SCB_071945

JULY 1945

SURVEY OF

CURRENTBUSINESS

UNITED STATES DEPARTMENT OF COMMERCE

BUREAU OF FOREIGN AND DOMESTIC COMMERCE

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

Survey ofCURRENTm SIM:S

VOLUME 25, No. 7 JULY 1945

Statutory Functions "The Bureau ofForeign and Domestic Commerce . tofoster9 promote, and develop the foreignand domestic commerce of the UnitedStates" [Law creating the Bureau, Aug.23,1912 137 Stat. 4081.1

Department of CommerceField Service

Atlanta 3, Ga., 603 Rhodes Bldg.Boston 9, Mass., 1800 Customhouse.Buffalo 3, N. Y., 242 Federal Bldg.Charleston 3, S. C, Chamber of Commerce

Bldg.Chicago 4, 111., 357 U. S. Courthouse.Cincinnati 2, Ohio, Chamber of Crnimerce.Cleveland 14, Ohio, 753 Union Commerce Bldg.,

Euclid Ave. at East 9th St.Dallas 2, Tex., Chamber of Commerce Bldg.Denver 2, Colo., 566 Customhouse.Detroit 26, Mich., 1018 New Federal Bldg.Houston 14, Tex., 603 Federal Office Bldg.Jacksonville 1, Fla., 425 Federal Bldg.Kansas City 6, Mo., 724 Dwight Bldg.Los Angeles 12, Calif., 1540 U. S. Post Office

and Courthouse.Memphis 3, Tenn., 229 Federal Bldg.Minneapolis 1, Minn., 201 Federal Bldg.New Orleans 12, La,, 408 Maritime Bldg.New York 18, N. Y., 17th Floor, 130 W. 42d St.Philadelphia 2, Pa., 1510 Chestnut St.Pittsburgh 19, Pa., 1013 New Federal Bldg.Portland 4, Oreg., Room 313, 520 S. W. Mor-

rison St.Richmond 19, Va., Room 2, Mezzanine, 801

E. Broad St.St. Louis 1, Mo., 107 New Federal Bldg.San Francisco 11, Calif., 307 Customhouse.Savannah, Ga., 513 Liberty National Bank and

Trust Bldg., Bull and Broughtin Sts.Seattle 4, Wash., 809 Federal Office Bldg.

ContentsPage

1THE BUSINESS SITUATIONForeign Trade Prospects . . . . . . 4Merchant Shipping 8

New Residential Construction 9

NATIONAL ECONOMIC ACTIVITY IN 1945 . 10

PLANNED CAPITAL OUTLAYS ANDFINANCING 15

STATISTICAL DATA:New or Revised Series 24Monthly Business Statistics S-lGeneral Index Inside back cover

1 OtCConten t s of this publication are not copyrighted andmay be reprinted freely. Mention of source will be appreciated.

Published by the Bureau of Foreign and Domestic Commerce, AMOS E. TAYLOR, DirectorDepartment of Com-merce, HENRY A. WALLACE, Secretary. Subscription price $2 a year; Foreign, $2.75. Single copies, 20 cents. Priceof the 1942 Supplement, the last issued, 50 cents. Make remittances direct to the Superintendent of Documents,United States Government Printing Office, Washington 25, D. C.


The Business SituationBy Division of Research and Statistics, Bureau of Foreign and Domestic Commerce

THE drift during June was in thedirection of gradual easing of thepressure upon the economy, as the ini-tial steps were taken to adjust the warmachine for the final smashing of theJapanese Empire. That it was a drift,rather than a sharp shift, is attributableto the fact that adjustments in the out-put of war goods and in the size of thearmed forces were comparatively minor,only an earnest of the reductions to beexperienced later in the year.

The main impact of the change hasbeen in the volume of new orders flow-ing to manufacturers. Buyers are eagerto place commitments for most lines ofgoods, but considerable confusion nat-urally exists about the ability to deliverenlarged quantities of consumers' dura-ble and nondurable goods over the nextfew months, and adjustments of mili-tary schedules require net cancellations

of substantial size, rather than increasedcommitments.Adjustments in New Orders

The general tendency for the durablegoods industries is evident from the ac-companying chart of the flow of neworders in relation to shipments. Themain outlines of the curves for new or-ders since last winter are similar in eachof the four groups of durable goods in-dustries shown in chart 1. The declinessince March are in part a reaction to theinordinate rise in orders that occurredin response to the "Belgium Bulge" psy-chology and which had little relation toanticipated changes in production.

The rapid upswing in orders piled upunreal backlogs that had to be clearedaway if the road to reconversion wasto be opened. The accelerated decreaseof new orders in Maythe first sign of

Chart 1.Shipments and New Orders for Selected Durable Goods Manu-facturing Industries

' SHIPMENTS ORDERS

INDEX, JAN. 1944 = 100>00

50

100

50

0

IRON a STEEL

a PRODUCTS

-

1 1 1 ! 1 1 1 1 1 1 !

11r

i

iti

-

1 1 1 1 1 1 1 1 t

INDEX, JAN. 1944 = 100200

H 150

H IOO

2 0 0

150

100

50

MACHINERY,EXCEPT ELEC.

ELECTRICALMACHINERY

i i i i i I i i i i i 1 i i i i i I i i i i i 1 0

OTHER DURABLEGOODS^

150

100

5 0

i i I ) 1 i i i i I 1 i i i i i 1 i i i i i 1 1 i i I i i I i i i i i i i i i i ! I i I i I I 1 01944 1945 1944 1945 DO. 45-481

1 Data do not include aircraft, shipbuilding, nor automobile industries.Source: U. S. Department of Commerce.

64944245 1

post VE-day cutbackswas a start inthe direction of bringing the order boardsin a more realistic alignment with thenew munitions outlook. The straighten-ing-out of the order boards is a neces-sary prerequisite for business in plan-ning resumption of civilian output.

An illustration of how quickly the ef-fects of cutbacks are spread can be seenin the antifriction bearings industry.The latter, though a relatively small in-dustry, manufactures products that arevery widely used in combat equipment aswell as in civilian metal goods.

In May, as the growing volume of cut-backs became known, cancellations oforders for ball and roller bearings weremore than 2Y2 times those of the pre-ceding month and amounted to half theMay volume of shipments. This develop-ment, however, v/as only a sign of thetimes and could have little immediateimpact on the disposition of productiveactivity. For, despite the increase incancellations, unfilled orders still repre-sented a backlog of over 6 months at thecurrent rate of shipments.

The same picture holds generally fordurable goods as a whole. Though thedownward swing in new orders has en-croached some on total volume of un-filled orders, the decline has as yet notassumed such proportions as to seriouslyaffect output, as can be seen in the heavylines on chart 1, which measure thedollar value of shipments.Steel the Big Factor

The most important pressure area isseen in the upper left-hand panel ofthe chart. This is the steel producing in-dustry. Orders after the German winterdrive soared to almost double the rateat the beginning of 1944. If order bookscould be cleared of all the future steelnot required by reason of the cutbacksin military production, the relationshipof orders to shipments would be quitedifferent from the deficit tonnages of re-cent months-a paper deficit that re-flected psychology rather than a reallytight situation produced by armamentneeds.

There will be available in the secondhalf of 1945 large amount of steel toexpand the output of nonmilitary goods.Considerable unscrambling of the ordersis yet necessary to get this freed steelflowing into final products.

The adjustment in machinery has beeneven less prompt than in the case ofsteel products, though in electrical thedecline in the ship program over the pastyear has been reflected in a downwardtendency of new orders. New orders formachinery, other than electrical, in-creased between March and April andshowed a lesser proportional decline inMay than in the case of the otherindustries.


SURVEY OF CURRENT BUSINESS

Chart 2.Selected Business Indicators

July 1945

INDEX, !939 = !004 0 0

3 0 0

2 0 0

100

0

TOTAL INCOME PAYMENT!(SEASONALLY ADJUSTED)

-

11 i 1 1 111 1 1 i

^ ^

1 1 I! ! ! 1 1 1 1 !

+ -

! 1 I 1 1 1 1 II I 1

-

-

i 1 1 1 1 1 1 1 1 1 1

INDEX, 1941-42 = 1004 0 0

3 0 0

2 0 0

100

0

MUNITIONS PRODUCTION

-

\AV1 I! 1 1 | | | 1 M

/

11iii! i II II

-

II111111111

INDEX, 1939 = 100400

- 300 -

- 200 -

100 -

INDEX, 1939 = 1004001

SALARIES AND WAGES(SEASONALLY ADJUSTED)

INDEX, 1939 = 100400

- 300

- 200

- 100

AGRICULTURAL INCOME PAYMENTS(SEASONALLY ADJUSTED)

- 300

- 200

- 100

PRODUCTION OF STEEL INGOTSAND STEEL FOR CASTINGS(DAILY AVERAGE BASIS)

INDEX, 1939 = 1004 0 0

3 0 0

2 0 0

100

0

MANUFACTURING

MUM

y

i ! | ! I | I ! LI 1

TIONS ^/*v

OTHER

M I M 1 i i i i i

EMPLOYMENT^

111II! 11111 II111! i I I 11

0 i II I 1 I I I II I I 1 i I! I I i I I ! I I 1 I I I M I I I I I I . I I I I i I l I I I

INDEX, 1939-100400

INDEX, AV. MO. 1939 = 100400

MANUFACTURERS* SHIPMENTSAND INVENTORIES

(

- SHIPMENTS3 0 0

2 0 0

100

INDEX, 1939=100

- 300

- 200

too

COMMODITY TRANSPORTATION(SEASONALLY ADJUSTED)

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

INDEX, 1939= 1004 0 0

3 0 0

2 0 0

100

0

SALES OF(SEASONALLY

-

-

I I M l l l M I t i l l

RETAILADJUSTED)

il l II 11

MX*

II

STORES1

nhii.u,

-

M I M l l M I .

