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R eview Monthly F E D E R A L R E S E R V E B A N K O F ATLANTA Atlanta, Georgia, February 29, 1952 Volume X X X V II F a r m P r i c e S t a b i l i t y Since the beginning of World War II, stability has become a key word in our economic doctrine. Over most of the last decade, the maintenance of a stable price level has been one of our major objectives. The concern with the stability of farm prices stems chiefly from two considerations. Rapid rises in farm product prices increase the cost of living, which, in turn, creates pressure on wage rates and makes inflation more difficult to control. Rapid declines in farm product prices, on the other hand, create serious hardships for farmers who are operating at a high cost level. Despite large-scale efforts on the part of the Government, the record of achievement toward the goal of farm price stability has not been impressive. Except for 19 5 1 and for 1943, 1944, and 1945, .when the entire economy was in a strait jacket of wartime controls, farm prices have shown less stability in each year of the last decade than in any of the three years immediately preceding World War II. Dur ing World War II most agricultural planning for the post war period was based upon the assumption that demand for farm products would decline drastically and that the main postwar problem in agriculture would be to cushion a sharp decline in farm prices. When price controls were relaxed, however, farm prices began to rise rapidly and the main problem during 1946 and 1947 was to slow down the spiral in the cost of living that stemmed from that rise. By 1948 the emphasis had shifted from the inflationary effects of farm price increases to methods of stopping a de cline in prices. In 1948, from Ju ly to December, average prices received by farmers for all commodities fell 10 per cent. During the 1948-49 crop year, Government outlays for the support of farm prices amounted to slightly more than 2.5 billion dollars. In spite of large outlays for price sup ports, farm prices continued to decline in 1949. During that year average prices received by farmers fell another 12 percent. Many observers believed that the long expected “ postwar adjustment” in agriculture had come and that farm prices would stabilize at much lower levels than had prevailed in the years immediately following the war. This view was accepted so generally that much attention was devoted to a revamping of Government price-support programs. In April 1949 the much-discussed “ Brannan Plan” was formally presented. This proposal to use Government subsidies to underwrite the demand for farm products is indicative of the widely held conviction that farm prices were in the proc ess of stabilizing at much lower levels. Number 2 i n 1 9 5 2 By the early part of 1950 the effects of the 1949 “ inven tory recession” had about worn off and nearly all indica tors of business activity began to move upward. As employ ment and personal income payments rose, farm prices also strengthened and by the time war started in Korea, prices received by farmers were up 6 percent from the low reached in December 1949. The war in Korea brought about a very familiar reaction in farm prices. A ll prices went up, of course, but prices of farm products went up very rapidly and by February 19 5 1 they were 27 percent higher than in June 1950. Again, as in 1946 and 1947, the main concern about farm prices was how to keep them from going up rather than how to cushion a decline. The Brannan Plan and other proposed revisions of the various price supporting schemes became dead issues. Farm products were included in the general price freeze that went into effect in February. As the nation settled down to a long-range rearmament program that overshadowed the fighting in Korea, at least so far as its impact on the economy was concerned, farm prices began to decline slowly and by September 19 5 1 they were 7 percent below the record high reached in February. This slow decline was brought to a halt by a deteriora tion in crop prospects during the summer. As harvest time neared, it became apparent that the output of such important crops as corn and cotton would be much less than had been expected earlier. By December 19 5 1, farm prices had increased 5 percent from the September low. Current Uncertainty About Farm Prices For agriculture as a whole, 19 5 1 was a year of unusually stable prices. Some commodities, such as cotton, showed violent and erratic price movements, but the general level of farm prices was more constant than at any time since 1945. A rough approximation of this stability may be had by comparing the range of monthly price indexes with the annual average index. This range was less in 19 5 1 than in any year during the last two decades, with the exception of 1944 and 1945. In spite of the stability achieved last year, many farmers are apprehensive about the effect that another year of high production would have on farm prices. Cotton farmers, for example, have been pressing for higher support prices in order to take some of the price risk out of the production of the 16-million-bale crop that has been called for by the M o n t h ly 14 R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r F eb ru a ry 1952 Department of Agriculture. Their main argument has been that present support levels offer inadequate protection in view of the high costs that will be incurred in producing the 1952 crop. This feeling of uncertainty in the minds of farmers has already received some official recognition. The President, in his Economic Report to the Congress, recommended that the sliding scale provisions of existing price-support legis lation be repealed. The reasons for this recommendation, as set forth in the January report of the Council of Economic Advisers, are as follows: “ The Secretary of Agriculture has asked farmers for maximum production of several of the basic commodities. . . . Y e t under existing legislation, if farmers succeed in increasing production sufficiently to build up reserves to safe or desirable levels, they could be penalized by having their support prices