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FEDERAL RESERVE BANK OF R IC H M O N D



AUGUST

1963

MAJOR TRENDS IN THE POSTWAR ECONOMY
In recent years the perform ance of the Am erican
econom y has been subjected to grow ing scrutiny and
criticism. T his has been especially true in recent
months as debate over the need for a reduction in
Federal taxes has intensified. Often the discussion
o f econom ic perform ance has concentrated on certain
segments of the econom y or on certain time periods.
Perhaps, therefore, the present may be a good time
to take a lon g and broad look at the behavior o f the
whole econom y in the postwar period. Such is the
purpose of this and subsequent articles in this series.
T he articles will examine a number of statistical
series which show the behavior o f the m ore important
sectors of the econom y. T he present article will
cover several of the series and the remainder will be
discussed in the next article. F ollow in g that, some
consideration will be given to what appears to be
the m ore significant developments and the more
troublesom e areas of the econom y, with an attempt
to provide some explanation o f why the problems
have

developed.

One

additional

purpose

of

this

study is to afford some background and perspective
for short-range forecasting.
It is difficult to select a small number o f sta­
tistical series which will accurately measure the per­
form ance o f the econom y as a whole and at the same
time indicate developments in the m ajor sectors o f
the econom y. A ll of the m ajor series are interrelated
and changes in any one of them are to some extent
both cause and effect o f changes in other series.
T w elve m ajor series have been selected and they
perhaps reflect fairly well the behavior o f the more
important sectors o f the econom y. These are data
which are well known and readily available; no at­
tempt has been made to refine or adjust them since

immediately above the lines representing the data.
T he original data used are either official index
numbers or current dollar values, unadjusted for
price changes. T o indicate the change from prewar
conditions, most o f the series include a 1939 or a
1940 figure as a reference point.
GEN ERAL EN VIRONM EN T A s a preliminary, it may
be helpful to note briefly the broad and general
characteristics which have marked the econom y since
W o rld W a r II.

First, it is important to note tw o
developments which did not occur. Contrary to all
past experience follow ing m ajor wr
ars, there w7 no
as
broad, general deflation with its accom panying de­
pression. T he late P er Jacobsson thought that this
was due largely to the fact that during the war wage
and price controls w^ere m ore effective than in earlier
wr
ars and to the very high degree o f liquidity, relative
to w^ages, which prevailed at the end o f the war.
A lso, another thing which did not happen wras a
broad, general reduction in Federal taxes such as
had marked other postw ar periods.
Second, population recorded a vigorous grow th,
the annual increase usually falling between 1.7% and
1 .9% .

O ver the wT
hole period population increased

by a little more than 3 0 % . T hird, we inherited
from the war a greatly swy
ollen m oney supply and
tremendous amounts o f other liquid assets, both of
which received another boost during the K orean W a r.
In the past ten years the m oney supply expanded
quite slow ly as the econom y “ grew up” to the initial
oversupply.

TO TAL C IV ILIA N EM PLOYM EN T

the purpose here is to paint the picture in broad
strokes.

T h e year 1947 wT chosen as the starting
as

Fourth, residential m ortgage and co n ­

sumer credit increased by about $200 billion during

Million
70

point since 1946 wras too much affected by the transi­
tion from the war to be representative.

1 .1 %

y

In com put­

ing rates of grow th the whole period wras divided

65
1. 1%

into tw o parts, with the line of division drawn at
1957 since that was about the time when m ost o f the
series showed a distinct change of trend. T h e an­
nual rates of grow th wrere com puted by converting
the actual data to logarithms and then determining
a line o f best fit for those values. T his method
avoids giving undue weight to extrem e or nontypical

/

1
1

55

_

1
1
1
1

50

-/
1

values which might occur in terminal years.

On

the charts the grow th rates appear as superscriptions




1

45

—

1940 '48

'50

'52

'54

'56

i—

'58

i—

i—

'60

i_____

'62

the p e r io d ; this amount supplemented consum er in­
comes in the purchase of homes and durable consumer
goods. Fifth, at the beginning o f the period there
was an enorm ous accumulated demand for homes
and durable goods, built up during the Great D e­
pression and the war. D uring the period that back­
log was worked dow n steadily and fairly rapidly.
Sixth, the period was marked by the continuation
and strengthening o f the practice o f granting annual
wage increases. Seventh, there was a steady and
rapid rise in the costs of governm ent caused by the
K orean W a r, the cold war, rapid urban growth,
enormously increased needs for schools and high­
ways, greatly expanded welfare programs, and many,
many other factors. Finally, foreign com petition in­
creased rapidly, especially after 1958, due prim arily
to rapid industrial grow th in Europe and Japan.

