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FEDERAL RESERVE



BANK OF RICHM O ND

OCTOBER

1963

MAJOR TRENDS IN THE POSTWAR ECONOMY-III
T his is the third and last article o f a series describ­
ing and discussing m ajor trends and problem s in the
econom y of the United States since W o rld W a r II.
T he earlier articles presented 12 statistical series
w hich indicated the trend of activity in the m ajor
sectors of the econom y and discussed certain im ­
portant problem s and developments.

This concluding

article discusses a group of related trends and de­
velopments which together probably constitute the
m ajor econom ic problem of our time. A s in the
earlier articles, the superscriptions above the lines
of the charts denote annual rates of growth.
The Slow-Growth Complex

The

p rev io u s d is ­

cussion and analysis lead up to the nub— the hard
core— of the group o f econom ic
the econom y. F or convenience
“ the slow -grow th com p lex.” It
slow rate of econom ic grow th,

problems which beset
this may be labeled
includes a moderately
a relatively high rate

of unem ployment, and large deficits in the balance of
payments. These are interrelated and are, in turn,
related to rising production costs, declining corporate
profits, and a low rate o f business investment. The
interrelationships between these factors do not con ­

nor stable. T he allowance for depreciation is one o f
the m ost uncertain and changeable factors affecting
it. In the past 15 years the depreciation allowed for
tax purposes has been increased tw o o r three times,
and this has accounted in some measure for the de­
clining trend o f profits noted above.
Despite the importance o f the subject, there are
no satisfactory data on corporate profits related to
equity capital. A s P rofessor G eorge Stigler has
stated : “ Considering how often our econom ic system
is described as ‘capitalistic’ or ‘the profit system ,’
it is paradoxical that we have relatively little in for­
mation on the stock o f capital or the rate o f profits
it yields in various industries.” T he data on c o r ­
porate profits as a return on equity were com piled
by T he First National City Bank o f N ew Y o rk .
T hey are based on a sample of large corporations
and, in the w ords o f the bank’s publication, “ . . .
are biased in favor o f success, embracing practically
all of the largest and m ost successful corporations.”
Even so, the figures show that since 1947 the rate
o f return has declined steadily and significantly, fall­
ing from 12.3% in 1947 to 9 .1 % in 1962.
In a study o f profits in the m anufacturing field,

stitute a full explanation o f the dilemma, but they
are important causes. T he examination o f this com ­
plex may well begin with a consideration o f corporate

porations of all sizes since they were derived from

profits, which seem to be a key factor.

income tax returns.

Corporate Profits T o ta l co rp o ra te profits in this
country have not shown a vigorous grow th rate since
W o rld W a r II. Despite tens of billions o f dollars
of new business investment, total profits, whether
before or after taxes, have risen only slow ly and
erratically, and have lagged far behind the growth
rate of the econom y as a whole. A n accom panying
chart shows, for all United States corporations, pay­
ments made in the form o f compensation to em ­
ployees, indirect taxes, and profits before taxes. The
latter is a total figure and takes no account o f ad­
ditional investment in corporate enterprises.
M ore significant figures, of course, are those
which show earnings or income per unit o f capital.
A nother chart shows corporate profits after taxes as
a return on equity capital.

F or a com parison of

trends, another line on that chart shows average
hourly

earnings

of

employees

in

manufacturing.

These latter figures do not include most o f the large
and grow in g amount o f fringe benefits.
T he concept o f corporate profits is neither precise




Professor Stigler was able to examine data from c o r­
T he rates o f return he found

reflect the inclusion o f smaller and less successful
corporations and hence were substantially below those
noted above, but the trend and the pattern were much
the same.

H e com puted rates which declined fairly

steadily from

10.38%

in 1947 to 6 .2 9 %

in 1957.

The declining rate shown in both series is all the
more significant because it occurred at a time when
interest rates were rising substantially and the totals
which are called corporate profits necessarily include
a large element of implicit interest cost.
T he chart on hourly earnings and rates o f return
shows dramatically the divergent m ovem ent o f the
compensation of employees and the compensation of
capital. In the 1957-62 period, while hourly rates
were grow in g at an annual rate o f m ore than 3 %

mained there ever since. T his raised the standard
rate to 5 2 % and, as President Kennedy noted last
January, made the Federal Governm ent the “ senior
partner in business profits.”
T his hasty review has touched on some o f the
reasons for the p oor perform ance o f corporate profits.
It raises a question as to why policies which prom oted
those results were deliberately pursued. Perhaps
the basic reason is the entrenched strength o f the
notion that consum er demand is the all-important

(exclusive of most fringe benefits), the rate o f return
on equity capital was declining by 2 .6 % per year.

factor in the econom y and that costs o f production
are distinctly secondary. A s P rofessor A rth u r F.

