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NOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

:<JJREAU OF ECONOMIC AND BUSINESS RESEARCH
LLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

January, 1962 Number 1

HIGHLIGHTS OF BUSINESS IN DECEMBER

The year ended on a high level of economic activity.
Department stores enjoyed a burst of Christmas shopping
that was well above the normal December expansion, and
sales of new, domestically produced automobiles amounted
to nearly 504,000, the first December since 1955 in which
the half-million mark was exceeded. Production generally
expanded during the month. Steel output was up contra-
seasonally from November, automotive production was at
a record December high, electric power output advanced
sharply after allowance for seasonal factors, and petro-
leum production made a more-than-seasonal gain. The
index of industrial production rose 1 point, bringing it
to 115 percent of the 1957 average.

Wholesale prices advanced a little during December,
and spot commodity prices were up nearly 2 percent. De-
fense expenditures and the federal cash deficit were at
the highest levels reached in the past few years.

Unemployment Rate Unchanged

Although unemployment rose 100,000 from mid-
November to 4.1 million in mid-December, the rate of
unemployment remained at 6.1 percent of the labor force,
since the increase was no more than normal for that pe-
riod of the year. Employment in December was estimated
at 66.5 million after a seasonal decline of 900,000, nearly
all of it in farm jobs. Nonfarm employment amounted to
62 million, off 100,000, counter to the seasonal trend.

The absence of any significant increase in the esti-
mates of the total civilian labor force during the past
year has been a factor holding down unemployment fig-
ures. Over that period the labor force total expanded
only 10,000 to 70.6 million, whereas normal growth in
recent years has averaged nearly a million a year. Part
of the lower growth in the past year was due to increased
draft calls, but much of it stems from elderly persons and
women leaving the labor force because of job scarcity.

Construction Declines

The value of new construction put in place during
December was off 9 percent from the preceding month to
$4.7 billion. As a result of this more-than-normal decline,
the seasonally adjusted annual rate for the month was
down 2 percent.

A 16 percent decrease from November in public con-
struction, much of it in military facilities and highways,
accounted for the reduction in the seasonally adjusted

annual rate of total construction. Private construction
declined 6 percent to $3.4 billion, but this was less than
the normal drop between November and December for
this type, with the result that the adjusted annual rate
rose 1 percent.

December construction activity brought the total for
1961 to a record $57.5 billion, 3 percent above 1960 and
2 percent above the previous record year of 1959. Ex-
penditures for private construction at $40.4 billion were
2 percent above 1960, while public spending for new
construction amounted to $17.1 billion, 7 percent above
the preceding year.

Sales to New High

Sales by manufacturing and trade firms advanced
about $1.3 billion in November to a new high of $64.5
billion after seasonal adjustment. The total was more
than $4.1 billion above the year-earlier figure. A big
boost in retail sales, particularly of automobiles, accounted
for $580 million of the monthly increase, but manufactur-
ers enjoyed a gain of $440 million, mostly in durables, and
wholesale sales were up $260 million.

Combined inventories of manufacturers, wholesalers,
and retailers expanded for the fifth straight month, an
addition of $410 million bringing the seasonally adjusted
total to $95 billion. About $330 million of the inventory-
advance was at retail establishments, much of it at auto
dealers. Durable goods producers added most of the $200
million in inventory expansion attributable to manufac-
turers, whereas wholesalers of nondurables cut back $100
million.

Further Rise in Consumer Debt

Consumers increased their outstanding short- and
intermediate-term debt $468 million during November,
after allowance for seasonal influences. This addition
consisted of $300 million in instalment debt and $168
million in noninstalment obligations. It raised the total
outstanding to $55.5 billion.

Half of the increase in instalment debt was in auto-
mobile paper, reflecting the sharp rise in November auto-
mobile sales. Sizable additions also occurred in other
consumer goods paper and in personal loans. The expan-
sion of noninstalment debt reflected additions of $74
million to charge accounts, $73 million to single-payment
loans, and a smaller amount to service credit.

REVENUE PROBLEMS IN THE STATE OF ILLINOIS

By A. James Heins

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box 658, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
I'.umiu -, Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Sianed articles represent the personal views of the authors
and not necessarilv those of the University or the College of Commerce.
The Review will be sent free on request. . .

Second-class mail privileges authorized at Champaign, Illinois.

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

Higher Prices for Cheaper Money

Interest rates appear to be rising. Early last month,
the Federal Reserve Board and the Federal Deposit In-
surance Corporation raised the interest ceiling on savings
and time deposits in commercial banks from 3 percent to
4 percent per year. In part, this action was taken to
protect the competitive position of commercial banks,
which had been losing deposits for some time to other
savings institutions — particularly to savings and loan
associations, many of whom have been paying 4\/2 percent
on their deposits.

There is little doubt that this reason is a valid one.
With a differential of U/i to 2 percentage points in sav-
ings and loan yields, banks are not likely to maintain, let
alone increase, their share of the consumer savings dollar.
Indianapolis provides an interesting case history. When
savings and loan, and building and loan, associations in
that city were paying 4 percent and banks 2 percent, prior
to December, 1959, an increasing share of savings was
moving to the savings and loan associations. However,
when the banks received authority from the state to in-
crease their rate on savings to 3 percent, their competi-
tive position greatly improved.

Nevertheless, safeguarding the market position of the
banks does not seem to have been the principal reason
for the recent boost in interest rate ceilings. A much
more likely reason is the concern of the federal govern-
ment over the continuing outflow of gold, and the possi-
bility of further outflows in the coming year. Interest
rates exert a major influence on this movement, particu-
larly when considerable disparities exist among different
countries. Thus, while interest rates in this country have
been in the neighborhood of 3 to 4 percent, interest rates
overseas during the past year have been much higher,
the discount rate being increased by the Bank of England
to 7 percent for a while last summer. The effect of this
differential has been to induce funds in this country to
move overseas, thus promoting further gold outflows.

The action of the Federal Reserve may be just another
step in a program to allow rising interest rates in this
country to counteract this outflow of gold. Particularly
significant in this connection has been the increase in the
yield on treasury bills, which reached a high for 1961 just
at the end of the year of about 2.9 percent.

Implications

The repercussions of this act by the Federal Reserve
are likely to be far wider than one might originally sus-
pect. An immediate effect is on the savings and loan
associations, many of whom are desirous of maintaining,
and even increasing, the rate of growth that they have
experienced in the past. To this end, rates paid by these
associations have been increased all over the country
during the past month, some associations now offering as
much as 5 percent on insured long-term deposits.

A more indirect, but perhaps even more significant,
effect is to reduce even further the attractiveness of gov-
ernment savings bonds. At 3% percent if held to matur-
ity, government bonds were already at a disadvantage
relative to the 4 percent and higher rates offered by
savings and loan associations. Now they are also at a
disadvantage compared with the rates offered by com-
mercial banks on time deposits, holdings which are pre-
sumably as safe as government bonds and are much more
liquid. Under the circumstances, government savings
bonds at present yields are likely to be purchased either
out of patriotism or out of ignorance. With banks begin-
ning to advertise their higher rates, the number of such
buyers is likely to drop precipitously.

As a result, the government will be under strong pres-
sure to "sweeten" the rate on government savings bonds,
and interest rates on these bonds may rise within a
relatively short time. However, a higher rate on govern-
ment savings bonds also has to be accompanied by higher
rates on marketable government bonds, with the result
that the entire structure of bond interest rates will be
moving upward.

Commercial bank rates will undoubtedly rise as well.
In addition to their linkage with bond yields, banks will
be under pressure to increase the rates they charge for
loans from at least two different sources. First, the higher
rates paid on savings accounts mean higher expenses, in
some cases substantially so. To cover this higher expense
additional revenue will be needed, and this comes pri-
marily from increased rates on loans. Second, the higher
interest rates being paid by banks will make it more
difficult to secure mortgage loans, with the result that the
current FHA interest charge for home loans may have to
be increased above the present ceiling of 5i4 percent.

More generally, this upward movement of the struc-
ture of interest rates may provide impetus for higher
prices. Thus, higher bond yields make it more expensive
for governments as well as private corporations to finance
capital programs ; higher rates on mortgages increase the
cost of homes; higher government bond rates increase the
cost of government; and so on. To be sure, such a con-
sequence need not be inevitable, for higher interest rates
could also depress economic activity and thereby bring
about lower prices. However, at the outset of what may
be a sharp cyclical upswing, such an eventuality is not
likely.

In Perspective

From a longer-run point of view, the impending up-
ward movement of interest rates appears to be part of a
pattern. In the early part of the century interest rates
moved up sharply, reaching a post-World War I peak in
1920 of almost 5^4 percent on long-term government (tax-
exempt) bonds. After that date, interest rates declined
in a rather erratic fashion over the years to barely 2 per-
( Continued on page 8)

t 2 ]

JZL.

ILLINOIS INDUSTRIES AND RESOURCES

OUR DAILY BREAD

Commercial baking began very early in this country.
Small bake shops appeared soon after the first American
settlements began to develop. From the mid-seventeenth
century until about 60 years ago, the industry changed
little, consisting chiefly of small, urban bakers, who often
operated shops in their own homes. Because of the
limited market that these bakers could serve and because
of the high perishability of their product, the typical
housewife, especially in rural areas, was forced to bake
her own bread, a practice which usually took up nearly
two days a week.

In the past 60 years, baking has come out of the
kitchen and has evolved into a major industrial operation.
Today, large bakeries look like modern manufacturing
plants, with automatic conveyors ; heavy machinery for
mixing, weighing, and wrapping ; and huge ovens baking
up to 5,000 loaves of bread an hour.

A number of factors have contributed to this dynamic
expansion of the American baking industry. Among these
are the progress in transportation that has made possible
fast, efficient mass distribution of bakery items, the grad-
ual population shift into urban areas that has given bakers
a larger, more accessible market, the great increase in
agricultural products needed by these bakeries, and the
improved baking techniques and machinery that have
made possible large-scale production.

A $6 Billion Industry

Baking is now one of America's giant industries. It
ranks well up among the nation's top ten manufacturing
industries and is the third largest in output among the
more than 30 food-processing industries. In 1958, its
shipments reached a record $5.7 billion, nearly 300 per-
cent greater than in 1939. Its employees today number
370,000, compared with 280,000 two decades ago.

The industry today is made up of more than 18,300
establishments scattered throughout the 48 continental
states. Although some — particularly the "dry" bakery
foods manufacturers — produce for national markets, the
majority serve only their immediate areas. In general,
the nation's bakeries are dispersed more or less in rela-
tion to the nation's population.

Nearly 12,000 establishments are small single-store
retailers who bake and sell over the counters of their
own stores ; these neighborhood units contribute about 1 1
percent of the industry's total sales. The remaining 6,300,
which usually transfer products to another place for sale,
tend to be larger and more factory-like. Of these, there
are three major types: plants that operate on a whole-
sale basis; retail multi-outlet bakeries, including grocery
chains, which have a centralized plant for their stores ;
and home-service bakeries that sell chiefly through retail
house-to-house routes.

The baking industry is one of the biggest industrial
customers of American farmers, annually purchasing
nearly $2 billion worth of agricultural products. Wheat
flour, a prime ingredient in bread production, accounts

for about one-third of the industry's total expenditures
for raw materials. In all, the nation's bakeries require
about 10 billion pounds of wheat flour a year for the
production of bread, which is produced at a daily rate of
45 million loaves. Other important materials bought by
the industry include sugar, shortening and lard, eggs, and
dried milk.

Although the industry manufactures a wide array of
products, especially in the cake, pie, and fancy cracker
lines, plants tend to specialize in one of two broad areas:
specialties ("dry" bakery products, such as biscuits, crack-
ers, and pretzels) or foods for immediate consumption.
The latter group of products, which includes bread, cakes,
and pies, accounts for 82 percent of industry sales. In a
typical year, bread accounts for nearly half of total sales
and is followed by machine-made cookies, soft cakes,
sweet yeast goods, pies, and biscuits, crackers, and
pretzels.

Production in Illinois

Illinois is a leading producer of bakery goods. In
1958, according to the latest census, the 1,400 bakeries in
this State turned out a product valued at an estimated
$470 million, a figure surpassed only by New York, Cali-
fornia, and Pennsylvania. More than 1,000 of these
establishments were single-outlet retailers which employed
about one-fifth of the 28,000 Illinois bakery workers and
shared an estimated one-eighth of the state's total sales.

The greater portion of Illinois production comes from
wholesale bakeries. These, with 358 establishments in
1958, were responsible for nearly half of total output.
Grocery chain bakeries, while ranking fourth nationally
in product value, produced only 6 percent of the state
total. Home-service bakeries, together with multi-outlet
plants, added another 2 percent.

During the postwar period, Illinois has made excep-
tional progress in the production of "dry" foods, an area
of manufactures in which the State has ranked first since
before World War II. In 1958, the value of shipments by
Illinois "dry" food bakeries stood at $166 million, an
increase of more than 200 percent since 1947 compared
with the national advance of 78 percent. Largely respon-
sible for this increase was the accelerated growth of a
number of nationally known firms in the Chicago area,
where all 16 of the state's biscuit-cracker bakeries are
located.

Bakery production occurs in many parts of the State.
Some of the 1,000 single-outlet retail stores can be found
in most counties, and the 374 "manufacturing" bakeries
operate in 54 counties. The industry, however, is princi-
pally centered in Cook County, the nation's leading county
in bakery output. Cook, alone, has more than half of the
Illinois bakeries, including 38 of the 43 largest plants, and
accounts for approximately two-thirds of annual produc-
tion. Other counties containing plants with more than
100 employees are Peoria, Sangamon, Lake, DuPage, and
Winnebago.

OW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, October, 1961, to November, 1961

COAL PRODUCTION

-4

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING
1 1 1

CONSTRUCTION CONTRACTS

■ARTMENT STORE SA

_ES

BANK DEBITS
i

■ ill.
□ us.

FARM PRICES

easonally adjusted. N.A. Not available.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3.
Weekly earnings — manufacturing
Dept. store sales in Chicago4. . .
Consumer prices in Chicago6 . . .

Construction contracts6

Bank debits'

Farm prices receiveds

Life insurance sales (ordinary)9.
Petroleum production10

Percentage

1961

change from

(1947-49

Oct.

Nov.

= 100)

1961

1960

250.1

-0.3

+ 2.7

88.1

-4.4

+ 2.4

97.0

-0.2

+ 0.3

180.0"

+0.3

+ 4.7

129. 0b

-0.8

+ 8.4

130.9

-0.3

+ 0.3

290.2

+6.5

-20.3

244.9

+0.2

+ 14.3

79.0

-2.5

- 1.2

348.6

+4.7

+ 5.0

121.2

-1.0

+ 3.9

1 Fed. Power Comm.; =111. Dept. of Mines; 3 III. Dept. of Labor;
*Fed. Res. Bank, 7th Dist.; B U.S. Bur. of Labor Statistics; e F. W.
Dodge Corp.; T Fed. Res. Bd.; 8 111. Crop Rpts.; 9 Life Ins. Agcy. Manag.
Assn.; 10 III. Geol. Survey.

a Data for October, 1961, compared with September, 1961, and Oc-
tober, 1960. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Nov.
1961

Annual rate

in billion $

429.0"

24.9
18.7
17.1

22. 4'
16. 1 =
6.3°

55. 5b
42.4"
36. 4b
51.5°

Indexes
(1947-49
= 100)
114.. d
109". d
121"- d
100-. d

102=
177°
181"
264
153"
128

Percentage
change from

Nov.
1960

- 0.7

- 2.9

-12.4

+ 15.6
+ 13.9
+20.1

+ 10
+ 0.6

0.0

+ 29.2

+ 0.9
+ 19
+ 0.8
+ 1-0

+ 1.4

+ 0.5
+ 0.9
+ 1-4

- 8.6
+ 1.3

- 0.1

+ 0.1
+ 0.5

- 0 4
+ 0.2

- 1.1
0.0

- 1.2

+ 10.3
+ 1.9

+ 12.9
+ 0.3
+ 3.6

+ 7.9

+ 15.8

- 8.0

+ 2.1

+ 10

- OS
+ 6.3

+ 8.6

+ 11.2

+ 8.0

+ 2.0

+ 7.9

+ 3.3

+ 4.0

+ 7.4

+ 4.2

+ 6.3

+ 0.7

- 0.7

- 2.7

- 1.1

- 0.3

- 1.1
+ 0.8

- 2.5

'U.S. Dept. of Commerce; ! Federal Reserve Board: 3U.S. Dept.

of Agriculture; 4 U.S. Bureau of Labor Statistics 5 F. W. Dodge Corp.

• Seasonally adjusted. b End of month. = Data for October, 1961,

compared with September, 1961, and October, 1960. d 1957 = 100. 'Re-
vised. ' Based on official indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1947-49 = 100

Freight carloadings thous. of cars

Department store sales 1947-49 = 100

Commodity prices, wholesale:

All commodities 1947

Other than farm products and foods. . 1947

22 commodities 1947

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number. .

49 = 100.
49 = 100.
49 = 100.

1,435
16,630
175
7,300
129
520
358

119.2
127.7
84.9

32,733
285

1,423
16,695

194
7,355

128

533

333

119.1
127.7
84.6

1,404

16,084

189

7,397
125
561
299

1,478
15,954

191
7,198

120

574

238

118.8
127.5
83.5

1,492
15,330

146
7,210

118

495

185

118.8
127.5

1,301
15,535
134
7,139
77
468
319

119.5"
127.9"
81.5

Source: Survey of Current Business, Weekly Supplements

R Monthly index for December, I960.

t 4 j

RECENT ECONOMIC CHANGES

Industrial Production Up

Following a rise in October the Federal Reserve's
seasonally adjusted index of industrial production rose
to 114 (1957=100) in November, 1961, thereby sur-
passing the peak just reached in August. Almost all of
the major industrial groups showed increases. The big-
gest gain was registered by transportation equipment,
which rose from 92 in October to 108 in November.

Industrial production showed an over-all increase of
12 percent during the nine-month period from the reces-
sion low of February through November. This rate of
improvement is about the same as during the comparable
period of the 1954-55 recovery, but is slower than in the
upturns of 1949-50 and 1958-59. In November, industrial
production was 4 percent ahead of its level at the pre-
vious business cycle peak in May of 1960.

Consumption Rises Slowly

In recent years, total consumption has increased about
in line with income, but the proportion of income used
for services has been rising and that used to buy goods
has been declining, as indicated in the accompanying
chart. After adjustment for price changes the difference
is less pronounced, as prices of services have continued
to rise, whereas prices of goods have increased little
since 1958.

Fluctuations in the demand for durable goods account
for most of the cyclical fluctuation in total consumption
expenditures. In the recent recession, consumer outlays
for such goods declined about as much as they did in the
more severe 1957-58 recession. After the first quarter of
this year, outlays by consumers for nondurable goods re-
sumed the moderate upward trend that has prevailed
throughout most of the postwar period.

CONSUMER EXPENDITURES

NONDURABLE GOODS

^ )—-

-A

DURABLE GOODS

1957 I95S 1959 I960 1961

Source: U.S. Department of Commerce.

The biggest continuous increase in consumer spending
has been for services. Since 1954 consumers have boosted
their expenditures for services by an average of 72
percent per year; during the same period, expenditures
for goods have risen 4 percent per year while total con-
sumption expenditures and disposable personal income
have risen by about 5 percent per year. Throughout the
postwar period, expenditures for services have risen
steadily, even increasing during recessions when personal
income leveled off.

Individual Savings Increase

Net financial saving by individuals in the United States
reached $6.3 billion in the third quarter of 1961, $3.1
billion more than in the second quarter, reports the Se-
curities and Exchange Commission. Individuals' financial
assets continued to mount mainly in the form of bank
deposits, savings and loan association shares, and govern-
ment securities. There was also an increase of $900 mil-
lion in net purchases of investment company shares, but
investments by individuals in other corporate securities
declined $1 billion.

Individuals' investments in United States government
marketable issues amounted to $900 million in the third
quarter, in contrast to net liquidations of such issues
since early 1960, partly reflecting the higher return avail-
able. Net acquisitions of United States savings bonds
amounted to $200 million, about the same as in the pre-
ceding quarter, and state and local government bond
holdings rose by $300 million.

Currency and bank deposits of individuals rose $3.8
billion during the third quarter, the largest increase since
the third quarter of 1958. Time deposits increased $2.1
billion, raising the total to only slightly below that of
earlier quarters of the year. Demand deposits increased
$1.5 billion as compared with a $1.4 billion decline in the
preceding quarter, and currency holdings rose $200 mil-
lion. Saving in credit union and savings and loan asso-
ciation shares amounted to $1.4 billion, bringing the in-
crease for the first three quarters of 1961 to a record
$6.1 billion compared with a $5.4 billion increase in the
same period in 1960.

Sales and Inventories to Expand

Manufacturers' projected sales for the first quarter of
1962 are expected to be about 1.5 percent higher than
the $96 billion of sales recorded in the last quarter of
1961. Inventory expansion is expected to total $1 billion,
the largest quarterly increase since the recession of
1960-61 reached its low. The durable goods industries
account for two-thirds of the anticipated increases for
the last and current quarters.

Durable goods producers, who showed a 3 percent
rise in shipments from the third to the fourth quarter,
look for another 2 percent rise in sales this quarter.
However, sales by soft goods producers are expected to
rise only 1 percent this quarter, the same as the last
quarter. The best relative sales gains are projected by
chemical, oil, and rubber producers.

Employment Increases

Since February of 1961, the low of the past recession,
nonfarm wage and salary employment has risen by more
(Continued on page 8)

[ 5 ]

REVENUE PROBLEMS IN THE STATE OF ILLINOIS

A. JAMES HEINS, Assistant Professor of Finance

During the past year, the Illinois state government
barely averted a Michigan-style financial "crisis," facing
the possibility for a while of not having additional rev-
enue to meet mounting expenditures. Although both
states had political difficulties arising from a legislative
and executive split, Illinois was more fortunate than
Michigan which faced a constitutional limitation on its
sales tax rate as well. As a result, no long-run changes
were made in the state tax structure, but Illinois did
relieve the problem of inadequate revenues on three
fronts: (1) by enacting a service occupation tax and a
hotel tax, (2) by new court rulings on the present sales
and use taxes and by legislation which has broadened
the base of those taxes, and (3) by raising the sales tax
rate from 3 to 3.5 percent and the cigarette tax a penny
a package. Revenues resulting from these tax changes will
add about $225 million to the general fund during 1962.

Recent Changes in the Sales Tax

Aside from the increased revenue, the changes in the
tax structure corrected some long-standing inequities in
the Illinois sales and use taxes. Until recently, service
occupations escaped sales and use taxes on materials
passing through their hands incidental to their service.
For instance, custom clothiers were not taxed on their
sales of clothes or their purchases of materials going into
the clothes. A similar exemption applied to photographers,
barbers, repairmen, and a host of other occupations. The
construction industry and sellers of machine tools were
particularly significant among the group exempt from the
sales and use taxes because of the large revenues lost by
reason of their exclusion from the tax base. If they pass
the test in the courts, the broadening bills and the service
occupation tax, along with new court rulings relating to
the construction industry, will correct most of these
inequities.

Although the revenues resulting from the recent tax
changes will likely suffice to solve current revenue prob-
lems, present taxes are not likely to provide sufficient
revenues to meet expenditure needs several years hence.
Governor Kerner recently asserted that the newly ac-
quired revenues will probably enable the State to "hold
on" during the current biennium, but little more. This is
perhaps a little pessimistic, but it does point up the prob-
ability that current revenues will soon be inadequate to
meet mounting expenditures.

Before looking at future problems, let us take a brief
look at the current burden of Illinois taxpayers as com-
pared with taxpayers in other states. In 1957, Illinois
state and local governments spent $2.2 billion, which
amounted to 9.2 percent of the personal income of its
residents. This compares with the 11.7 percent of personal
income that state and local governments in all 48 states
expended that year, and with the 15.8 expended in Mis-
sissippi, 15.5 in Kansas, 12.8 in California, 12.5 in Wis-
consin, and the 11.6 percent expended in New York. In
this regard, Illinois ranked 46th of the 48 states in 1957.

One might conclude from these facts that Illinois is
doing less than it could in the way of providing public
services; it devotes less of its income to public purposes
than virtually all other states. On the other hand, one
might just as easily conclude that Illinois is doing a good
job to get the public services it does with such a low

expenditure; or that Illinois citizens have somehow re-
sisted the "creeping statism" evident in public expendi-
tures in other states. The resolution of these questions
necessarily depends upon one's value judgments about the
proper role of government in our society.

Estimates of Future Expenditures

The National Planning Association {Long-Range Pro-
jections for Economic Growth, October, 1959) predicts
state and local spending of $86 billion in 1970, $4.4 billion
of which would probably be expended by Illinois state
and local governments if Illinois maintains its relative
position among the states in the providing of public
services. These figures depend upon many assumptions,
principally (1) better standards for present services and
some new services, (2) a rising population, and (3) a
productivity lag in the public sector of the economy.

Taking the $4.4 billion as a point of reference and
breaking it down into state and local components on the
basis of what happened in 1957, which may or may not
be reasonable (there may be a relative shift in favor of
more spending at the state level), the state government
will spend an estimated $2.3 billion in 1970. This means
that, neglecting borrowing, the state government will
have to produce about $2.3 billion in revenues in 1970
compared with the $1.25 billion raised in 1960 and a
tentative $1.5 billion in 1962. Assuming a rate of growth
of 3 percent a year in productivity of current revenue
sources (others have predicted a larger growth), the
present revenue structure will yield about $1.9 billion in
1970. If a 4 percent growth rate is assumed, which seems
slightly high, the present structure would yield an esti-
mated $2.08 billion in 1970. These estimates assume a
rate of growth in federal grants to Illinois comparable
with other revenue sources.

The upshot of these predictions is that the Illinois
state government will have to produce revenues of $220
million to $400 million (depending upon assumed growth
rates) over and above the revenues that can be produced
by current taxes. Perhaps the federal government will
provide new grants for education, welfare, and the like.
However, the most likely sources of this added revenue
are increased sales tax rates, selective and general ; adop-
tion of an income tax on individuals and corporations; or
stopgap measures, such as license fees and franchise taxes.

The Future Tax Burden in Illinois

Before looking at the various possibilities, it would
be worth while to examine the problem in general terms.
How hard will it be for Illinois to produce this added
revenue? If we assume a 3 percent rate of economic
growth, which is very conservative, personal income of
Illinois residents will be about $35.6 billion in 1970. The
estimated state and local expenditures of $4.4 billion in
1970 would amount to 12.3 percent of estimated personal
income. This compares with the 9.2 percent burden of
Illinois and the 11.7 percent burden of all states in 1957.
This means that if expenditures grow to $4.4 billion in
Illinois by 1970, and if personal income grows to $35.6
billion in 1970, the burden of state and local expenditures
in Illinois, as a percentage of personal income, will be
only slightly higher than the burden in the typical state

[ 6

in 1957 and lower than that in many states — California,
Washington, Wisconsin, and Iowa, for example — in
1957. A reasonable conclusion is that, if many states
could do it in 1957, Illinois should find the problem
relatively simple, from an economic standpoint. If one
were to allow for a rate of growth in personal income
greater than 3 percent, or a smaller increase in spending,
the problem would be smaller still.

Of course, the State could decide to upgrade the serv-
ices provided by state and local governments in Illinois
to the level of the typical or the more liberal states.
This would require more revenues than the $4.4 billion,
perhaps $5.2 billion to $5.6 billion by 1970, and the prob-
lem of providing the revenue would become economically
and politically more difficult.

Possible Sources of Added Revenue

Where will this added revenue come from? Governor
Kerner, supported by many politicians and economists,
has proposed the adoption of a graduated income tax on
individuals and a corporate income tax. The income tax
is of known dependability in the production of revenue,
has desirable- — properly defined — distributional effects,
and is relatively easy and economical to administer.
Twenty states, including California, Colorado, and Iowa,
have an income tax on individuals and corporations as
well as a sales tax.

Illinois adopted a graduated income tax in 1932, but
that tax was ruled unconstitutional by the Illinois Su-
preme Court on the grounds that income is property, and
the uniformity provision in the state constitution limits
taxes on property to an ad valorem basis. So it seems
that a constitutional amendment would be required in
Illinois if a progressive income tax were to be adopted.
Twice in the last 10 years, constitutional amendments
which would have liberalized the revenue powers of the
state government, but would have prohibited a graduated
income tax, were voted down. Whether the graduated
income tax is politically feasible in the next decade is
problematical ; however, it may turn out to be necessary,
and necessary things have a way of getting into law.
Perhaps, in view of the dominance of the steeply pro-
gressive federal income tax, a simpler expedient would
be the adoption of a proportional income tax with a large
exemption ; this tax may not require constitutional
amendment.

What about an increase in the general sales tax rate?
With the change in the state rate to 3.5 percent this last
summer and with the 0.5 percent on local option added,
Illinois has a sales tax rate equal to the highest in the
country. Only four other states have sales tax rates as
high as 4 percent — California (3 percent plus 1 percent
on local option), Washington, Pennsylvania, and Michi-
gan. Probably the limiting factor is the status of sales
taxes in adjoining states; if they raise rates, Illinois will
find it easier to do so. How high the sales tax rate could
go is difficult to say.

The desirability of raising sales taxes is still another
question. From a distributional standpoint, most people
would say its regressive elements make it inequitable, and
therefore other avenues, the income tax in particular,
ought to be explored. With respect to the equity of tax
distribution, however, one must consider not only the tax
in question, but also its place in the total tax structure.
The fact that state taxes are deductible from the federal
income tax tends to reduce the apparent progressivity of
a graduated state income tax. While distributional as-

pects are important, the fact that the federal taxes play
such a large role in this regard tends to make other
aspects of state taxation relatively more important. As to
administration and productivity aspects, the retail sales
tax compares favorably with other taxes.

Substantial revenues can be raised from selective sales
taxes on tobacco, alcohol, and motor fuels in particular.
These taxes have shown persistent rises in the past, and
it is likely they will continue to rise in the future. The
equity of such taxation is difficult to assess, because equity
depends upon economic impact, which is not easy to de-
termine, and upon numerous value judgments. Neverthe-
less, to the extent that selective taxes are placed on
luxuries — whatever they are — and to the extent that
they measure benefits received, as in the case of motor
fuel, most would hold that selective sales taxes have a
place in state tax structures. Although selective sales
taxes have been important revenue producers in the past
and will continue to produce in the future, it is quite clear
that the required increases in revenue will have to come
largely from other sources. As with selective sales taxes,
other stopgap sources such as motor vehicle license fees
and other licenses and charges do not seem promising
enough to fill the long-run needs of the State in and by
themselves.

The Need for Tax Revision

In looking for ways to produce the added revenue
which appears to be necessary in the next 10 years, we
must not overlook the question of the desirability of the
present tax structure in Illinois. Merely because current
revenues are sufficient to meet current expenditures, one
cannot conclude all is well on the tax front. It may well
be that the same revenues could be produced by a tax
structure that is somehow more desirable on equity
grounds, more conducive to economic growth in the pri-
vate sector of the economy, and easier to administer.
This is a crucial question, one which state governments in
various states, including Illinois, have attempted to an-
swer by appropriating funds for research in this area.

Because of our heavy reliance on sales taxes at the
state level and on property taxes at the local level, the
Illinois tax structure is probably more regressive than
that in most states, particularly states which embrace a
graduated tax on individual income and a corporate in-
come tax. Some of this differential, but certainly not all,
is offset by the steeply progressive federal income tax.
Recent studies have indicated that the sales tax impact
is nearly proportional over the middle ranges of the
family income spectrum — from perhaps $2,000 to $10,000
a year; its regressiveness becomes apparent on incomes
over $10,000 and under $2,000. A state income tax, even
without graduation, but with a substantial exemption, say
$5,000, would remove much of the regressivity of the
Illinois tax structure. California has used a similar com-
bination of sales and income taxes with satisfactory
results.

Opponents of income taxation in Illinois argue that
a graduated income tax on individuals and a corporate
income tax would reduce incentives for industrial growth
and, possibly, drive some industry from this State to tax
havens in other states. This is certainly an important
question; adoption of a tax structure known to discourage
economic growth or a tax structure which would encour-
age industrial relocation in other states would be ill-
advised. Unfortunately, very little is known about the
effects of taxes, if any, in this regard. So far as Illinois

[ 7 ]

is concerned, this factor is probably of minor importance
because, as the figures on tax burdens in relation to in-
come indicate, Illinois is already a tax haven in which
refugees from other states should congregate.

It might also be argued that reliance on two major
taxes, such as the sales tax and the income tax, would
be less efficient administratively than the use of one or
the other of the taxes. This line of reasoning is based
upon the notion that large increments in revenue could
be attained through a hike in either the sales tax or
income tax rate without corresponding increases in ad-
ministrative costs, whereas adoption of a second form of
taxation would require a new administrative setup with
all the costs involved. This argument is persuasive, es-
pecially at the margin; but even if it were true, it is
not necessarily the controlling factor. The same amount
of revenue received by the State of Illinois from its
myriad forms of taxation could have been derived from
the sales tax — with sufficiently high rates — at signifi-
cantly lower administrative costs. However, this would
not justify the abolition of all minor forms of taxation
and complete reliance on the sales tax, because these taxes
have other roles — control, licensing, equity — over and
above their revenue-producing power.

Recommendations must be based on all factors in-
volved — equity, economic climate, taxes in other states,
administrative efficiency, revenue productivity, and others
— bearing in mind that state taxes are intertwined with
the federal and local tax structures. The State of Illi-
nois would do well to consider the adoption of a propor-
tional income tax on individuals, with a large exemption,
and on corporations, as a supplement to the sales tax.
Such a change could be adopted now, with a modification
of the sales tax rate, or later when the need for revenue
requires new taxes or higher tax rates. Proportionality
would have the advantage of being at least possible under
current constitutional provisions on taxes.

As for the sales tax, some improvement in administra-
tion could be accomplished with increased appropriations
to the Department of Revenue for a larger and better-
qualified staff. The increased funds would provide for a
better audit and enforcement system with a resulting in-
crease in revenues and more equitable administration.
With regard to inequities in the Illinois sales and use tax
base, the recent revisions by the legislature and new
court rulings did much to improve those taxes on that
score.

Higher Prices for Cheaper Money

(Continued from page 2)
cent in 1941. During World War II and the 1940's, inter-
est rates remained fairly stable. Since then, however,
interest rates on long-term bonds have risen from a low
of about 214 percent in early 1950 to a temporary peak of
almost 4i/2 percent in early 1960. It is perhaps needless
to note that these increases have not taken place without
fluctuations, the current level of approximately 4 percent
representing probably an interim stage in a new short-
term upswing that began last spring.

The continuing rise in interest rates during the past
decade is attributable primarily to the tremendous invest-
ment boom of the American economy. All indications are
that we arc in the midst of a new industrial revolution
which will require many tens of billions of additional
dollars until it has run its course. The supply of available
funds is barely sufficient to keep up with this huge de-

mand. As a result, any imbalances are likely to be on the
side of inadequate funds, which can only mean higher
interest rates.

To some extent also, the rising interest rates may
represent a discounting of the continuing increase in the
price level. The more the price level rises, the larger is
the interest rate needed to maintain the purchasing power
of one's savings. Given the present institutional frame-
work which makes prices rigid on the downward side, a
continuing need for such adjustments is likely to exist.
Whether interest rates in the foreseeable future will rise
to the 1920 peak of over S\/2 percent on (tax-exempt)
governments is doubtful, but there is little doubt that as
the dollar goes lower pressure will increase for interest
rates to move higher. rf

Recent Economic Changes

(Continued from page 5)
than 2 percent to 55.7 million. During this period em-
ployment in durable goods manufacturing increased over
300,000 to 9.1 million, as indicated in the chart. The
durable goods manufacturing sector which accounts for
17 percent of wage and salary employment, contributed
over 30 percent of the gain in employment.

Following each previous postwar recession there has
been a greater-than-proportional change in durable goods
manufacturing. As indicated in the chart, from the high
in mid-1960 to the low of February, 1961, durable goods
manufacturing accounted for about 70 percent of the
total change in wage and salary employment. Increases
in employment, aside from cyclical upswings, have been
centered in government, trade, and service in recent years.
The most favorably situated labor markets today are those
areas in which these types of employment are particularly
important.

MANUFACTURING EMPLOYMENT

THOUSANDS

NONDURABLE

1958 1959 I960

Source: U.S. Department of Commerce.

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Long-Term Advance in Interest Rates

During the last decade, interest rates in the United
States have risen appreciably from the low levels that
prevailed in the 1930's and 1940's and have undergone
large swings during successive business fluctuations. The
increase in yields has reflected the gradual working down
of wartime accumulated liquidity and a continued heavy
demand for credit in all sectors of the expanding postwar
economy. Large amounts of credit were used to finance
additions to corporate working capital and fixed plant,
residential and commercial construction programs, expan-
sion of governmental facilities and services, and the rapid
growth of consumer debt.

Cyclical swings in domestic interest rates have re-
flected changes in the demand and supply of credit as
well as changes in investor expectations. During each
business recession, as shown in the chart, private demand
for credit has declined and the Federal Reserve System
has acted to increase the supply of bank reserves. This,
along with continued large or even rising flows of sav-
ings, has increased the supply of loanable funds and has
contributed to a substantial easing in the credit markets.
As employment and output rose in recovery periods, the
demand for credit generally grew rapidly, with the result
that credit conditions tightened and interest rates rose.
These fluctuations have produced markedly different pat-
terns of rates on securities, as illustrated in the chart.

Developments in the credit markets during 1960-61
have differed significantly from earlier recession-recovery
periods. The downward adjustment in interest rates in
1960 in response to the slower pace of economic activity
was not as pronounced relative to its previous peak as in
1953-54 and 1957-58. Also, interest rates did not rise
appreciably in the second quarter of 1961 despite the
economy's rapid recovery from the recession and sharply
increased long-term borrowing by business firms and state

INTEREST RATES

l»5J 1954 1955 1956 1957

Source: Federal Reserve Bank of Chicago, Husincss
Conditions, September, 1961, p. 12.

and municipal agencies. Through the end of September,
1961, yields on short-term securities continued to fluctuate
around the lows reached more than a year earlier, and
yields on long-term securities registered only modest in-
creases from the recession lows reached in the late winter
of 1960-61.

State Capitals Show Population Gains

Forty-one of the nation's 50 state capitals increased
in population during the previous decade, reports of the

1960 Census of Population reveal. Fastest growing of
the capitals were Phoenix and Annapolis. Phoenix started
the decade with 106, 818 residents and ended with 439,170
for a 311 percent increase. Annapolis more than doubled
its population, from 10,047 in 1950 to 23,385 in 1960.

The largest city among the capitals is Boston, Massa-
chusetts, with 697,197 residents, and Carson City, Nevada,
is the smallest, with 5,163 people. The capital showing
the largest decrease in population was Providence, Rhode
Island, down 16.6 percent to 207,498 residents. In Illinois
the state capital, Springfield, increased only 2 percent
over the 1950 total, reaching 83,271 residents.

Linguist Pool to Help Business Visitors

A foreign language pool of Commerce Department
employees expert in one or more of 27 languages has been
organized to assist foreign businessmen and travelers in
the United States. The Business Service Center, which
is in charge of this new program, not only has available
employees who speak French, Spanish, and Italian, but
also some who speak such tongues as Persian, Finnish,
Arabic, Ukrainian, Serbo-Croatian, and Latvian. This
new service is expected to speed up the businessman's
contacts, both foreign and domestic, with the government.

Foreign Aid Increases

Transfers abroad under the mutual security, food-for-
peace, Export-Import Bank, and other military and eco-
nomic assistance programs of the government in fiscal

1961 rose 4 percent from the previous year to $5.2 billion.
This amount includes transfers of goods and services and
cash payments, but does not include payments of $74
million to the International Development Association.

Every major program which provides some form of
assistance to foreign economies contributed to the in-
crease in the new "nonmilitary" assistance transfers in
the 12 months ended June 30, 1961. Deliveries against
sales for foreign currencies rose for the third consecu-
tive year to $656 million. Almost $350 million of assist-
ance was also extended under authorizations providing
for direct grants abroad of our farm products.

Population Reaches 185 Million

The population of the United States, including armed
forces overseas, reached an estimated 185 million on De-
cember 1, 1961, an increase of 5 million over the count
of the decennial census taken in 1960. In approximately
fifty years the population has doubled, going from 93.5
million in 1910 to 185 million in 1961. It is now increas-
ing at a rate of 3 million a year. Five years hence, at the
same rate, the population will reach 200 million.

L 9 J

LOCAL ILLINOIS DEVELOPMENTS

Tollway Revenue Up

The net revenue from Illinois tollways for November,
1961, was $1.4 million compared with slightly less than
$1.3 million for November, 1960, an increase of about 10
percent, according to the Illinois State Toll Highway
Commission. Total net revenue for 1961 is estimated at
$18.6 million, a 22 percent increase over the 1960 figure
of $15.2 million.

The gross revenue estimate for 1961 is $24.6 million,
an 18 percent increase over the 1960 total of $20.9 million.
Since its opening in 1959, the state's 187-mile tollway
system has shown an increase of 81.5 percent in revenue.
Total revenue for the tollways in 1962 has been estimated
at $27.3 million.

Record Crop Yields

Yields of all major Illinois crops reached record or
near-record levels in 1961 as a result of favorable grow-
ing conditions and a long maturing period. According to
the Illinois Cooperative Crop Reporting Service, the
state's 1961 crops are tentatively valued at more than $1.3
billion, 9 percent more than 1960 crops.

A record corn yield of 77 bushels per acre was
achieved in 1961. This exceeded the previous high (in
1958) by 8 bushels. The outstanding 1961 corn crop was
grown on 8.3 million acres, 17 percent fewer than the
year before and 4 percent under the 1950-59 average.
The 1961 soybean crop of 159 million bushels represented
another Illinois record, 17 million bushels more than the
previous high produced in 1958. At the same time, the
yield of 28.5 bushels an acre equaled the high of 1956.

Wheat production was up sharply, amounting to 61
million bushels, 15.6 million bushels more than the 1959
crop. The 1961 crop was harvested from 1.7 million
acres, 8 percent more acreage than was harvested in 1960.

PER CAPITA PERSONAL INCOME

,600

UNITED STATES

957 1958 1959 I960

Source: U.S. Department of Commerce, Survey of Cur-
rent Business, August, 1961, p. 13.

The average acre yield of 36 bushels was 34 percent
above 1960 and 45 percent above the 10-year average.

The 1961 oat yield of 56 bushels per acre was 8 per-
cent more than the year before and equaled the previous
high of 1955. The crop totaled 90 million bushels, 5.3
million bushels less than the 1960 crop; but the 1961 crop
was harvested from 1.6 million acres, 14 percent fewer
than in 1960 and the smallest acreage since 1874. Hay
production amounted to 4.2 million tons, 10 percent less
than in 1960. The 1961 crop was produced on 2.0 million
acres, 6 percent fewer than in 1960. The yield was slightly
less than the record yield of 2.16 tons per acre the pre-
vious year.

Illinois produced 62 percent more soybeans than any
other state and tied with Iowa for highest yield per acre.
The State ranked first in corn yield per acre except for
two western states which grew small acreages under irri-
gation. In wheat grown without irrigation Illinois tied
with Michigan for top yield per acre and tied with Wis-
consin for highest yield of oats per acre.

Larger School Enrollment

The number of public school pupils enrolled in Illinois
for the 1961-62 school year rose to 1,810,064, an increase
of 68,355 over the previous year and 595,827 over the
1950 enrollment figure. Of the pupils currently enrolled,
1,293,762 are in elementary schools and 516,302 in sec-
ondary schools.

State School Superintendent George T. Wilkins has
reported that 39,634 students are attending classes less
than a full day this year as a result of double-shift
programs necessary because of classroom shortages. Of
the total, 24,811 of the double-shift students are in
Chicago.

Personal Income Rises

The preliminary estimate for Illinois personal income
for 1961 is $27.3 billion, according to Business Week's
late yearend measure of personal income. This would
represent an increase of 3.5 percent over 1960.

The Business Week forecast for 1962 Illinois personal
income is $29.0 billion, an increase of 6.2 percent over
1961. Corresponding percentage changes for the nation
are an estimated increase of 3.0 percent for 1961 and a
forecasted increase of 6.5 percent for 1962.

In 1960 Illinois personal income reached a new high
of $26.4 billion, 3 percent above the 1959 figure. Wage
and salary disbursements amounted to $18.5 billion. Of
this total, $6.8 billion was contributed by manufacturing,
$3.6 billion by wholesale and retail trade, $2.3 billion by
government, and $1.9 billion by services. Farm and non-
farm proprietors' income totaled $2.7 billion and property
income amounted to $3.3 billion.

In 1960 Illinois again retained its third place rank in
total personal income among the 50 states and the Dis-
trict of Columbia, preceded only by New York and
California. On the basis of per capita income Illinois
ranked eighth, with an average per capita income of
$2,613. This also was a record high for the State, 1.6
percent above 1959 and 15 percent above 1955 (see chart).

Illinois has always ranked well above the national per
capita income average. Between 1940 and 1960, however,
total personal income in Illinois rose 343 percent, whereas
the increase for the nation as a whole was 407 percent.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
November, 1961

ILLINOIS

Percentage change fr

NORTHERN ILLINOIS
Chicago

/Oct., 1961.
INov., 1960.

. /Oct., 1961 .

Percentage change from. . • • jNoV-i 1960.

Aurora

Percentage change fi
Elgin

/Oct., 1961..
\Nov., 1960.

, /Oct., 1961.

Percentage change from. . . . ^jjov., i960.

J0f : ; foctVmi:

Percentage change from. . . . <Nov_ 1960.

Kankakee

, fOct., 1961..

Percentage change from. . . . < j^ov. 1950.

Rock Island-Moline

. , /Oct., 1961.

Percentage change from. . . . ^NoV-] 1000.

Rockf ord

, /Oct., 1961.

Percentage change from ^Nov., I960.

CENTRAL ILLINOIS
Bloomington

/Oct., 1961.
Percentage change from. . . . < Nov.? 19oo.

Champaign-Urbana

„ . , /Oct., 1961.

Percentage change from JNov., 1960.

Danville

, /Oct., 1961.

Percentage change trom. . . ■ JNov., 1950.

Decatur

. /Oct., 1961.

Percentage change from. . . .<Nov.f 19^0.

Galesburg

. . /Oct., 1961.

Percentage change from. . . • W0v., 1960.

Peoria

. /Oct., 1961 .

Percentage change from.. . -<Nov., 1960.

Qufy : ; roct:;i96i::

Percentage change from. . . . <Nov 1950.

Spfgfield-li : roct:,i96i:

Percentage change lrom. . . - < Nov_ 1950.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from.
Belleville

Percentage change from

/Oct., 1961.
■\Nov„ 1960.

/Oct., 1961.
\Nov., 1960.

Building

Permits1

(000)

$28,730"
-28.7
-29.6

$21,777

-15.5
$ 163

-78.1

-91.7
$ 720

+44.3
+ 130. S
$ 991

-25.2
+ 102.7
$ 123

-67.5

-52.1
$ 1,049
-4.6
-9.5
% 994
-7.8

-36.6

$ 227
+83.1

+305.4

$ 174
-26.3
-21.6

$ 89
-19.1
+29.0

Electric
Power Con-
sumption2
(000 kwh)

,290,627'
-1.5
+ 6.1

26,562

-5.5
+2.5
58,459"
+8.0
-5.9

Estimated
Retail
Sales3
(000)

$ 374

12,032

+20.6

-1.4

+72.4

+ 13.2

$ 235

16,544

-63.8

-1.3

-44.4

+ 9.7

$ 98

17,185

-78.7

+1.1

-45.9

+20.2

$ 128

34,609

-78.6

-10.0

-97.6

-7.7

$ 122

9,508

-63.0

-1.7

-12.9

+0.6

$ 1,198

57,522"

+99.3

-6.8

+277.9

+5.1

$ 209

14,789

-18.0

+ 14.2

-30.1

+9.3

$ 670

44,286

-27.3

+0.1

-66.8

+ 15.4

16,884
-6.9
-1.4

23,957

+12.1

11,537

-7.0

-6.6

$558,462
+2.2

+4.5

$398,184
+1.9

+3.6
$ 8,645

+0.5

-2.3
$ 6,307

+4.4

+ 11.8

$10,977

-2.1

+ 15.5

$ 5,472

+4.1

+ 11.5

$11,055

+0.4

+4.6
$19,287

+3.9

$ 6,252
-0.2
+9.4

$10,628
+ 19.1
+24.4

$ 6,386
-1.5
+ 6.1

$12,205
+2.1
+ 6.7

$ 5,011
-0.1
+ 11.9

$17,633
+2.1
+4.9

$ 6,056
+5.7
+ 10.2

$14,908
+2.1
+9.2

$ 8,967
+2.7
+ 1.3

$ 5,335
+ 10.0

$ 5,155
+2.7
+8.6

Depart-
ment Store
Sales4

+12

+ 7

Bank
Debits5

(1100,000)

$21,403"
+0.2
+14.3

$19,830

+0.7

+ 15.1

$ 83

+ 5.2

-0.8

$ 57

+0.7

+0.9

$ 92

-7.3

+4.1

$ 125"
+4.1
-0.8

$ 206
-2.8
-1.5

$ 87
-15.1

+ 7.5
$ 94
-10.7

+5.0
$ 55
-13.9

+8.5
$ 129
-13.8

+ 7.5

$ 262
+0.8
+ 17.0
$ 60
-5.4
+ 15.0
$ 138

+5.3

$ 140
-4.6
-2.1

$ 47
-2.1
+ 6.0

» Tntal for cities listed b Includes East Moline. » Includes immediately surrounding territory, n.a. Not available.

SJurcaes> Local sources. Data include federal construction projects. 2 Local P^^^^^V^^S^^-
Data are for September, 1961, the latest available. Comparisons relate to August. 196 an.l Sep cm »,. > ■ ly > • > >

ment of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source. Federal Reserve Board,
reports. Four-week accounting periods ending November 10, 1961, and November 11,

19(.)0.

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949=100

EMPLOYMENT MANUFACTURING

U.S.

ILL.

II 1 1 1 1

1 1 1 l 1 1 l

l l i 1 i i l

"revised series

AVERAGE WEEKLY EARNINGS-

-MANUFACTURING

.LL./

U.S.

"revised series

1959 I960

-ANNUAL AVERAGE-

DEPARTMENT STORE SALES (ADJ.)

•

ILL.^,

U.S.

COAL

PRODUCTION

ILL.

U.S. V

\/s

h^^fb/

i 1 i 1 i i i

'29 '36

'58 1959 I960 1961

-ANNUAL AVERAGE-

'36 '43 '51
ANNUAL AVERAGE-

RS 1959 I960 1961

BUSINESS LOANS

CASH FARM INCOME

\ ••'' A

\ '

/Till.

i i i i i i 1 i m i i i.i

REVISED

SERIES

1959 I960

'29 '36 43 '51 58
I ANNUAL AVERAGE 1

CONSTRUCTION CONTRACTS

I960 1961

-ANNUAL AVERAGE-

ELECTRIC POWER PRODUCTION

f A

ILL./ ../

/^U.S.

7 v

i ih-rf

"revised

series

^yv

\\J-.A
L/' U.S.

i 1 1 i i 1 1

i i i Ti i

'43 '51

-ANNUAL AVERAGE-

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

February, 1962

HIGHLIGHTS OF BUSINESS IN JANUARY

level in November. Sales by manufacturers rose $380
million to $32.6 billion, with gains being made by the pri-
mary metals, electrical machinery, aircraft, and most
major nondurable goods industries.

After seasonal adjustment, the book value of inven-
tories held by manufacturing and trade firms at the end
of 1961 rose by almost $500 million to a record $95.6 bil-
lion, up $1.5 billion from the year-earlier figure. Half of
the increase in December was in manufacturers' stocks,
principally those of nondurable goods producers. The rest
was about equally divided between wholesalers and
retailers.

Business expansion hit a snag in January. The season-
ally adjusted index of industrial production fell back
1 point to 114 percent of the 1957 average despite a fur-
ther advance in steel production and an output of 628,000
passenger cars, half again as many as were turned out in
January, 1961. Retail sales, after seasonal adjustment,
declined for the second consecutive month, falling to $18.7
billion. Personal income was off $1.5 billion to a season-
ally adjusted annual rate of $430.25 billion.

The seasonally adjusted rate of unemployment fell to
5.8 percent of the civilian labor force, the first time it
has been below 6 percent in many months. However, the
drop was mainly the result of continued large withdrawals
from the labor force, and hard-core unemployment per-
sists in many areas.

Construction Steady

The value of new construction put in place dropped
from $4.7 billion in December to $4.2 billion in January.
However, this decline was slightly smaller than the usual
12 percent shrinkage between December and January. As
compared with the year-earlier month, January construc-
tion was up 8 percent.

New private construction expenditures in January
amounted to $3.1 billion, 8 percent less than the preceding
month but 11 percent more than January, 1961. The
normal seasonal decline between December and January
in this type of construction is estimated at 10 percent, as
it is for nonfarm residential building, the largest com-
ponent of private construction. The value of the latter
totaled $1.8 billion, below December but 21 percent more
than a year ago.

Spending on new public construction in January
amounted to $1.1 billion, down 18 percent from December
and 1 percent from January, 1961. The drop from the
December total was about normal for the season and was
largely the result of big cutbacks in construction of high-
ways and military facilities.

Sales Decline Slightly

Total sales of manufacturing and trade firms were
off $310 million in December to $64.1 billion, after sea-
sonal adjustment. The decline reflected reductions of $440
million in sales by wholesalers to $12.7 billion and of
$250 million by retailers to $18.9 billion, the former cen-
tered in nondurable goods and the latter due mainly to a
drop in automobile dealers' volume from the near-record

More Consumer Debt

December brought the usual sharp holiday rise in the
short- and intermediate-term debt of consumers, the un-
adjusted total increasing $1.7 billion to $57.1 billion.
After adjustment for seasonal influences, the rise was
estimated at $395 million, two-thirds of which was in
instalment debt and one-third in noninstalment debt.

Automobile paper outstanding increased an adjusted
$110 million, compared with $152 million in November,
the difference reflecting lower automobile sales in Decem-
ber. Other consumer goods paper rose an adjusted $82
million and personal loans $80 million.

At the end of 1961 the instalment debt total of $43.2
billion was $575 million above the year-earlier figure, de-
spite a drop of $484 million in outstanding automobile
paper. Noninstalment debt at $14.0 billion was up $807
million over the year.

Prices Show Little Change

The business recovery and expansion has had little
impact on prices so far. Although the consumer price
index gives signs of continuing the upward creep that has
characterized it in the past few years, the December index
at 128.2 (1947-49 = 100) was off one-tenth of a point, as
was the November figure. Over the year, the index rose
about half of 1 percent, mostly as a result of the upward
trend in prices for services.

The wholesale price index in December stood at 119.2
(1947-49= 100), 1 percentage point above the low for
1961 in June but still below December, 1960. Most of the
ise from June was in prices of farm products and
processed foods. A further slight increase in wholesale
prices in January was indicated by the weekly index,
which was at 119.5 at the end of the month.

ECONOMIC TRENDS IN THE FILM INDUSTRY

By Michael Conant

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

A 25-Hour Workweek?

Are we ready for a substantial cut in the workweek?
Continuing high levels of unemployment have spurred
union leaders to demand such a reduction. If hours of
work could be reduced generally to 30, or even to 25, the
unemployment problem would be solved, according to
these views. More recently, the movement to a shorter
workweek has received wide publicity as a result of the
success of the electrical workers union in New York in
negotiating a basic 5-hour day, 25-hour workweek, the
first in the history of the construction industry. This suc-
cess puts pressure on other unions to seek corresponding
workweek reductions for their members.

To be sure, some union agitation for a sharp reduction
in the workweek may be largely a bargaining tactic. It is
often not clear whether a shorter workweek is of principal
interest or whether this demand is a device for securing
more money for the same hours of work. In any case, our
focus here is on the desirability of widespread, substantial
cuts in the workweek while maintaining weekly pay.

The Issue

The length of the workweek is essentially a question of
preference. The greater the value that is placed on leisure
by a society, the shorter is the desired workweek. On the
other hand, as desire for material goods increases, a
longer workweek will be considered as optimal. At the
same time, various other considerations serve to modify
these basic goals, particularly the resources of a society
and its ability to increase productivity.

The workweek in the United States, one of the most
materially minded countries in the world, is shorter than
in most other nations. By all appearances, material de-
sires in this country have not declined over the years —
if anything, they seem to have increased. Nevertheless,
continuing advances in productivity have made it possible
to reduce the workweek gradually over the years to an
average of barely 40 hours at the present time.

Further gradual reductions in the workweek will un-
doubtedly take place; about this, there is no issue. The
point at issue is the demand for substantial reductions in
the workweek with no cut in weekly pay. From the view-
point of various union leaders, such reductions are needed
to counteract the continued high level of unemployment.
According to them, the full effects of the swing toward

automation have not yet been felt, partly because highly
automated factories are not yet common and partly be-
cause the recent business upswing has mitigated the
unemployment problem.

From a long-run point of view, they feel that unem-
ployment can only be reduced by cutting the workweek.
Furthermore, if weekly pay is maintained, a basic assump-
tion in their argument, the additional leisure available to
workers would lead to increased spending which, in turn,
would increase the demand for all types of goods and
services, thereby permitting industry to spread the in-
creased hourly rates of pay over more units of production.

Some Misconceptions

From a long-term point of view, these arguments may
have merit. Within the framework of the present situa-
tion, however, they do not seem to take full account of
current realities.

Past reductions in hours of work have been made pos-
sible, everybody is agreed, by increased productivity. The
effects on cost and output of a substantial reduction in
working hours at this time could not possibly be offset by
high productivity for many years.

To see why this is so, one only has to look at the
arithmetic of a shorter workweek. If a worker currently
on a 40-hour week earning $2.50 per hour has his hours
reduced to 30, the hourly rate (assuming maintenance of
weekly pay) would increase to 100/30 or $3.33 per hour.
Much of this increase of 33 percent will be passed on in
the form of higher prices, since it is hardly likely to be
offset by productivity gains. Current increases in pro-
ductivity average about 3 to 4 percent annually, and even
the most optimistic economists do not expect productivity
in the near future to advance by more than 5 percent per
year.

The immediate result of a widespread reduction in the
workweek would be a lowered standard of living for mil-
lions of workers as output drops and the purchasing
power of their weekly pay is reduced. It would undoubt-
edly impair the nation's current rate of growth and its
international balance-of-payments position.

Moreover, it is doubtful whether a sharp cut in the
workweek would have much effect in reducing the amount
of unemployment. This is so for three reasons. First,
there is ample evidence that even on a 35- to 40-hour
week many, if not most, workers are more interested in
increased income than in working fewer hours. Thus, in
the rubber industry, where some plants have been on a
6-hour schedule for many years, substantial numbers of
workers appear to have second jobs of all types — often
in nonunion plants ! Such a tendency would undoubtedly
become much more widespread should other workers go
on a 6-hour or on a 5-hour day. Many more people would
be looking for second jobs.

Second, unemployment is a fluid concept: it attempts
to measure how many people are looking for work and
have been unable to find it. A very short workweek
would undoubtedly bring many more entrants into the
full-time labor force, particularly married women and
older people who would realize that a 6-hour workday is
not incompatible with maintaining a household or other
activities. The net result could be, paradoxically, an in-
crease in total unemployment despite spreading of the
work.

Third, there is no assurance that spreading of the
work is particularly feasible. Thus, a chronic shortage of
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

PAPER BOX PRODUCTION

The paperboard box plays an essential role in modern
commerce. A lightweight but strong material, it offers
an economical means either of protecting individual items
from exposure and deterioration or of bundling a number
of products together for shipment. Today, paperboard
boxes are produced in diverse shapes, sizes, and paper
grades to fit the shipping or marketing needs of almost
every conceivable piece of merchandise.

The Industry in Perspective

Although commercially produced paper boxes appeared
in the United States as early as 1839, their high cost and
scarce supply limited widespread use, a problem which was
not resolved until the closing years of the nineteenth
century when improved machinery and new papermaking
processes were introduced. The concurrent rise of large-
scale distribution of products produced an extensive de-
mand for paper boxes. Since that time, the industry has
expanded at a vigorous pace. There were 729 paper box
plants shipping products valued at $27 million in 1899; by
1960 the industry had swelled to nearly 1,900 plants with
total shipments valued at more than $3.8 billion.

The industry, which is the largest of the various pack-
aging material producers, is found today in all but a few-
states. However, it tends to be dispersed according to the
concentration of industry and population. Most plants are
situated near market outlets, primarily because it is
usually cheaper to ship sheet or rolled paperboard from
mills for conversion than to ship the bulky finished prod-
uct long distances to consumers.

The paper box industry, unlike the complex papermak-
ing industry, is typified by small plants with compara-
tively simple equipment, such as pressing, forming, gluing,
and cutting machinery. As a result, entry is less difficult
and competition is keen. Nearly 93 percent of the indus-
try's plants employ fewer than 250 persons, and no estab-
lishment has more than 2,500 workers.

Paper Box Products

Shipping containers are the industry's principal prod-
uct, annually accounting for about half of the total value
of all paper box shipments and two-thirds of total industry
tonnage. More than 97 percent of these containers are
made from corrugated fiber, the remainder being of solid
fiber. Today, paper shipping containers are virtually un-
challenged by other types of shipping boxes; besides being
used for shipment of more than 90 percent of the nation's
packaged industrial freight, such containers also find
heavy utilization in the movement of large consumer
goods, such as television sets, typewriters, and appliances.

Retail goods packaging tends to subdivide into three
main categories: folding cartons, set-up boxes, and sani-
tary food containers. Of these subgroups, folding cartons
account for the largest volume in terms of dollars, with
annual shipments of more than $900 million in 1960.
These cartons, which may be either plain or printed, are
produced by bending cardboard which has been cut and

creased in a variety of sizes and shapes. Besides the food
industry, which is the biggest user of folding cartons
(excluding sanitary food containers), other major con-
sumers include the soap, beverage, and tobacco industries.

Unlike the folding carton, the set-up box is a noncol-
lapsible container delivered to the packager ready for use.
Set-up boxes, which had a shipment value of $232 million
in 1960, range in construction from simple trays to
elaborate hinged-lid and display boxes. Typical users of
set-up boxes are the candy, drug, and shoe industries.

One of the fastest growing products of the industry
has been the sanitary food container. This specially pre-
pared paperboard, which was nearly nonexistent 30 years
ago, today accounts for about four-fifths of total sales of
paper boxes used for retail display. Although sanitary-
food containers have found a growing number of con-
sumers, their greatest stimulus during the past decade has
come from the growth in frozen food consumption, the
increasing use of throwaway cups, and the shift of the
milk industry to paperboard cartons.

Paper Boxes in Illinois

Illinois, which today ranks second only to New York
in the manufacture of paper boxes, has been a major pro-
ducer since before World War I. The growth of box-
making here was perhaps inevitable because of the pivotal
location of Illinois as a national distributing center, the
increasing packaging needs of the state's industrial com-
plex, and proximity to paper supplies.

Since 1939, the industry in Illinois has grown from
100 to 200 plants, and employment has jumped from 5,400
to 16,400 persons. In 1959, the industry's value added by
manufacture in the State reached $139 million, more than
twice the 1947 figure.

Paper boxes are produced in 24 Illinois counties, but
more than 180 plants, or 90 percent, operate in 10 counties
within a 40 mile radius of Cook County. This county
alone has 150 factories and is the nation's top county in
paper box production, having 35 of the 49 Illinois plants
with more than 100 employees. Other counties with three
or more plants are Madison, McHenry, Kankakee, Kane,
Adams, and Will.

As is true in many box-fabricating states, the principal
products of the industry in Illinois are corrugated and
solid fiber shipping containers. Illinois is the national
leader in this output; shipments of these containers in
1958 were valued at $168 million, nearly 38 percent more
than in 1954. The State ranks second in the production of
folding paperboard boxes, third in set-up boxes, and
fourth in sanitary food containers.

The outlook for the industry, both in Illinois and
nationally, appears promising. During the postwar period,
the demand for paper boxes increased at a faster rate than
any other packaging material except plastics. With an
anticipated 60 to 80 percent rise in all packaging mate-
rials by 1970, the paper box's numerous advantages
should strongly favor a continued competitive edge.

NOW YOUR STATE

L 3 j

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, November, 1961, to December, 1961

COAL PRODUCTION

,=4

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

FARM PRICES

m U.S.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. .
Weekly earnings — manufacturing1
Dept. store sales in Chicago4. . . .
Consumer prices in Chicago6. . . .

Construction contracts6

Bank debits'

Farm prices received8

Life insurance sales (ordinary)'. .
Petroleum production1"

269.6
87.0
97.2
181.0"
1 30 01'
130.9
262.1
255.6
80.0
378.9
124.3

Percentage
change from
Nov. Dec.

1961 1960

+3.8
-1.0
+ 2.0
+6.1
+ 2.4
+0.2
-4.0
+ 6.1
-1.2
+4.0
+8.0

1 Fed. Power Comm.; '111. Dept. of Mines; "111. Dept. of Labor;
•Fed. Res. Bank, 7th Dist.; "U.S. Bur. of Labor Statistics; • F. W.
Dodge Corp.; ' Fed. Res. Bd.; "111. Crop Rpts.; » Life Ins. Agcy. Manag.
Assn.; 10 111. Geol. Survey.

• Data for November, 1961, compared with October, 1961, and No-
vember, 1960. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . . .

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices'

Received by farmers

Paid by farmers

Parity ratio

Dec.
1961

Annual rate

in billion $

431.3°

23.4
17.5
16.0

21.6"
15.8°

57.1''
43. 2^
38. 0b
45.4°

Indexes
(1947-49
= 100)
1 1 5=- d
110»d
122»d
101- d

99°

102°

178°
181°
238
156"
128

121
79f

Percentage
change from

Nov.
1961

+ 1.2
+ 0.5

- 5.2

- 6.2
-16.1

+ 0.9

+ 0.8

0.0

+ 0.4

- 0.2
+ 0.4
+ 0.2

- 9.8
+ 2.0

- 0.1

+ 0.3
+ 0.3
+ 0.8
+ 0.2

+ 11

+ 0.8

0.0

Dec.
1960

+ 12.0
+ 3.0

+ 15.1
- 1.2
+ 1.5

+ 1.2
+ 14.1

-22.7

+ 2.5
+ 1.4
+ 1.0

+ 17.4

+ 11.7
+ 14.6
+ 9.9
+ 3.1

+ 2.6

+ 3.5
+ 8.3

- 0.2
+ 6.8
+ 0.5

- 0.3

- 0.9

- 0 4

- 0.2

0.0

+ 17

- 2.5

1 U.S. Dept. of Commerce; ' Federal Reserve Board; ' U.S. Dept.

Agriculture; ' U.S. Bureau of Labor Statistics; « F. W. Dodge Corp.

■ Seasonally adjusted. b End of month. c Data for November, 1961,

d with October, 1961, and November, 1960. J 1957 = 100. • Re-
Based on official indexes, 1910-14 = 100.

,„r.

UNITED STATES WEEKLY BUSINESS STATISTICS

1962

1961

Jan. 27

Jan. 20

Jan. 13

Jan. 6

Dec. 30

Jan. 28

Production:

Bituminous coal (daily avg.) thous. of short tons. .

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous

Petroleum (daily avg.) thous. bbl

Steel 1947-49 = 100

Freight carloadings thous. of cars

Department store sales 1947-49 = 100

Commodity prices, wholesale:

All commodities 1947-49 = 100

Other than farm products and foods. . 1947-49 = 100

22 commodities 1947-49 = 100

Finance:

1,371
16,686
166
7,420
139
533
117

119.6
127.8

85.1

31,981
389

1,423
16,857

163
7,388

136

533

125

119.7
127.9

85 . 5

32,230
396

1,292
16,957

167
7,403

133

504

127

119.6
127.9

85.7

32,539
319

1,455

16,021

140

7,445

133

460
116

119 5
127.8
85.7

32,819
231

1,311
15,738
127
7,384
122
422
125

119 4
127.7
84.9

32,931
222

1,171
15,641
116
7,198
85
476
103

119.9-

128.1°
83.1

31,375

400

Source: Survey of Current Business, Weekly Supplements

» Monthly index for January, 1961.

L •* J

RECENT ECONOMIC CHANGES

Gross National Product

The nation's output of goods and services rose to a
seasonally adjusted annual rate of $540.2 billion in the
fourth quarter of 1961, an all-time high, according to a
preliminary estimate by the Council of Economic Ad-
visers. The gain of $14.4 billion over the previous quarter
continued the general upsurge of the nation's output
from the low of $500.8 billion in the first quarter of 1961.

The major factor in the fourth quarter rise was a
$6.8 billion increase in personal consumption to an annual
rate of $347.8 billion. Fixed investment rose to an annual
rate of $71.4 billion, up $2.7 billion from the previous
period and $3.9 billion from the year before.

Government purchases of goods and services also
advanced during the fourth quarter, to an annual rate of
$112.5 billion, compared with $109 billion in the third
quarter of 1961 and $101.6 billion in the fourth quarter
of 1960. Net exports of goods and services rose most of
all, up $1.4 billion to an annual rate of $4 billion.

GROSS NATIONAL PRODUCT OR EXPENDITURE
(Seasonally adjusted, billions of dollars at annual rates)

4th Qtr.* 3rd Qtr.

1961 1961

Gross national product 540.2 525.8

Personal consumption 347.8 341.0

Durable goods 45.2 42.3

Nondurable goods 158.8 156.2

Services 143.8 142.4

Domestic investment 75.9 73.2

New construction 43 .4 42 . 7

Producers' durable equipment 28.0 26.0

Change in business inventories 4.5 4.5

Nonfarm inventories only. . 4.3 4.1

Net exports of goods and services 4.0 2.6

Government purchases 112.5 109.0

INCOME AND SAVINGS

National income n.a. 434.3

Personal income 428.6 420.3

Disposable personal income 375.6 367.7

Personal saving 26.6 26.8

4th Qtr.
1960
504.5
332.3
43.8
153.1
135.4
65.6
40.7
26.7
-1.9
-2.2
5.1
101.6

416.5
405.4
354.9

22.7

* Preliminary estimates by Council of Economic Advisers.
Source: U.S. Department of Commerce.

Unemployment Rate Falls

The number of jobless in January rose 572,000 from
December, 1961. However, because the increase was less
than normal, the seasonally adjusted rate was the lowest
in 16 months. This brought the unemployment total to
4,663,000 of the total civilian labor force of 69,721,000.
The employment figure was the highest January total on
record. However, the Labor Department indicated that
there were still 1,250,000 "hard core" unemployed who
had been out of work for four months or more.

The decrease in employment occurred only in the non-
agricultural area and primarily among production work-
ers. Construction, transportation, and mining employment
also showed declines during January. Labor Force data,
in thousands of workers, are as follows:
Jan.
1962

Civilian labor force 69,721

Employment 65,058

Agricultural 4,417

Nonagricultural 60,641

Unemployment 4,663

Seasonally adjusted rate 5.8

Dec.

Jan.

1961

70,559

69,837

66,467

64,452

4,418

4,634

62,049

59,818

4,091

5,385

6 1

6.6

Dividend Payments Set High in 1961

Cash dividend payments by corporations issuing public
reports reached a record $14.2 billion in 1961, 4.5 percent
over the previous record of 1960. Dividends of manufac-
turing corporations rose 4.3 percent, totaling $7.4 billion
for the year. The increase resulted mostly from high
December "extras," of which about half were provided
by a large auto producer. The increase in nonmanufac-
turing was the same as in manufacturing, but was spread
over the entire year. Communications, electric and gas
utilities, and finance sector dividends showed 9, 7, and 6
percent gains respectively above those of 1960.

Steel Production Up

Steel production rose to 8.9 million tons in December,
up slightly from the third quarter 1961 monthly average
and more than 3.3 million tons higher than in December
of 1960, as indicated in the chart.

While some users of steel may have stepped up their
purchases as a hedge against a possible strike, the sub-
stantial increase in steel output during the fourth quarter
was mainly due to stepped-up automobile production.
During the fourth quarter of 1961 automobile production
totaled 1.8 million units, a 90 percent increase over the
third-quarter total. Tentative plans call for the auto in-
dustry to keep production at this level during the first
quarter of the year.

The higher rate of steel production reflected higher
shipments to and consumption by metal fabricators in the
fourth quarter. Shipments totaled 13.7 million tons, up 7
percent, while consumption rose 8.3 percent from the
third quarter to 14.4 million tons.

(Continued on page 8)

STEEL PRODUCTION

MILLIONS OF TONS

1959 I960

Source: American Iron and Steel Institute.

[ 5 j

ECONOMIC TRENDS IN THE FILM INDUSTRY

MICHAEL CONANT, Associate Professor of Business Law
University of California

The motion picture industry is about 65 years old.
Rapidly changing technology has made its life highly
dynamic. Perhaps the most significant change in the last
15 years has been the introduction of television. Provid-
ing a substitute for theater films, it has caused a marked
decline in the demand for theatrical films. Another major
source of change in the industry was the series of postwar
antitrust actions against leading producers, distributors,
and theater owners.

Some of the consequences of these changes are shown
in Table 1. In 1946 Americans spent $1,692 million or
1.15 percent of their consumption expenditures on motion
picture admissions. In 1960 they spent $1,394 million,
but this was only 0.42 percent of their consumption ex-
penditures. The 1946 motion picture admissions were
19.6 percent of recreation expenditures, whereas the 1960
motion picture admissions amounted to only 7.2 percent
of recreation expenditures. This decline occurred despite
a constant increase in average admission prices during
the postwar inflationary period. Some 6,000 indoor
theaters closed during this period, and most of these were
smaller, later-run houses that had charged lower-than-
average admission prices. Their closing accentuated the
increase in average admission prices.

More than offsetting the rise in admission prices was
a steady decline in average weekly attendance, also shown
in Table 1. It fell from 79.4 million in 1946 to 37.8 million
in 1957. Although there was an increase to 40.9 million
by 1960 (and industry officials assert that the weekly
average rose in 1961), attendance is still below the late
1940's.

The supply side of the motion picture industry has been
just as dynamic. The new competition of drive-in theaters

Table 1. Motion Picture Admissions, Average Admission

Prices, and Estimated Attendance, 1935, 1939,

1941, and 1945-60

Year

Admissions
inc. taxes
(Millions)

Admissions
as % of
consump-
tion expend-
itures

Average
admission
price inc.
taxes
(Cents)

Estimated

average

weekly

attendance

(Millions)

1935 ..

$ 556
659
809
1,450
1,692
1,594
1,503
1,445
1,367
1,299
1,233
1,172
1,210
1,217
1,225
1,116
1,168
1,278
1,394

.988
.975
.988
1.191
1.150
.964
.843
.798
.701
.619
.561
.504
.508
.474
.455
.392
.398
.407
.424

24.9
26.5
28.5
39.8
41.0
42.8
43.3
44.4
44.2
44.9
45.3
47.5
50.5
53.1
54.3
56.8
59.1
60.9
65.6

42 9

1939....

47.8

1945....

70 1

1946

79.4
71 6

1948....

66.8

1949

1950

62.6
59.5

1951

1952....

55.6
52.3

1953

47.4
46 1

1955....

44. 1

1956

1957

43.4
37.8

1958

38.0

1959....

40.4

1960

40.9

Sources: Box office receipts: U.S. Department of Com-
merce, U.S. Income and Output, 1958, p. 151, National Income
Supplement to the Survey of Current Business, 1954, pp. 206-8,
and Survey of Current Business, July, 1961. Admission prices:
derived from U.S. Department of Commerce data, and U.S.
Bureau of Labor Statistics Admission Price Index. Attendance:
box office receipts divided by admission prices.

has further decreased the patronage of indoor theaters.
In 1946 there were 18,700 indoor theaters and 300 drive-
ins. The 1958 Census of Business reports 12,291 operating
indoor theaters and 4,063 drive-ins. The drive-ins were
25 percent of all theaters and collected 20 percent of all
admissions.

The Census of Business statistics for the Chicago
metropolitan area are illustrative of the changes in Illi-
nois. In 1948 there were 421 indoor theaters and 12
drive-ins in the Chicago area. In 1958 there were 261
indoor theaters and 29 drive-ins in the Chicago area.

The government prosecution of the eight largest dis-
tributors in United States v. Paramount Pictures, 334
U.S. 131 (1948), established the existence of a nationwide
combination in restraint of trade in the distribution and
exhibition of pictures. The five major firms that were
producers, distributors, and exhibitors — Paramount,
Twentieth Century-Fox, Warner Brothers, Loew's, and
RKO — were ordered to divorce their theater circuits
from their production and distribution facilities. Between
1949 and 1959, these five firms set up separate firms to
take over their 3,137 theaters and distributed the shares
of the new theater companies. Their theaters had ac-
counted for only 17 percent of all theaters but had in-
cluded 70 percent of the large, first-run theaters in the
country. The five majors and the three minor distributors
— Columbia, Universal, and United Artists — were en-
joined from continuing a number of their former market-
ing practices. These included distributor control of theater
admission prices, block booking, agreements fixing prices,
runs and clearances, and other devices that discriminated
against small exhibitors.

The leading private, treble-damage action against the
eight majors was brought by the owners of the Jackson
Park theater on the South Side of Chicago. This case,
Bigelozv v. RKO Radio Pictures, 327 U.S. 251 (1946),
established two methods of proving damages in such
cases. Prior to this case most antitrust actions by dis-
tributors against the majors had been dismissed on the
ground that the damages were too speculative.

Impact on Production

The impact of these factors on the production of
motion pictures has changed the quantity and quality of
pictures and the organization of this sector of the indus-
try. Before World War II, domestic film production
averaged from 400 to 500 pictures a year. But many of
these were "B"-grade features and Westerns, for which
the demand has been sharply reduced because television
has taken over the market for this class of entertainment.
During the last five years the estimates show annual
domestic feature production at less than 250 pictures.
Many critics argue, however, that there are more first-
grade pictures produced now than prior to television,
partly because of this new competition.

The antitrust decrees have caused a radical reorganiza-
tion in motion picture production. Before World War II
almost all first-grade features were produced by the seven
producer-defendants in the Paramount prosecution or by
the few independent producers who distributed their
films through United Artists. Since the end of the na-
tional combine following divorcement of the five circuits,
independent producers are not excluded from the key

[ 6

theaters. As a result, independent production has increased
greatly. In 1957 it was estimated that 57 percent of the
films released were made by independent producers.

Because of the intermittent nature of film production,
economic factors strongly favor independent operators. A
film maker can employ studio space, equipment, and actors
for just one picture instead of owning facilities and giving
actors long-term contracts. As a result of the high over-
head costs of studio operation and the sharp decrease in
the total number of films made, three firms have disposed
of their production facilities. RKO Radio Pictures sold
its studios in early 1958 to Desilu Productions, a television
film producer. Universal sold its studios in December,
1958, and leased back the use of them for a specific num-
ber of days per year. Republic ceased all production in
mid- 1958 and now leases studio space to television film
producers. The other producers also lease space to in-
dependent film makers and most have also entered the
production of films for television.

Impact on Distribution

Distribution, the wholesaling function of the motion
picture industry, has changed the least. The national
distributors have 31 to 35 film exchanges in major cities
to negotiate licensing of films. RKO and Republic have
closed their exchanges and left the business. But there
are still 10 national distributors, and this is more than
adequate to market the reduced supply of theatrical films.
The names and film rentals (sales) of the national dis-
tributors are shown in Table 2. The four majors —
MGM, Paramount, Twentieth Century-Fox, and Warner
Brothers ■ — whose predivorcement rentals were the high-
est because of preferential access to their combined
theater monopolies, have shown the least increase in
rentals. Other distributors who have specialized in the
distribution of independent productions, such as Allied
Artists, Columbia, and United Artists, have shown radical
increases in rentals since 1950.

For a number of reasons the distributors have not
suffered the declines in gross incomes that have hit the
theaters. As is shown in Table 2, they receive large rentals
from television stations, both from release of their old
theatrical films and from new productions which some of
the firms make specially for television. The other major
source of revenue for distributors that has increased is

Table 2. Distributors' World-Wide Film Rentals
(Thousands of dollars)

Distributor

1950

Film and

rentals

1960

Film and

rentals

1960

rentals

9,104

' 7 ^ 294

57,231
102,825
60,765
48,163
30,311
90,842
19,625b
55,591
66,028

16,138
n.a.

23,406
118,560
114,331

76,789

108^2
108,531
58,430
87,163

American-International. . .

Buena Vista (Disney)

Columbia Pictures

Metro-Goldwyn-Mayer. . .

Paramount Pictures

RKO Radio Pictures

n.a.

4,998
35,316"
14,128

5,189

Twentieth Century-Fox. . .

7,520

Universal Pictures

* Columbia's subsidiary, Screen Gems, distribut
Columbia and Universal films to television stations.
b 1951 rentals; 1950 not reported,
n.a. Not available.
Sources: Annual reports and prospectuses of firms

film rentals from foreign countries. In 1960 the estimated
remittances of film rentals from abroad to American dis-
tributors was $215 million. The 1960 rentals of two of
the largest firms are illustrative. Paramount received
$33.6 million or 44.0 percent of its gross rentals from
abroad. Twentieth Century-Fox received $43.4 million or
39.9 percent of its gross rentals from foreign countries.
It should be noted that the production-distribution
sector of the motion picture industry faces much greater
market uncertainty than most industries. Industry execu-
tives estimate that at least 50 percent of all pictures re-
leased show net losses. In the 10 years 1947-56, for
example, MGM was reported to have had an over-all net
loss on new productions of $6 million. This was hidden in
consolidated income reports for the period by $16.8 million
revenues on reissued old pictures, $11.5 million of which
was earned by Gone With the Wind.

Impact on Exhibition

The theater section of the industry has been the hard-
est hit by television and the other changes in the last
20 years. Since the total seats of the 6,000 indoor theaters
that have closed have almost been offset by over 4,000
new drive-ins, the excess capacity in exhibition has been
reduced little. Furthermore, the monopoly buying power
of the large theater circuits has been greatly curtailed
by the antitrust decrees. The five circuits that were
formerly affiliated with major producer-distributors no
longer have a tight control on most first runs. Since the
distributors were ordered to license each picture singly,
circuits may no longer bargain for master deals to take a
group of pictures at reduced rates. The result is that
theater circuits now pay a greater proportion of gross
admissions to distributors as film rentals.

As shown in Table 1, motion picture admissions of
$1,394 million in 1960 are about equal to those of 1950.
But higher film rentals and increased costs of theater
operation all make for reduced net profits. Distributors
report that 1,000 key theaters take in about 70 percent of
all admissions, 5,000 theaters taken 80 percent, and 7,500
theaters take in 90 percent. This leaves over 5,000 theaters
which receive in total only 10 percent of gross admissions.
In fact, it is estimated that refreshment sales in theaters
in 1960 of $260 million probably kept many marginal
theaters from failing. It is estimated that the average
customer of an indoor theater spends 6 cents on refresh-
ments and the average customer of drive-ins spends 20
cents on refreshments.

United Paramount Theaters (American Broadcasting-
Paramount Theaters), largest theater-circuit in the coun-
try and one of the five that were divorced from major
producer-distributors, exemplifies the changes in circuit
operation. Under the antitrust decree it was ordered to
sell 874 theaters. At the time of the decree in 1949, it
had 1,424 theaters with total receipts of $89,925,000 or
$63,150 per theater. In 1960 it had 472 theaters with
total receipts of $86,281,000 or $182,800 per theater. The
other divorced theater circuits — National Theaters,
Loew's Theaters, RKO Theaters, and Stanley Warner
Corporation — have had similar contractions. Still these
firms remain among the most profitable in the industry.
Since they had previously specialized in well-located,
first-run theaters and selectively disposed of money-
losers, they remain owners of the best houses in the
United States.

The most important issue in the motion picture indus-
try today is the likely innovation of home viewing of new

[ 7 ]

feature pictures on pay television. Experiments have
been carried on in a number of cities. When the tech-
niques for color transmission and for controlling payment
are fully perfected, television should become the main
medium for viewing features. Most motion picture
theaters will then be forced to close, and exhibition com-
panies will suffer severe losses. In contrast, television
transmission of new features could be a boon to the
production-distribution sector of the industry. It would
create a larger potential audience for future pictures than
has ever existed before.

A 25-Hour Workweek?

(Continued from page 2)
electricians has existed in the New York area, where a
6-hour day has been standard for years until the recent
5-hour day was negotiated. It is ironical to note that the
terms of the recent settlement called for an increase in
the number of electrical apprentices, not so much at the
request of the union as at the request of the employers.
In addition, most of the unemployed appear to be older
unskilled workers, to judge by a recent report of the
Illinois Governor's Committee on Unemployment, and
these are not easily trained to take on other, more skilled
types of work.

A final consideration is that the current status of
business activity and of the nation's international position
is such that its welfare seems best met by increased pro-
duction rather than by more leisure. Indeed, it is only
through increased production at present that sufficiently
high gains in productivity can be obtained to make pos-
sible shorter workweeks in the future.

All things considered, it would seem better to allow
the workweek to decline gradually over time and as con-
ditions permit. A pattern of individual settlements in
local areas would seem desirable, with workers being
given the choice of less hours at the same pay or the same
hours for more pay. This would also give sociologists a
chance to wrestle with other weighty aspects of the re-
duced workweek, such as how women will put up with
having their husbands around the house three days a
week ! RF

Recent Economic Changes

(Continued from page 5)

Offerings of Securities Equal Record

New securities offered by corporations in 1961 in-
creased 26.5 percent over 1960 to $12.9 billion, equaling
the record set in 1957.

This advance was due to a rise in new offerings of
common stock, which rose to $3.3 billion, double the 1960
figure. Primarily responsible were large offerings of
manufacturing corporations and of communications firms.
Railroad financing was at a 19-year low, down 27 percent
from 1960. The largest decrease in 1961, however, was
recorded by sales and consumer finance companies, their
new security issues showing almost a 50 percent decline
to $808 million.

Of the funds obtained from the sale of these securities,
$7.4 billion was used for new plant and equipment, $3.3
billion for working capital, $1.1 billion for repaying debts,
and $900 million for refunding purposes.

Autos Help Lift Economic Activity

During the fourth quarter of 1961 automobile sales
soared to 1,710,000, the best quarterly performance since
the second quarter of 1955. For the year as a whole auto
sales totaled about 5.85 million, including 385,000 imports.
In the past year imports accounted for only 6 percent of
the total, as compared with 7 percent recorded in 1960.

The banner year for sales was 1955, when 7.2 million
were sold. Since then sales have remained near 6 million
units a year with the exception of 1958, when they dropped
to 4.7 million. Car sales during 1962 are anticipated to
reach between 6.5 and 7 million units, according to in-
dustry experts.

1961 Good Crop Year

In 1961, crop production came within 2 percent of the
1960 record, according to the United States Department
of Agriculture. The slight downturn was caused by the
smallest planted acreage in 50 years and the second
smallest harvested acreage ever reported.

Farmers planted 310 million acres during the year,
about 5 percent less than in 1960. The final harvest of
296 million acres was just 1 million over the record low
recorded in 1954. However, record yields per acre enabled
total production to rival that of 1960. Even with heavy
rains in the South, drought conditions followed by high
temperatures in the West and Northern Plains, hurricanes
along the Gulf Coast, and finally November rains and
snow in the Midwest, yields for corn, grain sorghum, soy-
beans, popcorn, dry beans, and hay were at record highs.

As shown in the accompanying chart, production of
all the major crops in 1961, with the exception of oats,
exceeded 1950-60 average production. The biggest gain
was recorded by corn, up 16 percent over the 11-year
average. However, compared with 1960, the combined
tonnage of the "big four" feed grain crops — corn, grain
sorghum, barley, and oats — was down 10 percent.

CROP PRODUCTION

.IONS OF BUSHELS

1950-60 AVERAGE

N WHEAT SOYBEANS SORGHUMS OATS BARLEY

Source: U.S. Department of Agriculture.

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

The Married Grow Older

The average age of married men was 44.6 years in
March, 1961, according to the Bureau of the Census. They
averaged about 3.5 years older than their wives. The
average age of both husbands and wives was two years
over their 1950 averages. During this same period the
average age of single persons has dropped about two
years to 19.3 years. The explanation of these changes lies
in the changing age composition of the population. The
lower birth rates during the 1930's have caused the pro-
portion of married persons over 35 to be larger in 1960
than in 1950. Also the high birth rates of the 1940's have
resulted in an increase in the proportion of single persons
in the lower age brackets.

During the same period there has been an increase
in the average age differential of widowers over widows.
Widowers average 72 years, whereas widows average
only 67.4 years. This compares with 1950 figures of 68.5
and 65.8, respectively. The main reason for this increase
has been the larger proportion of widowers in their fifties
and sixties who have remarried, thus leaving in the
widowed category a larger proportion of older men.

Construction Maintenance and Repairs Up

About $19.6 billion was spent on maintenance and
repairs of all types of structures and facilities in 1960,
a 2 percent increase over the preceding year. Most
categories registered slight advances over 1959.

During the past decade yearly maintenance and repair
totals have grown from $12.1 billion in 1950 to the present
total of $19.6 billion. The group which showed the biggest
percentage advance was nonresidential buildings, for
which expenditures rose 90 percent to $4.3 billion in 1960
(see chart). The two next biggest increases were regis-
tered by highway expenditures, which rose 82 percent to

MAINTENANCE AND REPAIR EXPENDITURES

MILLIONS OF DOLLARS

■

--^ TOTAL

•

RESIDENTIAL BUILDING (NO

N FARM)

•

■

___ — ■—

NONRESIDENTIAL BUILDING

_i ^PUBLIC UTILITIES

*.,"

.HIGHWAYS __ "

$2.5 billion, and residential buildings, which rose 56 per-
cent to $7.2 billion. During this same period, public util-
ities showed only a 2 percent growth in expenditures for
maintenance and repairs to $2.2 billion. The biggest de-
crease came from the railroads which cut their expendi-
tures 8 percent to $1.2 billion.

Total Farm Sales Reported

About 39 percent of all United States farms accounted
for more than 87 percent of the value of all farm products
sold last year, according to the Bureau of the Census.

The total value of all farm products sold was $30.6
billion, of which $29.5 billion was reported by the 2.4
million commercial farms in operation. The average value
of all products sold by commercial farms was $12,195.
For the other 1.2 million noncommercial (part time, part
retirement, abnormal) farms, it was $900. Commercial
farms with sales of $10,000 or more numbered 795,000
and averaged $27,661 in sales per farm.

1962 Census of Governments Starts

The Bureau of the Census has started its 1962 Census
of Governments. This census, as specified by federal law,
covers taxes and tax valuations, governmental receipts,
expenditures, indebtedness, and other aspects of state and
local governments. It is conducted every five years.

In its first phase, the census will delve into such mat-
ters as assessment ratios, assessed valuations, and special
property taxes. Then, in the early fall of the year, the
Census Bureau will gather employment and payroll figures
of each type of government. The final portion of the
census will provide information on sources of taxes and
other revenues and on types of expenditures, indebtedness,
and other financial operations.

Family Income

1950 1951 1952 1953 1954 1955 1956

Source: U.S. Bureau of the Census.

The average money income of America's 45.5 million
families was $5,600 in 1960. This represents a 4 percent
increase over the 1959 average, but if price rises are taken
into account the real gain is estimated at only 2 percent.

Considerable variation in average income is apparent
among families with different economic and social char-
acteristics. Thus, the average income of the 6 million
families headed by persons 65 years and over was only
$2,900. During the postwar period there has been a
noticeable increase in incomes. Since 1947 the average
family income in current dollars has risen from $3,000 to
$5,600, primarily because of a gain in the number of
working women, which rose 17 percent.

Raised Population Projections

The Bureau of the Census has revised its population
projections for the year 1965 and 1970. Assuming that
current fertility rates are maintained, the projected pop-
ulation of the United States for 1965 is 196,217,000 and
for 1970 is 214,222,000. However, if the fertility rate
declines, as anticipated by the Census Bureau, the totals
would be 194,454,000 and 208,931,000 respectively.

Both sets of projections are higher than those made
previously. These projections also depend on certain
basic assumptions such as no major war, epidemic, eco-
nomic depression, or other catastrophe occurring.

[ y J

LOCAL ILLINOIS DEVELOPMENTS

Highway Improvement Program for 1962

The cost of projects to be undertaken in 1962 for the
improvement of the state highway system will be approxi-
mately $269.5 million. Of the total, $181.3 million will be
available for use on interstate highways and $88.2 million
on non-interstate highways. Right-of-way costs are ex-
pected to total about one-fifth of the program.

The 1962 program provides for continued construction
of interstate highways as federal funds permit. Of the
total of $183.3 million of federal funds available, $150.1
million will be spent on interstate highways. Carried over
into 1962 are some projects from 1961, since the final
quarterly allotment of federal funds did not become ef-
fective until after December 1, thus preventing bid let-
tings in November and December.

As contrasted with interstate construction, the work
on non-interstate highways will consist principally of
modernizing the existing highway system, such as provid-
ing the necessary connections to interstate highways now
being built, marking pavement edge lines, erecting guard-
rails, seal coating, and erecting traffic control devices.

Characteristics of the Unemployed

Who are the unemployed in Illinois? Preliminary find-
ings of a Department of Labor state-wide survey of un-
employed job-seekers conducted jointly with Governor
Kerner's Committee on Unemployment show that as of
last summer slightly more than 83 percent of the unem-
ployed in Illinois had finished the eighth grade in school.
Only 32 percent had gone as far as the twelfth grade,
and only 1.5 percent had completed the equivalent of a
college education. Willingness to take new or refresher
training was expressed by 71 percent of the jobless.

In the Chicago area 66 percent of the jobless were in
unskilled, semiskilled, and service occupations for which
the demand is limited; less than 4 percent were in profes-
sional or managerial fields, and of these many were over

PETROLEUM PRODUCTION

MILLIONS OF BARRELS

1950 '51

Source: Illin

45; 40 percent were Negroes of whom only about 6 per-
cent were skilled; and 21 percent of the Negroes had been
out of work for over 10 months as compared with 15
percent of the whites.

This survey covered more than 143,000 men and
women ; 88,000 were from the Chicago area. It will be
used as a basis for recommending training programs to be
established by the State under the Area Redevelopment
Act and the proposed Federal Manpower Development and
Training Act which is now being considered by Congress.

Conservation Program in Illinois

Illinois has received $8.8 million for the 1962 Agricul-
ture Conservation Program (ACP) and $7.4 million for
the Conservation Reserve Program (CRP). Last year
the State received $8.9 million for the ACP and $7.5 mil-
lion for the CRP, according to the State Agricultural
Stabilization and Conservation Office.

The ACP is for actual physical improvements to the
farmer's land, with the federal government paying from
40 to 70 percent and the farmer paying the remainder.
The top counties in ACP money allotment are McLean,
Livingston, and La Salle.

This year three new ACP practices have been chosen
for the State — planting of wildlife cover, flooding low-
lands, and constructing fish ponds. Other ACP practices
in Illinois include run-off diversion, contour strip crop-
ping, construction of sod waterways, terrace building, and
pasture or meadow development. In 1961 almost 50,000
farmers participated in the ACP.

The conservation program applies to farmers who
signed 5- and 10-year agreements while the soil bank was
in operation from 1956 to 1960. Saline, Johnson, and
Wayne counties head the conservation reserve list. About
6,000 farmers are participating in the CRP.

Petroleum Production Steady

Illinois continued to rank eighth in crude oil produc-
tion in the United States in 1960, producing 77 million
barrels of oil or 3 percent of the nation's total. This was
an increase of 614,000 barrels over 1959 production, ac-
cording to a recent report of the Illinois State Geological
Survey.

A peak of 147.6 million barrels was produced in 1940,
shortly after the 1936 discovery of oil in the Illinois Basin.
Production then declined gradually, reaching a low of 59
million barrels in 1953. In 1954 the decline was reversed,
partly because of increased use of secondary recovery by
waterflooding and partly because of fracture-treatment
completion practices.

Even though no large new pools have been discovered
in Illinois in recent years and primary drilling activity
has declined, a relatively steady level of production has
been maintained by the continued expansion of water-
flooding. In 1960 this type of recovery reached a new
annual high of 48 million barrels, rising 12 percent over
1959 waterflood production and accounting for 63 percent
of the state's total production (see chart).

In 1960, exploratory drilling took place in 60 of the
102 Illinois counties, and producing wells were completed
in 40 of them. The five leading crude oil producing coun-
ties that year were Fayette with 13.1 million barrels,
Marion with 8.8 million, Lawrence with 7.9 million,
Wayne with 6.4 million, and White with 4.3 million. These
counties accounted for 57 percent of the state's total
production.

[10 J

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
December, 1961

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000 kwh)

Depart-
ment Stoi
Sales'

Bank
Debits5
(000,000)

ILLINOIS

, , /Nov., 1961.

Percentage change from \Dec, 1960.

NORTHERN ILLINOIS
Chicago

, /Nov., 1961.

Percentage change from JDec, 1960.

Aurora

Percentage change from
Elgin

/Nov., 1961.
IDec, 1960.

. . /Nov., 1961.

Percentage change from \Dec, 1960.

Joliet

Percentage change from.
Kankakee

/Nov., 1961.
\Dec, 1960.

