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F E D E R A L R E S E R VE B A N K OF R I C H M O N D J A N U A R Y 1964 FIFTH DISTRICT Last year was a good one in the Fifth District. W hen the year opened, most business barometers were already at record levels, and by December many of the old records had been broken again. Perhaps the most striking development has been the sharp rise in construction outlays. Everyw here, new office buildings, factories, stores, and homes dot the landscape. The lengthening network of modern highw ays has steadily reduced the incon venience of travel. The most spectacular project nearing completion at the end of 1963 is the Chesapeake B ay B ridge-T unnel—an engineering m ar vel spanning 17.65 miles of virtually open ocean between the lower tip of the Delm arva Peninsula and the N orfolk-V irginia Beach area. Population, Employment, and Unemployment Fifth D istrict residents benefit from m any natural resources—coal, timber, arable land, favorable cli mate, w aterw ays, and other useful physical and geo graphical characteristics. A s with any region, how ever, people are the most important resource, and progress basically depends on their numbers, energy, and ingenuity. D uring 1963, District population increased at an average rate in excess of 18 thousand per month, and passed the 17.5-million m ark about the middle of October. According to Census estim ates for the year ended Ju ly 1, 1963. population gains reached 56 thousand or 1.7% in M aryland, 9 thousand or 1.1% in the D istrict of Columbia, 83 thousand or 2.0% in V irgin ia, 56 thousand or 1.2% in North Carolina, and 35 thousand or 1.4% in South Caro lina. W est V irg in ia’s population declined by 18 thousand, about 1%. Thus in three D istrict states, relative increases equaled or exceeded the national gain of 1.4%. Toward the end of the year the D istrict labor force reached 6.9 million. The number of workers actually rose more rapidly than population as a whole because of in-m igration and as a result of in creases in the number of young people entering labor force age groups. Nonfarm employment increased at an average rate of some 8.4 thousand per month, reaching the 5-million level by m id-year. Employ ment surpassed the previous year’s levels in all re 2 /363 gions of the D istrict except W est V irgin ia where virtually no change occurred. Regional gains amounted to 4% in M aryland, 3% in the District of Columbia and V irginia, and 2% in North and South C arolina compared to an increase of 2% for both the nation and the Fifth D istrict as a whole. Jobs were easier to find in 1963 than in other recent years. W orkers were on the job with greater regularity, and pay scales were selectively higher. More money income usually meant more “real” in come, because w age increases typically ranged up to 5% while price increases on consumer items amounted to little more than 1% over the year, becoming more apparent during the later months. Unemployment declined significantly during the year. The D istrict’s jobless numbered more than one-third of a million at the start of the year but dropped to 220 thousand in the fall. Much of the decline was seasonal, but it was significant enough to drop average unemployment in 1963 6% below 1962 levels to the lowest figure since 1956. New Landmarks In v ir tu a lly ev ery sectio n of the District, residents could view the y e a r’s tangible achievements with pride. Dozens of projects of local and regional importance advanced im pressively dur ing 1963. Among the more interesting were the con tinued modernization of downtown Baltim ore, the apartm ent boom in and near W ashington, D. C., new highw ay facilities including the B ridge-T unnel, and new electrical utility projects and industrial plants. The modernization of downtown Baltim ore topped oft’ a steady advance in M aryland business. The sheer w alls of new buildings rose beside rubble heaps which m arked all that is left of the old. E arly in the year, for instance, M ercy H ospital—a unique, 18-story building rising from a base 124 feet by 99 feet and expanding above the fifth floor to 141 feet by 116 feet—-was dedicated. Elsewhere in M a ry land, new shopping centers and office buildings cropped up. Numerous companies, including some of the nation’s largest corporations, began or ad vanced sizable expansion program s in the state. In November, the new expressw ay leading northeast from Baltim ore toward the Delaware B ridge and the New Jersey Turnpike opened, greatly facilitating the flow of traffic over this heavily used route. Southw ard through the coastal areas, other spec tacular new projects provide obvious and dram atic evidence of progress. H ighw ays around the nation's capital were improved and enlarged, extending the boundaries of accessible terrain and hastening the transform ation of recently empty fields into bustling residential and commercial areas. A real estate survey showed that 13 high-rise apartm ents were com pleted in the D istrict of Columbia in 1963 and seven more were under construction. A sim ilar survey is contemplated for neighboring areas of M aryland and V irgin ia where an even more vigorous expansion of apartm ent houses is reportedly under way. W ash ington’s crescendo of activity gives little indication of a slowdown. Across the lower