ERP January 1950

he Economic Reportof the President

TRANSMITTED TO THE CONGRESS

1 9 5 D

Together With a Report to the President

THE ANNUAL ECONOMIC REVIEW

By the

COUNCIL OF ECONOMIC ADVISERS

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

The Economic Reportof the President

TRANSMITTED TO THE CONGRESS

January 6, 1950

Together With a Report to the President

THE ANNUAL ECONOMIC REVIEW

By the


UNITED STATES GOVERNMENT PRINTING OFFICE

WASHINGTON: 1950


Additional copies of this report are for sale by the Superintendent of Documents,U. S. Government Printing Office, Washington 25, D. G.

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II


LETTER OF TRANSMITTAL

THE WHITE HOUSE,

Washington, D. C, January 6,1950.

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 of in-dependent agencies.

Together with this report, I am transmitting a report, the Annual Eco-nomic Review: January 1950, prepared for me by the Council of EconomicAdvisers in accordance with section 4 (c) (2) of the Employment Actof 1946.

Respectfully,


ContentsPage

T H E E C O N O M I C R E P O R T O F T H E P R E S I D E N T . . . . 1SUMMARY OF ECONOMIC SITUATION 3

UNIFYING PRINCIPLES FOR ACTION 6

ECONOMIC POLICIES 8

Price and wage policies 8Business investment 9Private housing investment 10Rent control 11Fiscal policy 11Credit policies 11Farm policy 12Developmental programs and community services . . . . 12Social security 13International economic programs 14

SUMMARY OF LEGISLATIVE RECOMMENDATIONS 16

ANNUAL ECONOMIC REVIEW, JANUARY 1950:A Report to the President by the Council of Economic

Advisers 19


To the Congress of the United States:

As 1950 opens, renewed confidence prevails in the American economy.This confidence is in itself an element of strength; and it is justified by thefacts.

Late in 1948 we stood at the peak of the inflationary boom. It wasclear that an eventual adjustment was inevitable before we would havea firm basis for stability and steady economic growth. During 1949 wemet the test of that adjustment. Despite rough going for a few months,we made necessary changes with much less distress and difficulty thanever before. Today we are on firmer ground than we were a year ago.

Prices are down somewhat, and show the relative stability on whichfirm business and consumer plans can be based. Inventories of manufac-turers and retailers have been reduced, and now are better adjusted tothe rate of sales. These changes were accomplished with only very smallreductions in dollar incomes and consumer spending. Allowing for pricechanges, the volume of goods and services purchased by consumers in 1949was actually larger than in 1948. Business is proceeding with good profitprospects. Home building in 1949 reached a higher level than ever before.

More important still, employment and production, which declined dur-ing the first few months of 1949, have in recent months been moving upwardagain. Considerably more people now have jobs than at the low point lastyear. Industrial production has increased by 9 percent since July. Holidaysales have hit an all-time peak.

The relatively safe passage from inflation to greater stability was noaccident. Businessmen, workers, and farmers demonstrated much greaterjudgment and restraint than in earlier similar periods. Their actionsshowed that they had gained understanding of the causes of our economicsituation and what should be done to improve it. Their efforts were aidedby public policies which had been developed over the years and had beenimproved by experience. Government measures in such fields as creditand banking, social insurance, and agricultural price supports, proved theirworth in cushioning the downswing and lending strong support to the re-covery movement.

This effective teamwork between free enterprise and Government con-founded the enemies of freedom who waited eagerly, during 1949, for thecollapse of the American economy. Our economy continues strong. Weare able to continue and advance the domestic and international programswhich are the hope of free peoples throughout the world.


We have succeeded in avoiding a serious set-back in 1949. We haveregained stability; but we need more than stability. The great motivatingforce in our economic system is the perpetual will to move ahead, to use ourskills and our resources more efficiently, to produce more at lower cost, andto provide a better and richer life for all our citizens. The American econ-omy must expand steadily.

Maximum production and maximum employment are not static goals;they mean more jobs and more business opportunities in each succeedingyear. If we are to attain these objectives, we must make full use of all theresources of the American economy.

During the past year, we did not do so. Our success thus far in reversingthe forces of recession cannot hide the high price we paid for economicinstability. The downturn brought anxiety and suffering to millions whobecame unemployed, and to their families. It brought failure to manysmall businesses. It reduced the opportunities for the creation of new enter-prises. It hurt the free nations whose continuing revival depends upontrade with us. It caused our total output for 1949 to be some 10 to 13 billiondollars lower than it would have been if maximum production and employ-ment had been maintained.

In earlier economic reports, I emphasized the dangers of permitting in-flationary pressures to continue, and urged measures to hold them in check.Most of these measures were not adopted, and the break in the eco-nomic boom, against which I had warned, came to pass. Six months ago,the Midyear Economic Report pointed out the way to recovery. Addi-tional steps should now be taken to complete the process of recovery. Wemust not again make the mistake of failing to adopt affirmative policiesnecessary for continued economic stability and growth.

At present, our economy is moving upward again. But we have not yetreached the point of fully employing our resources.

Although output is high, some resources of plant and equipment arenot being fully used. Although employment is large, unemployment inrecent months has been about V/2 to 2 million higher than in the corre-sponding months of 1948. Furthermore, our technology, productive facili-ties, and labor force are continuing to grow.

If we are to use all these resources, we must tap the dynamic forces ofexpansion within the American economy. One of the most importantof these dynamic forces is the process of business investment, by whichproductive capacity is enlarged and improved. In the fourth quarter ofthe year, business investment has not kept pace with the improvement ineconomic conditions. If the downward trend in business investment wereto continue, our prospects for full recovery and continued expansion wouldbe seriously endangered.

There is no need for this decline to continue. There are immense op-portunities for business investment in nearly every segment of the economy.


There are in general sufficient funds available to businessmen who want toseize these opportunities. The initiative of businessmen, aided by properGovernment policies, can and should soon reverse the trend of businessinvestment.

Business investment can continue at a high level only if markets forconsumer goods continue to expand. Price and wage policies should bedirected at enlarging these markets. For only by broadening the distribu-tion of goods and services can our business system find full use for itsexpanding productive capacity.

The events of 1949 demonstrated anew the basic strength of the Americaneconomy. They also demonstrated that economic affairs are not beyondhuman control. We should now seek to establish a course that will com-plete the recovery and carry us on to steady economic growth.

Summary of the Economic SituationTotal civilian employment in 1949 averaged 58.7 million, somewhat less

than the average of 59.4 million in 1948, and was 58.6 million in December1949. Nonagricultural employment fell during the first five months, reach-ing a low of 49.7 million in May. Since that month it has increased atmore than the usual seasonal rate, reaching 51.8 million in December.

Over the year, unemployment averaged 3.4 million, or about 5 percent ofthe labor force, compared with 2.1 million or 3 percent of the somewhatsmaller labor force in 1948. Unemployment at its worst in July 1949amounted to 4.1 million. In December, it was just below 3.5 million, 1.6million more than in December 1948. There has been a rapid rise in thenumber of unemployed workers exhausting their rights to unemploymentbenefits.

Total production of all goods and services in 1949 was 259 billion dollars.Adjusted for changes in prices, this was about 1 percent lower than in1948, and fell short of maximum production by 4 to 5 percent, or 10 to13 billion dollars. The sharpest drop was in industrial production, whichaveraged 9 percent lower than in 1948, while agricultural output droppedabout 1 percent. Construction advanced about 5 percent, and output ofelectricity and gas rose about.2 percent. There was a gain in the serviceindustries.

From November 1948, until the low point of July 1949, industrial pro-duction declined 17 percent. Since July the trend has been upward,interrupted only by work stoppages. By December industrial productionhad regained nearly half of the lost ground.

Prices during the first half of 1949 showed a general but moderate de-cline, followed by relative stability in the second half. Wholesale pricesby the end of the year were down 7 percent from their level of a yearearlier and 11 percent below their 1948 peak. The sharpest declines werein farm and wholesale food prices. Farm prices are now 23 percent


below the postwar peak and 12 percent below what they were a year ago.The drop in consumers' prices was much more moderate. By November1949, consumers' prices had declined 2 percent below the level at the endof 1948 and 3 percent below their postwar peak.

Wage increases were received by a much smaller number of workersthan in previous postwar years. There was no general wage pattern. Wagesaveraged slightly higher than in 1948, and consumers' prices were some-what lower. One outstanding development was the growth of pensionand social insurance plans financed in whole or in part by employers.

Work stoppages in 1949 were about the same in number as in 1948, butthe two major stoppages, in coal and steel, involved such a large numberof workers that the loss in man-days of work was about 50 percent greaterthan in 1948.

Profits were lower in 1949 than in 1948. For the year as a whole, cor-porate profits before taxes and the inventory valuation adjustment were27.6 billion dollars, a drop of about 21 percent. Much of the loss in re-ported profits represented the effect of falling prices on inventory valuation.

Farm income (realized net income of farm operators) declined about15 percent, reflecting the decline in prices. The agricultural price-supportprogram prevented a much sharper decline in prices and incomes.

Credit terms generally eased during the year. Interest rates de-clined. Business loans, reflecting the liquidation of inventories, declinedsharply during the first six months but began to advance again in the latterpart of the year. Instalment credit, after a slight decline in the first quarter,resumed its advance and reached a new postwar peak. Most notable wasthe more than 60 percent increase in automobile instalment credit duringthe year.

Consumers' disposable income was slightly higher in 1949 than in 1948,rising from 190.8 billion dollars to 192.9 billion dollars. The trend, how-ever, was different, rising every quarter in 1948 and falling every quarterin 1949. In the fourth quarter of 1949 the annual rate was 191.1 billiondollars. Unemployment compensation in 1949 contributed 1.9 billiondollars to consumer income, 1 billion dollars more than in 1948.

Consumer expenditures for goods and services were remarkably con-stant throughout 1949. Their total was 179 billion dollars. This wasequal to the total for 1948 as a whole, but about 2 billion dollars lowerthan the annual rate in the second half of that year. Allowing for pricechanges, consumers' expenditures represented a slightly higher volume ofgoods and services purchased than in 1948. An increased proportion ofconsumer spending was devoted to purchases of services and durable goods,a decreased proportion to the purchase of nondurable goods.

Net personal saving amounted to 14.4 billion dollars, compared with 12billion dollars in 1948. During 1949, however, the trend of saving wasdownward, from an annual rate of 16.3 billion dollars in the first quarter


to 13.1 billion dollars in the fourth. While personal saving in 1949 washigh by any previous peacetime standards, it is estimated that about one-third of all families did not add to their savings, but instead spent morethan they earned.

Private domestic investment in 1949 was 18 percent below the precedingyear, primarily because of a shift from accumulation to liquidation of in-ventories. By the fourth quarter, the liquidation of inventories was sloweddown, but investment in plant and equipment continued to decline. Thedrop in business investment was the principal feature in the lower level ofeconomic activity in 1949.

Construction, in spite of a slow start, exceeded the high level attainedin 1948 by 3 percent in dollar volume, and was an important stabilizingforce in the economy. Public construction increased by 25 percent over1948. Private construction declined by 4 percent, but residential con-struction was particularly strong in the second half of the year, rising to anew postwar peak in the fourth quarter. Housing starts for the yearexceeded 1,000,000, compared with 931,300 in 1948. The number of multi-family units started was about one-fourth larger than in 1948.

By the end of the year, the rate of total construction activity was 11 per-cent higher than it was a year earlier, and the backlog of contracts hadincreased considerably. A reduction in prices and costs, the easing of credit,the expanded authority of the RFC to purchase mortgages, and the renewalof FHA authority to insure rental projects, all contributed to the upsurge.

Corporate finance reflected the changes in the economic situation. Theshift from increasing inventories and increasing customer credit in 1948, toinventory reduction and a lower rate of increase in customer credit in 1949,permitted corporations to improve their financial liquidity while continuinglarge outlays for new plant and equipment. Liquid assets increased by2.5 billion dollars. Short-term debt decreased by 4 billion, but long-termdebt increased by about the same amount. In 1949, internal sources ofcorporate funds were larger than required for capital investment; in 1948,internal sources of funds amounted to only about 70 percent of the require-ments for capital investment.

The export surplus (the excess of our exports of goods and services overour imports) was only slightly lower in total in 1949 than in 1948, but it fellsharply in the second half of the year. This resulted primarily from a sharpdrop in our exports of goods and services, following severe losses of goldand dollars by the countries in the sterling area. The devaluation of foreigncurrencies subsequent to these losses has so far had little effect on oureconomy.

Government fiscal transactions in 1949 helped to stabilize the economy.Cash payments by governments—Federal, State and local—were about8 billion dollars higher in the calendar year 1949 than in 1948. Federalcash payments alone were 6.2 billion dollars higher. Nearly half of this


rise resulted from the impact of recessionary forces on such programs as un-employment compensation and agricultural price supports, and the remain-der was mainly the result of larger expenditures for international and defenseprograms. The increase in State and local cash payments was causedchiefly by higher expenditures for schools, roads, and other public works.With increasing government payments, and with a slight decline in thegross national product, the ratio of all government payments to total outputincreased from about 20 percent in 1948 to 2 3 ^ percent in 1949. Gashreceipts declined primarily because of the 1948 cut in Federal taxes.

As a result of these changes, the cash surplus of all governments—Federal,State, and local—which amounted to over 7 billion dollars in the calendaryear 1948, became a cash deficit of 3 billion dollars in 1949. For the Fed-eral Government, the result was a shift from a cash surplus of 8 billiondollars to a cash deficit of about 1.7 billion dollars.

Unifying Principles for ActionThese facts show our tremendous economic strength. But this strength

does not rest in material things alone.If we are to continue our economic growth the major economic groups

must all pull together—businessmen, wage earners, and farmers must worktoward the same ends. Government, in turn, must carry out the aspira-tions of the v/hole people.

Our success will depend upon the widespread conviction that all groupshave a stake in the expansion of the economy—that all will share in thebenefits of progress. In the days ahead we must broaden our understand-ing of how the various interests of our people are interrelated.

Toward this end, I should like to point out certain principles on whichwe can all base our economic efforts. The more widely these principlesare understood, the better able we shall be to solve our common problemsand reconcile the interests of different economic groups. The more widelythese principles are used as the basis for economic action and decision, themore rapid will be our national progress.

First. Our economy can and must continue to grow.An expanding population and an increasingly productive labor force

require constantly expanding employment opportunities and steadily risinglevels of investment and consumption. Within five years, we can achievean annual output in excess of 300 billion dollars. The gain in nationalincome would be equal to an average of nearly $1,000 for every family inthe United States. This would greatly improve standards of living. Itwould go far toward our goal of the complete elimination of poverty. Itwould provide employment opportunities for about 64 million workers.

Such prospects are not fanciful. They are based upon our long-termrecord of achievement, including some years when we did not use fully our


resources of plant, managerial skills, and labor force. And today, we arebetter equipped with these resources than ever before.

But we will not make this progress within five years unless we beginto move in that direction now. Our immediate goal for 1950 should be toregain maximum employment. This requires the reduction of unemploy-ment to the minimum level consistent with labor mobility in a free economy.We should strive this year to reduce unemployment from 3^4 million to 2million, or 2J/2 million at most. This would mean about 61 million civilianjobs. It would mean stepping up our national output by about 7 percentabove the 1949 total. These are our objectives for this year under theEmployment Act. If we put forth sufficient effort, we can reach theseobjectives before the year's end.

Second. The benefits of growth and progress must extend to all groups.Only in this way can the long-run welfare of any group be preserved.

If any part of our economy is depressed, or fails to gain, it can only serveas a drag against the gains of other parts. There is no room for thefeeling that one group can prosper only at the expense of another. Thereis abundant opportunity for all groups to prosper together. Expansionto a 300 billion dollar economy within five years would place 30 to 45billion dollars more per year in the hands of consumers for buying the needsand comforts of life. It would provide opportunity for profitable busi-ness investment in plant, equipment, and housing which might run 3 to 6billion dollars per year above the 1949 level. It would enable farmers tosell about 10 percent more food for domestic consumption.

Third. This growth will not come automatically, but requires consciouspurpose and hard work.

Productivity per worker should be increased by at least 2 to 2j/s> percenta year. Labor should base its policies on the prospect of a stable andexpanding economy. Businessmen should base their investment policies onconfidence in growth, shape their price policies to the needs of larger markets,and proceed with vigor and ingenuity to develop new and better productsof all kinds. Farmers should make full use of new technology, and makeshifts in production toward those commodities most needed in a growingpeacetime economy.

To promote an environment in which businessmen, labor, and farmerscan act most effectively to achieve steady economic growth is a major taskof the Government. It must perfect measures for helping to stabilize theeconomy. It must build up the natural resources which are essential toeconomic progress, and expand the protective measures against humaninsecurity. It must keep open the channels of competition, promote freecollective bargaining, and encourage expanded opportunities for privateinitiative.

Fourth. The fiscal policy of the Federal Government must be designedio contribute to the growth of the economy.


The Federal Budget is an important part of the national economy.Wise budgetary policies can promote stability and maximum productionand employment throughout the economy.

In fields such as resource development, education, health, and socialsecurity, Government programs are essential elements of our economicstrength. If we cut these programs below the requirements of an ex-panding economy, we should be weakening some of the most importantfactors which promote that expansion. Furthermore, we must maintainour programs for national security and international peace. These pro-grams are the defense of the world against disaster. Upon them, our wholefuture depends.

Government revenue policy should take into account both the needs ofsound Government finance and the needs of an expanding economy. Fed-eral receipts should be sufficient over a period of years to balance the budgetand provide a surplus for debt reduction. At the same time, the tax struc-ture, and the changes made in it from time to time, should be such as topromote the amounts and types of investment, consumption, and savingneeded for economic expansion. We should recognize that the expansionof the economy will generate additional revenues and strengthen the fiscalposition of the Government.

Fifth. We must deal vigorously with trouble spots which exist in oureconomy even in times of general prosperity.

Special measures are needed to help low-income groups and, even moreimportant, to provide them with better opportunities to help themselves.We must deal with the particular problems of communities or areas whichare depressed, or whose economic growth has been retarded. Whenever ashortage of jobs, or lack of business opportunity, affects as many personsas it does today, it is a matter for national concern. Economic stagnationanywhere is an injury to the whole economy. We must direct specificmeasures to these special problems.

In the light of these guiding principles, I turn to the consideration ofneeded economic policies.

Economic PoliciesUnder our system, private and public policies go hand in hand. Private

economic policies provide motive power of the economy. Public economicpolicies provide the framework for economic activity. Sound plans for ourfuture growth must take account of both, and blend them to achieve maxi-mum effectiveness.

Price and wage policies

The basic economic problem facing the country now is not to combatinflation. Instead it is to increase production, employment, and incomesto complete the recovery from the 1949 downturn, and to go on to the higher

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levels which will be made possible by a growing population and risingproductivity.

Business policies concerning prices should be determined with theseobjectives in mind. In general, prices now seem at or near a stablelevel consistent with continued expansion of business activity. Thereare few if any major areas in which price increases would be justified underpresent circumstances. In some outstanding areas, price cuts are feasibleand needed to maintain and expand sales. Furthermore, technologicalprogress should in part be reflected in price reductions from time to time.

Wage adjustments are one historic method by which buying power hasincreased with increasing productivity. These adjustments are now in thehands of management and labor. That is where they should remain. Atthe same time, the participants in collective bargaining, particularly indominant industries, should recognize that wage adjustments affect notonly the employers and workers immediately engaged, but also the wholeeconomy.

I am glad to note that the Council of Economic Advisers is encouragingjoint conferences in which representatives of industry, agriculture, andlabor may together study the economic principles underlying maximumeconomic activity. Such conferences should be productive of improvedpolicies.

Business investment

The large and imaginative programs of expansion and modernization ofplant facilities which have been undertaken since the war represent a signalachievement by private enterprise. The trend of business investment, how-ever, has recently been downward, and its continued decline would be acause for real concern.

There are tremendous business opportunities in a growing economy. Notonly are there more people in our country every year, needing food andclothing, homes and household equipment, and all the other goods andservices of our bountiful productive system. Even more important, theresults of research and experience give us every year new and better ma-terials and productive methods; new products are constantly being de-veloped, and whole new industries begun. All these changes are continuallyopening up new opportunities for productive investment.

There are, in general, ample funds available to businessmen who want toexpand or build new plants, to replace obsolete equipment, or to extend theiroperations to new geographic areas. Banks are in a position to providefunds for sound loans, and interest rates have been declining. The flowof institutional savings, such as insurance premiums, is at record levels.Corporations as a whole are in excellent financial condition. While thereare real difficulties facing some businessmen, particularly those whose enter-prises are small or medium-sized, and those in certain parts of the country,


as a whole there is no general financial bar to a steady expansion of businessinvestment.

In order to reverse the present downward trend, and to achieve the risingvolume of business investment consistent with an expanding economy, busi-nessmen should grasp the opportunities which lie ahead; and should helpto make the adjustments in prices and incomes which will translate potentialmarkets into real markets. The enterprise and imagination of private busi-nessmen will be a crucial factor in achieving the upward growth of whichour economy is capable.

While our primary reliance should be placed upon private initiative, theGovernment can also help to encourage a reversal of the downward trend ofbusiness investment. The tax recommendations I shall transmit to theCongress in the near future will, in addition to providing some net increasein revenue, propose certain changes in our tax structure which will makeit more equitable and stimulate business activity.

There is a great need to meet the problems of small businessmen whocannot now obtain adequate financing on reasonable terms. New devicesfor encouraging private financial institutions to furnish equity capital tosmall and medium-sized concerns are being studied in the Executive Branch,and I hope to make recommendations to the Congress on this subject dur-ing the present session. Meanwhile, I recommend that the Reconstruc-tion Finance Corporation be authorized to increase the maximum maturityof its business loans substantially above the present 10-year limit.

Private housing investment

Housing is one of the major fields in which more investment is requiredto meet the growing needs of our people. The level of housing construc-tion in 1949 was only slightly higher than in 1925, despite a much largerpopulation. The relative lag of housing technology and various outmodedpractices have resulted in a wide gap between the cost of producing goodhousing and the vast potential market for housing to be found in the needsand desires of families of low and middle incomes.

The housing problem requires a vigorous combination of action by pri-vate enterprise and by all levels of government. Reduction of housingcosts, through technical progress, better organization, and improved financ-ing, is imperative. Aside from public subsidized housing, further methodsmust be found to enlarge the flow of private capital into housing. TheFederal Government should supplement the comprehensive housing legis-lation, enacted last year, with a new program to stimulate the flow of low-cost private money into the development of middle-income housing, mainlythrough cooperative and other non-profit ventures.

A high level of residential construction is an integral part of a generallyexpanding economy, and requires not only direct stimulation of investmentbut also continued growth in consumer purchasing power.

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Rent controlWhile the preceding recommendations aim at the fundamental solution

of the housing problem, the increases in rents which would follow a suddenending of rent control would still create severe hardships in a large number ofareas. It would lift the cost of living, impair consumer buying, and com-plicate the problem of wage adjustments. Therefore I recommend ex-tension of rent control for another year.

Fiscal policyAt the present time the Federal Budget shows a deficit, principally be-

cause of the drop in incomes and employment in 1949, the untimely taxreductions in 1948, and the continuing heavy demands of national securityprograms. As business conditions continue to improve, we should bringGovernment receipts and expenditures into balance, and provide some sur-plus for debt reduction, at the earliest date consistent with the welfare ofthe country.

Despite the current deficit, the fiscal position of the Federal Governmentis basically strong. If the trend of business continues upward as it should,Federal revenue will increase. At the same time, under the policies I amrecommending in the Budget, Federal expenditures should decline some-what over the next few years. This movement toward a balanced budgetshould be accelerated by changes in our tax laws which will reduce presentinequities, stimulate business activity, and yield a moderate amount of addi-tional revenue.

This reliance upon a combination of three factors—an expanding econ-omy, all reasonable reductions in expenditures, and a moderate increasein revenues through changes in the tax laws—is the wisest course towarda balanced budget. In the long run, the Government's fiscal position de-pends upon the health of the national economy. It will not be promotedby drastic slashes in expenditures which are essential to our economicgrowth and to continued peace. Neither will it be promoted by tax in-creases so drastic as to stifle business activity. Either action would impairour chances for achieving our major national and international objectivesand would threaten further recovery.

Credit policies

To carry out the purposes of the Employment Act, the Governmentshould be equipped, as a permanent matter, with the minimum tools neces-sary to control the basic factors of credit expansion.

To eliminate the competitive disadvantage of Federal Reserve member-ship, the authority of the Board of Governors of the Federal Reserve Systemover bank reserve requirements should be revised. The Board should havebroader powers than it now has to increase bank reserve requirements in a pe-riod of inflation. This would be a protective measure for the entire banking

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system, and accordingly should be applicable to all banks insured by theFederal Deposit Insurance Corporation.

The Board's authority over instalment credit ended last June. Sincethat time the excessive relaxation of instalment terms offered to consumershas demonstrated the need for a restoration of the Board's authority.

I have heretofore pointed out the need for more effective Governmentsupervision over speculative trading on the commodity exchanges. I recom-mend that the Congress grant more specific and more adequate authorityfor this purpose.

Farm policyA generally prosperous economy will do more than all else to help the

farmer. As the economy grows, it can absorb an expansion of total agricul-tural output, provided the necessary shifts in amounts and types of differentproducts are made to meet the needs of a changing peacetime economy.Changes in our farm policy are needed to accelerate these shifts in produc-tion, to check the decline in farm incomes which has persisted for more thana year, and to accord to farmers a fair share of the fruits of prosperity.These basic objectives of farm policy call for some shift of emphasis fromthe support of prices of particular commodities to the support of farmincome.

There is also need for additional methods of support. Perishable prod-ucts, in particular, cannot be supported satisfactorily by loans and purchasesalone, and yet these are the products the expansion of whose output ismost desirable. I therefore urge that support through production paymentsbe authorized.

Special measures are needed to aid low-income groups in agriculture.These include measures to provide credit and management aids to low-income farmers to help them enlarge and improve their farms. They in-clude programs to provide rural electrification, rural telephones, betterfarm housing, and improved opportunity for medical care. In addition,we must continue to improve the education of our farm youth not onlyto make them more efficient farmers, but also to help some of the under-employed people in agriculture find useful work in other occupations.

Increased emphasis should be given to encouragement of types of farmingwhich are most needed. Research and education, and conservation andcredit programs, as well as the Government's support of farm prices andfarm incomes, should be directed toward this end.

Developmental programs and community services

After the restraints imposed by war and by postwar inflation, Federalprograms for resource development, transportation, education, and healthare just beginning to adjust to the needs of an expanding national economy.Even now, the requirements of national security, international aid, andveterans' adjustments are so urgent and so large that progress in develop-

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mental programs and community services must necessarily be limited togradual advancement at a rate below the genuine need.

Nevertheless, we are continuing to expand our investment in the develop-ment of our rivers for flood control, navigation, reclamation, and electricpower, in the expansion of our highways, and in the development of atomicenergy. I again urge early authorization of the St. Lawrence seaway andpower project, which should be started as soon as plans can be completed.In most of our major river valleys we do not have satisfactory means forpreparing integrated programs of development. I have already recom-mended, and I again urge, that the Congress authorize the consolidationof a number of Federal activities in the Pacific Northwest into a ColumbiaValley Administration.

Present deficiencies in education and health are so compelling that Irepeat my recommendation for new programs. Expansion of public healthservices, and of enrollments in schools of medicine, nursing, dentistry, andpublic health, should be started now. The growing number of childrenof school age cannot be permitted to delay their education. I therefore urgethe prompt enactment of aid to elementary and secondary education, and theprovision of funds for a survey to determine the extent of the need forschool construction. There should also be authorized a limited program toassist capable young people who are now financially unable to secure thehigher education essential to the full development of their talents.

Many of the existing procurement, construction, and loan programs ofthe Federal Government can be adapted, to some extent, to alleviate seriousunemployment in particular local areas. The program initiated for thispurpose in the summer of 1949 has shown some good results and it willbe continued. It is evident, however, that some localities are faced withlong-term rather than temporary difficulties and that effective programsto provide permanent solutions need to be worked out. The FederalGovernment will continue to use all available resources for the aid of suchdistressed areas and, cooperating with State and local agencies and privategroups, will assist in preparing programs adjusted to the long-range prob-lems and opportunities of those areas.

Social securityIn our growing economy, there can be no excuse for failure to develop

an adequate system for protecting our citizens against economic insecurity.As we produce more, we can and should make more adequate provisionfor the aged, those who cannot find work, and others in our society whoare in need.

I urge the Congress to act promptly on the recommendations I have madefor the extension and improvement of social security. We must moverapidly toward a comprehensive social insurance system protecting nearlyall workers—including those employed in farming—and their familiesagainst the risks of old age, unemployment, disability, death of the family


wage-earner, and illness. The costs of such a system, when measuredagainst the growing output of our economy, are well within our capacityto pay.

The present programs of social security are grossly inadequate. Becauseof the limited coverage of the present law, and the exhaustion of benefitsby many workers, one-third of the unemployed are now receiving no unem-ployment insurance benefits, and in some areas the proportion approachestwo-thirds. Many communities provide no public funds for the relief ofjobless workers and their families. There are also several million disabledworkers, many with families to support, who are not eligible for public insur-ance benefits. In some places, they do not even receive public relief.Only 650,000 of the millions of bereaved or broken families with very lowincomes are receiving survivors insurance. Only 30 percent of the agedpopulation are eligible for social insurance benefits, which are so meagerthat few can retire voluntarily. Needed medical care is denied to millionsof our citizens because they have no access to systematic and adequatemethods of meeting the cost.

The current inadequacy of the social insurance programs is sharply re-flected in the disproportionate load now being borne by public assistanceprograms. Increasing numbers of the aged, the disabled, and the unem-ployed have been forced to resort to public assistance. This distorts theoriginal intent of the Social Security Act that people are entitled to securityas a matter of right. The burden of public assistance is straining the fiscalcapacities of State and local governments. While enactment of proposedsocial insurance programs will alleviate this problem in the future, provisionmust be made for dealing with the problem in the meantime. I there-fore urge enactment of the proposals which I submitted to the Congresslast spring for the extension and improvement of the program of Federalgrants to States for public assistance.

International economic programsWe are now in a transitional stage in the development of our inter-

national economic policies. Our short-run programs of aid to friendlycountries abroad have begun to bear fruit in increased production, ex-panding trade, and rising living standards. At the same time, the long-range nature of the problems of world production and trade has emergedmore clearly, and the need for the United States to play a continuing rolein world development through capital and technical assistance has becomeevident.

The progress already made toward achieving the objectives of the Euro-pean recovery program and of other short-run aid programs should promptthe continuation of these programs on a basis commensurate with need.To cripple them now would imperil past progress and risk the waste ofexpenditures already made. I recommend that these programs be ex-tended on a scale sufficient to accomplish the purposes for which they wereestablished.

14


In the years ahead, we must lay increasing emphasis upon long-run in-ternational economic programs. We need to move vigorously toward aworld-wide increase of international trade. This will result in larger im-ports into our country, which will assist other countries to earn the dollarsthey need, and will at the same time increase our own standard of living.An immediate step in this direction is to approve promptly the proposedCharter for the International Trade Organization, which has been nego-tiated to establish a code of fair trade practice and a means for steadilyimproving international commercial relations.

Even the maximum feasible reduction of barriers to world trade wouldnot alone make possible the continued increases in world production andliving standards which are essential to world peace. Such reductions areof little immediate benefit to the underdeveloped areas of the world, whichcannot produce enough to achieve an export surplus and build up theirproductive capital. These areas urgently need improved technical knowl-edge and increased capital investment. The aim of the Point Four pro-gram for assistance to underdeveloped countries is to help meet these needs.

To make the most effective use of invested capital, underdeveloped coun-tries require technical assistance. Hearings have already been held by theCongress on the legislation I have recommended to stimulate the inter-change of technical assistance. I urge action on this proposal as soon aspossible.

The United States has sufficient productive strength to provide capitalfor investment in productive developments abroad. In order to encouragethe private investment of United States funds abroad, I urge the Congressto act promptly on the legislation now before it to authorize the Export-Import Bank to guarantee such investments against certain risks peculiar toforeign investment. Through the negotiation of treaties, the Governmentis moving to improve conditions for investment abroad and assure protec-tion for the legitimate interests of United States investors. It will also con-tinue to be the policy of the Government to encourage American investmentabroad only when it is carried on in a way that protects the interests of thepeople in the foreign countries concerned.

I recommend also that certain provisions of the tax laws governing thetaxation of income from foreign investments be revised in order to stimulatethe flow of American capital abroad.

In addition to its direct contribution to increased production, the tech-nical assistance program should prepare the way for, and stimulate thepreparation of, concrete development projects, on the basis of which anincreasing volume of private and public investment can be made. It isunlikely that private funds, including those invested through the Interna-tional Bank, and the present resources of the Export-Import Bank, will besufficient to meet the need for investment abroad. It will probably becomenecessary at a later time to increase the lending authority of the Export-Import Bank.

15


Summary of Legislative RecommendationsI summarize below the legislative recommendations contained in this

Economic Report, and urge that the Congress enact them into law:1. Make some revisions in the tax structure to reduce present inequi-

ties, stimulate business activity, and yield a moderate amount of netadditional revenue. My specific recommendations on taxes will betransmitted to the Congress at an early date.

2. Enact a new program to stimulate private investment in housingfor middle-income families.

3. Substantially increase the maximum maturity period for businessloans made by the Reconstruction Finance Corporation.

4. Improve the protection of farm incomes and encourage neededshifts in farm production, by authorization of production paymentsand other changes in present legislation.

5. Establish a Columbia Valley Administration, and authorize theSt. Lawrence seaway and power project.

6. Provide for Federal aid to elementary and secondary education,for a limited program of aid in support of higher education for capablestudents, for aid to medical education, for the improvement of localpublic health services, and for grants to States for surveys of the needfor school construction.

7. Extend and liberalize the social security structure by improvingold-age, survivors, and unemployment insurance, enacting disabilityand health insurance, and expanding Federal grants-in-aid to Statesfor public assistance.

8. Extend rent control for another year.9. Continue the foreign recovery programs on a basis commensur-

able with need.10. Approve the Charter for the International Trade Organization.11. Authorize the program for technical assistance to underdevel-

oped countries, and for guarantees by the Export-Import Bank againstrisks peculiar to private investment abroad; and revise certain pro-visions in the tax laws governing the taxation of income from foreigninvestments.

12. Provide additional authority over banking reserves to the Boardof Governors of the Federal Reserve System; extend that authority toall banks insured by the Federal Deposit Insurance Corporation; andrestore the Board's authority to regulate consumer credit. Provideauthority to regulate speculation on the commodity exchanges.

* * * * *

In the Message on the State of the Union, I have stressed the fateful rolewhich the United States has come to occupy in the progress of humandestiny. Our responsibilities are already determined by the course of world

16


events. But how well we measure up to these responsibilities remains inour own hands.

Moral leadership comes first, as we seek to inspire free men everywherewith confidence in their cause. But history proves that many great moralpurposes have failed or faltered because the material strength to supportthem was lacking. The economic power of the United States, at its fullpotential, is the keystone of this support.

The Congress foresaw this when it gave our national economic policy thedegree of central significance accorded to it under the Employment Act of1946. As the deliberations of the United Nations demonstrate, othernations recognize the overwhelming importance to the cause of freedom ofwise economic policies and full employment.

Our economic situation today is good, and it can be better. The lessonsof the past and the magnificent challenge of the future continue to spur uson. For all to thrive and prosper together, all must work together—withmutual understanding and common purposes. That is the spirit of ourdemocracy. That is the spirit in which I transmit these recommendationsto the Congress, and to all those whose actions affect our economy.

HARRY S. TRUMAN.JANUARY 6, 1950.


The Annual EconomicReview

January 1950

A Report to the President

By the



LETTER OF TRANSMITTAL

COUNCIL OF ECONOMIC ADVISERS,

Washington, D. C , January 3, 1950.The PRESIDENT :

SIR: The Council of Economic Advisers herewith submits a report, theAnnual Economic Review: January 1950, in accordance with section4 (c) (2) of the Employment Act of 1946.

Respectfully,

Acting Chairman.

/w

2 1


ContentsPage

I. ECONOMIC DEVELOPMENTS IN 1949 25

The course of employment and production 25Employment 25Production 29

Prices, wages, and profits 31Prices 31Wages and related matters 35Profits 36

Money and credit 39The flow of goods and purchasing power 42

Consumer income, spending, and saving 42Business investment and finance 47International developments 52Government transactions 59

Summary: The Nation's Economic Budget 63II . THE SIGNIFICANCE OF 1949 AND THE ECONOMIC OUTLOOK . . . 66

Bases for confidence as 1950 opens 67Value of affirmative policies 68Short-range outlook 69The longer-range outlook 69Adjustments still to be made 72

III . PATHWAYS TO ECONOMIC GROWTH 75

Growth objectives for 1950-1954 75Toward a balanced economy 80High business investment needs 86

Availability of funds for investment 88Specific problem areas 90The housing problem 92Adequacy of market opportunity 93

A high consumption economy 94Expenditures for consumer durable goods 94Expenditures for nondurable goods 95Expenditures for services 95Distribution of income 96


Page

IV. NEEDED POLICIES 99

The function of prices 99The function of wages 100Aids to business investment 101Fiscal policy 103

Effect <of 'general "economic conditions upon ^Federalfinance 103

Expenditure policy 104Tax policy 105

Farm policy 106Development of physical and human resources 112

Physical resources 112Human resources . . 116The timing of developmental programs 117Economic trouble spots 117Advance planning and program flexibility 118

Social security 119Unemployment insurance 120Old-age survivorship and disability protection. . . . 120Health insurance 121Public assistance 121Social security costs 121

International economic policies 123The dollar problem 123The Point Four Program 124


I. Economic Developments in 1949

T H E COURSE OF EMPLOYMENT AND PRODUCTION

Employment

r ?MPLOYMENT levels for 1949 as a whole did not meet the maxi-Hrf mum employment goal set forth at the beginning of the year, whichcalled for an average employment about 1 million above that in 1948 toabsorb a growing labor force. Average civilian employment in 1948 was59.4 million, and in 1949 it was 58.7 million, a drop of 700 thousand, in-stead of the needed increase of 1 million. However, the fairly steadydrop in total civilian employment which began late in 1948 and continuedthrough February 1949 was checked in March, due primarily to a seasonalincrease in agriculture. The low point in nonagricultural employment wasreached in May. Since then the trend in nonagricultural employment hasbeen upward, except for the period affected by the steel and coal stoppages.By the end of the year, total civilian employment stood at 58.6 million,or about 850 thousand below December 1948. (See chart 2.)

Manufacturing employment fell from an average of 15.3 million in 1948to an average of 14.2 million in 1949. The decline from the September1948 peak was steady until midsummer, when it was halted and reversed.The drop during the first half of the year was most notable in durable lines,although textiles also dropped significantly. Certain manufacturing seg-ments, such as automobiles, aircraft, printing, and apparel, remained athigh employment levels throughout 1949. Employment also continued athigh levels in construction, trade, finance, and services. Government em-ployment increased, largely in State and local government. There weresignificant decreases in mining and railroad transportation.

Particularly noteworthy during the latter half of 1949 was the improvingemployment situation in industries manufacturing nondurable goods. Bythe year's end, total nonagricultural employment was 2.1 million higherthan in May.

Employment in agriculture averaged slightly higher in 1949 than in1948, but in December 1949 the number of farm workers was about 600thousand less than in December 1948.

The number of employed persons tells only part of the employment story,since the number of hours worked is also important. For all employednonagricultural workers, the hours worked averaged about half an hour a


CHART 1

ECONOMIC INDICATORSPERCENTAGE CHANGE PERCENTAGE CHANGE

30

20

60

?0

10

r\

10

EMPLOYMENT *_ ^^1948 to 1949

il.'.'.'.'.l.'fe^l^J949, first half toJ '^^^Hf l 9 4 9» 8econd half

-

64.5

111-

CIVILIAN UNEMPLOYMENTEMPLOYMENT

10

0

-10

-20

10

- 1 0

- 2 0

- 3 0

10

-10

PRODUCTION

GROSS NATIONALPRODUCT

. (1948 PRICES)INDUSTRIALPRODUCTION

NEW PLANT -a EQUIPMENT *

EXPENDITURES!/

PURCHASING POWER

PERSONALINCOME

(AFTER TAXES)

FARM INCOME(PROPRIETORS)

PRICES

CONSUMERS'PRICES

WHOLESALEPRICES

10

-10

10

-10

-20

10

-10

-20

-30

10

-10

-20

-!/ NONAGRICULTURAL BUSINESSES.* DATA FOR FIRST AND SECOND HALF 1949 NOT ADJUSTED FOR SEASONAL VARIATION.

SOURCE: APPENDIX C

26


week less in 1949 than in 1948. Relating the total number of persons em-ployed to the average weekly hours of work indicates that total man-hourson the job in 1949 were some 2 percent lower than in 1948.

Part of this decline in working time was a result of the sizable increasein involuntary part-time work caused by the decline in production. In Sep-tember 1948, less than 1.4 million workers were working part time becauseof work slack, inability to obtain full-time work, and job turn-over. Thenumber had risen to nearly 2.5 million by May 1949, increased slightlyduring the summer, but probably declined somewhat in the fall and earlywinter.

As manufacturing activity declined, the number of jobless rose from alow of 1.6 million in October 1948 to 4.1 million at the high in July 1949.There was an average of 3.5 million persons unemployed during the fourthquarter of 1949, compared with 1.8 million during the last quarter of1948. Virtually every important manufacturing area in the country experi-enced some increased unemployment in 1949; New England, with its heavyconcentration of textile, leather, and machinery factories, was the mostseverely affected. In Rhode Island, as many as 20 percent of the workerscovered by the State unemployment insurance laws were drawing benefitsat midyear. In other States in this region, the ratio of insured unemploy-ment at its peak ranged between 10 and 12 percent. Other States whichhad a relatively high incidence of unemployment were New York, NewJersey, Maryland, the Carolinas, Kentucky, Tennessee, Alabama, Illinois,and California.

Unemployment represented 12 percent or more of the labor force in 12major labor market areas out of the 100 reporting in December 1949.In addition, there were numerous smaller areas where unemployment wasrelatively as serious. These areas included textile and leather centers in NewEngland, coal and copper mining areas in Pennsylvania, Illinois, Indiana,Michigan, and Alabama, and metal-working centers in New England andMichigan. Because of the nature of the industries affected, unemploy-ment rose somewhat more sharply among men than among women. Inthe fall of 1948, 27 out of every thousand men in the labor force wereunemployed, contrasted with 33 out of every thousand women. In thefall of 1949, the ratios were 54 per thousand men and 58 per thousandwomen.

For the whole of 1949 there was an average of 3.4 million personsunemployed or over 5 percent of the labor force, compared with an averagein 1948 of 2.1 million or over 3 percent of the labor force. Since July, afterallowing for the adverse effects of the strikes, there has been a more-than-seasonal decline in unemployment. During the latter part of the year unem-ployment receded in virtually all major labor market areas. In December1949 there were just under 3.5 million persons unemployed, compared with4.1 million in July.

868148—50 3 27


CHART 2

LABOR FORCEThe labor force increased by about 800,000 from 1948 to 1949and civilian employment dropped about 700,000.

MILLIONS OF PERSONS '8 0

MILLIONS OF PERSONS*80

UNEMPLOYMENT

ARMED FORCES

TOTAL LABORFORCE

NONAGRICULTURAL EMPLOYMENT

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

1947 1948 1949

Unemployment throughout 1949 was much higher than in 1948.PERCENT OF LABOR FORCE PERCENT OF LABOR FORCE

10 10

UNEMPLOYMENT(AS PERCENT OF THE LABOR FORCE)

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

.£ H -I S -1 x J.I I 4 »•

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

1949* I 4 YEARS OF AGE ANO OVER.

SOURCE: DEPARTMENT OF COMMERCE.

28


There has been a rapid rise during the year in the number of unemployedworkers exhausting their rights to unemployment benefits. During thethird quarter of 1949 more than 500 thousand persons exhausted theirrights to further benefits before finding employment, while in the compar-able quarter of 1948 this was true of only about 225 thousand persons. Ina considerable number of the major labor market areas as many as 60 to 70percent of the unemployed are not now eligible for unemployment com-pensation, compared with about 35 percent nationally. (Statistics onemployment are shown in appendix tables C-9 and C-10.)

Production

In January 1949, an increase in the total production of goods and servicesof 3 to 4 percent, or 8 to 10 billion dollars measured in 1948 prices, wasset as a reasonable objective for the year. This production goal was notaccomplished. The dollar value of all goods and services produced (thegross national product) was estimated at 262.4 billion dollars in 1948 andat 258.7 billion in 1949, a drop of about 1.5 percent. This drop in dollarvalue was due in part to lower prices and in part to a drop in real output.The gross national product estimates, together with statistics on the physi-cal output of goods, indicate that the total production of goods and servicesdropped about 1 percent from 1948 to 1949. Thus we fell 4 to 5 percentbelow the goal set at the beginning of the year, a deficiency of 10 to 13billion dollars. Moreover, since output in the second half of 1949 was lessthan in the first half, the deficiency widened during the year. (See appendixtable C-l.)

The physical goods component of total output in 1949 was about 5 percentbelow the level of 1948. (See appendix table C-l4.) Industrial produc-tion dropped 8.8 percent, and agricultural output fell 1.4 percent. Con-struction increased 4.6 percent and the output of electricity and gas rose 1.6percent. The Department of Commerce estimates of changes in personalconsumption expenditures from 1948 to 1949 suggest that there was someincrease in the output of service industries. Evidently the drop in outputof goods in 1949 was almost offset by an increase in services.

The 1.4 percent drop in agricultural output represented a decline ofabout 4 percent in the production of crops and an increase of about 5percent in the output of meat and animal products. The production ofwheat and of feed grains continued at very high levels, although fallinga little below 1948. Larger plantings caused cotton production to increasein spite of a drop in yield per acre. Food supplies available to the Americanpublic continue ample compared with those of most previous years.

The index of industrial production reached a peak of 195 percent of the1935-39 average in October and November 1948, and then fell rathersteadily until it reached a low of 161 in July 1949. This represented adrop of 17 percent from the peak. The greatest rate of decline was indurable goods and minerals, production of which fell 20 percent and 24

29


CHART 3

INDUSTRIAL PRODUCTIONIndustrial production by December 1949 had recovered nearlyhalf of the drop from its Novemt>er 1948 peak to its July1949 low.

PERCENT OF 1935-39 AVERAGE250

2 0 0

150

ADJUSTED FOR SEASONAL VARIATION

PERCENT OF 1935-39 AVERAGE250

NONDURABLE

MINERALS

200

150

100 1 1 100

n H I I I I 1 I I I I I HT I I I I I I I I I I l~1 oS 0 N 0 J F S 0 N D

1948 1949SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

percent, respectively, while the output of nondurables fell only 14 percent.(See appendix table C-15.)

Since July the trend of industrial production has been reversed and aconsiderable recovery has occurred. After the low of 161 in July, theindex of industrial production recovered substantially in August and Sep-tember, dropped temporarily in October because of the coal and steelstoppages, and recovered further in the last two months of the year, reaching176 in December. The December figure was 9 percent above the mid-summer low, but still 10 percent below the peak of October and Novem-ber 1948. The recovery in industrial production has been greater in thenondurable goods industries, the output of which rose 12 percent, than inthe output of durable goods industries, the output of which increased only8 percent. (See chart 3.)

Thus, in the closing months of 1949, industrial output was rising, althoughit was still considerably below the peak level attained in 1948. Construc-tion and the output of gas and electricity were above 1948 levels, andagricultural output was only slightly below the 1948 record-


PRICES, WAGES, AND PROFITS

PricesPrice movements during 1949 paralleled the course of total economic

activity. A general but moderate decline in prices during the first halfof the year was followed by relative stability in the second half. The abate-ment of the postwar inflationary boom did not bring with it an acceleratingdecline in prices.

Wholesale prices. Wholesale prices by the end of 1949 had declined6.9 percent from their level of a year earlier and were 11.0 percent belowtheir August 1948 postwar peak. The largest drops were in wholesalefarm and food prices, while industrial prices fell least. (See chart 4and table 1.) The bulk of the drop was during the first half of theyear. During the second half, the slight further drop was accountedfor mainly by wholesale farm and food prices while industrial priceslevelled off.

Wholesale prices of farm products and prices received by farmersboth fell about 12 percent during 1949, and ended the year more than20 percent below their peak of January 1948. Prices paid by farmersdecreased only about 3 percent during the year, and the ratio of pricesreceived to prices paid fell to 98 percent of parity in December, comparedwith 108 a year before. This was the first time since 1941 that the parityratio had stood below 100. (See appendix table C-23.)

Downward pressure on farm prices was exerted by the continuing highlevel of crop production, which brought some surpluses. The declinecontinued in the second half of the year, when marketings of hogs andof eggs and poultry increased markedly. The demand for the bettergrades of beef cattle continued strong, and while the drop in hog priceswas sharp, marketing was orderly and support was not required. Grainprices were quite firm at the end of the year.

Wholesale food prices during the year declined 8.5 percent and atthe end of the year were 18.0 percent below their 1948 peak level. Fol-lowing a considerable decline early in the year, wholesale food prices werequite stable through the third quarter. Subsequently, under the pressure ofseasonal increases in supply, food prices began to decline again. Note-worthy, however, was the strength of certain imported commodities, withcoffee, cocoa, and pepper reflecting in part speculative expectations aboutthe future size of the crops.

Industrial prices declined during the first half of the year and thenlevelled off. During the year, industrial prices declined 5.0 percent andended 5.3 percent below the 1948 peak level. The weakness in indus-trial prices during the first half year reflected the process of inven-tory liquidation which was a major economic development during thatperiod. The greatest pressure was on the prices of industrial materials,because manufacturers' inventories of such materials were reduced first and


CHART 4

WHOLESALE PRICESIndustrial prices, offer a moderate decline in the first 6 months,,stabilized in the second half of the year. The trend of farmprices was downward. Wholesale food prices after little changefor most of the period dropped in the last quarter.

