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Paleozoic Pains in Pennsylvania
How Many Years to Maturity
BUSINESS REVIEW is produced in the Department of Research. Evan B. Alderfer was primarily respon
sible for the article, "Paleozoic Pains in Pennsylvania" and Jack C. Rothwell for "H o w M any Years to Maturity."
The authors will be glad to receive comments on their articles.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of
Philadelphia, Philadelphia I, Pennsylvania.
PALEOZOIC PAINS IN
PENNSYLVANIA
Approximately 285,000,000 years ago Pennsyl
accumulated muck with sand and silt, so that
vania was in worse shape than it is today. Of
the swamp lay buried thousands of feet deep by
course there were no budgetary problems, no
sediment from the receding land surface.
urban congestion, no worries about growth, no
At various times during the 80 million-year
excess capacity, no unemployment, and no labor-
carboniferous or coal-forming period the land
management discord. Yet, these present-day dif
heaved and at other times it sank to form alter
ficulties
nate layers of coal beds, interspersed with layers
of
the
Commonwealth
have
roots
of shale and sandstone. Under great pressure
285 million years deep.
By the geologist’s calendar, the Paleozoic Era
through milleniums of build-up, the original
had just begun to dawn. The climate was damp
deep peat beds of ancient swamps were com
and the landscape was bleak and dreary. Land
pressed into shallower seams of true coal, rang
contended with water for domination. Leviathans
ing in thickness from four feet or less to ten
infested the seas and primitive reptiles made
feet or more. So it came to pass that Pennsyl
their appearance on land. Great ferns and forests
vania, as part of the Appalachian coal fields, was
flourished,
endowed with a rich understructure of energy
and
Pennsylvania
resembled
the
Great Dismal Swamp.
Time went on and on and on. Through cycles
which predestined the Commonwealth to become
a great industrial empire.
arid seasons, plant life grew and decayed. Over
inconceivably long periods of time the accumula
Paleozoic pattern of industrial
tion of roots, tree trunks, leaves, twigs, shrubs,
P e n n sy lv a n ia
grasses, and mosses that had been covered with
Over half the counties of Pennsylvania have coal
water so that decomposition had been retarded
deposits— anthracite in the east and bituminous
formed deep layers of black muck and peat.
in the west. Hard coal was to play a minor role
Periodically, the encroaching ocean covered the
in the state’s industrialization, but bituminous
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business review
COAL P RO D U CIN G COUNTIES O F PEN N SYLVAN IA
deposits were a storehouse packed with power.
bituminous coal. The shift to coke began about
Before coal became indispensable in the mak
the time of the Civil War, when furnace opera
ing of iron and steel, Pennsylvania’s rich forest
tors found that coke burns well without caking,
resources supplied the fuel in the form of char
leaves less ash than coal, and is strong enough
coal for the early forges and furnaces. Pennsyl
to carry the furnace load of ore and limestone.
vania, loaded with energy above and below
Connellsville coke soon became the standard
ground, was doubly destined for an iron and
blast furnace fuel, because bituminous coal from
steel economy. As early as 1750, colonial Penn
that area made the best metallurgical coke.
sylvania was the leader in iron manufacture.
Other developments that contributed to the
Early furnaces in the Lebanon, Lehigh, Schuyl
rise of Pennsylvania’s industrial empire are
kill, and Susquehanna valleys were known as
more familiar history: the invention of the Bes
iron
forest
semer process which ushered in steel, a low-cost
acreage required to supply the charcoal for
industrial metal; the appearance of the open
plantations because
of
the
vast
smelting local ores.
hearth furnace to make quality steels; the dis
As charcoal became scarcer in the early 19th
covery of the fabulously rich iron ore deposits
century, ironmasters shifted to anthracite— a
at the western end of the Great Lakes, which
more compact fuel. Hard coal, better adapted
afforded cheap water transportation eastward;
for space heating, was soon replaced by a su
the rise of Pittsburgh as a great steelmaking
perior
center; the building of the railroads and the
4
metallurgical
fuel— coke— made
from
business review
rise of big railway car shops at Altoona; the
the slowdown is related to coal. Examples of
construction of rolling mills at strategic points
industries closely related to coal are basic steel,
throughout Pennsylvania to roll rails for the
steel fabricating, iron and steel foundries, rail
railways, girders for bridges and skyscrapers,
roads
steel plates for
and
railway
car
shops,
shipbuilding,
shipbuilding and armor for
cement, ganister, and other quarry products.
battleships; and the development of iron and
Some of these industries have passed their prime,
steel foundries
intricate
or at least have passed their prime in Pennsyl
shapes indispensable to a machine civilization.
vania. With the westward shift of population,
to
make the more
Steel is basic to all industries, and bituminous
discovery of new mineral resources, develop
coal is basic to steel. As the coal industry pros
ment of new technologies, and construction of
pered,
new plants closer to their rapidly growing local
Pennsylvania
built fleets of
prospered.
