ERP 1948 January

The Economic Reportof the President

TRANSMITTED TO THE CONGRESS

January 1948

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

THE ECONOMIC REPORT

OF THE

PRESIDENT

To the Congress, January 14, 1948

UNITED STATES GOVERNMENT PRINTING OFFICE

WASHINGTON : 1948


LETTER OF TRANSMITTAL

THE WHITE HOUSE,

Washington, D. C, January 14} 1948.The Honorable the PRESIDENT OF THE SENATE,

The Honorable the SPEAKER OF THE HOUSE OF REPRESENTATIVES.

SIRS : I am presenting herewith my Economic Report to the Congress,as required under the Employment Act of 1946.

In preparing this report I have had the advice and assistance of theCouncil of Economic Advisers, members of the Cabinet, and heads ofindependent agencies.

Respectfully,


Contents

Page

I. FOREWORD AND SUMMARY 1

II. LEVELS OF ECONOMIC ACTIVITY IN 1947 11

The course of employment and production 11Employment 11Production 11Productivity 15

The flow of goods and purchasing power 15

Consumer income, expenditure, and saving 15

Business investment, income, and financing 22

International transactions 25

Government transactions 28Summary: The Nation's Economic Budget 31

III. PRICE AND INCOME TRENDS AND THE COURSE OF INFLATION... . 34

Price trends 34

Wage trends 37Profits 40The nature of inflationary pressures 41Why inflation is dangerous 43

IV. LEVELS OF ACTIVITY AND ADJUSTMENTS NEEDED IN 1948 45

Needed levels of employment, production, and purchasingpower 45

Employment objective 45Production objective 45Purchasing power objective 46

Fiscal policy to combat inflation 47The regulation of credit 48

The need for selective controls 50

The need for voluntary restraint 51


Page

V. LONG-RANGE OBJECTIVES FOR THE AMERICAN ECONOMY 53

Our ability to grow 53Development of natural resources and capital equipment. 56

Natural resources 56Business plant and equipment 59Transportation 62Urban redevelopment 64Housing 65

Development of human resources and productivity 68Size and composition of the labor force 68Education for the modern economy 69

Research 71Good health and productivity 72

Security and productivity 72

Fiscal aspects of benefit programs 75

Development of institutions and practices for a high-production economy 75

Industrial price-wage-profit policies 76

Agricultural and food policies 79

Taxation and debt management 84International economic relations 86

The timing of economic programs to promote stabilization. 88Appendix A: The Nation's Economic Budget, the Federal Budget,

and the Distribution of Income, prewar and postwar 91Appendix B: Statistical tables relating to employment, production,

and purchasing power 107

VI


To the Congress of the United States:

IN my first Economic Report to the Congress, presented a year ago inaccordance with the provisions of the Employment Act of 1946, I fore-

saw a bright prospect for the year 1947. In large measure that prospect hasbeen fulfilled.

However, my Midyear Report recorded the fact that agriculturalprospects had become less favorable, that certain price adjustments werenot proceeding satisfactorily, and that the need for foreign aid would prob-ably be greater and more prolonged than had been anticipated. Duringthe six months since that report, the country has maintained a high levelof prosperity but on a wave of inflation which has already caused serioushardship and presents grave concern for the future.

In this second annual Economic Report, I shall set forth the diffi-culties of the situation by which the Nation is confronted as it enters 1948.At the same time, I have great confidence in our ability to surmount thesedifficulties and to show another year of splendid achievement for thewelfare of our own people and the meeting of our responsibilities in thefamily of nations.

I. Foreword and Summary

THE year 1947 has afforded a new demonstration of the tremendousproductivity of the United States when our natural resources, our ac-

cumulated capital, and our able and enterprising labor force are used at highlevels of activity. Looked at from another point of view, the year hasrevealed the previously unmeasured size of the profitable market which isfurnished when nearly 60 million workers are steadily employed withmodern equipment and organization. With high pay rolls and relativelyfew work stoppages and with a new high record in farm income, mostof the people were able to enjoy a level of consumption far above prewarstandards. We were able also to satisfy many of the wants for durableconsumers' goods whose production had been curtailed during the warand to extend the conveniences of life and modest luxuries to a largerpercentage of our homes than had ever shared them in the past. Inaddition, we were able to provide aid to war-torn and distressed countriesabroad.


The main features of last year's economic activity may be summarizedas follows:

THE RECORD OF ECONOMIC ACTIVITY DURING 1947

Employment during 1947 made a new record, passing the mark of60 million civilian jobs in June and, even with seasonal dips, averagingabout 58 million for the whole year. This was almost 3 million more than in1946 and about 10.5 million more than in 1940. Unemployment was evenlower than in 1946, and reached what is probably the practical minimum.

Production measured as total physical output of goods was about 7percent above 1946 and 76 percent above the 1935-39 average. A slightdrop in agricultural production was more than offset by larger productionin manufacturing, minerals, construction, transportation, and public utili-ties. The first Economic Report set up as an objective for 1947 a totaloutpmt of goods and services about 5 percent above 1946. This goal wasnot quite reached. The increased output of goods was partly offset by adecline in services.

Productivity per man-hour increased slightly over 1946. In manufac-turing, production increased somewhat more than numbers employed.Output of the average farm worker declined somewhat because of badweather conditions but remained far above prewar levels.

Consumer income after taxes reached a new high in 1947. It was run-ning at the annual rate of $1,264 per capita in the last quarter of 1947,compared with a rate of $1,074 in the first quarter of 1946. However,the rapid rise in prices caused the purchasing power of the consumer'sdollar income to decline by nearly 8 percent during the same period. Thisdid most injury to people with low incomes and moderate fixed incomes.Total spending for consumption was maintained by reduction in the rateof current saving, drawing on past savings, and the rise of consumer creditto a new peak of 13.3 billion dollars at the end of 1947.

Business investment and income throughout 1947 remained consistentlyabove the level of any previous year. Investment in plant, equipment,and increased inventories amounted to over 25 billion dollars contrastedwith 21 billion dollars in 1946. Some part of this increase reflected higherprices. Dividend payments reached a new high although corporationsretained five-eighths of their profits after taxes to plow back into the busi-ness. Retained corporate earnings were double those of the war yearsand four times those of 1929. Flotation of securities, mostly of fixed-interest types, provided 4 billion dollars of new capital as against 3.3 billionin 1946. Commercial bank loans to business increased about 4.2 billiondollars in 1947, with credit expanding so rapidly in the last half year asto cause grave concern as to its inflationary effect.


Housing units completed in 1947 were nearly double the number in 1946,but high costs raised the question whether this rate could be continued.

Exports of goods and services ran at the annual rate of 20 billion dollarsin the early part of the year but declined later. Imports were much lessthan exports resulting in an export surplus of more than 11 billion dollarsfor the year. The ability of foreign countries to finance imports declinedin the latter part of the year and the future of our international balancewill depend in considerable measure on the size of Government aid andprivate credits extended.

Government expenditures were reduced to 41.3 billion dollars in thecalendar year 1947, leaving a balance of cash receipts of 5.6 billion dollarswhich was used primarily to reduce bank holdings of Federal debt. Thiswas a counterinflationary factor during a year of mounting inflation.

The Nation's Economic Budget for the second half of 1947 indicates agross national production at an annual rate of 237 billion dollars, con-trasted with about 204 billion for 1946. Investment for construction,equipment, and inventories increased by 24 percent over 1946, and netforeign investments increased by 83 percent, while consumer expendituresincreased by only 14 percent. The increase in consumer expenditureswas 3.5 billion dollars more than the increase in their incomes. Thecontinuance of such a relationship would not enable consumers to absorb,with their current incomes, the output of a maximum employment economywhen the extraordinary volume of business reequipment, net exports, andthe use of credit level off at more permanently sustainable rates. Therelationships within the Nation's Economic Budget permitted maximumemployment and high production through 1947 but did not include all theadjustments required for permanent prosperity and growth.

The maintenance and stabilization of such a high level of productionand consumption will require proper adjustment among money, price,and income relationships. While changes in price and income relation-ships during the past year have not disrupted activity in any serious wayas yet, they have brought us progressively into a more unstable situation.As we enter the new year, the American people are keenly aware thatinflation is the dominant problem in our economic affairs. *

PRICES, WAGES, PROFITS,, AND INFLATION IN 1947

At the time of the first Economic Report a year ago, I warned against thedanger of advancing prices, which would undermine our structure ofnational prosperity. I strongly urged businessmen to bring prices into linewith the requirements of a stabilized economy. I called upon workers tolimit their demands for wage increases to those situations where wages weresubstandard or where wage increases would not necessitate higher prices.


I called for the holding of public works down to the minimum of necessityand called upon procurement agencies to avoid practices that would stim-ulate price increases.

Prices in the first quarter of 1947 continued the upward trend of the lastquarter of 1946. In its first-quarter review to me, the Council of EconomicAdvisers stressed the fact that the faster rate at which prices were beginningto move up constituted a serious danger. During the following weeks, Iemphasized in several public statements the need for all groups in thebusiness world to adopt policies and follow practices which would haltthis inflationary trend.

There then followed several months of a remarkably stable price level.One cannot say how far this was due to the voluntary action of the manybusinessmen who deliberately withheld price advances and in a few casesreduced prices, or to what extent the cessation of price increases was theresult of the widespread resistance of retail merchants to higher wholesaleprices or was due to the spread of a generally more cautious attitude amongbusinessmen and individual consumers.

Although the upward movement of prices had apparently been checkedwhen I presented my Midyear Economic Report, I warned that there werestrong new inflationary forces. I endeavored again to impress businessmenwith the great need for price stability and I again asked labor to refrain fromdemands for such wage increases as would require price advances. Unfor-tunately, even as the Midyear Report was presented, unfavorable develop-ments in agriculture, industry, and the international situation startedchanges in incomes and prices quite different from those recommended inmy first Economic Report. Businessmen were in the main finding it easyto pass added costs on in price advances of like or greater amount.

Since June, wholesale prices have risen at an annual rate of 20 percentand consumer prices at an annual rate of about 12 percent. Retail foodprices have risen at an annual rate of about 15 percent. Rent, since themodification of rent control, has been rising at an annual rate of about 13percent. At the wholesale level, textiles during the second half of 1947were rising at an annual rate of 12 percent, fuel and lighting 36 percent, andbuilding materials 18 percent.

Wages, too, were moving up. Wage earners had in the first half of theyear sought to obtain increases in rates that would maintain their take-home pay at or near the wartime level and thus enable them to buythe enlarged product of goods and services that a high-production peace-time economy could turn out. Wage advances during 1947 kept upgenerally with the cost of living trend during the year but did not gainthe ground lost when price increases exceeded wage increases in 1946.


The renewed rise in the cost of living during the second half of 1947brought demands for further wage increases. At the end of the year therewas a continuing prospect of a fruitless and dangerous spiraling of pricesand wages.

Profits were substantially above the 1946 level, and remained highthrough the year as increased costs were covered, and in many cases exceeded,by higher prices. Corporate profits before taxes rose to 28 billion dollars,contrasted with 21 billion in 1946, and profits after taxes rose to 17 billiondollars, compared with 12.5 billion in 1946. Corporate earnings after taxesrepresented about 9.5 percent on net worth, and 5.5 percent on sales. Un-incorporated non-farm enterprises earned 23.5 billion dollars before taxes,an increase of 2,5 billion. Total business income before taxes increasedby 22 percent during the year. Net farm income before taxes rose from15.2 billion dollars in 1946 to 18.3 billion in 1947.

The record of prices, wages and profits during 1947 shows how they fedupon one another in a developing process of inflation. In spite of theheartening production record of the year, this inflationary trend was pro-foundly disturbing. It not only produced great inequities among ourpeople, but also created the danger of a serious setback.

The purposes of the Employment Act are beginning to meet their first realtest. Unless we as a nation show an ability to impose restraints upon our-selves and to utilize the machinery of our representative government to devisewell-considered regulatory measures, we stand in great danger that runawayprices, overextended credit, and unbalanced developments will lead to aneconomic recession. We cannot be sure that such a recession would not besevere and recovery slow and painful.

OBJECTIVES FOR 1948

The first objective for 1948 must be to halt the inflationary trend. OnNovember 17,1 recommended to the Congress a ten-point program for thispurpose. Every point in that program is essential.

The nature of the inflation from which we are suffering arises in partfrom the total excess of buying power over the available supply of goodsand in part from relative scarcities at strategic points in the economy whichgive impetus to particular price-wage spirals.

To deal with these two phases of inflation, my ten-point program dividesinto three main parts. First, it proposes appropriate restraints upon businesscredit and consumer credit and commodity speculation. Second, to dealwith the scarcities at strategic spots in the economy, it calls for authority toallocate to their most efficient and necessary uses those scarce commoditiesand services which enter basically into the cost of living or industrial pro-


duction. And third, it calls for the extension and strengthening of rentcontrol, and for authority to impose rationing and price control on a highlyselective basis on items of outstanding importance to industrial productionor to the cost of living so that these powers may be used promptly to protectthe public if other measures prove inadequate.

As I have made clear in a statement on December 29, the three points inmy ten-point program which were enacted in the special session of theCongress are necessary but insufficient.. The other seven points are needed,needed badly, and needed promptly.

This program, which the situation requires, does not lessen the need forvoluntary restraint. This applies both to those who price goods and thosewho buy goods. No program undertaken by the Government can succeedunless it is accompanied by public cooperation based upon a realization ofcommon dangers and common objectives.

Taxes at present are providing revenues substantially larger than expend-itures. It is important to maintain this favorable balance as long as theinflationary trend continues. However, certain adjustments need to bemade immediately in order to protect those in the lower income groups hithardest by inflation.

Our second main objective for 1948 should be to maintain maximum em-ployment, achieve maximum production, and adjust the price-income struc-ture so as to stop the inflationary spiral without production cutbacks orextensive unemployment.

More production this year will help in combatting inflation, but thereis no possibility of enough additional production this year to overcome infla-tion without other measures. In fact, if these other measures are not under-taken, inflation may cause such disruption of our economy as to driveproduction and employment downward.

With healthy adjustments in our economy achieved during the year, ouremployment objective should be to absorb in useful work the net increaseof 700,000 additional people in the labor force. This would mean an aver-age of nearly 59 million jobs for the year as a whole, contrasted with about58 million as the year's average for 1947.

Our objective for production should be to increase the total output ofgoods and services by some 3 percent above 1947.

Our third main objective for 1948 should be to establish firmer foundationsfor the long-range growth and prosperity of our economy in the years ahead.

LONG-RANGE OBJECTIVES

The economic growth and stability of the United States cannot beachieved by dealing with problems merely from day to day. We must have


a sufficiently long-time perspective to do also those things which requiresome time for their planning and organization.

Our total annual national production has increased since 1939 by 53percent. We cannot expect such rapid advance within the next 10 yearsbecause we are now at a fuller use of our resources than we were in 1939.Yet we should within 10 years be able to increase our annual nationaloutput by 35 percent. Progress at this rate would bring the per capitareal income of our people to 27 percent above the level of 1947 and 80percent above the level of 1937.

But our record of periodic depressions in the past warns us that we can-not have stabilized prosperity at this rate of progress without carefullyconsidered and well-directed efforts.

The Nation's long-range economic programs should be geared to threemajor purposes: conserving and developing our natural resources and cap-ital equipment, enabling our human resources to become fully productiveand thus provide richer and more satisfying lives, and improving oureconomic institutions and practices so as to utilize free enterprise andrepresentative government effectively toward maximum production andsustained general prosperity.

Development of natural resources and capital equipment

Development of natural resources in land, water power, minerals, andforests requires that we make up as soon as possible for the lapses in manyof these efforts during the pressures of war and postwar reconversion.Wise conservation and development efforts are now all the more neededbecause in many respects these resources were subjected to excessive drainsto supply wartime production.

One-half of the Nation's crop and pasture land needs to be put underimproved soil management. Programs for flood control and power needto be expanded. Further construction of multipurpose dams and relatedfacilities is desirable. Our sustained yield of saw timber should bedoubled. With regard to minerals for industrial and strategic purposes,we need increased emphasis upon research, development of substitutes, andimportation and stockpiling.

There are areas of the country which, for a combination of reasons,have been underdeveloped or retarded economically. We must push re-gional development through improved agricultural methods and land use,further industrial expansion and diversification, and lifting the levels ofhealth and education.

All of our resource development activities will require the alert interestof the people, vigorous private enterprise, and a wise pooling of the effortsof Federal, State, and local governments.


Our business plant and equipment need to be expanded to sustain con-tinuous maximum employment and production. We shall require morecapacity in steel, petroleum, coke, electricity, and other industries.

We can rely mainly upon business for this expansion, if business adjustsits plans to an economy of continuous maximum production instead ofadjusting its plans to an economy of recurrent low resource utilization.

Government has the responsibility of providing favorable conditions foradequate and well-balanced private investment in productive facilities,with prudent use of Government initiative when private resources lag.Both private and public policy must, however, impose restraints on boom-time overdevelopment and overcapitalization.

In transportation, at least 45 percent of our highways leading into citiesneed to be rebuilt within 10 years, financial aid to airlines should be con-tinued, railroad consolidation should be carried out with increasing vigor,and national policies should recognize the need for protecting the creditof the railroads.

Urban redevelopment and housing afford an immense challenge. Theblight and deterioration of our cities have created grave problems ofmunicipal taxation and management, and have damped the rate ofinvestment in rebuilding. This problem is closely related to the inadequacyand instability of house production. As a start toward the objective of adecent standard of American housing within 10 years and for the releaseof investment opportunities over a decade of as much as 75 billion dollars—mostly private funds—in urban redevelopment, there should be promptenactment of comprehensive housing and urban redevelopment legislation.

Development of human resources and productivity

Within 10 years, maximum employment will mean 64 million jobs ormore.

To raise the individual to the highest practical level of productivity, andto provide an outlet for the increasing part of the labor force which tech-nological changes may displace from the mass-production industries orfrom agriculture, we need improved services in education, health, andsocial security.

For education, the first step, which should not be deferred, is to provideFederal aid for elementary and secondary education to help remedy thedeplorable shortages and the maldistribution of school facilities and teach-ers. At present, our ten poorest States are spending about $64 annuallyfor each school child, while our ten wealthiest States are spending about$177. Federal aid should be given not only to this educational effort butalso to research work both in basic principles of natural and social scienceand in their practical application.

8


Our health standards are not being met because of the inability ofmillions of families to purchase adequate medical care with their incomes,and also because of the great disparities in the resources of different areasof the country available for investment in hospitals and other healthservices. We need a comprehensive national health program, includingprepaid health insurance and aid to hospitals and health centers.

Social security, both in its unemployment insurance and its old-age in-surance aspects, should be increased and its coverage should be made moregeneral.

Development of institutions and practices for a high-production economy

We have learned from experience that the capacity to produce doesnot alone assure continuous maximum employment. The distribution ofpurchasing power determines whether there will be enough funds availableto provide adequate investment for maximum production and enough buy-ing power to absorb the output.

Industrial price-wage-profit policies, arrived at without compulsion in afree, competitive economy, play an important part in preserving or destroy-ing balance in our economy. In those areas where businessmen and workersmake conscious decisions about prices, wages, and profits, we must seekthrough education and understanding to adjust these decisions ever moreclosely to the broad needs of the whole economy.

At the same time, the adaptability of the economy to changing circum-stances requires the maintenance of active competition which, throughamendment and improved enforcement of the antitrust laws, must be pre-served where it exists and revived where it has languished. Collusivemonopolistic practices must be eradicated and the trend toward concen-tration of economic power reversed.

For balanced expansion, our economy requires a larger flow of incometo consumers. Comparing 1939 with today in dollars of constant purchas-ing power, annual expenditures for producers' durable equipment haveincreased by 170 percent, while annual consumers' expenditures have in-creased by only 48 percent. When the export surplus and business retoolingand the use of savings and credit level off or are reduced, we shall needmore consumer income to sustain maximum production.

More consumer income must be accompanied by better income distribu-tion. In 1946, the lowest-income fifth of our families had an average annualincome before taxes of only $835. The second fifth had an average annualincome of only about $2,000. The top fifth had an average annual incomeof almost $93000.


Agricultural and food policy throughout the decade ahead should bebased on the expanding needs of a maximum production economy. Withimprovements in the incomes and living standards of wage earners, andwith continued concentration upon improving nutrition, our agriculturaloutput should within 10 years reach a level about 10 percent above thepresent level. This would mean a crop output about 25 percent, and alivestock output nearly 50 percent, above prewar levels.

Soil conservation activities should be intensified. Capital investmentper farm worker will need to be increased, and there JS need for three timesas many tractors on farms as before the war. There are 2 or 3 millionfarmers with too little land or whose land is too poor or whose equipmentis inadequate.

We shall continue to need the farm programs that have been developedto advise farmers in adjusting their production patterns to the changingpatterns of demand, and to offset in some degree the special hazards affect-ing their industry through crop insurance and price support for majorfarm commodities.

Tax policy for the long run should have two major elements: first, alevel of revenue above expenditures in all except depression years whichwill permit systematic reduction of the public debt; and, second, a taxstructure which will promote stabilized prosperity through adjustment ofparticular taxes to stimulate or to check consumer expenditure or businessexpenditure as circumstances require.

Debt management policies should be so conducted that appropriate re-straints on bank credit can be applied without abandoning or impairing thesound principle of Government price support of bonds which the people havebought as an expression of their faith in the Government's financial security.

Our international economic relations should be such as to aid in therestoration of Europe under the European Recovery Program. We arenow seeking, and should seek always, to negotiate with other nations betterstandards for the conduct of world trade so that each country may be facili-tated in producing the things which it can produce best and buying thethings which can be produced more economically elsewhere. In a frame-work of increasing world prosperity, our country can move forward mostconfidently to meet the problems of our domestic economy.

10


II. Levels of Economic Activityin 1947

THE COURSE OF EMPLOYMENT AND PRODUCTION

Employment

N INETEEN forty-seven was a record year for civilian employment. InJune, civilian employment passed the sixty-million mark for the first

time. Allowing for seasonal variations, employment in December (57.9million) was at about the same level. Employment averaged 58 million forthe year contrasting with an average of 55.3 million in 1946 and 47.5 millionin 1940. (See appendix B, table VIII.)

This increase in employment was most pronounced in the manufac-turing industries, with construction and mining registering sizeable per-centage gains. Employment increased slightly in trade, finance, andservices, and decreased in government.

Compared with 2.3 million in 1946, the number of unemployed averaged2.1 million during 1947. In November and December, it dropped to 1.6million, the lowest figure in two years.

Production

The total physical output of the economy in 1947 was about 7 percentabove 1946, and about 76 percent above the 1935-39 average.

From 1946 to 1947 increased output was registered in each major categoryexcept agriculture. The total output of farm products dropped 3 percentdue to the disappointing corn crop. The slight drop in agricultural outputwas more than balanced by increased production in manufacturing, min-erals, construction, transportation, and electric and gas utilities. This isshown in chart 2 and appendix B, table XVI.

The above figures do not fully account for all changes in economic activity,since they do not include services such as trade, finance, and government. Itis obviously impossible to measure precisely the production of such servicesin physical terms, but a rough indication is given by employment in theservice industries. The number of persons in nongovernmental services in-

770958°—48 2 JJ


CHART!

THE LABOR FORCECivilian employment was at record levels in 1947

MILLIONS OP PERSONS*

80

70

60

50

40

30

20

10

0

TOTAL LABOR FORCE

. -\ -<v "̂ ^P ,5S?r ~ ~ > ' ' ' - NONAGRICulTURALji""ii

•*• »" _ L~"

; " " ", r:-Zi"l "- " "* ! J -„.! ^ '" •» ,TF? r Lj I ! l

-..A. . -r- -.t:i .s -r"T !: f *c .-: *£r~ " i C

MILLIONS OF PCfiSONS*

-

-

-

f t ^^U/T J ^ CIVIL IAN

so

70

60

50

4 0

30

20

to

0t939 1940 1941 1942 1943 1944 J945 1946 1947

+14 YEARS OF AGE AND OVER

SOURCEi DEPARTMENT OF LABOR (1939) AND DEPARTMENT OF COMMERCE (/940-47)

creased moderately from 1946 to 1947, but this increase was more than offsetby a sharp drop in government employment, particularly military, as aresult of demobilization.

With an increase of 7 percent in the physical output of goods and witha drop in services, it appears that the total increase in the output of goodsand services together from 1946 to 1947 was less than 5 percent. Similarresults are obtained by adjusting the gross national product for changes inprices.

The first Economic Report stated the objective of increasing the totaloutput of goods and services by about 5 percent from the end of 1946 tothe end of 1947. Apparently the actual increase was below that objective.

Production trends were uneven during the year. The second quarter of1947 marked a period of hesitation by individual consumers and business,

12


CHART 2

CHANGES IN PRODUCTION OF GOODSPhysical output in 1947 averaged 7 percent above 1946—an increase for atl industries except agriculture.

PERCENTAGEDECREASE

PERCENTAGEINCREASE

10 15

SOURCE: $E€ APPENDIX B, TABLE EH

explicable partly by high prices and the expectation of early price reduc-tions. The temporary drop in production was prolonged partly by thefact that many plants were shut down entirely during workers' vacationperiods in July and August instead of attempting to stagger vacations overthe year.

In the fall, restraining forces gave way to new forces of expansion. Steel,automobile, printing, and fuel output rose above the peaks reached early inthe year. However, a number of industries continued to operate at lowerlevels, some because of a shortage of raw materials, some because of laggingdemand. (See appendix B, table XV.)


CHART 3

INDUSTRIAL PRODUCTIONOutput in 1947 was far above prewar in alt major industries,andexceeded wartime peaks in some industries.

PERCENT OF 1939 AVERAGE*

800SELECTED

DURABLE MANUFACTURES

600 -

NOVEMBER1947*

400 -

200

100

400

200

100

TRANSPORTATION MACHINERY NONFERROUS IRON a LUMBER aEQUIPMENT METALS a STEEL PRODUCTS

PRODUCTS

SELECTED

NONDURABLE MANUFACTURESAND MINERALS

1939 AVER ABE'100

IP HP HP HP HP H(4 H I I I ICHEMICALPRODUCTS

MANUFACTURED TEXTILES a LEATHER aFOOD PRODUCTS PRODUCTS PROOUCTS

FUELS

*CONVERTED FROM PUBLISHED BASE, (939-39*100.

* SEASONALLY ADJUSTED.

SOURCE' BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.


Productivity

Output per man-hour was somewhat higher in 1947 than in 1946. Theincrease in production for the economy as a whole was primarily the resultof an increase in capital equipment and in employment. Since both capitalequipment and employment expanded in manufacturing, the capital equip-ment available per worker (the most important single factor affecting pro-ductivity) , increased slightly, if at all. In agriculture, even though capitalequipment increased in 1947 over 1946 and employment remained almostconstant, bad weather was primarily responsible for a decline of some 3percent in output per farm worker. Output per worker was still far aboveprewar levels.

THE FLOW OF GOODS AND PURCHASING POWER

Purchasing power over the economy as a whole remained high throughout1947, with resultant high demand for goods and services. The significanceof this strong demand and high purchasing power, and particularly theirbearing upon prices, can be more fully understood by tracing the flow ofgoods and income to domestic consumers and exports, to business andgovernment.

Consumer income, expenditure, and saving

Full employment, high wages, and large proprietors' incomes—bothindustrial and agricultural—pushed consumers' incomes to record levelsduring 1947. Most of this money was spent, and a decreasing proportionwent into net saving. Consumers drew increasingly upon credit to supple-ment their current earnings. Real purchasing power per capita hasremained above prewar levels, but the sharp rise in prices has caused itto decline during the past 2 years. (See table 1.)

Consumer income. In 1946, total personal incomes were 177.2 billiondollars. Increases were registered in each quarter of 1947, reaching theannual rate of 205.3 billion dollars in the fourth quarter. Disposable personalincome (total personal incomes minus taxes and similar payments) increasedfrom 158.4 billion dollars in 1946 to an annual rate of 183.0 billion dollarsin the last quarter of 1947. (See appendix B, tables III and IV.)

Although the disposable dollar income of the average American con-sumer reached a new high in 1947, the rapid rise in prices during the last18 months caused its purchasing power to be less than in 1946. Con-sumption, however, was maintained by liquidation of past savings, a reduc-tion of the saving out of current incomes, and the extensive use of consumercredit.

Changes in the purchasing power of the disposable income of the averageconsumer during 1946 and 1947 show the inability of incomes to keep pace

15


CHART 4

CONSUMER INCOME, SPENDING, AND SAVINGSpending increased more than income.BILLIONS OF DOLLARS

200DISPOSABLE PERSONAL INCOME*(Personol income less toxes)

160

120

60

40

DISPOSABLEINCOME

BILLIONS OP 00LLAR3

200.

CONSUMEREXPENDITURES

1939 1940 1941 1942 1943 1944 1945 1946 1947

Rate of net saving continued to drop.

PERCENT

30

20

10

NET SAVING ASPERCENT OF

DISPOSABLE INCOME

PERCENT

30

20

10

1 i i i 1 i i i I o1939 (940 1941 (942 (943 1944 1945 1946 1947

•SEASONALLY ADJUSTS ANNUAL RATESSOURCE: DEPARTMENT OF COMMERCE.

16


with the inflationary rise in prices. Average disposable income, in termsof current dollars, has increased steadily since the first quarter of 1946,rising from $1,074 then to $1,264 in the fourth quarter of 1947, an increaseof 18 percent. Yet its real purchasing power declined nearly 8 percentduring the same period. The decline in real purchasing power was muchgreater for the millions of people whose incomes were fixed or lagged behindthe increase in average incomes.

The initial impact of the elimination of price controls caused a sub-stantial decline in real disposable income of consumers in the second halfof 1946. The rate of decline slowed up in the first half of 1947, as theprice rise tapered off and as incomes continued to increase owing to wageincreases and a higher level of employment. During the third quarter,the cashing of veterans' terminal leave bonds, counted as addition to dis-posable income, halted momentarily the decline in real purchasing powerin spite of the rapid rise in consumer prices.

TABLE 1.—Per capita disposable incomePersonal income after taxes

Period Currentdollars

First halfof 1947

dollars»

1985-39 average_1941194419461947 2Seasonally adjusted annual rates:

1946—First quarterSecond quarterThird quarter _.Fourth quarter

1947—First quarterSecond quarterThird quarterFourth quarter *

513691

1,0571,1221,219

1,0741,0911,1331,1811,1861,1901,2381,262

797,021,308,251,190

,285,2841,2251,2111,1941,1831,1961,188

\ Deflated by the consumers' price index, which cannot fully reflect changes in the quality and relativeavailability of higher-priced and lower-priced goods.

* Estimates based on incomplete data.Source: Department of Commerce and Department of Labor. (See appendix B, table V)

The decline in the purchasing power of the average consumer's incomesince the middle of 1946 reversed a very desirable trend in the distributionof real income. High levels of employment and production during the warand postwar period had raised per capita disposable incomes, measured infirst half of 1947 dollars, from an average of $797 in 1935-39 to $1,021 in1941, and $1,251 in 1946.

Not only did average incomes increase during this period, but also im-portant changes occurred in income distribution. The relative increase inincome (before taxes) was greatest for families in the lower- and middle-income groups. For example, the increase in incomes between 1941 and


1946 was over 60 percent for the lowest 40 percent of families and only 20percent for the highest 20 percent of families. This is shown in the follow-ing table.

TABLE 2.—Average family incomex

Money income before taxes, 1946 dollars

Families grouped from lowest to highest income *

Lowest fifthSecond fifthThird fifth _Fourth fifthHighest fifth _

Average for all families1 . -

Money income before taxes,1946 dollars

1935-36

$446969

1,5152,2845,928

2,229

1941

$4981,2752,2433,2257,418

2,932

1946

$8352,0233,0504,2018,921

3,806

Percent increase

1935-36to 1946

871091018450

71

1941 to1946

6859363020

30

* Includes single individuals.Source: See appendix A, section III.

The table shows the increase in money incomes before taxes. If personalincome taxes were taken into account, the relative improvement in thelowest income group would be more marked.

The greater increase in incomes in the lower and middle groupsduring this period is to be explained principally by the fact that more peoplewere working in 1946, that more jobs were on a full-time basis, and that manyfamilies now had more than one person gainfully employed. Thus, therelative gain of these groups was mainly due to a greater availability ofjobs. A second cause of the pronounced shift in distribution was that theshare of the national income going to farmers, whose cash income was lowrelative to urban groups, had increased. Third, wage increases from 1941through 1946 were greatest in the lower wage brackets.

Under the influence of these trends, there has been a pronounced changein the type of family which constitutes the poorest 20 percent of the popula-tion. Many persons formerly unemployed, or farmers formerly operating atmarginal levels, have moved out of the lowest group, while persons living onsmall fixed incomes have moved down relative to others. These trendsundoubtedly continued in 1947, as the effects of inflation continued to raisethe incomes of many groups, leaving others behind.

The number of persons living on relatively fixed incomes is large. Vet-erans living on pensions number about 3 million. Survivors and social-security beneficiaries total about 2 million persons, and veterans livingon educational allowances, without other jobs, about 2 million. The num-ber receiving public assistance at the end of 1946 was about 4 million, andthis number is increasing. Some of these persons, of course, receive incomefrom more than one of these sources, and some have other sources of income.

