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FEDERAL RESERVE BANK OF RICHMOND

MONTHLY

Volume 59
Number 1



JANUARY

1973

The

M o n th ly

R e v ie w

is produced by the R esearch

D epartm ent of the F ederal R eserv e Bank of Richm ond.
Subscriptions are available to the public without charge.
A d d ress inquiries to Bank and P ublic Relations, F ed ­
eral R eserve Bank o f R ichm ond, P . O. B o x 27622,
Richm ond, Virginia 23261. A rticles may be reproduced
if sou rce is given. P lease provide the B ank’s R esearch
Departm ent with a cop y of any publication in ivhich an
article is used.




FINANCIAL HIGHLIGHTS OF 1972
Financial developments in 1972, in contrast to the
dramatic events and sharp fluctuations that char­
acterized the financial sector during the last few years
of the 1960’s and the first tw o years of the 1970’s,
reflected a relatively high degree of stability and
were devoid of any events o f crisis proportions. F or
example, typical long-term interest rate measures
m oved within a 50-60 basis point range in 1972, as
shown on Chart 1, whereas these same measures
fluctuated over a 115-125 basis point range in 1971.
Pressures on the financial markets were not as
strong in 1972 as they had been in prior years—essentially because the econom y was operating well

years.

Even unusually high rates of real grow th,

forecasts of a historically large Federal budget deficit,
relatively high rates of m oney supply grow th, and
speculative runs on the dollar in foreign exchange
markets did not send interest rates spiraling or cause
investors to panic. Nevertheless, each o f these factors,
and others, contributed to the patterns o f interest
rate movements and financial flow s in 1972.1
Level of Economic Activity T h e o v e ra ll lev el o f
econom ic activity provides the general fram ew ork
within which interest rate movements and financial
flow s develop. T he m ore rapid the pace of econom ic
activity the greater the demand for credit funds to

below capacity, because the supply o f funds was ade­
quate to satisfy the demand fo r funds, and because
rates of inflation had slowed noticeably from recent




1 This article actually covers the period January-November 1972,
because data for December were not available at the time of publi­
cation.

FEDERAL RESERVE BA N K OF RIC H M O N D

3

finance increases in w orking capital, expansions of
plant and equipment, housing starts, and purchases
of consum er durables. T o the extent that the total
demand for credit grow s m ore rapidly than the avail­
able supply, upward pressures on interest rates will
appear, which was the case on several occasions in
the latter 1960’s. W h en econom ic activity approaches
capacity levels, prices are likely to start rising. A s

though long-term rates reflected smaller inflationary
premiums as 1972 progressed, m ost rates still co n ­
tained a large premium for protection against future
price increases at the close of the year com pared to
pre-1965 rate levels. T h e poor behavior of the price
indexes early in the year discouraged investors from
com m itting funds to the long-term markets. M any

investors becom e aware o f inflationary pressures,

investors also appeared to be apprehensive about the
rate o f grow th of M i during the first quarter of 1972

they try to protect the value of their investments

fo r at least tw o reasons.

from being eroded by future price increases by lend­
ing funds at higher interest rates than before. B o r­
rowers are w illing to pay the higher rates because

expanding money supply plus rapid econom ic grow th
implied continued price increases in the long run and,

they expect to be able to repay in cheaper dollars at
some time in the future. In terms of this generalized
sequence of events, the econom y was just beginning

T h ey feared that a rapidly

possibly, renewed demand inflation in 1973.

A lso,

investors anticipated that excessive m onetary grow th
suggested a potential tightening o f policy by the

to show signs of sustained grow th at the beginning

Federal Reserve in the short run, which w ould raise
short-term rates and likely put immediate upward

of the year, follow in g weak perform ances in 1970 and

pressure on long-term rates.

1971. Investors’ attitudes, however, w ere still highly
influenced by the cost-push inflation that had been

even though replete with cash, large institutional in­

built into the econom y for several years follow in g the
demand-pull inflation o f the middle 1960’s.
In early 1972 considerable uncertainty prevailed
in the investment com m unity regarding the future
course of interest rates. Investors were unsure of
the underlying strength of the econom y as well as
the ability of monetary and fiscal policies and price
controls to dampen the fires of inflation. C ontrib­
uting to these feelings o f uncertainty were the 5.5
percent increase in the implicit G N P price deflator
and a 9.3 percent increase in the m oney supply at
annual rates during the first quarter. Both o f these
factors suggested sharp upward shifts in interest
rates over the com ing months. In the second quarter,
however, the rate of grow th o f inflation, as measured
by the G N P deflator, cooled to 2.4 percent while the
m oney supply grew at a relatively moderate 5.3 per­
cent pace, suggesting a lessening of upward pressures
on interest rates. Real output in the second quarter
surged to a 9.4 percent rate and continued to grow
rapidly at 6.3 percent in the third quarter.

Sustained

real grow th of this magnitude was expected to result
in strong corporate loan demand to finance a build-up
of inventories; and, in conjunction with a fairly slow
rate of grow th in the m oney supply, this increased
demand was expected to push up short-term interest
rates.

Apparently because the econom y was still

operating well below capacity levels for most o f 1972
and because corporate liquidity positions were strong,
upward pressures on short-term rates, while present
in September, were not as great as expected.
T hroughout 1972, the level and behavior of lon g­
term rates were prim arily influenced by current rates
of

inflation

and

inflationary

4



expectations.

Even

D uring m ost of 1972,

vestors were concerned with inflation and thus shied
away from the long-term securities markets. Instead,
they invested funds tem porarily in short-term assets,
low ering short-term yields relative to long-term
yields and sharpening the upward slope of the yield
curve. (S e e Chart 5 .)
Monetary Policy T h e b e h a v io r o f in terest rates
and financial flow s is affected by the m onetary policy
actions of the Federal Reserve. Changes in the avail­
ability o f bank reserves by the Fed indirectly cause
changes in the rates of grow th o f m oney and credit
and changes in interest rates.

D uring the first part of

1972, the Federal R eserve made an adjustm ent in the
guidelines it follow s in the conduct o f open market
operations. Instead of prim arily using the Federal
funds rate as a guide to achieve desired grow th in
the m oney supply, the M anager o f the O pen M arket
A ccou n t began to focus on a reserve measure. K n ow n
as reserves available to support private nonbank d e­
posits ( R P D ’s ), this measure is directly related to
the demand deposit com ponent o f the m oney supply.2
A fter this change was announced, some financial
market analysts speculated that the Federal R eserve
w ould allow interest rates to fluctuate much m ore
than in the past.

T his potentially disturbing situ­

ation did not develop in 1972, how ever, largely be­
cause credit market conditions remained relatively
easy throughout the year.
T he broad aim of monetary policy in 1972 was to
underwrite econom ic expansion by encouraging real
grow th, thus low ering unem ployment without re2 RPD’s are defined as (1) required reserves for (a) private demand
deposits, (b) total time and savings deposits, and (c) non deposit
sources subject to reserve requirements and (2) excess reserves.
Excluded from this series are required reserves for net interbank
and U. S. Government demand deposits.

M ONTHLY REVIEW, JA NUA RY 1973

Chart 3

CORPORATE AND MUNICIPAL NEW ISSUE VOLUME -

1972

$ Millions
2,500
□

Municipal

□

Corporate

2,000

1,500

1,000

500




FEDERAL RESERVE BA N K OF RIC H M O N D

5

in order to stem the flow of short-term capital to
foreign countries while low ering, or at least stabil­
izing, long-term rates to foster dom estic econom ic

Chart 4

MONETARY AGGREGATES - 1972
$ Billions

$ Billions

grow th. That is, the Fed wanted to reverse or twist
the prevailing yield curve relationships.
T he rise
in short-term rates in early 1972, while the F ed was
purchasing coupon issues, suggested to the market
that a new attempt at such a strategy was under way.
T he eventual release o f policy directives for that
period did not substantiate this interpretation, h ow ­
ever.
B y the end of the third quarter, the market appar­
ently felt that, although the Fed was supplying suffi­
cient funds to encourage econom ic grow th, the money
supply was not grow in g fast enough to prevent short­
term rates from rising.

