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MONTHLY AUGUST 1951 CONTENTS Trade Inventories and S a l e s ...................1 Feed Grains— The Raw Material of Meat Production..................................... 6 Announcement...............................................9 National Business C o n d itio n s...................10 Statistical T a b le s .......................................... 11 Probing Into the Unusual Metals . . . . K e v i e 12 w FINANCE • INDUSTRY • AGRICULTURE • TRADE FO U R TH Vol. 33— No. 8 FED ER A L RESERVE D IST R IC T Federal Reserve Bank of Cleveland Cleveland 1, Ohio Trade Inventories and Sales ARE but not unique in this country’s economic history is the present spectacle of an inventory readjustment phase in the midst of boom conditions, with generally high levels of production, employ ment and income. The readjustment phase takes the form of efforts made by the holders of inventory to bring their stocks back to a more conservative relation to current sales, mainly by a cautious order ing policy but also in some cases by price concessions. The problem has been especially pressing in the matter of trade inventories. In a number of com modity lines it is plain that the marked accumula tion of stocks at retail or wholesale levels also caused manufacturers’ inventories of such lines to be unduly large. The reasons for the somewhat unexpected accu mulation of inventory during the past year are no longer mysterious. (1) Suffice it to say here that the drive of consumers generally to buy almost anything available has indeed been present during certain periods of the past year, but the ephemeral quality of the drive has also been demonstrated. At the same time the output of civilian goods has turned out to be somewhat larger than was generally thought to be possible some six months or a year ago, for a num ber of reasons, some of which are connected with the pace and character of the rearmament program in actual operation. R (1) T he accumulation was unexpected in the sense that at the time of the outbreak of the Korean War and during the subsequent building of the rearmament program, it was generally consid ered both by government and by private business that the main inventory problem in the months ahead would be one of short age rather than of surplus. The readjustment phase is apparendy under way at the present time, but is has begun so recently that it has hardly yet been reflected in the regular inven tory statistics, which necessarily lag behind the actu ality. (In fact, inventory statistics are always gath ered and digested somewhat less promptly than many other types of business indicators.) Nevertheless, there is some value in reviewing the course of trade inventories in relation to sales over the past year and more, if for nothing else than to grasp the size of the inventory readjustment which is yet to be made; it is just as important to make sure that the inven tory problem is not overstated as to assure that it is not understated. Such an appraisal of the magnitude of the inven tory problem is the purpose of the present article, including charts showing trade inventory and sales trends for a number of years, with the latest entries in most cases being for May or June of this year. The portion of 1951 which is shown in the charts was predominantly a period of inventory accumu lation, rather than readjustment. Subsequent to the final months shown on the charts it is likely, although not certain, that some progress in inventory readjustment has been made. Wholesale The red line on the first of the accomInventories panying charts shows the end-of-month value of all inventories at wholesale, expressed in billions of dollars, from the beginning of 1947 through the spring of this year. Monthly sales by the wholesale trade are also shown in billions of dollars by the black line. Page 2 August 1, 1951 Monthly Business Review TRADE INVENTORIES AND SALES U. S., 1947-51, Monthly (Seasonally adjusted) B IL .O F $ -----------2 4 WHOLESALE. RETAIL -------20 . . . inventories of wholesalers continued to rise as sales slackened during the early part of the year; the result ing spread, however, was hardly larger than during the two-year period from mid-’48 to mid-’50. . . . although retail sales are scarcely above the June 1950 level, inventories of retailers have risen markedly; the resulting spread is of a magnitude without precedent in recent years. It is apparent that inventories of wholesalers con tinued to rise as sales slackened during the early part of this year. However, the resulting spread in terms of dollars between current inventory and monthly sales was hardly larger at the end of the period under observation than it was during most of the two-year period from m id-1948 to m id-1950. (The latter period included the so-called “ inventory recession of 1949” .) It seems probable that the out break of the Korean W ar caught the wholesalers in a somewhat unusually low inventory position in comparison with the then-current sales. Altogether the chart showing the inventory and sales trends in wholesale trade suggests at most a rather moderate problem of inventory accumulation. Wholesale trade statistics, on the other hand, include a relatively large component of grocery and food data, which tend to lend stability to the inventory figures. It is in department store trade that some of the most conspicuous inventory movements have taken place. A series of charts on an adjoining page show the course of inventories and sales for department stores of the Fourth Federal Reserve District, includ ing a number of selected soft-goods and hard-goods departments. Seasonally adjusted monthly indexes are used throughout this series of six charts. Retail Inventories The second of the accompanying charts shows trends of inventories and sales in retail trade. Here the accumulation has been larger, and the prospect of a readjustment or even “ liquidation” phase for the immediate future is more pronounced. The chart shows that the cumu lative rise of retail inventories since July of last year was in marked contrast with sales trends. The result ing spread, in dollar terms, was of a magnitude without precedent in recent years. The fact that the inventory problem shows up as more serious in the case of retail trade than in wholesale trade is largely explainable by differences among industry lines in respect to characteristic trade channels. Thus, for example, many of the consumer durable goods which have been conspicu ous in the recent inventory bulge are commodities which are sold directly from manufacturer to retailer rather than through wholesaler intermediaries. 