PERCENT OF 1926 AVERAGE220

200

180

160

140

120

100

FARM PROOUCTS

OTHER THAN FARM PROOUCTSAND FOODS

(INDUSTRIAL PRICES)

PERCENT OF 1926 AVERAGE220

2 0 0

180

160

140

120

100

" T ! • . . I . i . i i T . . i • i I • i i i i T ! • • • • I i • • • i T I . • . . 7 1J F M A M J J A S 0 N 0 J F M A N 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

1946 1947 1948 1949

PERCENTAGE CHANGES

ALL ITEMS

FARM PRODUCTS

FOODS

OTHER THAN FARMPRODUCTS AND FOODS

POSTWAR PEAK TO DEC. 49

DEC. 48 TO DEC. 49

mmmmmmm

JUNE 46 TOPOSTWAR PEAK

SOURCE: DEPARTMENT OF LABOR


most sharply. (See appendix table C-19.) The downward movementembraced most categories, with notable exceptions, including the steel andautomobile groups.

TABLE 1.—Changes in wholesale prices

Commodity group

All commodities.

Farm productsFoodsOther than farm products and foods..

Hides and leather productsTextile productsFuel and lighting materialsMetals and metal productsBuilding materialsChemicals and allied products. __Housef urnishing goodsMiscellaneous

Special groups:Raw materials _Semimanufactured articlesManufactured products

Percentage change

December 1948to June 1949

-4 .9

-4 .8-4 .6-4 .9- 3 . 5- 5 . 1- 5 . 3-3 .6- 5 . 3

-10.9-2 .2

- 4 . 5-8 .9-4 .4

June 1949 toDecember

19491

- 2 . 1

- 8 . 1- 4 . 1—. 1+.8- . 6+.1- . 1- . 7

- 1 . 0- . 3+.4

2-2.52-1.02-1.7

December 1948to December

19491

-12.5-8.5-5.0-2.8-5.7-5.2-3.7-6.0

-11.8-2.5-6.0

2-6.92-9.82-6.0

i Percentage changes based on preliminary estimates for December 1949, except as noted.3 Change from December 1948 to November 1949.

Source: Department of Labor (see appendix table C-22.)

By July the major wave of industrial price cuts was over. During thethird quarter, there was a considerable firming up in the prices of manyindustrial materials, particularly those which had suffered the greatestdecline during the first half of the year. Thus, there were increases in theprices of cotton and rayon textiles, steel scrap, the nonferrous metals, lumber,and other commodities.

While the firmness of the industrial price level continued into the fourthquarter, there were a number of divergent trends. Copper and zinc con-tinued strong while lead weakened again. Lead prices were under thepressure of foreign competition. Tin prices were dropping as they werefreed to find their level in the open market and supplies v/ere increasing.Lumber prices continued to reflect the high level of construction. Late in1949 steel prices were advanced. Most finished goods prices continuedstable but increases were recorded for tires and tubes, carpets, sheets, andsome others. (Data on wholesale prices may be found in appendix tableC-22.)

Consumers' prices. Consumers' prices were firm during most of 1949.The decline which began in October 1948 continued steadily until February1949. From then until November consumers' prices moved within arelatively narrow range. In November the consumers' price index was168.6, less than 2 percent below the level of 171.4 reached in December1948, and about 3 percent below their postwar peak of 174.5. (See chart5 and table 2.) Preliminary indications are that consumers' pricesdeclined in December.

33


CHART 5

CONSUMERS' PRICESFor most of the year, consumers' prices fluctuated within arelatively narrow range primarily because of the movementsin food prices. Apparel prices declined steadily while rentscontinued to rise.

PERCENT OF 1935-39 AVERAGE2 2 0

200 -

180 -

160 -

PERCENT OF 1935-39 AVERAGE2 2 0

- 200

- 180

- 160

11111111T1111111111 iTi 11111111 rn

- 140

- 120

100

1946 1947 1948 1949

PERCENTAGE CHANGESDECREASE INCREASE

ALL ITEMS'JUNE 1946 TO POSTWAR PEAK

|£j POSTWAR PEAK TO NOV. 1949

OEC. 1948 TO NOV. 1949

FOOD

APPAREL

RENT

*ALSO INCLUDES HOUSEFORNISHINGS, FUEL, ELECTRICITY, REFRIGERATION, AND MISCELLANEOUS GOODSAND SERVICES NOT SHOWN ON THIS CHART.* « NOVEMBER 1949 IS POSTWAR PEAK.

SOURCE: DEPARTMENT OF LABOR

34


The course of consumers' prices throughout the year was dominated bythe behavior of retail food prices, which had been declining steadily sinceJuly 1948 and reached an initial low point in February 1949. From thenuntil June, retail food prices moved up again. A minor dip occurred inJuly, but by September there was a return almost to the June level. InNovember retail food prices were 2 percent below the level of December1948. The drop from their postwar peak was about 7 percent, less thanhalf that in wholesale food prices.

Apparel prices declined steadily, and housefurnishings declined for mostof the year. Fuel prices recovered from the midyear decline. The miscel-laneous items in the consumers' price index increased during the year andrents moved continuously upward. (See appendix table C-21 for moredetail on consumers' prices.)

All items

Food. .Apparel _.Rent.Fuel, electricity,HousefurnishingsMiscellaneous

TABLE

Commodity group

and refrigeration

2.—Changes in consumers* prices

Percentage change

December 1948to

June 1949

- 1 .

—5+- 1 .

- 5 .

+.

1

0q671

June 1949to

November 1949

- 1- 24-1.+2.+'.

e>719605

December 1948to

November 1949

-1 .6

—2.0-7 .0+2.1+.9

-6 .6+.6

Source: Department of Labor (see appendix table 0-21).

Wages and related matters

Wages. In the face of some decline in the cost of living and a slackeningin employment, demand, and profits in many industries, the pressure forwage increases, which had been general during the first three postwaryears, became less urgent and more selective in 1949. A substantial numberof organized workers obtained wage increases, but the increases were farfewer and somewhat smaller in amount than in previous years. With thelabor market easing off, and with the union drive for higher wage ratesslackening, nonunion and clerical workers in private industry apparentlyalso received smaller increases than in previous years.

It is estimated that general wage rate increases negotiated in 1949affected about one-third of the 15 million organized workers, while in1948 a large majority of them received wage increases. The number ofnonunion workers receiving wage increases in 1949 is not known, but itdoubtless was well below previous postwar years. There was no generalwage pattern in 1949. In fact, the industries where wage increases werecommon in 1949 were not pattern setters, and in many instances had notbeen pattern followers in former years. Federal legislation raised the

35


salaries of some 3 million United States Government workers, includingthose in the armed services.

For the first time in the past decade, some organized workers werecalled upon to accept wage cuts. In the main, however, the wage decreasesfor unionized workers resulted from agreements tying wage rates to smallchanges in the consumers' price index. There were a few instances ofunion locals agreeing to a general cut in wage rates. Wage cuts wereapparently more frequent among nonunion establishments.

Salaries, wages, and other labor income increased from 135.1 billion dol-lars in 1948 to 136.8 billion in 1949. Average weekly earnings in manufac-turing increased from $54.14 to $54.78. Since the consumers' price indexwent down 1.6 percent, the real income of employed wage and salary workersappears to have increased slightly more than is indicated by the changein money income. (See appendix tables C- l l , C-12, and C-13 for detailon hours and earnings.)

Pensions, insurance, and other supplementary benefits. One of the out-standing developments in 1949 was the growth of pension and social in-surance plans financed in whole or in part by employers. Although anestimate of the number of workers securing additional benefits in 1949under established plans or acquiring coverage for the first time is notpresently available, it appears likely that it will be substantially more than1 million. In many instances the change in established plans amountedto a small concession to unions seeking greater gains, but in other instancesthe changes represented an important long-run charge upon industry.Most of the recently negotiated plans are tied to the social security program,so that the costs involved in the private plans will decline if benefits underthe Government program are increased.

Other supplementary benefits appeared in most of the year's settlements.Only a minority failed to provide either a wage increase or some fringebenefit, sometimes of significant size.

Commitments to establish company-financed pension and insurance plansand the adoption of a higher Federal minimum wage to take effect inJanuary 1950, have substantially increased potential expenditures for labor.

Work stoppages. The number of work stoppages was about the same asin 1948. The two most important were those in the coal and steel indus-tries which affected about 800 thousand workers and accounted for half ofthe man-days lost through work stoppages. As a result, man-days of idle-ness were 50 percent higher than in 1948. By the year's end, the steelshut-down was over and steel output was above 93 percent of capacity. Theissues involved in the coal stoppage were still largely unsettled although theminers had returned to work on a 3-day-week basis.

ProfitsThe moderate decline in economic activity and in prices which marked

1949 was accompanied, as was only to be expected, by a sharper drop

36


in profits. As conventionally measured, corporate profits before and aftertaxes averaged more than 20 percent below their 1948 levels, while the grossnational product dropped less than 2 percent and wholesale prices lessthan 7 percent.

Corporate profits before taxes (not adjusted for inventory valuation) for1949 are estimated at 27.6 billion dollars, compared with the 1948 levelof 34.8 billion.

Corporate profits declined sharply during the first half of the year, andby the second quarter were at an annual rate of 26.4 billion dollars beforetaxes. During the third quarter, profits before taxes were at an annual rateof 28.0 billion dollars. The rebound in manufacturing activity and thepeak rate of automobile output were mainly responsible for this increase.Largely because of the work stoppages, however, profits before taxes fell toan estimated annual rate of 26.5 billion in the fourth quarter. (See chart 6.)

Corporate profits after taxes in 1949 are estimated at 16.7 billion dollars,compared with 21.2 billion in 1948. The 1949 return represented over4 percent on sales and over 8 percent on net worth, compared with about5 percent and 11 percent, respectively, in 1948.

CHART 6

CORPORATE PROFITSCorporate profits during the 1st half of 1949 showed aconsiderable decline reflecting the drop in prices and production.The trend of profits was upward in the second half of the year,interrupted by work stoppages. Dividends continued to rise.

BILLIONS OF DOLLARS40

20

10

ANNUAL RATES, SEASONALLY ADJUSTED

PROFITS BEFORE T A X E S *


...i I I...

DIVIDEND PAYMENTS

...1 1 1 1 i 1 1... I ii i 2 3 ^ 4-s/

1949

30

20

10

2 3 4 1 2 3 4 1 2 3 4

1946 1947 1948* NO ALLOWANCE FOR INVENTORY VALUATION ADJUSTMENT.

•^PRELIMINARY ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS; BASED ON INCOMPLETE DATA.

SOURCE: DEPARTMENT OF COMMERCE (EXCEPT AS NOTED)

37


The drop in net farm income also was substantial. Net farm incomebefore taxes (including value of physical changes in inventories) is esti-mated at 15.0 billion dollars for 1949, a drop of more than 18 percent fromthe 1948 level of 18.4 billion. The most stable element in profits was theincome of unincorporated business and the professions. For this group,net income before taxes (not adjusted for inventory valuation) is estimatedat about 23.4 billion dollars, a decline of 6 percent from the 1948 levelof 24.9 billion. (See appendix table C-4.)

The conventional measures of business profits during the past four yearshave been complicated by the changes in the price level and by the effectof these changes upon the value placed upon inventories. Prior to the lastquarter of 1948 the price level was constantly rising. Since then it hasbeen falling. When inventories are sold and replaced at higher prices, partof the profits reported by business are locked up in the higher costs of theinventory and are therefore unavailable for other purposes. In periodswhen inventories are replaced at lower prices, funds are released, thus in-creasing the availability of funds to business beyond that indicated by thecurrent reports on profits. Thus, the conventional measure of profits leavesuncertain the availability of such profits for investment in new plant andequipment, and for the payment of dividends.

For the years 1946 to 1948, when prices were rising, the added cost ofreplacing inventories relative to the profits reported by corporations wasas shown in table 3. During 1949, when prices fell, the costs of replacinginventories were correspondingly reduced. The reduction in cost of replac-ing inventories during 1949 is estimated at 2.7 billion dollars, in contrastto an increase of 2.2 billion in 1948.

TABLE 3.—Corporate profits and costs of replacing* inventories[Billions of dollars]

Period

1946 -1947194819492 -

Corporateprofits before

taxes

23.631.634.827.6

Corporateprofits after

taxes

13.919.121.216.7

Changes incosts of

replacinginventories l

+5.2+6.0+2.2-2 .7

1 Inventory valuation adjustment with signs reversed. See appendix table C-4.1 Estimates based on incomplete data; first half by Department of Commerce and second half by Council

of Economic Advisers.

Sources: Department of Commerce (except as noted).

This resulted in a net shift of 4.9 billion dollars in the cost of replacinginventories, compared with 1948. Hence, although corporate profits aftertaxes fell 4.5 billion dollars, the funds internally available for new plant andequipment and for the payment of dividends were somewhat more in 1949than in 1948. There was no longer need for working capital to absorban increasing value placed on goods in inventory, a factor which had been


responsible for much of the increase in bank credit required by business inearlier years. Coupled with the liquidation of inventories which markedthe recession in the first half of the year, this made funds available whichpermitted corporate managers to reduce bank borrowings and to increasedividends, while maintaining new investment in plant and equipment at ahigh level. (Detailed statistics on profits may be found in appendix tablesC-4, and C-29 to C-34.)

MONEY AND CREDIT

The four important features in the field of money and credit in 1949were the relaxation of credit restrictions, the usual heavy draft upon thesupply of money incident to the payment of Federal taxes in the firstquarter of the year, the resumption of private credit expansion during thelatter part of the year, and the beginning of a period of deficit financing andpublic debt enlargement.

The decline in business loans during the first half of the year did notreflect any real credit tightness. Most business firms were comfortablein their financial situation. The volume of business, even while the reces-sionary movement was under way, was sufficiently large and profitable forbusiness loans to be paid off when declining inventories released a part ofthe working capital invested therein. In the first 7 months of the year,business loans of the leading city banks declined 17 percent reaching 12.9billion dollars at the end of July.

Before the end of the third quarter, the downward trend of business loanswas reversed. Expanding business activity again created a demand forworking capital, and the movement continued to the end of the year, whenthe business loans of leading city banks were 13.9 billion dollars, comparedwith 15.6 billion a year earlier. The business loans and other loans of coun-try banks were never affected in the same degree. Total loans of all com-mercial banks in the United States continued at a higher level in everymonth in 1949 than in the corresponding month of 1948. However, thecourse was very different in the two years. In 1948, bank loans were risingsteadily throughout the year, reaching the postwar peak in December. In1949, there was a slight decline in bank loans until July. There then beganan expansion which gained a higher level in each succeeding month.

In the first quarter of the year, automobile instalment credit increasedmoderately while other kinds of instalment credit declined markedly. Reg-ulations affecting instalment credit terms were then relaxed and the volumeof instalment credit resumed its advance at about the previous postwarrate. In the third quarter, with the expiration of controls, the growth ofinstalment credit was accelerated. By the end of the year automobile in-stalment credit outstanding had increased over 60 percent from the end of1948.

The Federal Reserve System contributed to the general easing of credit

39


terms during the year by a number of actions including several reductionsin reserve requirements. Although business loans continued to diminishas business requirements contracted, Federal Reserve action helped toavoid any general pressure for credit liquidation and improved the founda-tion for the expansion of business which occurred later in the year. Therewas also some easing in the terms and availability of credit to private bor-rowers and to State and local governments. Both long- and short-terminterest rates declined during the year. One important observable resultof the reduction of reserve requirements was an enlargement of bankholdings of Government securities, with a corresponding expansion in bankliquidity positions.

Since income tax payments are so much higher than before the war, theheavy concentration of Federal tax payments within the winter months hasthe effect of causing a sharp decline in bank deposits during the first quarterof each year. Although this decline is often anticipated in part by apreceding accumulation of deposits, the concentrated drain within a shortperiod reduces buying power.

Demand bank deposits, the largest element in the money supply,declined 2.9 billion dollars from the end of December 1946 to the end ofMarch 1947. In 1948, the decline in the first quarter was 5.6 billiondollars, and in the first quarter of 1949 it was 4.4 billion. These declinesare closely related to the payment of Federal taxes within this period, whena heavily disproportionate part of the personal and corporate income taxesof each year are paid notwithstanding the shift to the withholding planaffecting most individual income taxpayers. The interruptions in themarch of strong and inflationary forces in early 1947 and early 1948, and theprogress of the recessionary movement in the first half of 1949, were notunrelated to this seasonal reduction in the money supply. (See chart 7.)

In April 1949, the gross national debt was reduced to 251.6 billion dol-lars by use of the Treasury surplus of the preceding 3 months. Federalexpenditures exceeded receipts in every succeeding month except June,September, and December, when quarterly income tax payments createdsurpluses. The gross Government debt increased each month, reachingabout 257 billion dollars by the end of the year.

In 1949, the monetary and fiscal policies adopted since the beginning ofthe war again permitted the Treasury to secure funds without causing atightening of the money market or a restriction of credit. On the con-trary, there developed a movement to lower interest rates which wasexhibited in a market demand for Government securities so strong thatthe Open Market Committee of the Federal Reserve System felt that itshould exert less pressure against a rise in the market price. Its state-ment on June 28, 1949, that its open market operations in buying andselling Government securities would permit greater freedom to the marketwas followed by a substantial rise in bond prices and by an increased

40


CHART 7

MONEY SUPPLYThe heavy concentration of Federal income tax collections

in the 1st quarter tends to contract the money supply

in that period of the year.


175

1 5 0

125

1 0 0

7 5

5 0

25

TOTAL MONEY SUPPLY

BILLIONS OF DOLLARS2 0 0

175

150

125

100

CURRENCY OUTSIDE BANKS

ADJUSTED DEMAND DEPOSITS

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

1947 1948 1949END OF MONTH

BILLIONS OF DOLLARS BILLIONS OF DOLLARS

+ 5

CHANGES IN DEMAND DEPOSITS

(MAGNIFIED SCALE)

VI 1 I I I I I I I I I

VI I I I I 1 I I 1 I 1 i i i i i i i i i

+5

- 5J F M A M J J A S O N D J F W A M J J A S O N D J F M A M J J A S O N D

1947 1948 1949

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM


market demand for short-term securities. Yields were driven down solow that the Committee directed sales by the Federal Reserve Banks oflarge amounts of short-term issues in order to provide a means for invest-ment of some of the excess reserves and thereby avoid disorderly money-market conditions. During the second half of the year, yields on long-termbonds continued at close to the lowest levels of the postwar period, whileshort-term rates rose somewhat from the low level reached in July. (Sta-tistics on money, banking, and credit are given in appendix tables C-24 toC-28).

T H E FLOW OF GOODS AND PURCHASING POWER

Consumer income, spending, and saving

For 1949 as a whole, consumer income (personal income before taxes) andexpenditures were about equal to the levels of 1948. Such income in eachyear totaled about 212 billion dollars, and expenditures were about 179billion. Since income taxes were lower, income at the disposal of con-sumers increased slightly, and the rate of saving went up correspondingly.

Peak rates of disposable income (income after taxes) were reached latein 1948, and personal saving reached a peak early in 1949. Disposableincome in 1949 was 192.9 billion dollars, compared with 190.8 billion in1948. But the trend of disposable income in 1949 was downward, fallingin every quarter. (See chart 8.) It reached an annual rate of 191.1billion in the fourth quarter. This was in marked contrast to the 1948trend, when disposable income rose in each quarter. Personal saving de-clined from the exceptionally high rate of 16.3 billion dollars or 8.4 percentof disposable income in the first quarter of 1949 to 13.1 billion or 6.9 percentof disposable income in the fourth quarter. This decline resulted fromdeclines in income coupled with remarkable stability in total consumptionexpenditures. (Appendix B and appendix tables C-2, G-5, C-6, C-7, andC-8 provide statistics on consumer income, spending, and saving.)

Major components of personal income. The major impact of the de-cline in business activity was registered principally in lower incomes ofcorporate business, rather than in personal incomes. During the first halfof 1949 total compensation of employees dropped, but has since thenremained firm despite work stoppages. Business and professional incomewas fairly constant in 1949 after a small initial drop from the fourth quarterof 1948. Farm income, on the other hand, dropped substantially through-out 1949. Cash farm incomes from marketings fell from 30.5 billion dollarsin 1948 to 27.7 billion in 1949. Net farm income after expenses fell morethan total income because farm expenses remained high, and inventories in-creased less than in 1948. The minor components of income (rents, divi-dends, and interest) remained nearly stable throughout last year or in-creased slightly.


CHART 8

CONSUMER INCOME, SPENDING,AND SAVINGAlthough postwar peaks of disposable income and expenditures werereached late in 1948, the crest in personal saving was notattained until the first part of 1949. Income and saving droppedduring 1949, while expenditures remained almost stable.BILLIONS OF DOLLARS BILLIONS OF DOLLARS

250 I 1 250

200 -

150 -'

100 -

50 <

ANNUAL RATES.SEASONALLY ADJUSTED

DISPOSABLEINCOME ^

(PERSONAL INCOME LESS TAXES) ^ , ^ 0 $

^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ C O N S U M P T I O N E X P E N D I T I U R E S ^ ^

HiiiiijllllSHI•ill

- 200

150

100

50

1941 1942 1943 1944 1945 1946 1947 1948 I949jy

^ FOURTH QUARTER ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS1, BASED ON INCOMPLETE DATA.


Consumer expenditures. Consumer expenditures were fairly stablethroughout 1949 at an annual rate between 178 and 179 billion dollars.This level was equal to that for 1948 as a whole, but about 2 billion dollarsbelow that of the second half of that year. Throughout 1949 there was anoticeable change in the composition of expenditures, with an increasedproportion going to services and durable goods.

Heavy purchase of durable goods in 1949 was due largely to the greateravailability of automobiles, for which there was a substantial excess demandat the beginning of the year. Automobile instalment credit outstandingexpanded rapidly starting in March, and other instalment credit alsoincreased. Moderate drops in the prices of foods and apparel helped tosustain volume in nondurable lines. While department store sales wereabout 5 percent below the dollar volume of 1948, unit volume was probablymaintained through price reductions, promotions, and sales of lower-pricedmerchandise. (See appendix table G-20.)

8G8143—50 43


Service expenditures continued to increase in 1949. Housing servicesincreased as a result of higher actual and imputed rental values, and anincreased total supply of residential units. Rents and utility costs were bothsignificantly above 1948, offsetting to a considerable extent declines in otherconsumer prices. A variety of miscellaneous service charges, such as intereston consumer debt, also rose, pushing total expenditure for services upsignificantly.

CHART 9

PERSONAL SAVING SELECTED ITEMS

Tangible investment in homes and business assets declined by about$ 2 billion from 1948 to 1949. In 1949, the increase in liquidassets exceeded the increase in debt for the first time since 1946.

NET TANGIBLE INVESTMENT

BILLIONS OF DOLLARS—I 20

NET FINANCIAL SAVING


-'NET FINANCIAL SAVING EQUALS THE INCREASE IN LIQUID ASSETS MINUS THE INCREASE IN DEBT.-'ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS; BASED ON INCOMPLETE OATA.SOURCES: DEPARTMENT OF COMMERCE AND SECURITIES AND EXCHANGE COMMISSION (EXCEPT AS NOTED)

44


Net personal saving. Net personal saving (gross saving less increasesin consumer credit and other forms of dissaving) in 1949 as a whole was14.4 billion dollars, compared with 12.0 billion in 1948. However, itdecreased throughout the year. The first quarter saving was at an annualrate of 16.3 billion dollars. By the fourth quarter it had fallen to 13.1billion.

This net saving represented a much larger positive saving on the part ofmany families, offset in part by very substantial dissaving by other families.The main forms of dissaving are drawing down liquid assets and going intodebt for durable consumer goods or family expenses. Personal saving in-cludes both investment in tangible assets—such as homes, business and farmequipment—and liquid (or financial) saving. It does not include pur-chases of durable consumer goods, even though the purchasers of such goodsmay regard them as long-term capital assets. Personal saving includes notonly what we ordinarily think of as consumer saving, but also the savingdone by unincorporated businesses, farms, and nonprofit organizations.

In chart 9, showing all forms of personal saving, the tangible forms areshown in the top segment, and in the lower segment is shown the financialsaving, which includes increases in liquid assets (such as currency anddeposits in banks, bonds, and stocks) less net increases in debt.

TABLE 4.—Components of personal saving 1

[Billions of dollars]

Item 1946 1947 1948

Increases in liquid assets.. 15.3 11.5 7.8

Currency, deposits, U. S. Government bonds, and saving and loan shares.--Insurance reserves - -Corporate and State and municipal securities

Less: Increase in debt.

11.63.4.3

9.2

6.53.71.4

11.6

1.43.52.9

7.9

Mortgage debt (residential)..Consumer debtBusiness debt

Equals: Net financial saving

Plus: Net tangible investment..

3.23.32.6

6.1

4.13.34.2

- . 1

4.12.51.4

- . 1

13.6

Personal business investment.Purchases of new homes

Less: Statistical discrepancy,.

Equals: Net personal saving..

4.32.5

2.6

10.3

1.84.6

1.2

5.1

7.06.6

1.6

12.0

i See appendix table B-2—for sources and uses of personal funds.NOTE.—Detail will not necessarily add to totals because of rounding.Sources: Department of Commerce and Securities and Exchange Commission.

Since the war a large part of personal saving has consisted of investmentin tangible assets. This accounted for the increase in saving between1947 and 1948. As shown in table 4, investment in assets of unincorpo-rated businesses and farms rose from 1.8 billion dollars in 1947 to 7.0billion in 1948, while home purchases increased from 4.6 billion to 6.6 bil-

45


lion. These tangible types of saving were in fact so large in 1947 and 1948that a substantial amount of business and mortgage debt was incurred infinancing them. This increase in debt offset the rise in holdings of liquidassets, so that financial saving fell from 6.1 billion dollars in 1946 to negli-gible amounts in 1947 and 1948. (See chart 9.) Thus on balance personalsaving in 1947 and 1948 was of a type which added directly to demand andinflationary pressures but supplied no funds to the rest of the economy.

TABLE 5.—Tangible and financial saving^1

[Billions of dollars, unadjusted for seasonal variation]

1948—year

*̂< First half.. .Ki "Second half

1949—year

First halfSecond half

Period Tangiblesaving

13.6

6.07.8

11.6

5.16.5

Net financialsaving

- 0 . 1

- 1 . 21.0

1.4

1.7- . 3

1 The total of estimated financial and tangible saving differs from net personal saving by the statisticaldiscrepancy of $1.6 billion in 1948 and —$1.4 billion in 1949. See Table 4 above.

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

Sources: Department of Commerce and Securities and Exchange Commission.

In 1949, as shown in table 5, according to estimates based on rather in-complete data, tangible investment declined, while for the first time since1946 there was a significant volume of net financial saving. Liquid assetscontinued to accumulate at about the 1948 rate, but the rise in debt wasless rapid, particularly in the first part of the year.

Saving by income groups. While personal saving in 1949 was high byany previous peacetime standards, it is estimated that about one-third of allAmerican families did not add to their savings, but instead spent morethan their current incomes, either by drawing down their assets or by goinginto debt. Data for 1948 (the most recent available) show that the lowesttwo-fifths of the population, classified in terms of current income,as a whole spent more than their incomes. There was a substantial amountof dissaving by many families in all income brackets (as shown in appendixtable B-5); however, in the lower two-fifths of the population amountsdissaved greatly exceeded positive saving. Moreover, there was a sharpupward trend in the amount of dissaving by the lower-income groups from1945 through 1948.

A great part of dissaving in the past 3 years in both lower- and middle-income groups has been in the form of consumer credit obtained to pur-chase automobiles and other consumer durables. About 59 percent of thedissaving families reported purchases of durable goods in 1948, despite thefact that the families in the lowest-fifth income group as a whole spent20 percent more than their income for nondurable goods and services.(See appendix table B-8.)

46


In the lower- and middle-income groups a large volume of saving isnow contractual, in the form of mortgage-amortization payments, life-insurance premiums, and payments into retirement funds. Private insur-ance equities, which are the type of asset most commonly owned by allincome groups, have increased by about 3.5 billion dollars each year for thelast several years. Home improvements as well as home purchases were alsoimportant in 1947 and 1948.

TABLE 6.—Net personal saving and net income of each fijtKoj the*Nation's spending units l

Spending units ranked bysize of income

Lowest fifthSecond fifthThird fifthFourth fifthHighest fifth

All spending units

Percentage of net saving l

1941

- 708

1188

100

1945

069

2164

100

1946

- 835

2179

100

1947

-1317

1293

100

1948

-24- 3

72199

100

Percentageof net

income,1948

411162247

100

* For a definition of the spending unit and a distribution of positive and negative saving, see appendix B .

Sources: Department of Labor (1941) and Board of Governors of the Federal Reserve System (1945-48).

Table 6 shows that saving has been highly concentrated among thegroups with the largest incomes. Much of the saving was in the form ofincreased holdings of corporate securities and tax-exempt State and munici-pal issues. Personal holdings of these assets, which are held almost exclusivelyby upper-income recipients and trusts, increased 2.9 billion dollars in 1948,as shown in table 4.

The ability of families in all income ranges to spend in excess of currentincome has been greatly increased by the liquidation of personal debts andmortgages and the acquisition of liquid assets, mainly bank deposits andGovernment bonds, that occurred during the war. The increase in theamount of negative saving, especially among lower-income groups, indicatesthat since the war large groups of the population have incurredsubstantial debt obligations and made inroads into liquid reserves. Totalholdings of liquid assets by all individuals have continued to increase,although at a diminishing rate.

Business investment and finance

The decline in the gross national product which marked 1949 reflectedprimarily a decline in the level of gross private domestic investment. In1949 gross private domestic investment amounted to an estimated 36.8billion dollars, compared with an estimated 45.0 billion in 1948, a dropof 8.2 billion, or about 18 percent. The drop in the gross national productwas only 3.7 billion dollars. Gross private investment last year was 14.2percent of the gross national product, compared with 17.1 percent in 1948.(See appendix table C-l.)

Investment fell steadily in the first two quarters of the year, and afterthat showed little change. It is estimated that the rate in the final quarter

47


represented about 13.7 percent of the gross national product, comparedwith 17.8 percent in the peak fourth quarter of 1948. The current ratio issomewhat below that characteristic of previous peacetime high levels ofactivity.

Of the three components of gross private domestic investment—con-struction, equipment, and inventory accumulation—it was mainly the shiftfrom inventory accumulation to inventory liquidation which accountedfor the fall in the total. Thus, on a seasonally adjusted basis the grossnational product fell from its peak annual rate of about 270 billion dollarsin the fourth quarter of 1948 to about 255 billion in the fourth quarter of1949, a decline of 15 billion. During the same period, gross private domes-tic investment fell 13 billion dollars, or from an annual rate of 48 billionin the last quarter of 1948 to an annual rate of 35 billion dollars in the fourthquarter of 1949. The annual rate of inventory accumulation declined 10.5billion dollars, from a rate of 9 billion dollars in the fourth quarter of 1948to a liquidation of 1.5 billion dollars in the fourth quarter of 1949. Thebalance of the drop in gross private investment occurred in producers'durable equipment, which during the same period fell 3 billion dollars.Most of the drop in this component took place in the fourth quarter. Pri-vate new construction, which rose during the second half of the year, wasrunning at a somewhat higher rate in the fourth quarter than a yearearlier. (See chart 10.)

Plant and equipment. Total plant and equipment outlays declined1.4 billion dollars, or almost 5 percent, in 1949 compared with 1948. Thedrop occurred in nonfarm outlays as farm expenditures for these itemsremained about the same. (See chart 10 and also appendix table C-3.)

Nonfarm plant and equipment outlays for 1949 are estimated at about6 percent below the very high 1948 rate. After allowing for pricechanges, the decline in real volume was about two-thirds of the dropin money outlays. The trend of such expenditures has been downwardfrom the peak in the last half of 1948, and by the fourth quarter of 1949was almost 16 percent below the level a year earlier.

Manufacturing outlays for plant and equipment (see appendix tableC-17) declined almost 15 percent between 1948 and 1949. Manufacturing(which represented 40 percent of the nonfarm plant and equipment out-

lays in 1949) accounted for over 90 percent of the decline in the total dollarvolume of outlays for new plant and equipment. Transportation otherthan railroads showed a decline of over 27 percent. Outlays of mining,and commercial and miscellaneous industries declined about 9 percentand 6 percent, respectively. On the other hand, railroads and electricand gas utilities increased their investment outlays in 1949. The increasein railroad investment was only slight. Their plant and equipmentoutlays, which in 1949 had been ahead of 1948 in both of the first twoquarters, were in the final quarter of 1949 sharply below the correspond-


CHART 10

CHANGES IN BUSINESS INVESTMENTThe shift from accumulation of inventories in 1948 to liquidation in 1949was the most striking change in business investment. Slight declineswere recorded for new construction and new producers' durableequipment.

(BILLIONS OF DOLLARS)

LIQUIDATION-10 0 10

1

GROSS PRIVATEDOMESTICNVESTMENT

NEW

CONSTRUCTION

NEW PRODUCERS'DURABLEEQUIPMENT

CHANGE INBUSINESSINVENTORIES

1

INVESTMENT20 30 40

1 i 1

1948

1 9 4 9 " "* • • • • • • • ' •" j

Zl

1

50

1

CHANGE FROM1948 TO 1949-10 0

SOURCE: DEPARTMENT OF COMMERCE

ing quarter of 1948. Outlays by utilities increased 18 percent, gainingquarter by quarter over 1948, but the gains were narrowing.

The decline in nonfarm investment in plant and equipment during 1949does not appear to have been accelerated by the downturn in the first halfof 1949, but represents an orderly tapering off of programs along lines thathad been planned by the end of 1948.

Nonfarm business inventories. The process of inventory liquidation,which was a major factor in the decline in business activity during 1949,was slackening by the latter part of the year and in many areas was beingreversed. Since the level of consumption remained high, many producersdiscovered that inventories were being reduced more than was consistentwith maintaining production equal to consumption. Business buying wasresumed on a more normal basis and more in line with the rate of sales.A strong contributory factor was the firming up of the price structure. Theprocess of rebuilding inventories in the main proceeded cautiously. Therewere few signs of any speculative developments.

The book value of inventories in manufacturing and trade reached apeak of 58.6 billion dollars on a seasonally adjusted basis at the end of

49


November 1948. By the end of October 1949, the book value had declinedto 54.5 billion dollars, a drop of about 7 percent. The largest drop wasin manufacturing, where book values dropped about 9 percent comparedwith about 5 percent in wholesaling and 4 percent in retailing. (Seeappendix tables C-18 to C-20.)

The drop in the book value of inventories reflected in part the drop inprices and in part actual physical liquidation. By the third quarter of1949, the liquidation of nonfarm inventories was at a seasonally adjustedannual rate of 2.6 billion dollars, a shift of almost 10 billion dollars froman inventory accumulation at an annual rate of 7.1 billion dollars in thefourth quarter of 1948. The rate of liquidation of inventories in the thirdquarter of 1949 was higher than in the second quarter. However, in thelast quarter of the year there was a drop to an annual rate of 1.5 billiondollars. Trade inventories, seasonally adjusted, in October were appre-ciably above their summer lows.

While the liquidation was continuing in manufacturing, its characterwas changing. Initially liquidation began in purchased materials, thusreflecting the fear of price declines. By the end of the third quarter, liquida-tion had substantially slackened for purchased materials but was continuingfor finished durable goods. There was some evidence in the third quarterthat inventories of steel were being built up in anticipation of the workstoppage. During the fourth quarter, work stoppages in the steel and thecoal industries depleted the inventories of these commodities. The settle-ment of the work stoppage in the steel industry led to strong pressure torebuild the stocks of this vital commodity.

The ratio of manufacturers' inventories to sales in November 1949 waslower than at the end of 1948. For wholesalers the October ratio wassomewhat higher, for retailers slightly lower, than a year earlier. Manu-facturers' and retailers' inventory-sales ratios were still considerably belowprewar levels.

Corporate finance. The change from increasing inventory costs andincreasing customer credit in 1948 to the situation of inventory reductionand small increase in customer credit in 1949 permitted corporate businessto improve its liquidity position, while continuing large outlays for newplant and equipment. There were many corporations which experiencedfinancial difficulty in 1949, but for the group as a whole there was a growthin financial strength and a large number of business firms increased theirdividends.

Financing the growing volume and costs of inventories and the enlarge-ment of customer credit in 1948 absorbed 8.6 billion dollars of corporatefunds. In 1949, on the contrary, there was only a small increase in cus-tomer credit, and the liquidation of 3.7 billion dollars in inventory accountsadded this sum to the funds resulting from the profits of current businessoperations. The internal funds available for new investment included also


those from depreciation charges which rose by 13 percent, compared with1948. (See appendix table C-34.)

On account of the improved financial position of corporations, fundsfrom internal sources were more than equal to the requirements for capitalinvestment in 1949, while in 1948, when there were large increases ininventories and customer credit as well as larger outlays for plant andequipment, they were only about 70 percent of such requirements. Therewas little change in the amount of corporate debt, a decline of 4.2 billiondollars in short-term debt being offset by an increase in bonded and otherlong-term debt. The net increase of 3.7 billion dollars in bond issues wassubstantially less than in 1948 while stock issues of 1.4 billion providedslightly more new equity capital than in the preceding year. An increaseof 2.5 billion dollars in liquid assets marked the improved liquidity ofcorporate treasuries.

Construction, In spite of a slow start, the volume of construction in1949 exceeded the high level attained in 1948. The strength in construc-tion acted to minimize the general decline in the first half of 1949 andwas one of the main forces of revival evident in the second half. Thetotal volume of construction, public and private, amounted in 1949 to 19.3billion dollars compared with 18.8 billion in 1948, a rise of 3 percent. Pub-lic construction, which accounted for 27 percent of total construction in1949, increased by 25 percent. Private construction showed a slight dropof 4 percent in dollar terms, but residential construction was particularlystrong in the second half of the year, rising on a seasonally adjusted basisto a new postwar peak in the fourth quarter. The total rate of activity atthe year's end was about 11.4 percent above that for December 1948. Inaddition the backlog of contracts let is now considerably higher than a yearago, so that 1950 will begin at higher levels than 1949. (See appendixtable C-16.)

The construction of factories and commercial facilities declined some-what during the year. Since activity in these areas began promptly afterthe end of the war and went forward more rapidly than did public con-struction, the subsequent declines were not unexpected.

In the field of utilities, the large increase in the number of families andin income has greatly increased the demand for communication, power,and transportation facilities. To date public utilities (including a con-siderable amount of Federal power development) have not yet been ableto meet these needs. Utility firms in general continued their long-rangeprograms throughout the year despite the hesitancy evidenced by themearly last year. While construction of communications facilities declined,this decrease was more than offset by increases in electric power and gasindustries.

The year 1949 turned out to be a record one for residential construction.The increase in private building construction during the year was confined


largely to residential building, and was particularly large in the field ofmulti-family structures. The slow start was due in part to the adjustmentthe industry was making to lower prices and to building for rent ratherthan for sale. The average cost per dwelling unit fell approximately 10percent from the summer of 1948 to the first part of 1949. While lessthan 9 percent of private residential starts in 1947, and less than 11 percentin 1948, were multi-family units, over 14 percent were multi-family units inJanuary 1949, and for the first 8 months of the year the number ofthese units started was 28 percent higher than in the comparable monthsof 1948 and represented 16 percent of all private starts.

It took time for builders, material manufacturers, and lenders to ad-just to this shift in housing markets and housing types. The shift wasfacilitated by the renewal of section 608 of the National Housing Act whichprovided for insurance of rental projects on favorable terms. By May, theindustry was responding to the improved conditions. In July, the privatestarts were higher than the July figure for any previous year since the war.The easing of interest rates and of credit, including liberalization of lawsgoverning RFC purchases of real estate mortgages, also were important inholding this volume high through the rest of the year. Public housing rosealso, and the total volume of private and public starts continued to riseuntil September when it reached approximately 100,000 units. It stayedat this level in October, making an all-time record for this month, and there-after declined less than seasonally.

Public construction showed the greatest strength. This was due largelyto the fact that public construction of a nonmilitary nature had beenrestrained since 1940. There was great need for schools, hospitals, high-ways, and natural resources development, despite high costs. A largervolume of public bond issues for public construction purposes was votedin 1949 than in any previous postwar year. Public school construction wasthree times as great as in 1947 and one and one-half times as great as in 1948.Public hospital construction was five times as great as in 1947, and morethan twice as great as in 1948. Conservation and development construc-tion also increased, being nearly double that for 1947, and one and one-fourth times that in 1948.

International developments

The most notable international economic developments of 1949 werethe critical deterioration of the United Kingdom's and the rest of thesterling area's dollar position and the subsequent devaluation of thepound sterling and other foreign currencies in terms of the dollar.Although the conditions underlying these developments are of greatlong-run significance for the American economy, the developments them-selves did not greatly affect the economy during 1949. Nevertheless,the world political and economic situation did exercise an important influ-ence upon economic activity during 1949, not only through the continued

52


necessity for high national defense expenditures, but also through a renewedexpansion of government expenditures to aid foreign countries.

Such aid had declined from 1947 to the middle of 1948, as some of theearly postwar aid programs ended and funds provided by others were usedup. When the European Recovery Program got under way in the secondhalf of 1948, our aid began to expand again. In 1949, it reached a post-war record total of 5.9 billion dollars, slightly exceeding the previous recordtotal reached in 1947, and exceeding the 1948 total by 1.2 billion dollars.This increase did not result in an expansion of exports because it was morethan offset by the decline in other sources of dollars used by foreign coun-tries for making purchases in the United States. The dollar value of ourimports of goods and services and the net outflow of private Americancapital decreased while foreign countries as a whole ceased liquidatingtheir gold and dollar assets. As a result, our total exports of goods andservices actually diminished by a billion dollars from 1948 to 1949. Thesedevelopments, which are shown in tables 7 and 8, indicate that the effectof increased aid was to limit the decline of exports in the face of a reductionin other ways of financing them. (See also appendix tables C-35 to C-37.)

Table 7 shows that our total receipts from exports of goods and servicesand investment income remained high in the first half of the year but fellsharply in the second half as foreign countries took measures to stop thesecond and third quarter depletion of their reserves, while our total pay-ments for goods and services, including income on investments, fell in thefirst half of the year and then recovered. As a result, the total export sur-plus first rose and then shrank rapidly. Although for the year as a wholethe surplus of 5.8 billion dollars was only about one-half billion dollarsbelow the 1948 figure, it had fallen to an estimated rate of 3.8 billion a yearby the last quarter. These developments are shown in table 7 and inchart 11.

T A B L E 7.—United States exports and imports of goods and services


PeriodExports ofgoods andservicesl

4.115.019.716.815.8

17.716.915.816.8

17.017.714.514.1

Imports ofgoods andservices 1

3.67.28.5

10.510.0

10.110.111.010.7

10.49.79.9

10.3

Surplus ofexports ofgoods andservices J

1936-38 average1946—.1947194819492 ____Annual rates:

1948—First quarter....Second quarter,.Third quarter._.Fourth quarter.

1949—First quarter....Second quarter..Third quarter..Fourth quarter 2

0.57.8

11.26.35.8

7.66.84.86.1

6.68.04.6

1 Includes income on investments.2 Estimates based on incomplete data.NOTE.—For greater detail see appendix tables C-35 and C-36.Source: Department of Commerce.

53


CHART 11

EXPORTS AND IMPORTS OFGOODS AND SERVICESExports and the export surplus fell sharply in the secondhalf of 1949.

BILLIONS OF DOLLARSANNUAL RATES2 5

2 0

I 5

10

EXPORTS OF GOODSAND SERVICES-17

J I

IMPORTS OF GOODSAND SERVICES *

I I I

BILLIONS OF DOLLARSANNUAL RATES

25

2 0

I 5

10

1 2 3 4 1 2 3

1946 19472 3 4

1948 1949

All of the export surplus was financed by ERP or otherGovernment aid.

15

10

EXPORT SURPLUS

15

-^INCLUDES INCOME ON INVESTMENTS.1/ESTIMATE BASED ON INCOMPLETE OATA.* OTHER MEANS OP FINANCING WAS NEGATIVE IN THIS QUARTER.

SOURCE: U. S. DEPARTMENT OF COMMERCE

54


Imports of goods declined sharply during the first three quarters of1949, and, despite a marked recovery beginning in the summer, wereslightly lower than in 1948. Average prices of imported raw materialsand foods had begun to decline in the second half of 1948. In the firsthalf of 1949, price declines became more general among imported products,and the total quantity of goods imported also began to fall. The netresult was that by the third quarter of 1949 the dollar value of our mer-chandise imports had fallen 20 percent below the level for the fourthquarter of 1948. All economic classes of imports fell in value during thisperiod except manufactured foodstuffs, the average price of which rosemore than enough to offset the decline in the quantity purchased. Theseprice and quantity changes were largely a reflection of the improvementin world production of the products we import and the decline in our owndemand for imports.

TABLE 8.—Financing the surplus of goods and services supplied to foreign countries


Period

1936-38 average .1946 _ _19471948 - .1949 8Annual rates:

1948—First quarterSecond quarter. _Third quarterFourth quarter

1949—First quarter _ _ _Second quarter ._ _Third quarterFourth quarter 6

Surplus ofexports ofgoods andservices *

0.57.8

11 26.35 8

7 66.84 86.1

6.68.04.63.8

Means of financing

Govern-ment aid

(net) 2

5.15 74.75 9

5 13.44 16.0

6.36.45.55.3

Liquida-tion of for-eign goldand dollar

assets 3(net)

0.82.04.5.9

— l

1.42.2.6

- . 8

- . 11.3.4

-1 .8

Outflow ofUnited

States pri-vate capi-

tal*(net)

0.3. 7

1.0.4

1.01.41.1.6

.5

.2

.4

.5

Othermeans of

financing 5(net)

0.4.3

- . 3- . 4

. 1- . 2

- 1 . 0. 3

1- 1 . 7- . 2

1 Includes income on investments.2 Includes grants and loans, but excludes subscription to the capital of the International Bank for Eecon-

struction and Development and the International Monetary Fund. For detail, see appendix table C-37.3 Includes net sales of gold to the United States and net liquidation of foreign dollar assets, including long-

term investments. Excludes liquidation of assets held by the International Bank and the InternationalMonetary Fund.

4 Includes both long-term and short-term capital but excludes purchase of obligations of the InternationalBank.

s Includes private gifts, net dollar disbursements by the International Bank and the International Mone-tary Fund, and allowance for errors and omissions.

6 Estimates based on incomplete data.

NOTE.—For greater detail see appendix table C-35.

Source: Department of Commerce.

The drop in our demand for foreign goods was chiefly the result of thedecline of domestic industrial activity, especially business buying, whichis the immediate determinant of imports. Folio wing the reversal of thebusiness trend the value of imports rose substantially. Most of the recovery

55


was in the quantity of goods brought in. (For further statistics relating toimports of merchandise see appendix tables C-42, C-43, and C-44.)

The fall in imports of goods during the first half of 1949 was followedby sharp cuts in merchandise exports after June. In the third quarterof 1949, exports fell in value 14 percent below the last quarter of 1948,partly because of reductions in prices throughout the year, and partly becauseof 3 very drastic cut in the quantities shipped, primarily to Western Europe

CHART 12

INDUSTRIAL PRODUCTIONIN WESTERN EUROPEIndustrial production in countries participating in the EuropeanRecovery Program has risen greatly.

PERCENT OF 1938

140

120

100

80

60 —

NOT ADJUSTED FOR SEASONAL VARIATION

EXCLUDING WESTERNGERMANY

PERCENT OF 1938

140

120

100

8 0

— 60

i l l M I I i l i JHJ F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

1946 1947 1948 1949

* PRELIMINARY ESTIMATES.

SOURCE: ECONOMIC COOPERATION ADMINISTRATION.

and the sterling area. Through November there was no indication of anyrecovery in exports. (See appendix tables C-39, C-405 and C-41 forfurther statistics relating to exports of merchandise.)

Events leading to devaluation. Since the Congress considered andauthorized the European Recovery Program, great progress has been madeby the Western European countries. In the 12 months ending in Septem-ber 1949, industrial production in these countries rose 29 percent abovethe level of two years earlier, reaching a figure 14 percent above 1938, and,when Western Germany is excluded, it rose 21 percent in the same two-yearperiod to a level 26 percent above 1938. (See chart 12.) The quantity


of Western European exports to the rest of the world rose even more sharply,going from 20 percent below the prewar figure in the first quarter of 1948to 11 percent above it in the first quarter of 1949, an expansion of 39 percentin one year. A net shipping deficit of 400 million dollars in 1947 was con-verted into a net surplus of 300 million in 1948. At the same time sub-stantial, though unequal, progress was made by the Western Europeancountries in controlling inflationary pressures. As a result of these steps—combined, it is true, with intensified import restrictions—these countrieswere able to reduce substantially their current deficit with the United Statesand also with other areas between 1947 and early 1949.

Despite this very great progress, the sterling area's dollar deficit began toincrease rapidly in 1949, causing an acute drain on the gold and dollar re-serves of the United Kingdom and culminating in the devaluation of thepound sterling and other important currencies.

Reversal of the previous expansion of United States imports from Europeand the rest of the world was only one of several factors in this development.From the first to the second quarters of the year, the sterling area's goldand dollar deficit, which is affected by payments on capital as well as currentaccount, increased by an amount equivalent to 1.2 billion dollars a year. Ofthis amount, the increase in its total import surplus with the United Stateswas at an annual rate of a little more than 700 million dollars. Nearly halfof this represented an increase in sterling area purchases from the UnitedStates and about half was accounted for by a decline in the sterling area'ssale of goods and services to the United States. This decline was attribut-able largely to our domestic business decline, though also partly to a with-holding of orders for goods as the maintenance of the pound at $4.03 cameinto question. The price decline in the United States also had the effectof widening the disparity between domestic and foreign, especially European,export prices for manufactured goods. (See appendix table C-38.)

Among other causes were the fall in the prices of raw materials exportedby the dependent overseas territories of the Western European countries andthe sterling area, the deterioration in Western Europe's competitive positionresulting from the relatively greater fall in the prices of manufacturedproducts in the United States than in Europe, and the speculation con-cerning the value of the pound sterling to which these all gave rise. At thesame time the investment of American capital abroad began to diminish asthe foreign expansion programs of American companies, particularly oilcompanies which were responsible for 60 percent of total private Americanlong-term investment abroad in 1948, were brought nearer completion orcurtailed. Import restrictions had to be further tightened in some countriesand in others earlier relaxations had to be reversed.

