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January 1962
Agricultural Outlook
for 1962 . . .
Economic Recovery
and Expansion .
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Current Charts and Statistic
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3
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FEDERAL RES RVE BANK
1
OF KANSAS UITY
Subscription to th Mo THLY REvrnw are available to the public without charge. Additional
copies of any issue may be obtained from the
Research D epartment, Federal Reserve Bank of
Kansas City, Kansas City 6, Missouri. Permission
is granted to reproduce any material in this
publication.
Agricultural
for
1962
EALIZED GROSS farm income- after declining from 1951 to 1955 - recouped
all of its loss in recent year and establi hed
successive record highs in 1958, 1960, and
1961. During this same period, farm production expenses have trended upward substantially.
onsequcntly, r alized net farm incom
declined sharply from 1951 to 1957, but ha
in ·rcascd modcrat ly since that tim . Realized
net incom increased substantially from 1957
to 1958,lostmotofthi increa from 1958
to 1959, and increased moderately during the
past 2 years. A considerable part of the increase from 1960 to 1961 can be attributed
to increased Government payments.
Production, financing, and marketing plans
now are being made for this year. Such plans
must be made on the basis of certain assumption pertaining to the long-run outlook as
well a the outlook for 1962. Since much information is available to help eva!uate the
agricultural outlook, agricultural extension peronnel and other interested persons were invited by the U . S. Department of Agriculture
to attend the 39th Annual Agricultural Outlook Conference in November. In this article,
the material presented at the Conference will
be summarized, evaluated, and updated. Special emphasis will be given to commodities important in the Tenth Federal Reserve District.
R
SUPPLY PROSPECTS
Farm output ha been rising at a spectacular rate during the past 25 years. This rate of
increase has been achieved with relatively little
change in the total quantity of inputs used.
Instead, improved technology has made it
possible to obtain a rapid rate of growth in
Monthly Review •
January 1962
Outlook
output by changing the kinds and relative
amounts of inputs that are used. Generally,
these changes have resulted in the rapid substitution of capital inputs for those of labor
and land.
By adopting these improved techniques, a
farmer can lower his unit costs of production
and at the same time increase total output of
farm products. The rates of increase in output
that have been achi ved , combined with the
immobility of th e labo r and land resou rces
us -d in agriculture, have result ed in supplies
of farm produ ts being r lati vely large for a
con ·idcrable period of time. These sam forces
arc expected to maintain output in 1962 near
record highs. The composition of output this
year may be somewhat different, with increased production of livestock products expected nearly to offset a decline in the output
of crop products. This type of shift will be
encouraged by current legislative programs.
If these assumptions are reali stic, total supplies of farm products can be expected to remain relatively large. The heavy supplies of
crop products may be reduced somewhat in
1962 because of existing farm lcgi lation. Supplies of live tock products, on the other hand ,
are likely to be at record highs.
DEMAND PROSPECTS
At the Outlook Conference it was indicated
that consumer incomes are likely to rise appreciably during the year. The anticipated increase
in income, combined with population growth
and other demand and upply factor , is expected to cause retail expenditures for farmproduced food to be about 3 per cent above
those of last year. A con iderable part of this
increase is likely to represent higher charges for
processing and marketing, as wen as increased
outlays for services purchased with food.
3
Agricultural Outlook for 1962
Although total per capita consumption of
farm foods has increased slowly with rising
incomes in recent years, the relative amounts
of the different food consumed have changed
substantially. For example, in 1960 American
consumers ate 33 pound more red meat and
poultry per person than in 1940, but 28 pounds
fewer potatoes. Many factors influence changes
in food con umption patterns. In addition to
income, such factors include population hifts,
lcs strenuous work, developments in nutrition,
concern about obe ity, and technological advances in preparing, preserving, and tran porting fo d . Since fact r such as thcs arc expected to ontinuc to alter our di ts in th
futur , it is likely that demands for sp ific
kind · of farm products may chang rapidly,
despit the slow rate of growth in demand for
farm products generally.
Per capita consumption of nonfood farm
products has declined substantially during the
past decade. Increased competition from such
products as synthetic fibers, detergents, and
water-base paints has been responsible for the
decline in nonfood uses. Trends such as these
have a deterring influence on growth in demand
for the farm products with which they compete.
Export demand i r latively more important
to the dome ti agricultural indu try than it is
to the nonagricultural economy. Part of the
production of nearly every farm community is
sold abroad, and the Nation relies heavily on
agriculture for export earnings. The value of
agricultural exports in recent years has averaged about 13 per cent of cash receipts from
farm marketings. In the fiscal year ended June
30, 1961, the value of farm products exported
was $4.9 billion-4 per cent above the prior
record achieved in fi cal 1957.
It should be emphasized, however, that the
export market is fluid and conditions change
rapidly. There are many crosscurrents in the
highly competitive world market. Economic
growth throughout most of the world stimulates foreign trade. On the other hand, most of
4
the highly developed economies in the world
market-on which we depend for do11ar exports-also engage in various types of agricultural protection. The trade barriers erected
by countri s with highly developed economies
tend to prevent the United States from competing on a favorable ba is in these markets.
