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MONTHLY BuoweMKevieut IN THIS ISSUE - FEDERAL RESERVE BANK Of CLEVELAND flcutucvuf, Department Store Trade in '5 8 .......... ..2 Heavy Industry & Employment in '5 8 .. . .5 Notes on Federal Reserve Publications. .11 Around the Fourth District................... .12 Employment InonfarmI in the Fourth District in November was 2 per cent above the June low point, after seasonal adjustment; the cor responding national total was V/2 percent above its April low point. IN DEX (1950 = 100) 130 130 EMPLOYMENT (N o n a gricu ltu ra l) 120 120 110 110 FOURTH DISTRICT 100 100 ( S e a s o n a lly adjuste d ) 1957 Last date plotted: November 1958 1959 Department Store Trade in '58 (Fourth District) by F o u rth D is tr ic t department stores during 1958 failed by about 2 percent to match those of the previous year.(1> By contrast, the score for department store sales on a national basis was a 1% gain over the previous year. The same showing holds broadly for total retail sales in the nation. The first of the accompanying charts, which depicts month-to-month variations in store sales (after seasonal adjustment) both for the Fourth District and for the nation, makes clear the severe impact of the recession upon Fourth District store sales during the first half of the year. The subsequent recovery, however, was not far out of line with the national showing.(2) a le s S Changes in Sales Seasonally adjusted sales by Fourth Dis trict department stores, as shown by the black line on the second of the accompanying charts, declined during the first quarter of the year to the lowest level in the past three years. Average sales for the first quarter were about 6 percent below those of the fourth quarter of 1957 and about 11 percent below those of the peak third quarter. The reces sion low was reached in February, as season ally adjusted sales by the District stores plunged to 118 percent of 1947-49 average daily sales. This was 15 percent below the position of the previous August, when sales had reached their peak. The following three months witnessed no significant change. The early date of Easter, which ordinarily serves as a stimulus, did not (1) Estimate as of late December. (2) The fact that the index of U. S. sales runs consistently at a higher level than the index of Fourth District department store sales indicates a difference in the cumulative rates of growth between the 1947-49 base period and the present. Farts of the South and the far West have shown greater gains than this District, in percentage terms. 2 result in any significant improvement of the sales score. Thus, March and April figures combined Were less than 2 percent above the recession low, and were 5 percent below the March-April period a year earlier. Sales dur ing the entire second quarter remained de pressed; they averaged only slightly above those of the first quarter. In the summer months, however, when signs of a general business recovery were coming to be evident, seasonally adjusted sales by Fourth District department stores rebounded sharply. In fact, in August the seasonally adjusted index of sales reached 140 percent of the base period position, a new all-time high. Total sales for the third quar ter were up more than 9 percent from the second quarter and were only a fraction be low the third quarter of 1957. Sales in October and November fell sub stantially below the third-quarter average. Sates by Fourth the first half of of the recession covery occurred District department stores during 1958 reflected the severe impact upon the area. An irregular re during the second half. I N D E X (1947-49 = 100) As labor disputes were hampering recovery, consumers appeared to be moving into the market with a greater degree of caution. Early figures for December indicate that the strong Christmas shopping season brought about renewed improvement. This appears to have lifted average sales in the final quarter to a level close to that of a year ago. Liquidation of department store stocks persisted through the first half year. Rebuilding of stocks following the sales pickup was quite moderate. I N D E X (1947-49 = 100) Inventories The decline in sales during the final quar ter of 1957 had markedly affected the in ventory policy of Fourth District depart ment stores. After moving upward for over three years, end-of-month inventories (shown by the colored line on the chart) leveled off in the September-November period (1957) and then eased in December. By the end of the first quarter of 1958 the liquidation of in ventories was well under way; it continued through April, when the adjusted index of department store stocks (based on 1947-49 average end-of-month stocks) declined to 124, or 15 index points below the position of