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M O N TH LY FEBRUARY 1951 CONTENTS Steel E x p a n s io n ............................. Instalment Credit Since W orld W a r II . 1 3 A n n o u n c e m e n ts.............................. 6 Inventories .................................. 7 The Fertility of Agricultural Research . K e v i e 10 Statistical T a b l e s ..........................11 National Business Summary . . . . 12 w F IN A N C E • IN D U S T R Y • A G R IC U L T U R E • TRADE FOURTH Vol. 33— No. 2 F ED ER A L RESERVE D IS T R IC T Federal Reserve Bank of Cleveland Cleveland 1, Ohio Steel Expansion years ago the American steel indus uary 15, 1951, it appears that a capacity of at least try’s computed capacity to produce raw steel for 115 million tons will be attained in the next two ingots and castings reached the one-million-ton-a- years, or a net expansion of 15 percent in only thirty week level. It was in May 1917 that for the first months.* time as much as a million tons of steel were poured The gain in steel-making facilities, chiefly open in a single week. More than three decades later, hearth furnaces, will be supported by additions to the sometime during the latter part of 1950, theoretical whole chain of the production process. New iron ore steel capacity attained the two-million-ton-a-week supplies will be made available from both domestic goal with the present rated annual capacity of 104.2 and foreign mines as well as enlarged plants to benemillion tons. It was not, however, until the week ficiate lean ores. The fleets of lake carriers and ocean ended January 27, 1951 that steel mills actually pro going vessels will be augmented together with addi duced two million tons of steel within a seven-day tional docks, storage space, and railroad cars. More period. blast furnaces for making pig iron are on the way, The steel industry is currendy embarked upon the as well as new coke ovens and rolling mill equipment most rapid tonnage expansion program in history. to process the increased flow of ingots. To date the The lash driving the industry forward is insistent bulk of the announced expansion will be financed by government demand for enlarged capacity and fear private capital and only a negligible proportion of government competition or ownership if private through government loans. industry does not do the job. The carrot is the new The Fourth Federal Reserve District, which has vista of expanded rearmament demand for steel for contained the heart of the nation’s steel-making in an indefinite period plus rapid amortization for tax dustry since the introduction of the Bessemer and open purposes of new facilities deemed essential to the de hearth processes, will still retain the same proportion fense program, and the discovery of rich new foreign ate share of national capacity on January 1, 1953 as ore deposits. prevailed in 1948. Study of existing and planned con Projects to create new steel-making facilities or to struction programs indicates that fears of a decline in enlarge and improve existing plants have been an the area’s importance as the steel capital of the United States are unfounded. nounced nearly every week since the start of the The adjacent chart shows Fourth District steel Korean war. At that time, steel ingot capacity in the ingot capacity as a percentage of the United States United States totaled 100.5 million tons. By the end of November, steel companies had publicly an total for selected years since 1936. From 1936 to 1948, the District’s share dropped from 50 percent nounced plans that would lift capacity to about 110 million tons by January 1, 1953. Since then, a steady * On January 24 industry sources stated that capacity will be 117.5 stream of new programs has been added. As of Jan million tons by the end of 1952. T h ir ty -fo u r Monthly Business Review Page 2 to 45 percent as the result of a more rapid rate of growth elsewhere in the country, chiefly the West Coast, South and Southwestern regions. Since 1948, the District has held its own with a little over 45 percent of total United States capacity. Plans an nounced thus far indicate no downward change in that ratio. The growth record in both the United States and the District are detailed in a table and chart. It bespeaks confidence in future markets. In this Dis trict, it emphasizes the strategic importance of loca tion in relation to supplies of raw materials — coal, iron ore, limestone, and scrap—and location in rela tion to the principal steel consuming markets and to labor supply. The misgivings which the industry may have had about the effects of the elimination of the basing point pricing system upon surplus steel pro ducing centers such as Pittsburgh and Youngstown have been relegated to the background, at least tem porarily. STEEL INGOT CAPACITIES As ofJanuary 1 (thousands of net tons) Year 1936............................... 1945............................... 1948............................... 1951............................... 1953*.............................. Fourth D istrict 39,455 46,350 42,485 47,050 52,015 Total U. S. 78,165 95,505 94,235 104,230 115,000 D istrict as % of Total 50% 49 45 45 45 NET INCREASES IN STEEL CAPACITY (thousands of net tons) During Year Fourth D istrict Total U. S. FOURTH DISTRICT STEEL EXPANSION BY PRODUCING AREA* (thousands of net tons) Capacity—Jan. ’51........ Addition—’51-’52.......... Capacity—Jan. ’53........ Percentage growth......... 33,865 8,405 4,780 47,050 2,780 965 1,215 4,960 36,645 9,375 5,995 52,015 +8% +12% +25% +11% (C O N T IN U E D O N P A G E 6 ) STEEL INGOT CAPACITY Plotted for Selected Years As of January 1 M IL L IO N S or M IL L IO N S OF - TOT A L U. S. 0 --------------- - o --------------- Y /A boX ■*----- F O U R ! H D IS T R C T U S TOT* -> 4 9 % ' /v /Y / y 7/ / — « 7/AV//,V//,.yW Wam.VMM i;IP \ Total area, which stretches all the way to Cincinnati, will increase facilities by almost one million tons for a gain of some 12 percent. The smallest region, Cleve land and nearby Lorain, will add 1.2 million tons but this will be a gain of 25 percent in capacity. The greatest volume, or about 85 percent, of Dis trict steel-making capacity in 1948 was in open hearth furnaces. In that year, however, some 54 percent, or about 490,000 tons, of the net increase was in the form of electric furnaces. In 1949, electric furnace additions amounted to 505,000 tons or 30 percent of the year’s increase while Bessemer capacity rose by two-thirds of a million tons or 40 percent of the net growth. In the past year, however, the bulk of the growth was in traditional open hearth furnaces and this like wise will be true in the next two years. By January 1, 1953, open hearths will still produce 80 percent of the District’s steel. In all probability most of the capacity now “unclassified” will turn out to be of the open hearth variety. The category “unclassified” is Source: American Iron and Steel Institute and current trade papers and magazines. * Estimated as of January 15, 1951. When the expansion plans for 1951-52 are grouped together for the three major steel-producing areas of the District, distinctly different rates of growth ap pear for the areas as shown in the following table of estimates. The largest producing area of Pittsburgh-Youngstown will expand by the greatest amount, nearly 2.8 million tons, but this will amount to only an 8 per cent increase. The Steubenville-Wheeling-Ohio River Pittsburgh- SteubenYoungs- ville-Ohio Clevelandtown River towns Lorain * As of January 15, 1951, to the nearest 5,000 net tons. D istrict as % of Total 194 8 905 1,885 48% 194 9 1,670 3,270 51 195 0 1,995 4,835 41 4,960 11,000 45 1951-52.......................... Total—5 years.............. 