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SEPTEMBER 1968 IN THIS ISSUE G row th and Com position o f Governm ent Sp e nd in g, 1 9 5 8 - 1 9 6 7 3 Regional Patterns of Industrial Activity and Freight Transportation in the United States . . 1 2 FEDERAL RESERVE BANK OF CLEVELAND Additional copies of the E C O N O M IC REVIEW may be obtained from the Research Department, Federal Reserve Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio 44101. Permission is granted to reproduce any material in this publication. SEPTEMBER 1968 GROWTH AND COMPOSITION OF GOVERNMENT SPENDING, 1958-1967 In recent years, the growth of government be some quarrel with the possibility that gov spending has received a great deal of atten ernment spending over the next ten-year tion. C oncern over the growth of Federal period will increase at the same rate. This spending, in particular, was a major issue in article attempts to put government spending the controversy about the imposition of a in perspective. The article examines the major Federal incom e tax surcharge. The surtax growth areas within government spending was finally passed with the condition that during the 1 9 5 8 -1 9 6 7 period (calendar year) spending in the fiscal year 1 9 6 9 budget and analyzes the changing patterns in gov would be reduced by $ 6 billion. It should be ernment spending. noted, however, that some major exemptions were provided in this legislation so that the total net reduction from the lanuary budget estimate may be less than $ 6 billion. GROWTH OF EXPENDITURES Although total government spending ex panded markedly in the last decade, the There is little quarrel with the fact that growth rates of spending at Federal and state aggregate dollar expenditures (National In and local levels varied widely. As shown in come Accounts basis) at all levels of govern Table I, total government expenditures rose ment (Federal, state, and local) have risen by $ 1 1 4 billion during 1 9 5 8 -1 9 6 7 , or at an rapidly in recent years. For example, in ca l average annual rate of 7 percent. The Federal endar year 1 9 6 7 , total government spending Government accounted for about two-thirds amounted to $ 2 4 1 billion, in contrast to $ 1 2 7 ($ 7 4 .7 billion) of the dollar growth in total billion in 1 9 5 8 , representing an increase of government spending. In relative terms, how 8 9 .6 percent. O n the other hand, there may ever, state and local level expenditures grew 3 ECONOMIC REVIEW TABLE I C h a n g e s in G overnm ent Expenditures Between C a le n d a r Y e ar 1958 an d 1967 A ve rage Annual Rate of Growth 19 5 8 -1 9 6 7 Current Dollars (Bil. o f $) Current Dollars 1958 Dollars Per Cap ita 1958 Dollars 1958 1967 Change 19 5 8 -1 9 6 7 Total go ve rn m e n t......................... $127.2 $241.2 $114.0 7 .0 % 4 .5 % 3 .0 % F e d e r a l....................................... 88.9 163.6 74.7 6.6 4.2 2.5 State and l o c a l * ......................... 38.3 77.6 39.3 8.1 5.3 3.5 Total g o ve rn m e n t......................... 94.2 178.4 84.2 7.1 4.2 2.7 F e d e r a l....................................... 53.6 90.6 37.0 5.5 3.2 1.8 State and l o c a l f ......................... 40.6 87.8 47.2 8.9 5.4 3.7 Total go v e rn m e n t......................... 32.1 61.3 29.2 6.8 5.4 3.8 F e d e r a l....................................... 26.9 52.5 25.6 7.0 5.6 3.8 State and l o c a l f ......................... 5.2 8.8 3.6 5.6 4.2 2.5 G N P .............................................. $447.3 $789.7 $342.4 6 .5 % 4 .7 % 3 .2 % Total Expenditures Purchases o f G o o d s and Services Transfers NOTE: Data are on a National Income Accounts basis. Government subsidies less the current surplus of government enterprises must be ad d e d to purchases and transfers in order to equal total expenditures. * Excludes Federal grants-in-aid. f Includes Federal grants-in-aid. Source: U. S. Department o f Commerce more rapidly than Federal Governm ent ex- period, although the measurement of the penditures. During 1 9 5 8 -1 9 6 7 , Federal ex- amount is obviously subject to more diffi- penditures rose at an average annual rate of culties than in other sectors. W hen expressed 6 .6 percent, compared with 8.1 percent for in 1 9 5 8 dollars, total government expendi- state and local spending. Much of the growth in government expen- tures increased at an average annual rate of 4 .5 percent, in contrast to 7 percent in cur- ditures is apparent rather than real, since it rent prices. Similarly, Federal spending grew reflects increases in prices and salaries rather at a 4 .2 percent annual rate in constant than expansion of the actual scope of govern- dollars, and state and local expenditures ment activity. It should be noted that in grew at a 5 .3 percent annual rate, deflating government expenditures, no allow- Constant dollar expenditures, however, will an ce is made for changes in the productivity grow even if new activities are not under- of government workers; as a result, the total taken or past activities are not expanded, increase in wage costs per employee is in Simply providing the same services for an effect taken as a price increase. The likeli- increasing population requires an increase hood, however, is high that productivity of in expenditures. During the period under government workers has increased over this review, total government expenditures in SEPTEMBER 1968 1 9 5 8 dollars, on a per capita basis, grew at an average annual rate of 3 .0 percent, a relatively. In fact, state and local government purchases, in per capita constant dollars, growth rate almost identical to that of Gross grew at an average annual rate twice that of National Product (GNP) in constant dollars, Federal purchases (3.7 percent compared on a per capita basis (3.2 percent). In other with 1.8 percent). Thus, in terms of resource words, when total government expenditures absorption, are deflated for price changes and adjusted showed the greatest rate of growth. state and local governments for population growth, the growth rate of W hile price increases affected almost every government expenditures is virtually identical sector of the economy in recent years, gov with the growth rate of the economy. How ernment purchases of goods and services ever, in per capita 1 9 5 8 dollars, the growth were especially hard hit, as wages and sala of Federal spending was slow er than the ries of public employees were increased sub growth of GNP (2.5 percent average annual stantially in an attempt to catch up with com growth rate com pared with 3 .2 percent). In parable private occupations. For example, contrast, state and local spending grew some in 1967, the GNP deflator for personal con what faster (3 .5 sumption expenditures was 1 1 4 .3 (1 9 5 8 = percent average annual growth rate) than GNP (see Table I). 100), while the deflator for total government A breakdown of total expenditures into the purchases of goods and services was 126.8. major com ponents— purchases and transfers W ithin the government sector, the deflator —gives additional insight into the growth and for Federal purchases was 121.2, and for composition of government spending. Gov state and local government purchases, 133.3. ernment purchases of goods and services In other words, state and local purchases cost absorb resources and represent a net drain on resources otherwise available to the pri 3 3 .3 percent more in 19 6 7 than in 1958, Federal purchases cost 2 1 .2 percent more, vate sector. Transfer payments, on the other and consumer purchases only 1 4 .3 percent hand, represent government activities that more. Despite higher prices, state and local shift resources within the private sector either purchases (in real terms) still increased faster to different individuals (welfare payments) than Federal purchases and the economy as or over time to the same individuals (social security payments). GOVERNMENT TRANSFERS a whole. Governm ent transfer payments1 grew rap GOVERNMENT PURCHASES idly over the past decade, rising by $ 2 9 bil Between 1 9 5 8 and 1967, total government lion, which was a virtual doubling. Nearly all purchases of goods and services increased of the growth in transfer payments occurred by $ 8 4 billion, or at an average annual rate at the Federal level; state and local transfers of growth of 7.1 percent. State and local gov ernments provided the bulk of the increase 1 Total transfer payments include a number of items, such as social security payments, unemployment compensa tion, net interest paid, and veterans' benefits at the in government purchases, exceeding Federal Federal level, and various types of special welfare pay- Governm ent purchases both absolutely and menis at the state and local level. 