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January
Seasonal Adjustments
.
•
•
•
Accelerated Payment of
Corporation Income Taxes
3
page 10
.
Changing Composition of
Farm Production
Current Charts and Statistics
page
1955
page 13
. .
.
.
page
15
RESERVE BANK
KANSAS CITY
Subscriptions to the MONTHLY REVIEW are
available to the public without charge.
Additional copies of any issue may be obtained from the Research Department, Federal Reserve Bank of Kansas City, Kansas
City 6, Missouri. Permission is granted to
reproduce any material in this publication.
Seasonal
Adiustments
characterized much of
the movement in business activity during the
year just ended. A similar description is conveyed by observing that a number of indexes
of economic activity were generally stable,
after correction for seasonal influences. This
is iJlustratcd by lhe Fed eral Reserve index of
industrial production; the unadjusted series
fluctuated 14 index points, while the adjusted
index moved within a narrow range of 3
points throughout most of the year. In view
of the need to recognize seasonal movements
in describing and analyzing economic activity,
the primary features of seasonal adjustments
together with seasonal patterns in selected
economic series are presented in this article.
Seasonal variation is a type of periodic
movement with a rather definite pattern of
fluctuation throughout the year. Two factors
give rise to most seasonal variations, directly
or indirectly. Patterns of the weather produce
seasons in agriculture, construction, fuel consumption, travel, and many other activities.
Social customs associated with particular
dates and seasons, such as Christmas, Easter,
and vacation periods, give rise to seasonal
patterns in other economic data.
It is desirable to remove seasonal fluctuations from economic time series, which consist of data classified chronologically, since
they are of limited assistance in analyzing
current economic developments. In a series
which has been properly adjusted for seasonal
variation, the value for a particular month
does not tend to be different from the values
SEASONAL VARIATIONS
of adjacent months because of the time of the
year, nor does a pattern of movement repeat
itself in successive years. Seasonal correction
aids in observing the influence of more significant economic forces, as revealed by
cyclical and trend movements, and reduces
the likelihood of assigning incorrect explanations to observed variations. For example, in
an unadjusted series, a seasonal increase may
be mistaken for a fundamental improvement
in business conditions or a normal seasonal
downturn may generate undue pessimism.
Est imating Seasonal Factors
The logic underlying the determination of
seasonal factors is easily understood. For a
time series characterized by regularly recurring seasonal fluctuations, it is reasonable to
portray an average pattern of seasonal variation. Simple as the concept appears, it does
result in numerous technical problems. It is
often difficult to isolate the influence of a
seasonal force because of the variety of forces
playing upon economic data. Nor are seasonal
patterns constant. They tend to change over
time-sometimes abruptly, as may occur at the
outbreak of war, but more often gradually,
reflecting changes in consumer buying or
3
Seasonal Adjustments
business practices. In making current corrections, it is frequently difficult to determine
whether a particular departure from the
previous pattern represents a random fluctuation or marks the beginning of a shift in the
pattern. It is accepted procedure, therefore,
to review seasonal factors periodically in the
light of accumulated data.
Since the purpose of seasonal adjustment is
to eliminate the typical seasonal pattern, the
various methods of adjustment are based on
averaging principles. In the first major step,
an estimate of the combined trend and cyclical movements in a time series is obtained
by an averaging procedure. Seasonal factors
thrn arc d 'rived from the ratios of the original
unadjusted monthly data lo the c stimate of
trend and cyclical movements. The curves in
Figure 1 portray seasonal factors in Tenth
District department store sales for the months
of July and December over a period of years.
Similar series exist for the other 10 months of
Figure 1. CHANGES IN SEASONAL FACTORS
Department Store Sales in the Tenth District
INDEX
AVERAGE FOR CALENDAR YEAFl
= 100
INDEX
170 . - - - - - - - - - - - - - - - - - - , 170
165
165
160
160
155
155
Patterns in Selected Series
DECEMBER
150
150
85
85
80
JULY
80
75L-.I..-..I..-....L-....I-....I-....I-_._--L.._,___.____.___.___.__._____, 75
1938
'43
'48
SOURCE: Federal Reserve Bank of Kansas City.
4
the year. Reading from the lower curve, the
seasonal factor for July 1950 is 82, meaning
that department store sales were expected to
be 18 per cent below the average for the year
in the absence of nonseasonal movements.
Each of the series of seasonal factors
exhibits changes in its pattern. July sales
have become larger relative to other months,
as is shown by the upward shift in the
adjustment factor. The series for December indicates the effect of a temporary change
in consumer spending habits. During World
War II, consumers shopped earlier in order
to obtain merchandise that might become
scarce nearer Christmas and in onkr to prepare pa ·kag •s for overseas mailing. Dcccmher sales b ·ame smaller relative lo the
November volume. Since the war, consumers
have shifted back to pr war habits and
December sales have regained their former
position.
