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SEPTEMBER 1960

The St. Lawrence Stairway to the Sea
Unemployment in a Growing Economy

FEDERAL

RESERVE

BANK

PHILADELPHIA

THE ST. LAWRENCE
STAIRWAY
TO THE SEA

How Its Commerce Is Shaping up Now That the Seaway Is in Business

Queen Elizabeth and President Eisenhower offi

Fierce was the battle for dominion between the

cially opened the St. Lawrence Seaway on June

waters of the sea and the land that was to be.

26,

This went on for millions of years, and shore

1959. About

1,520,000,000

B.C., in the

Archeozoic Era, the project was begun and still
isn’t finished— but it works.

lines were constantly shifting.
Then came the glaciers. They were geological

In that far, far distant past before man began

Johnny-Come-Latelys but they did a powerful

to mess up North America, it was in quite a

amount of topographic sculpturing. Formed far

mess of its own doing. Great turmoil boiled

up in the northland of eternal cold and snow,

within the earth, with volcanoes erupting and

these rock-shod crusts of ice of continental mag

earthquakes quaking. Gigantic fissures opened

nitude bulldozed their way southward slowly but

and soft rock pressed against hard rock. The

relentlessly. With cosmic crunching, the icecaps,

weaker rocks broke into enormous blocks and

perhaps a mile or more in thickness, did a mighty

slowly, ever so slowly, they sank. Into the big

job of landscraping and landscaping. With irre

gest sinks the sea rushed and covered the rock.

sistible force the glaciers leveled off the peaks of

business review

the highest mountains and where they encountered

by, become respectable rivers before emptying

softer bottom they gouged out great depressions.

into a sea or an ocean. Not so the St. Lawrence.

When warmer climes prevailed, the icecaps

It starts right out with a flood of waters from the

melted away and the sunken lands, relieved of

world’s largest system of interconnected lakes.

the great weight they had borne so long, sprang

With such wondrous waterworks as its source,

up again. Unevenly, the land pushed upward for

the St. Lawrence instantaneously springs into

thousands of years, forming a great plain and a

full-grown riverhood.

valley into which rivers ran, constantly fed by

A map of the region shows what looks like

the frigid waters of the melting icecaps to the

clear sailing from the Atlantic Ocean up the

north. At the southwestern end of the great plain

river and through the lakes deep into the conti

was a bridge of hard rock and beyond it was a

nent at the head of Lake Superior, right to the

great depression containing large bodies

doorstep of the rich Canadian-American granary

waters that subsequently shrank to become the

and the great Mesabi iron ore deposits. The

Great Lakes. Slowly the depression rose and

Great Lakes, as you know, have long served as a

eventually the fresh waters began to spill over

maritime highway for the Midwestern steel in

the bridge of hard rock, and the waters found

dustry. Iron ore is floated down the Lakes and

their way northeastward to the sea. And so the

Appalachian coal is floated up the Lakes to the
big steel mills at Chicago, Gary, Cleveland, De

St. Lawrence River was wrought.
When man arrived on the scene, the St. Law
rence was still an unfinished river. The seaward

troit, and other Lakeside steel centers spreadeagled from Duluth to Buffalo.

section of the river is wide, deep, and handsome

What the map does not show are the obsta

— an open invitation to navigation. Upstream,

cles to navigation that have so long frustrated

however, the river is more like a series of lakes

Canadians in trying to utilize fully this 2,300-

connected by turbulent rapids, that have defied

mile waterway for exporting grain from the

every form

birch-bark

prairie provinces. The two biggest obstacles

canoes to argosies of commerce. Thereby hangs

were the famous falls on the Niagara River

a tale to unfold.

which connects Lake Erie with Lake Ontario,

water craft from

and the series of rapids in the comparatively

GEOGRAPHY WITH TEARS

short section of the St. Lawrence River between

Of all the rivers in the world, the St. Lawrence

the eastern end of Lake Ontario and Montreal

is one of the most, if not the most, unusual—

where, in 1535, Jacques Cartier was blocked in

not because of its length or because of its nu

his search for a western route to the “ East.”

merous rapids and their power potentialities or

Climate and natural resources favored origi

even because of its wide mouth. It is unique in

nal settlement and subsequent expansion along

the way that it begins.

the river. Almost as long as there have been

Most rivers, if traced from the mouth to the

Canadians it has been their dream to conquer

source, start as a little trickle of water on a hill

the obstacles and open the river to navigability.

side ’way up in the backwoods section of the

It is difficult for us to comprehend the im

country, get gradually bigger as they wander

portance of the river to Canadians. The St.

along picking up other streams and so, by and

Lawrence is the Canadian Mississippi.

