at­

the economy, take a closer look at the area of

tached to this year’s mediocre early-season per­

retail merchandising. This is an appropriate

formance. Some store executives, looking at the

switch, because the volume and pattern of Christ­

calendar and the figures for comparable years, see

mas shopping in department stores and other re­

at least a partial explanation. When Thanksgiving

tail outlets frequently provide a clue to broader

comes early, as it did this year, and Christmas

economic trends in the future. The importance of

falls in mid-week, the shoppers just won’t be hur­

the Christmas season to retailers themselves can

ried. They take a “ breather” at the start of the

hardly be overemphasized, because it leaves an

season and count on that extra week end before the

indelible stamp on a whole year of merchandising

holiday to decide on last-minute gift selections.

operations.

Others relate this season’s slow start to the dis­

Over the greater part of 1956 retail trade has

tractions of a very tense international situation.

remained an area of significant strength in the
economy of the Philadelphia Federal Reserve Dis­

. . . but th e re is no evidence

trict. In terms of consumer spending in the depart­

o f price consciousness

ment stores, there were only two periods when

Whatever other reasons may be behind the delay

dollar volume failed to exceed last year’s levels

in this season’s volume purchases of Christmas

by rather convincing margins. One of these came

merchandise, price consciousness does not seem to

in July, when repercussions of the steel strike

be one of them. On the contrary, early gift selec­

doubtless were a factor. The other “ off” period

tions are said to include a fair share of the more

developed in late October, at a time when compari­

costly items. In toys, current preferences are said

sons were with relatively high-level sales in 1955.

to run to relatively high-priced mechanical goods

With this kind of background for department

that frequently are passed up until later in the

store sales, it would seem logical to expect an­

season. Expensive jewelry, furs, and the so-called

other Christmas buying season similar to the rec­

“ big ticket” items like appliances and television

ord-breaking one experienced last year. We have

are moving in about their usual early-season vol­

asked store executives in major city areas of this

ume. Some reports indicate that furniture sales are

16




b u s in e s s re v ie w

improving slowly. Among a few merchants, there

agree that a lot faster rate of spending will be

is the impression that apparel has been swelling

needed to make this another record season in

post-Thanksgiving totals somewhat more than in

Third District department stores. At this point

other years. Perhaps this was to be expected, be­

most of our merchants remain optimistic. But,

cause clothing volume generally was disappoint­

accustomed as they are to seeing old records

ing earlier this fall.

broken year after year, only a very few expect a
substantially larger sales volume this season than

. . . and m o st m erchants are optim istic

last. The consensus thus far indicates that mer­

Much can happen with two full weeks and that

chants are looking for a small plus or minus— not

extra shopping day remaining in the 1956 Christ­

more than one per cent either way— compared

mas season. And most store executives seem to

with the 1955 season’s all-time high.




17




b u s in e ss re v ie w

business re v ie w
FEDERAL

RESERVE

BANK

OF

PHILADELPHIA

TABLE OF C O N TEN TS-1 9 5 6
JANUARY

Prosperity on the Instalment Plan

FEBRUARY

The Heat Pump
Third D istrict Banking— 1955

MARCH

Joe Kosek Looks Ahead: The Boom Years— I 890 to 1917

APRIL

Joe Kosek Looks Ahead: The Hard Years— 1917 to Now
Business Loans in the Third D istrict— 1955
Philadelphia Manufacturers Plan Larger Capital Outlays

MAY

Joe Kosek Looks Ahead: The Future
Savings Bond Anniversary

JUNE

Commercial Banking in a Dynamic Economy
Trends in Office-Building Space and
Occupancy in Philadelphia

JULY
AUGUST

Highways: Out of the Mud into a Muddle
Highways: The $33 Billion W ay out of the Muddle?
Third D istrict Banking

SEPTEMBER
OCTOBER
NOVEMBER

People, Polls and Predictions
Department Stores: Catching up with the Consumer?
1957 Capital Spending in Philadelphia
Farm Lending in the Third D istrict

DECEMBER




Pennsylvania in the Interstate Stampede for
New Industry: Part I— The Stampede
1957— Facts, Figures, and W ishful Thoughts

19

F OR T H E R E C O R D . . .
MEMBER B A N K S 3R D ER.D.

