Economic conditions ; Industrial productivity

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Research Papers in Economics

FEDERAL RESERVE BULLETIN
VOLUME 39 January 1953 NUMBER 1
EXPANSION IN ECONOMIC ACTIVITY
High and rising business activity with
continued stability in prices of finished goods
characterized the latter part of 1952. In-
dustrial production recovered rapidly follow-
ing settlement of the steel strike and reached
a year-end rate about 8 per cent higher than
last spring. Marked gains in output of both
durable and nondurable goods occurred in re-
sponse to increases in private demands as
Government expenditures for national secu-
rity leveled off. Expansion of output in
manufacturing and mining contributed to
increased activity in transportation and
utility industries. Agricultural output and
marketings also expanded, and activity in
the construction and service industries was
maintained. Total employment reached a
new high and unemployment decreased to
new postwar lows.
Growth in .employment was accompanied
by more overtime work beginning in Sep-
tember and, with wage rates continuing up-
ward, hourly and weekly earnings at fac-
tories increased sharply. Aggregate wage
and salary income, which had been stable in
the first half of 1952, subsequently rose sub-
stantially. Farm income, however, fell be-
low the levels of a year earlier. Total per-
sonal income at the end of the year ap-
proached an annual rate of 280 billion dol-
lars, 6 per cent above the levels prevailing
from late 1951 to mid-1952.
Expansion in consumer spending to new
highs during the latter part of 1952 was
a resumption of the substantial rise that had
begun in the second quarter. The rise had
been interrupted during the summer, when
supplies of automobiles were sharply reduced
by lack of steel. Accompanying this develop-
ment and important output adjustments
earlier in other consumer lines, retail inven-
tories were reduced through August, as
shown in the chart. Strengthening of con-
sumer demand after early 1952 contributed
to renewed business buying and marked
gains in production of consumer goods. Out-
SELECTED BUSINESS INDEXES
J947-_49:1PO
INDUSTRIAL
PRODUCTION /
/ v^TOTAL "
dfS EMPLOYMENT
~~ DISPOSABLE
PERSONAL INCOME
l/\l RETAIL SALES
7 1 i ,
PRICES
^ CONSUMER"
.^/ WHOLESALE
// ^W
jl RETAIL "
'/TOTAL ~
//
vy/ INVENTORIES
I 1 .,.
140
120
100
140
120
100
1950 1952 1950 1952
NOTE.—Seasonally adjusted series, except for prices. Indexes
based on Department of Commerce value data for income, sales,
and inventories; Bureau of Labor Statistics and Census Bureau
data for employment, which includes agriculture and the armed
forces; and B.L.S. data for prices. December 1952 estimated.
JANUARY 1953
Federal Reserve Bulletin: January 1953EXPANSION IN ECONOMIC ACTIVITY
put of textile products began to increase as
early as May, and output of major durable
items expanded during the autumn to a rate
about 30 per cent above last spring. Dis-
tributor demands for these and other con-
sumer goods were active, and there was some
replenishment of inventories.
The sustained high rate of new housing
starts and further moderate increases in
business outlays for plant and equipment
also contributed to the high and rising levels
of economic activity. Government outlays
for military equipment were maintained at
about the rates reached in the spring.
With total business inventories at a record
level and industrial production at new post-
war highs, demands for industrial materials
and finished products were being met in late
1952 without any general upward tendency
in prices. A further moderate reduction in
the average level of wholesale prices reflected
mainly marked declines in prices of some
agricultural products. Marketings of cattle
expanded considerably and export demands,
especially for cotton, were lower. Consumer
prices showed little change, with foods eas-
ing, as meat supplies increased, and rents
and prices of other services advancing.
EXPANSION IN CONSUMER BUYING
A sharp rise in automobile sales after the
steel strike and a boom in television featured
developments in consumer goods markets.
Retail sales of furniture, apparel, and most
other consumer goods also were at advanced
rates, after a general rise beginning last
spring. As prices were relatively stable, the
expansion in dollar sales indicated an im-
portant increase in the physical volume of
consumer takings in the latter part of 1952.
Marked gains in personal incomes begin-
ning in late summer contributed to the
expansion in consumer buying. The upturn
in sales of durable goods also reflected more
liberal credit terms and a greater consumer
willingness to incur debt. Instalment credit
outstanding increased sharply beginning in
May, and at the end of 1952 it was an esti-
mated 2.8 billion dollars higher than a year
earlier. This increase compares with no
change in 1951 and a rise of 2.6 billion in
1950.
