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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.