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V

Works Progress Administration
F. C. HARRINGTON, Administrator

PRICE DISPERSION
AND
INDUSTRIAL ACTIVITY,

1928 - 1938

)
CORRINGTON GILL
Assistant Adm In lstrator

EMERSON ROSS
Director , Division of Statistic•
and Economic Research


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Federal Reserve Bank of St. Louis

FEBRUARY 1939
WASHINGTON, D. C.

M•l765

Prep ared by
Walt er G. Kelm

Economic Research Sect ion
Arth ur E. Burn s, Chie f . - .-


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Federal Reserve Bank of St. Louis

_ __

11111111111111111111 ~111111111111111111111
3 5001 00031 910 0
M-1765

In the depression of

deal of attention in recent years.

1930-33 price relationships were badly distorted; again in
the decline in 193? this distortion reappeared.

Some prices

remain relatively inflexible during the decline in business,
while other prices show enorm.ous drops•
business
indexes

On

the uptum in

the flexible prices advance very rapidly and the
of these prices often go well beyond those

of the

inflexible price groups.
The economic significance
groups cannot be ignored.

of

these changes

A rapid increase

in

price

in some price

groups leads to a distortion of price-cost relationships and
threatens the expansion of production and the maintenance of
employment.
riod

On

the other hand, the disparities during ape-

of declining production and

employment aggravate de-

pression conditions and contribute to wiemployment.
Price movements and price disparities cannot be singled
out as the causes

of the ups and downs

of business.

are, however, important contributing factors, and, in
cases, perhaps the decisive factors.

During

They_
some

the depths of

l/This report has drawn upon a more comprehensive study of
the subject now in preparation by Mr. J.M. Cutts, of the
Bureau of Iabor Statistics, and Mr. Walter G. Keim,of the
Works Progress Administration.


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Federal Reserve Bank of St. Louis

M-1765

2

the 1930-33 depression, prices were far
During the

recovery period 1934-36,
1

their predepression relationships.

out of

balance.

price groups approached
Farly in 1937 price dis-

persion again developed and was followed by a sharp drop in
production.

Chart I shows the index of price dispersion and

the index of industrial production. A decrease in price disparity in 1938 was accompanied by an upturn in production.

:tt

is difficult to select a base year or base period in

which ideal relationships exist among all


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prices.

In

one

industry conditions may be favorable to the maintenance of alarge volume of production and consumption. In another industry unfavorable conditions may prevail.

There are, however,

uniformities in the movement and characteristics of individual price series,and combinations of price levels which DEi' be
taken to represent an approximation to price balance.

It is

a familiar thesis1hat certain relationships among prices are

more conducive to satisfactory industrial records of enployment, production, and profits than are other relationships.
Various investigations of the relative soundness of the
price structure have utilized the principle of price dispersion.

The present study is limited to a statistical examina-

tion of the dispersion of price relatives as a means . of .describing and summarizing the varie~ trendsc£ ;oommodity prices
over the last decade.

This measure, of course,

is only one

of many criteria of price balance.

M•l765

The Measurement of Price ·Dispersion
Frederick
the field.

y

c.

Mills has

done the

most extensive work in

Among others who have investigated this aspect

of price analysis., F. Y. Edgeworth utilized as the measure
of dispersion the

so-called "modulus"., which is -the standard

y'

deviation multiplied by the
Mitchell made effective

square root

use of deciles.

of 2.

;J

employed the mean deviation in his analysis.

Wesley

c.

Dr. Silverstolpe

£J

Irving Fisher

has used the standard deviation computed from relative prices

21

and from logarithms of relative prices. ·

Norman Crump originally experimented with the arithmetic

y

standard deviation and the logarithmic deviation.
practical compilations utilized the
of variation
rived from the

and

a measure of

.

His most

arithmetic coefficient

the "angle of deviation de-

standard deviation and the arithmetic

Y,The Behavior of Prices,

Chap. III,

Sec. IV,

mean."

PP• 251-85.

a/Memoranda in Papers Relating to Political EeonontV (Lomon:
Macmillan & Co., 1925), Vol. I.
l/Business Cycles (Univ. of Calif. Press, 191J);and The Mak,ing and Using of Index Numbers (U. s. Dept. of Labor, Bur.
of Labor Stat. Bull. 284, 1921) 1 Part I.

!z/Dr.

Silverstolpe 1 s measures have been published in the
Goteborgs Handels och Sjofarts-Tidning.

,2/The Making of Index N~bers, A Study of Their Varieties,
Tests., and Reliability (3d ed • ., Boston:
Houghton Mifflin
Co., 1927).
fl/"The Interrelation and Distribution of Prices and Their
Incidence Upon Price Stabilization," Journal of the Royal
Statistical Society, ~924, Vol. 87, Part II. Mr. Crum.p's
measures of dispersion are now published currently in the
Financial 'l':i.me s of Iondon.