This follow ed a ten-year period in which the diver­

Burns stated not long a g o : “ M any o f us have become
accustomed to attribute every drop in general eco­
nom ic activity— m ore recently also every sign of

gence had been even greater.
A num ber o f factors have been responsible for the
unsatisfactory perform ance o f corporate profits. A s
the econom y m oved tow ard stability in the general

sluggishness in the rate o f econom ic grow th— to a

price level, the artificial and unhealthy stimulus to
demand which inflation affords was removed. This,
together with the increase in producing capacity al­

fore apt to urge the governm ent to compensate for
any deficiency that we believe exists. T his way o f

ready noted, intensified dom estic com petition at the
same time that com petitive pressure from abroad
was being stepped up. A s a result, it became in­
creasingly difficult for U nited States producers to
pass on increased costs by raising prices. M ean­
while costs, especially those represented by wages
and taxes, continued to m ove up steadily. Recently
annual wage increases have been smaller than they
were ten years ago, com ing down closer to the figures
representing increases in productivity.
In the tax area, the indirect taxes (w hich here
mean all those other than income taxes) have in­
creased more rapidly than corporate revenues.

R e­

deficiency o f aggregate demand, and we are there­

thinking is often sound, practically useful, and social­
ly beneficial. It rests, however, on an excessively
simple view of the econom ic process.” A m o n g other
things, it denies the im portance of, and detracts
attention from , what is probably the m ost difficult
problem in a business environm ent characterized by
stable or falling prices— that o f keeping costs down.
T he exaggerated emphasis on aggregate demand
fosters, encourages, and justifies annual wage in­
creases without regard to productivity. It also calls
for steeply progressive individual income tax rates
and a high tax rate on corporate income. U nder
policies dictated by this attitude, the incomes o f con ­
sumers and governm ents have increased steadily as

garding income taxes, it should be remembered that

the charts have shown.
to

But in so doing they have

in 1950 the Federal Governm ent raised the rate on

contributed

corporate income to a level 3 0 % above the highest

T his squeeze, in turn, by holding dow n em ploym ent

rate reached during W o rld W a r II and it has re­

in the face of a grow in g labor force, has pushed up

HOURLY EA R N IN G S AND RETURNS ON




the w ell-know n

“ profits

squeeze.”

UNEM PLOYM ENT
Million Persons

% of Labor Force

the rate o f unem ployment, has discouraged business
investment, and has probably aggravated the deficit
in the balance o f payments.
Unemployment— Some Causes

T h e ca u ses o f u n ­

employm ent are many and com plex.

A ll that can be

done here is to list a few of them with a minimum o f
comm ent. A m on g the most important causes un­
doubtedly is technological change, which has speeded
up dramatically in recent years. A t one end o f the
scale, technological change destroys jobs, often in
large numbers, while at the other end it may create
m ore jobs than can be filled because of lack o f the
necessary training. F o r several years there have
been persistent shortages o f workers in a wide range
o f skills associated with automation. A nother im ­
portant cause is geographical and industrial im­
mobility— the reluctance of workers to leave their
hom e com m unity or the industry with which they
are familiar.
If husband and wife are w orking in
different industries they may be especially reluctant
to m ove, since both may not be able to get jobs in
the new environment. A deficiency of total demand,
because of im proper monetary a n d /o r fiscal policies
may be the cause o f unemployment.

T his is the

cause m ost often discussed and for which remedies
are most often prescribed.
O n the other hand, fiscal policy may cause un­
em ploym ent even though its purpose may be the
opposite. Consider this very brief and extrem e illus­
tration.

Suppose that the personal exem ption under

the income tax were doubled to increase consumer
purchasing pow er and that, to compensate for the loss
o f revenue, a tax of 7 5 % w’ere levied on all in­
dividual incomes above $25,000 and on all corporate
income. Can there be any doubt as to the effect
on em ploym ent?
W a g e policies and practices and social legislation
may also contribute to unemployment. Minimum
wage laws which ignore basic market factors may e x ­
clude from em ploym ent a substantial num ber o f peo­

and salaries usually constitute the largest com ponent
of a com pany’s c o s t; it is also the m a jor com ponent
which has increased most. It is one o f the m ost
basic principles o f econom ics that when one factor of
production is relatively m ore costly than others, p r o ­
ducers will econom ize in the use o f that factor.
U nder conditions prevailing in the labor market in
the past 15 years, producers have had relatively little
control over the price of the labor they e m p lo y ; their
principal alternative has been to reduce the amount
o f it they use. Therefore, high wT
ages have stim­
ulated, even forced, producers to carry on p rod u c­
tion with the least possible amount o f labor.
T h e saving o f labor is usually accom plished either
by im proving techniques or by using m ore machinery,
or both. In this respect producers have been
favored
during the past five years by
the
fact that m achinery prices have been quite stable.
A n accom panying chart shows that from 1947 to
1957 average hourly earnings in m anufacturing and
prices o f m achinery and equipment m oved up roughly
together. But since 1957 hourly earnings have risen
at an annual rate o f over 3 % while m achinery prices
have flattened o u t ; ov er the five years they rose at
an annual rate o f only 1 % and for the past three
years they have been almost com pletely stable. It
may be possible that we are approaching a situation in
which “ machines make machines.”