Pennsylvania
coal-burning locomotives
that
markets, Pennsylvania could not hope to hold
hauled trainloads of coal to the manufacturing
its former position in the competitive race— but
plants of Pennsylvania and to those of other
that doesn’t solve her problems.
states. By the time of World War I, Pennsyl
About 340,000 Pennsylvanians are out of
vania had well earned its sobriquet “ the Key
work and looking for jobs. As a percentage of
stone State.” This was also the period when coal
the work force, unemployment in Pennsylvania
is considerably above the national average. The
BITU M IN O U S A N D LIGNITE PRODUCTION
UNITED STATES M ILLIO N S O F T O N S
burden of unemployment is especially acute in
P EN N SY L V A N IA M ILLIO N S O F T O N S
300
2 50
the coal regions. Latest reports show unemploy
ment in excess of 6 per cent in eight of the
11 anthracite counties and in 26 of the 28 bitu
minous counties. In some of the industrial
200
150
100
centers within
these counties, unemployment
runs as high as 20 per cent. Fundamentally,
though not exclusively, the pains in Pennsyl
vania are Paleozoic.
1900'05
'10
'15 '20
'25
'30
'35
'40
45
'50
'55 '60
/SO
0
When the coal business ran into trouble,
Pennsylvania ran into a lot of trouble because
production in the Commonwealth reached its
the Commonwealth was the country’s original
zenith. In 1918, bituminous mining in Pennsyl
coal bin. To date, the state has mined over
vania attained its peak of 179 million tons, but
8 billion tons of bituminous and over 5 billion
has since declined to a level of 65 million tons.
tons of anthracite. Of hard coal and its hard
Anthracite
times, Pennsylvania has had a virtual monopoly.
fared
worse;
annual
production
which just failed to reach a peak of 100 million
Some of these difficulties have been explored in
tons is now less than 20 million tons.
former issues of the Business R eview * Let us
now turn our attention to soft coal and its
P e n n sy lv a n ia in a tim e of trouble
hard times.
Today, Pennsylvania is not in the best of health.
Industrial growth has slowed down, and much of
* "The Black Diamond Country," June, 1949; "Joe Kosek Looks
Ahead," March, April, and May, 1956.
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business review
THE B IT U M IN O U S C O A L IN D U S T R Y OF THE
moisture and too many other shortcomings to
make the
UNITED STATES
grade;
and
ranking
above
semi-
The bituminous industry is a complex, carbonif
bituminous is anthracite, which is almost pure
erous, competitive colossus. It is a profusion of
carbon.)
many producers who use various ways to extract
Differences in physical and chemical proper
different kinds of bituminous coal under differ
ties destine different kinds of coal for different
ing but generally difficult conditions for highly
uses. Most bituminous is used as a boiler fuel
cost-conscious markets that buy competitive fuels
to generate electricity. Other kinds are preferred
at the slightest drop of a price. Over the years,
to make blast furnace or foundry coke or to
the industry has taken some rough bumps and
fire furnaces in cement and other industries.
although vulnerable for still more trouble, the
For space heating, bituminous is too smoky to
bituminous industry is voluble, viable, vigorous,
suit most customers.
and venturesome. In 1961, more than 7,500
mines dug up 400 million tons of bituminous
G e o g r a p h y w ith te a rs
coal and lignite (a poor relation), and after it
The accompanying map affords an astronaut’s-
was above ground the coal was worth about
eye-view of the geography of coal in the United
$2 billion. Formerly, over a half-million work
States. Note the crazy distribution, the emptiness
ers would have been required to dig that much
of New England and New York, as well as the
coal, but in 1961 the industry employed only
wide coal-less belts flanking the Rockies. More
150,000 workers and they toiled only 193 days.
over, many of the deposits are in the thinly
That comes to an average of about 14 tons of
peopled hinterlands and it costs a lot of iponey
coal a day for each worker. It is well to keep in
to haul coal. The biggest reserves are not far
mind, however, that averages are mythical, espe
enough west to be of much use to the swarms of
cially in an industry like bituminous where
people on the West Coast.
everything is different and nothing ever stays the
What the map doesn’t show is that half the
same. The outstanding characteristic of the in
current output comes from three states— West
dustry is its complexity, its fearful and wonder
Virginia, Kentucky, and Pennsylvania. If Illinois,
ful intricacies, most of which may be ascribed
Ohio, and Virginia are included, we get what
to the nature and occurrence of coal— its Paleo
might be called the “ Big Six” which account
for 86 per cent of the industry’s current output.
zoic base.
Pennsylvania, the original leader and now run
Bitum inous burns, but . . .
ning third has been described as being mined
Bituminous coal is a generally black, rock-like
out. That’s slander. What the coal man who made
stuff that burns; but no two lumps are exactly
the statement meant to say was that the most
alike in all respects. Chemists who have taken
accessible deposits have already been mined—
it apart have established various grades ranging
but there is still much coal remaining.
from sub-bituminous of low carbon content to
semi-bituminous of high carbon content and
G e o lo g y w ith ou t m ules
little
sub-
How coal is dug out of the mines depends
much
largely on the depth, thickness, inclination, and
volatile
bituminous
6
matter.
is lignite,
(Ranking
which
below
has too
business review
C O A L AREAS IN THE UNITED STATES
regularity or irregularity of the seams. A drift
equipment, which makes you wonder whether
mine is one with a more or less level tunnel
the sightseeing trip was necessary.