For the fiscal year beginning July 1, 1961,
the Department of Agriculture estimated that
the value of agricultural exports from the
United State will be at a new record high of
about $5 billion. A high level of economic
activity in we tern Europe and Japan , record
gold and d liar holdings in many countries
trading with the Unit 'd tat s, and th accelerated ·ood for Pea ·c Pro lfiHlt ar
xpcctcd to
be contributing factors. In the long run , the
vo lume of exports will depend h avily on
political dev lopments throughout the world
and on the ability of this Nation to compete in
the world market.
PRICES AND INCOME
The index of prices received by farmers has
been relatively stable during the past 3 years.
Information presented at the Outlook Conference indicates that average prices received by
farm r and the total volume of farm marketing will c ntinuc t remain r latively table
this year. Prices of omc comm dities ar
likely to be higher becau e of increa cd price
supports or changes in supply and demand
conditions, while prices of other commodities
are expected to be lower. With average growing conditions, the volume of crop marketings
may be smaller because of the feed grain and
wheat programs. The decline in crop marketings is likely to be about off et by the continued upward trend in live tock marketings.
On the ba i of curr nt farm legislation,
Government payments to farmers in 1962
probably will be somewhat higher than for
1961. Thu , assuming average production conditions and a continuation of current price supports and other Governm nt programs, it was
Agricultural Outlook for 1962
concluded at the Outlook Conference that
gross income of farmers in 1962 may exceed
last year's record high. On the other hand ,
prices paid by farmers are likely to remain high
and farm production expenses probably will
increase from the record levels of 1961. Thus,
the income gai ns regi ste red in 1961 are expected to be maintained this year with little
over-all change in realized net income of farm
operators.
COMMODITY REVIEW
The total supply of wheat in the
United tatcs ha s increased pc rsi tent ly and sharply during th e past
uecad . For the marketing year which b gan
July I , 1961, the O p·irtm nt of Agricultur
e timated that th e total supply will be a bout
2,625 million bushels, second only to the
record 2,672 million bushels available a year
earlier. Exports thi s marketing year are exoected to be a record high of 675 million
bushels, while domestic use probably will be
about 595 million bushels. Based on these
estimates, the carryover on July 1, 1962, will
total about 1,355 million bushels- SO million
bushel less than th e record carryover that
existed at the beginning of thi marketin g year.
lf th e 1962 Wh ea t Program is successful in
reducing production next year to around 1,075
million bushels, and exports can be maintained
at around 625 million bushels during the next
marketing year, the carryover during the subsequent marketing year may be reduced an
additional 125 million bushels from the estimated figure for July 1, 1962.
In reviewing the long-run outlook for wheat,
several factors should be considered. Wheat
yields have been increasin g sharply in recent
yea rs, and this h a enabled producers to maintain output at relatively high levels, de pite
various type of acreage restriction programs.
On the ba is of known developments, it seems
reasonable to assume that further increases in
yields are likely to be achieved. It also is in-
Wheat
Monthly Review •
January 1962
teresting to note that during the past 2 years
wheat exports from the United States have
exceeded domestic utilization. Thus, exports
have been more important th an the domestic
market. Two considerations are important with
respect to foreign demand for United States
wheat. First, demand in the world m arket has
been stronger than usual in recent years because of poor crop production in much of the
world. Second, because of the h igh level of
domestic price supports in relation to world
prices and the lack of dollar purchasing power
in countries with underdeveloped economie ,
virtually all wheat exported from th e United
talcs is disposed of through so me type of
sp ' ial ovcrnm nt pro >ram .
Wheat pric s thi s yea r arc xpcct d to ave rage hi gher th an last year because of the increased level of price su pport. Even though
aggregate supplies of wheat are down slightly
from last year's high levels, they continue to
be excessive. A major portion of the excess is
in hard red winter wheat. Supplies of durum
wheats are short.
The general trend toward economic
Textiles
growth throughout most of the
world ha s enhanced demand for
tex tile products. However, these d mands
have been satisfied to a ubstanti al extent by
the increased use of synth tic fibe rs, which
have become inten sely competitive with the
natural fibers .
The world carryover of cotton has declined
teadily since the peak reached in 1956. A
further slight decline is anticipated in 1962.
Because consumption of cotton abroad has increased more rapidly than production, exports
of cotton from the United States have been
relatively high durin the pa t 5 years. World
con umpti o n also has been timul ated by the
lower level of price during this period . Cotton
prices , after reaching a low for recent years in
1959 , hav been trending upward because supply-demand relationships have been in close
balance.
5
Agricul tural Outlook for 1962
Domestic wool production in 1962 probably
will show a moderate reduction from 1961
levels. Imports of raw wool and wool manufactures are likely to remain near the levels of
recent years. The limited quantity of the 1961
clip now in producers' hands and an expected
increase in consumer incomes and expenditures
may cause wool prices to increase moderately
during the early months of this year, according
to the Department of Agriculture.
Total supplies of feed grains and other
Feeds
concentrates for the marketing year
that began October 1, 19~1, are expected to be about 3 per cent smaller than the
previous year's larg ' supplies. Prior to this
year, supplies increased sharply and establi sh d
n w record highs for each of the preceding 7
years. The reduction this year must be attributed to the 16 per cent reduction in feed
grain acreage brought about by the provisions
of the 1961 Feed Grain Program, since carryover stocks and yields were at new record-high
levels.
