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FEBRUARY 1 9 5 4 buJ ine ss r evi ew ■ FEDERAL RESERVE BANK OF PHILADELPHIA TEXTILES ARE SLIPPING IN PENNSYLVANIA Employment in Pennsylvania textile mills is on the decline. Competition is tough, especially competition from the South. Profits in textiles generally are running below average. THE CONSUMER— PERVERSE OR PREDICTABLE? How much will the consumer spend this year? Charts in this article suggest that he may not be so changeable as some think. BANK EARNINGS HIGHER IN 1953 Increased earnings reflect chiefly expansion in loans. Growth in loans was slower in the last half of the year. CURRENT TRENDS TEX TILES ARE S L IP P IN G IN P E N N SY LV A N IA We know that 37 textile firms, employing 3,330 pattern. Look at the multitude of slices in the first workers, left Pennsylvania between mid-1949 and pie diagram on the next page. Textiles rate sixth mid-1953. Some went out of business and others in an array just a bit heavy with so-called heavy sought a more favorable competitive climate else industries. where. We also know that during the same period, Textile employment in Pennsylvania declined 65 textile firms, employing 2,356 workers, started from 141,000 workers in 1939 to 93,000 workers Some were brand-new firms, in 1953— a decline of 34 per cent. That is in con some were branch plants of existing concerns, and trast with a 3 per cent decline in textile employ some moved in from other states. Firmwise, there ment of the United States for the same period. was a net gain of 28 mills, but unfortunately there The slippage in Pennsylvania is really serious, and was a net loss of about 1,000 textile jobs. it has been going on for a long time. in Pennsylvania. Just a few days ago the press announced the permanent shutdown of a cotton piece-goods dye ing and finishing plant in Pennsylvania. The rea K n it G oods rate first in P e n n sylva n ia son given was “ completion of government con Knit goods occupy a prominent place in the textile tracts.” Six hundred workers are involved. scene of Pennsylvania, as the second pie diagram Pennsylvania is a great state. It is underlaid shows. Roughly half of the knit goods consists of with fossil fuels and overlaid with manufacturing hosiery. Broad-woven goods means cottons, wool industries. The Commonwealth yields to only one ens, worsteds, rayons, nylons, and various mixed state (New York) as an industrial empire, and to fabrics. Carpets and rugs occupy a unique posi only one state (West Virginia) as a coal bin. Still tion as we shall see in a moment. half covered with forests, Pennsylvania is never Since 1939, employment declined in five ma theless primarily an industrial state. Yet, textiles jor divisions of Pennsylvania textiles. Declines are slipping. ranged from 24 per cent in dyeing and finishing Pennsylvania has a highly diversified industrial 2 to 60 per cent among producers of yarns and butii thread. Carpets and rugs, on the contrary, showed an increase of 21 per cent. The changes, except le w TEXTILE EMPLOYMENT IN PENNSYLVANIA, DECEMBER 1953 for hats, the smallest group, and miscellaneous textiles are shown in the bar chart. The greatest amount of coming and going took place in the hosiery division. Although there was a net increase of 11 hosiery manufacturers between mid-1949 and mid-1953, there was a net loss of almost 600 hosiery jobs. One large hosiery firm was liquidated. Once upon a time, Pennsylvania made practically all of the country’s hosiery. That was long, long ago when women wore long skirts and men wore high shoes. But Pennsylvania still makes most of the country’s full-fashioned ho siery-making machinery. The textile mill balance sheet of Pennsylvania also reveals a loss of three throwsters ( firms that prepare yarn for weaving or knitting). Woolen and worsted mills show a small net loss of employment. INDUSTRIAL EMPLOYMENT IN PENNSYLVANIA, DECEMBER 1953 DURABLES | NONDURABLES W H Y ARE TEXTILES SLIPPIN G IN P E N N SY LV A N IA Pennsylvania’s textile score board indeed looks bad. Reasons given for the 37 textile firms that left the state between 1949 and 1953 are: “ liquida tion,” 15; “ went out of business,” 14; “ destroyed by fire and subsequently liquidated,” 3. One trans ferred its business to its Rhode Island plant, an other “ lost lease,” another “ out of state,” another “ lack of business,” and another “ abandoned op erations.” These reasons do not really tell much. We do not know how many of these firms liqui dated in Pennsylvania became corporate reincar nations south of the Mason and Dixon Line. The Trek to D ixie In Dixie land I’ll make my brand; to knit and dye in Dixie. Hooray! Hooray! Away down South in Dixie! A former President of the United States once referred to the South as “ The Nation’s Num 3 b u sin e ss re v ie w when the country was in the throes of its greatest CHANGES IN TEXTILE EMPLOYMENT IN PENNSYLVANIA business depression. Curiously, prior to that great (1939 to December 1953) ber One Problem Area.” That statement was made business