Mules are obsolete and pick-and-shovel min
from the side of a hill to the coal seam. A
slope mine gets to the coal seam with a bore
ing is obsolescent. Coal mining has undergone
going down a gradual decline. In a shaft mine,
marvelous mechanization. An astonishing variety
you take an elevator— without plush carpet—
of
straight down, usually several hundred feet, to
ground to dislodge the coal from the seam, to
power-driven
machinery
is
the coal seam where you grope your way with
load it on conveyor belts or narrow-gauge rail
the aid of a lamp on your cap, along a low-
ways to bring it to the tipple on the surface
cleans,
used
below
ceiling passageway formed by the space formerly
where other machinery
occupied by coal to the points where the miners
prepares the coal for the market. Almost nine-
screens,
and
are busily engaged extending the dark and
tenths of the coal mined underground is now
dreary underground tunnels in several direc
loaded mechanically.
tions. En route, you pass no storefronts but
In open-pit mining (called stripping), power
perhaps a hole in the coal wall that serves as
shovels are used to remove the overburden of
the supervisor’s office where you can see a
shale and sandstone to expose the coal seam.
detailed blueprint of the underground, resem
Stripping employs power shovels, and some of
bling the street layout of a city; and at another
these monsters are tall as a 15-story building
hole in the wall you may notice the first-aid
and the operator must take an elevator to get
station with stretchers and related emergency
to his cab. The dipper scoops up 175 tons of
7
business review
dirt and rock in one bite. One of these monsters
since been three times as high. Changes as large
costs six to eight million dollars. Power-driven
as 1,700, up or down, take place from one year
augers up to six feet in diameter drill 200 feet
to the next. The ever-changing tipple total re
into exposed coal seams. About one-third of
flects the ease of entry and exit in the coal
the current output is now strip and auger pro
business, but it can be misleading. There are
duction.
horrible
a lot of in-and-outers— “ snowbirds” who come
gashes, destroys fields and streams, and leaves
in when the mercury drops and coal prices rise,
the countryside ugly, desolate, and useless for
only to cease production when the mercury rises
generations. This adds to the economic pains
and prices drop. Over half of the mines, each
producing less than 10,000 tons of coal a year,
Careless
stripping
'leaves
of Pennsylvania.
About one-fifth of the coal is being mined
account for less than 5 per cent of the country’s
with continuous mining machines. Called the
production. At the other extreme are 200 big
“ pushbutton miner,” a continuous mining ma
mines, each turning out over a half-million tons
chine is a self-propelled hippo, with an ugly-
annually, and together they produce half of the
looking face full of teeth that rapidly eats its
country’s coal. Between the extremes is an as
way as far as a thousand feet into a vein of coal.
sortment of intermediate-sized mines striving to
Mechanization, more than anything else, has
saved the coal industry from becoming a mu
become giants.
Additional
complications
are
encountered
seum piece along with dinosaurs and dodo
when you consider ownership. Some companies
birds that have left fossiliferous footprints in
operate more than one mine, and not all com
coal. The industry is completely unionized, and
panies mine coal for sale. Some of the big coal
wage rates are among the highest in the country.
consumers like iron and steel manufacturers and
Years ago, miners and operators used to fight
electric utilities own and operate their own
each other like the Kilkenny cats; but there
mines. Such mines are called captive mines, and
has been no major strike for over a decade,
captive coal production accounts for about one-
during which mechanization has made peaceful
fifth of the total output. The 80 per cent for sale
goes to the fuel supermarket.
and powerful strides. Mechanization performed
the miracle of converting high wage rates into
low mining costs.
M a r k e tin g — A y , th e re ’s the rub
Extracting coal is hard enough, but once coal
The tipple ta lly
is above ground the troubles really begin. Curi
A tipple is a coal mine’s surface structure
ously, the marketing difficulties are also of
housing the machinery that prepares the coal
Paleozoic origin; for it was millions and mil
for market. It got its name from the original
lions
simple device for upsetting the little carloads
competitive fuels to plague coal. The villains of
of
years
ago
that
Nature
fabricated
of coal brought up from the depth. Every mine
the piece and the damage they have wrought
has its tipple whether simple or elaborate. The
are shown in the accompanying pictograph.
latest tipple count shows over 7,600 bituminous
Note the big bites that oil and gas have taken
and lignite mines. At the turn of the century
out of the coal industry’s market. Just as the
the tipple count was around 3,000, and has
woodpile was replaced by the coal pile, the
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business review
ENERGY SO U RCES
PER C EN T
coal pile is being replaced by oil and gas; and
to the consumer’s cost. Petroleum and gas get
who knows, all three may be replaced by the
to market at considerably less cost through con
atomic pile which is the latest threat, though
not yet hefty enough to have gotten into the
tinental networks of pipelines and gas mains.
diagram.
in 1943 at near 600 million tons, which is in
A high point of coal consumption occurred
When Taft was President and the Standard
dicative of its importance in times of national
Oil Trust was legally dissolved, the coal industry
emergency. Subsequently, one coal market after
was at its peak as a source of energy. Coal,
another has shrunk so that total consumption
of course, continued to grow but its share of
has declined over one-third to a level of 375 mil
the energy
lion tons.
