The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MONTHLY NOVEMBER 1952 CONTENTS Commodity Prices— Turning Again? Ke view . . 1 Recent Trends in Department Store Sales 4 F IN A N C E • IN D U S T R Y • A G R IC U L T U R E • T R A D E FOURTH Vol. 34— No. 11 FEDERAL R E SE R V E D IS T R IC T Federal Reserve Bank of Cleveland Cleveland 1, Ohio Commodity Prices— Turning Again? h e d e c lin e in basic raw material prices, since weakness, however, appeared once again in the print the decline in Wool tops also have risen substantially since the termination last April of an almost continuous elevenmonth decline during which prices tumbled more than 60 percent from the post-Korean peak. Over production of woolens, as in many other fabrics, resulted in excessive inventories, the adjustment of which has now been accomplished. Prices have re- early 1951, has been punctuated by two fairly cloth price structure, accompanying T distinct intervals of stability. The first of these in raw cotton during October. tervals, which extended roughly over the last half of 1951, was followed by a wave of contraction dur ing the first quarter of 1952. The second period of stability began some six months ago and thus far has achieved approximately the same age or length, as its predecessor. This raises the question of whether a third phase of liquidation is imminent, and if so whether it will be as pro nounced as the early 1951 and 1952 declines, or whether a level some 7-10 percent above pre-Korea represents a realistic floor, from which prices are more likely to rise than fall. Some light may be shed on that question by com paring the behavior of individual commodities during the two respective periods of over-all stability, for similarities as well as contrasts. For one thing, several commodities, which shared heavily in the two post-Korean shakeouts, have scored significant gains during recent months. The decline in the key cotton textile, print cloth, (which began during the first half of 1951) ended in May 1952 with the reaching of the post-Korean low of 14 cents. It may be recalled that the upturn in production of nondurable goods in general and of textiles in particular occurred in June of this year. Strong demand for print cloth prevailed for several weeks and by September, when the price rose above 16 cents per pound, some mills had sold their entire output for the remaining quarter of the year. Slight INDEX OF PRICES OF 28 BASIC COMMODITIES June 1950 — 100 Areas of New Strength . . . another period of stability, of roughly six months duration, has occurred in the composite index of 28 basic commodities, at a point roughly 10% above pre-Korea. A similar movement emerged about mid-1951 but at a level nearly 25% above the pre-Korean position. * Average of Daily Indexes, October 1 to 23. Source: Derived from Bureau of Labor Statistics Data. P age 2 Monthly Business Review covered to about $2 per pound, or 20 percent above the year’s low. The major portion of the nation’s wool supply must be imported. Therefore, in view of the fact that quotations in recent overseas auctions have been quite firm at somewhat above the domestic level, it is difficult to visualize any de clines in the near future. Hides, like wool and print cloth, reached their post-Korean low earlier this year (April). Since then the raw material for leather has staged somewhat of a recovery. The future price trend is clouded, however, by the uncertainty of its consumption in shoe-making and by the effect of the increased supply resulting from the expanded cattle slaughter this fall. It appears that shoe manufacturers may have overestimated the demand for their product during August and September and downward adjustment of their output may be in order. On the supply side the number of cattle going to market this fall will exceed last year by roughly 10 percent. A fourth commodity, cottonseed oil, since midApril has recovered all the loss of the preceding nine months. Production of oleomargarine, one of the principal uses of cottonseed oil, appears to be headed for a new all-time high. During the first eight months of this year output exceeded a year ago by 21 per cent. Last year marked the first time in which a billion pounds were produced in any twelve-month period. The supply of cottonseed oil, on the other hand, should prove to be liberal. Furthermore it must compete with soybean oil which is an almost perfect substitute in many applications. Areas of New Notable among the commodities Weakness which have declined during this recent period of aggregate stability in the over-all index is rubber. Beginning in July, free trading in rubber was resumed after an eighteenmonth lapse and the final downward adjustment was made, bringing the domestic price into line with world markets. The American synthetic rubber in dustry, built during World War II, has been reacti vated and expanded somewhat. The high price of natural rubber during late 1950 and early 1951 spurred output of that type of rubber. Rather than a shortage, the world is now confronted with the very real possibility of a surplus of rubber. Current quotations are back down to around the June 1950 level. At the end of July, stocks of natural and syn thetic rubber in this country were the highest since early 1949. Perhaps the outstanding reversal in trend has occurred in the case of the two nonferrous metals, lead and zinc. Only last fall the Office of Price Stabilization raised the ceiling prices on each of these metals to help encourage their output and permit the importation of larger quantities. Domestic ceil ings at the time were lower than prevailing world prices. Import duties were suspended and substantial November 1, 1952 quantities of the metals were borrowed from the strategic stockpile to