The final major step in adjusting for seasonal variation consists of dividing the original unadjusted series by the seasonal factors.
Continuing with the example, the unadjusted
index of department store sales in the Tenth
District for July 1950 is 112. Dividing this
index by the seasonal factor, 82, yields the
adjusted index of 137. The seasonal factor for
December 1950 is 164, which may he read
from the upper curve. Using this as the
divisor of the unadjusted index, 183, gives an
adjusted value of 112.
'53
Industrial Production and Em lo ment
The Federal Reserve monthly index of industrial production is adjusted for patterns of
variation which tend to reappear in successive years. An averaging technique is employed to determine directly the s asonal
factors for each of 26 major industry group
indexes. In making current adjustments to
these series, the seasonal pattern of the most
Seasonal Adjustments
recent complete year is used unless special
conditions dictate modification. Adjusted indexes for the major divisions-durable manufactures> nondurable manufactures, and minerals-as well as the total are obtained by
aggregating the adjusted group indexes.
Since the total index and its major divisions
are not adjusted directly, implied seasonal
factors are derived by dividing the unadjusted
monthly indexes by the corresponding adjusted indexes. Implied seasonal factors in
industrial production for 1953 are shown in
Figure 2. The pattern reveals that total prodnc.:tion is seasonally high in February and
March and in Scptcmh<'r, October, and November. The adjuslmcnl factor for July i<; 9-1,
indicating that insofar as scasollal iuflu('nccs
are concerned the unadjusted index of production is expected to be 6 per cent below the
average for the year. This summer decline
in production reflects the importance of indush·y-wide vacations since World War II.
The amount of seasonal fluctuation in industrial production has been about 10 per
cent during recent years. This is considerably
smaller than in some sales and construction
series. For the individual industry groups,
the amplitudes of seasonal variation cliff er
widely. Recently, for example, the separation
between maximum aud minimum seasonal
production was only 5 points in the output of
petroleum and coal products and 7 points in
the production of fabricated metal products.
On the other hand, the seasonal indexes for
the production of electrical machinery varied
from a low of 84 in July to 106 in March and
in October. The variation in the mining industries was even larger, with spreads of 42
points in the production of anthracite and 49
points in meta] mining.
Production of nondurable goods is normally highest in the fall of the year. Among
nondurable manufactures, several important
industry groups-foods and beverages, chemicals ( equally high in February and March),
Figure 2. SEASONAL FACTORS IN INDUSTRIAL
PRODUCTION, 1953
= 100
. - - - - - -AVERAGE
- - - ,FOR, YEAR
------------.
INDEX
II 0
TOTAL
DURABLE
MANUFACTURES
MINERALS
NONDURABLE
MANUFACTURES
105
100
95
90
II 0
105
90
J
F
Iii A U J
J
A 9
0
H
D
J
F
III A Ill
J
J
A 5
0
N D
SOURCE: Board of GovP.rnMs of the Federal Reserve System.
printing and publishing, paper products,
and rubber products-reach their seasonal
production peaks in the autumn. Production
of textiles, apparel, and leather and leather
products is normally highest early in the
year. In the minerals division as well, output
usually is high in the autumn, with production
of anthracite and of bitumi11ous coal reaching
peak levels. An exception to this characterization of mineral production occurs in the crude
oil and natural gas indush-y, for which no
seasonal adjustment is made.
Durable manufactures reach their seasonal
peak in the spring. Primary metals, nonelectrical machinery, el~ctrical machinery
( equally high in October), and transportation equipment normally build up to peak
production in March. In the fall, manufacturing of fabricated metal products and of
stone, clay, and glass products usually is at
its highest level. Output of lumber and products is seasonally high from April through
October, except for July, while furniture
production normally is highest at year end.
s
Seasonal Adjustments
SEASONAL VARIATION IN TOTAL PRODUCTION,
19 52
Current
Index
Old
Index
January
February
March
April
98.9
101.0
101.8
100.1
98.0
98.2
99.0
99.5
May
June
99.1
100.4
94.2
100.0
101.7
103.0
101.0
100.2
101.0
100.1
102.1
101.7
101 .9
100.0
98.5
98.9
Month
July
August
September
October
November
December
SOURCE: Boord of Governors of the Federal Reserve System.
