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FEDERAL RESERVE BANK OF RICHMOND MONTHLY REVIEW MEASURING PRICE CHANGES Part Three of a Three Part Series INTRODUCTION Previous parts of this article, which appeared in the last two month’s issues of this Review, dealt re spectively with recent price behavior and with the conceptual and statistical problems involved in the design and construction of price indexes. In view of the problems and criteria discussed in the preced ing instalments, this final part reviews the methods used by the Bureau of Labor Statistics in the con struction of its indexes of consumer and wholesale prices and by the Department of Commerce for the G N P Deflator. REVIEW OF THE MAJOR PRICE INDEXES The Consumer Price Index Characteristics and Recent Revisions This index, with m inor m odification, is a Laspeyres type w eighted aggregative index, which, as shown in the preceding part, is the same as a weighted average of relatives index with base value weights. It is currently published on a 1957-1959 base period. Im portant revisions have been made in the coverage of the index, however, since the base period. M ajor revisions were the updating and expansion of the “ market basket” in 1964 on the basis of a 1960-1961 expenditure survey, and the inclusion in 1964 and 1966 of additional cities and S M S A ’s from which price data are obtained. Thus, the modification mentioned above which distinguishes the Consumer Price Index from a strict Laspeyres type is that weights introduced in 1964 are used rather than those of the 1957-1959 period. This means that recent values of the index are likely to be more valid than if the actual base period weights were used, but the index remains subject to the same criticisms that apply to base-weighted indexes because earlier than current period weights are used. The Bureau of Labor Statistics defines the Con sumer Price Index as applicable only to urban wage earners and clerical workers. Its purpose is, as it has been since the inception of the index in 1917. to Digitized for2 FRASER permit the measurement of changes in the real in come of workers. The Bureau's disclaimers of any further applicability of the index have not deterred its users from applying it to broader segments of the population— principally due to the lack of a good alternative index of general consumer price levels.1 One effect of the 1964 revisions was to increase the number of items covered to about 400 and the number of cities in which prices are observed to 56. The particular goods and services covered changed in considerable detail, determined by what the 19601961 survey revealed that consumers in the defined group principally purchased. This information de termined the base quantity weights ( q i’s ), but base prices ( p i’s) were updated to 1964 to obtain the 1964 expenditure (value) weights. (See formula for the weighted average of relatives index in the pre ceding part). Price relatives are current year prices divided by 1957-1959 average prices. Thus, the base for the index contains a mixture of information stretching from 1957 to 1964. For example, the 1970 index i s : P70 P 57 - 59 P64q60-61 I 70/ 57-59 — ^P64qeo-ciJ Table I shows the relative importance— -or relative weights— of the major component groups in the Consumer Price Index before and after the 1964 revision of weights based upon the 1960-1961 e x penditure survey. Weights used prior to the 1964 revision were introduced in 1952 and were based upon a 1950 expenditure survey.2 The inclusion of additional cities substantially broadened the coverage of the index also. The samples of cities are stratified by size, and data col lected in the sample cities are used to estimate the index for all cities of that size stratum. Indexes are 1 See The Consum er Price Ind ex: H istory and Techniques, U . S. Departm ent of Labor, Bureau of Labor Statistics, W ashington, D. C., 1967. Ch. 1. 2 Green, Gloria P., “ Relative Importance of CPI Item s,” M onthly Labor R eview , U . S. Departm ent of Labor, Bureau of Labor Statis tics, W ashington, D. C., November, 1965. Table I RELATIVE W EIGHTS OF M A JO R CON SUM ER PRICE INDEX COM PO N EN TS BEFORE AN D AFTER 1964 REVISIONS Before A fter Food 28.2 22.4 Housing 30.7 33.2 A p p a rel and upkeep 10.6 10.6 Transportation 11.6 H ealth and recreation 18.1 13.9 19.5 5.7 M edical care 5.9 Personal care 2.3 2.8 Reading and recreation 5.6 5.9 4.3 O ther goods and services M iscellaneous services A ll Items 5.1 0.8 0.4 100.0 100.0 published regularly for 23 of the 56 cities and pro vide measures of price changes for those particular cities. They do not permit valid intercity com parisons of price changes or living costs, however, because there is no standardized cross-sectional base upon which to make the comparisons. For example, the all-items Consumer Price Index for Boston for 1969 was 131.8, while for Milwaukee it was 123.6. This indicates only that the price of the “ market basket” rose 31.8 percent in Boston since 1957-1959, and 23.6 percent in Milwaukee. It does not indicate that the “ market basket” is 6.6 percent higher in Boston than in Milwaukee, as a comparison of the two figures might suggest, since prices in the base period in the two places were not necessarily the same. Sampling and Sampling Error A t the time of the 1964 revisions, some improvements were made in techniques. Probability sampling was introduced with probability weights determined by the expendi ture survey. Thus, some items are observed fre quently (monthly) in every location; some are taken less frequently (quarterly) in every location; some are observed frequently in selected locations o n ly ; and some are observed less frequently in selected lo cations only. Food items are among the most fre quently sampled, and monthly sampling is the gen eral rule in the five largest metropolitan areas. Specifically, the Bureau developed 52 major e x major class. A probability sampling method, with probabilities equivalent to individual item weights, then assures that the selection of items chosen to represent each major class will be approximately representative of that class.3 Also, within each area, the selection of outlets is handled on a probability sampling basis. A ccording to the Bureau, the new methodology permits more flexibility in dealing with such problems as quality changes and changes in con sumer tastes. In addition to changes in methods of item selec tion, the B LS introduced the procedure of replicated (repeated) sampling in an effort to provide better estimates of sampling error. Estimates of the standard errors of changes in major components of the Consumer Price Index have been published monthly by the B LS since January, 1967. Research by Wilkerson concluded that the estimates are rea sonable approximations of the sampling error in the index, and showed that changes in the published index— either monthly, quarterly, or for longer periods— greater than 0.2 percent are significant changes at the .05 probability level.4 The Quality Adjustment Problem T h e problem of revising indexes to reflect quality changes in goods and services is a serious one with the Con sumer Price Index, as mentioned earlier. This problem has probably generated more discussion in the literature on consumer prices than any other statistical issue.5 There is no entirely satisfactory solution to the problem in a base-weighted index because the “ market basket” must be kept reasonably intact to provide stable comparison. Therefore, a dilemma results since the base-weighted index is superior