depression and subsequently thereto many Yankee manufacturers regarded the South as the nation’s number one solution area for their own problems. The South is an area of alleged low costs. Low labor costs, low power costs, low construction costs, low taxes. Everything sweet and low. More over, the South has a favorable climate, proximity to raw materials (cotton ), and the area offers tra ditional Southern hospitality like municipal devel opment corporations to float tax-free issues to finance the cost of acquiring facilities. There is a measure of truth to all these things. The South - 60% is a wonderful country. It does have lower wage where— North, South, East, and West— are in rates, but not necessarily lower labor costs. It does trouble. Mills are running below capacity, em have lower power costs, but not necessarily at all ployment is down, warehouses are stocked, prices - 40% - 20% 0 +20% +40% places. It is closer to the cotton fields, but most are weak, and profits are below average. That, in women’s hosiery is made out of nylon. general, is the textile situation. Reams of statistics have been cooked up to It seems only yesterday that queues of women prove (and to disprove) that production costs crowded the nylon counters. Now nylons go beg are lower in the South than in the North. When ging for buyers. Similar disparities between sup reading these cooked-up statistics, watch the cook. ply and demand are found in many, if not most, The trouble with these statistical stews is that textile markets. sooner or later they lead to such slithery things During World War II and for some years there as labor productivity, standards of living, power factors, managerial competence, and less-than- after, textile manufacturers were prosperous. Like other manufacturers, they operated night and day carload freight rates which depend upon the direc turning out products by the billions, making tion the cars are going. Regional cost data are money by the millions. Excess profits went to Uncle Sam. But the period of prosperity was short most useful in comparing a specific place in the South with a specific place in the North. Pre for textiles, shorter than for most other industries. sumably, some Yankee manufacturers are doing When the brand-new 1954 calendars were being this because the trek to Dixie continues. hung up the soothsayers of business were specu A CH ECK -U P O N TEXTILES might last. At the same time, most textile manu Pennsylvania is not the only place where textiles facturers were wondering how much longer they lating as to how much longer the business boom are in trouble. Here the troubles are slightly worse would be going down hill; they had already been than in some other places. Actually, textiles every- skidding for several years. 4 b u sin e ss re v ie w EARNINGS AS PERCENTAGE OF SALES T e xtile s A re Com petitive Textiles are a competitive melee. There is com Class of Industry 1950 1951 petition not only between the North and the South All manufacturing industries............. Cotton .................................................... Silk and rayon......................................... Woolen good s....................................... Hosiery and knit goods........................ Carpets and other floor coverings. . Other textiles......................................... 7.7 6.2 12.8 3.9 8.2 6.1 6.8 6.2 5.6 9.0 3.0 5.1 1.9 4.9 but also competition between natural and syn thetic fibers; between old and modern mills; between single- and multiple-shift operators; be tween integrated and non-integrated concerns; between domestic and imported fabrics. In addi 1952 5.4 2.9 6.7 — 2.4 3.0 3.4 2.5 Source: National C ity Bank of New York, Monthly Letters. tion to the competition within the industry there Earnings of textile workers are also below aver is also competition between textiles and other age. In 1953, textile workers averaged $53 a week industries. The products of paper, paint, plastics, in contrast with $71, the average weekly earnings and other industries invade the traditional mar of production workers in all manufacturing indus kets of textiles. Sometimes textile manufacturers tries of the United States. Similar differences pre yield to the temptation to invade the markets of vailed during the three years preceding. Lower others; for example, the apparel business is a earnings in textiles were due, in small part, to natural. shorter hours. In 1953, textile concerns operated Competition in textiles is anything but simple. 