6442_1960-1964

Progress of the American Economy in 1962

iN 1962 the American economyachieved new records in sales, produc-tion, employment, and income as itcontinued to recover from the recessionof 1960-early 1961. The trend wasupward throughout the year thoughthere was a slowing down in the rate ofadvance in the second half. Personalincome reached its high point inDecember at a seasonally adjustedannual rate of $450% billion, up $2%billion from November, and $20 billionor 4J percent over December 1961.Most of this was a gain in real income.

The gross national product last yearadvanced to $554 billion, an increase of$35 billion or almost 7 percent over theprevious year. This rise in outputresulted in a record flow of income toconsumers and reflected new peaks inconsumption a,nd government expendi-tures.

With the labor force, the stock ofcapital, and productivity continuing torise, the Nation's enlarged ability toproduce was a key factor in holdingdown the rise in overall prices, in theface of the sizable increase in demandthat occurred. About $28 billion of the$35 billion GNP rise represented an in-crease in physical volumea gain of 5%percent over 1961. The 1% percentGNP price rise was about the same asthe overall price advance that had takenplace in the previous 3 years.

Despite these gains a number of theproblems that have characterized theeconomy in recent years remained.While increased employment opportuni-ties brought about a reduction in thevolume of unemployment, the numberof persons out of work in relation to thelabor force remained well above the

average for the postwar period. Al-though there was an improvement in thebalance of payments deficit, a sizableexcess of payments over receipts per-sisted. Private domestic investment,

PURCHASING POWERContinued To Rise-

Up 6 Percent in 1962

Billion $ (ratio scale)500

450

400

350

PERSONAL INCOME, TOTAL(Annual Rate)

RETAIL STORE SALES, TOTAL

Resulting in a Cfimb of 7 Percentin Retail Sales

Billion $ (ratio scale)

22

20

18

1960 1961 1962 1963Monthly, Seasonally Adjusted

U.S. Department of Commerce, Office of Business Economics 63-1-1

moreover, continued below the volumenecessary for a vigorous expansion ofthe economy.Increases in all markets

Sales to all major marketscon-sumers, business, government, andforeignincreased over 1961, withconsumers and government showingthe largest dollar increases over theprevious year. As a stimulus to theeconomic advance in 1962 the rise ingovernment expenditures was of primeimportance, in view of the moderategains shown in private in vestment,which presented a somewhat mixedpicture.

It was a good year for residentialconstruction but business plant andequipment, although up from 1961,continued low in relation to GNP.Because of this the Federal Govern-ment undertook a number of measuresduring the year aimed at stimulatingthis important segment of demand.Exports rose to a peak last year butimports increased more, so that thenet merchandise balance was lowerthan in 1961. Finally, personal con-sumption expenditures moved aheadunder the influence of rising disposableincome, continued growth in services,and a sharp rise in automobile expend-itures over the previous year.Large rise from 1961 low point

Measured from the low point of theprevious recession, early 1961, thecyclical advance in economic activityin 1961 and 1962 has been of substan-tial magnitude. By the fourth quarterof 1962 the GNP had increased by $61billion or 12 percent. Personal income

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

January 1963

SURVEY OF CURRENT BUSINESS January 1968

was up by $47 billion, nonfarni employ-ment by 2 million persons, and industrialproduction by approximately one-sixth.

Gains within the year were lessthan in 1961, when there were sharperadvances characteristic of an initialrecovery period, and somewhat ir-regular. Business inventory policy,influencing steel buying in particular,at first stimulated but subsequentlydepressed output and income, whileautomobile purchases moved erraticallyupward over the year, being unusuallystrong in the fourth quarter when thenew 1963 models made their appearance,Throughout the period governmentbuying was a steadily increasing sourceof demand.Income at peak

With production of goods and serv-ices at a new high in 1962, the flow ofincome also reached a record. Personalincome totaled $440 billion, a gain of$24 billion over 1961. All types ofincome were up over the year withwages and salaries accounting for $17billion of the rise. Government pay-rolls expanded by some $4 billion whilethe remainder was divided about equallybetween commodity-producing andother private industries. Transfer pay-ments also bolstered the flow of buyingpower. Although social security andother benefits continued to rise, thereduction in unemployment broughtabout a decline in unemploymentbenefit payments, so that the advancein total transfers in 1962 was smallerthan in the previous year.

The flow of labor income within theyear brings into clear focus the slowingdown in the rate of the productionadvance. From December 1961 toJune 1962, wage and salary disburse-ments increased by $8% billion at aseasonally adjusted annual rate. FromJune to December, by way of contrast,wages and salaries increased by lessthan $4 billion, and of this amount,$2 billion represented an increase ingovernment payrolls.Profits at a new high but under

pressureCorporate profits after taxes rose by

$2.7 billion over 1961 to reach a recordtotal of $26 billion. The course ofprofits within the year, however, was

in marked contrast with the yearbefore, which had seen increases insuccessive quarters, as output movedsharply up from the earlier cyclical low.During 1962 there was essentially nochange in profits from the fourthquarter 1961 rate, as business grossmargins were under pressure from thekeen competition that characterizedmost markets. Under the circum-stances the moderate production gainsduring the year were apparently not-large enough to offset the increases insuch cost items as depreciation andtaxes, which have been showing asecular rise through the postwar period.Employment up, unemployment

downHigher output brought employment

to a new high last year and an improve-NATIONAL OUTPUT

Moved Up Throughout the Year With a5 1/2 Percent Gain Over 1961

Billion 1962 $ (ratio scale)600

550

500

450

GROSS NATIONAL PRODUCT(Annual Rate)

i l I I i I t

Employment Advanced Relatively Less butThere Was a Large Expansion in Income

Billion $350

(ratio scale) Million Persons

300

250

Nonfarm Payrolls and OtherLabor Income (annual rate)

(left scale)

" \Employees in Nonagncultural

Establishments(right scale)

1 } I I I I I I I I I I

65

60

55

50

1960 1961 1962 1963Quarterly, Seasonally Adjusted

Data: BLS & QBEU.S. Department of Commerce, Office of Business Economics 631-2

ment in the unemployment situation.The expansion of the civilian labor forcewas smaller than usual. It rose byabout 400,000 to a total of almost 72million while employment advanced1 million and unemployment fell by800,000 from 1961. Hours of workwere up for the year as a whole, butthe increase in manhours was less thanthe output advance, implying a con-siderable increase in productivity.

As with most measures of economicactivity, employment gains after mid-year were quite small. Seasonallyadjusted employment in nonfarm estab-lishments rose by about 60,000 fromJune to December, after having risenby 1 million in the preceding 6 months;almost all of the second half employ-ment gain was in government andservices.

The unemployment rate for the yearas a whole averaged 5.6 percent of thecivilian labor force, as against 6.7percent the year before. Unemploy-ment showed most of its improvementin the current recovery from the latefall of 1961 to the middle of last yearbut changed little thereafter.Financing ivas easier

Monetary authorities maintained anadequate volume of bank reservesduring most of the year to facilitate thegrowth in bank credit and there wasonly a small rise in short-term interestrates, part of which was dictated bybalance of payments considerations.With the supply of long-term fundsmore than ample for the modest in-creases in business fixed investment,consumer durables, and home purchases,there was a slight downward movementin long-term interest rates over theyear.

The break in the stock market wassharp and disconcerting, but it did notresult in prolonged major repercus-sions on business activity. At the lowpoint of the market decline in June,following the break in May, stock priceswere 25 percent below the high reachedin late 1961. The recovery late in theyear brought yearend quotations towithin 15 percent of the earlier peak.Balance of payments deficit reduced

Last year the balance of paymentsdeficit was reduced to approximatelyDigitized for FRASER

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

January 1963

January 1963

$2 billion from $2K billion the yearbefore. The favorable balance on goodsand services was actually somewhatless than in 1961. Although exportsrose to a new high, the increase inimports occasioned by the rise indomestic output was larger than theexport rise.

There were a number of factors thatserved to offset the less favorable trend

Government Purchases Have Been inForefront of the 1962 Demand Advances

Billion $ (ratio scale)

120

110

100

90

80

60*

50

40

GOVERNMENT PURCHASES OFGOODS AND SERVICES

GOVERNMENTPAYROLLS

i i i I i i i I Jj i 1 i i i i i i 1 I i i i1957 58 59 60 61 62 63Quarterly, Seasonally Adjusted, at Annual Rates


in the balance on goods and services.These included (1) a smaller outflowthan in 1961 in U.S. private capital.While there was some increase in do-mestic purchases of foreign securities,U.S. direct investments abroad wereoff somewhat and there was a sharpdrop in the outflow of private short-term capital. (2) There were sizableadvance repayments on postwar creditsand (3) some reduction in net militaryoutlays abroad.

U.S. gold stock declined about $0.9billion for the year as a whole, aboutthe same as in 1961 but less than theheavy outflow that occurred in 1960.

SURVEY OF CURRENT BUSINESS

Yearend position

At the close of the year the overalldemand for the Nation's output con-tinued to move up. On balance theincrease was not sufficient to take upall of the slack in the labor force andplant capacity.

The record flow of income was pro-viding the basis for a peak volume ofconsumption expenditures. Decemberauto sales were good560,000 unitsbringing the total for the fourth quarterto 1,945,000 or roughly 7 million unitson a seasonally adjusted annual basis;this was the best sales rate since thefinal quarter of 1955. Moreover, latein the year consumers were makingfreer use of credit for autos and otherpurchases than they had at any timesince 1959.