9,530 20,995 45% Figures are rounded to the nearest 5,000 tons and may not necessarily add to total. February 1, 1951 . . . steel ingot capacity expansion in the Fourth District is keeping pace with the nation, at around 45% of the total. Source: 1936-1948, American Iron and Steel Institute. 1952-1953, Estimated by Research Department, Federal Reserve Bank of Cleveland. February 1, 1951 Monthly Business Review Page 3 Instalment Credit Since World W ar of last August, on the eve of reimposition of restraints, the volume of consumer instal ment credit outstanding at 25 monthly reporting banks in this District reached $156,000,000. For five years, as indicated on the accompanying chart, this type of indebtedness had been increasing with but minor interruptions; but the sharpest rise of all, in absolute terms, occurred within the May-August interval. Some further expansion took place during Septem ber and October, lifting the aggregate to $163,000,000, which represents the all-time high to date and an expansion of $140,000,000 since the end of 1945. The decline during November and December was of moderate proportions. The growth of consumer instalment credit (or debt) extended by these specific banks is more or less typical of what transpired on a national scale with respect to all lenders and vendors combined. The dollar increase in outstanding credit was successively larger in each year until the “readjust ment” year of 1949. In that year, when disposable personal income declined slightly and personal con sumption expenditures registered the smallest annual increase of the postwar period, outstanding instal ment loans at Fourth District banks failed to advance as rapidly as in any of the three preceding years. The revival of economic activity towards the end of 1949, however, mitigated the effect of seasonal influences on instalment borrowing during the winter months, and in May of last year an unprecedented expansion became evident in the demand for consumer durables financed on the instalment plan. Reinforced by the twin fears of inflated prices and physical shortages as a result of the Korean conflict, the upsurge in instal ment borrowing carried through the summer. In the five months May through September, outstanding credit increased more than in any complete post-war year. This was followed by a marked decline in the amount of new loans, beginning in September, which, together with the increasing volume of repayments, led initially to a slowing down in the rate of growth of instalment credit, and in the last two months of 1950 to a slight decline in outstanding credit at re porting banks in the District. For the country as a whole, a moderate decline in outstanding instalment credit was also reported in November. a t th e end Monthly data on the volume of new loans are perhaps more valuable than figures on outstanding credit from the standpoint of economic forecasting, subject to the qualification that the wide month-tomonth fluctuations in new loans may at times obscure the trend in the absence of a precise seasonal pattern. Ne w Loans and Repayments As in the case of outstandings, new loan volume rose in each successive year. A slowing down in the rate of increase of new borrowing first became appar ent in 1948, despite peak economic activity and the absence of consumer credit regulation during most of that year. This contrasted with the wider margin of increase over the previous year registered by out standings in 1948, and may reflect a lengthening of terms on new credit following the termination of Regulation W for the first time on November 1, 1947. The relatively small volume of new loans consummated in the early months of 1949 resulted in the monthly average of new loans for the year as a whole being only moderately higher than in the previous year in spite of a substantial revival of demand for credit after the first quarter. Last year, the unprecedented instalment borrowing in the spring and summer, facilitated by low down payments, easy terms and an amplitude of supplies reached a record monthly rate of $24 million in August at the 25 reporting banks, to be followed by a sharp decline to November and December levels lower than in the same months of 1949. Throughout the postwar period, repayments have increased steadily, but with few exceptions have been consistently lower than new credits granted. As was to be expected under conditions of high employment and incomes, repayments have at no time indicated any marked tendency to default on the part of bor rowers. Dollarwise, the most rapid expansion in instalment credit occurred in auto mobile credits. Since 1945, outstanding debt originated in automobile purchases jumped $48 million at reporting Fourth District banks, and $2,200 million at all commercial banks in the coun try as part of an aggregate increase in consumer instalment indebtedness on automobiles of $5,100 million. As a result, automobile credit at the end of 1950 represented 32 percent of the total at reporting banks in this District, 42 percent at all commercial banks, and 40 percent of the total instalment in debtedness, in contrast to proportions of 17 percent, 29 percent and 16 percent, respectively, at the end of 1945. Measured in dollars, automobile credit expanded at an accelerating rate in each successive year for the country as a whole. This reflected in large part the effect of rising prices and continually increasing production, but also sustained demand and increased use of credit. At reporting Fourth Dis trict banks, a temporary decline in the rate of expan sion in 1949 resulted from a falling volume of net purchases of automobile paper from dealers. In the spring and summer of last year, a record volume of Automobile Credit Monthly Business Review Page 4 February 1, 1951 CONSUMER INSTALMENT CREDIT OUTSTANDING, 1946-1950 (Monthly Reporting Banks—Fourth District) M IL L IO N S O F $ ’S M IL L IO N S OF $’S 200 200 I 946 1947 1948 1 95 . . . instalment credit expanded throughout the postwar period with only minor inter ruptions. An unprecedented increase