Full text of Economic Review (Federal Reserve Bank of San Francisco) : October 1957

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TWELFTH

FEDERAL

FEDERAL RESERVE

RESERVE

BAN*K O F

October 1957




DISTRICT I

SAN

FRANCISCO

Review of Business Conditions . . . .

134

Frui* artaVegetable Canning—
Review and Prospects................ 137
The Aluminum Industry—
Part II: Growth of the Market . . . 145

REVIEW OF

BUSINESS CONDITIONS

activity in August remained at the
high level that has prevailed in earlier
months. Industrial production and retail sales
continued at the July rate. Meanwhile, nonfarm
employment, consumer incomes, and total con­
struction outlays advanced to new highs. Some
recent gains in employment and retail trade were
lost in September, however, and as yet no real
clarification of business trends has emerged. By
late September, the absence of any clear evidence
that a greater-than-seasonal fall upsurge had
begun contributed to some erosion of business
confidence. Stock prices continued the drop that
began in July, eliminating most of the gain that
had occurred since the beginning of the year. In
another market that is also sensitive to swings in
business sentiment, the prices of raw industrial
commodities continued the decline that began in
early August.
While it remains true that business activity
fluctuates much less than business expectations
over short periods of time, several developments
have provided cause for concern. New orders re­
ceived by manufacturing firms have been declin­
ing. Although shipments in July were the high­
est since February, manufacturers’ sales have
shown weakness also. A t the same time, the book
value of inventories held by manufacturing firms
rose further in July, and most of the increase
was centered in stocks of finished goods. A por­
tion of recent additions to inventories thus may
have been involuntary. Continued weakness in
new orders and sales may necessitate production
cutbacks in some manufacturing lines in the
future.
T o some extent business confidence may have
been affected by the recent course of monetary
policy, including the August increase in the dis­
count rate and the firmness of official statements
concerning the problem of rising prices. The
business community apparently expects no sig­
nificant increase in the supply of credit in the
immediate future.
Business expectations may also have dark­
ened with the recognition that two of last year’s
u s in e s s

B

134




important expansionary forces— increases in de­
fense expenditures and in outlays for plant and
equipment— have disappeared. Investment in
new plant and equipment in the fourth quarter
is now forecast to remain at the estimated third
quarter level. In conjunction with the leveling in
outlays for plant and equipment, expenditures
for construction of industrial and commercial
buildings have been running below year-ago lev­
els since June. Moreover, new orders for ma­
chine tools have fallen sharply during the first
eight months of 1957.
The effects of cutbacks in defense spending are
also evident. Production stretch-outs and con­
tract cancellations involving both missiles and
aircraft are now being felt by firms which do sub­
contracting for aircraft companies as well as by
the aircraft companies themselves. Net new or­
ders received by the aircraft industry during the
second quarter were down 28 percent from those
of the first quarter.
Prospects are that another component of Gross
National Product— Net Foreign Investment—
will also decline. Foreign demand for goods and
services produced in the United States rose
sharply following the Suez crisis and unexpect­
edly continued to provide stimulation to the
economy during the first half of 1957. Foreign
exchange reserves of some countries, particularly
dollar balances, have shrunk in recent months— a
situation that is likely to exert a dampening influ­
ence on United States exports in the future.
Consumer spending steadies
at high level in August

Although expenditures of business firms and
the Federal government have shown signs of ta­
pering off or declining, consumer spending at
retail stores rose a little more than 4 percent
from April to July. In August, sales held at the
record July level, but a 2 percent drop occurred
in September, according to advance reports.
Even so, retail sales have more than kept pace
with the rise in personal income for the year to
date. Almost all of the gain, however, has been
in sales of nondurable goods.

October 1957

M O N TH LY REVIEW

The number of new cars sold in August was
reported to be up 2 percent from August 1956,
one of that year’s best months. Cars have con­
tinued to move well in September, as sales are
estimated to have been as much as 20 percent
above last year’s low September level. Heartened
by the favorable sales picture, manufacturers are
reported to be raising fourth quarter production
goals for 1958 models.
Retail sales are still generally at a high rate
and if the September dip proves temporary, and
especially if automobiles continue to sell at a pace
faster than in 1956, the fourth quarter outlook
may be brighter than current business sentiment
would have one believe. Even allowing for price
increases that have occurred, continued expan­
sion in retail sales would obligate retailers to in­
crease inventories. Consumers, in fact, may pro­
vide the increase in aggregate demand necessary
for an advance in business activity in the fourth
quarter.
A small percentage increase in consumer ex­
penditures can have large significance, for such
expenditures normally account for about 64 per­
cent of Gross National Product.
In this brief assessment of expansionary and
contracting forces, recent developments in resi­
dential housing activity merit attention. Housing
starts have turned upward since April, reaching
a seasonally adjusted annual rate of more than
a million units in August. Should this trend con­
tinue, outlays for residential construction may
also turn up, reversing a decline that has exerted
a depressing influence on Gross National Prod­
uct since the final quarter of 1955.
Business activity slackens in the Twelfth District

According to most indicators, business activ­
ity in the Twelfth District failed to advance from
July to August. Department store sales and con­
struction activity declined moderately during the
month. In addition, lumber markets have weak­
ened further, and steel production showed no
gain. A minor drop also occurred in total non­
farm employment, though this was largely at­
tributed to work stoppages in the construction
industry.
Total nonfarm employment in District states
receded slightly from July to August after sea­




sonal adjustment. Nearly all of the decline was
concentrated in manufacturing and construction,
which recorded losses of 1 and 3 percent, respec­
tively. Gains since July measured nearly 1 per­
cent in the case of trade and service industries,
while smaller advances were reported for em­
ployment in government and finance. The num­
ber of workers in mining and in transportation
and public utilities showed almost no change.
Strikes contribute to employment drop

It is estimated that employment in Southern
California was reduced about 20,000 by a con­
struction strike that began before the July sur­
vey week. The strike widened in August, affect­
ing perhaps as many as 35,000 workers by the midle of the month. Although it is not possible to
say whether construction employment would
otherwise have increased during July and Au­
gust, the trend of building permit activity sug­
gests that the pre-strike employment decline
(after seasonal adjustment) might have con­
tinued.
A drop of 8,000 in aircraft employment be­
tween July and August and smaller-than-seasonal gains in food processing and lumbering
were not completely offset by employment ad­
vances registered in electrical machinery and
other manufacturing industries. A portion of the
decline in manufacturing employment since June
was due to a work stoppage in metalworking in­
dustries in the San Francisco metropolitan area.
In general, the District employment picture con­
tinued to be characterized by reductions in the
number of workers in commodity-producing in­
dustries that are approximately offset by employ­
ment gains in service, trade, transportation, and
government.
Building permit activity recedes

The value of total building permits issued in
the Twelfth District in August was about 4 per­
cent less than in July, according to advance esti­
mates. In contrast to the usual pattern of past
months, residential valuations increased 17 per­
cent from the July level, mostly in multi-unit
structures. Nonresidential valuations slipped by
nearly 21 percent from the July level. Through
August, the value of total permits is about 9 per­
135

FEDERAL R ES E RV E B A N K O F S A N

cent less than those for the first eight months of
1956. Nonresidential valuations are off 3 per­
cent, while residential authorizations show a
value drop of 13 percent from the 1956 pace.
Considerable attention has been directed to­
ward the liberalization of F H A terms in early
August. In general, down payments were low­
ered to attract buyers and the interest rate was
raised to attract lenders. However, a ceiling of
2y2 percent was also placed on discounts, which
were being used by financial institutions to obtain
the going rates of return in areas where the local
market rates of interest were higher than the
maximum permitted on F H A mortgages.
Discounts vary by region and generally run
larger in areas such as the West and the South
that must “ import” mortgage capital from indi­
viduals and organizations in Eastern cities. It is
believed, therefore, that the
percent ceiling
placed on discounts may prevent an increase in
the flow of mortgage funds into the Twelfth Dis­
trict from Eastern sources. Surplus capital may
be expected either to remain in Eastern mort­
gage markets where discounts are traditionally
closer to the 2 / percent ceiling or else be chan­
nelled into more profitable, non-mortgage uses.
District production activity slackens

Steel production in the Western district ( which
includes Colorado) remained at about the July
level of 91 percent of capacity in August. For the
entire nation, steel reversed a six-months decline
and rose about seasonally from 79 percent of
capacity in July to nearly 82 percent in August.
Some slackening in the demand for structural
steel was reported in District markets, though
this may have been connected with the construc­
tion strike in Southern California.
Output of Douglas fir and western pine in the
four-week period ending September 14 recorded
losses of 9 and 21 percent, respectively, from the
previous four-week period. A decline of about 5
percent would normally occur because of the La­
bor Day holiday, however. Declines in new or­
ders for both types of lumber indicate that activ­
ity this fall may show a greater-than-seasonal
downward movement in the lumber industry.
Redwood production in August rose above July’s
13$