When the index of industrial production
was revised in 1953, new seasonal adjustment
factors were developed. The implied 1952
patterns for the current and the old indexes
are compared in the accompanying table. The
adjustment made in the current index for the
July production drop is the most noticeable
difference between the two patterns. As indicated earlier, this is associated with the increased importance of industry-wide summer
vacations. Production in 15 of the 24 major
industry groups requiring seasonal adjustment normally is low in July. The table also
indicates that the current index makes adjustment for higher seasonal production in the
first quarter and in October and November.
In general, seasonal patterns of employment
are associated with those of production in the
various industry groups. Seasonal variations
in manufacturing production worker employment, however, tend to be much less than in
output. Changes in output within certain
ranges may be accomplished readily by varying the workweek, leaving employment constant. In addition, vacationing employees are
considered employed, although production
schedules reflect their absence.
The relative amounts of fluctuation in factory production and employment may be
illustrated by the durable and nondurable
goods divisions. The over-all seasonal fluctua-
6
tion in durable goods production was about
10 per cent, while the seasonal factor for
production employment in these industries
varied 2 per cent in 1953. Similarly, in the
nondurable goods sector, the seasonal fluctuation in output was 11 per cent; in employment, 7 per cent. Variations in production
worker employment are largest in the food
canning and tobacco industries.
Output of Consumer Durable Goods
In analyzing current business conditions,
attention is commonly centered not only on
movements in the broad categories of industrial production but also on those in particular
iu<lustrics. The auto industry and others
making consumer durable goods receive
rather intensive study. Accordingly, knowledge of their seasonal patterns is essential.
The Federal Reserve Board's monthly index
of output of consumer durable goods indicates
production is normally high in the autumn and
the spring. As in over-all industrial producFigure 3. SEASONAL FACTORS IN THE OUTPUT
OF CONSUMER DURABLE GOODS, 1953
INDEX
AVERAGE FOR YEAR :r 100
130
r------'-'-'-.::;.c..;..;_:...;;;._:;..;......c.=.....;__~------,
lltDl.~11-- - - - - - - .
11
120
o AUTO PARTS
¢TIRES . I \ .
100
/-'
HOUSEHOLD
FURNITURE
\
110
100
90
80
70
AUTO MOBILES
85
60
REFRIGER AT lt ) APPLIANCES
\J
50'--...J-__.JL...-...J----1--'---'--'---'-,,,......__.__
_.__
JAN. FEB. MAR. APR.MAY JUNE JULY AUG.SEPT.OCT. NOV. DEC.
SOURCE: Board of Governors of the Federal Reserve System.
Seasonal Adjustments
tion, activity in this sector of the economy is
seasonally low in the summer-in July, output
normally is more than a tenth below the
average for the year. Of the 11 seasonally adjusted subgroups, all but 3 are at seasonal
low points of production during July or
August. Autos, auto parts and tires, and
heating apparatus constitute the exceptions.
Seasonal adjustments are made directly to
subgroups of the total index, as in the index
of industrial production. The implied 1953
seasonal factors for the total output of consumer durable goods and th~ factors used to
adjust several more important subgroups are
shown in Figure 3. In adjusting the monthly
production of autos, the timing and duration
of model change-over periods are treated
separately from other seasonal variations. The
adjustment factors shown represent the combination of these influences. Since 1949, auto
production apparently has been characterized
by higher spring and lower winter output
rates, with the range of seasonal variation
smaller than prior to World War II. In 1954,
however, the relatively early model changeover may tend to alter this pattern.
The magnitude of seasonal fluctuations in
a number of consumer durable goods industries is greater than in most other types of
industrial production. The output of refrigeration appliances, floor coverings, heating apparatus, radio sets, ranges, and laundry appliances is normally more than 50 per cent
greater in the peak month than in the seasonally low month. In the case of television sets,
production averages about three times as high
in October and November as in July. Seasonal
fluctuations are smallest in the production of
household furniture and in auto parts and
tires; yet, their seasonal factors varied about
11 points in recent years.
De artment Store Sales and Stocks
With the memory of Christmas fresh in
mind, it requires little imagination to visualize
Figure 4. SEASONAL FACTORS IN DEPARTMENT
STORE SALES AND STOCKS, 1953
INDEX
AVERAGE FOR YEAR= 100
INOEX
180
180
160
UNITED STATES
TENTH DISTRICT
--
160
140
- 140
120
120
100
100
-
80
SALES
60
60
120
120
100
100
J
F
M
A
M
J
J
A
S
O
N
0
SOURCE: Federal Reserve Bank of Kansas City and Board of
Governors of the Federal Reserve System.
the predominant seasonal movement in department store sales. December sales are traditionally about two-thirds higher than the
average for the year and have more than
doubled January sales in recent years. This is
illustrated by Figure 4 which depicts the
seasonal pattern in sales at department stores
in the United States and the Tenth District.
