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March
1960
The Export-Local Employment
Relationship in Metropolitan Areas .
page
Cattle Numbers and Beef Production
. page 10
3
Current Charts and Statistics . . . . page 16
FEDERAL RESERVE BANK
OF KANSAS UITY
Subscriptions to the MoNTIILY 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.
The Export-Local
Employment
Relationship
M
•
•
•
•
•
•
•
United States have
experienced impressive economic expansion in recent years. Investment has taken
place in a great variety of activities which
produce income and employment. Incl11sh·ial
and comnH·r-cial faciliti(·s have hC'cn ('\paneled
and govcrn111<•11t activity has grown. I l is oftc•11
desirable to know the indirect or multiplicative effects of such developments upon the
area in which they occur. Since modern economic affairs are highly interdependent, viewing a specific economic event in isolation will
ordinarily lead to a great underestimation of
its significance.
Thus, a resources development project
which increases the availability of certain resources- water and power for example- may
have far more wick-ranging <>conomic effects
than at first may he apparent. Additional
goods and services may be ckmandc<l from the
communi ty to supply the needs of the new
employees and of the productive activities
stemming directly from the project. Not only
project planners but persons in areas affected
by a project find it valuable to be able to
anticipate such indirect effects.
Similarly, the location of a new factory in
a city will lead to the direct employment of
a given number of people. However, undn
propitious circumstances, the community will
-as a consequence of the new plant- experience a growth in employment and income
which is a multiple of the expansion which
results directly. It is certainly important to
city planners and others interested in regional
OST AREAS OF THE
Monthly Review •
March 1960
in _Atetropolitan
ol-reaJ
growth to have a means of estimating these
indirect effects. Informed judgments concerning such matters as prospects for labor force
ancl population growth, social ancl business
capital requirements, and growth of the ta"X
hasc dqwnd 11po11 a means of determining indircd and diff11sc c011seq11c11ces of the more
apparent, or perhaps more fundamental ,
changes in the regional economy.
Perhaps the most widely known and generally applied technique for dealing with this
type of problem is founded upon the idea that
certain economic activities can be identified
which generate and support other activities in
the community. The appeal of such an approach is obvious. If the supporting activities
can he projected and if a stable relationship
can he found between supporting and depC'ndcnt activili('S, prediction of the total ckvelopmcnt of an area can he achieved. Or if
study of an existing situation reveals an imbalance in the relationship between supporting and dependent activities, future changes
in total activity can be anticipated. Numerous
studies of American cities-often called economic base or employment multiplier studies
-have been grounded upon the concept of
supporting activities . Since value added or
other monetary measures which might be
used to identify a supporti11g-ckpcndrnt relationship of economic activities are extremely
difficult to obtain on a regional basis, and since
employment information is often wanted for
its own sake, the vast majority of studies
utilizing the concept have been aimed at
3
The Export-Local Employment
identifying supporting and dependent employment.
This article points out some of the factors
which make it necessary to exercise circumspection in the utilization and measurement
of the relationship between supporting and
dependent employment. The point is made
that this relationship may be expected to vary
with economic circumstances and that its estimated value may be affected by the technique
used to measure it. Consideration of these
matters may help to improve the precision of
the distinction between supporting and dependent employment as a tool of economic
analysis.
What Types of Employment Support
Community Growth?
The most commonly encountered definition
of supporting employment emphasizes the
place of residence of the purchaser of goods
and services supplied by the community. Purchases by individuals residing outside the
community are deemed to give rise to supporting employment while purchases by those
residing within the community are thought
to produce dependent employment. Clearly
such a distinction is based upon the fact that
the national economy displays great regional
specialization and, therefore, the potential
growth of an area is heavily dependent upon
its ability to export. As export industries expand, requirements for localized activitiestrade, services, and construction, for example
-also enlarge, and community employment
tends to increase by some multiple of the
growth in export employment. This multiple
is known as the employment multiplier.
The most straightforward way to derive an
employment multiplier fro111 the distinction
between export-oriented and localized employment would be to presume that the relationship between these two types of employment, as measured at a given time, would
tend to re-establish itself whenever export
4
employment is altered. This is, in fact, the
general idea underlying most multiplier
studies even though they often incorporate
more elaborate techniques which usually involve the simultaneous use of a number of
estimates of export-oriented and localized
employment made over a period of time. By
this means they attempt to relate changes in
export employment to changes in local employment.
Sometimes an existing relationship between
export-oriented and localized employment in
a particular area is viewed as evidence of the
probable direction of change in total employment. In other words, if export cmploynw11t is deemed to he high relative to local
employment at a given point of tirnc, it is
predicted that total employment wi1l tend to
rise even without further increases in export
employment. The underlying idea in this case
is similar to that involved in applying an
employment multiplier to a change in export
employment, i.e., that there is a predictable
relationship between export and local employment toward which the actual relationship
tends. Clearly the validity of studies utilizing
this idea hinges heavily upon the meaningfulness and accuracy of the distinction made
between employees engaged in production for
local markets and those whose productive
activities are oriented toward export markets.