The pressure on the gold and dollar assets of the ERP countries, partic-ularly on those of the United Kingdom, appears to have been mainly theresult of dollar payments to other areas rather than of an increase in Western

57


Europe's deficit with the United States. This is shown by the changes incertain international transactions between the first and second quarters of1949, shown in the following table in terms of annual rates:

Changes fromfirst to second

quarters of1949

(millions ofdollars, annual

rates)Increase in liquidation of ERP countries' gold and dollar assets 1,468

Increase in ERP countries' goods and services deficit withUnited States 160

Decrease in ERP countries' receipts from United States gifts andinvestments 176

Increase in dollar payments to other areas and errors andomissions 1, 132

Most of the increase in dollar payments to the rest of the world wentto the dependent overseas territories of the ERP countries and to othercountries in Africa, Latin America, Asia, and Oceania, areas which consistlargely of the underdeveloped parts of the world. Increased deficits with theUnited States were the principal reason for the higher dollar requirements ofthese areas, except in the case of Latin America. The deficit of Latin-American countries with the United States did not increase much. As agroup they increased their dollar reserves and repaid short-term debt tothis country, but a large portion of this debt was incurred in financingearlier deficits.

On September 18, the pound sterling was devalued 30% percent in termsof the dollar, and in the next 2 months many other countries, including mostof those in the sterling area and Western Europe, some in South America,Finland and Canada, also reduced the dollar values of their currencies.Most of them devalued by about the same amount as the United Kingdombut some countries important to our trade devalued by less. This wide-spread realignment of currency values in terms of the dollar was intendedprimarily to correct distortions in prices, costs, production, and trade, andto make possible an improvement in the balance of payments position ofthe devaluing countries in relation to the United States and the rest of thedollar area.

From the point of view of the United States, devaluation of foreign cur-rencies tends to increase the quantity of our imports. Under normal con-ditions, it would also tend to reduce the quantity of our total exports. Theseinfluences would normally be expected to exert a downward pressure uponprices and production in industries competitively affected by imports, and inour export industries. Under present conditions, however, our exports arelimited mainly by the dollars we make available to other countries throughour purchases, gifts, and foreign investment. Unless these sources of dollarsincreased, foreign countries that were losing reserves would have had to cut


their purchases from us in one way or another. It is quite likely, therefore,that the effect of devaluation, by making our goods more expensive to thecitizens of devaluing countries, will be to lessen the need of these countriesfor direct restrictions upon imports. If this is the case, our exports are notlikely to be any lower than they would have been had devaluation notoccurred.

The limited data now available in the short period since devaluation indi-cate few major effects in United States markets which can clearly be at-tributed to devaluation. It takes time to make the shifts in trade whichdevaluation tends to bring about.

Government transactionsNOTE: AS has been customary in previous reports, government transactions are

here measured on the so-called consolidated cash basis, rather than in the termsof the conventional budget. Cash payments to and receipts from the public reflectthe volume of current cash transactions between government, on the one hand, andthe public, including business, foreign countries, and international institutions on theother. All intragovernmental transactions are eliminated. Such data are moreuseful for assessing the immediate economic impacts of government programs thanare the data in the conventional budget. A detailed description of the conceptsused is given in the "Budget of the United States, 1950," p. 1375.

Partly under the impact of recessionary tendencies which developed dur-ing the first half of the year, and partly as a result of the internationalsituation, the volume of cash payments in 1949 by all levels of government—Federal, State, and local—rose substantially above their 1948 levels. The1948 tax reduction and the 1949 decline in business caused cash receiptsto drop off. The result was a shift of over 10 billion dollars in the net cashposition of all governments, from a surplus of over 7 billion dollars in thecalendar year 1948 to a deficit of 3 billion in 1949. (See table 9 andchart 13.)

T A B L E 9.—Government cash receipts from and payments to the public

IBillions of dollars]

Receipt or payment

Cash receipts:FederalState and local

Total cash receipts ,.-_

Cash payments:FederalState and local _ __ _ _

Total cash payments _ _

Surplus (+) or deficit ( - ) :Federal _ . __State and local

Total, surplus (+) or deficit ( - )

Calendaryear 1948

44.915.0

59.9

36.915.8

52.7

+8.0- . 8

+7.2

Calendaryear 1949»

41.416.1

57.5

43.117.5

60.6

-1.7-1.4

-3.0

1 Estimate based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: See appendix A.

868148—50 5 59


With increasing government payments, and with a slight decline in the grossnational product as a result of price and other changes, the ratio of gov-ernment payments to total output increased from about 20 percent in 1948to about 23 / 2 percent in 1949.

Cash payments by the Federal Government. Table 10 shows the vol-ume of cash payments to the public by the Federal Government during thecalendar years 1948 and 1949. Aggregate payments in 1949 were 6.2billion dollars higher than in 1948.

T A B L E 10.—Federal cash payments to the public by type of recipient and transaction[Billions of dollars, seasonally adjusted annual rates]

Classification of payment *Calendar years

1948 1949»

Direct payments for goods and services:To individuals _To business and international

Loans and transfer payments to individualsLoans, investments, subsidies and other transfers to business and agricultureLoans and transfer payments to foreign countries and international institutionsClearing account and adjustment to Daily Treasury Statement

8.48.79.8

3 4.65.5

- . 2

Total Federal cash payments.. 38.9

9.010.111.13 6.5

6.5- . 3

43.1

1 See appendix A for explanation of revised classification used in this table.2 Estimates based on incomplete data.3 Includes about 100 million dollars in interest payments to State and local governments.NOTE.—Details will not necessarily add to totals because of rounding.Source: See appendix A.

The causes of the 6-billion-dollar rise in payments between 1948 and1949 were divided between those arising from the impact of recession, andthose reflecting mainly the international situation. Recessionary forcesaccounted for nearly one-half of the total increase in expenditures,leading to expansion in three major fields: they meant an increase of about1 billion dollars in unemployment compensation payments, and they meanta sharp rise in the volume of farm price support loans not redeemed byproducers and taken over from private banks by the Commodity CreditCorporation, and in the volume of mortgages purchased by the Recon-struction Finance Corporation. The increase in these latter cash pay-ments in return for loans and mortgages amounted in the aggregate tonearly 2 billion dollars.

The needs of defense and foreign aid caused major program expansions,with an aggregate increase of about 2.8 billion dollars. Other importantincreases were in Federal public works, where construction activity in 1949was some 20 percent higher than in 1948.

Cash payments by State and local governments. As was shown intable 9, cash payments by State and local governments increased by overV/2 billion dollars in 1949 above their 1948 level, thereby continuingthe upward trend which has persisted since the war. Expenditures onschools, roads, and other public works still constitute the most rapidly

60


CHART 13

GOVERNMENT CASH RECEIPTS FROMAND PAYMENTS TO THE PUBLICThe net cash position of the Federal Government shifted froma surplus in 1948 to a deficit in 1949. State and localgovernments showed a cash deficit in both years.

FEDERAL


20,

10'PAYMENTS

'RECEIPTS

1948 1949

DEFICIT

STATE AND LOCAL

BILLIONS OF DOLLARS3 0

1948CALENDAR YEARS

SOURCE: SEE APPENDIX A

1949

6i


expanding segment of State and local activities. The increase in unem-ployment during 1949 led to some expansion in public assistance andother welfare expenditures, but this was partly offset by a decline in thetotal volume of bonus payments to veterans by State governments.

Federal cash receipts; the cash deficit. The calendar year 1949 was thefirst full year in which the effects of the tax reduction of the Revenue Actof 1948 were fully reflected in cash receipts. Receipts from direct taxeson individuals were over 4 billion dollars lower (at an annual rate) duringthe first half of calendar 1949 than during the same period of 1948, and taxrefunds were over half a billion dollars higher. These were the majorfactors explaining the decline of 3.5 billion dollars in cash receipts of theFederal Government, from 44.9 billion dollars in 1948 to 41.4 billion lastyear. Corporate tax payments rose nearly 1 billion dollars, reflecting thehigh profits of 1948. But this was more than offset by the continued sharpdown trend in receipts from surplus property and in other miscellaneousreceipts. Because of the deferred payment of taxes (particularly corporateincome taxes) receipts during the next 18 months will reflect in con-siderable degree the recession of 1949. (See table 11.)

TABLE 11.—Federal cash receipts from the public[Billions of dollars, annual rates, seasonally adjusted]

Source of cash receipts Calendar1948

Calendar 1949

Total i Firsthalf

Secondhalfi

Direct taxes on individualsDirect taxes on corporationsEmployment taxesExcises and customsSurplus property receiptsDeposits by States, unemployment insurance-Veterans' life insurance premiumsOther.Less: Refunds of receipts

Total Federal cash receipts from the public..

20.9l l . l2.57.91.21.0.4

2.12.2

18.412.02.58.0

.51.0.4

1.42.8

18.712.02.57.9.7.9.4

1.42.8

18.212.02.58.0

.31.1.4

1.42.8

44.9 41.4 41.7 41.2

i Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Source: See appendix A.

Reduced receipts and higher expenditures meant a marked shift inthe net cash position of the Federal Government. While 1948 showed acash surplus of some 8 billion dollars, the result for 1949 was a deficit ofabout 1.7 billion. There was an increase during 1949 of approximatelythe same amount in the national debt held by the public, reflecting in-creased sales of securities to the public.

Cash receipts of State and local governments; the cash deficit. The cashreceipts of State and local governments are less flexible with respect togeneral business conditions than are those of the Federal Government, andState and local tax rates, in conjunction with new taxes, have shown acontinuing rising tendency, in contrast to the sharp reductions contained


in the Federal Revenue Act of 1948. Thus the cash receipts of State andlocal governments showed an increase of over 1 billion dollars in 1949compared with 1948, despite the 1949 recession. The increase in receiptswas, however, less than the increase in expenditures, and the net cashdeficit of State and local governments combined increased from about800 million dollars in 1948 to nearly l / 2 billion in 1949.

SUMMARY: T H E NATION'S ECONOMIC BUDGET

After 3 years of continuing increases, the year 1949 was the first yearthat showed a decline in the total output of the economy both in dollarsand in real terms. This decline, however, was a very moderate one. Com-pared with the average of 1948, the dollar value of goods and services wasless than J/£ percent lower in the first half of 1949; and about 2j/s> percentlower in the second half. This decline continued from the first to thesecond half of the year and, as a matter of fact, continued from quarterto quarter, according to preliminary estimates. The regularity of thedecline, however, is somewhat deceptive as an indicator of changes ineffective demand for goods and services. First, some of the drop in dollarfigures actually reflects a small drop in prices. Furthermore, the continueddrop in the fourth quarter is explained in part by work stoppages in steel andcoal.

Looking at the component parts of the Nation's Economic Budget, themost drastic cut occurred in business investment. As the details presentedin appendix A show, this contraction was due mainly to the shift frominventory accumulation in 1948 to inventory liquidation in 1949. Newconstruction and expenditures for producers' equipment remained at ahigh level. This was also true of business receipts, which include undis-tributed earnings, capital consumption allowances, and the inventory val-uation adjustment. The change in inventory movement was so drasticthat the net absorption of saving through domestic business investmentdropped from about 18 billion dollars in 1948 to 9 billion in 1949. (Seetable 12 and chart 14.)

Even though the total export surplus in 1949 was nearly at 1948 levels,net foreign investment, which excludes exports financed by gifts and grants,disappeared almost entirely from the Nation's Economic Budget in 1949.In the second half of the year, both the export surplus and net foreigninvestment fell sharply, owing to reductions in private investment abroad, innet liquidation of foreign assets, and in other forms of foreign investment.

The significant fact is that the contraction in domestic business invest-ment during 1949 did not initiate a downward spiral in the economy.Consumer disposable income dropped only slightly and consumer expen-ditures remained on an even keel. Thus consumer saving, which wasvery high during the first half of the year, declined somewhat during thesecond half. Federal, State, and local government expenditures increasednearly 8 billion dollars from 1948 to 1949. Government receipts declined,

63


CHART 14

THE NATION'S ECONOMIC BUDGET

The most significant development in the Nation's EconomicBudget between 1948 and 1349 was a decline of about$ 8 billion in business investment, and a change from dGovernment surplus to a deficit.

1 9 4 8 (BILLIONS OF DOLLARS)

TOTAL*(Gross National Product)

CONSUMERS

BUSINESS

INTERNATIONAL

GOVERNMENT(Federal.state, local)

•/ /RECEIPTS '.

Transfer payments-^

m

Tronsfer payments *

1 9 4 9 (BILLIONS OF DOLLARS)

TOTAL*(Gross National Product)

CONSUMERS

BUSINESS

INTERNATIONAL

GOVERNMENT(Federal, state, locol)

Transfer payments «

ransfer payments *

EXCESS OFEXPENDITURESH RECEIPTS (+)

0 j -

, CONSUMERE SAVING

EXCESS OFINVESTMENT

EXCESS OFINVESTMENT

3 CASHJ SURPLUS

777] CONSUMER•£] SAVING

EXCESS OFINVESTMENT

EXCESS OFRECEIPTS

CASHDEFICIT

* TRANSFER PAYMENTS ARE INCLUDED IN RECEIPTS OR EXPENDITURES OF THE SEPARATE ACCOUNTSBUT NOT IN THE TOTAL GROSS NATIONAL PRODUCT.

SOURCE: SEE APPENDIX A.Scale. "

BILLIONS OF DOLLARS

64


transforming a 7-billion-dollar cash surplus into a 3-billion-dollar cashdeficit in 1949, or a net shift of 10 billion dollars. This shift in the govern-ment position coincided with a decline in the net absorption of funds forbusiness investment of nearly the same amount. Thus the high level ofprivate domestic investment other than inventory accumulation, the sub-stantial increase in government expenditures, and the high level of con-sumer demand prevented the inventory liquidation from initiating aserious downturn in general business conditions.

TABLE 12.—The Nation's Economic Budget


Economic group

CONSUMERS

Disposable income relating to current production.Government transfers and net interest payments

Disposable personal incomeExpenditures for goods and services __Personal savings (+)-_ _ _.

BUSINESS

Retained business receipts from current produc-tion . .

Gross private domestic investment _ _Excess of receipts (-f-) or investment (—)

INTERNATIONAL

Government loan transfers abroad __Net foreign investment .Excess of receipts (+) or investment (—)

GOVERNMENT (Federal, State, and local)

Tax payments or liabilitiesAdjustment to cash basis

Cash receipts from the public . _Purchases of goods and servicesGovernment transfers _ . __ _

Cash payments to the publicExcess of receipts (+) or payments (—)

ADJUSTMENTS

For receipts relating to gross national productOther adjustments

Total: Gross national product .

Calendar year 1948

Re-ceipts

175.814.9

190.8

28.8

1.3

60.2—.3

69.9

—.40

262.4

Ex-pendi-tures

178.8

45.0

1.9

36.716.0

52.7

262.4

Excess ofreceipts(+) ordeficit(-)

+12.0

-18.2

— .6

+7.2

- . 40

0

Calendar year 1949 1

Re-ceipts

177.015.9

192.9

27.6

.7

56.3+1.2

57.5

- 2 . 2-.8

258.7

Ex-pendi-tures

178.5

36 8

0

43.517.1

60.6

258.7

Excess ofreceipts(+)ordeficit

(-)

+114

-9.B

+.7

-S.O

- 2 . 2—.8

0

1 Estimates based on incomplete data. See appendix A for detail for 1949 by half years.

NOTE.—Items relating to current production of goods and services are shown in roman type. Transferpayments and receipts and subtotals including them are in italics; they are not included in the gross nationalproduct. Detail will not necessarily add to totals because of rounding.

Source: Based on data from the Department of Commerce and Bureau of the Budget. (See appendix A.)

65


II. The Significance of 1949 and the Eco-nomic Outlook

DURING the past year there has taken place an impressive demon-stration of the strength and resiliency of the American economy. In

the closing months of 1948, we were still confronted by inflation. We knewthat it had to end and many feared that the longer the end was deferred theharder would be the fall. Our position now is more comfortable. Theinevitable end of the inflationary process has come. We are now en-joying a recovery movement. The successful combination of private andpublic actions, which limited the recession of inflationary forces to a mod-erate and brief downturn in business, justifies an optimistic outlook for thecoming months and confidence that we shall be able to deal with theproblems of a somewhat more remote period.

Even at midyear, when the recessionary movement was reaching itsmost aggravated stage and a further substantial decline in industrial pro-duction in July had to be anticipated, the Council found that "many factorsaugur well for the successful culmination of the readjustment processin early stability followed by renewed growth." We looked forward to the"unique and fortunate experience of liquidating a major inflation withoutfalling into a severe recession." But it was our expressed warning thatthe presence of some business decline should not be allowed to aggravate thepessimism which had appeared in the business world in the spring. Forthis would have led, as it had done in earlier periods, to a more seriousdeflationary movement with distributors withholding orders for new goodsand manufacturers and other producers responding by reducing productionand employment further.

Fortunately, business did not continue this pessimistic course. Even inJuly, before there had appeared many indications of improvement in scat-tered branches of the economy, a pronounced improvement in business sen-timent developed. This made it possible for the underlying factors of eco-nomic strength, which had not yet suffered serious deterioration, to resumetheir upward pressure upon general business activity. By August, the signsthat the recessionary movement was at or near its end were numerous, andin September the trend of revival became clear. The recovery movementwas threatened by serious industrial controversies and work stoppages inthe following weeks. But it proved strong enough to hold its place andto become active when production and employment in the steel industry

66


was resumed in November and an uneasy armistice in the coal industrypermitted limited production and employment.

BASES FOR CONFIDENCE AS 1950 OPENS

The past year furnished a test whether there would develop a seriousdeterioration in confidence which then seemed to the Council the maindanger, and that main danger was surmounted. Other difficult problemsstill lie ahead. The recovery since last summer is still incomplete, andwhether it continues and we achieve our national objective of maximum em-ployment, production, and purchasing power in 1950 will depend upon thesuccess of the actions of business, labor, farmers, and government in con-solidating the strong forces underlying the economy.

The first basis for confidence today is that the size of the total declinein economic activity during 1949 was moderate. While drastic in someareas, it did not seriously impair our general strength. From the end of1948 to the end of 1949, the total output of goods and services measured indollar terms dropped about 5 percent, but when allowance is made for pricechanges the real decline was less than 2 percent. Total employment droppedless than 2 percent while unemployment rose from 3 percent of the laborforce to over 5 percent. The decline in consumer disposable income wasless than 3 percent, in industrial wholesale prices 5 percent, and in consumerprices less than 2 percent. No one should minimize the hardship and suffer-ing inflicted upon the unemployed. But one must also give due regard tothe high volume of income and employment which persisted. In thesecircumstances lay the force of recovery.

Although the Council was moderately optimistic at midyear 1949, fewwould have predicted during the decline of the first half year that the year'send would leave us in such good condition. The decline was not onlymoderate but also brief. By the second half, declining tendencies were sup-planted by the forces of revival. Thus, there was no time for these decliningtendencies to sap the confidence or reserves of business, undermine themorale or savings of the people, or impose heavy additional burdens upongovernment.

The simplest reason for confidence about the short-run future is themost important. It is that the economy is now moving upward, and thusis itself generating recuperative forces. At, midyear, despite its basicoptimism, the Council said that the most serious fact confronting us wasthat the decline had not yet been reversed. So long as it continued, wecould not be sure that the strong factors of recovery, which we saw, wouldnot be overcome by increasing weaknesses in other business conditions.Today the situation is reversed. Industrial production, which fell 17percent in the 8 months from its November 1948 peak to its July 1949 low,had recovered almost half of the decline by December. A distinct upwardmovement has now been created, and it may be counted upon to continue

67


unless it is interrupted by factors which we shall discuss and which must befaced. It would have to move a considerable distance in absorbing ourunused resources of manpower and of plant capacity before it wouldencounter the danger of inflation.

VALUE OF AFFIRMATIVE POLICIES

The economic downturn during the first half of 1949, which began whenproduction, employment, and personal incomes were at or near recordlevels, again proved that conflicting forces are always present in our com-plex economy, and that its basic elements of strength will at times be chal-lenged. The course of events in the second half of the year demonstratedour improved capacity to protect the economy against depressions growingout of moderate recessions, and to fortify those forces to which a free econ-omy must look for renewed expansion.

Evidence of this improvement was shown in the behavior of businessin several ways: the avoidance of speculative excesses, the generally prudentmanagement of inventories, the refusal to accelerate the decline by cuttingwages or by resorting to large-scale lay-offs, and the general resistance to adeflationary complex. While many producers were unwilling to reduceprices, preferring to reduce output and employment, even in this respectthere has been progress toward a long-range point of view. Correspond-ingly—and also with some exceptions—labor manifested fairness and mod-eration in its wage demands during the testing period and exhibited in otherrespects its mature concern about the condition of the whole economy andits confidence that the economic ship would safely ride through the storm.

Such economic behavior refutes those critics of our system whohave argued that our difficulties and conflicts would become progressivelymore insoluble. The lesson of 1949 is that our free institutions, our educa-tional processes, and the liberty of our people to make their own decisionshave made us stronger than before.

The strength manifested within our business system has been matchedby the contributions of government toward economic stability. The mani-fold improvements in our financial structure need no detailed description.Bank runs have become virtually impossible. Arrant speculation has beendampened. Credit measures have been improved. The flexible powers ofthe Federal Reserve System have been invoked. The management of thenational debt has been prudent and reassuring to the public and has beenconsistent with maintaining favorable credit conditions for the benefit ofbusiness. The system of farm price supports has prevented collapse in themost volatile of all markets. Unemployment insurance has provided partialcontinuity of income to the main victims of declining production, and hasthus served to support the demand for goods. The volume of governmentoutlays, including those for foreign aid, while serving other important pur-

68


poses, has unquestionably introduced stability into a large sector of theeconomy.

Clearly, in government policy no less than in private action thereis need for further improvement. But the wide range of agreement aboutthe proved utility of conscious efforts—both private and public—to protectour economy from disaster and to facilitate its intrinsic propensity forgrowth means that we are learning how to use our intelligence to accomplishall that our resources permit.

SHORT-RANGE OUTLOOK

For the near future, the economic outlook is good. The revival in busi-ness activity which began in the summer of 1949 has already manifestedsufficient strength to carry well into the first half of 1950. Liquidation ofinventories has substantially slackened, and in many areas rebuilding isgoing forward. Consumer disposable income, though somewhat downfrom the peak level of the fourth quarter of 1948, is still above the averagefor that year as a whole. The demand for automobiles is still high. Thelarge rate of construction contracts currently let promises a high level ofactivity for the coming months. The rate of business investment in plantand equipment, although declining, still continues relatively high. Govern-ment activity will provide strong support. It is estimated that aggregatecash payments by Federal, State, and local governments will increase byabout 4 or 4^4 billion dollars in calendar year 1950. The largest part ofthis in the form of a national insurance dividend will place about 2.6 billiondollars in the hands of veterans during the year, mostly in the first 6 months.

Although the short-range outlook is good, we are still a considerable dis-tance from maximum employment, production, and purchasing power. Theprimary question in the minds of many is whether the rebound in productiveactivity will prove to be temporary or is the beginning of continuous growth.

T H E LONGER-RANGE OUTLOOK

There are two reasons why we cannot stop short with an analysis whichpresages a continued upswing of production, employment, and general busi-ness activity over the next few months. In the first place, the outlook forthe next few months will be even brighter if our system of free enterprise—which includes businessmen, workers, farmers, and consumers—grows inconfidence that rising prosperity is not to be short-lived and that we need notagain be confronted by disruption or concern even as great as that of early1949. And in the second place, just as improved analysis and action bybusiness and government enabled us to get through 1949 as well as wedid, similar efforts should now provide at least equivalent aid in dealingwith the looming problems of the future.

The somewhat longer-range outlook may best be understood in the

69


broad perspective of progressive adjustments since the end of the war.As earlier reports pointed out, the postwar period brought extraordinarydemands for goods to carry out industrial modernization and expansionplans, to meet military and foreign requirements, to fill inventory pipe lines,and to restock the depleted store of goods in the hands of consumers. Thesedemands, made effective by large liquid savings and access to ample creditin addition to current incomes at record levels, could not be satisfied bycurrent levels of production. This gap between current demand and cur-rent supply generated the upward spiral of prices. The rising cost of livingpropelled wages upward, which further swelled the spending stream and inturn pressed costs and prices still higher. Even though the level of outputwas constantly reaching new peacetime peaks, it was failing to match thedemand.

It was clearly foreseeable that in time the restocking boom on the partof both producers and consumers would wane, and that this demand wouldneed to be replaced by more lasting peacetime demand in order to maintainmaximum production and employment. It was also clear that this peace-time demand would have to grow even more than other types of demanddeclined, because the progress of technology and the growth of the laborforce require a substantial increase in total national output from year toyear in order to provide maximum employment. A key danger was foundin the fact that the inflationary process was bringing about price-incomerelationships which would make the necessary adjustments difficult toachieve in an orderly fashion. If they were too long delayed, the ultimateresult would be the forcing of so many adjustments into so short a periodof time that an unfavorable chain reaction throughout the economy mightprecipitate a broad downward sweep.

Some of these adjustments took place gradually, but not sufficiently toprevent the turning point in the boom from leading into the decline of thefirst half of 1949. In a highly complex situation, the most crucial factorappears to have been the failure of demand to grow in proportion to theincreasing potential output at maximum production and employment.There was a much greater physical availability of commodities, while risingprices had limited the growth of demand. By the latter part of 1948, con-sumer demand at current prices was far more selective and far less urgentthan it had earlier been. There began to develop softening in some in-dustrial prices, as the price-income structure and the current buying pro-pensities of the public did not support a sufficient level of buying of anormal peacetime character. Thus, there was a substantial increase in theaccumulation of inventories, largely of an involuntary character resultingfrom the failure of sales to grow at the expected rate. The sensitivity ofbusinessmen to the possibility of further price declines, particularly in thevalue of inventories, led to a reduction in inventories. Orders were cutback. The weakening of price prospects created further hesitation on the


part of buyers. The result was a sharp decline in industrial productionand employment, and an extension of weakness to those areas, such as metals,which had been showing considerable market strength. Heavy seasonal taxpayments added to the downward movement of private expenditure.

But soon after midyear, the reversal of the trend became apparent.Industrial production had been cut so sharply that it fell far below thelevel needed to support existing consumption, and inventories in manyareas were depleted unduly. The stabilization of industrial prices by July,resulting in part from firmness in costs and in part from the sharp cutin industrial production which relieved the pressure of supply on themarket, ended the expectation of further general price cuts. The saleof automobiles had continued to increase with an enlarged supply. Somereadjustments in costs and prices of housing had kept production at highand increasing levels. A large upsurge in the building of rental units hadfollowed the renewal of authority to insure projects on favorable terms.Government outlays were expanding. When renewed buying by thosewho had been waiting for price cuts was added to these continuing elementsof high demand, the course of the economy again became definitely upward.

This review sheds light on 1950. Some changes, which can be fairly wellforeseen, could halt the advance of the eco'nomy in the latter part of the year.The distribution of the insurance dividend to veterans, which will increaseconsumer buying power in the first six months, will have been largely com-pleted and have a diminished effect on demand in the second half year.The diminution of the foreign aid program, together with the devalution offoreign currencies, may not be offset by an increase in foreign investment; inthat case, the export surplus will be reduced. The market for automobilesat present prices has been brought fairly in line with normal demand, andcontinuance of production at the 1949 rate throughout the coming yearmay require tapping the large unfilled market among lower-income groups.Rental construction, although running strong, is primarily for those able topay high rents, and as that limited demand is fully met, rental constructionmay ultimately decline unless new policies shift it into lower-cost projects.Coupling these and other possibilities with the currently declining trend ofbusiness investment, there are some who foresee a moderate business declinein the latter part of 1950. This could happen, but it is not necessary. TheCouncil believes that affirmative action can and should be taken by businessand Government to prevent it from happening.

The Council's confidence that action can be successfully undertaken tocontinue stability and growth throughout 1950 and beyond is based onseveral factors. In part it is based on the great potential demand of busi-ness and consumers, supported by ample funds and credit. The economyhas demonstrated its elasticity, and we do not doubt its ability to makefurther adjustments. The stimulus afforded by lower prices and costs, aswell as by favorable lending terms, is graphically illustrated by the sharp


increase in the demand for residential construction, a segment of the econ-omy which made a disappointing record in the second half of 1948. At theopening of the second quarter of 1949, when the general economic situationwas deteriorating, housing construction began an up-trend leading to an all-time record. In the second place, our confidence is strengthened by theconviction that we have learned to take proper counter-measures when weare threatened with serious deficiencies in production, investment, or con-sumption. This applies to business action. It also applies to government,whose programs have been, and will continue to be, an underlying factorsupporting demand.

Adjustments scaled to the longer-range outlook should begin now.

ADJUSTMENTS STILL T O BE MADE

The Council does not agree with those who suggest that business ex-pansion may proceed so rapidly as to produce a new wave of inflation at anearly date. It is true that some market shortages still exist at currentlevels of demand. But in general we are now operating considerablybelow the reasonably full utilization of our resources of plant and man-power, while technology is on the march, and further gains in popula-tion and productivity are to be expected. The ratio of demand to ourproducing ability would need to climb a considerable distance before wewould again be confronted with the conditions which produce any gen-erality of inflation in an economy with a basic financial structure as soundas ours and with resources for expansion so great. We may now concen-trate our energies upon adjustments required for the sustained restorationof maximum levels of employment and production, confident that we canmeet the dangers of inflation if and when they again confront us.

(1) The fact that we are not now threatened with general inflationdoes not justify price increases at any vital points in the industrial structure.Such price increases, instead of being called inflationary, should be regardedas fundamentally retarding in that they will reduce our likelihood ofgaining maximum production and employment by imposing further restric-tions upon a level of demand which is not yet sufficiently high. If thereis any room for price change in some vital industrial areas, it is in a down-ward and not in an upward direction. Earnings are generally rewarding,though not so high as a year ago, and they can best be protected and ad-vanced by those policies which will maintain and expand volume.

Steel prices are a case in point. Steel affects the whole economy, andsome reduction in steel prices would favorably influence the whole eco-nomic situation. A stable and expanding economy requires a growingvolume of steel output and of those other basic products which use steel.Some of these other products, whose prices are affected by steel prices, arealso priced at a level where sustained and growing output seems uncertainat current prices. The statements of the steel industry accompanying the


recent price increases did not in our judgment impair the shortly priorfindings of the Steel Industry Board. These findings were to the effectthat the price-profit-cost situation in the steel industry, allowing for pen-sions, did not justify price increases and in fact left room for price decreasesin view of no wage-rate increases.

During the inflationary period, each price rise upon an article or servicewhich affected the cost of production of other goods not only caused anincrease in the price of the latter, but in addition such price increases weremagnified through each successive step of production and distribution.Today the general situation will not always permit an increase in price tocompensate for the increase in cost, and in any event it will not often bepossible for the increase in price to spiral. Nonetheless, business shouldstrive to the utmost to avoid price increases, which are unsettling evenwhere not individually of major significance. The economy can expandmore fully and confidently if prices do not rise, and the economy will begiven favorable impulse by some selective downward adjustments now thatthe danger has been removed of a sweeping downward movement in theprice structure.

(2) An outstanding problem is the maintenance of a sufficiently highlevel of business investment, primarily in plant and equipment. Newinvestment for these purposes in 1949, while continuing at a level whichbelied the reports of business pessimism, declined by a substantial amount,and surveys of the investment plans of business firms indicate a furtherdecline in the first quarter of 1950. Business investment should resumeexpansion as business recovery continues. We should also endeavor toshape our national policies to favor continued business investment at ahigh and growing rate. However, the real requirement for sustainedbusiness activity is the prospect of an adequate profit for a long enoughtime. Government policies in fields such as taxation affect the costs ofenterprise, and consequently changes in such policies have some effectupon the profit expectations of the prospective investor and enterpriser.But this factor is of less significance than the current and prospective needsof consumers for goods or services to be produced. Changes in tax ratescan, at most, be only small under present circumstances. The possibilitiesfor increase in consumption are large.

(3) In a growing peacetime economy, the growth of consumption shouldbe even more rapid than the growth in plant and equipment outlays, althoughboth should continue to grow. We shall not be completely out of the woodsafter our recent difficulties until private adjustments and public policiesare successful in raising the level of consumption, which is not now suffi-ciently high for sustained maximum production and employment or forthe full prosperity of our business system.

(4) Investment and consumption cannot expand in balanced propor-tion unless those of influence in our business system realize fully—and many

73


of them now do—that domestic and world affairs do not permit even thosedeviations from maximum employment and production which were con-sidered normal or tolerable in earlier times. The total real output ofour economy in 1949 was between 10 and 13 billion dollars below the outputthat would have resulted at the maximum levels of production and employ-ment contemplated under the Employment Act. We cannot afford for anylength of time this wastage of our potential strength. The economic lossis accompanied by an aggravation of social tensions. It creates majorfiscal problems as revenues, decline at any given level of tax rates, thus dis-rupting long-range fiscal policy based on a reasonable balance betweenfree enterprise and the inescapable obligations of responsible government.It produces international repercussions by reducing our imports, makingit more difficult for other nations to solve their dollar problem, and under-mining the exemplary position of our system in the eyes of the peoples ofthe free world.

(5) In addition to the purely domestic adjustments discussed in thepresent section is the problem of adjusting our policies to the prospectiveending of the European Recovery Program. The international economicpolicies which this makes necessary are discussed in the final section of thisreport.

Awareness of our capacity for growth is the first step to its attainment.For our growth will be facilitated as investors, businessmen, workers, farmers,and consumers—and government—shape their judgments and actions con-fidently to conform to their belief in growth.

In succeeding sections of this report, we shall show to what greatheights of economic strength we will be carried within a few years if weadvance steadily, even though at a pace no more rapid than we haveaveraged in half a century of ups and downs, of booms and depressions, ofwar and peace. Then we shall consider the policies which may both protectthe process of growth and also gain for it a greater degree of smoothness andstability.

74


III. Pathways to Economic Growth

In its Fourth Annual Report to the President, published last month,the Council singled out confidence in future growth as a prime condi-tioning factor of the American economy. In stressing the potentialitiesfor growth, we do not propose a blueprint for the whole economy, but ratherattempt to define the opportunities for future markets. This not only mayserve as a guide for the course of public policy along constructive lines, butmay also help to meet the needs of private business for basic bench marks fordevelopment of their programs and policies. We have stressed the factthat only through such growth could the various economic groups in thiscountry prosper and progress together, instead of engaging in bitter andhopeless conflicts to obtain for themselves larger shares of a static nationaloutput.

Such an interpretation makes it clear that the problems of growth andstability are closely related. Affirmative efforts toward balanced growth areour main shield against serious periodic downturns. And the prevention ofsuch downturns will remove the great obstacle to the speed and certainty ofour long-range growth.

There is no one pathway to economic growth in a free economy, andthat is why we have used the plural for the main heading of this discussion.Yet all business thinking and public decisions are based upon the realizationthat some roads are better than others, and that we must constantly seek todiscern and follow the more promising ways in meeting the requirementsunder the Employment Act of 1946. The Council, under the EmploymentAct, must join in the search for these more promising ways.

We cannot be sure of all of our conclusions, and we would have neitherthe means nor the desire to enforce them upon others even if we could be sure.But in earlier reports, we set forth some tentative findings for constructivecriticism. We are now prepared in the same spirit to present the resultsof further study and observation.

GROWTH OBJECTIVES FOR 1950-1954

There is a vital connection between the objectives which may be set for1950 and those that we envisage over a somewhat longer span of time. Itis only by looking backward over a number of years that we can trulyappraise the strength and promise of the American economy. Correspond-

868148—50 6 75


CHART 15

NATIONAL OUTPUT AND LABOR INPUTOur long-run production achievements have been morethe result of increased productivity than of increasedemployment. Output per man-hour has more than quadrupledin the last 6 0 years.

PERCENT OF 18901000

900

800

700

600

500

400

300

200

70

60

GROSS NATIONAL PRODUCT(CONSTANT DOLLARS)

PERCENT OF 18901000

900

800

700

600

500

4 0 0

3 0 0

2 0 0

NUMBER OF EMPLOYEDWORKERS

AVERAGE HOURSPER EMPLOYED

WORKER

M M I M I I H I M I1 11 I 1 1 1 1 111II 1 1 1 1 1111 11 1 1 1 1 1 11II1 1 1 1 1 1 11111

100

90

80

70

601890 1900 1910 1920 1930 1940 1950

INDICATE APPROXIMATE TRENDS. " •

SOURCES : DEPARTMENT OF COMMERCE, DEPARTMENT OF LABOR AND COUNCIL OFECONOMIC ADVISERS.


CHART 16

NATIONAL OUTPUT AND POPULATION

Total output has increased nearly eight-fold since 1890 whilethe population has grown by 2>£ times. As a result,production per capita has more than tripled.

PERCENT OF 18901000

900

800

700

600

500

400

300

200

100

90

80

70

60

GROSS NATIONAL PRODUCT(CONSTANT DOLLARS) "V

PERCENT OF 18901000

900

8 0 0

7 0 0

6 0 0

5 0 0

4 0 0

300

POPULATION

I I M M I I I I I I I I I M l I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

200

too

90

80

70

601890 1900 1910 1920 1930 1940

ARE BASED ON FRAGMENTARY DATA BUT WHICH

1950NOTE: BROKEN LINES SHOW ESTIMATES WHICHINDICATE APPROXIMATE TRENDS.

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.

77


ingly, it is only by looking forward for a few years that we can appreciate theprospects before us sufficiently to begin their achievement in 1950.

Over the past six decades, our national output of goods and serviceshas been multiplied seven- or eight-fold, representing an average annualrate of increase of nearly 3J/$> percent and a virtual doubling of total outputevery 20 years. In 1949, this total output was about 260 billion dollars;measured in the same price terms, it was about 35 billion dollars in 1890.During the same time span, our population increased to not quite twoand one-half times its 1890 size, while average working hours in industrydecreased by one-third. (See charts 15 and 16.)

With a somewhat larger proportion of the population now engaged ineconomic pursuits, the net result has been that our total production perman-hour of work has quadrupled. This growth in productivity averagedabout 2 or 2J4 percent, annually compounded, and brought amazingadvances in our real wealth and general standards of living. Per capitaoutput, measured in 1948 dollars, increased from $550 in 1890 to $1,750in 1949, or over 200 percent. The purchasing power of a typical Americanfamily now is about 130 percent greater than that of the much larger typicalAmerican family of 60 years ago.

The beginning of 1950 finds the American economy greater in its poten-tialities than ever before. Our managerial and working skills are greater,our farms and factories better equipped, and indications are that the paceof our technological advance will be maintained. It is a reasonable esti-mate that we should be able by a combination of private and public effortsto continue to increase productivity per fully employed worker by about2 to 2/4 percent annually in coming years. The total output will be affectedby the net increase in the labor force which, under conditions of ample jobopportunities, should a few years hence, say in 1954, bear about the samerelationship to the total population as at present. Lessened participationby school-age youths and the effect of the resumption of the long-term trendtoward earlier retirement may be offset by higher participation by women.Even with some further reduction in the workweek, perhaps mainly throughlonger and more widely enjoyed vacations, we should achieve in 1954 anexpansion of about 18 percent in total output and about 12/2 percent in percapita output over that of 1949. At current price levels, this would meanattainment of a gross national product in excess of 300 billion dollars. Thispotential increase in the annual output of the American economy wouldbe nearly 50 billion dollars, or approximately $1,000 per family.

But the first step toward our goal for future years is our goal for 1950.Despite the process of recovery, we are not now measuring up even to aconservative definition of maximum employment, production, and pur-chasing power.

We should aim during this year to reduce unemployment from V/2million to a figure in the neighborhood of 2, or at most 2/2, million—


CHART 17

CHANGING SHARES IN NATIONAL OUTPUTAs compared with experience in the 1920's and 1930's, a relativelysmaller share of national output now goes to consumers andrelatively larger shares to business investment and Government.BILLIONS OF DOLLARS BILLIONS OF DOLLARS300 1

200

100

GROSS PRIVATEDOMESTIC INVESTMENT

GROSS NATIONALPRODUCT

PERSONAL CONSUMPTIONEXPENDITURES

GOVERNMENT PURCHASES /OF GOODS AND SERVICES *"K

NET FOREIGN INVESTMENT '

3 0 0

2 0 0

100

1920 1930 1940 1950

PERCENT OF TOTAL100

5 0

PERCENT OF TOTAL-100

PERSONAL CONSUMPTIONEXPENDITURES

o r . L L L l . . . . t . i ! i . . > . ) t - t i

50

1920*NET FOREIGN INVESTMENT

1930 1940 1 9 5 0

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS

79


representing the "frictional" unemployment incident to the operations of aflexible economy, plus a hard core of unemployment in certain localitiesand occupations which can only gradually be reduced. Taking accountalso of the natural increase in the labor force, the goal of achieving maxi-mum employment before the end of this year requires job opportunitiesfor an addition of around 2 million people, bringing the total number ofcivilian employed to about 61 million. We must strive for fuller employ-ment opportunities for those who are involuntarily underemployed, includ-ing people forced into low-grade employment by the absence of adequatejob opportunities in their own occupations.

Maximum production for the year 1950 as a whole would require anincrease of about 7 percent over last year, in order to offer the neededadditional job opportunities to a growing labor force working at increasingproductivity. We cannot achieve this improved level of production forthe year as a whole, but it should be possible to attain maximum productionon a stable basis by the end of the year.

The maximum purchasing power objective for 1950 is to promote thoseadjustments in the intricate network of the income and spending stream—both private and public—which will provide our economy with the require-ments for both stability and growth.

TOWARD A BALANCED ECONOMY

Whether or not we realize the gains within our reach depends uponachieving a sustainable balance among the various sectors of our economy.Attaining this balance requires that production and incomes shall notdevelop in a manner resulting in the periodic downturns we have witnessedin the past. Business income and investment should be large enough tomake full use of our technology, our inventiveness, and our labor force,but not so large as to result in subsequent overproduction in relation xothe absorptive capacity of markets. The income and spending of con-sumers should be sufficient to clear the markets of goods and to provideincentives for still more business enterprise, but not so large as to causeinflation. The expenditures of government should be large enough toprovide those services which our resources permit, which our people need,and which cannot so effectively be provided in any other way, but not solarge as to overstrain our resources or to dampen the incentives of freeenterprise or alter the essential character of our economy. Our supply ofgoods to foreign countries should be sufficiently large to promote a moreprosperous and more peaceful world, but not so large as to undermine ourdomestic strength and thus defeat the very objective which we seek. Thewhole task of economic policy, both private and public, is to work outthese arrangements bit by bit, pragmatically as we go along, benefitingconstantly by the lessons of past experience.

8o


CHART 18

CHANGING SHARES IN NATIONAL INCOMEWages and salaries and business earnings accounted forsomewhat larger shares of national income in 1948-49than in 1929. Interest and rents accounted for asharply reduced share.PERCENT OF TOTALNATIONAL INCOME80

60

40

20

20

10

0

20

10

0

30

20

10

0

30

20

I 0

COMPENSATION OF EMPLOYEES

PERCENT OF TOTALNATIONAL INCOME

80

UNINCORPORATED BUSINESS AND PROFESSIONAL INCOME(INCLUDES INVENTORY VALUATION ADJUSTMENT)

FARM PROPRIETORS'INCOME

INTEREST AND RENTS

CORPORATE PROFITS BEFORE TAXES(INCLUDES INVENTORY VALUATION ADJUSTMENT)

6 0

4 0

2 0

0

20

10

0

20

10

0

30

20

I 0

0

30

20

10

0

1929 1932-34 1939 1948 1949iy

1/ESTI MATES BASE"D"ON INCOMPLETE DATA; INCLUDES SECOND HALF ESTIMATES BYCOUNCIL OF ECONOMIC ADVISERS


8i


CHART 19

HOW CONSUMERS USED THEIR INCOMEConsumer income and spending have fluctuated with generaleconomic activity, rising during prosperous years and falling duringdepressions.

BELLIONS OF DOLLARS

200

160

1 2 0

8 0

4 0

CONSUMER DISPOSABLEINCOME V

PERSONALCONSUMPTION -

EXPENDITURES

I 1 1 I 1 I I I I I I I I I 1 I I I I 1 1 I 1 I I I [ I [ I I

1920 1925 1930 1935 1940 1945 1950

Personal saving, which was negative in the early thirties, averagedabout 5 percent of disposable income in prosperous prewar years.

PERCENT OF DISPOSABLE INCOME

30

2 0

10

PERSONAL SAVING .

-10 I I 1 I I I I I I M I I I I I I I I 1 I I I I ! I I 1 I I I I

1920 1925 1930 1935 1940 1945 1950

SOURCES: U. S. DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS

82


Past experience can never give us any one exact pattern for these bal-anced relationships. But, when combined with quantitative analysis, itcan help to point the way toward some workable relationships within abroad range. More important, past experience demonstrates fairly con-clusively that enormous variations in these patterns from time to timehave been a concomitant of the vast instabilities to which our economyhas been unnecessarily subjected.

Whether the instabilities in these relationships are regarded as the causeor the result of the business cycle, it is clear that economic stability cannot beachieved without reduction in these excessive swings in various categoriesof private activities. Of course, private and public policy in a free-enterpriseeconomy cannot completely remove fluctuations in business investment andother economic activities.

These extraordinary variations in the composition of our gross nationalproduct may be illustrated by the experience of the last three decades. (Seechart 17.)

Some of these variations were caused by wars. But it will be more profit-able to focus attention upon aspects of the business cycle at leastpartly independent of wars. Certainly we could not expect reason-ably permanent stability in an economy in which gross private domesticinvestment swung from 15 percent of the total national product in 1919-29to 1.5 percent in 1932. Consequently we must be deeply concerned thatprivate domestic investment, which reached an even higher percentage in1948 than in the boom year 1929, does not take another drastic downwardswing. Certainly the cyclical shifts in the portion of gross national productrepresented by personal consumption expenditures from 76 percent in 1929to 83 percent in 1933 to 68 percent in 1948 were not consistent with a rea-sonably stable economy.

Expenditures are mainly although not wholly determined by income,and the excessive variation in our levels of general economic activity havealso been closely associated with income relationships which were not sus-tainable and therefore were subject to excessive periodic change. Chart18 shows the relative changes in the main shares of national income since1929.

Clearly, a smoothly functioning economic system was unattainable withcorporate profits after taxes ranging from 9.6 percent of the nationalincome in 1929 to minus 2.2 percent in 1932-34, or with a level of farmincome dropping by more than two-thirds between 1929 and 1932. Ac-ceptance of such wide variations as ''inevitable" or "normal55 in a freeeconomy would drive business policy, labor and farm action, and Gov-ernment programs along most undesirable lines.

Success in business operations requires the ability to forecast marketingconditions, which means largely forecasting the buying ability and habitsof consumers. Chart 19 shows, for the period 1919-49, the excessive and


unpredictable variations in consumer income, expenditure, and saving,while chart 20 indicates the impossibility of appraising even roughly thecomposition of consumer demand, so long as income and expenditure aresubject to such wide fluctuations.

CHART 20

TYPES OF CONSUMER SPENDINGExpenditures for durable goods ranged from 1 [/2 to \2.x/zpercent of consumer expenditures prior to S939. Servicestook a considerably larger proportion of total outlay indepression years.

PERCENT OF TOTAL PERCENT OF TOTALCONSUMER EXPENDITURES CONSUMER EXPENDITURES

100 I '/////////////////////////////////////////////////////////////////////. I 100

20

1920 1925 1930 1935 1940 1945

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.

— 20

1950

In an economy growing toward a gross national product of more than300 billion dollars by 1954, the various sectors of the economy would needto function in a balanced relationship, so as to avoid the inflationary effectof demand exceeding supply or the deflationary effect of production run-ning ahead of effective demand. If this balance can be achieved—and webelieve that it can—it is possible to outline in broad terms the vast oppor-tunities that this would offer to our business system in the form both ofhigh investment levels and high sales of goods to ultimate consumers. Thebroad depiction of these opportunities is a logical extension of the ideaof market analysis of business prospects, the value of which has beenincreasingly recognized by the business world. It is a composite estimateof what our resources can do and what our people may buy, which iscorrespondingly an estimate of what business may have an opportunity tosell.


The Council, since its inception and in response to its mandate, has beenmaking exploratory studies of potentialities for economic growth. Whileit is relatively easy to estimate what the total output of the economy wouldbe in a future year if resources are effectively used, it is more difficultto discern the broad relationships among the various sectors of the economywhich may facilitate growth without generating the disproportions thatthreaten either inflations or depressions. Studies have been made specifi-cally of expansion and modernization of productive capacity consistentwith the projected rise in total output, and of the increase in consumptionconsistent with taking off the market the entire output of an expandingproduction without undue price fluctuations. In addition to domesticinvestment and consumption, these estimates have taken into considerationthe governmental and international transactions which enter into theNation's Economic Budget. These studies are still in the exploratory stage;The Council hopes that eventually they may develop into useful guides tovoluntary adjustments and to the evolution of public policies to stabilize theeconomy at a high level.

Preliminary study, however, permits estimates of investment and con-sumption opportunities in an expanding economy within a range of varia-tion wide enough not to seem either arbitrary or all-wise, as set forth in thefollowing table.

TABLE 13,—Output ^consumption, and investment.[Billions of dollars]

Item

Gross national productPersonal consumption expendituresGross private domestic investment, exclusive of inventory accumulation..

1948

262.4178.838.6

1949

258.178.37.

752

19541

300-310210-22538-43

* The 1954 estimates allow for only minor variation of prices from the present level.

Source: Department of Commerce (1948-49).

Some comments are here desirable with regard to the foregoing esti-mates. First, these estimates present objectives for an economy of maxi-mum employment and production. This means that affirmative policies,both public and private, will be needed to achieve them; they are not fore-casts of developments which will occur inevitably. Second, usefulnessfor the purposes intended would not be impaired if the figures werevaried moderately from those shown. Third, it should be noted particularlythat the figures involve a high level of private investment in equipmentand construction—a level well above that contemplated for 1950 in mostcurrent forecasts. This investment trend should soon rise above the 1949level, and within five years might even surpass the record established in1948, when postwar making-up of deferred capital needs was in full swing.Fourth, the estimates contemplate, over the five-year period, a growth inconsumer buying at a more rapid rate than the growth in business invest-


merit. Analysis indicates that this is necessary to maintain maximum em-ployment and production in a growing peacetime economy, which in turnis necessary to provide incentives for a high and growing level of businessinvestment. Fifth, the estimates contemplate programs in the governmentalsector based upon the assumption that some programs, such as those forveterans, will decline. They assume moderate extension of certain acceptedprograms, such as social security, upon foundations already established, andalso allow for some new programs in the domestic and international fields.But they do not assume an intensification of international tensions, whichwould necessitate a considerably higher level of activity in the governmentsector as a whole. By 1954, this outline of peacetime growth would lead tothe government sector accounting for a smaller proportion of the total grossnational product than in 1949.

