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A U G U S T 1964 IN THIS ISSUE Personal Income— Patterns and Trends in the Fourth District.... 3 U. S. Merchandise Trade by Geographical Area, 1 9 5 0 -1 9 6 3 ...... 16 Recently Published..........23 FEDERAL RESERVE BANK OF CLEVELAND Additional copies of the E C O N O M IC REVIEW m ay be obtained from the Research Department, Federal Reserve Bank of Cleveland, Cleveland, O hio 44 1 0 1 . Permission is granted to reproduce any material in this publication. A U G U ST 1 9 6 4 PERSONAL INCOMEPATTERNS AND TRENDS IN THE FOURTH DISTRICT M onthly estim ates of p ersonal in co m e p rep a red by the U. S. D ep artm en t of C o m m erce are used freq u en tly to m e a sure co n su m er in co m e and p u rch a sin g pow er. These estim ates also help to r e veal stru ctu ra l changes in the econom y that result fro m variations in the distri bution a nd com position of in co m e. F u r th erm o re, a m o ng the aggregate m easures of econ o m ic activity personal in co m e is the only m ea su re for which regional and state data are available. T h erefore, it is the m ost com prehensive m easure of eco n om ic activity on a regional or sta te basis. D uring the postwar p erio d all the states have exp erien ced co n tin u o u s increases in p erso n al in c o m e ; how ever, the rates of grow th have d iffered significantly a m o n g various regions o f the co u n try . C onse qu en tly , the geo gra ph ic distribution a nd p a ttern s o f p erso n a l in co m e have u n d e r go ne im p o rta n t ch a n ges. T h ese ch a nges are principally an outgrow th o f shifts in the n a tio n ’s in d u stria l com plex a n d ch a nges in population location. NATIONAL PATTERNS Briefly, total personal in co m e includes all p ay m ents received by individuals, u n Relative shifts in the distribution of personal income during the postwar period have re incorporated businesses and nonprofit sulted in further reductions in regional differ ences. In general, the proportion of total per sonal income accounted for by the Southeast, Southwest, Rocky Mountain and Far West institutions in the fo rm of wages and salaries, profits, ren t, in terest, dividends, and transfer pay m ents. The only item d ed u cted in arriving at p ersonal in co m e estim ates are contributions to social in su ra nce fu n ds. regions increased between 1948 and 1963 while the proportion accounted for by the New England, Mideast, Great Lakes, and 3 E C O N O M IC R E V IE W Plains regions declined.1 The largest increase occurred in the Far West, where the share of personal income increased from 11.5 percent to 14.3 percent. At the same time, the per sonal income of that region increased 177 percent as compared with a 122 percent in crease in the nation. In contrast, in the Plains region the income share declined from 9.3 percent to 7.9 percent and total personal income increased by less than 90 percent. The increases or decreases in the propor tion of personal income accounted for by the various regions have not all been accompa nied by similar changes in personal income per capita. For example, in the fastest grow ing region, the Far West, per capita income in 1963 exceeded the average for the entire nation but the margin was lower than in 1948. On the other hand, the proportion of personal income accounted for by New England de1 The eight regions of the United States referred to in this study are com prised of the following states: N e w England Mideast Maine New York New Hampshire New Jersey Vermont Pennsylvania Great Lakes P l a in s Michigan Minnesota Ohio Iowa Missouri Indiana Massachusetts Delaware Illinois North Dakoti Rhode Island M aryland Wisconsin South Dakot< Connecticut District of N ebraska Kansas Columbia So u th ea st Southwest Ro c k y M o u n t a in Virginia Oklahoma Montana Washington W est Virginia Texas Idaho O regon Kentucky New Mexico W yom ing N evada Tennessee Arizona Colorado California Utah Alaska North Carolina South Carolina Far West clined between 1948 and 1963 but the mar gin by which average per capita income ex ceeded the U. S. average increased. These diverse trends in total personal income and per capita income are principally the result of shifts in population distribution among the various regions. DISTRICT PATTERNS In the four states included in the Fourth Federal Reserve District, increases in personal income failed to keep pace with the rate of gain for the entire nation between 1948 and 1963.2 The rate of increase for the four states combined during the fifteen-year period was 96 percent, as compared with 122 percent for the nation. As Table I indicates, personal income in Ohio increased 109 percent, the largest ab solute and percentage gain among the four states. At the same time, personal income in creased 104 percent in Kentucky, 88 percent in Pennsylvania and 53 percent in West Virginia, the smallest relative gain and only roughly half the rate for the nation. As a result of the relatively smaller rate of expansion, the proportion of the nation's per sonal income accounted for by the four states also declined from 1948-63. For example, as shown in Table II, in 1963 the four states combined accounted for 13.5 percent of total U. S. personal income as compared with 15.4 percent in 1948. Hawaii G eorgia The Fourth Federal Reserve District includes Ohio, 19 Florida 2 A labam a western counties of Pennsylvania, 6 northern counties Mississippi of W est Virginia, and 5 6 eastern counties of Kentucky. Louisiana In this article the entire four-state region is referred to Arkansas as the Fourth District. 4 AUGUST 1 9 6 4 TABLE I Personal Income in the U. S. and the Fourth District, 1948-63 (in millions of dollars) United States Kentucky Ohio Pennsylvania W est Virginia Fourth District States Total $31 ,99 8 1948 . $ 20 7,4 14 $14 ,87 6 $2,176 . 205,452 $2,719 2,624 $12 ,22 7 194 9 1 1,736 14,771 2,050 31,181 195 0 . 225,473 2,834 1 6,477 2,203 34,405 1951 . 252 ,96 0 3,318 12,891 14,892 18,038 2,439 38,687 1952 . 269 ,05 0 3,524 15,908 18,922 2,540 40,894 43,652 1953 . 283 ,14 0 3,644 17,316 20,145 2,547 1954 . 3,627 17,241 19,572 2,414 42,854 195 5 . 285,339 306,598 3,782 20,706 2,586 45,663 195 6 . 330 ,38 0 4,022 18,589 19,901 22,410 2,878 49,21 1 19 5 7 195 8 . . 348,724 4,203 20,906 25,525 3,082 53,716 357,498 4,347 20,494 23,582 2,974 51,397 19 5 9 . 