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Volume XXXVI :r, 1954 Number 10 ICT INCOME in a Period of Business Adjustment C T IN C O M E IN 1 9 5 3 w as greater than in 1 9 5 2 , b u t the gain w as m ed iately preced in g years. M ost areas o f the district partici- xease. H o w ever, the severe sum m er drouth retardal sections and slow ed the advance o f the dis trict’s mal incom e flow . __ still received less O n e-th ird o f district incom e areas e national average. D istrict incom e and prod uct in 1 95 3 responded to shifts in local and national dem and^J3i§tnjcfc^esidents m ain tain ed a h igh rate o f expenditure in 1 9 5 3 fo r c o n s u n w io n a P residential construction. D em a n d originating w ith in the district w Bm u j im : aicW rfcv larger State and local governm ent pu r chases. A w eakffihM gnm reirce w&s the tapering off o f F ed eral d efen se ou t lays, the liqu id atic»s^ j M Lsn^gs_ijiventories, and the general declin e in ex ports o f raw m a te r ia ls ^ ^ ^ D em a n d for district output w as financed out o f current incom e, the liquid ation o f assets, and b o rro v ^ g T ^ ^ J H ^ sio n in credit from all sources w as abou t as large in 1 9 5 3 as in th e n te c o r (^ e a r ^ 9 5 2 , b u t a sm aller share o f total credit represented n ew bank fuMas^ ^--— -J i T h e im pact o f these business adjustm ents also influenced district incom e patterns in the first h a lf o f 1 9 5 4 w hen district residents again fared less w ell than their neighbors in other parts o f th e country. V Federal tteslejpW B a n k ' jufiSt. Louis District income in 1953 was greater than in 1952, . . . then of revived military burdens after Communist aggression in Korea, the nation faced in 1953 the further test of sustaining high levels of economic activity previously attained through the stimulus of defense spending. In particular, the challenge lay in demonstrating that the district economy could make the realignments called for by national and in ternational developments without serious distress. This task, which came increasingly to the fore in the latter part of 1953, continues to be a pressing eco nomic problem. M illio n s of Oollors At Annuol R a to s 14.5 j— ------------------------------ — ------ Most areas of the district participated in the moderate increase. litQ 2nd Q 3rd Q 4th Q D l S T R I C T income in 1953 reached a record total of $13.8 billion, more than five per cent above the $13.1 billion paid out in 1952. On a per capita basis, district residents received an average of $1,289 in 1953, as compared with $1,238 in the preceding year. As the consumer price index moved up less than one per cent over the same period, the advance in per sonal income represented a substantial improvement in the real purchasing power of district residents. Nineteen hundred and fifty-three as a whole thus took its place at the top of a procession of four record years. This fact has been overshadowed, however, by a change of pace within the year. .. . but the gain was less than in immediately preceding years. The aggregate flow of district income in 1953 rose in the early part of the year to an annual rate of almost $14 billion and then declined moderately through mid-summer. Despite the slackening in eco nomic activity, income payments remained above year-earlier levels although at a declining rate. This growth in the aggregate, however, covered up some adverse changes in the composition of income. Trans fer payments, such as unemployment compensation, were almost 6 per cent higher at year-end while pro prietors' income lagged behind. These figures on district income reflect the story of business adjustment toward a more nearly normal peacetime economy. Having met the test of recon version and rehabilitation after W orld War II, and Page 110 Gains in district per capita income from 1952 to 1953 showed rather wide variation among small areas due to the considerable diversity that characterized developments among particular industries in the Editor’s Note T h I S ARTICLE continues the series of district area in come payments published annually in the October M o n t h l y R e v i e w . For the purpose of this series, the district has been divided into 99 income areas, each with a fairly homoge neous economic structure. The precise composition of each income area has been listed in the M o n t h l y R e v i e w of Oc tober 1952. Estimates of district area income payments are based on the state income payment series of the United States De partment of Commerce. Industrial detail furnished by the Department is allocated to district income areas with the help of local data, supplied to this Bank by a great variety of Federal, state, and private agencies. The resultant esti mates are reliable within a narrow range of error and are useful for many analytical purposes. The present article extends the series in several direc tions. Estimates of expenditures and the use of credit, for the district as a whole, are presented in addition to the in come estimates. Quarterly income and expenditure esti mates have been prepared. And preliminary figures for the first half of 1954 are discussed in the text. All these addi tional estimates have been derived using the same basic methods developed for the income data. Relevant local in formation, by individual activities and industries, has been used to compile preliminary district-wide estimates which have been reconciled with national control totals. The reliability of these new estimates obviously differs for indi vidual components. Consumer purchases in retail stores, e.g., can be estimated with a rather high degree of reliabil ity, especially where sales tax records are available. Esti mates of government purchases, on the other hand, are sub ject to a much wider margin of error. In general, the new estimates are somewhat less reliable than the traditional income payment series. They are presented here neverthe less in the hope that they may contribute to the analytical usefulness of the income data. national and district economy. While wages and salaries increased 8 per cent, net farm income dropped 10 per cent. Moreover, changes in manufacturing and construction payrolls had important effects 011 the flow of income in particular areas. Some of these changes have been erratic from year to year. A number of areas with sizable gains in 1953 reversed their experience in 1954. A good illus tration is provided by southern Indiana. Stimulated by large expenditures for the Indiana Arsenal, 1953 income in the New Albany-Jeffersonville area in creased by more than 20 per cent. Yet this advance tapered off in 1954 after completion of the major construction project which had attracted a large labor force from a wide commuting circle. Areas with above-average