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MARCH

THIS

1968

ISSUE

The New Federal Budget

Employment Performances
of Cleveland,
Pittsburgh, and
Cincinnati, 1950-1966
Part III: Updating and
Conclusions............ 15

FEDERAL

RESERVE

BANK

CLEVELAND

Additional copies of the E C O N O M IC REVIEW may
be obtained from the Research Department, Federal
Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,
O hio 44101. Permission is granted to reproduce any
material in this publication.

MARCH 1968

THE NEW FEDERAL BUDGET
In late January, the President presented

hensive and integrated accounts, which are

Congress a budget for fiscal year 1969 that

summarized in Table I. The accounts consist

is radically different in format and in some

of four m ajor subdivisions: (1) budget au

concepts from all other Federal budgets. The

thority; (2) budget receipts, expenditures,

new budget statem ent (The Budget) is de

and net lending; (3) the m eans of financing a

signed to replace the adm inistrative budget,

budget deficit (or disposing of a surplus);

the consolidated cash budget, and the n a

and finally, (4) outstanding Federal debt

tional income accounts (NIA) budget.

and loans.

The new budget format was recommended

The new formal gives special attention to

by the President's Commission on Budget

legislation and budget authority.1 The first

Concepts, which w as the first Presidential

section

("Budget

authority")

begins

with

group to review b asic budget concepts since

a statement of the new appropriations re

the Budget and Accounting Act was passed

quested by the President, and then presents

in 1921. The Commission was established in

figures on appropriations that will becom e

M arch 1967 and submitted its proposals in

av ailab le autom atically in the coming fiscal

late 1967. The Administration accepted near

year becau se of past Congressional action.

ly all of the Commission's recommendations.
This article exam ines the format of the

The sum of new and past appropriations b e
com es the "total authority" for the relevant

new budget, including the coverage and

fiscal year (see Table I, Section I).

accounting basis. The conversion to the new

The "Budget receipts, expenditures, and

budget format will be a two-stage process.

lending" section is the heart of the new

The first stage, representing the reclassifica

budget and financial plan. The section is

tion of items, is introduced in the fiscal 1969

divided into two subaccounts — the expend

budget. The second stage, involving a change

iture subaccount and the loan subaccount —

in accounting methods, will occur in about

that separate

two years. This article also provides some

receipts

historical com parisons of the figures in the

Table I, Section II).

and

loan

activities from

expenditure

program s

other
(see

new and old Federal budgets and briefly dis

Within the expenditure subaccount, re

cusses the Federal budget for fiscal year 1969.

ceipts consist of all tax receipts, fees, trust

THE BUDGET AN D FINANCIAL PLAN
The new Federal budget is part of an over
all financial plan comprising a set of compre

1 The term "authority" is redefined in The Budget as
"an authorization by an Act of Congress to incur obliga
tions and make payments out of the Treasury for specified
purposes."

E C O N O M IC REVIEW
TABLE I
S u m m ary of the President's Budget
an d Financial Plan

during the fiscal year and deducts loan re
paym ents (and actual sales of loans) to arrive
at ''net lending."
The separation of expenditure and loan

I. Budget authority

activities provides the Executive Branch,

Proposed for action by Congress
Not requiring action by Congress

Congress, and the public with a useful m ea

Total authority

sure of the econom ic or fiscal policy impact

II. Budget receipts, expenditures, and lending
Expenditure account

of The Budget. Thai is, the size and direction
of the "expenditure account surplus or deficit"

Receipts

indicates whether The Budget is acting to

Expenditures (including net lending)
Expenditure account surplus or deficit

restrain or stimulate the economy. Govern
ment lending programs are excluded from

Loan account

the impact m easure because such programs

Loan disbursements

involve the exchange of financial assets

Loan repayments

rather than direct income paym ents. Al

Net lending
Total budget

though a Government loan increases the

Receipts

purchasing power of the private sector of the

Expenditures and net lending

economy, borrowers sim ultaneously assum e

Budget surplus or deficit

liability

for

ultimate

repaym ent.

Conse

quently, the econom ic impact of a loan is held
to be different from a direct expenditure.

III. M e an s o f financing
Borrowing from the public
Reduction of cash balances, etc.
Total budget financing

The total budget includes both the expend
iture subaccount and the loan subaccount,

IV. Outstanding Federal securities and Federal loans, end of year
Federal securities

and reflects the whole range of Government

G ross amount outstanding

activities

Held by the public

proval; the total surplus or deficit is the

Federal credit programs

that

require

Congressional

Direct loans outstanding

amount to be financed. The term "budget

Guaranteed and insured loans outstanding

surplus or deficit" refers solely to the total
budget. Consequently, the new budget elimi

Source: Bureau o f the Budget

nates the confusion previously generated by
fund receipts, and receipts derived from

numerous budget concepts and their often

sovereign authority; expenditures include all

conflicting surplus or deficit figures.

nonloan expenditures and trust fund p ay

The third section of the new Federal bud

ments. The difference betw een total receipts

get and financial plan covers the m eans of

and expenditures is the "expenditure account

financing a budget deficit (or disposition of

surplus or deficit." The loan subaccount of

a surplus). This section (see Table I, Section

The Budget provides a separate treatment

III) shows the amount of deficit to be financed

of the Governm ent's lending activities. The

by borrowing from the public and the amount

section

by other m eans, such as the drawing down of

shows

gross

loan

disbursements

MARCH 1968
cash balan ces. Bolh Treasury and Federal

elem ent in the lo an s3 will be treated as an

agen cy borrowing from the public are in

expenditure item in the expenditure sub

cluded as a m eans of financing the deficit.

account. In this way, the "pure” lending

The fourth section of the new budget and

activity of the Government will be isolated

financial plan presents data on the level of

in the loan subaccount. By including loans,

Federal borrowing and lending at the end of

the new budget differs from the NIA budget,

the fiscal year. It shows the gross volume of

which excludes lending activities and other

Federal securities expected to be outstand

financial transactions.

ing and the amount held by the public,2 as

The second, and in terms of dollar m agni

well a s the anticipated status of the various

tude the most important, difference betw een

Federal credit programs.

the budgets is the handling of sales of partici
pation certificates.4 In the new*budget, parti
cipation certificates appear a s a debt opera

BUDGET COVERAGE AND
ACCOUNTING BASIS
C overage. The new Federal budget is de

signed to be a comprehensive accounting

tion in the "m eans of financing” section. In
3 A considerable number of Federal loans include a sub
sidy element that reflects lending at more favorable in
terest rates than the cost of money to the Government (or

of the full range of Government activities —

the even higher cost of money obtained through private

regular agencies, the trust funds, and Gov

sources). For example, if the Federal Government lends

ernment corporations. Table II presents the
highlights of differences between the new
budget and other budget concepts.
The m ajor difference between The Budget
and the adm inistrative budget is the inclu
sion of trust funds in the new budget. Since
the consolidated cash budget and the NIA
budget include trust funds, the differences
betw een the new budget and the cash and
NIA budgets involve the treatment of loans,
participation certificates, and seigniorage.

$100 for 40 years on an amortized basis at an interest
rate of 2 percent when it has to pay 5 percent to borrow
the money from the public for the same term of years,
the "loan " is worth only about $63 — not $100. (The same
annual repayments would be required by a loan of $63
for 40 years at 5 percent as a loan of $100 at 2 percent
for the sam e period of time.) That is to say , the borrower
is receiving an asset worth $100, but the Government is
getting an asset in return worth only about $63. The
difference of about $37 represents a Federal payment to
the borrower, which is comparable to an ordinary Gov
ernment expenditure rather than a loan.
4 Participation certificates are sold to the public and are
interest-bearing instruments representing shares in a

The first difference is that Government

pool of Government-held loans. For example, the Federal

loans will be divided into two categories in

National Mortgage Association (FNMA) sells beneficial

the new budget. The amount of any subsidy

interests, or participations, in mortgages owned by the
Association. FNMA also has the responsibility for man
aging and coordinating the pooling of assets and sale
of participation certificates in the capacity of trustee for

2 "Public" is defined as outside Government agencies

the Farmers Home Administration, the Office of Educa

and trust funds. Holdings of Government debt by the

tion's academ ic facilities loan program, the college hous

Federal Reserve System are included in public holdings

ing and other programs of the Department of Housing

because Federal Reserve receipts and expenditures are

and Urban Development, and the Small Business Admin

not included in The Budget.

istration.

