Full text of Economic Review (Federal Reserve Bank of Cleveland) : July 1964

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JULY 1964

THIS

ISSUE

Industrial Development
in Ohio— The Food
Processing Industry........ 2

Recent Economic
Developments in
Selected Foreign
Countries....................... 18

Spotlight on
Savings Flows................ 25

FEDERAL

RESERVE

BANK

CLEVELAND

INDUSTRIAL DEVELOPMENT IN OHIO
State govern m ents and com m ercial
and trade associations have given in
creased a tten tion to industrial develop
m en t in recen t years. Programs have
been adopted to expand industrial activi
ty and to retain industries located in the
respective states. In addition, m ore ad
vanced industrial developm ent program s
attertipt to im prove the econ om ic cli
m ate o f the particular states by a ttra ct
ing industries that are relatively im m u n e
to the influence o f the business cycle. By
attracting the m ore stable industries the
respective states hope to reduce both di
rect and indirect costs associated with
u n em p loym en t, and at the sam e tim e
elim in ate redu ctions in tax revenue that
freq u en tly accom pany u n em p loym en t
and declining personal incom e.
R ecen t developm ents in Ohio d em on
strate the n eed for well plan ned p r o
gram s o f industrial developm ent. Al
though Ohio ranks third in the United
States in value added by m anufacturers,
it has experienced a relative decline in
industrial activity. ( Trends in m an u fa c
turing em p lo y m en t in Ohio and the U. S.
are d epicted in Chart 1.) M anufacturing
em p lo y m en t in Ohio in 1963 was 4 p e r
cen t below the 1957-59 average com pared
with a 3 p er cen t gain in the U. S. In term s
o f actual n um bers, m anufacturing e m
p lo y m en t in Ohio averaged 53,000 less in
1963 than in 1957-59, w ith a little over
tw o-thirds o f the decline in durable
2

goods m anufacturing. Concern over this
situation in Ohio has brou gh t abou t
m any program s aim ed at attracting
m ore industry or realizing faster grow th
o f industry cu rren tly operating in Ohio.
The econ om ic prob lem s o f Ohio have
been aggravated fu rth er by the fact that
its industrial com plex is com posed o f in
dustries highly sensitive to the business
cycle. As Table I shows, nearly tw o-thirds
o f m anufacturing em p loym en t in Ohio
is accou n ted for by six industries; nam ely,
n on electrical m achinery, prim ary m e t
als, transportation eq u ip m en t, fabri
cated m etals, electrical m ach in ery, and
rubber and plastics. In contrast, only 43
p ercen t o f the n ation ’ s m anufacturing
em p loym en t is a ccou n ted for by these six
industries. Using the last recession (May
1960 to February 1961) to m easure cyclical
sensitivity, Table I shows that em p lo y
m en t in five o f these six industry groups
dropped m ore than total m anufacturing
em p loym en t in the nation. For exam ple,
em p loym en t in prim ary m etals in the
U. S. declined 15 p ercen t from May 1960
to February 1961 com pared w ith a 5 p e r
cen t drop in total m anufacturing e m
ploym en t.
It is also significant that in each o f the
industry groups in Table I excep t p rin t
ing and publishing, the decline in e m
p lo y m en t in Ohio exceeded the decline
in the U. S. in the period under review.
E m ploym en t in the prim ary m etal in

JULY 1 9 6 4

dustry, for exam ple, dropped 18 p ercen t
in Ohio as com pared with 15 p ercen t in
the nation.
The severity o f em p loym en t declines in
Ohio industries during recession periods
is largely due to differences in the co m p o
sition o f the industry groups betw een
Ohio and the U. S. For exam ple, em p loy
m en t in the electrical m achinery indus
try declined nationally only 2 p ercen t in
the last recession while in Ohio such e m
p lo y m en t dropped 10 percen t. The rela
tively poor show ing o f Ohio is explained
in large part by the fact that reduced d e
m and for electrical m achinery during
this period was cen tered largely in h ou se
hold appliances, and that segm en t o f the

industry is heavily con cen tra ted in O /iio.1
C oncentration o f industries that are
particularly sensitive to swings in e c o
nom ic conditions plus a p oorer p erfo rm
ance by the com p on en ts o f these indus
tries com bin ed to bring abou t a 9 p ercen t
decline in m anufacturing em p loym en t
in Ohio during the last recession as co m
pared with a 5 p ercen t decline th rou gh
ou t the nation. The decline o f m anufac
turing em p loym en t is significant because
it has a direct influence on oth er ec o
nom ic activity, i.e., trade and services.
The total in com e effect in the state,
therefore, is even greater than is su g
gested by the im portance o f m an u fa c
turing alone.

- THE FOOD PROCESSING INDUSTRY
One of the goals of industrial development
in Ohio should be to attract or realize expan
sion of industries less sensitive to changes in
general business conditions. Employment in
many of the nondurable goods industries, for
instance, has proven to be less susceptible to
the business cycle. One area of nondurable
goods manufacturing that might help meet
Ohio's needs is the food processing industry.
The expansion of food processing in Ohio
might help provide both growth and stability
for employment and income. The typical per
formance of food and related products manu
facturing industry in a business recession can
be noted in Table I. Employment in this in
dustry declined only 1 percent throughout

the nation in the last recession, and it is ques
tionable whether economic conditions ac
counted for even that slight decline. A com
parison of the composition of the food manu
facturing industry with other industry groups
is shown in Tables II and III.
A portrait of the food processing industry's
performance in the last two recession periods
is shown in Chart 2. It is apparent that output
moved up steadily with little evidence of busi
ness cycle influence. Such performance is
partly due to the nature of farm production,
1 For a review of the performance of the machinery in
dustry in the Fourth District see M o n th ly Business R e
view,

Federal Reserve Bank of Cleveland, November

1963.

ECONOMIC REVIEW
TABLE I
Distribution of Manufacturing Employment, Ohio and United States, 1962, With Percent Decline in
1960-61 Recession
Percent Decline
May ’60-Feb. ’61
U. S.
Ohio

Percent Distribution
U. S.
Ohio
Nonelectrical m achinery................................
Primary metals................................................
Transportation e q u ip m e n t............................
Fabricated m e ta ls ........................................
Electrical m a c h in e ry ....................................
Rubber and plastics ....................................
Food and related p r o d u c ts ........................
Stone, clay, and g l a s s ................................
Printing and p u b lis h in g ................................
Chemicals and a l l i e d ....................................
O t h e r ............................................................

14.2%
13.3
11.0
10.5
9.9
7.0
6.9
5.5
5.0
3.8
12.9

8.8%
6.9
9.1
6.7
9.4
2.4
10.4
3.5
5.5
5.0
32.3

Total Manufacturing................................

100.0%

9%
— 18
- 13
—
11
— 10
11
— 2
9
+
1
— 3
—

6%
— 15
— 11
—
8
2
6
1
7
0
— 2
—

Source: Bureau o f Labor Statistics, U. S. Department o f Labor

i.e., the inflexibility of output in the short run.
More importantly, such stability indicates that
income levels in this country do not dip suf
ficiently in the recession periods to cause
significant swings in outlays for food. It is
reasonable to expect that among various food
products the more convenient, higher priced
items have a more elastic demand and may
be influenced by moderate changes in eco
nomic conditions. Curtailed spending on
these items, however, is partially offset by
larger outlays for less expensive items.
In addition to stability, a steady growth in
output is depicted in Chart 2. Such growth

ning, and meat curing from the farm or home
to commercial businesses.
Output data, however, probably understate
the actual growth of the food processing in
dustry as more intensive amounts of process
ing do not show in the figures. Consumer de
mands for a changing diet along with the
ability to pay for convenience in food prod
ucts have resulted in an increasing amount
of processing between the farmer and con
sumer. Examples would include a shift from

is not particularly surprising in view of the
nation's expanding population and of increas
ing shipments of food products abroad. In
addition, industry output has expanded be
cause an increasing share of food consumed
is being commercially processed. This is a
continuation of the trend that has transferred

that includes quality changes—is value
added by manufacturers. From the 1957-59
period through 1962, value added by food
manufacturers increased 19 percent while

tasks such as butter churning, baking, can
4

fresh to frozen fruit and vegetables and in
creased consumption of ready-to-eat items.
Therefore, a better measure of growth —one

the physical output measure for the industry
moved up only 13 percent. Thus, the food
processing industry furnishes steady, though
not spectacular, growth and has exhibited

