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MONTHLY S E P T E M B E R 1951 CONTENTS Credit Restraint— Its Necessity and Impact 1 The Defense Bond Drive— an Editorial 2 . Portland C e m e n t............................... 6 Statistical T a b le s ............................... 11 Ultrasonics— A New Tool for Industry K e v i e . 12 w FINANCE • INDUSTRY • A G R IC U L T U R E • TRADE FO URTH Vol. 33— No. 9 FEDERAL RESERVE D IS T R IC T Federal Reserve Bank of Cleveland Cleveland 1, Ohio Credit Restraint— Its Necessity and Impact HE abatement of inflationary pressures in recent months has focused attention on the whole mechanism of economic controls in a m anner almost completely opposite to that which was in vogue at this time last year. Concern is frequently expressed that the controls imposed since the outbreak of the Korean w ar may prove either unnecessary or too stringent, or both. Of the various measures adopted to restrain the expansion of credit, the more recent selective controls have aroused the greatest volume of discussion. However, the effects of these controls can seldom be completely segregated from the reper cussions of traditional policies aimed at insuring monetary stability. It may be appropriate, there fore, to review briefly the developments leading up to the current phase of credit management, and to examine the joint impact of the restraining measures, both general and selective, adopted by the banking system in the past twelve months. T Leaving aside the ques tion of what the pri mary causes of infla tion were in 1950, it is apparent that monetary and credit developments contributed to the ascending wage-price spiral in the latter half of the year. Along with the sharp rise in the volume of consumer, busi ness and government stockpiling, the accelerated turnover of bank deposits, and increased withdrawals Expansion of Loans and Money Su p p ly — 1950 An ed ito ria l discussing th e cu rren t Defense B ond Drive appears on page 2 of savings at savings institutions and in the form of savings bonds, banks throughout the United States expanded their loans and their investments in state and local government and corporate securities by an unprecedented $13 billion (2 1 % ). This record extension of credit to the private sector of the economy and to state and local authorities far ex ceeded the increase in such credit in any previous postwar year, including the war-peace transition period of 1946 and 1947 (see C hart I ) . The 1950 expansion of bank credit to private borrowers and to states and political subdivisions was five times as great as in the rearmam ent year of 1941. In addi tion to the record volume of bank lending, funds for expenditures on current output and on capital assets of the economy were also made available in near record volume out of current and past savings by such financial organizations as life insurance com panies, and savings and loan associations. As a result of the expansion of bank credit, the supply of money available for the cash balances of individuals, partnerships, corporations and state and local governments increased over $7 billion dur ing 1950, exceeding slightly the expansion in the prewar years 1940 and 1941, and substantially that of any postwar year except 1946 (see Chart I I ) . W ithout the increase in loans and in the money supply, it is certain that at least part of the demand for goods by all sectors of the economy would have failed to become effective and therefore would not have been translated into sharply higher prices. Not so many consumers would have been able to try to buy houses or automobiles at advanced prices, for example, if they had been unable to borrow on rela tively easy terms both as regards their initial down(C O N T IN U E O O N P A G E 3) Page 2 Monthly Business Review September 1, 1951 THE DEFENSE BOND DRIVE—Editorial On Ju ly 12, 1951, th e H on. John W. Snyder, Secre ta ry of th e T reasury, announced plans for a Defense Bond D rive to s ta rt on L abor D ay, Septem ber 3. The D rive will run through October 27. In order to cover th e tim e lag in th e transm ission of reports, all Defense Bond sales reported b y N ovem ber 13 will be counted in th e D rive. T he D rive has tw o objectives: (1) to sell as m any bonds to individuals as possible during the period and (2) to get as m any people as possible signed up for continuing regular weekly, m onthly or periodi cal purchases th ereafter. Com m ittees have been set up in every state and in nearly every county to further the D rive. Efforts are being m ade to increase th e use of th e payroll savings plan in business establishm ents, to foster savings in th e schools and to encourage others to arrange for m onthly or periodic purchases of bonds. B onds are being sold for th e T reasury b y v irtu ally all financial institutions. T his includes m ost commercial banks, savings banks, tru s t companies, savings and loan associations and credit unions. S upport of th e D rive b y th e people of th e nation will serve 4 purposes: (1) I t will provide th e T reasury w ith funds needed for financing th e n a tio n ’s defense program . (2) I t will reduce th e need of the T reasury for going to th e banking system for m oney, and th u s will reduce inflationary pressures and help to pro tect th e buying power of every m an, wom an and child in th e land. (3) I t will provide individuals and families w ith increased savings as protection against th e uncertainties of th e future. ( 4) I t will fu rth er dem onstrate public support ■ of th e defense effort. T he T reasury needs m oney to pay for th e defense program . Federal expenditures for defense are ex pected to increase su b stantially over th e next several years. T o tal governm ent expenses are expected to be higher th a n revenues. T he T reasury will have to borrow th e difference. T o th e ex tent th a t th e T reasury borrows from the banking system , deposits are increased, to ta l govern m ent and p riv ate spending tends to rise and infla tionary pressures m ount. T he T reasury gets new d e posits to spend while individuals and businesses are left w ith th e funds or m oney to spend th a t th ey had previously. However, when th e T reasury borrows from individuals (by selling bonds), th a t m oney, which in dividuals m ight have spent, is transferred to th e T reasury and th e T reasury spends it. In this case the T reasu ry ’s spending is in place of ra th e r th a n in addition to individuals’ spending; it helps to keep to tal spending from increasing more rapidly th a n the supply of goods, and thus serves as a check on infla tion. W hen people try to increase th eir buying of goods and services m ore rapidly th a n supplies increase, the result is th a t prices advance, th e cost of living rises, and salaries and wages buy less. T he volum e of savings increased substantially d u r ing W orld W ar I I and th e people of our nation came out of the w ar w ith th e largest volum e of liquid savings in our history. These savings, furtherm ore, were more widely distributed th a n ever before. As a consequence, when goods becam e more plentiful during peacetim e, people were able more easily to buy th e homes, a u to mobiles, refrigerators and other household goods n o t available to them during th e war. Now again, resources are being diverted to defense. If people will d iv ert in creased proportions of th eir present record-breaking incomes into savings, th ey will have more funds w ith which to buy m ajor durable goods when m aterials b e come m ore plentiful and perm it increased o u tp u t of these item s. E ven b etter, increased savings will provide people w ith more funds to m eet emergencies which m ight arise later in this uncertain and uneasy