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MONTHLY REVIEW TWELFTH F E D E R A L R E S E R V E DI STRI CT A u g u s t 1954 Fe d e r a l reserve Ba n k of S a n Fr a n c i s c o REVIEW OF BUSINESS CONDITIONS has characterized most lines of business ac tivity in the Twelfth District for the past two or three months. The seasonally adjusted index of District nonagricultural employment, after dropping to slightly below 120 percent of the 1947-49 average in April, remained stable through May and June. Seasonally adjusted man ufacturing employment was also stable from May to June at about 136 percent of its 1947-49 average. And pre liminary July reports from California, which accounts for about two-thirds of the District labor force, indicate that nonagricultural and manufacturing employment have changed no more than seasonally from June to July. ta b ility S One exception to the over-all stability is the lumber industry, where a strike beginning on June 21 has cut employment and production severely. According to July reports from the Douglas fir region, production has fallen to its lowest monthly level since the end of 1945, when prolonged labor-management disputes also were respon sible for a drop in output. The work stoppage of May 1952 in western lumber mills has been dwarfed by the current strike; July 1954 output in the Douglas fir region was less than half of the May 1952 output. Douglas fir prices increased by an average of 9.4 percent from May to July, under the pressure of the reduced supply. In Washington, employment in the lumber industry was cut by more than 50 percent from June to July. Employment in other major Washington industry-groups, however, appears not to have been affected so far by the loss of income and the scarcity of lumber caused by the strike. Apart from the lumber industry, the over-all business stability marks a halt to the downturn in business ac tivity which began in the second half of 1953. In the Dis trict, seasonally adjusted employment indexes in most major industry-groups have settled at a few percent be low their 1953 peaks. For nonagricultural employment as a whole, the decline has been about 3 percent. For manufacturing, it has been 4 percent, while for govern ment, it has been 2 percent. For construction, however, it has been far more severe— 9 percent as of June. The 9 percent drop in District construction employ ment from May 1953 to June 1954 is in contrast to a 7 percent increase in the nation as a whole. One cause of the drop was a sharp decline in the rate of housing starts during late 1953 and early 1954 which reduced the vol ume of construction in process. Residential building per mits for major District metropolitan areas have been run ning fairly high during the last few months, however, possibly indicating that District builders plan to expand employment in the near future. The scarcity of lumber may interfere with builders’ plans; so far, lumber has been available, but at rising prices, according to scattered reports. Certain individual District manufacturing industries— notably the metals and machinery industries— have had declines in employment in the last year even more severe than those in the District construction industry; but in the case of the manufacturing industries, the drops have been in the nation as well as in the District. Recent months have brought stability, and in some cases im provement, to these industries. Nationally, production of machinery and of fabricated metal products rose, on a seasonally adjusted basis, from June to July, although it remains well below the 1953 peaks. Production of primary metals dropped 4 percent from June to July, after a 3 percent May-June rise. In California, advanced July figures show slight employment gains in the fabri cated metal products and electrical machinery industries, and drops— in part seasonal— in the nonelectrical ma chinery and primary metals industries. A work stoppage in many Twelfth District copper mines in August may cause some cutback in District primary metals output. District unemployment in June was 4.7 percent of the labor force, compared to 3.3 percent in June 1953. The difference of 1.4 percentage points between the two months is slightly smaller than the year-to-year differ ences in February, March, and April, and therefore indi cates a moderate improvement in the unemployment sit uation through the spring of this year. For California, weekly insured unemployment (a less comprehensive, A lso in This Issue Canning Review and Prospects 114 Consumer Expenditures Rise in First Half of 1954 ..................... 