SCB_031949

MARCH 1949

U. S. DEPARTMENT OF COMMERCE

BUREAU OF FOREIGN AND DOMESTIC COMMERCE

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

SURVEY OF CURRENT BUSINESS

No. 3

MARCH 1949

PAGETHE BUSINESS SITUATION 1

Industrial Composition of National Income in 1948 . . 9Recent Changes in Consumer Credit 10International Transactions by Major Areas, Third Quar-

ter 1948 . 12

SPECIAL ARTICLEInternational Transactions During 1948

NEW OR REVISED STATISTICAL SERIESProduction-Worker Pay Rolls in ManufacturingValue of Manufacturers' Inventories, 1939-45 .

14

1920

MONTHLY BUSINESS STATISTICS ; . . . S-l to S-40Statistical Index Inside Back Cover

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MARCH 1949

I rerbonai mtum*? ?ummuiy p% (SEASONALLY ADJUSTED, AT ANNUAL RATES) %% BILLIONS OF DOLLARS %^ Personal^ income in^ January% remained^ at thep December^ peak.|^

Private^ pay rollsJ were^ lower

!fy while^ governmentj| pay rolls^ holH -firm^% neia Tirmjr^ and other^ types of^ income were^ steady or| higher.

^

i^w'//.

TOTAL PERSONAL ^INCOME J

K i^^^m^

! 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 II 1 ! 1 I I

PRIVATE WAGES ^ ~ \AND SALARIES ^ ^^

1 1 1 1 i 1 I 1 1 1 1 M 1 1 1 1 1 1 1 1 1 I I

GOVERNMENT WAGESAND SALARIES

1 1 1 1 1 1 1 1 1 1 1 1 1 I I 1 1 1 1 I 1 1 1 1

^~t**J*****~ ****

^^^^ PROPRIE TORS ' AND- RENTAL INCOME

INTEREST ANDA / DIVIDENDS

TRANSFER PAYMENTS**'*

1 1 1 1 1 1 1 1 1 1 1 1 1 1 I 1 1 1 1 1 1 1 1 1

...

i" ii

w

i200 p

.|11,20 ^,40 6

$ii120 %1

."1-I.

. 160 < 1

40 1

%xx//x/

o iM 1947 1948 1949 p

^ * WCi^f5 Or//f/? i50/? ,NCOUE * %

W////M^^^^^

THE

SITUATIONBy the Office of Business Economics

JL OT AL output of goods and services and the flow of incomefrom their production were running at a high rate in thefirst 2 months of 1949, though there was some easing in thepace of activity from the postwar peak of the fourth quarterof 1948. The pressure of aggregate demand has diminishedsomewhat; however, certain segments of the economythemetals in general and steel in particularcontinued to reflectlarge unsatisfied demands. The accompanying chart onpersonal income shows that although significant shiftsoccurred in'major components in January, the net effect onthe total was slight.

Sorne slackening in consumer expenditures has occurred,as evidenced by the trend of retail sales. Private invest-ment outlays continue at about the same level as in the finalquarter of last year, except for a reduction in the amountof inventory accumulation. Available data indicate thatexpenditures on producers durable equipment have beenrunning at about the same rate as they were in the secondhalf of 1948, after seasonal correction, and have been higherthan in the early part of 1948. On the expansion side areincreasing Government expenditures for defense and foreignaid. In addition, Government loans to farmers under theagricultural price support program continue at a high rate,and these have been important in sustaining farm income.

The diminution in aggregate demandreflecting in part,as noted above, a reduction in inventory accumulation fromthe high rate in the fourth quarter last yearhas resulted ina greater-than-seasonal decline in employment and a rise inunemployment. Part of the shift in employment patternsmirrors the reappearance of more normal seasonal fluctua-tions which were submerged in the earlier years of the post-war boom by the rising tide of investment and consumption.Total civilian employment nevertheless was about as highin February as it was in the corresponding month of 1948.

Although adjustments by individual industries to a morenormal supply-demand relationship have been more numer-ous than in 1948, there were still a number of importantindustriesoutstanding examples are steel and automobileswhere activity has been moving up, so that aggregate in-dustrial output has changed very little. The steel industry,under continued pressure of demand, has operated at peakcapacityslightly above 100 percent of rated capacity forthe first 10 weeks of the year. The automobile industry,with model changes nearing completion, and aided by theavailability of larger quantities of steel, has moved its pro-duction close to 115 thousand units a week in the early weeksof March.

Wholesale prices so far in 1949 have averaged somewhatlower than in the final quarter of 1948, reflecting in the mainthe reduction of farm and food prices. Prices of other

82623949 1


SURVEY OF CURRENT BUSINESS March 1949

commodities on the average have shown little change so farthis year. The immeasurable changes in quality continueand at the retail level not only have there been noticeableimprovements in service that accompany more competitionfor the consumer's dollar but, in addition, store-wide saleshave become increasingly common.

Insofar as the consumer price index is concerned, therehave been small declines in food, apparel, and housefurnish-ings. The pressure upon rents is still restrained by controllegislation which is currently up for extension in Congressbeyond the March 31 expiration date.

Personal income unchanged in JanuaryThe flow of personal income affords a comprehensive

summary of the impact of the various adjustments whichhave been taking place in the economy. Despite the greater-than-seasonal declines in employment and hours worked ina number of industries^ income payments in January weremaintained at the high rate attained at the end of 1948.The trend of total personal income is shown in the top panelof the chart on the preceding page to have been at an annualrate of 221 billion dollars after adjustment for seasonalfactors.

Private wages and salaries declined 1.7 billion dollars atan annual rate from December as reduced employment andshorter hours in manufacturing and transportation more thanoffset the very slight increase that occurred in average ratesof pay. On the other hand, Government wage and salaryreceipts held steady between December and January.

The largest increase in income occurred in proprietors' andrental income, illustrated in the bottom panel of the chart.Here the rise was concentrated in agriculture, where an ex-pansion in marketings, including the commodities placedunder Government loan, more than offset a further declinein livestock prices. Income of nonfarm proprietors waslower while interest and dividend payments were up. slightly.

The increase in transfer payments which took place duringthe month was chiefly a reflection of higher unemploymentcompensation. While this results from lessened employmentopportunities, the payments have acted as an importantcushion against the loss of wages and salaries entailed bythe lay-offs which occurred in the mid-winter months.

Nonagricultural income, not shown on the chart but pre-sented in the table on page S-l, was at an annual rate of195.7 billion dollars in January, 1.7 billion dollars belowDecember but 11.4 billion dollars higher than January 1948.Supports bolster farm income

The movement of farm income is of particular interest inview of the substantial declines which have occurred in farmprices during the past year. Although prices received byfarmers in January, of 1949 were 13 percent lower than thepeak reached 12 months earlier they still averaged 8 percentabove parity, and cash farm income was about the same.

This maintenance of farm income reflects an offsetting ex-pansion in farm marketings, including a substantial volumeof commodities placed under Government loan. The im-portance of the loans is indicated by the fact that out oftotal cash receipts from the sale of crops of 1.3 billion dol-lars in January, about 20 percent represented a net rise inoutstanding loans, whereas in January of 1948 the rise inloans represented only about 2 percent of crop receipts.

Prices paid by farmers for all commodities used in pro-duction in January averaged fractionally lower than a yearearlier so that with cash income maintained, the net incomeof farm proprietors was a little higher. Preliminary indi-cations suggest that farm income in February was higherthan it was in February 1948. Marketings of farm products

were especially heavy during the first 2 months of 1949 fortwo reasons: First, the large crops harvested in the latterpart of 1948; second, the more rapid sale of these cropsthan in other years. It is apparent that a portion of thecrops which would normally be sold in later months of theyear is being placed under loan at an earlier date.Little change in production

Industrial production during the first 2 months of the yearwas but slightly lower than the peak reached last autumn.The Federal Reserve seasonally-adjusted-production indexwas 191 (1935-39=100) in January down 1 point fromDecember, a decline of a little over 2 percent from theOctober-November high point. Nondurable-goods produc-tion was somewhat higher than a month earlier while durablegoods eased off slightly. Minerals production, on the otherhand, showed a larger drop as crude petroleum operationsdeclined. Daily output of bituminous coal was maintainedat the December rate.Chart 2.Production and Capacity of Steel Ingots and

Steel for Castings

THOUSANDS OF SHORT TONS300

250 -

200 -

150 -

CAPACITY, JAN. I EACH YEAR

100 -

1944 1947 1948DAILY AVERAGES

1949

1 Daily average capacity obtained by dividing the "Total Capacity" reported on January 1

each year by 365 days.2 In computing the daily average production for 1944 no allowance was made for any'

holidays; for 1947 and 1948 allowance was made for July 4th and Christmas.Source: Basic data, American Iron and Steel Institute.

Preliminary data for the month of February indicatelittle, if any, change from the January rate in over-all man-ufacturing activity.

