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SuiiwM et/m/ MONTHLY IN FEDERAL RESERVE BANK of CLEVELAND— THIS ISSUE Unemployment Insurance As An Economic Stabilizer......................... .3 Notes on Federal Reserve Publications... .8 Farm Abundance Continues.................. .9 ‘Decctnicx t$ 6 t Annual Index to Monthly Business Review. 15 During the postwar period, the unemployment insurance program has added to the nation's income stream in recession years. On the other hand, the program has withdrawn funds in non-recession years, with the exception of 1959, when unemployment and unemployment insurance payments were at relatively higher levels than in other non-recession years. * first s i x m o n t h s o n l y Additional copies of the MONTHLY BUSINESS REVIEW may be obtained from the Research De partment, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Permission is granted to reproduce any material in this publication. Unemployment Insurance As An Economic Stabilizer insurance is rightly con sidered to be part o f a national social security system. Because of its function as a supplier of income to individuals who are unemployed, and thus deprived of their cus tomary income, unemployment insurance is usually identified closely with programs such as public assistance. Unemployment insurance is, however, really quite different from these other social security programs both in its organization and, more importantly, in its impact on the economy at large. U nem ploym ent As a case in point, unemployment insur ance, in reality, consists o f not one program but fifty-four separate programs. Each state as well as the District of Columbia has its own program; in addition there is an inde pendent program for railroad employees, and two separate Federal Government programs — one for civilian employees and one for exservicemen. Central direction for all of these programs is imparted by federal legislation administered by the Department of Labor, but there is considerable diversity among the various states with respect to coverage, eli gibility, benefit levels, and duration of bene fits.(1) Despite this diversity, however, the several unemployment insurance programs should be, and usually are, treated as one program from the standpoint of their com bined effect on the economy. An important difference between unemploy ment insurance and the other social security programs is that the operations o f the un employment insurance programs are much more closely related to or influenced by fluc(i) For a comprehensive discussion of state unemployment insurance laws, see Comparison of State Unemployment Insurance Laws as of January 1, I960, BES No. U-141, U. S. Department of Labor, Bureau of Employment Security. tuations in economic activity. Unemployment insurance (or UI, as referred to hereinafter) is widely recognized as one of the “ built-in” or “ automatic” stabilizers in the arsenal of counter-recessionary weapons. The list of automatic stabilizers also includes the vari ation in corporate and personal income tax revenues, as such revenues rise and fall in response to changes over the cycle of eco nomic activity. Similarly, the list includes the variation in benefits paid and taxes col lected under the retirement benefit portions of the social security programs. These char acteristics are considered to be automatic or built-in responses because they begin to oper ate without waiting for the discretionary judgments and actions which are required in the case of other measures to cope with eco nomic fluctuations, such as the speeding up or slowing down of public works spending, or changes in tax rates. UI A lso Stab ilize s In d iv id u als' Incom es Unemployment insurance can actually be thought of as a stabilizer in two respects. First, UI affects the economy as a whole, on the one hand, through the payments made to the unemployed, which add to incomes, and, on the other hand, through the subtraction from the income stream represented by the taxes(2) paid to support the program. In this analysis of UI, it is the impact on the econ omy of the net difference between payments and taxes that is considered to be an auto matic stabilizer. The second respect in which UI can be thought of as a stabilizer is in a welfare sense. In this case, UI acts as a eon(2) In view of the compulsory nature of these payments, it seems realistic to use the term “ taxes” in place of the official designation “ contribution.” 