INDEX, S939-I00400 r~

INDEX, 1939 = 100

- 300 -

- 200

100

RETAIL PRICES,ALL COMMODITIES

niiiini 111111111 11111111 II

4 0 0

3 0 0

2 0 0

100

0

CORPORATE PROAFTER TAXES

-

1 I ! . ! 1

FITS,

,i 1 '

-

-

,_., j ,.].. !

4 0 0

3 0 0

2 0 0

iOO

0

STOCK PRICES(402 STOCKS)

I l l l l l t l l l l

^ ~

,

* -

I I . M h . M

i

\|

-Ii

" J

M . M i i i i n1942 1343 1944 1945 IS42 1943 1944 1945 1942 1943 1944 1945

0. 0. 45--1J91 Includes all full-time and part-time wage earners and salaried workers in manufacturing industries who are employed during the pay period ending

nearest the 15th of the month.2 Includes all metal-using industries, the rubber industry, selected chemical industries, and government-operated navy yards and manufacturing

arsenals.Sources : U. S. Department of Commerce except for the following : Munitions production, Fads for Industry, War Production Board ; steel ingots,

etc,, basic data from American Iron and Steel Institute ; manufacturing employment, U. S. Department of Labor; stock prices, Standard and Poor'sCorporation.Digitized for FRASER

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

July 1945 SURVEY OF CURRENT BUSINESS

New orders for this category of equip-ment, especially metal-working ma-chinery, were bolstered by two factors:Foreign orders and demand for ma-chinery needed for reconversion tocivilian output. This pattern is similarto the period of conversion to war, whendemand for metal-working machinerywas the forerunner of the increasing de-mand for metal goods generally.

For durable goods as a whole, it canbe expected that new orders will continueto go down for awhile. The pick-up willcome again when reconversion really getsunderway. However, except under con-ditions of inflation, the absolute levelof new orders will remain below therecent highs.

Volume of Cutbacks IncreaseWhile the flow of shipments from man-

ufacturers through June was maintained,as the armed services did not immedi-ately curb the flow substantially with thecoming of VE-day, the trend during thesecond half of the year will be downwardbecause nonmunitions output cannot risesufficiently to compensate for the dropthat will occur in munitions. Mean-while, of course, the inventories of ma-teriel are piling up, with the currentrate of use much below the rate of outputwhich in turn was ample to sustain oper-ations when two-thirds of our overseasland forces were engaged in Europe.

By the end of June, the munitions pro-gram for 1945 had been reduced to about50 billion dollars, as contrasted with the61 billion scheduled at the beginning ofthe year. Since the declines in the firsthalf of the year were moderate, thismeans a substantial reduction in the finalhalf of this yearprobably by close to30 percent in the last quarter from theoutput of the initial quarter. The effectsof the shifting war program are analyzedin the article "National Economic Activ-ity in 1945" in this issue.

The most significant development inthe reductions of schedules introducedin June occurred in the case of combatand motor vehicles. The new schedulescall for halving of output between thefirst and last quarters of this year. Thiswill assure adequate facilities by the lastquarter of 1945 for the proposed resump-tion of passenger car production.

Although one of the most importantimpediments to reconversion of the au-tomotive industry thus was removed lastmonth, the road to large-scale produc-tion is by no means cleared. Adequatesupplies of steel, textiles, plastics, com-ponents, machine tools, and dies and fix-tures, are still not assured. Procure-ment of these supplies and getting pro-duction started this year will dependupon the ingenuity and expediting pres-sure of the individual companies.

June also witnessed another cutbackin ammunition. It was pointed out inlast month's SURVEY that as of the endof May, despite the shift to a one-frontwar, fourth quarter schedules called formore ammunition than had been pro-duced in the first quarter of this year.Further reductions this past month havebrought down projected ammunition

output at the end of this year to 7 per-cent below that of the first quarter. Fur-ther and large cutbacks can be expectedin this field. Such reductions are signifi-cant from the industrial standpoint,since some 15 percent of the heavy am-munition orders are concentrated in theautomotive industry and over 60 percentare widely distributed among manyplants important for reconversion.Most Indicators Show Stability

The running out of contracts, and thedecline in production ahead, has causeda reduction in munitions employment of400,000 during the past 2 months. Theseseparations have not resulted in anynoteworthy increase as yet in either thevolume of unemployment or in the claimsfor unemployment insurance benefits.

Aside from new orders for durables andmunitions employment, the general indi-cators of economic activity are charac-terized by the absence of strong move-ment. Where changes are indicated theypoint downward, but the downturns aresmall. This is seen from an examinationof the panels in chart 2. Although mostof the series are plotted only to May, thesame tendency prevailed in June.

The movement of the commoditytransportation index to a wartime highin March is not to be taken as suggestiveof a trend, rather it followed from thedifficulties of the railroads during thesevere winter weather and the conse-quent accumulation of movements inMarch and April. For the year to date,commodity transportation activity isabout the same as in the comparableperiod last year. Manufacturing ship-ments, employment in nonmunitionsmanufacturing, profits, and retail pricesall show movements that are relativelyminor. The shift in the basic pattern is,however, indicated in the series on in-come and consumer expenditures.

Rise in Income Payments RetardedThe persistent rise in income pay-

ments has ended, with April and Maybeing slightly below March. Income pay-ments in May were, however, still at aseasonally adjusted annual rate of 163billion dollars4 percent above the rec-ord year of 1944 when payments totalled156.8 billion dollars.

Again it is the influences responsiblefor the retardation rather than its mag-niture that is of major interest. Suchimportant factors of the civilian econ-omy as agricultural income payments,manufacturing wages and salaries andincome from trade experienced declinesfrom February to May. The chief offsetto these declines were Federal interestpayments, and payments to the militarypersonnel, including mustering-out payand dependents' allowances.

Although mustering-out payments willincrease under present military dis-charge policies, the planned reductionsin the size of the Army will serve to sta-bilize military payments in the future.This factor, plus the continued decreasein manufacturing employment and thedecline in retail trade discussed else-where suggests that the peak in incomepayments has now been passed.

Consumer Expenditures DropLikewise symptomatic of the slight re-

cession in business activity is the declinein consumer expenditures in recentmonths. Indications are that the sea-sonally-adjusted dollar volume of con-sumer expenditures for goods and serv-ices in the second quarter of this yearwill be off several percent from the 104billion dollar annual rate of the firstquarter.

Evidence of this falling-off is to befound in sales of retail stores (see chart2). The upward trend in sales carriedthrough March, with April and May each10 percent below the first quarter on aseasonally adjusted basis. Althoughpreliminary indications are that sales re-covered somewhat in June, retail salesin the second quarter of this year will beonly slightly higher than the secondquarter of a year ago, and well belowthose of the first quarter of 1945.

The chief factor in the decline in salesof durable goods stores from May 1944was the drop in sales of motor vehicledealers who did not have as much tosell. The 5 percent reduction from ayear ago in sales of the home furnish-ings group reflects the tight supply situ-ation for lumber and textiles.

Among the nondurable goods stores,eating and drinking places recorded thelargest gain, 8 percent more than May ayear ago. Difficulty in setting a goodmeat course on the table at home is en-couraging dining out, and this is holdingup restaurant sales in spite of the factthat restaurant menus likewise do notoffer the variety of yesteryear.

On the other hand, food store saleshave shown a declining trend since theyear-end. The uneven meat supply sit-uation and the inabilit:/ of late shoppersto trade their red points for red meat ledto the announcement of plans designedto increase civilian supplies and to dis-tribute the available poundage moreequitably, but the effect of the programwill not be felt for several months. Ingeneral, the public continues to eat well,with many individual families procuringwith their war-time incomes much moreadequate diets than those which theywere able to maintain prewar.

Inclement weather in May, as well asa reaction from the clothing buying waveof the first quarter, cut sales of appareland general merchandise stores to theMay 1944 level. Sales of women's wearstores alone continued above a year ago.

The decline in retail sales is related toproblems of supplies of desired goodsrather than income. Consumers con-tinue to exercise some discrimination,despite the sellers' market.

In part, the early Easter and the in-crease in sales in the first quarter of theyear may have occurred at the expenseof the second. Although the dollar valueof retail stores' inventories shows littlechange from 1944, consumers experi-enced considerable difficulty in obtainingcertain items. In the case of food, con-sumption is restricted by high rationvalues for some items. It appears alsothat consumers were confused by pros-pects of reconversion and restrainedtheir buying somewhat in anticipation ofnew durable goods coming on the market.


SURVEY OF CURRENT BUSINESS July 1945

Foreign Trade ProspectsThe end of warfare in Europe will

result in major shifts in United Statesexport trade. A decline in total exportshas been underway for some months,as a result of reduced shipments of mili-tary products. Supply and shippinglimitations have also curtailed the ship-ments of nonmilitary products. Not-withstanding the sharp upswing in ex-ports of nonmilitary supplies since earlyspring in 1945, the backlog of demandfor ordinary commercial exports and theadditional demand for relief, reconstruc-tion, and development have hardly beentouched.

