The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
ECONOMIC PROSPECTS June 2, 1953 by Karl R. Bopp, Vice President Federal Reserve Bank of Philadelphia before the Combined Service Clubs Valley Forge Hotel, Norristown, Pa. Student: Failed all courses Except E in post-defense planningl Boy! is he confused! Can't avoid looking ahead - always difficult. 20/20 vision on past- what has happened - inevitablej any fool could have foreseen. Topics: I. II. III. The road we have traveled since Korea. Where we have arrived - where we stand today. A short- and a longer-gaze into the mist. ■ * * * * * ■ # I. The road we have traveled since Korea A. Korea to the Treasury-Federal Reserve accord of March 1951 1. Three quarters - private spending spree 2. G.N.P. 272 -4 319 47 bil. = 17% (a) But wholesale prices consumer prices i.e., most of the + was inflation (b) Only 1/4$$} + 18% + 10% of the increase went to Government (c) 3/4 went into private spending spree + $22 into consumption + 12 " investment especially equipment+inventories - B. 2 - The Accord to the fall of 1952 1. Six quarters - the defense build-up 2. G.N.P. 319 - » 3 4 3 = 8% + l& l$> 24 (a) Wholesale prices Consumer prices i.e. the expansion was "real" (b) Government took it all - $25 billion Private - 1 Consumption +7 Investment -8 especially inventories C. Since last fall 1. Two quarters - non-defense expansion 2. G.N.P. 343 -4 363 = 6% - 2% 20 (a) Wholesale prices Consumer prices i.e. again expansion was (b) 11real" Government took 1/4 but not for defense! Private took 3/4 almost entirely consumption II. Where we stand today A. A remarkably flexible economy for last two years. rolling readjustments with individual price movements but fairly stable level Profit - and loss economy B. An "overtime" economy 1. March unemployment: 1.7 million lowest post-war March 2. 40-41 hours in non-duraU.e) ¿ 1-42 “ " durable ) .. w - 3 - II. C. Some current rates Industrial production (only 3 points below peak Nov. 194-3) Auto - late April rate 7.5 mill. (50$o above year ago) T.V. 7 (Cf. 9-10 last autumn and 4 a- year ago) Housing III. 242 mill. 24.5*000 starts in 1st quarter - same as last year A look ahead Two political imponderables B. 1. Malenkov and Mnew" Russian situation 2. Our own change in administration In an overtime economy, one looks for weak spots 1. Agriculture Reduced demand for industrial products BUT lower food costs C. 2. Transition from sellers to buyers market Elimination of overtime incomes especially automobiles and household durables 3. Exceptional increases in private credit On the other hand: sustaining but not expansionary forces 1. Defense spending will not be cut - deficits? 2. Prices have been flexibly adjusting in a rolling fashion 3. Business capital expenditures will remain high 4. Consumers fickle Some later weakness - not immediate, not too severe Fiscal and monetary policy 1. Fiscal outlook not good 2. Debt-management difficult but progress is being made 3. Monetary policy - flexible Should it be based on what is now going on? or on what we fear may happen? -4E. Our fear (fixation) on economic instability 1. Evidences of it - really since 1930*8 (a) Predictions of post-war unemployment (b) Recurring fear of depression (c) Current fears (1) (2) (3) (4) Prosperity depends too much on defense Ve have overexpanded our plant Inventories are excessive Too much private debt - yet oust hare even more to maintain prosperity (5) Post-war expansive forces have spent tha&selves (6) Down movement accumulates (7) Won*t go to trade not aid * end vlth neither (8) International repercussions 2. Effects of our fears (a) On publio policy We have ohosin probable Inflation to (b) On private actions We hay«* t gone through the celling f. Some long-run factors 1. Define# 40-50 billion a year Tax relief from growing economy 2. Other Government - especially state and local Roads, schools, other public, hospitals 3. Business Capital izxvestaenb - Depreciation ♦ obsolescence recent levels not exceptionally high RELATIVELY Individuals Population - No. and age distribution Standard of living - long run - 5 - Conclusion: Very short run - strong Very long ran - optimistic Intermediate - we haven't licked the cycle Migh standard living society can postpone accelerate Flexible fiscal and monetaiy policy can mitigate KKB - 6/2/53 CHANGES IN GROSS NATIONAL PRODUCT Annual Rates Gross National Product Personal consumption Durable Non-durable Service Private investment 2nd Quarter 1950 Korea Federal National Security* State and local Change 3 Quarters ¿20 & 189 210 21 27 3rd Quarter 1952 211 31 113 100 62 60 22 22 6 10 12 _J 2 21 31 17 19 21 ¿61 18 226 11 30 74 - 8 25 27 2 26 78 -n. -82 4 57 55 28 2 Jtk 23 25 4 10 Change 2 Quarters *?3 Jo V- ^0 ■!,*0 •> 122 -J 2 25 25 JÛ . 5 1st Quarter 1953 Last 24 119 72 66 JSSL 6 Change Quarters + 1*1 228 Construction Equipment Inventory Government 1st Quarter 1951 Accord 50 ss 51 23 25 *1 ■y * Sept. 1952 April 1953 May 1950 March 1951 Wholesale Index 100 116 + 16% 112 - 3% 109 Consumer Price Index 101 110 + 9% 114 + 4% 114 Prices (194-7-49 = 100) - 3% 0 Military services, international security and foreign relations (except foreign loans), atomic energy, merchant marine, promotion of defense production and economic stabilization, and civil defense. - Economic Indicators 5/29/53
@FedFRASER