The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
IN THIS ISSUE Preconditions of Social and Economic Progress 3 United States Trade in S t e e l ........................ 9 C a p ita l Spending in M ajor A reas o f the Fourth District . . . . 23 F E D E R A L R E S E R V E B A N K OF C L E V E L A N D Additional copies of the ECO N O M IC REVIEW may be obtained from the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio 44101. Permission is granted to reproduce any material in this publication. JUNE 1968 PRECONDITIONS OF SOCIAL AND ECONOMIC PROGRESS by W. Braddock Hickman, President Federal Reserve Bank of C leveland Remarks by President Hickman before the graduating class of Case Western Reserve University School of Management, Clevelan d, O h io, June 12, 1968. The views expressed are Mr. Hickman's and do not necessarily reflect those of the Federal Reserve System. I would like lo consider some of the funda activity. A ggregate demand represents the m ental problems and issues that will confront total of spending done by the various sectors you, as graduates, as you leave school and of the economy — public and private — or join the rest of us in seeking to achieve further consumers, businesses, and Government. social and econom ic progress. If you will per There is, at any time, a level of aggregate de mit me a few liberties, I believe it is possible mand that is consistent with the full utiliza to reduce the problem of future progress to tion of the nation's existing physical and a few simple forms. In brief, there is wide human resources. Since the nation's resource spread agreem ent am ong observers that b ase — its manpower and physical capacity both the total and quality of our economic — is constantly growing, and since the na and social life need to be elevated and then tion's ability to utilize its resources is steadily m aintained at high and sustainable levels. improving — through increases in productiv To put the matter differently, almost everyone ity, technological change, and the like — the agrees that the m ajor burden of our economic econom y's potential output grows at an even and social purpose is to promote maximum faster pace. levels of production, income, and em ploy A m ajor challenge to the econom y, there ment, and to have these distributed as widely fore, is to assure that aggregate demand ex and as equitably as possible. pands enough to utilize fully av ailab le re Let me consider the total aspect first. Econ sources and to achieve the ever-increasing omists talk about the importance of having potential output, but not so much as to cause an adequate level of aggregate demand in an inflationary spiral in w ages and prices. order to achieve a d esirable level of economic This is why the tax and spending policies of 3 ECONOMIC REVIEW lhe Federal Governmenl — fiscal policy — economy is moving too fast, the mix of m one are crucial elem ents in the mix of economic tary and fiscal policy should be such as to developments. Taxes can be used as an effec restrain the p ace of economic activity, that is, tive tool in stimulating or discouraging the taxes should be raised (or spending reduced) willingness and ability of individuals and and the monetary authority — the Federal businesses to spend or not to spend. A sim ilar Reserve — should follow a less accom m oda situation exists with respect to Federal spend tive policy. Conversely, when the econom y is ing, which can perform an essential function sluggish, the mix of policy should attempt to as a complement to private spending in the stimulate the econom y: economy. Federal spending can be acceler should be eased, taxes reduced, and Federal m onetary policy ated when private spending is slack (or taxes spending increased. Of course, all or any can be reduced); and Federal spending can combination of these things might be done. be restrained when private spending is ex Unfortunately, in practice, recent experi panding (or taxes can be increased). W hich ence shows that neither the econom ic world ever m ay be the case, the objective is to pro nor econom ic policym aking is quite as simple mote conditions in the public and private a s theory suggests. Using the past three years sectors so as to achieve a high and expand a s an illustration, the econom y has gone ing level of economic activity without price through alternating periods of rapid acceler and w age inflation. The objective of monetary policy is similar. ation, then slack, then more acceleration, Essentially, the m ajor function of monetary with slack in the period ahead, unless we policy is to provide a flow of m oney and credit straighten out our domestic problems. The that is com patible with the demands of a high costs of these undesirable swings in the and expanding level of economic activity. If economic pendulum have been excessive monetary policy fails to provide sufficient price inflation, serious deterioration in the money and credit, then the nation's economic nation's foreign trade position, and uneven activity will be disrupted and activity will growth in the nation's real output and em not expand by the desired amount. Converse ployment. The m ajor reason for the swings ly, too much money and credit will inflate the in economic activity during the past three nation's spending power and generate a sit years has been, I believe, the failure of our uation of too much money relative to the government to develop an appropriate and volume of goods and services available, a timely tax and spending policy. As a result, situation that we identify as inflation. the burden of stabilization policy has fallen and now once again m ay perhaps be faced In theory, it appears to be quite a simple almost com pletely on monetary policy, which thing to have m onetary policy and fiscal becau se of time lags and the uneven impact policy work hand in hand to foster an appro on spending in different sectors of the econ priate volume of aggregate demand, and in omy, is not well equipped, alone, to stabilize turn a high and expanding level of economic the economy. activity, without inflation. Ideally, when the Digitized for 4 FRASER You are perhaps only too fam iliar with the JUNE 1968 economic events of the recent past and the great moment of the fiscal restraint program sideration of the total of our economic effort now being debated by Congress, for me to sitional problems. At the heart of the question recount all the details. Suffice it to say that of how fast and how smoothly the economy we have a rich, resourceful, and powerful can move ahead is the fundam ental issue to consideration of qualitative and compo economy, which has tremendous potential to of what alternatives are really most im satisfy a wide assortment of demands that portant to us as a society. Over m any years, m ay be imposed upon it. To help keep the a number of judgments have developed econom y on a reasonable and balanced track and becom e pari of our accepted w ay of life. of steady growth, it is important that we learn O ne such judgment is that, as a society, we how to conduct an effective stabilization are not prepared to accept a high rate of un policy, to impose restraint or slow down the employment. Dedication to a minimum level econom y when restraint is called for, and to of unemployment h as by now been woven stimulate the econom y when stimulation is into the social and econom ic fabric of almost indicated. W e cannot be satisfied with having all developed nations. There is, of course, the econom y do too little — which m eans idle nothing wrong with the goal of achieving a manpower and unused physical resources. tolerably low level of unemployment — in Neither can we afford to try to have the fact, that is a virtue of any progressive, mod econom y do too much — which results in ern economy. Nevertheless, we should not inflation and other distortions in economic overlook the fact that a low level of unem activity. Before leaving this topic, I might sa y that — only one end — that it m ay be overdone — I have felt for quite awhile that the timing of stabilization policy could be improved im and that the costs of overdoing it m ay in some cases be outright prohibitive. ployment is only one objective of an economy m easurably if the Administration had author ity to raise or lower taxes, within specified Let me try to explain what I m ean. The par limits, whenever the econom y w as in need ticipants in an y dem ocratic, free enterprise of such an adjustment. An increasing number society are, in effect, confronted with a choice of observers have indicated that such author that economists refer to as the trade-off b e ity should be made av ailab le to the Adminis tween the percent of the labor force un tration. Hopefully, in the not-loo-dislanl future, em ployed and the annual rate of change in some sort of arrangem ent for flexible and the price level. Other things being equal, the timely lax adjustm ents will em erge, which lower the desired rale of unemployment, the will im prove the ability of fiscal policy to higher will be the resultant rate of price infla stabilize the economy. tion; and conversely, the higher the rate of As I indicated earlier, I am taking a number unemployment, the lower the rate of infla of liberties in my rem arks in order to simplify tion. This relationship, called the "Phillips the basic problems facing