only a slow ing in the rate of growth. In the past
five years the annual rate o f grow th was nearly a
third low er than in the previous ten years. O ver the
whole period, G N P grew by 1 36% . E xpressed in
terms o f constant dollars, the grow th was only 6 7 % ,
indicating that about half o f the grow th in current
dollars wras due to rising prices.
EMPLOYMENT AND UNEM PLOYM ENT
ment emerged during the period

U n em ploy­

as perhaps

the

econ om y’s most persistent and m ost difficult problem .
O ver the period the civilian labor force increased by
almost 2 0 % while population rose by m ore than 3 0 % .
T he lag in the grow th o f the labor force relative to
population was due prim arily to a grow in g p rop or­
tion o f children and the m ore years they spent in
school. But civilian em ploym ent grew by only about

In a nutshell, the A m erican econom y

1 8 % . T he grow th rate was low before 1957 and
did not rise subsequently, despite a substantial in­

since W o rld W a r II has functioned at a high and

crease in the num ber o f people entering the labor

rising level of production and consumption. It has
been by a considerable m argin the most productive

force. A s a consequence, both the num ber o f un­
em ployed and the rate o f unem ployment have shown

econom y the w orld has ever known. It has been
marked by four recessions which became progressively

a persistent tendency to rise.

sh orter; they have also becom e milder except fo r the
increase in unemployment. T he rate o f grow th re­
ceived a boost from the K orean W a r but has slowed

three times the rate in the previous period. This is
one o f the trends which will be examined in greater
detail later, with an attempt to isolate some o f the

significantly in recent years.

causes.

GROSS NATIO N AL PRODUCT T he fluctuations o f
gross national product outline the behavior o f the

production is a broad measure o f physical production

A THEME

econom y as a whole and provide a backdrop for the
examination of the other series, many o f which are
components of G N P .

T h e chart on the cover shows

Since 1957 the num ­

ber of unem ployed has grow n at a rate m ore than

INDUSTRIAL PRODUCTION

T he index of industrial

in the econom y and as such is affected less by chang­
ing prices than many o f the other series. It is a
relatively volatile index, but even so, the recession of

the rise o f G N P over the whole period and the p ro ­

1960-61 appears as only a flattening out rather than

gressively milder recessions.

a decline.

O n an annual basis

T he total increase in this index over the

the first tw o recessions show-ed only very small de­

whole period was 8 0 % ; in com parison with an in­

clines ; in the last two there was no decline at all but

crease in population o f 3 0 % , this gives some indi­

INDUSTRIAL PRO D U CTIO N IN DEX

1957-1959= 100




EXPEN DITURES FO R NEW PLANT AN D EQUIPM EN T

cation of the increase in per capita consum ption o f
physical goods. T he decline in the rate o f grow th
in this area after 1957 was not as large as it was in
some other areas or in G N P . In manufacturing,

tions— residential, industrial, com m ercial, and g o v ­
ernmental. T h e industrial and com m ercial portions
overlap the expenditures for plant and equipment
discussed above. Residential construction is the

which accounts for the great bulk of industrial p ro­

largest single com ponent and it, together with g o v ­

duction, employm ent increased only about 8% . C om ­
pared with the increase o f 8 0 % in output, this re­
flects the great strides which have been made in

ernmental construction, constituted about 7 0 % o f the

increasing productivity in this field.

It also suggests

one of the m ajor causes o f our unemployment p rob ­
lem.

T he

Great D epression and W o r ld W a r II, so that an

nearly all of the increase in population has fallen upon
the nonm anufacturing area. This has been made

enorm ous accumulated demand had been built up by
the end o f the war. T his was further accentuated by

especially difficult because o f the tendency for wages
in the nonm anufacturing fields, where increases in
productivity have been low, to rise at the same rate

the rapid population grow th o f the past 20 years and
by the high rate of urban grow th. Especially in the
residential area, activity has been further stimulated

as

by the extensive new facilities for financing home

in

of

providing

manufacturing,

em ploym ent

A ctivity in this area was very low during the

for

wages

burden

total last year. In recent years total construction
has made up m ore than 10% o f G N P , which gives
some indication o f its importance.

where

increases

in

productivity have been high.
NEW PLANT AND EQUIPM ENT

Expenditures for

new plant and equipment constitute by far the largest
com ponent o f private investment. A s such they serve
as a good indicator o f the v ig or o f econom ic growth,
especially in the industrial area.

A lo n g with in­

dustrial production, they grew about 8 0 % over the

building. Pushed along by all these forces, con stru c­
tion activity scored a greater advance than any other
m ajor series considered here. T he total gain was
2 4 1 % and the annual rate o f grow th in the first
period was nearly 10 % . T h e sharp drop in the an­
nual grow th rate since

1957 reflects the w orking

down o f the accumulated backlog and a small drop
in the rate o f fam ily form ation.

whole period, but their rate o f grow th was con ­

T h e behavior o f the m a jor com ponents o f this

siderably higher in the first period and very much

series indicate the rapid increase o f construction

low er in the second period. A s the chart shows, these

activities by public bodies during this period.

expenditures reached a peak in 1957 and did not re­

the whole

gain that level until last year.

struction increased by 4 3 6 % com pared with an in­

A s a per cent o f G N P ,

plant and equipment expenditures fell significantly

crease o f

over the period, indicating that this important part of

231%

private investment was not keeping pace with the
production o f the econom y as a whole.

period
197%

O ver

the value o f total public co n ­
in total private construction and

in private nonfarm residential construction.