JULY 1 9 6 4

near immunity to fluctuations in business
activity.
It would appear that Ohio's importance as
both an agricultural and an urban state would
enhance the prospect of attracting more of
the food processing industry. Ohio ranked
twelfth in the U. S. in farm product sales in
1962. In addition, the productive agricultural
areas of Michigan and Indiana that border
western Ohio could serve as further sources
of raw materials for the industry. At the same
time, markets for food products are expanding
in Ohio. Population growth from 1958
through 1962 totaled 666,000—fourth high
est in the nation. These two aspects combined
would seem to provide the ingredients for ex
pansion of the food manufacturing industry.
Performance of this industry in Ohio, how
ever, has not coincided with such expecta
tions. For example, nearly half of the 15,000
decline in nondurable manufacturing em-

ployment in Ohio since 1957-59 occurred
in food processing. Thus, food manufacturing
alone accounted for 14 percent of the 53,000
decline in manufacturing employment in
Ohio between the 1957-59 period and 1963.
Furthermore, the performance of employ
ment in Ohio food manufacturing contrasts
to that for the nation as a whole, as can be
seen in Chart 3. In 1963 such employment
was 8 percent below 1957-59 while in the
U. S. it had declined less than 3 percent.
The decline of food processing and other
kinds of industries in Ohio has attracted the
attention of many of those interested in in
dustrial development. In attempting to de
termine the reason for the loss of important
industries, several explanations have been
offered. The more popular arguments submit
that the cause of the relative decline in manu
facturing employment in Ohio is a combina
tion of wage rate patterns, business tax poli-

TABLE II
A Comparison of Food and Related Products Manufacturing With Other Industry Groups, 1962
(in millions)
Value Added

Employment

Payroll

Capital Expenditures

Food and Related
Products
$20,902.2

Food and Related
Products
1.7

Transportation
Equipment $11,373.4

Chemicals and
Allied
$1,276.2

Transportation
Equipment $20,898.8

Transportation
Equipment

1.6

Nonelectrical
Machinery $ 9,218.0

Food and Related
Products
$1,186.5

Nonelectrical
Machinery

$ 16,116.7

Electrical
Machinery

1.5

Food and Related
Products
$ 8,577.9

Primary Metal
industries
$1,143.5

Chemicals and
Allied
$16,064.0

Nonelectrical
Machinery

1.5

Electrical
Machinery $ 8,554.1

Transportation
Equipment $ 819.3

Source: 1962 Annual Survey o f Manufacturers, Bureau o f the Census.

The food processing industry is an important component of manufacturing activity in the U. S. Its economic
importance is revealed by its position as number one in value added by manufacturing. Food manu
facturers also top the list in number of employees. The industry’s important role as an investor is illustrated
in its second place ranking in capital expenditures; payrolls of food manufacturers are exceeded only by
transportation equipment and machinery producers.

ECONOMIC REVIEW
TABLE III
Distribution of Food Manufacturing Employment in the United States, 1962

Industry Group

Percent
of Total

FOOD AND RELATED PRODUCTS

100%

Major Areas of Activity

Meat Products................................
Meat packing plants (11)*
Poultry dressing plants (4)

Animal slaughter, prepared meat
products, and poultry dressing.

Dairy Products................................
Fluid milk (1 2)

Processing of milk for fluid use, ice
cream, condensed and evaporated
milk, butter, and cheese.

Canned and Frozen Foods . . . .
Canned fruits and vegetables (6)
Frozen fruits and vegetables (3)

Preservation of sea foods, fruits,
vegetables, juices, and specialty
products.

Grain Mill Products........................
Flour and meal (2)
Prepared animal feeds (3)

Flour and meal milling and prepara
tion, cereal preparation, and pre
pared animal feeds.

Bakery Products............................
Bread and related items (15)
Biscuits and crackers (3)

Bread, cake and other perishable
baked goods, biscuits, crackers, and
pretzels.

S u g a r ............................................

Sugar and syrup from sugar cane and
sugar beets.

Candy and Related Products . . .

Candy and confectionery products,
chocolate and cocoa products, and
chewing gum.

B e v e ra g e s ....................................
Malt liquors (4)
Bottled and canned soft drinks (6)

Malt, distilled, rectified, and blended
liquors; wines, brandy, and soft
drinks.

O t h e r ............................................

Vegetable oils, shortening, marga
rine, fats, ice, macaroni, roasted
coffee.

* Percent o f total.
Source: 1962 Annual Survey o f Manufacturers, Bureau o f Census.

The food and related products grouping encompasses a diverse group of manufacturers. A major
portion of such firms are engaged in manufacturing foods and beverages for human consumption or in
producing related items such as ice and chewing gum. The grouping also includes firms producing items
that are not for human consumption such as prepared animal feeds. Since establishments are classified
according to their primary activity, overlapping of functions often occurs. For example, beverage manu
facturers are often also engaged in distribution. Likewise, firms manufacturing food products but retailing
the major part of their output on the premises, such as small bakeries, fall in the retail trade category.
6

JULY 1 9 6 4

cies, and the lack of financing aid.
The remainder of this article is devoted to
the findings of a study of the principal factors
that have contributed to the decline of the
food processing industry in Ohio. The study
was undertaken to determine the validity of
the aforementioned explanations of the de
cline in manufacturing employment in Ohio,
as well as whether the food processing in
dustry may be expected to provide additional
employment in Ohio in the near future.
The principal conclusion of this study sug
gests that the decline in employment in food
manufacturing in Ohio cannot be solely at
tributed to wage rates, business taxes, or lack
of financing aid. Rather, the decline appears
to be the result of a combination of more
complex factors that includes the influence of
productivity gains on the components of the
industry concentrated in Ohio, plant con
solidations, closing of obsolete facilities, in
creased popularity of food items produced
outside of Ohio, population shifts, geographic
relocation of livestock production, and ex
pansion of food processing facilities in other
areas as a result of improved transportation
facilities and technology.

materials accounts for the processing of fruits,
vegetables, sugar beets, and dairy products
near production areas. At the same time,
perishability of finished products, bread and
other baked goods as well as fluid milk, re
quires processing within close proximity of
consumers. It should be noted, however, that
increased technology and improved trans
portation facilities and equipment have sub
stantially broadened the market servicing
area for producers in recent years. Neverthe1.
MANUFACTURING EMPLOYMENT - United States
and Ohio
INDE X 1 9 5 7 - ’ 5 9 = 100

DETERMINANTS OF LOCATION
The map on page 9 shows that food manu
facturing is concentrated in the North Central
and Northeastern parts of the United States
as well as in portions of the South and West.
Basic determinants of the location of firms in
this industry are: availability and production
costs of raw materials; transportation costs;
and the necessity of maintaining product
quality. Maintaining product quality is vital,
of course, due to the perishable nature of
many food products. The perishability of raw

Source o f data: Bureau o f Labor Statistics,
U.S. Department o f Labor

ECONOMIC REVIEW

INDUSTRIAL PRODUCTION
I N D E X 1 9 5 7 - ’ 5 9 = 10 0

tion in the importance of material costs within
the food processing industry. Meat proces
sors, for example, pay out 83 cents of each
sales dollar for materials. At the same time,
costs of materials for manufacturers of bakery
products and beverages account for less than
half of their sales receipts.
Combined with the importance of raw ma
terials in food processing is the fact that, in
general, such materials are bulky and costly
to move. At the same time, many of the raw
materials lose considerable weight in process
ing; for example, beet sugar, fruits, vegeta
bles, meat, and milk in the manufacture of
cheese. This characteristic, coupled with the
perishable nature of many of the products,
strongly favors location near raw material
3

Source o f data: Board o f Governors o f the
Federal Reserve System

EMPLOYMENT - Manufacturing Food and
Related Products
IN D E X 1 9 5 7 - 5 9 = 100

less, perishability plays a significant role in
the location of the food processing industry,
and in some instances dictates that processing
be located near production centers as well as
near market outlets.

INFLUENCE OF RAW MATERIALS
Cost and availability or raw materials like
wise play an important role. Their importance
can best be revealed by considering the re
lationship of sales to costs of materials in food
processing. As shown in Table IV, such costs
were equal to 69 percent of the value of ship
ments in this industry in 1962 (exceeded only
by the petroleum and coal industry group)
compared with 45 percent in the electrical
machinery industry. Table V shows the varia
8

Source o f data: Bureau o f Labor Statistics,
U.S. Department o f Labor

JULY 1 9 6 4

The location of the food processing industry is shifting aw ay from a heavy
concentration in the North Central and Northeast toward the southern
and western portions of the United States.

3 5 , 0 0 0 o r m o r e e m p l o y e d in f o o d m a n u f a c t u r i n g

------

w fi

S ta t e s w i t h l a r g e s t d e c l i n e s 1 9 5 7 - 5 9 to 1 9 6 3

S ta te s w i t h l a r g e s t in c r e a s e s 1 9 5 7 - 5 9 to 1 9 6 3
D e n o t e s r e g i o n a l li n e

Source o f data: Bureau o f Labor Statistics, U.S. Department o f Labor

production centers. In that regard, produc
tion centers of these products are strongly in
fluenced by soil, climate, and topography.
Such factors, for example, explain the heavy
dairy manufacturing centers in Wisconsin,
the heavy beef and pork output in the Corn
Belt, the citrus centers of the South, and
California's dominant position in vegetable
production.