reduced from 90 percent to as low as 75 percent of effective parity. This possibility may act as a deterrent to maximum production of basic commodities by raising concern in the minds of many farmers lest the Government, after enlisting them in an all-out production drive, might leave them worse off as a result of their patriotism and hard work.” V A R IA T IO N S IN IN DEX O F PRICES RECEIVED BY FARMERS Percent of Annual Average Year 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 High Month 109.2 117.1 112.2 104.6 107.0 107.4 106.2 104.2 103.0 115.4 110.8 103.1 103.1 103.4 114.5 109.5 107.4 106.4 111.7 103.6 Low Month Range 90.8 78.6 85.6 95.4 92.1 86.9 95.9 94.7 95.0 86.2 93.7 94.3 97.4 98.1 90.6 93.1 93.3 93.6 91.8 96.4 18.4 38.5 26.6 9.2 14.9 20.5 10.3 9.5 8.0 29.2 17.1 8.8 5.7 5.3 23.9 16.4 14.1 12.8 19.9 7.2 The reasons for the current uneasiness about farm prices cannot, of course, be listed completely, but there are at least three important factors that may be having an effect. The first is that there is no recent history of price stability except in 19 5 1. During the postwar period there has either been the problem of preventing farm price increases from adding to the inflationary pressures or of cushioning a price decline to protect farm income. Price stability such as char acterized 19 5 1, in other words, is so contrary to the usual experience that many people do not expect to see it re peated in 1952. A second reason for uncertainty about farm prices in 1952 is that no one can be sure just what brought about the stability in 19 5 1. Did the direct price controls instituted in February and the changes in monetary and fiscal policy during the first part of the year merely bring the rise in farm prices to a temporary halt? After all, farm prices usually do move in the same direction as disposable per sonal income, and from the first quarter of 19 5 1 to the third quarter disposable personal income increased from an an nual rate of 2 17 billion dollars to 225 billion. The fourth quarter witnessed a further growth to 228 billion dollars annually. Farm prices in turn rebounded from their Sep tember low and at the year’s end were at about the same level as at the beginning. Another question is, Did the de terioration in crop prospects merely cause a temporary halt in the decline in farm prices that began in February? Farm prices have weakened appreciably since the beginning of 1952 and future prices on many commodities are now at the lowest levels since last September. Still another possible reason for farmers’ concern about the stability of prices is the violent price movements that occurred last year for important commodities. Cotton is the outstanding example. From an early spring high of about 45 cents, the price of cotton fell to 34 cents in September and was up to about 43 cents by the end of the year. Part of the sharp decline, of course, was attributable to the over estimation of the 19 5 1 crop in the United States. As late as October, the supply in 19 51-52 was estimated at 19.2 m il lion bales, or about 14 percent larger than the 1950-51 supply. At that time the carry-over was expected to range from 2.7 to 3.2 million bales, one of the smallest in the last two decades. In view of the strong export demand and the small carry-over expected at the end of the season, the price reaction to the probable 14-percent increase in supply seemed unusually sharp. The cotton market, in other words, reacted much more violently to the prospective increase in supply than seemed justifiable, based on a sober analysis of prospective changes in the supply and demand factors. Forecasts of Farm Price Movements One way to gain some perspective about the forces that may affect the stability of farm prices in 19 52 is to examine the facts and assumptions on which some of the current fore casts are based. Each fall the Bureau of Agricultural Eco nomics makes a forecast on the level of farm prices and incomes for the coming year. In its outlook statement on farm prices and income for 1952, the Bureau states that, “ Prices in 1952 are not expected to average significantly higher than in 19 5 1, as a whole.” If growing conditions are normal, the total volume of farm marketings is expected to be about 5 percent larger than in 19 5 1, which would result in a 5-percent increase in cash receipts from market ings. Essentially, the Bureau is saying that demand for farm products, as a whole, in 1952 will expand enough to absorb a 5-percent increase in output at about the same price level as prevailed in 19 5 1. The assumed 5-percent increase in production is closely in line with the production goals already announced. The defense program, of course, is the central feature in this forecast. The first assumption is that there will be no additional war scares or any return to peace, but that the rate of defense spending will rise as scheduled— from an annual rate of 44 billion dollars at the end of 19 5 1 to 65 billion at the end of 1952. Because of expected increases in M o n t h l y R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r F eb ru a ry 1952 productivity per worker, and an estimated increase of slightly more than one million in the number of workers employed, it is assumed that the total value of goods and services produced, or the gross national product, will rise about 20 billion dollars. Even after allowance for higher tax rates, disposable personal income is assumed to increase 12 to 15 billion dollars. It is also taken for granted that substantially all the expected increase in consumer incomes will be spent, which means, of course, that the rate of saving will be lower than it was in the last quarter of 19 5 1. A reduction in business inventories and an expected de crease in investment in construction and equipment for non defense purposes sufficient to cause a total reduction of 8 to 12 billion dollars in private investment is assumed. Since the assumed increases and decreases in expenditures add to slightly more than the expected increase in output, it seems likely that prices will rise slightly in 1952. This is the general economic framework within which the farm