116 114 August 1954 FEDERAL RESERVE B A N K OF SAN FRANCISCO but more current, series than total unemployment) shows approximately the same year-to-year margins through the weeks of July. For Washington and Oregon, how ever, the rise in insured unemployment has been greater than seasonal through July, even though the workers in volved in the labor dispute are not among the insured unemployed. The rise is largely a result of the secondary effects of the lumber strike on such firms as shingle mills, certain sawmills not involved in the dispute, and tugboat lines. C A N N IN G REVIEW P AN D PROSPECTS r o f i t p r o sp e c ts d u r in g th e c u r r e n t c a n n in g se a so n a re M o v e m e n t o f D is tr ic t c a n n e d fr u its a n d v e g e ta b le s d u r - s o m e w h a t im p r o v e d o v e r a y e a r a g o . L a s t se a s o n b e - in g th e 1 9 5 3 -5 4 m a r k e tin g s e a s o n w a s s m a lle r th a n d u r in g g a n in a n a tm o s p h e r e o f u n c e r ta in ty , w ith le n g th y n e g o - th e p r e v io u s s e a so n . In c r e a s e d m o v e m e n t o f c lin g p e a c h e s t ia tio n s o v e r c a n n e r y a n d a p r ic o ts w a s m o r e th a n o f f s e t b y th e d e c r e a s e d m o v e - la b o r ra te s a n d r e lu c ta n c e o f c a n - n e r s to g o a lo n g w ith p r o p o s e d r a w m a te r ia l p r ic e s . F u r - m e n t o f o th e r fr u it p a c k s a n d to m a to th e r m o r e , th e ra te o f m o v e m e n t o f fr u its a n d v e g e ta b le s m o v e m e n t d a ta f o r s e v e r a l v e g e ta b le p a c k s a r e n o t a v a il- from D is t r i c t c a n n e r ie s d u r in g th e fir s t h a lf o f th e s e a s o n p ro d u c ts . D is tr ic t a b le , b u t n a tio n a l d a ta s u g g e s t th a t th e m o v e m e n t o f s w e e t w a s d is a p p o in tin g . H o w e v e r , th e ra te o f m o v e m e n t p ic k e d corn u p c o n s id e r a b ly d u r in g th e la tte r p a r t o f th e 1 9 5 3 - 5 4 m a r - a b ly le ss th a n d u r in g th e 1 9 5 2 s e a s o n . M o v e m e n t o f m o s t and green k e t i n g s e a s o n , a n d it is t h is i m p r o v e d m a r k e t i n g s i t u a t i o n , c a n n e d fr u its a n d v e g e ta b le s d u r in g th e e a r ly p a r t o f th e D is t r ic t c a n n e r ie s season w h ic h w h ic h b e c a m e p a r tia lly e ffe c tiv e o n N o v e m b e r th e b a sis fo r o p tim is m d u r in g th e presen t season . . . . , .. . fr e ig h t r e d u c tio n 12, 1 9 5 3 1 th e U n it e d K in g d o m u n d e r S e c tio n 5 5 0 o f th e F o r e ig n a • > \ j j 1 r XT A s s i s t a n c e A c t f o r c a n n e d a p r ic o ts a n d p e a c h e s f r o m th e TT v j c * a i j u tv * • i U n ite d S ta te s w e r e w e lc o m e d b y D is tr ic t c a n n e r s. . a n d decreased m o v e m e n t T he th e prob- a n d p r o s p e c t s o f t h e d e v e l o p m e n t o f a n e x p o r t m a r k e t in I 9 5 3 - 5 4 s e a s o n m a r k e d b y smaller p a c k . d is a p p o in tin g . H e n c e , w as in d u c e d in p a r t b y r e d u c e d f r e ig h t r a te s o n c a n n e d g o o d s , fo rm s w as peas fro m D is tr ic t pack of fr u its and v e g e ta b le s in 1953, T h e m o v e m e n t o f th a t p o r tio n o f th e D is tr ic t 1 9 5 3 p a c k w h ic h is m a r k e t e d d u r i n g t h e 1 9 5 3 - 5 4 s e a s o n , w a s s o m e - [n t h e N o . 3 0 3 w hat reduced p o in tin g . D u r in g r e c e n t c a n n in g s e a s o n s , th e ra te o f p a c k fr u it pack, fr o m w ith th a t o f th e p r e v io u s in c r e a se s p r in c ip a lly in year. A la r g e r a p r ic o ts , c lin g in t h e 3 9 3 (s m a ll) c o n ta in e r w as e s p e c ia lly c o n ta in e r h a s b e e n r u n n in g b e lo w th e d is a p - ra te o f p e a c h e s , a n d fr u it p a c k s c lo s e ly a llie d w ith c lin g p e a c h e s m o v e m e n t f r o m c a n n e r s to c k s . I n r e s p o n s e to th is in d ic a - s u c h a s fr u it c o c k t a il, w a s m o r e th a n o f f s e t b y th e r e d u c e d tio n c a n n in g been crea ses of v e g e ta b le s . w ere q u ite W ith in gen eral th e w ith v e g e ta b le o n ly pack, to m a to e s, in - to m a to 0f dem and in c r e a s in g fo r th e s m a lle r c o n ta in e r , c a n n e r s its u s e a t a r a p id have r a te . H o w e v e r , it a p - p e a r e d b y e a r ly th is s p r in g th a t p e r h a p s th e in c r e a s e h a d p r o d u c t s , a n d g r e e n p e a s d e c lin in g in v o lu m e . H o w e v e r , b e e n c a r r ie d to o fa r . A t o m a t o e s a n d t o m a t o p r o d u c t s a c c o u n t f o r a b o u t o n e h a lf Qf o f th e D is tr ic t s v e g e ta b le c a n n in g v o lu m e a n d , o n a c a se in s ta n c e s b a s is , th e e le v e n m illio n c a se r e d u c tio n fr o m th e 1 9 5 2 p a c k r e la tiv e ly la r g e . S o m e a d ju s t m e n t s in th e c o n t a in e r c o m - m o r e th a n o f f s e t th e in c r e a s e s o f o th e r v e g e t a b le s a s w e ll p o s itio n th e 1953 th e of c h e c k o f c a n n e r y s to c k s a t th e c lo s e m a r k e tin g season c a r r y -o v e r th e presen t in d ic a te s sto ck s pack in 303 m ay, th a t in th e r e fo r e , a s th e la r g e r D is tr ic t fr u it p a c k . P r in c ip a l F r u it and V e g e ta b le D is tr ic t c a n n e r y sto c k s o f c a n n e d fr u its a n d v e g e ta b le s at 1950 1951 14igll 193 4ol 1952 8,228 5,185 4,762 1,263 1,130 1,337 2,360 Total fruits and berries............ 