FRANCISCO

vacation-depressed level, but remained about 6
percent below the May-June average.
Reports from the Pacific Northwest indicate
that several pulp mills have closed because of a
weakening in the demand for paper and other
products. In the Douglas fir plywood industry,
plagued with temporary over-expansion of ca­
pacity as is the pulp industry, output held up well
in September. Price increases for plywood have
been announced by several mills, but these may
be difficult to maintain if closed mills are encour­
aged to re-open.
Also in the Pacific Northwest, power short­
ages in the Bonneville system forced the cancel­
lation of interruptible power in the early part of
September. One aluminum producer has closed
two potlines while others are using provisional
power that they may have to replace later with
more expensively generated energy.
Retail trade lags in the Twelfth District

Sales at District department stores fell about
2 percent from July to August after adjustment
for seasonal variation and differences in the num­
ber of trading days. They were also nearly 1 per­
cent below sales in August a year ago. Automo­
bile registrations in California during August
dropped 18 percent from those of July. For all
District states, however, sales through July were
running about 1 percent ahead of sales for the
first seven months of 1956.
Loans rise seasonally at District
reporting member banks

Loans outstanding at weekly reporting mem­
ber banks jumped $150 million in the four-week
period ending September 25. This compares with
a much smaller gain of $49 million in the previ­
ous four-week period and an advance of $123
million in a similar period in 1956. For the year
so far, however, loans outstanding have grown
only about one-fourth as much as during the first
nine months of 1956. The September increase in
borrowings can be associated with the corpora­
tion income tax payment due on the fifteenth of
the month. This year, 15 percent of estimated
1957 taxes were due. A year ago the quarterly
payment amounted to only 10 percent of esti­
mated tax liabilities.

October 1957

M ON TH LY REVIEW

Most of the recent gain in loans outstanding
was centered in the commercial and industrial
category. Borrowings of food and liquor proces­
sors registered a normal seasonal rise of $73 mil­
lion. Smaller increases of $11 million, $7 million,
and $5 million were recorded, respectively, for
public utilities, metal producers, and sales finance
companies. These companies reduced indebted­
ness in September 1956.
“ Other” loans— chiefly those to individuals for
personal expenditures— rose by $20 million,
compared with a fall of $10 million in the same
period in 1956. Borrowings of brokers and se­
curity dealers showed an expansion of $12 mil­

lion. Real estate loans outstanding registered no
increase this September, in contrast to a gain of
$31 million a year ago.
Also in the four-week period ending Septem­
ber 25, demand deposits at weekly reporting
member banks rose $192 million while time de­
posits registered a gain of $54 million. This de­
posit growth compares favorably with increases
of $187 and $10 million in the 1956 period. Net
holdings of United States securities were reduced
$49 million this year, however, in contrast to an
increase of $21 million in the September fourweek period last year.

Fruit and Vegetable C an n in g-R e vie w and Prospects
Twelfth District fruit and vegetable can­
ning industry is a vigorous, thriving enter­
prise. Since World W ar II it has expanded
briskly, in response to the basic growth stimu­
lants of an increasing national population and a
high and rising level of personal income. A sec­
ondary stimulant has been the increase in per
capita consumption of canned vegetables; that of
canned fruits is stable, while fresh produce con­
sumption per person is declining. In addition,
the canning industry of this District appears to
be supplying a larger share of the market for
some of the major canned products than it did
several years ago.1
Although supporting influences underlie the
sharp increase in the volume of fruits and vege­
tables canned in the District during the postwar
period, the industry apparently entered the 1957
marketing year from a position of overexpanh e

1A good part of the fruit and vegetable canning industry is concen­
trated in the T w elfth D istrict, where 32 percent o f the industry’s
$2.3 billion in shipments originated in 1954, according to the United
States Department o f Com m erce, Bureau of the Census, Census of
M anufactures, 1954, reporting on the Standard Industrial Code
2033, Fruit and Vegetable Canning Industry. In particular, the
Tw elfth D istrict is the center for canned fruit and canned vege­
table production, w ith less emphasis on other im portant industry
products such as soups, baby foods, jam s, jellies, and preserves.
About three-fourths o f D istrict industry shipments in 1954 were
of canned fruits and vegetables alone. This was 58 percent o f the
nation’s $876 m illion total value o f these products. Because o f pro­
duction increases since then, the value o f industry output both
nationally and in the D istrict is substantially higher at present than
it was in 1954. T h e frozen foods industry is excluded from this arti­
cle, w hich deals on ly w ith the fruit and vegetable canning industry.




sion.2 For the past two years, particularly in the
1956 season just completed, District canned fruit
and vegetable supplies proved to be substantially
in excess of demand at current prices. This situa­
tion will be discussed after a brief review of the
past two decades of growth in the District can­
ning industry.
Twelfth District canning has grown

The industry’s growth is shown in Charts 1
and 2. It is apparent from Chart 1 that the his­
torical increase in vegetable processing has been
primarily an expansion of canned tomatoes in
various forms, including juice, paste, catsup, and
other commodities. In 1956, tomatoes in all forms
were nearly two-thirds of all the vegetables
packed in the District and were over 40 percent
of total fruit and vegetable production.3 The
chart also shows that sizable year-to-year fluc­
tuations in vegetable packs largely reflect changes
in tomato products. These products have fol­
lowed two complete five-year production cycles,
with peak years in 1951 and 1956, since the end
of World War II. In each cycle, following a peak
year there have been two years of reduced output,
2 T he marketing season for items packed in one year extends into the
succeeding calendar year. Item s packed in 1956, for example, are
marketed during the latter portion o f 1956 and in 1957 until 1957
crops becom e available for canning. For most m ajor products the
season begins and ends around mid-year.
3 Vegetables are in terms o f actual cases; fruits, in terms o f 24 N o.
21
/2 cans per case.

FE DE RA L R E S ER V E B A N K O F S A N F R A N C I S C O

then a three-year period of
C hart 1
rising production culmina­
TOTAL V E G E T A B L E P A C K S ^
ting in the next peak. Since
T W E L F T H D IS T R IC T
1 9 4 7 -5 6 ,
C A L IF O R N IA 1 9 3 6 -5 6
M ILLIONS OF CAS ES
the outlook is for lower pro­
ACTUAL CASES
duction in 1957, the crest
of this second cycle appar­
ently was reached in 1956,
F IC N O R T H W E S T
when output was 30 percent
greater than in 1951. Over­
supply, the chief character­
istic of the present situation
as canners entered the 1957
PEAS.
marketing year, appears to
O TH ER THAN PEAS
be a recurrent pattern, on
the basis of postwar experi­
ence.
C A L IF O R N IA
Canned fruit production
TO M A TO ES AND TOMATO PRO DU CTS
has also risen over the past
two decades, as shown in
V E G E T A B L E S O TH ER TH AN T O M A T O E S
Chart 2. Cling peaches have
always been the most im­
1936
1940
1945
1950
1956
portant single fruit product. 1 Includes vegetables canned in California, Oregon, W ashington, and Idaho, plus a small volum e canned
in M ontana.
Record production of cling *D ata not available prior to 1947.
Sources: Canners League o f C alifornia; N orthw est Canners and Freezers Association.
peaches in the past two
years contributed heavily to the present condi­
1954, as indicated by the sharp increases in physi­
tion of oversupply. Total District output of canned
cal output during the past two years. In 1956,
fruits in 1956 was 10 percent larger than the
District canners put up a record volume of vege­
record achieved in 1955. The basic yearly fluctua­
tables, accounting for almost half the country’s
tion in fruit output, as shown in the chart, may
output. This represents a slight gain in the Dis­
stem from the tendency of fruit trees to alternate
trict’s share over 1955 and a considerable in­
scanty and abundant bearing years. The past two
crease in this share over the last decade. In­
seasons are a significant exception to this pattern.
creased packs of tomatoes and tomato products
Increases in the volume of fruit packed have
have played an important part in this increase.2
been more moderate than for vegetables, and it
Fruit canning3 has also expanded but less sharp­
is primarily the canned vegetable sector that is
ly.
District output, excluding citrus fruit, has in­
gaining a larger share of the market for the Dis­
creased 43 percent in the last ten years, which is
trict canning industry.
somewhat more than the 37 percent increase na­
District canners supply a rising
tionally.
share of the market
Although the District canning industry is
The Twelfth District is the principal fruit and
growing,
like most industries it appears to be
vegetable canning region, and is supplying an
subject
to
production cycles. Peak years in the
even larger share of the expanding market for
cycles
for
fruit
and vegetables coincided in the
these products than it did several years ago.
1956
season,
with
the result that, in almost every
The value added by manufacture in District can­
important pack, substantially more was produced
neries increased approximately 30 percent be­
than could be sold at prevailing prices.
tween 1947 and 1954, after allowing for price
changes,1 and has increased even further since
2 Stock and m ovem ent data for tom atoes and tom ato products are
1 United States D epartm ent o f Com m erce, Bureau o f the Census,
Census o f M anufactures, 1947, and 1954: Standard Industrial Code
2033, Fruit and Vegetable Canning.

138




available on ly for California, but California produces nearly all o f
the D istrict output c f these products.
8 In this article “ m ajor canned fruits” includes peaches, pears, fruit
cocktail, apricots, plum s, and sweet cherries.

October 1957

Supplies at record high for 1956 season

MONTHLY REVIEW

— an increase of 5 million cases. Stocks left over
from 1955, principally of cling peaches, swelled
the total supply of fruits to about 16 percent
above the previous year.
These figures indicate that movement of fruits
would have had to expand by 16 percent and that
of vegetables by 27 percent in order to have dis­
posed of the increase in supplies on hand for the
1956 season.