, /Nov., 1961.

Percentage change from \Dec, 1960.

Rock Island-Moline

Percentage change from.
Rockford

/Nov., 1961.
\Dec, 1960.

. /Nov., 1961.

Percentage change from \ Dec, 1960.

CENTRAL ILLINOIS
Bloomington

, /Nov., 1961.

Percentage change from. . ■ • jDec _ 1950.

Champaign-Urbana

„ . , /Nov., 1961.

Percentage change from 'mec i960.

Danville

. /Nov., 1961.

Percentage change from \Dec, 1960.

Decatur

, /N=v.l9Cl.

Percentage change from JDec, I960.

Galesburg

Percentage change from.
Peoria

. /Nov., 1961.

Percentage change from. . . . < pec i90o.

Ouincy

r, u r /Nov., 1961.

Percentage change from. . . ■ jDec _ jggo.

Springfield

„ t /Nov., 1961.

Percentage change from. . . . < D 1Q60

SOUTHERN ILLINOIS

East St. Louis

Percentage change from. . . .

Alton

Percentage change f:
Belleville

Nov., 1961.
Dec, 1960.

, /Nov., 1961.

Percentage change from \Vec., 1960.

$26,736"
-58.9

$22,456
+3.1

-62.8
$ 163

-71.8

-42.4
$ 305

-57.6
+108.9
$ 117

-88.2

-38.4
$ 42

-65.9

+2.4

$ 728

-30.6

-40.4
$ 612

-38.4
+ 131.8

$ 81

-58.5

$ 174
-26.0
-56.9

$ 81
-17.3
-72.4

$ 72
-43.7
-82.2

$ 10
-91.8
-87.2

$ 587
-51.0
+5.4

$ 146
-30.1
+23.7

$ 706

+5.4

+ 164.4

$ 153
-32.6
+ 61.1

$ 184
+ 5.7

+201.6

$ 119
+33.7
-30.0

1,358,919"
+5.3
+6.9

992,963

+4.9
+ 6.3

31,234

+ 17.6
+ 9.4

56,988"
-2.5
+6.6

13,389

+ 11 .3

+ 14.8

17,453

+5.5

+ 7.9

17,849

+3.9

+ 19.6

37,109

+ 7.2

+ 1.7

10,160

+6.8

+4.0

64,917"

+12.9

+ 12.6

14,024

-5.2

+5.2

48,613"

+12

17,388
+3.0
-3.4

23,663
-1.2
+9.7

13,169

+ 14.1
+5.6

$590,630

+5.8
+4.2

$423,363

+ 6.3

+2.6

$ 9,224

+6.7

-3.7

$ 6,366

+0.9

+0.8

$11,830

+7.8

+ 12.2

$ 6,865

+25.5

+37.8

$11,873

+7.4

+ 9.2

$20,955

+8.7

+13.9

$ 6,686
+ 6.9
+ 13.3

$10,504
-1.2
+ 11.1

$ 6,744
+5.6
+3.7

$12,048
-1.3
+0.8

$ 4,815
-3.9
+8.9

$18,823
+ 6.7
+ 13.0

$ 5,913
-2.4
+ 7.4

$15,157
+1.7
+8.1

$ 5,355
+0.4
+3.7

$ 5,158
+0.1
+ 6.8

+45
-2

+60"
+ 13'

+53
0

$22,344"

+4.4
+6.1

$20,767
+4.7
+6.5

$ 83
+0.8
-5.0

$ 54
-6.1
-7.0

$ 96
+0.6
+ 18

$ 1271'
+ 16
-5.2

$ 218
+5.6
-0.3

$ 86
-0.9

+ 12.4

$ 90
-3.7
+8.2

$ 53
-4.1
-0.9

$ 127
-0.9
+3.5

$ 264

+0.8

+ 12.2

$ 59

-1.3

+ 13.5

$ 137

-0.8

+ 1.5

$ 139
-0.6
-11.3
$ 45
-4.8
-4.1

• Total for cities listed. b Includes East Moline. « Includes immediately surrounding territory, n.a. Not available.

Sources- ' Local sources. Data include federal construction projects. 2 Local power companies. Illinois Department ..! Keyenue
Data are for October, 1961. Comparisons relate to September, 1961, and October, 1960. « Research Department of Seventh Federal
Reserve Bank (Chicago). Percentages rounded by source. 6 Federal Reserve Board. 8 Local post office reports,
periods ending December 8, 1961, and December 9, 1960.

Four-week accounting

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949=100

EMPLOYMENT MANUFACTURING

U.S.

ILL.

\sf

"revised series

AVERAGE WEEKLY EARNINGS-

-MANUFACTURING

ILL. /

U.S.

"revised series

'56 1959 I960 1961

'58 1959 1960 1961

-ANNUAL AVERAGE-

DEPARTMENT STORE SALES (ADJ.)

COAL

PRODUCTION

ILL.

U.S. V

^fh^

l i i 1 l 1 l

'58 1959 I960 1961

-ANNUAL AVERAGE-

BUSINESS LOANS

CASH FARM INCOME

"'r^*

■<^\

ILLy^ ~

US.

"revisec

series

\ ■"' *>

i -'"A

\ >

u^l/ ~

Wa/Vj

XSS

/Till.

T^rtrT

, Iniiiii

„

♦revised series

1959 I960

1959 I960 1961

-ANNUAL AVERAGE-

CONSTRUCTION CONTRACTS

\.h

f~\

-P

/"'U.S.

V V

1 1 1 1 1 1

"revised

SERIES

500
400
300
200

100

ELECTRIC POWER PRODUCTION

£yw

.L.J

/U.S.

1 1 1 1 1 1

i 1 1 1 i i

I960 1961

1959 I960 1961

-ANNUAL AVERAGE-

■UlNOIS BUSINESS REVIEW

vAjMOftfHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN FEBRUARY

A somewhat more than normal seasonal decline car-
ried new private construction spending down to $2.8
billion, 6 percent below the January figure. The largest
element in this decline was reduced spending for con-
struction of private nonfarm residential buildings, which
fell 9 percent from January to $1.5 billion. The normal
seasonal change between January and February is about

6 percent. Public construction expenditures were down
slightly less than is normal for this period to $1.1 billion,

7 percent below the January estimate.

Business resumed its upward course in February after
some setbacks in January. Steel production averaged
more than 2.4 million tons a week, up about 4 percent
from the previous month. The automobile industry turned
out about 536,000 passenger cars, down 15 percent from
January (primarily because of fewer workdays) but 47
percent above February, 1961. Advances were recorded
for most weekly production series. The seasonally ad-
justed index of industrial production rose 1 point to 115
percent of the 1957 average.

Retail sales increased $200 million to $18.9 billion,
after seasonal adjustment. Dealers sold 455,300 new
American-made cars, a slightly higher daily rate than in
January. Personal income more than recovered the Jan-
uary loss, adding $2.7 billion for a seasonally adjusted
annual rate of roughly $433 billion.

Employment Advances

Employment showed better than seasonal gains in
February, rising 731,000 to a record February total of
65.8 million. The normal increase expected in this period
is about 130,000.

At the same time unemployment declined 120,000 to
4.5 million, contrary to the normal seasonal pattern of a
small increase between mid-January and mid-February.
The seasonally adjusted rate of unemployment fell from
5.8 percent to 5.6 percent, the lowest in 19 months.

The reduction in unemployment in recent months is
somewhat clouded by the decline of 28,000 in the labor
force during the last year, whereas it was expected to
increase 848,000. This discrepancy may reflect the with-
drawal from the labor force of many persons who were
unable to find jobs. Other possible explanations are a
decline in labor market participation by younger people,
earlier retirement by some men as a result of reduction
in the minimum retirement age under Social Security to
62, and reluctance of workers displaced from farm jobs
to seek employment in industry.

Construction Declines Seasonally

The value of all new construction put in place during
February amounted to $3.9 billion, 6 percent less than
the January figure. The decline was about equal to the
normal seasonal change expected between January and
February and left the total for the month 5 percent above
February, 1961.

Inventories Increase

An increase of $550 million, after seasonal adjustment,
in the book value of inventories held by manufacturing
and trade firms was reported for January, compared
with an increase of $420 million in December, 1961. Most
of the rise was at the manufacturing level, especially in
the durable goods industries, but small additions were
also made by wholesalers and retailers. The total at the
end of the month amounted to $96.1 billion, $2.3 billion
more than the year-earlier figure.

Total sales of manufacturing and trade firms, season-
ally adjusted, dropped slightly in January for the second
month in a row. A decrease of $570 million in manufac-
turers' sales more than offset a $400 million advance by
wholesalers and a small increase by retailers, reducing
the total by less than $100 million to $63.9 billion.

Capital Outlays to Rise

The January-February survey of projected expendi-
tures on new plant and equipment by business firms
indicates that they plan to spend a record $37.2 billion in
1962. This would represent an increase of 8 percent
from 1961 and would exceed the 1957 record of $37
billion.

Actual expenditures on new plant and equipment in
1961 amounted to $34.4 billion, down 4 percent from 1960.
The 1961 total was somewhat lower than estimated in the
October-November survey because fourth-quarter spend-
ing amounted to an annual rate of $35.4 billion instead of
the projected $35.9 billion. The new report also reduced
the estimate for the first quarter of 1962 from an annua]
rate of $36.5 billion to $36.1 billion. The latest projection
estimates second-quarter expenditures at an annual rate
of $36.6 billion and implies an average rate of $38 billion
for the final two quarters.

THE FIRST KENNEDY BUDGET

By Herbert I. Schiller

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Hureau of Economic and
Ui^emxii. lis chief purpose is to provide businessmen of the
Stale and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce,
it free on request,
privileges authorized at Champaign, Illinois.

Robert Ferbek Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Steers

Dollars and Security

The federal budget for fiscal 1963 is estimated at
$92.5 billion. This figure represents a new peacetime
high, well above the estimated $89 billion to be spent in
the fiscal year ending June 30, 1962. Moreover, cash out-
lays of the federal government, which include outlays of
government trust funds and government-sponsored enter-
prises (such as Social Security), are also likely to rise
greatly, to a new record of $115 billion.

If anything, the present budget estimates may turn
out to be low, since they are predicated on the continua-
tion of prosperity conditions and on the absence of any
serious rise in international tensions. Should business
activity turn downward, additional expenditures may be
required for pump-priming purposes. Similarly, any out-
break of fighting on the international scene would bring
about a sharp increase in government expenditures.

More and More

The continuing increases in the size of the federal
budget during the postwar years has staggered the imagi-
nation of many people. As noted in the special article in
this issue, the fiscal 1963 budget is more than ten times
the size of the last peacetime budget before World War
II, and is twice the size of the peacetime budget just
preceding the Korean conflict. Surely, many people be-
lieve, much of this budget can hardly be necessary and
represents in large measure government for its own sake.

To some extent, this may be true. Large operations,
whether they be business or government, invariably con-
tain a certain amount of fat which might be eliminated
with no sacrifice of efficiency. More basically, however,
this does not answer the question. Elimination of waste
in federal expenditures is hardly likely to reduce the total
appreciably and is certainly not likely to reverse the
upward trend in government expenditures.

The real cause lies in a much more basic phenomenon.
This is the growing desire of the American people for
greater security. Originally, this desire was reflected
primarily in the need fur military security, to protect the
country's political system. Such protection clearly can
only lie provided by a central government.

In recent years, the increasing dangers from abroad
and the tremendous increases in military expenditures
have accounted for much the largest share of increase in

government expenditures. For example, in the fiscal 1963

budget, expenditures for national defense, international
affairs, and related activities amount to over $58 billion.
An additional $15 billion represents expenditures result-
ing from past security efforts, such as veterans benefits
and interest on the national debt. The combined total
represents more than 80 percent of the regular govern-
ment budget.

Filling the Void

Military safety is not the only type of security that
Americans want. In recent years, attention has been
focused on the desire for economic security. The Amer-
ican people want protection not only against invasion of
their political freedom but also against the danger of
invasion of economic poverty from the cradle to the
grave. They want medical benefits, protection against
income loss, and against many other contingencies. Fur-
thermore, they are seeking an ever-higher standard of
living not only in terms of purchasing power but also in
terms of culture and manner of living — educational op-
portunities, recreational facilities, even theaters in which
to develop new Barrymores.

All of this takes money. Welfare expenditures, schools,
and conservation are areas which only government can
look after. Contrary to military security, however, such
activities also fall within the province of state and local
governments. Indeed, theoretically, these activities could
be left to the state and local governments, with the fed-
eral government doing little except perhaps to help con-
solidate local activities.

No doubt, this was the principle on which this country
was founded. In practice, however, it has not worked out.
Particularly in recent years, state and local governments
have found it increasingly difficult to obtain the support
and funds for meeting the educational and welfare needs
of a rapidly growing population. Political institutions at
these levels do not seem to possess the flexibility for
enabling these governments to expand their operations in
proportion to the growth of their populations or the
increasing demands for more and better services. The
problem is particularly acute in such wealthy states as
Illinois and Michigan, where antiquated government in-
stitutions are unable to meet the needs of an affluent
population.

As a result, this task has largely fallen into the hands
of the federal government. Possessing greater flexibility
than local governments, and being run perhaps by people
with greater vision, the federal government is more will-
ing and able to meet the demands of the people for
greater economic security, particularly in the areas of
education and welfare. It is rather ironical to note that
the people who are the most vociferous in their protests
against bigger and bigger federal budgets are also most
vociferous in their protests against increased local spend-
ing, the effect of which is to promote the expanding
activities of the federal government.

In terms of dollars, the full effects of this trend on
federal government expenditures have not yet been felt.
Federal expenditures for education, health, housing, and
natural resources have risen relatively little so far. Yet,
with state and local governments being hamstrung by
antiquated revenue ordinances, and with the people de-
manding increasing amounts of educational ami welfare
Services, the federal government has to intercede as a

matter of political necessity, and government expendi-
tures are bound to increase substantially in these areas
over the next few years. rf

[ 2

ILLINOIS INDUSTRIES AND RESOURCES

COMMERCIAL LAUNDRIES

Commercial laundering, although one of the oldest of
personal services, has become the servant of the common
people only in the past century. In the thousands of years
before that time, laundering for pay was done chiefly for
the wealthy. Typically, launderers contracted for the
wash of several wealthy families over a long term, such
as a year.

The gradual emergence of the modern laundry indus-
try did not occur until a combination of factors made the
service both practical and economical for the average
family. Among these factors were the increasing availa-
bility of cotton materials and clothing, the growth of
urban areas where washing the family clothing became
more difficult, the gradual introduction of machinery and
more efficient cleansing agents, and higher incomes.

The first power laundry in this country was estab-
lished in 1851 by a gold prospector in California who had
become disgruntled by the long wait for his Hawaiian-
laundered shirts. During the ensuing half-century, the
industry grew little by little as various new machines
appeared, such as the rotating washer (1863), the roller
ironer (1875), and the steam press (1900). Commercial
laundries were not widely patronized, however, until
1917. Before then, laundries tended to specialize in the
processing of men's shirts and detachable collars, as well
as washables from ships and hotels. The stimulus came
during World War I as working wives and mothers gave
laundries a larger share of the family wash. After the
war, more laundries sprang up to satisfy this newly
created habit, one which together with a concurrently
expanding need for laundered items by other industries
has made the American laundry industry the largest in
the world today.

The Business Today

Commercial laundering has undergone its greatest
growth since World War II. In 1946, sales amounted to
$740 million, or less than double the 1925 figures. By
1960 receipts reached a record high of $2.2 billion. The
growth of the industry is further shown by the fact that
laundry sales rank second among the nation's service
industries.

No longer a "shirt and collar" business, the industry
consists of at least six different types of laundries, each
offering specific types of service. Family (or general)
laundries, which cater to both domestic and commercial
markets, are the most numerous, accounting for about
two-fifths of the 26,000 establishments and about half of
total revenues. The 750 linen suppliers and 1,600 indus-
trial launderers, in contrast to the general laundries,
which offer a full range of services, specialize in the
rental of such items as clean towels, wiping cloths, and
uniforms. Linen supply houses are the larger of these
two types, accounting for one-fourth of industry sales, or
twice that of the industrial laundries. The remaining 12
percent of sales is shared by self-service laundries, diaper
services, and hand laundries.

The typical laundry is small ; 90 percent of the plants
have fewer than 20 employees and 94 percent are single-
unit establishments. In general, the small proportion of
large establishments is made up primarily of general
laundries, linen suppliers, and industrial laundries.

Trends and Problems

The typical laundry owner is in a curious situation.
He is faced not only with a growing number of competing
laundries, but also with competition from his customers,
such as housewives or large institutions, who if necessary
can always turn to their own washing facilities. For this
reason, slim price markups are common to the industry.
As a rule, narrow profit margins are maximized more
often by greater efficiency of labor than by the addition
of machinery, a circumstance resulting from the fact that
labor remains a major cost item because of the numerous
hand operations still required.

One of the industry's most significant trends during
the postwar era has been the dynamic growth of neighbor-
hood self-service laundries, or launderettes. Nearly non-
existent in 1945, these establishments today number more
than 10,000 and have an estimated annual revenue of
$120 million. Most of the earlier launderettes were started
by inexperienced persons. Today, this new field is being
paced by professional Iaundrymen, who currently own
about two-thirds of the self-service facilities.

Laundries in Illinois

Illinois is one of the leading states in the industry.
In 1960, the 1,800 laundries in the State posted estimated
sales of $150 million, an amount surpassed only in New
York and California. During the same year, about 22,000
workers were employed here.

The postwar growth of launderettes has brought com-
mercial laundry service to many smaller Illinois com-
munities. However, the industry remains concentrated in
the larger urban centers, particularly in the Chicago
metropolitan district, which contains about 70 percent of
the state's 1,800 laundries and receives about 80 percent
of total Illinois laundry income. The state's seven other
metropolitan areas together account for about 12 percent
of sales.

Illinois is the headquarters for the American Institute
of Laundering, a unique organization serving more than
5,000 member laundries in the United States and Canada.
The AIL, located at Joliet, receives fabrics and garments
from commercial laundries throughout the nation for
testing of washability and wearability. Impartial findings
are reported for the benefit of laundries, manufacturers,
customers, and Better Business Bureaus. In its 40 years
of scientific research, the AIL has contributed signifi-
cantly not only to the progress of the laundry industry,
but has also given the public greater knowledge of the
life expectancy, serviceability, and launderability of all
washables.

YOUR STATE

L ^ J

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, December, 1961, to January, 1962

IcOAL PRODUCTION!

p:':''i"'':-:-:'l
ELECTRIC POWER PRODUCTION

k 1

(Hi

EMPLOYMENT- MANUFACTURING

1 i 1

1 1 1

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

■_Mi

BANK DEBITS

FARM PRICES

■ ill.
las.

"Not seasonally adjusted.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. .
Weekly earnings — manufacturing
Dept. store sales in Chicago4. . . .
Consumer prices in Chicago6. . . .

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. .
Petroleum production10

'Fed. Power Comm.; : III. Dept. of Mines; 3 111. Dept. of Labor;
4 Fed. Res. Bank, 7th Dist.; 'U.S. Bur. of Labor Statistics; • F. W.
Dodge Corp.; 'Fed. Res. Bd.; » 111. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn.; '"111. Geol. Survey.

a Data for December, 1961, compared with November, 1961, and
December, 1960. b Seasonally adjusted.

UNITED STATES MONTHLY

INDEXES

Item

Jan.
1962

Percentage
change from

Dec. Jan.
1961 1961

Annual rate

in billion $

430.3°

381.6"
55. 7"- b

21.0
16.1
13.0

21 .7<=

15.3'
6.3°

56. 3b
42. 8b
36. 5b
38. 3°

- 0.3

- 1.9
+ 0.9

- 7.4

- 7.9
-18.3

+ 0.5

- 3.1
+ 10.5

- 1.5

- 0.7

- 3.9
-15.6

+ 6.6

+ 10.8
+ 3.7

+ 20.9
- 0.1

Manufacturing1

New construction activity1

Private nonresidential

Foreign trade1

Merchandise exports

Merchandise imports

+ 1.1
+ 10.4
-16.0

+ 2.3

+ 0 1

Consumer credit outstanding2

+ 1.4

Industrial production2

Indexes
(1947-49
= 100)
H4«. d
109". d
122«-d
100»- d

97». e

100-
179°
179°
233
150"
105f

120
90
110
128

100'
104'
80*

- 0.9

- 0.9
0 0

- 10

- 0.6

o'o

- 1.7

- 2.0

oio

+ 0.4
+ 2.2
+ 0.9
+ 0.2

+ 1.0

+ 1.3

+ 11.8
+ 14.7
+ 9.9
+ 0.2

+ 3.2

+ 2.6
+ 3.9
+ 6.6
+ 7.0
+ 5.6
+ 0.7

Durable manufactures

Nondurable manufactures. . .

Manufacturing employment4

Factory worker earnings4

Average hours worked

Average hourly earnings

Average weekly earnings. .. .

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

Other

Farm prices3

Received by farmers

- 0.2
0.0

+ 1.0

0.0

Parity ratio

'U.S. Dept. of Commerce; 'Federal Reserve Board; 'U.S. Dept.
of Agriculture; * U.S. Bureau of Latior Statistics; » F. W. Dodge Corp.

•Seasonally adjusted. b End of month. ° Data for December, 1961,
compared with November. 1961, and December, 1960. d 1957 = 100.
• Revised. * 1957-59 = 100. s Based on official indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Jan. 27

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous

Petroleum (daily avg.) thous. bbl

Steel 1947-49 = 100

Freight carloadings thous. of cars

Department store sales 1947.49= 100

Commodity prices, wholesale:

All commodities 1947-49 = 100

Other than farm products and foods. . 1947-49 = 100

22 commodities 1947-49 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,333
16,110

160
7,450

140

511

119

119.3
127.5
83.4

32,173
309

1,372
16,266
160
7,471
142
538
122

119.4
127.6
83.4

1,362
16,468
153
7,479
142
542
118

119.

127.
84.

32,038
313

1,373
16,440

162
7,406

142

549

114

119.5
127.8
84.7

31,992

345

1,371
16,686

166
7,420

139

533

117

119.6

127.8
85.1

31,981
389

7,207
91
468
122

120.0"
128. 1"

84.4

$1,477

348

S..ut

Survey of Current Business, Weekly Supplements.

■ Monthly

[ 4 ]

ex for February, 1961.

RECENT ECONOMIC CHANGES

Agricultural Exports Set Record

New records in the value and volume of United States
agricultural exports were set during fiscal 1960-61. The
value of these exports rose 9 percent above 1960 and 5
percent above the prior peak of 1956-57 to $4.9 billion.
At the same time, export volume rose 7 percent over the
previous record in fiscal 1959-60.

Substantial increases in wheat and cotton exports, as
shown in the chart, accounted for over 90 percent of the
value gain. Increases occurred also in soybeans, tobacco,
hides and skins, poultry products, and meat. Major reduc-
tions in exports by value were in animal fats, cottonseed
and soybean oils, and vegetables and preparations.

The amount of cash receipts derived from last year's
exports totaled 15 percent of total farm marketings.
Both dollar sales and shipments under government-
financed export programs contributed to the rise in ex-
ports in 1960-61. Agricultural dollar exports rose 6 per-
cent from 1959-60 to a record $3.4 billion. Wheat, corn,
soybeans, cotton, and tobacco showed the largest increases
over 1959-60 ; sales of poultry, meat, variety meats, and
hides and skins were also up.

Gold Losses Decline

The loss of gold by the United States to foreign
central banks and individuals declined slightly in 1961
after reaching a post-World War II high in 1960. Since
1950 the United States has lost gold at an annual rate of
$633 million to bring the gold stock, as of January 1,
1962, to $16.9 billion. Most of this gold has gone into
foreign central banks as part of their reserves, but an
increasing amount has been purchased by individuals.

This private hoarding, which had been taking about
$400 million a year of the world's gold supply in the early
fifties, jumped to at least $700 million in 1960. Specula-

AGRICULTURAL EXPORTS

DOLLARS, MILLIONS

Source: U.S. Department of Agriculture.

tors on the London market drove the price up to $40 an
ounce in anticipation of devaluation of the United States
dollar. However, the amount going into private holdings
in 1961 was reduced to about $500 million, primarily be-
cause of assurances by the United States government that
the dollar would not be devalued and also to an improve-
ment in the balance of payments.

With the total gold production in the non-Communist
countries valued at $1.2 billion and gold sales by the Com-
munist nations amounting to $250 million, a total of $1.45
billion in new gold became available last year on the
principal world markets in London, the Middle East, and
India. Of this amount it is estimated that $750 million
went into the official reserves of foreign central banks,
$350 million went for the use of industry, and $350 million
went into private hands.

Family Income Continues Upward

Median family income in the United States increased
about $200 between 1959 and 1960. From 1947 to 1960
median family income in terms of constant (1960) dollars
rose 40 percent, from $4,000 to $5,600. During this
period the number of families receiving $3,000 or less
(in constant 1960 dollars) dropped from 12.3 million to
10 million. A similar decline occurred in the $3,000 to
$5,000 income class, where the number of families de-
clined 23 percent to 9.1 million. In contrast, the number
of families in the $10,000 and over class increased from
2.2 million in 1947 to 6.4 million in 1960.

In 1960, families whose heads were year-round full-
time workers had a median income of $6,600. Families
with heads who worked only part of the year or not at
all had a median income of $3,600. About one-third of
these latter heads of families gave unemployment as the
major reason for their inactivity in 1960. The median
income of about 6 million families headed by persons over
65 was $2,900, whereas the median income of unrelated
individuals over 65 was only $1,100.

Little Change in Housing Vacancies

Following several years of continuous though gradual
increase, the national rental vacancy rate fell between
the second and fourth quarters of 1961 from 8.1 percent
to 7.7 percent of the total, and the homeowner vacancy
rate dropped from 1.4 percent to 1.2 percent. However,
the average rates for 1961 were still higher for both
types of vacancies than in 1960.

The rental vacancy rate in the fourth quarter was
lowest in the Northeast (4.0 percent) and highest in the
West (9.5 percent). For homeowner vacancies, the high-
est rate was 1.5 percent in the South and the lowest 0.8
percent in the Northeast.

The quality of available vacancies as measured by
plumbing facilities remained about the same, with 70
percent of the rental vacancies having hot running water,
private flush toilet, and bath, and 90 percent of the home-
owner vacancies having similar facilities.

Retail Sales in 1961

Total 1961 sales of all retail stores in the United
States amounted to $218.9 billion, only $600 million less

(Continued on page 8)

t 5 ]

THE FIRST KENNEDY BUDGET

HERBERT I. SCHILLER, Research Associate Professor

President Kennedy consistently has emphasized the
dynamic qualities of the times in which we live. This
was the message of his TV campaigning, his inaugural
address, and his innumerable public utterances since as-
suming the Presidency. It is not without some interest,
therefore, to examine how his understanding of the de-
mands of the age is reflected in the first "all-Kennedy"
budget for the fiscal year 1963, which was submitted to
Congress on January 18, 1962.

To begin with, the total size of the budget is the
largest ever in peacetime. Its $92.5 billion expenditures
level is up $3.4 billion over fiscal 1962, and it is $11 billion
higher than fiscal 1961, the last "all-Eisenhower" budget.
It is more than double the $44 billion in fiscal 1951, the
budget prepared before the outbreak of the Korean War.
and it is ten times the 1940, pre-World War II expendi-
tures level of $9.1 billion. Administration supporters are
quick to point out to potential critics of the magnitude of
this proposed federal spending that the proportion of ex-
penditures to GNP has not been rising, and has, in fact,
declined slightly in recent years. For this to continue to
be true, GNP must grow more rapidly than federal spend-
ing, and this is predicted for the next fiscal year.

The budget calls for a marked increase in military
outlays. National defense spending is up $5.2 billion over
1961's level, an increase of almost 11 percent in two years,
and spending on the space program has raced from $700
million to $2.4 billion over the same interval, an increase
of 243 percent. There are also many shifts of consider-
able magnitude in the smaller categories on the expendi-
tures side. Agriculture is down, housing is up, education
is up, health and welfare are up, natural resources are
up. These latter items are impressive in absolute terms,
and in comparison with earlier bucolic periods in Amer-
ican history they appear to be enormous, but they are

CHART 1. BUDGET EXPENDITURES
BY FUNCTION

(Billions of dollars)

"IONAL DEFENSE '•.' 7

5PACE RESEARCH 8. TECHNOLOGY

VETERANS

AGRICULTURE

HEALTH, LABOR 8, WELFARE

COMMERCE 8. TRANSPORTATION

NATURAL RESOURCES

EDUCATION
HOUSING 8. COMMUNITY DEVELOPMENT

Source: U.S. Bureau of the Budget.

still relatively inconsequential in the total budget (see
Chart 1).

On the revenue side, a sizable increase of $10.9 billion
in federal receipts over fiscal 1962 is projected for 1963,
constituting a 13 percent rise in revenues.

These are the ingredients of the recipe. What is the
character of the preparation? Some have noted a filmy
quality surrounding this budget, despite the very real
nature of the almost $93 billion of contemplated expend-
itures.

Economic Assumptions

There is some uneasiness over the character of the
economic assumptions in the budget's formulation. Gross
national product is projected from its estimated 1961
(calendar year) level of $521 billion to a $570 billion
level in 1962, and no pause in rising economic activity
is foreseen before the summer or late fall of 1963, by
which time GNP is supposed to reach an annual rate of
$600 billion. It is further expected that unemployment
will recede from its current 4.5 million level to 3 million;
and the rate of unemployed in the labor force, which
hovered between 6 and 7 percent for 16 months before
dropping to 5.8 percent in January, 1962, and to 5.6 per-
cent in February, will recede to an "acceptable" 4 percent
by mid- 1963. It is on the basis of this expected strong
showing in the economy that the budget-makers anticipate
governmental receipts of $93.7 billion in fiscal 1963. This
estimate is predicated on increases in the individual in-
come tax of $4.3 billion and in the corporate profits tax
of $5.3 billion. This, in turn, is the source of the balanced
budget which is calculated to follow an estimated $7
billion deficit in fiscal 1962.

Does the current situation warrant this confidence?
Certainly the present recovery is no roaring avalanche.
President Kennedy's State of the Union Message to Con-
gress on January 12, 1962, reflects, perhaps, the mood of
the budgeteers: "At home we began the year in the valley
of recession. We completed it on the high road of re-
covery and growth." Yet the unemployed rate is still
5.6 percent and this does not include 700,000 job-seekers
who apparently dropped out of the labor force in 1961
(and therefore do not appear as unemployed seeking
work) because work was scarce.

It fails to take into account that the one-time stimula-
tion of the Berlin-induced increase in defense spending
has been largely absorbed. Unless new increases are
scheduled over and above the budget's estimates, or the
rate of defense spending is further accelerated, not much
more of an upward thrust can be expected from this
source in the period immediately ahead, though a serious
downward movement is obviously cushioned. The Presi-
dent's requests to Congress for special authority to order
income tax reductions, authorize public works programs,
and extend unemployment insurance compensation are
sufficient evidence of the awareness of the possibility of
future dips as well as ascents, in economic activity.

The President's requested 8 percent new investment
depreciation credit is a still-to-be-tested alternate engine
for energizing economic activity. Corporate capital spend-
ing is likely to continue to proceed warily, though the
President's economic advisers look for a marked upswing
in the second half of 1962. The last quarter of 1961
revealed that significant underutilization of capacity still

t 6 ]

existed throughout the economy, though economic activ-
ity was much more vigorous than it had been a year
earlier. In mid-1961, a National Industrial Conference
Board study characterized overcapacity as a condition
likely to persist throughout much of the decade.

Unresolved Problems of the Economy

The decision to present a balanced budget was made,
most agree, to allay international anxieties about the
fiscal responsibility of the Administration and to provide
a favorable domestic atmosphere for private capital
investment. It is questionable whether either of these
objectives is likely to be influenced positively by the
document submitted. On the international payments situ-
ation, the budget is probably regarded, by those who
make such judgments, as further evidence that the United
States is economically overextended. Waging the cold
war on a world front has developed strains in the largely
uncontrolled domestic resource base. Many may feel
that the painful task of withdrawing some of the coun-
try's commitments, or of introducing some tough domestic
controls, is still being postponed by the Administration,
as it was by the preceding Administration. As for con-
vincing domestic businessmen that the Administration is
not hostile and is in fact sympathetic, are not more ob-
jective forces at work determining business investment
policy than a precariously balanced budget? What the
effort at balancing probably indicates is that the President
and his advisers are far more conventional in their fi-
nancial policy than they admit. Closely related may be
the corollary consideration that the economic-political
problems facing the Administration, both domestically and
internationally, are proving themselves to be intractable,
and the President finds the institutions within which he
must pursue his aims vexingly confining and increasingly
frustrating.

When attention is turned to the domestic objectives
of the Administration, the problem is more apparent.
Though the usual opposition to such expenditures is un-
likely to be convinced, the President pointedly noted that
domestic civil functions, which include agriculture, natural
resources, commerce and transportation, housing and
community development, health, labor, and welfare, edu-
cation, veterans benefits and services, and general gov-
ernment, "have been held virtually stable between 1962
and 1963." There were some shifts within categories but
the total moved only from $25.3 billion to $25.4 billion.
Many will consider such restraint remarkable in that in
the 12 months preceding this budget, and all the while it
was being prepared, there appeared: (1) hair-raising re-
ports on the state of the nation's urban high schools (for
instance, the Conant Report, Slums and Suburbs, and the
Schinnerer Report on the inadequacy of the public school
system in New York City) ; (2) a sobering study con-
trasting favorably the quality, character, and output of
Soviet professional and technical manpower with their
American counterparts (Education and Professional Em-
ployment in the USSR by Nicholas De Witt, for the
National Science Foundation); and (3) a number of
carefully documented works on the extent of the nation's
critical needs in urban redevelopment (one study esti-
mated that satisfactory urban renewal would cost "almost
two trillion dollars by 1970"), growing water needs, mass
transport and general transport problems.

Boulding, Bator, and other economists have made
careful analyses of expenditures data which show thai
federal government spending for welfare and civilian

purposes has decreased as a proportion of the gross
national product in the five pre-Kennedy administrations.
To date this trend has not been reversed under the
present Administration. Though the needs patently have
become more urgent with the passing years, there is no
significant move in the direction of such spending. In
the fiscal 1961 Eisenhower budget, federal spending on
education accounted for 1.1 percent of the total expendi-
tures. In the 1963 document, it will account for 1.6 per-
cent if Congress passes the modest aid-to-education
measures proposed by the President.

Expansion of Research and Development

These relationships give a special significance to
another item in the budget, research and development.
Expenditures on R&D are not combined in one category
but are spread throughout the budget, appearing in allo-
cations to the Atomic Energy Commission, the National
Space Agency, the Department of Defense, the National
Health Institute, the National Science Foundation, and
other organizations. In the new budget R&D expendi-
tures will reach $12.4 billion, compared with $10.2 billion
this year (see Chart 2). The growth in research and
development has been nothing short of breathtaking. In
1945 total R&D expenditures from industry, government,
and colleges and institutions amounted to $1.8 billion, the
federal government's share being a modest $800 million.
Going back to pre-World War II days, in 1936, the
United States government spent less than $40 million in
support of science and technology. There was no National
Science Foundation and no Atomic Energy Commission.
Increasing steadily throughout the postwar period, R&D
expenditures have jumped spectacularly in the last few
years. As recently as 1955, the federal government spent
only $3.5 billion in this area. In a little more than seven
years the increase has exceeded 250 percent, starting
from a not inconsiderable base.

CHART 2. FEDERAL EXPENDITURES
FOR RESEARCH AND DEVELOPMENT

DOLLARS, BILLIONS

Source: Science, January 26, 1962, p. 300.

[ 7 ]

Curiously enough, the spending of this huge sum pro-
duces many of the critical problems alluded to above.
Though well over half of the spending goes into weapons
systems and analysis (the total Defense Department
R&D budget will be $7.1 billion, which includes its space
program), a very substantial portion finds its way into
basic research, product development, and new equipment,
all of which are revolutionizing life in the United States.
The displacement of the industrial labor force by ma-
chines, the incredible rise in agricultural productivity
which is creating surpluses of foodstuffs and farmers,
and the new communications and transport systems which
are turning the country into a vast interurbia with mas-
sive traffic and air pollution problems are offspring, some-
times unacknowledged, of this "research revolution."

The government, through its expenditures on science
and research, is promoting the rapid transformation of
society. This is being accompanied by needs unimagined
in a less turbulent era. One of many possible illustrations
is the rising requirements for technical manpower. The
President, just prior to his budget message, expressed
his concern with "one of the most critical problems facing
this nation . . . the inadequacy of the supply of scientific
and technical manpower to satisfy the expanding require-
ments of this country's research and development efforts
in the near future." He pointed out that there had been
declines in the last decade in the number of graduates in
the physical sciences, the biological sciences, and engi-
neering. The new budget gives surprisingly little reason
to hope that these lags will be overcome.

Out of Aladdin's Lamp of technological research, the
genie automation has arisen. Two items are included in
the new budget to take care of his awesome needs. There
is a proposed expenditure of $60 million for manpower
development and training and there is another $60 million
request for youth employment opportunities. The almost
invisible slice of the $93 billion budget that these pro-
posed expenditures represent is the best reflection of the
enormous gap that separates the rapidly expanding re-
quirements of this changing age and the modest measures
proposed to meet these needs.

The Military Component

There is, it would seem, one area in the national
budget wherein proposed expenditures are not desperately
short of realistically estimated requirements. This is the
national security component.

The present government presumably views the perils
facing the American society from abroad in much the
same way as predecessor administrations. In its alloca-
tion of the resources available to sustain and strengthen
the national economy, the preponderant proportion con-
tinues to be channeled into the military sector. "More
than three-quarters of the increase [over 1962's budget]
is accounted for by national security and space activities,"
and "about four fifths of the $92.5 billion of budget
expenditures estimated for 1963 represent costs associated
with our current national security and with past wars."
In determining priorities for national programs, all of
which may be considered to possess some urgency, the
military claim is apparently heeded first, often a! the
expense of other claimants. Because "of the increasing
requirements for national security," the President noted,
"many desirable new projects and activities are being
deferred."

Though no one expects the military to reduce its role
voluntarily, the President has repeatedly affirmed his

view that schools are on a parity with missiles in the
maintenance of the society's over-all vigor and defense.
This introduces some perplexing questions so far as the
Administration's budget recommendations are concerned.
It is the consensus of recent national polls that President
Kennedy is an extremely popular leader, perhaps the
most widely admired since Franklin D. Roosevelt. Can
the Administration's concern with reining in expenditures
in the domestic civil function categories be interpreted as
other than a denial of its leadership position and an
unexpected retreat from its own perspectives initially
presented to the American people?

More worrisome, the meager preparations for the
changes being speeded by the unchained forces of tech-
nology, amply assisted by this (and the preceding) Ad-
ministration, may reduce the nation's ability to face the
awesome challenges that lie ahead.

Recent Economic Changes

(Continued from page 5)

than in 1960. As shown in the accompanying chart, sales
of nondurable goods stores increased 2 percent over 1960,
whereas sales of durable goods stores were 5 percent
below 1960.

Among the various kinds of retail businesses, the
general merchandise group recorded the largest percent-
age increase over the 1960 level, rising 4 percent. The
food group and eating and drinking places showed ad-
vances over 1960 of 3 and 2 percent respectively. Within
the food group, grocery stores showed the largest increase
with a gain of 3 percent whereas meat markets had the
biggest decline with a loss of 5 percent in sales. Among
the eating and drinking establishments only restaurants,
cafeterias, and lunchrooms showed a gain over the pre-
vious year.

PERCENTAGE CHANGES IN RETAIL SALES
1960 TO 1961

U.S. TOTAL

DURABLE GOODS STORES,
TOTAL

AUTOMOTIVE GROUP

LUMBER, BUILDING, HARDWARE,
FARM EQUIPMENT GROUP

FURNITURE & APPLIANCE
GROUP

0000444
008880a

NONDURABLE GOODS
STORES, TOTAL

FOOD GROUP

EATING 1. DRINKING
PLACES

GENERAL MERCHANDISE
GROUP

APPAREL GROUP

E_d

Source: U.S. Bureau of the Census.

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Nonfood Buying in Grocery Stores Rises

Modern supermarkets and consumer buying- habits are
expanding the definition of groceries. In recent years,
nonfood sales in groceries have increased steadily and
are continuing to account for a larger share of total
grocery store sales.

Food sales in grocery stores have declined from 88
percent of total sales in 1947 to 80 percent in 1959. Dur-
ing this same period, beer, wine, and liquor sales jumped
from 2 percent of the total to 5 percent, and other non-
food purchases increased from 10 percent to 15 percent.

These long-term trends have recently been mirrored
in a United States Department of Agriculture study con-
ducted in Indianapolis. It was found that about 18 per-
cent of the total spent in grocery stores went for nonfood
items of all types. Of the average dozen items per shop-
ping basket, two were nonfood. About 60 percent of the
shoppers observed had at least one nonfood item and
6 percent had only nonfood items.

The study also showed that in general nonfood buying
tended to be somewhat higher in suburban stores than in
stores located in city centers, residential areas, or in
small towns. However, small-town stores sold a higher
proportion of nonfood items exclusive of alcoholic bever-
ages than stores located in the other areas.

Trends in FHA Mortgage Market Prices

During the post-World War II period FHA mortgage
market prices have varied according to the region of the
country. The Northeast and Middle Atlantic regions have
had the highest regional averages of secondary market
prices for FHA 25-year home mortgages. Among the
other four regions, the North Central area has had the
lowest average.

The differences between regional averages of second-
ary market prices have varied from about one point to as
much as three points during the postwar period, depend-
ing on the credit demands of the economic area. The
spread between regional averages tends to increase dur-
ing periods of mortgage market tightness and to narrow
when market conditions ease.

The highest prices and best supply of funds have been
reported in the Northeast and Middle Atlantic areas. In
the other four regions, high prices and an adequate supply
of mortgage money have tended to occur only when there
was a general weakening in money market conditions.

Technical Help for Area Development

The first three technical assistance project grants to
be approved under the Area Redevelopment Act of 1961
have been announced by the United States Department of
Commerce. The areas selected are southern Illinois,
where the economic feasibility of constructing a 25,000-
acre reservoir is being studied; northeastern Minnesota,
where the testing of low-grade ores from the western
Mesabi Range for possible use in iron and steel produc-
tion is proceeding; and New Bedford, Massachusetts,
where fishing production methods and facilities are being
Studied with the goal of stabilizing employment by in-
creasing the local processing of the catch.

This program has been specifically designed to help
break bottlenecks which currently impede economic

growth and to improve economic conditions. It is ex-
pected that this program, though aimed at specific local
or regional development problems, will also serve areas
with similar problems elsewhere in the country by estab-
lishing guidelines and procedures to be followed.

Population Mobility Remains Stable

During the past 14 years the over-all mobility rate of
the population has fluctuated very little. In this postwar
period the percentage of reported movers in the total
population one year old and over has ranged from 18.6
to 21.0, as indicated in the chart. Of the 174 million
persons one year old and over living in the United States
in March, 1960, 12.9 percent had moved from one house
to another in the same county during the preceding year.
At the same time 3.3 percent were living in a different
county in the same state and 3.2 percent in a different
state from the previous year.

The lack of a definite trend in the mobility rates of
the population is a result of offsetting trends within the
white and nonwhite populations. The white pattern has
been one of a declining intracounty movement with little
or no change in the intercounty and interstate rates. On
the other hand, the nonwhite population has shown an
increase in intracounty movement, with decreases in in-
tercounty and interstate movement.

During the 1959-60 period the mobility rate of the
rural-nonfarm population reached 21 percent, some 1.7
percent higher than that of the urban rate and 7 percent
above the rural-farm population. Postwar mobility rates
were highest among the young adult ages and declined
with age. Also the mobility of males continues to be
higher than that of females, although the rate for young
adult females (18-24) is somewhat higher than for their
male contemporaries.

POPULATION MOBILITY

JTRACOUNTY MOVERS,

INTRASTATE MIGRANTS \

INTERSTATE MIGRANTS'

I947--48 '49--50 '5I--52 '53-'54

Source: U.S. Bureau of the Ccr

•S7--58 I959--60

[ 9

LOCAL ILLINOIS DEVELOPMENTS

Illinois Ranked High in Exports

A nationwide survey by the Bureau of the Census
placed the value of manufactured products exported by
Illinois during 1960 at $1,408 million. The State ranked
second only to New York.

The survey, the first of its kind ever completed, was
based on questionnaires returned by plants employing
more than 100 workers and exporting more than $25,000
worth of products in 1960. It showed that Illinois ranked
first in exports of machinery (except electrical), with a
value of $653 million. In electrical machinery Illinois
ranked second, with exports valued at $124 million.

Illinois ranked first in food and kindred products, with
exports valued at $184 million, and in leather and leather
products, exports of which were valued at $18 million.
The State ranked second in printing and publishing ex-
ports and third in exports of furniture and fixtures and
of fabricated metal products. Substantial exports also
occurred in transportation equipment ($131 million),
chemicals and allied products ($56 million), and instru-
ments and related products ($38 million).

Other manufactured goods in which Illinois ranked
high among the states as an exporter were rubber and
plastic products, petroleum and coal products, and prod-
ucts of the primary metal industries.

Municipal Street and Highway Planning

The establishment of a new urban planning bureau in
the Division of Highways was announced in January by
W. J. Payes, Jr., director of the Illinois Department of

POPULATION CHANGES, 1950 TO 1960

jffixfl +35.0% 8. OVER
Exlxj +15.0% TO 34.9%
§H| +0.1% TO 14.9%
fcv/j 0.0% TO -9.9%
| -10.0% OR MORE

Source: U.S. Bureau of the Censu

Public Works and Buildings. The purpose of the bureau
is to assist Illinois municipalities in developing long-
range street and highway programs and tying them in
with local and regional development programs.

Present plans also call for expanding the urban plan-
ning section in the headquarters of the Division of High-
ways at Springfield. This will require the services of
engineers who are specialists in the field of municipal
street and highway improvements. Similar sections will
be established in each of the 10 district highway offices.

The Division of Highways in recent years has com-
pleted a series of street and highway programs for East
St. Louis, Rock Island-Moline-East Moline, Decatur,
Rockford, Springfield, Peoria, Kankakee, Danville, Mat-
toon, Joliet, Quincy, Galesburg, Carbondale, Waukegan,
Pekin, and Champaign-Urbana. Street and highway plans
are presently being developed for Bloomington-Normal,
the Fox River Valley, and Mount Vernon.

Jobless Pay Changes Made

Substantial improvements in legislation affecting the
unemployed were made during 1961. A major achieve-
ment was a change in the Illinois Unemployment Com-
pensation Act which resulted in raising the maximum
weekly benefits from $32 to $38 a week for a single
person with no dependents and from $50 to $59 a week
for an unemployed person with four or more dependents.

Another amendment to the act permitted payment of
benefits to jobless workers undergoing vocational train-
ing. Eligibility requirements for temporary benefits were
altered, making claimants who are entitled to extended
payments under other state and federal programs ineli-
gible for Illinois extended benefits.

Unemployment benefits in excess of $174 million were
paid during the first 11 months of 1961 under the regular
Illinois Unemployment Compensation program. In addi-
tion, nearly $43 million was paid from various federal
programs operating within the State.

Illinois Population Increased

Between 1950 and 1960 the population of Illinois
increased 1.4 million according to the 1960 Census of
Population. This was the largest gain recorded during a
10-year period in the history of the State. Illinois, with
10,081,158 inhabitants, ranked fourth among the states
in total population, and seventh in percentage of increase
(15.7) for the decade.

Half of the state's counties gained and half lost
population. The net increase in the 51 counties adding
population was 1.4 million and the net decrease in the
51 counties losing population was 82,536. Most of the
population gains occurred in the northern, central, and
east central counties and in those counties with relatively
large cities. Most of the losses were concentrated in the
southern and western areas of the State (see chart).

The county showing the greatest gain from 1950 to
1960 was DuPage, with an increase of almost 103 per-
cent. Increases amounting to 35 percent or more of the
1950 populations were registered by the counties of Kane
(39 percent), Kendall (45 percent), Lake (64 percent),
McHenry (66 percent), Will (43 percent), and Winne-
bago (38 percent). Losses of 20 percent or more were
recorded for Alexander, Gallatin, Hardin, Johnson, Pope,
Pulaski, and Saline counties, with the greatest loss —
30 percent — having occurred in Pope County.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
January, 1962

Building

Permits'

(000)

Electric
Power Con-

sumption-
(000 kwh)

Estimated
Retail
Sales3

(000)

I >epart-

lent Store
Sales1

Bank
1 >ebits6

(000,000)

ILLINOIS

Percentage change from

NORTHERN ILLINOIS
Chicago

Pen iniage change from.
Aurora

Percentage change from.
Elgin

Percentage change from.
Joliet

Percentage change from.
Kankakee

Percentage change from .
Rock Island-Moline .

Percentage change from.
Rockford

Percentage change from

CENTRAL ILLINOIS

Bloomington

Percentage change from
Champaign-Urbana

[Dec,

Jan.

[961
1961

Danville

Percentage change from.
Decatur

Percentage change from.
Galesburg

Percentage change from.
Peoria

Percentage change from .
Quincy

Percentage change from.
Springfield.

Percentage change from.

SOUTHERN ILLINOIS

East St. Louis

Pin cntage change from.
Alton

Dec, 1901
\Jan., 1961.

|i,, . l'>oi
(Jan., 1961.

fDec, 1961
Jan., 1961.

/Dec, 1961.
(Jan., 1961.

Dec, 1961.
Jan., 1961.

Dec, 1961

Jan., 1961.

/Dec, 1961.
/Jan., 1961.

/Dec, 1961
Jan., 1961.

Percentage change from. U^n'', 1961

(Dec, 1961
/Jan., 1961.

(Dec, 1961
Jan., 1961.

I Dec, 1961.
Jan., 1961.

I Dec, 1961
Jan., 1961 .

I Dec, 1961.
Jan., 1961.

/Dec, 1961.
Jan., 1961.

Dec, 1961

Jan., 1961.

, , I Dec, 1961

Percentage change from ^an ,,)()|

Belleville

Percentage i hange fro

Dei .. 1961
Jan., 1961.

$17,934"

-31.2
-27.1

$13,624
-39 3

-25 5

$ 116
-28.8
-58.0

$ 196
-35.7
-15.9

$ 97
-17.1
-62.4

$ 887
-2,011.9

+577.1

$ 657
-9.8
+32.5

$ 1,187
+93 9
-29.1

$ 650

+ 702.5

+324.8

$ 187

+ 7.5

+62.6

$ 145

+ 79.0

-on 3

$ 81

+ 12 5

-59 7

$ 0

-100.0

-100 0

$ 0

-woo

-100 0

$ 49

-66.4

-71 2

-41.7

$ 28

84 8

9i I

$ 23

-80.7

■ 27 8

1,440,891"
+6.0

+ 10.5

1,046,887
+5.4
+10.0

33,666

+7.8
+34.8
64,432'
+ 13 1
+ 11 .9

13,043

—2.6

+5.7

19,107

+9.5

+ 14.0

19,876

+11.4

+28.4

39,185

+5.6

+4.4

10,786

+6.2

+3.2

67,866c

+4.5

+8.4

16,367

+ 16.7

+ 18.5

49,857'

+2.6

+11.9

18,207
+4.7
-3.9
27,161
+ 14.8
+ 13.9
14,450
+9.7
+ 6.2

$726,105
+13.9

+ 6 0

$514,498
+12.2
+ 6.0

$13,025
+28.6
+ 17.2

$ 8,668
+ 15.0
+6.0

$15,238
+22.1
+9.1

$ 7,655
+26.2
+ 11.3

$15,227
+27.8
+ 10.6

$26,724
+12.3
+10.8

$ 8,363
+18.8
+ 12.1

$12,742
+14.3
+20.7

$ 8,782
+20.4
+ 6.4

$15,175
+16.7
+5.0

$ 6,258
+22.4
+3.9

$23,489
+17.4
-19.5

$ 7,637
+ 17.3
+9.0

$18,744
+12.2
+ 18.2

$10,378
\-14.6

+0.9
$ 6,989
+21 . 5
+ 11.7
$ 6,515
+ 18.6
+2.7

$23,193"
+3.8
+7.9

$21,563
+3.8
+8.1

$ 83
-0.0
+0.6

$ 55
+2.1
+4.8

$ 103

+ 7.8

+11.0

n.a.

$ 124''

-2.4

+ 7.3

$ 215

-1.3

+ 6.5

+ 15.0
+ 15.3

; 92

+2.3

+3.8

; 53

-0.1
-0.1

; 125

-1.6

+0.2

$ 267
+ 13
+ 11.8
$ 59
-0.5
-1.5
$ 157
+ 15.0
+ 10.1

148

+ 6.7
-5.4
49
+9.3
+ 6.6

» Total for cities listed. b Includes East Moline. 'Includes immediately surrounding territorj n.a. Nol available.

Sum i r -. I I,. ,ii s l p. i i.i in- in.ii- ii-iirra! i ,ni ,ti a, i Inn pniji , i-. Local power i ompanies. • Illinois Department ol R

Data are foi December, 1961 < omparisons relate to Novi mber, 1961, and December, l'loO. ' Research Department oi Seventh Federal
KiMiirl'Miikii hiiagiH Percentage* pounded liv source '- Federal Reserve Board. 8 Local post office reporl Foui week accounting
teriods ending February 2, 1962, and Februar) 3, 1961.

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949= 100

EMPLOYMENT-MANUFACTURING

ILL.

"V/-Vy'~

U.S.

'59

* REVISED SERIES

AVERAGE WEEKLY EARNINGS-MANUFACTURING

!LL/

♦REVISED SERIES

-ANNUAL AVERAGE-

DEPARTMENT

STORE

SALES

(adj.;

y^vA-

'^M

ILL. ^

COAL PRODUCTION

'52 '59 I960 1961 1962

■ ANNUAL AVERAGE ■

BUSINESS LOANS

CASH FARM INCOME

A°°

ILL.

I I I , ,Um'

♦revise

D SERIES

U.S. *

i A

K A

ILL.

Wyv U

\LNV

* REVISE

3 SERIES

1961 1962

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

<"^/

/U.S.

♦revise

D SERIES

-29 '36 '44 '52 '5£

I960

1961

1962

V£&

b>°

/u.s.

777777

1961 1962

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN MARCH

Although many observers of business conditions have
expressed concern about the sluggish pace of the economy,
March activity was generally characterized by further
advances. The automobile industry produced 687,000 pas-
senger cars, nearly 50 percent more than in the year-
earlier month and 28 percent more than in February.
Sales of about 616,000 American-made cars were more
than one-fourth higher than in March, 1961, and well
above February on a daily rate basis. Weekly steel pro-
duction was down slightly as declining fears of a strike
in the industry reduced orders. But paper and paperboard
production advanced, as did electric power output. The
index of industrial production picked up 1 point to reach
a new peak of 116 percent of the 1957 average.

The high level of automobile sales and record depart-
ment store volume contributed to a new high in season-
ally adjusted retail sales at $19.3 billion. Unemployment
in March fell 161,000 to 4.4 million, a somewhat greater
than seasonal decrease, and employment rose seasonally
to 66.3 million, up 527,000 from February.

Personal Incomes Rise

The nation's personal income in March increased to
a record seasonally adjusted annual rate of $435 billion.
This was slightly above the February rate and almost 7
percent higher than in March of last year.

The record rate in March reflected increased incomes
of many different economic groups — factory workers,
business proprietors, professional persons, and farm own-
ers. Construction payrolls were one of the few categories
to decline, because of the lag of construction activity be-
hind the recent increase in housing starts.

Construction Expands Seasonally

Preliminary estimates indicate that the value of total
new construction put in place in March amounted to
$4.1 billion, about 8 percent more than the revised esti-
mate for February and 2 percent above March, 1961.
The increase from February was approximately the nor-
mal seasonal change expected at this time of year.

Spending for total new private construction in March
amounted to $3.0 billion, 7 percent above the revised
February figure and 4 percent above March, 1961 ; the
normal seasonal rise expected between February and
March is put at 6 percent. Construction of private non-
farm residential buildings accounted for $1.6 billion, about
the normal seasonal 9 percent increase over February.

Total new public construction expenditures were esti-
mated at $1.1 billion, 9 percent more than the revised
February figure and 4 percent below March a year ago.
An increase of about 12 percent in this type of construc-
tion is normally expected between February and March.

Sales, Inventories Rise

Total sales of manufacturing and trade firms ad-
vanced $650 million on a seasonally adjusted basis to
$64.7 billion in February. Increases of $690 million in
manufacturers' sales and $220 million in retail sales more
than offset a $260 million decline in sales by wholesalers.
Both durable and nondurable goods industries shared
widely in the sales gain of manufacturers, although much
of the increase in the former was concentrated in the
steel and motor vehicles and parts industries. Most major
lines of trade participated in the improvement in retail
sales. The entire decline in wholesale sales occurred in
nondurable goods.

The book value of inventories held by manufacturing
and trade firms rose $550 million in February, after
seasonal allowances, bringing the total to $96.7 billion.
Additions to manufacturers' stocks, mostly in the durable
goods industries, accounted for $450 million of the
increase.

Total inventories at the end of February were up
$3.1 billion from the year-earlier figure and total sales
for the month were up $4.5 billion, so the stock-sales
ratio of 1.5 was down about 5 percent.

Consumer Debt

The annual post-Christmas curtailment of consumer
short- and intermediate-term debt continued in February,
reducing the total of these obligations outstanding at
the end of the month to $55.6 billion, $686 million below
the month-earlier figure. After allowance for seasonal
factors, an increase of $137 million was recorded, a gain
of $236 million in instalment debt more than offsetting a
decrease in noninstalment debt.

On a seasonally adjusted basis, automobile paper rose
$127 million, other consumer goods paper $28 million,
personal loans $79 million, and repair and modernization
loans $2 million. The decline in noninstalment debt
reflected decreases in charge accounts and single-payment
loans that more than offset a small advance in service
credit.

PUBLIC EDUCATION IN THE UNITED STATES

By Werner Z. Hirsch

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

On Savers and Saving

The saving of individuals is widely recognized to
be the key to our economic growth. The money that in-
dividuals, and businesses, put aside serves as the means
for new investment, which in turn provides the basis for
increased, and hopefully, more efficient production of
goods and services. This is what distinguishes a capital-
istic system from other economic systems.

In view of this central importance of individual sav-
ing in our economy, it is surprising to realize how little
we know about it. Two questions in particular perplex
us: the optimum rate of saving, and who saves what.

A Paradox

If a nation is to grow and prosper, its rate of saving
has to be maintained. But before a nation can grow and
prosper in the long run it must survive in the short run,
and this means that the rate of current expenditures of
the population has to be kept at a level sufficient to main-
tain a high and stable demand for goods and services. If
individuals save too large a proportion of their income,
current demand may drop and bring about a recession,
with deleterious effects on the nation's long-run prospects.
On the other hand, if individuals save too little of their
incomes, the nation is likely to prosper in the short run
but at the expense of long-run growth.

What, then, is the optimum allocation between saving
and expenditures at given levels of national income?
How much should this nation save out of its income each
year to bring about the most effective balance between
current well-being and future growth? We don't know.
The problem is so complex and involves so many other
factors, since virtually all economic events are interde-
pendent, that the solution is beyond our present knowl-
edge. In theory, such optima can be developed, but the
assumptions underlying the estimates tend to be so un-
realistic that the results are of little value for practical
purposes.

It is not unlikely that this optimum saving rate varies
with the nation's stage of economic development. Yet
over the past century the nation has grown remarkably,
while the proportion of income individuals are saving
currently seems to be no different from the proportion
they saved 50 or 100 years ago — between 6 and 8 percent
of their income.

This is one of the major paradoxes of economics.
Sample surveys and budget studies made during the past
century show that the proportion of income saved rises
substantially with the income level of the family. At the
same time, the income of American families has increased
tremendously over the years, with more and more fam-
ilies moving into the middle-income and high-income
ranges. Therefore, one would expect people currently to
be saving far greater proportions of their income. Never-
theless, the saving rate has remained virtually constant.

Many reasons have been advanced to explain this
paradox — the rising multiplicity of goods and services
as a brake on increased saving, the increasing pressure
on Mr. Smith to keep up with Mr. Jones, the importance
of social class and conspicuous consumption, and so on.
To what extent any or all of these theories may account
for this paradox is still a highly controversial question.

Why, How, and What?

National averages are made up of the actions of indi-
viduals, and what is true in an average sense may vary
considerably by individuals. Hence, to understand the
nature of saving, we must get away from averages and
inquire why people save, how people save, and what they
do with their savings. In some respects we can answer
these questions fairly well, while in others answers are
almost nonexistent. Thus, it is clear that people save not
for such aggregative reasons as national economic growth,
but for purely personal reasons — for old age, for emer-
gencies, for security. Furthermore, people save in num-
erous ways, by setting aside a certain proportion of
income in advance, by saving whatever is left over after
spending, by forced saving plans, and so forth. The
tendency to save is well-nigh universal, although many
people delude themselves to the contrary, as when they
overlook contributions to pension plans.

To be sure, some save more than others, the most
pronounced relationship being the rise in the saving rate
with income level. However, this relationship tends to
camouflage the extreme variability in saving rates among
people at the same level of income — a possible manifes-
tation of the fact that the will to save is at least as
important as the means to save. In this sense, psycholog-
ical characteristics appear to dominate, for there is as
much variability in saving rates among people at the
same income level as among people at different income
levels, and the nature of these characteristics has yet to
be identified.

When we turn to consider what people do with their
savings, we are even more in the dark. Why do some
people keep their savings in one form while others keep
their savings in a different form? From the point of view
of national welfare it is a matter of great concern that
money, when saved, be available for investment and not,
say, be placed under the mattress. Except for some fairly
obvious generalizations, recent studies suggest that the
form in which consumers hold their assets follows no
well-defined relationship. On the contrary, such studies
suggest the rather remarkable finding that the ownership
of one asset does not affect the likelihood of owning
other assets. In other words, whether a man does or does
not have savings accounts appears to have nothing to do
with whether he has money invested in common stocks.

All this is not to say that we have no information

about the factors that influence the portfolio composition

of consumers. We know that as people acquire more

assets they shift an increasing proportion of their port-

( Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

PLASTIC — A MARVEL OF SCIENCE

Commercial plastic is a wonder of modern science.
Through chemistry, this synthetically formulated sub-
stance provides an inexpensive, extremely versatile mate-
rial for thousands of useful products.

Although the existence of commercial plastic dates
from 1868, when celluloid first appeared as a substitute
for ivory in billiard balls, the plastics industry has ex-
perienced its most remarkable progress in the past two
decades. Before that time, the few plastics available
were utilized principally for certain specialty items, be-
cause of the physical limitations of these plastics. With
the onset of World War II, the increased need for syn-
thetics greatly accelerated both the development of newer
plastics and their range of potential applications. As a
result, plastics production has grown into a major tonnage
material, expanding from 4 million pounds in 1920 to
more than 6.5 billion pounds today, and the commercial
plastics industry has joined the giant chemical industries.

The Industry

In 1960, the plastics industry shipped a product valued
at an estimated $3.7 billion, or more than four times the
1947 value. During the same period, total employment
rose 100 percent to 185,000.

There are two major groups of producers in the plas-
tics industry: raw material manufacturers and fabrica-
tors. Raw material producers, as their name implies, are
primarily engaged in making basic plastic resins and com-
pounds for sale to fabricators, who use various methods
to convert plastics into finished products.

Illinois is particularly prominent in the fabricating
phase of the industry. With approximately 300 of the
3,300 converting plants, Illinois leads all other states in
the manufacture of finished plastic products, currently
accounting for about 15 percent of the national total.
The average plant employs about 55 persons, and about
30 establishments have more than 250 workers.

With only 22 of the industry's nearly 349 raw material
plants in 1958, Illinois lagged far behind such heavy-
producing states as Pennsylvania and New Jersey. Still,
shipments by Illinois plants in 1960 reached an estimated
$95 million, a figure which placed Illinois among the top
seven plastic manufacturing states. A large share of the
plastics made in the State comes from the U.S. Industrial
Chemicals plant at Tuscola.

Manufacture and Fabrication

Plastics, although derived from numerous raw mate-
rials, are manufactured in one of four basic types. Of
these, the most widely utilized are the synthetic resins
produced from natural resources. The others, in descend-
ing order of importance, are cellulose derivatives, protein
substances (such as casein), and natural resins. Various
additives are combined with these basic materials in
order to obtain a greater variety of characteristics. The
resulting compounds are converted into powder, liquid,
granular, pellet, or flake form and then sold to fabricators.

Compounds are turned into finished goods by a number
of methods, which largely depend upon the desired shape
of the end product. Plastics may be molded into specific
articles, or may be squeezed into rods, tubes, monofila-
ment threads, sheets, or films; if desired, these forms
can be further fabricated with machine shop tools. Other
important fabricating methods include laminating — the
sandwiching of paper, cloth, or wood layers with liquid
plastics; calendering — the coating of fabrics and paper;
and reinforcing — -the combining of liquid plastics with
a variety of fibrous materials in order to get a stronger
material.

Thermosetting Plastics

Plastics generally fall into one of two major cate-
gories. They may be thermosetting plastics, which are
permanently shaped by heat and pressure and cannot be
remelted or reshaped, or thermoplastics, which harden
upon cooling and can be reworked many times. Whereas
the former undergo a chemical change, thermoplastics
merely change physical form.

Phenolics, alkyds, ureas, and melamines are among the
more important thermosetting plastics. Phenolic, of which
Bakelite is a common type, is a strong, hard material
chiefly used in molded articles, such as telephone hand-
sets, washing machine agitators, and electric switches.
Made from alcohol and organic acids, alkyd plastics find
their most practical utility in surface coating demanding
high heat and moisture resistance. Urea and melamine
are two extremely hard thermosetting plastics which take
a range of rich, translucent colors. Urea has become
increasingly popular for plywood bonding, paper treating,
and textiles, as well as for small colorful molded products.
About 90 percent of melamine output goes into plastic
tableware.

The Popular Thermoplastics

The dynamic postwar expansion of the industry has
been augmented principally by the growth of thermo-
plastics, which by 1960 accounted for about three- fourths
of total tonnage. Contributing greatly to this rise has been
the amazing popularity of polyethylene plastic, an inex-
pensive but tough, waxy material widely used for packag-
ing. The output of polyethylene, which became the
industry's largest-selling product by tonnage in 1956,
jumped more than 132 percent to 1.2 billion pounds be-
tween 1956 and 1960.

Versatile vinyl, the industry's leading plastic type
throughout most of the postwar period, has found count-
less applications, extending from phonograph records and
hoses to adhesives and raincoats. In addition, vinyls are
widely used for floor covering. Other important thermo-
plastics are the styrenes, an older family of plastics
utilized primarily in refrigerating and air conditioning
equipment, the cellulose plastics, acrylics, and protein
plastics, all of which together account for nearly a fourth
of total industry shipments.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, January, 1962, to February, 1962

UNITED STATES MONTHLY INDEXES

1 c t

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

Tn-a.

EMPLOYMENT- MANUFACTURING
I \ 1

1 f l
CONSTRUCTION CONTRACTS

DEPARTMENT STORE SA

_ES

BANK DEBITS

■ ill.

a u.s.

FARM PRICES

l»

Not seasonally adjusted.

ILLINOIS BUSINESS INDEXES

Ele< trie power1

Coal production2

Km I >li >y merit — manufacturing3. .
Weekly earnings — manufacturing1
Dept. store sales in Chicago4. . . .
Consumer prices in Chicago6. . . .

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. .
Petroleum production10

'Fed. Power Comm.; '111. Dept. of Mines; 3 111. Dept. of Labor;
•Fed. Res. Bank, 7th Dist.; 5 U.S. Bur. of Labor Statistics; « F. W.
Dodge Corp.; 'Fed. Res. Bd.; 8 111. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn.; ■" 111. Geol. Survey.

* Data for January, 1962, compared with December, 1961, and
January, 1961. b Seasonally adjusted.

Personal income1

Manufacturing1

Sales

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Cash farm income3.

Industrial production2

Combined index

Durable manufactures. . .

Nondurable manufactures

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked . . .

Average hourly earnings . .

Average weekly earnings .

Construction contracts5

Department store sales2. . . .

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Feb.
1962

Annual rate

in billion $

432.8"

17.9
15.8

55.6"
42. 6h

36. 8b

37.3°

Indexes
(194749
= 100)
115»d
110«d
122»i i
99u.J

100°
179°

241
151'

105'

Percentage
change from

Jan.

1962

- 1.2

- 0.5
+ 0.8

- 2.7

+ 0.8

- 0 4
+ 0.3
+ 3.4
+ 1.3
+ 0.3

0 0
+ 0.3
+ 0.1

- 0.1

+ 1.0
0 0
0.0

+ 13.1
+ 4.9

+ 12.7
- 0.8
+ 2.8

+ 3.2
+ 2.3
+ 1.2
+ 0.9

+ 12.7
+ 11.7
+ 9.9
+ 3.1

+ 4 4

+ 2.6
+ 3.9
+ 6.6
+ 23.0
+ 4.1
+ 1.0

- 0.2

- 0 1

- 0.6

- 0.3

1 U.S. Dept. of Commerce; : Federal Reserve Board; 3 U.S. De
of Agriculture; 4 U.S. Bureau of Labor Statistics; s F. \V. Dodge Coi

a Seasonally adjusted. b End of month. c Data for January, 19(
compared with December, 1961, and January,
' Revised. ' 19S7-1959 = 100. « Based on offici '

l'Hll-1 I

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1962

1961

Mar. 31

Mar. 24

Mar. 17

Mar. 10

Mar. 3

Mar. 25

Production:

Bituminous coal (daily avg.) thous. of short tons. .

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

1,373
15,552
163
7,353
129.7
565
148

100.5

100.7
83 9

33,014
330

1,372
15,879
165
7,357
128.5
556
141

100 6
100.7
84 3

33,145
351

1,369
16,142

160
7,335

128.1

545

138

100 .7
100.7
84 4

32,607
339

1,313
16,418

157
7,266

127.1

526

120

100 7
100 7
83.8

i2,20i
364

1,248
16,514
162
7,403
126.7
528
119

n.a.
83.1

32,204

311

1,132

14,549
109
7,366
86.5
500
140

101 0*
101.2"
86.4

32,252

Failures, industrial and commercial. . number

359

Source: Survey of Current Business, Weekly Supplements.

8 Monthly index for March, 1961.

t 4 J

RECENT ECONOMIC CHANGES

Balance of Payments Improves

A considerable improvement in the balance of pay-
ments of the United States occurred during 1961, the
adverse balance having declined from $3.9 billion in 1960
to $2.4 billion last year. Holdings of gold and convertible
currencies by United States monetary authorities fell
$700 million, compared with $1.7 billion in 1960. United
States liquid liabilities held by foreigners and interna-
tional organizations increased $1.7 billion, compared with
$2.2 billion the previous year.

Part of the improvement during 1961 stemmed from
special debt repayments totaling $700 million received
from Germany, Italy, and the Netherlands. Foreign in-
vestments in the United States and income from United
States investments abroad also helped raise receipts.
These accounted for about $400 million and $350 million
respectively.

The improvement in the over-all balance during 1961
occurred primarily in the first half of the year, payments
having risen again during the second half. This increase
in payments during the second half of the year can be
attributed to an advance in merchandise imports resulting
from the expansion in domestic business activity and to
a large increase in capital outflows during the fourth
quarter. These capital outflows included contributions to
international organizations of about $170 million, and
bank loans of about $150 million to Japan and $100 million
to the Philippines.

State and Local Government Purchases Up

Total outlays of state and local governments for goods
and services reached $51.5 billion in 1961. This amounts
to $280 per person, as indicated in the accompanying
chart. Direct purchases of goods and services constitute
a much larger proportion of total expenditures for state

PER CAPITA PURCHASES BY STATE AND
LOCAL GOVERNMENTS

1957
Source: U.S

1958 1959 I960 1961

Department of Commerce.

and local governments than they do for the federal
government.

The chart indicates that the growth in state and local
government purchases has continued to outpace the popu-
lation increases of recent years as pressure on existing
facilities and responsibilities of these governmental units
in many areas of the country have increased. Outlays
for education and highways account for over half of the
total purchases of these governmental units. Health and
sanitation, general administration, and civilian safety
make up most of the remainder.

A rise in the proportion of payroll expenditures to
54.5 percent of the total outlay was the result of adding
900,000 full-time employees to these governmental pay-
rolls during the last five years, bringing total full-time
employment by state and local governments to 5.5 million
in 1961. One-fourth of the total outlays for goods and
services by these governmental units was expended for
new construction; all other purchases from business rose
from $6.3 billion in 1957 to $10.2 billion in 1961.

Milk Production Rises

Milk production during 1961 set a record high of 125.5
billion pounds, 2 percent above the 1960 total and exceed-
ing the previous peak of 124.9 billion pounds in 1956.

The record-high milk production last year amounted
to 686 pounds per person and was accomplished with 17.4
million milk cows, the smallest number recorded since the
series was begun in 1924. Milk output per cow advanced
3 percent from 1960 to a record high of 7,211 pounds.
Each year since 1944 has brought new record outputs per
cow, the increase during this period amounting to 58
percent.

Individuals' Saving Increases in 1961

During 1961 net financial saving of individuals in the
United States amounted to $16.9 billion, an increase of
63 percent over 1960. It is estimated that the total equity
of individuals in financial assets, net of liabilities,
amounted to nearly $900 billion by the end of 1961, an
increase of 15 percent during the year.

The pattern of individuals' saving during 1961 was
characterized by an upward movement in savings deposits,
savings shares, and savings bonds. There was a continu-
ing increase in the purchase of investment company issues,
as investment in mutual fund shares set a new record of
$2 billion. However, individuals' holdings of stock other
than investment company shares were reduced by almost
$2 billion in 1961, reflecting a large amount of institutional
purchases of equity issues and large redemptions of stock-
issues, which included sizable cash liquidation payments.
A record $9.6 billion was added to savings in private
insurance and pension reserves, while individuals' debt
increased $14.4 billion from the previous year.

Fluctuating Auto Sales

During 1961 some 6 million passenger cars were sold,

ID percent fewer than during 1960. In the first quarter
of 1962 the rate of buying, although below the high rate
of the 1961 fourth quarter, was about 25 percent, or $3.5
billion, above last year's first quarter.

The demand for autos has shown wide fluctuations
during most of the postwar period. During the early
1950's private purchases of autos constituted as much as
(Continued on page 8)

t 5 ]

PUBLIC EDUCATION IN THE UNITED STATES*

WERNER Z. HIRSCH, Washington University

The increase in expenditures for public education in
America in this century is impressive. The cost of public
primary and secondary education has risen from less than
$200 million in 1900 to about $16 billion today. At present
the full-time equivalent of about 2.5 million persons are
employed in public education at the state and local levels.
These figures reflect only current expenditures plus debt
service; capital outlays are not included. Education,
however, has not only become more important, but it has
changed greatly during that period. Today it exists
predominantly in an urban environment. About two-thirds
of all Americans live in metropolitan areas, which ac-
counted for 84 percent of the nation's entire population
increase during the last decade, and this trend is likely
to continue.

Americans have been moving toward an industrial way
of life for almost two centuries, concentrating in metro-
politan agglomerations. Rapid urbanization, of course,
reflects the character of the nation's technological develop-
ment, economic organization, and importance of education.
Apparently the large population agglomeration is an
efficient producer and consumer of material, intellectual,
and cultural values.

The educated man, not unlike the creative artist, needs
the city because both, especially during their formative
years, benefit from the tension generated between ex-
tremes of choice and the ensuing challenge of commit-
ment. In those instances when the city fails in this
function, it is less for technical or formal reasons than for
a lack of readiness on the part of its inhabitants to em-
brace an urban way of life, which is as demanding as it
is rewarding.

Education — A Factor in Metropolitan Growth

Metropolitan growth has been more than a merely
quantitative phenomenon. Education in urban areas has
greatly increased our pool of skilled manpower. It has
been an inducement to industry and this, in turn, has led
to further economic opportunities which have attracted
increasing numbers of Americans. We can divide industry
into two main categories — low-wage-oriented industries
(such as leather and textile firms) and skill-oriented
industries (e.g. those engaged in research and develop-
ment). The latter group is attracted to cities, and es-
pecially to those with good universities. Perhaps the
outstanding examples are Boston, San Francisco, and Los
Angeles, where fine institutions of higher learning have
been instrumental in the phenomenal growth of com-
mercial research activity. The availability of good edu-
cation has similarly generated rapid economic growth of
other skill-oriented industries.

A good university can often spark a major chain
reaction. Persons with highly developed skills have
generally acquired respect for knowledge. They insist
on high-quality education for their children; they are
willing to support higher education so that they can
benefit from association with knowledgeable and original
minds. Their incomes tend to be higher and they are thus
able to help finance good education. Indeed, all these
factors provide a good intellectual climate, which is self-
reinforcing. These factors also prove profitable in the
most literal sense of the word. Metropolitan growth that

* Based on a lecture given at the Frontier of Science
Foundation of Oklahoma City, Inc., on January 12, 1962.

feeds on skill-oriented industries tends to improve in-
comes, as well as the tax base.

Educated people have a desire and need for cultural
activities; they appreciate the amenities of life. The
city that is host to educated Americans by offering in-
tellectual and cultural advantages helps fulfill their high-
est aspirations. Top management tends to favor the
location that offers a variety of amenities.

Educating Negroes

Until World War II, the Negro was primarily a rural
southern dweller. Great changes have occurred since then.
Between 1900 and 1950, the percentage of Negro popula-
tion in cities rose from 17 to 48, and the percentage out-
side the South rose from 10 to 32. During the last decade
it has certainly grown greater and the Negro is becoming
increasingly urban.

The urban Negro has shared some of the advantages
of urban life, but his potential is far from being fully
utilized, mainly because of lack of education. In addition,
and possibly in part for the same reason, he suffers dis-
proportionately from social problems compared with
urban whites. According to Lee Robins,

He violates the majority norms through a high crime
rate, family desertion, illegitimacy, alcoholism, physical vio-
lence and divorce. . . . His cost to society in welfare services
and public hospitalization is high because his position at the
bottom of the socio-economic hierarchy makes him the most
vulnerable to economic fluctuations and the least able to pro-
vide for major illness. His unstable family patterns result
in high demands for aid to dependent children. The Negro's
low rate of self-fulfillment, as measured by low educational
achievement, low rate of entry into the skilled occupations
and professions, and low rate of participation in cultural
activities, is particularly striking. The issue has.of course,
been raised as to whether there is an underlying difference in
human potential between Negroes and whites. But arguments
about what the upper limits of that human potential may be
seem irrelevant to the current situation, when the gap between
potential and achievement is so conspicuously gross both for
Negroes and for many whites.'

She concludes
Our best estimate of the nature of the relationship between
social class and social problems at the present time appears
then to be that low socio-economic status and social problems
form a vicious circle.

Perhaps one of the most promising ways to break into
this circle is through education. If it is, Negroes can
improve their economic position, begin living a fuller
life and, to an increasing extent, contribute to society at
large. Opening more universities to young Negroes is
not the immediate answer, since few Negroes have suffi-
cient primary and secondary education to benefit. The
emphasis must first be placed on the public schools, mainly
those in core cities where the majority of urban Negroes
live.

Perhaps the most characteristic attribute of American
core cities is their physical decay. Less obvious, but
more important, is the social deterioration of the com-
munity. The shared purposes, values, and traditions that
distinguish healthy communities are shattered when suc-
cessive waves of in-migrants bring new patterns of living
into conflict with the old. As the neighborhoods change,
many establishments simply leave or the unfavorable con-

' Lee Robins, Social Problems Associated with Urban
Minorities (St. Louis: Washington University, Institute for
Urban and Regional Studies, 1961), pp. 9-10.

[6 ]

ditions are increasingly ignored by the core city's resi-
dents. The school, however, remains. It must be reckoned
with, if for no other reason than the existence of com-
pulsory education laws. The school is the point of con-
tact for many of the fragmented social groups of the
core city, i.e., family, neighborhood, children's peer
groups, and so on. Because of this central position, the
school is uniquely situated to serve as a counterbalancing
force to the social alienation and the concomitant human
ills which so beset the American core city. Up to now
the centrality of the core city school is more illusory than
real. Teaching staffs are ordinarily transient. Teachers
in slum schools tend to be least experienced. They dis-
play the highest turnover and poorest morale. Educators
have assumed for too long that methods effective in the
middle-class surburban school will also be successful in
the core city. They have tended to ignore the speed and
universality of change in core cities, and the significance
of the stress this change places upon the school, its
pupils, teachers, and administrators.

The urban slum school cannot at present count upon
family influence to reinforce its attempt to create favor-
able attitudes toward achievement in its pupils. Whereas
the suburban school often must be defended against over-
zealous adult interference, in the core city it is necessary
to create adult interaction with the school. An all-out
effort is needed to turn the core city school into a com-
munity hub and to increase the effectiveness of its edu-
cational program.

The movement of Negroes and other ill-educated
groups into metropolitan areas has caused serious financial
problems. The port of entry tends to be the core cities,
which already face fiscal difficulties. The nation will have
to decide whether these core cities, the most venerable
of all melting pots, should have financial aid to improve
the education and opportunities of these vast numbers of
immigrants who, in turn, will ultimately contribute to
the growth and strength of America. Yet this is only part
of the whole problem, which must be viewed in a broader
setting.

Bearing the Costs

While a certain portion of education will continue
to be privately rendered, the overwhelming share will
have to be financed by government. Our society relies on
a federated political and fiscal system. So far as the
financing of education in metropolitan areas is concerned,
this can lead to efficiency, equal treatment of citizens,
and high-level services, or to waste, inequities, and in-
adequate services.

Intergovernmental fiscal relations are guided by four
main motives — intervention and encouragement, equaliza-
tion, technical taxation conditions, and responsibility.
Thus, for example, state or federal governments can
intervene to encourage school districts to offer more and
better education and to stimulate greater efficiency. On
the other hand, inequities arise in a federated type of
political and fiscal system because governments differ in
their tax sources, needs, and cost and benefit spillovers.
Until recently the absence of good communication, and
the resulting unfamiliarity with conditions elsewhere,
made comparisons difficult and so prevented dissatisfac-
tion with the situation at home. Specialization, urbaniza-
tion, and improved communications have sharpened the
drive toward equalization.

Spatial spillover of education costs and benefits also
plays an important role in intergovernmental fiscal rela-
tions. Public education creates benefits to the person who

is educated, to his family, his neighbor, his community,
and to society at large. Some of the benefits accrue
immediately; others begin to be realized only after 10 or
20 years. During this period many people may change
residence. Is it therefore equitable to ask a local school
district to finance the education of people who will benefit
the nation at large and more specifically, other com-
munities?

The equalization motive can readily lead to waste.
However, if equalization is attempted with the aid of
percentage state or federal grants, which are not made
toward the actual but toward some calculated standard
expenses, more economic use of funds is likely.

The responsibility motive tends to be inconsistent
with the other three, but it is important that the recipients
of funds administer them efficiently. Here it is important
to remember that the higher the subsidy level, the less
responsibility local school districts will tend to feel for
expending funds wisely.

Metropolitan areas vary greatly in terms of the organi-
zation of their school districts. In the school year 1961-62,
municipalities operated 416 and towns or townships
1,146 school systems. Independent school districts
throughout the country numbered more than 35,000. Most
metropolitan areas have fragmented school districts. Few-
rely exclusively on the taxes they themselves raise. In-
stead, most benefit from state subsidies which attempt to
establish a floor, below which educational opportunity
cannot be allowed to fall. There have been suggestions
that the federal government pass legislation which would
produce a federally underwritten floor. Likewise, metro-
politan area-wide floors have been proposed, to be
achieved by pooling the area's property tax base. These
proposals strongly reflect the equalization motive, and
since in most cases the floor has been fairly low, respon-
sibility has not been compromised to a major degree.
While state floors should in many instances be raised, a
shift to grants, which are made toward some calculated
standard school expenses, appears desirable. Such a shift
would also facilitate the introduction of cost accounting
procedures, a step fully consistent with efficiency and
responsibility.

Many of the existing subsidy programs have not en-
couraged experimentation with methods which, while
costly, could improve the quality of education. To over-
come this defect, such programs might be supplemented
by making grants for specific experimental programs.
These, if successful, could greatly improve the quality of
education.

In some cases large-scale consolidation has long been
advocated. Such a step imposes a floor as well as a ceiling
on school expenditures, and is claimed to improve equality
of opportunity as well as of efficiency.

Of no less importance regarding consolidation is the
fact that the experience of industry does not always
apply. The size of an urban school's physical plant,
unlike the size of an industrial plant, often cannot be
enlarged because of its location. Even in large urban
school districts, schools will have to be numerous and
relatively small ; parents object to their children traveling
far to school.

If public schools in metropolitan areas are to flourish
and promise the greatest possible contribution to the
area's well-being, effective administration and financing
arrangements are of the utmost importance. They should
be a careful blend of responsibility, efficiency, and quality
incentives with reasonable equality of opportunity and
tax equity; the achievement of this is no mean task.

[7]

Industry and Tax Base

In November, 1961, voters in the state of New York,
of whom more than 80 percent live in metropolitan areas,
amended the state constitution to enable the state to lend
as much as $100 million to help finance new or expanding
industry. New York's action is merely an example of
steps taken by various governments in the United States
to lure new industry. One major consideration has been
a desire to improve the industrial tax base in the hope
of alleviating difficulties of financing public education.

Thus we have come full circle. Good education has
been a major factor in initially attracting people and
industry into metropolitan areas. The resultant rapid
growth has put a severe strain on the financing of educa-
tion. On the surface, it appears that industry pays more
for education than it receives and the argument is put
forth that industrial plants pay school taxes but do not
receive school services and therefore are an unqualified
boon. This reasoning appears to have led to a universal
desire to attract industry.

Is local industrial expansion likely to ease the strain
on metropolitan areas in financing public education ? A
close look is in order. It will do so, if such an expansion
makes possible either a reduction in taxes, while per pupil
school services are maintained at their existing quality,
or permits an improvement more than equal to the ac-
companying tax increase. In order to shed light on this
issue, the concept of a school district's net fiscal resources
status is useful, i.e., the balance between direct and in-
direct contributions made by all levels of government to,
and the direct and indirect costs of, the school district.

This concept includes the education costs of the chil-
dren of the plant's workers, as well as of all those who
in any way owe their employment to the plant. Taxes
of the entire group are considered. Thus, an effect of
an expanding industry on the school district's net fiscal
resources status will tend to be unfavorable, and even
negative, if it involves many unskilled workers, who
usually have large families but low incomes.

To understand the fiscal impact of industrial develop-
ment on public schools requires a so-called interindustry
table, showing the changes caused by one industry on the
others. Such a table is available for the St. Louis metro-
politan area for 1955. Of St. Louis' 16 major industries,
expansion of only one, petroleum refining, was found to
promise improvement in the public schools' immediate
fiscal position. Expansion of any of the other 15 indus-
tries appeared, instead, to promise deterioration of the
area's school fiscal position. Particularly costly in this
sense are such intensely labor-oriented industries as tex-
tiles and apparel and leather products.

This tentative conclusion should suggest the place
economic growth occupies in the lives of residents of
metropolitan areas. The residents benefit from growth
to the degree that it improves the environment within
which they live and work. Growth resembles an amenity
of life, in that growing areas offer superior opportunities
to the young and able. Areas that have developed at a
substantially slower pace than the rest of the nation have
proved unattractive to many who then turned toward
greener pastures, usually in rapidly growing areas.

A metropolitan area's economic future depends to no
small extent upon its human and natural resources; its
economic structure; the capacity and vigor of the na-
tional economy; government's ability to create a favorable
environment; and the actions, traditions, and aspirations
of private decision-makers. Education plays a key role
in all of these factors.

On Savers and Saving

(Continued from page 2)
folios into variable-dollar assets, that is, assets whose
call on dollars fluctuates with the price level, such as
real estate and common stocks. We also know that as
people get older they tend to put a larger proportion of
their assets into a fixed-dollar form, such as savings
accounts and government bonds.

Still, why people select particular assets remains much
of a mystery. The usual characteristics that influence
expenditures — income, education, occupation — appear to
bear little relation to portfolio composition. About the
only clue appears to be the tendency of people to invest
money in assets with which they appear to have some
acquaintance. Perhaps the best-known example of this
phenomenon is the tendency of people owning a business
to plough back all of their saving into the business.
Nevertheless, the significance of this clue remains to be
established, particularly whether it is the acquaintance-
ship that leads to the investment, or whether it is the
investment that leads to the acquaintanceship.

All things considered, available evidence suggests
rather strongly that saving is a highly individualistic
characteristic not easily amenable to external influences.
From the point of view of national economic policy, how-
ever, this leaves many questions unanswered. The policies
of the Federal Reserve, the Treasury, and other branches
of the federal government depend on the impact of
changes in taxes, interest rates, or other policy instru-
ments on individual savings, but little is known about
what types of people have what forms of savings, let
alone the probable impact of government policy. For
example, if the capital gains tax were cut in half would
trading in securities rise so much that government rev-
enues would actually increase, as some security exchanges
claim? We hardly know how stock ownership is dis-
tributed among population groups and whom to ask the
proper questions, not to mention what questions to ask to
obtain a realistic answer in such a case.

As the economy grows in complexity, answers to such
questions are becoming increasingly important. Not only
do such answers pave the way for more rapid economic
growth but they serve to throw light on the factors that
motivate human beings in their economic life. rf

Recent Economic Changes

(Continued from page 5)
5 percent of total final purchases of goods and services
(gross national product less business inventory compo-
nent). However, they fell to 3 percent in both 1958 and
1961, the lowest since the reconversion period following
Weld War II.

Since 1957, car buying has averaged about 3.5 percent
of total final purchases, but because car sales are ex-
tremely sensitive to general business conditions and other
factors, changes in auto purchases have an important
effect on the movement of final purchases. Auto pur-
chases moved counter to changes in other final purchases
in only 8 of the 20 quarters from 1957 through 1961. Dur-
ing those periods when both have moved in the same
direction, autos have accounted for 20 percent or more of
the change in final purchases. In fact, in the last reces-
sion, the only quarterly decline of final purchases (from
the fourth quarter of 1960 to the first quarter of 1961)
was accompanied by a sharp drop in auto sales. The sub-
sequent upturn was aided by a strong revival in auto
buying.

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Huge Fishing Net Developed

In order to make the United States fishing industry
more competitive with foreign suppliers, the Seattle
branch of the United States Bureau of Commercial Fish-
eries has developed a nylon fishing net 314 feet long. The
net is opened and kept afloat by four hydrofoils.

Much large-scale fishing, such as tuna fishing, and also
low-value commercial fishing, as for sardines, menhaden,
and jack mackerel, is still done by using outdated meth-
ods, notably live bait and individual fishing poles. This
new fishing equipment is the first real attempt to improve
productivity in the fisheries of the Northwest in order to
help domestic fishermen compete with lower-cost foreign
fisheries.

Dwelling Units Increase

During the 1950's the number of dwelling units in
existence in the United States increased from 46.1 million
in April. 1950, to 58.5 million in December of 1959. Dur-
ing this same period 15 million new units were built, 1.8
million added through conversion and other sources, and
4.5 million lost.

The impact of this new construction varied among
the geographic subdivisions of the nation. Of the 16.3
million units existing in 1959 in the suburban portions of
metropolitan areas, approximately 39 percent were built
during the 1950-59 period, whereas only 18 percent of the
18.8 million units in the central city were constructed in
the same period. Within the central cities of the metro-
politan areas, 5 percent of the 16.2 million units existing
in 1950 had been demolished by December of 1959, reflect-
ing the impact of urban renewal and redevelopment pro-
grams in these areas.

As indicated in the accompanying chart, the largest
absolute gain among the four major regions was made by

NUMBER OF HOUSING UNITS BY REGIONS

Source: U.S. Department of Commerce.

the South, where 3.8 million units were added. However,
the region which showed the biggest percentage gain
was the West, with a 42.7 percent increase from its 1950
total of 6.7 million units.

Foreign Travel Levels Off

For the first time since World War II foreign travel
expenditures by Americans in 1961 did not exceed the
previous year's record. Total outlays last year amounted
to $2.6 billion and included $1.7 billion spent by Ameri-
cans in foreign countries and $900 million in fares paid
between the United States and foreign countries. During
1961 foreign visitors in the United States spent $6 million
less than the previous year for a total of $962 million.

Canada, where Americans spent $412 million, again
received a greater share of the United States travel dollar
than any other country. Canada and Mexico together
accounted for 45 percent of foreign travel expenditures
by United States residents. During the same period, travel
expenditures by Americans in Europe dropped 9 percent
from 1960 to $609 million.

The major factor in this reduction was the decline
in average expenditure per traveler due to shorter dura-
tion of visits in Europe. Air travelers, whose visits are
characteristically shorter than those of people who go by
ship, made up a greater proportion of United States
travelers in 1961 than in 1960.

Travel expenditures to Latin American countries
(other than Mexico) in 1961 dropped 1 percent from the
previous year to $208 million, primarily as a result of the
loss of tourist travel to Cuba. However, tourist traffic to
the Western Hemisphere dependencies of European coun-
tries rose 6 percent to about $135 million. An increase
of 20 percent in travel expenditures in areas other than
Europe and the Western Hemisphere helped bring total
travel expenditures even with the previous year.

More Food Retailing by Discount Houses

A new development in food marketing is taking hold
in this country. Food is being sold by discount houses. As
the number of these establishments continues to grow, the
volume of food sold through their food departments grows
at an even greater rate. Trade estimates place food sales
by discount houses at an annual rate of $2.5 billion, about
4 percent of total retail food sales. It is anticipated that
these sales will expand to $10 billion during the next
four years. In many discount centers the food department
already accounts for 25 percent of the total dollar sales
volume.

At present, ownership of discount houses, their meth-
ods of operation, and their forms of organization arc
diverse. Accordingly the type of food department varies.
.Many of the major supermarket chains are entering this
area of marketing by acquiring groups of discount outlets.
Some establish food concessions in already existing mer-
chandise discount houses, while others have obtained a
limited number of concessions on a trial basis. Operators
of food departments in discount centers use mass dis-
plays and marked price reductions of certain items. The
latter technique, known as loss leader merchandising, has
not brought any substantial indication that these depart-
ments are being operated at a loss in order to generate
traffic and sales for the nonfood departments.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Development Appropriation Barred

Section 18 of the Illinois Industrial Development
Authority Act, adopted by the legislature in 1961, was
recently ruled unconstitutional by the Illinois Supreme
Court on two counts. The proposed transfer of $500,000
to the authority to support the issuing of bonds was held
to be (1) a pledge of the state's credit for the benefit of
private business and (2) a continuing appropriation. The
funds were to have been used to acquire and improve
sites considered suitable for industry in critical labor
surplus areas such as southern Illinois.

The legislation is being studied with the hope that it
can be revised and passed again in the 1963 session of
the General Assembly. In the meantime the Illinois Board
of Economic Development will continue its efforts to
assist communities in attracting new industry, with finan-
cial assistance available through the federal Area Re-
development Administration.

Flood Control Projects Planned

Governor Otto Kerner has released $250,022 as the
state's share of the cost of the Kaskaskia River reservoir
project at Carlyle for the 1962 fiscal year. The federal
government allocated $3,185,000 for the project last sum-
mer. The state's release brings its total contribution to
$S68,524, which amounts to 27.3 percent of the federal
appropriation. The 26,000-acre Carlyle reservoir will be
the state's largest man-made lake.

URBAN POPULATION CHANGES, 1950 TO 1960

| NO URBAN, I960

* No basis for comparison; classified as urban in 1960

but not in 1950.

Source: U.S. Bureau of the Census.

Coupled with the federal Carlyle appropriation was a
$250,000 item for further engineering study of a dam site
at Shelbyville. The sister reservoirs would provide flood
control and water reserves on the Kaskaskia River and
would be incorporated in plans to canalize lower portions
of the river.

The Rock Island District of the U.S. Army Corps of
Engineers will begin work on seven new flood protection
projects and one repair project this year with funds also
appropriated by Congress last summer. Among these are
the Hadley-McCraney and Kiser Creek diversion projects,
part of the big Sny River basin flood control project,
which will cost an estimated $21,400,000.

Governor Kerner on March 21 approved recommenda-
tions made by the U.S. Army Engineers' Rivers and
Harbors Board for 18 projects for flood control and other
water uses in the Illinois River basin. The largest single
project involved is the multipurpose Oakley reservoir
near Decatur.

One Hundred Years of Crop Reporting

The State-Federal Crop Reporting Service, organized
in 1862, is celebrating its 100th anniversary. Its first
report issued in 1863 listed the three top crops in Illinois
as corn, wheat, and oats and also included tobacco, grass,
flax, wool, sorghum, and cotton.

In 1866 the reports, which previously were only on the
condition of the crops, began to include the acreage, yield
per acre, and production. In that year Illinois farmers
produced 143,000 bushels of corn, 34,000 bushels of oats,
and 24,000 bushels of wheat. The 1961 production figures
for those crops were 638 million, 90 million, and 61 mil-
lion bushels, respectively. Soybeans, second from the top
in 1961, were not grown in Illinois until 1914.

