scb_101942

CURRENTBUSINES

UNITED STATES DEPARTMENT OF

BUREAU OF FOREIGN AND DOMESTIC COMMERCE

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DOMESTIC COMMERCEAn Official Publication of the Eureau of Foreign and

Domestic Commerce, Department of Commerce, Washington

DOMESTIC COMMERCE, a weekly bulletin ofthe national economy, brings to business the aidsthat are necessary in securing an understanding ofthe broad economic problems confronting thecountry. It provides authoritative informationon the results of research on behalf of business,and broadcasts the policies and principles whichshould be seriously considered. Special articlesby authorities in the fields covered appear in eachissue, together with data showing industrial con-ditions as reported by the Bureau's specialists.Much information about Government that is ofinterest is included; activities of trade associationsare covered, and a comprehensive list of newbooks and reports; also contains a review of mate-rial that is of particular interest to businessmen.

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SURVEY OFCURRENT BUSINESS

OCTOBER 1942ECONOMIC HIGHLIGHTS.

THE BUSINESS SITUATION.

MONTHLY ESTIMATES OF TOTAL CONSUMER EXPENDI-TURES, 1935-42 8

ALTERNATIVES IN WAR FINANCE. 15

CONSUMER EXPENDITURES FOR SELECTED GROUPS OFSERVICES 23

STATISTICAL DATA:Monthly business statistics. s-i

General index Inside back cover

Published by the Department of Commerce, JESSE H. JONES, Secretary, and issued throughthe Bureau of Foreign and Domestic Commerce, CARROLL L. WILSON, Director

Volume 22 Number 10Subscription price of the monthly and weekly issues of the SURVEY OF CURRENT BUSINESS, $2 a year. Single-copy price: Monthly, 15 cents; weekly, 5 cents.

Foreign subscriptions, 33.50. Price of the 1940 Supplement is 40 cents. Make remittances only toSuperintendent of Documents, Washington, D. C.

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SURVEY OF CUERENT BUSINESS October 1942

Economic HighlightsConsumer Purchases Declining in Terms of

Real GoodsAmerican consumers' total dollar expenditures for goods and

services reached all-time high level of $39.7 billions in first halfof 1942 on seasonally adjusted basis . . . but actual quantitiespurchased during this period were less than in either half of1941. Consumer seasonally adjusted expenditures (see chart)

BILLIONS OF DOLLARS100

60

2 0

CURRENT DOLLARS1939 DOLLARS

1st Haif 2nd Half1939

1st Half 2nd Half1940

1st Hcrif 2nd Half194!

1st Half 2nd Half1942

DO. 42-412Consumer Expenditures Adjusted for Seasonal Variations (Half-Year

Totals Expressed at Annual Rate).

have increased in each 6-month period since 1939 when meas-ured in current dollars of slowly declining purchasing power . . .but when measured in constant (1939) dollars, physical volumeof purchases for each period is revealed and shows a declinefrom peak level attained in last half of 1941 . . . since 1939,proportion of each 6-month expenditure total attributable toprice inflation, shows rising trend . . . by first half of 1942, itaccounted for 13 percent of consumer expenditures . . . seemsvirtually certain that physical quantity of goods available toconsumers will continue down for the duration. The physicalquantity of services available to consumers will increase some-what over level of first half of 1942 . . . only a question oftime until they too start to shrink.

Farm Output 26 Percent Above 1935-39American farm production, held back in recent years to

stabilize prices, has reached unprecedented high levels . . .stimulated by favorable weather and rising prices. Departmentof Agriculture 1942 index of total agricultural production esti-mated to be 26 percent above the average for 1935-39. Both

BILLIONS OF DOLLARS12

WORLD"WAR I

1914'15 '16 '17 '18 '19 '20'21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '3! '32'33'34'35'36'37 '38'39 '40 '4P42DO 42-405

Agricultural Production for Sale and for Consumption in the Farm Homein 1935-39 Dollars by Calendar Years.

crops and livestock products output at record highs. Total1942 meat production will be 22 billion pounds . . . a thirdgreater than the 1935-39 average . . . but 1942 demands formeat stimulated by wartime conditions are considerably greaterthan available supply.

Farm output estimate for 1942 includes: Wheat crop 980million bushels, corn crop 3 billion bushels, 29 and 35 percentabove 1935-39; and 14-million-bale cotton crop, 5 percentup . . . all these from a combined smaller acreage than in1935-39 but aided by higher yields per acre. 1942 yields willbe: Wheat up 48 percent; corn up 39 percent; and cotton up26 percent from 1935-39 . . . with output up, main problemsare shortages of harvest labor and transportation and storagefacilities.

Conversion of Motor Vehicle Industry to War Nearing CompletionProduction of war materials

by automotive industry hasnow virtually offset the slumpresulting from curtailment ofits civilian output which oc-curred in first half of this year.. . . July shipments from bothnew and converted facilitiesapproximate 90 p e r c e n t ofthe high record at 1941 peakof civilian buying. Motor-vehicle parts and accessoriesindustry has led this recoverywith attainment of new all-time sales peak 23 percentabove January level . . . upone-third over 1941 monthly

AVERAGE MONTH, 19393 0 0

2 5 0

2 0 0

100

150

100

1939 1940 1942D. 0.42-302

Indexes of Shipments of Motor-Vehicle and Motor-Vehicle Parts andAccessories Industries.

average and 2% times that of1939.

Prior to 1941as shown bycharttrend of parts and ac-cessories shipments was closelyrelated to trend of motor-vehicle industry. But con-version of latter to munitionsmanufacture early this year,caused only slight reduction inoutput of parts and accessoriesplants because their conversionwas more simple, and theirproducts were easily divertedwith little or no modification tomilitary uses in tanks, bomb-ers, and other war items.


October 1942 SURVEY OF CURRENT BUSINESS

The Business Situation"DOWERFUL forces have now been mobilized against-* inflation. Again making economic history, theCongress and the President early this month tookpositive action in the shape of new legislation and anew Executive order which seem reasonably adequateto prevent much further inflation. On the basis of aliteral and broad interpretation of the new law andthe new Executive order, the Economic StabilizationDirector, aided by the Economic Stabilization Board,appears to have all the nonlegislative powers necessaryto keep the cost of living within bounds. Under thesecircumstances, should runaway living costs now ma-terialize, the only possible conclusion would then bethat human beings even under the stress of desperatewar, are simply incapable of acting logically andcourageously for the common good and in their ownlong-run economic best interests. Upon the assump-tion, however, that the Congress will in due time enactfiscal measures appropriate to the needs of the emer-gency, and that the Economic Stabilization Directorwill effectively use all the powers placed in his hands,it now seems entirely reasonable to expect that thiswill indeed be the first great war fought by this Nationwithout the scourge of drastic inflation.

The two biggest loopholes in the Emergency PriceControl Act of 1942 were the exemption of the pricesof farm products and foods from ceilings below certainhigh levels and the omission of any control over wagesand salaries. Thus important parts of the averageconsumer's budget and the largest single element ofproducers' costs were uncontrolled. The real signifi-cance of the new anti-inflation measures is that theycan, if effectively enforced, largely plug up these loop-holes. By so doing, they will also slow down the

Table 1.National Income, CostEarnings

Item

Total national incomeTotal compensation of em-

ployeesSalaries and wagesOther labor income

Entrepreneurial . _.Interest and dividendsCorporate savings

Cost of living (January 1941 =100)

Average hourly earnings (cents) -

of Living, and Hourly

Amount (billions of dollars)

1940,second

half

40.527.425.51.87.35.0.7

99.567.3

1941

Firsthalf

43.7

30.528.51.97.54 61.2

101.370.8

Secondhalf

51.034.432.71.79.95 31.4

107.476.4

1942,firsthalf

53.337.936.1

1 89.84 61.1

113.581.7

Percentincrease

Secondhalf1941oversame

period1940

25.925 528.2

5 635.66 0

100.0

7.913.5+

Firsthalf1942oversame

period1941

22.024 326.7

5 330.70 0

- 8 . 3

12.015.4

Sources: National income, TJ. S. Department of Commerce; hourly earnings andcost-of-living index on a 1935-39 base, from which the above index was computed,U. S. Department of Labor.

current rapid rate of growth in the national income.An important part of the rise in the national incomein the first half of 1942 over the same 1941 period, asmay be seen from table 1, was due to price increases.Henceforth, rising national income will be causedmuch more exclusively by higher output alone.Price Control Fairly Effective Since May.

The record shows that the General Maximum PriceRegulation issued on April 28 of this year has beenreasonably successful. During the 12 months prior toits promulgation, wholesale prices as measured by theBureau of Labor Statistics' index had been rising 1%percent a month and the cost-of-living index had risenslightly more than 1 percent per month. BetweenMay and September 1942, the wholesale price indexhas risen only about 0.5 percent altogether and thecost-of-living index only 1.5 percent.

Despite this initial success, however, there were goodgrounds for believing that far sterner tests of its effec-tiveness lay ahead as the volume of goods available forconsumers diminished while their income mountedhigher. The 1.5 percent cost-of-living increase justmentioned was almost entirely the result of an advanceof approximately 10 percent in the prices of uncontrolledfoods. The chief danger was that continued rise infood prices would set off a series of wage-increasedemands by workers whose level of living was pareddown thereby. This would have set the rising pricespiral in motion again. It was to prevent this threat-ened renewal of the rise that the President had onLabor Day requested additional price-control legislation.

Chart 1.Cost of Goods Purchased by Wage Earners andLower-Salaried Workers in Large Cities

100

I IO

100

90130

120

110

100

901940 1941 1942 1940 1941 1942

D.D. 4S-352

1 Includes some items not shown separately in this chart.2 Data are for the last month of each quarter through September 1940 and monthly

thereafter.