The use of the distinction between export
and local activities as an explanation of total
employment change has certain theoretical
shortcomings. For example, it seems clear that
the relation between these two types of employment may not predict with complete accuracy the consequences of a development of
new employment because. among other things,
it fails to consider the impact which such employment may have upon imports. For examp1c, a new firm which sells all its output
locally may provide goods which were formerly imported. In this case the employment
oriented toward local markets could just as
Relationship in Metropolitan Areas
well be expected to have multiplier effects as
a similar increase in export employment. In
other words, prediction based upon the employment multiplier, derived from export-local
employment ratios, need not agree closely
with the actual impact of a new development
upon the flow of payments in the region.
However, the export-local distinction is
meant to provide a relatively easily obtainable
rule of thumb, and methods which might trace
and analyze with greater exactness the impact
of specific developments upon an area are
extremely complex and expensive. Therefore,
the export-local relationship is perhaps best
judg d hy th<' predictive value it has for those
who ,,tilizc it. In that regard , however, it is
helpful to recognize that differences in circumstances may cause the relationship to
vary from place to place, as well as at different points in time at the same place. The
consideration of such circumstances is appropriate when applying, comparing, or projecting existing or historical relationships.
Why Do Export-Local Employment
Relationships Differ?
As has been indicated, the relationship between export and loca) employment varies
from city to city and for the same city at differ nt points in time. On the face of it, this
result is not surprising and several reasons for
such variation are easily discernible.
For example, when numerous studies are
examined there appears to be a tendency for
locally oriented employment to be relatively
high in large cities. This is to be expected
since a large city is likely to be more nearly
self-sufficient than a smaller one and, therefore, less dependent upon imports. In this regard, a very large city shows characteristics
of an entire nation. If an export-local employment relationship were computed for a relatively self-sufficient nation such as the United
States, it would of course reveal an extremely
large proportion of local employment. HowMonthly Review • March 1960
ever, in this case an argument to the effect
that domestically oriented employment is , in
a straightforward sense, supported by export
employment would hardly seem defensible.
The larger and more diversified an economy
is, the more is it likely to display a dynamic
character of its own and the less is its growth
dependent upon rising exports.
An additional reason for variation of the
export-local employment relationship among
cities or in a given city at different points in
time arises out of the fact that similar
amount· of employment may represent far
different amounts of income. Thus, export in dustries made up predominantly of employees
receiving high wages and salaries may induce
mon· S('condary employment than low income
industries of similar size. A further source of
variation occurs if studies are made at different stages of growth or when different growth
rates prevail. While the exact effects of these
factors upon export relative to local employment are difficult to predict, they could be
substantial. For example, the development of
locally oriented employment may lag behind
a rapid growth in export employment. More
mature cities thus may serve their communities with a fuller array of secondary services,
private and governmental, than those experiencing brisk expansion.
Similarly, the degree of magnification induced by export employment will depend
upon expectations concerning the permanency
of such employment. An employment change
anticipated to be temporary may well have
little secondary effect. Likewise, if a surplus
labor supply exists in the community, secondary effects of a new development may tend
to be relatively small since comparatively
littl e addition to housing and social capital
will be required. On the other hand, it is also
conceivable that in certain instances local
activities rise in anticipation of continued
growth of exports, thus tending to increase
local employment relatively. Also, the con-
s
The Export-Local Employment
struction sector, which is usually considered
to be locally oriented, tends to be extraordinarily large during periods of swift growth.
Similarly, a declining city may experience abnormally large local employment since decline is thought to originate in the export
sector and it seems probable that induced
activities will exhibit a lagged response.
While numerous other sources of variation
due to differences in economic circumstances
could be detailed, enough has been said to
indicate that the export-local employment relationship should not be treated as a constant
factor applicable to diverse times and places.
Card11l co11sicll'ratio11 of the 11atur(' ancl cll'vclop11w11t of a particular economy would appl'ar to be a necessary prerequisite to fruitful
application of the export-local distinction.
Thus far, reasons for variation of the actual
relationship between export and local employment have been described. However, in
practice the measured relationship may vary
from the actual one. The remainder of this
article, therefore, concentrates upon the effect
which different techniques of estimating the
relationship may have upon the value which
is obtained.
Variation Due To Different Methods
of Estimation
Since the relationship between export and
local employment is never directly evident
from regularly available statistics, it must be
estimated. A variety of methods for making
such estimates have been proposed and applied in the past. These methods vary greatly
in complexity and in general concept. Therefore, it seems reasonable to suppose that differences in the method used might substantially affect the values which arc obtained. It
wonkl appear to be useful to those utilizing
and interpreting the export-local relationship
to know whether differences arising for this
JT,lson tend to be substantial or insignificantly
small.
6
Unfortunately, in order to answer this question, it is not workable merely to compare the
export-local relationships obtained by the application of alternative methods to different
cities or to the same city at various times. As
indicated earlier, heterogeneity in economic
circumstances influences actual export-local
employment relationships and it is not possible to predict offhand whether or not differences in the technique of measurement will
tend to cause the estimated values to rise
above the actual ones or to fall below them.
Therefore, it is conceivable that different
techniques of estimation applied to varying
circ11msta11<·cs could caus<' th(' <·stimatecl
val11l's to he closN together than the actual
ones.
One way of coping with this problem is to
apply different techniques to the same situation at the same point in time. When this is
done, any variation which may occur in the
result will arise from the alternative techniques used rather than from differences in
actual economic circumstances. It should perhaps be emphasized that such a comparison
does not shed any light upon the validity of
the export-local employment distinction. It
merely provides evidence concerning the
comparability of results obtained in different
ways.