Domestic use and exports of feed grains
during this marketing year are expected to remain near the high levels of the 1960-61 marketing year. In the domestic market, the number of grain-consuming animal units fed is expected to b about 2 per cent larger than a
year ago. The rate of feeding per animal unit,
however, probably will be below last year's
record high. If total domestic utilization and
exports are near anticipated levels, feed concentrate supplies will be reduced during the
current marketing year.
It was concluded at the Outlook Conference
that feed grain prices this year may be somewhat higher than last year because of higher
price supports, reduced production, and increased numbers of live tock. De pite the slight
reduction, feed grain upplies will remain
abundant due to the huge supplies available
during the last feeding year. Supplies of highprotein feeds are about 4 per cent larger than
a year ago. Large supplies of soybean meal
6
are expected to result in a somewhat lower
level of prices for high-protein feeds generally.
Total hay supplies for this feeding year are
about the same as a year ago, but a little below
average if computed on a roughage-consuming
animal unit basis. On the other hand, hay supplies are well distributed and the excellent condition of pastures last fa ll and this winter have
reduced early easonal requirements.
Looking forward to the 1962-63 marketing
year, it should be pointed out that legislation
providing for a 1962 Feed Grain Program is
contained in the Agricultural Act of 1961. The
program is imilar to the 1961 Feed Grain Program , except that barley is included in the new
legislation in addition to corn and gra in sorghums. lf farmers sign up for the 1962 program to the same extent as they did for the
1961 program, supplies may again be reduced
moderately during the next marketing year.
Whether supplies are reduced will depend on
the number of acres diverted from production,
and on yields, which are influenced largely by
the weather during the growing season.
M
Production of red meats was at a new
e~t
record high last year. This year, sup.
A nima Is
plte of red meat are expected to
increase again and establish another record .
However, supplie have ri en only mod rately ,
so per capita consumption has remained relatively stable at near 161 pounds during the
past 2 years. Barring unforeseen events, per
capita consumption of all red meats is likely to
average 161 pounds again for 1962.
Assuming that demand for meat will remain
relatively strong during 1962, outlook information indicates that the average farm price for
all cattle and calves sold will remain about the
same as for 1961. Barring extensive drought
or other unforeseen events, both cattle number
an d slaughter are expected to increase for the
next year or two. The rate of increase in both,
however, is likely to be in line with population
growth. With the present trong demand for
beef, per capita consumption may increase
Agricultural Outlook for 1962
somewhat above the current record high of
about 87 pounds without much influence on
prices. This is particularly true since per capita
consumption of veal is likely to remain near the
relatively low level of 6 pounds because withholding of calves from slaughter is expected to
continue.
Analysts at the Outlook Conference indicat d
that price patterns for certain grades and classes
of cattle may vary from tho e of 1961. Fed
cattle prices are likely to remain more stable
during the spring and early summer months, as
compared with comparable year-earl ier periods.
laughter cow prices, on the other hand, may
be low r during the lat~ summer and fall of
ar than in the same p riod f 196 1.
this
Producers h ·Id more c ws and limi ted culling
during 1961 and many of these cow will be
slaughtered this year. Thus, it i apparent that
if cow numbers are to be maintained or increased this year, fewer heifers are likely to
be available for feedi ng. If there should be a
substantial decline in the number of heifers fed
during the year, this would be a price-strengthening factor for fed cattle during the latter part
of the year. In general, 1962 appears to be a
year in which cattle prices, on an average, can
be expected to remain relatively stable if
weather and feed conditions are norm al.
The best available information indicates that
per capita consumption of pork is likely to be
up about one-half pound from the 63 pounds
of last year. Farmers indicated that they increased last fall's pig crop by about 4 per cent
and intend to increase this spring's crop by
about 2 per cent. If these intentions are
carried out, per capita supplies of pork will be
up and hog prices during 1962 may average
a little lower than in 1961. However, with the
feed grain prices th at are anticipated, the hogfeed grain ratio should remain favorable.
Per capita consumption of lamb and mutton
increased from 4.8 pounds in 1960 to 5 pounds
in 1961. The increased supplies available for
consumption can be attributed largely to herd
Monthly Review •
January 1962
liquidation. Many ewe lambs originally intended for replacement were slaughtered in
1961. This situation is not expected to be repeated this year. If this analysis is correct, the
lamb market in the first quarter of 1962 is
likely to be strong and to return to a more
normal pattern of seasonal price movement
during the first half of the year.
Several years of continued favorable
Dairy
Products milk-feed price rel ationships and
two increases in price supports
since mid- 1960 have encouraged producers to
expand milk production. During th last 2
years, the downtrend in milk cow numbers
slowed consid rably and milk producti n p r
c w is aga in incr asing at a rate of ab ut 4
per cent annu ally. Last year, a mailer number
of dairymen with fe wer total cows but with
larger herds, expanded milk output by about 2
billion pounds to reach a total output of 125
billion pounds. Current indications are that the
same trends will continue in 1962 and milk
production may increase by about 2 billion
pounds.
