Full text of Economic Review (Federal Reserve Bank of Cleveland) : November 1961

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MONTHLY

StMineMReview
IN TH IS I S S U E

FEDERAL RESERVE BANK of CLEVELAND-

Changing Patterns of
Industrial Price B ehavior..................... 3
Notes on Federal Reserve Publications... . 7
Grow ing G reens in U rban A r e a s ............ 8

'JtovetH&vi t$ 6 t

Around the Fourth District.....................11

+20%

+1 0 %

M A Y ’58
(5mos.)

(Based on BLS Wholes
three-months averages.




Additional

copies

of

the

M ONTH LY

BU SIN ESS

REV IEW m ay be obtained from the Research D e­
partment,

Federal

Reserve

Bank

of

Cleveland,

Cleveland 1, Ohio. Permission is granted to reproduce
any material in this publication.




Changing Patterns of Industrial Price Behavior
b e h a v i o r of industrial prices as meas­
ured by changes in the Wholesale Price
Index of all commodities other than farm
products and food has generated considerable
comment this year. This index is an aggregate
of the prices of approximately 1,750 items
sold at wholesale. Each of the items is classi­
fied according to thirteen industry groupings
and weighted according to its importance in
primary markets as measured by value of
shipments.
he

T

A comparison of the behavior of industrial
prices in this expansion year and in previous
postwar expansions shows an interesting pat­
tern both as to the turning point of prices
relative to that of general business and as to
the succeeding amplitude of the price up­
swing. The behavior of industrial prices in
each succeeding business cycle since W orld
War II indicates that inflationary waves ac­
companying expansions have tended to be
more moderate with each succeeding expan­
sion.
The failure of industrial prices to react
vigorously in the current period of expansion
may have significant implications, although it
is admittedly early to make a judgment.
Recent developments may be a sign, for ex­
ample, that the present buildup in defense
spending will have litttle inflationary impact
on the economy in early 1962. Also, if it be­
comes obvious to many industries that wage
increases can no longer be passed on to cus­
tomers in the form of price increases, may
not the resistance of management to wage
increases be intensified? Such questions seem
worthy of being raised in the light of the
developments to be discussed in more detail
below, even though no forecast of the outcome
will be undertaken here.




The Pattern of Price Behavior Since 1958
During the recovery in general business
which followed the recession of 1958, until
the beginning of the steel strike in mid-1959,
prices of industrial commodities moved very
slightly but quite steadily upward; then, fol­
lowing a period of hesitation during the steel
strike in the latter half of 1959, they reached
their highest level of the postwar period in
January and February 1960. Since then there
has been a net decline amounting to just over
one percent, with practically no movement of
the industrial price index since May of this
year.(1)
This decline in industrial prices, which be­
gan in February 1960, several months prior
to the decline in business activity, has not
yet been reversed. In fact, industrial prices
declined more during the first five months of
the current recovery than they did during
the period covered by the decline in indus­
trial production, which ended in February
1961.

Changes in Industrial Prices During
Postwar Business Cycles
The accompanying chart shows the changes
in the index of industrial prices (part of the
Wholesale Price Index) during postwar pro­
duction cycles. Each panel shows the change
in price during a period of change in the
Index of Industrial Production as measured
from peak month to peak month of the pro­
duction index for the various cycles.
The substantial price rise in the 1948-53
period is quite understandable since it was
( i ) Because the wholesale com m odity price index measures
changes in list price, it tends to understate the movements
o f prices to the extent that discounts, freight, and other
miscellaneous costs are changed during the course o f the
business cycle.

