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M ONTHLY IN T H IS IS S U E FEDERAL RESERVE BANK of CLEVELAND* Postwar Patterns in Homebuilding and Financing................................... 2 s4uyu&t t$ 6 t A Look at the Foundry Industry............. 10 Postwar Patterns In Homebuilding And Financing A t t h e t i m e it became clear during 1960 jLJl that business activity was moving down ward, attention was quickly directed to the sectors of the economy which might be ex pected to reverse, or at least cushion, the decline in business activity. The housing industry was high on the list of sectors of the economy which, it was widely held, might expand in a counter-cyclical fashion, as it had in two earlier postwar recessions. But housing did not expand. In fact, perhaps paradoxically, housing industry activity in 1960 stayed in a downtrend which had set in early in 1959. Moreover, the continued down trend in housing activity combined with the emergence of several new demographic fac tors to induce apprehensions about whether residential construction would actually in crease. These apprehensions were relieved to some extent by the fact that, although resi dential construction activity, as measured by nonfarm housing starts, continued to decline throughout most of the 1960-61 recession, such activity finally turned up as the end of the recession was approached. As an accompanying chart shows, the most recent decline in housing starts was in marked contrast to the behavior of the series in earlier postwar recessions. Even though the recent revision o f the series(1) has intro duced more month-to-month fluctuation than was present in the old series, the downward path o f housing starts during the 1960-61 recession is evident, in contrast to the up turns in both 1948-49 and 1953-54, and as compared with only a slight further decline ( i ) The data on housing starts were revised beginning with January 1959. For a description of the change, see the June 1960 issue of Construction Review, U. S. Department of Commerce. 2 in housing starts through most of the 1957-58 recession. It can be seen from the chart that during the postwar period residential con struction has moved countercyclically only in the first two of the four postwar recessions, with the impact noticeably smaller in 1953-54 than in 1948-49. Adding to this the fact that housing starts declined slightly in the 1957-58 recession and then dipped even more in the 1960-61 recession, it becomes quite apparent that the housing industry has provided pro gressively less of a countercyclical stimulus to the economy in each of the four postwar recessions. When the data on housing starts for the postwar period are analyzed in terms of the type of financing, i.e., government-insured or “ conventional” mortgages, it appears that there was little difference in the behavior of either type of starts in the 1957-58 and 196061 recessions. In 1953-54, however, starts financed by conventional mortgages declined, while starts under government programs scored a more-than-offsetting increase. YA and FHA Starts The government-insured programs consist of starts underwritten by the Veterans’ A d ministration and the Federal Housing A d ministration. Starts under these programs, taken together, apparently declined during the 1960-61 downturn, whereas they had reg istered little change during the 1957-58 reces sion and, as already mentioned, a sizable increase in the 1953-54 contraction. (These and the following comparisons of the behav ior of housing starts by type of financing Looking at FHA-insured starts alone, such starts showed a very large, and an apparently greater-than-seasonal gain, during the 194849 recession, but increased much less during the two succeeding recessions, and declined in the 1960-61 experience. In the 1953-54 downturn, the earliest such period for which data on starts under the V A program are available, such starts showed a very sharp rise. The increase in starts during 1953-54, which contrasted with declines in VA-insured starts in the two succeeding recessions, may have been due in considerable part to the elimination of down payment requirements and other practices which allowed qualified ex-servicemen to purchase houses with no cash outlay, since closing costs could also be added to the mortgage. ence (the latter in the 1960-61 recession) have taken place against a backdrop of a number of changes in the pattern of home financing (mortgage credit).