In the broadest sense, two types of methods
for estimating export employment are commonly used. One, which might be termed the
"direct" method, is to survey business firms
in an effort to determine what proportion of
their sales goes to nonresident buyers. The
percentages so derived are then used to establish the relation between export and local
employment. Because this method addresses
itself to the problem of determining export
employment in the most direct imaginable
way, it has considerable appeal. U nfortunately, however, it is often difficult to judge
the reliability of answers to survey questions.
For example, the respondents often may have
Relationship in Metropolitan Areas
only the vaguest notion of the place of residence of their customers.
The other category of methods, which may
be termed "indirect," takes a variety of forms
but usually depends upon comparison of the
structure of production in a "subject" area
with a larger "benchmark" area-its potential
market-in order to discover industries in
which the subject area is relatively more specialized. This may be done simply on the
basis of judgment or by the use of more refined techniques. The logic of such a comparison, expressed briefly, is that specialization
of production in a suhject area relative to a
larger benchmark inclicatC's an orientation
toward nonlocal markets. While this method is
much less expensive than the survey and
avoids the difficulty of inaccurate replies from
respondents, it presents other problems, some
of which are mentioned below.
Variation in estimated export employment
resulting from the application of different
methods of estimation appears to be substantial. Several methods-ranging from one based
primarily upon the survey technique to others
using strictly indirect methods-show a considerable range of results when applied to the
District cities of Denver and Wichita. Therefore, it would seem that caution must be
exercised in comparing export-local employment relationships derived by different
methods. To some degree the variation which
results from alternative methods appears to
be systematically related to the specific technique and the amount of statistical detail
used in making the estimates.
The accompanying table presents some
examples of the results of applying different
methods to Denver and Wichita for the 1950
census year. While no attempt will be made
here to explain fully the technique involved
in the methods listed in the table, a brief
statement of the central idea of each will aid
the understanding of the conclusions which
are drawn from the results. The reader interMonthly Review •
March 1960
Ratio of Local to Export Employment, 1950
Derived by Different Methods of Identification
Method
I
II
Ill A
B
C
Wichita
Denver
1.47
1.54
2.03
No counterpart
3.64
3.87
3.14
2.92
2.39
3.01
NOTE: The following sources contain an explanation of each of
the methods used In making the ratio estimates shown in the
table . The figures for Methods I and II are taken directly from
studies of Wichita and Denver. The figures for Method 111 were
obtained from a computation modeled upon that found In the
study cited.
Method I: The figures for Wichita and Denver were obtained from
studies of the two cities, both of which were primarily based
upon survey methods. See Pattern for Progress, 1957, An Eco-
nomic Base Study of the Wichita, Kansas, Metropolitan Area,
published by the City of Wichita in 1957, and Working Denver,
published by the Denver Planning Office in 1953. E. T. Halaas
of the University of Denver acted as economic consultant for
both studies.
Method II: See "The Employment Multiplier In Wichita," Monthly
Review, Federal Reserve Bank of Kansas City, September 1952
Method Ill: See G. E. Thompson, "An Investigation of the Local
Employment Multiplier," Review of Economics and Statistics,
February 1959.
ested in a more detailed statement of methodology may wish to consult the note to the
table in which reference is made to studies
utilizing each method. Interested readers may
also obtain a technical appendix which discusses problems of methodology and analysis
in regard to the methods described in the
article as well as other techniques. This appendix may be obtained from the Research
Department, Federal Reserve Bank of Kansas
City, Kansas City 6, Missouri.
Methods of Estimation Used
The figures for Wichita and Denver shown
in the line headed Method I were taken from
studies directed by the same individual and
essentially based upon the direct or survey
method described earlier. In the retail trade
and services sectors, indirect methods were
mainly relied on, however.
The figure for Method II indicates the result of a study of Wichita published several
years before the survey from which the Method
I result was taken. The larger proportion
of the employees classified as engaged in export industries-mostly aircraft industry employees-was assigned on the basis of the
author's knowledge concerning the market
7
The Export-Local Employment
orientation of specific industries. However, an
indirect technique known as the index of concentration was incorporated into the method
used to assign the employees in other industries. As a first approximation, ratios were
computed to measure the degree of concentration in various industry classes in Wichita
relative to that in the United States. The ratio
for each industry consisted of the ratio of
Wichita employment per capita in the industry divided by U. S. employment per capita
in the industry ( an index of concentration).
Those industries with ratios greater than one
were tentatively considered as serving a market larger than the Wichita metropolitan area,
with the proportion of the employment serving
the external market indicated by how much
the ratio of concentration exceeded 1.00. The
logic of the use of a concentration index is
comparatively straightforward. If, for example, Wichita devoted more employment
per capita to the production of heating equipment than did the United States, the Wichita
economy would be considered as more specialized in that industry than the United
States. The first approximation yielded by the
concentration indexes was then adjusted for
factors such as higher than national average
per capita income and differing consumption
patterns. Because the technique of Method II
takes advantage of the dominant structural
ch aracteristic of the Wichita economy-the
unusual importance of a single export industry
- and of the author's knowledge of the economy, it is not readily applicable to most other
areas.
Method III was adapted from an exportlocal empJoyment study of a city other than
Denver or Wichita. It further differs from
Method 11 in that the results obtained were
not modified on the basis of judgment or
special knowledge concerning the area. In
other words, the result is that of the straightforward application of an indirect method of
estimation.
