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Æ&ntkLy T W E LF T H F E DE R AL R E SE R V E D I S T R I C T FEDERAL RESERVE BANK OF SAN July 1956 FRANCISCO Review of Business Conditions . . . . 78 Farm Capital Expenditures.................79 Trends in Twelfth District Retail Trade, 1 9 4 8 -5 4 ........................ 85 ;W O F BUSINESS CONDITIONS activity in June continued at record levels nationally. Total employment reached a new peak in excess of 65 million, though un employment also rose as the seasonal increase in workers exceeded the rise in jobs. Nonagricultural employment also reached a new peak after seasonal adjustm ent despite some decline in manufacturing. Continuation of gains in con struction, finance, service, and state and local government employment more than offset the drop in manufacturing. Construction activity, industrial production, and retail sales remained close to or continued at their previous highs. F or the second quarter as a whole, prelim inary data indicate a $5 billion rise in gross na tional product to a new record. The gain over the first quarter resulted prim arily from in creased consumer outlays and expanded private investment outlays. A substantial gain in spend ing on nondurables and a rise in service outlays were sufficient to cause a substantial rise in per sonal consumption despite lower outlays on dur able goods. Private investment gained as a re sult of larger outlays for plant and equipment. The labor-management dispute in the steel in dustry led to a shutdown of many steel mills after the end of June. Operations fell to 12 per cent of capacity and idled some 650,000 workers. In this District the impact was relatively less se vere since steel mills accounting for more than 30 percent of the District’s capacity continued to operate. Nationally, the steel dispute led to re ductions in railroad employment and declines in jobs in some other associated industries. Many steel consumers were reported as holding ade quate stocks, but as the strike became more pro longed some builders expressed a fear that steel shortages m ight affect heavy construction proj ects in the near future. Shipyards, rail car build ers, and other consumers of steel plate were reported to be facing shortages. Business activity in this District continued to expand moderately during June. Declining resi dential building tended to restrain growth in ac tivity in a number of areas. M ost other lines of activity continued to expand and manufacturing B 79 u s in e s s as well as other industries had higher levels of activity in June than in May. So far this year the District economy has displayed a somewhat greater rate of growth than that of the nation. District employment strong Total Twelfth District employment in June, after seasonal adjustm ent, reached an all-time high. Unemployment dropped further, reaching the lowest point on record since W orld W ar II. Nonagricultural employment, after seasonal ad justment, also moved to a new record h ig h ; and in at least two states even the unadjusted figure was at an all-time record, exceeding the seasonal peak level of last December. One of these states, Arizona, recorded the largest relative gain in seasonally adjusted nonagricultural employment. Continued strong gains in manufacturing, sup ported by increases in most other categories, con tributed to the new record level of nonagricul tural employment in Arizona. California, too, re ported a new record in employment, both before and after seasonal adjustm ent. Gains in Califor nia were also widespread, and manufacturing jobs increased, in contrast to the decline nation ally. The total gain in D istrict nonagricultural employment from May to June, after seasonal adjustm ent, was just under one-half of one per cent or about the same as the average rate of rise in the first five months of the year. The rise in manufacturing employment in the District reflected a variety of forces. California’s manufacturing employment moved up as work ers were added in the aircraft, electrical equip ment, ship repair, lumber, food processing other than canning, paper products, and ordnance in dustries. All-time highs were established in June in paper products, ordnance, and electrical equipment. Food canning declined slightly be cause of a work stoppage, and small decreases were reported for automobiles and textiles. W ashington manufacturing industries had gains somewhat smaller than expected on a seasonal basis. Softness in the lumber m arket led to a minor drop in employment in that industry. Manufacturing employment will probably fall in July because of the steel strike. M ore than MONTHLY REVIEW July 1956 10,000 District workers were directly involved in the dispute. According to current reports most District manufacturers apparently had ade quate stocks of steel to carry them through and, consequently, secondary effects may not be im mediately apparent in District manufacturing employment. Total construction increases, but residential activity declines June authorizations for construction in the District increased moderately over May in dol lar volume. The total was approximately the same as in June a year ago, but the change be tween May and June, and between this year and last reflected divergent movements. The number of dwelling units authorized declined more than 10 percent from May and 20 percent from a year ago. Prelim inary data also indicate substantial declines in the dollar volume of residential per mits. Nonresidential construction increased suf ficiently so that the June 1956 dollar volume was higher in Arizona, Oregon, Utah, and W ashing ton than a year ago. Perm it valuation declined sharply in California and Nevada, and a minor drop was recorded in Idaho. Construction em ployment continued to rise in most District states as improved weather conditions permitted a stepped-up rate of activity on the large vol ume of work in process. Retail trade increased during June Prelim inary data indicate that retail trade rose somewhat during June. Department store sales, seasonally adjusted, rose 5 percent from May. Most of the gain occurred in California, with N orthern California showing the largest per centage rise. Only moderate increases, mostly less than one percent, were reported in the P a cific Northwest, and a 4 percent decline was re corded in Utah and Southern Idaho. Automo bile sales continued to be a soft spot compared with a year ago. In California the number of new car registrations was 13 percent less than in June 1955. Compared with May, however, the situation was somewhat improved. Registra tions increased 10 percent in June over the May volume, and the gap between