18


CHART 5

AVERAGE FAMILY INCOMEAll groups received more income in 1946 than before the war Greatest

relative increases were in the lower and middle groups.

FAMILIES*GROUPEDFROM LOWESTTO HIGHESTINCOME

LOWESTFIFTH

SECONOFJFTH

THIRDFIFTH

FOURTHFIFTH

HIGHESTFIFTH

MONEY INCOME BEFORE TAXES, 1946 DOLLARS2,000 4,000 6,000 8,000 10,000

^INCLUDES SINGLE INDIVIDUALS.

S O U R C E : S E E A P P E N D I X A , S E C T I O N III.

Even in 1946, many families had incomes below what can be considered

an adequate standard: 28 percent of the families had money incomes less

than $2,000, and 48 percent less than $3,000. This is shown in the follow-

ing table.

TABLE 3.—Percentage distribution of families, by income levels in 1946

Civilian money income classes (1946 dollars) Percent offamilies 1

Cumulatedpercent offamilies l

Under 1,0001,000 to 1,9992,000 to 2,999 _._3,000 to 3,999 _4,000 to 4,9995,000 to 7,4997,500 and over

* Includes single individuals.Source: See appendix A, section III.

19

12.815.419.518.413.013.07.9

12.828.247.766.179.192.1

100.0


Consumer expenditures. Since consumers as a whole spend most oftheir income currently, high levels of income have been accompanied byhigh levels of expenditure. Consumers were spending at a record annualrate of 172 billion dollars in the fourth quarter of 1947, compared with144 billion dollars during 1946. This high rate of spending was a veryimportant factor in the rise of prices.

The widespread expectation of price declines during the first half of1947 caused many prospective purchasers to delay buying houses anddurable goods. But for the year as a whole, minor shifts in patterns ofdemand were far overshadowed by the willingness and ability of consumersto buy.

Whether this willingness and ability to purchase will continue at currentlevels will be strongly affected by two factors emphasized in prior EconomicReports—consumer saving and consumer credit.

The decline in net saving. During 1947 consumers saved only 6.3 per-cent of their disposable incomes, a larger proportion than was saved inprewar years but well below the 1946 level of 9.3 percent. Desire to buydurable goods, the increased use of consumer credit, the pressure on low-income groups to retain wartime and immediate postwar living standardsreduced the rate of net saving. (See appendix B, table IV.)

The decline in the rate of net saving was especially significant sincefamilies with high incomes and large accumulations tended to add to theirholdings, while many low-income families reduced their holdings. Recentstudies indicate that more than one-quarter of all spending units andalmost half of those with incomes under $2,000 a year held no liquid assetsin 1947. Consumers who are drawing upon accumulated assets are nowusing these substantially for general living expenses and medical care,rather than for durable goods and housing. Such use of savings for cur-rent living expenses is an ominous sign for the economy as a whole.

Consumer credit. A gradual increase in consumer credit has bolsteredthe current purchasing power of consumers. The credit outstanding totaled13.3 billion dollars at the end of 1947, an increase of 3.1 billion dollarsover the level at the end of 1946, and 3.2 billion dollars higher than theprevious peak reached in September 1941.

Consumers are using larger amounts of all forms of credit than theydid a year ago. Total instalment credit increased over 50 percent, chargeaccounts, 11 percent, and other types of consumer credit, 19 percent. (Seeappendix B, table VII.)

Although the present levels of credit are not alarmingly high in relationto the size of our economy, the increase that has occurred during the pasttwo years has been adding to inflationary pressures.

This survey of consumer income and expenditures during 1947 points

20


CHART 6

CONSUMER CREDITConsumer credit continued its sharp rise in 1947BILLIONS OF DOLLARS

14

12

10

BILLIONS OF DOLLARS

14

JJLL

1 \rJ | - " - r' I "" " I " "*J O. AJUJbl ULLJilJ. LI I 1 i i l J i 1.J M i l i

1929 1939 1941 1943END OF YEAR

J F M A M J J A S O N O J F M A M J J A S O N O J F M A M J J A S O N O

1945 1946 1947END OF MONTH

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

to two causes for concern. On the one hand, with supplementation ofcurrent incomes through the use of past savings and the extension of con-sumer credit, total consumer demand exceeded the portion of the totalnational output available for consumers after allowing for business andforeign demand. This excess added to inflationary pressure. On theother hand, the rapid rise in prices reduced the real purchasing power ofconsumers to the point where it will not be adequate to take the consumers'share of the national output at present prices when certain abnormal de-mands are reduced and when the rate of consumer saving cannot be furtherreduced. Since adjustment to meet conditions of this kind take time to


make, this underscores the need for prompt action to halt the rising costof living. The present situation is particularly serious for consumers whohave low incomes or who live on fixed incomes.

Business investment, income, and financing

The record level of business investment in 1947 was another major sourceof demand for goods and services, swelling the pressure upon our availableresources. Business expenditures for plant, equipment, and additional in-ventories amounted to over 25 billion dollars in 1947 compared with about21 billion in 1946. Nonfarm residential construction increased from 3.2billion dollars in 1946 to 4.9 billion in 1947. These high levels of invest-ment and residential construction in part reflected the effects of higherprices.

Domestic business investment: producers3 goods. Business outlays forproductive equipment were at record levels during the last three quartersof 1947 despite continued shortages of many basic materials and machineryitems. Total outlays for new equipment in 1947 were about 40 percentgreater than in 1946, with about a third of this increase representing higherprices. These heavy expenditures for producers' goods were a direct andimportant stimulus to the economy. Plant and equipment outlays werehigh in every major field, but were particularly noteworthy in utilities, trans-portation, and those lines of manufacturing, such as textiles, which had notundergone a normal rate of expansion or modernization of facilities duringthe war period.

Most types of industrial equipment were in considerably easier supply atthe end of the year than at the beginning, as equipment manufacturers ex-panded capacity, completed their reconversions from wartime production,and balanced their inventories. In some fields, primarily utilities and trans-portation, the backlog of commitments for new facilities was still great atthe year's end. This was also true of some important manufacturing in-dustries such as steel, coke, and oil, where expansion programs extendingbeyond 1948 were announced.

Although the rate of replacement and improvement of productive equip-ment will vary in response to the outlook for demand, prices, and costs, itappears that total plant and equipment outlays may be leveling off. Indus-trial construction contracts have remained well below the high levels of1946. In many industries, postwar expansion programs for capacity arenearly completed. According to the latest quarterly survey by the Securitiesand Exchange Commission and the Department of Commerce, all majorcategories of business plan to spend less on plant and equipment in the firstquarter of 1948 than in the preceding quarter, though more than wasactually spent in the first quarter of 1947. (See appendix B, table XIX.)

22


Inventories, Accumulation of business inventories, which had been asubstantial supporting factor in the demand for goods through 1946 and theearly part of 1947, was interrupted in the middle of the year but resumed inthe fall. After allowance for normal seasonal variation, the rate of accumu-lation in physical terms during the last quarter of the year was about thesame as that of the first quarter of 1947, but well below that of the fourthquarter of 1946. The book value of all nonfarm business inventories roseabout 8 billion dollars during 1947, a substantial part of this amountrepresenting price increases.

Initial programs of postwar restocking in nondurable lines had been sub-stantially completed early in 1947, and expectations of a decline in sales andprices led to a more than seasonal cutback of inventories in the second quar-ter. In durable goods lines, with considerable backlogs of consumerdemand, accumulation was only slowed. As business optimism revived dur-ing the latter part of the year, inventories were again built up at increasingrates in nondurable lines, particularly at the retail level.

Short stocks of some durable items continue to hamper industrial activity.But in contrast to the inventory accumulation of a year ago, which repre-sented restoration of war-depleted stocks, the recent wave of accumulationappears to have been based largely on the expectation of further price risesin lines where stocks are already adequate. Though overall ratios of inven-tories to sales are still below prewar ratios, liquidation of inventories in caseof a decline in sales raises a greater potential threat to the maintenance ofproduction and employment than has been the case at any time since thewar began. (See appendix B, tables XX and XXI.)

Private construction. The construction industry expanded less in 1947than most major sections of the economy in terms of physical activity.Though its dollar volume was high, the physical volume was actually lessthan it had been in any year from 1923 to 1930. There was a sharp in-crease in construction costs in 1947, with average costs reaching a leveldouble what they were in 1940. In the decade following the first WorldWar the construction industry represented about 10 percent of the economy.It now represents only about half that percentage. Unless importantchanges are made in present methods and prices, its relative importance maycontinue to decline. This problem, as it relates to housing, is discussedmore fully in Section V. (See appendix B, tables XVII and XVIII.)

The number of housing units completed in 1947 was nearly double thatof 1946, and the backlog of houses under construction was as great by theend of the year as at the beginning despite the reduction in constructiontime and the increased volume of completions. Current high costs, how-ever, raised question as to the ability of the industry to continue to operateat current levels, in the residential field at least. A promising development

23


was the ability of many construction companies to shift from nonresidentialto residential construction. Men and materials which were producingfactories and commercial construction in 1946 were producing housingin 1947.

Business income and financing. Business income in 1947 remained con-sistently above the level of any previous year. The need for business funds,however, was also unprecedented due in large part to higher prices. Busi-ness spent about 25 billion dollars during the year on plant, equipment,and increase of inventories, exclusive of almost 5 billion dollars devotedto residential construction. In addition, the increased cost of inven-tories due simply to rising prices amounted to about 6 billion dollars.

Business corporations, while paying out a record amount in dividends,retained the remarkably high proportion of five-eighths of their profits aftertaxes in 1947. (See appendix B, table XXII.) Consequently, reinvestedcorporate earnings were a much more important source of business funds in1947 than ever before, providing 10.3 billion dollars compared with 6.9billion the previous year. Retained corporate earnings in 1947 were aboutdouble the annual retention during the war years and four times those of1929. The general profit situation is discussed more fully in Section III .

Accruals to depreciation and similar reserves were higher than in 1946.Due to increased costs, these allowances were generally insufficient in them-selves to finance replacement of plant and equipment.

In addition to the internal financing from current receipts, business alsodrew upon its previously accumulated liquid assets, though to a muchsmaller extent than in 1946. Nonfinancial corporations, for example,reduced their liquid assets by around 1.5 billion dollars in 1947 comparedwith 5.5 billion dollars in 1946. This drop was substantial even when allow-ance is made in the 1946 figure for the elimination of the excess profits taxwhich permitted firms to begin holding a smaller volume of liquid assetsas a reserve for tax payments.

Flotation of securities for new capital provided around 4 billion dollarsin 1947, compared with 3.3 billion in the previous year. The increase wasin fixed-interest types of securities, reflecting particularly a great increasein the proportion of the total offerings made by utilities. The securitiesmarkets furnished less equity capital. Further, it is interesting to note that,while in 1947 the issues for new capital amounted to only around one-sixthof total financial requirements of business, in 1929 they amounted to around60 percent. Moreover, only about 30 percent of the 1947 new capitalissues were of the equity type rather than fixed-interest-bearing securities,compared with about 75 percent in 1929.

Another important outside source of funds to finance the investmentprogram of business was bank loans. Banks furnished almost as much new

24


credit to business in 1947 as in 1946. Most of the expansion of bank credittook place in the second half of 1947.

Commercial bank loans to business, including the purchase of openmarket paper and excluding agricultural loans, increased during 1947 byabout 4.2 billion dollars, compared with an increase of 4.6 billion dollarsduring 1946. Agricultural loans, which had remained stable during 1946,increased in 1947. Although outstanding loans declined temporarilyduring the second quarter, the rise in commercial credit in the latter partof the year was so rapid as to cause concern in the prevailing inflationarysituation. (See appendix B, table XXVII.)

In residential construction, the estimated mortgage indebtedness uponone- to four-family structures increased about one-half billion dollars in1945, 4.5 billion in 1946, and 5.5 billion in 1947. Thus, for the last twoyears, mortgage indebtedness has been rising faster than the constructionexpenditures on new housing. There has been no important shift in thesource of funds for this financing. Saving and loan associations accountedfor about one-third of the value of mortgages recorded, banks for about one-fourth, individuals for over one-sixth, and miscellaneous groups for the re-mainder. The size of the average mortgage has been rising and is nowabout 30 percent higher than it was two years ago. Veterans' loans guaran-teed by the Government increased from 17 percent of the total number ofrecorded residential loans in 1946 to 21 percent in the first 10 months of1947. The proportion of new housing started which has been financedwith FHA insurance increased from 10 percent in 1946 to 26 percent in thefirst 11 months of 1947.

During 1947, as in other years, the situation regarding business invest-ment, income, and financing was not uniform for all firms and industries.Some businessmen experienced difficulties in floating new capital on thesecurity market. Others reached the limit of what they regarded as the safeuse of bank credit. Most business required large amounts of additionalworking capital for carrying inventories at increasing prices and for meetingpayrolls at higher wage rates. But after making allowance for these fac-tors, it remains clear that the extraordinary rate of business income in gen-eral allowed investment to proceed at record levels. Even greater expansionwas prevented mainly by lack of material rather than by lack of intentionto invest or lack of financial resources.

International transactions

Our international transactions during 1947 were characterized by a veryrapid expansion of exports of goods and services in the early part of theyear, followed by a decline. Since imports of goods and services did notchange much during the year, the export surplus rose and then fell corre-

25


spondingly. For the year as a whole, exports of goods and services ex-ceeded imports by more than 11 billion dollars, compared with 8.1 billionin 1946. The lack of balance in our trade was thus intensified. Quarterlymovements are shown in the following table:

TABLE 4.—United States exports and imports of goods and services

[Billions of dollars, annual rate]

PeriodExports ofgoods andservices 1

Imports ofgoods andservices 1

Exportsurplus

1936-38 average..

1946—First quarterSecond quarter..Third quarterFourth quarter..

1947—First quarterSecond quarter..Third quarter...Fourth quarter 3_

4.1

14.316.415.015.318.721.018.619.6

3.6

7.26.57.17.68.08.28.18.0

0.5

7.19.97.97.7

10.712.810.511.6

1 Includes income on investments.8 Estimates based on incomplete data.Source: Department of Commerce.

The increase in the export surplus during the first part of 1947 reflectedshipments of goods not only to Europe but also to the countries of thishemisphere and to other continents. (See appendix B, table XXXII.)It resulted primarily from an increased physical quantity of exports ofmanufactured products, although increased shipments of grain and higherprices for all types of exports contributed to the rising dollar total. Therewas an intense need for goods in Europe, and high demand and purchasingpower in other countries.

Since foreign countries were able to increase their sales of goods andservices to us only slightly, they had to utilize the aid extended by theUnited States Government and their gold and dollar assets much morerapidly than in 1946. As table 5 shows, these two forms of financing,which were being utilized at a combined annual rate of 7.6 billion dollarsin the last quarter of 1946, were drawn on at a rate of 11.7 billion in thesecond quarter of 1947.

The rate at which foreign countries were utilizing United States creditsand their own gold and dollar assets was depleting these resources rapidlyand the ability of some countries to import from the United States was beingexhausted. Many of these countries were forced to put more rigid restric-tions upon their purchases from the United States.

During the first half of 1947, the increase in the export surplus accountedfor about half of the total increase in the money value of total nationalproduction. Exports of nonagricultural commodities directly and indirectlyprovided employment for nearly 2.5 million workers in nonagricultural

26


CHART 7

EXPORTS AND IMPORTSOF GOODS AND SERVICESExports increased much more than imports in 1946 and 1947,resulting in a larger export surplus.

BILLIONS OF DOLLARSANNUAL RATE

25

20

.15

10

BILLIONS OF DOLLARSANNUAL IRATE

EXPORTS OF GOODS AND SERVICES*

IMPORTS OF GOODS AND SERVICES* > . *

3d Or. 4th Qr. 1st Qr. 2d Qr. 3d Qr 4th Qr. 1st Qr. "2dQr. 3d Qr. 4thQrl 9 4 5 1946 ' ,947

U S. Government aid continued to be a major factor infinancing the export surplus

20

15

10

15

10

EXPORT SURPLUS

J-.

US GOVERNMENT AID

-i 1. , ,t J-,3dQr. 4th Qr. 1st Qr. 2d Qr. 3dQr. 4th Qr. 1st Qr. 2d Qr. 3dQr. 4th Qr

l 9 4 5 1946 l 9 4 7

* INCLUDES INCOME ON INVESTMENTS.

15

to

770958°—48 3


TABLE 5.—Financing the excess of goods and services supplied to foreign countries

[Billions of dollars, annual rate]

Period

1936-38..

1946—First quarter....Second quarter..Third quarter...Fourth quarter..

1947—First quarterSecond quarter..Third quarter...Fourth quarter«

Totalexcess of

exports ofgoods andservices i

0.5

7.19.97.97.7

10.712.810.511.6

Means of financing

Govern-ment aid

(net) 2

5.06.55.84.2

5.37.07.63.5

Liquidationof short-termcapital and

gold byforeign

countries(net)

Private giftsand remit-

tances(net)

1.1

2.1.8

3.4

4.64.73.44.5

0.2

.7

Othermeans offinancing

(net) 3

-0.8

.6

.7- . 6

.2

.4-1.1

2.8

i Includes income on investments.* Excludes investment in International Bank and Monetary Fund. See appendix Bf table XXXI for

types of Government aid.3 Includes disbursements by International Bank and Monetary Fund, movement of private long-term

capital and private and U. S. Government short-term capital, and errors and omissions.* Estimates based on incomplete data.

Source: Department of Commerce.

industries. In some of the durable goods manufacturing industries, theemployment resulting from exports approached 20 percent of the total. Itis clear from these facts that our exports during the first half of the yearhad an important bearing upon total levels of employment and productionand upon the level of prices. Foreign demand for certain products in rela-tively short supply, such as grain and steel, when added to high domesticdemand, continued to exert inflationary pressure at these strategic spots in theeconomy throughout the year. (See appendix B, tables XXXIV andXXXV.)

Government transactions

Expenditures. During 1947, the Federal Government reduced its spend-ing. Federal cash payments to the public in 1946 and 1947 are shown intable 6.

The largest items of expenditure in 1947 were for defense, veterans,international affairs, interest, tax refunds, and social security. Theseaccounted for about 85 percent of total cash expenditures. (See appendixA, table X.)

During the year, expenditures of State and local governments rose above 12billion dollars, compared with 10 billion dollars in 1946. Part of thisincrease resulted from payment of bonuses to veterans by the States, total-ing almost 400 million dollars in 1947, as compared with only a few milliondollars in 1946. Receipts and expenditures of State and local govern-


TABLE 6.—Federal cash payments to[Billions of dollars]

Group receiving payment and type of payment

Individuals:Salaries and wages of Federal personnel:

Military a ---Civilian

Pensions and other payments to veterans'Social welfare beneficiaries -Loans to home ownersInterest on Federal debt -Refunds of taxes..__

Total

Business:Payments for purchases of goods and services8

Subsidies and other payments to farmersLoans and subsidies to businessInterest on the Federal debt -- - - - -- -Refunds of taxes _

Total

International:Loans to foreign governmentsSubscriptions to and membership in international organizations7

Total _

State and local governments (grants-in-aid, interest on Federal debt,Adjustment to daily Treasury statement basis -

Total, Federal cash payments to the public _.

the public

and loans).

Calendaryear 1946

6.76.56.92.0

*- .31.21.6

24.6

12.8.9

2.42.4

18.0

1.5.3

1.7

1.2- . 4

45.3

Calendaryear 1947 *

3.56.16.91.9

1.41.6

21.3

8.5.8.1

2.31.0

12.7

3.61.9

5.5

1.6.2

41.3

i Preliminary estimate based on incomplete data.3 Includes dependency allowances.3 Includes mustering-out pay and cash terminal-leave pay.* Repayments exceed loans.8 Includes purchases made by this Government for occupied areas and other overseas relief.• Repayments exceed loans and subsidies.» Includes subscriptions to the International Monetary Fund and Bank, membership in the UnitedNations and other international organizations.

NOTE.—Detail will not necessarily add to totals because of rounding.

ments were probably in approximate balance for the calendar year 1947as a whole, but during the second half of the year expenditures began tooutrun receipts, thus adding somewhat to the inflationary pressure. (Seeappendix A, table V.)

Construction expenditures of 1.2 billion dollars by the Federal Govern-ment in 1947 were somewhat higher than in 1946, although the physicalvolume of work performed declined. Similar outlays by State and localgovernments were about 1.8 billion dollars, an increase of about two-thirdsabove the 1946 level in dollar terms.

Despite the war-created shortage of urgently needed public facilities,State and local governments, as well as Federal agencies, have shown com-mendable restraint in refusing to undertake new construction activities inthe face of high prices. Both State and Federal public-roads officials havebeen meeting constantly with engineers and contractors to hold down costsby simplifying their designs and improving their working methods. OtherFederal agencies are alsp employing these techniques.

29


Receipts and debt management. While cash payments to the publicwere being reduced, Federal cash receipts during 1947 were at the recordpeacetime level of 46.9 billion dollars and exceeded payments by over5.5 billion. The sources of these receipts were as follows:

TABLE 7.—Federal receipts from the public other than borrowing

[Billions of dollars]

Personal taxesC orporation taxes __ >Employment taxes *Excises and customs.. >Miscellaneous receipts

Total budgetary receiptsReceipts of trust accounts2

Total cash receipts

Source Calendaryear 1946

18.811.0

.57.73.5

41.54.0

45.5

Calendar *year 1947

21.09.2.7

7.74.7

43.23.7

46.9

1 Estimates based on incomplete data.2 Net appropriation to Federal old-age and survivors insurance trust fund is excluded from employment

taxes but included in trust-account receipts.NOTE.—Detail will not necessarily add to totals because of rounding.

The cash surplus of over 5.5 billion dollars in 1947 was used primarilyto reduce the volume of Federal debt held by the banks. Retirement ofsecurities owned by commercial banks, and especially Federal Reserve Banks,has been emphasized in order to secure a maximum deflationary effect fromthe Federal program of debt reduction. Total bank holdings of Federalsecurities were under 92 billion dollars at the end of the year. This is 25billion dollars below the peak in February 1946 and more than 6 billiondollars below the level of bank holdings at the end of 1946.

At the present time the gross national debt is under 257 billion dollars, ascompared with a peak of 279.8 billion dollars on February 28, 1946. How-ever, the Treasury cash balance at the present time is under 3 billion dollars,although when the debt was at its highest point, the balance was about 25billion dollars. At the present time about 34 billion dollars of the Federaldebt is held by Government agencies and trust funds with the remaining223 billion dollars in private hands. (See appendix B, table XXX.)

In addition to the cash basis for recording Federal expenditures, receipts,and surplus used in this Report, there is the conventional budgetary con-cept used in the Budget Message. A detailed reconciliation betweenthese two methods is shown in appendix A, section II.

The difference between the cash surplus of over 5.5 billion dollars andthe budgetary surplus of about 2.5 billion dollars in 1947 is accounted forlargely by the increase in social security reserves. Appropriations to socialsecurity funds, whether used for payments of benefits, or for reserve accumu-lation are a charge on the budget, thereby reducing the budget surplus in


the conventional definition. Using the cash concept, however, the excessof social insurance contributions over benefit payments appears as an addi-tion to the Government surplus. Such surplus has a counter-inflationaryeffect, as it comes out of labor and business incomes, thereby decreasingdemand.

This survey of Government transactions during 1947 indicates that hightaxes and reduced expenditures have partly offset the powerful inflationarypressures in other sectors of the economy.

Summary: The Nation's Economic Budget

The Nation's Economic Budget summarizes in a few broad figures theflow of goods and purchasing power through the main sectors of theeconomy: consumer households, business, Government activities, and theinternational area. The following table portrays our economy in actionand transition during 1946 and 1947:

TABLE 8.—The Nation's economic budget, calendar years 1946 and 1947

[Billions of dollars, current prices]

Accounts

Consumers:Disposable income -ExpendituresSaving (+)

Business:Undistributed profits and

reservesGross domestic investment:

New construction. _Producers' durable equip-

mentChange in inventories

TotalExcess of receipts (+) or

lnvestnifvpt (—)International:

Net foreign investmentExcess of receipts (+) or in-

vestment (—)Government (Federal, State,

and local):Cash receipts from the p u b l i cCash payments to the publicExcess of receipts (+) or pay-

ments (—)Adjustments to arrive at gross

national product

Total gross national product..

Calendar year 1946

Re-ceipts

158.4

13.3

56.5

-24.5

203.7

Ex-pend-itures

143.7

8.5

12.43.7

24.6

4.8

55.2

-24.5

203.7

Excess(+)ordeficit

(-)

~+l4.~8~

-11.3

-4 .8

+1.3

0

0

Calendar year 1947, seasonally adjustedannual rates 1

First half

Re-ceipts

170.3

17.4

59.7

-21.4

226.1

Ex-pend-itures

160.0

10.0

17 22.1

29 3

9.4

54 2

-26.8

226.1

Excess(+)ordeficit

(-)

"+I6.T

—11 9

-9 .4

+5 5

+5.4

0

Second half

Re-ceipts

180.8

17.8

58.7

-19.8

237.4

Ex-pend-itures

169.0

11.2

18.02.5

31 7

8.2

52.7

-24.1

237.4

Excess(+)ordeficit

(-)

"+Il.~8

-13.9

-8 .2

+6.0

+4.3

0

1 Estimates based on incomplete data.Note.—Detail will not necessarily add to totals because of rounding.Source: See appendix A, section I.

31


CHARTS

THE NATION'S ECONOMIC BUDGETBILLIONS OF OOLLARS- CURRENT PRICES

2 0 0

160

120

8 0

4 0

0

CONSUMERS

INCOME H B H L _

EXPENDITURES ^ ^ K ^ V Z

1I11Hi1111• 1

--———

1946

BUSINESS

EXCESS C.EXPENDITURES

1946

4 0

INTERNATIONAL

NET FOREIGNINVESTMENT

1946

40 -

1946

— 200

- 160

~ 120

— 80

- 40

1947 1st half* 1947 2d half*

1947 1st half* 1947 2d half*

V/////X

4 0

1947 1st half* 1947 2d half*

- 40

1947 1st half* J947 2d half*

*$£asoNJiur Aojusreo ANNUAL BATCS.NOTE. THE COMPONENTS 00 NOT AOO TO THE GROSS NATIONAL PR00UCT BECAUSE OF CERTAIN

ADJUSTMENTS. SEE APPENDIX A.

SOURCE: SEE APPENDIX A.


The changes in the Nation's Economic Budget between 1946 and 1947showed increases in all major categories except government expenditures.While a higher price level enlarged the dollar size of these increases, thefact that they were not the same in all categories indicated significant shiftsin the composition of the economy in action.

While consumers' expenditures increased 14 percent, investment ex-penditures for construction, equipment, and inventories increased 24 per-cent, and net foreign investment by 83 percent. Thus, in the expansion ofthe Nation's Economic Budget from 1946 to 1947, the relative increases inoutlays by business and net foreign investment were much greater than theincreases in consumer expenditures. This is all the more significant as therise in consumers' disposable income was 3.5 billion dollars less than theincrease in consumers' expenditures, which indicates that consumers financeda growing part of their purchases by consumer credits, use of past savings,or a smaller rate of new saving. Consumers saved about 11 billion dollarsin 1947 while net exports plus the excess of domestic investment over re-tained corporate earnings and reserves totaled about 22 billion dollars.A considerable portion of the increase in personal incomes and profits wasabsorbed by taxes, while government cash expenditures declined. Thelarge tax collections functioned as a kind of forced saving, supplement-ing individual saving and business saving in financing the huge net outlaysfor domestic capital formulation and the export surplus.

A comparison of the estimates for the first and second halves of the year1947 shows substantial changes in the component sectors of the economy.Outlays for producers' durable equipment, which increased very rapidlyduring the first half of 1947, expanded only slightly in the second halfof the year. The rate of increase in inventories dropped in the first half of1947, and rose again in the second half of the year. The export surplusdeclined somewhat in the last half of the year. Consumer expendituresand new construction increased all through the year in dollar terms.

Viewed as a whole, the adjustments within the economy during 1947 weresufficient to maintain maximum employment and high production through-out the year. That this should have occurred during a year of considerableflux indicates the flexibility and strength of the economy.

This, however, does not necessarily mean that capital investment, exports,and domestic consumption grew in balanced proportion or that the factorswhich maintained high-level activity through 1947 can be regarded asthe ordinary and permanent elements of economic growth. Price increasesoperated to hold the purchasing power of consumers at levels which wouldhave been insufficient to permit absorption of the full output had it notbeen for the extraordinary export surplus, the use of savings and creditat abnormal rates, and the continuance of backlog business demands.

33


III. Price and Income Trends andthe Course of Inflation

BACK of the income and expenditure totals whose trends have just beentraced lies a whole network of price, wage, and profit relationships

which determine whether or not we move toward economic stability. Thechanges in these relationships during 1947 have not accomplished thatend, nor have they assured the maintenance of high production and em-ployment in 1948. It becomes necessary, therefore, to examine the under-lying facts more carefully and to uncover the dangerous tendencies whichthey include.

PRICE TRENDS

A review of price movements during 1947 cannot ignore the events ofthe last half of 1946. The abolition of OPA raised the question how theeconomy would adjust itself to freedom from price controls. The answerwas soon read in the sharp rise of wholesale prices between June andDecember 1946. This was at an annual rate of almost 50 percent, one ofthe steepest rises ever recorded. Consumers' prices rose at an annual rate of30 percent during the same period.

The dangers of this situation were emphasized in the first EconomicReport and, when prices continued to rise during the first quarter of 1947,it was found necessary to repeat the warnings about high prices late inMarch and in April, urging businessmen to exert every effort to "hold theline" and help check the spiraling forces of inflation.

Prices leveled off in the second quarter of 1947. Business was pursuinga much more cautious inventory policy. Sellers of a number of commodi-ties found that backlogs of demand had dwindled. There was evidencethat many sellers were seeking to hold prices below the maximum that thetraffic would bear. However, the pressure which many distributors put onmanufacturers to lower their prices had little effect.

In the early summer of 1947 substantial price increases in coal, steel, andsteel products took place, following the increase in freight rates and after thenew wage contracts negotiated in the coal industry. There also com-

34


CHART 9

WHOLESALE PRICESWholesale prices, after leveling off in the second Quarter of 1947,resumed their sharp rise in the second half of the year.PERCENT OF 1926 AVERAGE

>OO

180

160

140

120

100

FARMPRODUCTS- h

J F M A M J J A S

1946

f

1 i0 N D

OS ^ ^

COMMODITIES ^ + *

' N OTHER THAN FARMPRODUCTS AND FOODS

1 1 1 1 1 1 1 1 1 I 1J F M A M J J A S O N D

1947

PERCENT OF 1926 AVERAGE200

r 180

- 160

- 140

- 120

100

PERCENTAGE INCREASE SINCE JUNE 1946

FOODS f"' :'' '""sZ^;' ^iv> '" ' ^ 1 5 8

ALL COMMODITIES I Z ̂ ^ *L "/'I "....< Z\. T i l 4 4

FARM PRODUCTS ^ \ ? . 1 ? ^ S L C ^ . . ^ > ^ " * ' J

OTHER THAN FARM U % * ,'? V*£ < ; A% $ '\;^,<X 3 7PRODUCTS AND FOODS * £.../.r*...\./...f.:. *.**?. **A Of

SOURCE: DEPARTMENT OF LABOR.

35


menced a sharp rise in the prices of meats, dairy products, eggs and poultry,due to a normal seasonal downturn in the marketings of these products,and to a rise in the level of consumer demand growing out of increasingincomes and the larger number of people at work. And in the middle ofAugust, grain prices began to move up rapidly. Although our wheat cropwas of record-breaking size, our corn crop was poor. This put additionalpressure on our domestic supply of wheat to supplement the deficiency incorn for animal-feeding purposes. It also became clear that foreign re-quirements for wheat would be large because of the poor crop in Europe.The large rise in wheat and corn prices caused increases in the prices offlour and cereal products. Led by these specific price increases, theredeveloped during the third quarter a general upward movement of priceswhich continued through the rest of the year.

Since June 1947, wholesale prices have risen at an annual rate of 20percent and consumers' prices at a rate of 12 percent.

The behavior of wholesale prices is shown in table 9 by commoditygroups and by periods:

TABLE 9.—Percentage changes in wholesale prices since June 1946

Commodity groupJune to

December1946

December1946 to

March 1947March toJune 1947

June toDecember

1947

June 1946to Decem-

ber 1947

All commodities.. 24.8 6.1 - 1 . 3 10.2 44.1

Farm productsFoodsAll other than farm products and foods.

Hides and leather productsTextile products...Fuel and lighting materialsMetals and metal products ._Building materialsChemicals and allied productsHousefurnishingsMiscellaneous

Special groups:Raw materials.Semimanufactured articles-Manufactured products

20.041.818.144.423.49.5

20.121.530.48.9

10.6

21.328.926.5

8.64.75.1

- 1 . 23.64.83.9

12.55.24.75.9

6.57.15.6

-2 .6- 3 . 5

.2- . 8—.53.21.9

-1 .7- 9 . 1

2.7- 2 . 3

-1.8

-I.I'

10.210.410.118.96.1

18.26.59.0

14.03.77.5

12.98.18.8

39.958.337.068.335.039.935.346.342.121.422.9

43.249.243.7

Source: Department of Labor (see appendix B, table XIII).

