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OCTOBER 1955
business review
FEDERAL RESERVE
,ANK OF
PHILADELPHIA
THE CAR OUTLOOK— STYLE, DEALS AND CREDIT
In 19 5 5 , car buying was stim ulated by style ch a n g es, easy cred it,
d ea lers' “ d e a ls ," an d higher incom e. D ealers may b e “ d e a lin g ,"
an d incom es rising again in 1 9 5 6 , but style chan ges will be few
an d cred it less e a sy, so that sa les may slow som ewhat.
CURRENT TRENDS
Business in the Philadelphia Fe d e ra l Reserve District
ir quickening its p a c e a fter a summertime “ b re a th e r."
Em ploym ent, prod uctio n , incom e, and spen din g are rising.
Additional copies of this issue are available
upon request to the Department of Research,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pa.
THE CAR OUTLOOK
STYLE, DEALS AND CREDIT
Sometime in the middle of 1953 a big change
Demand for automobiles
came upon the automobile industry. Supply
caught up with demand. Reasons for buying and
First things first, so let us try to determine what
ways of buying changed.
Before mid-1953, automobile makers were pro
ducing for a market swollen by a war-created
shortage of new cars. By mid-1953 it was esti
mated that they had pretty well satisfied the back
log of demand. Since then car people have been
“ selling hard” — creating a desire for new cars.
“ Desire buying” has had to replace “ need
buying,” and anyone who sells anything— from
houses to carpet tacks— will tell you there is a
big difference.
Dealers were, perhaps, first to
feel the difference.
Soon, however, the impact
spread and producers, bankers, and nearly every
one selling anything were affected one way or
another by the change.
constitutes the demand for new cars.
In the
opening paragraphs we referred to desire buying
replacing need buying. We were, of course, over
simplifying. Consumers never needed cars in the
same sense that they need, well, food and shelter.
But before mid-1953 some people whose income
and mode of living indicated they “ should” be
car owners did not own cars. Many more people
were driving cars much older than would have
been expected. So we simplify and say that need
buying was dominant.
In this kind of market,
car makers were pretty sure of selling all they
could produce.
But how about now, when desire buying dom
inates the market. What determines the level of
This article tells of the shift in importance
car sales in this changed environment? Of course
among the factors influencing the demand for
there is an easy way to answer this. It involves
cars, and theorizes about what this may mean
to car sales in 1956.
sales, and usually goes something like this: car
a simple listing of all the factors influencing
3
b usin ess r e v ie w
demand will be influenced by trends in car popu
better than a one-to-one ratio. But we know that
lation and household formation, fluctuations in
some of these cars are owned by business firms
income, the number of cars scrapped, style and
and two-car households.
engineering innovations, selling ability of dealers,
sumer Finances indicates that in early 1955, 71
and changes in credit terms. This kind of answer,
per cent of all families owned cars.
while safe, is not too illuminating if it stops
The Survey of Con
Let us take this figure and assume that 29 per
there. It is useful only when some relative im
cent of
portance is assigned to the factors in this listing.
When we say that automobile demand has re
is still necessary to figure how many of those
who do not own cars (1) can afford a car, and
our
families
do
not own
cars.
It
cently changed from need buying to desire buy
(2) want to own a car. This is just about im
ing, we are implicitly assigning changing import
possible. The Survey of Consumer Finances does
ance to the factors in the listing. Growth factors
provide a breakdown of car ownership by in
are less important, and factors bearing on re
come groups, but each spending unit is different
placement demand get added emphasis. To see
as to age, number of dependents, education, ex
what we mean, let us take a look, first, at the
penses, dwelling place, and tastes.
growth factors.
means is that a family of three earning, say,
What this
$3,500 a year and living in a small apartment
GROWTH FACTORS
can probably afford a car. On the other hand, a
How much growth might we expect in our car
family of five with the same income and a larger
population over the next few years? This is an
home probably cannot. Moving up the income
important question to all trying to measure newcar demand. There are a number of ways to
approach this problem.
One way is to try to
measure market saturation.
Saturation:
W hat is it— w here do we stand?
Complete or 100 per cent saturation prevails
when all of the spending units who can afford
to own cars and want to own cars do own cars.
