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January
1961
011~ ·HLY REV EW
KANS .
Agricultural Outlook for 1961
Economic Problems
of the Early Sixties .
.
page
3
. .
page 10
Current Charts and Statistics
page 16
P ~DEllAL llJJSE t.V E BANK
OF KA1 SAS CITY
Subscriptions to the MONTHLY REvmw 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.
Agricultural
Outlook
for
OF RECORD-HIGH output and
demand for agricultural products resulted in an improvement in the farm income
situation during the past year. Despite a rccorcl volume of marketings, the i11dt-x of prices
received by farnwrs stabilized and, during the
last quarter of th' y('ar, was above comparable
year-earlier levels. Strong demand, bolstered by
the effects of price supports and export disposal programs, prevented huge supplies from
depressing prices below late 1959 levels.
Thus, in planning their 1961 programs,
farmers are confronted with a number of
crosscurrents. Supplies of farm products, in
the aggregate, are large and continue to act
as a depressant on prices. Demand, however,
remains unusually strong. Furthermore, con ditions vary by commodities and regions. All
of these factors are of importance to farmers
and financial agencies in making plans for
this year, and much helpful information is
available in appraising the current situation.
This information was brought together by the
various specialists in the U. S. Department of
Agriculture and presented at the 38th Annual
Agricultural Outlook Conference. The following material is a resume of this information
that is of particular significance to farmers
and others in the Tenth Federal Reserve District.
COMB! ATIO
Ma rkets Strong
In r cent years, the domestic market has
absorbed between 80 and 85 per cent of our
Monthly Review •
January 196 1
1961
farm output. Export outlets took about 12 per
cent and the remainder has accumulated in
the form of stocks.
Increasing consumer incomes ancl population growth hav<' caused demand for farm
products to increase sharply during the past
quart r of a century. In this period, the average consumer has increased his consumption
of livestock and livestock products by more
than 100 pounds. At the same time, the consumption of cereal products and potatoes has
declined by about an equal amount. This shift
toward more costly foods has upgraded diets
and increased per capita demand for farm
products.
With present levels of income, consumers
are likely to buy the kinds and amounts of
farm products th y want. Changes in income
from the curr nt high r levels probably will
not have th
amc influence on d mand for
food as compared with similar changes made
from lower levels. In other words, moderate
changes in income probably will not cause
consumers to modify their diets as much as
they have previously. Thus, projected increases in domestic demand for farm products
in the next several years are likely to be dependent primarily on population growth.
Although some slack has developed in the
economy, it was concluded by Conference
specialists that consumer incomes for 1961 as
a whole can be expected to average higher
than for 1960. Declines in some sectors of the
general economy will tend to be offset by
3
Agricultural Outlook for 1961
strengthening in other sectors, with renewal
of expansion likely as the year progresses. Increases in Government expenditures, consumer buying, and possibly in residential construction may largely offset any weakness that
develops in business investment and inventory
demand. Thus, it is anticipated that domestic
demand for food will continue to remain
strong.
The volume of agricultural exports for the
fiscal year ending June 30 is expected to equal
or exceed last year's record high. The foreign
economic outlook favors an expansion in world
agricultural trad . Gold and dolJar holdings
in most clo1lar-arca importing countries arc at
record highs, trade harriers against American
farm products are gradually h<'ing lowC'rcd,
and '(X>nomic activity remains high- particu larly in Western Europ .
Population is almost certain to continue
growing in the near future. Under these circumstances, if consumer incomes and the volume of exports remain favorable as anticipated, a record-high demand for farm products is likely to prevail.
Productivity High
Farm production in 1960 was at new alltime high levels on both a total and per capita
basis. Output was about 30 per crnt higher
than the 1947-49 average. This increased output was achieved by approximately 30 per
cent fewer farm workers on about 5 per cent
fewer crop acres than were used during the
base period.
Specialists at the Conference assumed that
the above trends are likely to continue for
several years in the future, despite current
record supplies of farm products. With averag production conditions this year, it seems
reasonabl to assume that output of farm
products will equal or perhaps slightly surpass last year's record. Although w ather conditions were better than average in 1960, crop
yields this year, with average weather, could
4
be as good as last year because improved
technology has been causing yields to trend
upward in recent years. To illustrate, the average yield of 28 field crops now is 40 per cent
above the 1947-49 average. ew techniques
also are causing productivity of livestock to
increase at a substantial rate. This information indicates that supplies of farm products
are likely to remain abundant through 1961
and, barring unusual conditions, for a numb r
of years in the fores eable future. Furthermore, it appears probable that less labor and
land will be needed to produce this expanding volume of output in th years imm diat ly
ahead.
Prices Nearly Stable
Relatively large suppli 'S of farm products
in recent years have caus d prices re eiv d
by farmers to be somewhat depressed. Farm
prices last year remained below year-earlier
levels until October. For the year as a whole,
they averaged lower than in 1959. With supplies of farm products expected to remain
large in 1961, it was the consensus at the Conference that farm prices probably would not
average much different than for 1960. The
high levels of demand arc expected to about
offset the influences of continued larg supplies. Prices of the differ nt commodities,
however, are likely to vary substantially from
last year's levels, with increases in prices of
some tending to offset decreases in prices of
others.
itt
Change in Costs and Income
Total farm production costs have been rising sharply in recent years because farmers
have been using an increasing volume of
purchased inputs and paying higher prices
for these goods and scrvic s. The rise in production expenses lev led off in 1960 at slightly more than $26 bi1lion. Little hange is expected in total production xpenses during
1961.