MARKET PROXIMITY
Even after processing, many food products
remain bulky or perishable so that market
proximity is likewise an important cost con
sideration. Bakery products, ice cream, and
soft drinks, for example, are more bulky fin
ished products. Thus, market proximity plays
a vital role in location from a cost standpoint
as well as from the necessity of maintaining
9

ECONOMIC REVIEW
TABLE IV
Importance of Material Costs Among Selected
Industry Groups, 1962
Material Costs
as Percent of
Value of Shipments
Petroleum and coal . . . .
80%
FOOD & RELATED PRODUCTS
69
Textile mills....................................... 60
Primary m e t a ls ...............................59
Paper p ro d u c ts ...............................55
Rubber and plastics . . . .
50
Electrical machinery . . . .
45%
Source: 1962 Annual Survey o f Manufacturers, U. S.
Department o f Commerce

TABLE V
Importance of Material Costs Among the Com
ponents of the Food Manufacturing Industry
Group, 1962
Material Costs
as Percent of
Value of Shipments
Food and related products. .
69%
Meat p r o d u c ts ............................83
Grain mill products . . . .
73
Dairy p r o d u c ts ................ ............70
Canned and frozen foods .
64
Bakery products................ ............47
B everages........................ ............47%

the attribute of climate offered by California
is enhanced by a large population. Thus, in
assessing the determinants of location, it ap
pears that several factors are of equal im
portance rather than any one factor.
In general, the interplay of the above forces
—finished product and raw materials, trans
portation costs to the processor and to market
outlets, and transportation technology—de
termines location.

WAGES AND LOCATION
Obviously, other factors also play a role in
determining location. One of the most fre
quently mentioned is the availability and cost
TABLE VI
Importance of Wages, Selected Industry Groups,
1962
Wages as Percent of
Value of Shipments
Petroleum and coal . . . .
6%
FOOD AND RELATED
PRODUCTS...................... ........... 13
C h e m ica ls........................ ........... 16
Primary m e ta ls ................ ........... 22
Fabricated metals . . . .
28
Electrical machinery . . .
31%

Source: 1 962 Annual Survey o f Manufacturers, U. S.
Department o f Commerce

product quality. Importance of market outlets
is evidenced by the fact that a strong corre
spondence exists between population and
employment in food processing. Hence, of
the 10 top states in food manufacturing em
ployment, all but two (Minnesota and Wis
consin) also rank in the top 10 in terms of
total population.
It is important to keep in mind that the in
fluence of market proximity and raw material
sources overlap in many instances. For ex
ample, much of the fertile land of the Midwest
lies near heavily populated areas. Likewise,
10

Source: 1 962 Annual Survey o f Manufacturers, U. S.
Department o f Commerce

TABLE VII
Importance of Wages Among the Components
of the Food Manufacturing Industry Group
Wages as Percent of
Value of Shipments
Food and related products. .
Grain mill products . . . .
Meat p r o d u c ts ................
Dairy p ro d u c ts ................
Canned and frozen foods .
B everages........................
Bakery products................

13%
8
10
12
13
19
27%

Source: 1 962 Annual Survey o f Manufacturers, U. S.
Department o f Commerce

JULY 1 9 6 4

of labor. The role that wage costs may play in
influencing location can be roughly meas
ured by the importance of labor in the manu
facturing process. As can be noted in Table
VI, payroll expenses of food manufacturers
constitute only 13 percent of the value of ship
ments as compared with 31 percent for pro
ducers of electrical machinery.
Furthermore, among the major components
of the food manufacturing industry wage pay
ments total substantially higher only for bev
erage and bakery products. (See Table VII.)
In these two subindustries, however, market
proximity tends to be the most dominant fac
tor in plant location. Overall, it is apparent
that wage payments represent a much smaller
portion of total costs for food manufacturers
than for most other industries; among food
processors where wages do constitute an im
portant segment of costs they may be over
shadowed by other determinants of plant
location.

PUBLIC POLICY AND LOCATION
Industry location is also influenced by pub
lic policy. For example, milk marketing order
areas, which are administered by the U. S.
Department of Agriculture, influence the
amount of milk produced in certain areas and
consequently influence the location and re
tention of milk processing plants. Likewise,
the structure of transportation rates plays a
role in determining grain mill processing
sites, and more importantly is an influence
on livestock production and poultry. For ex
ample, the phenomenal growth of the poultry
industry in the Southeast has been aided by
a favorable grain rate structure. Also, as with
many industries, tradition and the residence
of an original owner plays a part.

PATTERNS OF CHANGE
In the food manufacturing industry a net
decline in employment of only 51,000 from
1957-59 to 1963 out of a total employed in an
industry of 1.7 million seems insignificant.
Considering, however, that the decline in
employment in six states alone totaled 57,000,
while employment in six other states regis
tered a gain of 25,000, it is apparent that
significant developments have occurred with
in the industry.
Six factors are primarily responsible for
these developments. First, productivity gains
have varied considerably among the various
types of food manufacturers. Second, con
sumer preferences among food products have
changed. Third, the degree of expansion in
foreign markets has been an influencing fac
tor on employment levels. Fourth, population
movements have been an important influ
ence. Fifth, geographical changes have oc
curred in the production of crops and live
stock and the industry's raw materials. Final
ly, improved facilities and technology in
transporting and processing food products
have influenced the location of the industry.

CHANGES IN EMPLOYMENT
The relationship of increasing output, as
shown in Chart 2, to the employment trend
depicted in Chart 3 clearly indicates that
output per worker has increased in this in
dustry. Like other manufacturers, food proc
essors are producing more per employee.
Such developments stem from the joint effects
of technological improvements, larger capital
investment, and improved skills of the labor
force and management. Economies of scale
gained through consolidation of firms also
11

ECONOMIC REVIEW
TABLE VIII
Percentage Changes in Employment, Output, and Output per Production Worker Manhour,
Selected Groups, Food Processing Manufacturing 1957-59 to 1962

Employment
D a i r y ........................
M eat............................
B akery........................
Beverage....................
Soft drinks . . . .
Malt liquors . . . .
Canned and Frozen . .
Miscellaneous . . . .
Total . . . .

................ ................ —
................-

..............

6%
5
3
0

................+ 1 3
.............. — 11
................ + 1
...................... + 2
................ 3%

Output

Output Per
Production
Worker Manhour*

10%
12
11
12
19
6
37
13
14%

31%
16
18
19
15
16
33
15
19%

Consumption
Per Capita
— 7%
7
+
— 2 **
n.a.
11
+
0
+

7
n a.
.
n
,.a.

*Estimated by Federal Reserve Bank o f Cleveland using production w orker manhours and output estimates
**Based on wheat flour consumption
n.a.

not available

Sources: IL. S. Departments o f Labor, Commerce, and Agriculture;

play a part in the realization of increased
output per worker. As mentioned earlier,
achievements go beyond the quantity increase indicated here inasmuch as producers
in many instances are turning out a higher
quality product using modern processing
methods.

Board o f Governors o f the Federal Reserve System

Inasmuch as segments of this industry are
concentrated in various parts of the nation,
consideration should be given to the variation

output of food products is chiefly a reflection
of changes in consumer preference. Sub
stantial gains in production ot some products
has more than offset increases in output per
manhour. For example, output of canned and
frozen foods has expanded 37 percent since
1957-59. Thus, even though output per pro
duction manhour moved up sharply, employment in the industry registered a slight gain.
The increase in output in this segment of the
industry reflects a change in consumer preference. Total per capita consumption of fruits

in productivity gains throughout the food
processing industry. As can be seen in Table
VIII, output per production worker manhour
advanced 19 percent from 1957-59 through
1962 for the entire industry. Among the components, however, the increase ranged from
33 percent in canned and frozen foods to 15
percent in miscellaneous food products.
The other variable involved in employment
change is the gain in output. Variation in

and vegetables has not changed to any extent
in recent years. Because of the increased
popularity of frozen and canned vegetables
and juices, processed fruits and vegetables
continue to replace fresh fruits and vegetables in American diets. Thus, a larger portion
of the fruit and vegetable diet is processed,
and employment in the industry expanded
coincident with a sharp gain in output per
production manhour.