Sep tember, 1957. The trend was reversed in May, after which some accumulation continued for the rest of the year. A comparison of the inventory line and the sales line, on the chart, suggests that a con servative buying policy on the part of Dis trict department stores was practiced during the second half of the year. Some observers believe that department store inventories were too low for the Christmas season and that consequently some sales may have been lost on account of limited selection. The average inventory position of Fourth District department stores during 1958 was 6 percent below that of the previous year, as against a 2 percent decline in sales. * Smoothed by three-month moving average, centered on final month. (Stocks at end of month.) department stores showed greater relative strength during the recent recession than sales of apparel — an experience quite con trary to that of the previous recession. During 1954 (not shown on the chart) sales of homefurnishings at the low point were down nearly Sales of homefumishings by Fourth District depart ment stores showed greater relative strength dur ing the recession part of *58 than did sales of apparel. INDEX (1947-49 = 100) Lines of Goods Sales of apparel and homefumishings de partments— which account for nearly twothirds of total sales by department stores— are traced on an accompanying chart over the past four years. It is interesting to note that sales of homefumishings at Fourth District * Smoothed by three-month moving average, centered on final month. Last entry is November. 26 percent from the 1953 high, whereas sales of apparel were down only about 15 percent from the peak reached in 1953. During 1958, however, sales of homefurnishings, in terms of a seasonally adjusted index number, con sistently ran above those of apparel in every month except August. An accompanying table shows how some of the individual departments fared during 1958 in comparison with the previous year. These departments are selected from the approximately 110 departments which are reported monthly to the Federal Reserve; they are selected on the basis of those which made the largest gains in sales, those that had the largest declines in sales, and a few that showed no change. Only a relatively small number of depart- SALES BY SELECTED DEPARTMENTS, 1958 Percent Increase or Decrease from 1957* Fourth District Department Stores Department DEPARTMENT STORE SALES BY METROPOLITAN AREAS Percentage Change from 1957 to 1958* Metropolitan Area Percent Change FO U RTH D IST R IC T — 2 C o lu m b u s ................................................. L e x in g to n ................................................. P ittsburgh ................................................. C in cin n a ti................................................. C le v e la n d ................................................. Wheeling-Steubenville............................ + 2 + 1 -0 — 1 — 3 - 3 — 5 — 6 - 6 - 7 — 7 -1 0 n.a. Springfield................................................. A k r o n ......................................................... Portsmouth................................................. Y o u n g s to w n ............................................. T o l e d o ..................................................... * December partly estimated. % Change From 1957 Sporting Goods and C a m e ra s................ Woolen Yard G o o d s ................................ Toilet Articles and Drug Sundries . . . Radios, Phonographs, and Television . . Children’s Shoes........................................ Candy ........................................................ Books and Magazines................................ Costume J ewelry........................................ + + + + + + + + S ta tio n e r y ................................................ Hosiery........................................................ Women’s S h o e s ........................................ -0 -0 -0 - Men’ s C lo th in g ........................................ Underwear, Slips, and Negligees . . . . Women’s and Misses’ S u it s .................... Handkerchiefs............................................ Rugs and C a rp e ts .................................... Laces, Trimmings, Embroideries, and R i b b o n s ........................................ Luggage ..................................................... — 8 — 9 -1 0 -1 1 -1 1 5 3 3 2 2 2 2 2 ments showed significant gains from a year earlier; among these were chiefly departments carrying recreational and cultural items. Thus, for example, sporting goods and cameras scored the largest gain from a year ago, with sales up 5 percent; radios, phono graphs and television, and books and maga zines were up 2 percent. At the opposite end of the scale were laces and trimmings, down 11 percent, and luggage, down 17 percent. Individual Areas -1 1 -1 7 * Based on figures from January through November. The range of variation which occurred among individual metropolitan areas is shown in an accompanying table. Columbus and Lexington were the only areas with sales ex ceeding 1957 volume, showing gains of 2 per cent and 1 percent, respectively. In Pitts burgh, sales were even with those of the pre vious year. The declines in the remaining areas ranged from 1 percent in Cincinnati to 10 percent in Youngstown. Sales in the Cleve land metropolitan area were 3 percent below a year ago. Heavy Industry and Employment in '58 ig n ific a n t flu c tu a t io n s in activity and S employment which characterized the year 1958 centered in the heavy industry lines. Such an accent, although it is a well-known attribute of recession-recovery cycles gener ally, was perhaps more in evidence this time than in previous cycles of recent memory. Since the Fourth Federal Reserve District has an especially large component of heavy in dustry in its complex of production, the basic pattern of change in ’58 is revealed in this District on a somewhat magnified scale, as will appear below. In the review which follows, developments of the year in the industry of the Fourth Dis trict are traced in some detail against the background of more general nationwide de velopments. On pages 6-7 will be found a chart presentation, entitled “ A Glance at National Trends” , which helps to summarize some of the more important industrial de velopments in the economy at large. Employment Employment (n o n a g ric u ltu ra l) in the Fourth Federal Reserve District declined steadily from December 1956, its most recent high point, until midsummer of 1958. By November it had moved up about 2 percent, to a point about 8 percent below the Decem ber 1956 mark. (Data are seasonally ad justed. ) As the cover chart(1) shows, the largest part (1) Note. Source of data for chart shown on cover is as follows: U. S. index is derived from figures compiled by U. S. Bureau of Labor Statistics. Fourth District index is based upon reports of the Division of Research and Statistics of the Ohio Bureau of Unemployment Compensation and the Penn sylvania Bureau of Employment Security. of the decline in employment in the Fourth District took place in 1958, and the slide in employment went further and lasted longer than in the nation as a whole. Thus, employ ment (nonagricultural) in the Fourth Dis trict dropped about 10 percent from Decem ber 1956 to June 1958, whereas the national total fell off by only a little more than 4 per cent from December 1956 to the low point in April 1958. Most of the differences between nationwide and Fourth District employment trends are due to the greater importance in the District of manufacturing employment, and specif ically, of employment in the durable goods industries, which were those most adversely affected by the recession. A significant part of the decline in employ ment in the District during 1958 was due, however, to changes in employment in the nonmanufacturing industries. These indus tries, taken together, employ about one-third more people than manufacturing industries in the Fourth District, in spite of the Dis trict’s large involvement in manufacturing. The District’s nonmanufacturing industries, as a group, had maintained employment dur ing 1957, after allowance for seasonal changes, while manufacturing industry reduced its workforce. During the first half of 1958, how ever, employment in nonmanufacturing in dustries increased much less than is cus tomary for that time of year and thus pro vided an additional element of weakness in the general employment picture. Wholesale and retail trade, together the largest of the nonmanufacturing industries, and contract construction were the nonmanufacturing in- 5 After more than a year of decline, manufacturers' sales finally turned up in April, chiefly due to an improvement in durable goods sales. Stocks, how ever, did not turn up until October. B i l l i o n s of D o ll a r s 70 B i l l i o n s of D o l l a r s 35 60 30 Industrial Summary — 7958 A GLANCE AT In terms of physical production, the recent reces sion was the shortest and sharpest in the postwai period. By November, however, recovery hat brought the index to a point only 3 percent below the fall of 1957. T IO N A L TRENDS n terms of current dollars, the Gross National 'roduct was estimated to be at record levels in he fourth quarter — a marked recovery from the educed position of the first quarter. As is usual in a period of business recovery, em ployment has recovered more slowly than other important buiness indicators. In November, unem ployment was still about 600,000 above the yearago level. M illio