3

W hen Industrial prices are plotted over periods
betw een the peaks of the industrial production
index, it is apparent that successive w aves of
p rice increase have becom e much less marked.
P R IC E

P RIC E

IN D E X 1947-49=100

P RI C E
IN D EX 1947-49=100

IN D E X 1947-49=100

PRICE
IN D E X 1947-49=100

clearly a reaction to a wartime shortage of
supply and an excess of liquidity, followed
by a period of scare buying at the start of the
Korean War. Perhaps more significant is the
progressively smaller inflationary wave in
each succeeding expansion since then. The
advances in the three following periods of
expansion amounted to approximately 15 per­
cent, 10 percent, and 3 perccnt, as measured
by the change in a three-month average of
the industrial price index. (These are per­
cent changes during the rising phase of the
price cycle rather than of the business cycle
or the production cycle, as measured by threemonth averages.) Each successive period of
advance was of shorter duration than the
the preceding one; corresponding phases of
the general business cycle also were shorter
in duration, although the precise timings of
the price cycles have not been identical.
The bar chart on the cover brings out some
of the points just mentioned in a somewhat
different form. On the cover chart, the time
periods are determined by successive peaks
and troughs of prices rather than by peaks
in production or general business. The cover
chart depicts clearly the fact that declines in
the price in d e x have been much smaller than
rises during the various succeeding phases of
postwar price movements, reflecting what has
been termed a tendency toward ‘ ‘ rigidity ’ ’ of
price behavior during business declines.

Turning Points

P R IC E
I N D E X 1 9 4 7 - 4 9 =1 00

PR ICE
IN D E X 1947-49=100

Coincident with the changing magnitude
of price increases has been a changing pat­
tern of turning points in the price index rela­
tive to the turns in business activity. An ac­
companying chart shows the monthly change
of industrial prices during the twelve months
preceding the low points of business activity
in four postwar recessions, and for the
twenty-one months following the low points.
Note to Chart: The first and final months o f the periods
covered by each o f the panels represent
cyclical peaks in the Index of Industrial
P rodu ction , except fo r the ’ 60-’ 61 panel
w hich begins with a production peak and
ends at the present stage of the current
period of business expansion.

4




PRICE TURNING POINTS A N D BUSINESS TURNING POINTS
INDEX
I n d u s t r i a l P r ic es a t W h o l e s a l e

1947-49=100

A com parison of the tim­
ing of changes in indus­
trial prices with the tim­
ing of troughs of the
general b u s i n e s s cycle
show s that upw ard turn­
ing points in prices have
com e p rogressively later.
In t h e p r e s e n t c y c l e
there has been no sig ­
nificant rise in the price
index during seven months
of business recovery.

months from NBER trough of business activity

(E ach curve depicts the course o f industrial prices for 12 months prior to, and 18 months subsequent to,
the cyclical troughs of business activity.)

The low points of business activity are the
“ business troughs” as selected by the Na­
tional Bureau of Economic Research.(2) The
lines on the chart connect monthly plots
through August 1961. The arrows identify
the low points o f industrial prices.
Prices reached their low point in 1949
three months before business generally and in
1954 two months earlier than business. In
1958 they did not reach a low until one
month after the low point in business; and
seven months after the trough of the 1961
recession, there was still no observable up­
turn in prices.(3)
(2) Although the cyclical turn in g points selected by the
N B E R are w idely used and generally respected, they d o not
purport to be final or authoritative determ inations. Students
of business cycles whose considerations have led them to a
selection o f alternative turn in g points in certain cases w ould
find that the treatment outlined above would need to be
modified accordingly.
(3) A ccord in g to prelim inary figures, the industrial price
index rose one-tenth o f a point in September. This m ay or
may not be indicative of a turning point in the making.




Industry Contributions to Change
in the Index
Changes in the index of industrial prices
are in considerable part the result of relative
changes in demand as business conditions im­
prove and decline; they are also, of course,
influenced by cost factors. Statistically, the
index reflects the many different changes both
of direction and of magnitude of the 1,750
different items of which it is composed.
Just as each expansion and contraction of
the business cycles generally is unique in
some respects, so the different components of
the price index behave differently in differ­
ent cycles. The point is quite apparent in the
chart on the next page which shows the con­
tribution made by each of the industry group­
ings to the total change in the industrial price
index in the last two business cycles. The
percent change directly contributed by each
5

ROLE OF INDUSTRY GROUPS IN CHANGES IN INDUSTRIAL PRICE INDEX
PERIODS OF ADVANCE
P er ce n t c o nt ri bu tio n
to c h a n g e
in I N D E X
+ 40
+ 30

PE R IO D S OF DECLINE
Percent contribution
to c h a n g e
in IN D E X
+40
DEC. '57 to
+ 3 0 I - M A Y ’58