Government purchases of goods andservices were on the rise and were ex-pected to move up still further in themonths ahead. On the basis of thePresident's Budget Message in January,Federal expenditures in fiscal 1964 wereexpected to exceed those of fiscal 1963largely as a result of rising defense ex-penditures. Furthermore, outlays byState and local governments were con-tinuing to move ahead in line with theirlong-term postwar rise.

According to the survey reported inDecember businessmen were planningto make a small reduction in their plantand equipment expenditures early in1963, after a 6-quarter rise that leveledoff in the second half of 1962. Theslow growth of output after the middleof the year, the leveling in aggregateprofits and shrinking margins through-out 1962, and the persistence of excesscapacity apparently have offset theeffects of increasing replacement re-quirements and the continuing need bybusiness to cut its operating coststhrough plant moderization.

In this connection a favorable factoris the incentive to investment currentlybeing provided by the investment creditlegislation of last September and theliberalized depreciation regulations oflast July. The effects of both of thesemay be expected to be increasingly feltas the year progresses.

Housing expenditures were showing asomewhat erratic course. They fell

more than seasonally in the fourthquarter, after rising in the spring andsummer, but were expected to pick upagain this winter, after seasonal ad-justment. The expected near-termpickup reflects an improvement inhousing starts in October and Novem-ber, with apartment house constructionespecially strong. Ample supplies ofcredit for builders and home purchasers,some reduction in interest rates, theadvance in incomesall against a back-ground of rising family formationwerefavorable factors in the current housingpicture.

Businessmen continued to be cautiouswith respect to their inventory policy,even though stocks appeared low bymost postwar standards. Manufac-turers, for example, held a lower volume

1962 Investment Was Higher Than in 1961but Moved Downward Due to Reduced

Inventory Accumulation

Billion $ 1962100

90

80

70

60

50

40 /ju.

GROSS PRIVATE DOMESTICINVESTMENT AND NET EXPORTSOF GOODS AND SERVICES

I I I1957 58 59 60 61 62 63

Quarterly, Seasonally Adjusted, at Annual RatesU.S. Department of Commerce, Office of Business Economics 63-1-4

of steel than they did the year before,when the steel consumption rate waslower. Retail stocks of autos werequite low as a result of the high rate ofsales in the fourth quarter, and couldbe expected to rise somewhat in theimmediate period.


January 1963

National Income and Product in 1902Moderate Expansion Follows Initial Cyclical Recovery

Some of the 1962 data on the national accounts presented in this issue arepreliminary. The more complete set of tables with revised figures will appearas usual in the February issue of the SURVEY.

EOR the year 1962 gross national prod-uct aggregated $554 billion, as com-pared with $519 billion for calendar1961. The year-to-year increase in realoutputabout 5% percentrepresenteda marked improvement over the gainsachieved in the preceding 2 years. Itwas, however, short of the 8 and 7 per-cent gains for 1955 and 1959, respec-tively, when business was recoveringfrom cyclical declines considerably moresevere than the 1960-61 recession.

Paralleling the rise in gross nationalproduct, national income rose from $428billion to a new high of $458 billion.Corporate profits, reflecting recoveryfrom the cyclically low 1961 figure ofS45K billion, rose 12 percent to anestimated total of $51 billion, sub-stantially exceeding the previous highof $47 billion reported for 1959. Com-pensation of employees rose by 6% per-cent ; with the exception of farm income,which was little changed from 1961,other forms of income showed modestimprovement in 1962. Personal in-come was up almost 6 percent for theyear as a whole, though the rate of in-crease slowed considerably during thelatter half of 1962.

The GNP trend within the year wasupward, but at an irregular pace. The$7 billion increase for the fourth quarter,at an annual rate, followed a modestrise of $3 billion in the preceding quar-ter, and brought the yearend rate to$562 billion. This was nearly $25 bil-lion, or 4% percent, higher than in thefinal 1961 quarter and over $60 billion,r 12 percent, higher than in the open-Ing quarter of that year, when generalbusiness activity was at a cyclical low

point. As prices have been relativelystable over the past 2 years, most ofthe recent increases have representedadvances in real terms: real output ofgoods and services in the fourth quar-ter was 3 percent above a year ago and10 percent above the first quarter of1961.

GNP-CHANGES IN MAJOR COMPONENTS,1961-62

Rise of $35 Billion in Total Mostly inConsumer and Government Purchases

Billion $- 5 0 5 10 15 20 25 30 35

I I I I I T

GNP

Personal Consumption Expenditures

\ \ \Durables Nondurables Services

Gov'f. Purchases of Goods and Services

\ \Federal State and Local

Residential Construction

Change in Business Inventories

Net Exports


Activity through the yearsomehighlights

The year started off against a back-ground of swift recovery in 1961, whichincluded an unusually large spurt infourth quarter sales and profits. Thisfavorable experience gave rise to ex-pectations in the early part of 1962 thatthe advance in the ensuing 12 monthsmight be about as large as the yearbefore. The actual first quarter per-formance, however, brought lesser gainsthan the fourth quarter. Housing outlays,which had increased sharply late in 1961,fell, durable goods consumption ex-penditures changed little, and plantand equipment expenditures rose onlyslightly. It was during this quarterthat inventory accumulation reachedits peak, as steel producers, distributors,and steel consumers of all types stock-piled steel in anticipation of a strike atthe beginning of the spring quarter.

The second quarter witnessed a siz-able advance in final sales as auto andhousing expenditures both improvedover their winter performance. Pro-duction rose less than sales, however.Inventory accumulation was consider-ably less than in the early part of theyear as steel users cut back sharplytheir purchases of steel with the signingof the steel wage contract in March,causing a sharp reduction in steeloutput.

It was toward the end of the springquarter that slowing down in the tempoof the advance became most noticeable.The stock market, which had beendeclining since the end of 1961, under-went a very sharp reduction at the end


January 1963

January 1963 SURVEY OF CURRENT BUSINESS

of May and continued to fall throughmost of June. Most business indicatorsturned distinctly lower during June asan initial reaction to the uncertaintythat followed the market decline. Thenext few months witnessed a reboundin activity but the gain in final saleswas of modest dimensions and was off-set in part by a further decline in therate of inventory accumulation.

The final quarter of the year witnes-sed a further rise in activity, with GNPregistering a somewhat larger advancethan in the previous quarter. Ofparticular significance was the sharppickup in auto sales. Governmentoutlays were still on the rise. TheCuban crisis, in late October, if any-thing, had a firming effect on govern-ment defense outlays. On the otherhand, private investment was notshowing much strengthas plant andequipment outlays appeared to haveleveled out. The decline in inventoryinvestment seemed to have slowedconsiderably, with the elimination ofthe excessive steel stocks that had beenbuilt up during the spring, but businessinventory policy still remained con-servative.

Sharper Rise in ConsumerSpending

Consumer spending in 1962 wasabout in line with the increase inincome. Disposable incomeincomeafter tax available for spending orsavingwas up by $19 billion, or 5percent, to $382% billion. Virtuallyall of this additional income wasspent by consumersthe total of per-sonal consumption expenditures roseby $18K billion to $356% billion in1962, a 5% percent increase. Withconsumer prices averaging but about 1percent higher than in 1961, consump-tion was 4% percent higher in realterms. In 1961 the rise had come toabout half of this amount.

Contributing heavily to 1962's bettershowing was a $4 billion increase inconsumer spending for durable goods,mainly autos, which in 1961 had de-clined by over $1 billion. Spending fornondurable goods rose by $6% billionin 1962, about $3 billion more than theincrease in the prior year. Service

expenditures continued their steadypostwar expansion with an $8 billionincrease, only a little more than the1960-61 rise.

PRODUCTION OF ALL TYPESWas Higher in 1962 Than in 1961 ...

But Durable Goods Output LeveledOff Early in the Year

Billions of 1954 $ (ratio scale)

500

400

300

250

200

150

100

50

35

Total GrossNational Product

Services

Nond

i n ! , 1 i i I i i i I i i i1957 58 59 60 61 62 63

Quarterly, Seasonally Adjusted, at Annual RatesU.S. Department of Conjrnerce, Office of Business Economics 63-1-5

Except for some slowing in spendingin the third quarter of 1962, associatedwith inadequate dealer inventories ofnew cars rather than with a fall-off ofdemand, consumer purchases expandedat a steady rate throughout the year,and the quarterly increases were in the$3-$5 billion range at seasonally ad-justed annual rates.Auto sales: A big year

Automobiles were a standout in thesales picture last year. For the }^earas a whole, consumers expenditures fornew cars and accessories were up by $3billion to a $20 billion total. Salesimproved considerably in the closing

quarter of 1961 with the introduction ofthe 1962 models, and the high rate ofsales was maintained with some quar-terly variation during the remainder ofthe 1962 model run, which extendedthrough August of 1962. There was aperceptible pickup in sales volume whenthe 1963 models appeared in quantityat dealers' show rooms late in Septem-ber, and fourth quarter sales rose tonew highs although the trend within thequarter was slightly downward.

About 6.8 million domestically pro-duced cars were sold in 1962, over 20percent above the 5.6 million sold in theprior year. Forty percent of the carssold last year represented compacts orintermediates, compared with 36 per-cent in 1961. As the year closed,dealers7 new car inventories amountedto slightly over 800,000 cars, about thesame as at the end of 1961, but saleswere running about 10 percent above1961 yearend levels.