our economy. This Curve" by economists, results from the fact is very much the ca se as we move from con that unemployment declines and prices rise 5 ECONOMIC REVIEW as Ihe econom y approaches full em ploy to more desirable types of employment. To m ent.1 The converse situation develops, of the extent that these objectives are achieved, course, the further economic activity falls lower rates of unemployment are associated short of full employment: that is, a s the rate with sm aller changes in prices. (Technically, of unemployment increases, prices rise at a for econom ists in the group, the "Phillips slower rate, or m ay even fall. C urve" shifts downward and to the left.) Put Som e of the im plications of the inverse ting the matter practically, in an advancing relationship betw een the rates of unemploy economy, stability of the price level might ment and price change are readily apparent. be associated with a 3 percent rate of unem For one thing, when the econom y is already ployment rather than 4 percent and with still at a high level of employment and begins further progress with 2 percent unemploy to move ah ead at an accelerated pace, for ment rather than 3 percent. Such progress can whatever the reason, unemployment m ay be achieved, however, only if the quality of indeed be reduced, but prices will rise at an the labor force and our techniques of produc accelerated pace. Let us say, for exam ple, tion are improved. If through increased labor that a one-half percentage point reduction in mobility, reduced restrictions on entry (for the unemployment rate from 4 percent to exam ple, elim ination of b ias in labor unions 3V2 percent is associated with a price rise at and elsewhere), better m anagem ent, techno an annual rate of nearly 4 percent, as has rise in prices of more than 3 percent per an logical improvements, engineering advances, better general education, improved services, and so forth, the quality of the labor force num in our society appears to generate ex and of our productive equipment is upgraded, pectations that prices will rise at an even productivity — output per manhour — is in faster rate in the future, most people will creased so that w age rates can increase agree that this type of trade-off betw een un proportionately without any upward pressure employment and prices is neither justifiable on prices. been the ca se in the last year or so. Since a nor desirable. For a number of reasons, such upgrading Another implication of the "Phillips Curve" of the labor force is beneficial. For one thing, is equally significant and, in fact, in the it reduces the burden of monetary and fiscal long run, h as even more far-reaching conse policy by reducing the rate of unemploy quences. A basic objective of economic and ment associated with a given rate of price social policy is to improve the skills, mobility, advance, or, looked at the other w ay around, and opportunities of the labor force to move by reducing the rate of price advance asso without b ias or artificial restraint from less ciated with a given rate of unemployment. Moreover, to the extent that the rate of un 1 Technically, the "Phillips Curve" relates the rate of un employment to the rate of change in money w ages. How ever, increasingly, economists are using the relationship employment is reduced, employment is in creased. Those who are out of work consume between the rale of unemployment and rate of change but do not produce; when the sam e people in general prices. are put to work, they consume and produce JUNE 1968 and, through their output, m ake a positive a fairly simple world, which, through mis contribution to the welfare of society. I do m anagem ent, h as developed some very com not need to im press upon this group, the first plex problems. You students are trained and spring graduating class of C ase W estern equipped to meet the ch allenges of the econ Reserve University School of M anagem ent, omy and of society at large, especially the the ad vantages to our econom y of having a types of problems that I have sketched out better trained, more highly skilled labor force today. As a matter of fact, we frequently fail cap ab le of participating vigorously in the to give students credit for mature instincts nation's econom ic activity and of distributing and developed insights into problems that more evenly the fruits of the nation's eco most of us older people have been grappling nomic growth. It is also important, as an end in itself, with for years, and not alw ays too su ccess that we alter, where possible, b asic eco strated. fully, as recent history h as clearly demon nomic relationships, so that higher levels of econom ic activity and lower levels of unem In this connection, I found it particularly ployment becom e associated with sm aller gratifying to review the results of a recent changes in prices — that is, with less inflation. survey by the Society for the Advancement of W e are all fam iliar with the onerous burden M anagem ent concerning the attitudes of col of inflation on the domestic econom y — on lege students toward "business involvement fixed incom e recipients, on the aged, and the in key Am erican problems and about business like, m easured purely in terms of equity. At as a career." Selecting some of the responses the sam e time, the burden of inflation on the that seem particularly important, the survey international position of the United States reported that 88 percent of the students ques is one that must be reduced sharply and tioned felt that business should encourage its promptly, if we are to prevent dom estically produced goods from being priced out of em ployees to en gage in educational activi ties, 65 percent felt that encouragem ent foreign markets. Indeed, a viable world econ should be given to cultural activities, and 51 omy will, in the final analysis, depend to a percent fell that business should encourage large extent on the success of the United charitable work. These are the sam e func States in reducing price inflation. If we are tions — education, culture, health, and wel not able to curb inflation, the world will lose f a r e — that will upgrade the quality of the faith in the United States dollar as a reserve labor force and enhance the dignity and currency, and irreparable dam age will be worth of the individual in our society. These done to the present system of international are the very sam e functions that business, financial arrangem ents. government, and concerned individuals are Thus, I am really trying to com m unicate actively participating in today. Moreover, a very simple m essage to you students grad economists will note with approval that these uating from the School of M anagem ent today, sam e goals, to the extent they are achieved, as well as to your parents. W e really live in are the very ones that help shift the "Phillips 7 ECONOMIC REVIEW Curve” downward and to the left. Moreover, that we are on the threshold of a new take-off these sam e goals are the very ones already in economic activity and a vast improvement adopted by moderate liberal students every in the guality of our social and econom ic life. where, both in the United States and abroad. Good luck to all of you. M ay you all partici Because of the pervasiveness of these goals pate in the benefits, the joys, and the excite among informed individuals, I am convinced ments of the new world ahead! Digitized for8 FRASER JUNE 1968 UNITED STATES TRADE IN STEEL Before 1959, Ihe United States was a net and, despite some slight intervening improve exporter of steel mill products. In 1959, how ment, w as no higher in 1967. In terms of ever, the trade b alan ce in steel shifted from value, the steel export situation is essentially a net surplus to a net deficit, in terms of both the sam e, with ihe value of exports in 1967 tonnage volume and dollar value. The shift ($0,415 billion) only slightly higher than in in the steel foreign trade situation at that lime 1959 ($0,363 billion). can be explained by the fact that, in 1959, A rising trend in steel imports accom panied steel exports were nearly cut in half and im ihe virtually flat pattern of United States ex ports more than doubled. ports of steel mill products in recent years. More importantly, the events of 1959 repre Despite spurts in imports — both in volume sent the beginning of a new set of foreign and as a proportion of apparent steel con trade relationships in steel. This is revealed sumption1 — in 1951, 1953, and 1956, the by ihe fact that 1967 m arked the ninth succes volume of steel imports showed little trend sive year that net import tonnage of steel products into the United Slates exceeded net during most of the 1950's. Beginning in 1959, however, both the volume and proportion of exports, and the sixth successive year that steel consumption supplied by foreign steel the value of steel imports exceeded the value producers rose sharply; since then, the trend of steel exports (see Chart 1). This article of imports has been inexorably upward. traces some of the principal features of the In 1959, ihe sharp in crease in imports and shift in ihe trade b alan ce for steel products, the marked decline in exports caused the particularly developments since 1959. United States trade b alan ce in steel mill prod TRADE TRENDS A fundam ental chang e in the United Slates ucts to swing from an export surplus of 1.1 million tons in 1958 to a deficit of 2.7 million ions in 1959. In 1960, the tonnage deficit nar trade b alan ce for steel mill products occurred rowed to 382,000 tons. Thereafter, however, b ecause steel exports failed to improve on the deficit began to widen considerably, and b alan ce in the 1960's, at the sam e time that imports rose sharply and steadily. As shown 1 Apparent steel consumption is generally defined as in Chart 1, the volume of exports of steel steel shipments, plus imports, less exports; consumption mill products fell to 1.7 million tons in 1959 data include changes in steel inventories. 