EC O N O M IC REVIEW

TABLE II
Budget Concepts: The N e w an d The O ld

The Budget

N IA Budget

Consolidated
Cash Budget

Administrative
Budget

I. Cove rage
Receipts
Regular taxes

Included

Trust fund taxes

Included

Excluded

Excluded from receipts,
netted against expen
ditures or outlays

Excluded from
receipts,
netted against
expenditures

Includes some
in receipts

Included

Receipts from marketoriented activities

Expenditures
Regular agencies

Included'

Included

Trust funds

Included

Excluded

Loans

Excluded from
expenditure account;
included in total
budget outlays

Excluded

Included (net on
expenditure side)

Participation certificates

Treated as borrowing

Excluded

Treated as reduction
o f payments

Treated as
reduction of
expenditures

Seigniorage

Excluded from receipts,
treated as a means of
financing the deficit

Excluded

Excluded from receipts,
treated as a means of
financing the deficit

Treated as
receipt item

Federal home loan banks
and land banks

Excluded

Included

Excluded

District of Columbia

Excluded

Included

Excluded

Receipts

Accrual*

Combination,
cash and accrual

Cash collections

Expenditures

Accrual f

Deliveries

Cash paymentschecks cashed

Cash paym entschecks issued

Other

II. Accounting Basis

* Presently on a cash collection basis, but are expected to be on an accrual basis in the future,
t Presently on a checks issued basis, but are expected to be on an accrual basis in the future.
Source: Federal Reserve Bank of Cleveland

other words, sales of participation certificates

that in the new budget the Governm ent's

are given the sam e treatment as direct bor

"profits” on coinage operations (seigniorage)

rowing by the Treasury. In the cash and

are a m eans of financing the budget deficit.

adm inistrative budgets, participation certifi

In contrast, seigniorage is a form of revenue

cates are considered negative expenditures,

in the adm inistrative budget and is excluded

while the NIA budget excludes them.

in the cash and NIA budgets.

The third difference betw een budgets is
Digitized for6 FRASER

The new budget does not differ from other

MARCH 1968

budget concepts with respect to the treat

In the case of receipts, the new budget will

ment of the Federal Reserve System . The p ay

use the accru al method to record corporate

ment of "interest on Federal Reserve Notes''

profits taxes, and will be sim ilar to the NIA

to the Treasury by the Federal Reserve

budget in this procedure. The feasibility of

continues as a revenue item in the new

introducing the accru al method for personal

budget, while other receipts and expenditures

income and employment taxes is still under

of the Federal Reserve Banks are excluded.
Government-sponsored enterprises are omit

study. If a satisfactory accru al accounting
basis cannot be developed for these taxes,

ted from the new budget whenever they are

they will be reported on a cash basis. The use

com pletely privately owned. Consequently,

of a cash basis for personal income and Em

the Federal Home Loan banks and the Fed

ployment taxes would probably not impair

eral Land banks are excluded from the new

the usefulness of the new budget, because it

budget.

is doubtful that individuals keep accrual a c

The Federal Intermediate

Credit
the

counting records or that tax accruals have

FNMA secondary m arket operation fund

much, if any, influence on individual behav

are included since they are not 100 percent

ior. In practice, receipts of the new budget

privately owned. Activities of the Federal

m ay approximate the NIA budget insofar as

Deposit Insurance Corporation are also in

the treatment of taxes is concerned.

banks. Banks for Cooperatives, and

cluded in the new budget. Receipts and ex

Because of the lack of historical data on

penditures of the District of Columbia are

accru al expenditures and the problems in

excluded from the new budget, which is the

volved in establishing an accru al accounting

case in both the NIA and adm inistrative

system, it will be at least two years before

budgets.

the new budget can be recorded on an a c
crual basis. Government agen cies will have

Accounting Basis. The use of accru al a c

time in the interim period to develop the

counting for all Government receipts and

n ecessary accrual accounting records. In

expenditures is perhaps the most important

addition, loan subsidies will not be included

innovation to be introduced in the new bud

in expenditures for at least two years so that

get. Broadly speaking, accrual accounting

record-keeping methods can be developed.

records a receipt of expenditure at the time a
credit or liability arises. On the expenditure
side, accru al accounting "tim es” spending

FEDERAL BUDGET RECEIPTS A N D
EXPENDITURES, 1965-1969

when the actual liability is incurred. Use of

A comparison of Federal receipts and ex

accru al accounting for spending is particu

penditures under different budget concepts

larly significant for goods with long produc

for fiscal years 1965-1969 is shown in Chart 1.

tion times, such as planes, m issiles, and

Total receipts in The Budget are somewhat

warships; spending will thus be recorded as

sm aller than in either the cash or NIA bud

work progresses.

gets b ecau se there is more netting of items

ECONOMIC REVIEW
in the form er.5 That is, receipts of a partic

C h a r t 1.

ular program or agency, such a s the post

FEDERAL BUDGET RECEIPTS
and EXPENDITURES

office, are subtracted from the expenditures

F is c a l Y e a r s 1 9 6 5 — 1 9 6 9

of the program or agency, and the net figure

B il l i o n s o f d o l l a r s

is recorded as an expenditure. Administrative

R E C E IP T S

budget receipts are much sm aller than those
in The Budget b ecau se trust fund receipts are
excluded from the adm inistrative budget.
Total expenditures

CONSOLIDATED
CASH BUDGET

in The Budget are

roughly similar to those in the cash budget,
but are slightly greater than in the NIA bud
get and much greater than in the adm inistra
tive budget. Spending figures in the new
budget are higher than in the NIA budget b e

NIA BUDGET

cause lending program s and other financial
transactions are included in the former. In
the new budget, spending figures are much
ADMINISTRATIVE

larger than in the administrative budget,

BUDGET

chiefly because participation certificate sales
are removed as an offset against expendi
tures and the trust funds are included.
E X P E N D IT U R E S

5 The greater use of neiiing in ihe new budget reflects
the view that

. . receipts from activities which are es

sentially governmental in character, involving regulation
or compulsion, should be reported as receipts. But receipts
associated with activities which are operated as businesstype enterprises, or which are market-oriented in char
acter, should be included as offsets to the expenditures
to which they relate." Report of the President's Commis
sion on Budget Concepts, Washington: U. S. Government
Printing Office, 1967, p. 65. The following categories of
receipts are offsets to expenditures in the new budget:
receipts of Government enterprises and enterprise funds;
permits and fees; hunting and grazing licenses and fees;
interest, dividends, rents, and royalties; sales of products;
fees and charges for services and benefits of a voluntary
character; sales of Government property; repayments of
loans and advances; and recoveries and refunds of e a r
1965

’6 6

’6 7

S o u r c e o f d a ta ; B u re a u o f the B u d g e t

Digitized for
8 FRASER

'6 8 e s t .

’6 9 e s t .

L a st entry:

'69

lier expenditures. However, the new budget also presents
gross figures on receipts and expenditures for those agen
cies whose receipts are offset against expenditures.

MARCH 1968

FEDERAL BUDGET SURPLUSES
A N D DEFICITS, 1965-1969

in The Budget exceeds the deficit in the NIA
budget; the sam e is true in comparison with

In The Budget, toial receipts are generally

the cash budget, with the exception of fiscal

sm aller than those in the cash and NIA bud

y ear 1965. (See Table III.)

gets and total outlays are generally larger.

Chart 2 shows the respective surpluses or

As a result, deficits in The Budget are usu

deficits under the various budget concepts

ally larger (or surpluses smaller) than in the

for fiscal years 1965-1969. In fiscal years 1965

cash or NIA budgets. In fact, in each fiscal

and 1966, the expenditure account of The

year from 1961 through 1969, the total deficit

Budget w as virtually in b alan ce (surpluses

TABLE III
Four Budget Concepts
Fiscal Y ears 1961-1969

(billions of dollars)
Actual
Description

Estimated

1962

1963

1964

1965

1966

1967

1968

1969

$94.4

$ 99.7

$106.6

$112.7

$116.9

$130.9

$149.4

$155.8

$178.1

96.7

104.7

111.5

118.1

116.7

130.7

153.2

169.9

182.8

5.4

0.1

0.2

1961

The Budget:
Expenditure account:
Receipts
Expenditures
Expenditure account
surplus or deficit

—

5.0

—

4.9

1.2

2.4

—

0.1

0.5

1.2

3.8

5.2

5.8

3.3

94.4

99.7

106.6

112.7

116.9

130.9

149.6

155.8

178.1

2.3

N et lending

—

3.6

—

14.0

—

4.7

Total budget:
Receipts
Expenditures and
net lending
Surplus or deficit

107.0

97.9
— $ 3.5

— $

7.4

11 1.3
— $

4.7

118.7
— $

6.0

118.0
— $

1.1

134.6
— $

3.7

— $

158.4

175.6

8.8

— $ 19.8

186.1
— $

8.0

Consolidated Cash Budget:
Receipts

$97.2

$101.9

$109.7

$1 15.5

$119.7

$134.5

$153.6

$158.8

$181.2

99.5

107.7

113.8

120.3

122.4

137.8

155.1

176.0

188.7

1.5

— $ 17.2

Payments
Surplus or deficit

— $ 2.3

— $

5.8

— $

4.0

— $

4.8

— $

2.7

— $

3.3

— $

7.6

National Income Accounts:
Receipts

$95.3

$104.2

$110.2

$1 15.5

$120.6

$132.9

$147.6

$161.1

$182.5

98.0

106.4

111.4

116.9

1 18.3

131.9

155.1

171.1

185.0

7.5

— $ 10.0

Expenditures
Surplus or deficit

— $ 2.7

— $

2.1

— $

1.2

— $

1.4

2.3

0.9

— $

2.5

Administrative Budget:
Receipts

$77.7

$ 81.4

$ 86.4

$ 89.5

$ 93.1

$104.7

$115.8

$118.6

$135.6

81.5

87.8

92.6

97.7

96.5

107.0

125.7

137.2

147.4

9.9

— $ 18.6

— $ 11.8

Expenditures
Surplus or deficit

— $ 3.9

— $

6.4

— $

6.3

— $

8.2

— $

3.4

— $

2.3

— $

NOTE: Details m ay not a d d to totals due to rounding.
Source: Bureau o f the Budget

E C O N O M IC REVIEW

C h a r t 2.