In the event of complete saturation in a given
year the demand for automobiles depends upon
growth in the number of spending units, in
creases in income raising new spending units into
the car-owning class, and the rate of replacement.
That leaves still to be figured out the degree
of market saturation now prevailing. One clue
is provided by cars in use per 100 households.
As the chart shows car ownership today is esti
mated at around 102 per 100 households, or
4
CARS PER 100 HOUSEHOLDS
CARS
b usin ess reviev.
scale, it is still not possible to spot “ sure-fire”
proportion of income spent for cars contracts in
buyers for automobiles. A well-to-do couple with
poor times and expands in good times.
an income of $9,500 a year might live in the
Tying car sales to income changes still makes
center of a large city and not own or desire
a lot of sense. After all, few people have to buy
a car. These and other examples can be dragged
cars. Nearly all can postpone buying. Consum
forth to illustrate that you can’t make statistics
ers illustrated this in the 1930’s. In 1930, when
tell everything— and tell everything they must to
income declined by 11 per cent, spending on cars
be of further help in solving the question of sat
dropped
uration.
people do not have to buy cars, nearly every
37
per
cent.
Conversely,
although
One thing we do know is that 70 per cent of
body wants one. So that when income increased,
all families owned cars in early 1954. In early
car buying bolted upward. In 1934, for example,
1955, just 71 per cent owned cars. A one per
income rose 14 per cent, and consumers spent
centage point gain to early 1955 indicates a very
31 per cent more on cars. In most years before
slow rate of growth. It is possible that the level
the war, a change in income was associated with
ing out of the growth curve indicates that we may
a more than proportionate change, in the same
be approaching market saturation— or where
direction, in spending for automobiles.
nearly everyone who wants and can afford a car
Spending for automobiles is still thought to
be primarily dependent on changes in income,
owns one.
but there is somewhat less emphasis placed on
Household formation
A position of near market saturation centers our
this relationship today. At least changes in auto
mobile sales are no longer viewed as merely a
attention on other growth factors. It is custom
sort of conditioned response to changes in in
ary to relate market growth with new household
come. One reason for this is that the automobile
formation. Census Bureau data indicate that the
industry has a good deal of influence over fluc
level of household formation over the next five
tuations in income. The act of producing any
years will not be so high as over the 1950-1954
thing generates a certain amount of income and
Growth in car population from this
tends to create a demand for itself. The same
source, therefore, is not expected to be so large
period.
thing is true with automobiles— only on a giant
as in the recent past.
scale. The car industry is the main support of
the petroleum industry and is generally the
Income— a most important factor
largest single buyer of rubber, steel, flat glass,
Another very important growth factor involves
nickel, and lead. It is estimated that about one
potential
in every seven workers depends on automobiles,
increases
in
income
bringing
new
spending units into the car-owning group, and
one way or another, for a livelihood. The pro
into the two-car owning group. Time was when
duction of automobiles, therefore, creates a lot
it seemed sufficient to say that the demand for
of demand for the same— automobiles.
cars is determined primarily by changes in con
Another reason why income changes no longer
sumer income. Since car buying gave evidence
seem such an all-important forerunner of spend
of being hypersensitive to fluctuations in spend
ing on automobiles is the increased use of instal
ment credit to buy cars. When people buy cars
ing power, it was further pointed out that the
5
b usiness r e v ie w
on time, future income is converted into current
for replacement. This reasoning was important
buying power. This stimulates production and
in some studies made in the early 1950’s.
The use of instalment
At that time some automobile experts reason
credit sort of makes the economic routine work
ing from the premise that a car scrapped results
in reverse. Credit buying stimulates production
in a new car sold, came to some rather startling
which in turn creates more income.
conclusions— startling, at least, in the light of
creates more income.