In review, the 1956 season was the leading
year in District fruit and vegetable canning his­
tory, in terms of production, supplies, and sales.
Production of both fruits and vegetables was
larger than ever before, and total supplies were
augmented by sizable quantities left over from
the previous season. Movement of supplies from
District canners’ hands was the highest in his­
Record sales achieved with lower prices . . .
tory. Profits, however, were generally lower than
in 1955 because of the downward pressure on
After a year of strenuously competitive mar­
prices resulting from increased supplies; at the
keting, a 5 percent larger volume of fruits and an
same time, canners’ costs also reached their high­
11 percent larger volume of California tomatoes
est historical level. The industry’s leading firms
and tomato products were moved by District
complained, in their annual reports, of the effects
canners than in 1955. The increase in both of
of this “ cost-price squeeze” on profits, although
these commodity groups surpassed the average
some firms made the general qualification that
annual increase of recent years.
the primary cause of reduced profits lay in losses
Movement increased to both domestic and for­
from their frozen foods operations.
eign markets. Domestic demand remained strong
Large packs were recorded for most fruits and
with the continued increase in consumer income
vegetables nationally, thus increasing the compe­
and population growth. Exports of canned fruits
tition among products. In the District the larg­
and vegetables, although a small fraction of total
est increase was in packs of cling peaches, toma­
disposal, were the highest for any peace-time
toes, and green peas. District canners produced
year.1 The four leading fruit and vegetable (ex­
160 million cases of fruits and vegetables in 1956,
cluding soup) canners of the nation2 all experia jump of 19 percent over the 134 million cases
1 This is on a fiscal year basis, w hich coincides with the general mar­
turned out in 1955. Canners contracted for large
keting season for the canning industry.
2 L ib b y ’s, California Packing Corporation, Stokeley-Van Camp, and
acreages, and ideal growing conditions resulted
H. J. Heinz.
in the bumper crops of to­
matoes, green peas, and
C hart 2
cling peaches. T ogether
TOTAL F R U IT PACKS-^
these crops accounted for
T W E L F T H D IS T R IC T
1 9 4 7 -5 6 , A N D C A L IF O R N IA 1 9 3 6 -5 6
24 million cases of the 26
M ILLIONS OF C A S ES
2 4 No. 2'A C A N S P E R C A S E B A S I S
million-case increase.
The vegetable pack was
21 million cases or 26 per­
cent larger than in 1955.
Vegetable stock figures are
only available for Califor­
nia, where the total supply
(the amount packed plus
carryover from the pre­
vious season) of asparagus,
spinach, and tomatoes and
1936
1940
1945
19SO
1956
tomato products was 27
percent above 1955. The
‘ Includes fru it canned in California, Oregon, W ashington, and Idaho, plus a small volum e canned
in M ontana.
total pack of fruits was 10
*D ata not available prior to 1947.
percent above that of 1955
Sources: Canners League o f California; Northwest Canners and Freezers Association.




139

FE DE RA L R E S ER V E B A N K O F S A N F R A N C I S C O

enced record dollar sales for the year, averaging
about 7 percent above sales in 1955.
Sales of those fruits in heavy supply were also
stimulated by lower prices. For example, Cali­
fornia f.o.b. price quotations for cling peaches
show that a 4 percent decrease in price from 1955
was associated with an 8 percent increase in
movement. Prices of fruit cocktail, the second
largest District fruit pack, also fluctuated around
lower levels than in 1955. Compared with that
year’s high and low prices, the highest prices
were 5 percent lower, and the lowest prices of the
season were down 2 to 5 percent. Movement, on
the other hand, increased 10 percent or nearly
a million cases above the former record in 1955.
Prices quoted for Bartlett pears, however, re­
mained unchanged throughout the 1956 season
from the top price in the previous season. Pears
were the only pack in heavy supply to experience
reduced movement. Movement fell 4 percent al­
though the year’s supplies were 7 percent above
a year ago.
Reduced prices of important tomato products
undoubtedly played an important role in produc­

ing a total movement of California tomatoes in all
forms of 55 million cases, up 11 percent from
1955. Cannery price quotations for whole toma­
toes and tomato juice were lower throughout the
season, but additional cuts were made in the lat­
ter part of the marketing year, the spring and
summer months, when demand for canned food
traditionally slackens.
But market fails to clear

Despite increased demand and selective price
reductions, the movement of canned fruits and
vegetables did not increase sufficiently to prevent
an increased carryover of stock into the current
season.
Nationally, canners’ stocks of vegetables cov­
ered in the Department of Commerce report
showed substantial gains from July levels a year
ago. Their stocks of some items, such as corn and
tomatoes, were over twice as large as in 1956.
Canners’ stocks of canned fruit also increased
considerably from year-ago levels. Distributors’
stocks are little changed from recent years, but
this is not significant because distributors custo­

T able 1
P r in c ip a l F r u it a n d V e g e ta b le

P a ck s

C a l i f o r n i a , O r e g o n , W a s h i n g t o n , a n d I d a h o , 1 1951-56
(in th ou san d s o f c a se s)
FRUIT P A C K S 2
P ea ch es
C lin g3 ..........................................................
O t h e r .......................................................... ...............
F ru it c o c k t a i l ..............................................

1951-52
3,106

C h erries, sw e e t4 .......................................
A p p le s and a p p le s a u c e ...........................
O th er fru its and b e r r i e s .........................

1952-53
14,964
3,433
7,489
6,003
3,950
1,470
1,130
925
2,732

1953-54
17,163
3,150
8,228
5,185
4,753
1,263
976
1,335
2,848

1955-56
17,923
3,989
9,809
7,849
5,828
1,525
1,254
1,472
3,223

1956-57
21,322
5,669
11,033
8,437
4,139
2,099
652
1,596
3,220

44,901

1954-55
13,818
3,697
9,074
7,475
2,694
1,572
858
1,380
2,995
43,563

42,096

52,870

58,168

9,916
11,610
26,372
6,757
4,288
2,667
3,583
2,591
857
922
3,899

6,925
10,600
19,006
6,452
5,189
2,7 1 0
3,781
2,271
994
754
4,178
62,860

7,228
8,850
21,162
5,075
8,453
3,464
3,635
2,387
1,121
690
3,651
65,716

9,479
11,325
29,862
4,100
8,965
4,689
3,246
3,207
1,309
585
4,119
80,884

11,851
16,299
38,029
9,428
8,252
3,774
4,081
3,165
1,438
918
4,971

vegetable p a c k s '

T o m a t o e s ® .....................................................
T o m a to j u i c e ..............................................
O th e r to m a to p r o d u c t s ......................
P e a s .................................................................
B eans, g re e n and w a x e d ......................

C a rrots ..........................................................
O th e r 7 .............................................................

...............
...............
...............

7,618
11,504
31,625

...............

5,707

...............

3,525

73,461

1 Includes a small volum e canned in M ontana.
2 24-N o. 2 l/ i case basis.
3 Spiced clings are included in “ O ther.”
4 Sour cherries are included in “ O ther.”
8 A ctual cases.
•Includes the tom ato ju ice pack in the Pacific Northwest.
7 Quantities o f specific vegetable items m ay be included in “ Other” category if the pack is o f minor im portance in reporting area
N o te : Figures may not add to totals because o f rounding.
Sources: Canners League o f C alifornia; N orthw est Canners and Freezers Association.

140




102,205

October 1957

M ON TH LY REVIEW

C hart 3

marily hold only short­
FLUCTUATIONS IN C A R R Y - I N S T O C K S OF
term supplies, while the
C ALIF ORNIA T OM A T OES AND TOMATO PRODUCTS, 1951 -5 7
remainder of the canned
JU L Y 1
1 CAN ■ 1 M IL L IO N
CA SES
items is held by canners
1951
themselves.
1 *1 f
1952
The national carryover
•
V
•
•
•
•
• !* j
•
•
of tomatoes, tomato juice,
1953
catsup, and chili sauce by
•
•
9
•
•
! • ;
•
• :
•
•
•
•
©
;• ]
•
canners was almost three
1954
times larger than a year
•
•
•
•
•
; •
*
•
•
©
;
ago. Despite the increase
1955
in canners’ stocks in Cali­
fornia, as shown in Chart
1956
3, they were able to reduce
their share of the national
1957
totals in these items from
53 percent last year to 49
5
10
15
percent in 1957. This re­
duction was largely the re­ Source: Canners League o f California.
sult of a smaller build-up
United Kingdom are expected under Public Law
of stocks of tomato juice in California.
480, an act enabling foreign nations to buy sur­
That large supplies have had a depressing ef­
plus
goods (usually from CCC stocks) with their
fect on prices is evident, and unless the forthcom­
own
currencies instead of with dollars. As for
ing packs are substantially reduced, supplies will
pack
prospects, some important reductions are
continue to exert downward pressure on prices.
anticipated.
The depressing effect, however, may be enhanced
or reduced, depending on who holds the leftover
Smaller tonnages will be canned in 1957
supplies. Prices did not fall as much as they
Total District output in 1957 of canned fruits
might have, according to trade comments, be­
and vegetables will undoubtedly be smaller in ag­
cause most of the supplies are in the hands of
gregate than it was in 1956. Smaller vegetable
those best able to finance them, that is, the name­
crops will be harvested this year, according to
brand canners. Three of the leading companies
latest U SD A estimates. Total production of the
whose fiscal years end near June 1 recorded an
major canning fruits is expected to be slightly
average 21 percent increase in inventories of fin­
lower,
and measures have been taken to ensure
ished goods over last year. In some cases, how­
reduction
in the volume of some packs. The total
ever, these inventory data also reflect a build-up
vegetable pack will not be small, however, rela­
in stocks of frozen foods.
tive to that of recent years, and may not fall be­
How burdensome are these carryover stocks ?
low
the 1955 level— the second highest on record.
This depends on the quantity to be canned in
Latest forecasts indicate an over-all reduction
1957 and the movement of canned fruits and
of 21 percent in the output for processing of to­
vegetables. Steps have already been taken by the
United States Department of Agriculture to take
matoes, snap beans, sweet corn, and peas, owing
substantial quantities of some items such as cling
to acreage cutbacks and generally lower yields.
peaches, freestone peaches, green peas, tomatoes,
The canning tomato crop is expected to be onecherries, and green beans for the school lunch
quarter below that of last year, and that of green
program. Further purchases for this program
peas may be smaller by 14 percent. A slight off­
may be forthcoming. In addition, sizable ship­
set to these reductions is the fact that the new
California spinach and asparagus packs, which
ments of cling peaches and fruit cocktail to the