Evidence is increasing that some general easing of thepressure upon producers is occurring. Fewer industrieshave shown rising trends of output this year and the indus-tries with declines are more numerous than in 1948; yet, it1 is clear from the movement of the over-all index that theindustries with rising or stable trends are of more-than-average importance. Out of 18 major components com-prising the Federal Reserve index, 7 industries operated inJanuary at a higher rate than in December and 6 werehigher than in the same month a year ago.

Steel production, as earlier noted, has been maintainedat an exceptionally high rate.

In the automobile industry, model change-overs in Januarj*at some plants kept assemblies of cars and trucks about3 percent below the daily average rate in December. Morerecently, assembly operations have moved higher and outputis expected to reach a new postwar peak in this current up-swing. Backlogs in this industry are still large.


March 1949 SURVEY OF CURRENT BUSINESS

Somewhat lower activity was also reported for the ma-chinery, furniture, and stone, clay, and glass industries inJanuary. The decline in lumber production reflected inlarge part lessened demand pressures and unfavorableweather conditions, chiefly in the Pacific Northwest.

In the case of consumer-durable goods other than auto-mobiles, complete data for January are not available butinformation at hand for a number of products indicates acontinuation of the lowered rates of output which began inmid-1948. Electric refrigerators, however, were an excep-tion as manufacturers7 shipments expanded sharply andvirtually equalled the best postwar month. On the otherhand, the number of radios (excluding television receivers),vacuum cleaners, and automotive replacement batteriesproduced dropped over 15 percent from the previous monthand by an even greater percentage from January a year ago.

Output of washing machines showed little change fromDecember butwwas 50 percent below 1948. In the case oftelevision receivers a small decline in output was not sig-nificant since demand for these sets continues large.

Among the nondurables, January advances in the textiles,leather, tobacco paper, and printing and publishing groupscounterbalanced the declines in output of refined petroleum,chemical, and rubber products. The improvement in textilemill activity was largely the result of the post-holidayrecovery in the consumption of raw cotton from the rela-tively low volume of the preceding month. Despite thisseasonal rise, however, mill takings of raw cotton werenearly one-fourth below January a year ago and, with twoexceptions, were the lowest for any month since September1940.Steel output at annual rate of 96 million tons

Highlighting the production performance since the turnof the year has been the record rate of operations in the

basic steel industry (see chart 2). In the first 10 weeks ofthis year, the steel mills operated at an average of slightlyover 100 percent of rated capacity, thus equalling the war-time record for sustained operations at or above theoreticalcapacity.

In January, nearly 8.2 million tons of steel ingots and cast-ings were produced. This represented a gain of 200 thou-sand tons over the previous record established in October1948, and 700 thousand over January 1948, when annualcapacity was about 2 million tons lower than at present.

Because of the shorter month, output in February wasapproximately 7.5 million tons, making a total of 15.6 milliontons for the 2 months, or about 1.2 million tons higher thanin the comparable period a year ago. This rise has, ofcourse, eased the supply position for a variety of steel users.On a daily average basis, the January-February output wrasequivalent to an annual rate of 96 million tons.

Lower employmentThe labor market was somewhat easier in the opening

months of 1949 because of the combined influence of seasonalfactors in some industries and readjustments to a lower levelof demand in a number of manufacturing activities.

Civilian employment at 57.2 million in February, waslower than it had been in recent months, but was about thesame as a year earlier (see chart 3). Meanwhile, unem-ployment which had remained under the 2 million markduring the last 5 months of 1948, rose to 3.2 millions in Febru-ary. With job opportunities less plentiful, labor turn-overdecreased, and there was some evidence of slackening in thegrowth of the labor force.

Nonagricultural employment as a whole dipped slightlybelow February 1948; most of the decrease is attributable toreductions in both durable and nondurable manufacturing,

Chart 3.Civilian Labor Force and Employment Trends

MILLIONS OF PERSONS100 -

80 -

TOTAL CIVILIAN LABOR FORCE

L

NONAGRICULTURAL EMPLOYMENT

EMPLOYMENT(SEASONALLY ADJUSTED)

INDEX, 1946 = 100120

MANUFACTURING

EMPLOYMENT(SEASONALLY ADJUSTED)

CONSTRUCTION

GOVERNMENT*

1 I I I I I I I I I I M I 1 I t I I M I I I I I I I I M M I I I fg| 1946 194X

U. 5. DEPARTMENT OF COMMERCE* OFFICE OF BUSINESS ECONOMICS*

1948 1949 1946 1948 1949

100

80140

120

100

80

1 Includes the industries shown in panel below and others.

Sources of data: Civilian Labor Force, U. S. Department of Commerce, Bureau of the Census; employment trend indexes, computed by U. S. Department of Commerce, Office of BusinessEconomics, from seasonally adjusted employment data of the Board of Governors of the Federal Reserve System.


SUEVEY OF CURRENT BUSINESS March 1949

and to a lesser extent in coal mining and railroad transporta-tion.Seasonal change in construction

Construction activity in the first 2 months of the yearreflected the usual mid-winter contraction; in dollar termsthe total value of construction averaged 1.2 billion dollars,which was about 10 percent higher than in the correspondingmonths of 1948. Most of the increase over last year was inpublic construction while the private components weregenerally only fractionally higher. Private residentialconstruction, which constituted almost 50 percent of theprivate total, averaged 460 million dollars in January andFebruarya fractional increase over the correspondingmonths in 1948.

Although total residential starts have declined steadilyduring the past 8 months, rental-type housing starts arelikely to increase in the near future. As table 1 shows,there has been a substantial increase in applications for FHAinsured mortgages on rental housing since the reenactmentand liberalization of that portion of the National HousingAct in August 1948. The January rate of 22,500 unitsunder the rental housing section 608 has been exceeded onlyonce in the past 2 yearsNovember 1947. Preliminarydata for February indicate a continuation of this upturn inapplications for rental building.Table 1.Total Permanent Nonfarm and FHA Starts and FHA

Applications[Thousands]

Period

1947 total1948 total . .

JanuaryFebruaryMarch _AprilMayJune . _ -JulyAugustSeptemberOctober _. _ _November _December . __

1949:January _ _

Perma-nent non-

farm idwelling

unitsstarted

849.0928.052.649.675.198.899.497.593.586.382.272.065.056.050.0

TotalFHAstarts

228.8291.022.716.830.135.528.730.229.622.7

20.219.417.417.212.6

FHA applications (new units)

Total

423.6369.679.054.345.024.615.118.819.317.822.124.824.324.637.1

Smallhomes,1-4 fam-

ily

283.8287.760.837.433.020.115.018.819.316.617.017.817.314.514.6

Rentaltype

multi-family

139. 782.018.216.911.94.5

(2)o01.25.17.07.0

10.122.5

1 Nonfarm starts include for the year 1948 about 2 percent of public starts. In January1949 this component increased to about 8 percent. '

2 Less than 50 units. Detail may not add to totals due to rounding.Sources: U. S. Department of Labor, Bureau of Labor Statistics, and Housing and Home

Finance Agency, Federal Housing Administration.

The recent small declines in construction costs have facili-tated this rental development by making possible firm com-mitments by contractors regarding total costs of rental-typehousing projects. This cost uncertainty has been one ofthe important impediments to the long-run planning in-volved in these larger projects.Retail trade easing

Consumer purchasing has undergone a moderate decline,mostly in the nondurable-goods lines. Part of the dollardecline represents lower prices. Department-store sales forthe month of February declined on a seasonally adjustedbasis for the second successive month and were 4 percentbelow those of a year earlier.

For the month of January all retail store sales, afteradjustment for the number of trading days and seasonal

influences, were about 4 percent below the very high rate ofDecember and about 3 percent below the fourth quarterlevel. The drop in the nondurable-goods stores was 3percent. In the durables, the decline was larger, but thiswas partly the result of the model change-over by some ofthe larger automobile producers, which limited receipts oi*new cars by dealers.

Retailers carried on active sales promotions and reducedprices in a number of lines, particularly apparel and house-furnishings. The Bureau of Labor Statistics consumers'-price index in January was 2 percent lower than in Decemberfor apparel and 1 percent lower for housefurnishings. Al-though these price changes are small, they are the mostnoticeable declines which have occurred in these areas inthe postwar period. For example, a year earlier, despitewinter mark-downs both apparel and housefurnishings pricesrose between December and January.

Apparel sales in January showed a favorable response tothese price cuts but in the case of housefurnishings, salesdeclined during the month. Slackened demand for consumerappliances contributed to the decline in the general-mer-chandise group.

The relationship between consumer purchasing and con-sumer credit, including the recent relaxation of controlsearly in March, are considered in some detail in a separatesection further on in this issue.

Stocks, Sales, and OrdersDuring a period of adjustment the changes taking place in

business inventories and new orders are of special signifi-cance.

The book value of total business inventories stood at54.2 billion dollars at the end of January, about 165 milliondollars higher than the year-end figure. During January1948 total inventories rose over 1 billion dollars, but itshould be remembered that prices were rising rapidly thenin contrast to the recent movement.