Agricultural Outlook for 1961
With prices and volume of marketings assumed to be comparable to year-earlier levels,
gross income for 1961 is not expected to vary
substantially from 1960 levels. If this outlook
proves to be correct, the total purchasing
power of the farm sector of the economy
should be maintained and aggregate realized
net farm income should about equal the $11.4
billion now estimated for 1960.
The trend toward fewer and larger farms is
likely to continue. If it does, and the preceding analysis of the aggregate outlook is approximately correct, gross income, production
costs, and net income on a per farm hasis
would he larger this y<'ar as compared with
last year clcspit(' the stability expected for the
form economy as a whole.
Outlook Varies for Commodities
Although the general agricultural outlook
points toward considerable stability, supply
and demand conditions vary more from commodity to commodity than they do for farm
products generally. Thus, the situation for the
major commodities produced in the Tenth
District will be reviewed briefly.
WHEAT IS THE MOST important cash
crop produced by Tenth District
farmers. In recent years, wheat
has accounted for about a sixth of all cash
receipts from farm marketings in District
states. Only receipts from the sale of cattle
are more important as a source of income for
District farmers.
Wheat is of crucial importance to the District farm economy, since excess productive
capacity is especially acute in this case. Stocks
of wheat have been accumulating at a rapid
rate despite production restrictions ( acreage
allotments, marketing quotas, and Soil Bank
programs) and special disposal programs in
both domestic and foreign markets. It was
emphasized at the Conference that the present overabundance of wheat and other farm
Wheat
Monthly Review •
January 1961
products is not attributable to low consumer
purchasing power. Neither can it be ascribed
to lack of exports, since exports have been
maintained at record levels by adding special
disposal programs to sales for dollar exchange.
Wheat supplies for the marketing year July
1, 1960, to June 30, 1961, are estimated at a
record high of 2,685 million bushels-11 per
cent above the previous record for the preceding marketing year. This estimate includes indicated production of 1,363 million
bushels, a carryover of 1,,315 million bushels,
and an al1owance of 7 million bushels for imports. Current estimates on disposition include
609 million lrnshcls for domestic use ~1rnl 5,50
million bushels for export. If the ahovc estimates are accurate, the carryov<'r at the encl
of this marketing year (June 30, 1961) will be
1,526 million bushels- 16 per cent above the
beginning of the marketing year.
If exports of 550 million bushels should be
achieved, they would equal the record high
reached in the 1956-57 marketing year. Exports are expected to be up from last year
because of anticipated increases in sales to
the traditional dollar markets of Western Europe, along with somewhat larger sales under
Government programs. Considerable emphasis
was placed upon the fact that domestic prices
are above world prices as a result of pricesupport programs and, thus, all exports from
the United States require export payments.
Shipments under special export programs,
such as sales for foreign currencies, barter arrangements, and donation programs, are in
addition to these payments. In the 1959-60
marketing year, 73 per cent of all wheat exports from the United States moved under
these special programs.
Wheat prices since the end of the 1960
harvest have been higher than usual relative
to support levels because of large quantities
withheld from the market and large-scale exports. With prices near or above effective support levels, further advances may be less than
5
Agricultural Outlook for 1961
usual, with some temporary weakness being
displayed at times.
IT NOW APPEARS THAT disappearance of United States cotton during the marketing year which
began August 1, 1960, may be larger than the
14.2 million bales produced in 1960. If this
proves to be the case, the carryover on August 1, 1961, will be about 7 million bales,
which would be less than half the postwar
record-high carryover on August 1, 1956.
Cotton consumption outside the United
States continues to rise and is expected to remain at high levels during the coming yem.
\Vorld cotton stocks dcclinC'd during tlie past
mark ting y 'ar for the fourth consecutive tinw.
Although world cotton prices rose somewhat
last season, the increased levels did not prevent cotton from competing successfully with
manmade fibers. Furthermore, cotton prices
in the United States remained competitive
with world prices. National acreage allotments
for 1961 have been set at 18.6 million acres,
which compares with total allotments of 17.6
million acres in 1960. Longer-term projections
currently point toward some increase in cotton consumption from present 1cvcls.
Domestic wool production has been increasing in recent years. Shorn wool output
was estimated to be up about 3 per cent in
1960 and the highest since 1946. Pulled wool
production probably was higher as slaughter
of sheep and lambs was above year-earlier
levels. Some further increase in shorn wool
output is expected this year, as sheep numbers
probably will continue to rise.
Domestic wool consumption in 1960 was
about equal to that of 1959. Larger imports of
wool manufacturers tended to offset lower
mill consumption. Little change is expected in
mill consumption of wool this year, and it is
anticipated that prices received by domestic
producers will show much the same pattern
as in 1960.