38,640 48,704 42,239 45,003 1 ’. *.! *. ‘ 1 p a c k in g season w ere ’ th a n , Q la st y e a r . I n c o m p le te d a ta o n D is t r ic t s to c k s o f , J 1 •, 1, c a n n e d v e g e t a b le s , h o w e v e r , in d ic a te a c o n s id e r a b le r e i r ± i • j • .i. m e? a u c t io n fr o m th e s to c k s c a r r ie d in to th e 1 season m c o n tr a s t to a n in c r e a s e in n a tio n a l c a n n e r y s to c k s . O n b a sis, sto ck s of sn ap bea n s, sw eet corn , a green 4,062 6,493 16,137 9,089 5,426 8,306 12,053 32,994 9,030 6,003 2^864 2^923 2^667 2,710 D is tr ic t sto c k s o f to m a to e s a n d o f to m a to p r o d u c ts o th e r 4.7n 5,602 6,678 ¡ ’M i than tomato juice of about 5 million cases should be sufficient to offset in terms of physical volume the increased Tmm 10,903 11,610 27,112 8,652 5,106 7 ^ 8,047 10,600 19,989 8,703 6,123 ~ w fs 1 Basis: 24 No. iy2 cans (except Utah, actual cases). a c t u a l cases, all grades and sizes. Source: Canners’ League of California; Northwest Canners Association, West- ern Canner and Packer. cu rrent 7 m i ll i o n c a s e s , w h i c h is a b o u t 2 0 0 t h o u s a n d c a s e s l a r g e r n a tio n a l 1 *. th e m a j o r D is t r ic t c a n n e d fr u its o n J u n e 1, 1 9 5 4 to ta le d o v e r 7,489 6,002 4,010 1,470 1,312 925 2,462 oP therChvege‘tabi¿¿ ‘ i Totai vegetables ............... of 1\’ 1S 7S 9,003 6,215 4,655 2,217 814 792 2,454 Asparagus' b e g in n in g s m a lle r th a n a t th e s a m e tim e a y e a r a g o . T h e s to c k s o f £475 6,048 3,661 930 774 1,503 1,854 Vegetable packs2 th e 1953 Fruit cocktail .................................. P e a r s ..................................................... Apricots .............................................. Plums ................................................... cherries .............................................. Apples and applesauce ............... other fruits and b e r r ie s ............ Tomatoes ........................................... Tomato j u i c e .................................... oth er tomato products ............... P e a s ................. ...................................... Beans, string .................................. fo rth - 1 9 5 3 - 5 4 carry-over stocks smaller P a c k s — C a lifo r n ia , (thousands of cases) o t h ¿ peaches ........................ ;• be w ere c o m in g . O r e g o n , W a s h i n g t o n , I d a h o , a n d U t a h — 1 9 5 0 -1 9 5 3 Frpeache3S several c o n ta in e r s p e a s, a n d to m a to ju ic e w e r e la r g e r th a n o n c o m p a r a b le , a ii 1 1 11 r •1 d a te s a y e a r a g o . A lt h o u g h th e s e v e g e ta b le s a r e o f c o n s id ° ,, t v * - * a e r a b le im p o r t a n c e w i t h m th e D is t r i c t , th e r e d u c t io n m 1 Freight rate reductions on rail shipments of canned goods destined for midwestern points became effective November 12, 1953, for southern points, January 1, 1954, and for eastern points, February 4, 1954. These rate reductions, varying within each area, ranged from about 4 percent to 8 percent. August 1954 CANNED 115 M O N T H L Y REVIEW F R U IT A N D V E G E T A B L E PA C K S—C A L IF O R N IA , O R E G O N , A N D W A S H I N G T O N , 1947-1953 In millions o f cases 1 Actual cases. 2 N o. 2 y2 can basis. Source: Canners’ League of California and Northwest Canners Association. carry-over of canned fruits and of several other vegetables. Cannery stocks of tomatoes and tomato products remain above the general levels of carry-over stocks that existed prior to the record 1951 pack. In addition to stocks of tomatoes and tomato products, District cannery stocks of spinach and asparagus were also reduced from last year. production of peaches, sweet cherries, plums, and prunes (except for drying) is expected to be smaller than in 1953. The recently completed 1954 pack of California apricots totaled 2.7 million cases, 43 percent smaller than last year’s pack. Available acreage and production estimates indicate that District production of vegetables for processing will be somewhat smaller than a year ago. The planted Cali fornia tomato acreage intended for processing was re duced from the 1953 level and was the smallest since 1926. Unless yields continue to improve, production will also be smaller than last year. Other District canning vegetables, such as sweet corn, snap beans, and green peas, are also processed in frozen form and the volume processed in this manner will affect the volume available for canning. Green pea acreage for harvest is indicated as being larger than a year ago, but the increased acreage is expected to be more than offset by lower yields with predicted output smaller than a year ago. Sweet corn acreage, like tomato acreage, is smaller than last year. Of the major District canning vegetables, snap bean production is expected to show the largest increase, about 25 percent. Both indicated snap bean yields and acreage are considerably larger than in 1953. The 1954 pack of California asparagus has been completed and is placed at 2.7 million cases, No. 2 y can basis, which is 600 thousand cases larger than the 1953 pack. Price-cost m argin about the sam e as for the 79 5 3 -5 4 season Prices paid by District canners for labor and contain ers are expected to be about the same as last year while C A R R Y -IN S T O C K S A N D PA C K S O F M A JO R F R U IT S T W E L F T H D IS T R IC T Cannery raw materials supply reduced 1952-54 C a n n i n g S e a s o n s for 7954 p acking season The volume of fruits and vegetables available for can ning this season within the District is indicated as being smaller than the supply for the 1953 season. A widespread early season frost reduced the prospective deciduous fruit production in major District producing states other than California. Even California deciduous fruit did not escape all weather hazards. Apricot production was drastically reduced by a combination of various adverse growing conditions. In contrast, June 