income growth were again concentrated in the Ohio Valley where gov ernment and industrial payrolls, especially in chem ical and electrical manufacturing, continued their postwar gains, at least through the earlier part of 1953. Among major metropolitan centers, St. Louis showed the largest increase (8 per cent) with a per capita income of $2,297. Evansville and Louisville also surpassed the $2,000 mark. The prevailing pat tern among district income areas, however, was a more moderate advance of 5 or less percentage points. However, the severe summer drouth retarded income growth in many rural sections . , . Not all district residents shared in this prevailing pattern of growth. In the Ozarks and other rural sections, per capita income in 1953 was below that of 1952. While most segments of the district economy continued to set new records well into the year, agri culture was experiencing further downward adjust ments in prices and income following the peak reached in 1951. At the close of 1953, farm product prices were off 3 per cent from a year earlier, and large supplies continued to weigh heavily on com modity markets. The sizable reduction in district net farm income from 1952 to 1953 reflected a less favorable relationship between prices paid by district farmers and prices received for products sold. While cash farm receipts in the district increased slightly in 1953 over year-earlier levels, there was a sizable increase in farmers' production expenses. CASH RECEIPTS FROM FARM MARKETINGS 1953 Per cent Change (Millions o f Dollars) from 1952 Crops Livestock Total Crops Livestock Total Arkansas ___________ 383 181 564 — 2.6 — 10.4 — Illinois _____________ 169 268 437 — 4.5 -0 - — 1.8 Indiana _____________ 62 123 185 + 1.6 Kentucky ___________ 156 178 334 + — 10.6 — 4.3 Mississippi __________ 408 79 487 + 3 2 .5 — 7.1 + 2 3 .9 Missouri ........... ......... 254 570 824 — 0.4 — 1.1 — __________ 139 52 191 — 4.1 — 11.9 — 6.4 Total Eighth District 1,571 1,451 3,022 + 5.4 — 3.9 + 0.8 United States ______ 14,150 17 263 31,413 — 0.7 — 6.4 — 3.9 Tennessee Per Capita income payments were up five per cent on the average — 0— 4.0 + 2.5 5.2 0.9 The major adjustment was in the cattle business. Farmers and ranchers marketed cattle in record vol ume. Total slaughter was large enough to slow appreciably the rapid buildup in herds which had been under way since 1949. With about one-fourth more cattle slaughtered than in 1952, prices were down sharply. And as prices of slaughter stocks slipped, expected profits from cattle feeding evapo rated. Losses were chalked up by many farmers on this phase of their business, especially in the district areas hit by the severe 1953 summer drouth. , . . and slowed the advance of the district's share in the national income flow. The existence of “soft” spots in the district economy, such as agriculture and coal mining, impaired the relative position of the district in the national income flow. In the war and immediate postwar years, the district had shown above-average gains as farm prices strengthened and farm income advanced, adding to the gains of diversification and industrialization. In Page 111 > Farm income was off Change from 1952 Millions of Dollars 900 r 600 - 300 - 0 - 300 L 1952, district residents received 5.12 per cent of national income payments. Despite the gain in actual dollar income, this share had dropped by 1953 to 5.09 per cent, the lowest since the start of W orld War II. These relative losses have been heavily concentrated in the southern part of the district, emphasizing the impact of the drouth as well as the continued vulner ability of many rural areas to changes in the national demand for farm products. Arkansas, for example, received only 0.66 per cent of national income in 1953, in contrast with 0.74 per cent in the immediate postwar years. One-third of district income areas still received less than half the national average. Only four of the 99 income areas into which the district has been divided were at par with the nation, or above, in terms of per capita income. However, these four more urbanized areas contained 20 per cent of the district population. As many as 70 areas had per capita income of less than 70 per cent of the national average while 31 areas in this category, heavily concentrated in the southern third of the district, received less than half. This last group grew from 27 areas in 1952 to 31 in 1953, highlighting the relative deterioration of the district’s position in the national economy last year. District income and product in 1953 responded to shifts in local and national demand. All income is ultimately created by the expendi tures made for the productive services supplied by income recipients. Thus, there is maintained a perma Page 112 nent income flow from income recipients who dis pose of their income to other individuals who receive these outlays as new income. Income may be spent for a wide range of consumer goods and services, it may be transferred to other individuals as a gift, it may be handed over to the state for taxes, and it may be “saved.” In the latter case, it may either be kept in liquid form as cash, or it may be * 'invested.” Gov ernment and businessmen, in turn, may spend the household savings entrusted to them for an almost infinite variety of products either within or outside the district. Economic activity is a continuous adapta tion to these changes in the savings and expenditure patterns of personal income recipients, government, and business. Not only district residents but also those residing outside the district and doing business with us change their expenditure patterns and may buy more or less district output. Thus, district income and product is subject to the forces of national and world as well as local demand. In any period of business adjustment, such as 1953, these various sources of demand undergo more than usual, and often cumu lative, changes. The test of economic performance is then the speed with which output of an area can be adapted to change in demand and the extent to which income of the area residents can be maintained or increased by these timely adaptations in output. M an y district areas still receive less than half the national average District residents maintained a high rate of expenditure in 1953 for consumption . .. trict as a whole benefited somewhat less than other, more industrialized regions from the early spurt in spending on durables which, to a considerable extent, represented “imports” of the district from the rest of the nation. In millions of dollars, seasonally adjusted annual rates 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Durables................... 1,550 Nondurables............ 0,059 Services................... 