n s 75 ■■■■■■■■■■■■■■■■ lillions of Dollars I N D E X (1947-49 = 100) 160 50 25 >00 65 G RO SS N A T IO N A L PRODUCT INDUSTRIAL PRODUCTIO N 60 5 1957 1958 1959 1957 The sharp decline in business expenditures for new plant and equipment was a major factor in the recent recession. A slow uptrend now seems to be in progress. SE A SO N A LL Y ADJUSTED 1957 1957 1958 1959 1958 1959 During the business downturn, the decline in per sonal income was held to only 2 percent, chiefly because social security payments rose markedly. Income receipts are now at a record rate. S EA SO N A LL Y ADJUS TE D AT A N N UA L RATES B i l l i o n s of D o l l a r s 1958 B i l l i o n s of D o l l a r s 1959 400 45 CHANGES IN INDUSTRIAL P CTION FROM AUGUST 1957: — TO A PR IL 1958 (G E N E R A L LO W ) -3 5 % -30 -25 -20 -15 -10 -5 — TO NO VEM BER 1958 0 -1 5 % -10 -5 0 +5 +10% 350 1------ > ---- ---------------- 1------ 1 IN U F A C T U R ES H H I 325 1 Me t a l s letal Products 300 hinery 19 57 1958 cks & Parts 1959 1957 Consumer prices (except foodl continued to inch forward throughout the recession and early re covery period. Towards the end of the year, indus trial prices at wholesale were also edging up. tat ion Equi pment After a slow first-quarter start, new construction contract awards— especially for residential build ings— gave the economy a strong upward push that will carry forward into 1959. Lumber Products & Fixtures i 1958 I N D E X (1947-49 = 100) 135 Manufactures C ONST RU CTI ON CONTRACT A W A R D S M AN U FA CTU RES Billions of Dollars 2.5 & Apparel RESI DENTI AL BUILDINGS 2.0 other Products Printing 1.5 froleum Products 1.0 0.S J 1957 \ ges & Tobacco (UNADJUSTED) I I I 1 i ! I ? ! ERALS F. W. D o d 9 e d a t a I I -3 5 % -30 -25 -20 -15 -10 -5 0 +5 +10% 1957 1958 1959 dustries which most conspicuously increased employment by less than the usual amount during the first half of 1958. Steel During 1958, the steel industry of the nation operated at an average of about 60 percent of capacity, the lowest annual operat ing rate in 20 years. Production of ingots and steel for castings during the year, estimated at 85 million net tons, was the lowest annual tonnage since 1949 and represented a 25 per cent decline from the 1957 total. Steel production declined concurrently with the drop in total manufacturing activity, registering a 38 percent decline in average weekly output between August 1957 and April 1958. After April, weekly production climbed back to nearly the August 1957 rate, with some leveling tendency appearing in the final months of the year. A good part of the decline in steel demand WEEKLY STEEL PRODUCTION Ingots and steel for castings T h o u s a n d s of Tons 1,600 1,400 1,200 1,000 was, of course, associated with the reduced activity in the automotive, machinery, and other metal-fabricating industries. But, there was also a sharp reduction of steel inventories in the hands of these consumers. Industry estimates place the inventory cutbacks in the neighborhood of 11 million tons during the period of the recession as compared with the cutbacks of 8 million tons during the recession of 1954. The liquidation of stocks apparently ended in the third quarter, with some accum ulation occurring since then. Mills in the Fourth District suffered a some what sharper reduction in output during the recession than occurred at plants in the rest of the country. Similarly, recovery from the April low was slower within the District, as is illustrated in the accompanying chart. The predominant role played by mills of the Dis trict in supplying steel mill products to auto motive and machinery industries (which were still below their pre-recession highs toward the end of the year) is the major reason why steel output in the District lagged behind the rest of the country during much of the year. Within the Fourth District, mills in the Wheeling and Cincinnati areas had returned to August 1957 levels by late 1958. In the Pittsburgh, Youngstown and Cleveland areas, however, the operating rate in early Decem ber was 10 points or more below prerecession rates. The relative slackness of the steel industry in 1958 was reflected in the smallest ore ship ping season on the Great Lakes since 1939. Shipments from upper lake ports totaled less than 53 million gross tons, as compared with almost 85 million gross tons in 1957. Only 180 ore boats were put in service during the year to handle the reduced traffic, whereas in the previous year all 251 boats in the fleet were in commission. Autos 0 1 9 57 19 58 Steel production at Fourth District mills fluctuated during the year as it did at other steel mills; the effects of auto labor disputes in November, how ever, were particularly marked. Source of data: Derived from weekly operating rates com piled by STEEL magazine. 