+ 20
+10

0
-10
-20
-30
-40

+ 30

+ 20
+10

0
-10

-20
(based on three-month averages)

Price declines were more widely diffused among industry groups during the '60-'61 decline
than during the '57-'58 decline.

industry is determined by its relative impor­
tance in the index together with the amount
of change in price.
The upper left portion of the chart shows
the expansion of prices from 1954 to 1957,
according to industry groups. The upper
right shows the period of decline in 1958. The
lower left side of the chart shows the advance
in prices from May 1958 to February 1960.
On the lower right is the period of decline
from February 1960 through August 1961.
It is noticeable that a larger number of
industry groupings shared substantially in
the decline during the current period (196061) than during the 1957-58 period. A direct
6




comparison of the groupings which con­
tributed the largest shares of the decline in
this period and the previous one would not
be of general significance because the large
decline in fuel prices in the 1957-58 period
appears to have been primarily an episodic
reaction to the abnormally large price in­
crease which had occurred during the Suez
crisis.

Importance of Price Changes in Metals
and Metalworking Industries
Slightly over one-half of the increases in
the index of industrial prices which took
place between July 1954 and December 1957,

and between May 1958 and February 1960,
was caused by increases in the prices of the
industry groupings known as “ metals and
metal products” and “ machinery and motive
products.” These two industry groups are
assigned 43 percent of the total weight of all
industry groups. No attempt is made here to
assign the indirect effects of such price
changes upon the price behavior of other
industry groups.
Iron and steel products account for slight­
ly less than one-third of the weight in the
industry group known as “ metals and metal
products.” Because the output of the steel
industry is primarily a producer’s good
rather than a consumer good and because it
is used so widely in both the capital equip­
ment and actual production of manufacturers,
increases in price are directly reflected in
the costs of other industries, and tend to be

indirectly reflected in the prices of such in­
dustries. In contrast, price increases of con­
sumer goods such as autos do not raise mate­
rial or capital costs of manufacturers in the
same way that higher steel prices do.
A final word of qualification may be in
order. The changing pattern of industrial
prices which has been discussed above ap­
pears largely attributable to the tendency of
succeeding postwar expansion periods to be
shorter and more moderate. It is in the later
stages of expansion, when capacity is being
pressed, that prices are likely to rise most
vigorously. Thus, if the current expansion
period should last longer than the two pre­
vious expansions and if industrial capacity
should be utilized to a larger extent than in
the two previous periods of expansion, a sub­
stantial rise in industrial prices might like­
wise occur once again.

NOTES O N FEDERAL RESERVE PUBLICATIO NS
Among the articles recently published in the monthly business reviews of
other Federal Reserve banks a re:
“ Financing the Business Upsurge” , Federal Reserve Bank of Chicago,
October 1961.
“ Individual Income Tax— Structure and Coverage” , Federal Reserve Bank
of Kansas City, October 1961.
“ Changes in Selected Liquid Assets” , Federal Reserve Bank of St. Louis,
October 1961.
( Copies may be obtained, without charge by ivriting
to the Federal Reserve Bank named in each case.)




7

Growing Greens in Urban Areas
IN
TH E MOST RECENT YEAR for which C O m 1. plete data are available, total sales of
agricultural products in the Fourth Federal
Reserve District amounted to $1.2 billion.(1)
Of this amount, $258 million, or 22 percent,
was accounted for by the sales of agricultural
producers operating within the confines of the
various urban areas of the District. Among
the large number of different agricultural
commodities produced in urban areas, those
of nurseries and greenhouses represent the
largest single group, as measured by dollars
of sales. This article discusses the nursery
and greenhouse industry from the standpoint
of sales volume, with emphasis on the types
of products that are sold.

