The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY JULY 1951 CONTENTS The Role of Rubber, Wool, Burlap and T i n ........................................ 1 Trends in Credit Sales and Collections Keview . 5 Announcements..............................................10 Statistical T a b l e s ........................................ 11 Radioisotopes: Stimulants to Progress . 12 FINANCE • INDUSTRY • AGRICULTURE • TRADE FO U R TH Vol. 33— No. 7 FED ER A L R E SER V E DI STRI CT Federal Reserve Bank of Cleveland Cleveland 1, Ohio The Role of Rubber, Wool, Burlap and Tin for another six or eight weeks. A hypothetical index decline that has occurred in basic raw mate of the remaining 24 commodities, even with the inclu rial prices since February, erasing about onefourth of the 1950 “Korean” boom, is not infre sion of coffee, stopped just short of the postwar highquently cited as evidence that the danger of inflation water mark, and today is some 9 percent below the record of three years ago. is clearly past. The behavior of prices of these four commodities The validity of that evidence, however, rests some obviously is closely related to international develop what uneasily upon the behavior, past and prospec ments and, therefore, perhaps least predictable. They tive, of certain individual commodities rather than have also been affected by domestic stock-piling and upon the movement of the index as a wholS. price control policies, which likewise have been sub For some spectacular performers, the former post ject to considerations of national defense and rearmawar peaks proved to be only foothills in proportion rbent. to peaks reached during the Korean excitement. At the other extreme are a number of basic raw mate At the other extreme, (labeled “most abundant rials, whose best quotations in recent months still left commodities”, in a chart below) are five basic raw much to be desired in the minds of sellers. In fact the materials, with respect to most of which this country numerical majority of commodities, while by no is self-sufficient, that currently are selling far below means floundering at depressed levels, are neverthe their 1948 (or earlier) respective peaks. Thus far this less being bought and sold at prices strikingly below group has been relatively immune to the threat of the altitudes reached in the 1946-48 boom. More monetary or credit inflation. And it is difficult to over, there have been significant discrepancies since visualize a general resumption of the 1950-51 rise February in the reactions of individual commodities into new high ground next fall without participation during a period of declining prices. Whether inflation by this lagging group. By the same token, it is easy can be relegated to the background depends in the to imagine a continuation of the February-June de main upon the significance that is attached to this cline in the general index, if the world situation per diversity of movements. sists in obscuring the supply outlook for basic im ported materials. Perhaps the outstanding feature of the 1950-51 inflation of prices was the role played by rubber, wool, Whether competitive conditions are destined to burlap, and tin. These four imported commodities squeeze more water out of the present average level, were the prime movers in the advance, and it was or whether the 1951-to-date reaction will turn out to only because of their explosive rise that the wellhave been only something in the nature of a technical known index of 28 basic raw materials finally pierced reaction (in the broadest sense) depends largely the 1948 peak last December and continued upward upon foreign developments and the statistical position T jhe Page 2 Monthly Business Review of individual commodities. The picture with respect to certain important items is described below. Rubber has been the most spectacular of all major commodities. Heavy buying started at all levels after the Korean outbreak. Fifty million motor vehicle owners remembered the tire rationing of World War II. Tire manufacturers and other rubber product manufac turers recalled the practical nonexistence of natural rubber imports during the war and our own as well as other governments throughout the world stepped up stockpiling programs. The resultant frantic bidding for rubber sent the price soaring to 87.5 cents, the highest since the Stevenson Plan was operating in the early 1920!s. Subsequently, steps were taken to reopen synthetic rubber plants inoperative since the war and to re strict natural rubber consumption. Late in 1950 the General Services Administration became the sole im porter and seller of natural rubber. Much of the in flation was taken out of the rubber market. At a recent meeting in Rome of the International Rubber Study Group a world surplus of more than 20 percent above estimated rubber consumption was predicted. As a result of these developments and a ban on ship ments to Red China for the remainder of this year, world rubber prices have fallen well below G.S.A.’s price. Late in June the agency announced that effec tive July 1, its selling price will be lowered 14 cents to 52 cents a pound which is 40 percent below the November peak but 80 percent above pre-Korean prices and still above prevailing world quotations. World consumption of wool has been exceeding production since 1946, thanks to the huge surplus accumulated during the war. Last summer two events occurred which had drastic effects on the prices of wool. First, as the threat to this nation’s security be came clear following the outbreak of fighting in Korea, a large military expansion program was under taken which required among other things, large amounts of wool to clothe the armed forces. A wool stockpiling program was also undertaken. Second, the surplus stocks of wool built up during the war had been practically exhausted by late 1950 and consump tion demand still exceeded production. Prices in January soared to a record high of $4.35 per pound for wool tops at New York, more than double the price six months earlier. Uncertainty began to de velop, however, as to the future civilian demand for wool clothing at sharply advanced prices and manu facturers began to withdraw from the wool market. This factor, coupled with a slowdown in the Govern ment stockpiling program, finally turned prices down. They are now still about 50 percent higher than be fore Korea. Tin is almost exclusively a war casualty. This coun try is practically 1 0 0 percent dependent on imports July 1, 1951 “SCARCEST” COMMODITIES "Scarcest" Commodities . . . prices of four commodities from war-threatened areas rose to great heights after the Korean outbreak, reflecting uncertainty of supply. The composite price of the other 24 commodities (excluding rubber, wool, burlap, and tin) failed by a small margin to duplicate the 1948 peak. * The portion of the post-Korean rise directly