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M-1765

INDEXES OF WHOLESALE PRICE DISPERSION AND INDUSTRIAL PRODUCTION
INDEX OF
PRODUCTION

INDEX OF
DISPERSION

11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 1350

r - -r - - 1 - - -r -- i --=---:V"\ - 1---1--- t-- --+---+---+--~---;-----l300

r--r--1---t--i-,J-.- -\-.t1- t--T---:i - ~~~oorn1---+---i---l--J- -_J250
r--r--1---t,--:::11---r~~+~\---t---+----+---i---l--J___J200
r -- r --:- 1 --=~~--1--+- - -~ - )!_it~d~b~ - +~1-~~=--=t---L--J 150

,oo~?,~~,,,c:=_l
_ -t_ +-+- + - +-~~~+-~L_j_ _J
I""
90
80

r :;.._~----,~-r-+---+--+-----+---t-d L--1
\

70

~

'

50

~F PRODUCTION
I

.

\
II \

,..,

\
&O L THE IIEASUIIE or 01sPERs10N
I

100

1s THE WEIGHTED AVERAGE
or THE DEV I ATl ONS or THE 45 COIIIIOO I TY SUBOIIOUP

I

\
f

\

y

PRICE INDEXES rROII THE All C~OITIES INDEX
(BUREAU or LABOR STATISTICS WHOLESAL[ PRICE
INOEXES, 1926 •

100.0).

THE INOEX o r DISPERSION

50 ~ ~~: 1~~~~~\!\:~v:~~:~o~H~E~:;~~~ ~~E~: : .
40 ~

V

THE PRODUCT I ON I NO(XES OH THE I 929 BASE WERE
CO MPUTED rROII THE rEOERAL RE SERV E BOARD
INDEXES (1923 - 1925 •
SEASONAL VAR I ATI ON.

100.0) ADJ USTED rOR

30~11,l,1,,,l,,,,,l,,,,,l,,,,1l,,1,1l1,111l1,,,1l,111,l11,,,1,,,,,l1111,l1,,,,1,,,,,l,,,,,1,,,,,l,,1,,l,,,,1l,,,,,1,,,,,l,,,,,l11111l,,11,l11111l,,,,,l,,1 11
1928


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1929

1930

1931

1932

1933

1934

X

►
:;;g

....
H

~,...,-I

\
\

n

1935

1936

1937

1938

1939

1940

Works Progress Administration 3070
111-1716

5
A. L. Bowley has ma.de use
gence", a

of

the

"mean percentage diver-

measure ~1miJar to the mean deviation except that

the variations which are averaged are the percentage devia-

.

tions

of

1/

individual relatives from their geometric mean.

The measure worked out in the course of the present investigation is calculated by weighting the variations which are the

percentage deviations of individual relatives

from their weighted mean - on a fixed base (the year 1926).
The

index of dispersion plotted in Chart I and tabu-

lated in Table I is simply a measure
prices.

of

the spread among

For the most part, it represents the spread between

raw materials and finished goods prices (see Chart II), although the calculation involves

the

prices of 45 subgroup~

of commodities • .The direction of the trend indicates whether
prices are moving toward

or away from their mean (the all-

commodities level).
The computation . of

the

index of dispersion involves,

first, the calculation of the average percentage deviation
which is the amount the price indexes differed from the mean

price index.

y

In this method,

the

average

weighting the percentage deviation for

is obtained by

each subgroup byits

!/"Relative Changes in Price and Other Index Numbers," Special Memorandum, No. 5, (London and Cambridge Economic
Service, February 1924).

a,/The


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subgroup indexes of the Bureau of Labor Statistics
have been used in the calculation of the average deviation.
Toe subgroup, "Structural Steel" was omitted, as it is included in the "Iron and Steel" subgroup.

M•l765

COMPAR _
ISON OF THE LEVELS OF FINISHED GOODS & RAW MATERIALS
PRICES WITH THE ALL COMMODITIES PRICE LEVEL
PERCENT
(PERCENT DEVIAT ION OF GROUP INDEX FROM THE ALL COMMODIT IES INDEX)
+I 5i I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I IIIIII1II IIIII I I I I I I I I I I I I 1111 I I I I i I I I I I Ii I I Ii I I I I Ii I I I I I 11111 1 111111 ii I I I I I I I 11111111111

+IO

_

-.

+10

I~

+51

0I

_.:\I

,...

PERCENT

I 111 1111I111111 Ii I I Ii I I 1111 I I +15

V

JA...

I

~

I

I

I

,~

l

~

I

d

I +5

10

l(

n

:I:

►

::IJ

--t

- 51

'"j

I

- IO

,,

'\

!~

I

-

I

\I

' -,

,

,

a
1\
/1.

\

"\

\

-15

/

1- 5

\.,/-~•

,,., ,
I

I

-10

'I

I

'

,._

\

\/

\

'
I

- 15

'
\,,r-RAW MATERIALS
..,

--r------t-,---+-- - + - - -+ - --

-20
SOURCE:

+-- -+-- --+-- --1---

----l---____J -20

qlJR(AU Of" LABOR STATISTICS WHOLESALE
• PRI CE INDICES (1926 • 100. 0)

I I I I I I I I I I I I I I I I I I I I I I I I I I I ii I I I ii I I I I I I I I 11111 I Ii ii ii I I I I I I I ii I I ii I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I _I I I I I I I I _I ~ I I I I I I I I I I ! I ~ I_I I I I I I I I.' ! !_. 1_1 I I I I I I I .' ,! ' .. '~ I I I I

t

1928

i


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Federal Reserve Bank of St. Louis

1929

1930

1931

1932

1933

1934

1935

-25

1936
Works Proeress Admin istration

310 I

~

?

value

of

production in 1935.

is then calculated for

A weighted average deviation

each month.