M arket participants appeared

to sense that monetary policy was based on the as­
sumption that there was sufficient slope in the short
end o f the yield curve to permit short-term rates to
rise without putting upward pressure on long-term
rates. T hey also expected the Fed to control m one­
tary grow th in order to prevent renewed demand in­
flation in 1973 without subjecting the econom y to a
credit crunch.
Corporate and Municipal Securities T h e v o lu m e
of securities offered by corporations in 1972 dipped
well below 1970 and 1971 levels. A verage m onthly
corporate volum e in 1971 was $2,058 m illion ; w here­
Source: Board of Governors, Federal Reserve System.

as, for the first eleven months o f 1972, corporate new
issue volum e averaged only $1,550 million per month.
T his smaller figure for 1972 is misleading to the

fueling inflation. A fter witnessing a 1.1 percent rate
o f grow th in the narrow m oney supply ( M j ) in the
fourth quarter of 1971, the Fed provided bank re­
serves m ore readily in early 1972; and the rate of
grow th of M i increased in the first quarter o f 1972
to 9.3 percent, as shown on Chart 4. T he rate of
grow th diminished in the second quarter, posting a

extent that private placements this year have been
much larger than they were in 1971. A lthough fixed
capital investment by business increased steadily d u r­
ing 1972, corporate demands on the securities m ar­
kets moderated as a result of tw o fa c to r s :
(1 )
increased corporate liquidity stemming from a re­
structuring of corporate balance sheets in 1970-71
and ( 2 ) increased internal cash flow s resulting from

T he third quarter opened with a

im proved corporate profits, liberalized depreciation

w hopping 14.2 percent (annual rate) jum p in M i

rules, and the reinstatement o f the investment tax

in J u ly ; but this was follow ed by smaller rates of

credit.

grow th in A ugust and September, which brought the
third quarter grow th rate dow n to 8.5 percent. B e­

tax-exem pt sector was dow n slightly in the first

5.3 percent gain.

A verage monthly volum e o f $1,923 million in the

ginning in A ugust, M i grow th proceeded at an e x ­

eleven months o f 1972 from the 1971 figure o f $2,031

tremely steady pace, which gave added stability to

million, reflecting the continued large need fo r funds

the financial markets, especially in O ctober and N o ­
vember.
Early in the year, the market interpreted certain

by state and local governments. M onth-to-m onth d e­

policy actions and interest rate movements as an
indication of a revival o f “ Operation T w ist.”
In

evident in tax-exem pt bond yields shown on Chart 1.

the early 1960’s, the Federal Reserve had an an­
nounced policy of attempting to raise short-term rates

1972 generally had tw o effects.

6



mands for funds were rather irregular as show n on
Chart 3, perhaps contributing to the fluctuations
The smaller supply of new long-term securities in
First, long-term c o r ­

porate and municipal yields were much m ore stable in

MONTHLY REVIEW, JA NUA RY 1973

1972 than in 1971. Second, the Treasury was p ro ­
vided with the necessary leeway to lengthen its debt
structure through the sale o f long-term securities.
B orrow ers and investors were affected by a variety
o f psychological factors during 1972 that tended to
alter supply and demand conditions over the short
run. T he mining of the harbors in Vietnam in M ay
had only a limited effect on the securities m ark ets;
however, the peace negotiations and apparent peace
settlement that emerged in late O ctober were inter­
preted very positively at that time. M arket partici­
pants, principally the long-term investors, view ed the
apparent end of the Vietnam conflict optimistically,
seeing it as contributing to future econom ic stability.
That 1972 was an election year does not appear to
have had any m ajor impact on the markets, perhaps
because most investors tend to disregard much o f the
rhetoric that characterizes a presidential election

points over a tw o-w eek period. International finan­
cial developments, such as the floating o f the British
pound in June, generally tended to inspire caution
and apprehension in both short- and long-term m ar­
kets, thus contributing to the uncertain atmosphere
that pervaded the long-term securities markets
throughout 1972.
U. S. Government Securities

In a d d ition to the

impact of corporate and municipal borrow ers on
credit markets, the U . S. T reasury also had a sub­
stantial influence on credit market behavior during
1972. T he financial needs of the T reasury in any
given period are dictated by the excess o f current
Federal expenditures over current Federal revenues.
A lso, the T reasury must refund or retire those prev­
iously issued securities that reach maturity during the
period.

Early in 1972, the deficit for the fiscal year

A lthough the outcom e of the presidential

ending in July was forecasted to be about $38 billion,

election was well anticipated by most investors, a

considerably higher than many analysts had expected.

rally in the securities markets developed in early
N ovem ber, in conjunction with the Vietnam situation,

on market psychology because of the inflationary

which low ered long-term yields from

potential associated with deficit spending and because

campaign.

10-20 basis

Such a large predicted deficit had an adverse effect

Chart 5

GOVERNMENT YIELD CURVES
Yields

Years to Maturity
Source:

Salom on Brothers.




FEDERAL RESERVE BA N K OF RIC H M O N D

7

of the large amount of new cash financing that the
T reasury w ould have to undertake.
Surely these
tw o factors contributed to the back-up in long-term
rates in January and February, as shown on Chart 1.
B y M arch, however, revised estimates placed the
deficit in the $30-$32 billion range, which caused
investors to reevaluate their fears o f imminent rate
increases. T he dow nw ard adjustm ent in the deficit
stemmed from increased revenues derived from e x ­

ally large. H ighly successful refundings and p re­
refundings were conducted in February and M ay,
with the latter including a net cash redem ption of
$700 million of publicly held notes. T h e T reasury
was able to lengthen the average maturity o f its ou t­
standing debt during the period, while at the same
time achieving greater regularity in its schedule o f

cess tax withholding from individuals and from de­

offerings. A pattern o f m onthly auctions o f 52-week
bills was initiated, and the auction technique was
successfully used in selling instruments with m atur­

creased expenditures caused by delays in C ongres­

ities of nearly 10 years.

sional appropriations. Further, the large cash bal­
ances of the Treasury, which were partially acquired

Because of the originally projected deficit of $35
billion for fiscal 1973, T reasury financing needs a p ­
peared to be relatively large for the second half of

from foreign central banks (as described b e lo w ),
reduced the T reasu ry’s borrow ing needs, at least for
fiscal 1972. A s the weeks progressed, those factors
contributing to a smaller deficit grew stronger and
stronger.
Ultimately, the budget deficit for fiscal
1972 was about $23 billion, well below the $38 billion
estimate made in January.
A s in the latter part o f 1971, several foreign cen­

1972. B y fall, this figure was scaled dow n to $25
billion, largely because of a program o f serious fiscal
restraint by the administration. T he T reasu ry’ s cash
balances remained high as revenues continued to
exceed earlier forecasts and expenditures, especially
those associated with revenue
continued to be delayed.

sharing legislation,

A lso , the central bank o f

tral banks accumulated large dollar balances in their
foreign exchange support operations.
Instead of
allowing these dollar balances to remain idle, they

Japan was still purchasing T reasury securities during

either swapped them directly with the Treasury for
nonmarketable interest-bearing securities or pur­
chased Treasury bills from the secondary market.

by the relatively light supply o f new corporate se­

In the first case, the T reasu ry’s cash balances were
augm ented; in the second case, although some o f these
dollars held by foreign central banks might have been
invested in Treasury bills anyway if they had not left
this country, the supply o f 90- and 180-day Treasury
bills available in dom estic markets was sufficiently
diminished to help push bill rates well below other
short-term interest rates.
T he unusually large
spread between bill rates and comm ercial paper rates
during the middle of the year is shown on Chart 2.
It was at this time that foreign purchases of bills
were at their peak.
A lthough in the early part of 1972 some apprehen­

this period. T he impact on the markets o f a large
quantity of Treasury borrow in g was further softened
curities expected to be issued in the last few months
of 1972. Consequently, in A ugu st and N ovem ber
the T reasury was able to conduct large financing and
refunding operations, which were enorm ously suc­
cessful, without putting upward pressure on other
long-term rates. T he first of a regular series o f
quarterly, tw o-year note auctions was begun in O c ­
tober ; and in m id-N ovem ber $2 billion o f A p ril taxanticipation bills were sold.
Deposit Institutions

F in a n cia l in stitu tion s, su ch

as com m ercial banks and savings and loan associ­
ations, experienced large cash inflows during 1972
and thus were well prepared to satisfy the demand
for credit in the econom y.