attributable to rubber, wool, burlap, and tin. N O TE: Im ports shown in red on all charts. of the metal, the principal source being Malaya. On the assumption that a world war would seriously threaten our supply, increased demand for war and civilian production and for Government stockpiling led to speculation and high prices, whereupon the Government assumed the role of exclusive importer of tin and announced its intention to drive prices down by suspending purchases. Subsequently, quota tions declined 42 percent below the all-time high reached during February, but are still 36 percent higher than a year ago. The burlap supply was tightening before Korea but was obviously aggravated by that incident since this country is completely dependent on imports. The trouble really began when India, the principal pro ducer of burlap, devalued her currency, whereas Pakistan, grower of jute which is the raw material of burlap, did not. Exchange difficulties arose and Pakistan refused to ship jute in exchange for de valued Indian currency. A settlement was reached in July 1, 1951 Monthly Business Review February of this year. The supply situation did not improve immediately, however, because of transporta tion difficulties in Pakistan and previous commitments made for the old crop. In addition world demand for burlap continued strong and speculation ran high in Calcutta, where prices rose above ceilings in the U. S. Importers for many weeks were unable to purchase burlap for resale in the U. S. but subsequent regula tions here and developments in India have resulted in the resumption of trading. It will still be some time, however, until supply will be considered adequate in this country. The decline in coffee production in Brazil during the first half of the decade 1940-50 culminated in the exhaustion of that nation’s surplus stocks in the early postwar years. Production was then increased somewhat but adverse weather in 1949 resulted in a poor crop and sent prices soaring. The effect of the Korean war, in this instance, was largely indirect. The second group, the “moderately scarce” commodities, might be described as the most typical because they have followed most closely the movements of the average of the 28 commodities. These are the commodities demanded by high pro duction whether for civilian or military consumption, and prices of all six are hugging established ceilings. Hide prices rose sharply in expectation of greater military demands for leather goods, especially shoes. The size of the armed forces is an important factor since considerably more leather is required for mili tary than for civilian shoes. On the supply side cattle numbers are important. Should producers choose to market fewer cattle, or if fewer hides reach the legiti "Moderately Scarce" Commodities Page 3 mate market as during 1946, the hide supply would be seriously threatened. An unusually small cotton crop last year which resulted from sharply reduced plantings, bad weather, and the worst boll weevil infestation in many years, was quickly translated into a severe shortage immedi ately after Korea. With the new growing season, however, the supply side is improving as all estimates indicate this year’s crop will be at least 60 percent larger than last year’s. Steel scrap is scarce and will remain so as long as the steel industry continues to expand and operate at or above theoretical capacity but the price of scrap is ceiled at present levels by the Office of Price Stabili zation. Copper and zinc are in great demand but the supply is limited. Prices are also at their O.P.S. ceilings and consumption in certain classes of uses is limited or prohibited by the National Production Authority. Government stockpiling of these two metals is an important consideration. It has been estimated that as much as 2 0 percent of the current supply has been going into the stockpile. With respect to the price of steers, the cattle popu lation is at a record high but the continuous upward trend in personal incomes is affecting demand for beef. Recent official regulations call for a rollback from February peaks of nearly 20 percent in the prices packers may pay for cattle. Of the “moderately abundant” commodities only sugar has exceeded its 1948 peak. The remainder of the group although rising after Korea did not reach the 1948 peaks. With the possible ex "Moderately Abundant" Commodities “MODERATELY SCARCE” COMMODITIES “MODERATELY ABUNDANT” COMMODITIES because their price fluctuations closely resemble those of all 28 commodities combined (see dotted line in first chart above). Changes since February have been nominal, with cotton actually moving upward against the main current. . . . prices of these eight commodities also failed to reach new postwar peaks last winter, and likewise were a moder ating influence in a period of violent fluctuations. Declines since February, however, have been small, and one of the group (sugar) has risen against the trend. Page 4 Monthly Business Review ception of sugar, supplies of these commodities appear ample. The war scare prompted by the Korean incident last summer started both domestic and industrial consumers on a great sugar buying wave. A half-million-ton surplus in Cuba was promptly taken up and the year ended with a record distribution of sugar in the U. S. Heavy buying was resumed in May after a brief lull and the price hit a 27-year peak. Although 1951 production in Cuba exceeded last year’s output, about 90 percent of the crop has already been sold in the first third of the marketing year. The price is not controlled by O.P.S. because of statutory powers of the Department of Agriculture. However, inasmuch as this country is assured of a supply equal to last year’s record distribution there should be ample sugar, barring a new prolonged hoarding wave. Cocoa and shellac are both imported and concern about their availability if the fighting were to spread seems to have been the prime consideration. Con siderable inventory buying seems to have been largely responsible for the rise in prices. Lead, although charted with the “moderately abundant” commodities, is as scarce as are the other nonferrous metals. Its supply, however, did not tighten until early this year. Consequently, it was frozen well below its 1948 high. Higher incomes boosted demand for butter at the same time that increased fluid milk consumption re duced butter production somewhat. Margarine is an ever present substitute if butter prices get too high. The largest wheat carry-over in seven years plus winter and spring crops which are estimated to be large enough to satisfy both domestic and export de mand are holding prices considerably below 1948 levels. Even the prospect of exporting two million tons of wheat to India hardly had a noticeable effect on prices. More hogs are being raised than ever before with the result that they are well below