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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 wTages 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. Digitized for4 FRASER 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 wrhich 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 DISTRICT 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 ...... ...................... ................. Fifth District .... United States ........... ................................... 3,763 8.3 1,545 7.4 34,682 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 wTas greatest in absolute terms in N orth C aro 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. Digitized for10 FRASER 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
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