The service now reports statistics on many items, in-
cluding number of persons living on farms, amount of
milk given by cows, pig crop, and wool production. The
data are based on reports on production of specific crops
by about 30,000 voluntary crop reporters in Illinois, some
of whom make reports as many as 40 times a year.

Illinois Census Shows Urban Increases

With more than 10 million inhabitants, according to
the 1960 Census, Illinois ranks eleventh among the states
in density of population, with 180.2 persons per square
mile of land area.

This relatively high density reflects the high propor-
tion of population living in urban areas. In 1960, 81 per-
cent of Illinois residents were classified as urban and 19
percent as rural. Only New Jersey, Rhode Island, Cali-
fornia, Massachusetts, and the District of Columbia have
larger percentages of their populations living in urban
areas.

During the past 60 years the total population of Illinois
has increased by 5.25 million. Of this increase, more than
5 million, or 96 percent, occurred in urban areas. Between
1950 and 1960, the proportion of the population classified
as urban increased in 71 Illinois counties. Counties show-
ing the greatest increases in the number of people living
in urban areas were Monroe (145 percent), Du Page (128
percent), Lake (112 percent), McHenry (89 percent),
Greene (81 percent), Lee (70 percent), and Grundy (56
percent).

Losses in urban population occurred in 31 Illinois coun-
ties, the majority of which are located in the southern
part of the State (see chart).

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
February, 1962

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales1

Bank
Debits6
(000,000)

ILLINOIS

Percentage change from.

NORTHERN ILLINOIS
Chicago

Percentage change from. . . £?£'_' 1%"j-
Aurora

Percentage change from.
Elgin

Percentage change from.
Joliet

fjan., 1962.
(Feb., 1961.

/Jan., 1962.
(Feb., 1961.

Percentage change from. . . . |peb'' 1961.
Kankakee

Percentage change from.
Rock Island-Moline

('Jan., 1962.
\Feb., 1961.

Percentage change from. ... A. ,'' 1Q/51'

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from.
Danville

Percentage change from.
Decatur

/Jan., 1962.
■(Feb., 1961.

/Jan., 1962.
' [Feb., 1961.

/Jan., 1962.
(Feb., 1961.

Ian.. L962.
(Feb., 1961.

/Jan., 1962.
(Feb., 1961.

1962.
1961

Percentage change from. . . . j£?£_' ^"j'
Galesburg

Percentage change from
Peoria

Percentage change from
Quincy

Percentage change from. . . . ipJt'

Springfield

\Feb.', 1961

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from.
Belleville

iFeb.'

Percentage change from. . . .{j*^ \9gfu

$24,636"
+33.4
-38 6

$19,941
+46.4

$ 455
+290.9

+12.9

$ 182

-7.0

+29.1
$ 373
+285.1

-46.8
$ 315

-64.5
-1,066.6
$ 365

-44.5

-18 9
$ 531

-55 3

-30.1

$ 365

-43.8

+ 77.2

$ 107

-42.9

+24.4

$ 531

+266.9

+133.9

$ 583

+ 620.7

+191.5

$ 32

-46.7

-41.2
$ 152
+208.2

+ 65 2
$ 182

-65.9

-89.6

$ 123
+ 1,657.1

+ 64.0
$ 101
+259.8

-82.8
$ 58
+ 152.2

-73.0

13,188

+ 1.1
+ 15.3
17,630

-7.7
+ 10.8
20,165

+ 1.5
+32.9
40,154

+2.5

+6.3
10,546

65, 706'

-3.2

+ 6.4
15,334

-6.3
+ 12.1
45,921

-7.9
+ 13.7

17,458
-4.1
-4.7

25,174
-7.3
+ 6.8

13,238
-8.4
+2.7

$561,681

-22.6

+11.7

$ 9,236
-29.1
+20.2

$ 6,170
-28.8
+28.8

$10,536
-30.9
+ 10.3

$ 4,828
-36.9
+ 15.9

$10,418
-31.6
+ 7.9

$19,461
-27.2
+ 17.6

$ 5,859
-29.9
+ 14.9

$ 8,541
-33.0
+20.0

$ 5,887
-33.0
+ 13.2

$10,299
-32.1
+3.6

$ 4,114
-34.2
+3.4

$17,711
-24.6
+27.2

$ 5,033
-34.1
+14.2

$12,681
-32.3
+ 11.3

$ 7,407
-28.6
+1.6

$ 4,830
-30.9
+ 15.3

$ 4,664
-28.4
+12.6

$18,417'
-20.6

+ 1-7

$17,013

-21 1

+1.5

$ 71

-14.5

-3.4

$ 46

-16.2

+2.0

$ 83

191
-11.1

+0.9

$ 96

-3 1

+28.0

$ 78

-15.4

+ 1.8

$ 46

-11.8

+3.1

$ 115

-8.4

+ 6.5

$ 226
-15.6
+ 12.9
$ 50
-15.3
+ 6.3
$ 131
-16.9
+8.5

$ 43
-12.2
+4.1

Includes East Moline. c Includes immediately surrounding territory.

basis lor comparison.

* Total for cities listed.
Not available.

Sources: ' Local sources. Data include federal construction projects. ■ Local power companies. ' Illinois Department of Revenue.
Data are for January, 1962. Comparisons relate to December, 1961, and January, 1961. * Research Department of Seventh Federal
Reserve Bank (Chicago). Percentages rounded bv source. 5 Federal Reserve Board. 6 Local post office reports. Four-week accounting
periods ending March 2, 1962, and March 3, 1961.

[11

INDEXES OF BUSINESS ACTIVITY

1947-1949= 100

EMPLOYMENT-MANUFACTURING

ILL. I
U.S.

* REVISED SERIES

AVERAGE WEEKLY EARNINGS -MANUFACTURING

ILL/

* REVISED SERIES

'52 '59 I960

-ANNUAL AVERAGE -

DEPARTMENT STORE SALES (ADJ.)

COAL PRODUCTION

150
100
50

/—

y^w

^A^

■\ILL.

ILL. ^

- w

\f^

U.S.

lllllllllll

1961 1962

'52 '59

1961 1962

BUSINESS LOANS

ILL.

♦revise

) SERIES

)6 u

32 '59

I960

1961

1962

CASH FARM INCOME

U.S. *

i A

ILL.

Wv\/VJ

* REVISED SERIES

- ANNUAL AVERAGE -

'36 '44 '52 '59 I960 1961 1962

-ANNUAL AVERAGE -

CONSTRUCTION CONTRACTS

f-^i

ir>

/u.s.

♦revise

D SERIES

500
400
300
200

ELECTRIC POWER PRODUCTION

ILL.^>*^

/u.5.

100

i i i i i i

mi , | |

■ANNUAL AVERAGE -

'59 I960 1961 1962

'29 36

■ ANNUAL AVERAGE -

'52 '59 I960 1961 1962

sJJNOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

May, 1962

Jfoaw**1**

HIGHLIGHTS OF BUSINESS IN APRIL

NtM "q ^

Although automobile production and sales continued
at high levels, other parts of the economy gave less
encouraging performances in April. Stock prices con-
tinued the decline that began in mid-March, wiping out
all the gain made last fall. Production of steel fell from
week to week, declining one-sixth to less than 2 million
tons a week by the end of the month. This decline re-
flected liquidation of stockpiles following the wage settle-
ment in March. Paper and paperboard production declined,
but petroleum output improved after falling in March.
Output of electric power, bituminous coal, and lumber
averaged about the same as in March. Railroad carload-
ings have been increasing about in line with the seasonal
pattern. However, the index of industrial production rose
1 point to 117 percent of the 1957 average, and high-level
automobile sales helped to raise total retail sales in April
to a record $19.5 billion, after seasonal adjustment.

Construction Steady

The value of new construction put in place during
April has been estimated at $4.5 billion. This was 10
percent more than the revised estimate for March, about
the normal seasonal change between March and April.
The April figure was 4 percent above the 1961 month.

New private construction expenditures in April
amounted to $3.3 billion, 11 percent more than the revised
March figure and 6 percent more than in April, 1961. The
rise from March was greater than the normal seasonal
increase of 8 percent. Construction of new private non-
farm residential buildings accounted for $1.9 billion of the
total, an advance of 17 percent over the revised March
figure and substantially more than the 13 percent seasonal
gain expected between March and April.

Public expenditures on new construction totaled $1.2
billion in April. An increase of about 16 percent is
normally expected between March and April, but it
amounted to only 10 percent this year.

Unemployment Rate Unchanged

The seasonally adjusted rate of unemployment re-
mained at 5.5 percent of the civilian labor force in mid-
April, the same rate as the preceding month. The number
of unemployed fell to 3.9 million, a seasonal decline of
Bore than 400,000. Total employment rose seasonally
Bout 700,000 to 66.8 million, the highest total for any
April. The number unemployed 15 weeks or longer was

estimated at 1.5 million, about the same as in mid-

but down more than 600,000 from the year-earlier figure.

Record Business Sales

Sales of manufacturing and trade firms reached a new
high of $65.3 billion in March, after seasonal adjustment.
The increase over February amounted to $740 million, of
which $380 million was reported by manufacturers, $330
million by retailers, and $30 million by wholesalers. The
gain in manufacturers' sales was greatest in steel, motor
vehicles, and fabricated metals, and raised the total for
this segment of the economy to a new high of $33.2 billion,
nearly one-eighth above a year ago. Retail sales, where
much of the increase was the result of heavy automobile
sales, also reached a new high of $19.3 billion.

The rate of inventory accumulation slowed in March,
largely as a result of the upsurge in automobile sales,
which reduced dealers' stocks contrary to the usual
seasonal pattern. A reduction in retail inventories of
$150 million partly offset increases of $380 million in
stocks of manufacturers and $50 million in those of whole-
salers. The net advance of $280 million raised total
manufacturing and trade inventories to $97.0 billion,
after seasonal adjustment. Although this was about $4
billion higher than a year earlier, the stock-sales ratio
was 3 percent lower than in March, 1961.

Big Rise in Consumer Debt

In March consumers added, on a seasonally adjusted
basis, nearly a half billion dollars to their outstanding
short- and intermediate-term obligations, bringing the
total at the end of the month to $55.7 billion. The increase
was the largest in many months.

Instalment credit accounted for $269 million of the
gain. Automobile paper outstanding was up $133 million,
about the same as in February. Other consumer goods
paper rose only $31 million, but personal loans were $99
million higher. Repair and modernization loans increased
slightly. Total instalment debt at the end of March
amounted to $42.7 billion. This was $1.2 billion more than
was outstanding a year earlier. More than two-thirds of
the increase over the year took the form of personal loans.
Automobile paper was up only $117 million.

Noninstalment debt of consumers increased $230 mil-
lion in March, after seasonal adjustment, raising the total
of this type to nearly $13 billion by the end of the month.

THE NEW INTERSTATE HIGHWAYS IN ILLINOIS

By Royal! Brandis

Page 8

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the llureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the Universil
ew will be sent free on request.
Second-class mail ;

the College of Comme
authorized at Cha

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor
Research Assistants
Robert C. Carey Jack A. Rardin

Virginia G. Speers

The Price of Nothing

Americans are being engulfed in a sea of stamps, not
postage stamps but trading stamps. Now that A & P, the
last major hold-out in the grocery business, is offering
stamps, numerous other types of retailers are rushing into
the stamp business, and trading stamps promise to become
nearly universal in the field of retailing. Already in some
areas, stamps are being given with the sale of such major
items as automobiles and houses.

Many reasons have been advanced to account for the
spreading popularity of trading stamps. The general ex-
planation is that this is another of those fads, like hula
hoops and Yo-yos. Actually, however, more rational ex-
planations exist.

Competitive Aspects

To the retailer in the highly competitive grocery busi-
ness, any merchandising gimmick that may offer some
advantage is worth trying out. To him, trading stamps
appeal as a promotional device having the peculiar ad-
vantage not only of seeming to offer customers something
for nothing, but also of influencing them to come back to
him repeatedly in order to obtain more stamps. Unlike
price cutting, offering trading stamps cannot be met on an
equal basis by competitive stores, except by their offering
stamps of a different type. Therefore, an aggressive
retailer who offered stamps before his competitors could
do so was able to gain some advantage.

To the consumer, trading stamps appeared to possess
the magical property of providing something for nothing.
Since people had to buy groceries, drugs, and other neces-
sities anyway, receiving stamps that could be exchanged
for additional goods seemed like an added bonus, particu-
larly in a period when prices were rising and many con-
sumers were having a difficult time making ends meet.

To be sure, questions have been raised occasionally
whether the stamps were indeed free, and whether the
cost of the stamps had not been included in the markup
on the groceries. However, early studies did suggest that
in some areas retailers were able to increase their volume
sufficiently to more than offset the cost of the stamps.

Problems of Saturation

Are the same arguments still valid if trading stamps
become almost universal, at least for particular types of

stores? Clearly, the answer is no. If all retailers offer
trading stamps, they lose much of their effectiveness as a
promotional tool. Trading stamps then no longer serve
to differentiate one retailer from another, except to the
extent that some consumers are obsessed with the desire
to collect a particular type of stamp. There is still the
possibility that retailers may try to convince consumers
that their trading stamps offer more for the money, or
more variety, but this is neither a strong nor a generally
valid argument. Also, it hardly makes sense for a retailer
to spend much of his hard-pressed promotional budget to
emphasize the stamps rather than the goods being sold.

About all the retailer can do is to manipulate his
trading stamps in connection with other promotional
events, such as by offering double stamps or triple stamps
on certain days of the week or in connection with the pur-
chase of certain goods. However, tactics of this sort make
the stamps much more expensive to the retailer and are
easily met by competitors doing likewise.

Experience indicates that trading stamps are a costly
item to consumers. For one thing, there is some evidence
that stores handling trading stamps do increase their
prices somewhat more than stores not handling stamps,
though the increase may not be the full 2 percent that a
store may require to offset its expenses for these stamps.

In addition, the price at which the consumer trades in
stamps for merchandise tends to be well above what would
be paid if the same merchandise were bought directly, for
two reasons. One reason is that the merchandise available
from the stamp companies is invariably national brands.
The less publicized regional and so-called private brands
are rarely made available, even though they generally sell
for less and may possess at least the same quality.

A second reason is that when a consumer redeems his
stamps, he does so on the basis of list prices. He has no
opportunity to take advantage of discounts or special sales,
which are so prevalent these days. For example, in one of
the stamp company catalogs, a Smith Corona typewriter
requires 25^4 books of 1,200 stamps per book, or $3,090
of total purchases. The cost of these books to the retailer,
and hence their approximate value to the consumer, is
roughly §77, about the same as the $74-$78 retail price of
the typewriter. However, Smith Corona typewriters are
available in many stores at discounts of 25 percent to 30
percent. Hence, if we use a 25 percent discount, the con-
sumer is spending §77 to obtain a typewriter which he
could otherwise obtain for about $20 less.

The fact remains that trading stamps still have some
advantages, though these advantages are rather devious.
Thus, to the retailer, trading stamps may still serve as a
hidden form of price competition. For the housewife,
trading stamps enable her to acquire things she wants
painlessly (without her husband's consent) and generally
outside the regular household budget. Considering the
many disadvantages of trading stamps, however, these
would hardly seem to be strong reasons for retaining
them. Nevertheless, they may well be retained for many
years, because of fear on the part of retailers that giving
up the stamps may place them at a competitive disad-
vantage.

Yet sooner or later, retailers will have to focus on
better merchandising if they expect to forge ahead. A
principal competitive advantage of the future may well lie
with the retailer who has the aggressiveness to give up
trading stamps and to show his customers how they are
benefiting from the resulting savings. American house-
wives have enough glue on their tongues. rf

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

COSMETICS AND TOILETRIES

The manufacture of beauty aids is one of the oldest of
human industries, extending back more than 6,000 years.
Nearly every society since has concocted various mate-
rials designed to enhance human beauty or appearance, as
judged by the standards of the society; the degree of
utilization, of course, has differed widely according to
cultural norms.

Cosmetics and perfumes generally fell out of vogue in
most European countries during the Dark Ages, but
slowly returned as Eastern cosmetic practices were
brought back by soldiers and pilgrims following the
Crusades. Courtiers and their ladies, especially in France
and England, used these products lavishly during the 17th
and 18th centuries.

The industry developed slowly in this country. Until
the turn of the present century, most of the nation's cos-
metics were supplied by European plants, the remainder
being produced in this country by a few scattered plants
selling mostly to a limited clientele. In general, cosmetics
were luxuries available chiefly to the wealthy. This situ-
ation was suddenly altered directly after World War I.
American women, reaping the rewards of increased spend-
ing power and of their emancipation from Victorian social
conventions, created a vast new market for the beauty
culture and beauty products industries. As a result, the
luxury of the preceding decade became a commonplace
during the 1920's. The demand for cosmetics soared to
$193 million by 1929 and, except for 1947, has climbed
every year since 1935.

International Leader

Today, there are more than 750 plants engaged in
making cosmetics (including toiletries and perfumes) in
about 40 states. Nearly half of these factories are con-
centrated in three states — New Jersey, New York, and
Illinois — which together made five-eighths of the in-
dustry shipments of $1.4 billion in 1960.

Because of the diversity of products and the relatively
small amount of capital needed for entry, cosmetics manu-
facture has been an intensely competitive business. A
small producer with only one outstanding article can suc-
cessfully compete with a corresponding product that may
be part of a complete line made by a much larger manu-
facturer. The competitive position of individual products
is largely dependent upon continuous advertising and pro-
motion. Illustrating this is the fact that, although its
retail sales failed to rank among the top 50 American
industries in 1960, the cosmetics industry was the second
largest buyer of national advertising.

Cosmetics reach the public through many outlets. The
most important in terms of dollar volume are drugstores,
which in 1960 handled approximately $463 million, or 26
percent of the industry's retail sales of $1.8 billion. Food
stores, the most numerous of the retailers, ranked second
with 24 percent and were followed by house-to-house
solicitors (21 percent), department stores (17 percent),
variety stores (9 percent), and all other stores (3 per-

cent). Especially helpful to the industry has been the
vigorous growth of supermarkets, which have been strong
sellers of various articles that lend themselves to mass
marketing methods. In the period 1951 to 1960, food store
sales of toiletries rose 456 percent to $428 million.

Product Trends

The cosmetics manufacturer, assisted by the expand-
ing arsenal of synthetic organic chemicals available for
his formulas, today offers a wide array of products, each
having a seemingly infinite range of variations. However,
these diverse products, although broadly labeled as "cos-
metics," may be reduced to three principal types: cos-
metics, such as lipsticks, mascaras, and face powders;
perfumes; and toilet preparations, such as shaving creams,
dentifrices, and shampoos. The cosmetics group is the
predominant one, leading toilet preparations 2 to 1 and
perfumes 61/2 to 1.

Tooth pastes are easily the industry's most important
specific product by both weight and sales. In 1958, more
than 112 million pounds were produced at a total value
of $156 million, or more than twice the value of sham-
poos, the industry's next product. Demand for nearly
all cosmetic items have climbed during the postwar period,
but the most significant advances have been registered by
lipsticks, hair tints, toilet waters, toilet soaps, and de-
odorants (especially roll-ons). In addition, aerosol shav-
ing preparations, nearly nonexistent in 1947, increased
spectacularly to $30 million by 1960.

Illinois — Third-Ranking State

Illinois, which ranks third among the states in cos-
metics production, has tripled its output since 1947. In
1960, the state's 77 plants turned out products valued
at an estimated $180 million, an amount nearly equaling
the total of all states lying west of the Mississippi River.
Although plants in Illinois average somewhat larger in
size today than in 1947, most are still small, a fact also
true of the industry nationally. About 70 percent of the
plants here employ fewer than 20 persons and the average
establishment has about 55 workers, compared with the
national average of 40.

Almost every major type of cosmetic is made in Illi-
nois, the principal ones being hair preparations (including
shampoos) and dentifrices (including mouth washes and
gargles). The State is also an important center for the
manufacture of creams, lotions, and shaving preparations.

Cosmetic manufacture in Illinois is paced by Helene
Curtis at Chicago, a large complete-line firm that employs
about one-third of the 4,500 Illinois cosmetic workers.
Among the other large producers, many of which manu-
facture nationally known brands, are Avon Products at
Morton Grove, Lehn and Fink Products at Lincoln, Pep-
sodent Division of Lever Brothers at Bedford Park,
Alberto-Culver at Melrose Park, Campana at Batavia, and
Consolidated Royal Chemical at Chicago.

KNOW YOUR STATE

[ 3 j

Corporate Profits Reach Peak

Corporate profits in the closing quarter of 1961 rose to
a record annual rate of $52.1 billion. This represented an
increase of $5.1 billion over the third quarter, and sur-
passed the previous high reached in the second quarter of
1959.

For the entire year 1961, profits before taxes, exclud-
ing inventory gains and losses due to price changes, totaled
$46.2 billion, some $900 million above 1960 and within
$200 million of the record established in 1959. Taxes took
about half of total corporate profits, leaving after-tax
income at $23.3 billion, compared with $22.7 billion in
1960 and $23.7 billion in 1959.

Corporate earnings as a percentage of corporate gross
product rebounded vigorously during the last three quart-
ers of 1961, but for the year as a whole the proportion no
more than equaled the 1960 figure of 8.9 percent.

Upward Shift in Distribution of Income

The total personal income of families and unattached
individuals reached $397.2 billion in 1961, an increase of
3.5 percent over 1960. The average family income rose
$180 to a total of $7,020, and has resulted in an upward
shift of family units along the income scale. In 1961 the
proportion of consumer units earning below $4,000 de-
clined by 2 percentage points.

The effect of these changes can be seen in the accom-
panying chart, which shows the percentage of consumer
units and of incomes by various classes of income. The
largest concentration is found in the income class of
$4,000 to $6,000, which contains approximately 22 percent
of all consumer units. This modal class and the classes
below and above it account for almost 60 percent of all the
units in the distribution.

DISTRIBUTION OF FAMILY PERSONAL
INCOME IN 1961

Source: U.S. Department of Commerce, Survey of
Current Business, April, 1962, p. 10.

having incomes in these classes increased to 19, 11, 11, and
6 percent respectively. During the same period of time
the percentages in the two lowest brackets decreased to
12 and 19 percent respectively.

Working Capital of Corporations Rises

The net working capital of corporations, excluding
banks and insurance companies, rose $8.5 billion to $141.0
billion at the close of 1961, a 6.4 percent increase over
December 31, 1960. This advance in net working capital
for the full year of 1961 was 70 percent greater than the
increase in 1960 but was slightly lower than that recorded
in 1959. During 1961 manufacturing companies accounted
for $4.6 billion, or more than half, of the total increase in
net working capital. Retail and wholesale trade firms
together reported an increase of about $2.0 billion and
finance companies also reported a rise for the year.

In addition to the $8.5 billion increase in net working
capital last year, $30.0 billion was invested in plant and
equipment and $1.5 billion in other assets. To finance this
$40.0 billion expansion, $32.0 billion was obtained from
depreciation accruals and retained earnings. External
financing provided the balance of the funds needed.

Dividend Payments Increase

During the first quarter of 1962 publicly reported cash
dividends amounted to $3.7 billion, an increase of about
8 percent over the corresponding period in 1961. The
increase occurred primarily among financial concerns,
where dividends resulting from higher capital gains distri-
butions by mutual funds contributed almost half of the
three-months' gain.

The communications and trade groups, as well as the
electric and gas utilities, registered moderate gains,
whereas railroad dividends fell 4 percent. Manufacturing
industries showed both advances and declines in dividend
payments, leaving the total for this group about 4 percent
above that for the first quarter of 1961.

Residential Vacancies

Residential housing vacancy rates during the first
quarter of this year failed to show any change from the
last quarter of 1961. During both periods the national
rental vacancy rate was 7.7 percent of the total rental
inventory, and the homeowner vacancy rate was placed at
1.2 percent of the total homeowner inventory.

A comparison of the first-quarter rates over the past
few years shows the present supply of available vacancies
to be unchanged from that registered for the years 1960
and 1961. However, the rental vacancy rate of 7.7 percent
for the first quarter of 1962 was significantly higher than
the 6.1 percent recorded for 1959.

Motor Freight Tonnage Up

Intercity motor freight tonnage during 1961 was 2.6
percent higher than in 1960. The monthly volume trailed
1960 early in the year, but exceeded the 1960 results by
midyear. During the last quarter traffic improvements of
up to 13 percent enabled the over-all freight tonnage
carried to show an increase for the year, according to
statistics issued by the American Trucking Association.

Freight carriers in eight of the nine geographical
regions showed tonnage increases over 1960, ranging from
0.8 percent for motor carriers in the Middle Atlantic
region to 9.7 percent for those located in the Southern
region. The only decrease recorded was for the Central
region, where tonnage dropped 0.5 percent.

[ 6 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

City Employment and Pay Rates Increase

The number of people employed full-time by municipal
governments increased 4.7 percent and the amount spent
by these municipalities on their payrolls increased 10.5
percent during the year that ended in October, 1961.

The five largest municipalities in the nation had an
average of 115 employees for each 10,000 inhabitants, ex-
cluding those city personnel employed by schools and
other functions such as health, sanitation, and public wel-
fare services. Municipalities of 50,000 to 100,000 people
required only 83 employees per 10,000 inhabitants. Much
of this difference was accounted for by the greater number
of police employed, which ranged downward from 33 per
10,000 in the five largest metropolitan centers to 17 per
10,000 in the 50,000-100,000 population category. The av-
erage salary of government employees in the five largest
metropolitan areas was $479 a month, compared with $390
a month for those working in municipalities of 50,000 to
100,000 persons.

General Revenue of State Governments Up

The general revenue of state governments rose 4.9 per-
cent in 1961 to a record total of $28.7 billion. This was
82 percent of all revenue received by state governments,
the rest consisting of gross sales from state-operated
liquor stores and investment earnings received by em-
ployee retirement, unemployment compensation, and other
insurance trust systems.

Taxes accounted for 66.5 percent, charges and miscel-
laneous sources 10.1 percent, and intergovernmental rev-
enue sources 23.4 percent. The general sales and gross
receipts taxes were the largest producers of tax revenue,
yielding $4.5 billion, or 23.6 percent of total state tax
revenues in 1961, even though this kind of tax did not

STATE GENERAL REVENUE FROM SELECTED
MAJOR SOURCES

IONS or 0OLLAR5

INTERGOVERNMENTAL REVENUE

I5C. SALES TAXES
ICENSES*

INCOME TAXES

1957 1958 1959 I960

:e: U.S. Department of Commerce.

exist in 15 states. The next ranking source was individual
and corporation income taxes, which reached $3.6 billion.
During 1961 sales taxes on motor fuel continued their
gradual yearly increase, as shown in the chart, rising 3
percent over the previous year to $3.4 billion. Other sales
taxes on such items as tobacco and alcoholic beverages
rose 7.6 percent to $3.1 billion during 1961.

Lag in Jobs for High School Graduates

Of the 1.7 million young people who graduated from
high school in June of 1961, about 900,000 entered the
labor force. Of this total, 18 percent were unemployed in
October, 1961. This unemployment rate exceeded the
over-all unemployment rate at that time by 11.2 percent-
age points. The difficulty encountered by these graduates
in obtaining work resulted from the usual obstacles which
face young people with little or no work experience and
from the weak job market in the fall of 1961. The types
of jobs most readily filled were generally clerical for girls
and semiskilled or unskilled labor for boys.

The number of persons between 16 and 24 years of age
who had quit elementary or high school between January
and October of 1961, and entered the labor force totaled
239,000. Their unemployment rate was 9 percentage
points greater than that for the high school graduates.
This unfavorable position of dropouts is also shown in the
type of jobs they obtained — mainly as service workers or
farm laborers. Only 10 percent were employed in clerical
jobs compared with 40 percent of the graduates.

Poultry Industry More Specialized

The production of poultry and poultry products is be-
coming highly commercialized and specialized. During the
period 1954 through 1959 the sales of eggs and broilers
and the number of turkeys raised increased 26 percent, 19
percent, and 84 percent respectively, but the number of
farms selling eggs declined 35 percent, those selling broil-
ers declined 16 percent, and the number of farms raising
turkeys declined 48 percent.

The output of most poultry products is now concen-
trated in a relatively small number of commercial poultry
farms. Of the 1.1 million farms selling eggs in 1959, 54
percent sold less than 800 dozen each and accounted for
less than 4 percent of all eggs sold. On the other hand,
some 31,000 farms, each selling 20,000 or more dozens of
eggs and comprising less than 3 percent of the farms sell-
ing eggs, accounted for 52 percent of all eggs sold.

The number of farms reporting broilers sold in 1959
decreased 16 percent from 1954 to 42,000; but the number
of broilers sold increased 78 percent to 1,420 million dur-
ing the period. The same pattern also exists in the raising
of turkeys. Of the 88,000 turkey farms, 7 percent raised
96 percent of the 80.4 million turkeys produced in 1959.

Workers' Travel Methods

Private automobiles are by far the most popular means
of getting to and from work. Of the 62.6 million persons
in the United States who worked during the week pre-
ceding the 1960 census, 64 percent were carried to their
jobs by automobiles, 8 percent by bus or streetcar, 4 per-
cent by railroad, subway, or el< rated, and 2.S percent by
various other vehicular means. However, the second most
popular way of getting to work was by walking, done by
10 percent of the workers.

t 7 ]

LOCAL ILLINOIS DEVELOPMENTS

Manufacturing Plants in Illinois

More Illinois manufacturing establishments changed
their locations during 1961 than in any other year in the
history of the State, according to the 1962 edition of the
Illinois Manufacturers Directory. Almost 66 percent of
the 608 plants that moved within the State last year
changed addresses within the same city, 33 percent moved
to suburbs, and less than 1 percent moved to a different
part of the State.

The total number of Illinois manufacturing plants in-
creased to a record 20,940 in 1961, a gain of 3 percent
over 1960. The largest number (11,000) were located in
Cook County; there were 500 in Kane County, 490 in
Winnebago County, 360 in Du Page County, 300 in Lake
County, and 250 in Peoria County.

New Campsites for Parks

Illinois state parks and memorials attracted nearly 12
million visitors in 1961, an increase of about 3 million
over 1960. In the last six years, demands for camping
facilities increased 1,200 percent in Illinois, compared
with 600 percent nationally.

The State Conservation Department is launching a con-
struction program for new campsites and facilities in 21
of the 48 parks in Illinois with $1 million appropriated by
the legislature for that purpose last summer. Within a
short time it is hoped that the new campsites will have
graveled roads, modern sanitary facilities, and electrical
outlets for the increasing number of campers who flock
to the parks each year.

Employment Expansion Forecast

More than 785,000 jobs will be created in the Chicago
Standard Metropolitan Area during the next two decades.
According to Employment in 1980 in Northeastern Illinois,
a report of the Northeastern Illinois Planning Association,
area employment will rise by approximately 417,000 in the
1960's and by another 370,000 during the 1970's. The re-
port provides projections by industry designations of em-
ployment levels and patterns in the area to 1980.

FARM LAND USE, ILLINOIS, 1960

Source: Illinois Cooperative Crop Reporting Service.

The primary purpose of the study is to provide an
economic framework within which various agencies can
develop plans for coping with problems of metropolitan
area growth. Its findings are already being used in a
current project formulating plans for preserving open
space for recreation in northeastern Illinois.

Personal Income Rises

A preliminary state breakdown of the record 1961
national personal income by the United States Depart-
ment of Commerce shows that total personal income for
Illinois in 1961 amounted to $27.3 billion. This was nearly
7 percent of the national total and an increase of 3 per-
cent over the $26.4 billion for the State in 1960.

Per capita personal income in 1961 was $2,663 in Illi-
nois, 118 percent of the national average and 2 percent
more than the 1960 figure of $2,613. The increase for the
nation was also 2 percent.

Total personal income for the first two months of 1962
in Illinois was $4.7 billion, an increase of 7 percent from
the first two months of 1961 when the state's personal
income totaled $4.4 billion, according to a recent release
from Business Week. The gain for the nation in the same
period was also 7 percent.

Aid Funds Running Short

The Illinois Public Aid Commission has estimated that
funds for state public assistance programs during the cur-
rent biennium will fall short of requirements by $16S
million. About $102 million of this amount will be needed
for the aid to dependent children program, but shortages
are also expected in funds for general assistance, dis-
ability assistance, blind assistance, and old age assistance.

The Aid Commission has presented a request for the
additional funds to the Illinois Budgetary Commission.
About $109 million of the total requested would have to
come from state funds, with the rest coming from the
federal government. It has been estimated that possibly
$40 million could be raised by the transfer of funds from
earmarked accounts to the general revenue funds to meet
public assistance needs, but this would still leave a large
sum that could only be covered by additional taxes. Both
measures would require a special session of the legislature.

Farm Land Utilization

Nearly half of the crop land and over a third of the
farm land in Illinois was used for growing corn in 1960.
Corn acreage ranged from 43 percent of all farm land in
the northeastern part of the State to about 20 percent in
the southwestern part. It had varied from 8 million to
9 million acres for many years, but increased sharply
to roughly 10 million acres in 1959 and 1960.

Soybeans, the second largest crop, utilized 16 percent
of the state's farm land. Soybeans were grown in all
counties, but the heaviest concentration was in a belt
through the central and south-central parts of the State.

Small grains, hay, and other crops were grown on an-
other 20 percent of the farm land. Wheat was grown
principally in the southern half of Illinois and oats in the
northern half; alfalfa and red clover, which accounted
for the greater part of the state's hay, were grown in all
parts of Illinois.

Pasture occupied 18 percent of all Illinois farm land
and the remaining 12 percent of farm land was comprised
mainly of timberland, farmsteads, idle crop land, and
wasteland (see chart).

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
March, 1962

Building

Permits1

(000)

Electric
Power Con-
sumption-
(000 lcwh)

Estimated
Retail
Sales'
(000)

Depart-
ment Store
Sales1

Bank
Debits5
(000,000)

Percentage change from ^ a'r' j,^"

NORTHERX ILLINOIS
Chicago

Percentage change from. . . . ^j'^' l0(5,

Percentage change from. . . . L^'^ 1961'
Elgin

Percentage change from.
Joliet

Percentage change from .
Kankakee

(Feb., 1962.
Mar.. 1961.

fFeb., 1962.
Mar., 1961.

Rock Island-Moline

Percentage change from.
Rockford

I Feb., 1962.
Mar., 1961.

, . , , fFeb., 1962.

Percentage change from. . . . •, M a|. |C)(il

CENTRAL ILLINOIS

Bloomington

Percentage change from.
Champaign-Urbana

/Feb., 1962.
'IMar., 1961.

Feb., 1962.
Mar., 1961.

(Feb., 1962.
Percentage change from. . Mal/ 1961

Danville

Percentage change from

Decatur

D . , , /Feb., 1962

Percentage change from. . . Maf mA

Galesburg

Percentage change from
Peoria

Percentage change from
Quincy

Percentage change from
Springfield

Percentage change from

/Feb., 1962.
[Mar., 1961 .

/Feb., 1962.
IMar., 1961.

(Feb., 1962.
(Mar., 1961.

I Feb., 1962.
[Mar., 1961.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from
Alton

Percentage change from. . . . < ».
Belleville

/Feb., 1962.
(Mar., 1961

1962.
1961.

, , /Feb., 1962.

Percentage change from. . . . (jj^ 196j

$36,708'
+49.0
-30.4

$24,556

+23.1

-37.5

$ 1,819

+300.2

-18.0

$ 414

+127.5

-28. 1

$ 470

+26.0

+83.6

$ 273

-13.3

+187.3

$ 2,388

+555.0

+ 137.1

$ 1,197

+ 125.5

-49.7

$ 450

+23.3

+ 13.4
$ 629
+489.7

-74.4
$ 347

-34.6
+166.9
$ 580
-0.4
+249 . 4
$ 119
+266.7

-71.6
$ 873
+263.5

-35.3
$ 1,060
+599.2
+2,309.1
$ 1,176
+545.9

+30.3

$ 128

+3.5

-60.5

$ 124

+22.2
-77.5
$ 103
+ 77.7
-40 I

1,403,523"
-0.7
+10.3

,035,877
-0.0
+ 10.1

30,333
-1.9

+ 10.0

61,086--

-0.3

+ 12.6

13,294

+0.8

+21.5

17,674

+0.2

+14.7

18,138

-10.1

+28.3

37,088

-7.6

+6.6

10,610

+0.6

+ 11.3

63,782'

-2.9

+7.9

14,821

-3.3

+ 14.2

44,918

+12~6

17,101
-2.0
-3.0

26,342
+4.6
+5.5

12,457
-5.9

+ 12.7

$527,764'
-6.0
+10.3

$383,694

-7.3

+10.7

$ 8,750

-5.3

+ 15.4

$ 5,948

-3.6

+ 13.1

$10,236

-2.8

+21.2

$ 4,806

-0.4

+ 12.5

$10,246

-1.7

+10.3

$17,986

$ 5,717

-2.4

+ 14.1

$ 8,739

+2.3

+ 17.6

$ 5,604

+ 15.2

$10,897

+5.8

+ 16.6

$ 3,957

-3.8

+ 10.8

$16,439

-7.2

-17.8

$ 4,849

-3.7

+ 7.4

$13,003

+2.5

+ 18.0

$ 7,610
+2.7
+5.7
$ 4,613
-4.5
+ 11.4
$ 4,670
+0.1
+20.1

+39
+4

+38

+36'
-1'

+43

+ 1

+31'
-11"

$23 ,486"

+27.0
+ 9.9

$21,870

+28.5

+ 10.2

$ 89

{-24 7

+ 7.4

$ 54

+ 18.1

+ 7.5

$ 106

+27.7

+ 16.2

n.a.

$ 1231'
+ 14. 5
+6.6

$ 226
+ 18.5

$ 97

+ 1.2

+ 11.3

$ 91

+ 16.3

+4.8

$ 54

+16.0

+9.7

$ 133

+ 15.8

+5.8

$ 266

+ 17.8
+ 15.7
$ 55
+9.7
+0.2
$ 141

$ 135
+ 12.0

-8.2
$ 47

+8.6

' Total for cities listed. '• Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Data are for February, 1962. Comparisons relate to January, 1962, and February, 1961. 4 Research Department of Seventh Federal
Reserve Hank (Chicago). Percentages rounded by source. 5 Federal Reserve Board. 6 Local post office reports. Four-week accounting
periods ending March 30, 1962. and March 31, 1961.

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949=100

EMPLOYMENT-MANUFACTURING

,<4" >

f REVISED SERIES

AVERAGE WEEKLY EARNINGS -MANUFACTURING

ILL/

* REVISED SERIES

'52 '59 I960

-ANNUAL AVERAGE ■

DEPARTMENT STORE SALES (ADJ.)

COAL PRODUCTION

/Vwv

^A^

ILL. /

- w

'29 '36 '44 '52 '59

1961 1962 '29 '36

1961 1962

- ANNUAL AVERAGE -

BUSINESS LOANS

CASH FARM INCOME

200
100

U.S. *

i \

\ !>

ILL.

Wv\7 vj

\/Jh

-^—Aj.s.

♦REVISED SERIES

T^u

♦revised series

'52 '59 I960 1961 1962 '29 '36

'52 '59

• ANNUAL AVERAGE -

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

r\J

i •"

f ■

v ■■

vjp

/U.S.

♦revise

3 SERIES

ILL.^-*-^

<<r^

b^°

/,,

, i i II i

'52 '59 I960 1961 1962

-ANNUAL AVERAGE-

)p.5

.U.INOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY

BUREAU OF ECQ^OAVjc £ND BUSINESS RESEARCH
COLLEGE OF CQMM^C^- UNIVERSITY OF ILLINOIS

€_JL

HIGHLIGHTS OF BUSINESS IN MAY

$37.2 billion, 8 percent above last year and the same
amount as was forecast for 1962 in the January-February
survey. The May survey raised the estimate for the sec-
ond quarter to an annual rate of $36.95 billion, an increase
of $350 million over that anticipated in the January-
February survey.

A small decrease in projected capital expenditures for
1962 by manufacturers of durable goods and by public
utilities was offset by increases in anticipated outlays
by manufacturers of nondurable goods, mining firms, rail-
roads, other transportation companies, and commercial
and other enterprises. Within the durable goods manu-
facturing sector, iron and steel companies revised down-
ward their projected increase in capital spending over
1961 from 31 percent to 7 percent, and automobile manu-
facturers cut back their plans for a 20 percent rise to a
3 percent increase over last year.

Big Rise in Consumer Debt

The largest monthly advance in two years raised the
total of consumer instalment debt outstanding to $43.3
billion at the end of April. After seasonal adjustment,
the increase amounted to $517 million, of which $203 mil-
lion was automobile paper.

Noninstalment debt of consumers rose to $13.4 billion
by the end of April, but adjustment for seasonal influences
cut the increase to $4 million. Expansion of single-
payment loans and of service credit was offset by a
reduction in charge accounts. Total consumer short- and
intermediate-term debt amounted at the end of the month
to $56.7 billion, $2.9 billion more than a year ago.

The decline in stock prices was unquestionably the
principal highlight of business in May. After moving
down the earlier part of the month in a continuation of
the decline that began in mid-March, stocks listed on the
New York Stock Exchange took their worst drubbing in
years on May 28 when they shrank nearly 6 percent in one
day. Subsequently, prices recovered the one-day loss, then
fell half way back.

Analysts found it difficult to cite developments in
production or distribution to explain the sell-off. In
general, other business news was good if not exciting.
Only the steel industry reported a sharp drop in output,
with average weekly production off nearly a fourth from
April. The index of industrial production rose 1 point to
118 percent of the 1957 average. Unemployment declined
seasonally between mid-April and mid-May to 3.7 million,
and employment rose more than seasonally to 68.2 million.
The seasonally adjusted rate of unemployment edged
down from 5.5 percent to 5.4 percent.

Construction Expenditures Rise

One of the brighter spots in the economy during May
was the construction industry. The estimated value of new
construction put in place in the month rose to $5.2 billion,
13 percent more than the estimate for April. The normal
seasonal increase expected between April and May is 11
percent.

The more-than-seasonal rise was the result of a strong
expansion in new private construction, which was up 14
percent from April to $3.8 billion. This increase was
appreciably greater than the 10 percent seasonal advance
normally expected between April and May. The rise in
private construction was due mainly to a sharp increase in
construction of new private nonfarm residential buildings,
reflecting the unusually large rise in new housing starts
in March and April. The total of this type amounted to
$2.3 billion, 18 percent above April, compared with a
normal seasonal gain of 12 percent. Public construction
also rose during May, but the total of $1.4 billion was
only 11 percent above April instead of the 13 percent
I normally expected.

Capital Outlays Estimate Steady

Although actual first quarter expenditures on new
j plant and equipment were slightly lower than had been
j anticipated by business firms three months ago, the total
1 projected for the year in the May survey remained at

Inventory Pace Slows

After increasing in book value an average of $500
million a month during the first quarter of the year, in-
ventories of manufacturing and trade firms expanded only
$250 million in April, after seasonal adjustment. Of this,
$200 million was attributed to manufacturers and about
$100 million to retailers, offset in part by a decline in
wholesalers' inventories. The total of manufacturing and
trade stocks at the end of April amounted to $97.3 billion
on an adjusted basis, of which manufacturers held $56.8
billion, retailers $26.9 billion, and wholesalers $13.7 billion.

Sales of manufacturing and trade firms rose about $1.0
billion to $66.25 billion after allowance for seasonal fac-
tors. About a third of the increase was attributed to each
of the three groups.

FEDERAL AREA REDEVELOPMENT IN ILLINOIS

By Harold D. Brown

Page 8

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

The Crash of '62

Financial news does not often make front page
headlines, but when investors lose billions of dollars in a
few days this becomes a matter of widespread concern.
During the past three months the Dow-Jones Index of
Industrial Stock Market Prices has declined more than
25 percent, the largest such decline in the postwar period.
The major part of this decline occurred at the end of
May and in the first part of June when stock market
prices within a few days fell by roughly 16 percent.

The direct result of this decline is a loss of about
$21 billion in the value of issues listed on the New York
Stock Exchange. Losses in holdings of other corporate
stocks have undoubtedly been more extensive, in view of
the generally greater volatility of these issues.

Whether this decline has run its course remains to
be seen, although indications are that the worst is over.
In any event, the importance of this development warrants
an examination of the factors that may have brought it
about and of its consequence for business activity.

Back to Earth

Without doubt the principal cause of the stock market
decline is the ironic one of the removal of inflationary
fears as a reason for higher prices. It is an ironic reason
because investors and business have urged the government
for years to do something to prevent rising prices, only
to find that when effective action is taken they are among
those to be hardest hit.

Actually, prevention of inflation has been the active
policy of the present Administration since it took office,
but realization of this policy had not been widespread
until the President's success in rolling back the recent
steel price increase. That action jolted the public into
realizing that dollar profits were no longer likely to rise
as a result of continuous price increases. This removal
of inflation psychology as a factor in stock market growth
not only eliminated much of the basis for the present level
of stock market prices but also served to remove much of
the basis for future increases in stock market prices.

A second major reason for the decline is the lack of
vigor in the current business upswing. Industrial produc-
tion has advanced about 16 percent since the February,
1961, low, compared with a 26 percent increase during
the corresponding interval after the 1958 low. Unemploy-

ment, though down appreciably, is still about 5Vi percent,
and most industries are not operating anywhere near
capacity levels.

The result has been growing doubts about the sound-
ness of the present recovery and increasing fears that a
new recession may be in the offing, one possibly more
severe than any experienced for many years. Such fears
help to destroy investor confidence and provide support
for the idea that savings are best switched out of common
stocks. If a major recession should occur, stock prices
would undoubtedly decline much more while the value of
a fixed number of dollars would be expected to increase.
Furthermore, the fact that stock yields have averaged well
below yields obtainable from high-grade bonds and from
savings accounts (particularly in savings and loan asso-
ciations) provides an additional incentive for the safety-
conscious investor to switch out of common stocks.

Two technical factors also enter into the recent de-
cline. One factor is margin calls. Although the margin
requirements are rather high, 70 percent, they apply only
to listed stocks, and even with such stocks there are cer-
tain exceptions. In addition, they do not apply to "general
purpose" loans, which have not been difficult to obtain
from many banks. As a result, when prices decline
sharply, increasing demands are made upon investors to
put up more collateral, demands which very often lead to
sale of the stock.

Second, the capital gains provision of the income tax
laws may well have contributed to the decline. Under
this law, it pays an investor who is losing money on a
recent purchase to sell the stock before six months has
elapsed, for short-term losses are fully deductible in
figuring income taxes whereas long-term losses are only
50 percent deductible. Hence, once a decline has been
under way for some time, selling to take short-term tax
losses may be expected.

Implications

It is fashionable to view the current decline as being
of little significance from a longer-run point of view. Yet
there is little doubt that this decline will of itself have
some effect on business activity. Undoubtedly the great
majority of the roughly 15 million stockholders in the
country have lost money during the past few months, and
many of these people may have to curtail spending as a
result. To be sure, these curtailments are likely to be
primarily of so-called discretionary items, but the over-all
result may still be some curtailment in consumer expendi-
tures. On the business side, a certain amount of invest-
ment will be postponed, partly because of the loss of
income due to curtailed consumer spending and partly
because of inability or unwillingness to seek new financing
in the security markets.

Perhaps the biggest danger is if business decides not
to undertake further capital expenditures in the belief
that present facilities are adequate, and that, in any event,
it would pay to postpone such expenditures for the future
when prices may be lower. If business generally should
act on this basis, a major recession would be a real danger.

On the other hand, there are many favorable aspects
in the present situation. Construction activity appears
to be rising to even higher levels ; consumers seem to be
spending at record rates, particularly for durable goods ;
inventories are not excessive; international trade pros-
pects are bright, particularly if the new trade bill is passed
by Congress; and the Administration appears to be ready
(Continued on page 6)

[2]

ILLINOIS INDUSTRIES AND RESOURCES

SUMMER TOURING IN ILLINOIS

Each spring and summer some 95 million Americans
leave their homes for vacations or weekend drives of
touring and sightseeing. The steady growth of this army
of pleasure-seekers trekking to the nation's leisure spots
has made tourism a leading American industry. Last
year, the amount spent for touring needs, such as lodging,
food, and equipment, reached an estimated $20 billion.

Tourist Business in Illinois

Although noted primarily for its industry and agri-
culture, Illinois has steadily grown in stature as a tourist
state. Today, it ranks fourth nationally in estimated tour-
ist expenditures, compared with an eleventh place ranking
in 1953. Tourism here was an $800 million business in
1961. Roughly one-third of this amount was spent for
food, one-fourth for transportation, one-fifth for lodging
accommodations, one-tenth for entertainment, and the re-
mainder for miscellaneous purchases and services.

An estimated 12 million out-of-state visitors spent
some vacation time in Illinois during 1961, more than 95
percent of them coming by automobile. In addition, an
estimated 6 million Illinoisans enjoyed the numerous his-
toric, scenic, and recreational sites of their home state.

In the Shadow of Lincoln

Although tourists visit Illinois for many reasons, they
are mainly attracted by the state's part in the life of
Abraham Lincoln, its greatest citizen. More than 15 parks
and memorials, including a national memorial highway,
trace the footsteps of Lincoln from his entry into Illinois
near Lawrenceville as a young man to his departure from
Springfield as leader of his country.

Among the most famous and impressive of these
shrines is the stately Lincoln Tomb, a beautiful granite
and marble structure topped by a 117-foot spire, in Oak
Ridge Cemetery at Springfield. Also in Springfield is the
only home Lincoln ever owned.

Thousands of tourists are annually attracted to New
Salem State Park, a reconstructed pioneer village located
20 miles northwest of Springfield. At this site are 23
buildings authentically furnished as in the 1830's. Near
Charleston is a reproduction in Lincoln Log Cabin State
Park of the last home of Lincoln's father; the Moore
Home, where Lincoln last visited his stepmother before
assuming the Presidency; and Shiloh Cemetery, contain-
ing the graves of his father and stepmother.

Other cities and villages prominently associated with
Lincoln include Vandalia, Mt. Pulaski, Petersburg, Dixon,
Galesburg, Bement, Metamora, Beardstown, and Lincoln.

Natural and Historical Attractions

Although Lincolniana is the state's major tourist at-
[ traction, Illinois is distinguished by numerous other his-
torical and natural beauty spots. Many of these sites are
preserved for public benefit. In all, there are 50 state
parks, 30 memorials, and 18 conservation areas scattered
i throughout Illinois. The widespread and increasing popu-

larity of the state's parks and memorials is demonstrated
by the fact that attendance rose to nearly 12 million last
year, compared with 5 million in 1949.

Many of the parks and memorials are rich in Illinois
history, as well as in scenic attractions. For example, the
exploration of early French missionaries is associated
with Pere Marquette, near Grafton, named after the first
white man to enter what is now Illinois, and Starved
Rock, in LaSalle County, believed to be the site of a fort
built in 1682 by LaSalle. Forts Kaskaskia, Chartres, and
Massac — the latter two now partially restored — tell of
the 17th century French settlements here. Black Hawk,
Lowden, and Kickapoo State Parks are among the numer-
ous locales which abound in Indian lore.

Other parks are chiefly of scenic interest. These
include White Pines, near Oregon, with the southernmost
tract of virgin pine in the Midwest; Giant City, near
Carbondale, with its huge sandstone formations resem-
bling city blocks and streets cradled in the Illinois foot-
hills of the Ozarks; and Mississippi Palisades, overlooking
the Mississippi River near Savanna.

Illinois Recreation

Illinois is a summer playland satisfying many types
of recreational interests, ranging from strenuous physical
exertion to casual sightseeing.

A large number of tourists and weekend travelers
find enjoyment in camping. Fifty of the state parks,
memorials, and conservation areas provide space for tent
and trailer camping. All of the state camping sites fur-
nish approved water, and many supply stoves and tables.
Five state parks — Giant City, Starved Rock, White
Pines, Pere Marquette, and Illinois Beach — have over-
night lodging and dining facilities. Campers and pic-
nickers may utilize hiking trails in most parks, and
horseback riding is possible at several.

Fishing is perhaps the state's most popular participa-
tion sport. For the angler, Illinois has 341 fishable
streams, 344 public lakes, and numerous well-stocked
private lakes. Crab Orchard, the state's largest lake, is
among the many Illinois fishing spots which draw fish-
ermen from all parts of the Midwest. Besides fishing,
nearly all Illinois lakes and streams are used for swim-
ming, and many have boat-launching facilities.

Tourists are also drawn by numerous special events
and colorful local or cultural sights, such as the Illinois
and DuQuoin State Fairs with their superb harness rac-
ing; the summer stock theaters in many smaller cities; the
annual Labor Day powwow of the Sauk and Fox braves at
Black Hawk State Park; and the theaters, operas, music
festivals, and professional athletic teams in Chicago.

The Land of Lincoln offers many pleasant rewards
for both Illinois and out-of-state tourists. The fact that
in the last decade many have begun to discover these
pleasures may be credited primarily to the successful pro-
motion of the Illinois Information Service, which has
conscientiously engaged in "telling and selling" the state's
outstanding points of interest.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, March, 1962, to April, 1962

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

□ u

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. .
Weekly earnings — manufacturing
Dept. store sales in Chicago4. . . .
Consumer prices in Chicago6. . . .

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. .
Petroleum production10

Apr.

1962

(1947-49

= 100)

248.6
80.7
99.7
183.9"
139.0''
104.8
319.2
254.2
97.0
320.4
116.3

Percentage
change from
Mar. Apr.
1962 1961

■ 5.7

■ 9 2

■ 3.8

- 7 0

- 7.8

- 1.6
15.9

-15.2

'111.

Geo!. Survey,
lata for March, 1962, compared with February, 1962, anil March,
' Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal
Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding:

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts5

Department store sales2

Consumer price index1

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual rate

in billion $

438.7*

22.7
16.8
14.9

21.8°
16.6°

5.2°

56. 7b
43 . 3''
37.8°
26.9°

Indexes
(1947-49
= 100)

H7a,d

113"-d
123--*
102»-d

100"°

101°
180°

182°
339
155"
105'

100'
97'
100'
101'

100
105
79<=

Percentage
change from

+ 16.7
+ 3.2
+ 10.1

+ 3.7
+ 13.2
-18.4

+ 0.9
+ 0.9

+ 1.0

+ 0.2
+ 0 4
+ 0.7

- 3.2

- 1.3
+ 0.2

- 0.3

- 1.5

- 1.3
+ 0.1

+ 11.6
+ 6.4

+ 9.0
+ 1.6

- 1.5

- 6.0
+ 10.4
-36.4

+ 5.4

+ 4.5

+ 3.6

- 0.7

+ 11.4
+ 14.1
+ 7.9
+ 5.1

+ 5.1

+ 2.8
+ 3.5
+ 6.4
+ 17.0
+ 4.7
+ 1.3

- 0.1
+ 0.3

- 0.7

- 0 2

+ 1.0

+ 2.0

0.0

'U.S. Dept. of Commerce; 2 Federal Reserve Board; 3 U.S. Dept.
of Agriculture; * U.S. Bureau of Labor Statistics; ■ F. W. Dodge Corp.

■ Seasonally adjusted. ° End of month. ° Data for March, 1962,
compared with February. 1962, and March, 1961. <■ 1957 = 100.
« Revised. ' 1957-1959 = 100. * Based on official indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

May 26 May 19 May 12 May 5 Apr. 28

May 27

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous. . . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods . 1957-59 = 100

22 commodities 1947-49 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . number

580
148

100 2
100.9
82.0

32,978
285

587
156

100.3
100 9

1,361

15,445

183

7,260

94.7

584

100 4
100.9

82.7

32,910
310

1,375
15,369
175
7,290
97.7
587
161

100.3

100 9

32,937
314

7,345
105.0
578

153

100 6
100 9

82.4

32,778
335

1,365
14,390

154
7,054

111.5

579

137

100 0"
100.8"

85.8

31,586
368

Source: Survey of Cur

Weekly Supple

* Monthly index for May, 1961.

[ 4 ]

RECENT ECONOMIC CHANGES

Farm Labor Supply

At the end of April there were 6.8 million persons
working on farms. This was almost 12 percent more than
a month earlier, but 2 percent less than during the same
period in 1961. To a large degree, the increase over the
month of March was due to the sustained dry weather in
the latter part of April which permitted long days of in-
tense field work. Family workers at the end of the month
totaled 5.2 million persons, 2 percent less than a year
earlier, and the number of hired workers reached 1.6
million, about the same as a year earlier.

Wholesale Price Index Stable

The wholesale price index fell slightly to 100.4
(1957-59 = 100) in April, bringing it 0.1 percent below
the level recorded in April, 1961, and 0.3 percent lower
than the March figure this year. Farm product prices
dropped for the first time since October, 1961, while proc-
essed foods prices continued the downward movement of
the previous two months. However, prices of industrial
commodities advanced after holding steady in March.

Contraseasonal price declines for fresh vegetables,
livestock, and meats, together with seasonal declines for
live and processed poultry, fluid milk, and dairy products,
were the main reasons for the depressed indexes in farm
products and processed foods. Higher gasoline prices
accounted for much of the rise in the industrial com-
modities index, as the warm weather driving season ap-
proached and inventories were reduced. Among significant
decreases for industrial commodities was the continued
decline in iron and steel scrap prices, as steel production
edged down and export demand weakened further.

Sugar Industry Quotas Shift

The United States sugar industry, which operates
under a quota system that limits, by area, how much sugar
can be marketed in the United States each year, has in
the last year been authorized an increase in its portion of
the quota. The quotas of certain other countries have also
been increased in order to take up the slack caused by the
elimination of Cuba's sugar quota. Total quota supplies as
a percentage of the total, and their distribution by areas
of origin, are as follows:

Domestic beet area.

Mainland cane

Hawaii

Puerto Rico

Philippines

Other countries. . . .

1948
24%
6
10

Total KXK

Total supplies (000 tons) 7 ,098

1959
24%
6
11
10
11
35
3
100%
9,246

1961

27%

9,701

As can be seen from the tabulation, the change in pro-
portionate shares of the various areas between 1948 and
1959 was relatively minor. However, a drastic shift
occurred in mid-1960 when sugar imports from Cuba
were suspended. Parts of its quota were added to those
of Mexico, Peru, the Philippines, and the Dominican
Republic. Also, other nations not possessing a sugar
quota were allowed to sell sugar in the country. Some of
the principal beneficiaries of this new policy have been
Brazil, British West Indies-British Guiana, India, and
Taiwan.

Retail Sales Up

Total sales of retail stores in April, after adjustment
for seasonal variations and trading day differences,
amounted to $19.45 billion, about 1 percent above March
and 9 percent above April, 1961.

Compared with April, 1961, sales of the food group
were down 1 percent and those of the lumber, building,
hardware, and farm equipment group dropped 2 percent.
Sales of other major groups either stayed the same or
increased over the year-earlier month. The biggest per-
centage gain was recorded by the automotive group, which
rose 7 percent from the previous year, followed by the
general merchandise group at 5 percent and the apparel
group and eating and drinking places at 2 percent. The
furniture and appliance group, gasoline service stations,
and drug and proprietary stores all stayed the same.

Private Investment Rises Again

Gross private domestic investment rose to a seasonally
adjusted annual rate of $77 billion in the first quarter, a
28 percent increase over the first quarter of 1961, the low
point of the last recession. As indicated in the accompany-
ing chart, business investment has been financed prin-
cipally by an expanded volume of internal funds, though
there was also some increase in borrowing by corporate
and noncorporate enterprise. These larger requirements
of business for capital were partly offset by reduced re-
quirements of governments and by a small increase in
personal saving.

This corporate investment and financing pattern is
similar to that of other periods of rapid economic advance.
As compared with the 12 months ended June, 1957, how-
ever, the dollar volume of investment in fixed business
capital was off $1.5 billion, whereas internal funds were
up some $4.0 billion.

SOURCES AND USES OF CORPORATE FUNDS

BILLIONS OF DOLLARS

EXTERNAL LONG-TERM SOURCES

Source: U.S. Department of Commerce.

t 5 ]

Travel to U.S. Increases

The number of overseas visitors to this country during
the first quarter of this year increased 13 percent over the
number during the same period of last year, according to
the United States Travel Service. Altogether there were
98,000 foreign visitors, excluding those from Canada and
Mexico, with Europe accounting for 55 percent.

This increase in tourists to the United States may
reflect in part the results of an intensified campaign by
the USTS to induce more people to visit the United States
and thereby help reduce the outflow of gold. Within
Europe, where four of the eight USTS promotion offices
are located, tourists from France have increased 47 per-
cent over a year ago, followed by gains in visitors from
Switzerland (15 percent), England (12 percent), the
Netherlands (10 percent), Italy (9 percent), Germany (7
percent), and Sweden (4 percent). Also during this same
period visitors from Colombia increased 77 percent,
Australia 25 percent, and Brazil 27 percent.

Federal Government Borrowing

During 1961 the federal government ran a deficit on
income and product account of about $4 billion. To cover
this deficit and lending operations of $3 billion, it bor-
rowed $7 billion net from nonfederal sources.

Since early 1961 these borrowing operations have been
influenced by three main objectives: raising short-term
interest rates to reverse the foreign drain on gold ; keep-
ing long-term rates low to encourage economic growth ;
and lengthening the maturity of the public debt. Thus,
the Treasury has used short-term issues to raise the
money needed to finance the deficit and has employed
advance refunding techniques in order to push back by
18 to 26 years the maturity of issues due within 10 years.

Compensation in Manufacturing Up

Total compensation of manufacturing employees
reached $97 billion in 1961, of which $56 billion went to
11.8 million wage earners and $32 billion to 4.1 million
salaried personnel. Fringe benefits such as health insur-

EMPLOYEE COMPENSATION
IN MANUFACTURING

MILLIONS OF OOLLARS

ance, retirement plans, and benevolent funds accounted
for the additional $9 billion.

During the postwar expansion, all three components of
total compensation have increased considerably but at
sharply differing rates, as shown in the accompanying
chart. As a share of total compensation, salaries, almost
triple their 1948 total, have increased by about one-third.
Fringe benefits have increased nearly five times the 1948
figure and have doubled as a share of total compensation.
Earnings of wage workers have increased by three-
fourths since 1948, but they have declined relatively.

Inventories of Steel Increase

Inventories of steel mill shapes held by manufacturer
consumers are estimated to have increased from 9.4 mil-
lion short tons at the end of November, 1961, to 12.0
million short tons at the end of March, 1962, according
to data obtained by the Census Bureau in a newly initiated
monthly survey. Finished steel held by steel-producing
plants increased 21 percent to 7.4 million tons, steel in
process in mills increased 15 percent to 8.4 million tons
during this period, and the quantity of steel held by steel
distributors rose 9 percent to 3.5 million tons. As a result,
total steel inventories at the end of March amounted to
31.3 million tons, an 18 percent increase over November.

Balance of Payments Improves

The balance of international payments during the first
quarter of this year showed considerable improvement
over the last quarter of 1961. The adverse balance of
payments, after seasonal adjustments, was $450 million
during the first quarter of the year, an improvement of
about $1 billion from the fourth quarter of 1961 and
about $160 million from the average quarterly rate during
1961 as a whole.

The marked improvement in the first quarter of 1962
was due primarily to a readjustment in capital movements,
such as the return of very short-term banking funds which
had gone out in the last few weeks of 1961, and a decline
in the United States dollar balances held by Canada. Mer-
chandise exports, excluding military transactions but in-
cluding shipments financed by the government through
nonmilitary grants and loans or the acceptance of foreign
currencies, were about $100 million less than in the fourth
quarter, and imports were slightly higher.

1948 1950 1952 1954 1956 1958

Source: U.S. Department of Con

The Crash of '62

(Continued from page 2)
to take a more active role in stimulating business activity
should the need arise. Last but not least, the continuance
of international crises seems inevitable. Unfortunate as
these may be from a social and political point of view,
there is little doubt that they provide considerable stimulus
for business activity.

All things considered, a major recession in the near
future does not seem likely. Given current trends, business
activity is likely to move upward for at least another year,
unless the recent stock market decline should lead to
widespread retrenchment on the part of both consumers
and business. For the same reason, the stock market
decline is not likely to go much further. The recent
plunge has brought prices to much more realistic levels,
both with regard to capital earnings and to yields avail-
able from bonds and from savings accounts. Moreover,
it is by no means clear that the government has managed
to halt inflationary pressures. One dam does not stem
a tidal wave. rf

[6]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Farm Population Continues to Decline

The farm population of the United States continues
to decline. As of April, 1961, the average number of
persons living on farms in rural areas totaled 14,803,000
persons, according to the Bureau of the Census. This was

8.1 percent of the total population and some 830,000 fewer
than in the previous year.

However, even with the farm population decreasing,
it remains a fairly young population. It has a high pro-
portion of children and teen-aged youths (43 percent be-
ing under 20 years of age, compared with 39 percent of
the total population) and has a fairly low proportion of
young adults and persons of early middle age (with per-
sons 20 to 44 years of age accounting for only 25 percent
of the farm population compared with 32 percent of the
total population). The low proportion of the latter group
reflects the high rates of out-migration that have persisted
among young farm adults for the last decade. As a result
of this movement, farm persons of late middle age or
older considerably outnumber younger adults, a condition
that does not exist in the nonfarm population.

Frozen Vegetables Set Pace

The most important item in cold storage today is the
frozen vegetable. In the 20-year period extending from
1942 through 1961 the average American has increased
his annual consumption of frozen vegetables from seven-
tenths of a pound to almost 11 pounds; production of the
vegetable-freezing industry has risen from 106 million to

2.2 billion pounds.

On November 1, 1961, vegetables, along with frozen
fruits, poultry, orange juice concentrate, and other frozen
foods, made up the largest product weight ever stored
under refrigeration at one time. During 1961 holdings of
frozen foods set a new monthly average high of 5.5 mil-
lion pounds. This was 11 percent higher than the average
monthly level during 1960 and 12 percent greater than the
average of the previous five years.

TV in 90 Percent of Households

About 90 percent of the 53 million house-
holds in the United States owned one or more
television sets in January of this year. This
was 2 percentage points more than the per-
centage recorded in the 1960 census. The pro-
portion of households with two or more sets
increased from 11 percent in 1960 to 13 per-
cent this January.

By geographic regions the highest propor-
tion of households with television sets was in
the Northeast with 93 percent, followed in
order by the North Central with 92 percent,
the West with 90 percent, and the South with
85 percent. By size, the proportion of house-
holds having a television set was greatest (96
percent) among those with 4 or 5 persons in
the household.

As a comparison, the number of households
having television sets in 1950 numbered only
5 million; those having radios at that time
totaled almost 41 million.

Average Household Size Unchanged

Despite the relatively high level of the birth rate dur-
ing the past decade, the average size of households has
changed little. In 1950 the arithmetic average was 3.37
persons and in 1961 it was 3.36. However, these figures
conceal the fact that there has been an increase in the
average number of children per household from 1.06 in
1950 to 1.23 in 1961, and a decrease in the average num-
ber of adult members (18 and over) per household from
2.31 to 2.13 over the same period.

This decline in the number of adults per household
has resulted from a variety of influences. As the avail-
ability of separate housing has increased, fewer married
couples find it necessary to share housing with others.
Furthermore, adults other than married couples are now
far more likely to be living in their own homes than they
were a few years ago. An additional factor is the decline
in the proportion of adults who live as lodgers or resident
employees.

Government Employment and Payrolls Rise

There were 9.1 million civilian public employees as of
the end of October, 1961, 3.3 percent more than the year
before. The rise was accounted for mainly by state and
local governments, which increased their employment
229,000 to 6.6 million. During the same period of time
public payrolls reached $3.6 billion, 9 percent above the
level recorded in the previous year. Of this total, state
and local governments accounted for $2.4 billion, which
was the same percentage of the total public payroll as
the year before.

As indicated in the accompanying chart, both the
number of employees and the monthly payrolls have shown
their greatest increases over the last decade at the state
and local levels. During this 10-year period, employment
of state and local governments (on a full-time equivalent
basis ) rose by 53 percent, whereas that of the federal
government decreased 1 percent. Payrolls of state and
local governments during this time advanced 140 percent
and those of the federal government increased 41 percent.

PUBLIC EMPLOYMENT AND PAYROLLS,
1950 TO 1961

■^

U.S. Bureau of the Census.

[ 7 ]

FEDERAL AREA REDEVELOPMENT IN ILLINOIS

HAROLD D. BROWN, Small Business Administration

Structural changes in the economies of many local
areas throughout the country have given rise to severe
problems. These problems include persistently high indus-
trial unemployment and persistently high rural underem-
ployment, with consequent high relief loads, numerous
business failures, and reduced local government revenues.
Various government agencies and private groups have
tried to meet these problems, most often by providing
inducements designed to attract new industries to the
areas and their communities.

In Illinois a number of local community groups have
been organized for this purpose. In addition, the state
government has established a Board of Economic Devel-
opment to assist local areas of chronic unemployment by
making economic surveys of their potential resources and
by encouraging private industry to locate plants there.
The State also created the Illinois Industrial Development
Authority to finance the construction of factories in such
areas, which were to be leased to industrial firms on
attractive terms. However, the Illinois Supreme Court
has declared the latter legislation to be contrary to the
state constitution.

The Area Redevelopment Administration

With the invalidation of the Illinois Industrial Devel-
opment Authority, the hopes of the State for government
financial assistance that would encourage economic de-
velopment in the areas of Illinois suffering from chronic
unemployment and underemployment have come to center
on the federal Area Redevelopment Administration. The
legislation establishing this agency, introduced by Senator
Paul H. Douglas of Illinois as a part of President Ken-
nedy's program, was enacted into law in May, 1961.

The Area Redevelopment Administration attempts, in
a variety of ways, to stimulate economic development in
regions experiencing high, chronic industrial unemploy-
ment and high, chronic rural underemployment. In some
it finances surveys or tests to determine what new uses of
resources are economically feasible. For example, in
eastern Kentucky, where lumbering has taken up only a
little of the unemployment resulting from mining's mech-
anization, a consulting firm is surveying the prospects
of establishing timber-processing industries. In Marion
County, West Virginia, near the industrial complex de-
veloped at the confluence of the Monongahela and Ohio
rivers, an engineering firm is engaged in aerial mapping
to determine whether the county's railroad, utility, and
natural gas networks warrant attaching the county to the
Pittsburgh industrial complex. From the Mesabi range in
northern Minnesota, ore has been shipped to the Ruhr for
tests to determine whether application of the Krupp
process for extracting iron concentrates may regain for
the Mesabi ore some of its former eminence in American
steel production.

Surveys of the industrial potential of the limestone
resources of northwestern Florida, the health resort pos-
sibilities of mineral springs in western North Carolina,
and the prospects for agricultural modernization of
American Samoa represent applications of the ARA pro-
gram's technical assistance phase in areas of rural under-
employment.

But surveys and tests of natural resources will not
suffice to attract or hold a modern or expanding industry
for a declining community. Adequate municipal facilities

are frequently essential to attract an industry to an area
or keep it there. In establishing the Area Redevelopment
Administration, Congress authorized it to disburse $100
million in 3-;s percent loans with a maximum dura-
tion of 40 years and $50 million in grants to help needy
communities develop the required public facilities. Many
arc availing themselves of the aid. At Hazleton, Pennsyl-
vania, projected expansion by a trailer manufacturer, a
chemical plant, and a bakery in an industrial park was
blocked by lack of water until a $200,000 loan and a
$125,000 grant from the ARA financed the needed works,
thereby creating hundreds of jobs in the community. In
many other areas, industries which might have stagnated,
shut down, or moved elsewhere for lack of adequate com-
munity facilities are expanding and creating employment
as a result of ARA loans and grants.

The ARA does not operate in isolation, but draws on
many sources for help in its technical operations. A
component of the Department of Commerce, the ARA
operates through the technical divisions of that and other
departments and agencies. Its community facilities pro-
gram is administered largely through the Community
Facilities Administration, an affiliate of the Federal Hous-
ing Administration. ARA-financed research on wood-
working projects is arranged by the Forest Service. The
Bureau of Mines determined the merit of the Mesabi-
Krupp project. Almost all appropriate technical resources
of the federal government are subject to ARA's call.

Industry Loan Program

At the heart of the Area Redevelopment Administra-
tion program, however, is the direct establishment or
expansion of job-creating industries in areas of chronic
industrial unemployment and rural underemployment.
For this purpose Congress authorized a revolving fund
of $200 million for loans to community, area, or state
agencies, or to private firms and even private individuals,
for a maximum of 20 years at 4 percent interest, to set
up or to expand industrial enterprises in the industrial
and rural areas, with the $200 million evenly divided
between the two.

The test of whether a community or area qualifies for
an ARA loan for an industrial enterprise is, first, the
rate and persistence of its unemployment or underemploy-
ment, and second, the economic feasibility of the pro-
jected enterprise, that is, whether it will be able to
compete in the market and to provide permanent employ-
ment. Areas and communities otherwise qualified for
loans are required first to prepare an Overall Economic
Development Program. In preparing these Development
Programs, the planners in industrial areas draw on the
services of the Small Business Administration, an agency
long experienced in aiding small business to meet big
business competition, and in rural areas on the Depart-
ment of Agriculture. The SBA not only counsels indus-
trial area authorities on drawing up a Development
Program, but processes the applications for all ARA loans
that help finance the projects.

Main projects that should provide permanent employ-
ment have been approved. Thus, lumbering is replacing
mining in Mingo County, West Virginia, but the lumber
is processed elsewhere, giving little employment in the
arci. The Gulf Coast waters off Apalachicola, Florida,
teem with fish and shrimp, but the town lacks a processing

I 8 ]

plant that could provide employment. Now, thanks to an
SBA-processed ARA loan of $575,000, a woodworking
mill is about to start cutting the Mingo County lumber
into dimensions for school and church seating, giving
employment to 300 workers. A $652,000 ARA loan is
helping establish at Apalachicola a seafood-processing
plant, expected to employ 350.

Federal aid for the enterprises in no way detracts
from state and local authority over the economic destinies
of the areas. Locally planned and initiated, the Devel-
opment Programs and projects for enterprises must have
approval of both local and state authorities before the
Area Redevelopment Administration and the Small Busi-
ness Administration will consider loan applications. The
ARA, by law, may finance no more than 65 percent of the
cost of a project. In most instances, local investors and
state or local development agencies finance the remaining
35 percent, sometimes more, though in some cases, federal
agencies other than the ARA also help. To construct the
Mingo County woodworking plant, local stockholders sub-
scribed $200,000 and the West Virginia Development
Commission, $100,000. For the Apalachicola seafood
plant, stockholders raised $250,000, and the Florida De-
velopment Commission loaned $100,000.

Local and area banks, singly or in concert, help sub-
stantially in financing. To help develop an electronics
plant at Tewksbury, Massachusetts, a Boston bank lent
$147,500; to the sponsors of a lumber-processing plant at
Biddeford, Maine, four banks lent $100,000. Eight small
banks joined in a $125,000 loan to start an apparel pl.int
at Hancock, Maryland. Lenders other than the ARA may

REDEVELOPMENT AREAS, APRIL 20, 1962

[~] RURAL UNDEREMPLOYMENT
g§ INDUSTRIAL UNEMPLOYMENT
Source: U.S. Area Redevelopment Administration

charge, on their share of the financing, any interest rate
that is legal and reasonable. Where the enterprise is
small, the SBA will also lend funds at the ARA rate of 4
percent interest, as in the case of the Mingo County firm,
to which it loaned $288,000.

The ARA in Illinois

In Illinois, 23 southern counties with persistently high
industrial unemployment and 9 rural counties (all but 4
in the south) with persistently high rural underemploy-
ment have been designated by the ARA as eligible for
redevelopment assistance (see chart). The designation
made, the state Board of Economic Development, as to
the southern area, drew up an Overall Economic Devel-
opment Program to qualify it for ARA loans. The study
analyzed the area's economy, the reasons for the high
unemployment and underemployment, natural resources
which might be utilized, the kinds of area financing that
might be enlisted toward their development, and the
extent of ARA aid needed. This Development Program
was approved by the interested communities and the ARA.

Meantime, area agencies, among them the Carbondale
and Massac County Industrial Development Corporations
and the Rend Lake Conservancy District, surveyed pros-
pective projects. ARA action on three projects ensued.
To the City of Carbondale, ARA has loaned $500,000 to
convert a city-owned warehouse for occupancy as a fac-
tory by an eastern industrial tape manufacturer expand-
ing into the Midwestern market. The firm's capital and
machinery, with the building improvement, will give the
enterprise assets of $1.8 million and create 700 jobs.

Secretary of Commerce Luther H. Hodges has noted
that the ARA loan of $500,000 induced $1.3 million of
other investment; that the 700 jobs directly generated by
this industrial enterprise will, through its "multiplier"
effect, account for an additional 280 jobs; that the com-
munity's annual payroll will thus increase by $4.3 million,
yielding $288,000 annually in federal income taxes.
Further, Secretary Hodges has pointed out, the increased
payrolls will reduce annual unemployment benefit pay-
ments by $343,000 and annual welfare payments by
$98,000, gains recurring year after year from the impetus
of a $500,000 loan from the federal government, which
will be repaid with interest.

The Area Redevelopment Administration has also
loaned $139,500 to a glove manufacturer at Metropolis in
Massac County. The glove firm is providing $51,000, the
Massac County Industrial Development Corporation
$38,300, and a local bank $15,500 to finance an expansion
that is expected to create 150 jobs.

Dwarfing these projects is the $35 million project to
dam the Big Muddy River between Mount Vernon and
Benton. This will create the 25,000 acre Rend Lake, pro-
viding a recreation area and water for a projected com-
plex of defense industries. The Illinois legislature has
appropriated $1 million for land acquisition and the Army
Corps of Engineers has declared the project feasible. The
conservancy district has requested a $12 million public
facilities grant from the ARA to assist in its completion.
A plan for joint state, area, and ARA financing will be
considered by Congress soon. A similar project that
developed Crab Orchard Lake near Herrin in the mid-
thirties has since attracted 20 industries providing 5,800
jobs and produced a thriving tourist industry.

On balance, the ARA program promises to increase
the contribution of southern Illinois to the state's wealth
and income and to reduce its dependence on state reve-
nues, a double gain for Illinois.

L 9 j

LOCAL ILLINOIS DEVELOPMENTS

Employment and Earnings Up

Nonfarm employment in the Chicago area rose to
2,457,000 in April, 24,000 over the previous month and
50,000 more than a year earlier. A large portion of the
gain for the month occurred as a result of a strong
seasonal spurt in nonmanufacturing industries, such as
contract construction, retail trade, and service industries.
The monthly gain in manufacturing employment, though
smaller, was widespread, indicating a general uptrend in
activity.

Both hourly and weekly earnings in manufacturing
industries in the Chicago area rose to new highs in
March. Average hourly wages reached $2.63 ; this along
with an increase in the length of the workweek from
40.5 hours in February to 40.9 hours raised average
weekly earnings to $107.42. The previous peak had been
$106.27 reached in December, 1961. Average weekly earn-
ings in manufacturing for the State as a whole were
$105.22 in March, compared with $104.24 in December.

Industrial Expansion

A number of cities in the State have recently reported
major industrial developments. In Joliet the Stepan
Chemical Company is building a $7 million plant to be
completed by the end of this year. A plant established
in Havana by the Atwood Vacuum Machine Company of
Rockford is to begin operations this fall. In Dixon the
Daubert Chemical Company will move into its new build-
ing, on land leased from the Dixon Industrial Association,
by July 15. Initially it will employ about 50 persons.
Construction has begun in Rochelle on what is said to be
the largest, full-line meat-packing plant to be built in the
United States in more than 25 years.

In Chicago, the Zenith Radio Corporation has begun
construction of a new $7 million plant to be completed

CHANGES IN BANK DEBITS, 1960 TO 1961

Source: Federal Reserve Board.

this year. Construction of a %27 million, 40-story apart-
ment building is to be started in June on a lake-front site,
with completion scheduled for late 1964. The All-Steel
Equipment Company will add 350,000 square feet to its
plant in Aurora, an expansion which will increase its
payroll by 900 employees. Continental Can Company has
begun construction of a new $700,000 plant in Peoria.
Construction will begin soon on a $li/2 million Ralston
Purina plant in Vandalia.

The Kaskaskia Industrial Development Corporation
has announced that as soon as the canalization of the
Kaskaskia River is completed, Kaiser Aluminum, two
large coal companies, Continental Grain Company, and
two other industries are ready to build new plants, at an
estimated total cost of $200 million. Another anticipated
development in the area is a $132 million installation of
the Illinois Power Company. The Central Illinois Public
Service Company plans to build a $125 million generating
station southeast of Hillsboro near a new mine to be
opened by Consolidation Coal Company. Completion of
the first CIPS unit is scheduled for mid-1965.

Machinery Changes Farm Work

An increase in the size of power units, the use of
larger power-drawn machinery in multiple or individual
units, and shifts toward improved tillage practices have
reduced the labor and tractor-hours necessary to produce
Illinois crops.

Detailed cost-account studies in central Illinois show
that man-hours of labor used per acre for crop production
have decreased more than 60 percent in the past 40 years.
It required 14.4 man-hours of labor to grow and harvest
an acre of corn in 1921-22 in Champaign and Piatt coun-
ties ; only 4.7 man-hours were needed in the same area in
1959-60.

During the same period, man-hours required to raise
an acre of soybeans declined from 13 to 4.4; winter wheat,
from 12.3 to 2.6; oats, from 6.7 to 2.5; and hav from 7.3
to 5.2.

While man-hours per acre were being reduced, yields
per acre were being increased. From 1921-22 to 1959-60,
bushel yields for corn increased from 48.8 per acre to
88.8; for soybeans, from 16.4 to 32.2; for wheat, from
22.8 to 38.8 ; and for oats, from 32.2 to 63.3.

Mechanization, which has caused a decline in farm
employment in Illinois, has also required the farm worker
to become more skilled. This, in turn, has contributed to
an increase in farm wages. In 1961 the average farm
wage in the State was $201 a month, compared with $146
in 1951.

Bank Debits Total Increases

The total hank debits of 15 major Illinois cities rose
to $247.3 billion in 1961, an increase of 7.7 percent from
the 1960 total of $229.7 billion. Monthly totals during
1961 ranged from a low of $18.1 billion in February to a
high of $22.3 billion in December, a peak which also ex-
ceeded any month during 1960.

The largest percentage gain in bank debits in 1961
occurred in Bloomington, with an increase of 11.6 percent.
The cities showing the second and third largest gains were
Quincy and Chicago, whose respective increases were 8.5
and 8.2 percent. Champaign-Urbana was next with a gain
of 6.2 percent. The only cities where bank debits fell in
1961 were East St. Louis and Aurora, both with decreases
approximating 3.5 percent (see chart).

10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
April, 1962

Percentage change from.

/Mai
\Apr

NORTHERN ILLINOIS
Chicago .

Percentage change from. . . . (%£;• «*»■
Aurora

Percentage change from. . . . gj£. gg;
Elgin.

Percentage change from. . . . {jg£ W62-
Joliet

Percentage change from.
Kankakee

Percentage change from.
Rock Island-Moline

/Mar., 1962.
■\Apr., 1961.

(Mar., 1962.
(Apr., 1961 .

Percentage change from. . . . {jg£ gg-

Rockf ord

Percentage change from.

[Mar., 1962.
(Apr., 1961.

CENTRAL ILLINOIS
Bloomington

Percentage change from. . . . {]g£ }$$;
Champaign-Urbana

Percentage change from. . . . {*£■. }962.
Danville

Percentage change from
Decatur

/Mar., 1962.
(Apr., 1961.

Percentage change from.... {*£;/™2;
Galesburg

Percentage change from. . . . {Jj£- #«;
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

/Mar., 1962.
(Apr., 1961.

Percentage change from.... {JJ^Jg;

■HJTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from .
Belleville

Percentage change from.

(Mar., 1962.
(Apr., 1961.

/Mar., 1962.
■(Apr., 1961.

/Mar., 1962.
\Apr., 1961.

Building

Permits1

(000)

$36,222"
-1.3
-19.9

$24,371
-0.8

-25.0

$ 600

-67.0

-19.7

$ 1,302

+214.2

+248.1

$ 786

+67.0

+62.7

$ 192

-29.6

-70.1

$ 1,760

-26.3

+51.1

$ 1,612

+34.6

+91.6

$ 217
-51.8
-69.9

$ 643
+2.3
+37.4

$ 157
-54.9
-56.7

$ 992
+ 70.9
+81.4

$ 303

+154.7
+54.6

$ 918
+5.1
-64.0

$ 326
-69.2
-12.4

$ 1,130
-3.9
-53.2

$ 78
-38.8
-67.6

$ 717

+477.9
+39.5

$ 120
+ 15.9
+18.8

Electric
Power Con-
sumption2
(000 kwh)

,306,589"
-6.9

+ 7.2

948,380
+7.0

30,171

-0.5
+2.5
57,995c
-5.1
+8.7

12,520
-5.8

+ 13.7

16,861
-4.6
+9.6

18,238
+0.6

+20.0

38,105
+2.7

+ 10.3

10,013
-5.6
+3.9

63,591"
-0.3
+ 7.2

13,993
-5.0
+8.0

42,572
-5.2
+9.2

16,839

-1.5
-3.4

24,886
-5.5
+8.7

12,425
-0.3
+4.5

Estimated
Retail
Sales3
(000)

$607,756"
+ 15.1
+13.6

$436,957
+ 13.9
+ 12.5

$10,739
+22.7
+29.4

$ 7,122
+ 19.7
+26.9

$12,030
+ 17.5
+8.5

$ 5,843
+21.6
+18.4

$12,055
+ 17.7
+12.2

$21,726
+20.8
+21.9

$ 6,709
+ 17.4
+ 19.7

$10,149
+16.1
+23.9

$ 6,763
+20.7
+ 12.8

$12,468
+14.4
+ 12.9

$ 4,704
+18.9
+8.0

$19,533
+18.8
+ 19.9

$ 5,773
+ 19.1
+9.9

$15,309
+ 17.7
+20.7

$ 9,118
+ 19.8

+4.7
$ 5,410
+ 17.3
+8.0
$ 5,349
+14.5
+12.4

Depart-
ment Store
Sales4

+5
+14

+20'
+6"

+ 14
+13

+9"

+ 7'

Bank
Debits6
(000,000)

$22,227"
-5.4
+15.2

$20,707
-5.3
+ 15.7

$ 81
-9.3
+ 7.3

$ 49
-9.7
-1.9

$ 90
-14.9
+ 7.3

116b

-5.1
-4.0
198
-12.7
+0.9

$ 92
-5.0
+ 15.6

$ 86
-4.9
+7.0

$ 53
-2.3
-0.3

$ 125
-5.7
+11.5

$ 250
-6.0
+23.2
$ 54
-0.3
+ 17.1
$ 140
-1.0
+ 7.9

$ 139
-2.4
+ 10.0
$ 46
-1.0
+14.1

b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.
I ). iii in. hide federal construction projects. - Local power companies. 3 Illinois Department of Revenue.

s Total for cities listed

Sources: > Local source
Data are for March, 1962. Comparisons relate to February, 1962, and Man h, 1961. J Research Department of Seventh Federal Re-
Bank (Chicago). Percentages rounded by source. s Federal Reserve Board. ' Local post office reports. Four-week accountins Dei iods
ending April 27, 1962, and April 28, 1961.

[11]

Serials Department

University of Illinois Library

Urbaaa, 111.

INDEXES OF BUSINESS ACTIVITY

1947-1949 = 100

EMPLOYMENT-MANUFACTURING

\ ,

ILL. 1
U.S.

* REVISED SERIES

AVERAGE WEEKLY EARNINGS-MANUFACTURING

ILL./

* REVISED SERIES

'29 '36 '44 '52 '59 I960 1961 1962 '29 '36 '44 '52 '59

-ANNUAL AVERAGE -

1961 1962

-ANNUAL AVERAGE -

DEPARTMENT STORE SALES (ADJ.)

COAL PRODUCTION

/Vwv

ILL. ^

U.S.

"JLL.

\Vi

u.s. y^

i^/^\.

te^

'52 '59 I960 1961 1962 '29 '36

'52 '59 1960 1961 1962

- ANNUAL AVERAGE •

-ANNUAL AVERAGE -

BUSINESS LOANS

CASH FARM INCOME

ft'l

ILL.
^— '"U.S.

♦revise

3 SERIES

1961 1962

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

ILL..^-^

VJ^<

/HJ.S.

J\J

*/-JV

■U.INOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH
COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS 0t

fir *& h...

July, 1962

Nus'Mi

R(7 /;

HIGHLIGHTS OF BUSINESS IN JUNE

Business activity continued at a high level in June
despite concern over the stock market decline, which on
June 26 carried industrials to their lowest closing level
since October, 1958. The monthly FRB index of industrial
production held steady at 118 percent of the 1957 average,
and most weekly production series showed little change.
However, steel production fell further to about 50 percent
of capacity by the end of the month, and the output of
automobiles was reduced 16 percent from May to 564,000
units, partly as a result of a strike at a Ford plant that
closed down others.

Employment increased 1.3 million to 69.5 million, and
unemployment rose 744,000 to near 4.5 million. Both
increases were about average for this time of year, re-
flecting the influx into the labor market of some 2 million
teenagers. The seasonally adjusted rate of unemploy-
ment returned to 5.5 percent from 5.4 percent in May.

Retail sales fell $400 million in June to $19.1 billion,
seasonally adjusted. Sales of domestically produced auto-
i mobiles declined to 610,000 units, a drop of 7 percent from
' May on a daily-rate basis. Department stores sales were
■ off 6 points from the record May figure to 154 percent of
the 1947-49 average.

Construction Continues Up

Construction expenditures gave further support to the

economy in June, rising 10 percent to a new peak for the

month of $5.8 billion.

Both private and public construction expanded more
I than seasonally. Private outlays for new construction

amounted to $4.1 billion, 8 percent above May. Much of
I this gain was due to a 9 percent advance in spending for

private nonfarm residential construction, three times the
, normal May-to-june percentage increase. Construction of

nonresidential buildings also rose 9 percent, primarily as
i a result of a large advance in commercial buildings.

New public construction expenditures in June totaled
; $1.7 billion, 14 percent more than in May. Spending for

highways accounted for most of the more-than-seasonal

gain, but outlays for nonresidential buildings and for
i conservation and development were also above normal.

Consumer Debt Continues Rise

Consumers further increased their outstanding short-
hand intermediate-term debt in May. After seasonal ad-
justment, instalment debt was up $413 million from April
'and noninstalment debt $210 million. The rise in the

former was mainly in automobile paper and in personal
loans, both of which expanded about 1 percent. Charge
accounts accounted for most of the increase in noninstal-
ment debt.

The gain in instalment debt was the second largest in
two years, exceeded only by the $517 million increase in
April. Total consumer debt at the end of May amounted
to $57.6 billion, nearly $3.4 billion more than a year
earlier.

Inventory Pace Slows Further

Inventory accumulation, characteristic of business up-
swings, seems to be falling off. The May advance in the
book value of stocks held by manufacturing and trade
firms, after seasonal adjustment, was the smallest so far
this year, amounting to $170 million compared with $250
million in April and an average of $450 million in the first
three months of the year. Additions in all industry groups
in May were small; manufacturers' stocks rose about $50
million and retail stocks about $90 million, while those of
wholesalers changed only slightly. The seasonally ad-
justed total at the end of May was $97.4 billion.

Sales of manufacturing and trade firms amounted to
$66.4 billion after allowance for seasonal influences, an
increase of $210 million over April. Sales by wholesalers
rose $300 million, but retail sales were down $110 mil-
lion and manufacturers' shipments changed little. All of
the drop at the retail level was in durables.

New orders received by manufacturers were up about
$100 million from April, after seasonal adjustment; a
small decrease in the durable goods industries more than
offset a rise in the nondurable goods sector.

Margin Requirements Cut

The Federal Reserve Board reduced margin require-
ments for stock purchases from 70 percent to 50 percent,
effective July 10. As a consequence, buyers of stocks
registered on the national securities exchanges will have
to put up only half of the purchase price instead of 70
percent, the amount required since July 28, 1960. The
board indicated that the reduction took into account a
decline of more than 5 percent in June in the amount of
bank loans for the purchase of listed securities and the
reduction of the speculative psychology that assumed that
stock prices would continue to rise steadily because of
inflationary pressures.

THE VARIABLE ANNUITY

By Emerson Cammack

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station

Second-class mail privileges authorized at Champaign, Illinois.

Robert Ferber Ruth A. Birdzell

Acting Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

Taxes, Recessions, and Growth

Reductions in corporate and individual income taxes
have become an increasing possibility in recent weeks.
Reasons advanced for such cuts have been twofold. One
relates to the danger of a recession, which some people
fear may occur by the end of this year. A tax cut, if
timed properly, would place additional money in the hands
of consumers and business and, presumably, help offset
any tendencies to reduce investment or consumer spending.

The second argument advanced for a tax cut is to
increase the rate of growth of the economy. In the last
few years, the economy has been growing at a much
slower rate than in the period just following the end of
World War II. With backlogs of demand mostly satu-
rated, new stimuli are needed to boost economic activity.
Tax cuts could be one such stimulus, providing business
and consumers with additional money which, it is hoped,
would raise demand for both consumer and investment
goods.

Stopping an Avalanche

How effective are tax cuts likely to be in fulfilling
these objectives? With regard to avoiding or mitigating
the effects of a possible recession, they are hardly likely
to be as effective as much more powerful measures avail-
able to the government. This is true essentially for two
reasons. First, to judge by past experience, a tax cut
will not be initiated unless a recession is already here and
cannot take effect until it has been authorized by Congress.
As a result, by the time a tax cut does take effect the
recession may be well under way and, like a stone in the
path of an avalanche, can be of little use in reversing
the trend. Indeed, by the time business and consumers
obtain the full benefits of the tax cut the recession may
be practically over.

Second, in a recession reducing taxes is of little value
in either stimulating business investment or in boosting
consumer spending. Businessmen are prone to invest in
new facilities only when sales are doing well and they
are in need of more or better production facilities. When
a plant is operating at 50 to 60 percent of capacity, extra
profits are much more likely to be deposited in Treasury
bonds than to be used to erect new facilities for which
no immediate use is foreseen. In poor times, the aim is to
conserve cash, not to spend it.

For consumer spending, the paradoxical effect of a tax '
cut is that the people who most need the money receive
none of the benefits. People who are unemployed or
retired or are just getting started on their working lives,
and who are living on a subsistence level, pay no taxes
and hence receive no extra money from a tax cut.

A tax cut will provide other consumers with additional
money, but unless the recession is especially severe, much
of this money is likely to go into savings. In this respect,
it is interesting to note that consumers actually increased
their rate of saving throughout the last recession.

If the government wants to take preventive action
against an imminent recession, expenditures in the form
of public works are likely to be much more effective.
Not only can such projects, such as building schools and
other public facilities, be initiated quickly, but they serve
to place money in the pockets of people most of whom
will undoubtedly spend it all. In addition, these activities
can be located strategically in the main centers of un-
employment, both geographically and industrially, and
can help stimulate business activity where it is weakest.

Deficits and Growth

Tax cuts for the purpose of promoting economic
growth make more sense, though largely for different
reasons. Such cuts provide business firms with additional
money partly to offset lowered profit margins in recent
years and, hence, provide more capital for investment
purposes. However, such capital is more likely to be used
when the firm is doing well than when it is doing poorly.
Similarly, from a consumer point of view, additional free
money, assuming that tax cuts are made more or less
across the board, provides on the one hand more money
to be channeled into savings and then into investment ; and
on the other hand provides low-income and middle-income
families with additional needed purchasing power.

The manner in which tax cuts are made can be of
vital importance for their effectiveness. Tax cuts on
business income alone are not likely to be of much help
unless business happens to be booming at the time, in
which case tax cuts are hardly necessary. As noted before,
if sales are not at high levels, the proceeds of a tax cut
will end up in Treasury securities rather than in invest-
ment. Of course, these proceeds will be used later as the
need arises.

This need, however, depends primarily on the pur-
chasing power available to consumers and their willing-
ness to spend. When consumers are spending and sales
are high, investment opportunities tend to multiply and
capital spending is stimulated. At the same time, funds not
spent by consumers are likely, when times are good, to
find outlets in the form of investment by business, either
directly or through financial intermediaries. Hence, tax
cuts on the income of individuals would seem to merit
priority. Such reductions, if made at all levels of income,
serve to make available more money both for consumer
spending and for investment purposes.

Above all, it should be stressed that income tax reduc-
tion is likely to be more effective for stimulating economic
growth than for coping with the business cycle. Even
then, from a monetary point of view the effects of such
tax reductions are likely to be unbalancing, particularly
in the short run. While the additional dollars made
available by the tax cut are being put to use, national
income may not grow sufficiently to provide the govern-
ment with the extra revenues to offset the losses produced
by the cut. As a result, unless government expenditures
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

MOBILITY FOR THE MASSES

Commercial urban transportation — the transit system
— is a product of the industrial age. Before the 19th
century, when most cities were small, men lived near their
occupations. However, with the arrival of the factory
system in the early 1800's, thousands of workers flocked
into cities. As populations swelled and homes were estab-
lished farther from work and business centers, the need
grew for a regular mode of cheap mass transportation.