(2) Before mov ing on to a discussion of changes in mortgage credit, however, there are several recent developments affecting the demand for hous ing which should be mentioned parenthet ically, even though their full impact on housing developments cannot be evaluated precisely. One factor which may have acted as a deterrent to residential construction in recent years, has been a steadily rising vacancy rate in rental housing units; the rental va cancy rate increased from 5.4 per 100 units in 1956 to 8.1 in the second quarter of 1961. In addition, during 1961, there has also been a slight increase in homeowner vacancy rates; these had previously shown little change. Another factor which has been advanced as a possible recent deterrent to homebuilding is The variations in the activity of the hous ing industry over the course of successive business cycles in the postwar period, i.e., from a counter-cyclical to a pro-cyclical influ (2) The hypothesis has been advanced elsewhere that short term changes in housing activity in the postwar period re sulted from fluctuations in the supply of mortgage credit. These in turn result from changes m the demand for credit by corporations in the different phases of the business cycle. See Guttentag, J. M., “ The Short Cycle in Residential Con struction, The American Economic Review, June, 1961, pp. 275-298, passim. have been made with only an approximate allowance for seasonal variation, since sea sonally adjusted data are not available as of this writing.) HOUSING STARTS IN FOUR RECESSIONS (Private Nonfarm Units) Seasonally Adjusted at Annual Rates Jily ’53 - Aag ’54 Nov ’48 - Oct ’49 1.5 1.5 1.5 July ’57 - Apr ’58 May ’60 — Feb ’61 Millions «f i 1.0 1.0 1 3 5 7 9 1.0 11 M o n th s oiler peak 3 * 5 7 9 Series Re v ise d During each successive p o stw ar recession, housing starts have had apparently less counter-cyclical influence. 3 the declining rate of family formations, as well as a decline in the number o f married couples without their own households. I f this explanation is plausible, it would follow that the housing industry might have to look ahead to several lean years until the babies born during the early postwar period, who are just now entering the labor market, reach marriageable age. Using the preceding information on hous ing as a point of departure, let us consider a number of financial developments in the housing area during the postwar period. These financial developments will actually serve as a backdrop to evaluate, or partially clarify, recent experience in the housing industry. It should be understood, however, that seem ingly relevant financial developments do not necessarily provide a full explanation of the possibly changing cyclical pattern of housing activity. Regardless of the way in which it is ap proached, it is abundantly clear that home financing involves large dollar magnitudes. For example, the dollar volume of home mortgage debt outstanding currently amounts to more than two and one-half times as much as the volume of all other consumer debt out standing. Looking at it another way, home mortgage lending has absorbed close to 50 percent of all long-term financing carried out in capital markets during the postwar period. Insured and Conventional Mortgages As is widely recognized, the magnitude of government-insured mortgages has played an important role in the home mortgage market during the postwar period. In fact, as early as the end of 1948, government-insured mort gage credit represented approximately twofifths of the amount of residential mortgage credit outstanding, as shown in the accom panying chart. Since that time, however, it is noteworthy that the relative share of govern ment-sponsored credit in the home mortgage market has remained virtually unchanged, although of course the dollar volume has risen steadily. 4 The insurance underwriting activity of the Federal Housing Administration and the Veterans’ Administration has introduced some degree of uniformity to the home mort gage market. Lending to home owners and/or home builders is inherently a highly individ ualized process owing to wide variations in the borrower’s credit-worthiness and the value of the particular property. Both the F H A and Y A prescribe terms within which a loan must qualify, including such things as loan maturities, interest rates, and downpayment ratios. By having a qualified loan insured or guaranteed by the F H A or VA, the investor is assured of repayment should a borrower default. In practice, both the F H A and V A programs have been oriented to new con struction of medium-priced properties for borrowers in lower to medium income brackets. Congress has recently enacted legislation which will permit the F H A to liberalize loans insured under its regular lending program (Sect. 203). The F H A has thus been granted authority to extend maximum maturities to 35 years, whereas the maximum maturity on insured loans was previously 30 years. More over, the maximum amount of a mortgage loan insured by the F H A has been raised from $22,500 to $25,000. Turning to conventional mortgages (un insured loans), this type of lending has con tinued throughout the past decade to account for the largest share of mortgage debt— about three-fifths of the amount of residential mortgage loans outstanding (as compared with the two-fifths accounted for by govern ment-insured mortgages). Unlike governmentinsured loans, conventional mortgages are not standardized in quality. Rather, the latter tend to reflect to a large extent differences in the supply of local funds available for investment in home mortgages. It is not surprising that there are wide spread differences in the terms of conven tional mortgages. Not only is there a wider range in the amounts of individual conven tional mortgages than in government-insured mortgages, but there is also substantial vari ation in interest rates, down