VARIATION IN IMPACT

JULY 1 9 6 4

In contrast, employment by dairy product
processors fell 6 percent over the same period
with approximately the same rate of gain in
output per manhour as that of canned and
frozen foods. Output increased only 10 per
cent in the same period reflecting a 7 percent
drop in per capita consumption of dairy
products.
The gain in output per manhour in the
beverage, bakery, and meat industries ad
vanced more rapidly than total output; in
each instance the change in employment was
different. In the beverage industry divergent
trends are evident in the two major compo
nents—soft drinks and malt liquors produc
tion. Consumption of soft drinks has increased
substantially since 1957-59 resulting in a 19
percent gain in output and a 13 percent in
crease in employment.2 Malt liquor consump
tion per capita has been nearly stable so that
output increased only 6 percent and employ
ment declined. Employment data are not
available for the distilled beverage industry,
but since it is the major residual in this group
the data suggest a significant reduction in
employment.3
Output per production worker manhour
also increased at a faster pace than output in
the baked goods industry as per capita con
sumption has declined slightly. As a result,
bakery employment fell 3 percent. Employ

ment by meat processors declined 5 percent
as the output per production manhour out
paced the gain in output. Significant develop
ments occurred, however, in two components
of that industry, meat packing and poultry
processing. Employment by meat packers fell
11 percent, indicating a much sharper gain
in productivity. In contrast, employment by
poultry processors in 1962 was 15 percent
above the 1957-59 period. The gain in em
ployment in this area reflects a sharp increase
in domestic consumption of chicken as well
as substantial gains in foreign sales of poultry.
Employment in manufacturing of miscel
laneous food products registered a gain. In
cluded in this category are manufacturers of
the frozen specialty items that have won wide
spread consumer approval. Manufacture of
such products as margarine and shortening,
which continue to experience gains in con
sumption, are also included.
Thus, substantial variation exists in the
changes in employment among the compo
nents of the food manufacturing industry.
This variation reflects differing rates of gain
in output per manhour and total output. Such
developments are significant in analyzing
regional performance of this industry because
of the concentration of various types of food
manufacturing in certain areas.

CHANGES IN LOCATION
2 Employment in this industry includes a substantial
portion of persons engaged in distribution where output
per manhour probably has not increased as rapidly as
in manufacturing alone.
3 Distilled, rectified, and blended liquor manufacturing
employment in Kentucky fell 13 percent from 1957-59
to account for the major part of a decline in employment
in food product manufacturing in that state.

In general, as shown in the accompanying
map, employment in food processing has ex
panded in the South and West but declined
in the North Central and Northeast sections
of the country. The "mix" of industries has
played a major role in this development. For
example, the North Central and Northeastern
13

ECONOMIC REVIEW

sections are centers of dairy production. As
mentioned earlier, this industry has experi
enced a substantial reduction in employment
as the increase in output of dairy products
has not been sufficient to offset the increase
in productivity. A similar situation has oc
curred in the baking, meat packing, and malt
liquor industries, all important employers in
the North Central and Northeastern states.
In contrast, the South and West are centers
of output for items gaining in employment,
e.g., frozen fruit and vegetables and poultry.
Also, the areas reporting processing employ
ment increases have, in many instances, ex
perienced growth in production of farm
products. This appears particularly true in
the case of livestock and poultry. Although
the livestock industry is still concentrated in
the Middle West, the South and West have
experienced gains in livestock production.
These gains have stemmed in part from a
desire of those sections to utilize available
resources more fully to enhance farm income.
At the same time, growth and expansion of
the poultry industry due to economic and
climatic advantages of the South has been a
major factor in expanding employment in
that area.
Growth in production of livestock in the
above areas is also attributable to another
important factor; namely, the customers of
the industry are also relocating. Population
growth varies considerably throughout the
nation but, in general, the sharpest growth
has occurred in the South and West with
population increasing at a much slower rate
in the North Central and Northeast.
Changes in transportation facilities and
technology have also played a significant role
Digitized for 14
FRASER

in shifting the location of this industry. It is
especially evident in the meat processing
industry. With the advent of better roads and
trucking, the locational advantage for meat
packing firms shifted to the producing areas'
as opposed to the large terminal rail centers.
Thus, the meat packing industry has gradual
ly shifted operations from terminal concentra
tions to production centers. This may mean
a shifting of facilities within a given area —
for example, processing of meat products
nearer production centers in the Corn Belt
itself. At the same time, it means that invest
ment in processing facilities now closely fol
lows interregional production shifts. In that
connection, it is important to note that
changes in location based on technological
improvements such as refrigeration or im
proved facilities such as highways, generally
are delayed until the existing plant and
equipment are more fully depreciated. Thus,
for a specific area, recent employment losses
may reflect adjustments to much earlier de
velopments.
It appears that labor costs have only a
minor influence on relocation. It is evident
from Table IX that hourly wages in this in
dustry do vary considerably throughout the
U. S. As discussed above, however, labor
costs make up a small percent of total cost for
many food manufacturers. Thus, decisions
concerning raw material sources, perish
ability, and transportation costs are probably
more significant determinants of location.
Furthermore, in considering the impact of
wage rates, it is interesting to note that states
gaining in employment witnessed a rate of
advance in wage rates similar to that of the
states that have had employment losses since

JULY 1 9 6 4

1950. The relative importance of wages is
also illustrated by considering that in Cali
fornia, the state with the largest gain in food
processing employment, hourly earnings for
this industry are the highest in the nation.

SPECIFIC STATE EXPERIENCES
IN EMPLOYMENT
In an attempt to relate the general forces
influencing changing location in this indus
try to specific developments, the six states
showing both the largest gains and losses
in food manufacturing employment were
selected. Such a comparison should be help
ful in assessing developments in this industry
in Ohio. Unfortunately, considerable varia
tion exists in the availability of employment
data by subgroups in these states. Of the six
states registering the largest declines, Michi
gan and Massachusetts do not have data for
the various subgroups. Developments in the
remaining four states are shown in Table X.
The four categories accounted for 88 percent
of the total drop in employment in those states.
Although declines among the four groups
varied considerably in the four states, the
general forces mentioned earlier played a
vital role. Loss of meat packing jobs played
a major role in lowering employment in both
Illinois and Ohio. The severity of the declines
in both states reflects the closing of process
ing operations near terminal facilities. A re
duction in employment by dairy product
manufacturers was another major factor. In
that category, however, employment in Ohio
registered only a slight decline.
Ohio and New York experienced more sub
stantial losses in bakery employment than did
Illinois and Pennsylvania. The difference can

be attributed to increased employment in the
production of less perishable baked goods
such as biscuits, crackers, and pretzels. Since
these items are less perishable, production
for a much broader market area than other
baked goods is permitted. Likewise, econo
mies of scale for such plants favor large
volume operations. Therefore, employment
changes in this portion of the baking industry
have not been uniform among different states
but have reflected the location or expansion
of one or several key plants. This portion of
the baking industry has also been helped by
increased consumption in contrast to the
downward trend for other baked goods.
Fewer jobs in beverage production has
played a major role in reducing employment,
with the exception of Illinois. Such declines
TABLE IX
Average Hourly Earnings of Production Work
ers and Food Manufacturing Firms, 1962 (by
regions)
Pacific....................................................
North C e n tra l........................................
Middle A tla n tic ....................................
Mountain................................................
New England........................................
South C e n tra l........................................
South A tlantic........................................

$2.58
2.45
2.42
2.20
2.18
'1.83
1.65

Source: "Employment and Earnings” , Bureau o f Labor Statistics

TABLE X
Percentage Decline in Food Manufacturing
Employment by Subgroups, Selected States, 1958
to 1962
State
Illinois
New York
Ohio
Pennsylvania

Total

M eat

Dairy

-8 %
— 7
— 6
— 3%

-2 6 %
— 7
— 14
— 5%

— 7%
— 11
— 2
— 5%

Bakery Beverage
— 2%
— 10
— 7
— 2%

+4%
— 6
— 6
— 6%

Source: “ Employment and Earnings", Bureau o f Labor Statistics

ECONOMIC REVIEW

largely represent consolidations, closing of
obsolete malt liquor facilities, and the im
provement of existing operations in these
states. The number of breweries in operation
in New York, Pennsylvania, and Illinois was
reduced by one-half from 1951 through 1961;
in Ohio, breweries in operation declined
even more sharply, by 61 percent, over the
same period. Increased employment in Illi
nois is the result of a reversal of the produc
tion trend after 1958. The substantial decline
in malt liquor employment in these states has
been more than sufficient to offset gains in
employment by soft drink producers.
Among the states registering the largest
gains the causes of increased employment
are more widespread. A breakdown of em
ployment changes such as in Table X is not
possible because data are available only for
North Carolina. The limited data available,
along with information from the states, per
mits some comparisons to be made.
Increased population with concurrent
growth in employment by dairy, bakery, and
beverage firms has been an important factor,
especially in California and Florida. Similar
ly, a growing regional market has benefited
Georgia because producers of hard-baked
goods have expanded facilities in that state.