this year and last narrowed considerably. Farm Capital Expenditures District farmers rely heavily upon farm capital goods because of the character istics of farming in this area. This is reflected in the comparatively large and rising amount of farm machinery and equipment on District farms. Those District farms reporting farm machinery of various types in the 1954 Census of A gri culture had more equipment per reporting farm than did farms in the nation as a whole. This was due in part to the larger average size of District farms. Nevertheless, the relatively larger invest ment in the District indicates the importance of farm machinery and equipment to western agri culture. Not only is there a great deal of farm machinery on District farms but the incentive to make additional capital outlays also is great. M any of the crops produced in the District, par ticularly irrigated truck crops, require a compar atively large amount of labor in production and harvesting operations. W ith the growing scarcity w e l f t h T and higher cost of farm labor there is a great incentive to purchase capital items, such as ma chinery, which reduce labor requirements and permit farmers to exercise better control over their farming enterprises. Data on farm capital expenditures are not available on a District basis, and consequently the following discussion of farm capital expenditures will be confined to those for the country as a whole. Since the end of the “return-to-the-farm ” movement of the mid-1930’s, farm population has consistently declined except for a temporary rise immediately after the end of W orld W ar II. W ith this decline in population the number of workers on farms has also been reduced. Despite the re duction in the farm labor force, however, the out put of agriculture has risen as the result of the increased productivity of those workers remain ing on farms. Not only is the farm worker of 79 FEDERAL RESERVE BANK OF SAN F R A N C IS C O today able to produce m o re; he is able to accom plish it by working fewer hours. Between 1935 and 1954, farm production per man-hour more than doubled while the man-hours of labor used for farm work declined by 30 percent. Productivity has increased not because the more productive farm workers remained on the farm, although this may account for part of the increase, but largely because farm workers have more machines and more efficient buildings to aid them in their productive efforts. These changes have resulted in some modification of farm ers’ expenditure patterns. Expenditures on capital items, for instance, rose from 12 percent of farm cash receipts in the 1920’s to over 18 percent in the 1950’s, whereas expenditures for hired farm labor declined from 13 percent of cash receipts in the 1920’s to 9 percent in the 1950’s. The availability of improved farming facilities, how ever, would not have contributed to increased efficiency unless farmers had sufficient incentive to seek their services and the financial ability to command them. W hat kind of capital goods does the farmer buy ? W hat are some of the factors, other than the declining supply of farm workers, that are asso ciated with the volume of capital expenditures made by farmers ? How important are these ex penditures to other sectors of the economy ? These aspects of farm capital expenditures are discussed in the following sections. Im portance of farm capital expenditures Farm expenditures for new construction, mo tor vehicles, and farm machinery and equipment are a part of gross private domestic investment which, in turn, is an im portant determinant of the course of our economy. Gross private domestic investment, as that term is used in computing our gross national product, is made up of three m ajor components—new construction, produ cers’ durable goods, and changes in business inventories. Farm inventories and total business inven tories (of which farm inventories are a part) do not fall within the scope of this discussion. A t this point, however, it might be well to examine them briefly since changes in business inventories make up one of the more volatile components of 80 C hart 1 F AR M CAPITAL EXPENDITURES PRIVATE a DOMESTIC I N V E S T M E N T . ! / B I L L I O N S OF D O L L A R S ,939 . ,954 50 1Y 1 1111 i n B 1 B n n u B -ARM CAI3I T A L EX PE NDITUF *ES 0 1929 iT r f 1935 1 1 1 1 1940 1 1 1 1 1945 1 1 1 1950 1 Does not include inventories. Source: United States D epartm ent of Commerce, National Income Supplement, 1954 edition; Survey of Current Business, July 19SS. United States Department of Agriculture, Farm Income Situation, October 19SS. gross private domestic investment. Almost with out exception short-term changes in business in ventories during the 1929-53 period were more severe than corresponding fluctuations in total gross private domestic investment. Farm and nonfarm inventories more often than not moved in opposite directions in the 1929-40 period, but in the 1947-53 period they generally moved in the same direction. Excluding inventories, farm investment ex penditures since 1929 have averaged about 10 percent of gross private domestic investment for construction and equipment. These expenditures, however, have ranged from as little as 6 percent to as much as 18 percent of gross private domestic investment for structures and equipment. Capi tal outlays by farmers have accounted for a some what larger part of the total during most of the post-W orld W ar II period than in prewar years. The postwar peak in the ratio was reached in 1949. Farm capital expenditures, however, have since trended downward in relative importance and by 1953 were almost back to their prewar July 1956 MONTHLY REVIEW share of gross private domestic investment (ex cluding inventories). Moreover, the relationship between the tu rn ing points in the volume of farm capital expendi tures and the turning points in business activity1 and spending on gross private domestic invest ment (excluding inventories) is different now from what it was before W orld W ar II. In the prew ar period, turning points in farm capital ex penditures occurred about the same time as turn ing points in business generally and in gross private outlays for construction and equipment. Following the war, however, farm capital outlays continued to expand through 1948 and 1949 even though fixed capital expenditures by private business and business activity generally had two turning points during that period. The postwar peak in the dollar volume of farm capital expendi tures was attained in 1951, and farm capital out lays were declining when the turning points in general business activity occurred in 1953 and 1954. Farm use of