54,357 381 ,32 6 4,563 21,977 24,757 3,060 1960* 399 ,02 8 4,672 22,722 25,539 3,099 56,032 1961 * 4 14 ,95 4 5,005 23,090 25,946 3,123 57,164 1962* 439,661 5,276 24,154 26,887 3,210 59,527 1963* 460 ,58 0 5,536 25,263 27,923 3,329 62,051 *Alaska and Hawaii Included Source: U. S. Department of Commerce Table III shows that, in terms of per capita personal income, the pattern among the four states was mixed. Ohio had a per capita per sonal income of $ 2 ,483 in 1963, the largest among the four states, and 1.6 percent above the national average. In contrast, per capita income in Kentucky in 1963 was $1,789, the lowest among the four states, and only threequarters as large as average per capita in come in Ohio and the nation. UNDERLYING FACTORS Recently the U. S. Department of Com merce released additional data that permit intensive analysis of the role of industrial forces in the distribution of a large segment of personal income among the various states between 1948 and 1962.3 The remainder of 3 G raham , Robert E., Jr., "Factors Underlying C hanges in the G eographic Distribution of Incom e,” S u rv e y o f C u rre n t Business, U. S. Department of Com m erce, April 1964. this article makes use of these data to explain the impact of industrial activity on income patterns in the four states of which all or a part are included in the Fourth Federal Reserve District. For purposes of analysis personal income is divided into three categories. The first cate gory is participation in co m e, which is re ceived as a result of participation in current production; namely, wage and salary dis bursements, other labor income, and propri etors' income (see Table IV). The two remain ing categories are property in co m e (divi dends, interest, and rent), and transfer pay m en ts. Table IV shows that in 1962 approximately four-fifths of personal income in the U. S. was classified as participation income. Similarly, in Kentucky, Ohio, Pennsylvania, and West Virginia the largest proportion of personal income was acquired from participation in current production. 5 E C O N O M IC R E V IE W TABLE II Percentage Distribution of Personal Income KenPenntucky sylvania Ohio W est Virginia Fourth District 1948 4th District United States 8 .4 % 1.3 4 6 .5 % 7.2 3 8 .2 % 5.9 6 .8 % 1.0 15 . 4 % 1949 4th District United States 8.4 1.3 47.4 7.2 37.6 5.7 6.6 1.0 15.2 8.2 1.2 47.9 7.3 37.5 5.7 6.4 1.0 15.2 1951 4th District United States 8.6 1.3 46.6 7.1 38.5 5.9 6.3 1.0 15.3 1952 4th District United States 8.6 1.3 46.3 7.0 39.0 5.9 6.2 0.9 15.2 8.3 1.3 46.1 7.1 39.7 5.8 0.9 15.4 8.5 1.3 45.7 6.9 40.2 5.6 0.8 15.0 8.3 45.3 6.8 40.7 5.7 0.8 14.9 45.5 6.8 40.4 5.8 0.9 14.9 47.5 7.3 38.9 1.2 6.0 5.7 0.9 15.4 8.4 45.9 1.2 6.6 39.9 5.7 5.8 0.8 14.4 195 9 4th District United States 8.4 45.5 6.5 40.4 5.8 5.6 0.8 14.3 1960* 4th District United States 8.3 45.6 6.4 40.6 5.7 5.5 0.8 14.0 1961 * 4th District United States 8.8 1.2 45.4 6.2 40.4 5.6 5.5 0.8 13.8 1962* 4th District United States 8.9 45.2 1.2 6.1 40.6 5.5 5.4 0.7 13.5 8.9 1.2 45.0 40.7 5.5 5.4 0.7 13.5 1950 4th District United States 1953 4th District United States 1954 4th District United States 1955 4th District United States 195 6 4th District United States 195 7 4th District United States 19 5 8 4th District United States 1963* 4th District United States 1.2 8.2 1.2 7.8 1.2 1.2 6.1 6.1 6.0 6.1 6.0 Therefore, the following analysis is chielly concerned with the factors that affect partici pation income and with the principal causes of variations among selected regions. Accord ing to data provided by the Department of Commerce there are three principal factors associated with regional changes in partici pation income. The first is assumed to be the same for all regions and the two remaining factors are responsible for the differences in the growth of income among various regions.4 The first factor is simply the overall growth of the entire economy or the na tional grow th effect. It is assumed that if there were no differences in the characteristics of the respective regions, they would be affected uniformly by national economic growth and, therefore, there would be no change in the relative share of income received by each region. Column A in Table V shows the in crease in participation income that is ac counted for by national growth in the U. S., Kentucky, Ohio, Pennsylvania, and West Virginia and the total for the four states be tween 1948 and 1962. The national growth element was computed by the Department of Commerce by applying to participation income in each state in 1948 the national percentage increase in participa tion income between 1948 and 1962. This, in effect, is the growth in participation that would be expected if each state had gains or losses proportional to the nation as a whole. The second determinant of the expansion of participation income in a region, and the first that helps to explain differences in rates *Alaska and Hawaii included 4 Note: Figures not additive due to rounding Technique for Regional A nalysis/' P apers a n d P ro c e ed in g s Source: U. S. Department of Commerce o f the R e g io n a l S cience A ssociation, Volume 6, 1 9 6 0 . 6 See Dunn, Edgar S., Jr., "A Statistical and Analytical A U G U ST 1 9 6 4 of growth among regions, is the industry-m ix effect. If a region contains a large propor tion of "slowly growing industries" it will experience a below average expansion of income. Conversely, a region that contains a large segment of "rapidly growing indus tries” will experience an increase in income at an above average rate. The industry-mix effect is measured by applying to each indus try the difference between the national growth rate of participation income in that particular industry and the national all industry growth rate between 1948 and 1962. In those instances where the rate of increase in income in a particular industry exceeds the all-industry growth rate it is classified as an above average industry (rapidly growing industry); its importance to a region depends, of course, upon the proportion of the industry located in the region. Where the industry rate of growth is below the all-industry rate of expansion it is classified as a below average industry (slowly growing industry) and has a "drag effect" on a region; however, even though an industry shows a negative figure, it is still making a contribution to the total in come of the region. The industry-mix mea sure, as shown in column B of Table V, is thus merely a device to explain the regional differ ences in income growth rates and the relative share of income that can be accounted for by differences in the industrial composition of TABLE III Per Capita Personal Income (in dollars) United States Kentucky $ Ohio Penn sylvania W est Virginia $ 1 ,146 1948 $1,420 96 5 $1,552 $ 1 ,446 1949 195 0 1,382 921 1,472 1,422 1,062 1,491 95 8 1,614 1,566 1,095 1951 1,649 1,116 1,870 1,733 1,215 1952 1,727 1,958 1,790 1,274 195 3 1,788 1,191 1,224 2,032 1,892 1,278 195 4 1,770 1,221 1,931 1,804 1,224 1955 1,866 1,264 2,070 1,903 1,316 195 6 1,961 2,027 1,456 2,027 1,339 1,372 2,184 19 5 7 2,255 2,1 12 1,554 1958 2,064 1,453 2,133 1,582 1959 2,163 1,514 2,159 2,286 2,204 1,635 196 0 2,217 1,532 2,331 2,255 1,675 1961 2,263 1,625 2,330 2,283 1,726 1962 2,367 1,711 2,406 2,362 1,787 1963 2,443 1,789 2,483 2,444 1,872 Source: U. S. Department of Commerce That is, the second determinant considers the dynamism of the industries in a region as compared with the same industries nationally. The regional-share effect is determined by applying the difference between the percent age change in participation income contrib uted by the segment of an industry located in a particular region and the percentage change in the same