39.1 hours a week in contrast with 40.5 hours, the It is complex and compound. It is understandable average for all manufacturing. Similar differences why textile people take a keen interest in the prevailed during the three years preceding. Textiles also differ from industry generally with Randall Commission Report. Perhaps one reason why textiles are so competi tive is because there are so many competitors. Over 9,000 firms are in the business, according respect to employment trends. Since 1939, factory employment in the textile industries declined 3 per cent whereas employment in all manufacturing to latest official estimates. That is more than eight times the number of concerns operating in FACTORY EMPLOYMENT IN UNITED STATES Petroleum and Coal Products, cited just for contrast. Textile profits expressed as a per cent of sales X (1939 -IOOJ have been running below the average earnings of manufacturing industries generally in recent years. Producers of hosiery and knit goods did A LL MAh UFACTURIh G better than average in 1950 only. Silk and rayon - ^ 1 did better than average in all three years, but this group of firms is not really a full-blooded member of the textile family. Rayon companies dominate this category, and the production of rayon fila TEXTILES ment and fibers is a chemical process. With the exceptions noted, it is apparent that textiles have encountered troubles in their quest for profits. 1941 1943 1945 1 1 1 1 1 1939 1947 1949 1951 1953 5 b u sin ess re v ie w increased 67 per cent. The wartime upheaval was rugs, and other floor coverings; hats; and finally comparatively small in textiles and, as the chart a miscellany of things that defy classification such also shows, for the entire period employment in as lace goods, linen goods, cordage, and twine. textiles settled down while employment in all man Textiles differ with respect to raw materials ufacturing “ settled up.” processed, technology, scale of operation, degree T extiles A re Big served, and so forth. Some depend upon imported Textiles are big, not individually but collectively. raw materials; others, domestic. Some process In 1952, the country’s textile mills produced over natural fibers; others, synthetics, still others use $5 billion of “ value added.” That is the technically both. Some specialize in apparel fabrics; others, correct but somewhat awkward way of saying that industrial fabrics; and still others, household all their efforts enhanced the value of raw mate fabrics. Some go in for the highly styled fabrics; rials processed by that stupendous sum. It was just others prefer to make bulk yardage and let some under 5 per cent of the value added ($108 billion ) one else do the styling. Some hedge their holdings by all manufacturing industries of the country. of raw materials by selling short in the futures of integration, type of organization, markets That may not look too impressive. Nevertheless, market; others regard that as gambling. About all textiles ranked ninth among the 20 major industry that textiles have in common is that they make groups. In total wages paid, textiles ranked sixth, things out of fibers and wish sometimes they were and in number of production workers employed in another business. they ranked fifth. There are no corporate giants in textiles as there are in steel or automobiles where the biggest com T e xtile s A re O ld pany turns out a fourth or a third of the industry’s When Alexander Hamilton wrote his “ Report on product. As a group, however, textiles bulk large Manufactures” in 1791, great things were happen ing in textiles. They were right in the middle of because there is such a multitude of them. the Industrial Revolution. Men like Watt, Har Te xtile s A re C o m p le x greaves, and Cartwright transformed spinning The complexity of textiles is bewildering. One and weaving from a household handicraft to the way of getting acquainted is to browse through factory system. Since the Industrial Revolution the Census of Manufactures. First comes a list of there have been no revolutionary changes in the the country’s 20 major industry groups, one of basic arts of spinning or weaving until quite re which is called Textile Mill Products. Down cently. Consequently, mills today are equipped deeper in the volume, is a chapter where textile with a lot of old machinery and some modern mill products are arrayed into major divisions, facilities. Under certain conditions, it is hard for subdivisions, and subdivisions of the subdivisions. a manufacturer with modern,, high-cost machinery Let us be content here with the major divisions. to compete with others whose fully depreciated They consist o f: scouring and combing plants; looms were installed when Woodrow Wilson was yarn and thread mills; broad woven fabric mills; in office. It is said that when the late Henry Ford narrow fabrics and other small ware mills; knit ting mills; dyeing and finishing plants; carpets, was looking for an early model textile machine for his museum he found it in operation. 