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FEDERAL RESERVE BANK OF CLEVELAND A NN UAL REPORT/ECONOMIC REVIEW Contents Income Growth and Industrial Change in the Fourth District 3 Financial Statement 22-23 Directors and Officers 24-27 The Economic Review is published quarterly by the Research Department of the Federal Reserve Bank of Cleveland, Post Office Box 6387, Cleveland, Ohio 44101. Free subscriptions and additional copies in reasonable quantities are avail able upon request. Material in the Eco nomic Review may be reprinted provided the source is credited. Please provide the bank's Research Department with copies of reprinted materials. ERRATA page 10 The numbers 11 through 99 under Manufacturing, Durable Goods should read 1 through 9. page 13 page 21 In the heading Structursl 8nd Competitive Effects Combined: Selected Ohio Industrued, substitute "Industries” for the final word. In the notation below the table, e = concentration o f private nonagricultural em ploym ent in O h io . ..should read e* = concentration of private nonagricultural em ploym ent in O hio... To Member Banks in the Fourth Federal Reserve District: l/l/e are pleased to present the 1978 Annual Report o f the Federal Reserve Bank o f Cleveland. This year's report traces the income growth and industrial change o f the district since 1949. As part o f the industrialized Midwest, the Fourth D istrict is largely viewed as a manufacturing economy. National concerns such as rising inflation, o il and energy shortages, threats o f recession, and controversies over wage and price controls, combine with local concerns over plant and m ill closings and removals o f national head quarters to present a picture o f uncertainty about the direction o f the regional economy. A ll o f these areas indicate that an in-depth study o f factors behind the apparent decline o f the older industrialized areas is both appropriate and necessary. Remarks about outdated industrial equipment and changing consumer preferences do n ot provide an adequate explanation o f the economy in transition; we must begin to look beyond the facile answers to the nature and causes o f this economic change. The study describes some aspects o f the economic change in the Fourth D istrict since World War II. O f partic ular concern is the nature o f the employment growth change that has occurred in the past th irty years. Each indus try is examined further to determine the underlying factors that contribute to its performance and relate it to the overall growth o f the district. The results o f this study show that although the Fourth D istrict has clearly experi enced slow growth, even, in some industries, negative growth, the economic environment o f the region is far from total collapse. Strengths have also emerged—fo r example, chemicals and petroleum. Further analysis is necessary, but the study is a first attem pt to seek answers to the hard questions concerning regional economic growth. As such, it gives rise to a more balanced view o f the Fourth D istrict economy; where it has been and where i t is going. We take this opportunity to thank the member banks, the directors and officers, and the bank personnel fo r their support which allowed us to meet our commitments fo r 1978. We look forward to your continued assistance and cooperation in meeting the responsibilities o f the bank in the future. Chairman o f the Board http://fraser.stlouisfed.org/ Report 1978 Economic Review /A nnual Federal Reserve Bank of St. Louis Federal Reserve Bank of Cleveland INCOME GROWTH AND IN D U S TR IA L CHANGE IN THE FOURTH DISTRICT Roger H. Hinderliter Robert H. Schnorbus The Fourth District economy is primarily a manufacturing community--a part of the industrial heartland of the United States stretching from the east coast through the Midwest. The region's present economic role as a center of heavy manufacturing evolved over many years. Past industrial expansion created large interrelated complexes in steel, fabricated metals, machinery, and other industries, and placed the District among the highest income producers and largest employers in the nation. However, in the older industrialized regions o f the country, including the Fourth District, the economic transition since World War II must be sketched in terms of relatively slower income growth and a relative loss of industry and employment. The resulting loss o f income and jobs from recent m ill closings in Youngs town, plant closings in Akron, and transfers of headquarters from Cleveland are symptomatic of the trend of post-war economic events in the Fourth District. Many factors underlie the post-war patterns of income growth and industrial change. Slower growth in the industrial ized regions has been attributed to such influences as higher wages, greater union ization of the labor force, more stringent government regulation and taxation, loss of entrepreneurial skills, unfavorable weather, and environmental and social http://fraser.stlouisfed.org/ Report 1978 Economic R eview/Annual Federal Reserve Bank of St. Louis decay.1 Although the determinants of regional economic activity remain contro versial, it is clear that income growth is related to industrial change. Long-run shifts of resources among industries, which alter the industrial composition of regions, are a primary channel through which income growth patterns are shaped. These shifts take place in a historical context. Regions have not developed at equal rates in the past, and regions that are now growing slowly were growing more rapidly 50 or 100 years ago. Long-run tendencies, however, must be expected to narrow discrepancies that have emerged among regions. In terms of income growth patterns, narrower dis crepancies result as regional per capita incomes converge to a norm or average set by the national economy.2 discussion of possible determinants of regional economic growth and alternative models fo r measuring their effects is contained in H arry W. Richardson's, "E m pirical Aspects of Regional G row th in the U nited States," The Annals of Regional Science (June 1 9 74). ^Convergence over the longer term is a widely accepted hypothesis o f regional eco nomic behavior. A good discussion o f long-term convergent income growth th at highlights the issues involved may be found in H arry W. Richardson's Regional Economics (N ew Y o rk: Prager Publishers, 1 9 6 9 ), pp. 3 4 7 -3 5 7 . The search fo r convergent growth has been a major This report describes the nature of income growth and industrial change in the Fourth District during the post-World War II period. In the next section, income growth patterns are examined for the District states. Personal and per capita income growth in Kentucky, Ohio, Pennsylvania, and West Virginia is com pared to national patterns. Per capita income in Kentucky and West Virginia, which were slower to industrialize and move away from agricultural and mineral resource dependence, increased relative to the national average, while per capita income in Ohio and Pennsylvania fell. Following this, the relationship between income growth and industrial change is outlined. Then, industrial change, as measured by employment growth rates, is examined for 31 Ohio industries (or industry groups) which were selected as a case study. General trends of industrial change consistent w ith Ohio's relatively slow income growth are apparent, but some industries perform counter to the trends. To understand the diversity of industrial change more clearly, growth rates of the selected Ohio industries are broken down to indicate the forces affecting long-run industry performance and to identify strengths and weaknesses among industries. them e in m any past studies o f regional econ omies. T w o im portant studies th a t link income growth and industrial change are: Harvey S. Perloff et al.. Regions, Resources and Econom ic Growth (B altim ore: Th e Johns Hopkins Press, 19 60); and George H. Borts and Jerome L. Stein, Econom ic G row th in a Free M a rke t (N ew Y o rk : Colum bia University Press, 19 64). 