Commercial demand for milk declined in
1961. Although the decline may be arrested
thi year as economic activity increases, it is
doubtful that aggregate commercial consumption will increa e above last year's levels. With
larger milk supplies and little if any increase
in commercial demand, Commodity Credit
Corporation purchases this year are likely to
exceed the large volume of purchases made in
1961. The U. S. Department of Agriculture indicates that supplies of butter in 1962 may be
large enough to permit a significant increase in
exports under Government programs for the
first time since 1956.
Production of poultry products ha
Poultry been expanded sharply during the
past decade because of technological
advancements and relatively low feed costs.
Supplies of poultry meats last year were at
record highs on both a total and per capita
basis. Supplies of eggs have been declining on
7
Agricultural Outlook for 1962
a per capita basis during the past 2 years. Because of an apparent slight increase in flock
size and expected increases in rate of laying,
total egg production probably will be sl ightly
above 1961 levels this year.
Dem and for poultry meats has not been expanding as rapidly as production, while demand for eggs is declining. Under th ese conditions, prices received by farmers for poultry
products have been relatively low during the
past few years. In addition to the relatively low
farm prices, laborsaving advances in processing techniques and meth od of mass handling
have made retail prices of poultry pr ducts
hi ghl y c mp titivc. Low prices make poultry
products attractive to dom stic consum e rs and
comp titive in fo reign markets.
Despite low prices, broiler production thi
year is likely to remain near 1961 levels.
Turkey producti on also will remain high unless
influenced by a possible marketing order.
THE TENTH DISTRICT OUTLOOK
Farm production prospects in the Tenth D istrict as of the beginning of the year are excellent. The acreage planted to wheat and feed
grai ns is likely to be redu ced somewhat from
last yea r's levels because of the Agricultural Act
of 1961. H owever, production o f livestock
products will be up about enou gh to offset the
effects of red uced acreage from these crops.
Although weath er conditions in Di strict states
can change rapidly, supplies of subsoil moisture
and the outlook for irrigation water are generally good. With normal weather through the
year, farm production in District states is likely
to be maintained near the high levels achieved
during the past 4 years.
Although the acreage planted to whea t for
harve t is substantially lowe r th an a year ago,
the crop is in excellent condition. The effects
on income of the reduced acreage are likely to
be offset by the land retirement payments and
an increase of about 12 per cent in the level
of price supports.
8
The 1962 Feed Grain Program is almost
identical to the 1961 program, except that
barley now is included. Thus, the acreage
planted to ba,.rley is likely to be somewhat
smaller this pring as compared with last year.
However, weather cond itions are an important
factor in determining the acreage that grain
producers will plant to feed gra in s. Since
weather conditions currently are favorable , as
th ey were a year ago, the acreage planted to
feed grains probably will be near 1961 levels
unl e s there is a significant change between now
and planting time. Yields of most m ajor crops
were near record high th rough out the District.
Th us, it will probably take b ' tler than average
weather to duplicate 1961 yi Id s.
Unusually favorab le rang' and fc d onditi on throughout mo t of the Di strict for the
pa t several y ars have encouraged an expansion in meat animal production. Marketings of
both beef cattle and hog are expected to be
above year-earlier levels. Marketings of sheep
may be down somewhat. With marketings of
cattle and hogs at higher levels and prices expected to remain favorable, cash receipts from
the sale of meat animals are likely to be higher
in 1962 than in 1961.
In summary, information presen t d at the
Outlook
onfer nee indica tes th at realized
gross farm income in Di stric t states thi year
has an excellent prospect of remaining close to
the record highs achieved during the past 4
years . Production expe nses probably will be
somewhat higher, so realized net farm income
may be slightly less than last year unless crops
again have record yields. Although realized net
income may be somewhat below th e levels of
1961 for the District as a whole, it is expected
to remain above the levels attained in 195 8,
1959, and 1960. fn the aggregate, agricultural
pro pects are favora ble for 1962. However, the
rapid rate of adjustment in fa rming becau e of
changing techniques and demands m ay continue
to cause difficulti es for producers of certain
commodities and for those with inefficient units.
Economic Recovery
And Expansion
con I inucs to do min ate
n:11ional economic tkvclo rm cnts :ind h:1-.;
es tabli shed the initi :tl trend l'or the new year.
Ind cd, the pace o f the recovery qui ckened
noticeab ly in th e late month s of 1961 . Thu ,
the advance again as urned the more vigorous
tempo charactcri ti c of the ea rly phases of the
upturn and th e summer pause seems to h ave
been little more than a temporary interlude.
This is th e sense, certainly, of the succession
of recent favorable reports on retail sales, personal inco me and employment, industrial p roduction , new orders, and other economic indicators. In these reports , also, arc lo be found
the key to th currently pop ul a r more optimi stic outlook for the near future.
