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MONTHLY AU G U ST 1952 CONTENTS Construction: A New Outlook for 1952 Population Growth in Fourth District e u i e w 4 The New Series E B o n d ................. 10 11 W ate r and Industry........................ 12 Announcement............................... K . F IN A N C E » IN D U S T R Y • A G R IC U L T U R E • T R A D E FO U R T H Vol. 34— No. 8 FEDERAL R ESE R V E D IS T R IC T Federal Reserve Bank of Cleveland Cleveland 1, Ohio Construction: A New Outlook for 1952 T he extended steel strike has washed out the possi bility of setting a new record in 1952 in the dollar volume of new construction put in place. This is in sharp contrast to the bright prospects envisioned in mid-May when total construction out lays were expected by the Department of Commerce and the Bureau of Labor Statistics to top $32 billion for a new record and a 4 percent gain over 1951. Attainment of this mark, however, was predicated upon a rapid and progressive easing in the supply of metallics, particularly structural steel. It now appears likely that the construction industry will be hard pressed to equal last year’s record $31 billion. Expenditures for new construction during the first half of 1952 reached a record total of $14.9 billion — nearly 4 percent above the first six months of 1951. Most of the increases over last year were centered in out lays for industrial buildings (both public and pri vate), military and naval projects, and public utility expansion. Total public expenditures were up 25 percent over the similar 1951 period while all private outlays were down 4 percent with the biggest deficits being registered by commercial, social, and recrea tional buildings. It would be necessary for the indus try to maintain the 4 percent margin over last year through the second half, to achieve the $32 billion as predicted early in May. In view of the length of the steel strike, it will not be possible to maintain this pace. Nevertheless, the volume of work put in place so far, plus the fact that most public outlays—particu larly atomic energy plants and military projects—will Outlook for 1952 go ahead as planned, indicate that total volume for the year will still be the second largest on record. The brightening and dimming of the construction outlook is traceable to re vised estimates of defense requirements as well as changes in the supplies of steel, copper, and aluminum. Steel supplies, which prior to the strike were thought to be the easiest of the three metals, now appear as the main limiting factor on construc tion activity during the second half. At the beginning of the year, the supply outlook seemed very dark. It brightened perceptibly early in March so that construction controls were eased slightly on most types of building projects. By midMay the materials outlook had improved so sub stantially that a further and much more generous relaxation of material controls was thought possible for the third quarter, with promises of further easing for the final quarter. Copper supplies, the tightest of the three metals, appeared so improved by June 18 that the National Production Authority announced a “bonus” allotment of copper over and above thirdquarter quotas. Increased production, particularly of steel and aluminum, and the stretching out of the defense program had released more of these metals for civilian use than was planned earlier in the year. But, the steel strike, which began on June 2, caused the NPA to revise its proposals for more gen erous self-certification allowances in the third quarter. On June 18, the NPA announced that builders would be allowed to self-certify the same quantities of steel permitted in the second quarter. Only larger amounts Material Supplies Page 2 Monthly Business Review of copper and aluminum could be self-authorized pending the outcome of the steel strike. The ban on entertainment and amusement construction, in effect since November 1950, was continued instead of being eased as previously planned. The prolonged steel strike has completely upset the decontrol schedule insofar as steel is concerned. A considerable volume of orders for delivery under second-quarter quotas remain unfilled and most mills’ books are already filled with orders for third-quarter delivery. Completing shipments filed under secondquarter quotas plus the loss of third-quarter produc tion most likely will delay the delivery of a substantial proportion of third-quarter orders until the fourth quarter. Once the mills reopen, “set asides” and priorities for defense and defense-related items will be piled on top of the backlog. It seems improbable that the mills will be able to clear that backlog this year unless steel allotments in the final quarter are cut below current levels. As a consequence, the con struction industry will probably obtain less steel in the second half of the year than was used in the first six months. Also, controls over Class A steel items (such as bars, sheets, structural shapes, plate, pipe, wire, and other mill forms) probably will continue into 1953 instead of gradually disappearing towards the end of 1952 as was hoped. It is hard to tell how severely the steel strike has affected the construction industry. It is possible to make some general observations, however. First, in ventories of Class A steel items were, in most cases, limited to a 45 days’ supply. These are already drawn down to the vanishing point or are seriously un balanced. Secondly, structural shapes were one of the few steel items in tight supply when the strike began June 2. Some projects were closed down