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JUNE 1 9 5 7 business review FEDERAL RESERVE BANK OF PHILADELPHIA JERSEY — A STATE IN TRANSITION ch to the Convention of New Jersey Bankers by Alfred H. President of the Federal Reserve Bank hia. The theme of this speech is developed ational and regional backdrop. OF THIRD DISTRICT ARKETS Homebuilders are making fewer starts, mostly in higher price ranges. Activity is off sharply in mortgage markets, reflecting tight money and a declining demand for home financing. CURRENT TRENDS Prices are still rising— are costs pushing or demands pulling? Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. NEW JE R S E Y A STATE IN TRANSITION The central theme of the New Jersey Bankers the years immediately following, the expansionary Association Convention— the development of the impetus created by the war continued to work. A economy of the State of New Jersey— is one in few statistics will illustrate the point. which the Federal Reserve Banks of New York Between 1941 and 1955 the military in this and Philadelphia are greatly interested. It is somewhat hazardous to join the other speakers country expended $527 billion. Figures of this magnitude are difficult to grasp and for purposes in developing the topic because they have first of comparison it is worth recalling that during hand knowledge of specialized aspects. I also hesi World War I in its entirety— and this includes the tate to speak in the presence of the Governor of so-called loans to allies— we expended only $33 the State because of his vast knowledge of New billion. In the course of the fifteen-year period, Jersey and its development. 60 per cent of all federal expenditures were for It will be helpful in thinking about the economy of New Jersey to develop first the national back military purposes. These expenditures for the “ hot” and “ cold” ground. It is not intemperate to say that the war stimulated other phases of the economy. Ob United States has in recent years been undergoing an economic and social revolution. This, of course, solescence and depreciation of industrial plant has been true of the United States at all times. In 1956, we spent $111 billion for plant and equip- were greatly accelerated. In the years from 1946- recent years, however, there have been significant differences in degree if not in kind. A few of the primary forces making for change are worthy of note. The w ar impetus During World War II the economic activity of the This article is taken from an address made by Pres ident Alfred H. Williams at the New Jersey Bank ers Association Convention in Atlantic City, New Jersey, on Thursday, May 23, 1957. United States doubled in volume. Furthermore, in 3 b usin ess r e v ie w ment. Again, the significance of this figure is en growth. As recently as 1936 some students of pop hanced by the observation made in 1944 by the ulation growth forecasted a stationary population War Production Board that the worth of the then in the United States beyond the year 1957. The existing manufacturing plant of the country was growth that has occurred in the last twenty years $75 billion. Currently, we are spending for plant was not envisaged. In the sixteen years prior to and equipment at a rate of $17 billion annually. 1940 our population expanded 16 per cent; in the The expansionary forces born of the war also sixteen years since 1940 our population has ex had effects on consumer demand. Such items as panded 27 per cent. Consider the situation here in houses, automobiles, and household appliances— New Jersey. The number of births recorded in 1955 was double that of 1940. all in short supply during the war— were in great demand. As this pent-up demand expanded, there Perhaps it would be interesting and worthwhile was a war-created accumulation of purchasing to digress for just a moment and raise some ques power— war bonds, bank deposits, and other tions: What accounts for this increased willing liquid resources. Here were the ingredients for ness, this zeal to expand the human family? Is it developments on the consumer front that were to due to some deep-seated racial urge or drive in the transform life almost incredibly. face of Man’s daily diet of tension and trouble to perpetuate our kind? For example, we know that The rapid rise of trade unions Nature stimulates the production of an apple tree The rapid expansion of trade unions— another when the tree is injured. It is as though Nature basic influence that has been at work— had its ori seeks, in a last effort before extinction, to put forth gin in the mid-Thirties— in the trough of the Great an unusual crop and thus insure survival. Depression. The modern trade union movement Is the increase in the birth rate the cause of stems from the 1880’s. It gained in strength rather prosperity? Or is it the result of prosperity? slowly. In 1933 membership represented about 5 Economists are not in agreement on this. Like per cent of the labor force of the country. The next wise, students of population are not in agreement year a period of rapid growth started and by 1954 as to whether the current higher rate of popula membership had climbed to 16 million or about tion growth is permanent or transitory. 