scb_041965

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

APRIL. 1965 / VOLUME 45 NUMBER

CONTENTS

THE BUSINESS SITUATION

First Quarter 1965 GNP 1Economic Activity in March 3

An Evaluation of Manufacturers* Current Capacity 7

The Farm Situation 10

ARTICLES

Personal Income by States, for 1964 13

Disposable Personal Income by Statesin Current and Constant Prices 16

NEW OR REVISED STATISTICAL SERIES

Production of Electric Energy in 1963 28

MONTHLY BUSINESS STATISTICS

General S1-S24

Industry S24-S40

Subject Index (Inside Back Cover)

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Articles:Edward A. Trott, Jr.Regional Economics Division Staff

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MU 2-3SOO.


BUSINESS SITUATION

OPURKED by record automobile de-mand in particular and continuing vig-orous private demand in general, theNation's output in the first quarter ofthe year showed one of the largest quar-terly gains of the postwar period. Ac-cording to preliminary estimates, grossnational product rose $14% billion, or2% percent, over the fourth quarter of1964 to reach a seasonally adjustedannual rate of $649 billion. The gainwas attributable entirely to privatedomestic demand since total Govern-ment purchases remained unchangedand net exports dipped. In addition,with inventory investment rising little,almost all of the gain represented salesto final markets. Despite the largeincrease in demand, the rise in pricescontinued to be moderate; in physicalvolume, the increase in GNP amountedto 2 percent.

The first quarter advance was the16th successive quarterly increase sincethe recession low in the first quarter of1961. Over the past 4 years, real GNPhas risen by 23 percent. The rise inproduction has been accompanied by a4% million increase in employment and aconsiderable improvement in unemploy-ment. In the first quarter, unemploy-ment averaged below 5 percent of thecivilian labor force for the first timesince the summer of 1957.

Personal income rose by $9% billion,or almost 2 percent, to $511% billion.However, because of higher tax settle-ments reflecting last year's underwith-holding of income taxes, personal dis-posable income increased by only 1%percent.

Most types of income showed sub-stantial gains from the fourth to the

first quarter. A $7% billion rise inpayrolls reflected increased employmentin most major industries. Hourly earn-ings continued to rise moderately, andin manufacturing, the workweek length-ened. While estimates of corporateprofits for the first quarter will not be

Changes in GNP and Major ComponentsGNP rises stronglyin the first quarter of 1965

Billion $

16

as CONSUMER EXPENDITURES forAUTOS AND PARTS surge . . .

while OTHER CONSUMEREXPENDITURES continue to expand

available until next month, the sharpincrease in business activity points to asubstantial increase in profits.Auto production rebounds

The dominant factor in the largefirst quarter increase was the recovery

CHART 1

RESIDENTIAL CONSTRUCTIONturns up ...

Billion $4 . - , , . . . . . . . .

BUSINESS FIXED INVESTMENTrises sharply

GOVERNMENT PURCHASES of goodsand services unchanged

-4

and NET EXPORTS dip,due to dock strikes

I II III IV I I II III IV1964 1965 1964

Quarterly Change, Seasonally Adjusted, At Annual RatesU.S. Department of Commerce, Office of Business Economics

1965


of automobile production and salesfrom the depressing effects of thestrikes in the fourth quarter. As thetable below shows, auto product* ac-

CHART 2

Personal Income Has RisenOne-Fourth Since Early 1961

1st qtr. 1961 =100150

140-' PERSONAL_^ INTEREST INCOME/ DIVIDENDS

WAGES AND SALARIES

TOTAL

TRANSFER PAYMENTS

no

100 gfi-ga^^

901st qtr.1961

1st qtr.1965

U.S. Department of Commerce, Office of Business Economics 65-4-2

counted for over one-half of the risein total output. The first and fourthquarters viewed together suggest thatauto demand has grown considerablywith the introduction of the 1965models.

Auto Product and Gross National Product:Change from Previous Quarter

[Billions of dollars, seasonally adjusted at annual rates]

1964:First quarterSecond quarterThird quarterFourth quarter

1965:First quarter preliminary-.

TotalGNP

9.89.89.86.2

14.4

Autoproduct

0.2.6.4

3.8

8.5

NonautoGNP

9.69.29.4

10.0

5.9

Nonauto GNP rose less than inrecent quarters but this is traceablelargely to a decline in the rate of non-auto inventory investment. The in-crease in final sales of goods and

1 Auto product is derived by summing the value of output

of domestically produced new cars and the net value addedin the distribution of new, used, and imported cars.

SURVEY OF CURRENT BUSINESS

services other than autos was littledifferent from the previous quarter.

Consumption expenditures up $11%billion

With a $5% billion rise in expendi-tures for autos and parts, personal con-sumption expenditures increased by$11% billion to a seasonally adjustedrate of $418% billion. New domestic carsales were at a seasonally adjusted rateof 9% million units in the first quarter,substantially above the 7% million soldin 1964. Unit sales had been running atan average rate of almost 8 million in1964 until the last quarter, when theyfell to approximately 7 million. Otherconsumer expenditures, as a whole,continued to expand in the first quarterat about the same rate as in 1964.

Fixed investment also shows largerise

Fixed investment also marked itslargest quarterly rise of the currentbusiness expansion with an increase ofmore than $3 billion. After threestraight quarters of decline, expendi-tures for nonfarm residential construc-tion increased $1% billion, reflecting thefourth-quarter pickup in housing starts.Business fixed investment advanced by$2 billion as higher sales and profits in1964 stimulated new programs for ex-pansion and replacement. The first-quarter figure included unusually largeadditions of cars for business use.

Government unchanged^ exportsdown

Total Government purchases of goodsand services remained at the fourth-quarter level of $130 billion. State andlocal purchases continued to rise andFederal nondef ense purchases rose mod-erately, but these increases were offsetby a reduction in Federal defense pur-chases.

Net exports declined by a rate of $1%billion in the first Quarter because ofthe dock strikes in the east and gulfcoast ports in January and February.While both exports and imports de-clined, the strikes hurt imports rela-tively less because they did not stopthe bulk unloading of petroleum andores, which are large import items.

April 1965

Inventory investment stays high

On the basis of incomplete data, itappears that inventory investmentthe change in business inventoriesrosemoderately to a rate of $6% billion inthe first quarter. Its composition, how-ever, changed considerably over thequarter. Auto inventories, which weredepleted in the fourth quarter, were re-built although relative to sales theywere below prestrike levels when thequarter ended. Steel stocks continuedto increase but at a slower pace than inthe preceding quarter. Other stocksheld by manufacturers and trade firmswere also accumulated at a slower ratethan in the fourth quarter. Althoughinventory investment in the last twoquarters was distinctly higher than itwas in the first three quarters of 1964,inventory-sales ratios in manufacturingand trade have continued to declinebecause of the strong increase in sales.

Payrolls advance sharply

Moving up by a rate of $6X billion,private wages and salaries showed theirlargest quarterly rise of the current ex-pansion and accounted for more thantwo-thirds of the $9% billion increase inpersonal income in the first quarter.The payroll rise was attributable aboutequally to the increase in employmentand the increase in weekly earnings.

CHART 3

Personal Saving and AutoExpenditures as a Percent ofDisposable Personal Income

Percent

10

AUTOS/AND PARIS

2 ;,> i-j^tVi/'J'. I,:'"' ij-'i- A.*&.i"i.n i/?J u J:".'i' t'.-.f1959 60 61 62 63 64

Based on Seasonally Adjusted DataU.S. Department of Commerce, Office of Business Economics

65


April 1965

Nonfarm proprietor income, interestincome, and dividends were also higherthan in the fourth quarter. FederalGovernment transfer payments rosebecause of the advance dividend pay-ments to veterans holding Governmentlife insurance. The only major type ofincome to decline was farm proprietorearnings; these fell as farm productionexpenses increased while cash receiptsfrom farm marketings declined.

Saving downAs a result of the jump in consumer

auto expenditures, personal saving fellby $5 billion to $30% billion in the firstquarter. The saving rate declined froman abnormally high 8 percent of dis-

CHART

Corporate profits dipped slightly in thefourth quarter because of auto strikes

Dividends maintained


posable income to just under 7 percent,approximating the rate in 1963 prior tothe tax cut. The ratio, which hasaveraged 7% percent over the past 10years, rose in the fourth quarter, largelyas a result of the decline in auto ex-penditures. As chart 3 shows, whenspending on automobiles changessharply, the saving rate tends to changein the opposite direction. Saving andauto expenditures combined were 13percent of disposable income in the firstquarter of 1965, the same percentage asin 1964.

40

30 -1'' f-'"l-::i/'--}' %-. i P 1: 1-''1-;'(' ;i -f; "1 ' 1 1 ( i1961 1962 1963 1964 1965

40 ,

1961 1962 1963 1964 1965Seasonally Adjusted, at Annual Rate

* Excludes inventory valuation adjustmentU.S. Department of Commerce, Office of Business Economics 65-4-4

Corporate profits in 1964Estimates of corporate profits for

1964 are given on pages 5 and 6 anddiffer slightly from preliminary esti-mates published in March.

Corporate profits before taxes, includ-ing the inventory valuation adjustment,fell $1 billion in the fourth quarter of1964 to a seasonally adjusted annualrate of $57 billion. Book profitswhich include inventory profits fornon-LIFO firmswere off only one-quarter billion dollars as there weresubstantial gains in the inventory pricesof manufacturers. Dividends continuedto grow in the quarter and the profitdecline was absorbed in lower retainedearnings. The fall in corporate profitsresulted from strikes in the automobileindustry; profits in other industriescontinued to rise.