The inventory change represented diverse movements.Manufacturers' stocks were up 230 million dollars, as com-pared to the rise of almost half-a-bUlion last year, and mostof the present rise was seasonal in nature. Wholesalers'inventories rose almost a quarter of a billion, a little less thanthe increase a year previous. Retail stocks, however, de-clined about 300 million dollars, most of this being seasonal;last year at this time stocks rose by an equal amount.

In manufacturing, the inventory rise was concentratedwholly in the durable-goods group, and it was somewhatgreater than the typical early winter advance. The stablelevel of stocks in nondurables represents a small decline on aseasonally adjusted basis. As has been true, especiallysince last fall, most of the inventory rise between Decemberand January was in finished goods but the accumulation wasless than in the same period in 1948.

Manufacturers7 sales declined about 1.3 billion dollarsfrom December to January. More than half of this repre-sented the usual winter slowdown in shipments. Bothdurable and nondurable groups contributed to the decline.Little inventory build-up at retail

An interesting phenomenon in recent months has been therelatively small growth in retail inventories. This has oc-curred at a time when retail sales have changed relativelylittle, manufacturers' stocks of finished goods have bef~showing a persistent upward movement, and employment *uthe manufacturing level has been edging off. Certain as-pects of these trends are illustrated in charts 4 and 5. Theleft panel of chart 4 shows stocks, sales, and receipts of goodsby 296 large department stores reporting to the Federal


March 1949 SURVEY OF CUREENT BUSINESS

Chart 4.Stocks, Sales, Receipts, and Orders,296 Department Stores

MILLIONS OF DOLLARS1,250

STOCKS(END OF MONTH)

\

SALES

^ RECEIPTS U

i i i i t f i i . , i h i i i ihi ii li i

MILLIONS OF DOLLARS1,200

1,000

OUTSTANDING ORDERS(END OF MONTH)

I I I I I I I I I I I

1947 1948 '49 1947U. S. DEPARTMENT OF COMMERCE, OFFICE OF BUSINESS ECONOMICS

1948

1 Receipts equal sales plus inventories at end of month, less inventories at beginning of

month.2 Net new orders equal outstanding orders at end of month, less outstanding orders at

beginning of month, plus receipts.Sources of data: Stocks, sales, and outstanding orders, Board of Governors of the Federal

Reserve System; receipts and net new orders, computed by U. S. Department of Commerce,Office of Business Economics, from Federal Reserve Board data.

Reserve; the right panel shows new orders placed and out-standing orders for the same stores.

Beginning about midyear 1948, the trend of department-store sales (adjusted), which had been rising up to thattime, first leveled off and then registered a decline. Mean-while, inventories have not grown appreciably. For thisgroup of stores, stocks at the end of January were about thesame as they had been at the end of January 1948. Thestock-sales ratio for the 296 stores, which may be consideredrepresentative of all department stores, was approximately 3for the month of January, about unchanged from January 1948.

Because of the leveling in retail sales, as well as theuncertainty over the price and sales outlook, departmentstores and other retailers handling apparel and house-furnishings have been following very conservative inventoryand buying policies. This is further illustrated in the dataon new and unfilled orders. Outstanding orders have showna downward trend since mid-1947; at the end of January 1949outstandings were 40 percent lower than those at the end ofJanuary 1948. The ratio of outstanding orders to sales1.5 for the month of January 1949compares with a ratioof 2.3 for January 1948 and in fact was at the lowest pointfor any January since the prewar period. New ordersplaced have been relatively low throughout 1948. Theeffect of the low level of ordering is seen in the fact thatgoods received in the 3 months ending in January 1949 were13 percent below those received in the same period the yearbefore.

Price developments have obviously played an importantrole in the cautious buying policies of retailers. Whereprices have been declining, as in the textile and clothingindustries, purchasing has been influenced by this fact; andin fields where prices have ceased rising, even though theyhave not declined, the incentive for forward purchasing hasbeen reduced.

Increase in manufacturers* finished-goodsinventories

Chart 5 reflects in part the impact of conservative retailbuying policies upon manufacturers7 stocks and sales in par-ticular industries. In the lower part of the chart are shownsales and finished goods inventories of manufacturers inselected industries closely related to goods sold in departmnetstoresnamely, textiles, leather, apparel, and furniture.

S^Jes and finished goods inventories of all manufacturersare shown in the upper part of the chart by way of contrast.As the chart shows, the trend of sales in the 4 selected in-dustries has been downward over the past year. In the lastquarter of 1948, for example, sales were 6 percent lower thanin the final quarter of 1947.

Inventories of finished goods have continued to risefinished garments in the case of apparel manufacturers, whosereduced demand for fabric has been one of the reasons forreduced operations and accumulation of finished goods in thehands of textile mills, especially in the past few months. Inthe case of all manufacturing industries the trend of finished-

foods inventories has also been upward but the rise has noteen so pronounced as in the smaller group, while sales havebeen edging up slightly. For manufacturing industry as awhole the relationship between finished stocks and sales atthe end of 1948 did not appear to be excessive in terms ofprewar standards.

What is suggested here is that the burden of the recentaccumulation of finished stocks in some of the consumer-goods lines has fallen on manufacturers and to a lesser extenton wholesalers, rather than on retailers by virtue of the con-servative purchasing policy followed by retailers. An in-voluntary build-up of finished-goods stocks reflects the factthat manufacturers do not reduce their operating schedulesimmediately when a cut occurs in customer takings. How-ever, the lag is usually short, and production is adjustedfairly promptly to the actual rate of shipments. Adjust-ments of this nature have been a factor in the cutbacks inoutput in numerous lines during recent months.

Chart 5.Manufacturers9 Sales and Inventories

RATIO SCALEBILLIONS OF DOLLARS

20.0 - TOTAL SALES .

ALL MANUFACTURING INDUSTRIES

FINISHED GOODS INVENTORIESI END OF MONTH) w

SELECTED CONSUMER GOODS INDUSTRIESTOTAL SALES

FINISHED GOODS INVENTORIES(END OF MONTH) .

.8

.71947 1948

/ S. DEPARTMENT OF COMMERCE, OFFICE OF BUSINESS ECONOMICS.1949

* Includes textile, apparel, leather, and furniture industries.Source of data: U. S. Department of Commerce, Office of Business Economics.


SURVEY OF CUBEENT BUSINESS March 1949

In summary then, and viewing the trend of inventories ofnonagricultural business as a whole, it may be said that sofar in 1949 there has been a definite slowing in the high rateof inventory accumulation that characterized the finalquarter of last year. But increasing inventories were stilla factor in the volume of investment.

January orders at December rateThe relationship between new orders and manufacturing

output is much more direct at the present time than was thecase a year or more ago when backlogs were higher. THus,a decline in new orders in the latter part of 1948 has beenreflected in the recent easing in industrial activity in manylines. It is noteworthy then, that new orders received inJanuary (see chart 6) were about the same as in the precedingmonth.

Chart 6.Manufacturers' New Orders 1

I N D E X , 1939 100350

250

IOO

DURABLE GOODSINDUSTRIES


to 920 million dollars, an increase of about two-thirds over1947, and in the first quarter of 1949 they are expected tototal nearly 300 million dollars.

An analysis of the demand for freight cars during the inter-war period reveals a close relationship between the trend ofcarloadings and the new freight-car orders placed by rail-roads. The recent declines in new orders placed for freightcars have occurred during a period in which the year-to-yeartrend in carloadings has been downward. Although thecarriers till possess a large fleet of freight cars which areolder than the typical retirement age in the prewar period,their demand for new freight cars will be affected by thetrend in carloadings and in earnings.

The rate at which backlogs for railway freight and passen-ger cars for domestic use have been declining in the past12 months is illustrated in chart 7, which also provides acomparison of monthly shipments and new orders. The in--elusion of equipment figures for exports would not materiallyalter the recent trends since exports have been unimportantin the case of passenger cars and ^ere important for freightcars only in 1946 and in the first half of 1947. In 1948 whendomestic demand for cars was very high, new orders forforeign account were accepted to a total of only 400 freightcars and shipments were less than 1,600 units.

It will be seen that*the volume of new orders for freightcars continued on a relatively high scale for a period of abouttwx) years, from mid-1946 to mid-1948. During this periodincoming orders ranged from a low of 4,500 units in Novem-ber 1946 to a peak of 14,500 units in March 1948, and aver-aged 10,000 cars per month. Following the March highEoint, however, new orders moved down sharply and since

ist July they have averaged somewhat over 5,000 units permonth despite the pick-up in November. In January andFebruary of this year they dropped to less than 1,000 permonth.

In 1947, new orders exceeded shipments by a considerablemargin and backlogs thus increased. In 1948, however, thereverse was true as shipments were substantially in excessof new orders in all but 3 months. As a result, carbuilderswere able to cut rather deeply into their backlogsfrom ahigh of 135,000 units in April 1948, to 86,000 at the end ofFebruary 1949. Unfilled orders for freight cars have droppedfrom the April 1948 high point when they represented 13months' shipments to 8% months' shipments at the Febru-ary 1949 rate.