market started downhill a half-
century ago. Petroleum, as you see, made the
first serious inroads on the coal market; and
Et tu, ra ilw a y
now gas is giving both coal and petroleum a
The railroads, of all industries— so dependent
hard time.
on coal carriage for revenue— have virtually
Coal has the misfortune of being a solid and,
forsaken the coal industry as customers. Rail
as such, requires expensive hauling to get it
roads have their own troubles and, in their
to market. The railroads do most of the haul
zeal to cut costs and stay alive, they switched
ing— fortunately for them and for us motorists—
from coal-burning steam locomotives to the more
but the haulage adds considerably to the cost
efficient Diesels, and thereby the coal industry
of coal for the user. In 1961 the average value
lost a 130 million-ton customer. The steel indus
of a ton of coal f.o.b. at the mines was $4.58,
try isn’t breaking any production records and
but railroad freight charges added another $3.40
has learned to make a ton of steel with less
9
business review
coke than heretofore and is now using only
erratic; they shot up to 76 million tons during
about half as much coal as it did during the war.
the Suez crisis, after which exports declined
Coal consumption
by other manufacturing
again to a 35 million-ton level. The world market
industries has also declined substantially. Marine
is big and rough because there are *-so many
craft of all kinds used to burn bunker coal but,
participants in the arena.
like the railroads, they too have shifted to oil
burning power plants, so that market has almost
A bill o f com plaints
dried up. Coal for retail delivery, largely for
The bituminous industry feels that it is “ a step
space-heating purposes, has gone down from
child in the national economy,” that the Gov
120 million tons in 1943 to 30 million tons
ernment’s programs and policies “ pay little or
or less.
no heed to the over-all energy welfare of the
Electric power utilities are the only major
nation . . .” that “ [Governmental policies] are
bright spot in an otherwise somber market
uncoordinated, contradictory, and inconsistent.”
situation. Their consumption of coal has risen
The industry points out that its Eastern Sea
from 74 million tons in 1943 to 180 million
board market suffers seriously from imports of
tons. But even that market for coal is not assured
foreign residual oil permitted under the Gov
because many of the utilities are equipped to
ernment’s quota
burn oil or gas as well as coal and shift when
estimates the 1962-1963 quota year allowing
system. As
an example,
it
ever it is to their advantage. The big electric
imports of
185 million barrels of such by
utilities employ sharp pencilpushers and the
product residual oil deprives Pennsylvania and
moment they spy a lower-priced oily or gaseous
the Virginias of a market for 44 million tons
B.t.u., they forsake Old King Coal.
of coal.
Exports, we almost forgot to say, are up also,
Governmental bodies, it is alleged, condone
but not phenomenally. Bituminous exports are
and promote unfair competition from natural gas.
C O N SU M P T IO N OF BITUM IN O U S C O A L A N D
LIGNITE BY C O N SU M ER CLASS
market, the gas people unload “ dump gas” at
M ILLIO N S O F T O N S
In the summertime, when gas is a drug on the
low prices to consumers equipped to switch from
one fuel to another. The major part of the
country’s gas production is piped into areas not
served by coal, but one-fourth, or the equivalent
of 22 million tons of coal, is in direct competi
tion with coal.
Moreover,
the industry
maintains
that in
the name of navigation, irrigation, and other
miscellaneous purposes, huge hydroelectric de
velopments have been constructed, largely at
Government expense, to displace coal in present
or potential markets. Again, in the name of re
search and development, nuclear power plants-—
in part subsidized by the Government— have
10
business review
been and are being constructed in locations
Larger coal markets are also sought through
served by bituminous coal. In these and other
technological
ways the coal industry alleges that the Govern
One of these is a medium-sized package boiler
improvements
in burning coal.
ment has encouraged or permitted unfair com
unit. A package boiler is a compact coal-burning
petitive practices seriously prejudicial to the coal
plant in which boiler, firebox, automatic stoker,
industry.
all control systems for coal feed, water feed,
When you attend an annual convention of the
temperature and pressure, and the like, are
coal industry and listen to the tales of woe
assembled and shipped as a single, integrated
propounded from the podium by one coal oper
unit ready to be connected to the coal-supply
ator after another; when you burrow through
and ash-disposal systems.
the statistical tomes and observe the declining
Getting coal to market, as previously stated,
curves of production, employment, and consump
is very expensive even after the industry has
tion, and the part-time operation, and the idle
persuaded the railroads to give them coal rates
capacity; when you visit a mine and see oil-
to specific designations and areas substantially
powered machinery digging coal, or go to seek
below their former rates. The industry continues
information at a coal dealer’s sales office in a
to hammer away at the transportation problem.
building heated by oil or gas, you may get the
One possibility with promise is pipeline trans
impression that the bituminous industry is just
portation of coal. If coal is pulverized and mixed
about washed up. We do not wish to create that
with water to form a slurry, the mixture can be
impression— please read on.