Despite this need, the industry progressed little until
late in the 19th century. The first transit carrier, a
horse-drawn streetcar on rails, appeared in 1832, and
cable and steam-powered coaches were developed after the
Civil War. But all of these were relatively inefficient for
handling large numbers of passengers. The development
of the industry on a large scale began in 1888 with the
successful application of electrical power on what became
known as the trolley car. Recognizing immediately the
potential of this new power, promoters formed numerous
electric railway companies in the following three decades,
and trackage rose to a peak of 45,000 miles by 1917.

After 1920, the motor bus was put into transit service.
Because of its versatility, economy of operation, and
lower initial cost, the motor bus shot upward in popularity,
its share of total transit traffic rising from 3 percent to
55 percent between 1922 and 1950.

Transportation Giant

In terms of number of passengers carried, the transit
industry remains the workhorse of the nation's passenger
service business. In 1960, it carried 7.5 billion revenue
passengers more than 2.2 billion miles, a passenger volume
more than 10 times that of the nation's railroads, intercity
buses, and commercial air lines together.

Structurally, any regularly scheduled local commercial
passenger carrier may be considered part of this industry.
Actually, the various transportation modes narrow to two
basic types: motor buses and electric railways (including
trolleys, streetcars, and rapid-transit elevated and subway
coaches). As has been noted, motor buses are most widely
utilized, annually transporting about two-thirds of all
transit passengers. Electric railways, on the other hand,
account for about four-fifths of the industry's gross
investment of $4 billion, but attract only one-third of
all transit operating revenues.

Of the industry's approximately 1,250 transit com-
panies, only about 100 are municipally owned; municipal
companies, however, are generally larger, primarily be-
cause many arc owners of the more expensive rapid-
transit systems. However, private transit firms have been
relatively mure profitable. In 1960, for example, private
companies accounted for 63 percent of total industry in-
come while making only 50 percent of total expenditures.

Problems and Trends

Although traffic soared to a high of 23 billion passen-
gers during World War II, the industry has faced a
shrinking share of urban passenger traffic since the late

1920's. Until that time, it had been a vigorous and steadily
expanding business, but with the sharp rise in automobile
use. many of its former markets have been gradually
siphoned away. Although transit passenger volume has
declined in nearly all cities, losses have been propor-
tionately higher in smaller communities, which in many
cases have had to .abandon service.

Besides instituting gradual fare increases to offset
declining postwar profits, many companies have sought
more efficient and economical service and equipment.
Among these efforts, for instance, has been the increased
use of traffic surveys to bring about closer correspondence
of route schedules with passenger traffic patterns. Also,
motor bus companies have not only turned toward the
less costly diesel and propane gas power, but have acquired
larger, more comfortable coaches; almost all new buses
delivered today contain 40 or more seats, whereas nearly
a third had fewer than 30 seats in 1945. Rail systems,
which have purchased no new streetcars since 1952, are
today buying only the faster subway and elevated cars.

Illinois Transit Industry

Illinois city dwellers are heavy users of transit facili-
ties. Last year, the industry carried more than 600 million
Illinoisans more than 200 million miles. For this service,
the state's transit companies received revenues of nearly
$150 million from regularly scheduled routes.

Although Illinois is the fourth-ranking state in total
transit income, the industry here has slipped during the
postwar period at a faster rate than has been true na-
tionally. Chiefly accounting for this sharp decline was
the heavy contraction of service in the large number of
Illinois cities between 10,000 and 50,000 population.

Today, 57 companies operate in more than 100 Illinois
cities and suburban communities. Except for the munic-
ipally owned systems in Pekin and Chicago, all others
are private common carriers operating under the jurisdic-
tion of the Illinois Commerce Commission. The largest
of the private companies is National City Lines, with
operating subsidiaries in 11 Illinois cities.

Towering above all other companies in the State is
the giant Chicago Transit Authority. This huge system
maintains service not only in Chicago but also within or
near 40 suburban communities. Last year, it accounted
for more than two-thirds of the 6,000 Illinois transit
vehicles, three-fourths of the total transit miles traveled,
four-fifths of passenger revenues, and two-thirds of the
20,000 transit employees.

Despite the record of the past decade, the industry's
prospects are not entirely gloomy. Although the prob-
ability of regaining passenger markets lost to the auto-
mobile appears slim, several points favor the industry's
future. Among these are the national population growth,
the ongoing population shift from rural to urban centers,
and finally the fact that the industry will be able to depend
on a si/able "core" of passengers finding commercial
urban transportation indispensable.

KNOW YOUR STATE

L 3 J

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, April, 1962, to May, 1962

COAL PRODUCTION
1* 1

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

1 i 1

1 f 1

CONSTRUCTION CONTRACTS

=ARTMENT STORE SA
— «

.ES

BANK DEBITS

FARM PRICES

■ ILL.

1 us.

}•

No change. N.A. No

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. . .
Weekly earnings — manufacturing3

Dept. store sales in Chicago4

Consumer prices in Chicago5

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

•Fed. Power Comm.; =111. Dept. of Mines; 3 III. Dept. of Labor;
•Fed. Res. Bank, 7th Dist.; = U.S. Bur. of Labor Statistics; 6 F. W.
Dodge Corp.; 'Fed. Res. Bd.; s 111. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn. ; •" 111. Geol. Survey.

Data for April, 1962, compared with March, 1962, and April, 1961.

Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal ir

Manufacturing1

Sales

Inventories

New construction activity'

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Kxcess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . . .

Nondurable manufactures

Minerals

Manufacturing employment4

Production workers

Factory worker earnings1

Average hours worked ....

Average hourly earnings. .

Average weekly earnings .

Construction contracts5

Department store sales2. . . .

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

May

1962

Annual rate

in billion $

440.0"

27.4
18.1
16.9

22.6"
16. 0C
6.6"

57. 6b
43. 9b

37. 5»'
27.0"

Indexes
(1947-49
= 100)

118»-d
H4».d

123ad

101*. d

100". ■

102"
ISO"
183"
352
162"
105'

100!
96'
100'
101'

100
105
79«

Percentage
change from

+ 18.3
+ 8.2
+ 10.8

+ 2.0

- 3.8
+ 19.4

+ 1.7
+ 1 4

- 0.6

+ 8.8
+ 6.2

+ 15.8

+ 2.9

0.0

+ 10.2
+25.4
-14.9

+ 6.3
+ 5.6
+ 4.3

+ 3.7

+ 9.3
+ 10.7
+ 6.0
+ 4.1

+ 4.1

+ 2.0

+ 3.4
+ 5.5
+ 14.5
+ 12.5
+ 1.3

+ 0.2

+ 1-5

- 0.2

0.0

+ 0.2
+ 1.9

+ 1.3

•U.S. Dept. of Commerce; -Federal Reserve Board; 3 U.S. Dept.
of Agriculture; • U.S. Bureau of Labor Statistics; = F. W. Dodge Corp.

11 Seasonally adjusted. b End of month. c Data for April, 1962, com-
pared with March. 1962, and April. 1961. <>1957 = 100. « Revised.

• 1957-1959 = 100. e Based on official indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

June 30 June 23 June 16

June 9

June 2

July

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm product-, and foods 1957-59 = 100

22 commodities 1947-49=100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,558
16,520
150
7,260
80.6
590
130

100.1
100.8
81.0

33,354
302

1,583
16,628
133
7,284
83.9
593
135

100.2
100.7
80.9

33,328
265

1,494
15,991
176
7,268
85.2
590
156

100 1
100 7
80.4

32,894

354

1,457
15,876
177
7,197
84.8
581
152

100.0

100.7
80.5

32,791
306

1,374
15,471
143
7,218
85 . 1
531
137

100 1
100.8
80.6

32,854
280

1,746

15,183

153

'l03.3

534
125

99 a

100 6*
83 4

31,769
326

Survey of Cui

s, Weekly SnprlrinrMs.

' Monthly index for Ji
[ 4 ]

RECENT ECONOMIC CHANGES

Trade Barriers

Early in March the major trading nations of the West
concluded one of the most successful rounds of tariff
bargaining since the second World War. This round of
bargaining, which was conducted under the provisions of
the General Agreement on Tariffs and Trade (GATT),
marked the initial participation of the European Common
Market in international tariff discussions. In essence,
the United States, the European Common Market, and
Great Britain agreed to cut tariffs on many industrial
products by as much as a fifth over the next several years.
In addition, most of these tariff cuts will be extended to
the other GATT nations under the long-standing most-
favored-nation principle.

In these negotiations the United States agreed to cut
its import duties on autos from 8.5 to 6.5 percent in two
equal steps while the ECM will reduce its proposed
external automobile tariffs from 29 to 22 percent and
Britain will lower its import duty on cars from 30 to
22 percent. Significant rate reductions on electrical ma-
chinery and equipment, business machines and office
equipment, machine tools, textile machinery, and materials
handling equipment were also made. The only major in-
dustrial category where bargaining failed to produce any
Important concessions was chemicals.

Inventory and Sales Expectations

Manufacturers expect a continued rise in sales and
a slowing in the rate of inventory accumulation in the
second and third quarters of this year, according to the
United States Department of Commerce.

An over-all sales increase of 2 percent through Sep-
tember is projected. If these expectations are realized,
sales will reach new highs of $100 billion and $102 billion
in the second and third quarters, on a seasonally adjusted
basis. Durable goods producers expect a 2 percent rise in
deliveries during the second quarter and a 3 percent gain
in the third quarter. During the first quarter the increase
was 3 percent. Nondurable goods manufacturers look
for an advance of only 1 percent in the third quarter
as compared with an expected 2 percent rise in the second
Quarter.

Manufacturers anticipate that their inventory book
values will increase $500 million in the second quarter
and $700 million in the summer quarter as compared with
$1.4 billion in the first quarter. This would bring book
values of manufacturers' inventories to $57.8 billion,
seasonally adjusted, at the end of September, as compared
with $56.5 billion at the end of the first quarter. Durable
goods producers will account for only one-third of the
projected rise in total factory stocks, a considerably
smaller proportion than in the past year, while nondurable
| goods manufacturers plan inventory additions in both
; quarters of about the same magnitude as the actual
increase in the first quarter of 1962.

Corporate Profits Stable

Corporate profits in the first quarter of this year

declined slightly to a seasonally adjusted annual rati- of

j $51.5 billion from the record high of $52 billion recorded

i in the last quarter of 1961. However, the total for the

I first quarter was 29 percent greater than that recorded

in the corresponding period a year ago.
| The drift in first-quarter profits was mainly accounted
, for by small declines in the earnings of durable goods

producers and of banks. Bank profits were off mainly
because of the higher interest rates being paid this year
on savings deposits. The first-quarter decline in the
profits of durable goods manufacturers reflected reduced
sales of automobiles and accessories. The strongest ad-
vance in the durables line was experienced by the primary
metals industries, where output was high due to inventory
buildup as a hedge against a possible steel strike.

Common Trust Funds Increase

During 1961 common trust funds, defined by the Inter-
nal Revenue Code as those funds maintained by a bank or
trust company for the collective investment and reinvest-
ment of moneys received through individual trust funds,
expanded at a record rate. All three measures of growth
— asset holdings, number of funds, and number of banks
operating funds — showed increases.

As shown in the accompanying chart, the total assets
of these funds rose approximately $750 million to $3.6
billion at the end of 1961. This was an increase of 26
percent above 1960. At the same time, the number of
fiduciary accounts invested in common trust funds in-
creased by 14 percent to reach 144,000 during 1961. The
average participation rose to $24,600 from $22,300.

There was a net increase of 90 in the number of
common trust funds in operation. This increase resulted
from the creation of 85 new ones, the splitting of 7 exist-
ing ones, and the merging of 2 into other funds. The
market value of holdings in these new funds ranged from
only a few thousand dollars to more than $14 million,
the average being $837,000.

Although most of the common trust funds are operated
by the country's larger trust institutions, many relatively
smaller banks are demonstrating an increasing awareness
of common trust funds as an investment medium for
trusts created and used for true fiduciary purposes.

GROWTH IN COMMON TRUST FUNDS

ASSETS NUMBER OF FUNDS

Source: Federal Reserve Board, Federal Reserve Bulle-
tin, May, 1962, p. 528.

[ 5 ]

THE VARIABLE ANNUITY

EMERSON CAMMACK, Assistant Professor of Finance

As regards his economic lifetime, each person faces
two possibilities: he may die too soon or he may live
too long. That is, he may die and leave behind those who
have been dependent on him for support, or he may outlive
his ability to earn. The man who comes home from the
office farewell party and drops dead across his threshold
represents the economic ideal but is very rare. The solu-
tion of the problem raised by premature death is found in
life insurance. The solution of the problem of living too
long is found in money.

A man that reaches retirement with some savings
faces the problem of managing the money so it will last
the rest of his life. One answer lies in an annuity. An
insurance company will guarantee him a fixed monthly
income in return for a premium. This premium, typically,
is paid in over much of the working lifetime, although it
may be paid in a lump sum at retirement age.

Individual annuities are not sold in large volume by
life insurance companies. There are just over a million
contracts in force. The main factor discouraging their
purchase is the vast change in the buying power of the
dollar over extended periods.

Purchasing Power and the Annuity

Since 1900, the general price level has increased at a
rate of about 2 percent a year. Salaries and wages gen-
erally respond to changes in price levels, some more
quickly than others. If annuity accumulations are based
on a percentage of salary, these upward shifts will be
reflected to some extent in the total accumulated for the
retirement income. Most annuities bought individually,
however, contain no provision for adjustment.

The annuitant likewise suffers during the pay-out
period of the annuity. A familiar ad shows a happy
elderly couple basking in the Florida sunshine inviting
us to clip the coupon "to learn how we retired on $200
a month in just 10 years!" When it first appeared years
ago the question that arose in the reader's mind was
''How did they get $200 a month?" Now the question is
"How can they live on $200 a month?" Annuity pay-
ments, like other long-term fixed-dollar contracts, do not
change in response to changes in price levels. The
annuitant may retire with an adequate life income prom-
ised him, only to have inflation render it inadequate.

The dotted line in the chart shows what happened to
a man who was 35 in 1900 and who began annual accumu-
lations in order to buy an annuity to begin in 1930, when
he would be 65. The figures show how far the annuity
payments he received over 30 years of retirement fall
short of constant purchasing power. Because of the rise
in prices during the first 30 years of the century, his
annuity that begins in 1930 is already 24 percent below
an ideal annuity of constant buying power. The payment
comes closest to the ideal in 1933, the depth of the Great
Depression, but by 1960 has fallen to less than half the
constant amount of buying power. Declines in the value
■ 'f the dollar pose a grave problem i<> every annuitant.

The Unit Annuity

In 1918 the Teachers Insurance and Annuity Associa-
tion (TIAA) was formed to provide college teachers with
low-cost life insurance in its broadest sense: retirement
income as well as death protection. About 1950, TIAA
began a series of investigations to seek a better solution

to the problem of providing retirement income, one less
subject to the swings in the cost of living. The report by
William C. Greenough, A New Approach to Retirement
Income, presented a well worked out proposal for a new
type of annuity, a unit annuity, as opposed to the dollar
annuity that had been in use from the earliest days of
insurance in this country.

In the dollar annuity, the annual premium paid in
the years preceding retirement is placed by the insurance
company in fixed-dollar investments (bonds, mortgages,
real estate). Interest earnings are credited to the account,
and at retirement this total accumulation is used to buy
a guaranteed fixed-dollar monthly income for the life
of the annuitant.

In the unit annuity, as in the fixed-dollar annuity,
the annual premium is a fixed number of dollars. Here,
however, the similarity ends. The annual payments are
credited to the account of the participant not in dollars
but in "units." It is as if a new kind of money had been
invented for the purpose of calculating every aspect relat-
ing to this annuity. The rate of exchange between dollars
and units is found by dividing the market value of the
company's entire investment portfolio by the total number
of units it represents. Each unit is in effect a microscopic
cross section of the entire investment portfolio. Obviously,
the value of the unit will fluctuate with changes in the
value of the investments in the portfolio. It is part of the
proposal that the fund be invested only in common stocks.
When the stock market goes up, each unit will be worth
more, and the dollar premium paid by the annuitant will
buy fewer units. When the market falls, the annuitant
will buy more units with his fixed-dollar premium.

PURCHASING POWER OF FIXED AND
VARIABLE ANNUITY PLANS''

100= CONSTANT PURCHASING POWER

FIXED-DOLLAR ANNUITY

"Bought over 30 years (1900-30) compared with an
ideal annuity that adjusts perfectly for cost of living
changes.

Source: Adapted from William Freund, "The Sutns
and Prospects of Variable Annuities," Journal of Fi-
nance, May, 1962.

[ 6 ]

For example, assume that on January 1, 1960, the
value of the unit is $10. A participant paying $100 into
the company in January (under the terms of his annuity
contract) would be credited with 10 units. If by January,
1961, the stock market has moved up, a unit may be worth,
say, $12.50. The participant's annual premium at that
time buys only 8 units. If by January, 1962, the stock
market has declined and each unit is worth, say, only $8,
the $100 premium in 1962 buys 12.5 units. Dividends
received or capital gains are converted into units and are
added to the account of each participant.

When the annuitant reaches age 65, he has, let us
assume, 1,500 units in his account. Suppose the actuaries
of the company calculate that he can be paid 10 units a
month for life. If, for example, the unit is worth $20
the first month, the annuitant gets a check for $200.
During the pay-out period, the monthly payments are
determined by the investment success of the insurance
company. The annuitant is assured only that he will
receive the dollar value of 10 units for each month as long
as he lives.

It must be emphasized that although one of the im-
portant objectives of the unit annuity is to maintain the
buying power of the annuitant, the results are not geared
to any index of buying power, but are determined solely
by the results of the insurance company's investments.
Because the annuity payments vary in this manner, this
plan usually is referred to as a variable annuity.

The Variable Annuity Is Born

In preparing to launch the variable annuity program
for college teachers, TIAA made an extensive study of
the movements of price levels, stock prices, investment
yields, wages, and other economic factors from 1880 to
1950. The conclusion reached was that the best hope
for a retirement plan to maintain the buying power of
the annuitant would be a mixed annuity in which no more
than half of the annual purchase premium is put in the
common stock fund whereas the other half is used to ac-
cumulate a fixed-dollar annuity in the usual time-tested
way. The reason for this is that a common stock fund by
itself would have resulted in sharply depressed payments
in the period 1930 to 1934, when the presence of the fixed
element would have bolstered the annuity payments.

This effect would be most apparent to an annuitant
who had been accumulating only for a relatively few
years. For instance, a man who put $100 a year into an
aiiiimiy accumulation from 1927 to 1932 would have had
by 1932 a fixed-dollar fund of $557. Had he been buying
a variable annuity, he would have had a common stock
fund of $215. A half-fixed-half-stock fund would have
Ken worth $386. These would have represented, respec-
tively, 119 percent, 46 percent, and 83 percent of the
amount required to maintain constant purchasing power.

The solid and dash lines of the chart show, however,
that if the annuity is accumulated over a longer period
(and most annuities will be ) the advantage of the mixed
annuity is less pronounced. Payments of $100 a year from
1902 to 1932 would have resulted in the accumulation of
a fixed-dollar amount of $6,545, a stock fund of $4,907, or
a mixed half-and-half fund of $5,726. The purchasing
power comparisons would have been 97 percent, 73 per
cent, and 85 percent respectively. It should be noted that
1932 was the worst terminal point for the accumulation
period of an annuity so far this century.

If the accumulation period had extended from 1920
to 1950, the TIAA study shows that the fixed-dollar fund

would have been $5,359, the stock fund would have been
$11,001, and the mixed fund, $8,180. The purchasing
power comparisons were 70 percent, 144 percent, and 107
percent respectively.

If stock prices go up, the 100 percent stock fund is
superior. If stock prices go down, the fixed-dollar fund
is best. The conclusion of the TIAA study was that a
lifty-fifty division provides the best protection against
fluctuations in buying power. The superior performance
shown in this century by the stock funds as compared
with the fixed-return investment funds not only shows tin
ability of the variable annuity to maintain the purchasing
power of retired persons, but also shows that it would
have helped maintain the standard of living of annuitants.
The use of the variable annuity gives retired persons a
chance to participate in the rising standard of living of
the country so far as it is reflected in rising stock prices.

In 1952, special legislation was passed by the New
York legislature to create the College Retirement Equities
Fund (CREF). It is under the same management as
TIAA. It issued its first certificate on July 1, 1952. Since
that time over 90,000 teachers have become holders of
variable annuity contracts, and about 1,400 have retired
and are receiving variable annuity payments.

The initial accumulation unit was valued at $10. This
rose to a high of $32.45 in November, 1961, and has since
fallen to $25.11 at the end of May, 1962.

The annuity year runs from May through the follow-
ing April. If an annuitant had been 65 on July 1, 1952,
and had been permitted to buy an immediate annuity with
a lump sum large enough to provide a TIAA (fixed-
dollar) annuity of $100 a month, and a similar lump sum
had been given to CREF, the total monthly annuity would
have risen to $317 a month by May, 1956. The monthly
payments would have reached a peak of $411 for the
annuity year beginning May, 1961, and would have been
$410 a month beginning in May, 1962. This 1962 annuity
payment represents a 91 percent increase over the 1952
payment, whereas consumer prices are only about 13
percent higher. TIAA-CREF is quick to emphasize, how-
ever, that

no one should jump to the conclusion that a TIAA-CREF
income will always grow as fast as or faster than consumer
prices. There is no panacea. However, this ten-year expe-
rience shows that by participating in CREF, the retirement
part of an educator's compensation is made much more re-
sponsive to changes in the economy as these are reflected in
common stock performance.

Variable Annuities for All?

Few persons are eligible to buy variable annuities
today. Following the establishment of CREF in 1952, the
first commercial company formed to write the variable
annuity was chartered in Little Rock, Arkansas, the
Participating Annuity 1-ife Insurance Company. In
March, 1955, the Prudential insurance Company of Amer-
ica (Newark, New Jersey) requested permission of the
New Jersey legislature to write variable annuities. After
three unsuccessful attempts, enabling legislation was
passed in 1959.

Meanwhile, two companies were formed in the I >is-
tricl of Columbia to write variable annuities: the Variable
Annuity Life Insurance Company (December, 1055) and
the Equity Annuity Life Insurance Company (July, 1956).
Almost before the companies' charters had been granted,
the United States Securities and Exchange Commission
secured injunctions to prohibit sales by the companies

I ' I

until they had complied with the security-registration
provisions of the securities acts. In March, 1959, the
United States Supreme Court reversed a lower court deci-
sion and held that the two Washington companies did nol
deserve the exemption from SEC regulation that the
federal statutes give "insurance companies."

The Prudential has tiled for exemption from the
Investment Company Act of 1940. However, it i-> by
no means certain that the exemption will lie granted.
Even if SEC approval is obtained, there remains the prob-
lem of qualifying the variable annuity with insurance
regulatory authorities of the states. The District of
Columbia companies have been admitted to do business in
Alabama, Arkansas, the District of Columbia. Florida,
Kentucky, New Mexico, North Dakota, Ohio, West Vir-
ginia, and Wyoming.

The most important state, New York, has not yet
acted. The importance of New York in the regulation of
insurance lies not only in the financial importance of the
New York market, but also in the operation of the so-
called Appleton Rule. This rule, enacted formally into
the New York Insurance Code in 1939, requires insurance
companies admitted to do business in New York to obey-
New York rules not only on business written in New
York, but also on business written anywhere else. Even
though the SEC hurdle is vaulted, the refusal of permis-
sion by the New York department would spell the end of
the Prudential's hopes to write the variable annuity. If
it has to choose between writing the variable annuity and
continuing to write any life insurance business in New
York State, the Prudential, obviously, would prefer to
remain in the New York market and forget the variable
annuity. The objection of the New York department,
however, does not constitute a major road block to the
District of Columbia companies, which are primarily in
the variable annuity business and only secondarily in the
business of writing other life insurance products.

An Economic Problem

Aside from the difficulty that most people are not yet
permitted to buy variable annuities, there seem to he two
principal kinds of problems — the economic and the
psychological.

The economic problem arises because the investment
of retirement accumulations in common stocks is not a
perfect hedge against fluctuations in the cost of living.
As noted earlier, if the stock market goes up, the variable
annuity is best. If the stock market goes down, the fixed-
dollar annuity is best. The TIAA-CREF system of the
combined annuity attempts to split the difference.

Studies have shown that from 1871 to 1959 investors
in the stock market have averaged about 5 percent a year
in dividend returns and about half that much in price
appreciation (N. Molodovsky, "Stock Values and Stock
Prices," Financial Analysts Journal, March-April, 1960).
During that period stock prices have risen a little faster
than the cost of living. In short periods, however, the
cost of living and stock prices have moved in opposite
directions at times, with the stock market making wider
swings than has the cost of living.

The accumulation of retirement funds, however, pro-
ceeds over a relatively long period of time, and it makes
relatively little difference what the level of stock prices
may be when the program is begun or when it is ended.
For example, from May, 1946, to May, 1947, common
stock prices fell 23 percent, whereas the cost of living
advanced 19 percent. Yet an accumulation over the
preceding 30 years in a stock fund still would he 25

percent above a constant purchasing power fund, whereas
a fixed-dollar accumulation would have been more than
25 percent below.

Molodovsky's study of the stock market showed a
close parallel between the average annual increase of
2.5 percent in stock prices and the annual growth in
earnings and dividends. The strenuous efforts of the
government to promote economic growth, as well as the
large and ever growing mechanism to fight depressions,
point to the likelihood of continual growth in stock prices
even if fiscal policies likely to promote inflation are not
present. This persistent, though occasionally interrupted,
growth seems to show that the variable annuity deserves
a place in retirement planning.

The similarity in the working of the accumulation
period under a variable annuity to dollar averaging plans
of stock accumulation is obvious. It should be noted,
however, that the use of the variable principle in the
pay-out period is possible only under an insurance ar-
rangement. The insurance element enters because of the
guarantee of the lifetime income. This cannot be accom-
plished in any other way. Only an annuity can assure
that the retired person cannot outlive his income.

The variable annuity will not guarantee the dollar
amount of the income, but it will guarantee the dollar
equivalent of a guaranteed number of units for the life
of the annuitant. The variable annuity not only offers
a partial hedge against changes in the cost of living, but
at the same time gives the annuitant a chance to partici-
pate in the growth of the economy with the growth in
the standard of living that goes with it.

A Psychological Problem

A psychological objection to the variable annuity
arises when the exact nature of the contract is not under-
stood by the participant. The president of the world's
largest life insurance company summed up his objection
by saying: "I don't want to be answering letters from
policyholders which say, 'Last year you paid me $100 a
week. Now you're only paying me $80 a week. I low
come?' "

Because of the recent decline in the stock market, the
annuitants of the Variable Annuity Life Insurance Com-
pany got a June check for 14 percent less than they got
last January. An official of that company said: "So far,
there have been no kicks from recipients; they realize
that slock prices can go down as will as up." CREF
annuitants were not affected since, as explained earlier,
its annuities are calculated only once a year and remain
unchanged throughout a 12-month period. Eventually,
this decline will affect the size of annuities if the portfolio
does not fully recover from the price decline. It seems
that the chance for misunderstanding (or misrepresenta-
tion) is no greater here than in connection with other
products sold by life insurance companies.

Taxes, Recessions, and Growth

(Continued from page 2)
are reduced sharply, which is hardly likely, substantial
deficits will accompany tax reductions.

In time the growth in national income made possible
by the tax reduction ought to produce additional revenues
to bring the budget back into balance, ami possibly pro-
duce healthy surpluses as well. At best, it is a calculated
risk, but this country would not have reached its current
high position without taking risks of this sort. rf

f 8 1

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

State Retirement Systems Grow

Retirement protection applied to nearly all full-time
employe, s of state and local governments and to a con-
siderable number of their part-time employees, according
to the 1957 Census of Governments. The most wide-
spread form of coverage was through retirement systems
administered by these governments, which reported re-
ceipts of nearly $2.5 billion for 1957, and financial assets
totaling $12.8 billion. By 1961 annual receipts had risen
to $3.7 billion and total financial assets to $20.9 billion.
This growth indicates a continuance of previous trends,
as indicated in the accompanying chart.

One notable development in recent years has been the
marked shift of retirement system investments toward
nongovernmental securities. This trend continued in 1961
with the increased holdings of nongovernmental securities
accounting for all but $147 million of the $2.3 billion rise
in the total financial assets of these retirement systems.
At the end of fiscal 1961 nongovernmental securities made
up nearly half of the total financial assets.

First and Second Generation Americans

The number of United States residents of foreign
stock (persons either foreign born or native born of
foreign or mixed foreign and native parentage) was 34
million in 1960. Of this total, 9.7 million were foreign
born ami 24.3 million were of native birth with one or
both parents foreign born.

The country of origin having the largest group of
first and second generation persons of foreign stock was

STATE AND LOCAL GOVERNMENT
RETIREMENT SYSTEM FINANCES

BILLIONS OF DOLLARS

Source: U.S. Bureau of the Census, Finances of E

plnyee Retirement System* of Slate and I
ments in 1961, May 11, 1962.

Italy with 4.5 million, followed by Germany with 4.3
million, Canada with 3.2 million, the United Kingdom
with 2.0 million, Poland with 2.8 million, and the USSR
with 2.3 million. These six groups accounted for about
59 percent of all residents of foreign stock.

School Systems Reduced

The number of public school systems in the United
Stales lias been reduced by some 16,000, or 30 percent,
during the last five years. In the just-completed school
year 1961-62, the country contained 37,025 school systems,
including 6,031 nonoperating systems.

This reduction reflects primarily the consolidation of
school systems. Thus, the number of relatively large sys-
tems, of 1,200 pupils or more, has increased some 20 per-
cent during the past five years to a total of 5.841. Smaller
systems have declined in number, those containing 50 to
1,199 pupils dropping 21 percent to 13,940 and those with
fewer than 50 pupils declining 48 percent to 11,213. These
small districts represent 68 percent of the districts but
only 15 percent of enrollment. At the other extreme, the
132 largest school systems, each with at least 25,000
pupils, account for 26 percent of enrollment.

Family Income Higher in Urban Areas

The median income of families living in the urban
fringe (suburbs) of American cities of 50,000 or more
population was $7,100 in 1959, according to the 1960
Census of Population. The national median was $5,700,
with the median for all urban families amounting to
$6,200 and for all rural families $4,400.

Among urban families, the median income was $6,400
in urbanized areas and $5,900 in the central cities.
Median income for families in other areas were as fol-
lows: farm, $3,200; nonfarm rural, $4,800: urban areas
of 2,500 to 10,000 population, $5,200; and urban areas of
10,000 to 50,000 population, $5,500.

Home Owners Outnumber Renters

At the time of the 1960 census, there were 58.3 million
housing units in the United States. Approximately 1 in
10 of these was vacant. Of the remaining 53.0 million
occupied units, 62 percent were owner occupied and 38
percent were renter occupied.

Renters were in the majority in only three states,
New York, Hawaii, and Alaska, where the percentages of
renter-occupied housing units were 55, 60, and 52 respec-
tively. In the other 47 states, the number of home owners
exceeded the number of renters by a considerable margin.
California had the highest proportion of owner-occupied
units, with 58 percent in this category.

Per Capita Egg Consumption Declines

Although the total number of eggs used has remained
fairly stable, per capita egg consumption declined from
392 eggs per person in 1(»?1 to 326 eggs per person in
1961, a drop of 17 percent. Two principal reasons are
given by the Department of Agriculture for this decline
in per capita egg consumption. First, people are eating
smaller breakfasts, and second, there has been a signifi-
cant decrease in the proportion of the population raising
chickens t<> provide eggs for home consumption.

[ y ]

LOCAL ILLINOIS DEVELOPMENTS

Eight of the eleven major indexes of business activity
in Illinois rose in May. The largest increase over April
(29.7 percent) was in construction contracts, and the
next largest were in life insurance sales (8.6 percent)
and in hank debits in 15 cities and electric power produc-
tion (6.6 percent each). The largest decrease was 4.3 per-
cent in seasonally adjusted department store sales for
Chicago, with farm prices received declining 1.0 percent
and the consumer price index for Chicago, 0.2 percent.

Comparisons with May, 1961, show increases in all
indicators with the exception of farm prices received,
which fell 1.0 percent.

Bank Debits Increase

Bank debits seasonally adjusted for all Illinois metro-
politan areas in the Seventh Federal Reserve District
(all except those in the St. Louis Metropolitan Area)
rose from May, 1961, to May, 1962. Champaign-Urbana
showed the largest increase, 20.4 percent, from a year
ago, with Springfield, the Quad-Cities, Peoria, and Chi-
cago each reporting increases of over 13 percent. The
smallest increase, 5.1 percent, was in the Rockford area.

In addition to these metropolitan areas, two Illinois
cities classified as urban centers showed large increases
from May, 1961, to May, 1962. The seasonally adjusted
annual rates for Bloomington and Danville increased 17
percent and 15.3 percent, respectively.

Bank debits this May were also higher than in April.
Percentage increases in the seasonally adjusted annual
rate for Champaign-Urbana, Chicago, Rockford, and the
Quad-Cities were partially offset by declines for Decatur,
Peoria, and Springfield.

Chicago Area Employment Down, 1957-61

Employment in the six-county Chicago metropolitan
area, which had reached record high levels in 1957, fell by
approximately 90,000 to 1.8 million by mid-March, 1961,

REALIZED NET INCOME PER FARM

DOLLARS

Source: U.S. Department of Agriculture, Farm Inconu
Situation, August, I960, Supplement; February, 1961
and March, 1962.

according to a recently published study of the Illinois
State Employment Service. Employment in the United
States as a whole set new record highs in both 1960 and
1961.

Most of Chicago's job decline occurred in the enmities
of Cook and DuPage, with a large drop in the central
area partially offset by increases in the suburban districts.
Total gains of approximately 6,000 jobs in the outlying
counties of Kane, Lake, and McHenry were nearly offset
by Will County's loss of 5,000.

In the northwest district of Chicago, where industrial
growth was stimulated by good roads and large available
tracts of lower-cost land, employment rose by nearly
8,000 ; all other sectors of the city experienced job losses,
many of which resulted from the migration of industry to
the suburbs. The largest reductions in employment
occurred in Chicago's west central area and on the south
side. Both of these areas were heavily blighted. Urban
renewal, neighborhood conservation, and land clearance
programs are being carried forward in an attempt to halt
further deterioration in these areas.

Research Park Planned

Plans for a $50 million research park in Chicago's
central south area have been announced by the Illinois
Institute of Technology. It will adjoin the present Tech-
nology Center, including the Armour Research Founda-
tion, the Institute of Gas Technology, the Association of
American Railroads, and the IIT. Industrial, scientific,
ami engineering research facilities will be developed in
the area bounded by 35th Street, Michigan, 39th Street,
and State.

This section was recommended by the Department of
City Planning for early action in the redevelopment of a
950-acre central south area. Current plans call for con-
struction on the first eight acres of the project to begin
in the fall of 1962.

Realized Net Income Rises

Realized net income per Illinois farm in 1961 is esti-
mated by the United States Department of Agriculture
at $4,878, an increase of 39 percent over 1960. For the
nation as a whole, realized net income per farm rose
12 percent from 1960 to $3,323 (see chart). To calculate
realized net income, cash operating expenses and deprecia-
tion are subtracted from the sum of cash sales, govern-
ment payments, value of farm products consumed, and
rental value of farm dwellings.

In Illinois the increase in realized net income per farm
resulted largely from sales of crops held over from 1960
and from higher crop yields in 1961. Total cash receipts
from farm marketings rose about 9 percent, with sub-
stantial increases in receipts from hogs, milk, corn, and
soybeans. Government payments were up $572 per farm.
The number of farms was down by about 4,000.

Preliminary data indicate that the largest percentage
increases in net farm income were recorded in southern
Illinois. Earnings on grain farms in that area were up
nearly 40 percent and for hog and dairy farms about 20
percent.

Crop yields were exceptionally high in all areas of
Illinois in 1961. Livestock-feed price ratios were average
or above for all enterprises except feeder cattle. Even
though farm operating costs continued to rise slightly,
total receipts increased even more than costs, making 1961
an unusually good farm year.

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES

May, 1962

Building

Permits1
(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales*

Bank
Debits5

(000,000)

Percentage change from W '.'

/Apr., 1962.

1961

[Apr., 1962.
'[May, 1961.

(Apr., 1962.
1961.

NORTHERN ILLINOIS
Chicago

Percentage change from. . .
Aurora

Percentage change from. . . .1 jJjPr"'
Elgin

Percentage change from. . ..{Jg^ g«
Joliet

Percentage change from. . . . {Jg£. gg
Kankakee

Percentage change from.'... {$£ g«
Rock Island-Moline

Percentage change from. . . .{£/£_ \Z\
Rockf ord

(Apr., 1962.
[May, 1961.

(Apr., 1962.
i May, 1961.

/Apr., 1962.
[May, 1961.

Percentage change from. . . . Jg£ l*j*

CENTRAL ILLINOIS
Bloomington

Percentage change from.
Champaign-Urbana

Percentage change from .
Danville

Percentage change from .
Decatur

Percentage change from .
Galesburg

Percentage change from .
Peoria

Percentage change from.
Quincy

Percentage change from .
Springfield

Percentage change from .

/Apr., 1962.
[May, 1961.

/Apr
l.Ma:

SOUTHERN ILLINOIS

East St. Louis

Percentage change from .
Alton

/Apr., 1962.
, May, 1961.

Percentage change from. . . . [$g£ l*gj-

Belleville

Percentage change from.

/Apr., 1962.
,May. 1961.

$32,647'
-7.3
-56.5

-16.7
-66.2

$ 662
+ 10.4
-24.0

$ 420
-67.7
-3.4

$ 1,074
+36.7
-77.1

$ 211
+ 9.7
-22.1

$ 1,084
-38.4
+ 16.3

$ 1,967
+22.0
+25.3

$ 2,036
+838.3
+287.8
$ 417
-35.1
+52.7
$ 279
+78.3
+22.9

$ 185
-39.0
+30.3

$ 888
-3.3
-48.5

$ 181
-44.4
-32.0

$ 1,831
+62.0

$ 230

+194.9

+ 15.0

$ 746

+4.1

0.0

$ 125

+4.2

-19.4

1,287,961'
-1.4
+8.1

28,913
-4.2
+9.5

59,644"
+2.8

+ 14.0

13,069

+4.4
+18.0
17,524

+3.9
+20.5
19,175

+5.1
+35.0
34,492

-9.5

-0.6
10,255

+2.4
+12.4
64,495"

+ 14

+8.9
14,031

+0.3
+ 16.2
47,800
+ 12.3
+20.6

16,992
+0.9
+1.2

25,343

+ 1.8
+4.8
12,989
+4.5

+23 5

$604,949"
-0.5
+16.4

$432,012

-11

+ 15.8

$10,828

+0.8

+36.7

$ 7,303

+2.5

+28.9

$12,550

+4.3

+29.3

$ 6,105

+4.5

+25.6

$12,181

+1.0

+ 15.3

$21,705

-0.1

+ 6.4

$ 6,672

-0.6

+15.4

$10,174

+0.2

+23.2

$ 7,000

+3.5

+20.1

$12,315

-1.2

+2.0

$ 4,900

+4.2

+21.6

$19,546

+0.1

+ 18.1

$ 6,171

+6.9

+23.5

$15,882

+3.7

+25.9

$ 8,926
-2.1
+ 12.4
$ 5,346
-1.2
+ 13.2
$ 5,335
-0.3
+ 17.8

+ 12

$23,705-
+ 6.6
+ 11.3

$22,082
+ 6.6
+ 11.7

$ 86
+6.8
+ 6.9

$ 55
+ 13.7
+ 6.4

$ 97
+ 7.3
+ 6.0

$ 1301'
+11.4

+ 1.7
$ 213

+8.0

+2.4

$ 96

+3.6

+ 12.1

$ 96

+ 10.5

+ 12.3

$ 54

+3.1

+9.8

$ 123

-2.0

+5.8

$ 265

+ 6.2
+12.0
$ 60
+ 10.1
+ 6.5
$ 147
+5.0
+ 7.8

$ 143

-1.6

$ 58

+25.6

+ 14.2

"Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.
Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Data are for April, 1962. Comparisons relate to March, 1962, and April, 1961. * Research Department of Seventh Federal Reserve
Bank (Chicago). Percentages rounded bv source. 5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods
| ending May 25, 1962, and May 26, 1961.

[11

INDEXES OF BUSINESS ACTIVITY

1947-1949=- 100

EMPLOYMENT-MANUFACTURING

-\\ ~ r

\ •

ILL. J

♦revised series

AVERAGE WEEKLY EARNINGS-MANUFACTURING

*^u.s.

* REVISED SERIES

1961 1962

DEPARTMENT

STORE

SALES

(adj.;

/vOv

LaA^

ILL. ^

U.S.

COAL PRODUCTION

X^Z^ri H^ti

1961 1962

'59 I960 1961 1962

-ANNUAL AVERAGE ■

BUSINESS LOANS

CASH FARM INCOME

ILL.

* REVISE

D SERIES

U.S. *

1 A

v A.

ILL.

Wv\/VJ

* REVISE

3 SERIES

1961 1962

'59 I960 1961 1962

-ANNUAL AVERAGE -

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

r\l

/U.S.

* REVISE

D SERIES

ILL.^>^^

uA^

/4j.s.

'52 '59 I960 1961

'52 '59 I960 1961 1962

- ANNUAL AVERAGE -

;.3 w

•?-LINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

September, 1962

HIGHLIGHTS OF BUSINESS IN AUGUST

Business indicators for August presented a mixed
picture. Steel production generally continued to inch
upward, as it had in July, and reached a level of 1,672,000
tons of ingots for the final week of the month. Other pro-
duction indicators which showed gains were electric
power, petroleum, bituminous coal, and paperboard. The
output of motor vehicles was the notable exception, of
course, as shutdowns for model changcovers virtually
eliminated car production during the middle weeks of
August. The Federal Reserve Board index of industrial
production was unchanged at 119 (1957 = 100).

Personal income rose in August to a record $442.8
billion, at a seasonally adjusted annual rate. The increase
of $900 million over the July figure was the smallest gain
since January. Department store sales for the month of
August were estimated at 114 percent of the 1957-59 aver-
age, down 1 point from the previous month.

Construction Outlays Steady

The value of new construction put in place in August
was estimated at $5.8 billion, only slightly higher than in
July but 7 percent more than in the year-earlier month.
The small change from July to August was in line with the
usual pattern at that season of the year.

Total new private construction outlays of $4.0 billion
were off about 1 percent from July but were 8 percent
above August, 1961. The chief factor in the month-to-
month decline was a 3 percent drop in nonfarm residential
building to $2.3 billion. The expected seasonal change is a
decrease of 1 percent. Despite the greater-than-usual
cutback, private nonfarm residential expenditures re-
mained 9 percent above the figure for August, 1961.

In contrast to private construction spending, public
! outlays rose to $1.8 billion in August, 5 percent over July
i and 6 percent over the previous August. The expected
advance between July and August is 3 percent.

Retail Sales Off Fractionally

After reaching a record figure of $19.7 billion in July,

, retail sales declined a half of 1 percent in August to

a seasonally adjusted total of $19.6 billion. At this level,

I last month's sales exceeded those of August, 1961, by 8

percent and were the third highest ever recorded.

The August decrease was caused by a 3 percent drop
in sales of durable goods, which in turn was mainly the
result of a downturn in sales by automobile dealers. Total

durable goods sales at retail were $6.2 billion. Nondur-
ables sales, on the other hand, were up 1 percent in August
over July, to a record $13.4 billion.

Planned Capital Investments Unchanged

Business firms continue to plan to spend $37.2 billion
(seasonally adjusted annual rate) on new plant and
equipment this year, the same amount indicated in Feb-
ruary and in May. Actual outlays for the first two quar-
ters of the year averaged $36.3 billion, but anticipated
expenditures for the third and fourth quarters are $37.75
billion and $37.95 billion, respectively.

The anticipated total for the third quarter is un-
changed from the previous survey, but there have been
changes in investment plans and in the timing of ex-
penditures in the various industries. Manufacturers and
public utilities have made slight downward revisions in
their plans for the year; other major industries have
maintained or increased their projected outlays. Among
manufacturers, chemical and iron and steel companies
reported small downward revisions in planned invest-
ments. Companies making nonelectrical machinery, tex-
tiles, and motor vehicles had upped their anticipated
expenditures for the third quarter.

Seasonally adjusted data indicate that durable goods
manufacturers are increasing their spending in 1962 more
than firms making nondurable goods. A steady increase
for the former is expected to bring fourth-quarter expend-
itures 13 percent above the last quarter of 1961 ; but out-
lays by the latter appear to be leveling off, with projected
fourth-quarter investment very little higher than in the
corresponding period last year.

Employment at Record

Employment increased contraseasonallv between the
July and August survey weeks to the highest figure on
record, 69,762,000. A larger-than-usual gain of nearly
500,000 in nonagricultural employment, ' to 63,993,000,
more than balanced a cut of 300,000 in the number of
farm jobs. The nonfarm employment figure was also a
record.

Offsetting the encouraging picture of higher employ-
ment was a rise in the seasonally adjusted rate of unem-
ployment from 5.3 percent to 5.8 percent. Unemployment,
which is normally expected to drop 450,000 from July to
August, declined only 86,000 this year.

SIGNIFICANCE OF CURRENT PROFIT TRENDS

By R. C. Osbom

Page 6

The Long Term

Agriculture will continue to move rapidly toward a
more efficient type of farm enterprise. In the last 20
years the total population identified as agricultural has
declined by more than one-third. This trend is continuing
and substantial readjustments in American agriculture
will be required for efficient family operation and for
adequate incomes for farm people. Output per man-hour
is in a strong upward surge and is expected to increase
by one-third in the next ten years. The demand for
capital by the individual farmer will continue to increase
for production purposes and for real estate loans, partic-
ularly loans for enlargement of farms. In recent years
in the higher priced land areas of the Corn Belt, more
than 40 percent of land purchased has been for purposes
of farm enlargement. The forces bringing about in-
creases in farm real estate values are still working
although they are tempered by income prospects.

The long-term or basic solution to the United States
farm problem is one of adjustment in size and numbers
of farms. Agriculture has a large amount of excess labor
resources. Two-thirds of the farmers produce only 15
percent of the total product going through the market.
One-third produce the other 85 percent. The less effi-
cient farmers cannot hope to achieve a satisfactory in-
come through farming alone.

Capital requirements, although varying widely by
type of farm and by various sizes of farms in all parts
of the United States, are continuing to increase rapidly.
Chart 2 shows the trend in farm assets, which have
tripled since 1950. Because of the continued decline in
number of farmers and the gradual trend toward farm
enlargement, assets used per farm increased from $40,162
on January 1, 1959, to $47,632 on January 1, 1962. In

CHART 2. AVERAGE VALUE PER FARM
OF ASSETS USED IN PRODUCTION

THOUSANDS OF DOLLARS

the same period, assets per farm w-orker increased from
$20,2S9 to $23,259. Most farm operators need to expand
their capital structures.

In conclusion, agriculture will continue to move
rapidly toward fewer and larger farms with the family
farm the predominant type of enterprise. If the trends
of the past two decades are projected, we should expect
about 2 million farms by 1980 or 1985. The smaller farms
selling less than $5,000 worth of product will decline in
number more than others, although there will be adjust-
ments all along the line. The family farm as the basic
unit of agriculture will be an increasingly efficient unit,
more highly capitalized, mechanized, and automated.

Food surpluses will not necessarily be chronic or
unmanageable. The last four or five years have seen a
stabilizing of total stocks. In another year or two stocks
may be near the level considered desirable under current
world conditions.

The 1962 Congress turned toward lower price supports
of some basic commodities with use of compensatory pay-
ments in some cases. This may be a turning point in
agricultural policy. Whether or not this proves to be
the case will continue to be a dynamic political issue.

0 Crops held for livestock feed and working capital.

b Market value as of January 1.

Source: U.S. Department of Agriculture.

Confusion of Economic Goals

(Continued from page 2)
high rate of investment in new productive capacity. When
business conditions justified rapid expansion, high rates
of investment tended at times to force a higher rate of
saving by raising prices. The forced saving did not,
however, result in lower living standards. On the con-
trary, the growth in output was rapid enough so that
consumption also expanded. In the whole upward sweep
of production and prices for a generation, there have
been only brief intervals of restricted consumption, and
those were the result of wars, not of normal peacetime
development.

In our kind of economy, a moderate rate of price
advance is the normal concomitant of high prosperity.
The pressures of demand that maintain a rapid rate of
growth inevitably result in some price increases; and
price increases in key industries are part of the pattern
of growth, providing both the incentive and the means to
further expansion.

The imposition of anti-inflation restrictions in the last
five years has contributed only to the frustration of
growth. With the Kennedy Administration accepting the
same goal in part, inconsistencies in policy have devel-
oped. The restriction of demand — whether by high
interest rates or by orders to absorb the added costs of
federal pay increases in existing appropriations — hurts
the expansion that has been proclaimed the primary goal
of economic policy. A tax incentive of 7 percent for new
investment is not likely to be effective when profits are
squeezed by rising costs and by the sharpening price
competition that derives from failure of demand to grow
as rapidly as industrial capacity.

Barring all-out war, there is now no threat of any
substantial price advance, and none is likely to arise as
long as large margins of unused capacity and idle man-
power persist. The fear that some little remnant of
inflation may yet be experienced is misplaced. What is
needed now is to get back to the straightforward goals
of the Employment Act. But to do so it will be necesary
to overcome the two-headed policy monster whose con-
flicting impulses result only in stagnation. vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Cigarette Output Increases

The 1962 output of cigarettes is estimated at 539
billion, a 2.1 percent increase over 1961 and a new record.
The use of cigarettes in the United States (including
that of overseas armed forces) is estimated at 512 billion,
a 1.8 percent increase over last year. Although total out-
put and use of cigarettes in 1962 will be above that of any
previous year, the rate of gain will be smaller than that
recorded for the previous seven years, when the annual
gain in production and use averaged 3 to 4 percent.

For 1962 the number of cigarettes used (which ac-
counts for over 80 percent of all tobacco used in the
United States) is estimated at 3,984 per person 15 years
of age and over, or 199 packs each. On a per capita basis,
use of smoking tobacco, chewing tobacco, and snuff in
this country has been declining for some years. Before
the United States entered World War II, the total amount
of smoking tobacco used in pipes and roll-your-own
cigarettes was nearly 4.5 pounds for each male 18 years
old and over. In the war years, 1941-44, per capita use
dropped about a third and since then has declined to 1.25
| pounds. The 1962 use of chewing tobacco is estimated at
a little over 1 pound, 30 percent less than 10 years ago
and less than half of what it was just prior to World War
IT. In the case of snuff the 1962 use per person is es-
timated at a quarter of a pound, about a fourth less than
10 years ago and nearly two-fifths less than in 1940.

Farm Expenses Rise

Farm production expenses in the first nine months of
1062 were up about $600 million from the same period of
1961, and thus continued the upward trend of the past
few years. However, greater cash receipts and a higher
rate of government payments helped to push realized net
income 1 percent above last year.

As indicated in the map, feed grain purchases made
up the largest single farm expense in almost two-thirds
of the states in 1961. For the second successive year, pro-
duction of feed grains is estimated to be 8 percent less
than that used. Farm wage rates also rose in 1962 to an
average of $2.38 per hour, up 2.6 percent from last year.
Prices paid for motor vehicles (including tractors) and
farm machinery were 4 percent and 2 percent higher re-
spectively for the first six months of 1962 as compared

LARGEST SINGLE FARM EXPENSE, 1961

Source: U.S. Department of Agriculture, Farm Cost
Situation, November, 1962, p. 1.

with the first six months of 1961. Other costs such as
seed, insurance premiums, tax levies, and livestock pur-
chases have all shown some increase so far in 1962.
However, in the areas of building and fencing materials,
fertilizer, pesticides, and interest rates, the costs have
been generally stable in 1962 at the same level as in 1961.

National School Lunch Program

Today 14 million children sit down to lunches served
through the National School Lunch Program. The first
known school feeding was sponsored by the Children's
Aid Society in New York City during 1853 and provided
free lunches to children in local industrial schools. Nearly
65,000 schools are taking part in the program now and
by the end of the school year will have served 2.5 billion
lunches.

During the last school year the total program cost was
$1.18 billion from all sources. Children's payments for
their lunches provided for at least 55 percent of the cost;
the rest of the cost was covered by donations of food
from the Department of Agriculture, by state and local
contributions, and by federal cash assistance.

The Type A lunch meets from a third to a half of the
recommended daily dietary allowances and includes, as a
minimum, a protein-rich food, servings of fruits and
vegetables, bread, butter or fortified margarine, and a
half pint of milk. More than 75 percent of the food used
in the program is purchased locally by the participating
schools and the rest is furnished by the United States
Department of Agriculture from its available stocks.

New Copy Paper Marketed

A new kind of copy paper manufactured by Copyna-
tion, Inc., may aid those industries where technical
drawings have to be copied many times. This one-step
paper, called UV-Dri, with a transparent or translucent
original, is fed past ultraviolet light and comes out as a
color-reversed, blueprint-like copy, thus eliminating the
chemical or ammonia processing of other machines.
Although the cost of the paper is 2 cents for a letter-size
sheet (roughly twice that of older-type paper), the elim-
ination of chemicals reduces machine maintenance and
operating costs.

The paper does have one admitted drawback: It is not
fixed, and therefore further exposure to ultraviolet rays
or sunlight will gradually cause it to fade. It does not,
however, fade noticeably indoors; and since the paper
remains sensitive, additions can be made to existing prints
simply by placing new copy in the correct spot, covering
the rest of the print, and running it past the light source
again. The paper's shelf life is virtually permanent.

Most Engineers Employed in Manufacturing

Of the 854,000 employed male professional engineers
counted in the 1960 census, 55 percent were in the man-
ufacturing industries. Of these, 102,000 were in electrical
machinery, equipment, and supplies, SO.000 in aircraft and
parts, 67,000 in machinery except electrical, 53,000 in fab-
ricated metal products, and 32,500 in chemicals and allied
products. Industries other than manufacturing which em-
ployed the largest groups of engineers were construction
with 90,000 and public administration with 69,000.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Chicago Has Favorable Debt Position

Comparatively low bonded indebtedness places the
city government of Chicago in a good position to finance
projects recommended by the Department of City Plan-
ning in its 1962-66 capital improvements program. The
city's debt is constitutionally limited to 5 percent of
assessed valuation; on the basis of total 1961 assessments
of $10.45 billion, indebtedness of $522.5 million is allow-
able. The present outstanding debt is only $297.5 million.

At the beginning of this year, the total bonded in-
debtedness for the six major governments serving the
city was $726 million. In addition to the city government
these include the Board of Education, Cook County, the
Cook County Forest Preserve District, the Chicago Park
District, and the Metropolitan Sanitary District of
Greater Chicago. The total per capita debt for Chicago
residents was $204 in January, 1962, compared with $378
for New York City, $293 for Philadelphia, and $286 for
Los Angeles.

Industrial Expansion Continues

Major industrial developments have recently been re-
ported by a number of cities in Illinois. A multimillion-
dollar soapmaking plant and distribution center is being
built by Armour and Company on a 40-acre site near
Aurora. It is expected to be in operation by the end of
1963. At Moline a $20 million chemical fertilizer plant
is to be completed next August by Nitrin, Inc. A new
plant of Kraft Foods covering 425,000 square feet and
employing between 400 and 500 people is scheduled to
begin operations next April in Champaign.

Several other large projects are scheduled in the State.
All-Steel Equipment, Inc., maker of office furniture, is
building a new headquarters and adding 510,000 square
feet to its factory at Montgomery at a total cost of $4
million. Signode Steel Strapping Company and the
Golden Grain Macaroni Company of California are

CATTLE ON FEED, BY QUARTERS

1957 1958 1959 I960 1961 1962

Source: Illinois Cooperative Crop Reporting Service.

constructing new plants to cost $3 million and $1 million,
respectively, at Bridgeview. The Norge Division of Borg-
Warner Corporation plans to build a $2 million addition
to its automatic and wringer washer plant at Herrin.
Warnecke Electron Tubes, Inc., will produce advance
design tubes and components in a new plant at Des
Plaines. Swain and Myers, Inc., is constructing a 75,000-
square-foot building at Lincoln for the manufacture of
store fixtures. Union Carbide Company has purchased
land near Elgin for a plant of 100,000 square feet for the
production of high-density polyethylene bottles. The
distilling subsidiary of Standard Brands, Inc., will occupy
a modern bottling plant now under construction at
Plainfield. Others include the Blackhawk Silica Sand
Company's new million-dollar plant near Troy Grove, the
new Supersweet Feed Company plant at Danville, and the
new polymer plant of Foster Grant Company, Inc., a
major producer of styrene monomer, plastic resins, and
molded articles, at Peru.

Placement of Handicapped Workers

Over 2.6 million handicapped workers have been
placed by state employment services throughout the nation
since 1947. Last year the Illinois State Employment
Service placed 8,692, of which 4,432 were in the Chicago
and suburban areas. In addition 1,004 handicapped
persons were trained and placed by the Illinois Division
of Vocational Rehabilitation, which has 23 district centers
in the State.

Persons with physical disabilities in Illinois number
1.9 million. Of these 600,000 suffer from arthritis and
rheumatism and another 600,000 from heart disease. Al-
coholism has damaged 370,000 in varying degrees. The
State has 100,000 epileptics; 56,000 deaf or partially deaf;
35,000 cerebral palsied; 20,500 blind; and 4,000 with
tuberculosis. Many of these persons have multiple dis-
abilities; some are unemployable, but many are currently
employed.

More Cattle on Feed in Illinois

On October 1, 1962, Illinois farmers had 437,000 cat-
tle and calves on feed, an increase of 4 percent over the
year before (see chart). Grain-fed cattle marketed dur-
ing the past quarter totaled 313,000 head. Cattle placed
on feed during the same period totaled 285,000 head, an
increase of 9 percent over the third quarter a year ago.
Feeders reported that they expect to market 61 percent
(266,000 head) by January 1, 1963.

During 1961, sales of cattle and calves produced 22
percent of the cash received from marketing Illinois far
products. From mid-1961 to September of this year
prices rose strongly — about 34 percent in 14 months. The
average price of choice steers at Chicago for the year
to mid-November was $27.50 a hundred pounds. This
was higher than any yearly average since 1959 and pos-
sibly resulted to some extent from the 32-day "all-out
holding action" encouraged by the National Farmers
Organization earlier this fall.

Since cattle are not being sold as fast as they are
being produced, stocks on farms are increasing. When
this trend is reversed a moderate price decline can be
expected. There are now approximately 73 million beef
cattle on hand in the United States, enough to provide
consumers with a new record of 89 pounds of beef per
person, 40 percent more than was available a decade ago.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
October, 1962

Building

Permits1

(000)

Electric
Power Con-
sumption-
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Stoi
Sales4

Bank
Debits5
(000,000)

ILLINOIS

Percentage change from.

NORTHERN ILLINOIS
Chicago

Elgin

I'Sept., 1962.
'.Oct., 1961.

Percentage change from. . . {oct^'1961 .

Percentage change from. . . . {o^g'"-

Percentage change from. . . . {cg^gj!^ '
Joliet

Percentage change from .... [f^1 "jq^2 '
Kankakee

Percentage change from. . {o^'/o^2'
Rock Island-Moline

Percentage change from .
Rockford

(Sept., 1962.
, Oct., 1961.

Percentage change from {oX''!^2

CENTRAL ILLINOIS
Bloomington

Percentage change from. {octf, 'l°61.
Champaign-Urbana. .

(Sept., 1962.
\Oct., 1961.

Galesburg

Percentage change from .... {riSt\QM

Percentage change from. . {oct! 'l961.
Danville

Percentage change from
Decatur

Percentage change from. (octf, 'l961 .

fSe,

\Oct., 1961.

Peoria

Percentage change from. . .

Quincy

Percentage i hange from.. [oct*''l9o?

Springfield

Percentage change from . [oct.,'l961

SOUTHERN ILLINOIS

East St. Louis

/Sept., 1962.
(Oct., 1961.

Percentage change from. . ■ ■ (o^' p,',^2 '
Alton

Percentage change f, -on, ...[^t;-19^2-
Belleville

Percentage change from. , . {Sc^, "llbl2 '

$41,530'
+6.3

+3.0

$29,795
+0 9

$ 1,043

+93.2

+ 40 4

$ 495

+ 15.7

-0.8

$ 694

+ 15.7

-47.6

$ 399

+74.3

+5.6

$ 1,202

-22.2

+ 0.3

$ 1,562

-0.5

+44. V

$ 636
-29.3

+ 105.2

$ 494
+ 79.3
-23 9

$ 412

+108.7
-10 4

$ 498
+ 15 2
-16 6

$ 148
-44.3
-55.2

$ 577

-4 o
$ 1,052
+464.7
+312.5
$ 871
+25.9

-5 5

$ 124

+99.5

0.0

$ 148

-53.4

-37.3

$ 1,381

+ 147.5

-1,155.5

,352,571"
-4.6

+3.2

079,112
-4.5

+2.2

55,786
-6.1
+3 0

13,941

+ 6.1
+ 14.2
19,304

+ 17
+ 15.1
19,708

+ 15.9

39,722

-6.8

+3.3

10,809

-8.5

+ 11.7

65,360

-8.6

+5.9

14,400

-11.5

+ 11.2

45,999

-3.7

+3.9

17,529
-3.7
-3.3

26,668

+ 7.1
+ 17
13,573
-11 .2

+ 13
+ 7

$23,586

+20.4

+ 19.7

$ 94

+ 9 .2

+ 10.4

$ 59

+ 118

+3.3

$ 101

+8.2

+ 1.5

$ 139''

+//.;

+ 15 8

$ 221

+ 6.6

+ 4 2

$ 116
+26.6
+ 10.5
$ 65
+25.8
+ 1.5
$ 159
+21.1
+ 6.6

$ 293
+ 17.4
+ 12.9
$ 62
+ 19.3
-1.2
$ 167
+ 15.1
+5.7

$ 148

+ 19.8

+ 1.4

$ 51

+ 15.2
+5.5

n.a.

" Total for cities listed. '• Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. : Local power companies. -1 Illinois Department of Revenue.
Data for September, 1962, not available. ' Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded
by source. ■'■ Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending October 12. 19o2, and October
13, 1961.

I 11 I

INDEXES OF BUSINESS ACTIVITY

1947-1949= 100

EMPLOYMENT-MANUFACTURING

\ •

ILL. J
U.S.

♦revised series

AVERAGE WEEKLY EARNINGS "MANUFACTURING

ILL/
"""US.

♦revised SERIES

'29 '36

'52 '59 I960 1961 1962

'29 '36

'52 '59 I960 1961 1962

DEPARTMENT

STORE

SALES

(ADJ.,

COAL

PRODUCTION

150
100
50
0

yv^v

ILL. ^

U.S. ^

H^vi

1961 1962 '29 '36

'52 '59 I960 1961

BUSINESS LOANS

CASH FARM INCOME

ILL.

♦revise

) SERIES

U.S. *

\ A

v A

V A

ILL.

w^y \j

* REVISE

D SERIES

1961 1962

'52 '59

1961 1962

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

lr^

r^J

A*.

♦revise

D SERIES

b>°

^v [

/MJ.S.

op -5

LINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

lANUARY, 1963

^IGjHllGHTS OF BUSINESS IN DECEMBER

The sidewise qfo-ementiJlSme economy continued for
yet another month1 in EtejjjMber. Slight was the word for
i most changes. Steel showed little, if any, more vigor than
it had in preceding months; fuel production (coal and
petroleum) was little changed from November; electric
power production was up somewhat, as might be expected.
The car makers maintained a high rate of production;
648,390 automobiles were assembled, only about 40,000
fewer units than in November. When seasonal elements
are eliminated, industrial production as a whole remained
at 120 (1957-59 = 100). One of the striking aspects of
production in recent months has been the stability in vir-
tually all of the major categories once seasonal factors
are taken into consideration.

In the consumer part of the economy, the picture was
much the same. Department store sales set a record for
the month, but after seasonal adjustment dropped from
118 percent to 116 percent of the 1957-59 average. Despite
this decline and a small decrease in car sales, retail sales,
after seasonal adjustment, crept slightly higher to a new
record of $20.2 billion.

Two other indicators showed some improvement in
December. Personal income rose to $450 billion at a sea-
sonally adjusted annual rate. The November figure was
$447.4 billion. Preliminary estimates for the fourth
quarter put gross national product at about $562 billion
(seasonally adjusted annual rate), up from $555.3 billion
in the previous three-month period. From the second to
the third quarter, GNP had risen only ^3.3 billion.

Instalment Buying Perks Up

Consumer instalment credit increased $581 million in
November after seasonal adjustment, the largest monthly
rise since September, 1949. In consequence, total instal-
ment credit stood at $47.3 billion at the end of November.
About half of the expansion, $307 million, resulted from
a strong advance in outstanding loans for the purchase of
new and used cars, the largest segment of instalment
credit. The increase in auto paper was the greatest since
September, 1955.

All varieties of noninstalment credit, which includes
single-payment loans, charge accounts, and service credit,
showed small increases totaling $122 million. Noninstal-
ment credit outstanding at the end of November amounted
to $14.2 billion.

The November advance showed a marked increase in
consumers' willingness to assume additional debt. At $703

million, the rise for the month was equivalent to an an-
nual rate of $8.4 billion. This rate was half again as large
as that which prevailed over the 12-month period ending
November 30. At that time, consumer credit outstanding
was $61.5 billion, $5.6 billion higher than a year earlier.

Railroad Merger

One of several proposed railroad mergers was ap-
proved by the Interstate Commerce Commission at the
end of December when the Chesapeake and Ohio was
given permission to obtain control of the Baltimore and
Ohio. The ICC's order becomes effective on February 4
unless it is blocked by an appeal. The merger will join the
two roads into one 11,000 mile system reaching most of
the major centers from New York and Norfolk on the
East Coast to Chicago and St. Louis in the Midwest. The
two roads take in about the same amount of revenue,
with the B & O somewhat larger ; but the C & O is one of
the few profitable railroads in the country and the B & O
showed a large loss in 1961 and is expected to be barely
profitable in 1962. The urgency of the B & O's financial
condition was given by the ICC as the main reason for
approving the merger at this time instead of waiting until
it could consider other applications before it. These other
proposals involve the New York Central, the Pennsylva-
nia, the Norfolk and Western, the Nickel Plate, and the
Wabash.

Labor Disputes to the Fore

Major developments in labor relations in December
were two newspaper strikes and a longshoreman's strike.
In New York, members of the International Typograph-
ical Union struck four large dailies on December 8 and
five other newspapers suspended publication under a pub-
lishers' agreement. The ITU's demands and the news-
papers' offerings were far apart, the dispute grew increas-
ingly acrimonious as time went on, and mediation efforts
by various government officials were meeting with no
success. In Cleveland, members of the Newspaper Guild
were on strike against the two daily newspapers; the main
issue there seemed to be union security. A strike by the
International Longshoremen's Association, interrupted in
October by a Taft-Hartley injunction, was on again De-
cember 23 at East and Gulf coast ports. Within a few days
railroads had placed an embargo on further shipments to
the affected ports. In all cases, prolonged labor stoppages
seemed likely.

LABOR RELATIONS AND WAGE POLICY IN SWEDEN

By T. L. Johnston

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The

is Review is derived fri
Bureau of Economic a
rovide businessmen of I

erial appearing in the Illinois Bus

various primary sources and compiled by

Business Research. Its chief purpose is t

State and other interested persons with current intormation on Dusmess

conditions. Signed articles represent the personal views of the authors

and not necessarily those of the University or the College of Commerce.

The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

How the World Shapes Up

The great political-economic developments of the post-
war years are the Cold War, the unification of Europe,
and the liberation of the colonial peoples. All three of
these reflect United States policies to some extent but
result in large measure from inherent forces beyond the
control of any nation.

For the time being, military power is concentrated in
two nations, both victors, who have taken measures, like
the winners of previous great wars, to protect themselves
against future wars. The result in this nuclear age has
come to be called "the balance of terror." Our power has
been mainly used through the Cold War years, not to
promote any positive goal, but to counterbalance that of
the USSR and to prevent the spread of communism to
areas too weak to support their own defenses.

As the Cold War has progressed through stages in
the Far East, the Near East, Hungary, Suez, and Cuba,
a pattern has emerged. The leading military powers may
risk all-out war where their own essential interests are
involved but avoid direct conflict in remote areas where
they cannot sustain effective action. They do not support
the use of force by allied powers against underdeveloped
countries which they hope to win over to their side. They
even supply weapons to such countries to prevent their
loss to unfriendly powers. But this is a game that can
also be played by others. The world traffic in weapons
has thus become so heavy that retention of control of any
remote area by a colonial power is very costly if not
impossible.

The European Economic Community

The integration of Europe as an economic community
called the Common Market is not based on economic mo-
tives alone, though this is the field in which the start is
being made. None of the European countries can be
completely independent either economically or politically,
but together they can be more than pawns in a disturbed
world. They have definitely turned from attempts to
progress by exploiting colonies, and now seek to progress
by exploiting technology, which the smaller countries at
leasl cannot use effectively as separate states. Modern
methods of production require a mass market, and this is
particularly true of the new, technically advanced, most
highly capitalized, and most rapidly growing industries.
The EEC countries have found that they can create a

truly large, free market for their growth industries in
advance of full political and financial unification. The
latter, nevertheless, is unmistakably the ultimate goal.

By the Rome Treaty, six highly industrialized coun-
tries of the Continent have created a free trade area with
a common external tariff. Their combined population
exceeds 175 million, or only about 5 percent less than
ours. The United Kingdom, Norway, and Denmark —
with applications for entry currently under negotiation —
would add over 60 million more, making a total about 10
percent larger than that of the USSR. Further potential
additions seeking economic association if not full political
affiliation could bring the total to over 300 million. The
Community will soon be about as self-sufficient in industry
and agriculture as we, and outside producers will find it
increasingly difficult to compete with those behind the
tariff wall.

The political aspects of unification may ultimately be
more important than the economic. The Community can-
not be a great military power for some time but will de-
velop strongly and gain in freedom of decision. It will
insist upon a voice in world affairs and other powers will
be forced to adjust to the requirements of this third great
power bloc. We hope to keep it as our partner in the
North Atlantic alliance but may have trouble in reconcil-
ing our desire for leadership with its insistence on equal
status.

The exercise of this growing power is bound to pro-
mote Europe's own interests rather than ours or those of
the underdeveloped countries. The latter need European
cooperation for economic progress as we need it to retain
our role as world banker. But neither can depend on it
beyond the range in which it will be consistent with the
programs they are setting for themselves. If adverse
economic conditions develop, there might even be a
turning inward, a recurrence of protectionism, which
would hurt the entire world but hurt Europe's industries
less than ours or those of the underdeveloped countries.

Great Britain, in its bid for entry to the Common
Market, has found that it must go in as a full member or
not at all. Its hand is forced, because other countries'
future orientation must be primarily toward EEC and to
be excluded from US-EEC policy making would leave it
little influence in world affairs. For the rest of the free
world also, its entry is important. England is foremost in
democratic tradition and will contribute to greater
Europe not only political stability but firmer political and
economic links with both the United States and the former
colonial countries throughout the world.

The Underdeveloped Countries

The liberation of the colonial peoples is primarily a
political movement. Except in the British Commonwealth
countries, it has been accomplished largely by nationalist
groups employing terrorist tactics. They have been will-
ing to disrupt the existing order to gain the right to guide
their own future development, and the situation created
by their action has been intolerable for the Europeans,
who decided in large numbers to go back home. The
assumption of control and responsibility thus often forced
the underdeveloped country to forgo the benefits of
trained personnel as well as other potential advantages
of association with the mother country.

Behind the drive for independence lay some justifiable

hopes and aspirations. These countries felt that they

were handicapped by the colonial system and that once

the foreign bureaucracy was removed, they would be free

(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

SAND AND GRAVEL PRODUCTION

Despite their seemingly low status in the wealthy
minerals family, sand and gravel constitute a sizable
American industry. Nationally, the mining and dredging
of these minerals produced shipments of 707 million tons
in 1960, the second best year in the industry's history.
These shipments, valued at $721 million, ranked third
among the 33 major nonmetallic minerals (other than
fuels) and seventh among all minerals.

Sand and gravel, which are produced in every state,
are commercially valuable for more than 50 uses. At-
tributes of weight, firmness, and unconsolidated mass
coupled with widespread accessibility make them espec-
ially desirable to the construction industry as a low-cost
bulk and base material. Other qualities of certain sands
give them utility for numerous other industries as well.
Important among these qualities are abrasiveness, poros-
ity, and moderately high heat resistance.

Production tends to be more highly concentrated,
either near centers of population or in areas of heavy
construction. Nationally, more than 60 percent of volume
emanates from 10 states. In all, there are nearly 27,000

I dredging and mining operations employing nearly 50,000

i persons.

Illinois Ranks Fourth

Although accounting for only a minor share (about
6 percent] of the total dollar volume of minerals in
| Illinois, sand and gravel production in the State is among
the highest in the country. The $36.2 million in shipments
by producers here in 1960 (a record year) was eclipsed
in only three states — California, Ohio, and Michigan.

Most of the sand and gravel in the State, particularly
in the northern and eastern sections, was deposited either
directly or indirectly by glacial sheets, the last of which
receded about 12,000 years ago. Deposits are found to
some extent in every county, although operations occur
in only 72. As is true nationally, production in the State
is located near the areas of heavy demand. More than 60
percent of the 1960 volume of 33.1 million tons came
from nine counties. These nine counties, each of which
produced more than a million tons during 1960, were
LaSalle, Grundy, Kane, Lake, McHenry, Peoria, Taze-
well, Will, and Winnebago. The dominant share of sand
and gravel tonnage was produced in northern Illinois,
especially along the Illinois, Fox, and Rock rivers; most
of the remainder was produced in central Illinois and
from the bars of the Mississippi, Ohio, and Wabash
rivers.

More than four-fifths of the 170 producers in Illinois
have fewer than 20 employees. Illinois miners and
dredgers, however, are generally more productive than
the industry nationally; for example, in 1960 the 1,814
workers here each produced an average 8.6 tons per hour
compared with only 7.4 tons per man-hour for the industry
as a whole. In addition to a higher level of mechaniza-
tion, producers here are fortunate in having relatively
| purer deposits than in many states.

Major sand and gravel firms in the State, all with

more than 100 employees, include Consumers Company,
Wedron Silica, Material Service Corporation, and Chicago
Gravel, all of Chicago; Ottawa Silica, Ottawa; Elm-
hurst-Chicago Stone, Elmhurst; and McGrath Sand and
Gravel, Lincoln.

Common Sand and Gravel

The industry can conveniently group its products into
three major categories: gravel, common sand, and special
sands. Most prevalent, as well as economically dominant,
are gravel and common sand, which accounted for 51
percent and 39 percent, respectively, of the 33.1 million
tons produced in the State during 1960. Common sand,
consisting of fragments from assorted minerals and rocks,
is most heavily utilized as a component of concrete.
Gravel, made up of pebbles larger than one millimeter
in diameter, is utilized as a concrete aggregate and as a
roadstone. Together, they furnished in 1960 about 20
million tons for the road construction industry and about
8 million tons for the building industry. In addition,
considerable quantities of Illinois common sand and gravel
were utilized as "fill" (1.4 million tons) and as a roadbed
ballast and wheel traction agent for railroads (170,000
tons).

Special Sands

Illinois has limited but valuable deposits of special (or
industrial) sands. Although comprising only 8 percent of
total Illinois tonnage, these sands were sold for more
than $7.5 million, or about 21 percent of the total value
of shipments here. Altogether, Illinois accounted for
about one-seventh of the total value of industrial sand
production in 1960.

Most important of these special sands is silica sand,
a commercial name for a clean sand made up almost
entirely of grains of quartz. Mined in LaSalle and Ogle
counties, silica has diverse end uses, ranging from an
ingredient in pottery, enamels, and paints to an abrasive
in powders and an agent in the fracture treatment for
increasing oil well flow. Its main usage, however, is as a
raw material in glassmaking.

Other special sands produced in the State include
molding sand, which is actually a mixture of sand, clay,
and other bonding materials. Found in natural deposits
in Fayette, Bond, Bureau, Carroll, Kankakee, and Rock-
Island counties, it is also manufactured synthetically in
some parts of the State.

The industry here will continue to be bolstered by the
rich reserves of industrial sands and future growth
should be spurred somewhat by the expected acceleration
in road construction, especially with much of the inter-
state highway system in Illinois yet to be completed. Sub-
urban growth and shortsighted zoning actions have shut
off nearby deposits in some states; Illinois, with sub-
stantial deposits reasonably accessible to major market
areas, should not be hampered in this respect, however.

YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS3
Percentage changes, October, 1962, to November, 1962

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

r r

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

lW.

isonally adjusted. N. A. No

ILLINOIS BUSINESS INDEXES

Percentage

Item

1962

change from

(1947-49

Oct.

Nov.

= 100)

1962

1961

253.8

- 6.0

+ 1.5

Coal production2

93.9

- 5.3

4- 6.6

Employment — manufacturing3. . .

100.7

- 0.4

+ 1.7

Weekly earnings — manufacturing3

186.3"

+ 0.7

+ 2.9

Dept. store sales in Chicago1

116. 0b=

+ 6.4

+ 7.4

Consumer prices in Chicago5

105. 0°

0.0

+ 1.2

319.3

4-29.5

+ 10.0

263.7
99.0

- 9.1
+ 1.0

+ 7.7

Farm prices8

+ 4.2

Life insurance sales (ordinary)9. . .

360.5

+ 1.4

- 1.0

118.0

- 6.0

+ 0.6

'Fed. Power Comm.; ! 111. Dept. of Mines; 3 111. Dept. of Labor;
•Fed. Res. Bank, 7th Dist.; s U.S. Bur. of Labor Statistics; 8 F. W.
Dodge Corp.; 'Fed. Res. Bd.; » 111. Crop Rpts. ; 9 Life Ins. Agcy. Manag.
Assn.; 10 111. Geol. Survey.

» Preliminary. b Seasonally adjusted. c 1957-59 = 100.

UNITED STATES MONTHLY INDEXES

hem

Nov.

1962

Percentage
change from

Oct. Nov.
1962 1961

Annual rate

in billion $

447.4"

408.0"
57.1"'b

24.8
19.8
18.5

19.4°
17.3=
2.1«

61. 5b
47. 3b
39. 5b
59.8"

+ 0.4

+ 1.5

- 0.3

- 4.2

- 2.9
-16.7

+ 7^2

-58.3

+ 1.4

+ 1.2
+ 1.1
+30.2

+ 46

Manufacturing1

+ 56

+ 46

New construction activity1

+ 0.7

Private nonresidential

+ 6.7
- 2.6

Foreign trade1

Merchandise exports

Merchandise imports

-14.6
+ 5.9
-67 1

Consumer credit outstanding2

+ 9.9

+ 10.6

+ 8.5

+ 2.8

Industrial production2

Indexes
(1947-49
= 100)
120"-d
119«.d
121". d
106"' d

98». «

101*

181"

184"

280

118»-d

106d

101d
99d
101d
101d

101d

105d
80'

0.0

- 0.1
+ 0.3

- 0.4

- 0.5

+ 0.2
+ 0.4
+ 0.7

- 6.9
+ 7.3

0.0

+ 0.1
+ 0.6

- 0.2
0.0

0 0
0 0
0.0

+ 4.1

Durable manufactures

Nondurable manufactures. . .

+ 5.0
+ 3.3
+ 1.0

Manufacturing employment4

+ 1.0

Factory worker earnings4

Average hours worked

Average hourly earnings

Average weekly earnings. . . .

Construction contracts5

Department store sales2

- 0.5
+ 2.1
+ 1.6
+ 6.0
+ 4.4
+ 1.3

Wholesale prices4

+ 0.7

+ 3.9

+ 1.1

0 0

Farm prices3

Received by farmers

+ 2.0
+ 1.9

+ 1.3

'U.S. Dept. of Commerce; = Federal Reserve Board; 3 U.S. Dept.
of Agriculture; ' U.S. Bureau of Labor Statistics; ■'> F. VV. Dodge Corp.

« Seasonally adjusted. » End of month. = Data for October, 1962,
compared «uh September. 1962, and October, 1961. d 1957-59 = 100.
" Rev. seil. ' Based on official indexes. 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1962

1961

Dec. 29

Dec. 22

Dec. 15

Dec. 8

Dec. 1

Dec. 30

Production:

Bituminous coal (daily avg.) thous. of short tons. .

Electric power by utilities. mil. of kw-hr

Motor vehicles (Wards) number in thous

Petroleum (daily avg.) thous. bbl. .

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. .1957-59 = 100

22 commodities 1957-59 = 100

Finance:

1,217
16,435
130
7,362
92.1
357
120

100 6
100.7
92.7

35,166

143

1,531
17,560
194
7,340
100.6
512
271

100 5
100.7

92.5

35,075
249

1,293
18,009
205
7,341
98.3
501
246

100.4
100.7
92.4

34,807

252

1,282
17,005
197
7,335
99.7
537
212

100.4

100.7
93.1

34,779
294

1,483
16,699
202
7,313
100.7
562
168

100.4
100.7
92.9

34,680
322

1,346
15,738
127
7,384
113.0
422
90

100.4"
100.9"
97.9

32,920

222

Monthly index for Dece

[ 4 ]

RECENT ECONOMIC CHANGES

Imports Advance Faster Than Exports

Merchandise exports during the first nine months of
1962 rose to a record seasonally adjusted annual rate of
$20.8 billion, an increase of almost $900 million over the
same period of 1961. During the same time, merchandise
imports climbed to a new high of $16.1 billion, an increase
of $1.6 billion over 1961. Thus the merchandise export
surplus at a seasonally adjusted annual rate amounted to
only $4.7 billion for the first nine months of 1962 as
compared with $5.4 billion for the same period of 1961.

In contrast to the rise in exports, which began late in
1961 and was reversed in the third quarter of 1962, the
uptrend in imports continued without interruption after
the first quarter of 1961, with the third quarter of 1962
producing a new high of $16.5 billion at a seasonally
adjusted annual rate. This advance in total imports has
coincided with the gradual upturn in the nation's gross
output of goods since the last cylical trough of early 1961,
and has been stimulated by increased demand for indus-
trial supplies and materials from abroad.

Comparison of Unemployment Levels

Reports on unemployment in other countries during
the fifties have brought little comfort to Americans con-
cerned with their country's economic well-being. A
recent study by the Bureau of Labor Statistics into the
differences between rates of unemployment in industrial
countries has resulted in some interesting facts and con-
clusions. According to the study, rates of unemployment
in the United States and other industrial countries are
affected only to a moderate degree by differences in statis-
tical procedures and definitions. After adjustment of such
differences to United States concepts, the average rate of
unemployment in this country in 1960 was 5.6 percent as
against France's 1.9 percent, Germany's (F.R.) 1.0 per-
cent, Great Britain's 2.4 percent, Italy's 4.3 percent,

RATES OF UNEMPLOYMENT, 1951-61
(Unadjusted)

PERCENT

/ IT

\ GERMANY

UNITED STATES \

CANADA ../ \\ /

7 \1— /

Y\\

T^*-*/ SWEDEN

...••-•■>'"-- <(

- -v-- JApan^;

GREAT BRITAIN

1951 1953 1955 1957 1959 1961

Source: U.S. Bureau of Labor Statistics

Japan's 1.1 percent, and Sweden's 1.5 percent. The only
major industrial nation of the free world having a higher
rate was Canada, with 7.0 percent unemployed.

Unemployment in Germany and Italy, the coun-
tries with the highest unemployment rates in 1951, as
indicated in the chart, declined sharply during the past
decade whereas unemployment in the United States and
Canada rose by stages from a relatively low level. Several
factors have contributed to our higher rate of unemploy-
ment hut virtually all of the countries which had lower
rates than the United States differed from this country
in two respects: (1) they experienced a considerably
faster rate of economic growth during the fifties and
(2) their workers enjoyed a somewhat more stable attach-
ment to the job than workers in this country.

Adjustments in Agriculture

Basic changes are occurring in the farming industry
as a result of rapid technological advances and a spread-
ing urbanization which has brought about greater special-
ization and enlargement of farms. One important result
of these changes has been the rise in aggregate output of
farm products at an annual average rate of 2 percent.
Another result is the increase in average incomes on a
per capita or per farm basis in the past few years due to
a decline in the number of farms and farm population.

The long-term rise in aggregate output has been
accompanied by a moderate advance in farm GNP of
about 1.5 percent annually during the past two decades.
This gain in farm GNP has been accompanied by an
expansion in the stock of agricultural capital utilized and
a drop in labor employed. As a consequence, farm GNP
per dollar of investment has remained virtually stable
during the past two decades, and farm GNP per hour of
labor has shown an average advance of 5 percent in the
past two decades and 7 percent in the last seven years. If
capital and labor are considered together, farm GNP per
unit of total input has risen at an average annual rate of
slightly less than 2 percent in the past two decades and
,ib' >ut 3 percent in the past seven years. This, it may be
pointed out, is higher than the comparable rate for the
nonfarm economy.

Personal Income Rises

Personal income in November was at a seasonally
adjusted annual rate of $447.5 billion, $1.75 billion higher
than in October, according to the United States Depart-
ment of Commerce. More than half of the income rise
came from a $1.0 billion increase in wages and salaries
of government employees; two-thirds of this advance was
attributable to the pay raise for federal employees enacted
by the last Congress. The other $750 million advance in
November was accounted for by small increases in the
income of self-employed persons and in dividends, in-
terest, and transfer payments. Private wages and salaries,
which account for more than half of all personal income,
totaled $242 billion in November, the same as in October.

The main cause of the slackened rale at which per-
sonal income has been rising since early spring of 1962
is the leveling off in wage payments in the commodity-
producing industries, the largest sin personal
income. In the first four months of 1962, when income
rose nearly $8 billion, payrolls in commodity-producing
industries advanced $3.3 billion; in the next seven months
income rose $9 billion, but wages and salaries in
commodity-producing industries declined $500 million.

L 5 J

LABOR RELATIONS AND WAGE POLICY IN SWEDEN

T. L. JOHNSTON, Visiting Professor of Labor and Industrial Relations

The recent officially sponsored visit to the United
States of the top labor and management leaders in
Sweden, which included a seminar at the University of
Illinois, has provided an opportunity to reflect on the
experience of the "Country of the Middle Way" in the
controversial areas of labor-management relations and
wage policy.

Superficially, Sweden can offer some impressive in-
dicators of collective bargaining affluence. She has the
highest wages in Europe, there is provision in law for a
minimum annual vacation of 18 working days, and her
postwar record of industrial peace has been a remarkable
one. Apart from major disputes in metalworking in 1945
and in the foodstuffs industry in 1953, there has been
practically no wastage of man-hours through stoppages.

Employment has generally been brimful in the post-
war years, apart from minor recessions, and in 1961
Swedish unemployment averaged 1.5 percent (adjusted
to the United States definition). One of the recurrent
postwar problems has rather been a chronic shortage of
labor, which has reflected the lack of balance in the age
composition of the population. The main sources for
increasing the labor supply have proved to be immigrant
workers and married women, and there is no immediate
likelihood of the chronic shortage being overcome. The
labor shortage has been significant both for the high in-
vestment ratio in Sweden and the rapid rate of increase
in wage incomes.

Some other superficial factors invite the conclusion
that Sweden is a special case. Her industry is very small
scale by international standards, for the average indus-
trial establishment employs only 41 workers. Her total
labor force is somewhat less than 4 million, and the
manual workers organized in the Confederation of Swed-
ish Trade Unions (LO) total 1.5 million.

Again, Sweden was not involved in the last war. How-
ever, the rapid recovery and industrial re-equipping of
West Germany, for example, no longer make it as easy
to accept the argument that countries which avoided
the war have enjoyed a long-term advantage by carrying
over an intact apparatus of production to peacetime
conditions.

Politically, Sweden has offered a picture of great sta-
bility since the Social Democratic Party came to power in
1932. That party has been there ever since, either alone
or in uneasy coalition with other parties (e.g., the Farm-
ers), and it shows no sign of having exhausted its man-
date. Despite this Social Democratic dynasty, there is no
doctrinaire socialism in Sweden, and the penchant for
nationalization which typified the British Labor Party in
the immediate postwar years, for example, has found no
echo in Sweden. Government policy has consistently
aimed at encouraging investment, private industry has
enjoyed favorable investment allowances and write-off
provisions for capital formation, and the trade unions
have been persistent advocates of a high investment ratio.

Although Sweden has shared in the good average
postwar performance of the West European economy, she
has not shown the dynamism of recent French or German
growth. She too has had her share of inflation. In an
analysis published in 1961 by the Organization for Euro-
pean Economic Cooperation, which included a discussion
of the role of wages in causing rising prices, Sweden was
awarded the dubious accolade of being bracketed with
Britain, the United States, the Netherlands, Norway, and

Denmark as countries in which excessive wage increases
constituted both an important and an independent infla-
tionary force. Sweden and the Netherlands were given
some release from this indictment, however, because of
the excess demand in their economies and the very favor-
able export demand, which weakened resistance to wage
increases.

If Sweden's economic performance can thus be as-
cribed to special economic factors such as a manpower
shortage and a buoyant demand for exports, and her wel-
fare society to the stability of her political institutions,
what is it that makes Sweden such a constant target for
interested foreigners, anxious to glean crumbs of infor-
mation and guidance about "correct" economic and social
policies in democratic communities?

Organization of Labor Relations

The main features of the Swedish approach which at-
tract attention are, first, the acceptance of countervailing
power and strong, closely knit interest groups as a polit-
ical and economic device, and, second, the flexibility and
willingness these groups show to adapt and learn from
experience through new forms of compromise agree-
ments. The practice of labor relations and collective bar-
gaining shows this system at work in a very clear way.

LO organizes its 1.5 million members in 41 unions on
the industrial unionism principle. In the past the LO
group has had its share of internal strife and jurisdic-
tional conflicts, but in the 1930's LO undertook a major
reform which established clear organizational principles.
The issue of union autonomy, always a sensitive area of
union administration, was resolved in favor of a strongly
centralized system which makes the role of the LO exec-
utive a very powerful one, e.g., in wage bargaining.

Much of the pressure toward reorganization in LO
came from the employers. The Swedish Employers' Con-
federation (SAF) has preached employer solidarity ever
since it was formed in 1902, and it has matched these
aspirations with a strongly centralized system of control.
The 44 member federations delegate considerable powers
over lockouts and the conduct of bargaining to SAF, in
return for which they enjoy mutual protection through
an insurance scheme and other financial benefits to meet
the cost of any conflicts. SAF was instrumental in the
move toward an industry-wide approach to organization
of the labor market, and it has also tried to control the
content of collective agreements by requiring its affiliates
to submit proposed agreements to it for approval.

Both LO and SAF have been under strong pressure to
develop a coherent and responsible system of labor rela-
tions by the threat of labor legislation. There is in fact
little legislation in the controversial areas of labor-
management relations. The positive right to organize is
regulated by law, and a Collective Contracts Act governs
procedures for concluding and enforcing collective agree-
ments. A Labor Court was set up in 1928 to ensure that
disputes about the interpretation of existing contracts
were settled peacefully, in the last resort by the Court.

In order to prevent the spread of legislative controls
to the actual substantive issues of bargaining, however,
LO and SAF devised a series of codes in the 1930's which
provide for private regulation of potential issues of con-
flict. Important among these are codes for negotiation
procedures, layoffs and dismissals, forms of direct action,

[ 6]

and the treatment of disputes that threaten essential pub-
lic services. This private industrial jurisprudence was
essentially a quid pro quo. The government undertook
implicitly to stand outside collective bargaining when the
unions and employers devised these codes and showed
they could make arrangements for regulating their in-
ternal government and their mutual relations in a peace-
ful and positive way.

It is important to note that these institutional reforms
predated an era of full employment. In very large meas-
ure SAF and LO had established their right to run the
labor market without direct government pressure before
the critical issues of full employment wage bargaining
came to prominence at the end of World War II.

Need for Policy Coordination

In the immediate postwar years, however, there was
considerable disagreement and obscurity about the appro-
priate spheres of influence of government and the interest
groups. The labor market groups accepted that wage
policy had a positive part to play in the wider context of
monetary, fiscal, and price policies, but both sides were
frequently extremely critical of government economic
policy and argued that a privately administered wage
policy, based on a consensus of opinion between LO and
SAF, could only be effective within the broader frame-
work of a total economic policy which did not allow ex-
cess demand to undermine any attempt at a coordinated
wage policy. The concept of strong organizations, in the
labor market, among farmers, and in the consumers' co-
operative movement, which formed the foundation of the
Swedish system, was not in fact clearly integrated with
the government's broader concern for the national interest.

In the labor market itself considerable confusion in
postwar bargaining was caused by the avowed LO policy
of solidarity in wages. When it was formulated in the
interwar years this was mainly an egalitarian policy,
intended for closing differentials between high and low
wage groups within the labor movement. Latterly, how-
ever, it has come to mean something akin to a job eval-
uation approach to wage structure, for LO now argues
that wage differences should be based on the nature of
the input of effort by the worker. Apart from this
ideological view of an appropriate wage structure, LO
expresses doubts about the efficacy of wage differentials
as an incentive to labor mobility. LO regards relative
wages as a sluggish method of allocating the labor force.

This preoccupation with solidarity dominated many
of the early postwar wage rounds in Sweden. Until 1956
these rounds, which tended to recur annually, were not
based on any systematic program for determining the
distribution of incomes within the economy, and took
the form of a mad scramble for a favorable place in the
queue. As one Swedish economist put it, the Swedish
economy had a very strong inflationary bias because the
various pressure groups were so strongly organized, and
only a small proportion of the population was left out
and could be cheated !

Since 1956 LO and SAF have turned to comprehen-
sive master agreements as a new way of controlling wage
changes. Since then one- or two-year central agreements
have been concluded which attempt to govern the over-
all rate of increase of earnings. Initially, such agree-
ments were rigid in character, but they have been made
increasingly flexible by providing for industry and plant
based bargaining about the allocation of the average
wage increases and by designating particular exceptions
of groups which were lagging behind in their average
wage increases (this to meet LO's desire for solidarity).

Problem of Wage Drift

This attempt to devise a centralized system of wage
determination which is consistent with "the national in-
terest," but which at the same time retains some respon-
sibility for wage fixing at plant level, has suffered from
one major defect — wage drift. Wage drift, by which the
Swedes mean the tendency for wage rates and earnings
to drift away (upward) from the levels intended through
central bargaining, has proved to be the Achilles heel of
wage determination in Sweden (and in other countries
which try to marry a national consensus, which must be
aggregative in character, to the local conditions of a
multitude of particular labor markets).

Part of the explanation of wage drift in Sweden
stems from deliberate policy. Both employers and unions
revere incentive wage systems, and in manufacturing in-
dustry over 60 percent of hours worked are paid on a
performance basis. Piecework prices are set at the plant
level, and this means that central control over earnings
must be modified to allow for local differentiation.

Another part of wage drift, however, and the one
that is morally condemned by LO and SAF, arises from
the shortage of labor endemic to the economy and simply
reflects attempts by employers to retain workers by offer-
ing higher wages. The prevailing boom conditions, excess
demand, and buoyant exports have made wage drift the
bete noire of Swedish attempts to evolve a privately ad-
ministered national wage policy. The paradoxical con-
clusion from this experience is therefore that the strongly
integrated labor market organizations have not been able
to control the actual rate of increase in wages. Wage
drift has averaged about 4 percent of earnings per annum,
varying with the intensity of demand for labor in partic-
ular years.

The solution to the wage drift problem can be sought
in two directions. The approach being practiced in
Sweden by the labor market organizations is to tighten
up systems of wage payment, train supervisors more ef-
fectively in the implementation of wage systems, and
evolve a more active employment policy.

Dynamic Labor Market Policy

This last has become the latest Swedish policy to
attract international attention. The Swedish trade union
economists, an articulate and inventive group, have long
recognized that measures to promote labor mobility are
an important part of a full employment policy. There are
a number of reasons for the emphasis on labor market
devices. First, the LO wage policy of solidarity is skep-
tical about the efficacy of wage differentials in allocating
labor, and regards stimuli and inducements to adapt as
more appropriate. Second, it is argued that on ideological
grounds workers should be free to choose their occupa-
tions without being obstructed by such rigidities as lack
of training and imperfect knowledge of alternative job
opportunities. Lastly, LO takes the view that an active
labor market policy will help to avoid inflation under full
employment by moving workers to expanding sectors
without using higher wages as an inducement. In any
event, higher wages may serve simply to retain, rather
than attract, labor.

During the moderate recession which began in 1957
labor market policy in Sweden did in fact abandon the
narrow and traditional view that it was primarily an
anticyclical device aimed at reducing unemployment. The
new concept emphasized labor mobility as a more perma-
nent feature of policy and the recession was used as the
occasion to begin experimenting with devices to promote

[ 7 ]

mobility and create employment. Training and retrain-
ing schemes, measures to encourage adaptability through
travel and removal allowances, family allowances, tem-
porary housing, and housing subsidies ■ — in some cases
paid out of funds that would otherwise have been dis-
bursed in unemployment benefits — are now regarded as
essential features of this "new" labor market policy.