nonfarm'produced capital items Agricultural capital expenditures which in terest other sectors of the economy most are those which draw directly upon the output of the non farm industries. This does not mean that expendi tures for capital items produced within agricul ture, such as purchases of livestock, do not play an important part in the pattern of farm capital expenditures; the volume of funds or effort spent on these items directly affects the ability of farmers to make purchases from other economic sectors. The flow of funds between agriculture and other sectors of the economy, for example, has been affected by changes in the ownership of farm land. These transfers of ownership were quite im portant during the late 1920,s2 and after the depression of the early 1930’s. Large quan tities of farm land were transferred to nonfarm holders of farm mortgages during the earlier period. W ith the improvement of farm income following the depression, however, there was a net transfer of farm land to the ownership of 1 Goldsmith, R. A., A Study of Savings in the United States, Vol. 1., p. 166. (The turning points in business activity are those recog nized by the National Bureau of Economic Research.) National Bureau of Economic Research, Annual Report, M ay 1955. 2 Goldsmith, R. A., op. cit., Vol. 1, p. 753. farmers. This latter transfer required the pay ment of substantial sums by farmers and an in crease in their outstanding credit obligations. These outlays, however, were not for new capital produced outside of agriculture. During recent years a large proportion of the transfers of farm land ownership have been within agriculture itself. Farm operators have purchased farm land to increase the size of their farms and former tenant farmers have changed their status to that of farm owners. In some cases the sellers of the land have withdrawn from agricultural activity. Thus, land transactions can and do affect the movement of funds between agriculture and other sectors but do not constitute a direct demand for goods from the nonfarm segment of the economy. The effect of farm capital expenditures on the rest of the economy is more directly apparent through the demand of agriculture for the output of other sectors of the economy. The farm capital items purchased primarily through payments to other sectors of the economy include (1 ) dwell ings of farm operators, (2) service buildings and other structures, (3 ) tractors, (4 ) trucks, (5) automobiles, and (6 ) other machinery and equip ment. The expenditures related to automobiles include only that portion allocated to agriculture as a business. Farm capital expenditures have varied con siderably since 1910 but they have trended up ward, reaching their peak in 1951. This upward trend was interrupted three tim es: by the agri cultural depression in the early 1920,s, by the general depression of the early 1930’s, and by W orld W ar II. The depression period of the 1930’s was the low point of farm capital expendi tures. They dropped to an annual rate of less than $200 million, a small fraction of the more than $5 billion spent for capital items by farmers in 1951. W hereas a lack of funds and poor income prospects caused the drop in farm capital ex penditures during the early 1920’s and 1930’s, the lack of capital items for purchase by agricul ture was responsible for the reduction in capital expenditures during W orld W ar II. The dollar value of capital expenditures does not clearly indicate the changes in the physical volume of goods purchased by the farm sector of the economy when a considerable period of time 81 FEDERAL RESERVE BANK OF SAN F R A N C IS C O is involved. Variations in expenditures have been influenced by price movements. By adjusting for changes in prices, a more precise measure of the quantity of capital goods purchased by farmers is available. A rough adjustment, made by using wholesale prices of industrial goods as a deflator, suggests that the physical quantity of farm capi tal purchases in 1953 was almost two and onehalf times larger than during the 1920’s and over two and one-half times larger than the peak volume of expenditures during the 1930’s, which occurred in 1937. Factors associated with farm capital expenditures The ability of farmers to make farm capital expenditures is related in part to the volume of assets that they have under their control. These assets may be in a liquid form which may be ex changed directly for capital goods or they may be in a form which may be used as collateral for a loan when credit is utilized. Ability alone does not dictate the volume of expenditures that farmers make since there must also be some in centive for farm ers to assume the risks which may be involved. Income prospects, for example, influence current farm capital expenditures be cause adequate future income is needed to justify the outlay. Furtherm ore, the desire to cut pro duction costs and the need to substitute capital equipment for labor that shifts to nonagricultural pursuits may also induce capital expenditures. Current income affects the volume and pattern of farm capital expenditures, particularly since farmers may regard current earnings as indica tive of future income. Since 1920, farmers have tended to divert an increasingly greater share of their cash receipts to the purchase of capital items as income rose, and they reversed this expendi ture pattern when income declined. Income, therefore, constitutes a crucial element in the course of farm capital outlays. Farm ers m ust pay production costs from the cash income derived from the sale of their prod ucts. Frequently, farm costs lag behind changes in prices received by farmers. This results in a somewhat different relationship between farm net income and capital expenditures than between cash receipts and farm capital expenditures. 