business review

FLASHBACK
A s early as 1700, the Canadians began digging
a mile-long, 3-foot-deep canal around Lachine
Rapids, just above Montreal, but they ran out
of money before the canal was finished. By 1825,
Lachine Canal had been deepened to five feet.
In the same year, New York opened the Erie
Canal between Buffalo and Albany, providing an
all-water route fo r the shipment of grain from
the Great Lakes to the port of New York C ity.
Though the Erie Canal prospered, the Cana
dians kept on dreaming and digging.
In 1832, they bypassed Niagara Falls with the
7-foot Welland Canal. Two years later, they
began digging to bypass the long Saulte Rapids
with the 9-foot Cornwall Canal; and in 1841,
deepened the Welland Canal to 9 feet. By 1855,
when Michigan canalled around St. M ary's Falls
between lakes Superior and Ffuron, a 9-foot
throughway had been completed so that it was
possible for a ship to sail into Lake Superior.
The Erie Canal continued to attract most of the
grain traffic, so that the St. Lawrence canal system
was obsolete almost as soon as it was completed
to 9 feet. Came the railroads, after mid-century,
and before long they spelled the obsolescence
of both the St. Lawrence chain of canals and the
Erie Canal. Thereupon the Canadians dug
deeper. The Welland Canal was deepened to
10 feet in 1853, and to 14 feet in 1887. By the
turn of the century, Canada had completed a
14-foot channel from Montreal to Lake Erie, and
the United States had deepened the St. Mary's
Canal to 25 feet to accommodate larger ships
carrying an ever-growing volume of grain and
iron ore from the head of Lake Superior. Mean
while the westward sh ift of population and the
expansion of the grain-growing area generated a
flow o f grain that the railroads and the canals
together could scarcely handle. The 14-foot canal
system was too shallow, and Canadians dreamed
of deeper ditches.
In 1901, a little hydroelectric power plant was
built at Massena, New York. The new source of
electric power attracted an aluminum reduction
plant but more than a decade elapsed before
the vast power potentialities of the St. Lawrence
were fully appreciated. In 1914, the United
States suggested to Canada an International
Joint Commission to study "the question of de

velopment of boundary waters fo r navigation
and power." Though a bit slow in responding
because of preoccupation with W orld W a r I,
the Canadians came to realize the advantage of
linking power development to the project of
deepening the Seaway. Shortly after W orld W a r I,
the grain growers in our Wheat Belt formed
the Great Lakes-St. Lawrence Tidewater Associ
ation. Th is was an American lobby, the counter
part of the Canadian Deep Waterway and
Power Association. Together the two organiza
tions pressed fo r an improved waterway to
wider markets.
In 1924, President Coofidge appointed a spe
cial United States-St. Lawrence Commission, and
its "H oover Report" strongly urged a joint
power and seaway project. Canadian-American
cooperation was required inasmuch as one of
the best power-producing sections of the St.
Lawrence Seaway (technically, the part of the
river between Montreal and Lake Ontario) lay in
the international section bordering both Canada
and the state of New York. Moreover, from an
engineering standpoint it was the better part of
wisdom to join power development with ditch
deepening because each required digging in the
same area. A fte r much cross-border palaver and
consultation, Canada and the United States, in
1932, signed the St. Lawrence Deep Waterway
Treaty, providing fo r joint development of the
Great Lakes Basin in the interests of both naviga
tion and power, only to have the treaty rejected
by the United States Senate in 1934.
A t the same time that the idea of joint sea
way and power project gained support, it also
gained opposition. The railroads of the eastern
United States were opposed to the Seaway be
cause of the grain trade and other traffic they
would lose. The Atlantic and G ulf Coast ports
were opposed to it fo r the same reason. The
coal companies were opposed because hydro
electric power would cut into their markets for
coal. Labor in the mines and on the railroads
shared the views of its employers. Private power
companies did not like the idea of public power.
The battle raged on and on, with the wheat
growers as the principal sponsors fo r the Sea
way and the railroads the major opponents.
Every President from W ilson to Eisenhower
championed the Seaway as a "m u st," but Con
gress delayed approval.
W orld W a r II, when both countries were pre

business review

occupied, caused a further delay of the Seaway.
But the war and its aftermath brought additional
pressures for the project. War-induced expansion
of industrial capacity left Canada with a serious
power shortage. In this country, the war had
made heavy inroads on our dwindling iron ore
resources.
Communist-conspired
international
tensions caused a redoubling of our national de
fense efforts and national defense played right
into the hands of the Seaway proponents. F i
nally, in 1954, Congress passed the W iley-Dondero Act authorizing construction of the Seaway.
Whether the decision came as a result of Can
ada's threat to go it alone or as a result of the
discovery of rich iron ore deposits on the Labrador-Quebec border will be left to the reader's
judgment.
The entire project which took about 40 years
of exhortation required only a little over four
years of excavation, with power dams to boot.
The engineers had to build about 50 miles of
dikes, excavate 50 million cubic yards of rock,
clay, sand, and silt, raise bridges without inter
rupting traffic, build dams and cofferdams
(walled-off sections of the river to deepen the
river bed), pour over 3 million cubic yards of
concrete, and create an artificial lake of 38,000
acres which required the removal of individual
homes and entire communities.
The bill, as you might expect, came pretty
high. In round numbers, the Seaway cost Can
ada $340 million and the United States $130
million. The total cost of $470 million is supposed
to be paid off in 50 years with tolls collected by
both countries in proportion to their respective
investment. The power project came to $650
million, shared equally by the builders— the
Hydro-Electric Power Commission of Ontario
and the Power Authority of the State of New
York. Furthermore, the United States has to do
about $150 million of dredging in the channels
between various sections of the Great Lakes in
order to attain a system-wide 27-foot depth al
ready given to the Seaway proper. So the total
bill will run about $ iy 4 billion and that's not
counting the $300 million the Canadians had
already spent on the Seaway and the Welland
Canal in earlier years before the recent fussing
began.