in late June and early July as structural stocks were exhausted and projects requiring this type of steel will probably suffer the greatest quota cuts. This means at least several more quarters of close control over com mercial, amusement, and recreational projects and may curtail some of the least essential industrial ex pansion. Top priority will, of course, go to the mili tary, atomic energy, and industrial expansion projects in the defense program. Finally, aluminum and copper quotas for the sec ond half are higher than those of the first half. Since, in some cases, these two metals may be substituted for steel, some types of construction may be but little affected by the steel strike. The most obvious substitu tion is copper tubing for steel pipe in the list of Class A items but there is a wide range of possible alterna tives in the list of builders’ hardware and contractors’ supplies. Thus, homebuilders may find an adequate supply of metallic building materials while heavy con struction projects will probably have to be scaled down. August 1, 1 9 5 2 Since supplies of nonmetallic building materials are generally believed to be adequate, as is the supply of labor in most localities, any improvement in the outlook for steel will immediately be transferred to the construction industry—one of the nation’s largest steel consumers. One °f the highlights this year has been the continued high level of activity in residential building. Even though running about 4 percent behind last year’s pace, about 568,000 new permanent nonfarm dwell ing units were started throughout the country during the first six months. It is now estimated that over one million dwelling units will be placed under construc tion this year, as against the earlier official goal of some 800,000-850„000 new housing starts. The seventh annual Survey of Consumer Finances1 indicated that the number of consumers planning to buy new houses this year was about the same as last year, although fewer people were tentatively con sidering such a purchase. Furthermore, the number, in early 1952, planning to purchase a new house in 1953 was at least as large as the number with such plans for 1952. It would thus appear that for the re mainder of this year and next year the market de mand for new dwelling units may continue at high levels. Demographic trends and the backlog of demand for housing also indicate several more years of sus tained high demand for living space. The Office of Business Economics of the U. S. Department of Com merce2 places the average annual demand for new dwelling units (exclusive of replacements) at around 750,000 a year if high levels of economic activity are maintained. This would provide enough new units to house the normal annual increase in households which is due primarily to marriages. In addition, several factors are temporarily swelling the market demand for new homes. One stems from doubled-up families. In April 1951, there were at least a quarter of a million married couples living with relatives or friends who might normally be expected to form their own households. Undoubtedly some of this backlog still exists. Another source of demand is created by the low vacancy ratio. In April 1950, according to the Census of Housing, only 3.4 percent of all habitable nonseasonal dwelling units were vacant as compared with a normal vacancy ratio of 5.0 percent. The Office of Business Economics places the present backlog from this source in excess of 500,000 dwelling units. Finally, there is replacement demand. Relatively unimportant during the past two decades and diffi cult to measure, replacement demand is nevertheless The Persistent Housing Boom 1 Federal Reserve Bulletin, April 1952, pp. 341-46. 2 Survey of Current Business, April 1952, pp. 9-10. August 1, 1 952 Monthly Business Review capable of sustaining a high level of starts over the long term. With a strong basic demand for new housing and an adequate material supply, the only major de terrent to homebuilding this year (aside from the effects of the steel strike) would be an inadequate supply of mortgage credit. It now appears that the supply of credit may be at least equal to last year’s total, barring any unforeseeable heavy demand for other types of financing, as the flow of saving to financial institutions has continued large and repay ments on outstanding mortgage debt have been heavy. More liberal credit terms on residential property were permitted by the joint action of the Board of Governors of the Federal Reserve System and the Housing and Home Finance Agency in revising Regulation X and related restrictions on housing credit beginning June 11. The Federal Housing Ad ministration and the Veterans’ Administration were authorized by the Housing Administrator to bring regulations covering FHA-insured mortgages and VA-guaranteed home loans in line with the revised Regulation X. A preference for veterans has been maintained under the VA mortgage guarantee pro gram as is required by the Defense Production Act. The changes in the credit restrictions consisted of lowering the minimum down payment requirements.3 They were reduced in a varying degree from the lowest to the highest priced houses. The smaller mini mum down payments permitted under the revised regulations are compared with the former terms in the adjacent chart. No change was made in the amortization requirements on mortgage credit subject to any of these regulations. The maximum time allowed for paying off such mortgage credit remains at 25 years for properties valued at $12,000 or less, and 20 years for higher priced properties. Veterans may