PERSONAL INCOM E

Personal income, on the one

hand, shows the com pensation individuals receive for

This series covers

participating in econom ic activity and, on the other,

nearly all types of new construction and m ajor altera­

is a fairly good indicator o f the flow o f consum er

VALUE OF NEW CON STRUCTION

V A LU E O F N EW C O N STR U C TIO N
$ Bil.




P ERSO N A L IN CO M E

purchasing pow er available fo r spending. It in­
creased quite steadily throughout the period, showing
a small decline in only one year, and registered a total
gain o f 130% . T he increase has been so steady that,
except for 1949, it is difficult to distinguish the re­
cession years on the chart. T he annual grow th rate
for personal income for the first ten years was slightly
less than that for G N P ; in the past five years the

stitute well over half o f total G N P . D uring the
second period they grew m ore rapidly than dis­
posable personal income, average annual earnings,
or average hourly earnings in manufacturing. This
probably reflects in part the increased use o f con ­
sumer credit. A ltogether, it would seem that con ­
sumer expenditures have been a sustaining, and not a

tw o rates were identical.

this rate could be maintained in real terms, it would

P er capita personal income shows a considerably
slower rise than the total because o f the steady p op ­
ulation grow th. O ver the whole period it increased
by 7 8 % , which was a little m ore than twice the in­
crease in the index o f consum er prices.

restraining, force upon the econom y as a whole.

If

be consistent with what is generally regarded as a
reasonably satisfactory rate o f grow th for the econom y
as a whole.
CORPORATE PROFITS C orporate profits after taxes
represent the earnings available to corporate owners,

T he different behavior o f the m ajor com ponents of

or the return to the ow ners o f corporate equity

personal incom e indicate how the distribution o f in­

capital. T hey are com pensation for the use of capital
in econom ic activity and are a combination o f interest,

com e has been changing.

Compared with an increase

of 130% for the total over the whole period, labor
income increased by 14 6% , proprietors’ and property

premium for risk bearing, and reward for business
leadership and management. T he total shows wide

income rose by 9 1 % , while transfer payments had

fluctuations from year to year with only a moderate

the largest increase o f all with 193% .

upward trend despite very large increases in invested
The

capital. O ver the whole period the total increased
by only 4 4 % , which was less than a third o f the in­

figures for personal consum er expenditures show

crease in the total of wages, salaries, and other labor

PERSONAL

CON SUM PTION

broadly wrhat consumers did

EXPENDITURES
with their

incomes.

income.

T h e annual rate o f grow th in the first

Am ong other things, they reflect the sharp shift

period was am ong the lowest fo r any series.

toward services which, in the second period, grew

higher rate for the second period was due largely to

nearly twice as fast as expenditures fo r goods, al­

the sharp increase in profits in 1962; before that

though, as noted earlier, they did not grow fast

there had been very little increase over 1957.

enough to compensate for the increase in the labor

1962

force and the slow grow th o f employment in manu­

turning point in the trend.

facturing.

total corporate profits have declined persistently and

D uring the whole period the total more

T he

The

figure was a record and could represent a
A s a per cent o f G N P ,

A gain, as with personal income, the

substantially; the average for the last three years was

annual rates of grow th were close to the annual rates

m ore than a third below the average for the first

for G N P .

three years.

than doubled.

T his close resemblance was due in large

part to the fact that consum ption expenditures con ­

profits as a return on equity will be discussed later.

C O RP O RA TE PROFITS AFTER TA XES

P ERSO N AL C O N SU M PTIO N EXPEN DITURES




T he m ore significant figure of corporate

$ Bil.