FEDERAL BUDGET SURPLUSES and DEFICITS
F is c a l Y e a r s 1 9 6 5 — 1969
B illi o n s o f d o l l a r s

THE BUDGET

CONSOLIDATED
CASH BUDGET

NIA BUDGET

ADMINISTRATIVE BUDGET

-5

-10

E x p e n d itu re A c c o u n t -

-15
N e t L e n d in g -

-20

-2 5
1965

’66

S o u r c e o f d a t a : B u re a u o f the B u d g e t

■67

'6 8 e s t .

’6 9 e s t .
La st entry:

'69

of $0.1 and $0.2 billion, respectively), but

an increase in the surplus) has a restraining

the Governm ent's net lending activities re

effect. The fact that The Budget provides a

sulted in a total budget deficit in both years.

better indication than the other budgets of

In fiscal years 1967, 1968, and 1969, deficits

the im pact of the Federal Government on the

in the expenditure account combined with

economy, m akes The Budget an important

net lending activity to yield total budget

tool of economic analysis. Since Federal

deficits in The Budget greater than those in

lending program s are excluded, the focal

either the NIA or consolidated cash budget

point of The Budget in measuring economic

(see Chart 2).

or fiscal policy impact is the "expenditure

Irrespective of the budget concept used,

account surplus or deficit." As shown in

the economic or fiscal policy im pact of the

Chart 3, the "expenditure account" moved in

Federal Government on the econom y is best

the direction of surplus (restraint) in fiscal

m easured by changes in net budget position

year 1966, while the NIA budget moved in

rather than by the amount of budget surplus

the direction of deficit (stimulus). In fiscal

or deficit in any fiscal year. Thus, an increase

y ears 1965, 1967, 1968, and 1969, the two

in the amount of budget deficit (or a d ecrease

budget deficits moved in the sam e direction,

in the surplus) h as a stimulative effect on the

but the magnitude of change w as greater in

econom y, while a reduction in the deficit (or

the expenditure account of The Budget than

MARCH 1968

C h a r t 3.

NET C H A N G E S in FEDERAL BUDGET SURPLUSES and DEFICITS
F is c a l Y e a r s 1 9 6 5 — 1 9 6 9
B illi o n s o f d o l l a r s
CONSOLIDATED
NIA BUDGET

THE BUDGET

+10

CASH BUDGET

ADMINISTRATIVE BUDGET
bUUutl

-(E x p e n d itu re Account)

1
-5

-10

-15

:::
2

li
Sara

HI-

■pi/;.

%
1

1 "

-20
1965

'6 6

'6 7

'6 8 e s t .

S o u r c e o f d a ta : B u re a u o f the B u d g e t

'6 9 e s t .
La st entry:

’69

in ihe NIA budget in three of the four years,

preclude the use of only one budget number,

indicating a greater impact on the econom y

such as the amount or change in the amount

due to Federal activities than suggested by

of surplus or deficit, to m easure the effect of

the NIA budget.6

the Government on the economy. Instead,

W hen the changes to an accrual b asis have

The Budget should be thought of as a broad

been made, the new budget totals, as well

financial plan that covers (1) the various

as the year-to-year changes in the totals,

w ays of channeling the econom y's resources

should eventually provide a better gauge of

to the Federal Government through use of an

the fiscal im pact of the Government on the

assortment of taxes and forms of borrowing,

econom y than that of any other budget con

and (2) programs designed to serve national

cept. Nevertheless, the com plexity of the

objectives.

Federal Governm ent's activities should still

THE BUDGET FOR FISCAL YEAR 1969
6 These differences a re due largely to Ihe treatment of

Expenditures. As proposed in The Budget,

corporate taxes on an accrual basis in ihe NIA budget;

total Federal outlays are estim ated at $186.1

hence, the NIA budget presently gives a betier indication
of impact. Eventually, both measures will be closer in

billion in fiscal year 1969, an increase of

treatment, and the new budget will be better when ex

$10.4 billion over fiscal year 1968. Because

penditures are placed on an accrual basis.

total Federal outlays consist of the sum of

EC O N O M IC REVIEW
expendilures and net lending, Federal ex

decline in m ortgage acquisitions.

penditures are budgeted at $182.8 billion, an

As shown in Table IV, the 1969 budget

increase of $12.8 billion over fiscal year 1968.

proposes increased spending in every m ajor

The difference betw een the $10.4 billion in

function, except space research and technol

crease in total outlays and the $12.9 billion

ogy. The largest dollar in crease in spending

increase in total expendilures occurs because

is proposed for the health, labor, and welfare

net lending activities in fiscal year 1969 are

function, up $5.5 billion over 1968. The bulk

budgeted to decline $2.5 billion from fiscal

of the increase ($4.2 billion) in that function

year 1968, m ainly reflecting a $1.9 billion

is for expanded social security and m edicare

TABLE IV
Federal Expenditures, by Function
Fiscal Y e ars 1967-1969

(billions of dollars)
Function

1967
Actual

1968
Estimate

1969
Estimate

Change
1968- 1969

Expenditures:
National d e f e n s e ...............................................................

. . .

$ 70.1

$ 76.5

$ 79.6

International affairs and fin a n c e ..........................................

. . .

4.1

4.3

4.5

+ $ 3.3
0.2
+

Space research and t e c h n o lo g y ..........................................

. . .

5.4

4.8

4.6

—

Agriculture and agricultural resources...................................

. . .

3.2

4.4

4.5

0.1

Natural re so u rce s...............................................................

. . .

2.1

2.4

2.5

0.1
0.3

0.2

Commerce and tran sp o rtatio n ..............................................

. . .

7.3

7.7

8.0

Housing and community d e v e lo p m e n t...................................

. . .

0.6

0.7

1.4

0.7

Health, labor, and w e l f a r e .................................................

. . .

39.5

46.4

51.9

5.5

E d u c a t io n ..........................................................................

. . .

3.6

4.2

4.4

0.2

Veterans benefits and se rvice s..............................................

. . .

6.4

6.8

7.1

0.3

In te re s t.............................................................................

. . .

12.5

13.5

14.4

0.9

2.5

2.6

2.8

0.2

1.6

0.1

0.4

0.3

General governm ent............................................................
Allowances:
Civilian and military p a y in c r e a s e ...................................

—

Undistributed intragovernmental payments
Government contribution for employee retirem en t..............

. . .

Interest received by trust funds..........................................
Total expenditures.....................................................

—

1.7

—

1.9

—

2.0

—

0.1

—

2.3

—

2.7

—

3.0

—

0.3

. , .

$153.2

$169.9

$182.8

+ $12.9

Net Lending:
0.5

0.7

International affairs and fin a n c e ..........................................

. . .

Agriculture and agricultural resources...................................

. . .

1.2

0.9

1.1

Housing and community d e v e lo p m e n t...................................

. . .

1.7

3.3

1.4

—

All other.............................................................................

. . .

1.7

0.9

0.1

—

0.8

3.3

—

2.5

Total net l e n d i n g .....................................................

. . .

Total o u tla y s ............................................................

. . .

$158.4

NOTE: Details may not ad d to totals due to rounding.
Source: Bureau of the Budget

Digitized for
12FRASER

5.2

5.8

$175.6

$186.1

+ $ 0.2
1.9

+ $10.4

MARCH 1968
TABLE V
Federal Receipts, by Source
Fiscal Y ears 1967-1969

(billions of dollars)
Source
..............

1967
Actua 1

1968
Estimate

1969
Estimate

C h an ge
1968- 1969

$ 61.5

$ 67.7

$ 80.9

+ $13.2
+

3.0

Corporate income ta x e s .....................................................

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

34.0

31.3

34.3

Employment t a x e s ............................................................

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

27.8

29.7

34.2

4.5

Unemployment in su ra n c e .................................................

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

3.7

3.6

—

0.1

Premiums for other insurance and re tire m e n t.....................

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

1.9

2.0

2.3

0.3

Excise t a x e s ...................................................................

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

13.7

13.8

14.7

0.9

Estate and gift ta x e s ........................................................

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

3.0

3.1

3.4

0.3

Cu stom s..........................................................................

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

1.9

2.0

2.1

0.1

Other r e c e ip t s ...............................................................

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

2.2

2.4

2.7

0.3

Total receipts.....................................................