5 ECONOMIC REVIEW experienced a steady but only gradual in crease. In current dollars, Federal transfers grew at a substantially faster rate (7 .0 percent) than both state and local transfers (5 .6 percent), C h a r t 1. SOURCES of GROWTH in GOVERNMENT EXPENDI TURES B e tw een 1 9 5 8 an d 1 9 6 7 P er cen * t o t a l g o v t . FEDERAL STATE & LOCAL 100 and the economy as a whole (6 .5 percent). However, price increases also inflate transfer payments. To approximate the effect of price changes, transfer payments can be deflated 75 INCR EA SED by the index for personal consumption ex AC T I V I T IE S penditures. After correcting for price in creases, that is, expressing the figures in 50 1 9 5 8 dollars, the growth of Federal transfers P O P U L A T IO N G RO W TH (5 .6 percent) still substantially exceed ed the growth of state and local transfers (4 .2 per cent) . 25 Although total government purchases of HI GH ER PRICES goods and services and transfer payments grew at the same rate in current dollars, the growth rate of transfers exceed ed the growth 0 S o u r c e o f data: Fede ral Reserve B a n k of Clevelan d of purchases after price changes and popu lation growth are taken into account. In fact, after adjusting for price increases and popu in government expenditures from 1 9 5 8 to lation growth, transfer payments were the 1 9 6 7 . Higher prices accounted for nearly fastest growing category of Federal spending. one-fourth of each additional dollar spent, At the state and local level, however, pur while population growth accounted for about chases of goods and services showed more one-sixth of the in crease in expenditures.2 rapid growth than transfers. In fact, both State and local governments incurred sharper total expenditures and purchases by state price and salary increases than the Federal and local governments experienced h ig h e r Government. Consequently, average annual rates of growth than com par acco u n ted for fully one-third of the spend able expenditures at the Federal level. ing increase at the state and local level b e higher prices W hen the in crease in government spend tween 1 9 5 8 and 1967, in contrast to slightly ing between 1 9 5 8 and 1 9 6 7 is explained in less than one-fifth at the Federal level. After terms of higher prices, population growth, population growth is taken into account, 6 5 and increased activities, the sources of growth percent of the in crease in Federal spending in government expenditures are more evident. 2 The expenditure increase attributable to population As shown in Chart 1, increased activities growth assumes that the amount of 1958 per capita ex accounted for only 6 0 percent of the growth penditures is provided to the additional population. 6 SEPTEMBER 196 8 and 5 3 percent of the increase in state and local expenditures represented an expansion 1967, increasing at an average annual rate of 10.5 percent. Expenditures for health and of activities. welfare also rose rapidly, increasing at an GOVERNMENT EXPENDITURES BY FUNCTION average of 8 .7 percent a year. Expenditures As discussed earlier, not all of the increase for general government rose only slightly faster than total expenditures (7.5 percent in government expenditures represents an com pared with 7 .0 percent). Finally, spending increase in the actual scope of government for transportation, largely for highways, grew a ctiv ity — p ric e c h a n g e s and p op u lation at an average annual rate of 5 .4 percent. growth account for a large proportion of the A breakdown of spending for major func in crease in dollar expenditures. This section tions by level of government is presented in exam ines the growth and composition of Table II. At the Federal level, the largest government spending by major function dur dollar in crease in spending betw een 1 9 5 8 ing noted, and 1 9 6 7 was for defense ($ 2 8 .0 billion), expenditure figures refer to total government, 1 9 5 8 -1 9 6 7 . Unless otherwise followed by expenditures for health and wel that is, Federal plus state and local. The spend fare ($24.1 ing totals are in aggregate money terms, that education showed the largest growth rate, billion). Federal spending for is, the totals are not deflated for price in but the starting base was relatively small. At creases or corrected for population growth.3 the state and local level, education accounted Total government expenditures by function for the largest dollar in crease ($ 2 0 .5 billion) during 1 9 5 8 -1 9 6 7 are shown in Chart 2. as well as the fastest growth rate. O ne way of illustrating the priorities of With the exception of defense spending, all major functions increased steadily through out the period under review. In fact, defense spending was virtually constant from 1 9 6 2 until mid-1 9 6 5 , when the Vietnam buildup began to accelera te sharply. For the entire period, the average annual rate of increase of defense expenditures (4.4 percent) was the lowest among the major governmental functions and was about one-half that of total nondefense expenditures (8.4 percent). Within the nondefense sector, education exhibited the most rapid growth during 19583 To be entirely accu rate, deflation of government ex penditures for specific functions (for example, education) would require a separate price index for each function and a determination of the appropriate population base for each function. 7 ECONOMIC REVIEW TABLE II G overnm ent Expenditures by Function Between C a le n d a r Y e ar 1958 an d 1967 Total Government Current Dollars (Bil. of $) Total expenditures Federal A verage Annual Rate of Growth 7 .0 % Current Dollars (Bil. o f $) 1958 1967 State and Local A ve rage Annual Rate of Growth 6 .6 % A ve rage Annual Rate of 19671967 Growth Current Dollars (Bil. o f $) 1958 $127.2 $241.2 $88.9 $163.6 $38.3 $77.6 8 .1 % Defense 46.9 74.9 4.4 46.7 74.5 4.4 n.a. n.a. n.a. Nondefense 80.3 166.3 8.4 42.1 89.1 8.7 n.a. n.a. Health and welfare 26.5 58.9 8.7 16.8 40.9 9.6 9.7 18.0 n.a. 6.8 Education 16.0 39.7 10.5 0.6 3.8 22.2 15.5 35.9 9.8 G eneral government 12.1 24.0 7.5 7.4 14.5 7.2 4.7 9.5 8.0 9.1 14.9 5.4 3.0 5.6 6.7 6.1 9.4 4.7 Transportation NOTE: Data are on a National Income Accounts basis. Federal grants-in-aid are treated as Federal expenditures for the appropriate function, n.a. Not applicable. Source: U. S. Department of Commerce public spending during the 1 9 5 8 -1 9 6 7 period amounted to more than one-half of the in is to distribute the increase in total govern crease in total welfare expenditures. Federal ment spending among the m ajor functions spending for public assistance, such as aid to (see Chart 3). The bars represent the pro families with dependent children and other portion of the in crease in total expenditures general assistance, accounted for about 2 .5 accounted for by the various functions. Ex percent of the increase in total government penditures for health and welfare increased more than any other function during the period, accounting for about 2 8 xi cents of / each additional dollar spent by all levels of government. Defense spending ranked second, Chart 3. D IS T R I B U T I O N o f INCREA SE in G O V E R N M E N T E X P E N D IT U R E S Between 1 9 5 8 a n d 1 9 6 7 P e rc e n t 30 H EALTH ta d W ELFARE -STATE and LOCAL ‘ FEDERAL accounting for about 24J/£ cents of ea ch ad ditional dollar spent by the public sector during the period, with the rem ainder a c counted for by spending for education (21 HEALTH jb K PUBLIC GENERAL portation (5 cents), and all other govern OTHER TR A N S P O R T A T IO N mental functions (11 cents). W ithin Federal welfare expenditures, old a g e a s s is ta n c e (in clu d in g M e d ica re) a c counted for about 16 cents of each additional 8 ALL G O V T. cents), general government (10 cents), trans dollar spent by all levels of government and -(Billions of dollars) Source of data: U. S. Deportment of Commerce SEPTEMBER 196 8 spending during the period and less than one- GOVERNMENT WELFARE EXPENDITURES tenth of the increase in total welfare expen The direction of health and welfare expen ditures. The "w ar on poverty program” is ditures over the past decade is more clearly included in the "o th er" category, accounting evident from a comparison of the composition for less than 1 cent of each additional dollar of the public welfare budget in 1 9 5 8 and in spent by all levels of government for all 1 9 6 7 (see Chart 4). The rapid in crease in functions between 1 9 5 8 and 1 9 6 7 . The in old age assistance expanded the relative im crease in Federal expenditures for health portance of old age assistance within the programs accounted for about 1.5 percent total welfare budget (from 3 6 percent in 1 9 5 8 of the increase in total government expendi to 4 7 percent in 19 6 7 ). In sharp contrast, tures. Although Federal spending for education tained a constant proportion (about 15 per rose $ 3 .2 billion during the period under cent) of the welfare dollar, while unemploy review, state and local governments pro vided about 8 7 percent ($ 2 0 .5 billion) of the ment benefits dropped sharply.4 Despite seemingly large expenditures for increase in expenditures for education. In health and welfare by all levels of govern contrast, virtually all defense spending was ment, such expenditures were not provided by the Federal Government. cally designed to eliminate poverty. Conse public assistance and health outlays each re sp ecifi The expenditure increases for the support quently, poverty is still a serious problem in of general government were divided about this country. In 1966, 3 0 million people (one- 6 0 -4 0 between the Federal and state and local seventh of the population) were officially governments. In contrast, the Federal Gov defined as poor.5 However, only about one- ernment provided about 4 4 percent of the increase in spending for transportation. fourth (8 million) of those in poverty receive any form of welfare payment. The problem of Finally, the Federal Government accounted for about 8 0 percent of the expenditure in poverty is made even more serious since it is highly concentrated both geographically and crease for the "a ll other'' category. The space demographically. Most of the poor people program received one-half of the increase in live in the central cities of large metropolitan "a ll other'' expenditures by the Federal Gov areas and in certain rural districts, especially ernment. In the nondefense public sector, health and 4 The decline in ihe relative importance of unemployment welfare showed the largest absolute increase benefits in 1967 is due to the fact that unemployment w as in spending, while spending for education showed the greatest percent increase. Fur thermore, the Federal Government provided the bulk of the in crease in health and welfare expenditures, while state and local govern relatively high during 1958 (a recession year) and very low in 1967. 