be allowed a longer period if the VA finds that current maturities would cause hardship. The recent amendments to the Defense Production Act included a provision for relaxing residential credit controls if the seasonally adjusted annual rate of permanent nonfarm housing starts dropped below 1,200,000 each month in any consecutive threemonth period. (That stipulated criterion represents a rate which was equaled in only one year, 1950, and which was scarcely achieved during the first six months of this year.) The period of relaxation would begin one month after the end of the three-month period and down payments could not be required in excess of 5 percent of the transaction price. Once lowered, down payment requirements could not be raised again until one month after a three-month Page 3 M INIM UM DOW N PAYMENT REQUIREMENTS ON ONE FAMILY UNITS (Before and After June 11, 1952) DOWNPAYMENT $ !5,000|--------- 12,000 12,000 9.000 ~ 9.000 6.000 6.000 - Regulations 3 Regulation X applies to credit terms on conventionally financed residences started after August 3, 1950, while FHA and VA regulations cover both old and new housing. 3,000 0 VA LU E OR P R IC E P ER FAMILY U N IT . . . under the present credit terms, a $20,000 house, for example, may be purchased with $6,450 down, as against $8,200 under former schedules (FHA and conventional mortgages). By October, the present minimum require ments are susceptible to further drastic modification, es pecially in the higher-price brackets, in the event that housing starts fail to reach a 1,200,000-per-year rate. Source: Board of Governors of the Federal Reserve System. period during which the annual rate of starts ex ceeded 1,200,000 in each consecutive month. No official seasonally adjusted series on housing starts exists today but the Bureau of Labor Statistics is compiling one. Should it show that the annual rate of starts in June, July, and August was below the 1,200,000-per-year rate, Regulation X and the com panion VA and FHA regulations will be relaxed no later than October 1, 1952. Nearly 84,000 dwelling units have been programmed in 169 critical defense hous ing areas throughout the country up to June 18. About three-quarters of that number were rental units. Intended for military personnel and in migrant defense workers in the designated areas, the programmed units are to be built by private builders. Incentives are created by removing or relaxing real estate credit regulations on the required number of homes and by making available mortgage insurance under very liberal provisions. A study of 15 critical defense housing areas, according to field surveys by, and reports to, the Bureau of Labor Statistics, reveals that defense hous ing starts have very little impact on the certified com munity’s level of starts. The cumulative number of dwelling units started or building permits authorized since the area was certified is many times the number of programmed units started. Defense Housing (CONTINUED ON PA GE 8 Monthly Business Review Page 4 August 1, 1952 Population Growth in Fourth District final tabulation of the 1950 Census of Popu lation1 establishes the following population facts with respect to the Fourth District: First, the 1940-1950 population increase was small er in the Fourth District than in the country as a whole. The population of Ohio alone, however, grew as rapidly as that of the rest of the country. (See Table I.) Second, the average square mile in the District now contains 176 persons as against 160 in 1940, or an increase of 10 percent in density, whereas, in the United States as a whole, density increased from 44 to 51 persons per square mile, or nearly 15 percent. (See Table II.) Third, the percentage of the population described as urban was 64.7 percent or approximately the same as the rest of the country. The ratio of urban to rural is now the highest on record, both in the Fourth Dis trict and in the nation. (See Table III.) T he The population of the Fourth District is not increasing so rapidly as that of the conti nental United States. In fact, in the present century the District’s rate of growth has exceeded that of the country as a whole in only one intercensal period — the 1910-20 decade. During the 1940-50 period, the population of the 48 states and the District of Colum bia increased by 19 million persons, the largest numerical increase recorded in any intercensal period. The absolute gain in the District’s population over the same ten years was the second smallest for any decade since the turn of the century, exceeding only the 1930-40 increase. The rate of growth of the whole country between 1940 and 1950 was 14.5 percent, nearly double the 1930-40 rate and roughly equivalent to the 1910-20 and 1920-30 rates suggesting that the severe slackening-off during the 1930’s was not, as then feared, a sharp alteration of trend, but a deviation from it. In the District, however, the 1940-50 rate of growth was well below the rate prevailing earlier in the century even though it was more than double the 1930-40 rate. This was largely due to a net migration out of Eastern Kentucky, Western Pennsylvania, and West Virginia’s panhandle. The population increase in the state of Ohio paralleled the rise experienced nation ally with the 1940-50 numerical gain exceeding that of any previous intercensal period. Slower Growth in Fourth District 1 1950 Census of Population, Preprint of Volume I, Number of In habitants: Report P-Al7, Kentucky; Report P-A35, Ohio; Report P-A38, Pennsylvania; and Report P-A48, West Virginia. In recent years the natural increase, or the excess of births over