Expenditures for furniture and house-hold appliances also moved up in1962, but the year-to-year gain wassmall3 percentas compared withother expenditure categories. Moreimpressive were the facts that by year-end the gain from the first quarter of1961 had cumulated to 11 percent, andthat, after a poor showing in the firsthalf, outlays in this area rose sharplyin the third and fourth quarters of1962.

*-

Nondurable expenditures up withconsumer incomes

Consumer outlays for nondurablegoods continued to parallel the risingtrend in consumer incomes as theynormally do. Expenditures were up4K percent for the year as a whole, with,little divergence among the individualcategories. The rate of increase wasparticularly high in the first quarter ofthe year and, apparently, rather low in,the fourth quarter when automobilesales were proceeding at a very higkrate.

Investment Trends

For the year as a whole, gross privatedomestic investment at $76 billion was110 percent higher than in 1961. Despitethe fact that on a year-to-year corn-parison, investment outpaced total out-


January 1963

6 SUEVEY OF CURRENT BUSINESS January 1963PERSONAL CONSUMPTION EXPENDITURES

All Major Groups Rose in 1962 Over 1961 Durables, Due to Autos, Show Largest

Relative Increase

Billion $ (ratio scale)500

400

300

200

100

80

60

40

30

Nondurable Goods

Services

Durable Goods

III I I I I I I I I I I I I l u l l1957 58 59 60 61 62 63

Quarterly, Seasonally Adjusted, at Annual RatesU.S. Department of Commerce, Office of Business Economics 63-1-7

put, it nonetheless accounted for lessthan 14 percent of the total in 1962 ascompared with 15 percent in 1959 andover 16 percent in 1955. Moreover, allof the 1961-62 rise in investment ex-penditures was achieved by the end of1961. In only one quarter of last year(the second) did investment exceedthat of the closing quarter of 1961, andthen by only a small margin.Inventory picture mixed

Although business investment in in-ventories in 1962 did not differ muchfrom 1961, the quarterly movement lastyear was almost the reverse of the 1961pattern. The first quarter of 1961 wasone of fairly heavy liquidation of stocksand their subsequent rebuilding was apowerful stimulus to expansion in over-all output during the balance of theyear. In 1962, on the other hand, overhalf the total accumulation occurred inthe opening quarter. In subsequentquarters, business progressively reducedits rate of accumulation until by theyea-rend little or no net stock building

was going on. Thus from the firstquarter of 1961 to the same quarter of1962, changes in inventory investmentadded $10 billion to the rise in overalloutput, but in the ensuing three quar-ters lower inventory investment cutoutput by almost $6 billion at an annualrate.

The threat of a steel strike exertedan important effect upon the inventorymovement during the year. In the firstquarter, durable goods manufacturerssharply increased their inventory build-ing to a rate unequaled since the quar-ter following the settlement of the 1959steel strike. This more than offset ashift from accumulation to liquidationin retail trade outlets.

In the second quarter, durable goodsmanufacturers greatly reduced theirrate of accumulation, more than enoughto offset modest increases elsewhere inthe economy. The continued declinein the rate of inventory accumulationduring the rest of the year was moregeneral in character. By the year'send, inventories were generally lowrelative to the volume of activity, par-ticularly in the durable goods industries.Rise in business fixed investment

slowsBusiness expenditures for fixed invest-

ment during 1962 were 9 percent higherthan in the preceding year. Most of

the increase was in the equipment area,as nonresidential construction activitywas little affected by the short 1960-61cyclical decline and there was little ofthe recovery element in the minorincreases recently shown in this field.Overall, the rate of increase was highestin late 1961 and early 1962. The fourthquarter of 1962 was little changed fromthe third quarter and the OBE-SECsurvey of capital expenditures pointed toa decline for the opening 1963 quarter.

Business outlays for new plant andequipment continue to lag in the growthof the economy. At 9 percent of totalGNP, there has been no relative im-provement since 1958, when activitywas depressed during much of the year,and the ratio is well below that ofnearly 11 percent recorded in 1956 arid1957. While outlays in the industrial,transportation, and public utility fieldscontinue to run below their high pointsof the middle or late 1950's, activity inthe commercial and service areas con-tinues to grow. Outlays in this latterarea, which represented only one-thirdof all fixed business outlays in early1961, have accounted for nearly two-thirds of the total increase since thattime. The higher rate of growth inthis area obviously reflects to somedegree the growing importance ofservices in the economy.

Table 1.Key Income and Produet Data, 1960-62[Billions of dollars]

Gross national product _. _ __

Personal consumption expendituresAutos and partsAll other

Gross private domestic investmentResidential construction __ _Business fixed investmentChange in business inventories _ . _ ..

Net exports of goods and servicesGovernment purchases . _ - _

Federal only

Gross national product in constant (1962) dollarsNational income 2 . _ . _ _ _

Compensation o f employees _ . _ _ . -Corporate profits 2 .. . . _ _ _ . _-All other2 . ._

Disposable personal income 2

Disposable income in constant (1962) dollars 2

1960

503.4

328.518.8

309.7

72.421.147.34.1

2.999.753.2

515.8

415.5

293.745.676.2

349.4

355.5

1961

518.7

338.117.2

320.9

69.321.046.02.1

4.0107.457.0

525.5

427.8

302.245.580.1

363.6

367.2

19621

553.6

356.720.0

336.7

76.223.150.03.1

3.1117.662.6

553.6

457.5

321.651.084.9

382.7

382.7

1961IV

538.6

346.119.4

326.7

76.622.847.86.0

3.8112.159.5

543.7

444.0

309.951.183.0

372.6

375.0

1962 Seasonally adjusted atannual rates

I

545.0

350.219.1

331.1

75.921.248.16.7

3.7115. 261.9

548.4

448.9

315. 250.483.3

375.6

377.5

II

552.0354.920.3

334.6

77.423.350.14.0

3.7116.062.1

552.6

456.7

321.750.784.3

381.8

382.3

III

555.3

358. 219.3

338.9

76.324.351.01.0

2.5118.262.7

554.2

459.8

323.851.085.0

384.1

383.7

IV i

562.0

363.521.5

342.0

75.023.750.9

.5

2.5121. 063.7

559.1

N.A.

325. 8N.A.

86.8

389.3

387.3

1. The figures for 1962 and its fourth quarter are based on incomplete data. Final figures in the usual amount crill be published in the February SURVEY.


January 1963

January 10(58 SURVEY OF CURRENT BUSINESS

New incentives to investment

The low volume of fixed businessinvestment in the past few yearsreflects in part the existence of sub-stantial excess capacity in many indus-tries, and the adverse effect on profitmargins of the fixed charges associatedwith such unutilized capacity. Duringthe year the Federal Government tooksteps to stimulate new investmentthrough new regulations and legislation.

In mid-1962 the Treasury issuedrevised guidelines for depreciation. Theeffect of this measure was to allowbusiness to depreciate equipment at afaster rate, thus decreasing tax liabili-ties and increasing business cash flow.Tentative estimates by the Treasuryindicate a reduced tax liability forbusinesses of about $1 billion on thisaccount. In addition to this measure,an investment incentive tax creditprogram was approved later in the year.

INVENTORY INVESTMENT (GNP Basis) Declined From Yearend Bulge Durable Goods Account for Most of Shifts

Billion $12

TOTAL

.illI-4 12

"IDURABLE GOOD'S

111Tr

NONDURABLE GOODS

!-,I960 1961 1962

Quarterly, Seasonally Adjusted, at Annual Rate


The tax saving resulting from thisprogram is also tentatively estimatedat $1 billion for 1962. Since both ofthese measures were promulgated in thelast half of the year, their effect oninvestment during the year just closedcould not have been important, but itis believed that 1963 investment willrespond favorably.

Housing activity fluctuates at highpoint

The value of new residential con-struction put in place advanced from$21 billion in 1961 to a new high of $23billion for 1962. After allowance for amoderate price advance in recent years,the 1962 output about matched that of1959, the previous high year. Follow-ing a poor first quarter, attributable inpart to unfavorable weather in parts ofthe country, activity advanced sharplyin the second quarter, moderately in thethird a high, for the year of more than$24 billion. On the basis of incompletedata, a minor decline is indicated forthe fourth quarter.

Last year's rise in housing expendi-tures reflected a continuation of thevery erratic rise in housing starts thatbegan in 1961 . In that year, seasonallyadjusted starts had climbed irregularlyuntil the autumn but declined markedlyfor several months thereafter, probablyas a result of severe winter weather.Last spring saw a recovery to a veryhigh rate of starts, with April and Mayaveraging in excess of 1.5 million units,at a seasonally adjusted annual rate.The trend was generally downwarduntil September and was reflected in aminor decline in the GNP residentialconstruction component in the fourthquarter. With starts up again inOctober and November, at approxi-mately the May peak in the lattermonth, a high level of activity seemsassured for early 1963.

For the year as a whole, private non-farm starts totaled 1.4 million units, 11percent higher than 1961. Most of thisincrease was in the apartment housecomponent, which rose to a new highof more than 400,000 units. Singlefamily dwellings were little changed at1 million units, as compared with a highof 1% million in 1959.

Applications for FHA and YA fi-

DOMESTIC FIXED INVESTMENTPlant and Equipment Outlays and Residential

Construction Moved Up in 1962

Billion (1954) $ (ratio scale)

80

70

60

50

40

30

20

FIXED INVESTMENT(annual rate)

Iota

\ ,'-^ 7s-'"^^-^ /Business Fixed

(Plant and equipment)

Residential Construction

1 0 I . . . I . . . 1 . . . I . . . I .

