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1 I I ) I June, 1954 Volume X X X V I Number 6 INCOME GROWTH, ECONOMIC CHANGE, AND CAPITAL INVESTMENT I N CO M E GROW TH in the Eighth District has tended to reduce per capita income differentials among the many areas of the district. This equali zation is the result of many different kinds of adjustment to pervasive trends in the national economy. In some cases the adjustment is directly influenced by shifts in the national market, in others, more indirectly through local and regional markets. Capital investment plays a key role in the adjustment process by increas ing the productivity of local resources. Investment always permits the more intensive use of resources and often requires an addition to the local labor force. In local economy adjustments to an integrated national market, laborusing and labor-saving capital investments both help raise per capita income. Clearly, there is no single, “best” way for a local area to participate in the nation’s economic development. «- llmik o f St* Louis Income growth in the Eighth District . . . I N T H E R E C O R D S of the Department of C om merce, national income for 1953 is registered at 252 per cent greater than that recorded for 1929. D e spite the turbulence of the intervening years, a great depression, two wars, and inflation, real income has grown rapidly for the country as a whole. But it has been an experience that has, quite literally, changed the face of the nation. To meet the changing needs of the country, new techniques of production, new products, more of some things, less of others have been required. And in the process no one has quite stood still. For at least a quarter of a century total district in come payments to individuals have hovered at 5 per cent of national income payments to individuals. O c casional dips and rises have occurred to be sure, but there are no distinct trends in either direction. Broad ly speaking, the economic activity within this region has grown apace with that of the nation. But some thing has been added, for this increase has been achieved with a smaller increase in population than nationally. Income statistics as a measure o f economic change take on added meaning when used together with pop ulation statistics. For economic development implies that an increase in productive capacity is not simply the result of a larger labor force. It would be diffi cult to equate economic growth with a larger national income, if population growth in the meantime had resulted in a smaller per capita income. If per capita income is used as a measure of change, the district has experienced a more rapid rate of growth than the nation as a whole—the district has not stood still In the decade from 1929 to 1939 total income pay ments to individuals nationally and districtwise de clined by about 15 per cent and district per capita income payments remained at a level of only 65 per cent of those nationally. In the following decade total district income payments to individuals rose as sharp ly as for the nation, but per capita incomes rose even more rapidly. By 1952 district per capita incomes were 164 per cent greater than they had been in 1929 while the average gain for the nation was 133 per cent. The district aggregates, however, do not reveal the conditions that led to this increase in per capita in come. This story is best introduced by a summary of the income records of the many small areas which make up the district. Page 62 . . . has tended to reduce per capita income differential among the many areas of the district. The increase in district per capita income is really the story of rising per capita incomes among all areas of the district under a variety of conditions. Total in comes did not grow apace with national income in all areas. Fully a fourth of the 99 areas experienced an income growth which lagged behind that of the na tion and the district as a whole. Nor did all areas enjoy an increase in per capita incomes to the extent of the average. Yet on balance, as with the nation as a whole, there was a marked tendency toward geo graphic equalization of per capita incomes. It should be stressed that this tendency was not apparent in the depressed decade of the ’thirties, but was markedly so in that of the ’forties. The movement toward geographic equalization of per capita incomes within the district can be indi cated by measuring the geographic association of pop ulation and income. If per capita incomes were equal for all geographic areas, this would mean that the per cent of district population in each area would be equal to the per cent of the total district income in that area. The extent of any deviation thus provides a measure of the geographic inequality of per capita incomes. If this is done for each of the 99 areas in the district and the resulting deviations ( either positive or negative) of like sign are summed, a coefficient is pro duced. The closer this coefficient approaches zero, the greater is the geographic equality of per capita incomes. For the district the results are: 1929, .20; 1939, .20; and 1952, .16. The same information is presented graphically in Chart I. Equal per capita incomes among all areas will show up as a 45 degree line. The divergence from this condition is indicated by a curve lying to the right of the 45 degree line. That the 1952 curve lies closer to the 45 degree line than either the 1929 or 1939 curve is the significance of this diagram. This district tendency toward geographic equaliza tion of per capita incomes illustrates one of the most fundamental results of economic development in free trade areas generally. When population (labor force), or goods, or capital are free to move in response to economic incentive the result is to increase produc tivity and incomes for all concerned. Where all three are free to move, the increase takes place much more rapidly. The effect is a growing equalization of per capita incomes among places as all incomes rise. Con trary to the words of an old popular song and a much older political slogan, the poor and the rich grow richer. Trend Toward Equalization of Per Capita Income among District Areas, 1929-1952 TOTAL INCOME (PERCENT) changes in the ratio of income to population actually do result in the higher per capita incomes. All areas within the Eighth District experienced rising per cap ita incomes in the period 1929 to 1952. Part of this, however, is simply due to an inflated price level-. Therefore it is more instructive to examine the record with respect to the rates of increase in per capita in come for small areas as these compare with the aver age for the district as a whole. In this way a clearer picture of the sources of geographic income equaliza tion can be drawn. Table I summarizes the record. TABLE I ASSOCIATIO N OF INCO M E AND POPULATION CHANGES EIGHTH DISTRICT AREAS, 1929-1952 (Number of Areas) Per Capita Income Growth Above District Average Population growth above below district average district average Total income growth above district average. below district average. Total. 