W ith this in­

creasingly favorable ratio between wages and m a­
chinery, it would be only natural to expect that p ro­
ducers w ould favor production techniques that use a
m axim um of m achinery and a minimum o f labor.
Business Investment

In the first ten y e a rs a fter

the war expenditures for new plant and equipment
increased at an annual rate o f about 6 % . In the
past five years there has been almost no increase.
Further, a large m ajority o f the expenditures in the
past five years was for replacement and m oderniza­
tion rather than for expansion o f capacity. Last

ple whose productivity is below the minimum wage.

year’s M cG raw '-H ill survey o f business investment
plans stated : “ Perhaps one of the m ost striking

F ringe benefits and labor relations may cause some

findings of this survey is that once again m anufac­

to be unem ployed w'hile others w ork longer hours.

turing firms plan to devote 7 0 % o f their investment,

T he cost of fringe benefits varies with the number of

to replacement and m odernization.

employees rather than the number o f hours worked,

the same proportion they have devoted to such pur­

T his is roughly

so it may be profitable for the em ployer to w ork his

poses every year since 1958.”

employees overtime rather than hire the unem ployed

ing costs has forced producers to install cost-cutting

and thus raise his fringe benefit cost.

equipment

Certainly the level and trend o f wages must be

in order

to

creating unem ployment.

T he pressure o f ris­

econom ize

la b o r ; thereby

But the profit ou tlook has

considered in the search for causes o f unemployment.

not been sufficiently encouraging to induce them to

A s business profit margins narrowed in recent years,

make substantial new investments in order to expand

it was natural and inevitable that em ployers should

capacity which was necessary if new7 job s were to

cast about for methods o f reducing costs.

be created for a grow in g labor force.

4



W ages

B eyond this

immediate effect, new business investment plays a
m ost strategic role in the econom y as a whole. It
is ordinarily the principal channel through which
savings are put to w ork and through which the in­
com e multiplier operates. In this light, the very
low rate of grow th experienced by expenditures for
new plant and equipment over the past five years
appears as one of the m ajor reasons for the relatively

country and dollars cannot get abroad to increase
the claims o f foreigners on this country.
T h e third and final m ajor area is that o f private
capital movements. In recent years outflow s o f longand short-term capital funds have fluctuated widely
but have usually been between tw o and fou r billion
dollars. A gain, it is not correct to say that these are
the cause of the deficit, although in a given period

slow grow th in the econom y as a whole.

they may be responsible fo r m ost o r all o f the change

Balance of Payments T h e p ro b le m p resen ted b y
the deficit in the balance o f payments is a m ost co m ­

wr
hich takes place. Last A ugu st

plex and difficult one. T his also, like unemployment,
must be treated in summary and superficial fashion.

due almost entirely to the accelerating outflow of

It may be profitable, first, to note some relationships
between the different accounts in the balance o f
payments and then to look for some causes.

Secretary Dillon

stated that the recent increase in the deficit

. .is

long-term portfolio capital into new foreign issues,”
and cited figures to show that this was true for 1962
and the first half o f 1963.

caused by an unfavorable balance on private trade

It is possible to point out one significant rela­
tionship between the developments described earlier
and the deficit in the balance o f payments. D om es­

and services accounts. Surpluses in that area usually
run between fou r and eight billion dollars per year.

tically we have had a rather low rate o f econom ic
grow th, high unem ployment, and a low level of

Second, Governm ent outlays abroad have been a

capital investment.

m ajor factor affecting the deficit.

M ilitary expendi­

foster a m ore vigorou s rate o f grow th, we have fo l­

tures in foreign countries and Governm ent loans and

low ed a relatively easy m oney policy. D uring the
past three years, wrhen our international problem has

First, it is pertinent to note that the deficit is not

grants have been running at a level o f six to seven
billion per year. It is not correct to say that these
outlays are the cause o f the deficit since they are
only a part o f our total spending abroad. It is
pertinent to note, however, that these outlays are

T o counteract these forces and

been m ost acute, interest rates in the United States
have been low relative to those in Europe.