This monthly figure is

divided by the 1929 average deviation to obtain the :monthly

y

index number of price dispersion.
In a technical sense the

representativeness

of

resultant figure indicates the

the all-commodities index. When the

dispersion is relatively small, the composite price index is
more representative of
sion is larger.

its components than when the disper-

During periods

of relative stability when

prices seem to move along together, showing only minor fluctuations, the

representati~eness of the all-commodities in-

dex varies little. In these periods, the index of dispersion
maintains itself at a fairly constant level.
Large increases

in

the index of dispersion (indicating

violent changes within the price structure) have been generally associated with recessions

100 - x1

A. D. •


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Federal Reserve Bank of St. Louis

y

100 - ½
1fl...

X

W2

♦

in business activity.

100 - ~

y

100 W3 .f ••• _.,

The

:l1

X wn

100

I= A, D. for month
A. D. for 1929
x 1 •••• ~

price iniex (1926 • 100) for commodity subgroup
X • price irxlex (1926 • 100) for "all cammoditj,es"
w1 • .. ••n = weight of each camoodit{ subgroup - percent of
value of production of all commodities" in 1935
n. number of subgroups• 45
A. D. = weighted average deviation
I • Ind8?' of Dispersion
m

M-1765

8

inverse rela.tiQnship between price dispersion and industrial
production during the period 1928 to date
the -lJ.~ Pearsonian coefficient of
Chart

is :indicated by

correlation.

(See

I.)

Frederick

c.

Mills conducted his investigations with

price dispersion prior

to 1926. The present study covers

the period from 1926 to date.

Mills shows that the disper-

sion of fixed-base relatives increases naturally over ape~

riod of years. Our index of _price dispersion (1929-100) increased very rapidly from the base year of the wholesale
price indexes (1926), on a parabolic trend, to the middle of
1930 when the weighted average deviation waslO percent above
the base year.

(See Table II.)

monthly data from 1926 to

A parabolic trend of the

July 1930 would have carried the

deviation to approximately 12 percent by 1935. Actually,
after the large dispersion which occurred during the years
from ·l930 through 1934 had been dissipated, the ·amo,mt of
the dispersion leveled off at approximately 12 percent, although it dropped a little in 1936. This trend seems to indicate that the dispersion calculated from fixed-base relatives increases very rapidly during the first 3 or
. 4 years
following the base period and increases relatively little

thereafter.
Previous investigations - including those

of Wesley

c.

Kitchell, F. Y. F.dgeworth, .· .and Norman Crump - tended to show

that the dispersion of price relatives increases wi-th a ris-


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9
ing price level-and that the degree

with falling prices.

of dispersion declines

The present study indicates that .the

relative direction of the pric•e level is not nearly so influential on the magnitude of the dispersion as was. the rate
of change of the price level regardless of its direction.
In recent years,

excellent exa.tnples of this phenomenon were

afforded by the rapid change in the price level from 1929 to

1932

and from

1937 to 1938.

In both instances the increase

in dispersion was caused by the relatively la.rge declines in

prices of certain commodities (principally the raw materi-

als),

and

relatively small declines in prices of other com,.;.

modities {particularly finished goods).
The irregular price declines from 1929 and 1930 to 1933
resulted in a very large dispersion.

During the recovery

from 1933 to 1934, the price level went up rapidly and the
index of dispersion declined. But the dispersion decline was

directly proportionate to the decrease in the spread between
raw materials and finished goods prices. It

was

this ability

of the competitively priced raw materials to gain on the
more rigid and slower-moving finished goods prices which resulted in the drop in the dispersion index.

period from the middle of 1934 to the middle

During the
~

19361 prices

together.

This

in general seemed to move moderately

was

upward

indicated by the slight change which oc-

curred in the index of dispersion during that period of advances in industrial production.


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M•l765

10
The large increase in dispersion which characterized the
rapid change among price relationships from the fall of 1936
t6 the spring of 1937 was the result of a surge in most .com-

In general, it was the reflec-

modity prices at that time.

tion of the very large increases in the prices of the flexible commodities and the relatively sluggish reaction in the
prices of finished goods.
present,

however,

The period from April 1937 to the

presents a

somewhat different picture.

During this period there was an increase in price dispersion

caused by drastic reductions in the prices of flexible commodities and the relative maintenance of the prices of other
items.
On

the advance or on the decline of prices, the changes

in the dispersion were the result

flexible prices,

of large fluctuations in

particularly of raw materials. Whether or

not the dispersion increased or decreased was dependent, o!
course, upon the position of the price indexes of these commodities relative to the index of all commodities.