Per Cent

Keys for Forecasting

Consumer Prices
Price changes have far-reaching effects on the levels of spending by the governm ent,
business, and consumer segm ents of our economy. Thus, m easures of price m ovements are
im portant keys to the interpretation of economic fluctuations.
Three of the most w id ely used m easures of price m ovements are the com prehensive
im plicit price deflators for the gross national product; the BLS w ho lesale price index, dis­
cussed in the preceding article in this series; and the consumer price index, also published
by the Bureau of Labor Statistics. This article discusses p rim arily the consumer price index
but includes a brief discussion of the purchasing pow er of the dollar as m easured by the two
BLS price indexes and the GNP deflators.
CONSUM ER PRICE INDEX The key to the m eaning of this index is in its complete title: "Index
of C han g e in Prices of Goods and Services Purchased by City W ag e-Earn er and C lericalW orker Fam ilies to M aintain Their Level of Living."
In other w ords, the index is a m easure
of price change, not of price level.
It m easures the effect of price changes on a defined
group of w orkers—not on all consumers.
Also it does not show changes in the quality and
quantity of goods and services bought but the change in the cost of m aintaining a fixed
level of living. Thus, the index does not take into consideration an y shift in the stan d ard
of living of urban w orkers. The national index is a v a ila b le from 1913 fo rw ard .
THE INDEX MARKET BASKET
O ver 300 commodities and services, priced in a sam ple of re­
tail outlets located in 46 cities, are included in the index.
Sam ple items, outlets, and cities
w ere selected to represent the purchases of the thousands of commodities and services m ade
by 18 million urban w ag e-earn er and clerical-w orker fam ilies living in about 3 ,0 0 0 cities
and towns in 1952. The sam ple and the w eights used to combine the in d ivid u al price series




are based p rim arily on the 1950 consumer expenditure surveys conducted in 91 cities.
In the five largest cities, prices are collected monthly except in the case of rent w hich is
obtained every second month.
In the other 41 cities, some items—such as food, fuels, and
used cars—are priced monthly but the m ajority of prices, including rent, are collected q u a r­
terly, on a rotating cycle.
Price data for in d ividu al cities are combined into the national
index by using w eights based on the 1950 population.
The last m ajor revision of the index w a s put into effect w ith the Ja n u a ry 1953 index.
A m ajor overhaul of the index, how ever, is now u n d erw a y.
The revised series, w hich w ill
incorporate a new w eight structure and updated sam ples, is scheduled for 1964.
The in­
dexes w ill continue the 1957-59 base and w ill rem ain unadjusted for seasonal variatio n.
COM PONENTS
The national all-item s index is subdivided into eight m ajor groups: food;
housing; a p p are l; transportation; m edical care; personal care; reading and recreation; and
other goods and services. The first four m ajor groups include 18 subgroup indexes.
Group
and subgroup indexes are published monthly for each of the five largest cities, and q u ar­
terly for the 15 next largest. The food indexes are a v a ila b le monthly for all 20 cities.
Retail prices of selected foods and special group indexes—such as all commodities, all
services, and all services less rent—are published monthly for the U. S. city-averag e. A v a il­
able quarterly are indexes for hundreds of individual commodities and services and related
classes of products based on prices obtained in a subsam ple of 19 cities. These special re­
tail price series are not published for individ ual cities.
PURCHASING POW ER OF THE DOLLAR A price rise m eans a decline in the quantity of goods
and services that a given am ount of money w ill buy.
Thus, m easures of price change are
also m easures of change in the value of the dollar.
Inversion of a price series (division into
one) yields a purchasing pow er series.
The BLS publishes a series showing the current purchasing pow er of the dollar, based on
the 1957-59 "all items" consumer and the "all commodities" w ho lesale price indexes.
For
com parisons with another base period, in which the purchasing pow er is $ 1.00, the app ro p ri­
ate price index for the base period is divided by the index for the date to be com pared.
For
exam ple, the 1954 consumer price index (93.6) w a s divided by its 1962 a v e ra g e valu e (105.4)
to obtain the 1962 purchasing power of the 1954 "consum er" dollar (89 <
t).
The purchasing pow er of the dollar can also be expressed in terms of the GNP price de­
flator w hich is, in effect, a weighted price index, on a 1954 base, for all goods and services
m aking up the gross national product.
Since the relative im portance of the GNP segments
varies over time, it is not strictly correct to shift the 1954 base of the deflators.
For m any
practical purposes, how ever, the error introduced by shifting the base m ay be ignored.

THE 1962 PU RCH ASIN G PO W ER O F THE 1954 AN D THE 1957- 1959 DOLLAR

A s m easured by:
Consum er Price
Index

1954 = $1.00

1957-1959 = $1.00




w h o le sa le Price
Index

G N P Im plicit
Price Deflator

AND CASUALTY INSURANCE C D M P i l l
A GROWING
“ D o n ’t put all your eggs in one basket,” reads the
old adage. T o fire and casualty insurance companies,
this is m ore than just good personal advice. It’s the
backbone o f their entire business.
THE INSURANCE PRINCIPLE H ere’s how they put
this principle to wrork. A n uninsured person is in
the position of som eone with all his eggs in one
basket. If disaster strikes, he may be w iped out.
A n insurance com pany, however, doesn’t expose it­
self this heavily. Instead, it spreads its risks by
restricting the num ber of policies in one locality, by
insuring various types of risks, and by limiting the
size of individual policies o r reinsuring the large ones
with other companies. Consequently, it can predict
pretty

well

through

past experiences

wrhat

total

losses will be, although, o f course, never which par­
ticular losses will occur.
O n the basis o f such loss estimates, it can then set

