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— B i M u o O N T H im L Y _ M — K e IN THIS t/e . . . . Commodity Prices After Two Postwar C y c l e s ............................. flu lc f, t $ 5 4 J ISSUE Cross Currents of Retail Trade FEDERAL RESERVE BANK of CLEVELAND— u . 3 7 A New Approach to Cost Control . . . 14 Announcem ents.................................. . 15 INDEX 1 9 4 7 -4 9 = 1 0 0 SPOT M ARKET PR IC ES i CONSUMER . PRICfeS. WHOLESALE* k P R IC E S . S p o t m arket p rice s have run through tw o sw eeping c y c le s betw een 1946 and la te 7953. Movements o f w holesale p rice s and consum er p rice s have been com p a ra tiv e ly sluggish. 1946 1947 1948 1949 1950 1951 1952 >953 1954 Additional copies of any issue of the MONTHLY BUSINESS REVIEW may be obtained from the Re search Department, Federal Reserve Bank of Cleve land, Cleveland 1, Ohio. Permission is granted to reproduce any material in this publication. Cross Currents of Retail Trade in the United States have cant segments of total retail sales. An ac been pointing upward in recent months, companying ratio chart shows the course of Rvreversing a declining trend which had been automotive sales over the past two and onee ta il s a le s in evidence throughout the last half of 1953. During January of this year, when the re cent downslide reached its low point, total retail sales (seasonally adjusted) were 6 per cent below the peak volume of the preceding July. By April, adjusted sales had increased 5 percent from January, and were only one percent below last July’s peak. Advance reports for May indicate that total sales for the month were off from the preceding month on a seasonally adjusted basis, but only by about one percent. The recent gains in retail sales, however, have not occurred as a steady increase in each month of the year to date. On the con trary, during March, and again in May, sales slipped a little following sizable gains in each of the preceding months. Even though the results of total retail trade during recent months may be sugges tive of a rising tempo of business activity generally, it must be remembered that this trend in total sales has not been representa tive of all lines of consumer goods. Further more, it cannot be assumed that each geo graphical area of the country has shared equally in the rise. In order that some of these variations in retail sales may be brought into focus, data on recent activity in certain lines of retail trade, both for the United States as a whole and for the Fourth Federal Reserve District, are presented below. Automobile Sales Gain Sales of automobiles and other automotive products constitute one of the most signifi half years. The line on the upper half of the chart indicates the seasonally adjusted monthly volume of sales by all automotive dealers in the United States, while the line A djusted sales by autom otive dealers have been increasing since Ja n u a ry 1954, when such sales w ere at a sixteen-m onth low. (!) On a ratio chart, vertical lines of equal length rep resent equal ratios (or percent changes) between the points connected by the lines. This is in contrast to the more familiar arithmetic chart where vertical lines of equal length represent equal magnitudes. on the lower half of the chart indicates the number of new cars registered each month in Cleveland, Ohio — also seasonally ad justed. (Data for Cleveland have been se lected for this comparison because of lack of figures for the Fourth District as a whole.) Although the U. S. series is based on dollar sales, mainly of new and used autos(2), while the Cleveland series is based upon number of autos sold, a rough comparison of short term changes in the two series is possible. In spite of some differences in coverage besides the geographical one, a striking simi larity can be observed between movements of the two lines on the auto chart. In 1952, sales both in Cleveland and in the nation reached a low point during August, mainly as a result of the influence of the steel strike on supplies. Both indicators then rose and fell during the next 16 months, reaching a low point again in January 1954. For the United States, the peak month of adjusted automotive sales came in February 1953, while for Cleveland the peak was reached two months later—in April. Since last January, both series have shown a strong tendency to rise. In respect to percentage gain, the up turn in Cleveland since January has been greater than the national gain. Department Store Sales Decline A second accompanying chart indicates the course of seasonally adjusted monthly de partment store sales for the past two and one-half years, both in the United States as a whole and in the Fourth District. Depart ment store sales, nationally, have shown a slightly declining trend in recent months, and by May the seasonally adjusted sales level stood 7 percent under the peak reached a year earlier. This is indicated by the green line on the chart. For the Fourth District, on the other hand, department store sales ( 2 ) There are several differences in coverage between the two series. The U. S. series includes sales of both new and used cars, and auto accessories, as well as services provided by automotive dealers. The Cleveland series, on the other hand, is limited to new car sales. Furthermore, the U. S. series should tend to be smoother than the Cleve land series because of the larger totals involved and the more numerous offsetting influences coincident with the greater area covered. 