payment re quirements, and maturities. Although the terms of conventional loans tend to vary widely, such loans usually have a lower loanto-value ratio than government-sponsored credit, i.e., a lower amount of loan relative to the value of the home. Many makers of con ventional loans, such as savings and loan associations or commercial banks, are re stricted by national or state regulations which impose maximum loan-to-value ratios varying from two-thirds to 85 percent of the total loan. In contrast, the F H A permits a more liberal maximum loan-to-value ratio of 95 percent. Maturities of conventional loans also tend to be somewhat shorter than those of govern ment-insured credit. During 1960, for exam ple, average maturities of FHA-insured credit under the regular program were about 29 years as compared with average maturities of about 25 years on conventional loans. The substantive difference between govern ment-insured mortgage credit and conven tional loans is due primarily to the legal framework under which the F H A and V A must operate. Because of the uniformity of FHA-insured and VA-guaranteed loans, such credit instruments have become negotiable instruments acceptable for purchase by port folio investors. Yet the ceilings on the interest rates carried by FHA-insured and VAguaranteed obligations (which are part of the same uniformity) have, at times, resulted in sharp fluctuations in the flow of funds into such debt instruments. The performance of government-insured credit set a precedent for the development of a secondary market for conventional loans. During 1957, for example, the Federal Home Loan Bank Board for the first time permitted its members to hold mortgages beyond a 50mile radius from the home office of the sav ings and loan association. Conventional home mortgage credit has thus tended to become somewhat more mobile, liquid, and market able. In short, the presence of the F H A and VA in the mortgage market in recent years HOME MORTGAGE DEBT OUTSTANDING i-----------------------------------------------------------Billions of dollars . Plotted at y e a r end A lthough the volume of home m o rtga ge debt out standing has shown a very la rge and steady increase, the p roportion accounted fo r by the dif ferent types of m o rtgages has rem ained virtually unchanged during the p ast decade. has quite clearly played a role in increasing both the supply of and demand for home mortgages. Lenders of Mortgage Credit The relative amounts of mortgage debt on nonfarm one- to four-family properties held by various types of lenders have shown very little change in the postwar period. Of the major types of investors in mortgage credit, only the savings and loan associations — the largest single holder of mortgage credit — have registered an increase in the respective shares of nonfarm mortgage debt held by all types of investors. In 1946, savings and loan associations held 29 percent of such mortgage debt; at the end of 1960, these associations held approximately 40 percent of the volume outstanding. The mortgage holdings of both life insur ance companies and mutual savings banks as percentages of nonfarm mortgage debt credit outstanding have been relatively unchanged 5 FHA AND VA MORTGAGES VOLUME by ORIGINATORS during the postwar period. Life insurance companies held about 29 percent of nonfarm mortgage debt outstanding in 1946; at the end of 1960, such holdings accounted for 27 percent of the total. The corresponding per centages for mutual savings banks were 18 percent in 1946 and 17 percent at the end of 1960. In contrast, the share of nonfarm mort gage debt outstanding held by commercial banks declined between 1946 and 1960, from 18 percent to 14 percent. Over and above these general developments 6 OUTSTANDING by TYPE of HOLDER in the mortgage holdings of various investors, there have been discernible changes in the relative amounts of government-insured mort gages held by the major types of lenders. Most of these changes have occurred in the past few years, and can be attributed to a large extent to both the increased institution alization of home mortgage lending and greater specialization in financing practices. The portfolios of mutual savings banks re flect some of the changes that have taken place in the types of mortgages held by vari ous institutional lenders. As shown in the accompanying chart, mutual savings banks have increased their holdings of governmentinsured mortgage credit from 13 percent of the total outstanding in 1950 to nearly 26 percent at the end of 1960. Governmentinsured mortgage credit currently bulks large in the mortgage portfolios of mutual savings banks, representing nearly two-thirds of total mortgage holdings. Life insurance companies have continued to hold the largest single share of governmentinsured mortgages, with 29 percent in 1950 and nearly 28 percent as of the end of 1960. Taken together, mutual savings banks and life insurance companies held more than 53 percent of the total volume of governmentinsured credit outstanding as of the end of 1960 (as compared with 42 percent as of the end of 1950). In addition, life insurance companies, but not mutual savings banks, are