HIGH BUSINESS INVESTMENT NEEDS

It has been indicated that our growth toward a 300 billion dollareconomy by 1954 should afford opportunity by that year for an annualgross private domestic investment, excluding investment in inventories, rang-ing from 38 to 43 billion dollars. The upper figure is considerably higherthan the level of either 1948 or 1949.

The realization of an adequate volume of investment between now and1954 cannot be reconciled with a downturn for a substantial period, followedby another boom. Analysis points up the conclusion that the growth ininvestment should be encouraged at a fairly steady rate. We know onlytoo well from historical experience that large variations in investmentactivity are inseparable from intermittent idleness and waste of our pro-ductive potentialities and a sacrifice of growth opportunities. With allow-ance for some backlogs of deferred expansion or replacement to be liquidatedover the next few years, the growth potential of investment should becorrelated with the general growth of the economy as a whole.

Very high outlays for the expansion of nonfarm plant and equipment inthe postwar years appear to have brought productive capacity as a whole—with some exceptions—into a fairly workable relationship with require-ments for a maximum employment economy. There has also been con-siderable modernization of equipment, although railroad equipment anda few other types still present a backlog of deferred replacement. Abun-dant opportunities exist for further modernization of productive facilities,and the upper range of the figures shown assumes that a large increase inoutlays could perhaps be achieved by more rapid retirement of facilitiesfor obsolescence. But present investment expectations of businessmen areone indication that such an increase might be difficult. For nonfarm pro-ducers' plant and equipment, investment trends should reflect a reasonablyconsistent historical relationship between such outlays and the growth ofbuying power.

86


CHART 21

SOURCES AND USES OF CORPORATE FUNDSCorporate financial requirements dropped sharply in 1949from the average level of the previous three years, as thebook value of inventories turned downward. Theserequirements were financed primarily from earnings anddepreciation charges.

' BILLIONS OF DOLLARS-10 -5 0 5 10 15 20

1SOURCES

RETAINEDEARNINGS

DEPRECIATIONRESERVES

OTHER SOURCES

USES

PLANT ANDEQUIPMENTOUTLAYS

INCREASE IN1N V F N - -_.,__-.,,,,_,.TORIES K g j ^ &

OTHER

1

1 1

1946-48 AVERAGE ]

, i

i

1946-48 AVERAGE • : '

I

i i

i

si

i

* PROFIT ESTIMATES FOR SECOND HALF 1949 BY COUNCIL OF ECONOMIC ADVISERS

SOURCES: DEPARTMENT OF COMMERCE ESTIMATES BASED ON SECURITIES EXCHANGE ANDOTHER FINANCIAL DATA

The trend of investment in farm equipment and construction shouldallow for expansion, increased mechanization, and replacement in keep-ing with the agricultural output requirements of a fully active economy.For other private nonresidential construction—such as churches, schools,hospitals, institutions, social and recreational buildings—about the 1949 rateof outlays (which was about one-fifth above that of 1948) should be carriedforward. Inventories are in a reasonably workable relationship to sales at thepresent time, and they may therefore be expected to increase roughly in pro-portion to the output of the private sector of the economy. The greatestincrease above current levels of private investment is clearly required in the


field of housing, because it is here that the total available supply of goods lagsfarthest behind the needs of the people and presents the greatest challengeto production and financial ingenuity.

For now and the foreseeable future, the problem of encouraging an ade-quate level of business investment assumes greater importance than isindicated by the mere quantitative relationship of such investment to thetotal size of the economy. A timely checking of the current downtrend ininvestment, followed by resumption of growth, is by no means to be takenfor granted. Neither investment nor consumption can long sustain satis-factory growth unless both do; and the relatively modest growth in invest-ment contemplated in the estimates presented above may well present evenmore difficulty of attainment than the larger growth set as a consumptiongoal. It is easier for public programs to stimulate consumer spending thanit is for these programs to enlarge business investment direct. Yet weknow from the experience of the 1930Js that, without a large and growingvolume of business investment, maximum employment and production canhardly be achieved and can certainly not be maintained.

Availability of funds for investment

Consideration of the problem of supplying adequate funds for businessinvestment calls for a comparison of corporate financial requirements, underconditions of maximum employment and production, with the sources offunds likely to be available to meet these requirements. Corporationsaccount for the major share of business investment, and depend moreheavily than other businesses upon outside capital.

During the period 1946-48, as chart 21 and appendix table C-34 show,corporations used an average of about 28 billion dollars a year to financeplant and equipment expenditures, expansion of inventories, and expansionof accounts receivable. These requirements were very high in compari-son with prewar experience, even after taking into account the rise insales volume and prices. They reflected not only a volume of plant andequipment expenditures nearly twice that reached in any previous year, butalso an impressively large volume of funds to finance expansion of workingcapital.

In general, corporations during the very high investment period 1946-48were adequately supplied with funds to finance their investment programsalong conservative lines despite the high level of taxation. In fact, a strikingcharacteristic of the period was the extent to which corporations were ableto meet these unprecedented financial requirements from their own funds.During this period, corporations reinvested about 62 percent of their profitsafter taxes, as compared with 31 percent in 1929 and 41 percent in the3 years before the war. (See chart 22.) This large volume of retainedearnings enabled corporations to remain in a generally strong financial posi-tion in spite of the large requirements for funds. Their liquidity, as revealedby various types of liquidity ratios, compared very favorably with the prewar


years. Relative to income after taxes, corporate debt at the end of 1948was only about 50 percent as large as in 1929, and 45 percent as large as inthe period 1939-41. During 1949, as was shown in Part I, corporationswere generally able to improve their financial position and at the sametime to step up their dividend disbursements.

The postwar experience indicates that, in a period of high employmentand production, corporations experienced little difficulty in financing theirexpansion in a manner which left them generally in a favorable financialposition. It seems unlikely that an expansion of the economy such as wasoutlined above would pose a more difficult financial problem. We shouldexpect that in such an economy a higher level of business investment inplant and equipment could be attained without imposing upon corporationsfinancial requirements as high as during the period 1946-48. The reasonfor this is that probably not more than 3 to 4 billion dollars annually would

CHART 22

DISTRIBUTION AND RETENTION OFCORPORATE PROFITSCorporations retained in 1949 a smaller proportion of profitsafter taxes than in 1946-48, but a larger proportion thanin 1929 or 1939-41.

BILLIONS OF DOLLARS

20BILLIONS OF DOLLARS

20

1929 1939-41 1946-48 1949^AVERAGE AVERAGE

1 / INCLUDES SECOND HALF ESTIMATES BY COUNCIL OF ECONOMIC ADVISERS

SOURCE: U.S. DEPARTMENT OF COMMERCE (EXCEPT AS NOTED).


be needed in an enlarging economy to expand inventories and customeraccounts in line with sales. These figures are far below the annual averageof about 13 billion dollars absorbed in rebuilding of inventories and infinancing customer credit during the inflationary period 1946-48.

The main sources of funds for corporations will be retained earningsand depreciation reserves. If the economy continues to grow in line withits indicated potential, corporate profits should increase enough so that,even with a dividend disbursement ratio as high as in the late 1920's,retained earnings and increasing depreciation reserves will furnish a majorpart of new capital requirements. In these circumstances, the necessaryoutside financing would be much less than the 11 billion dollars annuallysecured from outside sources in 1946-48. The larger and established cor-porations will not face any serious problem of equity capital. Reinvestedearnings should be large enough, in conjunction with new stock issuesno larger than those of recent years, to improve the ratio of equity capitalto debt. Provided we are able to realize a sustained period of growth,dividend disbursements may even be higher in the future than they have beenin recent years. We should then expect a sizable increase in the amountof new capital forthcoming from stock issues. Indeed, late in 1949, andprobably as a result of these factors, the market for new stock issues improvednoticeably. Corporate managers have recently preferred to borrow fundsat prevailing low rates of interest, rather than to "dilute the corporate equitycapital," as they describe the issue of new stock at the price at which itwould be absorbed by the existing market. If the recent movement instock prices continues, many corporations will reverse their policy and seekoutside equity capital. Others will continue to be attracted by the taxadvantage of debt financing and by the continuance of low interest rates,which is assured by the Government debt-management policy.

While corporations as a whole may not experience serious difficulty infinancing their expansion, individual corporations will fare unevenly inthe gains of prosperity. Some will be capable of meeting temporarymarket adversities and financing expansion needs entirely from internalresources. Others may better this record and in addition improve theirliquidity positions. Still others, however, may find internal resources quiteinadequate for these purposes and will seek funds actively from externalsources, in order to provide for corporate growth in line with expandingmarkets and at times to cushion adjustments to changing competitive trends.

Specific problem areas

Despite the generally adequate supply of funds, there are importantgaps in our financial and investment structure. The prospect that totalsaving is likely to be fully adequate for total investment opportunity doesnot dispose of the problem of increasing the availability of funds for par-ticular types of businesses, and of making them available in all regions ofthe country in such forms and on such terms as to promote their full and


effective use. There is danger that the proportion of funds seeking fixed-return investment will continue to rise and that the economy will generatea larger volume of saving for such purposes than it can absorb, while atthe same time important types of investment will be impeded by lack of riskcapital. Small and new business concerns have always experienced greatdifficulty in securing long-term loans and in acquiring outside equity capital,and this problem has now been intensified by the larger concentration ofinvestment funds in the savings accounts of persons of moderate incomewho seek fixed-return investments, and in institutions which have littleinterest in financing small business.

There are particular industries, such as the railroads, in which capitalneeds are very large in relation to earnings and which face especially thornyproblems of obtaining either debt or equity capital. Special considerationmust be given to certain strategic industries in which expansion desirablefor national security calls for larger or more rapid investment outlays thanare likely to be forthcoming from private investment.

CHART 23

HOUSING CONSTRUCTION:SOME GROWTH COMPARISONSThe rate of house building in 1949 shows relatively smallgrowth since the 1920's in comparison with industrialproduction, consumer expenditures, and automobile sales.

PERCENT OF 1920-29 AVERAGE

250

2 0 0

150

1 0 0

PERCENT OF 1920-29 AVERAGE

2 5 0

INDUSTRIAL PRODUCTION.

TOTAL CONSUMPTION,(CONSTANT-DOLLAR

EXPENDITURES)

AUTOMOBILE SALES(DOMESTIC FACTORY)

HOUSING CONSTRUCTION(NONFARM STARTS)

2 0 0

1 5 0

I 00

5 0

1920-29 Average 1949SOURCES: BOARD OF GOVERNORS OF THE FEDERAL RESERVE, DEPARTMENT OF COMMERCE,DEPARTMENT OF LABOR, COUNCIL OF ECONOMIC ADVISERS AND AUTOMOBILEMANUFACTURERS ASSOCIATION

868148—50 7


CHART 24

HOUSING OUTLAYS, CONSUMER SPENDING,AND NATIONAL PRODUCTPrivate housing outlays have fluctuated much more widelythan national output or consumer expenditures.RATIO SCALEBILLIONS OF DOLLARS300

200

150

100

80

60

50

40

30

20

15

10

-

£ ^ S GROSS NATIONAL/ \ , PRODUCT

1 j L S (LEFT SCALE)

~_y> CONSUMER 1 \ v y / /*—* EXPENDITURES. \ \ * S /

- (LEFT SCALE) \ y / M

A 1PRIVATE RESIDENTIAL I 1CONSTRUCTION OUTLAYS 1 /

(BI6HT SCALE) 1 f

ii ii i i ii ii i i i iV ii i M

/ WAR // YEARS/

* /

-

-

1 I I M 1 M 1 1

RATIO SCALEBILLIONS OF DOLLARS

10.0

8.0

6.0

5.0

4.0

3.0

2.0

1.5

1.0

.8

.6

.5

.4

.31920 1925 1930' 1935 1940 1945

N O T E : MOST SERIES PRIOR TO 1929 NOT COMPARABLE WITH LATER DATA.

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS

I960

The housing problem

The housing shortage is still acute, and the desire of the people for moreand better housing presents the largest single potential market now openfor increased investment. While 1949 was a peak year for housing, theconstruction of new nonfarm housing in 1949 showed a much smaller in-crease from the levels of the 1920's than did the total physical volume ofconsumption, the volume of industrial production, or the purchases of newpassenger automobiles. (See chart 23.) Housing has failed to keep pacewith over-all economic growth in the past quarter century.

92


Instability in so important a sector as housing has contributed powerfullytoward general economic instability. As shown by chart 24, which omitsthe period 1942-45 to avoid the special complications of wartime, privatehousing outlays have fluctuated more violently in the past three decadesthan either total output or consumer expenditures.

Housing production should be stabilized at very high levels. Based uponneeds and resources, the objective over the next few years should be to buildon the average about V/2 million new residential units annually, or sub-stantially more than the million in the year 1949—which, while an all-timepeak year for home-building, was only slightly above the level of 1925. Aconsiderable part of this new construction should represent replacement ofhopelessly obsolete housing, which should be cleared away on a muchenlarged scale. Improvements and enlargement of existing houses shouldalso require very large new investment. Allowing for some further decreasein housing costs, and for the trend toward more economical design to meetthe needs of families of moderate income, but allowing also for the relatedfacilities and community developments which such a large amount of resi-dential construction would carry with it, this volume of housing and relatedimprovements over the next few years would probably require an averageannual investment in the neighborhood of 12 to 14 billion dollars. This isnot a forecast of what the level of such housing investment is likely to bewithout special efforts. On the contrary, we face the danger of a declinerather than an increase in residential construction unless new means aredeveloped to enable more middle-income families to obtain new housing,particularly as the backlog of postwar demand tapers off. This will requirestrenuous efforts to develop workable stimuli along new lines. The Coun-cil regards the maintenance of a high and growing level of private invest-ment in housing as perhaps the most important issue in connection with themaintenance of a total level of investment high enough to support maxi-mum employment and production over the next few years.

Adequacy of market opportunity

Adequate market opportunity for business means conditions favorableto the disposition of full output at a return providing sufficient funds andincentives in the form of profits. In the final analysis it is the appraisalof market potential which mainly controls the rate of investment. Noredundancy of funds available for investment will promote a sufficientlyhigh level of investment if this market opportunity does not exist. If itdoes exist, investment in general will grow with the rest of the economy andwill not in general be hampered by lack of capital funds.

A large contraction in business investment sets in because those makinginvestment decisions forecast a level of general economic activity not suf-ficiently high to assure profitable utilization of additional capacity. Theyrecognize that a generally expanding economy would continue to support ahigh and growing investment level, but feel that the short-run outlook

93


does not presage the resumption or continuation of expansion. Thus thefirst and foremost step toward solving the investment problem is to promotethe environment which will encourage businessmen to make their investmentdecisions in the light of longer-run prospects for growth.

Our analysis of the magnitude and of a few of the probable characteristicsof an economy expanding toward the 300 to 310 billion dollar level indi-cates that high and growing levels of business investment—and the businessearnings necessary to motivate and help finance it—are entirely compatiblewith expansion of ultimate consumer incomes and expenditures sufficientto absorb the swelling product. If this absorption occurs, there should beno real problem of business profits failing to provide generally adequateincentives.

It is recognized that any prolonged contraction in corporate profits frompresent levels would spell a sizable reduction in business investment, andthat an expanding economy cannot be founded upon a continually declin-ing level of profits. But an expanding economy, associated with sufficientlyhigh market prospects and their full appreciation by the business com-munity, would result in a rising level of corporate profits even if profit mar-gins should be somewhat reduced. There is ground for belief that some-what reduced profit margins would still provide generally adequate invest-ment incentives under conditions of an expanding market furnishing a risingabsolute level of profits.

It should be recognized, however, that such expansion of the economymay not occur if business pricing practices are not adapted to encouraginga rising level of consumption. Pricing practices also bear directly on in-vestment insofar as they are associated with restriction of capacity. Thedegree of competition is an important determinant of outlays for cost-reducing improvements of productive facilities.

A HIGH CONSUMPTION ECONOMY

The broad estimate that consumer expenditures in a 300 to 310 billiondollar economy would range from 210 to 225 billion dollars represents anexpansion in consumption of about 22 percent, or about 15 percent percapita after allowing for population increase, over the level of 1949. Thismeasures the market opportunity for our business system.

Expenditures for consumer durable goods

Over the past decade, despite the war, there has been a great increase inthe ownership of durable goods by American families. Between the end of1939 and the end of 1949, the number of radios in use increased from 39million to 62 million, electric refrigerators from 14 million to 291/2 million,and electric washers from 14/2 million to 2 5 ^ million.

Future economic growth would maintain large opportunities in the con-sumer durables field. About one-third of all households still lack electricrefrigerators, and a continued high rate of residential construction would

94


create a need for all types of appliances. The number of television setsin use at the end of 1948 was slightly above a million; during 1949 almost2/4 million sets were produced, indicating the very rapid expansion affordedby this market.

More than 5 million passenger cars were produced in 1949, bringingtotal private registrations to 35.5 million, or an average of one car forevery 4.2 persons. This compares with 26 million passenger cars atthe end of 1939, or an average of one car for every 5 persons. Thecharacter of the demand for automobiles since the war, despite the mount-ing prices, should be sufficient warning that it is very easy to underestimatethe future market. Nor does the scope of demand at this time furnish aclear guide to the demand when and if prices are reduced, or to the demandwhen family incomes become larger. The universality of the desire ofAmericans for automobiles has been thoroughly proved, and the history ofthe industry does not permit doubt that management, once it finds that ithas exploited the market for higher-priced cars, will find ways throughprice reductions and through cheaper models to attract the vast potentialdemand not now able to come into the market for new cars.

The proportion of consumption expenditures now devoted to purchasesof durable consumer goods, including automobiles, appliances, and furni-ture, is about 14 percent, compared with 12 percent in 1929 and 10 percentin 1939. (See chart 19, page 82.) There will be further working off ofbacklog demand for certain goods, but a lifting of standards of living wouldprobably increase the share of expenditures on durable goods above that ofprewar years.

Expenditures for nondurable goods

The two major items of consumption in the category of nondurable goodsare food and clothing. The percentage of income spent currently for foodis higher than it used to be, reflecting higher prices for food and higherquantities of consumption. Per capita food consumption is about 10percent above the 1935-39 level. The level of 19 percent above prewar,reached in 1946, would be exceeded if the diets of low-income families wereraised to an adequate nutritional level. Clothing expenditures, as a per-centage of total expenditure, have shown a declining trend over the last threedecades. Nevertheless, budgetary studies show that many families, partic-ularly in rural areas, obtain no more than minimum requirements. In-come gains which would lift low-income families to a more satisfactorystandard of living would greatly enlarge the market for clothing.

Expenditures for services

Even with the expanded consumption of durable and nondurable goodswhich has been outlined, the markets for these goods are not limitless.The full utilization of our productive resources requires that the enterpriseand imagination which have created new products like automobiles and

95


radios shall increasingly be devoted to the development of even newerproducts in an even wider variety. Beyond this, as standards of livingrise, a larger proportion of the people's wants and needs turn from thebasic requirements of life toward those things which add to the enjoymentof living. Services such as education, health, and recreation are an areaof economic development yet in relative infancy. The expansion of theseservices may involve varying patterns of private and public action, but inany event they will vastly increase private employment and business oppor-tunity for a wide range of related and supporting activities.

CHART 25

CHANGES IN AVERAGE FAMILY INCOME

The average family income of all groups has increased greatly fromthe prewar period. The fifth of families having highest incomesreceived the largest increase in dollars but smallest relative increase.

MONEY INCOME, 1948 DOLLARS0 $2,000 $4,000 $6,000 $8,000 $10,000

FAMILIESranked fromlowest tohighest income

LOWESTFIFTH

SECONDFIFTH

.THIRDFIFTH

FOURTHFIFTH

HIGHESTFIFTH

I

-1935-36-1941-1943

INCLUOES SINGLE INOtVIOUALS

SOURCES: NATIONAL RESOURCES PLANNING BOARD,DEPARTMENT OF LABORAND DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.

Distribution of income

The percentage of income going to various groups does not changegreatly over a short period of time. Nevertheless, the conditions of fullemployment during the war were instrumental in bringing about a dis-tribution of income in the United States more favorable to lower-incomerecipients. Chart 25 and table 14 show the average income of each fifth ofthe population, from those with the lowest income to those with the highest,in two prewar years and in 1948. The greatest relative improvement since


1935-36 appears to have been in the second and third of the five brackets.The top fifth had the largest average gain in absolute amounts but thesmallest percentage increases. In appraising the average income in thelower brackets, it should be noted that these brackets include many youngsingle persons and retired persons whose income runs considerably lowerthan that of families of two or more. In addition, many families have non-money income, such as home-produced food or fuel, not reflected in thedistributions. Nevertheless, income for many families is clearly belowthe level required for an American standard of living. Recent investiga-tions by the Joint Committee on the Economic Report have shed lighton the plight of these families, and on many of the social and economicconditions contributing to inadequate income.

TABLE 14.—Money income received by each fifth of families and single persons, 1935-36,1941and 1948

Families and single personsranked from lowest to

highest income

Lowest fifth..Second fifth..Third fifth...Fourth fifth..Highest fifth..

All groups..

Percentage of moneyincome

1935-36 1941

4.08.7

13.620.553.2

100.0

3.59.1

15.322.549.6

100.0

1948

4.210.516.122.346 9

100.0

Average money income indollars of 1948 purchas-

ing powerJ

1935-36

$5341,1591,8102,7347,0832,664

1941

$5921,5462,5973,8168,4183,396

1948

$8932,2323,4104,7119,9114,231

Percent increasein average in-

come

1935-36to 1948

1941 to1948

514431231825

1 Current dollars divided by the consumers' price index on the base 1948=100 to give a rough measure ofchanges in purchasing power of income. (See appendix table C-8.)

NOTE.—Adjustments have been made in basic survey data for each year. See appendix table B-l for adistribution of families and single persons by income level for 1948. Detail wiD not necessarily add tototals because of rounding.

Sources: National Resources Planning Board (1935-36), Department of Labor (1941), and Council ofEconomic Advisers (1948).

The purely social consequences of income distribution are not withinthe scope of this report, but it should not be forgotten that the functioningof the economic system as a whole bears upon the life and livelihoods ofthe people whom it is designed to serve. In addition, the distribu-tion of income has a recognized bearing upon the functioning of thewhole economy and upon its prospects for growth. A balanced growthof investment and consumption is closely related to income flow, which inturn has a bearing upon the proportion of income that is spent forconsumption.

In 1948, consumer income and consumer expenditure each representeda considerably lower percentage of gross national product than in prewaryears. The high tax structure necessitated by the war and its aftermathabsorbed part of the income which would otherwise have been availableto consumers. In 1949, the percentage of the total product represented bythis type of income and expenditure moved upward slightly. This isshown by table 15.

97


T A B L E 15.—Selected series relating to consumption

Series 1923-29average

76.0

4.9

79.9

641888

68.2

1933-35average

80.1

.2

80.2

408732

56.2

1937

74.4

5.5

78.8

552920

70.7

1939

73.9

3.8

76.9

536923

70.9

1948

68.1

6.3

72.7

1,3021,302100.0

1949

Personal consumption expenditures as percent of grossnational product

Net personal saving as percent of disposable personalincome.

Disposable personal income as percent of gross na-tional product...

Per capita disposable personal income:Current dollars1948 dollars iIndex (1948 dollars, 1948=100)

69.0

7.5

74.6

1,2931,309100.5

1 Current dollars divided by the consumers' price index on the base 1948=100 to give a rough measure ofchanges in purchasing power of income. (See appendix table C-8.)

Sources: Department of Commerce and Department of Labor (see appendix C for basic data).

The expansion of consumer demand which will be necessary in futureto sustain a high level of business investment, and to promote maximumemployment and production, will hinge not only upon the proportionof total disposable income in the hands of consumers, but also upon thetrend of current saving. In 1949, as table 15 shows, the rate of savingreached 7.5 percent of disposable income, compared with 3.8 percent in1939 and about 5 percent during the 1920's. It may well be that a higherrate of saving than in the prewar period will characterize postwar pros-perity, and this may create a problem of finding adequate investmentoutlets. Earlier in this report, however, we noted the fact that the propor-tion of saving to income decreases at the lower ends of the income structure.As the national income grows, a trend toward relatively greater increases inincome for families in the lowest brackets of the income structure wouldtherefore give an extra stimulus to demand for consumption goods.

Thus greater relative gains by those groups who at present share least inthe benefits of our economy not only serve fair social objectives, but alsotend to improve the balance in the relationship between intended savingand intended investment. Such a development contributes to the stabilityand growth of the whole economy, and thus is beneficial to all groupsin the long run. This offers a wide area for agreement and cooperationthroughout the country, as the people look to free enterprise and free gov-ernment for continuous improvement in the functioning of the economicsystem.


IV. Needed PoliciesThe early reversal of the downturn in 1949 was accomplished with the

aid of a composite of private and public policies. The Council has stressedthe importance of policies in the business world itself, coupled with ourconfidence that as these policies constantly improve there will be progres-sively less likelihood of the drastic Government action which follows fromthe emergence of critical conditions.

Government should also exert an affirmative influence if we are to accom-plish the objective of steady economic growth. The Government has becomea large partner in the modern productive process by contributing to thedevelopment of resources, transportation, research, and the productivityof labor, all of which are essential to an expanding economy. Tax andcredit programs have an immense impact upon the flow of incomes andfunds, and upon the decisions of business and consumers.

The following treatment includes an appraisal of some of the measureswhich are significant for economic growth and stability under current andforeseeable circumstances. This treatment does not attempt to be all-inclu-sive. For example, other programs (such as those involving the power todeal broadly and flexibly with credit developments through the FederalReserve System) should be made available to be used if conditions suf-ficiently change to call for them. Still others may need to be developedif deficiencies in market adjustments unfold.

What is recomended now might appear as a piecemeal approach, werenot each piece appraised in the perspective of the current economic situa-tion and of the general objectives defined for the years immediately ahead.

T H E FUNCTION OF PRICES

Our economy is sometimes called a price economy. This means morethan that changes in particular prices influence the decisions which deter-mine the kinds and volumes of goods which are produced. It also meansthat the price factor exercises so important an influence upon levels of realprofits and real wages and other incomes that it vitally affects the economicbalance between investment and consumption which is essential for a highlevel of general activity.

The current price level in general is now high enough to sustain a generallyrewarding level of profits, if activity is high, and this level of profits would in-crease substantially if the volume of sales approaches the levels required tosustain maximum production. For this reason, there would be no justifica-tion for a general upward movement of prices, and neither the current nor

99


shortly prospective relationship between supply and demand is likely toforce general prices upward. While our economy is so complex that afew isolated upward adjustments may seem justifiable, every effort shouldbe made to avoid them, because they will not add to stability or confidenceand will make it harder to achieve a level of sales consonant with maximumproduction and employment.

There are some prices which are too high to permit continuance for a longperiod of the current volume of sales. These prices will need to be re-duced or production and employment will eventually suffer. These pricesare in the field of the administered-price industries where price policy isfirmly controlled; but it may be expected that managers in these industrieswill not fail to reach for the larger market demand which will follow priceadjustments.

The Council believes that in general—and noting the exceptions men-tioned above—the price level is now within a range where stability shouldbe feasible at workable levels. By workable levels, we mean those whichwill enable buyers, as incomes rise gradually in a growing economy, toincrease their purchases sufficiently so that maximum production and em-ployment will be achieved and maintained. We feel that, with respect tothe general situation, it will be safer for the immediate future to dependmainly upon income adjustments rather than upon sweeping and widespreadprice adjustments to enlarge the volume of demand.

This is not to say that a long-run downward trend of some prices in thoseareas where technological gains are unusually great, or where productivityincreases with extraordinary rapidity, is not one of the best ways of enablingthese gains to be enjoyed by the whole population instead of merely by aspecific group of income recipients. Such trends in some prices have ap-peared in the past and will appear again, and they are all to the good. None-theless, as a general proposition serving as a guide to economic policy, thepractical dynamics of our economy indicate that a fairly stable general pricelevel and a rising level of money income as productivity increases are moreconducive to business confidence and to the expansion of enterprise than agenerally declining price level.

The Council is mindful of the critical problems confronting those whoseincomes have remained at low or moderate levels fixed since before the war.But without a serious and prolonged downturn throughout the economy, theprice level could not conceivably be reduced to the point where these peo-ple would find themselves in a satisfactory position. And that very processof downturn would hurt many of them as much as anybody else. Thesepeople, if they are to progress, must look to income gains.

T H E FUNCTION OF WAGES

With a growing potential for national output, the only way to translatethis potential into actuality is to distribute more goods. If the price level

100


is reasonably stable, then the increasing purchasing power necessary forexpanding markets must come mainly in the form of money incomes risingin accord with improved productivity. And since wages constitute the bulkof personal income, the soundest general formula, once wages, prices, andprofits are in a workable relationship, is for money wages to increase withproductivity trends in the whole economy.

Such a general wage principle does not, however, imply that all wageswill or should move at the same rate, any more than the general desirabilityof a stable price level implies that individual prices should not move either upor down. What this general wage principle does imply is that wage changesshould cluster around a norm determined by the over-all productivity de-velopments of the economy. It is also recognized that there will be businessconcerns with productivity gains which justify wage increases above thenorm, while others cannot afford to go as high as the norm. Widely diver-gent rates of growth in productivity in particular industries should also bereflected in shifts in some relative prices. The detailed process of adjustingindividual wages and prices to productivity must necessarily be pragmatic.

Over a long time span, it appears that wage increases as a whole andproductivity increases for the Nation as a whole have tended to move closelytogether. But this should not blind us to the fact that there havebeen periods when wage trends and productivity trends have gotten out ofline, and this has been a factor contributing to general economic instability.Now, when we are not immediately threatened either by inflation or bydeflation, management and labor have a most challenging opportunity todevelop some broad economic principles for wage negotiation which takeaccount both of the over-all national situation and of widely differing situa-tions in different areas, industries, and businesses.

In view of the powers which reside in strong employers and in stronglabor organizations, which make it possible now for one and then for theother to force adjustments which are not in accord with the interests ofthe whole economy, a twofold program is called for. In the first place,increasing study of what constitutes sound wage policy should bring largerconformity to it, because basically both management and labor are pro-pelled by the desire to pursue a reasonable course. In the second place, weare exploring conference techniques, so that representatives of manage-ment, labor, and agriculture may make further progress on joint study of theconditions and actions underlying a stable and growing economy.

AIDS TO BUSINESS INVESTMENT

The primary influences upon business investment are to be found inthe market place. If markets are broad and rewarding, funds will findtheir way into productive investment. And whether these markets willbe broad and rewarding mainly depends upon the functioning of the wage-price system in the distribution of purchasing power.

101


Nonetheless, there are some special problem areas in the investment field.The rapidly growing volume of insurance and pension funds raises theproblem of facilitating absorption of personal and institutional savings intoproductive investment, by making a somewhat larger part of these savingsavailable to business as venture capital. The influence of direct Federalaction on this problem, however, is limited. To a large extent, the solutionappears to involve liberalization in State regulatory standards and valua-tion concepts, and in the policies of many of the fiduciary institutionsthemselves.

New and small businesses are at a marked disadvantage in seeking toobtain equity capital. They also find difficulties in obtaining long-termloans. The commendable efforts of the Reconstruction Finance Corpora-tion to mitigate the financial problems of small and medium-sized concernswould be aided if the maximum maturity period on loans were increased;and if the agency could expand its capacity to provide loan applicantswith technical assistance, thereby increasing the effectiveness of its lendingoperation and improving the borrowers' ability to repay. Also, more ex-peditious and less costly means should be found to provide very smallbusiness concerns with loan assistance.

In treating of investment needs, the Council has pointed out that housinginvestment needs stimulation more than any other type, whether measuredby the opportunities which this would afford to business enterprise or by thepeople's needs for shelter. With a well established and nation-wide pro-gram for subsidized low-rent housing under way, the outstanding prob-lem now relates to housing for middle-income groups. Further reduc-tions in housing costs, and further income gains in an expanding economy,would both contribute toward the solution of this problem. Importantrevisions are being proposed in existing Federal Housing Administrationprograms, to encourage production of housing at lower rents and lower salesprices and of a size commensurate with family needs. These changes, how-ever, will not provide a complete solution. Even with the new aids, ade-quate funds are not available for this kind of housing investment at suffi-ciently low interest rates and for a sufficiently long period of amortization,since most investors require a greater degree of security than is offered by thiskind of investment. Legislation should therefore be enacted to place thecredit of the Government, directly or indirectly, in back of private venturesinto cooperative or nonprofit housing built under adequate standards.Since the housing shortage continues, rent control is still needed.

Although the present business tax structure has not interfered generallywith high over-all levels of business investment in the postwar period, sometax adjustments offer possibilities for encouraging over the long run anadequate and regular flow of business investment. The Council hopes thatbefore too long, general revision of the tax structure will become morefeasible than it is just now.

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FISCAL POLICY

In its Fourth Annual Report to the President, published last month, theCouncil stressed the contribution which a reasonably stable fiscal policycould make toward general economic stability and growth. But we recog-nized that drastic changes in expenditure and tax programs of Governmenthad been necessitated by the appearance of wars and depressions. We alsorecognized that the large tax changes in 1948, the condition of the Federalbudget, and the rapid shifts in business trends in 1949, call for some taxchanges very soon. Further, some improvements in the tax structure areneeded before a sound base will be established on which to rest a long-rangeeffort to achieve more stability in fiscal policy.

The level of taxes did not prevent a magnificent record of postwar eco-nomic achievement. A valuable result of the Government surpluses in1947 and 1948 was in helping to restrain the forces of inflation. The sub-sequent downturn in business activity during the first half of 1949 was notdue to excessive taxation. Nor did the level of taxation prevent the upturnin business activity from coming sooner after the beginning of the downturnthan in any comparable period in the past. Turning to the expenditureside, while the high outlays necessitated by the international situation com-plicated the inflationary problem until early 1949, the steadiness of theseoutlays cushioned the downturn very substantially. On the other hand,the Council at midyear 1949 did not recommend increases in public spend-ing for the purpose of stimulating the economy, and our confidence in itsinternal recuperative forces has thus far proved justified.

An examination of the outlook for Federal finances is relevant to thecurrent concern over the appearance of a substantial Federal deficit and tothe justified belief that its enlargement or even its long continuance would bemost undesirable.

Effect of general economic conditions upon Federal finance

The Federal cash position, measured in terms of the consolidated cashbudget (see the explanatory note on page 59), shifted from an 8-billion-dol-lar cash surplus in calendar 1948 to a cash deficit of about 1.7 billion dollarsin the calendar year 1949, and an estimated deficit of approximately 5.7 bil-lion dollars for 1950. This shift is explained by the following factors: (1)the Revenue Act of 1948 resulted in very large reductions in tax payments;(2) the mild recession of 1949 was marked by a considerable decline in cor-porate profits as reported for tax purposes. This depressing effect uponreceipts will be felt most sharply during the calendar year 1950, whenmost taxes upon 1949 corporate profits will be paid; (3) certain Govern-ment programs, such as unemployment compensation and farm price sup-ports, rose sharply in 1949 under the impact of recessionary tendencies;(4) other major expenditure commitments, particularly for veterans' pro-grams and foreign aid, reach a peak in 1949 or 1950 and will decline there-

103


after. One major item for 1950, the national service life insurance divi-dend, of which 2.6 billion dollars will be paid in that year, will not recurin that amount.

An examination of these causes for the deficit reveals certain trendswhich would be reversed in a growing economy. Along with the effectwhich a continuation of the current upward movement of the economywould have in reducing certain expenditures, it would also havean effect in increasing Federal revenues. This report has already dis-cussed the secular growth of the economy since 1890, and long-rangepolicies, especially fiscal policy, should take into account the probabilitythat over the next few years this secular trend will continue at a rateslightly increased on account of the very large new capital investmentof recent years plus the extraordinary technical improvements of thewar and postwar periods. An increase in gross national product at therate of approximately 3 percent a year would raise the annual product by1954 to 300 to 310 billion dollars, contrasted with the 1949 level of 259billion. The exact effect of this increase upon Federal revenues willdepend upon the distribution of national income among the several groupsof recipients. The effect upon the budgetary situation will also dependon the rate of expenditures.

Expenditure policy

The prime purpose of Federal expenditure is to furnish those serviceswhich cannot be provided effectively in any other way, and which are neces-sary to our national security, welfare, and progress. Examination of theFederal Budget indicates that outlays are reasonable by this test. Outlaysfor national defense and international affairs are higher than they wouldbe in a more peaceful world, but the fact must be accepted that theirpresent level is determined by security reasons. Growing internationalstability will permit a progressive decline in these types of outlays. Theproposed increases in social insurance programs and in other welfare anddevelopmental programs reflect recognized needs and conform to theclearly expressed purpose of the people.

The level of current and proposed public outlays will not impose anundue inflationary strain upon the economy as a whole. Our economy isnow functioning at high levels, but considerably below maximum employ-ment and production or full utilization of its resources, and in the Council'sjudgment there is no presently foreseeable prospect that a renewal of generalinflation will require that Government programs be cut below essentialrequirements. On the other hand, we do not now believe that current andproposed Government programs should be expanded above their contem-plated rate merely in order to take up the slack in employment. We shouldinstead rely upon the recuperative forces now at work.

There is no previous experience with an economy of the size that ours

104


has now reached, from which there may be drawn any firm rule as to theproportion of the national income which may safely in the long run be chan-neled back into the economic stream through the Government. Butthe Council's whole approach focuses upon the objective of economic expan-sion through the enlarging activity of consumers and of business, and thismeans that Federal expenditures should be held as low as the requirementsof programs essential to national growth and welfare will permit.

Because so large a proportion of present Government programs is devotedto purposes which, while essential to national security and world politicalstability, make little direct contribution to increased standards of living, wewish to emphasize the desirability of working toward lower levels of expend-itures as rapidly as international conditions permit. We also wish toemphasize the importance of constant vigilance against the dangers of wasteand inefficiency everywhere and at all times. Measures of economy, how-ever, must not be so distorted in application as to involve the sacrifice ofessential objectives.

For this reason, we have expressed the hope that world conditions willmake it possible to make a steady reduction in national security and otherextraordinary expenditures related to the international situation, for it ishere and in related activities arising from the war that there lies the greatestopportunity for future reduction in the Federal budget.

Tax policy

Current and prospective tax policy should be considered in the light ofthe foregoing discussion.

While general reduction in personal or corporate income taxes always hassome stimulating effect upon business and consumption, such reduction atthis time would enlarge the deficit, and would be justified only if foundnecessary to fortify business against a serious recessionary threat. Atmidyear 1949, in the face of a far more unfavorable business situationthan now exists, the Council did not favor general tax reductions. Theupturn since then makes them even less desirable in the present budgetarysituation. Analysis earlier in this report indicates that there is no generallack of funds for business enterprise, and that the main influence whichshould be relied upon to accelerate business advance resides in adjustmentswithin the price-income structure which will promote an increasing demandfor the products which business produces. In spite of existing problemsin some areas, business investment in general can go ahead on a sufficientlylarge scale under the current tax structure, if business managers grasp fullvthe prospects offered to them by the expansive quality of the economy.

Balancing the budget by attaining a surplus in periods of high businessactivity to offset deficits which might appear under less favorable conditionsis, in our opinion, an important policy. Further, the national debt shouldbe reduced. Business continued throughout 1949 at a reasonably pros-perous level despite recessionary tendencies. Now that business is ad vane-

105


ing again, we are sharply challenged to apply the principle of budgetbalancing. We cannot avoid answering the question: If a balanced budgetis ever to be attained, why not at once at the current level of the economy?

Our answer is that the economy is indeed strong. We also feel that it wasunfortunate that tax rates were reduced in 1948, and that if the higher rateshad remained in effect they would not be such a burden that businessrecovery would not continue. But the tax rates were reduced, countlesspersonal and business relationships are now based upon the lower rates, and,if taxes were now raised sufficiently to attain an immediate budget balance,the process itself would involve disturbing maladjustments. The real ques-tions is this: to what extent may there be some tax increases at this stage ofbusiness recovery without impeding business progress enough to defeat thepurpose of the tax program?

It is important that action be taken to reduce the deficit, and to moveas rapidly as the need to maintain business progress will permit towardattaining a surplus to apply upon the Government debt. For this purpose,some increases in taxes may be made, without threatening the recovery ofbusiness now under way. The revision of some taxes should be sufficientto achieve a net increase in revenue, even while making certain other adjust-ments in taxes to improve the equity of the structure and to provide somestimulus to business investment and consumer buying.

There is urgent necessity that a review of the whole tax structure becompleted at the earliest possible date, toward the end of initiating long-range improvements as soon as compelling short-range problems aredisposed of.

FARM POLICY

Recent trends in agriculture present one of the most dramatic illustrationsof the expanding consumption capacity of a growing economy. In theyears immediately before the war, there were farm "surpluses"; in the post-war years, with farm output 35 percent above the prewar levels, there wereshortages. Exports played an important part in this amazing shift, but thecentral cause was rising standards of living at home. The paramount factabout the agricultural situation today is that we shall need more total out-put—and not less—if we are to achieve a 300-billion-dollar economy withina few years.

The farm program must give increasing attention to the maintenanceand enlargement of markets for agricultural products. We must givegreater emphasis to improvements in the marketing and distribution ofthese products, including nutritional education and special measures toimprove the diets of school children and low-income families. We mustalso cooperate closely with other nations in developing satisfactory tech-niques for maintaining a continuing flow of farm products into internationaltrade without demoralizing world markets. The World Wheat Agreement

T06


is one example of what can be done along this line. But it is only a be-ginning. Our Government has recently expressed the purpose to con-tinue to explore fully with other producing and consuming nations anyfeasible way of making better use of the world's supplies of food andfiber, to help stabilize world prices, and to improve world standards ofnutrition.

The expansion of farm output above prewar levels has been accomplishedwith only a minor enlargement of cropland, and with a substantial reduc-

CHART 26

FOOD PRODUCTION AND UTILIZATIONEven with a large increase in food exports since prewar years, theexpansion of over '/3 in food production has raised domestic foodsupplies almost 30 percent, enough to provide 10 percent morefood per capita to a population 15 percent greater than before the war.

PERCENT OF 1935-39AVERAGE PRODUCTION150

140

130

120

110

100

PERCENT OF 1935-39AVERAGE PRODUCTION

150

FOOD PRODUCTION-̂

140

130

120

1935 3 6 37

J / PRODUCTION FOR SALE AND FOR FARM HOME CONSUMPTION.

2/ INCLUDES CHANGES IN STOCKS.

SOURCE: DEPARTMENT OF AGRICULTURE

tion in the number of farm workers. It reflects in part more favorableweather. But it has resulted chiefly from widespread application ofnew technology. This has included new and improved machines; newvarieties of crops and improved breeding of livestock; the more advan-tageous use of fertilizers and lime; the better control of pests and diseases;and the development of new systems of farming to apply these new tech-niques toward more efficient production and more conservative use of soiland water resources.

868148—50-—~8 107


With a growing national income in real terms, consumption has grownalong with production. For the 3 years 1945-47, per capita con-sumption of food averaged 16 percent above the period 1935-39, andpopulation was larger. The quality and composition of diet have vastlyimproved. Meats and dairy products, fresh fruits and vegetables havefound their way to more and more tables. The per capita consumptionof eggs rose from less than 300 per year before the war to nearly 400 in1945. Since 1946, per capita food consumption has been cut back from119 percent to 110 percent of the prewar level. Some of this resultedfrom changes in the income structure relative to prices. But anotherimportant factor was the imbalance of production among different commodi-ties, relative to the wants and needs of consumers. This was caused partlyby short feed supplies in 1947-48. People would have continued to buylarger quantities of meat and milk if these products had been available.

A fully producing agricultural plant in the years ahead would not resultin production increases as rapid as those which have occurred in recentyears. The new technology has already made itself felt. But an economymoving toward the over-all growth objectives which have been outlined forthe next few years would require an increase of 1 to V/2 percent a yearin total farm output. This increase is feasible, and can be absorbed by aneconomy functioning at maximum employment. Domestic disappear-ance 5 years ahead, in comparison with the past 2 years, might be expectedto increase 25 to 30 percent for fruit; 15 to 20 percent for dairy products;and 10 to 15 percent for meat, vegetables, and food fats. Tobacco con-sumption would probably continue to rise. Domestic utilization of cottonand wool should be much higher than in 1949. The use of food grainsand potatoes may continue about stable, at least in terms of total food use.

The level of per capita food consumption involved in these estimateswould be about 5 percent above the present level—still a little below thewartime peak, but 17 percent above the average for 1935-39. Even theseestimates take into account the inadequacy of purchasing power whichserves as a barrier to adequate nutrition for many families. Raising suchfamilies to an adequate dietary level would require increasing the suppliesof meat and dairy products another 5 percent, and of poultry products,fruits and vegetables in smaller proportions. Such supplementary con-sumption would raise the per capita level to about 20 percent above prewar.With a 20 percent larger population, this would mean within a few yearstotal domestic food disappearance about 45 percent above the average duringthe immediate prewar years. In addition, substantial possibilities forincreased consumption of farm products are being revealed by researchto develop and demonstrate new uses for them in industry.

The necessities of war, and trends in the immediate postwar period, havedriven our farm production into a pattern which is unsuited to therequirements of the future. The acreage devoted to wheat and cotton is

108


higher than necessary to fill prospective domestic and foreign requirements.Production of milk, meat, fruits and vegetables should be substantiallyexpanded, if diets are to be improved and the objective of a 300-billion-dollar economy realized. Some temporary curtailment of feed-grain pro-duction may be desirable until livestock production catches up. Theseshifts are in line not only with the requirements for consumption, but alsowith the requirements for conservation. A substantial part of the acreageplowed for wheat in recent years should be returned to sod; a good dealof land in the cotton South has been used too intensively and should beturned into pasture or farmed under more conservative systems of rotation.In general, the shift of land from tilled crops to pasture and forage forlivestock will help maintain the soil for the use of future generations.

The speed and efficiency with which wartime shifts in production wereaccomplished show that the Nation can certainly devise the methods fordesirable peacetime shifts. But the commodity goals and market supports,which sufficed when more of everything was needed, are not adequate tothe more complex task of combining expansion in some areas with moderateor drastic contraction in others. New methods are needed for new times.

The present price-support legislation offers the most definite assurancewith respect to returns from the basic cash crops, somewhat weaker assur-ance for dairy products, and no certain assurance at all to other livestockenterprises except wool. Relatively more emphasis in price-support legis-lation should be placed upon livestock items if a positive, forward-lookingfarm program is to be developed.

Needed adjustments in production and consumption will require im-portant changes in land use. Not only are these changes necessary in orderto avoid persistent surpluses and to obtain a better balance of agriculturaloutput in line with the demands potential in a growing full-employmenteconomy; they are also needed to bring about better conservation of oursoil resources. And in most instances they should, in the long run, provemore profitable for farmers themselves. Major reliance in bringing aboutadjustments must therefore be placed, not on price support alone, but alsoupon gearing together research and education, conservation payments andtechnical aids, and farm credit, in an aggressive program to encourage andenable farmers to make the shifts in land use that are desired.

A primary purpose of farm price supports is to achieve parity of incomefor agriculture. The need for support from this standpoint, however,chiefly arises out of recessionary economic developments originating outsideagriculture. Farm support programs are essentially supplementary. Theirbenefits are secondary, compared with the benefits flowing from a prosperousand growing economy. A prosperous and growing economy would notonly expand the market demand of consumers, but would also make possibleeffective programs for improving nutrition, expanding distribution, and de-

109


veloping new uses, in which there lie wide opportunities for a desirable ex-pansion of consumption of farm products.

At the same time, a properly designed farm support program can con-tribute toward overcoming recessionary developments and maintaining thekind of economy in which these opportunities may be realized. It can dothis by helping to maintain purchasing power in the rural areas of theeconomy, particularly in those areas which are the temporary victimsof maladjustments like those with which many farmers are now faced.

A proper adjustment of the support program from this standpoint in-volves, as previously indicated, a structure of supports which will help toencourage the basic shifts needed in production, rather than to perpet-uate maladjustments. It involves also the provision of greater varietyin the methods of support. It has been possible for the Government tomaintain prices through purchases or loans which enable farmers to holdsupplies off the market. But such operations involve many difficulties ofstorage and disposal, especially of livestock products and other perishables.

The desirable alternative method of supporting farm returns from live-stock and other perishables involves payments to farmers when market pricesfall below desired levels. This method has important economic advantages.By permitting market prices of foods or other farm products to be deter-mined by normal demand factors when supplies are abundant, it passeson to consumers the benefits of such abundance and gets larger amountsmoved into consumption. Support of market prices, on the other hand,impedes this desirable consumption response. In addition, market-pricesupport maintains an upward pressure on prices at numerous points in theeconomy, where costs of production of other goods are directly or indirectlyaffected by the prices of farm products. The reductions in prices whichbecome possible where payments are used relieve such upward pressuresand permit readjustments which may tend, over a period of time, to bringabout more stable price relationships and hence to reduce the cost andthe difficulty of the support program itself.

Either direct supports or payments may prove costly in certain periods,and may need to be supplemented by programs to hold down theproduction or marketings of commodities that are in surplus. But it isimportant to recognize that such restrictive measures, though they maybe temporarily effective, are no substitute for a positive adjustment programto bring about enduring shifts that are needed in production. So longas there are too many farmers engaged in the wrong kind of produc-tion, the pursuit of parity of income for agriculture will not provide acomplete solution. But if accompanied with measures to adjust agri-cultural production to the needs of a growing economy, the objectiveof income parity for agriculture means a better balance throughout ourwhole national economy. It means protection of a vital sector of theeconomy against the extraordinary fluctuations in income which have pe-

IIO


culiarly affected it in the past; and it means a more stable and expandingdemand in rural communities for the products of industry.

In the final analysis, programs to reach and maintain parity of incomefor agriculture will not fully meet the objective of adequate farm purchasingpower unless they include a direct attack upon the special problem of low-income farmers. In 1948, the per capita income of the farm population wasestimated at $905, compared with $1,572 for nonfarm people. During thesame year, one-fourth of our 6.7 million farm families received cash incomesof less than $1,000. Although this figure omits the value of nonmoney in-come from home production, it nonetheless indicates the plight of these fam-ilies, and their low position in the market for commercial goods and services.While not all of the low-income people on farms are farmers in a strictoccupational sense, there were in 1945 nearly 1 million small holdings whoseoperators apparently derived their main income from the farm. In addi-tion, more than V/2 million small family farms turned out products valuedannually at between $1,200 and $3,000. These two groups accounted formore than 44 percent of the farms reported, and nearly 43 percent of thepopulation on farms.