world. T hey will also help to cushion th e shock of unem ploy m ent or of changes in em ploym ent incidental to future changes in our economy growing o u t of ad justm en ts to war and peace. W idespread response to th e Defense B ond D rive in th e form of o u trig h t purchases or of subscriptions to buy bonds regularly in th e future will provide con vincing evidence th a t th e people of this nation are united in support of th e defense program . O ur recent grow th in pro d u ctiv ity has dem onstrated our will to produce th e goods needed. T he purchase of Defense Bonds and an increase in savings generally will dem on stra te our ability to exercise self-restraint and th u s to help keep our internal economy strong and healthy while we are building our external defenses. Page 3 Monthly Business Review September 1, 1951 CREDIT RESTRAINT Chart II (C O N T IN U E D F R O M P A G E l ) INCREASES IN BANK LOANS AND SECURITIES, AND MONEY SUPPLY Other Than U. S. Government (Annual 1940-1950) payment and the subsequent monthly payments. Retailers, wholesalers and manufacturers would have been less willing and able to augment their inven tories and expand their scale of operations if they had been less able to secure the cash to finance it. b I l s '. O F $ ’ 5. B l LS p d F 15 14 The main reason why the expansion of bank loans exceeded the growth in the money supply in 1950 was that the banking system was able to reduce further its holding of U. S. Government securities, as has been the case in every year since 1945. (The reduction in 1949, however, was nominal.) Insofar as the reduction in bank holdings of Governments in 1950 was accomplished by net redemptions, the contractive effect on the money supply which re sulted from these redemptions was achieved by an indirect route. When the Treasury collects revenues, from income taxes for example, this generally in volves the transfer of deposits by check from private accounts at commercial banks to Treasury accounts with the banking system. W hen the Treasury spends these revenues — for armaments, social services, aid to agriculture, etc. — there is another transfer of deposits, this time in the reverse direction, out of Treasury balances and into private accounts. W hen excess revenues are used by the Treasury to redeem its securities held by the banking system, this also causes a reduction in Treasury deposits, but without any corresponding addition to private accounts. An additional factor which partially offset the in fluence of the record loan expansion on the privately 13 Offsets to Loan Expansion Chart I INCREASES IN BANK LOANS AND SECURITIES Other T han Obligations of the U. S. Government (Annual 1940-1950) IMC IN B IL S . OF %'•>, 1940 in c . IN B IL S . OF $■. •> 1941 1946 19.47 19 48 1949 1 95 0 . . . loans to private borrowers and to state and munici pal authorities by all banks in the U. S. increased a rec ord $13 billion during 1950 (chiefly after “Korea”), in sharp contrast to increases of only $1 Vi billion and $2 Vi billion, respectively, in the rearmament years of 1940 and 1941. 1 2 -2 -3 19 40 1941 . . . the expansion of bank loans was responsible for the $7 billion increase in the privately-owned money supply in 1950, the largest increase since 1946. In 1940 and 1941, on the other hand, bank loans were only a second ary factor in the growth of the money supply. In the period from the end of World War II to the end of 1950, the aggregate increase in bank loans to private borrowers and to state and local authorities was equal to the net gain of nearly $40 billion in the privately-owned money supply in this period. owned money supply in 1950 was an outflow of gold totaling nearly $2 billion, chiefly in the second half of the year. The significance of these contractive forces and the implications for past and future monetary policy cannot be overemphasized. Yet they were not pur posely planned. They were among the very small number of natural anti-inflationary forces operating in 1950, and resulted more from circumstance than design. Actual Treasury outlays did not reach the proportions commonly anticipated, and foreign coun tries benefited to an unforeseen degree from the spectacular rise in world raw material prices while continuing to receive economic aid. These circumstances no longer prevail. In the second quarter of 1951, cash payments by the Treas ury exceeded cash receipts, though defense expendi tures still lagged behind the pace of contract awards. By midsummer, the prices of many primary com modities imported by the United States had declined substantially from the peak levels reached earlier in the year, with the result that this country had to pay less for a given volume of such imports. In July, a nominal inflow of gold was reported for the first time in more than a year. Defense expenditures are scheduled to increase, and total expenditures by the Federal Government are likely to exceed revenue. To the extent that the deficit is not financed by Page 4 Monthly Business Review private and public nonbank sources, the banking system may again be called upon to finance rearm ament by purchasing U. S. Government securities, as it did from 1940 through 1945, thereby adding to the money supply and to the now latent inflationary pressures. In this connection, however, it is worthy of note that in recent weeks approximately $1 / 2 billion has been raised by the Treasury, largely from outside the banking system, through the issuance of new bills in excess of the volume of weekly m aturi ties. In the course of the financing operation, the yield on new bills rose to the highest level in nearly twenty years. Partly as a result of restrictive monetary and credit policies and partly as a result of seasonal factors, the growth in bank loans has moderated (see Chart I I I ) . While the slowing down in the rate of bank loan expansion is not impressive when seasonal influences are taken into account, nevertheless it may well have contributed to the lessening of inflationary pressures this year. T he slowdown was particularly marked in the second quarter of the year. While re ports for recent weeks reveal further expansion in bank loans, thus far it has been smaller than in most previous postwar years. In the Fourth District, member banks also show a decline in the rate of expansion of their loans from the record pace of the third quarter of 1950, though to a less marked extent than at all banks in the United States. In contrast to the national trend, however, the expansion of loans by Fourth District member banks in the second quarter of this year was greater than in the comparable period of any other year. Pre liminary figures indicate that the third-quarter expan sion may also be greater than average for this period of the year. Some of the reasons for the continued relatively high rate of loan expansion in this District are noted later in the discussion of the various types of loans. September 1, 1951 Chart III EXPANSION OF BANK LOANS AND SECURITIES Other Than Obligations of the U. S. Government (1950-1951 compared with average 1947, ’48, and ’49) (Quarterly) INC IN b ils . o f $ v IN C IN b ils . or $ . •» Rate of Loan Expansion Slow s Down General Before considering developments in speControls cific categories of the loan portfolio, how ever, it may be desirable to review the operation of the traditional weapons of monetary control, which react on the credit structure as a whole. Federal Reserve Bank discount rates were increased from l / 2% to 1^4% and a more flexible open market policy was inaugurated in August last year. M ember bank reserve requirements were in creased in January and February, making it neces sary for banks to hold an additional $2 billion of reserves. In M arch it