If the

indexes for these prices were below the all-commodities index, then any increase, violent or moderate, tended to lower

the dispersion; if the price indexes for these commodities
were above the all-coJJDnOdities index, a price rise would increase the dispersion.
The following paragraphs describe in more detail the
chang~s in the dispersion during the major changes in the
prir.e level from 1929 to date,.


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M-1765

11

Anal.Ysis of the Dispersion

of the decline from 1929 to

The major characteristics

1933 are well known. Raw materials and other sensitive commodities

dropped

Chart III.)

precipitously during

this

period.

(See

On the other hand, there was a very large group

of commodities,

chiefly the

prices went down very little.
were rapidly destroyed.

finished goods item~,

Previous price relationships

Throughout 1930, 1931, and part of

1932 the index of dispersion - 1929=100

(see Cha.rt I) in-

creased steadily until in June 1932 it was 277.

period from 1929 to

whose

During this

July 1932, the index of production de-

1/

clined to a point which was 49 percent of its 1929 level.
·s light improvement

the

in

the summer and the

price situation occurred during

dispersion index then dropped lllltil it

was 237 in September 1932. At the
tirlty- improved and

October 1932.

same time, business ac-

the production index advanced to 56 in

But the

torted when the prices

A

price structure became further disof

the flexible commodities dropped

rapidly in the fall of 1932 and the first 2 months of 1933
so that the dispersion index increased

to 305 in February.

The index of production had dropped to 50 by M3,rch 1933.
By

February 1933 the price index for all connnodities had

reached a point which was 63 percent of its 1929 level.

Raw

materials and finished goods stood at 50 and 70 percent, rel/The Federal Reserve seasonally adjusted indexof industrial
production, 1923-25=100, has been converted to 1929•100
for use in this study.


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M-1765

CHART m
RELATIVE WHOLESALE PRICE LEVELS IN FEBRUARY 1933,
PEAK IN 1937, AND JUNE 1938
(SUBGROUPS Of

COMMODITIES

COWAODITIES

RANKED ACCORDING

TO INDICES

FOR

JUNE

1938)

Index Number,, 1929 = 100
0

I

26
I

50

75

I

I

100

126
I

I

COt<E
BITUMINOUS COAL
IRON ANO STEEL
AUTOMOBILE TIRES ANO TUBES
CEMENT
DRUGS ANO PHARMACEUTICALS
AGRICULTURAL I MPLE MENTS
GAS
,uRNISHINGS
PAPER ANO P ULP
BRICK ANO TILE
MOTOR VEHICLES
BOOTS ANO SHOES
BUILDING MATERIALS (MISC.)
LUMBER
LEATHER PRODUCTS (Mtsc.)
CLOTHING
CEREAL PRODUCTS
ELECTRICITY
FURNITURE
WOOLEN ANO WO RSTEC GOODS
PAINT ANO P AIN T MATERIALS
ANTHRACITE
OTHER MISCELLANE OUS

' /..I

'//

-0

'l'1

-

--0

-o

ALL COMMODITIES
CHEMICALS
PLUMBING ANO HEATING
PETROLEUM PRODUCTS
MEATS
LIVESTOCK ANO POULTRY
FERTILIZER MATERIALS
LEATl-4ER
FERTILIZERS, Ul)EO
TEXTILE PRODUCTS (u1sc.)
FOODS (u1sc.)
HOSIERY ANO UNDERWEAR
DAIRY PRODUCTS
COTTON GOODS
CATTLE FEED
GRAINS
NONFERROUS METALS
,RUITS AND VEG ETAB LES
RUBBER, CRU DE
FARM PRODUCTS ( u 1sc.)
HIDES ANO SKINS
SILK ANO RAYON

'.//,I

1/////1

,.

'/////, ' / / '
'///1

'////,

'////.
z ,,,,,,///////-4

7777//h './//////////////////./. 1///////////////,1
777///, / / / / / / / / / /
·,777 ,,

7777.,,,,,

,,,1//, ///////,,,,,
'hi

' / / / ,,,,,,///A

'///A

Price level in June 1938

V/21/m///21 Change in price from the peak level of 1937 to June 1938
0
Source,

Price level in February 1933, the low point of the depression

Computed from data furnished by the Bureau of Labor Statistics.


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Works Progress Administration 310?
11-1760

13
spectively, of their 1929 prices.

In other words, the com-

posite wholesale price level had declined 37 percent,

raw

materials 50 percent, and finished goods only 30 percent.
Below are shown two lists of important commodities.
is a tabulation of

One

the items which declined relatively lit-

tle (less than 20 percent) during the major depression; the
other is

composed of the flexible commodities whose prices

were volatile (dropping more

than 50

percent).