deaths, has accounted for most of the nation’s population increase with immigration play ing a minor role. But large regional shifts in the population—interregional and interstate migration — do take place. In fact, they were intensified during the past Census period by the second World War. The most conspicuous result of this population up heaval was the 53 percent gain in California’s popu lation, moving it up from the fifth most populous state in 1940 to second place in 1950. The effects were also felt by the Fourth District. Ohio was the only District state experiencing a net inflow of migrants between 1940 and 1950. However, this gain was more than offset by a net outflow from the rest of the District resulting in a net loss of about 170,000 migrants from the Fourth District. But even if no migration had occurred, the District’s population would have experienced a natural increase of only about 12 percent over 1940 as compared with the actual increase of 10.4 percent. As shown in Table I, the rates of growth varied widely between the differ ent parts of the District due to the migratory outflow. Table I POPULATION GROWTH P ercen t in c re a s e o v e r Area Eastern Kentucky....................... O hio............................................... Western Pennsylvania................ West Virginia Panhandle......... F o u r t h D is t r ic t ................................ C o n t in e n t a l U n it e d S t a t e s . . preceding census 1950 1940 1930 1920 0.3 10.4 14.9 11.5 15.0 3.9 15.4 20.8 5.6 3.3 11.0 17.0 —2.3 2.5 7.5 12.4 10.4 4.4 14.1 18.5 14.5 7.2 16.1 14.9 Source: Bureau of the Census The Fourth District contains only 2.5 percent of the country’s land area but held about 8.6 percent of the nation’s population in 1950. As a result, the District’s popula tion density was about 176 persons per square mile, nearly 2^> times the United States’ average density of 51 persons to each square mile of land area. Cuyahoga County, Ohio, was the most densely populated county in the District with 3,047 persons per square mile and Forest County, Pennsylvania, was the most sparsely settled with 12 people per square Population Density August 1, 1952 Monthly Business Review Page 5 population. Nearly 40 percent resides in cities of 25,000 or more. Monthly Business Review Page 6 mile. Three other counties in the District had more than 1,000 persons per square mile in 1950: Allegheny County, Pennsylvania, 2,076; Hamilton County, Ohio, 1,749; and Lucas County, Ohio, 1,153. All states or parts of states in the District had more people per square mile than the national aver age which is held down by the large tracts of public lands and large farms and ranches in the West. Due to the heavy concentration of people around Pitts burgh, Western Pennsylvania was the most densely populated of the District’s four major areas, as Table II shows. Table II POPULATION DENSITY , Eastern Kentucky....................... O hio................................................ Western Pennsylvania................ West Virginia Panhandle......... F o u r t h D is t r ic t ................................. C o n t in e n t a l U n it e d S t a t e s . . Population per Square Mile of Land Area 1950 1940 1930 1920 78 71 62 78 194 168 163 141 251 238 232 209 167 171 166 141 176 160 152 135 36 41 44 51 Source: Bureau of the Census . - .. Nearly two-thirds of the District’s population in 1950 resided in urban areas — places of 2,500 or more and specific fringe areas around urbanized areas. Just about half of the residents lived in cities of 10,000 or more containing 1.3 percent of the Dis trict’s land area, or an average of about 6,900 persons per square mile. The rest of the District had a popu lation density of about 90 persons per square mile — still well above the national average. According to the urban-rural definition used by the Bureau of the Census for the 1950 Census, the urban population of the Fourth District . . comprises all persons living in (a) places of 2,500 inhabitants or more incorporated as cities, boroughs, towns, and villages; (b) the densely settled urban fringe, includ ing both incorporated and unincorporated areas, around cities of 50,000 or more; and (c) unincorpo rated places of 2,500 or more outside urban fringe areas.” Under the urban definition employed in pre vious censuses, the urban population comprised only the persons living in incorporated places of 2,500 or more plus seven townships in Western Pennsylvania classified as urban under special rules. Under both definitions, the remaining population was classified as rural. In both the old and new definitions, the most im portant component of the urban population is the inhabitants of incorporated places of 2,500 or more. Urban Growth August 1, 1 9 5 2 But, even, with special rules classifying other minor civil divisions as urban, the old definition excluded many large closely built-up places from the urban territory. In order to improve this situation, the Bureau of the Census set up boundaries for urban fringe areas around cities with 50,000 inhabitants or more in 1940 and for unincorporated places outside urban fringe areas. Under the new urban definition there are thirteen urbanized areas wholly in the Fourth District2 and one, the Huntington, W. Va.,—Ashland, Ky., urban ized area, with about four-tenths of its population in the District. In 1950, nearly three-fourths of the Dis trict’s urban population resided within the boundaries of these urbanized areas—about the same percentage as in the country as a whole. In fact, the urban-rural composition of the District’s population in 1950 was very similar to that of the continental United States (see Table V I). Nevertheless, Table III shows that the urban popu lation of the Fourth District has been growing less rapidly than that of the urban population of the United States as a whole. In fact, the rural population of Ohio increased at a faster rate between 1940 and Table III URBAN POPULATION Percent Urban New Urban Old Urban Definition Definition Area 1950 1950 1940 1930 27.5 23.8 25.2 31.0 Eastern Kentucky............. 