the 1948 high prices. Plentiful supplies of pork helped ease the meat shortage when beef production was curtailed early in June. Demand for print cloth began to ease in March and inventories became heavy. Unless the military begins buying large quantities after the new fiscal year begins on July 1, not much revival of print cloth prices is expected. At present they are below recently established ceilings and even further below 1948. The final group, designated as “most abundant”, all of which are agricultural commodities, played the largest part in holding down the average "Most Abundant" Commodities July 1, 1951 “MOST ABUNDANT” COMMODITIES . . . even at the crest of the Korean buying wave, prices of these five agricultural commodities were still far below the high water marks of 1947-48. Because of declines since February, present prices are 36-50 percent below best post war levels, suggesting the dominance of deflationary forces for the period as a whole. of all the commodities and in preventing it from rising further. As herds of livestock expand, feed requirements also increase. This means com and other feed grain pro duction must continue to expand. The present near record carry-over of corn should help hold prices at or near present levels this year. Ample lard is available due to large hog produc tion. Cottonseed oil while less plentiful than last year has to compete with soybean oil. Last year’s record soybean crop eliminated any supply difficulties in this quarter. Tallow, used principally in soap making, lost much of its market when chemical detergents boomed in the postwar period. Large numbers of steers assure adequate supplies of tallow. Even the drying oil market has declined. Large inventories and Commodity Credit Corporation hold ings of about one year’s normal supply of linseed oil are holding flaxseed prices down. Thus it is possible to conjure up almost any desired frame of mind regarding the prospective behavior of commodity prices. Seldom in the history of com modity price measurement has there been so much diversity among the various components as was the case in the past year or so, ranging all the way from the com-fats-flaxseed group to such widely fluctuating commodities as rubber, wool, etc. Perhaps the most that can be expected is that henceforth the movement will be more leisurely and that there will be more uniformity among the various components. It is un likely that in the future the over-all index will be dominated by the behavior of only a handful of com modities. Monthly Business Review July 1, 1951 Page 5 Trends in Credit Sales and Collections h e large numbers of customers who thronged the stores during the buying sprees in July of 1950 and January of 1951 were not accompanied by a proportionately large amount of currency. Instead they came equipped with charge-a-plates and coupon books. Fully 63% of the July advance and 65% of the January advance in Fourth District department stores can be directly traced to credit buying. The habit of buying now and paying later has be come increasingly popular since the early 1930’s. As evidenced by the accompanying charts, the most recently compiled statistics indicate that the trend toward “buying on time” is continuing this year despite curbs on instalment credit. In the last month for which data are available, credit buying in one form or another accounted for 63.2% of the sales of local department stores, and in every month this year the proportion of cash sales to total sales has been smaller than the 1950 annual average. T Because of the many types of breakdowns available, the department store reports submitted to the Federal Re serve System afford a handy means of analyzing movements in credit buying. In the follow ing comparisons, however, it should be borne in mind that, despite the wide variety of department store lines, movements in such sales are not always typical of total retail sales. Charts I, II and III illustrate the variation in the relative importance of cash, charge and instalment sales in Fourth District department stores from 1940 through 1950. In the period immediately preceding World War II, cash sales typically amounted to about 38% of total sales. During the war years the volume of cash sales expanded rapidly in response to the mounting level of personal income. At the same time credit sales experienced only a mild advance, largely CHART II. INSTALMENT SALES AS A PERCENT OF TOTAL SALES PER C EN T PERCENT Department Stores as a Guide CHART I. CASH SALES AS A PERCENT OF TOTAL SALES P ER C E N T PERCENT . . . from a subnormal position during the war, instalment sales have expanded to a point where they represent 12 percent of total store sales, the largest share on record. * Based on first five months of the year. CHART III. CHARGE SALES AS A PERCENT OF TOTAL SALES PERC EN T P ERCEN T 80 60 40 20 . . . by wartime 1944, cash sales were accounting for nearly 55 percent of total store sales. More recently, however, the proportionate share has fallen to 36 percent, or less than the prewar ratio. . . . by 1949, charge account sales once more were back up to slightly better than 50 percent of total sales, and have held close to that “normal” figure up to the present time. * Based on first five months of the year. * Based on first five months of the year. Page 6 Monthly Business Review because of the unavailability of many of the so-called “big ticket” items which are customarily purchased on credit. This resulted in a substantial increase in the proportion of cash sales and in 1943, 1944 and 1945 such sales amounted to well over half the total sales volume. At the close of the war the trends were re versed and credit sales began to regain their prewar importance. The pent-up demand for consumer dura bles, buttressed by the largest housing boom in history, pushed sales of these articles to record heights and instalment sales rose accordingly. As a result the pro portion of cash sales shrunk steadily until in 1950 they represented only 37% of total department store sales. For the first five months of 1951 the proportion of cash sales was reduced to the smallest ratio on record, 36.2% of total sales. Within the general framework of credit sales there have been sub stantial differences in the move ments of instalments sales* or sales usually involving long-term obligations, and charge account sales**, sales involving shorter periods of indebtedness. Charge account sales registered a steady but slow rate of in crease throughout the war years. Instalment sales, on the other hand, were depressed nearly 40%, largely because of the previously mentioned shortage of hard goods. Beginning with 1946, however, when supply problems began to ease, instalment sales have shown consistently greater year-to-year increases than charge account sales (with the exception of 1949 when both types of sales registered similar drops). In 