Looking back to the summer months , thre
sources of conce rn abou t the perf ormancc of
the domestic economy were much in the news
and caused considerable misgivings about the
outlook. First , the pace of the expansion
slowed discernibly in the third quarter. Industrial production advanced moderately in
August and declined in September. The gain
in employment was only a fraction of the rate
prevailing from F e bruary to midyear. While the
slowdown was real, it wa reasonable to hold
the view that a combination of temporary factors , including the early changeover and strike
in the auto industry and severe weather conditions, were largely responsible. With the re-
E
('ONOl\1 IC RITOVI · RY
Monthly Review •
January 1962
sum ption of si 11 nil'ic:1n t :1dvances in Octohcr,
ii would :1p1K·:11 th:1t thi s in1L' 1prct:1tion was
<.; uhstanti:tll y correct. Moreover, this position
\ as strengthened by the obse rvati o n that the
small increa~c in national defense outlays in
th e su mmer quarter was not in keepin g with
planned expenditures for the cu rrent fiscal year
and that spending rates subseq uently would
advance considerably. E~senti ally, then, the
summer quarter marked one of those periods
during general expa nsion when, for a variety of
rc::isons, activity in the different sectors of the
economy did not mesh with the precision necessa ry to sustain th e pace of recove ry.
T he seco nd source o f co nce rn during th
su mmer month s was the persistent unrespon siveness of retail , ales to ri ing incomes . In
Au gus t and September, rctnil sales were holding close to th e level preva iling since the beginning of 1961 . A s a matter of fact , the August and September volum es were equal to
what they had been in those months of 1960.
M eanwhile, pe rsonal income had advanced 4.5
per cent from it February low and was a bout
4 per cent a bove the September 1960 rate. It
was recognized th at consumers ::ire spending
a n in c reasi ng proportion of their in co mes on
serv ices and that when total consumption outlays were related to income, the gap did not
appear so broad . Still, the evidence pointed to
a tight hold on the purse strings. Personal sav9
Economic Recovery and Expansion
CURRENT ECONOMIC INDICATORS
Seasonally Adjusted
Billions of Dollars
20
Reta i I Sales
19
18
.__J_j_
L~~~__L__i__L-1
L
l
J..___j_____,._
i
Index
120
II 0
100
l
I
j
l
l
...
l
I
Per Cent
8
Unemployment
7
As a Per Cent of The
Civilian Labor Force
6
5
1960
L.1.
.._ ....._
l
1961
7 per cent level which had held since December 1960. In November, 6.1 per cent of the
civilian labor force was unemployed, after
making adjustments for seasonal factors. While
this reduction does not by any means suggest
that the perplexing problems surrounding manpower utilization may now be dismissed, it is
encouraging to ee the dimensions of the problem begin to contract ignificantly.
The new confidence in the dome tic economy, however, has not had its counterpart on
the international scene. On the contrary, U. S.
foreign trade, after making a significant contribution to the economy during the reces ion ,
ha b en weakening. Imports have ri sen with
th advance of conomic a tivity in thi country. At the sam tim , U. S. ex ports have
slipped a expan ion in Western Europe and
Japan has tapered off and as competition has
intensified. As a consequence, the U. S. trade
surplus has declined from the high early in
1961. While the surplus for 1961 as a whole
may be the largest since 1957, it will fall considerably short of the amount needed to bring
the Nation's basic international payments into
balance.
CONSUMERS SHED SOME CAUTION
SOURCE : Board of Governors of the Federal Reserve System ; U. S.
Departments of Commerce and Labor .
ings in relation to disposable income mounted
steadily through the third quarter. In addition,
consumers were reluctant to incur new instalment debt.
With the retail sales report for October, the
picture in this crucial sector brightened considerably. October sales rose, after seasonal
adjustment, by 2½ per cent above the average for June through September. This was fol:lowed in November by an additional gain of
3 per cent, bringing sales to a record level.
The third major source of concern during
recent months also witnessed encouraging
progress in November, as the unemployment
rate showed a sharp departure from the near
10
As in earlier postwar cycles, a sustained
flow of personal income and well-maintained
total consumption outlays supplied a significant
buoying influenc to the economy during the
past year. Following a nominal decline in the
early months of 1961, consumer spending advanced and by the third quarter showed a 3
per cent gain over the first quarter. Variation
in the strength of demand among particular
components was significant. The largest rise
was for services, which have followed a strong
upward trend in postwar years and are generally unresponsive to cyclical influences. Meanwhile, purchases of food and other staple nondurables held firm during the recession and in
recent months outlays for clothing and shoes
have responded to rising income.
Economic Recovery and Expansion
Sales of durable goods, on the other hand,
have been generally low in relation to income.
A good gain was recorded in the second quarter, largely due to the spring increase in auto
sales. Expenditures for furniture and household
equipment also began to rise in the early spring
and have continued upward. The advance in
major home goods came in respon c to rising
incom and incrca cd residenti al building, although in considerably damp ned proportions.
T he spring sta rt, however, did not mature into
a sustained rise and virtually no additional
improvement deve loped in the third quarter.
Thus, whit con umer outlay for services
and nondurablcs were advanci ng to new hi ghs,
improvemen t in durabl e goods mark ts was
slight through th e sum mer of 196 1. In kc ping
with thi lack f buoyancy, in talmcnt credit
exten ions were running at about 13 per cent
of income compared with approxim ately 14½
per cent in the 2 previous years.
In the light of this background, the significant improvement in retail sales beginning with
October provided a new spark of confidence
in the business situation. Most of the improvement was due to greatly improved auto sales.