reaches of Chesapeake B ay, the impressive B ridge-Tunnel project advanced about as planned during 1963 toward its opening scheduled for A pril 15. This $200-million crossing consists of 12.2 miles of trestle at a height of about 30 feet above typical high w ater levels, 1.6 miles of cause w ay and two bridges at the northern end, and two mile-long tunnels entered from the trestle via manmade islands. The tunnels provide unobstructed passage for ships heading northward up the B ay or westward into Hampton Roads. This link from the mainland to the business and recreational opportuni ties of V irg in ia’s E astern Shore promises to attract tourists and to provide a significant stim ulus to busi ness throughout the peninsula. Elsewhere in V irgin ia, industrial and commercial expansion proceeded apace. Plans were advanced in Richmond for construction of the first modern gen eral office buildings in some time. New plants sprouted up in many parts of the state including Roanoke and other business centers west of the Blue Ridge. W est V irgin ia, despite its lingering economic problems, also made substantial progress in 1963— much of it linked to coal. Production and trans portation costs declined another notch as additional modern equipment was put to work mining, load ing, carrying, and processing the black chunks of energy. At the same time, the demand for coal in both domestic and overseas markets strengthened m arkedly. To meet risin g needs on the part of elec trical utilities, steel producers, and other industrial users, many mines stepped up output almost to capacity, actually straining the labor resources of some m ining areas. A s a result, unemployment rates during 1963 were the lowest in years. W est V irgin ia officials announced late in 1963 that 22 new industrial plants were begun and 29 were expanded during the year. These figures were slightly below those of 1962, however. Perhaps the most spectacular project to show significant progress in 1963 was a 1,600-foot-long dam across the Stony R iver in Grant County. The lake thus created w ill be four miles long, w ill cover an area of 1,200 acres, and w ill have a m axim um depth of 130 feet. A t an elevation of 3,150 feet, it is expected to offer ideal recreational opportunities. The wraters of the lake w ill be used for cooling and condensation purposes in the operation of an ultram odern, m illion-kilowatt, thermal electric plant that will utilize large coal reserves underlying the area and transm it its power over ultrahigh-voltage lines. This use of the w ater is expected to keep the tem perature of the lake near 60° F in w inter and somewhat w arm er in summer. New business and other facilities progressed im pressively in North Carolina during 1963. New bank buildings were frequently in the news—21 stories in Greensboro, 14 in R aleigh, and 9 in A sheville, to name but three. Other new construction included a wide variety of industrial, commercial, educational, research, recreational, and residential projects. C har lotte w ill have a 12-story cooperative apartment building. In Research T riangle P ark, a new textile research center w ill be completed early in 1964. Other new facilities increased the state’s productive capacity in many lines ranging from tools and furn i ture to paper, apparel, chemicals, and textiles. In South Carolina, spokesmen for Carolinas- 3 Accordingly, much of the rest of this article attempts to put 1963 business into this perspective. The accom panying charts make these comparisons. In each chart the black line shows the upsw ing fol lowing the A ugust 1954 trough, the g ray line depicts recovery following the A pril 1958 low, and the green line represents the latest growth period, beginning in F ebruary 1961. The vertical scales on each chart are index numbers, percentages based on the trough level from which each recovery period began. The horizontal scales show the months following the three business cycle troughs. For exam ple, October 1963 is the 32nd month of the current upswing. The 1961-1963 grow th lines end with the latest available month for each series charted. V irgin ia Power Associates, Inc., the cooperative ven ture of several D istrict power companies formed to build and operate the P arr atomic electric plant, announced successful completion of “low power” tests. F ull power production began in December. As for new construction, South C arolina added significantly to its public facilities and witnessed some ventures in large-scale commercial and resi dential building, but most of the state's new facilities were apparently industrial in nature. M any were in textiles and apparel. But the trend toward diversifica tion, prominent in South C arolina's economy since the end of W orld W ar II, continued strongly in 1963. A good many of the new plants under construction during the year w ill produce metal products, m a chinery, electronic equipment, chemicals, paper prod ucts, and other items. Perhaps the largest single program announced in 1963 was a $75-million ex pansion of the state's power generating capacity to meet fast-grow ing industrial, commercial, and res idential needs. Growth W ith Stability P ro d u cts, e sp e c ially the conspicuous creations of modern architects and engineers, are spectacular. But processes are also important. Consequently, it is