3 tinuously operating mechanism to furnish an income to those individuals who have lost jobs and incomes because of involuntary un employment; this also can be called the social security function, in the sense that UI helps to provide security for individuals. In its capacity as a social stabilizer, UI has several limitations. First of all, benefits are limited to those covered by the UI programs — currently about 80 percent of those in civilian wage and salary employment. Sec ond, UI is intended to provide only rela tively short-term help — the maximum dura tion of benefits is 26 weeks in most states. Also, in most states, the maximum benefit levels represent less than half o f the earnings they are intended to replace, and, for many claimants, benefits are in practice often less than the maximum because these claimants cannot fulfill the requirements which state laws impose as to earnings and length of time spent in covered employment. These current characteristics o f UI are due in part to the form that the program took at its inception and in part to the twenty-five years of change in both the program and the economic environment in which the program operates. One of the more important changes, for example, has been a decline in the ratio o f unemployment benefits to the wages they are intended to replace, or what is often termed the adequacy of benefits. The decline has occurred over the years because maxi mum benefit amounts, which are fixed in terms of dollars and are changeable only by legislation, have not been increased propor tionately with rising wage levels. In 1959, to illustrate this point, average weekly benefits under state UI programs rep resented 36 percent of average weekly earn ings of recipients in covered employment.(3) Although it is true that the ratio has in creased since the most recent low point of 32 percent in 1955, thus paralleling the rise in (3) These and the immediately following data were obtained from the Handbook of Unemployment Insurance Financial Data BES No. U-73, U. S. Department of Labor, Bureau of Employment Security, Washington, revised April, 1960. 4 the national unemployment rate, the 1959 ratio should also be compared with an aver age of about 41 percent in the years 1938, 1939, and 1940, the first three years in which UI was in operation, and with the 50-percent ratio that was apparently intended when UI legislation was adopted in the mid-1930’s. These ratios, it should be added, under state to an unknown degree the offsetting effects of UI benefits because earnings are subject to income tax and UI benefits are not. Despite the increasing spread between gross income and take-home pay, however, it is unlikely that this factor was sufficient to make up a significant part of the decline in the offset ratio, i.e., to bring the 36 percent in 1959 up to, say, the 41-percent level in terms of net, after-tax earnings. A develop ment which has tended to reduce the ade quacy of benefits has been the steady increase in the proportion of employees’ compensa tion represented by fringe benefits, most of which cease when the individual loses his job; UI benefits provide little or no offset to this loss. In some industries, it should be added, fringe benefits include Supplemental Unemployment Benefits, which provide addi tional income for laid-off workers. However, this particular fringe benefit, which is so far quite limited in its extent, owes its existence to the inadequacies of UI benefits, particu larly for those in high-wage industries. The ratios of benefits to earnings cited above may be open to the criticism that they are too aggregative, in the sense that such figures, since they are averages, conceal im portant differences among benefit recipients. For that reason, as well as to accumulate additional information, several state employ ment security agencies conducted studies of the experience of individual beneficiaries dur ing periods of unemployment. Such studies were made in six widely separated geographic areas for various periods between late 1954 and early 1958. W ith respect to the adequacy of benefits, the conclusions, in the words of the report summarizing the studies, were as follows: “ The surveys clearly indicate that during their current spell of unemployment, beneficiaries did not receive benefits which compensated for as much as fifty percent of their actual wage loss.” (4) (Wages were de fined here as net wages, i.e., after withhold ing of Federal income tax.) UI benefits(•>) as a percent of: Ohio Pennsylvania Total personal income Wage and salary income Transfer payments 1.4% 1.9% 2.0 19.2 2.8 22.2 ( 5) State and federal programs only. U! Sm all in Relation to Total Incom e When attention is turned to the role of UI in the economy as a whole, it is apparent that, on the basis of their contribution to national income in any one year, UI benefits have not been large. For example, in 1958, when a record $4.2 billion in UI benefits (under all programs) was paid out, the total represented only: 1.2% of total personal income; 1.3% of disposable personal income; 2 . 