1948 for A word about the base period used in Comparison the department store charts is in order. The base period used in all six charts is the average of 1948, that is, the inventories or sales for any particular month are expressed as a percentage of the average 1948 position. The effect of this is to take the inventory-sales relationship of 1948 as a standard of comparison for the more re cent period. (It will be noticed that both the red and the black lines for 1948 hover about the 100 position in all six of the charts.) It will be recalled in this connection that by 1948 inventories had fully recovered from wartime and early postwar shortages. In fact from some stand points inventories can be considered to have been large in relation to sales in 1948, partly for the very reason that an inventory liquidation phase was a conspicuous part of the ensuing business recession of late 1948 and 1949. (2) Nevertheless, the inven(2) At the same time it should be remembered that by prewar standards, trade inventories were not especially large in 1948. See final series of charts showing stock-sales ratios in 1948 compared with 1935-39 in partial support of this view. August 1, 1951 Monthly Business Review Page 3 INVENTORIES AND SALES OF SELECTED DEPARTMENTS FOURTH DISTRICT DEPARTMENT STORES (Seasonally adjusted monthly indexes) WOMEN’ S i. MISSELS COATS & S U IT S * . . . department store inventories (all departments bined) rose out of proportion to sales during the of the Korean war; if the stock-sales relationship continued the same as in 1948, the red line would kept pace at least roughly with the black line. com year had have . . . inventories in the women’s coats and suits depart ment have been high in relation to sales for more than two years, as judged by 1948 standards; Korean war developments seem not to have altered this relationship appreciably. t9 4 8 A V G *1 0 0 . . . the men’s clothing department participated quite heavily in the inventory bulge of the past year. 1 94 0 AVG. “ 10 0 1 9 4 8 A V G .-100 . . . the rise in stocks of floor coverings during the past year far outstripped the sales position, after nearly three years of a comparatively steady relationship between in ventories and sales. I9 4 8 A V G .* ! 0 0 . . . inventories of furniture and bedding, after a decline to “subnormal” levels in 1949 and early 1950, rose to a position somewhat out of line with sales, as judged by 1948 standards. I 9 4 8 AV G .* 100 f9 4 8 A V G * 1 0 0 . . . stocks of major household appliances have also be come swollen as sales declined this year; past fluctuations in sales of this department have been outstanding, especi ally the peak of last July. Page 4 Monthly Business Review tory-sales relationship of 1948 can be taken as a convenient benchmark from which to measure in ventory rises during late 1950 and the first half of this year. T o the extent that inventories have out stripped sales since 1948, it seems justifiable to regard inventories as out of line with sales; this in fact has been the view of merchants themselves, as already noted. Department The first of the series of charts on deStore ^ partment store inventories shows the Inventories course of inventories and sales for all departments taken together. It applies to the Fourth Federal Reserve District only, although essentially the same pattern would be exhibited in a chart applying to total department store sales in the United States. (3) It is apparent that department store inventories rose out of proportion to sales dur ing the year of the Korean War. This is indicated by the divergence of the red line from the general drift of the fluctuating black line during the second half of 1950 and the first half of this year. Clothing The second chart of the department Inventories store series applies to inventories and sales of women’s coats and suits in Fourth District department store trade. Although this department is not necessarily typical of all softgoods departments, it is nevertheless a large one and is very important to department store trade. The chart shows that inventories of coats and suits have been high in relation to sales for more than two years, as judged by 1948 standards. The Korean W ar developments seem not to have altered this relationship appreciably. The men’s clothing department, however, did participate quite heavily in the inventory bulge of the past year, as shown by the next chart. In fact, the behavior of this department, both with respect to sales and inventories, was more nearly similar to that of the housefurnishings departments than were most of the other apparel lines. No doubt such a development in men’s clothing marked the ebb and flow of expectations as to the prospects of wool sup plies and wool prices in the light of shifting interna tional circumstances. Housefurnishings It is in the housefurnishings lines Inventories that sales and inventory positions August 1, 1951 on prospectively scarce materials has carried weight in the appraisals of buyers and sellers. The last three of the six department store charts present important samples of such departments. Inventories of the furniture and bedding depart ment, which always require a rather large monetary outlay on the part of merchants, are shown in the next chart. It is apparent that furniture stocks, from a “ subnormal” level in 1949 and early 1950, rose to a position somewhat out of line with sales, as judged by 1948 standards. It cannot be said, however, that furniture stocks in the spring of this year were strikingly abnormal. In fact they looked relatively conservative as compared with some of the other housefurnishings departments shown in the succeeding charts. Furthermore, furniture inventories did not appear any further out of line with sales than did the average inventory of all departments together, as shown by the first chart in this series. Floor coverings, as depicted in the next chart, have exhibited problems of inventory more serious than those of furniture. The rise in stocks of domestic floor coverings during the past year far outstripped the sales position, after nearly three years of a com paratively steady relationship between inventories and sales. Movements in the price of wool are reflected, with some lag, in both the inventory and sales series for this department. (4) Stocks of major household appliances have also become swollen as sales declined this year. O n this chart it may be noted that the two “ Korean” buying waves were outstandingly large in this department as shown by the sharp peaks of sales in July 1950 and January 1951. In addition to the samples of housefurnishings departments which are depicted in the charts, it should be noted that the radio, phonograph and television department developed an inventory prob lem during the early part of this year which is con sidered to be in many respects the most serious of any department store line. Unfortunately, it is not feasible to chart this situation in a form comparable with the other departments, because of the relative newness of television as a product and the conse quent inadequacy of past statistical records. Prewar Ratios In addition to charting the comfor Comparison parative trends of inventories and have been especially affected by war and rearmament factors insofar as dependence sales, as described above, it is possible to arrive at some understanding of the inventory-sales relationship by means of direct ratios (3) A similar chart for U. S. department store sales would differ mainly in the following respects: (a) T he divergence between inventories and sales during early 1951 would be slightly less pronounced in the national series; the latter would also show a steadiness o f sales from April through June of this year, (b) T he steep drop in sales in November of last year would be less pronounced in the national series since the blizzard of that month affected