15 none 15 23 18 41 Total 38 18 56 Per Capita Income Growth Below District Average Population growth above below district average district average Total income growth above district average, below district average. Total. This equalization is the result of many different kinds of adjustment . . . The trend toward geographic equalization of per capita incomes is a nationwide phenomena and is at once a source and result of nationwide economic growth. It is not an overstatement to say that without the high occupational mobility of our labor force the expansion of the ’forties would not have been possible. As many kinds of resources are geographically immo bile, changing jobs frequently means changing local ity. In this light, a high rate of migration among areas within the country is an index of economic expansion with a double meaning. When areas experience a rapid growth in real output and in the demand for additional labor, the quick response of the labor force to move in encourages further rapid growth. When areas are endowed with other kinds of resources and when the demand for labor grows more slowly, the opportunity for some to shift their jobs from an area with a relatively redundant labor supply to an area of relative scarcity means higher productivity and per capita income for those who remain. Per capita income, of course, is simply a statistical ratio and, statistically, changes in per capita income can occur as a result of a change in the denominator (population), or the numerator (income), or both. For this reason it is important to note what kinds of 5 14 none 29 29 Total 34 43 The significance of the data lies in the diversity of experience among areas within this district—a diver sity which is really indicative of the great variety of change continually absorbed by an expanding econ omy. In a closely integrated economy, specialization of function is in part geographical. No area or commu nity is completely self sufficient nor completely diver sified in its economic base. Of necessity—enforced by competition—each locality specializes more or less heavily in certain lines of production for “export.” The support of this production may require considerable of other kinds of economic activity which create a substantial home market. But efficient organization of production generally involves an increasing amount of trade with the “rest of the world.” It also means that changes in per capita income for the small area, by way of population change or total income change, necessarily reflect the changing relationship of that area and its resources to the national economy—an “adjustment” in the use of local resources to the “rest of the world” demand. . . . to pervasive trends m the national economy. It is not surprising that there has been such a diver sity of experience in income and population growth among the many areas of the district. On the one hand all areas are not endowed with the same stock Page 63 of resources and on the other hand there are many different and pervasive trends in the nation’s demand for resources. Each of these trends, therefore, must affect communities in this district in many different ways. nationally in the ’thirties, but at a much slower rate during the ’forties. Since the natural rate of popula tion increase is as high in the district as in the nation TABLE III DISTRICT POPULATION C H A N G E Final causes for economic development can hardly be assigned, but many of the end results in the Amer ican economy are summarized in the continuing change in the location of its people and its industry. For many years there has been a persistent geographic shift of American population reflecting two trends: (1 ) the migration of population from rural to urban areas, and (2 ) from the interior states to the border states ( excepting the north and middle Atlantic states). In the decade from 1940 to 1950 the nation’s population increased by over 19 million persons, yet during the same period almost half of the counties in the United States actually lost population. Even on the Pacific Coast where the increase in total popula tion had been a phenomenal 40 per cent in ten years, more than 10 per cent of the counties lost population. While the average non-metropolitan county gained 6.5 per cent the average metropolitan county in creased its population by 20.6 per cent. The effect of the migration out of the interior states of the country is observable in differences in growth among metro politan areas. Along the seacoasts metropolitan area growth was more rapid than in the interior and the younger cities of the West and South grew more rap idly than did the older cities in the Middle West and Northeast. 1930-1940 United States............................... ...... 7 % District................................................. 6 Arkansas .........................................5 Illinois ...................................... .......5 Indiana ...........................................5 Kentucky .........................................7 Mississippi ............................... .......6 Missouri................................ . 5 Tennessee ............................... .......9 1940-1950 14% 3 — 2 1 8 6 — 6 4 14 1930-1950 23% 9 3 6 14 14 __ 1 io 24 as a whole, if not higher, these data indicate a rapid increase in migration during the ’forties. The princi pal explanation, of course, lies in the fact that the ’thirties were years of depression and mass unemploy ment. For the most part this unemployment was con centrated in the urban areas. During the early ’thir ties there was, in fact, a heavy migration out of the cities in the search for economic alternatives to un employment. As a consequence of falling total in comes and the slow rate of outmigration of district population, district per capita incomes in the ’thirties declined by 21 per cent. Nationally, per capita income declined about the same proportion. Consequently, the district average remained 65 per cent of the na tional figure. The net effect was to cause a build up of population in the rural areas which was highly responsive to the return of prosperity. tion shift away from the interior states shows both in the less-than-average rate of population growth for the district as a whole as well as for district metropol itan areas. In the brief period from 1939 to 1944, the mobiliza tion and early war years, national industrial employ ment increased more than 40 per cent—a phenomenon made possible only by the high rate of occupational and geographic mobility of our labor force. During this period an estimated total of 7,977,000 civilians mi grated from farms and an estimated 3,117,000 migra ted to farms. This net from-the-farm migration of 4,860,000 contrasts strikingly with a net migration of only 636,000 over the next five years of the decade. It is this trend which is reflected fully in district per capita income data. While total district income pay ments increased at about the same rate as nationally, the much smaller rate of population increase resulted in the sharper rise