also an important holder of conventional home mortgage credit. Government-insured mortgage credit ac counts for less than one-fifth of the total mortgage loan portfolios of savings and loan associations. The fact that savings and loan associations are heavily-loaned in conven tional mortgages reflects the fact that these institutions are scattered throughout the country and serve mainly the mortgage needs of their own communities. Many savings and loan associations make long-term loans to owner-builders prior to the start of construc tion, according to individual needs. When the house is completed or sold, the mortgage is then transferred to the purchaser. Of all financial institutions, savings and loan associations have the highest percentage of their assets invested in mortgages. As is widely recognized, these associations have en joyed a record savings inflow in the postwar period, which in part explains their emer gence as the largest single supplier of funds to the mortgage market. Mortgage Companies to A factor which has contributed importantly recent patterns in homebuilding and financing is the enlarged financing operations of mortgage companies. The role played by mortgage companies explains in part the greater specialization that has evolved in mortgage credit, particularly in the financing of government-insured mortgages. Both mutual savings banks and life insur ance companies obtain government-insured loans largely from mortgage companies. As shown in the accompanying chart, mortgage companies have more than doubled their financing activity in the past decade. During 1960 these financial institutions originated nearly three-fifths of the total volume of government-insured credit. On the other hand, as shown in a previous chart, holdings of mortgage credit by mortgage companies have been nearly negligible, demonstrating quite clearly that mortgage companies operate with substantial turnover in mortgage loan port folios. Most of the growth in the financing activ ity of mortgage companies has occurred dur ing the past five years and has accompanied a relative decline in the financing of govern ment-insured credit by commercial banks and life insurance companies. The growth in financing activity by mortgage companies re flects in particular the emergence of the practice of “ warehousing” mortgages. To illustrate, a commercial bank may make short term loans to mortgage companies on the security of a government-insured mortgage. Individual mortgage companies can then ac cumulate mortgages until the volume is large enough to be sold as a unit to a large investor such as a life insurance company or a mutual savings bank. By utilizing commercial bank credit as well as their own resources, mortgage companies are able to act as correspondents in originat ing and servicing mortgages for subsequent resale in large amounts to other investors. In this way, funds from, say, the north eastern section of the country, where mutual savings banks and life insurance companies are concentrated, can be made available to capital-short sections of the country, for 7 SELECTED YIELDS Percent FHA INSURED MORTGAGE LOANS CORPORATE A aa BONDS (Moody'i) J Dotted portion of line indicates periods for which monthly data are unavailable during 1957 and 1959. example, the Southwest. The ability of mort gage companies to originate a large share of government-insured mortgages is due in part to the secondary market operations of the Federal National Mortgage Association. The secondary market operations of FNMA are designed to enhance the liquidity of govern ment-insured loans in the portfolios of pri vate investors. If mortgage companies (as well as other investors) at any time are un able to find outlets for government-insured mortgages which have been newly-originated, FNMA stands ready to purchase such mort gages. In the past few years mortgage com panies have accounted for about three-fourths of the total sellers of mortgages to FNMA. Terms of Home Mortgage Loans To a borrower, the monthly payment 011 a home mortgage represents an aggregate of a number of components, the largest of which is affected by the amount and maturity of the mortgage. Variations in the contract rate of interest on home mortgages have only a minor effect on the size of the monthly pay 8 ment, although they are, to be sure, an important factor affecting the total cost of purchasing a home. On FHA-insured loans there is also a 0.5 percent insurance cost on the balance of the loan outstanding. No simi lar charge is made by the V A since the cost of guaranteeing a mortgage is met out of general tax revenues. An investor in mortgages is interested prin cipally in the yield on the mortgage as com pared with other capital market instruments. Data on the terms of home mortgages are limited, particularly for conventional loans. The only data regularly available on mort gage yields is a national average of prevailing discounts or premiums on home mortgages insured by FH A. Discounts or premiums are the difference between the market price and the face value of a mortgage. B y offering a discount (lower) or premium (higher) price for a mortgage, lenders are able to adjust a