25 per cent of the labor force. The unions, for a were most successful at the bargaining table. The These and other b ask influences combine to push economic expansion leaders came, never asking for less, always asking The net results of these basic influences have been number of reasons beyond the scope of this talk, for more, and obtaining a considerable portion of a tremendous over-all economic growth. Some gen what they asked. The rapid rise in income was eral statistics will indicate this. yeast in the economic dough that exerted a tre Gross national product in this period increased mendous expansionary force in the national econ omy. 240 per cent. Disposable personal income on a per capita basis has gone up 149 per cent. Highlevel employment has come to be regarded as nor The exploding population totals mal. In 1939 there were 9 ^ million persons un A third basic factor in the expansion of our econ employed in the United States. In 1956 unemploy omy has been the accelerated rate of population ment had dropped to 2.6 million, despite a 22 per 4 b usin ess re v ie w cent increase in the labor force. This unemploy Bay and the Delaware River almost surround it by ment is almost a normal residual amount— econo water. It has 300 miles of navigable water, and 60 mists call it “ frictional unemployment,” the kind per cent of the area is in Coastal Plain. that is with us at all times, as workers change jobs, as old industries lose ground slowly, and as new Population gain is rapid industries emerge. The current population of New Jersey amounts to With this great expansion in business activity nearly 5 % million. In the period from 1940-1955, has come an interstate stampede for industry. it grew about 32 per cent as compared with an 11 States vie with each other vigorously to induce per cent increase in Pennsylvania and 19 per cent firms to locate within their respective boundaries. The inducements offered are many: land grants, preferential taxes, state-supported credit corpora tions, industrial parks, port improvement projects, and numerous other allurements. From this competition there have emerged marked differences in the rate of growth in the various economic regions of the United States. In the period 1947-1954, manufacturing (as meas ured by “ value added” ) has expanded 57 per cent in the country as a whole. In the Pacific Coast Region the growth has been 104 per cent. At the end of the race came New England, where the in in New York. The population of the United States increased by about 26 per cent. When the population distribution of New Jersey is analyzed, two areas emerge. First, there is heavy concentration in the northern counties. Eight of these counties have 70 per cent of the population of the state. This eight-county area grew at the rate of 28 per cent during this period under scru tiny; the remaining counties grew more rapidly, at the rate of 41 per cent. A farm state? crease has been 33 per cent. Next to last was the This state is euphemistically called “ The Garden Middle Atlantic States, of which New Jersey is a State.” Agriculture provides only 2^2 per cent of part. the total employment of the state. This is not to say that agriculture is not important— it is. On the NEW JERSEY — UNDER EXAMINATION other hand, it does not swing as much weight in Turn now from the national and regional scenes the broad totals as might be imagined. Highly and put New Jersey under the glass for a close concentrated, agriculture in the State of New Jer look. An outstanding fact about New Jersey is that sey is confined to a narrow strip. This goes from it is one of the smallest states in the Union. In size one bay to the other bay, the length of the state. it ranks 45— right down at the bottom. As the This strip is between 15 and 25 miles wide. It has crow flies, this small, kidney-shaped strip of land 2,500 square miles in it and it covers a third of is 166 miles long and at its narrowest point only the area. Generally, the farms in this narrow strip 32 miles wide. One gets some idea of the contour are small and diversified. of its 130 miles of coast line when informed that Much of what has been said about agriculture the total shore line is 1,800 miles in extent. Except in New Jersey emphasizes its small size, yet farms for 50 miles along the New York boundary, New in this state rank first in the whole United States Jersey would have been an island. The Hudson in cash receipts per acre. New Jersey ranks fifth River, the Bay, the Atlantic Ocean, Delaware among all the agricultural states of the country in 5 