In this sense the environment in Sweden differs from
that in America. The Swedes have evolved their new
policy to retrain and redeploy their labor force from
what is predominantly a full employment base in accord-
ance with the concept of labor force adjustment at the
margin. This policy is regarded as having one of its main
uses in preventing inflationary wage increases in a situa-
tion of high aggregate demand and in helping the econ-
omy to achieve the structure which best promotes growth.
Policy in the United States, where unemployment is very
much higher, tends to regard manpower development and
retraining as alternative, rather than complementary, to
a policy aiming at a high level of activity through appro-
priate monetary and fiscal policies.

Experience of the scheme so far has been encourag-
ing. The new policy played a significant part in reallo-
cating labor during the 1957-58 recession and in counter-
ing the threat of recession in 1962. It has now proved
itself sufficiently to be given the role the trade union
economists have long wanted it to have, as a permanent
part of the policy for using resources efficiently in a
noninflationary, full employment economy.

The other solution to the wage drift problem raises
wider issues. It has already been noted that postwar
policy in Sweden has been bedeviled by differences of
view about the appropriate spheres of influence of in-
terest groups and the government. It can be argued that
the most effective way to tackle the wage drift issue is to
ensure that the economy is never overheated, but run at
a level which does not encourage that strain on resources
of which wage drift is, at least in part, an important
manifestation. The need for coordination of public and
private policy then becomes evident.

The Impact of Central Planning

What recent Swedish experience may imply is that the
lime has now come to move away from the luxurious
democratic device of strong self-governing pressure
groups toward a more explicitly planned allocation of
resources in which the government plays a more promi-
nent part. This may be the real significance behind the
recent decision in Sweden to set up a National Planning
Council, broadly representative of industry, the labor
market, agriculture, commerce, and the cooperative move-
ment, with the government acting as the coordinator in
deciding broad priorities for decisions about public and
private investment and consumption.

Planning is in the European air these days, and it is
too early to know how far the new Planning Council will
begin to invade the traditional sovereignties of such
groups as LO and SAF. Implicitly, at least, there is a
potential challenge to the arrangements practiced hith-
erto. No doubt Swedish planning will work flexibly,
through and along with the private interest groups. The
master wage agreements of recent years indicate that
LO and SAF are willing to play their part in fitting the
labor market into a wider consensus, but the wage-drift
difficulty suggests that the consensus may now have to
become more planned than it has been before.

Swedish experience raises a fundamental question, one
which should surely be pondered in the United States as

well, where the private groups are so much more decen-
tralized than in Sweden. Can the labor market ultimately
be left free, even where strong private groups have been
willing to try to fit their wage-fixing procedures to
national economic policy? Can the long-run national
economic interest only be promoted in a way that is
acceptable to the community by bringing the government
explicitly into the arena in which the allocation of re-
sources in a democracy is determined? This question is
being asked in all the European countries that are trying
to evolve some form of consensus for growth.

Swedish experience suggests that, unless there is some
explicit dovetailing of collective bargaining with other
parts of economic decision-making, private interest or-
ganizations, however strong and articulate, may not be
able to carry the strain of the problems associated with
a fully employed labor force. Coordination of monetary,
fiscal, international trade, price, and wage policies may
have to become much more deliberate.

Such a possibility raises problems for both the insti-
tutionalists and the model builders. The former may have
to change their view of what "free" collective bargaining
means, and the latter may need to give greater thought
to the place of corporate bargaining groups in national
economic plans.

How The World Shapes Up

(Continued from page 2)
to develop and grow as the industrial countries have. A
long-run prospect of this kind is not wholly unrealistic,
so the incurring of short-run losses seemed reasonable.

Unfortunately for this view, there is no automatic
process of growth that can be depended upon. Neither
they nor we know of any sure plan or procedure to
guarantee quick and steady results. They lack both the
real capital that is required and the technical and admin-
istrative knowledge of how to create it. The processes of
educating a people, of acquiring skills, and of accumulat-
ing capital are painfully slow. These countries can make
some rather easy gains by establishing the cast-off in-
dustries of the developed countries for low-wage produc-
tion. But these cannot solve the problem. Furthermore,
a population in transition is typically unstable, and
economic frustration interacts with political instability to
hamper progress. One may even suspect that each major
political change will continue to discard some of the good
as well as some of the bad programs of the previous
government.

What these countries are finding is that their freedom
of action is largely illusory in the economic sphere. They
remain dependent upon others for capital and for tech-
nical instruction. Their new industries often face world-
wide overcapacity, so that they have to bargain on prod-
uct prices as well as on credit terms. The industrial
countries have already agreed that aid should be offered,
but aid and development programs are not likely to reach
the point of providing a complete solution.

Long-term programs alone offer promise of success.
The fact must be faced that progress can hardly be as
autonomous, as self-sustaining, or as rapid as the new
nations have hoped. It is to some extent promoted and
to some extent hampered by the Cold War. There is
every prospect, barring nuclear destruction, that the
economic gap between the world's rich north and its poor
south will continue to widen through the rest of the
century. vi.b

L 8 J

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Occupations of Immigrants

Since the end of World War II about one out of
every three immigrants who have reported their occupa-
tions has indicated that his occupation is in a professional,
technical, or skilled category. This coincides with the
present needs of our economy and also reflects some of
the changes made in the Immigration and Nationality
Act of 1952. It contrasts with the previous half-century
of immigration when the nation's needs for unskilled
labor in such industries as coal mining, steel, apparel,
meat packing, and transportation were predominant.

Of the 1.7 million immigrants who reported their
occupations, about 16 percent were in the professional
and technical categories as compared with only about
9 percent of United States workers. In addition 16 per-
cent were classified as skilled craftsmen as compared with
only 13.5 percent of American employees (see chart).
The proportion of all immigrant workers classified as
professional, technical, and skilled has been higher than
the percentage of American workers classified in these
occupations for every year since 1949. This contribution to
the country's work force is best illustrated by the 133,000
immigrants who have entered the United States since 1952
with occupations similar to those classified as critical
(considered to be in short supply by the Technical Com-
mittee on Critical Occupations of the United States De-
partment of Labor). Such critical occupations as
engineering, physics, nursing, and tool and die making
make up this special category. Moreover, a higher pro-
portion of immigrants are in the prime years of their
working lives.

OCCUPATIONAL DISTRIBUTION OF WORKERS
(Average, 1947-61)

PERCEr

Source: U.S. Department of Labor.

Local Governments

At the beginning of 1962 there were 91,185 local
governments in the United States; of these 34,678 were
school districts. This new count of governments shows
that the number of school districts has been cut by nearly
one-third during the past five years, mainly as a result
of widespread efforts at reorganization and consolidation.
On the other hand, municipalities and special district
governments have become more numerous, and there has
been little change in county and township governments.
Following is a summary comparison of national totals by
type of unit for 1962 with related numbers (including
Alaska and Hawaii) for 1957 and 1952.

Type of local government 1962 1957 1952

Total 91,185 102,341 116,756

Counties 3,043 3,050 3,052

Municipalities 17,997 17,215 16,807

Townships 17,144 17,198 17,202

School districts 34,678 50,454 67,355

Special districts 18,323 14,424 12,340

County and City Data Book Released

The Bureau of the Census recently released the 1962
County and City Data Book. This book brings together
statistical information for counties, cities, and standard
metropolitan statistical areas and presents complete defi-
nitions of each urbanized area. The material presented
in the new Data Book was selected and summarized pri-
marily from the latest censuses of population; housing;
agriculture; retail, wholesale, and service trades; manu-
factures; mineral industries; and governments conducted
by the Census Bureau. In addition it includes statistics
from other government and private agencies on such
subjects as births, deaths, marriages, votes cast for pres-
ident, bank deposits, electric bills, hospitals, and climate.
Also included is a map for each state showing counties
and standard metropolitan statistical areas and all cities
of 25,000 inhabitants or more. Copies of this book may
be obtained for $5.25 (clothbound) from the Govern-
ment Printing Office, Washington 25, D. C.

Debt of State and Local Governments

The long-term debt of state and local governments
was $77.4 billion at the end of fiscal year 1962. Of this
amount $55.9 billion was owed by local governments and
the other $21.5 billion by state governments. In addition
to this long-term debt, there was $3.5 billion of short-
term debt in the form of interest-bearing obligations pay-
able within one year from date of issue.

The largest component of the long-term debt was that
issued to finance educational facilities. Of the $23.1 bil-
lion issued for education, 83 percent was issued by local
governments; and of the remaining 17 percent, half was
spent by the states on institutions of higher learning. The
next largest component of debt was the $13.8 billion is-
sued for street and highway purposes, with the states
accounting for more than two-thirds of this total. Local
utilities accounted for $12.6 billion. State and local gov-
ernments accumulated the remaining $27.9 billion in a
variety of ways: for sewerage facilities, $5.3 billion; for
housing and urban renewal, $5.2 billion ; for hospitals,
$1.2 billion; for airports, $1.2 billion: for port and ter-
minal facilities, nearly $1.1 billion; and for state veterans
bonuses, $900 million.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Illinois Crop Production

Crops produced in Illinois in 1962 are valued at a
preliminary figure of $1.4 billion, 4 percent more than the
crops produced in 1961.

A record corn crop of 686 million bushels was 9 per-
cent larger than the 1961 crop and 1 percent above the
previous record set in 1960. The yield per acre, 83 bush-
els, surpassed last year's high by 6 bushels an acre. The
number of acres devoted to corn was held down for the
second consecutive year by participation in the feed-grain
program ; the total acreage in 1962 was 8.3 million.

Another record was set by this year's soybean crop of
159 million bushels, compared with the previous high of
157 million bushels produced last year. The 1962 yield
of 28.5 bushels, grown on 5.6 million acres, was equal to
the record yields of 1956 and 1961.

Oat and wheat production totaled 81 million and 50
million bushels, respectively, in 1962. Both of these crops
experienced declines from 1961 in both acreage and yields
but total output remained above the 1952-61 average.

Chicago's Water System Improved

A new Central District Filtration Plant which will
supply filtered water to 3 million persons in Chicago
north of 39th Street and in several suburbs is scheduled
to begin operation in 1963. The 1.5 million persons living
in the southern portion of the city and neighboring sub-
urbs are already being supplied by the South District

DEATH RATES, 1920-59

RATE PER 1,000 LIVE BIRTHS

L~_^-

MATERNAL

;

b.O

'"-•C\ UNITED STATES

2.0

1.5

ILLINOIS S\

■

1.0

0.4

-v."

RATE PER 1,000 LIVE BIRTHS

INFANT

■v UNITED STATES

"A-

ILLINOIS

\V -

\v -

Source: Illinois Department of Public Health, Vital
Statistics, Illinois, 1950-1959, Vol. IV, pp. 1 and 3.

Filtration Plant, which is scheduled for expansion in the
city's current water works capital improvement program.

The Central District Filtration Plant is located on 61
acres of land-fill just north of Navy Pier. Tunnels will
transport water from intake cribs in Lake Michigan to
the plant, where the water will be treated and then re-
layed to pumping stations which will distribute it to users.
A six-mile tunnel will connect the plant with the North
District distribution system. New equipment is being in-
stalled in ten pumping stations and 125 miles of water
mains are being constructed.

When the current program is completed, Chicago's
water system will have a peak capacity of 2.5 billion
gallons a day, which will be sufficient to meet the city's
water needs to 1980. The system is financed from rev-
enues and revenue bonds which are retired from the
annual water charge.

Public Work Aid

The first Illinois project to receive assistance under
the new $400 million federal Public Works Acceleration
Act was improvement of recreational facilities in the
Shawnee National Forest. A total of $400,000 was to be
spent in the Harrisburg and Cairo regions and in the
forest areas in Williamson, Jackson, and Union counties.
Among other things this amount was to provide 15,000
man-hours of labor. Through November a total of 425
men had been employed in thinning stands of timber,
constructing parking sites, improving roads in recreation
areas, and building firebreaks.

As of November 28 more than 135 Illinois communi-
ties had made application for federal public works accel-
eration aid. Many of them are trying to get help for
water and sewer projects and for various flood control
projects for which some money has already been budgeted.

Illinois Vital Statistics

Maternal and infant death rates in Illinois are lower
than the rates for the United States and have been lower
for a number of years (see chart). The Illinois Depart-
ment of Public Health reports that the number of mater-
nal deaths dropped from 3.0 for every 1,000 live births in
1940 to 0.3 for every 1,000 births in 1959.

The infant death rate has changed very little in the
State during the past 10-year period. However, great
improvement had been shown in the three preceding
decades. The number of infant deaths per 1,000 live
births dropped from 76.1 in 1922 to 25.6 in 1950 and to
25.0 in 1959.

In the 1950's pneumonia was on the increase as a
cause of infant death, accounting for 13 percent of the
deaths among white infants and 33 percent among the
nonwhite in 1959. From ages 1 to 4, accidents accounted
for the largest number of deaths and influenza and pneu-
monia combined caused the second largest number.

Accidents also ranked as the leading cause of death
among children 5 to 14 years of age, with cancer the
second leading cause. Tuberculosis was among the lead-
ing causes for the first half of the decade only. Acci-
dents, homicide, and suicide accounted for over half of
the deaths in the 15 to 24 age group, rising from 51 per-
cent in 1950 to a high of 62 percent in 1958 and 60 percent
in 1959. Tuberculosis dropped from the second leading
cause of death in 1950 to 10th in 1955 and since then has
not been one of the leading causes.

[io:

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
November, 1962

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits5
(000,000)

NORTHERN ILLINOIS
Chicago

(Oct., 1962.
•\Nov., 1961

Percentage change from. . . . [^'.,1961.
Aurora

Percentage change from.
Elgin

Percentage change from.
Joliet

Percentage change from.
Kankakee

(Oct., 1962.
' I Nov., 1961.

/Oct., 1962.
(Nov., 1961.

Percentage change from. . . gfe/gjfi.
Rock Island-Moline

Percentage change from.
Rockford

(Oct., 1962.
■\Nov., 1961.

Percentage change from. . . . {noV-Si'.

CENTRAL ILLINOIS

Bloomington

Percentage change from.
Champaign-Urbana

/Oct., 1962.
(Nov., 1961.

Percentage change from. . . . j N^ ^ ™£{

Decatur

Percentage change from.
Galesburg

/Oct., 1962.
■\Nov., 1961.

Peoria

Percentage change from
Quincy

Percentage change from
Springfield

Percentage change from j£ ~"

SOUTHERN ILLINOIS

East St. Louis

/Oct., 1962.
I Nov., 1961.

(Oct., 1962.

\Nov., 1961.

Percentage change from..., {jj& /gg

Percentage change from.... te1^

$25,290"
-38.2
-13.9

$17,091
-42.6
-21.5

$ 708
-32.1
+22.5

$ 151
-69.6
-79.0

$ 760
+9.6
-23.3

$ 265
-33.6

+ 115.4

$ 1,211
+0.7
+ 15.4

$ 1,035
-33.7
+4.1

$ 464
-6.0
+97.4

$ 199
-51.6

+103.1

$ 249
-50.0
+ 94.5

$ 239
+ 61.8
+95.9

$ 838
+45 . 1
-30.1

$ 87
-91.7
-58.4

$ 1,159
+33.1
+ 73.0

$ 163
+31.8
-28.2
$ 546
+269.6
+213.8
$ 125
-91.0
+40.4

,352,377"
-0.0

+4.8

31,207
+1.8

+ 17.5
60,998"

+9.3
+4.3

14,114

+ 1.2
+ 17.3
19,075

-1.2
+ 15.3
20,364

+3.3
+ 18.5
40,209

+1.2
+16.2
10,980

+1.6
+15.4
65,275°

-0.1
+ 13.5
14,889

+3.4

+0.7
45,836

-0.4

+3.5

16,979
-3.1
+0.6

25,455
-4.6
+6.3

13,919
+2.6

+20.7

$675,183"
+12.2
+ 14.3

$482,473

+ 14.4

+14.0

$11,349

+4.5

+23.0

$ 8,199

+ 11.2

+28.8

$13,585

+8.7

+ 14.8

$ 6,518

+5.9

-5 0

$13,407

+3.4

+ 12.9

$24,685

+ 14.1

+ 17.8

$ 7,681
+8.4

+ 14.9

$12,499

+10.6

+19.0

$ 7,684

+ 7.1

+13.9

$14,171

+6.5

+17.6

$ 5,376

-0.8

+11.7

$21,318

+7.3

+13.3

% 6,608

+0.5

+ 11.7

$17,697

+ 6.7

+16.8

$10,144
+5.2
+ 13.3
$ 5,814
+2.0
+8.6
$ 5,974
+3.8
+ 15.8

+ 13

+ 7

+ 12"
+5'

+ 16

+ 7

$ 91

-2.6
+ 10.6

$ 57
-2.3
+0.2

$ 102
+0.8
+ 6.7

$ U21'
+2.0
+ 13.5

$ 217
-1.8
+5.3

+6.6

+ 16.1

-6.1

■10.8

152

$ 279
-5.0
+ 6.4

$ 63
+1.5
+5.9

$ 154
-7.6
+ 12.0

$ 150
+0.8
+ 7.2

$ 51
-0.2
+7.6

" Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. - Local power companies. 3 Illinois Department of Revenue.
Data are for October, 1962. Comparisons relate to September, 1962, and October, 1961. ' Research Department of Seventh Federal
Reserve Bank (Chicago). Percentages rounded by source. 'Federal Reserve Board. • Local post office reports. Four-week accounting
periods ending December 7, 1962, and December 8, 1961.

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949 = 100

EMPLOYMENT-MANUFACTURING

\s-f

A: ~

ILL. J
U.S.

♦revised series

AVERAGE WEEKLY EARNINGS-MANUFACTURING

* REVISED SERIES

'52 '59 I960

'29 '36 '44 '52 '59 I960 1961 1962

-ANNUAL AVERAGE ■

DEPARTMENT STORE SALES (ADJ.)

COAL

PRODUCTION

^ILL.

U.S. \f~\

«v*e

Afb^^f

BUSINESS LOANS

CASH FARM INCOME

ILL.

♦revise

D SERIES

U.S. *

t •/ A

v A

I i

ILL.

Wv\/Vj

* REVISE

'W1

) SERIES

1962 '29 '36

'52 '59 I960 1961 1962

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

L.>

ty^

Vv^^V

/u.5.

I960 1961

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

UBSAm

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

February, 1963 Number 2

HIGHLIGHTS OF BUSINESS IN JANUARY

Caution and uncertainty marked the economy in Jan-
uary, as they have for the past several months. Electric
power production showed another increase, because of the
weather ; petroleum output was somewhat higher ; and
the steel industry continued to mark up very modest gains
until severe winter weather cut production toward the end
of the month. At that time, little sign had been seen of
the hoped-for upturn in steel orders. Automobile manu-
facturers assembled 687,433 cars, only slightly less than
the record for January. The seasonally adjusted index of
industrial production remained at 119 (1957-59 = 100).

Department store sales dropped, after seasonal ad-
justment, from 117 percent of the 1957-59 average to an
estimated 114 percent. Retail sales slipped fractionally
from the December level to $20 billion. A strong factor
in the maintenance of retail sales was the high level of
auto sales, which set a record for the month, surpassing
even January of 1955, the industry's boom year.

Construction Activity Maintained

The value of new construction put in place in January
totaled $4.3 billion, down from $4.9 billion in December.
However, the decline was less than expected, and the
seasonally adjusted annual rate indicated that building
last month had risen slightly over the month before. The
advance over January, 1962, amounted to 6 percent.

Spending for new private construction dropped a less-
than-seasonal 8 percent to $3.3 billion. The change in
this component mainly reflected the fact that nonfarm
residential building, which accounts for more than half
of private construction, showed greater strength in Jan-
uary than it usually does. In comparison with January,
1962, nearly all types of private construction made gains
— residential, 14 percent; nonresidential, 4 percent; and
public utilities, 6 percent.

Balance of Payments Somewhat Improved

Preliminary data for the second half of 1962 indicate
that even though there was a minor improvement in our
adverse balance of payments in the fourth quarter, the
second-half deficit still amounted to $1.3 billion. For 1962
as a whole, the cut in holdings of gold and convertible
currencies and the increase of United States short-term
liabilities totaled $2.0 billion, compared with $2.5 billion
in 1961 and $3.9 billion in 1960.

An important factor in the contraction of the adverse
balance was a reduction of $1.3 billion in the net outflow

of private American capital, particularly short-term cap-
ital. Another item of $665 million consisted of advance
repayments received from France, Italy, and Sweden on
postwar credits. Net military outlays were also reduced.
On the debit side of the ledger was a continuation of the
decline in the favorable trade balance which began in
mid-1961 in response to our recovery from recession.
Exports exceeded imports by only $1.8 billion in the sec-
ond half of 1962, compared with $3.0 billion in the first
half of 1961.

Manufacturers' Sales, Orders Off

Sales by manufacturers were down, after seasonal ad-
justment, from $33.9 billion to $33.6 billion, principally
because of lower sales of primary and fabricated metals,
lumber, furniture, and machinery. Unadjusted sales ex-
ceeded new orders for the tenth month and reduced the
order backlog to $45.2 billion, the lowest level since
January, 1961.

Manufacturers' new orders also dropped in December
for the second month, falling 2.5 percent from November
to an adjusted $32.9 billion. About two-thirds of the de-
cline was in durable goods, particularly fabricated metals,
nonelectrical machinery, and transportation equipment.
Steel and electrical machinery orders advanced.

Stocks held by manufacturers increased $300 million
during December to $57.5 billion, with about 70 percent
of the increase occurring in nondurable goods. As a
result of the opposing changes in sales and inventories,
the stock-sales ratio rose from 1.69 to 1.71.

Consumer Credit Up Again

Consumers added $447 million to their instalment debt
in December after seasonal adjustment, somewhat less
than in November. The chief factor in the drop from the
month before was a contraction in new credit for auto-
mobiles; instalment debt on cars was up $160 million,
only about half as much as in I he previous month. A
smaller cut occurred in personal loans, the third largest
component of instalment debt, in which the increase was
$110 million. Instalment financing of consumer goods
other than cars, in contrast, rose $176 million.

All components of noninstalment credit rose small
amounts. The total increase in consumer credit was $586
million, equivalent to an annual rate of $7 billion. Total
short-term debt at the end of December had reached $63.4
billion, an advance of $5.8 billion over December 31, 1961.

BUDGET DEFICITS TO PROMOTE ECONOMIC GROWTH

By J. J. Hollenhorst

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Cha

erial appearing in tlie lllii

ign, Illinois

tiess Review is derived from

Linnu. primary source- an. I compiled by the Bureau of Economic and

llu-im- Research. Its chief purpose i- to provide businessmen of the

■ ,1 other interested per-ons with current information on bu.-iinss

condition-. Signed articles represent the personal views of the authors

and not necessarily those of the University or the College of Commerce.

will he sent tree on request.

Second-class mail privileges authorized at Champai;

lliinoi-

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

Problems of Development

The world is full of "grand designs." Every continent
or subcontinent has produced at least one. Each calls for
unification and control of a specified area under the pro-
ponents leadership. Some are global or nearly so in
scope. Each speaks with the voice of liberty; and "free-
ing" the people from whatever is supposed to hold them
enthralled is supposed also to lead to the realization of
their economic hopes and aspirations.

The chances of success for any of these grandiose
schemes are not high, and they are certainly minimal for
those originating in underdeveloped countries that lack
the capacity for success in meeting their economic goals.
.Many of these countries have been freed from colonial
rule in recent years. They have exorcised the devil of
"foreign exploitation" but have not yet fully learned how
effectively "free markets" can exploit the weak.

Having gained the status of self-government, they
feel they must pretend to be strong and all-knowing. But
playing dictator and engaging in petty imperialist ven-
tures does not create new employment opportunities for
people who have been engaged in primitive tasks. The
problem persists. So economic failure may lead to politi-
cal upset, and this in turn may frustrate economic prog-
ress. It is necessary to consider where the realities of
their position in the world economy permit independent
action and where they require cooperation.

Money and Finance

One place where independence may be wise for a
developing country is in having control of its own cur-
rency. Reliance on a restricted money supply provided
by a foreign authority may impose serious obstacles. It
prevents exchange rate adjustments; it renders difficult
control of capital flows and may channel savings out of
the country. The experience of Northern Ireland illus-
trates the point. However, a monetary system without
reasonable stability may be even worse. So the minimum
safeguards required in negotiating arrangements with the
International Monetary Fund and other world agencies
are generally in a country's own interests.

Setting up an adequate financial structure is difficult,
but once it is achieved, consistent expansionary policies
may be pursued. Credit may be used to finance many if
not all of the productive enterprises that have the skills
and abilities to afford reasonable prospect of repayment.

The Japanese example speaks very clearly in favor of
such a policy. With substantial initial success, the re-
turns on past loans help keep the over-all credit expansion
in hand.

Some increase in prices is likely under these condi-
tions, but a small "measure of inflation" is not necessarily
harmful. What is needed is to get production moving up
faster than population and to channel a larger proportion
of output into investment. The price increase helps by-
restricting increases in consumption, so that saving is
forced to the benefit of capital accumulation.

If rising imports result in too great a loss of foreign
exchange, it may be necessary to seek a remedy via deval-
uation. This has disadvantages, since capital imports be-
come more costly, but this cost need not be heavy if
exports are sold at world prices and capital imports are
financed by grants or loans in foreign currencies. On the
other hand, devaluation focuses demand on domestic in-
dustry, and the general pushing up of import prices has
advantages over other ways of protecting infant industries
against foreign competition. Also, the shift in price rela-
tionships tends to redirect enterprise from traditional
lines to the new industries desired.

Both inflation and devaluation, in other words, may
be regarded as appropriate policies for economic develop-
ment, provided it be kept in mind that if either progresses
too rapidly, it is likely to be disruptive. In deciding the
optimum pace, relations with other countries are a pri-
mary consideration. If other countries are antagonized,
and retaliate or discriminate in various ways, the policy
is likely to be self-defeating. Hence, underdeveloped
countries cannot lightly contemplate loss of support and
are obliged to sustain cooperation as far as possible.

Commodity Output and Prices

As long as attention is confined to financial aspects,
the problems appear to be manageable if not altogether
simple. Much more recalcitrant are the underlying prob-
lems of employment, production, and distribution. As a
rule, production has been concentrated in one or a few
primary commodities. Agriculture, the main pursuit, is
usually not diversified or efficient enough to provide an
adequate diet. Opportunities for expanding output are
great, as they are in other countries too, so expanding
supplies quickly put prices under pressure. The relative
decline experienced in the past decade has been severe.
But demand is inelastic, and lowering prices does not
bring correspondingly larger volume. Even in the devel-
oped countries, increasing efficiency has been making
agricultural surpluses the rule, and the political situation
that develops with surpluses tends to doom free entry of
competing products from abroad.

Attempts to solve these problems by negotiating com-
modity agreements will probably be intensified. A start
has been made in the case of wheat, but this is a special
case. For a number of commodities, the producing coun-
tries will try to organize cartels to reverse the downtrend
in prices; but even with the cooperation of consuming
countries, such price-fixing agreements are hard to en-
force. Each proposal creates a bargaining situation in
which both producers and consumers are seated at the
conference table. Several factors tend to weaken the
bargaining position of the underdeveloped countries —
the existence of substantial excess capacity, acute short-
ages of capital and foreign exchange, the need to elimi-
nate or minimize trade barriers, and the desire to maintain
the flow of grants and other aid. The international agen-
( Continued on page 8)

ILLINOIS INDUSTRIES AND RESOURCES

ZINC AND LEAD

Though neither the most abundant nor the most valu-
able of metals, zinc and lead are widely used by American
industry. These versatile minerals, which together find
application in some 2,000 American products, are essential
in many uses for which they have few substitutes.

The United States ranked first internationally in
mine output of zinc and second in lead during 1961.
During that year, the nation's mines recovered 262,000
short tons of lead and 464,000 short tons of zinc.

Both lead and zinc — which are often found in the
same ores — ■ are usually concentrated to some extent by
smelters in or near mining regions. Lead as base bullion
is frequently shipped to industrial centers for further
refining. Zinc, which is processed in about 20 large
smelters located mainly in eight widely scattered states
(including Illinois), generally moves to consuming areas
in slabs of about 55 pounds. In all, some 847,000 short
tons of slab zinc were produced in 1961 and another
55,000 short tons were added by about 15 smaller scrap
processors. During the same year, nearly 240 primary
and scrap lead refineries turned out about 925,000 short
tons of lead, nearly half of it coming from scrap supplies.
The output by American smelters is larger than the out-
put from American mines because an increasing propor-
tion of ores smelted here is from lower-cost imports
brought in to meet the sharply rising postwar demand.

Colorful Illinois History

Lead mining has a colorful history in Illinois. The
area around Galena — named for the most common lead
ore — was the nation's principal lead mining region in
the early 1800's. Although the first mining by white men
in the Galena area occurred in the 1820's, lead was ex-
tracted there by Indians as much as a century earlier.

The Galena region began to thrive after the Indians
ceded 15 square miles to the government for mining in
1816. In 1823, the first systematic mining by experienced
miners began, and production soon became so important
that one of the first railroads built out of Chicago was
a link with Galena. By 1845, Galena mines produced
about 90 percent of the nation's lead output.

The state's eminence as a lead producer declined
sharply after 1850 as the rich deposits in the shallower
mines diminished and as miners moved on to newer ore
discoveries in other areas of the fast-expanding nation.

Zinc ores, which had been found at deeper levels in
the Galena region, did not become commercially valuable
until the latter half of the 1800's. Zinc, which had
earlier been tossed aside by the tons, grew in importance
with the introduction of adequate smelters and for a
brief period about the turn of the current century offset
tin decline of lead mining here.

Illinois Mining Today

From the 1910's through the 1930's, Illinois sagged as
a lead and zinc producer. During the thirties, it was
commonly believed that the ores of the Galena (list net

were nearly depleted. World War II reversed the situa-
tion, however. Shortages spurred the reopening of older
mines, and prospecting for newer deposits proved suc-
cessful. Moreover, the continued high demand for zinc
and lead after the war, plus the sharp rise in the pro-
duction of zinc and lead as by-products of fluorspar
mining in southern Illinois, has returned the State to a
place among the top 10 producers. These are the only
two metals of importance mined in the State today.

In 1961, Illinois ranked eighth in the production of
both minerals. Although it has varied during the past
two decades, mine output of lead and zinc in Illinois has
climbed whereas the domestic total has fallen. From 1941
to 1961, zinc volume in the State rose 191 percent to
26,800 tons and lead production increased 44 percent to
3,340 tons. The State, however, was the fifth largest
smelter of slab zinc, its volume being 78,800 short tons
valued at about $18 million.

Zinc and lead ores are found in numerous glacial
deposits and pockets throughout the State. However,
commercial quantities exist in only two areas. The
largest of these is the Galena district in Jo Daviess
County; the other is the neighboring counties of Hardin
and Pope in southern Illinois.

The 20 active mines in Illinois were operated pri-
marily by five major companies during 1961. The com-
panies were Eagle-Picher and Tri-State in Jo Daviess
County, and Aluminum Company of America, Minerva
Oil, and Ozark-Mahoning in Hardin and Pope counties.

Lead and Zinc Consumption

Illinois, with its numerous heavy manufacturing in-
dustries, is a large user of both zinc and lead. The Slate
was barely topped by Ohio in 1961 as the nation's top
zinc consumer and was third among the states in the
consumption of lead.

Zinc, because of its weather-resistant qualities, is
extensively utilized as a protective coating. Nationally,
about 40 percent of all zinc is channeled into diverse
galvanizing purposes such as for gutters, pipes, fencing,
and for hundreds of forms of steel. In Illinois, the largest
share (about 40 percent) of the 135,000 short tons of
slab zinc and pigments consumed in 1961 was used as
base material or alloy for die casting. Other important
ii-. - of zinc in the State that year were for galvanizing
(33 percent) and for the making of brass (14 percent).
The remainder went into numerous products ranging
from engravers' plates to paints and ink.

Similarly, lead finds divergent applications with its
workability, low melting point, and relative chemical
inertness. Like zinc, a high proportion of lead utilized
annually is recovered from sera]). The battery industry
i- ili.' heaviest user but other important end uses of lead
include the manufacture of various metal products such
as ammunition, solder, and cable coverings: chemicals,
especially tetraethyl lead; and pigments such as white
lead, used in paints.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, November, 1962, to December, 1962

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. . .
Weekly earnings — manufacturing1

Dept. store sales in Chicago4

Consumer prices in Chicago5

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

Comm.; ■ 111. Dept. of Mines; 3 111. Depl. of Labor;
, 7th Uist.; 5 U.S. Bur. of Labor Statistics; 'I. \Y.
d. Res. Bd.j B III. Crop Rpts.; "Life Ins. Agcy. Manag.

b Seasonally adjusted. c 1957-59 = 100.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding-
Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . . .

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual

in billic

450.

Indexes
(1947-49
= 100)

120*--1
ii9».d

121*. d

102»d

102"

182°

185=

281

1 1 7»- •

106d

100'1
97d

101d

100'1
105'1
79'

Percentage
change from

Nov.
1962

- 6.3

- 6.6

-11.1

+ 14.7
+ 0.9
+ 128.6

+ 3.2
+ 2.0
+ 3.6
-15.5

+ 0.1
+ 0.3
+ 0.2

+ 0.1

+ 0.2
+ 0.4
+ 0.7
+ 0.3

- 0.8

- 0.2

- 0.3

- 2.0

- 0.4
0.0

- 1.0
0.0

- 1.2

Dec.
1961

+ 1
+ 12
-24

+ 10
+ 10

+ 7
+26

+ 3.5
+ 4.3
+ 3.1

- 2.3

+ 0.5

- 0.2

+ 1.7
+ 1.4
+ 17.9
+ 3.5
+ 1.2

0.0
+ 1.5

- 0.1

- 0.2

+ 1.0

+ 2.0

0.0

1 t'.S Dept- "f Commerce; = Federal Reserve Board; 3 U.S. Dept.
of Agriculture; ' U.S. Bureau of Labor Statistics; s F. \V. Dodge Corp.

■Seasonally adjusted. b End of month. c Data for November, 1962,
compared with October, 1962. and November, 1961. J 1957-59 — 100.
•' Revised. ' Based on official indexes, 1910-14= 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Jan. 19 Jan. 12

Jan. 5

Jan. 27

Production:

Bituminous coal (daily avg.) ihous. of short tons

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Depart mint store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial . .number

1,228
18,321
178
7,245
100.0
462
83

100.5
100.6
93.7

34,291
321

1,418
18,110
183
7,299
102.8
502
94

100.5
100.7
93.5

1 ,434

17,467

189

7,289
102.6
522
99

100 4
100.7
93.0

1,420
16,874
134
7,280
100.
422
91

100.
100.
93.

35,351

241

1,238

16,435

129

7,362

92.1
357
121

100.6

35,166
143

1,371
16,686
166
7,420
128.3
533
84

100.8"

101.0"

31,981
389

Source: Survey of Curr

Business, Weekly Sup[°lr»ioits.

n Monthly index for January. 1962.

[ 4 ]

RECENT ECONOMIC CHANGES

Dividend Payments

Dividend payments of corporations issuing public
reports during 1962 amounted to $15.1 billion, a 6.3 per-
cent increase over the previous year, according to the
United States Department of Commerce. This advance
occurred in both the manufacturing and nonmanufactur-
ing areas with 10 of the 12 manufacturing groups report-
ing increases over 1961. The largest percentage gain in
manufacturing was recorded by the automobile group
with an 18 percent increase to $1.1 billion in 1962; the
only losses were recorded by the iron and steel and trans-
portation equipment groups, with declines of a little over
3 percent from their 1961 totals to $733 million and $142
million last year. In the nonmanufacturing sector, the
finance and communications groups were the pace-setters,
with the former showing a 9 percent increase to a total of
$2.4 billion and the latter a 10 percent gain to $1.4 billion
last year. The only nonmanufacturing group to show a
decline was the railroad industry, whose dividends
dropped 7 percent from the 1961 total to $353 million.

Labor Developments

During 1962 there was a continuing advance in em-
ployment, a small rise in the total labor force, and some
reduction in unemployment compared with 1961. Al-
together total employment in 1962 averaged 67.8 million,
an increase of 1 million over 1961. In addition, the armed
forces had their first large-scale expansion since the
Korean War.

As indicated in the accompanying chart, the rise in
nonagricultural employment from the previous cyclical
high in the second quarter of 1960 to the third quarter of
1962 amounted to only 1 million persons, a gain of some-
what less than 2 percent. During this period the employ-
ment increase was centered in finance, services, and

NONAGRICULTURAL EMPLOYMENT

ILLIONSOF WORKERS

'MANUFACTURING AND MINING

WHOLESALE AND RETAIL TRADE

* Finance, insurance, real estate, service, miscellaneous.
Source: U.S. Department of Labor.

government (mainly state and local). These groups
showed a combined advance of over 1.2 million, or more
than the rise in total nonagricultural employment. Except
for the trade group, which registered a moderate increase,
all other major groups, particularly the commodity-
producing industries, registered some decline, even
though output in these industries increased.

In addition to the higher level of employment, the
rate of unemployment for the labor force was only 5.5
percent during 1962 as compared with 6.7 percent in 1961.
This lower rate of unemployment last year was reflected
in all of the principal groups of the population.

Gross National Product

The nation's output of goods and services rose to a
seasonally adjusted annual rate of $562 billion in the
fourth quarter of 1962. The advance brought the total
for the year to a record $554 billion, 5.5 percent above
the 1961 total. For the year as a whole a 10 percent
increase in investment was recorded over 1961 but dur-
ing the last half of the year investment decreased 3.2
percent from the first half.

During the year disposable income increased 5.0 per-
cent over 1961, to $383 billion, and personal consumption
expenditures expanded about 5.5 percent. Contributing
heavily to the 1962 advance was a $4.0 billion increase
in spending for durable goods, mainly autos, which had
their best year since 1955. In addition, spending on
nondurable goods rose $6.5 billion and service expendi-
tures continued their postwar expansion by rising $8.0
billion over 1961. Personal saving held steady during
the year at about $26 billion or about 6.6 percent of
disposable personal income.

GROSS NATIONAL PRODUCT OR EXPEXDITURE

(Billions of dollars)
1962

Gross national product 553 . 6

Personal consumption 356.7

Durable goods 47.6

Nondurable goods 162.0

Services 147.2

Domestic investment 76.2

New construction 44.3

Producers' durable equipment 28.8
Change in business inventories 3 . 1

Net exports of goods and services 3 . 1

Go\

purchases 117.6

1961
518.7
338.1
43.7
155.2
139.1
69.3
41.6
25.5
2.1
4.0
107.4

INCOME WI> SAVINGS

National income 45 7 5 4_' 7 8

Personal income 440.5 416.4

Disposable personal income 382.7 363.6

Personal saving 26.0 25.6

4th Qtr.
1962*
562.0
363 . 5
50.7
162.8
149.9
75.0
44.9
29.6

N.A.
448 0
389.3

* Seasonally adjusted at annual ra
Source: U.S. Department of Commerce.

Food Fat Exports

The total supply of edible fats, oils, and oilseeds in
the United States for the marketing year which began
en i October 1, 1962, is forecast at a record 16.5 billion
pounds, 4 percent abovi the total in the 1961-62 marketing
year. Domestic use of food fats is expected to continue
at an annual rate of 46 pout

This will mean that the quantities of edible vegetable
oils, lard, butter, and liable for export and

carryover stocks in 1962-63 will probably reach 7.2
billion pounds, 6 percent more than in 1961-62.

[ 5 ]

BUDGET DEFICITS TO PROMOTE ECONOMIC GROWTH

JEROME J. HOLLENHORST, Lecturer, Southern Illinois University

By presenting a deliberately planned "deficit budget"
for the fiscal year 1964, President Kennedy has dramati-
cally announced an abandonment of his previous com-
mitment to a cyclically balanced budget policy. Last
year's budget proposal was designed to produce a tiny
surplus; the deficit that actually developed was primarily
the result of an overly optimistic estimate of income in-
creases. By contrast, the current budget proposal not only
deliberately anticipates a deficit for 1964, but also pro-
jects deficits for at least two additional fiscal years.

This departure from "orthodox" budget policy was
motivated by sad experience: during the last few years
the actual rate of growth has not coincided with the rate
required to maintain full employment of the economy's
resources. The effort to reduce the existing gap between
the two growth rates underlies all the budget proposals.

Expenditures Rising to New Peak

Total expenditures for the fiscal year 1964 are esti-
mated at $98.8 billion, an increase of $4.5 billion. The
budget message stresses the point that the proposed in-
crease is primarily attributable to the imperative need for
greater spending for three functions — national defense,
space exploration, and interest charges. The need for the
increases in these items is asserted rather than justified.
It is apparently felt that programs for gaining military
supremacy will not be questioned.

The total of expenditures for the remaining functions
has been held below the level of the current fiscal year.
However, the restriction mainly took the form of mini-
mizing increases, since the spending changes noted in
Table 1 are somewhat deceptive, for example, gross out-
lays for postal services are expected to rise next year,
but postal revenues are expected to rise still faster, re-
ducing the postal deficit b) $250 million. Since only this
decrease is carried in the commerce and transportation
category of the President's budget, the increase in 1964
is correspondingly reduced. Another example is the pre-
dicted drop of $1 billion in federal spending for the
agricultural program, which is based largely on a hoped-
for sell-off of cotton accumulated during this year's price
support program.

if one considers the cash budget, on which President
Kennedy lays some stress, the increase is even larger.
The expenditures listed in Table 1 do not include trust
fund expenditures, which are expected to rise from $27.3

TABLE 1. ESTIMATED BUDGET EXPENDITURES

(Fiscal years; billions of dollars)

Function

National defense

Space research and technology. . .

lleall h, labor, welfare

General government

Natural resources

Education

( lommerce .mil transportation. . . .

Veterans benefits, services. .

I lousing, community development

[ntei national affairs

Agricull ure

1963

1964

Change

$53.0

£55. 4

4-2.4

2.4

4.2

+ 1.8

4.9

5.6

+ .7

9.8

10.1

+ .3

2.0

2.2

+ .2

2.4

2.5

+ .1

1.4

1.5

+ .1

3.3

3.4

+ .1

5.5

- .2

2.9

2.7

- .2

6.7

5.7

-1.0

Source: The. Budget of the United States Government. Fiseal Year
1964.

billion to 28.4 billion, mostly because of expanded opera-
tions of the highway and social security programs. The
exclusion of these trust-fund expenditures and related
receipts is the major difference between the administra-
tive budget and the consolidated cash budget. Whichever
statement one looks at, however, it is clear that expendi-
tures will be rising to new record highs in fiscal 1964,
exceeding even the wartime peak of 1945.

Taxes Cut, But Higher

Superficially, the advance of $4.5 billion in expendi-
tures represents the entire contribution of the budget to
economic expansion, since tax receipts are also estimated
to increase despite the proposed cuts in tax rates. In
other words, the proposed deficit is primarily the result
of total revenues rising less than expenditures, and the
flow of "deficit dollars" is expected to increase by less
than the increase in expenditures. To understand how
this comes about, and why the superficial result does not
tell the whole story, it is necessary to follow the entire
chain of reasoning behind the Administration's budget
strategy .

The President has proposed a mixed package of tax
revision: reduced level of rates, changes in the rates of
progression, and additional changes in the timing of
corporate tax payments and in the deductions allowed in
determining taxable income. Specifically, the corporate
income tax rate is scheduled for a drop from the current
52 percent to 47 percent, beginning in calendar 1964. In-
dividual income tax rates are to be cut in three annual
stages from their present range of 20 to 91 percent to a
range of 14 to 65 percent. If approved, this reduction
would cut individual liabilities by $6 billion in the first full
year and by some $8 billion per calendar year when the
program is in full effect. The proposed program, when
fully effective, would reduce tax liabilities by $13.5 billion
on the basis of calendar 1963 levels of income. But about
$3.5 billion is to be recouped by various loophole-closing
proposals, including the formerly sacrosanct depletion
allowance privileges now enjoyed by 114 industries
ranging from oil to clay to clam shells.

In calculating actual tax receipts, however, one must
take account not only of changes in rates but also of
changes in the base against which the rates are applied.
When the base is increasing, any decline in rates would
be wholly or partially offset. The estimated results for
1964 give effect to a predicted gross national product of
$578 billion for calendar 1963 — up $24 billion from the
calendar 1962 level. This substantial increase is based
partly on the stimulus expected from recommended
changes in tax structure.

The first year reductions in tax rates are concen-
trated on individual incomes, partly because last year's
changes in depreciation guidelines and allowances have
already reduced corporation taxes. The net effect of the
proposed rate reduction and the predicted increase in
individual incomes is a loss of tax revenues of only $1.5
billion, as shown by Table 2. Since other tax receipts
advanced by more than this amount, the total is expected
to rise by $1.4 billion.

When the cash budget is considered, the picture is
not quite so rosy for the consumer. In January, social
security tax rates went up by a full percent of payrolls,
making for an increase in trust-fund receipts of close to

[ 6 ]

TABLE 2. ESTIMATED BUDGET RECEIPTS

(Fiscal years; billions of dollars)

1963

1964

Change

?47 3
21.2

9.9
7.1

J45 . 8
23.8
10 4
6 9

-1.5

Corporation income taxes

+ 2.6
+ 5

- .2

Total

85.5

86.9

+ 1.4

$2 billion. This more than offsets the expected net de-
crease in individual income taxes. As can be seen from
Table 3, the cash deficit is expected to rise less than $2
billion next year.

Expansionary Effects of the Budget

The Administration's tax strategy derives from its
recognition of inadequate growth and from its analysis
of the effects of the tax system in restricting growth. It
is estimated that the current relationship of the budget
to economic activity would produce unemployment of 5
million if the budget were balanced, or, as an alternative
way of looking at the problem, that the present tax sys-
tem would produce a budget surplus of $10 billion or
more if the "full employment" level of 4 percent unem-
ployed were reached. The objective is to promote full
employment by eliminating this surplus.

Two kinds of economic effects are of special signifi-
cance to the Administration's growth-stimulant strategy:
the multiplier and the accelerator effects. When the gov-
ernment incurs a deficit, the total dollar amount is multi-
plied by stages in the private economy. The initial re-
cipients of these "deficit dollars" will spend some portion
of them on consumption goods and services; suppliers of
these items will in turn spend some portion of their
receipts on consumption items ; and the process repeats
itself over and over.

In his annual economic message to Congress, the
President estimated that the proposed $8 billion cut in
income taxes would result in an immediate addition to
consumer demand of "well over $7 billion." Presumably
this estimate is based on the fact that consumers spend
on the average about 93 percent of their income. This
average rate of spending implies that the middle and
upper income groups do not spend as high a percentage
of their income as those in lower groups, who spend
practically all of their wages and pensions on goods and
services. It follows that if the maximum multiplier effect
is sought, the tax reduction should be concentrated in the
lower brackets. Instead the Administration chose to pro-
pose reductions in all brackets, specifically tailored so as
to reduce the progressiveness of the rate schedule. This
"something-for-everybody" policy is presumably designed
to improve the political acceptability of the proposal.

In addition, the increases in consumer sales associated
with the deficit-caused multiplier effect may encourage or
force some business firms to expand their facilities. The
total of such induced increases in expenditures on new
plant and equipment is called the accelerator effect. The
combination of the rate reduction in the upper brackets
and the cuts in corporate taxes is supposed to enhance the
accelerator effect by making available more funds for
business expansion and by increasing the profits obtain-
able from a boost in private investment spending.

Moreover, an accelerator effect is always interrelated
with a multiplier effect because an expanding firm's new
investment expenditures result in an initial increase of

income, thereby starting a chain of consumption spending
and respending, as described earlier. This interrelation-
ship between the multiplier-accelerator effects is now
of more than academic interest because it is the basic
economic rationale of the Administration's plan to employ
budget deficits as a means of stimulating growth.

The Administration's proposed use of budget deficits
differs significantly from the "pump-priming" advocated
during the thirties. According to the older view, national
income could be shifted upward from depression levels
bj means of substantial injections of government expend-
itures. As national income moved up, consumption and
investment would advance and the injections of govern-
ment expenditures could be discontinued because the
higher levels of private expenditures would thereafter
provide the necessary leverage. The President and his
advisers have shown their disregard for pump-priming
policy by arguing that increases in government spending
programs should be justified in their own right and not
solely as devices to stimulate the economy. They argue
that the appropriate method of generating the desired
multiplier-accelerator effects is by a permanent downward
adjustment of the tax structure, especially income taxes,
which will boost aggregate demand and thereby close the
gap between actual and potential growth.

Problems and Prospects

The comprehensiveness of the Administration's pro-
posal precludes easy generalizations about its probabili-
ties of success, but some critics have already objected on
the grounds that budgetary deficits create inflationary
pressure. The crudest version of this proposition is that
deficits invariably lead to an expansion of the money
supply and thereby create irresistible pressures for price
inflation. When put in such absolute terms, the proposi-
tion has the merit of empirical testability and can thereby
be shown to be wrong for at least some periods of past
experience. For example, the government incurred deficits
during the recession period of July, 1953, to August, 1954,
and the money supply increased by 1.7 percent but
wholesale prices declined 0.3 percent. This does not
refute the proposition; it merely points out that adjectives
such as "irresistible" and "invariable" are seldom appro-
priate for describing the economy's behavior.

Another version of the inflation criticism recognizes
that it is not money expansion per se which causes infla-
tion but that budgetary deficits necessarily mean the
government is adding more to total spending than it is
withdrawing in the form of tax revenues. The resultant
excess of aggregate demand over aggregate supply is said
to cause an increase in the price level. This implicitly
assumes full employment conditions which prevent in-
creases in aggregate supply from offsetting tendencies
toward price advances. The relevance of this version to
fiscal 1964 is questionable in the light of present unused
productive capacity and high unemployment. If there is
any such threat, it is remote rather than imminent.

TABLE 3. BUDGET ESTIMATES, FISCAL YEARS

1963-64

(Billions of dollars)

Administrative

Consolidated cash

1963

1964

1963

1964

1 *. i •■ 1

Rei eipt

$>>\ 3
85 5
8.8

?98.8
86.9
119

8116.8
108.4

8.4

#122. 5
112 2
10 3

[ 7 ]

Other observers, both inside and out of the govern-
ment, have suggested that the President's proposal asks
for too little to lift the economy out of its sluggishness.
This issue turns on whether the economy's underlying
growth tendencies are sufficiently vigorous so that the
stimulating effects of budgetary deficits will produce a
large speed-up. Only if such tendencies exist can Ken-
nedy's budget succeed in closing the gap between the
actual and the full employment rates of growth.

On the other hand, there may be some possibility that
the Administration's plan to stimulate growth will be
thwarted by a recession. This seems to be a more immi-
nent danger than inflation, and it is a danger for govern-
ment finance as well as for the general economy. Indeed,
despite the predicted increase in incomes, the Administra-
tion already anticipates a larger deficit than the one
proposed if tax reduction is not put into effect during
the coming year. In this event, it also foresees continua-
tion of the "chronic" deficits accumulated during both
Eisenhower and Kennedy years as a consequence of
inadequate growth. Even the mildest of recessions would
accentuate these difficulties.

But in the last analysis, those who fear recession are
forced to "buy" this budget. They may decry elements
of political expediency, which they can detect on both
expenditure and revenue sides of the accounts, and they
may doubt its efficacy, but if it is all that can be done,
they have to give it a try. After all, it is definitely "de-
signed to help speed the economy toward full employment
and a higher rate of growth."

Problems of Development

(Continued from page 2)
cies may help by exerting some influence toward fair
bargains. Yet there will be no way to avoid recognizing
that questions of domestic economics, foreign trade and
finance, and political relations are inseparable.

As the underdeveloped countries move into the second-
ary industries, they are likely to find similar problems
occurring in even more acute form. Some industries they
can readily build, such as cotton textiles, for which plants
are being set up everywhere. These industries can use
low-cost labor to compete with established producers, but
some already have world-wide excess capacity and may
even be rated declining industries. There are always pres-
sures to protect industries of this kind, so entry into devel-
oped markets may be doubtful despite promises and good
intentions. Tariffs are not necessarily too restrictive; but
when protection takes the form of quotas, opportunities
are drastically curtailed.

Establishing heavy industries is still more difficult.
For these, foreign assistance is needed, and only a begin-
ning has been made. In the industrial countries, the tech-
nology and the resources needed for the expansion of
heavy industries were at hand, and giving them priority
was responsible for the postwar "economic miracles" of
Western Europe. The same kind of growth process is
not available to everybody, and the newcomers have the
additional problem of creating the infrastructure for a
modern economy — that is, providing all the basic com-
munity facilities and services, including transport sys-
tems and power sources, needed for industrial operation.
Progress may be speeded by borrowing technology that
has been developed elsewhere, but it has often been found
that industry does not develop automatically merely be-
cause such background needs have been supplied. The

quickest way to get the job done is to bring in foreign
industry, and where this runs counter to the ruling polit-
ical philosophy, progress is necessarily slower.

Foreign Aid Programs

Substantial assistance in the solution of development
problems has been and will be available from the indus-
trial countries. Our own aid program is most lavish and
shows prospect of becoming permanent, though perhaps
on a declining trend. It helped in the rebuilding of
Europe, and the reorganization of OEEC (the Organi-
zation for European Economic Cooperation) into OECD
(the Organization for Economic Cooperation and Devel-
opment) reveals a willingness on the part of other indus-
trial countries to undertake similar programs.

Under these programs, aid is provided in various
forms. Some in the form of basic services may prove to
be of most lasting benefit; these include technical assist-
ance, education, and training in health and hygiene. Of
clearly temporary import are such things as food and
medical supplies to meet an immediate emergency. Both
long- and short-term values are conferred by capital
grants, low-cost development loans, and other credits.
All these capital items, to be of greatest effectiveness,
should be provided on a rising scale, in line with the
needs of growing economies. However, the relative price
trends of recent years have depressed export earnings
and debt service has grown, so that continuing capital
grants and loans make little if any net contribution.

The big trouble with our aid programs is that they
are too much tainted with considerations of political
advantage. For a few strategically located countries,
ability to make effective use of the aid is given little
consideration. Instead it is often used to bolster a totter-
ing regime ruling over a caricature of an economy. Their
shares are disproportionate, and making aid an instru-
ment of the Cold War in this way has greatly reduced
its contribution to world economic development.

Laying this stress on aid as a kind of political expendi-
ture is not intended to deny the fact that it also affords
economic advantages to the giver as well as to the recip-
ient. The old fallacy that the more we give, the less
we have is badly shopworn. In the last five years at least,
any aid we have given has also sustained our own
incomes and consumption. This gain, however, is no loss
to anyone else. A program of mutual advantage need not
be criticized because it serves both sides.

Even more, we have a right to insist that there are
truly humanistic elements in our aid programs. Within
the country, when some segment of the population is at
a serious disadvantage and has no means of its own for
obtaining relief, the community responds with public pro-
grams designed at least partially to meet the need. Now
such a situation has developed on a world scale, and there
are many who increasingly recognize a world community.
In this wider community, it may be seen that the exist-
ence of underdeveloped countries puts a drag on the
progress of the developed. If proposals for reducing this
drag are received in a spirit of cynicism and allowed to
die, there can be no progress. The underdeveloped
countries, by viewing their position in this broader per-
spective, will be better able to focus their efforts, in part
through the international organizations, toward retaining,
redirecting, and possibly even enlarging the assistance
that is so urgently needed in dealing with their own
problems. Mutuality of interests is the basis on which to
build international relations that will promote growth
for all. vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Census of Transportation Planned

The first Census of Transportation in the United
States will be conducted this year. Authorized by Con-
gress in 1948 to be a part of the economic censuses, this
project has not previously been undertaken because funds
have not been provided. However, as one of its final acts,
the 87th Congress appropriated the necessary funds to
launch the project. The census studies to be conducted
during 1963 and 1964 will consist of four surveys: a
national travel survey, a commodity transportation sur-
vey, a truck inventory survey, and a bus and truck-
carrier survey.

In the national travel survey, a sample of households
will be interviewed about out-of-town trips made during
the year as well as selected aspects of home-to-work
transportation. The prime objective of the commodity
transportation survey will be to measure "traffic flow,"
especially with respect to the relative volume of com-
modities shipped by each means of transport, length of
haul, size of shipment, and origin and destination areas.
The truck inventory survey, which will gather informa-
tion by means of a mail questionnaire, will be used to
develop data showing total number of trucks and trailers.
In the bus and truck carrier survey, the main items of
study will be the number of carriers by class of service,
the number of vehicles, revenues, operating costs, and
other important items.

Military Contracts for the Midwest

During the fiscal years of 1961 and 1962 military
prime contracts distributed among the states for weapons
and weapons systems totaled $22 billion and $25 billion

MAJOR SHIFTS IN DISTRIBUTION OF
MILITARY PRIME CONTRACTS

OHIO
WISCONSIN

CALIFORNIA

MASS.

TEXAS

1 1951-53 AVERAGE

Source: Federal Reserve Bank of Chicago, Business
Conditions, January, 1963, p. 12.

respectively, about half of the Defense Department's
budget for each year. During the past decade emphasis
in military purchases has shifted from tanks, trucks,
personnel carriers, weapons, ammunition, and industrial
machinery (which totaled 50 percent of all American
military "hard goods" deliveries in 1953) to missile and
electronic systems I which in fiscal 1961 accounted for
52 percent of military hard goods). This change in the
nature of defense hard goods purchases has caused sub-
sequent shifts in the geographical location of defense
work. While that of the Midwest has declined, as indi-
cated in the accompanying chart, the amount obtained
by the Far West and New England areas has increased
substantially.

In fiscal 1961, the Far Western states received 33
percent of all military contracts, compared with less than
14 percent during World War II and 19 percent during
the Korean War. At the same time the share going to
the five Midwestern states fell from 32 percent during
World War II to 27 percent during the Korean conflict
and 12 percent in fiscal 1961. However, in fiscal 1962 the
proportion accounted for by these states rose to 13 per-
cent, a reflection of the increase in conventional forces.
In dollar terms the amount spent during fiscal 1962 in
this area was under $3.2 billion, compared with an annual
average of $8.7 billion during the Korean War. In addi-
tion to this reduction in defense contracts in the Midwest,
about three-fourths of the amount spent on research,
development, testing, and evaluation work on new
weapons systems has been concentrated in California and
the seven Eastern seaboard states. The five Midwestern
states have received less than 7 percent.

Educational TV Grows

From its small and tentative beginnings a decade ago
when WQED in Pittsburgh went on the air. educational
television has grown to a network of 70 stations with a
potential audience of 50 million people. In addition to the
stations already in operation, the Federal Communications
Commission has authorized 205 more for future use out
of the nation's potential 2,200 stations, according to the
Department of Health, Education, and Welfare.

The biggest problem facing this infant industry is that
of financing. The greatest part of the growth during
the past 10 years has been financed by the Ford Founda-
tion, but if that foundation holds true to its principle of
funding experiments that it expects will eventually be-
come self-sustaining, it will not he giving as much to
ETV in the future. To replace this loss of funds ETV
will have to rely more on backing from other foundations,
government agencies, and large corporations. The oi
zation responsible for the preparation and control of
10 hours a week of new shows, the National Education
TV and Radio Center (NET) has tin- major job of
finding the necessary funds.

Some of the corporations which have donated large
sums of money for NET programming over the last
three years, according to Business Week, have been
Humble Oil and Refining Company; International Busi-
ness Machines Corporation; American Petroleum Insti-
tute: and Merrill Lynch, Pierce, Fenner and Smith. The
total amount that NET received from government agen-
cies, foundations, and business increased almost 350 per-
cent, from $364,000 in 1960 to $1,233,000 last year.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Sales Tax Bills Sent to Governor

Among the first measures presented to the 73rd Gen-
eral Assembly when it convened in January was a series
of hills to plug loopholes in the retailers' occupation
tax. The first of these, passed and sent to the governor
on February 6, was a bill requiring payments from small
retailers on a quarterly or annual basis instead of
monthly. It has been estimated that this will save the
State $1 million a year.

Another key proposal in the series — one requiring
interest charges on all delinquent and deficient sales tax
payments — also cleared the House with a minor amend-
ment and was sent back to the Senate for concurrence.

Two other parts of the program coming up for House
consideration immediately are (1) a measure requiring
payment of the proper tax to the Department of Revenue
before a certificate of title can be issued in the sales of
automobiles and airplanes, and (2) one requiring vendors
to post bond to prevent any escape of tax payment in
the event a vendor goes out of business.

If all four bills are passed, it is estimated that the
total return to the State during the 1963-65 fiscal period
will be between $50 million and $70 million.

Report on Unemployment

The Governors Committee on Unemployment has re-
cently completed a report giving the results of its
comprehensive study of unemployment in the State, in-
cluding its survey of job seekers conducted in August of
1961. Part One of the report deals with the findings —
on characteristics of the unemployed and utilization of
manpower and natural resources — and Part Two offers
the committee's solutions and recommendations.

In the effective use of natural resources the committee
found that the State compares favorably with the nation ;
the Illinois economy remains one of the most productive

CHANGES IN POSTAL RECEIPTS, 1961 TO 1962

EAST ST. LOUIS

CHAMPAIGN - URBANA

KANKAKEE

DANVILLE

BLOOMINGTON

PEORIA

SPRINGFIELD

ROCK ISLAND - MOLINE

AURORA

JOLIET

ALTON

ROCKFORD

ELGIN

BELLEVILLE

PERCENT CHANGE
Sources: Local post office reports.

in the country, and from 1950 to 1961 its per capita per-
sonal income increased by a larger amount than the aver-
age for the country, although the rate of increase was
slightly lower. In the utilization of manpower Illinois
has also been more effective than the nation ; in 1961,
out of 40 states reporting to the United States Depart-
ment of Labor, 24 had higher average rates of unemploy-
ment than Illinois. However, the committee concluded
that there is considerable "preventable unemployment" in
Illinois, particularly among the unskilled workers and
those with obsolescent skills and among the uneducated,
the young, and the nonwhite workers.

Recommendations for improvement in economic
growth and development include coordination of state and
local efforts; stimulation of scientific research and de-
velopment activities; development of sites, resources, and
services to encourage industry to locate and expand in
the State; and increased attention to the problems of
areas of declining economic activity. The report likewise
includes recommendations for providing increased funds
for education, using counseling more extensively, bring-
ing workers and jobs together more efficiently, breaking
down prejudicial barriers to employment, and establishing
work programs for the long-term unemployed.

1963 Conservation Program

Illinois has received an allocation of $8.6 million from
the federal government for this year's Agricultural Con-
servation Practices (ACP) program. The state Agricul-
ture Stabilization and Conservation Service Office has
reported that this is about $135,000 less than last year.
Approximately 5 percent of this amount will go to the
Soil Conservation Service and 5 percent to the State
Division of Forestry for technical services; smaller
amounts will be used in conducting the soil sampling
program and other service activities. The largest portion
will go to approximately 50,000 Illinois farmers who
participate in the program each year.

The federal government normally shares from 40 to
60 percent of the cost of carrying out soil and water
conservation projects, with the farmer paying the re-
mainder. A farmer must file a request for assistance prior
to starting a conservation practice. These practices are
chosen from a list provided by the federal government.
They include sod waterways, cover for wildlife, contour
strip cropping, tree planting, farm-pond construction, and
pasture development. In most counties limestone and rock-
phosphate are offered in connection with grass and legume
seedings, which can be used to good advantage by farmers
cooperating in the feed-grain program.

Postal Receipts Decrease

Total postal receipts for IS major trading centers in
Illinois in 1962 amounted to $224.8 million, having de-
clined 0.7 percent from the 1961 total of nearly $226.4
million. Although 14 of the cities showed increases
ranging from 0.4 percent for Belleville to 6.4 percent for
Fast St. Louis, the total was mainly affected by the
decrease of more than $2 million or 1.1 percent for
Chicago. Other cities in which postal receipts declined
were Quincy, Decatur, and Galesburg.

Gains for many of the Illinois cities were small; be-
Mcles Fast St. Louis, the only other cities showing
increases over 3 percent were Champaign-Urbana, 5.6
percent; Kankakee, 4.6 percent; Danville, 3.8 percent;
and Bloomington, 3.4 percent (see chart).

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
December, 1962

Building

Permits'

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits5
(000,000)

NORTHERN ILLINOIS
Chicago

Percentage change from.
Aurora

Percentage change from.
Elgin

Nov., 1962.
\Dec, 1961.

fNov., 1962.
I Dec, 1961.

Percentage change from .... fc- JJ®

Joliet

Percentage change from. . . . {*£■ $«;

ercentage change from. . . . | g°J-' ^

Rock Island-Moline.

Percentage change from. . . ,[^ "«■

Rockford

Percentage change from.

CENTRAL ILLINOIS
Bloomingto

[Nov., 1962.
IDec, 1961.

/Nov., 1962.
^Dec, 1961.

Percentage change from. . . . |jj|£" \^\
Champaign-Urbana

Percentage change from.
Danville

Percentage change from. . . . {g£ #«;
Decatur

Percentage change from.
Galesburg

/Nov., 1962.
IDec, 1961.

Percentage change from .... fc- ™j-

Peoria

Percentage change from.
Quincy

/Nov., 1962.
IDec, 1961.

Percentage change from. . . . | g°£' \%®

Springfield

Percentage change from.

fNov., 1962.

IV, .. I'll, |

'\,

SOUTHERN ILLINOIS
East St. Louis

Percentage change from ....
Alton

Percentage change from
Belleville

Percentage change from

1962.
1961.

/Nov., 1962.
[Dec, 1961.

\,,v . I'VJ
\Dec, 1961..

$16,457
-3.7

-26.7
$ 559

-21.0
+242.9
$ 212

+40.5

-30.5
$ 237

-68.9
+102.6
$ 301

+ 13.7
+616.7
$ 1,380

+14.0

+89.6
$ 894

-13.6

+46.1

$ 172

-67.0

+112.3

$ 360

-22.6

+106.9

$ 142

-28.9

+75.3

$ 207

-17.0

+187.5

$ 226

-5.7

+2,160.0

$ 1,086

+29.7

+85.0

$ 233

+167.8

+59.6

$ 35

-77.1
$ 51
-91.6
-72.3
$ 207
+66.2
+73.9

,432,364'

+5.9
+5.4

,038,883

+6.8
+4.6

32,694

+4.8
+4.7

62,751"
+2.9

+ 10.1

14,891

+5.5

+ 11.2

19,417

+ 18

+ 11.3

19,845

-2.6

+ 11.2

40,204

-0.0

+8.3

11,813

+ 7.6

+ 16.3

69,391"

+6.3

+6.9

15,340

+3.0

+9.4

49,671

+8.4

+2.2

17,477
+2.9
+0.5

25,693
+0.9
+8.6

14,295
+2.7
+8.5

$662,954"

+4.0

$473,213
-1.9
+3.2

$11,077
-2.4
+9.3

$ 8,591
+4.8
+14.0

$13,736
+ 1.1
+ 10.1

$ 6,506
-0.2
+ 7.2

$13,865
+3.4
+ 16.3

$23,892
-3.2
+0.4

$ 7,883
+2.6
+12.0

$11,400
-8.8
+2.3

$ 7,673
-0.1
+5.2

$13,567
-4.3
+4.4

$ 5,364
-0.2
+4.9

$21,321
+0.0
+6.6

$ 6,733
+1.9
+3.4

$16,906
-4.5
+ 1.2

$ 9,539
-6.0
+5.4

$ 5,774
-0.7
+0.4

$ 5,914
-1.0
+ 7.7

+ 46
+8

+54
-6

+5
+54"

+53
+4

+46"

+ 5"

$25,016"
+8.5
+ 12.0

$23,304

+9.3
+ 12.2

$ 90
-1.2
+8.4

$ 57
+0.3
+7.1

$ 105
+2.9
+9.3

$ 143b
+ 1.0
+ 12.9

$ 228
+4.9
+4.6

$ 110

+8.1

+26.7

$ 100

-3.1

+ 11.0

$ 56

-7.7

+ 6.6

$ 128

-15.4

+0.6

n.a.

$ 284
+ 1.9
+7.6

$ 60
-5.4
+ 1.5

$ 156
+0.9
+13.9

$ 143
-4.4
+3.0

$ 53
+3.9
+ 17.4

" Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. ■ Local power companies. » Illinois Department of Revenue.
Data are for November, 1962. Comparisons relate to October, 1962, and November, 1961. 4 Research Department of Seventh Federal
Reserve Bank (Chicago). Percentages rounded bv source. 6 Federal Reserve Board. « Local post office reports. Four-week accounting
periods ending January 4, 1963, and January 5, 1962.

[11]

INDEXES OF BUSINESS ACTIVITY

1947-1949=100

EMPLOYMENT-MANUFACTURING

ILL. /
U.S.

♦revised series

AVERAGE WEEKLY EARNINGS -MANUFACTURING

!LL/

* REVISED SERIES

'52 '59 I960 1961 1962

DEPARTMENT STORE SALES (ADJ.)

COAL PRODUCTION

j^r

150

100
50

/vOv

ILL. ^

Y^i'

U.S.

'52 '59 I960 1961 1962

- ANNUAL AVERAGE -

- ANNUAL AVERAGE ■

BUSINESS LOANS

CASH FARM INCOME

ILL.

* REVISE

D SERIES

U.S. *

i V

K K

\ A

ILL.

W^J

* REVISE

) SERIES

'59 I960 1961 1962

1961 1962

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

ILL.^-''

u_A-

VWyV

/U.S.

1961 1962

op-5

.1^1 NO IS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

w&ttw

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS

COLLEGE OF COMMERCE • UNIVERSITY OF ILLI

MARgfMtti

\H\

March, 1963

HIGHLIGHTS OF BUSINESS IN FEBRUARY

The major indicators of business activity showed little
change in February. Coal output, paperboard production,
and freight carloadings were approximately the same as
in January ; electric power production and petroleum out-
put were up slightly. Automobile output was over 600,000
units, down sharply from January, but still at a high level
for the month. Steel production moved up slowly but
steadily as steel users started modest buildups of inven-
tories as a hedge against a possible strike later this year.
The FRB's index of industrial production held at 119
(1957-59= 100).

Preliminary estimates indicated that February retail
sales rose fractionally above the January figure after
seasonal adjustment to $20.3 billion. Retail sales have
been running ahead of those in 1962 for the past several
weeks; for the month of February, the gain over a year
ago was 7 percent. Sales of cars have been particularly
strong ; more than 525,000 new cars were sold in February,
the largest number for the month since 1955. In contrast
to the high level of retail sales as a whole, department
store sales slipped 1 percentage point to 113 (1957-59 =
100), partly as a result of bad weather.

Construction Spending Off

Estimates for February put expenditures for new con-
struction at $4.0 billion, down a more-than-seasonal 8
percent from January. On the basis of a seasonally
adjusted annual rate, February construction put in place
was off 5 percent from the month before but 3 percent
higher than in February, 1962.

Private construction dropped 7 percent to $2.9 billion,
chiefly because of a substantial decrease in nonfarm
residential construction; the cuts from the January level
were about twice as large as those normally expected.
Public spending for new construction totaled $1.1 billion,
down 10 percent from January. In this case, the expected
seasonal decline was 4 percent. The largest reduction

public construction occurred in the nonresidential
building category.

Unemployment Rate Moves Higher

The seasonally adjusted rate of unemployment was up
again in the February survey week to 6.1 percent, com-
pared with 5.8 percent the month before and 5.5 percent
in December. The February figure was the highest in 15
months. The number of workers without jobs, 4.9 million,
was up 246,000 from the previous month and 375,000 from

February, 1962. Much of the increase in joblessness
occurred in agriculture and construction, where severe
weather may have been a factor ; however, there was also
a rise in unemployment in durable goods manufacturing.
Of particular concern is the advance in the rate for
adult men — from 4.3 in October to 5.1 in February.

Employment in February was nearly 66.4 million, up
423,000 from January to a new record for the month.
The number of nonagricultural workers increased more
than seasonally to 62.3 million, almost 600,000 above the
previous month.

Capital Expenditures to New High

It is currently anticipated that outlays for new plant
and equipment will reach a record $39.1 billion in 1963.
This figure represents a gain of 5 percent over actual
expenditures of $37.3 billion in 1962. The expansion is
based on an expectation of record sales.

Manufacturers of durable goods plan to increase
their capital outlays by 11 percent over 1962, with vir-
tually all groups sharing in the advance. Only in machin-
ery is a drop anticipated. Makers of nondurables indicate
an over-all advance of 3 percent, with increases by textile,
paper, and chemical producers partially offset by oil re-
finers' reductions.

Among the nonmanufacturing industries, public utili-
ties expect to raise outlays 3 percent, railroads 13 per-
cent, and commercial and communications companies 6
percent. Mining firms plan to cut outlays by 6 percent and
transportation companies other than railroads are project-
ing declines of 11 percent.

Instalment Credit Still Strong

Consumers increased their outstanding instalment debt
by a seasonally adjusted $517 million in January. A rise
of $239 million in credit on automobiles and maintenance
of a high level of credit sales of other durables were the
most important elements in the January advance. The
addition to auto debt was larger than that in December
and was about equal to the average for the fourth quarter
of 1962.

Noninstalment credit rose $49 million in January
despite a reduction of $48 million in charge accounts.
The over-all increase in consumer debt was $566 million,
equivalent to an annual rate of $6.8 billion; total credit
outstanding was $62.7 billion.

RESIDENTIAL CONSTRUCTION IN 1963

By Robert O. Harvey

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey Jack A. Rardin

Virginia G. Speers

Technology Transforms
the World

The development of nuclear explosives and space
transport on both sides of a world divided has resulted
in a stalemate of military power described as "the balance
of terror." It is widely assumed on either side that fear
of destruction alone deters the other from adventuring
toward world domination. Each takes pride in the scien-
tific and technical developments that have given it strength
to stand firm against this threat. The new technology,
however, has broader implications for economic progress
and these reflect back upon the power struggle itself.

To gain the enormous thrust of the new technology,
it is necessary to incur enormous expense — not only in
building large-scale, highly capitalized producing units
but in developing and equipping correspondingly sophisti-
cated programs of research and development. If expense
were all, the users of these advanced techniques might
well rest easy. Unfortunately, they are confronted with
economic problems whose solution depends upon methods
that are also experimental in nature and are not so well
founded as those used in dealing with technical problems.

At the heart of the economic problems are the proc-
esses by which real capital is created, accumulated, and
utilized. These may be represented in economic terms by
stock-flow relationships that are basically cyclical in
character. They involve instability as well as growth.
Once progress through capital accumulation is begun, it
cannot stop without adverse consequences. New invest-
ment outlays must expand continuously to maintain
growth. They cannot be allowed even to stabilize over an
extended period without inducing a downturn ; and once
a downturn begins, it gathers cumulative force because
the existing rate of investment cannot be maintained.
Hence, the only way to ensure constant progress is to
gain control of these processes by understanding and ad-
justing to their dictates. It is not enough to have a
planned economy in order for control in the relevant
sense to be established; for these processes are not sub-
servient to any particular system of economic ideology
or political structure.

Different Stages of Prosperity

Khrushchev, in threatening to bury us, in effect
adopted our standards. Before that, for a generation, the

Soviet Union had been building a capitalistic economy in
the sense that it was accumulating the capital necessary
for use of the most advanced techniques of production.
In this it is still far behind us, despite the very consider-
able progress it has made in some lines. It must still
limit some uses of capital and make allocations to other
lines of industry, and the dominant allocations to military
uses and heavy industries have restricted the growth of
consumption. Nevertheless, a goodly measure of success
has already been achieved, and that success looked all the
more impressive because it encountered markets dammed
up by widespread shortages.

Given peace and some relief from military necessities,
future progress in meeting consumers' needs could be
accelerated. Thus the direct interest of the people supplies
a basis for advocating a policy of peaceful coexistence.
There is no need to interpret Khrushchev's proclaimed
faith in this policy as either a ruse or a sign of weakness
in the armaments race.

On our side, where capacity is already adequate, there
is no need for allocation or rationing. Every buyer,
whether consumer or producer, is free to take all the
products or resources he can pay for. Because we have
such extraordinary ability to produce, our progress can be
very fast when the need exists. But when market demands
are satisfied, our production must be slowed. Thus, in
our superiority lies our weakness. From our peaks, we
have further to fall, and overhanging surpluses are likely
to keep us down longer before recovery is achieved.

On both sides, there is a need for economic accom-
plishments that are not easy to achieve. Ours is to keep
the economy moving up despite the occurrence of sur-
pluses. Theirs has been a problem of expanding produc-
tion fast enough to raise living standards despite the
devouring requirements of military and investment pro-
grams. With the success they have already achieved, the
problem is changing. They are now capable of producing
surpluses in almost any specific line if not over-all, and
some are bound to be produced unintentionally. But
specific surpluses also involve a waste of resources and
therefore some over-all loss of efficiency. As their econ-
omy moves across the threshold of high prosperity, the
problem of maintaining balance in development will be-
come more acute. Eventually, their economy will be much
more like ours, and their control problems will take on
more the character of ours. Only then will some of the
popular comparisons and theories of economic progress
become truly meaningful.

Accommodating to a Common World

There can be no guarantee of peaceful coexistence,
of course, in the mere fact that two economies are becom-
ing more alike. Basic differences in theories of economic
control, as well as in political structure, persist. The
Communist system seeks the maximum of public owner-
ship and control; we seek to minimize public ownership
and control. But the Communist countries are finding
the maximum control desirable to be less than their
extremists would like to insist upon ; and the countries
of the West have found the minimum desirable to be far
above what "free enterprise" extremists advocate. Just
where the lines will ultimately be drawn, no one can
foretell.

Both sides are currently experimenting with methods

to ensure steady and rapid economic growth. Soviet

moves toward "revisionism" reflect the shift in the

struggle for world supremacy from the military to the

(Continued on page 8)

[ 2

ILLINOIS INDUSTRIES AND RESOURCES

HOG PRODUCTION AND MARKETING

That the hog is a highly valued meat animal is not
surprising. No other farm animal needs less grain per
pound nor yields a higher proportion of edible products
per pound of its body (70 percent). Moreover, the hog's
rapid multiplication, early maturity, and small capital
investment make hog raising possible for nearly any size

Since the turn of the present century, production has
con,, iit rated primarily in the Midwest where the huge
corn crops have been profitably utilized as hog feed.
Today, more than half of the nation's hogs are found in
four heavy corn-growing states — Iowa, Illinois, Indiana,
.tiid Missouri.

Economically, a close relationship exists between corn
and hogs. Over 411 percent of the nation's annual corn
crop moves to market in the form of hogs. The decision
to convert corn into cash through the production of pork,
however, is strongly dependent upon the current relative
prices of the two commodities. As a rule, it is more
profitable to produce pork than corn when 100 pounds of
hog (live weight) at Chicago is worth more than 12
bushels of No. 2 corn at Chicago. This price relationship
— known as the corn-hog ratio — significantly influences
the amount of pork produced annually, especially since
farmers tend to react collectively to changes in prices. For
example, the Illinois corn-hog ratio for January dropped
to 15.0 (bushels of corn equal in value to 100 pounds of
hogs live weight) from 17.8 a year earlier. If the ratio
continues to decline, there will probably be a contraction
in spring pig production.

Illinois Ranks Second

Turk production is big business in Illinois. Sales of
hogs brought Illinois farmers more than $455 million in
1961, or more than one-fifth of the income for all agri-
cultural commodities in the State. Only Iowa topped the
12.5 million baby pigs raised in 1961 and exceeded Illinois
in the average number (7.7 million) and value ($216
million ) of hogs on farms last year.

I log raising is fairly common throughout the State.
However, the heaviest production is centered in the dense
corn-producing region lying north and west of the Illinois
River and eastward through DeKalb and LaSalle counties.
This 26-county area accounts for more than half of the
Mate's animal pig crop. Located in the area is Henry,
the nation's most prolific hog-producing county, and
Bureau, Lee, and Knox, all among the top 10 counties
nationally.

A number of significant changes in hog farming have
occurred in the State during the past 5(1 years, mostly as
a consequence of improved practices, new equipment, and
agricultural research. Vmong these have been advances
in sanitation, nutrition, pig care, breeding, and farrowing.
Probably the most notable occurrence has been tin partial
smoothing of the once sharp peaks in production. In the

1930's the overwhelming share of new pigs arrived in the
spring, but with practical electrical equipment and careful
attention, Illinois farmers have learned to produce more
pigs in the winter and summer months, although spring
and fall remain the principal farrowing seasons. Besides
the increase in hybridization and crossbreeding in an
attempt to develop more desirable qualities in hogs, an-
other notable advance has been in the care of young pigs,
which have such a high mortality toll during the first
weeks after farrowing. In Illinois, the number of pigs
saved per litter rose from 6.66 to 7.20 between 1948 and
1961.

Hog Marketing Trends

During the past three decades, and especially since
World War II, hog marketing has changed markedly in
the State. The dominant factor in this change has been
the decentralization of the packing and meat-processing
industries from the state's central markets, particularly
Chicago and East St. Louis. As processors have spread
out and shifted westward, they have contributed to a
restructuring of hog movements within the State.

In the 1920's nearly all Illinois hogs were handled
through the five terminal yards — Chicago, East St. Louis,
Springfield, Peoria, and Bushnell. Less than half of total
sales in the State are made at these outlets today. Instead,
the terminals have taken a back seat to the swelling num-
bers of country markets dispersed throughout the State.
Packers and other buyers, who once purchased almost
exclusively from terminals, today buy directly from the
Illinois farmer through some 180 buying stations.

Despite the fact that its number of hogs marketed in
1962 stood near a post-World War II high. Illinois has
fallen sharply as a processor of pork. This is also a result
of the packers' move to other states. In the twenties, hog
slaughterings were half again as large as total production
in Illinois; today, only about half of the hogs produced
on Illinois farms are also butchered here. A heavy pro-
portion of stock bought at direct buying stations is shipped
to out-of-state processing houses.

The structural change in the direct farm-to-packer
movement of hogs has created some problems for the
Illinois swine industry. The multimillion dollar terminal
markets have had to reorient toward shipping to scattered,
more distant processing plants. The proliferation of
country assembly points, which operate on a relatively
low volume but high cost per unit of sale lusts. |
added costs in the marketing margin. The multitude of
price reports of country sales of hogs leaves th<
confused on what the true value of his hogs should be.
Finally, attempts to develop standards and grades to meel
the changing tastes of diet-conscious Americans lot-
leaner meats have been offset by lack of dealer coopera
tion and interest and by consequent lack of pressure upon
producers to improve quality of hogs brought to market.

KNO

TATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, December, 1962, to January, 1963

PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

□ U.S.

Not seasonally adjusted. N.A. Not

ILLINOIS BUSINESS INDEXES

Percentage
change from

Dec. Jan.

1962 1962

Electric power1

Coal production2

Employment — manufacturing3
Weekly earnings — manufacturing3
Dept. store sales in Chicago4. .
Consumer prices in Chicago5. .

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9
Petroleum production10

Fed. Power

i III.

Jank, 7th Dist.
Dodge Corp. ; ' Fed. Res. Bd.
Assn.; 10 111. Geol. Survey.

» Preliminary. » Seasonally adjusted.

Dept. of Wines; » 111. Dept. of Labor;
U.S. Bur. of l-.ilior Statistic-; 'F. \Y.
111. Crop Rpts.; "Life Ins. Agcy. Manag.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential. . . .

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . .

Nondurable manufactures

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked ....

Average hourly earnings. .

Average weekly earnings .

Construction contracts5

Department store sales2. . . .

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Jan.
1963

Annual rate

in billion $

452.4"

398.4*

57.4". b

22.8"
16.4°
6.4°

62.7"
48.1°
39. 5b
38.6°

Indexes

(1957-59

= 100)

119-

119"
120"
103"

98"

114"
106

101
98
101
101

101
106
78d

Percentage
change from

Dec.
1962

- 0.6
0.0

- 7.8

- 8.9

-19.2

+ 2.7

- 5.9
+34.0

- 1.1

- 0.2

- 3.4
-23.6

- 0.2

- 0.3

- 0.1

- 0.5

- 1.0
0.0

- 1.0
-13.1

- 2.6
+ 0.2

+ 0.2

+ 1.2

0.0

+ 1.0
0.0
0.0

Jan.
1962

+ 2.5
+ 4.0

+ 13.9
+ 4.8

- 2.4

+ 2.9
+ S.6

- 3.3

+ 10.6
+ 11.3
+ 8.3

- 3.8

+ 4.1
+ 4.9

+ 3.7
- 1.4

+ 0.6

+ 10
+ 1.7
+ 2.7
+ 4.6
+ 3.6
+ 1.4

■U.S. Dept. of Commerce; 'Federal Reserve Board; 'U.S. Dept.
of Agriculture; ' U.S. Bureau of Labor Statistics; 5 F. \V. Dodge Corp.

» Seasonally adjusted. D End of month. c Data for December, 1962,
compared with November, 1962, and December, 1961. d Based on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Feb. 23 Feb. 16

Jan. 26

Production:

Bituminous coal (daily avg.) t hous. of short tons .

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous. . . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100 . . .

Freight carloadings thous. of cars

5') -10(1

Department store sales 1957

Commodity prices, wholesale:

All commodities 1957

Other than farm products and foods. . 1957
22 commodities 1957

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number. .

50 = 100.
59 = 100.
59 = 100.

1,339
17,489

175
7,449

112.0

489

100.2
100.6
93.0

1,369
17,672

179
7,441

110.3

512

100.1
100.6
93.3

34,389
311

1,418
17,532
183
7,370
106.0
529
90

100.4
100.6
93.6

1,311
18,188
183
7,207
100.
501
83

100.
100.
93.

1,259
18,321
179
7,245
100.0
462
82

100.5
100.6
93.7

1,333
16,110

160
7,450

129.

511

100.7"
100.8"
96.1

,176
309

Sou.

Survey of Cur:

s, Weekly Supplements.

for February, 1962.

[ 4 ]

RECENT ECONOMIC CHANGES

Time and Savings Deposits Up

At the end of 1962 time and savings deposits in
Seventh District commercial banks totaled $97 billion,
almost 20 percent more than at the end of the previous
year, according to the Federal Reserve Bank of Chicago.
This increase was the greatest for any year in the post-
war period and was sharpest at major banks in large
cities. Among the various types of deposits, time certifi-
cates of deposits in denominations of $100,000 or over
expanded most rapidly. Over $800 million of these certifi-
cates were outstanding in Seventh District banks at the
end of 1962, almost twice the volume at the end of the
preceding year. Most of these certificates of deposit were
issued by banks in the major financial centers of this
Federal Reserve District, with Chicago and Detroit ac-
counting for almost 90 percent of the dollar volume.

Gold Situation

During 1962 gold output in the Free World reached
the highest level ever recorded with about 37 million
ounces produced, valued at $1.3 billion. However, less
of these enlarged supplies was added to official stocks
than in any other year since World War II. During 1962,
the United States gold stock, although still representing
about 40 percent of the total world monetary gold outside
Russia, declined to its lowest level since 1939.

In addition to the monetary uses, gold is held and
traded privately in the rest of the world, and the amount
being absorbed by the arts, industry, and private holders
moved up more rapidly, as indicated in the chart. During
1962 about $1.1 billion dollars worth of gold passed into
private uses and holdings, a 33 percent increase over 1961
and the largest amount in any postwar year. Some
entirely new industrial applications have been developed

ESTIMATED GOLD SUPPLIES AND USES"

* Excluding Russian output but including reported Rus-
sian sales.

Source: First National City Bank, Monthly Economic
Letter, January, 1963, p. 6.

in recent years (e.g., the gold and silver plated Mariner
II recently used to study Venus), but these take relatively
small amounts. There was a persistent demand for gold
in Latin America and in the Far and Middle East, but the
bulk of hoarding can be traced to buyers in Europe. This
increased demand was due to declines in American and
European stock markets, the wage-price spiral on the
Continent, and the short-lived Cuban crisis last October.

Merchandise Exports

Merchandise exports account for about 60 percent of
the total dollar value of United States receipts from
goods and services. Unlike imports, which are closely
related to domestic business activity, exports are depend-
ent on international developments and are more volatile
in nature. For example, in recent years they have moved
from a high of $19.5 billion in 1957 (excluding military
aid goods) to a low of $16.4 billion in 1958 and 1959 and
back to $21.7 billion (annual rate) in the middle of last
year. In recent months another decline has set in.

The factors which most affect the total world demand
for our goods are the level of business activity in the
advanced industrialized countries and net capital flows
from the United States.

Consumer Goods Output High

During 1962 about $210 billion was spent on consumer
durable and nondurable goods, for an increase of 5.5
percent over the previous year. Durable goods accounted
for nearly 40 percent of the $10.5 billion increase with the
major gain being for automobiles. In the aggregate, con-
sumers had the opportunity to buy more goods in 1962
than ever before. According to the Federal Reserve
production index, the total output of all consumer goods
averaged 120 percent of the 1957-59 base period, an in-
crease of about 7 percent over 1961.

During the year all product groups registered output
increases and at year-end most lines were at record rates
of output. Durable goods such as autos and auto parts,
household appliances, and furniture and rugs advanced
steadily throughout the year and showed a gain of 9 per-
cent or more over 1961. The only major hard goods group
to show a significant output reduction from the highs
reached earlier in 1962 was radio and television, which
reduced output at midyear to 30 percent less than the
early spring. In the soft goods lines the increases moved
closely with the over-all pattern of total consumer goods
production, with increases of 5 to 6 percent for all groups
except the reading material and food groups, both of
which increased but fell short of the 5 percent level.

Automobile Output

Automobile output continued to support the level of
business by accounting for almost 25 percent of the over-
all rise in the gross national product during the final
quarter of 1962. According to a newly released statistical
series by the Office of Business Economics, the value of
passenger car output was $23.4 billion at a seasonally ad-
justed annual rate during the final quarter of 1962; this
was $1.8 billion higher than in the previous quarter and
$3 billion above the previous year. The current models
set new records for the last quarter of the year with
deliveries at an annual rate of over 7 million cars, and
during the first two months of 1963, sales were maintained
at approximately the same rate.

t 5 ]

RESIDENTIAL CONSTRUCTION IN 1963

ROBERT O. HARVEY, Professor of Finance*

The year 1963 is an interesting one in which to observe
developments in residential construction. Since the end
of World War II, housing has been relied upon as a
sector which could lie manipulated if the economy
"needed" to be stimulated. Politicians, orators, and a
variety of interest groups have found support for good
housing or "home ownership for everyone" to be an
attractive attitude with which to cloak a variety of
proposals.

Now comes 1963 in which: (1) the prospects for
aggregate residental construction are far from dismal but
not ebullient; (2) there is little to be done which can
stimulate private investment in housing; (3) there is
widespread disenchantment with the results of public
investment in housing; (4) defaults and foreclosures in
distressing quantities are occurring on houses financed
with loans made possible through the last major public
attempt at stimulating construction; (5) there is an
absolute shortage of mature families to sustain past rates
of single-family dwelling unit acquisitions; (6) sub-
stantial vacancies exist in apartment buildings; and
(7) a Presidential program to eliminate some of the
possible advantages of home ownership and investment
in rental properties disturbs the scene.

The prospects for 1963 are clouded by the impact of
President Kennedy's Executive Order of November 20,
1962, on Equal Opportunity for Housing dealing with
nondiscrimination in housing financed with FHA or VA
loans ( which account for 20 to 25 percent of housing
starts). Regardless of the social justification of the order,
there is no way of anticipating the way in which it will
be administered, the degree to which discrimination will
be charged and tested, or the way in which buyers, in
general, may respond. Housing starts could be reduced
depending upon the appraisals of tract developers con-
cerning the social enlightenment of prospects in the hous-
ing market. Public statements issued by spokesmen in the
home-building field imply greater caution is to be exer-
cised in committing resources in advance of bona fide
sales, if FHA or VA financing is involved, but such
caution may be appropriate for reasons in addition to
possible market problems resulting from integration.

Private nonfarm housing starts totaled 1,428,200 in
1962 with only 966,000 of these for single-family units.
It is unlikely that housing starts in 1963 will exceed the
1962 totals. The range of probable production is estimated
to be between 1,350,000 and 1,400,000 starts. For the

* Professor Harvey is also Director of the Executive
Development Center. The 1963 Executive Development
Program on the Urbana Campus will be held June 16 to
July 13. This Seventh Session of the Illinois Program is
for executives of a company's general management group;
managers in functional areas such as engineering, sales,
finance, manufacturing, personnel, or research; or man-
agers of profit cent( rs oi dei i ntralized units. The curricu-
lum emphasizes Executive Behavior and Human Relations,
The Environment oi Busini . and Business Policy and
Administration. Enrollment is limited to 25 executives.

For a detailed statement of the Program, write or call:
Robert i» Harvey, Director, Executive Development Cen-
ter, 412 David Kinley Hall, University of Illinois, Urbana,
Illinois. Phones: 333-2813 or 333-0459.

third year in a row, the single-family starts probably will
number fewer than 1,000,000.

Factors other than the general economic scene will
govern housing investment in 1963. The general economy
can be expected to be adequate but insufficient to provide
a special stimulus to housing production. Balances on
mortgage contracts existing, terms available on new-
mortgages, potential housing expenses, consumer tastes
and preferences with respect to shelter and competing
products, and the age and family composition of the
population are factors of greater immediate significance.

Mortgage Financing

The supply of funds available in the mortgage market
should be adequate to support residential construction in
1963. The continuing accumulation of liquid savings, par-
ticularly in commercial banks and savings and loan
associations, suggests that in the absence of either a huge
surge in the quantity of mortgage money sought or a
substantial diversion of funds ordinarily allocated for
mortgages, loans should be readily available to finance
construction at interest rates not greatly different from
those in effect at the beginning of 1963.

In past years, the terms of mortgage loans have been
adjusted to increase the number of families who could
qualify for financing in order to stimulate construction
and general business activity. Adjustments in terms to
broaden the housing market cannot be effective in 1963.

The Housing Acts of 1950, 1954, 1956, 1957, 1958,
1959, and 1961 contained liberalizations and modifications
of mortgage loan terms available under either FHA or
VA loans which were designed to expand home ownership
and to stimulate construction expenditures. For example,
in 1950 the effective minimum down payment on a
$15,000 house financed by an I'll A or a GI loan was 20
percent. By 1956, 100 percent loans were readily available
with the VA guarantee. Minimum down payments on
FHA loans were reduced from the 20 percent level of
1950 to 4 percent in 1960 and 3 percent in 1961. Typical
down-payment requirements on conventional loans were
2^ to 40 percent in 1950, but were steadily reduced to
25, 20, and even 10 percent. In 1963, relatively few
seriously intentioned home owners are barred from home
ownership by a high cash equity requirement, and very
few unanticipated housing decisions could be produced by
further adjustment in FHA and VA equity requirements.

Along with adjusting minimum equity requirements,
the housing legislation extended the repayment terms for
loans. A long-term mortgage loan in 1950 was 20 years;
in 1963, terms of 30 and 35 years are readily available.
During the 1950's the extension of the repayment period
reduced sharply the payment required to service the loan
..it a monthly basis and greatly expanded the number of
families who could qualify for given standards of housing.

Now that terms are commonly from 25 to 35 years,
there is little opportunity to liberalize the repayment
schedule. To illustrate: on a 5>4 percent FHA loan of
$10,000. exclusive of the I'll A insurance premium, the
monthly payments are as follows: 15 years, $80.40 : 20
years, $67.40; 25 years, $60.00; 30 years, $55.30; 35 years,
$52.10; and 40 years, $49.90. The importance of the
monthly payment reduction is illustrated by the fact that
an extension of the term from 25 to 30 years reduces

the required monthly payment by almost $5, which means
a drop of $25 to $40 in the typical net family income
necessary to support the mortgage payments. In contrast,
if the loan term is further extended from 35 to 40 years,
the monthly payment is reduced 1>_\ only $2.20. The corre-
sponding fall of $11 to S16 in family income required is
inadequate to attract many marginal buyers.

Rising Foreclosures

Not only are there relatively few opportunities for

further liberalization of mortgage terms, but also there
are unfortunate aftereffects from past attempts to stimu-
late house construction with liberal financing. The Emer-
gencj Housing Act of 1958 passed by Congress April 1,
1958, tn aid in the recovery from the 1957-58 recession
made on< billion dollars' worth of long-term, low or no
down payment loans available to buyers of newly con-
structed houses. Easy terms and possible reduced FHA
and VA standards attracted many marginal borrowers and
did stimulate the production of housing, particularly in
1959 and 1960 when stimulation was not necessary.

Defaults and foreclosures, as shown in the accom-
panying chart, started rising sharply in 1960. Nearly all
of the foreclosures since 1958 are on properties built and
financed subsequent to the Housing Act of 1958. The
implication is that the last massive attempt to stimulate
housing by extreme liberalization of mortgage terms
attracted buyers who have been able to prove quickly
and convincingly that they entered the housing market
prematurely and ill-advisedly.

The liberal financing terms with which many present
home owners bought in the first instance now trap some
would-be second-time buyers into their earlier housing
decisions. A home owner wishing to acquire a new or
different house usually must recapture his equity in his old
one in order to effect a new transaction. Since the middle
I950's, house prices have not advanced to assure home
i. w ners protected equities. Many would-be house traders

FORECLOSURES ON NONFARM MORTGAGES

THOUSANDS

have discovered that the repayments after four or five
years on their 30 and 35 year mortgage loans have
amounted to less than the decline in the market value
i if tluir property.