fixed interest rate in order to obtain a spe cific yield. Since 1948, the effective yield on FH Ainsured mortgage credit has tended to be about 1.5 percent greater than the yield on prime corporate bonds (Aaa) as shown in the accompanying chart. Broadly speaking, the fluctuations of corporate bond yields have been substantially greater than those of FHA-insured mortgages. A discernible pattern in the behavior of yields on FHA-insured mortgages in the postwar period until recently has been the tendency to lag behind corporate yields dur ing both periods of recession and expansion. To a considerable extent, both the relative narrowness of fluctuations in mortgage yields and the lag in relation to changes in capital market conditions reflect basic differences in the techniques and characteristics of mort gage markets as compared with those of other capital markets. In the recession periods of both 1953-54 and 1957-58, mortgage yields continued to rise during the first few months of the reces sion although other long-term rates had turned down. Similarly, during the 1955-56 and 1958-59 periods of expansion yields on mortgages lagged for several months behind upward moving yields on corporate bonds. In the 1960-61 recession, however, the be havior of FHA-insured mortgage yields was markedly different from that during previous recessions in that the series not only fell dur ing the three months prior to the recession, but fell by more than 40 basis points during the ensuing twelve-month period. Thus, the behavior of mortgage yields during 1960-61 was more akin to the behavior of corporate bonds, altering the pattern wThich had pre vailed previously. But despite the relatively large decline in both mortgages and corpo rate securities, the respective yields at the trough of the recession in February 1961 were higher than those prevailing at the troughs of each of the three previous post war recessions. 9 A Look at the Foundry Industry economic society as we know it would be impossible without metals, and without the specialized metalworking processes that have been developed. One of the oldest but nonetheless still indispensable basic methods of working metal is by casting it into molds. The ability to cast metal with certain desirable properties, such as strength, hardness, machineability, and wear-resistance, into nearly any conceivable shape or form is the distinguishing feature of castings. This fundamental feature, along with technological refinements, make it possible to produce, for example, certain highly specialized castings which are required by the automotive, ma chinery and equipment, construction, and railroad industries. It is estimated that, alto gether, nearly 4,000 different kinds of cast ings are produced in foundries for use in more than 500 different industries. M od ern According to the 1958 Census of Manu factures, value added by manufacture(1) in all types of foundries in the United States amounted to approximately $1.8 billion. Thus, foundries ranked with canned and frozen foods producers ($1.8 billion in value added by manufacture), pharmaceutical manufac turers ($1.9 billion), and the metalworking machinery industry ($1.9 billion). The value added by all types of foundries represented about one-sixth of the total value added by the entire primary metal industries in 1958. According to the same source, more than 246,(i) “ Value added by manufacture” is axxproximatelv equiva lent to the sum of profits, wages, and taxes. As defined by the 1958 Census of Manufacturers, “ value added by manu facture” is computed by subtracting the cost of materials, fuel, purchased electric energy, and contract work from the value of shipments of manufacturerd products plus receipts from services rendered. In addition, adjustments are made for inventory changes and merchandising operations. 10 000 persons were employed in foundries dur ing 1958. Thus, in terms of the number of persons employed, foundries ranked with manufacturers of cotton and broadwoven fab rics (245,000), organic chemicals firms (245,000), and manufacturers of household furni ture (253,000). The number of persons em ployed in all types of foundries represented slightly more than one-fifth of the total of per sons employed in the primary metal indus tries in 1958. About three-fourths of foundry produc tion in 1958 was turned out at ‘ ‘ independent ’ ’ foundries, according to available data on the value of shipments in that year.