Many of these farmers, having little to sell, receive little benefit fromprice-support programs. In addition, there are some 4,000,000 hired farmworkers, whose average wages, including perquisites, are substantially belowthe levels of most urban employment.

A frontal attack upon farm poverty involves many measures. It shouldinclude increased emphasis upon the provision of credit and other aidsto small farmers in enlarging, improving, and equipping their farms.This program should be tied in closely with production adjustment meas-ures, with soil conservation activities, and with management advice andguidance. For families whose best opportunities lie outside farming, stressshould be placed upon vocational adjustment, help in locating new jobs,and financial aid during their period of training and relocation. Theseundertakings would be facilitated if nonfarm employment opportunities inrural areas were expanded through regional development and rural indus-trialization activities.

Foremost among those programs which will be of general benefit tofarmers, particularly those of low income, will be further improvements ineducation. The consolidation and improvement of rural schools wouldbroaden the opportunities for vocational training. Measures to improvehealth and housing in rural areas, and to extend to rural people a fullerparticipation in our social security programs, are of comparable importance.

The advancement of a prosperous and secure agriculture, measuring upto the requirements and benefiting by the richness of an economy functioningat maximum levels of employment and production, is one of our majoreconomic tasks. That task calls for all the resources of thought and ofmaterial things that can be made available. The time to move resolutelyin that direction is now.

I l l


DEVELOPMENT OF PHYSICAL AND HUMAN RESOURCES

Economic growth depends on what people do with land, water, minerals,transport, and plant and machinery. What they can do in turn is measuredby the care with which they have conserved and utilized their physicalresources. It rests equally upon general health standards, and upon thelevel and kind of education they have. Increases in our total nationalproduction to more than 300 billion dollars in 1954, and maintenance of a2 to 2% percent annual rate of increase in productivity over the next fewyears, would require expanded and improved developmental programs inthe two broad areas of physical and human resources.

To attain the prosperous economy which is within our reach, plansrelating to natural resources development, transportation, urban develop-ment, education, and health must be correlated. In nearly every oneof these areas, construction and nonconstruction or service activitiesare interrelated. Soil-conservation techniques are useless unless farmershave an appreciation of their value and an understanding of how to usethem. New schools and hospitals are of little consequence without trainedstaff personnel. Developmental and works programs, such as land reclama-tion, hydroelectric power development, intercity and interregional highways,and better housing, hospitals, and schools, should be viewed in long-rangeperspective in terms of socially desirable and economically feasible standards.

It is highly significant that achievement of the balanced economicgrowth envisaged earlier in this report requires a level of expenditurefor the foregoing developmental activities rising at least about 20percent above that of 1949 within five years. This increase is about thesame as the potential increase in total output projected for that period ofyears, but is less than half the rate of growth which would be desirable ifother elements in the budget were not so extraordinarily large. Aseconomic objectives become better defined, the magnitude of these pro-grams should be reviewed continuously to assure their maintenance atadequate levels. The discrepancy between the minimum and desirablelevels of growth illustrates that, with present budget commitments fornational security, progress in these programs must of necessity be limited.On the other hand, an insufficient allowance for the development of ournatural and human resources would do irreparable damage, and wouldimpair our ability to produce for peace or defense.

Physical resources

The importance of the development of our natural resources in theeconomic progress of our country has been so well known that the "Winningof the West" has been a favorite and romantic theme in the school historiesof American children. Our pride in the ability, intelligence, and industryof our forefathers has not concealed from us the fact that the speed of

112


economic growth has been possible because the human forces of productionwere applied to a bountiful supply of undeveloped natural resources.

The primitive stage in which the individual could create his own fieldof work and production lasted a long time. As late as the close of thenineteenth century, the single enterpriser was setting up his mill and water-wheel, the farmer was establishing himself on a productive homestead, theprospector was hunting unknown ledges, and the wildcatter was drillingshallow wells for oil or gas. Even the numerous projects for the exploita-tion of natural resources, which were beyond the financial capacity of suchindividuals, were generally small enough to be supported by capital suppliedby a few persons, often by a single capitalist backer of the entrepreneur.

The twentieth century has seen the continuous replacement of indi-vidual enterprise by large corporate enterprise in the development ofnatural resources. The simple prospects have been exploited, and theopportunities have been increasingly in projects requiring large capital.The place of small business has grown progressively smaller in anindustrial environment of 500,000-dollar oil wells, 10-million-dollar oretreating plants, 50-million-dollar hydroelectric stations, and timber factorieswhich reproduce as well as cut down the forests. And even while largecorporate enterprise has expanded its operations in the development ofnatural resources in the past 50 years, it has become increasingly clearthat some projects which must be undertaken in an adequate program arebeyond the field of private enterprise. Only the Government can meet theproblems of high cost and of exceedingly long periods of amortization ofinvestment which are usually combined in these undertakings.

This historical trend is well illustrated by our unfolding policies and pro-grams in the field of land reclamation by irrigation. One of the firstactions by the Federal Government in this direction was the passage of theReclamation Act in 1902. Irrigation development began with the one-fieldditch, became a neighborhood group project, and then moved into thestage of corporate operations, which the Government assisted where publiclands were involved by furnishing free reservoir sites and free rights-of-wayfor canals, and by restricting land acquisition to persons buying waterrights.

The Reclamation Act was passed because these aids were not adequateto enable private capital to construct the larger and more expensive projectswhich would extend the limits of irrigation beyond the narrow zones nearthe streams and would establish a water supply, despite the earlier over-appropriation of the natural flow of a river, by constructing great reservoirs.In the beginning, the moving idea was that the Government could easilyfinance a project which a corporation would find had little chance of at-tracting private investors, and that the Government could extend verylong credit to the buyers of water rights. Much later, there came Con-gressional recognition that the establishment of a prosperous, growing com-


munity, for so many of which the reclamation programs have been respon-sible, brings great benefits to the state, not only in an increase in its generalwell-being, but also in direct financial gains affecting its revenue. The pri-vate corporation cannot realize such benefits. The Federal Governmentdoes secure them, and it may take them into account in determining whetherto undertake a project the cost of which will be recovered only in partfrom those directly served.

Great opportunities still lie before private capital for the further develop-ment of natural resources, and Federal legislation is specifically directed, inmany respects, to assisting private enterprise engaged in such projects. Butthe ability of the Nation to benefit as greatly from our natural resources incoming years as in the past depends also upon enormous undertakings whichprivate capital cannot attempt. We have made a beginning of Govern-ment projects, especially in the Tennessee and other river valleys, andother possibilities are so many that they surpass the possible limit of Federalexpenditure. Appropriations must be allocated between resources devel-opment and other Government purposes, and between projects affectingnatural resources and those affecting human resources. Some of thefactors which should influence the decisions are indicated in the followingdiscussion.

Programs for the conservation and development of natural resources needto be expanded at a rate somewhat greater than the secular growth of theeconomy. The public expenditures involved are investments which result inthe production of goods and specific services indispensable to economicgrowth, nationally and regionally. They make available, for the benefit of allthe potentials which exist in our regions. For example, if the well-establishedtrend of increasing use of electricity is to continue, the production of low-cost electrical energy will have to expand more rapidly than the increase innational product. River basin development programs can account for a con-siderable portion of the 6,000,000 kilowatts of additional power capacityneeded annually for some time into the future. In the West, these programscontribute to meeting needs imposed by great population increases. In themore mature area of northern New York State and New England, the eco-nomic prospects can be improved by making available the low-cost powerpotential in the St. Lawrence seaway and power project. By the time theseaway can be completed, we may be heavily dependent upon importedore to keep our steel industry operating at capacity. For reasons ofnational security as well as economic development, the seaway is an urgentlyneeded link between the inland centers of our iron and steel industry andforeign sources of ore.

We should speed up the gathering of geologic, topographic, hydrologic,and other basic data upon which so many resources development projectsrest. Forest resource and soil surveys should also be pushed vigorously.

Continued emphasis on the synthetic liquid fuels program and the under-

114


ground coal gasification programs are desirable as a part of the Govern-ment's long-range effort to develop new techniques and alternative sourcesof supply in the interest of conservation of diminishing resources. Explora-tion for scarce minerals should also be encouraged.

About one-fourth of our cropland is being damaged at a rapid rate, whileanother 25 percent is deteriorating, although at a less serious rate. Theselands should be placed under good management at soon as possible, whilefarmers generally need to give increased attention to soil-conserving tech-niques. Soil conservation and improvement work is not being done rapidlyenough, nor upon a scale broad enough to protect the soil. About one-halfof the western grazing lands are in poor condition and call for immediateattention such as seeding, fencing, provision of stock water, and control ofnoxious plants. More than 100,000,000 acres of public range need restora-tive work. Large tracts of marginal wheatland, for which adequate rainfallcannot be counted upon, should be returned to range.

A flexible long-term forest development program should aim to build upthe annual growth of saw-size timber to about double the present rate. Thiswould allow for potential needs in a prosperous, expanding economy. Cut-ting and forestry practices on almost two-thirds of our private forest landare detrimental to future growth.

We have standards permitting measurement of our present deficiencyin highways. A good highway costs less all around than a poor highway,because of increased safety and savings in wear and tear on cars and tires.More than half our major highways were built in the 1920's or early 1930's,and have already served the major part of their useful lives. It would costmore to maintain them over the next decade than to replace them; soour choice is between building good roads and riding on them, or losingthe price of good roads by riding on poor ones. Out of a needed expendi-ture for highways of about 4 billion dollars a year over the next decade,approximately one-half should be for replacement.

The atom represents a new resource of almost limitless opportunities,the development of which we have scarcely begun. Through use of radio-active atoms, we are pushing back the boundaries of hitherto unknown mys-teries of human life and plant growth, and we are gaining new knowledgethat has already improved industrial processes in textiles, chemicals, andmetals. In addition to gains in medicine, agriculture, and other fields,radioactive atoms are leading the way toward new and better industrialproducts, better assurance of profitable business operations, and higherstandards of productivity accompanied by higher returns to labor andmanagement. Construction has begun on several experimental atomicenergy power plants, which may prove to be the forerunners of a new agein the application of electric power. The precise economic significance ofthese developments can now be seen only dimly, but it cannot be doubtedthat they will exert an increasing force in the growth of the American econ-omy and in its several regions.

"5


Human resourcesWe shall fail to realize the potentials of our physical resources, unless we

remember always that it is people who translate these potentials into actualgoods and services. Ever-advancing health and educational programs shouldbe recognized as the necessary foundation for the improved technology andsocial organization upon which economic growth depends. These develop-mental programs include construction of schools, hospitals, and otherfacilities, as well as educational and health services.

The need for improved educational opportunities is persistent. Themore urgent problem is the enlargement of staff and facilities required bythe postwar growth in the juvenile population. Five years from nowelementary school enrollment will be 30 percent above the present level.A similar expansion of secondary school enrollment will follow. Suffer-ing as we now do from the overcrowded classrooms and the overburdenedteachers which are the nation-wide rule, we should add approximatelyone-third to our elementary school plant capacity within a few years,replace an additional third, and increase the number of elementaryteachers more than correspondingly. We shall have to expand secondaryschool facilities, but not so rapidly. Another serious problem is foundin the current inability of a large proportion of our most capable youthto obtain the post-high school education necessary to full realization oftheir economic and cultural capacity. Additional thousands of doctors andnurses should be professionally trained each year, as an essential part ofimproved health programs.

The disparity of financial resources among the States of the Union is suchthat the States with the greatest proportion of children of school age aregenerally lagging in their provision for elementary and secondary education,although they devote a larger part of the income of their people to thispurpose than do many wealthier States with much better educa-tional facilities. It is now widely recognized that Federal aid is required,to support enlarged educational programs which will meet the problemsof hard pressed areas, and which in addition will expedite the provisionof wider opportunities for higher education generally as well as the profes-sional training of doctors and nurses throughout the country.

The need for greatly improved health services and facilities is alsoa matter of common agreement. The economic costs of preventableillness, of reduced physical and mental capacities, and of premature agingare such that public expenditures in improved health are as much soundeconomic investments as they are a major contribution to individual well-being.

To meet desirable standards, the Nation should double its present accept-able hospital facilities by 1960. This would mean more than 900,000additional hospital beds. Public health service units should be made

n6


available in the more than 1,000 counties which now do not have themon a full-time basis, and services in many existing units should bestrengthened. Improved access to competent medical attention should beprovided for the millions who are now without it. Vocational rehabilita-tion and medical research activities need expansion. Federal aid is essentialto the achievement of these standards in many areas of the Nation, as wellas for expanded training of medical and public health personnel.

The timing of developmental programs

Critical problems arise with respect to the flexibility and timing of theseprograms. How much variation from year to year might be desirable andfeasible in these programs, in order to contribute in some measure to thestability of the general economy? Even more troublesome has been theproblem of the extent to which these programs may be shaped to the varyingneeds of different parts of the country.

The Council believes that these programs for the development of basicphysical and human resources should be primarily along lines of long-rangesteady growth. By this approach, it should be feasible to arrive at deter-minations, partly but not purely economic in character, as to what part ofthe resources of a growing economy should be allocated to these fundamentalobjectives. This should contribute more to the stability of the generaleconomy than the treatment of these programs mainly as compensatorydevices. The economic outlook now—with neither inflation nor deflationclearly in prospect—presents as good a time as any to develop these pro-grams systematically and in close accord with the long-range needs of thecountry. The Council believes that this is the sounder approach, not onlyfrom the viewpoint of general economic policy, but also from the viewpointof the sound management of the Federal budget.

Economic trouble spotsDespite the high levels of employment throughout the Nation, there

are some areas with quite heavy unemployment, and with far less thanmaximum levels of production and business activity. This presents a chal-lenge because there cannot be maximum employment and productionthroughout the Nation so long as some areas are relatively depressed; andthere is always danger that economic dislocations in spot areas may spreadif they are not remedied.

For more than a year, there has been a noticeable concentration of unem-ployment and distress in particular areas. According to the end-of-Decem-ber reports, 12 of 100 labor market areas of major importance had anestimated 12 percent or more of their labor force unemployed. In addi-tion, this percentage is known to have prevailed in numerous smallerlabor market areas.

At midyear 1949, a program was initiated to provide aid to these trouble

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spots through modification, within the limitations of existing laws, of proce-dures governing Federal procurement, construction, and lending operations.Action along these lines should be continued. However, the more persistentand fundamental aspect of the problem is the long-term or chronic unem-ployment so prevalent in many distressed areas. It should be recognizedthat some New England textile areas, the cut-over section in the NorthernLakes States, and various coal mining districts in Pennsylvania, Illinois, andIndiana, have been in difficulty for 20 years or longer. This calls for evenmore determined efforts, broader in scope and longer-range in character.

The search for solutions to these area problems is the joint responsibilityof Federal, State, and local governments, working with the private groupsconcerned. Integrated programs of action need to be worked out to meetthe unique situation in each depressed area. The possibilities of morevigorous retraining, lending, and capital development activities, should beexamined. These actions should contribute to permanent solutions, and notonly alleviate current difficulties.

Advance planning and program flexibility

Advance planning of developmental programs is necessary, if they areto be directed more fully toward long-range economic objectives for theNation as a whole and for specific regions. In addition, such advanceplanning will make such programs more effective in some of the eco-nomic trouble spots which exist even in times of general prosperity. Andif, despite all efforts, a dangerously inflationary or deflationary situa-tion should develop, advance planning will make it easier to adjust develop-mental programs accordingly without loss of time or waste of funds. Suchplanning would not be inconsistent with a decision to defer projects inperiods of threatening inflation, and it would assist their acceleration ifthat should become necessary to halt serious deflation.

The following table summarizes the present status of advance construc-tion planning for such projects as highways, various community facilities,and dams and other stream improvements.

TABLE 16.—Status of plans for a public works reserve[Billions of dollars]

Item

State and local*Federal

Total _-.

Estimate ofconstruction

in 1950

4.11.9

6.0

Blueprintson hand,

Dec. 31,1949

3.01.5

4.5

Blueprintsin process

3.03.0

6.0

1 Based on data provided by the General Services Administration.

At the present time, State and local backlogs of drawings and specifica-tions do not exceed 3 billion dollars. This is less than 6 months' work atthe level which should be maintained over the next few years. The Con-

n8


gress has renewed authority for the Federal Government to aid State andlocal governments in building up their shelves of construction plans, andthis work should be pushed vigorously.

One major weakness is in the broad field of river basin development.Existing programs, several involving hundreds of millions of dollars, lackconsistency and balance. In most of our major river valleys, we do notnow have satisfactory means for preparing and agreeing upon integratedprograms of development, including watershed land development as wellas construction along the stream. Thorough reexamination of the prob-lems and presently authorized programs in a number of our major riverbasins would be desirable. This is especially true of the Missouri Basin.In addition, there should be continuing efforts to improve policies andmethods of program formulation, to assure that objectives for river basindevelopment are consistent with our national economic goals.

The preparation of advance plans requires consideration of the suit-ability of various programs for possible acceleration, both Nation-wide andin specific areas. Examples of projects and programs which are susceptibleto prompt expansion include improvements in city streets, sewer- and water-line extension, school building additions, and maintenance and repair ofpublic buildings. Nonconstruction programs, including research, recrea-tion, and public health services, are also susceptible to flexible expansion.In rural areas, soil, range, and forest conservation work are examples ofthe more flexible type of development programs. Public housing, hos-pital, and major highway construction requires more time to get underway, but is still available within limits. Federal technical assistance forState and local planning of nonconstruction as well as construction projects,would go far toward making sure that such assistance as the Congressmight make available in time of need would be fitted in with carefully con-sidered long-term needs and opportunities, nationally and in special areas.

Successful advance planning of developmental and works programs re-quires continuous efforts to coordinate the planning activities of the Federalagencies concerned. Furthermore, it may well be desirable to provide fora greater degree of discretionary authority over the timing and placing ofpublic development expenditures, as an aid in stabilizing the economy na-tionally and in particular areas. This subject is being studied by the Council.

SOCIAL SECURITY

In the 250-billion-dollar economy of today, the social security programsare still adjusted largely to the 70-billion-dollar economy of 1935—theyear when the Social Security Act was adopted. The interests of theNation require that these programs now make an about-face and, insteadof looking backward, look forward to the 300-billion-dollar economy thatwe can achieve within a few years and to the still larger economy whichshould exist by the time that most of those who are now working reachretirement age.


In its Annual Report to the President published last month, the Councilpointed out that social security programs should be measured primarilyagainst what a strong economy can afford to do. Workers are more pro-ductive when they live in the assurance of protection against foreseeablehazards, rather than in dread of their incapacity to cope with them. Socialsecurity programs also serve to cushion the effects of recessionary trendswhenever these may appear, because old-age payments constitute a steadyflow of income, and because unemployment insurance benefits and assistancepayments rise as other forms of income decline.

Unemployment insurance

Unemployment benefits are now replacing an average of only about 35percent of the wage loss of covered workers, and the limitations on coverageand duration greatly reduce their total effectiveness. In November 1949,public unemployment benefits were being received by about two-thirds oflaid-off workers, and represented compensation for only 20 to 25 percent ofthe Nation's total wage loss due to unemployment. In some of the areaswith severe and long-continued unemployment, only about one-third of thelaid-off workers were receiving benefits at the end of 1949.

The need for strengthening the Federal-State unemployment insurancesystem through the establishment of minimum Federal standards is urgent.Benefits should replace at least 50 percent of the wage loss due to unemploy-ment up to a maximum of $30 a week for single workers, with additionalamounts ranging up to a total of $42 for workers with three or more de-pendents. Coverage should be expanded to include employers with oneor more employees; and benefits should be made payable for at least 26weeks of unemployment. To guard against the danger that prolongedunemployment may strain the solvency of the trust funds of individualStates, a Federal reinsurance system should be established. This wouldassure that no State is forced into disproportionate taxation which wouldfurther aggravate its economic problems.

Old-age, survivorship, and disability protection

The inadequacy of current systematic protection of the aged is set forthvividly in this single contrast: the Old-Age and Survivors Insurance systemis now paying $26 a month to single workers and $41 to couples, at a timewhen a minimum food bill alone for a retired couple is about $45 a month.Furthermore, of 11.5 million persons in the country over 65 years of age,only about 2.3 million are receiving public insurance benefits. Only 650,000families are recipients of survivors' insurance benefits, and no social in-surance protection is provided for families whose wage earners are disabledfor reasons not connected with their employment.

The Old-Age and Survivors Insurance program should be enlarged toapproach universal coverage, and the benefit level should be raised enoughto permit the aged worker a real choice between retirement and continued

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work., and to provide widows and children and the disabled with a healthfulstandard of living without dependence on public relief.

Employer-employee pension plans may serve as a legitimate privatesupplementation to Government social insurance programs. Too great areliance on private plans, however, may interfere with desirable mobil-ity of labor. Furthermore, private plans provide true protection only ifaccrued and current pension liabilities are fully reflected in trust fund ac-cumulations. Only public and nearly-universal social insurance programscan be financed in a manner adjusted to the overall needs of the economy.It is incumbent upon the Government to develop a sound and adequatesocial insurance structure which, with continuing improvements as theNation's productivity increases, can satisfy basic needs for individualsecurity.

Health insurance

The gap in social insurance resulting from our continued failure to pro-vide a national system for the prepayment of the costs of medical care alsocreates hardship in many cases and is responsible for the fact that millions ofAmericans remain without adequate medical care. Health insurance, withthe same nearly-universal coverage as Old Age, Survivors, and DisabilityInsurance would make an ail-important contribution to the Nation's health,with resulting long-range benefits to productivity and income.

Public assistance

The inadequacies of the insurance system have thrown a disproportion-ate load upon the relief agencies. Public assistance for the aged, the blind,and dependent children on a means-test basis has outstripped social insur-ance received as a matter of right, whether measured by level of benefitsor by number of recipients. In a large number of communities, however,only inadequate public funds are available for the needy individuals who donot fall into the special categories for which Federal aid is available. Thepublic-assistance program should be bolstered by the extension of Federalgrants-in-aid for needy families not now eligible under the Federal-Stateprogram. In the allocation of the public assistance grants, the differingfinancial abilities of the States should be taken into account.

Social security costs

The Council in its Annual Report to the President last month pointedout the distortion which results when the future cost of old-age benefitsis measured against the current size of the economy. For whatever methodof financing may be employed, the fact remains that the goods and servicesconsumed by those who retire some decades hence will be provided by theeconomy of that time and not by the economy of today.

The following table illustrates, for the next quarter century, the probablegrowth of the total aged population and of the numbers eligible for and re-ceiving retirement benefits under proposed legislation. The estimates are

121


based on our belief that many aged individuals will not retire voluntarily inan economy with abundant job opportunities. Accordingly, the number ofindividuals receiving benefits is estimated to be well below the numbereligible under the insurance system.

T A B L E 17.—Estimated proportion of the aged population eligible for and receiving old-ageinsurance benefits, 1950-1975

Year

19501955I960 _19851970 .1975

Population aged 65 years and over

Total(millions)

11.512.914.415.817.218.7

Eligible for bene-fits upon retire-ment of earner l

Number(millions)

3.56.99.0

11.113.014.9

Percentof total

agedpopula-

tion

305362707680

Eetired and receiving benefits i

Number(millions)

2.04.15.97.79.5

11.2

Percentof total

agedpopula-

tion

173241495560

Percentof totaleligible

575966697375

* Assumes prompt adoption of administration program and intermediate population and labor forceestimates.

Source: Federal Security Agency, Social Security Administration.

Under the broadened social insurance coverage illustrated above, andwith the benefit levels proposed by the President, ranging up to a familymaximum of 150 dollars a month, the total cost of old-age insurance wouldapproach 83/2 billion dollars 25 years from now. Existing and presentlyproposed programs of insurance for survivors, the disabled and the un-employed, and for the payment of the costs of medical care, togetherwith the public assistance programs of the Federal, State, and local gov-ernments, might require an additional 14 to 16 billion dollars in benefitpayments. Thus the total costs of all presently recommended programsin the fields of social insurance and public assistance, including the costsof State and local governments, might range up to 25 billion dollars aquarter of a century from now, or 20 billion dollars above the current level.

This is a very large figure. It should be viewed, however, in the light ofthe total national income and production which would flow from a growingeconomy. The rate of growth which would result from fairly constantmaximum production and employment would mean a total national outputof 500 to 600 billion dollars 25 years from now, or in the range of 300billion dollars above the present level. The prospective increase of 20billion dollars in social welfare costs would thus represent less than 7 percentof the total increase in national output. This would be only a moderateproportion of its increasing income for a prosperous democracy to devote tothe aid of those least able to protect themselves against economic risks. Fur-thermore, these costs should not be regarded as entirely new costs. Much

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of the expenditure would occur in the complete absence of social security,but its burden would then be distributed unevenly among relatives, friends,medical practitioners, and creditors.

INTERNATIONAL ECONOMIC POLICIES

For some time, the broad long-range purpose of American internationaleconomic policies has been to expand international trade and investment,and thus to contribute to our own economic well-being and to peace andfreedom throughout the world. The immediate postwar situation, whichhas forced us to adopt extraordinary programs of foreign grants, shouldnot divert us from this long-range purpose. Expanding trade and invest-ment between the United States and other countries will aid world politicalstability and reduce the need for extraordinary grants. The problem isno longer a long-range one of moving gradually toward a purely economicgoal. It is an urgent problem of both security and economics.

The problem arises from the intensity of foreign demand for our goodsand services, which since the war has vastly exceeded what foreign coun-tries could finance by selling goods and services to us or by attracting privateUnited States capital. The surplus of our exports over our imports ofgoods and services in the four postwar years 1946-49 has totaled 31 billiondollars, and even this amount was inadequate to meet foreign needs. Thisexcess demand for American goods has been general, and by no means con-fined to Europe. As appendix table C-36 shows, about half of our exportsurplus in the postwar period has been with countries other than those ofWestern Europe and their dependencies. In 1949, dollar deficits were aworld problem.

Two years ago, difficulties created by the war were regarded as at the rootof the payments problem. Although it was recognized that many specificfactors were involved, some of which would be permanent, it was obviousthat the immediate necessity was to expand production in foreign coun-tries above prewar levels and to eliminate their internal inflationary pres-sures and the overvaluation of their currencies. Great progress has beenmade along these lines, but further steps are now necessary if the Europeancountries are to become self-supporting at satisfactory standards of living,thus eliminating the need for further large extraordinary aid from theUnited States.

The dollar problem

The problem of overcoming the shortage of dollars with which to payfor American goods must be attacked from several directions.

One method is to increase our total imports of goods and services, andtotal Western European exports. This was one of the principal objectivesof the devaluation of the British pound sterling in September 1949, whichwas followed by devaluation of many other currencies. It is too early to

868148—50 9 123


determine the effects of these devaluations, but certainly they alone willnot provide an expansion of world trade sufficient to overcome the dollarshortage.

We, as well as others, have barriers to imports which we have the powerto remove or reduce. With the maintenance of vigorous domestic demand,the value of our imports could be substantially increased in the comingyears with benefit to our standards of living and without injury to domesticindustries. Despite recent tariff reductions, imports are still hampered bytariffs which may safely be reduced by reciprocal trade agreements nego-tiated in the conferences to begin next September. Burdensome customsprocedures should be modified. Other legislative restrictions upon importsof goods and services should be limited or eliminated as far as practicable,except to the extent that they are required for our national security orother domestic objectives; and they should be made consistent with theproposed charter for the International Trade Organization. This charter,which provides a code of rules and a mechanism for dealing with interna-tional trade problems, has been negotiated and placed before the Congressfor approval.

Important though these measures are, a solution which placed the entireburden upon increasing American imports between now and the end ofthe European Recovery Program would not be desirable from the point ofview of foreign or domestic policy, even if it were feasible. The cuttingoff of our present net contribution to the resources of foreign countries, byeliminating our export surplus in less than 3 years, would mean severelimitations on their domestic development or living standards. Both alter-natives would involve serious dangers of political instability in many partsof the world which would be harmful to our national security. In thiscountry, so sharp a rise of imports within a few years might create difficul-ties for particular industries, and also have some generally unfavorableeconomic effects.

Nor should the solution be sought in a drastic reduction of Americanexports. This would be disastrous for many foreign countries throughoutthe world if it occurred before their requirements could be supplied fromother sources. It would also have a serious effect upon the markets formany United States products, and would aggravate our problem of agri-cultural surpluses. In the fiscal year 1948-49, we exported to Europe 21percent of our total raw cotton production, 21 percent of our leaf-tobaccoproduction, and 26 percent of our total wheat and wheat-flour production.

The Point Four Program

In January 1949, the President proposed what has become knownas the Point Four Program to assist the underdeveloped areas ofthe world in raising their standards of living and creating an en-vironment favorable to the maintenance and development of freedomand democracy. The expanded flow of capital under the Point Four

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Program would create new international markets. A substantial flow ofdollars, which the underdeveloped countries could spend where they choose,would provide the countries of Western Europe with the opportunity offinding new outlets for the export of capital goods and other products byan expansion of total world markets, rather than by a self-defeating strugglefor present limited markets. Thus, the export of capital under the PointFour Program, which is a basic element in our foreign policy, would con-tribute greatly to the supply of dollars needed by foreign countries topurchase essential supplies in the United States.

The Point Four Program proposes, in the first instance, to furnish technicalassistance and to expedite the flow of capital to the countries which havemade little progress in development. Legislation to provide technical assist-ance, and to provide guaranties to private capital against risks peculiar toforeign investment, has been recommended and is under consideration bythe Congress. The investment of private capital is being encouragedthrough the negotiation of treaties to assure private capital against dis-criminatory treatment. It is also desirable to revise certain provisions ofthe tax laws dealing with the taxation of income from foreign investment.

The present volume of requests for soundly based loans from the Inter-national Bank for Reconstruction and Development and the Export-ImportBank has been limited, because development plans of many underdevelopedcountries have not been translated into sufficiently concrete projects. TheUnited States should provide positive assistance to the underdeveloped coun-tries in formulating such projects, through its technical assistance programsand through its support of those of the United Nations. At a later time,it may be necessary to increase the lending authority of the Export-ImportBank so that it can increase substantially its guaranty and direct lendingactivities.

In the underdeveloped countries, there is an enormous potential demandfor the products of Western Europe and of the United States which willbecome active as their resources are more efficiently used and the standardsof living of their people raised. It is the purpose of the Point Four Pro-gram to activate these powers of economic growth. In doing so, it will alsoexpand the opportunities for world trade. Here lies the opportunity for thecountries of Western Europe to escape from the limitations of existing worldmarkets in which they are now confined, and within which they find littleroom for adjustment. Our own policies under the Point Four Program,and the business policies of Western Europe, should be directed to permitthem to participate in this expansion of world trade. They will thenfind an outlet for their increasing production, and will begin to create a newsource of dollars to support their purchases in the United States.

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Appendix A

The Nation's Economic Budget

ContentsPage

The Nation's Economic Budget 128Consumer account 130Business account 131International account 132Government account 134

Tables

A-l . The Nation's Economic Budget, 1948-49 129A-2. Consumer account, 1948-49 131A-3. Business account, 1948-49 132A-4. International account, 1948-49 133A-5. Government account (Federal, State, and local), 1948-49 . 136A-6. Federal cash receipts from the public other than borrowing,

1948-49 137A-7. Federal cash payments to the public by function, 1948-49 . 137A—8. Federal cash payments to the public by type of recipient and

transaction, calendar years 1948 and 1949 . . . . . . 138

127


The N a t i o n ' s E c o n o m i c B u d g e tThe Nation's Economic Budget is designed to give a synoptic picture oi

the economy. It shows the magnitudes of income and expenditure of majoreconomic groups, net additions and absorption of saving by these groups, andthe gross national income and product. Statistics for the Nation's EconomicBudget are drawn from various sources and are made as comparable aspossible. Statistics relating to the private sectors of the economy are basedon the "National income and product" accounts of the Department of Com-merce,1 while the Government account is based mainly on "Gash receiptsfrom the public" and "Cash payments to the public" as compiled by theBureau of the Budget.2

The gross national product or income includes all those receipts or pay-ments arising from current production. Other types of receipts or paymentsrepresent transfers of claims, using the term in the broadest sense. For exam-ple, the Government transfers purchasing power to the recipients of veterans'pensions. Such payments have an important bearing both on Governmentoutlays and on the spending and saving of individuals. In order to portraythe role of Government payments in the economy, it was necessary in theNation's Economic Budget to include the main flows of transfer paymentsin addition to the flows associated with current production. To indicate thedistinction, the former are in italics and the latter in roman type. Obviously,only the latter may be totaled to arrive at the gross national product.

Referring to table A-l , Government expenditures for goods and servicesare shown in line 15, and all other Government cash payments in line 16(italics). The receipts of transfers to individuals and Government interestare shown in line 2, and included in consumer disposable income. Govern-ment cash loans to the "rest of the world" have also been entered as areceipt in the international account (line 9) because they increase thepurchasing power of the "rest of the world." For various reasons, in-dicated later, unilateral transfers to foreign countries (gifts, etc.) are

1 Estimates of national income and product and related series are published in the July1949 Survey of Current Business, Department of Commerce.

2 Federal cash receipts from the public and payments to the public represent a consolida-tion of the United States budget with the government trust and corporation accounts.All intragovernmental and noncash transactions have been eliminated. A detailed explana-tion of this consolidation may be found in the Budget of the United States Governmentfor the fiscal year 1950, p. 1375. A summary of the derivation of cash receipts and pay-ments from budgetary receipts and expenditures for calendar year 1948 was presented in theAnnual Review of the Council of Economic Advisers, January 1949, pp. 89 and 90.

128


T A B L E A - l . — T h e Nation's Economic Budget, calendar years 1948 and 1949

[Billions of dollars, annual rates, seasonally adjusted]

Economic group

1948

Receipts Expend-itures


()

1949, first half



()

1949, second half *



( )

10.11.

12.13.14.15.16.17.18.

CONSUMERSDisposable income relating to current productionGovernment transfers to individuals and net interest paymentsDisposable personal incomeExpenditures for goods and servicesPersonal savings (+) _

BUSINESSRetained business receipts from current productionGross private domestic investmentExcess of receipts (+) or investment (—) _

INTERNATIONALGovernment loan transfers abroadNet foreign investmentExcess of receipts (+) or investment (—) -- .

GOVERNMENT (Federal, State, and local)Tax payments or liabilitiesAdjustment to cash basisCash receipts from the public . - .Purchases of goods and servicesGovernment transfersCash payments to the publicExcess of receipts (+) or payments (—).

ADJUSTMENTS

19.20.21.

For receipts relating to gross national product..Other adjustments

Total: Gross national product..

175.8U.9

178.515.9

175.516.0

190.8178.8

194.4

+12.0178.8

191.5

+15.6

26.845.0

28.3

-18.28.5

27.0

-10.2

1.81.2

.4— s

60.2-.8

56.0+1.6

56.6+.9

59.936. 716.0

57.643.216.7

57.5

52.7+7.2

69.9-2.8

- . 4 - 1 . 2-1.6

-1.2-1.6

-3 .2+.1

262.4 262.4 26L6 261.6 255.9

178.2

35.0

- 1 . 2

43.817.461.2

255.9

+18.2

-8.0

+1.6

,-8.7

- 3 . 2

0

1 Estimates based on incomplete data. See Part I, table 12 for 1949 totals.

NOTE.—Items relating to current production of goods and services are shown in roman type. Transfer payments and receipts and subtotals including them are in italics; theyare not included in the gross national product.

Detail will not necessarily add to totals because of rounding.

Source: Based on data from the Department of Commerce and Bureau of the Budget


excluded from this category; they are considered as a direct goods andservice expenditure of either consumers or Government and do not appearat all in the international account.

In order to show the equivalence of income derived from current pro-duction with gross national product or expenditure, some adjustmentsmust be made. For example, "subsidies, less the surplus on current accountof Government enterprises" is included in national income, but not inthe gross national product. A deduction from income is therefore neces-sary. This adjustment, plus the statistical discrepancy (i. e., the differencebetween largely independent estimates of income and product) is shownin line 19. Remaining Government payments not included anywherein receipts (e. g., net loans to business, purchases of existing assets, etc.3)were netted against adjustments on the receipts side of the account, line 20.

Adjustments are required in receipts because of a lack of comparabilityin the method of estimating Government and private receipts. Discrep-ancies arise from the fact that in calculating consumers' disposable income,for example, or corporate income after taxes, taxes were reckoned on aliability basis whereas actual collections by the Government enter into theGovernment account. Government tax receipts lag behind liabilities; inthe case of corporations the lag is as much as a year. The identity ofincome and expenditure is thus destroyed by the different bases of the taxestimates, unless an adjusting item is introduced.

The magnitude and nature of the adjustments required to go from theincome and product basis of accounting to cash receipts and payments isshown in table A-5, the Government account. Some remarks on this accountfollow the discussion of the composition of the private sectors of the economybelow.

Consumer account

Table A-2 shows personal income and its principal components, personaltaxes, and a break-down of expenditures by important classifications. Con-sumer income includes the net profits of unincorporated businesses afteradjustment for inventory valuation and farm proprietors5 income. Expendi-tures for new dwellings are considered as a business investment but otherdurable goods purchases are included in consumption expenditure. Per-sonal saving is a residual figure derived by deducting consumption expendi-tures from disposable income.

3 However, one very large category of loans, crop-secured loans, is included in Govern-ment expenditures for goods and services. Such loans are included in farm income at thetime they are made.

130


TABLE A-2.—Consumer account, calendar years 1948 and 1949


Receipts or expenditures 1948

1949

Total i Firsthalf

Secondhalf*

Personal income arising from current production of goods andservices

Wage and salary receipts and other labor incomeProprietors' and rental incomeDividends and private interestBusiness transfer payments

Plus: Net interest paid by GovernmentGovernment transfer payments to individuals

Equals: Total personal income

Less: Personal tax and nontax payments.

Equals: Disposable personal income

Less: Consumer expenditures

Durable goodsNondurable goods

Services

Equals: Personal saving..

AddendumPersonal income arising from current productionLess: Personal tax and nontax paymentsEquals: Disposable income arising from current production.

196.9 195.8 197.3

135.149.511.7

.64.4

10.5

211.9

21.1

190.8

178.823.5

102.253.1

12.0

136.845.712.7

.64.6

11.4

211.7

18.8

192.9

178.5

24.897.756.0

136.947.212.6

.64.6

11.3

213.1

18.8

194.4

178.8

14.4

23.499.755.6

15.6

196.921.1

175.8

195.818.8

177.0

197.318.8

178.5

194.3

136.744.212.8

.64.6

11.4

210.3

18.8

191.5

178.2

26.295.856.4

13.2

194.318.8

175.5

* Estimates based on incomplete data.


Business account

Business income includes undistributed corporate profits after adjustmentlor inventory valuation, plus capital consumption allowances on corporateand noncorporate capital, including residences. Gross investment includesnoncorporate and corporate investment, including residential construction.

Profits are included after inventory valuation adjustment in businessreceipts in accordance with the national income and product basis ofaccounting. The gross national output or product for any period includesonly the real change in inventories (net change in physical volume valuedat current prices) rather than the change in the book value. (In table A-2,proprietors' income is shown after inventory valuation adjustment.)


TABLE A-3.—Business account, calendar years 1948 and 1949


Receipts or investment 1948

1949

Total i Firsthalf

Secondhalf*

Corporate profits before tax

Less: Corporate profits tax liabilities-Dividends

Equals: Corporate undivided profits. .

Plus: Capital consumption allowances-.. .__Corporate inventory valuation adjustment2

Equals: Retained business receipts from current production..

Less: Private domestic gross investment

ConstructionResidential (nonfarm)Nonresidential

Producers' durable equipmentChange in inventories

Nonfarm onlyEquals: Excess of receipts (40 or investment (—)

34.8

13.67.9

13.2

15.7- 2 . 226.8

45.0

27.6

10.98.48.3

16.62.7

27.6

27.9

11.08.48.4

16.43.4

28.3

38.5

27.2

10.78.48.2

16.82.0

27.0

35.0

17.99.18.8

20.76.55.1

-18.2

17.28.88.5

20.0- . 4

- 1 . 0- 9 . 2

16.68.08.7

20.81.10.1

-10.2

17.89.48.4

19.2-2 .0-2 .0- 8 . 0

1 Estimates based on incomplete data. Profits by the Council of Economic Advisers.2 This adjustment is required because corporate income is reckoned inclusive of changes in the book

value of inventory, as is customary in business accounting, whereas only the value of the real change ininventories is counted as current output in the gross national product.


International account

In the international account, United States Government net cash long-term loans abroad and cash subscriptions to the International MonetaryFund or International Bank for Reconstruction and Development are in-cluded as a receipt of the "rest of the world." Investment consists of thenet balance of payments on current account (or net foreign investment),which excludes that part of the export surplus financed by net United Statesgifts, public or private. Thus exports financed under European RecoveryProgram grants or other unilateral aid programs or by private remittancesare not represented in the international account. They are included as adirect public or consumer expenditure for goods and services. The excessof receipts or investment (line 11, table A-l) thus shows that part of thesurplus of exports of goods and services not financed through public orprivate gifts or by Government cash loans or subscriptions.

From many points of view this treatment is unsatisfactory. It wouldperhaps have been preferable, in view of the fact that there is more interestin the volume of real exports than in the net balance of payments on currentaccount, to show the entire surplus of exports of goods and services asinvestment, and the entire means of finance made available by the UnitedStates Government and private remittances as a receipt. In this case, netUnited States grants and private gifts would be deducted from Gov-ernment expenditures for goods and services and consumer expenditures,respectively.

Receipts from Government sales abroad are included in net foreigninvestment at the time of sale, although commodities transferred have

132


already been recorded in the output of current or preceding periods. Inorder to avoid overstating current gross national product, a compensatingdeduction is made in current Government expenditures for goods andservices at the time a receipt from sales abroad is recorded in the balanceof payments. (See footnote 5, table A-5.)

Table A-4 shows the derivation of net foreign investment from the exportsurplus; the estimates of net unilateral transfers are from official balanceof payment statistics published by the Department of Commerce; loans andsubscriptions are on a Daily Treasury Statement or cash payments basis.Thus, "Payments to the International Monetary Fund and InternationalBank" represent the cash payment to these organizations by the UnitedStates on subscriptions.

Tables A-7 and A-8 give a more comprehensive picture of the expendi-tures of the United States Government relating to international affairsbroadly conceived. Table A-7 breaks down all Federal cash paymentsaccording to major governmental function. The "International affairsand finance" function includes cash disbursements for foreign aid, includinggrants whether rendered in cash or in goods, and long and short-term loans;expenses connected with the administration of such programs; subscriptionsto the International Bank and the International Monetary Fund; member-ship in other international organizations such as the United Nations, Foodand Agriculture Organization, et al., State Department expenditures, etc.It is to be noted, however, that substantial amounts of credit have beenextended foreign countries not involving current outlays of cash, e. g.,surplus property and lend-lease pipe-line credits.

TABLE A-4.—International account, calendar years 1948 and 1949

[Billions of dollars, annual rates]

Receipts or investment

Receipts:Net long-term loans 2 . _ _ _Payments to the International Monetary Fund and Inter-

national Bank 3

Total Government loan transfers abroad. . .

Investment:Surplus of exports of goods and services

Less: Net unilateral transfersGovernment *Private __ _ _ ._ .

Equals: Net foreign investment __ .

Excess of receipts (+) or investment (—)

1948

1.0

.4

1.3

6.3

3.8.6

1.9

- . 6

1949

Total i

0.5

.2

.7

5.8

5.2.6

+.7

Firsthalf

0.8

.1

.9

7.3

5.5.6

1.2

- . 3

Secondhalf*

0.2

.2

.4

4.2

5.0.5

- 1 . 2

+1.6

1 Estimates based on incomplete data.2 Includes only cash withdrawals under loan agreements. Does not include noncash transactions such aslend-lease and surplus property credits.

3 Cash payments on subscriptions.4 Does not agree with unilateral aid included in table A-8 which is on a Daily Treasury Statement basis.NOTE.—Detail will not necessarily add to totals because of rounding.

133


Government account

The Government account reconciles cash receipts from and payments tothe public with the Government revenue and expenditure estimates whichhave been incorporated in the national income and product accounts. Italso provides a break-down of Government receipts and expenditures intoFederal and State and local components.

In the cash payments series, the receipts of the Government corporationshave been offset against the expenditures and only the net expenditurehas been included. The same treatment is accorded the Post Office becauseof the quasi-commercial character of its operations. Ideally, Governmentcorporations expenditures should be broken down into strictly administrativeand quasi-commercial functions and only the latter included on a net basis.So far, this has not been feasible, due to the complexity of the operationsof the corporations.

Grants-in-aid to State and local governments are included as a cashpayment of the Federal Government and are not counted as either a cashreceipt or payment of the States and localities.

The major revenue sources of the Federal Government are shown intable A-6, Gash receipts from the public other than borrowing. Expendi-tures according to major governmental function are shown in table A-7,Cash payments to the public. Table A-8, Federal cash payments to thepublic by type of recipient and transaction appears for the first time in itspresent form in this report. It differs from the table, Federal cash paymentsto the public by type of recipient, which has appeared in previous reports, incontaining some additional detail and some rearrangement of the data.

Both changes are intended to facilitate the assessment of the economicimpacts of Government programs. The basic purpose governing the majorgroupings of the new table has been to distinguish between those Govern-ment programs which, on the one hand, represent a direct allocation ofresources by decision of the Federal Government; and those under whichthis allocation depends in part or in whole on the decisions of individuals,business, and agriculture, or of foreign governments. The volume andcharacter of defense expenditures, for example, and hence their impact onindustry and the labor force, are directly determined by the Federal Gov-ernment. By way of contrast, while the Government determines theamount of old-age or disability pensions, it has no control over the way inwhich they are spent, or, indeed, over whether they are spent at all. Hencethe economic impact of pensions depends in large part on the decisions ofthose who receive them.

Direct cash payments for goods and services: This category includes: (a)wages and salaries of Federal personnel, including military pay; (b)grants-in-aid to State and local governments for performance of specifiedservices in such fields as public health, education, administration of employ-ment offices, and unemployment compensation, etc.; (c) purchases of goods

134


and services from business, embracing such fields as defense and housekeep-ing purchases, and contract construction on Federal public works; (d)grants-in-aid and loans to State and local governments for public works;and (e) purchases of goods and services from abroad, of which stock-pilingpurchases are the most important component, and payment of membershipfees in international institutions.

The general concept underlying this category is similar to the nationalincome concept of "Government purchases of goods and services" but thereare major differences. Two large items, farm price support expendituresand unilateral aid to foreign countries, which are included in the latter, areplaced elsewhere in table A-8 on the ground that neither represents a directallocation of resources by decision of the Federal Government, which iswhat the present category is intended to show. The acquisition of com-modities by the Federal Government in the course of farm price-supportoperations is an incidental result of a program whose main purposes areto support farm income at equitable levels, and to provide incentives toindividual farmers to change their farm operations in directions neededfor agricultural readjustment. The character of commodities purchasedin the United States by foreign governments with the help of unilateral aidprograms is largely determined by the economic needs of the countriesconcerned. Grants to States and localities for public works, here includedas a Federal expenditure, would be included in the national incomeaccounts as a State-local expenditure. There are other less significantdifferences between the two concepts.

Loans, transfer and interest payments to individuals: The title of thiscategory is almost self-explanatory. In addition to direct Federal paymentsto individuals, including social insurance and veterans' benefits, it includesFederal grants-in-aid to State and local governments for payment to indi-viduals under public assistance programs.

Loans, transfer, interest and incentive payments to business and agricul-ture: This category includes: (a) the net result of farm price-support opera-tions, whether involving a net acquisition of commodities by the FederalGovernment or a net acquisition of price-support loans from private banks;(b) loans and direct subsidies to farmers; (c) loans to, or purchases of mort-gages or other claims from, private business firms and financial institutions;(d) interest payments thereto; and (e) the subsidy arising from the postaldeficit, of which business firms are the chief beneficiaries.

Loans and transfer payments to foreign countries and international insti-tutions: This category includes all direct foreign aid programs of the UnitedStates Government, whether the aid takes the form of loans or of grants, aswell as cash payments on subscriptions of the United States Government tosuch international institutions as the International Monetary Fund, theInternational Bank for Reconstruction and Development, and the Inter-national Refugee Organization. Payments for stock-piling purchasesabroad, for the costs incurred abroad of American embassies and other mis-

135


sions, and for participation in the continuing activities of internationalorganizations are included under "Direct payment for goods and services."

The special analysis of investment, operating and other budget expendi-tures: The Budget document for fiscal 1951 (part III) contains for thefirst time a "Special analysis of investment, operating, and other budgetexpenditures." This analysis segregates expenditures which are recover-able or which represent the acquisition of assets which will give returns infuture years from other expenditures.

TABLE A—5.—Government account {Federal, State, and local), calendar years 1948 and 1949


Keceipt or expenditure

Keceipts:Tax and nontax payments or liabilities:2

Federal . _ . . .State and local _ _.

TotalAdjustment to cash basis:

Noncash receipts •Excess of cash receipts over tax liabilities or payments *.

Cash receipts from the public

Expenditures:Purchases of goods and services:

Federal *__ _State and local—-

Total

Other Government payments:Transfers to individualsCash interest payments to the public6

Loans to foreign governments and subscriptions to theInternational Bank and International MonetaryFund 7

All other »Total

Cash payments to the public

Cash surplus (+) or deficit (—)

AddendumFederal:

Cash receiptsCash payments -

Surplus (+) or deficit (-)

State and local:Cash receipts _Cash payments _

Surplus (+) or deficit (—)

1948

44.615.6

60.2

—1.2.9

59.9

20.915.8

36.7

10 54.2

1.3

16.0

52.7

+7.2

44.936.9

+8.0

15.015.8

- . 8

1949

Total i

39.516.8

56.3

—1.83.0

57.5

25.617.843.5

11.44.4

.6

. 8

17.1

60.6

- 3 . 0

41.443.1

- 1 . 7

16.117.5

- 1 . 4

First half

39.416.6

56 0

—1 73.3

57.6

25.717.4

43.2

11 34.2

.9

. 4

16.8

59.9

- 2 . 3

41.742.7

- 1 . 0

15.917.2

- 1 . 3

Secondhalfi

39 617.0

56 6

—1 92.8

57.5

25.618.2

43.8

13 44.5

41.1

17.4

61.2

- 3 . 7

41.243.5

- 2 . 3

16.317.7

- 1 . 4

1 Estimates based on incomplete data.8 Personal and indirect business tax payments, corporation tax liabilities and contributions for social in-surance.