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

$149.6

$155.8

$178.1

+ $22.3

NOTE: Details may not ad d to totals due to rounding.
Source: Bureau of the Budget

benefits passed by Congress last year. As

tion of a tem porary 10 percent income tax

proposed in The Budget, the national defense

surcharge, the extension of excise tax rates

function shows the second largest increase,

on telephone calls and

$3.3 billion.
All but $400 million of the $10.4 billion

acceleration of corporate tax paym ents, and

increase in total outlays is accounted for by

m easures are estim ated to yield about $13.1

higher social security benefits, additional de

billion in fiscal year 1969. The surtax and

fense costs, higher m ilitary and civilian pay

acceleration of corporate tax paym ents are

scales, scheduled to becom e effective July 1,

expected to increase revenues $2.7 billion in

1968, under existing law, and higher interest

fiscal year 1968 and $10.2 billion in fiscal year

paym ents on the Federal debt. Increases in

1969. Extension of the excise taxes would pre

automobiles,

certain transportation user charges. These

other types of expenditures are offset by the

vent a drop in revenues of $0.3 billion in fiscal

reduction in planned m ortgage lending, as

year 1968 and $2.7 billion in fiscal year 1969.

mentioned earlier.
Receipts. As shown in Table V, total Fed

The user charges are expected to provide $0.3
billion in fiscal year 1969.

eral receipts in fiscal year 1969 are estim ated

Economic Im pact of the Budget. As indi

at $178.1 billion, an increase of $22.3 billion

cated earlier, under the new budget format,

over 1968. In addition to revenue throw-off

the best m easure of the economic impact of

associated with expanding econom ic activ

the Federal Government is the expenditure

ity, the revenue estim ates assum e the adop

account surplus or deficit, i.e., the difference

E C O N O M IC REVIEW
betw een direct expenditures and total re

grams, would yield a sizable expenditure a c

ceipts, excluding lending activity. As shown

count deficit, forcing the Government to

in Table VI, the expenditure account deficit

borrow in the nation's credit market an

would amount to $4.7 billion in fiscal year

amount of funds com parable to that in fiscal

1969 if all of the proposed tax m easures

year 1968. In short, even if all the proposed

were adopted. As compared with fiscal year

spending programs were approved, adoption

1968, the expenditure account deficit would

of the surtax would in crease revenues appre

be reduced by about $9.3 billion, and the re

ciably, reduce the budget deficit, and work

duction would exert a restraining influence

toward restraining the economy in fiscal

on the economy. On the other hand, failure

year 1969 (compared with 1968), as well as

to adopt the income tax surcharge, combined

reduce the financing needs of the Treasury.

with the approval of all expenditure pro-

On the other hand, if the proposed spending
programs were approved without the surtax,
the result would be an excessively large bud
get deficit, further stimulus to economic

TABLE V I

activity, and continued heavy Treasury de

The Federal Budget

mands in credit markets.

Fiscal Y ears 1967-1969

(billions of dollars)

CONCLUDING COMMENTS
1967
Actual

1968
Estimate

1969
Estimate

Receipts, Expenditures,

The new Federal budget presents, for the
first lime, a com prehensive and interrelated

and Net Lending:

set of accounts that summarize the Federal

Expenditure account:

Government's

Receipts

153.2

169.9

182.8

than any other budget concept. As a result,

4.7

the new budget to some extent elim inates the

$ 20.4

different formats presenting various concepts

17.1

of the budget, in terms of both composition

3.3

and totals. The new budget format goes a long

3.6

— $ 14.0

$ 17.8

$ 20.9

— $

confusion generated by the three or more

Loan disbursements

Net lending

—

12.6
$

5.2

—

15.1
$

5.8

—
$

Total budget:
Receipts

w ay in improving understanding of the activ

$149.6

$155.8

$178.1

158.4

175.6

186.1

enable the Administration, Congress, and the

8.8

— $ 19.8

8.0

public to exercise more informed judgments

Outlays (expenditures
and net lending)
Budget deficit

com pletely

$178.1

Loan account:
Loan repayments

$155.8

Expenditures
Expenditure deficit

activities

$149.6

— $

ities of the Federal Government and should

NOTE: Details may not ad d to totals due to rounding.

concerning not only Government activities,

Source: Bureau o f the Budget

but also the impact of those activities.

Digitized for
14FRASER

MARCH 1968

EMPLOYMENT PERFORMANCES
OF CLEVELAND, PITTSBURGH,
A N D CINCINNATI, 1950-1966
PART III: UPDATING AND CONCLUSIONS

The first two parts of this study, which is
concerned

various state agencies, are used for the 1964-

with com parative employment

1966 period. Such data are on an establish

perform ances of Cleveland, Pittsburgh, and

ment (place of work) basis rather than on a

Cincinnati during 1950-1966, appeared in the

residence basis and, in this respect, parallel

November 1967 and January 1968 issues of

data used for the 1959-1964 period, but not the

the Econom ic R ev ie w . This article, which is

data used for the 1950-1960 period.26 (Implica

the third and final article, updates the find

tions of the differences betw een the two types

ings of the first two articles by addition of

of reporting b a se w ere noted earlier.)

data for 1964 to 1966, as well as a comparison
of perform ances for the three periods.

For the 1964-1966 period, 14 rather than
28 industry and service groups are used.

Although strictly com parable data are not

"Transportation equipm ent," for exam ple, is

av ailab le for the 1964 to 1966 period, a third

a com bination of the ''Motor vehicles and

set of d a ta 25 can be drawn from to derive

equipm ent" and "A ircraft and parts, ships,

some partial conclusions. Employment data

etc." categories. Sim ilarly, "Textile mill prod

(the payroll series) supplied by the Bureau

ucts" and "A pparel" are combined into one

of Labor Statistics of the U. S. Department of

category. Although "Finance, insurance, and

Labor, based on information gathered by the
2<i Although BLS data are available on a current basis,
25 Dala for Ihe 19.50-1960 period were drawn largely from

the breakdowns of industry or service categories are not

Growth Patterns in Employment by County, 1940-1950 and

as detailed as those used in Parts I and II of this study.

1950-1960, by Lowell D. Ashby, Office of Business Eco

In addition, the industry classifications used by the vari

nomics, U. S. Department of Commerce. Data for the 1959-

ous states in this series, although broadly comparable, are

1964 period were drawn from County Business Patterns,

not in all instances identical, which explains in pari why

Bureau of the Census, U. S. Department of Commerce.

these data were not used uniformly throughout the study.

E C O N O M IC REVIEW
real estate” continues to appear as a sepa

13-city aggregate. In terms of percent change,

rate category, various other service ca te

also

gories

are

"M achinery"

showed a 22-percent employment gain over
the two-year interval, contrasted to a 16-per

Table VIII.) Altogether, about two-thirds of

cent gain for the 13-city aggregate. M oderately

total nonfarm employment is included in

large plus figures for relative growth indi

"Serv ices."

the

VIII,

group

into

in Table

footnote,

designated

consolidated

shown

(See

Pari III, com pared with the four-fifths of total

cators in Cleveland are shown for the com

employment included in Paris I and II.

bined "Transportation, communications, and

The percent changes in employment b e

u tilities"'category and for "Printing and pub

tween 1964 and 1966 and relative growth

lishing." Other plus showings for relative

indicators27 for Cleveland, Pittsburgh, and

growth indicators include: "Textile mill prod

Cincinnati are shown in Table VIII for the

ucts and ap p arel" and "C hem icals and allied

14 industry and service categories. The rela

products."

tive growth indicators, applying to the two-

C leveland's unfavorable 1964-1966 list is

year interval, are m easured against the 13-

headed by "T rad e," followed by "Fabricated

city totals and computed by the sam e method

m etal products," "Transportation equipm ent,"

as used in Parts I and II.

and "S e rv ices." (For all four groups there
was a percent gain in employment over the

RELATIVE GROWTH INDICATORS CLEVELAND, PITTSBURGH, AN D
CINCINNATI, 1964-1966

two-year interval, but the percent gains fell
considerably short of those of the 13-city
aggregate.) The "Transportation equipm ent"

Cleveland. The most interesting feature of

group, a m ajor industry in Cleveland, in

the Cleveland pattern in 1964-1966 is the

cludes both the motor vehicle and the aircraft

relative com eback of "M achinery." With a

groups, which together registered a relative

relative growth indicator of plus 4,220, the

growth indicator of minus 1,223, in marked

m achinery industry heads C leveland's list

contrast to the 1950-1960 perform ance. "F a b

of gains for 1964-1966, compared with the

ricated m etal products" represents another
important Cleveland industry with a large
negative indicator in the 1964-1966 period.

27 Relative growth indicator refers to a measure of em

Minus relative growth indicators also ap

ployment change in a given area, for a given industry.

peared for five additional industry or ser

Relative growth indicator shows the excess or deficit in

vice categories, including "Prim ary m etals."

number employed that would have been added if the
local industry had exactly kept pace with the nationwide
percent rate of gain for that industry. The measure re
flects both percent change over time and the number of

Cleveland had an 8.6-percent increase in
employment for the "Total of covered indus
tries," while the aggregate of 13 cities showed

employees in the starting period. See also "Employment

an 8.7-percent increase (see Table VIII).

Performances of Cleveland, Pittsburgh, and Cincinnati,

For

1950-1966, Part I: Comparison with the United States,"

"Total

nonagriculiural

em ploym ent,"

Economic Review, Federal Reserve Bank of Cleveland,

C leveland's growth rate for the two years

Cleveland, Ohio, November, 1967.

also trailed the 13-city aggregate.