66.4 66.8 67.8 70.2 60.1 60.7 61.8 65.6 Western Pennsylvania. . . 63.8 62.5 53.5 54.5 West Virginia Panhandle. 60.5 59.8 61.2 64.7 F o u r t h D is t r ic t ................... C o n t in e n t a l U n it e d S t a t e s .................. 64.0 59.0 56.5 56.2 Source: Bureau of the Census. 1950 than did the urban population. On the other hand, the number of rural inhabitants decreased in Eastern Kentucky and the West Virginia Panhandle (see Table V). What the figures do not show is that the number of persons on farms in Ohio decreased during the last intercensal period and that the growth of the rural nonfarm population was about \ l/ i times the rate for 2 The thirteen urbanized areas in the Fourth District, as listed in the 1950 Census, are: Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Hamilton, Springfield, Toledo, and Youngstown, all in Ohio; Erie and Pittsburgh in Pennsylvania; and Wheeling, West Virginia. In addition to the Huntington-Ashland urbanized area, there are 33 inhabitants of the Johnstown, Pa., urbanized area residing in the District. Monthly Business Review August 1, 1952 the total population of the state. However, because of changes in the definitions of the farm and nonfarm components of the rural population between the two Census periods, the data are not comparable and only very general observations may be made concerning them. Table VI POPULATION OF THE FOURTH DISTRICT AND THE UNITED STATES According to new urban-rural definition: April 1, 1950 Classification Table IV POPULATION AND LAND AREA OF THE FOURTH DISTRICT January 1, 1920 and April 1, 1930-1950 1950 Subject 1940 F o u r t h D i s t b i c t ........................... C o n t in e n t a l U n it e d S t a t e s . . F o u r t h D is t r i c t ........................... C o n t in e n t a l U n it e d S t a t e s . . 17,772 41,122 13,931 1,202 74,027 2,977,128 1930 1920 17,614 40,740 13,864 1,206 73,424 2,977,128 17,614 40,740 13,864 1,206 73,424 2,973,776 Source: Bureau of the Census. 1 Excludes inland w ater area. The difference in land area estim ates between Census years is largely due to th e development of more accurate and detailed cartographic maps. However, these differences m ay also be influenced by changes in inland w ater areas. Table V URBAN AND RURAL POPULATION OF THE FOURTH DISTRICT April 1, 1930-1950 Area New UrbanRural Definition 1950 Old Urban-Rural Definition Percent Increase 1940 1930 to to 1950 1940 1930 1950 1940 Urban Population Eastern K entucky___ 428,841 380,564 328,724 315,398 O hio............................ 5,578,274 5,273,206 4,612,986 4,507,371 W estern Pennsylvania. 2,295,338 2,104,307 2,014,117 1,983,660 W . Virginia Panhandle 127,998 125,323 109,825 109,036 F o u r t h D i s t r i c t .......... 8,430,451 7,883,400 7,065,652 6,915,465 15.8 14.3 4.5 14.1 11.6 4.2 2.3 1.5 0.7 2.2 C o n t in e n t a l U n it e d S t a t e s ........... 19.5 7.9 1,050,701 934,119 — 4.5 2,294,626 2,139,326 16.5 1,303,084 1,227,120 7.2 95,465 91,165 —21.2 4,743,876 4,391,730 8.5 12.5 7.3 6.2 4.7 8.0 96,467,686 88,927,464 74,423,702 68,954,823 Rural Population Eastern K entucky___ 954,975 1,003,252 2,368,353 2,673,421 W estern Pennsylvania. 1,206,143 1,397,174 75,223 W . Virginia Panhandle 72,548 F o u r t h D i s t r i c t .......... 4,602,019 5,149,070 C o n t in e n t a l U n i t e d S t a t e s ........... 54,229,675 61,769,897 57,245,573 53,820,223 Source: Bureau of the Census. As percent of total Fourth United District States 13,032,470 150,697,361 100.0% 100.0% 64.0 8,430,451 96,467,686 64.7 45.9 In urbanized areas........................... 6,184,865 69,249,148 47.5 In urban places outside urbanized 18.1 areas................................................ 2,245,586 27,218,538 17.2 R u r a l P o p u l a t io n ...................................... 36.0 4,602,019 54,229,675 35.3 20.5 Rural nonfarm1................................. 2,895,500 30,882,000 22.2 Rural farm1....................................... 1,706,500 23,347,000 13.1 15.5 Land Area1 17,711 41,000 13,931 1,202 73,844 2,974,726 United States U r b a n P o p u l a t io n ...................................... 1,383,816 1,379,425 1,249,517 1,087,525 7,946,627 6,907,612 6,646,697 5,759,394 3,501,481 3,317,201 3,210,780 2,893,242 200,546 205,290 200,201 170,330 13,032,470 11,809,528 11,307,195 9,910,491 150,697,361 131,669,275 122,775,046 105,710,620 in square miles Eastern K entucky................... Ohio............................................. Western Pennsylvania............. W est Virginia Panhandle....... Fourth District T o tal P o p u l a t io n ........................................ Total Population Eastern K entucky................... Ohio............................................. W estern Pennsylvania............. W est Virginia Panhandle....... Page 7 7.9 6.4 Source: Bureau of the Census. 1 Partially estim ated by the Research Department of the Federal Reserve Bank of Cleveland on the basis of preliminary Census reports on the population char acteristics of states. Page 8 Monthly Business Review C O N S T R U C T IO N : (CONTINUED FROM PAGE 3) CERTIFICATES OF NECESSITY ISSUED TO FOURTH DISTRICT FIRMS as of June 20, 19521 Industrial Expansion Metropolitan Area Akron.............................. Canton............................ Cincinnati...................... Cleveland....................... Columbus....................... Dayton............................ Erie.................................. Hamilton-Middletown. Huntington-Ashland2 . Lima................................ Lorain-Elyria................ Pittsburgh...................... Springfield..................... Wheeling-Steubenville. Youngstown................... 16 Metropolitan Areas. Fourth District3............ Continental United States.......................... No. of Certifi cates 95 56 106 340 39 71 22 18 12 14 26 260 11 32 50 91 1,243 1,482 9,975 Proposed Investment $ Percent of Grand Total 78,065,000 21,808,000 68,221,000 238,899,000 5,354,000 75,125,000 28,543,000 53,284,000 64,637,000 32,473,000 27,479,000 544,678,000 2,583,000 36,621,000 151,290,000 153,070,000 1,582,130,000 2,040,422,000 •5% .1 .5 1.6 .0 .5 .2 .4 .4 .2 .2 3.7 .0 .3 1.0 1.1 10.9 14.0 14,542,918,000 o o To—1 Projects closely related to the defense program continue to be the main prop under construction activity. They include military and atomic energy projects, the expansion of defense-supporting industries under the stimulus of the rapid amortization program, and the extension of transportation, storage, and electric power facilities which are also aided by fast tax write-offs. The major stimulant to industrial expansion is the rapid amortization program provided for by the Revenue Act of 1950. Normally, the period that the Bureau of Internal Revenue permits for the deprecia tion of new facilities varies up to 25 years depending upon the useful life expectancy of the facility. Under the Revenue Act of 1950, however, the Defense Pro duction Administration may shorten this period to 5 years for up to 100 percent of the new investment. The actual percentage certified for the fast tax write offs varies from one facility to another depending, along with other factors, “on the type of facility, amount of expansion required for the emergency, the probable usefulness of the plant for other than de fense purposes after the emergency, and the degree of financial aid deemed necessary to encourage the expansion” . As of April 15, the average percentage authorized for accelerated amortization was 59 percent. The DPA estimates that approximately 54 percent of the dollar value of defense production facilities covered by certificates of necessity issued through March 31, 1952 were in place on June 30, 1952. This percentage represents nearly $9.5 billion out of a total contemplated cost of $18.0 billion. However, by July 2, accelerated amortization amounting to $20.8 billion in new or expanded facilities had been approved indicating that construction will continue to be stimulated by these certificates of necessity for many months to come. Industrial firms located in the Fourth District had received certificates of necessity covering nearly 1,500 projects by June 20. These certificates called for an estimated expenditure of about $2.0 billion, or about 14 percent of all expenditures for additional plant and equipment proposed under the program in the continental United States. In addition to the expan sion of industrial facilities, District firms have been issued rapid amortization rights covering nearly $250 million worth of new electric power generating and distribution facilities and over $350 million for the extension of rail and water transportation. This would bring the total expansion planned by firms with main offices in the District to over $2.6 billion today. Construction costs amount to about one-third of this total with the balance going for machinery and equipment, land, and overhead. August 1, 1952 1 Excludes transportation, storage, and public utilities. 2 Fourth District portion only. Huntington-Ashland metropolitan area total is 22 certificates valued at $72,353,000. 3 Sixteen metropolitan area total plus 239 certificates totaling $458,292,000 issued to Ohio firms located outside metropolitan areas. Source: Defense Production Administration Expenditures for most types of construction considered nonessenti al to the defense effort — com mercial, religious, hospital, and social and recrea tional buildings—will be off sharply for 1952 as a whole. Restrictions against these types of projects during the first six months have already assured this and the continuation of controls throughout the last half will only serve to intensify the drop. However, a large backlog of commercial projects has been built up during the past year and a half of restrictions, and will be placed under construction when materials are available. "Nonessential" Construction The pattern of contracts awarded m t^ie Fourth District during the first six months of this year dif fers from that in the 37 states east of the Rockies in several important respects, as the following table shows. In the non-residential category, awards for com mercial and manufacturing buildings are lagging Fourth District Highlights Monthly Business Review August 1, 1952 Page 9 CONSTRUCTION CONTRACT AWARDS 1939-1951 with estimates for 19521 Fourth District a 1939 »43 '4 4 '45 '40 *41 '4 2 '43 '4 4 ’45 48 *49 '.60 '51 '48 ’ 49 *50 ’ 51 ’52 A p a r t m e n t s , M u l t i- F a m il y U n it s , a n d O ther S h elt er *46 . . . the dollar volume of residential building awards will reach a new peak in the District this year if current levels of activity are maintained. Most of the boom is centered in speculativelybuilt one-family dwellings. 