Source: U. S. Department of Labor,

1935140

120

MO

100

90I 30

120

I 10

100

-39 - 100

ALL ITE

**M 0

I I I M I M M I

HOUSE F

M . l t l l M . I

yM M . I M I . I

URNISHING

/

/

H H I I I I I H

s^

/

i M M l . M M

FOOD

I . I M I M M I

1935-39

/

/

H . l . f l l l l l

GLOTHIIS

. . . . . I . . . . .

JM M , I , , , ,

ri


SURVEY OF CURRENT BUSINESS October 1942

Centralized Economic Authority Set Up

The outstanding significance of President Roose-velt's Executive order of October 3 is that it establishesthe Economic Stabilization Director as the supremeauthority, responsible only to the President himself,over national economic policies relating to the com-munity standard of living. Paragraph 3 of title I ofthe order merits quoting in this connection:

The Director, with the approval of the President, shall formu-late and develop a comprehensive national economic policyrelating to the control of civilian purchasing power, prices, rents,wages, salaries, profits, rationing, subsidies, and all relatedmattersall for the purpose of preventing avoidable increases inthe cost of living, cooperating in minimizing the unnecessarymigration of labor from one business, industry, or region toanother, and facilitating the prosecution of the war. To giveeffect to this comprehensive national economic policy theDirector shall have power to issue directives on policy to theFederal departments and agencies concerned.

It is clear, therefore, that the Economic StabilizationDirector can determine national policy not only onprices and the cost of living but also with regard towages and salaries, rationing, subsidies, profits, andother important economic factors. Such a centraleconomic authority certainly seems to be essential tothe guidance of the war effort and hence represents asignificant forward step. The President's mandate tothe Economic Stabilization Director is to stabilize thecost of living as nearly as possible at the September15 level.Wage and Salary Control Established.

Under this Executive order and the Anti-inflationAct of October 2, Federal control over wages andsalaries now appears to be reasonably complete. Nochanges, either up or down, are to be made in Sep-tember 15 wage rates without the approval of theNational War Labor Board, and the Board can giveassent only if the change is necessary to correct malad-justments or inequalities, to eliminate substandards ofliving, to correct gross inequities, or to aid in theeffective prosecution of the war. In and of them-selves, these exceptions to the general wage freezeleave sufficient latitude so that substantial wage in-creases can be made. There is nothing in the Execu-tive directive which would prevent the Board fromcontinuing to apply "Little Steel" principles and thuspermit a blanket 15 percent increase in wages over theJanuary 1, 1941, level to compensate for the rise in thecost of living since that time. The Board is, however,bound by the general economic policy which is to beformulated by the Economic Stabilization DirectorByrnes, with the approval of the President.

Agricultural Price Controls ExtendedEarly in September when the President requested

legislation which would permit the fixing of farm-product price ceilings at parity or at levels of a recent

date, whichever were higher, a number of agriculturalcommodities were selling below parity prices. Manyothers were, on the other hand, well over the paritylevel but for a number of reasons had not been broughtunder price control.

The gap in price control authority held open by therestrictions upon setting agricultural ceilings has nowbeen reasonably well closed. Some commodities to besure will not come under control until their prices haveincreased to a considerable extent, and the PriceAdministrator has been directed by Congress to giveadequate weighting to the increased cost of farm laborin setting ceilings for farm products or for goodsprocessed in whole or in substantial part from farmproducts. In general, however, the major portion(estimated at about 90 percent) of farm product pricesare now controlled and those increases which may stillcome in the uncontrolled sector will not materiallyincrease the cost of living.

The wage freeze is important not only for its effecton price stabilization but also for its effect on the allo-Chart 2.Ratio of Actual Prices Received by Farmers to

Parity Prices for Selected Farm Products, Augustl5, 1942PERCENT2001

150

100 MMIIM*Prices received by farmers August 15, 1942, were adjusted to include 1942 conser-

vation and parity payments on corn and wheat, and 1942 conservation payments oncotton. (No 1942 parity payments on cotton.)

Source: U. S. Department of Agriculture.

cation of manpower. Present wage differentials do, toa considerable extent, encourage labor to shift into warindustries. Where still larger numbers of workers areneeded in war plants than are forthcoming at currentwage rates, direct Federal action may well have to betaken to place them there. Meanwhile the wage freezewill prevent nonessential civilian goods industries frombidding up wages in an attempt to hold on to theirworkers as long as possible.

Prior to October 3, rent stabilization had been con-fined to designated defense areas where housing wasscarce and where the opportunities for exorbitant rentcharges were excellent. Failure to control rents innondefense areas was the biggest single gap in theGovernment's program to control the prices of services,as rents are the largest service expenditure in the con-sumer's budget. Price Administrator Henderson, atthe request of the President, has now extended this


October 1942 SURVEY OF CURRENT BUSINESS

protection to renters throughout the Nation and willorder reductions in rent from present levels whereversuch action seems appropriate.

The Outlook for Price StabilizationSweeping as the Executive order was, and also the

new Anti-inflation Act, Director Byrnes will not havecomplete authority over some elements affecting thecost of living. Certain services are exempted by theEmergency Price Control Act itself. Professionalservices are the most important of these. Foods of ahighly seasonal character are also exempted, but it isestimated that these form less than 10 percent of theaverage food budget.

Trading up or emphasizing of better quality, higher-priced items, would, if generally practiced, lead tohigher prices per unit sold. Up-grading is illegal underthe price-control law and regulation, but is extremelydifficult to detect and prevent in some cases. The useof substitute materials for those formerly used inmaking consumer goods is also quite apt in some casesto cause lowering of quality and hence, if sold at theold price, a hidden price increase. Other hidden priceincreases will come from curtailing or omitting variousservices previously rendered in connection with thesale of goods.

Most important of all, however, is the certainty thatsome costs will inevitably rise and bring pressure againstthe price ceilings. Labor costs will rise as less skilledand less capable workers are employed. Finally, asthe volume of merchandise available for consumersshrinks, the overhead cost per unit will rise. In mostsuch cases of rising costs, especially where the businessis essential and the profit margin has already beenshrunk to a minimum, either the ceiling prices willhave to be pierced or else some other form of reliefgranted to the business concerned.

Finally, it may be noted that while the EconomicStabilization Director will have extensive authorityover prices and costs, he will have to rely on Congressfor necessary fiscal legislation affecting price stabili-zation.

Some further rise in the cost of living is inevitable.There are bound to be cases where commodity prices,wages, and salaries are adjusted upward to preventinequities, inequalities, and hardship. Some goodsand services are still excluded from control and freeto rise in price. Price advances from these sources,however, should be of minor importance. Considera-tion of all aspects of the outlook leads to the conclusionthat the Nation may look forward with confidence to agenerally successful stabilization of living costs.

Conversion to War Economy ProgressingOn the home front, as well as on the fighting fronts,

there are casualties, dangers to be faced and hardshipsto be endured. Automobile dealers were perhaps the

first group to experience severe casualties. Losses willspread, however, as the economy nears complete mobili-zation and it is feared that small business enterprisesin particular will suffer heavily.

Shortages, in ever-widening circles, are steadilybecoming more characteristic and dominant. Therubber shortage, made so clear to the public by theBaruch Committee report, is unique in its circumstancesand importance. But more and more commoditieswill arrive at typically similar situations and will needsimilarly strong measures. Evidences of this trendare the extension of rationing to fuel oil in certain areas,plans for Nation-wide rationing of gasoline, agricul-tural implements, meats, rubber footwear, and otherconsumer goods, the curtailment of additional civilianconstruction, and the increased restrictions on usingscarce materials in the manufacture of civilian products.

Distributors will be especially hard hit. Theirgravest threat will be the growing scarcity of availablemerchandise. Under Secretary of Commerce WayneC. Taylor in opening the hearings before the SenateSmall Business Committee estimated that, largelybecause of merchandise shortages, the total number ofmercantile establishments will be reduced by perhaps300,000 at the end of 1943. Some of this mortalitycan be avoided by careful allocation on the part ofmanufacturers and wholesalers of the available goods tosmall distributors and also, perhaps, by the opening ofmore small outlets close to neighborhood consumers toavoid transportation difficulties.

September brought additional evidence to show thatour economy is still operating below its maximumcapacity. The Federal Keserve seasonally adjustedindustrial production index again moved to a new highlevel. The same familiar pattern prevailed, with thedurable-goods industries in the lead and the nondura-bles sagging slightly. As usual, shipbuilding, aircraft,machinery, and other industries closely associated withthe war effort gained the most.

The all-important mineral production index failedto gain but this was largely due to the seasonaladjustment which called for normal seasonal upswingsin fuels production that could hardly occur. Thus incoal, there is normally a sharp rise in both bituminousand anthracite production from August to September.This year output continued at levels much higher thannormal during the summer and hence could not makethe usual gain during September. Nevertheless bitu-minous coal production rose 6 percent as against thenormal seasonal rise of 13 percent and anthracite wasup 19 compared to the usual 30 percent. Metallicminerals advanced slightly and held steady^at therecord high level first attained in July.

ManpowerMobilization of the Nation's manpower has reached

the critical phase in which short labor supply may seri-Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

SURVEY OF CURRENT BUSINESS October 1942

ously impede war production and disrupt essentialcivilian activities. To meet wartime requirements, thearmed forces and civilian essential employment togethermust be increased 7 or 8 million before the end of 1943.Shortages of male labor are already acute in some areasand for some skills, and will become general over thenext year. It will be necessary to extend the employ-ment of women, which is increasing rapidly, to includelarge numbers of women homemakers not now in thelabor force.