1 cling peach production estimates indicated a cling peach crop considerably larger than the 1953 output.1 Between the June 1 estimates and the July 1 estimates of the Crop Reporting Service, how ever, the predicted cling peach production for California decreased by more than 4 million bushels. This was a re sult of a “green drop” program under which a specified proportion of immature peaches is removed from the trees. The so-called “green drop” is authorized by the cling peach marketing order which has been set up under the California Marketing Act of 1937. Production esti mates based on July 1 conditions indicate that District 1 After com pletion of this article, rain and unfavorable weather conditions con tributed to the rapid spread o f brown-rot on cling peaches. At this writing, the extent of damage has not been officially estimated. M uch o f the fruit, however, already had been harvested prior to widespread incidence of the disease. CARRY-IN STOCKS' ^ PACK Cling Peaches__________________________ 1952 1953 1954 w m m sm m m m m m Fruit Cocktail In thousands of cases. No. 2'/j can basis 1 T he volum e of canner stocks (sold and unsold) carried into a marketing season from the previous marketing season. Source: Canners’ League of California and Northwest Canners Association. 116 FEDERAL RESERVE B A N K OF S A N FR A N C ISCO prices paid for raw fruits and vegetables are expected to average slightly higher. Where wage rate increases did occur they were confined to local areas, principally in the Pacific Northwest. Based on stocks of canned products carried over into the present canning season and produc tion estimates for specific raw products, some change from the raw product prices paid last year can be expect ed. In most cases prices are either unchanged or higher than a year ago. In only a few instances are raw mate rials prices indicated as being somewhat below prices in 1953. Cannery sweet corn and early contract tomato prices are two of these few instances in which prices are indicated as being lower than last year in the District. Canners’ price quotations in early August reflected the changes in raw product prices. California canners’ price quotations on August 7,1954 for apricots, cherries, pears, fruit cocktail, asparagus, and spinach were higher than on a comparable date in 1953. Peach and tomato price quotations were generally lower than a year ago although some items in each pack were being quoted at unchanged or higher prices. August 1954 Favorable profit prospects Government sources indicate that the general level of retail prices of canned fruits and vegetables is expected to remain about the same as in 1953. Cannery wages and container prices are also expected to be about the same as a year ago. Although many raw material prices have changed since last year, these changes have been largely offset by price adjustments for the canned product. Since little or no change is expected in the price-cost margin as compared with a year ago, an increase or decrease in the volume of annual sales could be expected to affect profits in the same direction. If the rate of movement during the last half of the 1953 season continues throughout the 1954 season, profits may also be expected to increase. Bolster ing the possibility of an increased movement of District canned fruits and vegetables is the reduced freight rates on canned goods which will be effective for the entire marketing season, and on a wider scope than last year. Profit prospects for the District fruit and vegetable can ning industry as a whole seem to indicate that earnings for the 1954-55 season will be at least as good as last year. CONSUMER EXPENDITURES RISE IN FIRST HALF OF 1954 in the rate of business investment (particu D larly in new business inventories), in Federal Gov ernment expenditures, and in expenditures for consumer goods are the three major factors which have contrib uted to the drop of $14 billion in gross national product during the past twelve months. The first reversal of these declines occurred during the first quarter of 1954, when the seasonally adjusted annual rate of personal consump tion expenditures increased slightly. Preliminary esti mates show a continued increase in consumer expendi tures during the second quarter to a figure slightly more than 1 percent above the first-quarter level. At the cur rent annual rate, personal consumer expenditures have reached a level somewhat above the all-time high re corded for the third quarter of 1953. e c lin e s The significance of this change in direction in con sumer expenditures is enhanced by the fact that it re flects primarily a rise in spending on goods, both durable and nondurable, as well as a continued increase in spend ing on services. The upturn in spending on consumer durable goods in the second quarter of 1954 is of special importance since a decline in such spending in the fourth quarter of 1953 had accounted for most of the earlier drop in total consumer expenditures. Generally, a change of consumer spending in favor of services has a much smaller effect on production and employment than a comparable change in consumer spending on goods. Moreover, under current conditions any tendencies fav oring durable as opposed to nondurable goods are likely to be important. Nearly two-thirds of the total output of goods and services of the economy are absorbed by