2-year backlog of passenger equipmentA similar development, although somewhat less pro-

nounced, has been experienced by builders of railway pas-senger equipment. In contrast with the situation in freightcars, when sizable order-placing lagged until well into 1946,large orders for new passenger cars were placed by the rail-roads immediately after the war with the result that thevolume of business on the books of carbuilders at the be-ginning of 1946 was the highest since 1914. The bulk ofthis order-placing reflected the modernization of equipmentand the shift to high speed articulated deluxe passengertrains.

In 1945, aggregate orders totaled nearly 3,000 cars, ofwhich 1,700 consisted of military-type cars. Of the 1,300units ordered by railroads for civilian use, almost 800 wereplaced in the last 4 months of the year. In 1946, new busi-ness placed continued at a high level although the ratedipped to 100 per month which was followed by a sharpdrop to 26 in 1947 and a moderate recovery to 42 in 1948.However, in the latter part of 1948, new orders fell verysharply.

Concurrent with this decline, shipments have been main-tained at a monthly rate of 72 unitsnot large in relation

to the backlog even though it was double the rate of incom-ing business in the past two years. Thus, order backlogshave declined steadily, being reduced substantially from thepeak in late 1946. Despite the reduction, the volume ofunfilled orders at the end of January 1949 remained largeand represented nearly 2 years' production at the Januaryrate of deliveries.

In the cas of locomotives, satisfactory data for neworders and shipments are not available but information onunfilled orders is presented in chart 8. It should be pointedout that while the figures include only locomotives on orderfor class 1 railroads, it is believed they represent all buta small portion of the total. Furthermore, the data are

Chart 8.Locomotives: Unfilled Orders, End of Month,Class I Railways *

RATIO SCALENUMBER4,0001

3,000

2,000

1,00090080O700

600

500

400

300

PQfJ I 1 1 1 I ! t I I I I 1 1 I I I I I I I 1 t t t J 1

1946 1947V S DfPAflTMCNT Of COUMRC. Off ICC Of BUSINESS ECONOMICS

i Data include steam, electric, and Diesel-electric locomotives.Source of data: Association of American Railroads.

counted in terms of locomotives which in the case of Diesel-electrics may include one or more operable units.

It will be noted that unfilled orders after rising sharply inthe first two postwar years have tended to level off in thepast 12 months at around 1,600 units. This is the highestlevel of backlogs since July 1923, when they totaled 1,772.In the past year, the number of locomotive installations onclass 1 railroads has risen sharply but despite this there hasbeen very little change in the backlog position of manu-facturers. In this connection, it is perhaps interesting topoint out that of the current volume of unfilled orders,approximately 1,490 represented Diesel-electrics and 73steam, whereas in 1923 they consisted entirely of steamlocomotives.

Little net change in pricesThe general level of wholesale commodity prices, which

had shown a steady downdrift during the 6 months endingin January flattened out during February and early March.The comprehensive index of wholesale prices compiled by theBureau of Labor Statistics was 159 (1926=100) at thebeginning of March, unchanged from a month earlier, butdown 6 percent from the peak reached last August.j Thistemporary stability of prices as a whole represents a con-tinuation of the divergent movement which characterizedthe latter half of 1948; it reflects the simultaneous upwardand downward adjustments in supply-demand relationshipswhich have been taking place.


8 SURVEY OF CURRENT BUSINESS March 1949

The prices of commodities other than farm and foodproducts averaged fractionally lower at the end of Februarythan a month earlier, and were about the same as at theyear end. Although farm and food prices ^continued todecline in January and early February, there was somerecovery in grain and livestock prices during the latter partof February.

In the grains, where prices had slipped below supportlevels, the renewal of Commodity Credit Corporation pur-chasing for shipment abroad was reflected in a rise in thewheat price above the loan rate at the end of February.The corn price was still below support, but the trend was nolonger downward as temporary factors, such as lack ofstorage space and high moisture contentwhich had im-peded CCC operations in granting loanswere not so impor-tant as previously. In livestock, where support operationshave not been required despite important price declines,prices had also begun to move upwards in the latter halfof February as the seasonal reduction in livestock market-ings developed.

Some industrial prices lowerReduced demand for a broad variety of commodities has

been accompanied by price reductions, especially in the soft-goods areas where finished-goods inventories were rising atthe close of 1948. Lower prices were posted in January andFebruary for cotton goods and clothing, rayon yarn and wovengoods, fuel oil and gasoline, fats and oils, and industrialalcohol. Prices of metals and their products, on the otherhand, have generally remained firm or have advanced in someinstances, though premiums above quoted prices have beenreduced or eliminated in recent months. The 4 to 6 percentinterim increase in freight rates granted on December 30,1948, was reflected in higher quotations during February forpig iron and a number of steel products.

While the price of metals and their products has been theprimary area in which additional advances have been madein recent months, there were some indications in the openingquarter of the year that pressures on metal prices were notuniformly upward. During February, prices of remeltaluminum, brass, and bronze ingots were reduced, and earlyin March two of the larger producers of primary lead loweredprices 2 cents to 19.5 cents a pound, the level prevailing lastsummer. Scrap metal prices of all types have been generallylower thus far in 1949.

Lower scrap pricesSince scrap metal prices are generally more sensitive to

supply-demand changes than prices of primary metals, ananalysis of developments in scrap metals is often useful ingauging both price and production prospects of the primarymetals. Weakness in nearly all scrap metal markets de-veloped by the beginning of 1949, but different factors wereresponsible for these declines.

Prices for heavy melting steel scrap at Chicago fell fromthe 1948 high of $41.75 per ton at the end of December to$34.50 at the end of February. This decline of almost afifth in steel scrap prices has led to speculation as to whethersome basic alteration has occurred in the demand for steelwhich has led procedures to bid less vigorously for scrap.

Consumption of steel scrap, however, has been advancingsincft the July 1948 low point, when steel operations wereaffected by vacations. In November 1948the latestmonth for which data are availablesteel scrap consumptionat 5.6 million tons was 9 percent over November 1947, withheavier volume in both home and purchased scrap con-tributing to the rise. Peak steel operations in the firstquarter of 1949 suggest continued high scrap consumptionrates. Meanwhile, various factors on the supply side have

emerged which explain the sharp drop in steel scrap prices.Scrap supplies were steadily augmented in 1948. Chief

factors enlarging supplies were the accelerated scrap collec-tions during the mild winter of 1948-49 in the eastern partof the country and a sharp rise in imported scrap materials.Also, the gradual satisfaction in 1948 of the shortages inmany of the consumer and producer durable goods beganto permit a return to the higher scrappage rates of such goodswhich had been customary in the prewar period.

These growing quantities of scrap and pig iron easedpressure on prices of steel scrap which in 1947 and part of1948 was selling above pig iron, contrary to the usualhistorical relationship. As 1948 progressed, steel producersadded to their scrap inventories. At the end of November1948, stocks of steel scrap held by consumers amounted to5.8 million tons, or 30 percent above the previous November,and the largest accumulation hi 5 years. Nearly all of theincrease in steel scrap stocks represented purchased scrap.Thus, the improved inventory position of steel scrap con-sumers at the end of 1948 reduced the urgency of their demandfor additional scrap supjmes and provided the setting forthe sharp decline of steel scrap prices during the earlymonths of 1949.

Nonferrous-scrap prices declineThe downturn in steel-scrap prices has also extended to

nonferrous-scrap materials. As shown in table 2, the extentof the price fall has varied considerably for the various typesof scrap materials, ranging from sharply lower prices foraluminum, brass, and lead scrap to more moderate declinesin copper and tin scrap. Some of these declines have pre-ceded lower prices for finished materials, as in the case ofbrass and bronze ingot prices and in remelt aluminum ingotpricesall of which were reduced in February. These pricedeclines followed reductions in production schedules forsome types of lead and brass products using scrap materials.Demand for primary metals thus far in 1949, however, hascontinued strong enough to maintain prices at previouslevels, with the exception of lead.Table 2.Dealers' Nonferrous-Scrap-Metal Prices, at New York

[Dollars per ton]

Period

1946 _ .194719481948:

JanuaryFebruaryMarchAprilMayJune-

JulyAugust _ _.-SeptemberOctoberNovemberDecember

1949:JanuaryFebruary. _

Heavycopper

" 10. 6916.1617.31

16.9416.3916.3416.7216. S7M16.7217. 12^17.8117.8417.8018.4318.99

18.7518.13

BrassingotNo. 1compo-sition

10.1112.6713.45

12.6212.1012.0713.0912.9312.9613.3813.8313.8814.1915.3515.05

14. 5213.12

Heavylead

6.8311.7215.92

12.1812.2513.5514.99

- 15.1315.6115.8217.1617.3918.1019.6419.23

18.7515.92

Newzincclips

6.037.169.42

7.488.258.258.258.258.258.77

10.2510.2510.2511.9912.75

12.4411.22

Oldzinc

4.705.377.01

5.295.635.635.655.885. 886.488.008.008.009.50

10.25

9.948.72

Blocktin

pipe

48.6666. 0581.00

77.5077.5077.5077.5077.5083.5083.5083.5083.5083.5083.5083.50

83.5082.87

Newalumi-numclips

7.948.63

11 82

9.119.259.259.55

10.1510.8212.3712.4812.2513.8116.0416.75

16.1315.12

Alu-minumcrank-cases

5.246.399 44

7.117.257.257.418.158.84

10.8710.849.969.95

12.4113.25

12.6310.22

Source: American Metal Market.