T his dif­

ference in interest rates, coupled with the fact that
we have the w orld ’ s largest, best organized, and most

relatively inflexible, that they are determined by

unrestricted capital market, has led to outflow s of

political considerations, and consequently are less

both long-term and short-term funds.

affected by the operation o f econom ic forces than are
other form s o f spending or lending. In recent years

outflows have been a m ajor factor in the balance of
payments problem . In a nutshell, the A m erican m ar­

A n d those

the effect o f econom ic aid to foreigners on the bal­

ket has been a g ood one in wrhich to borrow because

ance of payments has been reduced significantly by

of favorable interest rates, but it has not been a good

the practice o f “ tieing” the a id ; that is, by requiring
that the aid be taken in the form o f goods rather than

rate of profits.

dollars.

have borrow ed here and invested abroad.

In this way the m oney is spent in this

one in which to invest because o f a lowr and declining

W A G ES AND M A CH IN ERY PRICES
1957 -1 9 5 9 = 1 0 0




S o both Am ericans and foreigners

EXPEN DITURES FOR NEW PLANT AN D EQUIPM EN T
$ Billion

Per Cent

lllt lt r lM llT i
****«•. t m• m t J
«•>•••* l ■ ■ ■ tJ
.*■«**• i
• #-* ■
• U U 0.1

Some 145 ships entering or leaving Baltim ore's harbor
d a ily evidence the port's significance in domestic an d foreign
trade.
For m any y e a rs Baltim ore has ranked am ong the top
five A m erican ports in the am ount of freight traffic han d led .
Its facilities for handling he av y cargo and for direct transfer
to ra il an d motor carriers, along w ith its proxim ity to midw estern industrial centers, have gained for the port a reputa­
tion a s "Econom y Port, USA."
A t Baltim ore h eavy cargo is transferred
w ith confidence. The port handles heavy
lifts efficiently and econom ically.

V essels m ay enter or le a v e Baltim ore by either of two
routes. O ne lead s to the north up C h esap eak e B ay, through
the C h e sa p e a k e an d D e la w a re Ship C a n a l, and out D e la w a re
B ay, a total distance to the open sea of 125 n autical m iles.
The other m oves southw ard dow n C h esap eak e B ay an d around

A continuous fla t strip of hot steel, called
skelp, m oves rap id ly through Bethlehem
Steel's Sp arro w s Point Plant.




the capes, 150 nautical m iles.

Both routes are currently being

deepened and w idened .
W hile docked at one of the port's 270 piers, a ship m ay
a rra n g e for repairs w ith one of four m ajor an d se v eral minor
shipbuilding an d rep a ir com panies.

The port is fam ous for

its "jum boizing" process, w hich m ay enlarg e a ship's cargo
capacity by a s much as one-half.

Tidal variatio n at Balti­

more's natural harbor is negligible, av erag in g only 14 inches
per y e a r.

M oreover, this port, w hich is located 150 m iles in­

la nd , is better protected from storms than harbors situated
closer to the open sea.

Two routes out of this port decrease ships'
traveling distances. Soon the channels w ill
accom m odate the largest ships.

Baltimore's v arie d an d grow ing industrial complex is a
draw ing card for the port's trade.

Reflecting the location

nearby of the w orld's largest tidew ater steel plant, the m ajor
import commodity in 1960 w a s iron ore. Sim ilarly, rolled and
finished steel mill products topped the export list in valu e.
Other large industries figuring in the port's trade include su g ar,
copper, chem icals, coal, fertilizer, an d petroleum.
More than half of total traffic is foreign. O v e r 115
foreign countries reg u larly trade through the port, an d out­
bound ships w ent to more than 3 0 0 foreign ports in 1960. The

At la n t ic ocean

United Kingdom w a s the leading country in the port's export
activities, w hile V en ezu ela w a s its principal import supplier.
Baltimore w a s established a s a port of entry in 1706, on
the site w here Fort M cHenry now stands. Its developm ent as
a modern port can be attributed larg ely to the ra ilro a d s serv­
ing the a rea.
For decades the railro ad s ow ned and operated
or leased the w areho u se, dock, pier, an d other facilities.

In

1956 the M aryland Port Authority w a s created, assum ing
responsibility for port renovation, expansion, an d promotion.
The Authority has since undertaken to exp an d the m ain ship
channels.

It has also built a 365-acre public m arine term inal,

for w hich it plans im m ediate additions.

Long-term plans call

for a m arine fire station, a civic center in the inner harbor
a re a , and extensive im provem ent in cargo pier facilities.




Shipbuilders launch a "m id b o d y"—part of
the "ju m bo izin g" process. A ship is cut
in h a lf and a "m id b o d y" inserted.

FIFTH D IS T R IC T INCOME, 1962
Fifth District incom e earners m oved up the lad­
der of affluence in 1962 at a pace considerably ahead

gain of $666 million, or 8 .6 % .

o f the national average. Data released recently by the

million, or slightly under 3 % .

Department o f Com m erce show that District states
fared well, on both a total and a per capita basis, in the

states and the District of Colum bia experienced in­
creases o f 7 % or m ore, with South Carolina ex ceed ­

distribution o f the largest national gain in personal

ing 8 % and M aryland only slightly under that figure.

incom e since 1959. T he data also indicate a con ­
tinuation of im portant postwar trends in sources o f
income in the District.