In late 1954 and early 1955, probably the
present sales records. They observed that cars
single most important force behind the upturn
in consumer income was the increase in produc
were coming to be more durable and that the
average age of cars junked was about 14 years,
tion in the automobile industry. For this period,
in 1952. Projecting this behavior into the future
at least, the car industry seemed to lead the rise
they said that in the period 1955-1959 we would
in income. Of course the upsurge in income was
expect to scrap cars built in the years from 1941
accompanied by a more than proportionate in
through 1945. Of course, over most of this war
crease in spending on cars; but the illusion of
period very few automobiles were manufactured.
automobile sales being completely at the mercy
The number of cars scrapped, therefore, was to
of fluctuations in spending power has been
drop in 1955 and stay at this lower level through
altered. Spending on automobiles, we now see
1959. The low volume of scrappage was then
more clearly, can influence, as well as be influ
used as a basis for pessimistic forecasts of unit
enced by, income changes.
sales of new cars.
Well, 1955 seems sure to be a record-breaking
REPLACEMENT DEMAND
year for automobile makers. What happened to
The automobile market seems to be approaching
upset the predictions of those reasoning from car
saturation and is faced with a slowing rate of
scrappage?
growth in spending units.
Changes in income
well be that they confused cause and effect. It
may prove to be a strong growth factor. On the
may be more realistic to say that car scrappage
No one can be sure.
But it could
other hand, we have seen that car sales are not
is an effect from new-car sales rather than a
merely a response to income changes.
cause.
With
these things in mind, it is logical to say that a
The rate of scrappage, more likely, depends on
major part of new-car sales depends on replace
how many new cars are sold and the number of
ment demand.
used cars this process generates. When it gen
erates an excessive volume of used cars com
Scrappage— Cause or effect?
How can we measure replacement demand?
pared with demand, the used-car price structure
weakens. This puts pressure on the low end of
Some car people have said that replacement de
the used-car market.
mand can be pretty well estimated from the
whether he should try to invest labor and parts
The dealer must decide
number of cars scrapped. This is not to say that
in the older car and sell it for transportation or
the man who junks his car buys a new one. More
sell the car for scrap. If he makes more by sell
likely he buys a later model used car, whose
ing it for regular use— net of his repair costs—
previous owner buys a new one. In either case,
the car stays alive. If it is to his advantage to
a car scrapped has resulted in a new car sold
sell the car as junk, the car is junked. As more
6
b usin ess re v ie w
CAR SCRAPPAGE
Cause .
or effect ?
cars are scrapped the supply of used cars de
in the car population, used-car prices would
creases and used-car prices tend to be strength
weaken and scrappage would rise.
ened.
The volume of scrappage, seen in this
light, depends on the number of new cars sold
Style and engineering innovations
and the price structure in the used-car market.
The level of replacement demand, of course, ulti
It is not a major determinant of new-car sales;
mately depends on how fast people become dis
rather, it is determined by new-car sales.
satisfied with their present cars and are induced
Income as an influence on the demand for
to buy new ones. One very important means of
cars has already been considered under growth
making people dissatisfied with their present cars
factors. It is important to remember that income
is through attractive style changes. Another is
changes also can influence replacement demand
by engineering advances that tend to make pres
and the level of scrappage. For example, assume
ent cars seem obsolete. Today’s public seems to
an increase in income. It is possible that an in
buy style and performance, especially style.
crease in total income would be distributed in
In the market as it existed in the 1930’s, econ
such a way as to raise no new spending units
omy of operation was a big selling point for cars.
into the car-owning group. This increase in in
For one reason or another, however, this has not
come might still increase the demand for new
been the case in the post-war period. It is still
cars by influencing present owners to buy new
a factor, of course, but not such a dominant one.
cars sooner. If this happened with no increase
If it were, how could you explain the emphasis
7
THE A U TO M O BILE PIC TURE SO FAR IN 1955
M ANUFACTURING
PER C E N T
_________________________________
THO U S A N D S
THOUSANDS
JA N .
source
: a u t o m o t iv e
in d u s t r ie s
FOREIGN CARS are no longer a
SO UR CE:
FE B.
M IL L IO N S
MAR.
APR.
MAY
JU N E
JU L Y
J
COM MERCE
PER C E N T
F
source
I During 1955 production has been
consistently above a year ago.
M
A
M
J
J
A
S
O
N
D
: labo r
C H R Y S LE R
source
2 As a result employment in the car in
dustry has been higher.
:
a u t o m o t iv e
new s
SO UR C E:
3 All the major makers have shared in
the gain in car sales . . .
novelty on American highways. A ctu
ally, however, foreign-car sales account
G.M.