141

FE DE RA L R ES E R VE B A N K O F S A N F R A N C I S C O

have already been completed, are somewhat larg­
er than they were last year.
A smaller fruit pack is also forthcoming, large­
ly because the industry has employed control de­
vices to reduce the volume of canned cling
peaches and Bartlett pears. The 1957 pack of
cling peaches will total about 18.1 million cases,
according to an end-of-September trade estimate.
Pack estimates have been lowered periodically
throughout the season. Early crop conditions in­
dicated that California peach trees might bear a
substantially larger crop than even the record of
last year. This was a matter of concern to cling
peach canners and producers, in view of the rec­
ord high carryover from the 1956 season. Ena­
bling legislation is provided in the State of Cali­
fornia permitting joint action on the part of cling
peach producers and canners to curtail supplies
for canning when it appears that they will unduly
depress prices. As the commercial production of
cling peaches is confined to California, it is pos­
sible to implement such action on a state basis
with effective results. Under the authority of the
California Cling Peach Marketing Order, a
“ green drop” program was adopted whereby 16
percent of the expected crop was eliminated be­
fore ripening. Further reductions were made
through cullage and diversion of varying percen­
tages of deliveries at the cannery to other uses.
This latter control was dropped as harvest pro­
gressed and it became evident that brown rot dis­
ease and hot weather were making inroads on
the crop. Present estimates put the 1957 pack 15
percent below that of 1956.
Bartlett pears apparently are being packed in
smaller volume also, down about 20 percent ac­
cording to late September trade estimates. The
volume of pears for canning was reduced pri­
marily by shifting larger amounts than usual to
fresh market channels and by setting canning
grade standards so that only top quality pears
will be canned. In addition to the smaller expect­
ed output of cling peaches and pears, the Cali­
fornia apricot pack, already completed, is 3 per­
cent smaller than in 1956. Crop forecasts indi­
cate a smaller output of purple plums this year.
However, no reduction in freestone peach can­
ning is indicated.
142




If present estimates are realized, the total sup­
ply of cling peaches available in the 1957 market­
ing season will be about the same as last year,
and supplies of tomatoes and tomato products
will be somewhat lower. However, supplies of to­
matoes and tomato products would still be con­
siderably above the quantity moved during the
last season, and movement would have to show
increases again this year in order to reduce sup­
plies to comfortable levels. This process of read­
justment may take more than one season, as past
experience seems to indicate.
Costs ore still climbing

Costs of labor, transportation, and many ma­
terials are continuing their upward trend. The
only notable reductions this year are in prices
paid to growers for some raw products.
One major District canner recently estimated
that, compared with last year, the company’s
cost of tin plate has risen 7 percent; glass con­
tainers are up 6 percent; fibreboard cases in­
creased nearly 4 percent; and labor costs have
risen 3 to
percent. Such increases are gen­
eral throughout the industry.
Labor costs have risen steadily over recent
years. In California, average hourly earnings in
the fruit and vegetable canning industry have
climbed 40 percent since 1949, slightly more than
the rise in earnings for all manufacturing indus­
tries. Average weekly earnings have risen rela­
tively more. A 5 cents per hour wage increase
became effective in March this year, under the
current 1956-59 contract between the California
Processors and Growers Association and the
Teamsters union. Average hourly earnings were
higher in the first half of 1957 than in the same
period a year ago, both in California and the Pa­
cific Northwest.
Transportation costs will be as much as 12
percent higher than they were early in 1956. On
August 6 the Interstate Commerce Commission
granted railroad freight rate increases that pro­
vide for a maximum increase of 11 cents per
hundredweight or 12 percent, whichever is less,
for canned and frozen fruits and vegetables, ef­
fective as soon as legal forms are completed. It
has been estimated by the Bureau of the Census

October 1957

M ON TH LY REVIEW

that 46 percent of canned foods are transported
by rail. Thus, it is apparent that increases in
transport rates stemming from the Commission’s
latest action will be a significant addition to canners’ costs of doing business this year.
On the other hand, raw material costs are low­
er for some crops this year; but trade sources
predict these reductions will not be sufficient to
offset other increases in costs. Negotiations be­
tween growers and canners on the prices of some
items have been delayed and prolonged. Growers
of peaches and pears resisted price cuts in the
face of expected lower volume demanded by
canners, but canners obtained lower rates for
these crops than they have paid during the past
two seasons.
The contract price for California cling peaches
has been established at $62 per ton, plus allow­
ances that bring the price to about $65 per ton—
compared with $70 in 1956. Price negotiations
were especially prolonged for pears, and in Cali­
fornia the agreed price will yield an average re­
turn of about $60 per ton, the lowest since 1952,
and $15 below the average in 1956. In Washing­
ton, growers finally accepted $60 per ton for No.
1 grade pears, compared with $90 per ton in 1956.
Freestone peaches in California and Wash­
ington were also the focus of long bargain­
ing. The California price appears to be $45 per
ton for Elbertas, compared with $60 last year.
Washington growers received $65 for top grade
Elbertas, down from $72 last year.
Vegetable prices also reflect the influence of
the large carryover from last season. Two prices
will prevail for processing tomatoes. Early con­
tracts for the 1957 crop called for the same prices
that prevailed on last year’s crop, $22.50 per ton.
Some later contracts were made for a lower
price of $20.00 per ton, a price which one source
estimated covered one-fifth of the crop.
The price for green peas in the Pacific North­
west is 2 percent below last year, and California
canners paid 2^4 to 3 cents a pound less for aspar­
agus than they did in 1956.
What about cannery profits for the 1957 sea­
son? Apparently some reduction from 1956 is in
prospect. It does not appear likely that the higher
level of costs will be more than offset by higher




prices for canned items and improvements in
production efficiency. Some increase in price is
anticipated at the retail level by the Department
of Agriculture, particularly for vegetables. If
prices should strengthen, however, only a portion
of the rise may be reflected in prices at the can­
nery level as the higher railroad rates will absorb
at least a part of the increase. In addition, sales
will have to be pushed aggressively to duplicate
the record volume moved from District canneries
last year. Although profits prospects appear to
be down from last year, recent events may
strengthen these prospects considerably when
their effects are fully assessed. For example, un­
usual growing conditions have reduced yields
considerably in some cases. Tomato acreage, for
instance, was adjusted downward in anticipation
of large inventories at the beginning of the 1957
season. However, with the additional effect of a
decline in yields, particularly in Eastern produc­
ing areas, output was reduced even more than
was expected. Current estimates place the pro­
duction of tomatoes for processing 24 percent be­
low the output in 1956. Production estimates for
cling peaches also have been revised downward
in recent months. In just one month, between Au­
gust 1 and September 1, crop estimates were re­
duced by about 6 percent. Such changes as these
may well alter the attitude of canners about the
large inventories that they have carried into the
current season.
Year of adjustment

District canners entered the current season
with large inventories of fruits and vegetables
as a result of record production in the past two
seasons. This is not a new experience for District
canners as the situation occurs periodically from
an overexpansion of production. Supplies were
sufficiently large in 1956 to weaken prices for
items important to District canners. To reduce
inventories to more comfortable levels without
further depressing prices, the most obvious ac­
tion that canners could take would be to reduce
the size of the 1957 pack from the output in the
previous year. Some downward adjustment in
the pack of principal items is suggested by crop
production estimates.
143