9 ECONOMIC REVIEW Chart I. U N I T E D S T A T E S T R A D E in S T E E L M I L L P R O D U C T S 1950-1967 V O LU M E of EX P O R T S an d IM PO RTS V A LU E of E X P O R T S an d IM PO RTS M illions of tons Billions of do llars M illions of tons Billions of d o llars +8 +0.8 +6 _ SU RPLUS +0.6 _ +4 +0 .4 +2 0 i A +0.2 0 : __________________ r'Mi -2 -4 H -8 h -10 J __ I__ I__ I___I__ I 1950 ’52 ’5 4 I I___I__ I__ I__ I___I__ I___I__ I__ I__ L '56 '58 '60 '6 2 '64 -0.2 '66 '68 - 0.6 - 0.8 - 1.0 - 1.2 D EFICIT l 1950 Last entry: 1967 Sources of data: U.S. Department of Commerce and American Iron and Steel Institute Digitized 10 for FRASER 1*11 - 0 .4 D EFICIT -6 -12 SU RPLUS I '52 I I__I__ I__I__ I__ I__I__ L '54 '56 '58 '60 ANNUALLY J __ I__ 1 1 1 1 ’6 2 '64 '6 6 '6 8 JUNE 1968 Consumption. Expansion in world steel ca p a c in 1965-1967, the tonnage deficit averaged 8.9 million tons annually (see Chart 1). ity since 1947 has been marked by three In dollar terms, the shift betw een 1958 and stages of development: (1) the early post 1959 amounted to $526 million (from a $372 World W ar II reconstruction period, when million surplus in 1958 to a deficit of $154 mil capacity, especially in Europe, Japan, and lion in 1959). In 1960 and 1961, the dollar value Soviet Russia, w as being rebuilt; (2) the pe of the steel trade b alan ce reverted temporar riod from the early 1950's to the late 1950's, ily to a surplus position, despite an unfavor when cap acity was expanding to meet grow ab le b alan ce in volume (the per-ton value of ing domestic demands for steel; and (3) the exports of steel products is higher than the period since the late 1950's, when world steel per-ton value of imports). The net trade posi cap acity w as growing at a rate in excess of tion slipped into deficit again in 1962, and world steel consumption. by 1967, reached $877 million. In 1965-1967, During the early postwar period, growth in the annual av erage deficit in dollar terms world steel output and consumption kept amounted to $775 million. Putting it another pace with the expansion of steel capacity w ay, betw een 1958 and 1967, the United and there w as little m argin of unused cap ac States trade b alan ce in steel mill products ity. In contrast, a s shown in Chart 2, during moved from a net surplus of $372 million to the late 1950's, world steel capacity expanded a deficit of $877 million, or a change in the considerably faster than consumption, and steel b alan ce of more than $1.2 billion. utilization rates of the world steel industry FACTORS CONTRIBUTING TO THE TRADE DEFICIT Trade betw een countries is a product of eased (but were still high). The doubling of world steel cap acity dur ing the 1950's w as accom panied by m ajor shifts in the pattern of world steel production. m any factors, but basically reflects the com The proportion of United States steel capacity parative advantage one country has over to world cap acity fell, and the relative pro other countries. Countries having a com para portions accounted for by Japan and the tive advantage, for whatever reason, will European Coal and Steel Community (ECSC)2 gain competitive advantage over others. countries rose. The most significant expansion Since 1959, the competitive position of the in capacity occurred in Soviet Russia, where United States in the world steel market (as cap acity more than doubled. measured by percent share of the domestic Although Soviet Russia continued to in as well as world steel market) has apparently crease her relative proportion of world steel deteriorated. The deterioration can largely be cap acity in the 1960's, the most dramatic attributed to the sharp growth in world steel change took p lace in Japan, where capacity capacity and the significant price differentials betw een foreign and domestically-produced steel. World Trends in Steel Capacity and Steel 2 European Coal and Steel Community includes BelgiumLuxembourg, W est Germany, France, Italy, and the Neth erlands. 11 ECONOMIC REVIEW C h art 2. increases in world steel capacity since the late 1950's resulted in a buildup of surplus W O R L D STEEL C A P A C I T Y and A P P A R E N T STEEL C O N S U M P T I O N capacity that w as accom panied by a declin 1955-1966 ing trend in world steel prices. Although com Millions of ingot tons parable data on world steel prices are not readily av ailab le, some reasonable approxi mations of world steel price trends and price differentials among m ajor steel-producing countries of the world can be made. As shown in Table I, there w as a downward trend in the composite prices of a basket of steel products from continental European producers during the 1959-1967 period. In response to a steel strike in the United States, export prices of continental producers rose sharply during 1959. Prices of continental pro Last entry: ducers generally declined from early 1960 1966 Sources of data: Am erican Iron and Steel Institute; B ritish Iron and Steel Federation; United Nations Economic Commission for Europe until early 1964, when prices again rose, re flecting increased demand for steel in the more than doubled and the relative propor United States at a time when demand eased tion of Japanese steel capacity to world c a in m ajor foreign steel-producing countries. pacity rose from 5.8 percent in 1960 to 9.7 Despite another steel inventory cycle in the percent in 1965. Sharp expansion in capacity United States in 1965, when imports surged also occurred in C anada, Latin Am erica, and to a new record, continental export prices India. As a result, increased steel production continued to fall due to more than am ple in those areas, although still not adequate to meet total domestic steel needs, lessened the capacity in Europe. Although com parable data for the sam e dependence of those countries on imports. steel basket sold by United States steel pro ducers are not available, domestic prices World Steel Capacity (represented by a more inclusive w holesale Selected Countries and Selected Years (thousands of ingot tons) price index for steel mill products) appar United Stales ECSC Soviet Russia Japan ently behaved differently from continental 1950 1957 1960 1965 99.4 37.0 123.5 74.3 56.4 19.9 148.6 84.3 72.0 25.9 156.5 110.8 100.3 55.1 30.1 7.7 Sources: Uniled Nations Economic Commission for Europe and American Iron and Steel Institute Declining Trend in World Steel Prices. Rapid Digitized for12 FRASER export prices. From 1959 through 1964, domes tic steel prices were relatively stable despite fluctuations in steel demand. Since 1964, and especially during 1967, domestic steel prices in the United States have risen 4.5 percent. Export prices of continental producers gener ally began to slide in late 1964 and in 1965 JUNE 1968 TABLE I Steel Export Prices* from Continental Europe (United States dollars per metric ton) 1959-1967 January February March April May June July August September October November December Average 1959 1960 1961 1962 1963 1964 1965 1966 1967 $102.10 102.89 104.59 107.36 109.83 1 16.00 11 8.87 122.52 122.60 128.28 131.19 130.56 1 16.40 $133.21 130.10 126.48 125.88 125.35 124.92 123.69 122.07 118.52 1 14.35 1 12.10 112.83 122.46 $1 13.75 112.58 110.43 107.32 106.71 104.01 101.93 100.98 98.69 98.05 99.25 99.19 104.41 $95.92 96.20 96.97 96.26 95.25 94.94 95.65 95.97 96.04 93.25 92.13 89.43 94.92 $89.65 88.68 89.58 89.52 89.71 90.16 90.24 89.94 89.61 88.30 88.71 90.68 89.57 $ 95.25 100.25 102.45 105.37 106.23 106.76 104.65 103.37 101.80 99.19 96.71 98.10 101.68 $97.33 97.39 97.39 95.86 94.22 92.70 91.93 91.99 89.96 86.82 86.82 88.03 92.54 $89.79 90.99 91.15 91.15 89.99 89.78 90.28 91.01 91.29 90.52 89.60 90.45 90.46 $90.71 91.56 92.81 91.88 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Not available. * Composite prices for a basket consisting of merchant bars, concrete reinforcing bars, wire rods, hot-rolled strip, plates, hot-rolled sheets, cold-rolled sheets, and galvanized sheets. Derived from base prices, f.o.b. European ports. Source: Metal Bulletin, London but have turned up mildly since that time. betw een domestic and foreign prices for se The divergent price movements suggest that lected steel products is shown in Table II. the differential betw een domestic and foreign The sizable differential on hot- and cold-rolled prices has widened. Armed with a price ad sheets and strip helps to explain the sharp vantage, foreign producers have been able growth in imports of that product (from nearly to deepen their penetration of United States m arkets for steel products, especially since 1965. Various surveys on price differentials sug gest that delivered prices of imported steel products (including f.o.b. TABLE II Differential Between United States