O TH E R
NEWS
4 but not equally. So that their re
spective proportions of the market
shifted.
R E T A IL
for a very small part o f total new-car
sales in the United States. As the chart
FO RD
A U T O M O T IV E
M IL L IO N S
THOUSANDS*
HUNDREDS
$
J
M
B IL L IO N S
$
(S E A S O N A L L Y
A D JU S TE D )
shows, in no year have foreign cars
been as much as I per cent o f the sales
total.
The largest selling foreign car in this
800
country is the Volkswagen. Its ascend
ancy has taken place swiftly. In 1954,
Volkswagen accounted for about 25 per
cent of foreign sales. This year so far,
400
foreign-car sales are well above a year
ago, and sales of Volkswagens have 40
per cent of this larger volume.
Recently, Volkswagenwerk of West
Germany bought the Studebaker-Pack-
FACTORY
SALES
S O U R C E:
R E T A IL
SALES
COM MERCE
0
*
J
J
M
A
M
J
F
A
M
J
J
A
S
O
AS OF F IR S T OF M O N T H
s o u r c e : a u t o m o t iv e n e w s
SO URCE:
6 Dealer stocks reflect this.
7 Used car prices show little change
from a year ago.
A U T O M O T IV E
NEW S
ard plant in New Brunswick, New Jer
sey. This will make them the first foreign
maker to assemble cars on a mass-pro
duction basis in the United States.
5 Retail sales, though high, have not
quite kept pace with production.
8 Buying on time has been a strong
force behind car sales this year.
9
b usin ess re v ie w
on high horsepower engines and automatic trans
makers do not change basic body designs every
missions which require more fuel?
Today’s public seems to feel that within their
Higher horsepower, automatic shifting, power
year— engineering innovations get heavy play.
price range all cars are about equally reliable
features, and more recently, safety devices, cause
and economical. This attitude puts the emphasis
some people to buy new cars before mechanical
on style— the best looking cars enjoy the largest
failures make their present cars inadequate.
demand. This attitude was not too apparent so
Ordinarily, engineering innovations do not seem
long as need buying dominated the market. But
to bring forth so much new demand as style
after mid-1953 those cars with the most style
changes.
appeal seemed to sell best.
Now, judgments as to what looks best are
subjective— everyone has his own opinion.
So
D ealers’ ability to sell is of vital
importance
that it is difficult to prove the point we are mak
Buying the family car is, perhaps, the most ex
ing. Yet the fact that nearly every make of car
citing and/or terrifying purchase most people
in 1955 adopted a style feature introduced on
make. And it is the dealer franchise system that
two makes in 1954, must indicate the industry
makes it so. Style changes and engineering in
feels this feature “ caught on.” This was the case
novations may stimulate some desire for auto
with “ wrap-around” windshields.
mobiles, but to really get cars sold ultimately you
In 1954 only two cars made anything ap
proaching substantial changes in their designs.
These were Buick and Oldsmobile.
On both,
wrap-around windshields were introduced.
In
have to depend on the men at the point of sale
— the dealers.
Car dealers exercise a good bit of imagination
in making car deals. They’ll tell you they have to,
1954, Oldsmobile sales were 33 per cent above
to keep a franchise. They are probably right. The
1953 and Buick sales were up 13 per cent. No
franchise is the very heart and core of the value
other make of car competing in the same general
of any new-car dealers’ business. Here is how it
price range as Oldsmobile and Buick showed an
works. Manufacturers grant an exclusive right
increase in sales in 1954. The fact is, sales of
to a dealer to sell a particular make car. The
competing makes declined an average of 37 per
right or franchise which a car dealer holds is at
cent in 1954. This style change, therefore, may
the pleasure o f the manufacturer. But the prices
deserve much of the credit for the favorable sales
at which the dealer sells cars are not fixed by the
record of Oldsmobile and Buick.
“ Wrap-around”
windshields,
factory.
Legally, what the dealer sells the car
“ swept-back”
for is uncontrolled. The manufacturer does sug
windshields, or whatever you want to call them,
gest, however, a list price to the dealer. Gener
have been adopted by just about every other
ally speaking, manufacturers suggest a list price
make by now. This is not an indication that all
that gives dealers a 24 per cent mark-up on an
car makers have to do is change their designs to
automobile. This 24 per cent mark-up is con
increase sales. But it is an indication that changes
sidered necessary to take care of salesmen’s sal
the public considers attractive can have a tre
aries, servicing costs, and profit.
mendous influence on sales volume.