in district per capita income pay ments and the resulting equalization of income differ entials between district residents and the rest of the United States. Studies of internal population migration indicate that one of the principal motives for migration is the response to economic incentive. This is borne out rather strikingly in the population data for the dis trict and for the United States for the two decades 1930-1940 and 1940-1950. As Table III shows, the district population grew at about the same rate as In a sense, it took the recovery and sustained pros perity of the ’forties to give full weight to the remark able changes that had been occurring in agricultural production since well before the onset of the ’thirties. The persistent rural-to-urban migration is in part the net result of two equally persistent features of the rural community. One is the sociological fact that the These trends are clearly evident in district popu lation data. The rural-to-urban shift shows up in the increasing proportion of district residents living in the large metropolitan areas (see Table II). The populaTABLE II PERCENTAGE DISTRIBUTION OF POPULATION SELECTED METROPOLITAN AREAS 1930 St. Louis ............................................................... 14.14 Evansville............................................................... 1.18 Louisville ............................................................... 4.38 Little R o c k ............................................................. 1.43 Memphis................................................................. 3.19 T o ta l.......................................................... 24.32 District ................................................................... 100.00 Page 64 1940 14.06 1.28 4.43 1.53 3.52 24.82 100.00 1950 16.05 1.53 5.51 1.88 4.60 29.57 100.00 natural rate o f population increase is higher in rural areas than in urban areas. The other is the techno logical fact that there is a continuing increase in farm productivity, a continuing reduction in the amount o f farm labor required to produce what the nation consumes. In the fifteen years from 1930 to 1945, while total farm acreage increased, the number of acres of farm land in crops actually declined by 10 per cent. The reduction in cropland was accompanied by a 24 per cent increase in the average size of the farm and a decline of over 20 per cent in the number o f farm workers. The sharp increase in the amount of farm machinery, equipment and power available to farm workers has been frequently noted. This, cou pled with improved farm management, resulted in an estimated 54 per cent increase in the amount of farm output per farm worker over this period. Thus, a smaller labor force working in fewer acres of crop land was able to increase the output o f all crops to the extent that 1949 crop production was 40 per cent greater than that in 1930. Total farm output was 47 per cent greater. Coupled with the pervasive trends in productivity, have been highly significant shifts in the consump tion of agricultural products. Since 1941, consumers have increased the proportion of household expendi tures spent on food from 22 per cent to 28 per cent. W hile this is in large part the result o f an intervening inflation, it also represents an increase in physical consumption o f food and an increase in the amount of service demanded with food purchases. That is, part o f the increased spending on food has directly in fluenced the farmer’s market, while part has had its most direct impact on the food processing and mar keting industry. In addition, the trend toward in creased expenditure on food has centered on the “bet ter” foods. The effect o f rising per capita income has been to increase the per capita demand for fresh fruits and vegetables, meat and poultry, fish, eggs and milk, accompanied by a declining per capita demand for cereals, potatoes, fats and oils, and sugar and syrups. The domestic demand for cotton has been adversely affected by the rapid growth of the synthetic fiber in dustry, while the foreign market for American cotton has actually declined over the past twenty-five years. Feed grains, on the other hand, have benefited sub stantially from the sharply increased per capita con sumption of meat. As per capita incomes have risen, personal con sumption patterns of items other than food have also changed significantly, but with considerable varia bility. The proportion spent on services has declined since 1929 and on nondurable manufactured goods since 1938. Expenditures on durable manufactured goods, on the other hand, have increased their share of the consumer’s dollar. Imposed upon these changes in demand have been the highly variable changes in spending by the Gov ernment since 1940 on war and defense. These changes in the pattern of total final demand, including capital formation, have been coupled with rapid strides in technology including new products as well as new processes. The net result has been great diver sity in growth rates among the manufacturing indus tries as indicated in Table IV. TABLE IV GROWTH IN OUTPUT OF SELECTED INDUSTRIES Average annual rate of growth 1940-1951 (Per cent) Antibiotics ............................................................. 118 Television s e ts ...................................................... 113 43 Air conditioning units, room ........................... Plastic materials ................................................. 22 Frozen foods ........................................................ 18 Electric ranges .................................................... 11 Tractors ................................................................. 10 Rayon and acetate ............................................. 10 Woodpulp ............................................................. 6 Industrial explosives............................................. 5 Canned vegetables ............................................. 5 Crude petroleum................................................. 5 Electric refrigerators ........................................... 4 Passenger automobiles ...................................... 3 Lumber ................................................................. 2 Shoes and slippers ........................................... 