4,049 1,545 6,100 4,126 1,545 6,049 4,197 1,428 6,054 4,233 . . . and residential construction. In millions of dollars, seasonally adjusted annual rates 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Consumer spending in 1953 was the highest on record, both in the aggregate and on a per capita basis. Total consumption expenditures in the district amounted to almost $12 billion, an advance of more than 5 per cent paralleling the movement of personal income closely. With consumer prices showing the smallest year-to-year increase since 1950 most of the rise in dollar value represented an increase in real volume, the largest since 1949-50. Residential Nonfarm.............. Other....................... 597 678 622 699 617 689 597 709 Investment in housing was of most direct benefit to local income flows. National as well as district resi dential construction activity set new records in both dollar and volume terms, providing a bullish feature of the 1953 business situation. Aggregate district ex penditures for all private construction were $1.3 billion. Construction outlays of both business and individuals were higher than in 1952; farmers were the only important group spending less than a year earlier. Unlike the immediately preceding years, activity was no longer limited by material shortages or by government credit restrictions which had been aimed at reducing the physical volume of less essen tial construction. Important shifts occurred in 1953 among different lines of expenditures. Outlays of district consumers for durable goods surpassed $1.5 billion last year, with a record total for automotive expenditures. Yet durables suffered a setback toward the end of the period. By contrast, consumer purchases of non durable goods showed greater stability. Clothing outlays were slightly below the preceding year while food expenditures advanced up to the third quarter. Services continued their steady rise without inter ruption, reflecting the postwar residential building boom and the sharply accelerated demand for utilities and other services occasioned by it. The mild weather of the 1952-53 winter permitted a large number of houses to be started in the early months of 1953 when residential construction starts reached a high point. The trend toward home build ing in outlying areas continued through the year, when a sizable proportion of all private housing units were started outside urban city limits. This movement of population and home construction has been a power- This remarkable over-all stability of consumer ex penditures had much to do with the maintenance of income, in the district as well as throughout the nation. In its ultimate net effects, however, the dis DISTRICT INCOME IN 1953 United States Eighth District Wages and Salaries (millions of dollars)____ 188,382 Proprietors Income (millions of dollars)_____ 38,082 Property Income (millions of dollars).—....... . Other Income (millions of dollars)______ ____ Arkansas Illinois Indiana Kentucky Mississippi Missouri 8,642 975 1,136 676 1,468 319 3,290 778 2,986 524 374 209 416 362 854 247 28,359 1,175 119 210 77 151 64 446 108 15,751 975 174 93 56 156 73 340 83 Total Income (millions of dollars)___________ 270,574 13,778 1,792 1,813 1,018 2,191 818 4,930 1,216 Population (thousands)_____________________ 158,323 10,689 1,909 1,335 719 1,628 1,033 3,070 995 Per Capita Income (dollars)________________ 1,709 1,289 939 1,358 1,417 1,345 792 1,606 1,223 Total Income______________________________ 106 105 100 105 107 104 99 106 104 101 101 106 104 110 110 107 Per Capita Income______ __________________ 105 105 Total Income______________________________ 100 Per Capita Income............................................ 100 1 952=100 U. S. = 100 5.09 75 0.66 55 0.67 79 0.3* 83 0.81 79 0.30 46 1.82 94 0A 72 Page 113 ful stimulus throughout the district to further invest ment in roads, utilities, and related nonresidential construction. Indirectly, the national construction boom bene fited the district lumber and furniture industries, which, though declining in 1953, probably would have fallen off even more if construction activity had been less strong. Demand originating within the district was further aided by larger State and local government purchases. defense projects, the decline in the district was even greater than in the nation. Curtailment of defense demands reflected many influences, including the cessation of fighting in Korea as well as some shift in the goals and nature of the program. It was this drop in Federal outlays which exerted a basic and most pervasive impact on other segments of the economy as business adjusted to the resultant shifts in demand. .. . the liquidation of business inventories . . . In millions o f dollars, seasonally adjusted annual rates 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter In millions o f dollars, seasonally adjusted annual rates 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter State and Local Purchases.............. 1,270 1,244 1,280 1,336 State and local government purchases rose to $1.3 billion in 1953, up almost 10 per cent from the pre ceding year—about the same annual advance as the average since 1946. The trend reflects the process of catching up with the wartime backlogs of deferred construction, as well as the attempt to keep pace with the greatly expanded demand for capital facilities and current services associated with a growing and more prosperous population. Wage and salary disbursements amounted to $700 million last year and comprised more than half of State and local expenditures. Approximately $300 million of purchases represented new construction, with highway development accounting for more than two-fifths of the amount and school expansion pro grams for about one-fourth. A weakening influence was the tapering off of Federal defense outlays . . . 