Labor reserves over the Nation as a whole appearample to provide these additional women workers

Chart 3.Civilian Employment and Unemployment1MILLIONS OF PERSONS8 0

6 0

40

20

UNEMPLOYMENT

*:. l-x'.'-vAGRICULTURAL EMPLOYMENT:-'.*.'':'' j > l i

NONAGRICULTURAL EMPLOYMENTOTHER THAN MANUFACTURING///////////////////////////

1940 1941 1942 D.D.42-4I6

I Data for Employment do not include institutional population.Sources: U. S. Department of Commerce, except Manufacturing Employment

which is estimated by the U. S. Department of Labor.

4 million or more. This fact alone, however, does notassure an adequate supply of labor. The latter willdepend, in part, upon training in new skills large num-bers of recruits to the labor force and other workers.It will also involve the relocation of workers in areaswhere they are needed. Serious problems of laborsupply may be encountered in regions of concentratedwar production, because of shortages in housing andrelated community facilities which greatly increase thedifficulties of attracting there and retaining adequatework forces.

Largest demands upon the labor force will be madeby the military establishments, which are expected toabsorb not less than 5 million more men before reachingtheir peak strength. The labor requirements of warmanufacturing, however, will also be substantial.Manufacturing employment, which rose 4.6 millionfrom June 1940 to last August, will need to advanceapproximately another 4.0 million by December 1943to achieve fully the wartime output now planned.More workers will also be required in mining, transpor-tation, utilities, and governmentabout 900,000 in all.

Declining activity, on the other hand, in constructiononce the peak of military building has been passed, andin trade and services, may release as many as 2.5 million.It is expected also that by the end of 1943, perhaps500,000 fewer persons will be engaged in other, nonagri-cultural pursuits (self-employed, ^ proprietors, and do-

Table 2.Civilian Employment and Unemployment[Millions]

Item

Civilian employmentNonagricultural

Employees in nonagricultural establish-ments _

ManufacturingMiningConstruct ionTransportation and public utilitiesTradeFinance, service, and miscellaneousGo vernmen t

Self-employed, proprietors, domestics, e tc .Agricultural

Unemployment

June,1940

47.636.6

30.610.4

.91.63.06.64.14.06.0

11.08.6

Decem-ber, 1941

50.241.9

36.113.61.01.93.37.54.24.65.88.33.8

August,1942

54.042.8

37. 815.0

.92.13.56.54.35.45.0

11.22.2

Sources: U. S. Department of Commerce, except employees in nonagriculturalestablishmentsIT. S. Department of Labor.

mestic servants) and in agriculture. Farm labor require-ments in the period from spring planting to autumnharvests next year may be as large as during the 1942season, but agriculture presumably can dispense withseveral hundred thousand of its year-round workers.

Industrial labor requirements to December 1943, itshould be noted, depend upon several variables besidesexpected output. The most important of these is prob-ably the rapid adoption of labor-saving innovations inproduction methods in many branches of war manufac-turing. It is yet too early to appraise fully the effectsof these improved methods in reducing the manpowerrequired for war production. Measures successfullylowering the high rates of turn-over in the working forcesof many war plants would doubtless also contribute toa somewhat larger output per worker, and so reducelabor requirements. Another important variable isweekly hours per worker, which may be increased underpressure of labor shortages, especially in those nonwaractivities where hours are still far short of the workweek prevailing in war industries.

Indicated heavy demands upon the labor force mustbe met, for the most part, by drawing women home-makers into wartime industrial employment. Unem-ployed workers now number only a little over 2 million,of whom a substantial part are either unemployable oronly temporarily out of work while changing jobs.Assuming that unemployment may ultimately be re-duced to 1 million, and counting upon a normal incre-ment in the labor force of at least 900,000, a labor forcedeficiency of several million will still remain to be madeup by recourse to labor reserves, comprising selectedgroups of nonworkers.

There are, for example, more than ^^million non-farm women without children under 16 years of ageengaged currently as homemakers. ? A substantial pro-portion of these may be expected to take industrialemployment under prospective conditions'if it is offeredin the vicinity of their homes. In addition, nearly2 million students over 18 years of age, about half ofthem young women, would be-: available either* forservice in the armed forces or for industrial employment,


October 1942 SURVEY OF CURRENT BUSINESSTable 3.Labor Force and

Item

Population 14 years of age and over2Labor and armed forces

Labor force _Employed civilian workersUnemployed workers

Armed forces __Nonworkers

HomemakersStudentsUnabij or too old to workOther . .

Nonworkers, November 1941 1

Number(millions)

101.656.254 150.23.92.1

45.429.98.95.51.1

1 November 1941 is the last month for which official statistics of the total armed

forces have been published. More recent estimates of nonworkers cannot be publishedsince they would reveal the size of the armed forces subsequent to that date.2

Exclusive of persons in institutions.Sources: U. S. Department of Commerce; data on armed forces from U. S. Depart-

ment of Labor.

should it be deemed advisable to interrupt their educa-tion.

The industrial employment of the large number ofwomen that will be necessaryestimated at about4 millioninvolves a special problem of placement.The fact that women, especially those in the upper-agebrackets who are expected to respond most readily towartime recruitment, are not fully adaptable to manyof the jobs that must be filled, may call for considerableshifting of men into such jobs from work that can betaken over by women.

Labor shortages exist at present and may become farmore serious over the next 15 months, although sum-mary analysis of the Nation's total labor force andreserves suggests that there need be no Nation-wideshortage of workers at the peak of the war effort.This seeming paradox is due to the fact that laborsupply, to be effective, must possess certain occupa-tional characteristics and be located in the vicinity ofthe jobs to be filled.

Means of overcoming shortages of skills are beingutilized extensively, and include not only trainingbefore and after placement, and upgrading of workersas they gain skill and experience, but also job break-down (often associated with the innovations in pro-duction technique mentioned above) to obviate theneed for highly skilled workmen. It is true, of course,that some advanced skills cannot be dispensed with,and constitute real bottlenecks. In general, however,war production mounts rapidly despite reported

shortagesin many instances, extreme shortages ofskilled workmenby reason of great success in adaptingplant operations to the occupational characteristics ofthe available labor supply.

Local shortages of labor in war-production areas, ofwhich a considerable number have already developedand more are anticipated before peak output is at-tained, arise principally from the lack of adequatehousing. With few exceptions, there is no dearth ofmigrant labor for war industries in these areas. Buthousing conditions are often such that the migrantlabor supply cannot be stabilized sufficiently for train-ing and assimilation into war-plant work forces. Otherfactors making for instability are inadequate localtransportation and high living costs in these areas.Four chief means of attacking these local shortagesare:

(1) Provision of additional housing for in-migrantworkers and their families. The construction of warhousing is subject, of course, to prevailing shortages ofcritical materials, and apparently cannot be relied uponfully to remove local labor shortages.

(2) Maximum utilization of the local labor force andreserves, including women, minority groups, handi-capped and older workers. Even with full use of locallabor, however, shortages and the need for further in-migration are indicated in many war-production areas.

(3) Curtailment of nonwar activities to releaseworkers for war plants in the area. In most instance?,this will probably take the form of industrial concen-tration, shifting output to other plants in labor surplusareas.

(4) Transferring war work to labor surplus areas.This would depend, of course, upon the availability ofindustrial facilities for war work in such areas.

In summary, the swiftly developing problem of man-power shortage is not Nation-wide but strictly localizedin various war-industry areas. The key problem is toget the necessary numbers of men and women with therequired skills to these localities and then to keep themthere. It is essentially a matter of moving people fromwhere they are not essential to other places and jobswhere they are. There are good grounds for believingthat strong measures will be needed to achieve thismanpower mobilization at the peak of the war effort.


8 SURVEY OF CUREENT BUSINESS October 1942

Monthly Estimates of Total ConsumerExpenditures, 193 5-42l

By William C. Shelton and Louis J. Paradiso

THE volume of consumer expenditures for goods andservices is important in wartime for two reasons.It is important as a measure of the material welfare ofconsumers and also of consumer demand for the prod-ucts of the economic system. At the present time, theemphasis is upon the demand aspect, since there is rea-son to fear that consumer demand will outrun supplyand therefore bring great pressure on the price level.As more and more of our economic resources are de-voted to the war effort, the level of living of civilianswill be of greater and greater concern.

In order to provide information on consumer expendi-tures, the Bureau of Foreign and Domestic Commercehas undertaken to prepare monthly estimates for majorgroups of goods and services. Figures on sales of retailstores by kind of business, which are closely related toconsumer expenditures for goods, were published in aprevious article.2 In the present article, monthly esti-mates are presented of total consumer expenditures, ofconsumer expenditures for goods and services, and ofconsumer expenditures for eight major groups of serv-ices.3 In addition, the relationship between sales ofretail stores and consumer expenditures for goods isalso indicated.

Table 1.Consumer Expenditures for Goods and Services,by Years

[Millions of dollars]

Year

1929193319351936193719381939 . . .19401941 . .1942*

Goods

44,29724,08531,16035,37238,58536.19838, 54241,32248, 62151, 575

Services

24,54617,05918, 71520, 22321, 70021, 81022,39323,54225, 20727,455

Total,excluding

gifts

68,84241,14449,87555, 59460,28458,00860,93564,86473,82879,030

Gifts

1,7831,0021,0681,1561,2681,1861,1041,1691,1641,250

Total,including

gifts

70,62542,14650, 94356,75161, 55259,19462, 03966, 03374,99380,280

Total, ex-cluding

gifts,1935-39dollars

56,19844, 52850, 84156, 09958,69957,54861, 30364, 51870,11167, 770

* Preliminary.