Corporations enjoyed their best yearof the current business expansion in1964. Profits before taxes increased$6% billion over 1963 to a record $57Kbillion. This was the largest increasein profits of the postwar period exceptfor the recovery years of 1950, 1955,and 1959. Moreover, with corporatetax rates reduced, $5 billion of theincrease remained as after-tax profits,which amounted to $31% billion. Divi-dends rose by $1% billion and undis-tributed profits by $3% billion. Theinventory valuation adjustment for theentire year of 1964 was negligible.

The complete figures for the yearshow that national income totaled $510billion in 1964, an increase of $31K bil-lion over 1963. The corporate profitsshare of national income rose to 11 per-cent from 10% percent in 1963. The

share of employee compensation wasoff by about one-quarter percent.

Economic Activity in March

Economic activity was still rising asthe first quarter came to a close.Almost all of the important businessmeasures for March looked very strongindeed: Over the month seasonallyadjusted personal income was up $2%billion (annual rate); nonfarm establish-ment employment rose 225,000; in-dustrial production was almost 1 per-cent higher; and retail sales, excludingthose of automobile dealers, advancedagain. A significant exception to thegeneral movement was provided byautomobile sales, which fell from theabnormally high rates of January andFebruary.

Personal income, paced by a $2.3

CHART 5'

First Quarter Retail SalesReflect Record Rates in BothAuto and Nonauto Markets

Billion $ (Ratio Scale)

Total Excl.Auto Dealers

14 *

5.0 r

4.5 -

4.0 * Auto Dealer^itoue

3.5 -

3.0 r

2-

5 fnuii iVttJM-.fVii/i i i.filYin iih t \\\:i&\ \ H'N

1961 62 63 >64 65Seasonally Adjusted

Preliminary Data: CensusU.S. Department of Commerce, Office of Business Economics 65-4-5


SURVEY OF CURRENT BUSINESS April 1965

billion increase in wage and salary dis-bursements, reached a seasonally ad-justed annual rate of $513.5 billion inMarch. The advance in payrolls wassimilar to the increases in the preceding3 months and, while fairly general byindustry, was once again rather large($1 billion) in manufacturing, especiallydurable goods.

Auto sales still strong

Dealer sales of domestically producedcars in March were high even thoughthey did not match the unusual paceof January and February, after seasonaladjustment. March deliveries totaled725,000 units, or a seasonally adjustedannual rate of 8% million units; this

Changes in Employment inNonagricultural Establishments

CHART 6

Thousands800

600

400

200

0

400

200

TOTAL

tiIII IMANUFACTURING

1 Nondurable GoodsDurable Goods

400

200

o

200

NONMANUFhuTURING(Private)

GOVERNMENT

Dec. '60-

Det. '63

QuarterlyAverage

Dec.'63- Mar.'64- June'64- Sept.'64- Dec.'64-Mar.'64 June'64 Sept.'64 Dec.'64 Mar.'65

Seasonally Adjusted

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

Data-. BLS65-4-6

may be compared with a rate of about9% million units in each of the first 2months of 1965. It is quite clear thatauto demand has improved since theprestrike period: In the first 6 monthsof the 1965 model year, sales were some8 percent above those in the correspond-ing months of the 1964 model year.

Automobile assemblies, which hadbeen held down slightly in Februarybecause of bad weather, rose sharply inMarch after seasonal adjustment, toa record level. The high March out-put and the dip in sales enabled dealersfor the first time since the auto strikes

Bended to add substantially to theirstocks of new cars for the spring sellingseason. In March, inventories held bydealers rose by 130,000 units, seasonallyadjusted, an increase which may becompared with an average gain of lessthan 40,000 cars per month fromDecember through February. Season-ally adjusted stocks of new cars at theend of March totaled somewhat over1 million units, the highest level sinceAugust 1964. Relative to current sales,stocks are still somewhat low: Thestock-sales ratio last month, for ex-ample, was less than \% as against anaverage, of approximately \% over thefirst 9 months of 1964.

Steel output at record rate

Supported by rising consumption andfurther hedge buying, steelmaking fa-cilities continued to operate at a fastpace in March. Output during themonth totaled 12.3 million ingot tons,almost 2 percent above February on aseasonally adjusted basis and the high-est for any month on record. The risein crude steel output since last Septem-ber has now totaled about 7 percent.

First quarter output, at almost 35million ingot tons, was a record forany 3-month period. It exceeded bynearly 300,000 tons the previous peakreached in the first quarter of 1960,when demand was also stimulated byheavy buying for inventory purposes.

Steel stocks expanded further inFebruary, but the net gain (beforeseasonal adjustment) was relativelymoderate. The increase of 200,000 tonsmay be compared with one of 700,000during January and a monthly averageof 1.1 million tons in the closing 3

months of 1964. As in January, manu-facturing consumers accounted for allof the rise in stocks; additions to theirinventories during February amountedto 600,000 tons. Warehouse stockswere unchanged for the third straightmonth while producing mills reducedtheir holdings by 400,000, the firstmonthly reduction since April 1964.

From September 1964 through Feb-ruary 1965, consumers added 2.9million tons to their stocks of steel, andtheir holdings of steel at the end ofFebruary represented 2.33 months ofconsumption at the February consump-tion rate. In January 1962 and April19632 months prior to agreements onearlier steel contractsthe stock-con-sumption ratios were 2.28 and 1.88respectively. The ratios subsequentlyreached peaks of 2.71 in April 1962 and2.83 in July 1963. As of mid-April1965 there was a possibility that theMay 1 strike deadline might be post-poned.

Employment demand is strongEver since the end of the automobile

strikes last fall, the demand for laborhas been unusually strong. Employ-ment has moved sharply higher, weeklyhours of work have been extended, and

(Continued on page 12)

First Quarter UnemploymentRate was Lowest Since 1957

CHART 7

10ALL CIVILIAN W0RKERS

Unemployment Rate,':.; (Percent) ,

1957 59 61 63Quarterly, Seasonally Adjusted


Data: BLS65-4-7..


April 1965 SURVEY OF CURRENT BUSINESS

Table 1. Gross National Product (1-3, 1-5)[Billions of dollars]

Table 3.Personal Income and Its Use (II-2)[Billions of dollars]

Gross national product.Personal consumption expenditures. _ _

Durable goodsNondurable goodsServices

Gross private domestic investment....New construction. _

Residential nonfarmOther

Producers' durable equipment _Change in business inventories

NonfarniFarm

Net exports of goods and servicesExportsImports

Government purchases of goods andservices

FederalNational defense ___OtherLess : Government sales

State and local.. _ _Addenda:

Gross national product in constant(1954) dollars

Implicit price deflator for seasonallyadjusted GNP, 1954=100..

1962

556.2356.848.4

162.0146.479.144.223.620.629.05.95.3.6

4.0

29.225.2

116.362.953.610.2

.953.5

476.4

116.7

1963

583.9375.052.1

167.5155.382.046.625.221.3

31.04.4

3.9.5

4.4

30.726.3

122.664.755.210.3

.857.9

492.6

118.5

1964

622.6

399.357.0

177.3165.187.7

48.926.022.935.13.7

3.6.1

7.0

35.228.2

128.6

65.555.411.21.1

63.0

516.0120.7

1964

I II III IV

1965

I"

Seasonally adjusted at annualrates

608.8

390.0

55.9172.9161.185.949.226.922.3

34.22.52.2.3

7.7

34.526.8

125.264.354.011.51.2

60.9

508.0119.8

618.6396.1

57.0175.3163.887.2

48.926.222.7

34.63.73.4.3

5.733.727.9

129.667.157.011.0

.962.5

513.5120.5

628.4

404.6

58.7179.5166.4

87.3

48.925.723.1

35.62.82.7.1

7.0

35.728.7

129.565.555.211.2

.964.1

519.6121.0

634.6

406.556.3

181.3169.090.448.725.123.6

36.05.76.1-.4

7.7

37.129.4

130.065.355.311.31.2

64.6

522.7121.4

p Preliminary.

649. 0 Personal income

418. 2 Wage and salary disbursementsCommodity-producing industries. .

oi. 7 Manufacturing only184. 8 Distributive industries171. 6 Service industries

Government

O ther labor income _26. 3 Proprietors' income

Farm37.9 "" "Rental income of persons.6. 5Dividends..6.7

* Personal interest income

^^ Transfer payments__ _ Old-age and survivors insurance06. 8 benefits27

-

3 State unemployment insurance

benefits _ _

6 SURVEY OF CURRENT BUSINESS April 1965Table 5.National Income by Type of Income (1-8, 1-9)

[Billions of dollars]

National incomeCompensation of employees

Wages and salaries - ~ _PrivateMilitaryGovernment civilian _ _ _

Supplements to wages and salaries. - _Employer contributions for social

insurance - - -Other labor income.