Domestic Prices and Foreign Prices of Selected Steel Products shipping point, Price Differential Per Ton freight and other delivery costs, customs Product Location duty, and insurance) average from 10 to 20 Cleveland Chicago Philadelphia Chicago Chicago Cleveland Cleveland $18 to 21 15 35 15 15 30 20 nance, Steel Imports, Washington, D. C., December 1967, Cold-rolled sheets Cold-rolled sheets Cold-rolled sheets Plates Hot-rolled bars Wire rods (7/32") Wire Hot-rolled sheets (from service center) West Coast 25 to 30 p. 129. Source: Steel, February 6, 1967 percent per ton below domestic prices on com parable products.3 The dollar differential 3 Based on data for early 1967. See American Iron and Steel Institute, The Steel Import Problem (October 1967), pp. 19-20, and U. S., Congress, Senate Committee on Fi 13 ECONOMIC REVIEW 1.2 million tons in 1964 to 4.3 million tons in as differences in the cost of plant and equip 1967). ment, raw m aterials, and money capital. In W hile data on export prices of Japanese recent years, although the level of output steel are limited, unit values of imports from per manhour in the domestic steel industry is that country suggest that price differentials greater than in the steel industry of any vis-a-vis United States steel products are even m ajor foreign country, it is apparently not larger than betw een American and continen sufficient for domestic steel producers to tal European products. These price differen m aintain a com parative advantage in all tials are apparently a m ajor factor in the types of steel products. growing inroads in the Am erican market made by Japanese, as well as other, pro ducers in recent years. Price differentials between United States UNITED STATES STEEL EXPORTS In general, the volume of United States ex ports of steel mill products has registered no and foreign steel products are partially a c improvement since the late 1950's, after some counted for by differences in costs (especially scattered favorable showings previously. As employment). For example, despite rapid shown in Chart 3, from 1950 to 1957, the growth of w ages in foreign steel-producing volume of United States exports of steel prod countries, labor compensation in the United ucts generally fluctuated in line with world States steel industry has increased m arkedly exports, rising in 1952 and again in 1955, in in recent years. As a result, as recently as 1966, the differences in employmeni costs between the United States and individual m a response to cyclical changes in m ajor world industrial markets. United States exports also rose in 1957, reflecting the Suez crisis. From jor foreign steel-producing countries were as 1950 to 1957, the proportion of world exports large or larger than a decade earlier.4 How of sleel mill products accounted for by the ever, employment costs explain only a part United Slates ranged betw een 13 and 16 per of the cost differentials, as is reflected in the cent (except for an unusually high 20 percent fact that American-produced goods generally in 1952), with the proportion lending to ease would otherwise be priced out of m any m ar in the latter part of the period. kets in world trade, that is, in those cases In 1958, both the volume of United States where goods are produced by sim ilarly high exports of steel products and share of world w age cost industries. In any product line, a steel export m arkets declined sharply. Al number of factors, in addition to employment though world exports of steel nearly doubled costs, also influence total costs and contribute in the 1959-1967 period, the volume of steel to price differentials among various countries. exports from the United States failed to cap In the case of steel, such factors would in ture any of the larger volume. Despite some clude differences in steel technology, as well improvement in steel exports in 1960 and 1964, the United States w as unable to recap 4 American Iron and Sleel Institute, The Steel Import ture the market share accounted for during Problem, p. 63. much of the 1950's. In fact, after 1964, domes Digitized for14 FRASER JUNE 1968 in both export volume and share of world ward trend. Actual data are not av ailab le on the volume of Government-financed steel markets. The failure of United States exports exports (particularly, the A gency for Inter to hold, if not improve, the gains in 1960 and national Development). 1964 is in sharp contrast to the behavior of Am erican Iron and Steel Institute estim ates tic steel producers continued to lose ground— Nevertheless, the steel imports, which have tended to remain that AID-financed exports have ranged b e at high levels following steel inventory cycles tween 25 and 55 percent of exports of steel in the United Slates. products by the United States since 1962.5 Although Chart 3 indicates that the trend This suggests that, although the trend of steel of steel exports during 1959-1967 was virtually exports appears to be flat in recent years, the flat, if Government-aid shipments were ex volume of exports not financed by Govern cluded, exports of steel products by the ment programs is considerably lower than United States would show a steady down- indicated by the published aggregate data. Despite little change in United States ex Ch ort 3. ports, world trade in steel has grown steadily E X P O R T S of STEEL P R O D U C T S (see Chart 3), expanding by nearly 400 per WORLD and UNI T E D S T A T E S cent from 1950 to 1966. The bulk of that ex 1950-1967 pansion occurred in the last 10 years, reflect Millions of tons ing rapid growth in trade among the ECSC countries, eastern European countries, and the United States (the principal steel import ing country in the world). Excluding United States imports, the world export market for steel more than tripled betw een 1950 and 1966. The decline in the United States share of the world steel market reflects the fact that the United States either does not participate in a number of rapidly growing export m ar kets, such as in the eastern European coun tries, or participates only to a limited extent, such as in the ECSC countries and Africa. In addition, C anadian and Latin Am erican steel production has been growing fast enough to m ake those areas less dependent on the 5 American Iron and Steel Institute, The Steel Import Last entry: Problem (October 1967), p. 8. Estimates are computed by 1966, 1967 Sources of data: Am erican Iron and Steel Institute and Economic Commission fo r Europe United Nations using actual dollar value of imports and an estimated av erag e price of $150 per ton. 15 ECONOMIC REVIEW United Slates as a source of supply. As shown in Chart 4, during 1950-1958, a During Ihe 1950's, C anad a and Lalin Amer period when domestic steel con su m p tion ica were Ihe principal export m arkets for changed little on balan ce, the United Slates United States steel products. As indicated in imported only 1 to 2 m illio n tons of s te e l Table III, in ihe late 1950's, United Stales steel annually, or roughly 2 percent of steel con exports to C anada accounted for about one- sumption. From 1958 to 1967, however, the third of total United States steel exports; in volume of steel im p orts ro se n e a rly 600 the sam e period, steel exports to Latin Amer percent, while domestic steel consumption ica accounted for about one-fourth of United increased by about 60 percent. As a result States steel exports. By 1967, United States of the growth in imports, by 1967 foreign steel exports to C anada were about one-third producers accounted for 12 percent of the of the volume of the late 1950's, and account domestic steel market, com pared with 2.9 ed for about one-fifth of total United States percent in 1958. steel exports. Government-financed programs explain in part the increased volume of steel exports to Asia, particularly Pakistan, South Vietnam , and India. Steel Exports by Commodity. As shown in Table III, except for exports of ingots and C h a rt 4. UNI T E D S T A T E S A P P A R E N T STEEL C O N S U M P T I O N and STEEL I MPORTS 1950-1967 Millions of tons billets, which have been supported by AIDfinanced exports to A sia and Latin America, steel exports by the United States have been declining in all m ajor product lines. Sheet and strip products remain the most important ex port commodity of the United States, account ing for nearly one-third of total steel exports. Relative declines in the export volume of plates, structural shapes, and pipe and tubing exceeded the overall relative decline in steel exports betw een 1957 and 1967. UNITED STATES STEEL IMPORTS Although fluctuations in steel imports are in part associated with cy clical changes in domestic demands for steel, in recent years, steel imports have grown irrespective of do mestic demands because of excess world 10 IMPORTS as PERCENT of APPARENT CONSUM PTION 5 ANNUALLY 0 "1 1,1 I I I J I 1 L I - 1950 52 '54 ’56 '58 60 '62 ’64 steel cap acity and a widened price differen tial betw een foreign and domestic prices. Digitized for 16FRASER Last entry: 1967 Source of data: Am erican Iron and Steel Institute 66 '68 JUNE 1968 T A B LE III United States E xp o rts of Steel M ill Pro ducts b y D e stin atio n * (thousands of net tons) 1957-1967 Total United States Exports Canada Latin America ECSCj Asia Africa Total Ingots, Blooms, Billets, etc. Canada Latin America EC SC f