Consumer Expenditures in Record Volume.Despite the fact that this year has seen the con-

version of many plants and whole industries to theproduction of war goods, the rationing of many civilianproducts, the restriction of consumer credit, and the

1 Acknowledgment is made to Bernard Beckler, who assisted in the statistical

part of this study.2 Monthly Estimates of Sales of All Retail Stores, 1935-41, Survey of Current Busi-

ness, October 1941.3 Consumer expenditures for major groups of goods will appear in a later issue of

the Survey. More detailed annual estimates for five of the major groups of servicesappear in the article, Consumer Expenditures for Selected Groups of Services,1929-41, in this issue.

expansion of consumer savings in war bonds, neverthe-less the quantity of physical goods and services pur-chased by consumers will exceed that of any other yearexcept 1941. In fact quantity of consumer goods andservices purchased this year will be only 3 percent belowthe record level of last year, and because of higherprices the dollar expenditures will be 7 percent greaterreaching a record 1942 total of 79 billion. What isequally significant is that the average quantity ofgoods and services purchased per capita this year willbe almost one-tenth greater than that of 1929.Chart 1.Use of Consumer Income Adjusted for Seasonal

Variations (Quarterly Totals Expressed at Annual Rate)BILLIONS OF DOLLARS120

100

40

20

1941 19420.0. 42-420

1935 1936 1937 1938 1939 1940

Source: U. S. Department of Commerce.

The conclusion to be drawn from this is clear. Ex-cept for a few rationed items, consumers are still ableto satisfy nearly as much of their needs as ever. Withincome payments of 114 billion dollars this year, or 22billions more than last year, consumers have more pur-chasing power than they ever had, despite the fact thattheir savings will be at record levels, and more of theirincomes will go for taxes. Thus, the civilian level ofliving has been affected but little in the first full yearof this Nation at war.

Two reasons account for this condition. The first isthat stocks of consumer goods have been built up tounprecedented levels over the past year. Reduced newsupplies of goods have recently been supplemented bywithdrawal from inventories and thus most goods arestill available in ample quantities. But more importantthan this is the fact that many plants are still pro-ducing nonessential civilian goods. Encouraging as thewar production records are, the Nation is far from hav-ing achieved total mobilization of its resources for war.Many plants still continue to produce goods otherthan those necessary to meet war and essential civilianneeds.


October 1942 SURVEY OF CURRENT BUSINESS 9Chart 2.Consumer Expenditures for Goods and Services

in Current and 1939 Dollars1BILLIONS OF DOLLARS5 .5

5.0

4.5

BILLIONS OF DOLLARS3.5

3.0

2.5

1941 19421941 1942O.D. 42-421

1 Data for Services subsequent to June 1942 were not available in time to include

them in this chart.

Source: U. S. Department of Commerce.

It is not to be concluded from the foregoing that con-sumers are able to buy all of the goods which theynormally would purchase on the basis of theirdisposable incomes this year. In fact with their 1942disposable incomes, consumers would purchase about59 billion dollars' worth of goods if they had followedthe usual saving-expenditure pattern. See chart 3.

Chart 3.Relationship between Consumer Expenditures forGoods and Disposable Income of Individuals1

55

50

o40

UJ _C0

//

/

//

'4

" #

A -B-

/0A/r'40B

*'39B37

FIRST HALF 1SECOND HALF)

'29

ADJUSTED FOVARIATIONS AAT ANNUAL R

/

/ *

/'4tB

? SEASONALVO EXPRESSEDTE.

2A

25

2040 50 60 70 80 90 100 110

DISPOSABLE INCOME (BILLIONS OF DOLLARS) D.D. 42-4231 Data for the last half of 1941 and the first half of 1942 were omitted in fitting the

line of relationship.

Source: IT. S. Department of Commerce.

Actually expenditures for goods this year will amountto about 52 billion dollars. The difference of 7 billionis accounted for by the fact that consumers this yearwill save about 7 percent more of their incomes than isnormally the case in such forms as cash savings, Warbonds, and reduction of outstanding debts. This isclearly seen in chart 1 which indicates the magnitude

4SG23G42 2

of the expansion in direct taxes, gifts, and savings thisyear. The inability to purchase certain rationed goodssuch as automobiles, tires, and gasoline apparently wasnot compensated for immediately by the purchase ofmore of other commodities. Nevertheless quantitiesof goods purchased were still at high levels.

Table 2.Monthly Indexes of Consumer Expenditures forGoods and Services, 1935-42

[Adjusted for seasonal variations; 1935-39 = 100]

Year and month

1935:JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

1936:JanuaryFebruaryMarchAprilM a yJune _. .JulyAugustSeptemberOctoberNovemberDecember

1937:JanuaryFebruaryMarchAprilMayJune__ _JulyAugustSeptemberOctoberNovemberDecember

1938:JanuaryFebruary _March . . .AprilMay . .June_ - -JulyAugust. .SeptemberOctoberNovemberDecember

Goods

81.585. 985.784.983.487. 585.887.487.887.689.690. G

90.991. 993. 694. 796 798.799.799. 999.4

101.6103. 0103.4

102. 9104.8107. 5108.2109. 9108.2109. 5109. 7110.0109. 4J04.4102.2

102.9100.599. 799. 697.798.099. 999.3

100.2101.2103.1104.4

Serv-ices

87 386.887.188.088.688.589.089.990.791.592.091.7

92.992.093.294.595 796.197.197.798.499. 599.4

100.3

100.4101.4102. 1102.7102.8103.8104.3104. 9104. 9105.4104. 9103. 9

103. 6103. 4103.0103. 6103.3103. 6104.3104.1104.5104. 7105. 3105. 6

Total

83 686.286. 286.085.387.987.088.388.989.090. 590. 6

91.691.993.594. 696 397.798.799.199.0

100. 8101.7102.3

102. 0103.5105.5106. 2107.3100.(5107.6107.9108. 1107.9104.6 1102. 8

103.2101.6100. 9101. 199. 8

100. 1101. 5 i101.1 1101.8102.5 !103.9104.8 ;

Year and montt

1939:JanuaryFebruaryMarchApril .MayJ u n e -JulyAugustSeptemberOctoberNovemberDecember

1940:JanuaryFebruary.MarchApril.M a yJune_,._JulyAugustSeptemberOctoberNovemberDecember

1941:JanuaryFebruary.- __March ....AprilM a y ....JuneJulyAugust. . . . .SeptemberOctoberNovember -December

1942:JanuaryFebruary. .March__*_._ ._AprilMay__June_.._JulyAugust - _. . . _

Serv-

104. 5104.7105. 2106.6105.7105. 6106.9106. 3110.1108.9110.4112.1

111.1111.4113.5111.1113.1115.2113.8117.2113. 5113.5120.3120.2

123. 8128.2128. 1129.8134.9135. 0140.4148.7137.7133.4142. 6138.3

145. 9145.3143. 7143.5142.0148.5155. 5

105105105105106106107107107107

7714451184

107.9108

110111112110.111.111.111.112.113.113.113.114.

116.

8

662936883249

2118.6117.119.

02

118.0119.121.120.

437

120.6122.124.126.

126.127.128.129.131.131.131.132.

511

60492850

Total

104.9105.1105.2106.2106.0105.9107.0106. 6109.3108.3109. 5110.9

110.9111.5113.0111.0112.4113.9113.1115.6113.4113.4117.8118.2

121.0124.7124.0125.9128.7129. 3133. 4138.4131. 4129.4135. 8133. 8

142.1138. 9139.1138.6139. 0138.2142.2146.8

Trends in recent months, however, clearly point toreduced supplies of goods available to consumers in thenear future. The quantity of goods purchased byconsumers has been declining steadily from the peaklevel attained in August 1941. As a result, the quan-tity purchased in August 1942 was 9 percent below thispeak level. The quantity of services has been increas-ing steadily but in recent months at a declining rate.

Strong evidence of the trend toward reduction insupplies is seen in the steady decline of wholesaleinventories during the past 5 monthsaveraging 100million dollars per month. Stocks of retail stores arealso beginning to be depleted. With more and more ofour resources being diverted for war purposes less goodswill be available for civilian use so that distributorsmust continue to draw on irreplaceable stocks to meetheavier demands of consumers stemming from their


10 SURVEY OF CURRENT BUSINESS October 1942Table 3.Consumer Expenditures for Services, by Groups


Group

HousingHome maintenanceHousehold utilitiesPersonal careTransportationMedical care and death

expensesRecreationOther

All services

1,6631,9201,9313,306J2, 7841, 5972,417

1933

6, 924760

1,807992

1,745

1,8121,0331,986

7,0011,0561.8801.2092,003

2,C1,2102,268

1936

7,2271,2251,9591,3602,266

2,3131,3612,513

7,11,4302,0351,4892,427

2,4561,5112,743

24, 546 17,059 18, 715 20, 223 21, 700 21,810 22, 393 23, 542 25, 207

1938

7,8861,3622,1021,4702,293

2,4541, 5092,733

1939

8,0311,3972,1871,4722,394

2,5721,5312,809

1940

8, 2321,5122,3241,5592,352

2. 7661,7733,024

1941

8,5741,5482,4441,7722,589

3.0141,9483,319

ever-increasing incomes. Thus, the need for the ration-ing of more goods and for taking strong measures tochannel more of consumer spending power into savingsand taxes is clearly indicated. This is the basic problemof the civilian wartime economy.Chart 4.Relationship between Consumer Expenditures for

Services and Disposable Income of Individuals4b

30

25

20

15

10

'35

'40AJ9^-J9

, _ '39 A L* '40 B38

9J^J'39B36 y^*7

-

'29

A-FIRST HALF 1 ADJUSTED FOR SEASONALi VARIATIQNS M D EXPRESSD

B-SECOND HALF) AT ANNUAL RAT.

|

'42 A

40 50 60 70 80 90 100 110DISPOSABLE INCOME (BILLIONS OF DOLLARS) o.a4s-4ze

Source: TJ. S. Department of Commerce.