transported by pipeline. One Ohio coal company
pipes its coal over a hundred miles to a public
Bitum inous in th e e n e rg y com ple x
utility in Cleveland at less than one-third of the
Coal, to be sure, is no young Cinderella industry
freight charges formerly paid to the railroads.
with visions of fanciful growth and a glorious
Naturally, the railroads don’t welcome that form
future. It is a battle-scarred veteran with tre
of competition and are reluctant to grant rights-
mendous resources and the will to continue the
of-way to companies seeking to bore under their
fight not only to hold but to regain a firmer
tracks to lay coal slurry pipelines.
hold on the ever-growing energy market. The
To lick the high cost of transporting coal by
vigor of the veteran was demonstrated in post
rail, Sunday supplement engineers have long
war 1947, when the industry established a new
advocated construction
record of production of 630 million tons.
stations at the mine mouth to transport “ coal
of electric generating
Fortified with huge resources of coal reserves,
by wire” in the form of kilowatts over high-
estimated good for several hundred or for several
tension lines. Heretofore, numerous obstacles
thousand years, depending upon various assump
have prevented the dream from coming true.
tions, the industry has made and continues to
For example, many a mine mouth lacks the
make heroic efforts to stay competitive. We have
water needed for condensing purposes at a
already observed some of the major strides made
power plant, and high-tension transmission of
in the mechanization of coal mining which have
electricity gets expensive at distances in excess
of a few hundred miles.
worked wonders in keeping coal prices in the
running with competitive fuels.
The dream, however, seems to be coming true.
T1
business review
for late in 1962 the Wall Street Journal reported
duction of low-cost methods of transportation
plans of three major Middle Atlantic states
(such as coal slurry pipelines, extra-high-voltage
power systems to spend $350 million for the
transmission, and integral trains that specialize
construction of two huge power plants and inter
in hauling coal from big mines and big mar
connecting transmission lines. Both power sta
kets) ; (3) expansion of electric space heating;
tions are to be built right in the coal fields—
(4) increased manufacture of producer gas (gas
one in West Virginia, the other in western
made from coal) ; and (5) application of coal
Pennsylvania near Johnstown. More than 600
injection into steel blast furnaces.
miles of half-million volt transmission lines will
carry kilowatts to 30 million
consumers in
Considerable research efforts have already
been directed toward using coal as a raw ma
metropolitan Philadelphia and New York City.
terial to make essentially new products. Exam
Eighteen utilities will be linked together in the
ples are:
the gasification
of
coal,
and the
gigantic power pool that is to go into operation
transformation of coal into crude oil and then
upon completion in 1967. The project should
the making of gasoline from the crude oil. There
be welcome to the coal industry because the
may yet be a major breakthrough whereby coal
estimated costs of getting the energy to market
can be reformed into a liquid or gaseous fuel
to compete more effectively with petroleum and
will be cut in half.
natural gas.
O n the research fro ntie r
Annual expenditures on coal research run to
In mid-1962 the coal industry dedicated a new
about $20 million, about equally divided between
million-dollar laboratory at Monroeville near
Federal money and industry outlays. By way of
Pittsburgh. There, white-coated technicians with
contrast,
manufacturers
of
electric
and
gas
the best of laboratory and library facilities are
utility equipment spend in excess of $100 million
engaged in exploring new frontiers for coal.
annually for research, and the petroleum indus
Most of the coal made into coke is processed
try spends about $300 million a year. Govern
in by-product ovens which yield gas and other
ment expenditures in the area of fuels and
by-products utilized in the manufacture of ferti
energy, including nuclear energy, total about
lizers and a variety of end products. Unfortu
$500 million a year out of total annual Govern
nately, the same products are also made by the
ment research expenditures of around $10 bil
petroleum
lion. From these data it is apparent that even
and
petrochemical
industries
and
generally at lower costs. It appears, therefore,
in the field
that coal research needs to be directed into
encounters formidable competition.
of
research the
coal
industry
other channels.
A speaker at the dedication of the new Mon
A tom ic e n e rg y
roeville laboratory predicted a bright future for
Atomic energy is not yet a serious threat to the
the industry. His remarks were based on an
coal industry, but it is steadily making progress.
extensive study of coal’s market potential. A c
Six reactors are already in operation, seven
cording to that study, the best prospects for
additional reactors are under construction, and
larger markets should arise from : (1) develop
four more are scheduled for completion by 1966.
ment of improved coal-fired boilers; (2) intro
The seventeen together will have total capacity
12
business review
of over i y 2 million kilowatts. Both capital costs
the American Economy, 1850-1975,” foresee a
and operating costs of a nuclear plant are still
market for bituminous coal of 750 million tons
comfortably above corresponding costs of ex
by 1975, which is about double the current con
tracting kilowatts out of coal. The future of coal
sumption. Much of the basis for optimism in the
and nuclear fuel is directly tied in with electric
future of coal rests on anticipated advances in
energy generation, and of course no one can
continuous mining machinery.
foresee what technical changes may take place.