With a more adequ ate supply of ca rs following
the settlement of labor disputes, October sales
of new domestic autos advanced to a seasonally
adju ted annual rate of 6.2 million units. Thi s
was followed by a further ri e in November to
a rate of approximately 7 million. By way of
comparison, the pattern for the first three quarters of 1961 was from a 4.9 million average
in the opening quarter, to 5.6 million in the
second, and down to 5.2 million in the summer quarter.
As 1962 drew near, auto manufacturers were
highly optimistic about the prospects for sa les
and pr duction. Foreca ts of production by the
U. S. Department of ommerce suggest that
dom estic outpu t in calendar 1962 would range
from 6.4 to 6.8 million unit , compared with
an anticipated 5 .5 million in 1961 and nearly
6. 7 million in 1960. In addition to the upward
Monthly Review •
January 1962
INCOME EXPANSION AND REVIVAL
IN SALES
Bil lions of Dollars
Seasonally Adjusted Annual Rates
440
430
Personal Income
420
410
400
3 90
240
Retail Sales
230
220
210
Total
160
150
Nondurable
140
80
70
60
Durable
50
40
30
0
Automotive
1960
1961
SOURCE : U. S. Department of Commerce .
trend in em ployment and income, the Government agency supported its forecast by pointing to the increasing number of 2-car fa milies,
a high scrappage rate, a good used car m arket,
and improved highways.
The major reason for th e better performance
of retail sales recently is the continued increase
in employment and income. At the same time,
the higher volume of spending seems to spring
also from increased confidence in the economic
outlook and from an easing of the immediate
crisis surrounding Berlin . Significantly, the repon e in onsumer ales has not been limited
to th e auto sector. Sales of soft goods advanced
to a distinctly higher level in November and
thereby added confidence to optimistic appraisals of th underlying strength of consumer
demand.
11
Economic Recovery and Expansion
EXPANSION IN PRIVATE INVESTMENT
Gross private domestic investment rose
sharply in the spring quarter and has continued
to advance. In the third quarter, gains were
widespread among the major sectors, although
nonresidential construction heJd at the level of
the previous quarter. At the same time, the
pace of investment in producers' durable equipment stepped up- a development presumably
rel ated to improved sales and profits.
Business investment responded to rising activity much ea rli er than usual in the current
recovery. Accordingly, both inventories and
fixed investment already have made sizable
contribution s to the over-a lJ advance.
Inventory policy hifkd from liquidation in
th e opening quart ·r of 1961 to accumulation
in the econd. From the first to the third quarter, the change in busin ss inventories accounted for $8.5 billion of the $25 billion
cyclical increase in gross national product. This
development departs from the common pattern
of recovery in that inventory liquidation usually
continues at reduced rates beyond the upturn
in general activity. In 1961, the early response
was probably due to the mildness of the recession and to the low Jevel of inventories in
several industries when the recession began.
During the period of recovery through early
autumn, the Jargest share of the increase in
book vaJue of business inventories was in the
stocks of durable goods manufacturers. Increases actually began in the third quarter,
following an earlier period of stability. In keeping with the early stages of the upswing, the
buildup occurred in stocks of purchased materials and goods-in-process. Meanwhile, retail
stocks of durable goods held steady and in October were unchanged from the March level,
after seasonal considerations.
SaJes of manufacturers have been advancing at about the same rate as inventories.
Ratios of inventory to sales, accordingly, have
shown little net change for either durable or
nondurable producers during recent months.
12
Similarly, at the retail level, inventory-sales
relationships were stable through the third
quarter but showed some decline in October
with the sharp improvement in auto sales.
During the final quarter of 1961 and th e
first quarter of 1962, it was expected, on the
basis of a U. S. Department of Commerce su rvey, that manufacturers' inventories would increase by about the same amount as they had
in the third quarter of 1961. Durable goods
producers would continue to account for the
major portion of the buildup . At the same
time, the flow of orders to the steel industry
was apparently already picking up , in part
perhaps as a hedge against a possible steel
·trik e in th e summer. In th absenc of an
early agreement, inventory building by ste Ico nsuming indu tri es may be substantial and,
imposed upon rising requirements for current
RECOVERY IN INVESTMENT
Billions of Dollars
Seasonally Adjusted
I 00 . - - - - - - - - - - - , - - - - - - - , - --
- --
--,
90
80
70
60
50
Business Fixed Inve stment
40
30
20
--
----
Residential Nonfarm Construction
10
+
0
Ch an ge i n
Business Inventories
10
20 ~_._____._
1959
_._____.'-----'-------'----'--L---'-----'----'--'
1960
SOURCE: U. S. Department of Commerce .
1961
Econom ic Recovery and Expansion
consumption, would produce an accelerated
rise in steel output in the first half of 1962.
Capital outlays also responded more promptly to th e upturn in over-all activity than in
previous postwar recoveries. The cyclical low
occurred in the second qu arter of 1961 and
expenditures have been ri sing since then. In
th e final quarter of 1961, outlays were scheduled to be about 7 per cent hi gher th an tho e
a t the low point and a further adva nce was
cheduled for the first quarter of 1962, according to the autumn Government urvey, bringing the level up to the high of the spring of
1960.
All major industries except nonra il tran sportation and pub lic utilities plan first quarter
1962 out lays to be at seasonally adju sted annual rate abov the level for th e year 196 1.