Cash receipts from the sale of nursery and
greenhouse items have increased sharply in
recent years. In 1959, Fourth District pro­
ducers of such items grossed $68.4 million,
which represented a rise of 43 percent from
the dollar volume of sales in 1954 and 78
percent from 1949.
As can be seen from the map on page 9,
the nursery and greenhouse industry is con­
centrated in the heavily populated urban
areas of the Fourth District. As a result of
such concentration, producers in urban areas
of the District accounted for 71 percent of
total sales of nursery and greenhouse prod­
ucts in 1959.
An indication of the dollar magnitude of
the operations of the nursery and greenhouse
industry in urban areas is found in the fact
that sales receipts from high-value horti­
cultural specialty crops are sufficiently large
( i ) All data used in this article are from the 1959 Census
of A griculture. Sales o f nursery and greenhouse products in­
clude only sales o f products grow n by p rod u cers; sales of
products purchased or resold are excluded.

8




in a number of urban counties to place those
counties on a par, in terms of dollar sales,
with others having much more land devoted
to agricultural production. As a case in
point, Cuyahoga County, with the fewest
number of farms and with less than half as
much land in farms as any other county in
Ohio, ranked thirty-seventh among the eightyeight Ohio counties in regard to cash receipts
of farmers in 1959. The principal reason of
course was that farmers in Cuyahoga County
sold $10.0 million worth of nursery and
greenhouse products in 1959.
Nearness to potential markets is one of the
principal factors which tends to locate the
nursery and greenhouse industry in and
around urban areas. Another factor is the
relatively high value per acre of such spe­
cialty crops. In this connection, producers of
agricultural items are attracted to nursery
and greenhouse crops as a means of coping
with the higher land values found in urban
areas. It seems likely that some of the present
nursery and greenhouse producers formerly
grew less intensive crops. As land values and
taxes increased, however, it became necessary
for these growers to specialize in crops which
would yield a larger gross per input of
land.<2) This would seem to have been the
case in Cuyahoga County, where from 1954
through 1959 the total amount of land in
farms dropped 41 percent, while the amount
of land used in turning out nursery products
increased 61 percent and the area under glass
rose 33 percent.
(2) T o gain some perspective on the value o f these crops as
compared with more common agricultural products, the fo l­
low ing figures may be h elpful: the sale of corn from an
acre of land grosses from $75 to $ 1 2 5 ; in 1959, the sale of
nursery products grossed nearly $1,000 per acre, and green­
house products, which require m uch greater labor and capi­
tal investment, grossed nearly $ 50,000 per acre.

NURSERY and GREENHOUSE SALES
Fourth District, 1959

Sales of nursery and greenhouse products
are divided into the following categories by
the Bureau of the Census, with no significance
necessarily attached to the numerical order:
(1) nursery sales of trees, shrubs, vines, and
ornamentals; (2) the sale of cut flowers,
potted and bedding plants, and florist greens;
and (3) sales of vegetables grown under glass,
bulbs, and mushrooms.
The second of the above categories, with
sales amounting to $33.2 million in 1959, is
the most important grouping in the Fourth
District in terms of farm cash receipts.




The perishability of cut flowers is a factor
of considerable influence in the location of
flower growers, even though cut flowers are
currently being transported across the nation.
As the table on page 10 shows, Summit Coun­
ty is the leading county so far as sales are
concerned; but Cuyahoga County, with the
equivalent of 49 acres under glass, has the
largest covered area devoted to floral produc­
tion. Although county data which show totals
of individual items in this category are not
available for the entire District, chrysanthe­
mums appear to be the leading commodity by
9

far in terms of cash receipts. In Ohio, the sale
of chrysanthemums, as potted and unpotted
plants, rooted cuttings, and cut flowers,
grossed $10.3 million in 1959, accounting for
45 percent of the state total. Next in line
were bedding plants, amounting to $2.2 mil­
lion, geraniums with sales of $1.7 million, and
carnations with sales of $1.6 million. The
following table shows the ten top flowergrowing counties in the District, all of which
are located within urban areas.