essing of frozen juices has been a major con
tributor to increased employment while in
California it has been the processing of vege
tables. California produces approximately
one-third of all vegetables for processing and
has benefited from the gain in popularity of
frozen vegetables.
The substantial gain in employment in
Idaho reflects a special situation. By far the
major portion of increased employment in
that state has resulted from gains in potato
product processing. Such gains have followed
sharp gains in output of potatoes in that state.
Consumer acceptance of frozen potato prod
ucts has, to a lesser extent, increased em
ployment in other states and has reversed a
downward trend in per capita potato con
sumption. Public policy may have played a
part in Idaho's gain because a state law
prohibits shipment of fresh bulk potatoes out
side the state for processing.
In evaluating the influences behind the
gains and losses, several factors stand out.
The declining states have suffered reductions
in employment as a result of the industry mix
being concentrated in products where output
has failed to keep pace with productivity.
Population growth that has set off an expan

Growth in livestock production has also
played a part as firms have expanded facili
ties to handle increased output of beef in most
of the states. A phenomenal expansion in
poultry production has been the most signifi
cant factor in meat processing employ
ment gains in Georgia, North Carolina, and
Arkansas.
Increased popularity of other food products
is also evident. In Florida, for example, proc

such forces in areas of increases. In general,
the gaining states are also centers of produc
tion of more popular food products, e.g.,

Digitized for 16
FRASER

sion of facilities has reversed or counteracted

broilers, frozen juices, processed vegetables,
and potato products.

PROSPECTS FOR OHIO
Thus, the extent of the decline in food
manufacturing employment in Ohio does not
seem unusual when viewed in light of nation
al and regional trends for this industry.

JULY 1 9 6 4

Prospects for employment in the food proc
essing industry in Ohio are mixed. Of the
forces contributing to the recent decline, it
appears that the sharp losses in employment
in meat processing and beverages may be
past; however, a small but steady erosion in
employment in those industries as well as in
bakeries may be expected to continue. Thus,
for three of the major food processors in Ohio,
the outlook for employment is at best a slower
rate of decline.
Employment by dairy processors has been

well maintained in Ohio; however, if plant
improvement and consolidation has been de
layed, it could ultimately mean substantial
declines similar to those in New York or Illi
nois. Nearly one-fourth of food processing em
ployment in Ohio is concentrated in dairy
products.
Overall, against the background of the
many and diverse factors influencing the lo
cation of the food processing industry, it does
not seem realistic to anticipate future gains
in employment by food processors in Ohio.

ECONOMIC REVIEW

RECENT ECONOMIC DEVELOPMENTS
IN SELECTED FOREIGN COUNTRIES

HIS ARTICLE briefly reviews recent eco
nomic developments in the major in
dustrial nations of the world. Most major
industrial countries have been enjoying eco
nomic prosperity for some time. Evidence of
the economic growth of selected nations is
reflected in Chart 1, which shows annual
gross national product on a per capita basis,
beginning in 1958. The GNP data are ex
pressed in terms of current dollars.
Each of the six nations included in the
chart has experienced a net increase in per

capita GNP since 1958. In West Germany,
France, and Italy, growth has been substan
tial and steady. In contrast, the United King
dom and Japan have had interruptions in the
rate of growth as a result of business reces
sions in 1962. Canada is the only nation of
the group that has experienced any decline
in per capita GNP during the period, as the

total output of goods and services grew more
slowly than the population of that country in
1960 and 1961. More recently, however,
the Canadian economy has demonstrated a
strong rate of growth.
Economic expansion in these nations has
been broadly based. Expansion in world trade
has contributed, as has the high rate of do
mestic construction for both residential and
commercial purposes. In some of the coun
tries, increased economic activity has been
supported primarily by large consumer de
mands. On the other hand, a surge in the
discovery and use of natural resources has
recently stimulated business in Canada and
northern Europe.
The growth in total output in several na
tions has been accompanied by a rise in pro
duction and a more intensive use of the fac
tors of production. The nature of economic

JULY 1 9 6 4

expansion is reflected, in part, in
unemployment trends. Chart 2
shows estimates of seasonally ad
justed rates of unemployment on a
quarterly basis. (Only annual data
are available for Italy.) The data
have been adjusted to U. S. statisti
cal definitions of unemployment
but do not take into account dif
ferent labor practices among the

GROSS N ATION AL PRODUCT
Per capita Basis
Selected Countries
U.S. do liars
3000

Cl NADA
•w
2000

UNITE D KING DOM

countries.
FRANCE
Two separate patterns are re
1000
ft t) T flttl 1iu y
f fiFDII Ail T
900
vealed by Chart 2. Since 1958
_ . _800
r- t* !
r*
three nations have absorbed most
700
ITALY
600
of their available labor supply. In
— 500
the case of West Germany and
lapan this has resulted in reaching
400
JAPAN
near-full employment. In the case
300
of Italy, further declines in the rate
of unemployment will depend upon
RATIO SCALE
Am lu a lly
200
education and training programs
58
’ 59
’60
’ 61
’ 62
’63
’64
for individuals that are presently
considered unemployable.
Sources o f data: Board o f Governors o f the Federal Reserve System;
In two of the nations shown in
Central Statistical O ffice (G reat Britain);
Her Majesty's Treasury (G reat Britain); International
the chart, the unemployment pat
M onetary Fund; Japan Economic Journal; Organization for
tern since 1958 has been one of
Economic Cooperation and Development; United Nations
sharp cyclical swings with little
improvement on balance. British unemploy
seasonal industries.
ment registered a net increase from 1958
As might be expected, those industrial
through 1963. In fact, Great Britain is
nations with sharp drops in unemployment
considered to be the only major European
also have experienced large increases in
country with an excess labor supply. In
wages. Using 1958 as a base, Chart 3 shows
Canada, the rate of unemployment was
that wages in France, Germany, and Japan
similar to that of the United States until 1963,
when business activity improved enough
to reduce significantly Canada's unemploy
ment. Further diversification of the Canadian
economy should aid employment materially
by offsetting present dependence upon

have climbed sharply. The rise in wages was
the result of several factors: gains in labor
productivity, the declining margin of the
labor force that was unemployed, and the
pressure for higher earnings to compensate
for increases in the cost of living. In the case
19

ECONOMIC REVIEW

ing pressure by labor groups in
Italy for higher wages, including
RATE OF UNEMPLOYMENT
the demand for a 15 percent in
as a Percent of Labor Force
crease this year.
In Western Germany, where the
situation is quite different, the level
of wages is one of the highest in
Europe. As a result, an increasing
number of skilled workers from
other nations are entering Ger
many. While such shifting helps to
alleviate the labor shortage in Ger
many, it contributes to pressure for
higher wages in neighboring na
tions, which are either competing
for or attempting to retain skilled
employees.
Wage pressures are expected to
continue through 1964 in most in
dustrial countries. Several of these
nations have nearly exhausted
’ 58
’ 59
’6 0
’61
’62
’ 63
’64
their domestic supply of labor.
E s tim a te s a d ju s t e d to U .S . D e f i n i t i o n o f U n e m p lo y m e n t
European imports of foreign work
ers, from as far away as Turkey and
Source o f data: Federal Reserve Bank o f Geveland
North Africa, are reaching a limit.
A remaining alternative is the further adop
of Italy, these factors did not have a major
tion in foreign nations of labor-saving ma
impact until 1962.
chines and techniques, which may require
The measures shown in the chart conceal
time for implementation.
two factors. For one thing, the chart does not
Prices also have been climbing in the in
show the absolute level of foreign wages, and
dustrial nations. It was mentioned earlier that
secondly, the lines do not reveal whether the
wage rates had risen partly in response to
changes in wages that have taken place were
changes in the cost of living; the nature of
the result of planned government policies.