Wholesale prices during the second half of 1947 advanced at a slower ratethan during the first quarter of the year. The character of the two move-ments differed fundamentally. During the first quarter, the price riserepresented a tapering off of the broad upward thrust of prices following theremoval of price controls. It was followed by a period of relative stability,when it appeared possible that the inflationary pressures had spent them-selves. But the recent sustained rise in prices represents a renewal ofinflationary pressures.


In response to the factors described above, consumer prices, too, havebeen rising rapidly on a broad front. This is shown in the following table:

TABLE 10.—Percentage changes in consumers' prices since June 1946

ItemJune to

December1946

December1946 to

March 1947March toJune 1947

June toNovember

1947

June 1946to Novem-

ber 1947

All items- 15.0 2.0 0.5 5.0 23.7

Foods...ApparelRentFuel, electricity, and ice.HqusefurnishingsMiscellaneous

27.712.3

.34.5

13.56.4

1.94.4.2

1.82.91.5

6.42.45.57.83.52.8

39.221.06.2

14.821.011.8

Source : Department of Labor (see appendix B, table XII) .

One notable aspect of the rise in consumer prices since June 1947 is that,unlike the movement of wholesale prices, they have been rising at a fasterrate than during the first quarter of the year. In the first quarter, con-sumer prices rose at an annual rate of 8 percent. Since June, they havebeen rising at the rate of 12 percent per annum. Two factors contributedto this acceleration. In the first place, foods, which represent 43 percent ofthe total consumers' price index, have risen much more since June than theydid during the first quarter of 1947. In the second place, rents rose fromJune to November at an annual rate of about 13 percent. Since June,they have risen more than they had over the previous eight years.

Although November is the latest month for which complete data areavailable, preliminary reports indicate that consumers' prices rose over 1percent between November and December.

WAGE TRENDS

Efforts of labor unions in 1947 were concentrated on wages rather thanon security issues because the employment situation was good and becauseof the over-riding importance of the rise in the cost of living.

Wage adjustments in early 1946, largely to compensate for reduced hours,had brought about a reasonably stabilized wage situation by the middle ofthat year. But this stability was shortly disrupted by the rapid rise in thecost of living. By late 1946 and early 1947, industry in general seemedwilling to offer, and unions to accept, wage increases approximating theadvance in consumer prices which had taken place following the lifting ofprice controls in June. Some of these wage contracts contained escalatorclauses to compensate automatically for further rises in the cost of living.

An examination of the early "second round" contracts of late 1946 showsrelatively few wage increases above 15 cents per hour, most of them falling

37


CHART 10

CONSUMERS1 PRICESThe upward trend in retail prices continues,

with food prices in the lead and

rents beginning to increase.

PERCENT OF 1935-39 AVERAGE

200

180

160

140

120

100

FOODS

RENT

J F M A M J J A S O N D

1946J F M A M J J A S O N D

1947

220

200

180

160

140

120

100

PERCENTAGE INCREASE SINCE JUNE 1946

FOODS I ' "T: J39

ALL ITEMS*

APPAREL

RENT

L ' 1 24

*AL$0 INCLUDES H0U$EFUftNlSHIN6$, FUEL, ELECTRICITY, lCEt ANOSOURCE: DEPARTMENT OF LABOR. MISCELLANEOUS GOODS AND SERVICES NOT SHOWN ON CHART.


within the range of 10 to 15 cents. Contracts negotiated later, mainly inApril and May 1947, in rubber, steel, automobiles, electrical equipment, andother metal products were similar to the fall contracts. These settlementswere dubbed the "15-cent package," which included an evaluation of fringebenefits such as paid holidays and occasional retirement or insurance plans.Wage earners during this period, however, generally preferred wage in-creases, and pressure was concentrated on these rather than on fringe issues.

The 1947 wage "pattern" was less widely adopted than the 18% centsof the "first round." Numerous contracts were negotiated at a figure belowthe pattern, while many wage and particularly salary workers received noincreases. On the other hand, some other groups of workers, notably in thebituminous coal, construction, and printing industries, won wage in-creases in excess of the pattern. An examination of the second round con-tracts indicates that workers in the lower paid industries made smaller gains,both absolutely and on a percentage basis, than did higher paid workers.

The effect of the wage settlements in late 1946 and 1947 was to raisewages—both rates and earnings—to an all-time high. For the first time,average weekly earnings in manufacturing have exceeded $50, andthroughout most of the wage sector of the economy average weekly earningshave become twice what they were in 1939. The wage increases which tookplace in 1947 expanded consumers' money income by approximately 3.5to 4 billion dollars during the year.

The 1947 rise in prices left wage earners in no better position at the endof the year than they were at the beginning. The real income of manygroups, such as government workers, teachers, and the white-collar classgenerally, was substantially less.

From June 1946, following the "first round" of wage increases, to October1947, the cost of living rose 23 percent compared with an increase of 18percent in weekly earnings in manufacturing. Earnings in nonmanufactur-ing industries during the same period registered diverse gains: 12 percentin bituminous coal mining, 20 percent in private construction, 8 percent intelephones, 10 percent in wholesale trade, 14 percent in retail trade, and14 percent in hotel services. In general, earnings lagged behind living costs.

Though labor as a whole through wage gains was as well off at the endof 1947 as at the beginning, workers had lost ground steadily in terms ofreal income during the last half of 1946. This, primarily, explains the"second round" of wage increases. It also helps to account for the presentmovement for further wage advances unless an effective anti-inflation pro-gram is adopted. (See appendix B, tables X, XI, and XII.)

Several other 1947 wage developments should be noted. There was anextension of the practice of providing paid vacations and holidays to wageearners. One of the results of these practices was to cause a sizable reduc-

39


tion in the number of man-hours worked during the summer, particularlyin July and August. Increasingly, it is becoming industry practice to shutdown operations for one week during that period.

Efforts to standardize job classifications and to develop an equitablewage-payment program have been carried on by industry for a good manyyears. One of the most notable developments in this area took placelast January when, following two years of joint effort, a wage rationalizationagreement was concluded in the steel industry. This was the culminationof a major job-reclassification program designed to eliminate wage inequi-ties both within and among the plants. This scientific approach to a com-plicated wage problem is a commendable development that could well beadopted more widely.

PROFITS

Profits during 1947 reached a new peak. They also maintained remark-able stability throughout the year despite considerable increases in wagesand raw material costs. Compared with 1946, corporate profits rose from21.1 billion dollars to 28 billion dollars before taxes and from 12.5 billiondollars to 17 billion dollars after taxes. In 1947 they averaged, after taxes,about 9.5 percent on net worth and 5.5 percent on sales. The income of un-incorporated nonfarm enterprises rose during the same period from 21 billiondollars to 23.5 billion before taxes. Total business income before taxes in1947 exceeded the 1946 total by 9.4 billion dollars, or 22 percent. Net farmincome before taxes rose from 15.2 billion dollars to 18.3 billion dollars.

Not only profits for industry as a whole, but also profits for most industrysubgroups were exceptionally high. There were, however, some diver-gencies in trend. Some industries, such as food, beverages, tobacco, andiron and steel, showed a downward trend, although profits continued high,while other industries, such as oil-producing and refining, and automobiles,showed an upward trend as well as a high rate. For profit data, see AppendixB, tables XXII to XXVI. Individual firms within each industry also showeddivergent trends.

This stability of profits throughout the year indicates that businessgenerally reacted to increases in costs by increasing prices rather than byabsorbing them in whole or in part by reducing profits. It is also note-worthy that high and stable profits continued even where there was noappreciable expansion in production. In some categories where excep-tionally high profits persisted, we were very close to a temporary ceilingon production due to physical limitations of capacity and shortages of rawmaterials and certain classes of skilled labor. While industrial productionreached a postwar peak in March, receded to a low point in July, and has

40


since recovered to approximately the March level, profits in manufacturingcontinued at approximately peak levels throughout the year.

In appraising profit trends, allowance should be made for the fact thatbusiness, like every other group, finds that the purchasing power of moneyhas declined considerably. To maintain the same physical volume of inven-tories requires large additional amounts of capital funds. Furthermore,replacement costs have risen substantially, while profits are usually calcu-lated by basing depreciation allowances on original costs rather than replace-ment costs. Although a portion of the large profits earned during 1947merely compensated for changes in prices, profits on the whole were abovethe levels necessary to furnish incentives and funds for the expansion ofbusiness and to promote the sustained health of the economy.

THE NATURE OF INFLATIONARY PRESSURES

The movements of prices and incomes during 1947 constituted a stronginflationary trend. Increasingly through the second half of the year thetotal demand for goods was in excess of the amount of goods and servicesavailable at current prices to satisfy the combined requirements for final con-sumption, private capital formation, Government services, and exports.

The question has been raised as to whether we had inflationary pressurebecause of large exports, because of the very high rate of business investment,because of the large amount of residential and commercial construction, orbecause of the high level of consumer spending. The answer is that we hadinflationary pressure because the sum total of these combined factors exertedtoo great a demand on available supplies. No one factor can be singled outas the principal cause.

Moreover, these factors could not have become fully operative withoutfunds to make them effective. In addition to funds growing out of currentincomes, there were several large special sources of funds in 1947. Themajor ones were: (1) the liquidation of dollar balances and sales of gold byforeign countries and spending by foreign countries of loans and grants pro-vided by the United States; (2) the spending of liquid funds accumulatedby business firms during the war; (3) the liquidation of private savings; (4)the increase of bank credit to finance inventory accumulation, capital expan-sion, and construction; (5) the increase of consumer credit; and (6) theashing of veterans' terminal-leave bonds. Some of these sources of liquid

• unds are being exhausted and are nonrecurring, so that further expansionmist increasingly be financed out of current income credit.

The inflationary impact of spending was strong in all fields—capita!expansion, exports, and consumption. The high level of domestic businessinvestment and construction aided in unfolding a total demand which in-


creased prices, individual incomes, business profits, and Government re-ceipts. The supply of consumer goods was limited by the large amount ofresources devoted to capital goods and exports. Consumer demand, swelledby wage increases, by high farm earnings, by the use of consumer credit,and by the cashing of terminal leave bonds, was in excess of the supply atcurrent prices.

The general excess of demand does not fully explain the resumption ofthe price rise in the second half of the year. In an important degree, therise stemmed from actual and anticipated shortages of specific commodities,which caused price rises at particular points and from there spiraled intohigher costs and prices all through the economy.

The most important specific shortage developed in the grains. This ledto higher prices of many food products. New wage demands resulteHfrom the increased cost of living. These in turn presented the prospectof higher costs transmitted into higher prices. The specific shortage wasthus generalized into a broad increase of prices at many points, and oftenthese increases were greater than were necessary to meet increased costs.

The spiraling of prices from a specific point of shortage was not confinedto the case of food products. It also existed in the case of key industrialproducts, particularly steel.

The inflationary forces arising out of generally excessive demand andthose arising at points of specific shortages are interacting. If general de-mand were not so great, the upward pressure on the prices of specific com-modities in short supply would be less and could not so easily spread toother commodities. Moreover, the mere prospect of higher prices at par-ticular points gives rise to strengthened general demand. Expectation ofhigher prices, for instance, stimulates the demand of business for inventoriesand of consumers for goods. Expectation that higher wages will followhigher costs of living may cause the increase in prices to take place even be-fore wages have been adjusted upward.

In the face of the special and general factors outlined above, the pre-carious basis of the restraint and stability which had developed in the secondquarter became evident. The fears of a recession subsided, the spiral effectof wage and other cost increases got under way, the increased cost of livinggave rise to expectations of further wage demands, and the impact of ex-pected foreign aid programs received wide attention. Such influences in-duced an upsurge of speculative activity superimposed upon the alreadygreat strength in most markets. In addition, there occurred a collateraldevelopment which had great significance. The high business demandin the earlier part of 1947 was financed almost wholly out of current reve-nues and liquid assets, with only moderate use of bank credit. After themiddle of the year, when business expectations ran in the direction of higher

42


prices, and as higher prices actually emerged, business borrowing under-went a rapid increase.

The year's end brought no evidence of an early weakening of inflationaryforces. Unless anti-inflationary steps are taken, the prospect is that, inview of the grain shortage, prices of food, especially meat, will go still higher.Business sentiment now appears to entertain the expectation of strongmarkets for as far ahead as it can see. There is added to the forward out-look the possibility that, even though other sources of excessive demanddiminish and a substantial budget surplus is continued, the inflationaryspiral will be supported by funds from credit sources.

While the export surplus, even with our foreign-aid program, may besmaller than in 1947, exports are heavily concentrated on commoditiesthat are subject to especially strong domestic demand. This makes itdesirable that foreign aid funds be used as far as possible to finance purchasesfrom other countries. The fact that foreign aid presents problems pro-vides no reason to doubt the wisdom of a foreign-aid program which meetsessential requirements of other nations within the limits of our own resources.The effects upon other countries directly, and upon us indirectly, of notproviding this aid would be calamitous. Upon broad grounds of nationalpolicy, it is essential that the program go forward. But it must be recog-nized that carrying it out will make it all the more important that we invokethe measures required to stop the inflation.

WHY INFLATION IS DANGEROUS

During the course of an inflationary movement there are many who findit difficult to think that anything is wrong. There is a ready market, every-one is employed, wages are good, production is high, profits are good, andindustrial capacity is being expanded.

There are some, indeed, who find real merit in the situation. They saythat the cure for specific shortages is still higher prices. They expect thatthese will stimulate larger output and restore balance. But this is a vainhope. The stubborn and intractable fact about an economy alreadyoperating at peak levels is that output cannot be expanded except by slowdegrees.

Nor are the immediate consequences of inflation as favorable as super-ficially appears. Some people are gaining at the expense of others. Theheavy weight of higher costs of living bears down upon the millions offamilies who are unable to keep up with advancing prices. Economic rela-tions degenerate into a hectic struggle to catch up or keep ahead. No firmbasis can be established for orderly and stable progress.

But what most fully justifies every effort to halt an inflation is the cer-tainty that, if it runs its course unimpeded, it will spread in its wake the

770958°—48 4 AQ


disaster of falling markets, unemployment, and business losses. A rapidgeneral rise in prices has the effect of unduly bunching investment in in-ventories and equipment at early dates and according to distorted calcula-tions of possible profit. It induces investments, many of which will notpay out.

Rising prices breed upon easy access to credit, which supports the trend.They introduce speculative activities which also support the trend. Theyproduce a price structure which is increasingly sensitive and precariousand vulnerable to changes in business and consumer expectations, spend-ing, and investment.

At whatever point these developments induce a reversal of business senti-ment or a withholding of consumer demand, some markets weaken, witha spreading impact. Caution dictates the withholding of demand. Buyingfor inventory, capital expansion, and consumption declines. A decline ofproduction necessarily follows, spreading unemployment and loss of incomefrom point to point in a widening and deepening downward spiral.

These developments are not inescapable. A well-designed program ofmeasures to combat the inflationary trend will permit us to reach a stateof economic stability without an interlude of severe depression. Such aprogram is presented in Section IV.

44


IV. Levels of Activity and Adjust-ments Needed in 1948

IN spite of some disappointments on the supply side and serious infla-tionary distortions on the demand side during 1947, we enter 1948 on

a high tide of economic activity and with prospects for another prosperousyear if we handle our economic affairs wisely and firmly. The Employ-ment Act calls upon the President at the opening of each year not merelyto review current trends but also to state what levels of employment,production, and purchasing power during the ensuing year are neededto carry out the policy declared in the act and to recommend measuresby which these objectives may be attained. These two requirements willbe met in this section.

We face in the months and years immediately ahead a test of whether wehave the foresight and courage to safeguard our economy against a returnto the devastating sequence of boom and depression. If we are to completesafely the transition from a war economy to a stable peacetime economyand clear the way for the great progress which lies within our reach, wemust, promptly, take vigorous measures to check the course of inflation whichnow has the economy in its grip.

NEEDED LEVELS OF EMPLOYMENT, PRODUCTION, AND PURCHASING POWER

Employment objective

The American economy is now operating at a level of employment whichmay be regarded as a practical maximum. It is estimated that the laborforce will increase by about 700,000 persons during 1948. If we providethem as well as the present labor force with opportunities to work, thiswould mean an average civilian employment of almost 59 million for thecoming year.

Production objective

This labor force will have at its disposal expanded and improved capitalequipment and there should in general be a better flow of raw materials.During the past year, business expended 23 billion dollars for plant and

45


equipment, approximately one-half of which represents a net addition inexcess of wear and tear and obsolescence. Since there are still someshortages of materials, particularly in metals, some of the new plant andequipment may begin operating at the expense of somewhat less productionin older plants.

It should be our objective to open up most of these bottlenecks in thecourse of 1948, with the use of new capacity to produce materials andcomponents which are now scarce. Assuming that new capital equipmentand other efficiency factors raise nonagricultural productivity somewhatmore than 2 percent, our objective should be to increase the output of goodsand services in this sector of the economy to a level somewhat more than3 percent above 1947.

For farm production, the Department of Agriculture has announcedproduction goals for this year which call for an increase of 3 percent inthe acreage of crops. Reduced feed supplies, however, will inevitablycause some decrease in the output of livestock and livestock products.Balancing this against a possible increase in crop production, it appearsdoubtful that total agricultural production this year can surpass that of 1947.

For the economy as a whole, an increase of total output by about 3percent above 1947 is a feasible objective. To reach this objective willrequire skillful management, the maintenance of good labor-managementrelations, and some improvements in the geographical distribution of labor.

Purchasing power objective

Our purchasing power objective for 1948 should be to effect the economicadjustments which are necessary to afford adequate protection against in-creasing inflation. The view has been expressed that the only cure forinflation and the only means of providing maximum real purchasing poweris more production. Certainly the continuation of full employment and theremoval of impediments to maximum production will provide the surestlong-run remedy for scarcity prices and the exploitation of monopolisticsituations. But we cannot increase industrial and agricultural productionenough within the next few months to catch up fully with market demandsor to surmount the inflationary dangers of the coming year.

Weather will be a major determining factor in our farm output. Thereduction in the corn crop of 1947 has required drastic revision of livestockproducers' operations and makes it certain that supplies of meat, poultry,and dairy products will be less abundant in 1948 than in 1947.

On the industrial side also, the inability to re-equip producers and to fillpipe lines, while simultaneously turning out enough consumers' goods for all


the demands of a fully employed population and providing needed foreignaid, will result in some relative shortages during 1948. The basic shortagesin coke, in steel, and other metals, in petroleum and petroleum transportfacilities, and in railway cars and motive power will not fully be made upduring 1948.

This leads to the conclusion that, even were our employment and pro-duction goals for 1948 fully realized, this would not of itself meet ourpurchasing-power objective nor substantially dispel the need for otheraffirmative anti-inflation measures. More than this, we face the dangerthat the continuance of maximum employment and production will beimpossible unless we achieve the necessary purchasing-power adjustments inthe price-wage-profit structure. When a price-wage spiral breeds businessuncertainty and impairs confidence, employment and production go downinstead of up.

The affirmative measures which I have proposed to the special sessionof the Congress, and which I shall here reaffirm, are not a substitute formore production, but rather constitute the only assurance of maintaininghigh and increasing production.

FISCAL POLICY TO COMBAT INFLATION

It is well established that a substantial excess of Government receiptsover expenditures is counter-inflationary.

The Federal agencies will have to make cash payments to the publicin calendar year 1948 of over 40 billion dollars. This is about 1 billiondollars less than cash payments to the public in calendar year 1947. Itincludes proposed expenditures under new legislation, mainly foreign aid,of about 3 billion dollars. (These figures and those below represent cashpayments and receipts and apply to the calendar year. They differ in bothrespects from the conventional Federal Budget, as is explained on page 30and in more detail in appendix A, section II.)

Over 40 percent of the total is required for defense and for veterans.Most of the remainder represents expenditures to carry out the provisionsof existing law and to meet the Government's commitments, such as interestpayments on the public debt, refund of taxes, loans to foreign governments,social-security payments, and expenditures under previously authorizedcontracts.

On the basis of receipts from present taxes and of expected payments,the excess of receipts over expenditures for calendar year 1948 will be sub-stantial. With inflationary pressures a major threat to the stability of theAmerican economy, no action should be taken now to reduce this excess.

But while waging war against inflation, we should not neglect the casual-

47


ties. Certain tax changes now will help those millions of families whosedisposable incomes have lagged more and more behind the increased costof living during the past year and a half.

I therefore propose that the Congress enact legislation extending a cost-of-living tax credit of $40 for each taxpayer and each dependent.

To offset this decrease in government revenues, corporate taxes shouldbe increased sufficiently to yield an equivalent amount. Corporations weregiven early relief after the war in very substantial amount through repealof the excess profits tax. While present corporate income taxes are veryhigh by all prewar standards, they have permitted both high business ac-tivity and an unexampled addition to capital investment. An increase incorporate taxes would not cause production to fall below the highest outputthat available materials, capacity, and labor will permit. It would, how-ever, have an anti-inflationary effect which would wholly or in large degreeoffset the inflationary influence of the reduction in individual income taxes.

Any net change one way or the other in the effect of these tax revisionsupon inflation is outweighed by the manifest equity of the revisions proposed.In any event, these equitable adjustments will not interfere with successin our anti-inflationary efforts if the other anti-inflationary measures whichI shall now discuss are promptly adopted and vigorously applied.

THE REGULATION OF CREDIT

In the process of inflation, one of the most potentially dangerous sourcesof excessive demand is the expansion of credit. This applies to consumercredit, commercial credit, real estate credit, and credit on securities.

I again recommend that the power of the Board of Governors of theFederal Reserve System to regulate consumer credit be restored. Evenunder the controls which existed, and which expired only on November 1,1947, the volume of instalment consumer credit outstanding had increasedfrom 4 billion dollars on January 1, 1947, to 5.5 billion dollars on Novem-ber 1. Since the lapse of control, and due only partly to seasonal influences,the rate of increase has moved sharply ahead. A further rapid expansionat this time can only contribute to inflationary price increases. (Seeappendix B, table VII.)

Also dangerous is the mounting volume of mortgage debt, urban andrural. The longer-run interest of the people requires careful considerationof the present financing policies of both private and governmental agencies.

More dangerous than the expansion of consumer credit is the over-rapidexpansion of commercial loans by banks. During the first half of 1947,commercial credit expanded only moderately, but during the second halfit rose at an annual rate of almost 10 billion dollars, a much more than


seasonal increase. This increase coincided with the upsurge of inflationarydevelopments.

The increase of bank credit was both a result and a further source of in-flationary pressure. The increase in bank loans reflected a growing de-mand for funds that arose from a variety of sources. In adapting theiroperations to a rising cost and price structure, business firms needed a largervolume of credit for working capital, and borrowed additional amounts tomaintain and expand expenditures on plant and equipment. Farmers in-creased their borrowing to purchase real estate and to acquire farm ma-chinery and finance other capital improvements. Increased consumer buy-ing of durable goods, payments for the purchase and modernization ofhomes, and outlays to meet current living expenses were financed in partby expanded bank loans.

When demand from other sources is already pressing against the pricestructure, the injection of large amounts of bank-created funds to supportbusiness, real estate, and consumer expenditures necessarily contributes tofurther inflation. The impact of this additional supply of money is felt first*of course, in those markets in which the borrowers are direct participants.But as the funds are used by the borrowers to purchase the goods and serv-ices they want, they become part of an enlarged general income stream. Asother temporary sources of demand decline, the expansion of bank creditcould potentially keep the inflationary trend rising and interfere with thegradual transition to a stable situation. Among the strategic points atwhich to curb the inflation movement, none is potentially more powerfulthan the restriction of bank credit.

The control of bank credit is not a simple task, nor is it free from dangers.Unwisely exercised, it could overplay its role and precipitate an undue liq-uidation of credit and a lowering of economic activity. Furthermore, theproblem is complicated by the relation of credit to the administration of thepublic debt. Limitation of the amount of commercial lending would prob-ably be accompanied by higher interest rates. Except as special devices maybe introduced which can partially insulate the public debt, two unfortunatedevelopments might take place: a decline in the value of Government bondsheld by the public, and an increase in the cost of servicing the debt as refund-ing takes place. But these difficulties can be surmounted through the wiseexercise of restraints upon excessive bank credit.

In view of their central relation to the control of inflation, current pro-posals for credit control, especially those which have been presented by theBoard of Governors of the Federal Reserve System for the increase of bankreserve requirements, should be given close study by the Congress, and legis-lation should be enacted of a sufficiently comprehensive character to makeavailable all the powers that may be needed.

49


Within the last fortnight the leaders of our commercial banking systemhave taken positive organized action to secure the curtailment of inflation-ary expansion of bank credit by their members. I commend this far-sightedaction. If they succeed in this voluntary effort, they will be curtailing creditat the points where it is most likely to exercise inflationary influence andfurther general action might not be required.

As part of our program for restraining excessive credit expansion, theFederal bank supervisory agencies have already announced policies designedto confine extension of private bank credit to legitimate production require-ments. The credit standards of the Government lending agencies havealso been reviewed with the objective of checking inflationary influencesfrom this source. It is essential that the major Government credit agenciesin making direct loans and in guaranteeing private loans shall pursuepolicies consistent with a national anti-inflationary policy.

THE NEED FOR SELECTIVE CONTROLS

While the credit controls and budget policies discussed above are essentialinstruments for halting the inflationary trend, there have arisen specificsituations which, in all probability, cannot be dealt with adequately bythese measures.

The most important of these special situations is the shortage of grainsand the related mounting price of food. In the case of meat, for example,the shortage will almost certainly be greater next spring. The use of creditand budgetary controls to the point where they could halt the rise of meatprices would probably cause widespread unemployment. Depriving peopleof their livelihood in order to cause a decline in the cost of food is obviouslynot an acceptable alternative. Nor is it an acceptable alternative to letmounting prices ration the short supply at the expense of millions of familiesof modest income.

In meeting this situation, consumer rationing of selected commoditieswould not only relieve the demand pressure, but would also provide fora more equitable distribution of the available supply. There should alsoexist limited powers of price control to be used for combating rising pricesat those points where they bear most disastrously upon the cost of living.I have already recommended to the Congress that such powers be author-ized. It is also necessary to authorize, and to use if necessary on a selectivebasis, price control of a few vital industrial products that are in short supply,since we have had ample demonstration that these areas of shortage arealso a focal point of spreading inflation.

There should also be set up powers for dealing with the distributionof basic industrial and agricultural products where scarcity threatens to

50


impede production or raise prices unduly. These should not subject busi-ness firms to a detailed plan of operation prescribed by the control agency,but merely provide a check on such distribution of scarce supplies as isfound to be impeding domestic production, defeating the purposes of theforeign aid program, or working inequities as between legitimate users ofthe scarce commodity.

In areas where price control might be employed, its workability mightbe impaired by excessive wage increases. I therefore repeat my recom-mendation to the Congress that authority should be granted to preventwage increases where such action is necessary to maintain any price ceilingthat may be established. This is a power which should be restricted in itsuse, and might not need to be used at all. Its existence would not supersedethe general practice of fixing wages by voluntary agreement, nor would itrelieve labor of any of the responsibility it now bears for moderation inwage demands to help curb inflationary pressures.

I also repeat my recommendation that rent control be continued andstrengthened. Nothing could be more disastrous to the standard of livingof millions of people, or better calculated to initiate another spiral of wagesand prices, than the continuation of the sharp increases in rents now underway. This is particularly true because relaxation of rent control could noteffect a rapid increase in the supply of housing.

The measure enacted by the Congress toward the end of its recentsession extended the Export Control Act, and also extended the authorityto allocate transportation facilities and equipment. In addition, it author-ized measures to increase the production of food in non-European foreigncountries and to encourage conservation practices in this country. Whilethese steps are desirable, they constitute only a small part of an effectiveanti-inflation program.

The same measure also provided for voluntary agreements among busi-nessmen, relating to the allocation of transportation facilities and scarcecommodities and relating also to the regulation of speculative trading oncommodity exchanges. While I have stressed many times that certaintypes of appropriate voluntary action are important, the experience re-viewed in this Report, and the facts which it sets forth, demonstrate con-clusively that governmental action along the lines that I have recommendedis absolutely essential.

THE NEED FOR VOLUNTARY RESTRAINT

The need for some government controls does not lessen the need forvoluntary restraint. Only with the voluntary cooperation of the Americanpeople can any controls be made to work effectively, and the more effectivevoluntary restraint becomes, the less will controls be needed.

51


I have already urged consumers to restrict their purchases of scarceproducts. The Federal Government is deferring many public works proj-ects and following procurement policies designed to minimize their effectupon price increases. I urge State and local governments to do likewise.Businessmen should defer expansion that does not immediately augmentproduction. They should also strive to maintain inventories at the lowestefficient working levels.

The campaign to sell savings bonds will be intensified. Voluntary sav-ings of all types should be encouraged. The new bond buyers and millionsof loyal Americans who enabled their country to finance the war areassured that the power which their Government possesses to maintain thevalue of their bonds will be exercised wherever necessary.

Most important of all, businessmen should hold the line against priceincreases and reduce prices wherever they can, foregoing a quick and dan-gerous excessive profit in favor of long-run stability. And labor should bemoderate in its wage demands, mindful of recent experience which demon-strates the impossibility of registering real gains in an inflationary spiral.

I cannot too strongly emphasize that every self-imposed voluntary re-straint, in the making of purchases, in the setting of prices, and in thedemand for wages, contributes to the restoration of economic stability andprolonged prosperity. But to the extent that the result is not achieved bythese means, it is essential that proper agencies of Government be given andthat they use powers to restore the balance.

When an inflation is in progress, there is no way of predicting when it willbreak of its own accord. One can only be certain that, if permitted to runits own course, it will break with destructive force. How serious or pro-longed such a situation would be in the current instance cannot be foretold.Whatever its character, if a depression occurs, it will be far more costly inhuman welfare and will involve the Government in far more pervasive inter-vention in the economic life of the country than the measures which arenecessary to prevent it. I therefore urge that the Congress consider with theutmost speed the nature of the problem which we have to meet and adoptthe measures that are appropriate to its solution.


V. Long-Range Objectives for theAmerican Economy

OUR ABILITY TO GROW

WHILE striving to overcome the inflation of today, we cannot safelyneglect the problems of tomorrow. No great nation lives for the

moment alone. In restraining the excessive demand which is now apparent,we must not cripple the market for an expanding output of American in-dustry and agriculture. Our whole history shows that unless we go forwardwe shall slip backward. Our economy should be stable, but nonetheless itmust continue to grow.

We cannot set aside long-range considerations while we deal with theimmediate task of combating inflation. The Employment Act requires thatwe set objectives for the needed levels of employment, production, andpurchasing power. Such objectives require that we look ahead and ap-praise our economic potentials in the perspective of long-range economicgrowth.

The best way to realize the growth that we can achieve is to look at whatwe have recently done. The Nation's Economic Budget has already beenused in this Report as a summary device to depict the present state of oureconomy. In table 11, it is used to show the enormous strides that wehave made since just before World War II, with the figures adjusted toallow for price changes.

No one can fail to be impressed by the fact that^ within 8 years, our annualnational product has increased by about 53 percent measured in constantprices. Some part of this increase is explained by the fact that our economyin 1939 was not running at maximum employment or production. Therelentless pressure of the war speeded up certain economic developments.The American people hold a profound conviction that our war-time produc-tion record furnishes a significant demonstration of what we can do withmaximum employment and effective economic policies.

In recent years, a number of attempts have been made by private andpublic research agencies to measure the growth that lies ahead if we aresuccessful in maintaining maximum levels of economic activity. These

53


CHART 11

THE NATION'S ECONOMIC BUDGET INCONSTANT DOLLARS...•Showing our economicgrowth from 1939 to i$47 f

with adjustments forchonges in prices

BILLIONS OP OOLLARS1st HALF OF 1947 PRICES

360 f

320 -

280 -

240 -

200 -

GROSS NATIONAL PRODUCT

160 -

120 -

40 -

1939 1947

CONSUMERS

BILLIONS OF DOLLARS!tt HALF OF 1947 PRICES

200

160

INCOME

1939 1947

BUSINESS

EXCESS OFEXPENDITURES

1939 1947

1939 1947* GROSS NATIONAL PRODUCT IS NOT EXACTLY THE SUM OF THE COMPONENTS BECAUSEOF CERTAIN ADJUSTMENTS. SEE APPENDIX A.SOURCE: SEE APPENDIX A.