Total Still Accounts for a Smaller Share ofOutput Than in 1957

Percent20

10

FIXED INVESTMENT AS A PERCENTOF TOTAL GNP

Total\

Business Fixed"^ /_,_Residential Construction

\

0 i i i I i i i I i i i I i i i I i i i I i i i i i 1957 58 59 60 61 62 63

Quarterly, Seasonally AdjustedU.S. Department of Commerce, Office of Business Economics 62-1-9

nancing have trended slightly down-ward during the year. With privatemortgage money abundant and some-what cheaper, the comparative advan-tage of the government-sponsored pro-grams has diminished somewhat inrecent months.

Government PurchasesContinue Rise

To an important extent the continuedrise in GNP from the beginning of 1962to date has been dependent on thesteady rise in government purchases ofgoods and services. For the year as awhole these expenditures, at $117%billion, were $10 billion higher than in1961, with the increase about equally


January 1963

SURVEY OF CURRENT BUSINESS January 19G3

divided between Federal outlays, on theone hand, and State and local, on theother. In 1961, government outlaysrose $8 billion over the previous year.

The crucial role of government is seenmost clearly by reference to the GNPadvance since the low point in activityin the first quarter of 1961. From thatperiod to the fourth quarter of 1961,GNP rose by $38 billion while govern-ment purchases were up by $7.3billioncontributing almost 20 percentto the overall advance. From thefourth quarter of 1961 to the closingquarter of last year, GNP was up by

STATE AND LOCAL GOVERNMENTPURCHASES OF GOODS AND SERVICES

Trend Continues Steadily Upward

Billion $

60

40

20

Total

'.':'::.::'::. JCompensation of Employees^'/

WWA'/Yti'-'W I t M

1957 58 59 60 61 62 63Quarterly , Seasonally Adjusted, at Annual Rates


$23 billion while government increasedby almost $9 billionaccounting foralmost 40 percent of the total rise.Over the entire seven-quarter span,government has thus accounted forbetter than one-fourth of the GNP rise,a proportion that has been exceeded inpostwar recoveries only in the Koreanmobilization period about a decade ago.

Federal purchases of goods and serv-ices increased by $5% billion with $4Kbillion of the increase accounted for byincreased outlays for national defense.Within this category, expenditures forspace rose to $2 billion, doubling the

previous year's total. Department ofDefense purchases of hard goods, andsupplies and materials increased ap-proximately $3 billion, while militarypayrolls were up nearly $1 billion.Other defense programs showed littlechange.

Federal purchases other than de-fense were $1 billion higher in 1962than in 1961. This increase is largelyaccounted for by an increase in the Fed-eral Government payrolls, reflectingboth an increased number of employeesand the general wage rate increasewhich became effective late in 1962.

Total Federal Government expendi-tures on the National Income Accountsbasis advanced by $7% billion in 1962.This was a somewhat smaller rise thantook place the year before mainly be-cause of the lesser increase in transferpayments.

Federal Government receipts in-creased even more than expenditures,resulting in a decline in the Federaldeficit on a National Income and Prod-uct basis as compared with 1961.Under the revised depreciation guide-lines and the Revenue Act of 1962, therevenue losses to the Treasury mayreduce or eliminate this indicated de-cline in the Federal deficit, when thecorporate tax returns for 1962 areincorporated into the accounts.

The growth in State and local pur-chases continued in 1962; the $4%billion rise indicated for last yearcompares with $4 billion in 1961 andonly $3 billion in 1960. As in the caseof the Federal Government, the in-crease was largest in the latter half ofthe year. A particularly sharp in-crease in the fourth quarter was concen-trated in highway expenditures, andmay have resulted from the fact thatwinter weather was late in coming tomany parts of the country.

National Income Higher

Quarter-to-quarter changes in incomeparalleled those in GNP, but individualcomponents of national income traceddiverse patterns. Corporate profits,which had risen $11 billion during the1961 recovery period, clipped slightly inthe first quarter of 1962. Althoughcorporate output rose steadily through-

out the year, falling margins preventedtotal corporate earnings from showingmuch improvement, and at yearend,profits were only a little higher than inthe final quarter of 1961. Thus, theshare returned to capital in the form ofprofits continued the downward driftrelative to corporate output that hasbeen evident over the past decade.

In contrast to the changes in corpo-rate profits, compensation of employeesexpanded in each quarter of 1962,although the quarterly rate of increasein the latter part of the year was lessthan half that prevailing in the firstpart.

By industry, the largest income gainsfor the year 1962 were achieved inmanufacturing, particularly the durablegoods industries. In large part, theseincreases reflected recovery from thecyclical low of the previous year, andactually accrued during the last threequarters of that year. As measured bypayroll changes also, developmentssubsequent to the initial recovery periodwere disappointing. At yearend, fac-tory payrolls at a $94 billion annual ratewere only slightly higher than the $91%billion rate of a year earlier. Most ofof this moderate rise was accomplished

CORPORATE GROSS PRODUCT AND PROFITS Output Rose Steadily in 1961-62 Period Profits Recovered Rapidly From the 1961

Cyclical Low and Leveled Off in 1962 Ratio to GNP Lower Than in Earlier Peak Years

Billion $400

300

(ratio scale)

200

150

Corporate Gross Product(left scale)

Billion $80

60

\ j Profits Before Tax, Includingi * Inventory Valuation Adjustment

f

1 1 i i I 1 1 i T i i i ! i i 1 1 i i i 1 1

40

30

1957 58 59 60 61 62 63Quarterly Totals, Seasonally Adjusted,

at Annual RatesU.S. Department of Commerce, Office of Business Economics 63-1-11


January 1963

January 1063 SURVEY OF CURRENT BUSINESS 9

in the early months of 1962, and the trade and service industries. Inmanufacturing payrolls in December these industries, annual gains werewere no larger than in April, after spread throughout the year, and repre-allowance for seasonal factors. sented a continuation of long-term

National income advanced signifi- trends rather than recovery from acantly last year in government and in cyclical low.

Financial Markets in 1962A Picture of General Ease

LAST year's increases in businessinvestment, housing, and consumerdurable outlays occasioned an increasein private borrowing, while the Gov-vernment's borrowing was unchanged,and total debt formation increasedmoderately over the cyclical swing yearof 1961. The monetary authoritiesprovided sufficient reserves to thebanking system to accommodate theexpansion in credit demand with littlepressure on interest rates.

Last year's experience differed fromthat of earlier postwar years of cyclicalexpansion: the rise in fixed investmentwas weak as was the preceding decline;inventories were not built up so fast;no pressure was apparent on bankreserve positions until almost the closeof the year; and interest rates moveddownward or fluctuated narrowly, rath-er than rising.

Business investment up $4 billion

Business fixed investment during1962 rose 9 percentor $4 billion abovethe previous yearcontinuing the cy-clical rise which followed the smalldecline in 1960. Inventory buyingreached a peak in the first quarter.Subsequently, additions to stocks weresmaller, contributing to the economy'sslower growth. For the year as a whole,inventory investment totaled $3 billion.

The improvement in business activ-ity was reflected in a $3% billion in-crease in internal funds over 1961. Thebulk of this rise had occurred by early1962, as profits did not expand afterthe second quarter.

66962663 2

The revisions in depreciation account-ing and the new investment tax creditare not reflected in the statistics ofcorporate depreciation and undistrib-uted profits presented in this issueof the SURVEY but any provision forthese would increase the total of cor-porate funds available from internalsources. (See discussion on page 7.)

Internal funds, as currently meas-ured, were up by an amount roughlysimilar to that of fixed business invest-ment outlays. Apart from the $2%billion advance in short-term businessbank loans, corporate need to resort toexternal credit markets was less than in1961. Bond issues were unchangedfrom 1961, while stock issues werelower than in the previous year, and acontinued rise in the rate of corporatemortgage borrowing did not make upthe difference. Corporate holdings ofliquid assets changed little during theyear.

The sharp fall in corporate stockissues clearly reflected the break instock prices in the spring months, whichheightened uncertainties in financialmarkets and raised questions about itsimplications as to business trends. Inparticular, the flow of new stock issueswas reduced in the last half of the yearand net sales of mutual fund sharesalso declined.

Installment credit up

The sharp increase in auto sales for1962 entailed a large rise in auto credit.The increase in borrowing was roughlyproportional to the rise in purchases as

there was no noteworthy extension ofmaturities, lowering of down payments,or any substantial rise in the proportionbought on credit.

The volume of installment creditextended for auto purchases in thesummer and fall months reached levelsmoderately in excess of the totalsrecorded in the record auto sales year,1955, with car prices averaging higherthan 7 years earlier. There was alsosome pickup in the rate at which install-ment loans were extended on nonautodurables and personal loans also pickedup moderately, while the growth innoninstallment credit continued apace.

Housing credit freely availableHousingtraditionally the residual

claimant upon available capital sup-plies-moved up last year, reflecting inpart an increase in the attractiveness ofmortgages to lenders as credit suppliesexpanded faster than demands. Theexpansion in credit availability alsogave rise to higher loan-value ratios,lower interest rates, and some increasein the volume of loans on olderproperties.

There was little change in the rateat which loans were made on new me-dium-price single-family houses. Theincrease in fund availability was partic-ularly effective in stimulating theconstruction of luxury apartments andmore expensive single-family houses.