helpful to compare the upsw ing in District business since February 1961 with other recent periods of business improvement. Digitized 4 FRASER for Nondurable M anufacturing D istrict m an u factu r ing prospered in 1963. As noted previously, produc tive capacity increased in all parts of the District. Reflecting both the new facilities and greater utiliza tion of the old, factory man-hours rose, though some times unevenly, throughout the year. Industrially classified data show that most of the recent growth occurred in durable goods industries. There were some sharp month-to-month fluctuations in the non durables group but practically no net rise. Buried in the man-hour data and beyond the an alyst’s reach, at least until m easures of output become available at a later date, lie the effects of rising productivity. There is strong circum stantial evidence that District m anufacturers achieved more output per man-hour in 1963, but how much more and in which particular industries are questions re quiring more information than is currently available. Nondurable goods man-hours, nearly two-thirds of the D istrict total, have zig-zagged along a plateau for about 20 months. A s shown in the chart on page 3, man-hours in nondurable goods factories rose quite sharply from the February 1961 low, but the rise was not as rapid, nor did it last as long, as in the two previous growth periods. Some evidence of why this happened can be found in the size and character of F ifth District nondurables industries. In the food, paper, and printing industries, which account for about one-fourth of total District non durables m anufacturing, man-hours late in 1963 were substantially the same as in M arch 1962. In contrast to this stability, textile man-hours (m aking up 42% of District nondurables) and tobacco (com prising 4 % ) declined quite regularly after M arch 1962. Tending to offset these decreases, man-hours in the apparel and chemical industries, another onefourth of the nondurable goods total, registered strong gains. A s shown on the chart, these various patterns combined to produce sharp changes month to month but virtually no net increase or decline. Conditions within industries are difficult to detect without the aid of special studies. It is clear, how ever, that improvements in m anufacturing methods and equipment have played an important role in recent developments. A significant amount of new investment has been devoted to modernization of existing capacity. It is interesting to note that the principal man-hour gains among producers of non durable goods centered in apparel, a fast-grow ing D istrict industry where more automation is contem plated but remains to be realized, and in chemicals, where automation reached an advanced level some years ago and additional progress has been gradual. In textiles, on the other hand, recent years have witnessed significant productivity gains. T extile firms nationally invested an estimated $650 million in new plant and equipment in 1963, an investment rate which is expected to continue into 1964. T ex tile company annual outlays for new plant and equipment are now nearly twice as great as in the early 1950’s and are 25% above any previous year except 1962. Automation in the textile industry has been de scribed as “evolutionary” and significant progress of this type was made in 1963. T extile machinery manu facturers have announced innovations in production equipment and control devices with surprising regu larity over a period of several years. A number of EMPLOYMENT IN NONFARM, NONMANUFACTURING ENTERPRISES Fifth District S e a s o n a lly A d ju ste d "*/, of Trough Value 1121 110108 - 106104 10 2 1958-1960 - 100 Months After Trough ■i i i i i i i i I i i i i i i i i i I i i i i 0 10 Tro u g h M on ths: A u g u st 20 30 195 4, A p ril 1958, F e b ru a ry 1961. new plants incorporating many of these began pro duction during 1963. A finishing plant described as “ fu lly automated" was planned and built from the ground up in six months. Three large, integrated cotton mills utilizing the latest in electronically con trolled equipment began production in the fall. T extile production, m easured by the seasonally adjusted textile mill component of the Industrial Production Index, has risen steadily this year. New orders and order backlogs also reflected a steadily grow ing average volume of business. W ith new equipment, textile m ills w ill probably handle increas ing volume with little change in man-hours. Growth Continues in Durables U n lik e n o n d ur able goods industries, D istrict durable goods pro ducers stepped up their activity as measured by man-hours in 1962 and 1963. M ild fluctuations around a line of gradual growth were, as shown in the chart on page 4, characteristic of this group. Such steady conduct contrasts sharply with the two pre vious upswings which clearly show the sharp g y ra tions usually associated with cycles in durables. (Continued on page 8) 5 Keys for Forecasting Business Cycle Indicators In recent ye ars, the indicator approach to business cycle an a ly sis, developed by the N ational Bureau of Economic Research (NBER), has been cited more and more in private and governm ent publications. The businessm an is confronted w ith such economic expressions as reference dates, peaks, troughs, turning