5 % o f t otal p a y r o l l s in U l - c o v e r e d employment; and 16.0% of all transfer payments. It is thus readily apparent that in 1958, which was a year of recession and relatively heavy unemployment, UI benefits were a small proportion of personal income and other, less comprehensive measures of income, with the exception of transfer payments. Moreover, these proportions were even smaller in non-recession years. Additional evidence of the relatively minor contribution of unemployment benefits to total income is suggested by the data pertain ing to individual states. For example, both Ohio and Pennsylvania, as heavily industrial ized states, were much more severely affected by the 1957-58 recession than most other states; u n e m p l o y m e n t was consequently greater, in proportion, than in most other states. Even in these two states, however, UI benefits were relatively unimportant in rela tion to personal income, as is shown in the following table. (4) U. S. Department of Labor, Bureau of Employment Security, Adequacy of Benefits Under Unemployment Insur ance, BES No. U-79 (R ), Washington, October, 1958, p. 20. While it is true that UI benefits have not in any one year accounted for a substantial proportion of personal income or its major components, the effectiveness of UI as an economic stabilizer is perhaps better meas ured by the extent to which it offsets declines in income during periods of recession, and correspondingly withdraws purchasing power during periods of rising economic activity. Such an approach may be considered to measure the “ dynamic” aspect of UI, as dis tinguished from the “ static” aspect involved in the previous comparisons. In evaluating the stabilizing effect of UI operations, con sideration is given first to the postwar period as a whole. UI Benefits H a v e A d d e d to Incom es in P o stw a r Period UI operations are influenced by and have an impact on the economy, as mentioned earlier, through the variations in benefits paid and taxes collected. By finding the dif ference between the dollar totals of benefits paid and unemployment taxes collected, it is possible to arrive at an approximate measure of the dollar impact of UI operations on the economy, i.e., whether such operations add to or subtract from the income stream. A sur plus of benefit payments over taxes collected during a specified period of time means a net addition to purchasing power during the period; conversely, a larger total of taxes collected than benefits paid indicates a sub traction from the income stream. A surplus of benefit payments over taxes results in a decline in the reserves of the UI program, which are subsequently rebuilt during a 5 period when taxes exceed benefits. (The other, and much less important, source of income for the UI trust funds is the interest earned on the federal government obligations in which the reserves are invested.) For the period from January 1946 through June 1961 (the most recent date for which such data are available) the operations of the state and railroad UI programs, com bined, added nearly $1 billion more to the spending stream in benefits than was sub tracted in taxes. Most of this net addition, however, took place in recent years. UI oper ations for the years 1946-57, taken as a whole, indicate a subtraction from purchasing power of about $2.5 billion, whereas in the 1958-61 period UI operations added nearly $3.5 bil lion to the income stream. To keep these figures in proper perspective, it needs to be remembered that the totals, while significant in relation to the UI pro gram, were small in relation to the changes actually experienced in national income. In the 1946-57 period the net effect of UI oper ations was clearly insignificant in relation to the gain o f nearly $190 billion in national income. UI operations were, however, rela tively more important in the 1958-61 period when national income increased by a little more than $50 billion. The different record of UI operations in the 1958-61 period as compared with the earlier postwar period was, in turn, due largely to the higher level of unemployment in those years, and to the fact that the 196061 recession followed so closely on the 1957-58 business downturn. Thus, while years of rela tively low unemployment and high business activity predominated in the 1946-57 period, a somewhat dissimilar situation characterized the 1958-61 period. The unemployment rate, i.e., the proportion o f those looking for work to the total o f those persons working and looking for work, averaged 4.2 percent from 1946 through 1957; in the 1958-61 period (through June 1961) the rate averaged 6.2 percent. 6 Another factor which operated to produce an excess of benefit payments over tax collec tions in the more recent period, although admittedly it was much less important than the higher level of unemployment, were the revisions of UI legislation in several states to permit lower tax rates on employers than those previously in effect. At the time these changes were implemented, reserves available for the payment of UI benefits were still ris ing, despite the fact that the country had experienced two recessions in the postwar period, and drains on reserves of the magni tude of those which took place in 1958 were not foreseen. In summarizing the record of UI oper ations in the postwar period, it may be sug gested that, although the over-all dollar impact of UI was small in relation to changes in national income, UI operations tended to function in a desirable direction. In the period 1946-58, when purchasing power was expand ing rapidly and utilization of manpower and other resources was generally at high