Farm
Fibers
6
SUPPLIES OF FEED GRAINS and other
concentrates have been increasing
consistently in recent years. For
the feeding year which began October 1, 1960,
supplies are estimated at 274 million tons-11
milJion more than for the previous year and
a new record high for the seventh straight
year. The increase this year is caused largely
by an increased carryover and is not as large
as the average rise of the previous 7 years.
The total supply this year is about double that
of 20 years ago.
Total utilization of feed grains also has incrca ed substantially in recent years. More
liberal feeding of livestock has caused domestic: co11s111npl ion to increase by nearly a third
during the last 5 years. Exports during this
period have about doubled. Despite this rapid
increase in utilization, it has consistently fallen
below production. Although the yearly addition to stocks has not been large, the carryover has increased gradually from 20 million
tons in 1952 to 75 million tons at the beginning of this feeding year. Such a carryover is
sufficient to provide for nearly half of the
total requirements for the year. Even with a
continuation of heavy rates of consumption,
last year's production is expected again to exceed total use for this feeding year. Thus, the
carryover for the 1961-62 feeding year probably will increase by another 5 to 10 per cent.
The smaller pig crop in 1960 likely will result in a slight drop in the number of animal
units to be fed. Over the past 5 years, the rate
of increase in number of animal units on farms
has been moderate. The rate of feed concentrates consumed per unit, however, has increased about 20 per cent. Most of the increase in consumption of feed grains and other
concentrates since 1954 must be attributed to
increased consumption per animal. With
favorable 1ivestock-feed price ratios, feeding
rates are likely to remain high.
Since supplies of feed grains are abundant in relation to demands, prices of feed
Feed
Agricultural Outlook for 1961
grains probably will average a little lower this
year as compared with year-earlier levels.
Prices of high-protein feeds also are expected
to average somewhat lower this year because
of more abundant supplies.
The roughage feed situation also is generally favorable insofar as supplies arc concerned. Hay production last year was about
8 per cent ahovc the 1949-58 average and .5
per cent above that of 19,59. Fo!" the Nation
as a whole, pasture conditions at the begin ning of this feeding year were 7 per cent
above the 10- car average and about ,1 per
cent a hove ] 9,59 levels. Th11s, the feed situ ation generally is favorable for an C\pansion
in 011tp11t of livestock ancl livestock prod11<:ts .
it now apMeat
pears, will increase enough this
Animals
year to supply each consumer
with about 4 pounds more meat than in 1960.
The increase will be accounted for mostly by
beef. Per capita supplies of veal are likely to
be up moderately, those of pork to he about
the same, and those of lamb and mutton to be
somewhat less. Hence, red meat consumption
per person may total about ]6.5 pounds, which
would he second only to the 166.7 ponncls
consumed in 1956. With demand for meat
expected to remain strong, changing supplies
arc most likely to dominate the price outlook
for meat animals.
Unless severe drought over a wide area
should arise during the year and result in abnormal liquidation, cattle numbers probably
will continue to increase this year. Numbers
have been increasing for 3 years in the current cycle. The increase in cow and calf
slaughter that has occurred recently indicates
that the rate of buildup in numbers is casing.
In recent decades, cattle numbers have increased at about the same average rate as
population growth. Beef and veal production
have trended upward sharply because of increased output per animal. The increased proMEAT
Monthly Review •
PHODUCTION,
January 1961
cluction per animal has been caused by the
relative increase in the proportion of beef
cattle, raising more calves to mature animals,
and feeding to heavier weights.
With normal weather conditions, it is anticipated that cattle and calf slaughter this
year will he about 10 per cent larger than last
year. A]though more feel cattle arc likely to
he slaughtered, most of the increase will h<"
in nonfecl cattle and calves. Thus, slaughter
weights in 1961 may go against the trend of
recent years and average somewhat lighter
than last year. However, the decrease will not
he cno11µ;l1 lo pr<'V<'lll anlicipatccl s11pplics of
heef from hcing '-i11hsta11tially largcr.
Ir pn capita s11pplics of hcd ;111d veal in-
crease as a11licipated, cal lie prices in 1~)G l arc
likely to continue trcrnling downward. A relatively close inverse relationship between per
capita beef and veal supplies and prices received by farmers for cattle has existed in
recent years. Barring extensive drought, a severe cyclical break in cattle prices does not
appear probable, but prices are likely to remain under pressure. The decline is not expected to be greatly different than that which
occurred during 1960. Prices of the lower
grades of sla11ghtcr cattle, however, may
weaken more than those of other classes and
downward pressure on all classes will lik Iy
he greater in the last half of the year than in
the first half.
Hog slaughter in late 1960 was down substantially from year-earlier levels. During the
first half of 1961, slaughter is likely to continue falling short of year-earlier levels. By
midyear, however, any differences existing
probably will be small and, during the last
half of the year, slaughter may h' larger than
in the last haH of 1960. Increased slaughter
during the last half of the year is hased upon
the assumption that this year's spring pig crop
will he larger than that of last spring because
of abundant feed grain supplies and a favor able hog-corn price ratio.
7
Agricultural Outlook for 1961
If the above slaughter estimates are accurate, it appears most logical to assume that per
capita supplies of pork during the first half
of this year will be lower than for the first
half of 1960. During the last half of the year,
per capita supplies are likely to be higher than
in the last half of 1960. Based on this analysis,
Conference specialists concluded that hog
prices can be expected to remain relatively
favorable in the first half of this year but, by
next summer and fall, they may average somewhat lower than during the comparable
periods of 1960. For the year as a whole, they
are not expected to differ greatly from 1960
levels.