Business loan demand

sion was present am ong investors over the possible

generally exhibited solid grow th during the year.

reversal of the above process by foreign central banks,

In the first half, new loan activity was dominated by

the floating of the British pound in June put further

banks outside N ew Y o r k meeting the needs o f the

pressure on the dollar.

public utility and construction industries.

A s a result, additional dollar

Business

balances were accumulated by foreign central banks,

loan demand at N ew Y o r k banks, which traditionally

which caused the process to begin again.

has lagged loan activity elsewhere, began im proving

B y Sep­

tember, with dollar trading in the international cu r­

in July and continued to do so throughout the re­

rency markets much m ore stable, an orderly selling

mainder of the year.

of these securities by foreign central banks had begun,

funds, mainly real estate and consum er loans, grew

contributing to the upward movement o f short-term

at historically high rates during 1972.

rates at that time.

lending capacity of com m ercial banks in

A ctual Treasury financing activities during the
first half of 1972 were well organized and not unusu­
8



Dem and fo r other types o f bank
T his large
1972 is

clearly reflected by the levels of bank liquidity ratios,
which were higher than at any time since 1967.

M ONTHLY REVIEW, JA N U A RY 1973

Bank holdings of municipal and other securities
grew substantially in 1972. A lthough banks have
always been attracted to municipal securities— be­
cause they are effectively constrained from buying
many other types of debt securities and because m u­
nicipals are exem pted from Federal income taxation
— bank activity in this market in 1972 was much
greater than normal. Large increases in municipal
holdings by banks were registered in the first quarter
and during A ugust and September.

Purchases of

U . S. T reasury securities by banks fluctuated sharply
in 1972, largely reflecting the changing cash needs
o f the Treasury during the year.
M ost analysts expected business loan demand to
grow m ore rapidly than was actually the case over
m ost of the year.

Thus, many banks bought unusu­

to the upward pressure on short-term rates in A ugust
and September.
Continuation of the personal saving rate at fairly
high levels and the continuation o f market interest
rates in line with R egulation Q ceilings during 1972
resulted in a record net inflow of funds at savings
and loan associations and other depository savings
institutions. Bolstered by large supplies of funds,
these traditional m ortgage lenders w ere able to satisfy
a substantial demand for m ortgage loans, permitting a
rapid rate o f housing starts without putting much
upward pressure on lending rates.
Summary

In te re st

rates, e sp e cia lly

lo n g -te rm

rates, and fin a n cia l flo w s w e re m u ch m o re stable
in 1972 than in recen t y ea rs.

T h e co m b in a tio n

alternative earning asset, and by the end o f the third

o f im p ro v e d g r o w th o f real o u tp u t in an e c o n o m y
o p e r a tin g w e ll b e lo w ca p a c ity and the s tro n g
liq u id ity p o s itio n s o f in d iv id u a ls, b u sin ess c o r ­

quarter some large banks were aggressively issuing

p o ra tio n s, and fin a n cia l in stitu tion s la rg e ly c o n ­

C D ’s in anticipation of increased loan demand. Quite

trib u te d to this resu lt.

ally large quantities o f municipal securities as an

likely, the aggressiveness of these banks contributed

Philip H . D avidson and B. Gayle B urgess

YIELD CURVE RELATIONSHIPS
D uring most of 1972, investors an d an alysts were struck by the u nu su ally w ide spread
between the levels of short- and long-term interest rates. The grap h ical tool that illustrates
the relationships a m o n g interest rates on securities of equal credit risk but v a ry in g m atur­
ities is know n as a yield curve. Chart 5 presents four different yield curve relationships
that prevailed on four occasions during 1972. The sharper the slope of the curve the greater
the disparity between levels of short- an d long-term interest rates.
O ver the past ye ar the beh avior of the yield curve has reflected a com bination of fa c ­
tors. First, expectations of future inflation, an d thus higher interest rates, have caused
long-term rates to rem ain higher than w o uld norm ally be the case given the behavior of
other economic variables. Second, short-term rates have rem ained relatively low because
of the greatly im proved liquidity positions of both borrowers an d lenders. Further, su p ­
plies of short-term Treasury securities have been affected by international financial activi­
ties. Thus, the shape of the yield curve depends on sup ply an d d e m and conditions in the
various m aturity sectors as well as on expectations of future interest rate behavior.
A s 1972 progressed, the yield curve for G overnm ent securities shifted u p w ard a n d
flattened som ew hat in the short-term area, thus returning to a more norm al pattern in
historical terms.

Even though the short-term rate increases that took place in M arch and

A u gu st shifted the short end of the curve u pw ard, they did not cause long-term rates to
rise.

In fact, the long-term end of the curve actually experienced a slight decline over

this period.

A distinctive characteristic of the A u g u st an d N ove m be r yield curves is the

so-called "h u m p " ap p e a rin g in the intermediate m aturity sector, which indicates the rela­
tively large su p p ly of securities outstanding with m aturities in the 5-10 ye ar range.




FEDERAL RESERVE BANK OF RIC H M O N D

9

PERSONAL INCOME IN THE
FIFTH DISTRICT IN 1 7
91
Personal income grow th in all Fifth District states

crease in personal income from the manufacturing

in 1971 outstripped increases in the nation at large
W hereas total personal in­

sector. Grow th rates of personal incom e from m anu­
facturing in other Fifth District states, ranging from

com e for the nation increased 6.9 percent in 1971,

W est V irg in ia ’s 3.5 percent increase to N orth C aro­

by a substantial margin.

gains for Fifth District states ranged from 9.3 per­

lina’s 6.7 percent grow th, substantially exceeded the

cent for W est V irgin ia to 7.4 percent for M aryland

national increase o f 1.3 percent in this sector.

and 7.3 percent for the District of Columbia.

im portance of manufacturing as a source of personal
income am ong Fifth District states varies from about

Grow th

rates of personal income in 1971 for Fifth District
states are shown in Table I.
Per capita personal incom e also showed strong
gains in the Fifth District, as shown in the chart.
W est V irg in ia’s 7.9 percent increase in this statistic,
largest am ong Fifth District states, was fifth highest
nationally.

A m on g District states, only M aryland,

with a 5.5 percent grow th in the per capita figure,
fell below the national grow th rate o f 5.7 percent.
State Rankings In 1971, the a b so lu te lev el o f
per capita personal income in the District of C olum ­
bia remained higher than in any of the 50 states. In ­
com e figures for the nation’s capital, how ever, are
m ore validly com pared with figures fo r other large
urban areas than with those for states, which contain
rural areas as well as urban centers. A m on g the
50 states, M aryland, which ranked 11th, was the only
Fifth District state above the national median fo r per

T he

one-eighth of total personal income in M aryland to
approxim ately one-fourth in both N orth Carolina
and South Carolina. In the District of Columbia,
the 2.6 percent grow th

in personal incom e from

m anufacturing had a relatively m inor influence on the
overall grow th rate, since less than 2 percent of
W ashington’s personal incom e com es from this sector.
Developm ents in the farm ing sectors of Fifth D is­
trict states generally decreased state-nation differ­
entials. W h ile personal incom e from the farm ing
sector (w hich includes proprietors’ income in addi­
tion to wage and salary disbursem ents) grew 3 per­
cent on a national basis, Fifth District states, with
the exception of South Carolina, encountered abso­
lute declines in this com ponent o f personal incom e.
Declines varied from V irg in ia ’s 5.1 percent decrease
to M aryland’s 20.5 percent decline. Since personal

capita personal income. V irginia ranked 28th, N orth
Carolina 39th, W est V irginia 45th, and South C aro­
lina 47 th.

incom e from the farm ing sector accounts fo r no m ore
than 5 percent of total personal incom e in any Fifth
District state, the declines in incom e from this source
did not weigh heavily in the overall grow th o f p er­

State-Nation

sonal incom e in the District.