In the years between style changes— auto
to
In times of shrinking demand, car dealers feel
the pinch before manufacturers.
Dealers are
b usin ess re v ie w
right there where it’s happening.
One dealer
told us of how he first spotted the change in the
in their cost: so that dealers have to operate on
reduced gross profits per car.
market in mid-1953. He said: “ Buyers were still
As a result, in 1954 many dealerships died;
coming to my showroom all right, and they still
others changed hands, and some changed allegi
listened to my sales pitch. Most of them even
ance. The dealers who are left were able to cope
seemed to nod and agree with everything I had
with the abrupt change from need buying to
to say. But then when I figured I was about to
desire buying.
close the deal, they’d tell me, T il let you know.’
they live in this new market the more skilled
It seems certain that the longer
That meant they were out comparing. The easy
they will become in dealing with it. The gener
days were over.”
ally high incomes that have gone to dealers and
slow— many
their salesmen in the post-war period have at
dealers would say reluctant— to notice shrinking
tracted good men into this field. They bear a
demand for their product. So they continue ship
heavier responsibility and face a more challeng
ping cars to dealers in heavy volume for at least
ing task in the changed market.
Manufacturers
are
sometimes
a short time after the first signs of a deteriorat
ing market. This puts the car dealer under con
Credit terms influence demand
If he refuses to accept the
Automobile instalment credit has been getting
shipments he risks losing his franchise. Accept
more than its normal share of attention recently.
ing the shipments usually puts him in debt to the
Sensational newspaper advertisements promising
bank or finance company that handles his “ floor
planning.”
eye of the general public. Statistics scanners can
Caught between heavy shipments from manu
hardly help but pause as they contemplate the
facturers and repayments to the bank or loan
30 per cent increase in automobile instalment
company, a good many dealers try new lures to
credit outstanding so far this year. And those
bring in buyers. Outright, advertised price cuts
closest to the situation— the debtors— realize re
are generally not resorted to, but nearly every
payments are taking quite a bite out of their
thing else is.
take-home pay.
siderable pressure.
Phenomenal trade-in allowances,
low down payments and long maturities catch the
trips to Cuba, or a free mink stole with every
It is probably natural and inevitable that as
purchase are the sort of circus play used to jack
the automobile market changes from need buy
up business. It is this sort of free-wheeling bar
ing to desire buying, credit would increase in
gaining that makes car buying such an exciting
importance.
and/or terrifying experience. There can be little
principal lures used by some car dealers to in
doubt that the circus play stimulates some sales.
crease demand. But the trend toward easy credit
It is just as certain, however, that it causes some
is not a recent development.
distrust of dealers in the mind of the public.
Easy credit terms are among the
The history of automobile financing shows
Over-allowances on trade-ins and bonus offers
progressively easier terms prevailing, except for
such as free trips with the purchase of cars are
periods of credit control. Before World War II,
just concealed price cuts on new cars.
terms were generally one-third down and 12 to
These
price cuts, however, are established by dealers,
18 months maturity.
sometimes without any compensating reduction
lifted in 1947, standard practice called for 25
After Regulation W was
11
b usiness r e v ie w
per cent to 33-1/3 per cent down payment and
is successful, it may well have long-run benefits.
18 to 24 months to pay. With the reestablish
On the other hand, the immediate prospect would
ment of Regulation W in 1950, one-third down
he for car demand to be affected adversely.
was required and maximum maturity was 21
months. Later in 1950 the maturity was short
HOW DOES IT ADD UP FOR 1 9 5 6 ?
ened to 15 months. The regulation was lifted in
The relative importance of the factors influenc
Today there seems to be no down-pay
ing the demand for automobiles has changed.
ment schedule, but most lenders like to get 25
per cent. (Sometimes when this appears to be
Growth factors are not so important as before
mid-1953. Factors bearing on replacement de
obtained it represents an overvaluing of a trade-
mand have increasing influence.
in.)
come,, style and engineering changes, dealers’
1952.