The needs of foreign economies pro-vide a potential market for expandingthe exports over a long period ahead. Ina number of areas, notably Latin-America, means of payment have beenaccumulated during the war period forvastly expanded exports to meet de-ferred demands. For the most part, andespecially in liberated Europe, the largerequirements for supplies will be con-verted into effective demand, however,only to the extent that adequatefinancing is available to support reliefand reconstruction or developmentneeds.

With the cutbacks in the military sup-ply program for our armed forces andour Allies, the supply situation for non-military products will improve generally.Nevertheless, supply assistance will con-tinue to be necessary in order to assurea minimum of exports of commoditiesin short supply needed for relief and re-habilitation more particularly, fatsand oils, meats, textiles, fuel, and lum-

ber. Supply assistance will also benecessary for other products in shortsupply, more especially those which willbe needed for a balanced complement ofproducts essential for large-scale recon-struction and development.

In view of the immediacy of foreignneeds, supplies will in any event fallshort of foreign import requirementsthroughout the coming year regardlessof when the war with Japan is concluded.Assuming adequate supply and financialassistance, total exports are, neverthe-less, unlikely to attain the over 14 billiondollar total of 1944.

Exports of military supplies are cer-tain to remain well below the 1944 total.Any shipping thereby released will carrya much smaller dollar value of non-military supplies, because cargo tonnageper dollar of product is higher for non-military goods than military. Shippingavailability will, accordingly continue tolimit the increase in nonmilitary suppliesuntil the end of the war in the Pacific.

Imports, by contrast, may be expectedto increase as compared with the 1944dollar volume. The extent of the in-crease will be determined in part by theability to route military cargo vessels ontheir return trip from the war theatersso as to pick up the commodities avail-able for shipment to the United States.

The influence of some of the factorswhich will dominate the development ofU. S. export and import trade in the nextyear may be discerned in the trade dataof the recent past. The accompanyingcharts are based on data made publicsince foreign trade trends were discussedin the February issue of the SURVEY.

Chart 3.Percentage Distribution of United States Imports for Consump-tion, by Economic Classes

PERCENT100

8 0

6 0

4 0

2 0

CRUDE MATERIALSCRUDE FOODSTUFFSMANUFACTUREDFOODSTUFFS U

SEMIMANUFACTURES

FINISHEDMANUFACTURES

1935-39AVERAGE

1940 194! 1942 1943- ANNUAL TOTALS

1944 a 0. '45-474

1 Includes beverages.

Source: U. S. Department of Commerce.

Import TrendsImports have been rising since 1942,

and reached a total of 3.9 billion dollarsin 1944. Compared with prewar andwith the years 1940-42, the principalchange in the composition of imports asshown in chart 3, has been a marked in-crease in the proportion that crudefoodstuffs are to total importsfromone-seventh in the years 1935-39 to overone-fifth in 1944. From 1943 to 1944 im-ports rose by almost half a billion dol-lars; crude foodstuffs accounted forroughly half of this increase, but thetotals were also somewhat higher in eachof the other broad economic classes.

The upward trend of imports has con-tinued into 1945, with imports for con-sumption in the first 4 months 6 percentlarger than in the same months of lastyear.

In fiscal 1946 the tendency of importswill continue to be upward. Some de-cline in the imports of materials requiredfor war production is to be expected but,at least until VJ-day, such declines willfor most products be largely or whollyoffset by demands for materials arisingfrom civilian production or from Gov-ernment stockpiling programs. Withcivilian and military requirements con-tinuing high, and with sizable commit-ments for food exports, an increase overthe large 1944 import of crude foodstuffswould be possible. However, since themost serious food deficits are in othercountries, any increase in available worldfood supplies may be channeled prima-rily into foreign rather than UnitedStates consumption.

Large backlogs of United States de-mand have accumulated for the productsof European and Asiatic territorieswhich have been or still are occupied bythe enemy, but imports from the lib-erated areas will for some time be lim-ited by the shortage of supplies availablefor export.

Imports from the United Kingdom andsome of the European neutrals will un-doubtedly increase substantially. Im-ports from the U. S. S. R., potentiallylarge under conditions of expandingpostwar foreign trade, cannot be ex-pected in substantial volume in the nextyear because of the enormous internalrequirements of that country.

The actual increase in imports will de-pend largely on the shipping situation.With war-essential imports declining,realization of larger total imports will de-pend upon the feasibility of routing asufficient number of the inbound cargovessels via ports where additional im-ports can be loaded.

Next year's imports of materials willassist in increasing civilian output andin the reemployment of workers laid offas a result of cutbacks in munitions pro-grams. Moreover, all commodity im-ports (other than for stockpiling) willaid in combatting inflationary tenden-cies in the economydirectly, in the caseof consumers' goods, or indirectlly, in thecase of materials for the manufacturingindustries.

Since world shortages of some basiccommodities will continue over the nextyear, the United States demand will bein competition with the rest of the United



Chart 4.Exports of UnitedStates Merchandise *

BILLIONS OF DOLLARS

TOTAL EXPORTS

. ^ TOTALNONMILITARY

1944 1 9 4 5 DO 45-4271 Nonmilitary exports include reexports ; mili-

tary exports are domestic merchandise only.Data do not include shipments to United Statesarmed forces.2

Data include lend-lease and "cash" (nonlend-lease) exports ; the latter represent less than 5percent of the total military exports for anymonth.

Source : U. S. Department of Commerce.

Nations for the limited supplies of suchgoods. Unless an equitable allocationsystem is maintained, the domestic de-mand for sugar and leather, for example,might pull an unreasonable portion ofthese products into our markets, whencontrasted with extremely low consump-tion in other importing countries.

Since the countries which have suchgoods available for export are eager toobtain dollars so that they can purchaseAmerican products, the attainment of anequitable distribution of commodities inshort supply will be facilitated by ade-quate financing.

In sum, a moderate increase in our to-tal imports may be anticipated duringthe next year. Not long after VJ-day,imports should increase strongly as thevolume of goods available for export risesthroughout the world.Recent Export Trends

Although commodity exports (otherthan those of the United States armedforces, which are excluded from all regu-lar trade data) reached the record totalof over 14 billion dollars for the year1944, the trend has been irregularlydownward since the pre-Normandy in-vasion peak in May 1944. For April 1945the figure was 1.0 billion dollars.

The decline since the spring of 1944 inthe volume of military products, asshown in chart 4, accounts for the re-duction in total exports. These militaryexportsincluding specialized combatmateriel, but excluding civilian-typeproducts such as unarmored trucks, radioand radar equipment, or military uni-formshave been almost entirely onLend-Lease account. Since last May themonthly rate of shipment of these prod-ucts has declined by 350 million dollars.

During the past year, nonmilitaryproducts have consistently representedmore than half of Lend-Lease shipments,and by April of this year they werealmost twice as large, in dollar terms, ascombat materiel in the Lend-Lease ex-ports. A fact not generally understoodis that vast amounts of goods such as wenormally export in peacetimema-chinery and tools, trucks, metals, petro-leum products, agricultural products,etc.have moved abroad during the warvia Lend-Lease.

These shipments were part of our wareffort and represented an allocation ofour goods in accordance with the stra-tegic plans for the speedy defeat of theenemies of the United Nations. Oneresult, however, is that American prod-ucts are even more widely known andapproved throughout the world than be-fore the war. In fact, these Lend-Leaseshipments will entail substantial lastingbenefits in the foreign demand for Amer-ican products, under conditions favoringfull international political and economiccooperation in the years ahead.Cash Exports Rising

A breakdown of the nonmilitary ex-ports between Lend-Lease and the so-called "cash" exports is also shown inchart 4. This category includes all ship-ments other than those on Lend-Leaseaccount; for the most part, it has repre-sented the flow of goods against privatecommercial transactions, althoughUNRRA shipments, which began a fewmonths ago, are also included in thecash exports data.

Commercial exports have been increas-ing since early 1943 andfor areas notunder Axis controlthey have been

larger in dollars than they were beforethe war; for 1944 cash exports equalledthe 1935-39 average exports to all areas.Higher export prices, however, make thecomparison with prewar less favorableon a quantity basis. The trend of cashexports has been strongly upward dur-ing the period covered by the chart:The 204 million dollars of cash exportsof nonmiiitary goods in December 1943represented 16 percent of total exportsand the 294 million dollars in April 1945represented 29 percent of the reducedtotal for that month.Finished Manufactures Three-Fourths

The most striking feature of the war-time composition of our tradeas shownin chart 5is the rapid increase duringthe war in the proportion of total exportswhich represent finished manufactures,other than foodstuffs. This trend, gen-erations old in our export trade, has beenstepped up sharply under the compul-sion of war supply problems. A largerand larger part of our exports have beenfabricated to the point where they wereready for installation and use withoutfurther processing.