82 C hart 2 FARM CAPITAL EX P E N D ITU R E S a FARM CASH RECEIPTS 1910-1954 0 6 1910 1915 1920 1925 1930 1935 1940 1945 1950 Source: United States D epartm ent of Agriculture, Farm Income Situation, October 1955. During the period from 1910-40 (exclusive of the years during W orld W ar I ) a change of about $175 million in farm capital expenditures was associated, on the average, with a change in the same direction of $1 billion in realized net income of farm operators. The period during W orld W ar I was exceptional, with farm capital expenditures being relatively low in comparison to net income. Farm capital expenditures were also depressed by the nonavailability of capital items during and immediately after W orld W ar II but increased rapidly thereafter. Based on the average relationship prevailing from 1910 to 1940, farm capital expenditures should have been somewhat more than $2 billion from 1948 through 1954. This is a much smaller amount than was actually spent by farmers during this period. A higher average level of capital spending relative to income appeared during the 1950’s. Farm capital expenditures have risen from less than one-fifth of the net income of farm operators for the prewar years to about one-third in the 1950’s. There is also a greater response of farm capital expenditures to changes in net income of farm operators. F or a change in net income of $1 billion, farm capital expenditures changed in the July 1956 MONTHLY REVIEW same direction by about $250 million, compared with a change of roughly $175 million in the pre w ar period. This means that with declines in net income from present levels a greater cutback in expenditures may be forthcoming than would have been expected from a similar drop in in come in the prewar period. Capital expenditures, financial assets, and credit The period since the end of W orld W ar II illustrates the use of the various sources of funds by farm operators for capital expenditures. Con centration of industrial production on w ar items during the war period left comparatively few capital items that were available to agriculture. In the meantime, the net cash income of farmers was rising rapidly. This increased their holdings of financial assets in the form of time deposits and savings deposits in banks and in the form of United States Savings Bonds. Immediately after the war the volume of farm capital expenditures increased drastically as farm operators’ net cash income continued to increase, reaching its peak in 1947. During 1946 and 1947 the high level of net income probably provided a considerable por tion of the funds as well as the incentive for farm expenditures on capital items. Although the net income of farm operators declined after 1947, farm capital expenditures continued to increase until 1951. This was the longest period of time on record that net cash income and farm capital expenditures moved in different directions. Either farm income pros pects remained favorable in the eyes of farmers or they felt that their cost-price relationships could be improved by increased farm capital ex penditures despite the decline in current income. Farm ers, however, found it necessary to rely more on other sources of funds as net income declined. This was reflected to some extent in the substantially larger volume of farm non-real estate loans in the last half of 1947 as compared with the last half of 1946. Loans of this type con tinued to rise rapidly through 1950. Although non-real estate loans include credit extended for operating costs, loans for the purchase of capital items that are not secured by farm real estate are also included. Farm capital expenditures during the 1948-50 period probably were not financed entirely by current net income and by the use of credit. Farm ers also reduced their holdings of financial assets; for instance, they drew down their bank balances in 1948. The availability of financial assets is an im portant consideration in farm ers’ spending deci sions, including plans for capital outlays. To some extent financial assets provide a ready source of funds, but they are also a factor affect ing the willingness of farmers to change their rate of investment in fixed capital. It is not un common to find that an increase in financial assets is followed by expanded farm capital investment. From time to time, however, there have been some notable exceptions; several have appeared since W orld W ar.II. Though financial assets are a factor in determining capital outlay decisions, the looseness of the relationship suggests that other considerations, particularly income pros pects, may play an even greater role. Types of farm capital expenditures The preceding section has dealt with farm out lays for capital items as a group. W ithin this group, however, there have been shifts in the proportion of farm capital expenditures allocated to the various items that make up farm capital and in the relative importance of these farm ex penditures in comparison with expenditures by the private sector of the economy for similar items. F arm capital expenditures, excluding inven tories, may be divided into three general ty p es: (1) motor vehicles (tractors, trucks, and auto mobiles), (2 ) other machinery and equipment, and (3 ) service buildings and farm dwellings. Of these categories, construction expenditures in 1954 were the largest, followed by expenditures for other farm machinery. Since 1910 there has been a significant in crease in expenditures on motor vehicles, and motor power has been substituted for animal power at a rapid rate. The increasing purchase of m otor vehicles has been associated with a pro gressively smaller proportion of expenditures on farm buildings and other farm machinery. This trend continued through the depression of the 1930’s with expenditures, particularly for farm buildings, declining drastically following 1929. 83 FEDERAL RESERVE BANK OF SAN F R A N C IS C O E xpenditures on construction during this period were evidently not at a sufficient rate to maintain the number of farm buildings at a desirable level. W ith improved income following the depression, expenditures for farm building rose rapidly and increased proportionately more than expendi tures for m otor vehicles. Expenditures for other machinery and equipment increased rapidly from the depth of the depression through 1937. The W orld W ar II period also was characterized by increased expenditures for farm machinery and equipment since these items were available in relatively large quantities during this period.1 Immediately following the war there was again a change in emphasis, with expenditures on farm buildings increasing rapidly. From 1951, the peak year for gross farm income, through 1954, total farm capital expenditures declined in the aggregate but the reduction was fairly evenly distributed among the three main types of farm capital items. Expenditures on construction held up somewhat better during this period than those for motor vehicles or other farm machinery. In 1954 farm capital expenditures were allocated in the following m anner: buildings, 40 percent; motor vehicles, 34 percent; and other machinery and equipment, 26 percent. 