Housing Legislation

There is nothing in the legislative picture for 1963
which is particularly stimulating to home ownership. The
most controversial measure is President Kennedy's tax
reform proposal, which would eliminate tax law features
which have made home ownership economically attractive.
A home owner may now deduct from taxable income, pay-
ments for mortgage interest and real property taxes. In
Mr. Kennedy's proposal, these would be lumped into a
group of deductions on which a restriction of 5 percent of
gross income would apply. The prospect of the loss of
these deductions should add to the restraints against new
home construction.

Also in the tax reform measure are plans for reducing
tax-saving opportunities through investment in rental real
estate. Investment in units for three or more families
increased sharply beginning in 1959 in response to recog-
nition of the weaknesses in the single-family housing
market, the growth of the potential rental market from
young people wishing to establish independent households,
and the opportunities for recapturing investment quickly
through depreciation allowances made possible in the
Revenue Act of 1954. An investor in a successful project
could, through depreciation allowances, recover quickly
his investment in the non-land component of real estate,
and then sell the property subject to a capital gain tax on
the difference between the sale price and the unrecaptured
portion of his original investment.

The capital gain opportunity attracted many to invest
in apartment construction. The President now proposes
to allow capital gain tax treatment only on the portion
of a sale price in excess of the original investment. Any
portion of original investment recovered through depre-
ciation would be taxed upon sale at ordinary income tax
rates. The accelerated depreciation plans and the capital
gains provisions were included in the tax laws as a way
of stimulating capital formation. Removal of these ad-
vantages would adversely affect builders' plans and reduce
the number of multifamily units produced.

Demographic Factors

I In fundamental question on new housing construction
for 1963 is that of population influences on the magni-
tude of urban household formation. The demand for
housing is ultimately the result of the formation of inde-
pendent households and households are primarily the
product of family formation. A growing population dues
nut necessarily mean a high rate of family formation and
even a high rate of family formation does nut necessarily
mean the establishment of independent households. How-
ever, if economic prospects are adequate, if the terms
of mortgage financing are satisfactory, and if ho
Opportunities are attractive enough to compete against

goods .mil services in general For consumer desires, then
household formation may bi i pected a a result of the
population's growing and maturing.

i everal years after World War II household
formation was partly a product of families without their
own households shifting into independent dwelling units.
In 1948, 8.7 percent of the nation's married couples were
without their own household. By April, l'>(i_\ the group
had been reduced to 2.1 percent of the married couples.

[ 7 ]

Housing demand is also affected by the shift of house-
holds from farm to nonfarm areas. In 8 of the 11 years
from 1950 to 1961, nonfarm household growth exceeded
the aggregate increase in household formation. In 1961,
for example, aggregate household formation was only
6S1,000 but the growth of nonfarm households totaled
1,020,000. Part of the housing demands in the postwar
years have clearly stemmed from relocation of households.

The total number of households in the United States
in March, 1962, was 54,652,000. The highest Bureau of
the Census projection indicates that households will num-
ber about 57,500,000 by March, 1965, which would imply
a net gain of about 1,000,000 a year. The population in
1965, however, will contain no more persons in the 25-44
age bracket than in 1962. Decisions to invest in home
ownership are most often made by families headed by
individuals in the 25-44 age group.

The recent increase in the number of young house-
holders has been reflected in the relative rise of multiple-
unit starts. In the mid-1950's, it was not unusual for 90
percent or more of the private starts to be in the form of
single-family detached units. In 1962, only 68 percent of
the starts were single units. The Bureau of the Census
projections place total household increases between 1958
and 1965 at 7,115,000 units. Of these, 1,593,000 will be
headed by persons under 25 years of age and 3,385,000
will be headed by persons over 55 years of age. This puts
70 percent of the increase in categories in which house-
holders historically either have been interested in renting
or have already become home owners. It would not be
surprising to find single-family starts accounting for less
than 70 percent of the total starts during the next two
or three years.

Supply Factors

Existing vacancies, consumer tastes and preferences
regarding the type of dwellings acceptable, and modifica-
tions in the housing stock affect the number of new units
needed annually. There were about 1.5 million vacancies
in the rental stock amounting to 7.3 percent of the total
at the end of the third quarter of 1962. Units vacant for
sale numbered only about 450,000, or 1.3 percent of the
total number. The rental vacancies fall into categories
ranging from "new" to "dilapidated, substandard," yet
they are all available to supply housing services. Some
of the least competitive units will disappear through
destruction or combination ; some will stay vacant, but
others will be returned to active use through physical
modifications and rent adjustments.

In the years 1950-56, 708,000 dwelling units were sup-
plied through conversion and subdivision of existing units
and 3,216,000 units were lost from demolition, mergers,
and conversion to nonresidential uses. From 1956 through
1960 the total stock of houses actually increased by
200,000 less per year than the number of new units built.

The mobile home has also become an important sub-
stitute for the house or the apartment. The number of
mobile homes shipped in the years 1959 through 1962
averaged more than 100,000 units a year with shipments
ranging between 10 and 15 percent of the number of
private housing starts.

Finally, many home owners are solving their space
problems through building modification as opposed to re-
location. The emotional and institutional attachments
to certain locations are supporting rising expenditures
for alteration, remodeling, and expansion as opposed to
investment in new units.

Summary

The basic demand factors for housing in 1963 indi-
cate that construction will continue strong. However,
the demand structure is such that it cannot be manipulated
or expanded by techniques employed in past years. More-
over, the weaknesses in housing, such as they are, are in
part the result of unwarranted and ill-advised previous
manipulations of housing demand. The age distribution
of the population and the terms on which mortgages are
available are fixed for the present. Tax reform plans
offered by the President would take away incentives for
home ownership and investment in rental properties.

With all this, housing can do well but not better than
in 1962. Housing starts could equal those in 1962 but
probably will be from 3 to 5 percent less. There is little
danger of a decline of more than 7 percent.

Technology Transforms the World

(Continued from page 2)
economic front. They bespeak a striving for efficiency in
over-all production instead of for peak military power.
To this end, their planners have made various efforts in
recent years to harness individual initiative without giving
free rein to private enterprise. Thus, new incentives
were provided to farmers last year to spur lagging agri-
cultural production. Private building and state subsidies
have also been used in attempting to make up the lag in
housing. In areas of unsatisfactory progress, new pro-
grams are continually being tried in an effort to determine
the best means of stepping up production.

In the West, there is a definite trend toward economic
planning, though not of the dictatorial type. It consists,
rather, of efforts to use the strongest measures of mone-
tary and fiscal policy, supplemented by incentives to
private enterprise, to maintain the pace of economic
growth. Even the United States is making its first delib-
erate step in this direction, in the Kennedy tax proposals
for fiscal 1964.

Planning in the West and revisionism in the East are
both aspects of an attempt to apply intelligence to the
solution of emerging problems. To do this effectively,
it is necessary to cast out dogma and eliminate other
obstacles to the extent that circumstances permit. Even
though these healthy attitudes continue to prevail on both
sides, they could hardly be expected to change the rela-
tionships between the world's two great military powers
in any short period of time. They do, however, afford
hope of an eventual accommodation that could rule out
Armageddon.

For the time being, the world's hope lies in the un-
willingness of either side to risk destruction of all it has
been able to create. Each now seeks to win the minds of
men by offering them superior gains, and the technology
that is transforming the world exacts conformity from all
who participate in the race. Each, seeking to make the
new technology his slave, makes it also his master, and
each is thus forced closer to the standards and the meth-
ods used by the other. Time is all-important if potential
gains are to be realized, and the Cuban crisis has shown
how time may be gained, how informal negotiation can
be used to avert a real blow-up. It highlights the possi-
bility that a series of uneasy truces might carry us
through the years needed for working out a way of living
peacefully together in the world we are competitively
building. VLB

[ 8

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Employment Growth Since 1947

From 1947 through 1962 the number of nonfarm
workers in the United States increased by more than 25
percent, the gross national product expanded by 66 per-
cent, and average weekly earnings of factory workers
rose by 45 percent. These advances, however, were mainly
concentrated in the first decade of this 15-year period.

During the past five years, three trends have been
noticeable. First, the rate of job growth has slowed ap-
preciably in the private sector of the economy. Accord-
ing to the Department of Labor, the rate of growth in the
nonfarm sector has been producing only 464,000 new jobs
a year since 1957, a 0.9 percent increase as compared
with a yearly average of 902,000 new jobs or 1.9 percent
during the previous 10 years.

The second trend in employment growth has been the
long-term shift away from the output of goods and
toward services. The proportion of workers in the goods-
producing industries, such as agriculture, manufacturing,
construction, and mining has fallen from 51.3 percent of
total workers in 1947 to only 41.8 percent in 1962. How-
ever, the goods-producing industries continue to account
for the largest total number of persons employed. Rapid
job growth in the other broad categories — government
and service industries — has helped cushion the decline
in the goods-producing industries (see chart).

The third trend has been the over-all decline of eco-
nomic growth as measured by the gross national product.
For the period 1947 to 1957, GNP rose in constant dollars
at an annual rate of 3.75 percent, but since 1957 this rate
has been only 2.9 percent. A partial explanation for this
decline in growth and shift in the employment pattern is

ANNUAL RATES OF EMPLOYMENT GROWTH

TOTAL NONFARM EMPLOYMENT

GOVERNMENT I FEDERAL

GOVERNMENT 'STATE

CONTRACT CONSTRUCTION

AGRICULTURE

NSPORTATION-PUBLIC UTILITIES

MANUFACTURING

Source: U.S. Department of Labor, Manhoiver Report,
January 30, 1963.

the lingering effect of recent recessions. Each recession
affected mainly the goods-producing industries by causing
large numbers of production workers to be laid off, and
employment levels were never fully restored during the
recovery periods because of rapid technological change
and lack of gains in product demand.

Balance of Payments Report Issued

A fact book tracing the evolution of the United States
balance of payments for the last 40 years by major types
of transactions has been released by the United States
Department of Commerce. This report, entitled Balance
of Payments Statistical Supplement, is a 272-page volume
containing 87 statistical tables. Some of the subjects dealt
with are merchandise trade by economic end-use cate-
gories, United States government transactions (military
and nonmilitary), international travel expenditures and
receipts, the international investment position of the
United States, and area breakdowns of the balance-of-
payments accounts between the United States and other
countries. Copies of the book may be obtained from the
U.S. Government Printing Office, Washington, D.C., for
$1.25.

Commuting to Jobs

Of the 19.6 million workers living in the suburbs of
the 190 standard metropolitan statistical areas in 1960,
about 58 percent worked in the suburban ring, 33 percent
commuted to the central city, 5 percent went to jobs
outside the SMSA, and 4 percent failed to report their
place of work. Of the 22.1 million workers living in the
central cities, about 83 percent worked in the central city,
9 percent went to jobs in the suburban ring, 2 percent
commuted to jobs outside the SMSA, and 6 percent failed
to report their place of work.

Of the 6.5 million suburban workers who commuted
to the city, 80 percent went to their job by private car
or carpool ; 85 percent of the 2 million workers who
traveled from the city to jobs in the suburbs used auto-
mobiles. The only SMSA in which more than half of the
people used public transportation to get to work was the
New York area, where 55 percent did so. As a whole only
44.7 percent of the 41.7 million workers living in SMSA's
used public transportation to get to work.

Educational Level Rising

The average adult American during 1962 had over a
year more of schooling than his counterpart of a decade
ago, according to the Bureau of the Census. As of 1962
the average number of school years completed for a per-
son 25 years old and over was 11.4, compared with 10.1
in 1952. This rising level of completed schooling is best
illustrated by comparing the 25 to 29 age group, which
had an average of 12.4 years of schooling, with the 55 to
64 age group, which recorded only 8.9 years of education.
There has also been a narrowing of the differences in the
average educational attainment between whites and non-
whites, with the difference between the two groups having
decreased from 2.5 years for those 55 to 64 years of age
to only 1.3 years for the 25 to 29 age group. The average
number of completed school years for women 25 years
old and over was 11.6 during 1962, about one-half year
greater than the average for men.

[9]

LOCAL ILLINOIS DEVELOPMENTS

More Defense Work in Illinois

On February 18 Governor Kerner announced that
Illinois universities and nonprofit institutions had in-
creased their share of prime defense contracts for experi-
mental, developmental, lest, and research work from
$25,576,000 in fiscal 1961 to $29,922,000 in fiscal 1962, an
increase of 17 percent. Compared with the 1960 total of
$20,603,000, the 1962 figure indicates an increase of 41
percent during the last two years.

According to a recent report issued by the United
States Department of Defense, research and development
contracts were awarded to the following institutions:
Armour Research Foundation, $10,763,000; University of
Illinois, $9,764,000: University of Chicago, $4,838,000;
Northwestern University, $2,892,000; and Illinois Institute
of Technology, $1,665,000.

An earlier Defense Department report showed that
total military prime contracts awarded to Illinois manu-
facturers by the Army, Navy, and Defense Supply Agency-
were higher during the second quarter of 1962 than at
any time since 1958, indicating that the downward trend
in defense spending in Illinois has been reversed.

1963 Feed Grain Program

Advance payments to Illinois farmers participating in
the 1963 feed grain program totaled $11,480,108 on
February 28. The State-Federal Crop Reporting Service
has reported that 24,680 Illinois farmers are registered
for the program so far this year. Farmers have until
March 21 to sign up.

Under the program, introduced by the Kennedy Ad-
ministration in an effort to cut the mounting feed grain
surpluses, the farmers receive payments for the acreage

MINERAL PRODUCTION IN ILLINOIS

MIL

LIONS OF DOLLARS

700

600

. TOTAL /

500

400

i
i

/'
/

)00

200

BITUMINOUS COAL

i PETROLEUM .

X y STONE, SAND, AND GRAVEL--.

100

^^^^^'^-—y* '

CLAY PRODUCTS, OTHER MINERALS

1942 '44 '46 '48 '50 '52 '54 '56 '58 '60 1962*

* Estimati '1

Source: Illinois State Geological Survey.

that is placed in the program and become eligible for
price supports for their crops. The price support for
corn is $1.25 a bushel; grain sorghum, $2 a bushel; and
barley, 96 cents a bushel.

When a farmer signs to participate in the program
he agrees to cut his acreage by 20 percent ; he may also
choose to cut the acreage by an additional 2(1 percent.
Each farmer receives a partial payment when he registers
for the program. Rates vary from county to county.

First on the list of counties is Champaign with ad-
vance payments of $484,504. Vermilion County is second
with $395,002, Macon County third with $353,069. Shelby
County fourth with $256,646, and Piatt County fifth with
$255,714.

Business Indexes Revised

In this issue of the Illinois Business Review revised
indexes of business activity appear on pages 4 and 12. A
new base (1957-59 = 100) has been used to bring the
charts up to date. The only material not available is the
series on manufacturing employment for Illinois. Non-
agricultural employment figures for 1961 and 1962 have
recently been revised to a .March, 1962, benchmark by the
Research and Statistics Section of the Illinois State Em-
ployment Service and Division of Unemployment Com-
pensation. Employment in manufacturing is higher in the
new series because dairies and ready-mix concrete firms
have been taken from trade and added to manufacturing.
The Research and Statistics Section is currently preparing
a replacement series, which will be available soon, to
bridge the gap between the new and the earlier series.

Mineral Output Remains High

The value of mineral production in Illinois in 1962
has been estimated at an all-time peak of $617.5 million,
$13.5 million greater than the final production figure of
$604 million for 1961 and topping the previous high of
$615.8 million established in 1960 (see chart).

The major mineral fuels — crude oil and coal —
showed marked increases in 1962 and amounted to 69.2
percent of the total. Oil was the leader with the produc-
tion of 79.5 million barrels valued at S23'> million, an
increase of $6.6 million over 1961.

Approximately 48 million tons of coal, valued .it $188
million, were produced in 1962. Illinois — exceeded only
by West Virginia, Kentucky, and Pennsylvania — an-
nually produces 10 to 12 percent of the nation's bitum-
inous coal output. Leading coal production counties in
1962 were Williamson, Fulton, Christian, St. Clair, Frank-
lin, Saline, Jefferson, Perry, Knox, and Montgomery.

The value of stone products and sand and gravel was
estimated at $143 million, 19.9 percent of the 1962 total.
Illinois leads the nation in both production and use
of agricultural limestone. Cement manufacture — fifth
largest mineral industry in product value in the State —
has been concentrated in LaSalle and Lee comities: a
new cement plant is now being built in southern Illinois
near Joppa. Estimated production of sand and gravel
totaling $35.8 million topped the record set in 1961.

Clay products and fluorspar and other metals were
valued at $67.5 million, 10.9 percent of the estimated
total. Illinois clay products include face and common
brick; structural, drain, and sewer tile; refractories;
pottery; and whiteware. More than 50 percent of the
nation's fluorspar is produced each year in Illinois.

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
January, 1963

Building

Permits1

(000)

Electric
Power Con-

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits5
(000,000)

Percentage change from.

/Dec, 1962.
\Jan., 1962.

NORTHERN ILLINOIS
Chicago

Percentage change from.
Aurora

Percentage change from.
Elgin

Percentage change from .
Joliet

Percentage change from.
Kankakee

Percentage change from .
Rock Island-Moline

Percentage change from.
Rockf ord

Percentage change from.

CENTRAL ILLINOIS

Bloomington

Percentage change from.
Champaign-Urbana .

Dec, 1962
an., 1962

Dec, 1962
1962

Dec, 1962
an., 1962

Dec, 1962
an., 1962.

/Dec, 1962.
\Jan., 1962.

Percentage change from. . . jj^"' 19of '
Danville

Percentage change from. . . . jj^' 196f
Decatur

Percentage change from. . . - { Ja^rT.,' 1962.
Galesburg

Percentage change from. . . . {j^"' 1%2 '
Peoria

Percentage change from. . . A r_^ " ipg2
Quincy

Percentage change from. . . . {g£ gjg;

Springfield.

Percentage change from. . . . |RenC" }$$

SOUTHERN ILLINOIS
East St. Louis

Percentage change from. . . jr^' 1962"
Alton

Percentage change from.
Belleville

Percentage change from.

(Dec, 1962.
Uan., 1962.

(Dec, 1962.
Jan., 1962.

$26,827'
+13 1
+45.3

$16,683

+1.4

+22.5

$ 628

+12.3

+440.1

$ 99

-53.2

-49.5

$ 5,252

+2,119.6

+5,317.4

$ 36

-96.0
$ 274

-80.2

-58. 4
$ 1,200

+34.2
+1.1

$ 75
-47.2

-48.3

$ 203

-1.6

+ 151.3

$ 13

-94.2

n.a.

$ 1,148

+ 5.7

n.a.

$ 47

-79.8

-4.1

$ 770

-20.4

+ 44 ft

+99.7

+890.0

$ 38

-25.1

+36.5

$ 191

-8.1

+ 728.7

,499,699*
+4.7
+4.1

,081,919

+4.1
+3.3

35,579
+8.8
+5.7

68,629=
+9.4
+ 6.5

15,935

+7.0

+22.2

20,553

+5.9

+ 7.6

21,871

+ 10.2

+ 10.0

42,585

+5.9

+8.7

11,647

-1.4

+8.0

70,858c

+2.1

+ 4.4

16,766

+9.3

+2.4

52,005

+4.7

+4.3

18,400
+5.3
+1.1

27,507
+ 7.1
+ 1.3

15,443
+8.0
+6.9

$766,189"
+ 15.6

+5.5

$533,355

+ 12.7

+3.7

$13,045

+17.8

+0.2

$ 9,714

+13.1

+ 12.1

$16,841

+10.5

$ 8,481

+30.5

+10.8

$17,224
+24.2

+ 13.1

$28,779

+20.5

+11.9

$13,708
+20.2
+ 7.6

$ 9,659
+25.9
+10.0

$16,750
+23.5
+10.4

$ 7,051
+31.4
+ 12.7

$26,532
+24.4
+13.0

$ 8,563
+27.2
+ 12.1

$21,191
+25.3
+ 13.1

$11,303
+18.5
+8.9
$ 7,146
+23.8
+2.3
$ 7,489
+26.6
+15.0

$25,578'
+2.2
+10.3

$23,826

+2.2

+ 10.5

$ 91

+0 6

+ 9.1

$ 64

+ 12.3

+ 17.8

$ 102

-2.1

-0.8

$ 1361'

-4.6

+ 10.3

$ 220

-3.2

$ 110
+0.8
+ 11.1

$ 110
+ 10.1
+19.6

$ 61
+8.4
+ 15.7

$ 144
+ 12.3
+14.7

-62

-0.1

+6.1

n.a.

$ 65

+7.9
+10.0

-59'
hi 5°

$ 167
+ 7.2
+ 6.2

n.a.

$ 141
-1.7

" Total for cities listed. b Includes East Moline. ' Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Data are for December, 1962. Comparisons relate to November, 1962, and December, 1961. * Research Department of Seventh Federal
Reserve Bank (Chicago). Percentages rounded by source. 5 Federal Reserve Board. 6 Local post office reports. Four-week accounting
periods ending February 1, 1963, and February 2, 1962.

[11]

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

•29 '37

1961 1962 1963

'53 '60 1961 1962 1963

DEPARTMENT

STORE

SALES

(ADJ.)

T***

r^"'

COAL PRODUCTION

WvM-K--

BUSU

nIESS l

OANS

200
150
100
50

CASH

FARM 1

NCOME
Jl

ILL^...

N/us.~

Wv *

■/v.s.

1961 1962 1963

'37 '45

1961 1962 1963

CONSTRUCTION CONTRACTS

ELECTRIC POWER

PRODUCTION

150
100
50
0

\J^

Vvsyv

1 y

1 \

.LL.^

ILL. /~^
/U.S.

-^U.S.

1962 1963

1961 1962 1963

b3\

:>p-5

APR G3 19(

^LINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN MARCH

expected. Both agricultural and nonagricultural employ-
ment were up.

Construction Spending Rises Seasonally

Preliminary estimates put the value of new construc-
tion in March at $4.3 billion; the gain of 8 percent over
the previous month represented the usual seasonal pickup.
Compared with March, 1962, construction expenditures
were 5 percent higher. Private building rose a seasonal
6 percent to $3.1 billion, with increases in nonfarm resi-
dential, public utility, and all other private construction
more than offsetting cutbacks in nonresidential categories.
Public construction, at $1.2 billion, showed a normal rise
for this time of year; most of the subgroups indicated
substantially greater activity.

Manufacturers' Sales, Orders Gain

The latest data available, those for February, show
distinct gains in manufacturers' sales and orders. Ad-
justed sales were up 2.7 percent from January on the
basis of preliminary figures, with a rise of 3.2 percent
for durables and one of 2.2 percent for nondurables. The
advance in hard goods reflected the new-found strength
of steel and a continued strong showing in motor vehicles.
Most other groups showed minor increases. Among non-
durables, the largest percentage gains occurred in textiles
and chemicals.

New orders received by manufacturers rose 2.1 per-
cent in February as orders for durables expanded by 2.6
percent and those for nondurables by 1.5 percent. As in
the case of sales, the largest additions to orders came in
primary metals and transportation equipment.

Consumer Debt Continues Advance

< Consumers, even though they are continuing to expand
their short-term debt, are doing so at a decreasing rate.
Seasonally adjusted consumer credit outstanding rose $496
million in February, equal to an animal rate of nearly
$6 billion. The increase, however, was smaller than those
"i the preceding three months: the rate of growth has
dropped each month from $S.4 billion in November to
February's $6 billion. Smaller increases in most major
groups contributed to the rate cut. Most of the February
advance, $436 million, occurred in instalment credit, with
about half of that amount accounted for by loans on
automobiles.

The economy was making a distinct shift to the strong
side in March, but some of the strength was temporary
in nature. Output of paperboard attained a new high, pe-
troleum production held on to the gains of late February,
and freight carloadings rose. Automobile production con-
tinued at a fast pace, with more than 647,000 units assem-
bled; total output in the first quarter was at the third
highest level on record. The steel industry extended its
rising activity through March; at the end of the month,
output had been gaining gradually for nine consecutive
weeks and had reached the highest point in a year. In
some of these cases, the improvement has to be discounted
somewhat because of seasonal factors; and in steel, in-
ventory building played a part. Seasonal factors also
affected the main two indicators that dropped — coal out-
put and electric power production. On balance, however,
production activity seemed to be on slightly firmer ground.
The FRB index was up 1 percentage point to a new
record slightly above 120 (1957-59 = 100).

Business also moved up at the retail level in March.
Retail sales were estimated at a new record of $20.7 bil-
lion after seasonal adjustment, 1 percent above the revised
February figure and 7 percent above March, 1962. Both
durables and nondurables rose the average 1 percent.
Department store sales, at 120 percent of the 1957-59
average, were 5 percent higher than in February and
were 2 points above the previous record of 118 set in
November.

Unemployment Rate Drops

After risinsj in January and February, unemployment
dropped in March from 6.1 percent of the labor force to
5.6 percent. The lower rate reflected both an increase in
employment and a decrease in the number of people out
of work; the change in each case exceeded that normally
expected for the month. Despite the improvement, the
unemployment rate was very little better than it was a
year earlier. It appeared that adult workers found jobs
more readily in March — unemployment rates for men
and women declined markedly. For teen-aged workers,
however, the picture was no more encouraging than in
the months past. The total number of people without jobs
was 4.5 million.

Employment rose by 790,000 between the survey weeks
in February and March to more than 67.1 million, a record
for March. The gain was well over twice that usually

CREDIT UNIONS OF ILLINOIS

By Walter Polner

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie
Director

Ruth A. Birdzell

Executive Editor

Research Assistants
Robert C. Carey Jack A. Rardin

Virginia G. Speers Giselle Chesrow

Petroleum Subsidies

The word conservation has become almost obsolete in
modern economics, at least in its original meaning of
preserving something in a natural state. Perhaps the
main reason for this is the general acceptance of the
philosophy of economic growth: the economy must al-
ways expand; anything that can contribute to increased
production should be used for that purpose now, and
technology can be relied on to provide adequate substi-
tutes for any resources that might be threatened with
exhaustion.

The public still accepts the nature lover's concept of
conservation, but in technical discussions, the word ap-
pears most often in connection with proposals to keep
prices in the extractive industries at a higher level than
would prevail if the market were left unrestricted. In
this context, conservation policy reverses the original
concept; it is designed to encourage the expansion of
capacity and promotes faster use of resources except for
the effects of price increases in restricting demand. Inso-
far as the higher prices contribute to surplus production
and stocks, they may create problems. If subsidies are
then needed to sustain prices, they can hopefully be fi-
nanced by the government in a way that will not unduly
depress activity in other sectors.

Any mention of subsidies calls to mind the various
programs enacted to support agricultural prices and pro-
duction. These are by far the largest subsidies that
appear in the form of direct charges on the federal
budget. Over the years, however, other subsidies have
also run to billions of dollars. Many of these other sub-
sidies remain hidden from public view because there is
no attempt to measure them and they are not made the
subject of annual budget debate. The nature of some of
these hidden subsidies and their effects on production,
prices, and profits may be illustrated by current practices
and policies relating to the petroleum industry.

Subsidies to Oil Producers

The primary subsidy to oil producers takes the form
of a percentage depletion allowance that exempts 27 V$
percent of gross income from the federal profits tax. This
provision goes back to the early days of industry growth
when gasoline was coming into wide- use as auto fuel.
I'n mi the lows of the early 1890's, the price of crude
petroleum had been rising rather steadily and strongly

for a generation, and the "scare talk" of the old-time
conservationists suggested that depletion of fixed re-
sources was imminent. In World War I, allowances
called "discovery depletion" were adopted to encourage
exploration for new sources of supply. This policy created
some difficulties for tax administration, and in 1926 it was
replaced by percentage depletion. Subsequently, the allow-
ance became much more valuable as the corporate tax
rose from 13.5 to 52 percent.

The percentage depletion allowance is not limited
tn any fixed total. It goes on as long as the property
yields any income, even though it may cumulate to many
times the value of the investment. It is enhanced by tech-
nical improvements that reduce operating costs and permit
continued utilization of wells approaching exhaustion.
Recent estimates put the deductions at $2.2 billion a year.

In addition, development costs may be offset by re-
ceipts from other sources. Thus, after the 27i/$ percent
has been deducted, at least part of the tax on the balance
can be avoided by reinvesting in development of new
wells. Since losses on dry holes and intangible costs on
successful wells can be charged against any taxable in-
come, fortunes have been built up on a practically tax-free
basis. These impressive privileges were bound to attract
capital — for example, from movie actors and other high-
bracket taxpayers — and have given petroleum a favored
investment status.

The policy succeeded in its goal of fostering expan-
sion, but there were continual tendencies for overproduc-
tion to depress prices. To deal with this problem and to
prevent wasteful and inequitable recovery practices,
authorities in key states, notably Texas, stepped in shortly
after percentage depletion was allowed and have since
been imposing restrictions on output. This is accom-
plished by the "prorationing" system, which restricts
production from existing wells in order to maintain
prices, but permits exploratory drilling for new wells to
expand capacity. The net result has been to maintain
capacity well in excess of production. Despite the rapid
growth of output, the ratio of proved reserves to annual
production has been held near 12 through most of the
period since percentage depletion was enacted.

Keeping Prices High

The value of the depletion allowances varies directly,
of course, with the price of crude oil. As long as the
price rises, the ceiling for annual deductions also rises.
The trend was upward until 1957, a year in which the
special demands of the Suez crisis resulted in a 10 per-
cent price increase. From that peak, a gradual price
decline began and the producers revived an earlier cam-
paign for price support in the form of import restrictions.
In two years, little more than half of the Suez bulge was
eliminated when the federal government, with an election
year just ahead, established quotas to limit imports to 9
percent of domestic consumption. The price has since
held steady above the pre-Suez level — a fact that stands
as a tribute to the efficacy of producer pressures.

Nobody knows how far the price might have fallen in
the absence of the import limitations. Hence, it is impos-
sible to measure the extent of the price support for
domestic producers, but it is certainly substantial. Here
we have, in effect, a secondary subsidy imposed to ensure
a level of profits adequate t" guarantee the value con-
ferred by the primary subsidy.

Whal has become increasingly clear in recent years
(Continued on page 8)

[2 ]

ILLINOIS INDUSTRIES AND RESOURCES

HIGHER EDUCATION IN ILLINOIS

Illinois is rich in resources of higher education. With
105 colleges and universities, the State is surpassed only
by New York, California, and Pennsylvania. Higher
education is significant in that it contributes directly to
the level of today's highly trained labor force. In this
respect, it is interesting to observe that Illinois ranks
third in the nation in the total number of doctoral degrees
granted and fifth in master's and baccalaureate degrees.

The Framework of Higher Education

The state-supported institutions of higher learning
are the University of Illinois, a land-grant college at
Champaign-Urbana, with an undergraduate branch and
professional colleges in Chicago; Southern Illinois Uni-
versity at Carbondale, with branches in the East St.
Louis area; Illinois State University, at Normal; North-
ern Illinois University, at DeKalb; Eastern Illinois
University, at Charleston; and Western Illinois Univer-
sity, at Macomb.

The foremost of the 85 private institutions of higher
learning are the University of Chicago, Northwestern
University, De Paul University, the Illinois Institute of
Technology, and Loyola University, all in the Chicago
area; Bradley University, at Peoria; Illinois Wesleyan
University, at Bloomington ; and James Millikin Uni-
versity, at Decatur.

Combined public and private enrollments numbered
216,577 persons in 1961. Public enrollments (112,158)
comprised slightly more than half of the total. Since
1950, public and private enrollments have shown increases
of 78 and 22 percent respectively. Significant increases
in private enrollments have occurred only since 1958.

An important factor in the over-all expansion of
enrollments is the dramatic growth in junior colleges —
both in numbers of students and in numbers of institu-
tions. Enrollments have more than tripled since 1950.
In the academic year 1960-61, the 24 Illinois public junior
colleges enrolled approximately 40,000 students in credit
courses, or the equivalent of 22,000 full-time students.
Additional thousands are enrolled in non-credit courses.

Opportunities for research and study are extensive in
Illinois. The libraries of the University of Illinois, the
University of Chicago, and Northwestern University
together have more than 7 million volumes. These hold-
ings, plus those of the other 74 college and university
libraries in Illinois bring the total number of volumes to
approximately 11,650,000. The University of Illinois
library ranks third in size among university libraries and
fifth among all American libraries.

Needs and Prospects for Higher Education

Factors underlying the expansion of higher education
in Illinois during the past decade include population
growth; the Sputnik crisis, which emphasized the need
both for higher education and for a reorientation of
curricula and departmental programs; the greater need
for advanced education in industrial employment ; and

an increase in the number of scholarships granted.
While present opportunities for higher education in
Illinois are extensive, a look into the future is necessary.
The basic college-age population in Illinois is estimated to
increase by 58 percent, from 482,304 in 1960 to 763,000
by 1970. A low projection for enrollment in 1970 is 340,-
000, 70 percent over the actual 1960 enrollment.

Because substantial money outlays are required for a
college education, junior colleges are being built to in-
crease opportunities for study. More and more people
must undertake technical training beyond the high school
level to meet the demands of industry. Thus, an out-
standing need is for appropriate two-year programs in a
wide variety of technical fields.

A spectacular development is the proposed new under-
graduate division of the University of Illinois at Congress
Circle, Chicago. The new campus is expected to be
occupied in 1964 with an initial enrollment of 9,000 in
expanding activities of the existing Navy Pier branch.
An enrollment of 20,000 in a four-year degree program
is projected for 1970.

Financing Higher Education

Trends in the financing of higher education help to
indicate the growing demand. Capital expenditures for
all public institutions increased by 190 percent from the
1951-53 biennium to a record high of $81,091,000 in the
1961-63 biennium. In 1961, state appropriations totaling
approximately $182 million formed 73 percent of the
funds received by the public senior institutions.

Revenue receipts from fees and tuition help to de-
termine the need for financial help from governmental
sources. The principal revenue sources of private insti-
tutions in addition to tuition and fees are endowment
earnings and private gifts and grants. In 1957-58, of total
federal grants to higher education (approximately $775
million), 55 percent was distributed to public schools and
47 percent to private schools throughout the nation.
Public institutions have received 17 percent of the federal
funds ($67,348,000) allocated within Illinois. These funds
are directed mainly into research and public service.

Junior colleges, operated by local school systems,
receive over half of their funds from local property
taxes. In 1959, the General Assembly passed legislation
for the local establishment of junior college school dis-
tricts. People of an area with the required population
and financial resources may set up a junior college school
district, with its own board of education, administrative
offices, and teaching staff. The district is also able to tax,
issue bonds, and annex territory.

Numerous problems arc anticipated for all the institu-
tions of higher education, among which are obtaining
revenues to meet expected enrollment increases ; training
and retaining qualified faculty members; developing a
more comprehensive system of junior colleges; growing
needs in vocational training; and enlarging the scope of
correspondence and extension programs.

KNOW YOUR STATE

[3]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS1
Percentage changes, January, 1963, to February, 1963

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

□ us.

Not seasonally adjusted. * No change.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. .
Weekly earnings — manufacturing
Dept. store sales in Chicago4. . . .
Consumer prices in Chicago6.

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)'. .
Petroleum production10

'Fed. Power Comm.; - 111. Dept. of Mines; '111. Dept. of Labor;
•Fed. Res. Bank. 7th Dist.; 'U.S. i'.ur. of Labor Statistics; « F. W.
Dodge Corp.; 'Fed. Res. Bd.; "111. Crop Rpts.; "Life Ins. Agey. Manag.
Assn.; '° 111. Geol. Survey.

a Preliminary. b Seasonally .i.ljtWol. n.a. Not available.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales.

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Feb.
1963

Annual rate

in billion $

450.8"

18.4
16.4
12.7

12.1°
13.4"
■ 1.3°

39.9"
40.5"

Indexes
(1957-59
= 100)
119"
119"
120"
102"

101
114
114
101
113"
106

100
96
101
101

100
106
78d

Percentage
change from

Jan.
1963

-11.6
- 2.1
-10 1

-46.8

-18.3

- 0.2

0 0

- 0.2
+ 5.0

- 0.9
+ 0.1

- 0.3

- 2.1

- 0.3
0.0

- 1.0
0.0
0 0

Feb.
1962

3.3

2.7

5.5
5.1

-10.9

■11.5

■ 8.4

3.9

0.
+ 2.
+ 2.
+ 6.
+ 1.

- 0.

- 1.

- 0

1 U.S. Dept. of Commerce; ■ Federal Reserve Board; » U.S. Dept.
of Agriculture; * U.S. Bureau of Labor Statistics; 5 F. \V. Dodge Corp.

'Seasonally adjusted. b End of month. ° Data for January, 1963.
compared with December, 1962. and January, 1962. •' Based on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Mar. 30 Mar. 25 Mar. 16

Production:

Bituminous coal (daily avg.) thous. of short to

Electric power by utilities mil. of kw-hr.

Motor vehicles (Wards) number in thous.

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100. . .

Freight carloadings thous. of cars. . .

Department store sales 1957-59 = 100. . .

Commodity prices, wholesale:

All commodities 1957-59 = 100. . .

Other than farm products and foods. . 1957-59 = 100. . .

22 commodities 1957-59 = 100. . .

Business loans mil. of dol

Failures, industrial and commercial. . .number

i of Cut

Business, Weekly Supple,

1,450
16,425
189
7,478
128.1
559
112

99.9
100.7
92.1

35,208
329

1,328
16,860

186
7,461

125.1

535

106

99.9
100.6

91.8

35,285
295

1,217
16,949
181
7,437
119.4
517
103

100.0
100.7

92.2

34,746
348

1,231
17,061
181
7,460
116.9
518
92

100.2
100.7
92.7

» Monthly index for March, 1962.

1,400
17,505

179
7,417

114.3

533

100.2
100.7
93.2

1,399
15,552

163
7,353

129.7

565

106

100.7"
100.8"
96.8

33,014
330

[ 4 ]

RECENT ECONOMIC CHANGES

Nation's Debt Continues Upward

Outstanding debt rose $64 billion during 1962 as con-
sumers, businesses, and governmental units continued to
borrow more than they repaid. With the exception of
the federal government's debt, where wars have accounted
for the major increments, all types of debt have shown a
continuing gradual increase, as indicated in the chart.
The movement of the over-all total roughly corresponds
to the over-all growth of the economy. The Federal
Reserve Bank of Chicago points out that the years when
private debt has shown the largest advances have gener-
ally been years of rapidly expanding business activity
such as 1955 and 1959.

During 1962 strong activity in construction and auto
buying was reflected in increased debt in such forms as
mortgages and consumer instalment credit. Nonfarm
mortgages accounted for almost one-third of last year's
growth in debt, which reached the highest level ever
recorded. Other consumer debt rose $6 billion but the
increase was less than in the record years of 1955 and
1959. Indebtedness of nonfinancial corporations was up
by $19 billion but the increment was smaller than in the
immediate postwar years. Farm debt showed relatively
little increase last year after a 13 percent rise the year
before. The public sector accounted for almost 25 per-
cent of last year's debt expansion. State and local sources
added $7 billion to their collective obligations, a 10
percent increase over 1961 ; and the federal government's
debt rose some $8.7 billion, about the same as the year
before. However, despite the rapid growth of state and
local obligations in recent years, the debt of these gov-
ernmental units is a smaller proportion of the total than
it was in 1940. The federal debt, aside from that held
by federal agencies and trust funds, accounts for about
a fourth of the total, the same as in 1940.

GROWTH RATES FOR MAJOR TYPES OF DEBT

BILLIONS OF DOLLARS

500

' ' .

30C
200

FEDERAL

^--^^~-

100

/ jf

■-^/ CORPORATE _,

V 1 /

NONFARM MORTGAGE^^-

■/ /

^■■^"

y '" _:

STATE AND LOCAL y^

.__ /^

;

'""■■■■ A

CONSUMER

, ,

Source: Annual Report of the Council of Economic Ad-
visers in Economic Report of the President, 1963, p. 234.

Housing Activity

In 1962 private nonfarm housing starts reached 1.43
million units, continuing the recovery that began in early

1961. This recovery has been spread over the entire
country with no one region dominating the increase. A
significant aspect of the present advance is that the in-
crease has been centered in multifamily units. Single-
family housing starts, which have been unchanged for the
past three years, are running about 20 percent below the
peak 1959 total of 1.2 million units. However, since 1959
multifamily units have risen 82 percent to a total of
413,000 units. This pattern of growth in housing starts
has applied to all regions but particularly to the Pacific
Coast area where there are now roughly as many multi-
family starts as single-family starts.

Several factors have combined to cause this gain in
starts on multifamily units while starts on single housing
units have declined and leveled off. First is the fact that
the average cost of multifamily units is approximately
60 percent of the single-unit cost; and with the slowdown
in income growth in the last few years the desire to main-
tain quality housing has resulted in more people obtaining
smaller, less costly housing accommodations. The second
reason is that the number of persons in the 25 to 45 age
bracket, the age group that typically buys a single-family
house, is still showing little growth and is not expected
to grow for a few more years. As a corollary to this last
reason the number of persons in the 20 to 24 and over
65 age brackets, those which make large use of apart-
ments, has been continually increasing. Finally, with the
virtual disappearance of the inflationary trends of the
early post-World War II years there is more uncertainty
attached to new home buying than before, since an indi-
vidual can no longer be assured of obtaining his equity
plus some capital gain with which to buy a newer higher-
priced home.

Machine Tool Orders Up

New orders for machine tools rose 72 percent in
February from January to a total of $73 million. Orders
for metal-cutting tools, the industry's largest single item,
increased 17.5 percent to $54.3 million, the highest level
since September, 1961. New orders for metal-forming
tools jumped 34.5 percent to $18.8 million, the best since
January, 1961.

The machine tool industry predicts that for the entire
first quarter the total will be better than the $220 million
recorded in the same period of 1957, the previous high.
For the year, the industry expects a 15 percent gain over

1962, which would raise new orders to $820 million, the
best since the 1956 record year. The upward movement
in this industry is being watched closely because its
products are basic to nearly all industrial production and
because nearly all new orders are coming from within
the United States.

Reasons given by the industry indicate divergent
views. Some believe that a new cycle of business expan-
sion may be taking place. Others feel that the inc
in new orders reflects the new depreciation rates and 7
percent investment tax credit that the government put
into effect last year. Industries which have shown the
greatest increases in new orders have been farm equip-
ment makers, heavy machinery producers, and the tool
and die industry. Also defense contractors, notably in the
aerospace field, have increased their new orders.

5 ]

CREDIT UNIONS OF ILLINOIS

WALTER POLNER, Director of Research
Credit Union National Association

Illinois, which tallied 1,715 active credit unions as of
February, 1963, leads the nation in credit union numbers.
Credit unions in the State enjoyed an eightfold increase
in assets in the period 1945 to 1961. They tripled their
membership in this period and by 1961 were lending mem-
bers 20 times more money annually than they were at the
close of World War II.

This phenomenal upsurge in raw numbers has led to
both wild appraisals of credit union strength and wild
predictions about credit union growth. Both the appraisals
and predictions are misleading, but there can be little
doubt that these cooperative thrift and lending institu-
tions are enjoying real growth and are becoming in-
creasingly important in the Illinois economy. This article
hopes to supply much needed perspective for the com-
petitive and comparative status of the state's credit
unions.

Credit Union Savings

Credit unions are nonprofit corporations and can in
Illinois be chartered either under the Federal Credit
Union Act of 1934 or the Illinois act of 1925. Although
most credit unions in the State avail themselves of Illi-
nois jurisdiction, more than 200 hold Federal charters
and are consequently supervised by the Bureau of Federal
Credit Unions of the Department of Health, Education,
and Welfare.

Crucial to the organization of a credit union is the
pre-existence of a common bond. Credit unions in Illinois
are usually predicated on the bond of employment, but
some groups revolve around church or association mem-
bership. Almost all credit unions are small in numbers.
The median falls now at 203 members.

Because of the common bond, credit union members
feel they know each other well enough to operate a suc-
cessful savings and loan organization. Members save,
creating a pool of capital, and members borrow at low
interest, creating earnings to pay dividends to savers.

The prime objective of a credit union is to encourage
its members to save regularly. To do this, credit unions
pay a competitive dividend. At the end of 1961 the median
credit union dividend rate in Illinois was 4 percent.
Since commercial banks in the State at that time did not
pay 4 percent, savers in credit unions often earned
about 25 percent more than they could have with the
commercial bank alternative. As an additional incentive
to saving, most credit unions, in Illinois and elsewhere,
purchase from earnings two kinds of insurance for their
members. The first, depending upon the age of the
insured member, provides about a dollar of life insurance
for each dollar (up to a limit which is usually set at
$2,000) the member has saved in the credit union. The
second, loan protection insurance, pays off a borrower's
loan in the event of his death or permanent disability.

The result of this encouragement to save is not always
spectacular. Although data are not available for Illinois
credit unions, a recent survey of credit unions throughout
the United States showed that half of credit union
members have $100 or less in credit union shares. (Shares,
usually valued at $5 each, are the form of savings in
credit unions.) This figure would also likely fit Illinois.
The median savings in a credit union in the State is

$64,991. This low rate of savings in Illinois prevails in
spite of the fact that nearly 1,000 Illinois credit unions
have payroll deduction arrangements with their sponsor-
ing companies. Most credit union members are apparently
more interested in borrowing.

The Growth of Savings in Illinois

Statewide, what are the results of these competitive
rates, insurance benefits, and payroll deduction plans?
By the end of 1961, credit unions in Illinois had more
than $422 million in member savings, an increase since
1945 of $375 million, as shown in the accompanying
chart. This amounts to a rate of increase of about 15
percent per year. In per capita terms, a bit over $40 per
Illinoisan had found its way into the state's credit unions.

This growth seems momentous — until one compares it
with the savings of individuals in other Illinois financial
institutions. During the same period, savings by indi-
viduals in Illinois banks rose from $2.4 billion to $6.3
billion. Savings and loan associations in the meantime
drove ahead to become the leading savings depository in
Illinois, rising from $846 million in 1948 to $6.7 billion
in 1961.

Illinois also leads the nation in postal savings. In
June, 1962, there was still more than $96 million in postal
savings accounts, despite the fact that the rate of interest
there is the lowest of all savings alternatives in the
State. It is apparent that, while credit unions have been
able to attract savings from their members in Illinois,
it takes a lively imagination to see them as becoming a
leading savings institution at the expense of banks and
savings and loan associations.

The dollar sums placed in savings in all except the
Postal Savings system are still going up. As the savings

SAVINGS HELD BY INDIVIDUALS IN ILLINOIS

BILLIONS OF DOLLARS

NG3 AND LOAN ASSOCIATIONS

MILLIONS OF DOLLARS (EXPANDED SCALE)

[ 6 ]

of the American people increase, they are placing more
and more of these savings into financial institutions.
Part of these savings go into the credit unions. A good
deal of these savings go elsewhere. Based on recent
trends, the credit union share of this growing sum of
savings seems to be on a moderate downward trend.

In order to obtain savings, credit unions must obtain
members. In Illinois, 900,000 people have voluntarily
joined credit union ranks; one in 12 of the state's popu-
lation is represented by a credit union share account.
(Membership is earned by paying 25-cent membership
fee and purchasing at least one credit union share.)
Again, this may seem large, but it has a somewhat deflat-
ing context.

Data on number of depositors in Illinois banks are
not available for comparison, but those on membership
in savings and loan associations reveal that these organi-
zations represent the savings of nearly 3 million members
— triple the number of credit union members. While
400,000 people joined Illinois credit unions in the decade
of the 1950's, nearly 2 million took out accounts at savings
and loan associations. An educated hunch would be that
a similar story could be told for Illinois commercial bank
depositors.

Lending by Credit Unions

A second raison d'etre of credit unions is lending to
members. Credit unions hope that the member will aid
himself by systematic savings, but they do not regard
savings as an end in itself when thinking in terms of the
aggregate. Rather, the credit union sees savings as
creating a fund from which low-cost instalment loans
can be made to members for worthwhile purposes.

Loans are made at a maximum rate of interest of 1
percent per month on the unpaid balance, and the Illinois
median credit union now has $51,121 in funds lent under
this ceiling rate. Statewide, credit unions at the end of
1961 had loans outstanding of $318 million. And this is
yet another figure that needs perspective.

Information is available, for example, on Illinois bank
consumer loans. These figures show an astronomic
growth from $124 million in 1945 to more than $1,617
million in 1961. This would indicate that credit unions,
though enjoying healthy growth, are far from catching up
with banks and savings and loan associations in Illinois.
This is often in spite of the fact that many credit unions
reduce the low lending rate of 1 percent per month even
further by providing a patronage refund. At the end of
1961, more than 250 Illinois credit unions reported they
had given members an interest rebate.

A comparison of assets by financial institution tells
the story even more clearly. The median credit union in
the Illinois array has assets of $71,043, and state-wide,
credit unions have aggregate assets of $446 million. This
can be compared with bank assets of more than $21
billion in the State, and savings and loan association
assets of more than $7.7 billion. The gap between what
the credit unions have and what these institutions have
is not declining.

In fact, current figures reveal that credit unions lead
only on raw numbers of units. There are over 1,700
credit unions in Illinois compared with 976 banks and
594 savings and loan associations. But credit unions, as
pointed out, have the smallest base of population per unit.

The credit union movement in Illinois has grown until
the State leads the nation in number of credit unions, but
this rate of growth may be misleading if taken too
literally. The commonest error of interpretation arises

from continuing the 1945-61 trend line indefinitely, with-
out considering the environment of the growth. Reason
would indicate that a popular institution such as the
credit union would enjoy a rapid growth rate after
emerging from the Depression and the disorganization of
the war years, but that this should be followed by a
period of decelerating growth.

Facing Increased Competition

At one time credit unions were practically the only
place in the country that a person of modest means could
obtain instalment credit at decent rates. At one time
certain of the banking profession disdained to handle the
savings accounts of those who would be account members
of credit unions. But there has been growing interest
among savings banks and savings and loan associations in
consumer credit and personal loans. The credit union
loans still afford the best terms available to many of their
members, but the competition has tightened.

During the postwar period the banks have definitely
decided that instalment loans to consumers are good
business, and their terms are now generally close to those
of the credit unions. Both have taken a good deal of
business away from the consumer finance companies. The
credit unions have caught up and have surpassed these
companies. They now account for 10 percent of instal-
ment credit, as compared with 4 percent in 1945. The
share of the consumer finance companies, in contrast, has
been slowly declining. The competition has forced all
institutions to improve their terms, to the great benefit
of the consuming public.

The banks have also improved their competitive posi-
tion in attracting savings. Last year they were authorized
to pay 4 percent interest on savings accounts, which is
equivalent to the rate paid by many other financial insti-
tutions. Quite a few savings and loan associations have
gone fractionally above this, and nearly one-third of the
nation's credit unions paid 5 percent or more. No com-
mercial banks and practically no savings and loan associ-
ations pay this high a dividend. Yet they obtain the
money. Last year these two institutions by themselves
picked up in savings more money than the credit unions
have after 30 years of very hard work.

In Illinois last year credit unions reported to the Illi-
nois League that they spent $52,000 on education, adver-
tising, and promotion, or an average of about $30 per
credit union in Illinois. There was probably some under-
reporting, but even if this amount is doubled, only about
$100,000 was spent in Illinois for education, advertising,
and promotion. This would still bring the average up to
only $60 per credit union. It is not unremarkable that
the state that puts out the most money for education,
advertising, and promotion — Michigan, with over $700,-
000 — was able to widen its share of the savings pie in
Michigan, while the rest of the credit unions in the nation
seemed to see the competition take over larger and larger
shares of the savings of the American people.

In reasonable perspective, credit unions are important
in Illinois, and that importance is growing. In the Illinois
movement, every measurable criteria — volume of savings,
number of savers, number of officers, volume of instal-
ment lending — is up. No one believes that the credit
union movement will stagnate in its present form. We
will grow as our members' needs grow. But credit unions
recognize that they are a little like Alice in Through the
Looking Glass: it is going to take running twice as fast
just to remain in the same place.

[ 7 ]

Petroleum Subsidies

(Continued from page 2)
is that the entire world is in an era of plentiful supplies
of fuel. To other countries our import restrictions on
oil are an effort to dam up the abundance of low-cost
supplies flowing in other parts of the world; and our
attempts to prevent the flow of Soviet oil to the West
are a strained supplement to that more general policy.
Such efforts to inhibit the development of petroleum
industries abroad are not likely to succeed. It was in
fact the breakdown of restraints on Middle East produc-
tion that revealed our competitive weakness.

If any case can be made for import quotas, it lies in
their possible need as a temporary measure. One can
hardly object to preventing chaos in a period of transi-
tion. But our policy is being made permanent in char-
acter, with the goal of reserving the lion's share of a
growing market to domestic producers. It rules out, of
course, any price relief to domestic consumers.

No doubt the quota system is a severe blow to foreign
industries. The primary-producing countries have ex-
panded— in part under our urging and with our assist-
ance— but they can hardly see a profitable future in a
situation where expansion is frustrated by exclusion from
key markets. With a tariff, they could at least appraise
the possibilities of competing, but the quota confronts
them with an insuperable obstacle. With trade thus dis-
rupted, they are bound to look for counter measures, and
some proposals for organization of the main producing
areas have already been made. There is no telling what
difficulties we may encounter, but the good will of other
world producers can hardly be expected.

The Basis for Policy

Many arguments are of course made to justify the
inequities and risks inherent in present policy. The old
conservation argument about a fixed resource that will
soon be exhausted is now generally ignored. If it were
taken seriously, domestic production should be restricted
in favor of imports. Industry experts recently testified
that no shortage need be expected for at least 20 years,
and this experience has been repeated decade by decade.
Reserves have expanded with production and will prob-
ably continue to do so for some time, since some authori-
ties place the ultimate potential at several times today's
proved reserves.

The more recent versions of the argument for special
treatment of oil companies stress the risks involved in
exploration and cite, usually with some overstatement,
the number of dry holes experienced for each successful
completion. Whatever sense this may make for the in-
dividual operator who drills only one hole, it makes none
for the larger operators or the industry as a whole. With
over 10,000 exploratory wells being drilled each year,
success is on an actuarial basis, and the success ratio
has been more stable than the number of exploratory wells
drilled. From 20 percent in the mid-1950's, it was down
only to 18 percent in 1961 ; so there is every prospect
that when additional reserves are needed, increased
drilling will bring them in.

As a reason for import controls, it is contended that
low-cost foreign competition will undermine the industry
and disemploy many workers. This is the usual outcry-
raised by every industry seeking protection, and it has no
exceptionally impressive feature in this case. The total
number of workers in the producing end of the business
is less than one-half percent of the labor force and has

alread) declined by over 10 percent since 1957. No doubt
some of the remaining workers would be displaced from
marginal operations if foreign competition drove prices
down, but the industry's position is not so precarious
that an acceleration of the decline in employment would
be a calamity, especially as some offsetting increases in
employment could be expected in other parts of the econ-
omy. If foreign competition is too tough on an over-all
basis, an over-all adjustment should be made. Piecemeal
protection of specific industries reduces over-all efficiency
and hampers development both at home and abroad.

It is also contended that any decrease in the prices
of oil or gas will bring about a reduction in exploration
and threaten future reserves. Here a little truth is made
to go a long way. A recent study by the Federal Power
Commission reveals that prices are much less important
than volume demanded in determining the number of
exploratory wells drilled. A 1 percent change in the
price of crude has less than one-third the influence of a
1 percent change in the production of crude, and a 1
percent change in the price of natural gas has only about
one-tenth the influence of a corresponding change in
marketed production. Changes in other factors, such as
the success ratio and the average depth of exploratory
wells, are also more heavily weighted than prices.

Oil's Role in National Defense

The real clincher cited in support of present policy
is the importance of the industry to national defense.
The significance of this point is emphasized in the import-
control system by exempting overland oil shipments from
Canada and Mexico. Increasing shipments from these
sources have been called "a loophole" by some oil men,
and the over-all import quota was recently revised to
ensure tighter control of market shares for domestic pro-
ducers. As overland shipments rise, quotas for overseas
imports are, of course, correspondingly squeezed.

It would not be wise to discount the defense argu-
ment too much but neither is it wise to accept it com-
pletely. The nature of war is changing. A war severe
enough to eliminate our access to overseas supplies would
also disrupt the economy in other ways. Who can pre-
tend to know how much our transportation system,
including overland transportation, would be affected?
And who can tell the amount of transportation that would
still be essential? Certainly we would not have to fuel
70 million motor vehicles as we do at present.

As for the petroleum industry itself, it is not at all
clear that the position is so strikingly different from
other minerals that it requires all the special treatment
accorded it. Existing proved reserves are in effect a
long-term stockpile that simply cannot be stored in refined
form. As underground reserves, they are little subject
to damage. To make them usable will require ample
refining capacity, and it is the refineries that are subject
to the greater peril. But refineries may be built to
process imported as well as domestic crude, and both our
general economic strength and our international rela-
tions would be improved by minimizing trade restrictions.

The computation of essential requirements and sup-
plies for any commodity under war conditions is a quanti-
tative problem that cannot be answered by any slogan. No
such computation has been made to demonstrate the com-
pelling need for maintaining domestic crude production
and capacity at an all-time peak. Why, then, must we
unendingly tax our consumers and antagonize our world
neighbors for the benefit of the influential few engaged
in this industry? vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Manpower Training

In mid-1962 the Congress approved the Manpower
Development and Training Act (MDTA), which is
aimed at helping unemployed workers meet the require-
ments of available jobs by retraining those who desire
such aid. By the end of 1962 the Departments of Labor
and of Health, Education, and Welfare had given ap-
proval for 430 training projects in 49 states to help 16,160
trainees obtain needed occupational skills, and 38 states
had actually begun 291 classes with 6,315 enrollees. These
enrollees were taking training in 115 different occupa-
tional categories ranging from highly skilled jobs in the
professional and technical group to semiskilled duties in
the service field. By the end of the year 1,433 enrollees
in 83 short-term classes had completed their training and
64 percent of them had obtained jobs in their new occu-
pations by the middle of January. Another 7 percent had
also obtained jobs but these jobs were not related to their
new skill. Of the individuals enrolled in the program,
21 percent had been unemployed for more than a year.
The 22 to 34 age group had the highest proportion of
unemployed, with 43 percent.

Geographic Changes in Employment

A redistribution of occupational groups during the
1950's has been reflected in the shift of workers among
the various regions and states. The rates of total em-
ployment growth were highest for the Mountain, Pacific,
and South Atlantic regions, as reported by the 1960
census. Most of the states in the other six regions failed
to retain their former share of total employment and five
states from the four central regions showed actual losses
in numbers of employed workers, as indicated on the map.

In line with the over-all pattern of total employment
growth, most of the major nonfarm occupation groups
showed increases in the South and West. These were
partly offset by significant drops in the number of farm
workers moving out of the South Central regions into the
North and West. During this decade, the durable goods
manufacturing industries with the most rapid growth,

STATE RATES OF CHANGE IN EMPLOYMENT,
1950-1960

Source: U.S. Department of Labor, Monthly Labor
Review, January, 1963, p. 2.

such as transportation equipment, electrical machinery,
and fabricated metal products, were locating in the South
and West. In addition, the defense contracts for scien-
tific research and development in the aerospace and
electronics industries also were concentrated in these
areas. There has been a continuing movement into these
areas of some declining or slower-growing nondurable
industries such as textiles, apparel, and food processing.

The fastest employment growth, about 2.5 times the
national rate of 14.3 percent, occurred in the Mountain
and Pacific regions with rates in some states running
considerably higher. The slowest growth took place in
the agricultural and mining states of the West North
Central and East South Central regions, reducing their
share of total employment from 16.3 percent to 14.7
percent.

New Survey of Consumer Expenditures

The Bureau of Labor Statistics has released pre-
liminary results from its new Survey of Consumer Ex-
penditures for the seven metropolitan areas of Atlanta,
Boston, Chicago, Detroit, New York, San Francisco, and
Washington, D.C. This survey, the first since 1950,
includes information on consumption expenditures, in-
come and savings, and gifts and contributions. When it
is finished it will include figures from 66 metropolitan
areas and towns across the United States. The primary
objective of this survey is to obtain data for the revision
of the consumer price index and also to provide an
analysis of consumer expenditures for economic policy,
marketing, and academic research.

In the seven areas for which results are now available
the category of personal consumption expenditures ac-
counted for 85 to 94 percent of disposable income, and
gifts and contributions for another 4 to 7 percent. In
the matter of net change in assets and liabilities, saving
ranged from a dissaving of 3 percent of disposable in-
come in the San Francisco area to a saving of 8 percent
in the Washington, D.C, area. The data for these seven
metropolitan areas point up the continuing downward
trend since 1900 in the proportion of consumption ex-
penditures allocated to food and clothing. Comparing
these data with those from the 1950 survey, the propor-
tion of total expenditures for automobile purchases and
upkeep increased in all cities but San Francisco. Also,
medical care increased in all seven areas with percentage
increases ranging from 62 to 85.

Population Rises, but Rate Falls

The total population of the United States (including
armed forces abroad) was estimated to be 188,264,000
on I !' uary 1. 1963, according to the Bureau of the
Census. This figure represents an increase of 4.6 percent
since April 1, 1960, the date of the most recent census,
and an advance of 1.5 percent over the estimate for
February 1, 1962.

The country's birth rate, however, continues to de-
cline, falling from 116 per 1,000 women of childbearing
age in 1961 to in1) per 1,000 last year. The recent decline
in the birth rate can be largely explained, says the
National Industrial Conference Board, by the changing
age composition of the population. The most recent sta-
tistics for the period 1957 through 1060 suggest that the
birth rate for all age groups has declined.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Employment Shows Gains

Manufacturing employment in Illinois stood at 1.2 mil-
lion in mid-February. This was slightly above the previ-
ous month and an increase of 1.5 percent over February,
1962. Employment was higher in both durable and non-
durable goods manufacturing; durable goods had 15,000
more jobs and nondurable goods 3,000 more than in the
year-earlier month.

Other industry divisions in which employment was up
were government; finance, insurance, and real estate;
wholesale and retail trade; and services and miscella-
neous industries. The largest year-to-year gain was in
the service industries with an increase of 21,500 jobs,
principally in hospitals, business services, and private
educational institutions.

Total nonagricultural employment in Illinois reached
3,526,000 in February, 2.1 percent above the 1962 figure
and a record high for the month of February.

In the Chicago area nonagricultural employment was
48,000 ahead of a year ago, despite the fact that jobs in
manufacturing industries declined by 2,300. Although
February marked the fifth consecutive monthly decline in
production employment, the total employed in manufac-
turing still topped the year-ago mark by nearly 12,000 in
the Chicago area.

Urban Renewal Projects

As of January 1, 1963, the federal Urban Renewal
Administration had $150 million reserved for the urban
renewal program in Illinois this year. According to
regional director Dean Swartzel, 21 Illinois cities and
towns were engaged in renewal projects at the beginning
of 1963 and the number was expected to increase during
the year.

CHANGES IN BANK DEBITS, 1961 TO 1962

BLOOMINGTON

PEORIA

CHICAGO

TOTAL

AURORA

SPRINGFIELD

ALTON

CHAMPAIGN - URBANA

JOLIET

MOLINE
ROCK

DECATUR
OUINCY
ELGIN
DANVILLE

NATIONAL STOCK YARDS

r_~J: :j

■A\ ■':':' :. ]

PERCENTAGE CHANGE

Source: Federal Reserve Board.

A total of 57 projects were at some stage of develop-
ment or had received federal approval. Chicago led the
State with 30 projects under way or planned, for which
$134.5 million had been allocated and $47.7 million spent.
Elgin had the next largest appropriation with $2.5 million
for a 25-acre civic center, and Chicago Heights had $1.9
million reserved with $1.2 million allocated for a program
involving 55 acres on its east side. East St. Louis was
next with $1.6 million appropriated; and Joliet, North
Chicago, and May wood each had approximately $1.2
million allocated.

Other locations with projects planned or in action
were Alton, Aurora, Bloomington, Carbondale, Cairo,
Champaign, Decatur, Galesburg, Robbins, Peoria, Rock
Falls, Rock Island, Springfield, and Waukegan.

The Urban Renewal Administration has also granted
$27,000 to the Illinois Board of Economic Development
for comprehensive planning in 11 locations; these include
Gallatin County, Equality, Omaha, Shawneetown, Saline
County, Muddy, Carrier Mills, Galatia, Harrisburg,
Raleigh, and Norris City. This grant, plus $9,060 in state
and local funds, will be used to finance work on mapping
studies of economics, population, land use, transportation,
and community facilities.

Prospective Crop Plantings

As of March 1, crop plans of Illinois farmers indi-
cated a 3 percent increase in 1963 crop acreage compared
with that of 1962. According to the Illinois Cooperative
Crop Reporting Service, this would amount to a total of
20.7 million acres.

Soybean acreage is expected to total a record 5.7
million acres in 1963 — 2 percent above the number of
acres planted in that crop in 1962 and 12 percent above
the 5-year average.

Corn growers expect to plant 9.1 million acres, 6 per-
cent more than was planted in corn last year and 8 percent
over the planted acreage of 1961, the first year of the
feed grain program.

An estimated 1.8 million acres sown in winter wheat
is 17 percent above that sown last year. There is still
some question as to damage resulting from the severe
winter, but wheat appears to be in fairly good condition
in most areas of the State.

Increases in soybeans, corn, and wheat will more than
offset declines in other crops. This year's hay acreage is
expected to decline 2 percent to 2.0 million acres, and
growers plan to seed 1.9 million acres of oats — 9 percent
less than in 1962.

Bank Debits Rise

The total bank debits of 15 major Illinois cities in-
creased to $274 billion in 1962, a gain of 10.8 percent
from the 1961 total of $247 billion. Monthly totals during
1962 ranged from $18.4 billion in February to a high of
$25.3 billion in December. All the monthly totals ex-
ceeded those of the previous year.

The largest percentage gain for a city in 1962 occurred
in Bloomington, with an increase of 12.7 percent (see
chart). The second and third largest gains, 12.1 and 11.1
percent, occurred in Peoria and Chicago. Increases above
6 percent were shown in Aurora, Springfield, Alton,
Champaign-Urbana, Joliet, Moline-East Moline-Rock Is-
land, and Decatur. Bank debits rose by smaller percent-
ages in all of the other cities except East St. Louis,
where they declined slightly, 1.6 percent.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
February, 1963

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-

Bank

ment Store

Debits5

Sales'

(000,000)

$21,169"

-9

-17.2

+ 14.9

$19,705

-9

-17.3

+ 15.8

$ 77

n.a.

-15.7

+ 7.6

$ 47

n a.

-26.5

+3.3

$ 86

-4

-15.6

-4

+4.2

n.a.

$ 1181'

n.a.

-13.6

+ 10.2

$ 194

-3°

-12.0

-1°

+ 1.6

$ 87

n a

-21.0

-9.3

$ 91

n a

-17.4

+ 16.7

$ 52

-15.2

+ 11.2

$ 123

+ 7°

-14.8

+3'

+6.8

n.a.

$ 236

+ 1

-16.7

+4.8

$ 51

n.a.

-20.7

+2.9

$ 140

-3"

-16.0

+3"

+3.0

Percentage change from {Feb.', 1962

NORTHERN ILLINOIS
Chicago

Percentage change from .
Aurora

Percentage change from.
Elgin

/Jan., 1963.
[Feb., 1962.

)Jan., 1963.
(Feb., 1962.

from.

(Jan., 1963.
\Feb., 1962.

Percentage change from. ■ ■ • i p ,i ' iqi >
Joliet

Percentage chan
Kankakee

Percentage change from
Rock Island-Moline

Percentage change from. . . . s p^'
Rockford

/Jan., 1963.
(Feb., 1962.

CENTRAL ILLINOIS

Bloomington

Percentage change from
Champaign-Urbana

/Jan., 1963.
(Feb., 1962.

Percentage change from. .{]££.' lOftY

Danville.

d i : /Jan., 1963.

Percentage change from \Feb., 1962

Decatur

Percentage change from.
Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

P.
Springfield .

Percentage change from.

(Jan., 1963.
(Feb., 1962.

/Jan., 1963.
[Feb., 1962.

/Jan., 1963.
'(Feb., 1962.

, c I ran.. 1963

age change from....|Febj j %2

$26,981"

+0.6
+ 9.5

$14,Q62
-10 3
-25.0

$ 1,053
+ 67 8

+ 131.8

$ 218

4-720 5
+ 19.8

$ 595
+ 13.3
+59.4

$ 45
+24.9
-85.8

$ 301
+ 10 2
-17.3

$ 993
-17 .2
+87.1

$ 147

+116.2
-59.7

$ 51
+56.7
-52.6

$ 76
+ 1.5
-85.7

$ 145
-28.5
-75.1

% 7

-50.0
-79.9

$ 1,811
+5.8

+653.9

$ 76
+60.3
-50.1

$ 6,275

+ 714.4
+3,345.7

,079,878
-0.2

+4.2

33,569

-5.7

+8.5

66,121«

-3.7

15,646
-1.8

+18.6

20,113
-2.1

+ 14.1

21,791
-0.4
+8.1

42,094
-1.2
+4.8

12,505
+ 7.4

+ 18.6

69,734''
-1.6
+ 6.1

15,700
-6.4
+2.4

47,916
— 7 9
+4 3

$601,912"
-21.4
+ 7.2

$439,062
-17 .7
+ 6 1
$ 9,768
-25.1
+5.8
$ 6,817

+10.5

$11,458
-32.0
+8.8

$ 5,538
-34.7
+ 14.7

$12,110
-29.7
+ 16.2

$21,238

$ 6,475
-30 8
+10.5

$ 9,663
-29.5
+ 13.1

$ 6,571
-32.0
+ 11.6

$11,769
-29.7
+ 14.3

$ 4,612
-34.6
+ 12 1

$17,771
-33.0
+0.3

$ 5,231
-39.0
+3 9

$15,289
-27.9
+20.6

I-

I Jan., 1963.
(Feb., 1962.

$ 46
-17.0

+ 6.8

SOUTHERN ILLINOIS
East St. Louis

Percentage change from. ...
Alton

Percentage change from
Belleville

Percentage change from. . . . li ,''

■Total. for cities listed. b Includes East Moline. ° Includes iinnniliitcK -surrounding territory n.a. Not available.

Sources: ' Local sources. Data include federal construction projecl ' Local power companies. ' Illinois Depart"

Data are for [anuary, 1963. Comparisons relate to December, 1962, and |anuai r«. -' I h Department of Seventh Federal

Reserve Bank (Chicago). Percentages rounded by s Federal Reserve Board. 'Localposto report I counting

periods ending March 1, 1963, and March 2, 1962.

$ 41
-40.4

-66.4
$ 92
+ 137.9

$ 93

-51.4
+59.9

17,951
-2.4

+2.8

15,590
+1.0
+ 17.8

$ 8,244
-27.1
+ 11.3

$ 5,040
-29.5
+4.4

$ 5,256
-29.8
+ 12.7

[11 J

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

Mj.s.

1961 1962 1963

'60 1961 1962 1963

DEPARTMENT STORE

SALES

(ADJ.)

//'' ' us.

r^"

COAL PRODUCTION

'"-/

\ .

US. \ f\.

)62 1963

BUSINESS LOANS

CASH

FARM 1

NCOME

150

100

iti

\fcr

h/f

V|u

J^b.

/us.

'29 '37 '45 '53 '60 I9C

1962 1963

ANNUAL AVERAGE

'53 '60 196

1962 1963

CON

STRUC"

riON CONTRACTS

ELECTRIC POWER PRODUCTION

f*\

100

v^/

VvVAyV

\ y

J \

ILL.^

ILL. t^
/U.S.

'29 '37 '45

ANNUAL AVERAGE

1962 1963

'29 '37

'53 '60 19 6

1962 1963

,oo-^

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN APRIL

Industrial production maintained its upward push in
April. Steel output continued to be a strong factor, and
not entirely because of strike hedging, since consumption
was also reported to be at a higher level. Automobile
production was up nearly 7 percent from the March figure
to 691,000 units. As in other recent months, the number
of assemblies for April was the highest for the month
since 1955, the industry's peak year so far. Sales of cars
more than matched output. The number of American-
built new cars sold in April exceeded 700,000, a record
for the month and the second-highest monthly total ever
reached. Only May, 1955, sales were higher. Over all,
the Federal Reserve Board's seasonally adjusted index
of industrial production rose from 120.6 (1957-59 = 100)
in March to a new record of 122.4. In addition to
steel and autos, consumer goods (such as television sets),
coal, crude oil, and chemicals also gained.

Retail sales in April were off from the March level.
After adjustment for seasonal factors, total sales
amounted to $20.2 billion, down 1 percent from the pre-
vious month but 3 percent above sales in April, 1962.
Both durables and nondurables declined by the average
1 percent. The only major category to show an increase
was the automotive group; all others held steady or
slipped somewhat.

Employment Gains

Employment moved higher again in April, marking
the third month in a row to show improvement. The
increase of 949,000 was slightly greater than that expected
and raised the total to 68.1 million. The change in em-
ployment was coupled with a more-than-seasonal advance
of 511,000 in the civilian labor force and a seasonal de-
crease of 438,000 in the number of unemployed workers.

Nonfarm employment was also up more than season-
ally and for the third consecutive month; a gain of
612,000 carried the total to 63.4 million. Between mid-
January and mid-April, nonagricultural employment
moved upward from the level maintained during the latter
part of 1962; during the early 1963 period, the number of
nonfarm workers increased by 800,000.

Construction Up Seasonally

Spending for new construction in April, at an esti-
mated $4.8 billion, was 10 percent higher than in March ;
the advance was approximately what would be expected

at that time of year. Compared with the year-earlier
month, April expenditures showed a gain of 4 percent.

Private construction outlays reached $3.5 billion; the
11 percent increase was well above the usual seasonal
rise. The nonfarm residential category particularly was
stronger than in March. Sizable percentage gains were
also indicated for such smaller items as farm construction
and public utilities. Public construction also moved up,
but less than seasonally. A 10 percent advance to $1.4
billion was only about two-thirds of that expected.

Consumer Credit Advance Slowing

The rate at which consumers are adding to their short-
term debt dropped again in March. The seasonally ad-
justed total of consumer credit, at $62.3 billion, was $414
million higher at the end of March than it was a month
earlier. The equivalent annual rate of $5.0 billion marked
the fourth consecutive monthly decrease in rate. As
usual, nearly all of the increase over the previous month
occurred in instalment credit, which rose $400 million to
$48.2 billion. Additions to automobile loans outstanding
accounted for somewhat more than half the advance in
instalment debt, and expansion of personal loans for
another fourth. Despite the fact that instalment debt
grew less than in the other two months of the first quar-
ter, the increase was still well above that for March, 1962.

Manufacturers' Sales, Orders Up Slightly

March sales by manufacturers were fractionally higher
than the previous record set the month before. On an
adjusted basis, sales amounted to nearly $34.3 billion.
Durable goods sales were very slightly above their Feb-
ruary level, reaching $16.6 billion. The iron and steel
industry showed much the largest advance, 7 percent.
Producers of machinery, both electrical and nonelectrical,
indicated very modest gains; sales of other durables
dropped somewhat. In nondurable goods March's $17.7
billion was also above the month before, but only by a
fraction of a percent. Increases were widespread but
small.

New orders also set a record in March, rising to $34.8
billion after seasonal adjustment. The gain was about
equally split between durables and nondurables. New
orders received for steel products dominated the rise in
durables, more than offsetting drops in two other cate-
gories— machinery and transportation equipment.

LABOR COSTS AND INTERNATIONAL TRADE

By Melvin Rothbcum

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

V Lewis Bassie
Director

Ruth A. Birdzell
Executive Editor
Research Assistants
Robert C. Carey Jack A. Rardin

Virginia G. Speers Giselle Chesrow

The Price of Natural Gas

Consumption of natural gas more than quadrupled
from 1946 to 1961, and prices also rose sharply during
this period. The average field or wellhead price to pipe-
lines almost trebled, rising from 5.3 to 15.1 cents per 1,000
cubic feet; the price to industrial consumers almost
doubled, reaching 31.2 cents in 1961 ; and the price to
residential and commercial consumers rose by about two-
thirds to 99.7 cents.

At the outset, the huge surplus in the producing fields
kept prices there far below the value of the gas as fuel
at points of use. Pipeline companies that could move it
were able to make handsome returns and, with demand
seemingly endless, found that they could readily pass any
price increases on to consumers. So they proceeded to
contract at ever higher prices for the new supplies be-
coming available. This went on all through the years of
the great boom in pipeline building.

Only in the last year or so have these trends shown
signs of faltering. As the pipeline network was extended
into most areas, the growth of demand slowed; increases
of 10 percent annually in the 1946-50 period dropped to
3 percent in the early 1960's. The fear of eventual short-
ages dwindled as new discoveries kept proved reserves
rising despite increasing use. While the price of natural
gas rose, the prices of coal and fuel oil fell from their
1957 peaks, so that gas lost most of its competitive ad-
vantage. Some supplies previously withheld were thrown
on the market. The pipeline companies, finding themselves
amply contracted, left some supplies uncommitted. By
1962, a surplus had again seemingly developed. Producers
without a market for their gas began to cut prices, and
several distributors reduced even their rates to consumers.

Field Prices Permitted to Rise

In contrast to gasoline and oil, which are competitively
distributed, natural gas can only be brought to market in
any locality through a monopoly system of pipelines. Its
price has therefore been subject to regulation like any
other utility operating under similar circumstances. Nev-
ertheless, the whole postwar inflation of prices was al-
lowed to proceed with little hindrance.

Since most of the gas moves in interstate commerce,
control of field prices, though not of consumers' prices,
was put under the jurisdiction of the Federal Power
Commission (FPC). Court decisions affirmed its powers

and even directed it to act, but the FPC was so entangled
in pressures from interested parties, in endless arguments
and counterarguments, that it remained indecisive. Cases
piled up, and price increases become effective without
challenge. Lacking the will to regulate, the FPC pursued
an essentially do-nothing policy all through the 1950's.

All the people involved seemed to find the situation
confusing, and the key issue in this confusion concerned
the appropriate basis for regulation. "Cost of service"
was challenged on the grounds that cost could not be
ascertained. Since gas is produced jointly with oil and
other petroleum products, joint costs have to be allocated,
and some of the usual procedures for doing this were held
to involve circular reasoning. Besides, the cost-of-service
principle, narrowly interpreted, would have placed only a
nominal value on the underground stockpile of gas, based
on exploration and development costs alone. This was
held to be inconsistent with accepted notions of fair value
and fair return, and support for this view seemed to be
established in national policy by the percentage depletion
allowances. These had been granted as subsidies for
exploration but were, in effect, a recognition of the in-
dustry's right to profit by the "unearned increment" in its
oil and gas reserves.

Supplementary issues concerned the extent of compe-
tition between producers, the expected life of reserves,
the possibility of stimulating exploration through higher
prices, relations to competing fuels, and the preferences
of various classes of consumers. All these had implica-
tions for price policy, but nobody knew enough about the
short-term and long-term elasticities of supply and de-
mand to make an adequate analysis of the effects of
proposed policies.

Recently the FPC issued a report by its chief econ-
omist, Harold Wein, which throws much light on these
issues. Prominent among its findings is an interesting
paradox, namely, that low prices rather than high prices
tend to result in larger reserve supplies of gas. The
reason for this is that exploration leading to new discov-
eries is not greatly influenced by price but is responsive
to the rate of consumption ; so the influence of higher
prices in restricting demand reacts adversely on explora-
tion, thus also restricting supply.

Estimates of potential supplies are much greater now
than they were in the early postwar years. "In 1950 the
estimate of gas remaining to be discovered was about
350 trillion cubic feet and in 1957 it had grown to 1,000
trillion." Other experts today put it in the range of
1,200-1,500 trillion, or in the order of 100 years' supply
at the recent rate of production. Furthermore, it is
believed that these supplies are readily subject to com-
mand through drilling, since the ratios of success for
exploratory wells has consistently remained high.

The inducement to exploration, however, depends more
on oil than on gas. Since the expansion of capacity has
been artificially held high, as noted here last month, it
is not surprising that gas surpluses may again develop.

The Demand for Gas

On the demand side, there are both elastic and in-
elastic elements. Consumer demand is highly inelastic.
Once a householder has installed gas-burning equipment,
most of which operates automatically, a large relative
price advance would be necessary to justify use of any
alternative fuel. The FPC study found that residential-
commercial demand has an elasticity of -.8 and residen-
(Continued on page 8)

[ -' ]

ILLINOIS INDUSTRIES AND RESOURCES

INSURING AGAINST ILLNESS AND ACCIDENTS

Large and often unexpected costs of medical care,
which sometimes trigger financial disaster even in well-
managed households, no longer have such adverse conse-
quences for most American families. Today, the majority
of Americans are ahle to meet the expenses of sickness
and injuries because of the widespread utilization of
health and accident insurance.

In 1941. only 16 million persons — or about 12 percent
of the nation's population — were protected by some form
of health and accident insurance. Since that time, vol-
untary health insurance has expanded faster than any
other form of insurance. Last year, more than 140 million
persons were covered, an all-time high comprising 75 per-
cent of the civilian population.

The upsurge in health insurance results from a number
of influences. Among the more significant of these have
been the greater public awareness of the usefulness of
such protection, the introduction of more diversified plans
and policies to fit a greater variety of needs, the fast-
rising popularity of "tailor-made" group programs, the
increase in family income, and the steady national popu-
lation expansion.

The Business Today

More than 1,800 organizations, many operating on a
regional and national basis, issue some form of health
and accident insurance. Basically, these organizations
are made up of two principal types of insurers: com-
mercial insurance companies and nonprofit associations.

The larger of the two groups, commercial insurers,
provided protection in 1961 for about three-fifths of the
nation's insured and accounted for about the same pro-
portion of the total $8.3 billion in premiums. Nearly
three-fourths of the 840 commercial insurers also write
life insurance and another one-fifth are casualty firms.

In addition to the commercial segment, there are in
the nation 77 Blue Cross plans, 69 Blue Shield plans, and
more than 800 independent health insurance plans spon-
sored mainly by industrial, community, private clinic, and
college health associations. Although the predominant
form of coverage offered by nonprofit groups is in-hospital
care and surgery, a small number of these organizations
emphasize areas of special protection, for example, against
the expenses of care related to eyes and teeth.

Tn all, more than $6.4 billion of the nation's health bill
came from health and accident insurance in 1961, with
nearly 00 percent of total insurance benefits going to
persons insured under group policies. About 52 percent
of total benefits were paid by commercial insurers.

Benefits for health insurance are usually paid in two
main ways — through either "indemnity" or "service" ar-
rangements. In general, commercial writers customarily
utilize cash indemnities, that is, stipulated amounts to the
insured persons for services specified by the policy. The
other method is used by most hospital-medical plans, such
as Blue Cross-Blue Shield, which provide full payment
directly to the hospital or physician for services covered ;

these plans often carry certain requirements and limita-
tions relating to duration of care and treatment, type of
accommodations, and necessity for physician-hospital co-
operation.

Types of Insurance

Expenses for illness and injury may be insured against
by a variety of plans. Actually, most insured persons
carry policies covering more than one type of medical
care expense. The most popular type of protection is hos-
pital expense insurance. This form, which has been in-
creasingly accompanied by the additional protection
against surgery costs, pays all or part of hospital room
and board and other facility charges. Altogether, hos-
pital care insurance was held by more than 137 million
Americans in 1961, more than nine-tenths of them also
carrying surgical expense policies.

Genera] (or regular) medical expense insurance is
the third most widely utilized health care plan. Although
designed mainly to pay for physicians' visits, the insur-
ance often covers related expenses, such as X-ray and
laboratory tests.

Loss-of-income protection furnishes weekly or monthly
income protection to nearly 45 million workers during
periods of disability resulting from illness and accident.

Introduced in 1951, major medical expense insurance
has been one of the fastest growing forms of health
protection. It insures against costs incurred from severe
and prolonged injuries and illnesses, and is most fre-
quently used as a supplement to basic medical care plans.

Insurance in Illinois

Illinoisans are heavy users of health insurance. Tn
contrast to the national average of 75 percent, about 84
percent of the state's approximately 10 million citizens
owned some form of such insurance in 1961. As in many
heavily populated states, the high coverage in Illinois
results from the large proportion of group policies in
industrial areas.

More than 50 insurance companies, 6 Blue Cross-Blue
Shield plans, and 44 independent groups are headquar-
tered in about 15 Illinois cities. Additionally, there are
approximately 275 out-of-state companies licensed to sell
health insurance here. Together, these organizations re-
ceived more than $520 million in premiums in 1960, with
about 73 percent going to commercial insurance firms.

Largest insurer in terms of business done within the
State is the nonprofit Blue Cross plan of Chicago, which
last year served about 2 million subscribers.

The six leading Illinois commercial insurance com-
panies— each having annual sales within the State worth
more than $3 million — are Bankers Life and Casualty,
Continental Assurance, Benefit Association of Railway
Employees, Constitution Life, The North American Com-
pany for Life. Accident, and Health Insurance, United
Insurance of America, all of Chicago; and Washington
National, of Evanston.

KNOW YOUR STATE

t 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS1
Percentage changes, February, 1963, to March, 1963

COAL PRODUCTION

li-

ELECTRIC

fe: 1

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

PARTMENT STORE SALES

| — L,

BANK DEBITS

■ ill.

FARM PRICES

Qu.s.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. . .
Weekly earnings — manufacturing1

Dept. store sales in Chicago1

Consumer prices in Chicago5

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

'Fed. Power Coram.; 2 111. Dept. of Mines; 3 111. Dept. of Labor;
4 Fed. Res. Bank, 7th Dist.; s U.S. Uur. of Labor Statistics; « F. W.
Dodge Corp.; 'Fed. Res. Bd.; "111. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn.; '"111. Geol. Survey.

a Preliminary. b Seasonally adjusted, n.a. Not available.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked . . . .

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual rate

in billion $

452. 7»

25.3°
16.7°
8.6=

62. 3b
48. 2°
40. 8b
29.1"

Indexes

(1957-59

= 100)

120"

121"

101

114
115
125
120"
106

100
95
99

101

99
106

77d

Percentage
change from

Feb Mar.

1963 i%2

+ 0.6
+ 0.2

+ 9.9
+ 2.3
+ 12.3

+ 108.2
+24.4
+676.7

+ 0.1
+ 0.3

+ 2.2
-28.2

+ 0.8
+ 1.0
+ 0.7
+ 1.1

+ 0.7

+ 0.3
+ 0.4
+ 0.7

+ 22.8
+ 5.3
+ 0.1

+ 18.6
+ 13.6
+ 29.5

+ 10.7
+ 11.5
+ 8.2
+ 0.4

+ 3.5
+ 2.3
+ 0.2

- 0 1

- 0.5
+ 2.5
+ 2.0
-10.1

+ 2.6

- 0.8

- 3.0

- 2.5

- 0.2

- 2.0
+ 2.0

- 3.7

' U.S. Dept. of Commerce; 2 Federal Reserve Board; 3 U.S. Dept.
of Agriculture; 'U.S. Bureau of Labor Statistics; s F. \V. Dodge Corp.

a Seasonally adjusted. b End of month. c Data for February, 1963,
compared with January, 1963, and February, 1962. d Based on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Apr. 20 Apr. 13

Apr. 28

Production:

Bituminous coal (daily avg.) thous. of short to

Electric power by utilities mil. of kw-hr. . . .

Motor vehicles (Wards) number in thous.

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100. ..

Freight carloadings thous. of cars. . .

Department store sales 1957-59 = 100. . .

Commodity prices, wholesale:

All commodities 1957-59 = 100. . .

Other than farm products and foods. .1957-59 = 100. . .

22 commodities 1957-59 = 100. . .

Finance:

Business loans mil. of dol

Failures, imlustrial and commercial. . number

Source: Survey of ( ~tu , , nt

Weekly Supplei

1,521
16,495
184
7,493
136.8
577
113

99.8
100.5

93.4

35,036

312

L 4 ]

1,501
16,191

186
7,468

135.3

561

104

99.9
100.5
93.3

35,258

255

1,500
16,325

180
7,461

132.3

556

121

35,274
274

1,410
16,418

191
7,484

129.5

546

120

100.0
100.6
92 4

1,468

16,425

99.9
100.6
92.1

1,427

15,054

180

7,345
105.0
578
110

100.4"

100.9"
95.1

32,778
335

idex for April, 10,,:

RECENT ECONOMIC CHANGES

Corporate Profits Up

Corporate profits in the closing quarter of 1962 rose
to a record annual rate of $54 billion. This represented
an increase of $3 billion over the third quarter, and sur-
passed the previous high reached in the second quarter
of 1959.

For the entire year 1962, profits before taxes, exclud-
ing inventory gains and losses due to price changes,
totaled $51.4 billion, $6 billion above 1961 and more than
$4 billion greater than the previous record established in
1959. Taxes took nearly half of total corporate profits,
leaving after-tax income at $26.3 billion, compared with
$23.3 billion in 1961 and $23.0 billion in 1960.

Corporate earnings relative to corporate gross prod-
uct remained fairly constant during the year at about
15.7 percent except for the final quarter of the year when
the proportion reached 16.3 percent. This pattern of
either constant or increasing earnings relative to cor-
porate gross product has prevailed since the end of the
first quarter of 1961, which marked the low of the most
recent recession.

Steel's Competitive Position

Since the turn of the century, annual production of
steel in the United States has risen from just over 11
million tons to a high of 117 million tons and during the
last decade has averaged about 100 million tons. This
growth in steel production has been a result of the ex-
panding population, the development of steel as a com-
petitor with other products, and the emergence of entirely
new industries such as the automotive and appliance in-
dustries.

However, during recent years there has been consid-
erable growth in the markets for materials which can
be used as alternatives to steel, such as plastics, aluminum,

WORLD STEEL PRODUCTION, MAJOR AREAS

MILLIONS OF NET TONS

US UNITED STATES

r I WESTERN EUROPE

CZ3 EASTERN EUROPE

LZ3 JAPAN

^^ REST OF WORLD

IMtfl

Source: American Iron and Steel Institute, Foreign
Trade Trends, p. 16.

and cement. According to the American Iron and Steel
Institute nearly 2 million tons per year in steel produc-
tion have been lost to other materials during the last five
years.

In addition to this increased competition domestically
the United States' share of world steel production has
declined from 46 percent in 1950 to only 25 percent in
1961. This decrease in the nation's percentage of world
production contrasts with the growth experienced during
the first 30 years of this century to a level of 59 percent
in 1920, as indicated in the accompanying chart. Since
the end of World War II, foreign countries, particularly
those in Europe, have rebuilt or replaced old mills with
new and modernized facilities, thus increasing the com-
petition between this and other countries.

Gross National Product

The nation's output of goods and services rose to a
seasonally adjusted annual rate of $572 billion in the first
quarter of 1963, an all-time high, according to a prelimi-
nary estimate by the Council of Economic Advisers. The
gain of $8.5 billion over the previous quarter was $300
million greater than the advance recorded in the fourth
quarter of 1962, and continued the expansion of the na-
tion's output from the last recession low of $501 billion
recorded in the first quarter of 1961.

GROSS NATIONAL PRODUCT OR EXPENDITURE

(Seasonally adjusted, billions of dollars at annual rates)

1st Qtr.* 4th Qtr. 1st. Qtr.

1963 1962 1962

Gross national product 572.0 563.5 545.0

Personal consumption 369.0 363.5 350.2

Durable goods 50.2 49.6 46.3

Nondurable goods 166.7 163.9 159.9

Services 152.1 150.1 144.1

Domestic investment 76.0 76.2 75.9

New construction 43.5 45.0 41.6

Producers' durable equipment 30.0 29.9 27.6

Change in business inventories 2.5 1.2 6.7

Nonfarm inventories only . . 2.2 1.1 6.6

Net exports of goods and services 3.2 3.2 3.7

Government purchases 123.8 120.7 115.2

INCOME AND SAVINGS

National income n.a. 466.6 448.9

Personal income 452.1 448.0 432.0

Disposable personal income 392.7 389.3 375.6

Personal saving 23.7 25.8 25.4

* Preliminary estimate by Council of Economic Advisers.
Source: U. S. Department of Commerce.

During the first quarter of this year personal consump-
tion continued its upward movement as all three of its
components increased over the previous quarter. Private
investment meanwhile continued its gradual decline from
the record high of $77.4 billion reached during the second
quarter of last year, as new construction reached its
lowest point in a year and as inventory accumulation
also fell $4.2 billion from a year ago. Government pur-
chases of goods and services advanced during the first
quarter to an annual rate of $123.8 billion as the di
and space programs were accelerated.

However, even with a rise in the annual rate of dis-
posable income of $3.4 billion to $392.7 billion, personal
saving fell $2.5 billion and the rate of saving fell to 6
percent of disposable personal income. This was the
lowest total and rate recorded for savings since the fourth
quarter of 1960 and reflects an increased use of credit in
financing consumption outlays.

[ s ]

LABOR COSTS AND INTERNATIONAL TRADE

MELV1N ROTHBAUM, Associate Professor
of Labor and Industrial Relations

With the passage of the Trade Expansion Act in
October of 1962, the United States made one of the most
far-reaching commitments to freer and more extensive
foreign trade in its history. Equally significant, the act
received widespread support, including most of the major
economic interest groups in the country.

One expected consequence of this commitment is the
acceptance of greater exposure of American industry to
foreign competition. Administratively, this change has
already become apparent in the decisions of the Tariff
Commission. Not only has the commission denied all six
claims of injury from foreign competition that have
arisen since last October, but also its decisions have been
unanimous. This unusual unanimity among the commis-
sion's members reflects the much more stringent stand-
ards for protection embodied in the Trade Expansion Act.

To the extent that the goals of the act are realized,
one can expect an increasing interest in comparative
studies of production costs here and abroad. Unfortu-
nately the number, scope, and quality of such studies have
been hampered by the lack of sufficient data. As a result,
many of the analyses have been limited to national indi-
cators of wages, prices, and productivity. As the tech-
niques of compiling these indicators become more sophis-
ticated and standardized, such studies permit the analysis
of competitiveness in very broad terms. However, they
necessarily abstract from individual industry experience.

Even where industry data designed for comparative
cost purposes are being collected, the analyst must often
deal with relatively broad industry definitions encompass-
ing diverse product lines. Large statistical samples
specialized by product line and limited to firms selling
abroad or competing with imported products are not only
very costly, but the data are likely to be considered confi-
dential by the firms involved.

Despite these difficulties, existing studies do indicate
(in an approximate way) the competitive cost relation-
ships in the United States and abroad, especially in Euro-
pean countries. In general, American firms benefit from
advantages in costs of materials and parts and suffer
from disadvantages in costs of labor. Our manufacturing
unit costs tend to be more competitive than our total unit
costs, mainly because of higher American selling and
distribution costs and, in some cases, because of higher
administrative costs. We have greatest difficulty compet-
ing with the developed economies of Western Europe and
Japan. Vis-a-vis the underdeveloped economies, we main-
tain substantial advantages in regard to technology, scale
of output, and labor productivity.

Many cost differences cannot be described statistically
although they may be of great importance. Larger scale
of output often provides an advantage to American firms
even in competition with advanced countries. The quality
of management may be a decisive factor, as may the
development of new products that have no direct counter-
part in foreign countries. In all the long list of actual or
potential advantages and disadvantages, labor costs ap-
pear to be the most important negative factor for Amer-
ican firms. As such, they deserve special emphasis. In
the following sections, we shall explore the size and
nature of the labor cost differential, trends in recent years,
and some special aspects of comparative labor cost by
industry and by type of employee.

Wages and Labor Costs

Even a superficial familiarity with national wage and
labor cost comparisons reveals some fairly consistent
relationships. First, there is an extremely wide gap be-
tween hourly earnings here and abroad. Second, the
difference between employment costs and hourly earnings
tends to be substantial, particularly because of fringe
benefit payments. And third, foreign advantages in em-
ployment costs are not likely to be translated proportion-
ately into labor cost advantages because of productivity
differences.

The Common Market countries and the United King-
dom provide the most comparable data on hourly earn-
ings. These range from the United Kingdom, with
earnings slightly more than one-third of those in the
United States, to Italy, where the earnings level is about
one-seventh of ours. While other comparisons present
greater difficulties, Sweden (the highest-wage country in
Europe) appears to have earnings a little above 40 per-
cent of American earnings. Japan, on the other hand,
falls a bit below the Italian level. Without pushing the
statistical accuracy of these comparisons too far, the
significance of the earnings differential is, nevertheless,
obvious. (See upper part of accompanying chart.)

The addition of fringe benefits takes us a step closer

FOREIGN WAGE AND LABOR COSTS
AS PERCENTAGE OF U.S. COSTS

WAGE COSTS

LABOR COSTS

Sources: French National Institute of Statistics and
Economic Studies, U.S. Bureau of Labor Statistics, and
the American Assembly.

[ 6

to employment costs. Since firms abroad commonly have
higher fringe benefits in relation to earnings than Amer-
ican firms, the addition of fringe benefits tends to narrow
the gap. Thus Germany rises from a little more than
one-fourth of our level to over one-third. Italy, where
the impact of fringes is most significant, rises from one-
seventh to one-fourth.