The world-wide food shortage tem-porarily reversed the long-time down-ward trend of food exports in relation tototal United States exports. Foodstuffsmade up a somewhat larger proportionof our exports during the past 3 yearsthan before the war12.5 percent in1944, for example, as compared with anaverage of 10.2 percent in 1935-39.Urgent relief requirements are likely tosustain the current situation for anotheryear at leastuntil world food produc-tion is restored. Within the foodstuffsgroup, crude foodstuffs have remained at

Chart 5.Percentage Distribution of Exports of United StatesMerchandise, by Economic Classes

PERCENT100

8 0

6 0

4 0

2 0

19401935-39AVERAGE

1 Includes beverages.Source : U. S. Department of Commerce.

1941 1942 1943ANNUAL TOTALS

1944

CRUDE MATERIALS

CRUDE FOODSTUFFS

MANUFACTUREDFOODSTUFFS 1/

SEMIMANUFACTURES

FINISHEDMANUFACTURES

D. D. 45-473


6 SURVEY OF CURRENT BUSINESS July 1945about the prewar level, in dollar volume,while processed foods increased rapidlythrough 1943.Geographic Distribution

Chart 6 compares prewar and 1944exports, according to area of destination.Total exports have increased substan-tially to each of the specified areas ex-cept the group of liberated Europeancountries. The bulk of the Lend-Leaseexports, and of total exports, wasshipped to the United Kingdom andU. S. S. R. Including shipments forBritish use in other parts of the world,the United Kingdom received an evenlarger part of all Lend-Lease exports.

Cash exports to Canada, to the Amer-ican Republics, and to Africa and theNear East in 1944 were well above theprewar average. In the Western Hemi-sphere, there were increases in quantitiesas well as in dollar values. It should benoted that for this chart, Italywhichwas the destination of some 420 milliondollars of lend-lease shipments for theBritish and other allied military forceshas been included among ''all othercountries."

Export ProspectsThe availability of the United States

supplies during fiscal 1946 will continueto be vital to foreign countries. Becauseof the enormous backlog of domestic de-mand which has accumulated during thepast three years, however, most indus-tries can find a vastly enlarged marketfor their products at home during thenext year. In this situation, discontinu-ance of the programming of exports notdirectly related to current and futuremilitary operations is favored by some.This would be an unwise step. Exportpolicies, rather should be guided by ourlonger-run interests and we should con-tinue to share short supplies on an equi-table basis.Requirements

With VE-day the needs of our Alliesfor lend-lease goods with which to fightthe war have decreased substantially.This was pointed out by the Presidentin transmitting the fiscal 1946 defense aidappropriation estimate to Congress earlyin June. The President's message stated,however, that lend-lease will be avail-able to aid in the redeployment of ourtroops from Europe as well as to supple-ment the war effort of our fightingAllies.

Although lend - lease requirementshave declined, other urgent needs existthroughout the world for all of the goodswhich we shall be able to export duringthe next yearand for some time there-after. Relief goods are required in Eu-rope and the Far East to alleviate physi-cal suffering. Equipment exports, inlarge volume, are needed to permit thereconstruction of war-torn areas.

In other countries, and in some of theareas of war destruction, the develop-ment of basic resources is needed. UnitedStates capital goods are also required toaid the reconversion of areas where theeconomy has been distorted by the re-quirements of war production.

For the solution of these problems,United States cooperation has beenpledged repeatedly in expressions of ourforeign policy; the economic side of ourwar aims is the establishment of condi-tions for enlarged world production andconsumption, supported py enlargedtrade among the nations.

An additional, and often no less im-portant, export demand arises from thefact that all over the world, just as in thiscountry, there is an accumulated short-age of a wide range of commodities im-portant in civilian life, especially of dur-able goods. The United States is the onenation able to produce a large export sur-plus to meet a wide range of these re-quirements, and particularly those fordurable goods. The extent to which for-eign needs are translated into exportswill depend upon the availability offinancing, of supplies of particular com-modities, and of shipping.Shipping

As discussed in some detail in the spe-cial section on Merchant Shipping be-low, the prospects are that export ship-

ping will continue tight during the next12 months. Although an accurate fore-cast is not at present possible, it seemsclear that shipping problems will requirecontinuing careful attention if essentialexport programs are to Be met.Financing

Most of our exports during the warhave been financed with lend-leasefunds. Estimates of lend-lease exportsfor the next year have not been madepublic but it is clear that a substantialreduction is in prospect, in consonancewith the smaller combined supply re-quirements of the Allies for the one-front war.

The major part of this reduction willbe accounted for by declining shipmentsof military supplies. With respect to thenonmilitary products handled by FEA,the new appropriation as passed by Con-gress, together with the carry-over of un-obligated funds, wrould make an esti-mated 4.0 billion dollars available forobligation during fiscal 1946. This com-pares with 7.8 billion dollars availableand an estimated 5.8 billion dollars of

Chart 6.Exports of United States Merchandise, by CountriesBILLIONS OF DOLLARS6

LEND-LEASE

UNITED UNION OF CANADA CHINA, AMERICAN AFRICA SELECTED ALLKINGDOM SOVIET INDIA, REPUBLICS^ AND EUROPEAN OTHER

SOCIALIST AUSTRALIA NEAR COUN- COUN-REPUBLICS AND NEW EAST-^ TRIES ^ T R i E S i /

ZEALAND-^ D.C. 45-4791 Data include Burma, British Malaya, and Australian New Guinea.2 The 1935-39 average includes Panama Canal Zone for the years 1936 and 1937.3 Data for Madeira Islands are included in "All Other Countries" for 1935-39 average and in

"Africa and Near East" for 1944.4 Represents European countries other than United Kingdom, Union of Soviet Socialist Republics,

Germany, Italy, and the neutral countries.Source : U. S. Department of Commerce.Digitized for FRASER

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

July 1945 SURVEY OF CURRENT BUSINESSlend-lease funds obligated by FEA infiscal 1945.

Lend-Lease requirements in fiscal 1946are concentrated in the first half of theyear and the actual shipments duringthat period will continue to reflect ob-ligation of funds and other procurementoperations in the latter part of fiscal1945. By the end of fiscal 1946 the car-ry-over of goods in the obligation-to-shipment pipeline will be much lowerthan at present. It appears likely there-fore, that nonmilitary lend-lease ex-ports in fiscal 1946 will fall short of re-cent volumes by a much smaller marginthan the difference in funds available forobligation would indicate.

It may be noted that these data onfunds cannot be related directly to thecharted export data for two reasons:The funds appropriated to FEA are usedto pay for shipping and certain otherservices aggregating a substantial sum,as well as for commodities; and some ofthe lend-iease products classified asnonmilitary are procured with funds ap-propriated to the military agencies ratherthan to PEA.

Few of the nations of the world are ina position to lay cash on the barrel-headfor all of the United States goods thatthey will need during the next few years.Our commodity imports, plus Americantravel and other expenditures for serv-ices, will fall far short of providing thenecessary dollars. Present foreign hold-ings of gold and dollar exchange are con-centrated in certain countries and for themost part are needed as monetary andtrade reserves.

From the longer-run view, moreover,United States as well as world prosperitywill be better served if countries holdingfree gold and foreign exchange can usethese assets to support continuing ad-vances in foreign trade rather than beingforced to dissipate them in meetingemergency requirements.

Thus additional financing is requiredsimultaneously with the drop in Lend-Lease if urgent foreign needs are to bemet. It may be noted that a recentamendment to the Lend-Lease Act spe-cifically prohibits the use of lend-leasefunds to finance postwar relief and re-construction.United Nations Relief

UNRRA represents one such source offunds. It will provide some of the relief,and a very limited amount of the reha-bilitation needs of enemy-occupied al-lied countries which have little or no ca-pacity to pay cash currently for imports.The UNRRA Council has thus far recom-mended that each uninvaded membercountry contribute one percent of itsfiscal 1943 national income. On thisbasis, Congress has authorized 1.35 bil-lion dollars for the United States par-ticipation in UNRRA, and probably morethan one billion of this will be used topay for United States merchandise ex-ports. At last report (as of March 31,1945), UNRRA exports of United Statessupplies amounted to about 5 milliondollars. In recent months shipping hasbeen allocated and UNRRA supply workhas been stepped up.

Of the United States authorization forUNRRA, only 450 million dollars hasthus far been appropriated by Congress.Congress has also authorized the trans-fer, upon certification by the Joint Chiefsof Staff, of an additional 350 million dol-lars in funds, supplies, or services avail-able under the Lend-Lease Act.

In order to meet its responsibilitiesfully, it is believed that UNRRA willprobably need about twice as much fundsas will be available under the presentmethod of determining contributionsespecially as more and more territory isfreed from the Japanese.

Relief is a special category of needwhich, if not appraised and handledseparately, tends to obscure the scopeand character of financial requirementsarising from other causes. UNRRA wasestablished to furnish supplementarysupplies to the United Nations, as agrant, up to a minimum level of food,clothing, shelter, and medical care.

Given adequate relief, whether throughUNRRA or through other means, the re-construction and development needs canbe handled on a sound commercial basis.Loans of this type are required for longmaturities and with low interest rates,which is consistent both with the needsof the borrower and with the conditionof investment funds and investment op-portunity in this country. The natureof this problem was recognized in therecent Lend-Lease Agreement with theProvisional Government of France,which provides that supplies in pipelineat the termination of lend-lease aid shallbe paid for over 30 years, with interestat 2% percent.International Funds

The International Bank for Recon-struction and Development, now beforethe Congress, will eventually be impor-tant in filling the gap between needs forUnited States products and current dol-lar position of foreign countries. How-ever, because of the time which will atbest be required to get this institutioninto effective operation following its es-tablishment, it cannot be expected to aidsubstantially in financing the exports offiscal 1946.

Reflecting the rather extensive gen-eral discussion of recent months, twoproposals to expand the lending powersof the Export-Import Bank are now be-fore Congress. Hearings, however, havenot yet been scheduled. Whether theExport-Import Bank will become theGovernment institution for underwrit-ing or undertaking the large volume ofnecessary reconstruction, reconversion,and development loans is not certain.