3 Post-War Income Growth in Fourth District States In early periods of economic development, the availability of natural resources heavily influenced the location of economic activity in District states. Such natural advantages as water transpor tation networks stretching from the Great Lakes and the Ohio River Valley, abun dant farm lands, and mineral deposits were important to the formation of early industries. Often, the locating industry was technologically tied to the resource, as with mines and farms, and costs were frequently minimized by locating the industry in the resource area, as with sawmills and iron works. As District states grew, their locational advantages offered favorable profit opportunities that attracted capital from the East and abroad to invest in the transport, pro cessing, and service facilities needed to develop local resources. The exploitation of these resources laid the groundwork for the later formation of heavy manu http://fraser.stlouisfed.org/ 4 Federal Reserve Bank of St. Louis facturing industries in the nineteenth and early twentieth centuries.3 In states such as Ohio and Pennsyl vania, where resources were abundant, early economic growth was rapid. Rein forcements through transportation im provements and market expansion sus tained this growth for many years. Growth processes, however, involve many elements that influence regional eco nomic activity-investment and employ ment incentives, product demand and distribution, technological progress, and resource cost and availability. These elements exert long-term influences on the m obility of productive factors (labor and capital), the diffusion of technology, and other equilibrating forces o f the ^The interdependent elements im portant to economic growth an interesting in District states form but highly detailed economic history. For some elaboration, see: Roger H. H inderliter, Banking "T h e in Origins the Fourth of Commercial Federal Reserve D istrict," Federal Reserve Bank o f Cleveland, Econom ic R eview /A nnual R ep ort (1 9 7 6 ). An illustration o f the com plexity o f growth pro cesses as they appeared to w ork in District states is provided by railroads. A n im portant source of investment and growth themselves, railroads extended m arket access fo r a variety of goods produced in District states. The growing demand for rails directly increased the demand fo r iron and steel products and was an incentive fo r assimilating available technology w ithin the prim ary metals industry. In addition, linkages were extended to such other industries im portant in D istrict states as m achinery and fabricated metal products. See: Peter Tem in , Causal Factors in Am erican Econom ic G row th in the N ineteenth Century (L on don : M acM illan Press, 1 9 7 5 ), pp. 42 -43; and fo r developments relevant to the D istrict, Louis C. market economy that ultim ately contrib ute to a narrowing o f regional economic discrepancies. As these discrepancies between states narrow, income patterns tend to converge to an average which is representative of the national economy. By the beginning of the post-World War 1 1 period, the cumulative effects o f develop ment in Ohio and Pennsylvania had pro duced relatively high per capita incomes. Kentucky and West Virginia shared in the historical development to some extent but, in general, were slower than their larger neighbors to move away from primary product ( land or resource ) dependence. The tendency for regional incomes to converge was already appar ent, indeed relatively fast growth in Ohio and Pennsylvania probably ended in the 1920's, when their share of personal income relative to the nation as a whole reached a peak. Since 1949, personal income in each of the District states has risen, but the states' combined share o f total personal income in the United States has steadily declined from 15.1 percent in 1949 to 12.6 percent in 1977 (Table 1, section A). Although Pennsylvania exper ienced the most severe relative decline, income growth rates in Ohio and West Virginia were also below the national average, thus reducing the income shares of these states. Only Kentucky, w ith a strong surge of growth between 1963 and 1977, increased its share o f personal income over the entire post-war period. Thus, personal income in Ohio and Pennsylvania for 1977 represented about H unter, "Influen ce of the M arket upon Technique in the Iron Industry in Western Pennsylvania up to 1 8 6 0 ," Journal of Econom ic and Business History (1 :1 9 2 8 -1 9 2 9 ). Federal Reserve Bank o f Cleveland TABLE 1 Income in the District States in the Post-War Period* 1949 (billions) Current $ 1963 % of U.S. (billions) Current $ 1977 % of U.S. (billions) Current $ % of U.S. A. Total Personal Income United States 205.8 -- 465.2 -- 1,530.8 2.7 1.3 5.8 1.2 21.0 Ohio 11.7 5.7 25.4 5.5 76.6 5.0 Pennsylvania 14.6 7.1 28.2 6.1 84.1 5.5 Kentucky West Virginia 1.4 2.0 1.0 3.3 0.7 10.8 0.7 31.0 15.1 62.7 13.5 192.5 12.6 44.6 - 100.6 0.4 0.9 1.0 1.0 3.5 Ohio 3.7 8.3 8.1 8.1 20.6 7.7 Pennsylvania 4.3 9.6 8.0 8.0 18.3 6.9 West Virginia 0.4 0.9 0.8 0.8 1.8 0.7 Fourth District Total 8.8 19.7 17.9 17.9 44.2 16.6 Fourth District Total B. Manufacturing Wages and Salaries United States Kentucky 266.3 1.3 C. Per Capita Personal Income United States 1,378 Kentucky - 2,468 7,077 943 68 1,863 75 6,050 85 Ohio 1,475 107 2,545 103 7,157 101 Pennsylvania 1,403 102 2,468 100 7,132 101 West Virginia 1,032 75 1,835 74 5,825 82 Fourth District Average 1,342 97 2,384 97 6,900 97 Source: See Appendix *T h e Fourth D istrict includes th e state o f Ohio and 56 counties in western K en tucky, 19 counties in western Pennsylvania and 6 counties in the panhandle o f West Virginia. Incom e data are, however, fo r com plete states. http://fraser.stlouisfed.org/ Report 1978 Economic R eview/Annual Federal Reserve Bank of St. Louis 5 The Relationship Between Income Growth and Industrial Change 5.0 and 5.5 percent, respectively, o f the U. S. total, down from the 1949 propor tions of 5.7 and 7.1 percent. West V ir ginia's share over the period fell to 0.7 percent from 1.0 percent, while Kentucky's share rose slightly to 1.4 percent in 1977 from 1.3 percent in 1949. A similar pattern is indicated by manufacturing wage and salary data (Table 1, section B). Again, the evidence shows a steady decline in shares in the combined states, with the largest slippage occurring in Pennsylvania. Kentucky clearly benefited from growth in the manufacturing sector. Measured by the manufacturing wage bill, Ohio surpassed Pennsylvania in size, though Ohio's share of U. S. wages and salaries in manufac turing also declined from 1949. West Virginia, unlike Kentucky, did not gen erate growth through the manufacturing sector. To the extent that growth of absolute income does not reflect a narrowing of regional economic dis crepancies, population movements pro vide an alternative adjustment. Thus, per capita income is an indicator that cap tures the propensity for absolute incomes to converge and for populations to shift among regions in search of more reward ing opportunities (Table 1, section C). Convergence o f per capita incomes is indicated if state-to-national per capita income ratios approach unity. Between 1949 and 1977, both Kentucky and West Virginia approached unity from below, while Ohio and Pennsylvania approached it from above. West Virginia's population was virtually stable over the entire period, thus offsetting its slow growth of abso lute income. http://fraser.stlouisfed.org/ 6 Federal Reserve Bank of St. Louis Income growth evidence from the District states is fu lly consistent with the convergence hypothesis of long-term regional economic development. The pattern of per capita income growth over the post-war period shows that all four states have drawn closer to the average per capita income in the national econ omy. These income growth patterns are linked to changes in the industrial make up of the states. Two basic views of industrial change and its impact on regional income growth can be identified. According to one view, a regional economy progresses from a near-subsistence level of economic activity, dependent on production of primary products, to higher standards of living through increased employment in manufacturing and later through shifts into services, finance and related activ ities. The gradual evolution of the indus trial composition of the regional econ omy raises income through the potential for larger and more rapidly growing markets and a more efficient allocation of resources.4 Although all regions are expected to pass through the same sequence, regions may differ at any given time in their cumulative development and in their rate of progress through the various stages. Another view, derived from in dustrial location theory, emphasizes specialization in production at an early date in a region's development. Special ization implies that a region devotes large amounts o f resources toward the production of "e x p o rt" goods, and the industries that emerge from specialization form an export base which becomes the sustaining force behind long-term growth. Regions differ initially by the amount and quality o f their natural resources that support economic activity and by the extent to which those advantages contri bute to specialization. Over time, as natural advantages are exploited, special ization in export industries is reinforced by growth o f the market for exported