3 For statistical purposes, households are defined as poor if their income falls below the cost of a certain minimum consumption standard — $2,185 in 1966 for a nonfarm couple under 65 y ears of ag e and $3,335 for a nonfarm ments provided the bulk of the in crease in family of four. Mollie Orshansky, "The Shape of Poverty spending for education. in 1966," Social Secuiily Bulletin, March 1968, pp. 3-32. 9 ECONOMIC REVIEW portrays total government spending and spend C O M P O S I T I O N o f G O V E R N M E N T E X P E N D IT U R E S f o r H E AL TH a n d W EL FA R E 1 9 5 8 and 19 67 P e rc e n t 50 I-------------------------27.7 GNP during 1 9 5 8 -1 9 6 7 . Total government expenditures, as a per cent of GNP, fluctuated slightly during the 1 9 5 8 -1 9 6 7 period, but on balance amounted O ID AGE ASSISTAN CE * H ing for the major functions as a percent of to about 2 8 percent of GNP until mid-1965, *— (Billions of dollars) when defense spending for Vietnam rose PU BLIC A SSISTA N CE sharply, pushing total expenditures to 3 0 .5 HEALTH UNEM PLOYM ENT BEN EFITS * S A FE T Y I ALL OTHER I ' 1958 I Source of data: U. S. Deportment of Commerce percent of GNP in 1967. In fact, until the Vietnam buildup, defense spending repre sented a declining proportion of GNP, as shown in Chart 5. During the period under review, total nondefense expenditures rose from 17.9 per cent of GNP in 1 9 5 8 to 21.1 percent in 1967, in the South. Moreover, poverty is con cen an increase of slightly more than 3 percent trated in the aged, the nonwhite, and in house holds headed by a woman. The solution to the age points. Increased Federal outlays a c counted for about two-thirds of the rise in poverty problem will not only require more nondefense spending relative to GNP, with money, but may also require new concepts, most of the increase concentrated in the such as a guaranteed minimum income or a negative income tax. Efforts to reduce poverty and improve economic opportunity must deal G O V E R N M E N T E XP E N D IT U R E S as PERC EN T o f GNP 1958-1967 with the particular problems caused by in adequacies in education, housing, and health care. CONCLUDING COMMENTS W hile the growth in government spending during 1 9 5 8 -1 9 6 7 was fairly rapid for all functions, the greatest growth occurred in the areas of health and welfare, defense, and H EALTH aad W ELFARE education. However, when the increases in ED U C A TIO N government spending are related to the growth in the economy over the period, the expendi ture growth is much less dramatic. Chart 5 10 T R A N S P O R T A T IO N 1958 ’59 '60 62 63 Lost entry: 1967 Source of doto. U. S. Department of Commerce i . . . . .i - . . . t '64 '65 '66 '67 '68 SEPTEMBER 1968 health and welfare function, especially old The growth of state and local spending for age assistance.6 Consequently, although non education during the period accounted for defense government spending increased sub virtually all of the growth of total state and stantially in money terms during the period, local expenditures relative to GNP (one per the increase was only slightly faster than the centage point). In other words, only in edu overall growth of the economy. cation did state and local spending grow Total government health and welfare ex faster than the economy during 1 9 5 8 -1 9 6 7 . penditures rose relative to GNP during the W hen the growth of total government ex period (from 5 .9 percent in 1 9 5 8 to 7 .5 per penditures during 1 9 5 8 -1 9 6 7 is compared cent in 1967), with virtually all of the growth with overall econom ic growth, rising prices, at the Federal level. In contrast, state and and an expanded population, the gains in local governments financed the growth of government spending are reduced appre education spending relative to GNP (from ciably. W hether the gains in government 3 .6 percent in 1 9 5 8 to 5 .0 percent in 1967). spending in the period ahead are of a similar magnitude is indeed an important question. 6 Over the decade. Federal nondefense expenditures rose from 9.4 percent of GNP in 1958 to 11.3 percent in 1967, an increase of 1.9 percentage points. Federal health and In view of the pressing need for more and better public services at all levels of govern welfare expenditures rose 1.4 percentage points, from ment, it may be that government spending 3.8 percent of GNP in 1958 to 5.2 percent in 1967. will take a larger share of GNP in the future. 11 ECONOMIC REVIEW REGIONAL PATTERNS OF INDUSTRIAL ACTIVITY AND FREIGHT TRANSPORTATION IN THE UNITED STATES The industrial development of a region depends upon available resources and the ability to stimulate a flow of products and reflected the extent of industrialization in each region at the beginning of the period. During 1 9 5 6 -1 9 6 6 , value added by manu additional resources that helps overcome facture in the Middle Atlantic region (New regional im balances. The transportation of York, New Jersey, and Pennsylvania) in such products and resources to the various creased at an average annual rate of growth regions provides the means for assembling of 4 percent, the slowest rate of increase in the inputs necessary for the industrial growth the nation (see Table I). The region's share of of a region. This article discusses the growth total value added in the nation lost ground to and composition of regional manufacturing some of the faster growing areas, declining activity between 1 9 5 6 and 1 9 6 6 and describes from 25.1 percent in 1 9 5 6 to 22.1 percent in regional patterns in freight shipments in an 1 9 6 6 (see Table I). The East North Central effort to explain the differing rates of growth States (O h io, In d ia n a , Illin o is, M ich ig a n , among regions in the United States. REGIONAL MANUFACTURING ACTIVITY Grow th. Between 1 9 5 6 and 1966, value and Wisconsin) also experienced relatively slow growth in value added (4.7 percent), and the region's share of value added de clined from 3 1 .2 percent in 1 9 5 6 to 2 9 .7 per added by manufacture in the United States cent in 1966. The slower-than-average growth increased at an average annual rate of 5.1 of both the Middle Atlantic and East North percent. In general, regional rates of growth Central regions was due largely to a higher 12 SEPTEMBER 1968 TABLE I V a lu e A d d e d by M anufacture, United States an d by Region Selected Years 1956-1966 1956 1958* 1960 1962 1964 1966 A ve rage Annual Rate of Growth 1956-1 966 Value A d ded (Mil. $) United States $144,854 $141,531 $164,297 $179,520 $206,531 $251,638 New England 10,881 10,440 12,329 1 3,458 14,431 18,307 M iddle Atlantic 36,288 34,814 39,570 41,749 46,462 55,741 4.0 East North Central 45,198 40,962 48,315 52,418 60,816 74,677 4.7 5.8 W est North Central 5 .1 % 4.8 8,560 8,870 10,100 11,132 12,888 15,862 13,519 14,355 17,072 19,259 22,767 27,556 6.7 East South Central 6,139 6,389 7,188 8,147 10,286 1 3,273 7.3 W est South Central 7,680 7,791 8,952 9,729 12,133 14,892 6.2 Mountain 2,199 2,244 2,711 3,177 3,500 4,291 6.3 14,390 15,666 18,060 20,451 23,248 27,039 5.9 South Atlantic Pacific Percent Distribution 1 0 0 .0 % 10 0 .0 % 1 0 0 .0 % 1 0 0 .0 % 10 0 .0 % 7.5 7.4 7.5 7.5 7.0 7.3 M id d le Atlantic 25.1 24.6 24.1 23.3 22.5 22.1 East North Central 29.7 United States New England 1 0 0 .0 % 31.2 28.9 29.4 29.2 29.4 W e st North Central 5.9 6.3 6.1 6.2 6.2 6.3 South Atlantic 9.4 10.1 10.4 10.7 11.0 11.0 East South Central 4.2 4.5 4.4 4.5 5.0 5.3 W e st South Central 5.3 5.5 5.4 5.4 5.9 5.9 Mountain 1.5 1.6 1.7 1.8 1.7 1.7 Pacific 9.9 11.1 11.0 11.4 11.3 10.7 * First year in which d ata for Alaska and Hawaii are included in the Pacific region and United States totals. In 1 958, total value a d d e d for the two states was approximately $2 29 million, which increased the Pacific region and United States totals by less than 1.5 percent and 