industry nationally between 1948 and 1962. Where the industry growth rate in a region is below that for the industry nation ally, its effect on income growth in that region is negative. Conversely, where a particular industry experiences a growth rate in excess various regions. The third factor affecting income growth, and another explanation of differences among of the national rate for the industry, it has a positive influence on the income growth of a region. The result of the regional-share effect on participation income in the Fourth District regions, is termed the regional-share effect. It measures the influence of industries whose contributions to income occur in a region at a slower or faster rate than occurs nationally. states individually and collectively is shown in column C of Table V. The sum of these three factors, as shown in column D of Table V, equals the total change 7 TABLE IV Sources and Percentage Distribution of Personal Income W a g e and Salary Disbursements 194 8 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y l v a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 19 4 9 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia .......................................... Fourth D istric t ......................................... 1950 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y lv a n ia ......................................... W est V i r g in i a ......................................... Fourth D ist ric t ......................................... 1951 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y l v a n ia ......................................... W est V i r g in i a ......................................... Fourth D ist ric t ......................................... 1952 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y l v a n ia ......................................... W est V i r g i n i a ......................................... Fourth D ist ric t ......................................... 195 3 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y lv a n ia ......................................... W est V i r g i n i a ......................................... Fourth D ist ric t ......................................... 195 4 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................................... P e n n s y lv a n ia ......................................... W est V i r g i n i a ......................................... Fourth D ist ric t ......................................... 195 5 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o .................................. P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 195 6 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 19 5 7 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 195 8 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 195 9 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................ P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 1 96 0 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t ......................................... 1961 United S t a t e s ......................................... K e n tu c k y ................................................ O h i o ................................................... P e n n s y lv a n ia ......................................... W est V ir g in ia ......................................... Fourth D istric t......................................... 196 2 United S t a t e s ......................................... K e n tu c k y ............................................. O h i o .................................................... P e n n s y lv a n ia ...................................... W est V ir g in ia .................................. Fourth D ist ric t .................................. Note: Figures not additive due to rounding Participation Income Other Labor Proprietors' Income Income Percent 8 3 .4 % 85.3 83.2 83.4 87.2 83.6 Property Income $23 ,3 9 6 237 1,377 1,717 178 3,509 Percent Transfer Payments Percent 1 1 .2 % 8.7 1 1.1 1 1.4 8.1 10.8 $1 1,261 165 69 5 774 104 1,738 5 .4 % 6.0 5.6 5.1 4.5 5.5 $133,793 1,598 8,314 10,597 1,585 22,094 $2,713 37 180 243 57 51 7 $38 ,38 9 708 1,784 1,699 276 4,467 133,005 1,554 8,000 10,254 1,442 25,767 3,021 40 202 271 59 572 34,149 627 1,558 1,640 251 4,076 81.9 83.7 82.2 81.5 84.5 82.1 25,100 241 1,468 1,830 241 3,737 12.1 9.1 12.4 12.3 9.5 11.9 12,380 189 63 4 934 124 1,881 5.9 7.1 5.3 6.2 5.9 5.9 145,092 1,734 8,852 11,115 1,540 28,603 3,823 55 277 362 83 7 77 36,140 573 1,602 1,711 2 45 4,131 81.0 82.3 82.2 79.0 83.6 80.8 28,308 273 1,602 2,098 212 4,185 12.3 9.5 12.3 12.5 9.4 12.0 14,969 2 35 720 1,400 154 2,509 6.6 8.2 5.5 8.4 6.9 7.2 168,413 2,076 10,604 12,840 1,758 32,496 4,786 66 361 452 99 978 40 ,809 706 1,790 1,881 276 4,653 83.5 85.3 84.6 83.0 86.3 84.0 29,81 1 29 4 1,725 2,195 20 9 4,423 11.6 8.7 1 1.4 12.0 8.4 1 1.2 12,491 200 600 914 130 1,844 4.8 5.9 4.0 5.0 5.3 4.7 182,251 2,298 1 1,382 13,578 1,772 29,030 5,316 70 403 589 101 1,163 40,852 693 1,904 1,908 28 0 4,785 83.7 85.7 84.9 83.6 83.6 84.2 31,203 302 1,777 2,261 224 4,564 11.5 8.5 11.0 11.6 8.7 11.0 13,148 211 6 52 954 199 2,016 4.8 5.8 4.1 4.8 7.7 4.8 194,529 2,388 12,593 14,549 1,814 31,344 5,994 80 458 556 112 1,206 39,171 66 8 1,900 1,871 260 4,699 83.5 84.9 85.2 83.1 84.6 84.2 33,162 328 1,875 2,443 230 4,876 11.6 8.9 10.7 12.0 8.9 11.0 14,199 230 715 1,003 167 2,115 4.9 6.2 4.1 4.9 6.5 4.8 192,961 2,270 12,187 1 3,774 1,648 29,879 6,253 81 46 9 542 106 1,198 38,363 685 1,964 1,794 257 4,700 82.1 83.0 83.6 80.7 81.7 82.2 35,422 35 9 1,994 2,589 24 6 5,188 12.2 9.8 11.4 13.0 10.0 11.9 $20 7,6 93 2,437 13,375 14,676 1,770 32,264 $6,996 93 541 601 120 1,355 $39 ,01 9 6 16 1,827 1,748 252 4,443 $37 ,35 5 36 5 2,087 2,741 253 5,446 1 2 .1 % 9.6 1 1.1 13.0 9.7 1 1.7 225,070 2,586 14,377 15,826 2,023 34,812 8,102 109 625 68 6 144 1,564 43,715 720 2,046 2,012 287 5,065 82.4 83.4 84.2 81.3 83.8 82.8 4 0 ,506 387 2,229 2,888 273 5,777 12.1 9.4 1 1.0 12.7 9.3 11.5 1 8,777 28 9 964 1,378 20 0 2,831 5.4 7.1 4.7 6.0 6.8 5.7 235 ,88 4 2,717 14,928 16,585 2,176 36,407 9,140 122 69 4 786 156 1,758 44,457 673 2,057 1,992 298 5,020 81.4 81.9 83.0 80.8 83.8 81.9 4 4 ,110 436 2,463 3,028 279 6,186 12.4 10.2 1 1.6 12.6 8.9 11.7 2 1 ,837 33 9 1,156 1,581 229 3,305 6.1 7.9 5.4 6.6 11.3 6.3 237,063 2,719 14,163 16,103 1,986 34,971 9,357 126 675 744 141 1,686 46,052 726 2,044 2,092 288 5,150 80.3 80.5 80.9 78.8 79.8 79.8 45,568 46 2 2,514 3,096 306 6,378 12.5 10.4 12.0 12.9 10.1 12.2 26,294 401 1,478 1,982 306 4,167 7.2 9.0 7.1 8.3 10.1 8.0 255 ,87 0 2,900 15,493 16,964 2,060 37,417 10,398 134 758 823 149 1,864 46,475 717 2,692 2,1 17 292 5,186 80.4 80.5 81.7 78.8 80.2 80.2 4 9,043 495 1,419 3,296 318 6,81 1 12.6 10.6 12.0 13.0 10.2 12.2 27,423 41 5 18,31 1 2,058 302 4,194 7.0 8.9 6.3 8.1 9.7 7.6 269 ,08 7 3,000 16,025 17,650 2,086 38,761 10,994 139 796 850 152 1,942 46,236 69 0 2,053 2,060 284 5,087 79.9 79.9 81.2 78,7 79.6 79.9 52,444 5 18 2,841 3,398 3 38 7 ,095 12.8 10.8 12.2 13.0 10.7 12.4 29,476 440 