business re v ie w the average cash receipts per farm. In agriculture, Consider some significant figures that can jus you have quality if not quantity. tify your pride and stimulate action in ways which What is the future of agriculture in New Jersey? will be touched upon in just a moment. New Jersey Mr. B. L. Seabrook has asked that a state-wide, is seventh among all states in the country in value land-use survey be made. This is a constructive added. Among the leading industrial states of the suggestion. Agriculture should not be unnecessar country it ranks fifth in industrial growth in the ily shoved around in your zeal to build up indus period between 1947 and 1954. In industrial di try. If industry is allowed indiscriminately to take versification, which is a difficult thing to measure, over land that is highly developed and useful for it is estimated that New Jersey is number one agricultural purposes, the State of New Jersey will among the top industrial states in the United be weakened. The best farm land should be set States. There is a well-balanced industrial setup at aside for this purpose. New Jersey farms are present in the state. ideally suited to service the huge metropolises of When one looks more closely at industry, we Philadelphia and New York. With careful devel find again a contrast between the north and the opment and further use of modern machinery and south. In 1939, 76 per cent of all manufacturing fertilizer, farms have a solid potential. in the state was concentrated in the eight northern counties referred to in discussing population. In Industry is on the rise 1954 this proportion had gone up to 79 per cent— The most important source of employment in New a high degree of concentration in the northern Jersey is manufacturing, in fact this is a heavily counties. industrialized state. About 38 per cent of the em ployment of New Jersey is derived from manu Concentration of industry brings problems facturing sources. The average for the United The northern counties are part of the New York States is 26 per cent. metropolitan complex— that great mass of human ity tangled up with the artifacts of civilization, NEW JERSEY, SMALL IN SIZE, IS BIG IN VALUE ADDED BY MANUFACTURE. BILLIONS $ 0 trying to figure out how to progress at the rate of some of the newer sections of the country..Because the northern New Jersey counties are tied in with the New York metropolitan area, they share many NEW YORK of its problems— problems dealing with traffic, OHIO with outmoded industrial buildings, with a shrink PENNSYLVANIA ing tax base, and other aspects of growth and ILLINOIS decay. MICHIGAN New Jersey is not peculiar in this regard. Man CALIFORNIA everywhere throughout the world is confronted NEW JERSEY with the problem of metropolitanism— of the INDIANA MASSACHUSETTS metropolitan tangle. This is true of Mexico City, Johannesburg, Berlin, London, Los Angeles (which someone described as “ six towns in search Source: U. S. Bureau of the Census 6 of a city” ), Chicago, Cleveland, and many others. jsin e ss re v ie w AMONG LARGE INDUSTRIAL STATES, NEW JERSEY HAS HAD AVERAGE GROWTH IN VALUE ADDED BY MANUFACTURE— 1947-1954 PER CENT 0 20 40 100 120 CALIFORNIA eral, state, and local government as well as private sources. What is now going on in Newark under a variety of auspices can serve as a model for other communities in northern New Jersey. New pioneering country MICHIGAN The middle and southern areas of New Jersey OHIO have equally difficult problems but of a different UNITED STATES nature. Here, instead of size, complexity, age, and INDIANA maturity, are to be found problems associated NEW JERSEY with inexperience, over-optimism, excess zeal, and NEW YORK vigor. Consider the elements of strength in this PENNSYLVANIA section of the State of New Jersey. ILLINOIS MASSACHUSETTS First are the strengths of location. Think of the raw materials that are readily accessible to the state, by rail, by water, by road. Consider also the Source: U. S. Bureau of the Census markets that are accessible to New Jersey manu facturers and farmers. Think of the labor supply that is accessible. Recently there was opened a Competent students in government have said that the number-one governmental problem facing the United States is how to redevelop our great metropolitan areas— decaying at the core, with people moving to the periphery and thus creating the suburban shantytowns of tomorrow. Such problems have aroused the interest of the Ford Foundation. It is supporting studies in St. $100 million bridge connecting New Jersey and Philadelphia and the rest of Pennsylvania. New Jersey manufacturers in the area serviced by this bridge can now easily draw upon a labor supply in the City of Philadelphia. Within a 100-mile radius of the center of New Jersey there are about 20 million people ready in the ways indicated to be served or to serve. Louis, Boston, Detroit, Cleveland, and