points, and leading , coincident, and lagging in dicators. The purpose of this article, the last in the Keys for Forecasting series, is to define briefly these terms as used in the NBER method of business forecasting. THE BUSINESS CYCLE DEFINED A business cycle as defined by the NBER "consists of e x p a n sions occurring at about the sam e time in m any economic activities, follow ed by sim ilarly gen e ral recessions, contractions, and revivals w hich merge into the expansion phase of the next cycle." Thus business cycles a re alternating and recurring m ovements. They relate to a g gregate economic activity, as distinguished from the cycle of an in d ividu al statistical series, discussed in the seasonal adjustm ent article in this series. There are two essential ingredients in the NBER definition: first, m any economic activities cum ulate into a composite picture of the U. S. economy; and second, forces w orking contrary to the general course of the economy gain sufficient strength to cause a directional change in the path of the economy. REFERENCE DATES The "turning points", or "peaks" and "troughs", of the business cycle have been dated for the period from 1854 to 1961 by the NBER. These dates, termed "business cycle reference dates," m ark off 26 U. S. business cycles for the period. The cycles range in duration from 28 months (from the trough of M arch 1919 to that of Ju ly 1921) to 99 months (Decem ber 1870 to March 1879). The expansion phase—the rise in business activity from the trough to the p eak—is u su al ly of longer duration than the contraction p h ase—the drop from the peak to the trough. For the 26 cycles, the a v era g e expansion lasted 30 months and the a v e ra g e contraction ran 19 months. For the four complete post-World W ar II cycles, the disparity in length between the two cycle phases is more evident. Postwar expansions have av era g e d 36 months in con trast to an a v e ra g e contraction of 10 months. At the time of this w riting, the last turning point that has been dated w a s the trough of February 1961. CO IN CID EN T SERIES The reference dates provide the fram ew o rk for classifying individ ual economic series into three groups according to w hether their turning points lead , la g , or coin cide with the turning points in general business. roughly p arallel those in general business are Individual series w hose peaks and troughs termed the "roughly coincident series." Am ong the nine most comm only used "coincident indicators" are the follow ing m easures dis cussed in e arlier Keys for Forecasting articles: gross national product; personal income; indus trial production; nonagricultural em ploym ent; the unem ploym ent rate; and the index of w h o le sale prices of commodities other than farm products and food. The turning points of these in d ividu al series do not a lw a y s coincide with the NBER refer ence dates w hich are chosen on the basis of how the turning points of the coincident series are BEH A VIO R O F EC O N O M IC INDICATORS DURING RECENT BUSINESS CYCLES A C O IN C ID E N T SERIES Industrial Production Index 1 9 5 7 -1 9 5 9 = 1 0 0 clustered. In dividu al an aly sts sometimes prefer, how ever, to designate peaks and troughs in gen eral business on the basis of the behavior of a single indicator, p articularly GNP and the industrial pro duction index. LEADING AND LA G G IN G SERIES Turning points in some series typically precede the reference dates m arking the p eaks an d troughs of g eneral business. These series are accordingly termed "lead ing indi cators." The 12 m ajor series in this category relate p rim arily to future production and em ploym ent. In cluded in this group are such m easures as m anu fac turers' new orders for durable goods, the a v erag e w orkw eek in m anufacturing, housing starts, corpo rate profits after taxes, common stock prices, and spot m arket prices of industrial m aterials. On the other hand, peaks and troughs in some A LEA D IN G SERIES V a lu e of M anufacturers' N ew O rders, D urable G oods Industries $ Bil. im portant economic series typically follow the turn ing points in general business. These series are referred to as "lag ging indicators" and reflect chief A V ly business investm ent costs. /1 * Included in this group of five m ajor series are plant and equipm ent ex penditures, m anufacturers' inventories, and bank A. v \ interest rates on business loans. A , V \ f/ \ I/ V 1 V y f / J * " ; *. / \ “ 1 cedes or follow s the turning points in general busi ness v arie s from cycle to cycle. M oreover, the A f / K/ / J v V s The num ber of months an individual series pre A / x ✓ a v erag e length of leads and the a v erag e length of lags at peaks differ from those at troughs. The charts on this page illustrate the timing of the ' L 1 turns in a coincident, a leading , and a lagging ind i cator relative to the NBER reference dates; the cyclical movements shown are the past two com L ___ ! 