Differentials

The

d iffe re n ce

be­

South Carolina, with

tween a state’s grow th rate in total personal income

an increase o f 6.4 percent, was the only District state

and the comparable rate for the nation arises, in

to experience grow th in personal income from the
farm ing sector.

part, from tw o fa cto rs : the variance of the state’s
industrial structure from the national structure and

Grow th of personal incom e from contract co n ­

the differential grow th rates in specific com ponents

struction increased the state-nation differential of

of the state’s personal income as com pared with those

each Fifth District state.

of the nation.

Inform ation in Table I serves to point

from the contract construction sector, greater than

out those sectors that had m ajor impacts on state-

the national increase o f 8.2 percent, ranged from

Gains in personal incom e

nation differentials in personal income grow th in the

N orth C arolina’s 8.5 peicent grow th to W est V ir ­

Fifth District.

ginia’s 23.6 percent increase.

G row th in personal incom e from the manufacturing

Interstate highwav

construction was a m ajor factor in W est V irgin ia ’ s

sector was a m ajor contributor to state-nation differ­

substantial grow th in this com ponent.

entials of Fifth District states, with the exception of

personal income in Fifth District states, contract co n ­

M aryland.

struction supplied from 3.8 percent o f N orth C aro­

M aryland experienced a 1 percent d e­

10



M ONTHLY REVIEW, JA N U A RY 1973

A s a source of

lina’s total personal incom e to 5.5 percent of W est
V irgin ia’s total. T he D istrict o f Columbia, which
derived only 1.7 percent of personal income from
contract construction, experienced a 7 percent growth
in this sector, less than the previously-m entioned
national increase of 8.2 percent.
Personal income from the wholesale and retail
trade sector, responsible for roughly one-tenth of
total personal incom e in each Fifth District state,
showed substantial gains.

T h e national increase in

this com ponent o f 6.9 percent was exceeded by all
Fifth District states, with W est V irgin ia’s 10.6 per­
cent grow th rate the highest in the District.
District

of

Columbia,

personal

income

In the

from

the

wholesale and retail trade sector experienced a 9.6
percent decline and accounted for about 5 percent o f
this division’s total personal income.

lina’s 10.5 percent grow th. F o r the nation at large,
grow th in personal incom e from services was 8.3 per­
cent. T he effects o f these above-average grow th rates
on Fifth District state-nation differentials depended
on the importance o f the service industries in the
states’ econom ies.

A m on g Fifth District states, W est

V irginia derived the smallest percentage o f total
personal incom e from this source, 5.8 percen t; while
M aryland obtained
services.

10.2 percent o f its total from

A s one might expect, the District o f C o­

lumbia relies on services for a relatively large portion,
15 percent, of its personal income.

Personal incom e

from this sector increased by 6.8 percent during 1971,
somewhat less than the national rate o f grow th in
this sector.
Structural Differences

T h e d e clin e in p erson a l

G row th o f personal incom e from service industries

incom e from manufacturing encountered by M ary­

also contributed to the state-nation differentials of

land was m ore than compensated for by this state’s

Fifth District states.

healthy grow th in other key industries.

Increases in personal income

T he largest

from this source ranged from M aryland’s 8.4 percent

single source of personal incom e in M aryland is the

gain to V irgin ia’s 9.6 percent increase to N orth C aro­

governm ent

sector,

accounting

for

approxim ately

1971 PER CAPITA PERSONAL INCOME IN FIFTH DISTRICT STATES
AND THE DISTRICT OF COLUMBIA
(Dollars)

Color areas show growth from 1970-71.
Source: Survey of Current Business, August 1972.




FEDERAL RESERVE BA N K OF RIC H M O N D

11

Table I

SO U R C E S A N D G R O W T H RATES OF PE R SO N A L IN C O M E IN
FIFTH DISTRICT STATES A N D THE DISTRICT OF C O L U M B IA IN 1971

United
States
Total
Personal
Income
Farm
(Includes
Proprietors')

M arylan d
100.0

100.0

100.0
7.4

6.9
0.7

2.4
3.0
0.7

North
Carolina

100.0
7.8

4.3

(--20.5)

Virginia
100.0

8.7

(-5 .8 )

W est
Virginia
100.0

8.3

2.8

0.2

0.1

South
Carolina

1.3
6.4

0.2

100.0
9.3

0.7

7.3
*

0.4
( -5 .1)

District
of
Colum bia

( - 18.5)
*

8.0

M ining
3.7
Contract
Construction

4.1

6.3

12.9

8.2
12.4

18.7

0.0
3.8

5.1

9.1

5.7

4.2
8.5

25.3

4.4
10.8

25.6

5.2
5.5

11.5
14.0

1.7
23.6

17.9

7.0
1.8

Manufacturing
1.3
W holesale and
Retail Trade

3.4

3.5

Transportation,
Communications, and
Public Utilities

10.7
8.7

6.9

Finance,
Insurance, and
Real Estate

5.0

9.6

8.0

9.6

7.4

8.8
3.0

6.9

1.8

10.4

9.7

9.9

7.3

8.2

(-9 .6 )
2.4

6.2

5.0

2.6
4.9

10.6

11.7

3.7
10.8

3.5
8.9

8.6

12.9

11.6

7.0

6.2
10.2

2.6

4.4

10.2

5.2
9.3

2.9

4.8

8.8

6.7

( - 1.0 )
11.8

11.1

7.1
3.4

6.5
5.8

2.1
15.0

Services
8.4

8.3
13.9

25.6

10.5
14.5

10.0
17.8

9.6
27.0

9.7
10.9

6.8
36.3

Governm ent
7.6

8.0
Other
Industries

Other Labor
Income
Proprietors'
Income
(Nonfarm )
Property
Income

Transfer
Payments

0.2

0.1
10.5
4.3

5.4
13.9

10.9

5.7

17.8

Net
Transfer
Payments

7.3

19.0

11.4

16.8

21.2

5.6
26.0

6.5
20.2

Figure in upper-left corner is the percentage of total personal income from this source.
age grow th rate of personal income from this source.

* Less than 0.1 percent.
Source:

Survey of Current Business, August 1972.