levels, UI operations on balance withdrew purchas ing power. In the period since 1958, when inflationary pressures were substantially re duced, UI operations added to the income stream. The excess of spending over receipts in the latter period has resulted in large reductions in UI reserves, in fact in some states to dangerously low levels. This problem of reserve adequacy, though important, is a separate subject, however, and is not dis cussed here. UI O p e ra tio n s O ffse t Business C y c le A perhaps more conclusive demonstration of the effectiveness of UI as a stabilizer than the record during the two sub-periods of the postwar period discussed above, is provided by an examination of UI operations in the four postwar recessions. For this purpose UI operations are analyzed on an annual basis. As can be seen in the cover chart, UI oper ations added to the income stream in all the recession years — 1948, 1954, 1958, and 1960. Until 1959, UI also ran surpluses, i.e., sub tracted from the income stream, in non recession years. such as had occurred following the earlier postwar cycles. In terms of year-to-year changes, the swings in the impact of UI operations were also fairly significant in relation to the changes in economic activity in the first three postwar recessions, but not in the latest and mildest of the postwar recessions, that of 19G0-61. Federal P ro gra m s Net change in UI operations ( -f- = addition to incomes between two years) (in billions o f dollars) Change in Gross National Product 1948-1949 1953-1954 1957-1958 1959-1960 + + 1.4 2.3 1.8 21.7 + + + - 1.1 1.4 2.3 0.1 To some extent the differences between the pattern of change in GNP and in UI opera tions in successive cycles is due to differences in the timing of the business cycle which are concealed by a comparison of changes be tween calendar years. On the basis of these comparisons, nevertheless, it appears that in the 1960-61 period, the impact of UI was sharply reduced from what it had been in earlier postwar recessions. UI operations were less stimulative in 1960 than in 1959 (see cover ch art); benefits in creased little from the already high level of 1959, whereas taxes paid by employers rose considerably more. The high level of benefits in 1959 in turn reflected the carryover of considerable unemployment from the 1957-58 recession and the secondary effects, i.e., on employment in related industries, of the 1959 steel strike. On the other side, the substantial increase in taxes was due partly to the in crease which usually occurs following a reces sion, and partly to special efforts which were made by some states to rebuild their reserves following the 1957-58 recession. Unfortu nately, the downturn of 1960 came too soon to allow the rebuilding of reserves to take place in a year of rising business activity, The discussion of the impact of UI opera tions thus far has been confined to the state and railroad UI programs, because of the impossibility of determining the impact of the federal UI programs in the same manner as the state and railroad programs. Although data on benefit payments under federal UI programs are shown separately so that their contribution to income can be measured, the measurement of withdrawals from purchas ing power cannot be made because the costs of the programs are paid from general gov ernment revenues, and not by separately identified employer taxes. Furthermore, the federal programs, which now cover two groups — federal government civilian employees and ex-servicemen — do not operate with trust funds, as do the state and railroad programs. The elastic element which is indicated in the privately-financed programs by the increase or decrease in the trust funds has its counterpart in the swings of the federal administrative and cash budg ets between surplus and deficit. (The opera tions of the state and railroad programs are included in the federal government cash budget but not in the administrative budget.) Nevertheless, as judged by swings in the volume of benefit payments, the federal UI programs do push the federal government’s budget toward deficit in a business downturn (when benefit payments increase) and toward surplus as the economy improves (and bene fit payments decline). The federal programs have operated generally in a counter-cyclical fashion since 1953; benefit payments in creased markedly in each of the recession years 1954, 1958, and 1960. This counter cyclical behavior is mainly the result of the fact that the largest part of federal UI bene fits has gone to ex-servicemen under the special programs set up for recently dis charged ex-servicemen. The level of un employment among this group is apparently 7 determined primarily by the general employ ment-unemployment picture. As might be expected, however, benefit payments to civilians previously employed by the Federal Government have not corre sponded so closely to business cycle changes, on a year-to-year basis, during the relatively brief history of that program. (Benefits under that program were first paid in January, 1955.) Benefit