0.2 percent, respectively. Sources: U. S. Department of Commerce, Bureau of the Census and Federal Reserve Bank of Cleveland base at the beginning of the period. Never The East South Central region (Kentucky, theless, in 1966, these two regions still a c Tennessee, Alabama, and Mississippi) was counted for slightly more than half of value the fastest growing region in terms of value added by m anufacture in the United States. added by manufacture (7.3 percent) during The New England region (Maine, New 1 9 5 6 -1 9 6 6 . Although the region increased Hampshire, Vermont, Massachusetts, Rhode its share of value added from 4 .2 percent to Island, and Connecticut) experienced lower - 5 .3 percent, the area still ranked eighth among than-average growth in value added (4.8 the nine regions at the end of the period. The p ercen t). The share of value added accounted Mountain region (Montana, Idaho, Wyoming, for by the New England region remained Colorado, New Mexico, Arizona, Utah, and fairly stable 1 9 5 6 -1 9 6 6 , however, Nevada) also experienced rapid growth (6.3 declining only from 7 .5 percent to 7 .3 percent. percent average annual rate) during the during 13 ECONOMIC REVIEW 1956-1966 period. Despite such rapid growth, the largest shares of value added by manu the area contributed only 1.7 percent of total facture in the United States in 1 9 6 3 .1 As value added by manufacture in the United shown in Table II, these two regions also States in 1966. accounted for the largest shares of total value The South A tla n tic reg io n (D elaw are, added by each industry, with the exception Maryland, the District of Columbia, Virginia, of lumber, ordnance, petroleum, and textiles. W est Virginia, North Carolina, South C aro lina, Georgia, and Florida) had an average The Middle Atlantic region produced annual rate of growth of 6 .7 percent from nearly 2 3 percent of total value added in 19 5 6 to 1 9 6 6 . The area increased its share of 1963, with nondurable goods industries pro total value added from 9 .4 percent in 1 9 5 6 viding a slightly larger share than durable to 1 1 .0 percent in 1 9 6 6 and ranked as the goods industries. The region accounted for third most important industrial region in the 4 9 percent of value added by the apparel nation. industry and 4 5 percent of value added by W ashington, Oregon, California, Alaska, the instrument industry. Several other indus and Hawaii are included in the Pacific region, tries in the area accounted for the highest which grew at an average annual rate of 5 .8 percent from 1 9 5 6 to 1966. The Pacific region 1 Nineteen sixly-three is the latest year for which the increased its share of value added from 9 .9 C ensus of M anufactures and the Census of Transportation percent in 1 9 5 6 to a high of 11.5 percent in 1 9 6 3 ; however, late in the period, the area are available. The information is restricted to manufac lost some ground and in 1966, only accounted tures because data presented in the C ensus of Trans portation. the source used in this article, are limited to manufactured commodities. This restriction does not seem for 10.7 percent of value added in the nation. serious in terms of the largest aggregates. Manufactured As a result of the reduction in share, the area goods account for the bulk of commodities moved by the slipped to fourth place in the distribution of value added among the regions. North Central freight transportation system generally. See "Freight Transportation and Industrial Activity in the United States," Economic Review, Federal Reserve Bank Growth of value added in the two remaining regions—W est nation's (Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, and Kansas) and W est South C en of Cleveland, July 1968. For example, value added by mining accounted for less than 8 percent of value added by manufacture and mining combined in 1963. However, value added by mining accounted for almost 42 percent of value added by manufacture and mining in tral (Arkansas, Louisiana, Oklahoma, and the West South Central region and for nearly 38 percent Texas)—was also above the United States of the combined total in the Mountain region. Therefore, average during the period under review; however, both areas account for relatively the omission of mining in the C ensus of Transportation leaves a serious gap in representing commodity traffic originating from these two regions. In addition, mining small proportions of total value added by output accounted for almost half of total tonnage hauled manufacture (see Table I). by rail in recent years and for nearly all of commodities moved by pipeline. As a result, the omission of mining Industrial Com position. The Middle Atlan tic and East North Central regions contributed 14 output from the C ensus of Transportation also distorts measures of volume and of patterns in traffic flow for these modes of freight transportation. SEPTEMBER 1968 proportion of value added in the overall in region had the greatest concentration of pri dustry groups, including furniture (28 per mary and fabricated metals production (41 cent), printing and publishing (35 percent), percent and 3 9 percent, respectively); stone, and chem ical products (25 percent). clay, and glass (27 percent); nonelectrical The East North Central region, which gen m achinery (45 percent); electrical equipment erated 2 9 percent of value added by manu (32 percent); and transportation equipment facture in 1963, dominates the nation in the (44 percent). The East North Central area production of durable goods, accounting for follows the Middle Atlantic area in non nearly 3 6 percent of the value added by durable goods production. In 1963, the East durable goods industries in the nation. Within North Central region had the largest share of the durable goods industries, in 1 963, the value added by manufacture by the food and TABLE II Percent Distribution of V a lu e A d d e d by M anufacture, United States a n d by R egion an d Industry D ivision 1963 M iddle Atlantic East North Central W est North Central South Atlantic East South Central 7 .1 % 2 2 .7 % 2 9 .3 % 6 .1 % 1 1 .0 % 4 .9 % 108,710 7.4 20.8 35.6 5.5 7.0 3.9 4.0 1.9 13.8 4,021 4.1 6.1 10.8 3.5 13.7 9.0 7.9 5.7 39.4 Furniture and miscellaneous 6,630 11.9 27.6 24.6 4.4 12.7 4.7 3.4 0.8 10.1 Stone, clay, and glass 7,044 4.3 21.2 27.0 7.9 12.7 5.5 7.4 3.1 1 1.1 All Regions Industry Division Manufacturing* Durable goods Lumber and wood (mil. $) $192,103 New England W est South Central Mountain 5 .7 % 1 .8 % Pacific 1 1 .5 % Primary metals 15,261 4.2 26.1 41.1 2.4 7.2 6.6 3.6 3.1 5.7 Fabricated metals 11,791 8.3 22.4 38.8 5.3 6.0 3.9 4.3 1.0 10.0 Nonelectrical machinery 17,31 1 9.5 19.9 44.5 8.1 3.6 2.5 4.0 1.0 7.1 Electrical equipment 17,011 9.7 26.3 32.0 4.7 6.5 3.9 2.8 0.9 13.4 Transportation equipment 16.4 22,766 5.4 12.0 44.1 7.2 6.8 2.2 3.6 2.3 Instruments 3,992 14.3 44.9 22.6 5.0 2.9 0.9 1.8 1.0 6.8 Ordnance 2,883 5.0 2.9 D 6.8 2.3 4.7 4.4 84.5 D 83,395 6.5 25.0 20.6 6.7 16.1 6.2 8.1 1.7 9.2 23,507 3.9 18.5 22.3 10.9 14.9 6.1 6.8 2.8 13.7 Textiles and leather 8,202 16.0 21.1 7.4 3.0 41.3 7.6 1.4 0.4 1.8 A pparel 7,861 6.2 48.9 9.1 3.7 13.3 8.0 4.1 0.4 6.3 Nondurable goods Food and tobacco 7,396 10.6 20.0 24.5 5.0 15.7 5.5 6.6 0.8 1 1.5 Printing and publishing 10,476 6.8 34.7 25.1 7.3 7.9 2.7 4.1 2.0 9.5 Chemical products 17,586 3.3 25.4 21.0 5.3 17.4 8.1 12.3 1.0 6.2 Petroleum and coal products 3,713 0.9 13.3 17.9 6.0 3.7 1.8 38.2 3.2 15.0 Rubber and plastics 4,654 13.4 17.4 39.2 5.1 5.7 6.1 3.7 2.1 7.4 Paper products D Not shown to avoid disclosure o f information for individual companies. * Details may not a d d to totals because of rounding and independent derivation of national aggre gate s. Sources: U. S. Department of Commerce, Bureau of the Census and Federal Reserve Bank of Cleveland 15 ECONOMIC REVIEW tobacco industry (22 percent), paper products The New England region accounted for 7 industry (25 percent), and rubber and plas percent of the nation's total value added in tics industry (39 percent). The region's share 1963. Durable goods industries contributed in most industries—durable and nondurable slightly more to national output than non —was only exceeded by the Middle Atlantic durable goods industries. Instruments (14 region (see Table II). percent) and furniture (12 percent) were the The Pacific region accounted for the third largest share of value added by manufacture in the nation in 1 9 6 3 (nearly 12 percent). Durable goods industries in the area were slightly more important than nondurable goods industries (14 percent and 9 percent, respectively). The Pacific region accounted for nearly 8 5 percent of value added by manufacture by the ordnance industry and 3 9 percent of value added by lumber and wood products—the highest share in the nation. The region ranked second in the nation in production of transportation equip ment (16 percent). Within the nondurable goods group, the Pacific region had relatively high shares in food and tobacco (14 percent), paper products (12 percent), and petroleum and coal products (15 percent). Although recent data indicate that, in 1966, predominant industries