What Are Consumer Expenditures ?Consumer expenditures are defined as outlays made

by individuals for securing goods and services in orderto satisfy their own needs and desires. In the presentestimates persons living in institutional or quasi-institutional groups such as the Army and Navy areconsidered individuals insofar as they spend as indi-viduals.

While the concept of consumer expenditure is fairlyclear-cut, in practice arbitrary decisions must be madewith respect to the inclusion or exclusion of certainconsumer outlays. These decisions are followed inthese estimates indicated below but are not to be con-strued as the final word on the subject.

Expenditures presented here exclude sales from oneconsumer to another, and thus the figures are those thatwould appear on the expenditures side of a consolidatedincome statement for all consumers in the UnitedStates. Illegal expenditures such as horse-race bettingat ''bookie" establishments and purchases of hardliquors in dry States are excluded.

Consumer expenditures include both cash purchasesand purchases on open credit and installment accounts.

Payments on installment and open credit accounts aretreated as savings.

Purchases of houses and other investments aretreated as savings rather than as expenditures forcurrent consumption and have been excluded from theestimates. Purchases of other durable goods, however,such as automobiles and furniture are included.

Sales taxes even when levied directly on the purchaserare classed as expenditures since consumer behavior ismuch the same as if the price were higher by theamount of the tax rate. Individual income, personalproperty, estate, inheritance, gift, and poll taxes, how-ever, as well as automobile registrations and operators'licenses and hunting and fishing licenses are classed asdirect personal taxes and are excluded from theestimates.

Religious and charitable contributions are outlayswhich do not constitute a material service purchasedin the market and are excluded from the monthly esti-mates. For some purposes, however, it is desirable toinclude these outlays and they are shown as an addi-tional item in the annual totals in table 1.

Tips given as payment for services rendered, however,are classed as a consumer expenditure.

Goods are defined as tangible commodities. In thepresent estimates, they include such things as mealsand eyeglasses which have sometimes been treated asservices. Services are items of expenditure for which notangible commodity is received. In the present esti-mates they include several items which are border-linecases and might very well be included in the goodsgroup, namely: Manufactured and natural gas, elec-tricity, water rent, and repairs to automobiles and otherconsumer goods.

Certain nonmoney expenditures are included in thepresent estimates because they are included in the in-come payments series of the Bureau. These are:(1) The value of farm production retained for home use,(2) the value of food and housing received as wages inkind in productive enterprises, (3) the value of mer-chandise withdrawn by retail store owners for familyuse and not recorded as sales, (4) depreciation (butnot rental value) of owner-occupied homes, and (5)rental value of rented farm homes.Estimates of Expenditures for Goods.

As already indicated, the estimates of expendituresfor goods are based principally on sales of retail stores.4Table 4 shows in summary the deductions from andadditions to sales of retail stores in order to arrive atconsumer expenditures. For the years for which aCensus of Retail Trade was taken, namely, 1929, 1933,1935, and 1939, these deductions and additions wereestimated in detail. The methods followed will now bebriefly summarized.

* Sales of retail stores appear currently on pages S-6 and S-7 of the Survey. For adescription of this series see the Survey of Current Business for October 1941.


October 1942 SURVEY OF CURRENT BUSINESS 11Table 4.Sales of Retail Stores and Consumer Expenditures

for Goods, Census Years[Millions of dollars]

Item

Sales of retail storesLess sales not constituting consumer expenditures

for goods:Automotive stores *Building materials and hardware dealers 2Filling stations3Fuel and ice dealers 3Feed and farm supply storesOffice equipment and supply stores. . .Ketail stores not listed above

Total . - - - .Add consumer expenditures for goods not included

in sales of retail stores:Construction materials 2Other goods purchased from:

Wholesalers *Manufacturers 1FarmersCoal minesService establishments _Government and nonprofit institutions..

Sales taxes. _. _ __. _Food received as wages in kind __ _.Entrepreneurial withdrawals in kind 5Farm production retained for home use

Total __Equals consumer expenditures for goods

1929

48,459

3,6723,348

635282904324633

9,797

120411

1,22668459

837128

158315

1,6995,635

44,297

1933

24, 517

1,3101,147

580173374112307

4,003

41

44074139659

484105104177

1,023

3,57024,085

1935

32, 791

2,2631,570

723221558163390

5,887

6436080652556

606122

(4)138260

1,320

4,25631,160

1939

42,042

3,1252,3381,077

261725209644

8,378

8851575952679

665151392166295

1,244

4,87938, 542

1 For convenience, consumer expenditures for new automobiles were estimateddirectly and treated as if all sales were made by retailers. The latter assumptiondoes net affect total consumer expenditures for goods.2

Construction materials bought by consumers for repair of owner-occupied homeswere not allocated as to place of purchase. All construction materials scld by retail-ers were deducted as nonconsumer sales, and consumer purchases of constructionmaterials were added back in as a separate item of consumer expenditures for goods.3

Fuel-oil retailers are included in filling stations in 1929 and 1933.* The Census of Business defined sales to include sales taxes in 1935.5 Excludes food received by domestic servants and farm laborers since food

furnished them is included either in sales of retail stores or in farm production retainedfor home use.

Deductions From Sales of Retail Stores.A considerable proportion of retail sales do not repre-

sent consumer expenditures for goods. The deduc-tions that must be made from sales can be groupedunder four headings: (1) Sales of goods not for con-sumer use, such as building materials, trucks, farmmachinery, feed, office equipment, and a considerableproportion of automobiles, gasoline, hardware, fuel, andice; (2) trade-in allowances;5 (3) sales to other retailersfor resale; and (4) sales of services made by stores pre-viously selling commodities.6

The amounts of the last two items are shown sepa-rately in the Census of Retail Trade. Estimates ofnonconsumer sales are based principally on the com-modity sales reports shown by the Census for nearlyall kinds of business in 1939, although rather arbitraryallocations had to be made in some cases. Estimatesof trade-in allowances on automobiles are based on theratio of net to gross price of new and of used automobilesas shown by Bureau of Home Economics tabulations

5 Sales of retail stores are defined by the Bureau of the Census as net after deducting

returned goods, and allowances, but before deducting allowances for trade-ins takenas part payment for new merchandise. Thus, an automobile dealer should report assales the value of both the new cars he sells and of the used cars taken in trade whichhe resells without deducting the value of the trade-in allowances on any transactions.

6 Receipts from consumers for service sales are included in consumer expendituresfor the appropriate group of services.

from the Study of Consumer Purchases. Trade-ins forother goods are small.7

Additions to Sales of Retail Stores.In addition to their expenditures at retail stores,

consumers purchase goods from other segments of theeconomy. Estimates of sales by wholesalers and manu-facturers to consumers were obtained from the release onsales by classes of customers from the Census of Whole-sale Trade and the report on Distribution of Manufac-tures' Sales of the Bureau of the Census by deductingsales of construction materials and sales for farm busi-ness use.

Another addition to consumer purchases in retailstores is purchases directly from farmers.

About one-half of farmers' sales direct to consumersare through local farm dairies and are estimated bythe Department of Agriculture. Other farm sales areestimates compiled by the Bureau of Foreign and Do-mestic Commerce with the help of Department ofAgriculture specialists. These presumably include salesthrough farm markets, temporary roadside stands andhouse-to-house delivery.

Still another addition is the goods sold in serviceestablishments. These are principally meals and bever-age sales based on the Census of Hotels but also includemerchandise sales from establishments covered in theCensuses of Services, Amusements, and Tourist Courtsand Camps.

Consumer expenditures for construction materialsmust also be included when they are made for repairingowner-occupied homes where the work is done by theowner. They were estimated at 20 percent of thetotal expenditures for repair of owner-occupied homes.8The base figure for the latter total is taken from theStudy of Consumer Purchases for 1935-36.

Sales taxes collected by retailers directly from cus-tomers and paid by them directly to local or Statetaxing agencies were not included in retail sales in the1939 census. The amount of sales taxes paid directlyby consumers was estimated for the calendar year 1939on the basis of sales tax reports by kind of businessreceived directly from State governments and of theBureau of the Census State Tax Collections reports forfiscal years 1939 and 1940.

Of the three nonmoney items included in consumerexpenditures for goods, Department of Agricultureestimates were used for the value of farm production

7 The Department of Commerce Retail Credit Survey shows that down paymentson the credit sales of household appliances average about 10 percent. Where there isa trade-in, it is usually the down payment. On the basis of this indirect evidence, 10percent of retail sales of three commodity groups, namely stoves and ranges, house-hold appliances, and radios and musical instruments, were deducted as trade-ins onall merchandise except automobiles in 1939. This came to 104 million dollars. In1935,10 percent was also used, but in 1933, 8 percent was used; in 1929, 5 percent, sincetrade-ins were less important in these years.

s The remaining 80 percent is included under housing in consumer expendituresfor services.


12 SURVEY OF CURRENT BUSINESS October 1942

retained for home use, and Bureau of Foreign and Do-mestic Commerce figures were used for food received aswages in kind. Entrepreneurial withdrawals in kindwere estimated as a part of the present study.9 Allthese imputed items of expenditures are estimated atcost or selling pricefarm production at prices receivedby farmers, wages in kind at cost to employer, andentrepreneurial withdrawals at cost to them.Monthly Goods Expenditures.

Monthly estimates of consumer expenditures forgoods as well as annual estimates for intercensal yearsare based on monthly estimates of sales of retail stores.For 6 of the 10 major groups of retail stores, namely,food, eating and drinking,10 apparel, houshold furnish-ings, general merchandise, and drug. The dollars saleswere used to represent the consumer expenditures forgoods except that a small deduction was made fromaggregate sales for the 6 groups as a whole to allow forsales not constituting consumer expenditures for goods.For the remaining 4 major retail groups of retail storesthe estimates were based on their dollar sales, but theytake into account different weighting and differentadjustments to totals for census years.