F EDE RA L R E S ER V E B A N K O F S A N

As canners’ costs are higher than in 1956, they
would welcome some price increase in 1957 in
response to somewhat lower supplies. The extent
of the reduction in supplies, however, will prob­
ably need to be substantial to bring about much
of a price increase. Sales were at an all-time high
in 1956, partially as a result of selective price re­
duction for canned items. Strengthening prices
could be expected to hold down the movement of
canned goods, although domestic demand will
probably continue at a high level during the 1957
marketing season. In addition, exports and pur­
chases for the school lunch program will need to
be sizable— a reasonable expectation from indi­
cations thus far received.
Fruit and vegetable canning is a competitive
industry, although it is characterized by a mod­
erate degree of concentration. O f the industry’s
shipments in 1954, 28 percent were made by the
largest 4 companies; 38 percent, by the largest
8 ; and 50 percent, by the largest 20.
The canning industry, dependent as it is for
its raw materials on agriculture, which is often
troubled by year-to-year instability in produc­
tion, has available to it certain stabilizing de­
vices, which are particularly characteristic of the
District industry.
The larger companies, by taking over inven­
tories of canners who would otherwise have to
cut prices drastically to move merchandise in a

144




FRANCISCO

period of oversupply, provide a degree of price
stability for the industry as a whole. In addition,
the system of state-enforced marketing orders,
which in California apply at present to such ma­
jor canned products as cling peaches, pears, and
asparagus, enables producers and processors to
regulate the quantity of raw materials processed
by canners. The most notable success has been
achieved with cling peaches. The ways in which
producers and processors employed most of the
devices available to them under the Cling Peach
Marketing Order to prevent an aggravation of
their oversupply problem in the 1957 season were
discussed elsewhere in this article. Some influ­
ence on demand has also been exerted by the in­
dustry through advertising and promotion de­
vices regulated under the marketing orders.
The results have allowed some price slippage
in a fairly price-elastic sector of agriculture, but
have avoided the drastic situations which have
been encountered in some other sectors when an
“ oversupply” comes to the market and the bot­
tom drops out of the price, with a resulting bene­
fit to the consumer at the expense of a ruinously
lower total income for the farmer. The industry
has managed, through use of these inventory and
supply regulation devices, to avert the greater
price reductions and inroads on profits that would
otherwise have occurred during the present
period.

October 1957

M ON TH LY REVIEW

The Aluminum Industry
Part II: Growth of the Market
is the second of three articles on the pri­
mary aluminum industry in the United States.
The first provided a brief history of the industry
and a description of its structure.1 This study will
deal with the market for aluminum and various
factors that influence the demand for the metal.
Aluminum at present is in a much easier supply
condition than existed throughout most of the
1950’s. The approach here, however, will be ori­
ented more to long-run developments which
should provide a better context for the evaluation
of current market developments. It will be seen
that an imbalance of supply and demand is a prob­
lem that the aluminum industry has successfully
adjusted to in the past.
Two striking developments in aluminum after
World W ar II were the rapid transition to peace­
time uses and the exceptionally large increase in
consumption. Immediately after World War II
there was considerable concern about peacetime
uses being able to absorb the production from
the greatly expanded wartime capacity. Produc­
tion did drop sharply after the war with the clos­
ing of Government-owned plants. In 1946, for
example, production was only 409,600 tons as
compared with 920,200 in 1943. By 1952, how­
ever, both production and consumption exceeded
the peak levels of 1943. With the exception of a
short period in 1954 and currently, aluminum
has been in continually short supply with fab-

T

h is

'S e e this R eview , August 1957. T h e third and final article in the
series will appear in a later issue.

ricators clamoring for more metal to keep their
plants operating.
High consumption levels have recently been
the result primarily of the continued growth in
regular peacetime markets, rather than of any
great increase in military or defense consumption
of aluminum. Although it took the Korean War
mobilization requirements to trigger the doubling
of primary capacity since 1950, defense uses now
account for comparatively little of the nation’s
current aluminum consumption. In 1952, about
30 percent of the nation’s aluminum supply went
into direct defense uses; in 1955, it is estimated
that direct military applications used less than
10 percent.
This remarkable increase in aluminum con­
sumption for a wide variety of uses has not been
restricted to the United States. Europe has ex­
hibited an exceptionally strong demand for alu­
minum, relying to a large extent on Canadian
production. In fact, European consumption,
while not as large absolutely, has been increasing
more rapidly than that of the United States in
recent years. Europe currently uses slightly more
than half as much aluminum as the United States.
Production has not kept pace with consumption
in Europe, as it has in the United States, with the
result that Europe has become a much heavier
net importer than formerly. Germany, Austria,
and Belgium have experienced a sixfold increase
in consumption since 1949, while Italy has more

T able 1
A l u m in u m

C o n s u m p t io n ,S e le cte d A r e a s
( in to n s )

C ou n try
U n ite d S t a t e s .......................................................................................
C a n a d a .....................................................................................................
S ou th A m e r i c a ....................................................................................
T o t a l A m e r ic a ...............................................................................
T o ta l E u ro p e ..................................................................................
T o ta l A s i a .........................................................................................
A u stralia ................................................................................................
R u ssia .....................................................................................................
T o ta l as r e p o r t e d ...........................................................................

1948
684,600
6 5 ,4 0 0
19,800
769,800
397,500
12,300
5,500
110,000*
1,295,300

1950
896,400
6 5,200
23,100
9 84 ,700
411 ,200
2 7,100
6,900
2 30 ,800 *
1,660,700

19S2
1,072,300
90,300
27,600
1,190,200
631 ,900
4 2,000
9,000
253,500*
2 ,1 26,600

1954
1,696,900
78,200
25,000
1,800,000
735,000
58,600
14,000
305 ,000 *
2,912,700

1956
1,778,000
91,900
30,000
1,899,900
961,200
83,200
21,900
485,000*
3,451,200

*Estim ated b y Am erican Bureau o f M etal Statistics.
Source: Am erican Burreau o f M etal Statistics, Yearbook o f the A m erican Bureau oj M eta l Statistics, 1956.




1 45

FE DE RA L R E S ER V E B A N K O F S A N F R A N C I S C O

than doubled its use. The United Kingdom re­
mains the largest European consumer, using in
excess of 300,000 tons per year. The need to con­
serve dollars has probably held down aluminum
purchases by European importers. Some Euro­
pean firms have recently instituted plans to pro­
duce aluminum in Africa for the purpose of
relieving dependence on dollar imports. Since the
ratio of aluminum use relative to other metals is
still low in Europe as compared with the United
States, a huge potential increase exists in that
market.
Growth in aluminum consumption in the Unit­
ed States, however, has not had an equal any­
where in the world. The increase in United States
consumption from 1949 to 1955 almost equals
current total consumption in Europe. From 1948
to 1956, aluminum consumption in the United
States rose from 684,600 tons per annum to
1,778,000 tons, a gain of 160 percent as com­
pared with gains of 11 percent, 0 percent, and 21
percent for copper, lead, and zinc, respectively.
Part of this huge consumption increase has been
satisfied by importing aluminum. Although the
United States is the world’s largest producer of
aluminum ingot, considerable reliance is placed
on imports for supplies, particularly from Can­
ada. The proportion of United States consump­
tion derived from imports has declined somewhat
within the last decade because of increased Unit­
ed States production and increased foreign con­
sumption. (Table 2)
T able 2
U n it e d S t a t e s N e t I m p o r t s o f A l u m i n u m

Year
1949
1950
1951
1952
1953
1954
1955
1956

N et imports
(000 tons)
90,521
.... 234 ,144
.... 144,707
.... 140,505
.... 345,058
............................................. .... 194,308
.... 206,885
.... 198,806

N et imports
as percent
of total
consumption
14.3
26.1
14.8
13.1
22.4
11.4
11.8
10.7

Source: Am erican Bureau o f M etal Statistics, Yearbook o f the Am er­
ican Bureau o f M eta l Statistics, 1956, p . 104.

Desirable Characteristics of Alum inum
The increase in the use of aluminum has been
the result of its combination of technical proper­
ties and its relative cost. One of its outstanding
146




technical features is its low density relative to
copper, lead, steel, zinc, and nickel. It is approxi­
mately one-third the weight of those metals, and
only magnesium, of the commercially important
metals, is lighter than aluminum. In addition,
pure aluminum is highly resistant to corrosion, is
malleable, and lends itself readily to extrusion
processes. Aluminum also possesses good ther­
mal and electrical conductivity.
In pure form aluminum is a relatively low
strength metal which would be limited in use. By
alloying it with other metals such as copper, mag­
nesium, manganese, iron, zinc, and chromium,
however, a great range of different properties
can be obtained. Some aluminum alloys are pro­
duced that approximate the tensile strength of
mild steel, for example. Mild steel is about one
and one-half times stronger than alloyed alumi­
num but three times heavier, volume for volume.
On a strength-weight basis this aluminum would
be twice as strong as steel. Fatigue strength,
shearing strength, elasticity, and other properties
would determine usage in various applications.
Aluminum alloys possess different combinations
of properties and do not always retain all of the
good characteristics of the pure metal. Although
pure aluminum is highly corrosion resistant, in
alloyed form it has suffered from salt water cor­
rosion. Great progress has been made in this area
recently, however.
Another important feature of aluminum is the
excellent machinability of many of its alloys. In
many instances, a fully machined aluminum al­
loy casting costs less than the same finished prod­
uct made of iron. The iron casting may cost onetenth as much in the rough form ; but the ease of
machining and handling aluminum often saves
sufficient time, labor, energy, and materials to
bring the final cost below that of iron.
In discussing the technical properties of alumi­
num it should be recognized that the metal is
almost always used in the form of alloys. These
alloys possess different combinations of charac­
teristics which make them more suitable for par­
ticular applications. The use of aluminum in any
particular application depends upon the require­
ments and its relative ability to satisfy these with
respect to cost and technical qualities compared