within the durable goods group, while textiles (16 percent), paper products (11 percent), and rubber and plastics (13 percent) led in the nondurables group. In the West North Central, East South Central, West South Central, and Mountain regions, the respective shares of value added were fairly small in most of the industries. The West South Central region was the only area of the four regions that showed a domi nant individual industry, with the petroleum industry accounting for more than 3 8 percent of the nation's value added by that industry. In three of the regions, nondurable goods production was slightly higher than durable goods production. VALUE ADDED AN D FREIGHT TONNAGE BY REGION the South Atlantic region moved into third place in the distribution of value added by Regions that account for the highest share manufacture, in 1963, the area contributed of value added tend to have a correspondingly 11 percent to value added, slightly less than high share of freight shipments in the United the Pacific region. Manufacturing activity in States. For example, in 1963, the East North the area in 1 9 6 3 was centered in the pro Central region contributed 2 9 percent of duction of nondurable goods (16 percent of total value added and shipped 2 2 percent of total value added). The South Atlantic region total manufactured goods (see Tables II and led the nation in output of textiles and leather Ilia). Except for the W est South Central and goods (41 percent). The area also ranked New England areas, regional shares of total fairly high in food and tobacco, apparel, value added and freight shipments in 1963 paper products, and chem ical products (see were fairly similar. The differences in share Table II). of value added and share of freight shipments 16 SEPTEMBER 1968 TABLE Ilia Percent Distribution of Freight Shipments, United States an d by Region of O rig in an d Industry D ivision 1963 All Regions Middle Atlantic East North Central W est North Central South Atlantic East South Central W est South Central Mountain Pacific 1 .9 % 1 4 .8 % 2 1 .7 % 7 .0 % 1 1 .6 % 6 .0 % 2 3 .1 % 2 .0 % 1 1 .9 % 495,824 1.5 17.7 32.2 6.4 11.5 7.1 5.6 2.9 15.0 70,380 2.5 0.9 5.5 1.5 20.4 12.9 6.6 7.3 42.4 Industry Division (Thousands of Tons) Manufacturing 1,334,836 Durable goods Lumber and wood Furniture and miscellaneous New England 9,494 5.6 28.6 25.6 2.4 23.4 6.7 4.9 -0 - 2.8 Stone, clay, and glass 175,597 0.3 13.5 23.9 10.4 14.7 7.1 8.9 1.8 19.4 Primary metals 139,383 1.7 32.3 41.1 1.8 6.3 6.8 2.8 3.8 3.3 Fabricated metals 29,085 2.9 17.2 39.0 6.3 1 1.2 4.3 5.6 2.3 11.3 Nonelectrical machinery 20,006 3.7 15.1 48.2 21.4 2.6 2.8 2.8 0.6 2.8 Electrical equipment 12,497 4.5 24.6 51.0 5.3 1.9 7.5 2.2 0.1 2.9 Transportation equipment 37,959 0.5 10.7 69.5 7.4 4.6 2.1 1.3 -0 - 3.8 1,423 7.5 50.2 23.7 3.7 9.0 0.2 1.9 0.6 3.2 10.0 Instruments Nondurable goods Food and tobacco Textiles and leather A pparel Paper products 839,012 2.1 13.1 15.6 7.4 1 1.7 5.3 33.4 1.4 209,762 2.7 11.0 22.3 20.0 13.7 8.0 11.2 1.6 9.4 12,609 12.9 11.6 6.9 0.3 53.3 12.6 2.2 -0 - 0.2 3,906 8.0 29.2 16.4 1.9 30.6 6.9 6.1 -0 - 0.9 65,551 6.7 18.0 23.1 5.4 18.9 10.5 5.8 -0 - 11.6 Chemical products 140,234 1.6 11.9 26.8 3.9 22.4 8.4 18.3 0.9 6.0 Petroleum and coal products 398,066 0.5 13.6 6.6 2.7 4.3 1.7 56.8 1.8 12.0 8,884 11.3 19.8 40.9 6.2 3.9 7.0 5.2 1.3 4.4 Rubber and plastics Sources: U. S. Department of Commerce Bureau of the Census and Federal Reserve Bank of Cleveland in a region can be attributed to the stage of W est South Central States, where industries, processing that usually occurs in a region's such as petroleum, are predominantly en industries. Since production costs tend to gaged in primary processing. mount at higher stages of processing, regions dominated by advanced processing will tend to have disproportionate shares of value INDUSTRIAL COMPOSITION OF FREIGHT TONNAGE BY REGION added and freight shipments. In New England, for example, many of the Freight O riginated. The relative importance area's industries, including the metal products, of the various manufacturing industries of machinery, electrical equipment, transpor each region in 1963, in terms of tons tation equipment, and instruments industries, of freight shipped, is shown by the data add value by manufacture that is out of pro on distribution of freight shipments in Table portion to the weight of raw materials and Ilia. In the New England region, the textile supplies consumed and finished products and leather industries originated 12.9 per shipped. The opposite pattern occurs in the cent of total freight shipments in the United 17 ECONOMIC REVIEW States. O ther industries in the area with sub was roughly similar to that of nonelectrical stantial proportions were rubber and plastics, machinery, actual tonnage volume of food apparel, instruments, paper products, and products was about ten times the tonnage of furniture. nonelectrical machinery, which emphasizes In the Middle Atlantic region, instruments the importance of agriculture in the region. accounted for over 5 0 percent of United Overall, the South Atlantic States accounted States tonnage. The primary metals group, for 12 percent of freight tons originated in with 3 2 percent of the industry's shipments the United States during 1963. The textile in the nation, accounted for the largest volume and leather products industries of the region of goods shipped from the Middle Atlantic originated 5 3 percent of the nation's ship States, but not for the largest proportion of ments of these commodities. In addition, the primary metals products shipped from any region accounted for 31 percent of total ship region. Other industries with important ton ments of apparel. Furniture, chem ical prod nage shares in the Middle Atlantic region in ucts, lumber and wood products, paper prod 19 6 3 included apparel, furniture, electrical ucts, stone, clay, and glass, and food and equipment, rubber and plastics, paper prod tobacco products all had reasonably high ucts, fabricated metal products, and non shares of shipments. As shown in Table Ilia, industries with the electrical machinery. Many industries gave rise to substantial largest tonnage shares in the East South C en shares of total shipments from the East North Central region. As shown in Table Ilia, trans tral States were lumber and wood, textiles and leather, and paper products. In the West portation equipment was the region's most South Central States, petroleum refining, important industry, in terms of shipments, with a 57-percent share of national freight with nearly 7 0 percent of the United States shipments, was the only category that out total. Also of considerable weight in the paced the region's overall share of 2 3 per region's shipments were electrical equip ment (51 percent), nonelectrical m achinery cent. This group obviously dominates in dustry in the region, since the W est South (48 percent), primary metals (41 percent), Central States account for the bulk of petro rubber and plastics (41 percent), and fabri leum products produced in the nation. Al cated metal products (39 p ercent). The chem though much less important in the region icals, furniture, stone, clay, and glass, in itself, the region's chem ical industry gen struments, paper products, and food products erated a substantial share (18 percent) of the industries in the East North Central region nation's shipments in this category. originated nearly one-fourth of the nation's Within the Mountain region, which a c counted for only 2 percent of total United shipments for each industry. W est States freight shipments in 1963, lumber and North Central region's most important in wood products (with only 7 percent of the dustry in 1 9 6 3 (21 percent). Although the national total) was the leading industry. The share of tonnage originated by food products only other important industries in the region, N onelectrical machinery 18 was the SEPTEMBER 1968 in terms of shipments, were primary metals and fabricated metal products; however, the proportion of the total resident population in each region in 1963, suggesting the impor region accounted for a very small proportion tance of population in determining general of the nation's shipments in both industries. Lumber and wood products (42 percent) was the dominant industry in the Pacific patterns of consumption. Percent Distribution of Population by R egion 1963 New E n g l a n d ....................................... States in 1 9 6 3 . Although the paper products M id d le Atlantic 19.0 East North C e n t r a l ................................ and fabricated metals groups contributed 19.8 W est North C e n t r a l................................ in the Pacific region were stone, clay, and 14.8 East South C e n t r a l ................................ the only other industries of any importance 8.4 South A t l a n t i c ....................................... fairly substantially to national freight tonnage, 6.7 W est South C e n t r a l................................ 9.6 M o u n t a in .............................................. glass (19 percent) and petroleum products (12 5 .8 % ................................... 