other parts o f the country less severely than this particular District. (4) Both the inventory and sales series in these charts are drawn from dollar values at retail. As a consequence, if the trend of sales or of inventories is observed separately in relation to time, important allowance for price changes should be made by the reader in case he is interested in physical-volume trends. However, since the price factor affects both the red and black lines it can be practically disregarded in studying the relation ship between inventories and sales, as is the purpose of this article. August 1, 1951 Page 5 Monthly Business Review STOCK - SALES RATIOS FOR SELECTED DEPARTMENTS MAY 1951 COMPARED WITH PREWAR AND 1948 U. S. and Fourth District Department Stores FU R N ITU R E ALL DEPARTM ENTS & BEDDING M A Y 1951 1 9 4 8 AVG. t I i_ * 1 9 3 5 -3 9 AVG. 19 3 5 -3 9 AVG. s l V . . . the ratio of department store stocks to sales in May 1951 was higher than in the 1935-39 prewar period as well as higher than in the year 1948; the ratio for Fourth District stores climbed more than the national average. 1 . . . the stock-sales ratio for furniture and bedding has been moderately higher than in 1948 or prewar; in the case of the national average, the rise since 1948 has been quite small. FLOOR CO VERING S 1 I 9 3 5 -3 9 AVG. 1 11 11 . . . for floor coverings the stock-sales ratio showed a significant rise between 1948 and May 1951, especially for the Fourth District; recent levels are also high compared with the 1935-39 average. between the value of inventory at the beginning of a given month and the value of sales during that month. A few of such ratios are shown in the final series of bar charts. These confirm broadly the find ings already given, but in addition they provide a prewar benchmark of the inventory-sales relation ship, thus constituting a check on the previous use of the year 1948 as a benchmark. Each of the bar charts shows the stock-sales ratio for United States department stores for the average of the years 1935-39 (an item which is not readily available for Fourth District stores) followed by the average stock-sales ratio during 1948 both for U. S. department stores and Fourth District stores, and finally the corresponding stock-sales ratios for May 1951, the latest date available for this particular type of information. 1 . . . for household appliances the stock-sales ratio in May 1951 was more than twice as high as in 1948 or prewar. It is apparent from the first of the bar charts that the ratio of department store stocks to sales in May 1951 was higher than in the 1935-39 prewar period as well as higher than in the year 1948. The ratio for Fourth District stores climbed more than the national average. Ratio charts are also shown for the three housefumishings departments which were included in the previous set of charts. The stock-sales ratio for furniture and bedding has been moderately higher than in 1948 or prewar. In the case of the national average, however, the rise since 1948 has been quite small. For floor coverings, the stock-sales ratio showed a significant rise between 1948 and M ay 1951, CONTINUED ON PAG E » Page 6 August 1, 1951 Monthly Business Review Feed Grains-The Raw Material of Meat Production HIS year’s harvest of the four principal feed grains may be as great as that of the two pre ceding years, and not far from the all-time peak of 1948. The amount of livestock on farms, however, has been increasing at an average rate of about 3.5 percent per year for several years. It is evident, therefore, that feed grain production is not keeping pace with the increasing animal population. Total supplies of feed per grain-consuming animal unit may decline for the second year. Production may fall short of requirements for the third consecutive year. The breach thus far has been filled out of carryover stocks. Pressures exerted on the feed grain supply by the livestock population, and the price relationships which result therefrom, are highly influential in de termining farmers’ plans for expanding or cutting back on meat production. This relationship between live animal prices and the cost per unit of the major feed they consume is commonly shown by the various so-called feeding ratios. They tell the amount of feed that a given weight of livestock, or livestock product, will buy. When these ratios are favorable, expansion usually occurs. Such an expansion is generally sparked by an abundant feed grain production and a high con sumer demand for meat. It has been demonstrated quite conclusively that people consume larger quantities of meat as their T P R O D U C T IO N OF PRINCIPAL United States, FEED GRAINS 1930-51 . . . feed grain production this year may be nearly the second best on record, solely because of an expected increase in corn. * Oats, Barley, Sorghum Grain, e July 1 estimate. Source: Bureau of Agricultural Economics data. FEED SUPPLY PER G R A IN -C O N SU M IN G A N IM A L U N IT 1 . . . a second-best feed grain year on record, however, will not necessarily be enough to cope with the con stantly growing livestock population. In fact, the feed supply per animal unit may be the smallest since 1947. The deficiencies of 1934, 1936, and 1947 were serious enough to force liquidation of breeding stock. 1 Feed supply includes production, carryover stocks, imports, and wheat, rye and by-product feeds fed. Animal units are all grain consuming species of livestock weighted according to proportion of grain in their normal ration. e July 1 estimate. Source: : Bureau of Agricultural Economics data. disposable incomes rise. Record-breaking incomes and an expanding population continually create the need for new records in livestock and subsequently feed grain production. If present crop production prospects materialize, and expected high consumption rates continue, the feed grain supply will be somewhat tighter than last year, although not so extreme as in a deficiency year such as 1947 (see second chart). Several factors could still enter into the picture to upset seriously the current supply and demand out look. Grain as yet unharvested, is still subject to weather, especially in the case of corn. If excep tionally good, corn production could conceivably exceed requirements. Secondly, a general easing in world tension during . the coming year could also serve to diminish demand for feed grains. O n the other hand, the most dismal supply outlook would appear if larger scale war in the Far East or else where, were accompanied by a serious corn crop failure in this country. Corn Corn production prospects were estiProspects mated at 3,295 million bushels by the U. S. Department of Agriculture on July 1. This one grain makes up about two-thirds of the August 1, 1951 principal feed grain production. If a crop of this size is realized, it would be 5 percent above last year and the third largest on record. This 3.3 bil lion bushel crop, however, would probably not be sufficient to take care of total needs for the mar keting year beginning October 1. Additional require ments will have to come from the already lower carryover stocks of old com . The probable supply and distribution of U. S. corn for the coming year is forecast and compared with recent years in this table: Corn Supply and Distribution (U. S.) Year Beginning October 1 1948 Supply 1949 (million bushels) Carryover from previous year............................ 125 Production.................... 