The ramifications and complexities of the
At present, coal accounts for 53 per cent of the
bituminous coal industry, sufficient unto them
electric energy being generated, and nuclear fuel
selves, are magnified many times when one con
only 0.2 per cent. One energy expert, Philip
templates the place of coal in the future of the
Sporn, anticipates that by 1975 nuclear fuels
over-all energy market. There is indeed little
will be generating 7% per cent of the electric
doubt about the rapidly growing expansion of
energy, but that coal will also make progress
our energy requirements. But it is difficult to
and will be generating 63 per cent of the
foresee how coal will fare. To be sure, we have
electric energy. Relatively less energy will be
enormous coal reserves but we also have huge
generated by oil, hydro, and gas.
reserves of petroleum, natural gas, and uranium,
In addition to the electric energy market for
not to mention still untapped reserves of shale
bituminous coal there are the metallurgical and
oil and tar sands. A major technological advance
other markets. Looking at the entire market for
in any of these fields might set up or upset
coal, Schurr and Netschert, in their “ Energy in
bituminous coal.
13
business review
With the Federal Reserve System now engaging in Open Market operations in all
maturities it is o f interest to know just where corporations finance along the maturity
scale. The Federal Reserve Bank o f Philadelphia, with the cooperation o f the Securities
and Exchange Commission, recently collected comprehensive figures on new issues of
publicly offered bonds. H ere we answer the question who offers what volume o f bonds
at . . . .
HOW MANY YEARS TO
MATURITY
Just where along the maturity scale have corpo
rations offered their new bond issues * since
1950? Is there a great deal of concentration or
do corporations spread their offerings fairly
evenly throughout the spectrum of maturities?
A ll corporatio ns
Table 1 shows a maturity breakdown of the
total dollar volume of publicly offered corporate
securities from 1950 through 1961. The most
striking fact about the table is the heavy con
centration of new offerings in relatively longer
maturities and within a narrow range of maturi
ties. Over 80 per cent of new issues offered are
20 years or more to maturity. Moreover, the
cumulative per cent column in Table 1 shows
that a little over 70 per cent of the total dollar
volume of bonds was issued within an 11 year
range, from 20 to 30 years. Beyond 30 years,
only 10 per cent of all bonds were issued. Before
20 years to maturity a little less than 20 per cent
were issued.
Another interesting fact is the concentration
of issues in multiples of five years to maturity.
Thus, if we select just three maturity dates— 20,
25, and 30 years, to maturity— we have almost
* Bond issues referred to throughout this article are publicly
offered issues registered with the S.E.C. They exclude private place
ments. Most are corporate issues, though a relatively small volume
of foreign government issues are included.
14
TABLE
I
PUBLICLY PLACED DEBT ISSUES 1950 -1961
Maturity
Length
(years)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Per Cent
Distribution
Cumulative
Per Cent
Distribution
.062
.223
.031
.675
.805
.346
.042
.304
.029
1.841
.008
5.993
.212
.318
7.208
.084
.662
.420
.285
.316
.991
1.796
2.142
2.184
2.488
2.517
4.358
4.366
10.359
10.571
10.889
18.097
18.181
18.843
19.263
17^549
1.576
1.244
.581
.240
19.661
.799
.703
.655
.472
26.374
37.297
38.873
4 0 .1 17
40.698
40.938
60.599
61.398
62.101
62.756
63.228
89.602
—
( Continued )
Maturity
Length
(years)
30
Per Cent
Distribution
31
32
33
34
35
36
37
38
40
41
43
45
49
50
72
73
79
80
98
99
Cumulative
Per Cent
Distribution
.975
1.394
.564
1.088
3.242
.381
1.063
.182
.898
.003
.004
.060
.098
.380
.001
.001
.008
.008
.039
.009
90.577
91.971
92.535
93.623
96.865
97.246
98.309
98.491
99.389
99.392
99.396
99.456
99.554
99.934
99.935
99.936
99.944
99.952
99.991
100.000
years and under 15 years to maturity.
This heavy concentration of corporate financ
ing in the longer maturities and within a narrow
maturity range is still characteristic of corporate
bond financing even if we eliminate from our
totals the two
industries which traditionally
finance at longest maturities and which account
for the largest proportion of the total dollar
volume of financing (electric, gas and sanitary
services, and the communications industry— both
with average maturities near the end of the
maturity spectrum and which account for a com
bined total of almost 56 per cent of all corporate
new issues).
If we eliminate these two industries, still al
most 70 per cent of the remaining bond issues
fall within an 11 year range of 20 to 30 years.
In du stry g ro u p s
Table 2 shows the average maturity of publicly
64 per cent of all bonds issued-— 17.5 per cent
offered corporate bonds classified according to
issued at 20 years to maturity, 19.7 at 25 years
the industry of the issues. Maturities range
to maturity, and 26.4 per cent at 30 years to
rather widely but of the 51 industries listed only
maturity. This reflects the conventions of bond
six have average maturities under 16 years and
underwriting. It is harder to sell issues of over
only four have maturities of over 27 years.