A further possible source of funds forexport financing is, of course, the director portfolio investments of private en-terprise and private investors, unaidedby a government agency such as the Ex-port-Import Bank. This will be of majorimportance in future years but, becauseof the unsettled conditions abroad, littlehelp in meeting the most urgent of theforeign needs can be expected from thesesources during fiscal 1946. Purely privateloans to the countries most in need arelikely to be restricted to relative short-term, fully secured loanssuch as the

recent commercial bank loan againstNetherlands goldand the opportunitiesfor such loans are inherently limited.

No estimates have been made public ofthe volume of loans or other specialfinancing which will be necessary to meetthe world's needs during fiscal 1946. Itis certain, however, that for some coun-tries the amount is substantial. Loansarranged during the year will cover, ofcourse, not only the exports of the im-mediate future but also the advanceplanning and the placement of orders forcapital goods having a long productioncycle.Supplies

The questions about export suppliesduring the Pacific war are still mattersof policy determination. The problemarises from the obvious fact that thesupply of some commodities will fallshort of unrestricted demand for monthsand even years into the future, until fullreconversion to peacetime productioncan be authorized and until new outputhas worked off accumulated backlogs ofdemand. Meantime nonmilitary produc-tion will increase as materials, manpower,and facilities are released from the war.How should export demands be handledduring this period? Under what cir-cumstances should priorities or other"supply assistance" be given to exportprograms?

One posibility for the immediate fu-ture is to eliminate practically all of theprogramming and expediting of exports,maintaining supply assistance only forthe reduced Lend-Lease programs andfor wake-of-battle relief operations bythe military in the Pacific, and main-taining export quotas or set-asides onlyas necessary to protect domestic pur-chasers from exports of the commoditiesin short supply. This would relieve busi-ness and government of most of the workand exasperation involved in present ex-port programming and control.

Since practically every industry has itsprincipal outlets in the domestic marketand since established producers arethreatened with new competition, espe-cially in the war-expanded field of metalproducts, exports would be very smallin volume while producers concentratedon domestic sales. Thus this methodwould permit domestic consumers, whohave been on short or no rations forthree years, to satisfy all of their de-mands at a somewhat earlier date. Thefact that individual products were notavailable for export would prevent theexport of other productsif a countrycannot buy bulldozers it will not wantconcrete mixers and steel for highwayconstruction.

An alternative export policy would pro-vide for programming of exports, withallocations of important commodities inshort supply relative to unrestricted do-mestic and foreign demand, treating theessential civilian economy of other coun-tries on a parity with our own. Require-ments for essential relief and reconstruc-tion, which have no domestic counter-part, would receive supply assistance asnecessary to get the goods for export.Export quotas would prevent an unduedrain into exports, and could also assure


8 SURVEY OF CURRENT BUSINESS July 1945Chart 7.Merchant Fleet of the

United Nations 1MILLIONS OF DEADWEIGHT TONS

20 -

1 Data for 1939 include those countries which

signed the United Nations Declaration on Janu-ary 1, 1942, and France and Denmark whichsigned later. The figures for 1943-45 includeadditional countries which became members ofthe United Nations ; the merchant fleet of thesecountries, however, did not materially affect thetotals. Data represent dry cargo vessels of1,000 gross tons and over. Troopships andmerchant-type ships owned by or under bare-boat charter to the fighting services areexcluded.2

Preliminary estimate.Sources : U. S. Maritime Commission and War

Shipping Administration.

availability of goods for the export pro-grams up to the quota limits.

This would be consistent with ourforeign policy; by rebuilding and devel-oping the economies of other countriesit would contribute to the creation ofstability, security, and greater produc-tion and consumption throughout theworld. By the same token this policywould serve to develop the large foreignmarkets which will be sought after thewar, especially for the products of ourgreatly expanded metalworking indus-tries, and thus would contribute directlyto the postwar domestic objective of fullemployment and rising living standards.

Merchant ShippingThe easing of the pressure upon the

economy following VE-day does not ex-tend to the merchant shipping situation,except in the sense that temporary reliefwas afforded in the Atlantic while therealignment of ships and facilities tookplace. The magnitude of the task ofexpanding military operations in thePacific is suchby reason of the greatdistances involvedthat there will belittle or no lessening in the proportion ofthe American merchant fleet required forarmy and navy uses.Merchant Fleet Expands Three-Fold

This is true despite the vast wartimeexpansion of the merchant fleet. TheUnited States fleet of merchant ships isnow the largest to fly the flag of onenation, and comprises two-thirds of themerchant fleet of the United Nations.

Ships currently under the control ofthe United States War Shipping Admin-

istration (dry cargo and tankers) num-ber 4,100 vessels, aggregating 44 milliondeadweight tons. This compares with 12million deadweight tons under the UnitedStates flag in 1939 and with the fleet pos-sessed by the British Empire in 1939 of3,423 ships aggregating 24.2 million.

The growth of the American fleet hasstemmed from a building program costingover 12 billion dollars since the inaug-uration of the defense program. FromJanuary 1942 to June 1945 the UnitedStates construction of new ships wasequivalent to 83 percent of the entiremerchant fleet of all the United Nationsin 1939. The construction program ac-counted not only for the net gain, butreplaced the 6 million deadweight tonsof U. S. ships which were sunk by theenemy or otherwise lost at sea, and in-cludes 3.2 million deadweight tons of newships transferred under lend-lease as wellas vessels built for the armed services.

Under the present shipbuilding pro-gram total new construction in the next12 months will approximate 6.5 milliondeadweight tons, a major portion ofwhich will be added to the existing mer-chant fleet.

Almost two-thirds of the United Statesfleet is composed of dry-cargo vessels.The remainder of the fleet consists oftankers which have a tonnage nearly 3times that of the prewar tanker fleet.United States Dry Cargo Fleet Expands

The new position of the United Statesmerchant fleet is even clearer in the caseof the dry-cargo vessels, which is illus-trated in chart 7. The decline in the totallength of the second and third bars mir-

rors the effect of enemy sinkings uponthe United Nations' fleet. It was notuntil early in 1944, when as a result ofthe cumulative effect of expanded con-struction and the success in reducingsubmarine losses, that the dry-cargomerchant fleet of the United Nations re-turned to its prewar size. By the middleof this year this fleet was about 30 per-cent larger than in 1939.

The major role of the United States inthis development can be seen by the con-tinuous growth of the black portion ofthe bars. While the fleets of the otherUnited Nations are not yet back to their1939 size, the United States dry-cargofleet is now almost four times as large asbefore the war and instead of constitut-ing less than one-fifth it is now morethan half of the total United Nations'dry-cargo fleet.Military Shipments Predominate

The type of tonnage carried overseasby dry-cargo vessels is shown in chart 8.This chart depicts the striking expan-sion since the first quarter of 1943 inshipments of a military naturethose tothe account of the Army and Navy whichdo not appear in export figures. Suchshipments will contine to dominate themerchant shipping picture during the re-mainder of 1945 as military strength isconcentrated against Japan.

The tonnage of goods moving on mili-tary account from the United States willbe below the levels of the two-front warbecause total army strength in the Pa-cific will be smaller than that employedin the two-front war and because menand materials will be shipped directly

Chart 8.Ocean-Borne Dry Cargo Shipments From the United StatesMILLIONS OF LONG TONS25

2 0

15

10

1943 1944-45U. S. ARMY AND NAVY

ACCOUNT

ALL OTHER*/(LEND-LEASE(CASH!/

I1943 1944

QUARTERLY TOTALS1945 DO. 45-483

1 Data include cargo carried on all vessels except shipments by vessels owned by or under bareboat

charter to the U. S. Army and Navy. Such shipments were 1,284,000 tons, or 3 percent of the total,in 1943 and 2,488,000 tons, or 4 percent, in 1944.2

Data include lend-lease and cash exports which are not available separately prior to 1944.3 Data include some shipments for relief and rehabilitation.

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

July 1945

from Europe to the Pacific. Moreoverlend-lease shipments will decline sub-stantially. Nevertheless, the logistics ofthe Pacific war are such that nearly allof the available shipping will be requiredto haul the needed volume of men andsupplies. Military shipping require-ments will show little or no decline andshipping space for nonmilitary pur-poses will continue very tight.Commercial Shipping Continues Tight

Among the factors that give rise tothis situation are the following:

(1) Supply lines from the UnitedStates and Europe to the Pacific are twoto three-and-one-half times the ship-ping distance between the United Statesand the European theater. This meansthat considerably more shipping mustbe employed in any given time period todeliver the same volume of cargo.

(2) Port facilities in the Pacific areinadequate by far to meet the increasedcargo load. Even with the large-scaleexpansion program now in progress, itwill be difficult to prevent frequent un-loading delays.

(3) Considerable tonnage will be re-quired to transport the organizationalequipment of forces moving to thePacific. As much shipping space is re-quired to move the initial equipment ofa unit as to maintain and supply thatunit for 6 months.

(4) As our. full military might isbrought to bear against Japan, Navysupply requirements will increase sub-stantially.

As a result of these factors, the mili-tary use of shipping in the year aheadwill be near the levels attained in theearly months of this year when militaryoperations in Europe reached their peak.

For the year 1945 the volume of reliefand commercial shipments will show theeffects of the temporary easing of theship supply situation at the close of theEuropean war.