occurred in the spring and summer of 1950, chiefly in credit on durable goods, and at the end of October outstanding debt stood at an all-time high of $163,000,000. new credit was extended by these banks to finance the purchase of automobiles, which resulted in an increase in outstanding automobile credit in the sec ond and third quarters of 1950 greater than in any other complete year since World War II. In Septem ber, a decline of more than seasonal proportions from the peak level of midsummer in new borrowing by car buyers first became evident. This was due in part to the advancing of buying plans following the out break of war in Korea which presumably diverted part of the demand which ordinarily would have been exerted in later months. Although lending on auto mobiles was still at a rate approximately the same as in November and December 1949, the increased vol ume of repayments led to a greater decline in out standing automobile credit than that for all other types of credit combined. Other Retail Instalment C red it Instalment purchases of d u r a b l e goods such as appliances, radios, television sets, furniture, etc., were sec ond in importance only to automo biles in causing the rapid postwar expansion of consumer instalment credit. In the five years 19461950, debt owed to all commercial banks in the country on these goods increased from $100 million to $1,300 million, and at reporting banks in this Dis trict from $3 million to $43 million. A substantial part of this expansion occurred in the years immedi ately following World War II, reflecting the rapid growth in production of household appliances after the end of hostilities. The rate of expansion slackened during 1948 and early 1949, but the recovery in de mand for appliances towards the end of the latter year, the rapid extension of the market for television sets, and the high volume of residential completions contributed to a further upsurge in this category of borrowing which rose to new peaks in the spring and summer of 1950. During that year, the increase in outstanding instalment credit, most of which is dealeroriginated, was almost double that of any of the pre vious four years. Despite a substantial drop in the volume of new credit extended in the late months February 1, 1951 Monthly Business Review of the year, outstanding debt continued to expand, reaching an all-time high at the end of December. Repair and modernization loans expanded rapidly immediately following the war, but the rate of increase slowed down somewhat after 1948. In the sum mer of 1950, however, the volume of new borrowing for home improvement expanded sharply again from the seasonally low level of the early months of the year to reach a record figure in August. This expan sion was followed by an equally sharp decline, and in December the volume of new loans extended was the smallest for that month since 1946. As a result, out standing repair and modernization credit was reduced slightly. A further reduction in the early months of this year can be expected if the usual seasonal pattern is followed, and if F.H.A. insurance activity continues to decline. The remaining category of consumer instalment credit, personal loans for educational, medical, debt consolidation and various other purposes, which bear little relation to durable goods production, registered the smallest expansion of any type of credit at report ing Fourth District banks since the war. In 1945, these loans aggregating $10 million had constituted the largest single classification of total instalment credit. At the end of 1950 they reached $29 million, and were the smallest individual component of the total. Almost half of the postwar expansion occurred in a single year, 1946, after which time the rate of increase became progressively slower until early 1950. A record volume of new loans during the summer lifted outstanding credit to a peak in September, and since that month, no net change has been apparent. Page 5 NEW INSTALMENT CREDIT AND REPAYMENTS 1946-1950 (Monthly Reporting Banks—Fourth District) Other Instalment Loans The almost continuous growth of instalment credit since the end of World War II appears to indicate that Regulation W in its various forms had little ef fect on instalment borrowing. However, in the post war period, the purpose of the control was essentially to prevent an over-extension of the credit position of lenders and borrowers alike, and to restrain rather than halt the expansion of instalment credit in order to reduce inflationary pressure. From this standpoint a measure of success is indicated by the slower rate of growth in periods of regulation than in unregulated periods. From the end of 1945 until November 1947, when the war-imposed Regulation W was first termi nated, instalment credit at reporting Fourth District banks increased at an average monthly rate of nearly $2 million. From the end of September 1948 to the end of June 1949, during which time a modified form of the original regulation was in effect, the average monthly gain was nearly $ l / 2 million. In contrast, the rate of expansion during the two periods of un regulated activity was around $3 million and $3 / 2 Effect of Regulation W . . . the volume of new credit granted was larger each successive year during 1946-50 and attained a record rate in August last year followed by an equally sharp decline in the late months of the year. The growth in repayments closely paralleled the trend of new credit. NOTE: Data for new credit, monthly. Data for repayments, monthly averages by quarters. million, respectively. A similar acceleration in the growth of instalment debt during the time when lenders were given a free reign was evident on a national scale. The disparity between the rates of growth in regu lated and unregulated periods becomes less signifi cant, however, when other factors are taken into consideration. In 1946, and to a lesser extent in 1947, physical shortages of consumer durables, together with the availability of substantial liquid assets were of major importance in limiting instalment purchases. The second postwar period of regulation coincided with the moderate decline in economic activity, par ticularly in the early months of 1949. The unregu lated periods, on the other hand, coincided for the most part with high volume of physical production of durable goods and boom conditions of income and psychology, with the additional stimulus of fears of war shortages and higher prices in the third quarter of 1950. The decline in outstanding instalment debt since the latest imposition of Regulation W in Sep tember resulted from a sharp curtailment of new borrowing, which initially reflects the imposition of minimum down payment requirements and the re striction of the term of loans more forcibly than out standings. In view of the unprecedented concentration of purchases in the spring and summer months, it is