4 Departm ent store sales, both nationally and in this D istrict, have fa ile d to re co ve r ground lost e a rlie r this year. Seasonally Adjusted I Indexes (1947-49=100) 140 D E P A R T M E N T ST O RE S A L E S 120 U. S. 100 FOU RTH D I S T R IC T 80 60 1952 1953 I 954 have fallen off sharply in the months since last August, when adjusted sales reached a peak. (See black line on chart.) May sales in the District were about 18 percent below the August peak. Certain local situations in the past year have contributed to the greater decline in Fourth District department store sales as compared with the U. S. sales picture. One important factor has been a prolonged strike of delivery workers against the Pittsburgh department stores. Adverse weather condi tions during March this year also took a relatively greater toll of Fourth District sales than of national sales. Department store sales in recent months have shown a striking contrast to automobile sales, both in this District and in the nation. While Cleveland auto sales have shown some what greater percentage gains so far in the current year than has been the case for the United States, as previously indicated, de partment stores in the Fourth District have shown a greater percentage sales decline than the national total. Wearing Apparel Sales Down Sales of men’s and women’s wearing ap parel by department stores have been run ning below the 1953 average so far this year, both in the Fourth District and in the na tion. This is indicated on an acompanying chart in which the seasonally adjusted monthly sales index for the United States is shown in green and that for the Fourth District is shown in black. In the case of the Fourth District, the reduction in wearing apparel sales so far this year as compared with last year has been larger than that shown for the nation. However, sales in the Fourth District during 1953 had been at a higher level in relation to the 1947-49 aver age than was the case for the United States.(3) Thus far in the current year, sales indexes for both the U. S. and the Fourth District, based on the 1947-49 average, are at about the same level. A factor in the analysis of apparel sales by department stores is the competition from specialty shops, especially in the suburban areas of large cities. Unfortunately, inade quate data are available on sales by specialty stores on a District level. Seasonally adjusted sales of furniture and bedding by department stores in the Fourth District have fallen off considerably in recent months from the peaks of last summer. This is shown by the black line on the accompany ing chart. Nationally, a decline in furniture and bedding sales by department stores has also taken place as indicated by the green line on the chart, but the extent of the per centage decline has been considerably less than in the Fourth District.(4) The delivery strike in Pittsburgh may have had consider able influence on the showing for the Fourth District. An additional consideration in the analysis of furniture sales is the consumer credit situation. The tendency during most of the first half of this year for consumers to re duce rather than add to their total debt has probably been reflected in reduced sales of large items such as furniture, which are fre quently bought by means of a financing plan. In sp ite of an upturn in A p ril, apparel tales by departm ent stores are som ewhat below the 1953 average. Recent declines in furniture sales by departm ent stores have been e sp e cia lly pronounced in the Fourth D istrict. Sales of Furniture and Bedding Seasonally Adjusted Indexes (1947-49=100) APPAREL SALES 140 I by D e p a rtm e n t S t o r e s 120 --------- 100 FOU RTH D I S T R IC T ----- y U.S. 80 60 19 52 I 953 I i1i9 I5 i4 . ,1. (3) Here again, the large aggregate of sales going into the national total tends toward minimizing fluctuations in the series, while the smaller aggregate in the Fourth Dis trict series allows fuller play to irregular variations. (4) Sales of household furniture by retail outlets other than department stores have not been included in the charts shown here. Such sales, in the aggregate, are large, and their inclusion might have made for a relatively more favor able showing than indicated here, especially in the compari son of recent sales with those of a year ago. 5 A p p lia n c e sales at departm ent stores a p p ea r to be leveling off at so m ew hat re d u c e d rotes. ances is long enough to make replacement easily postponable if consumer earnings drop. The factory layoffs and reduction in the work week which occurred rather con spicuously in parts of the Fourth District during the first half of 1954 undoubtedly had an unfavorable influence on appliance sales. Another factor in appliance sales by de partment stores is the competition by other types of retail outlets. Besides the furniture and appliance stores which have long been in the picture, the growth of “ discount” operations in many centers appears to have taken some share of the department store’s appliance market. No accurate data are available on this type of operation. Summary Safes of Major Household Appliances Sales of major household appliances by department stores, both in the Fourth Dis trict and in the nation exhibited a declining trend throughout 1953, after