The rigid

classification represents 27 percent and the flexible group

39 percent of the Bureau of Labor Statistics "all-commodi-

1/

ties" index.

y
Relatively rigid

Percent
change
1/
from Relatively flexible
1929 to
February

1933
Electricity Y
Gas 2:/
Anthracite
Cement
Coke
Bituminous coal
Motor vehicles
Agricultural implements
Iron and steel
Paper and pulp
Other building
materials
Brick and tile

+ 8.9
+ J.8

- 1.6

-10.9
-11.1
-13.0
-14.8
-15.8
-18.5
-18.9
-19.7
-20.4

Percent
change -

from
1929 to
February

1933
Rubber, crude
Silk and rayon
Cattle feed
Grains
Hides and skins
Livestock and poultry
Other farm products
Nonferrous metals
Meats
Petroleum products
Leather
.
Dairy products

-85.6
-68.2

-66.6
-66.4
-63.7
-62.8
-58.5

-56.5
-54.0
-51.9
-51.1

-50.4

l/See Chart III.
,YThese are average rates based on sliding scales of consumption.
· 1/These percentages are based on the values of production 1n

1937.


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· M-1765

14
The average weighted deviation of

the 45 subgroup price

indexes from their mean index in 1929 was 8.58 percent;" by
February 1933 the dispersion had increased the average devi-

ation to 26.17 percent (see Table III).

This amounted to an

increase from 100 to 305 in the index of dispersion. General
economic activity, as measured by the

index of industrial

production, had declined 47 percent during this period(i.e.,
in February 1933 it was only 53 percent of its 1929 level).

In the early part of 1933, prices began to move upward
at a rapid pace, and within a period of a few months mu.ch of
the disparity between the prices

of raw materials and fin-

ished products had disappeared.

This boom was short-lived

and

it was followed by a general recession in economic ac-

+,ivity and prices during the fall of 1933.
dispersion increased slightly.
ery became mor~ positive and

assumed a

steadier pace.

The index of

In 1934, however, the recovthe upward movement of prices

Prices recovered rapidly and the

dispersion was decreased to an index of 131 in Februaryl935.
Production also increased substantial.zy,

the index increas-

ing to 77 in January 1935 for a gain of 54 percent.

Prices in general moved together 1n a moderately upward
direction during 1935 and the first half or 1936. There were
no violent price cha.nges,although the gap between the prices
of raw materials and finished goods became narrower. The index of dispersion showed very little net
from 131 in February 1935 to 126 in


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Federal Reserve Bank of St. Louis

May

change, dropping

1936~,

M-1765


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Federal Reserve Bank of St. Louis

15
It may be argued that this relative stability had a stimulati.ng effect on all types of economic activity.
tion, employment, and profits increased.

Produc-

The volu.~e of pro-

duction rose by 33 percent during 1935 and 1936. The dispersion among prices was further diminished in the fall of 1936
when farm prices advanced rapidly; in November the index was
only 1.4 percent above its 1929 level. In December 1936 production reached a

peak which was 1.7 percent in excess of

its 1929 volume.
But the relative balance in the price structure did not
endure.

In the summer of 1936 prices of farm products began

to move rapidly up,rard; in the
of farm prices exceeded the

fall of that year the index

index representing

the price

level of other collll10dities. The nonferrous meta.ls also increased rapidly, led by copper which reached a
level.

very high

Steel increased in October 1936 and again in the

spring of 1937,

and building materials, led by lumber, ad-

vanced rapidly. The general price level increased 12 percent
from its low point in 1936 to its high point in 1937.
of

the

specific groups

A few

of commodities showed enormous in-

creases; thus, grains advanced 69 percent, crude rubber 71
percent, meats 34 percent, nonferrous metals 45 percent, and
cattle feed 116 percent.
By

1937 more than 50 percent of all commodities, accord-

ing to value,

had advanced to levels which were higher than

their 1929 prices.

The list of these commodities, in order

M•l765

16
of their .impotta,nce, showing the amount by which they exceeded -t heir 1929 levels, is given below.

Percent Commodity

Commodity,

Meats
Iron and steel
·L ivestock and poultry
Cereal: products
Bituminous coal
Grains
Clothing
Paper am pulp
Auto tires and tubes
Lumber

Percent

3.9 Boots and shoes
5.3 Furnishings

2.0 Woolen· & worsted goods

4.9 Other bldg. materials
10;7 Coke

1.2
1.5

6.9
3.7

24.7
22.4 Cement
4.0
.l' cattle feed
20.7
6.9 Hides arxi skins
s.3
5.j Brick and tile
1.3
9.8 Rubber, crude
20.3
Drugs & pharmaceuticals 16.1

As in all other pericxls

of volatile upward price move-

ments, great dis,parities among prices developed. Some prices
advanced very rapidly; others relatively litt~e.
The period was one of speculation and was characterized
by the accumulation of large inventories.

Prices of flexi-

ble commodities, notably raw materials, reached their peak
in April 1937.

The

prices

of the more highly fabricated

goods continue<i upward until the summer.
-The period extending from the

third quarter of 1937 to

the last quarter o! 1938 is unique with respect to the move·ment of prices.

Prices of the primary commodities declined

precipitously from April 1937 to the early months of 1938-.
Qn the other hand, the prices of fabricated goods were .main-

tained at relatively high levels.