consumer de mands, and nearly all output in the nongovernmental sec tors is geared to those demands. Thus changes in rate as well as in volume of consumer buying may have major indirect, as well as direct, repercussions on the economy by effecting changes in business investment in inven tories and in producers' durables and equipment. From available data, it appears that consumer buying in the Twelfth District paralleled the national trend over the first half of 1954. Retail sales in the District, largely reflecting consumer expenditures for goods, generally moved in the same direction as retail sales in the country as a whole. Consum er expenditures show stability during current recession Consumer spending on goods and services combined has shown considerable stability during the current ad justment period. Consumer spending dipped by slightly more than one half of 1 percent from the record high third quarter of 1953 to a recession low in the fourth quarter, turned up slightly in the first quarter of this year and continued to rise to a new recorded high of $233.1 billion (seasonally adjusted annual rate) in the second quarter. Although there are many factors explaining changes in consumer spending, probably the most important meas urable determinants are (1) disposable income, (2) con sumer prices, and (3 ) the asset-debt position of individ uals. Despite a decline in personal income since the third quarter of last year, consumer income after taxes has re mained high, setting a new record of $252.9 billion (sea sonally adjusted annual rate) during the second quarter of 1954. The sustained high level of disposable income has been largely the result of the cut in personal taxes beginning in January of this year and to a certain “built- August 1954 M O N T H L Y REVIEW in flexibility” in the economy in the form of unemploy ment compensation and veterans’ allowances. During the first quarter of 1954, benefits paid under employment se curity laws compensated for roughly one-third of the de cline in wages and salaries after personal taxes. The sus tained high level of disposable income has enabled con sumers to allocate a fairly stable proportion of their in comes to savings during the current adjustment period, which is in marked contrast to the 1948-49 recession when consumer spending was largely maintained through a reduced rate of saving. A general stability in consumer prices, continuing since mid-1952, has probably also been conducive to maintain ing a high level of consumer buying. In July of this year the Consumer Price Index for all items was at the same level as it had been in January, with only minor fluctua tions occurring during the interevening months. Price cutting of many durable consumer goods at retail levels— changes which may not be fully reflected in the highly specialized construction of the Consumer Price Index— have probably also encouraged consumers to maintain a high level of retail buying. Movements in consumer credit outstanding during the first half of this year suggest that consumers may have been attempting to improve their asset-debt positions. Both total consumer credit and instalment credit out standing fell substantially during the first quarter. This decline was partially offset by a rise in the second quar ter, but at the end of June the amounts of total consumer credit and of instalment credit outstanding were still significantly below the levels at the end of 1953. That is the first time since the first half of 1951 (Regulation W was then in effect) that the amounts outstanding of total consumer credit and of instalment credit were less at mid-year than they had been six months before. The de cline this year was concentrated in automobile and other consumer goods paper, reflecting a drop in the pur chases of new automobiles and other consumer durable goods. In summary, consumers, confronted with relative sta bility in prices and in disposable income during the first half of the year, maintained a fairly constant high level of total spending while at the same time they reduced their outstanding short- and intermediate-term indebt edness. Consum er sp en d ing on durable g o o d s sho w ed an upturn in se co n d quarter The significant factor in the rise in personal consump tion expenditures, particularly in the second quarter of this year, is the increase in the buying of goods, although the continuation of the upward trend in consumer spend ing on services is also important. Spending on durable goods rose in the second quarter for the first time in more than a year. Increased expenditures on goods, both durable and nondurable, accounted for slightly more 117 than three-fourths of the $2.6 billion increase in total con sumer expenditures from the first to the second quarter of this year. As these figures suggest, the comparative stability of total consumption expenditures is somewhat deceptive in that it obscures much of the source of in stability during the present period of adjustment. What occurred in the second half of 1953 was a decline in con sumer spending on goods which was largely offset by an increased demand for services. Gross national product dropped $9.4 billion from its 1953 peak in the second quarter to the fourth quarter of that year, when personal consumption expenditures reached their low in the cur rent period of readjustment. A decrease in consumer ex penditures on