elsewhere. Brief comments may be made on other elements The Rockefeller Brothers and the Ford people are of strength. Adequate water supply is generally putting funds into a study of what is likely to hap regarded as a problem in New Jersey and it is, but pen in New York City in the next twenty years. In you are aware of the problem and something is Philadelphia, where the problems of metropolitan being done about it. At present, under Federal growth and decay are especially complex, the Ford Government leadership, a survey of water re Foundation has been asked to supplement local sources and needs is being conducted. An inade and state funds for a study of the metropolitan quate water supply is not likely to limit your area. growth in the near future. The size and complexity of the task of rebuild A word about the labor supply is in order. It ing our congested areas call for heroic measures. interested one of the Bank’s economists who at Great amounts of capital will be needed. These tended a county development meeting in southern funds will have to come from many sources— fed New Jersey to hear an industrial-development man 7 b usin ess r e v ie w from the anthracite area of Pennsylvania, in the result of the basic forces touched upon at the out course of that session to the New Jersey leaders, set, is undergoing vast changes in its mode of liv say: “ One of the elements of your strength is that ing. None is more evident or more important than you have in New Jersey no hard core of unem the matter of leisure and the use we make of lei ployment. Therefore, you do not have to offer sure time. In 1900, the average work week was everything including the town pump to induce about 60 hours; in 1925, it was 50 hours; in 1953, firms into your state.” it was 40 hours, and it is confidently predicted Regarding transportation facilities, there is not that by 1965, if not before, it will be 35 hours. In a state in the Union that has the equal of New 1940, 40 per cent of the production workers of Jersey’s transportation facilities— 11 major rail this country had paid vacations, and soon it will roads, with the greatest trackage per square mile be close to 100 per cent, except for the self-em in the United States; a 118-mile Turnpike, a 165- ployed. mile Parkway, bridges, the possibility of a series The growth of Social Security and pension of low-cost, cross-state laterals that will give to plans means dependable spendable income in old New Jersey a superhighway grid the like of which age. Americans of all ages are now confronted is not to be seen in any of the other states. I under with the task of choosing what sort of life we shall stand that the Federal Highway Fund Act will give live— what our personal pattern of consumption to New Jersey on a ratable basis $750 million to is to be. We may well forego tangible goods for be expended by 1970. Adding all these to the Dela leisure. Rather than buy goods, we may travel, ware River and the New York Harbor, the state engage in sports— as participants or spectators— has an exceedingly fine transportation system. cultivate a garden, enjoy literature, or feed our The question of taxation is picked up gingerly. sense of self and of enjoyment in myriad other My friends tell me that, locally, taxation varies ways. There are almost as many ways for us to greatly from community to, community and also spend our “ extra” dollars as there are individuals. that state taxes on intangibles are beginning to New Jersey is ideally suited for vacation busi tighten, and that there are frictions between these ness. It is close to two great metropolitan areas. It sets of taxes. Perhaps a bromide is in order. The has 120 miles of beach. But it requires more than problem here is how equitably you are going to a good location and a good beach to have a good tax and how intelligently you are going to spend. recreational area. Last year your speaker had These are the two sides of the tax coin. This is a occasion to talk to 125 of the leaders of Atlantic basic problem and the speaker leaves it with the City. We talked of the challenge that was now pious wish that you can get in the field of taxation coming to Atlantic City with this long-run rise in something that he has heard since boyhood and income. Star-gazing a bit, we discussed what sort once experienced as a result of trying to exceed of a recreational city it would be possible to have, the speed limit getting from Ocean City to Phila utilizing all of the strengths that the seashore areas delphia, and that is “ Jersey justice.” now have. The business of recreation four or five governmental units surrounding At Turn now to a final aspect of the economy of New lantic City. Then, nearby on the bay, as an ad Jersey— the recreation industry. America, as a junct to the island itself, a large recreational city The possibility was pictured of merging