Plant and equipment expendituresThat business as a whole plans a moderately smaller

volume of expenditures on plant and equipment during1949 as compared with 1948 is suggested by the early returnsreceived in the annual survey of capital-investment antici-


March 1949 SURVEY OF CURRENT BUSINESS 9

pations conducted by the Department of Commerce and theSecurities and Exchange Commission. Though below the all-time high of nearly 19 billion dollars reached last year, however,the anticipated capital investment for 1949, at least in dollarterms, remained appreciably above the level of any otheryear.

Largest declines from 1948, according to these partialreturns, are indicated for manufacturing industries andsmaller reductions in trade and the communications indus-tries. Little change was expected in electric and gas utilities.Railroads, however, indicated plans to boost capital invest-ment above the level of 1.3 billion dollars reached last year.

Within the manufacturing segment there were consider-able differences among industries. In the textiles, leather,rubber, and furniture lines where it has been Apparent forsome time that the most urgent postwar expansion projectshad been largely completed, the capital investment programsestablished for 1949 were modest when compared with those

of the previous year. In the manufacture of transportationequipment, petroleum, and some of the metals industries,on the other hand, it appeared likely according to presentplans, that the 1948 rate of investment would be eitherapproximately maintained or increased.

Expectations of sales volume for 1949 were also obtainedin the quarterly survey and in the aggregate the companiesresponding anticipated relatively little change over the1948 level. Important industry differences in this respect,not available at this writing, will be analyzed in the nextissue of the SURVEY.

It is interesting to note that small manufacturers, whohad relatively less favorable sales expectations, anticipatedsubstantial declines in their capital outlays from 1948 to1949. Larger firms anticipated a more favorable businesssituation and accordingly showed smaller declines in theirplanned capital outlays.

Industrial Composition of National Income in 1948PRELIMINARY estimates for 1948 of national incomeby broad industrial divisions, together with comparable datafor 1929 and 1947, are presented in table 3. They show thatall industrial divisions contributed to the 1947-48 increase inthe net value of United States production.

These data permit much of the analysis of the changingindustrial structure of the economy, which was presented inthe December 1948 issue of the SURVEY for the 1929-47period, to be extended through 1948.

Table 3.National Income by Major Industrial Divisions 1[Billions of dollars]

Item

All industries totalAgriculture, forestry, and fisheriesMining -- - -Contract construction __ _ManufacturingWholesale and retail trade _Finance insurance and real estateTransportation - ~ -- -- _ _Communications and public utilities _ _ _ _Services -- -- -Government and government enterprisesRest of the world - --

1929

87 48.02.13.7

22.013.113 16.62.9

10.25.1.6

1947

202 519.34.08.7

61 737.516 511.45.4

18.818 7

.4

1948

224 4

22.14.8

10.468.741.717.712.66.2

20.219.5

.5

i Estimates of national income by industrial origin for the entire 1929-47 period may beobtained from the National Income Supplement to the July 1947 SURVEY and the July 1948SURVEY (National Income section), table 13.

Source: U. S. Department of Commerce, Office of Business Economics.

Table 4 shows the percentage distribution of nationalincome among four sectors of the economy. From 1947 to1948 the relative contribution to the national income ofgovernment and government enterprises continued its de-cline from the peak of 20.6 percent reached in 1945. Nationalincome originating in government, which is measured by thecompensation of government employees, was markedly lowerin relation to the national income aggregate in 1948 than inany year since 1930 but remained nearly half again as greatas in 1929. The government percentage reached a postwarlow early in 1948 and rose slightly during the remainder ofthe year.

National income originating in agriculture, forestry, andfisheries increased to 9.9 percent of the national income totalin 1948. For the period beginning with 1929, this percentagewas exceeded only in 1935 and 1946. The major factor in

the 1948 increase was the sharp rise in corn production following the poor crop of 1947.

The composition of income originating in private nonagri-cultural industries, which in the aggregate showed virtuallythe same increase (11 percent) from 1947 to 1948 as thenational income total, is shown in table 5. The only indus-trial division which significantly increased its share of totalprivate nonagricultural production was contract construc-tion. Moderately lower were the percentages contributedby finance, insurance, and real estate, and the services. Ineach of these industrial divisions the downward movementof "income originating" relative to all private nonagriculturalindustries was in accordance with past trends and, aside fromthe war years, the 1948 percentage was the lowest yet reachedin the period beginning with 1929. The relative positions ofmanufacturing and of wholesale and retail trade, the twolargest divisions, were unchanged from 1947 to 1948, althoughboth have evidenced a relative growth trend in the past.Table 4.Percentage Distribution of National Income by Sector of

Origin 1

Sector of origin

National income

Government and Government enterprisesAgriculture, forestry, and fisheries _. . _ - _ _ _ . - _ . -Rest of the worldPrivate nonagricultural industries. _ _ _ _ _ _ _ _ _ _ _

1929

100 0

5 99.2

984.0

1947

100 0

9 29.5

480 9

1948

100 0

8 79 94

81 01 Comparable data for the entire 1929-47 period were published in the December 1948

SURVEY, p. 12.Source: U. S. Department of Commerce, Office of Business Economics.

Table 5.Percentage Distribution of Private NonagriculturalNational Income, by Industrial Divisions 1

Item

All pri vate nonagricultural industriesMining. _ _ _ _Contract construction.M anuf acturingWholesale and retail tradeFinance, insurance, and real estate . .TransportationCommunications and public utilitiesServices

100.02 85 0

29 917 817.88 93 9

13 8

100.02 55 3

37 622 910 06 93 3

11 5

100.0

2 65 737 7

22 99 76 93 4

11 1

1929 1948

i Comparable data for the entire 1929-47 period were published in the December 1948SURVEY, p. 12.


8262394'


10 SUEVEY OF CURRENT BUSINESS March 1949

Recent Changes in Consumer CreditIN January there was a more than seasonal decline in the

volume of consumer credit outstanding, halting the upwardtrend which had prevailed for more than 3 years. Coin-cidental with the release of this estimate the Federal ReserveBoard announced a relaxation of Regulation W restrictionon installment credit terms which were established lastSeptember.

The down payment on all items other than automobileswas reduced from 20 percent to 15 percent. For all items,including automobiles, the contract term permitted wasextended to 21 months. Previously it had been 15 monthsfor loans of less than $1,000 and 18 months for those over$1,000. The significance of this development should beappraised against the background of postwar credit expan-sion, as well as the apparent effect of the termination ofRegulation W on November 1, 1947, and its reimpositionin modified form on September 20, 1948.

While *the availability of credit undoubtedly influenced tosome extent the intensity of consumer demands, the postwarexpansion of consumer credit was largely the result ratherthan the cause of the changing pattern of consumptionexpenditures in the postwar period. This changing patternof expenditures was in turn determined in the main by theavailability of goods. The expansion of expenditures onmost durable goods lagged behind the immediate postwarincrease in nondurable goods and the sale of automobileshas continued to rise after some other durable goods passedtheir peak.

Distribution of outstanding creditThe successive columns of table 6, which show for the

past 3 years the annual increase in consumer credit outstand-ing and the proportionate share accounted for by the varioustypes of credit^ reflect this changing pattern of expenditures.They also reflect the cumulative effect of high installment

Chart 9.-Consumer Credit Outstanding, End of Year orMonth

BILLIONS OF DOLLARS20


f I T jTt "I Lmlnmlmnlnmln

1929 31 33 35 37 39 41 43 45-* CWO OF YCA* -

U. S. O&tfiTMENT OF COMMERCE, OFFICE OF BUSINESS ECONOHICS.

Chart 10.Consumer Credit Related to DisposablePersonal Income

20

50

5 8~~

_L J_0 40 80 120 160 200

DISPOSABLE PERSONAL INCOME, TOTALFOR YEAR (BILLIONS OF DOLLARS)

U. S. DEPARTMENT OF COMMERCE, OFFICE OF BUSINESS ECONOMICS.

240

^Source of data: Board of Governors of the Federal Reserve System.