From about the end of April, when theend of the war in Europe was imminent,to the middle of June, there was a de-cline in allocation of merchant shippingfor Army and Navy use, freeing con-siderable cargo space for relief and com-mercial shipments. As the move to thePacific assumes full proportions, how-ever, the rise in military shipping re-quirements will become more pressing.

Chart 8 also illustrates the impact ofshipping space on exports. As indi-cated above during the remainder of theyear shipments on military account (theupper section of the bars) will be main-tained or even increased. However, thecomposition of the lower sections of thebars v/ill change.

While lend-lease shipments in dollarvalue are almost four times as large ascashcargo shipmentsthey are interms of tonnage almost equal. The dol-lar value of lend-lease tonnage is twoand one-half times the dollar value perton of cash exports. Hence in terms ofshipping space released, the decline inlend-lease will not permit an equivalentoffset of dollar value of commercial ex-ports.


New Residential ConstructionWhile some increase in new construc-

tion of residential housing is in prospect,as a result of the conclusion of the Euro-pean war, the increase will not be sig-nificant compared to the demand. Forthe first five months of 1945, only 57,000privately and 9,000 publicly financedfamily dwelling units in nonfarm areaswere put under construction, or a totalof 66,000.

Attainment of 180,000 privately fi-nanced units assumes that an averageof 17,571 units would have to be com-menced in each of the last seven monthsof this year. This would compare with16,500 units started in May and 13,500 inApril.

Materials Key to ExpansionThe continuation of the low level of

new residential housing activity followsfrom perspectives of shortages of certainraw materials and consequently a con-tinuation of control over production.

Chart 9.New Dwelling UnitsStarted in Nonfarm Areas x

THOUSANDS OF UNITS8 0 0

600 -

400 -

200 -

1 Does not include trailer units or dormitory

accommodations for single persons.2 Includes permanent, temporary, and de-

mountable units.3 Estimated as maximum total for the year.Source : U. S. Department of Labor.

Lumber, with a limited supply for con-struction, continues to be the principalbottleneck. The amount used in resi-dential building last year was less thanone-fifth of the quantity consumed in1941 and for the first half of 1945 theproportion will be even lower. However,the supply situation will soon begin toease somewhat -

Recent military cutbacks have permit-ted a substantial increase in the third-quarter allocations of lumber for civilianconstruction over the relatively low vol-ume of the second quarter and an addi-tional quantity may be granted when thefull effects of the cutbacks in militaryprograms are felt. Manpower should bemore readily available later in the year.

The availability of the metal-consum-ing building materials, such as plumbing

9and heating, radiators, and stoves, willnot present a serious obstacle as outputcan be expanded rapidly once War Pro-duction Board lifts, as is expected soon,the production controls over these items.

Because of these limiting factors andthe consequent likelihood that FHA ap-provals must of necessity be conditionedupon WPB allocations of materials, totalresidential construction for 1945 at mostwill increase only about 30,000 units, or18 percent, over the volume reached in1944. Applications already received bythei National Housing Administrationindicate a demand sufficient to absorbthe materials as quickly as they are madeavailable.

Restrictions AlleviatedRestrictions on residential building

were imposed by the War ProductionBoard in order to conserve materials andequipment vitally needed in munitionsproduction. They reduced the volumeof new construction of family dwellingunits in nonfarm areas in 1944 to thelowest total since the depression years of1932-34.

The orders, first initiated in October1941 and then greatly extended andstrengthened in April 1942, brought allbuilding materials under effective pri-ority control. Furthermore, they placeda ban on all residential building exceptthat authorized by National HousingAgency under a specific program to meetthe emergency housing shortage createdby the influx of migrant workers into warindustry localities. Under these controlsonly a relatively small amount of mate-rials has been allocated for residentialconstruction, particularly in 1943 and1944.

The immediate effect of the limitationorders caused a sharp reversal in thetrend of residential building. This isstrikingly revealed in the chart whichshows the rising trend in the immediateprewar years and the rapid decline in thewar years. Construction of 169,000dwelling units last year represented lessthan one-fourth of the 1941 volume andfor the three war years averaged 339,000units as compared with an average of611,000 units in the 1939-41 period. De-spite the low volume in 1944 it was stillconsiderably ajDove the average of 118,-000 units started during the depressionyears noted above.

An additional significant factor re-vealed in the chart is the virtual com-pletion of the publicly financed war.housing program as evidenced by thesharp decline of such building in 1944.The larger Government participation in1942 and 1943 was dictated primarily bythe necessity of providing quickly emer-gency low-cost housing facilities whereprivate builders could not meet wartimeconditions. These facilities, requiring aminimum use of critical materials, con-sisted for the most part of temporary-type structures and comprised more thanfour-fifths of all Government-financeddwelling units started in the 1942-44period.

(Continued on p. 24)

64944245-Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10 SURVEY OF CURRENT BUSINESS July 1945

National Economic Activity in 1945By Louis J. Paradiso and Lawrence Bridge

THIS year will see the turning pointin national economic activity. Ingeneral, the steady upward trend in pro-duction and income which has continuedsince the beginning of the European warin 1939 will be reversed in the secondhalf of the year.

This downturn from the peak recordsof the first half will follow from cutbacksin the war programs and the necessaryreadjustments which industry mustmakereadjustments which will con-,tinue to characterize the economy for thenext 2 or 3 years.

The effects of these transitionalchanges on purchasing power and em-ployment should not be viewed with toomuch optimism. On the contrary, thetrends must be watched very closely inorder to prevent possible serious adverseconsequences. For this reason a peri-odic analysis of the prospects in somedetail and in quantitative terms providesan indispensable tool in correctly ap-praising the trend of economic develop-ments.

As a guide to the near-term prospects,this article sets forth a quantitative eval-uation of the general economic tenden-cies during the remainder of 1945, withindications of the position at the year-end and its implications on the directionof economic activity during 1946.

These projections are not intended tobe predictions in the sense that analystshave a special insight into the future.Rather they are to be thought of as aseries of judgments based on currentavailable information on government andbusiness plans and on a knowledge ofthe interrelated effects of economic fac-tors as shown by past experience.Basic Economic Problems

The ending of the war in Europe inMay highlighted two basic economicproblems. First, the necessity for con-stantly reviewing the war productionprogram and tailoring it to the materielneeds for prosecuting a speedy and suc-cessful campaign against Japan. And,second, allocating the resources whichare freed from war use for the produc-tion of civilian goods. The speed andthe manner with which these two prob-lems are solved will shape the trend andcharacter of our national production formany months to come.

At the present time the war programis not firm. In recent months downwardrevisions have characterized the changesin the program and a degree of firmnesscannot be had in its composition and sizeuntil the armed services have completelysurveyed and determined their needs for

the war in the Pacific. As a consequence,the reconversion signals which industryhas been given by the government so farhave been spotty and uncertain in theireffects. For the same reasons consum-ers are confused as to the prospects fornew civilian goods.

These uncertainties, however, are notparticularly important in an evaluationof the trend for the remainder of theyear. Only a quick acknowledgment bythe Japanese government that the timefor unconditional surrender was at handwould alter the general future; in thatcase, of course, the decline in activitywould be accelerated beyond that out-lined in this article.War Expenditures

The dominant factor in the economicpicture is the volume of Government warexpenditures. With the trimming ofthese outlays to the demands of one-front war, the question to be answered inevaluating the shift in the national prod-uct is how rapidly new private invest-ment and the output of consumptiongoods in short supply can be expanded.

There is still considerable uncertaintyas to the volume of munitions productionin the last two quarters of 1945. Thelatest available munition productionschedules (as of June 26th) show de-

dines in procurement from the firstquarter of this year of 17 and 26 per-cent, respectively, in the third and fourthquarters of 1945. Further scaling downof requirements are certain to appear.We have assumed in these projectionsthat the cutbacks from the first quar-ter's production, level will turn out to be20 and 30 percent, respectively, in thethird and fourth quarters.

The changes in munitions require-ments as we shift our war resources fromthe European to the Pacific theater ofoperations are shown in chart 1 and intable 1. It is to be noted that cutbacksin the aircraft and ships components areconsiderably sharper than in the "othermunitions" category.

Our recent victories in Okinawa andIwo Jima, providing bases close to theJapanese homeland, permitted cancella-tion of a substantial part of the super-bomber program, as operations can nowutilize the fleet of shorter-ranged FlyingFortresses and Liberators. Sharp cut-backs were also found feasible in mostof our new fighter models now in theexperimental stage.

The decline of about 60 percent in theship program by the end of this yearfrom the first quarter rate is weightedheavily by a drop of almost 80 percentin Maritime vessel construction. Corn-

Chart 1.Munitions Production(In August 1943 Standard Prices)

BILLIONS OF DOLLARS80

20 -

NOTE.Mr. Paradiso is Chief, and Mr.Bridge is a member of the Business StatisticsUnit, Bureau of Foreign and Domestic Com-merce.

1st Qr 2nd Qr 3rd Qr 4thQr1945

-* SEASONALLY ADJUSTED, AT ANNUAL RATE *-

Source : War Production Board.

1944 1945^-ANNUAL TOTAL*-

D.D.45-45!


July 1945 SURVEY OF CURRENT BUSINESS 11bat ships, too, will be sharply curtailedbut ship repair and maintenance isscheduled to increase.

In the other munitions group, ex-tremely sharp decreases in the produc-tion of combat vehicles, trucks, and guns,are somewhat obscured by the relativelystable scheduled output of communica-tion equipment, ammunition, and otherequipment and supplies.

