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IN THIS ISSUE Employment Performances o f C leveland, Pittsburgh, and Cincinnati, 1 9 5 0 -1 9 6 6 Part I: Comparison with the United States . . . A Note on Business Inventories . . 21 I ? FEDERAL RESERVE BANK OF mI CLEVELAND A d d itio n a l copies o f the EC O N O M IC REVIEW m ay be o b ta in e d from the Research D epartm ent, Federal Reserve Bank o f C leveland, P.O. Box 6 3 8 7 , C leveland, O hio 4 4 1 0 1 . Permission is g ra n te d to reproduce any m a te ria l in this publication. NO VEM BER 1967 EMPLOYMENT PERFO RM ANCES OF CLEVELAND, PITTSBURGH, A N D C IN C IN N A T I, 1950-1966 PART I: COM PARISON W ITH THE UNITED STATES INTRODUCTION in employmeni, differentiated by industry or service groups. The basic analysis is pri This study is concerned wilh comparative employmeni performances during 1950-1966 of Cleveland, Pittsburgh, and Cincinnati, the three major cities in the Fourth Federal Re serve District. Special attention is paid to the strong and weak spots within the patterns of change of the three cities. The study will be presented in a series of three articles in the Econom ic Review . In the present article, data for the three cities are compared with data for the United States. In the second article, the three cities will be compared with ten other large cities of the East and North Central regions of the United States.1 The data presented in the first two articles apply to the period from 1950 to 1964; marily concerned with cumulative employ ment changes in two periods — between 1950 and 1960, and between 1959 and 1964- — al though some attention is paid to changes between 1964 and 1966. The use of changes in employment is not intended to detract from the importance of other aspects of local eco nomic change, as reflected in output mea sures, value added, various types of income measurement, demographic aspects, capital expansion, etc. There are at least two good reasons for relying on changes in employ ment: (1) local data on employmeni are more readily available and are of a better quality than most other significant local economic series; (2) most local planning bodies, gov ernmental authorities, and business promo the third article considers developments from 1964 through 1966, and presents some impli cations of the overall study. The focus of the overall study is on changes tional groups give major attention to goals involving employment maintenance or in crease. 1 Throughout this study the term "cities" refers to Stan is due to limitations of available data, is thought not to dard Metropolitan Statistical Areas. The 10 cities are: impair seriously the signficance of the results. Use of 2 The one-year overlap of the two major periods, which Chicago, Philadelphia, Detroit, Boston, St. Louis, Balti these periods facilitates significant comparisons; more, Minneapolis-Si. Paul, Buffalo, Milwaukee, and terminal years do not present any serious problems of Kansas City. disjunclure of cyclical phase. the 3 EC O N O M IC REVIEW The ''relative growth indicator" used in this analysis corresponds to devices that have been used elsewhere under other names, although the term is employed here in a special way. Regional analysts frequently make a fundamental distinction between two kinds of employment growth in a particular area. For example, Cleveland may show a certain percent gain in employment over a given time period, which is due in part to the fact that the industrial mix of Cleveland includes a number of industries that are grow ing fast, irrespective of where they are lo cated. However, a part of the growth (or lack of growth) for certain industries may indicate that Cleveland is doing competitively better (or worse) than corresponding segments of that industry are doing elsewhere. There are a number of similar terms used to describe this situation: in the former case, ''industry mix" or "proportionality effect," and, in the latter case, "competitive effect," "regional share," or the term used here, "relative growth indicator." 3 3 The "industry mix" concept is not explicitly treated in this study, although the effects of industry mix are in cluded in the total percent change figures shown in the tables. In general, "industry mix" is less important than "regional sh are" in explaining employment changes in Cleveland, Pittsburgh, and Cincinnati. That point is illus trated by Appendix Table II, which shows the relative roles of the two types of changes in the three cities between 1950 and 1960. For the relative roles of "industry The measurement of regional share is re designated here as relative growth indicator to avoid misunderstandings concerning geo graphical coverage.4 Briefly, regional share refers to a measure of employment change in a given area, for a given industry. Regional share shows the excess or deficit in number employed that would h a v e b ee n a d d e d if the local industry had exactly kept pace with the nationwide percent rate of gain for that industry. Thus, the measure reflects both per cent change over time and the number of employees in the starling period. The results can be compared and offset against each other in a way not feasible by ordinary use of percent changes. Regional share, or relative growth indicator, is extended in this analysis into later time periods than those covered by the Department of Commerce and is utilized for certain analyses in depth of the patterns of change within the areas in this study. The analysis in the first article applies to the nature of employment changes, by 28 industry and service groups, in Cleveland, Pittsburgh, and Cincinnati, measured against comparable changes in the United States. Derivation and meaning of relative growth indicators are demonstrated by means of comprehensive tables for the three areas. The basic data are then condensed into a series of tables that make it possible to eval uate emerging patterns. mix" and "regional sh are" in Cleveland's changes, see "Economic Growth in the Cleveland Area — The Past Record and Future Prospects," by Charles W. Walton, Carroll Business Bulletin, John Carroll University, Cleve 4 Regional share appears as a key item in a recent com land, Ohio, January 30, 1967. The "regional sh are" as pilation of local d ata, published by the U.S. Department pects of the findings of that study are broadly similar of Commerce. See Growth Patterns in Employment by to those of this study (although less extensive) after County, 1940-1950 and 1950-1960, by Lowell D. Ashby, allow ance is made for differences in coverage, sources, Office of Business Economics, U.S. Department of Com and time periods. merce, 8 volumes, 1965. 4 NO VEM BER 1967 The procedure is repealed in the second article, bul wiih the comparison involving patterns in 13 large metropolitan areas, in cluding the three under primary consider ation. The 13 areas include all of the largest metropolitan areas in the East and North Central regions of the country, except New York and Washington.5 The overwhelmingly large population of the New York area and the unusual composition of employment in Washington and New York militate against drawing comparisons between these areas and such cities as Cleveland and Pittsburgh. The analysis in the third article involves an attempt to check or update the findings for the earlier period by using supplemen tary (but somewhat limited) data on employ ment changes between 1964 and 1966. THREE AREAS COMPARED WITH UNITED STATES PERFORMANCE, 1950-1960 Background. Measures of employment changes between 1950 and 1960 in Cleve land, Pittsburgh, and Cincinnati are com pared with corresponding changes in the United States in Tables I-a-c. The measures apply to 28 classifications of manufacturing or service "industries,''6 which account for about four-fifths of total employment on a national basis. The 28 industry or service groups listed on the left-hand stub are used in the first two articles of this study. The classifications correspond to those of Growth Patterns in Em ploym ent b y C ounty,7 and are approximately at the two-digit level in terms of the Standard Industrial Classifica tion code.8 Fourteen categories of manufacturing are included in the tables. Data for mining, con struction, communications, utilities, and fi nance are shown separately. The trade sector is separated into wholesale and retail trade. Four major service groups are shown: per sonal services, business and repair services, entertainment and recreation services, and professional services. There is no separate classification for employment by govern ment. The category "Public administration'' shown in the Department of Commerce study is omitted in this analysis, although many government employees are included with other listed categories; for example, teachers are included in "Professional services." Sev eral other categories appearing in the Depart ment of Commerce study are also omitted in order to maintain comparability of data between the 1950-1960 and the 1959-1964 periods.9 Relative Growth Indicators. Two industry groups in Cleveland are selected from Table I-a for illustrative purposes: No. 11, "M a chinery," and No. 12, "Motor vehicles and 7 See Ashby, op. cit. Minor alterations have been made in the wording of the industry captions, partly to avoid confusion in the handling of "other" or "miscellaneous" categories. 8 See Appendix for reconciliation of classifications used here and SIC codes. 5 "Largest" refers to all SMSA's with a population of 9 In addition to Public administration, the following more than one million, according to the 1960 Census. categories are omitted: Private households; Agriculture; Forestry and fisheries; Armed forces; and Industry not 6 See Technical Note, Appendix. reported. See Technical Note, Appendix. 5 TABLE l-a Employment Changes by Industry and Derivation of Relative Growth Indicator Cleveland Com pared with United States 1950-1960 (1) (2) Number Employed 1950 Number Employed 196 0 785 9 34 (4) (3) (5) (6) (7) (8) Required Change in Num ber Employed to M atch N atio n a l Rate o f Change Actual Change in Num ber Employed Relative G row th Indicator (3 x1) (7-6) o r (5x1 ] Percent Change in Employment 1 9 5 0 -1 9 6 0 Corresponding United States Percent Change D ifference in Percentage Points + 1 8 .9 8 % — 2 9 .7 3 % + 4 8 .7 1 — — + — 12.26 + + 6.81 + 0 .1 7 (4 x1) (3-4) . . 2 33 + 149 + 3,444 — 627 — 4,071 382 + — 3 ,1 6 5 + 3,911 — 1,320 2. C ontract c o n s tr u c tio n ................................................ . . 