Sources of data: Consumer credit, Board of Governors of the Federal Reserve System,disposable personal income, U. S. Department of Commerce, Office of Business Economics;

sales on the total volume of credit outstanding. Over halfthe increase in 1946 was in the noninstallment lines. By1948 this share had dropped to less than 20 percent. Inthe meantime the installment sale credit on other thanautomobiles had increased from less than 10 percent in 1946to more than 20 percent in 1947 and dropped back moderatelyin 1948. The share of the annual increase accounted for byautomobile installment credit increased from 9 percent in1946 to 32 percent in 1948.

These trends can be viewed in chart 9 which shows for themajor groups of consumer credit, annual data through 1946and monthly data thereafter. Installment credit has beenresponsible for the major credit fluctuations, historically, aswell as last year. Installment credit is now substantiallyabove the level a year ago while other types of credit areonly up moderately.

Outstandings low by prewar standardsDespite the increase of 10 billion dollars since VJ-day

from less than 6 billion dollars to over 15 billion dollars, thetotal volume of consumer credit outstanding is still low byprewar standards. At the end of last year it was equivalentto a little more than 8 percent of disposable income, whichis below the experience of years like 1929 and 1941.

This can be seen in chart 10 which presents the scatterrelationship between consumer credit outstanding at the endof each year and disposable personal income for the year.The percentage lines drawn through the origin provide easyreference guides. If the prewar increasing tendency to buyon credit is taken into account* the margin below prewarrelationships is somewhat greater than shown. This maybe due to the large amounts of liquid assets in the hands ofconsumers. While significant in itself the relationship doesnot, of course, provide a measuring stick for appraisal of theeconomic effect of recent changes in credit.

The margin below prewar relationships is larger in install-ment credit. As pointed out previously in the November1947 SURVEY, charge account credit was already in line with


March 1949 SUEVEY OF CUEEENT BUSINESS 11prewar relationships by the end of 1947. Similarly, servicecredit appears to be at levels consistent with prewar experi-ence.

Credit terms not predominant influenceWith this perspective, closer examination of recent

trends in consumer credit is warranted. Such an examina-tion cannot, of course, quantify the extent to which changesin credit are due to changes in terms as distinguished fromall the other influences affecting consumer decisions to buyon credit. It does suggest, however, that changes in termshave been less important than other influences.

As shown by table 7, the rise in consumer credit during thefirst three quarters of 1948, after credit controls had beeneliminated, was almost equal to that occurring in the sameperiod of 1947, when Regulation W was effective. In sharpcontrast, the increase in consumer credit for the four months

Table 6.Annual Increases in Consumer Credit, 194648 1[Millions of dollars]

Type of credit

Total consumer creditTotal installment credit

Installment sale creditAutomobileOther ...

Installment loan creditTotal noninstallment credit _ _.

Charge accounts .. ._Single-payment loansService credit

19

Dollars

3,5031,585

655317338

9301,9181,073

743102

46

Percentof total

100.045.218.79.09.6

26.554.830.621 22.9

19

Dollars

3,3252,2771,281

607674996

1,048

55844446

47

Percentof total

100.068.538.518.320.3

30.031.516.813 41.4

19

Dollars

2,4982,0091,256

810446

75348924219552

48

Percentof total

100.080.4

50.332.417.930.119.69.77 82.1

i From Dec. 31 to Dec. 31.Source: Board of Governors of the Federal Reserve System.

ending January, 1949, after controls had been reinstated, wasone-third of the rise in the same months a year earlier.

With the elimination of installment credit controls, down-payment and contract maturity terms in the first 9 monthsof 1948 were substantially easier than in the first 9months of 1947. Downpayment requirements for appliancesand furniture were reduced from one-third to less than one-quarter but those for automobiles were typically unchanged.Contract maturities were lengthened in all lines except, byand large, for prewar used cars.

Table 7.Increases in Consumer Credit 1947-49[Millions of dollars]

Type of credit

Total consumer credit _Total installment credit

Installment sale creditAutomobile. _Other

Installment loan creditTotal noninstallment credit _ . _

Char ere accountsSingle-payment loansService credit

First threequarters

1947

$1, 5971,390

699

460239691

207

-190'350

47

1948

$1, 3891,587

935707228652

-198-385

14839

October1947-Jan-ary 1948

$1,429921

560198362

361508376129

3

October1948-Jan-ary 1949

$561277

1931177684

284

223529

Source: Board of Governors of the Federal Reserve System.1 See "Consumer Credit in the Postwar Period," SURVEY OF CURRENT BUSINESS, Novem

ber 1947.

Despite this relaxation of terms, the increase in installmentloan credit and sale credit, other than automobiles, wasslightly less in the first three quarters of 1948, comparedwith the same period in 1947. The declining ~ rate of in-crease in sales, and therefore the smaller increase in creditoutstanding, was due to the diminished urgency of demandand the actual exhaustion of backlogs in some areas. Pre-sumably the difference would have been even more if con-trols had been continued. It is evident, however, that therelaxation of credit terms was not enough to offset theseother influences.

In contrast, the increase in automobile sale credit washalf again as large in the second period as in the first. Thiswas due in large part to the continued pressure of demand,the increasing availability of passenger cars and the in-creasing proportion of cars sold on installment credit.The light easing of terms with the elimination of controlsmay have been a contributing factor, particularly in in-creased sales of used cars. Noninstallment credit, whichwas uncontrolled in both periods, actually declined for thefirst three quarters of last year.

Reduced credit expension in recent monthsInstallment terms under the reimposed Regulation W

were not substantially different from the typical termsduring the unregulated period but they did result in acurtailment of the extreme range of smaller down paymentand longer contract maturities. To this extent they hadsome effect on the demand for those goods typically boughton installment and on the increase in credit outstanding inthe period October 1948 to January 1949. The evidence sug-gests, however, that they were not a major influence in thisperiod.

The increase in credit for the 4 months ending January1949, was less than half that in the corresponding period in1947-48. Furthermore, the difference was largely in install-ment credit, where controls were reimposed. However,this is a net increase in outstanding credit which reflectsthe higher rate of installment sales in previous months^ onwhich payments were being made in the last 4 months, aswell as the effect of the reimposed controls on new installmentsales. Furthermore, credit controls were only one and notthe most important influence affecting consumer expendi-ture decisions.

While total automobile sale credit outstanding increasedless in the four months ending January 1949 than in thesame period a year earlier, reports from sales finance com-panies, which account for almost two-thirds of the install-ment sale credit outstanding on motor vehicles, suggest thatthe difference occurred primarily in used car financing.

As shown by table 8, new passenger car financing by thesecompanies was larger in these 4 months than in the sameperiod a year earlier. New car sales, and presumably in-stallment financing, were still limited mainly by productionrather than by any lack of demand.

The change in credit outstanding is, o/ course, a functionof repayments as well as installment sales. The increasebetween these two periods in the rate at which new install-ment loans were being granted was not so large as the in-crease in payments on existing installment credit. Thishigher rate of repayments reflects the much larger volumeof credit already outstanding at the beginning of the secondperiod as the result of the higher rate of sales in previousmonths. With repayments increasing more than new loansas compared with the previous year, there was a smallernet increase in credit outstanding.


12 SURVEY OF CUREENT BUSINESS March 1949Table 8.Volume of Automotive Retail Installment Paper

Acquired by Sales Finance Companies[Index Numbers, January 1947=100]

Months

JanuaryFebruaryMarchAprilMayJune

JulyAugustSep teroberOctoberDecember

New passenger cars

1947

100.0107.0131.6139.5132.5136.5143.3133.3141.3175.2187.4226.8

1948

222.3195.6256.2225.5178.1204.8223.2254.4246.8212.2258.8282.0

1949

236.9

Used passenger cars

1947

100.0110.0134.2143.6146.5146.5149.4146.4159.6158.0156.4164.2

1948

152.7166.4264.6275.2242.2259.2264.4267.0280.4196.3214.0214.0

1949

184.0

Source: Board of Governors of the Federal Reserve System. Reports are based on repre-sentative sample which accounts for the bulk of all Sales Finance Companies. Index numberscomputed by Office of Business Economics from month to month percentage changes.

While used car financing in the fourth quarter of 1948 wasabove the comparable period of 1947 it was well below theprevious 7 months. This indicates that installment paymentsexceeded new installment sales resulting in a net decline incredit outstanding on used cars.

Importance of declining backlogsThe reimposition of Regulation W contributed to some

extent to the used car decline as well as the gradual shift fromhigher priced to lower priced cars and the generally lesseningpressure of demand all along the line in recent months. Moreimportantly, however, these changes are understandable interms of the analysis of backlog demand presented in theApril, 1948, SURVEY. While the demand for automobiles isstill strong, many of the more urgent requirements have beensatisfied.

As in the case of automobiles the installment terms forother consumer durables under the reimposed Regulation Wwere not too different from those typically prevailing in theunregulated period. To the extent that the regulation dideliminate the more than typically easy terms, however, it didmean some curbing of demand.