Government war expenditures for non-munition items are expected to declineby about 10 percent by the end of 1945a rate much less than the cut in muni-tions. This decline will occur chieflyin the outlays for pay, travel and sub-sistence for the Army which will re-lease about three quarters of a millionsoldiers by the year end. Large outlaysfor foreign relief and rehabilitation plusthose involved in the redeployment of ourrighting men preclude any sharp reduc-tion in this category.

To sum up, as a result of the defeat ofGermany, Government war outlays areexpected to be reduced from a peak an-nual rate of about 87 billion dollars inthe first half of this year to a rate ofaround 65 billion dollars for the fourthquarter, getting down to a lower rate bythe end of the quarter. Even with thisreduction the Government deficit willcontinue very large.

The volume of war expenditures insubsequent periods is, of course, boundto military events. In every likelihood,however, the downward trend evident in1945 will continue, with only slight re-tardation until the complete cessationof all hostilities.

Gross National ProductThe prosecution of a war requires the

most intensive utilization of a Nation'sresources. The lengthening of the hoursworked per week in nonagricultural in-dustries from an average of 41 prewar tothe current average of 45, the abnormaladdition of over 7,000,000 persons to thelabor force during the war period, andthe almost continuous capacity opera-tions of our industrial plants are indic-ative of the degree to which the re-sources of this Nation have been mobil-ized.

This mobilization for war was reflectedin three basic changes which have char-acterized the economy since Pearl Har-bor: (1) Sharp increases in the rate oftotal Government outlays for goods andservices, reaching an annual rate of 100billion dollars in the first half of thisyear; (2) sharp declines in private in-vestment outlays from the record an-

Table 1.Munitions Production, 1945[Index, 1st quarter 1945=100]

Chart 2.Gross National Product

First quarterSecond quarterThird quarterFourth quarter

December

Total

10096807066

Air-craft

10096726562

Ships

10088745340

Othermuni-tions

10098857776

BILLIONS OF DOLLARS2 5 0

2 0 0

150

100

50

GOVERNMENT WAREXPENDITURES

GOVERNMENT NONWAREXPENDITURES.PRIVATE GROSS CAPITALFORMATION

CONSUMERS'EXPENDITURES FORGOODS AND SERVICES

1st 2ndHALF HALF

1944

1st 2ndHALF HALF

1945SEASONALLY ADJUSTED, ^

AT ANNUAL RATE

1944 1945^ ANNUAL

3TOTAL

D.D. 45-449

Source: U. S. Department of Commerce and WarProduction Board.


nual rate of expenditures of 20 billiondollars for gross capital formation inthe second half of 1941 to only 4 billionin the first half of this year; and (3)a steady rise in the dollar amount ofconsumer expenditures which reached anannual rate of 104 billion in the firstquarter of this year. Recent changesare shown in chart 2.

These trends are the consequences ofthe war economy. However, with themilitary situation such that full mobili-zation of the Nation's resources is nolonger necessary, they must inevitablyreverse themselves. This reversal in thedirection of the peacetime proportionsof the components of the gross nationalproduct cannot, of course, get fully un-derway until complete victory is won.

Thus, the fact that we are prosecutinga major war in the Pacific simply meansthat these changes will be more gradualthan would have been the case if allfighting had ended. If the end of allhostilities should come sooner than ex-pectedfor instance, sometime thisyeardeflationary tendencies will be-come serious. In these projections it hasbeen assumed as the more probableeventuality that the Japanese war willcontinue into next year. All Govern-ment programming is, of course, on thatbasis.

As the liquidation of war requirementsbecomes more pronounced, two divergenttendencies will become apparent. Thefirst will be the attempt on the part ofproducers and consumers to replenishtheir holdings of scarce goods, such asproducers' plant and equipment, housing,and many types of consumer goods. Thesecond tendency will be the decline indemand for goods now in plentiful supply

as the Federal Government's withdrawalfrom the market results in contractingincomes.

In the first half of this year the grossnational product was at an annual rateof 206 billion dollars, two-thirds morethan in 1940 after allowance for the priceadvance. This represents the top for thewar period. The decline from the firstto the second half of this year is esti-mated at about 7 percent, to about 192billion dollars, at seasonally adjusted an-nual rates. The gross national productfor 1945 as a whole, therefore, is expectedto be about equal to the 1944 total of 199billion dollars. Table 2 shows the ex-pected changes in the gross nationalproducts by categories.

The only major change between thetwo halves of the year is in governmentexpenditures, offset in part by increasedprivate expenditures for capital goods.Government expenditures in total willnot go down so sharply as war expendi-tures, since Federal nonwar and stateand local expenditures will increase fromnow on because of larger Federal interestpayments and a resumption of govern-ment outlays for deferred public works.

Most important will be the changes inhousing, business investment in plantand equipment, inventories, net foreignbalance and consumer durables, sincetheir expansion will determine the extentto which the gap created by the reductionin war expenditures will be filled.Private Gross Capital Formation Outlook

For some time, the rate of capital ex-penditures will be dependent upon theability of industry to meet the needs forhousing and for business capital goods.In other words, the problem will be oneof supply of wanted goods. In addition


12 SURVEY OF CURRENT BUSINESS July 1945to problems of conversion of plant andequipment, continued difficulties in se-curing materials, such as steel, lumber,and paper, will delay the expansion inthe output of goods for civilian use.

Despite the limitation on output, totalexpenditures on pirivate gross capitalformation in the second half of the yearare expected to exceed those in the firsthalf by two-thirds, although this wouldstill be only one-third of the peak rate of1941.

Even in the face of the huge demandexisting for private housing and plant,the increase in construction expenditureswill be limited this year. Shortages ofmaterials, the continued needs by thearmed forces for other resources utilizedin such projects and the difficulty of get-ting plans out of the "blue print" stage solate in the year, are the factors that willprevent a substantial increase in privateconstruction activity.

These factors will also limit the vol-ume of expenditures on producers' equip-ment. The total of construction expen-ditures (other than housing) and pro-ducers' durable goods is expected to in-crease from an annual rate of 6 billiondollars to about 7.5 billion by the end ofthe year, of which about 3 billion repre-sent outlays by manufacturers. Morewould be spent in the absence of supplylimitations as is clearly indicated by theDepartment's survey reviewed elsewherein this issue.

A significant shift in the trend of in-ventories is indicated in view of the cur-rent deficiencies in business inventoriesrelative to the volume of business beingdone. For over a year manufacturers,particularly those engaged in war pro-duction have been liquidating their rawmaterials and goods in process stocks.This ]iC! l i da t i on was halted in recentmonths,*

Further reduction in inventories ofwar goods accompanying contract can-cellations will be more than offset by thebuilding up of inventories of civiliangoods including transferring war in-ventories for civilian use. Thus in thesecond half of this year the value ofbusiness inventories is expected to in-crease on a net basis by one-half billiondollars and the accumulation will bemore rapid in 1946. For a more detailedanalysis of changes in inventories basedon the manufacturers' survey see thearticle in this issue.

The final component of gross capitalformation is the net change in foreignbalance. The net exports of goods andservices on current account are esti-mated at a debit of 1.2 billion dollars (atannual rates) in the first half of thisyear. Since the adjusted1 cash exportsand imports were almost exactly in bal-ance, the debit reflects the net Govern-ment transactions abroad.

The return of a sizable number of ourtroops from the European theater to thiscountry for redeployment or dischargewill result in a decline in the net militarydisbursements abroad in the last half of

1 Adjusted for transactions (such as cash

reimbursable lend-lease) not recorded as cashexports or imports in the official U. S. Tradestatistics.

Table 2.Gross National Product orExpenditure *[Billions of dollars]

TotalGovernment expendi-

tures for goodsand services

Federal govern-ment

WarN on war

State and local gov-ernment

Private gross capitalformation

ConstructionProducers' durable

equipmentNet change in busi-

ness inventories _Net exports of goods

and servicesConsumers' goods

and servicesDurable goodsNondurable goods..Services

1944

Firsthalf

Sec-ondhalf

1945

Firsthalf

Sec-ondhalf

Seasonally adjustedannual rates

197.4 200.1 206.01192.0

100.6

93.287.45.8

1.21.6

3.8

- 1 . 6

95.76.5

58.630.6

98.1

90.785.25.5

2.31.6

4.2

- 1 . 9

- 1 . 5

6.961.431.3

100. 5

93.287.06.3

4.52.0

4.4

- 1 . 2

6 101.0 100.0

62.031.8

84.5

77.070.07.0

7.52.3

5.3

.5

Year

1944

198. 7

99.4

91.986.35.6

1.81.6

4.0

- 1 .

97.68.0

60.0! 60.032.0 30.9

199.0

92.5

85.078.56.6

7.5

6.02.24.8

- . 1

- 1 . 0

100.57.6

61.031.9

1 Detail will not necessarily add to totals because of

rounding.Source: U. S. Department of Commerce.

1945. The trade balance is expected tobe slightly favorable in the latter part of1945, although the extremely tight ship-ping situation during this period makesany large changes in the balance un-likely. As a result of these shifts the netforeign balance will show a smaller debitin the second half of the year.

Consumer ExpendituresThe volume of consumer expenditures

for goods and services in the remaining

months of this year will be conditionedalmost entirely by the available supplies.Only in certain limited areas such as themore expensive items of food and cloth-ing and goods now in plentiful supplywill demand be an influencing factor inlimiting purchases. There is no question,however, that for the bulk of the con-sumption items demand will exceed thesupply.