A t the other extrem e,

W est V irgin ia ’ s total incom e expanded by only $87
A ll other D istrict

Per Capita Figures O n a p er cap ita basis, the
experience of District states in 1962 com pares even

National and Regional Gains F o r the n ation as
a whole, personal income— the most comprehensive
measure of econom ic perform ance available on a state

more favorably with the rest o f the country. F o r the
entire D istrict per capita incom e rose 6 .2 % , or $119.
T his com pares with a 4 .4 % , or $99, gain nationally
and was higher than the percentage increase in any

or regional basis— rose 6 % last year to a record high
o f just under $440 billion. O ver the past six years,

o f the Department o f C om m erce’s regional classifica­
tions, which ranged between 2 .4 % in the Southwest

this percentage increase has been exceeded only by
a 6 .7 % rise in 1959. In absolute terms, last year’s
gain, which amounted to $24.7 billion, was the larg­

and 5.9% in the Plains.
Increases in per capita incom e within the D istrict
ran from 4 .6 % in W e st V irgin ia to 7 .4 % in South

est since 1951. A llow in g for a 1% rise in prices, these
figures indicate an increase in real purchasing pow er

Carolina and w ere smaller than the percentage in­
creases in total incom e in every state except W est
Virginia. T he latter fact reflects, o f course, con ­

of about 5 % .
T he relatively large increase in 1962 reflects a gen­
eral expansion in activity that was distributed with
fair uniform ity both geographically and industrially.
Incom e reached record levels in each o f the eight
geographic regions distinguished in the Department
of Com m erce statistics and also in each o f the 50
states and the D istrict o f Columbia. Regionally, gains
ranged between 5 % in N ew England, the Mideast
region, the Great Lakes states, and the Southwest to

tinuing population increases in all parts o f the D is­
trict except W est V irginia. A population decline o f
an estimated 1 .8 % in the latter state was responsible
for the larger increase in per capita than in total in ­
come. A bsolute and percentage gains in both total
and per capita incom e by states in the District, co m ­
pared with national and other regional gains, are
shown in the table o f figures on page 9.

8 % in the R ock y M ountain and Far W est regions.

District Income Sources A n a ly z e d b y in d u stria l
sources, changes in income shed light on the direc­

Fifth District States F o r the p u rp o se s o f this
article the Fifth District is treated as including six

tion and pace of structural changes in the econom y.
F or example, far reaching changes in the F ifth D is­

northern panhandle counties in W est V irgin ia that

trict econom y over the last tw o decades are reflected

properly are part o f the Fourth Federal R eserve D is­

in the grow in g proportion of income arising in the

trict. W’ ith this m inor im precision, total personal in­

manufacturing, governm ent, and services sectors and

com e in the Fifth District last year increased 7.4 %

a sharp decline in the fraction originating in farm ­

or $2.4 billion to a total of $34.7 billion.

T hus the

ing. A nalysis of the 1962 changes in Fifth District in­

District, which accounted for roughly 8 % o f the na­

com e earned by civilians engaged in current p rod u c­

tion’s personal income in 1961, realized about 10%

tion indicate a continuation o f this long sustained

of the national gain in 1962. T he percentage rise in

shift o f emphasis in the D istrict’s econom ic activities.

the District was greater than that in all the D epart­

Civilian income earned in current production is

ment o f C om m erce’s regional classifications except

total personal income exclusive of transfer payments,

the R ock y M ountain and Far W est regions, which

property income, and the earnings of military per­

were only slightly higher.

sonnel and makes up roughly 8 0 % o f personal incom e

W ithin the District, V irgin ia led in total income

F or the District as a whole it amounted to $27.3 bil­

grow th both absolutely and proportionally with a

lion last year, an increase of $2 billion over 1961. O f

8




PERSONAL INCOME, FIFTH DISTRICT AND UNITED STATES, 1962

Total
($ millions)
District of Colum bia ..........
M arylan d _____

...........................

.

Per Cent
Increase
from 1961

Per Cent
Increase
from 1961

Per C ap ita
(dollars)

2,524

7.0

3,219

6.3

8,562

_______________

7.9

2,683

6.3

V irgin ia ......................................................................

8,428

8.6

2,018

6.6

W est Virgin ia ............... ..............................

3,210

2.8

1,810

4.6

North C aro lina

.........................

8,195

7.4

1,732

5.7

South C aro lin a

...... ...................... .................

United States

...........

...................................

3,763

8.3

1,545

7.4

34,682

Fifth District ....