allowing for seasonal factors. So far in 1954, the trend appears to be leveling off, although monthly sales remain well below the 1947-49 average. Throughout most of the two-year period shown on the chart, the level of Fourth Dis trict sales has been considerably higher in relation to the 1947-49 average than has been the case in the country as a whole. In recent months, however, the Fourth District show ing has been relatively less favorable. The declines in department store sales of major household appliances probably reflect in part a reaction to the boom periods in such sales during the earlier postwar years and the buying surge which occurred shortly after the outbreak of hostilities in Korea. Furthermore, the useful life of most appli 6 The overall picture of retail sales has been one of recent increases in automotive sales in contrast to some declines in department store sales. Within the department store, “ hard goods ’’ such as furniture and appliances have had harder sledding than the wearing apparel lines. Food sales, a third major fac tor in total retail sales, have tended to re main fairly steady, as usual, with most fluctuations representing price changes. The automotive sector of retail trade has emerged as one of the most important factors in shaping total retail sales of recent years. Thus, the rise in automotive sales during early 1954, after seasonal allowance, is re flected in an increase in total retail sales during the period and it has been one of the more encouraging signs in the business pic ture up to latest reports. The Fourth District ceased to be a pace maker in department store sales during the period when business recession affected the industry of the area. C O M M O D IT Y PRICES After Two Postwar Cycles T h e d o w n w a r d d r i f t that characterized nearly 2,000 commodities, including prices total business activity from late last sum of manufactured goods as charged by manu mer through the first quarter of this yearfacturers, and also farm commodities. The has been quite generally characterized as abroken green line represents the consumers’ recession—a very mild one indeed, but still price index, often called the cost-of-living genuine. In view of this fact, the persistent index. All three are prepared by the United refusal of commodity prices to behave dur States Bureau of Labor Statistics, and all ing the past year in a manner befitting an three are shown as index numbers based on orthodox recession has been a subject of com 1947-49 average positions. ment. There has been nothing resembling Average wholesale prices have declined the typical downward price movement that only moderately during the past three years, usually accompanies a period of business con and the consumer price index continued to traction. Improved second quarter reports edge upward until the end of 1953. Mean have convinced many observers that the reces while, spot market prices fell 37 percent be sion has ended; but whether it is over or not, tween early 1951 and late 1953. a probe of commodity price trends is in order. At the wholesale and retail levels, where An explanation of the seemingly peculiar a considerable portion of the final price rep behavior of commodity prices lies partly in resents relatively inflexible labor and over certain special circumstances attending the head costs, adjustments are more likely to be course of the mild business recession,—which sluggish. Also, the consumer price index in will be discussed later. Fully as important, cludes important components, such as rents however, is the fact that significant down and services, which respond very slowly to ward movements in important groups of changed market conditions. For these rea prices had already occurred, as part of the sons, it is generally the primary market down phase of the Korean price cycle, prior prices of selected basic raw materials that to the onset of the recession in the summer command the attention of those seeking an of 1953. In fact, a low point or trough in economic indicator in the field of prices. spot market commodity prices was reached The alternating shadings of green and in October 1953. white on the cover chart are designed to The chart on the front cover depicts the mark off, somewhat arbitrarily, the duration course of three important price indexes since of two postwar price cycles of the spot mar World War II. The black line represents the ket index.(1) The trough of the first cycle is spot market price index, based on primary (1) The arbitrary element is especially in connection market prices of 22 standardized raw and with, the designation of October 1953 as a price trough. If a marked downward movement should _be_ resumed^ later this semi-fabricated commodities whose prices are year, a retrospective view might minimize the significance of the recent upward movement, and might even assign particularly sensitive to economic forces act the year’s developments to the same general cycle which with a rising phase in late 1949. Such an outcome, ing upon open markets and organized ex began however, would not preclude the fact that the principal factors now at work are different from changes. The solid green line represents the price-influencing which were controlling in the specifically “Korean” general wholesale price index which covers those phases. June 1949, and the trough of the second cycle is October 1953. The two