1 Men’s suits ........................................................... — 2 Manufactured tobacco ...................................... — 4 Creamery butter ................................................. — 4 Wood shingles...................................................... — 6 Silk, consumption ............................................... — 16 This recital of changes in the American economy over the past quarter of a century is quite literally endless. The highlights noted serve to emphasize that for a variety of reasons—for example, a larger and more mobile population, rapidly changing technology, war and peace—the pattern of demand for the nation’s resources continues to change. To these changes the local community must continually, in one way or another, make adjustments. In some cases the adjustment is directly influenced by shifts in the national markets . . . Communities, areas, whole regions have been mak ing these adjustments throughout the history of the land. Much of American economic history can be written in terms o f the continuous relocation of eco nomic activity, of the impact of economic growth on younger regions and the adjustments this has required in older sections of the country, and of the discovery of new economic frontiers. Many areas have expe rienced relative growth and decline and new growth, others have maintained their positions but perform new functions, and, inevitably there are those which the main stream of economic development has passed by. The history of each region is the story of the changing use of its resources and the history of each is related to the history of all. For some areas and regions this relationship to all other areas is so general that it is helpful to simply speak of their relationship to the nation as a whole, for the markets of the national economy are closely integrated. Many communities specialize in produc tion which directly serves a national market. This district as a whole specializes in agricultural produc tion and “exports” on balance an estimated 46 per cent of its agricultural production. Clearly, district farmers, whether they produce soybeans or cereals or cotton or meat, do not produce for a regional market. The local areas of the district where this kind of pro duction is concentrated are directly influenced by changes in the national market. The adjustment of local economies to the changing pattern of national demand for agricultural products can be seen in the shifts of production which have occurred in district agriculture (Table V ). TABLE V SHIFT IN DISTRICT AGRICULTURAL PRODUCTION BY VALUE OF OUTPUT Per Cent Distribution All Crops. . . Field craps. Other................................ All Livestock and Products. Dairy Products . . . . Poultry and Products. Other Livestock and Products ................ All Farm Products Sold. 1929 5 6.5 5 1 .8 4 .7 4 3 .5 9 .7 1950 5 2.5 4 9 .5 3 .0 4 7 .5 10.6 8.6 6.6 2 3 .2 3 2 .3 100.0 District as Per Cent of U. S. 1929 11.3 12.9 4 .8 7 .7 5 .3 1950 10.6 1 2.4 3 .2 7 .8 5 .6 7 .3 8 .3 9 .4 9 .0 9.1 100.0 10.6 Many of the district areas with manufacturing in dustries are also closely tied directly to the national market. This is of particular importance for such metropolitan areas as Evansville, Louisville, and St. Louis which have a high concentration of employ ment in manufacturing industries serving national markets. It is also true of many of the smaller areas where production in such lines as shoes and apparel is concentrated. Other examples come easily to mind, the oil fields of southern Illinois, the zinc and lead regions of Missouri, the chemical industry complex being built in Calvert City, Kentucky, and so on. . . . in others, more indirectly through local and regional markets. For many areas, however, adjustments in the local economy are the result of a more complex set of local and regional relationships. Some communities spe cialize in production for a regional market and are influenced by national developments only insofar as these affect the region they serve: for example, areas with income from certain kinds of manufacturing such as sawmills and planing mills and cement and brick production. For other communities producing for national markets, the local labor supply has been profoundly influenced by regional developments while the market for the local product has not ma terially changed. The resulting change in cost-price Page 66 relationships may require considerable adjustment in the use of the area’s resources. The strawberry pro ducers in the region around Paducah, Kentucky, have had this experience, for example. Paralleling this is the changed competitive position of an area’s industry as new capacity grows in other regions. In any case, and regardless of the immediate cause, adjustment in the use of local resources is an effort by residents of a community to maintain and increase their income. For many (his means a change in jobs involving a change in locality. For others it means either increasing the productivity of their present op erations or shifting to a new occupation in the com munity which, under the changed set of circum stances, has a higher productivity. For still others the adjustment may consist of accepting a lower income. Capital investment plays a key role in the adjustment process by increasing the productivity of local resources. Given its broadest meaning, capital investment means giving up the use of present income for the purpose of securing a higher future income. Inevit ably, the productivity of the investment itself is inti mately associated with the kind of previous invest ment that has occurred. Like all resources, capital itself is scarce, it is accumulated only slowly, and al ways with the sacrifice of consumption today in the hope of something better tomorrow. There is perhaps no truer indication of the aspirations and values im portant to a community or a whole society than that observable in the rate at which it accumulates capital and how it uses it, for capital investment may take many forms, all of which, while having a profound effect on productivity, are not all connected with any measurable standard of physical, production. The education of our children, for example, is probably one of the most basic kinds of capital invest ment, an investment that has long since become insti tutionalized through compulsory schooling into a form of community investment. Quite aside from the cur rent investment in school facilities, there is the more basic problem of determining how long a child shall remain in school. For as he reaches a working age, each added year in school represents an increasing investment in the sacrifice of possible present income from the child’s present productivity. An increase in the average age of children in school is thus one meas ure of increased community investment in this kind of capital. In the past twenty-five years in the district the per cent of children between the ages of 16 and 17 in school has increased from 54 to 67 per cent. At the other extreme from this kind of capital in vestment is that kind of capital formation more gen erally associated with investment, namely, investment in more directly productive capacity, such as a factory plant and equipment. Between these two lie a per fect continuum of other types of investment all with the same purpose—to increase the productivity of our resources. It rpay be investment in highways, water systems, housing, electric utilities; it may be financed publicly through current or future taxes, or privately from a great variety of sources; but the purpose re mains the same—increased productivity of resources. Investment always permits the more intensive use of resources . . . Any change which results in higher real per capita income implies capital investment. It need not be spectacular to yield high