3,682 Im ports......................... 1 Total Supply. .. . 825 3,379 1 860 3,131 1 742 3,295 ... 3,808 4,205 3,992 4,037 2,617 255 Ill 2,968 270 107 2,850 300 100 3,000 300 65 2,983 3,345 3,250 3,365 825 860 742 672 Utilization Livestock feed .............. Other domestic u s e .. . Exports.......................... Total U sed.......... Carryover to following year............................ Page 7 Monthly Business Review A carryover of only 672 million bushels a year hence would be the smallest since the poor crop year of 1947. This could also prove to be a price strengthening factor for the crop to be harvested this fall. Carryover stocks were at a record high 860 mil lion bushels at the beginning of the feeding year now drawing to a close. As indicated in the table, it was those record high stocks which held the total sup ply, during the current 1950-51 year, above that estimated for the coming 1951-52 year. About 90 percent of the total U. S. com supply is used for livestock feed each year. It is therefore appropriate that the supply of this grain be eval uated in terms of the livestock population which depends upon it for growth. When reduced to terms of supply per animal unit it becomes apparent that the estimated 1951-52 corn supply may not be so favorable as the total figures would indicate. The expected total supply is little different from last year but the quantity available per grain- consuming animal unit may be down more than 3 percent. Similar calculations also indicate that the prospec tive total supply would be up 10 percent from the average of the past five years, but that on a peranimal-unit basis it may increase by only 1 percent. Further comparison shows that the estimated 1951-52 total supplies, not adjusted for livestock population growth, are one-third above the years immediately preceding W orld W ar II. Supplies per animal unit, however, are only about one-tenth above this prewar period. This extra one-tenth which is actually available reflects great increases in feeding rates intended to produce more eggs per hen and more milk per cow. A 4-billion-bushel corn supply, for example, would have meant ruinous surplus in years before W orld War II ; but in 1950 the same number of bushels failed to prevent wide comment about “ the tight feed situation” . It can be seen from these several comparisons that production or total supply figures are much more meaningful when they 1950 1951 are stated in terms relative to need. Other Feed Oats, barley and sorghum grain proGrains duction are all currently estimated to be below last year’s level. This is in line with production guides suggested by the U. S. De partment of Agriculture prior to planting time. Re duced acreage of these was desired to permit greater plantings of corn and soybeans. The oats crop at 1.4 billion bushels, while above average, is estimated nearly 7 percent below last year. Owing to carryover stocks from last year, however, an ample supply is assured for the year ahead. Most oats stocks are stored on farms. The farm stocks on July 1 of this year were about 265 million bushels— 38 percent more than last year and the third largest since 1926 or earlier. This high carry over is due to the large 1950 production as disap pearance has been above average throughout the marketing year just ended. The probable supply and distribution of oats dur ing 1951-52 is indicated and compared with the past two years in this table: Oats Supply and Distribution (U . S.) Year beginning July 1 1949 1950 1951 (million bushels) Supply Carryover from previous y e a r .. Production..................................... Im ports........................................... Total Supply........................ 295 1,329 20 220 1,465 20 298 1,368 25 1,644 1,705 1,691 1,263 145 16 1,253 139 15 1,275 140 15 Utilization Livestock feed ............................... Other domestic use...................... Exports........................................... Total U sed ............................ 1,424 1,407 1,430 Carryover to following year___ 220 298 261 Page 8 Monthly Business Review In terms of bushels, oats account for over 25 per cent of the total production of the four principal feed grains. In tonnage it is somewhat less. About threefourths of the total oats supply, including carryover and imports, is used as livestock feed each year. Barley showed the greatest percentage change in production, from both last year and average, for the three feed grains for which estimates are avail able. This crop, at 263 million bushels, is down about 14 percent from last year and average. The drop is due almost entirely to the smaller acreage planted. Yields were practically the same as last year, aver aging 26.8 bushels per acre for the United States. Official estimates of the sorghum grain crop are not yet available. Acreage of all sorghum is down about 6 percent but yield prospects are very good so the crop may not be far short of the 237-millionbushel record of last year. Sorghum grain and barley together make up less than 10 percent of the total feed grain production. O f the two, barley is the more important and only about half of it is used as livestock feed. In the Fourth District, feed grain production will show a greater increase over last year than in most other areas of the country if July 1 estimates are realized. Fourth District Feed Production Prospects % Change from 1950-51 1950 1951* (millions) Corn, bu............................ 219 256 Oats, bu............................ 54 61 Tam e hay, tons............... 6 7 * July 4th Dist. U. S. (% ) (% ) +17% +5% +13 —7 + 5 +6 1 estimate. The corn crop may show a percentage increase nearly 3/2 times as great as the average over the country. The majority of this is probably due to the all-out effort of farmers in the com belt area of western Ohio. Yields in Ohio are expected to run about 58 bushels per acre compared with 52 bushels last year. Acreage in this state is up about 7 percent. July 1 oats production estimates for the Fourth District are in sharp contrast to the national average. Planted acreages were probably above that sug gested by the U. S. Department of Agriculture and yields are at least as good as last year over most of the District. Barley acreage and production estimates are gen erally lower in each of the four states included in the Fourth District. August 1, 1951 Hay and Pasture Conditions High production of good quality hay and pasture greatiy decrease the feed grain requirements of much of the so-called grain consuming livestock, thereby decreasing costs of production throughout the year. It is thus good news to farmer and con sumer alike that the expected hay crop will break all records and that pastures are unusually abundant with conditions the third best in 24 years for early summer. All major types of hay produced will likely exceed average production during this summer. Lespedeza may be the only one which will not be above last year’s production. The total crop will probably be near 113 million tons, over 4 million tons above the previous high crop harvested in 1945. Acreage and yields per acre