was announced that the Treas ury and the Federal Reserve had reached agreement with respect to monetary and debt management policies with the purpose of minimizing monetization of the public debt and at the same time assuring the quarter since the third quarter of 1950. Although this reflected seasonal influences in part, the loan expansion in the second quarter of 1951 exceeded the average of the increases in the second quarter of 1947, 1948 and 1949 by a relatively small margin. * Data received since this chart was prepared indicate that the expan sion of loans in the second quarter of 1951 was somewhat in excess of $1 billion. success of the Federal Government’s financing opera tions. The adoption of a more flexible open market policy by the Federal Reserve injected a long-absent element of risk and uncertainty into the market. The slow decline in prices of Treasury bonds which had been evident throughout 1950 was sharply ac centuated, and the yield on the Victory 2 ^ ’s, for example, rose from 2.45% at the end of February to 2.67% at the end of April, and remained at about that level for the next three months. T he Treasury offered holders of $20 billion of long-term restricted marketable Treasury bonds bearing a 2 ] ^ % coupon the privilege of exchanging these issues into market able bonds at 2^4% , and most investors accepted the offer. In all, nearly $14 billion, (or 70% ) of the bonds were converted. T he rates offered by the Treasury in refunding m aturing or called issues were increased, in keeping with the upward movement of yields in the market. In the August 1, 1951, refund ing, for example, an 11-month certificate at 1% % was offered, in contrast to a 5-year note at 1^4% issued on January 1, and a 13-month note bearing l l 4 % issued on July 1, 1950. T he traditional monetary restraints imposed by the Federal Reserve System— discount rates, open market operations and reserve requirements— have succeeded, with the co operation of the Treasury, in increasing the cost, reducing the volume and restricting the availability of credit. Some moderation was apparent in August, and September 1, 1951 Monthly Business Review prices of Governments rose, with the result that the yield on the Victory 2 / 2,s, for example, declined I from 2.67% to 2.59% in the first two weeks of the month. The more buoyant tone in the market re flects progress by various institutions in reducing heavy backlogs of loan commitments, and this has released a greater proportion of current savings for investment in other outlets, such as U. S. Govern ment securities. In addition, there are indications that the total volume of current savings has risen substantially in recent months. Since the end of June, Federal Reserve holdings of U. S. Government securities have remained relatively stable at approxi mately $23 billion. Trends by Type of Loan Commercial and industrial loans have been the most im portant single factor in the post-Korean expansion of bank credit, rising $ 6^2 billion at member banks throughout the country between the end of June 1950 and the end of June 1951. The bulk of the expansion occurred in the second half of 1950 and presumably was caused in large measure by inventory and working capital borrowing growing out of the desire of busi nesses to build up their stocks, rises in commodity prices and other production costs and out of increased business. The increase in the first half of 1951 was concentrated largely in the early months of the year, probably u n d e r the impetus of similar forces. Although there was virtually no net change in the total of these loans in the second quarter of 1951, the stability contrasts with a normal seasonal decline in this period of the year, and in recent weeks signs of a resumption in the expansion of business loans have been apparent. While the principal increase in business loans in the nation as a whole occurred during the second half of 1950, the sharpest increase in this District was in 1951. (See Chart IV ). Fourth District weekly reporting member banks show an expansion in busi ness loans of 2 0 % in the first half of the year com pared with a gain of 8 % for the country as a whole. This difference in trend reflects differences in the character of loans made and of businesses financed. Products such as steel, machinery, metal compo nents for engines and bodies, rubber, etc., which bulk large in the defense program, form an important part of the Fourth District economy, and pressure on these industries generally is increasing. In addition, the seasonal pattern for business loans in this District is somewhat different from that of banks throughout the country, due partly to the greater importance of commodity loans in other areas. The contrast is illus trated by the fact that business loans declined during the first half of 1951 at reporting banks in the Atlanta, St. Louis and Dallas districts, where com modity loans are more important. Business Loans Page 5 Classification o f I*1 recent months, a large numSusiness Loans ker of the weekly reporting mem ber banks have provided a detailed breakdown of new commercial and industrial loans made and of repayments on such loans, showing both the purpose for which the loans were made and the business of the borrower. This information was compiled by the banks at the request of the National Committee for Voluntary Credit Restraint, which exercises general direction of the Voluntary Credit Restraint Program. This program was established by the financial institutions of the nation for the purpose of screening loans made by commercial banks, investment bankers, insurance companies, savings banks and savings and loan associations with a view to eliminating or restricting borrowing which would not contribute directly or indirectly to the defense effort or to the increased productivity of the nation. The program injected an element of selec tive restraint into those fields of business and state and local government borrowing not otherwise sub ject to mandatory selective controls. (A description of the scope, purpose and mechanism of the Program can be found in the June issue of the Business Review). According to the data reported by the banks, com mercial and industrial loans would have declined somewhat between early May and early August had it not been for'an increase of more than $500 million in loans to finance defense and defense-supporting activities (see table below). Outstanding debt for Chart IV COMMERCIAL, IN D USTR IA L AND AGRICULTURAL LOANS Cumulative Changes during 1948, 1949, 1950 and 1951 Weekly Reporting Member Banks, Fourth District that of the second half of last year, occurred in the early months and was followed by a sporadic upward move ment in the spring and early summer. In August, how ever, seasonal influences contributed to a sharp accelera tion of the rate of expansion. (C O N T IN U E D O N P A G E 8) Page 6 September 1, 1951 Monthly Business Review Portland Cement RESPONSE continued I Ndemand, Districttocement millsand unprecedented are well on their way toward topping the 1950 record output of 20 million barrels. Cement production in the first six months was 20 percent higher than in the same 1950 period. Each year since 1947, when the old 1927 mark of 17.4 million barrels was first exceeded, the mills have set successively higher records. Despite the rising tide of production, District mills have been unable to rebuild finished stocks to pre war levels when output averaged about half that of recent years. Nevertheless, mill operators foresee no general shortage of cement in this area in the second half of the year. It is expected that supply will just about balance with anticipated construction activity. This takes into account the expected drop in