Therefore, it should be added that, notwith
standing the sharp rises since 1958 in wages
in Japan and Italy, those two nations still pay
the lowest wage rates among the industrial
nations. The relative level of Italian wages
within Europe is one reason for the continu

these changes is shown in Chart 4. It is ap
parent that since 1958 the relative increases
in consumer prices have been largest in
Japan and France. A recent rise in prices is
also apparent in Italy, where two-thirds of the
overall increase in the six-year period oc

JULY 1 9 6 4

curred in 1962 and 1963.
One precaution should be ob3.
served in analyzing the price sta
W AGES
tistics of foreign nations. There is
Selected Countries
more government influence on
prices abroad than in the United
States, sometimes for the purpose
of influencing official price in
dexes. In France, for example, a
price ceiling has been imposed on
basic items included in the cost of
living index, e.g., bread, in order
to prevent the index from reflecting
actual consumer prices. The data
shown in Chart 4 may understate
the changes in consumer prices
that have taken place in some of
the industrial nations.
There has been a similar official
influence on foreign wholesale
prices, particularly on products
important in export trade. Some of
* b a s e d o n o n e m o n th 1 9 6 4
* * b a s e d o n f i r s t tw o m o n th s 1 9 6 4
the larger trading nations of
Source o f data: International M onetary Fund
Europe have been able to maintain
virtual stability in export prices
since 1958 with the aid of special benefits
In Italy, the loss of price stability in the last
such as tax refunds for exporters. General
two years is noteworthy. An interesting com
parison exists between France and Italy. As
wholesale prices have not been as stable, al
though the net increase in such prices in the
the charts show, price increases since 1958
major nations in recent years has been less
have been larger in France than in Italy, and
than in consumer prices. (See Chart 5.)
yet more international concern has been ex
Although Japan has experienced a rapid
pressed over Italy.
rise in the cost of living, it has shown only a
Recent increases in wholesale prices in
Canada may reflect the devaluation of that
small increase in wholesale prices. German
success in preventing inflation is apparent
nation's currency in 1962, which led to a
in their index for wholesale prices. On the
substantial climb in export trade and in
other hand, France has a different situation,
creased business activity. In the United King
registering the largest increase in domestic
dom, the rise in wholesale prices since 1958
has been significant.
wholesale prices for any of the six countries.

ECONOMIC REVIEW

able to build up their gold and
foreign exchange holdings since
CONSUMER PRICES
1958. This is particularly true for
Selected Countries
West Germany and France. The
special and divergent develop
: 1958 =100
ments among the industrial nations
in the past twelve months also are
APAN
130
apparent in Chart 6.
For example, a sharp rise in
German reserves led to a revalua
ITALY y*
120
tion of the mark in 1961. Again in
1963, however, a favorable bal
V
/ t
FRANCE
ance of trade plus a large inflow of
kA
$
— "V
4
/
foreign capital rebuilt German re
110
<
serves. National authorities were
_s- **
concerned that the resulting im
CANA DA
balance in financial liquidity could
100
U l IITED
lead to an "imported inflation"
WES1 GERM/ NY m GDOM
and took steps to curb the inflow of
O ua rt j r l y
foreign iunds. The European Com
90
’ 58
’59
’60
’61
’62
’63
’64
mon Market Council has recom
mended that further measures be
taken in Germany by reducing
Sources o f data: Board o f Governors of Federal Reserve System; International
government-financed construction
M onetary Fund; O rganization fo r Economic Cooperation and
Development; Weekly Bond Buyer
and postponing a tax cut sched
uled for this year.
The interaction of the foregoing factors is
Many observers have urged France and
reflected in holdings of gold and foreign ex
Italy to come to grips with price inflation.
change reserves. In effect, such holdings may
The balance of payments positions of both
be used as an indicator of the interaction of
countries—but especially of Italy —deterio
domestic and foreign activity. An increase in
rated in 1963 as imports from the rest of
reserves generally indicates an excess of
Europe rose sharply. Such imports were en
total receipts over total payments for inter
couraged in France in order to control rising
national transactions and a general confi
dence in the currency of the specific coun
domestic prices on goods and foodstuffs and
to discourage further wage pressures. Such
try. Chart 6 supplements the evidence pre
measures, and other new French policies,
sented in the previous charts in that most of
apparently have slowed the rise in the
the foreign nations that have had a sharp
gold and foreign exchange reserves of that
rate of growth in per capita output and
country.
a drop in unemployment also have been
22

JULY 1 9 6 4

Sharp increases in prices and
labor costs that have worsened the
W HOLESALE PRICES
competitive position of Italian
Selected Countries
manufacturers have been accom
panied by a profit squeeze. In ad
dition, a huge increase in consum
er spending led to a sharp rise in
Italian imports in 1962 and 1963.
Finally, there has been an outflow
of investment capital to Switzerland
and Germany. The net effect has
been a recent substantial drop in
Italian reserves. In March of this
year the Italian government found
it necessary to borrow more than
$1 billion in reserves from the In
ternational Monetary Fund and
several nations, including the
United States.
The United Kingdom has in
curred periodic drains on its inter
national reserves, with no lasting
increase since 1958. This, how
d o f G o v rn o rs o f h e F e
ever, does represent success in S o u rc e s o f d a t a : B o a rMajesty’seTreasury t(G reatd e r a l R e s e r v e S y s te m ;
Her
Britain); International
M onetary Fund; Organization fo r Economic Cooperation
preventing long-term erosion of
and Development; Weekly Bond Buyer
reserves. Difficulties continue in
that the rising level of business activity in
that manufactured goods make up a growing
proportion of Canadian exports.
the United Kingdom has led to larger imports
Japan experienced a healthy gain in inter
and larger balance of payments deficits. Thus,
the government has decided to maintain the
national reserves from 1958 into 1961, but
current economic expansion with slightly
an increasing need for more imports to sup
firmer monetary and fiscal policies.
port business expansion led to balance of
The sharp increase in Canadian reserves
payments difficulties in late 1961. Similar
problems have appeared intermittently since
in 1962 was due to the devaluation of the
then, with the national authorities resorting,
Canadian dollar. The Canadian balance of
payments in 1964 is expected to be favorably
whenever necessary, to increased monetary
affected by an unusually high volume of ex
control. Japan's reserve position has become
increasingly important this year, because in
ports, particularly wheat shipments to Com
munist countries. It is noteworthy, however,
April the country accepted the responsi

ECONOMIC REVIEW

GOLD & FOREIGN
EXCHANGE HOLDINGS
Selected Countries

Bil

i o n s ol

U.S. d o l l a

WEST
t Km^f v
ED y n I

✓>

FRANCE

■w

UN TED
KINC DOM

IT/ILY

►

------♦

_a
CAN IDA
—
*

IAPAN

bilities of full currency convert
ibility under the International
Monetary Fund. This has meant
the removal of all exchange re
strictions and the loss of some
protection against short-term
capital flows.
In summary, the recent develop
ments in foreign nations have been:
increasing wage-price pressures,
often resulting in declining profit
margins and loss of competitive
position; growing demands, espe
cially by consumers, that have con
tributed to changing trade patterns
and balance of payments difficul
ties; and widespread concern with
trends in gold and foreign ex
change reserves.

Q u a rterly

’ 58

’59

’ 60

’61

’62

’6 3

’64

Sources o f data: International Monetary Fund; Organization for Economic Cooperation and Development; Weekly Bond Buyer

Digitized for2 4
FRASER

JULY 1 9 6 4

SPOTLIGHT ON SAVINGS FLOWS

Savings inflows constitute an important
source of funds for commercial banks and
savings and loan associations, as well as other
types of financial institutions. The implica
tions associated with savings flows —source,
direction, rate, intensity, etc.—warrant a
continuing review of the factors that influence
such flows. This article examines some of
these factors and attempts to relate them to
the flow of personal savings in 11 Fourth
District cities.1
1 For the purpose of this article personal savings are
defined as the total of savings deposits of individuals at
commercial banks and savings in insured savings and
loan associations in the 11 cities.
Monthly data on savings deposits of individuals at 44
banks in 12 Fourth District cities, as of the last Wednes
day of each month, are collected and published by the
Research Department of the Federal Reserve Bank of
Cleveland. Savings deposits of individuals include de
posits of eleemosynary organizations, Christmas savings
and simliar thrift accounts, and time certificates of de
posit of individuals. Based on a comparison with Call
Report data for June 26, 1963, the volume of individuals'
savings deposits reported to this bank represents an
average of nearly two-thirds of the volume of total time
and savings deposits in the 12 District cities. Data on
savings and loan associations have been provided by
the Federal Home Loan Banks of Cincinnati and Pitts
burgh. Total assets were substituted for savings capital
in all cities except Erie and Pittsburgh.