Two distinct tendencies can be ex-pected to develop in the expendituresfor durable goods and for nondurablegoods. Expenditures for durable goodswill increase as new supplies of scarcecommodities become available. In thesecond half of this year, however, theincrease in these expenditures will berelatively small. The total output of newpassenger automobiles this year, for ex-ample, will represent a very small frac-tion of peacetime production. More elec-trical household appliances and furni-ture will be available but these itemswill not be produced in significant quan-tities until 1946. Consequently, whileconsumer durable goods expenditureswill increase during the second half ofthe year the gain is not expected to bemore than 10 percent.

The aggregate dollar expenditures onnondurable goods will vary in accord-ance with consumer incomes. This is inconformity with past experience. Thedecline in the gross national productduring the second half of the year willbe reflected in reduced incomes receivedby individuals. A cut in incomes of con-sumers will result in a decrease in thosenondurables that are in plentiful supplyor are high-priced. Demand for othertypes of nondurables will continue strong.In total, only a moderate decline of about3 percent is expected in the second halfof the year from the yearly rate of 63billion dollars in the first half.

Consumer expenditures for services, onthe other hand, are expected to continueat about the same rate as in the first half

Chart 3.National Income

BILLIONS OF DOLLARS200

150

I O O -

1 st 2ndHALF HALF

1944SEASONALLY

1 st 2 ndHALF HALF

1945ADJUSTED,

"* AT ANNUAL RATE "

1944 1945ANNUAL

* ~ TOTAL *"

D.D. 45-450

Source : U. S. Department of Commerce.Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


Chart 4.The Labor Force 1MILLIONS OF PERSONS80

60 UNEMPLOYMENT

ARMED FORCES

AGRICULTURALEMPLOYMENT

40

20 NONAGRICULTURALEMPLOYMENT

1st 2ndHALF HALF^ 1 9 4 4 *

1st 2ndHALF HALF-1945*

1944 1945 D. 0.45-457

1 Data are monthly averages for all periods and include all persons 14 years of age and over, but

do not include institutional population. Agricultural employment for the half-year periods is ad-justed for seasonal variation.Sources : U. S. Department of Commerce, except data for the "Armed forces" through May 1945

which are from the U. S. Department of Labor.

of the year since the demand for suchservices as laundry, transportation, anddomestic help will exceed the supply forsome time to come.

Thus, the retail and service trades canbe expected to experience a volume ofbusiness in the second half of this yearwhich will be almost as large as in thefirst half.

Two important factors which will af-fect consumer expenditures are the trendin retail prices and the prospective shiftfrom purchases of higher-priced goods.

Table 3.National Income by Distribu-tive Shares *

[Billions of dollars]

Total.Total compensation of em-

ployeesSalaries and wagesSupplements

Net income of proprietorsAgricultureNonagricultural

Interest and net rentsNet corporate profits

DividendsSavings

1944

160.7

116.0112.8

3.24.111.812.310.6

1945

Firsthalf

Sec-ondhalf

Seasonallyadjusted an-nual rates

166.0

119.0115.8

3.225.512.712.11.410.04.65.4

155.0

111.0108.0

3.124.311.512.711.58.04.53.5

Year

160.5

115.0111.9

3.125.012.112.811.59.04.54.5

1 Detail will not necessarily add to totals due to

rounding.Source: U. S. Department of Commerce.

No attempt has been made in this studyto analyze price movements in detail.However, no significant change is ex-pected in the general price level fromthe current position. This does not im-ply stability of all prices but rather thatthe price changes which occur will bealmost offsetting.

During the war, the shift toward thepurchase of higher-priced goods or trad-ing-up has been responsible for a con-siderable amount of fluff in the dollarexpenditures of consumers. As incomesdecline and as lower-priced goods be-come available consumers will tradedown to prewar patterns. It is this lat-ter development which will account fora large part of the expected decline inthe dollar expenditures, particularly fornondurable goods.National Income

Since the national income essentiallyreflects the accounts on the income sideof the national ledger, its behavior in thetwo halves of this year will parallel that'of the gross national expenditures.

However, because national income ismeasured exclusive of Federal corpo-rate income taxes, the extent of thedecline will be cushioned during the sec-ond half of the year. This is due to thefact that the major part of the tempo-rary losses that will be realized by thosecorporations undergoing extensive re-conversion will be reflected in reducedFederal excess profit taxes.

National income in the first half ofthis year reached an estimated annualrate of 166 billion dollars. The annualrate for the second half of the year isexpected to fall to 155 billion dollars,being less than this at the year-end.

13It is estimated that wages and salaries

will fall about 7 percent from the firstto second half of 1945. About half ofthis drop is attributable to increased un-employment, while the remainder willreflect the elimination of part of theovertime pay, and the movement out ofhigh income war occupations.

The major decline in total wages andsalaries will be in manufacturers' payrolls, while slight declines in wage pay-ments in the Federal Government, min-ing and transportation are expected tobe offset by increases in construction,trade, and the service industries. Fur-ther notes on the derivation of these es-timates are presented in the final sectionof this article.

The drop in the expected volume offarm marketings will find reflection inthe net income of farm proprietors. Inview of the decline in production, cor-porate profits in the second half of theyear are expected to drop although theirvolume will continue to exceed that ofthe most prosperous peacetime years.The remaining share of the nationalincome, interest and net rents will bemoderately higher in the second halfas the Federal Government continues tooperate at a deficit and thereby increasesits debt charges, while net rents andand royalties will be fairly well main-tained.Disposition of Income

The flow of income payments to indi-viduals is expected to be reduced by about9 billion dollars (at annual rates) be-tween, the two halves of this yearsome2 billion dollars less than the decline inthe national income. This divergenceis due chiefly to the increasing volume ofmustering cut pay to discharged soldiers,larger unemployment benefit payments,and to the fact that reduced corporateincome will not be reflected in a corre-sponding shrinkage in dividend pay-ments.

The decline in the disposable incomeof individuals from the first to second 6

Table 4.Disposition of NationalIncome 1

[Billions of dollars]

National Income _Add: Transfer paymentsLess: Corporate savings

Contributions to socialinsurance funds

Equals: Income payments toindividuals .

Less: Personal taxes and non-tax payments

Equals: Disposable income ofindividuals

Less: Consumer expenditures.Equals: Net savings of in-

dividuals

1944

160.75.35.4

3.9

156.8

19.3

137.597.6

39.9

1945

Firsthalf

Sec-ondhalf

Seasonallyadjustedannualrates

166 06.05.4

3.9

162.7

23.0

139.6101.0

38.5

155. 06.74.5

3.7

153.5

18.0

135. 5100.0

35.5

Year

160. 50.35.0

3.8

158.0

20.5

137.5100. 5

37.0

i Detail will not necessarily add to totals because ofrounding.



14months of this year will also benefit froma cushioning factor. This factor is theanticipated sharp reduction in personaltaxes between the two periods. This de-crease will be caused more by the non-recurring exceptionally high paymentsin the early months of 1945, then to thereduced liabilities concomitant withlowered incomes.

For the year as a whole, income pay-ments to individuals will be slightly morethan in 1944, but higher tax paymentswill leave them with the same disposableincome.

Net savings of individuals for the yearwill be less because they will spendabout 3 billion dollars more out of aboutthe same disposable income (see table 4).Changes in the Labor Force

Throughout the two-front war phase,the major emphasis in the utilization ofthe labor force was channeling our un-employed, nonworkers, and workers inless-essential civilian pursuits into themunition plants and armed services.The urgency of the war production pro-gram necessitated the implementationof this policy by a sharp increase in thelength of the workweek.

The economic readjustments follow-ing victory in Europe require a reversalof this policy. The size of our armedforces is above that needed for theJapanese war. Some of our heavy man-ufacturing industries have been ex-panded far beyond the productive ca-pacity that can be utilized in the civilianmarket. Other war industries requireextensive and time-consuming recon-version before they can be adapted topeacetime needs.

On the other side of the ledger, ex-pansion is made possible in those indus-tries which had been shunted aside bythe full-war economy. Long deferreddemand for housing and other construc-tion can now become effective. Tradeand service establishments must gradu-ally restore the efficient services andcourtesies to which consumers had be-come accustomed in prewar years. Theaccelerated downward trend in agri-cultural employment will be somewhatabated. And it must be rememberedthat a pervading factor in all civilianindustries will be the gradual reductionin hours worked per week.

However, on balance, these changes(shown in chart 4) will result in low-ered employment, both civilian andmilitary, and increased unemployment.The actual volume of unemploymentwill be difficult to measure because of thelarge number of workers now in the laborforce who will eventually withdraw. Thedecline in employment in war manufac-turing industries from the first to secondhalf of this year is indicated in chart 5.

To sum up, unemployment will riseuntil industry gets well underway on re-conversion to peacetime products andthe supernormal entries into the war-time labor force have withdrawn. Thedecline in employment by the end of thisyear, however, will be relatively less thanthe fall in income. The problem of un-employment, however, will become some-what more serious after VJ-day whenthe rate of demobilization of the armedforces is stepped up.


ConclusionAlthough some deflation in production

and income will occur during the last 6months of this year, business conditionsand profits will continue favorable. Thisyear as a whole will show about the sametotals of product and income, with littlechange in the relative income shares andno striking

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