8
This method utilizes a "location quotient"
technique similar in general principle to the
concentration index described earlier. The location quotient, however, is a ratio of the
employment in a given industry as a per cent
of total employment in a particular (subject)
economy to employment in the same industry
as a per cent of total employment in another
( benchmark) economy. Thus, for example,
when a location quotient is computed for the
Wichita printing industry in 1950 using the
United States as a benchmark, the resulting
figure is 1.28. This means that a larger percentage of Wichita's labor force is devoted to
the printing industry than in the remainder
of the United States and lhNcfor<', provision ally, printing might be consiclcrccl an export
industry oriented toward the United States
market. Moreover, if Wichita is compared
with the Midwest, with Kansas, and finally
with south central Kansas, the location quotient rises progressively. The logic of this
method would, therefore, imply that the Wichita printing industry is oriented to outside
markets, with its primary market orientation
being south central Kansas. Conversely, if
none of the location quotients had exceeded
1.00, the method would indicate that the industry was oriented toward local markets.
In accordance with the approach of the
study from which Method II was taken, location quotients were computed for each industry in Wichita and Denver in relation to the
United States and three smaller regional
economies surrounding the subject economy.
If the location quotient of an industry exceeded 1.00, it was taken to be externally
oriented and toward the economy for which it
showed the highest location quotient value.
If all location quotients fell below 1.00, the
industry was viewed as having a local orientation. However, only a portion of employment in industries serving an external market
was considered to be export in nature. This
portion was determined by computing a
Relationship in Metropolitan Areas
"specialization" ratio which expressed the
proportion by which actual employment in
each industry of the subject economy exceeds
what it would have been if the same percentage of total employment had been devoted
to it as in the subject and benchmark economics combined. Thus, employment in the
various subject economy industries was a1located between export and local in proportion
to the specialization of the ecoP.omy, as indicated by the appropriate industry ratios. 1
Conclusions
Unfortunately, th<' amount of generalization
wl1i<.'h can lw done on the basis of a st11cly of
two citi<'s is quilC' limit<•d. On<' major crnH-lu-
sion which C'a11 he drawn is tlw simpk fact
that the technique of estimation can substantially affect the comp11ted relation between
export and loca] employment. Thus, it seems
quite possible that, when estimates based
upon different techniques of estimation are
compared, the difference between them may
be significantly larger, or perhaps significantly
smaller, than can be attributed to actual differences in economic circumstances.
In addition, indirect techniques of estimation apparently t<.'ncl to yield sma11er amounts
of export employment than the survey method.
This result may be partly related to the fact
that surveys are conducted on a much more
disaggregated basis than is indirect estimation.
While indirect methods must utilize data for
1
.Method lII involved the selection of potential benchmark areas, and the selection of different potential
benchmarks can affect the amount of export employment fot1ncl. For <'x:11nplc, when a stale rather than a
s11hstate nrca was used as the ,;rnallest pot<'nlial benchmark, the amount of basic cmploy11wnt obtained was
increased somewhat. An analysis of foctors governing
the influence of a shift in the size of benchmark
economics, as weJl as other technical matters ancl discussion of additional tcchnic1ues of estimation , arc included in the appendix.
Monthly Review •
March 1960
more or less inclusive industry categories, surveys proceed at least partia1ly on a firm-byfirm basis. In general, it might be supposed
that the use of more detailed information is
likely to yield a greater proportion of export
activity. For example, if services are considered as a whole, indirect analysis may reveal
110 export employment, or only a small amount,
whereas a more detailed analysis might show
that employment in hotels, medicine, services,
etc., was heavily export oriented.
This implied generalization-that more detailed industry categories will reveal more
regional specialization- seems to he borne
011t hy tlH' application of ~lcthocl rl 11tilizi11g
varying degrees of i11cl11stry ddail. The letters
A, B, nnd C u11clC'r Method 111 in th<' tahlc
indicate progressively more refined industry
cJassification. In both the Denver and Wichita studies, the correspondence between degree of industry detail and ratio value is complete.
In summary, it may be said that in estimating, comparing, or applying the exportlocal employment relationship, consideration
must be given to the method of estimating export employment. Differences in the method
of estimation used can cause a significant divergence in the export-local ratio. It appears
quite possible that these differences have
some systematic clements which are inherent
in the method of estimation and in the
amount of detail used in making the estimate.
In addition, the export-local relationship
may be expected to vary with differences in
economic circumstances. Thus, factors such as
size of the area, expectations concerning future growth of export industries, specialization of the area, and the income of basic employees should he kept in mind when exportlocal relationships derived in one area arc
applied to another, or when applications arc
made at different points in time. Careful consideration of such factors shou kl add to the
precision of the results achieYec.1.
9
Cattle Numbers and Beef Production
for beef is relatively
steady at high levels, as in recent
years, fluctuations in prices farmers receive
for beef cattle are accounted for largely by
changes in supplies. In the March 1959 issue
of the Monthly Review, the relationship between cattle prices and per capita beef and
veal supplies, as measured by per capita consumption, was analyzed for the postwar
pcriod. This analysis clcmonstral<'cl that, on an
av<·ragc, for each 1 per cent cha11g<' in annual
supplies, the price received by farmers for
beef cattle changed H!i per cent in the opposite direction.