Federal GovernmentThe Federal Government was a major

borrower in the money and capital mar-kets last year, although the Federaldeficit on income and product accountnarrowed from $4 billion in calendar1961 to under $2 billion. Toward theyearend, this deficit was rising.

Although the Government's net draftwas reduced, the rate of borrowing at$6 billionexcluding a special sub-scription to the IMFwas littlechanged from the 1961 total as theTreasury tried to put pressure on short-term interest rates by issuing more billsthan were needed to finance operations,and using the proceeds to build up theTreasury's cash balances. In additionto expanded offerings of short-termsecurities, Treasury financing last yearfeatured advance refunding of medium-


January 1963

10 SURVEY OF CURRENT BUSINESS January 1063

term securities into longer term. Re-flecting these policies, as well as somerunup of outstanding medium-termissues, the volume of securities due in3 to 5 years declined $5 billion, whilebonds due in more than 5 years wereup $9 billion, and securities due within1 year rose $3 billion. Savings bondsand special issues showed little change.Bank reserves easy

The banking systems' reserve positionwas easy throughout the year, and underthese circumstances the moderate callsfor credit accommodation were easilyhandled. The monetary authoritiesmaintained net free reserves at about a$400 million level through November,permit ting a fall to $300 million forDecember. Such reserves were main-tained at considerably higher levelsthan had been usual in earlier postwaradvances, and the banks added recordamounts to their loans, investments,and deposit liabilities.

The total of bank loans and invest-ments increased about $18 billion during1962the largest such increase during apeacetime period. This rise was fi-nanced by a $15% billion rise in timedeposits, a $1 billion increase in demanddeposits, and $1 billion of earningsretained by the banks.

The banks used the expanded credit-creating power to extend the volume oflending in all categories of loans andinvestments other than U.S. Govern-ment securities, where they wound upthe year with an amount slightly lessthan they had going into 1962. Asnoted earlier, business loan demandwas moderate last year, and such loansincreased only $3 billion. Banksstepped up their purchases of Stateand local securitiesat $5 billion suchinvestments were at the highest ratein history.

Real estate loansup $4 billionalso provided a major outlet for banklending as did the $2 billion expansionin consumer credit. This experiencewas in marked contrast with otherperiods of economic expansion, whenbusiness and consumer loans had ex-

panded sharply, U.S. Governmentsecurities were sold off in substantialvolume, and little net lending wasreported to State and local governmentsand on real estate.

Other financial institutions step uplending

The supply of loan funds was furtheraugmented by a continued rise in theinflow of savings to nonbank financialinstitutions. The growth of saving andloan deposits was about $9% billion, $1

FINANCING COSTS CHANGESWith Stock Prices Down From Peak

Index 1941 -43-100

100

80 (ndustrial Stock Prices

60

40

20 I i i i 1 i i i I i i i I i i i I i i i I i i i

Equity Costs Were Higher in 1962 . . .Percent10

Earnings/Price Rat fas

I

Dividend Yields

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

While Debt Costs Did Not Change Much

2 -

Industrial Bond Yields

\US Government Bond Yields

1957 58 59 60 61 62 63'Data: Stand. & Poor's, Moody's, & Treas.


billion more than the previous recordin 1961. Mutual savings banks andlife insurance companies also reportedrecord increases in the volume of per-sonal savings entrusted to them. Allthese institutions invested a somewhatgreater portion of their funds in mort-gages, and maintained their holding ofU.S. Government securities.

Interest rates and security pricesThe expanded supply of credit, in

conjunction with the relatively smallincrease in the demands for financingwas reflected in a moderate decline inmost interest rates last year. Short-term interest rates generally fluctuatednarrowly around the level reached earlyin the year, while long-term bond ratesdrifted downward.

The contrast between the downwarddrift in long-term interest rates and thenarrow fluctuations in short-term ratesreflected in part the stability of long-term debt offerings in the face of risingbank and institutional fund sources,and in part deliberate Governmentpolicy. The latter \vas effected byconfining Treasury cash issues to theshorter term of the maturity spectrum,and was undertaken to help Americanliquidity instruments remain competi-tive with those available in majorforeign money markets without in-hibiting domestic expansion throughhigher long-term rates.

During the first 4 months of the year,stock prices drifted downward from thealltime highs reached near the turn ofthe year. In May, and in June, pricestumbled sharply on a rising volume oftrading and the drop in values was thegreatest since 1938. Later in the sum-mer, stock prices stabilized, and thenmoved up modestly. With the coin-ing of the fall months, stock priceseased off until October. Since theresolution of the immediate Cubanconfrontation, the 2 closing months ofthe year have been marked by a sharpresurgence in stock prices which carriedthe market averages slightly more thanhalf way back from the lows reached inJune to the alltime highs scored inDecember 1961.


January 1963

Industrial ProductionEmploymentPricesiNDUSTRIAL production extendedthe cyclical advance which began earlyin 1961, and for 1962 as a whole regis-tered a 9 percent increase over the yearbefore. Within the year output con-tinued to rise until about midsummerbut remained on a plateau thereafter.At yearend, the Federal Reserve season-ally adjusted production index was 3Kpercent ahead of a year earlier, and 7percent above the prerecession peak ofJanuary 1960.

New production peaks were reachedin 1962 by all of the four broad industrygroupsdurables, nondurables, mining,and utilities; durable goods outputtopped 1961 by 10 percent and softgoods by 6 percent. The increase inmining activity was less than 3 percentwhile utilities output expanded 7 per-cent, about equal to the average gainof the past 5 years.

Better than average gains in 1962were made by the auto industry, whichexperienced its second best productionand sales year, and by industries pro-ducing machinery and equipment anddefense goods; these reached consist-ently higher production rates duringthe course of the year. These twomanufacturing groups, with less than30 percent of the weight of the FRBindex, accounted for 40 percent of therise in total industrial output. By wayof contrast, output of the steel industry,which was high very early in the year,fell sharply in the second quarter, andfor the year as a whole averaged nohigher than 1961.

The current expansion in industrialoutput, now extending over a period of23 months and aggregating 16 percentover this period, conforms closely inmagnitude with the recovery from the1954 cyclical trough; however, it is wellbehind the advances of 25 percent ex-perienced in the comparable periods ofthe 1949 and 1958 upturns. The de-clines preceding those recoveries weremuch greater. It took industrial pro-duction five quarters in the 1961-62recovery to exceed the former peak or

somewhat less than in the other cyclicalupswings.

Backlogs decline

The rise in unfilled orders that devel-loped during 1961 came to a halt lastyear. In the early months of 1962 theflow of incoming new business outpacedthe rise in manufacturing output andbacklogs rose. The increase was partic-ularly large in primary metals, but alsooccured in both electrical and nonelec-trical machinery and in fabricated metalproducts.

New orders receipts fell in the secondquarter of 1962 and improved onlyslightly in the second half. With out-put continuing high, backlogs tendeddownward during the final three quar-ters of 1962, and at yearend were about3 percent lower than at the beginningof the year. The slippage, moreover,was also widespread among the majorindustry groupsand, except for non-electrical machinery, backlogs at year-end were generally lower than in De-cember 1961.

Autos: A year of growthAuto assembly plants shipped out

nearly 8.2 million passenger cars andtrucks in 1962, over 1% million morethan in 1961 and about 1 million underthe banner year of 1955. Passengercars accounted for 6.9 million of totaloutput.

Aside from the normal summerslowdown for model changeovers, totalassemblies were maintained at a highrate, with output in most monthsapproximating or exceeding 700,000units. In the October-Decemberperiod alone, when dealers' saleswere especially brisk and inventoriesof new cars in showrooms remainedrelatively low, over 2.4 million passen-ger cars and trucks rolled off the as-sembly lines. This was the best fourthquarter on record, a production per-formance not too far from the peakApril-June period of 1955, when 2.5million units were turned out.

Sharp swing in steel output

During 1961, the steel industryexperienced a sharp rise in output asthe economy and demand for durablegoods recovered from the 1960-61recession. The seasonally adjusted in-dex of production of iron and steel byNovember 1961 was two-fifths abovethe trough of a year earlier.

Around the end of that year a newfactor was superimposed on the growingrequirements for steel consumption,namely, a demand for additional in-ventories as a hedge against a possiblesteel strike. New orders rose to anextremely high rate in the winter andiron and steel output jumped by 14percent from November 1961 to Marchof 1962.

When it became clear that a strikewould not materialize, orders were cutback, and with the signing of a newlabor-management wage contract late inMarch, production began to fall sharplywith consuming industries drawingdown their expanded inventories. Out-put reached a low in July, one-fourth

Table 1.New Orders Received by SteelCompanies, Receipts, Consumption, andStocks of Steel Mill Shapes, and Iron andSteel Output

[Monthly average]

1961

November-December...

1962January-

March _ . -.April- JuneJuly-Septem-

berOctober-

November--

Neworders($Bil.)

1.71

1.55.89

1.151.23

Steel consumers(manu f actur in g)

Re-ceipts

Con-sump-

tionStocks,end ofperiod

(Million short tons)

4.20

5.204.43

3.704.05

4.20

4.334.63

4.204.55

9.40

12.0011.40

9.909.05

Stock-con-

sump-tionratio

2.2

2.82.5

2.42.0

Pro-duc-tion(1957-59

= 100)

107.3

116.499. S

90.992.3

Note.Data are not adjusted for seasonal variation, exceptfor new orders, and iron and steel production.