the 8 b usin ess re v ie w might be created with the aid of private, state, and ured statistically. It will depend on attitudes of federal funds. A city was pictured where every mind, on richness of spirit, on willingness to dis block would be functionally designed. There cipline yourself, on capacity for cooperation. And, would be blocks for young married people, with very importantly, the future of New Jersey will a pediatrician on the site; where there would be depend on solid leadership— the leadership to baby sitters, laundry services, inexpensive recrea guide the “ younger, immature” southern half of tional facilities, air conditioning, etc. Another the state; the leadership to redevelop the mature block was depicted for the eager-beaver athletic areas; the leadership necessary to take advantage type where young would-be athletes could learn of your small size and compactness. about baseball from a Ted Williams, tennis from Consider this last point for a moment. One of a Jack Kramer, golf from a Ben Hogan, and so on. the great philosophers of America, Josiah Royce, This was to be supplemented with an educational observed that America needs more provincial tutelage service to bring up to college or prepara loyalties. By this he meant that Americans need to tory school standards those deficient in specific attach themselves and to be loyal to that which is courses of study. We pictured a great salt-water small enough to be embraced, to be understood, tidal basin, as a result of dredging, where there to be adorned, to be served, and that if there con could be boating similar to the types that attract tinues to be further centralization of power in the youngsters to New England. And to complete Washington, the American spirit will become the picture, there would be blocks for the aged, estranged from itself. Viewed in this light, your where medical consultants, specializing in diseases small size, your compactness can serve as an asset. and ailments of old age as well as special diets, Your state is not so vast in extent that you as in would be available, a hobby center where new interests could be developed, and a recreational dividuals and business leaders cannot come to know each other thoroughly. New Jersey’s oppor center which would provide interesting diversion tunity for further growth can be realized if you — mental and physical— for those of advanced consciously develop your local capacity to co years. operate. Much of what was said at that meeting is fanci Bankers must accept the responsibility for pro ful; it is dreaming aloud. The standards of living viding a good part of this leadership. There is a in the years ahead will be such as to warrant this lot of leverage in your position as bankers. You type of development, and it is in the spirit of occupy a strategic position. America where, in the words of a great philos opher, “ Life is a becoming, never an arrival.” I have always had a soft spot in my heart for New Jersey. There are no memories more pleasant or precious to me than those of my early years CONCLUSIONS This is New Jersey as I see it in this current period of transition. I conclude with this rhetorical ques tion: What is to be the future of New Jersey? The future of New Jersey will depend upon the imponderables— the forces that cannot be meas vacationing in New Jersey. Of a different sort, but also enjoyable, are the memories of my 17 years with the Federal Reserve System, the years cov ered by the period I have been attempting to analyze. Dealings in this period of maturity with the bankers of New Jersey will be cherished in the days ahead. 9 business re v ie w A SURVEY OF THIRD DISTRICT HOUSING MARKETS Homebuilders and realtors see no major improvement over the remainder of 1 9 5 7 Homebuilders in major city areas of the Philadel substantial retrenchment was in order. The slack phia Federal Reserve District have become in ening rate at which completed units in so many creasingly cautious. They have made fewer starts operations were selling at that time dictated such and shifted operations to projects in the higher a course. In s6me cases a substantial number of price ranges. The urgency of housing demand has finished houses was carried over the winter, and disappeared, with the greatest decline in the mass these moved slowly through the early spring. But market. Activity in the mortgage market has di even now, at the peak of the season, builders say minished sharply owing to tight money and de that prospective buyers shop around, “ covering clining demand. the waterfront,” before making any decision. This was the consensus of a spot check made So it is not surpising that our homebuilders with local builders, realtors, and mortgage brokers have scaled down to market size their 1957 oper operating in this Federal Reserve District. But ating plans. On this basis, builders feel that it’s there were some bright