A more limited peak in department store
sales normally occurs in the spring, reflecting
the higher sales of apparel and other items at
Easter. Because of variation in the date of
Easter, special adjustments are required for
the months of March and April. While the
adjustment factor for each of the two months
varies, the total of the March and April
adjustment factors is not changed by the
Easter adjustment. For example, seasonal
factors for March and April sales were 88 and
97, respectively, in the Tenth District in 1954
7
Seasonal Adjustments
when Easter occurred on April 18. In 1953, an
earlier Easter, on April 5, resulted in adjustment factors of 91 for March and 94 for April.
One of the most interesting changes in the
seasonal pattern of sales during the past
decade-other than the temporary shifts of the
war period-has occurred in July, as pointed
out earlier. Deparbnent store sales in the
Nation, as in the District, during July have
become larger relative to other months, although they continue to be at a reduced level.
The increase reflects primarily promotional
activity by store management to expand sales
during this summer month and the greater
vari ty of seasonal s1 unmer goods.
Adjusted d partment store sales figure's are
ompil ,d by each n s rvc hank for th• stores
in its district. Seasonal factors, omputed by
means of uniform procedures, are applied to
the index of daily average sales in making the
adjustment. By using daily average sales,
most fluctuations in sales resulting from calendar irregularities are eliminated. The national sales index is a weighted average of the
12 district indexes; thus, the seasonal factors
for the U. S. index are derived by dividing the
unadjusted index for each month by the corresponding seasonally adjusted index.
Seasonal mov ments in department store
stocks reflect the variation in sales throughout
the year, as well as the purchasing practices
of store management. The range of seasonal
fluctuation in stocks is more limited than that
in sales. Normally, stocks reach a peak in
November, preceding the peak in sales; and,
as is apparent in Figure 4, December sales
usually deplete stocks considerably.
Consumer Instalment Credit
The amounts of instalment credit extended
and repaid each month exhibit different seasonal variations. This follows from the fact
that credit extensions are closely associated
with consumer buying patterns, while repayments are governed by past extensions and
8
contract terms. Since credit extensions reflect
consumer decisions, they are a useful indicator
of current market conditions.
Seasonal factors for the various types of instalment credit extended are shown in Figure
5. They are computed by the Board of Governors, using the same basic technique employed in adjusting the other series. The seasonal pattern for total credit extended was
derived by adding the weighted factors for
the four types of credit. Seasonal factors for
the different types of credit are associated
with the sales patterns of the commodities
which generate the requirements for the
credit. Auto loans, which ac ount for about
40 to 45 per c nt of all instalment credit xtend d, reach a peak in June after rising
steadily during the spring months. These
loans normally decline during the autumn to
a low level in the winter months. Repair and
modernization loans also are low in the
winter and rise rapidly in the spring. The
volume of this type of lending remains at a
Figure S. SEASONAL FACTORS IN CONSUMER
INSTALMENT CREDIT EXTENDED, 1953
INDEX
160
AVERAGE
II 5
140
105
95
120
FOR YEAR "'100
INO[K
125
AUTOMOBILE
PAPER
PERSONAL
LOANS
~
100
80
60
40,..__,___,J,_....J......_--L._.L--L__Jl_.J._-l_..J....___J___J
JAN. FEB. MAR . APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
SOURCE: Board of Governors of the Federal Reserve System.
Seasonal Adjustments
high level from June through October, although it dips slightly in midsummer.
Seasonal variations in the extension of credit
for other consumer goods display pronounced
fluctuations. A relatively high level is reached
in May, followed by a decline during the
summer months. The peak normally is reached
in December, under the stimulus of Christmas
sales. Over a quarter of the instalment credit
extended during recent years was on paper of
this type. The seasonal pattern in personal
loans fluctuates from a relatively low level in
January and F ebruary to a moderately high
levC'l in June. The temporary expansion in
Mar('h is associatC'cl with the volum' of loans
made for income tax paymC'nts. After June,
personal loan extensions norma1Jy decline
11ntil November, when they begin to increase
toward the seasonal peak in December.
Canstruction
A discussion of seasonal variation would not
be complete without considering the patterns
which weather forces upon construction activity. In keeping pace with the large volume
of construction during recent years, some
progress h as been made in modifying seasonal
variations b y the more widespread adoption of
modern equipment and improved work scheduling. The influence of the weather, however,
remains evident. Seasonal adjustments for
nonfarm housing starts are prepared by the
U.S. Bureau of Labor Statistics, while the U.S.