1 i > 25 30 35 plete business cycles (m easured from peak to peak), and the current cycle since M ay 1960, the latest upper turning point that has been dated by NBER. SOME W ARN IN G S There is no sure-fire, short-cut method of calling the turns in the business cycle. The discrim inating forecaster must m ake a ca re ful, detailed a n a ly sis of the statistical evidence on hand and w eigh his evaluation ag ain st an under standing of the nature and causes of fluctuations in aggreg ate economic activity. He realizes that com plete reliance on past perform ance of an individual statistical series or a group of series is fool-hardy. The one fact accepted by all economists is the incon stancy of the business cycle. No period of e x p a n sion or contraction is identical with earlier periods in duration, in intensity, or in causation. -1 0 Legend A ^ Note: -5 0 5 10 15 20 Months from Trough Peak Dates: Ju ly 1953, Ju ly 1957, M ay 1960 Trough D ates: A ugust 1954, A pril 1958, February 1961 C lassificatio n of the series and the reference dates are those designated by the N ational Bureau of Economic Research Series in above charts are adjusted for season al variation FIFTH DISTRICT 1963 (Continued from page 5) As in nondurables, however, individual industries followed different paths over the course of the year. F urniture, prim ary m etals, and m achinery, account ing for ju st under half of D istrict durable goods man-hours, advanced quite steadily and imparted this general trait to the entire group. Fabricated metals and lumber, nearly one-fourth of the total, showed no significant change over the year, while man-hours in transportation equipment and stone, clay, and glass, nearly one-fifth of the durables total, trended downward. Transportation equipment manhour levels were lower at the end of the year than at the beginning despite an all-tim e high in June. Nonmanufacturing Sectors N o n m an u factu rin g enterprises provide 70% of the D istrict’s non farm jobs. Toward the end of 1963 government accounted for 29% ; trade, 27% ; services, 18% ; transportation, communications, and public utilities, 9% ; contract construction, 8% ; finance, insurance, and real estate, 6 % ; and mining, 2% . The consistent growth of employment in these enterprises is shown in the first chart on page 5. Employment increases have followed a steadier course in the current period of growth than in either of the previous two. The 1954 recovery was slow for six months, advanced sharply for fifteen, then slowed again. The 19581960 upsw ing was shorter and w eaker and also showed some slight tendency toward fits and starts. The present period, in contrast, shows ju st as much progress as the 1954-1957 upswing and has behaved more consistently. A t a point roughly comparable to year-end 1963, the 1954-1957 curve leveled out and turned down. No change is apparent as yet in the current picture. The progress achieved in 1963 is suggested by the extent to which employment in m ajor non farm, nonm anufacturing categories increased in the course of the year. Between Jan u ary and October about 77 thousand such jobs were created. Government made the largest contribution, about 23 thousand; trade was next with 16 thousand; then services with about 13 thousand; transportation, communication, and public utilities, about 11 thousand; contract con struction, about 8 thousand; and finally finance, in surance, and real estate, about 6 thousand. Some 15 hundred were added to m ining payrolls over the ten month period. N early uniform relative gains en hanced the impression of cyclical stability. These amounted to 2% in government, services, and trade, and 3% in other sectors. Digitized8for FRASER Construction C o n structio n , a secto r of con siderable importance in 1963, also bears significantly on the outlook for the future. For this reason, some special attention is w arranted. The second chart on page 5 clearly reveals a strong uptrend in contract aw ards that is both a cause (in the creation of employment and income) and a result (reflecting demand for new facilities) of the present growth. The data on the chart are 12-month moving averages, used to smooth out seasonal and random variations. Following the eleventh month of the current upswing, some level ing out occurred due to slowdowns in residential building, but the rise w as resumed after the twentieth month as residential aw ards stabilized, and in 1963 renewed strength in nonresidential categories sharply increased the totals. A w ard values late in the year averaged more than 30% above the cyclical low of early 1961. Once again, the contrast between the present and previous growth periods is striking. Trade T rad e g e n e ra lly co ntinued to expan d in the D istrict during 1963 but at a somewhat reduced pace. Since comprehensive data are not avail- able, it is difficult to characterize this sector in con crete terms. Employment rose about 2% in the course of the year, and the total rise since the 1961 low was 6% . Department store sales were quite e r ratic during the year. The 1962 high was exceeded in 1963 in M arch, June, A ugust (the all-tim e high to d ate), and September. However, the data showed almost no trend at all over the year, par for the course, perhaps, in view of the grow ing importance of other retail outlets. A s a somewhat more comprehensive m easure of trade, 12-month moving averages of sales of ‘‘Group I ” retail stores (stores with 1 to 10 outlets) have been computed and are plotted on the chart on page 8. As in sim ilar comparisons presented previously, the current upswing reveals more consistency and more strength than either of the two prior recovery periods. In the last few months, however, the