Longer terms are even more common than
smaller down payments.
Shifts in in
Certainly, 36-month
selling ability, and automobile credit terms will
maturities are not unusual and 42-month paper
be the strategic factors to evaluate in trying to
is not unheard of.
measure demand in 1956.
There are a number of reasons for the progres
Possible tax relief in 1956 makes an increase
sively easier terms offered automobile credit
in income seem likely. The increase, however,
buyers. Perhaps the most important reason has
will probably not be so large as to bring many
to do with the vigorous competition among
new spending units into the car-owning group.
lenders. Car financing is generally a safe and
It will not provide a strong stimulus to car pop
profitable business, so commercial banks, sales
ulation growth.
finance
fight
higher income will permit an upgrading within
for it. The dealers like it because they say it
the car population. Present owners will have the
companies,
and
other
lenders
On the other hand, somewhat
makes it easier for them to sell cars, especially
wherewithal to buy new cars sooner than antici
when manufacturers are shipping more cars than
pated.
they want. In addition, it is profitable for dealers
depends largely on how much “ desire” is gener
How rapidly this turnover takes place
because they get a commission for arranging
ated by style and engineering innovations, by
financing.
dealers “ deals,” and by credit lures.
Consumers see easier terms as a
means to raise living standards.
Many have
Style changes will certainly not be so exten
been buying “ on the cuff” for years, and long
sive next year as they have been in 1955. Nearly
periods of repayment do not frighten them.
every make of car underwent fairly wide restyl
At present, efforts are being turned toward
ing this past year. There can be little doubt that
halting the drift toward even smaller down pay
this was a major reason for the good sales rec
ments and longer maturities. Financing and in
ords. In 1956 only a few makes will he exten
surance costs pyramid rapidly when maturities
sively restyled. Engineering innovations, on the
are lengthened. This means that owners’ equity
other hand, may be more numerous on 1956
builds slowly and jeopardizes the loans. In ad
models and are almost sure to be advertised
dition, it means that very long-term contracts
more. Generally, however, style changes act as
drain future consumer spending power for an
a stronger stimulus to new-car demand than engi
extended period.
If the effort to tighten automobile credit terms
12
neering innovations.
With
only minor style
changes on most 1956 models, replacement de
b usin ess re v ie w
mand from this source will probably not be so
the price of a good used car. White goods sales
strong as this year.
men say dishwashers and clothes dryers can be
Dealers’ selling ability is a difficult thing to
bought by most families if they just keep the
measure, but it is important. Over most of the
family car a year or two after they have it paid
post-war period, dealers had things pretty much
off instead of trading it in on a new car. And
their own way. Americans emerged from World
War II with an acute physical need for cars. In
room air conditioners .are well worth the price
of holding on to the old car an additional year or
1941 we had eight cars for each ten households.
two, according to appliance sellers.
By 1946 we had only seven cars for each ten
households. The physical need for cars greatly
helped automobile dealers gain a larger share
of the consumers’ dollars. Making further gains
in the proportion of consumer spending for cars
will come harder.
Despite the fact that the acute physical need
for cars has passed, certain forces are still oper
ating to favor automobile salesmen. The contin
uing trek to the suburbs certainly eases their job.
On the other hand, some forces are working to
But car dealers are not pessimistic.
They
know they have a product consumers love. They
know, too, that they have high-quality salesmen
on their team. They are betting they do a better
selling job in 1956.
Credit terms also will be of strategic import
ance next year. At present it would seem unlikely
that terms will be any easier in 1956.
Some
tightening seems a more likely possibility.
If
there is some tightening it will probably slow the
demand for automobiles.
make the salesman’s job harder. All sorts of new
With fewer major style changes and credit
terms likely to tighten a little, even a better sell
products are impressing themselves on consum
ing job by dealers, and slightly higher income,
ers. Backyard swimming pools are already ad
may not be enough to make 1956 as good a year
vertised as costing no more than a new automo
for automobile sales as 1955.
bile. The heat pump, a machine which cools a
mean that automobile sales will slump off badly
house in the summer and warms it in the winter,
next year. More likely, 1956 will be a good car
is being perfected. It will probably sell at about
year. But car sales will come harder.