payments increased sharply in 1958, but moved up only slightly in 1960. Ul O p e ra tio n s in Ohio and P ennsylvania The relatively more severe impact of the 1957-58 recession on Ohio and Pennsylvania has already been mentioned. That differential effect, combined with the apparently rela tively greater incidence of long-term or structural unemployment in both states, par ticularly in Pennsylvania, has resulted in both states’ UI programs being in deficit for most of the years since 1953. Benefits under the Ohio program have exceeded taxes in each year since 1953; in Pennsylvania a mod NOTES O N est surplus of taxes over benefits was attained in 1956, but that surplus was the only one since 1951. UI operations in Ohio and Penn sylvania in recent years have been counter cyclical in the sense that the deficits resulting from UI operations generally were larger in recession than in non-recession years, al though in Pennsylvania that was not the case in 1959-60. A steady decline has taken place in recent years in the UI reserves of both Ohio and Pennsylvania, particularly in the ease of the latter. In Pennsylvania, the low level of re serves has necessitated emergency borrowing from the federal government to maintain benefit payments, and, as a longer-run meas ure, the enactment of legislation providing for sharply increased employer tax rates. As a result of this and previously-enacted legis lation, state UI operations in Pennsylvania resulted in a much smaller addition to in comes in 1960 than in 1959, following the national pattern. In contrast, in Ohio, where reserves are considerably more adequate, UI operations acted to increase purchasing power in 1960. F E D E R A L R E SE R V E P U B L IC A T IO N S Among the articles recently published in the monthly business reviews of other Federal Reserve banks are: “ Recent Developments in Bank Liquidity” , Federal Reserve Bank of New York, November 1961. “ W hat’s Behind the Discount Rumpus in R etailing!” , Federal Reserve Bank of Philadelphia, November 1961. (Copies may be obtamed, w ithout charge by writing to the Federal Reserve Bank named in each case.) 8 Farm Abundance Continues abundance that has characterized the Although aggregate crop volume this year nation’s agricultural activity over the is down 3 percent from the all-time high of years has continued in 1961. One indication1960, the area of cropland used declined even is the fact that farm marketings have been more, dropping 5 percent to the smallest area of record proportions this year. (Since total utilized in nearly 50 years (see table below). farm output this year will be the same as in Not since 1912 have fewer acres of cropland been used. As indicated by the output and 1960, marketings will probably continue at acreage figures, an increase in farm produc advanced levels through the early part of next year.) Another indication of farm abun tivity in 1961 partially offset the reduction dance in 1961 is that net farm income is in acreage. In fact, the composite rate of pro expected to be up about $1 billion from 1960, duction in 1961 for the 28 leading crops is due to larger marketings, higher support reported to have surpassed all previous rec ords. In the cases of sugar beets and soybeans, prices for some major crops, and larger gov however, marked increases in acreages were ernment payments.(1) And this is so, despite responsible for the significant increases indi the fact that prices of farm products for 1961 as a whole may on average be no higher than cated in the output of sugar crops and oil crops. in 1960. In the pages that follow we discuss some of the details o f the developments which have helped to perpetuate farm abundance O u tp u t of M a jo r C r o p s in 1961. T h e 1 947 - 4 9 - 1 0 0 C r o p Volum e Dow n Less Than A c re a g e Crop output in 1961, while on a par with the second highest level in history, is ex pected to be down 3 percent from last year, reflecting mainly a reduction in the outturn of grains. The latter reduction, in turn, has resulted from (1) a 16-percent curtailment o f plantings by participants in the Feed Grain Program and (2) a decline in the out put of food grains caused by a drought that cut spring wheat production by more than one-third. The volume of hay and forage crops in 1961 is also expected to be down from that of 1960. On the other hand, pro duction of most of the other major crops has been equal to, or well in excess of, that o f the previous year. ( i ) All data and forecasts used herein are from publications of the U. S. Departm ent of A griculture. 