3 3,1 98 32,571 3. Food and kindred p r o d u c t s .................................. . . 10,956 14,867 + 3 5 .7 0 4. Textile mill p rod u cts..................................................... . . 5,762 4,442 — 22.91 5. A p p a r e l ........................................................................ . . 11,292 8,218 — 2 7.22 + — . . 4 ,9 5 8 4,598 — — 10.33 + 3 .0 7 + — 1,012 6. Lumber, w ood products, f u r n i t u r e ........................ 512 — 360 + 7 . P aper and a llie d p r o d u c ts ...................................... . . 4 ,4 7 2 5,604 + 25.31 + 2 3.6 8 + 7 .6 3 + 1 ,059 + 1,132 + 73 8. Printing and p u b lis h in g ........................................... . . 14,123 19,019 + 3 4 .6 7 + 3 3.4 3 + 1.24 + 4,721 + 4 ,8 9 6 + 175 9. Chemicals and a llie d p r o d u c t s ............................. . + 15.89 + — 31.12 — 15.23 + 4 ,8 4 6 — — + 2 ,4 7 4 3 42 — + 4 6 .5 9 1.89 7 .2 6 10.38 + 2 8 .8 9 — 2 3.08 8.96 — 3 6.18 . 15,570 1 8,044 10. Petroleum and coal p r o d u c ts .................................. . . 4 ,104 3,762 11. M a c h i n e r y ................................................................... . . 6 1,7 26 70,4 16 1 2. M o to r vehicles and e q u i p m e n t ............................. . . 2 6,7 88 3 7,4 79 + 39.91 — 3.16 + 4 3 .0 7 — 13. A irc ra ft and parts, ships, etc..................................... . 11,288 12,224 + 8.29 +1102.32 — 9 4.03 + — . — 8.33 + 14.08 2.05 6.28 — 32.51 + 1,330 84 2 8 ,7 5 9 847 1 1,550 3 ,0 7 4 + 746 10 + — 4,086 152 — 2,372 — 258 8 ,6 9 0 — 2 0,0 69 +110,691 + 1 1,538 — 10 ,614 + + 936 14. Primary m e t a l s ......................................................... . . 4 0,6 54 39,783 — 2.14 + 4 .73 6 .87 + 1,923 15. Fabricated m etal p r o d u c ts ...................................... . . 2 8 ,5 92 31,7 63 + 11.09 + 5 3 .3 9 — 4 2 .3 0 + 1 5,2 65 1 6. M anu facturin g, n.e.c..................................................... . . 18,161 19,983 + 10.03 + 14.13 — 4 .1 0 + 2 ,5 6 7 . . 16,500 12,131 — 26.48 — 32.1 9 + 5.71 — 5,311 + 1,822 — 4 ,3 6 9 — 17. R ailroads a nd ra ilw a y e x p r e s s ............................. + 942 1 8. Trucking and w a re h o u s in g ...................................... . . 9 ,1 2 0 11,031 + 2 0 .9 5 + 29.71 — 8.76 + 2 ,7 1 0 + 1,911 — 799 — 2,151 — 2 ,449 455 — 845 30 — 1,411 — + 871 3,171 . . 10,8 46 8,695 — 19.83 + 2 .75 — 2 2 .5 8 + 2 98 2 0 . C o m m u n ic a tio n s ......................................................... . . 8,4 0 5 8,860 + 5.41 + 15.4 7 — 10.06 + 1,300 + 2 1 . U tilities and sa nita ry s e r v ic e .................................. . . 9 ,5 5 9 9,5 2 9 — 0.31 + 14.44 — 14.75 + 1,381 — 2 2 . W holesale t r a d e ......................................................... . . 2 4 ,4 4 9 27,691 + 13.26 + 11.6 7 + 1.59 + 2,8 5 2 + 3 ,2 4 2 2 3 . Retail t r a d e ................................................................... . . 9 7 ,8 5 0 101,542 + 3 .7 7 + 1 1.35 — 7 .5 8 + 11,1 14 + 3 ,6 9 2 + 19. Transportation other than ra il and trucking . . — 2,794 — 12 ,094 745 390 + — 7,4 2 2 2 4 . Finance, insurance, and re a l e s ta te ........................ . . 2 3 ,1 6 2 2 9,8 10 + 2 8 .7 0 + 4 0 .2 9 — 11.5 9 + 9 ,3 3 3 6 ,6 4 8 — 2,6 8 5 2 5 . Personal services including h o t e l s ........................ . . 19,294 18,386 — 4.71 + 4 .2 9 — 9 .0 0 + 82 8 — 9 08 — 1,736 2 6 . Business and re p a ir s e r v ic e s .................................. . . 15,438 18,460 + 19.58 + 2 2 .6 6 — 3.08 + 3 ,4 9 7 3 ,0 2 2 — 475 2 7 . Entertainm ent, re crea tio n s e r v ic e s ........................ . . 5 ,9 5 6 5,461 — 8.31 + 1.66 — 9 .9 7 + 99 + — 495 — 59 4 2 8 . Professional s e r v ic e s ................................................ . . 5 3 ,7 2 2 81,3 58 + 5 1 .4 4 + 5 7 .9 6 — 6.52 + 3 1 ,1 3 9 + 2 7 ,6 3 6 — 3,5 0 3 . . 5 8 6 ,7 3 3 656,661 + 1 1 .9 2 % + 1 8 .3 5 % * + 1 3 4 ,5 4 2 + 6 9 ,9 2 8 — 6 4,6 14 Total o f covered industries.................................. _* * Total not adju ste d fo r d iffe re n c e in in d u s try m ix between U nited States and C leveland and should not be d ire c tly com pared w ith the column 3 to ta l to ca lculate excess or d eficit. Totals in columns 6, 7, a nd 8 a re com puted b y a lg e b ra ic a d d itio n s o f the ve rtic a l columns. (See Technical N ote, A p p e n d ix .) Sources: Low ell D. A shby, Grow th Patterns in Em ploym ent b y County, 1940-1950 a n d 1950 a n d I9 6 0 , O ffice o f Business Economics, U. S. D ep a rtm e n t o f Commerce, 1966 and unp u b lished estim ates fo r selected indu strie s fro m U. S. D epartm ent o f Commerce. (Except fo r m inor differences due to ro u n d in g , R e la tiv e G r o w th I n d ic a t o r is ide n tica l w ith "R e g io n a l S h a re " d a ta shown in U. S. D epartm ent o f Commerce study.) TABLE l-b Employment Changes by Industry and Derivation of Relative Growth Indicator Pittsburgh Com pared with United States 1950-1960 (1) (2) (4) (3) (5) (6) (7) (8) D ifference in Percentage Points Required Change in Num ber Employed to M atch N atio n a l Rate o f Change Actual Change in Number Employed Relative G row th Indicator (3x1) (7-6) or (5x1) Number Employed 1 95 0 Num ber Employed 196 0 . 3 0 ,7 5 6 1 1 ,4 09 — 6 2 .9 1 % — 2 9 .7 3 % — 3 3.1 8 — 9 ,1 4 4 — 19 ,3 4 7 Percent Change in Employment 1 9 5 0 -1 9 6 0 C orresponding United States Percent Change (3-4) . . . (4 x1) — 1 0 ,203 2. C ontract c o n s tr u c tio n ...................................... . . . . 4 3 ,8 9 7 4 2 ,1 1 8 — 4 .05 + 10.38 — 14.43 + 4 ,5 5 4 — 1,779 — 6,333 3. Food and kindred p r o d u c t s ........................ . . . . 19,143 2 2,2 68 + 16.32 2 8.89 — 12.56 — 2,405 . . . 1,262 512 — 59.43 2 3.08 — 3 6 .3 7 291 + — 3,125 . + — 5 ,5 3 0 4 . Textile mill p rod u cts........................................... + — 750 — 45 9 5. A p p a r e l .............................................................. . . . . 2 ,120 2 ,259 + 189 + 139 — 50 6. Lumber, w ood products, furniture . . . . 2 ,794 3 ,1 9 9 289 + 4 05 694 7 . Paper and a llie d p r o d u c ts ............................ . . . . 2,8 9 9 + — 200 8. Printing a nd p u b lis h in g ................................. . . . . 9 ,3 9 9 9. Chemicals and a llie d p r o d u c t s ................... . . . . 7 ,4 8 5 + — 459 . . . . 6.55 8.96 — 2.41 + 14.49 + — 10.33 + 2 4.8 4 + — 3 ,3 8 5 + 16.76 + 2 3.6 8 — 6.92 + 6 86 + 486 12,701 + 3 5 .1 3 + 3 3 .4 3 + 1.70 + 3,1 4 2 + 3,302 9 ,3 5 6 + 2 4 .9 9 + — 31.1 2 — 6.13 2 ,3 3 0 2.05 — 67.21 + — + 1,871 — 4 ,2 4 7 — 4,121 4 6 .5 9 — 3 0.12 2 0 ,7 6 2 + 7 ,3 4 0 — 13,422 73 + 918 + — 5,271 — 2 0 ,4 2 4 10. Petroleum and coal p r o d u c ts ........................ . . . . 6,132 1,885 — 6 9 .2 6 11. M a c h i n e r y ......................................................... . . . . 4 4 ,5 6 2 5 1 ,9 0 2 + 1 6 .4 7 1 2. M o to r vehicles and e q u i p m e n t ................... . . . . 2 ,3 0 5 3,2 2 3 + 39.8 2 + — 3.16 + 4 2 .9 9 + — 1 3. A irc ra ft and parts, ships, etc........................... . . . . 5,631 6,1 2 2 + 8.71 + 1102.32 — 93.61 + — 126 5 ,762 491 + — 13,4 1 0 14. P rim ary m e t a l s ............................................... . . . . 148,301 134,891 9.04 + 4 .7 3 — 1 3 .7 7 + 7 ,0 1 4 15. F abricated m etal p r o d u c ts ............................ . . . . 2 1 ,9 3 7 2 7 ,6 2 3 + 25.9 2 + 5 3 .3 9 — 2 7 .4 7 + 11,712 1 6. M a nu facturin g, n.e.c........................................... . . . . 3 2,8 96 2 8,9 23 — 12.08 14.13 — 26.21 4 ,648 3 2.1 9 — + — + 5 ,6 8 6 — 3,973 10,4 44 — 1 1,248 29.71 — 12.2 7 + 2 ,7 9 4 17. Railroads and ra ilw a y e x p r e s s ................... . . . . 3 2 ,4 4 4 2 1 ,1 9 6 — 3 4 .6 7 + — 1 8. .Trucking and w a r e h o u s in g ............................. . . . . 9 ,4 0 5 11,0 46 + 17.45 + 1 9. Transportation o th e r than ra il and trucking . . . . 10,493 20. C o m m u n ic a tio n s ............................................... 2 .48 — 2 2.8 5 + 2.75 — 2 5 .5 9 + 2 88 + — 1 0 ,0 5 0 — 4 .0 4 + 15.4 7 — 19.51 + 1,620 — 8 ,0 9 6 160 991 — 6,0 2 6 — 8,621 — 8 04 1,641 — 1,153 2 ,3 9 7 — 2,685 423 — 2 ,0 4 3 2 1 . U tilities and s a n ita ry s e r v ic e ........................ . . . . 13,333 13,6 89 + 2 .6 7 + 14.44 — 11.76 + 1,926 + 3 56 — 1,570 2 2 . W holesale t r a d e ................................................ . . . . 2 5 ,8 6 9 2 7 ,8 8 4 + 7 .7 8 + 11.67 — 3 .8 7 + 3 ,0 1 8 2 ,0 1 5 — 1,003 — 3.12 + 11.35 — 14.4 7 + 14,1 99 + — 3,8 9 6 — 1 8,095 2 4 . Finance, insurance, and re a l e sta te . . . . . 2 6 ,4 5 3 3 2 ,4 1 6 + 2 2 .5 4 + 4 0 .2 9 — 17.75 + 10,6 59 5 ,9 6 3 — 4 ,6 9 6 . . . . 2 2,6 83 2 2 ,3 5 5 — 1.45 + 4 .2 9 — 5 .7 4 + 974 + — 3 28 — 1,302 2 6 . Business and re p a ir s e r v ic e s ........................ . . . . 16,261 1 8 ,720 + 15.12 + 2 2.6 6 — 7.5 4 + 3 ,684 + 2,459 — 1,225 2 7 . Entertainment, recreation services . 463 + + 3 0,1 40 — 1 21 ,15 3 2 5 . Personal services including hotels . . . . . . . . . . . . . . 7 ,1 3 9 7 ,602 28. Professional s e r v ic e s ...................................... . . . . 6 5,9 96 9 6 ,1 3 6 Total o f covered industries........................ . . . . 7 4 7 ,1 1 7 7 5 2 ,1 1 9 + 6.49 + 1.66 + 4 5 .6 7 + 5 7.9 6 + + 1 8 .3 5 % * 0 .6 7 % 4.8 3 + 119 — 12.29 + + 3 8,2 53 _* + 1 2 3 ,4 9 6 + 5,002 + 3 44 8,113 — 1 18,494 * Total not a dju ste d fo r d iffe re n ce in ind u stry mix between United States and P ittsburgh and should not be d ire c tly com pared w ith the column 3 to ta l to calculate excess o r deficit. Totals in colum ns 6 , 7, and 8 a re com puted by a lg e b ra ic a d d itio n s o f the v e rtic a l columns. (See Technical N ote, A p p e n d ix .) Sources: Low ell D. A sh b y, Grow th Patterns in Employment b y County, 1940-1950 and lished estim ates fo r selected in d u s tr ie s fro m U. S. D epartm ent o f Commerce. http://fraser.stlouisfed.org/ "R e g io n a l S h a re " d a ta shown in U. S. D epartm ent o f Commerce study.) Federal Reserve Bank of St. Louis 1950-1960, Office o f Business Economics, U. S. D e p a rtm e n t o f Commerce, 1966 and unpub (Except fo r m inor differences due to ro u n d in g , R e la tiv e G r o w th In d ic a t o r is ide n tica l w ith TABLE l-c Employment Changes by Industry and Derivation of Relative Growth Indicator Cincinnati Compared with United States 1950-1960 (1) (2) Number Employed 1950 Number Employed 196 0 (3) Percent Change in Employment 1 9 5 0 -1 9 6 0 (4) Corresponding United States Percent Change (5) (6) (7) D ifference in Percentage Points Required Change in Num ber Em ployed to M atch N ational Rate o f Change Actual Change in Num ber Employed Relative Grow th Indicator (3 x1) (7-6) o r (5x1 (4 x1) (3-4) 1. M in in g .................................................................. . . . . 