Higher lambing ratios, lower death losses,
and heavier slaughter weights have <'ausecl
lamb and mutton production lo increase at a
more rapid rate than numbers <luring the past
decade. The upward trend in production has
about matched population growth and per
capita consumption has been relatively stable.
During the past year, slaughter of sheep
and lambs increased nearly enough to interrupt the 3-year uptrend in numbers. Presently, the most likely prospect is that sheep
and lamb numbers will increase slightly this
year. Since slaughter is not expected to change
much, prices next year may he near or a little
below this year's levels.
COMMERCIAL SUPPLIES of milk products this year are likely to be slightly above the levels of recent years
and at a new record high. Demand probably will
increase, but at a less rapid rate than population. Prices of dairy products to farmers and
consumers are expected to average above
year-earlier levels until April , with the level
of price support to be announced before April
1 being an important price determinant after
that time. Cash receipts from the sale of dairy
products are likely to average somewhat higher this year than last year. However, costs also
are increasing.
Dairy
8
Demand for milkfat has been declining in
recent years, while that for solids-not-fat has
been increasing. The rise in demand for solidsnot-fat, however, has had little opportunity so
far to affect prices of dairy products. Supplies
of solids-not-fat continue to exceed market demand by a wide margin because of the decreasing use of milk as a livestock feed. It was
pointed out at the Conference that it may be
a whole decade before the complete transition to whole milk sales is completed. Consequently, the large surplus of milk solids-notfat, as well as some surplus of milkfat, has
persisted despite a drop in per capita production of milk to record-low levels in 1960.
ECC AND POULTHY prices in
1960 averaged significantly highPoultry
er than in 1959. Although conditions in the poultry industry were chaotic in
1959, the improvement in 1960 was substantial enough to encourage producers to expand
output. It now appears that production may
be expanded to the extent that the outlook for
producers is less favorable than in 1960.
Egg prices are expected to remain favorable
early this year and set the stage for an increase in chicks produced during the important hatching months. If chick production is
increased sharply during the early months of
the hatching season, supplies of eggs will be
abundant late in the year. Such an expectation would prevent starers and breakers from
taking their usual springtime quantities of
eggs, except where lower prices than otherwise might prevail.
The poultry meat outlook is similar to that
for eggs except that the production response
is faster and the cycle shorter. Thus, broiler
prices can be expected to weaken during the
early part of this year.
Eggs and
B<rnt
Applicability to Tenth District
Although a wide variety of agricultural
products contributes to the economy of the
Agricultural Outlook for 1961
District, wheat, feeds , and meat animals provide for a major proportion of farm income.
Thus, production and price prospects for these
commodities are of crucial importance to economic activity in the District.
Wheat production prospects in the District
as of the beginning of the year are excellent.
The winter wheat crop was planted under
near ideal conditions and moisture supplies
are good throughout most of the major wheatproducing regions. Despite present conditions
of the 1961 crop, it is unlikely that production
in most parts of the District wilJ egual or
surpass last year's excellent crop. With the
"advanc<'" minimum national average support
level of $1.78 per lrnshcl , it was considered
improbable al the Outlook Confen.'1H:c that
prices of the 1961 crop woul<l he any higher
than those for the 1960 crop. Thus, cash receipts from 1961 wheat production in the District are likely to be somewhat lower than
those from the 1960 crop. Barring unforeseen
events, however, cash receipts from wheat in
1961 should remain quite favorable in the
District, since much of the large 1960 crop
will be marketed this year and production
prospects for 1961 are favorable.
It is too early to anticipate feed production
conditions for 1961 at the present time. Output of feeds in 1960, however, was unusua11y
good. Grain sorghum and corn production
last year were both at new record-high levels
in District states. Furthermore, except for
Wyoming, pasture conditions and prospects
at the beginning of this year were more favorable than average. Thus, supplies of feed will
Monthly Review •
January 1961
be abundant in most parts of the District and
will continue to encourage the expansion that
apparently is occurring in meat animal production.
All indicators point toward the fact that
meat animal production in the District is being expanded, except for cattle production in
the drought areas of Wyoming. Abundant fee<l
supplies in most areas, combined with the
current stages of the cattle and hog cycles, indicate that marketings of meat animals in the
District are likely to be higher in 1961 than
they were in 1960. As was pointed out previously, prices of meat animals arc expected to
av<'ragc lower in 1961 as meat supplies increase. Sine<' meat animal prices usually drop
relatively more than marketings increase, cash
receipts from the sale of meat animals arc
likely to be slightly to moderately lower in
1961 as compared with 1960.
In summary, the outlook for District agriculture generally is favorable, except in Wyoming where an extended period of drought
has dimmed prospects. Cash receipts from
farm marketings as a whole normally would
be expected to average somewhat lower because of the improbability of last year's favorable levels of production being dupJicatcd and
also because of the anticipated lower level of
prices for meat animals. However, the large
carryover of crops from 1960 into 1961 and
the stimulus provided to cattle prices by the
huge feed supplies and generally good pasture conditions may hold 1961 cash receipts
from farm marketings at levels not too different from those of 1960.