in concept to the alternatives. The revised Consumer Price Index has achieved a partial solution to this problem and represents a sub stantial improvement over the indexes published prior to the 1964 revision. The Bureau handles the problem by observing the prices of both the old and the new item when both are available in the market at the same time. They assume the difference in market prices in such cases to be a measure of the quality difference, and adjust that amount out of the price of the new item from that point on, or penditure classes into which all consumer outlays can be allocated. It is intended that the weights of the major classes will remain unchanged until the next general revision by the BLS, based upon an other expenditure survey. Account can be taken of shifts in consumer spending patterns, however, by varying the weights of individual items within each 3 For details o f the classification, see J affe, Sidney A ., “ The Statis tical Structure o f the Revised C P I,” M onthly Labor R eview , U . S. D epartm ent o f Labor, Bureau o f Labor Statistics, W ashington, D . C., Au gust, 1964, and Green, Ibid. 4 For detailed discussion o f the sam pling error estimates and the replicated sam pling procedure, see W ilkerson, M arvin, “ Sampling E rror in the Consumer Price Index,” Journal o f the A m erican Statistical Association, September, 1967. 5 See Clague, E w an, “ Com puting the Consumer Price Index,” Challenge, M ay, 1962, and Ruggles, Richard, “ M easuring the Cost o f Quality,” Challenge, Novem ber, 1961. 3 until the “ market basket” is revised. W ith many goods and services, however, both the old and the new (or the old and the improved) are not available at the same time in the market. In such cases, an attempt is made to determine the difference in manu facturers’ costs. This difference is then considered a measure of the quality change and is adjusted out of the new price. There are still some items, par ticularly in the services area, where these procedures are difficult or impossible to implement and con siderable judgment has to be employed.6 Although progress has been made, the quality problem is not solved, and to the extent that it re mains, the base-weighted Consumer Price Index is likely to continue to give an upward bias in measur ing levels and changes in consumer prices during periods of rapid technological progress.7 The Seasonal Adjustment Problem T h e need for seasonally adjusted series for the Consumer Price Index and its components was recognized by the B LS to eliminate erroneous inferences which can be drawn from short-term changes in unadjusted figures. Seasonally adjusted indexes were first pub lished on a regular basis by the Bureau in 1966, and are published only for selected components which have been determined to have significant patterns of seasonal variation. Studies have shown that most of the seasonal variation is in prices of food, ap parel, and private transportation, and that the all items index is affected only slightly by seasonal movement. Therefore, the Bureau does not publish the all-items index in seasonally adjusted form. Also, the services component which has grown in importance in consumer spending and in the index shows no significant seasonal pattern.8 Seasonal factors, which may be used to adjust the series, were made available beginning with 1953. W hile the seasonal factors are produced for the all items index and for those components having sig nificant seasonal variation, the Bureau does not pub lish factors for all components. There has been some reluctance on the part of the Bureau to publish either seasonally adjusted indexes or seasonal factors because of the possibility of confusion resulting from divergent movements in the unadjusted and adjusted series. Demand for the adjustments, however, has tended to outweigh the reluctance. The methodology developed by the B LS for seasonal adjustments— the B LS Seasonal Factor Method— is now gen erally available so that comparable factors can be computed for those series for which no factors or adjusted series are published. The method employed is the traditional ratio-to-moving average procedure with considerable refinement, and with a means of con tinuously adju stin g the seasonal factors for changes in the u n derlying seasonal pattern.9 The Wholesale Price Index Characteristics T h e oldest con tin u ou sly p u b lished index of prices is the Wholesale Price Index which is a Laspeyres weighted aggregative type with slight modification. The index, currently published on a 1957-1959 base, covers over 2,300 commodities. Its purpose is to measure levels and changes in prices of items at the level of their first important com mercial transaction. T o a large extent, therefore, the name of the index is a misnomer, since it does not attempt to measure prices received by wholesale establishments or jobbers. Inter-establishment trans fers of goods within firms and goods sold at retail by producers or producer-owned establishments are excluded from the index. The 22 Basic Commodity Index, usually regarded as a supplement to the Wholesale Price Index, represents an attempt to measure price change at an even earlier stage for selected sensitive commodities. This index was dis cussed in the first part of this article. The Wholesale Price Index uses base value weights for a period later than the 1957-1959 base, which makes it a modified Laspeyres index just as the Consumer Price Index is. Weights used are e x penditures for items measured by net value of ship ments of producers in particular industries and sectors. Currently, weights are based upon the 1963 censuses of manufactures and mineral industries, as w ell as certain other data provided b y the D e partm ent o f A gricultu re, Bureau o f Fisheries, and Bureau o f Mines. A revision was made in 1967 to incorporate the 1963 census figures on net value of shipments. Prices 8 J a ffe, “ The Statistical Structure o f the Revised C P I.” 7 A theoretical discussion o f the problem of measuring quality changes is found in Gavett, Thomas W ., “ Quality and a Pure Price Index,” M onthly Labor R eview , U . S. Departm ent o f Labor, Bureau o f Labor Statistics, W ashington, D. C., March, 1967. 8 Harper, H . J ., and Stallings, C. P ., “ Seasonally Adjusted CPI Com ponents,” M onthly Labor R eview , U . S. Departm ent o f Labor, Bureau o f Labor Statistics, W ashington, D. C., A u gust, 1966. Digitized for 4 FRASER were updated from 1963 to December, 1966, how ever, in order that the expenditure weights would reflect the most current prices at the time of the 9 See Seasonal Factors, U . S. D epartm ent o f Labor, Bureau Labor Statistics (Bulletin N o. 1 3 6 6 ), W ashin gton, D . C .t 1963. of index revision. Base prices are averages of the 19571959 period. For example, the 1970 index i s : 2 by ^>7° — P 5 7 -5 9 • Pee ^03 j — ^ |^P66 <3.63^ The construction of the base for the Wholesale Price Index is, therefore, not as complex as for the Consumer Price Index. The current policy of the Bureau of Labor Statistics is to revise the base weights every five years in coordination with the Bureau of Census timing of new censuses of manu facturing and mining.10 In addition to the aggregate all-commodities index, component indexes are published by stage of pro cessing, by durability of product, and by industry groups and subgroups. In the stage of processing category, separate indexes are constructed for crude materials, intermediate materials, consumer finished goods (at the wholesale level), and producer finished goods. These