FINANCIAL FORCE
“ ow n ed” by the policyholders and operated by a slate
o f officers chosen by a B oard o f D irectors elected by
the policyholders. Mutuals usually allow p olicy ­
holders to “ participate” in earnings by returning
some of their premiums as “ dividends.”
M ost
policies are “ nonassessable,” but some mutuals can
assess policyholders for additional premiums if losses
are heavier than expected. R eciprocals are coop era ­
tive nonprofit arrangements under which subscribers
agree to share the losses of their fellow mem bers and
the costs of conducting the exchange. A n “ attorney
in fact” coordinates operations through a central
office. T he dom estic L loyds, which closely resemble
the famous L loyds o f London, are associations of
unincorporated individual underwriters w ho agree to
share individually to varying extents in the risks ac­
cepted by the association.
THE LIABILITY SIDE

F ire and casualty com panies

premiums at levels considered sufficient, together
with expected incom e from the investment o f the

obtain their funds chiefly from tw o sources : premium s

premiums, to meet claims and provide stockholder

lected in advance and any available funds are invested,
companies accumulate fairly sizable assets and lia­
bilities. Assets consist mainly o f investments, and
liabilities are prim arily net w orth and the amounts
due policyholders.
Net w orth— mainly in the form o f earned surplus
— typically makes up nearly one-half of total liabili­

dividends.

P olicyholders suffering no fire or cas­

ualty damage are “ ou t” the amount o f their net
premiums. T hose sustaining such damage gain on
balance since the bulk of their losses is shifted to the
insurer. T he net cost to the policyholders collectively
is the expense o f operating the insuring com pany
plus any stockholder profits.
OF POLICIES AND CO M PAN IES

Fire and casualty

insurance companies might well be called “ depart­
ment stores” of insurance. Som e, of course, specialize
in particular types of policies, but m ost sell many
kinds of insurance.

A m on g these are f i r e ; other

types of property coverage such as hail, windstorm ,
and extended co v e ra g e ; casualty insurance such as
liability, plate glass, and b u rg la ry ; fidelity and surety
b o n d s ; accident and health insurance; and in a few
cases, life insurance.
T here are four types o f fire and casualty com ­
panies : stock companies, mutuals, reciprocals, and
domestic

Lloyds.

Stock

companies

are

ordinary

profit-m otivated corporations ow ned and controlled
by

their

stockholders.

Mutuals

closely

resemble

other types of mutual organizations in that they are

8




and investment income.

Since premium s are co l­

ties, as indicated in the chart on page 9. M utuals,
reciprocals, and L loyds usually set up a net w orth
account, “ guaranty funds,” as a substitute for the
loss-cushion provided by the capital stock and paid-in
surplus o f stock companies.

A ll types also maintain

voluntary capital reserves as additional cushions.
Few , if any, issue preferred stock or bonds.
Other liabilities take tw o principal form s : unearned
premiums and claim reserves.

Unearned premium s,

as the name implies, are collected premium s which
have not yet been earned by the com pany.

Claim

reserves represent claims already pending against the
com pany in connection with losses plus the estimated
amount of claims not yet reported. Each o f these
accounts for about one-fourth o f total liabilities.
THE ASSET SIDE

Investment objectives o f fire and

casualty insurance companies closely resemble those

o f life insurance companies. Safety o f principal is
the prime goal in both cases since each is subject to
heavy fixed dollar claims. Incom e stability also re­
ceives high priority since some stability is necessary
for premiums to remain relatively constant.
T here are im portant distinctions, however, arising
from the basic differences between the tw o types o f
companies. F or example, life insurance companies
must pay m ost policies in full since all policyholders

panies on the same date held nearly 3 5 % o f their
assets in mortgages, less than 5 % in stocks, just 4 %
in municipal bonds, and not quite 5 % in United
States Governm ent obligations.
There are many differences am ong fire and
casualty companies, however.
Predom inantly cas­
ualty companies typically invest in somewhat m ore
liquid securities than fire companies since the extent
o f casualty losses cannot be predicted as precisely as

eventually die whereas only a fraction o f fire and

the volum e o f property losses. Mutuals also usually
hold m ore liquid investments than stock companies
since they ordinarily have less policyholder surplus

casualty

policies

ever

results

in

losses.

C onse­

quently, life companies accumulate relatively larger
asset holdings in relation to the volum e o f their busi­

in relation to assets than do the stock companies.

ness, since the average policyholder must pay in
enough premiums, together with the incom e the com ­

W ithin these individual groups, however, there are,
o f course, exceptions arising from varying manage­

pany earns on these funds, to eventually pay the p ro ­

ment philosophies.

ceeds o f the policy.