CURRENT
This does not
T R E N DS
Business activity in the Third Federal Reserve
tion the pace has been quickening with conse
District paused for only a short “ breather” this
quent brightening in the over-all outlook for the
past summer.
balance of this year.
The summertime let-down came,
as nearly everyone had expected, but most ob
Manufacturers are stepping up their schedules
servers are surprised and pleased that it was so
and hiring more people.
moderate and so short. In the areas of produc
and bituminous coal has increased in support
tion, distribution, transportation, and consump-
of this higher rate of activity. Builders and con
Output of basic steel
13
business re v ie w
tractors are still so busily engaged in putting up
and steel center. Throughout the Third District,
new houses that it is almost impossible to hire
steel mills were a bit slow to recover from the
their services for small though imperative re
setback last year but in recent months steel mills
pairs to existing structures.
in the district did better than the industry gen
Plant expansion
programs seem to be growing. (More news about
erally.
Repair and maintenance problems that
this in next month’s Business Review, when we
plagued some producers during the summer seem
shall report the results of our current survey of
to have had less impact on steel mills in eastern
manufacturers’ plans for next year.) Raw ma
terials and the products of industry are moving
Pennsylvania.
Output of bituminous coal in Pennsylvania
over the railroads, highways, and waterways in
has risen sharply since the early months of this
greater volume.
year and beginning with February,, output has
Consumers are in the money
and as a consequence are spending more freely
been running well above 1954 levels. Temporary
in department stores, automobile showrooms, and
cutbacks during the summer were caused by car
other retail outlets.
shortages, not lack of demand.
Production of
Our latest reports on employment from Penn
anthracite is still on the decline and our chief
sylvania manufacturers look good. The paucity
areas of economic distress are in the hard-coal
of minus signs greatly overshadowed by the
counties.
plurality of pluses in the various industry cate
Builders are busily building. Contract awards
gories, indicates that improvement— though not
so far this year are running nearly 10 per cent
spectacular— predominates over a broad front.
ahead of last year, and last year was good too.
Advances from 1954 low-water marks have been
Recent high levels of contract awards suggest a
greater among producers of durables than among
substantial carryover of construction operations
producers of nondurables, as might have been
into the early months of 1956. Residential activ
Employment needs of manufacturers
ity has been leading the way and since mid-sum
in Philadelphia and in most of the smaller in
mer, non-residential construction has also risen.
dustrial centers of the district indicate further
Businessmen are continuing to make large
expected.
increases to mid-November. A healthier employ
outlays for plant expansion and new equipment.
ment picture is also borne out by continued de
Heavy industry and electric-power utilities are
clines in compensation claims in the Philadel
among the largest spenders.
phia metropolitan area.
Farmers had a so-so season. In many areas,
Increasing employment is accompanied by in
rain came almost too late and then too much.
creases in total working time, which have been
Adversely affected were the growers of tomatoes,
more pronounced in plants making durables
tobacco, and numerous other crops.
Livestock
than in those producing nondurables. Pennsyl
farmers fared somewhat better, particularly dairy
vania still has areas of heavy labor surplus, but
farmers and, until quite recently, poultrymen.
according to latest reports many of the pools of
Based on preliminary estimates of 1955 harvests,
unemployment are gradually diminishing. Note
cash farm income in Pennsylvania, New Jersey,
worthy improvement in employment is taking
and Delaware may equal that of last year. Coun
place in Altoona where many railroad workers
try-wide, cash farm income is running lower
have been recalled, and in Johnstown— a coal
than last year.
14
business re v ie w
Expanding business activity is reflected in greater
stores in the district have climbed sharply since
physical
last winter.
volume
of
goods
flowing
through
New monthly records were estab
Freight-car loadings are rising
lished in July and August, and sales have con
more than seasonally. In the Allegheny region,
tinued high in recent weeks. When shoppers step
October to December loadings are expected to
up their purchases of “ big ticket” items like
be 16 per cent above their year-ago level. Com
appliances and home furnishings it is a sure sign
modities showing the greatest rise are iron and
they are prospering.
steel, motor vehicle parts, bituminous coal, and
continuing purchases of automobiles.
building materials.
the peak selling of automobiles comes in spring
trade channels.