1,528 2,158 30 7 4,433 7.2 9.2 6.6 8.3 9.7 7.7 276 ,41 7 3,077 15,913 17,621 2,080 38,691 1 1,371 142 799 869 149 1,959 48,106 78 2 2,095 2,1 17 274 5,268 79.1 78.0 79.6 77.6 78.4 78.9 55,034 53 3 2,977 3,521 33 8 7,369 12.9 10.4 12.6 13.3 10.6 12.6 33,549 590 1,835 2,407 35 0 4,882 7.9 11.5 7.8 9.0 10.9 8.5 294 ,69 5 3,346 16,847 18,463 2,149 40,805 12,060 153 84 0 88 6 150 2,029 49,808 814 2,101 2,037 273 5,225 79.3 79.8 80.0 77.7 78.3 78.9 58,569 559 3,130 3,702 347 7,738 13.0 10.3 12.7 13.4 10.6 12.7 34,729 53 5 1,805 2,422 36 4 5,126 7.7 9.9 7.3 8.8 11.1 8.4 Source: U. S. Department of Commerce 8 2 .2 % 82.9 84.0 80.7 82.6 83.5 16,302 2 69 873 1,268 207 2,617 $17 ,51 6 282 9 10 1,313 199 2,704 5.6 7.2 5.0 6.3 8.3 6.0 5 .7 % 7.4 4.8 6.2 7.6 5.9 E C O N O M IC R E V IE W TABLE V Components of Change in Income from Participation in Current Production, 1948-62 (in millions of dollars) Changes due to effect of: A B C D E National Industry Regional Total Net Relative Growth M ix Share Change Change — $ 173 1,867 — $416 — 1,896 9,080 — 1,152 — 4,025 8,381 — 4,010 United S t a t e s .................... ................. $ 1 7 3 ,6 6 7 Kentucky........................... ................. 2,283 O h i o ............................... ................. 10,232 — $589 744 $ 1 7 3 ,6 6 7 P e n n sy lv a n ia .................... W est V ir g in ia ..................... ................. ................. 12,391 1,876 — 638 — 649 589 — 1,287 Fourth D istrict..................... ................. 26,782 — 468 — 6,397 19,917 — 6,865 15 Source: U. S. Department of Commerce in participation income in the nation and the Fourth District. Column E is the sum of the industry-mix effect and the regional-share effect (columns B and C) for the four states individually and collectively, and it helps to explain the net relative change in participa tion income in each of the states and the District. Even a cursory analysis of Table V reveals the significance of the industry-mix effect and the regional-share effect in the loss of the relative share of participation income among the four states. Column E of Table V shows that each of the four states experienced a net relative decline in participation income be tween 1948 and 1962. Furthermore, it is obvious that the regional-share effect played the dominant role except in Kentucky. With the exception of West Virginia, however, the effect of industry mix on relative income changes ran counter to the regional-share effect. For example, Ohio and Pennsylvania both experienced a net gain due to industry mix, but in both instances it was more than offset by a decline in regional share. The opposite occurred in Kentucky, with the net 10 relative decline in participation income re sulting from industry mix. Tables VI and VII provide a more detailed analysis of both the industry-mix effect and the regional-share effect. Table VI provides an industrial breakdown of income changes due to industry mix and divides all industries into tw o g ro u p s, th o se w ith a n a b o v e a v e r a g e rate of growth and those with a below average rate of growth. Table VII displays the indus trial breakdown of income changes resulting from the regional-share effect during the same period. INDUSTRY-MIX EFFECT Collectively the four states experienced a net decline in the relative share of participa tion income as a result of industry mix, as shown in Table VI. The relative loss of income resulting from industries located in the Dis trict with below average growth rates ex ceeded the relative increase of income asso ciated with above average growth rates by approximately $ 468 million. The below aver age industries that provided the most serious Federal Reserve Bank of Cleveland Cleveland, Ohio ERRATA ECO N O M IC REVIEW , August 1964 P age 10 TABLE V Components of Change in Income from Participation in Current Production, 1948*62 (in m il l i o n s o f d o lla r s ) C h a n g e s due to e ffe c t of: U n it e d S t a t e s ............... . . . . E A B C D N a t io n a l In d u s t ry T o tal N e t R e lative G ro w th M ix R e g io n a l S h a re Change Change $ 1 7 3 ,6 6 7 $ 1 7 3 ,6 6 7 K e n t u c k y ....................... 2 ,2 8 3 -$586 173 1 ,8 7 0 -$ O h i o ............................... 1 0 ,2 3 2 744 - 1 ,8 9 4 9 ,0 8 2 - 1 ,1 5 0 4 ,0 1 0 $ 413 P e n n s y l v a n i a ............... 1 2 ,391 12 - 4 ,0 2 2 8,3 8 1 - W e st V i r g i n i a ............... 1 ,876 - 635 - 648 593 - 1 ,2 8 3 F o u r th D i s t r i c t ............. 2 6 ,7 8 2 - 468 - 6 ,3 9 1 1 9 ,9 2 3 - 6 ,8 5 9 S o u rc e : U . S. D e p a rtm e n t o f C o m m e rce A UGUST 1964 TABLE VI Industrial Breakdown of Income Change Due to Industry-Mix Effect— 1948-62 (in millions of dollars) United States IN D U S T R I E S W IT H A B O V E AVERAGE Kentucky Ohio Pennsylvania W est Virginia Total of Fourth District State RATES OF G R O W T H M a n u f a c t u r i n g P a y r o ll s 55 64 0 419 1,202 123 84 $ 1 1 3 9 0 1 $ 3 48 28 75 43 12 $ 4 48 31 88 5 13 $ * 2 2 44 * CO $ Non-metallic mining payrolls . . . . P a p e r ......................................... P r i n t in g ..................................... C h e m ic a l s .................................. Rubber ..................................... Stone, clay, and g l a s s ................. Ordnance, primary and fabricated m e t a ls .................... Instruments and miscellaneous . . . Electrical m a c h in e r y .................... Non-automotive transportation e q u ip m e n t ............................... 5 99 64 21 6 48 31 8 55 392 3,322 7 2 13 124 24 382 156 27 422 13 1 17 300 54 834 2,572 4 128 2 32 9 373 2,914 1,433 9,067 5,693 34 15 96 45 163 73 446 26 5 181 102 574 36 5 25 20 66 31 40 3 210 1,182 706 11,990 2,799 2,741 12 7 32 93 590 112 56 69 4 162 79 1,532 320 23 8 112 1 5 4 121 14 10 * — 136 — 499 — 2,289 — 67 0 0 — 276 — 1 0 — 106 — 1 — 1 — 499 — 535 — 2 0 0 — 732 — 1 — 1 — 499 — 1,649 — 5 — 1,081 — 44 — 3,368 — 1,326 — 1,535 — 469 — 600 — 166 — 10 — 18 — 3 — 8 — 12 — 24 — 2 — 4 * * — 52 — 1 — 41 — 39 — 59 — 19 — 24 — 14 — 2 — 70 — 8 — 408 — 135 — 52 — 66 — 43 — 4 — 1 — 5 1 — 8 — 3 — 12 — 4 — 2 * 0 — 145 — 13 — 465 — 189 — 147 — 91 — 73 — 18 — 3 A gricu ltu re .................................. Transportation.............................. T r a d e ......................................... — 23,358 — 4,504 — 5,524 — 575 — 75 — 60 — 827 — 278 — 2 99 — 475 — 37 3 — 357 — 141 — 55 — 42 — 2,018 — 781 — 758 O t h e r ............................................ — 1,655 — 12 — 71 — 146 — 9 — 2 38 — 58 6 +744 + 12 — 635 — 4 65 Participation I n c o m e * * Construction.................................. Communication and public utilities . . S e r v i c e ..................................... F i n a n c e ..................................... Government State and l o c a l ........................... C i v i l i a n ..................................... M i l i t a r y ..................................... O t h e r ............................................ IND US T RI E S WITH BEL OW AVERAGE RA T ES OF 10 GROWTH M i n i n g P a y r o ll s M e t a l ......................................... A n t h r a c it e .................................. B itu m in o u s.................................. Crude petroleum........................... * M a n u f a c t u r i n g P a y r o ll s F o o d ......................................... Tobacco ..................................... T e x t i le s ..................................... A p p a r e l ..................................... Lumber and furniture.................... Petroleum r e f in in g ........................ L e a t h e r ..................................... Motor vehicles and equipment . . . Machinery (except electrical) . . . — Participation I n c o m e * * T O T A L .............................. — 218 indicates $ 5 0 0 ,0 0 0 or less **lncludes payrolls, other labor income, and proprietors' income Source: U. S. Department of Commerce 11 E C O N O M IC R E V IE W TABLE VII Industrial Breakdown of Income Change Due to Regional-Share Effects— 1948-62 in millions of dollars drag on District income expansion (those industries that experienced a below average rate of growth and are relatively important in the Fourth District states) were agriculture, bituminous coal mining, transportation, trade, and textile manufacturing. The principal in dustries located in the District with an above average rate of growth were state and local government, service industries, and electrical machinery manufacturing. Among the four states only Kentucky and West Virginia suffered a relative decline re sulting from industry-mix effects. In West Virginia, the net loss of income share resulting from the industry-mix was more than account ed for by a decline in bituminous coal mining, alth o u g h sig n ifican t lo sses w e re also e x p e r i enced in agriculture, transportation and trade, lumber and furniture manufacturing, and textiles. In the case of Kentucky, agriculture a c counted for approximately 90 percent of the net decline in income share associated with the industry-mix effect. In addition, bitumi nous coal production, transportation and trade also acted as a drag on income in Ken tucky during the 1948-62 period. In both Kentucky and West Virginia, the only significant source of participation income with an above average rate of growth was state and local government. Metal Anthracite Bituminous Crude Petroleum Non-metallic mining 0 0 + 14 0 + 15 + 8 0 — 32 0 0 — 1 +8 0 —4 — 2 + 4 — 24 — 4 — 26 * — 1 — 15 — 1 — 17 — 7 + 29 * — 9 — 30 — 112 +77 — — — + 6 3 4 2 — 50 + 21 — 28 — 6 + 17 — 53 — 11 — 24 + 9 — 15 —41 +4 * + 16 — 7 — 65 + 20 — 7 — 1 — 52 + 12 + 23 + 193 — 13 — 1 +202 + 63 + 10 +4 +41 + 4 — 2 13 — 31 — 2 — 21 — 92 — — — — + + 2 The major reason for the decline in the share of participation income accounted for 12 * M anufacturing P a y r o ll s Food Tobacco Textiles Apparel Lumber and furniture Petroleum refining Leather Motor vehicles and equip. Machinery (exc. elect.) Paper Printing Chemicals Rubber Stone, clay and glass Ordnance, primary and fabricated metals Instruments and misc. Electrical machinery Non-automotive transporta tion equip. 10 — — 99 + 47 221 80 38 29 64 22 +9 — 2 — 2 — 16 + 2 — — 59 — 123 — 59 — 239 — 17 — 406 — 705 — 24 -1,152 — 4 — 20 + 11 — 1 — 14 — — — — 61 29 60 64 + 59 — 484 — 316 — 23 — 764 — 1 + 42 — 307 — 14 — 280 26 57 28 50 — 176 — 56 — 153 — 210 — 94 — 24 3 — 67 8 — 29 2 — — — — — — — — + 10 — 38 + 8 + 5 — 94 — 10 — 39 — 262 — 193 — 25 — 72 — 14 — 49 — 466 — 209 +40 — 54 — 29 8 — 78 — 390 + 6 — 75 + 18 — 13 — 24 — 87 — 14 — 14 — 14 — 189 + 1 + 9 + 3 — 3 +8 — 1,894 — 4,022 — 64 8 Participation In c o m e Agriculture Transportation Trade Construction Communication and public utilities Services Finance + — — + 52 38 99 68 296 394 958 520 Government State and local Federal civilian Military Other REGIO N AL-SH ARE EFFECT Fourth District States Ohio M ining P a y r o ll s Penn sylvania W est Virginia Ken tucky Total of all industries + 173 *Under $50 0 ,0 0 0 Source: U. S. Department of Commerce — 6,391 A U G U ST 1 9 6 4 TABLE VIII Total Military Prime Contract Aw ards, by State w.w. II Korean Conflict Fiscal years 1 9 4 1 -4 5 * Fiscal yearsi 1 9 5 1 -5 3 * (millions) Kentucky............................................ $ 211 O h i o ................................................ 3,441 P e n n sy lv a n ia ...................................... W est V irg in ia ..................................... % of U.S. 0 .5 % (millions) $ 81 % of U.S. 0 .3 % 6.3 Fiscal year 1 961 (millions) $ 46 1,004 % of U.S. 0 .2 % 4.6 8.3 2,008 2,831 6.8 1,434 4.5 804 3.6 217 0.5 61 3,584 0.2 63 0.3 11.3 1,917 8.7 3 1 ,697 100.0 22,1 12 100.0 Fourth D istrict..................................... 6,700 United S t a t e s ..................................... 41,52 3 16.1 100.0 *Annual averages Source: Office of Secretary of Defense by Fourth District states resulted from the fact that roughly four-fifths of the industries in the District suffered reductions in their share of industry totals, as shown by Table VII. Although declines were the general rule, only a few industries were responsible for the bulk of the loss, namely, primary and fabri cated metals manufacturing, electrical and n o n e le c tr ic a l m a ch in ery manufacturing, trade, construction, services, transportation, stone, clay and glass manufacturing, agricul ture, state and local government, and non automotive transportation equipment. It is notable that a number of the principal indus tries in the District suffered a decline in their share of the industry total despite the fact that they were ranked as above average growth industries in Table VI. This occurred, for example, in electrical machinery manufac turing, construction, services, and stone, clay and glass manufacturing. This indicates that the rapidly expanding segments of these industries were not located in the Fourth District. Conversely, the only industry in the Dis trict that experienced a substantial gain in the share of industry totals was motor vehicles and equipment manufacturing, and that par ticular industry was ranked as a below aver age rate of growth industry nationally. Thus, the segment of the motor vehicles and equip ment manufacturing industry located in the Fourth District apparently expanded at a rate that exceeded the rate experienced by the entire industry. Among the four states in the District, only Kentucky experienced a relative increase in income due to the regional-share effect. The industry groupings in Kentucky that were primarily responsible for the increase in regional share were electrical and nonelec trical machinery, construction, chemicals, and state and local government. Conversely, virtually every industry grouping located in West Virginia suffered a decline in regional share in the 1948-62 period. The largest de clines in West Virginia occurred in the trade, services, stone, clay and glass manufacturing, construction, and state and local government categories. Pennsylvania experienced the largest rela tive decline in income due to the regionalshare