Full text of Price Dispersion and Industrial Activity, 1928-1938
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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 https://fraser.stlouisfed.org 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 . - .- https://fraser.stlouisfed.org 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. https://fraser.stlouisfed.org 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org 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. • https://fraser.stlouisfed.org 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- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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,. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis · 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis May change, dropping 1936~, M-1765 https://fraser.stlouisfed.org 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 'M-1'165 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 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 https://fraser.stlouisfed.org 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .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: https://fraser.stlouisfed.org 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ( • r , . <