4.0 P a c i f i c ................................................. percent). 1 1.9 T O T A L .......................................... Freight Received. The share of total freight 1 0 0 .0 % Source: U. S. Department of Commerce, Bureau of the Census shipments received in each region, as shown The range between the lowest and highest in Table Illb, are reasonably similar to the share of shipments received in each region TABLE Illb Percent Distribution of Freight Shipments, United States an d by Region of D estination an d Industry D ivision 1963 All Regions M iddle Atlantic East North Central W e st North Central South Atlantic East South Central W est South Central Mountain Pacific 6 .2 % 2 0 .2 % 2 0 .3 % 7 .1 % 1 7 .8 % 5 .9 % 9 .0 % 2 .2 % 1 1 .3 % 495,824 3.4 15.2 29.3 7.3 13.7 6.6 7.8 3.0 13.8 70,380 2.7 6.4 13.8 6.5 23.8 9.2 8.6 5.7 23.3 Industry Division (Thousands of Tons) New England Manufacturing 1,334,838 Durable goods Lumber and wood 9,494 5.6 23.0 20.1 8.3 19.9 5.9 8.0 2.2 7.0 Stone, clay, and glass 175,597 2.3 12.9 21.7 8.3 16.2 8.2 8.9 2.8 18.7 Primary metals Furniture and miscellaneous 139,383 4.9 20.4 45.4 5.2 5.9 4.6 6.4 1.9 5.3 Fabricated metals 29,085 4.2 17.4 29.0 7.1 12.9 5.3 7.0 4.5 12.6 Nonelectrical machinery 20,006 3.3 18.0 29.2 10.1 11.8 6.2 8.2 3.6 9.5 Electrical equipment 12,497 5.6 20.3 28.5 8.5 11.3 5.3 7.3 2.5 10.7 Transportation equipment 37,959 2.3 15.9 36.6 10.5 12.4 3.8 6.6 1.9 10.0 1,423 4.9 23.0 24.3 5.3 15.3 3.7 6.3 1.7 15.5 9.8 Instruments Nondurable goods Food and tobacco Textiles and leather Apparel Paper products 839,012 7.8 23.3 15.2 6.9 20.3 5.4 9.7 1.6 209,762 5.1 16.1 20.6 12.1 16.3 7.1 12.8 1.7 8.3 12,609 10.0 25.2 13.2 3.9 29.1 7.1 4.8 0.4 6.3 3,906 6.7 23.8 25.1 8.3 15.9 5.3 5.5 2.5 6.9 65,551 5.6 23.0 28.5 6.2 13.7 5.4 5.3 1.1 11.2 Chemical products 140,234 3.8 15.7 22.6 7.1 22.1 6.8 12.6 1.4 8.0 Petroleum and coal products 398,066 11.0 29.9 7.2 4.2 22.8 4.0 8.0 1.8 11.1 8,884 7.3 19.8 30.1 10.1 10.0 5.0 6.9 2.4 8.4 Rubber and plastics Sources: U. S. Department of Commerce, Bureau of the Census and Jeral Reserve Bank of Cleveland 19 ECONOMIC REVIEW in 1 9 6 3 was considerably sm aller than the South Central regions, shipments originated range for shipments originated (see Tables exceeded shipments received. The W est Ilia and Illb ). The influence of population South Central region's position as a net sup appears to be strong enough to restrict the plier of commodities was due primarily to range of the share of shipments received in the region's high volume of petroleum prod each region. In contrast, the range of ship ucts and, to a lesser extent, the volume of ments originated in each region is relatively chem ical products shipped from the region. wide, reflecting the role of technical con In the Pacific, Mountain, W est North Central, ditions of production and the variable com and East South Central regions, the respec position of regional resources. tive proportions of shipments originated and In the New England, Middle Atlantic, and received were reasonably similar. South Atlantic regions, the proportion of com Shipm ents O riginated /R e ce ive d , by Region. modities received was greater than the pro The general similarity between proportions portion shipped by each region in 1 9 6 3 (see of freight originated (supply) and received Table Ilia, Table Illb, and Chart 1). In con (consumption) for regional aggregates does trast, in the East North Central and W est not indicate an industry by industry pattern Ch art 1. FREIGHT SHIPMENTS ORIGINATED and RECEIVED, UNITED STATES by REGION 1963 M A N U F A C T U R IN G D U R A B LE G O O D S N O NDURABLE G O O D S 20 S o u rc e s of d ata: U. S. D epartm en t of Com m erce and F e d eral Reserve Bank of C le v e la n d 20 30 40 SEPTEMBER 196 8 TABLE ilk Percent of Freight Shipm ents O rigin a te d to Freight Shipm ents Received by R egion an d Industry D ivision 1963 Industry ivision anufacturing Durable goods Lumber and wood Furniture and miscellaneous New England M iddle Atlantic East North Central W est North Central South Atlantic East South Central W est South Central 31% 73% 107% 99% 65% 102% 257% Mountain 91% Pacific 105% 44 116 110 88 84 108 72 97 109 93 14 40 23 86 140 77 128 182 100 124 127 29 118 1 14 61 -0 - 40 13 105 110 125 91 87 100 64 104 Primary metals 35 158 91 35 107 148 44 200 62 Fabricated metals 69 99 134 89 87 81 80 51 90 29 Stone, clay, and glass Nonelectrical machinery 112 84 165 212 22 45 34 17 Electrical equipment 80 121 179 62 17 142 30 4 27 Transportation equipment 22 67 190 70 37 55 20 -0 - 38 153 218 98 70 59 5 30 35 21 27 56 103 107 58 98 344 88 102 53 68 108 165 84 113 88 94 113 Instruments Nondurable goods Food and tobacco Textiles and leather 129 46 52 8 183 177 46 -0 - 3 A pp arel 119 123 65 23 192 130 11 1 -0 - 13 Paper products 120 78 81 87 138 194 109 -0 - 104 42 76 119 55 101 124 145 64 75 5 45 92 64 19 43 71 0 100 108 155 100 136 61 39 140 75 54 40 Chemical products Petroleum and coal products Rubber and plastics Sources: U. S. Department of Commerce, Bureau of the Census and Federal Reserve Bank of Cleveland of b alan ce.2 As Table IIIc shows, at the indi rubber and plastics products, but only 5 per vidual industry level, there is wide disper cent for petroleum and coal products. Other sion3 of the ratios of tonnages of freight industries in the region that were in a position originated to freight received. of net supply during 1 9 6 3 include instru In the New England region, for example, ments, textiles and leather, paper, apparel, supply was 155 percent of consumption for and nonelectrical m achinery (see Table IIIc and Chart 2). Ten of the 16 industry groups, 2 "Supply" and "consumption," as used here, do not de note total supply or consumption of all or any single class of commodities, to the extent that the basic Census Bureau d ata employed in the study are restricted to interchanges however, were in a position of net consump tion, as was the total of the region's manu facturing shipments. of goods within the 48 continental states and the District of Columbia. 3 Dispersion (as measured by the coefficient of variation, which is the ratio of the standard deviation to the mean of a series) of the percents for shipments received is less W hile the Middle Atlantic region supplied only 7 3 percent of the tonnage it consumed in 1963, the instruments industry within the than that of the percents for shipments originated, in region supplied 118 percent more than re every region. gional consumption, indicating net exports 21 C h a r t 2. R E L A T IO N S H IP S of S H IP M E N T S O R I G I N A T E D a n d R E C E IV E D LEG EN D M = M a n u f a c t u r i n g , total D = D ura bles N = N o ndurab les Lu = L u m b e r a n d w o o d Fu = F u r n i t u r e a n d m isce llan e o u s Fo - F o o d and tobacco St = Stone , c la y ,a n d g l a s s Te = T e x t i l e s a n d l e a t h e r Pr = P r i m a r y m e ta ls Ap = Apparel Pa = P ap e r prod ucts Fa = F a b r i c a t e d m e t a ls M a = M a ch in e ry, exclu d in g elec tri ca l Ch = Chem ical products El - E l e c t r i c a l e q u i p m e n t p e = Petroleum a n d Tr = T r a n s p o r t a t i o n e q u i p m e n t Ru = R u b b e r a n d coal products plastics In = I n s t r u m e n t s * R e p r e s e n t e d b y p e r c e n t o f t ot al U n i t e d S t a t e s t o n n a g e o r i g i n a t e d o r r e c e i v e d w i t h i n t h e r e g i o n , b y i n d u s t r y , 1 9 6 3 . X T h e d i a g o n a l r e p r e s e n t s t h e (45°) s l o p e a t w h i c h s h i p m e n t s o r i g i n a t e d e q u a l s h i p m e n t s r e c e i v e d . S o u r c e s of d a t a : U. S. D e p a r t m e n t o f C o m m e r c e , B u r e a u o f t h e C e n s u s a n d F e d e r a l R e s e r v e B a n k o f C l e v e l a n d Shipm en ts o rig in ated * Shipm en ts o rig in ated * Shipm ents re c e iv e d * Shipm ents received * Shipm ents o rigin a te d * Shipm ents o rigin ate d * Shipm ents re c e iv e d * Shipm ents re ce ive d* Shipm ents o r ig in a t e d * 0 5 10 15 20 25 30 35 40 45 50 55 60 Shipm ents re c e iv e d * ECONOMIC REVIEW to other regions of the United States. The dur placing it second only to the New England able goods industries as a group were net region as a net consumer of manufactured suppliers in the Middle Atlantic region b e commodities. O nly 6 of the 16 industries cause of the im portance of primary metals, represented in the region were net suppliers furniture, electrical equipment, stone, clay, —apparel, textiles and leather, paper prod and glass, and instruments (see Chart 2). ucts, furniture, primary metals, and chem icals The apparel group was the only nondurable (see Chart 2). goods industry supplying more than con W hile the East South C entral region a c sumption in the Middle Atlantic region, while counted for only 6 percent of total tonnage of rubber and plastics producers supplied as manufactured goods originated in the United m uch as was consumed. States during 1963, consumption was closely The East North C entral region was gen balanced with supply. Nevertheless, the region erally