conceivable that opposite movements in the prices of used cars as compared with the prices of furniture, rugs and major household appliances have both operated to restrain further increases in new borrow ing. The sharp seasonal decline in prices of used cars Monthly Business Review Page 6 from the August peak has probably reduced the volume of credit extended to finance a given number of car purchases, while the continued rise in prices of other consumer durables may have exerted the traditional function of restricting the physical volume of purchases. From the standpoint of banks, instalment lending to consumers has become an increasingly important part of operations since the end of World War II. At the end of 1945, instalment loans constituted less than 4 percent of the total loan portfolio of Fourth District member banks, and less than 3 percent of February 1, 1951 all commercial bank loans. By the end of 1950, the respective ratios were 12.5 percent and 11.0 percent. Both in this District and nationally, the proportion of instalment loans was substantially greater than in 1941 when instalment lending was at a prewar peak. The increase in the relative importance of consumer loans took place despite the rapid expansion of com mercial and real estate lending during the postwar period, and it was not until the second half of last year, when commercial and real estate loans increased at an unprecedented rate, that the rise in the impor tance of instalment loans was overshadowed. STEEL E X P A N S IO N (C O N T IN U E D F R O M P A G E 2) the result of recent company public announcements of expansion plans without further identification of the type of production facility. FOURTH DISTRICT STEEL INGOT CAPACITY BY TYPE OF FURNACE (thousands of net tons) Open Unclassi Total Hearth Bessemer Electric fied As of Jan. 1, ’48.. 35,900 3,040 3,550 —0— 42,485 905 Additions in ’48....... 155 —0— 490 255 Additions in ’49....... 380 665 505 120 1,670 90 875 1,995 Additions in ’50....... 885 145 16 300 4,960 Additions in ’51 -’52 . 4,350 300 Total, Jan. 1, ’53---- 41,665 4,150 4,650 1,550 52,015 Installation of new furnaces was responsible for about one-half of the new capacity in 1948 and for about 85 percent of the growth in 1949. In the planned 1951-52 program nearly one-half of the in crease will come from new furnaces. Technological improvements (such as the use of oxygen and better charging techniques) and the rebuilding and enlarge ment of old furnaces account for the balance of the capacity increase. The District steel mills have a distinct cost advan tage in expanding present properties rather than building entirely new mills. It has recently been esti mated that the cost of constructing a new integrated steel plant is $300 per ton of rated capacity whereas an existing plant can be expanded at only one-third of that cost, or roughly $100 per ton of rated capacity. When the competitive struggle for markets is again resumed on some distant day, this cost dif ference may assume real importance. ANNOUNCEMENTS This bank’s Annual Report for 1950, a 44-page illustrated booklet of operations, was published late in January. In addition to annual financial statements, the re port contains a description of the nature of depart mental operations within the bank, brief summaries of the bank’s services and general functions, and an economic review of the past year. Readers of the Monthly Business Review may ob tain copies by addressing a letter of request to the Research Department of this bank. * * * The following appointments in the staff of the bank were announced on January 17: M r . W i l b u r T. B l a ir , formerly counsel and sec retary, has been appointed vice president, counsel, and secretary. Mr. E l w o o d V. D e n t o n , formerly manager of the Personnel Department, has been appointed assist ant cashier. Monthly Business Review February 1, 1951 Page 7 Inventories and retailers from early 1949 through November the rapid movement of goods into con 1950 which is the most recent period available. sumer hands during 1950, especially after the start of the Korean War, with the help of extremely Inventories of manufacturers declined steadily high levels of production business establishments have through 1949 and then began to recover slowly through most of 1950. In November, they were up added substantially to the dollar value of their inven 10 percent from June and 13 percent from the be tories. This has been true not only with respect to ginning of the year. Nevertheless, stocks were only 1 manufacturing concerns, but in wholesale and retail percent above January 1949. As is evident in an ac trade as well. The general rise reflected increases in companying table manufacturers hold slightly more physical quantity as well as price changes. than one-half of all business inventories. By November the seasonally adjusted book value of Wholesalers’ stocks, which amount to about twobusiness inventories had reached a record $60.0 bil lion, a gain of $5.9 billion, or 11 percent since the tenths of the total, did not contract significantly dur outbreak of hostilities last June. The previous peak ing 1949 and at latest reporting date were 10 percent in inventory accumulation had occurred in the closing higher than in June and up 16 percent for the year. months of 1948 when the initial postwar boom was Moreover, holdings were 10 percent above the Janu slowing down. At that time stocks were valued at ary 1949 level. It is estimated that wholesalers of $56.8 billion and were generally viewed as somewhat durable goods boosted their inventories by about 16 excessive. In calendar 1949, business inventories re percent or $500 million while wholesalers of non ceded $5.2 billion or about 9 percent. durable goods increased stocks by nearly 17 percent or about $1 billion during 1950. From the point of view of physical volume of stocks on hand, there is probably not a great deal of The nation’s retailers have been the most aggressive difference between December 1948 and today’s levels. in inventory accumulation. Retail stocks (which ac The wholesale price index has risen 10 percent count for about three-tenths of total business stocks) higher since the end of 1948, whereas the value of last November were up 19 percent from January and stocks last November was up 6 percent. Then, too, were 14 percent higher than in June on a seasonally 1948 inventories were accumulated at very high adjusted basis. Likewise they were nearly one-seventh prices that began to turn down in September, while larger than in January 1949, or at the end of a year 1950 inventory replenishment took place on a rising of the largest retail selling volume in the nation’s price level so that November stocks included a large history. proportion acquired at more moderate prices. BUSINESS INVENTORIES An accompanying chart depicts the trend of in November 1950 ventories in the hands of manufacturers, wholesalers, D e s p ite TOTAL INVENTORIES (Seasonally Adjusted) WHOLESALE TRADE MANUFACTURING 1948 1949 1950 1948 1949 1950 RETAIL TR A D E TTS48 1949 1950 . . . Inventories at all levels have risen sharply since the start o£ the Korean War, despite heavy sales to consumers, and are now the highest on record. Source: U. S. Department of Commerce. Manufacturing . Wholesale......... Retail................ TOTAL............ Billions of %’a Percent — Percentage Change From— of Total June ’50 Jan. ’50 Jan. '49 $32.9 55% 10.4 17 16.7 28 $60.0 100% +10% +10 +14 +11% +13% + 1% +16 +10 +14 +19 +15% + 6 % The growth of inventories during 1950 would have been of much concern in more normal times, and would probably have been interpreted as a signal for an impending cutback in production and a period of price weakness. In fact some comment along these lines was made in the immediate “pre-Korean” period. Now, however, the size of existing inventories does not cause apprehension—unless stocks are badly out of balance— and most busines establishments are try ing to enlarge their holdings still further. The view is taken that merchandise on the shelves or in the ware house is better than money in the bank since prices Monthly Business Review P age 8 February 1, 1951 MANUFACTURING INVENTORIES* MANUFACTURING INVENTORIES (Seasonally Adjusted) . . . nondurable goods inventories have shown the largest gains and, unlike durable goods, are at record levels. Raw material stocks likewise are at record levels while finished stocks are relatively low. . . . the rise in inventories has been far from uniform among various industries. For example, producers of iron and steel products added only 8 percent to inventories while textile inventories were enlarged by 22 percent. •Inventories by stage of fabrication are not seasonally adjusted. Source: U. S. Department of Commerce. are still rising, consumer demand is expected to re main high, and reduced production is certain for many lines of civilian goods. The continued rise in personal incomes and the promise of high-level de fense spending seem to support this philosophy. As a matter of fact the size of business stocks offers the public some degree of protection, or a cushion, against future reduction in rates of output of durable goods. The greatest protection against this contin gency, however, is the vast inventory of durable goods in the hands of consuming public that has accumu lated over the past four years in the form of auto mobiles, refrigerators, washing machines, radio, tele vision sets and the like. At no time in the country’s history has such a stock of nearly new merchandise been accumulated in such a short period of time. M anufacturers' Although the book value of total Inventories manufacturing inventories in No vember was 13 percent higher than at the beginning of the year, there was a marked shift in their composition as shown in an accompanying chart. Purchased materials were acquired aggressively during 1950 and the value of such stocks jumped $2.5 billion or some 22 percent. As a matter of fact, all of the increase in purchased goods inventories (these may be either raw materials or parts which will be incorporated in the final end product) took place since June. A good share of this rise in value, however, was probably due to the rise in raw mate rial prices. Likewise, there was a $1.1 billion or 17 percent gain in the value of goods in process as the tempo of production rose. The bulk of this rise also occurred after mid-year. Source: U. S. Department of Commerce. On the other hand, inventories of finished goods rose some $300 million in the first half of the year and then were pulled down sharply in the third quar ter under the impact of the first wave of war-scare buying. Although finished goods inventories recovered somewhat in October and still further in November, they were still 1 percent under the January level. Higher prices in November probably caused this de cline to be somewhat understated. There was also considerable difference in the rate of change in inventories as between durable and non durable goods as shown in the chart. In the liquida tion period of 1949, stocks of durable goods dropped $2.5 billion, or 16 percent, while nondurable inven tories declined a more moderate $1.2 billion, or 7 percent. In 1950, durable goods manufacturers added steadily to stocks over the entire period for a net gain in book value of some 13 percent. About twothirds of this gain took place after the start of the war. The high rate of consumer and industrial de mand for metals in the face of limited supplies of raw materials since June kept finished stocks to mini mum levels and well below January 1949 levels. Nondurable manufacturers added 15 percent to inventories during the period with nearly four-fifths of the gain taking place since June. These recent gains carried stocks somewhat above the peak Janu ary 1949 period. The difference in the ability to accumulate stocks —particularly in the months after the outbreak of war—is shown in the chart above. On the right half is plotted the trend of stocks of two typical hard goods industries, iron and steel products, and machinery manufacturers. The left side shows inventory trends February 1, 1951 Monthly Business Review in two typical nondurable goods industries, tobacco manufacturers and textile mill products. The drop in iron and steel product inventories was very sharp in the last half of 1949 and was accentu ated by the prolonged labor dispute in the steel mills in the last quarter of the year. Raw material inven tories in 1950 were probably inadequate for the volume of sales of finished goods. From June through November, manufacturers were able to increase their stocks by only 8 percent and these were still short of the level prevailing in the early part of 1949. Ma chinery builders added 9 percent to their inventories subsequent to June in the face of heavy increases in sales. On the other hand tobacco processors raised their holdings 15 percent for the year, and textile mills jumped inventories by 22 percent. A good part of the latter increase was undoubtedly due to the rapid price increases of such raw materials as cotton and wool. The value of inventories of retail stores selling durable goods held virtually steady during the first six months of 1950 and then dropped a half-billion dollars or about 10 percent during July under the first wave of warscare buying. Merchants were able to restock quickly, however, and by September, stocks were above the pre-Korean level. By November, stocks of durable goods had risen further to $6.5 billion, or 16 percent Retail Inventories Page 9 RETAIL TRADE INVENTORIES (Seasonally Adjusted) B IL L IO N S OF $’ s B IL L IO N S O F $ 'S . . . retail stocks remained comparatively stable until mid1950. War-scare buying last summer by consumers scarcely made a dent in stocks, but