Asia Africa Total Structural and Piling Canada Latin America ECSCt Asia Africa Total Plates Canada Latin America EC SC f Asia Africa Total Pipe and Tubing Canada Latin America ECSC f Asia Africa Total Tin Mill Products Canada Latin America EC SC f Asia Africa Total Sheets and Strip Canada Latin America EC SC f Asia Africa 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 5,348 1,619 1,446 293 981 92 707 214 27 23 249 2,823 1,010 765 227 350 39 108 69 1,677 611 431 121 203 12 30 29 2,977 580 641 363 549 70 119 49 t 14 3 2,224 314 333 137 1,164 75 307 7 3 4 290 1,724 417 514 98 489 107 340 26 231 1 76 1,685 350 331 96 679 85 304 12 36 1 205 i 159 107 17 2 19 2 120 28 16 5 65 1 192 43 79 6 38 12 394 4 86 24 264 9 600 96 83 82 288 8 t 162 88 24 2 28 6 139 38 11 3 82 1 252 44 124 6 50 18 413 2 63 27 247 13 652 98 59 86 309 19 3,442 560 431 261 1,318 88 886 17 83 67 430 -0 250 168 24 3 36 11 177 73 18 3 65 1 286 53 100 15 64 42 418 3 56 21 234 11 1,105 167 87 144 357 6 2,496 592 578 88 806 99 677 25 279 1 167 t 306 223 17 2 29 t 44 4 -o 295 254 12 3 8 1 91 48 12 1 19 1 195 57 55 5 28 7 686 2 121 103 289 42 1,333 118 194 202 164 14 2,013 317 329 136 999 87 264 6 4 8 243 t 471 357 27 2 36 4 604 289 32 51 147 12 1,185 460 553 7 78 13 802 2 198 101 120 35 1,075 185 121 107 285 18 t t t t 240 205 8 4 10 1,990 406 424 192 749 60 180 12 6 26 125 -0 223 163 11 4 24 5 97 45 13 6 22 1 211 48 59 12 51 6 481 2 106 47 261 7 566 96 118 91 178 6 I 234 183 16 2 25 2 127 49 9 1 54 1 240 56 78 5 33 49 306 7 66 27 149 16 625 183 63 46 287 7 t 122 93 17 1 8 1 76 31 10 1 28 1 266 68 52 6 50 70 325 9 88 44 156 4 392 125 53 40 129 7 X 107 74 22 1 7 1 61 24 12 t 249 119 17 34 47 3 623 246 2 67 3 48 9 495 4 68 75 122 11 703 229 80 97 73 9 t 66 38 5 t 10 1 266 87 124 1 23 4 460 2 80 43 92 2 435 150 77 70 40 4 t 16 1 235 59 65 4 35 54 306 6 78 24 161 11 479 115 45 61 220 7 * Components do not add to totals since data only include exports to major countries or regions. f European Coal and Steel Community includes Belgium-Luxembourg, West Germany, France, Italy, and the Netherlands. £ Less than 500 tons. Source: American Iron and Steel Institute 17 ECONOMIC REVIEW betw een imports that foreign sources of supply are no longer and domestic steel consumption during most The steady relationship considered m arginal suppliers. In the steel of the 1950's suggests that foreign steel sup inventory subcycles in 1962, 1963, and 1965, pliers were generally regarded as m arginal for example, steel imports set new records — sources of supply that were tapped when both in volume and share of domestic steel supplies of domestically-produced steel were consumption — and showed no tendency to limited. For exam ple, imports increased by revert to the lower figures of pre-steel contract 1.1 million tons in 1951, due to domestic short settlements (see Chart 4). In 1965, steel im ages during the Korean W ar. In 1952, imports ports surged to 10.4 million tons (an increase fell back in both volume and share of domes of nearly 4 million tons above the previous tic consumption, although imports rem ained year) and accounted for 10.3 percent of total at slightly higher levels than before the 1951 domestic steel consumption (see Chart 4). buildup. Following a rise in imports in 1953, Despite a drop in domestic steel consumption both the volume and share of imports fell in 1966 and 1967, steel imports continued to b ack in 1954 and 1955. In 1956, imports rose climb, claim ing an even larger share of the in re s p o n se to a 34-day s te e l strik e in the domestic market for steel. United States, but in 1957, both the volume of Product Composition of Steel Imports. M ajor imports and the share of domestic consump shifts in the product composition of steel tion dropped again. Thus, during most of the imports differentiate imports in the 1960's 1950's, foreign steel suppliers were not par from the 1950's. Before 1959, steel imports ticularly successful in holding on to tempo consisted principally of wire and wire prod rary gains achieved when domestic steel ucts, structural shapes, and bars. The surge markets were tight. A significant penetration of the domestic of imports in 1959 included a broad line of products, with a m arked increase in imports steel market occurred in 1959. Usually, that of structural shapes and plates, sheet and penetration is identified as a result of the strip, reinforcing bars, and pipe and tubing 116-day steel strike, but as subsequent events (see Table IV). showed, the situation w as a m anifestation of As steel imports during the 1960's continued a much more fundam ental change. In 1959, to climb to new yearly records, all product steel imports rose by nearly 2.7 million tons — lines registered gains. And, as foreign steel to 4.4 million tons. The increase in imports in improved in quality, more highly processed 1959 w as larger than the total volume of steel steels with more rigid standards of tolerance imports in any previous year. Imports a c and finish, such as sheet and strip products, counted for 6.1 percent of domestic steel con b egan to be imported in larger quantities. In sumption in 1959, compared with 2.9 percent 1965, when a steel labor contract w as being in 1958, and perhaps more importantly, new negotiated, total steel imports increased more channels of distribution were e s ta b lis h e d than 60 percent over 1964 levels. The bulk of with domestic steel users. the increase occurred in sheet and strip prod The behavior of imports since 1959 suggests Digitized for18 FRASER ucts, which actually tripled in import volume. JUNE 1968 T A B LE IV U nited State s Im po rts of Steel M ill Pro ducts b y C o u n trie s of O rig in * (thousands of net tons) 1957-1967 1957 Total United States Imports Japan United Kingdom ECSC f Canada Total Wire Rods Japan United Kingdom EC SC f Canada Total Sheets and Strip Japan United Kingdom ECSCf Canada Total Plates Japan United Kingdom EC SC f Canada Total Structural Shapes and Piling Japan United Kingdom EC SC f Canada Total Wire and Wire Products Japan United Kingdom ECSC f Canada Total Pipe and Tubing Japan United Kingdom EC S C f Canada Total Bars and Tool Steel Japan United Kingdom ECSCf Canada 1,155 31 58 890 52 54 2 10 31 1958 i i 240 4 301 22 26 241 1,707 250 85 1,201 46 181 53 22 96 1 25 4 1 8 13 20 14 -0 4 2 151 1 1 140 4 432 80 24 325 t 191 1 20 114 21 264 2 1 237 1 i 200 6 38 100 17 649 83 1 520 1 t 26 1 t 10 14 22 2 t 14 t 268 1959 4,396 624 214 2,896 376 448 115 33 264 8 386 56 4 135 109 291 84 3 147 42 507 20 17 451 8 703 143 39 503 15 553 50 78 297 55 1,339 156 13 1,075 23 1960 3,359 596 209 2,080 21 1 408 164 32 178 5 436 58 6 255 175 212 47 3 129 9 317 6 21 282 3 547 136 25 326 5 480 63 94 247 27 840 117 11 624 21 1961 3,163 597 166 1,952 304 451 198 27 208 2 171 34 4 62 63 37 10 7 14 5 293 4 19 266 3 562 170 18 341 3 521 90 74 290 21 906 87 5 759 21 1963 1964 1965 1966 1967 4,100 1,072 250 2,087 367 645 299 31 248 2 384 162 5 90 103 150 61 5,446 1,808 350 2,246 583 801 414 58 224 3 827 414 26 114 204 275 94 t 36 25 374 11 43 308 7 655 233 24 358 60 655 199 97 269 37 995 95 7 769 18 t 78 26 558 53 87 398 14 755 306 31 373 12 778 359 72 227 21 1,081 139 18 821 32 6,440 2,446 285 2,585 692 953 452 56 333 2 1,167 637 41 232 225 462 216 8 131 28 638 126 53 450 5 809 333 30 381 24 790 437 45 186 36 1,174 192 28 859 28 10,383 4,418 720 4,191 644 1,284 642 49 512 1 3,507 1,770 395 1,047 286 774 416 11 199 25 929 228 76 609 9 866 376 28 392 27 930 579 45 184 42 1,642 313 45 1,203 14 10,753 4,851 748 3,841 692 1,150 610 32 424 1 3,682 2,077 416 855 278 951 468 62 198 40 947 202 102 599 23 862 395 22 381 29 1,058 628 29 279 65 1,718 352 48 1,131 42 11,455 4,468 818 4,842 630 1,076 446 44 525 4 4,281 2,188 345 1,467 191 1,025 363 128 259 52 1,063 152 155 707 26 797 331 28 361 34 1,060 617 18 223 68 1,728 224 65 1,252 61 1962 * Components do not add to totals since data only include imports from major countries or regions. t European Coal and Steel Community includes Belgium-Luxembourg, West Germany, France, Italy, and the Netherlands. J Less than 500 tons. Source: American Iron and Steel Institute. 