peaks, respectively, are January 1948 and February 1951. The following discussion of the spot mar ket price index is in a chronological order broadly corresponding to the sequence of price cycles marked off on the cover chart. The First Postwar Price Cycle tween its pre-Korean position and its 1953 high. The Korean Price Cycle Commodity prices, particularly industrial raw materials, by running counter to the rising trend of manufacturing and mining activity during such a period of dynamic change as the years 1951-53 point up very clearly the extent to which unusual factors were influencing world markets. The most significant characteristic of price fluctua tions during this period was their domination by scare demand and its aftermath. From June 1950 until early 1953 basic commodity price movements bore little relation to im mediate consumption. Military orders, stra tegic and civilian stockpiling all over the world, and later, sharp inventory reductions were the main factors influencing prices. Price fluctuations were unusually violent during the Korean cycle because market de cisions in such an “ emergency period” tend to distort or exaggerate the responses tradi tionally ascribed to self-adjusting economic behavior. Supply shortages spur increases in demand regardless of price, while increas ing supplies (incidentally lowering prices) At first glance, the two price cycles ex hibited by spot market prices appear to be roughly comparable in amplitude and dura tion, a condition that might seem to suggest that they were essentially similar in charac ter. However, closer analysis reveals signifi cant differences. The two major component groups of the 22-commodity index played contrasting roles during the two time periods under consideration. (See accompanying chart.) Foodstuffs participated prominently in the first postwar price cycle. Farm prices rose immediately after the war, when the United States found it necessary to supply war-ravaged overseas areas with large quan tities of agricultural products. A short corn crop in 1947 aggravated the situation. In contrast, the Korean price inflation of 1950-51 was heavily concentrated upon stra tegic industrial raw ma Sw ings of indu strial raw terials. In this connection p rice cycle . it is important to note, as shown by another accom panying chart, that while the 1946-49 price cycle of industrial r a w materials corresponded roughly with the trend of industrial ac tivity (actually leading it som ew hat) the 1950-53 price cycle showed little conformity to the curve of industrial production. The price peak, for example, was reached in February 1951, at a time when the industrial production in dex was in a level stretch about midway in height be 8 m aterial p rice s dom inated the Korean IN D U STR IA L RAW M A TER IA LS F 000 STU FFS semblance of a “ shortage” in cottonseed oil. Similarly, a steadily expanding rate of cattle slaughter proved to be more than adequate to meet the temporarily swollen demand for tallow and hides; at the same time, both of these commodities, or their end-products, continued to experience intense competition from synthetics. Thus, a losing battle was waged by soap against the new detergents, and by leather against rubber and composi tion soles for shoes. Commodities Adjusting More Slowly. In the case of rubber, tin, zinc, and lard, both demand and supply factors played prominent roles in the post-Korean price readjustment. The decline was slower and stretched out over a much longer period than was the case with the previously mentioned commodi ties. Both rubber and tin are commodities that are not produced in the United States or Western Europe, and are accordingly prime objects of strategic stockpiling for these two industrial areas. The immediate supply problem in rubber was eased during the Korean period by the great expansion of synthetic rubber production in the United States. Nevertheless, stockpiling continued (although at a decreasing pace) thus cush ioning and stretching out natural rubber’s price decline after the passing of the emer gency. Stockpile manipu lations also helped reduce 1952-53, ra w m aterial p r ic e s and in opposite directions. the sharpness of price fluc tuations in tin after early 1951. The United States used stockpiling operations and its position as the major world consumer of tin, first to pressure pro ducing areas into price adjustments, and later to help counteract m a r k e t weakness. Prices of zinc gradually drifted downward, as ris ing production and a shift in consumer inventory pol icies turned shortages into surpluses, d e s p i t e high rates of consumption. only cause scare buying to subside. The re sult is shortage followed by glut. During the Korean War period this was, in fact, the story of most commodities which could be classified as raw materials for industry. Va riation occurred mainly in the length of time necessary for the shortage-glut sequence to run its course. Commodities Making Rapid Post-Korean Adjustments. Because of easy expansion of supplies or ready availability of satisfactory substitute materials, the prices of burlap, cottonseed oil, hides, print cloth, tallow, and wool went through a rapid readjustment during 1951 and the first few months of 1952. Burlap lost much of its market to compet ing types of bagging made from cotton, paper, and synthetic textile products. Syn thetic fibers also displaced high-priced