' Consists of deductions from Government employees' salaries for retirement funds, and Governmentcontributions to retirement funds, National Service Life Insurance and Government life insurance funds.

* Includes excess of corporation tax receipts over liabilities and excess of personal tax receipts over pay-ments. Cash receipts also include some items of miscellaneous internal revenue not included in tax andnontax payments, such as receipts from sales of surplus property.

* Government sales of $600 million in 1948 and $300 million in each half of 1949 have been deducted fromgross expenditures.

<» Does not agree with net interest paid by Government (table A-2) which is on an accrual basis.7 See table A-4, International account.8 Includes all other cash payments less noncash payments for goods and services. Other cash paymentsinclude net payments by Government corporations (except capital formation), net prepayments, and theexcess of checks paid over checks issued. Noncash purchases of goods and services include deductions fromGovernment employees' salaries for retirement funds and the Government contribution to such funds.


136


TABLE A-6.—Federal cash receipts from the public other than borrowing, calendar years 1948 and1949


Cash receipts from 1948

1949

Total i Firsthalf

Secondhalfi

Direct taxes on individuals * _Direct taxes on corporationsEmployment taxesExcises and customsSurplus property receipts.- __ _Deposits by States, unemployment insurance.Veterans' life insurance premiums -Other _ _Refunds of receipts

Total Federal cash receipts from the public.

20.911.12.57.91.21.0.4

2.1- 2 . 2

18.412.02.58.0.5

1.0.4

1.4- 2 . 8

18.712.02.57.9.7.9.4

1.4- 2 . 8

18.212.02.58.0.3

1.1.4

1.4- 2 . 8

44.9 41.4 41.7 41.2

1 Estimates based on incomplete data.* Includes personal income taxes and estate and gift taxes.NOTE.—Detail will not necessarily add to totals because of roundinp.

TABLE A-7.—Federal cash payments to the public by junction^ calendar years 1948 and 1949


Function 1948

1949

Tota l l Firsthalf

Secondhalfi

National defenseInternational affairs and financeVeterans' services and benefits ._Social welfare, health, and securityHousing and community development _..Agriculture and agricultural resourcesInterest on the public debtOther „._

Deduction from Federal employees' salaries for retirementClearing account for outstanding checks and telegraphic reports

Total Federal cash payments to the public

11.25.76.82.3.3

1.43.95.7

- . 3o

12.96.87,02.7.4

2.84.17.0

- . 4- . 3

12.97.37.22.5

(2)2.84.06.6

- . 32

12.96.26.92.9.8

2.84.27.4

- . 4- . 4

36.9 43.1 42.7 43.5

* Estimates based on incomplete data.3 Less than $50 million.

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


TABLE A-8.—Federal cask payments to the public by type of recipient and transaction^ calendaryears 1948 and 1949


Payment 1948

Direct cash payments for goods and services:Payments to individuals for services rendered:

Military 2Civilian wages and salaries (excluding Post Office):3

DefenseOther FederalGrants and loans in aid for performance of specified services, net *_

Total..

Payments to business for goods and services:Public works:

DefenseOther FederalGrants-in-aid and loans for public works 6

Other goods and services:DefenseCivilian e

Payments to foreign countries and international institutions..Total

Loans and transfer payments to individuals:Social insurance and public assistance:

Federal employees' retirement benefit paymentsOld-age and disability benefit paym ents __Unemployment insurance benefit paymentsGrants-in-aid for public assistance

Readjustment benefits, pensions, and other payments to veterans 7

Loans to homeowners, netInterest8

Other ___ _

Total-Loans, investments, subsidies, and other transfers to business and agriculture:

Farmers:Price support, net (including supply programs)International wheat agreement ___Other loans and direct subsidies to farmers

Business:Home mortgage purchases from financial institutionsLoans, netDirect subsidy payments

Subsidy arising from postal deficit __.Interest8 „ .

Total-

Loans and transfer payments to foreign countries and international institutions:European Recovery Program loans and grantsOther loans (net withdrawals)Other grantsSubscriptions to the International Bank and Monetary Fund 10

Total—

Clearing account and adjustment to Daily Treasury Statement

Total Federal cash payments to the public

3.52.42.1.4

8.4

4.31.7

8.7

.2

5.7- . 11.1.4

).4

2.9

4.6

1.8.5

2.8.4

5.5

- . 2

3.9

2.52.2.4

9.0

.21.2

5.71.01.1

10.1

.21.01.91.05.4

- . 11.3.4

11.1

1.8)

.6

.7

.1

.52.8

6.5

.11.9

6.5

- . 3

43.1

* Based on incomplete data.2 Excludes terminal-leave pay and food and clothing allowances which are primarily paid in kind. In-cludes family allowances and reserve pay.

s Excludes pay-roll deductions for Federal employees' retirement and Post Office wages and salaries.4 Includes all grants-in-aid and loans to public bodies for purposes other than public works and publicassistance.

* Includes Rural Electrification Administration loans for public works which are not made to State andlocal governments but primarily to private cooperatives.

* Equals the excess of total cash payments to the public over all items shown separately. Includes pri-marilytpurchases of goods and services.7 Includes cashing of terminal-leave bonds, mustering-out pay, and National Service Life Insurance andGovernment life insurance refunds and benefits in addition to veterans' readjustment benefits andpensions.

s Includes a small amount of interest on tax refunds in addition to interest on the public debt. Interestfigures in this table are not comparable with those in table A-2 which are on an accrual basis. Includesabout $100 million of interest payments to State and local governments in both years.8 Less than $50 million.

i° Cash withdrawals.NOTE.—Detail does not necessarily add to totals because of rounding.

138


Appendix B

Statistical Tables Relating to the Distribution

of Income and Personal Saving

CONTENTS

PageB-l. Distribution of families and single persons not in families, by

income level, 1948 140B-2. Sources and uses of personal funds, 1939 and 1946-48 141B-3. Sources and uses of funds by consumers and nonprofit organiza-

tions, 1946, 1947, and 1948 143B-4. Net income and net saving of each fifth of spending units,

1941 and 1945-48 144B-5. Positive and negative saving of each fifth of spending units,

1941 and 1945-48 144B—6. Median income, median saving and percent of income saved by

each fifth of spending units, 1948 145B-7. Positive and negative savers within each fifth of spending

units, 1941 and 1948 145B-8. Proportion of money income allocated to taxes, saving, selected

durable goods, and other consumer expenditures, by eachfifth of spending units, 1948 145

B-9. Distribution of money income, taxes, disposable income, andexpenditures by income fifth groups, 1948 146

868148—50 10 I39


Statistical Tables Relating to the Distribution

of Income and Personal SavingTABLE B-l.—Distribution of families and single persons not in families, by income level, 1948

Income size classes1

Percent of all families andsingle persons

"Unadjusteddistribution

Adjusteddistribution

Under $1,000$1,000 to $2,000...$2,000 to $3,000...$3,000 to $4,000._.$4,000 to $5,000...$5,000 to $10,000._$10,000 and over.

17.416.019.618.411.115.12.4

9.816.716.317.713.621.24.7

All income groups.

Median income

100.0 100.0

$2,840 $3,420

i Income includes money income of the civilian noninstitutional population.

Sources: Department of Commerce, Bureau of the Census, (unadjusted distribution) and Council ofEconomic Advisers (adjusted distribution).

The unadjusted income distribution compiled by the Bureau of theCensus comprises the results of a sample survey of about 25,000 familiesmade in April 1949, but covering incomes for the year 1948. The resultsof this survey will be published in full in the Current Population Reportsof the Bureau of the Census.

An estimate of the total money income of the civilian population can bederived from the statistics of national income for each year. For any year,this estimate of income will be in excess of that yielded by a sample surveyof income, since some income always fails to be reported by persons inter-viewed. The degree of under-reporting varies according to the incomesource, wages and salaries being more completely reported than entrepre-neurial or other types of income.

In 1948, the degree of under-reporting of income in the Census survey,as indicated by comparison with an estimate derived from the national in-come aggregate, was sufficient to justify making a statistical adjustment todistribute the unreported income by income levels. Separate adjustmentswere therefore made in the three types of income for which separate esti-mates of income coverage in the survey were available: wages and salaries,net entrepreneurial income, and "all other" income, raising each of theseto the appropriate aggregate for that source. The effect of this adjustmentwas to raise incomes somewhat all along the income scale; however, thepercentage increases in the lower and upper segments of the distributionwere somewhat greater than in the middle-income groups.

140


The family, as defined in these distributions, includes two or more relatedpersons living in one dwelling. Single persons living alone are also includedin the distributions. It should be noted that the family differs from the"spending unit/5 the unit of measurement used in tables B—4 throughB-9. The spending unit consists of related persons living together whopool their income for major items of expense. A family may includemore than one spending unit; for example, a young couple dwelling withparents may manage their finances separately from the parents. Since thereare more spending units than families, the average income is lower.

The distribution of income by fifths of families and single persons rankedby size of income, shown in the table appearing on page 97 of the text ofthis report, is consistent with the distribution of families and single personsby income levels shown above. For information concerning the quintiledistributions for 1941 and 1935-36 appearing in the text, see the EconomicReport of the President, January 1949, appendix B.

TABLE'B-2 .—Sources and uses of personal funds, 1939 and 1946-48^


USE OF FUNDS

Use or source

A

BCDE

F

GH

IJ

T,M

N

0P

a

TU

V

wXY

7abc

Personal cons uinption expenditures and taxes

Durable commodities _Nondurable commodities-ServicesPersonal taxes

Other nonfinancial uses

Purchases of 1-4 family nonfarm dwellingsNew construction by nonprofit organizations-New construction and producers' durable equipment expend-

itures:FarmsOther unincorporated businesses 2- -

Additions to inventories (net) *Farms _Other unincorporated businesses... _ _

Purchases of existing tangible assets (net)

Financial uses (net) *-Adding to liquid asset balances (net):

Currency and deposits 8__ _Insurance reserves 6

Security portfolios:U. S. Government securities 7__ _Other 8

Retirement of debt (net):Mortgages on 1-4 family nonfarm dwellingsOthftr ooTjpnmfir debt

Subtotal of above net additions to liquid assets and net re-tirement of debt

Farm mortgage and other farm debtOther unincorporated business debt to banksOther unincorporated business debt to corporations

Total of above uses of fundsNet uses not accounted for

Total uses of funds ._ __ -Memorandum: Liquid saving, adjusted » (line V minus V )

1939

69.9

6.735.325.52.4

5.9

2.9.2

1 21.4

.1

.1

4 8

3.11.7

.1

4.8.1

80.7

80.73.1

1946

166.6

16.586.844.518.8

12.3

4.1.4

2 64.2

. 9

15.4

11.83 4

. 3

15.4

194.3

194.3Q C

o. o

1947

188.5

22.096.248.821.5

15.2

6.2.5

3 74.8

11 5

4.13 7

2.41.4

11.5

215.3

215.34.2

1948

199.9

23.5102.253.121.1

20.6

8.0.9

4 94.5

1 31.0

7.8

3.5

1.52.9

7.8

228.3

228-31.2

Footnotes at end of table, p. 142.


TABLE B—2.—Sources and uses oj personal funds, 1939 and 1946-48—Continued

SOURCE OF FUNDS

A'

TVCD'E'

F'

G'H'I'J'

VVM'

N'

0 'P '

%8'

T'U'

V

WX'Y'

Z'a'

b '

c'

Use or source

Personal income __

Wages, salaries, and other labor incomeNet income of unincorporated business and farmsRental, dividend, and interest incomeTransfer receipts

Other nonfinancial sources

Depreciation charges:Residential propertyNonprofit organization propertyFarm equipment and property. _Other unincorporated business equipment and property..

Drawing down inventories (net): l

FarmsOther unincorporated businesses

Sales of existing tangible assets (net). . _ _

Financial sources (net) *._Drawing upon liquid asset balances (net):1

Currency and deposits 8

Insurance reserves fl _Security portfolios:

U. S. Government securities7

Other 8

Adding to debt (net):Mortgages on 1-4 family nonfarm dwellingsOther consumer debt

Subtotal of above net reductions in liquid assets and netadditions to debt. _-

Farm mortgage and other farm debt __Other unincorporated business debt to banksOther unincorporated business debt to corporations

Total of above sources of fundsNet sources not accounted for

Total sources of funds _ .__

Personal saving *o (line A' minus A)

1939

72.6

45.711.312.73.0

3.7

1.5.2

1.1.9

2.1

.5

.5

.8

1.7

.1

.3

78.42.3

80.7

2.7

1946

176.9

111.035.019.411.4

6.6

1.8.2

2.21.1

2

9.3

. 2

3.23.3

6 7.2

2.1.3

191.72.6

194.3

10.3

1947

193.5

122.038.521.311.7

8.9

1.9.2

2.71.2

2 2"7

11.6

4.13.3

7 4.8

2.21.2

214.01.2

215.3

5.1

1948

211.9

135 142.922.811.1

6.9

2.1.2

3.31.3

7.9

(3)

4.12.5

6 5. 6g

226.71.6

228.3

12.0

1 Consumers, unincorporated business, farms, and nonprofit organizations are included in the table.Inventories and income are included after adjustment for inventory revaluation.

3 Includes purchase of used plant and equipment from the U. S. Government,a Less than $50,000,000.• Financial sources and uses are shown on a net basis. In arriving at the totals shown for financial sources

and uses of funds, a net addition to holdings of a particular type of asset is shown as a use, and a net decreasein holdings of a particular type of asset as a source. Also, additions to cash balances by some individualsare net of withdrawals by other individuals, borrowings by some individuals are net of repayments byother individuals.

6 Includes shares in saving and loan associations.• Excludes additions to Government insurance and pension reserves.7 Excludes armed forces leave bonds.8 Includes changes in holdings of State and local government, foreign, corporate, and other securities.• This corresponds to liquid saving as defined by the Securities and Exchange Commission, except that

armed forces leave bonds and changes in Government insurance and pension reserves are excluded.io This equals personal saving, national income concept. Personal saving may also be obtained as follows:

(F-F')-r-(N-N0+(a-a0=A'-A.


Source: Compiled by Board of Governors of the Federal Reserve System from data published by theDepartment of Commerce and the Securities and Exchange Commission. A discussion of a similar tablemay be found in an article entitled "Measurements of Savings", Federal Reserve Bulletin, November1949. The present table incorporates revised estimates for 1948 and includes saving and loan shares withcurrency and deposits rather than with "other securities".

142


T A B L E B—3.—Sources and uses of funds by consumers and nonprofit organizations, 1946, 1947, and1948

A

B

C

D

E

F

GH

TJ

K"a

b

A '

B 'O

TVE '

G '

H

P

Is"'a'

b '

Source or use

USE OF FUNDS:Personal consumption expenditures and taxes ___

Expenditures for consumer nondurable goods and services lessestimated expenditures of incidental landlords

Personal taxes.-. _ _ _

Other nonfinancial uses

Expenditures for consumer durable goods less estimated expendi-tures of incidental landlords

Purchases of 1-4 family nonfarm dwellings less purchases fortenant occupancy _ _ _ _ _ _ _ _ _ _

Purchases of farm dwellings _Nonorofit organization construction. _

Financial uses (net) _ _Net additions to liquid asset balances. __

Total above uses _ __ . . . _Net uses not accounted for

Total uses of funds

SOURCE OF FUNDS:Personal income received by consumers

Wages, salaries and other labor incomeDividend and interest income, less receipts by noncorporate busi-

nessTransfer paymentsImputed income from owner-occupied dwellings. .Net entrepreneurial withdrawals l

Other nonfinancial sources

Depreciation on owner-occupied farm and nonfarm dwellingsand nonprofit institution properties ._

Financial sources (net) _

Net additions to debt, excluding mortgage debt, on tenant-occu-pied property _

Total above sources_Net sources not accounted for _

Total sources of funds _ _

1946

149.1

130.318.8

20.9

16.2

4.0.2.4

14.414.4

184.3

184.3

174.6

111.0

12.311.42.3

37.6

1.7

1.76.4

6.4

182.71.6

184.3

1947

165.3

143.821.5

28.6

21.7

6.1.3.5

12.012.0

205.9.2

206.1

196.8

122.0

13.811.72.3

47.0

2.0

2.07.3

7.3

206.1

206.1

1948

175.1

154.021.1

32.2

23.2

7.8.3.9

9.49.4

216.7

216.7

207.9

135.1

15.111.12.4

44.2

2.2

2.26.5

6.5

216.6.1

216.7

1 Total funds available for withdrawal by owners from unincorporated businesses and farms less the esti-mated capital formation of businesses and farms, landlord purchases of consumer durable goods and ofresidential construction for tenant occupancy, and net money advanced through financial channels.

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

Sources: Based on data from the Department of Commerce, Securities and Exchange Commission, andBoard of Governors of the Federal Reserve System.

143


T A B L E B—4.—Net income and net saving of each fifth of spending units,1 1941 and 1945-1948

Spending units ranked by size of income

Lowest fifthSecond fifth.Third fifthFourth fifth. _Highest fifth _.

All groups

Lowest fifthSecond fifth.Third fifth _ _Fourth fifthHighest fifth

All groups

1941 1945 1946 1947 1948

Percentage of net income accounted for by each fifth

39

162250

100

411162445

100

411162247

100

410162248

100

411162247

100

Percentage of net saving accounted for by each fifth

<y

08

1188

100

069

2164

100

- 835

2179

100

- 1 317

1293

100

- 2 4- 3

72199

100

i The spending unit consists of all persons living in the same dwelling and belonging to the same familywho pool their income to meet major expenses. See notes to table B-l.

Source: Board of Governors of the Federal Reserve System. Estimates for the years 1945 through 1948are based on the Survey of Consumer Finances which is conducted annually by the Survey EesearchCenter of the University of Michigan for the Board of Governors. The year 1941 was estimated from infor-mation obtained in Family Spending and Saving During Wartime (Bureau of Labor Statistics BulletinNo. 822), April 1945. The findings of the Survey of Consumer Finances are published each year in fullin the Federal Reserve Bulletin.

Savings distributions by income level as well as by deciles or quintiles for 1948, with comparative data forearlier years, may be found in the Bulletin for January 1950, in an article entitled, "1949 Survey of ConsumerFinances, Distribution of Consumer Saving in 1948." Components of saving and dissaving have variedsomewhat from year to year as explained in the appendix to this article. In general, these variations arenot believed to affect inter-year comparability to any great extent for the years 1946 through 1948. Com-parisons of later years with 1945, however, are limited by substantial changes in definitions and methodology.

T A B L E B-5.—Positive and negative saving of each fifth of spending units, 1941 and 1945—1948


Spending units with negative saving:1

Lowest fifth _Second fifthThird fifthFourth fifthHighest fifth

All groups

Spending units with positive saving: 2Lowest fifthSecond fifthThird fifth__ _. . . . .Fourth fifthHighest fifth

All groups _

1941

2317142521

100

15

101569

100

Percentage of saving

1945

2519281414

100

39

122056

100

1946

251524IS18

100

37

112059

100

1947

2112172030

100

26

1]1566

100

1948

2715161824

100

36

121960

100

1 Spending units with negative saving are those whose expenditures for consumer durables (excludinghomes;, nondurable^, and services, exceed current money incomes.

2 Spending units whose current money incomes exceed expenditures for consumer durables (excludinghomes), nondurables, and services.

Source: See table B-4.

144


TABLE B—6.—Median income^ median saving, and percent of income saved by each fifth of spendingunits, 1948


Lowest fifthSecond fifthThird fifthFourth fifthHighest fifth....

All groups

Medianincome

2,0002,8403,7506,000

$2, 840

Mediansaving

$085

115235610

Median per-cent of in-

come saved

0.01.04.06.0

10.0

3.5


TABLE B-7.—Positive and negative savers within each fifth of spending units, 1941 and 1948


Lowest fifthSecond fifth _ .Third fifthFourth fifthHighest fifth . .

All groups

Percent of spending units in each fifth

Positivesavers

385766698062

1941

Zerosavers

19511

0)5

Negativesavers

433833302033

1948

Positivesavers

446166697463

Zerosavers

20731

6

Negativesavers

363231302631

1 Less than one-half of 1 percent.


TABLE B-8.—Proportion of money income allocated to taxes, saving, selected durable goods, andother consumer expenditures, by each fifth of spending units, 1948

Type of expenditure or saving

Federal income tax l

Automobiles and other selected durablegoods 2

Other consumer expenditures 3

Net saving

Total

Percent of income saved by positive sav-ers *

Percent of total income

All spend-ing units

9

9767

100

19

Lowestfifth

1

8121

- 3 1

100

15

Secondfifth

4

890

- 2

100

12

Thirdfifth

5

9833

100

15

Fourthfifth

6

10786

100

17

Highestfifth

13

86514

100

2

1 Estimated Federal personal income tax liability, apart from capital gains and losses. See the appendixto part III, the 1949 Survey of Consumer Finances, Federal Reserve Bulletin, July 1949, for a description ofthe methods used in estimating the tax liability.

2 Includes automobiles, furniture, radios, and household appliances such as refrigerators, ranges, washingmachines, vacuum cleaners, home freezers, and miscellaneous other appliances. Expenditures for auto-mobiles are net of trade-in allowances.

3 This is a residual item covering expenditures for all goods and services not included in selected durablegoods (see footnote 2). Includes food, housing, clothing, medical care, other living costs. State and localtaxes, recreation, transportation, and education, as well as expenditures for durable goods such as floorcoverings, jewelry, fur coats, and other miscellaneous durable items are also included.

* Total saving of positive savers as percent of their income.

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


145


T A B L E B-9.—Distribution of money income, taxes, disposable income, net saving, selected durablegoods expenditures, and other consumer goods expenditures by income fifth groups, 7948

[Percent!

Spending units ranked bysize of income l

Lowest fifth . . _Second fifthThird fifthFourth fifthHighest fifth

All groups

Totalmoneyincomebeforetaxes

411162247

100

Total Fed-eral per-

sonalincome

tax2

159

1670

100

Total dis-posableincome8

512172244

100

Totalselecteddurablegoods

expendi*turss*

410172.544

100

Total otherconsumerexpendi-tures 8

813182239

100

Total netsaving

—24

72199

100

1 Annual money income before taxes in 1948.2 Estimated Federal personal income-tax liability, apart from capital gains and losses.* Disposable income is defined as money income less estimated Federal personal income-tax liability.* Includes automobiles, furniture, radios, and household appliances such as refrigerators, ranges, washing

machines, vacuum cleaners, home freezers, and miscellaneous other appliances. Expenditures for auto-mobiles are net of trade-in allowances.

* This is a residual item covering expenditures for all goods and services not included in selected durablegoods (see footnote 4). Includes food, housing, clothing, medical care, other living costs, State and localtaxes, recreation, transportation, and education, as well as expenditures for durable goods such as floorcoverings, jewelry, fur coats, and other miscellaneous durable items.



I46


Appendix CStatistical Tables Relating to Employment,

Production, and Purchasing PowerCONTENTS

National income or expenditure: PageC - l . Gross national product or expenditure, 1929-49 149C-2. Personal consumption expenditures, 1929-49 150C-3 . Gross private domestic investment, 1929-49 151C-4. National income by distributive shares, 1929-49 152C-5. Personal income, 1929-49 153C-6. Relation of national income and personal income, 1929—49 . . . . 154C-7. Disposition of personal income, 1929-49 155C-8. Per capita disposable income in current and 1948 dollars, 1929-49 . . 156

Employment and wages:C-9. Labor force, employment, and unemployment, 1929-49 157

C-10. Number of wage and salary workers in nonagricultural establish-ments, 1929-49 158

C - l l . Average gross weekly earnings in selected industries, 1929-49 . . . 159C- l2 . Average hourly earnings in selected industries, 1929-49 160C- l 3. Average weekly hours in selected industries, 1929-49 161

Production and business activity:C-l 4. Physical production index of goods and selected services, 1929—49. . 162C-15. Industrial production, 1929-49 163C-l 6. New construction activity, 1929-49 164C- l7 . Business expenditures for new plant and equipment, 1929-50 . . . 165G—18. Inventories and sales in manufacturing and trade, 1939—49 166C- l9 . Manufacturers' inventories by stage of fabrication and as ratios to

sales, 1946-49 167C—20. Sales, stocks, and outstanding orders at 296 department stores,

1939-49 168Prices:

C-21. Consumers'price index, 1929-49 169C-22. Wholesale price index, 1929-49 170C—23. Indexes of prices received and prices paid by farmers and parity

ratio, 1929-49 171Money, banking, and credit:

C-24. Consumer credit outstanding, 1929-49 172C-25. Loans and investments of all commercial banks and weekly reporting

member banks, 1929-49 173G-26. Adjusted deposits of all banks and currency outside banks, 1929-49 . 174C-27. Estimated ownership of Federal securities, 1939-49 175C-28. Bond yields and interest rates, selected years, 1929-49 176

147


Corporate profits and finance: PageC-29. Profits before and after tax, all private corporations, 1929-49 . . 177C-30. Sales and profits of large manufacturing corporations, 1939-49 . . 178C-31. Relation of profits before and after taxes to stockholders' equity, pri-

vate manufacturing corporations, by industry groups, 1948-49 . . 179G—32. Relation of profits before and after taxes to sales, private manufactur-

ing corporations, by industry groups, 1948-49 180G-33. Relation of profits before and after taxes to stockholders' equity and

to sales, all private manufacturing corporations, by size classes,1948-49 181

G-34. Sources and uses of corporate funds, 1946—49 182International transactions:

C-35. The international transactions of the United States, 1946-49 . . . 183G-36. United States exports and imports of goods and services, by area,

1937 and 1946-49 184C-37. United States Government aid to foreign countries, 1946-49 . . . 185C—38. Export price indexes of selected countries converted to dollars, 1937—

40 and 1946-49 186G—39. United States merchandise exports, including reexports, by areas,

1936-38 quarterly average and 1947-49 187G-40. United States domestic merchandise exports, by economic classes,

1936-38 quarterly average and 1947-49 188C-41. Indexes of quantity and unit value of United States domestic mer-

chandise exports by economic classes, 1936-38 quarterly averageand 1947-49 189

G-42. United States general merchandise imports, by areas, 1936-38quarterly average and 1947—49 190

G-43. United States merchandise imports for consumption, by economicclasses, 1936-38 quarterly average and 1947-49 191

C-44. Indexes of quantity and unit value of United States merchandise im-ports for consumption, by economic classes, 1936-38 quarterlyaverage and 1947-49 192

Summary:C-45. Changes in selected economic series since 1939 and 1948 and during

1949 193

I48


Statistical Tables Relating to Employment,Production, and Purchasing Power

TABLE C-l.—Gross national product or expenditure, 7929-49


Period

1929.

1930.1931.1932.1933.1934

19351936193719381939

19401941194219431944

19451946194719481949

1948—First halfSecond half

1949—First halfSecond half i

1948—First quarterSecond quarterThird quarter.Fourth quarter.

1949—First quarterSecond quarterThird quarter.Fourth quarter

Grossnationalproduct

103.8

90.975.958.355.864.9

72.282.590.284.791.3

101.4126.4161.6194.3213.7

215. 2212.6235.7262.4258.7

Personalconsump-

tion ex-penditures

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6

123.1147.8166.9178.8178.5

Grossprivate

domesticinvestment

15.8

10.25.4

.91.32.8

6.18.3

11.46.39.9

13.918.310.95.77.7

10.729.531.145.036.8

Net foreigninvestment

0.8

.7

. 2

.2

.2

.4

- . 1—.1

.11.1

.9

1.51.1

- . 2- 2 . 2-2 .1

-1 .44.78.91.9

Govern-ment pur-chases of

goods andservices

Annual rates, seasonally adjusted

256.5268.4

261.6255.9

251.4261.6266.5270.3

263.5259.6256.3255.5

177.0180.6

178.8178.2

175.2178.7180.3180.9

178.6178.9178.5178.0

42.447.6

38.535.0

40.744.247.148.0

41.635.435.035.0

3.4.4

1.1- 1 . 2

3.92.8

- . 11.0

1.01.2

- . 8- 1 . 5

9.29.28.18.0

11.711.612.813.1

13.924.759.788.696.5

82.830.728.836.743.5

33.7

43.243.8

31.535.939.240.3

42.344.043.644.0

1 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.


Source: Department of Commerce (except as noted).

149


TABLE G—2.—Personal consumption expenditures, 1929-49


Period

1929

1930_1931_1932.1933.1934_.

1935.1936.1937.1938.1939.

1940.1941.1942.1943.1944.

1945..1946..1947..1948..1949 f

1948—First half-Second half

1949—First halfSecond half*...

1948—First quarter...Second quarter.Third quarter..Fourth quarter.

1949—First quarter. _.Second quarter.Third quarter..Fourth quarter

Totalex-

pendi-tures

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6

123.1147.8166.9178.8178.5

Durable goods

Total

9.4

7.35.63.73.54.3

5.26.47.05.86.7

7.16.87.1

8.516.522.023.524.8

Auto-mo-bilesandparts

3.2

2.21.6.9

1.01.4

1.92.32.41.62.1

2.73.3.7

1.14.47.28.2

10.4

Other

6.1

5.14.02.82.52.9

3.34.14.64.14.6

5.26.46.46.06.2

7.412.114.815.314.4

Nondurable goods

Total

37.7

34.129.022.722.326.7

29.432.935.234.035.3

37.644.052.961.067.1

74.986.896.2

102.297.7

Foodi

19.7

18.114.811.411.514.3

16.318.520.019.019.3

20.724.430.535.338.9

43.051.057.861.158.8

Cloth-ings

9.2

7.96.85.04.65.6

5.96.56.76.67.0

7.48.8

11.013.715.3

17.118.619.120.018.4

Other

8.9

8.17.46.46.26.9

7.27.98.68.48.9

9.510.811.411.912.9

14.817.119.321.120.5

Services

Total

31.7

29.526.622.820.620.9

21.723.324.924.725.5

26.628.531.234.437.4

39.744.548.853.156.0

Hous-ing s

11.4

11.010.29.07.87.5

7.67.98.48.7

9.29.9

10.611.111.7

12.213.114.515.917.0

Annualrates/seasonally adjusted

Other

20.2

18.516.413.812.713.4

14.115.416.516.016.5

17.418.720.623.325.7

27.531.434.237.239.0

177.0180. 6

178.8178.2

175.2178.7180.3180.9

178.6178.9178.5178.0

23.223.8

23.426.2

22.723.824.822.9

23.123.825.826.5

7.78.6

9.511.2

7.58.08.78.5

9.29.8

11.011.5

15.515.2

13.914.9

15.215.816.014.4

13.913.914.815.0

101.8102.6

99.795.8

101.2102.4101.8103.3

100.199.396.595.0

61.161.1

59.858.0

61.061.260.561.7

60.059.558.457.5

19.820.2

19.217.6

19.320.219.920.5

19.319.117.717.4

21.021.3

20.720.2

21.021.021.421.2

20.720.720.420.1

51.954.2

55.656.4

51.352.553.754.8

55.455.956.256.5

15.616.2

16.817.2

15.415.816.016.3

16.616.917.117.3

36.338.0

38.939.2

35.936.737.738.4

38.839.039.139.2

1 Includes alcoholic beverages.2 Includes shoes and standard clothing issued to military personnel.3 Includes imputed rental value of owner-occupied dwellings.* Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.



150


TABLE C-3.—Gross private domestic investment, 1929-49


Year

1929

19301931193219331934

19351936193719381939

19401941194219431944

19451946194719481949 7


1949—First halfSecond half 7._.

1948—First quarter-..Second quarter.Third quarter..Fourth quarter.

1949—First quarter...Second quarter.Third quarter..Fourth quarter

Totalgrosspri-vate

domes-tic

invest-ment

15.8

10.25.4.9

1.32.8

6.18.3

11.46.39.9

13.918.310.95.77.7

10.729.531.145.036.8

Nonfarm producers'plant and equipment

Total

7.64.62.52.33.1

3.85.26.64.75.7

7.49.35.84.66.3

8.716.020.624.723.2

Equip-ment 2

5.7

4.32.81.61.62.2

2.93.94.73.44.0

5.36.64.13.54.7

6.310.814.617.316.4

Con-struc-tion i i

4.1

3.41.81.0.7.9

1.01.31.91.41.7

2.12.71.71.11.6

2.45.26.07.4

Farmequip-mentandcon-

struc-tion 4

1.1

.6

1.0.8

1.01.31.0.9

1.2

1.42.03.13.94.0

Kesi-dential

con-struc-tion(non-

farm) ]

2.8

1.41.2.5.3.4

.71.11.41.52.7

3.03.41.81.0

1.14.16.69.18.8

Otherpri-vatecon-

struc-tion 5

0.5

.5

.4

.2

.1

.1

.1

.1

.2

.2

.2

.2

.3

.1

.2

.6

.71.01.2

Net change in busi-ness inventories

Total

1.6

- 1 . 4- 2 . 6- 1 . 6- 1 . 1

.91.02.3

- 1 . 0.4

2.33.92.1

- . 76.7.1

6.5- . 4

Non-farmafter

revalu-ation

adjust-ment

1.8

- 1 . 7- 2 . 6- 1 . 3

.42.11.8

- 1 . 1.3

2.03.4

- . 3

6.92.25.1

-1.0

Farm

- 0 . 3

- . 2.3

- 1 . 3

.5—1.1

.5

.1

.1

.2

.51.3

- . 4- . 5

- . 1- . 2

- 2 . 21.3


42.447.6

38.535.0

40.744.247.148.0

41.635.435.035.0

24,225.1

24.222.3

23.724.625.125.1

24.523.823.421.2

17.017.6

17.215.6

16.717.317.517.7

17.416.916.614.7

7.27.5

7.06.6

7.07.37.67.4

7.16.96.86.5

3.84.0

4.04.0

3.54.04.04.0

4.23.93.94.1

9.09.2

8.09.4

8.79.49.58.8

8.07.98.9

10.0

. 81.1

1.21.2

.8

.91.01.2

1.21.11.21.3

4.78.2

1.1- 1 . 9

4.15.37.49.0

3.6- 1 . 4- 2 . 4— 1.5

4.06.2

. 1- 2 . 0

4.23.85.47.1

2.3- 2 . 1- 2 , 6- 1 . 5

.72.0

1.0.1

- . 11.52.01.9

1.3.7.2

i Items for 1939 and subsequent years are not comparable to those for earlier years, since they includecertain outlays incident to construction which have not yet been estimated for years prior to 1939. Forfurther details see Survey of Current Business, July 1949, p. 7.

3 Total producers' durable equipment less "farm machinery and equipment" and farmers' purchases of"tractors" and "business motor vehicles." These figures assume that farmers purchase 85 and 15 percent,respectively, of all tractors and motor vehicles used for productive purposes.

3 Industrial buildings, public utilities, gas and oil well drilling, warehouses, office and loft buildings,stores, restaurants, garages, and hotels.

* Farm construction (residential and nonresidential) plus "farm machinery and equipment" and farmers'purchases of "tractors" and "business motor vehicles." (See footnote 2.)

6 Includes religious, educational, social and recreational, hospital and institutional, and miscellaneousnonresidential.

e Less than $50,000,000.' Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.NOTE.—Detail will not necessarily add to total because of rounding.


151


T A B L E C—4.—National income by distributive shares, 7929-49


Period

1929..

1930..1931..1932..1933..1934..

1935..1936..1937..1938..1939..

1940..1941..1942-.1943..1944..

1945..1946..1947..1948..1949 «.

1948: First halfSecond half -

1949: First halfSecond half»

1948: First quarter __Second quarterThird quarterFourth quarter

1949: First quarterSecond quarterThird quarter«Fourth quarter«

Totalnation-

alin-

come i

87.4

75.058.941.739.648.6

56.864.773.667.472.5

81.3103. 8137.1169.7183.8

182.7179.6201.7226.2222.5

Com-pen-

sationof em-ploy-ees 2

50.8

46.539.530.829.334.1

37.142.747.744.747.8

51.864.384.9

109.2121.2

123.0117.0127.6140.3142.2

Business and pro-fessional incomeand inventory-

valuationadjustment

Total

8.3

7.05.33.22.94.3

5.06.16.66.36.8

7.79.6

12.615.017.2

18.720.823.124.524.1

In-come

ofunin-corpo-ratedenter-prises

8.1

6.34.72.93.44.3

5.06.26.76.16.9

7.810.212.915.117.2

18.822.724.724.923.4

In-ven-toryvalu-ationad-

just-ment

0.1

.6

.3- . 5

i

- . 1- . 1(4)

. 22

1

- . '6- . 4- . 2- . 1

- . 1-1.9- 1 . 6- . 4

.7

In-come

offarmpro-prie-tors

3.92.91.72.32.3

4.93.95.64.44.54.96.9

10.511.811.8

12.514.215.418.415.0

Rent-al in-come

ofper-sons

5.8

4.83.62.52.02.1

2.32.73.13.33.5

3.64.35.46.16.5

6.36.26.56.66.6

Corporate profitsand inventory

valuationadjustment

Total

10.3

6.61.6

- 2 . 0- 2 . 0

1.1

3.04.96.24.35.8

9.214.619.924.324.0

19.218.325.632.630.3

Cor-po-rateprof-its

beforetax 3

9.8

3.3- . 8

- 3 . 0. 2

1.7

3.25.76.23.36.5

9 317! 221.125.124.3

19.723.631.634.827.6

In-ven-toryvalu-ationad-

just-ment

0.5

3.32.41.0

-2.1- . 6

- . 2- . 7(4)1.0

- . 7

- . 1-2.6-1.2- . 8- . 3

-5.2-6.0-2.22.7

Netinter-

est


220.0232.4

224.8220.2

215.1224.9230.4234.3

226.3223.4222.5217.8

136.4144.1

142.1142.2

135.1137.7143.3144.9

142. 5141.8142.2142.3

24.424.5

24.024.1

24.224.624.524.5

24.024.124.224.0

25.224.5

23.023.7

25.125.325.923.1

22.923.123.623.8

- . 8

1.1.4

- . 9n

- L 41.4

1.11.0.6.2

18.118.6

16.413.6

17.119.118.818.5

17.115.713.813.5

6.66.6

6.76.5

6.66.76.66.7

6.76.76.56.5

30.834.5

31.429.3

28.533.033.335.7

31.830.931.527.1

34.035.6

27.927.2

33.035.036.634.5

29.426.428.026.5

- 3 . 2- 1 . 0

3.42.0

- 4 . 5- 2 . 0- 3 . 3

1.2

2.34.53.5.6

6.5

6.25.95.45.04.8

4.54.54.44.34.2

4.14.13.93.43.1

3.03.03.43.84.3

3.64.0

4.24.43. 63.73.94.1

4.24.34.34.4

1 National income is the total net income earned in production by individuals of businesses. The concep tof national income currently used differs from the concept of gross national product in that it excludes de-preciation charges and other allowances for business and institutional consumption of durable capital goods.

2 Includes wage and salary receipts and other labor income (see appendix table C-5), and employer andemployee contribution for social insurance.

3 See appendix table C-29 for corporate tax liability (Federal and State income and excess profits taxes)and corporate profits after taxes.

< Less than $50,000,000.« Estimates based on incomplete data; profits and total national income for third quarter and all items for

fourth quarter by Council of Economic Advisers.



152


TABLE 0-5.—Personal income, 1929-49


Period

1929

1930193119321933 _1934

19351936 . _193719381939 __

1940 _194119421943 _1944

19451946 _ _194719481949 « _

1948: First halfSecond half

1949: First halfSecond half6 _-

1948: First quarter. _.Second quarter, .Third quarterFourth quarter. _

1949: First quarterSecond quarterThird quarter. _ .Fourth quarter 6

Totalpersonalincome

85.1

76.264.849.346.653.2

59.968.474.068.372.6

78.395.3

122.7150.3165.9

171.9176.9193.5211.9211.7

Salaries,wages,

and otherlabor

income *

50.5

46.339.230.529.033.8

36.842.145.942.845.7

49.561 581.4

104.5116 2

116.9111.0121 9135.1136.8

Proprie-tors' and

rentalincome 2

19.7

15.711.87.47.28.7

12.112.615.414.014.7

16.320.828.432.835.5

37.541.245.149.545.7

Dividendsand

personalinterestincome 3

13.3

12.611.19.18.28.6

8.610.110.38.79.2

9.49.99.7

10.010.6

11.413.214.816.217.3

Transferpayments

1.5

1.52.72.22.12.2

2.43.52.42.83.0

3.13.13.23.03.6

6.211.411.711.112.0

Nonagri-culturalpersonalincome 4

76.8

70.060.146.243.049.5

53.462.866.562.166.3

71.586.1

109.4135.2150.5

155.7158.5173.5188.8192.0


207.7216.0

213.1210.3

205.1210.3215.4216.6

213.7212.5210.6210.0

131.3138.9

136.9136.6

129.9132.7138.3139.5

137.1136.7136.6136.7

49.249.8

47.244.2

48.050.449.949.7

47.846.544.544.0

15.716.6

17.217.4

15.615.816.316.9

17.117.217.317.5

11.510.8

11.912.0

11.611.411.010.5

11.712.112.211.8

184.9192.4

192.0192.0

183.4186.4191.8193.1

191.9192,1192.2191.9

1 Differs from "compensation of employees" in appendix table C-4, in that it excludes employer andemployee contributions to social insurance. Includes wage and salary receipts and other labor income—compensation for injuries, employer contributions to private pension and welfare funds, pay of militaryreservists not on full-time active duty (pay for full-time active duty included in military wages and salaries),directors' fees, jury and witness fees, compensation of prison inmates, Government payments to enemyprisoners of war, marriage fees to justices of the peace, and merchant marine war-risk life and injury claims.

2 See appendix table C-4, for major components.3 See appendix table 0-29, for dividend payments.4 Equals personal income exclusive of net income of unincorporated farm enterprises, farm wages, agricul-

tural net rents, agricultural net interest, and net dividends paid by agricultural corporations.« Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.



153


TABLE C-6.—Relation of national income and personal income, 1929-49


Period

1929

1930 .1931193219331934

1935 .193619371938 .1939

19401941194219431944

19451946 . __1947194819491 _


1949—First halfSecond half *

1948—First quarter . .Second quarterThird quarter . . .Fourth quarter

1949—First quarterSecond quarterThird quarter __. __Fourth quarter *

Nation-al

income

87.4

75.058.941.739.648.6

56.864.773.667.472.5

81.3103.8137.1169.7183.8

182.7179.6201.7226.2222. 5

220.0232.4

224.8220.2

215.1224.9230.4234.3

226.3223.4222.5217.8

Less:

Corpo-rate

profitsand in-ven-toryvalu-ation

adjust-ment

10.3

6.61.6

—2.0-2 .0

1.1

3.04.96.24.35.8

9.214.619.924.324.0

19.218.325.632.630.3

30.834.5

31.429.3

28.533.033.335.7

31.830.931.527.1

Contri-butions

tosocialinsur-ance

0.2

.3

.3

.3

. 3

. 3

. 3

. 61.82.02.1

2.32.83.54.55.2

6.16.05.65.15.4

Excessof

wageac-

crualsoverdis-

burse-ments

.2- . 2

Annual rates

5.05.2

5.35.6

5.15.05.25.3

5.25.45.65.6

. 1

—.1

.1

.1- . 1

.1

.1- . 3

Plus:

Gov-ern-

menttrans-

ferpay-

ments

0.9

1.02.01.41.51.6

1.82.91.92.42.5

2.72.62.72.53.1

5.610.811.110.511.4

Netinter-est

paid

Gov-ern-

ment

1.0

1.01.11.11.21.2

1.11.11.21.21.2

1.31.31.52.12.8

3.74.44.44.44.6

Divi-dends

5.8

5.54.12.62.12.6

2.94.64.73.23.8

4.04.54.34.54.7

4.75.87.07.98.4

, seasonally adjusted

10.910.2

11.311.4

11.010.810.49.9

11.111.511.611.2

4.44.5

4.64.6

4.44.44.54.5

4.54.64.64.6

7.68.1

8.48.4

7.67.77.98.3

8.48.48.48.5

Busi-ness

trans-fer

pay-ments

0.6

.5

.6

.7

.7

.6

.6

.6

.6

.4

.5

.4

.5

.5

.5

.5

. 5

. 6

.6

.6

. 6

. 6

.6

.6

.6

.6

.6

.6

.6

.6

.6

.6

.6

Equals:per-

sonalincome

85.1

76 264.849.346.653.2

59.968.474.068.372.6

78.395.3

122. 7150.3165.9

171.9176.9193.5211.9211.7

207.7216.0

213.1210.3

205.1210.3215.4216.6

213.7212.5210.6210.0

* Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.



154


TABLE C-7.—Disposition of personal income, 1929-49

Period Persona]income

Personaltax andnontax

payments

Equals:Disposa-

blepersonalincome

Less:Personal

con-sumptionexpendi

tures

Equals:Personal

netsaving

Netsaving aspercentof dis-posa bleincome

Billions of dollars

1929

19301931193219331934

19351936193719381939

19401941194219431944

19451946194719481949

1948: First halfSecond half

1949: First halfSecond half *_._

1948: First quarter._Second quarter.Third quarter..Fourth quarter

1949: First quarter __Second quarter.Third quarter..Fourth quarter

85.1

76.264.849.346.663.2

59.968.474.068.372.6

78.395.3

122.7150.3165.9

171.9176.9193.5211.9211.7

2.6

2.51.91.51.51.6

1.92.32.92.92.4

2.63.36.0

17.818.9

20.918.821.521.118.8

82.5

73.763.047.845.251.6

58.066.171.165.570.2

75.792.0

116.7132.4147.0

151.1158.1172.0190.8192.9

78.8

70.861.249.246.351.9

56.262.567.164.567.5

72.182.391.2

102.2111.6

123.1147.8166.9178.8178.5

3.7

2.91.8

- 1 . 4- 1 . 2- . 2

1.83.63.91.02.7

3.79.8

25.630.235.4

28.010.35.1

12.014.4


207.7216.0

213.1210.3

205.1210.3215.4216.6

213.7212.5210.6210.0

22.020.3

18.818.8

23.220.720.220.4

18.818.718.818.9

185.8195.7

194.4191.5

181.9189.6195.2196.2

194.9193.8191.9191.1

177.0180.6

178.8178.2

175.2178.7180.3180.9

178.6178.9178.5178.0

8.815.2

15.613.2

6.710.815.015.3

16.314.813.313.1

4.5

3.92.9

- 2 . 9- 2 . 7- . 4

3.15.45.51.53.8

4.910.721.922.824.1

18.56.53.06.37.5

4.77.8

8.06.9

3.75.77.77.8

8.47.66.96.9

i Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.



868148—50 11 155


TABLE C-8.—Per capita disposable income in current and 1948 dollars, 1929-49

PeriodDisposable

personalincome

(billions ofdollars)

82.5

73.763.047.845.251.6

58.066.171.165.570.2

75.792.0

116.7132.4147.0

151.1158.1172.0190.8192.9

Annualrates,

seasonallyadjusted

185.8195.7

194.4191.5

181.9189.6195.2196.2

194.9193.8191.9191.1

Population(thou-

sands) 1

121,770

123,077124,040124,840125,579126,374

127, 250128,053128,825129,825130,880

131,970133,203134, 665136,497138,083

139, 586141,235144,024146, 571149,215

146,007147,358

148,639149.947

145,713146,293146,937147,724

148,337148,919149, 578150,304

Consumers'price index,

1948=100

71.6

69.763.557.054.055.9

57.357.960.058.958.1

58.561.4

3 68.73 73.83 75.8

3 77.93 83.43 93.1100.098.8

Not ad-justed forseasonalvariation

98.8101.2

99.198.5

98.099.6

101.8100.7

99.299.098.798.2

Per capita disposablepersonal income

Currentdollars

678

599508383360408

456516552505536

574691867970

1,065

1,0821,1191,1941,3021,293

1948dollars »

947

859800672667730

796891920857923

9811,1251,2621,3141,405

1,3891,3421,2821,3021,309

Annual rates, season-ally adjusted

1,2731,328

1,3081,277

1,2481,2961,3281,328

1,3141,3011,2831,271

1,2881,312

1,3201,296

1,2731,3011,3051,319

1,3251,3141,3001,294

1930.1931.1932.1933.1934.

1935.1936.1937.1938.1939.

1940.1941.1942.1943.1944.

1945.1946.1947.1948.1949

1948—First half....Second half-

1949—First halfSecond half 4_

1948—First quarterSecond quarter..Third quarter...Fourth quarter..

1949—First quarter....Second quarter..Third quarter...Fourth quarter4

1 Estimated population of continental United States, including armed forces overseas; annual data as ofJuly 1 and quarterly and semiannual data as of middle of period, interpolated from published monthlyestimates.

2 Current dollars divided by the consumers' price index on the base 1948=100 to give a rough measure ofchanges in buying power of disposable income.

3 The consumers' price index has been roughly adjusted to take account of the understatement duringthe price-control period. This adjustment is in line with the report of the Technical Committee (betterknown as the Mitchell Committee) on the consumers' price index. The unadjusted index will be found inappendix table C-21.

* Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.Sources: Department of Commerce (disposable income and population) and Department of Labor

(consumers' price index).

156


TABLE C-9.—Labor force, employment and unemployment, 1929-49

[Thousands of persons, 14 years of age and over]

Period

Totallaborforce

(includ-ing

armedforces) l

Armedforces i

Civilian labor force

Totalcivilianlaborforce

Employment2

Total Nonagri-cultural

Agri-cultural

Unem-ployment

Monthly average:1929

1930..1931..1932..1933.

1935-1936-1937-1938-1939..

1940-1941..1942..1943-1944-

1945..1946-1947..1948..1949..

1948—First half. __Second half-

1949—First half. _ _Second half_

1948—JanuaryFebruary. _MarchAprilMay _JuneJulyAugustSeptember.OctoberNovember.December—

1949—JanuaryFebruary- _MarchAprilMayJuneJulyAugustSeptember .OctoberNovember.December..