2,769 423 2,667 428 Federal purchases of more than $3 billion were higher in 1953 than in 1952. They continued to grow until last summer. The rate of spending for national security in the second half of 1953 dropped below earlier peaks. With the completion of several large - 316 41 - 148 46 -1 8 9 - 25 The rise in stocks related to defense production had accounted for large increases in business inven tories in the 1950-52 period. As defense programs matured, requirements for these inventories tapered off. And with a general shift in expectations, business throughout the economy adjusted its inventory posi tion. Inventory accumulation continued high during the first half of 1953, reaching a peak in the second quarter. The rate of growth dropped in the third, and was followed by net liquidation in the fourth.1 For the district economy, the movement of inven tories held by farmers was of special interest. It is estimated that district farm inventories as a whole were down 2 per cent for the year. Livestock market ings, stimulated by large cattle numbers and severe drouth, were higher than any earlier year and prices M illions of Dollars At Annual Rates 1953 BY Q U A R T E R S 300 r 2,581 490 Federal expenditures have been a dominant in fluence in the national and district economies through out the last fifteen years. The unprecedented de mand of the Federal Government for national secur ity and other services had lifted production to new heights during the war, and further demands for pre paredness and reconstruction have been the strongest single factor ever since. In the district, such spec tacular developments as the Paducah atomic energy plant or the Indiana Arsenal exemplify the direct im pact of Federal projects on the district economy. Page 114 168 -2 5 Business inventories were down at end of year In millions o f dollars, seasonally adjusted annual rates 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter National Security. 2,601 Other.................... 393 Nonfarm................ Farm...................... 150 - O- i . 150 - 3 00 L xThe drop in the rate o f accumulation in the third quarter removed a major element of demand from the market. In the fourth quarter when the leveling off changed to actual liquidation the drop in demand was compounded, exerting a further drag upon the economy. This was par ticularly felt in the durable goods area where the previous build-up in stocks had been most pronounced. received for cattle slaughter stock slipped. As a result, the farmers were reluctant to continue the rapid herd expansion of the previous year. This tendency to halt herd expansion was reflected in less feeder cattle at the close of 1953 than a year earlier. Unlike the cattle situation, the hog cycle was ap proaching its low level during 1953 and total hog inventories declined 11 per cent over the year. In addition, crop inventories, excluding those under CCC loan, apparently declined. During the last two years foreign countries have obtained a larger share of their agricultural require ments from traditional supply sources where produc tion—partly encouraged by American price supports— and stocks have become far greater than during the earlier postwar period. Thus, the decline in wheat exports from the ab normal highs of the earlier postwar years reflects the gradual disappearance of the extraordinary food shortages abroad resulting from war dislocation of production and disruption of normal trade patterns. ... and the general decline in exports of raw materials. Last year, at least temporarily, the dollar difference between what the United States sells abroad, ex cluding military aid, and buys abroad was almost balanced.2 This is the first time since 1938 that our trade and service accounts with the rest of the world have been in equilibrium—a heartening development toward stability in international trade. The resultant strengthening of monetary reserves in Europe and the sterling area laid the basis for further steps in the direction of freer trade among our allies and con vertibility of currencies. It also raised new problems for domestic industries whose products were meeting increasingly active competition at home and abroad. While total exports of the United States were well sustained after the drop which had occurred in mid1952, their changed composition affected the district adversely. The three commodities which suffered the greatest decline of exports in the last year—wheat, cotton, and coal—all are of major importance to the district economy. Foreign exports of district products declined Chonge from 1952 Millions of Dollars 75 " MAN UFACTURES 50 - UNITED STATES EXPORTS OF DOMESTIC M ERCHANDISE (Millions o f Dollars) 1953 1952 Change from 1952 _______ Coal ____________ ___ _____ _ 521 874 — 353 ...... 335 494 — 159 Other crude materials .......... _______ 770 614 156 W heat ........... ......... .................... ____ ..... 505 841 — 336 Other crude foodstuffs _____ _______ 456 528 Total raw materials ________ _______ 2,587 3,351 — 764 11,697 1,358 Total m anufactures__________ 13,055 — 72 Cotton exports also declined substantially though the losses of 1953 may be more temporary. Large stocks in other exporting countries are being reduced and production abroad is declining. At the same time, foreign textile output is on the upswing. The rise in price of foreign relative to American cotton this year reflects these changes and has improved somewhat the export outlook for the domestic product. The decline in exports of coal which started in 1952 continued during 1953. Here again, the re duced foreign demand coincided with the develop ment of more abundant supplies abroad. Western European imports of American coal were only onethird as great as during 1952. Coal consumption in Europe declined as the use of other types of fuel increased. 25 - 0- 25 - 50 - -100 - 125 - TOTAL EXPORTS RAW M A TERIALS - 150 2Merchandise imports totaled nearly $11 billion, about $1.4 billion short of exports. This difference was almost made up by ’ ’ invisible” items, such as tourist spending, immigrant remittances, and expenditures of our armed forces abroad. Demand for district output was financed out of current income, the liquidation of assets, and borrowing. Some of the forces behind changes in the flow of income and product can be measured and isolated by tracing the sources and uses of funds which are spent by the various sectors of the economy. It is the spending of current income which creates the great bulk of effective demand for production. There are two additional sources of funds, however, which may be used for current spending. Past income which has been saved, in one form or another, can be drawn upon to finance current activity. And future income, or rather the anticipation of future income, can be come the base of credit to finance the demand for current output. Page 115 The recipients of current income may spend their funds for current output either directly or through other sectors of the economy. Thus, households typi cally use most of their income for personal consump tion expenditures. Some personal income is used to pay taxes and, as government income, may in turn be spent by government for goods and services. The rest is “saved” and may be borrowed— other house by holds, by government, or by business— finance their to needs for spending money. To channel funds from holders to users among these various sectors is the vital task of financial institutions. And when the cur rent demand for funds cannot be fully met by the holders of current income and savings, the banking community may create new money to accomodate economic growth. Constant shifts in the relative im portance of these various sources and uses of funds are the very