data have tended to fluctuate around a level some 18% above the F ebruary 1961 low. W here they w ill go from this point remains to be seen. A griculture F ifth D istrict farm ers b egan 1963 in generally good financial shape, but a sizable num ber apparently reduced their savings and reserves in the course of the year. Thus, at the end of the year a good m any farm ers had less cash, larger debts, or both than at the beginning. T his was due prim arily to drought, the cost-price squeeze, and cuts in flue-cured tobacco and cotton acreage allotments. Drought played the villain over wide areas, particularly in M arylan d’s dairy and to bacco country, in most of V irgin ia, and in counties of W est V irgin ia and North Carolina bordering the Old Dominion. The cost-price squeeze was felt every where. P aradoxically, the dry weather checked boll weevil infestation and provided nearly ideal harvesting conditions so that the cotton crop w as of good quality and 12% larger despite reduced allotments. Tobacco farm ers, on the other hand, except those in the Eastern North C arolina Belt, were particularly hard hit. Drought forced many livestock farm ers and dairym en to buy feed, and some will continue to do so through the winter. M any dairy herds in V irgin ia were liquidated. Most crops were significantly sm aller than a year earlier, but livestock production, except for dairyin g and beef cattle, continued to increase. F arm ers’ use of mortgage and non-real estate credit rose further in 1963, and delinquencies and carry-overs were slightly more prevalent than in the previous year. M arket values of farm real estate continued to advance, adding further strength to farm ers’ assets and equity positions. Banking D istric t b an k in g d ata rev eal a fav o r able comparison between the current and previous periods of business growth. The attendant chart shows that average levels of loans and discounts at Fifth D istrict member banks have increased 35% compared to 31% in the 1954-1957 upswing, and only 20% in the 1958-1960 expansion. Gains in the current upsw ing have been unusually consistent. Member banks reporting w eekly to the Federal R eserve did not increase their outstanding credit as much as in 1962 and were occasionally some what more pressed for reserves. In the first eleven months both in 1963 and 1962, banks increased their loans outstanding about 6% , but the loan expansion in 1963 was made possible by a 5% reduction in investments while investments over the same period of the previous year remained unchanged. The composition of loan expansion in the two years was also quite sim ilar. Business loans rose about 4% and consumer loans around 10%. The most dram atic development in the past two years has been the very substantial rise in real estate loans, which increased 22% in 1963 and 16% the year before. M uch of this can apparently be attributed to the higher rates paid on time and savings deposits and the substantial flow of these deposits into com mercial banks. In 1963 as in 1962, time and savings deposits rose about 14% in the first 11 months. 9 AGRICULTURAL OUTLOOK 1 FOR 1964 Domestic demand for farm products w ill continue to ex p an d ; exports are expected to be at record lev els; farm output, if grow ing conditions are fa vorable, will remain high and could set a new reco rd ; production expenses w ill continue to r is e ; and net farm income w ill be lower. This, in capsule form, is the national outlook for agriculture in 1964 as seen by leading economists of the U. S. Department of A griculture. In appraising the agricultural outlook for the year ahead, U S D A ’s analysts assumed average grow ing conditions, no change in present farm programs for wheat, cotton, and d airy products, and success in the negotiations for sales of wheat and other farm com modities to the Soviet Union and its satellites. They also assumed that the proposed tax cut w ill come early in 1964. Below, in more detail, are the forecasts of the De partment of A griculture. Farm Prices, Costs, and Income The farm price situation for 1964 promises to be much like that in 1963. Prices received for all farm products are ex pected to average a shade lower and prices paid by farm ers a little higher than a year ago. Prices for livestock and livestock products m ay show little change from 1963, but crop prices w ill probably av erage slightly lower, largely because of an anticipated drop in wheat prices. Farm production expenses in 1964 will likely in crease by at least as much as in 1963. Costs for cur rent operating expenses such as fertilizer, purchased feed, and the repair and operation of farm m achinery and equipment w ill probably increase noticeably. T axes on farm property, interest on indebtedness, and depreciation charges are also expected to rise. Both cash receipts from farm m arketings and Government payments to farm ers are likely to be lower than last year. The nation’s realized gross farm income in 1964 w ill probably be down slightly from the record $41 billion received in 1963. W ith farm production costs continuing upward, realized net farm income w ill likely be 5% or more below the 1963 level of $12^4 billion. Realized net income per Digitized 10 FRASER for farm is not expected to fall as much as total income, however, because of a probable continued