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FEDERAL RESERVE RANK OF Monthly liawntEW In this issue Failing Timber Falling Rates Professionals Join the Jobless December 1970 Foiling f oBtiber . .. Lum ber production and employment have fallen below 1969's low levels, and prices have dropped steeply from early '69 peaks. Foiling Rcrfes . . . Interest rates plummeted, the bond market scored a smashing rally, and even the stock market bounced upward— all in Novem ber. Professionals J@Sn the Jobless . . . H ig h ly professional and m anagerial personnel, and not just blue-collar workers, have been affected by the business slowdown. Editors W illiam Burke December 1970 MONTHLY REVIEW Falling Timber he Pacific Northwest’s lumber industry, highly dependent as it is on the fortunes of the nation’s home-building industry, suf fered badly during the severe housing slump of late 1969 and early 1970. Even though the industry’ s fortunes have now improved in line with the recent housing upturn, lumber production and employment have remained below the relatively low average levels of 1969, and prices have continued substantially below the record levels reached in the early part of that year. In 1969, the industry experienced buoyant hope and downright gloom in rapid succes sion. Despite rising output, prices had al ready surged upward throughout 1968. But T then, early in 1969, a heavy inflow o f orders from home-builders, along with weatherrelated production problems, sent lumber and plywood prices soaring to record highs. A t the peak, softwood-lumber prices were two-thirds higher than in 1967, and plywood prices were twice as high as they were in that earlier, relatively stable, year. However, the market turned around quick ly in the spring of 1969, under the impact of the housing downturn and a runoff of whole salers’ inventories. Prices plummeted until early 1970— by about 30 percent for soft wood lumber and roughly 50 percent for plywood — and they have remained near those lower levels ever since. T o date this Lumber prices decline sharply from record levels reached early in 1969 1957-59=100 227 FEDERAL RESERVE BANK OF SAN FRANCISCO year ago, employment in the wood-products industry in 1970 has dropped about 7 percent in Oregon and about 4 Vi percent in Wash ington— and these declines have followed on the heels of substantial declines last year. In these areas, the lumber industry’s slump has accentuated the business slowdown generated by employment declines in aerospace manu facturing, construction, and Federal govern ment. year, lumber and plyw ood prices have both ranged about 15 percent above 1967 levels, on the average, while the overall wholesaleprice index has risen about 11 percent above the 1967 figure. Lumber production in 1969 averaged about 7 to 8 percent below 1968 levels, in the Douglas-fir region of the Northwest coast and the Western-pine region further inland. Despite some recent improvement, fir pro duction this year has fallen 2 percent below the 1969 average figure, to an annual rate of 8.2 billion board-feet, and pine production has dropped 6 percent below last year, to 9.6 billion board-feet annually. In contrast, Cali fornia redwood output has risen in both years, to 2.5 billion board-feet today, while softwood-plywood output nationally has risen modestly in 1970 after a 1969 decline, and now amounts to 14.5 billion square-feet an nually. Home-building, o f course, holds the key to activity in the lumber industry. Housing starts nationwide increased 17 percent in 1968 and then reached a peak rate of 1.7 million units in January 1969— the highest level in a half-decade. But then, in roller coaster fashion, starts plunged to a low of 1.1 million units in January 1970, before rising gradually again to a 1.5 5-million rate this October. For the lumber industry, the slump was accentuated — and the recent recovery dampened — by the construction industry’s declining emphasis on single-family housing, which requires more lumber per unit than apartment housing. Single-family housing, which had accounted in 1967 for 65 percent of all new starts, amounted to 60 percent of Overall, production of both Douglas fir and Western pine has been trending down ward since the m id-1960’s. But in the same time-span, output of both redwood and ply w ood has risen substantially. A decline in employment has paralleled the production decline. Compared with a Pr@dw@fi@m @f fir* and Western pine trends downward over the past decade Billions of Bd. (Sq.) Ft. -8 [" r -6 -4 i— i Percent Change -2 0 2 4 6 i— i— — I— 1— l— 1— 1— | 1968-69 l9 6 9 -7 0 4 ~ ^ Inland — ^ California Redwood H Softwood Plywood 228 December 1970 MONTHLY REVIEW Lum ber In d u s tr y ^ slum p accentuates slowdown in employment generated by other industries Thousands all starts in 1968 and only 55 