Leading Counties in Flower Production
Fourth District, 1959

County

State
Ohio
Ohio
Ohio
Pennsylvania
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio

Summit
Cuyahoga
Lucas
Allegheny
Lorain
Hamilton
Clark
Franklin
Stark
Lake

Total Fourth District

Sales
(thousands)
$ 3,849
3,616
2,268
2,165
1,988
1,871
1,200
788
719
677
$33,214

The production of greenhouse vegetables,
bulbs, and mushrooms, ranked second in dol­
lar importance among specialty crops in the
Fourth District, with the sale of greenhouse

Leading Counties in Greenhouse
Vegetable Production
Fourth District, 1959

County
Cuyahoga
Butler
Lorain
Lorain
Hamilton

State
Ohio
Pennsylvania
Ohio
Ohio
Ohio

Total Fourth District
10




Sales
(thousands)
$ 5,535
3,348
3,062
1,252
1,048
$19,352

tomatoes providing the bulk of farm receipts
in this category. In Ohio, tomato sales ac­
counted for $12.0 million of the $14.4-million
state total in 1959. Lettuce, in second place,
was far down the list of items, with $1.1 mil­
lion in cash farm receipts. The principal
areas of greenhouse vegetable production are
listed in the accompanying table.
One of the largest concentrations of green­
houses in the U. S. is located in northeastern
Ohio, where, in Cuyahoga and Lorain coun­
ties, the equivalent of 284 acres was covered
with glass and used for vegetable production
in 1959. This area has been important for
many years in the production of greenhouse
vegetables, and output in these two counties
continues to experience substantial growth.
Between 1954 and 1959, the amount of land
covered with glass and devoted to vegetable
production increased 43 percent. The avail­
ability of grading, packing, and transporta­
tion facilities that permit shipment of glassgrown tomatoes and other vegetables to the
principal population centers in the midwestern and northeastern parts of the nation, has
been an important factor in the growth and
development of the greenhouse vegetable in­
dustry in northeastern Ohio. More than half
of the output in the area is shipped to cities
outside the Cleveland area. Although Lake
Erie affords producers the advantage of
moderate temperatures, northeastern Ohio
does not receive as many hours of sunshine as
do other parts of the District.
Butler County in Pennsylvania, with sales
of more than $3.3 million in 1959, is also an
important area for greenhouse vegetable pro­
duction. Ninety acres of land in that county
were covered with glass and used in the pro­
duction of vegetables in 1959.
Lake County in Ohio stands out as the
leading county in the Fourth District in the
output of nursery products. It has also been
one of the leading nursery-producing centers
in the nation for many years and has con­
tinued to experience sharp growth in recent
years. The number of acres devoted to nursery
production in Lake County rose from 2,864

in 1954 to 4,242 in 1959. Concurrent with the
increase in acreage, sales of nursery products
rose from $2.1 million to $4.8 million. As in­
dicated by the figures in the following table,
Lake County producers, in 1959, received 30
percent of all cash receipts from the sale of
nursery products in the Fourth District.

Leading Counties in Nursery
Product Sales
Fourth District, 1959

County

State

Lake
Cuyahoga
Allegheny
Butler
Clark
Hamilton
Erie
Miami
Fayette
Warren

Ohio
Ohio
Pennsylvania
Pennsylvania
Ohio
Ohio
Pennsylvania
Ohio
Kentucky
Ohio

Total Fourth District

Sales
(thousands)
$ 4,773
726
710
677
602
587
478
449
441
420

Principal factors that favor nurserymen in
Lake County include a fertile sandy-loam soil
and weather conditions which, because of the
influence of Lake Erie, are relatively free
from extreme fluctuation. Of the total of
$11.6 million received by Ohio producers
from the sale of nursery products, coniferous
evergreens were the leading item, accounting
for sales of $3.7 million, with deciduous trees
and shrubs following with gross sales of $1.9
million.

$15,815

A ttu n d the fyousith ^biibuct

—

The automotive market in Cleveland has strengthened considerably. New
car sales posted week-to-week increases throughout October and continued at a
brisk rate in early November.
*

*

*

According to preliminary estimates, department store sales in the Fourth
District advanced to a new high in October, on a seasonally adjusted basis.
During September, sales gains had been noted in homefurnisliings, particularly
in household appliances, radios, phonographs, and television sets.
#

*

*

The market value of farm real estate moved up 2 percent in Pennsylvania
and Kentucky during the twelve months ended July 1, 1961, but declined 2 per­
cent in Ohio. For the entire U. S., the year-to-year gain averaged 2 percent.
(The above items are based on various series of District or local data, which are assem­
bled by this bank and distributed upon request in the form of mimeographed releases.)




11




FOURTH FEDERAL RESERVE DISTRICT —