returns. It may simply be the amount a man needs to finance his move to a bet ter job in another area, or it may mean an increase in taxes to finance a new water system. At the other ex treme it may be the large scale inflow of capital created by the location of a new manufacturing plant or a public utility. Whatever the nature of the investment it has the effect of permitting the more intensive use of some resources. For example, investment in agriculture in all its forms, from expensive farm machinery to simple crop rotation and the willingness to forego the maxi mum present harvest, has resulted in higher output per man on the farm; a more intensive use of both manpower and land. In the process some resources are frequently released for other uses. Again agricul ture is an example. The rural-to-urban migration dis cussed earlier has accompanied the more intensive use of manpower on the farm which in turn has permitted a more rapid expansion of the nation’s non-farm labor force. For the local economy the result has been a larger income stream from farming and higher per capita incomes. and often requires an addition to the local labor force. . . . Capital investment may also mean the more inten sive use of resources in a somewhat different setting. The movement of a branch plant into a town, for example, frequently results in the creation of a new kind of labor force for that area. In a sense, this means the more intensive use of local labor if the labor force has been recruited from other occupations in the locality in response to higher wages. The same local labor is now being used more productively. On the other hand, there may be other local resources, such as the natural advantage of site, which are attractive to a new industry. This kind of capital investment then actually may result in an addition to the local labor force, either to work the new capacity, or to replace local labor hired in the new activity. Investment which is not of itself the kind that re quires additional labor force may indirectly generate demand for additional labor by the effect on the total income stream of the community. This is particularly true for an area where the urban centers are principal ly engaged in servicing the agricultural community. In fact, per dollars worth of invested capital, the net income stream accruing to the local community may frequently be greater from investment in agriculture than in other types of productive capacity. In the local economy, adjustments to a highly integrated national market, labor-using as well as labor-saving capital investments both help raise per capita income. The extent to which residents of a local area share in an increased value of production flowing from the area to a larger economy depends upon a number of factors. These are: (1) the ratio of direct income pay ments to the community to the total value of the out flow of production, (2) the nature of the non-income cost items involved in the production (specifically the kinds of raw material and service inputs that are sup plied locally), (3) the ratio of direct local income pay ments to die value of the locally supplied inputs (and so on for each subsequent round of cost items), (4) the consumption patterns of the local residents, and (5) the extent to which their demands are supplied by local goods and services. From this it is apparent that the larger and more diverse the local economy, the greater will be the total derived income effect. But it is also apparent that the larger and more diverse the local economy is, the smaller will be the relative addi tion to total local income from any given initial source of income. There is, however, a second consideration. The value of die output or production attainable with a given capital investment will vary rather widely among industries. The value of the direct local in come resulting from a given value of output will also vary widely among industries. If the factors men tioned above are kept in mind it will be seen that the amount of total local income created by a given value of direct capital investment must then also vary widely. In a price economy, however, capital investment in directly productive capacity will generally flow to those activities and areas where the highest return on the capital can be earned, i.e., where it has the highest productivity, commensurate with risk. Wheth er or not such an investment generates a high local income stream in addition is really not of primary in terest to the owners of the capital or to the nation. But it is of interest to the local community to know that where an area’s agricultural resources are such as to yield high returns, investment in agriculture can Page 67 provide a source of additional local income greater (per dollars worth of invested capital) than many kinds of direct labor-using capital investment. Clearly, there is no single, ” best” ivay for the local area to participate in the nation’s economic development. At this point it is of interest to examine a popular thesis concerning the processes of economic develop ment. Very briefly, this thesis holds that a nation’s economic development consists of three stages. In the initial stage, the principal activities and sources of in come are the so-called "primary" or extractive indus tries, agriculture and mining. In this stage per capita incomes are very low. However, as the economy de velops there is a marked shift to “secondary” indus tries, manufacturing and processing. This industrial ization is accompanied by rapidly rising total and per capita incomes. Finally, as the economy matures and grows wealthy an increasing proportion of employ ment and income is created by service industries of all kinds, the “tertiary” industries, including transporta tion and communication. There are large national economies or even larger regions whose developmental pattern fits roughly into this description. What happens is simply that increas ing specialization of labor occurs as an economy progresses, a feature which both results from and adds to the efficiency of a growing economy. H ow ever, it may be quite misleading to make a simple transfer of this descriptive statement to a prescriptive scheme for the development of areas within a larger economy. For within a highly integrated economy specialization of function also implies a certain geo graphical specialization. There is little evidence, for example, that the state of Iowa is an underdeveloped area by any measure. Indeed, by specializing in agri culture, for which the state is wonderfully well en dowed, Iowa’s citizens have achieved a standard of living matched by few other sections of the country. They have been able to accomplish this by relying on other areas, better endowed for other types of pro duction to supply much that Iowans consume. It is interesting to examine this question in the light of the experience in the Eighth District. The prob lem might be stated as follows: W ide differences in per capita income growth are apparent among the 99 areas in this district. To what extent can these