An important factor influencing beef and
veal supplies has been the number of cattle
in the Nation. The correlation between numbers and supplies, however, has not been so
close as that between supplies and prices.
Other factors, such as composition of the
cattle inventory, the rate of buildup-or liquidation-of numbers, feed supplies, feeding
practices, prices, and imports also have influenced supplies. The timing of marketings
can be altered within a rather wide range,
and supplies may move in the opposite direction from cattle numbers for limited periods.
Thus, while the general level of beef and
veal supplies has been determined largely by
size of the Nation's cattle herd, the specific
level of supplies during any year also has been
influenced substantially by other factors. Per
capita beef and veal supplies have varied
with the phase of the cattle cycle, and the
annual fluctuations frequently were more
severe than the annual changes in cattle numbers. Since the magnitude of price changes
has been substantially greater than supply
changes, beef cattle prices have tended to
fluctuate sharply from year to year.
W
10
HEN THE DEMAND
The Cattle Cycle and Beef Supplies
The cattle cycle is usually identified as a
cycle in cattle numbers and is based on the
annual January 1 inventory of numbers on
farms, as estimated by the U. S. Department
of Agriculture. These cycles are measured
from each low phase of the cycle to the succeeding low phase. Factors from both within
and outside the beef industry influence and
pcrpcl11atc the cyclical pattern. Biologic ancl
cco11ornic i11flm·1H:cs inherent to the cattle industry result 111 the existence of ra ther regular, recurring cycles, but these arc frequently
giveu impetus or are altered and otherwise
influenced by such outside factors as changes
in demand and conditions which affect feed
supplies, such as drought.
The collective decisions of cattle producers to expand, maintain, or reduce their herds
result in the changes which give the beef industry its cyclical characteristics. Biologic,
economic, and physical factors are often similar for large segments of the industry, causing similar reactions by many producers. Because these actions occur simultaneously, the
industry tends to make larger adjustments
than are needed.
The cycle in per capita beef and veal supplies does not coincide directly with the cattle inventory cycle, but tends to lag behind
the peaks and troughs of the inventory cycle
by a year or two. Supplies fluctuate more
sharply than do cattle numbers - both from
year to year and during the cycle. From year
to year, however, the change in supplies,
when compared with numbers, is often relatively greater than changes in the same two
factors, if measured for the complete cycle.
For example, in the most recently completed
cycle ( 1949-58), the largest annual change in
Cattle Numbers and Beef Production
Annual Changes In Cattle Numbers and In Per Capita Beef and Veal Supplies
PER CENT
+30
Per Capita Supplies
+20
1
Cattle Numbers
l
+10
- 10
190 9
1928
' 30
'35
'40
'45
'50
'55
E STIMAT E D
'60
NOTE: The percentage change in cattle numbers is that which occurs during the year (from January 1 to January 1 of the
next year) while the change in per capita supplies is from the previous year.
cattle numbers was a 7 per cent increase,
while the largest annual change in per capita
supplies was a 25 per cent increase. The
largest annual change in supplies was three
times larger than the largest annual change
in numbers. Over the cycle, cattle numbers
increased 26 per cent from the low of January
1, 1949, to their high on January 1, 1956. Per
capita beef and veal supplies increased by
50 per cent from their low in 1951 to their
high in 1956. Thus, during the cycle, the
change in supplies was only twice as large
as the change in numbers.
The Cycle - At Close Quarters
When cattle numbers reach the low point
of the cycle, the number of cattle available
for slaughter declines and per capita beef
and veal supplies become smaller. Under
these circumstances - unless demand has diminished - beef cattle prices tend to rise.
This causes cattle producers to become more
optimistic and encourages them to expand
their operations. To do this, they retain more
heifers and cull their cows less severely. As
a result, slaughter and per capita supplies fall
Monthly Review •
March 1960
even lower, prices rise higher, and further
expansion is induced.
During this early phase of the cycle, per
capita beef and veal supplies decrease because cattle are being withheld from slaughter
for the purpose of expanding numbers. Other
characteristics of this phase include a sharp
increase in the proportion of steers slaughtered in relation to total slaughter, which results from the reduced cow and heifer slaughter. Steer slaughter also frequently declines
in absolute amounts as the calf crops become
smaller and a larger proportion are fed for
longer periods of time. Calf slaughter drops
sharply as fewer calves are marketed as vealers and more are held for herd replacements
and feeder stock.
Because of rising cattle prices, it becomes
more profitable to feed cattle. A larger share
of the calf crop and other classes of cattle are
put into feedlots for finishing. Feeders bid
actively against packers for partly finished
cattle and many are returned to feedlots.
Thus, fewer low-grade cattle are available for
slaughter, but the proportion of grain-fed cattle tends to increase. Because more cattle are
11
Cattle
Numbers
fed and they are fed longer, the average grade
and slaughter weight increase - partly offsetting the influence of the decrease in numbers slaughtered. However, supplies of lowergrade beef are limited as fewer cows, grassfattened cattle, and other low-quality cattle
arc marketed. This reduction frequently is
partly oflset by increased imports of beef. The
relatively greater rise in lower-quality beef
prices attracts imports from beef-producing
nations where grain feeding is less prevalent.