Digitized 16
for FRASER

MARCH 1968
TABLE V III
Percent C h a n g e in Em ploym ent an d Relative G row th Indicator
Cleveland, Pittsburgh, an d Cincinnati C o m p are d with 13 Cities
1964-1966
Cleveland

Total-1 3 Cities
Percent
Change in
Employment

Percent
Change in
Employment

Pittsburgh
Percent
Change in
Employment

Relative
Growth
Indicator

Cincinnati

Relative
Growth
Indicator

Percent
Change in
Employment

Relative
Growth
Indicator

1. Contract construction

9 .0 %

8 .8 %

—

+ 1 3 .8 %

+ 1,669

+ 1 0 .6 %

277

2. Food and kindred products

—

0.5

—

1.4

—

133

—

2.7

590

0.6

3. Textile mill products and ap parel*

1.8

4.5

359

+ 17.9

449

2.1

4. Paper and allied products

6.6

6.1

—

+ 11.8

174

+ 1 1.5

296

5. Printing and publishing

7.5

+ 10.9

537

—

3.7

—

904

5.5

—

255

6. Chemicals and allied products

+ 10.2

+ 10.4

4.1

—

446

+ 13.3

439

7. Machinery

+ 15.7

+ 21.8

+ 4 ,2 2 0

1.3

— 6,936

+ 14.6

—

297

8. Transportation equipmentf

+ 17.2

+ 13.9

— 1,223

+ 2 5 .4

515

+ 18.1

208

9. Primary metals

4.5

3.1

—

3.6

— 1,091

— 14.3

—

788

0. Fabricated metal products

+ 11.5

7.0

— 1,906

+ 17.5

+ 1,466

—

233
399

554

9.8

1. Transportation, communications,
and utilities!

4.4

6.5

996

3.1

—

686

5.6

2. Trade#

8.9

5.9

— 4,427

7.6

— 1,872

5.9

— 2,570

3. Finance, insurance, and real estate

3.9

3.4

—

180

4.6

230

0.4

—

813

4. Services§

9.6

8.6

— 1,028

9.2

—

472

+ 10.7

629

— 7,918

8 .1 %

— 2,105

8 .8 %

—

Total of covered industries

8 .7 %

8 .6 %

— 3,396

6 .7 %

Total nonagricultural employment

8 .9 %

8 .5 %

—

6 .8 %

—

* Industry 3 is an a ggre gatio n of industries numbered 4 and 5 in Tables I to VII applying to the 1 9 5 0 -1 9 6 0 and 19 59-1 964 periods
f Industry 8 corresponds to industries numbered 12 and 13 in Tables I to VII.
J Industry 1 1 corresponds to industries numbered 17-21 in Tables I to VII.
jf Industry 12 corresponds to industries numbered 22 and 23 in Tables I to VII.
§ Industry 14 corresponds to industries numbered 2 5 -28 in Tables I to VII.
Sources: U. S. Department of Labor, Bureau of Labor Statistics and special reports supplied by departments of employment security of
various states

Pittsburgh. Table VIII indicates that Pitts

indicator for "Fabricated m etal products" was

burgh showed signs of com eback in some

plus 1,466, and the industry registered an

areas during 1965 and 1966; however, in

employment gain of 17.5 percent in Pitts

other areas, there w as a further deterioration

burgh, compared with a gain of 11.5 percent

in Pittsburgh's relative scores. Overall, Pitts

for the 13-city aggregate. Other plus show

burgh's perform ance for the two years cannot

ings for relative growth indicators appeared

be considered competitively favorable.

for "Transportation equipment,” "Textile mill
products and app arel," "Finance, insurance,

Among the various industry and service
groups, Pittsburgh's perform ances in "Con
tract construction" and "Fabricated m etal
products" were the best. The relative growth

and real estate," and "P aper and allied
products."
On the unfavorable side, sizable negative
relative

growth

indicators

appeared

for
17

E C O N O M IC REVIEW
"M ach in ery /' "T rad e," and "Prim ary met

the gain for the 13-city aggregate w as 15.7

als," although the latter continues to be Pitts

percent.)

burgh's leading industry. Table VIII shows

Cincinnati's relative growth indicator was

five additional categories, including "S e r

minus 2,105 for the "Total of covered indus

v ices," for which Pittsburgh's relative growth

tries." In terms of percent change for both

indicators were m oderately negative.

total covered and total nonfarm employment,

Overall, Pittsburgh had a relatively un

Cincinnati gained 8.1 percent and 8.8 percent,

favorable perform ance for the two years.

respectively, slightly less than the percent

The relative growth indicator for the "Total

changes for the 13 cities.

of covered industries" was minus 7,918, and
the percent increase in employment for all
covered industries w as 6.7 percent as against

A N ADJUSTED COM PARISON OF
PERFORMANCES FOR THREE PERIODS

a 13-city aggregate of 8.7 percent. The posi

In order to com pare the Cleveland, Cincin

tive percent changes in employment in the

nati, and Pittsburgh showings in the three

1964-1966 period in Pittsburgh reflect in part

periods included in this study, two adjust

the area 's share in the accelerated p ace of

ments are made in the data. First, the findings

economic activity in the United States during

for the two earlier periods (1950-1960 and

the period.

1959-1964) are rearranged with respect to

Cincinnati. Cincinnati's experience during

industry and service categories to m atch the

1964-1966 was more like C leveland's than

consolidated listings used for the third period.

Pittsburgh's. In some respects, Cincinnati's

(The 14-industry list used for 1964-1966 b e

showing w as the most favorable of the three

com es the least common denominator.) S e c

cities. On the favorable side, Cincinnati had

ond, an adjustment is made for the different

significant positive relative growth indicators

time spans covered by the three periods (the

for "Serv ices," "Food and kindred products,"

1950-1960 period covers cumulative changes

"C hem icals and allied products," "Transpor

over ten years, while the 1959-1964 period is

tation, communications, and utilities," "Paper

a five-year span, and the 1964-1966 period is

and allied products," "Contract construction,"

only a two-year span).

and "Transportation equipm ent." Several of

Adjusted data for the three cities are shown

these groups are of m ajor im portance to

in Table IX. The relative growth indicators

Cincinnati's economy.

shown in Table IX are all expressed on an

On the unfavorable side, negative relative

annual change basis. The data in Table IX

growth indicators appeared for: "T rad e,"

reveal where the showing during the 1964-

"Finance, insurance, and real estate," "Pri

1966 period tends to confirm previous per

m ary m etals," "M achinery," "Printing and

form ance. The data also indicate in which

publishing," and "Fabricated m etal prod

employment categories a change in direction

ucts." (In terms of percent change, em ploy

of perform ance m ay have been in progress

ment in "M ach in ery" in Cincinnati w as up

(at least tentatively, insofar as two years is a

14.6 percent over the two-year interval, while

very short span).

Digitized for
18 FRASER

TABLE IX
R elative G row th Indicators
C le ve lan d , Pittsburgh, a n d Cincinnati C om pare d with 13 Cities
1950-1960, 1959-1964, 1964-1966

Annual Change Basis*
Cleveland
1950-1960

1959-1964

Pittsburgh
1 9 64-1 966

19 50-1 960

1 9 59-1 964

1. Contract construction....................................

—

154

2. Food and kindred p ro d u cts.........................

303

3. Textile mill products and a p p a r e l ..............

+
—

4. Paper and allied p r o d u c t s .........................

5. Printing and publishing................................

+
—

154

6. Chemicals and allied products.....................
7. M achin ery..................................................

— 1,083

—

364

+ 2,110

8. Transportation equipment............................

+ 1,043

—

378

—

612

9. Primary m e ta ls ...........................................

—

899

—

277

—

10. Fabricated metal p r o d u c t s .........................

+
—

520

—

203

—

953

—

782

1 1. Transportation, communications, and utilities

—

242

498

—

428

—

710

1 2. T r a d e .....................................................

391

+
—

423

— 2,214

—

542

—

13. Finance, insurance, and real e s t a t e ..............

264

—

14. Services.....................................................

—

189

—

514

—

213

—

Total of covered industries.....................

182

+
—

373

—

298

—

786

467

—

159

—

41 1

180

—

+
—

137

269

107

—

267

—

676

—

582

—

712

—

842

—

3,446

11 1

— 1,778

— 1,699

— 3,529

Cincinnati
1964 -19 66
+
—

835
7

137

225

245

368

+
—

452

—

223

— 3,468

19 50-1 960

19 59-1 964

1964-196C

227

—

246

139

101

295

—

286

—

156

148

—

209

—

128

153

—

313

220

—

594

—

149

258

+ 1,645

—

603

546

—

185

+
—

394

+
—

7 33

149

—

117

343

151

—

936

139

+
—

3,830

+
—

732

115

—

407

2,108

—

236

—

332

456

315

— 3,958

895

— 1,763

— 13,601

+
—

878

104

200
+
— 1,285

— 1,052

* Converted to an n u al change basis, as follows:
1950-1960 Relative G row th Indicator - ^ 1 0
1959-1964 Relative G row th Indicator -j- 5
1964-1966 Relative G row th Indicator - 7- 2

1968

MARCH

Sources: G row th Patterns in Em ploym ent b y County, 1940-1950 a n d 1950-1960, Office of Business Economics, U. S. Department of
Commerce, 1966; unpublished estimates for selected industries from U. S. Department of Commerce; C ounty Business Pat
terns, Bureau of the Census, U. S. Department of Commerce, 1959 and 1964; Bureau of Labor S ta tis tic s, U. S. Department
of Labor; unpublished estimates by U. S. Railroad Retirement Board; special reports supplied by departments of em ploy
ment security of various states; Federal Reserve Bank of Cleveland (See Technical Note, Appendix.)