Strong consumer demands and increasing
output brought to an end the downward ad-
justment in distributors' inventories which
began in 1951. Inventory changes varied
among lines, however, during the latter part
of 1952. Stocks held by apparel stores rose
steadily and approached the previous high
level of June 1951, but remained lower in
relation to the rate of sales. Stocks at furni-
ture and appliance stores, as well as at de-
partment stores, showed little change. At
automotive stores, stocks recovered substan-
tially from the sharply reduced summer
levels, accounting for the bulk of the expan-
sion in total retail inventories.
Automobiles. Output of automobiles was
stepped up considerably as soon as the flow
of steel permitted, and changeovers to new
models were completed more quickly than
usual. After August strike losses were made
up, and output for the year totaled 4.3 mil-
lion cars—about as many as permitted under
Federal limitation orders. Assemblies in
early January were maintained at an annual
rate of about 5.3 million units.
Of the 1,700,000 cars produced from Sep-
tember through December, only 120,000
went to replenish dealers' stocks, as sales
were exceptionally strong for this season of
the year. Credit buying became a more im-
portant factor; an estimated 70 per cent of
the number of new cars sold in the latter
part of the year were purchased on instal-
ment, compared with 50 per cent in both
1950 and 1951. Sales of used cars also rose
FEDERAL RESERVE BULLETIN
Federal Reserve Bulletin: January 1953EXPANSION IN ECONOMIC ACTIVITY
substantially. Used car stocks increased to
more normal levels by the end of the year,
and prices showed only seasonal weakness.
Household durables. By the fourth quar-
ter of 1952 output of major household dur-
able goods had increased substantially. As
indicated in the chart showing seasonally ad-
justed indexes, the sharpest rise from last
spring was in television, which more than
doubled. Output of major appliances was
up 30 per cent and furniture and carpets 15
per cent.
OUTPUT OF CONSUMER DURABLES
1950-5M00
_ h/*\ AUTOMOBILES
.. MAJOR
. A/\^l APPLIANCES
fy\ TELEVISION
FURNITURE
AND CARPETS
150
— 100
— 50
150
r— 100
50
1950 1952 1950 1952
NOTE.—Seasonally adjusted indexes. December 1952 estimated.
Television production reached an annual
rate of 10 million sets, the same unit rate
as in the autumn of 1950. In the earlier
period, however, more expensive phono-
graph combination models were a much
larger portion of the total. Consumer pur-
chases of television—at a rate about equal to
production—were stimulated by extension
of reception areas, replacement of small
screen sets, and liberal credit terms.
Demand for newer types of appliances,
such as freezers, driers, and automatic wash-
ing machines, continued much stronger than
for refrigerators and ^electric stoves. Total
retail sales of appliances in 1952 were about
equal to the 1951 volume, with inventories
in 1952 showing a substantial reduction.
Total production of major appliances in 1952
was about 15 per cent below that of 1951,
but was rising sharply near the year-end.
RISE IN INDUSTRIAL ACTIVITY
Strengthening in consumer buying, to-
gether with sustained large demands for con-
struction materials and for military and pro-
ducers' equipment, led to a marked increase
in industrial production in the latter part of
1952. The Board's index of industrial pro-
duction, was indicated to be about 235 per
cent of the 1935-39 average at the year-end,
as compared with a midyear rate around
205 and an earlier postwar high of 223. For
the year as a whole industrial production
averaged 219, or about the same as in 1951.
Metals and metal products. The most pro-
nounced fluctuations in output during 1952
occurred in metals and metal products in-
dustries, as shown in the chart on the next
page. These were related in very large part
to the prolonged steel labor dispute, which
reduced steel output moderately last spring
and sharply at midyear. The poststrike re-
covery was swifter than had generally been
expected and, with important new addi-
tions to capacity coming into operation, steel
output since early October has been at a
record annual rate of 115 million tons. Pro-
duction for the year totaled 93 million tons,
12 million less than in 1951. Capacity at
the beginning of 1953 was rated at 117.5
million tons, 9 million above a year ago.