goods, additions of infrastructure, and economies of scale in the production of regional exports.5 Despite their differing historical perspectives, these tw o approaches are not mutually exclusive views of regional economic development.6 Together, they identify key interrelated elements that link relative income growth and measures ^Gains in regional economic activity are therefore associated w ith benefits o f large scale production. As th e industries in which a region is specialized expand, other activities are attracted in support of the export base. Labor and ^ In "higher stages" of development, capital growth broader set of "L o c atio n are thus spread over a industries. is more w idely diversified N o rth , and gains are G ro w th ," Journal o f P olitical Econom y (June productivity increased physical labor skills capital. and Moreover, associated w ith accum ulation it of Th eo ry See: Douglass C. economic activity and Economic 1 9 5 5 ), pp. 2 5 1-25 6. is generally ®For true th at th e potential fo r m arket growth is a synthesis o f these approaches greater in m anufacturing and service activities to regional grow th, see: J. C. Stabler, "E xports than and in agricultural com m odities or other prim ary products. For an expanded treatm ent Evolution: The Process of Regional Change," L a n d Economics (February 1 9 6 8 ). of this topic, see: Edgar M . Hoover and Joseph L. Fisher, "Research in Regional Economic G ro w th ," in Econom ic G row th Bureau of Problems Economic (N ew in the Y o rk : Research, Study of National 1 9 4 9 ), pp. 180-188. Federal Reserve Bank of Cleveland Industrial Change: Employment Growth Rates of Ohio Industries of industrial change. In the first view, industrial change is accomplished through internal employment shifts, that is, relative changes in the distribution of employment among industries w ithin a region. The rise of manufacturing relative to agriculture and, more recently, shifts to service-type activities ty p ify this distributional change. Such rearrange ments are accompanied by more efficient allocation of resources and are thus an important influence on regional income growth. In the second view, industrial change is accomplished through external employment shifts among regions, that is, through changes in the concentration of employment in one region relative to other regions or to the nation as a whole. In a region where particular industries are growing faster (or slower) than is typical for those industries in the national economy, the concentration of employ ment is rising (or falling). Because large concentrations of employment signify areas o f specialization where a region is likely to produce for export as well as for its own consumption, changes in concen tration reflect changes in a region's export base and, consequently, changes in the flow o f export income.7 7A region th at is relatively large, like Ohio and Pennsylvania among Fourth District states, w ill generally have large concentrations of em ploym ent in m any industries simply because o f absolute size. W hether these con centrations are significant in an export-generating sense is another m atter. Measures of specialization are therefore evaluated against a standard o f "self-sufficiency" to determ ine export industry capacity. It is assumed th at in any a self-sufficient concentration of region w ill have a em ploym ent equal to the Income growth is associated w ith a variety of cumulative effects that alter the distribution or concentration of employment w ithin a region. To illustrate the details of industrial change that underlie the broad patterns of income growth, Ohio, the only state completely enclosed in the Fourth District, is used as a case study. By 1949, more than 6 percent of the nation's private nonagricultural jobs were located in Ohio (see Appendix, Table A-1). The distribution of employ ment was almost evenly split between manufacturing and nonmanufacturing activities, but it was in manufacturing that large concentrations of employment and important areas of specialization had developed. The rubber industry provided about 3 percent of Ohio jobs, a smaller distribution than several other manufac turing and nonmanufacturing industries in the state, but more than 25 percent of all U. S. rubber industry jobs were located in Ohio. Thus, in 1949, Ohio was specialized to a high degree in rubber. A high degree of specialization also existed in stone/clay/glass, primary and fabri cated metals, nonelectrical machinery and electrical equipment; all with employ ment concentrations exceeding 10 per cent. Other manufacturing industriesfurniture, transportation equipment, pa per and printing/publishing-though less prominent, were also constituents of the export base. With the exception of railroads, no specialization in nonmanu facturing had developed. If employment in all Ohio indus tries grew at the same rate as employment in the national economy, the distribution and concentration o f employment would not change. Like the Red Queen in Through the Looking Glass, each Ohio industry must grow at the rate set by the national average of all industries just to maintain relative employment positions. Faster (or slower) growth implies a relative shift of jobs toward (or away from) Ohio and changes industrial com position in the state. Of course, few industries exactly match national growth. Deviations from the national aver age may be associated with tw o types of events. First, some industries in Ohio and elsewhere may participate in a general flow toward or away from the output of those industries. These "structural" effects relate to changes in the supply and demand mix in the national economy that affects industries differently. On the supply side, changing technology could benefit some industries relative to all others, while on the demand side, s o m e thing as simple as changing consumer tastes could unevenly affect industry growth prospects. Structural effects thus pull Ohio industries along in the wake of national economic movements and, in the process, alter the distribution of employ ment in the state. Secondly, deviations from the na tional average rate of employment growth are produced by different growth rates in Ohio industries relative to the same indus tries located elsewhere. These "compet itive" effects relate to such factors as proportional size o f the region in the national economy and export industries w ill exceed this standard. http://fraser.stlouisfed.org/ R eport 1978 Economic R eview/Annual Federal Reserve Bank of St. Louis 7 differences in production costs, the ability to assimilate available technology, and local market demand. The primary metals industry, fo r example, could expand faster (or slower) in Ohio than primary metals in the nation and the state's economy would therefore be better (or worse) o ff as a result of its relative own industry growth, regardless of the overall condition of metals. Com petitive effects thus measure regional differences in individual industries' per formance, and, in their simplest form, alter both the distribution and concen tration of employment. Viewed in this manner, employ ment growth rates in Ohio industries contain three pieces of inform ation-the performance of an industry relative to the national standard, and the structural component and competitive component of that performance.8 Individually, the 8"J"his analysis, referred to structural and competitive components may be either positive or negative. However, if observed growth in any industry is just equal to national growth, the structural and competitive compo nents must sum to zero. If an industry is growing faster than the national rate, structural and competitive components must sum to a positive number, while adjusted growth less than the national rate requires a negative sum (see Inset). Employment growth rates of Ohio industries are shown in Chart 1 (see pp. 10-11) for two post-war subperiods, 1949-1963 and 1963-1977.9 The rate of growth of total (U. S.) private nonagri cultural employment during these periods is taken as the national growth com ponent and serves as the standard of comparison for Ohio industries. The strength of an industry's growth relative to the national standard is indicated by as "s h ift/ ^The value o f any growth rate depends share," is descriptive rather than determinative, on the base selected for computing the percent age change. The values shown in Chart 1 and used hereafter are an average o f rates computed but it does present a comparative fram ew ork fo r measuring industry performance. The tech nique adopted in this study is the classical form introduced by Perloff, et al.. Regions, Re sources and Econom ic G row th. In this form , com petitive components are gross