M ON TH LY REVIEW

October 1957

C hart 1

P E R C A P I T A C O N S U M P T I O N OF S E L E C T E D

METALS

1953-55 AVERAGE
2 7 .7

*T h e aluminum figures are for W est Germ any o n ly ; the other figures are for all o f Germany.
N ote: T he figures above the circles refer to total per capita consum ption o f the four metals; the figures within the circles are percentages of
that total.
Source: Am erican M etal M arket, M eta l Statistics, 1957, for metal consum ption statistics; U nited N ations, Yearbook o f th e United N ations,
1957, for population statistics.

to other metals. Nevertheless, the versatile quali­
ties of aluminum and its decreasing relative cost
make it a metal of growing attractiveness to a
widening range of users.
C h a n g in g A p p licatio n s

Aluminum now holds the No. 1 output posi­
tion in the nonferrous field and is second only to
iron and steel in the entire metals world. There
are now over 4,000 end-uses of aluminum, rang­
ing from wrapping foil to heavy industrial forg­
ings. One of the most salient factors about alu­
minum is its wide range of uses, a range which
seems to expand almost daily.




The Aluminum Association regularly compiles
figures on the shipment of wrought products by
various classes such as building materials, con­
sumer durable goods, and transportation equip­
ment. Building materials led the entire field of
civilian uses during 1956 as they have in every
year since 1946. Statistics compiled by the Alu­
minum Association show that building materials
lead, with 19.0 percent of all wrought aluminum
mill products shipped during the first half of
1956, followed by transportation applications
(17.4 percent), consumer durable goods (13.0
percent), electrical uses (7.8 percent), commer­
cial and industrial machinery and equipment
147

F ED E RA L R E S ER V E B A N K O F S A N

(6.2 percent), and packaging and containers
(4.4 percent)1. Since wrought aluminum prod­
ucts account for about 80 percent of aluminum
shipments, the distribution of wrought aluminum
for end-uses of consumption is an accurate de­
scription of the consumption pattern within broad
lines.
Although detailed changes in the consumption
pattern of aluminum are not available on a his­
torical basis, some qualitative appreciation of
the changes in aluminum consumption patterns
is revealing. In practically every field aluminum
is securing a firmer foothold.
Building materials

Since 1950, aluminum consumed in building
and construction applications has doubled. Roof­
ing and siding, door frames, window frames,
molding and trim, awnings, curtain walls, build­
ers’ hardware, insect screening, and foil insula­
tion constitute some of the uses in the building
field. Door and window frames, however, now
constitute the largest single end-use of aluminum
in the building industry. Until the mid-1930’s
aluminum windows were premium-priced side­
lines and were made only by a few companies
whose principal product was ornamental metal­
work. Today aluminum is estimated to account
for 30 percent of all new window frame installa­
tions in the United States. Aluminum’s corro­
sion resistance is its main advantage in this ap­
plication.
Builders’ hardware is another fast growing ap­
plication of aluminum in this field. The metal was
not used in builders’ hardware to a significant
extent prior to 1952. In 1953 and 1954 it is esti­
mated that at least 10 percent of all builders’
hardware was made of aluminum. Aluminum
hardware, however, has met some resistance at
the residential level because of the quality con­
notation associated with the appearance of brass.
The employment of aluminum as the outer wall
covering for commercial buildings also seems to
find increasing favor, although this development
is quite recent. Use of aluminum curtains and
panels allows a reduction in footings and outside
scaffolding and generally speeds construction.
1 These figures are obtained from the Alum inum Association R elease
of October 24, 1956.

148




FRANCISCO

Transportation

Although the transportation field has dropped
to the second most important outlet for alumi­
num, it still has been growing rapidly. Alumi­
num finds important uses in aircraft, railroads,
and motor vehicles in addition to growing usage
in marine transportation.
The application of aluminum in aircraft is one
of its most important military uses. Planes made
today average 75-85 percent aluminum. As mili­
tary aircraft speeds increase, however, aluminum
may lose out in this field to titanium and stain­
less steel. Air friction at supersonic speeds gen­
erates so much heat that aluminum loses its
structural properties, but the aluminum industry
is trying to develop alloys capable of withstand­
ing high operating temperatures and has report­
ed some success in recent months.
The most promising market for aluminum in
the transportation industry probably lies in the
automotive field. The use of aluminum per auto­
mobile averaged about 35 pounds in 1956, as
compared with slightly more than 12 pounds in
1954. One large auto company used 65 pounds
in its 1954 models. Each El Dorado Cadillac
used 197 pounds of aluminum in 1956. Pistons,
axle housings, automatic transmissions, body
trim, window frames, and ignition system com­
ponents are often made of aluminum. Aluminum
pistons are now used in all American automobiles
because of their low weight and good thermal
conductivity. The largest single use of aluminum
in motorcars is in the torque-converter-type au­
tomatic transmission. Indicative of the trend to
aluminum in the automotive field has been the
construction of two automobile foundries adja­
cent to aluminum smelters that will deliver the
molten metal directly.
The bus and trucking field presents a slightly
different picture. Aluminum already represents
15-25 percent of the total weight of modern
buses. Aluminum’s lightness is desirable in large
buses to allow them to meet legal weight limits
and to increase the effective capacity of tires,
brakes, axles, and springs. Aluminum is used for
the same purpose in tractor trailers. It has been
estimated that the higher initial cost is offset by
increased payloads within one year.

October 1957

M ON TH LY REVIEW

Railroad equipment manufacturers have also
greatly increased their consumption of aluminum
since W orld W ar II. The amount used per car
varies from “ all-aluminum” cars to the more con­
ventional types where aluminum is used for trim
design, accessories, and other minor components.
In freight car construction aluminum is still
largely experimental except for specially de­
signed tank cars and special purpose cars. The
railroad field seems to offer a large potential de­
mand, especially in rolling stock.
Marine transportation has been the least im­
portant outlet for aluminum in the transporta­
tion field because of the problems that aluminum
encountered with marine corrosion. Progress in
the application of aluminum has been notable in
this field only within the last 20 years. Today,
however, aluminum is being applied in shipbuild­
ing and marine components where wood and steel
were previously the only materials used. In gen­
eral, one ton of aluminum can be utilized to do
the job which otherwise would require two tons
of steel. In naval vessels, this means greater fuel
capacity, and hence longer operating ranges; in
mercantile vessels, a larger cargo at equal or
lower power output.

This broad market includes general purpose
industrial machinery, such as process tanks, pres­
sure vessels, engine components, compressors;
special purpose machinery, such as textile indus­
try machinery and petroleum refining machinery;
metal working machinery, including machine
tools, jigs, and fixtures; agricultural machinery,
including irrigation pipe; and a wide variety of
other uses. These are all applications that at one
time were handled by other metals.

Consumer durable goods

Containers and packaging

This field was one of the first major outlets for
aluminum. Although aluminum cooking utensils
are still quite popular, this field now covers such
applications as household appliances, furniture,
lighting fixtures, toys, lawn mowers, and Vene­
tian blinds. Over the years aluminum has en­
joyed growing markets in the consumer durable
fields not only by wider application but by the
growth in the field of consumer durables them­
selves.

Aluminum’s versatility is shown in its impor­
tance in the field of packaging and containers.
Foil production has been increasing rapidly, indi­
cating the strong demand for aluminum for pack­
aging. Shipments of foil increased from not quite
43,000 tons in 1952 to 76,000 tons in 1955.
Aluminum foil packaging provides excellent ap­
pearance plus economical protection for many
products. A promising outlet in the container
field is that of cans for foodstuffs. Experiments
indicate that satisfactory cans of aluminum alloy
or aluminum-clad steel can be produced by con­
ventional can-making machinery with minor
modifications. Thus far such cans have not been
competitive pricewise. Even the capture of a
small part of the can market would open up a
large new outlet for aluminum in a field that is
growing rapidly.
It is obvious that aluminum has a wide and ex­
panding range of application. Not only are its
older outlets expanding, but it is enjoying growth

Electrical markets

Aluminum has long been making inroads on
copper as the leading material for conducting
electricity. Virtually all power systems make
some use of aluminum in the transmission and
distribution of electric power. Bare aluminum
conductor has accounted for the preponderant
portion of aluminum used in this field. The prin­
cipal types are all-aluminum cable and ACSR
(aluminum conductor steel reinforced), the lat­




ter consisting of aluminum wires stranded around
a steel core. A C SR combines the high conduc­
tivity and light weight of aluminum with the
strength of steel. It is estimated that more than
90 percent of all new transmission lines in the
United States and most rural distribution lines
use aluminum. Weight for weight, aluminum
possesses twice the electrical conductivity of cop­
per. Aluminum is not so widely used in urban
distribution lines because it is bulkier than cop­
per and requires more insulation material when
used in highly urbanized areas. In addition, alu­
minum finds diverse uses in various types of elec­
trical, electronic, and communications equipment.
Machinery and equipment, except electrical