effect. The loss in Pennsylvania was more than twice as large as Ohio's and a c 13 E C O N O M IC R E V IE W counted for approximately 70 percent of the total decline in the District. The income losses due to the regional-share effect in Ohio and Pennsylvania, however, were centered in similar industry groupings. For example, a large part of the loss in income share in both states resulted from a below industry average rate of expansion in primary and fabricated metals manufacturing, elec trical and nonelectrical machinery manu facturing, construction, trade, agriculture, services, and state and local government. On the other hand, there were several diverse trends between Ohio and Pennsyl vania. For example, in Ohio the motor vehi cles and equipment industry experienced a substantial increase in industry share, while in Pennsylvania a small decline was regis tered in the same industry grouping. Simi larly, in nonautomotive transportation equip ment manufacturing, petroleum refining and textile manufacturing categories, Ohio expe rienced a modest increase while Pennsylvania suffered a large decline. At the same time, however, Ohio suffered a loss in income share as a result of declines in rubber, apparel, leather, and lumber and furniture manufac turing categories while Pennsylvania experi enced increases in income share in the same industries. IMPORTANCE OF DEFENSE SPENDING One of the most important factors influenc ing the industry-mix and the regional share in the Fourth District is the changing nature of defense spending. During World War II and the Korean conflict the largest share of 14 military spending was for conventional wea pons and equipment, e.g., small firearms, tanks, and wheel vehicles. Because of a con centration of industries capable of manufac turing such equipment, the Great Lakes, Mideast and New England regions accounted for a substantial share of the income gener ated by defense spending. In the post-Korean period, however, the nature of defense spending has turned away from emphasis on mass production weapons toward small quantity production of missiles and electronics and substantial expenditures for research and development. For example, in fiscal year 1961 only 12 percent of prime contract awards were for conventional equip ment, as compared with 50 percent in fiscal year 1953, the final year of the Korean con flict.5 Thus, the geographic impact of defense spending has also changed. Table VIII indicates that the four states of which all or a part are included in the Fourth District have received a decreasing share of defense expenditures since the close of World War II. During the 1941-45 period roughly 16 percent of prime contract awards were received by industries in these four states. During the Korean conflict the share was reduced to 11 percent, and in fiscal year 1961 the share had declined to less than 9 percent. Nearly all of this loss occurred in Ohio and Pennsylvania. The shifting of defense expenditures did not bring about a wider distribution among the states. As a matter of fact, prime contract awards became more heavily concentrated in 5 "T he C hanging Nature of Defense Procu rem en t," O ffice o f the S e c re ta ry o f D efense, W ashington, D. C .( June 1 9 6 2 . AUGUST 1964 fewer states. For example, the six states that received the largest share of military con tract awards during World War II collectively accounted for 50 percent of total contracts as compared with 55 percent in 1961. More over, the three states with the largest share of contracts accounted for 30 percent of the total during World War II as compared with 41 percent in 1961. At the same time, Ohio dropped from third to the sixth in volume of prime defense contracts, and Pennsylvania declined from sixth to seventh position. The impact of changing defense expendi tures explains, in large part, the loss of region al share by selected industries in both Ohio and Pennsylvania. For example, in Table VI the electrical machinery industry is classified in the above average rate of growth category. In fact, it experienced the largest growth in terms of increased participation income in the United States among all manufacturing indus tries and was fourth largest among all cate gories. In terms of regional share in Ohio and Pennsylvania, however, electrical machinery experienced a below average growth. For example, in Ohio between 1948 and 1962 electrical machinery manufacturing account ed for the largest loss of income due to a decline in regional share among all categor ies; in Pennsylvania it was the third largest. This development reflects the fact that the segment of the electrical machinery industry based in Ohio and Pennsylvania is engaged primarily in the production of electrical ap pliances and other conventional products rather than the newly developed electronics segment of the industry that has experienced rapid growth largely as a result of defense spending. SUMMARY Although there are several important de terminants of personal income that have not been considered in this study, the foregoing analysis clearly suggests the significance of changes in industrial activity to the distribu tion of participation income. Furthermore, the new data on underlying factors affecting in come reveal that the declining share of per sonal income accounted for by the Fourth District is not as closely associated with de clining or slowly growing industries as it is a result of a changing growth pattern within particular industries. Although the Fourth District includes several industries that are experiencing above average growth, the growth freguently is not uniform in all seg ments of these particular industries. More over, data provided on regional shares be tween 1948 and 1962 indicate that rapidly advancing sectors of industries are not lo cated in the Fourth District. Thus, an impor tant key to industrial development in the District is to identify the factors that determine the location of the growth sectors of particular industries. 15 E C O N O M IC R E V IE W U. S. MERCHANDISE TRADE BY GEOGRAPHICAL AREA, 1950-1963 The purpose of this article is to review the geographical distribution of U. S. merchan dise trade during 1950-63. This is done against a background in which U. S. exports and imports represented the largest single category in the U. S. balance of international payments, accounting for more than one-half of all U. S. international transactions. More over, in each year throughout the 1950-63 period, the United States maintained a favor able trade balance, i.e., an excess of exports over imports. This article touches upon some of the factors that have been associated with the trade surplus as well as with the increase in U. S. merchandise trade that carried ex ports to $ 2 2 .3 billion in 1963, and imports to $ 1 7 .2 billion (see Illustration I).1 1 Reexports are included in the export figures. The import data include imports for immediate consumption NORTH AMERICA In the period under review U. S. exports to North America increased more than 70 per cent (see Illustration 2).2 Such exports showed little change from 1951-54, but then rose sharply to an all-time high of $6.1 billion in 1957. With little ten dency to vary since that time, exports totaled $5.8 billion in 1963. United States imports from North America fluctuated less, yet expanded at a faster rate than exports. In 1963 imports amounted to $5.4 billion, and represented the largest amount from any geographical area. The United States has maintained a favorable trade balance with North America since 1950 (see Illustration 2). plus entries into bonded warehouses. For the 1 9 5 0 -6 3 period, the increase in exports amounted to 1 2 8 percen t 2 Export data by geograp hical area exclud e ''special and in imports to 9 3 percent. com m odities," for security reasons, and reexports. 