As the buildup in the cow herd continues,
the size of the calf crop increases and beef
supplies begin to rise as these animals reach
markctahlc age. This can be considered as
the scc:oml stag(' of the caltlc cycle which is
denoted by iH<.;reasing cattle numbers and
growing beef and veal suppli s. With per
capita beef and veal supplies increasing, cattle prices tend to weaken. The rate of gain
in the buildup of cattle numbers is moderated,
further increasing beef and veal supplies. Cow
and heifer slaughter increases relative to
steer slaughter, more cattle are marketed
without feeding or when only partly finished,
and more calves are slaughtered. Cow, heifer,
and lower-grade steer slaughter increases
more than slaughter of most other classes
and prices of these classes tend to decline
more during this phase of the cycle.
In the third stage of the cycle, numbers
arc decreased and per capita supplies frequently increase sharply. This may be induced by a lower level of prices, but may also
occur as a result of drought or some other
feed crisis. As will be shown in a later section, cattle producers do not always liquidate
numbers when prices decline. However, when
liquidation does start, per capita beef and
wal supplies usually increase substantially.
Because preceding calf crops have been large,
the supply of steers and heifers available for
slaughter is large. Liquidation of part of the
cow herd also adds to beef supplies. Cow and
heifer slaughter usually accounts for more
12
than half of total slaughter during this phase
of the cycle. Feeding becomes less profitable,
average slaughter weights decline, and calf
slaughter increases. Beef and veal supplies
are usually largest and cattle prices tend to
reach their lowest levels during this phase.
In the last stage of the cycle, the calf crop
becomes smaller as the size of the cow herd
is decreased and potential future supplies of
beef and veal are reduced. During this stage
of the cycle, cattle numbers decrease and per
capita beef and veal supplies also decline.
With lower per capita supplies of beef and
veal, cattle pricc>s start to rise - causing a
reversal of liquidation trends. Cow, heifer,
and calf slaughtc·r cleclin 'S relative to steer
slaughter, and the stage' is set for another
buildup in cattle numbers.
The Recent Cycle
The most recent complete cattle cycle
started from a low of 76.8 million head of cattle on January 1, 1949, rose to a peak of 96.8
million head on January 1, 1956, and then declined to less than 93.4 million head on J anuary 1, 1958. This cycle varied significantly
from previous cycles, but before examining it
in detail, some factors which have affected
post-World War II developments in the cattle industry should be reviewed.
An important influence has been the development of a very strong demand for beef by
American consumers. Incomes have been high
and increasing - resulting in increased demand for the high-quality foods, including
beef. Population also has been growing rapidly and has contributed to the larger demand
for beef. An indication of increased demand
is that consumers paid substantiaJly higher
prices for beef and veal in 1958 and 1959
despite the fact that supplies only decreased
moderately. Per capita supplies of beef and
veal declined about 8 per cent from 1956 to
19,58, while cattle prices increased sharply
during that period.
and Beef Production
Another factor of importance to the beef
industry has been the large increase in feed
production that has resulted from the application of improved technology. A high level of
meat output is dependent upon feed supplies.
Feeding has been encouraged by the large
feed supplies which have been a factor in
causing prices of feed grains to decline relative to cattle prices.
A third factor has been improvements in
technology and practices within the beef
industry that have resulted in increased production and efficiency. Improvements in
breeding and feeding practices and use of
frccl additives have increased the output per
animal and the cffi<'iency with which frecl is
used. The trcuc.l toward marketing younger
but more highly finished cattle has caused increased efficiency in beef and veal production. A larger proportion of the Nation's cattle numbers than formerly is composed of the
beef breeds which produce more meat per
animal than do dairy animals. The mi]k cow
herd has declined rather steadily and less
beef and veal is produced from dairy animals.
These and other factors influenced the most
recent cycle ( 1949-58) and gave it some
unique characteristics. The buildup in beef
cattle numbers actually started in 1948, but
was more than offset by a decline in dairy
cattle numbers that year. ln 1949, cattle munbers increased slightly and per capita beef
and veal supplies, which had dropped sharply
in 1948, also increased slightly. However,
during the next 3 years cattle numbers increased sharply- by 5.3 per cent in 1950, 7.3
per cent in 1951, and 7 per cent in 1952.
Per capita beef and veal supplies declined 2
per cent in 19,50 a11d 12 per cent in 1951
ich , wlien coupled with very strong dcmaml factors partly associated with the
Kurea11 conflict, resulted in sharp price rises
from previously existing levels.
By 1952, the increase in the size of the
beef herd was sufficient to cause per capita
w,
Monthly Review • March 1960
beef and veal supplies to increase by 11 per
cent from 1951, as well as enabling cattle
numbers to be expanded. Tlie average price
received by farmers for beef cattle in 1952
was 15 per cent lower than in 1951. The
rapid buildup in the beef herd was halted
and, as a result, per capita beef and veal
supplies expanded by more than a fourth in
1953, and prices d eclined by 23 per cent
from the 1952 average level.
Such an extreme drop in prices could have
been expected to reverse the upward trend
in beef cattle numbers, but they continued
to in crease for 3 more years , although at a
very s11hstanliall y recl11cccl rate of a littk
11nc.kr I per c.·c11l per year, 011 an average.
Bed a11cl veal s11pplics also co11lin1u•d lo expand by about 3 per cent per year. During
these 3 years ( 1953-55) , many of the adjustments usually associated with the declinin g
phase of the cycle occurred . Cow and heifer slaughter increased sharply and, in 1955
exceeded steer slaughter, although never exceeding 50 per cent of total slaughter, as in
previous cycles. The average slaughter weight
decreased and the number of calves slaugh tered increased during tlw years HJ,5,'3 -55.