help satisfy the urgent demand. By the middle of this year a significant reversal had taken place. Supply relative to demand had increased sufficiently to permit the suspension of all restrictions on the use of the two metals; the bor rowed tonnages were returned to the stockpile; prices fell sharply below their respective ceilings; and the import duties were reimposed. The steel strike only aggravated the situation in zinc and pushed the price even lower than in June 1950. The setbacks which occurred in lead following the resumption of trading in that metal on the London Metal Exchange as of October 1 were followed by further declines in this country. A third nonferrous metal, copper, on the other hand, appears to be as strong as ever. The price picture, however, is quite confused. Importers are permitted to pay whatever is necessary to obtain foreign copper, a few high-cost domestic producers are permitted to sell somewhat above ceiling prices, while the vast majority of copper produced in this country can be sold no higher than the ceiling, 24.5 cents. Only this last price enters into the computa tion of the index of 28 basic commodities. If account also were taken of imported copper, which amounts to about two-fifths of our supply, and which now costs 36.5 cents, the index would be somewhat higher. Shellac has declined quite sharply to the lowest level in several years. This is another commodity for which this country is greatly dependent upon over seas sources. Fears of a major war which would dis rupt supply lines have now largely disappeared as market factors. In addition synthetic resins have re placed shellac in many applications. Although quite low, shellac has been unable to score any gain for several weeks even in the face of higher quotations in India. Other Changes in the prices of some other comTrends modities are governed to a large extent by seasonal influences. Prices of many farm products ordinarily decline during the late summer and autumn as the harvest proceeds and the pressure of the new crops is felt in the market place. The production of wheat and com exceeds a year ago by comfortable margins. In the case of wheat this year’s crop is the second largest on record. The government price support program is permitting a considerable quantity of wheat to be kept off the market. At the end of September a record (for that date) 262,000,000 bushels of wheat had been placed under government loans. It is still likely that prices will average somewhat below last year in view of this near-record supply. Com is the nation’s principal feed grain and de mand for it is largely dependent on the livestock population. The total number of animals on farms is roughly the same as a year ago and feeding require- Monthly Business Review November 1, 1952 Page 3 CONTRASTS BETWEEN TWO PERIODS OF STABILITY Plotted at Significant Intervals* (July 15, 1951 = 100) PERCENT 9 5 PERCENT 19 5 2 . . . during the most recent period of stability in the over-all index hides, wool, print cloth, etc., have risen in contrast to last year. Conversely, the greatest concessions in recent months occurred in commodities such as rubber, etc., which were elements of strength a year ago. * Last date plotted is October 23, 1952. Source: Derived from Bureau of Labor Statistics Data. ments will therefore remain heavy. Export sales of the principal grains are not ex pected to match last year’s high volume. European demand for imported grains is being lessened by expanded output and Canada has another bumper wheat crop which is being offered at lower prices than U. S. wheat. In the case of the two main meat animals, the number of hogs to be marketed this fall is down 9 percent while the number of cattle is about 10 per cent greater. A seasonal upturn in hog prices is expected in late November or December. Steer prices should decline seasonally during the remainder of the year but demand for beef tends to be strong during high-income periods. Lard, like most other fats and oils, has been in the doldrums in recent months. Lard in particular has been hard hit by limited export demand. Stocks rose at the end of August to the highest level since June 1949 and the price fell below 9 cents for the first time since before World War II. Although out put during the coming months will be somewhat smaller than a year ago because of the reduced hog slaughter, supplies are likely to remain heavy unless demand strengthens. Cotton is also the victim, at least in part, of smaller foreign demand. Exports during August and September were almost 50 percent smaller than dur ing the comparable period a year ago. Domestic demand on the other hand, is expected to improve somewhat because of the pickup in cotton textiles. The increase in demand in the domestic sector is unlikely to prove sufficient to offset the decline in exports. Therefore, even with a moderately reduced supply, no squeeze appears imminent. In fact, it now appears that there will be a moderate increase in the carryover at the end of the current crop year next July 31. By way of summary then, if customary patterns are followed, prices of most agricultural products (CONTINUED ON PAGE 8) Monthly Business Review Page 4 November 1, 1952 Recent Trends In Department Store Sales of business trends in this during the January 1951 scare-buying period through levels prevailing six months or more ago. Depart ment store sales have shared in this recovery, but they have not paced it. In fact, a close examination indicates that the recovery of department store sales, although genuine, has been in numerous respects rather skimpy. September and July reports were un favorable; at press time, the early returns for October indicate brisk trade. Since short-term or even month-to-month changes in sales volume are of primary interest in this con nection, a continuous series of monthly indicators (index numbers) of department store sales, after being adjusted for the usual seasonal variation, is preferable to sole reliance on comparisons with the year-ago positions of trade. The information which follows is of such a type. It is limited to the depart ment stores of the Fourth Federal Reserve District although its main outlines would probably be repre sentative, to a considerable degree, of department store sales in the United States as a whole. Break downs of total department store sales into specific departments or groups of departments are included to round out the picture.