Another evidence is the
Usually
Along with rising levels of employment and
and early summer, but this year demand is un
production, people have more money to spend
abated, as reflected in sustained heavy registra
and they are spending it. Sales at department
tions of new cars in the Third District.
15
F O R THE R E C O R D . . .
MEMBER B A N K S 3R D ER.D.
BILLIONS $
DEPOSITS
BANKING
7-
6
"
A
A
A
4
v
'-
V
t
CHECK PAYMENTS
C20 CITIES)
IN V E S TM E N TS
___________ 4 *
3
LOANS
2
2 YEARS
AGO
YEAR
AGO
Per cent change
SUMMARY
U n ite d States
Per cent change
A ugust
195 5 from
8
mos.
1955
from
year
ago
August
1955 from
Check
Payments
Employ
ment
Payrolls
O UTPUT
M anufactu rin g p ro d u ctio n . . + 3
-1
C onstruction contracts*
C o a l m in in g ................................ + 8
EM PLOYM EN T A N D
IN C O M E
Factory employment ( T o ta l)...
TRADE**
Departm ent store sales............
year
ago
+ 4
+ 9
+ 14
+ 1
+ 14
+ 12
mo.
ago
+ 7
-4
+ 8
year
ago
+ 13
+ 18
+22
CHANGES
+ 10
+ 27
+ 19
Per cent
change
August
1955 from
mo.
ago
year
ago
year
ago
Per cent
change
August
1955 from
Per cent
Per cent
change
change
August
August
1955 from 19 5 5 from
year mo.
ago a g o
mo.
ago
year mo.
ago ago
year
ago
+
+
2
8
+
2
4
+ 2
+
6
+
2
-3
-2
+ 12
+ 7
+
7
-4
+ 2
+
+
7
6
+
+
6
0
+ 17
f
+
6
+ 4
+ 20
L 8 + 10
Lan caster. . .
+ 2
+
9
4 3 + 14 - 1 3
+ 1
-
1
+ 2
+
3 +
3
L20
A lle n to w n . . . + 1
P h ila d e lp h ia .
+ 2
+ 3
5 4- 8 +
9 + 21
3 +
6 +
3 + 13
7
+
4 + 15 + 18 +
0
+ 1
-2
-2
+ 1
+ 3
+ 4
+ 17
- 6
- 9
+ 7
+ 10
+ 5
+ 11
+ 4
+ 2
+ 10
+ 7
ot
0
0
0
0
0
1
ot
‘ Based on 3-month moving averages.
“ A d ju ste d fo r seasonal va ria tio n .
ot
f2 0 C ities
{P hila delphia
-
+
7
+9
+ 19 -
9 + 14 +
5 +
+ 2
+
1
+ 5
+
3 -1 2
8 +
4 -
T re n to n .........
4-3
4- 7
+ 1
4-14 - 1 0
W ilk e s -B a rre
+ 1
+
+ 6
+
W ilm in g to n .
+ 3
+ 11
0
- 2
+ 5
+ 6+
+6
1 + 14 + 22
S cranton.........
+ 3
+ 16
- 8
- 8
- 8
+ 12+
R e a d in g ..........
PRICES
16
Per cent
change
August
1955 from
FHarrisburg . . . + 3
B A N K IN G
( A ll member banks)
Deposits........................................ + 1
Loans............................................ + 1
Investments.................................. - 2
U.S. G ovt, secu ritie s.............. - 2
O th e r ......................................... - 2
Check payments......................... + 2 t
Consum er....................................
Stocks
Sales
LOC AL
8
mos.
1955
from
year
ago
mo.
ago
mo.
ago
1955
Departm ent Store
Factory*
Third Federal
Reserve District
AUG.
+ 3
+ 12
-3
+ 16 +
Y o rk ..............
+ 1
+
+ 4
+
3
1
4 -
8 +
+
2 +
+
1 +
4
5 -
5 + 19 - 1 2
8 +
5 + 18 + 13 +
9
2 + 11 -
9 +
9
4
0
6 + 15 +
5 + 15 + 26 + 16 + 20 -
-1 8
* N o t restricted to corp o ra te limits of cities but covers areas of one o
more counties.
@FedFRASER