1950 the combination of scare buying and the housing boom pushed instalment sales 34% above the preceding year’s level while charge account sales were advanc ing 3%. One method of evaluating the behavior of credit sales during the past eleven years is presented in charts IV and V which show the actual course of charge account and instalment sales over the past eleven years plus an estimated movement which would have resulted had charge account and instal ment sales maintained a constant proportion of total sales. It is immediately evident that instalment ac counts fell farther behind than charge account sales during the war, that they took somewhat longer to make up the deficit, and that their gains in 1950 were substantially greater than those of charge ac counts. During the past nine or ten months, however, since the reinstitution of Regulation W, the relationship between instalment and charge account sales has been Charge vs Instalment Sales * For the purposes of this article instalment sales include the full amount of any sales in which the purchaser agrees to pay the unpaid balance in two or more parts on specified dates. Down payments and trade-ins are included but sales and excise taxes are excluded. ** Charge account sales include all open account sales excluding sales and excise taxes. July 1, 1951 CHART IV. ESTIMATED AND ACTUAL INDEXES OF CHARGE SALES = 1941 100 = 1941 100 . . . at no time during the past eleven years have charge account sales deviated far from the prewar ratio to total sales, although the tendency since 1945 has been toward an increasing percentage. CHART V. ESTIMATED AND ACTUAL INDEXES OF INSTALMENT SALES 1941*100 1941*100 . . . if instalment sales had followed the 1940-41 propor tionate share of total sales over the past eleven years, they would have been much larger during the war, and con siderably smaller last year, than was actually the case. reversed. As shown in chart VI, the falling off in instalment sales since September, when seasonal varia tion is taken into consideration, has been much more severe than the decline in charge account sales. This is largely attributable to the fact that hard goods sales make up a considerably bigger percentage of instal ment sales than of charge account sales and, except for a brief spurt in January, recent sales of hard goods have evinced a steady downward trend. Sales of hard goods have undergone considerably greater fluctua tions than sales of soft goods since the war, and there has been a high correlation be tween these fluctuations and the fluctuations of instal Hard Goods and Instalment Sales July 1, 1951 Monthly Business Review ment sales. They both experienced the same wartime depression and postwar expansion; in the present downward drift they are still highly interrelated. The only important difference between the two in long term analyses is that there has been a tendency toward greater growth in instalment credit than in total con sumer expenditures for durable goods. In past years the principal determinant of the de mand for hard goods has been disposable income and this is probably still the case under more normal economic conditions. In the last twelve months, how ever, sales of hard goods seem to have been deter mined mainly by the confidence (or lack of it) of the consumer in the future availability of merchandise. The July and January buying sprees were directly related to events which indicated to many that the abundance of such items as appliances and television sets might be of limited duration, and the current tapering off in sales follows better news from Korea. Of course there are many additional factors in volved in the current easing of demand for hard goods and the resultant easing of instalment sales. One of the more frequently cited causes is the imposition of price controls which allayed, to a large extent, con sumer fears of rapidly increasing prices. Another im portant influence is the reduction, and in some cases the disappearance of the backlog in demand for con sumer durables. Still a third element is the slowing of the residential housing boom and the consequent reduction in the need to purchase furniture, appli ances, television sets and housewares. A final factor of considerable importance is the effect of Regula tion W. Regulation W was first introduced W in September of 1941 to conserve materials and to check the inflation which was then in progress. At its inception it covered only instalment sales, but on May 6 , 1942, the cover age was extended to take in charge accounts. The wartime curtailment in production of consumer durables obscured the results of the Regulation to a large extent, but it is significant that both instalment and charge account sales rose sharply the month be fore the Regulation became operative and fell off sharply during the first month of its existence. At the termination of the war, with the need to conserve materials past and the high level of con sumer savings and income more than sufficient to consume the available supply of merchandise, the controls were relaxed. On December 1, 1946, charge account sales were freed from controls and about a year later, on November 1, 1947, the Regulation was completely lifted. Charge account sales moved steadily upward throughout 1947 and 1948, while instalment sales responded to the removal of controls with a sharp upward spurt in early 1948. Effects of Regulation Page 7 CHART VI. MONTHLY INSTALMENT AND CHARGE ACCOUNT SALES (Seasonally Adjusted) 1941=100 1941=100 . . . instalment sales are now substantially below last Sep tember’s level, whereas in contrast, charge account sales are still approximately as large as in September. The Regulation was reimposed on September 20, 1948, insofar as instalment credit was concerned. Once again instalment sales in local department stores trended downward. The subsequent recession caused the controls to be short lived; terms were relaxed in several steps during the first half of 1949. Then came the Korean conflict and the Regulation was once more invoked on September 18, 1950, to help stem the tide of inflation. Again the course of instalment sales became a declining one and, with the exception of the January sales spurt, the downdrift has continued until the present date. The exact contribution of Regulation W in curbing credit sales cannot be isolated from other important influences on such sales; it may be said, however, that in the past credit sales have generally lagged behind cash sales during periods in which controls were in effect and similarly, that sales of hard goods lines have fallen behind those of nondurable goods when hard goods alone have been under controls. Regulation W has undoubtedly had some retarding effects upon the sales of soft goods as well as upon those of hard goods. When the Regulation first went into operation many merchants expected their non durable