indexes permit some indication of the stages of production at which major price changes occur. The durability of product breakdown allows a comparison of price changes in durable goods in dustries with nondurable goods industries. In dustry and industry subgroup indexes carry this breakdown further and permit comparisons of price movements among industries in considerable detail. Since prices are obtained throughout given industries or sectors, there is no relevant geographic dimension to the Wholesale Price Index as there is for indexes of consumer prices. Table II shows the relative weights of items in cluded in the Wholesale Price Index by industry and by stage of processing. As explained above, these weights are based upon net value of shipments reported in the 1963 censuses. Detailed relative w eights are available b y individual item from the B L S .11 Due to their lower stage of processing, many of the commodities covered by the Wholesale Price In dex are not affected as acutely by quality change as consumer goods and services are. It is true that industrial goods, machinery, and numerous pro ducer finished items are subject to technological 10 For complete descriptions of methods and recent revisions, see B L S Handbook o f M ethods fo r S u rveys and Studies, U . S. D epart m ent o f Labor, Bureau o f Labor Statistics, W ashington, D. C., 1966 and Wholesale P rices and Price Indexes, U . S. Departm ent o f Labor, Bureau o f Labor Statistics, W ashington, D. C., January-February, 1967. 11 Wholesale Prices and Price Indexes for January 1970, U . S. De partm ent o f Labor, Bureau o f Labor Statistics, W ashington, D. C., M ay, 1970. change and quality improvement. However, since the index does not cover services and since the goods included are priced before costs of final stages of processing and handling are added, the price changes associated with quality improvements are somewhat easier to measure. Therefore, even though the Wholesale Price Index is weighted with earlier year quantities, some of the tendencies toward upward bias in base-weighted indexes, which can arise from failure to completely exclude the effect of quality changes, may not be as serious in this index. Table II RELATIVE IM PORTANCE OF COM M ODITIES INCLUDED IN THE W HOLESALE PRICE INDEX December 1969 By Industry Farm products Processed foods and feeds Textile products and ap p a re l Hides, skins, leather, and related products Fuels and related products, and pow er Chem icals and allied products Rubber and plastic products Lumber and wood products Pulp, paper, and allied products M etals and metal products M achinery and equipm ent Furniture and household durab les N onm etallic m ineral products Transportation equipm ent M iscellaneous products Total 10.7 16.5 7.1 1.3 6.8 5.9 2.4 2.7 4.8 13.4 12.3 3.5 3.1 7.2 2.5 100.0 By Stage of Processing Crud e m aterials for further processing Foodstuffs and feedstuffs Nonfood m aterials except fuel Crude fuel 11.3 7.5 2.9 0.8 Interm ediate m aterials, supplies, and components M aterials and com ponents for m anufacturing M aterials and components for construction Processed fuels and lubricants Containers Supplies 44.8 24.8 9.3 2.6 1.6 6.5 Finished goods (including ra w foods and fuel) Consum er goods Producer finished goods Total 43.9 33.8 10.1 100.0 Current prices used in the Wholesale Price In dex have been subject to considerable criticism. Current prices are monthly prices obtained by mail questionnaire from representative manufacturers. Since January, 1967, the prices used for most com modities are those in effect on the Tuesday of the week in which the 13th of the month falls, except in cases for which more representative trading days are known. The Bureau attempts to get transactions prices, but in many cases the prices obtained are list or spot prices quoted by manufacturers or trade as 5 sociations rather than contract prices at which com modities are actually traded. This problem was dis cussed in part two of this article as one of the statistical problems to be faced in construction of aggregate indexes. The difference between published and contract prices is significant in many important industrial sectors according to Stigler and Kindahl.12 They contend that producers delay published reduc tions of prices longer than published increases. This conclusion implies that in periods of softening eco nomic activity, the Wholesale Price Index may over state the level of industrial prices. Seasonal A djustm ents and Sam pling E rrors The BLS does not publish seasonally adjusted values of the Wholesale Price Index or its components. H ow ever, it does provide seasonally adjusted monthly per centage changes in the indexes for all com modities; farm products and processed foods and fe e d s ; farm p ro d u cts ; processed foods and fe e d s ; and industrial commodities. These figures are published in the Bureau’s monthly press releases. Some significant differences occur in the comparison of adjusted and unadjusted percentage changes, par ticularly when monthly changes are used to calculate annual percentage rates of change. It is possible to obtain seasonally adjusted series for the Wholesale Price Index on a basis roughly comparable to the seasonally adjusted Consumer Price Index by using the Bureau’s Seasonal Factor Method. Estimates of sampling error for the Wholesale Price Index are not produced by the B LS. The sample employed for the index does not lend itself as well to the measurement of sampling error as does the Consumer Price Index sample (i.e., it is selected purposively rather than on a random sampling basis). The number of reporters from whom price information is obtained is very small for many of the individual commodities. The methods of ag gregation used— by industry, durability of product, and stage of processing— result in heterogeneous groupings of individual items. While the sample is already very large, an even larger sample would be needed, in view of the diversity of products covered, in order to develop reliable estimates of sampling error. measurement as the other major indexes are, its values depend upon the indexes already discussed as well as others. The consumer expenditure com ponent of G N P is adjusted for price change— i.e., deflated— by dividing each category of consumer spending by the appropriate index of consumer prices. Business expenditures for capital equipment, raw materials, or semi-finished goods are deflated by the applicable index of wholesale prices. Thus, the Consumer Price Index and the Wholesale Price In dex figure prominently in the determination of the Deflator. In addition, other indexes of construction costs, prices paid by farmers, import prices, etc., are used to deflate various components of G N P. A s the composition of gross national product changes, the importance of the individual indexes used to deflate components of G N P also shifts. Components of G N P in any particular period are, in effect, weights for determining the G N P Deflator. For example, if business inventory investment in con sumer finished goods increases for a given period while consumer spending tapers, those indexes of wholesale prices applicable to consumer finished goods increase in importance in deriving the G N P Deflator for that period, and the importance of in dexes of consumer prices declines. Thus, it may be seen that components of G N P function as implicit current period expenditure weights, and the G N P Deflator becomes in essence a Paasche type index. A n example of an individual item helps to il lustrate the Deflator concept. Expenditures for steel reinforcing bars are classified under the gross private domestic investment component of GN P. There is a price index for the steel bars which is one of the elements of the Wholesale Price Index. penditures for the steel bars in year 2 can be rep resented by P2q 2, where p 2 is the price and q2 is the quantity purchased. The expenditure is deflated by the price index which is a Laspeyres index, p 2q i/p iq i, where year 1 is the base. (F o r the individual item, this is equivalent to the price relative, P2/P 1 ). The methodology of the G N P Deflator was dis cussed in broad terms in the first part of this article. Since the index is not obtained by direct price 12 Stigler, George J. and Kindahl, James K ., The Behavior o f In dustrial Prices, National Bureau o f Economic Research, N ew York, 1970. 