9
Economic Problems of the Early Sixties
was generally widespread with regard to the future course
of national economic developments. Expansion from the 1958 recession , intC'rruptccl hy
the steel strike, had resumed and total output
was again moving upward. Many markets
were foreseen as dynamic sources of increased
demand. These included consumer spending,
business capita] outlays, and inventories , not
only lo replace cleplcted supplies hut also to
:t(Ton11noclatc a rising volt1111<· of h11si11css .
Moreover, entry upon the decade of the "fah11lous sixties" seemed to give adclt•d assurance
that growth would be a dominant characteristic of the year.
The initial performance of the economy
after the end of the steel strike was brisk.
Industrial production rose sharply in January
to a new peak. Almost immediately, however,
the pace slackened slightly and remained on
a high plateau through midsummer. Employment, after advancing in the opening months
of the year, soon leveled off also. The broad est measures of economic activity, including
gross national product, thus began rather
early to .signal a shift from growth to stability
at record levels. More recently, weaknesses in
the various sectors of the economy cumulated
and over-all decline has become evident.
From the vantage point of the present, the
expectations of a year ago-not held universally, to be sure-appear grossly overoptimistic. Indeed, failure to grow and the accompanying increase in the margins of unused resources became the major domestic economic
problem of 1960. The potential seriousness of
the problem is highlighted by the failure of
the economy, for the first time since World
War II, to achieve a high level of resource
use during a period of cyclical upswing.
A
10
YEAR AGO, OPTIMIS~I
While current developments exhibit many
of the characteristics of short-run business
fluctuations , influences of a longer-term nature
also appear to he operative. First, supply
considerations no longer occupy the key role
in economic developments that they did in
earlier years after World War II. Industrial
capacity has been expanded greatly and the
period of augmented manpower availability is
already evident. At the same lime, consumers
arc in a rn11ch helter position to dd<'r purc:hasc·s than they were some years ago. The
pent-up demand of the early postwar years
has given way to a situation in which spending decisions may be made in a more leisurely
fashion -and perhaps even encouraged in that
regard by the mounting total of consumer
debt. This does not mean consumer markets
are saturated but it does suggest that suitability and attractiveness of the product together with its price receive greater attention. Similarly, in other major markets, such as
business capital investment and community
facilities , decisions which in other years were
governed largely by urgent needs for outdght
expansion may now be broadened to include
additional considerations.
Thus, a new atmosphere, so to speak, has
emerged-one in which capacity and potential
supplies of raw materials and finished goods
are larger relative to total consumption than
was true earlier in the postwar period. It has
contributed, in turn, to greater competition
and to increased efforts on the part of business to control costs and to reduce upward
pn'ssurc on prices. Meanwhile, a considerable
improvement in the ability of other industrial
countries to meet their own needs and to compete with U. S. producers has become widely
recognized. As a consequence of these and
Economic Problems of the Early Sixties
other considerations, the recent history of
prices constitutes the first real containment of
inflation sinc:e World War II.
Adjusting to stable prices, on the part of
both business and individuals, has unquestionably contributed to the uncertainty which
has characterized recent months. Yet, while
the emergence of price stability is unsettling,
its importance to sustained economic growth
and to successful international competition
must be recognized. It probably should be
noted, however, that despite the distinctly
stable level of industrial prices and the increased acceptance of price stability as a major encl of economic policy, there is concern
that this stability might only he l<'mporary.
Emphasizing these longer-run asp<'cts of
the recent and current sluggishness in the
economy does not mean that the promise of
the sixties has been dissipated. The factual
bases for the promise-increased numbers of
young adults, the fruits of increased efforts in
research and development, etc.-remain intact.
The fulfiJlment of the promise, however, will
depend upon new thinking by individuals in
their various private capacities and upon the
pursuit of appropriate public policy.
Nature of the Recent Adjustment
The primary impact of the changing national economic picture has occurred, as implied, in the area of goods production. The
output of goods in the GNP attained a peak
in the opening quarter of 1960 and shortly
thereafter began to ease off. During the summer, output fell rather sharply to a level about
equal with that in the second quarter of 1959
prior to the steel strike. As the final quarter
of 1960 unfolded, the drop in production became more apparent.
Offsetting in large degree the decline in
goods production has been the strength in
other major groups. Measured in real terms,
construction held steady during most of the
year after reversing early in 1960 the downMonthly Review • January 1961
trend of the second half of 1959. The volume
of activity, however, fell short of the peak in
the spring quarter of 1959. Services, on the
other hand, continued to rise. Part of the advance in service expenditures, to be sure, is
again represented by price advances-for example, the rise in consumer service prices was
about 2½ per cent over the year, compared
with an increase of about 1 per cent in the
consumer price index for all goods and services. Considering all services- not just those
entering into personal consumption-and tracing their volume in constant dollars, it is apparent that they rose during most of 1960 at
ahout the rate prevailing since early 19.58.
Inventories and Raw Materials
In rc1ating deVC'lopments in goods production to changes in the sources of demand, the
cessation of the buildup in inventories stands
out as the principal factor. Inventory demand
was high at the end of the 1959 steel strike
but it was satisfied at an unexpectedly rapid
rate. The abundant capacity of the steel industry provided ample margins of production
for restocking, for assuring rapid delivery, and
for offsetting tendencies toward a price rise.