Employer contributions to pri-vate pension and welfare funds-

OtherProprietors' income _ _ _ __

Business and professionalIncome of unincorporated enter-

prisesInventory valuation adjustment. _ _

Farm . _ _ _ _ _ _

Rental income of persons _Corporate profits and inventory valua-

tion adjustment- . -Profits before tax _ _ _ _

Profits tax liabilityProfits after tax _ _

DividendsUndistributed profits _ -

Inventory valuation adjustmentNet interest

1962

455.6323.1297.1241.610.844.725.913.612.3

9.72.6

49.836.636.60

13.212.2

48.448.223.225.016.58.53

22.1

1963

478.5340.3312.1252.910.948.328.215.113.110.42.7

50.637.637.60

13.0

12.3

50.851.324.626.718.08.7

^

24.4

1964

510.1361.7331.6267.411.852.430.116.014.1

52.039.339.30

12.7

12.4

57.457.625.831.819.811.9-.2

26.8

1964

I II III IV

1965

I P


498.4352.5323.2260.811.750.729.4

15.713.7

51.2

38.6

lie12.4

56.456.625.431.219.411.8-.2

25.9

507.1358.6328.7265.311.751.729.915.914.0

51.739.1

12.6

12.4

57.957.926.031.919.812.1-.1

26.5

514.5364. 8334.4269.411.853.230.4

16.214.2

52.139.6

12.6

12.4

58.158.026.032.020.012.0

.1

27.1

520.6370.6339.9274.011.954.030.716.214.5

52.839.9

12.9

12.5

57.057.725.931.920.211.7-.7

27.6

n.a.

378.3347.2280.511.954.931.116.414.7

52.740.4

12.2

12.5

n.a.n.a.n.a.n.a.20.5n.a.

-1.3

28.2

Table 8.National Income by Corporate and Noncorporate Formof Organization (1-14)


Preliminary.

Table 6.National Income by Industry Division (1-11)[Billions of dollars]

All industries, total . __Agriculture, forestry, and fisheriesManufacturing

Durable goods industriesNondurable goods industries _

Wholesale and retail tradeFinance, insurance, and real estate -TransportationCommunications and public utilities _ _ServicesGovernment and government enter-

prisesOther _

1962

455.618.9

130.878. 552.373.846.318.818.655.660.332.4

1963

478.518.9

137.482.954.477.448.719.519.359.564.533.4

1964

510.1

18.6147.389.058.382.151.220.320.564-170.036.2

1964

I II III IV

1965

I


498.418.5

144.287.057.180.250.319.719.862.268.035.6

507.1

18.6147.488.858.681.550.820.120.163.769.135.8

514.5

18.6148.590.058.582.851.320.620.964.570.836.4

520.618.7

149.090.258.983.852.220.821.2

65.871.937.1

n.a.

n.a.

n.a.n.a.n.a.n.a.n.a.n.a.n.a.

n.a.

n.a.n.a.

Table 7.Corporate Gross Product[Billions of dollars]

Corporate gross product _Indirect taxesCapital consumption allowancesIncome originating in corporate

business _ _Compensation of employeesNet interestProfits before tax, including inven-

tory valuation adjustment * _ _ _ _ .

1962

309.032.930.5

245.7198.9

.945.9

1963

323.934.631.8

257.5208.5

.7

48.3

1964

345.536.733.7

275.2220.0

.8

54.3

1964

I II III IV

1965

I*


337.435.833.0

268.6214.7

.7

53.1

343.736.533.4

273.8218.3

.854.8

348.637.133.8

277.7221.8

.8

55.1

352.337.434.4

280.5225.3

.854.4

n.a.

38.234.8n.a.

230.8.8

n.a.

National incomeIncome originating in corporate busi-

ness

Compensation of employeesWages and salariesSupplements to wages and salaries _

Corporate profits and inventory val-uation adjustment L. _

Profits before tax 1Profits tax liabilityProfits after tax 1

Inventory valuation adjustment- .Net interest. _

Income originating outside corporatebusiness.. . _

1962

455.6

245.7198.9180.918.0

45.945.623.222.4

.3

.9

210.0

1963

478.5

257.5208. 5189. 219.3

48.348.824.624.2-.4

.7

221.0

1964

510.1

275.2220.0199.620.4

54.354.625.828.7-.2

.8

235.0

1964

I II III IV

1965

I"


498.4

268.6214. 7194.720.0

53.153.325.427.9-.2

.7

229.8

507.1

273.8218.3198.020.3

54.854.826.028.8-.1

.8

233.3

514.5

277.7

221.8201.120.7

55.155.026.029.0

.1

.8

236.8

520.6

280.5225.3204.520.8

54.455.125.929.2-.7

.8

240.0

n.a.

n.a.

230.8209.721.1

n.a.n.a.n.a.n.a.

-1.3

.8

242.9

p Preliminary.1 Excludes profits originating in the rest of the world.

Table 9.Sources and Uses of Gross Saving (V-2)[Billions of dollars]

Gross private savingPersonal saving _ _ _Undistributed corporate profits-Corporate inventory valuation ad-justmentCapital consumption allowancesExcess of wage accruals over dis-

bursementsGovernment surplus on income and

product transactionsFederalState and local

Gross investmentGross private domestic in vestment _ _Net foreign investment

Statistical discrepancy _

1962

85.327.88.5

348.7

0

-1.9-4.1

2.1

81.579.12.4

-1.8

1963

86.727.58.7-.450.8

0

.9-1.5

2.4

84.882.02.8

-2.7

1964

97.632.511.9

53! 40

-2.7-5.1

2.592.987.75.3

-2.0

1964

I II III IV

1965

IP


93.729.511.8-.252.5

0

0-2.4

2.4

92.185.96.2

-1.6

99.2

34.012.1-. 153.1

0

-5.5-7.8

2.391.387.24.1

-2.4

96.931.012.0

.153.7

.1

-3.05.22.3

92.587.35.2

-1.4

100.835.511.7

-.754.4-.1

-2.3-5.0

2.695.990.45.5

-2.6

n.a.

30.5n.a

-1.355.0

0

n.a.

n.a.n.a.

99.094.44.6

n.a.

Preliminary.

Table 10.Corporate Profits (Before Tax) and Inventory ValuationAdjustment, by Broad Industry Groups (VI-10)


p Preliminary.1 Excludes profits originating in the rest of the world.

All industries, total .._Manufacturing

Durable goods industries. - ....Nondurable goods industries

Transportation, communications, andpublic utilities

All other industries .. _ _ _ .

1962

48.424.713.211.5

8.0

15.7

1963

50.826.714.412.3

8.4

15.7

1964

57.430.916.714.3

8.917.5

1964

I II III IV

1965

I


56.430.616.613.9

8.517.4

57.931.717.014.8

8.817.4

58.131.216.914.3

9.317.6

57.030.316.214.1

9.317.5

n.a.

n.a.n.a.n.a.

n.a.

n.a.


April 1965 SURVEY OF CURRENT BUSINESS

An Evaluation of Manufacturers'Current Capacity

FIRMS holding 43 percent of totalgross capital assets in manufacturingviewed their capacity at the end of1964 as inadequate to meet theirexpected 1965 requirements, accordingto reports filed in February with theOffice of Business Economics and theSecurities and Exchange Commission.A figure of 40 percent was reported ayear earlier in an evaluation of yearend1963 capacity relative to 1964 ex-pectations. The results were similarfor producers of both durable and non-durable goods. (See chart 8.)

From the beginning to the end of1964 there was a declinefrom 8 per-cent to 6 percentin the proportionof capital assets held by manufac-turers who judged their capacity tobe in excess of projected needs. Atthe end of both 1963 and 1964,manufacturers holding somewhat overhalf of capital assets evaluated theircapacity as "about adequate."

The increase in the proportion con-sidered inadequate, is one more in-dication of the current strength of thedemand for both manufactured goodsand capital goods. Evidently, recentcapacity additions have almost keptpace with the rise in manufacturers'sales. This is suggested in the currentsurvey and is corroborated by theFederal Reserve's measure of capacityutilization rates, which has remainedin the 87 percent to 88 percent rangethroughout 1964.

There is a significant relationshipbetween the evaluations of capacityand the size of plant and equipmentexpenditure programs. Firms reportingthat they need more capacity heldsomewhat over two-fifths of gross capi-tal assets but they accounted for two-thirds of the rise in plant and equip-ment expenditures from 1963 to 1964and three-fourths of the anticipatedrise in 1965.

The capacity evaluation data cannotnecessarily be used to infer the magni-

tude of year-to-year changes in expend-itures. The information obtained isqualitative; besides, investment deci-sions are influenced by considerationsother than those relating to the stateof capacity in the short run. Althoughthe survey indicates an increase be-tween yearends 1963 and 1964 in theproportion of capacity considered in-adequate and a decline in the "exceedsneeds" category, another inquiry in thesame survey indicates that manufac-turers increased their capital outlays18 percent from 1963 to 1964 and antici-pate a somewhat smaller increase (16percent) this year. (See March Survey.)The nature of the inquiry

A prime consideration in investmentdecisions is a company's own evaluationof its existing plant and equipmentfacilities in the light of its current andprospective business. A year ago, theQBE and SEC added the followingquestion to the regular quarterly surveyof plant and equipment expenditures:"Taking into account your company'scurrent and prospective sales for 1964,how would you characterize your De-cember 31, 1963, plant and equipmentfacilities: More plant and equipmentneeded; about adequate; existing plantand equipment exceeds needs?" Theinquiry, which was updated in eachensuing survey, left it to the manufac-turers to consider in their replies all thedifficult problems associated with anassessment of capacity needschangesin product-mix, number of hours orshifts, and cost relationships involvedin employing varying proportions ofmarginal plant facilities and/or mar-ginal labor.