price forecasts were developed by the Bureau of Agricul tural Economics. To go from these assumptions about do mestic demand to a forecast of farm prices requires two additional steps. Some forecasts of foreign demand must be made and the effects of changes in both categories of de mand on farm prices must be estimated. Throughout fiscal 1952 the volume of agricultural ex ports is expected to be 5 to 10 percent larger than in the preceding year, with average export prices a little lower. Foreign demand for farm products, in other words, is ex pected to be about the same in 1952 as it was in 19 5 1. Translating the assumed changes in domestic demand into a farm price forecast is the really difficult step. If farm output increases 5 percent, will the assumed changes in domestic demand hold prices steady, permit them to fall, or push them to higher levels? How well this question can be answered depends largely upon the accuracy of our knowl edge about the relationships between the supply and demand factors and the prices of farm products that will prevail in 1952. Price-Making Forces At this point it may be helpful to consider some of the factors that affect the level of farm prices and some ap proaches that are used to determine the relationships be tween these factors and prices. For a particular commodity the main factors are the supply of the commodity itself, the supply of competing commodities, the amount of the mar keting margin, and the amount of disposable income in the hands of consumers. For agriculture as a whole the strength of consumer demand, which is usually stated in terms of disposable income, is by far the most important. Total agricultural output does not vary greatly from year to year, but disposable income fluctuates widely. Because of the relationship between the level of consumer incomes and farm prices, disposable income of domestic consumers has proven to be the best over-all indicator of domestic demand for farm products. One of the most widely used approaches to the problem of estimating the relationship between the supply and de mand factors and prices is to study past relationships with the view of establishing some sort of normal relationship. 15 Under this approach the relationships for a 15- or 20-year period are usually analyzed by statistical methods to derive a typical relationship. Since most problems of price fore casting involve only year-to-year changes, the results of these analyses are usually expressed as the percentage change in prices that is likely to accompany a given per centage change in the price-making forces. In a recent study of factors affecting year-to-year changes in farm prices, for example, the Bureau of Agricultural Economics found that in the period 1922-41 a one-percent increase in disposable income was usually accompanied by a 1.23-percent increase in the farm price of livestock products. In this connection it may be helpful to remember that most of our usable information about the relationship be tween demand, supply, and price of farm products was obtained during the two decades immediately preceding World War II. Statistical analyses of the relationship dur ing this period yielded results that were internally con sistent and that conformed with conventional theoretical analyses. Attempts to apply these analyses to the postwar period have met with little success. It seems reasonable to conclude that the earlier relationships either are not appro priate for the postwar period or that there are so many disturbing influences that the workings of what might be called normal supply and demand are obscured. Perhaps the most striking characteristic of postwar mar kets for farm products is that they seem abnormally sensi tive to even slight changes in the supply and demand fac tors. A change in the supply outlook that would have caused a mild price reaction in the prewar period, for ex ample, now often touches off an extremely violent one. Another way of stating it is that the buyers and sellers who make a market for a particular farm product appear to have very little confidence in the level of prices that they themselves have set. Because of the effects of price ceilings and the disloca tions in the economy during World War II and the current rearmament period, another approach to agricultural price analysis has gained in usage. This approach is based largely upon intuition and an intimate knowledge of the market for the particular commodity under consideration. With either approach there is a problem of selecting a base period, or base year, on which to project the expected year-to-year changes. Based on the vast current knowledge about the relationship between changes in supply and de mand factors and changes in prices, most of the current forecasts of continued stability of farm prices in 1952 seem reasonable if it is also assumed that 19 5 1 is a good year on which to base the projection. Stated in another way, Can the farm price situation in 19 5 1 be regarded as normal or typical in the sense that it was what could reasonably be expected with the volume of farm output and the level of consumer income that prevailed? If the situation in 19 5 1 represents a short-run stabilization of farm prices at an artificially high level, then the assumed increase in demand in 1952 would merely serve to cushion a decline in farm prices rather than hold prices steady. If, on the other hand, the price stability in 19 5 1 was attributable mainly to the dampening effect of inflation controls, then any increase in demand in 1952 would result in continued upward pres sure on farm prices. 