a net supplier both of durable and non had a number of industries with a large sur durable goods in 1 9 6 3 (see Chart 2). The plus, including paper products, textiles and transportation equipment industry led in the leather, durable goods group. O ther net supplier ment, rubber and plastics, and lumber and industries in the durable goods category were wood products (see Chart 2). The region was electrical equipment, nonelectrical m achin a net consumer in only six product c a te primary metals, electrical equip ery, fabricated metals, furniture, and stone, gories clay, and glass. The region was principally a net consumer (or importer) of nondurable metals, nonelectrical machinery, transporta commodities, such as textiles, apparel, paper and coal products). The W est South Central region supplied products, and, to a smaller extent, petroleum (stone, clay, and glass, fabricated tion equipment, instruments, and petroleum and coal products. Rubber and plastics, chem over two and one-half times the volume of icals, and food products were in net supply in manufactured goods in 1 9 6 3 as was con the nondurable goods group. In the W est North Central States, supply sumed; however, this record was heavily biased by the petroleum industry (see Chart was generally in close balance with consump 2). Outside of petroleum, the region is pre tion (see Chart 2). Nondurable goods were dominantly a net consumer of commodities. in slight excess, due solely to the large net In the Mountain region, consumption gen export position of the food products industry. erally exceed ed supply, except for primary Although supply of durable goods as a group metals and lumber and wood products. The was 12 percent less than consumption within region supplied nothing for itself or other the region, the nonelectrical m achinery in regions from the furniture, transportation dustry produced a 1 12-percent export surplus equipment, textiles and leather, apparel, and and the stone, clay, and glass group a 25- paper products industries and almost nothing percent surplus. from the electrical equipment industry (see The South Atlantic region supplied only 6 5 percent of the region's requirements in 1963, 24 Chart 2 and Table IIIc). Shipments from the Pacific region slightly SEPTEMBER 1968 exceeded shipments into the area in 1 9 6 3 . other technical conditions of production ap Only five industry groups, however, were in pear to be strong factors in determ ining vari a net supply position (see Chart 2 and Table ations in supply relative to consumption. IIIc): lum ber and wood products, food and The tendency of most of the regional supply- tobacco, petroleum and coal products, paper consumption relationships to cluster on the net products, and stone, clay, and glass. The consumption side and to conform to a positive lumber and wood products group was the slope suggests that demand within a region only substantial net supplier, exceed in g re plays a role, however muted, in regulating gional consumption by 8 2 percent. The pri the supply of manufactured commodities from mary metals and metal-using industries in the that region (see Chart 2). This is further region produced less than the region con indicated by the large proportion of freight sumed, and the region supplied negligible sh ip m en ts o rig in a te d w ith in a re g io n that proportions of the Pacific area's needs for is destined for the same region. For example, textiles and apparel. n early 4 4 p e rce n t of the shipm ents o rig i nated in the New England region in 1 9 6 3 INTERREGIONAL FREIGHT SHIPMENTS w ere term in a ted w ith in th e re g io n (se e Interregional Patterns. The broad dispersion Table IV). Similarly, 5 8 percent of the vol of regional supply-consumption relationships ume of commodities originated in the Middle demonstrates that shipments originated are Atlantic States was received in those states. In not necessarily closely associated with (or fact, in no region except the West South Central dependent on) shipments received. That is, area did the proportion of shipments term inat the regional distribution of resources (espe ing within the same region fall significantly cially raw materials and energy sources) and below 4 0 percent. In 1 9 6 3 , only 2 6 percent of TABLE IV Percent Distribution of Freight Shipments, United States a n d by R egion of Destination an d O rigin 1963 Region of Destination All Regions Region of Origin (Thousands of Tons) United States 1,334,838 New England M iddle Atlantic East North Central W est North Central South Atlantic East South Central 1 7 .8 % W e st South Central Mountain Pacific 1 1 .3 % 2 0 .2 % 2 0 .3 % 7 .1 % 5 .9 % 9 .0 % 2 .2 % 24,908 43.7 28.4 11.7 2.7 7.4 1.7 1.8 0.4 M id d le Atlantic 197,931 9.2 58.2 14.6 1.3 12.4 1.3 1.2 0.3 1.5 East North Central 290,255 1.6 10.7 ™ 60.2 8.3 7.6 4.5 3.5 1.0 2.6 New England W e st North Central South Atlantic East South Central W est South Central Mountain Pacific ^ 6 .2 % 2.2 93,990 1.9 6.5 20.7 47.3 fc4.° 6.8 8.1 1.7 3.0 1 55,087 3.4 19.1 8.2 3.3 56.6 f c 4.6 3.2 0.2 1.4 79,825 1.4 7.0 13.8 4.0 2 2 . 1 ^ 39.4 0.7 1.8 307,958 12.7 22.2 4.5 2.3 24.8 5.1 26,233 0.9 2.8 8.4 11.0 1.8 1.1 6.7 " 158,649 0.7 4.2 4.0 2.6 1.9 0.7 2.3 f c 9 -8 26.2 k J -0 51.2 1.2 J 6 .1 4 . 6 ™ 79.0 Source: U. S. Department o f Commerce, Bureau of the Census 25 ECONOMIC REVIEW the tonnage orginated in the W est South C en from the Mountain States, as would be ex tral States was destined for the region. B e pected, went mostly to the Pacific and West cause of the large quantities of petroleum North Central States. The largest proportion products and chem icals produced in excess (only 4 .6 percent) of shipments from the of the W est South Central region's own needs, Pacific region was destined for the Mountain the region was the principal net exporter of States. Again, the West South Central region these commodities to other regions (see Table was unique because of the area's rich re IIIc). sources of petroleum and relative speciali The large proportion of a region's ship zation in chem ical manufactures. The major ments that terminate within the same area proportions of these commodities not con appears to reflect not only the force of the sumed within the region were shipped by region's indigenous demands but also the tanker and pipeline to the South Atlantic, impact of distance and time in increasing the Middle Atlantic, and New England States. cost of transport, and thus the total unit cost Distance. Typically, regional demand and (or realized price) of a commodity at the point the increasing cost of supply with distance of purchase. This "friction " is further re and time com bine to direct supply to the area flected in the tendency for the largest pro of nearest demand, with a gradual diffusion portions of a region's freight shipments to of an area's supply into adjoining areas. As terminate in contiguous regions. For example, shown in Table V, the largest proportion of the greatest shares of shipments out of the New England region were destined for the freight tonnage (5 6 .7 percent) is typically shipped to destinations within 3 0 0 miles of Middle Atlantic region and East North C en the point of origin. This pattern is particularly tral States (see Table IV ). Similarly, shipments true in the more compact Census regions. from the Middle Atlantic region flowed pre dominantly into the East North Central and from production area l 4 and 5 7 percent from South Atlantic States. The greatest proportions production area 2 were to points within 3 0 0 For example, over 7 5 percent of freight shipped of freight shipments from the East North C en miles. In a slight majority of production areas, tral region went to the Middle Atlantic, W est in fact, the proportion of tonnage shipped North Central, and South Atlantic States. The within 100 miles exceeds that shipped into W est North Central region shipped mainly the 100 to 2 9 9 mile range. into the East North Central and W est South The major exceptions to this tendency are Central States. The South Atlantic region sent the production areas in the western part of most of its products, beyond those required the Middle Atlantic region (areas 8, 9, 10, by its own industry and consumers, to cus and 12) and production area 11 (which covers tomers in the Middle Atlantic and East North Cleveland, Ohio, and adjoining Standard Central States. Shipments out of the East Metropolitan Statistical Areas in eastern Ohio South Central region were destined mainly for the South Atlantic, East North Central, and West South Central States. Commodity flows Digitized for 6 2 FRASER 4 See Appendix for description of production areas. SEPTEMBER 196 8 TABLE V Percent Distribution of Freight Shipments, United States an d by Distance Shipped an d Production A re as 1963 Distance Shipped Region (Thousands of Tons) Under 100 miles l,3 3 4 ,8 3 8 f Production Area Number* 100-299 miles 30 0-49 9 miles 50 0 -9 9 9 miles 1,000-1,499 miles 1,500 miles or over 1 1 .6 % 1 3 .9 % 12 . 