40

1939

INTERNATIONAL

- NET FOREIGNINVESTMENT

1947

- 40

54


T A B L E 11.—The Ration's Economic Budget in constant dollars, calendar years 1939 and 1947

Accounts

Consumers:Disposable incomeExpenditures

Saving (+)Business:

Undistributed profits and reserves .Gross private domestic investment:

New constructionProducers' durable equipmentNet change in inventories

TotalExcess of receipts (+) or in-

vestment (—)International:

Net foreign investmentExcess of receipts (+) or invest-

Government (Federal, State, and local):Cash receipts from the publicCash payments to the public

Excess of receipts (+) or pay-TTlfiptS (—)

Adjustments to arrive at gross nationalproduct

Total gross national product

Billions of dollars, first half of 1947 prices

Calendar year 1939

Re-ceipts

112.6

13.1

27.0

- 5 . 1

147.5

Expend-itures

108.2

7 46.4.6

14.4

1.3

31.7

- 8 . 1

147.5

Excess(+)ordeficit

+4.3

- 1 . 3

- 1 . 3

- 4 . 7

+3.0

0

Calendar year 1947 *

Re-ceipts

171.0

17.1

59 4

-21.2

226.3

Expend-itures

160.2

10 217 32.1

29.6

8.4

53.6

-25.5

226.3

Excess(+)ordeficit

+10.8

-12.5

—8 4

+5.8+4.3

0

Percentincrease1939-47

5248

151

31

38170250

106

862

546

646

11969

53

* Estimates based on incomplete data.Source: See appendix A, sections I and II .

studies recognize that foresight is not perfect and that our knowledge oftechnological trends and economic relationships is still limited. Furtherimprovements in these measurements are needed. But even now, they canserve to furnish us at least with some broad outlines of our prospects andproblems.

Ten years from now, if we maintain maximum employment, we shouldreach a level of nearly 64 million jobs. This allows for population growth.It also allows for withdrawal from the labor force of some women to theirhomes and for longer school attendance of some of our young people.

Output per man-hour for our economy as a whole has increased by approx-imately 2 percent annually in recent decades. The war brought manytechnological advances which have not yet been adopted fully by peacetimeindustry. Assuming even the very conservative estimate of 2 percent annualincrease in productivity, and allowing for population growth, maximumproduction 10 years hence would mean an increase of about 35 percent inour total output of goods and services if average weekly hours of work re-main unchanged. This would mean per capita disposable income about 80percent above the level of 1937 and 27 percent above the level of 1947 in

55


terms of constant dollars. Some part of this possible increase may, of course,be taken in the form of increased leisure.

We have within our reach an economic environment that would make itunnecessary for masses of people to be undernourished or ill-housed, to workin obsolete plants and shops, or to lack essential medical care, social securityor education. No one would need to go without adequate rest and vacationafter hard work. Attainment of these economic objectives would affordever-increasing opportunities for individual initiative and greatly strengthenthe cherished free institutions of American life.

But these gains will not come by accident. They would not be registeredin an economy characterized by a period of idle or wasted resources after anyperiod when for a few years we attain full utilization of our plant and laborforce, or in an economy running at only three-quarter capacity even in"fairly good times." The attainment of our objectives will depend uponthe best efforts of industry, agriculture, and labor, working with sympatheticunderstanding of one another's problems and of the common good. Itwill depend on a clear appreciation of maladjustments in the relationshipsamong production, prices, and purchasing power; it will depend upon thewillingness of all concerned to make necessary adjustments, and upon vigor-ous and forward-looking government.

DEVELOPMENT OF NATURAL RESOURCES AND CAPITAL EQUIPMENT

In the perspective of balanced economic expansion for the future, ourfirst attention should be concentrated upon our productive resources, devel-oped and potential, and the ways in which these resources are utilized.Since the beginning of the war, we have been forced to forego at many pointsdevelopment of our basic natural resources and the essential maintenanceand improvement of our capital facilities.

Improvement of the country's natural resources and its capital equip-ment is a cooperative effort. Private groups and individuals, State andlocal governments, as well as the Federal Government, are challenged bythe task. An expanding base of natural resources and capital equipment isnecessary for the realization of increasing production and a rising standardof living.

Natural resources

Land. To meet the needs of a population of perhaps 175 to 185 mil-lion persons by 1975 living in an economic environment of sustained maxi-mum employment and production with a considerable volume of agricul-tural exports, would require an increase of about 30 percent in agriculturalproduction. It would also require a substantial shift in the pattern of agri-cultural land use to meet changes in demand.

56


The yield of present cropland can be enlarged by improvements in giantbreeding, increased use of machinery, supplemental irrigation, increased useof fertilizers, and more efficient marketing. To some extent, we can alsoincrease production by adding to cropland through drainage, clearing, andirrigation.

Erosion of top soil and depletion of soil fertility are becoming more andmore serious. About 60 million acres now cultivated should be used forgrass and trees. Despite significant progress in soil conservation in recentyears, half the Nation's cropland and pasture still needs to be put underimproved soil-management practices as rapidly as possible. Expandedresearch, education, and demonstration programs are required. We needa Nation-wide program for increased application of fertilizers to depletedsoils.

About half our acreage of farm pastures and range land has been im-paired seriously by overgrazing, fires, and other abuses. Large tracts ofland which should be ranges have been plowed for wheat. Higher levelsof meat consumption can be met only if individual farmers and stock-men who own two-thirds of the country's range-land adopt better grazingpractices. The 300 million acres of western grazing land controlled by theFederal Government, much of it organized in grazing districts, is beingimproved, but a large part of it requires further rehabilitation.

Water, Bound up as they are with land uses, water resources should bedeveloped and controlled as an integral part of a broader national andregional resources-development program. Expanding programs are neededto prevent floods, provide for navigation, furnish urgently needed power,promote recreation, control pollution, conserve fish and wildlife, and main-tain and improve underground and surface water supplies needed for agri-culture and other uses.

An impressive example of the interrelated nature of water and landresources is provided by large multiple purpose dams and accompanyingwatershed programs. Such integrated programs should be stepped up, assoon as economic conditions permit, in a number of our larger river basins.

Forests. The estimated 461 million acres of private and public com-mercial forest land in the country ultimately will grow all the timber prod-ucts we are likely to need, provided they are well managed. The problemis most acute in saw timber. Our present saw-timber stand is less than halfthat in 1909, and is poorly distributed and deteriorating in quality andsize. Better forest practices would provide the greatest assurance ofadequate supplies for the future. Achievement of better practices may befurthered by strengthening and expanding technical and other assistanceto private forest landowners, including farmers. In addition, multipurpose

57


development of the national forests and other Federal forest land shouldbe pushed to help meet national needs.

Minerals. Ample supplies of all essential minerals are vital to anexpanding economy and for the Nation's security. Those minerals withwhich we are well endowed, such as coal and phosphates, should be minedand utilized efficiently. Those minerals for which we depend on foreignsources, such as tin, antimony, chromite, and strategic mica, will continueto require stockpiling and intensive search for substitutes and alternativesources of supply. Finally, those minerals for which we depend partiallyon foreign sources, such as zinc, lead, copper and, increasingly, high-gradeiron ore, call for policies which emphasize stepping up the rate of discov-ery, improving mining methods, and developing commercial processes forthe utilization of low-grade ores. For petroleum, new techniques andsources of supply from coal, natural gas, and oil shale will have to beincreasingly relied upon to prevent the reserve situation from deterioratingand to meet the rapidly growing demand.

Regional development. Some large regions in the country possess thebasic raw materials, population, and locational advantages to support amuch higher standard of living, but are below the national averagein material well-being. They require large-scale developmental effortsboth for their own benefit and to contribute in larger measure to thenational welfare. The objective should be to narrow such differentialsby raising productivity and incomes in the lagging regions, particularlythrough improvement in agricultural methods and land uses, further indus-trial expansion and diversification, and lifting education and health levels.

In recent years, large parts of the West have been growing, in termsof per capita income and production, at rates well in excess of nationalaverages, but they are so meagerly equipped with capital and populationthat they may accurately be termed underdeveloped. Programs for thedevelopment of these regions are practical and productive, and should becontinued.

The Territory of Alaska furnishes a special case. Because of its resourcesand its strategic location as our last northwest frontier, a concerted andexpanded effort on the part of public and private agencies and individ-uals for the rapid economic and social development of Alaska is required.

Regional development requires integrated programs of business, labor,agriculture, and all levels of Government. The Council of EconomicAdvisers, in cooperation with other agencies of the Government, is studyingthis problem.


Business plant and equipment

Productive capacity. A growing economy requires balanced expansionof our capacity to turn out consumer goods and crude and semi-finishedmaterials and equipment.

For the greater part of the last two decades, business expansion has beenirregular. In the worst depression years of the 30's, outlays were insufficienteven for normal replacement. Table 12, which covers producers' durableequipment, shows how the rate of expansion varied from decade to decadebefore the war.

TABLE

1869-78... .1879-881889-98 .1899-19081909-181919-281929-38

12.—Gross and net outlays for producers* durable equipment, by

Decade

Billions of 1929 dollarsannual rate

Grossoutlays

0.481.031.422.583.885.484.77

Replace-ment

0.27.58

1.031.542.523.884.47

, average

Netexpansion

0.20.45.40

1.041.361.60.30

decades, 7869-7938

Percentage of gross nationalproduct

Grossoutlays

4.65.35.36.27.07.05.9

Replace-ment

2.73.03.83.74.55.05.5

Netexpansion

1.9? <t1.52.52.42.0.4

Source: Simon Kuznets, National Product Since 1869, National Bureau of Economic Research, NewYork, 1946.

New stimulus to business investment came with the defense program of1940-41. But during the war, though certain critical facilities were ex-panded, we had to curtail many lines of civilian goods and expansion ofall facilities not contributing to war production. After 15 years of depres-sion and wartime restriction, productive capacity was highly unbalanced andgenerally inadequate to meet the peacetime demand. The high rate ofinvestment in new equipment during the past 2 years reflects in part theefforts of producers to make up the deficiencies.

In some industries, present capacity appears adequate for the near future.In others, such as electric power and petroleum refining, expansion ofcapacity is substantial and is likely to continue for a considerable period untila better balance between demands and capacity has been reached. In afew industries, net capacity expansion during 1947 was less than thatrequired annually to sustain maximum production and employment.

The best available studies indicate that to attain the levels of employmentand output we hope to reach, we shall need substantial increases in theoutput of such basic commodities as steel, petroleum products, coke, and

770958°—48 5 59


CHART 12

CAPACITY AND PRODUCTIONMany industries are operating at close to practical capacity.

I PETROLEUM REFINING

* * * * CAPACITY _f*—r*^

• y ^ PRODUCTION

r_ ELECTRICITY ^

. " ^

>+ CAPACITY ^ ^

PRODUCTION

j

u- STEEL INGOTS AND STEEL CAPACITY - ^ r - s ^ * ^ . -

COKE

p PORTLAND CEMENT

~i i i i i i i i i r i i i

\ y v\ f PRODUCTION

V i

\ S PRODUCTION

-

CAPACITY . ""

\ - J PRODUCTION

I I I I nn i i i i i i i i i i i i i i i r

1915 1920 1925 1930 mT 1940

INOEX (YEAR OF MAXIMUMUTIL1ZATI0NM00)

150125100

75.

50

25125100

75

H 50

- 25

12510075

- 50

- 25

(0075

- 50

- 200150125100

75

50

19501945

HOTS: CAPACITY AND PRODUCTION FOR EACH INDUSTRY HAVE BEEN PLOTTED SO AS TO TOUCH AT THE YEAR WHEN THE RATIOOF PRODUCTION TO CAPACITY REACHED ITS MAXIMUM. SUCH POINTS CORRESPOND APPROXIMATELY TO OPERATIONSAT THE LIMIT OF PRACTICAL CAPACITY, THOUGH RATED OR THEORETICAL CAPACITY WOULD IN MOST CASES BE HlSHER.ALL 1947 FIGURES ARE ESTIMATES BASED ON INCOMPLETE OAT A.

SOURCES. BUREAU OF MINES (COKE. CEMENT, AND PETROLEUM), FEDERAL POWER COMMISSION(ELECTRICITY y , AND AMERICAN IRON AND STEEL INSTITUTE fSTEEL)

6o


electricity. For these industries, the needed increases during the next 10years range from 20 to 50 percent. Though such studies make no claimto precision, the only reasonable expectation is that continued high-levelproduction will require large increases of capacity in the industries men-tioned and in many others.

Chart 12 gives the historical perspective of expansion of capacity relativeto output in several important industries. The tightness of present capacityis apparent. Potential stringencies are even greater than might appearfrom the chart. For example^ if either freight cars or steel were moreplentiful, demand for many other commodities would increase, disclosingfurther deficiencies in capacity. In fact, there are some industries wherepresent capacity is inadequate for current output, providing less elbow roomthan management considers desirable for continuously efficient operation,satisfactory servicing of the market, and emergencies. Dependable reservecapacity of electric power generating facilities, for example, is normally atleast 15 percent of peak load for any system. Near the end of 1947, itdropped to below 1 percent for the United States as a whole; in most areasno reserve capacity was available and in some areas acute shortages exist.

The needed capacities for various industries are related. There is nopoint in having capacity to make more automobiles unless we have capacityto supply steel and other materials. The output of steel is limited by sup-plies of coke, scrap, steel furnace capacity, blast furnace capacity, finishingcapacity, and rail transportation.

The same principle applies to the development of raw-material-pro-ducing and raw-material-consuming industries. There is a serious ques-tion, in particular, whether our capacity to produce fuels and energy isbeing expanded fast enough to meet the fuel and energy demands indicatedby expansion in other lines.

If the whole level of output is to rise steadily and rapidly with minimumwaste of capacity, the balancing of expansion in different industries calls forconsiderably more thorough study than it has been given in the past.

Modernization of facilities. The amount of business capital required isonly partly measured in terms of scaling up capacity to meet enlarged de-mands. As table 12 indicates, a large and increasing share of outlays forbusiness equipment is devoted to replacement. The rate at which thisrenewal and improvement proceeds is set not so much by physical wear andtear as by the profitability of setting up facilities of new types, or for newkinds of products, or at new locations. Industrial equipment and structuresare often obsolete long before they are worn out.

In deciding upon replacement, business has not felt it could afford to sub-stitute new types of equipment for old as rapidly as the pace of technologicaladvance would make possible. This lag was accentuated during the war.

6i


At its close the progress of industrial and business technology had accum-ulated a reservoir of potentially profitable opportunities for modernization.If still more rapid technical advances are made and if prospective pro-duction economies justify the costs of accelerated modernization, both busi-ness investment and the rate of increase of productivity will exceed pastrates.

Programs and responsibilities. In a period of far-reaching economicchange, an adequate investment program of expansion and modernizationtaxes the vision and initiative of business management. This is especiallytrue of the long-range planning of business expansion in a manner whichpreserves proper relationships among the productive capacities of variousindustries.

In a free enterprise system, business investment rests on profit expecta-tions, which in turn reflect the outlook for consumer spending, costs ofproduction and investment, availability of improved techniques, avail-ability of funds, and the degree of uncertainty and risk involved in gaugingthese and other factors. The investment "program" is essentially the sumof a great many private programs—privately planned, financed, and exe-cuted. Government investment and operation, in special cases such ashydroelectric power and atomic energy development, clearly serve the publicinterest. More generally, the Government can help to develop a favorableclimate which will encourage business to adopt adequate investment pro-grams.

As the task of making up obvious war-accumulated deficiencies in produc-tive capacity is completed, and as inflation is reduced, increasing attentionwill have to be given to fostering favorable conditions for balanced expan-sion and for aggressive development of new fields of investment. Themost essential condition is continued acceptance and determined implemen-tation of the national policy laid down in the Employment Act of 1946.A policy of sustained maximum production requires that the actions ofbusiness, labor and Government be based on broad agreement as to ourover-all economic goals and on a reasonable degree of assurance thatappropriate action will be taken to achieve them.

Transportation

In our far-flung economy, transportation needs are so obviously relatedto the development of natural resources and industrial production that thepeople long ago undertook through their Government to encourage and inmany cases to participate in the building of extensive transportation facilities.

Shipping. Maintenance of a healthy shipbuilding industry, capable ofrapid expansion, and the continued operation of an efficient and competitivemerchant marine, are not only necessary to national security but are also

62


essential elements in the achievement of a continued high level of employ-ment in the United States. Except for a few ships which are urgentlyneeded now, construction of new vessels can well be deferred until infla-tionary demands have eased and materials are more readily available.Our present needs for shipping should be met basically by the use of existingwar-built vessels. Meanwhile, the shipbuilding industry, by virtue of repairand conversion of war-built ships, is operating at levels considerably abovethe prewar average.

Highways. In the field of highway transportation, the Congress morethan 30 years ago created what is now the Public Roads Administration.At that time, the Congress gave top priority to the problem of getting thefarmers out of the mud—providing access to our agricultural resources andto markets for these resources. Although substantial progress has beenmade in this direction, much remains to be accomplished. In addition,major tasks before us are the efficient maintenance of rural roads, andtheir reconstruction as age or increased traffic dictate.

The second objective, making it possible to get to and from cities, waswell on the way to attainment before the war, but we have lost groundin the last 7 or 8 years. Costs of maintaining many of our highways are sohigh that it is more economical to rebuild them. Maintenance and trafficrecords indicate that within 10 years at least 45 percent of existing highwayswill have to be rebuilt.

A third task, providing adequate facilities for intra-city traffic and healthyurban growth, is one we have hardly begun to tackle. The Congress hasrecognized the national importance of this problem by authorizing the ex-penditure of 125 million dollars per year out of the 500 million dollarsFederal-aid funds for building through arteries in cities. This is an im-portant undertaking and deserves continued attention.

Air trnnsportation. The Government has undertaken a program of finan-cial aid to air lines through mail payments under which rates of paymentare related to the operating income and operating expenditures of the airlines and to the volume of the mail and the value of the service. Thosecharged with the administration of this program are constantly testing itseffectiveness.

Government aid is most effective when it stimulates the resourcefulnessand inventiveness of private enterprise in developing and applying techno-logical advances in aviation.

The Government has also expedited the construction of necessary airportsby sharing costs of construction of many publicly owned fields. The Fed-eral Airport Act of 1946 authorized Federal expenditures aggregating 500million dollars over 7 years. While that program is being completed, grow-ing experience will furnish a basis for further decision as to the pattern of

63


the aviation network which national prosperity requires and how far it isdesirable to go in multiplying air lines and in furnishing to a multitude ofcommunities air transportation facilities with their accompanying burdens ofmaintenance costs.

Railroads. A most urgent national problem in the field of domestic trans-portation is the maintenance of an expanding and efficient railroad service.Large earnings of the war period permitted the more prosperous lines tofortify their financial position and brought about the financial rehabilita-tion of many railroads which for years had been in receivership. Thesegreat improvements in their financial position are rapidly being dissipatedby the effects of inflation, and the railroads will benefit as greatly as anypart of our business institutions from a successful effort to end the infla-tionary movement.

It is in the national interest to insure the continuance of efficient railtransportation. Consolidation of facilities, though it has shown but littleprogress after nearly 30 years of study and effort, offers such possibilities ofconvenience and economy that it should be steadily pursued. We can beoptimistic about technical improvements helping to offset the rising costsof wages and goods if management and labor are alert to the opportunitieswhich their introduction offers. The need must be recognized to pro-tect the credit of the roads in order to enable them to finance the heavyexpenditures which are necessarily involved in these technical changes.

Urban redevelopment

Approximately three-quarters of our population and three-quarters ofour wealth are now essentially urban. Our cities, both large and small,make up an integral part of the productive plant that we need for maxi-mum growth. Improved planning and redevelopment of these cities willnot only enhance their physical usefulness as facilities for manufacturingand commerce, but will also increase workers' productivity in a living en-vironment more conducive to good health and high morale.

When land is assembled in suitable blocks to facilitate economic redevel-opment, extremely large investment opportunities become available. Theconstruction industry will be called upon to supply management, labor tosupply skills, and manufacturers to supply building materials and all theproducts and services which go into residences, schools, factories, offices,stores, and the other elements which constitute the communities of today.Moderate government outlays in redevelopment of urban areas will providelarge investment opportunities for private capital. It has been estimatedthat over the next decade as much as 75 billion dollars—mostly privateinvestment—could profitably be employed in these redeveloped areas. Thisis in addition to general urban public works.


It is none too early for basic planning of land acquisition and theworking out of financial arrangements for urban redevelopment. Thiswill permit rapid progress when there is less pressure on certain materialsin short supply, and when additional investment opportunities will aid inmaintaining maximum levels of employment and production.

The present acute housing shortage requires a large amount of newconstruction in outlying areas before we can engage in slum clearance andurban redevelopment on the large scale that will be needed. Some of thissuburban construction needs to be located in whole new communities withadequate provision for municipal services, commercial facilities, and avail-able employment opportunities. These need to be carefully integratedwith better planning of our present urban areas. Otherwise urban con-gestion will be aggravated and local governments, both central and sub-urban, will be faced with ever-mounting costs.

Private enterprise and local initiative alone cannot rebuild and modern-ize our cities. Private developers lack both the resources and the legalpowers to acquire land in large enough blocks to permit sound profitableredevelopment. Local governments are obtaining powers of land assem-bly but lack financial powers to undertake the task on the scale needed toencourage private investment and to permit cleared land to be made avail-able at economically feasible prices.

Local governments should take the initiative in providing for site as-sembly and for area planning, and for streets, schools, and water, sewer, andother connected facilities. State governments should provide enabling andfiscal legislation. Under existing State powers, some worthy redevelopmentprojects have been undertaken, but most informed sentiment is in generalagreement that some Federal aid is also required. The Federal Governmentis also concerned with highways, airports, Federal buildings, and otherfacilities as well as with slum clearance and low-rent housing.

I again urge that the Congress consider Federal aid to urban redevelop-ment along the general lines I have previously recommended.

Housing

We must maintain residential construction at much higher than presentlevels in order to eliminate the quantitative shortage and also to replaceurban slums and rural shacks with an American standard of housing withina reasonable period of time.

From the viewpoint of economic stabilization, there is a compelling rea-son for maintaining residential construction at consistently high levels. Inthe past, the volume of housing production has fluctuated more violentlythan any other major segment of economic activity. This is shown inchart 13. The instability of housing has contributed significantly to the


CHART 13

RESIDENTIAL CONSTRUCTION ANDECONOMIC ACTIVITYResidential construction has fluctuated more widelythan other economic activities.PERCENT OF 1920-39 AVERAGE300

200

100

0

~m

1 |

1 //

JLDiSI

m

\

OB

a re

/ jWE

L-Jx\2

RTMENT'ORE SALes

Gh

\v

N7LJ

OS

'AL r/?

1 I

t*

S NATIONAL PRODUGT^C \£\/LJ

H\

( i

A

J 1\ 1

Vp4-i

/

/

V

*m

s.

1

IJ

//1 L///

/II1/

PERCENT OP 1920-39 AVERAGE

30a

200

100

1920 1925 1930 1935 1940 1945(NC1UDES P/HVATC FARM AND N0NFARM AND PUBLIC.

SOURCES: DEPARTMENT OF COMMERCE (CONSTRUCTION AND GROSS NATIONAL PRODUCT1929-47),BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (DEPARTMENT STORE SALES), ANDHOUSING AND HOME FINANCE AGENCY (GROSS NATIONAL PRODUCT1920-28).

instability of the economy as a whole, and stabilizing residential constructionwould be a powerful factor in helping to stabilize the general economy.The importance of housing in the national economy is shown in chart 14.

A reasonably steady flow of house production, starting at a high leveland increasing gradually from year to year, is essential during the nextdecade. Taking account of our growing population, the urgent desirabilityof replacing substandard units as rapidly as possible, and the amounts ofhome building that will help to maintain maximum employment for theeconomy as a whole, we need an average of more than a million new urbandwelling units a year for the next 10 years. The needs of rural areas arealso great.

During 1947, more than 850,000 new permanent nonfarm dwelling unitswere started, and conversion and temporary units brought the total to morethan 900,000. Measured by volume and allowing for shortages of ma-terials and the unusual strength of competing demands, this was a goodstart for a 10-year program. But the record cannot be measured by volumealone. When examination is made of the relationship between the cost ofthis housing and our income structure, it is clearly apparent that most of

66


the housing is being built for families in the higher income brackets. Tothe extent that families of low and middle income are being served, the highcost is placing an excessive financial strain upon them.

The cost of housing has been getting further and further out of line withincomes. Only a small minority of our families can afford to purchasenew houses of satisfactory size and quality. This is true despite the factthat we have maximum employment and a high national income, and abetter income distribution than we had before the war. Unless housingcosts drop, the volume of private residential construction will almost cer-tainly decline in coming years, placing new difficulties in the way of our

CHART 14

HOUSING EXPENDITURES IN RELATIONTO GROSS NATIONAL PRODUCTHousing expenditures, doubled since 1939, hove increasedless than the gross national product.

GROSS NATIONAL PRODUCT

1939 1947 1939 1947

/ NEW CONSTRUCTION, REPAIRS, ADDITIONS, ALTERATIONS, AND MAINTENANCE.t RENT OF TENANT-OCCUPIED UNITS AND RENTAL EQUIVALENT OF OWNER-OCCUPIED UNITS,3. FURNITURE AND HOUSEHOLD EQUIPMENT. FURNISHINGS, AND OPERATION SERVICES SUCH ASFUEL AND UTILITY AND DOMESTIC SERVICES.

SOURCE* DEPARTMENT OF COMMERCE AND HOUSING AND HOME FINANCE AGENCY.

67


maintaining maximum employment. The poor adjustment of housing coststo income in the 1920's is precisely what caused a sharp and increasingdecline in home building which commenced four full years before the generaldepression to which it contributed.

Industry and labor and local governments need to bend ever-increasingefforts toward the abolition of obsolete practices and restrictions. Many ofthese restrictions have developed as protective devices for individuals ororganizations caught in the insecurity of an industry subject to wide fluctua-tions. The fluctuations have caused the restrictions far more than therestrictions have caused the fluctuations. Only an affirmative programfor stabilizing housing construction can clear the way for the elimination ofrestrictions, reduction in costs, and adequate provision of housing.

Even the minimum housing program required embraces a number ofitems. These include research and experimentation to devise better build-ing techniques and concerted efforts to modernize building codes; landassembly programs as an aid to housing; the use of Federal insurance tostimulate longer term investment with lower financing charges both forhome ownership and for rental housing; special forms of insurance toamplify the interest in large-scale projects already being shown by buildersand institutional investors who have the resources to lay the foundationfor the reorganization of the housing industry along more modern lines;and the provision of publicly-aided housing in urban and rural areas—on both a rental and home ownership basis—for families of low income.

On several occasions^ I have recommended the enactment of compre-hensive, long-range housing legislation. Postponement of this action rep-resents postponement of attention to a problem of utmost economicimportance.

DEVELOPMENT OF HUMAN RESOURCES AND PRODUCTIVITY

Even with modern factories, fertile fields, abundant sources of power andraw materials, and smoothly flowing arteries of commerce, the growth ofour economy will depend ultimately upon the men and women whose mentaland physical energies constitute its greatest wealth. We have learned thatthose programs which make people healthier and more secure also makethem more efficient. In this light, the educational and health and socialsecurity programs which were once thought of as purely "social" take on adeep economic significance.

Size and composition of the labor force

Our total population, now about 145 million, will continue to grow for anumber of decades at a rate exceeding prewar estimates. This is due to anunusually high rate of marriages and births during and since the war together

68


with a steadily declining death rate. As a result of population growth andplentiful job opportunities, the labor force, and particularly the employedsegment of the labor force, has expanded during and after the war.Civilian employment is now 6 percent higher than the war peak and 26percent above the 1939 level.

One result of the war has been to increase the employment of teen-ageworkers, and of men and women in the older age groups. The exactingeconomic demands of modern employment, no less than social considera-tions, should impel us gradually to reverse this trend. Educational andretirement programs thus influence the optimum use of our labor force.

While these considerations should increasingly determine the size ofthe labor force, there is the further question of its quality. The prog-ress of industrialization has led to the use of more complicated equipmentalthough much of it is more automatic in its operation. This reduces boththe physical exertion and the need for manual skill of operatives generally.At the same time, it increases the proportional demand for engineers andsupervisors of higher technical training. And while many operatives havetheir task reduced to a simple routine, they assume new responsibilities forthe proper handling of expensive machinery.

As members of labor unions voting on strike action and other unionissues, and as citizens reacting to economic policies and candidates for office,they need a higher degree of economic and civic education. The generalrequirements of intellectual competence are steadily moving upward.

Moreover, the progress of modern technology, both industrial and agri-cultural, means that a smaller proportion of the population is required inmanufacturing and farming and more people are available for the servicecallings and professions, where even higher levels of training are required.This trend is reinforced because some of these areas will suffer from short-ages of trained personnel for some time to come—teaching, medicine, andnursing being the chief examples.

The adjustment of the labor force to the changing character of oureconomy thus commences with the problem of education.

Education for the modern economy

With a higher average of competence required by our economy, the mosturgent educational problems now center in the elementary and secondaryschools. It is here that boys and girls receive their basic training and pre-pare themselves to absorb more specialized training.

The number of children of school age is increasing far more rapidly thanhad been estimated before the war. In 1940, there were 27.6 million chil-dren between the ages of 6 and 17; by 1955 there will be more than 33.3

69


CHART 15

THE SCHOOL-AGE POPULATIONMore children will require increased school facilities.

MILLIONS OF CHILOREN, AGED 6-17 YEARS

10 20 30

1940

1946

1955

I960

* BASED ON TOTAL POPULATION FORECASTS MADE ON THE ASSUMPTIONS OF HIGH. FERTILITY, LOWMORTALITY,. AND NET IMMIGRATION OF I MILLION PERSONS EVERY 5 YEARS AFTER JULY I, 1945

SOURCE: DEPARTMENT OF COMMERCE.

million. By 1955, school enrollment should be more than one-third abovethe 1940 level.

In the face of this need, our educational plant is desperately inadequate.State school officials report minimum needs for 7.5 billion dollars of capitaloutlays for elementary and secondary schools—twice as great as total con-struction expenditures for all levels of education during the decade of the20's. Due largely to low salaries, the number of trained teachers is notkeeping up with the increasing need. These shortages in plant and person-nel are much more serious in some regions than in others. While the 10States with the highest per capita incomes are spending about $177 an-nually for each school child, the 10 States with the lowest per capita incomeare spending only about $64.

This maldistribution of educational opportunities is both result and causeof differences in wealth and income in the several areas. Some of the Statesthat are paying least per capita for education are devoting a higher per-centage of their total revenues to educational purposes than others withhigher per capita outlays. Federal aid to elementary and secondary edu-cation should contribute to that equalization of opportunity in various partsof the country which will fit our youth for living and working in the kindof economy that we shall have when they are grown.


CHART 16

EDUCATIONAL EXPENDITURES INHIGH AND LOW INCOME STATESLow per capita income means low educational standardseven with equal effort to finance schools.

EDUCATIONAL EXPENDITURES PER PUPIL

HIGH PER CAPITAINCOME STATES

LOW PER CAPITAINCOME STATES

EOUCATIONAL EXPENDITURES AS PERCENTAGE OF TOTAL PERSONAL INCOME

HIGH PER CAPITA IINCOME STATES *

LOW PER CAPITAINCOME STATES 1.8%

SOURCE: FEDERAL SECURITY AGENC*

A large proportion of the young people who are now crowding the ele-mentary schools will progress through high school and enter college after1955. They will replace the veterans who are now in college. Comparedwith an enrollment of 1.4 million when the war started and a current en-rollment of 2.4 million, we should now plan for an enrollment by 1960 of 4to 5 million students in an expanded and improved system of highereducation.

I urge the Congress to consider a comprehensive program of Federal aidto education and to enact immediately assistance to elementary andsecondary schools.

Research

The expansion of national output, as well as national security, dependsincreasingly upon scientific accomplishments. Before the war, we drew


heavily upon the basic discoveries of scholars all over the world. The warimpeded this free flow of knowledge from other lands, and destroyed muchof it at the source. During recent decades our own progress in industrialand agricultural research has been tremendous, but we cannot afford torest on our laurels. There is need for enlarged research, both in basic prin-ciples of physical, biological, and social science, and also in their practicalapplication.

Part of the expansion required to meet a reasonable goal of researchdevelopment will occur as part of the long-range growth of our economy.Considerable growth in industrial research may be counted on. Existinguniversities and research institutes will continue to make important contri-butions. But it is clear that the required expansion in research into scientificprinciples and their application will be impossible without a comprehensiveprogram in which Federal aid should play a part.

Good health and productivity

Study of health records affords another example of the connection betweenthe economic objective of maximum production and the humanitarian objec-tive of improved well-being. With the labor force at its present size, theannual cost of illness, long-term disability and accidents is about 3,500,000man-years. A part of this loss arises from improper working conditions.Occupational diseases and industrial accidents also take their toll. Aneven greater charge upon productivity are the millions of people who arephysically substandard without being disabled. Inadequate diet is im-pairing the strength of too many workers. Our goal should be the estab-lishment of safe working conditions and an increase in the physical stand-ards of the whole population.

This problem has economic aspects, not only because health standardsbelow the maximum attainable reduce productivity, but also because thelifting of these standards requires economic measures which remove theincapacity of many communities to support and of millions of individuals topurchase adequate medical care.

On these grounds, I again urge the Congress to enact a comprehensivenational health program of the character I have already recommended.

Security and productivity

Job security. No matter how stable a particular business, industry, orregion may be, it can rarely avoid unemployment in the event of a seriousdepression. A national policy of vigorously promoting maximum employ-ment will be the longest step toward the sense of individual security whichis conducive to high productivity.

There is no substitute for this national policy, but it should be supple-

72


merited with planning by individual firms and industries for the stabilizationof their own activities. Wage security plans have been proposed, and areport on this subject is being prepared by the Council of Economic Advisers.Training programs, an adequate and efficient public employment service,and other improvements of the labor market can all play their part. Forthose who will be temporarily unemployed despite our best efforts, unem-ployment compensation should be increased in amount and duration, andextended in coverage.