Department of Commerce adjusts other construction activity series. Seasonal factors for
several important construction series and
housing starts are shown in Figure 6.
Seasonal variation in private nonfarm housing starts is quite pronounced. The low point
nsually occurs from November through February, when outdoor activity is curtailed in
Figure 6. SEASONAL FACTORS IN PRIVATE
CONSTRUCTION
INDEX
AVERAGE FOR YEAR •100
INDEX
120 , - - - - - - - - ' - - ~ ; . . . ; ; , - - - - - - - - - , 120
II 0
II 0
100
100
90
90
80
80
PUBLIC UTILITIES
70~~~~~~~~~
JFMAMJJASONO
~~~~~~~-~70
JFMAMJJASONO
NOTE : Since the individual components of commercial building
ore adjusted directly, the seasonal index for commercial
building is implied.
SOURCE : U. S. Bureau of labor Statistics and U. S. Deportment
of Commerce.
much of the country. Starts pick up in March
and normally reach a peak in May which is
about 19 per cent above the average for the
year. Throughout the summer and early fall,
housing starts gradually fall off.
The seasonal pattern in residential building,
measuring work put in place, lags behind and
exhibits less over-all fluctuation than housing
starts. While the range of the seasonal indexes in commercial building and public utility construction is similar to that in residential
building, the patterns of the three exhibit
individual variations. The most distinctly different pattern is that of industrial building.
April marks the seasonal low point and November and December the seasonal high in
the value of construction put in place. Moreover, the amplitude of seasonal variation is
only about half that in the other series shown.
Although not illustrated in Figure 6, highway
construction is influenced by the weather
more than other types of construction. In an
average year, four times as much highway
building occurs in August as in February.
9
Accelerated Payment of
Corporation Income Taxes
PRIOR TO TIIE effective date of certain features of the Revenue Act of 1950, corporations
paid their income tax on a given year's income in four quarterly jnstalments in the year
following the close of the corporation's fiscal
year. For corporations whose fiscal years
coincided with the calendar year, this meant
payment of one fourth of the tax liability on
the 15th of March, June, September, and December. But a provision of the Rnvcnuc Act
of 1950, usua1ly referred to as the Mills
Amendment, r quired that corporations pay
30 per cent of their tax Hahility on income
earned in 1950 in each of the first two quarters of 1951 and the remainder in the second
two quarters. The Act further provided that
payments would be stepped up to 35 per cent
in the first two quarters of 1952, to 40 per
cent in the first two quarters of 1953, to 45
per cent in the fir~t two quarters of 1954, and
finally to 50 per cent in the first two quarters
of 1955. The shortening of the lag in paymsnts was designed to aid in financing the
Government during the period when defense
outlays were expected to be heavy.
This system has concentrated Treasury tax
receipts from corporations in the first two
quarters of the calendar year, making it necessary for the Treasury to borrow to cover a
deficit in the last half. In order to bring the
flow of Treasury receipts in the year more
nearly into balance with the rate of its expenditures, a further acceleration of tax payments is required under the Internal Revenue
Code of 1954. Under the provisions of the
new code, corporations having an estimated
tax liability exceeding $100,000 on 1955 income will pay 5 per cent of the liability in
excess of $100,000 in each of the last two
quarters of 1955. In succeeding years, the rate
10
required to be paid in these two quarters on
liability in excess of $100,000 will increase by
steps of 5 per cent until, in the last half of
1959 and succeeding years, payments will be
made in four quarterly instalments of 25 per
cent each. Restriction of the application of
accelerated payments under the new tax code
to larger corporations is expected to confine
its effect to about 20,000 companies which pay
an estimated 85 per cent of corporate tax liability. The transition in the timing of tax payments has had and will hav cff cts upon
U. S. Treasury tax receipts and the working
capital position of corporations. It is of interest to note how these effects are produced.
The effect of accelerated tax payments on
the tax receipts of the Treasury is quite significant. In the period 1951 through 1960 as
a whole, the Treasury will receive approximately an extra half year's taxes from corporations through advancement of the dates
of tax payment. So far as the Treasury's fiscal
years are concerned, the increase in revenues
is concentrated in the second half of the fiscal
years 1951 through 1955. Under the Mills
Amendment, the shift of corporate tax payments from September and December to
March and June moved tax receipts from a
later to an earlier fiscal year, since the Government's fiscal year ends on June 30. Such a
transfer of payments will not occur in the case
of calendar year corporations under the new
tax code, since it provides for payments to be
shifted from March and June of a given year
to September and December of the preceding
year, or a shift within the Government's fiscal
year. Therefore, Treasury receipts from corporate taxes will not be supported by accelerated payments after the current fiscal year,
ended June 30, 1955, except as the new code
Corporation Income Taxes
affects companies whose fiscal years differ
from the calendar year. The Committee on
Finance, United States Senate, estimated that
companies whose fiscal years coincide with
that of the Treasury would pay an additional
$150 million each year in the fiscal years 1956
through 1960.