E C O N O M IC REVIEW

The following summarizes the im plications

was m oderately minus, after showing a posi

of the data in Table IX for Cleveland, Pitts

tive relative growth indicator in the 1959-1964

burgh, and Cincinnati.

period.
Cleveland's perform ance during the 1964-

These results appeared out

1966 period for the "Total of covered indus

standing on the favorable side: "Printing and

tries" w as sim ilar to that in 1959-1964, and

publishing" registered significant plus indi

showed little indication of ending the relative

cators for all three periods, with some a cce l

losses in comparison with the 13-city total.

C leveland.

eration in the third (1964-1966) period. "M a
chinery," C leveland's largest manufacturing

Pittsburgh.

The combined

"Textile

mill

industry, had a notable com eback in the

products

1964-1966 period, com pared with a sharp

moderate plus indicators for all three periods

relative loss in the 1950-1960 period and a

in Pittsburgh (see Table IX), which is interest

sm aller relative loss in the 1959-1964 period.

ing since these industries are neither large

and

ap parel"

group

registered

The com bined "Transportation, com m unica

nor traditional in Pittsburgh. "Fabricated

tions, and utilities" group showed an even

m etal products," unlike the experience in

larger gain in the 1964-1966 period than in

Cleveland, w as strong in Pittsburgh in the

the

been

1964-1966 period, with a relative growth indi

slightly on the minus side in the 1950-1960

cator of plus 733, compared with minus fig
ures for the first two periods. A similar pattern

1959-1964 period, after having

period.
On the unfavorable side, selected items in

emerged for "Transportation equipm ent" and

the three-period comparison for Cleveland

"Contract construction," although data for

are as follows: "Transportation equipm ent"

the latter industry are more volatile, and are

(including motor vehicles and the aircraft

subject to larger errors and revisions than

group) registered a decline in the relative

is the case in most manufacturing industries.

growth indicator in the 1964-1966 period. The

"Prim ary m etals" had a sm aller decline in

decline, when m easured on an annual basis,

the 1964-1966 period, although the relative

was nearly twice as large as that in the 1959-

growth indicators for all three periods were

1964 period; the latter followed the favorable

negative. Following negative perform ances

surge in the 1950-1960 period. "Fabricated

in the first two periods, "Finance, insurance,

m etal products," one of C leveland's leading

and real estate" had a plus score for the rela

industries, had a negative growth indicator

tive growth indicator in the 1964-1966 period.

in all three periods, with the largest com peti

As shown in Table IX, the unfavorable a s

tive loss in the third period (1964-1966). The

pects of Pittsburgh's perform ance are more

w eaknesses in "T rad e" and "S e rv ices” that

impressive than the favorable ones. "M a

had em erged in the 1959-1964 period were

chinery," which is an important industry for

accentuated in the 1964-1966 period. "Con

Pittsburgh, showed a large negative indicator

tract construction" in the 1964-1966 period

for the third period, in fact, substantially

Digitized 2
for0 FRASER

MARCH 1968

larger than in either preceding period. "Print

allied products" showed a plus indicator for

ing and publishing" had a larger minus rela

the third period, as contrasted to a minus for

tive growth indicator in the third period than

the 1950-1960 period and a sm all plus for 1959-

in the second period. "T rad e," the combined

1964. "Contract construction" had a favorable

"S erv ices" group, and "Transportation, com

turnaround in the 1964-1966 period. The "S e r

munications, and utilities" showed negative

v ices" group scored favorably in the second

relative growth indicators for all three pe

and third periods, following an unfavorable

riods. There w as, however, a m arked deceler

perform ance in the first period.

ation of the minus tendency in the 1964-1966

Unfavorable aspects of Cincinnati's show

period in each of the three cases. Pittsburgh's

ing, as shown in Table IX, appear to out

scores for "T rad e" and "S erv ices" were less

weigh the favorable developments. "M a

unfavorable than Cleveland's in the third

chinery"

period.

growth indicators for all three periods. "F a b

For "Total of covered industries," it appears

and

"T rad e"

showed

negative

ricated m etal products" had a positive rela

that Pittsburgh's shortfall, a s m easured by

tive growth indicator in the first period and

relative growth indicators on an annual basis,

second period; in the third period, however,

continued to be large in the third period, a l

this industry switched to a clearly negative

though not as large as in the second period

showing. "Prim ary m etals" and "Finance,

(see Table IX).

insurance, and real estate" were clearly

Cincinnati. The favorable aspects of Cincin

negative in the third period, following positive

nati's perform ance include: "Food and kin

scores in one or both of the first two periods.

dred products," an important industry that

For the "Total of covered industries," it

had progressively larger positive relative

appears that Cincinnati's competitive losses

growth indicators in each of the three periods.

in the 1964-1966 period, on an annual basis,

"C hem icals and allied products," also an im

were somewhat less than those of the 1959-

portant industry in the area, had a plus show

1964 period — with both periods standing in

ing in the 1964-1966 period, contrasted to a

marked contrast to the favorable showing of

minus in the 1959-1964 period. The "Transpor

the 1950-1960 period. Relative w eakness in

tation equipm ent" group, which includes air

the trade sector seem s to have played a large

craft as well as motor vehicles, also had a

part in producing these results. The overall

partial com eback in the 1964-1966 period, a l

stemming of competitive losses in the final

though the competitive loss of the 1959-1964

period, however, w as more marked in Cin

period was not fully recouped.28 "Paper and

cinnati than in Cleveland.

The comeback, however, was significant for Cincin
nati's prospects as it largely took the form of a resurgence
of output of jet engines by the company that accounted
for the earlier expansion and now holds major contracts
for the future.

CASE STUDY OF DETROIT
A N D PITTSBURGH
Som e interesting com parisons of experi
ences in the metropolitan areas of Detroit and
21

E C O N O M IC REVIEW

Pittsburgh m ay be drawn from the findings

had large relative declines in employment

in Part II. Detroit and Pittsburgh have certain

(along with a very sm all outright gain in

b asic characteristics in common, but their

actual numbers) accom panying the sharp

experiences since 1950 have differed m arked

decline in employment in the steel industry.

ly. Both cities have one overshadowing in

As shown in Table X, Detroit had a relative

dustry — auto manufacturing in Detroit and

growth indicator of minus 42,608 (compared

steel manufacturing in Pittsburgh. With the

with the 13-city total) for 1950-1960 in the

partial

industries

automotive industry. However, the positive

(planned by central office headquarters, but

relative growth indicators for only three in

responsive to changing market and geo

dustry or service groups in Detroit, ''M achine

decentralization

the

graphical factors), employment in the auto

ry,''

industry has declined in Detroit and employ

trade," were sufficient to offset the large

"Professional services,"

and

"R etail

ment in the steel industry has declined in

minus figure for the auto industry. The favor

Pittsburgh. Such declines have occurred in

able perform ance of other industry or service

actual numbers employed, as well as in

groups, including "Fabricated m etal prod

"relative growth indicators."

ucts" and "Prim ary m etals" (along with other

Between 1950 and 1960, Detroit had large

industries not listed in Table X), served to

gains, both absolutely and relatively, in

move Detroit into a favorable overall position.

total employment, despite the auto industry

The Pittsburgh performance, on the other

reduction. During the sam e period, Pittsburgh

hand, showed a m arked divergence from

TABLE X
Relative Em ploym ent Scores for Detroit an d Pittsburgh
Selected Industry or Service G rou ps

1950-1960
Relative
Growth Indicator

D
.
Percent Change

(compared with 1 3 cities)
Detroit

in Employment
Detroit

Pittsburgh

Motor vehicles and equ ipm en t..........................................

— 42,608

1,235

— 2 6 .5 %

+ 3 9 .8 %

Primary m e t a ls ...............................................................

2,573

—

8,418

—

M a c h in e r y ......................................................................

+ 1 1,681

—

6,756

+ 5 1 .1

Professional se rvice s........................................................

+ 18,487

—

2,957

+ 7 1 .9

+ 4 5 .7

Retail t r a d e ...................................................................

+ 12,696

—

5,890

—

Fabricated metal p r o d u c t s ..............................................

—

73 7

Total o f all covered industries*..........................................

+ 31,305

8,352

— 41,734

* Not all industries covered in this study are shown in this list.
Source: "Em ploym ent Performances of Cleveland, Pittsburgh, and Cincinnati, 1950-1966, Part II:
Com parison with 13 Cities," Tables IV and V, Econom ic Review, Federal Reserve Bank of
Cleveland, Cleveland, Ohio, January, 1968

Digitized 22
for FRASER

4.2

8.6

9.0

+ 16.5
3.1

+ 55.6

+ 2 5 .9

7 .4 %

0 .7 %

MARCH 1968

Detroit's, even though its main-industry expe

second period than in the first. (See Table Vg

rience was similar. The established industry

and 1.)