resi dential and commercial building activity, and as sumes that there will be no unusual interruptions in production and supply lines. Rate of O perations The cement industry, unlike other heavy industries such as steel, has never been able to push operations to 100 percent of theoretical capacity even in periods of sustained demand. In June, for example, District mills turned out a near monthly record of 2 million barrels of cement but this was only 87 percent of capacity as figured by the Bureau of Mines. The industry in 1950 achieved the highest annual utili zation factor in more than a decade with output of about 72 percent of theoretical capacity. Neverthe less, this was substantially below the national aver age of 87 percent as shown by the accompanying chart. PORTLAND CEM ENT PRO D UC TIO N 4TM.Q m il. U.S. M IL. OF $ or $ The percent of District mill utilization has been below the United States average every year since 1931. This is the result, in part, of the marked ex pansion of capacity that took place in this area in the 1920’s. It may also be due to the age of certain mills and the failure of their local markets to m ain tain or equal anticipated rates of demand envisioned when the mills were originally constructed. Steadily advancing freight charges have also reduced the areas which given mills can serve on a competitive basis. An industry that has been slowly increasing its rate of operations in recent years might be expected to be, at the very least, eliminating marginal pro duction facilities. This has happened—some facilities have been taken out of service. However, these have been more than offset by expansion at other loca tions with the net result that District total capacity, which amounted to 25.8 million barrels in 1945, rose 8 percent to 27.9 million barrels by the end of 1950. over-all rise in capacity has masked some interesting changes at individual mills which were disclosed in a recent survey made by the Research Departm ent of this bank. O f the 14 cement mills located in the District, only four have the same capacity as in 1945, five have expanded operations, and five others have contracted their production facilities. The five mills that have dropped capacity in the last five years averaged a 15 percent decline with the range between 7 and 23 percent. O n the other hand, the mills which expanded facilities had an average increase of 48 percent. The increases C ap a city CAPACITY U TIL IZA TIO N 1935-1950 / / ft #/ P h / /T r ✓ \\ \\ \V t \ y J / _J 1913 1 1 1 - — 1 ..J.. 1 1 — J— 1 1 — — __ __I— — L - L . l - t . 1918 1923 1928 FOURTH D IS T R IC T SCALE ft i __1 — 1 4 __1 — 1933 n \ ji r \ riV / 1938 J J 1943 . . . there has been no postwar let-down in cement mill activity. New production records have been established each year since 1947, in the Fourth District as well as the country as a whole. . . . utilization of capacity has crept up in recent years in this District, but has failed to match the national gain. Source: Bureau of Mines Source: Bureau of Mines September 1, 1951 Monthly Business Review ranged from 25 to a maximum of 78 percent. In addition, one of these operators was closed down completely in 1945 because of a lack of sufficient orders to operate, but is now back in full production with new additional facilities. At least five District mills are currently in the process of further raising productive ability through a wide variety of programs. One company is in creasing its storage area so that it can continue oper- Page 7 CEMENT PR O D UC TIO N PER MAN H O U R CHANGES A T F O U R TH DISTR IC T CEMENT MILLS * 1945-1950 Rotary Kilns Number Average Less than Length 100' 100'-125' 126'-149' 150'-199' 1945 1950 141' 142' —0— —0— 45 41 —0— —0— 200' and up TOTAL 7 7 19 19 71 67 Rotary Kilns Distribution Less than 100' 100'-125' 1945 1950 0 —0— 126'-149' 150'-199' 200' and up 27% 29% 10% 10% 0 —0— 63% 61% TOTAL 100.0% 100.0% Capacity BY PROCESSES 000’s bbls. Distribution Wet Dry Wet Dry TOTAL 000’s of bbls 1945 1950 22,604 24,673 12,733 14,883 9,871 9,790 + 9% + 17% 44% 40% -1 % % Change 56% 60% NUM BER OF PORTLAND CEMENT PLANTS * by size groups Estimated annual capacity, bbls.: United States 1949** Fourth District 1950 No. of Percent No. of Percent plants of total plants of total Less than 1,000,000 .. . 1,000,000 to 2,000,000 2,000,000 to 3,000,000 3,000,000 to 10,000,000 T O T A L .................. 26 87 28 11 152 1 10 2 1 14 17% 57 19 7 100% 7% 72 14 7 100% CAPACITY OF PORTLAND CEMENT PLA N TS* by processes Process W et................ D ry ................ T O T A L .. Capacity (000’s of barrels) U. S. 1949** District 1950 139,169 119,779 258,948 14,883 9,790 24,673 Percent of total U. S. District 54% 46% 100% 60% 40% 100% * Fourth District data in these tables were obtained from 14 mills located in the Fourth Federal Reserve District. Production data used in the text material were obtained from reports published by the Bureau of Mines for their territories of Ohio, Western Penn sylvania and West Virginia. This includes all of the Fourth Dis trict plus production from West Virginia mills outside of the District with an additional rated capacity of 3,241,000 barrels. ** U. S. Bureau of Mines. provements and nearer-to-capacity operations have been the major factors. Source: Bureau of Mines Years 1947, 1948, 1949, and 1950 are estimated. ating its kilns and grinding machines steadily through the normally dull winter demand period and store the excess production. Another company will step up output by converting from the wet to the dry process. Another is renovating its kilns to increase efficiency and adding to its grinding capacity. The fourth company has dismantled an old kiln and will replace it with a more efficient and somewhat larger unit. These various construction plans will raise Dis trict rated capacity by at least 600,000 barrels in 1951 and another 250,000 barrels in 1952. An im portant producer has a 2,000,000-barrel expansion program in the talking stage but as yet has not made any definite commitments. Output Cement mills have gradually been Per M an hour improving their efficiency to meet ever-rising costs. One measure of this trend is cement production per m an hour and is shown on an accompanying chart. Perhaps the most im portant factor influencing man-hour productivity is the rate at which a mill is being operated. Operations have become so mech anized that as operations move up toward 100 per cent of capacity the increases are achieved with a less than proportional in-put of m an hours. This tendency is clearly shown by the chart. The sharp dips in productivity occurred during periods of re stricted output but rose markedly as total production increased. There has also been, of course, a gradual increase in output per man hour over the years due to the development of more efficient methods and machin ery and improved materials handling devices. These have been applied all the way from the quarry or slag pile to the clinker grinding machines and load Page 8 Monthly Business Review ing docks. The construction of new and more effi cient plants, modernization of existing properties, and abandonment of obsolete mills have all played a part in raising the industry’s average m an-hour output. But the sharp year-to-year fluctuations shown by the chart are due to changes in the gen eral rate of production. Considering the close relationship between rates of operation and output per m an hour, it is not surprising to find that output per man hour at Dis trict mills has been below the United States average. This corresponds to the fact that District operations September 1, 1951 as a percent of theoretical capacity have also ranged consistently below the United States average. Per haps another