products to benefit substantially from the curtailment of hard goods sales. They believed that a large proportion of the money which could not be spent for the higher priced hard goods lines would naturally flow into sales of less expensive soft goods items. As it has turned out, however, Regulation W has not been an unmixed blessing for nondurables. The demand for appliances and like products in the last half of 1950 was so strong that many people were willing to forego normal purchases of soft goods so that they would be able to meet the terms of the Monthly Business Review Page 8 Regulation and obtain hard goods which they felt might not be available at a later date. In the last analysis the restrictions on consumer credit appear to have had a net retarding influence on the expansion of credit sales in Fourth District depart ment stores. Down payments have been increased somewhat, terms have been shortened and the rate of repayments has increased. However small this con tribution may have been it is a positive element in the fight against inflation. One of the most frequently asked questions in the consumer credit field at the present time is “How are collec tions holding up?” for it is in this field that the first evidence of a change is frequently sought. When con sumers run short of money they tend to postpone payment of bills and this fact shows itself in the col lection figures which are compiled and released each month for Fourth District department stores. Chart V II presents a record of average annual col lections on instalment and charge accounts expressed as percentages of outstandings. In order to facilitate comparisons between the two series they have been transposed into index form with the collection ratios of the year 1941 used as the base. It is clear that collections increased quite sharply during the war years. The relatively high level during that period is in large part the result of the abundance of purchasing power due to the combination of high wages with rationing and other forms of controls which curtailed the rate of spending. Since the end of the war, however, the ratio of collections to receiva bles has been steadily declining. Once again instalment accounts and charge ac- Trends in Collections CHART VII. CHARGE AND INSTALMENT COLLECTIONS (Seasonally Adjusted) 1 94 1= 10 0 19 41 -1 00 '42 '43 ’44 ’4 5 ’46 *47 '48 *49 '5 0 *5 ! . . . the rate of collections on instalment accounts is as satisfactory now as it was last September, whereas collec tions on charge accounts are still in a slowly declining trend. July 1, 1951 counts show a disparate behavior. Collections on in stalment accounts rose at a much more rapid rate than charge account collections in the war years and have fallen off more rapidly since the war’s end. The relatively high rate of instalment collections during the war is attributable to several factors, most impor tant of which was the changing product-mix of instal ment sales. Appliances and other large metal-using articles were extremely hard to obtain and con sequently instalment sales of clothing and other relatively plentiful items bulked large in the instal ment sales aggregate. Since the term of payment is generally shorter in clothing sales than in hard goods lines, the instalment collection ratio appeared to be more favorable than the charge account ratio. Both charge and instalment collections seem to have been affected by the ample supply of cash in the hands of consumers and the reduced opportunities of using it. Since the reimposition of Regulation W last Sep tember there is evidence that the postwar trends have been reversed. Instalment collections have steadied after a sharp decline and have even shown some signs of picking up. Charge account collections, on the other hand, appeared to be continuing their down ward trend. When sales rise and collections lag, the natural end result is an increase in accounts receivable. This is generally true for charge account sales where the length of term is relatively short, but when comparing data on instal ment accounts the greater length of term is apt to cause some confusion. Because each month’s volume of instalment sales is independent of the preceding month’s volume, whereas a relatively large part of the instalment receivables are carried over from month to month, comparisons between periods which are several months apart are sometimes misleading. It is entirely possible to have a downtrend in sales, an uptrend in collections and still have a net upward movement in receivables if one month’s sales are sufficiently strong to raise the level of receivables a substantial amount. With this fact in mind it is appropriate to examine the relationships between receivables and sales as pre sented in charts V III and IX. Both instalment and charge account receivables fell somewhat behind their respective sales totals during the war period but this deficit was made up gradually after the war. Instalment receivables did not lag so far behind instalment sales as charge receivables behind charge sales because the unusually low volume of instalment sales offset the comparatively more rapid repayment of instalment accounts. For the same reason the volume of instalment receivables did not fall behind so fast as did charge receivables and was able to over take instalment sales more rapidly. Receivables July 1, 1951 Monthly Business Review CHART VIII. INSTALMENT RECEIVABLES AND SALES (Seasonally Adjusted) Page 9 CHART IX. CHARGE ACCOUNT RECEIVABLES AND SALES (Seasonally Adjusted) 1941 =100 1941 =100 . . . 1951 may bring a repetition of the unusual 1949 pat tern, wherein commitments from earlier years forced re ceivables upward while sales were declining. . . . charge account receivables follow the course of sales more closely than do instalment sales because of the shorter length of terms. In recent months charge account receivables have remained on a par with charge account sales, while instalment receivables are relatively higher than in stalment sales due to the lasting effects of the Janu ary buying spree. Collections on instalment accounts are improving and should continue to do so as defense wages begin to be felt in the market. Instalment receivables show signs of declining and, barring another consumer buy ing spree, will probably contract to some extent. The course of charge account sales is somewhat more obscure, but if the international picture remains unchanged and Regulation W is not extended to cover charge accounts, by year-end the predominant movement should be upward. With a probable growth in total disposable income, collections can be expected to improve and, correspondingly, receivables should become smaller. ^ seems likely that the turning point has been reached in credit developments. Instalment sales are headed downward and the government cutbacks in the amount of steel available for