1939 ’40 44 '41 ’ 45 *46 '47 '40 . . . nonresidential construction in the District is expected to be substantially below last year’s record dollar volume, chiefly because of an anticipated decline in awards for manufactur ing buildings. 1939 *40 *41 »42 '43 *44 '4 5 ’4 « ’47 iliu-JlIlIl j 300- o io o 1939 >40 '41 *42 *43 >44 *45 '4 6 >47 »48 *49 ’ 50 >51 >52 . . . public utility awards may also decline from 1951’s record high. i Based on the assumption that the continue throughout the balance of http://fraser.stlouisfed.org/ F. Bank W. Dodge FederalSource: Reserve of St.Corporation. Louis •939 *40 *41 *42 >43 *44 *45 *48 >47 ’ 48 >49 >50 *51 >52 . . . the 1952 estimate of public works awards is above 1951’s dollar volume and may be swollen further if awards are let for the Ohio Turnpike before the end of the year. seasonally adjusted rate prevailing during the first six months will 1952, subject to a 5 percent setback because of the steel strike. Monthly Business Review P a g e 10 over 50 percent behind the record 1951 pace as com pared with a deficit of about 30 percent in the 37 Eastern States. This may be partly due to the fact Comparison of Dollar Volume of Contract Awards Made During the First Half of 1952 with the Similar 1951 Period Fourth District Non-Residential Buildings................... -3 0 % Residential Buildings............................ + 13 Public W orks........................................... + 65 Utilities..................................................... —44 TOTAL C O N ST R U C T IO N ............ — 8 37 Eastern States — 12%* + 1 + 19 +26 — 1* * Excludes $1 billion in atomic energy project awards made in May 1951 Source: F. W. Dodge Corporation August 1, 1952 that much of the expansion in iron and steel facilities came early in the defense expansion program so that most of the emphasis locally is on equipping new plants. (Equipment expenditures are not reflected in construction statistics.) Without the boom in school construction, which is evident in the rest of the coun try to a lesser degree, the District’s non-residential building awards would be even further behind last year’s pace. Partially offsetting the decline in non-residential building activity is the District’s boom in residential construction. Last year, 11.7 percent of the dollar volume of all residential contracts awarded in the 37 Eastern States were let in the Fourth District when no more than 11.0 percent had been awarded locally in any prior postwar year. This year’s pro portion is even higher—about 12.1 percent-—largely because of the District’s boom in speculatively-built one-family dwellings which are being put under con tract in a dollar volume 16 percent above last year’s record level. AN N O U N C EM EN T “Retail Credit Survey— 1951”, a booklet published by the Board of Governors of the Federal Reserve System, is available on request to this Bank. Detailed results of the Survey for the United States and for each of the twelve Federal Reserve Districts are in cluded. Inquiries should be addressed to the Research Department, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Monthly Business Review August 1, 1952 P a g e 11 THE N E W S E R IE S E B O N D (On sale since May 1, 1952) Schedule of Redemption Values and Investment Yields (Based on $100 bond) Issue Price.................................................. Original M aturity V alue....................... For period beginning: At issue d ate......................................... Y i year after issue date...................... 1 year after issue date...................... 1 y<2, years after issue date..................... 2 years after issue date..................... 2 V i years after issue date..................... 3 years after issue date..................... 3 years after issue date..................... 4 years after issue date..................... 4}^ years after issue date..................... 5 years after issue d ate..................... 5 Yz years after issue date..................... 6 years after issue date..................... 6 years after issue date..................... 7 years after issue date..................... 7 x/i years after issue date..................... 8 years after issue d ate..................... 8J^ years after issue date..................... 9 years after issue date..................... 9 /12 years after issue date..................... 9 % years after issue date..................... Redemption value during each period Addition to re demption value at beginning of each period $ 75.00 100.00 75.00 75.40 76.20 77.20 78.20 79.20 80.20 81.20 82.20 83.60 85.00 86.40 87.80 89.20 90.60 92.00 93.60 95.20 96.80 98.40 100.00 .40 .80 1.00 1.00 1.00 1.00 1.00 1.00 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.60 1.60 1.60 1.60 1.60 APPROXIMATE INVESTMENT YIELDS* On issue price to On current redemption beginning of value from beginning of each period each period to maturity 1.07% 1.59 1.94 2.10 2.19 2.25 2.28 2.30 2.43 2.52 2.59 2.64 2.69 2.72 2.74 2.79 2.83 2.86 2.88 3.00 3.00% 3.10 3.16 3.19 3.23 3.28 3.34 3.41 3.49 3.50 3.51 3.54 3.58 3.64 3.74 3.89 4.01 4.26 4.94 9.92 * Compounded semi-annually. M ajor features: 1. Matures 9 years and 8 months after issue date. 2. Provides an investment yield of 3.00%, compounded semi-annually, if held to maturity (see last line in table above). 3. Is redeemable at any time after two months from issue date. 4. M ay be purchased in amounts up to $15,000 per year (issue price) by one owner. 