effects in the sense th at they alter both the distribution and concentration of em ploym ent. Extensions of the analysis proposed by J. M. Esteban-Marguillas, "A Analysis," Reinterpretation Regional and of Shift/Share Urban Economics (August 1972) and examined further by Henry W. Herzog, Jr. and Richard J. Olsen, "S h iftShare Analysis E ffect and the S tab ility of Regional Struc Revisited: Th e A llocation tures," Journal o f Regional Science (Decem ber 1 9 7 7 ), suggest "norm alization from the initial period and rates computed from the term inal period. the position of an industry relative to the dotted diagonal lines (135 degree), three of which are labeled in Chart 1 for reference. Industries on any common diagonal (e.g., paper and printing/pub lishing in 1949-1963, or services and bituminous coal mining in 1963-1977) have the same growth rate. The structural component is measured by the vertical distance from the origin and the com petitive component by the horizontal distance. Thus, fo r example, industries located in the upper right-hand quadrant of the Chart are characterized by a faster growth rate than the national economy, and both the structural and competitive components make positive contributions to the performance. The 31 Ohio industries that are plotted on Chart 1 fall into three classi fications: about an equal number in each subperiod matched or surpassed the national growth rate; experienced zero or negative growth; and fell onto the middle ground between zero growth and the expansion rate o f the national econ omy. As would probably be expected, the : economic problems that Ohio encoun tered after World War II do not appear as a uniform decline in industrial capability. Some industries have accomplished much in terms of expanding employment opportunities. In 1949-1963, for ex ample, banking, other finance, and trans portation equipment were especially robust growth industries, and in 19631977, services and bituminous coal mining were prominent growth industries. procedures" that would reduce com petitive effects to a net on im pact concentration. Because the separate net effects on distribution and con centration are less im portant here than the overall compositional changes, fram ew ork was adopted. http://fraser.stlouisfed.org/ 8 Federal Reserve Bank of St. Louis th e simple Federal Reserve Bank of Cleveland INSET A Technique o f Regional Industry Analysis The employment growth rate of any industry in a region can be decom posed into three parts: the national growth component, the structural com ponent and the competitive component. The national growth component is the rate o f growth in total (U. S.) employ ment. This captures the influence of the larger economy and serves as the standard o f comparison. The structural component is the rate of employment growth fo r an industry in the nation as a whole, minus the national growth component. This captures the influence of shifts w ithin the national economy (e.g., from manufacturing in dustries to nonmanufacturing industries). The competitive component is the differ ence between the rate o f employment growth in a region's industry and the growth fo r that industry in the nation as http://fraser.stlouisfed.org/ Economic R eview/Annual Report 19 78 Federal Reserve Bank of St. Louis a whole. This captures the extent to which a regional industry enjoys an advantage (or suffers a disadvantage) relative to the same industry outside the region, thus experiencing faster (or slower) growth than is characteristic of the industry in general. Algebraically, an observed rate of employment growth in any industry w ithin a region (gj) may be represented as an identity-- the sum o f the national growth component (gn), structural com ponent (gs), and competitive component (gc): 9i = 9n + 9S + 9C To focus on the contributions of the structural and competitive components of industry growth, the identity may be slightly rearranged: ii 9n 1.0 ik+Jk 9n 9n This relationship Chart 1. is (gn> 0) diagrammed in The general course of employment growth indicated by Chart 1 emphasizes nonmanufacturing industries as the more rapidly growing areas of the Ohio econ omy. Services, banking, other finance, other transportation/public utilities (which includes communications, air travel and other functions) and some trade industries expanded employment at fairly rapid rates. Negative growth indus tries in nonmanufacturing are few and only railroads consistently contracted employment over both subperiods. This contrasts to the performance in manu facturing industries where employment contracted in several industries, most notably textiles/apparel, other nondur able goods, manufacturing (primarily leather products) and furniture. In industries where Ohio was specialized and enjoyed an export advantage, including primary metals in 1949-1963 and elec trical equipment in 1963-1977, negative growth rates were also registered. Although general tendencies are apparent in Ohio industry performance, it is important to qualify these tenden cies. Some industry growth rates were fairly constant but others, like electrical equipment in manufacturing and other finance in nonmanufacturing, change substantially. A number of other indus tries experience clear, if less substantial, differences in employment growth rates between 1949-1963 and 1963-1977 sub periods. 9 CHART 1 Industry Growth Rates in Ohio Manufacturing \ %i 8\ 1T \ \ '26 $ Durable Goods 11. Lumber/wood products '.•27 22. Furniture 3T 1 3 ? '5 33. Stone/clay/glass 5m, 9c / 9n 14 23* \ m 20 44. Primary metals *21 55. Fabricated metals 66. Nonelectrical machinery 77. Electrical equipment/supplies 4m 11 \ 12* 88. Transportation equipment m 99. Instruments 30 m m 18 10. Other durable goods 16 9i~ 2 g n Nondurable Goods 11. Food 9i 12. Textile/apparel 13. Paper 14. Printing/publishing 19 15. Chemicals 9i=Cf 16. Petroleum 17. Rubber 18. Other nondurable goods 29m is / in 1 9 4 9 -1 9 6 3 gn = 1.62 % per year http://fraser.stlouisfed.org/ 10 Federal Reserve Bank of St. Louis Federal Reserve Bank of Cleveland Nonmanufacturing Transportation/Public Utilities 19. Railroads 20. Electricity/gas/sanitary services 21. Other transportation/public utilities Trade 22. Wholesale 23. General merchandise retail 24. Apparel retail 25. Other retail Finance/Services 26. Banking 27. Other finance 28. Services Mining/Construction 29. Bituminous coal mining 30. Other mining 31. Construction Key: gj = Industry growth rates gn = National growth component gs = Structural component gc = Competitive component gn 9n 9n Source: See Appendix http://fraser.stlouisfed.org/ Economic Review/Annual R eport 19 78 Federal Reserve Bank of St. Louis Structural and Competitive Components of Ohio Industry Growth The structural and competitive components of employment growth expand the picture of Ohio industry performance and further sharpen the perspective on regional industrial change. In some cases, the structural component of growth, indicated by the vertical position on Chart 1, is quite large, often the dominant influence on Ohio industry performance. For example, large negative structural effects clearly account for the lack of overall growth in railroads. In both subperiods, the Ohio railroad industry experienced negative growth, essentially because of general shifts away from rail transport throughout the United States. On the other hand, strong employment growth in banking and in services in both subperiods was related primarily to the forces that caused banking and services to expand rapidly in the national economy. In the earlier subperiod of 19491963, it is d ifficu lt to identify any general model of structural components among the Ohio industries. Of 14 indus tries with positive structural growth components (those lying above the horizontal axis on Chart 1), six were in durable goods manufacturing, three in nondurable goods manufacturing, and five in nonmanufacturing. The durable goods industries included fabricated metals, nonelectrical machinery, electrical equipment, and transportation equip ment; nondurable goods industries in cluded rubber. All of these industries were among the areas of Ohio's export specialization in 1949. In the earlier http://fraser.stlouisfed.org/ 12 Federal Reserve Bank of St. Louis subperiod, then, national economic events working through structural effects were favorable to a number of Ohio industries, several of which were areas of specialization. This changed in 19631977. In the later subperiod, structural effects clearly favored nonmanufacturing industries. Competitive effects on industry performance reflect the extent to which Ohio industries outpaced (or fell behind) their counterparts in the nation. The competitive component of employment growth rates, measured