49,440

50,08050,68051,25051,84052,490

53,14053,74054,32054,95055,600

56,03057,38060,23064,41065,890

65,14060,82061,60862,74863,571

61,77163, 726

62,73264, 411

60,45561,00461,00561,76061,66064,74065,13564,51163,57863,16663,13862,828

61,54661,89662,30562,32763,45264,86665,27865,10564,22264,02164,36363,475

260

260260250250260

270300320340370

3901,4703,8208,87011,260

11,2803,3001,4401,3071,466

1,2401,374

1,4831,450

1,2411,2261,2361,2361,2381,2611,2931,3251,3661,3911,4141,453

1,4681,5081,4911,4921,4691,4681,4631,4681,4591,4451,4361,430

49,180

49,82050,42051,00051,59052,230

52,87053,44054,00054,61055,230

55,64055,91056,41055,54054,630

53,86057,52060,16861,44262,105

60,53162,352

61,24962,961

59,21459,77859,76960,52460,42263,47963,84263,18662,21261,77561,72461,375

60,07860,38860,81460,83561,98363,39863,81563,63762,76362,57662,92762,045

47,630

45,48042,40038,94038,76040,890

42,26044,41046,30044,22045,750

47,52050,35053,75054,47053,960

52,82055,25058,02759,37858, 710

58,31760,439

58,06059,359

57,14957,13957,32958,33058,66061,29661,61561,24560,31260,134

59,434

57,41457,16857,64757,81958,69459,61959,72059,94759,41159,00159,51858,556

37,180

35,14032,11028,77028,67030,990

32,15034,41036,48034,63036,140

37,98041,25044,50045,39045,010

44,24046,93049,76151,40560,684

50,75452,057

50,12061,247

50,08950,36850,48250,88350,80051,89952,45252,80151,59051,50651,93252,059

50,65150,17450,25449,99949,72049,92450,07351,44151,25451,29051,64051, 783

10,450

10,34010,29010,17010,0909,900

10,11010,0009,8209,6909,610

9,5409,1009,2509,0808,950

8,5808,3208,2667,9738,026

7,5648,382

7,9408,112

7,0606,7716,8477,4487,8619,3969,1638,4448,7238,6277,9617,375

6,763

7,3937,8208,9749,6969,6478,5078,1587,7107,8786,773

1,550

4,3408,02012,06012,83011,340

10,6109,0307,70010,390

8,1205,5602,6601,070670

1,0402,2702,1422,0643,395

2,2141,914

3,1893,601

2,0652,6392,4402,1931,7612,1842,2271,9411,8991,6421,8311,941

2,6643,2213,1673,0163,2893,7784,0953,6893,3513,5763,4093,489

i Data for 1940-49 exclude about 150,000 members of the armed forces who were outside the continentalUnited States in 1940 and who were therefore not enumerated in the 1940 census. This figure is deductedby the Census Bureau from its current estimates for comparability with 1940 data.

a Includes part-time workers and those who had jobs but were not at work for such reasons as vacation,illness, bad weather, temporary lay-off, and industrial disputes.

NOTE.—Detail will not necessarily add to totals because of rounding.Survey on which labor force data are based is made during the week including the 8th of the month.Sources: Department of Labor (1929-39) and Department of Commerce (1940-49).


T A B L E C—10.—Number of wage and salary workers in nonagi'{cultural establishments, 1929—49 1

[Thousands of employees]

Period

Totalwageand

salarywork-

ers

31,041

29,14326,38323,37723,46625,699

26,79228,80230, 71828,90230,287

32,03136,16439,69742,04241,480

40,06941,41243.37144,20142,936

43,63344,769

42,99342,867

43,63943,35043,63243,35243,70444,11944,16444,49444,94644,91544.81545,282

43,44943,06142,91842,96642,73142,83542,57342,99443,46442,60742,695

Manufacturing

Total

10,534

9,4018,0216,7977,2588,346

8,9079,653

10,6069,253

10,078

10,78012,97415, 05117,38117,111

15,30214,46115, 24715, 28814,152

15,20015,371

14,30713,965

15,40615,34515,36915,02814,94715,10715.15515,40015,61715,51415,36815,174

14,78214,64914,47514,17713,87713,88413, 75714,11414,31213,90313,741

Dura-ble

goods

<•>(S)

(3)(3)(3)(3)

(3)

(3)(3)(3)(3)

(3)

i(3)(3)(3)8.3738,3157,479

8,3208,311

7.7137,200

8,4298,3678,4148,2928,2218,1968,2328,2718,3608,3938,3528,258

8,0447,9237,8197,6567,4417,3927,2557,3027,4167,0067,019

Non-dura-ble

goods

«(5)

(3)(3)(3)(3)

(3)

(3)(3)(3)(3)

(3)(8)(3)(")(3)

(3)

(3)6,8746,9706,673

6,8817,060

6,5956,766

6,9776,9786,9556,7366,7266,9116,9237,1297,2577,1217,0166,916

6,7386,7266,6566,5216,4366,4926,5026,8126,8966,8976,722

Min-ing

1,078

1,000864722735874

888937

1,006882845

916947983917883

826852943981932

964998

981873

974966980870989

1,005974

1,0061,0071,000

9991,002

991986981984974968943956948583927

Con-tractcon-

struc-tion

1,497

1,3721,214

970809862

9121,1451,1121,0551,150

1,2941,7902,1701,5671,094

1,1321,6611,9822,1652,162

2,0102,320

2,0452,303

1,9291,7921,8772,0192.1532,2892,3482,3842,3692,3342,2872,200

2,0161,9261,9472,0362,1372.2052,2772,3402,3412,3102,245

Trans-porta-tionand

publicutili-ties

3,907

3,6753,2432,8042,6592,736

2,7712,9563.1142,8402,912

3,0133,2483,4333,6193,798

3,8724,0234,1224,1513,984

4,1144,188

4,0163,945

4,0944,1134,1174,0544,1274,1814,2124,2134,1894,1884,1664,158

4,0544,0243,9753,9914,0214,0314,0073,9923,9593,8733,896

Trade

6,401

6,0645,5314,9074,9995,552

5,6926,0766,5436,4536,705

7,0557,5677,4817,3227,399

7,6858,8159,1969,4919, 370

9,3189,664

9,3589,385

9,3259,2399,3129,3019,3409,3899,3639,3669,5229,6549,807

10,273

9,3889,2929,3109,4789,3429,3369,2209,2139,4099,5039,579

Fi-nance

1,431

1,3981,3331,2701,2251,247

1,2621,3131,3551,3471,382

1,4191,4621,4401,4011,374

1,3941,5861.6411,7161,761

1,7021,729

1,7521,772

1,6741,6831,6961,7081,7171,7361,7421,7421,7251,7201,7211,724

1,7311,7351,7491,7571,7631,7741,7801,7801,7701,7671,764

Serv-ice2

3,127

3,0842,9132,6822,6142,784

2,8833,0603,2333,1963,228

3,3623,5543, 7083,7863,795

3.8914,4084,7864,7994,785

4,7784,819

4,7604,814

4,7464,7284,7424,7894,8164,8484,8664,8504,8494,8114,7824,757

4,7234,7124,7204,7684,8044,8344,8514,8364,8324,7924,760

Gov-ern-

ment(Fed-eral,State,and

local)

3,066

3,1493,2643,2253,1673,298

3,4773,6623,7493,8763,987

4,1924,6225,4316,0496,026

5,9675.6075,4545,6135,791

5,5465,680

5,7765,809

5,4915,4845,5395,5835,6155,5645,5045,5335,6685,6945,6855,994

5,7645,7375.7615,7755,8135,8035,7385,7635,8935,8665,783


19301931193219331934

193519361937 —1938- —1939- -

194019411942 -19431944

1945194619471948 —1949*...

1948—First halfSecond half..

1949—First half....Second half«.

1948—JanuaryFebraryMarchAprilMay _June _JulyAugustSeptember...OctoberNovember.-.December. __

1949—JanuaryFebruaryMarchAprilMay _.JuneJulyAugustSeptember ^ _October*November *.

i Includes all full- and part-time wage and salary workers in nonagricultural establishments who workedor received pay during the pay period ending nearest the 15th of the month. Excludes proprietors, self-employed persons, domestic servants, and personnel of the armed forces. Not comparable with estimatesof nonagricultural employment of the civilian labor force reported by the Department of Commerce (appen-dix table C-9) which include proprietors, self-employed persons, and domestic servants; which count personsas employed when they are not at work because of industrial disputes, bad weather, or temporary lay-offsand which are based on an enumeration of population, whereas the estimates in this table are based on reportsfrom employing establishments.

1 Data for the trade and service divisions, beginning with January 1947, are not comparable with datashown for earlier years because of the shift of the automotive repair service industry from the trade to theservice divtson. In January 1947, this industry amounted to approximately 230,000 employees.

*Not available.< Estimates based on incomplete data.NOTE.—Detail will not necessarily add to totals because of rounding.Adjustments have been made to levels indicated by unemployment insurance agencies and the Bureau

of Old-Age and Survivors Insurance data through 1947, and have been carried forward from 1947 benchmark levels, thereby providing consistent series.

Source: Department of Labor.

158


TABLE C—11.—Average gross weekly earnings in selected industries, 1929—49

Period


19301931. __193219331934

19351936193719381939

19401941194219431944

19451946194719481949 7

1948—First half--.Second half..

1949—First half__ _Second half 7.

1948—JanuaryFebruary-- .MarchApriL__.MayJ u n e . .Ju ly . . .AugustSeptember,.OctoberNovember. _December...

1949—JanuaryFebruaryMarchApril . . .MayJuneJu ly . . . .AugustSeptember".October i..._November K

Manufacturing

Total

$25.03

23.2520.8717.0516.7318.40

20.1321.7824.0522.3023.86

25.2029.5836.6543.1446.08

44.3943.8249.9754.1454.78

52.9455.26

54.6454.95

52.8652.5852.9252.5652.8353.8753.9755.0655.1655.6055.6056.14

55.5055.2054.7453.8054.0854.5154.6354.7055.7255.2654.45

Dura-ble

goods

Non-durablegoods

$27.22

24.7721.2816.2116.4318.87

21.5224.0426.9124.0126.50

28.4434.0442.7349.3052.07

49.0546.4952.4657.1157.85

55.4758.60

57.9057.78

55.4655.0455.5355.1555.1056.5456.5458. 5058.2859.5059.1159.67

58.8358.4957.8357.2157.2157.8257.3157.8958.8458.0356.85

()$46.9650.6151.32

49.8851.32

50.8051.95

49.5649.7649.8049.5049.9850.6750.8551.0751.6450.9151.6351.84

51.3551.3351.0749.6750.4150.9751.5551.3152.5952.5151.78

Bitumi-nouscoal

mining

$25.72

22.2117.6913.9114.4718.10

19.5822.7123.8420.8023.88

24.7130.8635.0241.6251.27

52.2558.0366.5972.1263.92

69.6173.42

70.9453.40

75.1570.5574.54

8 49. 7974.2773.3864.7076.4874.1176.2472.7376.28

76.3273.5670.5472.3372.98

8 59.90« 47. 948 49. 519 52. 778 63.39

Build-ing con-struc-tion

8$

$22.9724.5127.0130.1429.1930.3931.7035.1441.8048.1352.1853.7356.^463.30

s 68.8571.05

66.6270.83

70.8071.42

65.5165.1665.8766.4567.2269.5370.4770.9171.2970.5969.3972.33

70.8870.5369.8370.3371.8171.4471.2871.9570.6971.76

Class Isteamrail-

roads

$28.49

27.7626.7623.3423.0924.32

26.7628.0129.2030.26

31.5534.2538.6543.6846.06

45.69* 51. 22

54.22e 59. 27

60.70

6 58.718 59.57

60.3961.33

59.6060.5458.9456.8657.2459.0558.2259.1759.4859.9260.4260.19

60.2161.6460.0062.51

57.2760.3762.64

Tele-phone

$29. 8131. 5331.94

32.4432.7433.9736.3038.39

()44.0444.7748.9251.48

48.1549.66

50.9052.34

48.2047.7147.4547.7748.9348.8249.2348.4249.2149.8551.4249.85

49.8450.8450.8250.5851.8451.4651.9051.5752.57

Whole-sale

trade

()$51.9955.5857.43

54.8856.18

57.2357.73

53.9055.0254.2154.8855.7955.4555.7755.8755.8356.2856.4856.87

57.2456.8256.8857.1257.8357.4958.1857.1057.3958.26

Retailtrade

Hotels(year

round) i

<*>

(»)(2)

8(2)00(2)

()$40.6643.8545.96

43.0644.60

45.5646.58

42.4942.9542.4843.1143.2844.0445.0645.3344.7044.1743.9944.36

45.5145.1444.9545.3145.9846.4546.9546.8746.4246.06

()$29.3631.4132.68

30.8131.96

32.6032.80

30.2930.8930.5030.8631.1231.1931.3831.8531.7832.0632.3532.35

32.4132.4732.5332.3532.9932.8532.9032.9332.7132.65

1 Money payments only; additional value of room, board, uniforms, and tips not included.a Not available.3 Not available. Series beginning April 1945 includes only employees subject to provisions of the Fair LaborStandards Act and is not comparable with preceding series which includes all employees. BeginningJune 1949 data relate to nonsupervisory employees.

* Annual average includes retroactive pay increases not included in monthly averages.* Not strictly comparable with previous data.* Preliminary average; does not include any retroactive wage payments.7 Estimates based on incomplete data.* Data reflect work stoppages.9 3-day work week.NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in rail-

roads, and for all nonsupervisory employees in other industries. Data are for pay roll periods ending closestto the middle of the month except in railroads where monthly pay roll and employment figures are used.

Adjustments have been made to levels indicated by unemployment insurance agencies and the Bureauof Old-Age and Survivors Insurance data through 1947, and have been carried forward from 1947 benchmark levels, thereby providing consistent series.

The monthly average for each year except 1949 has been weighted by man-hours and therefore [doesnot agree with the straight arithmetic average of the monthly or half year data.


159


TABLE C-12.—Average hourly earnings in selected industries',

Period


1930..1931193219331934.. _ _

1935 .1936193719381939

19401941194219431944

1945_ _ . . .19461947. . .19481949 7 -_

1948:—First half_ —Second half.-

1949:-Firsthalf...-Second half7-

1948:JanuaryFebruaryMarchAprilMay. .JuneJulyAugustSeptemberOctober _NovemberDecember

1949:JanuaryFebruary _ . . .MarchAprilMay. _ .JuneJuly. _.._August ..September7

October"November/

Manufacturing

Total

$0,566

.552

.515

.446

.442

.532

.550

.556

.624

.627

.633

.661

.729

.853

.9611.019

1.0231.0861.2371.3501.401

1.3161.384

1.4021.399

1.3021.3081.3101.3141.3241.3401.3561.3731.3861.3901.3971.400

1.4051.4011.4001.4011.4011.4051.4081.3991.4071.3921.389

Dura-ble

goods

(2)

(2)

$0,497.472.556

.577

.586

.674

.686

.698

.724

.808

.9471.0591.117

1.1111.1561.2921.4101.468

1.3691.451

1.4681.469

1.3561.3591.3611.3651.3741.3961.4171.4411.4571.4621.4631.466

1.4671.4661.4641.4671.4671.4751.4771.4731.4821.4581.454

Non-durablegoods

%toto«(2)

to(2)

(2

(2

%

(2)$1.171

1.2781.324

1.2531.303

1.3241.325

1.2361.2471.2481.2501.2621.2731.2841.2931.3041.3021.3171.319

1.3271.3231.3231.3211.3231.3241.3321.3191.3281.3261.321

Bitumi-nouscoal

mining

$0,681

.684

.647

.520

.501

.673

.745

.794

.856

.878

.886

.883

.9931.0591.1391.186

1.2401.4011.6361.8981.938

1.8371.954

1.9431.932

1.8421.8231.8451.8171.8431.8531.9371.9611.9711.9451.9551.956

1.9471.9411.9381.9341.9461.9511.9101.8971.9401.981

Build-ing con-struc-tion

(2)

(2)$0.795

.815

.824

.903

.908

.932

.9581.0101.1481.2521.319

1.3791.4781.681

51.8481.931

1.8001.891

1.9281.934

1.7661.7911.7861.8041.8151.8361.8621.8741.8951.8921.9061.915

1.9181.9301.9331.9341.9301.9241.9221.9321.9401.943

Class Isteamrail-

roads

$0,636

.644

.651

.600

.595

.602

.651

.659

.676

.712

.714

.717

.751

.824

.897

.938

.942* 1.116

1.17181 . 283

1.371

6 1.27261.296

1.3461.421

1.2791.3021.2621.2581.2721.2591.2631.2781.2931.2971.3221.320

1.3331.3431.3181.3591.3671.3541.3691.3541.540

Tele-phone

(2)

to(2)

$0,774.816.822

.827

.820

.843

.870

.911

1.1241.1971.2481.338

1.2351.262

1.3251.358

1.2391.2361.2261.2281.2421.2361.2371.2291.2491.2621.3051.288

1.2981.3171.3271.3241.3431.3401.3481.3431.3621.378

1929-49

Whole-sale

trade

(2)(2)

tom

(2)(2)(2)(2)i(2)(2)

$1,2681.3591.412

1.3441.374

1.4091.417

1.3211.3421.3321.3451.3641.3591.3671.3661.3651.3761.3811.387

1.4031.4031.4011.4071.4211.4161.4261.4031.4101.428

Retailtrade

1(2)

8(2)

(2)(2)

8(2)

$1,0091.0881.138

1.0721.105

1.1321.146

1.0571.0631.0621.0751.0821.0901.0991.1031.1121.1071.1081.098

1.1321.1231.1211.1271.1411.1471.1481.1461.1491.143

Hotels(year

ound)i

(2)

(2)

(2)

( 2 )

(2)

88(2)

to(2)(2)

$0,650.709.740

.695

.722

.737

.744

.690

.688

.690

.695

.701

.704

.710

.711

.724

.727

.732

.732

.735

.738

.731

.732

.738

.745

.746

.745

.745

.742

1 Money payments only; additional value of room, board, uniforms, and tips not included.2 Not available.3 Not available. Series beginning April 1945 includes only employees subject to provisions of the FairLabor Standards Act and is not comparable with preceding series which includes all employees. BeginningJune 1949 data relate to nonsupervisory employees.4 Annual average includes retroactive pay increases not included in monthly averages.8 Not strictly comparable with previous data.6 Preliminary average; does not include any retroactive wage payments.7 Estimates based on incomplete data.

NOTE.—Data are for production workers in manufacturing and mining, hourly-rated employees in rail-roads, and for all nonsupervisory employees in other industries. Data are for pay roll periods ending closestto the middle of the month except in railroads where monthly pay roll and employment figures are used.


The monthly average for each year except 1949 has been weighted by man-hours and therefore does notagree with the straight arithmetic average of the monthly or half year data.


160


TABLE C-13.—Average weekly hours in selected industries, 7929-49

Period

Manufacturing

Total

44.2

42.140.538.338.134.6

36.639.238.635.637.7

38.140.642.944.945.2

43.440.440.440.139.1

40.239.9

39.039.3

40.640.240.440.039.940.239.840.139.840.039.840.1

39.539.439.138.438.638.838.839.139.639.739.2

Durablegoods

0)

0)(032.634.833.9

37.341.040.035.038.0

39.342.145.146.646.6

44.140.240.640.539.4

40.540.4

39.539.3

40.940.540.840.440.140.539.940.640.040.740.440.7

40.139.939.539.039.039.238.839.339.739.839.1

Non-durablegoods

0)

0)0)41.940.035.1

36.137.737.436.137.4

37.038.940.342.543.1

42.340.540.139.638.8

39.839.4

38.439.2

40.139.939.939.639.639.839.639.539.639.139.239.3

38.738.838.637.638.138.538.738.939.639.639.2

Bitumi-nouscoal

mining

38.4

33.528.327.229.527.0

26.428.827.923.527.1

28.131.132.936.643.4

42.341.640.737.732.9

37.937.6

36.527.6

40.85 38.7

40.45 27.4

40.339.6

5 33.439.037.639.237.239.0

39.237.936.437.437.5

5 30.76 25.16 26.16 27.2«32.00)

Build-ingcon-

struc-tion

0)

0)0)0)(028.9

30.132.833.432.132.6

33.134.836.438.439.6

39.038.137.6

3 37.336.8

37.037.5

36.736.9

37.136.436.936.737.037.937.837.837.637.336.437.8

37.036.536.136.437.237.137.137.236.436.90)

Class Isteamrail-roads

44.8

43.141.138.938.840.4

41.142.543.242.543.4

44.045.646.948.749.1

48.545.946.346.144.4

46.246.0

44.943.4

46.646.546.745.245.046.946.146.346.046.245.745.6

45.245.945.546.044.442.344.146.439.6

8

Tele-phone

0)

80)0)0)

(90)38.838.939.1

39.540.140.541.942.3

(2)39.437.439.238.5

39.039.4

38.438.6

38.938.638.738.939.439.539.839.439.439.539.438.7

38.438.638.338.238.638.438.538.438.638.70)

Whole-sale

trade

(0

0)0)0)C1)0)

0)0)0)C1)0)

0)0)(00)0)

0)0)41.040.940.7

40.840.9

40.640.8

40.841.040.740.840.940.840.840.940.940.940.941.0

40.840.540.640.640.740.640.840.740.740.80)

Retailtrade

0)

C1)0)0)0)C1)

(00)0)0)0)

0)0)0)0)0)

0)0)40.340.340.4

40.240.4

40.340.6

40.240.440.040.140.040.441.041.140.239.939.740.4

40.240.240.140.240.340.540.940.940.440.30)

Hotels(year-

round)


19301931193219331934

19351936193719381939

19401941194219431944

19451946194719481949 4

1948—First half___Second half...

1949—First half....Second half *_

1948—JanuaryFebruaryMarchAprilMayJune _JulyAugustSeptember. _.OctoberNovember...December....

1949—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember 4.October*November 4_

1 Not available.2 Average for year not available because new series was started in April 1945. Beginning with June

1949 data relate to nonsupervisory employees only.3 Not comparable with previous data.4 Estimates based on incomplete data.5 Data reflect work stoppages.6 3-day workweek.

NOTE.—Data are for production workers in manufacturing and mining, hourly rated employees in rail-roads, and for nonsupervisory employees in other industries. Data are for pay roll periods ending closestto the middle of the month except in railroads where monthly pay roll and employment figures are used.


The monthly average for each year except 1949 has been weighted by man-hours and therefore does notagree with the straight arithmetic average of the monthly or half year data.


161


TABLE G-14.—Physical production index of goods and selected services, 1929-49

[1935-39=100 i]

Period

Weights: 2Total __ _ . .Nonagricultural

19291930 —193119321933.- .1934 . . .

19351936 _193719381939 —

1940.— -19411942—1943 _1944

19451946—194719481949 *

1948—First half .Second half

1949—First halfSecond hah* a ._.

Production of goods

Totalpro-

ductionof

rgoods

100.0

1129685697274

8799

11193

110

123154187207201

178162176184175

(4)

Agri-cultural

pro-duction

19.5

9795

1041019379

9685

108105106

110114128125130

129134129140138

(5)(«)

8

Nonagricultural production

Total

78.0100.0

1169781626873

8510311290

110

126164201227218

190169187195184

196196

187180

Indus-trial

produc-tion

65.681.6

no"9175586975

8710311389

109

125162199239235

203170187192175

192192

181170

Con-struc-tion

9.011.1

180153124795358

69101106101123

13318220211260

68128147174182

171179

172191

Electricand gasutilities

5.87.2

888784767781

8797

104100111

123141158183191

187188214243247

242244

249245

Production ofselected services

Trans-por-

tation

31710489737683

8810111095

106

117146185220230

217198208209191

210208

197185

Tele-phone

andtele-

graph

110106101918486

9098

102102108

115126135143147

158182196207

(4)

(4)

. 8 '1 All half year data have been seasonally adjusted except the electric and gas utilities for which no satis-

factory adjustment factor is available. »-i&* &•&•&• fes*2 Computed from the Department of Commerce national income data. The weight factors are percent-

ages of the national income for each industry to the total for the 5 industries. The agriculture weight ex-cludes net rents paid by landlords living on farms, imputed rents and subsidy payments. The weightfor construction has been adjusted to include force account and other construction done outside of the con-tract construction industry, the weights for other industry groups to exclude such construction. Manu-factures and minerals of the industrial production index were weighted into the total indexes separatelybut only the total industrial production index is shown here. See appendix table 0-15 for the individualcomponents of the index of industrial production.

5 Estimates based on incomplete data.* Not available.6 Because of the extreme seasonal nature of agricultural crop production, only an annual index has been

computed.

NOTE.—A composite index of production of goods and services has not been compiled because of theinadequate data for measuring the production of services. The only service production data used were fortransportation and for communications by telephone and telegraph. Data for measuring such servicesas wholesale and retail trade, finance, insurance, real estate, government, and communication other thantelephone and telegraph were inadequate for separate indexes and for an index for all services other thantransportation, telephone, and telegraph.

Sources: Based on the following data:Agricultural production: Department of Agriculture index of farm output which measures the physical

volume of farm production for human use.Industrial production: Federal Reserve index of industrial production.Construction: Department of Commerce value of new construction activity deflated by their index of

construction costs and converted into relatives with 1935-39 as 100.Electric and gas utilities: Based on the following series: Electric power produced by utilities as reported

by the Federal Power Commission, and sales of manufactured and mixed gas to consumers as reported bythe American 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 with electric power given a weight of 85and gas 15. the respective percentages of the revenues of each of the utilities to the total revenues producedby both in the base period 1935-39.

Transportation: Department of Commerce index of transportation.Telephone and telegraph- Based on Department of Labor production indexes for 1935-48 and on a series

of Works Progress Administration for 1929-34. These indexes are for class A telephone carriers and theprincipal wire-telegraph and ocean-cable carriers which file annual reports with the Federal Communica-tions Commission.

162


TABLE C-15.—Industrial production index, 1929-49

[193.5-39=100, seasonally adjusted]

Period


19301931193219331934

19351936... _.19371938 _.1939

19401941194219431944

194519461947 _..19481949^

1948—First half-..Second half-.

1949—First half-..Second halfl

1948—JanuaryFebruaryMarchAprilMayJune -.JulyAugustSeptember...OctoberNovember...December. . .

1949—JanuaryFebruaryMarchAprilMayJuneJulyAugust-, . . . .September...OctoberNovember l .December *..

Totalindustrialproduction

110

9175586975

8710311389109

125162199

235

203170187192175

192192

181170

193194191188192192186191192195195192

1911S9184179174169161170174166171176

Manufactures

Total

110

9074576874

8710411387109

126168212258252

214177194198183

199198

188178

201201200195197198192197199202201199

108196193184179176168177184176177184

Durable

132

9867415465

8310812278109

139201279360353

274192220225201

224226

214188

229226229217221222219223225231229231

227225223212201194185193199175180199

Nondurable

93

8479707981

9010010695109

115142158176171

166165172177168

178176

167169

178180177177178179169177178179178173

175173168162161161154165172177175172

107

9380677680

869911297106

117125129132140

137134149155134

153157

143126

154155142147162159153159156158161156

149149136148145133123129119112139131


Source: Board of Governors of the Federal Reserve System.

163


TABLE C-16.—New construction activity, 1929-49

[Value put in place, millions of dollars]

Period

1929...

1930...1931...1932...1933—1934—

1935...1936...1937...1938...1939...

1940...1941...1942...1943...1944. „

1945...1946...1947...1948...1949*..

1948—First halfSecond half...

1949—First halfSecond half *__

1948—JanuaryFebruaryMarchAprilMayJuneJuly .AugustSeptemberOctoberIsovemberDecember

1949—January _FebruaryMarch __.AprilMayJuneJulyAugustSeptemberOctoberNovember *..December*..

Totalnewcon-

struc-tion i

9,873

8,0425,9673,2902,3762,805

3,2304,8365,4875,1866,307

7,04210,49013,4127,7844,136

4,808.0,464.4,324.8, 775.9,329

Private construction

Totalpri-vate

7,476

5,2653,3751,4671,0121,235

1,6762,5503,3903,076

4,3905,4263,0071,7441,823

2,7168,25311,17914,56314,059

Resi-den-tial

build-ing

(non-farm)2

2,797

1,4461,228462278361

6651,1311,3721,5112,114

2,3552,7651,315650535

6843,1835,2607,2237,025

Non-resi-den-tial

build-ings

2,822

2,0991,104

499404455

472712

1,088764785

1,0281,486

635232350

1,0143,3463,1313,5783,178

Pub-lic

utili-ty

andfarm

1,857

1,7201,043

506330419

539707930801909

1,0071,1751,057862938

1,0181,7242,7883,7623,856

Public construction

Totalpub-lic

2,397

2,7772,5921,8231,3641,570

1,5542,2862,0972,1102,499

2,6525,064

10,4056,0402,313

2,0922,2113,1454,2125,270

By source offunds

Feder-al

237

338451510552720

8281,2621,154989

1,257

1,3973,8539.5445,6141,912

1,5581,0961,1811,3391,588

Stateandlocal

2,160

2,4392,1411,313

812850

7261,024

9431,1211,242

1,2551,211

861426401

5341,1151,9642,8733,682

By type of con-struction

Mili-tary

and fed-erally fi-nancedindus-trial

19

2940343858

39333974

148

5492,9008,4534,2181,344

1,160272229157120

High-ways

1,254

1,5051,351

G61809826

709927902858867

882800616420346

386778

1,3001, 5851,670

Otherpub-lic

Totals for period, not adjusted for seasonal variation

8,15910,616

8,41310,916

1,1801,0491,2261,3781,5721,7541,8741,9341,9011,8141,6461,447

1,2931,1721,2671,3701,5761,7351,8331,9031,9221.8791,7671,612

1,124

1,2431,201

828517686

8061,3261,1561,1781,484

1,2211,3641,3361,402

623

5461,1611,6162,4703,480

6,5198,044

6,1847,875

974875

1,0011,0991,2221,3481,4231,4541,4271,3551,2561,129

1,002905951989

1,1081.2291,3011,3431,3681,3431,2951,225

3,2573,966

2,8704,155

500410490550625682707720707670615547

475400420445530600650675710715715690

1,6401,938

1,5941,584

270263266263275303321329331327325305

285271262251257268269264263261266261

1,6222,140

1,7202,136

204202245286322363395405389358316277

242234269293321361382404395367314274

1,6402,572

2,2293,041

206174225279350406451480474459390318

291267316381468506532560554536472387

521818

658930

6754718711213014315415614612396

817291113144157166174174166140110

1,1191,754

1,5712,111

139120154162238276308326318313267222

210195225268324349366386380370332277

8176

4971

141213151413131413131310

77989910121414129

5591,026

6331,037

5440578914017920622020018613183

68526810016018520021520018514592

1,0001,470

1, 5471,933

138122155175196214232246261260246225

216208239273299312322333340337315286

i Excludes construction expenditures for crude petroleum and natural-gas drilling, and, therefore doesnot agree with the new construction expenditures in the gross national product.

21939 and subsequent years are not comparable to nonfarm residential construction in table C-3 sincethis series excludes certain outlays incident to construction which have been included in gross privatedomestic investment.

3 Excludes farm and public utility; for 1929-32 includes negligible amount of public industrial and com-mercial building not segregable.


Sources: Department of Commerce and Department of Labor.

164


T A B L E C—17.—Business expenditures for new plant and equipment, 1929—50

[Millions of dollars]

Period Total i

Manufacturing and mining

Total

3,596

2,5411,435

930992

1,460

1,7902,4503,3301,8302,310

3,1404,0803,1702,6102,890

3,6506,4708,1509,1407,860

Manu-factur-

ing

«

$(3)(3)(3)

(3)

(3)(3)1,930

2,5803,4002,7602,2502,390

3,2105,9107,4608,3407,130

Mining

8(3)(3)8(3)380

560680410360500

440560690800730

Transportation

Rail-road

840

865360164101218

166306525238280

440560540460580

550570910

1,3201,340

Other

(4)

i(4)(*)(4)i

280

390340260190280

320660800700510

and gasutilities

»

0)(4)(4)(4)

(4)

i480

550710680540490

6301,0401,9002,6803,160

Com-mercial

andmiscel-

laneous 2

1929..

1930-.1931..1932..1933..1934..

1935..1936..1937..1938..1939-.

1940..1941..1942..1943..1944..

1945..1946..1947..1948..1949 «.

1948—First half.Second half.

1949—First half.Second half»

1948—First quarterSecond quarter..Third quarter. _.Fourth quarter. .

1949—First quarterSecond quarter. .Third quarter.. .Fourth quarter 5.

1950—First quarter «...

9,165

7,6104,7122,6082,1373,080

3,7385,0776,7304,5205,200

6,4908,1906,1104,5305,210

6,63012, 04016,18019, 26017,910

Annual rates, not adjusted for seasonal variation

17,98020,480

18, 24017,580

16, 68019, 28019,32021,640

17,84018,64017,44017,720

15,280

8,6409,660

8,2207,500

7,9209,3609,160

10,160

8,1608,2807,4807,520

6,720

7,8808,820

7,4606,800

7,2008,5608,3609,280

7,4007,5206,7606,840

6,080

760840

760700

720800800880

760760720680

640

]

1,160L,460

1,4801,200

1,0801,240L, 2801,640

1,4401,5201,2401,160

880

740680

540480

720760680680

520560520440

320

2,2803,080

2,9203,380

2,0002,5602,7603,400

2,7203,1203,1603,600

2,960

4,729

4,2042,9171,5141,0441,402

1,7822,3212,8752,4521,850

1,9802,4901,470730970

1,4803,3004,4305,3905,040

5,1605,600

5,1005,020

4,9605,3605,4405,760

5,0405,1605,0405,000

4,440

1 Excludes agriculture.2 Commercial and miscellaneous includes trade, service, finance, and communication for all years shown.

Prior to 1939, miscellaneous also included transportation other than railroad, and electric and gas utilitieswhich are not available separately for these years.fe 3 Not available separately for years prior to 1939.¥, * Included in commercial and miscellaneous prior to 1939.wp Estimates for fourth quarter of 1949 and the first quarter of 1950 are based on anticipated capital expend-itures of business.

NOTE.—These figures do not agree with those shown in column 2 of table C-3 and included in the grossnational product estimates of the Department of Commerce, principally because the latter cover certainequipment and construction outlays charged to current expense. Figures for 1929-44 are Federal ReserveBoard estimates based on Securities and Exchange Commission and other data.

Detail will not necessarily add to totals because figures are rounded to the nearest $10,000,000.

Sources: Securities and Exchange Commission and Department of Commerce (except as noted).

165


TABLE G—18.—Inventories and sales in manufacturing and trade, 1939-49

[Adjusted for seasonal variation]

Period

1939-

1940..1941..1942..1943-1944..

1945....1946....1947....1948....

1948—First half....Second half..

1949-Firsthalf....

1948—JanuaryFebruary...MarchApri l . .MayJuneJuly__AugustSeptember-OctoberNovember..December..

1949—JanuaryFebruaryMarchApril. _.MayJuneJuly_AugustSeptember...October *November *_.

Manufacturing

Millions ofdollars

Inven-tories l

11,465

12,81916,96019, 28720,09819,507

18,39024, 81829,81834,066

32, 21134,066

33, 250

30,04430,31830,68631,04031,49132, 21132, 58032,84133,38033,52833,81034,066

34,40934,40834, 22334,01833, 56533, 25032,36731,63831,06030, 75430, 700

Sales 2

5,100

5,8528,168

10,42512,82213, 788

12,88312,84117,07618,998

18,68619,310

17,980

18,22918,47018, 76118,63118, 57419,45418,97219, 65219,90218,97819, 28819,065

17, 88018,17518,45117,64317, 74117,99017,11418,94518, 86616,80518,000

Ratio ofaverageinven-

tories tomonth

ly sales3

2.11

2.061.781.771.511.45

1.481.651.641.68

1.651.72

1.89

1.641.631.631.661.681.641.711.661.661.761.751.78

1.911.891.86

]

]

L.93L.90L.86L.92L 69L. 66L. 84L.71

Wholesale trade

Millions ofdollars

Inven-tories1

3,175

3,3254,1823,8583,6843,980

4,6386,6658,6539,511

8,9269,511

9,002

8,6958,7198,6698,7738,8118,9269,1779,4209,5819,7309,7149,511

9,4649,4799,2939,3309,1539,0029,0919,0619,1869,220(*)

Sales 2

2,505

2,8023,6204,0124,2734,561

4,9836,6017,7548,355

8,3788,353

7,662

8,3528,1468,4338,4158,2408,6858,6308,5228,4898,0838,2368,158

7,7237,6807,8907,4227,5397,7187,1587,6977,5727,166(«)


tories tomonth-

ly sales3

1.21

1.161.031.020.860.86

0.820.811.031.09

1.051.13

1.22

1.041.071.031.041.071.021.051.091.121.191.181.18

1.231.231.191.251.231.181.261.181.201.28(s)

Retail trade

Millions ofdollars

Inven-tories *

5,532

6.0407,6307,8687,3617,400

7,54311, 22613, 22114,969

14,34914,969

14,182

13,66214,00614, 25314,15614,08914,34914,37214, 49014, 87714,93715,02714,969

14, 65914,47914, 70014, 45814,13914,18213, 86213.93214,35514,478

(«)

Sales *

3,504

3,8664,6244,8035,2775,735

6,3158,3589,909

10, 837

10, 74210,932

10,696

10,59010, 59710, 80910, 96210,64010, 85510,94911,03010, 96110,89910,76310,987

10, 59210, 68610, 70510, 79010, 73810,66310, 52110, 64410,82410, 64710,630


tories tomonth-

ly sales3

1.53

1.471.461.711.381.31

1.201.111.221.32

1.301.35

1.36

1.271.311.311.301.331.311.311.311.341.371.391.37

1.401.361.361.351.331.331.331.311.311.35

(8)

1 Book value, end of period.2 Monthly average shown for year and half year and total for month.3 Average inventories based on centered averages of month-end figures.< Estimates based on incomplete data.1 Not available.

NOTE.—The inventory figures in this table do not agree with the estimates of "change in business inven-tories" included in the gross national product since they cover only manufacturing and trade rather than allbusiness, and show inventories in terms of current book value without adjustment for revaluation.


166


TABLE C-19.—Manufacturers'' inventories by stage of fabrication'and as ratios to sales, 1946-49

[Not adjusted for seasonal variation]

Period

1946.1947.1948.

1948—First hal f - -Second half..

1949—First half—.

1948—JanuaryFebruary—MarchAprilMayJuneJuly _AugustSeptember..OctoberNovember..December..

1949—JanuaryFebruary.-MarchAprilMayJuneJulyAugustSeptember-Octobers...

Durable goods industries

Book value ofinventories atend of period


Mate-rialsand

goodsin

process

9.010.311.4

10.711.4

10.4

10.310.410.410.510.710.711.011.111.211.211.311.4

11.611.511.411.310.810.410.19.99.59.4

Fin-ishedgoods

2.73.84.7

4.24.7

5.2

3.94.04.14.24.24.24.24.24.34.44.54.7

4.95.05.25.25.35.25.14.94.74.5

Ratio of aver-age inventories

to monthlysales i

Mate-rialsand

goodsin

process

1.581.451.37

1.381.36

1.48

1.451.441.271.361.421.341.541.381.301.301.361.32

1.561.561.401.491.511.381.541.271.211.36

Fin-ished

0.50.50.53

.53

.53

.67

.54

.55

.49

.54

.57

.53

.59

.53

.50

.51

.54

.53

.65

.67

.62

.68

.72

.68

.78

.63

.60

.65

Nondurable goods industries

Book value ofinventories atend of period


Mate-rialsand

goodsin

process

8.810.310.8

10.510.8

10.0

10.310.410.510.610.610.510.610.710.610.910.810.8

10.710.610.410.210.210.010.09.99.79.7

Fin-ishedgoods

4.55.67.3

6.47.3

7.2

5.85.85.85.86.16.46.76.87.07.07.27.3

7.47.37.37.27.17.27.17.17.07.2

Ratio of aver-age inventories

to monthlysales i

Mate-rialsand

goodsin

process

0.92.92.95

.95

1.03

.94

.97

.92

.971.00.95

1.02.92.90.90.96.99

1.051.06.96

1.041.041.021.09.90.87.87

Fin-ishedgoods

0.47.51.58

.54

.61

.72

.52

.55

.51

.53

.56

.56

.63

.59

.58

.59

.63

.67

.72

.73

.67

.72

.73

.73

.78

.64

.62

.64

1 Ratios based on centered averages of month-end figures.2 Estimates based on incomplete data.Source: Department of Commerce.

167


TABLE C-20.—Sales, stocks^and outstanding orders at 296 department stores, 7939-49

Period

Millions of dollars 1

Sales(total formonth)

128

136156179204227

255318337353314

317388

306325

272264356333339337270296359389415599

267255320347328318238288342350406

Stocks(end ofmonth)

344

353419599509535

563715826912877

895929

864892

799890954943918868835899947

1,0111,057821

790852918907894824775817881975

1,011

standingorders(end ofmonth)

(2)

108194263530560

729909552465359

462467

301427

629571416357338460550537539507379292

388378310236210286399413510454361

Eatio ofstocksto sales

2.69

2.602.693.352.502.36

2.212.252.452.582.79

2.822.39

2.822.74

2.943.372.682.832.712.583.093.042.642.602.551.37

2.963.342.872.612.732.593.262.842.582.792.49

Ratio ofordersto sales

(2)

0.791.241.472.602.47

2.862.861.641.321.14

1.461.20

.981.31

2.312.161.171.071.001.362.041.811.501.30.91.49

1.451.48.97.68.64.901.681.431.491.30.89

Ratio oforders

to stocks


19401941194219431944.

19451946194719481949 3

1948—First half...Second half.

1949—First half...Second half

1948—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember..OctoberNovember..December- _

1949—JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptember-.OctoberNovember 3

0.31.46.44

1.041.05

1.291.27.67.51.41

.52

.50

.35

.48

.79

.64

.44

.38

.37

.53

.66

.60

.57

.50

.36

.49

.44

.34

.26

.23

.35

.51

.51

.58

.47

.36

1 Not adjusted for seasonal variation.2 Not available.* Estimates based on incomplete data.

NOTE.—These figures represent retail sales, stocks, and outstanding orders as reported by a sample of296 of the larger department stores located in various cities throughout the country and are not estimatesof total sales, stocks, and outstanding orders for all department stores in the United States. Data are notavailable prior to 1939.

Source: Board of Governors of the Federal Reserve System.

168


TABLE C-21—Consumers' price index, 1929-49

For moderate-income families in large cities

[1935-39=100]

Period Allitems

122.5

119.4108.797.692.495.7

98.199.1

102.7100.899.4

100.2105.2116.5123.6125.5

128.4139.3159.2171.2169.3

169.1173.3

169.6168.8

168.8167.5166.9169.3170.5171.7173.7174.5174.5173.6172.2171.4

170.9169.0169.5169.7169.2169.6168.5168.8169.6168.5168.6

Food

132.5

126.0103.986.584.193.7

100.4101.3105.397.895.2

96.6105.5123.9138.0136.1

139.1159.6193.8210.2202.3

208.3212.1

202.6202.0

209.7204.7202.3207.9210.9214.1216.8216.6215.2211.5207.5205.0

204.8199.7201.6202. 8202.4204.3201.7202.62C4.2200.6200.8

Apparel

115.3

112.7102.690.887.996.1

96.897.6

102.8102.2100.5

101.7106.3124.2129.7138.8

145.9160.2185.8198.0190.5

195.7200.2

193.3187.2

192.1195.1196.3196.4197.5196.9197.1199.7201.0201.6201.4200.4

196.5195.1193.9192.5191.3190.3188.5187.4187.2186.8186.3

Eent

141.4

137.5130.3116.9100.794.4

94.296.4

100.9104.1104.3

104.6106.2108.5108.0108.2

108.3108.6111.2117.4120.7

116.4118.4

120.2121.2

115.9116.0116.3116.3116.7117.0117.3117.7118.5118.7118.8119.5

119.7119.9120.1120.3120.4120.6120.7120.8121.2121.5122.0

Fuel,elec-

tricity,and re-friger-ation

112.5

111.4108.9103.4100.0101.4

100.7100.2100.299.999.0

99.7102.2105.4107.7109.8

110.3112.4121.1133.9137.3

130.8137.1

137.4137.2

129.5130.0130.3130.7131.8132.6134.8136.8137.3137.8137.9137.8

138.2138.8138.9137.4135.4135.6135.6135.8137.0138.4139.1

Housefur-

nish-ings

111.7

108.998.085.484.292.8

94.896.3

104.3103.3101.3

100.5107.3122.2125.6136.4

145.8159.2184.4195. S189.3

193.9197.7

192.4185.6

192.3193.0194.9194.7193.6194.8195.9196.3198.1198.8198.7198.6

196.5195.6193.8191.9189.5187.3186.8184.8185.6185.2185.4

Miscel-laneous

1929

1930.1931193219331934

19351936.193719381939...

19401941 _..194219431944

19451946194719481949 i

1948—First halfSecond half..

1949—First halfSecond half i_

1948—January 15. _ _February 15__March 15April 15May 15June 15July 15August 15September 15.October 15. -_November 15.December 15.

1949—January 15 _..February 15. .March 15April 15May 15June 15July 15August 15September 15.October 15. . .November 15.

104.6

105.1104.1101.798.497.9

98.7101.0101.5100.7

101.1104.0110.9115.8121.3

124.1128.8139.9149.9154.6

147.0152.9

154.3154.9

146.4146.4146.2147.8147.5147.5150.8152.4152.7153.7153.9154.0

154.1154.1154.4154.6154.5154.2154.3154.8155.2155.2154.9

1 Estimates based on data available through November 15,1949*

Source: Department of Labor,

169


TABLE C-22.-—Wholesale price index, 1929-49

[1926«1OO]

Period

Other than farm products and foods

l!

30}

CO 3

IIi


1930...1931.. .1932...1933...1934...

1935...1936...1937...1938...1939...

1940..1941..1942..1943-1944..

1945—.1946....1947....1948. . .1949.. .



1948—JanuaryFebruaryMarchAprilMay --June.._JulyAugustSeptember..OctoberNovember..December. _

1949—JanuaryFebruary. __MarchAprilMayJuneJulyAugustSeptember-OctoberNovember..December..

95.3

86.473.064.865.974.9

80.080.886.378.677.1

78.687.3

8103.1104.0

105.8121.1152.1165.1154.9

163.166.6

157.4152.5

165.9161.0161.6163.0164.2166.4168.8169.8168.9165.4164.0162.4

160.6158.1158.156.9155.7154.5153.5152.9153. 6152.2151.6151.2

104.9

88.364.848.251.465.3

78.880.986.468.565.3

67.782.4

105.9122.6123.3

128.2148.9181.2188.3165.5

190.4186.4

170.5160.5

199.2185.3186.0186.189.1196.0195.2191.5189.9183.5180.8177.3

172.5168.3171.5170.5171.2168.8166.2162.163.1159.6156.8155.2

99.9

90.574.661.060.570.5

83.782.185.573.670.4

71.382.799.6

106.6104.9

106.2130.7168.7179.1161.4

176.9181.3

163.2159.

179.8172.4173.8176.177.4181.4188.3189.8186.9178.2174.170.2

165.8161.5162.9162.9163. 8162.161.3160.6162.0159.6158.9155.7

91.6

85.275.070.271.278.4

77.979.685.381.781.3

83.089.095.596.998.5

99.7109.5135.151.0147.3

148.8153.1

149.4145.1

148.6147.9148.1149.0149.5149.9151.4153.3153.6153.4153. 6153.1

152.9151.8150.148.9146.8145.6145.0145.0145.3145.0145.0145.4

109.1

100.086.172.980.9

95.4104.692.895.6

100.8108.3117.7117.5116.7

118.1137.2182.4188.8180.5

190.6187.0

180.9180.0

200.9193.3186.3187.0188.4187.189.188.4187.4185.5186.2185.3

184.8182.180.4179.9179.178.8177.8178.9181.1181.3180.8180.2

90.4

80.366.354.964.872.9

70.971.576.366.769.7

73.884.896.997.498.4

100.1116.3141.7149.8140.5

151.0148.8

142.8138.2

149.4150.0151.1151.7152.1151.4150.8150.4149.3148.3147.4146.

146.1145.2143.8142.140.5139.2138.0138.1139.0138.0138.0138.4

83.0

78.567.570.366.373.3

73.576.277.676.573.1

71.776.278.580.883.0

84.090.1

108.7134.2131.6

131.5136.9

133.130.0

130.0130.9130.9131.5132.6133.1135.9136.4136.9137.3137.6137.

137.1135.9134.3132.0130.1129.9129.9129.7130.0130.5130.0130.0

100.5

92.184.580.279.886.9

86.487.095.795.794.4

95.899.4

103.8103.8103.8

104.7115.5145.0163.6170.0

156.4170.8

172.167.7

154.3155.3155.9157.2157.1158.6162.2171.0172.0172.4173.3173.8

175.6175.5174.4171.8168.4167.5167.9168.2168.2167.3167.3167.4

95.4

89.979.271.477.086.2

85.386.795.290.390.5

94.8103.2110.2111.4115.5

117.8132.6179.7199.1193.4

195.3202.8

197.6189.2

194.1193.5193.9195.7197.0197.4200.0203.8204.1203.7203.1202.

202.3201.5200.0196.5193.9191.4189.0188.2189.4189.2189.5190.0

94.0

88.779.373.972.175.3

79.078.782.677.076.0

77.084.495.594.995.2

95.2101.4127.3135.7118.8

137.3134.1

120.5117.

139.9135.7137.137.5136.3137.2135.7133.2134.5135.5134.4131.1

126.3122.8121.1117.7118.2116.8118.1119.117.116.0116.1115.6

94.3

92.784.975.175.881.5

80.681.789.786.886.3

88.594.3

102.4102.7104.3

104.5111.6131.1144.5145.2

142.2146.8

147.1143.3

141.3141.8142.0142.3142.6143.144.5145.4146.6147.5148.148.4

148.1148.3148.0147.0146.145.1143.0142:9142.9143.0143.4144.

82.6

77.769.864.462.569.7

68.370.577.873.374.8

77.382.089.792.293.6

94.7100.3115.5120.5112.4

121.6119.4

114.7110.0

123.6120.1120.8121.8121.5121.5120.3119.7119.9119.0119.2118.5

117.3115.3115.7115.6113.5111.0110.3109.8109.6109.0109.7111.4


170


T A B L E G—23.—Indexes of prices received and prices paid by farmers and parity ratio,1929-49

Monthly average:1929 _

193019311932...19331934

193519361937 . .19381939 .