DOWN TO THE SEA IN SHIPS
The Seven Wonders of the World might well be
amended to add the Great Lakes-St. Lawrence
Seaway as the eighth wonder. With locks to by
pass the rough spots between uppermost Lake
ports and Montreal, ocean-going vessels bur
dened with 8,500 tons of cargo and “ lakers”
laden with 25,000-ton cargoes are raised and
lowered as much as the height of the Washing
ton Monument. Nowhere else in the world is
there so much lifting and lowering of such large
vessels. The reason, of course, is that the waters
of the Great Lakes and the upper St. Lawrence
are on different levels— and all elevations are
considerably above sea level. The Great Lakes
themselves have different levels. Only Huron
and Michigan have a common water level, but
it is unlike that of any of the other three. Conse
quently, an ocean-bound vessel starting out from
a port on Lake Superior has to go down a record
making series of stairways before it reaches tide
water at Montreal. The stairway to the sea is
shown in the accompanying sketch.
A cargo of wheat setting out from DuluthSuperior for Rotterdam does real fancy splitlevel navigation before reaching sea level. The
biggest drop is encountered before the vessel
reaches the Seaway. A battery of eight locks at
the Welland Canal lowers the ship 326 feet to
bypass Niagara Falls between Lake Erie and
Lake Ontario. Then, upon entering the St. Law
rence, the vessel is in the Seaway proper, where
seven more locks between the Thousand Islands
and Montreal ease the vessel down 246 feet to
tidewater. On reaching the bottom of the stair
way, the vessel has clear sailing for a thousand
miles to the sea— clear, that is, when there are
no fogs.

business review

PROFILE VIEW OF ST. LAWRENCE— GREAT LAKES WATERWAY

GREAT EXPECTATIONS

ment estimates were as high as 84 million tons.

In the years immediately preceding the deepen

At long last the Great Lakes-St. Lawrence

ing of the Seaway, annual traffic through the
shallow channel averaged about 12 million tons

waterway was expected to capture the lion’s

of cargo. Most of the tonnage was bulk cargo—

vessels would be able to unload imported foreign

share of the export grain trade, and ocean-going

stuff that can be blown, shoveled, or pumped,

automobiles right on the doorstep of Detroit.

like grain, coal, ores, and petroleum.

Moreover, with a railroad to bring iron ore from

Prior to the opening of the deeper channel

the new Labrador-Quebec deposits to Seven Is

there were great expectations as to the amount

lands on the Gulf of St. Lawrence, grain-laden

of traffic and the tonnage of commerce that the

lakers unloading their cargoes at down-river

new Seaway would attract. Great cities like Chi

ports in Canada would be able to return heavily

cago, Detroit, and Cleveland would have access

loaded with iron ore for the steel mills at Hamil

to the sea and, in effect, become seaports. So

ton, Cleveland, and Chicago, thus assuring profit

would smaller cities like Buffalo, Erie, Toledo,

able two-way traffic. The optimistic forecasts

Milwaukee, Duluth-Superior, Hamilton, Toronto,

were probably nothing other than the human

Port Arthur, and Ft. William. With varying de

propensity for overestimating the chances of

grees of effectiveness, all these cities and others

gain.

readied their harbor and port facilities in antici
pation of greatly increased domestic and inter
national trade.
Estimates of the tonnage of cargo to be han

LAMENTATIONS WITH EXPLANATIONS
In 1959, the first year of operation, the Seaway
lifted almost 8,000 vessels of various types which

dled by the new Seaway ranged optimistically

hauled a fraction over 20 million tons of cargo.

from 25 million to 30 million tons a year— two

Although this was a 75 per cent increase over

to three times the tonnage carried through the

the tonnage transported the preceding year, com

older and shallower channel. Such was the short-

merce fell short of even the most conservative

run outlook. Within a decade after the opening

estimates. There were extenuating circumstances,

of the new Seaway, the traffic was expected to

however. To begin with, the weather was un

grow to 50 million tons a year. Some Govern

favorable.

Customarily

ice-bound

for

four

business review

months of the year, the ice was abnormally late

A whence-and-whither analysis of the Seaway

in thawing. No doubt more iron ore would have

commerce confirms its essentially Canadian char

been hauled in the waterway had it not been for

acter. Over one-third of the total tonnage, as the

the prolonged steel strike in the United States.

table shows, was commerce between Canadian

It was also a year in which sales of Canadian

lake and river ports. About half of this was

grain declined, and American exports, generally,

down-bound wheat and other grains, and almost

were sluggish. Moreover, the Seaway was new

two-thirds of the up-bound tonnage was indus

to many skippers who navigated it for the first

trial raw materials and fuel.

time and that fact accounted for numerous inci

Canadian shipments to the United States made

dents and delays. Delays also occurred at the

up over one-fourth of the traffic, of which almost
90 per cent was iron ore.

Welland Canal, stampeded by vessels in the open
ing race to be first through the new Seaway. In

Ranking third in tonnage through the Seaway

numerous ports, the harbors were too shallow or

were United States’ exports, principally grain—

the berths too few, or the lift cranes too light,

barley, corn, oats, and wheat, in that order.

or the stevedores too inexperienced. The first

Seaway shipments from the United States to

season’s experience has been likened to the open

Canada amounted to 1,795,000 tons, of which

ing night at a theatre.

coal represented 40 per cent, corn 22 per cent,

Perhaps too much was expected in the way of

and wheat 12 per cent.

general cargo, consisting of essentially manufac

United States’ imports from abroad via the

tured products such as newsprint, sheet steel,

Seaway were just slightly over 1 million tons.

motor

Almost half of the imports (49 per cent)

vehicles,

and

miscellaneous

package

freight. As it turned out, fully 91 per cent of the

con

sisted of general and mixed cargo; principal

tonnage consisted of the less profitable bulk

items in the remainder consisted of iron and

cargo, like grain, iron ore, coal, petroleum, sul

steel manufactures, “ other manufactured prod

phur, salt, and other minerals.

ucts,” minerals, and woodpulp, in that order.
Canada’s imports and exports were almost
equally divided. Over three-fourths of her ex

1959 TRAFFIC ORIGINS AND DESTINATIONS
___________________________________ Tonnage______
_______ O. and D.___________ (thousand short tons)
Canada to Canada .......................
Canada to United S ta te s ..............
United States to fo re ig n ..............
United States to Canada..............
Foreign to United S ta te s ..............
Foreign to Canada .......................
Canada to foreign .......................
United States to United States . .