differences be explained by shifts from primary to secondary industries in each of these areas?1 It is true that there is at least a statistical relation ship between industrialization and per capita income levels. For the 99 small areas into which this district has been subdivided for this analysis, 56 per cent of the variation in per capita income levels among areas in 1929 could be explained statistically by variation in the per cent of the labor force engaged in manu facturing. When the metropolitan areas are removed from the sample this relationship reduces to 52 per cent. For the year 1951, however, only 35 per cent of the variation between per capita income levels could be explained by differences in industrialization. The question might be turned around to ask if there is any measurable relationship between the per cent employed in agriculture and the level of per capita income. That is, to what extent can the observed variation in levels of per capita income among district areas be explained statistically by variation in the per cent of the population engaged in agriculture. The relevant statistical measure in this case was 71 per cent in 1929 and only 58 per cent in 1951. 1 Before attempting to answer the question, a word of warning about comparisons of per capita incomes is needed. Such comparisons between predominantly urban areas and predominantly rural areas overstate differ ences in real incomes or standards of living. This is true because of differences in consumption patterns, differences in price levels of certain important items of the household budget such as rent, and differences in the extent to which many services performed through the market in urban areas are performed outside the market in rural areas. This caveat is set forth here because frequently when per capita incomes are com pared between rural and urban areas the idea is prevalent that the way to raise per capita incomes is to urbanize. This is not to say of course that there are not significant differences in standards of living between some rural aieas and urban areas. The continuing large migration is testimony that there is. Neither of these tests is sufficient to indicate any very significant relationship between the economic base of the local economy and its level of per capita income. There is in addition a slight upward bias in the relationship because of some correlation between per cent employed in manufacturing and urbanization. But the real question is not addressed to existing per capita income differentials among areas, but to the kinds of adjustments made by the local economies which tend to reduce these differentials. That is, what are the adjustments which permit the community to share fully in the nation’s economic development? The data given above provoke the real question: Is there any measurable relationship between growth in per capita income and industrialization? Is it possible to explain differences in the growth of per capita in comes (as a measure of local economic development) among district areas in terms of the rate of industrial ization (as measured by changes in the per cent em ployed in manufacturing)? The answer is quite simply that there is no statisti cal evidence of such a relationship. No correlation was found between growth in per capita incomes in the local economies of the district and growth in the proportion employed in manufacturing. Other factors than increased industrialization were at work improv ing the levels of income in this district over the period from 1929 to 1951. In summary, statistics cannot provide definitive answers to the questions raised above, and a quarter of a century is a relatively short time. However, coupling the evidence available on per capita income growth in this district with knowledge of the per vasive nature of change in the economy as a whole, the argument presented in this article might be con cluded as follows: 1. Rapid income growth and economic develop ment in the United States has resulted in increas ing equality of per capita income levels among the geographic sections of the country. 2. This is due to the free mobility of goods, population and capital across the land. 3. This mobility requires continuing adjustment by communities to economic changes taking place in their region, in other regions and to those which are nationwide. 4. Involved in making these adjustments are capital investments by individuals, businesses, gov ernments, and nongovernmental community or ganizations. 5. For some communities the combination of these adjustments results in an increased demand Page 69 for labor, in others an outmigration of population takes place. 6. There is no evidence that any single type of adjustment results in more rapid rate of per capita income growth than others involving a response to economic incentive. Clearly, these is no single best way for a local area to participate in the nation’s economic development. The particular adjustment best suited to the local economy will depend upon the nature of its local resources and the interests and energies of its citizens. G u y F reutel OF CURRENT CONDITIONS Business activity during May held steady. M P R O V E M E N T S IN SOM E SECTO RS of the Eighth District economy during May were not suf ficient to raise the rate of over-all activity. Reflecting layoffs from defense and household durable goods manufacturing plants and seasonal layoffs from ap parel plants and coal mines, insured unemployment in district states was higher in early May than a month earlier. Brighter aspects in the business picture were the continued improvement in steel output, the recent rise in construction contract awards, and the im proved moisture conditions in most areas of the dis trict. In addition, department store sales in the first half of May held close to the advanced rate of April. In the nation, output increased during May in sev eral important industries for which weekly data are available. Unemployment insurance claims remained high, however, rather than declining as they did last year from early April to early May. The record level of construction outlays probably continued into May, reflecting the high value of awards in recent months. And department store sales held close to the April rate after allowance for seasonal factors, but fell behind the high volume in May, 1953. Output of some goods increased . . . Through early May, indications were that the Eighth District industrial economy continued to oper ate at about the same reduced level as it had earlier this spring. However, the rate of steel ingot produc tion at St. Louis continued its rapid recovery, having risen from 46 per cent of capacity in March to 61 per cent in April to 73 per cent in early May. Crude oil production in district states was 8 per cent higher than a year ago during the first two weeks of May. Such signs of strength also were seen in the national situation. The index o f industrial production of the Federal Reserve Board remained steady in April, fol Page 70 lowing eight months of declining output (after sieasonal