19 ECONOMIC REVIEW Despite softening in steel consumption and and tubing imported by the United States. steel production in the United States in 1966 The recent rise in Japan ese exports to the and 1967, imports of sheets, pipe, structurals, United States largely reflects a vast expan and plates set new records. As shown in Table sion of steel producing capacity in Japan. In IV, foreign penetration of domestic steel m ar 1957, steel capacity in Japan amounted to k ets now ra n g e s o v er a fu ll lin e of s te e l nearly 20 million tons; by 1965, capacity rose products. Steel Imports by Source of Supply. Shifts in to 55 million tons. By 1970, planned expan sions will increase steel capacity to an esti product composition were accom panied by mated 82 million ingot tons. Such capacity shifts in sources of supply. During the 1950's, indicates a steel export potential of 25 to 30 the ECSC countries were the primary sup million tons of steel by 1970, or practically pliers of imported steel to the United States. double the annual volume exported in 1966.6 Within the ECSC, Belgium-Luxembourg was by far the largest exporter of steel products to the United States, with W est Germ any a EFFECT OF IMPORTS ON UNITED STATES MARKETS distant second, and France third. Although The relationship of imports to apparent the volume of imports from ECSC countries domestic steel consumption is one m easure rose throughout the 1950's, the ECSC's share of the effects of steel imports on domestic of total steel imports to the United States steel markets. As shown in Table V, imports diminished steadily. Nevertheless, by 1959, ECSC imports still accounted for about two- of steel products have absorbed a m ajor share of several steel markets in recent years. The thirds of United States imports of steel. largest penetration by foreign suppliers con During the 1960's, a shift occurred in trade tinues to be in wire rods and wire products patterns by country. As shown in Table IV, (nails and barbed wire and fence), accounting during the late 1950's, Japan began a slow for 46 percent and 40 percent, respectively, of but steady penetration of United States m ar domestic consumption in 1967. In the case of kets and during the import buildup in 1962, barbed wire — where imported tonnage a c accounted for about one-fourth of U nited counted for 50 percent or more of the domestic States steel imports. By 1965, Japan account market for several years — foreign penetra ed for 40 percent of United States imports of tion has tended to ease within the last few steel products and surpassed the volume im years. Despite serious inroads by imports of ported from the ECSC countries. (In 1967, barbed wire, domestic producers reactivated however, imports from Japan fell below the equipment in response to m ilitary demands, volume imported from the ECSC.) thereby boosting output while import tonnage As shown in Table IV, steel sheets repre rem ained relatively unchanged. In the more sented the m ajor product line in the surge of recent period, the largest increase in foreign Japan ese imports during the past five years. In 1967, Japan supplied 50 percent or more 6 U. S., Congress, Senate Committee on Finance, Steel Im of wire rods, sheet and strip, plates, and pipe ports, Washington, D. C., December 1967. Digitized for20 FRASER JUNE 1968 TABLE V Imports as a Share of Apparent Consumption in the United States 1957-1967 Product Wire rods Other semifinished Structural shapes and piling Plates Reinforcing bars Other bars and tool steel Pipe and tubing Drawn wire Wire nails and staples Barbed wire Woven wire fence Sheets and strip Rails and accessories (including wheels and axles) Tin mill products All steel mill products 1957 1958 1959 1960 5.4% 0.4 3.7 0.3 6.8 1.1 1.9 3.2 23.4 52.2 8.2 0.2 17.1% 1.3 3.6 0.4 19.0 2.6 3.2 6.0 32.3 51.9 12.8 0.2 31.5% 4.7 10.8 4.8 28.3 5.5 6.4 9.1 44.0 61.9 24.2 1.4 3 1 .0 % 3.7 6.0 3.4 19.0 3.8 6.5 8.6 42.3 52.8 21.4 1.5 0.3 * 0.6 * 1.5 2.9 0.9 1.2 6.1 0.9 0.7 4.7 Percent of Consumption 1961 1962 1963 32.7% 11.1 6.1 0.6 19.4 4.1 7.1 7.5 42.8 53.0 20.5 0.7 3.0 0.3 4.7 1964 1965 1966 196 49 .3 % 10.1 12.4 7.4 15.1 8.7 9.9 13.0 50.0 41.6 27.4 8.9 4 5 .9 % 9.6 12.5 9.5 17.2 8.6 10.6 13.9 45.8 31.4 29.8 9.5 46.1 8.1 15.0 11.5 14.9 10.7 10.6 17.1 39.8 40.6 33.1 11.8 1.6 2.2 10.3 1.5 2.4 10.9 1.4 2.6 12.2 39.2 % 10.5 7.6 2.4 20.4 4.4 8.7 9.7 46.1 47.7 26.9 1.4 4 2 .7 % 13.2 9.8 3.7 17.1 5.7 10.3 11.1 48.9 50.7 30.1 2.7 4 5 .1 % 13.8 9.9 5.3 1 1.5 7.2 9.1 13.5 48.8 47.9 27.9 3.4 1.3 1.0 5.6 1.1 1.7 6.9 1.0 1.5 7.3 * Less than 0.01 percent. Source: American Iron and Steel Institute penetration of the Am erican market occurred a 9.8 million ton deficit in 1967 amounted to in sheets and strip, with the foreign share of 10.9 million tons of steel product shipments domestic consumption rising from 3.4 percent or the steel ingot equivalent of as much a s 16 in 1964 to 11.8 percent in 1967. Although this million tons. In other words, all things being share is relatively low when com pared with equal, the shift m ay have held down steel other products, because of the volume im ingot production in the United States in 1967 ported (4.3 million tons) and the size of the by as much as 16 million tons. sheets and strip market in the United States, the figure represents a m ajor gain. CONCLUDING COMMENTS The m arked rise in steel imports in recent Since the shift in the United States trade years also resulted in a substantial loss in b alan ce in steel in 1959, the trend of steel ingot output by the United States. The 7.7 imports has been up sharply, with marked million ton increase in the volume of steel increases occurring in 1959, 1962, 1963, and imports betw een the average of 1959-1962 1965, all of which were years of labor con and 1967 amounted to a steel ingot equivalent tract negotiations. In each of those years, of about 11 million tons. The loss to domestic except 1962, foreign penetration of the steel producers is, of course, even larger if m eas market set new records. Such w aves of im ured against the steel trade b alan ce in 1958. ports might be dampened if some of the un For exam ple, the shift from a 1.1 million ton certainties of domestic steel operations were surplus in the steel trade b alan ce in 1958 to removed, which would in turn be beneficial 21 ECONOMIC REVIEW lo domestic steel producers and em ployees, States. As a result, wide differences of opinion as well as to the overall United States foreign exist concerning the m eans of improving the trade position. competitive position of the domestic steel The issues associated with the United industry. Beyond the fact that the United States trade b alan ce in steel mill products States represents both the largest and most are complex and involve the foreign trade accessib le market for steel, there is, unfor position of both the United States and coun tunately, little agreem ent on the b asic issues, tries that depend on exports to the United which are beyond the scope of this article. Digitized for22 FRASER JUNE 1968 CAPITAL SPENDING IN MAJOR AREAS OF THE FOURTH DISTRICT The regular spring survey of capital spend expected 1968 rise in capital spending in both ing plans of manufacturing and selected other the durable and nondurable goods groups business firms in several m ajor area s of the would be similar (43 percent and 44 percent, Fourth District,1 which w as conducted by the respectively). In 1969, however, the cutback Federal Reserve Bank of Cleveland in April, in spending is expected to be much greater reveals that overall spending plans for 1968 and 1969 are generally similar to those of firms across the nation. Results of the area surveys are summarized in this article. NORTHEASTERN OHIO Participating manufacturing firms in eight northeastern Ohio counties2 plan to spend TABLE I Capital Spending by Manufacturing Firms and Public Utilities Eight Northeastern Ohio Counties* (Spring 1968 Survey) Year-to-Year Percent Chan ge 1967 (actual) to 1968 (planned) about 44 percent more for new plant and equipment in 1968 than in 1967, but expect 1968 (planned) to 1969 (planned) University of Pittsburgh. MANUFACTURING Durable goods Ordnance Primary metals Fabricated metals Machinery Electrical equipment Transportation equipment Nondurable goods Food Printing and publishing Chemicals Rubber and plastics PUBLIC UTILITIES TOTAL 2 Ashtabula, Cuyahoga, G eauga, Lake, Lorain, Medina, * Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, Portage, and Summit Counties. Portage, and Summit Counties. Source: Federal Reserve Bank of Cleveland spending in 1969 to be 19 percent below 1968 (see Table I). Three out of every five firms plan to spend more in 1968 than in 1967, while five out of every eight plan to spend less in 1969 than in 1968. As shown in Table I, the 1 The surveys in Cleveland and Cincinnati are under taken with the cooperation of the G reater Cleveland Growth Association and the Greater Cincinnati Chamber of Commerce, respectively; the Pittsburgh survey is con ducted for the Federal Reserve Bank of Cleveland by the + 44% — 19% + 43 — 14 + 105 + + — 19 26 7 + 143 — 47 + 8 — + 9 — 31 3 + 94 + 17 + 44 — 32 — 50 + 11 + 137 — 78 + 124 — 39 — — 11 + 12 — 11% 6 + 48 + 45% 23 ECONOMIC REVIEW in the nondurable goods group than in dur ab les (32 percent contrasted to 14 percent). C apital spending by public utilities operating in the eight-county northeastern Ohio area is expected to increase 48 percent in 1968 over TABLE II Capital Spending by Manufacturing Firms Cleveland Metropolitan Area (Spring 1968 Survey) Year-to-Year Percent C hange 1967 (actual) to 1968 (planned) 1967 and to rise further by 12 percent in 1969. The data obtained in the spring 1968 survey differ somewhat from those derived from vised data for 1967 and 1968, total spending Durable goods Primary metals Fabricated metals Machinery Electrical equipment Transportation equipment Nondurable goods Food Printing and publishing Chemicals Rubber and plastics TOTAL in 1968 by manufacturing firms in the eight Source: Federal Reserve Bank of Cleveland the fall 1967 survey because of revisions by individual firms in actual and planned spend ing betw een the survey dates. On balan ce, spending plans for 1968 have been revised upward, while actual spending in 1967 turned out, on balan ce, to be below the amounts anticipated in the fall of 1967. Based on re 1968 (planned) to 1 969 (planned) + 43% + 27 — 15% — 19 + 148 — 53 + 8 — + 9 — 32 2 + 114 + 19 + 89 — 39 — 57 — 1 + 137 — 78 + 147 — 34 + 101 — 17 + — 19% 50% northeastern Ohio counties is expected to be 44 percent above the 1967 total, rather