(1) In interpreting the monthly changes in Fourth District department store sales since the beginning of last year, as portrayed in the following charts and table, the observer may notice a pattern of alternate periods of strong and weak sales, with a duration of about four months in each case. This effect is prob ably entirely fortuitous, and should not be considered in any sense a permanent feature of the behavior of department store sales. Nevertheless, the recurrence of such swings of four months’ duration in the very recent past provides a convenient framework for grasping the direction and magnitude of short-term change. The red lines in the charts are designed to bring out this point. new period of slow sales set in, followed by a some what bumpy pickup in adjusted sales during the summer. For a clearer picture of the shift in sales levels during the past year, a red line has been added to the chart representing the average level of the ad justed sales index during each of the three phases of the past year, i.e. two periods of four months’ duration showing relative strength, and one fourmonth period of weakness. Thus, it may be seen that during the fall-winter shopping season from October 1951 through January 1952, the average adjusted sales level stood at about 113% of the 1947-49 aver age. During the late winter and early spring season, including the months from February through May of this year, the drop in the average level of the adjusted sales index to about 106 is shown by the red line. The subsequent pickup in adjusted sales during the summer months, June through September, is shown by a rise in the level of the red line to about 109. How have the various departmental lines con tributed to the changes in total store sales described above? As an aid in answering this question, ad justed sales indexes for six groups of departments, which together normally account for approximately 85% of department store sales, have been plotted in the six charts shown on page 6. In order to make these charts comparable with the earlier one u rren t a p p r a is a ls country have rightly stressed the pickup in the the reaction and the subsequent moderate recovery Cvolume of retail trade from the somewhat reduced during the latter part of 1951. Early this year, a SEASONALLY ADJUSTED SALES Fourth District Department Stores 1947-49 = 100 An accompanying chart shows the seasonally adjusted index of Fourth District department store sales (all de partments combined) for each month from January 1951 to September 1952, the last month for which •data are available. The black line traces the move ment of the adjusted index from the high point All D epor^; ments (1) The monthly departmental indexes shown in the charts and in the table are based on a recent revision and extension in coverage of the seasonally adjusted departmental indexes which are regularly com puted for the Fourth District, and which have been previously pub lished from time to time in this Review. Back figures for the revised and extended series beginning with January 1947 are available on request. Inquiries should be addressed to the Research Department, Federal Reserve Bank of Cleveland. . . . total sales by Fourth District department stores, sea sonally adjusted, averaged about 3% higher from June through September of this year than they had from Feb ruary through May, but fell 3% short of the fall-winter season of last year. November 1, 1952 Monthly Business Review showing total sales, red lines representing average sales levels during each of the four-month periods discussed above have been included. Admittedly, the sales activities of all these departments do not fall conveniently into the same phases as the course of total sales, but as a point of reference, the red lines are useful. Women's The two charts shown across the top of Clothing page 6 represent the adjusted indexes of sales for two very important groups of departments, the women’s and misses’ apparel group and the women’s and misses’ accessories group. Taken together, these departments account for about one-third of total department store sales, with each group separately comprising about one-sixth of the total. One of the first impressions obtained from these two charts is the appearance of relative stability of the sales level maintained by the two groups of departments. Such relative stability is important when considered along with the weight these two groups carry in making up the total sales picture. Furthermore, a slight gain by either or both will be felt quite strongly by the total store. Thus, in the case of women’s and misses’ apparel departments, the 4% gain in adjusted sales level during the sum mer as compared with the early spring contributed substantially toward raising the entire store level. The pickup is even more important in these depart ments when one considers the fact that the summer level of women’s apparel sales was higher than in any previous four-month period since early 1949. Also, the women’s apparel departments constitute the only group to show a level of seasonally adjusted summer sales higher