makers of consumer durables will probably ac centuate this movement toward the end of the year. Prospects Monthly Business Review Page 10 ANNOUNCEMENTS Note: On June 6 the Voluntary Credit Restraint Com mittee adopted the following statement of policy, desig nated as Bulletin No. 4, with respect to real estate credit. Contents of Bulletin Nos. 1, 2, and 3 may be found on page 8 of the June issue of the Monthly Business Review. Real estate credit transactions governed by Regu lation X, which covers the permanent financing of most new construction and major additions or im provements to existing structures, are not normally within the area of influence of this voluntary pro gram. Neither does the Program apply to FHA or VA loans or to other loans guaranteed or insured or authorized as to purpose by an agency of the United States Government. The Program does apply, how ever, to all other real estate credit transactions. Financing institutions extending such credit are urged to observe the principles and the spirit of the Pro gram. For the guidance of financing institutions in grant ing real estate credit encompassed by the voluntary program, the national Committee makes the follow ing recommendations: 1. Loans on Residential Property (1 to 4 Family Units). The Committee has been in formed that most financing institutions are following conservative lending policies on exist ing residential properties (1 to 4 family units). The Committee urges all financing institutions to follow such policies and in no case to make a loan on existing property in an amount which would cause the total amount of credit outstand ing (primary and all other credit com bined) with respect to the property or with respect to the transaction to exceed the limits which Regu lation X imposes as to new construction. 2. Loans on Agricultural Property. While the Committee recognizes that in some instances a loan on agricultural property may be in effect a loan on residential property, the Committee feels that normally such a loan falls in the cate gory of a loan on commercial property (see sec tion 3 below), and the lender should be guided by the recommendations of that section as to over-all credit limits and purposes. 3. Loans on Residential Property (more than 4 Family Units) and on Commercial Property. Loans on residential property (more than 4 family units) and loans on commercial property such as office buildings, stores, hotels, motels, motor courts, restaurants, etc., should be screened as to purpose and the loan should not be made unless it is in harmony with the princi ples of the Program. If the loan is to be made in connection with a sale of commercial or resi dential property a determination by the financ ing institution that the sale and the sale price July 1, 1951 are bona fide may constitute a sufficient screen ing of the loan. The Committee conceives that it is not the function of the Voluntary Credit Restraint Pro gram to make the transfer of real estate impossi ble or impracticable, but rather to reduce inflationary pressures by limiting the amount of additional credit created in the process of real estate transfer. Financing institutions are urged to limit a loan, on any type of property described in this section, whether or not a sale is involved, to an amount which would not cause the total amount of credit outstanding with respect to the prop erty or with respect to the transaction 1 to exceed 662/i per cent of the fair value of the property .2 Also, the Committee urges that financing institu tions require an appropriate and substantial amortization of principal. The Committee recognizes that hardship cases may arise where a 6 6 3 /3 per cent loan limitation would not be sound or equitable. Such cases would include a loan to finance the sale of prop erty to close an estate or to pay estate taxes, the refinancing of a maturing mortgage, or the sale of property of a bankrupt company. The com mittee makes no recommendation in such cases. 4. Loans on Industrial Property. Loans on industrial property should be screened as to pur pose whether or not the loan is to be made in connection with a sale of real property. In this instance, however, there appears to be no need for a percentage limitation on the amount of the loan, since in the industrial field mortgage security usually is merely one of the factors con sidered by the lender in determining whether to make the loan and often bears comparatively little relation to the amount of the loan. 5. Sale-Lease Back Arrangements. The Committee also urges financing institutions to recognize that in most instances a “sale-lease back” arrangement, whereby real property is purchased by a financing institution and leased to the vendor or his nominee, is a substitute for a form of financing and therefore comes within the Program and should be screened as to pur pose. 1 If the facts are not already known, the financing institution pre sumably will want to request the borrower to furnish information as to any other indebtedness or credit existing or contemplated in connec tion with the transaction. 2 “Fair value” as used here means: 1. If the loan is to be made to finance the purchase of real property: the bona fide sale price, or the appraised value of the property securing the loan, whichever is lower; 2. In all other cases: the appraised value of the property securing the loan. The appraised value should be determined in accordance with sound and established practice in the community. A good definition of “bona fide sale price” is given in section 2 (j) of Regulation X. Monthly Business Review July 1, 1951 Page 11 FINANCIAL AND OTHER BUSINESS STATISTICS Time Deposits at 55 Banks in 12 Fourth District Cities (Compiled June 6, and released for publication June 7) Average Weekly Change During: City and Number Time Deposits May April May of Banks May 29, 1951 1951 1951 1950 Cleveland (4)............. .$ 871,815,000 +$ 750,000 +$ 19,000 —$941,000 Pittsburgh (9)............ . 487.627.000H + 342,000 317,000r + 509,000 Cincinnati (8)............... 176,399,000 58,000 + 572,000 — 110,000 Akron (3).................... 99,637,000 + 168,000 + 25,000 — 87,000 Toledo (4)................... . 106,884,000H + 11,000 + 230,000 — 66,000 Columbus (3)............. 86.765.000H + 87,000 + 98,000 — 122,000 Youngstown (3)......... 61,786,000 + 24,000 + 66,000 — 22,000 Dayton (3).................. 45,276,000 + 87,000 + 201,000 — 81,000 Canton (5).................. 41,891,000 + 82,000 + 81,000 + 23,000 Erie (3)........................ 41,034,000 + 20,000 + 55,000 + 43,000 Wheeling (5)............... 26,397,000 34,000 + 55,000 — 32,000 Lexington (5).............. 10,783,000 + 11,000 + 31,000 — 5,000 TOTAL—12 Cities. .