12



M ONTHLY REVIEW, JA N U A RY 1973

21.9

11.7

15.4
3.8

12.5
12.1

22.9

3.7
16.9

3.6

5.6
22.5

6.0

18.2

11.7

14.5

15.7

3.7

7.7

2.6

6.1

18.3

25.0
3.5

11.0

9.3

3.7
11.9

11.5
5.0

5.7

13.8
2.7

10.9

5.4

10.2

3.6

0.0

6.1

11.7

8.0
0.7

5.3
16.8

4.9

6.0
9.2

4.0

9.5

5.2

10.3

8.7
0.1

3.6
16.2

4.8
11.4

9.0

3.6

Note:

5.6

5.0

0.0

5.7

6.0

11.5

0.1

3.9
15.4

13.8

6.5

0.1

3.9

5.7

9.0

8.7

12.0

13.7

Less: Personal
Contributions for
Social Insurance

0.1

3.5

6.2

7.7

9.9
13.1

25.0

17.1

Figure in lower-right corner is the percent­

Table II

PE R SO N A L IN C O M E BY M A J O R S O U R C E S IN FIFTH DISTRICT STATES
A N D THE DISTRICT OF C O L U M B IA : 1970, 1971
(millions of dollars)
District of
Columbia

Item

M aryland

1970

1971

1970

1971

‘ Personal income

4,116

4,418

16,877

W a ge and salary disbursements

2,762

2,922

12,510

-

Farms
Coal mining

-

Crude petroleum and natural gas
Mining and quarrying except fuel

1
-

1

1

-

North
Carolina

South
Carolina

1970

1971

1970

1971

1970

1971

1970

1971

18,119

16,986

18,400

5,297

5,789

16,383

17,661

7,614

8,274

13,354

12,443

13,421

3,497

3,779

11,357

12,262

5,452

5,888

23

-

1

M ining

West
Virginia

Virginia

24

49

59

9

9

97

98

34

38

16
2

17

130
109

443
413

466
434

27

27

11
—

12
—

1

1
14

123
102
1

21

18
11

18

20

i1

12

3

13

-

1

13

1
1

26

1
1

27

—

Contract construction

71

76

822

928

729

813

259

320

622

675

314

348

M anufacturing

79

2,271

2,249

2,427

4,194

4,476

9

1,267

609

981

390

397

1,378
2,817

1,478
2,997

2,120
521

70

1,030
1,396

2,016
507

68

1,309
962

1,034
638

Nondurables

2,578
1,121
1,457

999

Durables

77
9

1,509

1,600

240

217

1,974

2,146

1,733

1,882

464

513

1,750

1,890

704

766

98

105

560

614

486

543

93

102

456

509

210

22

24

116

127

136

149

33

36

129

142

186
47

76

81

444

487

350

394

60

66

327

367

139

157

145

148
29

810

867

836

919

336

308

178

189

108

42

5
33

5
34

170
168

125
194

781
79

279

118

358
114

705

27

185
207

57
19

63
19

321

69

45
77

84

85

28

28

79

80

353

169
379

166
193
299

337

153

163

263

296

140

157

620

662

1,697

338

1,110

1,226

549

604

49

1,373
84

308

21

1,840
54

1,505

22

95

17

18

47

50

26

31

households
Business and repair services

74

75

252

256

49

286

35

140

140
90

Amusement and recreation

10

10

72

78

42

300
47

298
153

144

565

50
39

293

80

214
539

218

80

15

17

38

40

15

16

433

475

822

925

710

807

192

215

593

685

277

315

1,483
1,037

1,602

4,313
2,291

4,642

4,970
2,267

583
119

634

2,373

2,555

1,349

1,471

2,474

4,666
2,069

132

564

564

1,240

1,244

21

22

370
734

399
722

292
472

316
499
657

W holesale and retail trade
Finance, insurance, and real estate
Banking

53

Other finance, insurance, and
real estate
Transportation, communications, and
public utilities
Railroad transportation
H ighw ay freight and warehousing
Other transportation
Communications and public utilities
Services
Hotels and other lodging places

75
283

Personal services and private
98

Professional, social, and related
services
Government
Federal, civilian

193
252

Federal, military

1,119
197
285

1,458

1,603

1,357

1,459

443

480

1,268

1,434

585

Other industries

29

33

25

28

21

23

3

3

23

25

11

11

Other labor income

96

120

565

643

559

653

274

304

596

688

277

322

Proprietors' income

143

154

1,118

1,140

1,117

1,143

364

368

1,703

1,704

637

670

-

-

133

18

653

960

346

1,003

1,051

185
452

195

984

13
355

700

154

206
911

183

143

100
1,039

Property income

617

640

1,968

2,080

2,029

2,153

601

637

1,899

2,012

808

854

Transfer payments

648

748

1,377

1,639

1,445

1,708

744

907

1,398

1,633

714

845

Less: Personal contributions for
social insurance

151

166

661

737

607

678

184

207

570

638

274

306

State and local

Farm
Nonfarm

474

1 Less than $500,000.
* Detail may not add to total because of rounding.
Source:

Survey of Current Business, August 1972.

one-fourth o f the state’s total.

M aryland’s personal

governm ent sector, along with substantial increases

income from the governm ent sector can be broken

in wholesale and retail trade and services, gave im ­

dow n as fo llo w s : Federal civilian income, 53.3 per­

petus to M aryland’s grow th o f 7.4 percent in total
personal income.

cen t; Federal military, 12.2 percent; and state and
local, 34.5 percent.

T he percentage rates o f grow th

T he m ajor factor in N orth C arolina’s state-nation

in these categories for 1971 were 8.0 percent, 0.0

differential of 0.9 percentage points was this state’s

percent, and 9.9 percent, respectively.

T he com bined

7.6 percent grow th rate in personal income from the




strong

perform ance

in

manufacturing.

A p p ro x i­

mately one-fourth of the state’s total personal incom e

FEDERAL RESERVE BA N K OF R IC H M O N D

13

is derived from the manufacturing sector.

Personal

incom e from the manufacture of nondurable goods,
which accounts for about tw o-thirds of total manufac­
turing income, exhibited a 6.4 percent g r o w t h ; while
personal incom e from the manufacture o f durable
goods increased by 7.3 percent. T he overall grow th

cent, thereby playing a m ajor role in the state-nation
differential o f 1.4 percentage points.
W est V irg in ia ’s 9.3 percent grow th in total p er­
sonal income, resulting in a state-nation differential
of 2.4 percentage points, was the result o f aboveaverage grow th in many sectors of this state’s econ ­

rate of 6.7 percent in personal incom e from manu­

omy.

facturing was m ore than five times the national per­

turing sector, a source o f approxim ately 18 percent

centage grow th o f 1.3 percent in this sector.

o f the state’s total personal income, was 3.5 percent
— m ore than twice the national percentage increase

South C arolina’s experience was similar to N orth
Carolina’s in that the m ajor factor in its state-nation
differential of 1.8 percentage points was the strength
exhibited in its manufacturing sector.

M anufactur­

ing is the source of approxim ately one-fourth of
South C arolina’s personal income.

Personal income

from the manufacture of nondurable goods increased
by 6.0 percent and accounted for about three-fourths
of personal incom e from

manufacturing in

1971.

Personal incom e grow th from manufacture o f d u r­
able good s was 2.8 percent, resulting in a com bined
grow th rate of 5.2 percent in personal incom e from
manufacturing.

T his sector’s 5.2 percent increase

was part of the state’s broad-based econom ic grow th,
enabling South Carolina to achieve an 8.7 percent

Personal incom e grow th from the m anufac­

in this sector.

Personal incom e from wholesale and

retail trade increased by about 10.6 percent and p ro ­
vided just under 9 percent of the state’s total p er­
sonal incom e in 1971. Personal incom e from the
state’s important mining industry, the source of ap­
proxim ately 8 percent o f personal income, advanced
at a 5.2 percent rate, which com pares favorably with
a grow th o f 3.7 percent in this sector for the nation
at large. Transfer payments served to increase W est
V irg in ia ’s state-nation differential in personal incom e
grow th during 1971. N et transfer payments (trans­
fer payments less personal contributions fo r social
insurance) increased by 25.0 percent and provided
12.1 percent o f total personal income. F o r the na­
tion, net transfer payments increased by 21.2 percent
and provided 7.3 percent of total personal income.
Personal incom e grow th in the District o f C o ­

increase in personal incom e in 1971.
V irgin ia’s chief com ponent o f personal incom e is
the governm ent sector, a source o f approxim ately
27 percent of the state’s total personal income.

P er­

lumbia depends to a large extent on the governm ent
sector, since this sector is the source o f about 36
percent of total personal income. Subdivisions o f this

sonal incom e from the governm ent sector can be

sector, with appropriate percentage figures, are as

broken dow n in to:

fo llo w s:

Federal civilian, 45.6 percent;

Federal military, 25.0 percen t; and state and local,
29.4 percent.