8 Under the dual impact of a general busi ness recession and shifting consumer demand, auto production in 1958 plummeted 30 per cent from the previous year to a total of about 4,250,000 units.(2) At this level, output was (2) As estimated in late December. Employment by auto, truck and parts manufac turers In Ohio reached a new high for the year in November. The chart also shows the effect of the Octo ber labor disputes upon employment. Employment in the industry in Ohio was sustained, to some extent, by the continued strong demand for auto replacement parts as well as by the good showing of ‘ ‘ independ ent” truck producers. In addition, a major new auto and truck assembly plant in Lorain, Ohio, commenced limited operation in May. By November, employment in that plant had expanded to 2,300 and production was aver aging 45 cars plus 15 trucks per hour. Rubier. The shifting fortunes of the auto industry had reverberations on associated M ACH IN E TOOLS Metal Cutting and M etal Forming Types M i l l i o n s of D o l l a r s 1957 1958 Source of data: Index based upon reports of the Division of Research and Statistics of the Ohio Bureau of Unemployment Compensation. not even as large as in some of the better years of several decades ago; it failed to match the 1929 figure, for example, by about a quarter million units. As the year progressed, auto output was cut back steadily in order to work off burden some retail inventories that had accumulated in the winter months. An extended model changeover period and subsequent labor dis putes further reduced production so that full scale output of 1959 models was not attained until November. In the meantime, however, retail inventories had been cut to the lowest level in many years, thus clearing the decks for the introduction of the new models. The drop in new car assembly, of course, had a sharp impact upon the important plants in Ohio associated with the motor vehicle and equipment parts industry. As shown by the accompanying chart, employment declined about 23 percent from late 1957 to mid summer; that was, however, a less drastic percentage decline than the fall in auto pro duction in the same period of time. 19 57 19 58 New orders for machine tools, as well as ship ments, dropped back In November to a point some what above the mid-summer low; the October bulge was due to anticipations of a price Increase. Source of data: National Machine Tool Builders Association. lines of manufacturing, especially on the rub ber industry which is centered in Ohio. Strong replacement demand for passenger car tires, however, helped rubber manufac turers to offset somewhat the severe slump in sales of original equipment tires to the auto industry. For the entire year, passenger car casing shipments are estimated at about 83.0 million units as compared with 90.2 million in 1957. Replacement tire shipments, however, rose more than 4 percent to a record total of 59.0 million units. Truck tire shipments also de clined with the smaller output of new trucks. The decline in tire shipments during the first half of 1958, combined with an industry effort to reduce factory inventories, had a marked effect upon employment in rubber factories in Ohio. By midyear, however, the downtrend was reversed and employment at year end was rising rapidly to supply new car demand and to replenish inventories. In November, employment by machinery manufac turers In the Fourth District was nearly 5 percent above the August low. Machinery The sharp reduction in business expendi tures for new plant and equipment which be gan in the final quarter of 1957 had a major impact upon the machine tool industry of the Fourth District. Net new orders for metal-forming and metal-cutting tools were down 60 percent in the first 11 months of 1958 as compared with the same period of 1957. As order backlogs became depleted, shipments were cut back even more sharply and for the 11-month period were down 63 percent from 1957. (See chart on preceding page.) The low point in order intake and ship ments was apparently reached in July. After that, orders moved irregularly upward. A temporary bulge in new orders in October reflected buying in anticipation of a Novem ber price increase by a portion of the in dustry. The upward trend of orders (coupled with a reduction in shipments from the level earlier in the year) resulted in stretching out order backlogs from a low of 2.5 months at mid-year to 2.9 months in November. Employment in the District’s nonelectrical and electrical machinery industries—as shown in the chart—was trending downward during 1957 and the first eight months of 1958. Towards the end of the year a moderate pick up became evident. Coal 1957 1958 Source of data: Index based upon reports of the Division of Research and Statistics of the Ohio Bureau of Unemployment Compensation and the Pennsylvania Bureau of Employment Security. 