in the horizontal dimension on Chart 1, can reinforce or offset the structural component. Bitu minous coal mining in Ohio, which experienced the most severe structural drag on growth in the 1949-1963 sub period, nevertheless performed consider ably better than coal mining in general. On the other hand, textiles/apparel in Ohio, which also experienced unfavorable structural effects on growth in the 1949-1963 subperiod, faced a serious competitive disadvantage that pulled the overall employment growth rate down further. In the 1949-1963 subperiod, com petitive components of employment growth rates were positive in nine Ohio industries (those lying to the right of the vertical axis). Transportation equipment experienced highly favorable competitive effects on growth and Ohio's special ization in transportation equipment in creased as a result of expansion in the earlier post-war subperiod. Another im portant industry that grew faster in Ohio than in the nation was petroleum. Several nonmanufacturing industries, banking and other finance among them, experi enced modest positive competitive effects on growth. No industry in which Ohio enjoyed a high degree of specialization at the beginning of the subperiod had a competitive advantage. Negative com petitive growth rate components were largest for electrical equipment and rubber, but stone/clay/glass, primary and fabricated metals, and nonelectrical ma chinery in Ohio all expanded employ ment more slowly than these industries did in the nation. In 1963-1977, eight industries grew faster in Ohio than in the nation as a whole. Several industries w ith positive competitive components o f growth in the earlier subperiod retained or even im proved their competitive advantage. These included bituminous coal mining, other transportation/public utilities, and petroleum. Chemicals emerged as a relatively strong industry in Ohio, as did instruments. In nonmanufacturing, ser vices and general merchandise retail trade had positive, though relatively small, competitive components of growth. On balance, it was again true in 1963-1977 that few Ohio industries expanded employment faster than their national counterparts, and no industry of specialization did so. Transportation equipment lost its competitive edge-the Ohio industry expanded no faster than transportation equipment in general. Even so, some areas of strength were apparent; Ohio chemicals and petroleum were notable growth centers in the later subperiod, as was the collection of industries in other transportation/public utilities. Federal Reserve Bank of Cleveland Structural and Competitive Effects Combined: Selected Ohio Industrued Structural and competitive com ponents of employment growth are indicators of Ohio industry performance. These growth rate components imply changes in the distribution and concen tration of employment and are related to state income growth. Although the forces underlying industrial change are more d iffic u lt to specify, the growth rate components are suggestive evidence of where to look for the key determinants of industry performance. A t this level of analysis, judgments on performance re tain a highly speculative quality. Even so, two basic observations from the analysis can be emphasized. To a greater extent than either overall employment growth rates or the struc tural component of these rates, the competitive component in Ohio indus tries underscores the state's economic problems in the post-war period. Few Ohio industries, whether manufacturing or nonmanufacturing, experienced favor able competitive effects on growth. Moreover, employment growth rates and their structural and competitive compo nents shift over time. To extend these observations, a subset of industries is examined further, and, for emphasis, growth rates and their components are compressed into a single diagram (see Chart 2 pp. 14-15). http://fraser.stlouisfed.org/ Economic Review /A nnual R eport 1978 Federal Reserve Bank of St. Louis Shifts in the structural and compet itive components of employment growth rates emphasize the structural rearrange ment away from manufacturing that has intensified in recent years (Chart 2, section A). Competitive effects on employment growth rates, however, gen erally improved between 1949-1963 and 1963-1977. As already noted, chemicals and petroleum in the 1960's and 1970's were among Ohio's fastest growing industries. The driving force behind these industries' performance is to be found to a greater extent in production and market characteristics of the local industries than in charactistics of the national economy. In the major durable goods indus tries of export specialization, the largest shifts between subperiods in Ohio oc curred in transportation equipment and electrical equipment. A fter World War II, transportation equipment appeared as the most rapidly expanding durable goods industry in the Ohio economy. The early post-war growth was accompanied by structural pull from the national economy. More significantly, expansion stemmed from competitive growth of the Ohio industry. However, a substantial decline in the structural component of growth and a loss o f competitive advantage in 1963-1977 left the industry in Ohio w ith an employment growth rate below that of the national economy. Automobiles and auto parts are the largest product lines in the Ohio industry and post-war developments are likely to be associated w ith factors influencing the automobile markets. In the later sub period increased popularity of imported autos is an obvious structural factor contributing to slower expansion. The source of the competitive decline in the 1963-1977 subperiod, is however, less clear. Electrical equipment experienced a strong structural pull on growth during the earlier post-war subperiod, perhaps attributable to the electronics boom after the war. If this was the cause, however, the Ohio industry was on the periphery; it may have benefited from spill-overs, but it expanded at a much slower rate than the industry as a whole. In 19631977, the structural pull on electrical equipment dissipated and the growth rate relative to the expansion of total jobs in the national economy fell. How ever, there was some increase in the competitive component of employment growth in Ohio's electrical equipment industry. Thus, although employment growth in electrical equipment slowed in the United States in the later sub period, and the Ohio industry expanded more slowly still, Ohio producers were able to improve their position relative to the overall industry. To some extent, it appears that the improved competitive position was accomplished by acquiring technological capabilities in electronics areas where Ohio industries were by passed earlier. 13 CHART 2 Changes in Industry Growth Rates: 1949-1963 to 1963-1977 A. Manufacturing 3. Stone/clay/glass 4. Primary metals 5. Fabricated metals 6. Nonelectrical machinery 7. Electrical equipment/supplies 9c l9n 8. Transportation equipment 15. Chemicals 16. Petroleum 17. Rubber http://fraser.stlouisfed.org/ 14 Federal Reserve Bank of St. Louis 9*/9n Key: 1949-1963 growth rate 1963-1977 growth rate Source: See Appendix Federal Reserve Bank o f Cleveland B. Nonmanufacturing 19. Railroads 21. Other transportation/public utilities 22. Wholesale trade 23. General merchandising retail trade 26. Banking 27. Other finance 28. Services 29. Bituminous coal mining 31. Construction http://fraser.stlouisfed.org/ Economic R eview/Annual R eport 1 9 78 Federal Reserve Bank of St. Louis — 5 15 The remainder of the durable goods manufacturing industries where Ohio was highly specialized in 1949 recorded improved competitive components of employment growth rates in 1963-1977, and generally higher overall growth rates relative to the national average as well. These heavy industries have often been characterized as burdened with aging or obsolete capital facilities and as vulner able to market incursion by foreign producers or substitute products. Evi dence developed for Ohio in the early 1970's suggests the possibility that obsolete productive facilities in primary metals may have exceeded 40 percent of total capacity, and obsolescence in stone/clay/glass, fabricated metals, and nonelectrical machinery may have been between 20 and 30 percent. These estimated obsolescence rates are high, relative to the nation; an aging capital stock may well be an ongoing problem fo r Ohio industries.10 Considering such circumstances, Ohio industries may have done well to improve their position. ^ R u b b e r also had estimated obsolete facilities in excess o f 2 0 percent, but so did chemicals, a more rapidly expanding industry. The smallest proportion (6 percent) o f obsolete capital was in transportation equipment. See: W ilford