1 United States D epartm ent of Agriculture, Im pact of the War on the Financial Structure of Agriculture, Misc. publication No. 567, August 1945, p. 132. C The importance of farm spending in relation to total outlays made by the private sector for each of the categories of capital goods discussed above has varied over the years. However, there is no category of private capital expenditures that is strictly comparable to the farm category of “other farm machinery and equipment.” These are spe cialized items and it is likely that the bulk of ex penditures for these items would stem from the farm sector of the economy. The farm sector is also the main purchaser of tractors, accounting for 75 to 90 percent of the demand. Nevertheless, since the relatively large purchases of tractors by farm ers in 1949, farm purchases of tractors have tended to decline rela tive to total private spending for tractors. M ore over, there has been a tendency for farm outlays for m otor vehicles other than tractors to decline in importance relative to total spending on other motor vehicles since 1949. This decline resulted from the expansion of nonfarm industries utiliz ing trucks, buses, and trailers; a greater increase in the use of passenger automobiles by nonfarm business than by fa rm s; and the effects of declin ing net farm income in recent years. In the years just prior to W orld W a r II, for every six dol lars spent by private business for passenger automobiles, one dollar was spent by the farm business for the same purpose. In 1949 this ratio hart 3 P E R C E N T D IS TR IB U T IO N OF FARM C A P ITA L E X P E N D IT U R E S BY T Y P E PERCENT 1910 4915 1920 1925 1930 SELECTED YEARS 1910-1954 1935 1950 1940 1945 1951 Source: United States D epartm ent of Agriculture, Farm Income Situation, October 1955. Digitized for84 FRASER 1952 1953 1954 July 1956 MONTHLY REVIEW Conclusions If a further decline in farm income occurs, it may be expected to exert a depressing effect on farm capital expenditures. There is also a tend ency for farm capital expenditures to drop more sharply with a given decline in farm income at present than they would have in the prewar period. This seems to be based on the greater response in recent years of farm capital outlays to income changes. If farm income should continue to decline, the rate of decline in farm capital expenditures might be retarded by several factors. The need to main tain or improve the efficiency of farms and a con tinued exodus of labor from agriculture may dictate that capital spending should not fall below some minimum level. W hen capital expenditures tend to fall significantly less than farm income, credit tends to become a more im portant element in financing farm capital outlays. The increased use of credit may be a tem porary means of sus taining purchases of capital items. It may also have the effect, however, over a long period of time, of reducing the equity of farmers in their farm assets. As a consequence, their ability to obtain credit on the basis of net worth would be impaired. The direct impact of changes in farm capital spending on the nonagricultural sector of the economy is limited by the relatively small size of the outlays and by occasional differences in move ment between farm and nonfarm investment. F or individual producers, specializing in the output of farm equipment, the effect is considerably greater. Farm investment, however, has been a m ajor element in making it possible to increase agri cultural production with a declining labor force. This change is obviously im portant for the farm sector, and has a considerable significance for the economy as a whole. F arm capital outlays have made it possible for the nation to enjoy growing farm output while increasing the proportion of the labor supply used in the very rapid expansion of the output of nonagricultural goods and ser vices. reports of the recent Census of Business indicate that total retail sales in the Twelfth District topped $23 billion in 1954, somewhat less than one-seventh of the national total. This figure represents a 38 percent rise above the previous 1948 business census figure compared with a 32 percent increase in the coun try as a whole. The larger rate of growth in the District reflects a greater percent gain in non durable goods sales here than in the country gen was somewhat less and by 1952 it had fallen to one farm dollar for every twelve dollars spent by private business. W hile farm purchases of automobiles have de clined in importance since the prew ar period, farm outlays for trucks have been relatively more important in the postwar years than during the 1930’s. This is true despite the downward trend of farm spending on trucks since 1950. F rom 1929 to the beginning of W orld W ar II, farm purchases of trucks averaged about 16 per cent of private business expenditures for trucks, buses, and trailers. After W orld W ar II the ratio of farm truck expenditures to total spending on trucks, buses, and trailers reached a level of 25 percent. After 1949 the ratio dropped, reaching a level of 19 percent in 1952. Farm expenditures for new construction have been less important in comparison with total out lays of the private sector of the economy than any of the previously considered m ajor groups of capital items. Expenditures for farm construction increased considerably after W orld W a r II to 9 percent of total outlays for new private construc tion compared with 5 percent in the years im mediately preceding the war. In recent years the percentage has been slipping downward from the immediate postwar level and in 1955 it stood at the prewar level, 5 percent. F arm construction expenditures are such a small proportion of total outlays for construction at the present time that changes in farm construction activity have little effect on the course of total expenditures for new construction. P r e l im in a r y 85 FEDERAL RESERVE BANK OF SAN F R A N C IS C O erally. Durable goods purchases showed about the same percent rise in the District as in the nation. D istrict states and metropolitan areas did not share equally in the growth in retail pur chases. T he growth in sales in this region was largely concentrated in metropolitan areas, which accounted for about 77 percent of the total dollar increase. Slightly more than half of the rise in ex penditures in metropolitan areas was accounted for by increased purchases from surburban out lets. The relatively greater percent growth in retail trade in the District reflects, among other things, trends in income and population. From 1948 to 1954 the rate of increase of personal income in the District was one-fourth higher than in the nation, and population grew at about twice the national rate. As a result of the differences in the relative increases in sales and population, per capita retail purchases in the District showed a smaller rise than the national average. However, per capita retail buying in the District was—as in 1948— higher than in the