6 The deflation expresses the expenditure in terms of dol lars of the base year, p2q2/(p2/pi)=piq2 The Implicit Deflator for GNP Total e x • If the current expenditure is divided by the deflated expenditure, an index is obtained, Ii 2=p2q2/Piq2, which is a Paasche type index, and is an implicit de flator for steel reinforcing bars. Since the illustra tion deals with a single item, the result is still only equivalent to the original price relative, P2/ P 1 , but the concept which is demonstrated here gains mean ing when aggregated for all goods and services com prising G N P. The deflated G N P, 2piq2, is obtained by dividing each item or class of items by the appropriate index, 2 [p2q 2/ (p 2q i/p iq i) ] = 2piq2. Then, the implicit deflator is the result of the di vision of current dollar G N P by the deflated amount, Ii 2— Sp 2q 2/ 2 piq 2, w hich is a Paasche type w eighted aggregative index.13 Since the individual indexes used to deflate com ponents of G N P are fixed-base indexes with the 1957-1959 base period, the Deflator is stated with a 1958 base. The base period applies only to prices rather than to weights, however, as will be recalled from the discussion of Paasche indexes in the second part of this article. Analyses of price changes are not as simple with current-weighted indexes as with fixed-weighted ones because continuous shifts in the “ market basket” mean that values of the index from one period to the next actually compare different things. Each value of the index is a direct comparison of prices in the given period to the base period, and, therefore, suc cessive values of the index do not provide a con sistent series. It has been shown that a fixed- w eighted index for G N P could provide better of short-term comparisons.14 This would be valuable in periods such as the present where significant changes in general economic conditions are taking place, causing important shifts in the relative weights of major components of G N P. Summary of the Indexes The decade of the 1960’s brought substantial im provement in the quality of the Consumer Price In dex— improvement of the sample methodology and coverage, measurement of sampling error, and sea sonal adjustment. The Wholesale Price Index, while a broader and more generally useful index in gauging inflationary pressures, apparently needs further im provement in the means of observing price data, as pointed out by Stigler and Kindahl. Some measure ment of the sampling error associated with the Wholesale Price Index would also be useful. A fixed-weighted approach to the G N P Deflator is another area which recent research suggests would be worthy of implementation. Geoffrey H. Moore, Commissioner of Labor Sta tistics, recently wrote that resources should be put into a monthly index of the general price level which would have the comprehensiveness of the G N P D e flator and the statistical quality of the Consumer Price Index.15 Also, as M oore and others have pointed out, additional work is needed in the area of supplementary indexes such as indexes of job vacancies and better indexes of compensation per man-hour which would assist the traditional price indexes in the measure of inflationary pressures and changes in economic conditions. William H . Wallace measures of the actual change in prices applicable to the nation’s total output, particularly for the purpose 13 F or further discussion and additional references regarding the G N P D eflator methodology, see Kipnis, Gregory, “ Im plicit Price Index,” Inflation and the Price Indexes (A ppen dix C ) , Subcom mittee on Economic Statistics, Joint Economic Committee, W ashin g ton, D . C., 1966. 14 Young, Allan H ., and Harkins, Claudia, "A ltern ative Measures o f Price Change for G N P ,” S u rvey o f Current Business, U . S. De partm ent o f Commerce, O ffice o f Business Economics, W ashington, D. C., March, 1969, and “ Alternative Measures o f Price Change for G N P , 1967-1970,” S u rvey o f Current Business, A u gust, 1970. 15 Moore, Geoffrey H ., The A n a to m y o f Inflation, U . S. Department o f Labor, Bureau o f Labor Statistics, W ashington, D. C., 1970. (R eport 3 7 3 ). A booklet entitled Measuring Price Changes: A Study of the Price Indexes will be available upon request from the Federal Reserve Bank of Richmond in December. The booklet is a repro duction of this three-part series on price indexes, with minor revisions to update statistical data. 7 http://fraser.stlouisfed.org/ 8 Federal Reserve Bank of St. Louis FOREIGN AU rerMOBILE SALES IN THE UNITED STATES Though total sales of domestic autom obiles in creased d ram a tica lly over the past decade, the do mestic autom obile industry has relinquished a steadily grow ing fraction of the large U. S. m arket for new cars to foreign producers. Indeed, the m arket sh are of foreign autom obile sales rose from 6.4% in 1960 to 13. 1% in m id-1970 as shown in C hart I. Imports vs. Exports W hile giving up a share of the domestic m arket to foreign U. S. m anufacturers have succeeded in their sales ab ro ad . Exports grew rap id ly substantial producers, expanding after 1965 rising from an a v e ra g e a n n u a l rate of 9.6% in the years^ 1 960-65 to an a v e ra g e an n ua l rate of 20.4% between 1966-69. H ow ever, for the past decade, exports lagged fa r behind imports in terms of both units and valu e. Despite the rapid growth of exports in the last half of the sixties, import sales b eg ar to outpace exports greatly in 1966. C hart III show* that net imports (imports m inus exports) increasec from $247.0 million in 1965 to $672.5 million ir 1966. From 1966 to 1969, net imports increasec at an a v e ra g e an n ua l rate of 84% , com pared to a r a v e ra g e an n ual rate of 16.3% from 1960 to 1965. Sales by Price Groups Sales of both d o mestic and foreign autom obiles w ere classified by price groups: (1) $2,500 or less, (2) $2,501-$3,500, (3) $3,5 01 -$4,400, and (4) over $4,400. Sales in ecich category, presented in Charts IV and V, are in terms of percentages of total U. S. sales. The percentage of total sales of the two highpriced groups rem ained relatively constant for do mestic models. The large increase in percentage sales occurred in the two low er priced groups of domestic ftodels and in the lowest priced group of foreign cars. The percentage of domestic cars included in the first two classifications reversed over the period. From 1560 to 1963 the percentage held by the $2,500 or less group w a s between 59% and 64% and that held by the $2,501-$3,500 group w as between 23% and 27% (see C hart IV). By 1969, sales of the lowest priced autom obiles had dropped to 13%, w hile sales in the $2,501-$3,500 group climbed to 62.4% of the