Maximum production must be based upon proof that it is not self-defeating. Only by providing alternative jobs for those who suffer dis-placement, and by ironing out the fluctuations in business, can we convinceboth labor and industry that restrictive tendencies are unnecessary for themas well as hurtful to the economy as a whole.

Old-age security. The retirement problem has economic as well associal aspects. Those who have withdrawn from productive activity be-cause of age continue to require goods and services, and to make expendi-tures which flow into the general income stream. A systematic nationalprogram which provides for regularity and certainty in the basic incomeof those who have retired is a more efficient economic policy than the hap-hazard treatment of this problem which preceded the establishment ofold-age insurance. Such a system has the further advantage that it helpsto regularize the saving habits of workers during their productive years.

There are now more than 10 million people in the United States, about8 percent of the total population, who have reached the age of 65. (Seeappendix B, table XXXVI.) By 1960, about 15 million people, or about9 percent of the population, will have reached that age. Our systems ofprotection against the economic hazards of old age and dependency areinadequate. There are now some 17 million jobs in which workers can-not build up wage credits for old-age retirement. The coverage of oldage and survivors' insurance should be extended, and benefits should beadjusted upward with a higher limit upon earnings which may be receivedafter retirement without loss of benefits.

A lowering of the retirement age will be feasible in future years as weattain the levels of national output that sustained maximum employmentand production will bring. At the same time, industry should provideopportunities for the efficient employment of those older people who areable and willing to work although they have earned the right to retire.

Public assistance. The social insurances are supplemented by public-assistance programs financed by States with the aid of Federal grants.The public-assistance programs are now more significant, both in terms ofthe number of people aided and in terms of total expenditures, than thesocial insurances. About 4 million people now depend on public assist-

73


CHART 17

THE AGING POPULATIONThe total population continues to increase rapidly,with relatively more people over 65.MILLIONS OF PERSONS

200

160

120

80

40

MILLIONS OF PERSONS

200

I1

i

1 i

i

65 YEARSAND OVER

20-64 YEARS

UNDER 20 YEARS

160

120

80

40

1900 1920 1940 1947 I960 1975* FORECAST BASED ON ASSUMPTIONS OF HIGH FERTILITY. LOW MORTALITY, AND NET IMMIGRATION OFI MILLION PERSONS EVERY S'YEAR PERIOD AFTER JULY I, 1945.

SOURCE : DEPARTMENT OF COMMERCE.

ance, in part because existing social insurances, particularly old age andsurvivors' insurance, are deficient and because there is no national healthinsurance program. Expansion of social insurance will decrease the needfor public assistance expenditures, but those who must still rely on publicassistance should receive adequate payments. The Federal Governmentshould make grants to States to help them finance general-assistance pay-ments, and all public-assistance grants should take account of variations inthe ability of the States to finance adequate assistance programs.

Freedom from discrimination. Maximum employment and productioncannot be maintained when men and women are discriminated against be-cause of race or color, creed or national origin. An effective system whichwill assure fair employment practices should be established.

74


Fiscal aspects of benefit programs

The whole question of benefits cannot be divorced from the question ofthe cost of the payments and how these costs are borne. It is of paramountimportance to bear in mind that the costs of unemployment, old age, andsickness are borne by the community whether social security measures existor not. Social security measures involve a change in the distribution ofmoney, goods, and services among consumers only to the extent that theexistence of the measures diverts additional funds to the support of theaided groups. This diversion does occur, but the additional funds arefar less than the total volume of benefits provided under the programs.

Nevertheless, the fact that wage earners' risks are met under socialsecurity measures through payments derived from taxes rather than directlyfrom private sources in itself has economic implications. The social in-surances are now financed by employees' contributions and employers' pay-roll taxes; the public assistance payments are financed from general revenues.Employees' pay-roll taxes place a heavy drain upon mass purchasing powerwhile the employers' share of these taxes adds to costs of production. Infinancing an expanded social-insurance program, these economic aspectsshould be considered.

DEVELOPMENT OF INSTITUTIONS AND PRACTICES FOR A

HIGH-PRODUCTION ECONOMY

Preceding sections have discussed the means by which our natural re-sources, our capital equipment, and our human resources may be developedto support a maximum level of well-being. But the ability to produce willnot alone assure economic stability and growth. Recurrent periods of reces-sion or depression have led to the realization that maximum resource utiliza-tion depends upon many adjustments within our complex economy. It isnecessary for us to apply systematic forward thinking to the shaping of oureconomic institutions and the practices of the men and women whosebehavior determines how those institutions will in fact operate.

The problem of progressively improving these institutions, policies, andpractices so as to attain balanced growth of the economy divides naturallyinto four main parts: first, in the industrial area we need price-wage-profitpolicies which maintain balance between the output of industry and theability of consumers to buy that output. Second, in the agricultural area,we need balance between city and farm income and between farm andindustrial prices. Third, the fiscal policies of the Government, such astaxation and debt management, need to be so contrived as to afford maxi-mum incentives to production and to improve the balance within theeconomic system generally. And fourth, we must strike a wise balancebetween our internal economic activities and our international trade.

770958°—48 6 75


Industrial price-wage-profit policies

The national purpose of maximum employment, production, and pur-chasing power enunciated in the Employment Act of 1946 includes a decla-ration "to foster and promote free competitive enterprise and the generalwelfare." Discussion of industrial price-wage-profit policies may thereforequite properly begin with the problem of maintaining a truly competitivesystem of free enterprise.

Maintenance of competition. To operate effectively without a high de-gree of Government intervention, a free enterprise economy must adjustitself to changing conditions through appropriate movements of prices,costs, and production. In a very vital way this depends on the maintenanceof fair competitive rivalry among business enterprises. This is recognized inthe long-standing policy embodied in the antitrust laws, the central pur-pose of which is to prevent monopolistic control of markets, and, in thewords of the author of the Sherman Act, to gain for the people the advan-tage of "the natural competition of increasing production."

Unregulated private monopoly tends to undermine independent enter-prises and to create exaggerated extremes of wealth and power within thecountry. Strong monopoly elements are likely to retard seriously the cost-price-output adjustments necessary to economic stability with full employ-ment. For these reasons, as well as for the other counts against unregulatedmonopoly, there must be a strong and continuing pressure by the Govern-ment to keep alive the competitive characteristics of the business system.If this were not to be done, we should have to look forward, first, to a greatincrease of private monopolistic control of American business, and there-after, since this would be intolerable, to a great increase in the public regu-lation of business activity, if not actual public operation in some fields.

In considering the character of competition in the future, it is impos-sible to ignore the tremendous changes which have occurred in the organiza-tion of business control over the past 50 or 60 years. From a situation inwhich industry was typically organized on a small scale basis, we havearrived at a situation in which there exist corporations of gigantic size. Inmany industries one, two, three or four companies control a major fractionof production. In many areas of industry, modern technology requires thatfirms be of a very considerable size. The best opinion is, however, that thelargest enterprises in many industries are larger than is necessary to securethe benefits of technical efficiency. In the future amendment and enforce-ment of the antitrust laws, the principle should be followed of checkingthe further excessive concentration of industrial control and, by protectingthe position of smaller competing enterprises, of reversing the past trendtoward concentration.


Much of the adaptability of the American economy stems from the initia-tive and enterprise which give rise to small business concerns throughoutthe Nation. They should have the opportunity to develop and prosper.The existence of the antitrust laws, although not a sufficient basis for ahealthy development of new enterprises, is an essential condition. Beyondthis, we must insure that no artificial barriers to their growth exist eitherthrough the tax laws or otherwise, and in particular that credit suited andadequate to their needs is made available.

The present degree of concentration of economic power and the existenceof other monopolistic elements pose very grave problems. It was in recog-nition of this fact that the Temporary National Economic Committee wasset up in 1938 to engage in a far-reaching inquiry into business organiza-tion and practice. The central problems have not been altered by economicchanges in the intervening years and it is important that in the light of thefindings of the TNEC we move forward to a clear enunciation of publicpolicy and a program of public action.

The problem of price policies. The effect upon prices of corporate big-ness and collusive monopolistic practices is only one aspect of a much widerpricing problem. Many a business manager fears that the use of price reduc-tions to expand his share of the market will merely result in retaliatoryprice changes by other firms. Business therefore has sought, as far as pos-sible, to place the competition for markets which it must meet upon someother basis than price competition. The pricing system is thereby deprivedof much of the elasticity needed to adjust relative changes in cost anddemand.

Moreover, in the effort to realize profits through the ups and downs ofbusiness, prices and profit margins are geared to the expectation that fulluse of capacity is not a normal situation. This means that, in periods ofhigh production, pricing policies and practices are followed that produce alevel of profits designed to protect the individual company during futuredeclines in business activity rather than to contribute to the prevention ofsuch declines. Such policies are not conducive to the continued health ofthe business community because they act on the assumption that it will notcontinue.

The price mechanism may serve either to promote or to prevent a safebalance among prices, wages, and profits. The greater the success of ourfree enterprise system in maintaining this balance, the less need there willbe for direct governmental intervention in the economic system. Thisimposes a heavy responsibility upon those business managers whose decisionsimportantly affect the levels of prices, wages, and profits. Managementmust recognize that sustained maximum production requires that gains inproductivity be passed on through lower prices and better wages to the

77


fullest extent consistent with adequate incentives to business enterprise.The collective bargaining process to determine wages also plays a vital part

in the determination and maintenance of healthy price-wage-profit policies.It cannot fulfill its function if it is used merely as a test of the sheer forcewhich one party or the other can exert in the pursuit of immediate self-interest. Collective bargaining must be based upon a better understandingof the long-range interests of management and labor in the context of theinterests of the whole economy.

The greatest opportunity for bringing about economic betterment lies inachieving and maintaining a proper balance among prices, wages, andprofits. One of the purposes of the Employment Act is to provide a newclimate for pricing policies. The act contemplates that the combinedresources of business, labor, agriculture, and the Government will be usedto do away with business fluctuations of the violence known in the past. Todetermine what price and wage policies and practices are appropriate to thisobjective, a reexamination of the problem is necessary.

Therefore, I have instructed the Council of Economic Advisers to con-tinue its work on this problem with the assistance of representatives of- allgroups concerned. The results of such a study should contribute to thedevelopment of sound legislative proposals. But its most important out-come should be a wider and deeper understanding on the part of theGovernment, business, labor, and consumer groups as to the price, wage andproduction policies and practices which will contribute most fully to themaintenance of high levels of consumption and investment.

Markets and income distribution. During the postwar period, our eco-nomic balance has thus far been maintained in the sense that we are stilloperating at maximum levels of employment and very high levels of pro-duction. But the situation is precarious to the extent that the balance cannotbe maintained indefinitely without changes in the current pattern ofeconomic relationships.

The Nation's Economic Budget, in constant dollars, for 1939 and 1947,shown on page 55 of this Report, indicates changes in the relationships ofthe major components of the economy. At the present time, an unusuallylarge proportion of the market demand for goods and services results frombusiness investments, net exports, and Government outlays. These haveattained a level relatively higher than consumer expenditures, comparedwith the prewar period. In terms of 1947 prices, annual expenditures forproducers' durable equipment have increased by 170 percent, while annualconsumers' expenditures have increased by only 48 percent above the pre-war level.

We cannot regard the relationship between capital formation and con-sumption either in 1939 or in 1947 as a model for the future. Domestic

78


capital formation in 1939 was not sufficient. On the other hand, we arenow in the stage where the improvement and modernization of our nationalproductive plant has a high priority claim on our resources. Nonetheless,after the most urgent deficiencies in our national plant have been over-come, and the extraordinary export surplus has been reduced, a very sub-stantial increase, both absolute and relative, in individual consumption willbe possible and necessary. Without this substantial increase in the generalstandard of living, we would not be able to sustain an expanding economy offull resource utilization.

The increases in consumer incomes and expenditures which have takenplace over the last decade are the result not only of the general increase innational income, but also of significant changes in income distribution. Onpage 18 of this Report, estimates are presented which show the trend towardbetter distribution of family incomes. This trend needs to be continued ifready and constant markets are to be available for a potential increase of 35percent in total output of goods and services within a decade. The trendshould be continued also because there are still millions of families whoseincomes are too low to provide a decent standard of living. A substantialpart of our increasing productivity should be devoted to the betterment ofthese families.

An increase in full-time employment and in the number of employedpersons per family were important elements contributing to creating equalityof income during the past decade. But with maximum employment nowvirtually achieved, further increase in these factors can no longer beexpected. Already, recent trends in the real incomes of individuals andfamilies indicate that we are losing some of the gains registered beforeprice inflation gained momentum in the middle of 1946. This priceinflation presents in a new and aggravated form the old and unsolvedproblem of assuring continuous maximum production by maintaining themaximum real purchasing power which must go with it without relyingtoo long upon the depletion of savings, extraordinary use of credit, and anabnormal export surplus.

Our central problem is to make gradual readjustments so that the con-ditions for permanent stability are reached without generating a recessionof employment and business activity in the process.

Agricultural and food policies

The new farm problem. For two full decades after the first world warcongressional and executive policy was dominated by "surpluses" and lowprices for farm products. The trends in our economy since the start ofWorld War II have changed basic conditions so markedly that the farm

79


CHART 18

CONSUMER INCOME, FOOD CONSUMPTION,AND FARM INCOMEIncreased consumer income has brought higher food consumption,and has raised farm income.

PERCENT OF 1935-39 AVERAGE

200

150

100

PERCENT OF 1935"39 AVERAGE

1200

REAL DISPOSABLE PERSONAL INCOME(PER CAPITA)*

CIVILIAN FOOD CONSUMPTION(PER CAPITA)

fin 1 1 I 1 1 I 1 1 I I I 1 1 I I I I 1 Un

150

100

250

200

150

100

50

RE A L NET FARM INCOME **(PER CAPITA)

I 1

1930 1935 1940

250

200

150

100

501945

ADJUSTED FOR CHANGES IN CONSUMERS' PRICES

"NET INCOME OF PERSONS ON FARMS, FROM FARMING, ADJUSTED FOR CHANGES IN PRICES PAID BY FARMERSFOR COMMODITIES USED IN FAMILY MAINTENANCE.

SOURCES: DEPARTMENT OF AGRICULTURE (FOOD CONSUMPTION, FARM INCOME, AND PRICES PAID BY FARMERS).DEPARTMENT OF COMMERCE (DISPOSABLE INCOME AND POPULATION). DEPARTMENT OF LABOR (CONSUMERS'PRICES).

8o


problem of today is not to dispose of surpluses but to get enough productionto prevent inflated prices. (See appendix B, tables VI and XIV.)

If we succeed in our efforts to maintain industrial stability, we can lookforward to many years of large markets and agricultural prosperity. Farm-ers have a large stake in this endeavor. The farm problem today and in theforeseeable future should be stated in terms of a maximum productioneconomy. Farm policies should aim at continuing expansion.

To achieve stabilized farm prosperity, there will need to be changes in thetraditional patterns of farm production. Increased efficiency will be re-quired to enlarge the total production of a farming industry which cannotbe materially increased in acreage. The depletion of our soil resourcesduring the war years calls urgently for the extension of conservationprograms.

Needed levels of farm production. The greatly increased demand forfood on the part of our civilian population was a remarkable feature of ourwartime economy. This profound change in eating habits, founded uponhigher and better-distributed national income, has continued since VJ-day.In 1947, per capita food consumption was about 17 percent above the1935-39 average. Among the items increasing more than the averagewere chickens and turkeys, 33 percent; eggs, 28 percent; meats, 24 percent;and fluid milk and cream, 18 percent. (See also appendix B, table XXXV.)

In view of the growing population and expanding income, we shouldseek within a decade to raise agricultural production about 10 percentabove present levels. This would mean that crop production would beabout 25 percent, and livestock production nearly 50 percent, above prewarlevels.

Increasing farm productivity. Achievement of the high objectives setfor agriculture will require efficient use of resources. This means increas-ing emphasis upon research and education to improve technology. It willnecessitate an increased capital investment per worker, to raise the individ-ual's productivity about 50 percent above the prewar level. It will alsomean using two or three times as much fertilizer as before the war, aboutthree times as many tractors on farms, and more of other types of machin-ery and equipment.

There are still tremendous variations in the efficiency of farm manpoweruse. Many farms are well organized. But some 2 or 3 million are toosmall or have poor land or have inadequate buildings and equipment.There is need to increase the efficiency of labor on such farms, and to helpsome farmers and farm laborers find other, more profitable, employment.More adequate educational and financial aids should be provided for thispurpose.

Security for agriculture and the farm market. Both farmers and con-

8i


sumers should be protected from the feast-and-famine cycle that the vagariesof nature impose from time to time on farm production. Technologicalprogress will reduce this problem, but there will be continuing need for cropinsurance and for storage programs for staples and marketing programsfor perishables. Orderly marketing and the widest possible distribution ofbumper crops call for educational and service work with industry and con-sumers in moving large supplies.

Great opportunities exist for further advances in marketing farm prod-ucts through intensified research and through educational and service pro-grams. From the farmer's standpoint, marketing improvements mean wideroutlets and more adequate returns for his product. From the consumer'sstandpoint they mean both savings in costs of these products and better,more adequate, and more conveniently available supplies.

Commodity price supports are desirable as assurances against special dis-locations which might arise in case of recession. I emphasize, however, theneed for keeping support levels flexible. I am glad to note the effort cur-rently being made by various groups, outside as well as inside the Govern-ment, to modernize and improve the parity formula.

I also realize the stake of many American farmers in maintaining a stableand satisfactory foreign market. Our farmers should continue to exportsubstantial quantities of wheat, cotton, tobacco, rice, and fruit. Thoughexport demands, especially for grain, are now at a high level, some of ourmore difficult long-term problems are in the foreign trade field.

Interdependence of farm and city. Maintaining an expanding demandfor farm products depends not only on maximum employment for thewhole economy, but also upon raising the incomes and living standards ofthose portions of the urban population who have suffered from excessivelylow incomes even in times of prosperity.

So long as 13 percent of our total families have incomes under $1,000 ayear, and 28 percent have incomes under $2,000 a year, as is shown intable 3 on page 19, the dietary standards of these low-income familiescannot comport with the true meaning of maximum production for agri-culture. Studies made in 1941 indicated that the families and single in-dividuals having incomes of $2,000 or more—enough to satisfy their foodwants fairly liberally at the price level then prevailing—bought 60 percentmore fruit, 25 percent more vegetables and meats and milk, and 10 percentmore eggs than the average for the population as a whole. This meansthat minimum wage and other programs designed to encourage a better in-come balance throughout the wage-earning population should be regardedby the farm population as serving their interests also. The farmer is aprime beneficiary of well-distributed prosperity.

High and stable levels of food consumption are essential to a prosperous

82


agriculture. When demand is high there is little need for direct pricesupports. Programs to maintain food consumption can go far to preventeconomic recessions, to maintain good markets for farmers, and to safe-guard the diets and health of the public. Our agricultural and food programshould therefore give increased emphasis to measures designed to protectthe diets of such groups as school children and low-income families.

Just as the farmer sells to the city and depends upon urban prosperity,so also the products of industry are sold to farmers in larger quantitieswhen there is farm prosperity.

The relatively low income of farmers before the war was proverbial.Its effects on the demand for industrial products are equally striking. This isshown in the following figures comparing per capita net income from farm-ing of farm people with what they bought, in three significant years:

Farm income, per capita: 1929—$223; 1933—$90; 1947—about $725.Farm implement sales: 1929—519 million dollars; 1933—177 million dollars;

1947—around 850 million dollars.Mail-order sales: 1929—447 million dollars; 1933—220 million dollars;

1947—over 1,100 million dollars.Feed and farm supply store sales: 1929—1,119 million dollars; 1933—463

million dollars; 1947—nearly 3 billion dollars.

Despite recent gains, the purchasing power of many farmers is low com-pared with that of nonfarm people. The average per capita income offarm people derived from all sources was $779 in 1946, while the incomeof nonfarm people was $1,288. This low average for farm people reflects,not low farm prices—prices were high—but the low productivity of manyfarmers.

The more widespread enjoyment of satisfactory incomes in farm areaswill provide enormous new outlets for industrial products. As recently as1945, only 58 percent of all rural homes had refrigerators or ice boxes;only 46 percent had electric irons, and only 28 percent had running water.Since then, the installation of these conveniences in farm homes has givenbusinessmen and wage earners some conception of the large stake theyhave in the maintenance of farm prosperity and its extension to an ever-increasing number of farm families. Electrification, particularly, is provid-ing for farmers a vast range of labor-saving equipment and living con-veniences and is creating an increasing market for industrial products.

Our economy is indivisible. Maximum production and purchasingpower in the city and on the farm are inseparably connected. As shownby the relative instability and inadequacy of farm income in the past, andthe impact of this upon the whole economy, the economic future of thecountry as a whole will require concentration upon those policies which

83


will enable the farm population to share equitably in economic growthand in the improvement of living standards.

Taxation and debt management

Taxation. The first feature of our long-range tax policy must bethe maintenance of tax revenue which, except in years of depression,will balance the Federal budget and provide a substantial surplus for debtretirement.

It is a remarkable feature of the postwar period that there has been solittle fear of the effects upon the national credit or upon the nationalwell-being of a public debt ten times as large as the debt which a dozenyears ago was causing much uneasiness in the financial world. But althoughwe have learned that an enormous public debt is not necessarily ruinous topublic credit nor destructive of national prosperity, we should never forgetthat within it is a sleeping danger. If less propitious conditions arise withinthe economy, the public debt may indeed be found a serious burden upon theprocess of readjustment. Every consideration of prudence with respectto future problems of the national economy and of the national credit incritical circumstances requires a firm and sustained policy of reducing thepublic debt.

The second requirement of our long-range tax policy is that the tax ratesand the character of the taxes be such as to help sustain prosperity. Thiscannot be done by a tax structure that remains the same regardless ofchanging economic circumstances. Lowering particular taxes on businessmay at one time be needed as a means of stimulating business expenditureswhen they are inclined to lag, but maintaining or advancing taxes at an-other time may be needed as a means of checking overexpansion or over-capitalization. These adaptations can be made without the injection ofuncertainties into businessmen's calculations greater than those they arealready accustomed to deal with. Similarly, the abatement of taxes onconsumers or certain classes of consumers may at one time be importantas a means of supporting their purchasing power, whereas at another timethe maintenance or increase of taxes may be the most effective means ofdamping an inflationary tendency.

There is an obvious conflict between the desire of consumers to havetaxes upon their incomes reduced and the desire of business to be relievedof taxes which figure in operating costs or which lessen the funds that theyhave for reinvestment and business expansion or that large income receivershave available to invest as equity capital. This conflict of private interestsmust, in the consideration of tax policy, be resolved by the Congress throughadjustments which will promote the most prosperous and stable economy.There is no formula by which the best distribution of the tax burden can


be determined. However, the lessons of wartime and early postwar experi-ence seem to indicate that for the sustaining of an economy of maximumproduction and a market commensurate with this rate of production, moreconcern will need to be directed during the years just ahead toward easingthe tax burden on the consumer than toward accelerating the rate ofcapital formation.

Debt management. The vast increase in the public debt has not createdthe difficulties that many people feared, partly because our national debtis owned by our own citizens, and partly because of the technical skill withwhich the debt has been managed jointly by the Treasury Department andthe Federal Reserve System.

A most important part of our debt-management policy has been theprogram to support the market for Government securities. During thewar period, when it was vitally necessary to maintain a market whichwould absorb vast issues of securities at low interest rates, the FederalReserve stabilized the market through its open market operations in buy-ing and selling short-term Government securities at low rates of interest.Now that it is no longer necessary for the Government to increase itsdebt, short-term interest rates have been permitted to rise. A declinehas also been permitted in prices of bonds from the premium prices to whichthey had risen as a result of market demands in the early postwar period.No bonds, however, have been permitted to fall below par and it is thedeclared purpose to continue active support of Government bonds for thepurpose of maintaining an orderly and stable market at a low level oflong-term interest rates.

The established policy of supporting the market for Government securi-ties makes it possible for banks to obtain additional reserves, on the basisof which to expand credit, by selling part of their large holdings of securi-ties to the Federal Reserve. This policy, therefore, does not permit theFederal Reserve to make effective use of the traditional method of limit-ing inflationary movements in the economy by requiring banks to borrowin order to obtain additional reserves and by raising the discount ratecharged on such borrowings. The result of such a policy would be anincrease in general interest rates. If the rate of interest upon other invest-ments rose, they would become more attractive than Government bonds,both to banks and to other investment holders, who would call upon theFederal Reserve banks to buy bonds. Any purchases by the Reserve Sys-tem would offset the effects of the restrictive discount rate policy.

In the recent congressional hearings there have been proposals to solvethis dilemma by abandoning the support policy and freeing the FederalReserve banks to bring about an anti-inflationary contraction of credit byincreasing the discount rate, as was done in 1920. No such change in

85


policy should be considered. The financial world should rest easy thatthe investment market will not be subjected to the demoralization whichswept over it in 1920 when the unsupported market for Government bondsfell about 20 percent below par.

Affirmation of a policy of supporting the Government bond market as acontinuing program of the Government requires the use of other and lessdangerous methods to restrain inflationary bank credit. Voluntary buteffective restraint by the banks of inflationary bank credit expansion mayprove adequate to the problem. If it does not, more direct action by theFederal Reserve banks will be required. Such actions as may be taken willnot involve withdrawing support from the Government bond market.

International economic relations

The far-reaching effects of World War II upon the use of economic re-sources and upon the trade and business relations between nations will befelt for many years. The enormous destruction of the physical and organiza-tional basis of production spread over most of Europe and parts of Asia,while elsewhere many new industries were developed and old ones stimu-lated. In the reconstruction process many alterations in the patterns ofeconomic organization and trade relations are taking place. Great Britainis engaged in a difficult task of industrial and trade rehabilitation, whiletwo other former leading industrial nations, Germany and Japan, are nowthrust into minor roles.

The relative importance of the United States in the world economy hasbeen greatly enhanced, partly because some of the older great nations havesuffered adversity, but primarily because of our own increase in production.Although other nations fortunately possess most of the resources which theyneed for reconstruction, certain critical resources, such as food and ma-chinery, which are needed to revitalize their productive energies, can besupplemented only by supplies from the United States and other countriesof the Western Hemisphere. The program which I have asked Congress toauthorize in order to assist European recovery over the next 4 years maymake the difference between success and failure of world reconstruction.

The changing economic position of the other industrial nations is ofgreat significance. During the war and its aftermath, many areas thatformerly looked to these nations for industrial products have become intentupon their own industrial development. They cannot secure supplies suf-ficient to meet their increased requirements for capital goods from their tradi-tional trade sources, and they are beckoning increasingly to American ma-chine makers, to American capital, and to American skill in management andproduction.

86


A development which we cannot yet evaluate is the growth of the policyof state control of foreign trade in many countries. Because of criticalshortages throughout the world there has been little relaxation of the war-time controls over exports, imports, and foreign exchange, and the courseof action in some countries indicates a purpose to continue these controls.Our experience, however, shows that the difficulties of trade between anation with state control and a nation with free enterprise can be sur-mounted and they can be expected to diminish as goods become morereadily available in world markets.

Other developments bound to affect the course of trade are the occupa-tion of Germany and Japan and the emergence of several new independentand self-governing states.

Against this background of new developments we can place the morefamiliar consideration of our own requirements. For some commoditieswe must have foreign markets or undertake a serious task of shifting ourresources. A substantial part of agricultural and industrial employment isin production for export. On the other hand, our need for imports, espe-cially of raw materials, will increase, notwithstanding our progress in theproduction of substitutes for such materials as natural rubber and silk,two of our most important prewar imports. The great enlargement in na-tional production which has been portrayed in this Report requires a cor-responding increase in those raw materials which come from abroad and inmany other goods and services supplied by foreign countries. The heavydrain of war production upon our own natural resources must be remediedby a conservation policy supported by heavier imports, and the nationalsecurity must be fortified by stockpiles of strategic materials which we donot produce at home.

Undeterred by the uncertainties arising from new political and economicconditions, this Government has been striving consistently to promote re-covery and reconstruction efforts which would eventually contribute tomutually profitable and harmonious international economic relations. Inaddition to relief and reconstruction aid, we have supported within theframework of the United Nations a series of international organizations,such as the International Bank for Reconstruction and Development, theInternational Monetary Fund, and the Food and Agriculture Organization,to cope with the different categories of economic problems. This vast effortis now well advanced and many of these international organizations arealready operating.

Still in process of creation is the International Trade Organization. Thedraft charter of this organization lays down a code of fair play in the inter-national trade field. Nondiscriminatory and multilateral trade unham-pered by high barriers, is the central aim of the proposed organization.

87


A major step toward this long-range goal is the General Agreement onTariffs and Trade, recently concluded between ourselves and 22 othercountries. This agreement reduces or eliminates preferences affecting alarge part of our trade with the British Commonwealth. It provides forreductions of many tariffs and the maintenance of a low rate or free entryon other products. These concessions are protected by provisions designedto prevent participating countries from resorting to alternative means ofrestriction or discrimination. Like the proposed charter of the Interna-tional Trade Organization, this agreement will help establish conditionsunder which world trade can flourish in less troubled times and underwhich the present reconstruction efforts can be carried forward.

The recovery of foreign production and ability to export, our own highdemand for imports, and the international agreements to reduce obstaclesto trade may be expected to help other countries buy our products in thefuture without depending upon the extraordinary financial assistance thatis now required. Nevertheless, it is natural and desirable that we maintainsome surplus of exports in the years ahead by the steady investment abroadof private capital. It is desirable both from our point of view and that ofother countries that we, a country rich in capital, make some of our savingsavailable to areas where capital is needed and where properly safeguardedprivate investments can earn a good return.

THE TIMING OF ECONOMIC PROGRAMS TO PROMOTE STABILIZATION

While it is most urgent now that we combat inflationary dangers, wecannot wait until the tide turns before considering affirmative measuresthat will be needed in the future. Economic conditions may turn rapidly,but the formulation, enactment, and initiation of economic and fiscalprograms require a considerable amount of time. Prudence demandsthat we look ahead and prepare for tomorrow while we act for today.

In timing the adoption of measures for long-run prosperity we must givecareful consideration to the following principles:

(1) Certain programs related to national security and foreign policy, topromotion of urgently needed production, and to protection of our naturaland human resources against serious economic hazards must go ahead eventhough Government outlays for foreign or domestic programs contribute tothe necessity of anti-inflationary measures.

(2) Certain adjustments, such as the increase in minimum wages andtax adjustments, are needed in order to mitigate the hardship imposed onthose who are the hardest-hit victims of the inflationary price rise.

(3) Major parts of the proposed expansion in the social security programwill be deflationary in the first period after inauguration. Therefore,

88


there is no reason to postpone the adoption of these urgently neededmeasures.

(4) Federal, State, and local public works in general should still be de-ferred wherever feasible. We need, however, certain initial steps imme-diately to prepare these measures for future years. For instance, the Fed-eral Government and State and local governments should be preparingdrawings and specifications for public-works projects to be undertakenwhen needed. In my budget for the fiscal year 1949, I have includedappropriation requests and estimated expenditures in amounts sufficientfor the initial steps of new public works.

(5) When the inflationary pressure subsides, we should speed up theprograms of resource development, transportation, and urban rehabilita-tion, and further expand the social security, health, and education programs.

Since our first experience with the Employment Act is occurring underconditions that give priority to measures needed to counteract inflation, weare given time to consider carefully the measures that will aid in meetingthe threat of unemployment at some time in the future. But we must notfritter away the time thus granted us. We must not be complacent and be-lieve that the job of employment stabilization has been solved. A boom car-ries in it the seeds of its own destruction. We must be prepared to act intime if we want to make good our promise and prove to the world as wellas ourselves that an economic system of free institutions can be made to worksteadily as well as efficiently.


Appendix ACONTENTS

Page

I. The Nation's Economic Budget, 92Explanation of the tables 92

The constant dollar estimates 97

II. The Federal Budget 98

III. The distribution of income, prewar and postwar 102

List of Tables

I. The Nation's Economic Budget 92

II. Consumer account 94

III. Business account 95

IV. Net exports and net foreign investment 96

V. Government cash receipts and payments to the public 97

VI. Adjustments to receipts (or income) in the Nation's

Economic Budget 97

VII. Adjustments to expenditures in the Nation's EconomicBudget 98

VIII. Federal cash surplus, calendar years 1946, 1947, andl948. 99IX. Federal cash receipts from the public other than borrowing,

calendar years 1946, 1947, and 1948 99X. Federal cash payments to the public, calendar years 1946,

1947, and 1948 100XI. Reconciliation of Budget receipts with cash receipts from the

public, calendar year 1947 100XII. Reconciliation of Budget expenditures with cash payments

to the public, calendar year 1947 101

770958°— 48 7 Q X


I. The Nation's Economic BudgetExplanation of the tables

Table I presents the Nation's Economic Budget for calendar years 1939,1946, and the first and second half of 1947.