16 A U G U ST 1 9 6 4 Canada has accounted for nearly threequarters of U. S. trade in North America. The expansion of economic activity in Canada between 1954 and 1957 was accompanied by large U. S. direct investments and a sub stantial rise in imports of industrial and con struction machinery from the U. S. Following a decline in Canadian business activity and U. S. direct investments, imports from the U. S. declined and remained relatively stable during the 1958-62 period. In addition, the Canadian exchange crisis of 1962 and spe cial import restrictions acted as a restraint upon Canadian imports from the U. S. In 1963, however, U. S. exports to Canada in creased principally because of an elimination of import restrictions, a sharp rise in Canadian business activity, and increased foreign ex change holdings from the sale of agricultural products in world markets. U. S. imports from Canada from 1950-63 fluctuated mainly as a result of variations in im Billions of ■ ports of raw materials such as metals and wood products. Im ports of these items are affected by changes in the pace of eco nomic activity in the United States and account for a signifi cant proportion of Canadian ex ports to this country. investment. The largest expansion occurred between 1956 and 1957 when exports in creased from $ 2 .9 billion to $ 5 .8 billion, largely as a result of the Suez crisis. After 1957 U. S. exports to Europe de clined because economic activity in the United Kingdom began to lag, and because of the termination of the Suez controversy. In addition, the European Economic Community (EEC) and the European Free Trade Associ ation (EFTA) reduced tariffs among member countries thereby placing the United States at a comparative disadvantage with respect to a number of commodities.3 During 1960-62 exports averaged $6.5 billion annually. An other increase was registered in 1963 when exports totaled $7.1 billion, the highest level for any of the six geographical areas under consideration in this article. U.S. M E R C H A N D IS E TRADE EUROPE U. S. exports to Europe nearly doubled between 1950 and 1963 (see Illustration 2). The overall expansion was the result of sev eral factors, including a rise in business activity in Western Europe, U. S. foreign aid pro 52 ’54 ’56 grams, and U. S. private direct * E st im at e d first a n d s e c o n d q u a r t e r s of 1 9 5 0 S o u r c e o f data* . U.S. D e p a r t m e n t of C o m m e r c e ’5 8 60 ’62 ’6 4 2. MERCHANDISE TRADE WITH GEOGRAPHICAL AREAS B illio n s of d o lla r s . S O U TH A M E R IC A IMPORTS S I EXPORTS l ’50 l ’52 I I__ I__ I__ I__ I— I— L J — I— I— I— lo ’54 ’56 Note: Special category commodities are excluded from ge o gra p h ica l export data for security reasons http://fraser.stlouisfed.org/ Source of data: U.S. Department of Commerce Federal Reserve Bank of St. Louis ’58 '6 0 ’62 ’64 B i l l i o n s of d o l l a r s . A F R IC A B i l l i o n s of d o l l a r s . E X P OR T S IMPORTS I__ i__i__ i__i__i__i__ l I ’50 ’58 ’52 ’54 ’56 I__ I__ I__ I__ I__L ’60 ’62 ’64 A U S T R A L IA a n d O C E A N IA E XP OR T S i IMPORTS iivirvv i\ i j H V w v ’50 ’52 ’54 56 ’58 60 ’62 Q u ar te rl y data , s e a s o n a ll y adjusted a n n u a l rate ’64 E C O N O M IC R E V IE W The rise in exports in 1963 was due parti ally to the high level of business activity and rising prices in Western Europe. The latter factor may have contributed to the rise in shipments of machinery and industrial ma terials, two categories that together account for over 60 percent of U. S. exports to West ern Europe. Imports from Europe during 1950-63 close ly reflected economic activity in the United States. In the period under review imports increased almost two and one-half times. This increase was accounted for, in large part, by the rapid industrial development of several Western European countries, which in turn permitted these countries to compete vigor ously in U. S. markets for aircraft, automo biles and auto parts, machinery and steel products. Between 1959 and 1963 U. S. imports from Europe averaged $4.5 billion; however, the U. S. trade surplus with Europe during the same period averaged $1.7 billion, the largest of any of the six geographical areas (see Illustration 2). ASIA The U. S. trade balance with Asia remained favorable throughout the 1950-63 period. U. S. exports to Asia showed little change until 1956 when exports began to expand rapidly reaching a high of $ 4 .8 billion in 1963, more than double the 1955 level (see Illustration 2). The expansion in exports to Asia after 1955 included primarily increased sales of indus trial goods to lapan, particularly computers, machinery and testing equipment. Japan is the second largest individual market for U. S. products—after Canada. India also participated in the rise of U. S. exports to Asia as a result of large purchases of machinery and materials to aid in the es tablishment and expansion of manufacturing plants. However, a significant proportion of India's purchases from the U. S. were financed by U. S. foreign aid, loans from the Interna tional Bank for Reconstruction and Develop ment (World Bank), and loans from the International Development Association. 3 In 1 9 5 8 the EEC was established to pool the econom ic resources of Belgium, Fran ce, W est G erm any, Italy, Luxem bourg, and the Netherlands. Within 12 to 15 years the mem ber nations plan to move goods, workers and capital freely across their borders. The members also plan to have common external tariffs. Two years later seven other European countries, namely Austria, Denmark, Norway, Portugal, Sweden, Switzer land and the United Kingdom formed the EFTA, the purpose of which is to abolish, in stages, tariffs and quantitative restrictions between mem ber countries and to promote sustained econom ic expansion, full employ ment, and higher standards of living. Common external tariffs a re not envisaged. 