goods accounted for approximately 34 percent of this decline in total output of goods and serv ices, durables accounting for 24 percent and nondur ables 10 percent. The shift in consumer spending between goods and services reflects, among other things, comparative sensi tivities of these different kinds of expenditure to changes — and expected changes— in incomes. Durable goods sales are generally more sensitive to changes in income than consumer spending on nondurable goods and serv ices. Consumer spending on services during both the 1948-49 and current recessions continued to climb up ward in contrast to cyclical patterns traced by both dur able and nondurable goods buying. The upward move ment in spending on services also reflects a strong de mand among consumers for more and better housing. Housing and household operations costs account for ap proximately 50 percent of personal service expenditures. The strong demand for increased housing services, largely observed in a postwar movement into suburban communi ties, has been a prime factor in sustaining the level of private residential construction. Though the shift in consumer spending between goods and services has contributed to increased expenditures on construction, there has been a marked decline in the production of manufactures— particularly durables. The effect of the shift in spending occurring during both the 1948-49 and current recessions is shown in resultant un planned high inventory-sales ratios and consequent de creases in consumer goods production and employment. So far the decline in the manufacture of consumer dur ables has been greater during the current adjustment than in the 1948-49 recession. The Federal Reserve Board’s newly revised Index of Total Output of Con sumer Durable Goods, adjusted for seasonality, dropped 12 percentage points from peak-to-trough during the 1948-49 recession. During the current recession this same index declined from 138 to 109 percent of the 194749 average— a drop of 29 percentage points— between May and December of 1953. The index has since turned up from the December low, reaching 120 in July. This probably reflects more optimistic expectations among 118 FEDERAL RESERVE B A N K OF SA N FRANCISCO businessmen and the second quarter increase in durable goods buying. Retail sales show varied fluctuations during first half of 1954 Seasonally adjusted changes in retail sales provide a month-to-month description of the trend in consumer spending on goods.1 Retail sales (seasonally adjusted) declined from last December to January, then alternately increased and decreased over the remaining five months of the first half of 1954, largely reflecting the changes in automobile purchases. A preliminary estimate of sea sonally adjusted retail sales showed a rise from May to June, resulting in a figure slightly below the immediately preceding high point in July 1953. On the whole there appeared to be an upward movement from a January low in total retail sales during the first half of this year. Changes in total retail sales over the first half of the year appeared to be closely tied to fluctuations in auto mobile buying. The six-month upward trend in total sales largely reflected the movement in automobile buying. The indicated increase in total sales from May to June, based upon a seasonally adjusted preliminary estimate, primarily reflected a nearly 10 percent rise in purchases from automobile dealers and automotive parts stores. In contrast, seasonally adjusted sales by household furniture and appliance stores, after increasing from December to January, showed a downward trend through June. In the nondurable goods sector, apparel group stores had continued increases in sales (seasonally adjusted) through the first two quarters of this year. By June, the adjusted apparel sales figure rose to a level only slightly below that of July 1953. Changes in food sales, on the other hand, generally paralleled the alternately upward and downward movements in total retail sales during the first six months of the year. District retail sales parallel national trend A special report on retail sales by “large” stores in the Twelfth District suggests that consumer spending in this region has generally paralleled the national trend during the first half of 1954. Both District and national retail sales moved in similar directions, decreasing in January and February and then rising from March through June of the current year. This series does not take account of seasonal factors, so its figures must be interpreted cau tiously. The Retail Trade Report, published by the Bu reau of the Census, which permits year-to-year compari sons, indicates varied fluctuations among the major com ponents of retail sales in the metropolitan areas of the District. Food sales in the Los Angeles, San FranciscoOakland, and Seattle metropolitan areas were larger dur ing the first six months of 1954 than in the corresponding period of 1953 while in the country as a whole they remained unchanged. A similar period-to-period com1 In addition to consumer goods purchases from retail outlets, retail sales include business purchases of items such as automobiles, building materials, hardware, and farm implements. Some services are also included, e .g ., those furnished by automotive outlets. August 1954 parison indicates that sales of automotive group stores showed no change