More important than any change in credit terms was thefact that backlogs in many of these items have diminished ordisappeared. Again this is in line with the analysis of thebacklogs in the April 1948 issue of the SURVEY. As the moreurgent demands were satisfied there was necessarily someleveling off of the upward trend of new installment sales.

Furthermore the net increase in credit outstanding, whichwas only one-fifth as large in the 4 months ending January1949 as in the same period of 1947-48, was affected by thehigh rate of payments on the large volume of installmentsales made earlier in 1948.

Table 7 indicates the smaller increase in installment loancredit outstanding in the 4 months ending January 1949, ascompared with the comparable period a year earlier whichis even more striking than the difference in installment salecredit outstanding. Insofar as these installment loans areused directly or indirectly for the purchase of consumer-durable goods they are subject to the same influences as theinstallment sale credit discussed above. Insofar as they areused to meet emergencies such as major medical expensesthe volume of credit outstanding has tended to rise in linewith the higher than prewar incomes and living costs. Witha smaller rate of increase in incomes and a leveling off of theupward trend in living costs, the further increase in creditoutstanding has been reduced. While the reimposition ofcredit terms undoubtedly was a contributing factor the cor-respondingly smaller increase in single payment loans, alsoshown in table 7, suggests that these terms were not themajor influence. The single payment loans were not subjectto controls in either period.

The experience of jewelry stores indicated in table 9 sug-gests that where sales have declined because of other influ-ences affecting expenditure decisions, even though consumerincomes are maintained, increased credit has not offset thattendency. Jewelry sales were the first to show weaknessafter the postwar peak which in this instance was reached in1946. While sales declined in the next 2 years the amountof credit outstanding almost doubled.Table 9.Sales and Installment Credit for Selected Retail Stores

[Index Numbers, 1939=100 for Sales; December 1939=100 for Accounts Outstanding]

Year

1946 . .19471948

Furniture stores

Sales i

265312329

Accountsoutstand-

ing (end ofyear)

6594

112

Household appli-ance stores

Sales 2

316463512

Accountsoutstand-

ing (end ofyear)

101929

Jewelry stores

Sales

371362333

Accountsoutstand-ing (end of

year)

126197240

1 Furniture and housefurnishings.

2 Household appliances and radios.Source: Board of Governors of the Federal Reserve System for accounts outstanding and

U. S. Department of Commerce, Office of Business Economics for sales.

International Transactions by Major Areas, Third Quarter 19481ABOUT half of the decline in the export balance on goods

and services from 1,629 million dollars in the second quarterto 1,243 million in the third was due to changes in our trans-actions with Canada. Net exports to Latin America andthe EKP countries (including their dependencies) declinedby only about 100 million dollars for each of these groups ofcountries.

A balance with Canada was achieved mainly through anincrease of United States imports, merchandise as well asservices. The rise in service imports, however, was due tothe increase of tourist expenditures which occurs regularlyat this season. It should be assumed, therefore, that thethird quarter transactions indicate that Canada has already

1 Estimates of the international transactions by areas will henceforth be published at the

time of revision of the global data, three months after the first global estimates are madeavailable. This lag is due to late receipt of detailed data required for the area break-down.

succeeded in balancing its transactions with the UnitedStates. Even before the war Canada had to rely upondollars received from its export surplus to Europe to pay forits import surplus from the United States, and is still,though to a lesser extent than in 1947 or in the first quarterof 1948, dependent upon dollars received from Europe tomeet expenses in this country.

The improvement in the balance of payments with theEKP countries was considerably smaller than during thepreceding quarter and was due primarily to a seasonal risein tourist expenditures. Because of larger dollar receiptsunder the European Recovery and other Government aidprograms, the need by the ERP countries to reduce theirdollar deficits became less urgent.

Significantly, the increase of about 240 million dollars overthe second quarter in Government aid to the ERP countries


March 1949 SUKVEY OF CUREENT BUSINESS 13

did not induce these countries to increase their import surplusfrom the United States but rather to reduce their drawingsupon gold and dollar assets.

The decline of the export balance on goods and serviceswith Latin America reflected entirely lower exports. In fact,imports also declined from the high amounts reached in thefirst and second quarters of 1948. As was pointed out in theFebruary issue of the SURVEY in chart 24, page 30, importsfrom North and South America during the first three quartersof 1948 were higher than, might have been expected on thebasis of the prewar relationship between imports and domes-tic production. Consequently it appears likely that the de-velopments during the third quarter indicate the pattern bywhich the gap between current dollar receipts and expendi-tures by Latin America will be reduced. During the thirdquarter of 1948 this gap declined to about 40 million dollarsas against about 70 million dollars in the preceding quarter.

Dollar transfers between foreign areas declined from thesecond to the third quarter, but the direction of the flow ofdollars from Europe and the countries in the "all other'7group, mainly the independent countries of Africa, Asia andOceania, to Canada and Latin America did not change. Thedecline in the flow of dollars appears to be due to smaller

Eayments by the ERP countries to Canada reflecting a betteralance in the transactions between these countries. Sincetotal Canadian exports rose less than United States importsfrom Canada it seems that Canada diverted exports from

other countries, primarily Europe, to the United States andthus increased its dollar earnings. The better balance inCanadian transactions with Europe was accomplished, there-fore, by smaller imports rather than by expanded exports byEurope.

Dollar receipts by Latin America from other areas appar-ently remained unchanged from the second and first quartersof the year, although about 40 million dollars of goods wereshipped from that area to the ERP countries under theEuropean Recovery Program in the third quarter.

The contributions of the European dependencies to thedollar supply of the mother countries do not fully appear inthe accompanying table. Certain colonial products, prin-cipally tin, are sold to us by the government of the mothercountry'in this case the United Kingdomand are, there-fore, included in our imports from that country.

The third quarter still reflected the contraction of tradebetween the rest of the world, on the one hand, and theUnited States and those countries, mainly Canada, whichrequire payment in dollars, on the other. The conservationof dollars during the third and preceding quarters of 1948,however, reinforced substantially by increased dollar dis-bursements by the Government under the European Recov-ery Program, made it possible during the following 3 months'period to end the contraction in foreign expenditures. Thesedevelopments are discussed in the following analysis of theinternational transactions during the year 1948.

Table 10.International Transactions of the United States, by Areas, First Three Quarters of 1948[Millions of dollars]

Item

Exports of goods and serv-ices:

Merchandise, adjusted..TransportationTravelMiscellaneous services...Income on investments..

TotalImports of goods and

services:Merchandise, adjusted..TransportationTravelMiscellaneous services. _.Income on investments..

TotalNet balance on goods and

servicesUnilateral transfers (net) :

PrivateGovernment

TotalLong-term capital (net) :

United States privateU S GovernmentForeign capital

TotalGold and short-term cap-

ital:Net purchases ( ) or

sales (+) of gold _Net m o v e m e n t s of

United States short-term capital abroad. _ .

Net movement of for-eign short-term capi-ital in the United States..

Total

Transfers of funds betweenforeign areas (receiptsfrom other areas ( ),payments to other areas(+), and errors andomissions) _

ERP countries

I

1,424167138060

1,744

2818916

12342

551

+1, 193

-86-617-703

-27-512-54

-593

-263

-20

+83

-200

+303

II

1,138141179333

1,422

29310632

14539

615

+807

-90-660-750

-21-46

-101-168

-399

+14

-31

-416

+527

III

1,085161169161

1,414

28413361

13445

657

+757

77-940

-1,017

+6-3

-19-16

-106

-6

-2

-114

+390

ERP depend-encies

I

1889343

207

1892741

203

+4

-8

-8

-1-1+2

+2

-4

Q

-11

+15

II

1938228

213

1452581

161

+52

i+1

9S

-1

-24

+2

+1

-20

-17

-11

III

154531

20

183

1602551

173

+10

-2

-?