adjustment). In early May, indications were that production continued steady. Steel ingot was produced at around 71 per cent of capacity, having risen from about 68 per cent in April, and automobile output was increased further. Most industries in both district and nation con tinued at reduced levels of production. Coal produc tion in the district was running from 15 to 20 per cent lower than a year ago. Nationally, the industry was hit by falling coal exports. Lumber output in the dis trict and nation continued at a somewhat lower level despite the very active construction industry. And April power figures showed that district textile, pri mary metals, transportation equipment, shoe and leather, w ood products, chemicals, rubber, and ma chinery industries were using from 7 to 20 per cent less power than a year ago, while only four—food, newspaper printing, paper and allied products, and fabricated metals—used more kilowatts. . . . and department store sales remained at a high level . . . In the first three weeks of May, department store sales in the district continued close to the advanced rate of April. However, sales lagged behind those a year ago, when they reached a peak for 1953, after allowance for seasonal factors. District department store sales during April gained more than seasonally from March. If adjustment is made for the later date of Easter by combining March and April, sales still fell short o f the same months last year. And cumulative 1954 district sales for the first four months were slightly under those in 1953. The only major district area to show an increase for the year to date—the Little Rock area—was experiencing a below average performance a year ago. Furniture store sales in the district during April were 9 per cent larger than in March but were 5 per cent lower than in April, 1953. Inventories held by reporting district department stores on April 30 were slightly below those at the end of March and on the comparable date a year ago. Furniture store inventories on April 30 totaled slight ly above those a month earlier but were lower than a year ago. Outstanding orders at district department stores on April 30 were substantially lower than a month earlier and a year ago, indicating a continued attempt to reduce inventories. . . . but insured unemployment rose. Reflecting both seasonal layoffs and reductions at defense and civilian goods plants, insured unemploy ment in district states was slightly higher in early May than a month earlier. The volume of unemployment changed very little in most district areas from April to mid-May. In the St. Louis area there was a substantial increase in un employment compensation claims resulting from fur ther layoffs in durable goods plants, and a seasonal slackening in apparel production. Greater steel output required some rehiring and a return to a full work week at one plant. In the Louisville area an increase in construction employment was offset by layoffs at ordnance and appliance plants, leaving the volume of insured unemployment practically unchanged. Memphis area unemployment remained unchanged. Unemployment claims declined in Evansville reflect ing in part recalls in May to an automobile assembly plant. In the state of Arkansas unemployment claims declined slightly over the month. As in recent months, the ratio of insured unemploy ment to employment covered by State programs was higher in district states, except Indiana and Missouri, than in the nation. In part this may reflect the return of workers after being laid off from recent jobs in the large industrial areas outside the district. cluded in contract awards in the first four months this year was greater than in the same months last year when less money for residential mortgages was avail able and terms were not as easy. Farm prospects improved . . . Reports from the farms were also heartening. Pre cipitation during the months of April and May largely overcame temporary crop moisture shortages in most of the district. In addition, the planting schedule of district farmers was well ahead of normal. From the production standpoint, recent precipitation and early plantings improved prospects for district crops. Favorable growing conditions raised the May 1 estimate of 1954 winter wheat production for district states to 114 million bushels. This represented a 13 per cent increase from the April 1 estimate, but is 28 per cent below 1953, a year of high acreages and high yields. Favorable moisture and temperature conditions have also aided district states pastures, at least tem porarily. Conditions as of May 1 averaged approxi mately normal, with all district states within 6 per cent of the ten-year average, 1943-52. However, total pasture production for the season will largely depend on future rainfall. Cool weather severely damaged cotton plants in Arkansas, Mississippi, and Tennessee, making replant ing of as much as 75 per cent of the crop a necessity in some areas. And because of wet soils, replanting was retarded to a less propitious time. Reflecting declines in prices of farm products in recent years, for the one-year period ending March, 1954, farm real estate values in district states declined 5 to 8 per cent. However, most of the decline occurred from March to November, 1953. In the following four months, farm real estate values held relatively steady, remaining unchanged in the state of Tennessee and declining 1 or 2 per cent in other district states. . . . Residential building has risen. The seasonally adjusted rate of residential construc tion contracts awarded in the Eighth District has in creased substantially from a low point in July, 1953. In part this rapid rise may be attributed to the in creased availability and easier terms of mortgage money in recent months. This larger supply of funds for residential financing reflects the high rate of sav ings and the relatively more attractive yields of urban residential mortgages now that bond yields have de clined. One result of the easier supply of mortgage funds has been an increase in speculative building. In the district and the nation, the proportion of onefamily dwelling units for sale or rent to the total in and business loans declined less than usual. Business loans by district weekly reporting member banks declined less than seasonally in the five weeks ended May 19. This relative strength in business loans in the district was in contrast to a continued contrac tion nationally, which was larger than that in the same weeks of most other areas. The smaller-thanusual net repayments by businesses in the district re flected both a slight increase in net borrowings by trade concerns and contractors and a less than normal amount of net repayments by commodity dealers. (This latter development was largely due to the rela tively small amount of loans made to these dealers last fall.) On the other hand, "other,” largely con sumer, loans declined. Page 71 The DISTRICT RECORD VARIOUS INDICATORS OF INDUSTRIAL ACTIVITY April 1954 Industrial Use of Electric Power (thousands of KWH per working day, selected industrial firms in 6 district cities). Steel Ingot Rate, St. Louis area (operating rate, per cent of capacity). . . . Coal Production Index— 8 th Dist. (Seasonally adjusted, 1935-1939—100). Crude Oil Production—8 th Dist. (Daily average in thousands of bbls.)