20 U. S. imports from Asia showed little change until 1958. However, in 1963 U. S. purchases from Asia totaled $3.2 billion, 60 percent higher than in 1958. As is the case with North America and Europe, imports from Asia are determined largely by the pattern of eco nomic activity in the United States. Moreover, in recent years Japan has accounted for ap proximately fifty percent of U. S. imports from Asia. A U G U ST 1 9 6 4 SOUTH AMERICA A decade ago the less developed countries of South America were expected to begin rapid rates of growth. Large sums of develop ment capital were expected to flow into these countries from U. S. foreign aid programs and international agencies, and later from private investors in the advanced nations of the world. For the most part these expectations failed to materialize and as a result U. S. merchandise trade with this geographical area has remained at a low level. United States imports from South America showed no trend during the period under review, amounting to $2.5 billion in 1963, or about the same as in 1950 (see Illustration 2). These imports, including foodstuffs and cer tain minerals, were apparently not affected by changes in the economic activity of the United States. The demand for petroleum imports was also somewhat insensitive to U. S. economic activity although this was to some extent a result of quantitative import restric tions and bilateral purchasing arrangements. Another reason for the failure of U. S. imports from South America to expand is related to U. S. technological progress; syn thetic materials were developed to substitute for a number of natural products and new processes were found to economize on raw materials. Exports to South America also showed no upward movement between 1950 and 1963. In 1963 these sales, which consisted of a myriad of manufactured goods, amounted to $ 1 .8 billion. Exports failed to expand mainly because of the shortage of foreign exchange in the less developed nations and the fact that political difficulties caused some of the South American governments to restrict imports. Moreover, during the period under review, the less developed nations experienced a deterioration in their terms of trade (the ratio of export prices to import prices) that tended to keep U. S. exports at a low level. That is to say, while prices of industrial goods sold by the United States tended to rise, prices of foodstuffs and other primary products export ed by the less developed nations tended to fall. Thus, merchandise trade between the United States and the less developed coun tries of South America suffered from an im balance in the international exchange of primary products for manufactured goods. As shown by Illustration 2, there was a deficit in our trade balance with South America in the 1950-63 period. AFRICA U. S. merchandise trade with Africa showed little change from 1950 to 1957; however, between 1958 and 1963 exports to Africa increased from $60 0 million to $1.0 billion. This expansion occurred mainly because of the economic development of a number of independent nations in Africa. Exports also increased as a result of United States and other foreign aid programs, which included U. S. shipments of grains and other foodstuffs to North Africa. There also were substantial increases in exports to a number of countries in Middle Africa, particularly in Nigeria, Liberia, and Ghana, where U. S. companies promoted ex ports, and where foreign investors showed increased interest in investment opportuni ties. A rise in public and private investment throughout Africa resulted in increased U. S. 21 E C O N O M IC R E V IE W exports of machinery, food products, iron and steel, textiles, automobiles, and chemicals. U. S. imports from Africa also increased, although not as fast as exports. In 1963, for example, U. S. purchases from Africa amount ed to $ 8 0 0 million, 30 percent higher than in 1958. Australia accounts for the largest share of merchandise trade in this area. In the past five years U.S. exports to Australia more than doubled primarily because of rapid economic advances in that country and elimination of import licensing restrictions by the Australian Government. The principal exports to Aus Metals and coffee were among most impor tant commodities in U. S. imports from Africa. Imports of metal were accounted for primarily by uranium purchases from the Union of South Africa. Imports of precious stones also showed a substantial rise among products purchased from Africa. Although political tension depressed eco nomic conditions in some important African markets, economic development progressed at an encouraging pace over most of the continent. A number of countries diversified their trade patterns and expanded commer cial and financial relations with the United States. Steps were also taken to encourage foreign investment. Several nations signed investment guarantee agreements with the United States, and a number of countries passed investment laws specifically designed to encourage foreign private investment. tralia were construction and mining machin ery, tobacco, rubber products, and synthetic fibers. Principal U. S. imports from Australia were meat products, wood, metals, hides and skins, and steel products. The value of imports from Australia more than tripled in the past five years; however, they were strongly affected by the pattern of economic activity in the AUSTRALIA AND OCEAN IA U. S. merchandise trade with Australia and Oceania was the smallest of any of the six geographical areas (see Illustration 2). Al though U. S. trade with this area increased between 1958 and 1963, exports and imports each totaled only $ 5 0 0 million in 1963. The principal reason for the relatively low level of merchandise trade with this area is the sparse population. 22 United States. SUMMARY U. S. merchandise trade expanded rapidly between 1950 and 1963 principally as a re sult of trade with the industrialized areas of the world. Trade relationships with these areas also accounted for a major portion of the U. S. trade surplus. United States exports to the industrialized countries consisted primarily of finished manufactured products; however, these ex ports fluctuated widely as a result of changes in economic activity, capital flows, and re serves of foreign exchange. U. S. imports from the industrialized nations were more diversified—ranging from crude materials to finished manufactured goods. Imports also fluctuated as a result of changes in economic activity in the United States. A U G U ST 1 9 6 4 RECENTLY BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, WASHINGTON, D. C. PUBLISHED FLOWS THROUGH FINANCIAL INTERMEDIARIES Federal Reserve Bulletin, May 1964 FEDERAL RESERVE SECURITIES TRANSACTIONS, 1954-63 Federal Reserve Bulletin, July 1964 FEDERAL RESERVE BANK OF CHICAGO, ILLINOIS FEDERAL RESERVE BANK OF NEW YORK, NEW YORK FEDERAL RESERVE BANK OF PHILADELPHIA, PENNSYLVANIA WHY UNEMPLOYMENT AMIDST UNFILLED JOBS? Business Conditions, July 1964 NEW CENTRAL BANKS Monthly Review, July 1964 WHAT ATTRACTS TODAY’S GROWTH INDUSTRIES? Business Review, July 1964 FEDERAL RESERVE BANK OF THE LONDON GOLD MARKET RICHMOND, V IR G IN IA Monthly Review, August 1964 FEDERAL RESERVE BANK OF SAN FRANCISCO, CALIFORNIA HOW THE WEST GROWS Monthly Review, July 1964 23 Fourth Federal Reserve District
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