percent of a declining total in 1969-70. The market share of single-family housing has turned up again in recent months, but lumber demand has not increased corre spondingly. This situation reflects the large and growing percentage of new single-family housing built under Federal subsidy; these subsidized units are much smaller than con ventional units, averaging not much more than 1,000 square-feet of floor space per unit. DeeSIne in sin gle -fa m ily housing causes cutback in lumber output Starts (Thousands) Percent Change Yet despite the industry’ s recent low ebb, it is already looking for ways to meet the increased lumber demand anticipated over the next decade as special efforts are made to satisfy the nation’s growing need for housing. This resurgence in demand implies the neces sity for increasing timber harvests. T o assure that the required increase in supply is sup ported by a corresponding increase in forest yields, Oregon’s Senator Hatfield plans to introduce legislation to assist land-manage ment and reforestation projects, utilizing funds obtained from the sale of timber from public land. The legislation aims, through improved forest productivity, to bring about an increase in timber supplies consistent with sustained-yield and multiple-use o b jectives, as well as general environmental considerations. 229 FEDERAL RESERVE BANK OF SAN FRANCISCO . . . and Alaskan Timber 230 Alaska’s forest-products in d u s tr y has grown spectacularly since the m id-1950’s, and now produces over $ 100 million of pulp and sawmill products annually. Y et in terms of the state’s vast timber resources, the indus try has developed to only a fraction of its full potential. Russian settlers engaged in logging opera tions in the territory as early as the 18th Century. But the modern industry dates only from 1954, when the first permanent pulp mill began operations at Ketchikan. The plant opened with a capacity of 300 tons per day, and subsequently was expanded to 600 tons. In 1959, Japanese interests opened a large pulp mill at Sitka to help meet Japan’s grow ing raw-material requirements. The mill started with a capacity of 340 tons per day, and today, following improvements and ex pansion, produces more than 550 tons of pulp daily. Alaska’s sawmill capacity also has grown sharply. Capacity in each of the communities of Ketchikan, Wrangell, and Haines now ex ceeds 50 million board-feet of lumber per year. Anchorage, Metlakatla, Petersburg, and Whittier, are smaller centers of timber pro duction. The industry’s growth, particularly in pulp production, has brought about a sharp in crease in the amount of timber harvested. Between 1954 and 1969, the total volume of timber cut rose seven-fold, from 84 million board-feet to over 581 million board-feet an nually. The value of the end-products pro duced from the timber, in the meantime, rose from $15 million to over $100 million. Currently, the industry is the third largest money-maker in the state, surpassed in sales by only the petroleum and fishing industries. Employment in lumber, logging, and pulp operations rose from an average o f 1,100 workers in 1954 to a record high of 2,500 workers in 1968. Employment dropped back slightly in 1969— to 2,400 workers— but re covered to the 1968 level again during the first 8 months of 1970. It undoubtedly would have reached a new high but for the sec ondary effects of a strike at a major pulp mill. Alaska’ s forest resources represent one of the largest relatively untapped timber re serves in the world. The state contains 119 million acres of forest land, of which about 28 million acres are considered suitable for commercial production. Upon this land stands almost 216 billion board-feet o f mar ketable timber— an amount exceeded only by that of Oregon, Washington, and Califor nia, individually. A bout 90 percent of the state’ s total har vest comes from the coastal forests o f the southeastern “ Panhandle,” most o f which falls within the Tongass National Forest. These forests— containing almost 166 billion board-feet of marketable timber, or over three-quarters of the state’s total— are an ex tension of the rain-belt forests o f the Pacific Northwest. They consist primarily of West ern hemlock and Sitka spruce, species wellsuited to high-grade pulp and lumber pro duction. Present expansion programs, along with the construction o f a third pulp mill, will raise the output of this region sharply over the next few years. MONTHLY December 1970 REVIEW ALASKA’S FOREST LANDS COASTAL ED Hemlock-Spruce INTERIO R □ Spruce-Hardwoods Wellstocked /Commercial □ Med.