The largest gain is schedu led by commercial
and m iscell aneous firms and follows upon
record levels in 1960 and agai n in 1961. The
large volume of office-building and shoppingcenter construction is an important factor in
this increase. The railroads also plan some recovery from the low levels prevailing during
the past year. On the other hand, electric and
gas utilities are scheduling a slight decline in
the first quarter of 1962, foJ!owin g a slightly
rising trend during recent quarters. The nea rly
complete jet expa n ion program of the airlines account for the small decline anticipated
in nonrail transportation.
In the manufacturing sector, the ex istence of
a sizable margin of unu sed capacity continues
to influence expansion plans. While utilization
rates have risen from the lows of early 1961 ,
th ey remain below previous cyclical peaks.
Manufacturers are expected to increase outlays in the fir t quarter by about 8 per cent
above the recession low of the second quarter
of 1961. Outlays o f nondurable goods producers mounted stead ily in 1961 and th e advance is sc heduled to con tinue. Among durable
goods producers, th e low in capital outlays
occurred in the third qu arter of 1961 and exMonthly Review •
January 1962
penditures h ave been schedu led to rise from
that point. Progra ms for the first quarter of
1962 are only slightly higher th an in th e corresponding p eriod of 1961.
The rate of advance in anticipated capital
outlays for the firs t quarter of 1962 is more
moderate than the increases occurring or scheduled for the third and fourth quarters of 1961.
In general, the light ga in an ti cipated would
seem to be in accord with the recent McGrawHill urvey which found for the year of 1962 a
planned increase of 4 per cent from the J 961
total. H owever, th e incenti ves are strong to
mod erni ze equ ipm ent in order to compete more
effectively in dome tic and foreign markets
and to tak e advanta 1e of the fruits of large
r s ·arch a nd devclopm "nt efforts. Moreover,
th e growi ng vo lume of internal fund t nds to
favor expansion in capital o utlays. For these
rea ons, as weJI a the observation that surveys
made in the a utumn of 1954 and 1958 considerably understated the expansion which
actually occurred in the following years of rising over-all activity, there is a tendency to expect more strength in fixed capital outlays
during 1962 than recent surveys show.
Another major component of investment activity, r sidential const ruction, also has been
an important factor in the recovery. Homebuilding ha b en advancing ince the beginnin g of 1961 and, in the third quarter, had
regained about two thirds of the decline occurring between the summe r of 1959 and the end
of 1960. Housing starts rose further in October but declined in November, after seasonal
correction. While in earlier postwar periods the
response in residential construction could be
related la rgely to consumer decisions to purchase si ngle-family dwelling , much of the increase in 196 l reprc. ented investor decisions
to build new apartme nt hou cs.
Other things be ing eq ual , the outlook for
residential construction was strengthened by
recent evidence pointing to a slight decline in
the rental vacancy rate, following nearly 2
13
Economic Recovery and Expansion
years of rise. On the other hand , a more powerful factor influencing the housing industry is
the trend of interest rates on home mortgages.
In recent months, rates appear to have changed
little.
GOVERNMENT PURCHASES OF GOODS
AND SERVICES ADVANCE
Billions of Dollars
BO
Seasonally Adjusted Annual Rates
Federal
70
Fiscal Years
EXPANSION IN GOVERNMENT
Total purchases of goods and services by
government have been rising since early in
1961 and are expected to play a major part
in the over-all expansion of economic activity
in the near future . State and local government
outlays continued the upward trend characteristic of postwar years. The largest part of the
recent increase, however, derived from enla rged def n e expenditure . Through the third
quarte r, n arly half of the increase in totaJ
govern ment expend itures in 1961 r fleeted defense activities.
Purchases by the Federal Government are
scheduled to rise by $5 billion, on a national
income and product account basis, in fiscal
year 1962. Of this over-all increase, national
security outlays account for $4 ½ billion and
are the primary factor in the rise. Purchases
of quipment, much of it conventional weapons
with relatively short delivery schedules, will
increase about $1.5 billion . The remainder of
the increase will go for personnel, operation
and maintenance, and for other categories of
defense spending, except construction which is
slated to decline. In addition, orders for defense purchases to be paid for in the following
fiscal years are scheduled to exceed planned expenditures in the current fiscal year by $4
billion.
While the purchases of goods and services
comprise the major portion of total Federal expenditures and directJy stimulate over-all demand in the economy, other expenditures also
contribute to the flow of income. In the fisca]
year 1962, these other expenditures-social
ecurity and other transfer payments, grantsin-aid to states, etc.-are expected to advance
about $3.5 billion.
14
60
Total
'1,
State~
50
40
-
Notional
30
20
10
0
1959
'60
'61
1960
'61
'62
Est.
NOTE : Fiscal 1962 estimate from the 1962 Budget Review. Pur chases of goods and services constitute the major portion of
Fede ral expenditures but they do not inc l ude items su ch as transfer payments , grants-in-ai d, and interest.
SOURCE: U. S. Department of Commerce; Bureau of the Budget.