essence of the economic process in a growing economy. In 1953, the household sector witnessed a slight decrease in the rate of use of current income for consumption expenditures and tax payments as well as a corresponding increase in the rate of savings. The government sector experienced a decline in tax income which outran the tapering off of Federal ex penditures. And in the business sector, inventory accumulation, a net use of funds, turned into the liquidation of assets, a net source of funds. It is the importance of this last factor which has led to the characterization of recent developments as an “in ventory recession.” In a broader sense, all sectors participated in this inventory cycle although conventional accounting records these shifts only for business firms. House holds decreased their purchases of durable goods, liv ing on and thus liquidating some of their “inventories” built up in earlier periods. And the Federal Govern ment slowed the further accumulation of hard goods inventories built for national defense. Expansion in credit from all sources was about as large in 1953 as in the record year 1952 . . . (Millions of Dollars) District credit expansion 1953 1952 1,560 1,600 Credit demands were large in the first half of 1953 but, with seasonal allowances, slackened somewhat after mid-year. Households increased their mortgage indebtedness. During the early months of 1953, con sumer instalment debt also rose. Subsequently, con sumer credit extension declined appreciably, reflect ing the reduction in total sales of durable goods. Since repayments meanwhile continued to grow, Page 116 households, on balance, became increasingly net savers rather than users of credit funds. Nonfarm business capital expenditures were larger in 1953 than in 1952, but total funds available from internal sources—retained earnings and depreciation allowances—were also of record proportion. New corporate stock and bond issues were thus below the preceding year, and business borrowing at banks declined. Governments expanded their borrowing at all levels and were important net users of funds. Municipal issues rose to record heights, reflecting in part un usually large construction programs and in part an increased reliance on borrowed funds to finance these projects. Treasury financing needs were heavy in 1953, both for refunding a large volume of maturing issues and for raising new money. Though Federal expenditures tapered off, cash income declined even more. The resultant cash deficit was financed partly by drawing down the Treasury cash balance and partly by net cash borrowing. . . . but a smaller share of total credit represented new bank funds. (Millions of Dollars) Growth of district money supply 1953 1952 120 420 The role of commercial banks in the net extension of credit was reduced as a result of various factors, including the large amount of funds offered by non bank lenders and the limitation on the availability of bank reserves early in 1953. During the year the com mercial banking system, including Federal Reserve Banks, absorbed a substantially reduced part of the increase in new debt instruments. Moreover, a larger proportion of the growth in bank earning assets represented savings deposits. Among nonbank sources of funds, savings and loan associations experienced the largest growth in 1953, reflecting the continued housing boom as well as the importance of personal savings channeled into the district economy through these financial intermedi aries. Life insurance companies also increased fur ther their role as a source of long-term credit while governments, in the aggregate, were net users rather than suppliers of funds. Household savings remained the most important ultimate source of credit, both through direct investments in government and corpor ate securities as well as indirectly through larger time deposits, savings and loan shares, life insurance and pension reserves which were made available to business and government users through financial in termediaries within as well as outside the district. The impact of these business adjustments also influenced district income patterns in the first half of 1954 ■•• District income payments in the first half of 1954 were substantially the same as in 1953. Total wages and salaries were fractionally lower, with notable de clines in durable goods manufacturing, mining and transportation. The reduction in durable goods manu facturing employment hurt income payments in in dustrial centers such as Evansville and St. Louis. Federal Government payrolls continued their tapering off while those of state and local governments rose further. Farm income for the first half of 1954 was slightly below last year and is expected to remain lower during the coming months, reflecting the effects of acreage controls, drouth, and lower prices of farm products. For the district as a whole, these losses were partly offset by a rise in nonfarm proprietors’ earnings whose firm trend improved the stability of sales in retail establishments, which are of predomin ant importance in the unincorporated nonfarm sec tor. Government transfer payments such as unem ployment benefits, instrumental in cushioning person al income from the effects of lower production, also increased a little further. Back of the over-all stability in district income pay ments was a similar stability in the demand for goods and services. District retail sales in the first half of 1954 remained close to last year s level. With a de cline in business and government purchases, the share of total output absorbed by consumers has risen steadily over the 12 months ending mid-1954 and has remained the outstanding characteristic of business adjustments during this period. Personal con sumption expenditures accounted for more than 65 per cent of the total market value of output in the second quarter of 1954, in contrast with 62 per cent in the same period a year ago. Home building main tained its brisk advance and reached the highest rate since the postwar building peak in the second half of 1950. The net liquidation of business inventories in the second quarter of 1954 was about the same as in the two previous quarters. There was a further decline in Federal defense outlays but state and local expenditures were maintained. Exports showed some improvements as several foreign countries relaxed their restrictions of purchases in the United States. Sources of funds remained ample as personal sav ings continued to flow into financial institutions and as bank reserve positions eased. The ample supply of funds was an appreciable factor in maintaining con struction activity, with longer-term mortgages and smaller downpayments coming back into the home financing picture. Government at all levels was a net user of credit. While