149

FE DE RA L R E S E R V E B A N K O F S A N F R A N C I S C O

in new fields. Nevertheless, aluminum not only
has formidable competition from well established
metals, but will be faced with competition from
newly emerging metals.
Com petition From N ew M etals
Aluminum is now facing, in a sense, the same
problems that the older, established metals faced
when aluminum first made its appearance. Alu­
minum forced its way into the province of wood,
steel, copper, tin, and glass in a wide variety of
fields. Only in the aircraft industry did it satisfy
a need that could not easily be satisfied by an­
other product. Although aluminum is still find­
ing new uses at a rapid pace, it will face compe­
tition in certain specialized uses from well-known
metals like magnesium and stainless steel as well
as from the so-called new wonder metals like
titanium, zirconium, and columbium.
Stainless steel

Stainless steel, like aluminum in its infancy,
was associated with eating and cooking utensils.
Like aluminum, it has now been adapted to a
wide variety of industrial uses. In fact, stain­
less is invading the aircraft field, long an alumi­
num monopoly. At speeds above 1,150 miles per
hour aluminum alloys lose their strength from
the terrific heat generated by air friction. Stain­
less steel performs even better at high tempera­
tures than titanium, the highly touted wonder
metal. In addition, stainless steel is competing
with aluminum in the building and transporta­
tion fields. Both products have certain technical
qualities that will always prevent either from dis­
placing the other, but in many uses price will be
the determining factor.
Magnesium

Magnesium has long been heralded as the ma­
jor competitor of aluminum, but after 36 years it
is still a minor factor in the metals market. Only
one company was engaged in the production of
magnesium at the end of 1956. The peak primary
production was reached in 1943 when 183,584
tons were produced. The production reached a
low of 5,317 tons in 1946 and then rose to a new
high of 105,821 tons in 1952. Production dropped
to only 61,135 tons in 1955 but increased to 68,150




345 tons in 1956. The United States produces
close to half of the world output.
Even though magnesium can be obtained at
moderate cost in unlimited amounts, its large
scale use awaits technical improvement in alloy­
ing and fabricating the metal. One feature of
magnesium is that it can be produced from do­
mestic resources. Magnesium is the lightest of
all structural metals in common use. It is twothirds the weight of aluminum and less than onefourth that of steel. Its largest use is as an alloy
in aircraft construction for secondary airplane
structures, structural parts, engines, and wheels,
where stresses are sufficiently mild to permit its
use rather than that of stronger but heavier alu­
minum alloys.
It competes with aluminum in flooring, frames,
and bodies of trucks and trailers and is used also
in ladders, tools, and other light equipment. Its
most promising structural uses are in fields where
lightness and rigidity offer economies over heavi­
er metals, although its relative weakness is a
problem. In addition, magnesium has suffered
from corrosion problems and inflammability. Dif­
ficulties have been encountered in machining be­
cause of its tendency to ignite. In structural
shapes of thick cross-section, the corrosion fac­
tor is minimized; and magnesium should prove
of great value where light weight is vital.
It is apparent that much more work is needed
on magnesium before it becomes a serious com­
petitor to aluminum. Development of an alloy with
better corrosion resistance or the discovery of a
satisfactory coating for magnesium could lead to
a rapid increase in magnesium consumption.
Contact with iron, copper, and aluminum causes
serious corrosion of magnesium, most severe in
the case of iron and progressively less with the
other two metals. Magnesium could conceivably
be a strong competitor of aluminum, but this de­
velopment will be dependent on technological
changes.
Although aluminum took many years to be­
come commercially important after its discovery,
and magnesium has not reached major impor­
tance, two new metals may be able to circumvent
the long adaptive process that aluminum endured.
The urgency of defense needs, the rapid develop­

October 1957

M ON TH LY REVIEW

ments in atomic energy, and aircraft development
have opened needs that cannot be satisfied with
the older metals. As a result, metals like tita­
nium and zirconium are being produced to satisfy
certain technical needs almost regardless of cost.
Titanium, like aluminum and magnesium, is a
common ingredient of the earth’s crust but oc­
curs nowhere in the native state. Titanium com­
pounds have been used for some time, especially
by the paint industry; but metallic titanium was
not produced commercially until very recently,
when the Bureau of Mines announced that it had
succeeded in developing a commercial process.
Titanium

It was not until 1938 that the Bureau of Mines
began investigating the technology of titanium
and conducted a survey and small-scale trial of
virtually all suggested methods for producing ti­
tanium. Interest was aroused after the Bureau
of Mines’ demonstration that ductile titanium
could be produced on a pilot-plant scale and fol­
lowing distribution of free titanium samples for
property and use studies. The world’s first smallscale commercial production of ductile titanium
metal was begun at Newport, Delaware, by the
E. I. duPont de Nemours Company, July 1948.
Limited commercial availability was announced
by duPont in September 1948. The National
Lead Company soon followed in the field by con­
structing two pilot plants in Sayreville, New Jer­
sey and Niagara Falls, New York. In 1950, Na­
tional Lead Company and Allegheny Ludlum
Steel Corporation organized the Titanium Metals
Corporation of America to produce and market
titanium metal, alloys, and related products. The
site of the new operation was the former Basic
Magnesium plant at Henderson, Nevada, built
by the government during W orld W ar II. An­
other titanium plant is operated in Nevada at
Boulder City by the Federal Bureau of Mines.
Five companies are now producing titanium and
two more have indicated plans to enter the field.
Production was up to 14,000 tons in 1956, a
large increase over the few pounds produced in
1948. Most of this production was purchased by
the government for use in the aircraft industry,
which has special uses for a metal with titanium’s
combination of characteristics.




Titanium is light, strong, and highly corrosion
resistant, particularly in marine atmospheres. It
is about 42 percent lighter than stainless steel,
but it is nearly as strong and has comparable re­
sistance to corrosion in general and superior re­
sistance to marine corrosion. It can be machined
and drawn into wire or sheets and has a greater
ability to withstand mechanical shock and abra­
sion than many of the best alloy steels. As
compared to aluminum, titanium is significantly
stronger for its weight, is much harder, and even
less susceptible to corrosion. Titanium alloys lose
their strength characteristics rapidly at tempera­
tures above 800° Fahrenheit but are better than
competitive materials at working temperatures
between 400° and 800° Fahrenheit.
The great drawback as yet is its expensive re­
duction process and the difficulties in fabricating
the metal. Titanium is currently selling at about
$2 per pound. Production has expanded rapidly
since 1948, however, when it was first produced
outside the laboratory. By the end of 1956, total
United States capacity had reached 25,000 tons
per year. Mill products of titanium are currently
ten times more costly than those of stainless steel,
its closest competitor. The Air Force consumes
over 90 percent of the titanium that is produced
today and indicates a need for more.
Although titanium definitely has a secure fu­
ture usage, its rate of acceptance and production
will depend on lowering the cost of extracting
titanium from its ores and a large reduction in
its fabricating costs. Fabricators, who are still ex­
perimenting with alloy types, must turn out the
kind of mill products which the aircraft makers
and other industries want for future designs. A l­
though technically titanium could be a strong
competitor for aluminum, it will be some years
before its potential is realized because of its high
relative cost.
Conclusion
One of the striking features of aluminum has
been its price movements during the past 15
years. In contrast to most other metal prices,
aluminum decreased in price during the war
years, dropping from 20 cents per pound in 1939
to 15 cents by 1943. Aluminum prices remained
151

FE DE RA L R E S ER V E B A N K OF S A N

FRANCISCO

C hart 2
at 15 cents per pound until
1948 and did not reach their
A N N U A L A V E R A G E P R I C E S OF S E L E C T E D M E T A L S
1939 level again until 1953.
Throughout 1956 alumi­
num was selling at approxi­
mately 25 percent more than
its 1939 price while the com­
parable percentage rises for
copper, lead, zinc, tin, and
steel billets were 300, 200,
130, 90, and 125 respec­
tively. Aluminum is now
cheaper relative to copper,
lead, and zinc than through­
out most of its history. Re­
cent declines in copper, Source: Am erican M etal M arket, M eta l Statistics, 1957.
te : C opper figures from 1941 through 1947 exclude governm ent bonus paym ents to marginal pro­
lead, and zinc have reversed N oducers;
zinc prices from 1942 through 1947 exclude governm ent bonus paym ents to marginal producers.
the trend somewThat, but
capacity will expand severalfold to meet this
aluminum is still in an advantageous price posi­
demand.
tion relative to the prewar period. Additional
In a report titled International Trade, 1956,
production can probably be obtained without its
the contracting parties to the General Agreement
becoming more expensive relative to other metals.
on Tariffs and Trade (G A T T ) exhibit a similar
On balance, the prospects for increased alumi­
optimism about the future demand for aluminum
num consumption are quite good. It is continu­
in Europe by 1973-75. Output of aluminum in
ally finding new and expanding uses in the con­
Western Europe is expected to climb by 60 per­
struction, transportation, electrical machinery
cent or some 300,000 tons from 1953-55 levels.
and equipment, packaging, and durable goods
Imports of aluminum are expected to rise to 1.1
fields. Europe is undergoing the same revolution
million tons for an increase of 800 percent. The
in the use of aluminum as the United States but
G A T T report forecasts that supply will increase
has had a later start. As long as manufacturing
more
than demand in North America and that
and construction activity hold up, aluminum will
North American exports may increase almost
find increasing markets, especially with its low
fourfold. On the basis of these long-run forecasts,
current price relative to competing metals.
present aluminum capacity will be quite inade­
The President’s Materials Policy Commission
quate to satisfy demand within the next 25 years.
Report published in 1952 foresees a demand of
The article to follow will discuss the factors
4.5 million tons of aluminum by 1975, or almost
influencing the location of reduction plants and
three times the level of United States consump­
the forces that may alter the present cost struc­
tion in 1956. The commission expects that alumi­
ture influencing the concentration of aluminum
num’s relative price will become even more at­
reduction centers. Special attention will be de­
tractive although aluminum producers in the
voted to the Pacific Northwest as a location for
United States are facing higher power costs in
aluminum reduction and the future role it is
their more recent additions to capacity. The Pol­
likely to play in the United States aluminum in­
dustry.
icy Report concludes that United States primary