This narrowing of the cost gap does not operate
uniformly. Although both Sweden and the United King-
dom have more extensive welfare programs than the
United States, a large share of the costs are paid from
general taxes rather than direct employer contributions.
As a result, employers in these countries have lower
ratios of fringe benefit payments to earnings than in the
United States and the gap, therefore, widens a little. The
Japanese situation is so complex that it is hard to make
even rough comparisons. There are difficulties in classify-
ing some items as earnings or fringe benefits (e.g., semi-
annual bonuses) and also of finding the actual cost of
such items as housing and educational facilities. How-
ever, even substantial allowances for these benefits would
leave Japanese firms at a very low wage-cost level.

Because of the lack of statistical data, the movement
from wage costs to employment costs can be approached
only indirectly. One aspect of the problem is how to
abstract from differences in employment costs that are
due mainly to differences in technology. Fortunately a
1960 Conference Board study examined the number of
workers needed and the labor time required per unit of
output for plants here and abroad using similar equip-
ment and producing the same product. Although the
majority of plants abroad tended to use both the same
number of employees and labor time as here, the percent-
age using more of both far exceeded the percentage using
less. Thus, in the Common Market countries, 26 percent
of the plants used more employees as against 3 percent
using less than here, and 42 percent used more labor time
per unit of output against 2 percent using less.

Only a few comments by industry executives are avail-
able to explain these differences. The most important
factor appears to be a less skilled and less trained work
force, often because skilled workers are unavailable in
the labor markets of full employment economies. In less
developed countries, the general low level of education
strongly affects the supply of skilled labor. In some cases,
governmental restrictions that require employment of
excess labor aggravates these problems.

As noted earlier, differences in productivity prevent
wage cost differentials from being translated into equal
differences in cost of labor per unit of output. The em-
ployment cost factors just discussed explain part of the
difference between wage and labor costs. More impor-
tant, however, are differences in the degree of mechaniza-
tion of plants — usually because smaller markets abroad
cannot support the same scale of production as in the
United States. Very roughly, the productivity differences
involved appear to cut the wage-cost advantage of West-
ern Europe about in half, as shown by the lower part of
the chart. In less developed countries, where both wages
and productivity are lower than in Europe, an even
greater share of the wage cost advantage is lost when
productivity differences are taken into account.

Trends in Wages and Labor Costs

Comparing wage and labor cost trends over time
poses fewer problems than comparisons of absolute levels.
Here one simply asks whether a particular country's com-
petitiveness is improving or worsening without trying to

determine the degree of competitiveness in the initial
period. From this point of view, American experience in
recent years has been relatively favorable.

As compared with a rise in hourly earnings of about
one-third in the United States from 1953 to 1961, Western
European earnings rose almost one-half in Italy and
Belgium and came close to doubling in France. The
relative difference between percentage earnings increases
in the United States and most European countries appears
to be even greater in 1962. The advance in Japanese
earnings has also been substantially larger than the rise
in American earnings since 1953.

Although the United States has failed to match the
high productivity increases that have taken place in
France and West Germany during recent years, it has
exceeded the productivity rise in manufacturing in other
European countries, particularly in the United Kingdom.
Even in the first two countries, productivity increases
have not been sufficient to counteract the high rate of
wage increases. As a consequence, unit wage-cost in-
creases have tended to exceed those in the United States.
In Japan, on the other hand, higher rates of productivity
have compensated for earnings increases and bettered
their competitive position.

In short, the national indicators show that we have
not fared badly in regard to competitive wage costs
vis-a-vis Europe in recent years, although the French
comparison seriously overestimates our gains because of
exchange rate devaluation. The major factor in our favor
has been wage increases generated by tight labor markets.
While labor shortages are likely to continue in Western
Europe, their impact may well depend on the degree to
which effective policies toward controlling the rise in
income are put into effect. A slackening of the wage
trends plus high rates of productivity increase could
easily reverse the recent experience.

Industry and Employee Comparisons

The national comparisons above necessarily conceal
differences by industry and by product. With only rare
exceptions, information by firm or by product line is not
available to the outside investigator. Therefore, the fol-
lowing analysis will concentrate on some of the patterns
that arise at the industry level.

In large degree, the extent to which industry rather
than national factors dominate wage and cost compari-
sons is a function of the differences in the level of eco-
nomic development of the countries being studied. Where
these differences are large, national characteristics be-
come more significant. Thus underdeveloped countries,
with their low per capita incomes and low levels of cap-
ital investment, tend to have low productivity in a wide
range of industries. They cannot draw upon an educated
and skilled labor force; or upon extensive transportation,
communications, and power networks ; or upon an ancil-
lary industrial network to provide high-quality products
at reasonable cost. Thus comparisons between the United
States and Latin America tend to emphasize cost differ-
ences that are applicable to many industries.

On the other hand, EEC studies of the Common Mar-
ket and the United Kingdom (where economic differences
are much narrower) emphasize the importance of the
individual industry. Wage differences for a particular
industry among European countries tend to be smaller
than wage differences among industries within a single
country. The technological and market forces of the
particular industry overshadow the impact of the na-
tional economy. In the case of Europe, therefore, com-

[ " J

petitive advantages and disadvantages based on national
indicators may narrow drastically when one descends to
the industry level.

A related problem concerns the "out-of-line" industry.
Although Italy falls among the low-wage countries in
Europe, the Italian automobile and rubber industries not
only rank high in the Italian wage structure but also
rank high for their particular industries in Europe as a
whole. Similarly the cotton-spinning industry in the
Netherlands, a generally low-wage country, ranks among
the highest for that industry in Europe. Again this indi-
cates the danger of depending on national averages. The
ranges between the lowest-wage and highest-wage coun-
try by industry may vary considerably. For example, in
Europe the range of wages is fairly narrow in the auto-
mobile and shipbuilding industries but wide in the cement,
synthetic fibers, and the beer and malt industries. These
variations reflect, among other things, differences within
industries in technology, labor market conditions, and
location within the country.

EEC studies of salaried workers suggest another
problem in wage and cost comparison that may become
of increasing importance in the future. As compared
with other European countries, Italy has relatively low
hourly wages but high salaries. West Germany's ranking,
on the other hand, falls substantially when salaries rather
than hourly wages are compared. Should these patterns
persist, they may have some interesting implications for
competitiveness over time. If technological changes re-
sult in radical shifts in the ratio of hourly to salaried
workers, these shifts may change the present pattern of
wage-cost differentials.

These wage and labor cost comparisons illustrate both
the paucity of our knowledge in this area and the com-
plexity of the problems. Probably the most that can be
hoped for in the near future is more extensive standard-
ization of industry data along the lines currently being
pursued by the EEC and much greater development of
industry productivity statistics. For national indicators
will become increasingly less useful if economic dispari-
ties among major trading nations decrease over time.

The Price of Natural Gas

(Continued from page 2)
tial alone probably less than -.5, so that the quantity used
falls less than half as fast as the price rises.

This means that price increases can be loaded on the
consumer without greatly affecting the quantity he uses.
Specifically, the report showed that each increase of one
cent in the wellhead price resulted in 1.5 cents being
added to the consumer price; and, in addition, the infla-
tion of costs and profits further along the line raised the
price another 1.9 cents each year. Moreover, the distrib-
uting utilities now generally operate under "purchased
gas" clauses, enabling them automatically to pass on any
increase in prices charged by the pipelines.

Industrial demand, in contrast, is highly elastic. It is
estimated at -2.5, which means that a 1 percent increase
in price reduces the quantity used by 2.5 percent. The
reason for this is that many utilities and large industrial
users are equipped to burn more than one kind of fuel.
If the price of gas goes up, they may shift to coal or fuel
oil, whichever is cheaper, so that the quantity of gas
consumed drops sharply. Since a decline affects all flows
and profits back to the source, every effort is made to
keep the price of gas competitive in industrial uses.

Not only were industrial prices lower at the beginning
of the postwar period but the increases added on have
also been smaller. The FPC analysis indicates that each
increase of one cent in wellhead price resulted in 1.1 cents
being added to the industrial price; and in addition,
another .4 cent was added annually further along the
line. These limited increases held the 1961 price of in-
dustrial gas to less than one-third of the consumer price.
Objections to this policy were voiced principally by the
coal producers, but their protests at the national level had
little effect because the regulation of prices to different
classes of consumers is under the jurisdiction of state
regulatory agencies, mainly the utility commissions.

Is the Consumer Protected?

On the face of things, there is substantial discrimina-
tion against the consumer. He pays three times as much
as the industrial user for the same gas moved largely
through the same pipelines; his price was raised by twice
as much — in fact, by more than the entire present price
charged to industrial users. Since discrimination is pro-
hibited by state laws, it is interesting to consider how
these disparities are explained away.

The usual justification for this kind of price structure
is that the industrial users have only the marginal use of
the pipelines. One version of the argument is that they
take gas at times when the consumer does not want it —
off-peak or off-season — and therefore need not be charged
for costs of facilities required to supply the consumer
alone. This argument seems reasonable for an existing
plant that cannot sell part of its output at the full rate.
But it has little validity for a rapidly expanding industry
that is building new facilities to supply the needs of both
classes of users. In the case of gas, over 60 percent of
total consumption is industrial, and plans for new facil-
ities clearly contemplate supplying this dominant load.

To bolster the established theory of price fixing, the
argument of "interruptible service" has been devised.
This is supposed to demonstrate the marginal nature of
industrial use, because no gas need be supplied these
users when other users are taking the whole supply. The
argument is carried over from the electric utility field,
where it is more nearly applicable, because electricity is
not storable whereas gas is. True, there actually are
some minor interruptions of gas service, and these lend
credibility to the idea; but this is like presenting a 90
percent fiction as the truth.

What we seem to have here is a situation in which
every interest but the consumer's is served. Various in-
dustry branches, the FPC, and the state commissions
have cooperated in bringing the price of gas up to the
level of competing fuels. Perhaps, on a philosophical
view, regulation could not very well have halted the trend
short of that level — which merely raises the question
whether all the regulatory proceedings were worth while
in the first place.

What is more disturbing is that these processes do not
necessarily work in reverse. If in the future, competition
prevents increases in industrial prices, there will be ef-
forts to load any cost increases even more heavily on the
consumer. Also, if coal and fuel oil prices should continue
to decline, the consumption of gas would fall and the
price of gas also would be under pressure; but it is not at
all clear that the consumer would then gain any of the
benefit; he might even be asked to pay more to compen-
sate for the loss of returns from industrial uses. vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Unemployment of Young Persons

Unemployment, which has always been greater for
young persons under 25 than for older workers, reached
33 percent in 1962. The reasons for this relatively high
rate of unemployment are numerous. A very large pro-
portion of the new entrants in the labor market are in
this group. These young people frequently hold part-time
jobs and tend to change jobs more often as they seek the
"right" job. Finally young people tend to be more sus-
ceptible to layoffs because of inexperience and a lack of
seniority.

Although the rate of unemployment is high among all
young people, it is higher for those who dropped out of
school before graduating than for high school graduates,
as indicated in the chart. Rates of unemployment for both
dropouts and graduates decline as they grow older and
obtain more job experience, but many school dropouts
are unable to overcome their disadvantages and continue
to suffer. Those who dropped out of school in 1959 had
a rate of unemployment in October, 1962, which was
twice as high as that for the high school graduates of
1959. Altogether, 500,000 dropouts from 16 to 24 years
of age were unemployed in October of 1962. This total
accounted for about 50 percent of all persons of these
ages who were unemployed and out of school, and for
about 13 percent of all unemployed persons.

Even when they do find employment, school dropouts
obtain much less desirable jobs than those held by high
school graduates. In October, 1962, about 45 percent of
all dropouts from 16 to 24 years of age were employed
as laborers as compared with only 19 percent of those
who had graduated from high school. Conversely, 41 per-

UNEMPLOYMENT RATES, HIGH SCHOOL

GRADUATES AND DROPOUTS,

OCTOBER, 1962

DATE OP GRADUATION OR LEFT SCHOOL

Source: U.S. Department of Labor.

cent of the high school graduates were clerical workers
as compared with only 11 percent of the dropouts.

State Government Finances

The general revenue of state governments rose 8.6
percent in 1962 to a record $31.2 billion. This was 83
percent of all revenue received by state governments, the
rest consisting of sales from state-operated liquor stores
and investment earnings received by employee retire-
ment, unemployment compensation, and other insurance
trust systems.

Taxes accounted for 66 percent, charges and miscel-
laneous sources 10 percent, and intergovernmental rev-
enue sources 24 percent. General sales and gross receipts
taxes were the largest producers of tax revenue, yielding
$5.1 billion, or 25 percent of total state tax revenues in
1962, even though this kind of tax did not exist in 13
states. The next ranking source was individual and cor-
poration income taxes, which reached $4.0 billion.

During 1962 sales taxes on motor fuel continued their
gradual increase, rising 6.8 percent over the previous
year to $3.7 billion. Other sales taxes on such items as
tobacco and alcoholic beverages rose 5.6 percent to $3.3
billion during 1962.

Transistor Market Growth

The transistor industry is ready to invade two fertile
market areas: television and home appliances. Few in-
dustries have grown as rapidly as the transistor industry.
There have been several reasons for this rapid growth
which have enabled transistors to take over some of the
communication, computer, and industrial markets, accord-
ing to Business Week. First is the attractiveness of the
field to young scientists as a result of government support
for research and the policy of cross-licensing of basic
patents. Second, the markets for semiconductors were
already well established and the transistors improved such
products as computers and portable radios. Finally, the
price dropped rapidly, making transistors more attractive
from a cost standpoint.

The latest development in transistors is the decreasing
cost of producing the high reliability silicon transistor.
This new type of transistor has been gradually displacing
the germanium transistor.

Government Employment and Payrolls Rise

There were 9.4 million civilian public employees at the
end of October, 1962, 3.3 percent more than a year before.
The rise was accounted for mainly by state and local
governments, which increased their employment 300,000
to 6.0 million. At the same time, public payrolls reached
$4.0 billion, 11 percent above the level recorded a year
earlier. Of this total, state and local governments ac-
counted for $2.6 billion, which represented the same pi r
centage of the total public payroll as the year before.

Both the number of employees and the monthly pay-
rolls have shown their greatest increases over the last
decade at the state and local levels. During this period,
employment of state and local governments (on a full-
time equivalent basis) rose by S3 percent, whereas that
of the federal government decreased 2 percent. Payrolls
of state and local governments advanced 133 percent and
those of the federal government increased 57 percent.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Developments in Coal Production

In a report covering the past five years, the Illinois
Department of Mines and Minerals indicates that while
the number of coal mines in the State has been declining
each year, coal output has continued to rise.

During 1962, 116 mines produced 48.4 million tons; in
1958, 169 mines had produced 43.8 million tons. There has
also been a decline in employment, from 11,400 workers in
1958 to 8,800 in 1962. The average number of days
worked per mine increased steadily, however.

In March, 1963, the output from 96 mines totaled
4.2 million tons, an increase of 5 percent over March,
1962. The highest production for March, 1963, was re-
ported for St. Clair County, where 7 mines turned out
543,000 tons. Williamson County ranked second with an
output of 503,000 tons from 16 mines. Fulton and Chris-
tian counties also produced about 500,000 tons each.

Three new mines are to start production soon; they
are located near the towns of Benton, Hillsboro, and
Percy. The state's productive capacity will be increased
by 4 million tons, and jobs for 700 persons will be pro-
vided by these new mines.

Regional Income in Illinois

In 1960, Illinois per capita income averaged $2,613, a
figure higher than that of any other Midwestern state
and 18 percent above the United States average.

In northern Illinois per capita incomes were generally
higher than in other parts of the State. The average for
the Chicago area was $2,800. Regions surrounding the
larger downstate urban centers — Rockford, Rock Island,
Peoria, Springfield, and Champaign-Urbana — had aver-
ages ranging from $2,000 to $2,200. In the Quincy,

ILLINOIS TOLLWAY REVENUES

IILLIONS

JFMAMJJASON

Source: Illinois State Toll Highway Commission.

Mattoon, East St. Louis, and extreme southern areas, per
capita incomes ranged from $1,400 to $1,800.

Regional income differences are chiefly explained by
three factors. First, there is a direct relationship between
the per capita income of an area and the proportion of
its population in the labor force as well as actually em-
ployed. As young adults move to the cities to seek
employment, the work force in rural areas is decreased
and the cities have a larger proportion of the population
in the labor force.

Second, regions whose economies are based on manu-
facturing, central office and warehousing activities, spe-
cialized services, and state and national governmental
functions tend to have higher income levels. Predomi-
nant in lower-income areas are local trade and services,
general farming, and local government.

Third, there are regional differences among earning
levels of similar enterprises and occupations. For exam-
ple, in 1958 average annual earnings of manufacturing,
trade, and construction were all above average in the
Chicago area, but in the larger downstate metropolitan
areas earnings in these industries that year were 80 to
100 percent of the state average, and in the less urbanized
areas earnings were 60 to 75 percent of the state average.

Sales Taxes Increase

In 1962, Illinois purchasers paid $511 million in sales
taxes. According to the State Revenue Department,
revenue to the State from the sales tax was $501 million
(the seller receives a discount of 2 percent).

Because the sales tax rate increased from 3 to 3.5
percent, a direct comparison with 1961 figures cannot be
made. However, 1962 sales of taxable items exceeded
1961 sales by over $1 billion. Moreover, 1962 collections
came from 160,517 retailers and wholesalers, as compared
with 150,648 in 1961.

The largest amount of revenue in 1962 — $104.5 mil-
lion— was derived from food sales. Receipts from other
kinds of businesses were automotive and filling stations,
$98.7 million; general merchandise, $61.4 million; lumber
and building hardware, $44.9 million ; drinking and eating
places, $44.0 million; manufacturers, $33.4 million; ap-
parel, $25.6 million ; furniture, household goods, and radio
stores, $18.3 million; and miscellaneous, $70 million.

Tollway Revenue Increases

Revenue of the Illinois Tollway during its fourth full
year of operation was equal to 187 percent of its first
year's revenue. According to the Illinois State Toll High-
way Commission, this rate of growth has been greater
than that of any other major tollroad in the nation.

Gross revenues for 1962 totaled $28.8 million, 14 per-
cent over 1961. Net operating revenues of $21.7 million
represented an increase of 17 percent and an earning of
126 percent of the annual interest charge of $17.2 million
on the outstanding bond obligation of $441.3 million.

The commission estimated at the beginning of this
year that 1963 and 1964 net revenues will accumulate
sufficient funds to satisfy interest and reserve require-
ments ($43 million) and thus permit the first payments
into the sinking fund for the retirement of bonds in 1965.

Gross revenues for the first four months of 1963
declined 3.8 percent from the $7 million for the same
period of 1962. This was a result of loss of traffic to free
roads recently opened in the area. Adjusted toll revenues
through March, 1963, are shown on the chart.

[io:

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
March, 1963

Building

Permits1

(000)

Electric
Power Con-
sumption-
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales1

Bank
Debits5
(000,000)

(Feb., 1963.
(Mar., 1962.

Percentage change from IMar' 1962

NORTHERN ILLINOIS

Chicago

Percentage change from

Aurora

p . , , (Feb., 1963.

Percentage change from .... [m^ 1962

Elgin

Percentage change from. . • [m^ io6y
Joliet

Percentage change from. . . -jjyf^ 1962'
Kankakee

Percentage change from. . . . [m^ 1962'
Rock Island-Moline

Percentage change from. . . .{j^' 1962'

Percentage change from. . . .L^ l962'

CENTRAL ILLINOIS

Bloomington

Percentage change from.
Champaign-Urbana

/Feb., 1963.
\Mar., 1962.

(Feb., 1963.
IMar., 1962.

Percentage change from... {^.'S
Danville

Percentage change from.
Decatur

Percentage change from
Galesburg

Percentage change from. . . . [Mar!, 1962".
Peoria

/Feb., 1963.
■\Mar., 1962.

Percentage change from. . . . gjj^ gg-_
Quincy

Percentage change from.
Springfield

1,1,., I'KO

(Mar., 1962.

Percentage change from. . . {gj;; gg"

SOUTHERN ILLINOIS

East St. Louis

Percentage change from.
Alton

/Feb., 1963.
Mar., 1962

Percentage change from. . . . {*£■ gg-

Belleville

Percentage change from. . . .L^ ^'V

$34,937"
+2P.5
-4.5

$24,290
+62.3
-1.1

$ 890
-15.5
-51.1

$ 530

+742. 8
+27.9

$ 1,095

+132.9
$ 709
+1,487.2
+i5P.,?
$ 1,559
+417.1

-34.7
$ 1,239

+24.7
+3.4

$ 350

+138.1

-22.2

$ 643

rl, 171.0

+2.2

$ 419

+451.4

+20.7

$ 634

+P.2

$ 35

+438.8

-70.5

$ 502

-72.3

-42.5

$ 129

+ 70.7

-87.8

$ 1,300

-7P.J

+/0.5

$ 46

+ /-' 4

$ 188
+ /0J.<?
+5/ P
$ 379
+308.5
+267.4

,469,600"

-1.0

+4.7

,077,737
-0.2
+4.0

33,220
-1.0

+9.5

66,704'

+0.P

+9.2

14,648

-6.4

+ 10.2

19,616

-2.5

+11.0

19,676

-9.7

+8.5

38,652

+4.2

12,121

-3.1

+ 14.2

67,556"

-3.1

+5.9

15,451

-1.6

+4.2

46,059

-3.9

+2.5

17,097
-4.8
-0.0

26,644
+4.6
+1.1

14,420
-7.5

+15.8

$561,842"
-6.7
+ 6.5

$407,450

+6.2

$ 9,296

-4.8

+6.2

$ 6,329

+6.4

$10,926
-4.6
+6.7

$ 5,129
-7.4
+ 6.7

$11,410
-5.8
+ 11.4

$19,769
-6.9
+ 9.9

$ 6,196

-4.3
+8.4

$ 9,314
-3.6
+6.6

$ 5,828
-11.3
+4.0

$11,303
-4.0
+3.7

$ 4,364
-5.4
+ 10.3

$17,813
+0.2
+8.4

$ 5,069
-3.1
+4.5

$14,165
-7.3
+8.9

$ 7,669
-7.0
+0.8

$ 4,874
-3.3
+5.6

$ 4,938
-6.1
+5.7

+38

+46
-3

+35'
-1'

+42

+50'
+ 10'

+37'

+5'

$24,708"
+16.7

+5.2

$23,092

+ 17.2

+5.6

$ 94

+22.1

+5.3

$ 54

+ 14.3

0.0

$ 98

+13.4

$ 136|J
+ 15.5
+11.1

$ 221
+13.7

$ 98
+ 12.8
+1.0

$ 91
-0.1
+0.2

$ 55
+ 7.2
+2.7

$ 136
+10.8
+2.2

+8.4
+1.7
149
+6.2
+5.7

$ 125
+9.3

$ 50

+ 9.0

+ 7.1

" Total for cities listed. '' Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. ' Illinois Department of Revi nue.
Data are for February, 1963. Comparisons relate to January, 1963, and February, 1962. " Research Department oi Seventh Federal
Reserve Bank (Chicago). Percentages rounded bv source. 5 Federal Reserve Board. c Local post office reports. Four-week accounting
periods ending March 29, 1963, and March 30, 1962.

[11]

NDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

u.s.

'37 '45 '53 '60

362 1963

•29 '37 '45 '53

ANNUAL AVERAGE

DEPARTMENT STORE SALES (ADJ.)

f***

ILL.

1 US

COAL

PRODUCTION

\ •

U.S. \ x

1962 1963

BUSINESS LOANS

CASH FARM INCOME

.U.S.

11 ^

l Jl

\i\

^u.s.~

\f^

1962 1963

CONSTRUCTION CONTRACTS

/ *

J \

/U.S.

ELECTRIC POWER

PRODUCTION

v^Ay

Vwy/

ILL.^

-^Ks.

'60 1961 1962 1963

1961 1962 1963

0-^

5b^\

MLINOIS BUSINESS I^MfeW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN MAY

May was another month of strength in the economy.
The automotive industry produced more than 715,000 cars
and the inevitable comparison was made — it was the
highest May output since 1955. The steel industry was
turning out more than 2.6 million tons of ingots per week
during the second half of May but by the first of June
the rate of production was beginning to flag as buyers
completed inventory buildup and sat back to await the
outcome of contract talks. The production of fuel and
power did not change greatly from April. The FRB index
of industrial production advanced to 124 (1957-59 = 100)
after seasonal adjustment, another new record.

Capital Outlay Expectations Up Somewhat

The latest survey of anticipated outlays on plant and
equipment for 1963 indicates that businessmen have raised
their sights only slightly. Instead of the 4.8 percent in-
crease over 1962 projected in March, such spending is
now expected to be 5.2 percent higher and to reach a
record $39.2 billion. Actual expenditures in the first
quarter fell somewhat below the March expectation,
partly, it is thought, because of severe weather. The
current estimates for the final three quarters of 1963 are
$38.5 billion, $40 billion, and $41.3 billion.

The nation's railroads plan the biggest percentage in-
crease of any industry, according to the SEC and Depart-
ment of Commerce, with a 27 percent advance over 1962.
In the first-quarter survey, railroads expected their spend-
ing to lie 13 percent greater. Durable goods manufac-
turers estimate that their outlays will reach ^7.7 billion,
10 percent over 1962. Public utilities and producers of
nondurables plan 2 percent increases. Commercial and
other businesses now project a 7 percent advance over
1962. The expectations of mining companies are un-
changed— they still plan a 6 percent cut; and transpor-
tation firms other than railroads anticipate an 8 percent
reduction from 1962 instead of the 11 percent of the
March survey.

Change in Farm Support Program

A major shift occurred in the farm price support
program on May 21 when wheat fanners voted strongly
against the federal government's proposed coupling of
prices and stringent production controls in 1964. To some
degree, the negative vote reflected an expectation that
the Administration and the Congress would feel impelled

to set up a different program more to the liking of the
wheat growers. By mid-June, however, neither branch of
the government seemed to be so disposed.

Under the program as it now stands, wheat farmers
will receive a lower support price — $1.25 — for their
1964 crop if they accept acreage allotments. Those who
do not accept acreage allotments will have to sell their
crop on the open market. There is already a prospect that
farmers will sharply increase planted acreage in an effort
to offset the probable lower price, but such a move is
likely to be self-defeating. Thus next year may well see
a glut of cheap wheat.

Building Shows More Strength

New construction put in place in May was valued at
an estimated $5.5 billion, 15 percent higher than the month
before and 3 percent above May, 1963. The expected
seasonal gain between April and May is 11 percent. Both
private and public building activity advanced strongly.
Private construction, at $3.9 billion, was up 13 percent,
compared with the expected 10 percent.

Public construction was valued at $1.6 billion; the
gain of 20 percent over the month before was well above
the normal seasonal increase of 13 percent.

Employment Picture No Better

The persistent lag in employment was evident again
in May. The number of workers with jobs rose 954,000
to 69.1 million, a record for the month, but the increase
was less than expected for the season. Unemployment
was virtually unchanged at 4.1 million, whereas the
normal seasonal expectation would be a decline. As a
result of the less-than-seasonal improvement in employ-
ment and the lack of change in joblessness, the seasonally
adjusted rate of unemployment rose slightly to 5.9 percent
of tlic labor force.

The increase in the over-all rate of unemployment
reflected the continued deterioration in the job market
for young workers. The 1.2 million out-of-work teen-
agers now account for more than 25 percent of the un-
employed; and their unemployment rate of 18 percent in
May was the highest reached since 1949, when the BLS
began to keep records of unemployment among teenaged
workers. There is every prospect that this part of the
employment problem will become increasingly serious.

COMMON MARKET IMPLICATIONS FOR THE U.S.

By R. W. Bartlett

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie
Director

Ruth A. Birdzell
Executive Editor
Research Assistants

Robert C. Carey
Virginia G. Speers

Jack A. Rardin
Giselle Chesrow

Sober Look at Auto Demand

Automobile sales have been soaring above all expec-
tations. When the spurt started last October, there was
some tendency to explain it away as the result of tem-
porary factors. As it continued and grew, estimates of
1963 sales have continually been revised upwards, and
the industry has continually added units to its production
schedules. The spreading effects of this acceleration in
output have been felt throughout the economy.

Commonly overlooked in current discussions is the
fact that this most important industry is also one of the
most erratic industries. Extreme surges and declines alike
tend to be temporary. Experience provides no warrant
for the optimism that regards what is happening as a
"breakthrough" to still higher sales next year, and the
year after, and so on indefinitely.

Behind the Current Upsurge

All of the important factors behind auto demand have
proved favorable to strong sales this year. Most impor-
tant of these was the steady advance in employment and
consumer income over the two years since the recession
lows of 1961. After that relatively low year, sales in 1962
were about in line with expectations. The strong employ-
ment and income trends therefore became increasingly
favorable to some upgrading in the car stock.

Financing of purchases was made easier by the heavy
flow of savings to financial institutions and the resulting
competition for consumer instalment loans. The pro-
gressive easing of credit terms that had assisted car sales
in earlier postwar years has now reached a new extreme.
Reports indicate that cars are being sold on a 42-month
repayment basis and in some cases even on a 48-month
basis. Total consumer credit expanded at a seasonally
adjusted annual rate of $6.4 billion in April, and automo-
bile paper accounted for more than half of this total.

The stock market recovery also contributed to pur-
chases of new cars. Statistical tests show this to be a
significant influence on demand, and the approach to the
previous market peak has tended to stimulate the confi-
dence of buyers, lenders, and sellers.

Nevertheless, when account is taken of all these fac-
tors, they still do not explain entirely the high rate of
sales recently achieved. A correlation analysis that has
produced good results in most years places the estimate
for 1963 new passenger car registrations at 6.8 million.

However, the adjusted annual rate of sales in April and
May, including imports, was close to 8 million units, or
over a million more than this estimate. Since it now
seems unlikely that the year will average down to that
level in the last half, 1963 is likely to duplicate 1955 in
producing a large, not-wholly-explainable deviation over
the expected total.

In the past, deviations like this do not persist for long,
and year-to-year reversals largely explain the talk of a
two-year cycle in auto demand. Although such a cycle is
not well founded analytically, the reactions to extreme
rates of sales do make for sharp changes from one year
to the next. Furthermore, such reactions usually over-
carry. From the adjusted third quarter high in 1955,
sales dropped by over 2 million to the 1956 low. Even
with some cushioning effect from a tax cut, a similar
adjustment now might run to more than 20 percent of the
peak rate by next spring.

An Inventory Boomlet

A longer-range view of the situation also results in
indications of an annual rate of sales of about 7 million
cars. Replacement demand has moved up sharply from
the relatively low levels of the 1950's. Estimates indicate
that this year's replacements may top 5 million units —
approaching the average production of the early 1950's.
The expected growth in the car stock, assuming that
employment continues to grow steadily, is about 2 million
cars per year, and adding this to 5 million replacement
units results in a total not far from the above estimate
based on the correlation approach.

Replacement demand, given prosperity conditions,
should probably increase throughout the 1960's, ranging
up toward the 6 million cars which were produced on the
average during the late 1950's. The growth component,
however, depends on employment: If employment should
stop growing, there is no particular growth rate in the
car stock that can be depended on; and if employment
should fall, growth might cease, and, in fact, even re-
placement might be somewhat restricted for a while.

The significance of this lies in the fact that any cut-
backs in autos to correct for the current excess of sales
will slow the expansion of over-all production and em-
ployment. Moreover, autos are not the only factor in the
current inventory boomlet. The steel industry, too, has
been inflated by inventory buying, and it, too, is pretty
sure to cut back somewhat in the months ahead. In addi-
tion, housing starts also have been temporarily pushed
up to an unsustainable peak rate. So it seems quite likely
that the current expansion will slow in the near future.
With any such leveling in production, employment will
tend even more quickly to come to a standstill, and this
loss of support for growth will react on current demand.

The same conclusion may be reached by considering
the role of credit. The present high rate of expansion of
instalment debt holds a threat for future demand. Even
if car sales remain at the peak, repayments will tend to
catch up, and some of the stimulus of the credit expan-
sion would be lost. But if car sales decline, new credit
extensions may again fall below repayments, with a
deflationary impact in excess of $6.5 billion.

A sober look at the situation suggests, therefore, that
the reputation of the auto industry for erratic fluctua-
tions is again likely to be confirmed. Hardly any of the
factors currently boosting sales to new record highs can
be depended upon to prevent a substantial downward
adjustment in the year ahead. vlb

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

FARMING IN ILLINOIS

Agriculture is one of the largest and most basic of
Illinois industries. A $2.3 billion business, Illinois agri-
culture ranked fourth among the states last year in total
output and was the largest of any state east of the Missis-
sippi. In 1962, the state's productive farmlands accounted
for more than 6 percent of the nation's total cash farm
income (exclusive of government payments). Also, de-
spite its inland location, Illinois is the nation's third-
ranking state in agricultural exports, trailing only two
seacoast states, California and Texas.

There were approximately 150,000 farms in the State
last year, each averaging about 195 acres and having
annual receipts of $16,000. About two-fifths of these
farms were operated by full owners (compared with
three-fifths nationally), one-fourth by part owners, one-
third by tenants, and the remainder by farm managers.
Total farm population for the State is more than 500,000.

Farmlands nearly blanket Illinois. Almost 84 percent
(or 30 million acres) of the state's total land surface is
utilized by agriculture. Moreover, because so much of
the land is flat, tillable, productive, and near marketing
outlets, Illinois stands consistently among the top three
states in total acreage harvested. Last year, crops were
harvested on about two-thirds of the total Illinois farm
area, with the remainder in pastures and woodlands.

Four Decades of Change

Since 1920, Illinois farms have increased by one-half
in average acreage, but their numbers have declined by
more than one-third. A key factor in this shift toward
fewer but larger farms, both here and nationally, has
been the increasing utilization of mechanical power. To-
day, nearly all Illinois farms employ machinery to some
extent, compared with only an estimated 25 percent 40
years ago, when power was supplied mainly by horses and
mules; last year, the horse-mule population had dropped
below 74,000 from over a million in the early 1920's.
Even greater strides toward mechanization of Illinois
farms have been accomplished during the post-World
War II era; these are reflected by an 84 percent increase
in tractors and a 103 percent jump in motor trucks be-
tween 1946 and 1960. During the same period, the state's
farm labor force was halved. In all, the productivity of
the Illinois farm has more than doubled in the past 15
years.

Besides power, numerous advances in agricultural
methods and practices have helped farmers increase pro-
ductivity. For example, the widespread availability and
low cost of fertilizers, the utilization of efficient herbi-
cides and pesticides, and the development of better seed,
as well as the greater reliance upon scientific assistance
(as from soil testing stations), are among the many
influences in the spectacular jump in crop yields. Also,
farmer "know-how" in such matters as crop rotation,
tillage, soil conservation, and irrigation has been a factor
in increasing output. In addition, much progress has been
made in livestock care, feeding, and breeding.

Crops in Illinois

A variety of field crops and livestock products are
turned out in Illinois, but the state's agriculture is
basically tied to four main commodities: cattle, hogs,
corn, and soybeans. These products together accounted
for more than three-fourths of total receipts during 1961.

Unlike many states in which farmers find it more
profitable to specialize in either field crops or livestock,
the farmer here is in the fortunate position of being able
to obtain cash for his huge corn crop or to use it as a
feed grain. Moreover, the extensive corn lands can
easily be contracted if other crops suddenly rise in value.
The fact that 90 percent of the corn is used as feed grain
explains why cattle and hogs stand as the foremost com-
modities in the State; sales of these animals reached
$475 million and $461 million, respectively, in 1961.

First among the state's cash crops is, of course, corn,
nearly all of which today is hybrid compared with only 2
percent in 1936. In 1961, Illinois produced nearly one-
fifth of the nation's 3.6 billion bushel crop.

Illinois leads the nation in the production of soybeans.
Nearly one-fourth of the national yield came from Illinois
in 1961; the record 159 million bushel crop brought
Illinois farmers more than $358 million during that year.

Other farm commodities grown here also rank fairly
high nationally. For instance, the State in 1961 was
third in popcorn production, sixth in wheat and broom-
corn, eighth in hay and rye, eleventh in apples, and
fourth in total acreage of vegetables for processing.

Types of Illinois Farming

Although one or more of the state's four main com-
modities are found on a predominant number of Illinois
farms, diverse types of farming are pursued in different
areas of the State because of variations in such factors
as rainfall, length of growing season, soils, and location
relative to market.

For example, one of the more distinct types of farm-
ing— livestock raising and feeding — is most extensive
in counties west and north of the Illinois River. Large
numbers of swine and cattle are produced there mainly
as a means of marketing the region's heavy corn crop.

The emphasis on grain farming occurs mainly in the
east central and south central sections of the State.
There corn and soybeans are the outstanding cash crops,
but numerous other grains, including wheat, rye, oats, and
barley, are common.

Most prevalent in southern Illinois is mixed farming.
The extreme southern portion of this section is chiefly a
woodland and pasture area, its eastern edge grows live-
stock and grains, and the central part has a mixture of
crops on residential and part-time farms.

Both the northeastern ami southwestern corners of
the State are dotted with dairy and truck farms of vary-
ing sizes, which provide a fairly steady supply of fresh
foods for the heavily populated area reaching from Chi-
<■ : " '" kuckford and for ihe vicinity of St. Louis.

OW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'

Percentage changes, March, 1963, to April, 1963

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

fc:

EMPLOYMENT- MANUFACTURING
l 1 l

l f l

CONSTRUCTION CONTRACTS

PARTMENT STORE SA

_ES

f","V;,'::"";
BANK DEBITS

FARM PRICES

■ ill.

a US.

Tally adjusted, n.a. Not available.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. . .
Weekly earnings — manufacturing3

Dept. store sales in Chicago1

Consumer prices in Chicago5

Construction contracts6

Bank debits7

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

'Fed. Power Comm.; 2 HI. Dept. of Mines; :illl. Dept. of Labor;
•Fed. Kes. Bank. 7th Dist.; ■' U.S. Ilur. of Labor Statistics; « F. W.
Dodge Corp.; 'Fed. Res. Bd.; "111. Crop Rpts.j "Life Ins. Agcy. Manag.
Assn.; ,0 111. Ceol. Survey.

■ Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

my'

Personal income1 .
Manufacturing1

Sales

Inventories. . . .
New construction

Private resident!

Private nonresidential. . . .

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . .

Nondurable manufactures

Minerals

Manufacturing employment

Production workers

Factory worker earnings4

Average hours worked . . .

Average hourly earnings.

Average weekly earnings.

Construction contracts5

Department store sales2. . .

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual rate

in billion $

455.8*

24.4
17.0
16.2

25.5=
17.6°
7.9°

63. 3b
48. 9b
40.8"
28.7°

Indexes
(1957-59
= 100)
122"
123*
123"
107"

100"

100
114
115
138
116"
106

100

99
100

100
106

78-i

Percentage
change from

Mar.
1963

+ 17.9
+ 1.7
+ 9.6

+ 0.9
+ 5.3
- 7.5

+ 1.5
+ 2.0
+ 0.8

+ 2.0

+ 1.1

- 0.7
+ 0.4

- 0.3

+ 11.2

- 2.5
0.0

- 0.1
0.0

+ 0.4

- 0 2

+ 1.0

0.0

+ 1.3

+ 4.2
+ 2.6

+ 5.4
+ 1.4
+ 6.2

+ 15.2
+ 5.9
+42.8

+ 10.4
+ 11.5
+ 8.0

- 5.4

4.0
4.0
4.3
1.0

- 1.2
+ 2.5
+ 1.2
+ 3.2
+ 2.7
+ 1.0

- 0.6

- 1.5

- 0 8

- 0.5

0.0
+ 1.0

- 1.3

1 U.S. Dept. of Commerce; ■ Federal Reserve Board; 3 U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; 6 F. \V. Dodge Corp.

" Seasonally adjusted. b End of month. ° Data for March, 1963,
compared with February, 1963, and March, 1962. d Based on official

UNITED STATES WEEKLY BUSINESS STATISTICS

May 25 May 18 May 11

May 4 Apr. 27

May 26

Production;

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous. . . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,546

16,523

177

7,492

100 0
100.5
95 5

1,504
16,787

192
7,515

139.8

601

110

99 9
100.5

95 1

1,536
16,529

201
7,485

136.8

599

127

99.8
100.5
94.7

1,498
16,279

195
7,460

136.6

591

113

99.9
100.5

93.7

1,511
16,495
186
7,493
136.8
577
113

99.8
99.6
93.4

1,362
16,202
180
7,279
88.4
580
106

100.2"
100.9"

94.5

32,978
285

Source: Survey of Current Business, Weekly Sup fie

Monthly index fur May. 1062

[ 4 ]

RECENT ECONOMIC CHANGES

Wholesale Price Index Declines

The wholesale price index fell 0.1 percent to 99.8
(1957-59=100) in April. This was 0.6 percent below
the level recorded in April, 1962, and the lowest point
since June, 1961. Seasonal declines in prices of heating
fuels and manufactured animal feeds were the principal
causes of a 0.2 percent decline in the industrial com-
modities index. Among other industrial commodities
prices rose for some finished steel products, nonferrous
scrap, and primary metals, but these increases were offset
by declines for some items of farm equipment, electrical
machinery and equipment, and motor vehicles.

The farm products index dropped 1.5 percent from
the previous year as supplies of most livestock increased,
sales of live poultry reached record levels, marketings
of fruits and vegetables reached or approached seasonal
highs, and an unusually large drop in egg prices occurred
because of an unanticipated increase in egg production.
Among processed foods price decreases for refined
vegetable oils, poultry, and dairy products were largely
offset by higher prices for refined sugar, canned and
frozen vegetables, and packaged beverages.

Automobile Sales Up

Automobile production and sales surged ahead to
record levels during the first five months of 1963. New
passenger car sales for the month of May were 705,000,
as indicated in the chart. This brought the five-month
total to 3.1 million units, 9.2 percent ahead of the same
months of 1955; the seasonally adjusted annual rate,
however, was only slightly above the record 7.4 million
cars sold in 1955. In addition, sales of trucks and com-
mercial cars were running at an annual rate of 1.2
million, which would be 25.4 percent greater than 1962,
the previous high year for these vehicles.

NEW MOTOR VEHICLES

>1 ,.

' ' '

1 ' '

7 0Q

1963
1955

<2^

J 1

1961 \

; /
I /

c-J

400

300

, , 1

Sources: U.S. Department of Commerce and Automobile

Manufacturers Association.

Balance of Payments

The balance of international payments during the
first quarter worsened slightly relative to that of the
last quarter of 1962. The adverse balance, after seasonal
adjustments, was $820 million during the first quarter of
the year, a rise of $29 million from the fourth quarter
of 1962 and about $275 million from the average quarterly
rate during 1962 as a whole.

The marked deterioration in the first quarter of 1963
was chiefly due to two factors. First, advance debt re-
payments or repurchases of debt obligations by foreign
countries, which reached record levels during 1962, had
returned to normal. Second, the large commitments of
foreign funds for military purchases had also slackened
considerably. These two types of transactions, which
averaged about $285 million per quarter in 1962, were
only about $40 million during the first quarter of this
year. The first-quarter balance may also have been
affected adversely by the dockworker strike in January.
Merchandise exports, excluding military transactions but
including shipments financed by the government through
nonmilitary grants and loans or the acceptance of foreign
currencies, were at a seasonally adjusted annual rate of
about $19.8 billion, approximately the same as in the
fourth quarter of last year.

Motor Freight Tonnage Up

Intercity motor freight tonnage during the first quar-
ter of 1963 was 1.1 percent higher than during the cor-
responding period of 1962, according to statistics issued
by the American Trucking Association. Freight carriers
in six of the nine geographical regions showed tonnage
increases over the first quarter of 1962, ranging from
0.5 percent for motor carriers in the Central region to
5.2 percent for those located in the Northwestern region.
Decreases were recorded in the New England and Middle
Atlantic regions, where tonnages dropped 1.1 and 1.6
percent respectively.

Farm Labor Supply

At the end of April 6.4 million persons were working
on farms. This was 13 percent more than a month
earlier, but 3 percent less than at the corresponding time
in 1962. To a large degree, the increase over the month
of March was due to the sustained dry weather in the
latter part of April which permitted long days of intense
field work. However, many fields in the eastern half of
the country were becoming so dry that planting of some
crops was being postponed until moisture was received.

Family workers at the end of the month totaled 4.9
million persons, 3 percent less than a year earlier, and
the number of hired workers reached 1.5 million, also
down 3 percent from April, 1962.

Personal Income Rises

Personal income in April was at a seasonally adjusted
annual rate of $455.8 billion, $2.5 billion higher than in
March, according to the United States Department of
Commerce. About 40 percent of the rise came from a
$1.1 billion increase in wages and salaries of manufac-
turing employees; most of this resulted from higher
employment, as over-all hours worked per week and aver-
age hourly earnings showed little change on a seasonally
(Continued on page 8)

[ 5 ]

IMPLICATIONS OF THE COMMON MARKET
FOR THE UNITED STATES

ROLAND W. BARTLETT, Professor of Agricultural Economics

From a long-run viewpoint, the economic integration
of Belgium, France, West Germany, Italy, Luxembourg,
and the Netherlands into what is known as the European
Common Market is one of the most important events
since World War II. Growing pains are inevitable when
such far-reaching changes take place within a given area
and when these changes interact with the economic
forces in other nations. In this article an attempt is made
to set forth some of the long-run implications of the
European Common Market as related to the economy of
the United States. Some bases of comparison are shown
in Table 1.

ECM Imports from U.S. Rise with GNP

On the basis of past evidence, it is probable that as
the gross national product (GNP) of the Common Mar-
ket countries increases, their total demand for United
States products will increase. During the past decade
the GNP growth rate in the Common Market countries
was 5.3 percent annually, or a total increase of 43 per-
cent from 1953 to 1961. In 1961, American exports to
Common Market countries totaled $3.6 billion, more than
twice the volume in 1953 ($1.6 billion). During this
period the growth rate of imports of United States
products into Common Market countries was faster than
the GNP growth rate of these countries. A statistical
study has shown that each 10 percent increase in the
average GNP in Common Market countries from 1950
to 1959 was accompanied by a 16 percent increase in
United States imports into these countries.

In analyzing these changes, certain facts should be
kept in mind. Although our exports to the Common
Market fell slightly in 1958 and 1959, the Common
Market is now buying more of our products than when
Marshall Plan funds were at their peak. This indicates
the commercial demand for United States products to
meet the needs of their rapidly expanding economies.

The full effect of external tariffs on products imported
has not yet been felt. As the Common Market nears the
1970 date for completion of its economic integration,
internal tariffs between the six member nations will go
to zero, and all countries will apply the same external
tariffs. These will particularly affect our agricultural
products, which in 1961 were $1.1 billion of the $3.6
billion total exports to Common Market countries.

TABLE 1. COMPARISONS BETWEEN THE

COMMON MARKET, THE EUROPEAN

FREE TRADE AREA, AND THE U.S.

Population, 1960 (millions)

Gross national product 1960

(billions of dollars)

GNP growth rate, 1951 to 1960

(percent)

Industrial production growth

rate, 1951 to 1960 (percent)..

170.0

180 9

5.3

7.4

European

Free Trade

Area"

90.1

109.9

3.2

3.6

182.3

504 . 4
3.2
3.3

•Includes Austria, Denmark, Norway, Portugal, United
Kingdom, Sweden, and Switzu l.ui.l.

At this time, it is impossible to know how much
effect the Trade Expansion Act of 1962 will have in
increasing trade. The purpose of this act was to give
the President power to negotiate lower tariffs on certain
products in return for tariff reductions by the Common
Market. The Treaty of Rome made definite provision for
the lowering of Common Market tariffs when this would
be advantageous. Recent reports indicate that their
tariffs probably will be reduced for some United States
products in return for lowered tariffs on Common Mar-
ket products sold to us. Important decisions are expected
to take place at the sixth or "Kennedy round" of nego-
tiations, tentatively scheduled to begin in March, 1964.

Diverse Effects of ECM Policies

Keeping in mind that as the Common Market economy
grows, its import requirements from the United States
grow even faster, one must also remember that under
new rules of business, some products will be helped,
others will not be affected much one way or the other,
and still other products will be hurt.

Of the total exports of $2,359 million from the United
States to the Common Market countries, 30.0 percent
were manufactures and equipment; 24.6 percent were
foods and tobacco; 20.5 percent were crude materials;
12.3 percent were chemicals; 7.8 percent were mineral
fuels ; and 4.3 percent were fats and oils.

The United States can still produce many products
cheaper than Common Market countries. Concerning this,
a recent study stated:

Experience shows that highly industrialized nations tend to
exchange manufactured goods that are superficially the same.
Steel comes in many thousands of shapes, sizes, and alloys.
Machines are designed in such an infinite variety of models,
styles, and specifications that it becomes virtually impossible for
one country to produce all components best. For example, the
U.S. both exports and imports textile machinery, electric motors
and a very large number of other finished goods, component
parts and accessories. (From The New European Market, the
Chase Manhattan Bank, 1961, p. 25.)

Production and sales of tabulating machines exempli-
fies the international nature of some products that are
becoming increasingly important in a precision age. One
United States company operating on an international
basis sells eight different models of tabulating machines.
Seven of the eight are produced in the United States and
one, a highly complicated machine with a "memory," is
produced in West Germany. The eight models are avail-
able for sale throughout the United States and Europe.
In a recent year the volume of our exports of machines
was about three times the volume of "memory" machines
imported.

Furthermore, an outstanding characteristic of our
economy has been its growing emphasis on research to
improve products and reduce costs. A product which is
off the world market today because it costs too much
may be on tomorrow. Technical progress within the
United States should continue to be rapid and exportable
in coming years.

The demand for our raw materials is also likely to
increase. Raw materials — including ores, textile fibers,
nonmineral oils such as soybean oil, and raw chemicals —

[ 6 ]

are likely to be little affected by tariff changes in the
Common Market. At present, about 25 percent of United
States exports to these countries are in this category.
Industrial growth in Common Market countries is likely
to increase imports of these products from the United
States.

In contrast, demand for machinery, electrical and
transportation equipment, instruments, and finished chem-
icals is likely to decrease. Over 40 percent of all United
States exports to the Common Market are machinery,
transportation equipment, and finished chemicals. Be-
cause of the Common Market's increasing industrializa-
tion and the accompanying external tariffs, many of our
producers will find European competition difficult to
meet, and some products now successfully exported to
Europe may cease to move there. Also, our manufac-
turers will meet increasing competition from Common
Market countries in markets outside Europe. European
countries must export goods in order to pay for imports
of raw materials, and Common Market exports now
exceed ours in total volume.

Demand for American-produced food is also likely to
decrease. As stated, approximately 25 percent of our
total exports to Common Market countries are food and
tobacco. As it progresses, Common Market agricultural
policy will extend national preference to their own pro-
ducers. This, in turn, will stimulate competition among
Common Market farmers and encourage more efficient
production of food within this area. The combined effect
of these two factors is likely to decrease imports. In-
creased demand by Common Market countries for soy-
beans and oil seeds, inedible tallow and fats, and cotton
will not fully offset decreased demand for meats (includ-
ing broilers), wheat, and vegetable oils and lard. While
dependent upon many varying factors, our exports of
feed grains to the Common Market probably will be
maintained at the present volume until the end of the
1960's.

On balance, it appears probable that after the Com-
mon Market countries become fully integrated, the total
of our food exports to these countries may be somewhat
less than before they were economically integrated. On
the more favorable side, as our industry is required to
produce more goods for Common Market countries, in-
creased payrolls to our industrial workers will tend to
increase domestic demand for livestock and livestock
products. Also, it is possible that some United States
exports, such as feed grains, may be permitted on a
permanent basis with zero or very low tariffs.

U.S. Investment in the ECM

The development of the European Common Market
following freer convertibility of currencies, more stable
governments, and a common external tariff on many
products has encouraged many of our large corporations
to set up production facilities in Europe. In 1950, United
States firms had $637 million invested in Common Market
countries. By 1961 this had increased to over $2,580
million.

Between 1958 and 1962, 1,298 American firms started
new operations in Common Market countries, entered
into joint ventures with European partners, or licensed
manufacture of their products by a firm in these
countries (Table 2). Experience in large-scale distribu-
tion and marketing and mass production techniques used
in the United States are being absorbed in Europe along
with investments. Although more than half of the Ameri-
can firms in Common Market countries are in manufac-

TABLE 2. U.S. INVESTMENTS IN ECM, 1958-62"

Industry

Number
of firms

Percent

of total

231
220
123
89
77
71
69
46
40
332

17.8

16.9

Electrical machinery and electronics. . .
Basic metals and metal products

9.5
6.9
5.9

5.5

5.3

3.5

3.1

25.6

1,298

100.0

a Data obtained through the courtesy of Wolfgang Schoell-
kopf, European Economic Specialist, Chase Manhattan Bank.

turing and about a third in petroleum production, new
opportunities (as in supermarkets and the manufacture
of ready-made clothing) are opening up in these coun-
tries. Where operating costs are lower than in the
United States, the establishment of a plant in Common
Market countries allows an American firm the oppor-
tunity to compete on an equal footing with European
producers and to protect its markets in other countries.

Although United States investment in all European
countries, including those in the Common Market, is still
less than 1 percent of that in the United States, unit
profits made in European business have tended to be
higher than those in domestic markets and are strength-
ening the financial position of investing American firms.

Pace Setters of Economic Growth

Between 1950 and 1959, according to information
assembled by the Joint Economic Committee, the esti-
mated GNP in the Western alliance increased from $709
billion to $1,013 billion, a net increase of 43 percent, or at
an average rate of 4 percent annually. In the Sino-Soviet
bloc, the estimated GNP increased from $216 billion in
1950 to $411 billion in 1959, a net increase of 90 percent,
or at an average rate of 7.5 percent annually.

Common Market countries have had a high GNP
growth rate in recent years. Between 1951 and 1960,
Germany had the fastest GNP growth rate, 7.2 percent,
followed by Italy, 5.8 percent, and the Netherlands, 5.1
percent. For all Common Market countries, the average
was 5.3 percent. The growth rate of the OAS, SEATO,
and the bilateral allies between 1950 and 1959 was 5
percent, or slightly under that of the Common Market
countries. This compared with a growth rate of 3.25
percent for the United States.

In 1959 the GNP in the Common Market countries
averaged $1,239 per person. At a growth rate of 5.3
percent, the annual increase averaged $66 per person.
In the United States, with a 1959 GNP of $2,698 per
person and an annual growth rate of 3.25 percent, the
annual increase amounted to $88 per person, slightly
above that of the Common Market countries. As GNP
im n ases, the GNP growth rate tends to decrease.

Common Market countries are now the pace setters
m business competition for all countries in the Western
alliance, including the United States. As such, these
countries are helping the Western alliance to attain an
improved standard of living for its people as well as to
maintain economic superiority over the Sino-Soviet bloc.

Other Probable Changes

Though temporarily halted, eventual

itcgration of

[ 7 ]

the United Kingdom and other countries of the European
Free Trade Area into the ECM, either as members or
associate members, is probable. Application of the law
of comparative advantage to all or most of the countries
in Western Europe will make possible an economy that
will rank in output with those of the United States and
Soviet Russia. Broadening of the ECM to include other
European countries will help to increase further the
market for American products.

In the second place, as GNP in European countries
increases, this will make it possible for them to assume a
larger share of costs both for military defense and for
the development of underdeveloped nations.

Finally, with a century in retrospect during which
France and Germany engaged in three major wars, eco-
nomic integration of these and other countries in Europe
has indefinitely postponed or permanently averted the
possibility of another war between these countries. This
is of major importance to the United States because of
our military commitments in Europe.

Recent Economic Changes

(Continued from page 5)
adjusted basis. The remaining $1.4 billion of the ad-
vance was accounted for by small gains in payrolls in
contract construction and state and local governments
and in such nonwage income as proprietors' income,
dividends, and rental income.

The main cause of the substantially higher rate at
which personal income has been rising during the early
part of this year is the increase of wage payments in
the commodity-producing industries, the largest single
source of personal income. During the last eight months
of 1962 payrolls in the commodity-producing industries
declined $200 million but in the first four months of
1963 they increased $2.7 billion.

RETAIL PRICES OF BEEF AND PORK

CENTS PER POUND

BEEF

EXCLUDING "SPECIALS" y

\
INCLUDING

SPECIALS"

POP,

EXCLUDING

SPECIALS" /r

"\ "^-_ "

INCLUDING

"SPECIALS"

. 1 ■ '

S O N D

Source: U.S. Department of Agriculture, Marketing and
Transportation Situation, May, 1963, p. 18.

Retail Prices of Beef and Pork

Since mid-1962, livestock and meat prices have been
beset by a series of changes in supplies. In the late sum-
mer and early fall, prices firmed up as farmers held their
meat animals off the market. In December, however, the
situation changed as the marketing of livestock rose
sharply, causing prices to decline in several market
centers and subsequently at wholesale and retail. In
addition to these increases in the beef supply, pork and
poultry supplies were also much higher during the last
quarter of 1962 and the first quarter of 1963.

In the past, the pattern of retail price adjustment to
substantial changes in supplies has been very similar to
that shown in the accompanying chart. In the five periods
of price changes since 1950, regular retail beef prices
did not fall as fast or as far as might have been ex-
pected, and they did not increase as rapidly or as much
when prices were rising. Retailers have tended to hold
their regular prices steady and adjust to temporary
changes in supply by means of "specials" for which prices
are temporarily reduced. Prices exclusive of specials
show considerably less variation than those which include
specials. At the chart implies, when retail prices are
rising, the difference between regular and special prices
declines ; and when prices are falling, this spread in-
creases as retailers try to move the larger supplies at
lower prices. Eventually regular prices are reduced when
it becomes clear to the merchant that the supply change
is permanent in character and that competitors are also
likely to lower their regular prices.

Highway Construction

The Bureau of Public Roads in its annual report for
1962 estimated that capital expenditures for all roads and
streets during 1963 by all levels of government will in-
crease 8.3 percent over the $7.2 billion spent last year.
Of this anticipated outlay, $6.1 billion will be spent on
construction and $1.7 billion on right-of-way purchases
and engineering. The anticipated increase reflects a
step-up in both the Interstate Highway program and the
ABC program of matching funds for state and local
roads.

As of the end of 1962 more than $15 billion had been
expended on the National System of Interstate and De-
fense Highways. Work completed had cost $7.8 billion,
of which $6.5 billion was for construction and $1.3 billion
for engineering and right-of-way acquisition. An addi-
tional ^7.3 billion of work was under way or authorized
at the close of 1962. Of this amount $4.4 billion was for
construction and $2.9 billion for engineering and right-
of-way acquisition. In progress at the end of the year
was the construction of 4,341 miles and the engineering
or right-of-way acquisition on another 10,995 miles. Al-
together some form of work was completed or under way
on 29,632 miles of interstate highways at the end of
1962, about 72 percent of the total mileage.

In addition to the Interstate System more than $14
billion has been spent or authorized under the ABC
program of federal assistance for the improvement of
primary, secondary, and urban roads and streets since
July 1, 1956. Construction involving 149,570 miles and
$9.8 billion had been completed by the end of 1962, and
work was under way on 20,578 miles at a cost of $2.9
billion. In addition, $686 million of engineering and
right-of-way acquisition work had been completed and
$538 million worth was under way.

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Measuring Metropolitan Markets

The Office of Distribution Services, United States
Department of Commerce, has just issued Measuring
Metropolitan Markets. Designed to serve as a guideline
to business in selecting promising sales areas, this pub-
lication analyzes and explains the application of market-
ing data available from the federal government on a
geographical basis for each of the 215 areas of the
country which are classified as standard metropolitan
statistical areas (SMSA's).

For the marketing analyst seeking to evaluate a par-
ticular area, a wealth of United States government
statistical information is available, particularly in publi-
cations of the Bureau of the Census. Census data are
useful in determining such things as the size and char-
acteristics of a market, estimating sales potentials,
setting up sales quotas, defining particular sales terri-
tories, and allocating the advertising dollar by medium
and geographic area. However, one major difficulty in
putting such information to use is that the data for par-
ticular SMSA's are scattered throughout literally scores
of separate tables in numerous publications of the
various censuses involved. Thus the purpose of this
manual is to identify these data and to indicate how the

CONSUMER UNIT INCOME, 1947 AND 1962

Number of
consumer units
(Millions)
60 ~~

1962

30 —

10 —

$5,000

to
$10,000

$5,000 :■

to \

$10,000 '■:

Source: U.S. Department of Con
rent Business, April, 1963, p. 14.

ofCn

data can be integrated, analyzed, and correlated to enable
effective market evaluation studies to be accomplished.

The publication may be obtained from the Superin-
tendent of Documents, United States Government Print-
ing Office, Washington 25, D. C, or through United
States Department of Commerce Field Offices located
throughout the country ; the price is 35 cents.

Lumber Industry Change

The United States lumber industry, which comprises
approximately 32,000 establishments and employs about
240,000 people, is facing a number of difficult problems.
First, it suffers from an oversupply of lumber caused by
a decline in the construction of single-family houses
and by competition from other materials. Second, it
surfers from outdated and obsolete layout and equipment
in many mills. A third problem of the industry is the
increase in lumber imports, mainly softwood, from
Canada.

According to the Business and Defense Services
Administration of the Department of Commerce, Lumber
needs in the construction industry during 1963 are ex-
pected to equal or exceed those in 1962 as a rise of 3.3
percent is anticipated in public and private construction.
In addition, a larger outlay for residential alterations,
repairs, and nonresidential construction than in 1962 is in
prospect. The pallet industry, which last year used 1.7
billion board feet of lumber, is the fastest growing
lumber-consuming industry and the increase this year in
its use of domestic products is estimated at 5 to 7 per-
cent. The use of lumber for containers is expected to be
5 percent greater than in 1962. Household furniture
may use 4 percent more lumber than in 1962 and other
forms of furniture anticipate a 2 to 3 percent rise over
1962. In addition new orders from railroad companies
indicate that 15 percent more freight cars will be built
and 5 percent more railroad ties will be made during 1963.

Shift in Distribution of Income

The total personal income of families and unattached
individuals reached $419 billion in 1962, an increase of
5.8 percent over 1961, according to the Department of
Commerce. The upward shift of units along the income
scale produced a gain of $120 and a total income of
$7,140 for the average consumer unit. In 1962 the pro-
portion of units earning below $5,000 declined 2 percent-
age points from 1961 whereas those earning $10,000 or
more increased 2 percentage points.

The effect of this shift in income distribution over
the past 15 years can be seen in the accompanying chart.
In 1947 only 4.5 percent of all consumer units had an
income of $10,000 or more, but in 1962 a full 19 percent
were in this group. Also in 1947, less than 20 percent of
the consumer units earned between $5,000 and $10,000
a year, but in 1962 oxer 40 percent had reached this
total. The number of consumer units earning less than
$5,000 a year fell from 76 percent in 1947 to 41 percent
in 1962. The distribution of consumer units has also
tended toward less concentration. Whereas 50 percent of
all units were in the three middle income brackets (of
$1,000 each) in 1947, the same percentage of units were
about evenly distributed among the five middle income
brackets in 1962.

[ 9 ]

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

100

U.S.

1962 1963

DEPARTMENT

STORE

SALES

(ADJ.

)

COAL

PRODUCTION

fV»fi

\ ,

,//

U.S. \ j.

/%:

'60 196 1 19 62

BUSINESS LOANS

CASH FARM INCOME

Ji.

Ai.s.

\il

^Vus.

wjv

'29 '37

1962 1963

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

150
100
50
0

xJv

Vv^v

/ ^

J \

,LL.^>

ILL. /^
/US.

— ''U.S.

'29 '37 '45 '53 '60

1962 1963

1961 1962 1963

'.'JLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN JUNE

The automotive industry maintained a fairly rapid
pace in June, producing 689,500 cars; this was down from
the .May level, as expected, but was more than a fifth
above production in June, 1962. Steel ingot tonnage fell
each week during June in the anticipated letdown as the
possibility of a strike receded and was finally eliminated.
By the end of the month, weekly output had dropped
about an eighth below the late-May high point. Petro-
leum, coal, and electric power production showed moder-
ate increases; paper and paperboard output showed little
change. The FRB index of industrial production rose to
125 (1957-59 = 100) after seasonal adjustment.

Adjusted retail sales were off very slightly from the
May figure to a total of $20.3 billion. Botli durables and
nondurables were much the same as in May, but shifts
occurred in some component groups. Furniture and
appliance sales were up, whereas sales of cars were down.
The index of department store sales rose from 117 (1957-
59 = 100) to 120.

Employment at Record

The number of employed workers in the June survey
week was up seasonally to the highest level on record;
a gain of 1.26 million in employment raised the total to
70.3 million. This was the first time the number of job-
holders had exceeded 70 million. Since June is a peak
employment month, however, the total is expected to fall
below that level in coming months. Nonagricultural em-
ployment ruse about as expected, by 482,000 to nearly
64.-4 million.

Unemployment was also higher, as a result of an in-
crease in the number of teenagers looking for jobs. The
total was somewhat more than 4.S million, 780,000 above
May; but because the rise was less than expected, the
seasonally adjusted rate of unemployment dropped back
to 5.7 percent from 5.9 percent.

Construction Shows Strong Rise

The total value of new construction put in place in

June has been estimated at $5.9 billion. The advance
over May exceeded seasonal expectations; the anticipated
gain was 6 percent but the actual rate was 8 percent.
Compared with the previous June, new construction ex-
penditures were 2 percent higher. Private construction
accounted for $4.2 billion of the total, up 6 percent
instead of the expected 4 percent; private nonfarm resi-

dential construction particularly showed considerable
strength. Public construction was valued at $1.7 billion, a
more-than-seasonal 13 percent above the May figure.

For the first half of the year, the value of new con-
struction was estimated at $28.8 billion, 4 percent higher
than in the corresponding period of 1962. Outlays for
new private projects totaled $20.9 billion, an increase of 5
percent; and spending for new public construction was
up 2 percent to $7.9 billion.

New Steel Agreement

The possibility of a steel strike this year was ended
on June 20 when the major steel companies and the
United Steelvvorkers reached a new agreement. The out-
standing feature of the new contract was a provision for
a 13-week vacation every five years for the half of each
company's hourly workers having the longest service.
The steel union has been seeking such a plan as one way
of making more jobs available in the industry.

Other terms provided for expanded insurance benefits,
tighter restrictions on contracting out work, a ban on
supervisors' doing work normally done by union mem-
bers, and discussion of management decisions to schedule
overtime operations instead of recalling laid-off workers.
No wage increase was included. The cost of the new
benefits is estimated at 15 cents an hour over the life of
the contract, which assures that there will be no strike
in the industry at least until May 1, 1965.

Instalment Credit Growth Slows

The rate of growth in instalment credit dropped
back in May after a spurt ahead in April. The total out-
standing at the end of May was $49.5 billion, $434 million
over April after adjustment for seasonal factors. The
April increase was $530 million. Much of the slowdown
occurred in instalment loans on automobiles; the net
addition in that category was $224 million in May. com-
pared with $294 million the month before. The advances
in credit outstanding on other consumer goods and in
personal loans were also smaller than those of the month
before, but in all three cases May increases about equaled
the first-quarter averag( S,

Noninstalment credit was up $89 million, mainly as a
result of additions to charge accounts, total consumer
credit outstanding, at nearly $04.2 billion, was more than
$5.8 billion above the \ ear-earlier figure.

DO WE OR DON'T WE WANT RAILROAD MERGERS?

By D. P. Locklin

Page 8

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Si^nc-l article^ represent the p. TMjnal views of the authors
and not necessarily those of the University or the College of Commerce.

•view will be sent free on request.

econd-class mail privileges authorized at Champaign, Illinois.

The

V Lewis Bassie
Director

Ruth A. Birdzell
Executive Editor

Research Assistants
Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

The Importance of Tax Cuts

The economic climate has improved greatly since last
fall, but optimism has risen even faster. Many optimists
now feel that a tax cut is unnecessary despite continuing
high unemployment, and some add that we should tighten
up on credit and raise interest rates instead.

These views may be attributed in part to the propen-
sity to project recent changes ahead into the future.
Thus, it seems that quarterly increases of $8 or $9 billion,
like those of the first two quarters, should extend to over
$30 billion for the year, and possibly to well over $60
billion by the end of 1964. It is an enticing arithmetical
exercise, though unfortunately without the support of
logic. Several important elements in the recent rise have
made temporary spurts to levels from which they may
soon turn down.

Turnabout Factors in the Recovery

Last month our sober look at auto demand led to the
conclusion that a substantial downward adjustment was
likely to get under way in the next few months. Sales
in the second quarter were pushed up to an extreme high,
beyond any rate that could readily be explained in terms
of the usual factors affecting consumer purchases. The
contribution of credit to this movement is also extreme,
and the gap between extensions and repayments is likely
to narrow in the months ahead, with adverse effects on
total consumption as well as on auto sales.

The boomlet in inventory buying is likewise subject to
an early downturn. This is probable even though inven-
tories were just about in line with needs at the beginning
of the year and there is no indication that the movement
is now out of hand. The buying movement began in steel,
in anticipation of a possible strike or higher prices, anil
is still largely confined to durable goods. Now some
increases in steel prices have been taken and a settle-
ment with tile Steelworkers has been reached. The need
for downward adjustment is evident in the recent rate of
steel production, which will probably have to drop back
JO percent just to prevent further accumulation ami more
if some excess stocks are liquidated. In over-all terms,
this is not a major depressant, but it is a distinct break
in the trend.

In home-building, also, there has recently been an
upward push to a level that semis well beyond tin- point
<i sustainability, The special article in the March issue

of this Review cited many reasons why the construction
outlook for this year was moderately unfavorable as com-
pared with last year. After a brief letdown in the winter
months, new housing starts were pushed up to extreme
highs in the second quarter. Since the unfavorable
factors in the picture have not been changed, this sharp
rise appears to be another of those aberrations which
cannot long persist.

In building as in auto sales, credit has been playing
a special role. The unusually heavy flow of funds into
time and savings deposits has produced strong lender
competition for mortgage loans. In combination with
strongly rising employment, this has encouraged building.
But the advance in employment is not likely to continue
at the same rate, and other demographic factors are still
unfavorable. Foreclosures and vacancies are relatively
high and rising, and building is increasingly concentrated
in apartments, the most volatile segment of the industry.
There is little that can now be done to stimulate housing
demand further, and any attempt to restrict credit may
have unusually severe consequences.

These are potent negative influences. Their effects
will not necessarily be overriding, but they are certainly-
important enough to change the character of the upswing
experienced so far in 1963. Together, they could bring
recovery to a standstill by the end of the year.

Some Favorable Factors

In assessing these changes from the standpoint of the
economy as a whole, it is necessary to consider also the
factors that are still favorable. Business outlays for plant
and equipment, government expenditures, and some con-
sumer items are expected to continue rising through 1963.

The latest Commerce-SEC survey of planned capital
expenditures confirms the earlier findings that put 1963
expenditures 5 percent over 1962. However, the first
quarter was revised downward, so the advance in the
remainder of the year is expected to be stronger. This
item is now scheduled to contribute an additional $3
billion to gross national product during the second half
of the year, but the picture here is not one of all-out boom
as has widely been asserted.

In terms of constant dollars, the investment rate may-
be back to the 1957 high by the end of the year. This
rate of investment appears adequate to meet expected
needs. Capacity has increased fully as fast as production
in recent years — in fact, the percent of capacity operated
this year may be a little lower than at the 1957 high.
Under the circumstances, any letdown in production will
tend to affect new investment, just as last year's slowdown
resulted in the minor year-end decline.

Government spending has been another major support
for the economic advance of recent years. The steady
upward trend in state ami local purchases of goods and
services, amounting to $4 billion a year, is expected to
continue, federal purchases are also expected to gain
about $4 billion this year, but since a §2.5 billion advance
was realized in the first quarter, further increases will be
at a very low rate. Strong opposition to expenditure
increases will tend to place a ceiling on the federal budget
in the absence of new international disturbances. This is
another reason why the Administration has turned to tax
reduction as a means of stimulating the economy.

There are some trend factors in consumer spending,
lnii apart from the rather steady rise in the prices of
some consumer services, these autonomous elements
( Continued on page 6)

t 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

THE STATE AND COUNTY FAIRS OF ILLINOIS

The fairs of Illinois, which are now a multimillion-
dollar activity, may be said to have a long lineage. The
fairs of the Middle Ages grew out of earlier religious
festivals, and combined religion, trade, and amusement.
The religious aspects declined, changing patterns of com-
merce reduced the need for fairs for trading, and many
of them degenerated badly.

The truly agricultural fair appeared in England about
200 years ago and was promoted to help agriculture
through a difficult period of change by spreading infor-
mation on methods of improvement. Similar problems
confronted the American farmer, but the agricultural
societies formed were too remote from the farmer, even
though they had such realistic members as George Wash-
ington and Benjamin Franklin. It was not until 1804 —
in Washington — that an agricultural fair was held, but
it was not successful enough to last.

What was really needed was provided by Elkanah
Watson, who first organized local farmers to hold a
simple cattle show in Pittsfield, Massachusetts, in 1810.
He spread his ideas farther, state aid was commonly
given, and in spite of the inevitable ups and downs, this
type of fair became part of the American way of life.

The Illinois State Fair

In 1819 a state agricultural society was formed in
Illinois, but lasted only seven years. In 1853 the Illinois
Agricultural Society was incorporated and held a fair at
Springfield; but in the next 40 years, 11 other locations
were also used, with Springfield finally being chosen as
the permanent site. In the first year premiums totaled
$944; by 1901 they were $34,000; 1930 saw them reach
$151,000; and this year over $1 million will be offered in
cash awards.

There are now 103 display buildings, valued at $14
million. Last year there were 856,000 paid attendances.
This year the livestock show is claimed to be the largest
in the nation; Illinois industry is increasing its displays;
a mile-long farm machinery show will be offered for the
first time; and prizes for harness racing top half a million
dollars. About 20,000 exhibits and displays are expected,
ranging from prize bulls to children's art. If all this is
not sufficient reason for a visit there are also automobile
and motorcycle races, nightly horse shows, an amusement
park, parachute jumpers, and, of course, some political
flavor.

The Illinois County Fairs

The Illinois heyday of forming county associations
and their fairs was 1852-58, when 94 were established.
This year 103 county fairs will be held. Some limit their
events to a few popular livestock events, but most have
12 to 14 categories.

The largest is the DuQuoin State Fair in Perry
County. Although more recently established (1923), it is
now nationally known as the home of the Hambletonian
harness race. In addition to this and its large agricultural

and associated events, it boasts automobile racing, star
entertainers, and this year the National Air Show.

Kankakee, situated in a well-populated area and well-
known for its rodeo offerings, ranks second. Peoria fol-
lows closely and also has a large urban patronage, as does
the St. Clair fair at Belleville. Champaign is one of the
oldest, dating from 1852, and today ranks high among the
fairs, especially in entertainment. Marion County leads
in variety, with 20 categories of entries. The Martins-
ville fair in Clark County is noted for racing events and
ranks second in premiums and number of categories.

All the fairs provide a wide range of events. In 1961,
78 had machinery exhibits, 60 offered stage attractions,
51 had racing, over 40 held western horse events, tractor
pulls, and thrill shows, and 63 queens received their
crowns with all the proper pomp and ceremony.

A little over half the fairs own their grounds and
obtain some revenues from other uses; but the biggest
business is during the few days of the county fair. In
1962, they took in a total of $3.4 million, received $1.3
million in state aid, and paid out $2.3 million in premiums.
There were almost 291,000 competitive entries, and at-
tendance totaled nearly 3 million.

Changing Conditions

Through the years the fairs of Illinois have experi-
enced considerable change. The role of the state govern-
ment in organization and assistance has increased ever
since the Department of Agriculture was formed in 1872.
The widespread participation of young people started in
1899 when W. B. Otwell of Macoupin County handed
out high-grade seed to boys and girls. The youth organi-
zations then developed. Starting in the 1920's, the state
fair rapidly increased its junior premiums. Many fairs
instituted week-long courses of interest to young people
on subjects such as livestock, domestic science, and even
baby care. In 1961, there were 63 fairs with 4-H partici-
pants, and the range of their competitive classes is still
being extended. Local schools are used as a medium for
promoting active interest.

The automobile proved both a boon and a problem,
and many fairs responded to the challenge by adding
better amusements. Today, fairs are having to face the
problem of further change. At the root of this lies in-
creasing urbanization, greater sophistication, and the com-
petition of other interests and attractions inherent in a
rising standard of living. Some fairs are successfully
adjusting to this, while others are not and may pass away
from the scene entirely.

Strong emphasis must be placed on the range of the
fair, extending from livestock and racing to hobbies,
creative arts, and educational projects. Good entertain-
ment has proven its value. The urban dweller can be
interested in industrial products. The fairs today still can
utilize their important asset of combining community
spirit, individual accomplishment, industry, business, edu-
cation, and just plain amusement.

KNOW YOUR STATE

[3]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, April, 1963, to May, 1963

COAL PRODUCTION

p ..I

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

IK DEB
M PRK

BANK DEBITS

FARM PRICES

aally adjusted. * No change, n.a. Not available

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. . .
Weekly earnings — manufacturing3

Dept. store sales in Chicago4

Consumer prices in Chicago6

Construction contracts6

Bank debits'

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

'Fed. Power Comm.; '111. Dept. of Mines; '111. Dept. of Labor;
'Fed. Res. Bank. 7th Dist.; 'U.S. Bur. of Labor Statistics; « F. W.
Dodge Corp.; 'Fed. Res. Bd.; » III. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn.; 10 111. Geol. Survey.

* Preliminary. b Seasonally adjusted, n.a. Not available.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . .

Nondurable manufactures

Minerals

Manufacturing employment

Production workers

Factory worker earnings'

Average hours worked . . .

Average hourly earnings.

Average weekly earnings .
Construction contracts5. . . .
Department store sales2. . .

Consumer price index1

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers ....

Paid by farmers

Parity ratio

Annual rate

in billion $

458.2"

29. 1
18. 1
18.6

24.7°
17.5=
7.1 =

64. 2b
49. 5b
40. 4b
26.8°

Indexes

(1957-59

= 100)

124"

125"

124"

102
114
116
169

116"
106

100
94
102
101

99
106

77d

Percentage
change from

Apr.
1963

+ 17.7
+ 6.3

+ 20.0

- 3.2

- 0.1
-10.0

+ 1.5

+ 1.3

- 1.1

- 6 9

+ 0.7
+ 1.4
+ 0.8
+ 1.0

+ 0.5

+ 1.3
0.0
+ 1.2
+21.8
+ 0.9
0.0

+ 0.4

- 1.0
+ 2.2
+ 0.1

- 1.0
0.0

- 1.3

May
1962

+ 4.2
+ 3.0

+ 5.2

- 0.2
+ 3.7

+ 9.1
+ 9.7
+ 7.8

+ 10 0
+ 11.2
+ 7.5

- 0.8

+ 4.5

+ 5.5

+ 3.9

+ 2.7

+ 0.1

- 0.2

+ 2.5

+ 2.3

+ 21.0

+ 2.7

+ 1.0

- 0.1

- 1.9
+ 1.9

- 0.4

- 1.0
+ 10

- 2.5

' U.S. Dept. of Commerce; ' Federal Reserve Board; » U.S. Dept.
of Agriculture; 'U.S. Bureau of Labor Statistics; 5 F. W. Dodge Corp.

■ Seasonally adjusted. >■ End of month. c Data for April, 1963,
compared with March, 1963, and April, 1962. d Based on official

indexes, 1010-14-= 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

June 29 June 22 J

June

June 1

June 30

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,699
17,925

200
7,508

124.2

602

102

100.1

100.5
92.7

35,599
296

1,636
17,369

200
7,541

130.2

599

103

99.9
100.6
93.5

35.4S9

274

1,629
17,839

203
7,512

132.3

616

126

100.1
100.5
93.9

35,034
304

1,578
17,368

198
7,432

134.9

606

120

100 0
100.5
94.0

34,962
303

1,535
16,105

164
7,453

140.0

548

100

100.1
100.5
95.6

35,097

235

1,529
16,520
150
7,260
80.
590
94

100 0"
100.7"
93.4

33,354
302

Snun

Survey of Current Business, Weekly Supplements.

Monthly index for Tun

[ 4 ]

RECENT ECONOMIC CHANGES

Industrial Production Higher

The current rate of industrial production is running
at about 4.0 percent, which has been the average annual
growth rate of industrial production since 1947. Actually
there have been three general periods of change. In the
first period, between 1947 and 1953, the annual rate of
increase in output averaged 5.6 percent under the stimulus
of postwar demands and the Korean conflict. During the
second phase, 1953 to 1960, the annual rate of growth
dropped to 2.5 percent; since 1960, the annual rate of
growth in industrial production has risen to 3.4 percent.

As indicated in the chart some groups have shown
continuous strong growth, and others have shown more
gradual increases with occasional slight declines. Utilities,
for instance, have benefited from the greater use of elec-
tricity and natural gas whereas coal mining has slackened
off. Several other groups, such as farm equipment, coal
mining, wood containers, and wool fabrics have shown
almost continuous decreases from postwar highs. In
manufacturing the gains in output of durables and non-
durables have been about the same but the output of
durables has fluctuated much more than that of
nondurables.

Equipment (including defense) rose most rapidly
during the early postwar years and early fifties whereas
consumer goods, which account for two-thirds of final
products, went up more gradually as indicated in the
chart. Although production of consumer goods has risen
fairly steadily over the years, certain components have
shown large fluctuations. Such goods as autos and tele-
vision sets in particular have shown large cyclical move-
ments depending to a great extent on such factors as
labor strife, ease of credit, newness of the particular item,
and inventories.

At the end of 1962 a survey conducted by McGraw-

POSTWAR GROWTH
IN INDUSTRIAL PRODUCTION

1957 - 59 = 100

/ "

/A -

EQUIPMENT

^ '

(INCLUDING DEFENSE)

FINAL PRODUCTS /s. //^
TOTAL \ / \ A*"'" /

CONSUMER !/..•■ /

GOODS ■••-/•••'" /

■ A /

- ^ /

-V/

■ A

UTILITIES

■

1947 '49 '51 '53 '55

Source: Federal Reserve Board.

Hill indicated that manufacturing industries were per-
forming at about 83 percent of capacity compared with a
desired operating ratio of 92 percent. It was expected
that during 1963 the ratio will increase to about 87 per-
cent. Thus the leveling growth curve discussed so exten-
sively in the early sixties may actually have been only
the effect of the recessions of 1958 and 1961.

Farm Real Estate Value Increases

The total market value of farm real estate rose to a
new record of $144.2 billion on March 1, 1963. This was
$6.2 billion higher than a year earlier and equaled the
previous year's gain, which was the highest ever recorded.

The most important factor in the advance was a 4.5
percent increase in the average value per acre. The
upward trend in per-acre values slowed perceptibly in
late 1959 and 1960 but resumed in response to the higher
level of farm income realized in 1961. Market prices
showed their greatest strength in the Southeast and
South Central parts of the country where the rates of
increase were 4.7 percent and 6.4 percent respectively.
The upturn was relatively small, 3.1 percent, in the Corn
Belt, although land values in Illinois, Indiana, North
Dakota, and South Dakota had improved markedly over
the previous 12 months.

Inventory and Sales Expectations

Manufacturers expect a continued rise in both sales
and inventory accumulation in the second and third
quarters of this year, according to the Department of
Commerce. An over-all sales increase of 3 percent is
projected. If this expectation is realized, sales will reach
a new high of $106.0 billion in the third quarter, on a
seasonally adjusted basis. Durable goods producers ex-
pect a 2 percent gain in the third quarter, whereas
nondurable goods manufacturers look for an advance
of only 1 percent.

Manufacturers anticipate that their inventory book
values were up $900 million in the second quarter and
will rise $600 million in the summer quarter compared
with $500 million in the first quarter. This would bring
book values of manufacturers' inventories to $59.4 billion,
seasonally adjusted, at the end of September, compared
with $57.9 billion at the end of the first quarter. Durable
goods producers will account for four-fifths of the pro-
jected rise in total factory stocks, a considerably larger
proportion than in recent quarters.

Government Borrowing Rises

During 1962 the federal government ran a deficit on
income and product account of about $3.4 billion. To
cover this deficit and support lending operations of $4.4
billion, it borrowed $7.8 billion net from nonfederal
sources. The amount of federal borrowing was increased
by 10 percent in order to exert additional pressure on
short-term interest rates. This has had the effect of aug-
menting the Treasury cash balance and expanding the
market supply of Treasury bills. In addition to financing
government operations and raising the Treasury cash
balance, the federal government also refinanced about $86
billion of debt which was due to mature.

The major markets for Treasury securities were the
Federal Reserve System and foreigners, who each took
$2 billion worth. Domestic enterprises and state and local
governments each added $750 million to their holdings,

[ 5 ]

and miscellaneous investors increased their holdings by
$1 billion. The commercial banking system and other
domestic financial institutions did not expand their hold-
ings last year.

Farm Price Supports

According to the latest figures from the Agriculture
Department, federal spending on agriculture is expected
to total $5.7 billion in fiscal 1964, 18 percent less than in
fiscal 1963. However, $3.9 billion will be spent for price
supports, an 18 percent increase over the average of the
previous three years.

Farm price supports, disposal of surpluses, and other
farm income aids have accounted for about 75 percent
of the total agriculture expenditures in recent years. The
rest is spent for such things as farm housing, rural
electrification, conservation, and research.

Unemployment of Youth

The number of teenagers out of work in May totaled
1.2 million, or 17.8 percent of the total number of teen-
agers in the labor force, as indicated in the chart. This
is the largest unemployment rate for any group in the
labor force. As a matter of comparison, both the adult
male and adult female rates of unemployment have con-
sistently been lower than the total rate of unemployment.

The Department of Labor calculates that the rate of
unemployment for teenagers, who now account for 25
percent of the unemployed, will grow to 30 percent or
more by 1967. With an anticipated 26 million new young
workers expected to enter the labor force during this
decade, and only about 24 percent of them college trained,
the hardships caused by untrained and ill-equipped young
job hunters will be aggravated. However, the number of
college graduates increased from 8 percent to 11 percent
over the last decade, and the number of high school
graduates rose from 43 percent to 54 percent.

UNEMPLOYMENT RATES

, VA

\ N

*AW A ^M N

teenager;

Source: U.S. Bureau of the Census.

The Importance of Tax Cuts

(Continued from page 2)
amount to only about $2 billion a year. The major
changes in consumer spending are still dependent on in-
come, and the strong advance in personal income since
the 1961 low has been a feature of the recovery. On the
other hand, the credit situation is now unfavorable to
further increases in spending. Consumers generally have
shown little fear of expanding their debt and have been
using credit to the hilt.

Consumer saving as a whole has fallen to the low
rate of 6.3 percent despite a high rate of saving in liquid
form. Implications of this saving-liquidity pattern are
not at all clear, as the article by Brill in the June issue
of the Federal Reserve Bulletin points out. High liquid
asset balances are not necessarily inflationary because
holders may simply continue to save. If at the same time
those consumers who have been spending and borrowing
attempted to limit their indebtedness, the net saving rate
would recover. The recent norm has been about 7 percent,
and such a recovery would, of course, restrict spending.
A mere leveling of income could then bring a halt to the
upward trend of consumption.

Will Tax Cuts Turn the Tide?

On balance, the total of the favorable items may be
enough to offset the reversing items. However, the former
assure only about $8 or $9 billion during the second half
of the year, and in view of the greater variability of the
latter, the balance of forces at year-end is doubtful. In
other words, we may have an incipient recession on our
hands late this year or early in 1964. This prospect has
led President Kennedy to say, "We're either going to have
this tax reduction program or we're going to move into a
recession as we did in the 1950's."

The Administration has, in short, been relying upon
the proposed tax cut to pull us out of any difficulty that
might be encountered and to push us ahead toward full
employment. Its confidence in the proposed program may
be somewhat exaggerated. The special article in the
February issue of this Review explained why the specific
cuts proposed are not well designed to get the maximum
effect in terms of increased private expenditure. Never-
theless, even discounting for possible exaggeration, the
tax cut would tend to ensure another year of growth for
an economy teetering on the balance of stagnation at the
end of 1963.

Beyond the realm of the slowdown that must now be
expected, there is a potentially more serious reason why
we cannot afford to risk a recession in 1964. For the first
time in the postwar period, all the cyclical factors are
working together. Autos, housing, inventories, and capi-
tal outlays — aided and abetted by credit expansion —
have either reached or are approaching new peaks. In
previous recessions, such as 1954 and 1958, housing and
auto demand came in strong when inventories and capital
spending turned weak. But this is not likely to happen
again. If a new recession should get under way and all
the cyclical factors turned down in concert, the problem
might well prove to be unmanageable.

In that greater danger lies the importance of cutting
taxes. Such action provides no certainty of continued
prosperity through the dangerous years of the middle
1960's. It does afford some inexpensive insurance against
economic disaster and a reasonable hope for steady
progress. vlb

[ 6 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Automatic Data Processing in Government

Since the first installation in 1949, the number of
electronic computers in use by the federal government
has grown to 1,169 in service today. Originally used
solely for scientific purposes, these computers are now
widely utilized for administrative and program operations.
The particular function of a department or agency is
usually indicative of the purpose for which a computer
is employed. The wide diversification of applications can
be illustrated by such functions as supply management,
aircraft detection and warning, radio-TV frequency con-
trol, river propagation studies, and road design. During
fiscal 1962, 786 of the 1,006 computers were used for one
specified category of work and 220 for two or more. The
786 used in only one category were about evenly divided
among the three major types of work — scientific, ad-
ministrative, and program operations.

As indicated in the chart, the department or agency
with the largest number of computers this fiscal year is
the Defense Department, which has 750 electronic com-
puters or 64 percent of all computers being operated by
the federal government. The year of greatest growth
for electronic computers was 1962, when the number
jumped 29 percent from the previous year. Agencies
which have shown the greatest growth during the last
three years have been the Atomic Energy Commission
(55 percent to 119 computers), the National Aeronautics
and Space Administration (48 percent to 90 computers),
and the Department of the Treasury (112 percent to 36
computers).

Although there has also been an increase in the num-
ber of employees working with automatic data processing

ELECTRONIC COMPUTERS IN USE
BY U.S. GOVERNMENT

DEFENSE
DEPARTMENT

TREASURY,

AGRICULTURE

COMMERCE,! HEW.

OTHER
DEPARTMENTS
AND AGENCIES

Source: U.S. Department of Labor, Manpower Report,
No. 6, May, 1963, p. 3.

equipment, the percentage rise of employees during the
last three years has not been as great as the percentage
climb in the number of computer units. In addition, the
improvement in efficiency and effectiveness resulting from
the use of ADP equipment has helped the federal gov-
ernment to hold its work force at a fairly constant level
during the last five years.

Home Mortgage Debt Rises

At the end of 1962 mortgage debt on families of one
to four persons living in nonfarm homes totaled $168.7
billion, 10 percent above the previous year. Although
this increase was the largest ever recorded in one year,
the percentage gain was considerably smaller than those
recorded in the early postwar years when the average
advance was 17 percent.

The ratio of debt to disposable personal income has
continued its yearly rise from the wartime low of $12.20
of mortgage debt per $100 of disposable personal income
to a record high of $44.10 last year. Among the factors
responsible for this continuing increase in home mortgage
debt are the preference for home ownership, rising costs
of home-building, lower down payments and longer ma-
turities, and a rise in the percentage of mortgaged
dwelling units compared with debt-free homes.

One bleak aspect of the expansion in mortgage debt
has been the number of foreclosures. The rate now
stands at 4 per 1,000 nonfarm mortgaged homes com-
pared with only 2 per 1,000 just after the war. However,
the ability of people to pay their mortgage debt should
not noticeably decline so long as disposable personal
income remains at record levels, according to the Federal
Home Loan Bank Board.

Inflation Increases in Europe

After a prolonged period of economic progress with
only a moderate upward movement of costs and prices,
Western Europe has suddenly fallen prey tu widespread
wage-price increases. Germany, France, Italy, and the
Netherlands, which have realized the greatest gains in
productivity recently, have also experienced large ad-
vances in wage levels. Germany, for instance, showed
successive wage gains of 11.0, 10.7, and 11.6 percent over
the previous year for 1960, 1961, and 1962 respectively.

This wage-price spiral seems to be persisting. The
recent 35-day strike of French coal miners ended only
after an agreement was reached giving them a 6.5 per-
cent wage increase immediately, S percent by October 1,
1963, and at least 12.5 percent by April 1, 1964. Difficul-
ties arise from the profit squeeze that this wage-price
spiral is beginning to produce, ami there is also an adverse-
effect on the availability of long-term funds to European
capital markets. European confidence in the value of
money, shaken by inflation during and after two world
wars, continues to lag, as is evidenced by the lack of
market demands for long-term bonds and the continued
private hoarding of gold. However, this upward move-
ment of wages and consequently prices in Western
European countries has helped to mitigate to some extent
the adverse balance of payments the United States has
been experiencing recently.

[ 7 ]

DO WE OR DON'T WE WANT RAILROAD MERGERS?

D. PHILIP LOCKLIN, Professor of Economics

The numerous railroad consolidation cases now before
the Interstate Commerce Commission, and others which
are in the discussion stage among the railroads involved,
raise the question whether consolidations are or are not
in the public interest.

Since 1920, governmental policy has favored the con-
solidation of railroads into fewer systems. It has been
taken for granted that consolidations would enable the
railroads to effect significant economies, provide better
service, and bring about a more efficient organization of
railroad operations. The Transportation Act of 1920
sought to encourage the consolidation of railroads into a
limited number of well-balanced and competing systems.
As recently as 1958, the Senate Commerce Committee
chided the railroad industry for not being sufficiently
interested in self-help through consolidations and
mergers. The so-called Doyle Report, made for the
Senate Commerce Committee in 1960, considered railroad
consolidations to be an important element in restoring
the railroad industry to a condition of growth and finan-
cial health.

Now that a merger movement has at last gotten under
way, doubts as to the desirability of mergers and fears
as to their consequences have been expressed; and efforts
are being made to impose restrictions on consolidations
that could bring the movement to a halt.

Development of Merger Policy

The application of the Sherman Antitrust Act to con-
trol of competing railroads in the Northern Securities
Case in 1904, followed by later prosecutions under the
Sherman Act, checked the consolidation movement of the
late 1890's and the early years of the twentieth century,
a movement which was motivated largely by efforts to
control competition among competing railway systems.
Between 1904 and 1920 few railroad consolidations
occurred.

Public policy toward railroad consolidations came in
for thorough review in 1919 when Congress was re-
examining our whole regulatory policy relating to rail-
roads. The consolidation of railroads into a smaller
number of systems was considered desirable and measures
were taken which it was thought would contribute to this
end. Railroad consolidations and acquisitions of control
were brought under the supervision of the Interstate
Commerce Commission. Consolidations, to meet commis-
sion approval, were to conform to a master plan of
consolidation which was to be drawn up by the Inter-
state Commerce Commission in advance according to
certain specifications laid down in the act. Approval of
a consolidation carried with it exemption from the anti-
trust laws so far as might be necessary in order to
effectuate the consolidation. The idea of consolidation
according to a commission-made plan proved a complete
failure. Between 1920 and 1940 few consolidations or
changes in control occurred, and the more significant ones
were accomplished outside of commission control by

resort to holding companies which, until 1933, were be-
yond the commission's jurisdiction.

In 1940, policy toward railroad consolidation came up
for review once more by Congress. The present law
relating to railroad consolidation came into being at that
time. Congress still considered railroad consolidation to
be desirable and it eliminated the requirement that con-
solidations, to receive ICC approval, must conform to a
master plan, thereby removing what was considered to be
the major obstacle to actual consolidation. Congress re-
quired, of course, that consolidations be approved by the
commission on a finding that they were in the public
interest; and it continued the exemption from the anti-
trust laws if the consolidation met with commission
approval.

Amendment of the act in 1940, however, did not
result in appreciable consolidation activity for another
fifteen years or so.

The Present Consolidation Movement

The present flurry of mergers and acquisitions of
control began in 1959. From 1959 to the present, the
commission has approved the following major consolida-
tions or acquisitions of control, omitting the cases which
involve the merging of controlled roads into the parent
company:

Norfolk and Western — Virginian merger (1959)

Erie — Delaware, Lackawanna and Western merger (1960)

Chicago and North Western purchase of the Minneapolis

and St. Louis (1960)
Pennsylvania control of Lehigh Valley (1960)
Chesapeake and Ohio control of Baltimore and Ohio

(1963).
The following proposed consolidations or acquisitions
of control are now in process before the Interstate Com-
merce Commission:

Pennsylvania — New York Central

Great Northern — Northern Pacific — Burlington

Norfolk and Western — Nickel Plate — Wabash

Missouri Pacific control of Chicago and Eastern Illinois

Illinois Central control of Chicago and Eastern Illinois

Seaboard Airline — Atlantic Coast Line

Southern Pacific control of Western Pacific

Atchison, Topeka and Santa Fe control of Western Pacific

(Of these, the Missouri Pacific and Illinois Central pro-
posals and the Southern Pacific and Santa Fe proposals
are rival applications.)

The movement seems to be the result of a deteriorating
financial condition among the railroads that has been in
process for some time. Consolidation is one manifesta-
tion of an aroused determination of the industry to lower
costs and to increase its ability to cope with increased
competition from other modes of transport.

Opposition to Railroad Mergers

Opposition to railroad consolidations comes from three
major sources: first, railroad labor; second, particular
communities or regions which fear that they will be
adversely affected; and third, the Department of Justice

[ 8 ]

with its interest in the antitrust laws and the preservation
of competition.