contributing factor is that all of the District mills except two operate their kilns entirely with powdered coal. One company supplements its coal with by-product furnace gas and the other uses some oil. Coal makes for larger labor requirements as preparing it for burning takes more m an hours. The national trend, especially in the Southwest and Far West, has been toward higher and higher utili zation of natural gas and fuel oil which can be handled with a minimum of labor. CREDIT RESTRAINT (C O N T IN U E D F R O M P A G E 5) nondefense purposes was reported to have declined some $350 million in the same period. In the Fourth District also, defense and defense-supporting loans were reported to have increased substantially during a similar period of time, but nondefense loans de clined only slightly. In interpreting these figures, however, certain con siderations should be borne in mind which tend to modify the extent to which the defense program appears to have been the direct cause of a continua tion of the loan expansion. Under the present sys tem of classification, a loan to a steel firm, for example, is considered to be “defense-supporting” because of the basic dependence of the rearmament program on an adequate supply of steel, regardless of whether the plans of the firm were made prior to the outbreak of hostilities in Korea. Such a loan, although defense-supporting, is not directly attri butable to the defense program itself. Furthermore, the reports tend to understate the volume of repay ments, since transactions involving less than $50,000 are excluded. Since repayments are frequently made in smaller units than loans, it is probable that part of the repayments on a loan of, say, $200,000 might be in units of less than $50,000, and such repay ments consequently would not be included in the reported figures. As a result, the net increases in loans which have been reported chiefly in the de fense or defense-supporting categories are probably overstated, and the net decreases (chiefly in non defense categories) are probably understated. The most recent data show net increases in the amount of outstanding business loans incurred for nondefense inventory and working capital pur poses. Prior to August, loans for this purpose were the m ajor contracting factor both for the national and Fourth District sample of banks. An accompanying table indicates the net changes reported in business loans by industry or business groups. As might be expected in view of the increase in defense and defense-supporting loans, net borrow ing by producers of metals and metal products was the m ajor expansionary factor both nationally and in the Fourth District. Prior to mid-August, such loans had risen sharply in every week for which data are available for Fourth District banks, but since then the rate of expansion appears to have slowed down. An increase of about $90 million was also reported for the textiles, apparel and leather category for the banks throughout the nation, but in this District new borrowing by such firms has comprised only a small part of the total with virtually no net change in the volume of such loans outstanding. Public utility borrowing is reported to have contributed substan tially to the increase in loans both nationally and in the Fourth District. A m ajor contracting factor in the period under review has been loans to commodity dealers, down more than $200 million at all reporting banks. Such loans declined in this District also until late July when a sharply expanded volume of new borrowing offset the earlier reductions. Loans to food, liquor and tobacco manufacturers declined $224 million (net) in May, June and July, but in recent weeks net increases have been reported in these loans also. Both locally and nationally, bank debt of wholesalers and retailers combined shows a net decline for the three months as a whole, but in the latest weeks for which figures are available, substantial net new borrowing has been reported. T he largest volume of repayments to Fourth District banks for any single business classification was reported for sales finance companies, resulting in a net decline of $21 million in their indebtedness, whereas nationally, new bor rowing and repayments by such firms were virtually in balance. Securities O ther Than Federal T he other m ajor component of bank credit for which the Volun tary Credit Restraint program is September 1, 1951 Monthly Business Review the only selective instrument of restriction is that credit extended through bank purchases of corporate and state and local government securities. Bank holdings of these securities have expanded much more slowly in 1951 than they did last year. By late August, investments in such securities by weekly reporting banks throughout the country showed a net increase of approximately $100 million, in con trast to a $1 billion expansion in the same period of 1950. Moreover, the small gain this year occurred in the early months, and since mid-April no net change has been registered. The curtailment of bank activity in this field took place in the face of a sub stantially higher volume of new capital flotations in M arch, April and M ay of this year than in the cor responding months of 1950. Although holdings of non-U. S. Government securities by reporting banks in this District registered a net gain during the first half of the year similar to that of 1950, by Sep tember this expansion was wiped out and the port folio stood at virtually the same figure as at the end of last year. Expansion in Of great prominence in the Real Estate 1950 inflation was the recordLoans Slow s Down breaking growth in mortgage loans. In addition to the more than $3j/2 billion increase in real estate loans at banks throughout the country, savings and loan associations reported a gain of more than $2 billion and life insurance companies an increase of $3 billion in their mortgage holdings during the year. In this District also, record increases in mortgage loans were reported by banks and savings and loan associChart V INCREASES IN REAL ESTATE LOANS First half of year, 1946 — 1951 Weekly Reporting Member Banks, U. S. . . . the expansion of real estate loans at reporting banks throughout the country in the first half of 1951 was less than in the comparable period of any other postwar year except 1949. • Partially estimated. Page 9 ations. Regulation X was imposed in October last year and subsequently broadened in scope with a view to imposing restraints on the growth of credit, to moderating the boom in real estate and to reducing the volume of building. The full effects of Regulation X and the compan ion regulations of the Federal Housing Administra tion and the Veterans Administration were not felt immediately. M any lenders had large volumes of commitments outstanding at the time the regulations were imposed and these loans were, of course, exempt from the restraints of the regulations. As a conse quence, the restrictions have become effective only gradually as new commitments or loans have been made. While the regulations have undoubtedly had some restraining effect on the growth of credit, it is pretty clear that the most im portant factors have been the decline in prices of U. S. Government securi ties and the increases in money rates which accom panied the changes in the monetary and debt management policies of the Federal Reserve System and the Treasury last M arch. The sale of govern ment securities at lower prices in order to lend the proceeds on mortgage loans involves an initial loss which makes the transaction much less attractive to the lender. The rise in money rates has made U. S. Government securities and other alternate forms of investment more attractive. As a consequence, lend ers