The inquiry does not ask for quanti-tative information on the relation ofcapacity to requirements or on theextent to which investment may beaffected. It should be noted that al-though firms holding over two-fifths oftotal capital assets in manufacturing

considered their capacity inadequaterelative to their expected sales for 1965,the inadequacy need not have beenlarge but may have reflected only par-tial imbalances. These imbalancesmay be concentrated in a product line,a manufacturing process, or a geo-graphical area. Futhermore, some ap-parent deficiencies in capacity can beeliminated by increasing shifts, hours ofwork, etc.-particularly if the increaseddemand appears to be of a temporarynature. On the other hand, some com-panies considering their capacityadequate on the basis of a 12-monthoutlook may be adding capacity be-

From Yearend 1963 to 1964, theProportion of Manufacturers'Capacity Viewed as InadequateRose Slightly

i CHART 8

Percent*

NONDURABLEWQmi Y I

1963 1964December 31 Data: QBE & SEC

* Capital assets of companies in each classification as percent of total.U.S. Department of Commerce, Office of Business Economics 65-4-8


8 SURVEY OF CURRENT BUSINESS April 1965cause of longer term considerations. Itshould also be noted that firms report-ing their yearend capacity inadequatefor requirements for the full year 1965may at present have some excess capac-ity that can be brought into operationas demand approaches expected levels.

With qualitative data collected eachquarter, it is hoped that changes overtime in companies' evaluations of theirneeds will provide useful insight intopressures on capacity and the near-term demand for new plant and equip-ment. Because of the problem ofseasonality and other considerations,the quarterly data must be collected forseveral more years before they can beused in a meaningful analysis of short-term changes. Their behavior duringa period of cyclical downturn and re-covery will, of course, be the criticaltest of their usefulness.

The quarterly d ata (see table 1) showthat the "more plant and equipmentneeded" category declined sharply fromDecember 31, 1963, to March 31, 1964,rose to June 30, changed little throughSeptember 30, and rose appreciably toDecember 31, 1964. The extent towhich this may reflect seasonal varia-tions is not known.

There is a similarity between the 1964changes in the "capacity inadequate'7evaluation and the seasonal changes inoverall manufacturing operations(which are seasonally highest in thesecond and fourth quarters, and lowestin the first and third). However, thissimilarity does not extend to everyindustry group. It is conceivable that

differences in pressures on capacityarising from seasonal considerationsmay affect the evaluation of some pro-ducers, but this possibility needs test-ing. One factor that may affect thefourth quarter is that many companiesmay be more aware of the adequacy oftheir capacity after yearend budgetmeetings than at any other time duringthe year; this factor could either raiseor lower the percentages in the variouscategories.

Industry differencesAs noted above, the proportions of

gross capital assets held by producerswith "capacity inadequate" replies rosefor both durable and nondurable goodsfrom the beginning to the end of 1964.However, the extent of the rise variedamong industries. In durables, a sub-stantial increase in the "capacity in-adequate" proportion for metalsfabricators (producers of transportationequipment, machinery, and fabricatedmetal productsa group accounting forhalf of new investment by durable goodsproducers in 1964) more than offsetlesser declines in primary metals andin the "other durables" group. In allthree cases, there were reductions in theproportion reporting capacity in excessof needs.

Among the major nondurable goodsgroups, only the petroleum industryshowed a decline during 1964 in the"capacity inadequate" proportion.The "capacity exceeds needs" propor-tion rose in the food-beverage industry,

and was unchanged in the other non-durable groups from the beginning tothe end of 1964.Size differences

At both the beginning and the endof 1964, companies with over $50million of assets reported the need formore capacity in considerably higherproportions than did smaller companies.The smaller companies were more likelyto consider their capacity "about ade-quate." As can be seen in table 2,these findings hold for both the durablea^nd the nondurable goods groups. Ex-cept for the durables at the end of 1963,the proportion of assets in the "exceedsneeds" classification was less for the larg-er companies than for the smaller ones.

During 1964, there were increases inthe percent of total manufacturingcapacity considered inadequate for bothlarge and small companies. This wasalso true for both durables and non-durables, with the latter showing some-what greater increases for both sizegroups. There was a significant de-cline during 1964 in the "exceeds needs"classification for the larger durablegoods producers.

Capacity evaluation and investmentanticipations

Table 3 shows for major industrygroups the proportions of gross capitalassets held by "capacity inadequate"companies at the end of both 1963 and1964, and the 1963-64 and 1964-65changes in sales and in plant and equip-ment expenditures; the 1965 data are

Table 1.Manufacturers' Evaluation of Their Capacity[Percent distribution of gross capital assets]1

AH manufacturing

Durable goods 2Primary metalsMetal fabricators 3

Nondurable goods 2 _ _ . __Food and beverageChemical..Petroleum and coal.

Dec. 31, 1963

Moreplant and

equip-ment

needed

40

384831

42396133

Aboutade-

quate

5249315955523867

Existingplant and

equip-ment

exceedsneeds

8132110391

(4)

Mar. 31, 1964

Moreplant and

equip-ment

needed

3636453135296923

Aboutade-

quate

5853336362643077

Existingplant and

equip-ment

exceedsneeds

611226371

(4)

June 30, 1964

Moreplant and

equip-ment

needed

3836453040327723

Aboutade-

quate

5655396457582277

Existingplant and

equip-ment

exceedsneeds

69

1663

101

(4)

Sept. 30, 1964

Moreplant and

equip-ment

needed

3936433241347724

Aboutade-

quate

5656426456562276

Existingplant and

equip-ment

exceedsneeds

58

154

3101

(4)

Dec. 31, 1964

Moreplant and

equip-ment

needed

43

414441

46397928

Aboutade-

quate

51514254

51502072

Existingplant and

equip-ment

exceedsneeds

68

145

3111

(4)

1. According to respondent companies' characterizations of their plant and equipmentfacilities, taking into account their current and prospective sales for the next 12 months.

2. Includes industries not shown separately.3. Includes machinery, transportation equipment, and fabricated metals industries.

4. Less than 0.5 percent.Sources: U.S. Department of Commerce, Office of Business Economics, and Securities and

Exchange Commission.


April 1965 SURVEY OF CURRENT BUSINESS 9Table 2.Maniafaeturers' Capacity Evaluations,1 by Size of Total Assets of Company

[Percent distribution of gross capital assets]

All manufacturing$50 million or more of assetsUnder $50 million of assets

Durable goods. _$50 million or more of assetsUnder $50 million of assets

Nondurable goods$50 million or more of assetsUnder $50 million of assets

Dec. 31, 1963

Total

100100100

100100100

100100100

Moreplant andequipment

needed

404730384429424830

Aboutade-

quate

524661494061555161

Existingplant andequipment

exceedsneeds

879

1316103

(*)9

Dec. 31, 1964

Total

100100100100100100100100100

Moreplant andequipment

needed

435033414732465234

Aboutade-

quate

514658514459514857

Existingplant andequipment

exceedsneeds

6498893

(*)9

*Less than 0.5 percent.1. According to respondent companies' characterizations of their plant and equipment facilities, taking into account their

current and prospective sales for the next 12 months.Sources: U.S. Department of Commerce, Office of Business Economics, and Securities and Exchange Commission.

anticipations. There is a fair degree ofdirect association between the percent-age of an industry's capacity consideredinadequate as of December 31, 1964,the size of its anticipated increase inplant and equipment expenditures, andits expected sales increase in 1965.

The "capacity about adequate" firmsexpected a rise of almost one-tenth,while the group of companies reportingcapacities in excess of needs expectedto maintain 1964 spending rates in 1965.

As indicated earlier, the "capacityinadequate" firms account for three-

(This cross-sectional relationship was fourths of the anticipated increase inalso found a year ago with the use ofactual, rather than anticipated, changesin sales and investment.)

For example, chemicals producersclassifying their yearend 1964 capacityas inadequate held almost 80 percentof the industry's capital assetsanunusually large percentage. The chem-icals industry also shows the largestexpected relative increase in capitalexpenditures this year and about thehighest expected sales gain. Petroleumcompanies, on the other hand, are belowaverage in percent of capital assetsheld by "capacity inadequate" com-panies, and in expected relative in-creases in sales and investment.

This relationship is less clear whenchanges in the "capacity inadequate''proportions from the beginning to theend of 1964 are compared with therelative sizes of the 1964 and 1965sales and investment increases.

Cross-tabulations of the anticipatedchanges in plant and equipment ex-penditures and the capacity evaluationsfor all industries combined show thatcompanies which needed more capacityon December 31, 1964, expected tospend almost 30 percent more in 1965than in 1964; the anticipated increasefor all manufacturers was 16 percent.

capital outlays by all manufacturersfrom 1964 to 1965. The correspondingpercentages for durable and nondur-able goods producers are 72 percentand 76 percent, respectively. All fig-ures are substantially higher than theproportions of gross capital assetsheld by these firms.Technical notes

Manufacturers' evaluations of ca-pacity are now being collected quar-terly as part of the regular OBE-SEC

plant and equipment expenditures sur-vey. The response rate for this in-quiry is about 15 percent lower thanthat for plant and equipment data.

A small number of very large com-panies failed to respond to the evalua-tion inquiry for some or all quarters.Some of these companies are importantenough to prevent the separate pub-lication of data for certain industries.Furthermore, the sporadic response ofsome of these companies gives anerratic movement to the distributionsin certain industries.