In addition, the pattern o f deaths

am ong policyholders is much m ore predictable than
the volum e o f fire and casualty losses. T h e net
result is that life companies can appropriately invest
in longer term, less liquid investments than can fire
and casualty companies.
T he pie chart below shows how fire and casualty
companies were em ploying their funds at the end of
1961.
B onds accounted fo r nearly 5 0 % o f assets,
and com m on stocks made up about 3 3 % .

A b ou t a

third of the bonds were U nited States Government
obligations, and most of the remainder were municipal
securities.

M ost o f the com m on stocks were such

conservative investments as utilities, banks, insurance
companies, and the like. P ortfolios included only
small holdings o f m ortgages, preferred stock, and
similar investments. In contrast, life insurance com ­

A s one w ould expect in

INCOM E AND EXPENSES

view o f the differences between the types o f invest­
ment outlets, fire and casualty companies do not earn
as high a rate o f return on their assets as do life com ­
panies.

D uring 1961, for example, the investment

income of the 791 stock companies surveyed by A l­
fred M . Best Com pany, Inc., averaged before Federal
income taxes 2 .5 7 % o f gross assets in contrast to
3 .7 6 % for life companies. A d d in g in capital gains
and

the

“ underw riting

profits” -— the

incom e

re­

sulting when losses are less than assumed in setting
premiums— these 791 companies earned 3.4 2 % on
assets before Federal taxes. A fter Federal taxes
they earned 2 .9 4 % .
TAX A TIO N AND REGULATION

T h e different types

o f insurance companies are taxed under separate F ed-

ASSETS AND LIABILITIES O F FIRE AN D CASU ALTY IN SU RAN CE CO M PAN IES
December 31, 1961

U. S. Governm ent
Bonds
17%

Other

M unicipal Bonds
27%

Assets

15%

Common Stock
33%
Preferred Stock 2%
O ther Liabilities 6%
ASSETS

LIABILITIES

Source: Alfred M. Best C om p an y, Incorporated.




9

ASSETS O F FIRE AN D CASU ALTY INSURAN CE CO M PAN IES
$ Bil.
I Stock Com panies
30
f~
~

I M utual Com panies
|

Reciprocals and Domestic Lloyds

20

10

1946
1949
Source: A lfred M. Best C om p an y, Incorporated.

1952

eral incom e tax formulas. Stock companies are
taxed at the regular 3 0 % and 52% corporate rates
on both their underw riting gains and net investment
income. M ost mutuals pay a maxim um rate o f only

1955

1958

1961

chart, com pany assets have risen more than fourfold
since 1946. D uring the same period assets o f co m ­
mercial banks did not even double, and gross national
product rose less than 1 50% . Assets o f investment

4 7 % and, in addition, may postpone and cut taxes
by setting up special loss reserves denied stock com ­
panies. Small mutuals are tax-exem pt, and certain

companies, credit unions, and savings and loan as­

types are subject to special tax formulas. Reciprocals

Fire and casualty companies collectively are com ­
paratively small when com pared with the larger fi­
nancial institutions. A ll told, they held assets o f only

are taxed on virtually the same basis as mutuals.
Dom estic L loyds are taxed as partnerships.
V irtually all regulation o f insurance com pany ac­
tivities is conducted by the insurance departments o f
the individual states in which the companies do busi­
ness. T he U . S. Supreme Court ruled in 1944 that
insurance was subject to Federal regulation, but
Congress in 1945 passed the M cC arran-Ferguson
A ct to assure state authorities that Congress wished
the m ajor regulatory responsibilities to remain with

sociations have grow n even faster than those o f fire
and casualty insurance companies, however.

$33.7 billion at the end o f 1961 as com pared with
$278.6 billion for com m ercial banks, $126.8 billion
for life insurance companies, $82.1 billion for savings
and loan associations, and $42.8 billion fo r mutual
savings banks. T hey were significantly larger, h ow ­
ever, than investment companies, sales and consum er
finance companies, and credit unions.
A s the chart above indicates, stock com panies are

the states. State regulations typically cover organi­
zational procedures, rate making, examination, fi­

relatively m ore important than mutuals, and recip­
rocals and L loyds are o f only m inor significance.

nancial reporting, standards for agents and brokers,

Mutuals, however, have been grow in g somewhat more
rapidly than stock com panies— probably to a large

investment procedures, and the like.
GROW TH AND RELATIVE IM PORTANCE

Property

and casualty insurance has roots reaching far back
into history. N o one knows its origin for sure, but
certainly there were crude form s in ancient A ssyria,
Babylonia, and China.

Insurance was well known

in early R om e and Greece and was frequently used
throughout the M iddle A ges. T oday, there’s scarcely
an aspect o f econom ic life that it does not affect in

extent because they operated until recently under a
sizable tax advantage.

Mutuals already considerably

outnum ber stock companies, but the average stock
com pany is much larger.

