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MONTHLY REVIEW FEDERAL RESERVE BAN K OF RICHMOND JANUARY 1958 Fifth District 1957 Disappointment came to many people in Fifth District states last year. The textile industry started the year hopefully seeking recovery from troubles that started in 1956; only hope was main tained by the year-end, as prices and production moved lower. Bituminous coal mining, though improved over recent years, fell short of the Janu ary forecasts of continued large gains. Aircraft manufacturers in Maryland, faced with Defense Department cutbacks, reduced operations in the second half of the year. Farmers of the Carolinas and Virginia, where farming is the chief basis of many local economies, found their January fears confirmed as reduced acreage allotments for key crops brought reduced output with little advance in price. Fortunately there were gains as well as losses. In the forefront was the construction industry in Virginia and West Virginia. It was joined by the furniture factories of North Carolina and V ir 2 ginia, which found new strength in the closing months of the year after a sharp drop in the first half. Shipbuilding continued to boom, and cig arette production registered a gain over the year before. Added to production offsets were increases in employment by state and local governments that more than balanced reductions in Federal payrolls. Trade and service employment also rose, as the output of services continued its growth. In short, 1957 was a year of plusses and minuses in the Fifth District. AGRICULTURE Among the minuses of the Dis trict’s economy, agriculture was hardest hit. Cash income in 1957 underwent a sharp decline from the previous year. The output of most crops in the District was smaller, but the main cause of the drop was the reduced acreage of cotton and tobacco under the acreage control program. Farm prices were moderately higher than the year before but far from sufficient to offset the reduction in quantity of marketings. Soil bank payments amounted to $35-$40 million, perhaps one-sixth of the lost receipts from crop marketings. M AN UFACTURIN G Aggregate output of manu facturing industries in the District fell short of 1956’s level, not seriously but noticeably. Manhours in durable goods industries were a small fraction under a year earlier, but nondurable goods industries were down better than 2%. TEXTILES The downward trend which got under way in the Fifth District’s textile industries in the Summer of 1956 continued in 1957. Feeble at tempts at recovery were made in the Spring of 1957, but the rise in production added to pro ducers’ inventories and curtailment was the order of the day in the last half-year. Important areas of the garment trades found business lower in 1957 than in 1956 and reduced their fabric requirements accordingly; in fact, they did worse than this— they reduced their inven tories to the bone. As the cotton goods price structure continued to weaken, they made their purchases on a hand-to-mouth basis. The extent of mill curtailment during Thanksgiving and Christmas holidays appears to have changed mid dlemen’s attitudes regarding their inventory posi tion. Several of the large firms placed sizable for ward orders through the first quarter of 1958. FURNITURE Production in the furniture industry of the District underwent a sharper than normal reduction in the Spring of the year, but since that time, output has been on the upgrade. The retail demand for furniture in 1957 ran somewhat below 1956, with prices up about 2.5%. Possibly the cause of rising production, with no gain in retail sales, was the larger number of patterns which required a greater retail inventory. Manufacturers’ prices in 1957 were a little bet ter than 2.5 % above 1956, but the price level held quite steady from January on, after having risen sharply in 1956. Sh ip b u ild in g stayed in high g ear. PAPER Paper production in the nation was down moderately in 1957 compared with 1956, but pa perboard recovered in the last half-year and brought the year about even with 1956. The Dis trict’s paper industry is heavily concentrated in board and, as a consequence, held better than the industry in general. District output receded mod erately in the Spring but revived in the last halfyear to bring the year somewhat ahead of 1956. Manufacturers’ prices of paper in 1957 rose 3% over 1956 and board prices were marked up some what less. At the same time the price of wood pulp was up less than 1% and the price of waste paper dropped nearly one-third. Weekly figures on paperboard operations show a considerable degree of strength maintained as the year closed. CIG ARETTES Cigarette production in 1957 estab lished a new high level, with filtertips making up an increasing