decline in the number of farm s. Supply and Demand Conditions Total carry-over stocks of farm commodities are expected to be down slightly in 1964. There w ill probably be increases in cotton, tobacco, and peanut stocks, but the carry overs of wheat, feed grains, soybeans, and dairy products are expected to decline. Food supplies are ample, although reduced supplies of both fresh and processed fruits and fresh, canned, and frozen vege tables are in prospect for the 1963-64 season. Growing business activity both at home and abroad points to expanding markets for the nation’s farm products in 1964. Domestically, the demand for farm products w ill be sustained by continued growth of the general economy, further expansion in employ ment and consumer income, and a grow ing popula tion. The extent of the improvement in domestic de mand w ill depend in large measure, however, on the size and tim ing of the proposed cut in personal and corporate taxes. Foreign demand for United States farm products in 1963-64 is brighter than at any time in the nation’s recent history. Total shipments of farm products to export markets are expected to rise to around $6.0 billion. This would be 15% above a year ago and a new high. The magnitude of the increase w ill depend on whether or not the anticipated exports to countries in the Soviet Bloc m aterialize. E xport demand is supported not only by strengthening economic activ ity abroad but also by record gold and dollar hold ings in most countries which pay dollars for United States farm products. Dollar sales, which are ex pected to account for the bulk of the increase in farm exports, m ay hit a new peak of $4.2 billion. This would amount to around 70% of the total value of all farm exports and should contribute to an easing of the balance of payments problem. Outlook For Commodities H ighlights in the out look for m ajor F ifth D istrict commodities and com modity groups shape up about like th is : Tobacco: The 1963-64 supplies of flue-cured and burley, the leading cigarette tobaccos, are larger than those of most of the past several years by sizable amounts. Flue-cured supplies are the highest since 1956-57, while the burley supply is the largest on record. C arry-overs of both types are the largest in five years. The supply of M aryland tobacco is up slightly from a year earlier, but supplies of V irginia fire-cured and sun-cured tobaccos are down. Both cigarette output and consumption rose to new highs in 1963. Despite these facts, domestic use of flue-cured tobacco declined slightly and consumption of burley was up only about 1% over that of the previous year. A grow ing population and continuing high levels of income favor a further increase in cigarette consumption in 1964. The amount of to bacco used per 1.000 cigarettes, however, apparently continues to decline. Consumption of smoking and chewing tobacco will probably change little from 1963 but the downtrend in the use of snuff is expected to continue. W hether the outlook for tobacco products w ill be affected by the U. S. Public H ealth Service’s A dvisory Committee report on smoking and health, scheduled for Jan u ary 1964, is problematical. E xports of flue-cured tobacco in 1962-63 declined 11% from a year earlier and were the second sm all est in eight years. B urley exports, however, increased about one-sixth and were at record levels. Tobacco exports in 1963-64 are expected to rise moderately. Favorable factors contributing to this expectation are the better quality flue-cured available from the 1963 crop, sm aller flue-cured crops of m ajor foreign producers, and lower stocks of U nited States fluecured in the U nited Kingdom. W ith the current supply-dem and situation, fluecured tobacco farm ers face a 10% cut in acreage a l lotments in 1964 on the heels of a 5% cut in 1963. M arketing quotas and acreage allotments for burley and other types of tobacco w ill be announced by February 1. Prices of 1964-crop tobaccos w ill be sup ported on the same basis as in the past several years. Present indications are that the 1964 support levels will be up about 1% over those in 1963. Cotton: The large 15.5-million-bale cotton crop produced on the nation’s farm s in 1963 is expected to be 1.7 million bales larger than estim ated dis appearance in 1963-64 and m arks the third consecu tive year in which production has exceeded use. Total disappearance of cotton this season is estim ated to be around 13.8 million bales, about 2 million bales larger than a year earlier. Both domestic mill con sumption and exports are expected to increase. Con sumption by United States m ills is estimated at 8.8 million bales. This is 400,000 bales larger than a year earlier but 200.000 sm aller than in 1961-62. Cotton exports during 1963-64 are expected to total about 5 million bales, well above the relatively low level of 3.4 million bales exported last year. Reasons for the anticipated increase are a moderate upturn in foreign consumption, reduced production in foreign coun tries, sm aller inventories in both importing and other Farm production expenses, which have trended u pw ard in both the District and the nation for more than a decade, are expected to continue to increase in 1964. They now take a much larger proportion of realized gross farm income than they did ten yea rs earlier. FARM