-Poorstocked / Noncommercial CD NONTIMBER LANDS Tongass Notional Forest ^3 PULPMILL <& Over 500 Tons/Doy SAWMILL ■ Over 100 Million Bd. F»./Yr. 50 - 100 Million Bd. Ft./Yr. bB ■ B 20 -49 Million Bd. Ft./Yr. 1-1 9 Million Bd. Ft./Yr. Planning for the new plant got under way late in 1968, when a major U.S. forest-prod ucts company picked up an option on 8.75 billion board-feet o f timber in the Tongass National Forest and agreed to have a pulp mill in operation by 1973. The $75-million pulp-and sawmill facility will be built at Ber ner’s Bay, north o f Juneau, and will produce about 500 tons of pulp daily. The entire out put of the plant will be sold to a Japanese paper manufacturer, which has agreed to purchase $40-million worth of unbleached pulp and lumber annually for a period of 15 years. The Chugach region in southcentral Alas ka, most of which is contained within the Chugach National Forest, possesses a high potential for further commercial develop ment. Its forests are part of the coastal forest region and thus are similar in composition to the stands in the state’s southeastern area. But the Chugach region now accounts for only 1 percent of Alaska’s total annual cut, although it contains 9 percent of the state’s total sawtimber. The interior forests of Alaska presently account for about 10 percent o f the state’s total timber harvest. The region has a large FEDERAL RESERVE BANK number of sawmills, but most are small and supply only local community needs. These forests are inferior to the coastal stands in terms of density, composition of species, and accessibility. Although they cover a vast area from the coastal mountains to the Arctic tundra, the stands generally are not pure but are mixtures of four major com mercial species: white spruce, paper birch, aspen, and balsam poplar. Because these trees do not attain the size of those in the coastal region, the density of even the com mercial stands is much lower than elsewhere. Thus, while more than three-fourths of the state’s commercial forestland lies within the Interior region, the area contains only 14 percent of the total volume of sawtimber. 232 OF SAN FRANCISCO Forest-industry development thus far has been tied mostly to the growth of foreign markets, primarily the Japanese market. In 1969, about 67 percent of the total cut went into pulp production, 26 percent into the production of cants (roughly squared logs), and 4 percent into round logs and chips. Most of these products were exported, while only 2 percent of the total cut went into lum ber for local consumption. Considering Alas ka’s sparse population, this pattern is likely to continue. Nevertheless, in view o f Japan’s small resource base relative to that country’s needs, the outlook for Alaska’s timber in dustry is promising indeed. Yvonne Levy December 1970 MONTHLY REVIEW Western Digest Bank Credit Rises Total bank credit rose $337 million at large District banks in November. Banks acquired $446 million in intermediate and long-term Government issues in the recent Treasury financing and also added substantially to their other securities. Total loans declined $223 million as a large reduction in broker and dealer loans offset a $ 130-million business loan expansion and moderate gains in mortgage and consumer loans. Time Deposits Increase In November, District banks posted a decline in both private and U.S. Govern ment demand deposits. On the other hand, time deposits continued to expand. Passbook savings rose $87 million and outstanding large-denomination C D ’s increased $429 million. G S A Silver Auctions Stop Almost 200 years of U.S. Government participation in the silver market came to an end November 10 when the General Services Administration held its final weekly silver auction. The event failed to elicit strong buyer response even though the termination of G SA sales will reduce annual supplies by some 80 million ounces. In fact, the dealer price actually declined sharply between November 10 and Decem ber 11, from $1.81 an ounce to $1.63 an ounce. Copper Prices Fall Copper producers lowered prices twice in recent weeks. In late October, pro ducers lowered their price for refined copper from 60 to 56 cents a pound. (This was the first rollback in the U.S. producer price since January 1961, when prices were lowered from 30 to 29 cents a pound.) Then, on November 30, a major firm dropped the price again, this time to 53 cents a pound. . . . The price on the London Metal Exchange — the quotation used by most foreign producers — also continued to fall, reaching 4 6 ^ cents a pound early in December. FEDERAL RESERVE BANK OF SAN FRANCISCO Falling Rates Interest rates plummeted during November and December and the bond market scored one of its strongest rallies in recent history, while even the hard-beset stock market bounced upward to the highest level of the past year. Most of the headlines were garnered by the two ^-percent reductions in the Federal Reserve discount rate (to 5% percent) and in the commercial bank prime rate (to 6% percent), but behind the headlines was a major