1961 Percent change from 1960 127 -1 1 % 100 - 9 — 5 — 2 Feed Grains Food Grains Hay and Forage Crops Cotton Tobacco Vegetables Sugar Crops Oil Crops 201 - 3 — 5 -1 3 -1 8 All Crops 117 - 3 89 - 5 131 + 2 Cropland Used Crop Production Per Acre 113 102 99 112 147 9 Looking at 1961 as a whole, crop progress was retarded somewhat by a late and uneven start in the spring, and relatively cool weather during the early part o f the grow ing season. Beginning in August, however, favorable weather brought a sharp rise in crop prospects. Nearly all crops registered gains during that month, and the expected outturns o f corn, sorghum grains, and soy beans advanced by more than ten percent. Although some further improvement in crops occurred in September, the favorable weather that prevailed generally through October and early November was of more significance in permitting complete maturity and harvest of an annual volume of crops that has been ex ceeded only once — in 1960. Livestock Volume a t New H igh The abundant outturn of crops in 1961 was complemented by a 4-percent rise in the out put o f livestock and products. As the table shows, all major livestock groups registered gains in output, reflecting both a moderate increase in units of breeding stock and a sig nificant increase in production per unit. The gains registered by the three livestock groups combined to push the total output of live stock and products to an all-time high. Poultry products registered the greatest gain over year-earlier levels. With broiler production up at least 12 percent from the 1.8 billion birds of 1960 and the number of turkeys raised up 26 percent, the total vol ume of poultry products easily surpassed that of the previous year. A t the same time, the volume of poultry products established an all-time high, despite virtually no increase in the volume of eggs produced. The 4-percent expansion indicated above for meat animal output includes a 3-percent increase in the expected output of beef to a record 15 billion pounds, and a 10-percent increase in the slaughter of lamb and mutton. Although not of major magnitude in the total output of meat animals, sheep and lamb slaughter this year is expected to be the largest in any year since 1948. These gains in 10 O u tp u t of M a jo r Livestock P ro d u cts 1947- 49=100 1961 Percent change from 1960 Poultry and eggs Meat animals Dairy products 163 130 112 + 8% Hr 4 + 2 All livestock 131 + 4 Animal units of breeding stock Livestock production per breeding unit 98 134 + 1 + 3 output, however, have been partially offset by a decline of about 1 percent in the ex pected volume of pork production. A moderate gain in the output of dairy products this year reflects an upturn in milk production that began in 1960 and is ex pected to continue into 1962. An anticipated increase this year of about 2 billion pounds will boost total output to nearly 125 billion pounds, or about on a par with the record high of 1956. The current recovery in output of dairy products stems mostly from a level ing off in the long-term downward trend in number of milk cows. The 1-percent decline indicated for this year compares with 5 per cent in 1958 and 4 percent in 1959, when beef cattle prices were advancing and herd owners were culling herds closely. Beef cattle prices have been below 1959 levels the past two years and two increases have been made in the level at which milk and butterfat prices are supported. These factors appar ently have slowed the decline in cow num bers, thereby contributing to an expansion in the output of milk because of the upward trend in rate of production per cow. The upturn in milk production this year has been accompanied by an increase in offer ings to the Commodity Credit Corporation for price support. Government purchases this year are expected to account for about 6 per cent of all milkfat produced and 9 percent of the solid-not-fat, compared with 3 percent and 8 percent, respectively, in 1960. T otal O u tp u t Equal to 1960 Putting together the foregoing facts and figures, it is found that the record volume of livestock and products offset the decline in crop volume, with the result that total farm output in 1961 is expected to be equal to the record level of last year. The most recent estimates place total farm output for 1961 at 127 percent of the 1947-49 average, the same as in 1960. The upward trend in rates of pro duction of crops was a significant factor in partially offsetting the effect of a 5-percent reduction in the area of cropland used. Like wise, a further significant increase in the rate of production per unit of livestock added to the total outturn. C onsum ption M a y Exceed O u tp u t On the basis of preliminary indications, it is expected that, this year, consumption plus exports of all farm products will about equal production plus imports, representing the first time since 1957, as shown in the chart. la rs Domestic consumption plus exports of farm products will a p p a r e n t l y balance production plus imports in 1961 for the first time since 1957 . o 30 STO CKS o FARM PRODU With production and use expected to be virtually in balance, no change in c a r r y o v e r sto ck s from year-earlier levels is antic ipated as of January 1, 7962 20 . 10 o 46 '4 8 e E st im a te d 11 that production and consumption were vir tually in balance.