since then retailers have built their inventories to the highest level on record. Source: U. S. Department of Commerce. above June and were the highest on record. War-scare buying of nondurable goods scarcely made a dent in retail stocks although July and Au gust retail sales of soft goods were up about 7 percent from the June level. Manufacturers and wholesalers were able to step-up deliveries immediately and in ventories by the end of November had gained 12 percent for the year. Monthly Business Review Page 10 February 1, 1951 The Fertility of Agricultural Research by CLYDE WILLIAMS, Director, Battelle Memorial Institute One hour of labor of a factory worker in this country will buy twice as much food as in England and seven times as much as in Rus sia. Back in 1920, the average American farm family produced enough food for itself and 12 other persons. Today that typical farm family feeds itself and 20 other per sons. Six percent of this nation’s population (only one-third of those who live on farms) is providing between 80 and 85 percent of the country’s food crops. High efficiency is a major element in the picture. This miracle of production rests on modern agricultural sciences. One branch of that science has given us farm mechanization that now replaces 12,000,000 horses which were major competitors of man in food consumption. One man with a good tractor and a three-bottom plow can turn as much land as six teams of horses, each with a plow and operator. One machine can pick as much cotton as 40 to 50 field hands. Another branch of agricultural science has given us a host of new and powerful chemicals for crop and livestock protection. The new chemical, 2,4-D, usually applied by airplane, is being used to keep down the weeds on many millions of acres. Potent new insecticides and fungicides are revolutionizing the control of pests and diseases of crops and livestock. Other new chemicals are succeeding in disinfecting soil, regulating the growth of plants, and removing the leaves that interfere with mechanical har vesting. In the same fashion the fertilizer industry, through such innovations as more concentrated fertilizers and newer forms of old materials, has made possible greatly increased farm production. Lately agricultural research has proved that poor crop development is often caused by deficiencies of such “trace elements” as copper, boron, zinc, and magnesium. These are needed in very small amounts, only a few parts in a million of soil, but they are vital to the healthy growth Editors's Note:—While the views expressed on this page are not neces sarily those of this bank, the Monthly Business Review is pleased to make this space available for the discussion of significant developments in industrial research. of crops. Even in areas where no trace mineral shortages had been suspected, crop yields and values have been materially increased by use of these substances in fertilizers. This represents both an opportunity to increase crop pro duction and a sizeable new market for the fertilizer indus try and for producers of trace elements. Still another branch of agricultural science has given us new varieties of crops and new breeds of livestock that are more efficient and productive than the older ones. Often the newer crops are resistant against diseases that formerly caused devastating crop losses. An outlay of $200,000 a year in research has resulted in better wheat varieties that outyield old varieties by 10 to 30 percent, giving a continuing return of $50 million. The scientific studies that led to hybrid com have increased American corn production by % billion bushels per year. The introduction of soybeans to the United States, another research achievement, is adding a half-billion dollars to farm income with more millions coming from soybean processing. The research that has made these advances possible is costing less than half of one percent of the gross value of farm products. Percentagewise this is small in comparison with the amounts invested in research by many other Amer ican industries. The U. S. agricultural research budget is about $150 million, of which two-thirds is expended in tax-supported state and federal experiment stations, and the remaining third in the laboratories and on the experi mental farms of the industries that serve agriculture or at research institutes such as Battelle. In spite of the contribution science and technology have made to the miracle of modern agricultural production, we still have far to go before we reach the limits of pro duction. There are still many unanswered questions as to how to use our heritage of soil most efficiently and yet prudently, so that it will serve the generations to come. Investments in agriculture have promise of greater security than can be said for many other industries. A prosperous and productive agriculture, of course, has more than local significance. Each day there are an added 6000 hungry souls in the United States, 50,000 more in the world each day, 20 million more each year. Social un rest and wars stem from hunger. Each forward step that science enables agriculture to make is a step toward national security and world tranquility. Monthly Business Review February 1, 1951 Page 11 FINANCIAL AND OTHER B U S IN E S S ST AT ISTICS Time Deposits at 56 Banks in 12 Fourth D istrict Cities Bank Debits*— December 1950 in 31 Fourth District Cities (Compiled January 9, and released for publication January 10) Average Weekly Change During: City and Number Time Deposits Dec. Nov. Dec. of Banks Dec. 27, 1950 1950 1950 1949 Cleveland (4)........... .$ 878,779,000 +$2 ,517,000 +$ 389,000 +$2 ,386,000 Pittsburgh (9).......... . 481.565.000H + 282,000 + 284,000 + 138,000 Cincinnati (8)........... . 175,232,000 271,000 600,000 98,000 Akron (3).................. . 100,239,000 ++ 356,000 — 141,000 + 146,000 Toledo (4)................. . 104,923,000 + 450,000 _ 519,000 + 375,000 Columbus (3)........... 85,740,000H + 198,000 + 99,000 + 173,000 Youngstown (3)....... 61,834,000 + 49,000 11,000 27,000 Dayton (3)................ 44,816,000 42,000 — 21,000 + 24,000 Canton (5)................. 41,369,000 + 213,000 _ 117,000 _ 4,000 Erie (4)...................... 39,980,000 + 118,000 _ 357,000 + 66,000 Wheeling (5)............. 26,075,000 103,000 _ 73,000 + 57,000 Lexington (5)............ 9,981,000 — 4,000 — 46,000 + 2,000 TOTAL—12 Cities..$2,050,533,000 +$4 ,305,000 -$ 1 ,114,000 +$3 ,238,000 . (In thousands of dollars) „________ (Compiled January 11, and released for publication January 12) No. of % Change 3 Months % Change Reporting Dec. from Ended from B a n k s __________________ 1950_____ Year Ago Dec. 1950 Year Ago 187 ALL 31 CENTERS—.......... $9,616,027H +25.4% $26,844,153H +30.7% 10 LARGEST CENTERS: 935.847H +29.5% 5 Akron...............................Ohio 334.151H +33.4% 5 Canton............................. Ohio 139.806H +30.2 397.713H +31.8 15 Cincinnati....................... Ohio 1,130,800H +19.3 3,324,527H +25.6 10 Cleveland........................Ohio 2.544.745H +27.2 6.950.453H +31.2 7 Columbus........................Ohio 620,397 + 4.9 1,746,644 + 4.5 4 Dayton.............................Ohio 297.524H +18.9 829,798H +20.1 6 Toledo..............................Ohio 469.400H +18.6 1.309.767H +22.5 4 Youngstown....................Ohio 204.939H +27.4 573.908H +33.4 6 Erie............................... Penna. 