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11•1765

17
Heavy inventories had the normally expect ed effect on
prices of competitive connnodities .

This is evidenced by the

fact that cotton goods., grains., nonferrous metals., hides and·
skins., and

other connnodities declined 34 percent on the

many

average from 1937 to June 1938 (see Chart III). The drop in
the general wholesale price level was 11 percent.
Inflexible prices.,on the other hand, remained at approximately their 193? peak levels.

The commodities exhibiting

the extremes of rigidity and flexibility and their respec-tive price changes during the recent recession.,

from the

1937 peak to June 1938 are tabulated below.

l/

Relatively rigid

Perce,nt
Percent
!/change ,
change
Relatively flexible , from
from
·
1937 peak
193? peak
to June
to Ji.me

1938
Gas y
Electricity
Iron and steel
Motor vehicles
Agricultural implements
Cement ·
Automobile tires & tubes
CokeBituminous coal
Plumbing and heating
Brick and tile
.Anthracite

y

+7.4 Hides and skins
+2.3 Rubber, crude

+1.0 Grains
Cattle feed ·
Nonferrous metals
Cotton goods
,F ruits and vegetables
- .2 Other farm products
-3.6 Livestock & poultry
~.2 Meats
-5.l Dairy products
-8.? Other foods

+ .4
.o
.o
.o

1938
-49.0
-48.3

-47.4

-46.6 .

-33.5
-32.8

,,.,:J!J.7

~s.s

-:l5.9

-25.5

~.l
~1.2

.!/See Chart III.

a/These are average rates based on sliding scales of consumption.


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14-1765

18

The rigid group constitutes 27 percent, and the flexible
· group 39 percent, of the total weight of all commodities in
the index.

With the significance of this contrast in mind 1

it is not difficult to understand the enormous increase in
the index of dispersion to 185 in Jtme 1938.
The maintenance of some prices during the recent recession and the large declines experienced by other important
connnodities resulted in the formation of disparities within
the price structure which are of a magnitude almost equal to
those in 1931.

The price structure, which in 1936_. had

achieved a state of good working equilibrium, of satisfactory relationships, is now distorted because some prices. are
too high and others too low.

The rapid unbalancing of the

price structure in the early months of 1937 was accompanied
in September by a precipitous decline in production and em-

ployment.

The production index dropped 34 percent from Au-

gust 1937 to June 1938 1 when the level of output was only 65
percent of the 1929 volume.
The trends of prices since Jme 1938 have been very erratic, but in general tending toward an improvement in price
relationships.

The all-commodities index moved slightly up-

ward during the sunnner as
of raw materials.

In recent months, ho,rever, the trend has

been downward because
price structure,
Reductions


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the result of increases in prices

of a general wealmess throughout the

especially in the finished goods lines.

in prices of finished goods and increases among

M-1765


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Federal Reserve Bank of St. Louis

19
the primary commodities have effected a downward fluctuation

in the index of dispersion.

The peak of the dispersion oc-

curred in June, when the index stood at 185. The improvement
in · price relationships has resul~ed in a steady decline until

in December the

index was 169.

The favorable trend is re-

flected also in the indicator of business activity.
index of

industrial production increased to

The FRB

87 percent of

its 1929 level in December 1938.
Judging from pa.st experience, relatively high prices of
the finished goods

and

low prices

of the

raw materials,

principally the grains, still loom as an obstacle to continued recover,J•

However, the trends are favorable.

declines among
prices of

the

Continued

finished goods and moderate advances in

raw materials should stimulate the recovery move-

ment.

Conclusion

r.n

the

fo:r·ego:lng,

dispersion as
among ~ices.
dicate~ of

a

we have utilized the index of price

mP-asure of changes

in

the relationships

It, is not argued here that J.t is the sole in-

relative b~.lance or equilibrium within the price

structure. The amount of the dispersion does, however, serve
as one criterion of the price situation.

-

Our experience with this measure has been that rapid in-

creases in t,he dispersion generally are associated with and
precede recessions
this

in business activity.

correlation becomes evident, however,

An exception to
when the price

11•1765

20

11•1765

relatives of the flexible commodities are larger than the
index of prices for "all commodities."

This was the situa-

tion in 1929, when for a few months rapid declines in the
prices of flexible items resulted in a
amount of the average deviation.

reduction in the

In that instance, the pro-

duction index started its downward trend several months in
advance of the rapid increase in the dispersion index.

Nev-

ertheless, the association between changes in price dispersion and. changes in business activity during the last decade
has been remarkable.
The present study also has revealed that the clispersion
of price relatives increases very rapidly for the first .3 or
4 years following

the base year and thereafter the natural

changes are very small.
disturbances ·d uring the

However, because of the economic
past 10 years it is difficult to

measure accurately this trend. We have, therefore, restricted our interpretations

of small changes in the relative

level of the dispersion.

It carmot be assumed that the re-

lationships among prices are any better when the index or
dispersion is 100 than it is when the index is 125.

The na-

ture of the data and the technique do not lend themselves to
such a

conclusion.

On

the other hand, significance can be

attached to sharp changes in the index and to th~ maintenance
of the index at a rather constant level. In other words, the
direction and the . rate of change of the dispersion are the
important criteria of price conditions.