-25

-5

-30

+3

+2

+30

+35

-13

Other Europe

I

1019121

114

485141

59

+55

34-1

-35

+5-24

-19

+4

-11

-1

8

+7

II

37, 5

141

48

496131

60

-12

-30

-30

-3-7-1

-11

+2

-8

-22

-28

+81

III

415125

54

487161

63

-9

-23

-23

-13+15

+2

+7

-15-8

+38

Canada andNewfoundland

I

43012219

57529

340172477

395

+134

+1

-1450

-4

68

-1

+5

+87+91

157

II

49815319

86639

369195478

457

+182

+2

+1

-56-89+15

-130

+62

+3

+84

+149

-202

III

49017371055

609

42620

1408

24

618

-9

-2-2

-160+140

-222

o

+96+94

-61

Latin AmericanRepublics

I

86077202992

1,078

7153947213

825

+253

4-2

-6

-1916

+6-29

+5

-14

-19-28

-190

II

838652522

1251,075

6693939202

769

+306

5-2

7

-365-9

-50

-81

+9

+21

-51

-198

III

678672722

114

908

5964545142

702

+206

7-2-9

-27+3-6

-55

+47

+13

+5

-196

All other coun-tries

I

653595

2715

759

36294

832

460

+299

30-153-183

-1+3+1

+3

-93

+29

-29

-93

-26

II

685514

2052

812

34686

1553

518

+294

-34-94

-128

-4815

-4

-67

-112

+9

-34

-137

+38

III

63749

41863

771

37085

925

480

+291

27-259-286

-3597

-7-69

-163

+12

+71

-80

+144

Total foreign countries

I

3,65633363

151228

4,431

1,93516199

24256

2,493

+1,938

161-774

-935

-57-600-49

-706

-346

-15

+112

-249

-48

II

3,38928580

150305

4,209

1,871180137338

54

2,580

+1,629

158-756-914

-187-162-101-450

-526

+28

-2

-500

+235

III

3,08530488

144318

3,939

1,88421525725978

2,693

+1,246

136-1,203-1,339

-229+118-30

-141

-323

+62

+193-68

+302

Internationalinstitutions

I

2

83

13

11

2

+11

-33-33

-2

-257-259

+281

II

12

12

5

61

12

-39-39

+5+5

-78

-78

+112

III

173

20

8

141

23

-3

-11

-11

-7-3

-10

+3

-1

-18-16

+40

Total

I

3,65833363

159231

4,444

1,93516199

24357

2,495

+1, 949

-161-807-968

-57-600-49

-706

-348

-15

-145-508

+233

II

3,38928580

162305

4,221

1,87618013734455

2,592

+1,629

-158-795-953

-187-Ib2-96

-445

-526

+28

-80

-578

+347

III

3,08530488

161321

3,959

1,89221525727379

2,716

+1, 243

-136-1,214

-1,350

-236+115-30

- -151

-320

+61

+175-84

+342



By Walther Lederer

International TransactionsDuring 1948

Di"URING the fourth quarter of 1948 the downward trendin exports which had extended from the second quarter of 1947was apparently terminated and replaced by a nefw rise.This rise was not limited to ERP countries, but was relativelyeven greater in our exports to North and South America, andOceania. The greater dollar disbursements by the Govern-ment under the European Recovery Program, together withthe progress made by many foreign countries during theprevious quarters in balancing their dollar transactions, wereresponsible for improved financial conditions abroad, whichin turn apparently permitted some relaxation of importrestrictions.Foreign aid rising

The rise of disbursements under the European RecoveryProgram by more than 500 million dollars was not fullyreflected in total Government grants, mainly because of a200 million dollars decline in Army shipments of civiliansupplies to occupied areas. The nearly 1,100 million dollarsof ERP aid (see table 5) included 81.4 million dollars whichat the end of December had been declared to be part of the1 billion dollars of total ERP aid which, according to theForeign Assistance Act of 1948, has to consist of repayableloans. However, since the change of this amount in Treas-ury records from grants to loans was not completed beforethe end of the year, the disbursement was still classified asa grant in the balance of payments statistics. To achievethe required relationship between loans and grants ERPdisbursements for the first quarter 1949 to a large extentwill be in the form of loans.

ERP disbursements in the fourth quarter of 1948, despitethe sharp increase, were still less than the rate of more than1,200 million dollars per quarter permitted by the budgetfor the first year. A further rise in disbursements should beexpected, therefore, during the early part of 1949, particu-larly if the backlog of undisbursed purchase authorizationsis to be reduced. Disbursements under the civilian supplyprogram were likewise less than the quarterly rate permittedin the budget and higher shipments during the early partof 1949 are also expected under this program.

Offsetting the aid rendered to foreign countries are receiptsof strategic materials and administrative services fromforeign countries, purchased with funds deposited abroad tothe credit of the United Statesthe so-called counterpartfunds. These funds amount to 5 percent of the grantsfurnished to each of the countries participating in the re-covery program and consist of inconvertible currencies of thecountries receiving the aid. In the balance of payments aspresented here, merchandise and services actually received

NOTE.Mr. Lederer is Assistant bOhief, International Economics Division, Office of

Business Economics.14

are classified as unilateral receipts, and the unused portionof these funds is omitted both from unilateral receipts andGovernment short-term assets.Dollars added to foreign reserves

Although net Government aid increased by nearly 450million dollars from the preceding quarter, exports of goodsand services increased by little more than half that amount.The fact that higher Government disbursements were notreflected in larger expenditures here by foreign countriesmay be ascribed to the fact that a considerable part of thedisbursements" took place during the last weeks of Decemberand represented reimbursements to foreign governments forpurchases made in earlier periods, and financed at that timethrough drawings upon their own gold and dollar reserves.Consequently, the aid disbursements made it possible forsome of the recipient countries, particularly the UnitedKingdom, to recover some of the gold and dollar losses in-curred since the start of the European Recovery Program.In addition, several of the countries of the Western Hemi-sphere were ablein spite of higher purchases in the UnitedStatesto strengthen their reserves by retaining a part ofthe dollars obtained from "offshore purchases" under theprogram and from higher exports to the United States.

For the first time since the end of 1945 some of the dollarspaid to foreign countries by the United States were not usedfor purchases of goods and services here, but were added toforeign reserves (see chart 1). This represents a contin-uation of the trends discussed in the December issue of theSURVEY (pp. 8-10) and illustrated there in chart 5. Com-pared to a liquidation of foreign dollar assets of 156 millionin the third quarter foreign countries accumulated 216million in the fourth. However, unlike foreign dollaraccumulations during the war, which were due to scarcitiesof exportable supplies in the United States, the accumulationsduring recent months may be ascribed to the desire on thepart of foreign countries to raise their reserves. At thesame time, however, this tendency indicates also that theneed for imports abroad has somewhat diminished so thatevery increase in dollar receipts is not used immediately toincrease purchases in the United States.

Merchandise imports supply moredollar exchange

Imports of goods and services during the fourth quarterwere slightly smaller than in the preceding 3 months period.The decline was, however, less than the seasonal reductionin tourist expenditures because merchandise imports con-tinued to rise. The rise of recorded imports by 150 milliondollars to an annual rate of about 7.5 billion dollars was due



Chart 1.Sources and Utilization of Dollar Funds of Foreign Countries l15


BILLIONS OF DOLLARS

SOURCES

OTHER KNOWN'SOURCES (NET) LIQUIDATION

iOF GOLD AND

DOLLAR ASSETS

EXPORTS OF GOODS ANDSERVICES TO U. S

UTILIZATION

INCREASE OF GOLD AND DOLLAR ASSETS.

IMPORTS OF GOODS ANDSERVICES FROM U. S.

1945 1946 1947

V. S. DEPARTMENT OF COMMENCE, OFFICE OF BUSINESS ECONOMICS.

1948 1945QUARTERLY TOTALS

1946 1947 1948

i The differences between the totals for sources and utilization of funds are due to unknown transactions.Source of data: U. S. Department of Commerce, Office of Business Economics.

entirely to an increase in the volume of imports since averageunit values did not change from the preceding quarter.

Nearly all areas shared in the increase, indicating furtherprogress abroad in raising production and stimulating exportsto the United States. Although some success was thusattained by foreign countries in their effort to increase theircurrent earnings to meet a higher share of their expenses inthe United States, foreign sales in this country in the fourthquarter were still considerably less than the amount thatmight have been sold here on the basis of the prewar relation-ships between domestic production and imports. This sub-ject was discussed in the February issue of the SURVEY.

The net outflow of direct investment capital showed theusual seasonal rise which is due mainly to book transfers offunds from capital account to earnings and is offset by aseasonal increase in income on foreign investments. How-ever, short-term assets abroad continued to decline, reflectingpartly the decline in export trade during the last year andpartly the better financial position of some foreign countrieswhich permitted them to reduce their short-term liabilities.Export surplus declined 40 percent during 1948.

Reviewing the international transactions of the UnitedStates during the year as a whole and comparing them withthose during 1947, the outstanding developments wereprobably the adjustments of foreign countries to the reduc-tions in their gold and dollar reserves. During 1947 foreigncountries financed about 4.5 billion dollars of their purchasesin the United States from their reserves; in 1948 purchasesfinanced from these sources shrank to about 860 milliondollars, all of which were concentrated in the first half of

, the year.Net Government aid, both grants and loans, including dis-

bursements of nearly 1.9 billion dollars under the EuropeanRecovery Program, was about 1 billion dollars less than in1947 and dollar disbursements by the International Bankand the Monetary Fund declined by about 400 million dollars.

To meet this decline of dollar supplies of about 5 billion

dollars foreign countries increased their exports to theUnited States by 2 billion dollars and reduced their pur-chases here by 3 billion dollars. Thus, the adjustment tothe lower dollar supply was not accomplished solely by adecline of exports of goods and services from the United

Chart 2.Total Merchandise Imports of Foreign Countriesand Merchandise Exports from the United States


40

30

20

10

TOTAL IMPORTSOF FOREIGNCOUNTRIES-^/ I U. S.I EXPORTS

1937 47 48ALL COUNTRIES

(937 47 48EUROPE

f937 47 48WESTERN

HEMISPHERE

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