Full text of Business Trends : A Billion a Day and How It's Spent

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SUNDAY, MARCH 4, 1962

FOR PRESS RELEASE AFTER 10:15 P. M.

Prepared

in

the

Research

Department

of

the

FEUERJ\L RESERVE BJ\NK OF C·~EVELJ\ND
Serving

the

Fourth

Federal

Reserve

District

A BILLION A DAY AND HOW IT'S SPENT

For each day during 1961, disposable personal income in the United States averaged
$1 billion, setting a new landmark in the
annals of economic history for this or any
other country. For the year as a whole, disposable personal income (which means estimated income after taxes) advanced by $13
billion, or by a rate of increase of about
3-1/2 percent. This was the largest expansion
in disposable personal income for any recovery year in the past decade. For example,
the expansion in income after taxes during
1958 amounted to less than 3 percent, and
in 1954 expansion in such income was well
below 2 percent. (The years 1954 and 1958,
like last year, were marked by a shift from
recession to recovery in the course of the
year, although the turning points occurred in
different months of the three years.)
Although the flow of income during 1961
increased by 3-1/2 percent, personal consumption expenditure rose by only 3 percent,
resulting in a somewhat higher rate of
savings. That pattern also differed from the
experience of 1958 and 1954, insofar as expansion in consumer spending was more
closely attuned to the flow of disposable
personal income in '58 and '54 than in '61.
The slower expansion in personal consumption during 1961 reflected principally a
slowing in the purchases of durable goods.

In fact, expenditures for services continued
their uninterrupted growth, with the increase
during 1961 matching those of recent years.
The rapid growth in expenditures for
services, which include housing costs, household operations, transportation, and personal
care, means that such expenditures are taking
an ever increasing share of the consumer's
income. During 1961, such expenditures accounted for approximately 39 percent of disposable personal income, which compares
with 35 percent in 1957 and only 31 percent
in 1950.
To round out the picture, about 43 percent
of disposable personal income in 1961 was
spent for purchases of nondurable goods,
chiefly food and clothing items; about 11 percent was spent or invested in durable goods,
which in addition to autos include furniture
and appliances as well as lumber and building
materials; 7 percent of disposable income was
saved.
Retail Sales Down Slightly in 1961. For the
first eight months of 1961, sales of all retail stores were running on an average of
about 2 percent below the 1960 level. However,
the long-expected upsurge in retail sales
which occurred during the final quarter of
last year put the total for the year in a photo
finish race with 1960.

Broadcast by George Polak, Associate Economist, Federal Reserve Bank of Cleveland,
Cleveland, with Charles Day, News Editor, WGAR, Sunday, March 4, at 10:15 p. m.


over WGAR,
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Federal Reserve Bank of St. Louis

While the drop in retail sales during 1961
amounted to only about 0.3%, it was the first
time in the entire postwar period that total
retail sales for the year failed to exceed the
year-ago volume, in dollar terms. All of the
decline, however, was in sales by durable
goods stores (as is usually the case in recession), and was particularly marked in the
automotive group, with such sales falling
$2-1/2 billion short of those of 1960. Most
of the decline in automobile sales occurred
during the first quarter of 1961. Lower sales
for the year were also posted by furniture
stores as well as by lumber and building
materials dealers.
By contrast, nearly all types of nondurable
goods stores showed increases in sales during
1961, largely offsetting the decline in durables. There was little significant variation
among the major categories of nondurable
lines, except for department stores, which
showed up better than the rest of the softgoods lines. The over-all increase in department-store sales during 1961 amounted
to nearly 4-1/2 percent, while the increase
for all nondurable goods stores was less than
2 percent. (Department stores are classified
with the nondurable goods stores because the
preponderance of their sales is in soft
goods.)
Slow Start for 1962. A report for January
by the U. S. Department of Commerce reveals
that retail sales during the month, after
adjustment for seasonal variation, slackened
for the second successive month. At $18.7
billion,, January sales were 1 percent below
the preceding month and about 2 percent
below the most recent high reached in November.
Such an unfavorable showing at this stage
of recovery (and it should be pointed out that
the decline in retail sales in January was
accompanied by declines in industrial production and personal income) has left some

observers with doubts as to whether consumers have abandoned their recessioninspired cautiousness. As compared with past
performances, expansion in retail sales so far
has not assumed strong proportions. By way
of illustration, while total retail sales in
January 1962 (the eleventh month after the
low point of the recession) were only slightly
more than one-half of one percent above the
pre-recession high (as measured from a
three-month average) such sales in the comparable month of the 1957-58 cycle were
nearly 6 percent above the three-month average of the preceding peak, and in the 195354 cycle, they were up 8% at a corresponding
time.
Moreover, the latest (January) Federal
Reserve Quarterly Survey of Consumer Buying Intentions indicates little significant
change in consumer attitudes and plans. The
Survey notes that in January somewhat more
consumers reported plans to buy new automobiles than in the three preceding January
surveys, but fewer expressed plans to buy
used automobiles or household durable goods.
What, then, is the outlook for retail sales
for the remainder of this year? A number of
signs suggest that consumer demand may soon
increase: 1. There is a real possibility that
the recent steel negotiations will result in a
peaceful settlement well before the present
contract expires. This may encourage some
with a wait-and-see attitude to spend more
freely. 2. With personal savings higher and a
debt burden reduced to the lowest level since
the end of 1959, consumers are likely to be
more willing to incur additional debt. 3. The
late date of Easter, as it comes this year, is
always a favorable factor for sales, especially
for sales of apparel.
Considering these and other factors some
observers expect that retail sales will exceed
the $20 billion monthly level later in the year,
as compared with the $18.7 billion seasonally
adjusted score for January.

Additional copies of "Business Trends" are available upon request.

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