than the previous Christmas level. Women’s accessories departments, while counting as heavily in the total store volume as women’s apparel, did not have so great an effect in raising the summer level of adjusted department store sales. These departments showed a pickup of only 1% between the two periods while total store sales in creased by 3%. Even so, it would appear that a large portion of the summer pickup in department store sales may be traced to the two groups of women’s wear departments. Basement The third chart on page 6 depicts the Store movement of seasonally adjusted sales Sales for the basement store. Since basement stores normally account for approxi mately 15% of the total, they exert considerable influence on department store sales. An important feature of basement-store sales, which is brought out by the chart, is their wide fluctuation from month to month. Broad changes in the average level of basement-store sales show movements somewhat simi lar to those of the total store. As against a 3% P age 5 pickup in level for total store sales during the sum mer, however, basement-store sales showed only a 2% gain. Piece A group of departments which normally Goods makes up approximately 5% of total an nual sales is the piece goods and household textiles group. (This group includes yard goods, linens, towels, blankets, etc.) A chart showing re cent sales of these lines is found next to the basementstore chart on page 6. Sales by the piece goods and household textiles departments have tended to fall below the 1947-49 average during the past two years. As shown on the chart, in all but two months the position of the index was below 100 or the 194749 average.(2) In spite of the relatively low weight of these departments in the total sales picture, the slowness of sales of such goods must have had a generally adverse effect on the total sales picture. The pickup by this group during the summer period, however, averaged about 4%. Men's and The men’s and boys’ wear group of Boys' W ear departments has shown the greatest fluctuations of all the groups depicted here, in respect to the four-months’ averages shown by the red lines. Even so, the average adjusted level during each phase remained below that of the total store level. Since this group normally accounts for about 10% of total sales, it would appear that the reduced level of activity of this group has had some adverse effects on total department store sales. Be tween the Christmas season and the spring season, for example, the level of sales of men’s and boys’ wear dropped some 10%, accounting for a good share of the 6% drop in total store sales. The re covery by these departments during the summer months, however, was also considerably greater than that of the total store. On a month-to-month basis, movements of sales by men’s and boys’ wear departments show con siderable correspondence with seasonally adjusted movements of total sales. The heavy increase in sales from May to June, for example, is reflected both in the total sales picture and in the men’s and boys’ wear group. Likewise the fall in July and the rise in August is common to both movements. Sales by housefurnishings departments loom large in the total picture. These departments account for over 20% of the total sales by department stores, and are quite capable of shifting the balance of sales for the total Housefurnishings (2) In appraising the significance of fluctuations in any of these charts, allowances must be made for the fact that the bottom of the chart is higher than zero. The common practice of "cutting off the bottom,” which is followed here for convenience of presentation, has the unfortunate consequence of exaggerating the apparent extent of fluctuation as compared with the total. Page 6 Monthly Business Review November 1, 1952 SEASONALLY ADJUSTED SALES BY DEPARTMENTS Fourth District Department Stores 1947-49 = 100 1947- 49-100 1947- 49“ 100 W OM EN’S & M IS S E S * APPAREL . . . sales of women’s apparel, seasonally adjusted, picked up 4% from the average of the February-to-May period to the June-September period, reaching the highest aver age position of any previous four-months’ span since early 1949. 1947- 4 9 - 100 . . . sales of women’s accessories have shown only minor changes in level over the past year. 1947- 49*1 00 ECE G O O D S & HOUSEHOLD T E X T IL E S . . . sales of piece goods and household textiles have been below the 1947-49 average during most of the past two years; adjusted sales during the summer and early fall of this year were slightly better than in previous months. J F M A M . . . sales of men’s and boys’ wear during June through September averaged 5% better than the reduced level of the previous four months’ sales. J J A S O N D J 19 5 1 F M A M J J A S O N D 19 5 2 . . . during the period from June through September sales of the housefurnishings group of departments regained a little less than half of the ground lost during the previous four months. Monthly Business Review November 1, 1952 Page 7 INDEXES OF SALES BY DEPARTMENTS Seasonally Adjusted, October 1951 — September 1952 Fourth District Department Stores 1947-49 = 100 DEPARTMENT All Departments.................................... Women’s and Misses’ Apparel............. Women’s and Misses’ Accessories....... Basement Store...................................... Piece Goods and Household Textiles.. Men’s and Boys’ Wear......................... Housefurnishings Group....................... 1951 1952 Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 114 106 115 109 105 104 116 104 108 108 101 106 106 101 112 104 103 106 100 105 104 112 107 110 105 102 103 113 112 112 104 101 105 111 118 93 96 108 113 119 113 112 95 104 107 108 105 87 105 108 97 116 106 113 88 102 107 107 84 97 94 102 89 95 101 111 89 110 113 104 88 96 104 115 93 109 104 108 91 97 103 112 103 107 Furniture and Bedding................................... 