The capacity evaluation questionwas asked for the first time as of De-cember 31, 1963. With additional de-velopment and analysis, and the collec-tion of data for more quarters, a moredetailed industrial breakdown may bereleased.

The estimating procedure

To take advantage of the maximumreporting samples as well as to obtainmore meaningful changes over time,the following procedures were utilizedfor each industry:

1. The full panel of reports for eachquarter stratified by size of assets was"blown up" by gross capital assets toobtain universe estimates in each evalu-ation category; percentage distribu-tions were computed for each quarter.

2. Paired samples of firms for twosuccessive quarters were "blown up"to obtain universe estimates of grosscapital assets according to evaluationcategory.

Table 3.-Manufacturers' Capacity Evaluations, Sales and Investment Changes[Percentl

All manufacturingDurable goods 2

Primary metals ._Metal fabricators 3

Nondurable goods 2 _Food and beverage _ _ _ChemicalPetroleum and coal

More plantand

equipmentneeded

Dec. 31, 1963

4038483142396133

Actual increase

1963-64

Sales

76

1057894

Plant andequipment

expenditures

18203119179

2215

More plantand

equipmentneeded

Dec. 31, 1964 1

4341444146397928

Anticipated increase

1964-65

Sales

67376683

Plant andequipment

expenditures

1614171018112413

1. Percent of an industry's gross capital assets held by companies reporting that they need more plant and equipmentfacilities, taking into account current and prospective sales for the next 12-month period.

2. Includes industries not shown separately.3. Includes machinery, transportation equipment, and fabricated metals industries.Sources: U.S. Department of Commerce, Office of Business Economics, and Securities and Exchange Commission.


103. The distribution (described in

step 1 above) for March 31, 1964, wasaccepted as final.

4. This distribution was extrapolatedback to December 31, 1963, and for-ward to June 30, 1964, by the relativechanges indicated by the constant firmsamples for these periods (step 2).

5. The extrapolated distributions forDecember 31, 1963, and June 30, 1964,were then combined with the full sampledistributions for these periods (de-scribed in step 1 above) using weightsof 0.8 and 0.2, respectively. These

SUEVEY OF CUKKENT BUSINESS

weights were chosen arbitrarilyal-though it may be possible to determinea more satisfactory weighting systemafter more observations are available.1A necessary slight adjustment to makethe sum of the three evaluation cate-gories equal 100 completed the estima-tion procedure.

6. This procedure of extrapolatingby paired samples and then weightingthe resulting distribution together withthat of the full sample was used in eachensuing quarter.

The Farm Situation in 1964TOTAL output of the Nation's farmsduring 1964 was close to the previousyear's record. Crop production fellback from the 1963 peak, but the outputof livestock and products continued torise substantially. Prices received byfarmers declined for the second year ina row as farm marketings continued toexpand in volume. Livestock priceswere depressed by an extremely heavymovement of cattle to slaughter, whilethe average of crop prices was aboutunchanged from 1963.

Farm proprietors' income, as meas-ured in the national income accounts,showed a $0.3 billion drop from 1963to a 1964 total of $12.7 billion. In-ventory change tended to reduce 1964farm income as compared with 1963;last year there was little net change inthe value of farm stocks after a rise ofone-half billion dollars in 1963. Re-ceipts from product sales edged down,with the decline in prices more thanoffsetting a higher volume of mar-ketings. Government payments tofarmers increased sharply, however,and helped raise total cash income offarm operators to a new high of almost$39 billion. Income in kind was aboutthe same, on balance, as a year earlier.

Production expenses increased again,but the rise was considerably smallerthan the average annual increases of thepast few years. Depreciation, taxes,and interest on farm mortgage debt

continued their steady advance, butcurrent farm operating expenses, in-cluding labor costs, declined. Thenumber of hired workers fell 10 percentfrom the 1963 level, and since wagerates were up only a little, total laborcosts were some $0.2 billion below thetotal a year earlier.

Because gross income exclusive of in-ventory change increased somewhatmore than did production costs, realizednet income of farm operators fromfarminga widely used alternativemeasure of the net return from, agri-culturerose slightly.

1965 outlookA number of factors indicate little

change in net realized income in 1965.The March 1 survey of planting inten-tions conducted by the U.S. Departmentof Agriculture reported that total acreageto be seeded for 59 major crops during1965 is expected to be about the sameas last year, but that there will be somesignificant shifts in crop acreage. Higheryields may be attained if the improvedsoil moisture conditions present inmuch of the country continue throughthe growing season. However, theU.S. Department of Agriculture esti-

1. A weighting of 0.5 and 0.5 was also tested. The result-ing figures for total manufacturing did not deviate from anyof the presented figures, by more than 1 percentage point.However, larger deviations and a more erratic movementappeared in some of the industries.

April 1965

CHART 9

TOTAL NET INCOME of farmproprietors declined moderately last year

Billion $16 f

;

12

40

36

32

28

CASH RECEIPTS edged up . .

as a rise inGO VERNMENT PA YMENTS...

offset a slight drop inMARKETING RECEIPTS

24

20

16

1954 56

Additions to FARM INVENTORIESwere lower . . .

4

32

28

PRODUCTION EXPENSES rose a little

1954 58 60 62 64


Data: Agri. Dept. - QBE65-4-9


April 1965

mates that prices received by farmersfor crops are likely to average lowerthan in 1964 as further changes aremade in Federal programs; increasesin various Government payments willoffset some of the revenues lost as aresult of lower market prices.

With on-farm cattle inventories atan alltime high, marketings continuedat a fast pace during the winter; for1965, they are expected to exceed the1964 record. However, commercialhog slaughter in the first quarter droppedwell below the total a year earlier, andprospects are for a further reduction ofsupplies through the summer and fall.Livestock prices have exhibited afirmer tone so far in 1965, but lowermarketing weights have reduced theprice improvement to producers.

Production expenses are expected toshow another moderate rise this year.Gross capital expenditures on trucks,tractors, and other machinery andequipment have shown a sizable gainsince 1960; current expenses associatedwith these investments constitute asteadily rising proportion of total cost.The increased use of machinery andequipment has trimmed farm employ-ment sharply, and labor costs havediminished relative to total outlays.

President's farm programThe President's proposed farm legis-

lation was sent to Congress early thismonth. Although basically a 2-yearextension of existing programs (whichcarry through 1965), it proposes to re-duce Federal costs, raise farm income,improve export potential for agricul-tural products, and place more de-pendence on the free market for de-termination of product prices. Thenew program for 1966-67 is expectedto boost selected commodity prices atthe retail level. About two-thirdsof the total increase in consumer costsshould indirectly reduce Governmentpayments, and about one-third willreturn to the farmers in the form ofhigher income. Further contraction ofGovernment costs over the long termis anticipated from a cropland retire-ment program designed to take 40million acres out of production in equalincrements over a 5-year period.

SURVEY OF CUEEENT BUSINESS

Crops

In 1964, crop production declined3 percent from the 1963 record despitea slight increase in acreage harvested;deficient moisture conditions in latesummer curtailed yield per harvestedacre for a number of major crops.Output of feed grains was off sharply,mainly because corn production fell 13percent below the 1963 record and wasthe smallest since 1958. Production ofcommercial vegetables and tobacco alsodeclined. Partially offsetting these re-ductions were a larger wheat harvestand an increase in fruit supplies. Out-put of winter vegetables and citrusfruits has been substantial so far in1965 due to a minimum of damage fromfreezing.

Wheat exports to declineWheat production, which has been

increasing moderately over the past fewyears, rose to 1.3 billion bushels in1964the biggest crop since 1960. Aneven larger harvest is in prospect thisyear. Acreage seeded for winter wheat,which accounts for the major part ofthe U.S. wheat crop, is the greatest inmore than a decade; anticipated plant-

11

ing of spring wheat is not much changed.Recent years have witnessed an

exceptionally sharp gain in wheat ex-ports as well as some increase in domes-tic demand. U.S. exports reached arecord 860 million bushels in 1964 as aresult of the wheat shortage in Europeand Asia caused by a small 1963 crop.Shipments abroad are expected to fallback more than one-fifth this year.World production advanced to a newhigh in 1964, and export competitionhas become intense among wheat-surplus countries. In addition, somewheat export sales may have been lostbecause of the dockworkers' strike earlythis year.

By last July, wheat stocks haddropped to 900 million bushels fromthe mid-1961 level of 1.4 billion bushels,but they are expected to show littlefurther change in the first half of 1965.Feed grain output down, stocks

reducedProduction of the four major feed

grainscorn, oats, barley, and sor-ghumdropped sharply last year as aresult of reductions in both acreageharvested and yield per acre. Becauseof smaller supplies and higher loan rates,prices during the winter months have

TTj CHART 10

Government Payments to Farmers By Program

FEED GRAIN

1955 56

* Other includes payments under the Sugar Act, Milk Indemnity, Wool Act, and Great Plains Conservation.


SOIL BANK

CONSERVATION

OTHER*

Data.- Agri. Dept.

65-4-10


12 SURVEY OF CUEEENT BUSINESS April 1965been running above levels a year earlier.Feed grain acreage planted is likely tobe 3 percent less for the 1965 crop thanfor 1964, but a return to average yieldscould lead to a larger harvest.