A t the end o f 1961, 791

stock companies surveyed by Best and Com pany held
an average of $32.3 million in assets as com pared with
only $18.5 million for 368 o f the larger mutuals.

At

the end of 1962, the largest stock com pany had $1.3
billion in resources, and the largest mutual had $787

some way.
P roperty and casualty insurance companies, like

million.

most

lion, and nine other stock companies and one mutual

nonbank

financial

rapidly in recent years.

10




institutions,

have

grow n

A s indicated in the above

One other stock com pany had over $1 bil­

held more than $500 million.

THE FIFTH DISTRICT
T he Fifth District as a whole offers tourists a rich

in excess o f $300 million, or m ore than 8 % o f total

combination of historic sites, scenic attractions, and

personal income.

interesting activities in a variety o f natural settings.

flects a broad, cooperative effort on the part o f g o v ­

The

rising productivity

of

Am erican

business is

T h is unusual rate o f grow th re­

ernment, business, and private citizens.

M any W est

gradually adding to the length and frequency o f vaca­
tions, as well as shortening the wrorkwT
eek. Leading

V irginians have developed a keen interest in their
state’s potential for attracting tourists. W ith nu­

citizens in all parts of the Fifth District recognize

m erous natural assets, such as Blackwater Falls,
pictured here, they have a solid foundation on which

the significance o f these trends. T h e vacationer’s
dollar is an important injection o f new income, and
the vacationer himself is always a prospective resi­
dent, possibly the architect o f a new business in the
area if its advantages exert a strong appeal.
TOURISM HARD TO M EASURE

T he econom ic signi­

ficance o f tourism is notoriously difficult to evaluate.
M any stores, restaurants, purveyors o f services in­
cluding amusements, and other business firms cater
only incidentally to travelers. Regularly collected
statistics cannot provide sufficient detail within
the pertinent classifications to permit estimates o f
tourism ’s contribution to the total volume o f business.
W ith travelers in general and vacationers in par­

to build.

Restaurants, motels, and other establish­

ments serving travelers are being rapidly expanded.
A recent survey o f tourist accom m odations revealed
a 2 0 % increase between 1959 and 1962. M ost of
this grow th occu rred in the second half o f the threeyear period, and took the form o f bigger, better
equipped, and m ore attractively appointed motels.
SPECIAL A PPRO ACH ES
T here are several special
aspects to W e st V irg in ia ’s prom otion o f tourism.
The

state publishes

a quarterly

magazine

called

T ravel W e s t Virginia wT
hich began with 25,000 copies
in the second quarter o f 1962 and grew 7 to 75,000

ticular assuming m ore and m ore econom ic importance,

copies fo r the 1963 summer issue. M oreover, the
state’s continuing efforts to cope with its unem ploy­

local businessmen, business organizations, and g o v ­

ment problem — efforts in which tourist prom otion

ernmental agencies are seeking ways to measure the
tourist trade as well as ways to attract m ore o f it.
In many areas, plans are being form ed to accom plish
both of these aims. M uch current information, even

figures im portantly— have been publicized by national
media, including news services, news and feature

though based on the best available data, is admittedly
subject to an indeterminate margin o f error. A d ­
ditional com plications arise from the fact that defini­
tions are seldom sufficiently precise to indicate exactly
what the available estimates measure. T h e figures
presented here com e from official state and District
of Columbia sources. T heir com parison with per­
sonal income is included sim ply to give them a small
amount of perspective which would otherwise be
totally lacking.

E ach area is treated separately, and

comparisons between areas on the basis o f available
data would be misleading to say the least.
WEST VIRG IN IA'S RAPID G A IN S

magazines, and television. These channels have p ro ­
vided much valuable publicity coverage at com ­
paratively little cost.
M ARYLAN D TOURISM M OUNTS
T he O ld Line
State offers visitors a w ide range o f attractions.
Baltimore, the nation’s sixth m ost populous city a c ­
cordin g to the 1960 census, com bines focal points of
national pride such as F ort M cH en ry with glittering
examples o f m odern business, residential, and recrea­
tional construction, largely concentrated in its dow n ­
tow n reclamation project. M aryland’s Eastern Shore,
with its historic landmarks, large estates, boating,
fishing, and bathing facilities, became easily accessible
from Baltimore, W ashington, and areas further inland

T his year’s Cen­

when the 7.3-m ile Chesapeake Bay Bridge, an at­

tennial celebration will undoubtedly accelerate W est

traction in itself, was com pleted a few years ago.

V irgin ia’s already rapidly expanding tourist trade,

addition, the mountains of western M aryland, long

estimated to have increased about

appreciated as a summer resort area, are now being

14%

in

1962.

Annual spending by vacationers is currently placed




developed fo r winter sports.