(2) Indepen dent foundries are those which produce cast ings for buyers in the open market on a con tract basis, in contrast to “ captive” foun dries which are integrated with other manu facturing industries. Some of the larger inde pendent foundries concentrate their output on standardized items. Others, particularly the smaller independent foundries, produce a wide variety of castings to satisfy the many customers who require a few special types of castings. About one-fourth of foundry output in 1958 was produced at “ captive” plants, which also range from small to large operations. Regardless of size, the castings of captive foundries tend to be somewhat standardized (2) According to the 1958 Census of Manufactures, approx imately one-fourth of the total value of shipments of all ferrous castings was classified as “ captive.” However, data in regard to captive and independent nonferrous foundries are not complete in that part of the 1958 Census of Manu factures which has been published at the time of the writ ing of this article. Nevertheless, estimating from data in the 1954 Census of Manufactures and incomplete data from the 1958 Census of Manufactures, it is likely that at least onefourth of the total shipments from nonferrous foundries could be classified as “ captive.” THE IMPORTANCE of VARIOUS TYPES of FOUNDRIES EMPLOYMENT Percent of Total Employment in Foundries shown for each of the Foar Major Classifications of Foundries Classification of Foundries Foundries are customarily classified ac cording to the metal used in the manufacture o f castings. Of the many varieties and alloys of metals employed, the most common ferrous metals are gray iron, malleable iron, and steel. The major nonferrous metals used in eastings are aluminum, magnesium, and the copper-base alloys such as brass and bronze. Gray iron foundries bulk largest among all types of foundries, whether the number of employees or value added by manufacture is used as the basis of comparison. In 1958, as shown in the accompanying table, gray iron foundries accounted for 46 percent of the total number of employees and 45 percent of the total value added by manufacture in all types of foundries. VALUE ADDED BY MANUFACTURE Percent of Total Valve Added by Manufacture in Foundries for each of the Four Major Classifications of Foundries Nonferrous foundries as a group consti tute the second largest part of the foundry industry. In 1958, such foundries accounted for 26 percent of the total number of em ployees and 26 percent of the total value added by manufacture in all types of foun dries. Ranking third in importance among all types of foundries are steel foundries, which in 1958 accounted for 20 percent of the total number of employees and 22 percent of the total value added by manufacture in all types of foundries. Malleable iron foundries comprise the smallest segment of the foundry industry. In 1958, such foundries accounted for 8 percent of the total number of employees and 7 per cent of the total value added by manufacture in all types of foundries. Foundry Products Source: 1958 Census of Manufactures. since they are usually produced for a single manufacturer. However, when excess capac ity is available, captive foundries may also produce for the open market. The foundry industry as a whole is called upon to provide a wide variety of metal prod ucts. The industry is an important supplier to a wide range of industries, as shown in the accompanying table. Some of the more com mon items produced by the foundry industry are grouped below, according to the kind of metal used. It will be observed that castings 11 are generally used as components of larger and more complex products. Gray Iron Foundries. Gray iron castings are used when there is a need for a heat-re sistant product which does not have to with stand stress or strain. Examples of gray iron castings a re: Engine blocks for automobiles and trucks Brake drums for " " " Clutch plates for " " " Flywheels for engines Housings for power units on road ma chinery equipment Parts for turbines used in electric generating stations Frames for lathes and boring mills Nonferrous Foundries. Aluminum castings, which comprise the major part of all nonferrous castings, are used when a lightweight casting is required. A few of the uses of aluminum castings are: Aircraft engine parts Motor blocks for automobiles Oil pans for automobiles Entrances and window frames for build ings Cylinder heads for automobile and truck engines The principal other nonferrous metals which are used in castings are copper base alloys and magnesium. Copper base alloy castings (commonly referred to as brass or bronze castings) contain copper together with tin, lead, or zinc. Because brass and bronze eastings do not rust or corrode readily, such castings are used primarily for plumbing fit tings, marine fittings and other hardware, bushings, and bearings. Although magnesium castings are not quite as strong as aluminum castings, the former have the advantage of being approximately one-third lighter in weight than similar aluminum castings. However, magnesium castings are combustible and must be used only in places where there is little likelihood of fire or high temperatures. One of the uses of magnesium castings is special hardware for aircraft. 12 THE USES OF CASTIN GS GRAY IRON CASTINGS 1. Automotive (including replacement)...................... 2. Building and construction 3. Utilities............................... 4. Machine tool equipment. 5. Agricultural equipment. . Other uses.......................... Est. % of Total 26% 10 9 7 40 100% ALUMINUM AND ALUMINUM BASE ALLOY CASTINGS 1. Motor vehicles and parts. 2. Internal combustion eng ines, motors and generators........................... 3. Aircraft industry............... 4. Domestic laundry equip ment and electrical appliances........................... 