Since 1961 Fourth District commercial
banks have experienced substantial growth
in time and savings deposits. A major part of
the gain occurred after Regulation Q was
liberalized at the start of 1962; this action
increased the maximum rate payable on time
and savings deposits by banks to 4 percent.
Since 1961, savings and loan associations
have also experienced a sizable gain in sav
ings capital indicating that total personal
savings in the District, as defined in this arti
cle, has increased substantially during the
current period of business expansion.
While the growth in savings is easily docu
mented statistically, the pattern of growth has
by no means been uniform. In fact, the flow
of total personal savings in recent years has
varied widely from city to city. To better
assess such patterns a set of three hypotheses
has been formulated as a framework within
which to examine variations in the growth
patterns that have been evident in total per
sonal savings, as well as the impact of
competition on savings flows. The first two
hypotheses are intended to serve as explana
tions for the varying rates of growth in per
sonal savings among 11 Fourth District cities.
The remaining hypothesis examines the in
25

ECONOMIC REVIEW

fluence of competition on the allocation of
personal savings between commercial banks
and savings and loan associations.
H ypothesis I: The rate o f grow th o f p e r
sonal savings is directly related to the size
o f the co m m u n ity .
Although the size of the population of a
community has a strong bearing on the dollar
volume of personal savings at commercial
banks and savings and loan associations,
Table I indicates that it does not necessarily
determine the rate of inflow. This is true de
spite the fact that there were some centers
where increases in savings did conform to the
first hypothesis in 1961-63. For example,

TABLE I
Total Personal Savings,* Selected Fourth District
Centers as of Yearend
(000 omitted)
1961
1963

Percent
Change

Population: 1 million and over**
Cincinnati
Cleveland
Pittsburgh

82 9,96 5
3,002,156
1,921,871

$ 1,028,477
3,631,829
2,3 18,9 62

4 5 3,17 0
601,554
4 5 1,28 5

57 1,19 0
76 7,16 5
555,718

26.0
27.5
23.1

28 3,56 7
131,732
82,992
49 4,66 3
28 8,82 8

339,268
167,757
110,082
584,552
315,286

19.6
27.3
32.6
18.3
9.2

$8,541 ,183

$10,39 0,28 6

2 3 .9 %
21.0
20.7

500,000— 999,999
Akron
Columbus
Dayton

100,000— 499,999
Canton
Erie
Lexington
Toledo
Youngstown
Total

2 1 .6 %

^Includes the total o f savings deposits o f individuals at com
mercial banks and total assets a t savings and loan associa
tions. In Erie and Pittsburgh savings capital was substituted
fo r total assets.
**Populations based on Standard
Areas except Youngstown.

M etropolitan

Statistical

Sources: Federal Reserve Bank o f Cleveland;
Federal Home Loan Banks o f Cincinnati and Pittsburgh

Digitized for 2 6
FRASER

personal savings in Cincinnati (in the largest
size group) recorded an above average rate
of growth in the 1961-63 period while some
of the cities in the smallest size category
(Canton, Toledo, and Youngstown) revealed
below average increases.
In marked contrast, several of the larger
cities did not have correspondingly high
growth rates while those in some smaller
cities were among the highest reported. Sav
ings in both Cleveland and Pittsburgh re
corded slightly less than average growth in
1961-63 while savings in Akron, Columbus
and Dayton, which fall into the medium-size
category, registered relatively high growth
rates. Erie and Lexington, two of the smaller
cities reporting, experienced marked growth
in personal savings.
Thus, the evidence indicates that the size
of the population of a community does not
play the determinant role in savings flows.
H ypothesis II: E conom ic conditions d e
term ine the grow th rate o f savings.
General economic conditions appear to
exert considerably more influence over sav
ings growth than does the population size of
the center. But, again, it is not the sole ex
planation of differences. Table II shows the
annual rates of personal savings growth re
ported for each city during 1961, 1962 and
1963; the table also shows three broad meas
ures of prevailing economic conditions in the
respective cities (bank debits, rate of unem
ployment, and department store sales).
At opposite ends of the spectrum, develop
ments in two centers (Lexington and Youngs
town) reflect rather strong effects of economic
conditions on savings growth. Savings in Lex

JULY 1 9 6 4
TABLE II
Personal Savings and Economic Factors, Selected Fourth District Centers
Percent Change in

Percent Change in

Average Monthly Rate

Personal Savings Outstanding

Bank Debits

o f Unemployment in SMSA

Average Monthly Index o f

_________(Yearend)________

(Unadjusted Yearly Total)

(% o f Civilian Labor Forces*)

Department Store Sales

Center

1961

1962

1963

1961

1962

1963

1961

1962

1963

Percent Change in

1961

1962

1963

12.5

13.0

11.5

1.3

7.2

9.4

7.0

4.5

4.3

0.2

3.5

4.3

Canton

7.4

9.7

9.1

— 2.8

5.1

6.8

8.8

6.8

5.9

— 0.5

— 0.3

3.5

Cincinnati

9.1

9.0

13.7

3.3

7.4

4.0

5.6

4.4

4.3

8.9

4.6

3.5

Cleveland

6.5

9.3

10.7

1.2

8.4

9.0

6.9

4.9

4.4

— 0.9

— 1.1

4.1

Columbus

10.6

12.3

13.5

6.4

7.1

4.3

3.3

3.4

4.2

5.7

4.1

Dayton

11.4

11.7

10.3

2.0

11.6

7.6

5.0

3.7

3.4

n.a.

Akron

n.a.

15.1

10.7

— 1.2

9.3

6.2

10.3

7.7

7.2

— 1.3

1.2

2.2

Lexington

12.0

15.3

15.0

3.5

15.2

11.4

n.a.

— 0.3

3.6

5.8

Pittsburgh

n.a.

11.2

8.5

0.2

11.3

13.5

10.7

9.3

7.9

0.5

0.3

2.4

10.3

8.3

9.3

5.0

17.8

1.0

8.6

6.7

4.8

2.9

3.4

2.6

5.3

4.3

4.7

— 6.5

3.3

11.7

8.9

8.1

6.2

— 4.8

— 3.9

1.0

Erie

Toledo
Youngstown

n.a.— not available
*Labor market information letters published by local offices o f the State Employment Service Agencies in Ohio, Pennsylvania and
W est Virginia.
Source: Federal Reserve Bank o f Cleveland

ington recorded increases of 15 percent in
both 1962 and 1963, the highest rates of gain
for any center. During those two years, eco
nomic conditions in Lexington, as measured
by increases in the volume of bank debits and
department store sales, showed considerable
improvement. While bank debits showed the
most consistently high percentage increase
for any of the centers, department store sales
also recorded substantial increases in 1962
and 1963.
By contrast, personal savings in Youngs
town experienced relatively low rates of
growth. This may not be surprising in view
of the following: the performance of bank
debits in Youngstown was well below average
in two of the three years; department store
sales recorded the poorest showing in the
District; and the unemployment level in
Youngstown was at a relatively high rate of
more than 8 percent in both 1961 and 1962

with some improvement in 1963. In support
of the hypothesis, therefore, these two centers
are good examples of growth rates of savings
being closely related to or affected by eco
nomic conditions.
In other centers the behavior of personal
savings conforms to the hypothesis in varying
degrees. Thus, Akron, Columbus and Dayton
reported favorable economic conditions and
strong growth in savings. Canton, Cleveland
and Toledo reported more moderate increases
in savings with generally less favorable eco
nomic conditions. In Pittsburgh where eco
nomic conditions were relatively among the
poorest in the District, savings growth was
somewhat above average in 1962 but below
average in 1963.
On the other hand, in some of the
the experience tends to refute the
hypothesis. For example, the record
ings growth in Cincinnati was below

centers
second
of sav
the av
27

ECONOMIC REVIEW

tested as an explanation for the shifting flow
of personal savings at commercial banks and
savings and loan associations in 11 District
centers.

erage of the District in two of the three years;
but the unemployment rate was among the
lowest reported, and department store sales
made a consistently good showing even
though the rate of annual increases has been
declining. The situation in Erie was reversed,
with a high savings growth rate in 1962 and
1963 coupled with relatively unfavorable
economic circumstances.
Thus, with only two exceptions, savings
growth rates do appear responsive to local
economic conditions. But this is, in fact,
quite logical, for in the long run the economic
climate is the principal determinant of differ

H ypothesis III: In terest rate com p etition
d eterm ines the allocation o f individuals’
savings.
Tables III, IV and V show the interest rate
pattern at banks and savings and loans in the
11 District centers during recent years and
the shifting allocation of individuals' savings
between these institutions. Table III shows
prevailing rates of interest paid on savings
at banks and savings and loans in the 11
centers as of each yearend since 1960. Table
IV shows the distribution of annual savings
inflows between banks and savings and loan
associations. Table V shows the yearend dis
tribution of savings outstanding in the various
centers.

ences among centers.
In addition to the varying pattern of savings
flows among District centers, there are also
differences in the pattern of flows at deposittype institutions within individual centers.
These differences are better understood when
the probable causes are considered. To ex
amine these causes, a third hypothesis is
TABLE III

Prevailing Interest Rates on Savings, Selected Fourth District Centers
I9 6 0

1961

1962

1963

Commercial
Center
*Akron
*Canton

Savings and

Commercial

Savings and

Commercial

Savings and

Commercial

Savings anc

Banks

Loans

Banks

Loans

Banks

Loans

Banks

Loans

3%
3

3 'A %
4

3%
3

4%
4

Cincinnati

*Cleveland

4 'A

4V a

Columbus

3 'A

Dayton

2 'A

V /i

Erie

3 'A

Toledo

Youngstown

2 V i%

3 'A %

2 'A %

3 'A %

2 'A %

3 'A %

*Lexington
*Pittsburgh

3 'A -4

4 to 4 'A

*Banks in these cities raised rates on time deposits to the 4 % ceiling in 1962. Banks in Dayton also raised rates, but not to the
ceiling.
Sources: Federal Reserve Bank o f Cleveland; Federal Home Loan Banks o f Cincinnati and Pittsburgh

JULY 1964
TABLE IV
Annual Savings Flows, Selected Fourth District Centers
1961

1962

Total $

Increase

% at

% at
Commercial Savings &

in Personal

Loans

Total $

Increase

% at

in Personal

Banks

*Akron

50 ,266

21.0

79.0

19,527

0.8

99.2

Banks

Increase
in Personal

% at
% at
Commercial Savings &
Loans

Banks

Savings

51.4

27,478

Loans
48.6

59 ,026

63.3

36.7

55.8

58 ,994

*Canton

% at

Commercial Savings &

Savings

Center

1963

44.2

28,223

36.7

63.3
93.0

Cincinnati

69,11 8

19.9

80.1

74 ,490

11.3

88.7

124,022

7.0

*Cleveland

182,656

10.2

89.8

279,782

58.3

41.7

349,891

31.2

68.8

Columbus

5 7,546

18.8

81.2

7 4 ,260

11.7

88.3

91,351

72 .7

Dayton

46 ,039

4.4

95.6

26.0

74.0

51,774

n.a.