proportion of the total. This shift, together with a price rise on regular brands at mid-year, raised manufacturers’ realized prices for the year. Several reports linking lung cancer to cigarettes were issued during the year, but appar ently smokers were little concerned about them. SHIPBUILDING Shipbuilding was one of the fewmanufacturing industries of the District to show a substantial gain in 1957 over 1956. Expansion in billings of the major private yards was phe nomenal compared writh the year before, while the U. S. Navy yards made modest cutbacks in opera tions. Gains of several thousand employees more than offset reduction in force at Navy yards. Heavy backlogs assure a high operating level in 1958. M IN IN G Bituminous coal, which dominates mine products in this area, recorded a small rise in 1957 as compared with 1956. This was due in large part to a sharp increase in export demand and to a lesser extent to inventory accumulation, which more than offset a reduction in domestic demand. As the year 1957 closed, coal production was in a downward trend, with domestic consumption still slipping and exports somewhat easier. Other types of mineral output in the District, on balance, showed small gains over 1956. CO N STRU CTIO N Contract awards were 4% higher in 1957 than in 1956, reflecting a slight gain in physical volume and an increase in costs of a little less than 4% . 4 P aper proved an elem ent of strength in an e a sin g m an u factu r ing environm ent. The construction year got off to a fast start only to back down substantially in the second quarter of the year. The second half-year wound up with contract awards showing a sharp upward trend. Strength came mainly in the nonresidential area, but a small gain was also shown in residential contract awards. Public wTorks and utilities, which were believed early in the year to be ele ments of strength, actually declined 14%. The increase in construction contract awards was mainly in Virginia and West Virginia, and to a lesser extent in the District of Columbia, with declines occurring in other states of the District. G OVERN M ENT Government activities in the Dis trict were expanded during 1957 as compared with 1956, and employment increased more than 2% . The gain came in state and local governments, more than offsetting a small reduction at Federal agencies. Construction of schools and other pub lic buildings was at a high level in 1957, and as these were completed payrolls were expanded. Cutbacks in employment occurred at numerous Federal defense installations in the District. These cuts did not add to any significant total, but they were felt sharply in the areas where the cuts occurred. SERVICES Demands for the services of transporta tion, communication, and public utilities were moderately higher in 1957 than in 1956 despite a considerable cutback on the railroads. Commu nication and public utility services expanded sharply between 1956 and 1957. The activities of financial, insurance, and real estate concerns in 1957 required more people than in 1956. Expansion of branch offices was an im portant consideration in banks and insurance com panies— part of the process of catching up with the fan-out in population areas. Business and personal services expanded in 1957, hiring nearly 3% more people than in 1956. This growth also reflected the expansion of service establishments into new areas as well as the in ducement to set up new service organizations be cause of the rise in price of services. RETAIL TRADE The results of the Christmas trade have not yet been counted, but early evidence in dicates that the year’s sales may slightly exceed 1956. Retail trade showed considerable strength in the early part of the year and up to midsummer, but after August, many areas of trade moved downward. Since prices for the year were mod- Healthy or unhealthy, cigarette p u ffin g ran under forced d raft in 1957. erately higher, it is apparent that the physical volume of sales was somewhat lower than in 1956. The expansion of trade facilities into the suburbs, however, required an increase of nearly 3% in employment in 1957 compared with 1956. New passenger automobile registrations, which had been running even with a year ago through October, fell below in November and apparently in December to bring the year slightly behind a year ago. Commercial car registrations were down about 5%. BA N KIN G Total loans and investments of the member banks of the Fifth District rose somewhat more in 1957 than in 1956 due mainly to a sub stantial increase in holdings of securities other than U. S. The loan rise was considerably small er than in either of the two preceding years, and the accumulation of U. S. Government securities was less than half as much as the year