L. L'Esperance and A rth u r E. King, " T h e Age D istribution o f Ohio's Manufacturing Shifts in employment growth rates between the earlier and later subperiods among nonmanufacturing industries in Ohio form a diversified pattern between the earlier and later subperiods, and general tendencies are less readily identi fiable (Chart 2, section B). Structural drag eases in some industries (railroads), but begins to affect others (construction). A t first glance, many o f these structural changes seem to be associated with the energy problems that emerged in the early 1970's. Railroads continued to be faced with competition from other modes of transportation, government regulation of freight rates, labor prob lems and deteriorating capital stock; nevertheless, they benefited from heavier traffic through increased coal shipments in the 1970's. The decline in the struc tural growth component of the construc tion industry reflects, in part, the w ith ering away of the interstate highway program. The largest structural change that occurred among all Ohio industries was the shift in bituminous coal mining. Ohio coal mines were relatively strong compet itors in both subperiods, but the elimi nation of the large structural drag in the 1963-1977 subperiod, especially from 1972 on, transformed the industry's em ployment growth prospects. The impor tance of exogenous situation shocks to industries is most apparent in coal m in ing. The energy crisis benefited coal mining even if it did not benefit the economy in general. The developments in coal also suggest the possibility of interdependence among the structural and competitive forces that affect indus trial change. Ohio mines enjoyed a larger competitive edge in the depressed mar kets of 1949-1963 than in the more buoyant setting of the later subperiod. As coal's importance as an energy source grew, even marginal facilities presumably shared in the gains. Of course not all structural changes are the effects of sudden shocks that quickly change industry behavior. Indeed, most such changes are long-term move ments that affect industries gradually. Perhaps the most widely recognized aspect of long-run industrial change is the post-war shift into service-type activities. Banking, other finance services and some trade industries were growth centers in the post-war economy o f Ohio as well as throughout the nation. Structural effects were the dominant influences on their growth rates and it is likely that labor intensive production processes were im Plant and E quipm ent," Bulletin o f Business Research, Part I (A p ril 1 9 7 5 ), p. 4 ; Part II (M ay 1 9 7 5 ), p. 4. http://fraser.stlouisfed.org/ 16 Federal Reserve Bank of St. Louis Federal Reserve Bank o f Cleveland Summary and Conclusions portant determinants of these industries' growth.11 However, competitive com ponents of growth rates have been relatively small in the Ohio industries. The competitive component became positive in services and in general mer chandise retail trade in the 1963-1977 subperiod, but it became negative in banking and other finance. Thus, al though Ohio participated in the general movement toward services, finance, and trade, it did not develop any consistent advantage in these individual industries. Service-type activities, at least to some extent, are anchored to the local market, and competitive advantages that would contribute to more rapid expan sion of Ohio industries may be d ifficu lt to develop independent of this market. Other transportation/public utilities in Ohio (which includes a number o f activ ities), is an exception. The competitive component of growth in this industry group increased substantially in the 1963-1977 subperiod. Unfortunately, it cannot be determined where the strength lies. Trucking/warehousing and communi cations, the largest members of the industry group, appeared to expand in Ohio at about the same rate as in the nation as a whole, but information is very sketchy and further analysis is necessary. 11 In industry, slow a detailed Fuchs increases instrumental study concluded in o f the service th at o u tp u t/la b o r in the growth relatively ratios Industrial change between 1949 and 1977 in Ohio produced a substan tially different industrial composition (Appendix, Table A-1). The distribution of employment shifted toward nonmanu facturing activities, which accounted for over 60 percent o f Ohio's jobs in 1977. Distributional gains were largely confined to industries in the trade and finance/ser vices groups, which benefited from the structural effects working through the national economy. Concentration o f employment in Ohio also changed significantly between 1949 and 1977. By 1977, private nonagricultural employment in Ohio was 5.3 percent of the nation's total, down nearly a full percentage point from 1949. In the industries of high specialization in 1949, employment concentrations were all lower by 1977. Concentration in electrical equipment declined by 55 percent, and the measured degree of specialization was reduced as a result of this large shift away from Ohio manu facturers. In rubber, employment con centration fell by 44 percent and in the other key manufacturing industries the relative decline ranged from 11 per cent in primary metals to 28 percent in nonelectrical machinery. Yet, in each of these industries, Ohio retained a high degree of specialization. A few Ohio industries ran counter to the trend. Transportation equipment strengthened, and here Ohio developed a high degree of specialization by 1977. The expansion in transportation equip ment was, however, a result of the strong performance in 1949-1963, and more recent growth has been less robust. Chemicals held its own in terms of concentration and Ohio's petroleum industry increased its employment con centration fairly substantially between 1949 and 1977. Employment in Ohio's nonmanufacturing industries generally increased, but concentration remained low and, in most cases, decreased. Coal mining strengthened sufficiently to de velop moderate export specialization for the state by 1977. Ohio banking and services were less concentrated in 1977 than in 1949, and other finance remained unchanged. Structural and competitive effects on industry employment growth have been complex, and vary from industry to industry. General observations about industrial change that emphasize only structural developments, such as the switch from manufacturing to nonmanu facturing activities, at best tell only part of the story. Competitive effects on re gional industries are equally important and must also be carefully considered in an analysis of industrial performance. were process (i.e., a given expansion o f service o u tp ut seems to require more labor than does m anufacturing o u tp u t). See: V ic to r R . Fuchs, The Service Econom y (N ew Y o rk : National Bureau of Economic Research, 1 9 6 8 ),pp. 3-5. http://fraser.stlouisfed.org/ Economic R eview/Annual Report Federal Reserve Bank of St. Louis 1978 17 Data Appendix Industrial change has not been uniform over time. In the case of Ohio industries, both structural and competi tive components of industry growth rates generally shifted between the subperiods for which they were examined. In partic ular, competitive disadvantages, measured by relatively slower growth in Ohio industries, were often reduced in the faster-paced economy of the later sub period. In Ohio, this was especially true for manufacturing industries. One reason may be that the long-term growth process leaves a residual amount of marginal capacity which, in a fast-moving economy, can be brought into pro duction. The image of the Fourth District economy, and in particular, the State of Ohio, is that of a region in relative economic decline. In a sense, evidence presented in this study confirms that image. The evidence suggests, however, that the nature of the regional economic transition is often misinterpreted. Con vergence to a national standard is clearly indicated by post-World War II income patterns in District states, but conver gence does not mean a collapse of the re gional economy. There are, o f course, burdens associated with any economic transition. In a state like Ohio, these may http://fraser.stlouisfed.org/ 18 Federal Reserve Bank of St. Louis seem to be great because both the distri bution and concentration o f employment have been gradually adjusting away from the manufacturing industries where the highest degree of specialization had historically developed. However, special ization in heavy manufacturing was determined early in Ohio's economic development and w ill continue to be its economic foundation in the future. Further research of the factors deter mining the structural and competitive components of growth