16 M o n t h l y R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r F e b ru a ry 1952 The Unstated Assumption Although it is not often stated explicitly, most of the fore casts regarding farm prices do seem to assume that the farm price situation in 19 5 1 was typical of what could have been expected with the 19 5 1 level of farm output and consumer income. This may well be the key assumption. If it proves to be correct, there are sound reasons for expecting con tinued stability of farm prices in 1952 at about the current levels. During the postwar period, year-to-year increases in the disposable income of consumers have not always strength ened the demand for farm products to the extent that is expected from 19 5 1 to 1952. From 1949 to 1950, for exam ple, disposable personal income increased by nearly 10 percent and farm production fell 1.4 percent, but average prices received by farmers increased only 2.8 percent. The 10-percent gain in disposable income, in other words, was accompanied by only a small rise in farm prices even though farm production declined. Although these compari sons between such large aggregates should be interpreted with caution, they do indicate that the effect on farm prices of a given increase in consumer income may depend to a large extent upon the base from which the increase is measured. FARM PRICES, P R O D U CTIO N , AN D DISPO SA BLE INCOM E Year 1945 1946 1947 1948 1949 1950 1951 Prices Received by Farmers (1910-14 = 100) 206 234 275 285 249 256 302 Production for Human Use (1935-39 = 100) 129 134 129 141 140 138 139 151 159 170 188 186 204 223 B row n R . R a w l in g s D is tr ic t S ta tis tic s (In Thousands of Dollars) Item Loans and investments— To tal.............................. . Loans— N e t ....................... . Loans— G r o s s .................. . Commercial, industrial, and agricultural loans Loans to brokers and dealers in securities . , Other loans for pur chasing and carrying securities................. ... Real estate loans . . . , Loans to banks. . . . Other lo a n s ..................... Investments— Total . . . ,. Bills, certificates, and n o te s................. , U. S. bonds.................. Other securities................ Reserve with F. R. Banks . , Cash in vault..................... ... Balances with domestic b a n k s ........................... ... Demand deposits adjusted . . Time deposits.................... ... U. S. Gov’t deposits . . . , Deposits of domestic banks . Percent Change Feb. 27,1952, from Jan. 30 Feb. 28 1952 1951 Feb. 27 1952 Jan. 30 1952 2,753,793 1,074*957 1,094,721 2,730,178 1*072*824 1,092,617 2,558,791 1*142*210 1,158,010 +1 +0 +0 635,480 639,169 696,711 —1 —9 10,132 9,883 13,273 +3 — 24 33,148 87,510 7,829 320,622 1,678,836 33,455 87,777 2,920 319,413 1,657,354 35,038 93,296 4,606 315,086 1,416,581 —1 —0 ♦ +0 +1 —5 —6 +70 +2 + 19 804,031 640,497 234,308 514,221 48,206 795,712 632,994 228T648 518,292 45,949 568,588 632,471 215,522 487,458 42,029 +1 +1 +2 —1 +5 +41 +1 +9 +5 +15 218,233 228,166 2,066,741 2,066,674 534,683 536,315 54,773 78,371 627,045 616,055 25,250 20,500 , 189,331 1,924,422 512,592 72,573 536,134 22,250 +4 +0 +0 +43 —2 — 19 +15 +7 +5 +8 + 15 —8 Feb. 28 1951 +8 —6 —5 *More than 100 percent Disposable Personal Income (Billions of Dollars) Although price supports have not received much atten tion in most farm price forecasts for 1952, they are an im portant passive factor in the demand for some farm prod ucts. Even if they are used extensively in 1952, however, they could not prevent a general decline in prices. Wheat, rice, and corn are the only commodities of major import ance now selling at near support prices. Cotton prices could decline drastically before reaching the support level. There is no effective support program for livestock and livestock products, which account for about half of farmers’ cash receipts. If the main concern with farm price policy in 1952 is to prevent declines that would create hardships for many farmers, the present price-support program will have only limited effectiveness. The vigorous application of the present authority for im posing price ceilings, on the other hand, probably would prevent a rapid increase in prices. Apparently the best that farmers can hope for is a continuation of prices at about the 19 5 1 levels. Because of an increase in costs, which seems to be almost a certainty for 1952, only the more efficient farmers may expect to maintain or increase their net income. Farmers and country bankers, however, should not overlook the possibility that the well-advertised pricecost squeeze may be much more severe than is indicated by current forecasts. S ix th C O N D I T I O N O F 2 7 M E M B E R B A N K S I N L E A D IN G CITIES D E B IT S T O IN D I V I D U A L B A N K A C C O U N T S (In Thousands of Dollars) Jan. 1952 Place ALABAMA Anniston . . . . Birmingham . . . Dec. 1951 Jan. 1951 Percent Change Jan. 1952 from Jan. Dec. 1951 1951 30,352 461,622 20,445 23,993 163,909 99,222 32,779 29,403 463,310 19,497 23,470 172,375 94,347 32,570 29,186 446,343 19,637 25,448 160,421 99,013 35,563 +3 —0 +5 +2 —5 +5 +1 +4 +3 +4 —6 +2 +0 —8 401,988 355,186 572,213 83,927 48,775 94,649 181,953 380,593 338,463 525,721 78,516 47,483 85,218 184,841 397,148 354,070 541,055 80,945 41,500 92,032 184*518 +6 +5 +9 +7 +3 +11 —2 +1 +0 +6 +4 +18 +3 —1 40.001 1,136,241 90,117 13,249 83,518 4,550 26,007 13,231 89,017 15,932 27,398 122,432 14*894 39,048 1,187,215 88,738 13,756 83,232 5,175 22,572 14,607 89,059 14,145 29,412 125,421 15,494 35,131 1,148,783 80,217 12,280 76,784 4,394 22,453 13*773 77,856 14,942 30,064 115,609 14,135 +2 —4 +2 —4 +0 — 12 + 15 —9 —0 + 13 —7 —2 —4 +14 —1 +12 +8 +9 +4 +16 —4 +14 +7 —9 +6 +5 47,492 125,311 52*485 933,238 45,281 114,617 49,981 933,001 45,401 131,848 49,728 867*509 +5 +9 +5 +0 +5 —5 +6 +8 . 22,202 213,828 Meridian . . . . 33,605 Vicksburg . . . . 32,384 TENNESSEE 217,807 Chattanooga . . . Knoxville . . . . 150,544 Nashville . . . . 407,814 SIXTH DISTRICT** . . 