Annual average cattle prices decli11ed slowl y
dming that period.
By January ] , 19,56, cattle numbers on
farms had reached an alltime high of 96.8
million head. However, a combination of
drought in major range areas, low prices
which resulted from the long buildup in b eef
and veal supplies, and a large increase in
total meat supplies in 1956 caused a downturn in cattle numbers that year. Cattle numbers declined 2.4 per cent, but the sharp increase in per capita beef and veal supplies
usually associated \vith a turn in the cycle
did not occur. fo 19.56, per capita beef and
veal supplies increased only 3.1 per cent aucl
average annual cattle prices declined onl y 4.5
per cent from 19,55 levels . The sharp adju stment mac.le during the 3 previous years tended
13
Cattle Numbers
to prevent any large increase in supplies or
decline in prices.
Another small decline in total cattle numbers occurred in 1957, but was accompanied
by a 1 per cent decline in per capita beef
supplies and a 15 per cent increase in the
average price received by farmers for beef
cattle. Bee£ cattle numbers actually increased
in 1957 as more calves, heifers, and steers
were held in the Nation's herds, but dairy
cattle numbers declined enough to offset the
increase in beef cattle numbers. The sharp
improvement in range and pasture conditions
late in the year was an important cause of the
liquidation phase of th e cycle being stopped
after only 2 years - the shortest on record.
This brought lo a close a remarkable cattle
cycle in which cattle numbers increased by
over a quarter in the upswing, but declined
only 3.6 per cent during the decline. The
cycle was 9 years long and, at its end, per
capita beef and veal supplies were 20 per
cent larger than at its beginning, but the
average prices received by farmers for beef
cattle were about the same at both ends.
During these 9 years, however, there were
very sharp fluctuations in both beef and veal
supplies and cattle prices.
The Current Situation
The reversal of the downtrend in cattle
numbers during 1958 was induced partly by
the rise in prices which accompanied reduced
per capita supplies of beef and veal. Concurrently, vastly improved range and pasture
conditions over extensive areas - where
drought had caused reduction in herd sizeresulted in a sharp increase in demand for
replacement cattle to rebuild herds. This
demand for replacement cattle was an added
force in causing prices to rise.
There was only a slight decline in beef
cow numbers during the short downward
phase of the last cycle. Beef cow numbers
declined less than 5 per cent between Janu-
14
ary 1, 1955, and January 1, 1958, compared
with a decline of over 20 per cent in many
previous cycles. Because cow numbers remained high, calf crops continued to be relatively large and provided ample numbers of
young stock for herd expansion.
An increase of over 3 per cent in cattle
numbers occurred in 1958, nearly offsetting
the decline of the 2 preceding years. Per
capita beef and veal supplies declined 7 per
cent in 1958 - a normal situation during the
initial period of increasing cattle numbers.
Average prices received by farmers for cattle,
however, rose over one fourth - as a result
of lower heel' supplies and increased demand
for rcplacC'mcnl stock. Aho11l 1 million hed
eattlc and calves were added to the Nation's
herds in 19.58, but milk cattle numbers declin ed 700,000, so that total cattle and calf
numbers increased 3.3 million. About 1.2
million cows, 1.2 million calves, 800,000
steers, and 800,000 heifers were added to the
beef cattle industry. A reduction of 5 million
in cattle and calf slaughter made the increase
in numbers possible.
By January 1, 1959, beef cattle as well as all
cattle and calf numbers were back to near
record-high levels. More beef cows, heifers,
steers, and calves were on the Nation's farms.
These provided the potential for increased
beef production but, because of generally
favorable price levels and record feed supplies, the increase in production was absorbed
by the rapid rate of expansion in cattle herds
instead of being made available for consumption. Consequently, total beef and veal supplies did not increase enough during 1959 to
offset the increase in population, and per
capita supplies actually declined. The number of cattle and calves slaughtered during
1959 was about 2.1 million head less than during 1958. Calves accounted for about 1.5 million of this decrease. Although numbers
slaughtered in 1958 were 5 million head fewer than the previous year, the increase in cat-
and Beef Production
tle and calf numbers that year was only about
two thirds as large as in 1959. A larger calf
crop in 1959 and the larger January 1 inventory enabled a greater increase to occur in
cattle and calf numbers during 1959.
On January 1, 1960, there were 101.5 million head of cattle and calves on the Nation's
farms-5 per cent more than year-earlier numbers. There were 68.5 million head of beef
cattle, of which 27.3 million were cows, 7.4
million were heifers, 11 million were steers,
and 21.1 million were calves. Heifer, steer,
and calf numbers were 8 per cent larger than
on January 1, 1959, and at a record high. The
large increase in young stock again provides
the potc11lia] for increasing cattle 1111mbcrs
or sla11ghtcr, or hoth, this year.
The rate of buildup in cattle numbers was
rapid in 1959, but moderated during the last
quarter of the year. Cattle prices had trended
downward from midspring highs during the
summer and early fall months of 1959. Led
by a break in feeder cattle and slaughter cow
prices during October, cattle prices declined
sharply during the last quarter of the year.