demand for long-term funds thus remained high, short-term requirements, as re flected in business working capital needs and credit buying of consumers, were well below year-ago vol ume. As a result, commercial banks appeared less active than other financial institutions in supplying credit funds, continuing the pattern established in 1953. . . . when district residents again fared less well than their neighbors in other parts of the country. During the recent period of business adjustment, district residents have fared less well than their neighbors in other parts of the country. Three distinct reasons account for these differentials. First, there are the unpredictable forces of nature which have been less kind in the drouth-stricken areas of the district. Second, there are the seemingly inevitable but pass ing realignments which follow periods of rapid economic expansion. Over the last generation, Evans ville has grown faster, in terms of total as well as per capita income, than any other district metropoli tan center, it also suffered the largest reduction in employment during the early part of 1954. In many district areas, cattle raising has been the most profit able and the most promising farm operation in the postwar period; it also suffered most from recent farm price declines. Government outlays for national security were behind spectacular rates of income growth in Paducah and certain other district areas which faced last year the problems of reconverting to a more pedestrian pace of operation after the main construction projects had been completed. Third, there are the more permanent problems of adjusting the district economy to longer-term changes in the national and world markets. These problems have not been caused by recent developments, but they have been put into sharp focus. Some areas still depend for their income to a very large extent on products whose value has been adversely affected by competitive developments here and abroad. These developments are well illustrated by recent shifts in the composition of district exports, shifts which are of minor consequence in their direct impact on district income yet which serve as a sensitive barometer of changes in national and world demand. W erner H o c h w a ld Page 117 QF CURRENT CONDITIONS A t t h e e n d o f THE THIRD QUARTER of the year, business activity in the Eighth Federal Reserve District was little changed from the level of recent months after allowance for seasonal factors. Most of the automobile plants were shut down in September for model changeovers and strikes reduced output at several large firms, but otherwise industrial activity increased about the seasonal amount from August. The recent stability of business activity was reflected in the seasonal decline in insured unemployment in the district labor markets. However, department store sales in the first three weeks of September gained less than seasonally from August. Although district business activity held fairly steady in September, it was lower than a year earlier and the decline over the past year was apparently somewhat greater than in the nation. Nonfarm employment in the five largest metropolitan areas in July was 6 per cent less than a year earlier, compared with a 4 per cent drop in the nation. Insured unemployment in early September in relation to covered employment was above the national average in all district states except Missouri. The reduction in district business activity from a year ago has resulted primarily from reductions in national defense outlays and a nation-wide shift on the part of business from inventory accumulation to inventory liquidation. Industry District industrial production in early September showed only moderate strength. Ingot output at St. Louis area steel mills increased to 63 per cent of capacity, reversing the downward trend of the last three months, but remaining far below the more than 90 per cent rate recorded in the past three years for September. Livestock slaughter increased with the hog kill in the St. Louis area running 10 per cent above a year ago because of the large pig crop early this year. There continued to be strikes and tempo rary shutdowns in metal fabricating industries. South ern pine and hardwood production declined slightly. Electrical industrial power consumption at selected firms in the district during the month of August showed a 5 per cent drop from July and was 12 per cent below August, 1953. Among 14 district industrial groups, only paper and allied products, shoe and Page 118 leather products, and textiles used more power than a year ago. The machinery, woodworking, and trans portation equipment industries used substantially less. Construction Construction activity has been one of the strength ening factors in the business situation in both the na tion and the district, but the district economy has re ceived less impetus from this sector than the nation. For the first eight months of 1954, total construction contracts awarded in the nation were 14 per cent larger than a year earlier, compared with a gain of only 5 per cent in the district. The district gains in construction activity have been largely concentrated in three metropolitan areas, Little Rock, Louisville, and St. Louis. In these three areas total construction contract awards in the first eight months of this year were 45 per cent higher than in the same period a year ago, while in the remainder of the district total awards were down 16 per cent. Apparently much of the district is not participating in this years national construction boom. Trade District department store sales in the first three weeks of September increased at a less than seasonal rate from August and were slightly below the reduced level of September, 1953. Unseasonally hot weather limited the effectiveness of seasonal promotions in portions of the district. In August sales increased at about the seasonal rate from July and were at about the same level as in August, 1953. On an adjusted basis, the index of daily average sales in August was 110 per cent as compared to 112 per cent in July and 110 per cent a year ago. Cumulative 1954 district department store sales through September 18 were slightly under those in the comparable period of 1953. Since mid-August St. Louis area department store sales have compared more favorably with those in 1953 than have the sales of other department stores in the district. This better performance reflects the in creased sales resulting from a new policy of three large St. Louis department stores in meeting prices of “discount houses.” Promotions of some goods, such as toys and furs, not generally sold by discount houses also helped push up the sales volume. August sales at reporting furniture stores through out the district increased 