7,274
5,761
2,759
1,795
1,053
842
823
44

ports were grain and other agricultural products.
Her major imports were fuel oil, sugar, and
crude petroleum.
A summary of the first year’s traffic reveals the
importance of the Seaway as a channel for trade
within Canada, trade between Canada and the
United States, and a grain export route for both
countries. Tonnage-wise, the Seaway is essen
tially an iron ore and grain waterway, as these
two commodities accounted for two-thirds of
the bulk carried. The anticipated backhaul of ore

20,351
N .B . " F o re ig n " means
United States.

countries

other

than

Canada

and

the

by down-bound grain carriers, however, did not
materialize.

business review

STEEL’S NEW LIFELINE

WHAT DID THE SEAWAY DO
TO PHILADELPHIA?

How nicely the new Seaway fits into the chang

The Delaware River port has not collapsed as a

ing pattern of our increasing reliance on foreign

result of the first year’s operations of the new

iron ores!

Seaway. Exports through the Delaware River

Iron ore is heavy stuff; so it is shipped by

port in 1959 were down three-quarters of a mil

water wherever possible. Billions of tons dug

lion tons from the preceding year, but about

out of the Mesabi and neighboring ranges have

half of the decline is attributable to anthracite

already been shipped down the Great Lakes,

coal and about one-quarter of the decline is at
tributable to bituminous coal. There was a

which are fringed with steel mills from Duluth
to Buffalo. With such a splendid waterway lying

decline of almost 150,000 tons in exports of

between our richest ore deposits and our great

wheat, but part of that was counterbalanced by

Appalachian coal beds, it was inevitable that a

increased exports of corn and soybeans, the lat

substantial part of our steel industry developed

ter almost tripling. Wheat, however, is the big

on the Lake shores. Over one-third of the coun

gest tonnage grain moving out of this port and

try’s blast furnace capacity (and 85 per cent of

part of the 30 per cent decline last year is no

Canada’s) is concentrated in the Lakes district.

doubt attributable to Seaway competition. For all

Although Mesabi ores are not in imminent

grains inspected for export, last year’s decline

danger of exhaustion, they have already yielded

from the 1958 tonnage amounted to 15 per cent.

their best; so much so that the industry has

Baltimore fared better;

spent millions to develop taconite and to scour

Buffalo and Albany,

worse.

the world for new iron ore deposits. Thus far the

Imports through the Delaware River ports,

best finds have been in Canada and Venezuela.

which usually overshadow exports by 15 or 20

Currently, these two countries are supplying (in

to 1, tonnage-wise, were greater in 1959 than

about equal proportions) three-fourths of our

the preceding year. As usual, the lion’s share of

import ores. Traditionally, Lake Superior ores

the imports consisted of petroleum and iron ore.

supplied about four-fifths of the steel industry’s

In 1959, there was a small decrease in petroleum

requirements but imports are assuming propor

but an increase in iron ore, so it doesn’t seem

tions of major magnitude. In 1959— admittedly

likely that the Seaway hurt our iron ore trade,

not one of the best years for the steel industry—

and the petroleum industry had troubles of its

total imports (36 million tons)

own unrelated to the Seaway.

challenging tonnage of our Lake Superior ship

The Delaware River port is essentially an in

came within

ments (44 million tons).

dustrial and not a commercial port. As already

North of Seven Islands, on the mouth of the

indicated, most of its traffic is inbound and con

St. Lawrence, in the heretofore wasteland astride

sists chiefly of industrial raw materials which

the Labrador-Quebec border and stretching up

are worked up into manufactured products right

to Ungava Bay, is a boot-shaped area rich— per

here in the Delaware Valley industrial area.

haps fabulously rich— in iron ore. After inten

Even with respect to exports, this port hereto

sive prospecting, the Iron Ore Company of Can

fore has drawn on a shorter hinterland than the

ada, in which some of the blue-chip steel com

ports of New York and Baltimore.

panies of the United States are represented, was

business review

sufficiently convinced of the ferrous wealth in

most persistent advocates? Has it brought about

the wasteland to build a 360-mile railroad to

the anticipated reduction in costs of moving

haul ore from the ankle of the boot, near Schef-

grain into foreign markets? The answers are

ferville, to Seven Islands on the St. Lawrence.

complicated by the battle that was raging among

In 1954, production began with 1 % million tons

the railroads, truckers, and waterways before the

of ore railed down to the river where it was

new Seaway opened for business. Its opening in

dumped into the holds of ships for transport to

tensified the grain traffic turmoil.

steel mills. The flow of ore has been increasing

For many years the railroads did a thriving

steadily ever since, and in 1959 over 13 million

business of hauling export grain to cities on or

tons passed through Seven Islands.

near Atlantic, Gulf, and Pacific coasts that were

Before the new Seaway was opened, over half

accessible to ocean carriers. Under pressure of

of the tonnage moving through Seven Islands

rising costs of operations, rail transport rates on

went to the Eastern Coast of the United States—

grain inched upward during the postwar period;

primarily Baltimore and Philadelphia. Approxi

so much so that between 1946 and 1958 the rail

mately one-fourth went to Europe, and about

rates for grain virtually doubled. As rates rose,

18 per cent found its way up the pre-Seaway

grain shippers sought other forms of transporta

route to steel mills in Canada and the United

tion.