before. Total deposits showed a somewhat larger in crease in 1957 than in 1956, due entirely to a sub stantial rise in time deposits. Demand deposits declined during 1957 compared with a small gain in 1956 and a sizable gain in 1955. The gain in time deposits accompanied an increase in interest rates paid on time deposits and was, in part at least, a shift in growth from savings and loan associations to commercial banks. Seasonally adjusted bank debits in the District rose sharply in the first half of the year but were in a downward trend in the last half. For the year as a whole, debits were about 7% larger than a year ago. NEW IN CO RPO R A TIO N S A N D FAILURES There was a drop of 1% in the number of new business incorporations in 1957 from 1956. This holds significance only in being a reversal of the upward trend of new incorporations that had been under way since 1951. The drop was not uniform, being concentrated mainly in Virginia and South Carolina. These states’ declines more than offset rises in other states, including an increase of 18% in Maryland. The change in new incorporations was in keep ing with the number of business failures, which rose about 1% in 1957 from 1956. The District increase, it may be noted, was considerably smaller than the national increase in this period. Again, failure trends were different among the states, in creases coming largely in South Carolina, V ir ginia, and to a lesser extent in Maryland, with declines in other states. 5 MODERN HIGHWAY! W ork is well under w ay on the largest public w orks program our nation has ever had: 41,100 miles of h igh w ays—superhigh w a ys—expected to cost $38 billion and to require 15 years for completion. Uncle Sam w ill p ay 90% of the cost for the N a tional System of Interstate and Defense H ighw ays, which increases in prices and w ages w ill raise much above the o riginal estimate of $28 billion. The states w ill pick up the tab for 10%. The total of $4.9 billion in Federal funds alre ad y authorized for the first three years of the program w as apportioned to the states on the basis of area, population, and m ileage of Federal-aid highw ays. Future payments w ill be based on costs of com pleting each state's share of the 41,100mile network. Besides the provision for the interstate super roads, the H igh w a y Act of 1956 has another important facet—Federal funds for prim ary state highw ays and farm -to-m arket roads. Congress has made about $2.5 billion of such funds ava ila b le for fiscal years 1957-59, w hich is to be matched on a 50-50 basis by the states. This part of the h igh w ay program , if continued at the current rate, would total $25 billion or so in the next 15 years. Contributions by the Federal Governm ent for both systems w ill be limited to the amount accum ulated in a trust fund, which is to be built up chiefly from Federal taxes on gasoline and tires. In addition to these two program s, state and local governm ents still have to build and m aintain m any miles of roads and streets without Federal aid. When all these figures are lumped to gether, the size of the h igh w ay projects exceeds $100 billion. O bviously, this w ill create no mean fin ancing problems for the states, and for cities as well, since they will have to spend more than the Federal-aid funds they receive for access roads and other hookups with the h igh w ay system. No one should regard the Interstate H igh w ay Program as a cure-all for present and future traffic problems. Nevertheless, it is a vital program of modernization for a nation that might otherwise be strangled by inadequate highw ays. 6 FOR A GROWING ECONOMY DOLLAR IM PACT of the Interstate and Defense System ($ M illions) Md. Dist. of Col. Va. W. Va. N. C. S. C. Total F ed eral Funds First 3 Y e ars W ork A u thorize d to Date (in d . States' Share) 58.4 30.4 98.2 57.8 123.7 65.4 433.9 45.7 15.4 39.8 5.6 42.7 12.1 161.3 O f Work Authorized, Money Will be Spent for . . . Prelim in ary E n gin e erin g an d R ig h t-o f-W ay Md. Dist. of Col. V a. W. Va. N. C. S. C. Total 12.3 7.4 19.2 5.6 10.5 3.7 58.7 Construction 33.3 8.0 20.6 0 32.3 8.4 102.6 Construction Contracts. . A w a rd e d to 1 1 / 1 / 5 7 Md. Dist. of Col. Va. W. Va. N. C. S. C. Total 26.3 5.6 14.4 0 26.3 8.4 81.0 To be let 1958* 7.5 not avail. 