10 Coal mining activity throughout the nation was down nearly 21 percent from year-ago levels through the first 11 months of the year. In the Fourth Federal Reserve District, how ever, bituminous coal production was off 25 percent. The somewhat larger decline in the District is related to the larger importance of steel mills and other heavy industries as customers of the industry than is true for the nation as a whole. Electric power generation in the area also fell more sharply than elsewhere. During the year, two important innova tions occurred in Ohio that are likely to lead to broader markets for coal. First, the 108- an Ohio River barge terminal at East Liver pool to Youngstown, Ohio. The second development was the placing in service at Toledo of a new coal-loading facility than can pour 6,000 tons of coal an hour from railroad cars into lake or ocean vessels. It is reputed to be the largest and fastest coal dumper in the world and could open up an export market for coal mined in the Fourth District, upon the completion of the Seaway next spring. mile coal delivery pipeline extending from Cadiz to Cleveland was proclaimed a huge success. The line is now delivering 165 tons of slurry (fine coal suspended in water) per hour, 24 hours a day, 7 days a week. Over a million tons of coal have already been pumped through the line at substantial savings over rail or truck delivery costs. After drying, the powdered coal is burned by an electric utility. A new company has also been formed to study the feasibility of a 30-mile coal pipeline from NOTES ON FEDERAL RESERVE PUBLICATIONS Among the articles recently published in monthly business reviews of other Federal Reserve banks are: “ The Significance and Limitations of Free Reserves” , Federal Reserve Bank of New York, November 1958. “ The Federal Home Loan Bank System” , Federal Reserve Bank of New York, December 1958. “ Aid to Ailing Railroads” , Federal Reserve Bank of Chicago, December 1958. ‘ ‘ The Clothes-buying Man: More Lemming than Peacock ? ’ ’ Federal Reserve Bank of Philadelphia, November 1958. (Copies may be obtained by writing to the Federal Reserve Bank named in each case.) * # * • Recent statements on Federal Reserve policy and related matters include: “ Our American Economy” , by WILLIAM McC. MARTIN, Jr., Chairman, Board of Governors of the Federal Reserve System. (Remarks at meeting of the Executives Club of Chicago, December 12, 1958.) “ Monetary Misconceptions” , by C. CANBY BALDERSTON, Vice Chair man, Board of Governors of the Federal Reserve System. (Address to the Society of Chartered Life Underwriters, Hartford, Connecticut, November 6, 1958.) (Copies of these addresses are available at the Board of Governors of the Federal Reserve System, Washington 25, D. C.) 11 /3>ut*utd the tyau/UU jbUfriict-— SAVINGS DEPOSITS OF INDIVIDUALS (Outstanding a t commercial banks, end of November 1958) % change from year ago Lexington .................................... .... Canton ...................... .... Cincinnati ................ .... Erie ........................... .... Dayton ...................... .... Pittsburgh ................................ .... Akron ........................ .... Columbus .................................... .... Toledo ........................ .... Youngstown .............. .... Cleveland .................. .... Wheeling .................. +23 +14 +13 +10 + 9 + 9 + 7 + 5 + 4 + 2 + 2 no change FOURTH DISTRICT TOTAL ................ .... + 6 * * * * Total deposits at weekly reporting member banks of the Fourth District, as of December 24, were up 2% from a year ago. Investments were up 13%, while loans were down 2%. # # # # During November, bank debits at reporting banks in 32 cities of the Fourth District were about 5% below a year ago. Only two of the large cities posted year-to-year increases: Columbus, where debits were up 2%, and Cincinnati, where debits were up 1% from a year ago. * # * • About 33% of Fourth District department store sales during November took the form of cash sales; 50% of the sales volume was on charge account sales and the remaining 17% represented instalment sales. Cash sales were a slightly smaller percentage of the total than in the year-ago month, and instalment sales represented a larger fraction. * * # * Midway in December, the number of unemployment compensation claims in Cleveland was down about one-fourth from October, but about the same as in mid-November. (The above items are based on various series of District or local data, which are assem bled by this bank and distributed upon request in the form of mimeographed releases.) 12
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