Sources: U.S. Department of Commerce, Office of Busi-ness Economics and Bureau of the Census; Board ofGovernors of the Federal Reserve System.

11Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

January 1963


INDUSTRIAL PRODUCTION ROSE IN 1962Leveled Off After Midyear

1957-59 = 100

140

U20

100

Autos and Investment Goods at New Peaks

Business Equipment Inci. Defens

60

Soft Goods and Materials Have TendedSlowly Upward

340

120

300

SO

60

140

120

100

30

,60

Apparel & Staples

Nondurable Materials

Consumer Home Goods and Durable MaterialsOff From Earlier Brghs

Home Goods

Durable Materials

Steel Shows Small Recovery After Sharp DeclineFrom March High

120

100

Iron and Steel

1957 1958 1959 1960 1961 1962 63Quarterly Monthly

Seasonally Adjusted, Dafa: pRB

January 1963 SURVEY OF CURRENT BUSINESS

uptrend in the postwar period, recordedan advance of one-eighth from 1961 to1962. Sizable increases were also regis-tered for industrial machinery, freightand passenger equipmentlargely theresult of an increased volume of truckproductionand farm machinery.Within the year, output for theseproduct groups moved closely with theoverall business equipment index.

Nondurables output follows totalindex

In general, nondurables goods werein steady demand, and at year-endoutput was about 3 percent aboveDecember 1961. Production was higherthan in 1961 for all of the majorindustry groups and new peaks werereached by all industries, except leatherproducts. Chemicals and rubber prod-ucts increased 10 percent or more over

1961, the largest among the nondurablegoods group; in other soft goods lines,the advances ranged from 2 percent forfoods and beverages to 7 percent forpaper products.

In the cyclical textile industry, out-put surpassed its previous high inFebruary, advanced further to a newpeak in the summer months, and thenedged downward. The lower rate ofoutput in recent months was associatedwith a drop in orders, rising inventories,and some price weakness.

Production of apparel products traceda somewhat different pattern. After arather slow start in the early part of theyear, output improved moderate!}^ inthe spring months and continued toadvance thereafter. The current rate,a new top, was some 5 percent above ayear earlier and 8 percent aboveJanuary 1962.

Labor Market DevelopmentsAS the economy pushed upward in1962, there was a marked advance inemployment, a rather small rise in thetotal labor force, and some reductionin unemployment as compared with1961. Total employment in 1962averaged 67% million, up 1 million from1961. The Armed Forces also showeda fairly large expansion for the firsttime since the Korean mobilizationperiod.

The rise in seasonally adjusted em-ployment in the early months of theyear was largest in durable goods manu-facturing and retail trade, but gainswere also made in other manufacturing,services, construction, and State andlocal government. Small increases oc-curred in other sectors. Around mid-year employment leveled off, and on aseasonally adjusted basis, showed littlechange during the latter part of theyear. Of the industry groups whichhad shown expansion early in 1962,only the service industries and Stateand local governments showed anyconsiderable advance. In manufac-turing, employment declined over200,000. Seasonally adjusted employ-ment in most of the other groups de-clined slightly after midyear.

Extension of cyclical riseThe broad rise in employment in

the first half of 1962 represented acontinuation of a cyclical advance fromthe low point that had been reachedin the first quarter of 1961. From thatdate to the third quarter 1962 nonagri-cultural employment expanded 2 mil-lion, seasonally adjusted, with abouthalf the rise occurring in 1961 and theremainder in early 1962.

Increases were large in manufac-turing, chiefly durable goods, and ingovernment; sizable increases also oc-curred in trade and service industries.Other goods production and transpor-tation industries showed little changeduring this period of general cyclicaladvance.Comparison with previous peak

A second comparison of the thirdquarter 1962 employmentwith thepeak employment of the precedingbusiness cycle, second quarter 1960shows a somewhat different picture,focusing more on growth than oncyclical change. As shown in theaccompanying table the rise in nonagri-cultural employment from second quar-ter 1960 to third quarter 1962 wasnearly 1 million, or less than 2 percent.During this period the employment

government (mainly State and local),with these two groups showing anadvance of over 1 million, or morethan the rise in total nonagricultura!employment. Smaller advances oc-curred in trade and finance groups, thetwo together accounting for an increaseof 300,000. All of the other majorgroupsmainly the commodity-pro-ducing industriesregistered some de-cline, even though output in theseindustries registered an advance.

In manufacturing, for example, therewas a small decline in employmentabout 140,000 or less than 1 percent-from the previous cyclical peak in thesecond quarter of 1960 to the thirdquarter 1962. By way of contrastmanufacturing output increased 9 per-cent over the same period. Since therewas only a small increase in hours thereis a substantial gain suggested in outputper manhour.Workweek extended

In manufacturing, the average hoursworked per week was greater in 1962than in either of the two precedingyears. For the durable goods indus-tries, the workweek averaged nearly

EMPLOYEES IN NONFARM ESTABLISHMENTS Government Employment Rose Steadily in 1962 Nonmanufacturing Rose Until Fall Period Manufacturing Leveled Out Earlier

Million Persons (ratio scale)

30

25

20

1510

Private Nonmanufacturing

Manufacturing

GovernmentI\ ^

I! I 1 I 1 I I I I I I I I I 1 I I I t I t 1 f I fI

1957 58 59 60 61 62 63Quarterly, Seasonally Adjusted.

increase Was Centered in Services and U.S. Department of Commerce, Office of Business EconomicsData: BLS


January 1963

14 SURVEY OF CURRENT BUSINESS January 1063Table 2.-Employees in Nonagricultural Establishments

[Thousands of persons, seasonally adjusted]

1960-IIQ . -_1961-IQ - -1962-IIIQ - -1962-1 VQ -_

Absolute Change

1-1961 III-1962

11-1960 III-1962

ni-1962 IV-1962

Total

54, 61053, 54055, 58055, 610

2,040

97030

Manu-factur-

ing

16, 97016, 00016, 84016, 710

830-140

-120

Dur-able

goods

9,600

8,830

9,500

9,440

670-100-60

Non-dur-able

goods

7,380

7,180

7,340

7,280

160-40-60

Min-ing

720

670640630

20-80

-10

Con-tractcon-

struc-tion

2,9102,780

2, 7302,690

50-180-40

Trans-porta-tionand

publicutil-ities

4,040

3,920

3,920

3,920

0

-1200

Trade

11,440

11,300

11,630

11,590

330190

-40

Fi-nance,insur-ance,andreal

estate

2,670

2,730

2,800

2,820

7012020

Serv-ice andmiscel-laneous

7,330

7,450

7,800

7,850

34047050

Gov-ern-ment

8,5108,690

9,220

9,380

530710160

Note.Changes are computed from unrounded figures. Source: I'.S. Department of Labor, Bureau of Labor Statistics.

41 hours, the longest since 1956. Hoursof work had shown a sharp expansionduring the course of 1961, reaching ahigh rate in the closing months of theyear. For the most part, this highrate was maintained during 1962 andstands in contrast to the decline inemployment after midyear.

For the nondurable industries, theworkweek averaged 39.7 hours, ascompared with 39.3 hours in 1961.On a seasonally adjusted basis, theTable 3.Unemployment Rates Among

Various Grovips of the Civilian LaborForce

[Percent]

Male . _

20 and over

WhiteNonwhiteMarried, with spouse _ -Single

Female

WhiteNonwhite

Married, with spouse _ _Single

Industry of last job wageand salary workers:

Agriculture _ _ - ._Mining, fisheries, for-

estryServices _ _ _ _ _ _TradeConstructionManufacturingTransportation

Duration:

Percent distribution ofthe unemployed, byduration of unem-ployment:

Less than 5 weeks-_5-1415-2627 weeks and over_ _

1958

6.86.3

6.113.75.1

13.36.86 16.2

10.86.57.4

9.9

10.64.66.7

13.79.25.6

39.229.816.814.2

1959

5.34.64.6

11.53.6

11.65.95 25.39.55.27.1

8.7

9.74.35.8

12.06.04.2

43.529.212.315.0

1960

5.44.84.8

10.73.7

11.75.95.15.39.55.27.5

8.09.54.15.9

12.26.24.3

45.829.912.811.5

1961

6.55.85.7

12.94.6

13.17.2

6.36.5

11.96.58.5

9.311.64.97.2

14.17.75.1

39.528.615.116.7

1962

5.24.64.69.53.5

11.36.35.45.5

11.2

5.57.9

7.58.44.36.4

12.05.83.9

43.928. 013.314.8

Note.(1962based on 11-month averages).Source: U.S. Department of Labor, Bureau of Labor

Statistics.

workweek was extended to 40 hoursin the spring but was then reducedslightly after midyear. These changesparalleled those in employment.Labor force growth slackens

The moderate reduction in unem-ployment during 1962 reflected both anincrease in the number of civilian jobsarid some growth in the Armed Forces(about 300,000) together with a lag inthe rate of growth of the total laborforce. The increase in the ArmedForces took place toward the end of1961, and there was little furtherchange during 1962. Although caremust be exercised in interpreting short-time changes in the labor force series, itmay be noted that the slackening in thegrowth of the labor force was most pro-nounced in the latter part of 1961, andthis lagging was not made up in 1962despite rather substantial increases dur-ing a part of the year. The labor forcecontinues to be considerably below theexpected trend based on population andpast trends in participation rates.