75.0 23.9 43.0 32.0 181.4 * Estim ated by in d iv id u a l state h ig h w a y departm ents, a n d includes cost o f rig h t-o f-w a y . VRLESTON O ther d a ta from Fed eral Bureau of Public Road s, as o f N ov. 1, 1957. O ver 3400 miles of interstate and defense high w ays w ill be built or modernized in the Fifth District under the provisions of the 1956 H igh w a y Act. The approxim ate routes are shown on the m ap of the District. Eating is expensive. Last year the typical fam ily market basket of farm-produced foods-—said to provide for an average city dweller with a family of 3 or 4— cost $1,010. This was $38 more than in 1956 and more than double the average of the prewar years. It was still down, though, from the $1,034 peak of 1952 and less than 195 l ’s cost. But the money spent for this market basket of foods did not include all the money this urban family spent for food. Not included were sea foods and imported foods such as coffee, bananas, and pineapple. Nor were foods bought in the form of restaurant meals included. Why does food cost so much? Could the con sumer be partly responsible for the high cost of eating? To get at the facts, take a look at the average food dollar to see just where it goes. THE FARMER'S SHARE With food products in the typical family market basket costing $ 1,010 at retail in the year just ended, the farmer received 8 $400, or 40 cents out of each dollar. This 40-cent share is the same as in 1935-39. The farmer got a larger share during World War II when farm prices rose sharply compared to relatively mod erate increases in marketing costs. It is significant that farm prices generally are subject to sharper ups and downs than are the costs of marketing. When the farm value com prises only a small portion of the retail price of a specific food product, the farm price can fluc tuate widely without producing too much change in the price of the finished product. The proportion of each food dollar that goes to the farmer depends on how many marketing serv ices are needed to get the finished product to the consumer. Obviously, therefore, the farmer’s share is not the same for all foods. When, for example, the housewife bought a dollar’s worth of eggs dur ing the Fall of 1957, the farmer got 66 cents. He received 62 cents of each dollar she spent for choice grade beef and 56 cents for ready-to-cook frying chickens. By contrast, the farmer received only 33 cents of the average fresh fruit and vege table dollar and just 20 cents of each dollar spent for bakery and cereal products. M ARKETING SYSTEM 'S SHARE Charges for as sembling, processing, and distributing the foods in the family market basket have increased steadily since World War II. By 1957 this farm-to-retail price spread stood at an all-time high and account ed for $610 of the total market basket value of $1,010. Marketing costs actually have gone up all along the line. Labor costs, which in many instances amount to more than half the total costs of food marketing firms, are now’ 30% higher per unit of output than in 1947-49. Transportation charges for rail shipments of farm produce have risen by a similar amount. Rents, costs of fuel, electricity, containers, supplies, and other costs are also higher. In addition, more and more marketing services are being added to foods sold at retail. Refrigera tion and longer transportation hauls mean more fresh foods are available the year round. More foods are being packaged. Some are being pack aged in smaller sized containers. Production of the principal frozen foods doubled between 1946 and 1950 and has since tripled. Output of other “ convenience” foods, such as flour mixes, canned baby foods, ready-to-cook cereals, and potato Consum ers are b u yin g more w ith their foods. an d more m arketing services chips, has also increased. Such services naturally add to the cost of these foods. The growing importance of marketing services points up the need for recalling some of the basic facts concerning the behavior and influence of marketing costs. These costs— such items as wages, rents, taxes, freight rates, electricity and other utilities— tend to be much more stable than farm prices. They rise more slowly than farm prices on the upswing and decline even more slowly on the downswing. Sometimes they con tinue to climb while farm prices slide off. Thus, when marketing charges make up the largest pro portion of the retail price of farm-produced foods — for example, 84% in the case of bread— the price at retail is much more sensitive to changes in marketing costs than to changes in prices at the farm level. FOO D CO STS AN D INCO M E Retail food prices are nowr more than double their 1935-39 level. Sur prisingly enough, howrever, the average consumer can purchase with a smaller share of his income the same types and quantities of food he bought in the prewar years. If this same market basket of foods and services were bought today, it would take only 16% of his current income after taxes, as contrasted writh 23% in the earlier period. Actually, the average consumer spent a slightly larger share of his income for food in 1957 than during those prewar years. W hy? Partly be cause he ate more meals away from home. Partly because today’s homemaker is demanding