United States as a whole. An interesting question suggested by the post war census data i s : How well do rates of growth based on comparison of 1948 and 1954 data alone indicate trends in retail trade during the entire postwar period 1946 to 1955 and particu larly the average annual growth in the period 1948 to 1954? Annual data for the District are not available. However, a graph showing monthly averages of retail sales for the country as a whole suggests that projections for the entire postwar period using data for just 1948 and 1954 tend to understate the “actual” national upward trend in sales of both durable and nondurable goods out lets during the ten postwar years 1946 to 1955. O n the other hand, comparison of business census data for 1954 and 1948 tends to understate the average annual growth between these two years for durable goods sales only. A look at the economic climate during the two postwar years in which the business censuses were made offers an explanation for these dis parities. W hile 1948 was marked as a peak pre ceding a recession, 1954 was notable as a year of recession and recovery. Some indication of the strength of consumer demand for durables in 1948 is shown by the reimposition in the final 86 quarter of 1948 of consumer credit controls which had been removed in November 1947. The backlog in demand for automobiles because of wartime shortages was still large in 1948 so that auto sales continued to rise during the 1949 re cession. In contrast, durable goods buying was slow during the first three quarters of 1954 com pared with the corresponding period of 1953 and only began to recover in the fourth quarter. Therefore, the picture imparted by using 1948 and 1954 data only yields a much lower annual rate of increase than was actually registered. The situation confronting nondurable goods outlets was somewhat different. Nondurable goods sales were strong during both 1948 and 1954. Purchases of nondurables continued their earlier postwar strength into 1948 despite some evidence of weakness in demand and a reduction of the backlog of orders. Nondurable goods sales also rose in 1954, continuing, though at a some what slower rate, their upward trend following the 1949 recession. Despite the apparent weaknesses of using cen sus data to demonstrate trends, comparison of C h a rt 1 PERCENT IN C REASE IN TOTAL R E T A I L S ALE S , T 9 4 8 - I 9 5 4 U N ITED S TA TE S S TW ELFTH D IS TR IC T 70 50 30 10 0 1948 1954 Source: U nited States D epartm ent of Commerce, Bureau of the Census, Census of Business. July 1956 MONTHLY REVIEW T P e r c e n t Pacific N o r th w e s t .... W a s h in g to n .............. O r e g o n ....................... C a lif o r n ia ....................... In term o u n tain S tates. A rizona .................... Id a h o ......................... U t a h ........................... N evada .................... Tw elfth D istrict U n ite d S t a t e s .............. Total +26 + 29 + 21 + 43 + 35 + 50 + 16 + 27 + 65 + 38 + 32 C h a n g e Food group + 32 + 32 + 32 + 50 + 45 +63 + 25 + 34 + 69 +46 + 35 a ble in R e ta il S a le s U n ite d S ta te s an d Eating and drinking places + 18 + 17 + 19 + 31 + 24 G eneral m er chandise group + 15 + 21 + 6 + 26 + 13 + 39 2 + 13 + 13 + 4 + 14 + 48 + 27 + 23 + 36 + 21 + 14 + 1 by K in d T w e lfth Apparel group + 15 + 13 + 19 + 27 + 33 + 41 + 35 + 6 + 91 + 25 + 14 o f B u s in e s s , 1948-54 D is tr ic t G asoline service stations + 59 + 59 + 60 + 94 + 82 + 120 + 44 + 60 + 143 + 84 + 66 D rug and p ro prietary stores + 38 + 42 + 31 + 36 + 42 + 35 + 35 +44 + 70 + 37 + 31 F urniture, Lum ber, A u to furnishings, building, motive appliance hardw are groups group group +25 + 25 + 16 + 25 + 33 + 24 + 25 + 13 + 6 + 54 + 43 + 14 + 49 + 26 + 14 + 39 +68 +43 — 12 + 26 + 11 + 51 + 61 + 12 + 66 + 47 + 48 + 38 + 30 + 13 + 62 + 14 + 17 O ther retail stores + 20 +26 + 10 + 37 + 21 + + + + + + 30 17 11 50 31 23 Source: United States Department of Commerce, Census of Business. regional and national changes between 1948 and 1954 can indicate the course and rate of growth of this area’s retail market relative to the country as a whole. The remainder of this article com pares some of the more important factors of growth in retail trade in the District and the nation. California accounted for large proportion of District rise in retail trade Chart 1 shows that the percent increase in total retail sales was larger in the District than in the nation from 1948 to 1954 but that only three District states— Nevada, Arizona, and California —had relative gains above the national average. The widest dispersion in rates in the region occurred among the Intermountain states; Ne vada showed the largest relative gain in the Dis trict while Idaho showed the smallest. Retail sales in California, which accounted for nearly two-thirds of the District total in 1954, rose 43 percent. California alone accounted for nearly three-fourths of the District dollar rise in trade from 1948 to 1954. Arizona had a 50 percent rise in total retail sales between the postwar business census years. In the Pacific Northwest, retail merchants in W ashington rang up sales in 1954 about 29 percent above 1948 whereas in Oregon the gain was only 21 percent, the second smallest figure in the District. Durable goods outlets showed same percent increase in District as in nation The parallel rate of growth in durable goods sales in the District and the nation reflects smaller than national percent increases by District auto mobile dealers and by lumber, building materials, hardware, and farm equipment dealers and a larger than national percent rise among furni ture and appliance outlets (Table 1). Despite smaller percent gains by automobile dealers in this District, automotive outlets in California, Arizona, Nevada, and U tah registered percent gains which were significantly larger than the national rate. Arizona showed the largest per cent gains while W ashington and Oregon made the poorest showing. Lumber, building materials, hardware, and farm equipment dealers were the only group in the District which experienced relative gains significantly below the national average. Sales by this group ranged from an increase of 62 percent in Nevada to a drop of 12 percent in Idaho, the only state in the District to record a decline in any group during the period. Furniture and ap pliance dealers, in contrast to the other two types of durable goods outlets, experienced larger per cent gains in the District than in the country as a whole. Furniture and appliance stores in W ash ington, California, Arizona, and Utah showed the largest gains in the District. N ondurable goods outlets