(mainly

Detroit's scores were outstandingly strong

steel), scored a relative growth indicator of

for the 1964-1966 period (not shown in tables),

minus 8,418. Against this, there w as at least

while Pittsburgh's continued to be unfavor

one

able. During 1964-1966, which were super

Pittsburgh,

"Prim ary

m oderately

m etals"

favorable

offset,

"Motor

vehicles and equipm ent." That industry, how

boom

ever, is not especially important in Pitts

growth indicator for transportation equip

years

for autos,

Detroit's relative

burgh. Thus, while other important m anu

ment (mainly autos) w as clearly positive,

facturing or service groups in Detroit served

showing that decentralization of the auto in

to offset the auto decline, the perform ance

dustry was not occurring at that time, or was

of other groups in Pittsburgh served to add

slowed down in response to especially strong

negative growth indicators. In Pittsburgh,

demands for autos.

during 1950-1960, substantial declines oc
curred in "M ach in ery," "Professional ser

The above com parison suggests several

v ices," "R etail trade," and a slight decline in

problems that face Pittsburgh. For example,

"Fabricated m etal products." (As shown in

should a special effort be made to reestablish

Table X, these industries did not all undergo

the position of Pittsburgh's steel industry, or

outright employment declines, but em ploy

should the efforts be directed to other indus

ment gains were appreciably short of the

tries? W hile there is no simple and clear-cut

13-city average.)

answ er to these alternatives, it should be

Although the patterns were not identical

pointed out that local authorities are quite

to those of the first period, the relative expe

limited in their ability to influence (or run

riences still favored Detroit for the 1959-1964

counter to) fundamental locational factors

period (not shown in Table X). In the second

brought about by b asic changes in the struc

period, the relative growth indicator for autos

ture of a large industry. In the case of the

in Detroit w as practically zero, m eaning that

steel industry, for exam ple, imports of foreign

changes in auto employment were about
parallel to those of the 13-city aggregate,

ores, opening of the St. Law rence Seaw ay,

while the relative deterioration in steel em

tion of m ajor steel-consuming industries, etc.,

new pelletizing technologies, shifts in lo ca

ployment in Pittsburgh was accentuated. In

have produced a situation that m ay be

the overall totals, Detroit's perform ance in

beyond the control of even an alert local

the 1959-1964 period w as slightly more favor

authority. On the other hand, if attention is

ab le than in the first period, both in percent

directed toward Pittsburgh's non-steel posi

change in employment and relative growth

tion, it is not clear whether, in view of Pitts

indicator (after allow ance for the difference

burgh's own resources and potentialities,

in durations of the two periods). Pittsburgh's

any of the "offset" groups that contributed

total score w as more unfavorable in the

to Detroit's favorable perform ance would

EC O N O M IC REVIEW
provide the sam e boosi io Pittsburgh.29

process. There m ay be merit in this approach
and, indeed, some competent regional an a

CONCLUDING COMMENTS
Although there are obviously important

lysts appear to endorse it. However, it would
probably be unwarranted to close the door

differences among local settings, as well as

altogether on a selective approach, which,

among local goals for development, it is b e

once undertaken, requires criteria of selection.

lieved that m aterials of the type presented

In grappling with the question of whether

in this study could be useful to local area

locally strong or w eak industries should be

planners in developing industrial strategy.
O ne broad question m ay be raised. W hen

selected for special attention, the problems
are reduced if a distinction is made betw een

local planners are equipped with the type of

two broad types of industries, for which the

information presented in this analysis, what

answ ers would not be the sam e. Regional an

industries should they select for em phasis in

alysts, especially in their local b ase studies,

promotion — those that show a relatively

distinguish betw een "b a s ic ” or "export" in

good growth record in the local a rea or those

dustries, as distinct from "supporting,” "ser

that show a relatively unfavorable perform

vice," or "d erivative" categories. For exam

an ce? Perhaps the whole question is moot,

ple, steel, autos, and fabricated m etal prod

becau se national forces influencing industrial

ucts are produced for national m arkets and

location are too powerful for a city to do an y

these "export" industries provide payrolls as

thing very significant about specific indus

well as demand for local products and ser

tries. According to this view, local authorities

vices. Exam ples of groups in the latter cate

are most successful when they strengthen the

gory are trade, services including finance,

human resources b ase and the quality of the

insurance, and real estate, and some com

urban environment as levers for community

modity groups.

improvement. By so doing, local authorities

With this distinction in mind, the question

would, in effect, spread a net for all industries

can be answ ered in part along the following

sim ultaneously, with little selectivity in the

lines. In the case of export industries that are
oriented to external m arkets, the degree of
success already achieved (as m easured by

29 A useful framework for considering such problems
m ay be found in Economic Study of the Pittsburgh Region,

employment or other indicators) would sug

conducled by the Pittsburgh Regional Planning Associa

gest that underlying competitive factors are

tion, directed by Edgar M. Hoover, 3 volumes. University

favorable and that efforts io expand such in

of Pittsburgh Press, 1963-1964.

dustries should be continued and intensified.

The Detroit a re a has also given increasing attention to
basic guestions involving economic growth. One analyst
suggests a three-way comparison of Boston, Pittsburgh,

Unfavorable showings in the sam e industries
might suggest relative de-emphasis of efforts.

and Detroit with evidence of similar awakening to prob

In the case of service-type industries ser

lems in each of the a reas at successive stages. See A

ving local m arkets, the possibilities can be

Preface to Urban Economics, by Wilbur R. Thompson,
Resources for the Future, Inc., lohns Hopkins Press, Balti

seen better by studies of structural composi

more, 1965, pp. 18-21.

tion than by previous growth rates. To the

Digitized for
24FRASER

MARCH 1968
exlent that possibilities are indicated by-

The choice of em phasis upon particular

growth rates, they m ay be interpreted in a

industries must depend upon broad goals or

direction almost opposite to that indicated for

objectives. The degree to which such goals

the first group. That is, if service industries

have been solidified varies greatly, of course,

are slow to grow in support of established

among metropolitan areas. One b asic dichot

export industries, this, in itself, m ay suggest

omy that keeps reappearing is the necessity

a need and an opportunity for expansion of

to choose betw een goals that emphasize

such ancillary lines. In the case of Pittsburgh

"com parative ad v an tage" and those that

and Detroit, for exam ple, the following obser

emphasize

vation about service employment was made:

Should an area stick to its best industry pat

"diversification" or "b a la n ce ."

W e do know that Pittsburgh is not up

tern from the standpoint of com parative ad

to par in employment in ancillary ser

vantage, and try to maximize employment

vices. This is indicated by a calculation

along that route? Or should it try to achieve

of local quotients based on the 1950

more b alan ce (perhaps at the expense of the

Census of Population. The Duncans, in

total) in order to reduce vulnerability to fluc

their recent book. M etropolis and Region,

tuations, cyclical or otherwise? Com parative

also found that Pittsburgh had less than

advantage, in this context, is very close con

the national av erag e per capita employ

ceptually to the theory of com parative ad

ment in service industries broadly de

vantage developed in the eighteenth century

fined. Only Detroit among the SM A's

by classical economists for application to the

of 1,000,000 population or more shared

principles of international trade.

this characteristic with Pittsburgh.30
Briefly, in 1950, employment opportunities

Finally, nothing has been said about the

in the service lines were quite large for both

impact on national w elfare of competitive
local struggles to attract industry and em

Detroit and Pittsburgh. The findings present

ployment. Obviously, there are offsets — a

ed in this study indicate that, after 1950,

strong com eback for Pittsburgh could detract,

Detroit w as able to take advantage of the

say, from Chicago, Detroit, or Kansas City.

situation, while Pittsburgh w as not. Under

Yet, there m ay be net gain to the nation a c

lying reasons for the difference are, of course,

cruing from the dynam ic aspects of growing

extrem ely complex and clearly beyond the

local competition.

scope of this study.

Theoretical exploration of questions con
cerning the im pact of local competition on

30 "Contrasts in Agglomeration: New York and Pitts
burgh," by Benjamin Chinitz, Papers and Proceedings,
Am erican Economic Association, December 1960 meeting.
May 1961, pp. 288-289.
Professor Chinitz' specific reference may be found in
Metropolis and Region, by Otis D. Duncan, W. Richard

national (as well as local) w elfare has hardly
begun. (The classical economists were not
even aw are of the problem. Furthermore,
Great Britain, the seedbed of much contem
porary economic theory, could hardly have

Scott, and others, Resources for the Future, Inc., Johns

been expected to offer much along this line,

Hopkins Press, Baltimore, 1960, p. 213.

insofar as Britain's relative com pactness is

MARCH 1968
in sharp contrast to the sprawl and local

ment a d m in istra tio n .1

diversity of the United States.) Nevertheless,
faint beginnings of serious attempts to evalu
ate the im pact of local competition on na
tional welfare m ay be discerned in some
quarters of academ ic research and govern

31 See, for example, some brief but suggestive comments,
under the caption of "The National Interest and the
Federal Role in Urban-Regional Development," contained
in A P reface to Urban Economics, by Wilbur R. Thompson,
op. cit.