During the long period of high levels of
steel output that preceded the strike, metal
fabricators had built up working stocks sub-
stantially. This made it possible for most
JANUARY 1953
Federal Reserve Bulletin: January 1953EXPANSION IN ECONOMIC ACTIVITY
PRODUCTION OF MANUFACTURES
1947-49=100
_ / METALS AND
I METAL PRODUCTS
j*. I
*
TEXTILES, LEATHER,
PAPER, AND RUBBER
A^VA ALL
Jl \ VT
150
— 140
— 130
- 120
110
— 100
90
1950 1952 1950 1952
NOTE.—Seasonally adjusted indexes. December 1952 estimated.
manufacturers to maintain output through
June. In a number of lines that generally
are large steel consumers—notably auto-
mobiles—activity was reduced sharply dur-
ing the summer. Sustained consumer de-
mands during this period led to further
marked reductions in distributors' stocks of
automobiles and of some other consumer
metal products.
Over-all activity in machinery, transporta-
tion equipment, and other metal fabricating
industries recovered by September to earlier
highs and continued to rise in later months.
The further rise reflected mainly the marked
expansion in production of consumer goods
and also inventory replenishment at all
stages of the fabricating process. Consider-
able increase in activity was shown at fac-
tories producing metal products and other
durable materials used by the construction
industry. Output in producers' equipment
lines recovered in the latter part of 1952 to
the sharply expanded rates which had been
maintained from early 1951 until last sum-
mer. Production of military equipment was
leveling off, following the earlier rapid de-
fense build-up, and the defense share was
accounting for roughly one-fourth of total
output in the metal and metal products in-
dustries as compared with about one-tenth in
early 1951.
Nondurable goods. In the late spring of
1952 declining tendencies that had prevailed
earlier in textiles, paper, and some other im-
portant nondurable goods industries were
reversed, and in the latter part of the year
output of nondurable goods was not far be-
low earlier records. Strengthening of con-
sumer demands for apparel in the second
quarter of 1952, when large factory and
distributor inventory accumulations of late
1950 and early 1951 had been substantially
liquidated, was quickly reflected in expan-
sion of production throughout the textile
and apparel industries. At the year-end,
activity at textile mills was up 20 per cent
from the spring low.
In late summer and in the autumn of 1952
there were gains among other nondurable
goods industries. Shoe production rose
sharply, exceeding the low year-ago levels by
about one-fifth after August, and activity in
the rubber industries also increased substan-
tially. The curtailment in paperboard out-
put developed earlier than in other paper in-
dustries, persisted longer, and extended fur-
ther—reflecting mainly the sharp drop in
packaging needs as output of finished con-
sumer goods and of materials used in
their production was reduced. Similarly,
the marked rise in paperboard output last
autumn was closely related to the broad
advance in consumer goods production.
PRICE CHANGES VARIED
Changes in supply and demand in par-
ticular markets have continued to result in
diverse price developments since mid-1952.
While consumer and business demands for
many types of goods have increased, produc-
tion has expanded considerably and prices
of most finished goods have changed little in
FEDERAL RESERVE BULLETIN
Federal Reserve Bulletin: January 1953EXPANSION IN ECONOMIC ACTIVITY
wholesale and retail markets. Decreases in
prices of some industrial materials have been
largely offset by increases in others. In
markets for agricultural commodities, how-
ever, supplies have expanded while export
demands have been reduced, resulting in
sharp declines in prices of some products.
Agricultural products. Average prices of
farm products have declined 9 per cent since
last summer. In mid-December they were
15 per cent below the 1951 peak and only
6 per cent above the June 1950 (pre-Korean)
level. Decreases were concentrated in prices
of cotton and livestock, shown on the chart.
By early January livestock prices recovered
moderately, as marketings contracted sea-
sonally, but cotton declined somewhat
further and grains weakened.
PRICES OF FARM PRODUCTS
1947-49=100
LIVESTOCK
ALL
OTHER
.,1 1.
140
120
100
100
80
1950 1952 1950 1952
NOTE.—B.L.S. midmonth indexes. "All other" series derived
by Federal Reserve. December 1952 estimated.
The cotton crop has turned out to be
larger than indicated earlier in the season.
Total supplies—production and carryover
combined—however, are little larger than last
season, but exports have been substantially
smaller and domestic consumption is ex-
pected to continue only moderately greater.
Cotton prices have fallen one-fifth since
summer, to Federal support levels. Prices
of the other basic crops and of butter and
wool are also close to support levels, which
are about 15 per cent above June 1950. Fed-
eral loan and purchase activities have ex-
panded considerably this season.
Record numbers of cattle on farms and
slower building of herds contributed to an
increasing volume of marketings in 1952,
10 per cent larger than in 1951. With hog
slaughter little changed, total meat produc-
tion was 5 per cent greater than in 1951.