wool in many of its traditional markets, thus add ing to the constrictions resulting from a severe reduction in United States military procurements of woolen-textile products dur ing 1951 and early 1952. Prices of another textile, print cloth, crumbled under the im pact of stepped-up production activity, which in less than a year unleashed a flood of material more than capable of satisfying any conceivable consumer demand. A large cotton crop in 1951 ended any F o r a c o n sid e ra b le p e r io d during in dustrial pro d u c tio n w ere moving 9 downward phase of the Korean p rice c ycle , 14 com m odities pla yed a leading role in the decline of the spot m arket index. Subsequently, many have moved upw ard. In the Main Downward Phase of Korean Cycle -5%_______ ( F e b . '5 3 - O c t. ' 5 3 ) *2%-5% A v e r a g e M o n th ly C h a n ge R is in g Phase to Date Phase of Offsetting Movements and Stabilizing Average ( F e b . ‘51 - F e b . ' 5 3 ) * 'A v e ra g e M o n th ly C han ge (O c t . '5 3 - J u n e ‘5 4 ) A v e ra g e M onthly C hon go T IN S T E E L SCRAP RUBBER Z IN C PR IN T CLOTH H ID E S B U R LA P C O T T O N SE ED O IL STEERS W OO L T O P S CO PPER HOGS TALLOW C O CO A BEANS I LARD no change Percentage change from beginning to end of periods designated, divided by number of months elapsed; prices of terminal months are computed by averaging highest and lowest daily prices during the month. The peak of a hog production cycle was reached in 1952, just as the demand for lard began to slacken appreciably. Lard prices declined steadily from early 1951 through June 1953, falling from 20.0tf to 8.5tf per pound. Offsetting Movements in 1953 By early 1953 the general index of 22 sen sitive commodities had just about returned to its pre-Korean level and showed signs of stabilizing. Such a development signaled a return to a stage where variations in supply, rather than demand, assumed the major role of influencing prices. Since supply changes tend to act less uniformly among commodi ties than changes in demand, price move ments began to display more variety than before. (See the accompanying bar chart.) Spectacular price increases during 1953 in hogs, cocoa beans, lard, tallow and copper 10 largely offset the weakness in steers and in a group of industrial raw materials, especi ally rubber, tin, zinc, and steel scrap; mild er secondary setbacks occurred also in cot tonseed oil, hides, and print cloth. An unfavorable hog-corn ratio during 1952 and the ready availability of fixed govern ment price-support loans on corn had in duced farmers to make drastic cutbacks in pig production. Even when prices became favorable in the spring of 1953, farmers, evidently remembering the heavy losses of the previous year, refrained from expanding the supply. As a result, hog prices during most of 1953 and early 1954 were higher than any year since 1948. Lard, being a hog product, was subject to the same deficiency of supply. However, large storage stocks of lard had been built up during 1952, so it wasn’t until July of 1953 that the supply situation tightened seriously. Thereupon, lard prices shot from under lOtf to 21 i per pound in the space of a little over two months; characterizing metals prices during 1953 is they have remained at advanced levels up to to be found in copper. After the removal of latest reports. price controls in February 1953, copper Adverse weather conditions, a deadly plant prices rose sharply from 24tf to 30tf per disease, and local governmental policies com pound, and then stabilized. (The early im bined to reduce severely the 1952-53 cocoa position of government restrictions on copper crop in the Gold Coast Colony (world’s use and an attempt by domestic producers principal producer) at a time when world to hold the line on prices had prevented demand was taking a sharp spurt upward. copper prices from rising as much as other The termination of cocoa rationing in Great metals before the General Ceiling Price Regu Britain in the spring of 1953 sent that na lation went into effect in January 1951. tion into intensive competition with the rest Thus, domestic copper prices had been frozen of Western Europe and the United States to far below the world level.) By early 1953 the obtain substantial portions of a dwindling condition of inadequate supply that had supply. An almost unbroken rise in cocoa- characterized the world copper market since bean prices followed, which by February 1950 had ended. However, prices remained firm, particularly because of a refusal by the 1954 was surpassing all previous records. Chilean government to allow the sale of that As was mentioned earlier, tallow prices country’s output at existing world market had suffered greatly between 1951 and mid- prices. Since normally supplied the 1953 because of heavy cattle slaughters and bulk of United Chile States imports, its withdrawal the shrinking soap market. A nadir was from the market propped up prices. reached in June 1953 when tallow sold for It has been demonstrated how the driving 3.5tf per pound. However, at that price forces behind the great Korean cycle American tallow was by far the cheapest fat gradually became dissipated in a price number of available on the world market. Exports be areas, until in 1953 offsetting price move gan to siphon off large chunks of the U. S. of a few specifically situated commodi surplus, and by the end of 1953 new