spots in this otherwise a much healthier situation and want to keep it gloomy picture. Most builders spoke of the small that way. As indicated by the value of residential “ overhang” of unsold new houses this spring. Rel contracts awarded in the first four months of atively few areas reported more than the usual this year, very few of our major city areas can number of old houses on the market. In most cases expect much of an increase in housing starts this these dwellings were moving slowly because ask summer. In some areas this yardstick suggests ing prices were too high. In rental properties, oc a further sharp decline in activity. According to cupancy was generally well maintained at firm the F. W. Dodge Corporation’s figures for the rates. And a tight mortgage market appeared to Third District as a whole, the residential contract have eased slightly since the turn of the year, total for this period was down 17 per cent from chiefly insofar as FHA funds were concerned. 1956, compared with a 20 per cent decline shown Conventional financing has remained readily at the end of the quarter. available in most places. Builders shifting to higher-price ranges Housing starts in a sharp decline The mass market for new housing has declined As early as last fall even the more optimistic of our most and builders have very little to offer in the Third District builders took another look at their lower price ranges. Rising costs have been a factor 1957 plans and decided that a policy of further but the extreme difficulty of obtaining VA financ 10 b usin ess re v ie w ing, except at prohibitive discounts, has been Existing houses, particularly the larger ones in largely responsible for the fewer starts in the price older neighborhoods, however, sometimes pre ranges below $15,000. The price of land has con sent more of a problem in obtaining financing. tinued to increase sharply. Improvement costs In today’s mortgage market, lenders can afford are still rising because of higher wages in the to be more “ choosey” in the type of risk they construction trades and increased prices of some will accept. Lately, the number of old houses materials used in developing building sites. The offered for sale has increased significantly in a Homebuilders Association of Philadelphia, for few city areas of this District. But it seems to be example, recently signed a three-year contract that the opinion of realtors that some of these listings will raise pay rates in local building trades a total may be made to test the market and do not repre of 30 cents an hour by 1959. Cement, plumbing sent an urgent desire to sell on the part of the fixtures, and steel are among the materials that owners. have become more costly in recent months. A relatively few building materials have decreased Rental dem and continues active slightly in price, chiefly because of smaller Properties in any reasonable state of repair rent demand. promptly in all our larger city areas. In fact, the In the $15,000-and-up bracket, activity has chief complaint of many real-estate agents has been fairly well maintained in various parts of been the shortage of listings for both houses and District. Suburban Philadelphia and the apartments in desirable locations. In most areas Wilmington-Newark area in Delaware are places the trend of rentals has continued firm to rising. In cities like Philadelphia, Lancaster, and Scran our where both operational and custom homebuilders seem to have become more active lately. And they are looking at the fall market with some ton, where rental statistics are published as part of the Bureau of Labor Statistics consumer price what more optimism. Harrisburg, Trenton, and index, the trend has continued steadily upward Reading are other areas where this year’s starts through the early months of this year. Reports have been virtually restricted to projects in the from other areas generally indicate a similar higher price ranges. Nearly all builders say that situation. only higher priced quality homes have sufficient these buyers usually have sufficient cash to Mortgage money is tight, but there are signs of easing qualify for either a conventional or an FHA Although mortgage brokers are generally pessi mortgage, consequently closings don’t hang fire mistic, some see a slightly easier situation devel and final settlement usually can be made promptly. oping, while others look for an improvement, “ eye appeal” to bring out buyers. Moreover, possibly later this year. The mortgage market is Old houses are moving slowly described as complex and unusually quiet. Con Activity in the market for old houses also has ventional mortgages present no problems at all. slackened considerably, largely because so many owners have not yet taken a realistic view of Financing on the basis of at least one-third down at interest rates ranging from 5 % to 5 % per values. Usually where asking prices