6 butii T e xtile s A re M odern vie w A C O N CLU D IN G NOTE O N P EN N SY LV A N IA Though textiles are as old as Methuselah, they are Perhaps the decline of textiles in Pennsylvania is as modern as jet-propelled planes. In apparel tex inevitable. Perhaps it is part of the ever-changing tiles, style is the thing. If style is a characteristic industrial scene. It might even be for the ultimate mode of expression, fashion is the latest style. To good of the state. Insurance companies are always the textile manufacturer nothing brings fame and refining their investment portfolios to keep in step fortune faster than to design a fabric that “ takes.” with changing times. Could it be that competitive Nothing brings frustration and failure faster than forces are weeding out textiles in the state’s indus to design fabrics that do not “ take.” Textiles are trial portfolio to make way for others with better sensitive to changing seasons, rising or falling yields? Whether for good or ill in the long run, hem lines, coronations, inaugurations, or jewelry there are innumerable short-run hardships created innovations. by the exodus of textiles. Certainly the textile Motion pictures and TV spread new fashions workers who lost their jobs see no good in it. like wildfire. No longer can a poor number with Certainly the bankers in the communities affected out takers in New York be palmed off on back- see no good in it. Certainly the railroads with country retailers because their customers are just rusting sidings leading to idle plants see no good as well informed as the fashion-wise New Yorkers in it. Certainly local governments whose tax rev and Hollywooders. Color television will add an enues have been adversely affected see no good other chapter to the spread of fashion intelligence. in it. THE C O N S U M E R -P E R V E R S E O R PRED ICTABLE? The spending spurts and lags in 1950 and 1951 with aberrations from it thus far no greater than focused attention on the unpredictability of the pre-war. Surprisin gly, the relation between post-war consumer. Furthermore, since 1947 evi changes in income and changes in expenditures dence has been accumulating that consumers have is nearly the same as before the war. been spending more than would be expected on Time was when the level of consumer spending the basis of the pre-war spending-income pattern. was not considered so difficult to predict; indeed, An upward shift in spending as related to dispos until fairly recently the subject of consumption able income has occurred since the war. But de was to some virtually closed. Consumer spending, spite the considerable attention given the erratic it was believed, depended mainly upon the amount changes in consumer spending, the data indicate of disposable consumer income, and consumer a new spending-income pattern may be forming income was dependent on what happened in the 7 b u sin ess re v ie w business and Government sectors of the economy. spurts of spending show up clearly as “ saw teeth” In other words, spending was a function of in in the chart below showing quarterly estimates of come. Consumer behavior, therefore, was not an consumer income after taxes and expenditures. independent That this spending was one of the important forces force; individuals’ spending re sponded to changes in income. which led businessmen to stock up on inventories Recently all of this has changed. Consumer and contributed to a rise of 17 per cent in whole spending is no longer relegated to a passive role; sale prices and 8 per cent in consumer prices can instead it is emphasized that consumer spending hardly be doubted. is a most uncertain factor. Few any longer ques The consumer stirred up quite a fuss, and more tion the ability of the consumer to change his rate was coming. As if to show his capricious nature, of spending irrespective of shifts in income. he followed each spending spree with a saving The consum er has a sse rte d him self The reasons for the new respect accorded the con sumer are based broadly on the obvious effect that consumer actions have had on business activity at and subsequent to the outbreak of fighting in Korea and on the changed pattern of spending that has prevailed in post-war years. The buying waves touched off by the invasion of South Korea in June 1950 and by the entry of the Chinese in the northern armies early in 1951 provided a dramatic illustration of the ability of consumer spending to change direction and to greatly influence economic activity. These two INCOME AND SPENDING (1947-53 Quarterly) spree. In the months following the buying wave in 1951, consumer spending declined notice ably despite a steady rise in personal income. As a consequence, inflationary pressures eased and stable conditions prevailed over the balance of the year. These changes in consumer spending had such a pervasive influence on business activity in 1951 that the instability of consumer spending became the subject of many year-end reports. Less dramatic but equally significant evidence of the emergence of the consumer as an independent economic factor is illustrated in the graph on page nine. In this chart the amount of consumer spending is plotted against the amount of personal disposable income for each year from 1929 to date. The solid black line drawn through the pre BILLIONS $ war years 1929-1940 plotted in the lower left area is called a line of regression. This line expresses a pattern of spending at different levels of income. If all of the dots on the chart from 1929 to 1953 fell on this straight line, it would indicate a per fect and unchanged relationship