G row th rates in personal incom e from

Federal

civilian,

69.9

percen t;

Federal

military, 12.3 percen t; and local, 17.8 percent.
G row th rates in these com ponents were 7.9 percent,

these categories were 9.6 percent, 0.3 percent, and

2.1 percent, and 13.1 percent, respectively.

7.5 percent, respectively.

trict of Colum bia’s 8 percent increase in personal in­
com e from the governm ent sector equaled the increase
in this sector for the nation. T his substantial grow th

T he state’s 6.5 percent

grow th rate in personal incom e from the governm ent
sector was less than the national increase of 8 percent,
thereby exerting a negative effect on V irgin ia’ s statenation differential.

Personal income from the m an­

T he D is­

of personal incom e from the D istrict o f C olum bia’s
econom ic mainstay was the m ajor force behind the

ufacturing sector, accounting for 14 percent of V ir ­

7.3 percent increase of personal income in the nation’s
capital.

ginia’s total personal income, advanced by 6.2 per­

John IV. S cott

14



M ONTHLY REVIEW, JA NUA RY 1973

EMPLOYMENT AND UNEMPLOYMENT
SINCE 1969
T he econom y in 1972 experienced a continued re­

A m ore basic question is w hy the 1969-1970 recession

covery from its 1970 and early 1971 doldrum s— at

generated kinds o f unem ployment that differed in
significant respects from the patterns accom panying

least as measured by such indicators as the rate o f
grow th of real gross national product, business
profits, the index of industrial production, the level
o f retail sales, and other such indicators.
to

the

National

Bureau

of

A ccord in g

E conom ic

Research

( N B E R ) , long considered the authority on business
cycles in the United States, the 1969-1970 recession
reached its low point in N ovem ber 1970, and business
recovery has been in process since that time.
economists

might

question

the

accuracy

Som e
of

the

earlier post-w ar recessions.

A n examination o f the

labor market by sector may suggest an answer to the
question. F or such an examination, it is helpful to
use em ploym ent rather than unem ploym ent statistics
because unemployment data cannot accurately show
from what sector of the econom y a w orker is unem ­
ployed.
W h en the employm ent data are exam ined by sec­
tor, the current unem ployment

situation

becomes

N B E R ’s dating of the trough, but most w ould agree

m ore clearly understandable.

that recovery, which was definitely in train through
so, the sticky behavior o f one important econom ic

figures suggest that much (perhaps m ost) o f the
unemployment build-up subsequent to July 1969 is
related to special factors, such as the w inding down

indicator— the unemployment rate— over this period

of the Vietnam W a r and the reduction in G overn­

has occasioned a great deal o f uneasiness over the

ment aerospace contracts. Since such factors as the
winding dow n o f the war and the reduction in aero­
space contracts resulted in rather unusual changes in

much o f 1971, picked up momentum in 1972.

Even

extent and vigor of the recovery.
T he unemployment rate, one of the so-called coin ­
cident indicators, m oved up in 1970, as w ould be e x ­
pected in a recession, reaching a high of 6.1 percent
by Decem ber. That the peak was no higher than 6.1
percent seemed to portend a milder unemployment
problem than in the recessions of the recent past. In
both the 1957-1958 and the 1960-1961 recessions, the
unemployment rate m oved over 7 percent but then
declined steadily after periods o f three to six months.
Contrary to these past experiences, however, the un­
employm ent rate after the 1970 recession remained
around 6 percent throughout 1971 and showed no
more than a mild and gradual downtrend by July
1972, 18 months after the trough.
Part of this behavior has been attributed to the
unusual character o f the 1970 recession.

W h ite-

collar workers, w ho now account for almost 50 per­
cent of the labor force, fared relatively w orse in the
recent recession than did other workers.

M oreover,

there was a tendency, particularly in manufacturing,

A s will be shown, the

the com position of demand in the econom y, the rela­
tionship between the recent unem ployment problem
and the general business recession has differed from
what might norm ally have been expected.
Employm ent as an Indicator

G e o ffr e y M o o re ,

the Federal Com m issioner o f L abor Statistics, in an
article in the February 3, 1972, W all S treet Journal
on “ E m ploym ent: the Neglected Indicator,” sug­
gested that employm ent should be given at least as
much attention as the unemployment rate in any
examination o f the labor market. T his view, which
is shared by other observers as well, is reasonable in
view o f the fact that em ploym ent figures are firmer
than unemployment figures. T he em ployed can be
clearly and unam biguously identified, and total em ­
ployment can be measured with great accuracy.
contrast,

vexatious

definitional

and

By

classificatory

problem s are involved in the measurement o f unem­

to cut back on nonproduction workers relatively more

ployment. A lso, since the unemployment figures are
smaller, they are subject to a much larger relative

than in previous reeessions when relatively few er o f

sampling error than the employm ent data.

those laid-off were unskilled and semi-skilled prod u c­

F o r purposes o f this paper, an equally com ­
pelling reason for investigating em ploym ent figures is
that they can shed light on m icro-econom ic char­

tion workers.

T hese observations, how ever, only

describe the recent recession ; they explain very little.




FEDERAL RESERVE BA N K OF R IC H M O N D

15

acteristics o f unemployment rate changes. It is e x ­
tremely difficult to tell from which industry a person
is unem ployed, especially since he might be a new
entrant in the labor fo r c e ; but it is possible to deter­
mine what industries are hiring or firing from look ­
ing at the employment figures by industrial sector.
T he table that accompanies this article shows
employm ent data since July 1969.1 It points up some
interesting facets of the present labor market situ­
ation and shows exactly which industries have been
expanding employm ent and which have been co n ­
tracting since that time.

F o r example, employm ent

in the serv ices; wholesale and retail tra d e ; transpor­
tation, comm unications, and public utilities; and state
and local governm ent never dropped significantly
below July 1969 levels throughout the recession and
is now significantly above these pre-recession highs.
E m ploym ent in the contract construction industry
declined until February 1970, but has since shown a
considerable recovery. Em ploym ent in the mining
industry, the Federal Government, and the manu­
facturing industries, on the other hand, fell sharply
during the recession and is still below 1969 levels.
Em ploym ent in Expanding Industries

E m p lo y ­

ment in the service industries has typically shown
little cyclical sensitivity. T ru e to form , it increased
steadily from July 1969 to O ctober 1972, apparently
little affected by the 1969-1970 business recession.
By O ctober 1972, service industry em ploym ent was
10.6 percent higher than in July 1969. Such a rate
of increase meant that employm ent in the industries
kept pace with both population and labor force
growth. T he U . S. population of labor force age
increased only around 7 percent during the same time
period, and the civilian labor force expanded a p p roxi­
mately 9 percent.
B y the same token, state and local governm ent
employm ent, almost 15 percent higher than the July
1969 base, also outstripped the rate of population and
labor force increase; and wholesale and retail trade
has matched or equaled the rate of population growth.
Em ploym ent in these three industry groups accounted
for 50.2 percent of the total employees on nonagricultural payrolls in the 1969 base period.
1972, it accounted for 53.2 percent.

In O ctober

In all, the three

industries em ployed almost 3.8 million m ore persons
in O ctober 1972 than in July 1969.