3 46 5 23 + 5 1 .1 6 % — 2 9 .7 3 % + 2. C ontract c o n s tru c tio n ...................................... . . . . 2 3,5 16 2 6,4 35 + 12.41 + 10.38 3. Food and kindred p r o d u c t s ........................ . . . . 15,941 17,591 10.35 18.54 . . . . 1,366 1,045 + — 2 8.8 9 4. Textile m ill products........................................... + — + — 2 3.08 — 0.44 5. A p p a r e l .............................................................. . . . . 6 ,557 5 ,113 — 22.02 + — 8.96 — 3 0.9 7 10.33 + 2 3.68 + — 3 7.6 6 6. Lumber, w ood products, furniture . . . . 7. P aper and a llie d p r o d u c ts ............................. 2 3.50 . . . . 5 ,899 5 ,374 — 8.90 . . . . 6 ,9 9 0 6 ,013 — 13.98 (8) + 2 80 479 1,650 + — 2,955 321 — 6 80.92 — 103 + 177 2.04 + 2 ,4 4 0 + 2,9 1 9 + 4 ,6 0 5 — 315 + — 587 — 1,444 1.42 + — + — 2,031 — 525 — 977 + — 2,632 1,516 8. Printing a nd p u b lis h in g ................................. . . . . 11,142 1 3,350 + 19.82 + 3 3.4 3 — 13.62 + 3 ,7 2 4 + 2 ,2 0 8 — 9. Chemicals and a llie d p r o d u c t s ................... . . . . 11,5 29 1 5,716 + 36.3 2 3 1 .1 2 + 5 .2 0 + 4 ,1 8 7 + . . . . 1,963 2,0 1 8 + 2 .80 4 .8 5 40 + 55 + — 4 6 .5 9 + — + — 3 ,5 8 8 10. Petroleum and coal p r o d u c ts ........................ + — 36.51 2,778 3 9.2 2 + 12 ,8 3 5 — 286 + + + 3 ,2 5 5 1 1. M a c h i n e r y ......................................................... . . . . 2 7,5 48 3 0,3 26 + 10.08 12. M o to r vehicles and e q u ip m e n t ................... . . . . 9,0 2 8 1 2,283 + 3 6.05 1 3. A irc ra ft and parts, ships, etc........................... . . . . 715 1 2,9 7 3 + 1,714.41 — 28.4 2 + 39.5 2 + 14. Prim ary m e t a l s ................................................ . . . . 7,401 5,2 9 8 1 5. F abricated m etal p r o d u c ts ............................. . . . . 9,331 1 3,019 + 1 6. M anufacturin g, n.e.c........................................... . . . . 17,1 50 17,369 17. R ailroads and ra ilw a y e x p r e s s ................... . . . . 1 4,154 9 ,1 6 0 + — 1 8. Trucking and w a re h o u s in g ............................. . . . . 5,9 1 8 8 ,2 3 9 19. Transportation other than ra il a nd trucking . . . . 5 ,5 4 7 4 ,7 1 8 1.28 2.05 3.16 +1102.32 +11,612.03 + 4 .7 3 — 3 3 .1 4 5 3 .3 9 — 13.87 14.13 — 12.86 84 609 1,655 5 99 95 + — 10 ,057 + 3,541 + 1 1,526 — 2 ,453 7 32 +112,2 5 8 + 350 — 2 ,1 0 3 + 4 ,9 8 2 + 3 ,6 8 8 — 1,294 2 ,4 2 4 219 — 2,2 0 5 4 ,5 5 6 + — 438 35.2 8 + — 3 2 .1 9 — 3 .0 9 + — + — 3 9.22 + 29.71 9.51 + 1,758 14.95 + 2 .75 + — 17.6 9 + 152 4 ,9 9 4 — + — 2,321 + 563 829 — 981 2 0 . C o m m u n ic a tio n s ................................................ . . . . 5,1 7 2 6 ,4 0 6 + 2 3.8 6 + 15.47 + 800 + 1,234 . . . 6,022 6 ,738 + 11.89 + 14.44 2.54 + 870 + 716 + — 434 . + — 8 .39 2 1 . U tilities and sa nita ry s e r v ic e ........................ 2 2 . W holesale t r a d e ................................................ . . . . 16,866 1 6,9 39 + 0 .43 + 1 1.6 7 — 11.23 + 1,968 + 73 — 1,895 2 3 . Retail t r a d e ......................................................... . . . . 6 7 ,6 8 7 6 8,313 + 0.92 + 11.35 — 10.43 + 7 ,6 8 9 + 626 2 4. Finance, insurance, and re a l e s ta te . . . . . 15,948 2 0,6 46 29.46 + 4 0 .2 9 — 10.84 + 6 ,426 + 4 ,6 9 8 — 1,728 . . . . 14,415 11,904 + — 17.42 + 4 .29 — 21.71 + 619 — 2,511 — 3,130 1,139 2 5 . Personal services including hotels . . . . . . . 154 — 7 ,063 2 6. Business and re p a ir s e r v ic e s ........................ . . . . 9 ,9 5 4 11,070 + 11.21 + 2 2 .6 6 — 11.44 + 2 ,2 5 5 + 1,116 — 2 7 . Entertainment, recrea tio n services . . . . . . . . 4 ,0 4 2 4 ,0 9 9 + 1.41 + 1.66 — 0.25 + 67 + 57 — 10 2 8 . Professional s e r v ic e s ....................................... . . . . 3 2 ,9 1 9 4 8 ,5 0 2 + 4 7 .3 4 + 5 7 .9 6 — 10.63 + 1 9,081 + 1 5 ,5 8 3 — 3,498 Total o f covered industries........................ . . . . 3 5 5 ,0 6 6 4 0 1 ,1 8 0 + 1 2 .9 9 % + 1 8 .3 5 % * + 7 3 ,6 9 8 + 4 6 ,1 1 4 — 27,584 _* * T o ta l n o t adju ste d fo r d iffe re n ce in in d u s try m ix between U nited States and C in cinn a ti and should not be d ire c tly comipa re d w ith the column 3 to ta l to calcul ate excess or d eficit. T otals in columns 6, 7, a nd 8 a re com puted by a lg e b ra ic a d d itio n s o f the v e rtical columns. (See Technical N ote, A p p e n d ix .) Sources: Lowell D. A shby, Grow th Patterns in Em ploym ent by County, 1940-1950 and 1950-1960, O ffice o f Business Economics, U. S. D ep a rtm e n t o f Commerce, 1966 and unp u b lished estim ates fo r selected indu strie s fro m U. S. D epartm ent o f Commerce. (Except fo r m inor differences due to ro u n d in g , R e la tiv e G r o w th I n d ic a t o r is ide n tica l w ith "R e g io n a l S h a re " d a ta shown in U. S. D ep a rtm e n t o f Commerce study.) NO VEM BER 1967 equipment." The table shows that employ ment in machinery manufacturing in Cleve land rose from 61,726 in 1950 (column 1) to 70,416 in 1960 (column 2), a gain of 14.08 percent (column 3). In the United States, the gain for "Machinery" was 46.59 percent (column 4). The difference between the two rates of change is minus 32.51 percent for Cleveland (column 5). Thus, in terms of num ber em p lo y ed in the machinery industry, Cleveland would have needed a gain of 28,759 employees to match the national rate of growth (column 6), whereas the actual gain for the industry was only 8,690 employ ees (column 7). The difference between the last two figures, or a "deficit" of 20,069 (col umn 8), is the relative growth indicator (re gional share) for machinery in Cleveland for 1950-1960.10 While the relative growth indicator for ma chinery in Cleveland is negative, it does not mean that there was an outright decline in employment in that industry, although some industries did experience employmeni declines. What it does mean, however, is that, whether measured in terms of percent change or change in the number of people employed between 1950 and 1960, Cleve land's largest manufacturing industry lost substantial ground to other parts of the nation. To put it another way, the machinery industry showed a sharper growth in many parts of the country where it is less highly developed than it did in Cleveland, which is recognized as an established stronghold of the industry. The behavior of the motor vehicles indus try in Cleveland between 1950 and 1960 was in marked contrast to that of machinery. As Table I-a shows, between 1950 and 1960, employment in the Cleveland SMSA in the "Motor vehicles and equipment" industry (No. 12) rose from 26,788 to 37,479, a gain of 39.91 percent. At the same time, the industry in the United Stales showed a declin e in employmeni of 3.16 percent, with a resulting difference for Cleveland of plus 43.07 percent. If Cleveland had only matched the national rate of change, it would have lost 847 em ployees in the auto industry; but Cleveland actually gained 10,691 employees. Conse quently, the relative growth indicator for the automobile industry in Cleveland was plus 11,538. This statistical showing confirms that the motor vehicles industry had a burst of growth in Cleveland in the 1950's, due to the build ing of important assembly and subassembly plants, thus adding to the head start that Cleveland had previously experienced in the manufacture of auto parts. Corresponding figures for Detroit would be expected to show 10 The relative growth indicator m ay be derived either Table I-a, the relative gain in the motor vehicles industry in Cleveland between 1950 and 1960 offset more than half of the impact of the relative decline of the machinery industry. by comparing the required change in number employed to match the national rale of change (column 6) with actual change in number employed (column 7), or by applying the "difference in percentage points" (column 5) to the number employed in 1950 (column 1). (and will show in the second article of this study) that decentralization within the auto industry had an unfavorable impact on the Detroit employment picture. As shown in 9 E C O N O M IC REVIEW Cleveland's growth indicators for the trade and service groups (classifications 21 through 28) were mostly negative, as was the total of covered industries. It should not be over looked, however, that attainment of a rate of growth in trade and services comparable to that of the United States is indeed a stiff target, particularly because of the influence of the rapid growth of the South and West. Not surprisingly, many large metropolitan areas of the East and North Central portions of the country also show similar deficits when compared with the United States growth rate of 11.35 percent for retail trade. Beyond the few industry or service groups discussed in connection with the showing for Cleveland (Table I-a), the performances of other groups reveal much significant in formation, which is not discussed here be cause of space limitations. Tables I-b and I-c provide comparable information for Pitts burgh and Cincinnati. THREE AREAS COMPARED WITH UNITED STATES, 1959-1964 While similar methodology and industry groups are used to compare employment changes between 1959 and 1964, the sources of data are somewhat different (see Table II and Technical Note, Appendix). The changes for 1959-1964 are presented in Table II, which omits some columns used in Table I to show the derivation of the relative growth indicator. Table II shows, for each classification in Cleveland, Pittsburgh, and Cincinnati, the number employed in 1959, the percent change in employment between 1959 and 1964, and the relative growth indicator, derived from Digitized for 10FRASER comparison with the United States rate of change. "Machinery" and "Motor vehicles and equipment" are used again to evaluate rel ative performance between 1959 and 1964. In appraising the marked contrast between the two periods for the two industries, it should be noted that the indicated changes are cumulative, and that the second period is half as long as the first period.11 During the five-year interval between 1959 and 1964, employment in the machinery in dustry in Cleveland grew by 5.12 percent, contrasted to a gain of 15.80 percent for the nation (see Table II). The relative growth in dicator amounted to minus 6,445; thus, em ployment in "Machinery" in Cleveland failed to rise as much as would be required to match the national rate of gain. (The deficit is large partly because of the large size of the machinery industry in Cleveland.) Never theless, the relative growth indicator for ma chinery in Cleveland between 1959 and 1964 declined by less than half as much as be tween 1950 and 1960. Thus, Cleveland con tinued to lose ground relative to the nation in machinery employment in the second pe riod, but not as markedly as in the first period. For "Motor vehicles and equipment," the story is again quite different. As seen earlier, the surge of employment in the auto industry during the 1950's enabled Cleveland to offset some of its other relative losses; however, the pattern during 1959-1964 was in marked 11 Slalislical adjusimeni for Ihe fact that one period is twice as long as the other, and presentation of such adjustment in the tables, would have constituted an additional layer of statistical operations that would be unnecessarily burdensome to the presentation. TABLE II Employment Change by Industry and Relative Growth Indicator Cleveland, Pittsburgh, and Cincinnati Compared with United States 1959-1964 (1) U nited States Percent Change in Employment 1 9 5 9 -1 9 6 4 (2) N um ber Employed 1 95 9 Relative G row th Indicator Percent N um ber Change in Employed Employment 1 9 5 9 -1 9 6 4 1 95 9 Relative G row th Indicator + 3 82 1 2 ,0 5 3 — 2 8 .3 1 % — 1,551 + 25 + 1,309 3 2 ,4 4 5 — 8.87 — 4 ,6 5 8 1 6,182 — 4 .36 — 1,593 . . — 4 .28 1 5,1 60 — 2 5 .8 9 — 3 ,2 7 6 17,6 55 — 1 8,4 23 6 38 . 