between spending and income over the entire period. The grouping of the pre-war points very near to the line indi cates how closely the spending habits of consum ers in 1929-1940 conformed to this pattern. The war years 1941-1946, during which shortages, price controls, and rationing were paramount, could hardly have been expected to fall on this 8 b u sin e ss re v ie w PERSONAL CONSUMPTION EXPENDITURES - BILLIONS RELATION BETWEEN CONSUMER SPENDING AND DISPOSABLE INCOME 200 - 160 - 120 - 80 - 80 120 160 200 PERSONAL DISPOSABLE INCOME - BILLIONS $ line. The fact that the years since 1947 do not 240 come level of about $52 billion. This indicates that fit on an extension of the pre-war line indicates at income levels below the intersection in the years a shift in the relation has occurred. before the war, consumer spending exceeded cur The thin line drawn diagonally across the chart rent disposable income. (Consumers made net expresses a 100 per cent consumption function; withdrawals from liquid assets and went into debt that is, it shows how the pattern would look if when incomes fell below this point.) When in consumers continuously spent all of their incomes. comes were above $52 billion, consumers spent It intersects the pre-war regression line at an in less than they received. 9 builnew review The slope of the pre-war line shows that when CONSUMER SPENDING income rose, spending increased, but not com- (1947-1953) mensurately. The same is true of declines in income and spending. To put it more precisely, BILLIO NS $ the line shows that, on the average, a 10 per cent change in income was associated with an 2^/2 per cent change in spending. The information derived from the chart on page nine is presented in a little different manner below. The white line shows what spending would have been if the average relationship for the 1929-1940 period had held for each of the years. The black line shows actual levels of spending. The first chart illustrates that the relationship between dis posable income and spending in the pre-war pe riod was quite stable. The second chart shows what spending would have been in the post-war period if the average income-spending pattern shown in the first chart had carried over into these later years. For example, an extension of the pre war relationship suggests that in 1953, when dis1949 1951 1953 CONSUMER SPENDING (1929-1940) posable income was about $248 billion, spending would have been about $203 billion. Actually, in BILLIO N S $ 1953, consumers spent $230 billion. The implica tion of this is that the pre-war spending-income pattern is altered. Consumers are spending larger amounts than would have been expected accord ing to the 1929-1940 pattern. Many reasons are given for the changes that have occurred in consumer spending. The reason relevant to the alternate buying and saving sprees, following the outbreak in Korea, has to do with discretionary spending power of individuals. A c cording to this theory, the much higher level of income, as compared with pre-war, has left people with a larger margin between income and essential 40 1929 1931 10 1933 1935 1937 1939 expenditures. With the larger proportion of op busii tional expenditures, willingness to spend has be the 1929-1940 period. A 10 per cent change in come a more important factor and the volume of income is still associated, on the average, with an spending is influenced more by psychological 81 per cent change in spending. Thus, despite /) forces, it is argued. the difference in spending in the two periods, a given change in disposable income resulted in the But old habits p ersist The essential truth of the theory that the consumer same proportionate change in expenditures. The chart below is based upon the post-war relationship between income and spending. It has the power to change his spending irrespective shows that the relationship between disposable of short-run changes in incomes and the obvious income and spending in the post-war period was shift away from the pre-war spending-income also quite stable when annual data are used. De pattern have tended to complicate studies of viations. from the white line are as small as pre the post-war consumption function; or perhaps war. it is because there are not enough years to spurts in 1950 and 1951 tend to wash out when provide conclusive evidence that little attention the figures are plotted on a yearly basis. In retro is given the post-war consumption function. spect it appears that for calendar years, as a Nevertheless, there are some indications that con whole, the amount that individuals spent in 1950 This means that the quarterly spending sumers are tending to establish a new spendingincome pattern. CONSUMER SPENDING The chart on page nine indicates a shift away from the pre-war spending schedule. The fact, (1947-1953) however, that a regression line— the solid black BILLIO NS $ line in the upper right of the chart— can be suc cessfully fitted to post-war years suggests a new relationship is forming. Two significant observa tions