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'M-1'165


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21
TABLE I.- INDEXES OF WHOLESALE PRICE DISPERSION
January 1928 Through December 19S8
Jlonthe
January
February

)larch
April
llay

June

July
August
Sept•ber
Ootober
?lO'Hllber
December

January
February

March
April
May
June
July
Auguet
September
October
lfovember

1929

86.1

97.0
94.4:

79.t;
78.8
87.1
93.8
88.8
100.1
105.8

108.'i'

99.l
100.8
106.8
107.6
107.8
111.0
112.4
109.2
119.9
123.4
134.2
137.2

142.8
150.7
165.6
160.5
175.1
188.1
187.8
188.6
201.4

19S2

1933

241.5
254.7
252.2
253.8
272.5
277.4
252.1

290 .5
305.0
293.3
283.2
243.2
221.7
208.8
226.4
221.7
231.8
233.2

94.8
88.5
91.1

108.9
105.5
102.2
110.7
112.0
107.6
100.s
·95.0
97.4

19$4

1936

1936

1937

1938

234.4
219.0
215.3
223.3
221.4

132.0
131.4
144.5
139.9
140.6
136.5
138.3
150.9
154.5

139.8
133.2
138.6
132.6
126.3
114.7
106.7

108 .3

148.3

105.7
101.4
102.a

156.6
166.l
169.5
178.0
182.f
185.0
182.8
182.2
178.7
175.2
168.8
168.8

llS.7

206.3

208.0
228.6

244.4

237.1
262.S
263.8
281.6

246.4

Ye a r s

Month•

December

1928

Ye a r a
1930
1931

201.4
193.4
172.7

164.1
168.5
167.4
166.3

132.7
142.0

113 ••
113.0

107.1
121.9
137.9
143.2
145.7
161.0
170.6
170.3
166.3
157.2
156.4

Source:

u. s. Dept. of Labor, Bureau of Labor Statistics,
wholesale prioe indexes (1926 = 100).

lotea

The measure or dispersion is the weighted average
or the deviations of the 45 oommodity subgroup
price indexes from the all-commodities index. The
indexes were derived by dividing the monthly average deviations by the average deviation in 1929.

22

.TABLE II.- WEIGHTED AVERAGE DEVIATION OF COWODITY SUBGROUP
PRICE INDEXES FRON THE "ALL COMMODITIES" INDEX
January 1928 Through December 1938
Months
January
February
March
4pril
May

June
July
Auguet
September .
October
November
December

Months
January
February
Maroh
April
May
June
July
August
September
October
November
December

Sources


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Federal Reserve Bank of St. Louis

Ye

a

r s

1928

1929

1930

19~1

1932

1933

7.73
7.14
7.08
7.82
8.42
7.97
8.99
9.50
10.21
8.51
7.95
8.18

8.71
8.48
9.76
9.78
9.47
9.18
9.94
10.06
9.66

8.90
9.06
9.59
9.66
9.68
9.97
10.09
9.81
10.77
11.08
12.06
12.32

12.82
13.53
13.97
14.41
15.72
16.89
16.86
16.94
18.09
18.63
18.68
20.53

21.69
22.87
22.66
22.79
24.47
24.91
22.64
21.95

26.09
27.39
26. S4
26.4S
21.84
19.91
18.15
20.S3

21.29

19.91

22.66
23.24
25.29

20.82
20.94

1934

1935

Ye a r s
1936
1937

1938

21.05
19.67

11.85
11.80

19.33

12.98
12.56
12.63
12.26

20.06
19.88
18.09
17.37

15.51
13.84
lS.13
15.03
14.93

9.05
8.53
8.75

12.56
11.96
12.44
11.91
11.34
10.30

9.29
9.19

10.46
11.83

12.29
12.50
13.81
14.64
14.61

lS ,, 44

14.26
14.64
15.27
15.65
15.87

12.,2
13.56
lS.87
15.23

10.18
10.15
9.49

14.27

16.6a
15.53
15.03

11.92

9.11

12.75

9.23

13.49
13.35

14.4:8
14.4-8

9.68

22.l~

15.68

u. s. Dept. of Labor, Bureau of Labor Statistics,
wholesale price indexes (1926 • 100).

M-1765

23

TABLE III.- PERCENT DEVIATION OF WHOLESALE PRICE INDEXES FROM THE "ALLCOMMODITIES" INDEX, BY COMMODITY SUBGROUPS
For Selected Dates
Commodity subgroups

Year
1929

Feb.
1933

Nov.
1936

Apr.
1937

June
1938

.. 2.20

-45.32
-32.94
-26.09

•24.88

.. 35.45

-3.28

.. s.36
-5.23

-19.92
.. 2.43
-19.54

-29.35
-3.38
-13.64

-12.37
.1.00
-12.37
-16.05
-9.53

.1.04
.4.25
-9.22

-10.so
.2.05

-12.52
..2.43
- 21.20
.. 7.92
-17.37

-4.03
-2.86
-21.56
.3.77
-10.1s

.so.01
-20.4:3

.so.s5
-t2.34

Deo.
1938

Farm froduots
Grains

Livestock and poultry
Other farm products

-tll.33

.. 11.86

.. o.s1

Foods

Dairy products
Cereal products
Fruits and vegetables
Meats
other foods

Hid.ea and leather ;eroducts
Boots and shoes
Hides and skins
Leather
Other leather produots
Textile Eoduots
Clothing
Cotton goods
Hosiery and underwear
Silk and rayon
Woolen and worsted goods
Other textile products