19401941 . .194219431944

1945 .1946 -_1947 .1948.. .1949



1948—January 15February 15March 15April 15 .May 15June 15July 15August 15September 15October 15November 15December 15

1949—January 15_. . .February 15March 15 __April 15May 15_ _ -June 15July 15August 15September 15October 15November 15 .December 15

Period Pricesreceived

August 1909-July 1914=* 100

149

12890687290

109114122

9795

100124159192195

202233278287251

291283

259244

307279283291289295301293290277271268

268258261260256252249245249243239236

Prices paid(including

interest andtaxes)

1910-14=-100

167

160141124120129

130127133126124

125132150162169

172193231249244

250249

246241

251249248249250251251251250249248246

248245246246245245244243242239240240

Parity ratio t

89

8064556070

8490927777

8094

106119116

117121120115103

116114

105101

122112114117116118120117116111109109

10810510610610410310210110310110098

1 Ratio of prices received to prices paid (including interest and taxes).

Source: Department of Agriculture.

868148—50 12 171


TABLE C-24.—Consumer credit outstanding, 1929-49


End of periodTotal

consumercredit

Instalment credit

Total Automobilesale credit Other i

Chargeaccounts

Otherconsumer

credit 2

1929

19301931193219331934

19351936.... _._-..193719381939

19401941194219431944

19451946—19471948—1949 3

1948—First half.—Second half..

1949—First halfSecond half3

1948—JanuaryFebruary—MarchAprilMayJune. . .JulyAugustSeptember—.OctoberNovember—December

1949—JanuaryFebruaryMarchAprilMay. . .JuneJulyAugustSeptember...October 4 . - -November 3_.December3..

7,628

6,8215,5184,0853,9124,389

5,4346,7887,4807,0477,969

9,1159,8626,5785,3785,803

6,63710,19113, 67316,31918, 700

14,66916,319

16,12418,700

13,37413,30213,80514,05914,31114,66914, 72314,91615,23115,51815, 73916,319

15,74815,32515,33515,59515,84316,12416,19816,45316,80117, 22017,82318,700

3,158

2,6882,2041,5181,5881,860

2,6223,5183,9603,5954,424

5,4175,8873,0482,0012,061

2,3644,0006,4348,60010,900

7,533

9,12310,900

6,5486,8217,0947,3187,5337,7387,9728,1908,2338,3228,600

8,4248,3398,4298,6308,8889,1239,3359,6229,89710,16210, 45010,900

1,318

928637322459576

9401,2891,384970

1,267

1,7291,942482175200

227544

1,1511,9613,200

1,6021,961

2,4993,200

1,2021,2541,3671,4681,5361,6021,6891,7811,8581,8891,9221,961

1,9651,9962,1052,2412,3862,4992,6102,7612,8762,9863,0953,200

1,840

1,7601,5671,1961,1291,284

1,6822,2292,5762,6253,157

3,6883,9452,5661,8261,861

2,1373,4565,2836,6397,700

5,9316,639

6,6247,700

5,2665,2945,4545,6265,7825,9316,0496,1916,3326,3446,4006,639

6,4596,3436,3246,3896,5026,6246,7256,8617,0217,1767,3557,700

1,749

1,6111,3811,1141,0811,203

1,2921,4191,4591,4871,544

1,6501,7641,5131,4981,758

1,9813,0543,6123,8543,800

3,3523,854

3,2743,800

3,2403,0613,2753,2363,2453,3523,1853,1303,2273,4573,5573,854

3,4573,1693,1213,2323,2353,2743,1233,0643,1233,1973,4543,800

2,721

2,5221,9331,4531,2431,326

1,5201,8512,0611,9652,001

2,0482,2112,0171,8791,984

2,2923,1373,6273,8654,000

3,7843,865

3,7274,000

\m3,6663,6933,7093,7293,7483,7843,8003,8143,8143,8283,8603,865

3,8673,8173,7853,7333,7203,7273,7403,7673,7813,8613,9194,000

1 Includes other sale credit and repair and modernization loans insured by Federal Housing Administra-tion.

2 Includes single-payment loans of commercial banks, and pawnbrokers and service credit.3 Estimates by Council of Economic Advisers.« Estimates based on incomplete data.


Source: Board of Governors of the Federal Reserve System (except as noted).

172


TABLE G—25.—Loans and investments of all commercial banks and weekly reporting member banks,1929-49

[Billions of dollarsj

End of period i

1929—June2

1930—June 21931—June 21932—June2

1933—June 2

1934—Junes

1935—June2

1936193719381939

19401941 _..194219431944

1945194619471948. _1949*

1948—JanuaryFebruary...MarchAprilMayJuneJulyAugustSeptember..OctoberNovember..December. _.

1949—JanuaryFebruary...March _April.MayJuneJuly.AugustSeptember..OctoberNovember «.December 4_

All commercial banks

Totalloansand

invest-ments

49.4

44.936.130.432.7

34.639.538.338.740.7

43.950.767.485.1

105.5

124.0114.0116.3114.3119.9

116.6115.5113.6114.3114.6113.9114.8115.1113.6114.1114.2114.3

114.5113.4112.5112.5113.4113.8114.8117.9118.8119.8120.2121.0

Loans

35.7

34.529.221.816.315.7

14.916.417.116.417.2

18.821.719.219.121.6

26.131.138.142.543.5

38.238.738.938.839.539.940.140.641.741.642.342.5

42.442.042.441.340.941.040.541.241.841.942.943.2

Investments

Total

13.7

14.415.714.314.017.0

19.723.121.222.323.4

25.129.048.266.0

97.982.978.271.876.4

78.476.974.775.575.074.074.674.571.972.571.971.8

72.071.470.171.272.572.774.376.777.077.977.377.8

U. S. Gov-ernmentobliga-tions

4.9

5.06.06.27.5

10.3

12.715.314.215.116.3

17.821.841.459.877.6

90.674.869.262.666.2

69.467.965.566.365.964.865.365.162.563.362.862.6

63.062.260.962.063.263.264.466.766.867.767.167.5

Othersecuri-

ties

8.7

9.49.78.16.56.7

7.07.87.17.27.1

7.47.26.86.16.3

7.38.19.09.2

10.2

9.09.09.39.29.29.29.39.49.49.29.19.2

9.19.19.29.29.39.59.8

10.010.210.210.210.3

Weekly reportingmember banks

Totalloans

16.7

16.914.511.38.98.5

8.09.29.48.48.89.4

11.410.310.813.0

15.816.723.325.624.9

23.423.623.523.223.623.723.924.124.924.625.225.6

25.324.925.024.023.723.923.023.524.023.924.624.8

Commer-cial, indus-trial, andagricul-

tural loans

4.63.84.4

5.06.76.16.46.5

7.310.314.615.6

• 1 3 . 7

14.714.614.414.214.2

6 14.314.514.815.215.415.515.6

15.415.214.914.213.613.212.913.013.413.713.813.9

1 Reporting date nearest end of period.2 June data are used because complete end-of-year data prior to 1936 are not available for U. S. Government

obligations.3 Not available prior to May 12,1937, when the loan classification was revised.* Estimates by Council of Economic Advisers.«Beginning June, reported gross, i. e., before deduction of valuation reserves, instead of net as previously

reported.6 Estimates based on incomplete data.




TABLE G-26.—Adjusted deposits of all banks and currency outside banks, 1929-49


End of period *

1929

19301931 - -1932 _ _1933 .1934 _

19351936 —1937 - - -19381939

19401941 —_ -1942 . . .1943 -1944

194519461947 _ _19481949 4 .

1948—January _ . _February -MarchAprilMayJune . _ . .JulyAugustSeptemberOctoberNovemberDecember . _ _ _

1949—January __February. _MarchApril . _MayJuneJuly __AugustSeptemberOctoberNovember8

December *__

Totaldeposits

adjusted andcurrencyoutsidebanks

54.6

53.247.944.941.546.3

51.356.455.858.163.3

70.076.391.3

112.4130.2

150.8164.0170.0169.1169.1

168.9167.1164.0165.0165.1165.7166.0166.7166.9168.1168.1169.1

168.2166.3164.2165.5165.7165.6166.3166.9166.6168.0168.6170.1

Demanddeposits

adjusted2

22.8

21.017.415.715.018.5

22.125.624.026.029.8

34.939.048.960.866.9

75.983.387.185.585.6

86.684.681.582.782.882.783.383.883.985.185.285.5

85.483.481.182.482.682.283.183.483.384.685.586.7

Timedeposits»

28.2

28.726.024.521.723.2

24.225.426.226.327.1

27.727.728.432.739.8

48.554 056.457.558.4

56.556.856.956.956.957.457.357.357.357 357.057.5

57.657.858.058.158.258.458.458.358.458 458.058.2

Currencyoutsidebanks

3.6

3 64.54.74.84.7

4.95.55 65.86.4

7.39.6

13.918.823.5

26.526 726.526.125.1

25.825.725.625.425.425 625.525.625.725 725.926.1

25.225.125.124.925.025.024.925.124.924 925.125.2

1 Reporting date nearest end of period.* Includes demand deposits, other than interbank and U. S. Government, less cash items in process of

collection.8 Includes deposits in commercial banks, mutual savings banks, and Postal Savings System.* Estimates by Council of Economic Advisers.* Estimates based on incomplete data.



174


TABLE C-27.—Estimated ownership of Federal securities, 1939-49

[Billions of dollars—par values *]

End of period

1939

19401941194219431944

194519461947. ._-19481949*

1948—January __ _.FebruaryMarchApril -_-MayJuneJulyAugustSeptemberOctober _NovemberDecember

1949—JanuaryFebruaryMarch... _AprilMayJuneJulyAugustSeptemberOctoberNovember'December *

Gross debt and guaranteed obligations outstanding

Total 2

47.6

50.964 3

112.5170 1232.1

278.7259.5257.0252 9257.0

256.7254.7253.1252.3252.3252.4253.4253.1252.7252.5252.6252.9

252.7252.7251.7251.6251.9252.8253.9255.9256.7256.8257.0257.2

Held byU.S.

Govern-ment

agenciesand trust

funds

6.5

7.69.5

12.216 921.7

27.030.934.437 339.5

34.634.935.034,834.935.736.436.536.836.837.037.3

37.437.537.737 537.538 338.538.839.439.339.339.4

Held by public

Totalheld bypublic

41.1

43.354 7

100.2153 2210.5

251.6228.6222.6215 6217.5

222.1219.8218.1217.5217.4216.7217.0216.6215.9215.7215.6215.6

215.3215.2214.0214.0214.4214.5215.4217.1217.3217.5217.7217.8

Stateand localgovern-ments 3

0.4

.5, 7

1.02 14.3

6.56.37.37 98.0

7.37.47.87.87.77 87.98 07.87.87.97.9

7.87.97.97.98.08.08.08.18.18.18.18.0

Com-mercialbanks4

15.9

17.321.441.159 977.7

90.874.568.762.567.0

69.067.465.166.165.664.665.164.862.463.062.462.5

62.762.260.561.862.763.064.766.566.567.466.967.0

FederalReservebanks

2.5

2.22.36.2

11.518.8

24.323.322.623.318.5

21.921.020.920.320.721.421.321.623.423.023.223.3

22.122.321.721.119.719.318.517.518.017.317.718.9

Nonbankprivatecorpo-rations

andassocia-tions 8

12.0

12.516.327.441.256.0

65.359.557.554.454.5

57.257.257.656.456.655.955.455.054.854.354.554.4

54.854.755.354.755.255.255.155.755.455.455.654.4

Indi-viduals*

10.4

10.914.124.538.453.5

64.864.966.667.669.5

66.666.766.866.866.967.067.367.467.467.567.567.6

67.968.368.668.568.868.969.169.269.269.369.469.5

1 United States savings bonds, series A-D, E, and F, are included at current redemption values.2 Securities issued or guaranteed by the U. S. Government, excluding guaranteed securities held by the

Treasury.3 Includes trust, sinking, and investment funds of State and local governments and their agencies, and

Territories and insular possessions.4 Includes commercial banks, trust companies, and stock savings banks in the United States and in

Territories and insular possessions. Figures exclude securities held in trust departments.« Includes insurance companies, mutual savings banks, savings and loan associations, dealers and brokers

and foreign accounts in this country. Beginning with December 1946, the foreign accounts include invest-ments by the International Bank for Reconstruction and Development and the International MonetaryFund in special noninterest bearing notes issued by the U. S. Government. Beginning with June 30,1947,includes holdings of Federal land banks.

6 Includes partnerships and personal trust accounts.' Estimates by Council of Economic Advisers.


Source: Treasury Department (except as noted).

175


TABLE C-28.—Bond yields and interest rates, selected years, 1929-49

[Percent per annum]

Period 9-12monthcertifi-cates of

indebted-ness

U. S. Government securityyields

Long-term bonds

Partiallytax-

exempt 2

15 yearsand over,taxable

High grade cor-porate bond

yields(Moody's)

Aaabonds

Baabonds

Bankrates onshort-term

businessloans

(3)(3)(3)00

2.1

2.02.6

2.22.12.12.5

(3)

2.42.472.602.64

2.702.742.63

(3)

Bankersaccept-ances 90days-NewYork

5.03.63.13.43.44

.44

.44

.44

.61

.871.111.13

1.061.061.131.19

1.191.191.061.06

FederalEeserveBank

discountrate-NewYork

1929 average1933 average1935 average1937 average1939 average

1941 average1943 average

1945 average1946 average1947 average1948 average. . . _1949 average 8

1948—First quarterSecond quarter. _Third quarter. __Fourth quarter. .

1949—First quarterSecond quarter. _Third quarter. _.Fourth quarter«_

(0(l)0)0)0)

(00.75

.81

.82

.881.141.14

1.091.091.141.22

1.221.201.061.10

3.603.312.792.742.41

2.051.W8

1.66C5)(5)

2.47

2.372.192.252.442.31

2.452.422.452.44

2.402.382.242.20

4.734.493.603.263.01

2.772.73

2.622.532.612.822.67

2.852.772.832.82

2.712.702.632.60

5.907.765. 755.034.96

4.333.91

3.293.053.243.473.42

3.533.403.423.52

3.463.453.413.35

5.162.561.501.291.00

1.004 1.00

<1.004 1.00

1.001.341.50

1.221.251.381.50

1.501.501.501.50

1 Tax exempt prior to March 1, 1941; taxable thereafter.2 Average of yields on all outstanding partially tax-exempt Government bonds due or callable after 12

years, in 1929 and 1933; and after 15 years, from 1935,3 Not available.« From October 30, 1942 to April 24, 1946, a preferential rate of 0.50 percent was in effect for advances se-

cured by Government securities maturing in 1 year or less.« No partially tax-exempt bonds due or callable in 15 years and over.6 Estimates based on incomplete data; fourth quarter by Council of Economic Advisers.

Sources: Treasury Department, Moody's Investors Service, and Board of Governors of the Federal Ee-serve System (except as noted).

176


TABLE C-29.—Profits before and after tax, all private corporations, 1929-49


Period

1929..

1930-.1931_.1932..1933-.1934..

1935-.1936-.1937-1938-1939-.

1940-1941_.1942..1943_.1944-.

1945-.]946_1947-1948-.1949 3.

1948—First half._Second half

1949-First halfSecond half 3__.


1949—First quarter...Second quarter.Third quarter 3.Fourth quarter

Corporateprofitsbefore

tax

9.8

Corporatetax

liability i

34.035.6

27.927.2

33.035.036.634.5

29.426.428.026.5

1.4

3.3- . 8

-3 .0. 2

1.7

3.25.76.23.36.5

9.317.221.125.124.3

19.723.631.634.827.6

. 8

. 5

.4

. 5

. 7

1.01.41.51.01.5

2.97.8

11.714.413.5

11.29.6

12.513.610.9

2.5—1.3-3 .4

- . 41.0

2.34.34.72.35.0

6.49.49.4

10.610.8

8.513.919.121.216.7

Corporate profits after tax

Total

8.4

Dividendpayments

5.8

5.54.12.62.12.6

2.94.64.73.23.8

4.04.54.34.54.7

4.75.87.07.98.4


13.214.0

11.010.7

12.813.714.413.6

11.510.611.010.4

20.821.6

16.816.6

20.221.322.220.9

17.915.817.016.1

7.68.1

8.48.4

7.67.77.98.3

8.48.48.48.5

Undis-tributedprofits

2.6

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

- . 3

gll 2

2.44.95.16.26.1

3.88.1

12.113.28.3

13.113.4

8.48.2

12.613.614.312.6

9.57.48.67.6

1 Federal and State corporate income and excess profits taxes.2 Minus $8,000,000.3 Estimates based on incomplete data; third and fourth quarters by Council of Economic Advisers.

NOTE.—No allowance has been made for inventory valuation adjustment. See appendix table C-4 forprofits before tax and inventory valuation adjustment.



177


TABLE C—30.—Sales and profits of large manufacturing corporations^ 1939—49


Period

1939

1940 - -1941194219431944

1945194619471948


1949—First half

1948—First quarterSecond quarter _..Third quarter _Fourth quarter

1949—First quarter _.Second quarterThird quarter. -

Durable goods industries(106 corporations) l

Sales

6,748

8,75012,80615,36220,63322,085

18,16112,62319.83123,818

Profits

Before taxes

734

1,2262,1752,3262,3892,192

1,288607

2,3123,107

After taxes

597

830982782755726

574295

1,3551,836

Nondurable goods industries(94 corporations) *

Sales

3,843

4,2575,4856,4087,6078,263

8,3718,940

11,31313,364

Profits

Before taxes

476

617980

1,0691,2931,339

1,1331,4261,7872,208

After taxes

400

443538438506529

555908

1,1671,474

Totals for period, not adjusted for seasonal variation

11,15412,664

12,545

5,4405,7145,9916,673

6,1536,3926,323

1,3601,746

1,660

672688788958

840820862

8031,034

989

395408470564

498491504

6,5086,856

6,294

3,2193,2893,3243,532

3,2453,0493,179

1,0991,108

901

546553543565

501400451

718756

584

356362362394

325259295

1 See Federal Eeserve Bulletin, June 1949 and subsequent issues, for similar data for the following industrygroups: primary metals and products, machinery, automobiles and equipment, foods and kindred products,chemicals and allied products, and petroleum refining.


Source: Compiled by the Board of Governors of the Federal Reserve System and based on publishedreports of various industrial corporations.

178


TABLE C—31.—Relation of profits before and after taxes to stockholders9 equity, privatemanufacturing corporations, by industry groups, 1948-49

Industry groups

All private manufacturing corporations...

FoodTobacco manufacturesTextile mill productsApparel and finished textilesLumber and wood products

Furniture and fixturesPaper and allied productsPrinting and publishing (except newspapers) - _.Chemicals and allied productsProducts of petroleum and coal

Rubber productsLeather and leather productsStone, clay, and glass productsPrimary nonferrous metal industriesPrimary iron and steel industries

Fabricated metal products _.Machinery (except electrical and transportation).Electrical machinery _.Transportation equipment (except motor

vehicles)Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks

Miscellaneous manufacturing (including ord-nance)

All private manufacturing corporations-..

Food-. ._.Tobacco manufacturesTextile mill productsApparel and finished textilesLumber and wood products

Furniture and fixtures..Paper and allied productsPrinting and publishing (except newspapers). _.Chemicals and allied productsProducts of petroleum and coal _.

Rubber products.Leather and leather products _Stone, clay, and glass productsPrimary nonferrous metal industries.Primary iron and steel industries

Fabricated metal productsMachinery (except electrical and transportation).Electrical machineryTransportation equipment (except motor

vehicles) _ _Motor vehicles and parts

Instruments; photographic and optical goods;watches and clocks __.

Miscellaneous manufacturing (including ord-nance)

Percentage ratio of profits (annual rate) to stockholders'equity

1948

Totalfor year

Thirdquarter

Fourthquarter

1949

Firstquarter

Secondquarter

Thirdquarter

Before Federal taxes

25.6

21.321.930.920.530.4

26.826.724.025.026.7

21.517.824.322.323.8

27.527.327.6

14.234.7

22.6

20.7

25.2

24.028.026.823.630.8

23.224.826.025.224.0

20.820.027.621.224.0

28.024.822.8

11.636.4

21.6

23.6

25.2

20.825.623.69.2

19.2

22.422.818.024.422.4

21.614.025.224.830.0

28.027.632.0

18.842.0

26.8

19.6

20.4

16.818.416.817.614.8

16.019.623.222.818.0

13.611.618.821.625.6

20.023.622.0

15.233.6

20.8

16.0

16.8

20.020.88.4

10.014.4

12.414.019.616.814.8

11.67.6

21.28.0

17.6

14.020.416.4

11.236.0

19.2

5.2

After Federal taxes

16.1

12.913.718.812.219.3

16.016.414.615.819.8

12.410.415.014.114.7

17.016.616.1

8.219.8

14.0

12.2

16.0

14.817.616.014.419.2

13.615.216.816.018.0

12.011.617.213.614.8

17.214.814.0

6.821.2

13.2

14.8

15.6

12.415.614.45.2

12.4

13.214.010.016.018.0

12.87.6

15.215.218.4

17.216.818.0

10.822.8

16.8

11.2

12.8

9.611.610.010.48.8

9.212.014.414.013.2

8.06.4

11.213.614.8

12.014.012.4

9.619.6

12.4

10.0

10.4

12.412.84.45.29.2

6.48.4

11.610.011.6

7.23.6

13.24.0

10.0

7.612.410.0

6.820.8

11.6

2.0

18.8

23.222.010.816.012.8

13.214.821.222.414.0

10.812.824.49.2

14.4

20.417.217.6

11.646.8

19.2

13.6

12.0

14.413.66.49.68.0

7.29.2

13.214.011.2

6.87.2

15.25.68.4

12.010.410.8

7.227.2

11.2

7.6

Sources: Federal Trade Commission and Securities and Exchange Commission.

179


TABLE C—32.—Relation of profits before and after taxes to sales, private manufacturing corpora-tions, by industry groups, 1948—49

Industry groups

Profits in cents per dollar of sales

1948

Total foryear

Thirdquarter

Fourthquarter

1949

Firstquarter

Secondquarter

Thirdquarter

All private manufacturing corpora-tions

Food-.Tobacco manufacturesTextile mill productsApparel and finished textilesLumber and wood products

Furniture and fixtures..Paper and allied productsPrinting and publishing (except news-

papers)Chemicals and allied productsProducts of petroleum and coal

Rubber productsLeather and leather productsStone, clay, and glass productsPrimary nonferrous metal industriesPrimary iron and steel industries

Fabricated metal productsMachinery (except electrical and trans-

portation)Electrical machineryTransportation equipment (except motor

vehicles)Motor vehicles and parts.-

Instruments; photographic and opticalgoods; watches and clocks

Miscellaneous manufacturing (includingordnance)

All private manufacturing corpora-tions

FoodTobacco manufacturesTextile mill productsApparel and finished textiles-Lumber and wood products..

Furniture and fixturesPaper and allied productsPrinting and publishing (except news-

papers)Chemicals and allied productsProducts of petroleum and coal__

Rubber productsLeather and leather productsStone, clay, and glass products. __Primary nonferrous metal industriesPrimary iron and steel industries

Fabricated metal productsMachinery (except electrical and trans-

portation)Electrical machineryTransportation equipment (except motor

vehicles)Motor vehicles and parts

Instruments; photographic and opticalgoods; watches and clocks

Miscellaneous manufacturing (includingordnance)

Before Federal taxes

11.15.68.3

13.55.1

15.4

9.213.8

8.513.917.4

8.25.6

13.914.212.2

11.5

12.010.1

7.012.0

12.5

9.5

11.06.19.7

12.85.8

15.1

8.312.8

9.414.516.4

7.86.2

15.512.612.5

11.4

11.59.0

5.312.5

12.3

10.8

10.95.5

10.111.32.3

11.0

7.512.0

6.213.315.2

8.44.5

14.116.214.2

11.2

12.010.7

8.613.7

13.0

8.7

9.9

4.67.78.94.8

10.4

6.511.5

9.113.213.8

6.24.1

12.315.213.4

9.8

11.89.0

7.212.0

12.0

8.4

8.5

5.68.24.93.19.2

5.29.1

7.710.811.8

5.02.9

14.07.5

10.8

7.1

10.77.1

5.512.1

11.3

2.7

After Federal taxes

7.0

3.35.18.23.09.8

5.58.4

5.28.8

12.9

4.73.38.69.07.5

7.1

7.35.9

4.06.9

7.8

5.6

6.9

3.76.17.73.69.5

4.87.8

6.19.2

12.2

4.53.79.68.17.7

7.0

6.95.5

3.07.3

7.6

6.8

6.8

3.36.16.91.37.2

4.47.4

3.48.7

12.2

4.92.58.7

10.08.7

7.0

7.26.0

4.97.4

8.2

5.0

6.1

2.74.85.32.96.4

3.77.0

5.78.1

10.3

3.72.27.29.57.9

5.8

7.15.1

4.57.1

7.2

5.2

5.2

3.45.02.71.65.8

2.75.5

4.66.59.2

3.11.48.63.96.2

3.8

6.44.5

3.37.1

6.9

1.1

9.5

6.58.55.94.38.1

5.79.5

14.511.6

4.54.3

15.78.89.9

9.5

10.27.9

6.115.4

11.5

6.9

6.04.05.33.52.55.2

3.15.7

5.49.19.1

2.92.59.75.65.7

5.7

6.24.8

3.79.0

6.7

3.9


180


TABLE C-33.—Relation of profits before and after taxes to stockholders9 equity and to sales, allprivate manufacturing corporations, by size classes, 1948—49

Assets class (thousands of dollars)

All sizes

1 to 249250 to 9991,000 to 4,999 _.5,000 to 99,999100,000 and over

All sizes

1 to 249 . .250 to 9991,000 to 4,999 _ _.5,000 to 99,999100,000 and over.

All sizes _ _ - .

I t o 2 4 9 . . _ ___ . .250 to 9991,000 to 4,9995,000 to 99,999 _.100,000 and over

All sizes .

1 to 249250 to 9991,000 to 4,999 ._5,000 to 99,999100,000 and over _ _

1948

Total foryear

Thirdquarter

Fourthquarter

1949

Firstquarter

Secondquarter

Thirdquarter

Ratio of profits before Federal taxes (annual rate) to stockholders'equity

25.6

15.523.824.826.426.1

25.2

23.223.225.225.626.4

25.2 1 20.4

2.816.419.626.027.6

14.417.217.220.022.4

16.8

10.412.815.216.018.8

18.8

14.016.016.017.230.8

Profits before Federal taxes in cents per dollar of sales

11.1

4.07.49.0

11.313.2

11.0

5.87.39.2

11.112.8

10.9

0.75.27.1

11.114.1

9.9

4.06.27.09.7

12.2

8.5

2.84.86.5o o

10.5

9.5

3.86.06.98.9

11.9

Ratio of profits after Federal taxes (annual rate) to stockholders'equity

16.1

8.814.214.816.116.9

16.0

15.214.015.215.617.2

15.6

- 0 . 89.2

11.616.018.0

12.8

8.49.6

10.012.014.4

10.4

4.86.88.89.6

12.0

12.0

8.49.29.2

10.413.6

Profits afte r Federal taxes in cents per dollar of sales

7.0

2.34.45.47.08.6

6.9

3.84.45.66.88.3

6.8

- 0 . 23.04.26.89.2

6.1

2.43.54.05.97.8

5.2

1.32.53.75.06.7

6.0

2.33.44.05.57.6


181


TABLE C-34.—Sources and uses oj corporate funds t 1 946-49l

IBillions of dollars]

Source or use of funds

Sources:Internal:

Retained profits and depletion allowances __ _ __ ... __Depreciation allowances

Total internal sources... _. _._

External:Change in trade debt-Change in Federal income tax liability. _ . . .Other current liabilities -Change in bank loans. __Change in mortgages __ _ _. . . __Net new issues

Bonds. __ __Stocks, _

Total external sources _ _

Total sources

Uses:Plant and equipment outlays .Inventories (change in book value)Change in customer receivablesCash and deposits .United States Government securitiesOther current assets _

Total uses.._ ._

Discrepancy (uses less sources)

1946

7.74.2

11.9

4.0

1*83.3.6

2.31.01.3

10.4

22.3

11.611.24.81.1

- 5 . 8- . 7

22.2

- 1

1947

11.44.9

16.3

2.62.7.6

2.6.8

4.43.11.3

13.7

30.0

15.08.95.71.3

- 1 . 5- . 1

29.3

—.7

1948

12.55.5

18.0

.9

.9(3)1.2.7

6.04.81.2

9.7

27.7

17.36.32.3

—.1.1

25.9

- 1 . 8

1949»

7.56.2

13.7

- . 2-2 .4(3)-1 .6

.55.13.71.4

1.4

15.1

16.0—3.7

.71.01.5

—.4

15.1

1 Excludes banks and insurance companies.2 Estimates based on incomplete data.3 Less than $50,000,000.

Sources: Department of Commerce estimates based on Securities and Exchange Commission and otherfinancial data.

182


TABLE G-35.—The international transactions of the United States, 7946-49


Type of transaction

Exports of goods and services:Recorded goods *Other goods8 -

Total goodsServices -Income on investments

Total exports

Imports of goods and services:Recorded goodsOther goods » _.

Total goodsServicesIncome on investments

Total imports _ _

Surplus of exports of goods andservices:

Recorded goods*Other goods* -

Total goodsServicesIncome on investments

Total surplus of exports

Means of financing surplus of exportsof goods and services:4

Liquidation of gold and dollarassets by foreign countries

Dollar disbursements by:Internat ional Monetary

FundInternational Bank

United States Governmentsources:8

GrantsLong- and short-term loans.-

United States private sources:RemittancesLong- and short-term capital.

Total means of financing.. -

Errors and omissions

1946

10,1861,688

11,8742,272

820

14,966

4,933235

5,1681,783

216

7,167

5,2531,453

6,706489604

7,799

1,968

2,2792,774

598335

7,954

-155

1947

15,230826

16,0562,6111,074

19,741

5,756315

6,0712,165

227

8,463

9,474511

9,985446847

11,278

4,513

464297

1,8123,901

568727

12,282

-1,004

1948

12,615830

13,4452,0831,263

16,791

7,124573

7,6972,493

291

10,481

5,491257

5,748-410

972

6,310

857

196176

3,761897

6481,017

7,552

-1,242

1949

Total»

11,925579

12,5042,0611,261

15,826

6,618596

7,2142,584

277

10,075

5,307-17

5,290-523

984

5,751

-42

8347

5,243618

537374

6,860

-1,109

Firstquarter

3,286167

3,453550263

4,266

1,790173

1,96356481

2,608

1,496- 6

1,490-14182

1,658

-28

328

1,273292

147115

1,839

-181

Secondquarter

3,356138

3,494570350

4,414

1,601140

1,74162457

2,422

1,755- 2

1,753-54293

1,992

330

18g

1,490110

14153

2,150

-158

Thirdquarter

2,683134

2,817516298

3,631

1,477143

1,62078664

2,470

1,206- 9

1,197-270

234

1,161

106

311

1,215161

12491

1,711

-550

Fourthquarter^

2,600140

2,740425350

3,515

1,750140

1,89061075

2,575

850

850-185

275

940

-450

3020

1,26555

125115

1,160

-220

1 Estimates based on incomplete data.2 Figures for recorded exports of goods in 1946 and 1947 have been adjusted to include goods shipped to

United States armed forces abroad for distribution to civilians in occupied areas in order to make themcomparable with figures for 1948 and 1949. Such shipments are included in exports as recorded by theBureau of the Census in 1948 and 1949 but were not so included in prior years.

* Includes goods sold to or bought from other countries that have not been shipped from or into the UnitedStates customs area and other adjustments.

* All figures for means of financing are on a net basis.« For detail see table C-37.


Source: Departments of Commerce.

183


TABLE C-36.—United States exports and imports of goods and services, by area, 1937 and7946-49


Area

Export surplus:E R P countries.E R P dependencies, _Europe, except E R P

countries.Canada and Newfound-

land.- _Latin-American Repub-

lics _Other *

Total»

Exports of goods and ser-vices:

E R P countriesE R P dependenciesEurope, except E R P

countriesCanada and Newfound-

landLatin-American Repub-

lics-Other i

Total 2

Imports of goods and ser-vices:

E R P countriesE R P dependenciesEurope, except E R P

countries.Canada and Newfound-

landLatin-American Repub-

licsOther i

Total 2

1937

0.28- . 3 1

- . 0 3

.34

.28

1.60.18

.13

2.64

4.55

1.33.50

.15

I 2.29

4.27

1946

4.18.30

.85

.68

.631.16

7.80

5.62.68

1 08

1.94

2.882.77

14.97

1.44.38

.23

1.26

2.251.61

7.17

1947

5.36.33

.34

1.16

2.002.09

11.28

7.25.92

.56

2.66

4.743.61

19.74

1.89.59

.22

1.50

2.741.52

8.46

Annual rates

1948

Firstquarter

4.68

.19

.56

.961.19

7.58

6.86.82

.44

2.13

4.323.09

17.66

2.18

.82

.25

1.573.361.90

10.08

Secondquarter

3.40.20

- . 0 3

.70

1.221.30

6.79

5.76.85

.20

2.53

4.353.24

16.93

2.36.65

.23

1.83

3.131.94

10.14

Thirdquarter

3.07.05

- . 0 3

- . 0 8

.781.03

4.82

5.61.74

22

2.42

3.643.15

15.78

2.54.69

.25

2.50

2.862.12

10.96

Fourthquarter

2.76.02

.39

1.231.68

6.08

5.42.78

22

2.63

4.243.52

16.81

2.66.76

.22

2.24

3.011.84

10.73

1949

Firstquarter

3.53.10

.05

.57

.751.63

6.63

6.19.92

22

2.35

3.883.50

17.06

2.66.82

.17

1.78

3.131.87

10.43

Secondquarter

3.69.26

07

1.11

.782.05

7.96

6.18.93

23

3.04

3.623.65

17.65

2.49.67

.16

1.93

2.841.60

9.69

1 Includes international institutions.2 Includes income on investments.




TABLE C—37.—United States Government aid to foreign countries, 1946—49


Type of aid

A. Unilateral payments (net):Lend-leaseUNRRA and post-UNRRA.Civilian supplies distributed

by the armed forcesTransfers to PhilippinesChinese aid 3

Greek-Turkish aidInternational Refugee Organ-

izationsInterim aidEuropeanRecovery Program.Other

Total unilateral payments.Less unilateral receipts

Equals net unilateral pay-ments

B. Long-term loans and invest-ments (net):

Lend-lease creditsSurplus property including

ship salesExport-Import Bank loans...United Kingdom loan. ._Subscription t o -

International BankInternational Monetary

FundEuropean Recovery Program.Other

Total long-term loans andinvestments

Less repayments

Equals net long-term loansand investments, includingInternational Bank andInternational MonetaryFund

Less subscriptions to Inter-national Bank and Inter-national Monetary Fund..

Equals net long-term loansand investments, excludingInternational Bank andInternational MonetaryFund

C. Outflow of short-term capital(net)

Total net unilateral payments,loans, and investments, exclud-ing International Bank andInternational Monetary Fund(A-fB-f-C)

1946

2091,524

5396015

170

2,517238

2,279

600

841945600

317

5

12

3,32090

3,230

322

2,908

-134

5,053

1947

761

98096

74

1712

332

2,272460

1,812

2

274796

2,850

318

2,745

80

7,065174

6,891

3,063

3,828

73

5,713

1948

85

1,280130168349

89546

1,388115

4,150389

3, 761

2

210454300

48622

1,474332

1,142

1,142

-245

4,658

1949

Total i

1

33

5,692449

5,243

8

8695203

492

492

126

5,861

Firstquarter

243535353

18

90547

1,37299

1,273

50

28029

35963

296

296

- 4

1,565

Secondquarter

244445543

18

1,12250

1,57686

1,490

42

9828

16856

112

112

- 2

1,600

Thirdquarter

330621343

17

94029

1,434219

1,215

35

1622

7344

29

29

132

1,376

Fourthquarter^

3333

(2)

1,31045

1,265

8

9540

55

55

1,320

* Estimates based on incomplete data.* Not available.3 Includes Korean aid in 1949.


185


TABLE G-38.—Export price indexes of selected countries converted to dollars, 1937-40 and 7946-49

[1937 -100]

Period UnitedStates i

1009997106

152178189

189186184185181182177177178175

UnitedKingdom

1001019199

162186203

209207207207209209209211

»181145

France *

100878089

193212177

221215215211210215209214'192

Sweden

1008680100

153201226

217214209200196192188187

3 160139

Belgium *

1937 -19381939..1940

19461947...1948

1949—January...February-MarchAprilMayJuneJulyAugustSeptember.October...

10010060

247259255

260259282276271263266262

* Unit value of finished manufactures other than foodstuffs.2 Unit value of exports.»National indexes converted to dollar equivalents on basis of average of old and new exchange rates.Source: Based on data obtained from Department of Commerce and International Monetary Fund.

186


TABLE C-39.—United States merchandise exports, including reexports, by areas, 1936—38 quarterlyaverage and 7947-49

Period

Quarterly average:1936-381947.19481949 2

1948—First quarter...Second quarter.Third quart er.Fourth quarter.

1949— First quarter...Second quarterThird quarter..Fourth quarter

Quarterly average:1936-38.--1947-1948.

1948—First quarterSecond quarter..Third quarter...Fourth quarter..

1949— First quarter.. .Second quarter .Third quarter. _

Totalexportsinclud-ing re-exports

Canada

OtherWest-

ernHemi-sphere

E R Pcoun-tries i

OtherEurope Asia i

Aus-traliaand

OceaniaAfrica

7423,8353,1632,990

3,3153,2372,9373,162

3,3243,3582,6832,600

Millions of dollars

113519479

425493485511

464566472

1381,027

848

913902738840

843742671

2821,3241,046

1,1401,059

9661,018

1,1591,186

840

3111849

84333840

424635

122562507

513508486520

599581474

238038

42343047

545047

Percentage of total

100100100

100100100100

100100100

15.213.515.1

12.815.216.516.2

14.016.917.6

18.626.826.8

27.527.925.126.6

25.422.125.0

38.034.533.1

34.432.732.932.2

34.935.331.3

4.23.11.5

2.51.01.31.3

1.31.41.3

16.414.716.0

15.515.716.516.4

18.017.317.7

3.12.11.2

1.31.11.01.5

1.61.51.8

32205

197207194186

163187143

4.35.36.2

5.96.46.65.9

4.95.65.3

1 Turkey is included with E R P countries and excluded from Asia. Exports to Germany in the post-war period relate almost wholly to exports to the three western zones.

2 Estimates based on incomplete data.3 Not available.

NOTE.—Data in this table cover all merchandise, including reexports, shipped from the United Statescustoms area to foreign countries including, in 1947 to 1949, goods destined to United States armed forcesabroad for distribution in occupied areas as civilian supplies.



868148—50- -13


T A B L E C-40.—United States domestic merchandise exports, by economic classes, 1936—38 quarterlyaverage and 1947—49

Period

Quarterly average:1936-381947..19481949 1



Quarterly average:1936-3819471948

1948—First quarter...Second quarterThird quarter..Fourth quarter

1949—First quarter...Second quarter.Third quarter-

Totaldomesticexports

Crudematerials

Crudefood-stuffs

Manu-facturedfoodstuffs

Semi-manu-

factures

Finishedmanu-

factures

Millions of dollars

7313,7913,1322,960

3,2833,2052,9093,133

3,2883,3272,6562,575

167400372

(2)

329327373459

466549330

(2)

34337316

(2)

322245358341

396349325

(2)

42439329

(2)

341369310296

256270175

(2)

130446342

(2)

381357314316

385386310

(2)

3582,1681,773(2)

1,9101,9061,5541,722

1,7851,7731,517(2)

100100100

100100100100

100100100

22.810.611.9

10.010.212.814.7

14.216.512.4

4.78.910.1

9.87.612.310.9

12.010.512.2

5.711.610.5

10.411.510.79.4

7.88.16.6

17.811.810.9

11.611.110.810.1

11.711.611.7

49.057.256.6

58.259.553.455.0

54.353.357.1

1 Estimates based on incomplete data.2 Not available.NOTE.—Data in this table cover all domestic merchandise shipped from the United States customs area

to foreign countries including, in 1947 to 1949, goods destined to United States armed forces abroad for dis-tribution in occupied areas as civilian supplies.



188


TABLE C-41.—Indexes of quantity and unit value of United States domestic merchandise exports,by economic classes, 1936—38 quarterly average and 1947-49

[1936-38=100]

PeriodTotal

domesticexports

Crudemate-rials

Crudefood-stuffs

Manu-factured

food-stuffs

Semi-manu-

factures

Finishedmanu-

factures

Quantity indexes

Quarterly average:1936-3819471948 _19491... ____

1948—First quarter.. .Second quarter.Third quarter-Fourth quarter

1949—First q u a r t e r -Second quarter.Third quarter _.

Quarterly average:1936-381947.—1948-19491

1948—First q u a r t e r -Second quarter.Third quarter..Fourth quarter

1949—First quarter...Second quarterThird quarter.-

100275214224

220217198218

232242199

100123100126

8786100124

12915593

100397362457

323265407429

495438439

100478350306

353388319335

317366236

100203143158

160149130131

162167144

Unit value indexes

100188200188

204202201196

194188183

100195223213

227229222220

216212212

100248255227

290269256231

233233216

100218223181

230225230209

191175176

100169184176

184185186186

184179165

100332257254

275275225252

262266234

100182193

194194193191

190186181

1 Average of three quarters.

NOTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of changesin average price* has been eliminated. The indexes of unit value provide a measure of change in the averageprices at which trade transactions are reported in official foreign trade statistics, including change in averageprices that result from changes in the commodity composition of trade. The indexes for 1947 to 1949 arebased on data which include goods destined to the United States armed forces abroad for distribution tocivilians in occupied areas.



TABLE C-42.—United States general merchandise imports, by areas, 1936-38 quarterly averageand 1947-49

PeriodTotal

generalimports

Canada

OtherWest-

ernHemi-sphere

E R Pcoun-tries i

OtherEurope Asia*

Aus-traliaand

OceaniaAfrica

Millions of dollars

Quarterly average:1936-38- —1947__19481949 2

1948—First quarter...Second quarter.Third quarter _.Fourth quarter.


Quarterly average:1936-3819471948__


1949—First quarter...Second quarter.Third quarter..

6221,4391,7811,655

1,8101,7101,7291,875

1,7911,6011,4771,750

86274388(3)

328355410461

366374340(3)

145576636(3)

705630586625

676589569(3)

152174244(3)

232232234280

250190175(3)

304549

(3)

53484943

343333

(3)

183249324(3)

328321301346

328302265(3)

103941

(3)

48344834

343922

(3)

1782

11690

10285

1037473

Percentage of total

100100100

100100100100

100100100

13.819.021.8

18.120.823.724.6

20.423.423.0

23.340.035.7

39.036.833.933.3

37.736.838.5

24.412.113.7

12.813.613.514.9

14.011.911.9

4.83.12.8

2.92.82.82.3

1.92.12.2

29.417.318.2

18.118.817.418.5

18.318.917.9

1.62.72.3

2.72.02.81.8

1.92.41.5

2.75.75.5

6.45.35.94.5

5.84.64.9

1 Turkey is included with E R P countries and excluded from Asia. Imports from Germany in the postwarperiod relate almost wholly to imports from the three western zones.

2 Estimates based on incomplete data.3 Not available.

NOTE.—Data in this table cover all merchandise received in the United States customs area from foreigncountries. General imports include merchandise entered immediately upon arrival into merchandisingchannels, plus entries into bonded customs warehouses.


Source: Department of Commerce

[QC


T A B L E C - 4 3 . — United States merchandise imports Jor consumption, by economic classes, 1936—38quarterly average and 7947—49

Period

Quarterly average:1936-38 _194719481949 i

1948—First quarterSecond quarterThird quarterFourth quarter

1949—First quarterSecond quarterThird quarterFourth quarter i

Quarterly average:1936-381947 . -1948

1948—First quarterSecond quarter. _Third quarter.Fourth quarter

1949—First quarterSecond quarterThird quarter

Total im-ports for

consump-tion

Crude ma-terials

Crude food-stuffs

Manufac-tured food-

stuffs

Semi-rnanu-

ufactures

Finishedmanufac-

tures

Mill ions of dollars

6151,4161,7731,650

1,7851,6821,7541,871

1,7591,5901,5011,740

190441537

577506543520

504451426

85254318

346287271367

340304287

95164183

161180199190

182198194

126311408

396384419434

397333303

120246327

304323322359

336304289

Percentage of total

100100100

1001001.0G100

100100100

30.931.130.3

32.330.131.027.8

28.728.428.4

13.817.917.9

19.417.115.519.6

19.319.119.1

15.411.610.3

9.010.711.310.2

10.312.512.9

20.522.023.0

22.222.823.923.2

22.620.920.2

19.517.418.3

17.019.218.419.2

19.119.119.3

1 Estimates based on incomplete data.2 Not available.NOTE.—Imports for consumption include merchandise entered immediately upon arrival into merchan-

dising or consumption channels, plus withdrawals from bonded customs warehouses for consumption;Detail will not necessarily add to totals because of rounding.


191


TABLE C—44.—Indexes of quantity and unit value of United States merchandise imports for con~sumption, by economic classes, 1936—38 quarterly average and 1947—49

Period

Quarterly average:1936-38 . -194719481949 l

1948—First quarterSecond quarterThird quarterFourth quarter.

1949—First quarterSecond quarterThird quarter

Quarterly average:1936-38194719481949 l

1948—First quarterSecond quarter _.Third quarterFourth quarter

1949—First quarter.Second quarterThird quarter

Totalimportsfor con-

sumption

[1936-38=

Crudematerials

100]

Crudefoodstuffs

Manufac-tured

foodstuffs

Semi-manufactures

Finishedmanufac-

tures

Quantity indexes

100108123116

126117119128

121115111

100129139122

154132136132

129119117

10096

109114

11710091

127

121116104

100839199

81899995

93105100

100130149132

153142151152

139128129

10084

10399

96101102113

1059894

Unit value indexes

100213235226

230234239238

236224219

100180203199

197202210207

206199192

100311343320

347338349338

330307324

100208212203

210214212212

205199205

300191217207

206215221227

227208187

100245266262

266268265267

267261258

1 Average of three quarters.NOTE.—The indexes of quantity are a measure of the volume of trade after the influence on value of changes

in average prices has been eliminated. The indexes of unit value provide a measure of change in the averageprices at which trade transactions are reported in official foreign trade statistics, including changes in averageprices that result from changes in the commodity composition of trade.


192


TABLE C-45.—Changes in selected economic series since 1939 and 1948 and during 1949

Source:Appen-

dixtableNo.

C-l

C-4

C-7

0-8

C-9

C-ll

0-14

C-15

C-l 6

C-17

C-18

C-21

C-22

Gross national productPersonal consumption expendituresGross private domestic investmentNet foreign investmentGovernment purchases of goods and

services _.

National income .._Compensation of employees.

Personal incomeDisposable personal income.Personal net saving

Per capita disposable personal income:Current dollars _.1948 dollars

Labor force, including armed forces-Civilian labor force

EmploymentNonagriculturalAgricultural..

Unemployment

Average gross weekly earningManufacturing.._Bituminous coal mining..Building construction

Physical production index of goods andselected services:

Total . -- .AgriculturalNonagricultural

Industrial production: Total. . ,Durable manufacturesNondurable manufactures,.Minerals _.

New construction: TotalPrivate

ResidentialNonresidentialPublic utility and farm _

Public

Business expenditures for new plant andequipment __

Inventories:Manufacturing-Wholesale trade.Retail

Sales:Manufacturing—Wholesale trade.Retail.

Consumers' price index: All items..Food- .Apparel .--Rent

Wholesale price index: All commoditiesFarm productsFoods.-Other than farm products and foods

1939=100

1948

287265455211

280

312294

292272444

243141

1131111301428322

227302227

167132177

176206162146

298382342456414

370

297300271

373334309

172221197113

214288254186

1949

Total i

283264372

332

307297

292275633

241142

11411212814084

230268234

159130167

161184154126

306369332405424211

344

170212190116

201253229181

Firsthalf

281265389122

310297

294277578

244143

113111127139a334

229297233

()170

166196153135

13316213620318989

351

290284256

353306

171213192115

204261232184

Secondhalfi

264359

-133

334

297

290273489

238140

1161141301428438

230224235

164

156172155119

173207197202235122

170212186116

198246227178

Percentagechange 2

1948to

1949

- 1 . 4- . 2

-18.2

+18.5

- 1 . 6+1.4

- . 1+1.1

+20.0

- . 7+.5

+1.3+1.1- 1 . 1- 1 . 4+.7

+64.5

+1.2-11.4+3.2

- 4 , 9- 1 . 4- 5 . 6

-10.7- 5 . 1

-13.5

+3.0- 3 . 5- 2 . 7

-11 .2+2.5

+25.1

- 6 . 9

()

8

- 1 . 1- 3 . 8- 3 . 8+2.8

- 6 . 2-12 .1- 9 . 9- 2 . 5

1949,first

half to1949,

secondhalfi

- 2 . 2- . 3

- 7 . 8- 1 . 1

+1.4

- 2 . 0

+.1- 1 . 3- 1 . 5

-15.4

- 2 . 4- 1 . 8

+2.7+2.8+2.2+2.2+2.2

+12.9

+.6-24.7

+.9

()-3.7

- 6 . 1-12.2+1.2

-11.9

+29.8+27.3+44.8

- . 6+24.2+36.4

-3.6

See footnotes at end of table, p. 194.

193


T A B L E G—45.—Changes in selected economic series since 1939 and 7948 and during 1949—Con.

SourceAppen

dixtableNo.

C-23

C-24

C-29

C-39

0-42

Economic series

Prices received by farmersPrices paid by farmers (including interest

and taxes).

Consumer credit outstanding, end of period..

Corporate profits:Profits before taxes . - .Profits after taxes

Dividend paymentsUndistributed profits

Merchandise exports, including reexports 4~ _

General merchandise imports 4 _

1939 = 100

1948

302

202

205

535424208

1,100

426

286

1949

Total i

264

197

235

425334221692

403

266

Firsthalf

273

198

202

429336221700

450

273

Secondhalf i

257

195

235

418332221683

356

259

Percentagechange 2

1948to

1949

-12.6

- 2 . 5

+14.6

-20.7-21.2+6.3

-37.1

- 5 . 5

- 7 . 1

1949,first

half to1949,

secondhalf i

- 5 . 9

- 1 . 5

+16.0

- 2 . 5-1 .2

- 2 . 4

-20.9

-4 .8

1 Estimates based on incomplete data.2 Changes are computed from data as reported and therefore may differ slightly from changes computed

from the indexes shown here.3 Not available.* 1936-38 average=100.

194 U. S. GOVERNMENT PRINTING OFFICE: 1 9 5 0


ERP January 1950

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