than group. The changes in spending plans for the the 39 percent reported in the fall 1967 survey. In contrast, public utilities currently expect a durable goods group are, however, in line with ihe changes for all manufacturing firms, 48-percent rise in spending in 1968, com pared due to the predom inance of heavy industries with a 53-percent increase anticipated in the fall survey. in the C leveland metropolitan area. Two in dustries in the durable goods group — pri m ary m etals and transportation equipment — CLEV ELA N D A R EA together account for about 70 percent of a c The pattern of capital spending in the eight- tual or planned capital spending by manu county northeastern Ohio area is determined facturing firms in the three years covered by chiefly by spending decisions of m anufactur the survey. ing firms in metropolitan Cleveland, which All but two of the m ajor industries listed includes four of those counties. Total spend in Table II indicate a rise in spending in 1968 ing by C leveland area m anufacturers is ex and a retrenchment in 1969. The percent in pected to be 50 percent higher in 1968 than creases and subsequent d ecreases, however, in 1967. In 1969, however, planned spending vary widely among industries, reflecting spe is expected to be 19 percent lower than plan cial situations such a s a sizable expansion ned spending in 1968 (see Table II). Spending project by one firm that cau ses a sharp rise by nondurable goods industries is expected in spending one year, followed by a sharp to rise more in 1968 and drop back more in drop the next year a s the project is completed. 1969 than This is the case in the printing and publishing spending by the durable goods Digitized for24 FRASER JUNE 19 68 industry and chem ical industry, where large in the Cleveland a rea (see Table III). Although expansion plans are scheduled for com ple the proportions of spending for expansion are tion in 1968 and spending is expected to drop generally larger than indicated in the fall back in 1969. In the food industry, however, 1967 survey, the cap acity situation appears sharply reduced spending in 1968 and a level to be unchanged since last fall. Only one-third ing off in 1969 represents the sequel to large of the replies to the question concerning m an outlays for construction of new facilities by ufacturing cap acity consider av ailab le facili one firm in 1967. In transportation equipment, ties as "less than required," while more than the consecutive gains indicated for 1968 and half indicate "ad eq u ate" capacity. 1969 reflect m assive expansion plans by sev In 1967, almost 90 percent of actual capital eral firm s in the industry extending into 1969. spending was financed internally by m anu In the rubber and plastics industry, spend facturing firms responding to the question ing plans of Cleveland area firms differ sig nificantly from those of all firms in the eightcounty northeastern Ohio area. Reduced spending plans in 1968 and 1969 by the Akron rubber industry, which outweighs the portion of the industry in the rest of the area, account for the difference in the figures for Cleveland and northeastern Ohio. In 1968, 21 percent of total spending by TABLE III Capital Spending by Manufacturing Firms Cleveland Metropolitan Area (Spring 1968 Survey) Percent Distribution of Total Spending by Type* (Between Structures and Equipment and Between Expansion and Replacement) Structures! manufacturing firms in the C leveland a rea is Expansion* earm arked for new structures, com pared with 1967 1968 1969 1967 1968 196 somewhat sm aller proportions for actual 1967 14% Durable goods Primary metals 9 Fabricated metals 10 Machinery 14 Electrical equipment 35 Transportation equipment 12 Nondurable goods 33 Food 63 Printing and publishing 36 Chemicals 14 Rubber and 1 plastics TOTAL 17% 14% 10 13 11 16 % 10 24 17 62% 74 52 46 64% 78 71 44 56°, 76 53 39 and planned 1969 spending (see Table III). The proportion of spending for structures is noticeably larger in the nondurable goods group and varies considerably from year to year in some of the industries, reflecting the beginning and end of sizable projects in consecutive years. Spending for additional manufacturing facilities, as distinguished from replacem ent of existing facilities, accounts for more than 35 1 66 76 59 13 50 33 24 23 55 43 71 88 43 76 59 28 79 52 45 45 5 31 53 69 53 82 90 91 2 21% 7 17% 70 64% 87 68% 47 619 m etals, where additional steel finishing c a * Based only upon returns in which these breakdowns were supplied. f Spending for equipment equals 1 00 percent less the percent shown for structures. t Spending for replacement equals 100 percent less the percent shown for expansion. pacity is being built by m ajor steel producers Source: Federal Reserve Bank of Cleveland half of total spending by most industries, with notably high proportions in chem icals and rubber and plastics, as well as in primary 25 ECONOMIC REVIEW on financing. The proporiion of infernally- In the fall 1967 survey, m anufacturing firms financed capital spending is expected to slip and public utilities indicated that capital to 75 percent in 1968 and to 65 percent in 1969. spending in 1968 would exceed 1967 totals by The proportion of reporting firms relying en only 15 percent and 25 percent, respectively. tirely on internal financing in 1968 and 1969 The differences betw een the fall 1967 and will be only slightly less than in 1967 (86 per spring 1968 surveys reflect more upward than cent). downward revisions in 1968 spending plans, a s well as actual 1967 spending falling short CINCINNATI AREA of expectations in m any instances. C apital spending by business firms in the Durable goods m anufacturers expect to seven-county Cincinnati metropolitan area raise their capital spending in 1968 by 39 will be one-third larger in 1968 than in 1967. percent over 1967, com pared with a 21-per- In 1968, m anufacturing firms and public utili cent increase by nondurable goods m anufac ties plan to increase spending 27 percent and turers. Durable goods m anufacturers also 39 percent, respectively. A further 10-percent anticipate a sm aller cutback in spending in rise in spending in 1969 is planned by the 1969 than do nondurable goods m anufac public utilities, in contrast to a 21-percent turers. Individual industries, in general, fol reduction in spending anticipated by m anu low the pattern of their respective group.3 In facturing firms participating in the survey (see Table IV). TABLE IV Capital Spending by Cincinnati Area Firms (Spring 1968 Survey) Year-to-Year Percent Change the paper industry, however, spending reduc tions scheduled for both 1968 and 1969 devi ate from the pattern and are an outgrowth of a very substantial rise in spending in 1967. As w as the case in 1967, 39 percent of capi tal spending by manufacturing firms will be used for new structures. The proporiion is MANUFACTURING Durable goods Primary and fabricated metals* Machinery Electrical equipment Nondurable goods Food Paper Printing and publishing Chemicals PUBLIC UTILITIES TOTAL 1967 (actual) to 1 968 (planned) 1 968 (planned) to 1 969 (planned) + 27% + 39 — 21% — 19 + 85 + 95 + 13 + 21 +25 — 9 + 29 + 23 + 39 + 32% — 28 — 4 — 12 — 23 — 10 — 5 — 74 — 12 + 10 — 8% expected to drop to 30 percent in 1969 (see Table V). In the durable goods group, 43 per cent of total capital spending is planned for structures in 1968, compared with 18 per cent in 1967. In contrast, spending for con struction in the nondurable goods group, which w as large in the chem ical, paper, and food industries in 1967, is yielding to an in creasing share of total spending earm arked for m achinery and equipment. * Combined in order to preclude disclosure of individual estab lishment data. 3 Separate data for the transportation equipment industry Source: Federal Reserve Bank of Cleveland of that industry to participate in the spring 1968 survey. Digitized for26 FRASER are not shown due to the inability of one large member JUNE 1968 TABLE V Capital Spending by Cincinnati Area Firms (Spring 1968 Survey) Percent Distribution of Total Spending by Type* (Between Structures and Equipment and Between Expansion and Replacement) Structures! MANUFACTURING Durable goods Primary and fabricated metals§ Machinery Electrical equipment Nondurable goods Food Paper Printing and publishing Chemicals PUBLIC UTILITIES TOTAL Expansion^ pacity described their present facilities as "ad eq u ate," while only one firm in five re ported "less than required" facilities, or about the sam e proportion a s in the fall of 1967. Manufacturing firms supplying information about methods of financing their capital in vestments expect to meet over 90 percent 1967 1968 1969 1967 1968 1969 of total spending in 1968 and 1969 from inter 39% 18 39% 43 30% 26 71% 59 75% 69 72% 59 nal sources, virtually unchanged from 1967. 