rates in these specialized industries w ill provide valu able insights into the ongoing growth process of the Fourth District. Data Sources The income and employment data developed for this study were compiled from the following sources: Table 1 U. S. Department o f Commerce, Bureau o f Economic Analysis (Local Area Personal Income) U. S. Department of Commerce, Bureau of the Census (Current Population Reports, Series P-25) Chart 1, Chart 2, Appendix Table A-1 U. S. Department o f Labor, Bureau of Labor Stastistics (Employment and Earnings) Ohio Bureau of Employment Services (Employment, Hours and Earnings in Ohio) Federal Reserve Bank o f Cleveland Industry Definitions The analysis of employment growth rates utilized establishment survey em ployment data for Ohio and the nation at three periods in time: 1949,1963, and 1977. The three years were selected to yield comparable time intervals for the analysis and to provide cyclically similar points that minimize short-term impacts on employment levels. To focus on industrial composition in the private sector, government employment was sub tracted from nonagricultural employment to obtain a measure of total employment for the study. With the exception o f the miscel laneous "o th e r" categories, which are balancing groups in each aggregate sector, two-digit SIC's were selected as the appropriate level of industry disaggre gation. In part, this was dictated by data availability and by the method of analysis itself. A preferred industrial breakdown would perhaps correspond more closely to specific markets or product lines, but such delineations are seldom attained, even at higher SIC classification levels. Further, in shift/share analysis the results seem to depend on the level of industrial aggregation of the data. As the number of industrial categories is broken down more finely, eventually reaching an individual firm or plant definition, the http://fraser.stlouisfed.org/ R eport 1978 Economic Review /A nnual Federal Reserve Bank of St. Louis competitive component w ill tend to vanish.12 Even though they represent a larger collection of products under a single classification than might be desir able, two-digit SIC's appear to be a reasonable empirical compromise. Revisions and Adjustments to the Data The income data (Table 1) were revised extensively at the source in 1974, but no attempt has been made in this study to adjust for the revision back to 1949. Prior to 1974, the Bureau of Eco nomic Analysis computed its estimates of "Personal Income and Components” on a place of residence basis. In 1974, the method of compiling personal income figures was changed to a place of work basis in order to provide a proxy for I^S ee, "T h e especially: David B. Houston, G row th: w ould, Overlap R atio equals: S h ift and Share Analysis o f Regional A C ritiq u e," Southern Econom ic Journal (A p ril 1 9 6 7 ), pp. 5 7 9 -5 8 0 . A firm or plant industry output at the state level. Because of backdating, the revision was available for 1963 as well as 1977; but the old series was used for 1949. The employment data were com parable except for SIC classification in 1977. The national employment data for 1949, 1963 and 1977 were derived from the same source and therefore used the same SIC classifications. Ohio data for 1949 and 1963 were comparable to the national data. In 1977, Ohio revised its industry groupings to conform with the 1972 SIC classifications. In order to m odify the 1977 Ohio data to conform w ith the national data, an overlap ratio to adjust for differences between the 1967 and 1972 SIC classifications was constructed using the following formula: defin ition of of course, "in d u stry" be quite or "sector" differen t from a m arket or product line definition. Although disaggregation along firm or plant lines w ould ultim ately result in uniqueness between a region and the nation, and hence in a vanishing com petitive com ponent, it is not at all clear that such dissaggregation proposition. is a January 1 9 7 6 Ohio em ploym ent (1 967 SIC ) January 1 9 7 6 Ohio em ploym ent (1 9 7 2 SIC ) This overlap ratio was computed for each industry grouping and m ultiplied by that grouping's 1977 employment average to derive an annual figure in 1967 SIC terms. meaningful Industrial Composition 1949 and 1977 Industrial composition in Ohio is tabulated for 1949 and 1977 in Table A-1. 19 TABLE A-1 Industrial Composition in Ohio 1949 and 19771 1977 1949 D istrib ution Concentration Specialization D istrib ution C oncentration Specialization -- 6.2 -- -- 5.3 -- Manufacturing 48.7 7.9 -- 37.1 6.8 -- Durable Goods 33.5 10.4 - 26.2 8.1 - 1. Lumber/wood products 0.5 1.5 HNS 0.3 1.8 HNS 2. Furniture 1.0 7.5 MS 0.5 3.5 MNS 3. Stone/clay/glass 2.9 13.4 HS 1.8 10.0 HS 4. Primary metals 7.5 15.5 HS 4.6 13.7 HS Private Nonagricultural Employment 5. Fabricated metals 5.4 14.2 HS 4.4 10.9 HS 6. Nonelectrical machinery 6.7 13.3 HS 5.9 9.6 HS 7. Electrical equipment/supplies 4.7 12.6 HS 3.1 5.7 MS 8. Transportation equipment 3.5 6.7 MS 4.3 8.5 HS 9. Instruments 0.4 3.9 MNS 0.6 3.8 MNS 0.9 5.2 MNS 0.6 3.8 MNS 15.2 5.2 - 10.9 4.8 - 3.8 4.9 MNS 2.1 4.3 MNS 10. Other durable goods Nondurable Goods 11. Food 12. Textile/apparel 1.8 1.8 HNS 0.7 1.1 HNS 13. Paper 1.3 7.0 MS 1.1 5.6 MS 14. Printing/publishing 2.2 7.0 MS 1.7 5.6 MS 15. Chemicals 1.6 6.1 MNS 1.8 6.1 MS 16. Petroleum 0.4 4.3 17. Rubber 3.3 27.8 18. Other nondurable goods 0.7 3.5 http://fraser.stlouisfed.org/ 20 Federal Reserve Bank of St. Louis MNS 0.4 6.5 MS HS 2.9 15.5 HS MNS 0.2 2.0 HNS Federal Reserve Bank of Cleveland 1977 1949 D istribution Concentration Specialization D istrib ution Concentration 51.2 5.1 62.8 4.7 Transportation/Public Utilities 7.8 4.6 6.0 Specialization 4.6 Nonmanufacturing 19. Railroads 3.9 6.6 MS 0.9 20. Electricity/gas/sanitary services 1.3 5.8 MNS 1.0 4.9 MNS 21. Other transportation/public utilities 2.6 3.0 HNS 4.0 4.3 MNS Trade 21.7 22. Wholesale 4.9 23. General merchandise retail 24. Apparel retail 5.4 25.6 5.8 3.7 5.9 MNS 4.1 5.7 MS 1.2 5.0 MNS 1.0 4.2 MNS MNS 14.7 5.0 MNS 5.8 Finance/Services 15.3 5.0 0.7 4.1 MNS 4.7 26.4 3.9 MNS 4.7 1.5 2.6 4.2 MNS 3.7 12.0 5.3 MNS 21.2 Mining/Construction 6.4 4.8 28. Services 5.0 MNS 11.9 27. Other finance MS 4.5 25. Other retail 26. Banking 6.2 4.8 4.2 4.9 MNS MNS MNS 3.8 29. Bituminous coal mining 0.8 4.8 MNS 0.4 7.4 MS 30. Other mining 0.4 1.8 HNS 0.3 1.8 HNS 31. Construction 5.2 MNS 4.1 http://fraser.stlouisfed.org/ Economic Review/Annual R eport Federal Reserve Bank of St. Louis 1978 5.6 3.8 MNS ' D istrib ution is th e percentage o f O hio em ploym ent in each industry. Concentration is th e percentage of U.S. em ploym ent in each industry located in O hio. Specialization is measured by comparing th e concentration o f industry em ploym ent in O hio to concentration o f to tal em ploym ent in Ohio: Let e = concentration o f em ploym ent in individual O hio industries e - concentration o f private nonagricultural em ploym ent in Ohio (the proportional size o f the Ohio economy) Then HS = High Specialization: e /e * > 1 .5 H N S = High Nonspecialization: e /e * < 0 .5 MS = Moderate Specialization: 1 .0 < e /e * < 1 .5 M N S = Moderate Nonspecialization: 0 .5 < e /e * < 1 .0 21 Comparison of Earnings and Expenses 1978_________ Total Current E a r n in g s ........................................................................... Net E x p e n s e s ............................................................................................. $ Current Net E a r n in g s ........................................................................ 694,814,242 41,962,628 ________ 1 9.7 7 . $ 564,269,128 40,378,337 652,851,614 523,890,791 25,033 1,026,394 25,033 1,026,394 10,8 52 ,0 14 4 2,982,973 58,019 4,185,456 12,589,053 48,584 ....................................................................... 53,893,006 16,823,093 ..................................................................................... 53,867,973 15,796,699 Assessment for Expenses o f Board o f G o v e r n o r s ............................. 