Table 5 shows the estimates of sales and consumerexpenditures for these major groups. In comparing thefirst half of 1941 with the first half of 1942, it will beseen that the chief reason for the 2.3-billion-dollar in-crease in consumer expenditures for goods with only 0.8billion increase in sales of retail stores is the fact that

9 This was done on the assumption that each individual proprietorship in the retail

food business, for example, fed one family which had average food expenditures.These expenditures which wTere at retail prices were expressed in terms of wholesaleprices by using the average retail food store mark-up.

!o New series of sales of eating and drinking places and "other retail stores" groupsare now being used in the sales ot retail stores series, and these new series are alsoused in estimating the consumer expenditures presented here. Quarterly totals inthe newT eating and drinking series are based on sales tax receipts from eating anddrinking places in four States adjusted to the 1935 and 1939 censuses; month-to-month changes are based on percentage changes from the independent store sampleof the Bureau of the Census. The new "other retail stores" series is a combinationof five separate series on (1) liquor stores; (2) fuel, ice, and fuel oil dealers; (3) hay,grain, feed, and farm supply stores; (4) jewelry stores; and (5) the remaining retailstores in the "other" group.

consumer expenditures at automotive stores is less thanhalf as large as sales of automotive stores and thatautomotive sales declined in the first half of 1942 to lessthan one-third of their value in the first half of 1941.

Monthly estimates of consumer expenditures forgoods not included in sales of retail stores were sepa-rately prepared and seasonally adjusted for (1) garages,(2) hotels, (3) Military Establishments, (4) the value offarm production retained for home use, and (5) for allother expenditures.Estimates of Expenditures for Services.

For five of the eight major groups into which con-sumer expenditures for services have been classified intable 7 annual estimates are presented in great detail inthe last article in this issue on Consumer Expendituresfor Selected Groups of Services, 1929-41.n

Corresponding groups used in this article

Household utilities.

Personal services.

Transportation.

Medical care and death expenses.Eecreation.Not shown separately; included in

"other services" group.Not included in estimates for goods or

services but shown separately intable 1.

For the three remaining groups, housing, home main-tenance, and other services, detailed estimates woreprepared for 1929, 1933, 1935, and 1939 as a part of thepresent study,, Under housing, estimates were pre-pared for rent paid by renters, ownership expenses in-cluding depreciation for owner-occupied homes, rent ofboth permanent and transient lodgers in hotels, schools,etc., but not in boarding and lodging houses.12 Home

11 In this article monthly estimates of services were prepared for eight major groups.

The next article on services presents a much more detailed list of grouping.For the convenience of the reader the following tabulation gives a reconciliation

between the grouping used in the two articles"12

Income received from boarders and lodgers is excluded here because it is excludedfrom income payments.

Croups used in the services article

H o u s e h o l d u t i l i t i e s a n dcommunications.

Services related to attire, personalappearance, and comfort.

User-operated transportation, purchasedtransportation, foreign travel.

Medical care and death expenses.Recreation.Tuition and educational fees privately

paid.Gifts and bequests, personal remittances

abroad.

Table 5.Comparison of Sales of Retail Stores and Consumer Expenditures for Goods, by Kind of Business, by Years, 1935-40,and by Half Years, 1941-42


Kind of business

Food, eating and drinking, apparel, household furnishings, general mer-chandise, and drug stores:

SalesConsumer expenditures for goods

Filling stations:Sales _ .-Consumer expenditures for goods

Building materials and hardware dealers:Sales . _ - - - . . .Consumer expenditures for goods

Automotive stores:SalesConsumer expenditures for goods

Other retail stores:SalesConsumer expenditures for goods

Consumer expenditures for goods not included in sales of retail stores .

Sales of all retail stores .Total consumer expenditures for goods

1935

21 66221, 346

1,9681, 245

1,864294

4,2371,974

3, 0602, 0464, 256

32, 79131,160

1936

24 28223, 901

2,3301,461

2, 374358

5, 4982, 538

3, 6142,4384, 676

38, 09835, 372

1937

26 52326, 079

2 6791,660

2, 687401

6,0442,710

4,0332 7225, 013

41,96538, 585

1938

25 33324, 882

2, 6931, 669

2,480370

4,4721,905

3,8702, 6394,734

38, 84836,198

1939

26,71526, 212

2,8221,746

2,735396

5, 5492,424

4,2212,8864,879

42, 04238, 542

1940

28, 30327, 748

2, 9821,844

2, 987422

6,8193,013

4,7143,2415,054

45, 80741, 322

1941

Firsthalf

14 92014, 622

1, 589988

1,655231

4,7922,159

2,5201, 6762, 719

25, 47622, 394

Secondhalf

18 23217,865

1,9111.197

2, 067283

3,4341, 505

3. 0532. 1203, 256

28, 69726, 228

1942

Firsthalf

17 96017,593

1,619965

1,928

1, 558551

3.2442, 1183, 202

26, 30924, 706


October 1942 SURVEY OF CURRENT BUSINESSTable 6.Consumer Expenditures for Goods and Services for Selected Periods

(Millions of dollars)

13

Period

1929, total1933, total1935:

First quarterSecond quarterThird quarterFourth quarter

Total . _1936:

First quarterSecond quarterThird quarterFourth quarter . _. _

Total1937:

First quarter _Second quarterThird quarterFourth quarter

Total1938:


Total .1939:

JanuaryFebruaryATarchAprilM a yJuneJulyAugust -__SeptemberOctoberNovemberDecember _

Total1P40:

JanuaryFebruary _AT archAprilAfayJuneJulyAugustSeptember. .OctoberNovember .December .. . . ...

Total1941:

JanuaryFebruary. _ _ . _ . . - . . _ATarchAprilATay _ _J uncJulyAugustSeptemberOctoberNovember _ _ .December

Total . . . .1942:

January . . . . . . . . _.FebruaryMarchAprilM a yJune

Total

68, 84241, 144

11,38912,49312,26013, 633

49, 875

12 44013,89713,88115,377

55, 594

13,96815, 27815,08915,951

60, 284

13, 59314, 37214, 20515, 838

58,008

4, 6154,4654,9825 0085,1305, 0364,8474, 9685,2325,3225,2526,078

60, 935

4, 9564, 8625, 3235 2715,4335 3425,1585 3695, 3345, 6755, 6746, 466

64, 864

5,3735,2535,7716, 0606,2716,0486, 0636 3406,3166, 4596,3887,487

73, 828

6,3405,8626,4496,5576, 5366,519

Total

44, 29724, 085

6, 8077, 8757, 6418,835

31,160

7 5518,9108,744

10,167

35, 372

8,6459,8919, 571

10, 477

38, 585

8,1698,9668,726

10, 337

36,198

2,7492,6233,1333 1633,2833,1872,9703,0963,3473,4373,3834,172

38, 542

2,9992,9023,3623 3283,4993 4043,2123 4133, 3603, 6893, 7064, 450

41, 322

3,3163,1883,7253, 9734, 2173, 9753,9494 2474,2164, 3094.2335,274

48, 621

4,0973,6484,2034.2814,2534,230

Goods

Includedin sales of

retailstores

38. 66220, 515

5, 8456,8166, 5737, 671

26, 904

6, 5137,7727, 5408,870

30, 695

7,4948 6428,2899,146

33, 572

7,0567, 8057, 5539,051

31,464

2,3752, 2682,7402 7672,8772,7862, 5802,6922,9162,9992,9543,710

33, 663

2,6122,5282, 9582 9203,0782 9952,8082 9892,9383,2283,2523, 962

36, 268

2,8962,7853,2793,5013,7203,4943, 4563 7183, 6813, 7513,6934,673

42, 647

3, 5663,1653,6793,7313,7013,666

Farmhome

produc-tion

1,6991, 023

301317338366

1,320

304310372387

1,374

319325383384

1,410

308299332345

1,283

1029396949796

101106116124113106

1,244

1009493949694

101103112125113107

1,233

1019497

101107108116130143152139134

1, 421

124113117123123128

Other

3, 9362, 547

661745731798

2,936

734828832909

3,302

833924899947

3,603

805863841941

3,451

272262297302309305289298315314316356

3,635

287280311314325315303321310336341381

3,821

319309349371390373377399392406401467

4,554

407370407427430435

Total

24, 54617, 059

4,5824,6164,7194,798

18, 715

4,8894,9855,1395,210

20,223

5,3225,3875,5175,475

21, 700

5,4235,4055,4805, 501

21,810

1,8661,8421,8491, 8461,8471,8501,8771,8721, 8841,8841,8701,906

22, 393

1,9561,9601, 9621,9441,9341,9391,9461 9561,9741,9861,9682,017

23, 542

2,0572,0652,0472,0872,0532, 0742,1142 0932,1002,1502,1552.213

25, 207

2,2442,2142,2462,2762,2822, 289

Housing

8,9286, 924

1,7391,7441,7521,768

7,001

1,7841, 7951, 8121,836

7,227

1,8601,8901, 9131,945

7,608

1,9621,9671,9731, 984

7,886

664665665667667669667671673675675672

8,031

678680680684683684684689691694693692

8,232

698701701707708710712719723729733732

8,574

739742745752754750

Homemainten-

ance

1,663760

249259269279

1,056

287299312327

1,225

348362363357

1,430

346338336341

1,362

114115115115116116116116117118119120

1,397

122123124126127133133129126123122122

1,512

123123123126132133134130129129134134

1,548

136135140144147148

Services

House-bold

utilities

1,9201,807

509453424494

1,880

542468437512

1,959

550488460536

2,035

573507477546

2,102

210200193185174168162161169176188201

2,187

224218206194184177171171177185200218

2,324

230221214204191185181181188198216235

2,444

260243234220207198

Per-sonal

services

1,931992

277312315303

1,209

301359357344

1,360

337392394366

1,489

342388378362

1,470

114112116120130134129124127126120120

1,472

117116123129136142133133137133129129

1,559

128129132151152156158153159156151148

1,772

148146152166175179

Trans-porta-tion

3,3061,745

446483578497

2,003

497543659567

2,266

545596717569

2,427

532558651552

2,293

182170189190198210233235218195180194

2,394

185173197189195204202214208201185199

2,352

190183212210215

218232241222222210234

2,589

221206230239258263

Medicalcare and

death

2,7841,812

536517506532

2,089

579570568596

2,313

677602583595

2,456

619601606629

2,454

224234225214207205203202206210213228

2,572

243255244233224220221219220224224238

2,766

259271263249240240241241244250251266

3,014

278284279270262261

Recrea-tion

1, 5971,033

279291301340

1,210

300335351375

1,361

338377387410

1,511

363369375402

1,509

126117116124124116131126137146137129

1,531

141148138142136128149147159169158156

1,773

162169135168145157175150156182175174

1,948

170172176197191203

Other

2,4171,986

547556575588

2,268

601618642652

2,513

666679700697

2,743

685679685685

2,733

232229230230231232236236238238237241

2,809

248248249247248249251253256257256262

3,024

267268267272271275280279280285284289

3,319

292287288290288287

maintenance includes domestic service; moving, express,and freight; insurance, storage, cleaning, repair, andother services to household furnishings.