(2) The only other time in recent years that a similar situation prevailed was in 1950. Consumption has exceeded pro duction in only five o f the past fifteen years; in all other years consumption of all farm products has fallen short of annual produc tion, thereby fostering a gradual build-up in available stocks. The total annual consumption of all farm products represents the combined total of domestic consumption plus exports to foreign countries, as shown in the accompanying chart. Domestic production and stocks plus imports from foreign countries provide the supply of agricultural products from which domestic and foreign requirements are met. When the total of consumption and exports is less than that of production plus imports, as has been true frequently during the post war years, a build-up in carryover stocks occurs, as shown in the lower panel of the chart. Conversely, if consumption and exports exceed production plus imports, carryover stocks decline, as occurred in 1946, 1947, 1951, and 1957. On the basis of preliminary infor mation, total carryover stocks as of January 1, 1962, are expected to be the same as on the year-earlier date. Surplu s Lim ited to Few C om m o ditie s An abundance of agricultural commodities is common to American agriculture, as evi denced in the fact that available supply exceeded consumption twenty-five times in the 37-year period from 1924 through 1960. The period from 1943 through 1947 repre sents the longest span of time, for which fig ures are available, that consumption exceeded supply. The excess of production plus im ports over consumption plus exports in the postwar period has been relatively small in each year, ranging from 2 to 3 percent, with the exception of 1948, when the excess was (2) The total figures in the chart were taken from M easur ing The Supply and Utilization of Farm Commodities, A g ri cultural H andbook No. 91, U. S. Departm ent of A griculture, 1957 and 1960. Figures fo r 1961 have been estimated by the Federal Reserve B ank o f Cleveland. 12 nearly 7 percent. While aggregate measures of production and consumption indicate the extent to which production has exceeded use, such measures conceal the fact that substan tial surpluses have accumulated for only a relatively few commodities. A review of the investment of the Commodity Credit Corpo ration in price-supported commodities sug gests the size of the surplus of some of the principal commodities. The value of commodities held by the Com modity Credit Corporation in inventory and under loan agreements totaled $7.2 billion on September 30, 1961. Of that amount, over $6.0 billion, or more than four-fifths of the total, was accounted for by three commodities— wheat, corn, and sorghum grains. In terms of annual production, such holdings were equivalent to 112 percent of annual produc tion for wheat, 66 percent for sorghum grains, and 47 percent for corn. Holdings of no other commodity in surplus approached those levels. Reduced plantings in conjunction with the Feed Grain Program brought reductions of 9 percent and 21 percent, respectively, in the outturns of corn and sorghum grains this year. Moreover, the quantity of wheat har vested was off about 10 percent from the previous year due to the adverse effect of drought on the spring wheat crop. These reductions in the output of feed grains and food grains, while helpful in shrinking surplus stocks, were not sufficient to pull down stocks of these commodities to levels that are considered to be reasonable reserves in relation to annual use. Exports Top P revious Record Exports of agricultural products have taken a relatively large share of the annual output of a number of farm products. This has been so particularly during the past five years when foreign shipments have been above the average of the entire postwar period, as shown in the chart. In the year ended June 30, 1961, the latest period for SELECTED INDICATORS OF AGRICULTURAL ACTIVITY which data are available, agricultural exports reached a new high in both value and volume. The value of agricultural exports at $4.9 billion was 9 percent above the previous fiscal year and 4 percent above the record of 1957; export volume topped the record level of 1960 by 7 percent. During the year ended June 30, 1961, as measured in relation to total annual sales, shipments to foreign countries were equal to about one-half o f the annual sales of rice, wheat, and cotton, one-third o f those of tobacco and barley, one-fourth o f that of soy beans, and one-sixth of corn and sorghum grains. Looking at it another way, total ex ports of agricultural products now take the equivalent o f the output of one acre out of every six in cultivation. In the year ended June 30, wheat and cotton accounted for most of the gain in total export shipments from the previous year. In fact, the 660 million bushels of wheat and flour in wheat equivalent which were exported represented an all-time high. Cotton exports of 7 million bales were the second highest in more than a quarter-century. Some of the other commodities which registered new highs in foreign shipments were soybeans, corn, hides and skins, and poultry meat. Exports of agricultural products advanced to a new high In 1 9 H , representing the fifth co nsecu tive year in which such