5,765,190 20,200 167,253 33,916 37,141 21,450 206,949 35,249 25,793 +10 +28 —1 — 13 +3 +3 —5 +26 195,764 155.294 424,365 5,710,331 212,026 162,191 396,405 5,619,540 +11 —3 —4 —7 M ob ile.................. Montgomery . . . Tuscaloosa* . . . FLORIDA Jacksonville . . . Greater Miami* . . Pensacola . . . . St. Petersburg . . . GEORGIA Brunswick . . . . Columbus . . . . Elberton . . . . Gainesville* . . . Griffin*................. Savannah . . . . Valdosta . . . . LOUISIANA Alexandria* . . Baton Rouge . . Lake Charles. . New Orleans . . MISSISSIPPI Hattiesburg . . . . . . *Not included in Sixth District totals. **32 Cities. +1 +3 +3 +3 M o n t h l y R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r F eb ru a ry 1952 17 District Business Conditions Money M arket Rates and the District Business Borrower Last year’s rise in open-market money rates, as seen in the growing yields on short-term Government securities and bonds, has been reflected in the higher rates which District banks charged business borrowers. The greater impact of these increased rates has been felt by larger borrowers, who, of necessity, deal only with large banks. The rate of earn ings on loans for most of the smaller banks, therefore, was little affected by the increase in interest rates. On the New York money market, new issues of 3-month Treasury bills were yielding 1.367 percent in December 1950. A year later, yields averaged 1.7 3 1 percent, and for the last Wednesday in December 19 5 1, the yield was 1.865. Long-term rates also rose, although less sharply. Govern ment taxable bonds having 15 years or more to run to ma turity, for example, yielded an average rate of 2.39 percent during December 1950, and 2.70 in December 19 5 1. These increases were paralleled by the advance in rates on business loans. As the year 19 5 1 ended, larger commer cial banks throughout the country were charging an ap proximate average of 15 percent more for new loans to businesses than a year earlier. During 19 5 1 the average rate at banks throughout the United States participating in the Board’s quarterly interest rate survey rose from 3.02 percent to 3.27. The rise was steepest during the first and last quarters. The increase in rates throughout the country was closely paralleled by greater rates charged on new business loans made by reporting Atlanta and New Orleans banks. At the end of 19 5 1, the average rate on new business loans in these cities was 17 percent greater than a year previously. A V ER A G E RATES O N N EW BUSIN ESS LO A N S M ATURIN G IN ONE Y EA R O R LESS (D ec. 1 9 5 0 — IO O ) PERCENT PERCENT DEC. MAR. 1950 '31 OUN. SEP. DEC. DEC. '51 '51 *51 1950 MAR JUN. SEP. DEC. ’51 '51 !5 I '31 Those borrowing comparatively small amounts, however, did not feel to any considerable extent the impact of higher rates. Interest costs on new loans made in the first half of December for less than 10,000 dollars were only 3 per cent higher than they had been during the corresponding period of 1950. At Atlanta and New Orleans reporting banks, on the other hand, borrowers whose individual loans amounted to 200,000 dollars or more found their interest costs 20 percent higher. In general, the larger the loan, the greater the increase in rates. This does not mean that the larger borrowers paid higher rates than the smaller ones. There is a tendency for the rate of interest to become smaller as the amount borrowed becomes larger. Such was the con dition existing at the end of both 1950 and 19 5 1. One reason for this tendency is that if local rates are too high, the larger firms can secure funds in major money centers. The lower rates paid by the larger borrowers, in turn, are relatively sensitive to rates on Government securi ties as determined in the major money centers. Bankers have the alternative of making such large loans at com paratively low rates or investing their funds in Government securities. They expect a certain differential to compensate for the greater risk involved in making these loans. Conse quently, when yields on Government securities go up, they ordinarily make rates to larger borrowers high enough to maintain this differential. Over a long-term period, money market rates may also exert an effect upon rates to smaller borrowers. But in 19 5 1, according to a preliminary tabulation of operating ratios for Sixth District member banks, any increase in rates was confined to the larger banks. Banks with deposits of over 75 million dollars earned an average of 4 .1 percent on their loans in 1950 and 4.2 percent in 19 5 1. The average rate of return on loans for all District member banks combined, however, was the same in 19 5 1 as it was in 1950— 6 percent. C .T .T . Better Balance In Retail Inventories The decline in Sixth District department store inventories that began in June 19 5 1 had apparently run its course by December. Seasonally adjusted stocks in January 1952 were equal in dollar value to that prevailing at the end of De cember. January 1952 inventories, however, dropped 9 per cent from the January 19 5 1 index of 146, which had been exceeded only by the record index of 150 in April of last year. Last June District department stores began to cut their orders in an effort to balance stocks and sales. In January 1952, outstanding orders were down 32 percent from the high volume of the comparable period of 19 5 1 ; neverthe less, they were up 17 percent from the December 19 5 1 level. Receipts of merchandise also fell 6 percent in January 1952, compared with January 19 5 1, and 2 1 per cent from the December 19 5 1 amount. Although receipts are likely to remain below corresponding figures for last year in the short-run, increases will probably occur on a month-to-month basis. STO CKS D O W N Inventories for selected durable and non durable departments at Sixth District department stores dropped in January 1952 from the corresponding period of 19 5 1. January 1952 stocks of pianos, radios, and tele vision sets were down 53 percent, and major household appliances 36 percent from comparable January 19 5 1 amounts. Furniture and bedding and domestic floor-coverings experienced more moderate declines of 17 percent and 16 percent, respectively. In the soft goods lines, women’s 18 M o n t h l y R e v ie w o f th e F ederal R e se rv e B a n k o f A tla n ta fo r F e b ru a ry 1952 and misses’ apparel held their own with no change. Women’s and misses’ coats and suits and dresses both de creased by a moderate one percent, whereas ready-to-wear accessories fell 5 percent in January 1952 from the Janu ary 19 5 1 dollar value. Men’s clothing stocks, however, climbed 10 percent in the same period. A see-sawing trend was evident in total retail inventories throughout the United States. Latest available data show December 19 5 1 stocks, seasonally adjusted, tending to reverse the sharp and steady drop of the preceding six months. The 19 5 1 low point, occurring in November, was still approximately .5 billion dollars above the highest mark attained in 1950. The slight increase in December was at tributed chiefly to gains in consumer nondurable lines since the value of durable goods stocks slipped off from Novem ber. BR EA KIN G PO IN T Preliminary information based on reports just received from nearly 500 retailers participating in this Bank’s 19 5 1 Retail Credit Survey indicates that for a ma jority of the nine lines of business surveyed, 19 5 1’s em barrassing and harassing inventory excursion apparently S ix th D is tr ic t In d e x e s D E P A R T M E N T ST O R E SALES A N D STO CK S* 1947 - 49 =s 100 A d ju s te d * * Jan. 1952 P la ce D IS T R IC T S A L E S . . A tla n ta 1 ....................... B aton R ouge . . . . B irm in gham . . . . C h a tta n o o g a . . . . Jack son ............................ J a ck so n v ille . . . . K n o x v i l l e ...................... N a s h v i l l e ....................... N ew O rleans . . . . D IS T R IC T S T O C K S . . . . . . . . . . . , . . . . . . . . . D e c. 1951 U n adjusted Jan. 1951 Jan. 1952 D ec. 1951 Jan. 1951 123 136 105 118 120 119 108 121 137 126 113 113 113 146 90 84 68 85 88 79 77 79 85 113 77 94 91 119 203r 183r 162r 193 210 182 198 199 237 206 203 188 193 116 94 98 73 90 90 86 80 89 96 124 77 91 91 132 121r 116r 99r 121 119 117 118 116 128 114 117 115 116 133 118 117 98 I ll 117 110 104 106 122 116 113 117 114 133 1ln order to p erm it p u b lic a tio n o f fig u res fo r th is c ity , a sp e c ia l sam p le h as been co n str u c ted w h ich is n o t con fin ed e x c lu s iv e ly to d ep a rtm en t s to r e s . F igures fo r an y such n o n -d ep artm en t sto r e s, however, are n o t u sed in com p u tin g th e D is tr ic t In dex. G A S O L IN E TAX 1939 = C O L L E C T IO N S 100 A d ju s te d * * RETAIL SALES AND IN VEN TO RIES IN SIXTH DISTRICT (P e rce n t C h a n g e 1 9 5 1 - 1 9 5 0 ) P la ce . . . . . . . S IX STA TES A lab am a .. L o u is ia n a . M ississip p i T en n essee . COTTON . . . . . . . U n ad ju sted Jan . 1952 D ec. 1951 Jan . 1951 Jan . 1952 D ec. 1951 Jan . 1951 269 275 261 239 294 289 287 252 249 237 233 296 282 240 246 248 236 253 278 256 222 269 268 272 244 291 272 272 257 254 234 232 299 287 259 246 241 246 258 275 241 211 . . . . . . . C O N S U M P T IO N * ELECTRIC P O W E R P R O D U C T I O N * 1 9 3 5 - 3 9 == 1 0 0 Ja n . 1952 P la ce TOTAL. . . A lab am a . G eorgia . . M ississip p i T en n essee . 1939 = D ec. 1951 P la ce was over. The accompanying chart shows that five of the reporting categories had lower stocks in December 19 5 1 than in the comparable 1950 period. Hardware stores led the December 19 5 1 stocks descent with a 2 1.3 percent tumble from the dollar value on hand December 3 1, 1950. Jewelry, department store, furniture, and women’s apparel retail outlets followed, in that order. Certain lines, however, are still confronted with a knotty stock situation. Men’s clothing, household appliance, auto mobile, and automobile tire and accessory retail outlets ended the year with inventories up to 40 percent, 1 1 percent, 1 1 percent, and 6 percent, respectively. Interestingly enough, women’s apparel shops apparently had resolved their difficulties by December and thus con trasted sharply with their male counterparts. District de partment stores experienced approximately the same direc tional changes in clothing inventories, as did stores spe cializing in that type goods. Stocks of women’s and misses’ ready-to-wear accessories and apparel, for example, de- S IX STA TE S A lab am a . F lo r id a . . G e o r g ia . . L ou isian a . M ississip p i T en n essee . D e c. 1951 Jan. 1951 151 159 155 105 107 182r 181r 190r 115 143 . 162 . 168 . 165 . 98 . 123 M A N U F A C T U R IN G ., ., . ., .. .. ,. 156 154 161 160 145 159 155 1 9 3 5 - 3 9 == 1 0 0 SIX STA TES H ydro g en erated F u e l gen erated D e c. 1951 Nov. 1951 509 479 463r 382 275 343 676 745 620r C O N S T R U C T IO N E M PL O Y M E N T D ec. 1950 C O NTRACTS 1 9 3 5 - 3 9 == 1 0 0 100 Nov. 1951 154 144 156 162 147r 160r 155 D ec. 1950 154r 153 157r 155r 142 159r 158 Ja n . 1952 P la ce D IS T R IC T . R e sid en tia l Other . . A lab am a . F lo r id a . . G e o r g ia . . L ou isia n a . M ississip p i T en n essee. D ec. 1951 Jan. 1951 686r 981r 544 741 936 713 319 170 777 603 840 489 684 760 700 370 192 504 876 757 934 471 659 491 2 ,4 2 0 89 314 C O N S U M E R S PR IC E I N D E X 1 9 3 5 -3 9 = Item ALL IT EM S . . Food . . . . C loth in g . ,. F u el, e le c ., and refrig. H om e fu r n ish in g s .. M isc . . ,. Pu rch asing power o f d o lla r . . ,. 100 A N N U A L RATE O F T U R N O V E R O F Jan. 1952 D ec. 1951 194 234 212 195 234 213 188r 228r 207r 144 143r 207 172 209 173 204r 163 .5 2 .5 1 .5 3 n .a . ♦ D a ily average b a sis ♦ ♦ A d ju ste d for sea so n a l variation r R evised n .a . N o t ava ila b le Jan. 1951 DEM AND U n ad ju sted . . A d ju s te d * * . . In d e x * * . . . D E P O SI1S Jan. 1952 D ec. 1951 Jan . 1951 2 5 .2 2 3 .8 9 6 .4 2 4 .6 2 1 .8 8 8 .3 2 5 .4 r 2 4 .0 r 9 7 .1 r C R U D E PE T R O L E U M P R O D U C T IO N IN C O A ST A L L O U IS IA N A A N D M IS S IS S IP P I* 1 9 3 5 -3 9 = U n ad ju sted A d ju s te d * * 100 Jan. 1952 D ec. 1951 375 368 366 379 Jan . 