showed larger percent gains in District than in nation All kinds of nondurable goods stores had rela tively larger gains in the District than in the country as a whole from 1948 to 1954. Food stores and service stations reported the largest gains among nondurable outlets. Food sales in FEDERAL RESERVE BANK OF SAN F R A N C IS C O 1954 accounted for nearly one-fourth of total re tail sales in the District, about the same as in the country as a whole. Among the District states, gains in food sales between the business census years ranged from 25 percent in Idaho to 69 per cent in Nevada. California shops experienced a 50 percent increase. Gasoline service stations re corded the largest percent gains among all types of outlets in both the District and in the nation. A notable growth occurred in Nevada where gasoline service station sales were nearly two and one-half times as large in 1954 as in 1948. Cali fornia service station sales were almost double the 1948 figure. Apparel and accessories shops in the District also experienced substantial gains between the business census years. These types of specialty shops located in California had a 27 percent gain in sales compared to 14 percent in the country as a whole. Apparel and accessories shops were the only type of retail outlet in Oregon to show a larger percentage increase than the nation. District rise in retail trade associated with increases in income and population The D istrict’s larger than national percent increase in total retail sales from 1948 to 1954 was associated with larger than national percent rises in both personal income and population. C hart Personal income in the District rose by 49 per cent compared with 38 percent in the country as a whole. Nevada and Arizona had the largest percent increases among the District states, 86 and 75 percent respectively. Personal income in California, which accounted for about 70 percent of the District total in 1954, rose about 53 percent between the business census years. W ashington, Oregon, and Idaho all had smaller percent in creases in income than the nation as a whole. The relationship between income and retail trade in the D istrict is indicated to some degree by the fact that a ranking of District states by size of percentage rise in income corresponds closely to the ranking by size of percent increase in total retail sales. Population growth in the D istrict was also a m ajor factor contributing to this region’s subtantial increase in total retail sales. Civilian popu lation in the D istrict rose by about 20 percent from 1948 to 1954 compared w ith 10 percent in the nation as a whole. Arizona showed the largest gain (34 percent) and Idaho, the smallest (8 percent). California’s population rose about 23 percent and Nevada’s population increased about 30 percent. In the Pacific Northwest, the rate of growth of population in Oregon was about one and one-half times the national rate while W ash ington showed the same percent increase as the 2 PERCENT CHANGE IN T OT A L R E T A I L S A L E S , 1 9 4 8 - 1 9 5 4 T W E L F T H DIS TRIC T METROPOLITAN AREAS SACRAMENTO STOCKTON SAN JOSE FRESNO +100 S. F. . OAKLAND LOS ANGELES - LONG BEACH AD WASHINGTON A SAN DIEGO UTAH SAN BERNARDINO TO TA L METROPOLITAN AREA .C E N TR A L CITY □ SUBURBAN AREA S E A TTL E SPOKANE TACOMA PORTLAND PHOENIX Source: United States Department of Commerce, Bureau of the Census, Census of Business. Digitized 88 for FRASER OGDEN S A L T LAKE CITY July 1956 MONTHLY REVIEW country as a whole. Much as in the case of income, the District states which had large relative in creases in population also showed large percent increases in total retail trade between the busi ness census years. Differences in the rates of growth in trade and population resulted in a smaller increase in per capita retail sales in the District (15 percent) than in the nation (20 percent). This trend is noteworthy in that it parallels a similar down ward trend in the ratio of District to national per capita income. Population census data indicate that the downward trend in the ratio of regional to national per capita income is, in part, explained by a decline in the proportion of District popu lation participating in this region’s labor force compared with a generally rising labor partici pation ratio in the country as a whole. Nevada was the only District state to have a larger per cent increase in per capita retail sales than the country as a whole. California per capita retail sales rose 16 percent. Despite the smaller District rise, per capita retail trade in this region continued to exceed the national average and was 16 percent above the United States figure in 1954. U tah was the only state in the District in which per capita sales were below the national average. A t the top of the list, per capita retail trade in Nevada was more than one and one-half times and in California onefifth larger than the national average. Arizona per capita sales, despite the large relative in creases in income and retail trade, were just slightly above the national average in 1954. District retail market becom es more heavily concentrated in metropolitan areas Chart 2 shows growth in total retail sales by metropolitan areas from 1948 to 1954 broken down by central cities and suburban areas (m et ropolitan area excluding central cities). The re gional increase in total retail sales brought with it a greater concentration of District retail trade in the metropolitan areas. In 1954, about 72 per cent of total District sales were made by outlets located in the metropolitan areas of the District compared with 63 percent in 1948. W ithin the metropolitan areas, suburban trade became in creasingly important. Suburban retail sales as a proportion of total metropolitan area sales reached 40 percent in 1954 compared with 35 percent six years earlier. A t the extremes, the San Jose metropolitan area showed the largest rate of growth in the District while the Portland area showed the smallest. Except for the San Jose and Sacra mento areas, metropolitan areas located in the Southern California-Arizona region showed the largest rate of growth in the District. Retail trade in the Los Angeles-Long Beach metropolitan area, which alone accounted for about 30 percent of District total sales in 1954, showed a 52 per cent rise from 1948 to 1954. Retail dealers in the San Francisco-Oakland area experienced smaller gains than those in the country as a whole. The growth in sales by outlets in the Seattle metro politan area matched the national rate. Fresno, Salt Lake City, and Seattle were the only metropolitan areas in the District in which retail trade grew at a faster rate in the