7.4

2,029

6.2

439,661

6.0

2,366

4.4

* Includes 6 W est Virgin ia counties located in the Fourth Federal Reserve District.

this gain, m anufacturing accounted for $552 million,

recording an increase over 1961 of about 11.5% .

or 2 8 % ; governm ent (F ederal, State, and local) for

M anufacturing incom e rose $73 million in M aryland
and $39 million in W est V irginia.

$427 million, or nearly 2 2 % ; and the service indus­
tries for another $337 million, or 17 % . T he three

Incom e

gains

from

governm ent

activity

were

sectors com bined thus provided two-thirds o f the in­

greatest both absolutely and proportionally in V ir ­

crease. T he chart on the follow in g page shows the

ginia, where they totaled $157 million and were more

distribution o f the total gain over

11 m ajor in­

than 11% higher than in 1961. T his source accounted

dustrial classifications.

for m ore than one-fourth of the total 1962 gain in

W h ile farm incom e rose $20 million last year,
agriculture’s proportion of civilian income earned in

civilian incom e from current production in that state.
It accounted for a like fraction o f the total gain in

current production declined to 5.1% from 5.4 % in
1961. T his fraction was 6 .8 % as recently as 1958.

M aryland and, as w ould be expected, an even larger
fraction (nearly 4 1 % ) in the District o f Columbia.

M ining income also continued to decline in relative

Service income grew' most rapidly in M aryland and
V irginia, although gains from this source were sub­
stantial in all states and the District o f Columbia as
well. W holesale and retail trade also made important

importance last year although it recorded an absolute
increase of $2 million, the first such increase in four
years. A bsolute increases in income from wholesale
and retail trade and contract construction were the

$6 billion increase in civilian income earned in current

contributions to the 1962 gains in all parts o f the D is­
trict, with income from this activity expanding espe­
cially rapidly in the Carolinas and V irginia. M ore
than tw o-thirds o f the Fifth D istrict’s income gain
from contract construction was concentrated in M a ry­
land and V irginia.

production. W holesale and retail trade provided about
half the remainder. Incom es from both farm ing and

and M aryland, in each case by $8 million. T hese de­

mining were actually smaller in 1962 than in 1958.

clines were more than offset by increases in the C aro­

largest from these tw o sources in recent years.
O ver the four years 1959-1962, inclusive, manu­
facturing, the service industries, and governm ent have
accounted for $4.4 billion, or 7 2 % , o f the D istrict’s

Sources of State Gains

M a n u fa ctu rin g a cco u n te d

for a large fraction of the 1962 gain in each o f the
five

District states. A dditional

income

from

this

source wT greatest in absolute terms in N orth C aro­
as
lina ($188 m illion ), V irgin ia

($145 m illion ), and

Farm income declined last year in W est V irginia

linas and V irginia. In percentage terms, the gain in
farm income over 1961 was greatest in South C aro­
lina, where it came to just over 5 % .
Incom e from finance, insurance, and real estate, a
relatively small though rapidly expanding area o f the
D istrict’s econom y, recorded notable gains last year

South Carolina ($107 m illion ). In percentage terms

in V irginia,

South Carolina and V irgin ia led the District, each

same states also experienced sizable increases in in­




M aryland, and

N orth

Carolina. The

9

com e from transportation and from comm unications
and public utilities. Gains from these sources in other
District states were minor.
Other State Highlights

M a n u fa ctu rin g w a s the

chief source o f civilian income earned in current p ro ­
duction in 1962 in all states o f the District except
V irgin ia and the District of Columbia. It accounted
for 35 .5% o f such incom e in South Carolina, slightly
over 3 2 % in N orth Carolina, 3 0 % in W est V irginia,
and a shade over 2 3 % in M aryland. T he same frac­
tion for V irginia was just over 2 1 % , while fo r the
D istrict o f Colum bia it wras less than 3 % . Since 1958
the relative importance o f manufacturing as a source
of income has increased in the Carolinas and the V ir-

ginias but has declined somewhat in M aryland and the
District of Columbia.
Governm ent activity wras the largest single source
of civilian incom e last year in V irginia and the D is­
trict o f Columbia. Such activity accounted for 2 3 % of
total civilian income earned in current production in
V irgin ia and nearly 4 7 % in the District o f Columbia.
F o r M aryland, this fraction came to 2 2 % , while in the
remaining Fifth District states it ranged between 10%
and 13 % . A s a source o f civilian income, governm ent
activity has gained steadily in relative im portance
since 1958 in all parts of the Fifth District except
South Carolina and the D istrict of Columbia.
Services accounted for 2 2 % o f total civilian incom e
in the District o f Columbia and nearly 14.5%

in

Maryland. Elsewhere in the District, the same fra c­
tion ranged between 10% fo r W est V irgin ia and 13%

SOURCES OF FIFTH DISTRICT GAINS
IN CIVILIAN INCOME*

for V irginia.