52,659
19,854

27.3
20.5

15.7

84.3

16,171

13.5

86.5

8,874

30.2

69.8

12,709

72.6

27.4

14,381

72.5

27.5

Erie
*Lexington
“"Pittsburgh

79.5

n.a.

214,695

54.6

45.4

182,396

47.2

52.8

Toledo

4 6,055

12.9

87.1

40,874

21.8

78.2

49,615

27.6

72.4

Youngstown

14,637

14.3

85.7

12,408

18.1

81.9

14,050

9.8

90.2

TABLE V
Distribution of Personal Savings, Selected Fourth District Centers
1960

1961

Out
Center

% at
Com'l

standing

Banks

% at
Svgs. &
Loans

1962

1963

% at
Svgs. &

Out

% at
Com'l

% at
Svgs. &

Out

% at
Com'l

% at
Svgs. &

standing

% at
Com’l
Banks

Loans

standing

Banks

Loans

standing

Banks

Loans

O ut

*Akron

4 0 2,90 4

43.0

57.0

4 5 3,17 0

40.5

59.5

5 1 2,16 4

41.8

58.2

57 1,19 0

44.0

56.0

*Canton

2 6 4,04 0

27.3

72.7

2 8 3,56 7

25.4

74.6

311,045

28.1

71.9

339,268

28.8

71.2

Cincinnati

7 6 0 ,8 4 7

26.7

73.3

829,965

26.1

73.9

90 4,45 5

24.9

75.1

1,028,477

22.7

77.3

*Cleveland

2,8 19,5 00

41.2

58.8

3 ,0 02,1 56

40.7

59.3

3,281,938

42.2

57.8

3,631,829

41.2

58.8

Columbus

5 4 4,00 8

22.0

78.0

601,554

21.7

78.3

675,814

20.6

79.4

7 6 7,16 5

21.4

78.6

Dayton

40 5,24 6

16.3

83.7

45 1,28 5

16.3

83.7

503,944

17.3

82.7

5 8 5,71 8

17.6

82.4

—

131,732

52.2

47.8

151,586

47.5

52.5

167,757

44.2

55.8

Erie

—

*Lexington

74 ,118

*Pittsburgh

—

n.a.
43.8
n.a.

56.2
—

82,992

42.4

57.6

95,701

46.4

53.6

110,082

49.8

50.2

1,921,871

45.6

54.4

2,136,566

46.5

53.5

2,318,962

46.6

53.4

Toledo

4 4 8,00 8

35.7

64.3

49 4,06 3

33.6

66.4

5 3 4,93 7

32.7

67.3

584,552

32.3

67.7

Youngstown

274,191

35.0

65.0

28 8,82 8

33.9

66.1

30 1,23 6

33.3

66.7

3 1 5,28 6

32.2

67.8

ECONOMIC REVIEW

Based on the record of the 1961-63 period,
the flow of individuals' savings within centers
is strongly influenced by the rates of interest
paid by competing savings institutions. For
example, the tables confirm the supposition
that savings flows at banks in an individual
center are heavily dependent on the banks'
competitive position vis-a-vis other savings
institutions.
The impact of rate competition on savings
flows can be seen by comparing the experi
ence in cities where banks raised the rate
paid on savings deposits in 1962 with the
record in cities where banks did not raise the
rate. Without exception, banks that offered
a more competitive rate to savers experi
enced substantial growth in individuals' sav
ings. More importantly, however, part of the
growth was at the expense of competing sav
ings and loans. In cities where banks raised
rates to the allowable ceiling (cities desig
nated by an asterisk), banks attracted a sub
stantially larger share of the savings flow in
1962 than they had in the preceding year.
Whereas banks in these cities had attracted
an average of 15.6 percent of the personal
savings growth in 1961, the average share

In Dayton, where banks raised rates in
1962 but not to the permissible maximum,
banks improved their position but not by as

in 1962 was 58.5 percent of a larger volume
of savings.2 Canton banks registered the most
marked year-to-year improvement, gaining

widened their competitive advantage in
1963, and Lexington banks maintained the
substantial advantage achieved a year earli
er. All of these patterns tend to confirm the

more than one-half of the savings inflow in
1962 compared with less than one percent
in 1961. Lexington banks increased their
share of the savings inflow in that city to the
highest proportion reported by banks in any
of the centers in 1962.
2 Pittsburgh was excluded from the average in 1961
because of the lack of data.

Digitized for 3 0
FRASER

large a margin as in cities where rates moved
up to the ceiling.
As a result of the sharply higher share of
savings flowing to the banks in those cities,
the banks also increased their share of total
personal savings. (See Table V.)
While the effect of the increase in rates
paid on savings deposits was invariably fa
vorable to banks in 1962, most of the banks
did not maintain the same advantage through
1963. Banks in all centers, with the exception
of Akron, experienced some decline in their
share of the savings growth in 1963 although
the amount of total savings inflow in 1963
exceeded that in 1962. Despite this erosion,
however, the banks continued to attract a
significantly larger share of savings than in
1961.
In Cleveland, where savings and loans re
sponded to the higher savings rate at banks
with an increase in their own dividend rate,
the advantage that banks enjoyed in 1962
was more noticeably reduced in 1963 than in
any other city. In contrast, banks in Akron

hypothesis that interest rate competition de
termines the allocation of individuals' savings.
In the remaining cities, where interest rates
on savings deposits at banks remained un
changed, the pattern was not as clearly de
fined. It is generally true, however, that banks
in these cities did not uniformly improve their
competitive position vis-a-vis savings and

JULY 1 9 6 4

loans as did banks that instituted rate in
creases. The average share of annual savings
growth going to banks in Cincinnati, Colum
bus, Erie, Toledo and Youngstown displayed
little change for three years, averaging 16.5
percent in 1961, 15.7 percent in 1962, and
17.0 percent in 1963.3 In Cincinnati the
competitive position of banks declined more
than in other centers despite substantial
growth in the volume of personal savings in
Cincinnati. The Cincinnati banks attracted a
progressively smaller share of savings growth
in face of competition from an unusually large
number of savings and loans in the area. In
addition, some savings and loans in Cincin
nati raised their dividend rates in 1963, there
by widening an already sizable spread over
the rate paid by the banks.
In the other four centers conformity to the
hypothesis is not as precise as in Cincinnati
but lack of conformity is not sufficiently pre
valent to invalidate the hypothesis. In Toledo
the banks increased their share of the annual
savings flow in each of the past three years
despite a constant spread of one percent
3 Erie was excluded from the average in 1961 because
of the lack of data.

between interest rates at banks and savings
and loans in that city. Youngstown banks
gained a larger share of savings in 1962 but
lost ground in 1963. In Columbus the situa
tion was reversed as the banks lost ground
in 1962 but attracted a substantially larger
share of the savings growth in 1963. In Erie,
where data for only two years are available,
the banks made little progress in attracting a
larger share of savings.
Despite the variations in the pattern of
annual savings flows in this group of centers,
the proportion of savings outstanding at banks
in these centers has declined (almost without
exception) in each year since 1960. (See
Table V.) In centers where banks did not raise
interest rates in 1962, the banks' share of
savings outstanding declined from an average
of 33.5 percent at yearend 1961 to 30.6 per
cent in 1963. In contrast, in centers where
banks did raise rates in 1962, the banks'
share of savings outstanding increased to an
average of 42.1 percent at yearend 1963
from 38.9 percent in 1961. These divergent
patterns lend further support to the third hy
pothesis, indicating the importance of rate
competition in determining relative shares of
a local personal savings market.

F o ur t h F e d e r a l R e s e r v e Di s t r i c t