9 12 41 41 11 35 28 70 40 85 7 83 5 48 52 60 24 36 52 18 12 32 44 28 46 76 56 83 54 78 71 76 51 80 61 62 12 56 32 38% 60 24 26 37% 44 26 32 30% 35 93 67 70% 67 86 73 75% 62 90 73 72% As w as the case in 1967, more than 80 percent of those firms expect to finance all of their capital spending internally in 1968 and 1969. PITTSBURGH AREA Business firms in the four-county Pittsburgh metropolitan area participating in the latest survey plan to spend 6 percent more for new plant and equipment in 1968 than in 1967, with manufacturing concerns in the group * Based only upon returns in which these breakdowns were supplied. f Spending for equipment equals 100 percent less the percent shown for structures. | Spending for replacement equals 100 percent less the percent shown for expansion. § Combined in order to preclude disclosure of individual establishment data. ticipating firms, while m anufacturing firms Source: Federal Reserve Bank of Cleveland the level of 1967 (see Table VI). In the fall 1967 survey, spending for 1968 Spending for expansion, which w as above expecting a 5-percent increase. For 1969, cut b acks of 20 percent are planned for all par expect a 12-percent drop. These plans for 1969 would reduce capital spending below was expected to decline by 8 percent from the 70 percent for the m anufacturing group in 1967 level for all business firms and by 10 1967, is expected to rem ain high in 1968 and percent for m anufacturers. Downward adjust 1969 (see Table V). The proportion is gener ments in 1967 spending totals and upward ally larger in the nondurable than in the dur revisions in plans for 1968 betw een the two ab le goods industries, particularly in the survey dates produced the change from an chem ical industry, where substantial spend expected decline to an expected rise in cap i ing for additional equipment is anticipated tal outlays for 1968 in relation to 1967. following last y ear's new construction. Durable goods m anufacturers a s a group Despite the indicated high proportion of expect only a very minor change in the level spending for expansion of present facilities, of spending from 1967 to 1969. Spending by two out of every three manufacturing firms the nondurable goods group will go up sub answ ering the question about av ailab le c a stantially in 1968 but drop b ack in 1969 below 27 ECONOMIC REVIEW TABLE VI Capital Spending by Pittsburgh Area Firms (Spring 1968 Survey) Year-to-Year Percent Chan ge + facilities both by m anufacturing concerns and all business firms combined. The propor tion is slightly greater than in 1967 and is 1967 (actual) to 1968 (planned) MANUFACTURING Durable goods Stone, clay, and glass Primary metals Fabricated metals Electrical equipment Nondurable goods Food Printing and publishing Chemicals TRANSPORTATION PUBLIC UTILITIES RETAIL TRADE TOTAL 1968 is designated for expansion of present 5% + 1 — 5 — 6 — 14 + 24 + 36 + 36 — 28 +53 — 22 + 19 + 56 + 6% 1 968 (planned) to 1969 (planned) — 12% — 1 — 39 — 5 +41 — 9 — 44 — 69 — 82 — 32 — 52 + 3 — 82 — 20% Sources: University of Pittsburgh and Federal Reserve Bank of Cleveland expected to rise somewhat higher in 1969 (see Table VII). C apacity pressure does not appear to have played an important role in decisions to ex pand existing facilities. Seven out of every ten manufacturing firms supplying informa tion on capacity report their facilities as "ad eq u ate" and less than half of the rem ain ing firms consider their facilities "le ss than TABLE VII Capital Spending by Pittsburgh Area Firms (Spring 1968 Survey) Percent Distribution of Total Spending by Type* (Between Structures and Equipment and Between Expansion and Replacement) the 1967 level (see Table VI). Individual in Structures! dustries within both groups, however, vary greatly as to size and direction of year-to-year ch anges in capital spending and exhibit little conform ance to any discernible pattern. Pub lic utilities show a rise in spending for both 1968 and 1969, while data for retail trade establishm ents reflect a large one-time ex pansion program by one firm that will be largely com pleted in 1968, resulting in a sharp cutback in planned spending for 1969. Almost one-fourth of all capital spending in 1968 will be for new structures, with a de cline in the proportion in 1969. The proportion is n oticeably larger for nonmanufacturing than m anufacturing and there is consider ab le variation am ong industries within each group, as w ell as sharp year-to-year fluctua tions (see Table VII). Less than half of total capital spending in Digitized for 28FRASER MANUFACTURING Durable goods Stone, clay, and glass Primary metals Fabricated metals Electrical equipment Nondurable goods Food Printing and publishing Chemicals TRANSPORTATION PUBLIC UTILITIES RETAIL TRADE TOTAL Expansion^ 1967 1968 1969 1967 1968 19< 20% 21 18% 20 8% 7 44% 43 45% 43 51 * 48 15 19 9 10 18 18 2 7 14 20 42 20 29 38 23 4 51 19 36 11 1 31 2 8 6 14 -0 - 56 57 7 64 67 22 57 67 2 14 81 1 57 61 41% 11 81 21 51 76 45% 1 76 10 54 46 51' 24 -0 -0 1 15 8 1 30 17 35 27 26 77 7 49 23% 24% 18 % * Based only upon returns in which these breakdowns were supplied. f Spending for equipment equals 100 percent less the percent shown for structures. + Spending for replacement equals 100 percent less the percent shown for expansion. Sources: University of Pittsburgh and Federal Reserve Bank of Cleveland JUNE 1968 required." Among the nonmanufacturing in downward adjustm ents of actual 1967 out dustries, only the public utilities report some lays. (1967 spending had alread y been scaled cases of inadequate capacity. down in the fall of 1967 from the higher levels In 1969, m anufacturing firms expect to fi indicated in the spring of 1967.) nance internally 90 percent of their total W hile the results of the area surveys and spending, which slightly exceeds the actual the national survey are sim ilar with regard percent for 1967 and the expected percent for to the direction in which overall spending is 1969. Three of every four manufacturing firms expected to move in 1968 and 1969, there is intend to rely solely on internal financing in not the sam e agreem ent betw een the results 1968 and 1969, a greater proportion than in of the area surveys and the national survey 1967. total on either the expected direction of spending spending than those indicated by m anufac changes by individual industries or groups turing firms are expected to be internally of industries, or on the relative size of year- financed by nonmanufacturing firms in both to-year changes. For exam ple, the nationwide 1968 and 1969. expectation of a relatively larger spending CONCLUDING COMMENTS the nondurables group is replicated in only Much sm aller proportions of increase by the durable goods group than by one of the areas of the District. The continued A com parison of the survey results among large increase in capital investment by the m ajor a rea s of the Fourth District with the steel industry reported nationwide does not findings of the nationwide survey conducted appear to be the ca se in the Pittsburgh area, by McGraw-Hill in M arch 1968 indicates some nor can the substantial spending rise reported sim ilarities as well a s differences. In each area of the District, spending by m anufactur for the rubber industry in the nation be sub stantiated by that industry's spending plans ing firms is expected to rise in 1968 and then in the Akron area. All Fourth District area drop b ack in 1969, in some cases below the surveys point to increased spending in 1968 level of spending in 1967. The national survey by the chem ical industry, in contrast to a anticipates a 7-percent spending increase by spending cut reported in the national survey. manufacturing firms in 1968 and a 1-percent These relationships highlight the fact that decline in 1969. The expected increase in 1968 differences in spending evident in such com capital spending in the various District areas parisons m ay be due to special local circum — and nationwide — is larger than had been stances and that the timing of local spending anticipated in the fall of 1967, becau se of up plans m ay be out of step with broader-based ward revisions in spending plans for 1968 and national trends. 9.9 RECENTLY PUBLISHED ECONOMIC COMMENTARIES OF THE FEDERAL RESERVE BANK OF CLEVELAND "Inter-city Variation in Average Hourly Earnings" May 18, 1968 "A Fresh Look at 1968" May 25, 1968 "State and Local Government Borrowing and Capital Spending in 1966 (Fourth District)" June 1, 1968 "Recent Trends in U. S. Treasury Bills" June 8, 1968 "Banking Highlights of the 1960's" June 15, 1968 "Distribution of Bank Deposits in Smaller SMSAs of the Fourth District" June 22, 1968 Economic Com mentary is published weekly and is available without charge. Requests to be added to the m ailing list or for additional copies of any issue should be sent to the Research Department, Federal Reserve Bank of Cleveland, P. O . Box 6387, Cleveland, Ohio 44101. Digitized for 30FRASER NEW PUBLICATIONS Two new publications are available from the Federal Reserve Bank of Cleveland. Statistical Profile: Counties of the Fourth Federal Reserve District presents data for all Fourth District counties on population, employment, unemployment, production, distribution, banking, income, agriculture, and natural resources. Statistical Profile: Standard Metropolitan Statistical Areas of the Fourth Federal Reserve District presents data for all Standard Metro politan Statistical Areas in the Fourth District on population, employment, un employment, production, distribution, construction, finance, and income. Both publications were prepared in the Research Department of the Federal Reserve Bank of Cleveland and will be published biennially. Copies of the books are available from the Research Department of the Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio 44101.
@FedFRASER