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BUSINESS AND BANKING PROSPECTS FOR 1949 address by KARL R. BOPP Vice President, Federal Reserve Bank of Philadelphia before the FINANCIAL ANALYSTS Homestead Restaurant, Phila., Pa* - January 6, 1949 Introduction 1. Have no communion with burning bush* 2* Beginning of year statements "Business is just aa changeable and unpredictable as the weather* No sooner are the skies clearing and the winds stilled when we read the morning weather forecast - in creasing cloudiness today, with snow beginning late tonight; cloudy and colder tomorrow. "By tomorrow the snowstorm blowing in from the northwest may be joined by another blowing in from the Atlantic. Or both may be precipitated into rain by unexpected southerly winds. "In like manner the elements that make up our business climete are always changing* About the only thing we can be sure of is that tomorrow will be different. How much different we do not know, nor whether it will be better or worse." 3* Text: "I have been faithful to thee, Cynara, in my fashion." - Ernest Dowson Meaning depends on emphasis. I. Is the boom running out? A. How near is closer? B. Postwar adjustments - year 2000 1. Demobilization - reconversion reduced Governmental expenditures 2. The fall of 1946 - sharp break in stock prices - implication for business expansion - a - 3« The first half of 1947 - weakness in non-durables Inventories appeared excessive - shazp break in Consumer resistance said to be high C. 4« First quarter 1948 - February break in farm prices Large Treasury cash surplus 5. Summer 1948 - bumper crops 6. November-December - slump in retail sales Interpretations of why we rode through these readjustments 1. Extraordinary strength of inflationary forces (a) (b) (c) (d) (e) 2. Readjustments reflect basic weakness - we have been saved only by fortuitous shots in the arm (a) (b) (c) (d) (e) (f) D. Large backlog demands and liquid assets Ready availability of credit at low rates Non-resistant wage policies Government spending Foreign demand End of 1945 - business inventories All of 1946 - rapid increase in equipment and construction* Rapid increase in consumer durable goods. Spring of 1947 - net exports Sumner of 1947 - strategic coal wage increase Fall of 1947 - short corn crop Cashing Veterans1 leave bonds 1948 - EB P Larger defense Reduction in personal taxes At any rate we have had inflation 1939 - October 1948 Consumer prices Wholesale " Weekly factory earnings Corporate profits (after tax) Net incone of faxm propr. / 75* / 120 / 126 / / 300 320 - 3 E. Why hasn't more been done about inflation? 1. Great increase in standard of living Since 1939 19U Since 1939 because we are fully employed Since 1944 because we are producing civilian goods 2. Increases widely distributed Not equally - some ^ proportion of total but T absolutely Very few, not politically powerful, have had decreases in real income 3. II. iear of deflation Indications of weakness - the case for early recession A. Raymond Rodgers' "Why Slump?" 1. Record harvest 2. Retail sales have stopped climbing - "real" volume (a) (b) (c) (d) (e) 3. Household appliances washing machines Men's suits Women's wear Shoes Used cars Inventories can't go much higher (a) (*) (c) (a) (e) (FRB Chicago jewelry entertainment drugs shoes men's clothing radios auto accessories dept.) Cotton Stainless steel Hardwood lumber Secondary brass and aluminum Some vegetable oils Export boom off B. 5« Housing boom weakening 6. Increase in saving - residual item Impressive list - reason for pause Before we are convinced, let us take a systematic look at expenditure and production prospects - 4 - III. Expenditure and production prospects (Memo) IV. V. Wherein does post-War II differ from I? A. Public versus private debt Availability of funds for expansion B. Preparedness and armament Boom superimposed upon restocking boom C. Greater concern for full employment Implications for banks Over-all versus shifts DISTRIBUTION OF GROSS NATIONAL PRODUCT FOR SELECTED PERIODS (Percentage of total by types of expenditures) 1948, third quar ter 1946, first quar ter 1944 1939 1929 Government purchases of goods and services . 14.7 17.9 45.5 14.4 8.2 8.7 6*1 13.4 4.6 41.9 3.5 5.7 8.7 1.3 6.9 15.2 10.9 3.0 10.0 15.2 5.8 8.4 1.1 3.7 4.5 2.7 1.1 2.5 - .6 4.4 5.1 .5 7.5 6.2 1.5 - ItP 1*9 t7 Type of expenditure Change in farm and nonfarm inventories • — *1 » J2i£ 69.8 52.5 74.6 75.9 9.2 Nondurable g o o d s ............. . • • 40.2 Services • • • • • • • • • • • • • • • • 20.3 6.2 42.2 21.3 3.2 31.8 17.5 7.4 39.0 28.2 9.0 36.4 30.5 100.0 100.0 100.0 100.0 100.0 255.9 196.1 212.2 90.4 103.8 Personal consumption expenditures . , Gross national product, total: Annual Bates Billions $ GROSS NATIONAL PRODUCT Annual Bates Billions ^
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