...................... Freight Interchanges at RRs—St. Louis (Thousands of cars— 25 railroads— Terminal R. R. Assn.). . . ... ....................... ...................... Livestock Slaughter— St. Louis area. (Thousands of head— weekly average— first 4 weeks) .... » ... ... ...................... Lumber Production— S. Pine (Average weekly production— thousands of bd. ft.). Lumber-Production—S. Hardwoods. (Operating rate, per cent of capacity). Percentage Change* Mar. 1954 Apr. 1953 —0 —< • 9% +33 +29 4- 2 — 22 98.4 — 5 — 15 101.5 187.8 91 — 9 — 1 — 4 — 4 61 153 p 320.3 — 17 + 5 — 12 - 0- 5 coal production index, show the relative per cent change in production, not the drop in index points or in per cents of capacity, p Preliminary. a* BANK DEBITS1 April 1954 (In millions) Six Largest Centers: East St. LouisNational Stock Yards, 136.8 149.5 162.1 692.9 632.0 1,979.4 + 7% Arkansas. Illinois. Indiana. Kentucky Mississippi Missouri Tennessee. 7 States 8 th Dist. Percentage Change Jan. thru Mar. Mar. ’54 1954 Mar., from compared with 1952 1954 Mar. ’53 1953 $ 20,941 — 4 9% — 3 % + 5 % 187,913 + 13 + 1 + 6 — 1 92,103 + 10 + 7 — 9 23,033 + 5 t 3 —35 23,489 — 42 T 2 71,030 + 8 + 1 + 3 — 9 — 13 22,018 + 4 $440,257 - 0 - % — 2 % - 0 - % $171,614 — 1 1 % — 6 % + 1 % — 12% — 14% — 6 - 5 — 16 — 14 — 6 — 15 + 8% — 1 — 10 — 3 +24 Assets — 10 Loans (Net)1 Business and Agricultural. Security. Real Estate. Banks......... Other (largely consumer). U. S. Government Securities. Other Securities. Cash Assets. Other Assets. Total Assets. — 12 £ — 14 — 12 + 1 + 1 — 1 - 0- 8 9 — 1 - 0- 0— 10 + 3 — 9 — 16 — 2 — 9 — 8 — 5 — 9 — 25 - 0- 0+ H) + 3 — 25 — 8% — 12% £ I 1 ° o I 1 Other Reporting Centers: $ 35.3 Alton, 111.. . . 13.3 Cape Girardeau, Mo. 28.6 El Dorado, Ark. 47.4 Fort Smith, Ark. 23.2 Greenville, Miss. 9.1 Hannibal, Mo. 7.3 Helena, Ark. 20.6 Jackson, Tenn.. . . 68.1 Jefferson City, Mo. 34.3 Owensboro, Ky. 32.6 Paducah, Ky. 35.1 Pine Bluff, Ark. 34.5 Quincy, 111. 12.6 Sedalia, M o.. . 69.2 Springfield, Mo. 17.2 Texarkana, Ark.. Total—Other $ 488.4 Centers. $4,241.1 Total—22 Centers 5% 9 1 $3,752.7 — — — — o Evansville, Ind.. Little Rock, Ark. Louisville, Ky. Memphis, Tenn. St. Louis, Mo. Total— Six Largest Centers. $ (In thousands of dollars) 1 111.................. CASH FARM INCOME Percent Change from Mar. Apr. 1954 1953 INDEX OF BANK DEBITS— 22 CENTERS SEASONALLY ADJUSTED (1947-49=100) Apr. Mar. Apr. 1954 1954 1953 143.1 152.3 143.1 1 Debits to demand deposit accounts of individuals, partnerships and corporations and states and political subdivisions. ASSETS AND LIABILITIES OF EIGHTH DISTRICT MEMBER BANKS (In Millions of Dollars) _____All Member Banks Weekly Reporting Banks Change from Change from Mar. 31, Apr. 28, Apr. 14, 1954 1954 1954 May 12, 1954 * Not shown separately due to insufficient cover age, but included in Eighth District totals. 1 In addition to following cities, includes stores in Blytheville, Fort Smith and Pine Bluff, Arkansas; Hopkinsville, Owensboro, Kentucky; Greenwood, Mis sissippi; and Evansville, Indiana. 2 Includes Louisville, Kentucky; and New Albany, Indiana. PERCENTAGE DISTRIBUTION OF FURNITURE SALES Apr., 54 Mar., ’54 Apr., ’53 15% Cash Sales. 14% 14c 85 Credit Sales. 86 100% 100 %, Total Sales. 1009 $1,360 694 35 257 44 349 985 200 881 40 $3,466 $+ 7 —11 —1 + 2 -j-23 — 5 -0 + 10 — 26 + 2 $— 7 $2,121 $— 22 1,950 417 1,380 61 $5,929 — 27 t 1 + 1 S— 39 Liabilities and Capital $— 14 $ 681 J 684 — 42 3,624 1,934 *±496 1.136 528 82 67 Ui -- 1 421 -0 238 $— 39 $5,929 $3,466 1 Loan breakdowns reported gross for weekly reporting banks, not available for all member banks. Demand Deposits of Banks. Other Demand Deposits. Time Deposits........................... Borrowings and Other Liabilities Total Capital Accounts. Total Liabilities and Capital. DEPARTMENT STORES Percentage of Accts. and Notes Receiva b le , Outstanding Stocks Stock April 1, 1954, col___________ Net Sales___________ on Hand Turnover lected during April. April, 1954 4 mos. ’54 Apr. 30, ’54 Jan. 1 to Excl. compared with to same comp, with April 30, Instal. Instalment Mar., ’54 Apr., '53 period ’53 Apr. 30, ’53 1954 1953 Accounts Accounts RETAIL FURNITURE STORES Net Sales Inventories Apr., 1954 Apr., 1954 compared with compared with Mar. ’54 Apr. ’53 Mar. ’54 Apr. ’53 + 2% -6% 8 th Dist. Total1 + 1 0 % — 4‘ —2 — 3 St. Louis . .. + 8 — 5 + 4 Louisville Area2 — 5 V Louisville. +t — 16 +20 Memphis . . . . —2 +21 +6 Little Rock. + 18 Springfield. +6 INDEX OF CONSTRUCTION CONTRACTS AWARDED EIGHTH FEDERAL RESERVE DISTRICT* (1947-1949=:100) Unadjusted Mar. 1954 Feb. 1954 Mar. 1953 147.4 175.6 Total.............. 169.8 p 157.8 204.7 Residential. 191.5 p 162.1 142.5 All Other. . 159.7 p Seasonally adjusted 195.6 192.3 Total.............. 189.2 p 220.1 197.3 Residential. 205.9 p 184.2 190.0 All Other. 181.5 p * Based on three-month moving average (centered on mid-month) of value of awards, as reported by F. W. Dodge Corporation, p Preliminary. 8 th F.R. District Total Fort Smith Area, Ark.1 Little Rock Area, Ark. uincy. 111................. vansville Area, Ind. . Louisville Area, Ky., Ind. Paducah, Ky.. St. Louis Area, Mo., 111. Springfield Area, Mo. Memphis Area, Tenn.. All Other Cities2 . g + + + + + + + + + + + 18% 22 25 21 24 23 18 17 10 11 27 + 6% +10 +10 + 9 — 3 + 2 — 24 + 9 + 2 + 5 — 2 — 2% — 3 + 2 + 1 — 11 — 4 — 26 -0 — 7 — 1 — 14 — 8% 1.18 1.14 17% 46% + 71.02 1.10 ... 42 — 7 1.12 1.06 14 48 — 1 1.14 1.07 _____ _________ .............................................. .... ..................... — 10 1.23 1.19 19 46 ________________ ____ ____ ___________ ____ — 9 1.22 1.15 19 52 — 18 .97 .93 . .... _____ — 2 1.23 1.20 17 32 — 11 .77 .82 09 43 INDEXES OF SALES AND STOCKS— 8 TH DISTRICT Apr. 1954 March 1954 92 108 123 Sales (daily average), unadjusted3 . . . . 112 Sales (daily average), seasonally adjusted3 . 114 Stocks, unadjusted4 ............. 124 Stocks, seasonally adjusted4 ........... 120 116 3 Daily average 1947— 49=100 4 End of Month average 1947— 49=100 Trading days: April, 1954— 26; March, 1954- -27; April, 1953— 26. Feb. 1954 88 112 April 1953 105 108 113 1 In order to permit publication of figures for this city (or area), a special 2 Fayetteville, Pine Bluff, Arkansas; Harrisburg, Mt. Vernon, Illinois; sample has been constructed which is not confined exclusively to department Vincennes, Indiana; Danville, Hopkinsville, Mayfield, Owensboro, Ken tucky; Chillicothe, Missouri; Greenville, Mississippi; and Jackson, Tennessee. stores. Figures for any such nondepartment stores, however, are not used in computing the district percentage changes or in computing department Outstanding orders of reporting stores at the end of April, 1954, were store indexes. 20 per cent smaller than on the corresponding date a year ago. FRASER Digitized for 111 137 128
@FedFRASER