may now be made from this chart. One is that the level of consumer expenditures in relation to income has shifted upward in the period since the war. Consumers spend a larger proportion of the same income than before the war. This means that the level at which consumer spending would be expected to exceed income is much higher now. The post-war regression line intersects the thin diagonal line expressing a 100 per cent consump tion function at an income level of $143 billion as compared with $52 billion before the war. The other observation is (given this upward shift) the slope of the post-war regression line indicates that the same relationship exists between changes in income and changes in spending as in 11 b u sin ess re v ie w and 1951 was about in line with the post-war the upward shift in the consumption function may spending income pattern that had developed. have to do with factors other than increased dis cretionary spending power. A long period of ris ing prices; a shift in the distribution of income, Conclusions with a smaller proportion going to the upper- While it is true that post-war consumer spending income groups; an increasing proportion of older has fluctuated considerably on a quarterly basis people in the population; a widening of the Social the relationship between spending and income, annually, has been no more erratic than pre-war. Security coverage; a more progressive income-tax structure; and an upward secular drift in the This suggests that the whimsical nature of post standard of living, are all institutional or long-run war consumer spending may be exaggerated. It changes which have probably tended to increase suggests, too, that the most important cause of spending out of given levels of income. B A N K IN G 1953 TH IRD D ISTRICT Highlights of Third District banking during 1953 THIRD DISTRICT MEMBER BANKS— 1953 included further expansion in loans, but at a ( Preliminary tabulations) much slower pace in the later months of the year E A R N IN G A S S E T S (D o lla r amounts in m illion s) as the economic environment changed; higher total earnings and net earnings after current ex penses than in 1952; heavier tax payments; and an increase in net profits. Expansion in b an k assets At the close of the year member banks in this District had more than $6^2 billion of earning assets, with approximately S3 billion in loans and Dec. 31, 1953 C h a n g e n year* Am ount Per cent Loans and discounts: Business ................................................ .. $1,275 38 + 3 89 To purchase or carry s e c u r itie s ... 8 + 10 + 835 Real estate ........................................ 65 + 8 + O th er loans to in d ivid u a ls— Instalm ent ...................................... 567 126 +28 + Sin gle-p aym e n t ............................ 263 20 + 8 + A ll o t h e r .............................................. 68 2 — 2 255 Total loans— gross ...................... .. $3,097 + 9 55 7 + 14 Less r e s e r v e s .................................. + 248 Total loans— n e t ............................ .. $3,042 + 9 +$ 87 U .S. G overnm ent se cu ritie s.............. .. 2,697 — 3 O th er securities .................................... 804 162 Total earn in g asse ts.................... .. $6,543 + 3 +$ * 1952 figu res adjusted for m ergers and ch an ges in m em bership. The trend of loans continued strongly upward the balance mostly in United States Government in the first half of the year. While most pro securities, according to preliminary tabulations. nounced in the consumer credit field, this increase After adjustment for mergers and changes in included also substantial amounts of business pa membership, the figures show an increase of per and a more moderate addition to real estate about S160 million, substantially less than in loans. The over-all increase in loans was definitely 1952. smaller in the last six months. Extensions of mort 12 b u sin e ss re v ie w gage credit increased materially, but growth in THIRD DISTRICT MEMBER BANKS— 1953 consumer paper was slower and business loans ( Preliminary tabulations) (which include those to agriculture) decreased E A R N IN G S , E X P E N S E S A N D P R O FIT S (D o lla r am ounts in m illio n s) slightly, despite purchases of certificates of inter est in loans made by the Commodity Credit Corporation. Holdings of United States Government secu rities were reduced considerably in the first half, and this decline was by no means offset by re newed investment in these issues later in the year. Net changes in holdings of other securities were minor. Bank e a rn in g s h ig h e r Bank earnings, which reflect average holdings of earning assets and rates of return, were higher than in 1952. Averages for the year show smaller 1953 C h a n g e in year* Am ount Per cen Earnin gs— on U .S. G o v 't se cu ritie s___ $ 54.7 + $ 2.0 + 4 on other se cu ritie s................ 17.9 + 2 on lo a n s .................................... 143.9 + 20.5 + 17 all o t h e r .................................... 