The effect of the Mills Amendment on corporations whose fiscal year coincides with the
calendar year has been to shift payments from
the latter half to the earlier half of the calendar year. The acceleration of payments that
begins in the latter half of 1955 will shift payments from 1956 into the 1955 corporate fiscal year. Both laws, of course, shorten the
period a company may use as working capital the funds corresponding to accrued taxes
and, therefore, both require that alternative
sources of capital be found.
The acceleration of tax payments has been
in progress since 1950 and it is of some interest to note the manner in which corporate accrued tax liabilities have been affected. The
accompanying chart shows the movements of
accrued tax liability before and after 1951 for
manufacturing corporations; the sample for
the years 1947-1950 is less representative of
MANUFACTURING CORPORATIONS
Accrued Tax Liability as a Percentage of Four Quarters
of Provision for Federal Income and Excess Profits Taxes
PER CENT
f'£R CENT
130
130
120
120
1947-1950
110
110
100
100
90
90
80
80
70L--1-l..,-.L..-.l-.L-,-..L-~~-'-:-:::-':--=-_.__._-'--:::-=-::-.....___.70
19·47
1951
1948
1952
1949
19!13
1950
1954
SOURCE: Federal Trade Commission and Securities and Exchange
Commission.
all manufacturing corporations than that for
the later period, but the data will serve to
illustrate the differences in the two systems.
Each point on the lines represents the deduction from income for federal income and excess profits taxes during the year preceding
the date plotted, divided by total accrued
liability for these taxes on the date indicated.
This procedure is used to minimize the effect
of seasonal and other changes in corporate income and changes in tax rates on the fluctuations of the two sets of ratios.
The upper line indicates that in the years
until 1950 accruals ranged between 108 per
ceut and 114 per cent of the provision for
taxes in the preceding 12 months. The lower
Jiuc, covering the period from the fourth quarter of 1951 to the second quarter of 1954, denotes the irregular downward movement of
accrued taxes in relation to provision for
taxes. The influence of the Mills Amendment
is particularly noticeable at the low points in
1952, 1953, and 1954. Expiration of the excess
profits tax on December 31, 1953, markedly
reduced the provision for income tax in the
first half of 1954.
Looking at the period 1951-1954 as a whole,
it appears that the impact of accelerated tax
payments on corporate working capital positions was eased by relatively high corporate
profits and large holdings of liquid assets.
The level of profits permitted required tax
payments to be made, dividend disbursements
to be increased, and substantial sums to be
added to earned surplus accounts. The latter
two of these facilitated the procurement of
new capital through sales of securities. If the
acceleration had not occurred and accrued
tax liability had remained high, corporations
would not have needed to retain earnings as
additions to surplus to replace the declining
level of accruals. Thus, larger dividend disbursements would have been possible, or
alternatively, other capital requirements could
have been satisfied by retained earnings.
11
Corporation Income Taxes
The influence of accelerated tax payments
on corporate accrued tax liabilities and hence
on their resulting need for capital can best be
examined through a hypothetical case that
assumes corporate profits and tax rates to be
stable from 1950 to 1960, since these two
factors obscure the specific effects of the acceleration. In this example, the exemption of
tax liability of $100,000 is ignored. It is assumed that a company earns income which
accrues tax liability at a rate of $130,000 per
quarter. At the end of 1950, accruals wou]d
total $520,000. In the first quarter of 1951, an
additional $130,000 of liability would accrue
and , since :30 per cent of the tax Jiahility 011
HJ.SO income was required to he paicl, $156,000 would he remillccl lo the Treasury, lcavi11g accrued tax liability at the end of the
quarter at $494,000 ( $520,000 + $130,000 CHANGES IN CORPORATE ACCRUED TAX LIABILITY UNDER MILLS AMENDMENT AND
NEW TAX CODE
(Hypothetical Data)
THOUSANDS OF DOLLARS
600
1950
500
400
\95
300
--
--- ---
1959
-----.------200
100
0
2
3
QUARTERS
12
4
$156,000). Continuing the computation
through succeeding quarters gives a series of
quarterly values for the accrued tax liability of
the company through 1959. The second chart
illustrates the variations in and the decline of
accrued taxes as the acceleration of payments
proceeds through the years 1951 to 1960.