7 % 5 .1 % 3 0 .0 % 2 6 .7 % 1 8,879 42.5 32.9 4.7 12.9 4.0 3.0 2 4,187 34.6 22.4 6.4 24.8 5.9 5.9 3 9,767 55.9 21.7 6.7 8.7 3.3 3.7 4 25,321 51.9 26.6 6.8 8.5 3.5 2.7 5 67,847 68.6 20.3 6.2 3.6 0.6 0.7 United States New England M iddle Atlantic 7 6,372 56.9 28.3 5.3 4.7 1.9 2.9 8 10,460 29.0 47.7 9.6 8.8 2.6 2.3 9 45.8 6.3 17.9 3.4 4.9 16.9 48.6 22.4 7.5 2.0 2.6 33,502 26.8 40.9 18.6 7.3 3.6 2.8 11 31,934 27.4 34.8 22.5 9.3 3.0 3.0 13 35,443 38.3 26.4 18.4 10.9 1.4 4.6 14 12,061 28.1 36.5 14.0 16.8 1.4 3.2 15 70,281 38.9 33.3 11.3 13.3 1.0 2.2 16 W est North Central 21.7 13,960 12 East North Central 4,397 10 8,520 16.7 23.2 17.8 30.8 7.7 3.8 17 11.1 9.2 4.0 0.9 42.9 13.2 12.5 1.6 1.6 17,833 36.5 37.0 11.6 12.5 1.1 1.3 2,105 21.0 34.3 24.2 17.8 0.1 2.6 20 9,380 24.2 39.1 17.9 12.2 6.0 0.6 21 W e st South Central 36.9 28.2 19 * East South Central 37.9 23,229 6 South Atlantic 12,080 18 194,537 4.0 4.4 4.7 12.7 62.8 11.4 Mountain 22 2,847 23.3 22.6 13.7 27.6 3.0 9.8 Pacific 23 7,490 55.9 13.7 1.3 14.0 4.6 10.5 24 36,009 54.2 14.3 7.5 13.4 1.5 9.1 25 49,573 57.3 14.3 14.2 3.9 0.8 9.5 * See Appendix for description of production areas. f The United States total exceeds the sum of tons shipped from the 25 production areas by the quantity shipped from S M S A s not included in the 25 production areas and from all places located outside of SM SAs. Sources: U. S. Department of Commerce, Bureau of the Census and Federal Reserve Bank of Cleveland and western Pennsylvania). These areas are Georgia), and area 2 0 (Dallas-Fort Worth, dominated Texas). All of these by heavy industries (primary metals and machinery) that serve the entire areas are relatively isolated (geographically) from other major nation. O ther exceptions to the tendency to centers of population and industry in the ship to nearby areas within a region include United States. Of m ajor interest is area 21, area 14 (Cincinnati, Ohio, and contiguous covering the major petroleum shipping cen SMSAs 18 ters of southeastern Texas, from which a large (Atlanta, proportion of oil is transported by tanker (St. in Louis, southwestern Missouri), Ohio), area 19 area 27 ECONOMIC REVIEW TABLE V I Percent Distribution of Freight Shipments, United States an d b y M o d e of Transport an d Production A re a s 1963 M o d e of Transport Region Production Area Number* Rail l,3 3 4 ,8 3 8 f United States (Thousands of Tons) M otor Carrier (regulated) Motor Carrier (private) Air W a te r Other 2 4 .5 % 0 .6 % 3 2 .8 % 2 5 .9 % 16 .2 % 1 8,879 11.7 50.9 27.8 t 0 .1 % 2 4,187 22.4 53.5 18.7 0.3 New England M id d le Atlantic 7.8 1.7 2.3 2.8 3.0 3 9,767 9.1 49.2 37.3 0.2 1.2 4 25,321 15.3 47.7 10 1 0.1 25.6 1.2 5 67,847 12.0 20.6 8.9 0.1 58.0 0.4 0.5 7 6,372 40.6 47.6 11.1 -0 - 0.2 8 10,460 42.9 32.8 22.8 —0 — 0.3 1.2 9 4,397 36.6 34.7 26.4 -0 - 1.0 1.3 10 East North Central 13,960 45.0 34.3 10.9 0.1 8.1 1.6 12 33,502 51.5 33.2 4.8 -0 - 9.8 0.7 11 31,934 43.3 46.5 8.1 -0 - 1.2 0.9 13 35,443 45.6 29.5 21.6 0.1 2.8 0.4 14 12,061 29.9 48.3 15.2 0.1 5.9 0.6 15 70,281 35.4 44.5 9.2 -0 - 10.1 0.8 16 East South Central W e st South Central 53.8 31.2 12.9 0.4 0.4 1.3 1 2,080 35.9 40.0 10.0 -0 - 8.3 5.8 23,229 32.5 35.1 8.8 -0 - 23.1 0.5 6 17,833 20.9 52.1 13.8 -0 - 12.6 0.6 19 * 2,105 23.0 46.8 28.6 —0— -0 - 1.6 20 9,380 25.6 52.2 21.9 -0 - -0 - 0.3 21 South Atlantic 8,520 17 18 W e st North Central 194,537 4.0 2.9 0.6 -0 - 92.4 0.1 0.1 Mountain 22 2,847 33.2 37.8 28.6 0.1 0.2 Pacific 23 7,490 25.5 24.0 37.2 0.1 13.0 0.2 24 36,009 27.5 25.7 15.4 -0 - 30.5 0.9 25 49,573 15.5 34.6 29.9 0.1 19.3 0.6 * See A ppendix for description of production areas. f The United States total exceeds the sum of tons shipped from the 25 production areas by the quantity shipped from S M S A s not included in the 25 production areas and from all places located outside of SM SA s. J Less than 0.1 percent. Sources: U. S. Department of Commerce, Bureau of the Census and Federal Reserve Bank of Cleveland 28 SEPTEMBER 196 8 around the Gulf coast to the South Atlantic, the shipping point favors the trucking indus Middle Atlantic, and New England coasts. try. Regulated and private truckers accounted All of the foregoing production areas tend to for about 4 2 percent of the total volume of ship a greater share of their freight to destin manufactured goods shipped in 1 9 6 3 (see ations of 3 0 0 to 9 9 9 miles from origin. Denver, Table V I). All but one of the production areas Colorado (area 22), is another example of with a large share of shipments terminating the effects of isolation from other important within 100 miles shipped predominantly by market centers. W hile almost 4 6 percent of truck. Area 5 (Philadelphia, Pennsylvania, the Denver area's freight shipments terminates and surrounding SMSAs) shipped 5 8 percent within 3 0 0 miles, about 2 8 percent goes to of the volume of freight by water from the points from 5 0 0 to 9 9 9 miles away. The dis major ports on the Delaware River. Never tance distributions for the Milwaukee-Kenosha- theless, almost 3 0 percent of shipments from Racine area (number 16) and for the B alti area 5 were moved by truck. W here longer more area (number 6) also provide examples distances are involved, rail tended to account of relative isolation and market dispersion. for noticeably larger proportions of freight M o d e of Transportation. The tendency for movement, except where proximity to rivers, the greatest proportion of the volume of freight the G reat Lakes, or ocean harbors facilitated shipments to terminate within 3 0 0 miles of traffic by water. 29 APPENDIX PRODUCTION AREAS BY REGION The U. S. Departm ent of Com merce, Bureau of the Census, developed a list of 25 production a re a s for the 1963 Census of Transportation. Each production a re a consists of one or more Sta n d a rd M etrop olitan Statistical A re a s (S M S A s ) a n d represents a com pact g e o g ra p h ic concentration of m anufacturing activity. The production a re a s are grou p ed b y the nine C ensus regions. Five a re a s (num bers 5, 11, 12, 14, and 18) extend into two or more regions. Region Production Area New England 1. Boston, Massachusetts; Worcester, Massachusetts; Providence-PawtucketWarwick, Rhode Island-M assachusetts; Brockton, Massachusetts; LawrenceHaverhi 1 , M assachusetts-New Hampshire; Lowell, Massachusetts. 1 2. Hartford, Connecticut; New Britain, Connecticut; Meriden, Connecticut; Waterbury, Connecticut; New Haven, Connecticut; Bridgeport, Connecticut; Norwalk, Connecticut; Stamford, Connecticut; Springfield-Chicopee-Holyoke, Massachusetts-Connecticut. Middle Atlantic 3. New York, New York. 4. Newark, New Jersey; Jersey City, New Jersey; Paterson-Clifton-Passaic, New Jersey; Middlesex and Somerset Counties, New Jersey. 5. Philadelphia, Pennsylvania-New Jersey; Wilmington, Delaware-New JerseyMaryland; Trenton, New Jersey. 7. Allentown-Bethlehem-Easton, Pennsylvania-New Jersey; Reading, Pennsyl vania. 8. Harrisburg, Pennsylvania; Lancaster, Pennsylvania; York, Pennsylvania. 9. Syracuse, New York; Utica-Rome, New York; Albany-Schenectady-Troy, New York. 10. Buffalo, New York; Rochester, New York. 12. Pittsburgh, Pennsylvania; Steubenville-Weirton, Ohio-West Virginia; W heel ing, West Virginia-Ohio. East North Central 11. Cleveland, Ohio; Akron, Ohio; Canton, Ohio; Lorain-Elyria, Ohio; YoungstownWarren, Ohio; Erie, Pennsylvania. 13. Detroit, Michigan; Flint, Michigan; Toledo, Ohio-M ichigan; Ann Arbor, M ich igan. 14. Cincinnati, Ohio-Kentucky-lndiana; Dayton, Ohio; Hamilton-Middletown, Ohio; Springfield, Ohio. 15. Chicago, Illinois; Gary-Hamm ond-East Chicago, Indiana. 16. Milwaukee, W isconsin; Kenosha, W isconsin; Racine, W isconsin. West North Central 17. M inneapolis-St. Paul, Minnesota. 18. St. Louis, Missouri-11linois. South Atlantic 6. Baltimore, Maryland. 19. Atlanta, Georgia. East South Central No S M S A within the East South Central region was selected as a production area for C ensus year 1963, although data for the region as a whole (see Tables I through IV) were compiled and published. West South Central 20. Dallas, Texas; Fort Worth, Texas. 21. Houston, Texas; Beaumont-Port Arthur, Texas; Galveston-Texas City, Texas. Mountain 22. Denver, Colorado. Pacific 23. Seattle-Everett, Washington; Tacoma, Washington. 24. San Francisco-Oakland, California; Vallejo-Napa, California; San Jose, C ali fornia. Digitized for 3 0 FRASER 25. Los Angeles-Long Beach, California; Anaheim -Santa Ana-Garden Grove, Cali fornia; San Bernardino-Riverside-Ontario, California. RECENTLY PUBLISHED ECONOMIC COMMENTARIES OF THE FEDERAL RESERVE BANK OF CLEVELAND "Bank Revenue and Expenses, 1960-1967" A u g u st 24, 1968 "Recent and Prospective Developments in Agriculture" A u gu st 31, 1968 "Wage-Cost Pressures in the Economy — Part I" Septem ber 7, 1968 "Wage-Cost Pressures in the Economy — Part II" Septem ber 14, 1968 "Trends in U. S. Trade in Agriculture" Septem ber 21, 1968 Econom ic C om m entary is published w eekly a n d is a va ila b le without charge. Requests to be a d d e d to the m ailing list or for additional copies of a n y issue should be sent to the Research Department, Federal Reserve Bank of C leveland, P. O . Box 6387, C leveland, O h io 4 4101. 31 Fourth Federal Reserve District
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