In

A bout ten years ago, a travel industry group esti­
mated that the tourist trade was worth about $225
million to the state econom y. The M aryland D epart­
ment of E conom ic Developm ent has begun an official
study of tourism ’s current contribution to business
and industry, but as yet no estimates are available.
T his Departm ent’s budget shows m ore funds spent
currently on tourist development than for the p ro­
m otion of business and industry. T he volum e of
tourist inquiries this year has been running 50%
ahead of 1962. T h e state’s emphasis on travel is
further reflected in plans to feature its tourist at­
tractions at the 1964 N ew Y ork W o r ld ’s Fair.

(4 % per yea r) to these figures suggests a 1962 level
o f out-of-state tourist expenditures between $270
million and $280 million, or roughly 3 % o f the state’s
total personal income.
NORTH C A R O LIN A RICHLY ENDOW ED

N orth C aro­

lina shares extensive shoreline attractions with M a ry ­
land, V irginia, and South Carolina. Like other
areas of the Fifth District, the T ar H eel State p r o ­
vides a wide variety of historical, educational, eco­
nomic, and recreational facilities of interest to visitors.
In the opinion of many tourists, N orth Carolina’s par­
ticular distinctiveness is found in its mountains.
H ere the Appalachian ranges rise to their greatest

W ASH IN GTO N , D. C.
T he nation’s capital is, o f
course, unique in its attraction for tourists. The

height, and their rugged contours include the highest

educational value o f the various centers of govern ­
mental activity has long been reflected in annual trips
arranged for school children from all parts of the
country. A ccord in g to estimates, the number of
tourists visiting W ashington has been grow in g at
about 4% per year. In 1962, visitors numbered
nearly 7.5 million, and spent an estimated $385 m il­
lion, nearly 15% of the District o f Colum bia’s 1962

Expenditures o f out-of-state travelers in N orth
Carolina during 1962 have been estimated at $270
million. This figure was m oderately in excess o f 3 %
o f total personal income, about the same as in V ir ­

personal income. Studies show that the initial e x ­
penditures of visitors to the nation’s capital are
divided about one-fourth to hotels and motels, a little
m ore than one-fourth to restaurants, about one-fifth
to retail stores, with the remainder distributed among

peaks in the United States east o f the M ississippi.

ginia. T he figures also reveal a good rate o f grow th ;
up 6 % over 1961 and almost three times the level of
15 years earlier. A n additional $175 million esti­
mated as spent by T ar H eels traveling in their own
state raises total travel expenditures to about 8 % of
all retail trade and service industry receipts. O u t-o fstate visitors numbered about 26 million in 1962, an
increase of 5 % over the previous year.
SOUTH CAROLIN IA'S

SPECIAL APPEAL

The

Pal­

miscellaneous travel and entertainment activities. A d ­
vance estimates place total tourist expenditures for

metto State has some distinctive features not shared
by other Fifth District states. T he transition to a

1963 in excess of $400 million, a new record.

subtropical climate begins there,

VIR G IN IA OFFERS VARIETY

T he tourist trade loom s

large in V irgin ia and N orth Carolina because o f the
great variety of recreational opportunities these states
offer. A survey o f attendance at V irg in ia ’s principal
tourist attractions shows a rise o f m ore than 4 %
between 1961 and 1962. A s a guide to the growth
of tourism generally, this figure is probably low be­
cause many o f the more popular attractions recorded
increases as high as 2 0 % . T he relatively low average
resulted in part from a drop in attendance at a few
locations which in 1961 featured special Civil W a r
Centennial events such as the re-enactment of the
Battle of Manassas.
A nother survey indicated an increase o f 2%

in

utilization o f tourist accom m odations between 1961
and 1962 and a gain of 6 % in business transacted by
a sample of com m ercial tourist attractions.

A c co r d ­

ing to a special survey o f out-of-state cars made by

A p­

plication of a reasonably conservative grow th rate

12




South

estimated at $128 million, which was between 3 % and
4% o f personal incom e and about 6 % o f the state’s
total retail business. T his figure represents a gain of
7%> over the 1961 level and is nearly three times
tourist trade receipts 15 years ago.

T he additional

$82 million estimated as spent by South Carolinians
traveling in their ow n state brought total tourist e x ­
penditures to about $210 million.
T ourism is clearly increasing its contribution to
econom ic grow th in the Fifth District.

T he inform a­

tion currently available probably reflects with rea­
sonable accuracy rates o f grow th in regional im ­
portance.

Com parisons

between

states

will

gain

significance as new sources o f data are developed.

the V irgin ia Department of H ighw ays in 1959, 33
million visitors in over 14 million cars toured V irginia
in that year and spent a total of $237 million.

endow ing

Carolina with unusual varieties of floral displays, and
making it attractive to tourists all year around.
A bout 11 million out-of-state visitors toured South
Carolina during 1962. T heir total expenditures were

PHOTO CREDITS
11.

W est V irgin ia

Industrial

& Publicity

Com m ission.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102