States. In 1959, about 41 per cent went up the

Truckers began to cut in on the railroads by

new Seaway, 36 per cent went to the Eastern

hauling grain from country elevators to terminal

Coast of the United States, and only one-fifth to

markets. As bad, if not worse, for the railroads

Europe.

was the growing tonnage of grain that moved by

Widespread exploration in the Labrador-Que-

barge from terminal elevators to tidewater. The

bec boot by more than a hundred companies has

area

already led to the discovery of other deposits,

Mississippi,

served by barge

transportation

Illinois, and

Ohio

the

rivers turned

some of which are said to contain reserves of

increasingly to water transportation for the ship

over a billion tons of economically recoverable

ment of grain to the Gulf Coast. The changes

ore. More and more of the ore coming out of this

taking place in grain transportation were tanta

region is expected to be shipped up the Seaway

mount to a traffic revolution, in which the

to steel mills in the United States and Canada. It

railroads were coming off at the short end.

has been estimated that iron ore production in

Then came the new Seaway. The Seaway inten

this region may grow to 30 million tons by 1965

sified the competition for grain from the eastern,

and 50 million tons by 1970, resulting in sub

western, and north-south railroads, inasmuch as

stantially larger shipments through the Seaway.

two of the traditional export gateways— the Gulf

The estimates could be too optimistic, but it is

and Atlantic coasts— were faced with a new ex

possible that the new Seaway may become an

port gateway, the Great

ore way primarily.

Waterway.

Lakes-St. Lawrence

The railroads fought back with their best com

THE GRAIN TRAFFIC TURMOIL

petitive weapon— rate reductions. In June o f last

What has the new Seaway done for the grain

year, the lines serving the area east of the

growers who have long been its strongest and

Mississippi and north of the Ohio River made

substantial rate reductions. The reductions ap
plied to export grain hauled to North Atlantic
coastal cities. To meet the competition of the

ST. LAWRENCE— GREAT LAKES WATERWAY

Seaway route and that the Atlantic ports are hit
hardest. Philadelphia, however, as previously
mentioned, came off reasonably well.

eastern adjustment, railroads serving the Gulf

Practically all of the Canadian grain that goes

Coast reduced their rates on grain moving out

to market over the Great Lakes originates at the

of Illinois and Missouri. Elsewhere, still other

lakehead ports of Port Arthur and Ft. William.

rail rates were reduced to meet the competition

The 1959 shipments fell short of the 1958 ship

of truckers hauling grain into Lake port ter

ments by about 11 per cent.

minals such as Duluth and Toledo. As the

amount that moved via the Seaway directly to

In 1959 the

battlelines draw tighter it is apparent the rails

markets overseas, though 27 times the 1958

are determined to meet the competition of the

pre-Seaway tonnage, was only 6 per cent of the
Canadian grain

Seaway, trucks, and barges.
Despite

all

the

rate

readjustments

which

movement

down the Lakes.

Most of the Lake-borne grain went to eastern

brought rail rates on export grain from the terri

Canadian

ports west

Montreal

for

both

tory east of the Mississippi and north of the

domestic consumption and transfer to lower

Ohio down to the levels prevailing 10 years ago,

St. Lawrence ports.

the Seaway holds the edge on rates. In 1959 it
cost less to ship grain from the Lakehead to

GROWTH WITHOUT GLAMOUR

Europe by way of the Mississippi and Gulf gate

At mid-season of the second year of operation

way than the Lake-rail-ocean route from Duluth-

there is some doubt whether the Seaway will at

Superior through Buffalo and North Atlantic

tain the predicted goal of 29 million tons of

ports. But it cost less than either of these routes

cargo. A 40 per cent increase in traffic over the

to ship the grain from Duluth-Superior via the

first year seems unlikely with the steel industry

Great Lakes-St. Lawrence Seaway. Savings via

in the United States in the doldrums. Unless

the Lake-Seaway route ranged from 6 to 14

there should be a tremendous upsurge in grain

cents a bushel on heavy grain such as wheat,

transportation, the Seaway faces another year

corn, or soybeans, depending upon alternative

of disappointment; not a decline, but too little

ports of exit.

incline.

In 1959, the year the new Seaway opened for

Another dark cloud over the Seaway is the re

business, nearly a billion bushels of United

cent cut in rail rates. Major Eastern railroads,

States grain were inspected for export at all

just a few months ago, reduced rates as much as

ports of the country. The Gulf ports handled

20 per cent on steel and chinaware, along with

52Y2 per cent of the total grain exports, the

substantial reductions in rates on paper, paper

same percentage as in 1958. Grain shipments

products, and farm machinery moving between

declined 5 per cent through Atlantic ports, and

Chicago and New York. The rails have not given

3 per cent through North Pacific ports. Ports

up.
The Seaway, now 27 feet deep, is deep in the
groove of competition— competition with the

on the Great Lakes increased their share from
4 per cent to 14 per cent. Thus it appears that
barge transportation of grain to the Gulf for
export offers the greatest competition to the

railroads and barges and motor trucks, competi
tion in rates, routes, and services. The glamour

business review

days are over. From now on it is ton for ton,

stalled. And if warranted by future growth in

rate for rate, route for route, and service for

tonnage, the locks can be expanded to accommo

service.