have become much less interested in lending on mortgages at 4% or 4 l4 % — the rates for VA and FH A mortgages— and rates on so-called conventional mortgages have tended to rise. The tightening of money and the slowing down of expansion in the real estate mortgage field are undoubtedly due in part to the regulations, but for the most part reflect the interrelationships existing in the money market and illustrate the m anner in which changes in Treasury debt management and in Federal Reserve open market policies are trans lated into restraints on inflationary forces. All types of lenders reveal a slowing down in the growth of their mortgage loan portfolios, particularly in VA and FH A mortgages. At banks, the expan sion in real estate loans in the first half of 1951 not only was substantially less than in the second half of 1950, but (as indicated in Chart V ) was smaller than in any other first half year of the postwar period except 1949. O n September 1, legislation was enacted modify ing the terms of Regulation X for the extension of credit on homes of $12,000 or less. The law extends the maximum maturity of a loan on a new home selling for more than $7,000 but less than $12,000 to 25 years and liberalizes the down-payment re quirements for houses in this price range. M inimum down-payments specified in the law compared with those prescribed in the then prevailing regulations are shown in the following table: Page 10 M inim um Down-Payment Permitted Value of Family Unit September 1, 1951 Monthly Business Review By Old Regulation By New Act VA Loans $250 Up to 7.1% 7.1%-13.0% 13.0%-15.8% $7,000 or less*........ $7,000-$10,000....... $10,000412,000.... FHA and Conventional Loans 10.0%-17.1% 10% 17.1%-23.0% 15% 20% 23.0%-25.8% | M inimum Down-payment Reg. W Def. Prod Act Type of Instalment Credit $5,000 or less.......... $5,000-$7,000......... $7,000-$10,000....... $10,000412,000.... * Where the value of the family unit is lation does not apply. Effect of Revised Defense Production Act on Regulation W 4% 6% 8% 2,500 or less, the Regu- To maintain conformity with the revised schedules of minimum down-payments on family units costing $12,000 or less prescribed by law, the Board of Governors modified slightly the down-payment re quirements on family units costing up to $24,500. In addition, the law suspends restrictions on credit in “critical defense areas” on housing costing up to $12,000 or renting under $84 a month, and provides that the President may order relaxation of the credit restraints on higher priced housing in such areas. Automobiles................. Household Appliances (incl. TV and radio) Furniture and floor coverings................... Home repairs and improvements........... Maximum Maturity Reg. W Def. Prod. Act 33 14% 33J^% 15mos. 18mos. 25 % 15 % 15 mos. 18mos. 15 % 15 % 15 mos. 18 mos. 10 % 10 % 30 mos. 36 mos. In addition, the down-payment for any of the three categories of consumer durable goods can now be made completely in the form of a trade-in allow ance on such items as used automobiles, appliances or furniture. As with the liberalization of Regula tion X on home purchases, no evidence is as yet avail able to indicate the extent to which these relaxations of credit restraints will add to the demand for bank credit. N et Change in Commercial and Industrial Loans By Purpose of Loan (Reporting banks: U. S. and Fourth District) NET CHANGE May 9-Aug. 1 Purpose of Loan U. S. Fourth District (in millions of dollars) Consumer instalment credit reflected conspicuously the wave of war-scare buying last summer. From the end of June to the end of October (1950) the volume of these credit balances increased by $1,300,000,000. The growth was retarded by the imposition of Regu lation W in September and the subsequent tighten ing of the terms of the Regulation in October. Leveling off in the last quarter of 1950, consumer instalment credit outstanding declined moderately throughout the first four months of this year, partly as a result of seasonal influences. A subsequent slight rise since April in instalment loans appears to have been of less than the usual seasonal proportions. According to commercial bank figures, the shrinkage was most pronounced in instalment credit for the purchase of consumer durable goods other than auto mobiles, reflecting the slowdown in sales of such articles as television sets and major household appli ances. Automobile credit and repair and moderniza tion loans also declined slightly, but personal instal ment cash loans continued to expand. Similar developments in the various categories of instalment credit have been apparent at Fourth District banks. The shrinkage in instalment credit resulted partly from an increase in the rate of repayments and partly from a decline in the volume of new credit extended. The revised Defense Production Act, enacted July 31, 1951, established certain limits on terms which were easier than those specified in Regulation W. The principal changes were as follows: Consum er Loans Defense Contracts................. Defense-Supporting +$248 +$20 Plant and Equipment....... All O ther............................ + 204 + 52 + 30 + 11 — 404 + 95 — 20 + 9 + - —0— + 6 Nondefense Inventory and Working Capital............................ Plant and Equipment........ Retirement of Nonbank Debt and Preferred Stock . . . . All O ther............................ 19 55 Net Change in Commercial and Industrial Loans By Business of Borrower (Reporting banks: U. S. and Fourth District) NET CHANGE May 9-Aug. 1 r, ■ , Business of Borrower XI. S. Fourth District (in millions of dollars) Manufacturing and Mining Food, Liquor and Tobacco Textiles, Apparel & Leather Metals & Metal Products.. Petroleum, Coal, Chemicals and Rubber.................... Other Manufacturing & Mining............................ Trade—Wholesale and Retail Commodity Dealers............... Sales Finance Companies_ _ Public Utilities....................... All O ther................................ —$224 + 93 + 328 —$3 — 1 +60 + 10 — 7 + 77 — 151 — 206 — 11 +280 + 39 +16 —10 + 2 —21 +15 +4 September 1, 1951 Page 11 Monthly Business Review FIN AN CIAL AND OTHER BUSIN ESS STATISTICS Time Deposits* at 54 Banks in 12 Fourth D istrict C itie s Bank Debits*— July 1951 in 31 Fourth D istrict Cities (C o m p iled A ugust 7 a n d released for publication A ugust 8) (C om piled A ugust 10 a n d released for pub licatio n A ugust 11) ____________________________ (In th o u sa n d s of dollars)___________________________ N o. of % C h an g e 3 M o n th s % C hange R ep o rtin g J u ly from Ended fro m B an k s 1951 Y e a r A go J u ly 1951 Y e a r Ago 181 A L L 31 C E N T E R S ............. *9,326,179 + 1 9 .4 % *28,743,161 + 22.4% 10 L A R G E S T C E N T E R S : 5 A k ro n ................................ O h io 367,866 + 3 2 .4 % 1,137,454H + 48.7% 5 C a n to n .............................. O h io 149,318 + 1 9 .5 447.446H +19.9 14 C in c in n a ti........................ O h io 1,177,810 + 2 0 .8 3.497.692H +18.8 10 C le v e la n d ........................ O hio 2,503,977 + 24.4 7,499,130 +25.2 7 C o lu m b u s ........................ O hio 595,813 + 5.0 1,842,246 + 4.6 4 D a y to n ..............................O h io 311,196 + 19.4 909.583H +19.6 6 T o le d o ...............................O h io 437,720 + 1 4 .7 1,361,376 +21.2 4 Y o u n g sto w n .....................O h io 196,860 + 1 2 .7 632,159 +21.8 5 E r ie ....................................... P a . 110,850 + 9.8 353.766H +19.4 44 P itts b u r g h .......................... P a . 2,702,054 + 21.2 8,658,904 + 26.0 104 T O T A L .................................. *8,553,464 + 20.4% *26,339,756 + 23.1% 21 O T H E R C E N T E R S : 9 C o v in g to n -N e w p o rt....... K y . * 45,504 + 1.5% * 139,278 + 5.6% 6 L ex in g to n ...........................K y . 