Cattle slaughter increased and, during the
last 2 months of 1959, was 7 per cent larger
than year-earlier levels. Calf slaughter also
increased but remained slightly below yearearlier rates during the last 2 months of the
year. The largest relative increase in numbers slaughtered was for cows and heifers
which had averaged 42 per cent of total cattle slaughter during the first 3 quarters of
1959, but averaged 47 per cent during the
last quarter.
Increases in the proportion of cow, heifer,
and calf slaughter are usually an indication
of a decrease in the rate of buildup in cattle
numbers. Thus, it appears that the rate of
expansion in cattle numbers is moderating.
However, cattle prices are still at considerably more favorable levels than at the peak
of production of most previous cycles and
feed supplies are plentiful, indicating that
Monthly Review •
March 1960
cattle numbers are likely to continue increasing but probably at a slower rate this year.
Even a reduction in the rate of buildup results in increased slaughter rates and increased supplies of beef and veal. At the current stage of the cycle, per capita beef and
veal supplies probably would increase, even
if the buildup in cattle numbers were to be as
large this year as in 1959. An increase in both
the size of the inventory and cattle slaughter
can result from the large increase in young
cattle numbers. It would take a large increase in cattle numbers to absorb all of these
animals into the Nation's bed herd.
Increased numbers of' call le and calves on
feed also indicate that hcd supplies will i11 <:reasc. There w<.Tc 7.2 million !wad of cattle
and calves 011 feed on January l in 26 important feeding states-a record high and 9 per
cent more than on January 1, 1959. The increase in beef production anticipated for this
year because of the larger number of cattle
that are expected to be slaughtered may be
offset partly by lower average slaughter
weights. The average slaughter weight last
year reached a record high, and less favorable
feeding prospects this year may result in
somewhat lower average slaughter weights.
The last pou11ds of wdght put on a fattened
animal are the most expensive in terms of
feed and, by placing Jess finish on cattle and
marketing at lower weights, feeding efficiency
can be improved.
Per capita beef and veal supplies, according to estimates made last fall by the USDA,
will be around 90 pounds this year - 3 per
cent larger than in 1959. This estimate was
based on a continued buildup in cattle numbers. Present trends indicate the rate of buildup may have moderated, which may result in
a somewhat larger increase in supplies. However, price developments and pasture and
range conditions this spring could significantly influence the rate of buildup and, consequently, per capita beef and veal supplies.
15
New Market Groupings - Revised Index of Industrial Production
INDEX
1947-49=100
INDEX
S_E_A_S~O-N_A_L_L~Y- A_D_J~U-S_T_E_D~ - - , . - - ~ 220
220 ~-----,---~
200
200
INDEX
1947-49=100
INDEX
- E_A_S~O
~N~A~L- L~Y-=-A~D~J~U-S_T_E_D--.---,,--~ 220
220 -,C.....--r---r-S
200
200
EQUIPMENT
INCLUDING DEFENSE
180
180
160
160
160
140
140
140
120
120
120
180
FINAL
1953
'54
'55
'57
'56
PRODUCTS
'58
'59
Reserve
City
Member
Banks
District
and
States
Colorado
Kansas
Missouri*
Nebraska
New Mexico ':'
Oklahoma '!'
Wyoming
- 2
- 5
Jan . Dec. Jon.
1959 1959 1959
-1
t
-1 +10
-3
-2
-1
+1
+ 4
- 2
- 1
- 6
t
-1
+ 9
-:-
+ 6
,:,*
* ::,
**
Dec.
1959
-4
- 2
- 1
Jan .
1959
+7
,:,*
- 1
-:-
+ 16
- 8
- 5
+7
t
- 2
t +12
,::::,
>!< ~c
- 2
\j
t
160
140
GOODS
'54
'55
'56
'57
120
'58
'59
'60
Jon.
1960
Dec.
1959
Jon .
123.8
1959
Consumer Price Index
(19 47 - 49 = 100)
125.4
125 5
Wholesale Price Index
(1947 -49 = 100 )
119.3
118.9
119.5
Prices Rec'd by Formers (1910 - 14 = 100 )
231
228
245 r
Prices Paid by Farmers
299
297
298
(1910 14
100 )
r Revised .
-4
,:, rcnth District portion only.
t Less than 0.5 pu cent.
16
Country
Member
Banks
+6
+ 9
t +14
- 4
Dec.
1959
180
\/
\'v/
Index
January 1960 Percentage Change From
Dec. Jon.
1959 1959
Tenth F. R. Dist.
Country
Member
Banks
I
I
\
' I
Deposits
Reserve
City
Member
Banks
.,.,T
PRICE INDEXES, UNITED STATES
BANKING IN THE TENTH DISTRICT
Loans
"''
\ / '\
r\
1953
'60
'"'
+2
+1
- 3
- 3
- 3
TENTH DISTRICT BUSINESS U~DICATORS
District
and Principal
Metropolitan
Areas
Tenth F. R. Dist.
Value of
Check
Payments
Value of
Department
Store Sales
Percentage change-1960 from 1959
Jon.
Jan.
0
-1
Denver
+3
+2
Wichita
+2
-10
Kansas City
+2
+3
Omaha
- 7
-2
- 3
+3
- 4
- 3
- 2
+2
Oklahoma Cit~
+4
-7
t
+8
**
**
-4
- 2
Tulsa
-2
-1
,:,* No reserve cities in this state.
@FedFRASER