■IL LIONS *

BANKING

7"

6

i1X 7
/\ I XS '

7

DEPOSITS

^

v

\

. ________

^

S\

1

—

J v ^
T

l

CHECK PAYMENTS

C20 CITIES)

LOANS
1

~

~

IN VESTM EN TS

YE AR
A SO

2 YEARS
AGO

Third Federal
Reserve District

Factory*

D epartm ent Store

United States

Per cent change

Employ­
ment

Per cent change

Check
Payments
Sales

Payrolls

Stocks

LOCAL

SU M R
M AY

10
mos.
19 5 6
from
year
ago

O c to b e r
1 9 5 6 from
mo.
ago

year
ago

O c to b e r
1 95 6 from
mo.
ago

year
ago

10
mos.
195 6
from
year
ago

CHANGES
Per cent
Per cent
Per cent
change
change
change
O c to b e r
O c to b e r
O c to b e r
19 5 6 from 19 5 6 from 1 9 5 6 from
mo.
ago

O UTPUT
M anufacturing production . . .
0
Construction c o n tra cts*........... - 1 7
C o a l m ining................................ + 3
EM PLOYM EN T A N D
IN C O M E
Factory employment (T o ta l). .

OCT
1956

- 3
-1 7
+13

+

0
3

+
+

1
6

1
0

+

5

-

0
1

+ 3 +
- 7 + 2 +

6
6

+
+
+

+

1

+

1

+ 2

+ 2 +

-

5

0
9

+

1

3
5
9

year mo.
ago ago

year mo.
ago ago

Per cent
Per cent
change
change
O c to b e r
O c to b e r
19 5 6 from 1 95 6 from

y e a r mo.
ago ago

year
ago

mo.
ago

year
ago

+

TRADE**
Department store sales............ -

7
5

B A N K IN G
( A ll member banks)
0
Deposits.......................................
0
Loans............................................
Investments.................................. + 1
U.S. G ovt, securities.............. + 1
0
O th e r .........................................
Check payments......................... + 1 6 t

+
-

+ 2 + 1
+ 9 +15
- 6
-11
- 7 -11
- 3 -10

+

1
0
0
0
1

8t

+16

+ 1t

0
1

+13t +

ot

*Based on 3-month movins averages.
**A d ju ste d for seasonal variation.

20




+1

+11

+21

+16

+4

+1

+13

+22

+17

Lancaster. . . .

0

-1

+1

+

5 +12

+12

+1

+ 6 -

+

3t

+

t 2 0 C ities
tP hiladelphia

5 -

P h ila d e lp h ia ..

0

R eading..........

0

-3

+3

+

S cranton.........

0

+4

-1

+10

0

7 -

1 +11

3

0

1 -1 4

+

+

+

8 +

2 +22

6 +16 +12

1 -

5

7 -

2 +

T re n to n ............ + 2

-1

+2

+

1 -

+

W ilk e s - B a r r e . + 1

-4

+4

+

5 -1 3

0

-2

+

1 +

3 +

+2

+4

+

7 -

5 -1 1

+ 1 2 +21

+ 6 +

-

+16
-1 0

3 +

+10

7 +20 +18
2 +

1

+8

-12
4
9

W ilm ington. . . - 4

PRICES
Consum er..................................

0

5

+ 2 + 2

+13
- 9
-1 0
- 5
+10

0
0

0
1

6

+ 3 + 3
+ 2 + 1

Y o rk .................

0

-

5 +14

+

2 +19 +17

0 +

7

+

4 +19 +29

5

0 +20 +

* N o t restricted to corporate limits o f cities but covers areas o f one or
more counties.

6


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102