T A B L E I.—The Nation's Economic Budget

Calender years 1939,1946; and 1947

[Billions of dollars, current prices]

Economic group

1939

2+1

1946

1947, seasonally adjusted annual rates

First half Second half»

1+1

CONSUMERS

Disposable income —Expenditures

70.267.5

+2.7BUSINESS

Undistributed profits andadditions to reserves

Gross private domestic in-vestment

Excess of receipts (+) orinvestment (—)

158.4

13.3

143.7+14.8

170.3

17.4

160.0+10.3

180.8

17.8

19.0+11.8

9.0 24.6 29.3 31.7

-0.4 -11.3 -11.9 -13.9

I N T E R N A T I O N A L

Net foreign investment. . .Excess of receipts (+) or

investment (—)

G O V E R N M E N T

(Federal, State, and local)

Cash receipts from the

0.9 4.8 9.4 8.2

- 0 . 9 - 4 . 8 - 9 . 4 -8.2

publicCash payments to the

public.Excess of receipts (+) or

payments (—)

15.0 56.5 58.7

17.6 55.2 54.2 52.7

-2.6 +1.3 +5.5A D J U S T M E N T S (To

arrive at gross nationalproduct)

For receipts.,.For payments

Total Gross National Pro-duct

-3.3-4.5

-3.3+4.5

-24.5-24.5

- 2 4 .

+24.-21.4

-26 .8-21.4+26.8

-19.8-24.1

+6.0

-19.8+24.1

90.4 90. 203.7 203.7 226.1 226.1 237.4 237.4

* Based on incomplete data.


Sources. The Nation's Economic Budget is based on the estimates ofnational income and product by the Department of Commerce, and of


Government cash receipts and payments by the Bureau of the Budget.Corporate profits before and after taxes in the last half of 1947 are the tenta-tive estimates of the Council of Economic Advisers. All estimates for thesecond half of 1947 are preliminary and subject to revision.

A number of the principal series comprised in the national income andproduct estimates are shown in appendix B, tables I through IV (by calendaryears from 1929 through 1945 and by quarters for 1946 and 1947). Thosedesiring more detailed information are referred to the National IncomeSupplement to the Survey of Current Business, published in July of 1947.Appendix A of the Economic Report of January 1947 contains a generaldescription of the income and product flows depicted in the Nation's Eco-nomic Budget.

Change in treatment. For purposes of statistical simplification aminor change in treatment has been incorporated in the present estimatesof the Nation's Economic Budget from that used in previous reports to theCongress. The Nation's Economic Budget presents Government receiptsand expenditures on a cash basis. In estimating business and personalincome and expenditures the Department of Commerce does not reckonthe transactions of individuals and businesses with the Government on acash basis; e. g., corporate taxes correspond to liabilities rather than pay-ments. Adjustments were formerly made in the income of business andconsumers, as estimated by the Department of Commerce, to place theseaccounts on a cash basis as far as transactions with the Government areinvolved, thus making them consistent with the Government accounts inthe Budget.

It has been decided, however, that the advantage of conceptual consist-ency in the Nation's Economic Budget table is outweighed by the complica-tion of having two sets of estimates of income which are similar in purposeand differ only for technical reasons. Consequently, all adjustments are nowconsolidated in the "adjustment" item at the bottom of the Nation's Eco-nomic Budget table, and the consumers' and business account correspondwith the Department of Commerce concepts.

The simplification is most important in the business income account. Thelatter has formerly included a considerable number of adjustment items,mostly representing transactions with the Government, which made theadjusted total differ markedly from the accounting concept of businessincome. For example, the difference between business tax liabilities andpayments to the Government, as well as receipts from the sale of surplusproperty, were formerly adjustments in business income. The presenttreatment of business income, which corresponds more closely to businessusage, is described below.

93


The Accounts

Consumer account. Table II below shows the principal sources ofpersonal income, personal taxes, and a break-down of expenditures byimportant classifications. Consumer income includes the net profits of unin-corporated business. Expenditures exclude purchases of new homes butinclude imputed rent on owner-occupied dwellings.

TABLE II—Consumer account

Calendar years 1939,1946, and 1947


Receipts or expenditures 1939 1946

1947seasonally adjust-ed annual rates

Firsthalf

Secondhalf*

Receipts:Personal income

Labor income 2

Proprietors and rental income—.Dividends and interest _Transfer payments8

Veterans*Other

Less: Personal tax and nontax payments-Equals: Disposable income

72.645.714.79.23.0

Expenditures—TotalDurable goods _

Automobiles and partsHousehold equipment and furniture..Other

Nondurable goods -Food*Clothing and shoesOther nondurable goods

ServicesHousingO t h e r . . -

Saving -

2.470.267.56.72.13.41.2

35.319.37.09.0

25.58.9

16.62.7

177.2110.841.813.311.36.94.4

18.8158.4

143.714.93.67.73.6

87.151.718.916.541.712.729.014.8

191.6119.847.114.010.86.24.5

21.3170.3

160.018.95.79.4

58.319.518.844.613.131.610.3

202.9126.249.014.812.97.65.2

22.0180.8

169.020.56.4

10.23.9

101.761.620.419.746.813.932.911.8

i Preliminary estimate based on incomplete data.8 Includes employer disbursements for wages and salaries minus employee contributions for social insur-ance plus other labor income.3 Includes business transfers.

* Includes military pension, disability and retirement payments, mustering-out pay, readjustment, self-employment and subsistence allowances, terminal leave bonds, and other miscellaneous payments.8 Includes alcoholic beverages.


Business account. The business income acocunt is shown in table III .Business income includes undistributed corporate profits, and the adjustmentfor corporate inventory valuation, plus capital consumption allowances forall business. Because there is no information on entrepreneurial withdraw-als, it is impossible to include an estimate of retained earnings for unin-corporated business. Thus the true amount of business saving is understatedand personal saving over-estimated by an equal amount. Since investmentincludes the investment of all business, including the investment of indi-viduals in homes, business income and expenditures are not entirelycomparable.

94


TABLE III—Business accountCalendar years 1939, 1946, and 1947


Receipts or investment 1939 1946


First half Secondhalf*

Receipts:Corporate profitsLess:

Corporate profits tax liabilitiesDividends _____

Equals: Corporate undivided profitsPlus: Capital consumption allowanceLess: Corporate inventory valuation adjustment

Equals: Undistributed profits and additions to reserves-

Domestic gross investment:Construction

Residential, nonfarm ___Nonresidential

Producers' durable equipmentChange in business inventories ._

6.5

1.53.81.28.1.7

4.02.11.94.6.4

21.1

5.66.9

11.04.7

13.3

8.53.35.2

12.43.7

28.2

11.26.3

10.712.05.4

17.4

10.04.35.7

17.32.1

27.8

11.16.89.9

12.34.4

17.8

11.25.35.9

18.02.5

Total.

Excess of receipts (+) or investment (—).

9.0

- . 4

24.6

-11.3

29.3

-11.9

31.7

-13.9

i Preliminary estimate based on incomplete data.

The adjustment for inventory valuation arises out of the definition ofgross national product or income. The increase in the physical volume ofinventories, measured in current prices, is included as part of the gross out-put of the economy, and the income derived therefrom as part of the grossnational receipts. When prices are rising, the value of inventories increasesmore than the increase in physical volume, since the value of the existingstock rises as units are sold and replaced at higher costs. Income arises inthe form of "windfall" profits which are not derived from current produc-tion. The inventory valuation adjustment measures this income. Bydeducting this adjustment from retained corporate profits, income and out-put are obtained on a comparable basis. (It should be noted that an adjust-ment for noncorporate inventory valuation is made in business and profes-sional income by the Department of Commerce.)

The investment items shown in the business account cannot be totaledto indicate the amount of funds required for financing. For example,investment includes only that part of an increase in the value of in-ventory arising from an increase in physical volume, while the wholeamount of any increase in the value of inventories must be financed. Needsfor capital also arise in connection with the transfer of fixed assets, thoughsuch transfers are not reflected in the gross national product. In addition,some investment in equipment is financed through depreciation allowancesand some is charged to current expense. Agricultural equipment is fre-

95


quently financed out of farmers' current income and residential constructionby the owner-occupant. Thus these investments do not give rise to financingrequirements in the usual sense.

International account. Net foreign investment equals the excess ofgoods and services supplied to foreign countries, including income on capitalsupplied to them, over goods and services received, minus the excess ofunilateral transfers to foreign countries over transfers to the United States.

The net balance of unilateral transfers or gifts to foreign countries by theUnited States Government is included in Government expenditures forgoods and services, while private gifts to foreign countries are included underconsumers' expenditures in the Nation's Budget. Such transfer expendi-tures are therefore deducted from exports in order to avoid double counting.

Unilateral transfers do not constitute the entire means of financing exportsmade available by the Government, but only that portion which is a giftand which consequently does not constitute investment abroad. The totalof Government aid used in financing exports in 1946 and 1947 is shown intable 5 page 28 of the text and in greater detail in appendix B, table XXXI.The derivation of net foreign investment from the excess of exports of goodsand services is shown in table IV below.

TABLE IV.—Net exports and net foreign investment

Calendar years 1939, 1946, and 1947

IBillions of dollars]

Exports and investment

Net exports of goods and services _Less: Net balance of unilateral transfers:

GovernmentPrivate.

Equals: Net balance of payments on current account-Less: Adjustment for expenditures in United States territories.Equals: Net foreign investment

1939

1.1

.2

1946

8.1

2.4.7

5.0.2

4.8

Annual rates1947

Firsthalf

11.8

1.8.6

9.4

9.4

Secondhalf*

11.1

2.2

8! 2

8.2

i Based on incomplete data.

Government account. A break-down of Government cash receipts andpayments to show Federal, State, and local governments separately is shownin table V. (The derivation of Federal cash receipts and payments frombudgetary receipts and payments, as well as a break-down of Federal pay-ments by functional classification and Federal receipts by source are shownin section II of this appendix.)

Adjustments to receipts and expenditures. The gross national productfor any period is the current output of the economy valued at prices to thefinal user. Gross national expenditure is confined to expenditure for thatoutput, and gross national receipts to income arising from that output.Expenditures or receipts arising from the sale of assets existing at the be-

96


T A B L E V.—Government cash receipts and payments to the public

Calendar years 1939, 1946, and 1947


Receipts or payments

Receipts:Federal.._State and local *

Total receiptsPayments:

FederalState and local * _

Total payments

Surplus (+) or deficit (—)

1939

6.68.4

15.0

9.58.1

17.6

- 2 . 5

1946

45.511.0

56.5

45.39.9

55.2

+1.4

1947 seasonally ad-justed annual rates

Firsthalf

47.712.0

59.7

42.711.5

54.2

+5.5

Secondhalf i

46.112.6

58.7

39.912.8

52.7

+6.0

i Based on incomplete data.3 Excludes Federal grants in aid.

ginning of the period are not included in these concepts, nor are sums trans-ferred in the form of gifts, pensions, annuities, etc.

Tables VI and VII show the deduction which must be made from thesum total of receipts and of expenditures to eliminate capital transactions,transfer payments, and double counting in the estimate of the gross outputor income.

T A B L E VI.—Adjustments to receipts (or income) in the Nation9s Economic Budget

Calendar years 1939, 1946, and 1947[Billions of dollars]

Description 1946

1947 seasonally ad-justed annual rates

Firsthalf

Secondhalf1

Total receipts (or income).-Less: Income not derived from current production of goods and

services:(a) Net interest payments by government(b) Transfer payments to individuals .__(c) Subsidies less current surplus of Government enterprises. __(d) Receipts from sale of surplus propertyAdjustments to Government cash receipts2

Statistical discrepancyEquals: Gross national receipts

1.22.5.5

- . 4- . 590.4

228.2

4.510.8

.81.35.02.1

203.7

247.4

4.510.3

4.10.02.5

226.1

257.3

4.512.4- . 12.1.5.4

237.4

i Based on incomplete data.a Includes excess of Government receipts over liabilities on corporate income taxes, and of Government

receipts over personal tax payments, minus contributions to Government retirement funds, NationalService Life Insurance, and Government Life Insurance. The last 3 items are noneash in nature andconsequently are not included in cash receipts of the Government, ,but must be included in the grossnational income.


The constant dollar estimates

Transforming the current dollar estimates in the Nation's EconomicBudget into constant dollar equivalents necessitated the use of special price

97


TABLE VII.—Adjustments to expenditures in the Nation's Economic Budget



Description 1939 1946


Firsthalf

Secondhalf*

Total expenditures of consumers, business, and government.Less: Government transfer payments—

To individualsJ

To business3 _Abroad*.. . .

Government cash interest payments.Tax refunds -Other adjustments 8

Equals: Expenditures for gross national product

95.0

2.51.1

- . 21.4.1

- . 590.4

228.3

10.82.63.64.34.0

— 9

252.9

10.3.8

9.04.13.2

- . 7226.1

261.6

12.4.6

5.34.42.0

- . 6237.4

1 Based on incomplete data.2 Includes payments to social insurance beneficiaries, veterans' pensions, and readjustment allowances,

etc. Agrees with the Commerce concept of transfers to individuals.3 Includes Government subsidies, domestic sales of consumer-type surplus property, net receivables, and

capital transactions. (Purchases of consumer-type surplus property are included in consumer expendi-tures. Hence a deduction is made to avoid double-counting.)

* Includes loans to foreign governments and subscriptions to the International Fund and Bank, andsales of surplus property abroad.

«Includes the net expenditures of Government corporations which do not represent capital formation,plus payments from deposit accounts set up by military and civilian personnel overseas, less noncashexpenditures for goods and services.


indexes because of the variety of types of incomes and expenditures involved.(See page 55 of text.) These indexes were constructed by breaking expendi-tures down into a large number of components, and deflating each by themost appropriate price index. The implicit index of price change for eachaccount, consumers, business, and Government, could then be determinedfrom the sum of the deflated components. This "implicit" index was usedto adjust the income in each account.

The usefulness of the estimates of National Income and Product wouldbe greatly increased if it were possible to present the key series in terms ofconstant as well as current dollars in all recent years. However, at thepresent time no price indexes adjusted to take account of the differencesin the composition of war output and civilian type output are available.Comparisons between 1947 and 1939 are more satisfactory since the presentcomposition of production is more similar to that of 1939 than to thatof the war years.

II. The Federal BudgetTable VIII shows the Federal cash surplus for calendar years 1946, 1947,

and the anticipated surplus for calendar 1948. The 1948 estimate is basedon the assumption of continued high levels of employment and income, nochanges in tax legislation, and the enactment of the Presidential recom-


mendations for new legislation as set forth in the budget message for fiscal1949. Estimates of the main sources of cash revenue for the same years areshown in table IX, while table X shows expenditures by function insofaras this was feasible with available information.

Tables XI and XII contain a reconciliation between budgetary receiptsand cash receipts and between budgetary payments and cash payments, re-spectively. The budgetary accounts contain some receipts and expendi-tures, which have no immediate economic impact, being merely accountingentries from the standpoint of the economy as a whole. For example,funds may be transferred from the general and special accounts to thetrust accounts without affecting transactions with the public, or funds may beset aside for interest accruing but not yet payable. The cash receipts andpayments, on the other hand, present Government operations on a consoli-dated basis. Transactions between various types of accounts are eliminated,as well as various types of expenditure which do not involve receipt or pay-ment of cash. The estimates of cash receipts from and payments to thepublic are more informative for purposes of economic analysis than are theconventional budgetary concepts; the cash concepts are consequently usedin the Nation's Economic Budget.

TABLE VIII.—Federal cash surplus



ReceiptsPayments

Cash surplus ...

Receipts or payments 1946

45.545.3

+.2

19471

46.941.3

+5.6

1948 *

49.240.4

+8.8

i Based on actual data through mid-December,a See footnote 2, tables IX and X below.

TABLE IX.—Federal cash receipts from the public other than borrowing

Calender years 1946,1947, and 1948

[Billions of dollars!

Source 1946actual

1947estimate1

1948estimateJ

Personal income taxesCorporation income taxes..Employment taxes3

Excises and customsMiscellaneous receipts

Receipts of trust accounts-

Total cash receipts. _.

18.811.1

.57.73.44.0

21.09.2.7

7.74.73.7

23.110.1

.97.63.63.9

45.5 46.9 49.2

* Based on actual data through mid-December.' Assumes no changes in tax legislation and continued high levels of employment and income.*Excludes amounts transferred to trust accounts.


99


TABLE X.—Federal cash payments to the public



Payment 1946actual

1947estimate

1948[estimate >

Budget account:National defenseVeterans' services and benefits _International affairs and finance ___ _.Interest on the public debtEefunds of receiptsOther

Trust accountsExchange Stabilization FundDeductions from Federal employees' salaries for retirementClearing account for outstanding checks and telegraphic reports-Adjustment to daily Treasury statement basis

21.15.23.03.94.04.45.1

- . 3—.4- . 7

12.86.65.93.92.65.62.81.5

- . 2+•2- . 3

11.06.46.93.92.07.13.0

.3- . 2

Total payments to the public. 45.3 41.3 40.4

i Based on actual data through November 1947.* Includes anticipated Presidential recommendations for new legislation.Note:—Detail will not necessarily add to totals because of rounding.

TABLE XL—Reconciliation of Budget receipts with cash receipts from the public

Calendar year 19471


DescriptionNet budget receipts 44. 0Trust account receipts ^ 6. 7

Total recorded receipts 50. 7

Less: Intragovernmental transactions:Payments to U. S. Treasury (miscellaneous receipts) by Government

enterprises . 7Transfers from general fund to trust accounts 1. 5Interest received by trust funds on investments in United States securities- . 6Receipts from sale of surplus vessels transferred to U. S. Treasury (miscel-

laneous receipts) but also recorded as a trust account receipt andexpenditure . 6

Less: Recorded receipts not paid in cash by the public:Deductions from Federal employees' salaries for retirement funds . 2National Service Life Insurance premiums paid with terminal leave bonds

prior to general redemption date . 1

Equals: Cash receipts from the public2 46. 91 Based on actual data through November.2 Excluding borrowing.NOTE.—Detail will not necessarily add to totals because of rounding.

ioo


TABLE XII.—Reconciliation of Budget expenditures with cash payments to the public

Calendar year 19471


DescriptionBudget expenditures 41. 5Trust account expenditures 7. 0Exchange Stabilization Fund expenditures 1. 8

Total recorded expenditures 50. 3Clearing account for outstanding checks and telegraphic reports . 2

Adjusted total, recorded expenditures 50. 6

Less: Intragovernmental transactions:Payments to U. S. Treasury (miscellaneous receipts) by Government

enterprises . 7Transfers from general fund to trust accounts 1. 5Interest received by trust funds on investments in United States securities- . 6Investments of trust funds and Government enterprises in United States

securities 3. 5Receipts from sale of surplus vessels transferred to U. S. Treasury (miscel-

laneous receipts) but also recorded as trust account expenditure . 6Less: Recorded expenditures not paid out in cash:

Deduction from employees' salaries for retirement funds • 2Interest on savings bonds (net increase in redemption value of outstand-

ing issues) . • 5Terminal leave bonds issued 1. 4Subscriptions in non-interest-bearing notes to Bretton Woods Organiza-

tion from General and Exchange Stabilization Funds 2. 1Plus: Gash payments not recorded as expenditures:

Redemption of excess profits tax bonds and adjusted service certificates- (a)Terminal leave bonds redeemed for cash 1. 2Redemption of notes by Bretton Woods Organizations . 8Expenditures of Government enterprises from proceeds of sales of obliga-

tions in the market —. 2

Equals: Cash payments to the public 41. 31 Based on actual data through November.2 Less than 50 million dollars.NOTE.—Detail will not necessarily add to totals because of rounding.

I O I


III. The Distribution of Income, Prewar

and Postwar

There has been little opportunity to compare the distribution of incomein the United States over a number of years because the results of varioussurveys are not readily comparable. Sample studies of income, nationalin scope, were made in 1935-36, 1941, 1944, 1945, and 1946. The esti-mates presented in this report are the result of an attempt to revise andarrange the data to make them as nearly comparable as possible. Dis-tributions for the wartime years were not included in the present analysisbecause the pattern of family structure and income was abnormal duringthe war period. The following paragraphs describe the procedure that wasused to compare the income distribution in the years 1935-36, 1941, and1946. The results obtained are still subject to further refinement and re-vision but they are probably reliable enough to indicate the general changesthat have taken place in the distribution of income and are believed to sub-stantiate the conclusions presented in the text.

Income distributions used for prewar and postwar comparisons

The estimates for 1946 used for these comparisons are based on thesecond Survey of Consumer Finances by the Board of Governors of theFederal Reserve System. This survey, covering a national sample of 3,000households, shows the distribution of money income for the civilian popula-tion by income level for the calendar year. The results are presented bothfor spending units and for family units. Family units, including singleindividuals, form the basis of classification used in the present analysis.{Federal Reserve Bulletin, July 1947, pages 791 and 802.)

While the small Federal Reserve survey is sufficient to derive usefulestimates on an over-all basis, larger surveys by the Bureau of the Censusand the Bureau of Agricultural Economics in 1946 include distributionsby family size, occupational group, size of community, and other break-downs, significant both in themselves and for general income analysis.These data have not been utilized in the present report since the results arenot yet available on a national basis. Preliminary tabulations from theCensus sample of urban families, however, appear to substantiate the find-ings of the Federal Reserve study.

For 1941 the distributions shown here are derived from the Study ofFamily Spending and Saving in Wartime, conducted jointly by the Bureauof Labor Statistics and the Bureau of Human Nutrition and Home Eco-nomics. This survey also covered a national sample of about 3,000 house-holds, with distributions for families and single individuals by money-

IO2


income levels. (Bureau of Labor Statistics, Bulletin 822, tables 1 and 3,pp. 68 and 71, and pp. 22-34.)

For 1935-36, use has been made of unpublished distributions preparedby the Research Division of the Office of Price Administration, based onthe National Resources Committee's study, "Consumer Incomes in theUnited States.33 x

Adjustments for comparability of population coverage

In each of these basic studies, the results are presented in terms ofnational coverage, with estimates showing the total number of familyunits in the population. The population weights used in expanding thesample data differ in coverage and are otherwise not on a comparablebasis.2 They were therefore revised to insure comparability, and nowinclude the total number of families and single individuals at the end ofeach year; that is, on June 30, 1936, and December 31, 1941 and 1946.8

1 The revision of the original distributions (which in turn were based on the large-scale sample survey of consumer purchases and on income-tax statistics) involved thefollowing steps: (1) Eliminating imputed items of income to give estimates by levels ofmoney income; (2) Revising the "tail" of the distributions on the basis of Treasuryincome-tax tabulations not available when the NRG report was prepared; (3) Revis-ing the distributions for single individuals on the basis of further analysis of incomesof occupational groups; (4) Adjusting the distributions to cover revised estimates ofthe total number of families and single consumers, based on the 1940 Census; and(5) Adjusting the distributions below the "tail" to bring the total income for all familyunits up to the total derived from the Department of Commerce monthly series onincome payments to individuals. The revisions were carried through separately forfamilies and single individuals.

2 The studies for 1941 and 1946 were limited to families and single individuals inprivate households, excluding those living in rooming houses, hotels, clubs, laborcamps, and other types of quasi households. Both of these reports, moreover, under-represent the number of single individuals in private households. The estimates forall three years differ in the treatment of the time period covered; the 1946 figures applyto the population at the end of the year (or the beginning of 1947), those for 1935-36to the average for the 12-month period, and those for 1941 to the yearly average withpart-year families and individuals converted to a full-year-equivalent basis.

8 These estimates were based on the results of recent sample surveys by the CensusBureau, on the decennial censuses of 1930 and 1940, and on monthly or semiannualestimates of the civilian noninstitutional population and the number of primaryfamilies in private households, issued currently by the Census Bureau.

The definition of the family used in preparing the weights conforms to that usedby the Census Bureau for family units of two or more persons; individuals classifiedby the Census as one-person private families are included with other single indi-viduals—that is, with those living as lodgers or paid help in private and quasi house-holds. The estimates cover all persons in the continental population except inmatesof institutions and Armed Forces personnel in military posts or overseas.

103


The resulting figures for the three years are as follows:

Year

1935-36 — _19411946

Familiesand singleindividuals

38, 410,00041,030,00043,330,000

Families (2or more per-

sons)

30,430,00032,880,00035,860,000

Single in-dividuals

7,980,0008,150,0007,470,000

The basic income distributions for each year were then adjusted to coverthe revised population weights. For 1935-36 the revisions required in theOPA estimates were minor. For the two later years, however, the adjust-ments involved a substantial increase in the number of single consumers,with some reduction in the number of families for 1941 and some increasefor 1946. For lack of evidence to the contrary, the changes were allocatedby income level so as to maintain the original percentage distributions offamily units.4

Adjustments of aggregate income covered

The adjustments for population coverage resulted in some increase in theaggregate amount of income accounted for in the distributions for each yearstudied. Nevertheless, the revised figures still fell short of the national totalsof civilian noninstitutional money income derived from the personal-incomeseries prepared by the Department of Commerce.

A further adjustment of the distributions was therefore required to placethem on a more comparable basis with respect to income coverage. Thisadjustment also was necessarily made on an arbitrary basis, by assuming thatincomes at all levels were under-reported by the same percent. While thereis evidence that some under-reporting is apt to occur at all income levels, itis probable that the proportion tends to be greater at the higher levels.In both the 1941 and the 1946 studies special measures were adoptedto minimize this bias as fully as possible, but with the information now at

4 For 1941 (and 1935-36), it was possible to handle the adjustment for familiesand single consumers separately. This procedure, however, was not possible for 1946,since the Federal Reserve estimates were available only for all family units combined.Thus, while the results for 1941 are probably fairly reliable, the adjustment for 1946involves some upward bias, since the original distribution used to allocate the addi-tional single consumers by income level was heavily weighted by families of two ormore persons.

104


hand it is impossible to evaluate the success of these measures.5 Pending thecompletion of detailed analysis of these survey data and comparison withdata from the 1946 income surveys of the Bureaus of the Census andAgricultural Economics and with income-tax returns and other statisticalseries, it seems inadvisable to attempt differential adjustments by incomelevels.

The percentage expansion of the total amount of income at each incomelevel was made for each year on the basis of the combined distributions forfamilies and single consumers. For 1946, the expansion (after adjustmentfor population coverage) was 16 percent, for 1941 it was 13.5 percent,and for 1935-36, due to the refinements already made in the distributions,it was only about 1.5 percent

Comparison of shares of income

From these adjusted income-level figures, the proportion of the totalincome going to each fifth of families and single individuals ranked in orderof their cash income was estimated for each year. These percentages areshown below.

Families and single individuals grouped from lowest to

Lowest fifth.Second fifthThird fifthFourth fifthHighest fifth

Percentage of total civilian moneyincome

1935-36

4.08.7

13 620.553.2

1941

3.48.7

15 322.050.6

1946

4.410.616.022.146.9

An average income for each fifth of the population may be obtainedfrom these proportionate shares of income for each period. Comparisonsof income among various years require a further adjustment, however,since the purchasing power of income changes from year to year, alteringthe real value of money incomes. This was especially marked over theperiod we are considering. To adjust for changes in purchasing jgower,the aggregates of income were raised in 1935-36 and 1941 to the price

8 For methods of sampling at high income levels in 1946, see pp. 662, 663, FederalReserve Bulletin, June 1947. The adjustments made for refusal rates by income leveland for mean incomes at higher levels in the 1941 study are described in Bureau ofLabor Statistics bulletin 822, pages 22 through 28.

105


level of the year 1946. By applying the percentages shown in the tableabove to the aggregates expressed in 1946 dollars, and dividing by thenumber of families in each fifth, average family income in constant dollarsfor each fifth of thejpopulation was obtained. The aggregate money incomeof civilians for each period, in current dollars, and after adjustment for pricechange, is shown below.

1935-3619411946

Year

Aggregate money incomeof civilians

Billions ofdollars incurrentprices i

58.988.3

164.9

Billions ofdollars in

1946prices 2

85.6120.3164.9

1 Derived from the personal income series of the National Income Division, Department of Commerce.Eepresents money income of civilian noninstitutional population.

2 Adjusted for price changes according to the BLS consumer price index.

The estimates for 1946 are also presented in the form of a distribution offamilies and single individuals by money-income level in table 3, page 19 ofthe text.

106


Appendix BStatistical Tables Relating to Employment,

Production, and Purchasing Power

CONTENTS

I. Gross national product or expenditure, 1929-47.II. National income by distributive shares, 1929-47.

III. Personal income, 1929-47.IV. Disposition of personal income, 1929-47.V. Per capita disposable income in current dollars and first half of 1947 dollars,

1929-47.VI. Real disposable income, food consumption, and real farm income, per

capita, 1929-47.VII. Total consumer credit, 1929-47.

VIII. The labor force, 1940-47.IX. Number of wage and salary workers in nonagricultural establishments,

1939-47.X. Average gross weekly earnings in selected industries, 1939—47.

XI. Average hourly earnings in selected industries, 1939—47.XII. Consumers5 price index, 1939-47.

XIII. Wholesale price index, 1939-47.XIV. Index of prices paid and of prices received by farmers and parity ratio,

1939-47.XV. Industrial production index, 1939-47.

XVI. Physical production index, 1935-39, 1946, and 1947.XVII. New construction activity, 1929-47.

XVIII. Gross national product, department store sales, and residential construction,1920-47.

XIX. Business expenditures for new plant and equipment, 1939-48.XX. Business inventories and sales, 1939-47.

XXI. Sales, stocks, and outstanding orders at 296 department stores, 1939—47.XXII. Profits before and after taxes, all private corporations, 1929-47.

XXIII. Profits after taxes, 629 large private industrial corporations, 1939-47.XXIV. Relation of profits before and after taxes to investment and to sales, private

manufacturing corporations, by industry, 1947.XXV. Relation of profits before and after taxes to investment and sales, private

manufacturing corporations, by size classes, 1947.XXVI. Relation of profits before and after taxes to sales, private corporations,

excluding finance, insurance, and real estate, 1946-47.XXVII. Loans and investments of all commercial banks, 1929-47.

XXVIII. Adjusted deposits of all banks and currency outside banks, 1929—47.XXIX. Bond and common stock yields and commercial loan rates, 1929-47.XXX. Public debt and guaranteed obligations of the United States Government

outstanding, 1939-47.

770958°—48 8 107


XXXI. United States Government aid to foreign countries, 1946-47.XXXII. United States exports, including reexports, by continents, 1936-38 average

and 1946-47 by quarters.XXXIII. United States general imports, by continents, 1936-38 average and 1946-47

by quarters.XXXIV. Production and exports of selected nonagricultural commodities, 1939, 1946,

and 1947.XXXV. Distribution of selected food supplies moving into consumption channels,

1939, 1946, and 1947.XXXVI. Population by age groups, selected years, 1900-1975.

XXXVII. Changes in selected economic series since 1939.

108


Statistical Tables Relating to Employment,Production, and Purchasing Power

TABLE I.—Gross national product or expenditure, 1929-47


Year or quarterGross na-

tionalproduct

Personalconsump-tion ex-

penditures

78.870.861.249.246.361.966.262.567.164.667.572.182.390.8

101.6110.4121.7143.7164.5

Gross pri-vate do-

mestic in-vestment

15.810.25.4

.91.32.86.18.3

11.46.39.0

13.017.29.34.65.79.1

24.630.5

Net foreigninvestment

0.8.7. 2. 2. 2.4

- . 1—.1

.11.1

.91.51.1

- . 2-2 .2-2 .1

- . 84.88.8

Govern-ment pur-chases of

goods and

1929.1930.1931.1932.1933.1934.1935.1936.1937.1938.1939.1940.1941.1942..1943..1944..1945..1946-.1947 V

1946—First quarter...Second quarter.Third quarter..Fourth quarter.

1947—First quarter...Second quarter.Third quarter..Fourth quarter

103.890.975.958.355.864.972.282.590.284.790.4

100.5125.3159.6192.6210.6213.1203.7231.8

Seasonally adjusted annual rates

191.7197.0207.5218.6223.1229.1232.3242.5

134.3138.2147.3154.9158.0162.0166.0172.0

18.622.327.030.429.429.130.433.0

3.36.14.55.28.3

10.57.78.5

8.59.29.28.18.09.89.9

11.711.612.813.113.924.759.788.696.683.130.628.0

35.430.328.628.227.427.528.229.0

i Estimates based on incomplete data.



IO9


TABLE II.—National income by distributive shares, 7929-47


Year or quarter IsI?O G>

O

Proprietors' and rentalincome

fl8

Corporate profits and inventoryvaluation adjustment

Corporate profits

3 If5*

1929193019311932 _ —1933 -19341935..1936___1937 -1938193919401941194219431944.. .1945 _.1946...1947« _

87.75.58.41.39.48.56.64.73.67.72.81.

103.136.168.182.182.178.203.