Thus, while manufacturers' inventories were
accumulated at a rapid pace around the
beginning of 1960, the rate of addition began
quickly to drop and at midyear the level of
inventories reached a peak. Since then, they
have been declining as producers' policies of
inventory restriction began to effect a net
liquidation of tocks.
The focus of the inventory adjustment has
been largely upon purchased materials, since
they represent the component most directly
subject to managerial control. The level of
purchased material holdings stabilized early
in 1960 and h1rned clown at midyear. On the
other hand , stocks of goods in process and
especially stocks of finished goods continued
to mount, with increases in the latter persisting into the final quarter.
11
Economic Problems
In terms of production activity, the impact
of these inventory developments may be seen
in the declining trend of materials output.
Materials-producing industries, as a matter of
fact, have been the primary source of weakness in over-all industrial production since
early 1960. A major part of the reduction in
materials output has been clue to the substantial drop in steel production as steel mills reduced output to a point of approximate balance with, and even less than, steel users'
consumption. After midyear, the monthly
mill operating rate generally ranged between
,50 and 55 per cent of capacity, although the
December rntc fell lo '16 p<'r cent. For 1D60
as a whole, it is cstirnalcd that steel procl11ction was about JOO million tons, which is about
7 million tons larger than the 1959 tonnage
and 12 million tons short of the 1957 volume.
Steelmaking capacity for 1960 is estimated at
148.5 million tons.
Industrial Production Trends in Major Markets
INDEX (1907=100)
120 [
SEASONALLY
ADJUSTED
-.---
11 0
100 [
:: l.'' '',,,',,I,,,''
120
I,
'I
I, 1
11 •
l.u.J..LJ.u..L.1-.1..L.1-.Lu.L..i............lu.lu
r
~ "J
- I
CONSUMER GOODS
II 0
'"'
;ALS
90
80
LL
lu..LuJ.J...l.Ll...ilill.J1.L.1 L..uu..L.L.1.1.1.L.
1957
'58
'59
'60
1u..l
l...i..l.i
'61
SOURCE: Soard of Governors of the Federal Reserve System .
12
Production adjustments have been evident
in other material-producing industries also.
Primary aluminum and refined copper production declined somewhat after mid-1960.
The magnitude of the decline was much
smaller than in steel, however, although plant
inventories of both metals were higher early
in the fourth quarter than at the beginning of
the year. Construction material production reflected the trend of construction, particularly
the lower volume of residential building. In
the textile industry, a downward trend in production , which began in mid-1959 and which
was interrupted for several months, was appar<'ntly n·sumccl in mid-1960.
Final Product Markets
During the first half of 1960, increased output of final products-equipment and consumer goods-about offset the steady decline
in materials, resulting in a rather steady volume of near-record production. Subsequently,
output of final products eased somewhat and
by November total industrial production was
down about 5 per cent from the average of
the first 7 months of 1960.
The easing in final products output reflects
the decline in consumer outlays for goods and
the downward trend in business capital outlays. Both of these important sectors of demand attained their highs for the 1958-60
upswing during the second quarter of 1960.
Consumer goods purchases achieved a record
level in both current dollars and in real terms.
Business plant and equipment outlays, on the
other hand, fell short of the 1957 quarterly
record by about $1.5 billion in current dollars
and considerably more than that measured in
dollars of constant purchasing power.
Autos ancl Other Consumer Goods. Auto
sales have been very important in retail sales
developments and correspondingly auto production has occupied a major role in consumer goods output. The pace of new auto
sales advanced in the second quarter to the
of the Early Sixties
neighborhood of 6.3 million on a seasonally
adjusted annual basis. During the summer,
auto sales fell and accounted for the major
part of the decline from the second quarter
in total retail sales. In October and November, new car sales regained the rate of the
spring quarter and helped assure sales for
1960 of about 6.1 million domestic autos. Only
in 1955 and 1950 were larger totals n•corded.
lt should be noted that in October and November both 1961 and 1960 models were
available, with the 1960 models subject to factory rebates which may have assisted in the
sales volume achieved.
lntcrcstingly enough, however, prices
as
outlined in ge11<•r;d earlier
were i111porla11t
in sales dcvcloprncrits dtrring the entire ) car.
Eff edivc prices, as distinguished fro111 list
prices, of new, low-priced, standard 1960
models fell below year-earlier levels by March.
In addition, the growing proportion of compacts tended to reduce average new car prices.
Used car prices began to decline in late 1959
and by the early autumn of 1960 were about
10 per cent less than their year-earlier level.
The 1961 models introduced in September
and October were generally priced about the
same, or less, as compared with the 1960's and
the introduction of additional compact lines
increased the emphasis on lower-priced
models.
At the production end, inventory considerations, as well as sales, have exerted an influence. For 1960 as a whole, domestic production is estimated at 6.7 million units. ,Thus,
inventory building was a significant feature
during the year. With dealers' stocks estimated at about 1 million units in mid-December, however, such stimulus seems likely to
he absent during early 1961.