have been cent has never been difficult to arrange. On so- lowered, sales have been reasonably prompt. called prime risks involving new houses and a 11 business r e v ie w somewhat larger down payment, funds are avail availability indicated that only builders holding able at a slightly lower rate. commitments made some time ago were in a posi FHA mortgages are said to be gaining favor tion to offer VA home financing. In secondary — and this is about the extent to which the mort markets, these mortgages are said to be available gage market appears to have become easier. In only at discounts ranging to 10 points. Builders some cases where the down payment is more are not prepared to offer financing on such terms, than the minimum required by law, these mort and it becomes too expensive a proposition for gages are available at par value. With a mini mum amount of cash, points are still charged the average owner of an old property unless he is although the discounts are somewhat smaller than around the turn of the year. Some say that more FHA money is becoming available since the pension funds began investing in this type of mortgage. Others feel that availability has in creased mainly because the demand has been so much smaller than a year or two ago. In any event, a continuing flow of funds into FHA could make quite a difference in the mortgage market. extremely anxious to make a quick sale. “ More of the sam e” seems to be the 195 7 outlook Over the remainder of this year builders expect to make fewer starts than in 1956. A few look for some improvement in the fall market but only if there is further easing in the mortgage situation. No builders at this time have plans for any signifi cant amount of low-cost housing. The market for On VA loans, however, it is a far different old houses seems unlikely to change much unless story. These mortgages bearing 4V2 per cent asking prices become more realistic. Rental de interest simply can’t compete for the supply of mand prospects look good, and no increase in investors’ dollars. V A ’s also lose favor by reason vacancy rates is anticipated. Mortgage brokers of the small initial equity a prospective home and the larger lenders are hopeful of a better buyer has in a property financed on the mini situation by fall, but most of them agree they mum terms permitted. Our inquiries concerning have very little to go on at the present time. 12 b usin ess re v ie w CURRENT TRENDS Cost-push or demand-pull? Nothing that has happened over the past four Since employers are naturally unwilling to take weeks seems to have changed the business picture the wage increases out of profits, prices must rise materially. Of course, it is now quite definite that — be pushed up. the usual spring upturn in automobile sales As might be expected, there are many variants didn’t happen. It is also true that major house of this basic thesis. One interesting concept has hold appliances are not selling as well as a year it that the cost-push comes from a “ derived” ago. Undoubtedly the slowdown in housing starts wage rise. has influenced appliance sales adversely. Gen The idea is that wages of productive workers erally, however, the expected rises in Government in manufacturing rise as a result of collective spending, plant and equipment expenditures, and bargaining procedures. To a large extent, if not spending by consumers on food, clothing, and completely, these hikes are offset by the intro services have materialized. So that looking at duction of new machinery and equipment which the total picture, these increases have more than sharpens productive efficiency. Since there is a counterbalanced the soft spots. general wage pattern, the rises granted produc Perhaps the item of business news which re ceived the most attention during the past month was another hike in the consumer price index. tion workers in manufacturing set in motion forces tending to push up wages of workers in the service trades. Garage mechanics, television This marked the 13th month in the past 14 that the set repairmen, bus drivers, bartenders, barbers, cost of living increased. To be sure, the monthly hospital orderlies, and others all must have their increases have seemed small, but they’ve been incomes adjusted to maintain some kind of rela consistent. At present, consumer prices stand 4 tionship with industrial workers. But in this type per cent higher than in April 1956. of work— the services— it is frequently impos The persistence of these rises in the general sible to do anything by capital investment to im level of consumer prices has stimulated much prove productivity. So the price of services rises speculation as to the cause or causes of the infla and pushes up the general level of consumer tionary trend. As might be expected, there has prices. been some disagreement among the analysts. Not The basic thesis of the “ demand-pullers” has