$2,056,294,000 +$1,490,000 +$l,750,000r —$891,000 H—Denotes new all-time high. r—revised Time deposits at reporting banks in 12 Fourth District cities increased last month at an average weekly rate of nearly WYi million, the largest increase for any May in the postwar period. This marked the second consecutive month of expansion, and was in contrast to rates of decline approaching $1 million per week in May of 1950 and 1949. At the end of the month, total time deposits, $2,056,294,000, were only 0.4 percent below the year-ago figure. Most of the cities and about two-thirds of the banks reported a net inflow of deposits during May. Cleveland was predominant with a contra-seasonal expansion averaging $750,000 per week, the sharpest gain, excluding the seasonal rise in sav ings accounts in December, since mid-1948. Pittsburgh, Toledo and Columbus, where the post-Korean buying wave was re flected in only a slight degree in time deposits last year, registered further incre ments to establish new all-time high levels. However, Pittsburgh’s rate of gain continued to be somewhat slower than in the corresponding month of 1950, as has been the case in each month this year. Cincinnati and Wheeling were the only cities to report a contraction of time deposits in May, and a moderate shrinkage in such accounts in that month is usual at these cities. Adjusted Weekly Index of Department Store Sales* Fourth District (Weeks ending on dates shown, 1935-39 average = 100) 1950r Jan. 7 .... 14.... 21.... 2 8.... Feb. 4 .... 11.... 18.... 25.... Mar. 4 11 18 25 , Apr. 1 .... 8 .... 15.... 22.... 29.... May 6 .... 13.... 20.... 27 June 3 10.... 17.... 2 4.... 1951 278 31(1 320 308 293 308 279 255 258 279 264 263 285 m m 283 334 299 296 299 295 295 814 309 306 Jan. Feb. Mar. Apr. May June 6 ... 13... 20 27 3 10... 17... 24... 3 10 17 24 31 7 14... 21 28 5 12 19 26 2 ... 42ft 412 443 398 287 359 354 365 302 293 m 251 293 m 311 35!3 358 336 313 313 312 .309 311 304 312 1950r July 1 327 8 ...322 354 n2915 388 418 Aug. 5 374 1!? 344 19 330 2fi 323 ?, m 9 324 16 345 23 318 30 335 Oct. 7 297 14 307 21 287 28 298 Nov. 4 280 11 281 18 288 221 25 195 Dec. 2 9 328 16 334 23 314 30 342 1951 July 7. 14. 21 . 28. Aug. 4. 11. 18. 25. Sept. 1. 8. 15. 22. 29. Oct. 6. 13. 20. 27. Nov. 3. 10 . 17. 24. Dec. 1. 8. 15. 22. 29. 9 ... 16 23 30. * Adjusted for seasonal variation and number of trading days. Based on sample of weeklyforreporting stores which differs slightly from sample reporting monthly. Digitized FRASER Bank Debits*— May 1951 in 31 Fourth District Cities (In thousands of dollars) ___________ (Compiled June 14, and released for publication June 15)___________ No. of % Change 3 Months % Change Reporting May from Ended from Banks__________________________ 1951_____ Year Ago May 1951 Year Ago 185 ALL 31 CENTERS...............$9,439,976 +25.8% $28,751,352H +32.1% 10 LARGEST CENTERS: 5 Akron............................... Ohio 369.053H +59.9% 1,081,790H +53.6% 5 Canton..............................Ohio 144,591 +18.0 440.652H +27.0 15 Cincinnati........................Ohio 1,138,572 +19.7 3,406,122 +24.8 10 Cleveland.........................Ohio 2,389,867 +25.7 7,454,768H +37.3 7 Columbus........................Ohio 643,527 + 7.8 1,895,528H + 9.4 4 Dayton.............................Ohio 296,734 +22.5 908.457H +29.2 6 Toledo..............................Ohio 447,793 +29.1 1.360.621H +28.5 4 Youngstown.................... Ohio 209,837 +27.2 628.089H +30.9 6 Erie...............................Penna. 115,201 +22.2 347.765H +27.9 46 Pittsburgh....................Penna. 2,894,735 +32.3 8.840.294H +39.4 107 TOTAL.................................$8,649,910 +26.5% $26,364,086H +33.2% 21 OTHER CENTERS: 9 Covington-Newport........ Ky.$ 45,875 + 9.3% $ 135,661 + 8.9% 6 Lexington.......................... Ky. 60,671 + 1.9 197,833 + 7.3 3 Elyria...............................Ohio 27,480 +30.5 82.506H +33.9 149.856H +26.6 3 Hamilton.........................Ohio 50,265 +16.7 2 Lima.................................Ohio 59,111 +29.8 179.474H +34.7 5 Lorain...............................Ohio 21,608 +18.6 62,402 +22.1 4 Mansfield.........................Ohio 56,384 +24.4 172.648H +27.9 2 Middletown.....................Ohio 49,033 +32.6 142,358 +22.7 3 Portsmouth.....................Ohio 24,480 +18.5 73.600H +17.1 167.267H +22.1 3 Springfield.......................Ohio 53,268 +15.8 4 Steubenville....................Ohio 28,032 +22.1 83.367H +21.4 2 Warren............................. Ohio 52,483 +27.6 158.573H +33.5 3 Zanesville........................Ohio 33.502H +19.2 97.044H +15.6 3 Butler........................... Penna. 38,368 +19.0 113.311H +26.2 1 Franklin........................Penna. 8,231 +17.6 24.927H +23.3 2 Greensburg.................. Penna. 25,732 +21.5 76.251H +23.1 4 Kittanning....................Penna. 11,969 +21.0 36.832H +34.7 3 Meadville..................... Penna. 15,538 +13.7 46.477H +17.9 4 Oil City........................Penna. 19,346 + 5.1 59,038 + 6.2 99,543 +21.1 5 Sharon.......................... Penna. 34,548 +24.0 6 Wheeling...................... W. Va. 74,142 +13.6 228,298 +19.0 78 TOTAL.................................$ 790,066 +18.6% $ 2,387,266 +21.6% * Debits to all deposit accounts except interbank balances. H—Denotes all-time high. Debits to deposit accounts (except interbank) in 31 Fourth District cities totalled $9,439,976,000 in May, approximately; the same as in the previous month, and 25.8% more than in May last year. It is usual for May debit volume to be equal to or slightly less than the April figure. The year-to-year margin of gain was the smallest (percentagewise) for any month this year, reflecting the fact that deposit activity was in a sharply rising trend a year ago. The rate of deposit turnover re mained virtually the same as in April at just over 13 times per year, in contrast to the 10H rate for May 1948. TEN LARGEST CENTERS Debits at the large centers in May were 26.5% in excess of the year-ago figure and 48% above the May 1948 volume. For the past three months combined, debits at the large centers posted a new all-time high, although the year-to-year incre ment of 33.2% was less than that registered for the three months ending April or March. All large cities except Cincinnati recorded all-time highs for the latest threemonth period, with year-to-year margins generally in excess of 25%. For the third time this year, Akron led in year-to-year comparisons with May debits 59.9% more than in the same month of 1950. Pittsburgh also continued to rank high with a year-to-year margin of 32.3%, followed closely by Toledo, Youngs town, and Cleveland, each of which reported gains of more than 25% over the yearago figure. TWENTY-ONE SMALLER CENTERS] Although debits at the small centers were higher in May than in the preceding month, in contrast to the slight decline at the large centers, the year-to-year gain of 18.6% continued to be substantially less than that of the large centers. More than half the small centers reported year-to-year increments of between 15% and 25%. Middletown, Elyria, and Lima, however, scored gains of approxi mately 30% or more. The latter two cities, together with Kittanning and Warren, were leaders in year-to-year comparisons for the combined total of March, April and May debits, with increases of between 33% and 35%. Two-thirds of the small centers registered new all-time highs for the three-month period. Indexes of Department Store Sales and Stocks Daily Average for 1935-1939= 100 Adjusted for Without Seasonal Variation Seasonal Adjustment May April May May April May __________________________ 1951 1951 1950 1951 1951 1950 SALES: Akron (6)...............................322 339 310 312 295 301 Canton (5)............................ .409 399 385 405 363 382 Cincinnati (8)........................319 325 313 319 299 313 Cleveland (11)..................... .297 289 280 288 275 271 Columbus (5)........................345 379 339 328 338 322 Erie (4)................................. .362 379 353 344 349 335 Pittsburgh (8).......................272 291 274 272 274 274 Springfield (3).......................283 282 284 283 262 284 Toledo (6)..............................299 310 287 290 291 279 Wheeling (6)..........................257 244 255 252 219 250 Youngstown (3)................... .360 367 326 349 337 316 District (98)..........................309 323 299 306 297 296 sto c k s* District................................. 380 395 280 383 401 283 Monthly Business Review Page 12 July 1, 1951 Radioisotopes: Stimulants to Progress by CLYDE WILLIAMS, Director, Battelle Memorial Institute The desire for higher standards of living in the world, along with present defense mobilization, is placing unprecedented d e m a n d upon industry for more products, better products, and more efficient use of raw material and labor re sources. More widespread applica tion of a new research and produc tion tool promises to play a unique role in meeting these demands. This tool is the use of radioisotopes, that is, those atoms of an element, such as iron or phosphorus, that give off radiations measur able by instruments like the Geiger counter. The radiations given off by radioisotopes provide a means of detection millions to billions times more sensi tive than any other physical or chemical tool previously at man’s disposal. As one result, a component of a mate rial “tagged” with a radioisotope can be followed through a complicated chemical or physical process, irrespective of all other components. As another result, the amount of radiation penetrating a given material enables measure ment of extremely small differences in the thickness of materials. Medical science has so far taken the greatest advantage of radioactive techniques. Remarkable discoveries in the treatment of such diseases as cancer and brain tumors have resulted. Within the past year or two, however, a decided upswing in use of radioisotopes by industry has brought us to the threshold of similarly important industrial dis coveries. In both cases, an important factor in the increas ing use of radioisotopes is their greater availability at lower cost, since the Atomic Energy Commission began supplying radioactive materials to qualified applicants in 1946. A great variety of industrial problems may be attacked with this new tool. Typical present and potential uses in clude investigations of the wearing qualities of waxes and paints; the role of sulphur in vulcanizing; the causes of uneven dyeing of fabrics; the extent of engine wear under varying lubrication; what happens in cracking, polymeriza tion, and other chemical processes; the measurement of extremely small differences in the thickness of materials; and the uptake of fertilizers by plants. One of the outstanding current applications is in the study of engine wear and lubrication. This work may eventually lead to the production of better lubricants, as Editor’s Note:—W hile the views expressed on this page are not neces sarily those of this bank, the M onthly Business Review is pleased to make this space available for the discussion of significant developments in industrial research. well as to the better design of diesel, automotive, and air craft engines. After “tagging” a piston ring with a radio isotope, some of the radioactive atoms will be transferred from the piston ring to the oil during the motor’s opera tion. Periodic sampling and radioactive analysis of the oil lubricant will show just how much the ring is wearing away by friction. During the motor’s operation, radioactive atoms will also be transferred from the piston ring to the cylinder wall. By placing a photographic film against the inside surface of the cylinder wall, the radioactivity col lected there will expose the photographic plate and show the regions of the ring’s greatest wear. Tests such as these that previously required several weeks can now be done with more accuracy in a few hours to a few days. Another type of application makes use of radioisotopes for production control purposes. Minute variations (.000015 inch) in the thickness of such materials as paper, plastics, and rubber may be measured readily. The material to be measured is placed between a capsule containing a radio isotope and a radiation detector or thickness gage. The absorption of the radiation by the material may then be measured by the radiation detector to indicate the thick ness of the material. Radioactive methods are leading to important discoveries in soil nutrition. Significant increases in the world’s agri cultural productivity may consequently result. Phosphate fertilizer “tagged” with radioactive phosphorus, for exam ple, permits investigators to determine how much phos phorus is taken in by a plant as well as where it came from. Their findings may then provide the basis for evalu ating the efficiency of the fertilizer, the best place to locate it with reference to the position of the plant, and the length of its beneficial effects on crop yields. The most serious problem retarding the more expansive use of radioisotopes by industry is the lack of trained per sonnel. When satisfactory technicians are available, most of the other problems, such as proper handling facilities and fear of personal injury from radiation, become minor in nature. Many of the universities have organized courses in radio chemistry and nuclear physics since World War II. Short courses in radioactive techniques are given by the Atomic Energy Commission at the Oak Ridge Institute of Nuclear Studies. Representatives of industry may be sent to these institutions for training. The use of radioisotopes for industrial applications will become increasingly popular in a few years. As a research and production control tool, they extend our ability to in vestigate complicated processes and to study extremely low concentrations of materials. They should consequently aid industry in unraveling the mysteries of many of its un solved problems.
@FedFRASER