central cities than in the suburban areas. However, ac count should be taken of city annexations which tend to overstate the growth in central cities relative to surrounding areas; Seattle, for ex ample, annexed adjacent areas several times during the postwar years. As shown in Chart 2, sales in the suburban areas of San Diego nearly doubled from 1948 to 1954. Retail outlets in su burban areas of both San Jose and Sacramento in 1954 were about 80 percent above the 1948 figures. Stores located in the suburban areas of Los Angeles accounted for 56 percent of the dol lar increase in total retail spending in that metro politan area. Correction: On page 68 of the June 1956 M o n t h l y the second sentence in the third paragraph of the second column should be corrected to read, “By 1958 hydro power will have dropped from 72 percent to 65 percent, gas from 24 percent to 18 percent, while coal and lignite will have jumped from 4 to 17 percent.,, R e v ie w , 89 FEDERAL RESERVE BANK OF SAN F R A N C IS C O 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 (1947-49 a v e ra g e s 100) ■ to ta l nonagri Total C ar Dep’t cultural m f'g loadings store E lectric employ employ (n u m sales Copper8 power ber)* m ent m ent (value)* Industrial production (physical volume)* Year and m o n th P e tro le u m * L u m b e r Crude Refined C em en t Lead* 1929 1933 1939 1947 1948 1949 1950 1951 1952 1953 1954 1955 95 40 71 97 104 100 113 113 116 118 112 122 87 52 67 100 101 99 98 106 107 109 106 106 78 50 63 98 100 103 103 112 116 122 119 122 54 27 56 96 104 100 112 128 124 130 133 145 165 72 93 94 105 101 109 89 86 74 70 73 105 17 80 106 101 93 113 115 112 111 101 117 29 26 40 90 101 108 119 136 144 161 172 192 1955 M ay Ju n e Ju ly A ugust Septem ber O ctober Novem ber December 120 122 119 123 118 116 110 123 106 106 106 106 106 105 106 106 115 120 128 127 132 129 123 120 155 153 157 160 159 155 128 130 78 75 71 67 70 72 67 63 131 130 40 91 128 131 128 119 1956 Jan u a ry F ebruary M arch April M ay 129 125 117 119 106 106 105 105 105 130 128 128 122 129 135 145 149 160 70 77 77 82r 70 134 129 131 140 134 Retail food prices S> 4 Waterborne foreign trade*»8 Exports Im ports "99 102 99 103 112 118 121 120 125 *’55 100 102 97 105 120 130 137 134 141 102 52 77 106 100 94 97 100 101 100 96 104 30 18 31 99 104 98 105 109 114 115 113 122 64 42 47 96 103 100 100 113 115 113 113 112 190 110 163 129 86 85 91 186 171 140 131 164 124 72 95 81 98 121 137 157 200 308 260 307 189 200 191 196 196 197 206 198 125 125 125 126 126 126 128 128 140 142 141 142 141 142 145 146 110 111 99 106 107 104 98 98 118 118 123 122 126 126 125 123 113 112 113 111 112 112 112 112 162 152 171 189 174 152 143 164 280 299 368 349 363 348 325 328 199 204 219 203 129 130 130 130 131 146 146 146 146 147 107 99 103 105 107 130 124 128 131 122 112 111 112 113 113 136 126 150 354 323 395 B A N K IN G A N D CREDIT ST A T IS T IC S — T W EL FT H D ISTRIC T (amounts in millions of dollars) Member bank reserves and related items Condition Items of all mem ber banks" Year and m o n th Bank rates on U.S. Demand To ta l short-term Loans deposits business and G ov’t tim e discounts securities adjusted7 deposits loans8 2,239 1,486 1,967 5,358 6,032 5,925 7,093 7,866 8,839 9,220 9,418 11,124 495 720 1,450 7,247 6,366 7,016 6,415 6,463 6,619 6,639 7,942 7,239 1,234 951 1,983 8,922 8,655 8,536 9,254 9,937 10,520 10,515 11,196 11,864 1,790 1,609 2,267 6,006 6,087 6,255 6,302 6,777 7,502 7,997 8,699 9,120 1955 June Ju ly A ugust Septem ber O ctober Novem ber Decem ber 10,102 10,191 10,392 10,559 10,665 10,931 11,115 7,446 7,557 7,407 7,375 7,487 7,238 7,298 11,023 11,212 11,163 11,312 11,465 11,665 11,876 9,026 8,995 9,021 9,054 9,067 9,005 9,084 1956 Jan u a ry F eb ru ary M arch A pril M ay Ju n e 11,193 11,323 11,476 11,669 11,837 12,030 7,143 6,819 6,731 6,730 6,566 6,482 11,794 11,233 11,112 11,530 11,144 11,262 9,070 9,095 9,103 9,099 9,139 9,294 1929 1933 1939 1947 1948 1949 1950 1951 1952 1953 1954 1955 Factors affecting reserves: Reserve bank credit* _ — + 3.20 3.35 3.66 3.95 4.14 4.09 4.10 3.99 4.17 4.25 Com m er cial“ Treas u ry “ Money In circu lation* Davilr DanK debits Index 31 cities**11 Reserves11 (1947-49100)* + + 34 2 2 302 17 13 39 21 7 14 2 38 + + — + — + + 27 10 23 17 43 46 8 - 449 193 253 148 245 81 434 b - 429 217 200 276 174 205 417 + + + + + + 35 9 8 18 15 18 17 2,439 2,495 2,415 2,541 2,417 2,575 2,530 178 166 177 173 171 181 183 + 84 87 71 82 22 5 - 322 76 178 270 233 405 + + + + + + 136 95 188 371 217 341 + + + 99 7 35 7 47 32 2,554 2,488 2,516 2,578 2,498 2,404 188 179 183 190 182 186 + + + — + 4.34 + + 4.44 + — 0 - 110 - 192 - 510 + 472 - 930 -1 ,1 4 1 —1,582 -1 ,9 1 2 -3 ,0 7 3 -2 ,4 4 8 -2 ,6 8 5 + 23 + 150 + 245 + 698 - 482 + 378 +1,198 +1,983 +2,265 +3,158 +2,328 +2,757 + + + + + 6 18 31 206 209 65 14 189 132 39 30 100 175 185 584 2,202 2,420 1,924 2,026 2,269 2,514 2,551 2,505 2,530 42 18 30 95 103 102 115 132 140 150 168 172 1 A djusted for seasonal variation, except where indicated. Except for d epartm ent store statistics, all indexes are based upon d a ta from outside sources, as follows: lum ber, N ational Lum ber M anufacturers Association and U.S. B ureau of the Census; petroleum , cem ent, copper, and lead, U.S. B ureau of M ines; electric power, Federal Pow er Commission; nonagricultural and m anufacturing em ploym ent, U.S. B ureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. B ureau of L abor Statistics; carloadings, various railroads and railroad associations; and foreign trade, U.S. B ureau of th e Census. * D aily average. * N ot adjusted for seasonal variation. 4 Los Angeles, San Francisco, and S eattle indexes combined. 5 Com m ercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and W ashington cus tom s d istricts; startin g w ith Ju ly 1950, “ special category” exports are excluded because of security reasons. 8 A nnual figures are as of end of year, m onthly figures as of last W ednesday in m onth. 7 D em and deposits, excluding interbank and U.S. G ov’t deposits, less cash item s in process of collection. M onthly d a ta pa rtly estim ated. • Average ra te s on loans m ade in five m ajor cities. 9 Changes from end of previous m o n th or year. 10 M inus sign indicates flow of funds out of the D istrict in the case of commercial operations, and excess of receipts over dis bursem ents in th e case of T reasury operations. 11 E nd of year and end of m onth figures. 12 D ebits to to ta l deposits except in terb an k prior to 1942. D ebits to dem and deposits except U.S. G overnm ent and in terbank deposits from 1942. p— Prelim inary. r— Revised. 90
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