4,522,400 4,057,700 Additions to Current Net Earnings: All O t h e r ............................................................................................. Total A d d i t i o n s ........................................................................... Deductions from Current Net Earnings: Loss on Sales o f U.S. Government Securities ( N e t ) .................. Loss on Foreign Exchange Transactions (Net) ......................... • • All O t h e r ............................................................................................. Total Deductions Net Deductions Net Earnings before Payments to U.S. T r e a s u r y ............................. $ 594,461,241 $ 504,036,392 Dividends P a i d .............................................................................. Payments to U.S. Treasury (Interest on F.R. N o t e s ) ..................... Transferred to S u r p l u s ......................................................... $ 5,408,170 584,291,421 4,761,650 $ 5,142,729 496,089,263 2 ,804,400 594,461,241 $ 504,036,392 Total ........................................................................... http://fraser.stlouisfed.org/ 22 Federal Reserve Bank of St. Louis Federal Reserve Bank of Cleveland Comparative Statement of Condition ASSETS D ec. 29, 1978 G old Certificate Reserves ............................................................. . . . . Special Drawing Rights Certificates ........................................... . . . . Coin ..................................................................................................... . . . Loans to Member B a n k s ................................................................. Federal Agency Obligations - Bought O u t r ig h t ......................... U.S. Government Securities: B i l l s ................................................................................................. N o t e s ............................................................................................. Bonds ............................................................................................. Total U.S. Government Securities $ 921,035,900 112,000,000 32,976,197 Dec. 30, 1977 $ 933,870,100 107,000,000 39,702,072 •••• •• •• 31,050,000 657,107,398 1,550,000 669.970.000 •••• - •• •••• 3,508,654,478 4,565,303,131 1 ,037,381,316 3 .478.894.000 4 .227.966.000 740.668.000 .................................... • • • • 9,111,338,925 8 ,447,528,000 • ••• 9 ,799,496,323 9 ,119,048,000 • • • • • • • • 808,062,973 23,137,140 298,083,638 (43 7,629,820) 460,882,397 22,825,499 140,423,451 (41,75 0 ,72 2) •••• $ 1 1 ,5 5 7 ,1 6 2 ,3 5 1 Total Loans and S e c u r it ie s .................................................. Cash Items in Process o f Collection ........................................... Bank Premises ................................................................................... Other Assets . . . . .................................................................... Interdistrict Settlement A c c o u n t .................................................. Total A s s e t s ........................................................................... • • • • • • • • $ 10,782,000,797 $ 7,986,742,657 LIABILITIES Federal Reserve N o t e s .................................................................... • ■•• $ 8,551,157,177 Deposits: Member Bank - Reserve Accounts ....................................... - . . U.S. Treasurer - General A c c o u n t ........................................... - . . F o r e i g n .......................................................................................... • . • Other Deposits ........................................................................... • • • . • . • 1,797,890,606 388,312,886 17,229,500 35,640,685 1,649,739,882 450,724,792 23,710,200 43,822,984 Total D e p o s it s ........................................................................ • • • • 2,239,073,677 2,167,997,858 Deferred Availability Cash I t e m s .................................................. • • • • Other Liabilities ............................................................................... • • • • 445,532,329 137,838,568 361,023,439 92,199,543 Total L ia b ilit ie s .................................................................... • ••• $ 11,373,601,751 Capital Paid i n ................................................................................... • • • • S u r p lu s ................................................................................................. • . • . 91,780,300 91,780,300 Total Liabilities and Capital A c c o u n t s ............................. • • • • $ 11,557,162,351 $ 10,607,963,497 CAPITAL ACCOUNTS http://fraser.stlouisfed.org/ Economic Review /A Federal Reserve Bank nnual Louis 19 78 of St. Report 87.018.650 87.018.650 $ 10,782,000,797 23 Federal Reserve Bank of Cleveland Officers W ILLIS J. WINN President WALTER H. MacDONALD First Vice President JOHN M. DAVIS Senior Vice President and Economist ROBERT D. DUGGAN Senior Vice President W ILLIAM H. HENDRICKS Senior Vice President ROBERT E. SHOWALTER Senior Vice President DONALD G. BENJAMIN Vice President JOHN E. BIRKY Vice President GEORGE E. BOOTH, Jr. Vice President PAUL BREIDENBACH Vice President and General Counsel R. JOSEPH GINNANE Vice President HARRY W. HUNING Vice President R. THOMAS KING Vice President ELFER B. MILLER General Auditor THOMAS E. ORMISTON, Jr. Vice President LESTER M. SELBY Vice President and Secretary HAROLD J. SWART Vice President DONALD G. VINCEL Vice President OSCAR H. BEACH, Jr. Assistant Vice President MARGRET A. BEEKEL Assistant Vice President THOMAS J. C ALLAHAN Assistant Vice President and Assistant Secretary GEORGE E. COE Assistant Vice President PATRICK V. COST Assistant General Auditor JOHN J. ERCEG Assistant Vice President and Economist ROBERT J. GO RI US Assistant Vice President NORMAN K. HAGEN Assistant Vice President JAMES W. KNAUF Assistant Vice President BURTON G. SHUTACK Assistant Vice President ROBERT VAN VALKENBURG Assistant Vice President ROBERT F. WARE Assistant Vice President and Economist CHARLES F. W ILLIAM S Assistant Vice President As o f A pril 1, 1979 http://fraser.stlouisfed.org/ 24 Federal Reserve Bank of St. Louis Federal Reserve Bank of Cleveland Federal Reserve Bank of Cleveland Directors Chairman ROBERT E. KIRBY Chairman and Chief Executive Officer Westinghouse Electric Corporation Pittsburgh, Pennsylvania Deputy Chairman ARNOLD R. WEBER Provost Carnegie-Mellon University Pittsburgh, Pennsylvania JOHN W. ALFORD Chairman o f the Board and Chief Executive Officer The Park National Bank Newark, Ohio JOHN A. GELBACH Chairman of the Board Central National Bank Cleveland, Ohio J. L. JACKSON President Falcon Coal Company Inc. Lexington Kentucky EVERETT L. MAFFETT President and Chief Executive Officer Eaton National Bank and Trust Co. Eaton, Ohio WALTER J. ROBB, Sr., Chairman and Senior Partner Proctor, Robb & Company Granville, Ohio HAYS T. WATKINS Chairman and President Chessie System Cleveland, Ohio CHARLES Y. LAZARUS Chairman The F. & R. Lazarus Co. Columbus, Ohio Member, Federal Advisory Council MERLE E. G ILLIA N D Chairman of the Board and Chief Executive Officer Pittsburgh National Bank Pittsburgh, Pennsylvania As o f A pril 1, 1979 http://fraser.stlouisfed.org/ Economic Review /A nnual R eport 1978 Federal Reserve Bank of St. Louis 25 Pittsburgh Branch Directors G. J. TANKERSLEY President Consolidated Natural Gas Company Pittsburgh, Pennsylvania W ILLIAM E. BIERER President Equibank N.A. Pittsburgh, Pennsylvania W ILLIAM H. KNOELL President Cyclops Corporation Pittsburgh, Pennsylvania ROBERT W. FISCUS President and Chief Executive Officer The Savings & Trust Company of Pennsylvania Indiana, Pennsylvania Chairman LLOYD M. McBRIDE President United Steelworkers o f America Pittsburgh, Pennsylvania R. BURT GOOKIN Vice Chairman and Chief Executive Officer H. J. Heinz Co. Pittsburgh, Pennsylvania PETER MORTENSEN President F.N.B. Corporation Sharon, Pennsylvania Officers ROBERT D. DUGGAN Senior Vice President W ILLIAM R. TAGGART Vice President PAUL E. ANDERSON Assistant Vice President JOSEPH P. DONNELLY Assistant Vice President CHARLES A. POWELL Assistant Vice President As o f A pril 1, 1979 http://fraser.stlouisfed.org/ 26 Federal Reserve Bank of St. Louis Federal Reserve Bank o f Cleveland Cincinnati Branch Directors Chairman LAWRENCE H. ROGERS, II President and Chief Executive Officer Omega Communications, Inc. Cincinnati, Ohio M ARTIN B. FRIEDMAN President Formica Corporation Cincinnati, Ohio LAWRENCE C. HAWKINS Senior Vice President University of Cincinnati Cincinnati, Ohio WALTER W. HILLENM EYER, Jr. Chairman and Chief Executive Officer First Security National Bank and Trust Company Lexington, Kentucky ELDEN HOUTS President The Citizens Commercial Bank and Trust Company Celina, Ohio W ILLIA M N. LIGGETT Chairman of the Board and Chief Executive Officer First National Bank o f Cincinnati Cincinnati, Ohio SISTER MICHAEL LEO M ULLANEY President St. Joseph Hospital Lexington, Kentucky Officers ROBERT E. SHOWALTER Senior Vice President CHARLES A. CERINO Vice President JEAN H. DEAN Assistant Vice President ROSCOE E. HARRISON Assistant Vice President D AVID F. WEISBROD Assistant Vice President JERRY S. WILSON Assistant Vice President As o f A pril 1, 19 79 http://fraser.stlouisfed.org/ Economic Review /A of St. Louis Federal Reserve Banknnual R eport 1978 27
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