domestic ments ties were to create an appearance outlets, such as the use of tallow as a forti of stabilitysufficient in the all-commodity price index. fier of animal feeds, gave promise of closing Such an appearance of stability was gen the gap between production and consump tion. By February 1954 tallow prices had erally characteristic of the year 1953 in its doubled, as compared with those of the pre entirety. However, when the experience of 1954 to date is added, it appears that, at vious June. in a statistical sense, a rising trend has Steel scrap resisted any tendency to weak least been evidence since October 1953, as pre en seriously until the industrial slowdown of viouslyin indicated. mid-1953 dropped mill operating rates below capacity in the late summer. Then, scrap prices tumbled from $43 per ton in August The Current Situation 1953 to $25 per ton in February 1954. The chief responsibility for the precipitous drop In today’s commodity markets a number can be laid to a 30 percent contraction in of forces are operating at cross purposes. mill operating rates, but other factors served The “ Korean” price cycle, as such, has defi to intensify the decline. Large scrap inven nitely run its course. But, as the circum tories, the tendency to reduce the ratio of stances of the past few months have again scrap to pig iron in steel furnace charges, demonstrated, there is always the very real and an increased reliance on “ home” scrap possibility that war will again send com almost enabled the big mills to cease open- modity prices skyward. International tension market purchases for several months. arising principally from developments in An important exception to the weakness Indo-China helped create a short-lived boom 11 let in several commodities during the month of April. War-sensitive raw materials had turned in the weakest price performance of any commodity group during 1953 and early 1954. When they suddenly strengthened, the composite 22-commodity index was greatly stimulated. During March and April, war talk, combined with drought fears and bull ish seasonal factors, produced the most im pressive advance in over three years. However, except for the possibility of a new wave of scare buying or a defense-based industrial upsurge, the immediate price out look for the majority of the 22-commodities is not especially strong. The original infla tion of demand, which was the dominating factor in 1950-51 price surge, has now been completely eliminated from all the commodi ties making up the Bureau of Labor Statis tics’ Index. The curtailment of overexpanded supply which normally follows a severe price adjustment, such as has occurred since 1951, has been less complete. It was for this reason that commodities like rubber, hides, lead, zinc, tin, and steers suffered price declines during the first half of 1953 when demand was steady and strong. During the year the production of a number of these items was cut in response to low selling prices. An equi librium might have been approached if the strong, steady demand of the first half of 1953 hadn’t begun to recede as the economy of the United States turned the corner and slid into a mild recession. Secondary compli cations were avoided when industrial activity continued to expand overseas. By mid-1954 there was still no indication that the busi ness downturn in this country was likely to become internationalized, and the domestic picture was looking better. Nevertheless, the 10 percent drop in domestic industrial pro duction did set some deflationary forces to work in the nation’s commodity markets, which, under different circumstances, might have had important price repercussions. Tlse Role of Government Part of the reason why the business reces sion induced very little additional price 12 weakness lies in the series of price-support programs carried on by the United States and other governments. Because of these support operations, the prices of a majority of the 22 sensitive commodities no longer fully reflect the fast-moving shifts of com mercial supply and demand in their respec tive markets. It follows that, barring a major economic collapse capable of wrecking the governmental programs, political deci sions regarding producer support measures will probably outweigh the implications of what appears to be a situation of somewhat overexpanded supply in a number of key commodity areas. The accompanying table demonstrates how support programs tend to influence the prices making up the 22-commodity index. Current prices of almost all of the seven agricultural commodities that are supported outright at fixed prices have been hovering close to the support levels, and, with the possible excep tion of rosin, are maintained there only because of generous governmental assistance programs. The rise of cotton and cottonseed oil prices above the support price was possi ble only because large C.C.C. impoundings diminished the free-market supplies. Sugar prices are regulated by a tight quota system that is set up explicitly to maintain “ rea sonable prices.” Little fluctuation from pres ent levels can be expected. A protective tariff and a governmental loan program com bine to bolster wool prices. Lead and zinc prices have been strengthened by the recently announced stockpiling plan, under which the government is buying quan tities of various materials for the national stockpile in an effort to “ strengthen the domestic minerals industry. ’’ Copper will eventually benefit from the same program, but a more important immediate market stimulant was the recent direct government purchase of 100,000 tons of surplus Chilean copper that was hanging over the world market. Eegulation of tin prices (and ex ports) will probably soon begin under the provisions of the recently drafted Inter national Tin Agreement. While none of these COMMODITIES WHOSE PRICES ARE INFLUENCED BY GOVERNMENT PROGRAMS Commodity Agricultural Products(2) Butter, lb ........................................... Corn, bu............................................. Cotton, lb .......................................... Cottonseed Oil, lb ............................ Rosin, 100 lbs................................... Sugar, 100 lbs................................... Wheat, bu.......................................... Wool, lb.............................................. Current(1) Price $ .570 1.61 .343 .146 7 .67<4) 6.11 2.24 . 543(7) Support Price CCC Minimum Domestic Selling Price $ .605 $ .575 2.04 1 .78(3) 105% of support price .33 plus carrying charge .128 .15 105% of support price 7.52^ plus carrying charge 5.45 to 6.80(5) None 2.87 2.51® 103% of support appraised .532® value plus commission Metals(2) To be supported by an international agency Tin, lb................................................. .938 within a range of $.80 to $1.10 per pound. Copper, lead, and zinc................................................. Indirectly supported by government stockpiling operations. (1) Average of high and low price during first half of June. (2) Commodity specifications and markets are those used in the BLS 22-commodity index except as noted. (3) Estimated terminal rate. (4) At Savannah, Georgia. (5) Range of prices 1950-53 under quota system. (6) 1953 crop; the minimum loan rate for the 1954 crop has been set at approximately $2.51 per bushel. The effective loan rate will initially be about 12c less because of carrying charges. (7) Received by farmers in May. (8) National average support price. Source of data: Commodity Credit Corporation and U. S. Bureau of Labor Statistics. metals programs are yet in full operation, anticipation of their effects has already lent considerable strength to otherwise weak mar ket situations. Other commodities, such as hogs and print cloth, are indirectly affected by price support programs. Attempts to maintain minimum prices for the feed grains (especially corn) and for cotton strongly influence the prices of semi-finished products like hogs and cotton cloth, which consume large quantities of the supported primary commodities. Because of such support factors affecting the commodity price structure, the 22commodity index is perhaps becoming some what less useful as a sensitive economic indicator or harbinger of shifting general business conditions. For instance, the sub stantial rise in March that lifted the 22- commodity index a total of 4% was based in considerable part upon speculative buying of nonferrous metals in anticipation of the effects of the new government stockpiling program. The index registered a brief set back as April opened, chiefly because a change in government price-support policy lowered butter prices by 10 percent. Although they dampen fluctuations, neither domestic government measures nor inter national stabilization programs offer ironclad barriers to price movements; prices can and sometimes do move out of the theoretically restricted range. Basic commodity price movements are still useful and important, but economic interpretations of their move ments must now, more than ever, be tem pered by a growing awareness of the non economic factors influencing their behavior. 13 A New Approach to Cost Control By CLYDE WILLIAMS, President and Director, Battelle Memorial Institute of goods available to hours on parts having defects that would otherwise the greatest number of people at the lowest show up only during final processing. possible cost has never been enough for the Nondestructive testing has now become an integral American manufacturer. He has also been greatlypart of production and maintenance in a wide va concerned about quality. A low-cost product, forti riety of industries. Foundries, railroads, engine fied with a high level of quality, has been the surest builders, airplane manufacturers and operators, auto avenue to wide consumer acceptance. Mass demand, motive industries, boiler makers, welders, steel fab in turn, has been vital to support the huge capital ricators, and many others are using nondestructive test methods to inspect millions and millions of dol investment required for mass production. Quality still plays its traditional role in the lars worth of materials, parts, and assemblies. American mass-production scheme. It is, however, Research on nondestructive testing has contributed taking on new significance to the American manu tremendously to its expanded use in recent years. facturer. With labor, materials, and equipment costs Nondestructive test methods are now available to remaining constant or rising, controlling product inspect and evaluate many types, sizes, and shapes quality, at every stage of processing, is becoming of engineering materials, whether such be in the an increasingly important means of lowering pro design laboratory, on the production line, or in duction costs. Such cost