APPENDIX
Technical Note
G e o gra p h ica l Coverage. W herever the
term "city " or "m etropolitan a re a " is used in
the text, it refers to the "Standard Metropoli
tan Statistical A rea," composed of one or
more counties as designated in the official
list. The single exception is Boston, for which
the official SM SA cuts across county lines,
a s is the case generally in the New England
States. As a substitute for the Boston SM SA,
this study uses a composite of data for the
entire counties of Essex, Middlesex, Norfolk,
and Suffolk. The resulting totals for "Boston,"
although not necessarily the percent changes,
becom e somewhat larger than would be the
case for the official SM SA. (See footnote of
Table IV for the population differences
involved.)
County composition of the SM SA 's used
here is that defined by the Bureau of the Bud
get in 1964. Data for earlier years were ad
justed, where necessary, by addition of data
for required counties. Thus, Cleveland, in this
study includes M edina and G eauga Counties,
as well a s C uyahoga and Lake Counties. Like
wise, the Cincinnati SM SA includes Dearborn
County, Indiana, in addition to three counties
in Ohio and three counties in Kentucky.
Use of the SM SA unit has a particular
draw back in the ca se of at least one of the
covered industries for one of the SM SA 's; that
is, "Prim ary m etals" for the Chicago SMSA.
A large part of the steel industry of the greater
Chicago a rea is located in the Gary-Hammond-East C hicago SM SA and, therefore,

does not appear in our figures for the Chi
cago SM SA. This has the effect of seriously
understating the Chicago perform ance for
"Prim ary m etals" for the 1950-1960 period.
Thus, including Gary, etc., would have the
effect of altering the percent change figure
for C hicago shown in Table V from minus
14 percent to minus 4 percent, accom panied
by a virtual elimination of the negative figure
for the relative growth indicator. For the 19591964 period, however, use of the enlarged
area would m ake little change in the Chicago
scores for percent change or relative growth
indicator.
As a supplement to the footnote shown in
Table I, it m ay be noted that the data on num
bers employed in 1950 and 1960, as shown in
columns 1 and 2, and also the basic em ploy
ment data used in Table V, were drawn from
unpublished figures for the various SM SA 's
provided by the Office of Business Economics,
U. S. Department of Commerce. With certain
exceptions, these data could have been com
puted by adding the appropriate counties
making up the SM SA 's, as shown in the pub
lished volumes of G row th Patterns in E m p lo y
ment b y County. (The exceptions are noted
below in connection with the "M iscellaneous"
problem.)
Basic data for our treatment of the 19591964 period were obtained from C ounty Busi
n ess Patterns, U.S. Department of Commerce
and U.S. Department of Health, Education,
and W elfare. For the 1959 data, as drawn

E C O N O M IC REVIEW
from that source, if was necessary to add
figures for Ihe individual counties in order
to obtain SM SA totals. For ihe 1964 data, how
ever, the published volumes of C ounty Busi
n ess Patterns provide data in SM SA form.
In utilizing data drawn from this source, it w as
n ecessary by m eans of estimation to fill cer
tain gaps occasioned by the ''nondisclosure''
rule. Figures on numbers employed that were
derived from our own estim ates are indicated
in the appropriate columns of Table II by a
notation of "e ," although such notation is not
carried through the succeeding computation
columns. In ihe case of the estim ates within
ihe tables for Cleveland, Pittsburgh, and Cin
cinnati, it w as possible to obtain sufficient
supplem entary information to warrant con
siderable confidence in the estim ates. Esti
m ates, wherever they occur, for the other
areas are less fully documented.
Industry C overage. The 28 industry or ser
vice groups used consistently in this study
were selected to serve as a least common
denominator, for purposes of com parability,
between the breakdowns provided by ihe
OBE study alread y identified (which provided
the basic data for our 1950-1960 treatment)
and C ounty B u siness Patterns (which pro
vided the b asic data for our 1959-1964 treat
ment). Certain minor changes in the industry
captions were effected for clarity; i.e., we use
the caption "A ircraft and parts, ships, etc."
in p lace of "O ther transportation equipm ent,"
referring to transportation equipment other
than "Motor vehicles and equipment." In the
process of achieving com parability it was
n ecessary to drop the category of "Public ad
m inistration," as shown in the OBE study (an
omission noted in ihe text); on the other hand,
it w as possible to include ihe category "R ail
roads and railw ay express," which is not
contained in the C ounty B usiness Patterns
summaries, by obtaining special estim ates
for the SM SA 's involved from the U. S. Rail
road Retirement Board.

An important part of the data used in the
1950-1960 treatment represents certain spe
cial breakdowns in the form of unpublished
data provided by the OBE. These breakdowns
apply to the category entitled "O ther and
m iscellaneous m anufacturing" as published
in G row th Patterns in Em ploym ent b y County.
The special breakdowns were needed b e
cause they include such important industries
as "Prim ary m etals," "Fabricated m etal prod
u cts," and others. Even with this aid, however,
C ategory No. 16, "M anufacturing, n.e.c." in
our standard list is undesirably large; unfor
tunately, it includes industries of consider
ab le importance, such as rubber and rubber
products, and stone, clay, and glass.
It should be noted that differences in
sources of b asic data mentioned above could
give rise to a conceptual problem. Thus, data
for the period 1950-1960, although drawn here
from ihe OBE study as indicated, have their
original source in Census of Population re
ports, in which employment is allocated to the
place of residence of ihe em ployee. Data for
ihe 1959-1964 period, however, are drawn
from sources that assign employment to the
p lace of work. In working with data for cor
porate cities or for individual counties, such a
disjuncture m ay be serious, or even decisive,
but it m ay be considered to be of relatively
sm all im portance in dealing with metropoli
tan areas em bracing counties, as is the case
here. That judgment is used widely as a work
ing rule by regional analysis, despite the
extensive commuting distances often traveled
by ihe employee. Supplem entary data for ihe
1964-1966 period contained in ihe third article
are based on the place-of-work criterion, as
in the case of ihe 1959-1964 period.
M e a n in g of Totals. In addition to the indus
try and service categories (which constitute
the main focus of ihe study) the various tables
also show a final line for totals, usually in the
form of "Total of covered industries." In in
terpreting such totals, certain b asic points
27

E C O N O M IC REVIEW
should be kepi in mind: (1) "Covered em ploy
m ent" is not identical with "Total em ploy
ment”; (2) for relative growth indicators,
although not for percent change data, the
relative sizes of the cities represent important
underlying influences. Because of the nature
of the computation, a relative growth indi
cator for a given industry in a large city m ay
be larger (either plus or minus) than for
a sm aller city. At the sam e time, however,
the variation am ong industries in this respect
is so large as to render undesirable, and
probably statistically indefensible, the use of
any standard adjustment factor; and (3)
statistical problem s arising from levels of a g
gregation occur at certain points in the use
A P P E N D IX TABLE I
Identification of C overed Industries by
Stan d ard Industrial Classification Code
In d u s try
1. M in in g

S IC Co de
10-14

2. Contract construction

15-17

3. Food and kindred products

4. Textile mill products

5. A p p a re l

6. Lumber, wood products, furniture

24-25

7. Paper and allied products

8. Printing and publishing

9. Chemicals and allied products

10. Petroleum and coal products

11. M achinery

35-36

of data for "to tals” shown here.
The last-mentioned point is seen most
clearly by reference to the final line of Table I,
with accom panying footnote. It might be
thought that the computation of total relative
growth indicators could be done either by
following through the computations in a hori
zontal direction, exactly as w as done for the
individual industries, or by summing the rel
ative growth indicators for the individual
industries as shown in the final column. In
fact, the results obtained by the two methods
will, and should, differ because the degree
of aggregation has an effect on the summa
tion of relative growth indicators. That, in
turn, goes b ack to differences in industry mix
betw een the city under consideration and the
standard of comparison, whether the latter
is the United States total or the aggregate of
13 cities. The method of obtaining the total
of relative growth indicators, a s shown in the
lower right corner of Tables I-a-c, is the sam e
as that used in G row th Patterns in E m p lo y
ment b y C ou n ty; that is, the total is obtained
by a vertical addition of the individual indus
try entries rather than by the horizontal route
of aggregate percentage computations.
A P P E N D IX TABLE II

12. M otor vehicles and equipment

371

13. Aircraft and parts, ships, etc.

37 (except 371)

Com ponen ts of Percent C h a n g e s in Total
N o n agric u ltu ra l Em ploym ent

14. Primary metals

C le ve land , Pittsburgh, an d C incinnati

15. Fabricated metal products

1950-1960

16. Manufacturing, n.e.c.

21, 30-32, 38-39

17. Railroads and railw ay express

18. Trucking and warehousing

Changes Related to:
National
Growth*

Industry
M ix

Regional
Sharef

Total
Change

19. Transportation other than
rail and trucking
20. Communications

41, 44-47
48

21. Utilities and sanitary service

22. W holesale trade

23. Retail trade

52-59

24. Finance, insurance, and real estate

60-67

25. Personal services including hotels

70, 72

26. Business and repair services

73, 75-76

27. Entertainment, recreation services

78-79

28. Professional services

80-82, 84, 86, 89

Digitized for28
FRASER

Cleveland

+ 2 2 .9 %

+ 1 .6 %

—

Pittsburgh

+ 22.9

— 2.0

— 17.4

Cincinnati

+ 2 2 .9

+ 0 .2

—

+ 18.2

9 .0 %
4.9

+ 1 5 .5 %
3.5

*Total employment gain for United States, all nonagricultural
industries; when combined with change in components shown in
next two columns, the result is “total change” shown in final
column.
fSam e concept as "relative growth indicator” used in this study.
Total United States change is the standard o f reference.
Sources: Sam e as Table I, main text