may be equal to or above both last year and the 1940-49 average for most varieties. Acreages of wild hay and clover-timothy mixtures may give some exception to this as they are being replaced with more nutritious varieties. Production of alfalfa promises to set a new record. Both yields per acre and acreages are above last year. Part of this increase is due to greater use of alfalfa in mixtures. Pasture conditions in general were good to ex cellent throughout the Fourth District on July 1. An abundance of moisture which contributed to the favorable pasture growth, however, has interfered with haymaking over much of this area. Drying difficulties will result in some low quality hay. Pro duction of alfalfa, clover-timothy mixtures and the total of all hay is expected to be above last year and average for all Fourth District states except Ken tucky. The increase in production of tame hay within the District as pointed out in the production table, is about 5 percent. This is slightly below the average rate of increase for the United States as a whole. Prospective Feed Price Factors Price support levels for this year’s harvest (determined and announced several months ago) were geared to encourage larger plantings and to reduce the risk of low prices should this larger pro duction be in excess of demand. As of May 31, the Commodity Credit Corpora tion had $4.1 billion of its $6.75 billion statutory borrowing authority available for price support operations. The market price for corn, the key feed grain, was only 93 percent of parity on July 15. A har vest of the size indicated on July 1 could force the market price below the support level. Corn prices will be supported at 90 percent of the October 1 parity, or at a national average price of $1.54, whichever is the higher. Oats and barley prices dropped much more than August 1, 1951 Page 9 Monthly Business Review seasonally during June. Further decline will likely be small unless the com crop is much larger than now estimated. Both are eligible for price support at 75 percent of the January 15 parity price. July 15 average market prices were at 80 percent of parity for oats and 77 percent of parity for barley. Sorghum grain price prospects cannot be clearly appraised until supply estimates become more definite later this year. Demands for feeding Korea may add some strength to the price in future months. The price support level for this grain has been set at 75 percent of the January 15 parity. It had previously been placed at 65 percent but was raised to encourage planting in abandoned wheat land. Although it is not grown for grain on farms in the Fourth District, sorghum provides a consid erable amount of feed for livestock in many western states, thus easing the pressure on corn supplies. Factors indicating strength in feed grain prices during the coming year are the prospects of a con tinued high level of employment and the conse quent relatively high demand for meat and other livestock products. These would bolster the livestock feeders’ demand for feed grains. Foreign Foreign trade does not make a substantial Situation contribution to the supply or distribution of United States feed grains. Exports of these grains during the highest of the past ten years was equivalent to only about 3 percent of the ton nage in our total supply. Imports, at the highest point during those years, accounted for roughly only 1 percent of the annual supply. Corn is the leading feed grain exported whereas oats now accounts for most of the imports. Trade Inventories and Sales (C O N T IN U E D F R O M P A G E 5 ) especially for the Fourth District. Recent levels are also high compared with the 1935-39 average. For household appliances, as shown in the final chart, the stock-sales ratio in May 1951 was more than twice as high as in 1948 or prewar. N O T E ON SOURCES The first two charts, i.e., those for retail trade and wholesale trade, are drawn directly from seasonally-adjusted dollar estimates published by the United States De partment of Commerce. The six charts showing department store inventory and sales indexes by departments are based on Federal Reserve data for the Fourth District. Responsibility for all sea sonal adjustments, and for the use of 1948 as base period, is with this Bank. The final set of bar charts showing stock-sales ratios is based on two sources. The 1985-39 averages, as well as the 1948 averages in the case of the national series, are derived from data on stock turnover by departments from the National Retail Dry Goods Association. Data for the Fourth District for 1948, and for both the district and national series for May 1951 were obtained by direct computation from Federal Reserve data, by means of dividing beginning-of-month (dollar) inventory by (dollar) sales during the month, for identical samples of stores. An independent check of the results obtained from these two sources for identical time periods indicates that the two types of material yield comparable results. ANNOUNCEMENT On July 25, the National Voluntary Credit Re straint Committee released Bulletin No. 6 for the purpose of clarifying its position with regard to new credits secured by stocks and bonds, as follows: The original Statement of Principles of the Program for Voluntary Credit Restraint pro vided that “ The foregoing principles ( the antispeculative provisions) should be applied in screening as to purpose on all loans on securities whether or not covered by Regulation U or T .” * The first amendment to the Statement of Principles deleted the phrase “ whether or” from the statement. This provision has been the subject for a number of inquiries. For example, the question has been raised as to whether a loan on securities not covered by Regulation U or T must be screened as to purpose even though the amount of credit advanced might be permissible under these regulations. Such an interpretation would appear to treat the loans secured by unlisted stocks more severely than those on listed (i.e., “ registered” ) securities. In order to cure this ambiguity, the following principles are recommended for your guidance by the National Committee: (1 ) Loans on securities covered by Reg ulations U or T are basically for the pur pose of purchasing or carrying listed securities. It is recommended, therefore, that all loans on securities for purchasing or carrying unlisted securities be presumed to be for a proper purpose if the amount of credit extended is no greater than that permitted in the case of listed securities by Regulations U or T. (2 ) Loans on securities, whether or not listed, but not for the purpose of purchas ing or carrying securities should be made only for purposes consistent with the prin ciples of voluntary credit restraint. * The Statement of Principles also provides that “ loans to securities dealers in the normal conduct o f their business or to them or others incidental to the flotation and distribution of securities where the money is being raised for any of the foregoing (proper) purposes” should be classified as “ proper”. Page 10 August 1, 1951 Monthly Business Review SUMMARY OF NATIONAL BUSINESS CONDITIONS By the Board of Governors of the Federal Reserve System (Released for Publication July 30, 1951) Industrial production in June was at about the