3 .9 7 5 ,2 15e — — 11 1 + 906 1,980 — 1,141 2 ,1 9 3 + 3 ,8 1 9 — 2 5.8 2 — 1,147 15.46 — 2 ,2 0 7 12,101 — 13,681 — 16.93 . — 6 .1 0 — 2 0.48 . + 7 .58 7,021 . . + 0.88 5,1 34e — 2 1.3 5 4 ,9 5 2 e + 5.70 11.73 — 1,315 — 7.75 — + 337 1,047e — 2 8.8 4 — 260 15.86 + 164 5 ,9 3 2e — 2 2.3 0 — 1,773 157 5,1 53e — 26.8 4 — 1,428 6 ,2 7 5e + + + 8.03 + . + 4.21 + . . + 7.91 1 4,5 59 + 8 .70 + 115 9,441 — . + 2 .1 3 16,471 2 ,5 8 9 5,721 — 5.98 — 464 605 e + 4 1 ,3 9 0 e + 15.04 + 180 . — 13.59 — 1,612 — 3 .47 + + 5.12 — 6 ,4 4 5 + 3.73 — 2,761 1,701 1 4,71 2e — 3 1 .3 5 — 2,7 9 2 6 ,9 8 0e — . . + 1 5 .8 0 6 0,3 5 le . . + 1 1 .2 7 3 6 ,6 1 9 . . — 12.37 . . — — 2 6 ,3 1 7 + 6.83 — 429 1 1,8 59 — 0.71 — 1,421 1 8 ,398e — 33.92 — 3,965 1,654 180 — 3 ,9 7 3 1 3 0 ,7 5 5 — 16.25 — 15,6 50 4 ,3 0 8e + 0.11 + — 3,101 2 9 ,6 9 8 — 19.64 — 5 ,6 2 8 1 3 ,0 0 2 — 0 .7 4 — 6 + 3 0.6 6 + 3 ,9 5 4 2 4 ,8 8 4 e — 2.78 — 1,428 1 6 ,2 3 6 — 9.21 — 1,975 — 81 2 1 ,0 0 0 e — 2 4 .7 6 — 1,350 — 23 — 463 10,171 + 8.86 — 174 7 ,5 5 5 + 1.59 — 6 79 415 8 ,9 6 5 + 3 .13 — 2 28 3,801 + 7.81 + 81 53 8 ,8 6 8 + 2.26 + 244 6 ,5 4 8 + 1.39 + 124 4 ,3 6 3 0.69 2 .96 14,2 75 . . + 1 8 .3 4 1 2,1 OOe — 19.01 . . + 1 0 .5 7 10,6 25 + 6.21 8,6 0 0e — 18.61 5.68 7 ,5 3 5 e + 11.19 + 0 .5 0 9,801 e — 1.04 — 5 ,6 9 3e + 0 .8 0 — 164 13,2 48 — 2 9 .2 4 — + 0.13 — 3 ,4 7 9 4 7 ,9 9 7 — 19.96 — 13,1 92 26,761 6.46 — . . + 3.69 . + 7 .5 3 4 7 ,0 1 9 2.35 — 2 88 + 3.14 — 1,175 4 ,7 7 2e — . . + 1 0 .7 5 9 0 ,1 0 0 + 3 ,8 6 5 1 0 7 ,8 9 6 — 0 .1 0 — 11,7 04 6 1 ,2 2 2 + 0.22 — 6 ,4 4 7 . . + 1 6 .3 5 2 9 ,4 8 8 + 16.45 + 31 3 2 ,3 3 2 + 0 .6 6 — 5,0 7 2 1 9 ,5 9 5 + 13.18 — 622 + 2.44 — 1,530 15,2 24 + 7 .3 0 — 751 9 ,8 5 4 + — — 1,746 1 2 ,7 3 4 + 2 5.3 9 — 1,584 6 ,6 7 5 + 5 4.1 0 . . + 1 2 .2 3 15,632 . . + 3 7 .8 3 16,031 + 2 6 .9 4 . . + 6.89 + 5 26 1,086 6.75 6 ,338 — 16.84 — 1,495 7,351 — 15.41 — 1,631 3 ,9 6 6 + 16.44 + 384 . . + 3 0 .8 3 4 0 ,6 3 2 + 30.82 — 5 5 5 ,9 4 5 + 11.64 — 1 0,736 2 1 ,7 1 9 + 2 7.3 6 — 753 . + + — 3 1,7 02 663,301 — 9 1 ,0 5 6 3 5 2 ,0 4 7 — 0 .1 9 % — 2 7,9 39 . 8 .6 9 % * 5 9 2 ,3 0 7 3 .2 6 % — 6 .1 0 % e — Estimated. * Total not adjusted fo r d iffe re nce in ind u stry mix. Digitized for Sources: FRASERCounty Business 95 2,3 6 0 6 ,0 8 0 9.28 . . + 3 6 .0 7 + — 13.47 . — + 36.51 2 ,6 0 7 8.61 — . . — — 144 1.519 4.65 4 3 ,2 4 5 . . . + 1.1 1 1,545e — 6.50 4 .28 3 6 ,0 9 8 + 182 5 20 e — 1 0 .5 8 % 2 50 e + 1 30 .80 74 . 2 7 . Entertainment, recrea tio n s e r v ic e s ........................ Percent Change in Employment 1 9 5 9 -1 9 6 4 + 1 6 .4 9 % . . . — 14.74 2 4 . Finance, insurance, and re a l e s ta te ........................ Num ber Employed 1 95 9 (10) (9) Cincinnati + 10.78 . . Relative G row th Indicator (8) 2 4 ,7 3 4 . . Percent Change in Employment 1 9 5 9 -1 9 6 4 (7) (6) Pittsburgh 5 .4 9 1,195 1 9. Transportation o th e r than ra il and trucking (5) + . 8. Printing and p u b l i s h i n g ........................................... (4) (3) Cleveland Patterns, 1959 and 1964, Bureau of the Census, U. S. D epartm ent o f Commerce and unpublished estimates o f the U. S. R ailroad Retirement Board E C O N O M IC REVIEW contrast. The rise in auto employment in Cleveland in 1959-1964 was only 3.73 percent as against the national gain of 11.27 percent. As a consequence, Cleveland's relative growth indicator for "Motor vehicles and equipment" during 1959-1964 showed a de cline of 2,761 (see Table II). The information provided in Tables I and 11 can be summarized and rearranged to bring out the highlights of developments in each of the two periods under review, and in each of the three metropolitan areas — Cleveland, Pittsburgh, and Cincinnati. CLEVELAND PATTERN COMPARED WITH THE UNITED STATES, 1950-1960 and 1959-1964 It is apparent from Table Ill-a that employ ment in at least three of Cleveland's major m anufacturing industries — "Machinery," "Fabricated metal products," and "Aircraft and parts, ships, etc." — lost considerable ground, relative to the national showing, dur ing 1950-1960.12 The negative showings of the relative growth indicators dominate the picture for the first period, although some positive growth in employment actually did take place in those three industries. At the same time, the highly favorable showing of the "Motor vehicles and equipment" industry 12 Not all industry or service groups included in Tables I and II are carried over into the summary Table III. Industries showing relatively insignificant changes are omitted from the scoring. Table footnotes indicate the cut-off points, which are not guite the same for the three cities, insofar as smaller numbers for regional share indi cators are more significant in Cincinnati than Cleveland or Pittsburgh, because the former is a smaller metropolitan a re a (in terms of total population or total employment). Digitized for 12FRASER provided a substantial, although far from complete, offset. In the second period, 1959-1964, the assist given to employment by the motor vehicles industry in Cleveland was no longer a favor able factor in the comparison with the United States performance; in fact, the relative growth indicator for the industry was appre ciably negative in the second period. For "Machinery," "Fabricated metal products," and "Aircraft, etc.," the unfavorable perfor mances of the first period were repealed in the second period, although not to the same extent (see Table Ill-a). In the case of the machinery industry, for example, the score in the second period was minus 6,445, whereas it had been minus 20,069 in the first period. The fact that these four industries — Ma chinery, Fabricated metal products, Motor vehicles, and Aircraft and parts, ships, etc. — are among Cleveland's leading industries is a major reason for the large relative growth indicators, whether plus or minus. The fig ures in Table Ill-a on number employed in 1960, by industry, provide some perspective on the relative size of the major industries in Cleveland. There are two industries with favorable performance changes in both periods — "Mining" and "Printing and publishing" — but only one — the latter — is of relative im portance in the Cleveland product mix (see Category A in Table Ill-a). The positive rela tive growth indicators, based on the United States comparison, indicate that employment grew faster in the two industries than in the nation in both periods. Relative impacts, how ever, were not large. The performance of NO VEM BER 19 67 TABLE lll-a Sum m ary of Employment Changes by Industry Cleveland Compared with United States 1950-1960 and 1959-1964 Relative G row th Indicator 1 9 5 0 -1 9 6 0 1 9 5 9 -1 9 6 4 N um ber Employed 1 96 0 A. Favorable Changes in Both Periods M i n i n g ..................................................................................................................... + Printing and p u b lis h in g ......................................................................................... + 382 + 3 82 934 175 -(- 115 19,0 19 M a c h in e ry .................................................................................................................— 2 0 ,0 6 9 — 6 ,4 4 5 7 0 ,4 1 6 Fabricated m etal p r o d u c t s ................................................................................— 1 2 ,0 94 — 3,101 3 1 ,7 6 3 A irc ra ft and parts, ships, etc................................................................................ — 1 0,6 14 — 2 ,7 9 2 12,2 24 Retail t r a d e ............................................................................................................— 7 ,4 2 2 — 3 ,8 6 5 1 0 1 ,5 4 2 P rimary m e ta ls ....................................................................................................... — 2 ,7 9 4 — 3 ,9 7 3 3 9 ,7 8 3 Chemicals and a llie d p ro d u c ts ........................................................................... — 2 ,3 7 2 — 2 ,5 8 9 1 8,0 44 B. U n favo ra b le Changes in Both Periods C. Significant Changes in One Period O n ly Railroads and ra ilw a y e xpre ss........................................................................... 9 4 2 Petroleum and coal p r o d u c t s ........................................................................... — — 12,131 + Professional s e rv ic e s ..............................................................................................— 3 ,5 0 3 — Finance, insurance, and re a l e s ta te .................................................................. — 2 ,6 8 5 — 182 3 ,7 6 2 8 1 ,3 5 8 2 9 ,8 1 0 Business and re p a ir se rvice s................................................................................ — — 1,7 4 6 1 8 ,4 60 Personal services including h o te ls ....................................................................... — — 1,5 3 0 1 8 ,3 8 6 Entertainment, recreation, s e r v ic e s .................................................................. — — 1,4 9 5 5,461 D. M a rk e d Shifts Between Two Periods M o to r vehicles and e q u ip m e n t............................................... ........................+ 1 1 ,5 3 8 — 2,761 3 7 ,4 7 9 Food and kindred p r o d u c ts .................................................... ........................