After the acceleration has been completed,
accrued tax liability will have decreased from
$520,000 to $260,000. Reference to the chart
will show that the minimum level to which
accrued liability declines is reached on June
30, 1955. The reduction thereafter occurs in
the first, third, and fourth quarters of the year.
In considering the cff 'cts of further accclCTalion of tax payments on the fina11cial position of corporations, it is 11cccssary lo distinguish between the reduction of working
capital and the source of funds used to make
the payment. Many companies have followed
the practice of purchasing short-term Treasury securities in step with the accrual of
taxes. Tax reserves, therefore, have not been
employed in the operations of the firm, except
to earn income on the securities, and further
acceleration should not have any material effect on decisions to retain earnings to replace
working capital. While corporations hold
Treasury securities for other reasons as well,
it is worthy of note that manufacturing companies held a larger volume of Government
securities than the amount of their accrued
tax liability in the first two quarters of 1954.
In all other quarterly reports since the data
became available at the beginning of 1951,
accrued tax liability exceeded holdings of
Treasury securities. Companies that have not
funded their tax reserves but have used them
for current operations, employing bank loans
to aid in making payments, may find that
further acceleration of payments requires that
earnings be retained to furnish a more permanent form of working capital. This possibility is enhanced as tax payments are distributed more evenly over the year.
Changing Composition
of Farm Production
Tim
of farm production in the
United States has been changing in recent
years along with the pattern of food consumption. Higher incomes have encouraged greater
consumption of livestock and livestock products an<l production of these products has increased more rapidly than crop production.
The trend toward a change in composition of
farm production, with livcstock ancl livestock
products hccomi11g relatively more important,
indicates that farmers tend to vary th 'ir production programs with the shifting demands
of consumers. Furthermore, the production
control programs that have been in effect for
many crops in recent years have encouraged
farmers to shift production. In subsequent
sections of this article, an effort will be made
to show how this changing composition of
agricultural production is related to changing
consumption patterns.
COMPOSITION
Changing Trends in Eating Habits
Farmers in the United States produce agricultural products primarily for sale in the
domestic market. About 90 per cent of their
production is consumed within the Nation.
Therefore, in addition to population growth,
the consumption habits of American consumers have a vital influence on the market for
farm products.
In planning their production programs, farmers may find it profitable to consider trends
both in total per capita consumption of foods
and in the various individual commodities.
The U. S. Department of Agriculture maintains statistical series which are useful in de-
picting the varying h·ends in per capita consumption for different agricultural products.
It is interesting to note on the accompanying chart that per capita consumption of all
major livestock commodities was significantly
higher in 1954 than it was in 1910, while being substantially lower for both cereal pr()(lucts aud potatoes. Of particular significance
to farmers in the Tenth Federal Hcscrvc District is the rapid increase in per capita consumption of meats, fish, an<l poultry and eggs
since the depression years of the mid-1930's.
These data indicate that, with rising incomes,
individuals tended to increase their consumption of the major livestock products while decreasing their consumption of cereal products
and potatoes, both of which are crop products. Per capita consumption of fruits an<l
vegetables ( crop products) also has increased
quite sharply.
These trends signify that producers of eggs;
dairy products; meats, fish, and poultry; and
TRENDS IN OUR EATING HABITS
40L.W.-W...L--W...JLL..LJw..i...;L....L..L...L..U...LLJ...L..W..LLILL..LJw..L.LI..L.J...JJ..J...l....L.u...J....L...1-.U40
1911
• 20
'30
'40
'50
'60
SOURCE: U. S. Department of Agriculture.
13
Farm Production
fruits and vegetables could have increased
production more rapidly than population has
increased and yet have sold their products in
the domestic market. On the other hand, producers of cereal products and potatoes have
been faced with the problem of expanding
production less rapidly than population has
increased, becoming more heavily dependent
on the export market, or building up carryovers.
GROSS PRODUCTION OF LIVESTOCK AMD CROPS
INDEX
INDEX
1947 - 49 • 100
140
140
120
120
ALL LIVESTOCK
ANO PRODUCTS
•oo
100
80
80
ALL CROPS
60
60
Production Trends
40._............................................................._._.__.~...........L.J...i.....................,_...,,..............,,..,,........~40
From 1910 to 1954, both total agricultural
production and population growlh increased
at an average rate of about 1.7 p 'r cent annually. Although the trend in agricultural
production for the Nation has been relatively
more stable than that for industrial production, the rate of increase has varied from
period to period. From 1910 to 1931, farm
production increased by an average of slightly
more than 1 per cent annually. From 1931 to
1934, extreme depression and severe drought
were influential in causing production to decline 24 per cent, or at an average rate of 8
per cent annually. Since 1934, improved demand for agricultural commodities, development of better techniques of production, and
improved weather conditions have caused
agricultural production to increase at an average annual rate of about 3.5 per cent.