date two-way traffic. Difficult, though not insu

The new waterway is still unfinished— prob

perable, is the ice problem which limits use of the

ably never will be finished completely, for it is

Seaway at present to eight months in the year.

committed to a continuous program of improve

It may take more than a decade to achieve the

ment. New safety devices are being installed,

most enthusiastic dreams of Seaway traffic, but

the Welland bottleneck has been eased, upper

in time there may very well be enough traffic for

Lake channels and harbors are being deepened,

the Seaway as well as for its competitors. Mean

new grain elevators are going up, and more effi

while,

cient cargo-handling equipment is being in

5y* billion kilowatt hours of electricity annually.

the Seaway’s silent partner produces

UNEMPLOYMENT
IN A
GROWING ECONOMY

The Third District Since 1950
Growth is in the news today. There are many

growth requires change, change forces adjust

who argue that other economies now are growing

ments, and we live in the real world, where ad

more rapidly than ours, and that ours should

justments to change are slow and reluctant. The

grow faster. Unemployment especially causes

inescapable facts are that the new techniques,

concern, for unemployment means lost produc
tion, while economic growth requires continu

the new kinds of plants, and the new skills by

ally increasing output.

other skills and plants and processes. But the

means of which the economy grows displace

Certainly, in a perfect world, unemployment

old plants do not just disappear, nor do the

never would accompany maximum growth. But

people trained to operate them. The plants are

CHART X

CHART 2

CHART 3

THIRD DISTRICT UNEMPLOYMENT SINCE 1950
Altoona, Atlantic City,

Philadelphia, Reading,

Harrisburg, Lancaster,

Johnstown, Pottsville,

Trenton, York

Lehigh Valley, Wilmington

Scranton, Wilkes-Barre— Hazleton
PER CENT OF LABOR FORCE UNEMPLOYED

PER CENT OF LABOR FORCE UNEMPLOYED

business review

CHART 4

nant. Such local concentrations of unemployment

POPULATION CHANGES AND UNEMPLOYMENT

sometimes seem so everlastingly persistent that it

Low-unemployment areas have gained and highunemployment areas have lost population. There is a
regular progression— the lower the unemployment
rate, the greater the population gain.

people and resources do respond, albeit slowly

POPULATION CHANGE SINCE 1950 (PER CENT)

is difficult to see that adjustments do occur, that
and imperfectly, to economic change.
In the Third Federal Reserve District, just
such a shifting of resources has been going on
for many years. Our purpose here is to review
how it worked out during the decade after 1950.

Third District unemployment
rates since 1950
Unemployment in the United States was rela
tively low at the outset of the nineteen fifties,
when the labor force was under considerable

CHART 5
LABOR FORCE PARTICIPATION
AND UNEMPLOYMENT, 1960
In low-unemployment areas, more of the population
is in the labor force.
LABOR FORCE AS PER CENT OF POPULATION— AGE 14 AND OVER

AVERAGE UN EM PLO YM EN T RATE, 1 9 5 0 -1 9 6 0
(PER C EN T OF LABOR FORCE)

there, empty; the people are there, unemployed.
People do not move quickly into new occupa
tions or to new places. It may be perfectly obvi
ous to the detached observer that work opportu
nities are better in one city than another, but it
is not so obvious to a family which has lived in
a place for several generations. Nor are the ad
vantages of a new trade very attractive to one
who has worked at one now obsolescent. Conse
quently, when an industry declines, pockets of
unemployment appear both in the industry as a
whole and in the locations where it was domi

Digitized 14 FRASER
for

10
15
PER CENT OF LABOR FORCE UNEMPLOYED

business review

pressure. Since then, it has drifted upward. Also,

grew rapidly but had high unemployment would

there were fluctuations associated with alternat

plot at the upper right of the graph. One which

ing periods of greater or lesser business activity.

had little unemployment but grew slowly would

Such changes from year to year in the Third

appear as a point at the lower left.

District have not varied greatly from those in the

The interesting thing about this graph is that

nation. On the other hand, the level of unem

such points aren’t there. Instead, the points on

ployment— the per cent of labor force unem

the graph tend to group at the upper left and

ployed— usually seemed higher here than in the

lower right. Since 1950, therefore, population

country as a whole.

in areas with high unemployment has tended to

Averages can be misleading, however. A look at

decrease; areas with low unemployment have

the important labor market areas in the district

grown, and the lower the unemployment, the

reveals distinct groups. One group comprises

greater the growth, on the average. Five areas

those regions which had unemployment rates so

actually have lost population since 1950. They

high that they usually were and still are classi

are Altoona, Johnstown, Pottsville, Scranton,

fied as areas of substantial labor surplus. Unem

and Wilkes-Barre-Hazleton. Population during

ployment in these labor markets (shown on

the nineteen fifties has been shifting out of the

Chart 1) was much greater than in the nation

areas of high unemployment.

as a whole. These places account for less than

In terms of labor forces, instead of total pop

16 per cent of population in the district’s regu

ulation, this tendency has been even more pro

larly reporting labor market areas, and for only
about 13 per cent of its total population.

nounced. Chart 5 employs ground rules similar
to the previous one, except that it compares the

In the rest of the district (Charts 2 and 3) un

percentage of the people in each area who are

employment rates either approximated the U.S.