m<prket. Concurrently, foreign car sales in the $2,500 or less group grew steadily from 6.3% in 1960 to 9 ./ % in 1969 as shown in Chart V. It is in this price P e rce n ta g e range that foreign cars have m ade the largest gains in m arket share. The most striking feature of the com parison of domestic and foreign autom obile sales is the change in sales of low er priced domestic cars and the rapid encroachm ent of low priced imports on the U. S. m arket. U. S. industry surrendered a large portion of the m arket for very low priced cars to foreign producers. How ever, the share lost w a s p artially recouped in the $2,501-$3,500 range. This trend m ay be a reflection of inflation in the U. S. which has raised prices of domestic relative to foreign auto mobiles. It m ay also reflect a change in consumer tastes to sm aller, cheaper models which until this y e a r m eant imported m akes. Account should also be taken of the rem oval of some compacts from the do mestic-model m arket and the enlarging of original compacts, which with options have been priced over $2,500 in more recent ye ars. But, the trend certainly m eans that U. S. car m anufacturers are facing a greater challenge in the 1970's as foreign car pro ducers get an even larger toe-hold in the U. S. m arket and develop their service and dealer organizations. Sumiye Okubo | | 2,500 H 2,501 ■ 3,501 □ 4,401 l U I960 1961 i or less - 3,500 - 4,400 & over i h 1962 Hk 1963 1964 Jfk 1965 t f k 1966 Ik Oli ak 1967 ‘ 1968 1969 •Sales by price range were estimated from model sales data. Source: Ward's Automotive Yearbook. 9 PERSONAL INCOME IN THE FIFTH DISTRICT A DECADE OF GROWTH change in nonfarm income, these same states were fourth highest in the nation; Virginia ranked sixth; and Maryland seventeenth. W hile these four Fifth District states made sig nificant gains vis-a-vis the nation, the level of per capita personal income remained relatively low in all but one. Maryland was the only one of the four that ranked above the national median; it was eleventh. Virginia ranked 31st in the nation; North Carolina, 43rd; and South Carolina, 47th. The two remaining Fifth District divisions, West Virginia and the District of Columbia, were classi fied as slow growing by the U. S. Department of Commerce. The District of Columbia ranked 47th in personal income growth during the sixties while among the eleven fastest growing in the country. W est Virginia ranked 50th in the nation. Personal income per capita also grew rapidly in the its slow growth, the level of per capita personal in four states during the decade. come in the nation’s capital remained higher than Maryland, North Carolina, South Carolina, and Virginia were among the nation’s ten fastest growing states in the 1960’s in terms of personal income. South Carolina had the highest growth rate of these four Fifth District states and ranked sixth in the nation. In fact, the Southeast region of the U . S. achieved a more rapid rate of advance of personal income than any other region in the country. Table I shows that between 1959 and 1969 each of the four Fifth District states mentioned earlier recorded percentage increases in personal income well ahead of the national average. A s measured by the The rates of growth for South and North Carolina were the third and any of the 50 states. Table Despite (Strictly speaking, it might be I PERSONAL, PER CAPITA , AND NO N FARM INCOM E FOR THE U. S. AN D FIFTH DISTRICT Total Personal Income fo r 1969 (M illions o f dollars) Per C a p ita Personal Income for 1969 (Dollars) Percentage C hang e in Total Personal Income 1948-1957 1959-1969 Relative Difference betw een State and N atio nal G row th Rates in Total Personal Income 1948-1957 1959-1969 Percentage C h a n g e in N onfarm Income 1948-1959 1959-1969 Relative Difference betw een State and N atio nal G row th Rates in N onfarm Income 1948-1957 1959-1969 W est V irginia United States District of Colum bia M aryland North C aro lin a South C aro lin a Virginia 744,479 3,768 15,336 15,030 7,018 15,441 4,735 3,687 4,722 4,073 2,888 2,607 3,307 2,603 66.8 94.5 25.4 69.1 89.6 120.4 60.2 123.3 58.0 124.1 75.2 120.8 39.6 61.2 0 0 - 6 2 .0 - 2 6 .9 34.1 27.4 - 9 .9 30.5 - 1 3 .2 31.3 12.6 27.8 - 4 0 .7 - 3 5 .2 77.8 96.5 25.4 69.1 94.5 121.2 80.5 129.7 77.9 130.9 89.3 124.2 44.9 63.0 0 0 - 6 7 .4 - 2 8 .4 21.5 25.6 3.5 34.4 .1 35.6 14.8 28.7 - 4 2 .3 - 3 4 .7 N atio nal Ranking for 1959-1969 G ro w th Rate in Total Personal Income 47 10 8 6 9 50 N ational Ranking for 1959-1969 in G ro w th Rate in N onfarm Income 47 11 7 6 9 50 Source: Survey of Current Business, August 1970. more meaningful to compare income figures for the District of Columbia to those of other urban centers rather than with those of the states, virtually all of w hich contain sizeable rural populations with characteristically lower recorded personal income levels.) The level of per capita personal income in W est Virginia, however, slipped from 42nd in 1959 to 48th in 1969. ($776 x 0.945). Since personal income generated from earnings in trade in Maryland actually increased by $1,023 million, the inference to be drawn is that Maryland’s personal income from that source in creased at a faster rate than the nation’s total per sonal income. The component mix ratio is the difference between the nationwide percentage increase in one component of personal income and the nationwide percentage in T he Sources of G row th Throu gh a technique called shift-share analysis, the August 1970 Survey crease in all components. This ratio is then mul tiplied by the personal income from the component of Current Business analyzes the sources of personal in question in 1959. income growth by state. This analytical device at products industry was the source of approximately tempts to separate the growth associated with na $734 million of personal income in North Carolina For example, the textile mill tional economic expansion and the industrial mix in 1959. characteristics of the state from growth that might erated a growth of approximately 63% from 1959 to be termed purely regional in character. 1969. Table II On the national scale the industry gen Since total U. S. personal income increased shows the breakdowns for each of the Fifth District by 94.5% , the difference, — 31.5 percentage points, states by component source of personal income. is the component mix ratio for textile mill products. The national growth share is calculated by apply The ratio would then be multiplied by $734 million, ing the national growth rate over the decade to a and the resulting figure, — $231.3 million, is the particular income component for a state. component mix share shown in Table II. For ex This ample, in Maryland, personal income received from figure can be interpreted as follow s: if wages and wages and salaries in wholesale and retail trade in salaries in the North Carolina textile mill products 1959 was approximately $766 million. Total per industry had grown at the same rate as it did in sonal income for the U. S. rose by 94.5% over the the U. S., personal income from that source would decade, so the national growth share for wholesale have tended to drag the state’s personal income and retail trade in M aryland was $724 m illion $231.3 million below the level it would have achieved ARITHMETIC OF SHIFT-SHARE A N ALYSIS Percentage increase in total U. S. personal income, 1959-1969 ........................ 94.5% Personal income from w ag e and sa la ry disbursem ents in the textile mill products industry in North C aro lin a in 1959 ........................................ $734 million N ational growth sh are (734 x 0.945) ........................................................................... .........$693.6 million Percentage increase in textile mill products industry in U.S., 1959-1969 ..................63% Com ponent mix ratio (.63 — .945) ................................................................................ ........ —.315 Com ponent share (—.315 x $734 million) ................................................................. ........ —$231.3 million Total increase in personal income from textile mill products in North C aro lin a, 1959-1969 ..................................................................................... $733.6 million Net relative change ($733.6 million — $693.6 million) ................................... $40 million Personal income growth from textile mill products, nationw ide rate (.63 x 734) ............................................................................................................ $462.4 million Regional share (actual growth in income from textile mill products in North C aro lin a less growth calculated at the nationw ide rate for the industry, $733.6 million — $462.4 million) .............. ............ $271 million 11 at the U . S. growth rate for total personal income. The remaining regional share figures estimate the amount of growth attributable to purely regional fac tors. The regional share provides a way to measure differential rates of growth for a state or region and to compare them to national growth rates. It rep resents the difference between the actual dollar in Table II shows that only 13 of the 42 components few Federal employees lived outside the District proper in 1959, a rather small numerical increase in government employment in outside areas could lead to a relatively high growth rate for them. A move ment toward decentralizing some of the government agencies could, therefore, have a large impact on the growth rates. Personal income could also be af fected by the trend toward suburban living by Fed eral employees who work in the District of Columbia. The adjacent states of Maryland and Virginia both had relatively large regional share increases in wages and salaries paid to Federal civilian employees. Much of that growth was undoubtedly attributable to District government employees residing in suburban Virginia and Maryland. Maryland was the only other Fifth District area whose mixture of income sources was conducive to greater than average growth. The component mix, however, totaled only $79 million indicating that the base was not much better than average. The re of personal income in Maryland had negative regional gional share total for the state was $1,727 million share va lu es; in N orth Carolina on ly tw o were which compares quite favorably to the District of crease in personal income for an industry and the am ount that incom e w ould have risen if it had grown at the U . S. average for the industry. In percentage increase of regional shares over the 1960’s for Fifth District states North Carolina ranked sixth in the nation; South Carolina, seventh; Virginia, ninth; Maryland, tenth; W est Virginia, 48th; and the District of Columbia, 50th. A negative regional share value means that per sonal income from a particular source grew at a slower rate in the state than it did in the nation. negative; in South Carolina, three; and in Virginia, Columbia’s -— $773 million. Moreover, the large ma five. Shift-share analysis, then, indicates that the jority of income components in Maryland have posi high rates of personal income growth in these states tive regional share values and those which are nega are not attributable to either favorable industry mixes tive are small, so the personal income growth in In fact, the negative Maryland came in the main from those industries component mix totals for three of the four states or overall national growth. and employments which grew at a more rapid pace suggest that personal income is advancing rapidly in than their national averages. spite of an industrial base that is not rated as favor for the state which has a relatively large negative able to economic growth. value is wages and salaries disbursed by the trans The growth of personal income in the Fifth Dis The only component portation and equipment industries. A s a final note, trict states relative to the nation can be partially ex even if the largest source of Maryland’s income plained by a closer look at the shift-share data in growth, Federal civilian employment, were excluded The District of Columbia’s industrial mix as being attributable to the District of Columbia, was heavily weighted toward fast growing industries personal income from Maryland’s industries and em in 1959. Table II. Although the regional share total was a ployments would have increased by over a billion large and negative — $773 million, the component dollars more than if they had grown at the national m ix value was $209 million. rate over the ten-year period. The District of C o lumbia, therefore, probably can attribute its position North Carolina had the largest total regional share as first in the nation in per capita income to the of any state in the Fifth District combined with a favorable industrial mix with which it began the component mix total which was least favorable to in period. The regional share data are almost uniformly come growth. In that state every component of per negative, which suggests that very few components sonal income except paper and allied products and of personal income in the capital city were faster petroleum growing than the national rate during the 1959-1969 average for the component. period. gional characteristics, North Carolina was sixth in Even the regional share of personal income grew more rapidly than the national In terms of purely re from Federal civilian employment was negative for the nation in income growth. the area. dustry mixture The shift-share analysis can occasionally Its unfavorable in ( — $407 million total component be misleading and in the case of Federal civilian em m ix ), however, caused it to rank eighth in total per ployment it probably is. sonal income growth. 12 For one thing, if relatively Table II— S H IF T -S H A R E A N A L Y S IS O F F IF T H D IS T R IC T IN C O M E CHANGES, 1959-1969 District of Columbia Income components Total personal income ...... .... ..... ................ Fast growing components ______________________ Ordnance1 ............ ..... ......... ....................... State and local government1 _________________ Transfer payments _________ __________ Other labor income ............ ........ ............................. Services1 ___ . . . . . Property incomp Rubber and misc. plastic products1 _________ Electrical machinery1 . .. .............. Finance, insurance, and real estate1 ........... Machinery, except electrical1 ........... ............... Automobiles1 ................................................................. Instruments1 Federal civilian1 ....................................................... Contract construction1 _______________________ Slow growing components ...................................... Chemicals and allied products1 ...... ............... Wholesale and retail trade1 ............................... Federal military1 ... __ ___ . . . Misc. nonmanufacturing ind.1 2 ...................... Fabricated metal products1 ................................ Paper and allied products1 ................................. Furniture and fixtures1 .... .................................. Printing, publishing and allied ind.1 ______ Transp. equip, excl. motor vehicles1 ________ Apparel and other fab. tex. products1 ______ Transportation, comm, and public util.1 ___ Miscellaneous manufacturing1 ______________ Stone, clay, glass products1 ---------------------- . Textile mill products1 ____________ ____________ Primary metals industries1 ................................. Food and kindred products1 _________________ Lumber and wood prod. excl. furniture1 __ Farm proprietors’ income ................................... N onfarm proprietors’ income ............................. Tobacco manufacturers1 ............................... ......... M ining1 __________ ___________ _________ _ Leather and leather products1 .......................... Petroleum refining and related ind.1 ______ L e ss: Personal contributions to soc. ins. Maryland National growth Com po nent mix Regional share N et rel ative change National growth 2,104 209 — 773 — 564 6,572 79 1,727 1,806 1,616 (*) 77 222 32 218 323 (*) 1 56 (* ) (*) 626 59 411 (*) 49 117 17 89 76 0 (*> 9 (*) 0 (*) 50 4 — 609 (*) 10 —8 —6 29 — 148 (* ) (*) — 33 (*) (* ) (*) — 393 — 59 — 199 (* ) 59 10S 10 118 — 71 (*) (*) — 24 (*) (*) (*) — 344 — 55 3,651 29 389 386 180 461 797 42 77 202 60 23 11 682 314 1,084 19 249 202 93 189 189 10 15 32 9 2 1 54 20 1,508 21 241 119 24 402 13 — 14 — 31 51 2 59 —3 583 41 2,592 40 490 321 117 590 201 .— 4 — 17 83 11 61 —2 637 62 550 (*) 177 93 11 1 2 1 34 1 (* ) 84 1 2 0 (* ) 15 (* ) — 115 (*) — 5 — 3 — 1 (*) (* ) (*) —6 (* ) (*) — 22 (*) — 1 0 (* ) — 7 (*) — 242 (*) — 125 —4 4 — 1 — 3 — 1 — 11 (*) (*) — 26 (*) — 2 0 (*) — 11 0 — 356 (*) — 130 —7 3 —1 — 3 — 1 — 17 — 1 <*) — 48 (* ) —2 0 (*) — 18 (*) — 62 — 130 3,081 70 724 253 9 73 39 21 83 199 69 408 14 47 24 220 151 16 64 541 (*) 12 8 7 28 — 778 —2 — 21 —8 — 1 —8 —5 — 3 — 14 — 39 — 16 — 108 —4 — 15 —8 — 75 — 72 — 7 — 35 — 294 (*) — 7 —5 — 5 24 251 11 319 18 3 — 31 — 1 —5 44 — 214 —3 27 2 6 — 26 7 10 — 5 47 60 (* ) — 1 1 —2 15 — 527 9 299 10 2 — 40 —6 —8 30 — 253 — 19 — 82 —2 —9 — 34 — 68 — 62 — 13 12 — 234 —1 —9 — 4 — 7 39 32 258 126 — 69 (*) (* ) (*) (* ) (* ) (* ) 61 (*) (*) (*) 87 (*) (* ) (* ) — 78 9 160 North Carolina Com po nent mix Regional share 227 N et rel ative change South Carolina Total personal income ---- --------------------------- 6,358 — 402 2,342 1,941 2,958 — 140 1,067 928 Fast growing components ____________ _________ 2,693 967 897 1,864 State and local government1 ............................... Transfer payments ....................... ......................... Other labor income .................................................. Services1 Property income ..................................................... Rubber and misc. plastic products1 _________ Electrical machinery1 Finance, insurance, and real estate1 ________ Machinery, except, electrical1 .. .. . Automobiles1 ............................................................. Instruments1 .................. Federal civilian1 .................................. ....... ............. Contract construction1 _______________________ 405 427 182 401 626 9 105 152 42 7 2 134 201 259 224 94 164 148 2 20 24 7 1 (*) 11 13 42 31 95 6 217 37 44 72 124 2 22 45 161 301 254 190 170 365 39 63 96 130 3 22 55 174 1,265 0 179 208 88 187 283 5 10 66 17 (*) 2 118 102 445 0 114 109 46 77 67 1 2 10 3 (* ) (*) 9 7 428 2 32 21 49 30 54 9 49 23 61 5 11 14 69 873 2 147 129 94 107 121 10 50 33 64 5 11 23 76 Slow growing components _____________________ Chemicals and allied products1 ...................... Wholesale and retail trade1 ................................ Federal military1 ---------------------------------------------Misc. nonmanufacturing ind.1 2 ________ . . Fabricated metal products1 ...................... Paper and allied products1 .........................— Furniture and fixtures1 . — ..................... Printing, publishing and allied ind.1 -----------Transp. equip, excl. motor vehicles1 .............. Apparel and other fab. tex. products1 ............ Transportation, comm, and public util.1 — Miscellaneous manufacturing1 ______________ Stone, clay, glass products1 ---------------—-------Textile mill products1 .............................................. Primary metals industries1 ............................. Food and kindred products1 _________________ Lumber and wood prod. excl. furniture1 ___ Farm proprietors’ income ............... .................... Nonfarm proprietors’ income _______________ Tobacco manufacturers1 ... ________ _________ Mining1 ......................... .......... ................................... Leather and leather products1 ....................... . Petroleum refining and related ind.1 .......... Farm1 -------------------------- ------------ --------------- 3,789 61 640 283 10 28 66 141 37 13 76 293 5 32 694 10 103 74 437 569 124 11 3 1 78 — 1,193 — 1 — 18 —9 — 1 — 3 —8 — 22 —6 — 3 — 18 — 78 — 1 — 10 — 231 —4 — 49 — 35 — 237 — 310 — 72 — 7 —2 — 1 — 66 1,528 75 289 147 (* ) 43 —2 102 21 1 144 125 17 37 271 28 55 7 61 93 3 9 13 (* ) — 12 335 73 271 137 — 1 40 — 10 80 15 — 1 126 48 16 26 40 24 6 — 28 — 176 — 216 — 69 2 11 — 1 — 78 1,751 70 262 206 4 5 39 11 14 2 67 115 4 23 433 6 35 37 134 236 4 6 (* ) 1 38 — 502 —2 — 7 —7 (*) — 1 —5 —2 —2 (*) — 16 — 31 — 1 — 8 — 144 —2 — 17 — 18 — 73 — 128 —2 (*) — 1 — 33 674 58 112 50 1 36 25 3 4 49 45 46 16 36 110 2 18 3 — 25 104 — 1 2 1 (*) — 21 172 56 105 44 1 36 20 1 1 49 30 15 15 28 — 34 (*) 1 — 15 — 98 — 24 —3 —2 (*) — 1 — 54 123 175 83 258 58 83 35 L e ss: Personal contributions to soc. ins. 117 (Continued on the n ext page) 13 Table II Continued— S H IF T -S H A R E A N A L Y S IS OF F IF T H D IS T R IC T IN CO M E CHAN GES, 1959-1969 Virginia W e st Virginia Income components National growth Component mix Regional share N et rei_ ative change National growth Component mix Regional share j«jet rei. ative change — 978 Total personal income _____________________ 6,607 — 59 1,899 1,840 2,775 — 148 — 830 Fast growing components ______________________ Ordnance1 ___________ ____ ______________________ State and local government1 __ ___ ___________ Transfer p a y m e n t s ____________________________ Other labor in c o m e ____________________________ Services1 _______________________________________ Property i n c o m e ______________________________ Rubber and misc. plastic products1 _________ Electrical machinery1 _________________________ Finance, insurance, and real estate1 ________ Machinery, except electrical1 _________________ Automobiles1 ___________________________________ Instruments1 ___________________________________ Federal civilian1 __ ____________________________ Contract construction1 _______________________ 3,359 1,006 1,317 2,323 4 379 407 162 434 717 10 33 181 18 11 6 726 272 3 243 213 84 177 170 2 6 29 3 1 1 57 18 — 8 187 125 52 161 219 31 81 39 35 4 2 306 82 — 5 430 338 136 339 389 33 87 67 38 5 3 364 99 1,234 (* ) 171 285 103 145 293 2 18 50 16 5 1 59 87 466 (* ) 110 149 53 59 69 (* ) 3 8 2 1 — 464 (* ) — 68 — 133 — 66 — 83 — 111 Slow growing components _____________________ Chemicals and allied products1 _____________ W holesale and retail trade1 -------------------------Federal military1 ______________________________ M isc. nonmanufacturing ind.1 8 _____________ Fabricated metal products1 _____ ____________ Paper and allied products1 -----------------------------Furniture and fixtures1 _— ------- --------------------Printing, publishing and allied ind.1 __ _____ Transp. equip, excl. motor vehicles1 -----------Apparel and other fab. tex. products1 ______ Transportation, comm, and public util.1 — Miscellaneous manufacturing1 ______________ Stone, clay, glass products1 _________________ Textile mill products1 _________________________ Primary metals industries1 ---------------------------Food and kindred products1 _________________ Lum ber and wood prod. excl. furniture? — Farm proprietors’ income ___________________ Nonfarm proprietors’ income ________________ Tobacco manufacturers1 ______________________ M ining1 _______________ .