T A B L E II
AVERAG E MATURITY OF PUBLICLY OFFERED DEBT ISSUES BY INDUSTRY GROUP
Industry G roup Name
Metal Mining
Security & commodity brokers, dealers, exchanges, &
services
W ater transportation
Miscellaneous business services
Retail trade— furniture, home furnishings & equipment
Motion pictures
Personal services
Retail trade— miscellaneous retail stores
Printing, publishing & allied industries
Amusement & recreation services, except motion pictures
Holding & other investment companies
W eighted
Avg. Maturity*
Percentage Share
of
New Issue
7.6
.17
10.0
10.5
13.0
14.2
14.8
15.0
15.3
15.4
16.5
16.9
.0 **
.01
.19
.02
.02
.0 **
.02
.13
.08
.26
* In this and subsequent tables and charts, maturities are weighted by dollar volume of issues.
Less than .01 per cent.
r °
( Continued On next page)
**
15
( Continued )
Industry G roup Name
Real estate
Credit agencies other than banks
Transportation by air
Foreign governments
Crude petroleum & natural gas
Wholesale trade
Retail trade— apparel & accessories
Nonclassifiable establishments
Retail trade— eating & drinking places
Retail trade— builaing materials, hardware and farm
equipment
M otor freight transportation & warehousing
Retail trade— food
Miscellaneous manufacturing industries
Stone, clay and glass products
Electrical machinery, equipment & supplies
Professional, scientific & controlling instruments; photo
graphic & optical goods; watches & clocks
Hotels, rooming houses, camps & other lodging places
Paper and allied products
Textile mill products
Retail trade— general merchandise
Primary metal industries
Leather and leather products
Transportation services
Lumber & wood products, except furniture
Apparel & other finished products made from fabrics &
similar materials
Automobile repair, automobile services & garages
Automotive dealers & gasoline service stations
Machinery, except electrical
Rubber & miscellaneous plastics products
Transportation equipment
Tobacco manufactures
Chemicals and allied products
Food and kindred products
Communication
Fabricated metal products, except ordnance, machinery &
transportation equipment
Petroleum refining & related industries
Electric, gas & sanitary services
Pipeline transportation
Nonprofit membership organizations
Banking
W eighted
Avg. Maturity
Percentage Share
of
New Issue
17.3
17.6
18.0
18.0
18.5
18.7
18.8
19.1
19.6
.60
8.18
.54
7.55
.60
.14
.03
.43
.02
20.0
20.0
20.1
20.9
21.0
21.0
.03
.01
.31
.34
.58
1.57
21.3
21.3
21.4
21.6
21.8
21.9
22.0
22.1
22.1
.19
.31
1.13
.32
1.48
5.40
.04
.30
.21
22.2
22.4
22.5
22.8
22.9
23.2
23.4
23.9
24.4
25.1
.07
.10
.02
1.56
.39
1.81
.37
1.58
1.12
17.03
25.6
26.6
27.2
27.4
35.4
99.0
.43
4.87
38.93
.41
.01
.01
99.92
16
CHART 1
AVERAG E MATURITY OF PUBLICLY OFFERED DEBT ISSUES, 1 9 5 0 -1 9 6 1 *
A V E R A G E M A T U R IT Y O V E R TIME
This tendency was evident not only in the aggre
glance at Chart 1 shows that maturities
gate but also for major industrial groups in
have shown a tendency to creep upward over
cluding manufacturing, utilities, trade, finance,
time. From 1950 through 1955, average monthly
and service.
A
maturities at which new corporate bonds were
One factor which might operate to lengthen
offered fluctuated around the 24 year mark.
maturities would be a rise in the proportionate
After 1955, the series shows a statistically sig
share in total financing accounted for by large
nificant upward tendency, remaining above 25
years for relatively longer periods of time and
industries such as utilities which traditionally fi
dipping below 24 years for only a short span.
be a factor of importance in the lengthening trend.
nance long term. This was not, however, found to
17
CHART 2
AVERAGE MATURITY OF PUBLICLY OFFERED DEBT ISSUES, SEA SO N A L INDEX 1950 -1961
1950
1951
1952
1953
1954
1955
1956
1957
1958
I960
1961
A V E R A G E M A TU RITY: THE S E A S O N A L
for example, the maturities of new issues were 17
PATTERN
per cent above average strictly for seasonal rea
Though one might not expect it, a very pro
sons; in July, over 25 per cent below average;
nounced seasonal pattern exists in the maturities
and in October, almost 25 per cent above average.
of new corporate bonds. Issuance of longer-term
One interesting fact about Chart 2 is the pro
securities seems to be concentrated more heavily
gressive and pronounced decline in the ampli
in certain months, shorter-term issues in others.
tude of the seasonal swing. In January 1950,
The seasonal factors in Chart 2 show the
for example, the swing ranged from 25 per cent
extent of the seasonality in the maturity of new
below average to 25 per cent above. In 1960,
bond offerings. The dark horizontal line through
the index swung from 10 per cent below to about
the chart represents the “ average” maturity. The
7 per cent above average. Throughout the period,
rhythmically fluctuating line shows the percent
upswings
age by which maturities in any particular month
second and fourth quarters, down swings in the
are above and below average. In January 1950,
first and third quarters.