Current output is higher than the requirements of a peacetime economy. Consequently,
unless export demand should increase substantially, the average rate of expansion
achieved during the last two decades probably
cannot be maintained. Furthermore, it appears that changing trends in consumption
have encouraged farmers to increase produc-
14
1910
•15
'20
'25
'39
'35
'40
'45
'50
•55
SOURCE: U. S. Department of Agriculture.
lion of livestock and livestock products more
rapidly than production of all crops.
The accompanying chart indicates the rates
of growth for production of livestock and
livestock products and all crops. On an average, production of livestock and livestock
products has increased about 2.5 per cent annually, while that of all crops has increased
at an annual rate of only about 1 per cent.
This indicates that farmers are responding to
consumer demands for relatively more livestock and livestock products as compared with
crop products.
In the Tenth Federal Reserve District,
where meat and wheat production are important enterprises, the trends in per capita
consumption of these commodities are useful
in analyzing the probable longer-run adjustments that will be made. If individuals continue to consume relatively small quantities
of cereal products and larger quantities of
meat, farmers in this District will be encouraged to place more emphasis on the production of meat animals and less on that of
wheat for use as a human food.
CARRYOVER OF MAJOR FARM COMMODITIES
PRODUCTION OF CARS AND TRUCKS
THOUSANDS
WHEAT
(MIL. BU.)
903
COTTON
C3')
1952
-
1953
-
1954
THOUSANDS
WEEKLY AVERAGE
180
180
HEIGHT OF BARS ARE
PROPORTIONAL TO VALUE
160
(THOUS. BALES)
140
CORN
(MIL. BU.)
120
FOOD
FATS ¢ OILS
(MIL. LBS.)
100
*ESTIIUTEO BY F. R.a.o, k . C.
so.__~_.____.__.____.__.____.__-"-___.__...._~___.so
u.s.o.A.
CROP YEARS BEGINNING: WHEAT, JULY 1;
COTTON, AUG. t; CORN, OCT. t; FATS ANO OILS, OCT.I.
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
SOURCE• WARD'S AUTOMOTIVE REPORTS
BANKING IN THE TENTH DISTRICT
Deposits
Loans
District
and
States
PRICE INDEXES, UNITED STATES
Reserve
City
Member
Country
Member
Banks
Banks
Reserve
City
Member
Banks
Nov.
1954
Index
Oct.
1954
= 100) 114.6 114.5
Wholesale Price Index (1947-49 = 100) 109.8 109.7
242
Prices Rec'd by Farmers (1910-14 = 100) 244
279
Price, Paid by Farmers (1910-14 = 100) 279
Consumer Price Index (1947-49
Country
Member
Banks
November 1954 Percentage Change From
Nov.
1953
115.0
109.8
249
277
TENTH DISTRICT BUSINESS INDICATORS
Oct. Nov. Oct. Nov. Oct. ~ov. Oct. Nov.
1954 1953 1954 n953 ~954 953 11954 1953
+6
+1
+6
-1
_+2
+s +3
+20 +3 H:_10
+2
+9
0
+3
+1
+s
+1
+4 +2
+4
Denver
+1
+3 +2
+2
Wichita
Tenth F. R. Dist. +4 +14 +2
Colorado
+4 +1s +1
Kansas
Missouri*
+6
+5
Nebraska
+6 +1s +3
New Mexico*
Oklahoma*
Wyoming
**
+13 +1
••
+2 H-10
+3 +10 +2
**
District
and Principal
Metro po lita n
Areas
**
*Tenth District portion only.
0
**
**
+6
•• ••
+1
+s
H-11
0 H-10
+6 -1
+1
+s
+4
H-2
+7
** No reserve cities in this state.
Value of
Check
Payments
Value of
Department
Store Sale1
*Value of
Residential
Bldg. Permits
Percentage change-1954 from 1953
Nov.
Year
to datE
Year
Nov. to date
+1
+20 +6 +1
+22 +1 It 19
Tenth F. R. Dist. +12
+4
Nov.
Year
to date
+1
+132
+49
+2
+74
+59
+2
+160
+sa
+at
+10
+9t
Kansas City
+9
+1
+4t
-lt
Omaha
+7
+1
+J
+J
+145
+a
+139
+100
0
+59
+s1
Okla. City
+10
+a lf-23
Tulsa
+u
+s
*City only.
+a
tKansas City, Mo., only.
;Kansas City, Mo., and Kans.
15
@FedFRASER