62,208 + 6.3 185,213 + 4.9 3 E ly r ia ................................O hio 26,465 + 16.7 82.728H + 26.0 3 H a m ilto n ..........................O hio 51,104 +23.1 153.899H + 21.0 2 L im a ..................................O hio 61,317 + 16.7 181.785H +23.9 5 L o ra in ................................O hio 22.393H +22.9 65.551H +19.4 4 M an sfield ......................... O h io 50,829 + 0.9 166,500 + 14.6 2 M id d le to w n ..................... O hio 50,647 + 2 8 .2 153.226H +31.9 3 P o r ts m o u th .....................O h io 23,925 + 9.1 73,213 +13.9 3 S p rin g field ....................... O h io 51,629 + 8.7 161,368 + 14.6 4 S te u b e n v ille .................... O hio 26,611 + 4.2 83,684 +14.3 2 W a rre n .............................. O h io 48,259 + 14.4 159,422 +25.1 3 Z a n esv ille.........................O h io 30,223 + 3.3 97,255 +12.3 3 B u tle r ................................... P a . 35,124 + 6.7 113,706 +13.9 1 F r a n k lin .............................. P a . 7,211 — 2.8 24,032 + 7.5 2 G reen sb u rg ......................... P a . 25,558 + 11.4 78.444H +15.3 11,845 + 8.1 37,181 + 20.3 4 K itta n n in g .......................... P a . 3 M e a d v ille ............................P a . 14,728 + 6.0 46,668 + 8.0 4 O il C it y ............................... P a . 19,669 — 7.8 61,106 + 0.4 5 S h a ro n ..................................P a . 33,553 + 12.1 107.114H + 22.3 6 W h e elin g .......................W . V a. 73,913 + 5.3 232,032 + 14.4 77 T O T A L .................................. * 772,715 + 9.7% * 2,403,405 + 16.0% C ity an d N u m b e r of B an k s A verage W eekly C hange D uring: J u ly Ju n e J u ly 1951 1951 1950 T im e D ep o sits J u ly 25, 1951 C lev elan d (4)..............$ 880,777,000 P itts b u rg h (9)............ .....495,294,OOOH C in cin n ati (7)............. .....175,510,000 A kron (3 )..........................100,020,000 +$ + — + 721,000 244,000 58,000 50,000 T o led o (4).........................108.176.000H C olum bus (3 )...................87.233.000H Y oungstow n (3)......... .....62,715,000 D a y to n (3 ).................. .....46,104,000 + + + 81,000 119,000 131,000 128,000 C an to n (5)................... .....42,461,000 E rie (3 )..............................41,618,000H W h eeling (5)............... .....26,494,000 Lexington (5).............. .....11,136,000H +*1,520,000 + 1,673,000 — 164,000 + 46,000 + 242,000 — 2,000 79,000 — — — — 24,000 138,000 38,000 149,000 62,000 42.000 — + 105,000 25,000 —0 .. 64,000 + 101,000 + 80,000 104,000 34.000 30.000 T O T A L —12 C itie s ..12,077,538,000H — 11,637,000 + 254,000 — 313,000 — 468,000 + +*1,664,000 10.000 58,000 — +$3,647,000 — $2,657,000 H —D en o tes new a ll-tim e h ig h . T im e d ep o sits a t rep o rtin g b an k s in 12 F o u rth D is tric t cities increased for th e fo u rth successive m o n th during J u ly a t an av e ra g e w eekly r a te of *1,664,000 to e s ta b lis h a new a ll-tim e h ig h . In t h e th r e e p rior y ears, tim e deposits declined during J u ly , w ith p a rtic u la rly h e a v y n et w ith d ra w a ls a t a r a t e of *2,657,000 per w eek being re p o rte d in t h is m o n th of s care-buying la s t year. E v e r y c i t y rep o rte d a gain in tim e d ep o sits except Cincinnati, a n d th e av e ra g e w eek ly decline of *58,000 th e re w as n o tic e a b ly sm a lle r th a n in t h e sam e m o n th of th e th r e e previous y ears. Pittsburgh, Toledo a n d Lexington, w here gains h a v e been rep o rted in alm o s t ev e ry m o n th th is y ea r, a d v a n ced to new a ll-tim e h ig h s for th e second successive m o n th , th o u g h in ea ch c ity th e r a te of in crease w as slow er th a n in June. Columbus an d E rie also ac h ie v e d new reco rd s, h av in g show n greater-th a n -av erag e s tre n g th th ro u g h o u t th e p o st-K o rean p eriod. T h e inflow of savings to Cleveland b an k s a t th e r a t e of *721,000 per w eek w as in m a rk e d c o n tra s t to th e n e t w ith d ra w a ls w h ich h a v e ty p ifie d J u ly in ea rlier post w ar y ea rs. F o r th e firs t tim e th is y e a r, ag g reg a te tim e deposits of th e four reporting b an k s in C lev elan d w ere h ig h e r th a n a t th e end of 1950, and in excess of th e yearago figure. Adjusted W eekly Index of Department Store Soles* Fourth District (Weeks ending on dates shown, 1935-39 average3 100) 1951 1950r 7,, 14 21 28 ..278 ..310 ..320 ..308 Jan. F eb . 4 11 18 25 , ..293 ..308 ..279 ..265 Mar. 4 11 18 25 ..258 ..279 ..264 ..263 1 8 15 ..285 ..279 ..262 ..283 ..334 Jan. Apr. n 29 fi « 13 20 27 425 412 443 398 Feb. 3 10 17 24 ..287 359 ..354 365 Mar. 3 10 17 24 31 302 293 266 251 293 Apr. 7 14 21 28 1 8 15 22 29 ...354 388 418 Aug. 5 12 19 26 374 344 330 323 Sept. 2 9 16 23 30 295 324 345 318 335 July 297 311 323 358 ..299 ..296 ..299 ..295 May 13 20 27 June 1951 1950r 5 12 19 26 336 312 313 312 3 10 17 24 ..295 ..314 ..309 ..306 June 2 9 16 23 80 309 311 304 312 325 327 m July 7 14 21 28 ...3 1 4 ...3 3 0 ...3 2 5 ...3 1 5 Aug. 4 11 18 25 ...3 1 4 ...3 0 9 ...3 1 0 ...3 1 5 Sept. 1 8 15 D ec. 29 6 13 20 27 297 307 287 298 4 11 18 25 280 281 288 221 3 10 17 24 ? , 195 328 334 314 342 1 8 15 9 16 23 30 n 29 * A d ju sted for seasonal v a ria tio n a n d n u m ber of tra d in g d ay s. B ased on sam ple of w eek ly rep o rtin g s to res w h ich differs slig h tly from sam ple reporting m o n th ly . Indexes of Department Store Sales and Stocks n 7 14 21 28 N ov. * D e b its to all d eposit acco u n ts except in te rb a n k balances. H — D enotes all-tim e h ig h . D e b its to d ep o sit acco u n ts (except in te rb a n k ) in 31 F o u rth D is tric t cities during J u ly d eclined from th e a ll-tim e h ig h reg istered in Ju n e to th e second lo w est m o n th ly to t a l th is y e a r—*9,326,179,000. I t is n o t unusual, ho w ev er, for J u ly d e b its to fall s h o rt of th e June figure, a n d la s t m o n th ’s vo lu m e of d e b its w as still la rg e enough to s e t a new reco rd for th e m o n th , 19.4% a b o v e th e year-ago figure. T h e fact t h a t th is m a rg in w as th e s m a lle s t in tw e lv e m o n th s reflects th e slow ing dow n in th e ra te of expansion of in d u s tria l a c tiv ity in recen t m o n th s. W ith d eposits rising s lig h tly to re g iste r a new all-tim e h ig h for th e fo u rth suc cessive m o n th , th e r a te of tu rn o v e r d ipped to 13 tim e s per y e a r from th e reco rd p o st w ar r a t e of annual tu rn o v e r of 14 in June. TE N LA RG EST CENTERS D e b it vo lu m e a t each of th e la rg e cen ters except Dayton w as low er d uring J u ly th a n in th e previous m o n th , following th e p a tte rn of recen t y ears. A kron le d in y ea r-to -y ear com parisons for t h e fifth tim e t h is y e a r w ith a gain of 32.4%, w h ile C leveland, P ittsb u rg h an d Cincinnati also r e g iste re d increases of m o re th a n 20%. A gg reg ate d e b its for th e p a s t th r e e m o n th s co m b in ed fell slig h tly below th e reco rd second q u a rte r to ta l, a lth o u g h fiv e citie s p o sted new a ll-tim e h ig h s for th e th r e e m o n th period. T W E N T Y -O N E S M A L L E R C E N T E R S T h e decline in d e b its a t th e sm a lle r ce n ters from Ju n e to J u ly w as s h arp er th a n in a n y e a rlier p o stw ar y e a r, an d re s u lte d in a y e a r-to -y ear m a rg in of 9.7%, th e sm all e s t since before th e K o rean o u tb re a k . Lorain w as th e only ce n ter to re g iste r a h ig h e r vo lu m e of d e b its in J u ly th a n in Ju n e, a n d th e gain w as sufficient to e s ta b lis h a new all-tim e h ig h , exceeding th e pre vious seasonal reco rd of D ecem b er 1948. T h e y e a r-to -y ear in crem en t for L orain, 22.9%, w as b e tte r e d b y H am ilto n a n d M iddletow n, an d a ll th r e e cities, to g e th e r w ith E ly ria, L im a, G reensburg a n d Sharon re g iste re d a ll-tim e h ig h s in ag g reg a te d e b its for th e p a s t th r e e m o n th s co m b in ed . J u ly w as th e f irs t m o n th since M a y 1950 in w h ich a m a jo rity of th e s m a ll cen ters p o sted y ea r-to -y ear gains of less th a n 10%. D a ily A v erag e for 1935-1939= 100 A d ju ste d for W ith o u t S easonal V ariatio n S easonal A d ju stm e n t J u ly Ju n e J u ly J u ly Ju n e 1951 1951 1950 1951 1951 SALES: A k ro n (6 )............................... 