115.692H +26.3 314.946H +23.2 48 Pittsburgh................... Penna. 2.862.364H +31.9 8,086,413H +45.2 109 TOTAL................................. $8,719,818H +25.1% $24,470,016H +31.2% 21 OTHER CENTERS: 9 Covington-Newport.......Ky. $ 46,290 + 8.6% $ 134,295 +14.4% 6 Lexington..........................K y. 149,297 +79.4 291,915 +50.0 78.357H +36.2 3 Elyria...............................Ohio 28.635H +30.0 3 Hamilton.........................Ohio 49.434H +23.7 141.277H +21.4 2 Lima.................................Ohio 58.081H +36.0 163,474 +28.8 5 Lorain...............................Ohio 20,752 +14.7 62.722H +22.9 4 Mansfield.........................Ohio 60.232H +32.8 161.481H +26.7 2 Middletown.................... Ohio 45.242H +16.6 131.474H +25.3 3 Portsmouth....................Ohio 25,005 +15.7 71,176 +15.7 3 Springfield.......................Ohio 53.438H +11.4 149.653H +11.0 4 Steubenville................... Ohio 27.645H +14.0 76,618 +23.8 2 Warren............................. Ohio 49.848H +25.4 142.583H +32.0 3 Zanesville........................Ohio 31.573H +15.0 87,322 +12.1 3 Butler........................... Penna. 35,744 +21.2 103,992 +21.9 1 Franklin....................... Penna. 8,578 +21.1 23,647 +18.6 2 Greensburg..................Penna. 27.192H +29.1 76.231H +33.1 4 Kittanning...................Penna. 11,665 + 8.9 32,541 +20.8 3 Meadville.....................Penna. 14,814 +25.6 42,530 +13.1 4 Oil C ity........................Penna. 20,222 + 5.5 57,794 + 5.8 5 Sharon.......................... Penna. 37.886H +33.1 100.855H +36.6 6 Wheeling......................W. Va. 94.636H +19.5 244.200H +27.4 78 TOTAL................................ $ 896.209H +27.9% $ 2.374.137H +25.8% * Debits to all deposit accounts except interbank balances. H—Denotes all-time high. _Debits to deposit accounts (except interbank) at banks in 31 Fourth District cities increased seasonally during December, aggregating $9,616,027,000, a new alltime record. This represented a gain of 25.4% over the comparable 1949 volume. Percentagewise, the year-to-year increment in December was smaller than the 30.7% gain for the fourth quarter as a whole, indicating a decline in the margin of increase of debit volume since October. The expansion in debits resulted in a record postwar rate of deposit turnover, despite a further rise in deposits to a new peak at the end of December. TEN LARGEST CENTERS . Each of the ten largest centers except Columbus registered an all-time high in debit volume during December. Akron reported the largest year-to-year gain of 33.4%. Pittsburgh and Canton, where debits were relatively low in December 1949, also reported gains of more than 30%. Columbus and Dayton again registered yearto-year increments noticeably below the average, due in part to the relatively high debit volume in both these cities in the comparable periods of 1949 and to the stability of charges on public accounts at Columbus. TWENTY-ONE SMALLER CENTERS _ All of the smaller centers reported year-to-year increases in debits averaging 27.9% for the group as a whole. This was the first time since August that the mar gin of gain at the smaller centers exceeded that of the large cities. The 79.4% increase in debit volume at Lexington reflects large transactions in the market for the 1950 tobacco crop. Transactions related to the 1949 crop were apparent chiefly in January 1950. For the past three months combined, half of the smaller centers^reported alltime high debit totals. Sharon and Elyria led the increases in these cities over the fourth quarter of 1949 with gains of 36.6% and 36.2%, respectively. H—Denotes new all-time high. Time deposits at reporting banks in_12 Fourth District cities increased at an average weekly rate of $4,305,000 during December. This contrasted with the seasonal November decline and was in close accord with the usual expansion of time deposits in the last month of the year. Most cities reported increases in time deposits greater than in the same month of 1949. At Cincinnati, Youngstown and Canton the December expansion was in con trast to net withdrawals from these accounts a year ago. Akron registered the first increase in time deposits since April, while at Dayton the uninterrupted eight-month decline was continued. Cleveland accounted for the greater part of the over-all gain with an average weekly rise of $2,517,000. The relatively more rapid rate of expansion at Cleveland banks than in the District as a whole is usual in December. Although aggregate time deposits were at a record level for December at the end of 1950, most of the cities registered year-to-year declines in their outstanding time deposit liabilities. Pittsburgh, Toledo, Columbus and Erie, where the effect of the post-Korean buying wave on time deposits was less marked, were the only cities to report higher levels of time deposits at the end of 1950 than at the end of the previous year. Adjusted W eekly Index of Department Store Sales* Fourth District (Weeks ending on dates shown, 1935-39 average = 100) Jan. Feb. Mar. Apr. May June 1950r 7 .... 14.... 2 1 .... 2 8 .... 4 .... 1 1 .... 18.... 2 5 .... 4 1 1 .... 1 8.... 2 5 .... 1 .... 8 .... 1 5 .... 2 2 .... 2 9 .... 6 1 3 .... 20 2 7 .... 3 .... 1 0.... 1 7 .... 2 4 .... 1951 278 31(1 320 308 293 308 279 255 258 279 264 263 285 279 JHti! 283 334 299 296 299 295 295 314 309 306 Jan. 6 . . . 49,a 13... .412 20... .443 27... 397 Feb. 3 ... 10... 17... 24 Mar. 3 10... 17... 24... Apr. 7 , 14... 21... 28... May 5 12... 19 2 6... June 2 . . . 9 ... 16... 23... July Aug. 1950r 1 .... 8 .... 1 5 .... 2 2 .... 2 9 .... 1 2.... 19 2 6 .... Sept. 2 9 1 6.... 2 3 .... 30 Oct. 7 .... 1 4 .... 2 1 .... 2 8 .... Nov. 4 1 1 .... 18 2 5 .... Dec. 2 .... 9 .... 1 6.... 2 3 .... 30 1951 327 July 7.......... •m 14 354 21 388 28.......... 418 4.......... 374 Aug. 11.......... 18.......... 330 25 323 Sept. 1 295 8.......... 324 15.......... 345 22 318 29.......... 335 m Oct. 136 307 20 287 27 298 280 Nov. 103 281 17 288 24 m 195 Dec. 1 ......... 328 8.......... 15.......... 334 22.......... 314 342 29.......... * Adjusted for seasonal variation and number of trading days. Based on sample of weekly reporting stores which differs slightly from sample reporting monthly. r—Revised Indexes of Department Store Sales and Stocks Daily Average for 1935-1939= 100 Adjusted for_ Without Seasonal Variation Seasonal Adjustment Dec. Nov. Dec. Dec. Nov. Dec. ____________________________1950 1950 1949 1950 1950 1949 SALES: Akron (6 )............................. 