1962

F o r all District states, the services

sector has been the most rapidly expanding source
of income since 1958.
Despite its general decline in relative importance,
farm ing remained an important source of incom e last
year in the Carolinas. It accounted for 11% o f civilian
income earned in current production in N orth C aro­
lina and 8 % in South Carolina. T his fraction has de­
clined steadily in these tw o states, however, as in all
other District states, in recent years.
M ining was a significant source of incom e last
year in only one District state, W est V irginia, where
it accounted for 12.5% o f civilian income earned in
current production. It accounted for less than 1% in
the Carolinas and M aryland and only slightly more
than this percentage in V irginia. M ining incom e has
declined steadily in relative importance in W est V ir ­
ginia but it may be significant that the pace o f this
decline slow ed perceptibly last year.
Summary P e rso n a l in co m e in all F ifth D is trict
states was at record levels in 1962. A ll D istrict states
experienced substantial income gains, although the
increase in total incom e lagged in W est V irginia. O n
a per capita basis, however, the gains were distributed
with fair uniform ity. F o r the District as a whole per
capita incom e rose relatively more rapidly than the
national average. D istrict per capita incom e as a frac­
tion of the national per capita figure rose fo r the
seventh year in a row . T his fraction last year was
nearly 86 % , com pared with 8 1 % in 1953. A c c o m ­
panying last year’s gain was a continuation o f basic
changes in the pattern o f income sources. In particu­
lar, farm ing and m ining continued to decline in rela­
200
300
400
Millions of Dollars
‘ Earned in Current Production
Source: Survey of Current Business, August 1963.


10


500

600

tive importance, with such sources as manufacturing,
services,

and

governm ent accounting

grow in g fractions of District income.

for

steadily

THE FIFTH DISTRICT
In the industrial econom y of the Fifth Federal R e­
serve District the im portance o f textiles is as plain
as the red brick mills that dot the green landscape.
In coastal areas o f South Carolina the industry is o f
little significance. But m oving northward, especially
through the low er Piedm ont, its importance rises
sharply, reaching a peak in N orth Carolina, and
tapering off again to nominal significance in northern
parts of the District. W h ile there is little need to
bring in published data m erely to add emphasis,
statistics are useful to highlight the industry’ s many
interesting features.
Distribution B y States

In S ou th C a ro lin a ’s in ­

employees. B y contrast, the com bined textile em ­
ployment o f W est V irgin ia and M aryland amounts
to little m ore than fou r thousand.
Regional and National Status In the F ifth D is ­
trict as a whole in 1962, textiles provided more than
one-fourth of the m anufacturing job s and one-twelth
of all nonfarm wage and salary employm ent.

T extile

job s in the entire nation number little more than twice
the Fifth District total. Nevertheless the industry’s
national significance is considerable. Nationally in
1962, the industry’s 903 thousand w orkers accounted
for one o f every 19 m anufacturing employees and one

dustrial directory, textile mills occupy m ore than

of every 62 nonfarm wage and salary workers. F our
cents o f every manufacturing income dollar and one

seven of 65 pages, with some 55 names on each page.

cent of every national incom e dollar originated in

Firm s in closely related lines— apparel, textile ma­
chinery and machine parts, synthetic fibers, chemicals,
and dyes— fill many additional pages. Statistics for

textile manufacturing.

1962 show 134 thousand South Carolinians on textile
payrolls, m ore than one-fifth of all nonfarm em ploy­
ment in the Palmetto State and over half of manu­
facturing employment. Jobs and incom e generated in
textile-related activities further magnify the indus­
try’s local significance.
T extile mills are m ost num erous in N orth C aro­
lina’s Piedmont region. In the T ar H eel State’s in­
dustrial directory, textile plants fill 42 o f the 200
pages that list the state’s manufacturing establish­
ments, with 25 names on each page. T he directory
also lists many makers of apparel and related p rod ­
ucts and many m achinery and chemical manufacturers
serving prim arily the textile business. Jobs in the
textile industry proper averaged 227 thousand in
1962, nearly half of all T ar H eel manufacturing em ­
ployment and almost one-fifth o f all jobs in nonfarm
businesses. N orth Carolina’s textile com plex is con ­
siderably larger than South Carolina’s, but the in­
dustry’s relative im portance as a source o f em ploy­
ment and income is slightly smaller.
T hough not on a par with the Carolinas, V irginia's
textile industry is substantial. In the O ld Dom inion,
textile firms typically em ployed around 37 thousand

Enterprises supplying the d o­

mestic textile industry, furtherm ore, represent many
more thousands of job s and millions o f income.
Textile Trends Differ

S in ce W o r ld W a r II te x ­

tile production has increased, but the rise has been
considerably smaller than in most other manufac­
turing industries. In textiles, contrary to manufac­
turing trends generally, both prices and employm ent
have declined. T he postwar downtrend in manufac­
turing profits was m ore pronounced in textiles than
in most other lines. W h ile the profit slide flattened
out after 1958, after-tax profit rates on sales in te x ­
tiles have recently been about half the average for
all manufacturing.
In the face o f dw indling profits, textile producers
spent less and less on new plant and equipment in
the early and middle 1950’s. Intensified competition,
both foreign and domestic, stimulated research efforts,
how ever, and after 1958 investment outlays began to
rise, chiefly for m ore efficient and m ore versatile
equipment.