benefits, resulting from service. This versatility is achieved by applying to more efficient use of the relatively fixed cost factors the test object a “ probing medium, ’ ’ such as Xof production, aid in keeping selling prices down and rays, ultrasonics, penetrant fluids, radioisotopes, in promoting continued expansion of the mass market. magnetism or electrical current. The probing me One of the outstanding examples of this produc dium then transmits information to a recording de tion cost-control trend is nondestructive testing. It vice, or reveals information to the human senses, that embraces all methods of detecting and measuring the makes possible human or mechanical detection of properties or performance capabilities of materials, defects. parts, assemblies, structures, and machines, without Where standards of serviceability are well estab damaging their serviceability. This definition would lished and where extensive past experience exists, naturally include strictly visual inspection which is it sometimes becomes feasible to develop fully auto still the most widely used form of nondestructive matic nondestructive test devices. These may not testing in industry. However, in current industrial only measure the significant properties of the test usage, the term refers to nondestructive test methods object but also determine whether or not it meets, that have been developed to inspect and evaluate or fails to meet, accepted standards. materials where human observations fail or are in Controlling product quality can be closely asso adequate. Such methods give us ways of measuring ciated safety. For this reason, nondestructive foils of metal thinner than the human hair, or of testing with is used all possible applications where penetrating fifty feet of steel or concrete, to find failure of parts incould result in danger to human hidden faults. They also provide the means for dis lives, or could cause long and costly operating de covering surface flaws invisible to the naked eye. lays. Much of the country’s defense production is When nondestructive testing was first introduced to nondestructive testing. It is used ex to industry, it was generally considered a routine subjected by all of the public transportation systems operation necessary to satisfy inspection require tensively for checking parts, both on original con ments. The turning point came when it was realized struction and critical on maintenance inspection. Rail ears that nondestructive testing could also be an extreme specially equipped with nondestructive testing equip ly important factor in production and maintenance ment have inspected over two million miles of track, costs, as well as in product design. Today, more and more than one million defective rails have been and more industries are using nondestructive tests detected and removed from service. At the Indianap to insure not only the quality of the finished product, olis Speedway classic, not one accident has been but also the quality of raw materials and components. caused by defective steering parts since nondestructive Increasing numbers of nondestructive test installa testing of these parts was made compulsory in 1936. tions are being made in the receiving departments The country’s progress is geared to the of industrial plants. The use of such equipment at mass production economic of goods possible cost early stages of manufacture, or in product design, without loss of unit quality.at lowest nondestructive prevents the loss of invaluable man and machine testing has become recognized asSince a quality and costcontrol tool, it is taking on increasing importance Editor’s Note— While the views expressed on this page are not necessarily those of this bank, the Monthly Business Re as a fundamental processing operation in modern view is pleased to make this space available for the discus industrial production. sion of significant developments in industrial research. M a k in g v a st 14 q u a n t it ie s Announcements The Stebbins National Bank of Creston, Creston, Ohio, was admitted to the Federal Reserve System on June 28, 1954. ☆ Dwight L. Allen was appointed Vice Pres ident of the Federal Reserve Bank of Cleve land, effective July 1, 1954. Mr. Allen will be the senior officer in charge of personnel administration of the bank. ☆ R e d uc tio n in R eserve R e q u ir e m e n t s . On June 21, the Board of Governors of the Fed eral Reserve System announced a reduction in the reserve requirements of member banks on both demand and time deposits, to take effect gradually over a six week period. When the reductions have been completed by August 1, the required reserve ratios will have been lowered as follows: On net demand deposits—for central re serve city banks, from 22% to 20%, effective in two steps: on June 24, from 22% to 21%, and on July 29, from 21% to 20% ; for re serve city banks, from 19% to 18%, effective July 29; and for country banks, from 13% to 12%, effective August 1. On time deposits—for all member banks, from 6% to 5%. In the case of country banks, the reduction was made retroactive to June 16, and for other member banks it was effective on June 24. 15 TOLEDO CLEVElANp AKRON • CANTON • OHIO DAYTON pA I • IYOUNGSTO> I (I ★ t PITTSBURGH • COLUMBUS , f ^HEELING .V A . ^★CINCINNATI \ LEXINGTON KY. Fourth Federal ReserveDistrict ■ MAIN OFFICE ♦ BRANCH O FFICES
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