Eecord export tonnage was postedfor each of the past 2 years, and foreigndemand is expected to remain large in1965. Domestic feed use has decreased,however, as other productsmainlywheat-have been utilized. The smallercrops of the past few years and thegeneral stability of overall demand haveled to a marked decline in stocks since1961. At the beginning of the calendaryear, inventories were the smallest since1959, and by the endof the market year(July 1 for oats and^barley, October 1 forcorn and sorghum), they are expected tobe only two-thirds the level of 4 yearsago.Government programs for wheat and

feed grainsWheat and feed grain programs are

basically unchanged for 1965. Partici-pation by growers remains voluntary.Acreage limitations have been estab-lished for participants, and diversionpayments are under certain conditionsavailable for land taken out of produc-tion. For "normal" production, partici-pants are eligible for a price support loanrate plus a special additional payment.Production in excess of "normal" iseligible only for the price support loanrate.Future cotton program uncertain

Eecord yields raised the 1964 cottoncrop to 15.3 million bales, the largesttotal since 1953. Although domesticmill consumption in 1964 rose to thebest volume in almost 15 years andcontinues strongpartly because lastyear's legislation reduced the net costof upland cottonexports have weak-ened markedly during recent months,and Government stocks are mountingrapidly.

In its first year of operation, the cot-ton program cost far more than hadbeen estimated because the crop wasconsiderably in excess of anticipations

and export demand decreased. TheAdministration has not yet proposed anew cotton program for 1966-67. Theprogram for this year's cotton crop ismuch like the one initiated in 1964.

Livestock and Poultry

Total production of meat, poultry,and dairy products rose sharply in 1964.There was an especially large increasein beef production, and cattle slaughtercontinued heavy in the first quarter of1965. The build up of cattle inventoriesthat began in 1958 appears to havebeen halted. Even a small increase inslaughter for 1965 as a whole wouldlead to a reduction of cattle numbers.On an overall basis, prices received byfarmers for livestock and productshave measurably improved since lastsummer.

Beef purchase program helped firmprices

Commercial beef production last yearrose 12 percent beyond the 1963 figure,but lower retail prices and rising con-sumer incomes boosted consumption toa new high. Cattle prices were undersevere pressure early in 1964 as market-ings soared, and the U.S. Departmentof Agriculture initiated a large-scalebeef purchase program. BetweenMarch 13 and the end of the programon December 31, the Departmentbought more than 400 million poundsof frozen and canned beefthe equiv-alent of 1 million head of cattlefordistribution to schools, institutions,and needy families. Prices receivedby producers for choice steers atChicago markets improved substan-tially after midyear; they are nowrunning close to 20 percent above thelevel a year ago. U.S. beef wasactively promoted abroad last year,and exports were more than doublethose of 1963; live cattle shipmentsnearly tripled.

Pork supplies smallerBecause hog prices were relatively

low early in 1964, hog producers cutback production. Hog inventories onfarms at the end of 1964 were at theirlowest level since 1958, and commercialslaughter fell. Market prices increasedcontraseasonally during the first quarterof 1965 in response to the smaller sup-plies. In view of the small pig croplast fall and the outlook for a reducedspring crop, prices are likely to holdconsiderably above 1964 levels for therest of the year.

Economic Activity in March(Continued from page 4)

the unemployment situation, while stillnot satisfactory, has continued its slowimprovement.

From last September, just before theGeneral Motors strike, to March ofthis year the number of employees onnonfarm payrolls increased by approxi-mately \% million after seasonal ad-justment. This advance exceeds theentire gain in the first three quartersof 1964 and on a quarterly basis isabout double the average increase inthe 3 years ending December 1963.(See chart 6.) Although the gains indurable goods manufacturing have beenespecially large, increases have beenwidespread through the economy.

Hours of work in manufacturing haveincreased sharply since last summer.The average for March rose to 41.5 perweek (seasonally adjusted), the highestfigure since the end of World War II;first quarter average was 0.8 hour abovethe third quarter. After rising in theearly months of the present expansion,weekly hours in manufacturing re-mained on a plateau for almost 3 years.

The decline in unemployment lastmonth was a continuation of the trendthat set in during the early part of1964, following 2 years of little change.Decreases in unemployment rates sincelast fall have been fairly general amongall age groups and both sexes but mostpronounced among women.


by EDWARD A. TROTT, JR.

Personal Income by States, for 1964Most States Share in Fourth Consecutive Year of Economic Expansion

JT ERSONAL income advanced to anew high in nearly every State in 1964,the fourth consecutive year of thecurrent economic expansion. For thecountry as a whole, individual incomestotaled $488 billion, an increase of $26billion, or 6 percent, over the 1963figure of $462 billion.

State income changes were com-paratively uniform from 1963 to 1964.Where departures from the generalpattern did occur they were mainly theresult of declines in farm income. In39 States and the District of Columbia,changes in nonf arm income were within1 percentage point of the national rate.An additional seven States were within2 percentage points of the nationalincrease.Regional movements

The largest relative regional gainlast year was in the Southeast, whereaggregate income rose 7 percent com-pared with the 6 percent national rateof gain. Large wage and salary in-creases in construction and manu-facturing, coupled with above-averagegains in all other major private nonf armindustries, were responsible for theregion's top-ranking position. The rateof advance in the Southeast surpassedgains in all other areas by a widermargin in private nonf arm income thanin total income.

In the Mideast, Great Lakes, South-west, and Far West regions, whichaccount for two-thirds of the Nation'sincome, the rate of gain matched the6-percent advance experienced by theNation.

In the Mideast, small relative lagsin the construction, manufacturing,trade, and finance industries wereapproximately offset by slight relativegains in other industries.

NOTE.The estimates of personal income were preparedby James Welsh, Vivian Conklin, and Sandra Bodine.

766-961 O-652

The average gain in income in theGreat Lakes region reflected divergentState movements. On the one hand,the unusually high rate of motor vehicleproduction brought about a strongpickup in economic activity in Michi-gan. However, all other States ofthe area except Wisconsin felt theeffects of lower farm income and laggedbehind the national growth rate.

A spurt in manufacturing activityin the Southwest compensated forsmall relative declines in most majorindustries. In Texas and Oklahoma,electronics and aerospace manufactur-ing were the pacesetters.

In the Far West, an upswing inagricultural income and increased earn-ings in the service and distributiveindustries offset a relative decline infactory payrolls, and total incomerose at average rates.

New England's income expansionlast year fell slightly behind the na-tional pace as manufacturing, NewEngland's largest industry, advancedat a less-th an-average rate.

In the Plains and Rocky MountainStatesboth major agricultural re-gionsslumps in income from farmingheld the rise in total income to 3percent, the smallest regional increase.It is significant that in every State ofthese two regions, nonfarm incomerose at approximately average ratesalthough farm income was down.State changes

On a State basis, deviations from thenational increase of 6 percent rangedfrom an 11-percent advance in Alaskato a 6-percent decline in South Dakota.Virginia and Florida scored gains of 9percent. Personal income was down alittle in North Dakota and Montana,while in all the other Plains States, ex-cept Missouri, and in Idaho and

Wyoming of the Rocky Mountainregion, increases were generally limitedto 1 or 2 percent. In the remainingStates, personal income advances weregenerally close to the national average.Per capita personal income

Nationally, per capita personal in-come (total income divided by totalpopulation) amounted to $2,550 in1964about $100 more than the $2,448recorded for 1963. Most of this 4-percent increase represented a gain inreal buying power, as comsumer priceswere up approximately 1 percent from1963.

Among States, average incomes werehighest in Delaware ($3,426), Connecti-cut ($3,250), Nevada ($3,248), NewYork ($3,139), Alaska ($3,128), Cali-fornia ($3,092), Illinois ($3,003), NewJersey ($2,962), and Massachusetts($2,922). In the District of Columbia,per capita income amounted to $3,515last year.

At the lower end of the scale, Stateswith per capita incomes of less than$1,800 were Alabama ($1,737), SouthCarolina ($1,647), Arkansas ($1,633),and Mississippi ($1,444).

Income Trends Since 1960Total personal income in the United

States has moved up 22 percent overthe past 4 years of economic expansion.Since 1960 was depressed somewhatbecause of the recession in the secondhalf of the year, part of the 1960-64increase reflects a cyclical recovery.Nonetheless, one can see a clear contin-uation of the long-term trend of incometo move from the north and east to thesouth and west. For example, 16 ofthe 22 States in the south and westshared in the above-average rates ofgain that characterized their regions.

13


14 SURVEY OF CURRENT BUSINESS April 1965

On a per capita basis, the tendency ofincome in most States to convergetoward the national mean seems to bereasserting itself after a number ofyears during which trends were notclear.Industrial developments in 1960-64

For the country as a whole, earningsof persons engaged in manufacturingprovided a major impetus to the 22percent gain in personal income. In-dustrial payrolls were a major factor inthe upswing of personal income in everyregion, and in the highly industrializedGreat Lakes area, manufacturing earn-

ings accounted for nearly one-third ofthe total advance.

On a State basis, outstanding relativegains in manufacturing were scored inthe less industrialized States of NorthDakota, Mississippi, Arkansas, andNevada, where the factory earnings rosemore than twice the national rate of 18percent.