In addition to the expansion in Federal
spending, purchases by state and local governmen ts ar likely to rise $4 billion in the current fiscal year, accord ing to the U. S. Bureau
of the Budget estimates used in preparing the
1962 Budget R eview. This combined increase
is one of the major stimulating factors in the
$40 billion increase in the Nation's output of
goods and services projected for the current
fiscal year. Such an expansion, it might be
noted, represents an increase of about 8 per
cent in GNP from the level of the fiscal year
which ended June 30, 1961.
THE OUTLOOK
Since the spring of 1961, the expansion in
total output has compared favorably with
earlier recovery periods. While various sectors
of demand have advanced at different rates
and have departed somewhat from the pattern
Economic Recovery and Expansion
of earlier recoveries, the over-all expansion is
broadly based. The widespread character of
the recovery is especially noticeable when recent developments a re reviewed.
The expectations developed above in the
discus ion of major sectors of demand point
to a continuation of rapid economic expansion in the first half of 1962. Used often currently are estima te of GNP rising from th e low
of $501 billion (annu al rate) in the first quarter of 1961 to $540 billion in the final quarter
and then upward to $565 billion in the second
quarter of 1962. This is, indeed, al o the p attern of expansion underlying the Federal budg t f r fiscal y a r 1962 .
At the s·1me Lim , th e re ov ry thus far ha s n t
produ ed a ny general incr ase in prices or
other inflationa ry development . The resource
base of the Nation is still large relative to current output rates and the potential for further
Monthly Review •
January 1962
expansion in real output is substantial. Manpower resources continue to be available in
relatively plentiful supply. Similarly, the margins of unused capacity in most industries are
ample to support large increases in output.
These conditions, together with the increased
competition of foreign producers, operate as
strong controls on the general Jevel of prices.
Thus, the potential for real expansion is substantial and the near-t rm outlook is favorable
for satisfying increasing total dem and with a
real flow of goods and services. On the other
hand , it is reasonable to ex pect some re umpti n of price pres ur s down the r ad as res urce become more fully utili zed . Since the
ability of th country to tol rate ge n ra l pri c
advance i rath e r limit d, the ta k f keeping
the economy on a sustain able expan ion will
demand keen in ights and appropriate policy
actions.
15
Percentage Distribution of Time Deposits of
Commercial and Mutual Savings Banks
and Share Capital of Savings and
Loan Associations
Growth of Commercial and Mutual Savings Bank
Time Deposits and Share Capital of Savings
and Loan Associations
United States
Billions of Dollars
Billions of Dollars
Per Cent
100
100
100
90
80
80
Semi-log Scale
90
90
80
90
70
70
60
60
70
70
50
50
60
60
40
40
50
50
30
30
40
40
30
20
20
10
10
0
0
1951
'55
' 53
'61
'59
*3rd Quarter
'57
;
20
/
//
,,✓
City
Member
District
and
Bank s
City
Savings ~ Loon
Associations
PRICE INDEXES, UNITED STATES
Index
Reserve
Count ry
Member
Ba nks
20
*3rd Quarter
Deposits
Re serve
/
I0 L--__J-----'-----'---'---.L.___J_----'--_--'---'--_,_____, 10
'61
'59
'57
'55
'53
1951
BANKING IN THE TENTH DISTRICT
Loans
/
Me mber
Country
Mem ber
Banks
Banks
Nov.
1961
Oct.
1961
Nov.
1960
127.4
Consume r Price Index
(1947-49 == 100 )
128.3
128.4
Wholesale Price Index
( I 947 -49 == 100)
118.8
118.7
119.6
Prices Rec'd by Farmers (1910-14 == 100)
238
240
241
Prices Paid by Farmers
301
301
297
(1910-14 == 100 )
Nove mber 196 l Percentage Change From
States
TENTH DISTRICT BUSINESS INDICATORS
O ct.
1961
No v. Oct.
1960 1961
Nov. Oct.
1960 1961
Nov . Oct.
1960 1961
Nov.
1960
District
and Princi pal
- 2
+ 6
+1
+9
+ 2
+7
t
+ 9
Colorado
- 3
+ 6
- 1
+ 9
+ 1 + 10
t
+ 8
Kansas
- 5
+ 6
+ 3
+ 6
- 3
t
+ 8
Tenth F. R. Dist.
Missouri *
t
+ 7
t
Nebraska
- 3
9
+ 3
New Mexico *
Oklahoma *
Wyoming
* :;:
,:, *
16
+4
- 2
+ 2
+ 1
+9
+ 8
- 3
+6
t
+ 8
+ 1
+12
**
**
- 1
+ 2
+ 2
+ 15 + 12
f+ 12
**
:!,:*
+ 1
+10
**
**
* Tenth Dis trict portion only .
than 0.5 per cent.
t l ess
+ 1
+ 1
+8
t +11
+2
•• No reserve citi es in this state.
+8
Metropolitan
Areas
Value of
Check
Payments
Percentage change-1961 from 1960
Nov.
Te nth F. R. Dist.
Value of
Department
Store Sales
Year
to date
+ 7
+7
Denver
+ 11
+13
Wichita
+ 12
Kansas City
+9
Omaha
+6
+s
+s
+4
+24
- 9
Oklahoma City
Tulsa
Nov.
Year
to date
+3
+3
+4
+ 6
+3
- 2
0
+1
+2
+13
+12
0
- 9
+2
+7
- 1
@FedFRASER