.10.s1
-7.66
.2. 62

•14.48
-1.47
.. n.54

•18.26
-,18. 78
.. 11.66

-5. 66
-t3.67
-7.14
-15.63
-7.35
-2.31

•39.30
-31.61
-7.53
-t30.27
.2.34
-17.89
-19.23
-57.19
-11.04

-tl0.70

h•l and liezhtin~ materials
.Anthracite
-5.46 .. 48.33
Bituminous coal
-4.20 -t32.78
-11.23 ♦ 25.75
Coke
-0.84 .12.01
Eleotrioity
-2.31 -t61.54
Ge.a
-25.18 -42.64
Petroleum products
Metals and metal Eroducte

Agi-ieultural hlplementa
Iron and eteel
Motor nhiolea
Nonferrous metals
Plumbing and heating


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.s.40
-1.21
-t20.51
.22.s2

•17.95
•37.95

.1.2a

.. 14.43

♦4.21

.11.66

.. 16.38

•16.25

•24.78

•24.42

-1 .09
.3.76
-25.7$
-59,47
-t2.31
-19.30

♦4.98
-1.36
•8.07 -18.39
- 26.11 -23. '16
-61.59 -64. 76
-3.45
•6.25
-21.82 -16.99

•5.97
-16.10
-22.99
-60.00
-2.86
-16.36

o.oo
-tl7.96
-tl8.69

t0.36
-0.61
-29.49

..s.s1

-t38.96

-0.42

♦29 •.26

-tl2.74
-t7.89

-ell.96
.. 11.33

-t52.0l

.. 11. 65

-22.74
-0.67

-8.50
-6.92

-0.31

-5.11

.. 7.84
- 12.50

- 17.73
.12·.05
-tl6.82
-12.39
-8.30
-32.05

.... 66
•13.18
.s.48
-tl0.23
-10.67

- 4.85

•4.03

• ·2 4.52
-t34.48

-t27.92

-tS5.32

.11.11
-tl5.45
-28.10

- 33.90

.22.13

.. 21.43

.. 2a.ss

♦25.71

.s.2s
-t9.87

-t22.61 .21.so
-0.26
-14.18
.2.21
-1.40

24

TABLE III.-

PERCENT DEVIATION OF WHOLESALE PRICE n.1DEXES FROM THE "ALLCOMMODITIES" INDEX, BY COMMODITY SUBGROUPS (Cont.)
For Selected Dates
Year
1929

Feb.
1933

Buildini materials
Brick and tile
Cement
Lumber
Paint and paint Dlterials
Other building naterials

-1.05
-3.67
-1.57
-0.42
.2.s2

-t25.59
•36.79
-5.69
-tl5.71
-t31.27

Chemicals and dru~s
Chemioals
Drugs and pharnaoeutioals
Fertilizer materials
Fertilizers, mixed

.3.99
-24.97
-3.36
-tl.99

-t32.ll
-8.36
.. 2.84
-t4.35

-1.78
-0.Sl

•21.91
.. 20.23

Commodity subgroups

Houaefurnishin~ ~ooda
Furnishings
Furniture
Miscellaneous
Automobile tires
Cattle feed
Paper and pulp
Rubber, orude
other

am

tubes -42 .81
•27 .60
-6.72
-55.61

Weighted average deviation
Index of dispersion
Source:


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Federal Reserve Bank of St. Louis

U.

s.

· ~a.2s

Nov.
1936

-t7.77
.. 15.90
♦ 5.10

-2.31
-tl0.32

.a.2s
-5.46
-17 .48
-15.53
•

♦ 4.00

-4.37

-28.76 -39.20
-32.11 -t52.91
-t20.57
-1.09
-89.80 -54.98
-t22.58
-0.85

Apr.
1937

-t7.84
.8.52
.11.os
-4.66
-t13.52
.1.05
-5.80
-19.66
-18.18

-t4.66
-2.50

June
1938

Dea.
1938

•15.71 -tlS.83
-t21.97 -t24.03
-tl3.28 •18.06
.2.so -t6.19
♦ 19.16
-tl6.49
.2.94
-8.17

-t5.90
-4.55

-11.24
-11.49

-10.91 .

-4.16

-tl5.84 -tl7 .27
.s.64 -t5. 97

-35.91 -26.69 -23.64
.0.13
-0.52
-t66.82
.. s. 70 .9.19 .s.os
-43.98 -66.41 -65.97
.s.32
-3.07
-t3.68

8.58

26.17

8.70

11.83

15.87

14.48

100.00

305.00

101.40

137.90

185.00

168.80

Dept. of Labor,

Bureau of Labor Statietios.

M•l765


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(

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r ,

.

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