In the markets for home goods-household
appliances, radios, tek•vision sets, phonographs, and floor covering-the lagging volmne of consumer purchases and the reduced
demand from home builders resulted in a
Monthly Review • January 1961
downward trend in production during most
of 1960. Relative to year-earlier levels, output
in the early months of the final quarter of
1960 was down about 10 per cent. The decline
terminated a period of almost 2 years of
rather steady advance from early 1958. High
production during 1959, along with the failure
of sales to live up to expectations, contributed
to a substantial rise in inventories at both the
manufacturers' and distributors' levels. While
output curtailments were designed to bring
stocks into better balance with sales, inventories were still large early in the fourth quart('r. It should be noted also that price conecss ions were made on several of these product
lines dming WHO.
011tp11l of tlic large and cyclically insensi tive group
or
COllS\lllH'r II01Hlurahh\ items-
apparel and staples-has been maintained at
near-record levels for several months. Output
of staples, which includes food, consumer
fuels and lighting, etc., has been quite steady.
Apparel production , on the other hand, has
declined recently as consumer expenditures
for apparel leveled off.
Business Equipment. Among the plants producing business ectuipment, activity held at
aclvaneed levels throughout 1960. While the
rate of production in November was slightly
below the midyear record, it was above that
of a year earlier. Mixed trends were evident
in this broad market grouping during the year.
Railroad transportation equipment output
moved irregularly downward, offsetting gains
in commercial eq uipment production. Meanwhile, industrial equipment output held steady
to slightly lower.
In a general way, total equipment output
ancl its di vergent composition correspond with
mov('ment s in business capital outlays . Manufacturing firms maintained an advanced level
of spending during the second and third quarters of 1960 and expected to reduce their outlays somewhat during the fol1owing 6 months.
Commercial firms , on the other hand, leveled
13
Economic Problems
Trends in Plant and Equipment Programs
BILLIONS OF DOLLARS
45
SEASONALLY ADJUSTED
ANNUAL RATES
40
35
30
25
20
15
10
5
MANUFACTURING
'
_____
- - -...... ,
COMMERCIAL
¢
,,,.-
OTHER
.I..... ___ _
-----~---
',......;-~-..::--
PUBLIC
,...,.. ..........
..-.
·~ -··· .... ._._......._.
UTILITIES
____,.....,,,,.,.-_-------* ,
TRANSPORTATION-,.
----......._____-
0 '--'---'-~~~~~
1957
'58
-1-
~_l__i_
'59
,
'60
1
* I -L
'61
* ANT 1C1PATED
SOURCE : U. S. Department of Commerce and Securities and Exchange Commission .
off their outlays in the third quarter and indicated that they expected to maintain that rate
on into 1961. Railroads, after maintaining a
rather steady volume of outlays during 1960,
planned a substantial drop early in J 961.
The difference in price developments in the
business equipment market during recent
years compared with some other times is quite
striking. In the 1955-57 upswing, for example,
wholesale prices of producers' equipment rose
by nearly one fifth. During the last expansion,
prices rose by less than 3 per cent during early
1959 and thereafter held practically unchanged.
Factors in the Outlook
The trend in the production of goods reflects the recent flow of orders and the gradual lowering of the volume of unfiJled orders.
The backlog of orders declined steadily during the first 10 months of 1960 and in October
14
was about $5 billion less than in October 1959.
Of the over-all reduction, however, primary
metal goods industries accounted for three
fifths and the impact of that contraction had
largely run its course.
Some industries have incurred in their flow
of new orders stimulation from expanding
segments of demand. Orders for electronic
and electrical equipment rose during most of
1960, although the level weakened during the
fourth quarter. Mounting defense requirements, which are expected to advance further,
combined with the growing demand for data
processing machines, have bolstered new business for electronics firms . The electrical machinery industry, in turn , has hc11cfite<l from
the near-record volume of ord rs and sales
of electric power gen rating and transmission equipment. Power consumption has risen
rather steadily during the postwar period
even during periods of business decline and
the latest Government survey of business
capital plans indicated that electric utilities
are expected to maintain high rates of investment through the autumn and winter.
Overall, business capital spending plans as
reported by the McGraw-Hill survey call for
a 3 per cent decline in 1961. The more recent
Government survey, which reported moderate
downward revisions for the second half of
1960 and a downward drift in expenditures in
early 1961, is not inconsistent with such an
outlook, although the future time span of the
Government report is much shorter.
Thus, increases in Federal Government expenditures have already been initiated which
will produce a sizable addition to over-all
activity by the middle of 1961. Moreover, state
and local government outlays are expected to
continue to ad vance. At this point, the combined expansion of all government spending
appears to be more than enough to offset the
prospective decline in business capital outlays,
even if the decline is somewhat more than
currently anticipated. Moreover, it is also gen-
of the Early Sixties
Yardsticks of Resource Availabilities
a new advance begins. Based on these assumptions, it is widely held that activity may
continue downward during the early months
of 1961 and be followed later by recovery. A
commonly stated average for the GNP in 1961
thus might be in the range between $510$515 billion.