341 C an to n (5)............................. 375 C in cin n ati (8)....................... 326 C le v ela n d (11)..................... 274 C o lu m b u s (5)........................ 358 E rie ( 4 ) .................................. 371 P itts b u r g h (8)...................... 276 Springfield (3)...................... 294 T o led o (6).............................. 307 W heeling (6).......................... 258 Y oungstow n (3)................... 371 D is tric t (98).......................... 309 S TO C K S* D is tr ic t................................... 349 J u ly 1950 306 400 280 280 315 381 283 279 291 247 366 306 393 449 386 318 409 420 332 321 353 309 413 364 286 315 251 222 286 289 199 238 237 196 282 241 287 384 261 266 302 347 275 271 270 227 344 287 330 377 298 257 327 328 239 260 272 235 314 284 361 252 348 355 251 Page 12 Monthly Business Review September 1, 1951 Ultrasonics—A New Tool For Industry by CLYDE WILLIAMS, Director, Battelle Memorial Institute During World War II, use of high-frequency s o u n d waves, or ultrasonics, was a key factor in the detection of enemy submarines. Since that time, we have learned more about how ultrasonics can be used, not only in attack on sub marines, but also in attack on quite a few of the problems of industry. As we learn of more industrial processes that may benefit from the use of ultrasonic energy, and as lower-cost equipment for producing it becomes available, the number and variety of industrial applications will increase. “Silent” sound, as ultrasonic energy is often called, refers to sound waves with frequencies of vibration higher than the human ear can hear, or above about 16,000 cycles per second. The term “supersonic”, formerly used inter changeably with “ultrasonic”, now refers usually to speed only — speeds greater than the speed of sound. Super sonic airplanes, for example, travel at speeds over 700 miles per hour. High-frequency sound waves may be directed in narrow or broad diffuse beams. As the energy passes through a given material, the effects vary according to the composi tion of the material and the frequency and power of vibrations. Stable mixtures can be produced from nor mally non-mixable liquids like oil and water, or mercury and water. Large solid particles may be reduced to dust. Small particles of liquids and solids can be removed from a gas stream by causing them to collect together. Many chemical reactions are speeded up in the presence of ultrasonic radiation. High-powered sound waves can be used to remove gas from most liquids. The production of heat by ultrasonics has been used in physical therapy, where effects differ from those obtainable with X-ray, infrared or diathermy. Ultrasonic vibrations can also kill bacteria. It would be difficult to think of an industry that might not benefit from the use of high-frequency sound waves. Some present and potential applications include inspec tion of materials for internal flaws; removing water dur ing soap-making; causing smoke particles to drop out of exhaust gases before discharge from chimneys; drying paper during manufacture; high-speed dyeing of fabrics and plastic materials; recovering fine metallic dust lost in smelting operations; removing dirt in laundering; age ing liquor; sterilizing foods; and processing of leather and ceramic materials. Perhaps the most widely accepted use of “silent” sound in industry has been in testing metals and metal products for hidden flaws that may lead to failure. A narrow beam of very high-frequency ultrasonic energy will penetrate some metallic materials with thicknesses up to 40 feet or Editor’s Note — W hile the views expressed on this page are not nec essarily those of this bank, the Monthly Business Review is pleased to make this space available for the discussion of significant develop ments in industrial research. more. Any flaws in the beam’s path will be reflected on the measuring instrument. Items tested may range from locomotive axles and rails, to submarine hulls, gun bar rels, turbine blades, bolts, and sheet and bar stock. At Battelle, where an extensive laboratory for research in nondestructive testing is maintained, we find that this application of ultrasonic energy is playing an important part in reducing costs. Today, American industry is using nondestructive testing equipment to test and inspect bil lions of dollars worth of materials, parts, and assemblies. Used in the production process, as well as in preventive maintenance, nondestructive testing has also brought added safety to many phases of military and civilian life. One of the newest applications of high-powered sound waves is as a tool for drilling and marking hard or brittle material, like carbides, glass, and ceramics. These are almost impossible to work in any other way. Another ultrasonic device, also of recent development, helps paper mills cope with the problem of polluting streams with wastes. By shooting a beam of high-intensity sound at fiber-bearing waste water, tiny bits of fiber too small to be picked up by screening are easily removed. The high cost and low output of equipment for pro ducing ultrasonic energy have been factors lim iting its wider use by industry. T his situation is changing, how ever, as a result of several outstanding developments of recent years. Through greater production by a number of companies, it has been possible to bring the price of some crystal transducers down from about $1000 to around $250. This type of equipment, probably the best known for generat ing ultrasonic waves, converts electrical energy into ultra sonic energy through the use of such crystals as quartz and Rochelle salt. These crystals are capable of changing electrical vibrations into mechanical vibrations and vice versa. N o more expensive than natural crystals is a new ce ramic material, barium titanate, which is now being used for generating high-powered sound waves. T his synthetic material can be formed into a variety of sizes and shapes that would be costly to make from natural crystals like quartz. T he new ceramic also provides power substantial enough for practical use with voltages low enough for easy handling. Barium titanate equipment has proved especially useful in the production of ultrasonic waves in liquids. It may, therefore, find wide usage in the chemi cal processing industries. The “building blocks” are here. It is now possible to investigate and properly evaluate the application of ultra sonic energy to industrial processes on a pilot-plant scale. On the “test-tube basis” of former years, this was not possible. Ultrasonic energy has become recognized as a scientific tool useful to industry. Tw o important jobs, however, remain to be done. T he first of these is to extend the number of industrial processes than can benefit from the use of ultrasonic energy. T he second is to continue de vising improved higher-power generating equipment, at lower cost, so that a greater range of applications can be made economically worth while.
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