In several States, relative declines inone or two manufacturing industriesthat dominate the economy limited thegrowth of total factory payrolls. In allthe New England States except Con-necticut, losses in textiles and elec-

tronics slowed down economic growth.Shifts of defense contracts were general-ly responsible for the less-than-averageincreases in the States of the GreatLakes and Mideast regions. In Michi-gan, factory earnings, sparked by con-tinued gains in the automobile industry,were up to 22 percent.Farm income stable

Nationally, agricultural incomethesum of farm wages, other labor income,and the net income of farm pro-prietorsheld steady from 1960 to1964. There were, however, significantdifferences among the States. Inseveral States where agriculture is im-

Total Personal Income, Percent Change 1960-64


UNITED STATES: 22%13 18-21%12 j | Underl8%


April 1965 SURVEY OF CURRENT BUSINESS 15

port ant, growth or declines in agricul-tural income played a key role inaltering State economic growth.

For example, in the Plains region andin Montana and Wyoming, personalincomes rose at rates less than three-fourths that of the Nation. Thesebelow-average increases are attributable

directly to the declines in agriculture,which accounts for more than one-eighth of total income in these areas.While agricultural income in theseareas was down relative to the Nation,nonfarm income advanced at the na-tional rate. In contrast, outstandinggains in farm income helped accountfor Florida's and Mississippi's top-

ranking gains in total personal incomeover the 1960-64 period.Government incomes up

Government income disbursementsto individuals, a major influence on theadvance of individual incomes through-out the country, rose $23.4 billion, or

(Continued on page 27)

Table 1.Total and Per Capita Personal Income, by States and Regions, 1963-64Table 2.Percent Changes in Industrial Sources of Personal Income, by States and Regions, 1963-64 l

State and region

United StatesNew England

MaineNew Hampshire _VermontMassachusettsRhode Island _Connecticut

MideastNew York.New JerseyPennsylvania _ __Delaware _.M arylandDistrict of Columbia

Great Lakes _- _ _MichiganOhioIndiana __ _IllinoisWisconsin

PlainsMinnesotaIowa ..- _ _MissouriNorth Dakota -South DakotaNebraska...Kansas _ _ :

Southeast .._. ._VirginiaWest VirginiaKentuckyTennessee.North CarolinaSouth CarolinaGeorgia _ _FloridaAlabama _> _ _ _ _MississippiLouisiana..Arkansas

Southwest- _Oklahoma.Texas _. 'New Mexico _Arizona

Rocky Mountain ___MontanaIdaho ... _Wyoming.. __ _.ColoradoUtah _ _ _ _.

Far WestWashington __ _OregonNevada .California _ _Alaska _ _ _ . _ _ _ .Hawaii

Table 1

Total personal income

Amount(million dollars)

1963

461,61029,7801,9711,450

82714,8892,1538,490

113,61753,36118, 86128,0171,5709,1632,645

97,07320, 62425, 16411,64830,0209,617

36,5348,1526,399

10, 9001,3001,3903,3765,017

74,3608,9073,3485,5456,5888,6013,9447,715

11,9335,5383,1836,0722,986

31, 5024,858

21, 3511,9533, 340

10,6671,5531,366

8344, 8312,083

65,7067,5754,5681,246

52, 317

7041,667

1964

487,881

31,3692,1071,532

87715, 5982,2668,989

119,97656,24019, 79229, 5091,6829,9132,840

102,55722, 13526,49012, 20131, 49510, 236

37,4868,3566,533

11,4411,2981,3103, 4075,141

79,6309, 7383,5255,7207,0359,2174,2098,299

13, 0085,9183,3416,4633,157

33,3085, 165

22, 6112,0263,506

11,0301,5391,392

8495,0932,157

69,9667,8614,8681,325

55, 912

7821,777

Percentchange

1963to

1964

6

5766556

6555787

675556

33250

-612

7953777897566

66645

3

2^254

64767

117

Per capita personal income

Amount (dollars)

1960

2,217

2,4591,8692,0791,8822,5112,1802,854

2,5812,7792,6522,2543,0022,3952,993

2,3772,3202,3352, 1862,6342,162

2,0812, 0732,0242,2031,7461,8542,1352,060

1,6001,8491,6711,5351,5351,5591,3811,6091,9691,4621,1671,6061,337

1,9091,8411,9201,8152,019

2,0852,0071,7652,3112,2821,912

2,6252,3072,2362,8012,722

2,7722,292

1961

2,268

2,5361,8572,1301,9332,6092,2472,934

2,6332,8352,7212,2753,0092,5073,017

2,4062,2972,3452,2142,7152,218

2,1352,1492,1062,2691,5521,8422,1472,139

1,6511,8941,7011,6301,6101,6281,4321,6391,9831,4871,2371,6351,439

1,9711, 8891,9851,8702,079

2,1251,9351,8102,3012,3651,965

2,6942,4082,2852,9202,784

2,6722,380

1962

2,367

2,6501,9392,2132,0202,7272,3583,058

2,7422,9342,8322,3773,1462,6373,211

2,5132,4312,4332,3372,8162,309

2,2582,2082,2032,3842,2012,0772, 2762,222

1,7342,0061,7691,7051,6761,7261,5291,7402,0811,5481,2771,6891,485

2,0121,9202,0191,9302,170

2,2652,2381,9442,4402,4522,087

2,8022,5222,3803,1822,888

2,7432,438

1963

2,448

2,7231,9992,2522,0422,8112,4143,127

2,8193,0152,8782,4523,2712,7343,315

2,6052, 5682,5162,4372,8922,365

2,3322,3342,3232,4862,0161,9632,3002,263

1,8142,0801,8471,7741,7581,7971,5751,8292,1571,6401,3921,7781,570

2,0761,9902,0881,9812,203

2,3112,2151,9882,4602,5192,145

2,8892,5582,4673,2032,983

2,8392,484

1964

2,550

2,8342,1302,3432,1442,9222,4793,250

2,9423,1392,9622,5753,4262,8883,515

2,7262,7332,6232,5293,0032,492

2,3802,3732,3702,5952,0121,8322,3022,311

1,9112,224,962, 811,852,900,647,933

2, 2801,7371,4441,8641,633

2,1562,0952,1752,0102,218

2,3482,1832,0122,4752,5912,174

2,9972,6342,6023,2483,092

3,1282,579

Percentof na-tional

average1964

100

111849284

11597

127

115123116101134113138

10710710399

11898

939393

10279729091

75877771737565768968577364

8582857987

92867997

10285

118103102127121

123101

Table 2

Totalnon-farm

6556545555556876867665566714488658889988866676642645363777

126

Min-ing

33

11-15

58

-20

4743

10

457

34

441

1382

-9

514

5-2-2

7116

8

232

-15

179

-32

-4

6-62796

3

Con-tractcon-

struc-tion

811979

13131063862

126

10156

22793678

20-22-5-6119

14-21197

1014235

211719

1014

-1076848

-27

-8104316

Manu-fac-

turing

53543233432673468566565663

-1678948889

1088

10988

11873

-1-1

2-3

391332

Whole-saleand

retailtrade

65466437

5564685

676556

45453234

7746776887666

65665

434453

74697

57

Finance,insur-ance,andreal

estate

432.52333

3233456

353424

33443533

5546554544447

54526

414462

61546

911

Trans-porta-tion,com-

muni-cation,and

publicutilities

43224345

5643456

453343

33234222

5423476783565

33334

3222

3

735

106

16

Services

7678

10667776579879766766677576899488989

116878788784

19-878857

129

1011

Gov-ern-

ment 2

8677646

118878

10138968

128

12998

11108799

10107

1387

10116

117897

106

10877779868

168

155

1. Consists of wage and salary disbursements, other labor income, and proprietors'income.

2. Does not include earnings of military personnel.NOTE.U.S. totals include Alaska and Hawaii.Source: Office of Business Economics, U.S. Department of Commerce.


by REGIONAL ECONOMICS DIVISION STAFF

Disposable Personal Income by States in Currentand Constant Prices

New Bask Date for Regional AnalysisOTATE and regional economic dataare becoming increasingly important formodern-day business decisions and foreconomic analysis. Because of this, theOffice of Business Economics has de-veloped a new series on State disposableincome in current and constant prices.1State disposable income is equal topersonal income less personal taxes(mainly individual income taxes) andspecial "nontax" payments (such asfees and licenses). To get constantdollar disposable income, the currentdollar figures are adjusted for pricechanges by the use of consumer priceindexes constructed for each State.

The new series, an extension of thenational accounts to the State level,makes possible additional insight intothe growth, development, and economicprogress of individual States and regions.By removing the influence of pricechanges (mostly inflation) and taxeson personal income, the new datameasure changes in real consumerpurchasing power. As measures ofchanges in the real value of income,they are more useful than currentdollar figures for many analytical pur-poses. For example, the per capitadata serve as an indication of Stateshifts in economic welfare.

Basically, the consumer price indexesfor the individual States are averages(weighted by population) of consumerprice indexes of the major cities ineach State and of specially constructedrural consumer price indexes.2 Theymeasure the changes in prices from1954 for each State; they do not

measure relative price levels amongStates at a point in time.

Personal income estimates, total andper capita, are given in tables 1 and 2 ;disposable income in tables 3 and 4;and real disposable personal income intables 5 and 6.

The remainder of this report delinea-ates some prominent State and regionalincome patterns. Following the sum-mary, the regional distribution ofpersonal income is compared withdisposable income; next, a comparisonof the constant and current dollardisposable income estimates is made;then per capita incomes and finallysummary statistics of income and taxvariation among States are presented.