MILLIONS OF PERSONS
7
UNE MPLOY MENT
6
SEASONALLY
ADJUSTED
5
4
3
Outlook Implications
2
0
RATIO
SCALE
200
180
160
140
120
OUTPUT
SEASONALLY
ADJUSTED
100
1955
'56
'57
'58
'59
'60
'61
SOURCE : U. S. Department of Labor and Board of Governors of the
Federal Reserve System.
erally assumed that the increases in Federal
Government spending already initiated will
be accelerated and bolstered by additional
programs to stimulate economic activity in the
fiscal year 1962.
In th e forecasts commonly made for 1961,
these assumptions are combined with others
in order to arrive at a likely judgment of the
future course of economic activity. It is recognized, for example, that there is a lack of enthusiastic consumer demand. The judgment of
many forecasters, however, is that consumer
expenditures may be essentially steady and
that housing starts may be expected to increase as a result of a fairly strong pickup in
the last half of the year. As for inven tori es,
the 1960 correction is viewed largely as marking the end to accumulation and it is expected
that further liquidation will take place before
Monthly Review • January 1961
Should the outlook for 1961 turn out to be
somewhat in line with such prospects , major
qu estions related to resource utilization still
remain. In November, the numher of un employed was ahout 4 million persons, which
constituted a seasonally adjusted 111wmployrnent rate of about 6 per cent of the civilian
labor force. Industrial capacity also was underutilized. Although there is no widely accepted method of measuring capacity utilization, all measures suggest the abundance
currently available.
An increase of $6 - $10 billion in GNP during 1961 would not, of course, bring about a
generally accepted satisfactory level of resource utilization . As a matter of fact, the
projected level of over-all activity would imply an unemployment rate above 6 per cent
during at least a substantial part of th e year.
While various alternative formulations relative to future labor force growth, productivity
gains, hours of work, etc., may be made, reasonable assumptions would suggest that the
over-all growth rate of the economy will have
to be increased su bstantially relative to that
of recent years in order to attain a satisfactory
level of manpower utilization during the early
part of the sixties. Accordingly, a sustainable
expansion in over-all demand in accordance
with possible ac.ldihons to resources will continue to command great attention. The im portan ce of th e problem is underscored by the
necessity of accomplishing it in an environment of relatively stable costs and prices.
15
INDEXES OF COMMON STOCK PRICES
1939 • 100
---.---
r--
SECURITY YIELDS
INDEX
700
SEMI-LOG SCALE
600
PER CENT
55T
5.00
CORPORATE
BONDS
500
400
PER CENT
5 .50
,--
5.00
AAA
4 .50
4 .50
4 .00
4.00
3 .50
3.50
400
'
TRADE, FINANCE,
ANO SERVICE
300
300
200
/
200
150 1
~
L_
125
PUBLIC UTILITIES
J_ l .1.._J.
.L.1J..1
1957
3 .00
COMMON STOCKS
'58
'59
150
2.501
125
2 .00
'60
STATE ANO LOCAL
GOVT. BONDS AAA
l
I
J
luJ
1957
1
.l
1 , j .LL.1;
'58
_l_,_,_1 _.
2 .50
_.j Ld.i 11, .d..-
'59
2 .00
'60
SOURCE , Statistical Bulletin, Securities and Exchange Commission .
BANKING IN THE TENTH DISTRICT
Loans
Deposits
Reserve
District
and
States
City
Member
Banks
PRICE INDEXES, UNITED STATES
Index
Reserve
--
Country
Member
Banks
City
Member
Banks
-
Country
Member
Banks
--
November 1960 Percentage Change From
t
+3
t
Colorado
-1
+2
Kansas
-4
+3
Missouri *
Nebraska
New Mexico*
Oklahoma*
Wyoming
-
t
+5
+2
+5
t
-1
+11
+1
+4
+1
+2
+19
-1
+2
t
t
+a
+2
+6
-1
+4
+1
+1
127.3
119.6
119.6r
118.9
Prices Rec'd by Farmers (1910-14 = 100)
241
240
231r
Prices Paid by Farmers
297
297
296r
(1910- 14- 100)
TENTH DISTRICT BUSINESS INDICATORS
District
and Principal
Metropolitan
Areas
Value of
Check
Payments
Value of
Department
Store Sales
Percentage cha nge-1960 from 1959
Nov.
Year
to date
Nov.
Year
to date
+3
+6
+2
+a
+3
Wichita
- 4
- 4
-10
- 13
Kansas City
+5
+3
+5
+2
Omaha
+6
+2
+37
+10
t
+2
t
+4
**
**
- 7
+5
**
**
+3
+6
- 1
+6
+6
+10
- 1
t
- 1
+9
**
**
+1
+3
**
127.4
+9
+10
+6
(1947-49 = 100)
(1947 -49 = 100)
+1
+1
**
125.6
Consumer Price Index
Wholesale Price Index
+14
- 3
+2
Nov.
1959
Denver
+2
*Tenth District portion only.
tless than 0.5 per cent.
16
+10
Oct.
1960
r Revised .
Oct. Nov. Oct. Nov. Oct. Nov. Oct. Nov.
1960 1959 1960 1959 1960 1959 1960 1959
Tenth F. R. Dist.
Nov.
1960
* * No reserve cities in this state.
Tenth F. R. District
Oklahoma City
Tulsa
+1
- 3
+1
- 1
0
+14
+2
- 9
- 4
@FedFRASER