369 286 299 598 352 485 Canton (5)............................. 422 312 350 717 386 595 Cincinnati (8)....................... 344 297 307 561 383 501 Cleveland (11)..................... 328 248 263 528 305 424 Columbus (5)....................... 372 303 345 606 384 562 Erie (4).................................. 374 319 327 662 409 579 Pittsburgh (8)..................... 267 219 268 422 278 423 Springfield (3)..................... 323 249 294 559 302 508 Toledo (6)............................. 316 289 277 540 367 474 Wheeling (6)......................... 267 202 236 482 257 427 Youngstown (3)................... 410 297 321 672 371 527 District (98)......................... 328 251 283 538 313 465 STOCKS' D istrict................................. 351 350 262 294 377 219 Back figures for year 1949 are shown in the February issue. For years 1946-48 see August 1949 issue, page 7. i Monthly Business Review Page 12 February 1, 1951 SUMMARY OF NATIONAL BUSINESS CONDITIONS By the Board of G overnors of the Federal Reserve System (Released for Publication January 30, 1951) Industrial output was somewhat larger in Decem ber and January than during the autumn reflecting mainly further increases in output of producers equipment and military supplies. Consumer demand for most goods showed a sharp expansion and busi ness demands continued strong. Retail prices of con sumer goods and wholesale commodity prices showed more marked advances than in other recent months. The rate of expansion in bank loans to business slackened in January. On January 26, a Federal order established maxi mum prices of most commodities at the highest levels existing between December 19, 1950 and January 25, 1951. Wage and salary rates were fixed at the rates prevailing January 25 pending the development of adjustment procedures. Industrial production The Board’s production index in December was 216, and in January it is estimated that the index will be close to 220 per cent of the 1935-39 average. The current level is about one-tenth higher than in mid-1950 and one-fifth higher than a year ago. Output of durable manufactured goods has ex panded further following the temporary levelling off in November. Steel production, which had been re duced by severe weather conditions at the end of November, has increased to a rate somewhat above the earlier record reached in October. Output of producers equipment and munitions, mainly in the machinery and transportation equipment industries, has shown substantial further gains since last autumn. Passenger car assemblies are near the average rate prevailing in 1950 when output was 30 per cent greater than in any other year. Production of most other consumer durable goods and building mate rials has been maintained close to the record levels reached in the second half of 1950. Production of nondurable goods in December and early January has continued at peak rates, reflecting mainly a sustained volume of output of textile, paper, petroleum, and chemical products 10 to 20 per cent above year-ago levels. Minerals output declined slightly in December, as activity at iron ore mines was reduced from the ex ceptionally high autumn rate and as crude petroleum production was curtailed somewhat. Petroleum out put increased again in mid-January to a new record rate. Construction Value of construction contract awards increased in December, reflecting a further contra-seasonal ex pansion in awards for public work and gains in private nonresidential awards. For the year, value of awards was two-fifths larger than in 1949, with sub stantial increases in almost all categories. The De cember rise in housing starts to 95,000 from 85,000 in November reflected a sharp increase in publicly financed units. Total starts of almost 1,400,000 in 1950 were more than one-third greater than the pre vious record in 1949. Employment Nonagricultural employment showed the usual large seasonal rise in December, reflecting mainly temporary increases in trade and post office employ ment. Average hours of factory workers rose to 41.6 per week, the highest in five years, and average hourly earnings continued upward, reflecting in creases in wage rates and more overtime pay. Distribution Since the early part of December value of depart ment store sales has been considerably above cor responding periods of other recent years. Increases in sales of household durable goods have been large, as during the upsurge in buying last summer and there have also been sharp increases in sales of apparel and various other goods. Despite record sales for this season, stocks have been maintained at high levels as a result of the very large volume of output. Purchases of new passenger automobiles have shown marked increases from the reduced level reached in November which was still about 10 per cent higher than in November of any other year. Commodity prices Wholesale prices generally continued to advance during the first three weeks of January. Increases for basic commodities approached the rapid rate of rise of the summer months. Marked advances also oc curred in wholesale prices of numerous industrial products and foods prior to the announcement of general price controls on January 26. The consumers price index rose 1.6 per cent from mid-November to mid-December, the largest monthly increase of the year, as retail food prices advanced 3 per cent. Since that time retail prices have gener ally continued to rise; foods have exceeded the July 1948 high. Bank credit Bank loans to business continued to expand rapidly in December but increases were less marked in the first three weeks of January. The expansion in real estate and consumer loans was smaller in the December-early January period than in previous months. Average interest rates charged by commercial banks on short-term business loans rose from 2.6 per cent in the first half of September to 2.8 per cent in the first half of December. In early January, lead ing city banks announced further increases in rates to business borrowers. Required reserves of member banks were raised by more than one billion dollars in mid-January as a result of the first step in the graduated increases in reserve requirement percentages announced in late December. Banks met this increase with funds ob tained from a seasonal decline in currency in circu lation and a reduction in Treasury deposits at Reserve Banks and by reducing excess reserves and selling Government securities. Security markets Yields on Government securities and high grade corporate bonds continued to show little change during the first three weeks of January. Prices of common stocks rose further and, effective January 17, the Federal Reserve raised margin requirements for purchasing or carrying securities from 50 per cent to 75 per cent.
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