+ 746 — 3 ,2 7 6 1 4,8 67 W holesale t r a d e ...................................................................... ........................+ 390 — 3 ,4 7 9 27,691 Lumber, w ood products, fu rn itu re .......................................... ........................+ 152 — 1,141 4 ,5 9 8 A p p a r e l .................................................................................... ........................— 4 ,0 8 6 + 906 8 ,218 C ontract construction.................................................................. ........................— 4,071 + 1,309 32,571 Transportation other than ra il and tru c k in g ........................ ........................— 2 ,4 4 9 + 415 8 ,6 9 5 TOTAL o f covered in d u s tr ie s * ........................................................ ........................— 6 4,6 14 — 3 1,7 02 656,661 in c lu d e s 6 covered industries not listed in the ta b le . Except fo r "M anufacturing, not elsewhere classified,” the unlisted industries show re la tive ly small changes; i.e., (fo r this ta b le ) declines o f less than 2 ,0 0 0 in the first p eriod, declines o f less than 1,000 in the second (or shorter) period, o r increases o f less than 10 0 in either period. Sources: Data are d erive d from Table I-a and Table II 13 E C O N O M IC REVIEW "Mining'' is attributable in pari io a large un derwater salt mine in Lake Erie, located at the edge of the Cleveland downtown district. Other highlights of the Cleveland showing in Table Ill-a are as follows: The service in dustries were on the whole relatively unfa vorable (Category C). ''Retail trade” was markedly unfavorable in both periods (Cate gory B). Railroad employment was favorable in the first period (Category C). "W holesale trade" and "Lumber, wood products, furni ture" yielded favorable scores in the first period, but were unfavorable in the second (Category D). In contrast, "Apparel" and "Contract construction" scored substantial negative relative growth indicators in the first period, but shifted io a positive score in the second period (Category D). The total figure for the covered industries shown on the bottom line of Table Ill-a should be interpreted with caution.13 The principal purpose of Table III, and indeed of the entire study, is to bring out the strong and weak spots among the various industries in the respective cities rather than to evaluate the totals. To the extent that the latter is con sidered, it is done mainly in connection with the 13-city comparisons to be discussed in the succeeding article. PITTSBURGH PATTERN COMPARED WITH THE UNITED STATES, 1950-1960 and 1959-1964 The pattern of changes in employment for Pittsburgh's industries (see Table Ill-b) is gen erally less favorable than Cleveland's, and, in fact, less favorable than a large number of the major metropolitan areas discussed in the second article. The obstacles encountered in Pittsburgh's growth (due to a complex of changes in marketing, technological, and labor-force factors) are recognized to have been serious. At the same time, the vigor with which local business and governmental groups in Pittsburgh have approached the problems, both in analysis and action, is known io compare guite favorably with that demonstrated in other American cities.14 Leading Pittsburgh industries as well as other important industries showed marked declines in relative growth indicators for both time periods (see Table Ill-b, Category B). In the case of "Primary metals," including steel, the negative figure for the second pe riod, 1959-1964, was more significant than that for the first period, after allowance for the shorter duration of the second period (minus 15,650 for the second period against minus 20,424 for the first period). "Machinery" and "Mining," however, showed less sig nificant negative figures for the relative growth indicators in the second period. Both "Primary metals" and "Mining" registered outright declines in employment in both pe riods (see Tables I-b and II). The "Machinery" industry had some growth in employment in both periods, but the growth rate fell consider ably short of the national rate, thus producing the declines in the relative growth indicators. Only two relatively small industries — "Mo tor vehicles and eguipment" and "Lumber, 14 Outstanding in such developments are the organiza tional arrangem ents for cooperation between business and governmental groups, the renovation of the Golden Triangle of downtown Pittsburgh, and the Economic Study of the Pittsburgh Region, conducted by the Pittsburgh Regional Planning Association, directed by Edgar M. 13 See Technical Noie, Appendix. 14 Hoover, 1963-1964. NO VEM BER 1 9 67 TABLE lll-b Summary of Employment Changes by Industry Pittsburgh Compared with United States 1950-1960 and 1959-1964 Relative G row th Indicator 1 9 5 0 -1 9 6 0 1 9 5 9 -1 9 6 4 Num ber Employed 1 96 0 A. Favorable Changes in Both Periods M o to r vehicles and e q u ip m e n t........................................................................... + 991 + 429 3 ,2 2 3 Lumber, w ood products, fu rn itu re .......................................................................-)- 694 + 1 57 3 ,1 9 9 B. U n favo ra b le Changes in Both Periods Prim ary m e ta ls ....................................................................................................... — Retail t r a d e ............................................................................................................— 2 0 ,4 2 4 1 8,0 95 — 1 5 ,6 50 — 1 1 ,7 04 134,891 1 21 ,15 3 M a c h in e ry .................................................................................................................— 1 3 ,4 22 — 6 ,0 8 0 M i n i n g ..................................................................................................................... — 1 0 ,2 0 3 — 1,551 5 1 ,9 0 2 Professional se rvice s..............................................................................................— 8 ,1 1 3 — 1 0 ,7 3 6 9 6 ,1 3 6 C ontract construction..............................................................................................— 6 ,3 3 3 — 4 ,6 5 8 42,11 8 Fabricated m etal p r o d u c t s ................................................................................— 6 ,0 2 6 — 5 ,6 2 8 2 7 ,6 2 3 A irc ra ft and parts, ships, etc................................................................................ — 5,271 — 1,654 6 ,1 2 2 Finance, insurance, and re a l e s ta te ..................................................................— 4 ,6 9 6 — 5 ,0 7 2 3 2 ,4 1 6 Food and kindred p r o d u c ts ................................................................................— 2 ,4 0 5 — 1,315 2 2 ,2 6 8 1 1,4 09 C. S ignificant Changes in One Period O n ly Textile mill p r o d u c ts .............................................................................................. A p p a re l . . . ................................................................................................... — — Transportation other than ra il and tru c k in g ....................................................— W holesale t r a d e .................................................................................................. + 2 ,043 — 337 5 12 164 2 ,2 5 9 — 8 ,096 — 13,192 2 7,8 84 1 3,6 89 U tilities and sanitary s e r v i c e ........................................................................... — — 4 ,3 6 3 Business and re p a ir se rvice s................................................................................ — — 1,584 18,720 R ailroads and ra ilw a y express........................................................................... — — 1 ,350 2 1 ,1 9 6 Paper and a llied p r o d u c t s ................................................................................ — — 1 ,147 3 ,3 8 5 D. M a rked Shifts Between Two Periods Entertainment, recreation s e r v ic e s ..................................................................+ 344 — 1,631 7 ,602 Printing and p u b lis h in g ......................................................................................... + 160 — 2 ,2 0 7 12,701 Petroleum and co al p r o d u c t s ...........................................................................— 4,121 + 180 1,885 Communications 2 ,0 4 3 + 244 1 0,050 ...................................................................................................— TOTAL o f covered in d u s tr ie s * .....................................................................................— 1 18 ,49 4 — 9 1 ,0 5 6 7 5 2 ,1 1 9 *lncludes 4 covered industries not listed in the ta b le . Except fo r “ M anufacturing, not elsewhere classified,” the unlisted industries show re la tiv e ly small changes; i.e., (fo r this ta b le ) declines o f less than 2 ,0 0 0 in the first p eriod, declines o f less than 1,000 in the second (or shorter) p erio d , o r increases o f less than 1 0 0 in either period. Sources: D ata a re derive d from Table l-b and Table II 15 E C O N O M IC REVIEW wood products, furniture" — registered signif icant favorable changes in both periods (see Table Ill-b, Category A). Favorable changes in only one period are shown in Categories C and D of Table Ill-b. These include "Print ing and Publishing" in the first period, and the following industries in the second period: "Textile mill products," "Apparel," "Petro leum and coal products," and "Communica tions." Trade and service groups registered consistently unfavorable showings, except for "Entertainment, recreation services," which scored a modest positive figure for the first period, only to be followed by a large negative showing in the second period (Category D). CINCINNATI PATTERN COMPARED WITH THE UNITED STATES, 1950-1960 and 1959-1964 The general pattern of employment changes in Cincinnati is similar to that of Cleveland in at least one important respect; namely, in each case a single industry provided a surge in the 1950-1960 period that offset much of the unfavorable showing of the more tradi tional industries. (See Table III-c.) In the case of Cincinnati, the favorable development oc curred in "Aircraft and parts, ships, etc.," and was concentrated in the very large Cincinnati plants manufacturing airplane engines for a nationally prominent concern. The traditional Cincinnati industries that lost ground relative to the United Slates were "Machinery" in both periods (Category B), "Food and kindred products" in the first pe riod (Category C), and "Chemicals and allied products" in the second period (Category C). One