50.846.539.530.829.334.137.142.47.44.747.851.864.384.7

109.1121.122.9116.8128.5

19.715.711.87.47.28.7

12.112.615.414.014.16.320.828.132.134.437.141.848.1

8.37.05.33.2.94.35.06.16.66.36.87.9.6

12.114.115.316.719.22.5

5.3.92.91.2.32.34.93.95.64.44.54.96.9

10.611.812.413.515.218.3

5.84.83.62.52.02.12.32.3.13.33.53.64.35.46.26.77.06.97.3

10.36.61.6

- 2 . 0- 2 . 0

1.13.04.96.4.35.89.2

14.619.823.23.519.716.523.1

3.3- . 8

- 3 . 0.2

1.73.25.76.3.36.59.3

17.21.124.523.820.21.128.0

1.4.8.5.4.5.7

1.01.41.51.01.52.97.8

11.714.213.911.38.6

11.1

8.42.5

- 1 . 3- 3 . 4

l'.O2.34.342.35.06.49.49.4

10.49.98.9

12.516.9

0.53.32.41.0

- 2 . 1- . 6- . 2- . 7

1.0— .7- . 1

- 2 . 6- 1 . 3

— .4—.5

- 4 .- 4 . 9


1946—First quarterSecond quarterThird quarterFourth quarter

1947—First quarterSecond quarterThird quarterFourth quarter •

168.2173.5179.9191.0197.6200.1203.3211.1

111.5114.0119.2122.2124.9126.3129.7133.0

39.439.241.946.747.047.247.350.7

18.518.619.922.022.421.922.123.5

14.113.815.217.817.618.017.919.5

6.96.86.87.07.07.27.37.7

14.217.215.618.822.423.322.923.9

15.219.422.927.129.027.427.428.2

6.18.09.3

11.011.610.810.811.4

9.111.513.516.117.416.616.616.8

- 1 . 0- 2 . 3- 7 . 3- 8 . 3- 6 . 6- 4 . 1- 4 . 5- 4 . 3

6.56.25.95.45.04.74.54.54.44.34.24.14.13.93.43.23.13.23.4

3.13.23.23.23.33.33.43.5

1 National income is the total net income earned in production by individuals or businesses. The conceptof national income currently used differs from the concept of gross national product in excluding deprecia-tion charges and other allowances for business and institutional consumption of durable capital goods.

2 Includes wages and salaries, employer contributions for social insurance, and other labor income.3 Includes noncorporate inventory valuation adjustment.* Federal and State income and excess-profits taxes.» Less than 50 million dollars.• Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.

I I O


TABLE III—Personal income, 1929-47


Year or quarterTotal

personalincome

Wage andsalary

receipts *

Otherlabor

income *

Proprie-tors' and

rentalincome

Divi-dends

Personalinterestincome

Transferpay-

ments

1929..1930._1931..1932..1933..1934..1935..1936..1937-1938..1939..1940..1941..1942..1943..1944..1945..1946..1947».



85.176.264.849.346.653.259.968.474.068.372.678.395.3

122.2149.4164.9171.6177.2197.2

50.045.738.730.128.733.436.341.645.442.345.148.960.980.5

103.5114.9115.2109.2121.2

0.5.5.5.4.4.4.4.5.5.5.5

.7

.91.31.61.61.8

19.715.711.87.47.28.7

12.112.615.414.014.716.320.828.132.134.437.141.848.1

5.85.54.12.62.12.62.94.64.73.23.84.04.54.34.54.74.85.6

7.57.17.06.66.26.05.75.65.65.55.45.45.45.45.56.06.87.77.9


1.51.52.72.22.12.22.43.52.42.83.03.13.13.23.03.66.2

11.311.8

168.7172.5179.5187.5190.9192.3200.4205.3

102.6107.0111.8115.4117.4118.7122.7126.0

1.61.61.61.61.71.81.81.9

39.439.241.946.747.047.247.350.7

5.15.45.65.96.26.36.57.2

7.67.77.77.77.87.87.98.0

12.511.610.910.310.910.614.211.5

1 Total employer disbursements less employee contributions for social insurance.2 Includes compensation for injuries, employer contributions to private pension and welfare funds, pay of

military reservists not on full-time active duty (pay for full-time active duty included in military wages andsalaries), directors' fees, jury and witness fees, compensation of prison inmates, Government payments toenemy prisoners of war, marriage fees to justices of the peace, and Merchant Marine war-risk life and injuryclaims.

* Estimates based on incomplete data.



I l l


T A B L E IV.—Disposition of personal income, 1929-47

Year or quarter

1929193019311932 . . _193319341935 _19361937 - . _1938193919401941194219431944194519461947 l


1947—First quarter.Second quarterThird quarter..Fourth quarter i

Personalincome

Less:Personaltax andnontax

payments

Equals:Disposable

personalincome

Less:Personalconsump-

tion ex-penditures

Equals:Personalsaving

Billions of dollars -

86.176.264.849.346.653.259.968.474.068.372.678.395.3

122.2149.4164.9171.6177.2197.2

2.62.51.91.51.51.61.92.32.92.92.42.63.36.0

17.818.920.918.821.7

82.573.763.047.845.251.658.066.171.165.570.275.792.0

116.2131.6146.0150.7158.4175.6

78.870.861.249.246.351.956.262.567.164.567.572.182.390.8

101.6110.4121.7143.7164.5

3.72.91.8

-1 .4—1.2- . 21.83.63.91.02.73.79.8

25.430.035.629.014.811.1


168.7172.5179.5187.5190.9192.3200.4205.3

17.818.719.119.521.221.421.722.3

150.9153.8160.4168.0169.7170.9178.7183.0

134.3138.2147.3154.9158.0162.0166.0172.0

16.615.513.113.111.78.9

12.711.0

Saving aspercent ofdisposable

income

4.53.92.9

- 2 . 9- 2 . 7- . 43.15.45.51.53.84.9

10.721.922.824.419.29.36.3

11.010.18.27.86.95.27.16.0

i Estimates based on incomplete data.

NOTE.—Detail will not necessarily^add to totalsjtecause of rounding.


1 1 2


TABLE V.—Per capita disposable income in current dollars and first half of 1947 dollars, 1929-47

Year or quarter

1929193019311932.1933193419351936193719381939194019411942 — .19431944194519461947 3

1946—First quarterSecond quarter .Third quarterFourth quarter.-

1947—First quarterSecond quarterThird quarter . _Fourth quar te r 3

Disposablepersonalincome(billions

of dollars)

82.573.763.047.845.251.658.066.171.165.570.275.792.0

116.2131.6146.0150.7158.4175.6

Seasonallyadjusted

annual rates

150.9153.8160.4168.0169.7170.9178.7183.0

Population(thousands) i"

121,770123,077124,040124,840125,579126,374127,250128,053128,825129,825130,880131,970133,203134,665136,497138,083139,586141,229144,002

«140,549•140,985•141,547«142,288•143,030«143,672»144,356

145,013

Consumers'price index,1st half of1947=100

78.876.869.962.859.561.663.163.866.164.964.064.567.775.079.580.882.689.6

102.4

Not adjustedfor seasonalvariation4

83.684.992.597.499.3

100.6103.5106.2

Per capita disposablepersonal income

Currentdollars

678599508383360408456516552505536574691863964

1,0571,0801,1221,219

1st half of 1947dollars *

860780727610605662723809835778838890

]]1

1,0211,1511,211j308

L, 3061,251

ion

Seasonally adjusted annualrates

]]]

1,0741,091L, 1331,1811,1861,1901,2381,262

:L,2851,2841,2251,2111,1941,1831,1961,188

1 Estimated population of continental United States, including armed forces overseas; annual data as ofJuly 1 and quarterly data as of middle of quarter.

3 Current dollars divided by the consumers' price index on the base first half of 1947=100 to give a roughmeasure of changes in buying power of disposable income.

3 Estimates based on incomplete data.* A small part of the increase may be seasonal.* Interpolated from published data.

Sources: Department of Commerce (disposable income and population) and Department of Labor (con-sumers' price index).


TABLE VI.—Real disposable income, food consumption, and real farm incorne9per capita, 7929-47

[1935-39=100]

1929193019311932193319341935 _.193619371938193919401941194219431944194519461947

YearReal dis-posableincome1

(per capita)

108989177768391

10210598

105112128144152164164157149

Civilianfood con-

sumption 2

(per capita)

1021001009897999699

100100104105108108107112114118117

Net incomefrom farm

marketing topersons on

farms3 (percapita)

10181644962659299

11096

103105141182222213209210201

Computed from the deflated dollar figures in appendix B, table V.2 Based on the retail weight equivalent, weighted by average retail prices for the base period, 1935-39.

Consumption is for total population, 1929-40; civilian only, beginning 1941.3 Realized net income of farm operators plus adjustments for inventory changes and wages to hired workers

living on farms divided by farm population of the United States as of January 1 was adjusted for changes inprices^paid by farmers for family maintenance and then expressed as an index.

Sources: Based on Department of Agriculture, Department of Commerce, and Department of Labor data.

TABLE VII.-— Total consumer credit, 1929-47

(Estimated amounts outstanding)[Millions of dollars]

End of year or monthTotal

consumercredit

7,6373,9297,4917,9949,1469,8956,4785,3345,7766,637

10,15713,300

9,9829,939

10,25510,46410,72910,99211,05511,19111,67112,05012, 70013,300

Instalmentcredit i

3,1671,6053,9714,4495,4485,9202,9481,9572,0342,3653,9766,100

4,0484,1564,3294,5364,7394,9195,0455,1855,2845,4545,7006,100

Chargeaccounts

1,7491,0811,4591,544L,650L7641,5131,4981,7581,9813,0543,500

2,7642,6022,7682,7822,8352,8872,7862,7552,8593,0353,3003,500

Otherconsumer

credit a

2,7211,2432,0612,0012,0482,2112,0171,8791,9842,2913,1273,700

3,1703,1813,1583,1463,1553,1873,2283,2513,5283,5613,7003,700

1929____1933-19371939..19401941___ ._ . .1942 _.19431944-.19451946-...1947 3

1947—January....February, _MarchApril _.MayJuneJulyAugustSeptember.OctoberNovember.December a

1 Includes automobile and other sale credit and repair and modernization loans insured by the FederalHousing Administration.

2 Includes noninstalment single-payment loans of commercial banks and pawnbrokers, and service credit.* Preliminary estimate based on incomplete data.

Source: Board of Governors of the Federal Reserve System.


TABLE VIII.—The labor force, 1940-47

(Thousands of persons 14 years of age and over)

Year or month

Total laborforce

includingarmedforces

Civilian labor force

Totalcivilianlaborforce

Employment

Total Nonagri-cultural

Agricul-tural

Unemploy-ment

1939 monthly average _1940 monthly average _.1941 monthly average.1942 monthly average.1943 monthly average.1944 monthly average.1945 monthly average.1946 monthly average.1947 monthly average...

1946—JanuaryFebruary. _.MarchAprilMayJuneJulyAugustSeptember..OctoberNovember..December..

1947—JanuaryFebruary.. .March.AprilMayJuneJulyAugustSeptember-OctoberNovember..December...

55,60056,03057,38060,23064,41065,89065,14060,82061,608

59,49059,13059,63060,30060, 57062,00062,82062,20061, 34061,16060,98060,32059, 51059,63059,96060,65061, 76064,00764,03563,01762,13062,21961, 51060,870

55, 23055,64055,91056,41055,54054,63053,86057,52060,168

53,32053, 89055,16056,45057,16058,93060,11059,75059,12058,99058,97058,43057,79058,01058,39059,12060,29062,60962, 66461,66560, 78460,89260,21659, 590

45,93047, 52050,35053,75054,47053,96052,82055,25058,027

51,02051,24052,46054,12054,85056, 36057,84057,69057,05057,03057,04056, 31055,39055, 52056,06056,70058, 33060,05560,07959, 56958,87259,20458,59557,947

36,32037,98041, 25044, 50045,39045,01044,24046,93049,761

44,30044,30044,93045,95045,97046,35047,87048,55048, 30048, 41049,14049,10048,89048,60048,82048,84049, 37049,67850,01350,59450,14550, 58350,60950,985

9,6109,5409,1009,2509,0808,9508,5808,3208,266

6,7206,9407,5308,1708,880

10, 0109,9709,1408,7508,6207,9007,2106,5006,9207,2407,'"

10,37710,0668,9758,7278,6227, ""

9,3008,1205,5602,6601,070

6701,0402,2702,142

2,3002,6502,7002,3302,3102,5702,2702,0602,0701,9601,9302,1202,4002,4902,3302,4201,9602,5552,5842,0961,9121,6871,6211,643


Sources: Department of Labor (1939) Department of Commerce (1940-47)

" 5


TABLE IX.—Jsumber of wage and salary workers in nonagricultural establishments, 1939-47l

[Thousands]

Year or month

Manufacturing

•23

2

II

1939 monthly average._.1940 monthly average...1941 monthly average...1942 monthly average...1943 monthly average...1944 monthly average. _.1945 monthly average...1946 monthly average. _.1947 monthly average a_

1946—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember. _.OctoberNovember...December...

1947—JanuaryFebruaryMarchAprilMayJune...JulyAugustSeptember....OctoberNovember8-.

30,28732,03136,16439,69742.04241,48039,97740,71242,401

38, 74538,14839,18439,90840,25840,68040,87741,46641,84842,06542,43942,92841,80341,84942.04341,82441,91942,36342,20142,62443,03643,29843,449

10,07810, 78012, 97415,05117,38117, 11115,30214,36515, 515

13,49912, 75113,43314,04514,15914.37114,52614,87615,03515,06415,27115,34815.37215,47515,51015,42915,23715,32815,23315, 59515, 79815,83215,851

4,3574,9756,4858,17910, 29710,2008,4777,1027,850

6,6015,7316,3246,9047,0357,1727,3077,4867,5907,6237,7217,7317,7817,8577,8927,8927,7817,8637,6917,7957,8817,9387,984

5,7205,8056,4886,8737,0846,9126,8257,2637,664

6,8987,0207,1097,1417,1247,1997,2197,3907,4457,4417,5507,6177,5917,6187,6187,5377,4567,4657,5427,8007,9177,8947,867

845916947983917883826836884

864864857542753864873886884883883874883880879856884893866896894894896

1,1501,2941,7902,1701,5671,0941,0821,1,730

1,0851,1011,2031,3561,4381,5321,6271,7131,7471,7531,7131,6441,5271,5021,5341,6191,6851,7681,8471,8941,9041,8951,852

2,9123,0133,2483,4333,6193,7983,8724,0234,049

3,9323,9433,9833,9913,9463,9964,0514,1034,0644,0934,1014,0714,0144,0114,0203,8363,9704,1154,1404,1444,1144,1024,077

6,7057,0557,5677,4817,3227,3997,6548,4488,645

8,0568,0908,1978,3298,3028,3428,3378,4028,5238,6678,8989,2348,5528,5078, 5658,5528,5458,5828,5588,5868,6848,8809,081

4,6104,7815,0165,1485,1875,1695,2745,9536,187

5,6966,7765,8405,9845,9655,9615,9755,9845,9906,0546,0986,1196,0716,1076,1206,1066,1516,2786,2766,2216,2176,2486,264

3,9874,1924,6225,4316,0496,0265,9675,5955,392

5,6135,6235,6715,6615,6955,6145,4885,5025,6055,5515,4755,6386,3845,3675,4155,4265,4475,3995,2815,2885,4255,4475,428

i Number of wage and salary workers in nonagricultural establishments includes all full- and part-timewage and salary workers in nonagricultural establishments who worked or received pay during the pay periodending nearest the 15th of the month. Proprietors, self-employed persons, domestic servants, and person-nel of the armed forces are excluded. Not comparable with estimates for nonagricultural employment of thecivilian labor force derived from data in appendix B, table VIII, because latter include self-employed, pro-prietors and domestic servants and are based on population enumeration whereas estimates in this table arebased on establishment reports.

3 Average of 11 months.s Preliminary.

Source: Department of Labor.

116


TABLE X.—Average gross weekly earnings in selected industries, 1939-47

Year or month

1939 monthly average..1940 monthly average- _1941 monthly average1942 monthly average..1943 monthly average..1944 monthly average. -1945 monthly average._1946 monthly average..1947 monthly average 4-

1946—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1947—JanuaryFebruaryMarchApril..May _JuneJulyAugustSeptemberOctobersNovember6

Manufacturing

Total

$23.8625.2029.5836.6543.1446.0844.3943.7448.90

41.1540.5842.1542.8842.5143.3143.3844.9945.3945.7345.7946.9647.1047.2947.6947.5048.4449.33

49.1750.4360.9851.02

Dura-able

goods

$26.5028.4434.0442.7349.3052.0749.0546.4952.06

43.6742.5744.7945.7145.1046.3246.2448.0248.3648.9048.6249.5749.6049.7450.3050.3451.7252.9952.1952.4654.0154.6654.70

Non-dur-able

goods

$21.7822.2724.9229.1334.1237.1238.2941.0245.56

38.7539.0139.8340.1339.9340.2840.4641.8942.3442.4542.8744.2444.4744.6744.8944.4044.8845.3145.6145.7846.7847.1747.19

Bitu-minous

coalmining

Privatebuild-

ing con-struc-tion

$23.8824.7130.8635.0241.5851.2752, 2558.03

54.1657.3758.3030.1534.2064.4452.2762.8461.6562.4961.5469.5669.5465.3064.9054.1465.5167.0954.8770.2371.1971.87(5)

$30.3931.7035.1441.8048.1352.1853.7356.24(

52.8953.0452.8754.2953.6355.2356.2556.6758.4959.2057.6560.3259.9758.9261.2360.5362.3862.6863.3066.9765.2266.14(6)

Class Isteamrail-

roads

$30.9931.5534.2538.6543.6846.0645.69

3 51. 22

43.4844.0343.1547.9446.5751.2352.0152.6851.5152.8851.7150.7652.7054.1052.4352.0351.3051.7251.1651.6857.47

)

Tele-phone

$31.9432.4432.7433.9736.3038.39

(8)44.04

)41.1944.3743.7644.0944.8244.9344.8244.1944.1044.3044.4042.9843.3743.3142.5132.2638.1345.5846.5146.9248.0248.77

Whole-sale

trade

$29.8530.3932.3235.5639.4042.2944.0748.06()

45.1446.0746.3147.1347.4847.8848.0648.1449.5449.4449.8051.2050.0550.8750.8051.1351.5752.8852.2252.0552.8652.76()

Retailtrade

$21.1721.1721.9423.2424.8826.5828.3132.55

(5)

30.5430.7731.1231.4031.45

33.6433.8133.7633.1933.0434.0635.0235.2735.3135.9336.5037.8237.9938.1437.5437.46

(4)

Hotels(year

round)1

$15.2515.5216.0917.6220.2122.6524.5326.95()

26.2126.4326.5726.6426.6526.7026.6327.1526.9827.2728.1528.4028.6228.9129.0929.4129.2329.8529.3629.5029.8630.43(6)

1 Money payments only; additional value of room, board, uniforms, and tips are not included.8 Not available. New series, beginning April 1945; includes only employees subject to provisions of the

Fair Labor Standards Act and is not comparable with preceding series, which includes all employees.3 Annual average includes retroactive pay increases not included in the monthly averages.* Average of 11 months.* Not available.6 Preliminary.

NOTE.—Data are for production workers in manufacturing and mining and for all employees in otherindustries.

Source: Department of Labor

117


TABLE XL—Average hourly earnings in selected industries, 1939-47

Year or month

1939 monthly average.... $0.6331940 monthly average .6611941 monthly average.— . 7291942 monthly average 8531943 monthly average 9611944 monthly average.,.. 1.0191945 monthly average 1.0231946 monthly average 1.0841947 monthly average *. _ 1.215

1946—January 1.004February 1.002March _ 1.035April 1.058May 1.071June _ 1.084July 1.August 1.112September _ 1.126October. _ 1.130November. _ 1,139December. _ 1.148

1947—January.. 1.161February--- - 1.170M a r c h . . . _ 1.180April . . . 1.186May 1.207June 1.226July 1.230August 1.237September. 1.249October- 1.257November5 1.266

Manufacturing

TotalDura-able

goods

$0.698.724.808.947

1.0591.1171.1111.1561.285

1.0701.0641.1031.1311.1471.1651.1771.1861.2011.2021.2101.2161.2241.2291.2361.2431.2781.3031.3051.3121.3311.3361.341

Non-dur-able

goods

Bitu-minous

coalmining

$0,582.602.640.723.803.861.904

1.0121.140

.941

.953

.975

.988

.9961.0031.0091.0361.0501.0561.0651.0771.0941.1071.1191.1221.1301.1401.1501.1581.1651.1731.185

Privatebuild-

ing con-struc-tion

.883

.9931.059

.139

.186

.240

.401

259265274239321474457466480460477491491

.491484483470489

1.7401.7871.8191.797

.9581.0101.1481.2521.3191.3791.478

1.4021.4221.4111.4231.4311.4441.4731.4821.5101.5261.5491.5691.5941.5981.6101.6341.6561.6611.6691.6891.7181.738

Class Isteamrail-roads

$0.714.717.751.824.897.938.942

31.116CO

.953

.9341.0491.0731.1211.1211.1161.1371.1181.1291.1331.1311.1511.1301.1191.1201.1221.1171.1211.244

Tele-phone

$0.822.827.820.843.870.911(2)

1.124

1.0301.0951.1051.1311.1431.1471.1351.1291.1481.1371.1311.1321.1321.1411.1241.1741.1891.2181.2111.2151.2301.241

Whole-sale

trade

$0.715.739.793.860.933.985

1.0291.144(

1.0701.0951.1011.1211.1351.1461.1551.1481.1791.1721.1861.2021.1971.2301.2311.2291.2411.2621.2571.2581.2691.283

Retailtrade

Hotels(year

round)1

$0,536.542.568.614.670.724.773.878(8)

.828

.835

.841

.851

.859

.876

.907

.917

.919

.953

.957

.960

.974

1.0Q31.0031.009L.015

( )

$0,324.332.348.386.451.505.550.612()

.604

.602

.600

.599

.596

.598

.602

.614

.620

.626

.642

.651

.648

.654

.642

.642

.643

.650

.652

.660

.672

.683C)

i Money payments only; additional value of room, board, uniforms, and tips are not included.* Not available. New series, beginning April 1945 includes only employees subject to provisions of the

Fair Labor Standards Act and is not comparable with preceding series, which includes all employees.3 Annual average includes retroactive pay increases not included in the monthly averages.* Average of 11 months.* Preliminary.6 Not available.NOTE.—Data are for production workers in manufacturing and mining and for all employees in other

industries.Source: Department of Labor.

n8


TABLE XII.—Consumers' price index, 7939-47

For moderate-income families in large cities

[1935-39=100]

Year or month All items Foods Apparel RentFuel, elec-

tricity,and ice

Housefurnish-

ingsMiscel-laneous

1939 monthly average.1940 monthly average _1941 monthly average-1942 monthly average_1943 monthly average _1944 monthly average-1945 monthly average _1946 monthly average _1947 monthly average 1

1946—JanuaryFebruary. _.MarchAprilMayJuneJulyAugustSeptember..OctoberNovember..December..

1947—JanuaryFebruary. _MarchAprilMayJuneJulyAugustSeptember .OctoberNovember.

99.4100.2105.2116.5123.6125.5128.4139.3158.5

129.9129.6130.2131.1131.7133.3141.2144.1145.9146.6152.2153.3153.3153.2156.3156.2156.0157.1158.4160.3163.8163.8164.9

95.296.6

105.5123.9138.0136.1139.1159.6192.6

141.0139.6140.1141.7142.6145.6165.7171.2174.1180.0187.7185.9183.8182.3189.5188.0187.6190.5193.1196.5203.5201.6202.7

100.5101.7106.3124.2129.7138.8145.9160.2185.3

149.7150.5153.1154.5155.7157.2158.7161.2165.9168.1171.0176.5179.0181.5184.3184.9185.0185.7184.7185.9187.6189.0190.2

99.099.7

102.2105.4107.7109.8110.3112.4120.6

110. 8111.0110.5110.4110.3110.5113.3113.7114.4114.4114.8115.5117.3117.5117.6118.4117.7117.7119.5123.8124.6125.2126.9

101.3100.5107.3122.2125.6136.4145.8159.2183.8

148.8149.71.50.2152.0153.7156.1157.9160.0165.6168.5171.0177.1179.1180.8182.3182.5181.9182.6184.3184.2187.5187.8188.9

100.7101.1104.0110.9115.8121.3124.1128.8139.5

125.4125.6125.9126.7127.2127.9128.2129.8129.9131.0132.5136.1137.1137.4138.2139.2139.0139.1139.5139.8140.8141.8143.0

1 Average of 11 months.* Not surveyed this month.



TABLE XIII.—Wholesale price index, 1939-47

[1926=100]

Year or month

Other than farm products and foods

«2

1939 monthly average1940 monthly average1941 monthly average1942 monthly average1943 monthly average1944 monthly average1945 monthly average1946 monthly average1947 monthly average

1946—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1947—JanuaryFebruary _MarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember i

77.178.687.398.8

103.1104.0105.8121.1151.

107.1107.108.9110.2111.0112.9124.7129.1124.0134.1139.7140.9141.5144.5149.5147.147.1147.6150.6153.6157.158.5159.5162.7

65.367.782.4

105.9122.6123.3128.2148.9181.0

129.9130.8133.4135.4137.5140.1157.0161.0154.165.3169.8168.1165.0170.4182.6177.0175.177.9181.4181.7186.4189.7187.9196.0

70.471.382.799.6

106.6104.9106.2130.7168.6

107.3107.8109.4110.8111.112.9140.2149.0131.9157.9165.4160.1156.2162.0167.6162.4159.8161.8167.1172.3179.3177.8178.0178.

81.383.089.095.596.998.599.7

109.5134.7

100.8101.3102.2103.3103.9105.6109.5111.6112.2115.8120.7124.7127.6128.5131.1131.8131.9131.4133.4136.0138.140.0142.1144.7

95.6100.108.3117.7117.5116.7118.1137.2181.6

119.4119.6119.8119.8120.4122.4141.2138.9141.6142.4172.5176.7175.1173.8174.6166.4170.8173.178.4182.1184.8191.7202.4206.0

69.773.884.896.997.498.4

100.1116.3140.7

101.6102.2104.7107.9108.8109.2118.1124.0125.7128.6131.6134.7136.6138.0139.6139.2138.9138.9139.5140.8142.0143.0144.7147.4

73.171.776.278.580.883.084.090.1

108.3

84.985.185.086.186.187.890.394.494.394.294.596.197.797.9

100.7103.4103.3103.9108.9112.5114.1115.9118.1122.8

94.495.899.4

103.8103.8103.8104.7115.5144.8

105.7106.6108.4108.8109.4112.2113.3114.0114.2125.8130.2134.7138.0137.9139.9140.3141.4142.6143.8148.9150.7151.1151.5151.8

90.594.8

103.2110.2111.4115.5117.8132.6179.5

120.0120.9124.9126.5127.8129.9132.1132.7133.8134.8145.5157.8169.7174.8177.5178.8177.0174.4175.7179.7183.3185.8187.5190.1

76.077.084.495.594.995.295.2

101.4127.2

96.095.996.096.196.596.499.398.498.499.9

118.9125.7128.1129.3132.2133.2127.1120.2118.8117.5121.3126.3135.8137.0

88.594.3

102.4102.7104.3104.5111.6129.1

106.2106.5106.9107.5108.3110.4111.9112.6113.6115.3118.2120.2123.3124.6125.8127.8128.8129.2129.8129.7130.6132.3132.9134.0

74.877.382.089.792.293.694.7

100.3115.0

95.395.695.695.797.098.5

101.3102.0102.1104.0106.5108.9110.3110.9115.3115.7116.1112.7113.0112.7115.9117.1118.8121.1

i Preliminary estimate based on weekly data for December.


I2O


TABLE XIV.—Index of prices paid and of prices received by farmers and parity ratio, 1939—47

[1910-14=100

Year orjnonthPrices paid(includinginterest

and taxes)

124125132150162170174193232

177179180181185188199202199207211212215221227230229231231235238239241245

Prices re-ceived i

95100124159192195202233278

206207209212211218244249243273263264260262280276272271276276286289287301

Parityratio a

1939 monthly average -1940 monthly average.1941 monthly average.1942 monthly average.1943 monthly average.1944 monthly average.1945 monthly average.1946 monthly average.1947 monthly average.

1946—JanuaryFebruaryMarchAprilMay . .—JuneJuly _._.AugustSeptemberOctober..NovemberDecember

1947—-JanuaryFebruaryMarchAprilMayJune - .JulyAugustSeptemberOctoberNovemberDecember

778094

106119115116120120

116116116117114116123123122132125125121119124121119117119118120121119123

i August 1909-July 1914=100.* Ratio of prices received to prices paid (including interest and taxes).Source: Department of Agriculture.

1 2 1


TABLE XV'.—Industrial production index, 7939-47

[1935-39=100, seasonally adjusted]

Year or monthTotal in-dustrialproduc-

tion

Manufactures

Total Durable Nondu-rable

Minerals

1939 monthly average..1940 monthly average._1941 monthly average~1942 monthly average..1943 monthly average..1944 monthly average..1945 monthly average..1946 monthly average..1947 monthly average l

1946—July.AugustSeptemberOctoberNovemberDecember

1947—JanuaryFebruaryMarchAprilMay . - .June ._-July . . .AugustSeptemberOctoberNovember

109125162199239235203170186

172178180182183182189189190187185184176182186190192

109126168212258252214177193

177184186188191190196197198194191191183188. 192197198

109139201279360353274192219

202208212214214211221222225222218219207210218223225

109115142158176171166165172

157164165168173174176176175172170168163169172175177

106117125129132140137134149

146144146145136137146146148143152148140150153154156

i Average of 11 months.


TABLE XVI.—Physical production index, 1935-39, 7946, and 1947

Industry

Total production.. .

Agriculture3 -Minerals *Manufacturing 6 ._Construction 6

Transportation7 .Electric and gas utilities 8

Weight i

100.0

20.64.9

50.87.6

12.93.2

Indexes, 1935-39=100

1935-39average

100

88

88

88

1946average

165

133134177123200192

1947average 2

176

129149194132208217

Percentagechange, from1946 to 1947

+7

- 3+11+10+7+4

+13

1 Computed from the Department of Commerce data of national income. The weight factors are per-centages of the national income for each industry to the total for the 6 industries. The weight for con-struction has been adjusted to include force account and other construction done outside of the contractconstruction industry, the weights for other industry groups to exclude such construction.

2 Preliminary estimates based on incomplete data.3 Department of Agriculture index of farm output, which measures the physical volume of farm produc-

tion for human use.* Federal Reserve index of mineral production.• Federal Reserve index of manufacturing production.6 Department of Commerce value of new construction activity deflated by their index of construction

costs and converted into relatives with 1935-39 as 100.7 Department of Commerce index of transportation. The figure for 1947 is estimated by the Board of

Governors of the Federal Reserve System on the basis of transportation data.8 The index of electric and gas utilities is based on the following series: electric power generated for public

use as reported by the Federal Power Commission, and gas produced for public use as reported by theAmerican Gas Association. The two series are converted into relatives with the average for the period1935-39 as 100. The relative series are combined into an index of public utility production with electricpower given a weight of 73 and gas 27, the respective percentages of the revenues by each of the utilities tothe total revenues produced by both in the base year 1935-39.

122


TABLE XVII.—New construction activity, 1929-47

[Millions of dollars]

S"ear or quarter

1929 _ . - .1930 . - -19311932 . . .1933 _1934193519361937193819391940194119421943194419451946

First quarter3

Second quarter 3__Third qua r t e r 3 . . .Fourth quarter 3 _

1947:First quarter3

Second quarter 3_.Third quarter 3..__Fourth quarter3 4.

Totalnewcon-

struc-tion 1

9,9138,0595,9803,2602,2232,7563,1104,7145,3085,0186,0626,807

10,30813,3537,7344,0734,6099,8901,5242,3003,1042,962

12,8782,4602,9013,6823,835

Private construction

Totalpri-vate

7,5225,3063,4161,4821,0051,2211,6482,4863,2742,9413,6194,1995,2382,9081,6691,7462,5617,7391,2571,8622,3762,2449,8781,9482,1952,7752,960

Resi-den-tial

build-ing

(non-farm)

2,7971,4461,228

462278361665

1,1311,3721,5112,1142,3552,7651,315

650535684

3,183432722

1,0271,0024,939

8691,0351,3801,655

Non-resi-den-tial

build-ing 2

2,8222,0991,104

499404455472712

1,088764785

1,0281,486

635232350

1,0143,350

632843953922

3,181782739800860

Pub-lic

util-ityandfarm

1,9031,7611,084

521323405511643814666720816987958787861863

1,206193297396320

1,758297421595445

Public construction

Totalpub-lic

2,3912,7532,5641,7781,2181,5351,4622,2282,0342,0772,4432,6085,070

10,4456,0652,3272,0482,151

267438728718

3,000512706907875

By funds

Fed-eral

237338451510540698822

1,2551,143

9761,2511,4063,8459,5315,6051,9121,5581,067

140199344384

1,156236270346304

Stateandlocal

2,1542,4152,1131,268

678837640973891

1,1011,1921,2021,225

914460415490

1,084127239384334

1,844276436561671

By types

Mili-taryandfed-

erallyfi-

nancedindus-trial

19294034385839333974

148549

2,9008,4534,2181,3441,160

27267617074

22547546658

High-ways

1,2481,4811,323

91667582162287685083783587585067545036034270660

149265232

1,214119287414394

Otherpub-lic

1,1241,2431,201

828505656801

1,3191,1451,1661,4601,1841,3201,3171,397

623546

1,173140228393412

1,561346365427423

1 Excludes construction expenditures for crude petroleum and natural gas drilling, and, therefore doesnot agree with the new construction expenditures in the gross national product.2 Excludes farm and public utility.3 Not adjusted for seasonal variation.

* Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because ofrounding.Source: Departments of Commerce and Labor.

770958°—18 9 123


TABLE XVIII.—Gross national product, department store sales, and residential construction,1920-47

[1920-39=100]

Year

19201921192219231924192519261927192819291930193119321933

Gross na-tional

product i

1078892

105104112118117119124108917067

Depart-ment store

sales2

999294

105105110113114115117108977573

Residen-tial con-

struction i

7775

12216218519919818517212666552114

Year

1934 _19351936193719381939...19401941194219431944194519461947 3

Gross na-tional

product l

778698

108101108120149190230251254243276

Depart-ment store

sales»

8388

10010799

106114133149168186207264280

Residen-tial con-

struction *

183355687198

11514486663737

162229

1 Converted from the reported dollar figures to an index.2 Converted from the reported base, 1935-39=100.3 Estimates based on incomplete data.

Sources: Department of Commerce (gross national product, 1929-47, residential construction), NationalHousing and Home Finance Agency (gross national product, 1920-28), and Board of Governors of the Fed-eral Reserve System (department store sales).

TABLE XIX.—Business expenditures JOT new plant and equipment, 1939—48l


Year or quarter Total i Manufac-turing

1,9302,5803,4002,7602,2502,3903,2105,9107,210

Mining

380560680410360500440560670

Transportation

Railroad

280440560540460580550570980

Other

280390340260190280320660810

Electricand gasutilities

Commer-cial and

miscellane-ous*

1939..1940..1941..1942..1943-1944..1945..1946-1947 3.

1947—First quarterSecond quarterThird quarterFourth quarter3

1948—F irst quarter 3

5,2006,4908,1906,1104,5305,2106,630

12,04015,680

480550710680540490630

1,0401,820

1,8501,9802,4901,470

730970

1,4803,3004,190

Annual rates, not adjusted for seasonal

12,64015,76016,56017, 76016,400

5,8007,4007,4808,1607,240

600640720760680

640880920

1,4801,440

720920800800760

1,3201,8002,0002,2001,960

3,6004,1204,6404,4004,320

I Excludes agriculture.' Includes trade, service, finance, and communication.» Estimates for fourth quarter of 1947 and first quarter of 1948 based on anticipated capital expenditures

of business.NOTE.— These figures do not agree with the totals included in the gross national product estimates of the

Department of Commerce, principally because the latter cover agricultural investment and also certainequipment and construction outlays charged to current expense. Figures for 1939-44 are Federal ReserveBoard estimates based on Securities and Exchange Commission and other data. Detail will not necessarilyadd to totals because figures are rounded to the nearest 10 million.

Sources: Securities and Exchange Commission and Department of Commerce (except as noted).

124


TABLE XX.—Business inventories and sales, 1939-4?

Year or month

1939 average...1940 average. _.1941 average...1946 average. _.1947 average6..

1946—JanuaryFebruaryMarchAprilMayJuneJuly.AugustSeptember...OctoberNovember. __December

1947—JanuaryFebruaryMarchAprilMay __..JuneJulyAugustSeptember—.OctoberNovember <L.

Manufacturing i

Millions of dol-lars

Inven-tories 3

9,94111,17113,37917,81722,424

16,36916,59016,82916,83716,93417,17518,01018,46618,88619,53319,89620,25920, 80521,17621, 61222,05822,42422,61822, 77822, 93623,12023, 43523, 700

Sales *

4,7415,4827,783

10,47213,953

8,9138,1639,5079,956

10,0589,702

11,15710, 73812,24012,42612, 84913,22612, 94013, 93713,90613, 68813,60213,11513,65114,62815, 98514,800

Ratioof in-ven-

tories

2.102.041.721.701.61

1.842.031.771.691.681.771.811.661.761,601.601.581.571.641.551.591.641.661.741.681.581.471.60

Wholesale3


Inven-tories 3

3,4973,6984,2734,8336,780

4,2944,2094,3044,3904,4644,5784,6854,8905,1315,3435,7135,9946,2486,4446,6116,7786,737

6,726

6,9976,9437,349

Sales *

4,5805,1466,977

10,95512,935

9,6449,8689,6919,592

10,08710,37010,99811,17411,40212, 39913,06913,16012, 71313, 01312,63512, 22712,63912, 54112, 40312, 57113,33113, 73114,479

Ratioof in-ven-tories

to sales

0.76.72.61.44.52

.45

.43

.44

.46

.44

.44

.43

.44

.45

.43

.44

.46

.49

.50

.52

.55

.53

.55

.54

.55

.52

.51

.51

Retail«


Inven-tories 3

5,2845,4846,0407,512

6,4466,5226,729

7,0437,4267,7938,2168,7168,9319,1419,3379,5829,7159,7039,5029,4409,5749,838

10,05210,266

(7)

Sales *

3,5043,8664,6248,056

7,4257,6537,6487,7307,8067,8268,0478,4498,3708,3848,6228,7188,653

8,8248,9578,9749,0038,9378,8459,336

Ratioof in-ven-tories

to sales

1.511.421.31.93

.85

.84

.85

.87

.88

.90

.92

.92

.981.041.041.051.081.081.101.081.061.051.071.111.081.090)

1 Not adjusted for seasonal variation.2 Adjusted for seasonal variation,s Book value, end of month.«Total for month.' Average of 11 months.8 Preliminary.7 Not available.

NOTE .—Detail will not necessarily add to totals because of rounding. The inventory figures in this tabledo not agree with the estimates of "change in business inventories" included in the gross national productestimates of the Department of Commerce. This table covers only manufacturing and trade rather thanall business, and shows inventories in terms of current book value without adjustment for revaluation.

Source: Department of Commerce (Office of Business Economics).

125


TABLE XXI.—Sales, stocks, and outstanding orders at 296 department stores, 1939-47

Year or month

Millions of dollars

(total formonth)

Stocks(end ofmonth)

Outstand-ing orders

(end ofmonth)

Ratio ofstocks to

sales

2.692.602.693.352.492.352.212.252.65

2.192.231.942.022.222.313.022.672.682.592.271.483.003.352.612.642.432.532.902.902.412.492.26

Ratio oforders to

sales

0)0.791.241.472.602.472.852.851.76

4.014.103.232.853.073.464.403.353.112.481.711.062.422.411.461.211.041.552.352.281.941.811.45

Ratio oforders to

stocks

1939 average1940 average1941 average.1942 average1943 average1944 average1945 average.1946 average1947 average2.

1946—JanuaryFebruary. _.MarchAprilMayJuneJ u l y . . .AugustSeptember..OctoberNovember-.December. _

1947—JanuaryFebruary. _.MarchAprilMayJuneJulyAugustSeptember..OctoberNovember 3.

128136156179204227255318313

224239301319304303244303309341404526256250332321336304252273340367417

344353419599508534564714828

491533583644674700738

882919776769838865849818769730793819912943

108194263530560728907551

979971910934

1,0481,0741,014961846691557619603485387351470593622659663605

C1)0.31.46.44

1.041.051.291.27.67

1.831.841.671.411.391.501.461.251.16.96.75.72.80.72.56.46.43.61.81.78.80.73.64

1 Not available.2 Average of 11 months.a Preliminary estimate based on incomplete data.

NOTE.—These figures represent retail sales, stocks, and outstanding orders as reported by a sample of 296of the larger department stores located in various cities throughout the country and are not estimates oftotal sales, stocks, and outstanding orders for all department stores in the United States.

Detail will not necessarily add to totals because of rounding.


126


TABLE XXII.—Profits before and after taxes, all private corporations, 1929-47


Year or quarterCorporate

profitsbefore

Corporatetax lia-bility i

Corporate profits after taxes

Total Dividendpayments

Undis-tributedprofits

1929..1933..1937..1939..1940-.1941..1942..1943_.1944..1945..1946_.1947 3



9.8.2

6.26.59.3

17.221.124.523.820.221.128.0

1.4.5

1.51.52.97.8

11.714.213.911.38.6

11.1

8.4- . 44.75.06.49.49.4

10.4

12.516.9

5.82.14.73.84.04.54.34.54.74.85.66.6

2.6-2.4

1.22.44.95.15.95.24.26.9

10.3


15.219.422.927.129.027.427.428.2

6.18.09.3

11.011.610.810.811.4

9.111.513.516.117.416.616.616.8

5.15.45.65.96.26.36.57.2

4.06.17.9

10.211.210.310.19.6

* Federal and state corporate income and excess profits taxes.2 Minus 8 million dollars.s Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce (except estimate for fourth quarter of 1947).

TABLE XXIII.—Profits after taxes,1 629 large private industrial corporations, 7939-47


Year or quarter

Number of companies

19391940194119421943194419451946


1947—First quarterSecond quarterThird quarter

otal

En

629

1,4651,8182,1631,7691,8001,8961,9252,545

323604698853870870860

on a

nd

ste

el

47

146278325226204194188283

226796971269998

.1

'A69

115158193159165174163171

-19493261698377

utom

obil

es

15

242274209201222243130

-34

4210294105102

the

r tr

an

s-p

orta

tio

neq

uip

men

t

o

68

102173227182180190169127

-5513844505651

on

ferr

ou

sm

etal

s an

dpr

oduc

ts

77

119133153138128115108136

20264150474646

ther

du

rabl

ego

ods

o

75

708811390838888165

12374157505758

ood,

be

ver-

ages

, an

d t

o-

bacc

o

49

151148159151162175199356

657493124986469

il pr

oduc

ing

and

refi

ning

o

45

98112174152186220223281

5662778590111122

nd

us

tr

ia

lch

emic

als

t—i

30

186194207164170187187273

63666777898778

ther

no

nd

ur-

able

s

O

80

134160187136149147154302

62717791969293

isce

llan

eou

sse

rvic

es

74

122132152161171184203321

82809366637167

i Federal and State income and excess-profits taxes.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Board of Governors of the Federal Reserve System.

127


TABLE XXIV.—Relation of profits before and after taxes to investment and to sales, privatemanufacturing corporations, by industry, 1947

Industry

Firstquarter

Katio of profits (annual rate) tostockholders' equity

Before Federaltaxes

Secondquarter

After Federaltaxes

Firstquarter

Secondquarter

Profits in cents per dollar of sales

Before Federaltaxes

Firstquarter;

Secondquarter

After Federal

Firstquarter

Secondquarter

All private manufacturing cor-porations _

Food —Tobacco manufactures.._Textile mill productsApparel and finished textilesLumber and wood productsFurniture and fixtures.Paper and allied productsPrinting and publishing (except

newspapers)Chemicals and allied productsProducts of petroleum and coalRubber productsLeather and leather productsStone, clay, and glass productsPrimary nonferrous metal industries -Primary iron and steel industriesFabricated metal productsMachinery (except electrical and

transportation)Electrical machineryTransportation equipment (except

motor vehicles)Motor vehicles and partsInstruments; photographic and opti-

cal goods; watches and clocksMiscellaneous manufacturing (in-

cluding ordnance)

28.032.414.840.036.036.432.841.6

35.231.616.828.434.424.424.423.632.0

27.632.4

7.229.2

24.0

26.8

25.228.015.231.228.435.632.838.4

30.824.819.224.421.625.221.618.428.4

29.232.0

5.628.4

23.2

24.4

16.818.88.8

24.021.222.420.025.6

21.619.212.416.420.414.414.814.419.6

16.420.0

3.216.8

14.8

15.2

15.616.49.2

18.816.022.420.023.6

18.815.214.48.4

12.815.613.211.217.2

17.619.2

1.216.8

14.4

14.8

12.38.16.8

15.88.8

19.511.219.6

12.616.913.810.810.113.915.413.614.1

13.211.0

4.811.2

13.5

12.2

11.07.06.1

13.77.6

18.311.118.1

11.314.214.48.77.2

13.914.110.112.1

12.810.3

3.210.4

12.0

10.8

7.54.74.19.55.2

12.16.8

12.0

7.810.410.16.25.98.29.28.28.6

7.9

2.06.4

8.3

7.0

6.74.13.78.24.3

11.46.8

11.2

6.98.7

10.83.04.28.58.56.27.4

7.86.1

6.1

7.5

6.5

Sources: Federal Trade Commission and Securities and Exchange Commission.

T A B L E XXV.—Rela t ion of profits before and after taxes to investment and sales, private manu-facturing corporations, by size classes, 1947

Assets class

All private manufac-turing corporations.

$1,000 to $249,000$250,000 to $999,000...$1,000,000 to $4,999,000$5,000,000 to $99,999,000$100,000,000 and over

Ratio of profits (annual rate) tostockholders' equity

Before Federaltaxes

Firstquarter

28.026.835.238.831.220.8

Secondquarter

25.228.430.832.428.419.6

After Federaltaxes

Firstquarter

16.816.420.423.218.813.2

Secondquarter

15.618.018.019.617.212.4

Profits in cents per dollar of sales

Before Federaltaxes

Firstquarter

12.37.6

10.513.013.312.1

Secondquarter

11.08.09.3

11.211.910.9

After Federal taxes

Firstquarter

7.54.76.17.98.07.6

Secondquarter

6.85.15.46.77.26.9

Thirdquarter

6.55.15.66.46.96.7

Sources: Federal Trade Commission and Securities and Exchange Commission.

128


TABLE XXVI.—Relation of profits before and after taxes to sales, private corporations excludingfinance, insurance, and real estate, 1946-47

Industry

All private corporations, ex-cluding finance, insurance,and real estate _ . --

Mining _ _Manufacturing

Metal industriesOther manufacturing __

Wholesale and retail tradeTransportation.. ___Communication and public utilities-All other industries _ ._

Profits before taxes as percent ofsales

1946

7.912.58.66.09.85.75.7

17.610.4

1947

Firstquar-

ter

9.312.510.810.810.85.77.4

18.39.6

Secondquar-

ter

8.712.810.19.6

10.45.27.9

15.09.5

Thirdquar-

ter

8.512.010.19.9

10.25.07.6

12.59.5

Profits after taxes as percent ofsales

1946

4.79.05.03.05.93.32.9

10.76.5

1947

Firstquar-

ter

5.69.16.46.36.53.44.0

11.16.1

Secondquar-

ter

5.39.26.15.66.33.14.89.16.0

Thirdquar-

ter

5.18.76.15.86.32.94.57.65.9


TABLE XXVII.—Loans and investments of all commercial banks, 7929-47


End of month

1929: June* . . . . _1933: June 1 _1937: December1939: December1941: December1944: December _1945: December1946: June

1947: June _

Total loansand invest-

ments

49,42430,35738,33340,6b850,746

105,530124,019119,448113,993112,756116,740

Loans

35,73816,34917,10017,23821,71421,64426,08327,13031,12233,67937,700

Investments

Total

13,68614,00821,23323,43029,03283,88697,93692,31882,87179,07779,040

U . S .Govern-

ment

4,9417,476

14,15616,31621,80877,55790,60684,47374,78070,53970,120

Othersecurities

8,7456,5327,0777,1147,2256,3297,3317,8458,0918,5388,920

1 Complete end of year figures not available for years prior to 1936.2 Estimates based on incomplete data.Source: Board of Governors of the Federal Reserve System.

129


TABLE XXVIII.—Adjusted deposits of all banks and currrency outside banks, 7929-47


End of calendar year ormonth

Totaldepositsadjusted

andcurrency out-

side banks

U. S.Government

deposits

Other deposits and currency outside banks

TotalDemanddeposits

adjusted2Time Currency

outsidebanks

1929.1933193419371939.19441945

1946: JuneDecember..

1947: JuneNovember4.

54,71342, 54847, 98556, 63964,099150,988175,401

171,237167,107

165,455170,400

1581,0161,715824846

20, 76324,608

13,4163,103

1,3671,900

54, 55541, 53246, 27055,81563,253130, 225150,793

157,821164,004

164,088168, 500

22,80915,03518,45923,95929, 79366,93075,851

79,47683, 314

82, 27685,900

28,18921,71523,15626, 21827,05939, 79048,452

51,82953, 960

55, 51356,000

3,5574,7824,6555,6386,40123, 50526,490

26,51626, 730

26, 29926,600

1 Beginning with December 1938, includes U. S. Treasurer's time deposits, open account.2 Includes demand deposits, other than interbank and U. S. Government, less cash items in process of

collection.2 Includes deposits in commercial banks, mutual savings banks, and Postal Savings System.4 Preliminary.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Board of Governors of the Federal Reserve System.

TABLE XXIX.—Bond and common stock yields and commercial loan rates, 7929-47

[Percent per annum]

Year or quarter

U. S. Government security yields

9 to 12monthscertifi-cates of

indebted-Long-term

partiallytax-exempt2

Bonds

15 years andover,

taxable

High grarate bo

de corpo-ad yields

(Moody's)

Aaabonds

30 issues

4.734.494.003.263.012.722.622.532.61

2.562.542.572.77

Baabonds

30 issues

5.907.766.325.034.963.613.293.053.24

3.133.183.193.44

Dividendyields oncommon

stock(Moody's)

Commer-cial loan

rates

Number. 1-5 issues 1-9 issues

1929 average1933 average1934 average1937 average1939 average1944 average1945 average1946 average1947 average


0.75.79.81.82

.84

.84

1.00

2.482.372.192.24

2.202.202.242.33

200 stocks

3.54.44.14.84.24.74.13.9

4.75.25.1

19 cities

5.834.273.452.592.782.592.392.342.28

2.312.382.212.22

1 Tax-exempt prior to Mar. 1,1941; taxable thereafter.2 Average of yields on all outstanding partially tax-exempt Government bonds due or callable after 8

years, from 1919 to 1925; after 12 years, from 1926 to 1934; and after 15 years, from 1935.3 No partially t ax-exempt bonds due or callable in 15 years.* Not available.

Sources: Treasury Department, Moody's Investors Service, and Board of Governors of the Federal Re-serve System.

I3O


TABLE XXX.—Public debt and guaranteed obligations of the U. S. Government outstanding*1939-47

[Billions of Dollars]

End of calendar year

Public debt andguaranteed obli-gations

Ownership of public debt and guaranteed obligations

Interest-bearing public debt and guaranteedobligations (par values;*

IIHeld by public

Ill111

1939.1940.1941.1942.1943.1944.1945.1946.1947

47.650.964.3112.5170.1232.1278.7259.5257.0

41.945.057.9108.2165.9230.6278.1259.1256.9

5.75.96.34.34.21.5.6.4.1

47.650.964.3

112.5170.1232.1278.7259.5257.0

47.150.463.8

111. 6168.7230.4276.2258.0254.3

6.57.69.5

12.216.921.727.030.9

634.4

40.642.854.399.4

151.8208. 5249. 2227.1

6 219.9

0.4.5.7

1.02.14.36.56.2

67.0

18.419.523.747.371.596.5

115.097.9

691.5

12.012.516.327.441.255.564.259.5

6 55.9

10.313.623.737.152.263.563.5

665.5

0.6.6.5.9

1.41.82.41.52.7

1 United States savings bonds, series A-D, E, and F are included at current redemption values.2 Includes interest-bearing debt and debt bearing no interest.3 Excludes guaranteed securities held by the Treasury and securities guaranteed as to interest only.* Includes insurance companies, mutual savings banks, savings and loan associations, dealers and brokers,

and investments of foreign balances and international accounts in this country.»Includes matured public debt, International Bank, Monetary Fund, United States savings stamps,

excess-profits-tax refund bonds, and currency items.6 Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: Treasury Department.


TABLE XXXI.—United States Government aid to foreign countries, 7946-47


Type of aid

A. Unilateral payments:Straight lend-leaseXJNRRA.Post-UNRRA -_.Civilian supplies for occupied

territoriesGreek-Turkish aidInterim aid. _Transfer to PhilippinesOther Government transfers...

Total unilateral payments. __Less: Unilateral receipts

Net unilateralpayments

B . Long-term loans and invest-ments:

Lend-lease creditsSurplus property, including

ship salesExport-Import BankUnited TTingrinTn loanInvestment in International

Bank.Investment in International

Monetary Fund _Other

Total, long-term loans andinvestments

Less: Repayments. >

Net long-term loans and in-vestments, including Bankand Fund

Less: Investments in Inter-national Bank and Fund

Net long-term loans andinvestments, excludingBank and Fund

Net unilateral payments andloans and investments,excluding Bank andFund

1946

Firstquarter

109532

107

20

76852

716

271

135137

54322

521

521

1,237

Secondquarter

46414

207

69

73624

712

173

414333

159

1,07919

1,060

159

901

1,613

Thirdquarter

6382

115

15533

6368

628

78

110231400

17

83618

818

818

1,446

Fourthquarter

194

125

72

39110

381

24

201270200

159

52

86120

841

164

677

1,058

1947

Firstquarter

264

225

3170

590140

450

14

113280500

159

2,74527

3,83850

3,788

2,904

884

1,334

Secondquarter

1881

262

2591

567120

447

6

89249950

159

48

1,50134

1,467

159

1,308

1,755

Thirdquarter

5085

31148

3440

56849

519

2

5661

1,300

4

1,42339

1,384

1,384

1,903

Fourthquarter l

1162

25076502624

58930

559

58205100

36334

329

329

888

I Estimates based on incomplete data.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce,

132


T A B L E XXXII.—United States exports, including reexports, by continents, 7936-38 average and1946-47 by quarters

PeriodTotal North

AmericaSouth

America Europe Asia Oceania Africa

Millions of dollars

1936-38 quarterly average.1946—First quarter

Second quarterThird quarterFourth quarter

1947—First quarter. _Second quarterThird quarterFourth quarter1...

1936-38 quarterly average1946—First quarter

Second quarterThird quarter. _Fourth quarter

1947—First quarter.Second quarterThird quarter

7422,2832,4852,3512,6203,5913,9613,3993,600

183500585649809912

1,018905

0)

69236275263379571648561

(2)

3111,1171,093969919

1,3741,4441,210(2)

125268365342367487547424

(2)

2333282630647497

00

32129140103116183230202

Percentage of total

100.0100.0100.0100.0100.0100.0100.0100.0

24.721.923.527.630.925.425.726.6

9.310.311.111.214.515.916.416.5

41.948.944.041.235.138.336.435.6

16.811.714.714.514.013.613.812.5

3.11.41.11.11.11.81.92.9

4.35.75.64.44.45.15.86.9

1 Estimate based on incomplete data.2 Not available.NOTE.—Exports in this table include merchandise shipped from the United States custom area with the

exception of goods destined to United States armed forces abroad, either for their own use or for distributionto civilians in occupied areas. Detail will not necessarily add to totals because of rounding.


TABLE XXXIII.—United States general imports, by continents, 1936-38 average and 1946-47,by quarters

Period Total NorthAmerica

SouthAmerica Europe Asia Oceania Africa

Millions of dollars

1936-38 quarterly average.1946—First quarter.

Second quarterThird quarter.Fourth quarter

1947—First quarterSecond quarterThird quarterFourth quarter1...

1936-38 quarterly average.1946—First quarter..

Second quarterThird quarterFourth quarter

1947—First quarterSecond quarterThird quarter.

6221,0961,1811,2311,4011,4121,4491,3311,450

150364398424462496569528(2)

81254275263303309291277(2)

177165210192229186193213(2)

187193192210286303269205(2)

1041356245475325

(2)

1778728176697483

Percentage of total

100.0100.0100.0100.0100.0100.0100.0100.0

24.133.233.734.433.035.139.339.7

13.023.223.321.421.621.920.120.8

28.515.117.815.616.313.213.316.0

30.117.616.317.120.421.518.615.4

1.63.73.05.03.23.33.71.9

2.77.16.16.65.44.95.16.2

i Estimate based on incomplete data.* Not available.NOTE.—Imports in this table include merchandise entered immediately upon arrival into merchandising

or consumption channels, plus commodities entered into bonded customs warehouse for storage.Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.

133


TABLE XXXIV.—Production and exports of selected nonagricultural commodities, 7939, 7946,and 7947

Commodity and period Unit

Production

TotalFor do-

mestic useFor ex-

port

Exportsas

percentof totalproduc-

tion

Agricultural machinery and implements:193919461947—January-June (annual rate) _ _ _

July-September (annual rate)Chemicals and related products:

193919461947—January-June (annual rate)

July-September (annual rate) _. _Coal, bituminous:


July-September (annual rate) _..Electrical machinery and apparatus:


July-September (annual ra te) . . .Freight cars: 3


July-September (annual rate)Lumber, sawmill products:


July-September (annual rate) - . _Motor trucks:8


July-September (annual ra te) . . .Passenger cars:5

1939.. ___19461947—January-June (annual rate)

July-September (annual rate) _ _ _Petroleum, crude:


July-September (annual rate)__.Rolled steel products:7


July-September (annual rate) _ _ _Wearing apparel:

1939 ._19461947—January-June (annual rate)

July-September (annual ra te) . . .

Million dollars...do

. . . . -dodo

._—do_-do

. . . . . do-do

Million short tons.. . . . .do. .—do. .—do.—

Million dollars..—do.....do.....do

1,000 dollarsdo

....dodo

Million board feet-.....do.—do

do

Thousand— d o

do.—do

Thousand.......do

dodo

Million barrels«_.do

.....do

.....do

1,000 short tons

dodo

Million dollars..— d o....-do— .._

do.

416

3,2988,600(2)

395532624568

1,7884,5006,7586,856

63, 249208, 216331, 792360,816

24,97530,30031,37234,284

710951

1,2361,180

2,8672,1493,4423,396

1,2651,7331,7801,908

34,95548, 77662,34461, 792

3,3517,0317,022(2)

347834

(2)003,1238,077(2)(2)

383491564484

1,6834,1966,2006,312

62,830167, 665195, 634349, 900

23, 87129, 65130, 06432,640

558764970940

2,7022,0053,1783,136

1,1931,6901,7381,856

32,42743,97655, 78655,536

3,329

158302320

175523820844

12416084

105304558544

41940, 551

* 136,15810, 916

1,104649

1,3081,644

152187266240

165144264

72434252

2,5284,8006,5586,256

22151186

(2)

16.616.0

5.36.16.

83 07.79.6

14.8

5.96.88.37.9

.719.5

4 41.03.0

4.42.14.24.8

21.419.721.520.3

5.86.77.77.7

5.72.52.42.7

7.29.8

10.510.1

0.72.12.6

1 Sales; production data not available.8 Not available.3 Estimated value of shipments to United States railroads and to foreign markets.* Eighty-nine percent of the cars exported during this period went to France as a result of an accumulation

of deliveries against orders previously placed.6 Factory sales are used to represent production. Exports are as reported by the Automotive Manufac-

tures' Association and include exports shipped as completed cars and parts for assembly aboard.6 Barrels of 42 gallons each.7 Net shipments for sale; production data not available.

NOTE.—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.

134


TABLE XXXV.—Distribution of selected food supplies moving into consumption channels, 1939,7946, and 1947

Commodity and year

Meat (carcass equivalent):1939. _ _19461947 2

Dairy products (milk equivalent):19391946 _ ___1947 2

Food fats and oils (excluding butter): 319391946 __1947 2

Canned fruit (processed weight):1938-39 pack year19461947 2 _ _ _

Fresh fruits (farm weight):19391946 _. ._1947 2

Canned vegetables (processed weight):1938-39 pack year19461947

Fresh vegetables (farm weight):19391946 . __ _1947 2

Wheat (grain equivalent): *19391946 .19472

Eggs (fresh egg equivalent):1939194619472

Distribution of food supplies *

Total i

Millionpounds

17,73923, 36223,189

108, 985121,480120, 798

4,6125,0675,236

2,3613,2393,263

21,35921, 20622,604

4,1636,9767,117

32,15338, 85537,162

Millionbushels

571844

1,005Milliondozen3,4184,8624,781

Exportsand

ship-ments i

Millionpounds

2461,187

300

4296,3393,540

365669792

359202215

1,2771,1671,483

57361125

134494444

Millionbushels

93340494

Milliondozen

3430156

Militarydistri-bution

Millionpounds

941600

2,6441,734

4174

94110

484243

153313

470230

Millionbushels

155

Milliondozen

9490

Civiliandistri-bution

Millionpounds

17, 49321,23422, 289

108, 556112,497115, 524

4,2474,3574,370

2,0022,9432,938

20,08219, 55520,878

4,1066,4626,679

32,01937, 89136, 488

Millionbushels

478489506

Milliondozen3,4154,3384,535

Percapita

civiliandistri-bution

Pounds132.8152.8156

824809811

32.231.330.5

15.321.220.5

152.5140.7145.7

31.346.546.6

243273255

217.8207.2211.0

Numberof eggs

311374380

Exportsand ship-ments aspercent oftotal dis-tribution

1.46.11.3

.45.22.9

7.913.215.1

15.26.26.6

6.05.56.6

1.45.21.8

.41.31.2

16.340.349.2

.18.83.4

1 Includes military civilian feeding programs in liberated and occupied areas, both from current pro-curement and from surplus stock.

2 Preliminary estimates based on reports for the first 9 months and forecasts for the balance of the year.3 Actual weight except for margarine which is on a "fat content" basis.* Excludes amounts used for animal feed, industrial raw materials, and seed. If these amounts were

included, percentages in last column would be 1939,11.9; 1946, 28.9; 1947, 38.8.Source: Department of Agriculture.

TABLE XXXVI.—Population by age groups, selected years, 1900-1975

[Thousands of persons]

Age

All agesUnder 20 years20 to 64 years______65 years and over_ _ _Age unknown. _

1900

75,99533, 68139,0323,080

201

1920

105, 71143,04357, 5864,933

149

1930

122, 77547, 60968, 4386,634

94

1940

131, 66945, 30677,3449,019

1947esti-

mate 1 2

143, 98048, 63184, 66910, 650

1960 forecast 2

Me-dium

153, 37549, 07590, 32113, 978

High

162,01154, 06293, 27414, 674

1975 forecast 2

Me-dium

162, 33745, 84398, 84917, 646

High

185,07156, 858

108, 27919,935

1 The total differs slightly from the independent estimate of 144,002,000 published in "Current PopulationReports, Series P-25, No. 3."

2 Estimate for 1947 and high forecasts for 1960 and 1975 assume high fertility, low mortality and 1million net immigration in each 5-year period after July 1, 1945. Medium forecasts assume mediumfertility and mortality and no net immigration after July 1, 1945.

NOTE .—Detail will not necessarily add to totals because of rounding.Source: Department of Commerce.


TABLE XXXVII.—Changes in selected economic series since 1939

[1939=100]

Source,appendix B,

tablenumber

I I -

IV.

VI.

VII..VIII.

IX .

X

XII ._.

XIII

XIV.

X V . .

XVII .

X I X . .X X I I .

Economic series

Gross national product _Personal consumption expendituresGross private domestic investment..Net foreign investmentGovernment purchases of goods and services.

National incomeCompensation of employees

Personal income..Disposable personal incomePersonal saving

Per capita disposable income:Current dollars . . -First half of 1947 dollars

Civilian food consumption (per capita)Net income from farm marketings to persons on farms (per

capita).Consumer credit outstanding, end of year _Labor force, including armed forces...

Civilian labor forceEmployment

Nonagricultural--Agricultural

UnemploymentWage and salary workers in nonagricultural establishments.

Manufacturing...Mining _Construction _ _ _.Transportation and public utilities.. _TradeFinance and serviceFederal, State- and local government

Average gross weekly earnings:ManufacturingBituminous coal miningPrivate building construction ._.Wholesale tradeRetail trade

Consumers' price index: all itemsFoodsApparel ._._Rent

Wholesale price index: All commodities. _Farm products.Foods _Other than farm products and foods

Prices paid by farmers (including interest and taxes)Prices received by farmersParity rat io . . _ _Industrial production index: total—_

Durable manufacturesNondurable manufacturesMinerals

New constructionPrivate

Residential.—Nonresidential -Public utility and farm _

Public -Business expenditures for new plant and equipmentCorporate profits before taxes

Corporate tax liabilityCorporate profits after taxes

Dividend paymentsUndistributed profits

1939

100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0

100.0100.0100.0100.0

100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0

100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0

1946

225.3212.9273.3533.3233.6245.8244.4244.1225.6548.1

209.3149.3113.5203.9

127.1109.4104.1120.3129.286.624.4

134.4142.598.9

129.8138.2126.0129.1140.3

183.3243.0185.1161.0153.8140.1167.6159.4104.1157.1228.0185.7134.7155.6245.3155.8156.0176.1151.4126.4163.1213.8150.6426.8167.588.0

231.5324.6573.3250.0147.4575.0

1947

256.4243.7338.9977.8213.7280.0268.8271.6250.1411.1

227.4142.0112.5195.1

166.4110.8108.9126.3137.086.023.0

140.0153.9104.6150.4139.0128.9134.2135.2

204.9

159.5202.3184.4106.2196.8277.2239.5165.7187.1292.6155.8170.6200.9157.8140.6212.4272.9233.6405.2244.2122.8301.5430.8740.0338.0173.7858.3

NOTE.—For some series, 1947 data are based on 11-month averages.

Sources: Data in indicated appendix B tables have been converted to the base, 1939=100.

For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C«Price 35 cents

OI36


ERP 1948 January

Documents

Transcript of ERP 1948 January