6 per cent from July but were 4 per cent lower than in August, 1953. As in the case of the St. Louis area department stores, a few furniture stores in the area announced a policy of meeting other stores’ prices. Many furniture stores in the St. Louis area, however, have met competitive pricing for some time. Inventories held on August 31 by both department and furniture stores throughout the district were slightly higher than a month earlier and somewhat lower than on August 31, 1953. The volume of out standing orders at department stores at the end of August was a little higher than it was both a month earlier and on the comparable date a year ago. A gricu ltu re The farm sector of the district economy continued in September to reflect the adverse effects of the summers heat and drouth, acreage restrictions, and lower prices for farm products. The aggregate price for dis trict farm products declined approximately 3 per cent during the four-week period ended September 27, largely reflecting sharp reductions in hog, egg, and soybean prices. The over-all price decline was mod erated by 4 and 9 per cent increases in beef cattle and milk prices respectively. Crop and pasture conditions improved in certain areas of the district and worsened in others, but the changes were generally moderate during September. Pasture conditions throughout the major portion of the district continued in the "extreme drouth” or “severe drouth” categories in which they were classi fied by the September 1 report of the United States Department of Agriculture. Heavy rains in scattered areas in the north part of the district during the last half of September improved late fall pastures moder ately. However, in major portions of Arkansas, Mis sissippi, Tennessee, and parts of southern Missouri, pastures deteriorated further to approximately onethird of normal. Harvest of the district states’ corn crop of approxi mately 10 per cent below 1953 is well under way. Expected average yields per acre for most of the district improved moderately during September, con tinuing the 8 per cent betterment reported for August. However, Arkansas and Missouri were exceptions and per acre yields deteriorated further in these states to less than 60 per cent of the 1943-52 average. From one-fourth to one-third of the district soybean crop was combined in September. Yields prospects im proved moderately during the month in some areas, but worsened slightly in Missouri. Thus, for the dis trict as a whole, yields per acre are currently expected to be approximately the same as the September 1 esti mate of 17 per cent below the 1943-52 average. H ow ever, increased acreage may result in approximately 23 per cent more production than the 1943-52 average and 15 per cent above 1953. Favorable harvesting weather and some increased use of mechanical pickers permitted harvesting of ap proximately one-half the district cotton crop by the close of September. Yield expectation remained prac tically unchanged during the month and as a result near-normal yields per acre are expected in spite of hot, dry August weather. However, because of acre age reductions total cotton production here will be approximately one-third less than 1953. The district tobacco crop of high quality is 80-90 per cent housed and has had favorable curing weather. Reflecting im proved conditions during the latter stages of the growing season, district states’ production is expected to be 567 million pounds, approximately the same as 1953. Acreage is 7 per cent below last year, but per acre yields are expected to be 7 per cent higher. Rice crop conditions have remained good and approximate ly one-half of the crop was harvested during Septem ber. Higher yields and increased acreages are ex pected to produce approximately 27 per cent more rice than the large crop of last year. In the aggregate, a decline is expected in farm product marketings during the forthcoming normally heavy marketing season, primarily reflecting reduced cotton production, an important district cash crop. Banking Developments in banking indicated some strength ening in the district business situation from midAugust to mid-September. Loans rose $35 million at weekly reporting banks in the district compared with a $12 million increase in the like period a year ago. Nevertheless, on September 15, total loans outstand ing ($1,325 million) were slightly below their level of a year ago. A major portion of the loan growth during the four weeks ended September 15 was in larger-than-usual advances to businesses. By contrast, business loans at weekly reporting banks in the entire nation rose less than in the comparable periods of re cent years. Districtwise, most types of commerce and industry contributed to the increased indebtedness; metal manufacturers were an exception, making net payoffs in each of the four weeks. The average rate on short-term business loans at reporting banks in St. Louis was 3.40 per cent during the first half of September compared with 3.45 per cent during the first half of June. However, on small loans (from $1,000 to $10,000) the average rate was nearly 4%, or one-fourth of one per cent higher than during the June 1-15 period. The prime rate remained at 3 per cent, but in September substantially more of the loans, both in number and volume, were made at this rate than three months earlier. Page 119 The DISTRICT RECORD V A R IO U S IN DICA TO R S OF INDUSTRIAL ACTIVITY August 1954 Industrial Use o f Electric Power (thousands o f K W H per working day, selected industrial films in 6 district citie s)....................................................................................... Steel Ingot Rate, St. Louis area (operating rate, per cent o f ca p a city )........................... Coal Production Index— 8th Dist. (Seasonally adjusted, 1 9 3 5 -1 9 3 9 = 1 0 0 ) Crude Oil P rod u ction -8th Dist. (Daily average in thousands o f b b ls .).......... Freight Interchanges at RRs— St. Louis (Thousands o f cars— 25 railroads— Terminal R. R. A ssn .)................................................................................................................................... Livestock Slaughter— St. Louis area. (Thousands o f head— w eekly average) . . . . Lum ber Production— S. Pine (Average weekly production— thousands o f bd. ft.). . . . Lum ber Production—S. H ardwoods. (Operating rate, per cent o f ca p a city )............ Percentage Change* July 1954 Aug. 1953 11,501 50 115 p 322.0 — 5% — 12 — 2 — 1 __ + — -f- 92.8 91.0 178.5 93 12% — 50 14 4- 6 17 + 1 — 7 12 4 6 4 4 * Percentage change figures for the steel ingot rate, Southern hardw ood rate, and the coal production index, show the relative per cent change in production, not the drop in index points or in percents o f capacity, p Preliminary. August 1954 (In millions) Percentage Change from August July 1954 1953 Six Largest Centers: East St. LouisNational Stock Yards, 111....................... $ 125.5 149.9 Evansville, Ind .............. 