industry, "Communications," showed 16 moderately favorable changes in both pe riods (Category A). "Motor vehicles and equipment" had a favorable record in the first period, but lost ground in the second period (Category D). Several other industries had moderate gains in either the first or the second period (Categories C and D). "Primary m etals" and "Paper and allied products" showed moderate gains in the second period, following large relative declines in the first period (Category D). In the case of the former, a single firm was largely responsible. In the case of trade and services, the Cincinnati showing is relatively unfavorable, except for the marked gain in "Business and repair ser vices" in the 1959-1964 period (Category C). The Cincinnati employment pattern ap pears to be mixed, and resembles that of Cleveland more than Pittsburgh. This is the case despite the fact that Cincinnati's historic development considerably preceded Cleve land's, which makes Cincinnati more nearly akin to Pittsburgh in maturity of development. In the "Total of covered industries," Cincin nati's score appears relatively more favor able than Cleveland's for the first period — minus 27,584 as against Cleveland's minus 64,614. (Cincinnati's advantage in the first period seems clear, even after allowing for Cleveland's greater population.) In the sec ond period, 1959-1964, Cincinnati's negative relative growth indicator in total was as large for the five-year interval as it had been for the previous ten-year interval. Cleveland, on the other hand, showed a five-year total about half as large as the ten-year total of the first period (minus 31,702 against minus 64,614), thus indicating that Cleveland's margin of lag behind the nation was not accelerating, NO VEM BER 1967 TABLE lll-c Summ ary of Employment Changes by Industry Cincinnati Compared with United States 1950-1960 and 1959-1964 Relative G row th Indicator 1 9 5 0 -1 9 6 0 1 9 5 9 -1 9 6 4 Num ber Employed 1 96 0 A. Favorable Changes in Both Periods Communications .................................................................................................. + 434 + 124 6 ,4 0 6 3 0 ,3 2 6 B. U n favo ra b le Changes in Both Periods M a c h in e ry ................................................................................................................ — 1 0 ,0 5 7 — 2 ,3 6 0 Retail t r a d e ............................................................................................................— 7 ,0 6 3 — 6 ,4 4 7 6 8 ,3 1 3 Professional s e rv ic e s ..............................................................................................— 3 ,4 9 8 — 753 4 8 ,5 0 2 A p p a r e l ................................................................................................................ — 2,031 — 1,773 5 ,1 1 3 W holesale t r a d e .................................................................................................. — 1,895 — 1,1 7 5 1 6 ,9 3 9 Printing and p u b lis h in g ......................................................................................... — 1,5 1 6 — 1 ,519 1 3,3 50 C. S ignificant Changes in One Period O nly Trucking and w a r e h o u s in g ................................................................................ -f- 523 — M i n i n g ..................................................................................................................... -f- 280 — Business and re p a ir se rvice s................................................................................ — Entertainment, recreation s e r v ic e s .................................................................. -f- — 8 ,2 3 9 1 ,0 8 6 523 1 1 ,0 7 0 384 4 ,0 9 9 — 11,9 04 Personal services including h o t e l s ..................................................................— 3 ,1 3 0 Food and kindred p r o d u c ts ................................................................................— 2 ,9 5 5 — 17,591 Finance, insurance, and re a l e s t a t e ..................................................................— 1,728 — 2 0 ,6 4 6 Lumber, w ood products, fu rn itu re ....................................................................... — — 1,428 5 ,3 7 4 A irc ra ft and parts, ships, etc................................................................................ + 1 1 ,5 2 6 — 3 ,9 6 5 12,9 73 M o to r vehicles and e q u ip m e n t........................................................................... -j- 3,541 — 1,421 12,2 83 Chemicals and a llie d p ro d u c ts ...........................................................................-f- 599 — 2 ,6 0 7 1 5,7 16 C ontract co nstru ction ..............................................................................................+ 479 — 1,5 9 3 2 6 ,4 3 5 D. M a rk e d Shifts Between Two Periods P aper and a llie d p r o d u c t s ................................................................................— 2 ,6 3 2 Prim ary m e ta ls ....................................................................................................... — 2 ,4 5 3 TOTAL o f covered in d u s tr ie s * .....................................................................................— 2 7 ,5 8 4 144 + 1 80 — 2 7 ,9 3 9 6 ,0 1 3 5 ,2 9 8 4 0 1 ,1 8 0 in c lu d e s 7 covered industries not listed in the ta b le . Except fo r “ M anufacturing, not elsewhere classified,” the unlisted industries show re la tiv e ly small changes; i.e., (fo r this ta b le ) declines o f less than 1,5 0 0 in the firs t p e rio d , declines o f less than 7 5 0 in the second (or shorter) p e rio d , o r increases o f less than 1 00 in eithe r p e rio d . Sources: Data a re d erive d from Table l-c and Table II 17 E C O N O M IC REVIEW while Cincinnati's was. A similar point can be made if "percent change in employment" (Tables I and II) is utilized in place of the relative growth indicator. That is, Cincinnati did better than Cleveland in the first period, but slipped in the second period. APPENDIX Technical Note* * Applies to the three articles in the series, and will be included at the end of each article. Geographical Coverage. Wherever the term "city" or "metropolitan area" is used in the text, it refers to the "Standard Metropoli tan Statistical Area," composed of one or more counties as designated in the official list. The single exception is Boston, for which the official SMSA cuts across county lines, as is the case generally in the New England States. As a substitute for the Boston SMSA, 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, become somewhat larger than would be the case for the official SMSA. (See footnote of Table IV for the population differences involved.) County composition of the SMSA'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 Medina and Geauga Counties, as well as Cuyahoga and Lake Counties. Like wise, the Cincinnati SMSA includes Dearborn County, Indiana, in addition to three counties in Ohio and three counties in Kentucky. Use of the SMSA unit has a particular drawback in the case of at least one of the covered industries for one of the SMSA's; that is, "Primary m etals" for the Chicago SMSA. A large part of the steel industry of the greater Chicago area is located in the Gary-Hammond-East Chicago SMSA and, therefore, 18 does not appear in our figures for the Chi cago SMSA. This has the effect of seriously understating the Chicago performance for "Primary metals'' for the 1950-1960 period. Thus, including Gary, etc., would have the effect of altering the percent change figure for Chicago shown in Table V from minus 14 percent to minus 4 percent, accompanied by a virtual elimination of the negative figure for the relative growth indicator. For the 19591964 period, however, use of the enlarged area would make little change in the Chicago scores for percent change or relative growth indicator. As a supplement to the footnote shown in Table I, it may be noted that the data on num bers employed in 1950 and 1960, as shown in columns 1 and 2, and also the basic employ ment data used in Table V, were drawn from unpublished figures for the various SMSA'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 SMSA's, as shown in the pub lished volumes of Growth Patterns in Em ploy m ent b y County. (The exceptions are noted below in connection with the "Miscellaneous" problem.) Basic data for our treatment of the 19591964 period were obtained from County Busi n ess Patterns, U.S. Department of Commerce and U.S. Department of Health, Education, and Welfare. For the 1959 data, as drawn N O VEM BER 1967 from that source, il was necessary to add figures for the individual counties in order to obtain SMS A totals. For the 1964 data, how ever, the published volumes of County Busi n ess Patterns provide data in SMSA form. In utilizing data drawn from this source, it was necessary by means of estimation to fill cer tain gaps occasioned by the ''nondisclosure" rule. Figures on numbers employed that were derived from our own estimates 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 the case of the estimates within the tables for Cleveland, Pittsburgh, and Cin cinnati, it was possible to obtain sufficient supplementary information to warrant con siderable confidence in the estimates. Esti mates, wherever they occur, for the other areas are less fully documented. Industry Coverage. The 28 industry or ser vice groups used consistently in this study were selected to serve as a least common denominator, for purposes of comparability, between the breakdowns provided by the OBE study already identified (which provided the basic data for our 1950-1960 treatment) and County Business Patterns (which pro vided the basic data for our 1959-1964 treat ment). Certain minor changes in the industry captions were effected for clarity; i.e., we use the caption ''Aircraft and parts, ships, etc." in place of ''Other transportation equipment," referring to transportation eguipment other than ''Motor vehicles and equipment.” In the process of achieving comparability it was necessary to drop the category of "Public ad ministration," as shown in the OBE study (an omission noted in the text); on the other hand, il was possible to include the category "Rail roads and railway express," which is not contained in the County Business Patterns summaries, by obtaining special estimates for the SMSA'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 "Other and miscellaneous manufacturing" as published in Growth Patterns in Em ploym ent b y County. The special breakdowns were needed be cause they include such important industries as "Primary