5. M ay be held beyond maturity (with approximately same 3.00% investment yield) for any period up to another ten years. P a g e 12 Monthly Business Review August 1, 19 5 2 Water and Industry by CLYDE WILLIAMS, Director, Battelle M emorial Institute More than 25 billion gallons of water are used daily by American industry. This is at least one-fourth of the nation’s total consumption. It is double the amount used for general municipal purposes. Indus trial installations depend upon it for cooling systems, processing of products, and boiler feed, as well as for sanitary and other service purposes. Water supply has become more critical in recent years. Shortages have occurred in various parts of the country where the supply had previously been taken for granted. This has caused leaders in industry and government to re-examine present water-use practices and to study the potentials for increasing water supply and for making it more reliable. Shortages of water have been brought on by a steady rise in its consumption without, at the same time, an ade quate conservation program and systematic planning for the replenishment of supply. The expansion in the scale of industrial operations, population shifts from rural to urban areas, the greater use of water-consuming home appliances, air-conditioning, and more irrigation projects are among those factors that have contributed to higher water con sumption. Use of water by industry alone has increased about 40 per cent in the last ten years. At least one authority has predicted that industrial usage of water will double during the next decade. In the midst of apparent water scarcities, it is interesting to learn from the President’s Water Resources Policy Com mission just how large the country’s water resources are. “The total quantity (of water) in constant circulation, measured in precipitation, amounts to about 4,500 billion gallons daily. This is roughly ten times the average flow of the Mississippi River. “Some 3,000 billion gallons a day, on the average, return to the atmosphere as a vapor, through evaporation and transpiration (use by vegetation). This leaves the annual runoff to the sea at an average of about 1,300 billion gal lons a day.” At the present time, the country captures and uses only 100 to 200 billion gallons daily from this runoff. The development of the country’s tremendous water resources potential is a long-range project. Government and interested industrial leaders are giving the matter serious attention. Such development involves a wide variety of interrelated projects including flood control, irrigation, surface and ground water development, and better man agement of streams, forests, and lands. The study of new Editor’s Note—While 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. sources of fresh-water supply, such as the ocean and arti ficial rain-making, are also in the picture. For the immediate future, industry can go a long way toward solving its water supply problems by making more efficient use of existing water supplies. Principally, this means more extensive adoption of such measures as pollu tion abatement and increased re-use of water. An industry-wide survey by the National Association of Manufacturers shows that three out of five of the plants they contacted did not reuse any of the water taken in. In recent years, however, the survey points out that “some of the large users, notably paper, petroleum, textiles, chemi cals, and steel, have made enormous progress in developing water circuits for the use of water in more than one plant process. For example, one chemical concern reports that by recirculating its process water it has reduced process water requirements from 130 millions gallons per day to 4 million gallons per day. A steel mill in Ohio reuses drainage from drinking fountains and filter wash water.” The elimination or recovery of wastes that go into streams can greatly increase the supply of water suitable for downstream industrial or municipal use. This is now an important factor in the industrial development of some areas where otherwise adequate raw materials and labor supplies exist. Methods are being devised for the treatment of wastes that formerly went into streams untreated. Petroleum and paper and pulp plants have taken the lead in this effort. Many industrial plants and all domestic consumers are not only concerned with the quantity of water available, but also with its quality. This need has given rise to a considerable research effort on the more extensive develop ment of underground water. It is usually cleaner and freer from contamination than river water. Underground water reservoirs have been overworked in many parts of the country, without adequate thought given to their replenishment. It is estimated, however, that they provide the greatest natural fresh water storage facilities in the United States, even larger than those of the Great Lakes. Recharging or restoration of underground water re sources has been practiced successfully on the Pacific Coast, and in such localities as Louisville, Kentucky, and Des Moines, Iowa. This practice will become more exten sive as more is learned about the technique of recharging, and as its advantages are more widely appreciated. During recent years, recurring shortages of water in various parts of the country have caused the nation to take inventory of its water resources, and to re-examine present water-use practices. One fact stands out above all the rest. A great need exists for conservation and development of the country’s tremendous water resources. This is necessary to insure an adequate, reliable supply of fresh water to industry and all other parts of the economy.
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