Average prices of livestock and meats de-
clined sharply in the last half of 1952 to
about the levels of early 1950. Decreases in
prices of cattle for feeding or herd building
were considerably greater than decreases in
higher grade slaughter cattle. Declines in
wholesale beef prices were also much greater
for the lower grades. Average prices of all
meats are down 17 per cent since summer,
accounting for most of the 6 per cent decline
in prices of all foods at wholesale.
Industrial commodities. Average whole-
sale prices of commodities other than farm
products and foods have changed little in
recent months. Following 15 months of
fairly general decline, prices of most in-
dustrial materials stabilized at midyear as
demands in this country strengthened. Also,
speculative holdings abroad of such materials
as burlap and hides apparently had been
largely liquidated by midyear. Average
prices of finished industrial products have
been unusually stable since early 1951.
Prices of most metals continued at Federal
ceilings during 1951 and the first half of
1952, reflecting the high rates of expenditures
for defense and producers' equipment; in late
July ceiling prices of steel mill products,
JANUARY 1953
Federal Reserve Bulletin: January 1953EXPANSION IN ECONOMIC ACTIVITY
aluminum, copper, and brass mill products
were raised. Lead and zinc prices, which
had been reduced last spring as demands
eased, were reduced further in the autumn.
Among finished products, prices of pro-
ducers' machinery and trucks have generally
continued at or above the highs reached in
early 1951 and are one-sixth above June 1950.
Federal price ceilings continue to be sig-
nificant in markets for most of these goods,
as well as in markets for the metals from
which they are fabricated.
Average wholesale prices of consumer
goods other than foods are 3 per cent below
the early 1951 high but 8 per cent above
June 1950. Wholesale prices of apparel,
footwear, and carpets, which had declined
substantially from earlier highs, and furni-
ture, appliances, and radios, which had de-
clined only moderately or had been stable,
have strengthened since mid-1952.
Consumer goods and services. The con-
sumer price index, which includes retail
prices of both goods and services, advanced
to a new high last summer and has changed
little since. The easing in retail food prices
toward the end of 1952 reflected increases
in supplies, in part seasonal, of meats, eggs,
and dairy products. Prices of most other
consumer goods strengthened after midyear.
Rents and prices of other services pur-
chased by consumers continued the unin-
terrupted rise that began with the relaxation
of wartime controls in 1946, increasing 5 per
cent during 1952. The advance in rents ac-
celerated in the final months of the year fol-
lowing suspension of controls in a number
of areas. While the chart shows the increase
from the 1947-49 average to be greater for
rents and services than for goods, the in-
crease from pre-World War II levels has
been considerably greater for goods than for
rents and services.
During most of the past three years—the
period shown on the chart—changes in re-
tail prices of foods and other consumer goods
have generally paralleled changes in whole-
sale prices of such goods. During the past
PRICE INDEXES COMPARED
1947-49=100
WHOLESALE
MATERIALS &
- -.EQUIPMENT —
/// OTHER
f/y CONSUMER
_A GOODS _
/
NIA;""""*
1"""""'"
1"""^
RETAIL
RENTS AND
— SERVICES y^L
,/^FOODS
^Jf OTHER
// CONSUMER
^if GOODS _
s/
130
- 120
- no
100
90
1950 1952 1950 1952
NOTE.—Federal Reserve regrouping of B.L.S. wholesale and
consumer price indexes. "Materials and equipment" includes
raw and semi-finished foodstuffs as well as industrial materials
and producers' machinery and trucks. December 1952 estimated.
year, and particularly since summer, changes
in price indexes for meats have been larger
at wholesale than at retail—to an unusual
degree. This reflected in part greater de-
clines in the lower grades of beef which are
of less importance in the retail index. As
compared with a year earlier, average whole-
sale prices of meats in mid-December were
shown to be down 19 per cent and retail
prices were down 6 per cent.
The divergent movements of the consumer
and wholesale price indexes since early 1951,
shown in the chart on page 1, are largely
accounted for by the persistent rise in rents
and in prices of other services, on the one
hand, and the decline in prices of materials,
on the other hand. Averages of all finished
goods prices, at wholesale and retail, have
changed little during the past two years.
FEDERAL RESERVE BULLETIN
Federal Reserve Bulletin: January 1953

Expansion in economic activity

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Expansion in economic activity

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Research Papers in Economics