5. Valves and fittings........... Other uses.......................... 51% 15 14 12 5 3 100% . CASTINGS 1. Railroad equipment......... 2. Construction machinery and equipment.................. 3. Rolling mill equipment. . 4. Mining and crushing machinery........................... 5. Motor vehicles................... Other uses.......................... 33% 15 14 6 5 27 100% MALLEABLE IRON CASTINGS 1. Automobiles and trucks. 2. Agricultural implements 3. Plumber’s valves and fittings............................... 4. Valves and fittings (other than plumbing). 5. Construction and mining machinery........................ Other uses........................ 51% 11 10 9 4 15 100% The data used here are the most recent complete figures available. They are taken from the reports of the Gray Iron Founders’ Society (1 954), the Steel Founders’ Society of America (1 960), and the Malleable Founders’ Society (1 959). The data on aluminum castings are from the 1954 Census of Manufactures. These data are used to shed some light on the uses of castings. Foundry industry sources in dicate that such data are representative of the relative shares of castings that are currently being consumed. Steel Foundries. Steel castings are used in the manufacture of products when a high degree of strength in a compact place or re sistance to shock is a requirement. Examples of the uses of steel castings are: Locomotive truck frames Railroad car wheels Railroad freight car beds (up to 70 feet in length) Bases for power shovels used in construc tion machinery Front and rear axle housings used in trucks Malleable Iron Foundries. Castings of mal leable iron are used in the manufacture of products when there is a need for a metal casting that can withstand a moderate amount of stress and strain, but which does not have to withstand shock or abrasive wear. A l though gray iron castings and malleable iron castings are both made from pig iron and scrap iron, malleable iron castings are spe cially treated to lower and control the car bon and silicon content. Malleable iron cast ings are used for products such as: Rear axle housings for automobiles and trucks Universal joint yokes for " " " Crankshafts for " " " Frame members for trucks Guards for agricultural mowing machines Inner and outer shoes for holding agricul tural attachments to a tractor Location of Foundries Foundry activity is concentrated in a com paratively small number of states. Three states— Ohio, Michigan and Pennsylvania— accounted for more than two-fifths of the total value added by manufacture in all foun dries in the United States, according to the 1958 Census of Manufactures. Another onefifth of the total value added by manufacture in all foundries in the United States was ac counted for by three additional states, Illi nois, Indiana, and Wisconsin. These six states tend to form a region which coincides rough ly with many of the major iron and steel pro ducing areas of the United States. The state of Ohio ranked first in foundry activity among all states in 1958. Total value added by manufacture among all types of foundries in Ohio amounted to more than $279 million and accounted for approximate ly 16 percent of the total value added by manufacture in all types of foundries in the United States. Gray iron and nonferrous foundries predominate in Ohio, and, when combined, accounted for about three-fourths of the total value added by manufacture in all types of foundries in Ohio during 1958. Michigan ranked second in foundry ac tivity in 1958. Total value added by manu facture among all types of foundries in Michi gan amounted to more than $257 million and accounted for approximately 14 percent of the total value added by manufacture in all types of foundries in the United States. Foundry activity in Michigan was mainly concentrated in gray iron foundries and nonferrous foundries. Gray iron and nonferrous foundries, taken together, accounted for ap proximately five-sixths of the total value added by manufacture in all types of foun dries in Michigan during 1958. In Pennsylvania, the third-ranking state in foundry activity, total value added by manufacture among all foundries amounted to more than $196 million and accounted for about 11 percent of the total value added by manufacture among all types of foundries in the United States. It is noteworthy that steel foundries in Pennsylvania, which ranked first by a wide margin among all states in value added by manufacture, accounted for more than two-fifths of the total value added in all types of foundries in Pennsylvania. Gray iron foundries accounted for an additional one-fourth of the total value added by manu facture among all types of Pennsylvania foundries. Concentration of Various Classifications of Foundries. Malleable iron foundries are con centrated within a small number of states. Taken together, Illinois, Michigan, and Ohio accounted for more than 60 percent of the 13 LEADING STATES (Value Added by Manufacture in Foundries) Est. % of Total TYPES OF FOUNDRIES* 1. 2. 3. 4. 5. 6. Ohio...................... . $ 279,099,000 Michigan............. 257,477,000 196,333,000 Pennsylvania. . . . Illinois.................. 162,337,000 103,507,000 Indiana................ 95,956,000 Wisconsin............ Total of Leading Six States.............. . All Other States___ 1,094,709,000 698,252,000 Total U .S .................. . $1,792,961,000 16% 14 11 9 6 5 61% 39 100% Est. % of Total STEEL FOUNDRIES 1. 2. 3. 4. 5. 6. 7. Pennsylvania. . . . . $ Ohio...................... Illinois.................. Indiana................ Wisconsin............ Michigan............. Oregon................. All Other States. . . . 83,025,000 48,509,000 39,207,000 36,783,000 30,557,000 14,946,000 9,463,000 121,380,000 Total.......................... .. $ 383,870,000 22% 13 10 9 8 4 2 32 100% GRAY IRON FOUNDRIES 1. 2. 3. 4. 5. 6. 7. Michigan........... . . $ 145,475,000 134,681,000 O hio................... 53,709,000 Pennsylvania.. . 45,529,000 Indiana.............. New Jersey. . . . 40,665,000 39,732,000 Illinois................ Wisconsin.......... 35,682,000 18% 16 7 6 5 5 4 All Other States. . . 315,285,000 39 Total........................ . . $ 810,758,000 100% 76,074,000 69,051,000 52,098,000 50,207,000 38,775,000 36,962,000 20,372,000 16% 15 11 11 8 8** 4 NONFERROUS FOUNDRIES 1. 2. 3. 4. 5. 6. 7. Ohio................... . . $ Michigan........... Illinois................ California.......... New York......... Pennsylvania.. . Wisconsin.......... All Other States. . . 127,202,000 27 100% total value added by manufacture in all mal leable iron foundries in 1958. These three states, plus Pennsylvania, Wisconsin, In diana, and Connecticut, contributed alto gether 86 percent of the total value added by manufacture in all malleable iron foundries. Steel foundries also are concentrated in a small number of states. Three states, Penn sylvania, Ohio and Illinois, accounted for 45 percent of all value added by manufacture in steel foundries in 1958. These three states, 1. 2. 3. 4. 5. 6. 7. Illinois................ .. $ Michigan........... Ohio................... Pennsylvania. . . Wisconsin.......... Indiana.............. Connecticut All Other States Total........................ . . $ Total........................ .. $ 470,741,000 14 MALLEABLE IRON FOUNDRIES 31,300,000 28,005,000 19,835,000 12,637,000 9,345,000 5,907,000 2,834,000 24% 22 16 10 7 5 2 17,729,000 14 127,592,000 100%, * Complete data for all types of foundries are available only for the leading six states. Data for nonferrous foun dries in the state of Indiana are not shown in this table. ** Data are available only for certain classifications of nonferrous castings in the state of Pennsylvania (i. e., alumi num, brass, bronze and copper castings). Source: 1958 Census of Manufactures. plus Indiana, Wisconsin, Michigan, and Ore gon, contributed nearly TO percent of all value added by manufacture in steel foun dries. (In addition, nonferrous and gray iron foundries are concentrated within a few states, as is shown in the accompanying table.) An "Average" Foundry Due to the diversity of the size and the output of various classifications of foundries, it is somewhat difficult to derive an “ aver age” foundry.(3) However, such a derivation may be helpful in obtaining some bench-mark information on the basis of which an “ aver age” individual foundry may be compared with an “ average” firm in other industries. Using data from the 1958 Census of Manu factures, it has been found that an average foundry in the United States employed 68 persons in 1958, thus representing, within the confines of the iron and steel industry, a small establishment. By way of comparison, establishments which manufactured iron and steel forgings employed, on average, 121 per sons in 1958, while an average of 1,757 per sons were employed in blast furnaces, steel works, and rolling mills. Malleable iron foundries, on average, tend ed to be the largest in size among the various types of foundries in the United States in 1958. The output of a representative malle able iron foundry, as measured, for example, by value of shipments, amounted to nearly two and one-half times as much as did the average output of all types of foundries in the United States. On the other hand, the nonferrous foun dries tended to be the smallest in size among all types of foundries in 1958. An average nonferrous foundry employed less than onehalf as many persons as did the other types of foundries in the United States. The output of an average nonferrous foundry, as meas ured by value of shipments, was approxi mately one-half as large as the average out put of all foundries in the United States. The wide variation in the characteristics of foundries is emphasized even more when a malleable iron foundry is compared with a nonferrous foundry. On average, malleable iron foundries employed more than seven times as many persons as did the nonferrous foundries. Moreover, on average, output from a representative malleable iron foundry was more than five times as large as that of a representative nonferrous foundry. (3) “ Average” refers to an ordinary arithmetic mean. It is fully recognized that there are substantial variations around the average. Accordingly, averages as used here are intended to serve only as a broad gauge of the foundry industry. 15 FOURTH FEDERAL RESERVE DISTRICT —
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