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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

2


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

5.1

0.8

A ll Items

0.4

100.0

M iscellaneous services

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.


4


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

H
k
1963

1964

Jfk
1965

t f k

1966

Ik O ak
li

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
W est
V irginia

United States
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

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

1
1

7

6

9

50

Source:

Survey of Current Business, August 1970.


10


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

Maryland

National
growth
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.

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.