Transportation,

com m unications, and public utilities, on the other

hand, were em ploying m ore persons than in the base
period, but not enough to keep pace with the grow th
of population. T he contract construction industry
was affected by the recession until the second quarter
o f 1971. Since that time, however, em ploym ent in
the industry increased approxim ately 7 percen t; and
by O ctober 1972, it was 3.1 percent above the 1969
base figure.
Em ploym ent in Other Sectors E m p lo y m e n t in
the m ining industry remained above its 1969 base
level until July 1971. It then began to drop fairly
rapidly, reaching a low point in O ctober 1971 that
was around 16 percent less than the base figure. It
recovered most o f its loss shortly thereafter, but re­
mained 2 percent less than the July 1969 base in
O ctober 1972. Thus, mining em ployed 15,000 few er
workers than in m id -1969.
Federal Governm ent employment, at about 2.74
million in the base period, fell to 2.64 million in A u ­
gust 1970 and has remained close to this level since
that time. T he Federal Governm ent had been aver­
aging increases of 47,000 em ployees per year from
1962 to 1969.
M anufacturing employm ent, by the same token,
was 5.5 percent below the July 1969 base in m id1972. A rou n d 20.3 million persons were em ployed
in manufacturing in July 1969; but in A ugu st 1971,
when this series reached its low point, few er than
18.4 million persons were employed. W h ile the pace
o f general business recovery accelerated significantly
after this low point was reached, the rate of recovery
in manufacturing em ploym ent has remained sluggish.
By O ctober 1972, total em ploym ent in this important
sector had com e back to 19.1 million, still nearly 1.1
million below the July 1969 base. Between 1962 and
1969, mining, Federal Governm ent, and m anufactur­
ing com bined provided over 572,000 new job s per
year.
M anufacturing E m ploym en t B y Industry
T he
manufacturing sector of the econom y is o f particular
interest because it was a substantial contributor to the
slack labor market conditions from 1970 to m id -1972.
Em ploym ent in this sector is still dow n a p p rox i­
mately 1.1 million w orkers from the m id -1969 peak.
This figure, however, represents some recovery, since
in A ugust 1971 employm ent in m anufacturing was
almost 1.9 million below the 1969 peak.
A breakdown o f changes in manufacturing em ploy­
ment by industry groupings, or subsectors, is instruc­

1 The table contains employment figures categorized by Standard
Industrial Classification codes.
It uses as its base the average
employment for each category in June, July, and August 1969. All
of the basic data used to derive the table are shown as percentages
of the base. The June, July, and August 1969 average (hereafter
called the July 1969 base) was chosen as the base period since it
was the period of peak manufacturing employment prior to the
1970 recession.

16



tive.

Such a breakdown is shown in the table.

Of

the 21 manufacturing industry groups, only five had
regained their July 1969 base level by O ctober 1972,
and only six others were within 3 percent o f their

MONTHLY REVIEW, JANUARY 1973

EM PLO YEES O N N O N A G R IC U L T U R A L PAYRO LLS BY INDU STRY, S E A S O N A L L Y AD JU ST ED
(In Percentages of Base Period)
July
Base*

1969
Nov.

1971

970
Feb.

M ay

Aug.

Nov.

Feb.

M ay

1972
Aug.

Nov.

Feb.

M ay

July

Aug.

Sept.

Oct. p

(Thous.)
70,462

100.5

100.8

100.4

100.0

99.3

99.7

100.3

100.1

100.9

101.8

103.0

103.1

103.6

103.9

104.4

Services

11,248

101.5

102.7

103.0

103.2

104.2

104.6

105.1

105.7

106.7

107.7

108.9

109.7

110.4

110.2

110.6

W holesale and Retail Trade

14,685

101.1

101.6

101.6

101.4

101.6

102.2

102.8

103.4

104.2

105.3

106.4

106.9

107.3

107.5

107.9

4,447

100.6

101.1

100.7

101.5

100.9

100.9

100.5

98.9

99.0

99.8

101.0

100.6

100.7

100.9

101.4

TOTAL

Transportation and Public Utilities
Federal Government

2,736

99.6

98.9

101.2

96.7

97.4

97.2

97.3

97.3

97.4

97.6

97.4

95.8

95.7

96.3

96.3

State and Local Government

9,448

101.4

102.4

103.3

104.7

105.9

106.6

107.8

107.9

109.2

110.9

112.3

112.8

113.2

114.4

114.8

Contract Construction

3,439

100.5

100.6

97.9

97.8

97.7

96.0

99.0

99.1

102.3

101.6

102.8

101.5

103.1

103.1

103.1

619

100.8

100.8

100.0

100.5

101.1

100.6

100.5

98.9

84.7

99.0

97.6

96.8

97.3

97.7

97.9

20,264

99.1

98.3

96.5

95.0

91.2

91.8

91.8

90.8

91.5

91.8

93.2

93.1

93.4

93.8

94.5

88.7

88.7

87.5

88.2

88.8

90.7

90.6

91.1

91.6

92.5

62.9

61.3

59.4

58.2

57.2

58.5

59.7

60.4

60.4

61.9

96.4

99.3

100.3

100.8

Mining
M anufacturing

11,967

98.5

97.2

95.2

93.0

Ordnance and accessories

318

91.2

85.2

78.3

73.0

87.3
67.9

Lumber and w ood products

603

96.5

94.7

92.9

92.4

Durable G ood s

92.9

93.9

100.8

101.2

Furniture and fixtures

486

98.8

97.1

93.8

93.4

93.0

92.4

93.8

93.6

96.7

99.0

100.4

101.6

102.3

102.7

104.3

Stone, clay, and glass products

657

100.3

99.5

97.6

96.8

95.7

95.6

97.0

100.5

100.9

101.8

99.5

96.9

96.0

92.4

92.7

93.5

87.3

90.1

100.5
89.1

100.9

1,363

97.3
87.1

98.3

Primary metal industries

96.5
85.2

90.7

93.0

102.0
93.9

Fabricated metal products

1,445

99.7

98.6

96.3

95.4

90.3

91.8

92.2

91.8

92.3

92.8

94.8

94.8

95.2

95.4

88.1

88.0

88.7

89.1

90.7

98.2

98.8

100.8

95.8

100.8

101.1

99.3

96.3

92.0

91.0

91.7

92.0

93.2

Electrical equipment and supplies

2,038
2,047

89.5

95.4

98.2

95.7

92.9

87.8

86.8

86.5

85.7

86.6

87.2

88.8

89.2

89.4

89.9

90.7

Transportation equipment

2,083

96.5

90.2

90.2

87.1

71.4

83.6

83.4

82.7

82.2

82.2

84.2

83.7

83.3

83.6

84.4

894

103.8

90.3

96.8

85.7

64.7

97.3

99.5

93.1

99.6

98.3

100.1

83.4

N.A.

N.A.

N.A.

73.0

66.7

64.3

63.9

63.3

63.0

62.7

61.8

N.A.

N.A.

87.2

87.5

86.5

86.6

89.5

94.0

92.8

92.8

N.A.

N.A.

Machinery, except electrical

M otor vehicles and equipm entf
Aircraft and p artsf

821

95.1

91.5

84.5

80.0

77.1

189
53

99.2

97.5

90.5

84.0

86.5

94.7
97.1

101.3
96.7

101.7

97.3

95.3

97.5

97.2

98.1

97.0

N.A.

N.A.

N.A.

101.8

100.8

99.6

96.2

111.5

119.5

118.6

122.1

93.0
134.2

93.7

110

135.8

N.A.

N.A.

N.A.