metals," "Fabricated metal prod ucts," and others. Even with this aid, however, Category No. 16, "Manufacturing, n.e.c." in our standard list is undesirably large; unfor tunately, it includes industries of consider able importance, such as rubber and rubber products, and stone, clay, and glass. It should be noted that differences in sources of basic data mentioned above could give rise to a conceptual problem. Thus, data for the period 1950-1960, although drawn here from the 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 the employee. Data for the 1959-1964 period, however, are drawn from sources that assign employment to the place of work. In working with data for cor porate cities or for individual counties, such a disjuncture may be serious, or even decisive, but it may be considered to be of relatively small importance in dealing with metropoli tan areas embracing counties, as is the case here. That judgment is used widely as a work ing rule by regional analysts, despite the extensive commuting distances often traveled by the employee. Supplementary data for the 1964-1966 period contained in the third article are based on the place-of-work criterion, as in the case of the 1959-1964 period. M eaning of Totals. In addition to the indus try and service categories (which constitute the main focus of the 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 basic points 19 E C O N O M IC REVIEW should be kept in mind: (1) "Covered employ ment" is not identical with "Total employ 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 may be larger (either plus or minus) than for a smaller city. At the same time, however, the variation among 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 problems arising from levels of ag gregation occur at certain points in the use A P P E N D IX TABLE I Identification of Covered Industries by Standard Industrial Classification Code SIC Code In d u s try 1. M in in g 10-14 2. C on tra ct construction 15-17 3. Food and kin d re d products 20 4. Textile m ill products 22 5. A p p a re l 23 6. Lum ber, w ood products, fu rn itu re 24-25 7. Paper a nd a llie d products 26 8. P rin tin g a nd p u b lishin g 27 9. Chem icals and a llie d products 28 10. Petroleum a nd coal products 29 11. M a ch in e ry 35-36 12. M o to r vehicles and equ ip m en t 371 of data for "totals" shown here. The last-mentioned point is seen most clearly by reference to the final line of Table I, with accompanying 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 was 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 back to differences in industry mix between the city under consideration and the standard of comparison, whether the latter is the United Slates total or the aggregate of 13 cities. The method of obtaining the total of relative growth indicators, as shown in the lower right corner of Tables I-a-c, is the same as that used in Growth Patterns in Em ploy m ent b y County; 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 13. A ir c ra ft a nd p arts, ships, etc. 37 (except 371) 14. P rim ary metals 33 Components of Percent Changes in Total Nonagricultural Employment Cleveland, Pittsburgh, and Cincinnati 15. F a bricated m etal products 34 1950-1960 16. M a n u fa c tu rin g , n.e.c. 2 1, 30-32, 38-39 17. R ailroads a nd ra ilw a y express 40 18. Trucking a nd w are h o usin g Changes Related to: N atio n a l G ro w th * 42 19. T ra n sp o rta tio n o th e r than ra il and tru c k in g 4 1, 44-47 20. C om m unications 48 21. U tilitie s a nd sa n ita ry service 49 22. W ho le sa le tra d e 50 23. R etail tra d e 52-59 24. Finance, insurance, and re a l estate 60-67 25. Personal services in c lu d in g hotels 70, 72 26. Business and re p a ir services 73, 75-76 27. Entertainm ent, re crea tio n services 78-79 28. Professional services 80-82, 84, 86, 89 20 Industry M ix Regional S h a re f Total Change C leveland + 2 2 .9 % + 1.6 % — Pittsburgh + 2 2 .9 — 2.0 — 17.4 + Cincinnati + 2 2 .9 + 0.2 — + 18.2 9 .0 % 4.9 + 1 5 .5 % 3.5 *Total em ploym ent gain fo r United States, a ll nonagricultural industries; when com bined w ith change in components shown in next tw o columns, the result is “ to ta l change” sh o w n 'in fin a l column. fS am e concept as “ re la tiv e grow th in d ic a to r” used in this study. Total United States change is the standard o f reference. Sources: Same as Table I, main te x t NO VEM BER 19 67 A NOTE O N BUSINESS INVENTORIES Progressive strengthening of overall eco nomic activity since the first quarter of 1967 can be traced in part to the diminishing im pact of the inventory adjustment. That the in ventory adjustment was not more serious was largely due to the fact that final sales1 expanded substantially. The marked growth in total final sales first helped to prevent a cumulative decline in economic activity, and then enabled the economy to move toward achieving better balance between inven tories and sales. As a case in point, in May 1967, the ratio of business inventories to sales began to edge downward, after increasing appreciably beginning in the summer of 1966. Even with that improvement, however, inventory-sales ratios at the end of September 1967 were still generally higher than at any time since early 1961. This suggests that, at the end of September, excess slocks remained in some parts of the economy. The purpose of this article is to examine the nature of the inven tory adjustment, to review the recent status of business inventories, and to point out pos sible areas of excess stocks. INVENTORIES AND SALES As shown in the top panel of Chart 1, addi tions to business inventories (or inventory investment) increased sharply during 1966, and reached a record high in the fourth quarter. Some of the accelerated buildup in inventories reflected continued growth in new orders and backlogs of defense products and capital goods. Nevertheless, it is apparent that some of the inventory buildup was in voluntary, as business sales consistently fell short of expectations. Chart 2 shows that manufacturers' sales (shipments) rose little between the second quarter of 1966 and the second quarter of 1967. As anticipated sales consistently fell short of expectations, the spread between actual and anticipated sales widened pro gressively through the second quarter of 1967.2 Incentives for holding inventories ap peared to lessen from the second quarter of 1966 through the second quarter of 1967. In dustrial materials prices had been slipping since the spring of 1966; production lead times were steadily improving throughout 1966 and early 1967; and backlogs of unfilled 2 See "Trends in Prices, Production, and Inventories," 1 Final sales equals Gross National Product less inventory Economic Review, Federal Reserve Bank of Cleveland, investment. Cleveland, Ohio, August, 1967. 21 E C O N O M IC REVIEW C h a rt 1. QUARTERLY CHANGES in NONFARM INVENTORIES, GNP, and FINAL SALES B illio n s o f d o l l a r s -------1 -------- 1-------- 1 -------Q U A R T E R L Y - S E A S O N A L L Y A D JUS TED A N N U A L RATE 20INVENT ORIES 1 5' 105- ------ 1 ------- 1 ------- 1 ------Q U A R T E R L Y - S E A S O N A L L Y ADJ US TED A N N U A L RATE 20- GNP ♦ FINAL SALES 1 5- 10- 5- i 1964 ’65 ’66 ’ 67 ’68 * P re lim in a ry . Source of d ata: U.S. D e p a r t m e n t of C o m m e r c e orders, especially for home goods, machinery and equipment, and materials and supplies, began to experience a declining trend in late 1966. The surge of inventory investment to a $19 billion annual rate (GNP basis) in the fourth quarter of 1966 set the stage for a sharp re duction in the rate of inventory investment during 1967. Additions to nonfarm inventories 22 in the first quarter of 1967 totaled $7.3 billion at an annual rate, an $11.7 billion decline in inventory spending from the previous quarter. Additions to inventories in the second quar ter fell to a negligible $0.6 billion, or a $6.7 bil lion decline in inventory spending. The $18.4 billion turnaround in inventory spending dur ing the first half of 1967 was unprecedented for any half-year period and was a major factor in the slower rate of growth of GNP. On the other hand, as the reduction in inventory NO VEM BER 1967 spending became smaller, the gain in GNP became larger. Thus, as shown in the bottom panel of Chart 1, the gain in GNP during the first quarter of 1967 amounted to about $4 billion at an annual rate, while the gain in the second quarter amounted to nearly $9 billion. A sharp curtailment in inventory invest ment is usually accompanied by cutbacks in new orders and production, which ultimately result in a cumulative decline in economic activity. However, in the recent period, total final sales continued to grow and thereby lessened the impact of the inventory adjust ment. Expansionary monetary and fiscal poli cies stimulated aggregate demand, and helped to boost the growth of final sales in the first quarter of 1967 to an annual rate of about 8 percent. Final sales were sustained at nearly the same rate during the second quarter. NATURE OF THE ADJUSTMENT The adjustment in inventories during the first half of 1967 took the form of a reduced rate of buildup in total business inventories during the first quarter, and an even smaller buildup during the second quarter. As shown in Chart 2, most of the inventory correction occurred in the trade sector, at both the retail and wholesale levels where stocks were ac tually reduced beginning in early 1967 in response to lagging sales. Retailers started to reduce stocks of both durable and non durable goods in January, with a large part of the reduction accounted for by automo biles. In the case of wholesalers, the liquida tion of stocks was concentrated in the second quarter. Manufacturers, who account for about 60 percent of total business stocks, con tinued to accumulate inventories at a reduced rate until last May, and then actually cut into stocks in June. In short, manufacturers at tempted to bring inventories and sales into better balance by smaller additions to inven tories rather than by outright liquidation of slocks, as was the case in retail and whole sale trade. INVENTORIES IN RELATION TO SALES Taken alone, the stock of goods on hand is not necessarily a meaningful or reliable indicator of the current or future behavior of inventories. Inventory decisions are the re sult of several factors, including prices, order backlogs, and current and anticipated output and sales, among others. Businessmen gen erally respond to rising sales by accelerating orders and production. If sales rise faster than expected, inventory