more processed and more ready-to-serve or ready-tocook foods— foods with built-in maid services. She buys slightly more food and more expensive foods— meats, poultry, eggs, dairy products (ex cluding butter), fruits and vegetables— and less potatoes and grain products. These changes in family eating habits have made for better balanced meals and better nutri tion. They have reduced kitchen cooking chores to a minimum, but they have also helped to in crease the family’s food bill. The growing number of wromen working out side the home, rising incomes, and the efforts of homemakers to save time in the preparation of family meals have greatly increased the demand for ready-prepared foods since World W ar II. As long as Mr. and Mrs. Average Consumer are willing to buy more and more services with their foods, the demand for marketing services pur chased with “ convenience” foods will probably continue to expand. 9 i College Is Big Business (abo ve) Mr. Je ffe rso n 's U niversity of V irg in ia ad d s to its students through branches in northern an d southw estern V ir g in ia . (below ) W est V irg in ia U niversity's new State M edical Center is being fin an ce d by a 1-cent per bottle soft drink ta x . SBM KSM iW St. Jo h n 's C o lleg e, A n n a p o lis, provides education in the classics in tw entieth century architecture. When James Blair founded the College of William and Mary in 1693 at Williamsburg, V ir ginia, he started an important industry for this region. The 215 colleges, universities, professional schools, and junior colleges of the Fifth District now spend more than a quarter of a billion dollars annually for their operation, plus perhaps a fifth of that amount for buildings, equipment, and stadiums. They are an involved and massive economic operation. Their employees include some 25,000 faculty members, a substantial fraction of professional employment in the area. Their payrolls, which also list clerks and coaches, cashiers and cleaners, total $120 million annually. Assets-—-physical plant, endowments, loan funds, and such— total well over $1 billion, more than the capital accounts of all banks in the District. Unlike most industries, higher education views with apprehension the expected doubling in de mand for its services over the next few years. Losing money on every customer, it seeks new resources with which to meet increased losses. INCOM E AN D O U TG O Behind the $200 millionplus outlays for educational activities, there is no typical college operating statement. Publicly con trolled schools, numbering about 60, look to state governments for more than one-half their funds. Private institutions get practically nothing from this source but lean on endowment earnings and gifts for nearly one-fourth their revenues. The C ita d e l, presided over by fo u r-star G en eral M ark C la rk , em p h asizes its rola as a lea d in g m ilitary college. W. In neither public nor private schools do the students pay their own wray. Tuition fees amount to one-seventh of total income for public schools and one-third for private institutions. The Federal Government is an important source of revenue for some schools. Research contracts and grants accounted for perhaps three-fourths of the $41 million of Federal funds paid to District schools in a recent year. Appropriations to landgrant colleges for joint Federal-State activities took most of the remainder. Instruction, libraries, extension work, public services, and closely related activities take about three-fifths of the District’s higher educational budget. Organized research, important enough in many schools to be accounted for separately, takes one-seventh, and the overhead of general administration and plant operation accounts for the balance. In addition to their educational activities, Dis trict schools are important providers of lodging, meals, and services. These bring in another $60 million a year, generally enough to cover current costs of operation. BRICKS A N D BONDS Classrooms, laboratories, bedrooms, and dining halls are important to edu cation, even as are gymnasiums and football fields. Total value of this physical plant in the District is estimated at more than $800 million, with new construction running as high as $50 million a year. Additions for state schools are financed largely with tax funds, although borrowed funds also play an important role. The College Housing Loan provisions of the Housing Act of 1950 enable col leges and universities to obtain from the Federal Government long-term, low-interest loans for con struction of student and faculty housing. Private C ath olic U niversity of A m erica looks to g ifts from Rom an C ath olic dioceses fo r one-third its ed u cation al income. schools look to gifts and grants, as well