40.1 + 1.3 + 3 To tal ....................................... $256.6 +$24.1 + 10 Expenses— salaries and w a g e s................ $ 76.4 + $ 6.1 + 9 interest on d e p o s its.............. 21.2 + 10 + 1.9 all o t h e r .................................... 56.8 + 4.8 + 9 To tal ...................................... $154.4 -+$12.8 + 9 N et current e a rn in g s ................................... $102.2 + 12 +$11.3 Recoveries, profits and transfers from reserves ....................................................... $ 7.9 +56 + $ 2.8 Losses, ch arge-offs and transfers to reserves ....................................................... 24.1 + 1-3 + 6 Taxes on net in co m e ................................... 32.8 + 4.8 + 17 N et profits ................................................... $ 53.2 + $ 8.0 + 18 C ash d ivid e n d s d e c la re d .......................... 27.2 + 1.6 + 6 * 1952 fig u res ad ju sted for m ergers and ch an ges in m em bership. Income tax payments, which include excess profits taxes, were heavier than in 1952, and the total of losses and transfers to valuation reserves continued to run substantially ahead of recoveries, holdings of Governments, a virtually unchanged profits on securities, and transfers from reserves. portfolio of other securities, and marked growth in loans. Much of the increase in loans was in Nevertheless, the banks were able to report an increase of $8 million to $53 million in net profits comparatively high-earning consumer paper and available for dividends. Incomplete data suggest higher rates were reported on some commercial that transfers to valuation reserves on loans were loans. Income on loans increased considerably, accounting for nearly seven-eighths of the $24 mil lion increase in total earnings of Third District member banks, which totaled approximately $256 million. The rise in total earnings continued the somewhat smaller than in 1952, that losses or charge-offs on securities were a little heavier, and that net losses on loans again were light. Divi dend payments continued to rise, but absorbed only about one-half of net profits. broad upward trend characteristic of the post war period. Current expenses also continued to rise, with increases of 9 or 10 per cent in salaries and UNIFORM COMMERCIAL CODE wages, interest on deposits, and other items of "A Tabular Outline of Secured Transactions" under Article 9 of the Code has been distributed to banks in the Third District. It represents a check list of the new legal relationships and new procedure under the Code. Copies from a limited supply are available on request. outgo. But the growth in expenses absorbed not much more than one-half of the increase in total earnings. Our preliminary figures, adjusted for substantial comparability with the previous year, indicate that net current earnings before income taxes, charge-offs, and recoveries were up $11 million to $102 million. 13 b u sin e ss re v ie w CURRENT TRENDS The Art of Forecasting and the Budget Business forecasts currently give a great appear trough vary depending on which indicator one ance of unanimity, perhaps more so than at any looks at, but in general it took perhaps a year for other time in the post-war period. Some experts, the full decline to run its course. This does not it is true, have been developing and experiment ing with new techniques for evaluating business mean, of course, that the current downtrend will necessarily last that long; and even if it did, trends, but more and more forecasters have been making predictions which fall into a common some indicators show that the decline really began last summer or spring. A look backward does pattern. remind us, however, that adjustments are apt to This large number of fairly uniform predictions take time. results from a combination of circumstances, in cluding: (1) a readily understandable system of national accounts available as a tool; (2) more people making forecasts; (3) a feeling among G overnm ent is fo re ca stin g, too In making their decisions, businessmen must forecasters (perhaps subconscious) that there is security in being one of the majority; and (4) make some assumptions as to what lies ahead. the use of averages. budget, issued last month for fiscal year 1955, had The men responsible for making up the Federal This last item is especially pertinent to the 1954 a still harder task; they had to consider not only predictions, for a look behind the averages sug the impact of business trends on the budget but gests that current unanimity may not be quite so also the impact of the budget on business trends. unanimous after all. The majority of forecasters The new budget is based on a philosophy that say that business in 1954, on the average, will be the economy will be benefited by Government somewhat less than in 1953. Total gross national “ efficiency and economy,” by a “ balanced budget product, they predict, may be off by something and tax reductions,” and by the encouragement like 5 per cent. This average, however, conceals of “ initiative and investment.” Thus