The "other services" group includes private fees foreducation; interest on consumer loans other than mort-gages; that part of life-insurance premiums which repre-

sents costs of selling and handling of insurance andsettling claims; certain occupational expenses such asunion and professional association dues, employmentagency fees, stock brokerage fees, and payments forproperty management; and miscellaneous items thechief of which is legal expenses.


14 SURVEY OF CURRENT BUSINESS October 1942Table 7.Indexes of Consumer Expenditures for Goods and Services for Selected Periods

[1935-39 = 100]

Period

Total-.1939:

JanuaryFebruary.._MarchAprilMayJuneJulyAugustSeptember _OctoberNovember..December..

Total1940:

JanuaryFebruary. _MarchAprilMayJuneJulyAugustSeptember.OctoberNovember.December..

Unadjusted

1929,total1933, total1935:

First quarterSecond quarter..Third quarter. _.Fourth quarter.

Total1936:

First quarterSecond quarter.Third quarter...Fourth quarter.

Total1937:

First quarterSecond quarter.Third quarter...Fourth quarter.

Total1938:


Total1941:

JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember

Total1942:

JanuaryFebruaryMarchAprilMayJune

Total

120.9

87.686.595.4

87.6

87.497.897.1

107.5

97.6

98.9107.4105.6111.5

105.9

96.4101.199.4110.6

101.9

97.499.2

102.5107.2106.6106.3101. 9102.3111.2111.3112.0128. 3

107.0

113.'

111.7116.9120.3127.9129.9129.9125.9132.1134.8132.138.4155.6

129.

131.130.134.138.138.137.

Goods l

123.167.0

76.787.484.697.8

86.6

84.099.396.6

112.3

98.3

97.2110.1105.8115.8

107.3

92.1

96.5113.9

100.6

92.294.5

100.8107.9107.4106. 499.099.7

112.9113.6114.8139.8

107.1

98.1100.6110.5111.1114.5116.1105.0109.3117.3118.8125.1150.1

114.9

108.5114.9122.4132.7137.3136.2129.1139.5143.1138.6146.9172.8

135.2

133.2131.4138.9142.8143.0141.0

Serv-ices

117.181.4

87.788.1

91.4

89.3

93.395.297.999.2

96.4

101.9102.9105.1104.3

103.5

103.8103.2104.4104.8

104.0

106.4107.3105.4105.9105.3106. 2107.0106.7108.2107. 4107.3108.7

106.8

111.5113.3111.9111.6110.3111.3110.9111.5113.3113. 3113.0115.0

112.3

117.3120.2116.7119.8117.1119.0120. 5119.4120.5122.6123.126.2

120.2

127.9128.9128.0130.130.1131.3

Adjusted for seasonal variations

Total

120.972.3

85.386.488.190.0

87.6

92.396.298.9

101.6

97.6

103.7106.7107.9105.1

105.9

101.9100.3101. 5103.7

101.9

104.9105.1105.2106.2106.0105.9107.0106.6109.3108.3109.5110.9

107.0

110.9111.5113.0111.0112.4113.9113.1115.6113.4113.4117.8118.2

113.9

121.0124.7124.0125. 9128.7129.3133.4138.4131.4129.4135.8133.8

129.7

142.1138.9139.1138.6139.0138.2

Goods i

Total

123.167.0

84.485.387.089.1

86.6

92.196.7

98.3

105.1108.8109.7105.3

107.3

101.098.4

102.9

100.6

104.5104.7105.2106.6105.7105.6106.9106.3110.1108.9110.4112.1

107.1

111.1111.4113.5111.1113.1115.2113.8117.2113. 5113.5120.3120.2

114.!

123.!128.2128.1129. 8134. 9135. 0140.4148.7137.7133.4142.6138.3

135.2

151.1145.9154.3143.143. 5142.0

delud-ed inlales ofretailstores

123.765.6

83.883.386.6

86.1

91.996.599.4

102.7

98.2

105.0109.0109.9105.3

107.4

100.998.399.9

103.2

100.7

104.8104.9105. 6107.1106.2106.0107.6106.8110.6109.5111.1112.9

107.7

112.0112.4114.5112.0114.1116.5115.1118.6114.6114.2121. 6121.3

116.0

125.3129.8129.6131. 0136. 4136.4142.2150.6138.133.7143.8138.5

136.4

152.3146.8146.2143.9143.7141.6

Farmhomeproduc-tion

128.177.1

103.996.799.4

99.5

99.1101.8106.4105.4

103.6

105. 6106.5109.4104.1

106.3

101.497.895.193.8

96.7

95.996.795.893.894.793.191.592.093.793.093.393.9

94.293.993.094.794.290.91.089.590. 793.993.394.

93.0

95.396.597.1

101.3104.4104.6104.7113.0115.114.4114.6118.0

107.1

116.9116.5116.8122.9120.5124.1

Other

116.375.2

84.286.387.488.9

92.096.299.5

101.0

97.6

105.3107.2107.8105.3

106.4

102.4100.2100.9104.1

101.9

105. 0105.6105.6106. 8105.7106. 5106.0106. 8111.2109.2109.9111.3

107.4

108.6108.7112.0109.2110.9111.7109.9113.9112.4114.3117119.7

112.'

120.3124.4125.3129.1132.2132.9136. 2143.138. 6137.3141.5143.7

134.

151.9148.5147.2148.8149. 6152.1

Services

Total

117.181.4

87.188.4

91.7

89.3

92.795.497.799.7

96.4

101.3103.1104.7104.7

103. 5

104. 0

105. 7105.7105.1105.4106. 4106.5107.1107.1107.8107. 4107.9108.8

106.1

110.6111.6112.2110.9111.3111.6111.8112.8113.3113.2113.4114.9

112.3

116.2118. 6117.0119.2118.0119. 4121.3120.7120. 6122.5124.1126.1

120.2

126.6127.0128.4129.9131.2131.8

lous-ing

118.291.7

92.092.492.993.6

92.7

94.495.196.297.3

95.7

98.5100.1101. 5103.0

100.8

103. 9104. 2104.6105.1

104. 4

105. 3105.5105. 8105. 9106.1106.410b. 4106. 71.06. 9107. 0107.1107. 3

106. 4

107. 5107. 8108. 2108. 4108. 7108. 9109. 0109. 6109. 8110.0110.0110.4

109. 0

110.7111.2111.6112.2112.6113.0113.5114. 3114.9115.6116.2116.9

113.5

117.3117.8118.5119.3120. 0119.2

HomeMainte-nance

128.558.777.280.183.186.081.688.792.496.6

101.094.7

107.6111.9112. 3110.2110.5106.9104.6104.1105.4105.3106.0106.5106. 6106. 8107.1107.2107.6108.0108.8109.4110.3111.2108.0

112.8114.1115.4116.7118.1123.6123. 7120.0116.9114.3113.2113.3116.8113.9113.8114.2116.9122.0123.1123.8120.4119.5119.5124.2124.3119.6125.8124.9130.1133.2136.0137.2

House-holdutili-ties i

94.588.990.292.793.394.792.594.895.596.398.596.497.599.8

101.2103.0100.1101.4103.4105.1105.0103.4106.2107.2107.1107.3107.5108.2107.7108.1109.1108.4109.1108.2107.6113.2112.7114.2112.3114.0113.9113.6115.0114.5114.2115.9117. 1114.4