as utilizing loans and transfers from current funds. Nationally 1% of higher educational institutions hold 45% of all endowment funds. Within the District a similar disparity holds. Johns Hopkins and Duke Universities currently report endow ments of $46 million and $32 million, compared with a District total in 1954 of $254 million. Another large share is held by the University of Virginia, whose reported endowment of $35 mil lion tops total endowment funds held by other state universities of the District. RESEARCH CENTERS Traditionally the nation’s research resources have been centered in colleges and universities. This is still true, even though governmental and business research operations have increased manyfold. Much of the research expenditure of District colleges and universities takes the form of grants Duke University C h a p e l is the center of an im pressive G othic p lant m ade possible by the g ift o f one fa m ily. 1950 1958 1963 1 96 8 1 973 Educators vie w w ith restrained enthusiasm the g ro w in g num bers o f po ten tial students. to faculty members and graduate students. The availability of research funds often proves the deciding factor in recruiting and holding capable teachers and students. A number of new industrial plants have been located near District colleges for the stated pur pose of utilizing faculty members for research into related scientific processes. Capitalizing upon a similar theme, the State of North Carolina cur rently advertises as its secret weapon for attract ing industry the “ research triangle” defined by the University, of North Carolina, Duke Univer sity, and North Carolina State College. THE FUTURE It is estimated that U. S. college en rollment will double by 1970 as the children of the postwar years reach college age and a greater proportion of them actually attend college. Pres ently this age group is at its lowest point in 25 years. Thoughtful educators everywhere are concerned with provision for this coming wave of students. A doubling of facilities is said by many to be quite beyond the capabilities of the schools— any accept able solution must include more effective use of classrooms and other buildings. Many public and private schools are more or less deliberately limiting their expansion by screening applicants more closely and increasing their fees. State universities— traditionally open to public high school graduates— are setting up entrance examinations and rejecting less wrell 12 qualified applicants in an effort to upgrade their student bodies. Tuition fees are no longer nom inal in many schools and are now substantial in a number of private schools. Increased pressures have developed for higher salaries for faculty members. Competition from business and government has made better pay a necessity if scholars in some fields are to be re tained. Further, the attraction of qualified recruits to the teaching profession is receiving increasing attention as a necessary element in providing in struction for the future. As a result, faculty salaries are increasing and give promise of further gains. Construction programs and higher salaries re quire more money, and college and university administrators persistently search for new sources. Most agree that public institutions have an advan tage through their access to tax funds for demonstrable needs. Private schools, on the other hand, have more success in drawing on religious organizations— important for many church-spon sored schools— individuals, and business firms. Corporations contributed about $110 million to educational institutions and student assistance plans in 1956. They are looked upon as poten tial sources of substantially larger sums, and many schools are actively engaged in selling their needs to industry. Similarly intensive programs go forward to urge alumni to provide more effective help for their alma maters. Even with substantial increases in private funds, however, many observers conclude that public funds must meet an increasing proportion of needs in the future. Public schools, they say, will likely increase their share of enrollments from the cur rent District level of 48%. P H O TO C R ED ITS C o ve r— N atio n a l Cotton Co un cil o f A m erica C h am b e r of b u ild in g an d M an ufactu rin g Com m erce Dry Dock Co. an d C h am b e r of Com m erce w ays 9. V a . Depf. of 3. N ew p o rt C o. 2. V a . N ew s Sh ip 4. A lb e m a rle Paper Beloit Iron W orks 5. V a. 6 & 7. V a . Dept o f H ig h A gricu ltu re 10. Edw . A. W ayn e - W est V a . U niversity - St. Jo h n 's C o lle g e an d Richard J. N eutra Architects - The C ita d e l & Robert E. A le x a n d e r, 11. The C ath o lic U niversity of A m erica - Duke U niversity.
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