drop in rates across the board. Money-market rates have now declined precipitately from both the historical highs reached last winter and the secondary peaks of last spring. Treasury-bill rates fell below 5 percent in late N o vember, in sharp contrast to the 8-percent figure reached briefly in late 1969. Similarly, commercial-paper rates fell below 6 percent in November, after reaching 9 percent around the turn of the year, while the Federal-funds rate approached 5 percent, in contrast to the 9-percent figure reached at last winter’s peak. Long-term interest rates, which had previously remained close to the peak levels reached only last spring, also participated in November’s steep decline. Treasury-bond yields fell below 6 percent in late November, as against last spring’s 7-percent level. Municipalbond yields dropped to about 5¥t percent recently, also in contrast to last spring’s rates in the 7-percent range. And despite heavy capital-market demands, even Aaa corporate-bond rates responded to the downward pressures, falling to 8 percent in recent weeks, or roughly ^-percentage point below earlier peak levels. The dramatic plunge in interest rates took place against a back ground of continued sluggishness in the national economy, exem plified by several months’ decline in such key indicators as industrial production and producer durable-goods orders. (The economy stood to gain in coming months, however, from catch-up auto buying and steel-strike hedge buying.) The rate decline was also helped along by the recent easing trend in the monetary situation. The Federal Reserve has supplied substantial amounts of re serves to the commercial banks in recent months. Total memberbank reserves increased at a 16-percent annual rate in the JulyOctober period, in contrast to an actual decline in the first half of the year. In contrast, the money supply has remained rather flat 234 December 1970 MONTHLY REVIEW recently, to a large extent because of the growth in commercial-bank time deposits, which drew funds out of demand deposits. The Federal Reserve has recently recalculated its monetary statistics, and in so doing has raised the annual rate of moneysupply growth to 5.5 percent for the January-October period, up considerably from the previously reported 3.8-percent figure. For 1969, the revised growth rate comes to about 3 percent, instead of the more restrictive 2-percent figure reported earlier. The correc tions mainly involved adjustments—previously unreported by cer tain commercial banks to the Federal Reserve— for special types of dealings in Eurodollars. In this connection, the sharp decline in short-term rates has caused some concern over possible balance-of-payments repercus sions. Funds have been flowing out of the country as banks have trimmed their high-cost Eurodollar deposits, which are now down about 40 percent from the $14.7-billion peak reached in the tightmoney days of mid-1969. T o deal with this situation, the Federal Reserve Board of Gov ernors recently raised member-bank reserve requirements from 10 to 20 percent, against Eurodollar borrowings that exceed the amounts that banks are allowed as a reserve-free base. In this and several related actions, the Board moved “ to strengthen the induce ment for American banks to retain their Eurodollar liabilities and thus moderate the pace of repayment of Eurodollar borrowings.” interest rate s— especially short-term rates— fall precipitately from early '70 historical peaks FEDERAL RESERVE BANK OF SAN FRANCISCO P r o fe s s io n a ls J oin th e J o b le s s the current slowdown, numbers of highly skilled professional workers and managers have found themselves, alongside their brethren on the assembly line, in the unemployment queue. With defense and space expenditures falling, aerospace firms have laid off thousands of scientists and engi neers; with the securities business suffering from falling prices and volume, stock-ex change firms have fired brokers and margin clerks; and with corporations everywhere tightening their belts because of declining profits, business firms have been dispensing with the services of advertising and publicrelations men. In November, 2.4 percent of the nation’s professional and technical workers were un employed, and 1.7 percent of the managerproprietor category were numbered among the jobless. These figures were considerably below the 5.8-percent unemployment figure for all workers, attributable to high and rising joblessness among both white-collar clerks and blue-collar workers. Even so, this situa tion represented a sharp rise in idleness among those white-collar occupations which normally are both highly paid and heavily utilized. The November statistics meant a quarter of a million jobless professional and managerial workers — more than twice as many as in November 1969. A