exports have exceeded the average of the p o stw a r period. Price s H e ld Y e a r-E a rlie r Levels Prices received for 1961 as a whole are expected to average about the same as in 1960, despite the unprecedented level of for eign shipments and relatively strong domestic markets for farm products. Somewhat higher average prices for crops, due chiefly to higher support prices, were offset largely by lower average prices for livestock and livestock products, which in turn reflected expanded marketings. Broiler and turkey marketings, for example, expanded sharply with prices subsequently skidding to unprecedented lows. Prices of all farm products averaged higher than year-earlier levels early in 1961. Prices then dipped, and by June were both below a year earlier and at the low for 1961. Follow- Prices received by farm ers for the year as a whole will apparently average about the same as in I960. 46 ’ 48 '5 0 '5 2 '5 4 56 58 60 A n advance In net farm incom e in 1961 resulted from reco rd m arketing*, higher support prices tor major crops, and increased governm ent payments. 13 ing the midyear low, prices received advanced, and by November were only slightly below a year earlier. As indicated in the accom panying chart, however, average prices for the entire year have been substantially below the average of the 1946-60 period. Farm Incom e A d v a n ce s Net farm income in 1961 apparently will be up about $1 billion, or 9 percent, from 1960. Cash receipts from the sale of agri cultural products are expected to register a gain of 2 percent as marketings have ad vanced to a new high and prices have aver aged about the same as in 1960. Contributing importantly to this year’s gain in cash re ceipts are higher returns from hogs and dairy products which more than offset the lower level of receipts from poultry products. The lower cash receipts indicated from the sale of food and feed grains will be more than recovered in gains in the receipts from mar ketings of cotton, tobacco, soybeans, and fruits and nuts. The gain anticipated in cash receipts is being supplemented by an increase in gov ernment payments disbursed to participants in the 1961 Feed Grain Program, as well as by preliminary payments on the 1962 wheat crop in conjunction with the wheat stabili zation program. 14 The combination of the gain in cash re ceipts plus the increase in government pay ments is estimated to have yielded a realized gross income equivalent to an annual rate of $39.3 billion in the first three quarters of 1961. Production expenses in the same period are estimated to have been at an annual rate of $26.8 billion. The result has been that net farm income, which includes a net gain in inventories of $.4 billion, increased to $12.9 billion, annual rate, in the first three quarters of 1961. At this level, net farm income was up nearly $1.0 billion from the year-earlier period. With no marked swings indicated in prices of farm products through November, it seems probable that net farm income for 1961 will not vary sharply from the levels posted for the first three quarters. Such a level of net farm income for all of 1961 would represent a substantial rise from 1960, as well as from the postwar low of 1959, as shown in the chart. However, it would still be below the average of the postwar period. The relatively low level of prices and income during recent years, when exports have ranged well above the average for the postwar period, suggests that further improvement in farm income rests ultimately with meeting the challenge of a surfeit of a few of the major farm products. ANNUAL INDEX to MONTHLY BUSINESS REVIEW (1961) INDUSTRY Slackening in Heavy Industry FINANCE January Local Trends in Construction Contracts .............March Inventories and the Business Recession Employment Trends in a Heavy-Industry District Steel Finishing Capacity in a Heavy-Industry Area April June July Rebound in Use of Bankers’ Acceptances Patterns of State and Local Taxation January January The Federal Debt in Review February A Year of Cross Currents in Banking February Bank Earnings in 1960 April The Income Tax in Local Government Finance April A Look at the Foundry Industry August Ownership of Demand Deposits May Interpreting Recent Unemployment Data October Deposit-Type Financial Institutions June November Financial Flows in Credit and Capital Markets July December Postwar Patterns in Homebuilding and Financing .............................August Changing Patterns of Industrial Price Behavior Unemployment Insurance as an Economic Stabilizer Indebtedness of States in the Fourth District AGRICULTURE Case History of Soybean Prices Farmland Prices Edge Higher March October Trading in Federal Funds October June SPECIAL TOPICS Downturn in Farm Production September Growing Greens in Urban Areas November Farm Abundance Continues December September A Look at Liquidity Changes in National Product Related to Selected Business Series Progress of the Highway Program May September 15 FOURTH FEDERAL RESERVE DISTRICT
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