158.0 Little Rock, A rk .. . . 754.2 Louisville, Ky.............. 586.4 Memphis, Tenn............ 1,868.2 St. Louis, M o .............. T otal— Six Largest $3,642.2 C enters...................... 33.6 Alton, 111........................ ’ $ 13.3 Cape Girardeau, M o .. 25.9 El D orado, Ark......... 53.9 Fort Smith, Ark......... 21.1 Greenville, Miss......... 8.7 Hannibal, M o.............. 6.8 H elena, A r k .................. 2 1.3 Jackson, Tenn.............. 5 6.6 Jefferson City, M o .. . 37.3 O w ensboro, Ky............ 32.0 Paducah, K y ............... 28.7 Pine Bluff, Ark............ 34.8 Quincy, 111................... 12.4 Sedalia, M o................... 73.3 Springfield, M o............ 16.8 Texarkana, Ark............ Total— Other C enters...................... $ 476.5 T otal— 22 Centers . . $4,118.7 + — 2 % 8 1 2 3 4 — 3 % + — — + + 8 % 7 + 12 + 7 + 10 - 0- 3 % _ 7 2 4 5 1 6 3 % 1 + 5 + 18 + 14 5 + 1 + 8 + 7 + 1 20 — 1 + 3 + 3 + 9 21 2 % 2 % + + - 0- + + — — — — — — 2 % 3 % RETAIL FURNITURE STORES Inventories Net Sales Aug., 1954 Aug., 1954 com pared with com pared with July, ’ 54 Aug., ’53 July, ’ 54 A ug., ’ 53 4% 4 2 -0 — 12 +12 — 1 (In thousands o f dollars) July 1954 + 2 % + 2 + 2 + 2 — 2 — 5% — 4 6 5 3 * Not shown separately due to insufficient cover age, but included in Eighth District totals. 1 In addition to follow ing cities, includes stores in Blytheville, Fort Smith and Pine Bluff, Arkansas; H op kinsville, Owensboro, Kentucky; G reenw ood, Missis sippi; and Evansville, Indiana. 2 Includes Louisville, Kentucky; and N ew Albany, Indiana. PE RC E N T AG E D ISTR IB U TIO N OF FU RN ITU R E SALES Aug., *54 July, ’ 54 Aug., ’ 53 Cash S ales................... 13% 14% 15% Credit S ales................. 87 86 85 Total S ales.......... 100% 100% 100% (1 9 4 7 -1 9 4 9 = 1 0 0 ) Unadjusted July 1954 June 1954 July 1953 T o t a l............ 193.8 p 215 .6 183.9 Residential. 249.1 p 244.3 167.8 A ll Other. . 168.1 p 203.3 191.3 Seasonally adjusted T o t a l............ 152.5 p 181.7 142.2 Residential. 212.9 p 208.8 143.4 A ll Other. . 124.5 p 169.4 141.7 * Based on three-m onth m oving average (centered on m id-m onth) o f value o f awards, as reported by F. W . D od ge Corporation. p Preliminary. ASSETS A N D LIABILITIES OF EIGHTH DISTRICT MEMBER BANKS (In Millions o f Dollars) W eekly Reporting Banks Change from Aug. 18, Sept. 15, 1954 _ 1954 _ Assets Loans (N et)1 Business and A gricultural. Security.................................. Real Estate. . . ................. Banks....................................... Other (largely consum er). U. S. Government Securities. Other Securities. Cash A ssets............................... Other A ssets...................... Total A ssets........................... $1,325 652 35 268 $ + 35 + 19 — 1 22 A ll M em ber Banks Change from Aug. 25, July 28, 1954 1954 + 14 367 1,124 215 934 39 $3,637 + $2,068 $— 76 2 2,124 446 1,369 — 23 - 0- 0- + 78 + 130 + $6,073 $ + 30 + 50 $ 28 $+ + 66 $ + 90 2 — — $+ 27 19 31 1 Liabilities and Capital Dem and Deposits o f B anks. . Other Dem and Deposits Tim e D ep osits.................................... Borrowings and Other Liabilities Total Capital Accounts .............. Total Liabilities and Capital $ 740 2,057 540 57 243 $3,637 715 3,712 1,167 55 424 $6,073 + 2 + 7 + 1 $ + 90 + — + 30 $+ 28 6 2 1 Loan breakdowns reported gross for w eekly reporting banks, not available for all m em ber banks. DEPARTMENT STORES Percentage o f Accts. and Notes R eceiva b l e , Outstandin g Stocks Stock Aug. 1, 1954, co lon Hand Turnover lected during Aug. Net Sales A ug., 1954 8 mos. ’ 54 Aug. 31, ’ 54 Jan. 1 to Excl. com pared with to same com p, with Aug. 31 Instal. Instalment July, ’54 A ug., ’ 53 period ’ 53 Aug. 31, ’ 53 1954 1953 Accounts Accounts 8th F.R. District Total . . 17% 48% “ — 1 % — 2 % —1 2 % 2.42 2.27 Fort Smith Area, Ark.1 . . . _ q_ — 3 — 9 2.10 2.17 _____ 42 — 9 Little R ock Area, A r k .. . . + 5 — 9 — 4 2.26 2.12 12 45 + 1 Q uincy, 111............................+ 2 7 2.31 2.20 ____ ____ — 7 + 2 Evansville Area, In d ......... + 4 — 12 ± ii Louisville Area, Ky., I n d .. . + 1 1 — 14 — 4 — 4 2*58 2*43 19 48 Paducah, Ky........................ — 8 — 21 — 25 St. Louis Area, M o., 111. +12 — 15 — 1 2.50 2.30 1 9 "’ 54” " + 1 Springfield Area, M o .. . . — 6 —2 — 9 — 4 2.14 1.98 __________ _____ Memphis Area, T enn......... + 1 7 - 02.48 2.37 14 34 — 7 All Other Cities’- .............. -0 — 14 1.64 1.76 — 14 09 42 — 7 IN D E XE S O F SALES A N D STOCKS— 8T H D IS T R IC T Aug. 1954 100 110 116 119 July 1954 ' 89 r 112 r 119 r 128 r June 1954 110 122 119 119 Aug. 1953 100 110 130 134 3 D aily average 1947— 4 9 = 1 0 0 r Revised 4 End o f Month average 1947— 4 9 = 1 0 0 Trading days: Aug., 1954— 2 6; July, 1 9 5 4 - -2 6; Aug., 1953— 26. 1 In order to permit publication o f figures for this city (or area), a special sample has been constructed which is not confined exclusively to department stores. Figures for any such nondepartment stores, how ever, are not used in com FRASER puting the district percentage changes or in com puting department store indexes. Digitized for INDEX OF CO N ST RU C TIO N CONTRACTS AW A RDED EIGHTH FEDERAL RESERVE DISTRICT* Percentage Change Jan. thru July July ’54 1954 from com pared with July ’53 1953-R 1952-R Arkansas . . $ 21,3 70 — 6 % — 5 % — 1 0 % Illin ois. . . . 161,132 — 16 + 1 — 3 Indiana . . . 104,690 — 15 + 1 — 1 Kentucky 28,637 — 11 — 8 — 5 M ississippi. 15,569 — 11 — 24 -0 Missouri. . . 8 4,434 — 12 — 3 — 1 Tennessee . 23,535 — 12 — 9 — 16 7 States. . . . $439,367 — 14 — 3 — 3 8th D is t.. . . $174,270 — 13 — 6 — 4 R— Revised Source: State data from USDA preliminary estimates, unless otherwise indicated. — 5 % 8 + 1 + 12 5 — 10 — 3 + 11 15 l Debits to demand deposit accounts o f individuals, partnerships and corporations and states and political subdivisions. — — — CASH FARM IN C O M E ___ — IN D E X OF BANK D E B ITS— 22 Centers Seasonally Adjusted (1 9 4 7 -1 9 4 9 = 1 0 0 ) 1954 1953 Aueust Tulv August 133.2 142.5 137.6 8th Dist. T otal1 . + 6 % St. L o u is ............ + 1 0 Louisville Area2 + 1 1 Louisville. . . . + 1 3 M em phis............ — 21 Little R ock . . . + 1 4 Springfield..........— 2 ***** M BANK DEBITS1 2 Fayetteville, Pine Bluff, Arkansas; Harrisburg, Mt. Vernon, Illinois; Vincennes, Indiana; Danville, Hopkinsville, Mayfield, Ow ensboro, Ken tucky; Chillicotne, Missouri; Greenville, Mississippi; and Jackson, Tennessee. Outstanding orders o f reporting stores at the end o f August, 1954, were 6 per cent larger than on the corresponding date a year ago.