Although current population esti-mates have been revised downwardsomewhat, the principal influence re-tarding the growth in the labor force is asharp reduction in labor force participa-tion, especially for younger age groups.Part of this is attributable to increasedschool attendance.

Unemployment reducedThe number of persons out of work

fell to 4 million in 1962 from 4.8 millionin 1961. The unemployment rate forthe civilian work force averaged 5%percent in 1962, down from 6.7 percent

in 1961. The improvement in unem-ployment from 1961 was reflected in allof the principal social-economic groupsof the population. For males, 20 yearsand over, the unemployment rate was4% percent, as compared with 5.8 per-cent in 1961. Unemployment was alsolower for females in 1962 than in 1961,although among married women therates were higher than for married men,as in other recent years. In addition, asmaller proportion of persons withoutjobs represented long-term unemployed,i.e., out of work for 15 weeks or more.

The number of workers on part-timeemployment for economic reasons de-clined during the early part of the yearbut showed some rise after midyear.Most of the rise occurred among work-ers who usually work full-time.

Aside from these short-run changes inunemployment associated with the cy-clical advance, other changes areoccurring in the composition of the un-employed due to longer term develop-ments. The shift in employmenttoward government and service indus-tries and away from commodity-pro-ducing industries has accentuated thetypically higher rates of unemploymentamong blue collar workers as comparedwith the white collar group. Althoughtheir unemployment rates were reducedin the early part of the year, the un-skilled and semiskilled workers expe-rienced relatively high rates of unem-ployment during the latter part of 1962.UNEMPLOYMENT RATE

Was Lower Than in 1961, but With Littleimprovement During the Year

Percent10

Total

I I I I I I I I I I 1 11957 58 59 60 61 62 63

Quarterly, Seasonally Adjusted.Data: BLS

U.S. Department of Commerce, Office of Business Economics 63-1-16Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

January 1963

January 1963 SURVEY OF CURRENT BUSINESS 15

Price level Inches UpIndustrial Prices Steady

THE year 1962 was another year ofrelatively small price changes in com-modity markets as the Nation's abilityto produce continued to be more thanample to meet the demands placed onit, but service prices continued theirsteady climb. The most comprehen-sive measure of price change, the over-all GNP implicit price index, rose byabout IK percent over 1961, aboutequal to the increase in each of the 3previous years. Prices in consumermarkets were up a little over 1 percent,wholesale prices of industrial productswere very little changed while farmprices advanced by 2 percent.

Wholesale prices steadyThe comparatively long period of

price stability in wholesale marketsjudged by postwar standardswasextended into 1962. The BLS Whole-sale Index was very slightly higher thanin 1961, reflecting higher quotations onboth farm and processed food products.The industrial component averagedexactly the same as the year before andhas actually registered a slight decreasesince 1959.

The behavior of industrial prices isof interest because in every other re-covery in the postwar period this com-ponent has advanced as industrialdemands have strengthened. Even inthe 1958-60 period, which witnessed thesmallest price rise for any of the post-war recoveries, industrial prices roseabout 2% percent from the 1958 reces-sion trough to the early 1960 peak; inthe latest recovery, by way of contrast,prices have fallen by about one-half of1 percent since the early part of 1961.Continued excess capacity among do-mestic producers and competition fromabroad have led to price cutting or pre-vented prices from rising in a number offields. Price stability was also fosteredby the general ease in financial markets.This was abetted by the monetarypolicies of the Federal Reserve System,which facilitated the growth in creditwith little change in interest rates. An-other factor, the broad impact of which

is difficult to measure but which un-doubtedly acted as a restraining in-fluence, was the chain of events thatculminated in the steel-price rollbacklast spring.

Although industrial prices were un-changed for the year as a whole, fromthe beginning to the end of the year thenumber of commodity groups showingprice increases was somewhat largerthan in either 1960 or 1961. Advances,however, were less frequent than in1959 or in the years 1955-57. This isshown in the tabulation below, whichis based on 72 subgroups of the non-farm-nonfood part of the BLS Whole-sale Price Index.

By stage of processing the most sensi-tive component of industrial pricescrude materialsregistered a declinefor the third successive year, with mostof the drop coming after the firstquarter. Intermediate materials, pro-ducer finished goods, and consumernondurables were about the same, onthe average, as in 1961, while consumerdurable goods averaged slightly lowerfor the year.

Durable goods prices easeDurable goods prices in primary

markets on the average were a littlelower in 1962 than in 1961. Prices ofmetals and metal products as a groupwere lower for the second successiveyear, reflecting reduced quotations oniron and steel products and nonferrousmetals. Prices of machinery and mo-tive products as a group were un-changed for the second year in a row,after having advanced steadily throughthe postwar period; agricultural ma-chinery quotations, however, werehigher. Electrical machinery pricescontinued to drift slightly downwardwhile prices of motor vehicles wereabout unchanged.

With manufacturing and trade in-ventories fairly heavy and sales slow,there was some price cutting in house-hold appliances, including radio andTV sets; furniture prices, however,averaged higher for the year. A good

construction year kept prices of mostbuilding materials fractionally abovethose in 1961.

Wholesale prices in nondurable goodsindustries were slightly higher last year,with increased quotations for textilesand apparel, hides and leather, andpaper. Despite increased demand, ex-cess capacity led to price reductions inchemicals, petroleum, and rubber from1961 to 1962.Consumer prices edged higher

The overall rise in consumer pricesin 1962 was essentially a continuationof the pattern since 1958, with pricesfor the year as a whole 1.2 percentabove those of 1961. The overall indexstood at 105 percent of the 1957-59average. Food prices, prices of com-modities other than food, and serviceprices were all higher for the year.

ANOTHER YEAR OF PRICE STABILITYWholesale Prices Up a Little

1957-59=100

110

105

100

95,

90

WHOLESALE INDUSTRIAL PRICESLittle Changed Again

FARM PRICESUp 2 Percent

Consumer PrkesUp 1.2 Percent in 1962

110

105

100

95

PRICES OF SERVICESContinue Uptrend

FOOD PRICES? Percent Higher

\NONFOOD COMMODITY

PRICESS//gMy Up

1957 58 59 60 61 62 63Quarterly Monthly

Data: BLSU.S. Department of Commerce, Office of Business Economics


January 1963

16 SUKVEY OF CURRENT BUSINESS January 1063The rise in food prices approximately

paralleled the increase in the overallindex. Continued high demand broughthigher quotations for meats, and shortsupplies caused advances in the pricesof vegetables. Dairy product prices,however, moved lower as consumptionfailed to advance.

Table 4.Direction of Change From SameMonth Previous Year for Subcomponentsof BLS Wholesale Price Index, ExcludingFarm and Food Products

December:1954 _.19551956 - _ .1957

195H19591860196119621 _

Higher

34535752

3652363241

Lower

32141016

3317343629

Same

3232

33242

Total

69697070

7272727272

i December 1961 to November 1962, latest date available.Source: U.S. "Department of Commerce, Office of Business

Economics, based upon U.S. Department of Labor,Bureauof Labor Statistics.

Among commodities other than food,prices of durable goods increased about1 percent, reversing a decline of about2 years duration. Although sales ofboth new and used cars were higher,new car prices were about the same asin the preceding year; in terms of mar-ket prices the strength of auto demandwas mainly evident in the sharp priceincreases registered for used cars. Re-flecting the reductions at the manufac-turing level, prices of household appli-ances moved lower over the year andas of September averaged some 7K per-cent below the 1957-59 average. Ap-parel, drugs, and tobacco had higherprice tags for the year as a whole.

Services prices again registered largerthan average increases with a 2 percentgain over 1961. Rents rose by morethan 1 percent while services other thanrents were up by almost 2 percent.

A feature of the year was the levelingout in the prices of services other thanrents after the middle of the year. Thisgroup had been showing one of thelargest increases of any of the majorcomponents of the CPI in the postwarperiod, with a gain of 32 percent over

the past decade. This stabilizing wasattributable to a number of factors.Rates for electric and gas utilitiesstabilized this year, after a long andvirtually unbroken postwar rise. Easyconditions in financial markets broughtabout a reduction in interest rates onhome mortgages. In addition prices ofpublic transportation leveled out.These factors offset large continuedadvances for medical care services andreading and recreation.Further breakdown of price changes

Consumer prices are currently atrecord levels but needless to say allitems are by no means uniformlyhigher. To show the diversity of pricechange a special breakdown was pre-pared for 147 individual nonfood itemsin the Consumer Price Index, for whichquarterly quotations were availablefrom 1947 through September 1962.The results are summarized below.

For about 40 percent of the items, theSeptember 1962 quotation representedthe peak for the entire postwar period;another third showed decreases fromtheir highs ranging up to 5 percent,while the remainder showed decreasesin excess of 5 percent.

As might be expected, the Septem-ber 1962 quotations were highs mostfrequently in the case of services75percent of the service items were soclassified. For nondurables about 30percent were at new tops in September,while for durables only 20 percentrepresented highs. At the other ex-treme, 44 percent of the durable itemswere more than 10 percent below peak

levels as of September, as against 18percent for nondurables, and zero forservices.Farm prices strong

Prices received by farmers moved alittle higher in 1962 for the second yearin a row as both crops and livestockshowed some increase. Livestock andproduct prices had edged downwardin the 3 preceding years, reflectingincreased marketings. Marketings re-mained at a high rate in 1962, and withsustained demand there was an increasein prices in the fall of the year.Although livestock prices eased withheavy marketings in the closing monthsof the year, they remained above ayear earlier. The principal advanceswere in meat animals. Dairy productswere lower in 1962 as production in-creased. Support prices were loweredin the spring, but CCC purchases ofdairy products were unusually large asdemand continued the easing that haddeveloped in 1961.