all see the causes of current price rises in the it that there is too much money chasing too few same way. In the main, however, writers on this goods. Put another way, the idea is that parts of subject may be categorized as “ cost-pushers” or our economy want to borrow more than we are “ demand-pullers.” willing to save— investment exceeds voluntary saving. This means the only way some borrowers “ Cost-pushers” vs. “ dem and-pullers” can be satisfied is through the creation of credit, The basic thesis of the “ cost-pushers” is that i.e., money. Since the central bank has been un wages are rising faster than productive efficiency. willing to create all of the funds demanded, the 13 b usin ess re v ie w economy has found ways to use the existing to buy automobiles and some other durable money supply more efficiently. And through a goods that are turned out on the assembly line. large increase in the turnover of money— velocity Also, this attempts to explain why prices rose in of circulation— the business system has gener 1956. The sharp increase in demand for credit ated its own new credit and tended to negate by businessmen was so they could build new fac some of the central bank’s restrictive actions. Again, there afe variants of the basic thesis. tories and office buildings, and buy new ma chinery and equipment— items not nearly so One involves productivity and for that reason bears a suspicion of resemblance to some of the adaptable to mass production. cost-push theories. Here it is said that the type Who is winning? of goods enjoying an increase in demand deter The discussions between the “ cost-pushers” and mines whether or not prices will rise. For ex the “ demand-pullers” will undoubtedly continue. ample, if demand rises sharply for items able to To date, they have been very illuminating. They be mass produced through assembly line meth promise to continue to be so. ods, prices will not be materially affected. On It still seems a little early to choose between the other hand, prices will rise when there is a the two basic theories. All of the arguments sharp increase in the demand for goods not aren’t in yet. It could be that when they are, amenable to mass-production methods. many of us will still feel the same way we did as This reasoning is used to explain why prices children when first confronted by that all-time hardly changed in 1955 despite a tremendous perplexer, “ Which came first, the chicken or the increase in the demand for credit by consumers egg?” 14 F O R T HE R E C O R D . . . billio ns 4 M EM BER B A N K S 3 RD F R .D . BA N K IN G D EPO SITS 8 7 - /\J \r \r v V *T C H E C K PAYM EN TS (20 CITIES) 6 5 - LO A N S _ l _ 1 1 1 1 1 1 \ ---r - _________________________ . IN V ESTM EN TS 2 2 YEARS AGO Third Fed e ral Reserve District Per cent chang e SU M M ARY O U TPU T M anufacturing production. . . C o a l M ining ..................................... EM PLO YM EN T A N D IN C O M E Factory employment ( T o t a l) .. . TR A D E** Department store s a le s ................ mo. ag o year ag o 4 mos. 19 57 from year ag o -1 -4 -5 -4 -4 + 1 -1 -1 -1 0 0 + 1 A p ril 19 5 7 from mo. ag o ye a r ag o -2 -5 + 1 -1 -2 0 4 mos. 1957 from year ag o 0 -2 -1 0 + 3 + 2 -4 0 0 + 4 + 5 + 4 0 + 2 -3 +1t + 3 +6 -2 -1 -3 +3t + 2 0 + 2 + 3 + 1 -2 + 3 + 7 -2 -2 -1 +9 + 2 + 8 -4 -6 -2 + 8 + 4t 0 0 + 3 + 4 + 4 + 4 Consum er................................................ **Adjusted for seasonal variation. ot + 3t t20 Cities JPhiladelphia Check Payments Payrolls Sales Stocks Per cent Per cent Per cent Per cent Per cent change change change change change April April April April April 1957 from 1957 from 1957 from 1957 from 1957 from mo. year mo. year mo. year mo. year mo. year ago ago ago ago ago ago ago ago ago ago + 2 -3 -2 0 + 4 -1 + 3 0 + 11 -1 -3 0 Lancaster. . . 0 -3 PRICES LO C A L CH AN G ES Philadelphia. B A N K IN G ( A l l member banks) D eposits.................................................... + 2 L o a n s .......................................................... + 1 Investments............................................. + 3 U .S . G o v t, s e c u ritie s.................. + 4 O t h e r ...................................................... - 1 C h e c k paym ents................................ Ot 16 Employ ment APR 1957 Department Store Factory* U nited States Per cent chang e A p ril 19 5 7 from YEAR AGO +1 -5 -1 0 - + 3 + 6 1 + 16 + 9 - 1 — 4 1 + 6 + 11 0 + 5 +10 + 10 + 2 + 4 + 1 + 1 -2 - 2 +13 + 16 + 7 + 13 - 5 — 7 Scranton. . . . -1 -1 -1 + 4 + 23 + 15 Trenton........ -3 -5 -5 - Wilkes-Barre. - 1 -1 -2 + 6 + 16 + 14 + 3 + 1 0 + Wilmington.. -1 -2 + 4 + 5 + 15 +17 5 + 1 York............ -2 -4 -3 - 0 - 2 + 2 + 3 5 + 16 + 7 + 4 + 3 -1 2 + 1 3 + 8 + 7 - 0 + 11 2 - 8 7 + 3 + 3 *Not restricted to corporate limits of cities but covers areas of one or more counties.
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