Income trendsa summary 3

1. There has been a strong shift ofdisposable and real disposable incomefrom the north and east to the southand west. The basic trends are cleardespite the blurring effects of such non-trend factors as the cyclical fluctuations

1 Up to now, data on disposable personal income in current

dollars have been available for selected years only.16

2 The deflators for the years prior to 1954 are the Stateconsumer price indexes developed by Abner Hurwitz andCarlyle P. Stallings, in "Inter-regional Differentials in PerCapita Real Income Change," Regional Income (Studies inIncome and Wealth, vol. 21), by the Conference on Researchin Income and Wealth, National Bureau of EconomicResearch, (Princeton, N.J.: Princeton University Press,1957). The deflators for the years since 1953 were developedin OBE by Edgar P. Hickman and are based on the Hurwitz-Stallings methodology. Dr. Hickman is presently AssociateProfessor of Economics, University of South Carolina.

The indexes were developed independently for each State.Initially, the weighted average for all States combined didnot agree with OBE's implicit price deflator for U.S. per-sonal consumption expenditures. Therefore, each State'sindex was adjusted, by forcing the sum of the State pricedeflators, weighted by the State's share of real disposableincome, to equal the U.S. implicit price deflator. In noyear from 1947 to 1963 was the adjustment as much as 1percent. The indexes, originally on a 1947-49 base, havebeen converted so that 1954 is the base year. This does notmean that consumer-item weights used in constructing theindex are the consumption levels of 1954.

3 Except where noted, trend references are to both the

current dollar and the real disposable income aggregates.

of the 1930's, the economic upsurgeduring and after World War II, andthe recessions of the postwar period.Since 1929, the four southern and west-ern regions have increased their shareof the Nation's disposable income byalmost 5.0 percent, with the four north-eastern and central regions sustainingthe loss.

2. Regional income trends have beenpersistent for the three and one-halfdecades covered by the series. Theeffects of World War II and its after-math and sharp changes in agriculturalincome have distorted the shape of thetrends to some extent, but continuityand even substantial uniformity canbe seen.

3. From 1929 to 1948, income trendsin most States paralleled the trend ofthe parent region. Since 1948, how-ever, developments in one or two Stateshave tended to dominate economicchange in regions with rising relativetrends. There is some evidence thatthis tendency has been waning since1957 and that State income trends areonce again tending to conform to thatof the parent region.

4. Regional trends in per capita dis-posable and per capita real disposableincome relative to the national changeare similar to those in the aggregatemeasures in six of the eight regions.The two exceptions are the PlainsStates and the Far West. In thePlains, where both population growthand income expansion have been belowaverage, per capita incomes have risenone-sixth more than the national aver-age from 1929 to 1963. Conversely, inthe Far West, where population and


April 1965

aggregate income have surged ahead,average incomes have fallen short ofthe national pace by one-seventh.

5. State differences in per capita dis-posable and per capita real disposableincome have been reduced considerably.Since 1929, the geographic inequality inlevels of per capita income, as measuredby State deviations from the nationalmean, has been cut in half. Most ofthis substantial reduction in inequalitytook place during the war years; indeed,from 1946 to 1957, no reduction oc-


curred. Since 1957, however, con-vergence toward the national averageappears to have been resumed.

The most striking feature of thetrends in total and per capita disposableand real disposable income is that theycoincide with the trends in personalincome before adjustment has beenmade for taxes and prices. This im-plies that when State and regionalchanges are related to their nationalcounterparts, there is little differencein relative movements, whether the

17basis of measurement is personal in-come, disposable income, or real dis-posable income. Attention will beturned now to the effects of taxes,prices, and population on the geographicdistribution of income.

The Geographic Distribution ofPersonal and Disposable In-come

A comparison of changes in the distri-bution of personal income and dis-

1 CHART 12

Personal Income, and Disposable Personal Income in Current and Constant Dollars, by RegionsBillion $ (ratio scale)

' .r-V :;^^S:^n'-;--"xl! 15 ' MIDEAST

Billion $ (ratio scale)600

UNITED STATES500 ,; :,;

400

300

200

State PersonalIncome

Billion $ (ratio scale)40

t.:... ..;. ....,,...,,

150

*>V^ 100

1948 50 52 54 56 58 60 62 64 1948 50 52 54 56 58 60 62 64 1948 50 52 54 56 58 60 62 64

GREAT LAKES SOUTHEAST >

100

80

60

50 ;

40 ;/''.-:-HX-v80

30

25

40

-:' .SOUTHWEST

30

20

15

101948 50 52 54 56 58 60


64

15

10

8

ROCKY MOUNTAIN

4 n l :\ M i i i i i i i M i1948 50 52 54 56 58 60 62 64

80

60

40

30

20

FAR; WEST

1948 50 52 54 56


18 SURVEY OF CURRENT BUSINESS April 3965posable income among the Statesreveals the relatively minor alterationsthat personal tax ai\d nontax paymentshave made in the geographic distribu-tion of personal income. Both currentdollar income measures, as well as realdisposable income, are plotted in chart12 for the postwar years for the eightregions and the Nation.

Most of the minor differences ingeographic distribution that exist be-tween personal income and disposableincome appear to be due to the progres-sive nature of the tax system. Gener-ally, States with above-average income

levels have smaller shares of incomeafter taxes than before taxes. Con-versely, low-income States receive largershares of disposable income than ofpersonal income. In 1963, this general-ization held true for 29 of the 32 Stateswhose share of personal income differedfrom that of disposable income by asmuch as 1 percent. One high-incomeand two low-income States movedcounter to expectations.

Over time, the effect of taxes on theState income distribution has increased.In 1929, it was almost negligible. Justunder half the States received the same

income share after taxes as beforetaxes, and in all except three (Delaware,New York, and Montana), before- andafter-tax shares differed by less than 2percent. Only Delaware, with its highoverall average income, its concentra-tion of high-income families, and itslarge proportion of property income,felt a marked impact from taxes.Delaware's share of disposable incomewas 4 percent less than its share ofpersonal income.

By 1948, when Federal income taxrates had increased sharply and in-comes had generally moved into higher

Table 1.Personal Income, by States and Regions, 1929, 1940, 1946-63[Millions of dollars]

State and region

United States

New England --Maine --New Hampshire - -- --Vermont -_M assachusettsRhode IslandConnecticut _ _ _ _ _ _ _

MideastNew York __New JerseyPennsylvania.DelawareMarylandDistrict of Columbia

Great Lakes. _ _ _ _ _ _ _MichiganOhioIndiana _ _IllinoisWisconsin

PlainsMinnesotaIowaMissouri .North DakotaSouth DakotaNebraska _ __Kansas

SoutheastVirginiaWest VirginiaKentuckyTennesseeNorth CarolinaSouth CarolinaGeorgia _ _ __FloridaAlabamaMississippiLouisianaArkansas _ _ __ _

SouthwestOklahomaTexas _ _ _ _ .New MexicoArizona

Rocky MountainMontanaIdaho -WyomingColorado _ _ . _ _ .Utah

Far WestWashingtonOregonNevada _ _California

AlaskaHawaii

1929

85,661

7,125479322225

3,862596

1,641

27,46514, 1053,7147,531

2401,260

615

20,2353,8035,1781,9737,2802,001

7,5841,5391,4192,275

253288811999

9,9901,054

7941,020

9821,046

4701,015

753856570866564

4,2541,0772,752

171254

1,614312225151642284

7,3941,166

64779

5,502

1940

78,522

6,398444285184

3,385534

1,566

23,94911, 7133,4336,417

2701,309

807

17,8183,6104,6061,8985,9641, 740

6,5151,4671,2721,982

224230578762

10, 3871,267

777914995

1,171584

1,060982801474861501

4,090867

2,776199248

1,598318242152617269

7,7871,152

67799

5,839

246

1946

175,701

12,286933567362

6,3421,0663,016

47,06622, 7126,886

12, 576460

2,9241,508

38,3327,7439,8534,419

12, 4873,830

15,3413,2132,9784,459

596637

1,4462, 012

26, 9653,3361,6832,2352,6343,1981,4842,7442,8132,1621,2542,1061,316

10,5782,0007,400

509669

3,718657595339

1,429698

21,4153,2081,874

24916,084

719

1947

189,077

13, 026982615389

6,5811,1263,333

50,09323, 9977,268

13, 756500

3,0461,526

42,4888,832

10, 8804,925

13, 6474,204

16,7263,5112,9864,695

836739

1,5742,385

28,4163,2781,9362,3832,7763,3721,5542,8902,9032,3371,3952,2721,320

11,8222,1668,332

575749

4,209772653381

1,654749

22,2973,3312,071

25816, 637

721

1948

207,414

13,9491,079

660420

7,0721,1913,527

54,27126, 0607,876

14, 876550

3,3091,600

47,5059,579

12, 2275,581

15, 4724,646

19,2394,0283,9345,321

802888

1,8512,415

31, 2333,5652,1762,7193,0063,6201,7553,0883,0532,5421,5642,6011,544

12, 9192,3599,054

649857

4,545865706418

1,760796

23, 7533,6092,261

27317, 610

725

1949

205,452

13,8291,061

6

scb_041965

Documents

s federal bmg

new federal bmg

federal office bmg

federal bid

federal officemu

new customhouse

courthouse bmg

federal reserve bank