________________________ Leather and leather products1 ---------------------Petroleum refining and related ind.1 ______ Farm1 ---------------- ----------------------------------------------- 3,398 — 851 601 168 691 532 11 39 58 57 51 91 56 420 13 32 118 40 110 58 160 501 55 65 16 3 53 —4 — 20 — 18 — 1 —5 — 7 —9 —9 — 18 — 13 — 111 — 4 — 11 — 39 — 14 — 52 — 28 — 87 — 273 — 32 — 41 — 10 —2 — 46 32 188 106 — 4 3 (*) 30 20 48 48 8 19 25 17 27 15 — 30 45 16 7 2 (* ) — 19 — 251 28 168 89 — 5 —2 — 8 21 12 30 35 — 103 — 5 8 — 15 3 — 25 — 12 — 117 — 228 — 16 — 34 — 8 —2 — 64 1,599 159 248 19 1 27 6 4 14 6 10 212 4 103 5 161 34 17 42 151 214 18 232 L e ss: Personal contributions to soc. ins. *Less than $500,000. 1 W a g e and salary disbursements. 2 Includes wages and salaries in forestry and fisheries, agricultural services, and rest of the world. —1 (*) 5 6 — 532 —3 —7 —1 (* ) —3 —1 —1 —2 —1 —2 — 56 —1 — 34 —2 — 55 2 (*) 42 16 — 13 — 24 — 42 —6 — 26 2 8 1 — 22 36 4 —3 — 18 4 9 1 — 17 41 — 404 — 86 — 72 — 18 (* ) —4 —2 1 —1 11 4 — 936 — 89 — 79 — 18 (* ) —7 —2 (* ) —4 10 1 — 82 — 138 (* ) 4 1 — 35 —1 — 69 — 3 — 35 — 90 — 25 4 11 —8 — 23 — 115 — 1 — 185 —2 — 3 — 9 —9 1 — 36 7 — 1 — 47 5 (* ) —6 — 59 — 108 —2 — 232 3 — 3 — 15 58 82 — 38 44 212 2 295 3 — 16 —7 3 Sum of component-mix and regional-share. Note— Details may not add to totals because of rounding. Source: Survey of Current Business, A ugust 1970. civilian employment as did Maryland’s, but even if regional share total would be positive and relatively large. W est Virginia had a negative regional share total and a negative component mix total. It only showed better than average regional shares for 12 out of the 42 components. The largest regional share value was $36 million from wages and salaries in contract construction. Income received from transfer pay ments in W est Virginia, however, accounted for the largest negative regional share for the state, — $133 million. This statistic means that welfare and other transfer payments in W est Virginia grew at a con siderably slower rate than in the nation. that source of income were left out, Virginia’s William E. Cullison South Carolina and Virginia had regional share totals which were nearly as large as North Caro lina’s as well as negative component mix totals. Only three income components in South Carolina and four in Virginia grew at a rate below the nation’s average; they were farm proprietor’s income and farm wages and salaries in South Carolina and Virginia, wage and salary disbursements by tobacco manufacturers in South Carolina, and the ordnance and chemical industries in Virginia. Virginia’s largest regional share value went to wages and salaries from Federal 14 A Fifth District Review of . . . MOBILE HOME FINANCING loans for both mobile homes and mobile home de velopments. Bank supervisory agencies have also taken an in terest in mobile home lending. Federal Reserve Fifth District states have been among the nation’s leading states in purchases of mobile homes. Last year, one out of every eight mobile homes produced was shipped to one of these states. In the first half of 1970, nearly one of every seven was shipped to the District. North Carolina alone received six per cent of the nation’s total shipments. Growth of the mobile home industry has stimulated widespread interest in mobile home financing.1 In the first half of the sixties, consumer credit organiza tions were the most important financial inter member banks and insured nonmember banks were requested to complete a Mobile Home Supplement to the June 1970 Report of Condition. categories : (1 ) financing of the consumer purchase of mobile homes and (2 ) financing of the business purchase of mobile mediaries making mobile home loans. More recently, homes. Consumer purchases were broken down into “ loans to farmers” and “ loans commercial banks and savings and loan associations have begun to compete for this business. Banks were requested to classify their loans into two major to individuals.” The Fed Commercial banks were also asked to report the portion of business loans used to finance eral Housing Administration has begun insuring dealers for floor planning and inventory. Since the final figures for nonmember insured banks are not 1 See “ Mobile and Modular H ousing,” this R eview, June 1970. COM M ERCIAL BANK LOANS TO FIN A N CE NEW AND USED MOBILE HOMES JU N E 30, 1970* LO A N S TO IN D IV ID U A LS LO A N S TO BU SIN ESSES $ M illions 12 $ Millions 80 70 10 60 50 - 40 - 30 - 20 - 10 _ 0 D. C. & VA . n MD. ■ N. C . S. C . W .V A . D. C . & VA. MD. N. C. S. C . W .V A . *Fed eral Reserve member banks only. Source: Mobile Home Supplem ent to Report of Conditions, June 1970. 15 available, the following summary of results refers to Fifth District member banks only. Member banks had a total of $182 million of loans outstanding to finance mobile homes on June 30, 1970. Approximately $161 million, or 88 per cent, of these were loans to individuals. Almost half of the $21 million outstanding to businesses was used for floor planning and inventory financing. All 16 of the Fifth District's member banks with deposits in excess of $250 million had outstanding mobile home loans on June 30. They accounted for 63 per cent of the dollar volume of mobile home loans 10- 16 reported by Fifth District banks. The largest num ber of member banks holding mobile home paper was in the $10 to $25 million deposit category. Ninetythree commercial banks in that group held 10.4 per cent of the loans. North Carolina led the District in mobile home financing with $83 million outstanding, 46 per cent of the District total. The combined Virginia-District of Columbia banks held $65 million, and West Virginia member banks had $32 million in mobile home paper. Three North Carolina banks with de posits of one-quarter of a million dollars or larger accounted for $74 million, 89 per cent of the state’s total loans. In Maryland, both shipments of mobile homes and loans to finance mobile homes were the lowest among Fifth District states. Although South Carolina ranks second among Dis trict states in shipments of mobile homes, member bank loans to finance purchases were only $7 million, or 4 per cent of total loans in the District. West Virginia commercial banks have been particularly active in competing for these loans. M ore than 80 per cent of all reporting banks in W est Virginia held mobile home paper on June 30. In the past, mobile home loans have been made on a short-term instalment loan basis, with effective interest rates much higher than rates on other types of housing loans. A s a result of the high profit ability of these loans coupled with an extremely low default rate of less than 0.5 per cent, the number of commercial banks providing mobile home loans has increased tremendously in the last five years. Recent efforts by government agencies to make available long-term simple interest loans to purchasers may lower the return on mobile home loans, but the im portance of mobile home loans in commercial bank portfolios promises to increase. Clyde H. Farnsworth, Jr.
@FedFRASER