in the Los Angeles metropolitan area, experienced a moderate decrease in the nation as a whole, and suffered a sharp setback in the Seattle metropolitan area and in the city of San Francisco. From January through June of this year, sales of motor vehicle dealers in San Francisco were 14 percent below those of the cor responding period in 1953. Further evidence of similarity in the behavior of the sales of consumer goods in the District and nation is in dicated by this bank’s published reports. Apparel store sales in both the District and the nation show about a 5 percent decline in sales from January through June of this year compared with the corresponding period in 1953. A similar six-month comparison for furniture store sales indicates a District decline of approximately 9 percent, nearly twice as large as the national decreases. The seasonally adjusted index of District department store sales showed somewhat greater stability than the national series. The District index declined slightly from January to February and showed an upward movement from February, registering a January to June rise of 5 percentage points. O utlook for se cond half of 1954 The upturn in consumer spending on goods cannot be taken to herald the end of the current recession. How ever, the increase in a major component of the economy which accounted for about 34 percent of the decline in total output from the second to the fourth quarters of 1953 is certainly a basis for some optimism about the sec ond half of this year. Of the three major sectors in the economy contributing to the downturn, consumer ex penditures on goods have been the first to indicate a revival. Still another potential source of optimism, comple menting the upturn, is the findings of the 1954 Survey of Consumer Finances of the Board of Governors of the Federal Reserve System which suggests a possible con tinued high level of consumer buying during the second half of the year. If consumer plans made at the beginning of the year can be used as a guide to consumer behavior during the entire year, then we can anticipate a continued high level of retail sales in the last six months of 1954. Quoting from the findings, “There appeared to be some tendency for consumers to time their plans to buy more heavily in the latter part of the year than was the case a year ago. This tendency may indicate that consumer buy ing interest will be more active later in the year, or it may indicate that consumer plans are more tentative than in other recent years.” Considering the importance of changes in automobile sales on total retail sales during the first half of 1954, the findings note that “The propor tion of consumers planning to buy new automobiles with in the year was smaller in early 1954 than in early 1953 or early 1950 but larger than in early 1952 or 1951.” August 1954 M O N T H L Y REVIEW And that “There also appeared to be some tendency on the part of those planning to buy new cars in 1954 to defer their purchases until the latter part of the year.” These optimistic signs are very far from certain pre dictions, however, for a number of reasons. First, the preliminary estimates of the components of gross na tional product for the second quarter of 1954 are subject to revision, and it is possible that the moderate improve ment in consumer spending disclosed by the preliminary 119 figures may disappear when revisions are made. Second, plans by spending units, even if accurately measured, may not be realized. Unanticipated changes in prices, in comes, or asset values may deter consumers from carry ing out their planned expenditures. Similarly, automo bile sales, a major factor in fluctuations of retail sales, may show varied and unpredictable changes due to the introduction of new car models on the market during the second half of the year. 120 August 1954 FEDERAL RESERVE B A N K OF SA N FRANCISCO B U S IN E S S IN D E X E S — T W E L F T H D IS T R IC T 1 (1947-49 average=:100) V tm ear« and m o n th In d u strial p roduction (ph ysical v o lu m e )1 P etroleum » Lum ber C rude R e fin e d C e m e n t Lead* Copper* W heat flour* T o ta l C ar nonagri T o ta l D ep ’t Retail m f*g loadings Tooa cu ltu r al store E le c tric e m p lo y e m p lo y ( n u m sales prices i. » power ber)* (v a lu e )3 m ent m e n t4 80a 42a 34a 45a 61a 48a 60a 65a 77 a 77 a 74a 74a 61a 80a 94a 102a 104a 116a 115a 111a 119a 87 57 52 62 71 75 67 67 69 74 85 93 97 94 100 101 99 98 106 107 109 78 55 50 56 65 64 63 63 68 71 83 93 98 91 98 100 103 103 112 116 123 54 36 27 33 56 45 56 61 81 96 79 63 65 81 96 104 100 112 128 124 130 165 100 72 86 114 92 93 108 109 114 100 90 78 70 94 105 101 109 89 86 74 105 49 17 37 88 58 80 94 107 123 125 112 90 71 106 101 93 115 115 112 111 90 86 75 87 84 81 91 87 87 88 98 101 112 108 113 98 88 86 95 96 96 29 29 26 30 38 36 40 43 49 60 76 82 78 78 90 101 108 119 136 144 161 1953 June July August September October November December 111a 114a 118a 113a 114a 115a 114a 110 110 109 109 109 110 109 121 125 124 126 125 121 125 134 140 134 133 137 128 120 77 64 69 73 69 69 67 105 106 110 111 112 112 104 99 96 92 101 99 98 96 1954 January February March April M ay June 122a 122a 119a 120a 124a 103a 109 109 108 107 107 107 121 120 118 119 123 119 114 117 116 134 143 140 60 79 76 71 67 r 65 p 107 102 99 98 103 105p 99 97 98 96 96 96 1929 1931 1933 1935 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 