W ith the handwriting on the wall, textile

plant and equipment outlays have risen every year
since then except for a slight drop in 1961.
Rising Efficiency

B etw een

1947 and

1962 n a­

tional employm ent in textiles fell almost one-third
while textile mill output, measured by the Industrial

during 1962, one in every eight factory workers and

Production Index, rose m ore than one-third. Cur­

one of every twenty-nine nonfarm wage and salary

rently rising outlays for new plant and equipment ap-




11

on tariff negotiations to restrict im ports and on the
so-called tw o-price cotton situation, which enhances
the com petitive advantage o f foreign producers.
F oreign users can buy A m erican cotton eight cents

TEXTILES AND TOTAL MANUFACTURING
UNITED STATES
Per Cent of Soles

1947-1963*

10
All M anufacturing

8

per pound cheaper than A m erican users.

Textiles

6 |-

^

% /% %
\/
,

4

Profits
after Taxes

---------■**'
\ - V

19 57-1959= 100
125

100

cent export subsidy has now becom e an important
issue in the com petitive struggle between dom estic
and foreign producers and has caused some shifting
domestically from cotton tow ard synthetics, although
the form er remains the m ajor raw material.

/

W holesale Prices

-

s.

A glance at the figures lends needed perspective to
these trends. Detailed statistics on some parts o f this
large and diverse industry are limited so that gener­
alizations applying to all its phases are difficult to

75

formulate. Certain sectors, however, can be covered
quite adequately. In cotton textiles, for instance, d o ­

125

mestic production in 1962 was nearly 11 billion square
yards. Cotton textile exports in the same year

100
75

amounted to 415 million square yards, and im ports
reached 464 million square yards, exceeding exports

50

by 1 2 % .
175 (150

O riginally

designed to encourage raw cotton exports, this eight-

[-A
r:

E xp orts in 1962 were 3 .8 % o f production

and im ports were 4 .2 % . These figures, how ever, do
not take account o f trade in apparel and other articles

' I x p e tc K tu ifsi lo r

Plant and Equipment

made of cotton fabric.

125 -

W ith the help o f special con ­

version factors developed by the Department o f C om ­
merce, the square-yard equivalent of such items im ­

100

ported has been estimated at some 700 million square

75

yards.
50

T his brings the cotton goods im ports figure

to 11.5% o f dom estic production.

£

-J— -I____ J--...).. 1
1950
*1963 Estimated

O'---- L

I

.1____ j ____ L__ _i_
1955

These trends appear to be well established in the
1960

record of the recent past, but could be sharply altered
by any o f a num ber o f developments. C otton textile
production was only 4 % higher in 1962 than in 1952

pear to confirm these trends at least for the next year
or two.

Outlays last year just about matched the

postwar record (1 9 4 8 ) and will reach a new high
this year. Investment in 1963 will be about twice as
great as in 1959 and three times the 1958 figure which
marked the postwar low. W holesale prices, fairly
stable for several years, have recently shown some

in contrast to a 2 3 % gain in textiles g en e ra lly ; and
the cotton trend has been dow nw ard since 1959. D u r­
ing the same decade exports of cotton textiles dropped
45%

and

im ports, not counting

the

square-yard

equivalent of miscellaneous manufactured items, in­
creased about tw elvefold. If im ports can be checked

inclination to rise. E fforts to control costs appear to

while further cost reductions are achieved through

be succeeding, and profit margins, although still well

current investment and possibly also through elimina­

below the average for other manufacturing industries,

tion o f the tw o-price system, m ore favorable trends

have inched upward.

may be expected in the future.

International Aspects

P ro b le m s fa c in g the te x ­

tile industry have important international overtones.
Im ports o f textiles and finished textile products

CREDITS

have trended steadily upward, and textile exports

C over—Mack Trucks 6. & 7. A. Aubrey Bodine, F. P. S. A .;

have declined.

A number o f new developments in

automated equipment,

special

processes,

and new

fibers have originated in foreign countries.

Recently

attention in this country has been focused principally
Digitized for12
FRASER


Sp arrow s Point Plant, Bethlehem Steel C o.; Com m unica­
tions

Departm ent,

Baltim ore

M aryland

H andbook,

Port

M aryland

Authority;

Port

Port Authority;

land Shipbuilding & Dry Dock Co.

of

M ary­