18
are
generally
concentrated
in
the
business review
CHART 3
turities are longest has moved from October to
AVERAG E MATURITY O F PUBLICLY OFFERED DEBT
ISSUES, S E A S O N A L INDEX 1950 A N D 1961
December. Moreover, January has moved from
a seasonal plus to a minus, February from a
minus to a plus.
PER CENT
The seasonal swing results largely from the
fact that different industries have different pref
erence as to the season of the year in which
they float their securities. The industries which
typically offer
a large volume of
long-term
securities tend to concentrate these offerings in
the second and fourth quarters. Industries which
typically finance at shorter maturities concen
trate their
offerings
in the
first and third
quarters.
QUARTERLY AV ER AG ES O F S E A S O N A L ADJUST
MENT FACTORS FOR INDUSTRY G RO U PS WITH
V A R Y IN G AVERAG E MATURITY LENGTH
G roup
1
2
3
I QTR.
127
92
77
2 QTR.
3 QTR.
83
133
1 17
127
1 12
87
4 QTR.
64
63
1 19
The test used to reach this conclusion was as
follows: Industries in a two digit standard in
dustrial classification were broken down into
three groups, those whose new security offerings
averaged less than 20 years to maturity during
the period 1950-61, those whose offerings aver
J
F
M
A
M J
J
A
S
O
N
D
aged over 20-25 years to maturity and those
whose offerings averaged over 25 years to matu
Finally, Chart 3 shows another interesting fact
rity. Seasonal indices were computed of weighted
about the seasonal swing in maturities of new
maturities of each of the three groups and it
corporate bond issues. The seasonal seems to be
was noted that industries belonging to group 3
moving. The month in which average maturities
concentrated their financing in the second and
is shortest, for example, has moved from July
fourth quarters. Group 1 concentrated in the
to September. The month in which average ma
first and third quarters.
19
FOR THE RE CORD
•
• •
BILLIONS
INDEX
Third Federal
Reserve District
M EMBER B A N K S 3RD F.R.D.
United States
Per cent change
i
Per cent change
Factory*
Department Storef
Employ
ment
Payrolls
Sales
Stocks
Check
Payments
Per cent
change
Dec. 1962
from
Per cent
change
Dec. 1962
from
Per cent
change
Dec. 1962
from
Per cent
change
Dec. 1962
from
Per cent
change
Dec. 1962
from
mo.
ago
mo.
ago
mo.
ago
mo.
ago
SU M M ARY
Dec. 1962
from
mo.
ago
year
ago
12
mos.
1962
from
year
ago
Dec. 1962
from
mo.
ago
year
ago
12
mos.
1962
from
year
ago
LOCAL
M ANUFACTURING
Electric power consumed......
Man-hours, total*................
Employment, total..................
W age income*.....................
C O N S T R U C T IO N **
CO AL PRODUCTION
-
2
0
0
0
-11
-1 0
+
2
1
- 1
+ 1
+ 17
-1 0
-
+
+
+
+
+
+
2
+
4
+
1 -
i
+
1
+ 3
-
0
7
+ 18
- 4
+11
+ 5
-
1 -
B A N K IN G
(All member banks)
Deposits.............................
Loans.................................
Investments..........................
U.S. Govt, securities............
Other...............................
Check payments...................
+
1
0
0
+ 4
+ 3
-
1
1
+ 4
+ 3
+ 4
2
+
4
+ 2 + 7
+ 1 + 3
0
+ 1
4" 1 + 13
+ n + 7t
+
5
+ 3
+ 4
+ 1
+ 1
+ 2
+ 12+ +11
+ 5
4" 6
+ 5
+ 10
+ 5
+11
+ 4
- 3
+24
+12
+ 7
+ 9
+ 7
4" 1
+23
+ 10
Consumer............................
’ Production workers only.
’ ’ Value of contracts.
’ ’ ’Adjusted for seasonal variation.
ot + It + It
0
0
+
0
1
+
year
ago
year
ago
0
1
f20 Cities
{Philadelphia
1
-
Scranton.........
-
York..............
1 +
mo.
ago
5
-
1
year
ago
-
1 -
4
-
0
4
4 +
-
3 +
0
1
0
5
3 +
1 -
1
0 +
3 +
7 +
5
1 +
4 +21
-
3 +
7
+
7
-
4 +
8
2
-
3
-
3 +
1 +
5 +
8
-
2
-
2 +
2
-
7 +
5 +
3 + 10
0
0
-
3 +
1 +
5 + 11
-
2
-
2
-
1
0 +25
1 -
4
-
5
-
5 +
5
1 -
1 +
3
-
2 +
5
9
2
1 -
1 -
5
0
+
+ 1
-1 0
4 +
— 2 +
-
1 +
0 +
0
0
-
-
3
0 +
1
Trenton..........
Wilkes-Barre. ..
0 +
4
0
Philadelphia. . . .
Wilmington......
PRICES
0 +
0
Reading..........
+
i
0 +
Lancaster........
TRADE***
Department store sales...........
Department store stocks..........
year
ago
8
7
2
5
15
3
year
ago
-
+
0
-
+ 15
2 +
5
’ Not restricted to corporate limits of cities but covers areas of one or more
counties.
{Adjusted for seasonal variation.
@FedFRASER