expenditures differences in the pattern of the decline. Some in fiscal year 1955 are estimated to be $65.6 bil economists believe the downturn will be brief and lion, or a reduction of about $5 billion from will be followed by a revival later in the year. estimated spending in fiscal 1954. Most of this Others feel that the decline will be short, but that reduction will come out of national security ex business will level off on a high plateau. Still penditures, reflecting (am on g other things) others are inclined to think that the downtrend “ shifts in emphasis” in the defense program. will persist throughout the year. Obviously, these Considerably less is to be spent for army and three forecasts are not equally pessimistic, al navy defense, and somewhat more for atomic though the averages may not so indicate. energy, air power, continental defense and the As far as duration is concerned, it may be mutual military program. Receipts are estimated worthwhile to glance back at figures for the 1949 to be $62.7 billion, or about $5 billion less than and 1937-1938 recessions. Periods from peak to they are expected to-be in fiscal 1954. This cut 14 buslne»» review reflects primarily the reduction in personal income The post-war record indicates that revenue esti and excess profits taxes which became effective at mates have been off, on the average, roughly 15 the beginning of the year and lower revenues per cent from the actual amounts. Spending esti from further tax revisions proposed by the Presi mates have been off roughly 10 per cent. The dent. The net result is an estimated budget deficit percentage of error varies quite widely from year of nearly $3 billion. On a cash basis, however, the to year, depending on a number of factors. For Government expects to take in a little more than it example, inflation generally produces larger reve pays out. nues than expected; wars mean larger spending These estimates are based on the assumption of “ fairly stable conditions, internally and exter than expected. The estimates can be revised, of course, as time nally,” and the policies reflected in the budget are rolls on. In the middle of the year and again early intended to maintain those stable conditions. If next year there will be opportunities to bring the time should prove the assumptions obsolete, the estimates more in line with changing conditions. budget figures will be revised. After all, to make A lot can happen between now and then. One out a budget for fiscal year 1955 involves a fore possibility is reduced revenues if the scheduled cast a year and a half ahead (and really longer reductions in excise taxes and corporate income because the budget is a long time in the making). taxes are permitted to go into effect this spring. Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. 15 FO R TH E R E C O R D ... INDEX Department Store Factory* Third Federal Reserve District United States Per cent change Per cent change December 1953 from SUM M ARY mo. ago ye ar ago 12 mos. 1953 from ye ar ago December 1953 from mo. ago year ag o OU TPU T M anufacturing production. . - 2* - 8* + 4* - 4 Construction contracts!-:. . . - 7 + 3 +13 -1 7 C o a l m ining............................. - 1 2 * - 2 1 * - 5* - 7 -1 6 EM PLO YM EN T A N D IN C O M E Factory employment............... - - - 1* 2* 1 2 3 3 + 5* + + 5* 1 Of - - 1 3 5 0 mo. ag o year mo. year mo. ag o ag o ag o ag o year mo. year mo. year a g o ag o ag o ag o ag o + 5 3 3 - + -2 -6 -6 - 6 +10 +1 -3 —7 -4 - 9 +24 +9 +1 + 2 +1 - 1 + 49 + 2 - 2 6 + 9 + 5 -1 -2 -1 - 2 +21 -4 -2 4 + 2 +18 +3 R e a d in g.......... -1 -5 -2 -2 6 + 1 + 9 5 5 5 + + + 2 2 9 2 + 3 +12 3 2 0 0 3 0 0 4" 1 4§ + 1 0 § + 1 9 - ot + + + 3 3 1t 0 0 + + + + + + 1 6 1 0 3 2 0 1 + 3 +10 - 1 - 2 + 3 + 7 + 1 1 ’ Pennsylvania fP h ilad e lp h ia §20 C itie s **Ad|usted for seasonal variation. tBased on 3-month moving averages. Stocks Per cent Per cent Per cent Per cent Per cent change change change change change December December Dece mber December December 1953 from 1 953 from 1 953 from 1 953 from 1953 from -1 PRICES 16 Sal es Payrolls P h ila d e lp h ia .. - 2 - 5* + 1 2 * B A N K IN G ( A ll member banks) Deposits. .................................. + 2 + Lo a n s......................................... 0 + Investments............................... + 2 U .S. G ovt, securities........... + 2 O t h e r ...................................... + 1 C h e ck payments...................... + 1 8 § + Consum er.................................. 12 mos. 1953 from year ag o LO CA L CHANGES Lancaster. . . . - TRAD E** Department store s a le s ......... C h e ck Payments Employ ment -1 - 9 +42 0 -3 + + 6 4 5 +5 +11 -4 Trenton........... 0 -8 +3 -1 2 +47 -9 -1 6 - 5 + 6 +8 W ilk e s -B a rre . -2 -7 -1 - 7 +44 -4 -2 2 - 3 + 1 -1 -3 +1 - 3 W ilm in gton .. . Y o rk ................. - 1 - 1 +1 0 + +60 +4 -2 1 5 +61 +4 -2 6 +10 0 +51 +12 +8 +6 ’ N ot restricted to corporate limits of cities but covers areas of one or more counties.
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