118 112 110 126 119 118 102 108 121 113 121 109 Major Household Appliances........................ 106 85 n 89 80 81 71 82 98 86 80 81 Radios, Phonographs and TV....................... 229 211 186 200 170 186 181 132 188 161 155 172 NOTE: The last three named departments are subdivisions of the housefurnishings group. Combined sales of the groups shown above account for approximately 85% of store total. store. The housefurnishings group show essentially the same pattern of change in average levels for the three phases studied as the total store. During the period from June through September, these depart ments on the average regained a little less than half the ground lost during the previous four months, after seasonal allowances. Of special interest within the housefurnishings group are the furniture and bedding department, the major household appliance department, and the department handling radios, phonographs, and tele vision. (See table; the chart series does not show these departments, individually.) Considerable drop in average sales level (after seasonal adjustment) during last winter and the early spring of this year was registered by the appliance and television de partments. With the coming of summer, however, the pickup by these departments in seasonally ad justed sales was more pronounced than that of the department-store total. The furniture department, on the other hand, lost less ground during the early spring than the total store, and gained during the summer months about the same as the total store. As stated in the opening of this article, early October reports indicate a sub stantial improvement over the Septem ber pace of Fourth District department store sales. Immediate Outlook Whether or not the entire month of October will be counted as an extension of the recovery indicated by late spring and summer developments remains to be seen. With the approach of the Christmas trade season, department store executives are on the alert for a seasonal surge in sales volume, the magnitude of which will go far to make or break the year 1952 from the retailers’ standpoint. Repercussions for manufacturers and for the pace of business generally are involved as corollaries. Most merchants appear now to expect a Christmas volume of trade which will at least equal that of last year. From the charts and analysis presented above (which include a clear showing of the strength of the 1951 Christmas season) it would appear that such an outcome would be tantamount to a dis tinctly bullish note in the business score; it would signify a strengthening of the recent recovery in re tail trade. In fact, if the 1952 Christmas season should tally a sales volume very much in excess of last year’s, an approach to the well-known excesses of Korean scare-buying episodes would be entailed, with corresponding inflationary implications. Such an outcome, however, seems hardly probable in view of the relatively calm attitudes which seem to be governing consumer behavior at the moment. Page 8 Monthly Business Review November 1, 1952 COMMODITY PRICES (CONTINUED FROM PAGE 3) should strengthen and begin to rise by the end of the year. But the increase in supplies over last year will probably act as a brake on prices and hold them fairly close to the year-earlier levels. The Department of Agriculture has encouraged higher sugar prices by limiting the supply. Import quotas were set below estimated requirements. By mid-October supplies were short and the price had risen to within 15 cents of the 27-year peak, $6.80 per 100 pounds, reached in June 1951. While the Department has not specified what is considered to be the “fair” price at which sugar should be selling, it would appear that it is not below the present level, $6.65. Still shrouded in considerable doubt are the sup plies of and demand for several other commodities. Included in this group are cocoa, coffee, and silk, all of which are imports. Estimates of production are hard to secure; conflicting reports are frequently received. In addition, producing countries have in troduced various price stabilization schemes which suggest that present prices will be maintained with relatively narrow fluctuations. However, history has demonstrated that some earlier plans for maintain ing prices which were instituted by some of the same countries failed when unusual circumstances developed. Frequently in the past, an upsurge in production, such as the one which has occurred since the settlement of the steel strike, has been preceded by a rise in raw material prices. The most recent changes in the index (since October 1) although small in magni tude have been predominantly on the downward side. Why, then, should prices of these commodities, many of which are important industrial raw materi als, be weakening when industrial activity is pushing toward new peacetime highs and when potential inflationary forces are still present in the economy? Tentatively, it becomes a matter of weighing the importance of the strength and recovery of such sensitive commodities as wool, hides, and print cloth, which were quick to forecast the end of the postKorean buying wave, against the significance of the recent recession in the prices of lead and zinc, for example, as well as the majority of agricultural commodities. If the latter declines can be explained satisfactorily, largely on the grounds of special circumstances, or of seasonal influences, then the strength in non durables may be taken as an indicator of underlying trends. The cotton textile, wool, and hide sector will warrant more than the normal share of attention during coming weeks. Most Recent Trends
@FedFRASER