t this stage, the jobless rates in the pro fessional-managerial categories are above the levels reached at th e tr o u g h o f th e la st measurable recession and nearly as high as the cyclical trough in July 1958. In May 1961, 2.1 percent of professional and tech nical workers and 1.7 percent of managerial workers were unemployed. However, the I 236 n overall jobless rate was 7.1 percent at that cyclical trough— and a similar spread de veloped at the bottom of the preceding (1 9 5 8 ) recession. In this sense, then, the employment situation for professional and managerial workers has deteriorated in rela tion to other groups since those earlier reces sion periods. The areospace-centered communities in California and Washington have been among the hardest hit by the recent slump. In California, professional and managerial un e m p lo y m e n t in c r e a s e d from 14,000 to 27,000 between December 1968 and June 1970 (latest figures available), and in Wash ington, unemployment among these groups jumped from less than 2,000 to 11,000 over the same time span. Further increases are believed to have occurred in the interim, and besides, these regional figures may be understated, since they are based on unem ployment-insurance statistics, and thus fail to include those who are not covered or those who have run out of benefits. December 1970 MONTHLY tJnempleymem# more than doubles in professional and managerial ranks Thousands REVIEW The West’s unemployed professional and managerial men can attribute their woes in part to the problems of the airlines, which have simultaneously stopped ordering oldermodel jet transports and slowed down their orders for the newer models. In addition, scientists and engineers have been affected by the reversal of the nation’s earlier com mitment to heavy research-and-development expenditures. (R& D spending jumped from $10 billion to $17 billion between fiscal 1962 and 1968, but it is scheduled for less than $16 billion in fiscal 1971 and is still trend In Pacific Coast states, professional-man agerial unemployment rose 110 percent be tween the end of 1968 and second-quarter 1970, with most of the increase centered in the 1970 period. In contrast, the national figure for unemployment of this type rose 71 percent over the same time-span. Partial figures for more recent months indicate con tinued deterioration in the overall situation. ing downward.) Other highly paid workers — administrators, stockbrokers, admen and P R men— have been affected in the West as elsewhere by the nationwide business down turn. The sorest of the sore spots has been the aerospace-manufacturing in d u s tr y . F r o m peak to trough, total employment in this in dustry has dropped from 610,000 in Sep tember 1968 to 480,000 in August 1970 in California and from 110,000 in August 1968 to 60,000 in August 1970 in Washington. It P a e lic C@€isf sta te s hurt worse than others by rising unemployment among highly-skilled workers Dec. 1968 = 100 200 — Thousands 237 FEDERAL RESERVE BANK Deelimlgig M B spending helps account for rising joblessness Billions of Dollars has been estimated that each of these areas might lose perhaps 30,000 or more jobs over the next year or so, judging from the inflow of orders from the defense, space, and com mercial-aircraft sectors — and the cutbacks (if they materialize) would affect profes sional types as well as blue-collar assembly line workers. OF SAN FRANCISCO The problem has been accentuated by an upsurge in the supply o f young professional and technical workers, caused by the gradua tion of the first products of the postwar baby boom. This creates special difficulties for new graduates, who must compete for scarce jobs with the host of newly laid-off experi enced workers. T o overcome this problem, the American Institute of Physics last month called for the creation of a W PA-style Federal agency, which would utilize unemployed scientists and engineers on health, education, and en vironmental projects. A PI spokesman Wal lace Brode said, “ W e should plan on keeping as many as 85,000 skilled people in a kind of ‘holding pattern’ into the 1980’s rather than losing them.” If these specialists should lose their expert skills through non-use dur ing this difficult period, the nation may find the total cost to be even greater than the loss of output resulting from their present idleness. A 1960-style shortage o f highly skilled individuals may well be encountered a decade from now. Herbert Runyon Publication Staff: Ray Mansfield, Artist; Karen Rusk, Editorial Assistant. Single and group subscriptions to the M onthly R eview are available on request from the Admin istrative Service Department, Federal Reserve Bank of San Francisco, 400 Sansome Street, San Francisco, California 94120 238
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