152




FEDERAL

October 1957

RESERVE

BANK

OF

SAN

FRANCISCO

BUSINESS INDEXES — TWELFTH DISTRICT1
( 1 9 4 7 - 4 9 average =

100)
Total
nonagri­
cultural
employ­
ment

Industrial production (physical volume)*
Year
and
month

Lumber

Petroleum3
Refined
Crude

Cement

Lead3

Copper3

Electric
power

1929
1933
1939
1948
1949
1950
1951
1952
1953
1954
1955
1956

95
40
71
104
100
113
113
116
118
111
121
116

87
52
67
101
99
98
106
107
109
106
106
105

78
50
63
100
103
103
112
116
122
119
122
129

54
27
56
104
100
112
128
124
130
133
145
156

165
72
93
105
101
109
89
87
77
71
75
77

105
17
80
101
93
113
115
112
111
101
117
118

29
26
40
101
108
119
136
144
161
172
192
210

1956
A u gu st
Septem ber
O ctob er
N ov em b er
D ecem b er

117
112
110
111
112

105
104
104
104
103

128
136
128
135
132

171
168
163
146
139

84
78
81
79
72

123
122
127
123
123

108
115
115
111
111
114
109

102
102
101
101
101
101
101
101

131
130
132
132
138
131
133
137

120
127
140
154
157
152

79
88
88
78
82
75
68r
71

125
138
133
135
126
130
133
142

1957
January
F eb ru ary
M a rch
A p ril
M ay
June
July
A u gu st

Total
mf’g
employ­
ment

Car­
loadings
(num­
ber)2

Dep’t
store
sales
(value)2

Retail
food
prices
S. 4

Waterborne
foreign
trade3* 6
Exports

Imports

i0 2
99
103
112
118
121
120
127
134

‘ ‘ 55
102
97
105
120
130
137
134
143
152

102
52
77
100
94
97
100
101
100
96
104
104

30
18
31
104
98
105
109
114
115
114
122
129

64
42
47
103
100
100
113
115
113
113
112
114

190
110
163
86
85
91
186
171
140
131
164
195

124
72
95
98
121
137
157
200
308
260
308
443

212
209
217
216
210

135
135
136
137
138

153
153
154
156
159

101
107
102
100
106

131
131
130
132
131

114
114
115
116
116

207
212
256
242
234

500
459
563
401
436

220
211
221
228
229
239
238

139
138
138
138
138
139
138
137

160
159
159
159
159
160
159
157

105
96
100
103
99
101
94
105

131
127
133
127
126
131
133r
130

116
117
116
117
117
118
118
118

237
269
267
298
283
253

421
417
489
534
698
511

BANKING AND CREDIT STATISTICS — TWELFTH DISTRICT
(a m o u n ts in m illio n s o f d o lla r s )
Condition items of all member banks6
Year
and
month

Loans
and
discounts

U.S.
Gov’t
securities

Demand
deposits
adjusted7

Total
time
deposits

2,239
1,486
1,967
5,925
7,093
7,866
8,839
9,220
9,418
11,124
12,613

495
720
1,450
7,016
6,415
6,463
6,619
6,639
7,942
7,239
6,452

1,234
951
1,983
8,536
9,254
9,937
10,520
10,515
11,196
11,864
12,169

1,790
1,609
2,267
6,255
6,302
6,777
7,502
7,997
8,699
9,120
9,424

1956
S eptem ber
O ctob er
N ov em b er
D ecem b er

12,423
12,384
12,504
12,804

6,491
6,468
6,431
6,383

11,581
11,747
11,867
12,078

9,305
9,326
9,235
9,356

1957
January
Febru ary
M a rch
A p ril
M ay
June
July
A u gu st
Septem ber

12,488
12,556
12,576
12,649
12,694
12,911
12,912
12,945
13,178

6,505
6,356
6,177
6,520
6,315
6,249
6,319
6,313
6,293

11,812
11,279
11,129
11,622
11,210
11,310
11,407
11,329
11,561

9,587
9,690
9,794
9,839
9,995
10,155
10,188
10,220
10,301

1929
1933
1939
1949
1950
1951
1952
1953
1954
1955
1956

Member bank reserves and related items
Bank
rates on
short-term
business
loans8

Factors affecting reserves:
Reserve
bank
credit9

_
—
+
+
+

3.20
3.35
3.66
3.95
4.14
4.09
4.10
4.50

+

4.57

+

4.65

4.74

—

+
+

—
—

+
+

—
—
—

+
4.81
5.21

+

Commer­
cial10

Treasury10

34
2
2
13
39
21
7
14
2
38
52

0
110
192
930
- 1 ,1 4 1
- 1 ,5 8 2
- 1 ,9 1 2
- 3 ,0 7 3
- 2 ,4 4 8
- 2 ,6 8 5
- 3 ,2 5 9

+
+
+
+
+1
+1
+2
+3
+2
+2
+3

23
150
245
378
198
983
265
158
328
757
274

3
5
0
17

-

454
417
143
303

+
+
+
+

466
312
209
451

33
41
37
35
56
29
49
50
109

-

558
816
170
445
261
374
426
145
434

+
+
+
+
+
+
+
+
+

249
494
170
430
209
402
320
292
480

M oney in
circu­
lation9

_
—
+

—
+
+
+
+

—
—
+
+

6
18
31
65
14
189
132
39
30
100
96

175
185
584
1,924
2,026
2,269
2,514
2,551
2,505
2,530
2,654

42
18
30
102
115
132
140
150
154
172
189

59
2
38
38

2,640
2,542
2,579
2,654

182
195
195
200

2,548
2,517
2,495
2,560
2,526
2,483
2,457
2,592*
2,581

206
200
199
202
200
203
205
197
204

— 144
— 139
— 9
— 31
+
+
+
+

Reserves11

Bank
debits
Index
31 cities3* “
(1947-49=
100)*

54
20
6
39
30

1 A d ju s te d fo r seasonal variation , e x ce p t w here in dica ted . E x ce p t fo r depa rtm en t store statistics, all indexes are based u pon data fro m outside sources, as
fo llo w s : lum ber, C a liforn ia R e d w o o d A sso cia tio n an d U .S. B u rea u o f the Cen sus; petroleu m , cem ent, co p p e r, and lead, U .S. B u reau o f M in e s; electric
pow er, F ederal P ow er C om m ission ; n on a gricultural and m an u factu rin g em p lo y m e n t, U .S. B ureau o f L a b o r S tatistics and co o p e ra tin g state agencies;
retail fo o d prices, U .S . B u reau o f L a b o r S ta tistics; carloadin gs, v ariou s railroads and railroad associa tion s; and foreign trade, U .S. B u rea u o f the Census.
* D a ily average.
* N o t ad ju ste d fo r seasonal variation .
4 L os An geles, S an F ran cisco, an d S eattle indexes com bin ed .
6 C om m ercia l
ca rgo on ly, in ph ysical volu m e, fo r L o s A n geles, S an F ran cisco, San D ie g o , O regon, and W a sh in gton custom s d istricts; starting w ith Ju ly 1950, “ spe­
cia l c a teg ory ” e x p orts are exclu ded because o f se cu rity reasons.
8 A n nual figures are as o f end o f year, m o n th ly figures as o f last W edn esda y
in m on th .
7 D e m a n d d eposits, exclu d in g in terb an k an d U .S. G o v ’ t d eposits, less cash item s in p rocess o f co lle ctio n . M o n th ly data p a rtly esti­
m ated.
8 A v e ra g e rates on loans m ade in five m a jo r cities.
9 Ch anges fro m end o f p r e v io u s m o n th o r year.
10 M in u s sign
in d ica tes flow o f fu n ds o u t o f the D is tr ic t in the case o f com m ercial operations, and excess o f re ceip ts o v e r disbursem ents in the case o f Treasury
op eration s.
11 E n d o f year an d end o f m o n th figures.
12 D e b its t o to ta l dep osits ex ce p t in terb an k p rio r t o 1942. D e b its t o dem and
dep osits ex cep t U .S. G o v e rn m e n t and in terb an k deposits from 1942.
p— Prelim inary.
r— R ev ised.

152A