working or seeking work to the area’s unemploy

experience (Chart 2) or were lower (Chart 3 ).

ment rate. Places with high unemployment which

The eight reporting areas shown on these two

also have a high percentage of their population

charts have almost 83 per cent of the popula

in their labor forces would appear as points at

tion in regularly reporting labor markets, and

the upper right of the graph. Again, such points

about 70 per cent of the district’s total popula
tion.1

are scarce. The usual situation is that in places
with high unemployment the labor forces consti
tute a smaller percentage of the population.
In summary, not only are the regions with

Population in the district seeks
areas with low unemployment

high unemployment in the Third District not

On Chart 4 each point represents a labor market

growing, they also have relatively smaller labor

area. The position of the point on the graph is

forces. Clearly, therefore, since 1950 the human

determined by two things: (1) How fast its pop

resources of the district have tended to shift out

ulation grew between 1950 and 1960; (2) its

of the areas of high unemployment into the

unemployment rate. For example, a place which

more prosperous regions. This is quite in line
with what might have bee^i predicted in 1950,

1 In the Th ird D is tric t outside the areas represented, unemploy
ment is not estim ated frequently o r in detail. These regions are
predominantly rura l; they contain about 16 per cent o f the d is
tric t's population.

but it is interesting to see it confirmed by the
population figures. More interesting yet is what

CHART 6
IMPORTANT INDUSTRIES IN THIRD DISTRICT, 1950 AND 1960
Areas of Substantial Labor Surplus.
M

APPAREL AND TEXTILES

|C n [ CONSTRUCTION
O

G ]FOOD
el

PRODUCTS

[gv T ] GOVERNMENT

|A | MINING
AIN

PAPER

|PRMj PRIMARY METALS

|t Ob | TOBACCO

ALTOONA

JOHNSTOW N

POTTSVILLE

SCRANTON

* Comparable ind ustria l classifications not available fo r 1950.

WILKES-BARRE-HAZLETON

ATLANTIC CITY

TRANSPORTATION AND
PUBLIC UTILITIE S

business review

has been happening within the district’s labor

force or the area. But what industries now fill the

forces, namely . . .

void left by those which declined?

In some

cases, the newly dominant firms are in indus

Diversification

tries which have high rates of unemployment,

Charts 6 and 7 depict how the district’s labor

and this tends to counterbalance the near demise

forces have shifted since 1950 out of certain in

of the occupation which caused the trouble in

dustries and into others. Chart 6 shows the situ

the first place. In the important textile and ap

ation for the areas of labor surplus. In each of

parel category, there is a further complicating

these areas for which data are available, a large

factor. These industries employ women predomi

— in some cases an overwhelmingly dominant—

nantly, whereas the declining industries were

industry has declined very sharply in importance.

staffed mostly by men. So wives are forced into

The net effect has been that these labor forces

the labor force when it is the husbands who most

now

need employment.

are considerably

diversified than

they were in 1950. At the very least, a declining

Facts like these tend to some extent to coun

industry which continually turned workers into

terbalance the corrective effect of the shifts of

the ranks of the unemployed has dropped from

population and industry we noted previously.

dominance to a relatively minor position. This

Replacing a declining industry with one that

bodes well for the future. In cities like Wilkes-

brings with it similar problems does not consti

Barre and Hazleton, mining a decade ago occu

tute a great improvement.

pied more than one-fourth of the working popu

changes within the labor forces of these areas

lation. But mines kept closing, turning people

of labor surplus since 1950 have been in the

into the ranks of the unemployed. Mining in ten

direction of less dependence on one overwhelm
ingly dominant industry.

years has declined to occupy only one-fifteenth

Nevertheless,

the

If the decline continues

If we now consider not just the one predomi

at the old rate, trouble from that source shortly

nant industry in each area, but rather all large

will no longer occur, for the industry will be no

industries taken as a group, Chart 6 again re

more. If the rate of decline moderates, so will the

veals useful information. Invariably, the group

of the labor force.

contribution of the industry to the area’s un

of leading industries shown represents a con

employment.

siderably smaller per cent of the labor force in

Similar situations can be identified in other

1960 than it did in 1950. Not only have the

places. In Scranton, mining dropped from one-

dominant industries become less important in

sixth to one-twentieth of total employment; in

these labor forces, the large industries in each

Pottsville, mining declined from one-third to

area have as a group become less important.2

in Altoona, the transportation in

It follows that, in spite of the uncertain ad

dustry, which is a major source of unemploy

vantages of some of the industries which have

ment there, employs considerably less of the

become more important since 1950, the regions

labor force than it formerly did.

with labor surpluses are in less danger of being

one-tenth;

Of course, there is more to the problem.
Where will the displaced workers go? We have
already seen that many have left either the labor

badly hurt because

special circumstances

2 The rule used in organizing the inform ation in C hart 6 was that an
industry got onto the graph if it was im po rta nt in either the
I960 or 1950 labor forces.

CHART 7
IMPORTANT INDUSTRIES IN THIRD DISTRICT, 1950 AND 1960
PER CENT OF TO TA L NONFARM EMPLOYMENT
|ATX |APPAREL AND TEXTILES

|CHM[ CHEMICALS

|COC| COAL. OIL, AND CHEMICALS

| o n | CONSTRUCTION
c

|FBM |FABRICATED METALS

| FDP |FOOD PRODUCTS

| FR N [ FURNITURE

|g v t |g o v e r n m e n t
| c h | m a c h in e r y a n d
m
t r a n s p o r t a t io n

e q u ip m e n t

I PPP I PAPER, PRINTING, AND
PUBLISHING
|PRM |PRIMARY METALS

|s c g [ s t o n e , CLAY, AND GLASS

|TRN |TRANSPORTATION AND
PUBLIC UTILITIES
1950
I9 6 0
HARRISBURG

1950
I9 6 0
LANCASTER

1950
I9 6 0
LEHIGH VALLEY

*1952
I9 6 0
WILMINGTON

’ Comparable ind ustria l classifications not available fo r 1950.