Crop prices averaged 2 percent higherin 1962, continuing the advance whichhad occurred the preceding year.Among the field crops, food grains weresubstantially higher, reflecting in-creased support prices, and feed grains,cotton, and tobacco were all up some-what. Oilseed cropschiefly soy-beanswere lower than in 1961.Vegetable prices were higher and fruitprices were down, each reflectingchanges in the size of crops marketed.Freezes in the winter vegetable andfruit belts near the end of the year hadnot yet been reflected in market prices.

Table 5.Decreases From Postwar Peaks to September 1962, 147 Nonfood Items in theConsumer Price Index

Size of decrease(percent)

0 .0.1 to 5.0- _-5.1 to -10.0More than 10.0

Total

Commodities

Nondurable

23311215

81

Durable

572

11

25

Services

301010

41

Total

58481526

147

Percent distribution

Commodities

Nondurable

28381518

100

Durable

20288

44

100

Services

732420

100

Total

39331018

100

Source: U.S. Department of Commerce, Office of Business Economics, based upon U.S. Department of Labor,Bureau of Labor Statistics.


January 1963

The Balance of PaymentsSome Improvement but Another Large Deficit in 1962

MelODERATE gains were registeredin the balance on international trans-actions of the United States in 1962,with favorable changes in capital trans-actions and investment incomes out-weighing the reduction in our mer-chandise trade surplus since mid-1961.The adverse balance in our inter-national interchange was less than in1961, but resulted in a decline in U.S.net monetary reserves of about $2billion. This was reflected in a declinein the gold stock of $0.9 billion, and anincrease in foreign holdings of liquiddollar assets amounting to $1.1 billion,with only a small change in holdings offoreign convertible currencies by mone-tary authorities.Progress in reducing deficit

Reviewing the course of the balanceof payments in the past few yearsconsiderable progress is evident, withthe overall deficit brought down froma peak of $3.9 billion in 1960 and atotal of $2% billion in 1961. Programsto promote exports have been intensi-fied. Measures have been taken todiminish the dollar outlays connectedwith U.S. Government aid programsand defense expenditures abroad, for-eign governments have increased theircurrent and anticipated military pur-chases in the United States and havemade large advance repayments onpostwar loans, and international mone-tary management has been furthercoordinated.

These measures, together with grow-ing international cooperation, havehelped to restrain speculative capitalflows and probably prevented furtheraccumulations of gold or liquid dollarsassets by some countries. Coopera-tion of leading countries is especially

necessary when differences in cyclicalconditions in the economies of thevarious economically advanced coun-tries, and measures by the variousgovernments to steer their economiestoward a satisfactory rate of operation,may put pressures on trade balances aswell as international capital move-ments.

The gradual devaluation of the Cana-dian dollar during the early part oflast year, the establishment of a newexchange rate at the beginning of May,and subsequent speculative operationsagainst the Canadian dollar which were

finally stopped by large-scale inter-national assistance toward the end ofJune, set in motion capital flows andchanged the timing of trade and othertransactions in such a way as to addabout $600-700 million to our overallbalance in the first half of the year,and subtract a similar or larger amountin the second half. These adjustmentshave not been made in the last line ofthe table; if these developments weretaken into account, together with, otherspecial transactions, the overall balancewould be about the same during thetwo halves of the year.

Trade and Service Accounts

RECENT trends in our 3iierchandi.setrade have been examined in detail inthe SURVEY OF CURRENT BUSINESS forAugust and December 1962, and onlythe highlights are summarized here.Data for the year are not yet complete.

Imports into the United States re-spond primarily to changes in domesticindustrial production, therefore we hada sharp increase in imports between thefirst and second halves of 1961. Aninitial strong upturn in imports ofindustrial supplies and materials (whichcomprise about half of all U.S. imports)early in 1961as the U.S. economyentered an expansionary phasewasfollowed by rising imports of otheritems, especially consumer goods. Dur-ing 1962, imports of industrial suppliesand materials readied a peak in thefirst quarter and then declined slightly,but the overall total of imports wascarried upward by the steady growthof imports of other items.

Part of the shift in the values ofmajor commodity groups in our importsis the result of a decline in prices offoodstuffs and industrial materials whileprices of finished .manufactures heldsteady. This also contributed to therelatively small share of only aboutone-fifth of the 1961-62 U.S. importexpansion accounted for by less devel-oped countries.

Falling trade surplusWhile U.S. merchandise imports rose

by about $1.7 billion between 1961 and1962, U.S. exports advanced by approxi-mately $1/9 billion (assuming no sharpchange at the year end). If allowanceis made for increased financing out ofU.S. Government grants and creditsthe rise would be somewhat smaller.The gain in exports was accomplishedin the first half of the year, with mostof the increase in iion-aid-financed salesgoing to Continental Western Europe,

17Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

January 1963


Canada, and Australia. After the firsthalf of the year exports declined,particularly after deducting those whichwere financed by U.S. Governmentgrants and capital, especially to Indiaand Pakistan.

Much of the rise in our exports since1958-59 has been associated with thevigorous growth of industrial activityin Western Europe and Japan, bothbecause of the demands generateddirectly in those countries and theirindirect influence on other major mar-kets for U.S. goods. For WesternEurope, however, the development ofmore adequate domestic supplies formany products by 1962 may well haveweakened this relationship, and a slowerrate of expansion is also likely to affectEuropean demand for our capital goods.On the other hand, resumption of amore rapid upward movement of indus-trial activity in Europe, coupled withrising costs in those countries, wouldprovide opportunities for an upwardturn in our exports.

In the first half of 1962, when Europeexperienced continued though some-what dampened growth, a large part ofour export gains to that area was incommodities not related to industrialproduction-military items, and agricul-tural products being purchased inanticipation of raised import levies.Except for a spurt in September asso-ciated with the impending maritimestrike, exports to Europe dipped aftermidyear, with economic activity insome countries becoming less expansive.

Europe accounts for about one-thirdof all U.S. exports, and about one-halfof all cash agricultural exports, and isalso the principal supplier of our fastestgrowing import category-finished manu-factures. Therefore, perhaps the mostsignificant developments in our balanceof payments in 1962 and for the futurerevolve about our trading and financialrelationships with that area.

Exports to Canada in the first halfof 1962 were relatively strong, in linewith gains in economic activity, andwere exceptionally high in the secondquarter when a decline in the value ofthe Canadian dollar or import restric-tions were anticipated. After midyearit became evident that the previouslyestablished new par value would bedefended but new surcharges were im-

posed on imports into Canada. Thereduced exchange rate and the sur-charges, coupled with a somewhatslowed-down growth rate, impeded fur-ther increases in U.S. exports. LatinAmerican countries as a group havebeen importing less from the UnitedStates as their export earnings havelagged and capital inflows have di-minished.

Our trade surplus with Japan wasabout $0.7 billion in 1961, but wasreduced to a negligible amount in thefirst 10 months of 1962 as exportsdropped while imports continued up-ward. Japan appeared to be allowingimports to expand somewhat towardthe end of 1962.

As a result of divergent movementsof exports and imports, preliminary

U.S. BALANCE OF PAYMENTS IN 1962A Declining Favorable Trade Balance Since

Mid-1961 . . .

Billion $12

10

Merchandise Exports(Excl . Military Goods Under Grants)

V

^ t ^ ^ m i * *^Exports Exc/. / .,!

- U.S. Govf. Financed ..**** V

'*** *** ^***"*(,%**** Merchandise Imports

Was Offset by Lower Capital Outflows in 1962 .

U. S. Private Capital Outflows

and Reduced Net Payments for OtherTransactions . . .

-4 All Other Transactions

Resulting in a Lower Overall Deficit

-4

-2

Balance On All Transactions

I I! I II I II I II1960 1961 1962 1963

Half Yearly; Seasonally Adjusted.U.S. Department of Commerce, Office of Business Economics 63-1-18

indications are that the U.S. tradebalance was cut from $5.4 billion in1961 to about $4.2 billion in 1962, withthe surplus narrowing in the secondhalf of the year.

Increased receipts from services andinvestment income

A sizeable annual increment in ourreceipts from abroad is yielded by in-vestment income and returns of con-tractors fees, royalties, and other serv-ice charges. Income receipts fromprivate foreign investments were upabout $0.3 billion in 1962, about 9percent. The gain in incomes fromdirect investments was probably under$0.2 billion, a lesser increase than wasregistered in 1961. Receipts fromthese investments in Europe showedlittle or no increase over 1961, suggest-ing that earnings may have been sub-jected to a squeeze between rising costsand increased competition and alsothat a higher proportion of earningsmay have been retained abroad. Smallincreases in income were registered forCanada and Latin America, but thelargest gains were from Asia.

The mounting volume of "short-term" capital outstanding as well asincreased holdings of foreign bondsresulted in sizeable additions to incomereceipts. U.S. Government interest re-ceipts on outstanding credits rose byabout $0.1 billion, though a substantialportion of this was in foreign currencies.

Receipts from other services increasedby about $0.2 billion, mainly fromrising management fees an

6442_1960-1964

Documents

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large rise

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good year

year thoughthere

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rise ingovernment expenditures