W a te rb o rn e foreign tra d e 8* • E x p o r ts I m p o rts 30 25 18 24 30 28 31 33 40 49 59 65 72 91 99 104 98 105 109 114 116 64 50 42 48 50 48 47 47 52 63 69 68 70 80 96 103 100 100 113 115 113 190 138 110 135 170 164 163 132 124 80 72 109 119 87 95 101 'io o 101 96 95 99 102 99 103 111 118 122 ‘ *47 60 51 55 63 83 121 164 158 122 97 100 102 97 105 122 132 139 102 68 52 66 81 72 77 82 95 102 99 105 100 101 106 100 94 97 100 101 100 "¿ 9 129 86 85 91 186 171 140 “ 57 81 98 121 137 157 200 308 170r 172 168 166 163 157 158 122 121 122 124 123 121 121 141 142 139 140 141 137 138 103 98 99 98 95 97 102 121 117 114 110 111 112 109 113 113 113 114 114 113 113 114 123 127 129 133 139 141 372 356 337 368 316 287 256 163 160 171 168 174r 183 121 121 120 120 120 120p 138 137 136 136 136 136 108 107 111 111 114 114 114 114 113 113 114 114 108 156 156r 156 210 271 233 232 231 93 90 94 99 97 96 p B A N K IN G A N D C R E D IT S T A T IS T IC S — T W E L F T H D IS T R IC T (amounts in millions of dollars) C on d ition Item s of all m e m b e r b an k s7 T 08r and m o n th U .S . Loans G o v ’t and d i s c o u n t s s e c u r itie s T o ta l D em an d t im e dep osits a d ju s te d 3 deposits 2,239 1,898 1,486 1,537 1,871 1,869 1,967 2,130 2,451 2,170 2,106 2,254 2,663 4,068 5,358 6,032 5,925 7,093 7,866 8,839 9,220 495 547 720 1,275 1,270 1,323 1,450 1,482 1,738 3,630 6,235 8,263 10,450 8,426 7,247 6,366 7,016 6,415 6,463 6,619 6,639 1,234 984 951 1,389 1,740 1,781 1,983 2,390 2,893 4,356 5,998 6,950 8,203 8,821 8,922 8,655 8,536 9,254 9,937 10,520 10,515 1,790 1,727 1,609 2,064 2,187 1953 July August September October November December 9,167 9,229 9,241 9,255 9,248 9,220 6,675 6,589 6,481 6,556 6,693 6,639 10,005 9,950 10,018 10,248 10,255 10,515 7,729 7,749 7,794 7,854 7,815 7,997 1954 January February March April M ay June July 9,198 9,176 9,106 9,045 9,001 9,049 8,989 6,844 6,667 6,500 6,903 6,991 6,981 7,190 10,540 10,138 9,922 10,190 10,045 10,087 10,310 7,995 8,071 8,175 8,234 8,306 8,428 8,444 1929 1931 1933 1935 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 B ank rd c«« w11 short-term bu sin ess lo a n s9 3.20 3.35 3.66 3.95 4.14 4.17 4.19 0 + — + — — 3 + + 4 + + 107 + 214 98 + — 76 9 + — 302 17 + 13 + 39 + 154 110 163 90 240 192 148 596 - 1 ,9 8 0 —3,751 - 3 ,5 3 4 - 3 ,7 4 3 - 1 ,6 0 7 510 + 472 930 - 1 ,1 4 1 - 1 ,5 8 2 - 1 ,9 1 2 - 3 ,0 7 3 + 23 + 154 + 150 + 219 + 157 + 276 + 245 + 420 + 1 ,0 0 0 + 2 ,8 2 6 + 4 ,4 8 6 + 4 ,4 8 3 + 4 ,6 8 2 + 1 ,3 2 9 + 698 482 + 378 + 1 ,1 9 8 + 1 ,9 8 3 + 2 ,2 6 5 + 3 ,1 5 8 - 184 98 308 391 149 432 + + + + + + 275 176 217 394 330 438 - 308 245 213 324 148 254 307 + + + + + + + 125 80 315 381 136 277 170 + — 7 14 + — + + — + 113 19 137 50 — + + 4.14 21 2 2 1 2 2 21 + + 4.12 C oin and C o m m ercia l T reasu ry cu rrency In o p era tio n s12 o p era tio n s12 c irc u la tio n 11 34 _ 2,221 2,267 2,360 2,425 2,609 3,226 4,144 5,211 5,797 6,006 6,087 6,255 6,302 6,777 7,502 7,997 M e m b e r ban k reserves an d}related Ite m s 18 Reserve bank cred it11 75 100 1 98 125 5 9 — 21 + 29 _ 6 + 48 18 14 3 + + + + + + + + + 20 Reserves 175 147 185 287 549 565 584 754 930 1,232 1,462 1,706 2,033 2,094 B an k d e b its « net ox 31 cities** » ( 1 9 4 7 -4 9 )» 100 42 28 18 25 32 29 30 32 39 48 60 31 96 227 643 708 789 545 326 — 206 — 209 — 65 — 14 189 + + 132 39 + 2,420 1,924 2,026 2,269 2,514 2,551 115 132 140 150 3 36 4 7 23 26 2,452 2,397 2,425 2,449 2,476 2,551 148 142 149 142 149 158 2,468 2,398 2,413 2,477 2,432 2,413 2,308 146 153 158 150 143 157 145 + + — + +• — — — + + + + 86 2 29 7 36 15 3 2,202 66 72 86 95 103 102 1 Adjusted for seasonal variation, except where indicated. Except for department store statistics, all indexes are based upon data from outside sources, as follows: lumber, various lumber trade associations; petroleum, cement, copper, and lead, U.S. Bureau of Mines; wheat flour, U.S. Bureau of the Census; electric power, Federal Power Commission; nonagricultural and manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state agencies; retail food prices, U .S. Bureau of Labor Statistics; carloadings, various railroads and railroad associations; and foreign trade, U .S. Bureau of the Census. * Daily average. ‘ N ot adjusted for seasonal variation. 4 Excludes fish, fruit, and vegetable canning. • Los Angeles, San Francisco, and Seattle indexes combined. 8 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and Washington customs districts; starting with July 1950, “ special category” exports are excluded because of security reasons. 7 Annual figures are as of end of year, monthly figures as of last Wednesday in month or, where applicable, as of call report date. 8 Demand deposits, excluding interbank and U .S. G ov’t deposits, less cash items in process of collection. M onthly data partly estimated. • Average rates on loans made in five major cities during the first 15 days of the month. 10 End of year and end of month figures. 11 Changes from end of previous month or year. 12 Minus sign indicates flow of funds out of the District in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations. w Debits to total deposits except interbank prior to 1942. Debits to demand deposits except Federal Government and interbank deposits from 1942. a — New revised series. p — Preliminary. r — Revised.
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