investment will lag behind sales; but, if sales rise less than ex pected, inventories will accumulate, prompt ing a reduction in orders and production until the desired relationship between inventories and sales is restored. For analytical purposes, it is helpful to consider the relationship of inventories to actual and anticipated sales — the inventory-sales ratio. Beginning in the summer of 1966, inventorysales ratios for both manufacturing and trade increased sharply, due largely to sluggish sales. Despite the curtailment in the buildup of business inventories in early 1967, the overall inventory-sales ratio continued to rise until April 1967. Since April, the ratio has retreated, but recently was still at a level well above mid-1966, when excesses first be came apparent. It should be noted that a high 23 E C O N O M IC REVIEW ratio does not necessarily signify imbalance in the relationship between inventories and sales. For one thing, a high ratio may reflect a relatively large proportion of stocks in "in ventory-intensive" industries that have longer production lead times than most other indus tries; i.e., "defense” and "machinery and equipment." This was exactly the case late last summer when the inventory-sales ratio for defense products in September was about 3.2 months of shipments versus 1.83 months for all manufacturing. Even allowing for defense products, how ever, recent inventory-sales ratios in manu facturing were still higher than the ratios that existed in the summer of 1966 (see Chart 3). In fact, ratios for several key industries, at last report, were higher than in any business expansion (some ratios were at the "high" end of a range that has prevailed during the past ten years). In those instances, inven tories still seemed to be out of balance rela tive to sales. A different pattern emerges in the retail area. As shown in Chart 3, stock-sales ratios have declined steadily since last February, and at the end of August were lower than at any time in the current business expansion, or, for that matter, in recent experience. The bulk of the inventory adjustment occurred in auto stocks, but stock-sales ratios for furni ture and appliances also tended downward and by the end of August were at the lowest levels in the past decade (not shown in Chart 3). While stock-sales ratios in the wholesale trade area have moved down since last March, at the end of September, they were still somewhat above year-earlier levels, 24 particularly in the area of durable goods. ARE INVENTORIES EXCESSIVE? Some improvement in the present status of inventories is implied by the retreat of inventory-sales ratios from the "highs" of last spring. However, inventory-sales rela tionships over time are not invariant, and tend to undergo fundamental adjustment due to a number of influences. For example, the inventory-sales ratio may move downward because of more efficient use of inventories, which in turn reflects new production tech niques, improved warehousing facilities, a greater variety of modes of transportation, in creased use of computers, and more profitable alternative uses of funds. On the other hand, factors such as the introduction of new prod ucts and new styles may lend to push the ratio upward. An average relationship of stocks to sales over a period of years is useful in evaluating the status of inventories at any given time. Sizable deviations above and below the aver age relationship can be considered as an imbalance between inventories and sales. Short-run deviations above trend may reflect influences such as rising prices or expected material shortages, while deviations below trend could reflect temporarily conservative inventory policies. In either case, as such con ditions abate, inventories tend to be brought back into line with average relationships. Chart 3 shows actual inventory-sales values and two trend lines (average relation ships); the trend lines are fitted to data for 1957-1967 and for 1962-1965. For analytical purposes, use of a longer-term average rela tionship is preferable. However, an average R a tio 1----- 1 19 - 1.8 - 1 .7 - 1.6 - I 1 .5 OTHER MATERIALS and SUPPLIES 1 2.2 CONSTRUCTION MATERIALS + - 2. 1 - 2.0 - 1 .9 - 1. 8 - * 1 .7 -| 2.0 - 1 .9 - 1.8 - 1 .7 - 1.6 -■ 1. 5 “I 1,6 - 1 .5 - 1 .4 E C O N O M IC REVIEW relationship for a shorter period is helpful in evaluating a particular near-term situation, in this case the early years of the current ex pansion. The year 1961 is excluded from the shorter period because that year was biased by the 1960-1961 business recession, and 1966 is excluded because that year was biased by an "overheated" economy. progressively larger between the summer of 1966 and the spring of 1967, then declined, but increased again in September; the devia tion thus far in 1967 is greater than for any period since 1958. For manufacturing, exclud ing defense, the deviation from trend is simi lar to that for total manufacturing. Based on the difference between actual values and Interestingly, the same conclusion about inventory-sales relationships can be derived from either trend line; namely, that inventorysales ratios at the end of September (or August, where relevant) clearly were well above what would be expected on the basis of trend. It is apparent from Chart 3 that the trend lines (for both time periods) for manufacturing, wholesale durable goods, and retail trade all tend downward, implying various degrees of progress toward more effi values of the trend lines fitted for 1957-1967, the excess of inventories in manufacturing (excluding defense) amounted to about $6.1 billion in September 1967. If the trend line for 1962-1965 were extrapolated, the difference between actual and trend values would be even greater. It should be noted, however, that higher siock-sales ratios than prevailed during 1962-1965 may be warranted in the current economic environment, in view of rising output and increasing inflationary cient use of inventories relative to sales. (The trend for retail trade is tilted only slightly downward, since retailers made significant improvements in operations in earlier periods not shown in the chart.) Within manufactur ing, both trend lines more or less move down ward for all market groupings shown in the chart, except for "home goods and apparel" and "construction materials." Each pair of trend lines (1957-1967 and 1962-1965) for the individual market groupings moves in essen tially the same direction, with the exception of "construction materials." With reference to the slope of the lines, however, there is obvious variation in the case of both total manufacturing and wholesale durable goods. pressures. At the end of September, based on actual and trend values for 1957-1967, the bulk of the excess in manufacturing stocks was concen trated in "construction materials," "machine ry and equipment," and "other materials and supplies." Inventories held by producers of "construction materials" (such as paint, paving materials, building materials and cer tain stone, clay, and glass products) appeared to be excessive by about $0.3 billion, against total stocks of about $6.3 billion in that cate gory. The excess, which was the largest for any time in recent experience, developed during 1966 and widened in 1967 because of declining sales. The apparent excess of in Chart 3 also shows that the deviation of actual inventory-sales values from trend is most marked in the manufacturing sector. The deviation in total manufacturing grew ventories held by producers of "machinery and equipment" amounted to nearly $1.1 bil lion at the end of September, against total stocks of about $13.2 billion in that category. 26 NO VEM BER 1967 Thai apparent excess is Ihe largest since early 1958, but prospects for reduction appear favorable. The gradual rise in new orders since last February, following reinstatement of the investment tax credit, should provide support for renewed expansion of sales of machinery and eguipment, which in turn will help to absorb some of the excess stocks. values, thus supporting the view that the adjustment of inventories at the retail level has been completed. At the wholesale level, ihe actual stock-sales ratio for durable goods, was considerably above trend until Iasi The actual stock-sales ratio for "other ma terials and supplies" (such as primary metals, certain fabricated metal products, containers, machine tools, and electrical apparatus) was also higher than ihe trend value for 19571967. While considerable progress was made toward bringing inventories of these products into line with sales, at the end of September, the inventory excess amounted to about $2.5 billion. Stock-sales ratios for "home goods and apparel" (such as household appliances, floor coverings and clothing) also were above trend values. As shown in Chari 3, trend lines (for both 1957-1967 and 1962-1965) for "home goods and apparel" slope upward, reflecting efforts by retailers and wholesalers to have manufacturers carry a larger share of the in ventory. Nevertheless, at the end of Septem ber 1967, ihe actual stock-sales ratio was con siderably above ihe trend value for 1957-1967. Liquidation of inventories and renewed strength in sales at ihe retail level have markedly reduced stock-sales ratios since last April. Through August, actual values were substantially below 1957-1967 trend CONCLUDING COMMENTS spring, but was then trimmed sharply; by ihe end of September that ratio was reason ably consistent with trend values. Earlier this year, it was suggested by some observers that the inventory adjustment would cause a cumulative decline in overall economic activity. Although growth in GNP slowed during the first half of 1967, the for ward momentum of the economy was main tained by a sustained rise in final sales, which in large part reflected the contribution of expansionary monetary and fiscal policy. Even with ihe recent adjustment in invento ries, however, actual ratios of inveniories-iosales at ihe end of September (or August, where relevant) were still high compared with trend values. There are various ways by which excessiv e stocks could be adjusted further, such as by reducing rates of inven tory accumulation, by liquidating stocks, by an increase in sales, or by some combina tion of these. Whatever the case, the relation ship of inventories-to-sales in the months ahead will largely be determined by the ac tual course of economic activity, as well as expectations regarding what that course might be. 27 Fourth Federal Reserve District
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