1951 360r 367r M o n t h l y R e v ie w o f th e F ederal R eserve B a n k o f A tla n ta fo r F eb ru a ry 1952 clined 10 percent and 7 percent, respectively, in December 19 5 1, compared with December 1950 and stocks in the men’s and boys’ wear departments rose 8 percent. Excessive clothing and apparel inventories in relation to sales par tially account for the wearying slump suffered by the Dis trict textile industry last year. A negative relationship appears between stocks and sales; retailers enjoying falling inventories garnered sales in creases; conversely, large inventory gains were usually associated with unfavorable sales pictures. The brunt of consumer sales resistance in 19 5 1 was borne by merchants handling consumer durables, particularly automobiles and household appliances. Men’s clothing stores, an exception to the rule, obviously anticipated a much larger volume of sales than the moderate 3-percent increase actually sustained. IN V EN TO R Y TU RN OVER The speed with which merchandise moved during 19 5 1 sheds additional light on the inventory problem. Generally, those lines of business ending the year with higher inventories than a year earlier experienced a decline in the rate of stock turnover in 19 5 1, compared with 1949, the last year for which comparable data are available. The turnover at men’s clothing stores decreased moderately to 3.2 in 19 5 1, compared with 3.3 in 1949. Automobile dealers witnessed a turnover rate of 10.8 in 1949 and 10.0 in 19 5 1. Household appliance stores, however, encountered a drop of almost 40 percent in the number of times their stocks revolved, or from 4.2 to 2.6. Automobile tire and accessory stores had the fastest turnover, stocks being re plenished almost once a month in 1 9 5 1 ; in 1949, the average was 21/2 months. Hardware and jewelry stores also enjoyed higher turnover rates in 19 5 1 than in 1949. On the whole, ratio increases were found in those lines recording the larger sales advances. Consumer behavior throughout 19 5 1 baffled merchants who had generally anticipated a level of spending com mensurate with the high level of income, even after the two now notorious buying bursts. This assumption, together with shortage fears, helps to explain the abnormally high inven tories last year. Sales promotion and order cutting con tributed to falling stocks so that at the commencement of 1952, many business groups seemingly had achieved fairly satisfactory inventory positions. B. A. W. Textiles and the Defense Program Although District textile mill operations are slow com pared with the high level of activity immediately following the outbreak of war in Korea, they are still above most other postwar levels. The recent decline is largely attrib utable to sluggish consumer buying. Another reason for the reduced operations, however, is the scaling down of inven tories, built up involuntarily in the last half of 1950 and the spring of 19 5 1, when District textile production more than met consumer and industrial demands. The daily rate of cotton consumption, the most commonly used measure of textile activity, averaged 13,500 bales in the last quarter of 19 5 1, about 13 percent below the average rate reached in the peak period from August 1950 through June 19 5 1. The recent tempo does not appear so slow, however, when set against a base other than the Korean-boom period. Consumption in the final quarter of 19 5 1, for example, was nearly 4 percent greater than in the first seven months of 1950, and was 20 percent above the 1949 average. Although 19 1951 RETAIL CREDIT SURVEY The Federal Reserve System is now conducting its ninth Annual Retail Credit Survey. Retail outlets of the following nine lines of business located in the Sixth Federal Reserve District have been invited to participate in the 19 5 1 Survey: automobile dealers; automobile tire and accessories dealers; department, furniture, hardware, household appliance, jewelry, men’s clothing, and women’s apparel stores. The sales, credit, and inventory data reported will be compiled into two summaries, one for the Sixth District and the other for the remaining eleven Federal Reserve Districts and for the nation as a whole. Par ticipating stores will receive copies of these summaries free of charge. Copies will be available around the latter part of May. These Surveys provide the only comprehensive body of data of this kind available anywhere in the nation. Retailers evidently have been favorably impressed with these summaries in the past. They have found the information particularly valuable in comparing the growth of their respective firms with that of others in the same line of business as well as with that of retail ers in related fields. Not only are the data collected in this Survey interesting, but also they serve as a tool for determining operational policies. National data, moreover, provide the Federal Reserve System with a basis for the formulation of policies designed to pro mote monetary stability. District textile mills were busier in the first quarters of 1947 and 1948 than in the last quarter of 19 5 1, the average daily rates of cotton consumption for those years were con siderably below that for the final quarter of the year just ended. Indeed, with the exception of the spree following the Korean outburst, 1946 was the only postwar year in which cotton consumption was higher than it was in the last three months of 19 5 1. A reasonable proportion of military textile orders have been filled by District firms, considering the kinds of prod ucts the military has ordered and the textile specialization characteristic of this area. Large military textile orders, however, have not arisen from the defense program, di rected as it is toward both the building up of production facilities and the procurement of such items as tanks and aircraft. Although the industrial uses of textile mill prod ucts are not to be minimized, military procurement, with its emphasis on hard goods, has not had a very stimulating effect on the industry. District textile mills, of course, are not only interested in total Government textile orders but also in the propor tion of those orders placed in this area. For that reason, it is interesting to compare the District’s contribution to the textile portion of the defense effort with its plant produc tion capacity. During the second quarter of 19 5 1, when District m ili tary orders were largest, woolens accounted for 60 percent of total Government orders for woolen and cotton goods. 20 M o n t h l y R e v ie w o f th e F ederal R e se rv e B a n k o f A tla n ta fo r F e b ru a ry 1952 S ix th D is tric t S ta tis tic s IN S T A L M E N T C A S H Lender Federal credit unions . . State credit unions. . . . Industrial banks.................. Industrial loan companies . Small loan companies. . . Commercial banks . . . . No. of Lenders Reporting 37 19 10 10 33 33 B a n k Volume Percent Change January 1952 from Jan. Dec. 1951 1951 -1 +19 -7 +22 -2 — 16 — 26 +17 — 17 — 13 +20 +1 Outstandings Percent Change January 1952 from Jan. Dec. 1951 1951 +7 +1 + 10 +1 —2 +13 —1 +7 +8 +3 —2 —0 RETAIL FURNITURE STORE OPERATIONS Item Total s a l e s ....................... . Cash sales.......................... . Instalment and other credit sales. . . Accounts receivable, end of month . . Collections during month . . Inventories, end of month . Number of Stores Reporting . . 