1950
I9 6 0
PHILADELPHIA

1950
I9 6 0
READING

1950
I9 6 0
YORK

1950
I9 6 0
TRENTON

business review

affecting just one kind of business.

adjust to changes in demand and technology. In

Turning now to Chart 7, we see that similar

theory at least, the incentives which cause people

labor force shifts have occurred in other parts

to act should lead to appropriate reallocations

of the district. They have not been as marked,

when imbalances appear. Persistent unemploy

and this is not surprising. These labor forces al

ment is a most distressing case of unused pro

ready were more diversified than those of the

ductive capacity. Although its causes are complex

areas we just have considered. In many cases,

and not fully understood, certainly in some part

the industries we singled out as most important

it results from changing conditions which could

in those areas are in total slightly less dominant

be compensated for by appropriate shifts of pro

only because the general category of “ services”

ductive resources. Experience in the Third Dis

has become more important. The chances are

trict since 1950 provides a case in point. There

that this development also contributes to diver

have been shifts in labor forces; these shifts

sification, but we can’t tell for sure, because the

have been greatest in the areas where imbalances

available statistical compilations are not de

were greatest. Certain of these labor forces now

tailed enough so that we can study the degrees of

are smaller, and their industrial composition is

concentration within “ services” in the various

more diversified than formerly. These changes

regions. But the evidence we have discloses no

have not been fully corrective. If anything, the

tendency for these labor forces to become con

average of the district’s unemployment rates is

centrated unduly in one industry.

somewhat higher now compared to the nation’s

Conclusions

than it was ten years ago. Nevertheless, compen
satory adjustments did occur; they were in the

We began with the premise that growth in a free

right direction, and they were stronger where

society requires that resources be redirected to

maladjustments were greatest.

F O R TH E R E C O R D . . .
INDEX
B U S IN E S S

y s .

V**
*
w

FACTORY PAYROLLS, DIST.
(If49 = 100)

FACTORY EMPLOYMENT, DIST.
0949 = 100)

DEPARTMENT STORE SALES, DIST. |
P

L a A/"

CONSUMER PRICES, PHILA.
t

2 YEARS
AGO

YE AR
AGO

JULY
I9 6 0

Th ird Federal
Reserve D istric t

United States

Per cent change

SU M M A RY
July I960
from
mo.
ago

O UTPUT
Manufacturing production.
Construction contracts . . .
Coal mining ........................

year
ago

7
mos.
I960
from
year
ago

July I960
from
year
ago

mo.
ago

— i
+ i
-1 9

- 3
— 1
+ 9

0
- 7
— 4

- 6
+ 4
-2 1

— 1
0

0
0

+
+

2
3

TRAD E*
Department store sales . . .
Department store stocks . .

- 1
— 1

— 2
+ 1

+
+

3
1

Check payments ................

+ 1
- 2
+ 15

7
mos.
I960
from
year
ago

+ 4
- 6
+ 1

LO C AL
C H A N G ES

Sales

Stocks

Per cent
change
July I960
from

Lehigh Valley — i

year mo.
ago ago

0 +

2 — i

Lancaster . . .
+

Check
Payments

Payrolls

H a rrisb u rg ..

— 1

Department Sto re t

Employ
ment

mo.
ago

EM PLO YM EN T AND
IN C O M E
Factory employment
(Tota l) ...................................
Factory wage income........

B A N K IN G
(A ll member banks)
Deposits .................... ............
Loans ......................................
Investments ..........................
U.S. G ovt, securities........

Factory*

1 -

2 -

year mo.
ago ago

year
ago

— 12 — 5

— 7 — 6

2 -

+ 19 +

6 +

7 +

Per cent
change
July I960
from

3 -1 0

0 -1 2

1
1
1
1
0
- I0 f

+ 1
+ 10 + 1
1
— 6 — 8
- 7 -1 0
— 2 — 2
- 5f + s t

+ 1
— 1
+ 4
+ 5
-j- |
- II

+
+

+
—
-

1
6

0
7
7
8
4
5

0
+ M
-1 2
— 14
— 4
+ 5

P R IC E S
Consumer ..............................

0 +

— 4 -

2 — 1

0 -

0 +

1
1 + 10 + 2 — 1 — 5

2 -

3 +

0 +

1 +

+ 10 +

Trenton

........

W ilkes-Barre

6* +

+ 2*
t20 C itie s

0
0

0
+ 1

0
+ 2

tPhiladelphia

1 -

4 -1 3

0 -

1 +

6 -

5 +

5 -

0 -

2 +

1 -

3 -

0 -

5 -1 0

0 -

1 +

2 -

1 — 3 -

0 +

1 +

— 1 -

1 -

2 -

3 -

8 -1 7

— 1

W ilm in g to n . +
York ..............

•Adjusted fo r seasonal variation.

....

Scranton . . . .
+
+
+
4-

Philadelphia
Reading

3 + 18

2 -1 2

*Not restricted to corporate limits of cities but covers areas of one
or more counties.
tAdjusted for seasonal variation.