116.7118.3118.9118.2117.8119.0120.4121.8121.3122.2125. 6126.2120.2

131.9129.9130.0127.6127.7127.5

Per-sonalserv-ices

137.970.8

85.384.387.288.9

86.4

92.596.798.5

100.5

97.1

103.5106.0108.5107.0

106.3

105.3104.9104.4105.7

105.0

105. 8105.095.9

100.5105. 2105.4105. 9104. 3104.4106.1106.5108.6

105.2

108.0109.0110.8108. 1109.8112.4109.4111.6112.9112.4114.7117.0

111.3

118.3121.1118.7126.3122.3123.4129.7128.4130.4131.9133.7133.9

126.6

136. 4137.0137.4138.6141.5141.3

Trans-3orta-tion i

145.276.7

84.885.589.391.6

88.0

93.596.2

101.4105. 5

99.5

104.7105.9108.9105.4

106.6

102.399.099.8

102.0

100.7

105.2104.6102.0103. 4106.0107.8107.9105. 9106.0102.2103.3104.8

105. 2

105. 5101.9106.9102.5103.5103. 998.3

101.4103.8104.6104.7106.4

103.3

107.1112.3114.7113.6113.9111.1112.8114.3111.7115.4118.7124.7

113.7

122.9124. 4123.5128.8136.9134.7

Medi-al careand

death

117.176.3

83.688.389.290.9

87.9

90.597.4

100.2101.8

97.3

105.8102.8102.9101.7

103.3

96.8102.6106.8107.7

103.2

106.3107.0106.8106.7107.4107.0106. 7107.6109.0109.8111.0113.5

108.2

115.5116.7115.9115.9116.1114.8116. 4116.8116.2117.2116.7118. 5

116.4

123.2124.0124.7123.8124.3125. 1126. 7128.3129.0130.7130.8132. 1

126.8

132.3130.0132.5134.4135.6136.0

Recre-ation

112.172.6

82.083.483.390.5

84.9

88.496.197.399.8

95.6

99.6107.9107. 2109.0

106.1

107.7105.4103.9106. 9

105.9

105.7105.8107.6104.8106. 3101. 9107.7108.8111.1109.1110.0110.1

107.5

118.3133.0127.6120.5116. 3112.7122. 6126. 6129. 3126. 2127.4132.9

124. 5

136.1152.5124.7142.6124.0138.2143.9128. 8126.2135. 8140. 5148.2

136. 8

142.3154.8162.7166.6163.0178.2

Other

92.576.0

83.985.288.189.9

86.8

91.994. 698.299.9

96.2

102.1103.9107.2106. 7

105.0

104.9103. 9104.8104.8

104.6

106. 4105.2105.4105.5106.0106. 6108.4108.3109.2109.3108.8110.8

107.5

113.7114.0114.2113.6113.7114.5115.4116.3117.5118.1117.6120.3

115.7

122.7123.3122.6125.1124.3126.1128.8128.3128.8130. 7130.5132.8

127.0

134. 0131.71 ?2. 3132. 9132.413.1.8

1 Expenditures were divided by number of working days in month before being converted to indexes.

Monthly Service Expenditures.Monthly estimates were prepared for the period 1935

to date for eight major groups of services. The esti-mates for five of the major groupshousehold utilities,personal services, transportation, medical care and

vertea to maexes.

death expenses, and recreation-were prepared bycomponents and adjusted for each year 1935 through1941 to the annual estimates shown in the nextarticle.

next

(Continued on p. 22)Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

October 1942 SURVEY OF CURRENT BUSINESS 15

Alternatives in War FinanceBy Thomas K. Hitch 2

IT is now evident that the financial requirements ofthe war will be staggering. In the first 2 years ofthe defense program, the Federal Government spentnearly 50 billion dollars. According to the revisedbudget, expenditures during the present fiscal yearalone will total 77.5 billion dollars.3 Beyond thatthe requirements are indefinite, but Congress hasalready appropriated 220 billion dollars for warpurposes.

By any comparison, even the figure of 77.5 biDiondollars for fiscal 1943 is tremendous. It is more thantwice the sum of America's World War I expenditures.It is over one-third the total monetary cost of WorldWar I to all belligerents. It represents, as shown inchart 2, approximately one-half the gross product ofthe Nation in fiscal 1943. It is a sum so large that theraising of it will be one of the most important, and atthe same time most difficult, economic problems thecountry has ever faced.

Before discussing the various alternative methods ofwar financing, it will be instructive to review thefinancing record of this country during the last warand during the present war to date. Such a reviewwill also aid in appraising the outlook for the comingfiscal year.

World War I FinancingDuring the period of the last World War, the Federal

Government raised 33.6 billion dollars (April 5, 1917,to June 30, 1919). For the war to have been financedwithout inflation, it would, in general, have beennecessary for this sum to have been raised withoutrecourse to credit or currency expansion. The twosources of such noninflationary financing are taxes andborrowing from current income. Hence it is relevantto analyze the extent to which these two sources wereexploited.

Total nonloan revenue, as shown in table 2, duringthis period amounted to only 9.4 billion dollars. Con-sequently, the other 24.2 billion had to be raisedthrough borrowing.

At first glance, it would seem that this 24.2 billion-dollar increase in the public debt was rather effectivelyplaced outside the banking system. Total bank hold-ings of Government securities increased, in the twofiscal years 1918 and 1919, only by 3.4 billionsindi-

1 The Survey, in publishing this article, is not attempting to reflect the views of

the Department of Commerce, but rather to offer its readers a discussion of one ofthe Nation's most important economic problems.

2 The writer would like to acknowledge the contribution made by C. A. R. Ward well,of the Bureau of Foreign and Domestic Commerce, in the preparation of this article.

3 Since this article was written, expenditure estimates for fiscal 1943 have been

increased to 85.2 billion dollars. This is due to expanding war production, risingprices, and increases in the pay of the armed forces.

eating that nonbanking purchasers absorbed 20.8 bil-lions of the increment of the public debt. This mone-tary contribution, taken with the additional 9.4 billiondollars paid in taxes, would appear to have reducedprivate purchasing power nearly as much as publicpurchasing power was increased.

There were operating, however, several inflationaryfactors concealed by these figures. In the first place,the banks of the country held approximately 1 billionmore of Government securities in early May 1919 thanthey did at the end of June. This, taken with the factthat their holdings of Government securities weresomewhat less on April 5, 1917, than on June 30 of thatyear, means that, in the 2 years following our declara-tion of war, bank holdings increased some 4.5 billiondollarsa significant credit expansion.

Second, the "borrow to buy" aspect of World War Ifinancing was probably as inflationary as the actualpurchase of Government securities by banks. Loansto purchasers of bonds could be discounted by memberbanks at preferential rates which customarily equaledthe interest rate on the bond itself. The extent of thiscredit expansion by individuals for Government usehas been variously estimated at from 2 to 3 billiondollars.

Finally, it is worth noting that the five successive Lib-erty loans were really refunding operations. Through-out the period, Government fiscal needs were met bythe issuance of short-term, securities known as certifi-cates of indebtedness. These were taken entirely bythe banks, which paid for them by the creation ofGovernment deposit accounts. From time to time,these bank loans would be repaid with the proceedsof the Liberty bonds, which as we have seen werelargely lodged in nonbanking hands.

The time element in this sequence of events is impor-tant. Government expenditures were financed withbank creditwhich resulted in an expansion of privatepurchasing power. The public then used some of itsenlarged income to purchase the subsequently issuedlong-term bonds. The net result was of course moreexpansionary than if the Treasury had borrowed fromthe public at the time it was making its expenditures.4

The effect of this program of war financing was thecreation of a disequilibrium of demand and supplywhich, not being corrected by an increase in savings, re-sulted in inflationary price rises. The disequilibriumarose from the fact that vast Government purchases re-

4 It is worth noting that a considerable volume of bank credit was created for the

use of private business both before and after our entry into the war. This factor,taken with the creation of deposit currency for the use of the Government, causedbank deposits to double between 1914 and 1920.


16 SURVEY OF CURRENT BUSINESS October 1924

duced the supply of goods available for civilian con-sumption, while civilian demand was not reduced pro-portionately by fiscal policy. The necessary reductionin civilian consumption was therefore enforced by in-flation.

The aftermath of the war-financing program was prob-ably worse than its immediate effects. Despite theelimination of most excess purchasing power by pricerises during the war, individuals and business were ableto embark upon a buying spree when the war was overthat spiraled the cost of living upward 29 percent be-tween November 1918 and June 1920. The removal ofprice controls together with the unleashing of tre-mendous pent-up demand for goods and services whichhad been foregone during the stringent war years, ledto an increased demand which industry could not fulfill.

The following table summarizes some of the majoreconomic trends during the war period.

Table 1.Economic Trends in World War I, 1913-20[All series except indexes in billions of dollars]

Year

19131914191519161917191819191920

Na-tional

in-come !

31 431.232 538.746 457. 003. 068.4

Index oftotal

physicalproduc-' tion 2

100102116123128127119127

NetU. S.

ex-ports 3

0. 7.3

1.83.13.33.14.02.9

De-posits,

allbanks4

17.518.619.222.826. 428.833.637.9

ReserveBank

credit out-stand-ing 5

0. 060.160. 521.722.633. 39

Indexof

cost ofliving 6

100.0101.4102. 5110.0129.5152. 2175.0202. 8

Indexof

whole-sale

prices 6

10098

100122168188199221

ference Board Study No. 241.le U. S.. I). 188.

This series excludes the

Our Financing Record to DateThe launching of the defense and rearmament pro-

gram in mid-1940 resulted in a spectacular increase inGovernment expenditures, thereby once again liftingthe problems of war finance out of the theoretical realmand giving them urgent practical importance. Thedesirability of raising a large portion of the requiredrevenue by taxation, and borrowing the remainder out ofsavings from income rather than from credit-creatinginstitutions was at once recognized. To that end, taxeswere increased twice in 1940, and again in late 1941.In addition, early this year the President called for a7 billion dollar increase in tax levies. To the same end,bond sales to individuals and to nonbanking institutionshave been pushed with vigor by the Treasury.

The results of the first 2 years of defense and warfinancing are shown in table 2, where comparison is alsomade with our war financing record of 1917-19.

As the table shows, one-third the bonds sold in the2-year period 1940-42 have gone directly into the handsof credit-creating banking institutions. This has beenthe main cause of the 22 percent increase in bank

Table 2.Sources of Federal Revenue, April 5, 1917, to June30, 1919, compared with July 1, 1940, to June 30, 1942

Billions of dollars PercentSource of income

1917-19

Total revenueTax

scb_101942

Documents

department of commerce

washingtondomestic commerce

consumer expenditures

monthly business statistics

business situation

behalf of business

adjusted expenditures

survey of current business