121 . . 106 . . 106 . . 116 . . 116 87 Percent Change January 1952 from January 1951 December 1951 — 46 +1 +2 — 41 +2 — 47 —9 —4 —9 +4 — 11 —1 WHOLESALE SALES AND INVENTORIES* Sales Percent Change Jan. 1952 from Jan. Dec. Type of Wholesaler 1951 1951 — 13 — 13 Automotive supplies . . . — 28 — 40 Electrical— Full line . . . — 11 “ Wiring supplies +11 — 27 — 17 “ Appliances. . — 22 +19 Hardware.......................... —6 +25 Industrial supplies . . . — 64 — 32 Jewelry............................... — 21 —7 Lumber & bldg. materials. +10 — 22 Plumbing & heating supplies + 20 Confectionery.................. + 10 +6 Drugs and sundries . . . +31 +23 — 19 Dry goods. . . . . . . —0 Groceries— Full line . . . +19 “ Voluntary group +8 +25 “ Specialty lines +30 —3 Tobacco products . . . . +2 +16 —5 Miscellaneous.................. . 14 —3 +10 — 12 Total .................................. . 150 * Based on U. S. Department of Commerce figures. No of Firms Report ing . 6 3 . 4 6 . 11 . 12 4 . 8 . 4 5 . 5 . 17 . 32 . 3 4 No. of Firms Report ing 5 Inventories Percent Change Jan. 31,1952, from Jan. 31 Dec. 31 1951 1951 +6 +10 *4 5 6 3 3 5 3 +2 —5 —5 +5 —8 +15 —3 +7 —3 +8 +11 +12 +35 + 26 i2 19 +ii —2 — 20 —9 3 8 14 90 +4 +5 +1 +49 —5 +15 +4 DEPARTMENT STORE SALES AND INVENTORIES* Percent Change Sales Stocks Jan. 1952 from Jan. 31,1952, from Dec. Jan. Dec. 31 Jan. 31 City 1951 1951 1951 1951 ALABAMA.......................... —5 +6 — 13 Birmingham.................. — 11 —6 +5 ., —1 M o b ile ........................... ., Montgomery.................. —5 FLORIDA .......................... +5 +3 —5 —8 Jacksonville.................. +5 —3 —9 +3 +6 — 12 +0 + ii T a m p a ........................... . — 51 +0 GEORGIA .......................... —i i — 10 +5 A t la n ta * * ...................... — 15 — 14 +7 ., Augusta.......................... +17 Colum bus...................... “ 0 —7 Macon.............................. —9 +4 —3 Rome** . . . . . . . — 10 ## ## Savannah**..................... +5 LO U IS IA N A ...................... +6 — 18 Baton Rouge .................. —7 +5 — 18 +5 — 20 +3 —6 —1 M ISSIS SIP PI..................... — 13 8 +8 — 16 Jackson .......................... ,. M e rid ia n **................... —7 —60 —7 TENNESSEE ...................... —4 —67 B r is t o l* * ....................... — 15 0 +1 ## Bristol-Kingsport-Johnson City** —68 — 17 — 57 Chattanooga.................. —3 — 59 — 12 K n o xv ille ....................... i.3 — 12 . — 60 —3 Nashville......................... —0 +1 DISTRICT ........................... . — 54 —4 +4 —8 +i2 —2 +2 — . ... . — 2 — — ♦Includes reports from 120 stores throughout the Sixth Federal Reserve District. **ln order to permit publication of figures for this city, a special sample has been con structed which is not confined exclusively to department stores. Figures for any such non-department stores, however, are not used in computing the District percentage changes or the District Index. A n n o u n c em en t LOANS On February 14, the Pinellas Central Bank, Largo, Florida, opened for business and will remit at par for checks drawn on it when received from the Federal Reserve Bank. Officers of this bank are: John W . Bryan, President; J. S. Pecarek, Vice President; T. S. Madson, Vice President; W. A . McMullen, Jr., Vice President; DeWitt Turner, Vice President and Cashier. The banJc opened for business with capital stock of $112,500 and surplus and undivided profits of $75,000. Since District textile mills specialize in cottons and have only 5 percent of the nation’s woolen and worsted looms, they have received less of a boost from Government orders than have mills in those sections where wool is the major input. Although the data are incomplete, there are other indica tions that the District textile industry has been contributing to the national defense program to a degree commensurate with its facilities. In April through June 19 5 1, about 10 percent of the Government orders for textiles and textile products were received by District firms. This is favorable when it is considered that in value added by manufacture in 1947, the last year for which figures are available, District textile and apparel manufacturers accounted for approxi mately 10 percent of the total added by these groups in the United States. In weighing prospects for a pick-up in District textile operations, the current level of inventories must be con sidered, as well as changes in consumer buying and mili tary procurement. Although December inventories of Dis trict textile mills were 1 5 percent below the peak reached in Ju ly 19 5 1, they were still 40 percent higher than the level existing at the beginning of the Korean War, or the average for 1947, 1948, or 1949. With inventories remain ing relatively large, and with little, if any, increase in mili tary textile buying forecast, a substantial upturn in con sumer textile purchases seems necessary before a much higher level of mill operations will be achieved. c. H . T. Notice The Board of Governors o f the Federal Reserve Sys tem has just published a pamphlet that will be o f considerable interest and use to bankers and monetary analysts. The study, entitled “The Development of Bank Debits and Clearings and Their Use in Eco nomic Analysis,” was prepared by George Garvy of the Federal Reserve Bank o f New York. It combines a statistical review of debits and clearings in the United States with a critical review of their use by economists and monetary analysts to interpret and project economic developments. This pamphlet, 175 pages, paper bound, can be obtained from the Board of Governors at a price o f 25 cents each up to ten copies, and 15 cents each for ten or more copies in a single shipment.
@FedFRASER