479

99.4

98.7

97.7

95.2

92.9

91.2

90.6

91.0

92.1

92.5

94.4

95.2

96.0

96.7

97.5

95.5

97.1

Ship and boat building
and re pairingf
Railroad equipm entf
Other transportation equipm entf
Instruments and related products

80.6

M iscellaneous manufacturing
99.3

97.1

95.5

93.7

92.5

92.5

95.2

95.7

96.4

96.4

8,297

99.9

99.9

98.3

97.8

96.8

96.3

96.3

95.5

96.1

96.6

96.8

97.1

100.3

100.9

99.9

99.1

98.7

98.6

98.3

98.0

98.0

96.3
97.7

97.1

1,792

97.9

98.0

97.0

97.4

97.3

83

98.8

100.0

101.2

102.4

98.8

97.6

96.4

88.0

89.2

88.0

91.6

90.4

84.3

79.5

79.5

97.9

95.1

96.1

97.2

98.4

99.8

442

industries
Nondurable G oods
Food and kindred products
Tobacco manufacturers

99.3

92.8

92.8

97.4

99.6
98.9

99.1

96.4

95.3

95.0

95.3

98.2

98.8

99.0

1,413

98.4

96.0

96.0

95.0

94.6

95.3

94.0

94.9

94.6

94.4

92.8

94.4

94.5

713

100.3

100.4

99.9

98.2

97.3

96.4

95.2

95.0

96.2

96.1

98.2

97.9

98.0

98.5

99.2

Printing and publishing

1,094

101.5

100.5

98.7

98.2

97.3

97.5

98.0

98.7

98.4

98.6

99.0

99.1

Chemicals and allied products

101.1
99.1

Textile mill products
Apparel and other textile products
Paper and allied products

1,004

94.6

1,065

99.8

101.6
99.9

98.1

99.5
96.9

95.7

95.4

93.8

94.0

94.6

189

100.5

101.6

101.1

100.5

100.5

101.1

100.0

100.5

100.5

99.5

99.5

99.5

100.0

599

100.5

99.8

92.5

96.5

94.5

101.6
94.7

93.6
102.1

94.6

Petroleum and coal products
Rubber and plastics products

96.8

97.2

99.0

101.0

103.7

104.7

105.0

105.5

107.0

Leather and leather products

345

96.8

95.4

93.9

91.3

89.6

88.1

88.4

87.5

87.2

87.8

89.6

88.4

89.0

88.7

87.2

94.1

93.4

93.6

* July Base is average of June, July, and A ugu st 1969 data,
p Preliminary,
f Not seasonally adjusted.
Source:

U. S. Department of Labor, Bureau of Labor Statistics.

July base. E m ploym ent in all o f the remaining 10
tw o-digit industrial categories was within 15 percent
of its 1969 level, except for ordnance and accessories,
transportation equipment manufacturing, and tobacco

Because of the relative im portance o f transporta­
tion equipment manufacturing in accounting for the

manufacturing.
Ordnance and accessories, mostly
the ammunition manufacturing industry, em ployed
only 61.9 percent as many persons in O ctober 1972
as in July 1969.
Em ploym ent in this industry
reached a low of 57.1 percent in February o f this
year. Ordnance and accessories is a relatively small

decline in manufacturing employm ent, the table in­
cludes a more detailed breakdown of em ploym ent in
that industry. These data are not seasonally adjusted
because of the difficulty involved in obtaining current
seasonally adjusted figures for employm ent by fo u r­
digit industrial code.

industry group, and the employm ent decline amounts

Em ploym ent in the autom otive, aircraft, ship­
building, and railroad equipment industries was

to only around 121,000 persons. T he tobacco manu­

decline, it provided job s fo r 324,000 few er w orkers
in O ctober 1972.

facturing industry, also relatively small, employed

low er in m id -1972 than in the July base period. O nly

only 79.5 percent as many persons in fall 1972 as in

employm ent in the miscellaneous “ other transporta­
tion equipment” category (m ostly bicycles) showed

the base period, a drop of around 17,000 employees.
T he transportation equipment manufacturing in­

any substantial grow th.

T h is category contained

dustry, in which employm ent was almost 15.6 per­

almost 110,000 employees in July 1969, which was

cent low er in O ctober 1972, however, is a relatively

about 5.3 percent of the total transportation equip­

large industry.

ment manufacturing employm ent.

It em ployed over 2 million w orkers

in July 1969; but because o f a m ore than 15 percent




By July 1972, its

employm ent had increased by 39,300 workers, or

FEDERAL RESERVE BA N K OF RIC H M O N D

17

transportation equipment manufacturing employment.
Em ploym ent in the aircraft and parts m anufactur­
ing industry showed the largest relative decline from
the base level— by m id -1972 the industry em ployed

ers, but it remained 1.2 million below the 1969 base
level in O ctober 1972. Such an abrupt reversal o f
past trends has meant that the grow in g labor force
had to be accom m odated by accelerating grow th
rates in other sectors o f the econom y if there were to

almost 37 percent or 300,000 fewer persons. T he
bulk of the cutbacks in the aircraft industry came

be no unemployment build-up.
And
labor force has indeed been grow ing.

between O ctober 1969 and July 1971. Since then,
em ploym ent in the industry has leveled off at around

1969 to July 1972, it increased by around 6 million
persons. A s mentioned earlier, employm ent in the

61 percent of its July 1969 level. T he aircraft and
parts industry had been increasing its em ploym ent by
almost 36,000 workers per year between 1962 and

service industries, wholesale and retail trade, and
state and local governm ent kept pace with the rate o f

1968.
T he m otor vehicle and parts industry, which em ­

from m id-1969 to m id-1972 were 1 to
percentage
points low er than their 1962-1969 trend values. E m ­

ployed 984,000 w orkers in the base period, also

ployment in those industries, particularly wholesale

showed an employm ent decline over the three years,

and retail trade, increased rapidly even in the face of

but of relatively smaller proportions than the aircraft

the employm ent cutbacks in manufacturing and co n ­

industry. Analysis of employm ent in this industry
is beclouded by strike effects and seasonality, but it
appears that recovery in the industry was well under

tract construction.
T h e data also show that the manufacturing em ­

w ay by m id -1972. A lthough the July 1972 figure
was 17 percent below the July 1969 base, the M ay

accessories, transportation equipment manufacturing
(particularly aircraft and p a rts), prim ary metals, and

and June employm ent figures were about the same as

electrical equipment. T here are definite interrela­
tionships between these industries. A reduction in

35.8 percent, thus making up 8.5 percent o f total

the 1969 base.

T he base is actually an average o f the

the civilian
F rom July

labor force grow th, but their annual rates o f grow th

\2
y

ploym ent declines were heaviest in ordnance and

June, July, and A ugu st figures, and there is a definite

demand for aircraft, for example, leads to a reduction

seasonal pattern to m otor vehicle em ploym ent in
those months. Som e of the 17 percent July 1972

in demand for prim ary and fabricated aluminum as

drop, therefore, can probably be attributed to seasonal

well as for some electrical equipment.

R eduction in

and irregular influences.

demand for ships, ordnance and accessories, railroad
equipment, and m otor vehicles likewise affects p ri­

T h e em ploym ent picture in the shipbuilding and
railroad equipment industries is clearer.
Railroad

mary metals and, to some extent, electrical equipment.
T he persistent nature of the unem ployment p ro b ­

equipment employm ent was down 6.3 percent by
July 1972; shipbuilding was dow n 7.2 percent. Both
industries had their employm ent low s in the second
half of 1970, however, and appear to have been re­

lem since the 1970 recession, therefore, may be attrib­

covering since that time.
Conclusion A stu d y o f e m p lo y m e n t b y in du strial
classification provides an added dimension to any
description of labor market behavior over the latest
business cycle.

W ith respect to the current situation,

the data suggest that the persisting slack in some
labor markets is related to conditions that developed
in the mining, Federal Government, and manufac­
turing sectors o f the econom y.
E m ploym ent in these sectors, after

showing a

grow th of 572,000 workers per year from 1962 to
1969, declined by approxim ately 1.8 million from
m id -1969 to m id -1971.

Since m id -1971, em ploy­

uted in large part to certain key sectors o f the m anu­
facturing and mining industries. T he key m anufac­
turing industries were apparently affected by changes
in the com position of demand in the econom y, which
resulted f r o m : ( 1 ) sharp cutbacks in defense spend­
in g ; ( 2 ) the changing m oods o f the legislative and
executive branches o f Governm ent with respect to
Federal subsidies for contracts with the aerospace
industries; and ( 3 ) in the case o f automobiles, in­
creased foreign com petition.

reaching effects that take time to w ork themselves
out.

Recent declines in the unem ployment rate and

the leveling off o f employm ent cutbacks in key indus­
tries are signs o f encouragem ent that the econom y
has nearly com pleted its adjustm ent process.

ment in these sectors has increased by 583,000 w o rk ­

18



Such changes in policy

and in consum er tastes can have profound and far-

M ONTHLY REVIEW, JA N U A RY 1973

W illiam E . Ciillison