PRODUCTION EXPENSES FIFTH DISTRICT Per Cent UNITED STATES 11 exporting nations, and the Commodity Credit Cor poration’s export sales program which makes United States cotton prices competitive in world markets. Despite the increased disappearance, the carry-over of cotton next A ugust 1 w ill probably total around 13.1 million bales. This would be 1.9 million bales above last A ugust and the third successive year that the cotton carry-over has increased. It would also be the largest carry-over since the record high of 14.5 million bales in 1956. Peanuts and Soybeans: Supplies of peanuts are 5% above a year ago and the largest since 1948-49. Once again, supplies are sharply larger than domestic needs for food and farm uses, and the CCC w ill ac quire the surplus under the support program. C ivilian consumption of peanuts per person has risen in re cent years, climbing from 5.8 pounds in 1955-56 to 7.0 pounds last year. The same rate of consumption per capita is expected to continue during 1963-64. This means that, w ith increased population, total con sumption of peanuts w ill increase slightly. Though both total civilian consumption and crushings under the CCC diversion program are likely to rise during 1963-64, the carry-over of peanuts is also expected to increase. Prices to grow ers in 1963-64, as in re cent years, w ill probably average near the loan rate. The 1963-64 supplies of soybeans are at a record 733 million bushels, about 10 million larger than last year. Farm prices for soybeans are expected to con tinue strong and w ill probably average about $2.60 per bushel, or around 35 cents above the support level. There are indications that the entire 1963 crop m ay be needed to meet demand. C rushings are ex pected to be larger, and exports may hit a new high. C arry-over stocks next fall w ill probably be very small again. Poultry and Eggs: The outlook for 1964 points to increased production of both eggs and poultry The increase in egg production w ill likely be small, with most of the increase coming during the first half of the year. E gg prices early in 1964 will there fore probably be lower than a year earlier. T hey are likely to show a greater seasonal rise than in 1963, however, and for the year as a whole are expected to average only slightly below the 1963 level. B roiler output w ill probably be about the same as a year ago during the first half of 1964, but pro duction is expected to rise in the second half and for the year w ill likely average higher than in 1963. B roiler prices the first half of the year w ill probably be held down by the availab ility of large supplies of beef. Competition from red meats m ay lessen late in the year, broiler prices w ill likely strengthen, and for 12 1964 as a whole they m ay average close to the 14.6cent level received in 1963. A sm all to moderate ex pansion in turkey production is likely in 1964, and turkey prices during the main m arketing season w ill depend largely on how much producers expand pro duction. W ith only a moderate increase, prices may average as high as in 1963. Meat Animals: H og raising is expected to be slightly more profitable this year than it wras in 1963. Slaughter of hogs w ill likely drop below year-earlier levels before the second quarter and w ill rem ain be low the rest of the year. H og prices w ill probably continue under year-ago levels this w inter, but they are likely to be a little higher in the spring as slaugh ter supplies decline. Prices for the year as a whole are expected to average slightly higher than in 1963. L ittle change from 1963 is anticipated for cattle and lamb prices. Cattle m arketings w ill rise again in 1964, but demand prospects for beef continue to be favorable. W ith large m arketings and little change in average prices, cash receipts from cattle and calves can be expected to increase. Dairy Products: Farm m arketings of m ilk w ill likely increase a little in 1964, and commercial de mand m ay be slightly higher. M arketings w ill again exceed commercial use, and excess dairy products w ill continue to move into the CCC. Farm prices for dairy products w ill probably average about the same as in 1963. Cash receipts m ay increase slightly, but net income from d airyin g w ill likely decline because of the continuing rise in production expenses. District Farm ers and The Outlook Much of the decline in the nation’s farm income in 1964 is ex pected to be concentrated on farm s where income from wheat comprises a significant part of total re ceipts. W h eat’s contribution to total cash farm in come in the F ifth District is small by comparison with its relative importance in the nation. This, plus the fact that drought played a significant role in re ducing F ifth D istrict farm income in 1963, suggests that, given average grow ing conditions, District farm ers in 1964 should fare better in comparison with 1963 than those in the nation as a whole. In come of flue-cured tobacco farm ers w ill, however, be affected considerably by the 10% cut in allotments. PH O TO CREDITS Cover—N ew port N ew s Shipbuilding and Dry Dock Co.; Bethlehem Steel; The Cham pion Paper and Fibre Com pan y; N ational C oal Association; Liggett & Myers Tobacco C om p an y; The State Road Commission of West V irg in ia; Am erican Cotton M anufacturers Insti tute, Inc.; Martin Com pany.