same level as during the first five m onths o f this year, but a somewhat m ore than seasonal decline is indicated in July. Prices o f raw materials have de creased further in the first three weeks o f July ow ing in part to prospects o f near record crops. Consumer buying o f autom obiles and department store goods has been maintained, however, for this season o f the year. T h e rate o f Federal defense ex penditures has continued to rise considerably. Industrial production T h e board’s index o f output at factories and mines in June was 222 per cent o f the 1935-39 aver age, and 12 percent greater than a year ago. Pre liminary indications are that the index may decline to around 215 in July ow ing mainly to vacation shutdowns in n ondurable goods industries, which are n ot currently allow ed for in the index, and a further restricted volum e o f auto assemblies. T ota l durable goods output was m aintained in June as further increases in industrial and military equipm ent offset additional curtailments in output o f furniture and other household goods. Although increasing on ly m oderately in recent months, m a chinery output has risen more than 25 per cent in the past year. O utput o f aircraft and ordnance has practically dou bled since last June. Reflecting ca pacity limitations, production o f basic metals has changed little in recent months. A slight decline in nondurable goods produc tion reflected largely a further easing in dem and for textile and paper products. By June, output o f these and some other nondurable goods was only moderately below earlier peak rates but larger than seasonal declines are indicated in July. O utput at mines was at a record level in June, reflecting an increase in coal in anticipation o f the vacation period for miners in July, and a slight further expansion in crude petroleum. Construction Construction contract awards, which rose to an unprecedented total in May as a result chiefly o f almost 1 b illion dollars o f publicly financed atomic energy awards, declined in June to about the April total. Private awards also fell off follow in g a marked rise in May. Private housing starts in June rem ained substantially below last year’s high level, but because o f an exceptionally large volum e of publicly financed units started, the total was only moderately below a year ago. Employment Em ploym ent in nonagricultural establishments in June, after adjustm ent for seasonal variation, was m aintained at the record May level. T h e workweek in m anufacturing industries continued to average close to 41 hours; average hourly earnings advanced further by about 2 cents to $1.60 per hour. U n em ploym ent this June was at the lowest level for any June since 1945. Agriculture Crop production, based on July 1 conditions, was officially forecast to be close to the 1948 record and 7 per cent above last year. Cotton acreage was in dicated to be three-fifths greater, and somewhat larger hay and grain crops were forecast. M ilk and egg production in June was at last year’s level. Marketings o f meat animals, however, in June and the first three weeks o f July have fallen about 5 per cent below year-ago levels. Distribution T h e seasonally adjusted total value o f retail sales has continu ed to show little change from the re duced level reached in A pril. Durable goods sales were somewhat low er in June ow in g largely to ,a further decline in sales o f bu ildin g materials and hardware. D epartm ent store sales showed somewhat less than the usual seasonal decline from June to the first three weeks in July. Value o f departm ent store stocks declined m oderately further in June, but was still about 30 per cent above a year ago. Commodity prices T h e general level o f wholesale com m odity prices has declined since mid-June to a level about 3 per cent below the high reached in mid-M arch. As dur in g earlier months, the recent decline has reflected chiefly decreases in prices o f industrial materials. Spot cotton prices, w hich had held at ceilin g levels until July 3, drop p ed rapidly follow in g the release on July 9 o f the governm ent acreage report, w hich indicated a crop even larger than had been antici pated earlier. W holesale prices o f most finished goods have been maintained, although reductions have recently becom e m ore num erous reflecting re duced inventory dem ands and further declines in prices o f some materials. Consumer prices eased slightly in June bu t the index was 9 per cent above June 1950. O nly rents increased slightly further. Bank credit and the money supply Business loans outstanding at banks in leading cities increased in June but declined somewhat in the first half o f July. Loans for defense-supporting activities, in cluding principally loans to metal m an ufacturers and pu blic utilities, expanded further, while loans to processors o f agricultural com m odi ties were reduced further. Deposits and currency held by businesses and in dividuals increased somewhat during June but showed little further change in early July. In June, the rate o f use o f dem and deposits at banks in leading cities outside N ew York, on a seasonally adjusted basis, rem ained at the high M ay level. Average interest rates charged by com m ercial banks on short-term business loans rose slightly further from M arch to June in all areas o f the country. Security markets Yields on governm ent securities generally declined slightly in the first three weeks o f July. T h e treasury increased the bill offering by 200 m illion dollars each week. O n July 12 the Secretary o f the Treas ury announced the offering o f an 11 m onth 1-7/8 per cent certificate o f indebtedness to holders o f the treasury notes m aturing August 1. August 1, 1951 Page 11 Monthly Business Review FINANCIAL AND OTHER BUSINESS STATISTICS Time Deposits at 55 Banks in 12 Fourth District Cities Bank Debits*— June 1951 in 31 Fourth District Cities (Compiled July 6 and released for publication July 7) (Compiled July 12 and released for publication July 13) __________________________(In thousands of dollars)_________________________ No. of % Change 3 Months % Change Reporting June from Ended from Banks 1951 Year Ago June 1951 Year Ago 184 ALL 31 CENTERS...........$9,977,006H +22.3% $28,840,748H +28.3% 10 LARGEST CENTERS: 5 Akron...........................Ohio $ 400.535H +56.2% $ 1,126,305H +55.3% 5 Canton......................... Ohio 153,537 +22.0 439,339 +22.0 15 Cincinnati.................... Ohio 1,181,310 +16.2 3,405,663 +21.5 10 Cleveland.................... Ohio 2,605,286H +25.7 7,552,033H +34.1 7 Columbus.................... Ohio 602,906 + 0.9 1,857,442 + 7.4 4 Dayton.........................Ohio 301,653 +16.9 891,014 +23.3 6 Toledo..........................Ohio 475,863 +20.5 1,353,433 +23.2 4 Youngstown.................Ohio 225.462H +25.6 636.712H +25.7 127.715H +26.4 350.605H +24.5 6 Erie................................ Pa. 45 Pittsburgh......................Pa. 3,062,115 +24.7 8,840,069 +33.8 106 Total.................................... $9,136,382H +22.5 $26,452,615H +29.2 21 OTHER CENTERS: 9 Covington-Newport...... Ky. $ 47,899 + 6.2% $ 135,767 + 7.4% 6 Lexington...................... Ky. 62,334 + 6.8 186,712 + 2.9 3 Elyria...........................Ohio 28,783 +31.4 81,732 +30.5 3 Hamilton..................... Ohio 52.530H +23.4 151.005H +24.5 2 Lima............................ Ohio 61,357 +26.1 177,060 +29.8 21,550 +16.9 63.759H +21.7 5 Lorain.......................... Ohio 4 Mansfield..................... Ohio 59,287 +19.7 170,553 +21.9 2 Middletown................. Ohio 53.546H +35.1 146.602H +28.5 3 Portsmouth................. Ohio 24,808 +14.3 73,029 +15.2 3 Springfield................... Ohio 56,471 +19.3 166,227 +21.7 4 Steubenville.................Ohio 29.041H +17.3 83.790H +19.2 2 Warren......................... Ohio 58.680H +32.9 161.869H +30.4 3 Zanesville.................... Ohio 33,530 +14.8 97.583H +12.5 3 Butler............................. Pa. 40.214H +15.9 114.554H +20.7 8,590 + 8.4 24.964H +16.3 1 Franklin......................... Pa. 2 Greensburg.....................Pa. 27,154 +13.5 76.351H +17.8 4 Kittanning......................Pa. 13.367H +33.1 38.035H +27.5 3 Meadville....................... Pa. 16.402H + 4.8 46.947H +13.8 4 Oil City..........................Pa. 22,091 + 4.7 60,274 + 6.2 5 Sharon............................Pa. 39.013H +30.9 103.563H +22.9 6 Wheeling...................W. Va. 83,977 +24.8 227,757 +19.0 +19.8 $ 2,388,133 +19.4 78 TOTAL............................... $ 840,624 * Debits to all deposit accounts except interbank balances. H—Denotes all-time high. Debits to deposit accounts (except interbank) in 31 Fourth District cities rose seasonally in June to establish a new all-time high volume of $9,977,006,000,6% more than in May, and 22.3% above the figure for June last year. Quarterly income tax payments are a significant factor in the June debits total. Aggregate debits for the second quarter of this year also registered a new record, 28.3% in excess of the second quarter total for 1950. With deposits showing little change during the month, the rate of turnover rose to a new postwar high of nearly 14 times per year in contrast to the annual rate of turnover of 12 in June last year. TEN LARGEST CENTERS Debits at the large centers posted new all-time highs both for June and for the second quarter. Although the year-to-year margin for June, 22.5%, was the smallest in almost a year, the movement in debits over the spring months was about the same as in the comparable period of 1948. For the fourth month this year, Akron reported a gain of more than 50% over year-ago debit volume, establishing a new record for the fourth consecutive month. Other large cities also posting new all-time highs for both June and the second quarter were Cleveland, Youngstown and Erie all with year-to-year gains for the month of more than 25%. TWENTY-ONE SMALLER CENTERS Debit volume at the smaller centers in June was the highest on record with the exception of the seasonal peak registered in December last year. The 19.8% margin over the June 1950 figure was virtually the same as in the two preceding months and more closely approached the year-to-year expansion at the large centers than in any month this year. Middletown again led in year-to-year comparisons with an increment of 35.1% followed closely by Kittanning, Warren, Elyria and Sharon all with gains of more than 30%. For the second quarter as a whole, all-time highs were established by a majority of the smaller centers, with only three centers registering gains of less than 10%. City and Number of Banks Average Weekly Change During: June May June 1951 1951 1950 Time Deposits June 27,1951 +$ 750,000 + 342,000 — 58,000 + 168,000 +$394,000 + 46,000 — 506,000 — 83,000 11,000 79,000 87.000 24.000 87.000 + 40,000 — 70,000 — 54,000 — 54,000 62,000 42.000 10.000 58,000 82.000 — 34.000 11.000 TOTAL—12 Cities. .$2,070,878,000H +$3,647,000 +$1,490,000 Cleveland (4)..............$ 877,893,000 Pittsburgh (9)............ ....494,318,000H Cincinnati (8)............. ....175,742,000 Akron (3).................... ....99,821,000 Toledo (4).......................107.851.000H Columbus (3)..................86,756,000 Youngstown (3)..............62,192,000 Dayton (3)......................45,591,000 Canton (5).......................42,142,000 Erie (3)............................41,201,000 Wheeling (5)............... ....26,356,000 Lexington (5)...................11,015,000H +$1,520,000 + 1,673,000 — 164,000 + 46,000 + — + + 242,000 2,000 101,000 + 20,000 + + 9,000 22,000 11,000 5,000 —$280,000 H—Denotes new all-time high. Time deposits at reporting banks in 12 Fourth District cities increased for the third successive month during June at an average weekly rate of $3,647,000 to reach a new all-time high. This marked the first time this year that the total of such accounts exceeded the year-ago figure. The expansion was in sharp contrast to mod erate declines in time deposits in June 1950 and 1949, and was substantially greater than in the same month of earlier postwar years. Each of the twelve cities contributed, directly or indirectly, to the relatively large increase in savings balances during June. A majority of cities reported actual gains; moreover, in the three cities where net withdrawals occurred, the shrinkage was less than in June last year. Pittsburgh registered the ninth successive month of increase, and the sharpest gain since February 1950 in establishing a new record level of time deposits. How ever, the bulk of the June inflow represents corporate deposits of the proceeds of new financing, rather than savings from current income. Also reaching new all-time highs were Toledo and Lexington where there has been a net gain in savings accounts in almost every month this year. In Cleveland, the average rate of increase of $1,520,000 per week, although more rapid than in any other June on record, still left the total of time deposits below the comparable 1950 or 1949 figures. Shrinkages in time deposits during June, as reported by Cincinnati, Columbus, and Wheeling, have been typical of this month at these cities. Adjusted Weekly Index of Department Store Sales* Fourth District (Weeks ending on dates shown, 1935-39 average = 100) 1951 1950r 1950r Jan. 7 14 21 28 ..278 ..310 ..320 ..308 Jan. 6 13 20 27 425 412 443 398 Feb. 4 11 18 25 ..293 ..308 ..279 ..255 Feb. 3 10 17 24 ..287 359 354 365 Mar. 4 11 18 25 ..258 ..279 ..264 ..263 Mar. 302 293 266 251 293 1 8 15 22 29 ..285 ..279 ..262 ..283 ..334 3 10 17 24 31 fi Apr. May June Apr. 7 14 21 28 JOT 311 323 358 13 20 27 ..299 ..296 ..299 ..295 May 5 12 19 26 336 312 313 312 3 10 17 24 ..295 ..314 ..309 ..306 June ?, 9 16 23 30 309 311 304 312 ..325 July 1 8 15 n 29 Aug. 5 12 19 26 ...327 ...322 ...354 ...388 ...418 ...374 ...344 ...330 ...323 ?, 295 9 324 16.. ...345 23 ...318 30 335 Oct. 297 7 14 307 21 287 28 ...298 4 11 18 25 Dec. ...280 ...281 ...288 , ...221 2 195 9 ...328 16 ...334 23 ...314 30 342 1951 7........ 314 1 4 330 2 1 325 28........ Aug. 4........ 11........ 18........ 25........ Sept. 1......... 8........ 1 5 2 2 29........ July Oct. 6........ 13........ 20........ 27........ Nov. 3........ 10........ 17........ 24........ Decs 1........ 8........ 15........ 22......... 29........ * Adjusted for seasonal variation and number of trading days. Based on sample of weekly reporting stores which differs slightly from sample reporting monthly. Indexes of Department Store Sales and Stocks Daily Average for 1935-1939= 100 Adjusted for Without Seasonal VariationSeasonal Adjustment June May JuneJune May 1951 1951 1950 1951 1951 SALES: Akron (6).......................... Canton (5)........................ Cincinnati (8)................... Cleveland (11).................. Columbus (5).................... Erie (4)............................. Pittsburgh (8).................. Springfield (3).................. Toledo (6)......................... Wheeling (6)..................... Youngstown (3)................ District (98)..................... STOCKS* District............................ June 1950 306 400 280 280 315 381 283 279 291 247 366 306 322 409 319 297 345 362 272 283 299 257 360 309 295 369 293 269 314 366 283 271 280 252 324 299 287 384 261 266 302 347 275 271 270 227 344 287 312 405 319 288 328 344 272 283 290 252 349 306 277 354 272 255 301 333 275 263 260 232 304 281 354 380 265 360 383 261 Page 12 Monthly Business Review August 1, 1951 Probing Into The Unusual Metals by CLYDE W IL L IA M S, Director, Battelle Memorial Institute T h e u n u s u a l or uncom m on metals such as zirconium , germa nium , m olybdenum , uranium, ti tanium, and vanadium are in increasing dem and to fill industrial and military needs. T h ey w ill not A alleviate the present tight supply situation o £ alum inum , copper, zinc, and other com m on metals. T h ey will, however, continue to serve as added tools to d o a jo b better than some other material is n ow doing, or to d o a jo b that some other material is unable to do. O f the 98 elements reported so far, over two-thirds are metals. Scarcely m ore than a dozen o f these are really com m on. T h ere is, therefore, a substantial reserve o f un com m on metals for scientists to draw u pon for those unique properties w hich scientific advances are always dem anding. These properties include high strength at high temperatures, high strength and light weight, elec trical and atom ic characteristics, and resistance to severe corrosion. V olum e production o f the unusual metals so far is small and prices are high com pared w ith the com m on metals. T h is has been due either to the scarcity o f ores, difficulties o f extraction, or fabrication costs, or some com bination o f these factors. Price is a g ood yardstick o f production problem s. M olybdenum sheet, for ex ample, sells for from $25 to $50 per pou nd, depending on thinness. O n the other hand, the com m on metal, alum inum , is priced from 30 to 45 cents per p ou n d in sheet form . T itan iu m is the on ly metal n ow classified as “ u n com m on ” w hich shows definite prom ise o f reaching production and price levels com parable to those o f the com m on metals. O utput o f titanium, at a current annual rate o f about 1,000 tons, may increase 100 or even 1,000 times during com ing years. Its price in sheet form may fall from around $15 per p ou n d at present to about $1.00 per pound. Fortunately, in the m ajority o f cases, a large quantity o f an unusual metal is not needed to d o its job . As one exam ple, a few tenths o f a per cent o f colum biu m added to stainless steel w ill stabilize it so corrosion w ill not take place after w elding or slow coolin g . , As another exam ple, a thousandth o f a per cent o f tellurium w ill noticeably increase the depth o f "ch ill” in cast iron. Each o f the uncom m on metals has properties that fit it for specific applications in which it is better than any thing else. Germ anium has been fou nd especially useful as an electric current rectifier in electronic devices. T h e extraordinary ability o f tantalum and zirconium to com bat corrosion indicates that they will be applied increas ingly to corrosion-resisting equipm ent. W h en alloyed with steel, vanadium strengthens the steel and serves to rem ove oxygen and possible nitrogen. M olybdenum , 4 Editor’s Note—W hile the views expressed on this page are not nec essarily those of this bank, the Monthly Business Review is pleased to make this space available for the discussion of significant develop ments in industrial research. widely em ployed at present in low-alloy steels, is expected to have a great future in high-temperature uses, if p rop erly protected against oxidation.. O ne o f the biggest uses for cerium is in the carbon arc light for m ovie projectors, where it enhances the brightness o f the light. Prospects o f greatly increased available supplies o f cerium may boost its usage for alloying with magnesium and various alloy steels. A small percentage o f beryllium added to copper provides greater strength w ithout excessive loss o f electrical conductivity. B eryllium -copper thus becomes useful for springs in electrical applications, for n on sparking tools, aircraft instrument controls, and for various needs o f atom ic energy developm ent. Chrom ium alloyed with steel is the unique ingredient w hich makes possible non-rusting or stainless steel. Some o f the unusual metals are used as coatings to protect metals against corrosion and scaling at high tem peratures. Silicon perhaps is one o f the most notable examples. Steel and m olybdenum , coated with silicon, can be used at high temperatures w ithout fear o f chemical attack or corrosion. Siliconized m olybdenum is particu larly useful for very high temperature uses. Potentially valuable applications for silicon are also seen as a coating for materials used in m aking rocket nozzles and exhaust tubes. Uranium, o f course, is well-known as the “ m agical” metallic elem ent w hich has made possible the m ajor new atom ic energy developm ent. It is on e unusual metal that has risen phenom enally in im portance during the past ten years. Prior to that, it was a by-product o f radium operations. Practical applications were largely confined to the ceramic industry where it was used as an ingredient for m aking the amber glass o f railroad and street traffic signals. It seems only a question o f time until titanium w ill attain the position o f a m ajor new industry. (See M onthly Business Review, Decem ber, 1950). T h e funda mentals for its successful developm ent are present. A m ple raw materials are available from extensive U nited States and Canadian deposits o f ilm enite, the most com m on titanium ore. Intensive research is n ow being conducted to reduce costs o f produ ction and fabrication. Prom ising markets in aircraft, chemical, and other industries are assured because titanium ’s high strength and low weight, excellent resistance to corrosion, and high m elting p oin t offer a unique com bination o f properties. W hat is n ot yet know n about the uncom m on metals will be vastly m ore im portant than what is known. Scientists are constantly p robin g in to the properties o f these materials, many o f w hich are difficu lt to prepare in pure form . Progress has been rapid recently, however, in recovering some o f the pure metals. A frequent result is to give an entirely new field o f usefulness n ot realized from the im pure metal o f the past. T h is trend toward making purer metals to give novel properties and to widen alloying possibilities is certain to continue. Only the future can tell just what is around the corner for the unusual metals, but it is sure to brin g significant im provements in our present living standards.
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