The opposition of railroad labor is understandable,
although distinctly shortsighted since railroad labor's
long-run interest is in the preservation of a strong rail-
road industry that is able to compete effectively for traffic
with the other modes of transport. Labor is entitled, of
course, to reasonable protection against loss of jobs or
reasonable compensation if loss of jobs ensues. Indeed,
the present act gives substantial protection from job
losses incident to railroad consolidation.

Community opposition to rail consolidations arises
from fear of rail line abandonments incident to consoli-
dation, impairment of service even if lines are not aban-
doned, abandonment or removal of shops, loss of taxes
on railroad property, and population losses or reduced
payrolls resulting from job losses. The railroads would
do well to allay such fears when they can do so without
making promises that they do not intend to keep. Regu-
latory authorities should be alert to prevent merged
companies from ignoring the reasonable service require-
ments of the communities which they serve. Even so, the
problem must be considered from a national standpoint
and not from a purely local standpoint, and a reorganiza-
tion of rail facilities and rail service along more efficient
lines will inevitably affect certain communities and areas
adversely. The adjustment of railroads to the "transpor-
tation revolution" requires that communities and areas
adjust to it also.

As noted, the Department of Justice looks askance
at the proposed railroad mergers. Although we long ago
rejected competition in the railroad industry as the pro-
tector of the public interest, competition among railroads,
if not allowed to get out of hand, has some merit. But
in recent years railroads as an industry have been faced
with intense competition from other modes of transport,
competition which has frequently been termed "per-
vasive." Railroads must be geared to this competitive
situation if they are to survive. Competition within the
railroad industry is now of much less importance than
when the antitrust laws were applied to the industry in
the first two decades of the century.

Under the present law the Interstate Commerce Com-
mission is not bound by the standards of the antitrust
laws when it determines whether a proposed consolidation
is in the public interest or not. The act specifically grants
railroads exemption from the antitrust laws to the ex-
tent necessary to carry out a consolidation approved
by the commission. Although the commission is not
bound by the standards of the antitrust laws, the Supreme
Court has held that it may not ignore them. Its task is
to weigh the disadvantages of lessening competition
against the advantages of a proposed consolidation such
as cost savings and improved service. A proposal before
Congress would apply the standards of Section 7 of the
Clayton Act to pending railroad mergers for a limited
period. This would deprive the commission of power to
approve a railroad consolidation or acquisition of control
that would substantially lessen competition or create a
monopoly whether or not it would reduce costs, eliminate
waste and duplication, or result in improved service to
the public. Such a measure, as long as it remained in
effect, would actually block most railroad consolidations.

Revival of the Consolidation Plan Idea

In addition to the three groups which are opposed to
railroad consolidation, railroads themselves are often
divided over specific consolidations proposed. Any con-
solidation proposed is likely to adversely affect some other
railroad. Situations of this kind make decisions in con-
solidation cases very difficult. When a particular con-
solidation is proposed that would seriously injure other
railroads, the latter may react in various ways. They
may oppose the consolidation being proposed ; they may
propose a consolidation of their own, often a rival plan;
they may request that the commission require that they
be included in the proposed consolidation; or they may
acquiesce in the consolidation if conditions are imposed
which protect customary traffic interchange arrange-
ments. It is apparent that a proposed consolidation can-
not be appraised without considering its impact upon
other railroads and the areas which they serve.

Because a major consolidation may adversely affect
other carriers and lead to still other consolidation pro-
posals, the idea of a comprehensive consolidation plan
has been revived. Fear has been expressed that con-
sideration of consolidations on a case-by-case basis may
result in unbalanced rail systems with some lines left
dangling by themselves and doomed to bankruptcy or
abandonment, or that approval of one consolidation will
force the commission to approve another when a better
plan could have been devised for the area if the situation
had not been foreclosed by approval of the first.

The purpose of the recently proposed moratorium on
rail consolidations for a limited time is largely for the
purpose of enabling the commission and other govern-
ment agencies to formulate a plan of consolidation or at
least a set of principles to control the disposition of
particular applications. It is obviously undesirable for
the commission to approve particular consolidations with-
out an awareness of the over-all situation in the areas
affected and without careful consideration of a desirable
pattern of railway systems. On the other hand, to require
a moratorium on consolidations pending the formulation
of a complete plan of consolidation would postpone indefi-
nitely the accomplishment of desirable consolidations.
Any over-all plan that could be formulated would en-
counter serious objections from one source or another.
The commission, furthermore, lacks power to force con-
solidations upon unwilling carriers and any attempt to
grant the commission this power would raise constitu-
tional questions.

It should be remembered that the attempt to require
consolidations in conformity with a commission-made plan
which was provided by the Transportation Act of 1920
proved to be a complete failure. It was for this reason
that the idea was abandoned in the Transportation Act
of 1940. Another attempt to require consolidation ac-
cording to a master plan would likely produce the same
results. Although consolidation according to a carefully
devised plan has theoretical merit, it is impractical when
consolidation must result from the initiative of the rail-
roads themselves. Although consolidation according to a
master plan is not feasible, the public should have assur-
ance that the commission adequately considers over-all
railroad patterns in the area affected when it decides
whether or not a particular proposal is in the public
interest.

[9]

LOCAL ILLINOIS DEVELOPMENTS

Personal Income Increases

Personal income in Illinois totaled $2,513 million in
April, an increase of 0.6 percent over the March total of
$2,499 million and 3.8 percent above the figure for April,
1962. According to the Measure of Personal Income
prepared by Business Week, the state's year-to-year gain
was below that of the United States, whose total increased
4.4 percent.

Illinois continues to rank third among the states in
personal income, preceded only by New York and Cali-
fornia. For the first four months of this year Illinois
earned 6.7 percent of the national total. During this four-
month period, personal income in Illinois amounted to
over $10 billion, compared with $9.6 billion for the
corresponding period of 1962. This was a gain of 4.5
percent and more nearly approached the nation's increase
of 4.8 percent for the same period.

Illinois Economic Surveys

Two surveys have recently been conducted in Illinois
for the purpose of aiding in the economic development
of the State.

The Illinois Board of Economic Development has
circulated a six-page survey form to more than 1,700
communities throughout the State for the purpose of
providing better service by means of standardized infor-
mation to industrial prospects.

To date, over 300 communities have filed completed
forms with that office; from them essential information
has been transferred to data-processing punch cards
which can be sorted according to the basic requirements
of each industrial prospect. Communities thus selected
are sent information forms listing the requirements of
particular industries seeking Illinois locations, and data
on localities fitting these requirements are sent to the
firms. Communities indicating an interest in particular
industries are kept informed of the status of each of the
establishments they would like to obtain.

PROJECTED PERCENTAGE CHANGE
IN MAJOR OCCUPATIONAL GROUPS, 1960 TO 1970

-40

-30 -

PERCENT CHANGE
20 -10 0 10

20 30 40 50

11111

PROFESSIONAL

MANAGERIAL
CLERICAL

SALES

1 "ALE
1 FEMALE

CRAFTSMEN
AND FOREMEN

OPERATIVES

PRIVATE

SERVICE

LABORERS, EXCEPT
FARM AND MINE

FARMERS AND

FARM LABORERS

Sourer: Illinois Department of Labor, Illinois Labor
Fori e Projections for 1970.

The Armour Research Foundation has submitted its
first interim report on a questionnaire survey of 1,500
manufacturers operating in the State, conducted as part
of a comprehensive research project on the Illinois
economy for the State Chamber of Commerce.

Firms responding to this survey numbered 722. Of
these just over 51 percent reported that they anticipate
an increase in employment at their plants over the next
two years, and only 3 percent expected a decrease. Over
60 percent also expected to expand their physical facili-
ties; some 71 percent indicated that they would enlarge
production facilities at their present locations if they did
expand, whereas nearly 29 percent said they would pre-
fer another location. Labor shortages during the past
year, particularly in the category of skilled personnel,
were mentioned by 24 percent of the respondents.

Women Workers in Illinois

A number of developments reflect the growing im-
portance of women in the labor force of Illinois. The
number of women workers rose 58 percent from 1940 to
approximately 1.3 million in 1960. In the United States,
the female labor force rose 74 percent during the cor-
responding period.

In 1960, 36 percent of all Illinois women over 14
years of age were in the labor force, compared with 27
percent in 1940. For the nation the rate of participation
in each of these years was roughly 2 percentage points
lower.

Of the total labor force in Illinois in 1960, 32.7 per-
cent were women ; the proportion in 1940 was 25.4 per-
cent. Comparative figures for the United States were
32.1 percent and 24.3 percent respectively.

These figures indicate that despite the fact that the
percentage increase of women in the national labor force
exceeded that in Illinois, the State since 1940 has, on
the average, provided more extensive job opportunities
for women.

In 1960, only 37 percent of the working women in
Illinois were under 35 years of age, whereas 61 percent
were under 35 in 1940. In 1960 the largest groups (ap-
proximately 23 percent each) were in the 35 to 44 and
45 to 54 age brackets.

Six industry groups accounted for over 80 percent of
the employed women in Illinois in 1960. These were
manufacturing (25 percent); retail trade (19 percent);
service (17 percent); education (9 percent); finance,
insurance, and real estate (6 percent) ; and hospitals
(6 percent).

Projected Changes in Occupational Groups

Important changes will occur in the occupational dis-
tribution of employed persons in Illinois between 1960
and 1970, according to a recent report, Illinois Labor
Force Projections for 1970, issued by the Illinois Depart-
ment of Labor.

Assuming that the same occupational changes will
occur from 1960 to 1970 as occurred from 1950 to 1960,
the groups which will expand most rapidly are profes-
sional and technical, clerical, sales, and service (see
chart).

For women workers the occupational groups expected
to show the greatest percentage increases are service (42
percent), professional (40 percent), and clerical (36
percent).

[ io;

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
May, 1963

Building

Permits1

(000)

Electric
Power Con-
sumption-
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Debits5
(000,000)

Percentage change from j M^ 'j^y

NORTHERN ILLINOIS
Chicago

Percentage change from. . {$££ ^
Aurora

Percentage change from.
Elgin

Percentage change from
Joliet

J Apr., 1963.
' [May, 1962.

(Apr., 1963.
(May, 1962.

Percentage change from. . . j'^^V j^y
Kankakee

Percentage change from.
Rock Island-Moline

jApr., 1963.
(May, 1962.

Percentage change from. . ..{{££ gg;

Rockford

Percentage change from .

[Apr., 1963.
\May, 1962.

CENTRAL ILLINOIS

Bloomington

Percentage change from .
Champaign-Urbana

I Apr., 1963.
.May, 1962.

Percentage change from. . . |MP^ 196,
Danville

Percentage change from
Decatur

Percentage change from .
Galesburg

(Apr., 1963.
[May, 1962.

(Apr., 1963.
■\May, 1962.

[Apr., 1963.
[May, 1962.

Percentage change from. . . . {£•£,• \9(^\
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

Percentage change from

i Apr., 1963.
May, 1962

Apr., 1963.
..May, 1962.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from .
Belleville

(Apr., 1963.
[May, 1962.

Apr., 1963
[May, 1962

Percentage change from [May, 1962

$41,757"

+ 5.1
+26.5

$25,538

$ 1,018

-51.0

+53.8

$ 2,192

+ 126.5

+421.4

$ 1,876

+71.9

+74.6

$ 674

+ 162.1

+219.4

$ 1,491

-36.6

+37.6

$ 3,008

+49.4

$ 487
-46 f>
-76.1

$ 579
+8.7
+38.6

$ 181
-25.1
-35.3

$ 574
-51.9
-1.6

$ 147
-93.2
-20 6

$ 595

-33.0
$ 746

-4t> I
+311 0
$ 1,623

+26 5

-11 3

$ 217

-70.4

70 "

$ 812

+10.4

+8.8

1 ,353 , 185"
-0.5

+5.1

973,176
-1.5

+ 5.4

30,653

+5.7
+ 6.0
60,570'
+0.2
+1.6

14,514

+ 13

+11.1

19,097

-1.7

+ 9.0

24,733

+24.2

+29.0

39,249

+3.1

+ 13.8

11,124

-1.4

+8.5

65,236'

-1.1

+1.1

13,451

-4.1
43,987

+2.0

-2.8
26,755
+5.3
+5 . 6
14,130
-0.6
+8.8

$24,270''
+0.8
+2.4

$22,516
+0.5
+2.0

$ 94
+ 4.2
+8.9

$ 60

$ 108
+8.9
+ 11.6

$ 1441'

+6.6

+11.3

$ 226

+7.1

+6.4

$ 105

n.a.

+ 14.1

+ 10.2

$ 59

-12

+5.0

-6

+8.3

$ 137

+6"

+ 7.3

-2°

+ 11.7

n.a.

$ 297

+ 1

+3.3

-5

+ 12.0

$ 65

l.a.

+4.6

+ 7.6

$ 159

$ 138
+0.6

+14.8

+ 1.9

a Total for cities listed.

Sources: ' Local sources
Data for April, 1963, not a\
source. ' Federal Reserve Boarc

Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available,
i ).it a include federal construct ion projects. - Local power companies. ' Illinois Department of Revenue,
lable. 'Research Department ol Seventh Federal Reserve Bank (Chicago). IVicentagc.-, ioiindi-d 1>\
Local post office reports. Four-week accounting periods ending May 24, 1963, and May 25, 1962

I 'I

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

* -

<\>-v u

\ /

* REVISE

3 SERIES

ILL_^/
U S.

* REVISED SERIES

1961 1962 1963

ANNUAL AVERAGE

JNUAL AVERAGE

'53 '60 I9€

)62 1963

DEPAR1

MENT

STORE

SALES

(ADJ.

)

200

COAL

PRODUCTION

150

\ ■

ILL.

h' ' US.

</~^~

BUSINESS LOANS

1 *

J±

/u.s.

* REVISED

SERIES

CASH

FARM 1

NCOME
1

^us.1-

'"1

—

362 1963

CONSTRUCTION CONTRACTS

-H

ELECTRIC POWER

PRODUCTION

uA^

Vwy

-/us.

30.5

>CTV

d&zp. e*

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

September, 1963

, ^ =
. ^ Number 8

■

HIGHLIGHTS OF BUSINESS IN AUG&ST^

.<. \v

The major production indicators in August showed
generally small changes from July, with the obvious ex-
ception of motor vehicle output, which was drastically
reduced as model changeovers took place. Steel produc-
tion was still low as users worked off excess inventories,
but a certain amount of optimism characterized expecta-
tions. The FRB index of industrial production fell 1
point to 125.6 (1957-59 = 100) after seasonal adjustment.

Unemployment fell below 4 million for the first time
in 1963, dropping 465,000 to 3.9 million. Nonfarm em-
ployment, at 65.1 million, was substantially unchanged
from the month before, but a decline of half a million
occurred in the number of farm workers.

Department store sales, also adjusted, rose from July's
120 (1957-59= 100) to an estimated 125, a new record.
Preliminary figures indicate that total retail sales in
August, $20.8 billion after adjustment, were practically
the same as in July; a drop in sales of durables was offset
by a gain in nondurables, which reached a new record of
$14.1 billion.

Manufacturers and distributors added $500 million to
the value of their stocks during July, somewhat less than
in June but more than in the earlier months of the year.
Unlike June, when they accounted for three-fifths of the
added value, durables made up only a fourth of the July
advance in inventory values. Total book value at the end
of July was $101.3 billion, after seasonal adjustment, a
record level.

New Construction Higher

New construction put in place in August was valued
at an estimated $6.1 billion, 1 percent more than in July
and 4 percent above the August, 1962, figure. The July-
August increase was about what would be expected for
that time of year. Private construction accounted for
$4.2 billion of the total, about the same as in July. Sizable
gains in nonresidential building categories, particularly
commercial building, were about offset by declines in
other groups, especially nonfarm residential construction.
Public construction rose 5 percent between July and
August, with nearly all subgroups showing gains.

Capital Spending as Planned

Business expenditures for new capital are proceeding
about as expected earlier this year, according to the most
recent Department of Commerce-SEC survey. Second-

quarter outlays were $38.0 billion at a seasonally adjusted
annual rate, slightly below those anti£i$$fed three months
ago but still at a near-record level. yCmong durable goods
producers, makers of motor vehicles and parts made
the largest gains over the first quarter; and nearly all
major categories invested more than they had during the
corresponding quarter of 1962. In nondurables, shifts
from the two earlier periods were minor. Of the other
major industries, transportation companies showed the
sharpest advances from the first quarter of 1963.

Spending plans for the second half are now well in
hand. Manufacturers project capital outlays of $15.85
billion and $16.3 billion in the third and fourth quarters
respectively, well above expenditures for similar periods
last year. Three groups account for much of the gain
— primary metal producers, motor vehicle makers, and
chemical manufacturers. In the nonmanufacturing area,
mining and nonrail transportation outlays will be about
the same as in the second half of 1962; and investment by
railroads, public utilities, and commercial and other firms
will be higher.

Payments Position Worse

An improvement in our foreign trade balance in the
second quarter was more than offset by an increase in
net payments on nontrade accounts, so that the net deficit
in the balance of payments rose from an estimated $880
mill ion in the first quarter (seasonally adjusted) to about
$1,320 million in the second. These figures included the
changes in monetary reserves and freely usable dollar
assets held by foreigners but excluded special government
transactions.

Private capital outflows were an important factor in
the payments deficit in both periods, rising from an esti-
mated $1 billion in the first quarter to more than $1.5
billion in the second. The government in past weeks has
taken one step and proposed another to try to reduce
our international deficit. The Federal Reserve discount
rale was raised from 3 percent to 3i/£ percent in an
attempt to cut the outflow of short-term capital; and the
Administration has proposed a tax on purchases of
foreign securities by Americans. The maximum rate of
the tax would be 15 percent on stocks and on other
securities of at least 28i/2 years maturity. The tax, how-
ever, has been the subject of much criticism and may or
mav not come into effect.

RECENT MONETARY DEVELOPMENTS

By Paul T. Kinney

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

Dilemma of the Big City

The postwar exodus of families from the cities of the
North and East progressed as rapidly as houses were
built for them in other places. Some migrated long dis-
tances— to California, Florida, and other states of the
Far West and Southwest. Many more joined the move-
ment to the suburbs, and the larger metropolitan areas
everywhere swelled and sprawled outward, often engulf-
ing nearby communities. Most of the suburbanites kept
their jobs in the city, and since they preferred to drive
to work, their cars swamped the city's streets and high-
ways. For their families and others who had no need to
make the daily trip back, TV offered some substitute for
the experiences of city living.

The central cities, however, found replacements for
most of those who left and remained the nerve centers
from which the nation's business was directed. The new-
comers were individuals and families who moved in from
rural areas near and far. The long-range migrants in
this group mostly moved from the deep South to the
industrial centers of the North and East. Their social
and economic status had been inferior, and generally
remained low, though not so much so, and as a result,
almost everybody seemed to improve his position. Even
those who were left behind in the rural areas generally
obtained increases in per capita income from the available
resources and opportunities of acres with fewer people
to support.

Those who moved to the newly built communities gen-
erally bought better houses than those they had occupied
in the city. Those who moved into the houses deserted
by the former city dwellers did not find them inferior to
the homes they had abandoned in the fields. The latter
fell apart in ruins, and vacancies did not increase much
anywhere, because the housing enumerators wrote the
dilapidated hovels out of the country's housing supply.
All the moving about thus played a part in the great
housing boom of the postwar period, and it had a special
role in remaking the character of the cities.

Hollow Cities

Gone to the suburbs are the city's upper middle classes.
They are, on the whole, the better-educated people who
hold the more desirable positions and earn the higher
incomes. Those who moved in to replace them are com-
paratively untrained, lower income earners, less con-

cerned with social conventions, and accustomed more
exclusively to physical pursuits. Not all the former left.
of course. Some chose to relocate in shining towers in
which they could isolate themselves from the city's turbu-
lence, and others attempted to build barriers against any
invasion of staid, old neighborhoods, a practice to which
recent racial disturbances attest. It is said of TV pro-
gramming that the commercials are aimed at selling
methods of self and home decoration to the suburbanites,
and the entertainment is geared to teaching methods of
hoodlum violence to the slum dwellers.

The city's streets are still crowded — though often
only by day. Only if the city has enough hotels and at-
tracts enough transients and entertainment seekers can
it maintain a seemingly brilliant night life; otherwise its
skyscrapers loom as darkened monuments for the de-
parted. The difference between New York and Washing-
ton illustrates the point. Large sections of the latter are
now composed of little more than office buildings and
parking lots, and these areas die each day at the close of
business. The bright night spots that remain open in most
cities are too expensive to attract the lower income
groups. The latter therefore have little reason to enter
some central parts of the city at night, and a portion of
each city's police force is assigned to making sure that
those who do are not there as troublemakers.

The jamming of people into the slums was once a
symbol of the city's ability to provide jobs and other
means of progress for all. But now there are not jobs
for the slum dwellers even in high prosperity. The new
technology which dominates the labor market demands
training and skills many never had a chance to acquire.
The situation is symbolized by the fact that the dropout
from school remains unemployed — and if his skin is not
white, the probability of unemployment is aggravated.

Thus the city, which was once the melting pot of
America, has become the focal point of class struggle.
The vitality of the old city reflected its role as the place
where immigrants were absorbed and integrated into a
new way of life. Today, the divisive forces of prejudice
and restricted opportunity seek to hold the in-migrants
as a group apart. Other groups, in the impersonal way of
the city, voluntarily seal themselves off. Some of the
excitement of city living persists but it is less spontane-
ous, more the product of contrivance and ballyhoo. The
heart is missing from an organism that is all extremes
and artificial display.

Failure of Attempted Solutions

Each generation seeks anew to resolve the problem of
city blight. The last sought the answer in slum clearance.
It was felt that if the physical blight could somehow be
replaced with something new, the difficulty would be re-
moved with the old structures and outmoded facilities
that were demolished. Public housing was designed to
make the main use of the cleared areas but some of the
land was allocated to parks, schools, highways, and other
community facilities. The people of the area were given
new homes and other improvements and then left to re-
shape their lives in a desirable manner.

With some exceptions, the slum clearance projects did
not work out as expected. The publicly built, high-rise
apartments stood in carefully guarded isolation from the
rest of the community. Often means tests were employed
to ensure the exclusion of middle and higher class fami-
lies. Occupants whose roots were close to the soil did not
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

THE EARTHMOVING EQUIPMENT INDUSTRY

As late as the 1930's, earthmoving for construction
purposes was characteristically a question of shovels,
carts, horses and mules, and the labor of thousands of
workers. Today, a comparative handful of men can shift
millions of cubic yards of earth with ease as a result of
changes in earthmoving equipment.

The Caterpillar Tractor Company of Peoria is directly
descended from the inventor of the crawler tractor (Holt
in 1904), but it has gradually shifted the emphasis from
agricultural applications to earthmoving construction
work. The really big impetus came through World War
II, and soon after this it became apparent that there was
a significantly rising demand for such equipment. The
situation proved attractive to some large industrial or-
ganizations, and during the early part of the 1950's, Allis-
Chalmers, Westinghouse Air Brake, and International
Harvester bought up smaller companies, followed a little
later by Deere and Company.

The leading companies in the industry now have man-
ufacturing plants in Illinois which build over 75 percent
of the total domestic and export annual sales of the na-
tion. Last year this was approximately a billion-dollar
business for the State, with Caterpillar taking about three-
fourths.

The benefits are well distributed — both by virtue of
the location of the plants and by widespread purchasing
elsewhere, particularly in the Chicago area. (These com-
panies are, of course, involved in other products, but the
references here are to earthmoving equipment only.)

The Industry in Illinois

The main Caterpillar plant is at Peoria, with others in
Aurora, Decatur, Joliet, and Mossville. The crawler
tractor is the most important product for Caterpillar, for
International Harvester from its Chicago works, and for
Allis-Chalmers at Springfield. This last company has
built an exceptionally large twin-engined unit of 770
horsepower, twice the usual maximum, and has fitted a
tractor-shovel with remote radio control to work in haz-
ardous areas.

The companies also produce the more recently com-
petitive rubber-tired tractor units, I-H at Libertyville and
A-C at Deerfield. A wide range of attachments and hy-
draulic bucket loaders are offered. Deere and Company
manufactures similar attachments at Moline, for tractors
built out-of-state.

The scraper is used in earthmoving to scoop up earth,
transport it, and then dump it. Caterpillar produces
scrapers of struck (unheaped) capacities up to 40 cubic
yards, with power units fore and aft giving 785 horse-
power. LeTourneau-Westinghouse of Peoria offers a
Tournapull of 475 horsepower which can haul either a
25-yard scraper or a rear dumper. Auxiliary pushing by
tractors is usually needed for loading, but the Moline
works of Deere manufacture a smaller scraper which
self-loads by a series of motor-driven elevating blades.

Graders — which finally smooth the earth — are built
by Caterpillar, and by Allis-Chalmers at Springfield. The

most important product for LeTourneau is their off-
highway truck, which can carry up to 65 tons, or 90 tons
as a semitrailer; and Caterpillar has now entered this
field with a 35-ton unit. The diesel engines for earthmov-
ing equipment form a significant part of their total value;
and Caterpillar, Allis-Chalmers, and International Har-
vester produce them in Illinois at Peoria, Harvey, and
Melrose Park respectively.

Barber-Greene is a leader in a more specialized area.
Ditchers are built at DeKalb, with a crawler-mounted
unit experimentally equipped with an automatic control
which maintains a predetermined ditch grade. Portable
and fixed conveyors are made in Aurora to carry up to
33 tons of material per minute over several miles and
over grades of up to 25 percent.

Exports and Foreign Operations

Nearly half of the sales are in exports, with Illinois
products going to almost every country in the free world.
Caterpillar is at present supplying equipment in Pakistan
for a dam involving the largest earthmoving contract ever
awarded. Significant sales have also recently been made
in Panama, Ghana, the United Arab Republic, and Li-
beria. Allis-Chalmers now has large fleet orders from
Turkey, Brazil, and Vietnam.

One problem of this increasing overseas market is
keeping United States products competitive with those
made elsewhere. To offset rising United States costs,
to meet growing foreign competition, and to provide
closer association, some investments have been made in
foreign plants. Among them, these companies do some
manufacturing in the United Kingdom, Italy, France, the
Netherlands, Australia, Brazil, Japan, South Africa, Mex-
ico, and Canada. Also essential to overseas sales is the
fast world-wide delivery of spare parts when required,
often into remote areas.

The Future

The industry is now highly competitive, highly organ-
ized, and highly efficient. The over-all trend is steadily
upward, and companies are commonly experiencing an-
nual sales increases of 10 percent or more. The costs of
earthmoving work are tied to the characteristics of the
equipment used — capacity, speed, cycle time, capital costs,
downtime, labor required — and are so complex on large
projects that mathematical computer programming is even
being offered as a customer service.

There is some difference of opinion as to the future
of the industry. Some feel it will be very steady, while
others point to the durability of the products and their
prices (tractors up to $50,000 and scrapers to $120,000)
as potential sources of difficulty. Perhaps two ways to
assure continued sales are the leasing or credit arrange-
ments which are now being offered. In fact, however,
the national and international demand is so great that if
these Illinois plants can maintain their technological,
price, and service leads, the future prospects are good.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, June, 1963, to July, 1963

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

L™5

DEPARTMENT STORE SALES

BANK DEBITS

Not seasonally adjusted.

ILLINOIS BUSINESS INDEXES

July
1963

Percentage

change from

(1957-59

June

July

= 100)

1963

1962

129.9

+ 6.7

+ 9.5

71.5

-39.7

+ 11.0

Employment — manufacturing3. .

98.8

- 0.4

+ 0.9

Weekly earnings — manufacturing3

118.7"

- 0.9

+ 4.3

Dept. store sales in Chicago1

lH.0b

- 5.0

+ 4.6

Consumer prices in Chicago5

106.0

+ 0.8

+ 1.4

129.3

- 6.4

- 3.3

154.3

+ 6.5

+ 15.3

100.0

+ 4.2

+ 2.0

Life insurance sales (ordinary)9. . .

126.9

+ 0.0

+ 11.0

97.8

+ 3.6

- 3.6

'Fed. Power Coram.; 2 111. Dept. of Mines; » 111. Dept. of Labor;
4 Fed. Res. Bank, 7th Dist.; 5 U.S. Bur. of Labor Statistics; • F. W.
Dodge Corp.; ' F"ed. Res. Bd.; ■ 111. Crop Rpts.; "Life Ins. Agcy. Manag.
Assn.; '» 111. Geol. Survey.

» Preliminary. ■> Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

nty'

Personal income1 . .
Manufacturing1

Sales

Inventories

New construction a

Private residenti;

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding3

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual rate

in billion $

464.3"

30.5
20.1
20.3

22.4=
16.3°
6.1'

65. 4b
50. 8b
40 8b
27.7°

Indexes
(1957-59
= 100)
127"
127"
127"
111"

100"

102
115
117
143
120"
107

102

101

101
107

79J

Percentage
change from

June
1963

- 2.0

- 0.3

- 3.5

- 5.5

- 0.5

-13.9

- 7.2
-27.8

+ 0.6
+ 0.2
+ 1.0
+ 16

- 0.5
0 0

- 0.5

- 6.3
0.0

+ 0.5

+ 0.4
+ 2.0

- 0.2
+ 0.2

+ 1.0
+ 0.9
+ 2.6

July
1962

6.3
0.8

5.6

- 0.6
19.1

-10.1
-11.3

- 7.1

- 1.7

+ 6.0

+ 7.2
+ 4.5
+ 4.6

+ 0.6

+ 0.2
+ 2.9
+ 3.2
+ 10.1
+ 5.3
+ 15

+ 0.3

+ 0 3

+ 1.4

+ 0 1

+ 2.0

+ 2.9

0.0

'U.S. Dept. of Commerce; 2 Federal Reserve Board; 'U.S. Dept.
of Agriculture; 'US llure.iu of Labor Statistics; • F. \V. Dodge Corp.

•Seasonally adjusted. b End of month. 'Data for June, 1963,
compared with May, 1963, and June, 1962. rt Based on official indexes,
1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

1963

1962

Aug. 31

Aug. 24

Aug. 17

Aug. 10

Aug. 3

Sept. 1

Production:

Bituminous coal (daily avg.)

.thous. of short tons. .

. mil. of kw-hr

.number in thous

1,613
18,181
63
7,635
94.7
583
126

100.4
100.7
91.9

35,210

247

1,592
18,082
43
7,667
94.5
595
117

100.4
100.7
92.1

35,264

275

1,564
18,053
30
7,661
93.5
577
113

100.4

100.8
92.8

35,198

287

1,575
18,713
58
7,634
93.8
560
106

100.3
100.8
93.4

35,159
264

18^607
130
7,622
95.7

558
104

100.3
100.6
93.1

35,014
238

1 ,459
17,088

Motor vehicles (Wards)

Petroleum (daily avg.)

Steel

Freight carloadings

Department store sales

Commodity prices, wholesale:

All commodities

Other than farm products and foods

50
7,266

.1957-59 = 100

thous. of cars

.1957-59 = 100

mil. of dol

89.8

583
116

100.5"
100.6"
92.2

Finance:

33,442

Failures, industrial and commercial.

282

Source: Survey of Current Business. Weekly Supplements.

Monthly index for August, 1962.

[ 4 ]

RECENT ECONOMIC CHANGES

Housing Starts Decline

Construction was begun on 144,500 housing units in
July, 1963, compared with 155,300 in June and 140,000 in
July, 1962. Privately owned housing starts totaled 143,300
units in July, down almost 6 percent from the June total
but 5 percent above the number of units started in July,
1962. On a seasonally adjusted annual basis, July private
starts fell 3 percent from the June level.

These data appear in the recently revised series issued
by the Department of Commerce using new seasonal ad-
justment factors. The revisions generally raise the totals
recorded in the winter months and lower those recorded
during the spring and summer months.

Interest Rates Increase

The level of interest rates on all types of government
securities gradually moved upward during the first eight
months of this year. This rise has been due to an in-
creasingly optimistic economic outlook and anticipation
of augmented Treasury borrowing during the remainder
of the year.

In the long-term market, government securities con-
tinued leveling off around the 4 percent rate, as indicated
in the chart. Other types of long-term securities showed
varying trends. The yields on high-grade state and local
government bonds increased, those on lower-grade state
and local and high-grade corporate issues remained fairly
steady, and those on lower-grade corporate bonds and
residential mortgages decreased.

The yield on short-term Treasury bills was fairly
stable during the first half of the year but following the
increase in the discount rate in July it rose to the current
yield of 3.24. Any potential downward movement in
short-term rates that might have been anticipated earlier
in the year was offset by monetary measures, increased

INTEREST RATES

Source: Federal Reserve Board.

bank demand for long-term issues, and the gain in out-
standing negotiable time certificates. In addition the ex-
pectation on the part of investors that government author-
ities would not permit short-term rates to fall greatly,
because of the balance-of-payments problem, or to rise
very much, because of continuing failure of the economy
to reach full employment, helped to stabilize the yield.

Expenditures for Food

Per capita expenditure on food during the first quarter
of this year rose to a seasonally adjusted annual rate of
$398, almost the same as in the last quarter of 1962 but
2 percent above that recorded a year earlier. Price
changes were responsible for most of the increase.

During 1962 consumers spent an average of $394 on
food items. This reflected an 11 percent increase over the
decade since 1952, about half of which was due to a rise
in the price of food. Other reasons for the increase have
been the use of more expensive foods and additional
marketing services. However, the proportion of dispos-
able personal income spent on food has continued to
decline over the last decade. Whereas in 1952 about 23
percent was spent for food, the proportion has now fallen
to only 19 percent. Decreases were regular year by year,
except in 1955 and 1958. In comparison, consumer ex-
penditures on other goods and services have risen to
$1,511 per person since 1952, giving effect to gains aver-
aging 4.5 percent per year. However, only a sixth of this
total can be attributed to price increases.

Corporate Depreciation Allowances

Corporate depreciation allowances totaled $27.7 billion
during 1962. Approximately $2.4 billion of the $4.1 billion
increase from 1961 can be attributed to the use by cor-
porations of the new guidelines for depreciation issued
by the Treasury Department last year. As a result of the
higher depreciation claimed by companies under these
guidelines, the amount received by the Treasury in cor-
poration income taxes fell $1.25 billion. With an addi-
tional $1.0 billion in investment tax credit claimed on new
machinery and equipment, the total tax savings amounted
to $2.25 billion.

The largest relative additions to depreciation charges
through use of the new guidelines were in the transporta-
tion and the manufacturing and mining groups, which
claimed 17 percent and 14 percent respectively of all new
depreciation charges. In manufacturing, the total sum of
new depreciation taken by guideline firms was well in
excess of the deductions claimed by non-guideline firms
excluding aircraft and nonelectrical machinery compa-
nies. Such industries as primary metals, paper, chemicals,
and stone, clay, and glass benefited most, and petroleum,
nonelectrical machinery, and nonautomotive transportation
equipment gained least from the new guidelines.

Of the investment tax credit total of $1.0 billion, some-
what over 50 percent was taken by manufacturing and
mining firms, an additional 15 percent each by the com-
munications-public utility and the trade-service groups,
and about 10 percent by transportation firms. Only about
8 percent of all corporations, mostly the smaller ones, did
not make use of the new depreciation guidelines or tax
investment credit. If the depreciation guidelines used had
been the same last year as in 1961, corporate net profits
would have reached $5.4 billion, instead of only $3 billion.

[ 5 ]

RECENT MONETARY DEVELOPMENTS

PAUL T. KINNEY, Associate Professor, Orange State College

Especially in recent years, monetary indicators are
confusing and give ambiguous signals. Whether the last
three years is labeled as a period of credit ease or credit
restraint depends on which of the monetary indicators is
emphasized, for the period since mid-1960 has entailed
substantial increases in available money and credit, sig-
nificant shifts in the composition of available credit, and
relatively stable, though rising, credit costs.

The battle continues over interest rates and monetary
policy, with the current edge in favor of "flexible" policy,
that is, higher interest rates. This is evident in the recent
increase in Federal Reserve discount rates and by the
sustained though moderate rise in interest rates generally.
Currently rates are higher than at any time in the last
three years, and further increases are indicated for the
coming months.

Despite rising credit costs, the quantity of money and
credit has expanded more during the last three years
than at any other time in recent history. Member bank
loans and investments in 1962 increased by nearly 9 per-
cent and have continued to expand rapidly during the first
half of this year. Banks have not been under pressure
to borrow reserves, and even with the substantial rise in
bank credit, the net free reserve position of member banks
has not changed materially since 1960.

Conflict of Policy Objectives

Presently the broad goals of monetary policy include
stimulating employment, output, and economic growth ;
stabilizing prices ; and bolstering the position of the
dollar as an international reserve currency. General
agreement prevails regarding the broad policy objectives;
yet considerable controversy arises through differences
in the priority attached to each goal.

Policies directed toward stimulating domestic economic
activity require relatively low credit costs and an abun-
dance of available credit to finance economic expansion.
However, easy credit conditions are conducive to rising
prices, and many believe that easy credit markets worsen
the balance-of-payments difficulties confronting the
United States during recent years.

With relatively stable prices prevailing during the last
three years, those who argue for more credit restraint
now stress as paramount the need to strengthen the inter-
national position of the dollar and to take whatever steps
are necessary to reduce the outflow of gold. Such views
in their extreme form call for a return to the "discipline
of gold" which, under present institutional arrangements,
would entail a drop in bank reserves equivalent to gold
sales by the United States Treasury and a consequent
multiple contraction of bank credit. In essence such
measures would shift the basic responsibility for the con-
trol of money and credit away from the Federal Reserve
and to the whims of foreign central banks, whose primary
interest lies elsewhere than in the well-being of the
United States economy.

Currently more moderate views calling for credit re-
straint hold that higher interest rates and tighter money
markets will induce more foreign investment in dollar
assets and less capital exports to other countries. Recent
Federal Reserve action appears consistent with these
views.

In contrast, those arguing for easier credit conditions
call attention to the insensitivity of domestic prices to

monetary measures and argue that the current United
States balance-of-payments problems are structural rather
than financial in nature, and that their correction or al-
leviation is not possible merely through the pursuit of a
restrictive monetary policy. In fact, an unduly restrictive
monetary policy may depress domestic economic activity,
reduce incentives to invest, and increase the possibility of
capital flight to other countries where current economic
opportunities are better. The Fed also makes some con-
cessions to this point of view.

Where policy concentrates on the level of credit costs
and on the supply of money and credit, the pursuit of any
one policy goal entails the neglect of other objectives.
The dilemma requires a compromise between broad goals
or a change in techniques, so that more selective measures
may be taken to adjust the composition as well as the level
of credit supply and costs. To this end, but with dubious
results, the Fed has instituted measures designed to ease
capital market conditions while tightening money market
conditions.

Relatively easy capital markets stimulate private in-
vestment expenditures and indirectly foster more employ-
ment, output, and growth. Relatively tight money mar-
kets, on the other hand, discourage the exchange of
dollars for gold or foreign assets and thereby improve
the balance-of-payments position. Supposedly the best
monetary compromise is achieved by facilitating capital
expenditures through easy long-term credit conditions and
simultaneously restricting the availability and increasing
the cost of short-term funds.

Adapting Policy to Multiple Objectives

With decidedly limited powers the Fed can operate in
both ends of the credit market to induce some change
in the structure of rates as well as in the composition
of credit. Direct action in this regard operates through
shifts in the maturity composition of the Federal Reserve
System's portfolio of government securities. In the sim-
plest case, the Fed buys long-term bonds and sells bills
or other short-term securities. In so doing the Fed en-
courages a relative increase in short-term rates and
increases the supply of longer-term funds relative to
short-term funds. However, the Fed would have to make
substantial maturity shifts in order to exert any appreci-
able influence on the structure of rates or the composition
of credit.

Indirectly the Fed can achieve the same results by
inducing banks to alter the structure of their assets. Ap-
propriate steps may be taken to encourage banks to
acquire longer-term securities and generally riskier assets,
such as long-term business loans and mortgages on real
estate.

The key to the Fed's control over the composition of
member bank assets lies in its power to determine the
maximum rates which member banks may pay on their
time and savings deposits. By raising these rate ceilings
and by encouraging relatively more time and savings de-
posits, the Federal Reserve may induce appreciably higher
bank operating costs and reduce the banks' need for
liquidity reserves. Consequently banks will have more
funds to lend and invest, and more incentive to seek
higher-yielding assets in order to cover the added costs of
hank funds.

In addition to required reserves, banks need liquidity

t 6]

reserves to finance changes in loan demand and fluctua-
tions in deposits. With a relative increase in time and
savings deposits, deposit variation generally declines, and
the extent and timing of deposit drains can generally be
predicted with more precision. Thus liquidity needs —
over and above required reserves — fall as a consequence
of a shift in the bank's deposit structure toward a higher
proportion of time and savings deposits. Stability of
these deposits may be further enhanced by employing
graduated interest rates which impose penalties for pre-
mature withdrawal of funds.

Most banks are guided by a "segregated funds" doc-
trine in the selection of their assets. This doctrine ties
the composition of bank assets more or less mechanically
with the structure of their liabilities (deposits). Thus,
even in the absence of higher rates on time deposits, an
increase in the proportion of time and savings deposits
will induce banks to lenghthen the maturity structure of
their investments and to seek more term loans. The com-
bination of higher operating costs, lower liquidity require-
ments, and prevailing principles guiding the selection of
bank assets amplifies the impact of a rise in interest rates
permitted on time and savings deposits held by member
banks.

Directly and indirectly the Federal Reserve can affect
the structure of credit, and to some extent it can vary
the degree of ease in different credit markets. Recogni-
tion of these powers and their fuller use may lead to
more desirable credit conditions. But such powers are
very limited, and so far, their results have been of dubious
value.

Changes in Money and Credit Since 1960

During the last three years, since the initial announce-
ment of the Federal Reserve's technical goals regarding
the structure of interest rates, there is little evidence that
interest rates have behaved in the manner desired. Both
long- and short-term rates have been relatively stable
compared with earlier periods, but short-term rates have
remained below the high levels reached in previous pe-
riods of credit restraint, and rates on longer-term govern-
ment securities have remained above earlier levels except
the peak of 1959-60. Following the decline from that peak,
Fed policy has not brought about any major change in the
structure of interest rates since mid-1960. However, rates
have been much more stable than in earlier years.

Although interest rates have not followed the desired
pattern, the Fed has taken action generally consistent with
its interest rate objectives. It has made significant ma-
turity shifts in its portfolio of United States government
securities — especially for the period through 1962 —
and has encouraged appreciable changes in the composi-
tion of member bank assets.

Directly, in the three years 1960-62, the Fed expanded
its holdings of securities by $4.2 billion. Its holdings of
short-term (under one year) securities declined by $887
million, while it added $775 million in securities with
maturities of 5 to 10 years. The major increase ($4,284
million) has been in the 1 to 5 year maturity range.

Since the beginning of 1963, however, the Fed has
largely nullified its previous maturity shifts. With little
change taking place in its holdings of over-5-year maturi-
ties, it has acquired $3,749 million in short-term securities,
and its holdings of 1 to 5 year maturities decreased by
$1,207 million. Although maturity shifts through 1962
were consistent with the Federal Reserve's stated objec-
tives regarding interest rates, its action since the begin-
ning of this year suggests that it may have reverted to an

earlier policy of confining open market operations to bills
and similar short-term instruments.

One could argue for more drastic maturity shifts than
those evident in the Fed's portfolio operations during
recent years, but it is doubtful that even much more sub-
stantial maturity shifts would have accomplished stated
interest rate objectives.

Indirectly, the Fed has pursued a policy which fostered
substantial changes in the composition of bank assets. In
1962 the Fed raised time and savings deposit interest
rate ceilings to a maximum of 4 percent, for funds on
deposit one year or more. This year the 4 percent ceiling
was applied to time deposits of 90 days or more ; but no
further change was made regarding savings deposits.
Following the 1962 increase in rate maximums, time and
savings deposits increased by more than 25 percent and
have continued to expand during 1963, but at a more
moderate rate. With no appreciable change in demand
deposits, this large increase in time and savings deposits
reflects a fairly substantial shift in the composition of
bank assets.

With the rapid rise in time and savings deposits since
1961, banks have made substantial investment in state and
municipal securities and have expanded their commit-
ments in term and real estate loans. Bank investment in
United States government securities has not changed ap-
preciably, but banks have made shifts toward longer ma-
turities, especially in the 5 to 10 year maturity range.
During 1962 and through March, 1963, commercial bank
term loans secured by real estate and instalment paper
increased by about 13 percent and their investment in
municipals increased by nearly 32 percent. During the
same period of time, total bank loans and investments
increased only 8.3 percent, or at a much lower rate than
the rise in term loans and longer-term investments.

Efficacy of Recent Monetary Measures

The monetary measures employed during recent years
indeed seem to reflect a more sophisticated compromise
between conflicting goals, but this does not automatically
result in a substantial improvement in the efficacy of
monetary policy. As for the domestic scene, monetary
measures can at best assure availability of credit and can
hold down its cost. This may or may not lead to more
spending, depending upon profit and income prospects.
As a further qualification, efforts to expand credit have a
delayed reaction ; they provide the means to expand, but
the expansion may not occur until a time when the appro-
priate policy has changed to credit restraint. Recent bank
acquisitions of longer-term securities have no doubt
tended to ease capital markets to some extent, but in
general, domestic economic conditions are not particularly
responsive to monetary measures on the up side.

Just as monetary policy cannot induce material changes
in the climate of domestic economic activity, there is very
little that the Fed can accomplish to improve the interna-
tional position of the dollar. Its current attempts to
curtail capital exports by increasing interest rates affects
only a small segment of the capital flows. Recent Federal
Reserve estimates indicate that interest-sensitive capital
flows presently are less than $300 million, or less than
10 percent of the private capital component of the United
States balance of payments. If foreigners are induced to
hold larger balances here, it increases our ultimate vulner-
ability to withdrawals.

Credit restraint and higher interest rates affect the
gold outflow only indirectly, since gold sales by the
United States Treasury are restricted to foreign central

I 7 j

banks and other official agencies of foreign governments.
Such sales occur in the normal course of adjusting the
composition of a nation's international reserves, a process
in which interest rate considerations play a rather insig-
nificant role. Whether a foreign central bank prefers
gold or dollar assets depends in part on the country's trade
patterns, its needs for foreign exchange, and the prestige
it attaches to gold. Fear of dollar devaluation could
precipitate a clamor for gold, but limited changes in
interest rates have little bearing on whether official re-
serves will be held in gold or dollars.

In view of recent developments, there is no basis for
expecting any significant increase in economic activity
attributable to easier credit conditions. At present avail-
able credit is still sufficient to meet any reasonable in-
crease in the demand for loanable funds, although at
increasing cost. Any major increase in employment, out-
put, and economic activity would seem to be dependent
upon more selective measures to reduce structural unem-
ployment and upon tax incentives to increase private
domestic expenditures.

While there is little reason to expect economic ex-
pansion through easier credit conditions, there is even
less reason to expect any improvement in balance-of-
payments problems through the Fed's recent and continu-
ing efforts to raise short-term interest rates. Unfortu-
nately present policy reflects a fallacious but popular view
that the world's confidence in the dollar depends on the
gold in Fort Knox rather than on the strength of our
economy. Bolstering confidence in the dollar requires
expansion of domestic investment opportunities and im-
provement in the competitive position of American ex-
porters. Tighter money and higher credit costs are not
in line with these objectives and probably will worsen
rather than improve our balance-of-payments position.

Dilemma of the Big City

(Continued from page 2)
necessarily like living there, but they were trapped by
the advantage of housing costs below anything they
could obtain elsewhere, and perhaps also by having part
or all of their subsidized rent paid by relief agencies.
The projects were billed as "self-contained" communities
but they turned out to be so closely confining as to defeat
the aspirations of the occupants.

The projects were also billed as "low-cost" housing
but structures of this kind, which could give the city a
new, impressive look, were expensive. Their full cost
could hardly be recovered by renting even if average
middle-class families were sought as occupants. Neces-
sary rents required payment of too high a portion of the
family budget, and outlying houses could be purchased
with little or no down payment at lower monthly rates.

If projects were designed for "open occupancy," they
tended quickly to become all Negro, repeating the pattern
of the older residential neighborhoods they had replaced.
Even the least prejudiced whites sooner or later found
that life in the Negro community was different enough
from what they wanted to make them decide to take
advantage of other alternatives. The Negroes came to
command whole renovated areas, as they had whole slum
neighborhoods, and they found the de facto segregation
of this life as unsatisfactory as the intentional segrega-
tion which they had left behind them. The reconstructed
area was too homogeneous and too completely dissociated
from the rest of the city. The community as a whole

thus came to lack the unification necessary to make it a
truly desirable place in which to live and work.

The New Planning

The narrow conception of the problem and many of
the other deficiencies of the slum clearance approach are
now widely recognized. Planners of the new generation
are working in terms of ambitious programs that some-
times look toward the reconstruction of almost the entire
city. Part of the goal is to improve conditions for those
living in the city, part is to bring back, or bring in for
visits regular enough to create a sense of belonging, the
upper middle classes that are needed to support the city's
museums, recreation centers, exposition halls, theaters,
restaurants, and shops. Since satisfactory transportation
is essential for this, the development of adequate trans-
port facilities is often made a key feature of such plans.
Many improvements have already been made, many more
are in the making, but such programs in their entirety are
the work, not just of years, but of decades.

Also widely recognized as a chief obstacle to the
accomplishment of such programs is the fragmentation of
local authority in the metropolitan areas. Outlying towns,
like groups within the city, like to think of themselves as
superior to their neighbors. School districts, sanitary dis-
tricts, park districts, transport authorities, and other local
units guard their independence and often consider them-
selves rivals of others whom they ought to join in com-
mon improvement programs. A broader organization of
effort is clearly needed, and state governments have made
some attempts to effect better cooperation over entire met-
ropolitan areas as well as to aid broadly conceived plans
in other ways. The federal government has also assisted
by providing funds to facilitate the planning and financing
of urban renewal projects. To avoid complicating the
authority relations still further, it has refused to accept
any direct role in carrying out the programs developed.
This leaves the initiative to local or regional authorities,
with the usual diversity of results, but in at least some
places there is great promise of achievements that will
stand as models for all.

Likely to be overlooked, however, is the need to solve
the social problems of the community. The conditions for
living cannot be satisfactory unless there is wide popular
participation in determining what they shall be. From
this point of view, it is not enough to create the physical
attributes of a great city, not enough to provide satis-
factory accommodations and transport for all who will
live or work in it. The seething interaction of its citizens
must hold some prospect of unification, of an ultimate
socialization that will give reality to ideals of freedom
and equality.

Instead, a new class struggle in which economic and
racial distinctions are mingled is developing. On the low-
income side, leadership is being assumed by the Negro,
and his drive for human rights has become more militant.
There is some tendency for whites to react belligerently.
So a new crisis is threatened, one that could alienate the
new groupings of city dwellers from each other for gen-
erations and render inconsequential all the reconstruction
to be accomplished by plans now on the drawing board.

City administrations face some of their hardest deci-
sions in attempting to deal with this problem squarely.
Most of them have hardly a chance of achieving a reason-
able solution without the help of federal efforts to re-
energize the national economy so that expanding job
opportunities will re-establish their cities as centers of
progress for all. vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Taxable Property Values

Real estate listed on local tax rolls in 1961 had a
market value of $1,000 billion, according to a report re-
cently issued by the United States Department of Com-
merce. However, valuations assessed by local officials on
taxable property totaled only $282 billion. In a similar
study made in 1956 local tax rolls showed officially as-
sessed valuations to be $210 billion on a market value of
$700 billion.

The assessment total of $282 billion recorded in 1961
included more than 67 million individual pieces of real
estate. Of this number, 55 percent were residential prop-
erties, 20 percent acreages or farms, 19 percent vacant
lots, 4 percent commercial and industrial holdings, and
the remaining 2 percent unclassified properties. Almost
half of the properties were located in the nine states of
California, Florida, Illinois, Indiana, Michigan, New
York, Ohio, Pennsylvania, and Texas.

Government Employment

Governmental employment at all levels rose from
5.5 million in 1947 to 9.2 million in 1962, an increase of
68 percent. Today public jobs provide one-sixth of all
nonfarm wage and salary employment. Additions to the
number of government workers occurred mainly at state
and local levels because of the demands for governmental
services in education, sanitation, health, and other areas
and because of the sharp population growth. State and
local government employment as a proportion of total
nonagricultural employment rose from 9 percent in 1952
to 12.6 percent in 1962, whereas federal employment de-
creased slightly from 4.8 percent to 4.2 percent.

The area of state and local government employment

GROWTH IN STATE AND LOCAL GOVERNMENT
EMPLOYMENT, BY FUNCTION, 1952-62

[ |

HEALTH AND
HOSPITAL

HIGHWAYS

1952 EMPLOYMENT [

POLICE
PROTECTION

1952-62 INCREASE H

LOCAL
UTILITIES

FIRE
PROTECTION

SANITATION

NATURAL

]

RESOURCES

ALL OTHER*

> i i i i

0.5

2.0

2 5

MILLIONS
* Includes public welfare, local parks and recreation,
housing and urban renewal, finance, courts, and other
agencies.

Source: U.S. Department of Labor, Manpower Report.
July, 1963, p. 7.

which has shown the greatest advance both numerically
and percentagewise in the postwar period has been that
of education. More than 50 percent of all local govern-
ment employees and about 33 percent of state employees
are engaged in educational activities. In 1952 only 1.9
million state and local workers were employed in educa-
tion but by 1962 the number had reached 3.3 million, as
indicated in the chart. This substantial advance was
caused by a large addition in school age population, the
increased length of time each student spends in school,
and improved educational facilities. The next largest
gain in state and local government employment occurred
in health and hospital services, where nearly 300,000
employees were added, an increase of 66 percent. Depart-
ment of Labor projections of future government employ-
ment indicate that public employment will rise by more
than 50 percent in the next 15 years with nearly all of the
growth occurring at the state and local levels.

Expenditure on Foreign Travel

Americans spent almost $2.9 billion on foreign travel
in 1962, an increase of 10 percent over 1961. Of this
amount 84 percent went to foreign countries either as
payment to foreign carriers for fares or as payment for
expenses incurred abroad. The remainder was spent for
the transportation services of United States international
air carriers and shipping companies. Payments for for-
eign travel exceeded receipts from foreigners by $1.4
billion in 1962, with the net outlay increasing $150 million
from 1961. During the first quarter of 1963 the amount
spent on travel abroad rose $20 million above 1962 to
reach a record $315 million. In addition, increased re-
ceipts from the rest of the world were counteracted by
a decline in those from Canada, so that our travel receipts
were held to the same level as in the first quarter of 1962.

The area of the world which benefited most from the
expenditure of the American travel dollar in 1962 was
Canada, which accumulated $492 million, a 16 percent rise
over 1961. Next was Mexico, which accumulated almost
$400 million. Europe and the Mediterranean area ac-
counted for only $600 million as lower per capita expendi-
tures offset a 13 percent rise in the volume of travelers.

Multiple Jobholders

According to the most recent survey by the Bureau
of Labor Statistics, a total of 3.3 million persons, 5 per-
cent of those employed, were "moonlighters" who held
more than one job at the same time in May of 1962.
Among the individuals most likely to hold a second job
were those whose primary job was farming, a protective
service occupation (fireman or policeman), or teaching.
The percentage of those employed holding more than one
job has been fairly stable since 1956, ranging from 4.5
percent to 5.5 percent of total employment.

As of May, 1962, the number of dual jobholders whose
primary occupation was farming was 850,000, 25 percent
of all multiple jobholders and 15 percent of all farm
jobholders. Among wage and salary workers, those in
government employment (including postal workers, teach-
ers, custodians, and protective workers) accounted for
nearly 20 percent of persons working at two jobs. Wage
and salary workers in manufacturing who had a second
job amounted to only about 5 percent of all "moonlighters."

[9]

LOCAL ILLINOIS DEVELOPMENTS

Conciliation and Mediation Activities

Many potentially dangerous labor disputes are settled
quietly in the State each year with very little notice in
the press. The Illinois Conciliation and Mediation Service
investigated and closed 910 labor-management dispute
cases in fiscal year 1962, 3 percent fewer than in fiscal
1961, according to the Illinois Department of Labor.

Of these cases, 481 had been referred to the state
service (under the provisions of the National Labor Re-
lations Act of 1959) from the Federal Mediation and
Conciliation Service, which deals primarily with disputes
involving firms engaged in interstate commerce. In 26 of
the cases thus referred to the state service, an investiga-
tion was made but an agreement was reached by the
parties. A conciliator was assigned to act as an impartial
third party in the collective bargaining process and as-
sisted in settling disputes in 214 cases.

Direct requests to the state service were made in 413
cases; these included 362 for the assignment of a concili-
ator, 19 for arbitration by the service, and 32 for an
employee-representative election. In addition, the depart-
ment intervened in 16 work stoppages. Total disputes
closed, by industry, were manufacturing, 254; construc-
tion, 160; retail trade, 186; transportation, 97; and service
and miscellaneous, 213.

Foreign Trade Movements, Port of Chicago

Gains are expected in revenue from the St. Lawrence
Seaway this year. Optimism regarding the 1963 shipping
season arose from the substantial increases in goods im-
ported and exported through the Seaway in 1962. Exports
valued at $877 million left the United States by way of
Great Lakes ports in 1962, an increase of 17 percent over
1961. Imports amounting to $540 million, or 19 percent
more than in the preceding year, entered this country via

LIFE INSURANCE IN FORCE

BILLIONS OF DOLLARS

CREDIT

INDUSTRIAL

Source: Institute of Life Insurance.

these ports. Tonnage gains for exports and imports were
15 percent and 33 percent respectively.

The port of Chicago handled exports valued at $221
million and imports valued at $169 million during the
1962 shipping season. Chicago's port is made up of two
developed areas 13 miles apart — Navy Pier and other
docking facilities at the mouth of the Chicago River near
the downtown business district, and Calumet Harbor in-
cluding the river and Lake Calumet in the heavy-industry
area of the southeast. In addition to its 41 regular-
service overseas steamship companies, Chicago is served
by 21 trunkline railroads, 20 scheduled airlines, and the
world's greatest concentration of trucking facilities.

Leading commodities exported via the port of Chicago
in 1962 and their value in millions of dollars were corn,
41; machinery and parts, 27; soybeans, 26; railway loco-
motives and parts, 21; machine tools, 12; raw hides and
skins. 10; edible animal oils and fats, 10; and all other,
74. Principal destinations were Canada, Germany, the
United Kingdom, the Netherlands, India, and Italy.

Leading imports at Chicago and their value in millions
of dollars were newsprint, 34; machinery and parts, 18;
distilled spirits and wines, 17; rolled steel mill products,
13; auto trucks, 11; and all other, 76. Major sources of
these imports were Canada, West Germany, the United
Kingdom, the Federation of Malaya, and Japan.

Interstate Highway Construction

At the end of July, Illinois had more than 600 miles
of interstate highways open to traffic and another 140
miles under construction, accounting for nearly half of
the state's total allotment of 1,588 miles of the nation's
41,000-mile network of interstate highways scheduled for
completion by 1970.

At the peak of the road-building season, work was
under way in Illinois on the following interstate routes:
55 (Chicago to St. Louis), 27.4 miles; 57 (Cairo to Chi-
cago), 31.6 miles; 70 (Indiana-Illinois state line to East
St. Louis), 17.5 miles; 74 (Danville to Rock Island-
Moline), 18.9 miles; 80 (Rock Island-Moline to Illinois-
Indiana state line near Hammond), 36.4 miles; 90 (Chi-
cago to Rockford), 1.1 miles; and 270 (interstate bypass
in the East St. Louis area), 7.4 miles.

Life Insurance in Force

Illinois families owned $45 billion of life insurance
protection in force with legal reserve life insurance com-
panies at the beginning of this year, nearly $3 billion or
6.4 percent above the amount owned at the start of 1962.
On a nationwide basis life insurance in force totaled
$676 billion, approximately $47 billion or 7.4 percent over
the previous year. Illinois ranks fourth among the states
in life insurance ownership.

Ordinary life insurance, individually purchased, con-
tinued to be the major method of achieving protection,
accounting for nearly $27 billion or 59 percent of the
total ownership in the State at the beginning of 1963.
Group life insurance accounted for the second largest
amount, $14 billion or 32 percent of the total. Industrial
life insurance, at $2.3 billion, has changed only slightly
over the past several years. The greatest gain during
1962, 14.7 percent, was made in credit life insurance,
compared with a gain of only 4.1 percent for the previous
year. The percentage of the total, however, increased
only slightly, from 3.5 percent to 3.7 percent (see chart).

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
July, 1963

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales'
(000)

Depart-
ment Stoi
Sales4

Bank
Debits5
(000,000)

ILLINOIS

Percentage change from (j™* j1^6,3;

NORTHERN ILLINOIS

Chicago

Percentage change from.
Aurora

Elgin

Percentage change from.
Joliet

Percentage change from.
Kankakee

Percentage change from.
Rock Island-Moline

Percentage change from .
Rockford

Percentage change from .

CENTRAL ILLINOIS
Bloomington

Percentage change from.
Champaign-Urbana

Percentage change from.
Danville

Percentage change from.
Decatur

Percentage change from.
Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

Percentage change from .
Springfield

Percentage change from.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from .
Belleville

Percentage change from.

/June, 1963.
\July, 1962.

Percentage change from. . . . jjj^f ' 1962 .'

«une, 1963.
uly, 1962.

/June, 1963.
/July, 1962 .

/June, 1963.
/July, 1962.

/June, 1963.
\July, 1962.

/June, 1963.
/July, 1962.

June, 1963.
July, 1962.

/June, 1963.
/July, 1962 .

[June, 1963.
July, 1962.

/June, 1963.
•\July, 1962.

/June, 1963.
/July, 1962.

/June, 1963.
\July, 1962.

/June, 1963.
\July, 1162

$40,997*
+14.7
-15.0

$24,132
+37.9
-33.5

$ 745
-48.8
-29.6

$ 587
+53.0
+94.6

$ 716

+147.6
-72.0

$ 223
-50.6
-2.2

$ 1,184
-35.6
+17.7

$ 1,708
-23.6
-6.1

$ 1,908

+ 17.8

+229.0

$ 3,044

+394.2

+869.3

$ 224

+2.5

+ 11.9

$ 734

-1.3

+ 12.1

$ 303

+77.1

+ 128.2

$ 746

-17.8

-43.1

$ 211

-38.2

-53.5

$ 3,497

-39.5

+301.0

$ 366
-44.2

+212.7

$ 425

+23.2

+93.0

$ 246

+20.2

-4.4

1,489,791"
+4.9
+8.7

1,067,339

+4.9
+8.5

33,386
-2.0
+7.8

63,405"

+4.8
+9.7

14,273

+6.9
22,330

+8.3
+ 17.2
20,675

-1.7

+8.1
42,576

+2.3
+10.5
11,595

+1.2
+ 13.1
71,112°

-0.2

+ 6.5
17,594

+6.2

+ 6.0
61,223
+ 18.1
+ 14.6

20,003

+ 17.9
+4.6

28,189
+3.7
+2.3

16,092
+8.9
+8.3

$23,799
+ 6.7
+ 15.5

$ 99
-7.7
+15.8

$ 66
+ 6.2
+8.1

$ 106
-4.9
+8.4

$ 146h

-2.0

+ 11.3

$ 240

+12.4

$ 117
+12.2
+11.6

$ 119
+18.7
+22.1

$ 62
+2.5
+ 10.3

$ 148
+ 1.9
+19.5

$ 321

+5.7
+13.9
$ 65
+6.5
+9.5
$ 172
+11.1
+ 12.1

$ 141
+7.5
+ 6.5

$ 59
+ 6.1
+9.6

• Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: > Local sources. Data include federal construction projects. ■ Local power companies. 3 Illinois Department of Revenue.
Data for June, 1963, not available. l Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by
source. 6 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending July 19, 1963, and July 20, 1962.

[11

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

* REVISED SERIES

^-— -

ILL_^/
U.S.

# REVISED SERIES

1961 1962 1963

DEPARTMENT STORE SALES (ADJ.)

COAL PRODUCTION

' . '' U.S.

~~"

iiy

\ .

U.S. 1 -

BUSINESS LOANS

„

ILL.

fu.s.

* REVISED

SERIES

CASH

FARM INCOME

i ;-o

ILL. ..

V£e

"V-

CONSTRUCTION CONTRACTS

J H

ILL. /^
/U.S.

ELECTRIC POWER

PRODUCTION

V^>

YvV\A'

•LL.^

/•'

~/u!s.

'29 '37 '45 '53 '60 I9«

1962 1963

<^c^

ctQ L

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

October, 1963

HIGHLIGHTS OF BUSINESS IN SEPTEMBER

Both pluses and minuses were showing among produc-
tion indicators in September. Among the minuses were
electric power production, petroleum, and paperboard.
Railroad carloadings showed little change ; coal output
was up. The two major series showing gains over August
were motor vehicles and steel. Auto output picked up
rapidly after the model changeovers and totaled 504,525
for the month, 7 percent above September, 1962. Steel
has been creeping upward since mid-August but has now
reached a point where producers expect operations to
remain fairly steady for a time. The FRB index of in-
dustrial production remained at 126 (1957-59 = 100) after
seasonal adjustment.

Employment in September dropped about 1 million to
69.5 million as teenagers went back to school. Unemploy-
ment was down 340,000 to 3.5 million, the lowest point
this year. The changes were those expected for the
season. The Labor Department points out that the em-
ployment situation for men has steadily improved but that
opportunities for women and teenagers have lessened.
The unemployment rate for married men, 2.9 percent, was
the lowest in more than six years.

Construction Outlays Steady

Spending on new construction in September totaled
$6.2 billion, virtually the same as in August but 7 percent
more than in the year-earlier month. The lack of change
from August to September was the expected seasonal
pattern. Normal scasonals also prevailed in private con-
struction, which totaled $4.2 billion, about the same as the
month before but 5 percent higher than a year ago. The
small over-all change in private construction reflected
divergent movements in the major subgroups — nonresi-
dential building rose 3 percent and public utility construc-
tion was up 2 percent, but residential building, farm
construction, and all other private expenditures were off
by 2 percent, 8 percent, and 6 percent respectively. Public
construction remained steady at $1.9 billion, but was 11
percent above the September, 1962, level.

Instalment Debt Growth Slows Again

The expansion in instalment credit outstanding, which
in July had risen to $6.0 billion at a seasonally adjusted
annual rate, slowed again in August to a rate of $5.1
billion. Unlike earlier months when increases in credit on
automobiles accounted for about half the over-all advance

in instalment debt, the addition to such credit in August
amounted to less than a third of the $425 million total.
The gain of $127 million for the month was the smallest in
1963; sales of cars dropped more than seasonally before
the 1964 models were introduced. In contrast, the in-
creases in the other two major categories of instalment
credit were the largest recorded thus far in 1963: credit
on consumer goods other than cars rose $114 million, and
personal loans outstanding were up $167 million.

Inventories Unchanged

Stocks held by manufacturers and traders were un-
changed between July and August after allowance for
seasonal factors. In the earlier months of the year,
additions averaging $350 million a month had been made.
Manufacturers held their inventories at just under $59.0
billion; a $100 million increase in wholesalers' stocks to
$14.5 billion was about offset by a cut in retailers' stocks
to $27.8 billion. The reduction by retailers reflected a de-
cline in car dealers' inventories.

Sales by producers and distributors were off about 1
percent in August from the month before after seasonal
adjustment. Nearly all of the decrease occurred at the
manufacturing level, as sales by retailers and wholesalers
remained roughly the same. Total sales for the month
amounted to $70.1 billion. Thus the inventory-sales ratio
was 1.4, approximately the same as in July, but somewhat
lower than the ratios of earlier months this year.

Industrial Stocks Hit New High

The Dow-Jones average of 30 industrial stocks finally
rose to a new high of 737.98 on September 5, up over 200
points from the June 26, 1962, low of 535.76. Most of
the market activity has been attributed to institutional and
fund buying, with public trading still light.

Volume has been fairly heavy, partly as a result of
profit-taking after the breakthrough. The market has
also responded to such factors as the ups and downs of
the tax-cut bill, the prospect of higher profits in coming
months, and the expectation of higher year-end dividends.

It should be noted that the new highs actually reflect
the strong showing by a relatively few issues, with many
others remaining unchanged or declining. Steel and auto-
motive stocks, especially, have been rising, often ac-
companied by fertilizer, broadcasting, sugar, paper, pack-
aged food, and bank issues.

A NATURAL RESOURCES POLICY?

By Herbert I. Schiller

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

The Consumer's Role

Consumers' expenditures have risen steadily through
the postwar period. Even in the recession years, personal
income was effectively supported against the decline, and
consumers sustained their buying against the minor reduc-
tion in income that had not been prevented. As a result
of this experience, there is some tendency to regard con-
sumption expenditures as a continuing positive force in
the over-all economic picture.

Behind the facade of stable progress, some signifi-
cant changes in the consumer's position have been taking
place. These hold implications of instability but leave the
outcome somewhat in the dark.

Changes in Spending Patterns

Nothing that has happened changes the basic depend-
ence of expenditures on income. In the immediate postwar
years, everybody who had funds needed other things and
was willing to draw on his liquid assets to make down
payments on new homes or to buy the autos, household
goods, and other products desired for satisfactory living.
Saving was relatively depressed. Since 1950, however,
the rate of saving has consistently been in the range of
6 to 8 percent of disposable personal income. This means
that any particular kind of expenditure could have gained
in relation to income only as some other kind lagged. For
1963, the rate of savings seems likely to hold close to the
7.6 percent realized in both 1961 and 1962.

In the initial postwar period, through 1950, durable
goods took over the leadership. Subsequently, durable
goods expenditures, especially autos, worked in combina-
tion with homebuilding to restimulate lagging economic
activity in a series of relatively short spurts. The latest
carried to the middle of this year.

Through most of this period, nondurable goods lagged,
and expenditures for services showed a distinct upward
trend. Since 1959, services have been advancing by
roughly $8 billion per year, and it has been almost a
routine procedure in forecasting to project the same ad-
vance into the year ahead.

What is commonly overlooked in discussions of this
point is that much of the increase in spending for services
is artificial or derivative. In the first place, it is in this
area that continuing pressure on prices has been felt, and
price increases account for about 40 percent of the total
advance since 1959. Secondly, the bulk of outlays in the

housing category are imputed rents, for which no actual
transfer of funds occurs; they are merely added to both
incomes and expenditures of homeowners to make the
treatment of owned and rented houses comparable. In the
category of personal business also, there are intangible
items such as expenses of handling life insurance and
"services rendered without charge by financial inter-
mediaries" over which the consumer has no control.
Furthermore, there are a number of other important
charges of a nondiscretionary character that derive almost
automatically from consumers' holdings of assets or debt ;
these include interest on personal debt, costs of household
utilities, and repair costs on automobiles and TV sets.
Together, these items and others of a like nature have
been adding about as much to consumers' outlays for serv-
ices each year as the price increases first noted.

In other words, the increases in service expenditures
largely take forms which restrict the consumer's choice ;
often they represent fixed charges on income and reduce
his ability to buy other things. Some analysts take ac-
count of this fact, but others fail to see that there is
really little reason to glorify the bold, brave upward trend
in service expenditures.

The Magic of Credit Expansion

The part of the increase in service expenditures con-
nected with consumers' assets or debt does not include
repairs of houses or interest on mortgages, since these are
treated as business expenses rather than current con-
sumption. Monthly repayments on mortgage and instal-
ment loans have been rising sharply and also represent a
priority claim on current income. However, if one is to
put these payments into the record, it is necessary to con-
sider the sums borrowed as additions to spendable receipts
and also to take account of all offsets to debt in the form
of assets acquired with such funds.

Throughout the postwar period, consumers have been
on a veritable binge of borrowing. Mortgage debt has
expanded by $10 billion or more each year during the last
decade, and 1963 will probably add another $15 billion or
so to the total. Short-term consumer credit has added
several billion more each year, and the increase will prob-
ably exceed $5 billion in 1963. The total of debt in both
forms now exceeds 60 percent of spendable receipts, this
proportion being about double what it was 10 years ago.
Most of this debt has been incurred in acquiring assets,
of course, and since the prices of assets have risen or at
least held up very well, little of it has proved embarrass-
ing despite the rise in charges relative to current income.

Some concern has recently been expressed over the
growing tendency to use credit for purposes other than
acquisition of assets. Since 1956, instalment credit ex-
tensions have exceeded the aggregate value of durable
goods purchases, and the margin has tended to widen
year by year. It will probably be close to $10 billion in
1963. This means that instalment credit is being used to
finance spending for nondurable goods and services. You
can hardly buy a 49-cent bottle of glue without being
asked, "Do you wish to charge it?" When you buy an
auto on time payments, you may also have to buy three
kinds of insurance ; credit insurance is the fastest grow-
ing form of life insurance. Mortgage loans likewise are
being used for extraneous purposes, including travel or a
daughter's wedding reception, and the excess of mort-
gages on one-to-four family houses over the value of new
construction is also running about $10 billion a year.
(Continued on page 8)

[ 2 ]

CM* Q1?>

ILLINOIS INDUSTRIES AND RESOURCES

THE URBAN AREA TRAFFIC PROBLEM

The heart of this problem lies in our increasing popu-
lation, which is displaying greatest growth in urban areas,
in the continual additions which are being made to the
number of vehicles on the roads, and in the increasing
mileage operated by these vehicles. For Illinois it is
considered possible that our total population will increase
from the present 10 million to 19 million by the end of the
century. Although much of the urban increase will be in
the large metropolitan areas, it is expected that a number
of other cities will increase their size to over 100,000 per-
sons. If the entire Chicago area (including adjacent
cities) is excluded, there are still 15 cities in the State at
present with populations of over 40,000, and 6 with over
75,000. All of these may have populations of more than
100,000 by the year 2000. Nine of them are not now on
controlled-access major highways but will be when the
interstate system is finished, and this may well enhance
their growth.

As this urbanization grows the many city, state, local,
and other authorities who must deal with traffic problems
increasingly find themselves faced with apparently in-
soluble situations which arise from the conflicting desires
and needs of the groups within the urban area. Within
one such group are those who need, use, or demand high-
way facilities, made up primarily of automobile users who
enjoy mobility coupled with an illusion of very cheap
transportation. On the other hand, downtown merchants
often feel themselves the losers and want something done
about it, while those who rely upon public transportation
have the least influence and often get the least considera-
tion. The central city authority is commonly trapped
between rising costs for facilities, declining property
values reducing tax revenues, and antipathy from the
suburbs.

In Illinois, the most extreme forms of these problems
are being experienced by greater Chicago and East St.
Louis. What is done there serves both to improve the
efficiency of these important areas of the State and also
to provide a source of reference for other cities.

Planning in Illinois

It is axiomatic that neither planning nor technology
can flourish without an adequate base. As early as 1906,
Illinois led the way by instituting an extended highway
vehicle count, and then in 1916 in Chicago the first count
was made of vehicles entering the business district. In
1933, an expressway plan for Chicago was made, and most
of its routes are still valid. The University of Illinois has
a long history in transportation work, and, together with
Northwestern University, provides an unsurpassed range
of educational and research facilities.

Started in 1955 was the most ambitious and sophisti-
cated project to date — the multi-authority agency known
as CATS (Chicago Area Transportation Study). The
latest theoretical and mathematical methods were used to
make a comprehensive economic study of the area, project
it into the future, and determine travel demands and
highway and transit network requirements.

In 1957 the State set up a Mass Transportation Com-
mission to cover Illinois in general. It became apparent
that the other cities of the State have problems which
show common patterns. One of these is that there is a
minimum population limit below which a regular bus serv-
ice is not economical, and taxis must be used. But even
if transit is necessary for the community, the common
experience is that while revenues go steadily down, ex-
penses cannot be made to follow proportionately.

Technical Achievements

Chicago's achievements in handling highway traffic are
well known, and continual improvements and experimen-
tation are being carried out. An example of this is the
present experiment interconnecting vehicle-counting de-
vices, computers, and traffic signals to assure maximum
traffic flows. In collaboration with the CTA (Chicago
Transit Authority), rail transit lines are being run in the
medians of expressways to provide corridors of traffic
movement which combine various modes at minimum cost.

In the field of transit operations, CTA also enjoys a
high reputation. The rail transit system uses modern
techniques such as the automatic setting of switches and
signals by the trains themselves. In order to return some
status to transit, new buses have been introduced, air-
conditioned trains are being added, and experiments are
being made with rail equipment which will accelerate up to
30 miles per hour in 10 seconds and run at 75 miles per
hour. Looking to the future possibility of buses operating
in "trains," a bus was recently equipped for guidance by
the magnetic field from a cable buried along a roadway.

The Future

It is against this background that many Illinois cities
are preparing plans. Such planning is being stimulated
by a requirement — to be in effect in 1965 — that cities
over 50,000 must have truly comprehensive and cooper-
ative master plans to be eligible for federal aid. This
offers an opportunity either to bring about a rebirth of
the centralized city or to create a new form of urban area;
and one of the most important objectives will be to mini-
mize the inevitable spending of hundreds of millions of
dollars conducive to an efficient solution.

One of the worst difficulties lies in the time lag be-
tween survey and construction, which is commonly so
long that the facility is inadequate before it is opened.
Thus great importance should be attached to having co-
operative and multi-authority agencies with adequate
powers, a policy of continuing reappraisal, and the em-
ployment of really competent experts.

In any area, however, providing the final answers lies
with the elected representatives and public officials, and
whether or not they are prepared to break fresh ground.
It seems quite possible, for instance, that eventually the
nettle will have to be grasped, and street, highway, traffic,
and transit made part of an over-all transportation de-
partment spending a pooled fund on whatever the efficient
functioning of our growing urbanization demands.

TATE

L -5 J

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS1
Percentage changes, July, 1963, to August, 1963

UNITED STATES MONTHLY INDEXES

COAL PRODUCTION

ELE

TRIC POWER PRODUCTION

t 1

EMPLOYMENT- MANUFACTURING

1 4r 1

1 f 1

CONSTRUCTION CONTRACTS

PARTMENT STORE SA

_ES

BANK DEBITS

FARM PRICES

■ ill.
Qus.

ILLINOIS BUSINESS INDEXES

Electric power1

Coal production2

Employment — manufacturing3. .
Weekly earnings — manufacturing

Dept. store sales in Chicago4

Consumer prices in Chicago5

Construction contracts6

Bank debits'

Farm prices8

Life insurance sales (ordinary)9. . .
Petroleum production10

'Fed. Power Comm.; = 111. Dept. of Mines; 3 111. Dept. of Labor;
4 Fed. Res. Hank. 7th Dist.; STJ.S. Bur. of Labor Statistics; 6 F. VV.
Dodge Corp.; ' Fed. Res. Bd.; s 111. Crop Rpts.; » Life Ins. Agcy. Manag.
Assn.; '"111. Geol. Survey.

» Preliminary. b Seasonally adjusted.

Personal income'

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment1

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Aug.
1963

Annual rate

in billion $

464.9"

29.2
20 9
22.6

21.8=
18 1"

3.7°

66. lb
51. 4b
40 8b

34.1'

Indexes
(1957-59
= 100)
126»
126"
127"
110"

100"

102

114
116
141
125"
107

100
96
101
101

100
106
78d

Percentage
change from

Aug.

1962

- 2

+ 4
+ 5

- 2
+ 10

-38

+ 1
+ 1

- 0
+23

3.4

- 0.8

- 6.7

- 6.4
-12.5
-15.9

-10 2
-11.3

- 6.8

- 2.7

+ 5.2

+ 5.8

+ 4.5

+ 4.0

+ 0 4

4- 0 2

+ 2.5

+ 2.8
4-11.8

+ 8.7

4- 1.5

- 0.1

- 1.3

- 0.6
+ 0.2

- 10
+ 1.9

- 2.5

'U.S. Dept. of Commerce; : Federal Reserve Board; • U.S. Dept.
of Agriculture; 'U.S. Bureau of 1-al.ui Statistics: 5 F. W. Dodge Corp.

■Seasonally adjusted. ■> End of month. 'Data for July, \9hi,
compared with June. 1963, and July, 1962. d Based on official indexes,

UNITED STATES WEEKLY BUSINESS STATISTICS

Sept. 28

Sept. 21

Sept. 14

Sept. 7

Aug. 31

Sept. 29

Production:

Bituminous coal (daily avg.).
Electric power by utilities. . .

Motor vehicles (Wards)

Petroleum (daily avg.)

Steel .

thous. of short tons

. mil. of kw-hr

number in thous.

thous. bbl

1957-59 = 100

Freight carloadings thous. of cars.

Department store sales. . 1957-59 = 100.

Commodity prices, wholesale:

Ml commodities 1957-59 = 100.

i Ithi i than farm products and foods. 1957-59 = 100.

21 commodities ..... 1957-59 = 100.

Finance:

Business loans mil. of dol. . . .

Failures, industrial and commercial number

,638
,285

183
,578

100.9

620

119

100.3
100.8
93.8

,944
254

1,647
17,478

171
7,598

100.0

596

119

100 3
100.8
92 8

35,864
281

1,651

18,107

139

7,559

96.8

596

100.2
100 7
92.5

1,622

17,239

7,575
95 3
494

100.3
100.7
92.5

1,613
18,181
63
7,635
94.7
583
126

100 4
100.7
91 9

171
7,355
94.8
597
116

101.2-

100. 8»
92.6

Source: Survey of Current Business, Weekly Supplements

' Monthly index for September, 1962.

t 4 ]

RECENT ECONOMIC CHANGES

Crop Production High

The Department of Agriculture estimates that this
year's all-crop volume will reach 110 percent of the 1957-
59 average. This compares with the previous record high
of 108 in 1960 and 1962. Output of the farm feed grains
— corn, grain sorghums, oats, and barley — is estimated
to exceed 152 million tons for 1963. Leading the way is
the record corn crop, which is expected to reach 4.0 bil-
lion bushels this year, almost 10 percent more than last
year and 3 percent above the previous record set in 1960.
The yield per acre of corn is estimated at 65.9 bushels,
also a new record. Soybean production is estimated at
727.4 million bushels, 7 percent above the previous high.
Output of the wheat crop is expected to total 1.1 billion
bushels, 4 percent above last year, but because of record
export demands, including sales to the Soviet Union, sub-
stantial amounts will be taken from the government's
stocks this year.

Foreign Investments

The flow of United States private capital to foreign
countries last year was $3.3 billion. As indicated in the
chart, this was down almost $800 million from the record
outlay of 1961. Reinvestment of earnings and appreciation
of foreign security shares combined with the capital out-
flow to raise the 1962 value of private holdings abroad by
almost $5.0 billion to a total of $59.8 billion.

During the first half of 1963 the net outflow of capital
reached $2.5 billion, a new record. The increased rate
caused the Administration to propose a tax on the pur-
chases of foreign securities in order to raise the cost to

U.S. PRIVATE CAPITAL FLOW

BILLIONS OF DOLLARS

SHORT-TERM

1950 '52 '54 '56 '58 '60 1962

* Net purchases of securities and loans with a maturity
of more than one year.

Source: U.S. Department of Commerce, Survey of
Current Business, August, 1963, p. 17.

foreigners of obtaining long-term capital in the United
States financial market and to reduce the incentive for
American citizens to invest abroad.

New direct investments by United States companies in
their foreign branches and subsidiaries totaled $2.8 billion
in 1962, slightly more than in the previous year. Last
year's addition to direct investment was composed of $1.2
billion in retained earnings and $1.6 billion in net capital
outflow, raising the book value of direct foreign invest-
ments to $37.1 billion. All of the increase in direct in-
vestments was accounted for by a sharp rise in new manu-
facturing investments, which totaled $1.2 billion last year
compared with about $900 million in 1961.

Capital outflows and retained earnings were up in
most areas, with the expansion greatest in Europe where
manufacturing investment increased from ^j.7 billion in
1961 to $4.8 billion last year. Investments in the trans-
portation equipment industry (largely automobiles) ac-
counted for a large part (26 percent) of the manufactur-
ing total with continued growth in the European,
Australian, and Latin American areas.

Growth in Automobile Registration

In 1962, 66 million passenger cars were registered in
the nation, according to the United States Bureau of
Public Roads. This total compares with 26 million in
1944 and 23 million in 1929. Thus during the last 18
years, total automobile registrations have increased 154
percent. However, since 1950 the rate of yearly growth
has slackened appreciably. During the five years between
World War II and the Korean conflict, the yearly growth
rate was over 9 percent but during the next five years,
ending with the record sales year of 1955, the average
rate was 5.5 percent. Since 1955 the yearly rate of in-
crease in new car registrations has totaled only 3.5 per-
cent. This slowing of the automotive growth rate can also
be seen in per capita terms. From 1945 to 1950 there was
a yearly average gain of 16 cars per 1,000 population, but
since 1950 the yearly average has fallen to only 7 cars
per 1,000 population.

A significant circumstance affecting both the new and
used car markets in recent years has been the greater
proportion of families with more than one car. At the
end of 1962, 14 percent of all family units had more than
one automobile, compared with only 4 percent 10 years
earlier. The increase in the number of family units was
6 million between 1952 and 1962, but the ownership of
autos rose 18 million. The number of family units with
only one car has remained in the 34 to 35 million range
since 1957, which indicates that the number of families
owning a car for the first time just about offset the num-
ber moving from one-car to multicar status.

Retail Sales in 1962

Total 1962 sales of all retail stores in the United States
amounted to $235 billion, $17 billion more than in 1961.
Sales of nondurable goods stores increased 6 percent over
1961 and sales of durable goods stores rose 11 percent.

Among the various kinds of retail businesses, the
automotive group recorded the largest percentage ami
dollar increases over the 1961 level, rising 16 percenl to
$42.8 billion. The general merchandise group showed an
advance of 9 percent to $27.2 billion, and the food group
and eating and drinking places showed gains over 1961
of 4 percent and 5 percent respectively.

[ 5 ]

A NATURAL RESOURCES POLICY?

HERBERT I. SCHILLER, Research Associate Professor

Critics and defenders of United States natural re-
sources policy are agreed on one point. There is not now
and there never has been a national, comprehensive nat-
ural resources policy for the country. Although such a
policy was advocated by the early conservationists, the
abundance of resources and advances in technology pro-
duced living standards so high as to discourage its devel-
opment. Now, however, the pressures from the under-
developed world for improved conditions, largely involving
natural resource relationships with the developed econo-
mies, may result either in forcing changes in long-standing
United States institutions or bring about massive collisions
in the world economy.

The past record does show that a number of policies
about selected resource matters have been formulated.
Norman Wengert writes: "resource programs and poli-
cies have not been the result of grand ideological con-
ceptions . . . instead [they] have grown out of the need
to deal with specific, narrowly defined problems." (The
Annals, November, 1962, p. 68.) A new study of United
States resources declares: "We do not envision any
single, monolithic Resource Policy, through the appli-
cation of which all problems will be solved. Nor
would we expect ever to find a single water policy or
energy policy unless these are stated in such general terms
as to be rather useless. Policies, like actions, tend to come
in bits and pieces, never thoroughly consistent in their
direction." (L. Fischman, J. Fisher, and H. Landsberg,
Resources in America's Future, pp. 52-53.)

Supposing this to be an accurate evaluation, at least
of the past, two questions may be worth considering. How
are we to view the conservation movement that percolated
throughout the administration of Theodore Roosevelt, and
its offspring, conservation, which is still an active force
in political affairs (note President Kennedy's "Conser-
vation Tour" last month)? And, what prospects has a
"bits and pieces" resource policy for effectively meeting
the resource problems of contemporary society?

The Conservation Movement: 1890-1910

The rise of the conservation movement coincided
roughly with and was no doubt influenced by the disap-
pearance of the frontier. Thinking changed when it was no
longer possible to lay claim to an endless stock of fertile
land and bountiful timber, animal, and subsoil resources.

Contributing also to its growth were the evidences of
massive resource waste which accompanied, perhaps un-
avoidably, the construction of the country's industrial
base in the preceding quarter century. This waste was
strictly exorcised by conservationists who viewed the
nation's resources as fixed and limited, plentiful for the
moment perhaps, but subject inexorably to total exhaus-
tion. They believed this was especially true of energy
minerals, which disappeared forever when consumed.

Leading the movement was a group whose training
in the new, rigorous fields of science made them rebel at
the inefficiencies and irrationalities of resource utilization
surrounding them. They provided the rationale for com-
prehensive organization of the nation's resources. In their
view, nature appeared as a precariously balanced environ-
ment of interdepcndcncies, requiring the most careful and
informed treatment by man. They were pioneers in
studies of plant and animal food chains, the hydrologic

cycle, and the interrelationships of human beings and
natural communities.

Implicit in this view of the environment, and widely
advocated by many of the first conservationists, was the
desirability and necessity of ordering nature on as large
a scale as possible. They believed that the control of
forests, large river basins, food chains, and population
movements required a high level of governmental admin-
istration. In their judgment, local administrative units and
private individual decision-making were totally inade-
quate. This view was clearly set forth as early as 1865
by one of our most distinguished thinkers of that period,
George P. Marsh, in his book, Man and Nature.

The first conservationists emphasized scale of opera-
tions as a vital desideratum in achieving ambitious re-
source goals. The interdependencies of human and natural
communities were carefully studied. Understanding the
complexities and interrelationships that tied those systems
together made them believe that controls had to be many-
sided and all-embracing.

The Conservation Concept: 1910-1960

The essence of the early conservationism, its advocacy
of unified handling of natural resource problems at the
national level, was diluted gradually. Repeated warnings
were not borne out despite soaring consumption and waste.
In the half century after Theodore Roosevelt left office,
the population of the country doubled, yet the per capita
consumption of raw materials continued to rise. (See

PER CAPITA CONSUMPTION OF MINERALS

" 1884-88 base period. " 1880-84 base period.

Source: Neal Potter and Francis T. Christy, Jr.,
Trends in Natural Resource Commodities (Baltimore:
Johns Hopkins Tress, 1962), p. 11.

I 0 j

accompanying chart.) The association of increased per
capita consumption with a doubling of the total number
of consumers pushed the absolute quantities of raw mate-
rials consumed to staggering levels. For example, petro-
leum consumption has soared from 173 million barrels
in 1910 to 2,985 million barrels in 1957, iron ore from 55
million to 129 million tons, and copper from 375,000 tons
to 1,239,000 tons over the same period. Under this mas-
sive wave of raw materials production, the admonitions
of the conservationists about impending resource scarcity,
and their recommendations for combating it, understand-
ably went unheeded.

With the conception of over-all resource controls los-
ing its attractiveness in an age of growing abundance,
conservation after 1910 gradually came to be associated
with the preservation and restoration of natural resources.
Consideration of the esthetics of nature also received a
larger emphasis. National parks, dams, wildlife sanctu-
aries, soil reclamation, and forest fire protection were
tangible expressions of the new direction. In this more
limited perspective, even the relatively laissez-faire na-
tional administrations of the 1920's are now regarded as
having practiced conservation. Thus, Donald Swain con-
cludes: ". . . the national conservation program did not
deteriorate in the 1920's. It expanded and matured."
(Federal Conservation Policy, 1921-1933, pp. 169-70.)

The 1930's marked a temporary return to a somewhat
broader type of conservation activity. Impelled by the
pressures of the Great Depression, numerous resource pro-
grams flourished, largely with governmental support. The
national government, seeking means to stimulate the
economy, found natural resource programs a logical out-
let. With the appointment of the National Resources
Planning Board in 1934, the first peacetime national
planning agency emerged. However, the principle of
avoiding competition with the private sector was gener-
ally maintained, and with the possible exception of the
TVA, this planning never adopted the broad basis ad-
vocated by some of the early conservationists. At the
same time, reforestation, soil conservation, and highway
construction carried out more conventional concepts.

World War II removed the basis for government
spending to reduce unemployment; hence the National
Resources Planning agency failed to receive congressional
financial support and was terminated in 1943. Instead,
other governmental boards with substantial power were
set up to control allocations of scarce materials. After
the war, natural resources left the realm of national policy
and consideration (except briefly during the Korean
crisis) and were subsumed once again in the less dramatic
category of conservation. There they have remained.

In short, the turn-of-the-century recommendations for
domestic resources control were drowned by a virtuoso
technological development that made the warnings of
scarcity sound peevish and anachronistic. Then too, as
one observer has recently noted: ". . . the peculiarities of
the American political system, bolstered by the pragmatic
approach to policy decisions, have introduced into re-
source programs and policies an almost pathological em-
phasis on local factors, local developments, local benefits,
at the expense of a larger national view of the public
interest." N. Wengert, op. cit., p. 71.)

The Underdeveloped World's Problems

Separated from the international economy, domestic
natural resource questions probably would continue to
receive diminishing attention and remain a problem for
the distant future only. In 1870, 50 percent of the total

labor force was employed in agriculture whereas today
less than 10 percent make their living in all the extractive
fields, including agriculture.

In the underdeveloped countries of the world, and 85
of the 111 members of the United Nations are so con-
sidered, quite a contrary situation prevails. With half to
three-quarters of their labor forces employed in resource
enterprise, primarily agriculture, and deriving the bulk of
their international purchasing power from the export of
raw materials, these countries are deeply involved with
natural resource matters.

Increased sales of their own raw materials, importa-
tion of capital goods, massive technical and educational
assistance, and eventual access, when their own develop-
mental levels warrant it, to the now tightly held supplies
of the world's raw materials — these are the requirements
of the developing societies, now and for decades ahead.

The agonizing question facing most developing econo-
mies today is how they may transform their raw materials
output into capital equipment. Economically viewed,
sound policy must aim at a conversion of capital assets
from an original form to one more valuable in the devel-
opment programs. Harrison Brown makes the need very
clear: ". . . it must be kept in mind that high-grade
resources are in fact valuable, high-grade capital assets
and that sooner or later they will disappear. Funds
derived from their sale should be converted to other forms
of capital, which are of equal or greater value, particu-
larly into basic industrial installations and into power,
transportation and communications systems. The con-
version of high-grade resource assets into current living
expenses by means of export can lead to tragedy." ("Re-
source Development and Technology," in Natural Re-
sources, Vol. 2, p. 4.)

Another conversion which the developing economies
must undertake is the gigantic task of transforming mil-
lions of untrained people into economically valuable
human resources. This involves the construction of edu-
cational systems from elementary to postdoctoral levels,
to provide the specialists, the technicians, and the skilled
workers who will be needed in the industrial revolution.

Finally, looking further into the future, after the de-
velopmental process has been at least initially successful,
the new nations must have access to raw materials, the
bulk of which are now being consumed by a handful of
industrialized countries.

Each of these requirements impinges directly or in-
directly on current United States resource patterns. When
considered collectively they impose a far-reaching chal-
lenge, for it is apparent that these are matters which the
existing resource-administering institutions of the United
States are ill-prepared to handle.

Developed Versus Developing Economies

Two practices of the industrial countries are particu-
larly objectionable to the underdeveloped states. First, it
is perhaps ironic that the original fear of the conserva-
tionists, of a society running out of natural resources,
has been replaced by the problem of how to keep raw
materials out of the country. Yet existing American and
Western European protectionist policies which exclude
fuels and metals and some agricultural items are critical
deterrents to the development of backward states.

Second, uncontrolled economic fluctuations and lower-
than-average growth rates in the industrialized nations,
especially in the United States, are also reflected quickly
in lowered materials consumption and prevent foreign
exchange from flowing to primary producers.

L 7 ]

Trade and growth policy have thus become integral
parts of international resource relationships though they
have scarcely ever been judged so in this country's
deliberations.

Still another consideration in this connection is the
willingness of American society to play a constructive
leadership role in the world economy. This means giving
the goods, services, and assistance that may be sought by
other societies as well as taking the materials considered
useful to this economy. Assisting the rapidly increasing
international demands for educational and technical as-
sistance may require substantial restructuring of the do-
mestic economy. The ability of the American industrial
system to produce an incredible array and amount of
consumer goods has never been doubted. What is at issue
is its apparent inability to order resources into other uses,
whose priority ranking may be established by criteria
residing outside of exclusively domestic considerations.
Whereas the discussion in recent years has pitted the
private against the public sector, in reality the canvas is
much broader. The public sector now reaches far beyond
the domestic economy and has an integral tie with the
human resource needs of the developing nations.

The high and still rising per capita consumption of
raw materials in the industrialized societies, upon which
the producing countries now greatly depend for their
hopes of improvement, is a case in point. It would be
comforting to regard rising levels of consumption in the
advanced societies as a uniform blessing to consumers and
producers alike. In neither case is this apparent.

What becomes increasingly evident is that so far as
the supply, the sale, the use, and the future of raw mate-
rials are concerned, the United States finds itself in an
ever more interdependent relationship with the under-
developed nations of the world. In addition, the con-
sumption behavior of its own population is affected by,
and will affect, these same societies. Paradoxically, the
simple domestic interdependencies of nature that the early
conservationists explored and tried to relate to national
resource control, though still operative, have been sub-
ordinated to deeper and more perplexing international
interconnections, which have already begun to create their
own paths of interaction.

Now the force of new world political configurations
is felt in all industrialized nations and the United States
moves perhaps unwillingly but irresistibly into inter-
national economic interdependency with the impoverished
two-thirds of the world. Whether the needs of the devel-
oping economies, and the recognition of the conflicts that
the thwarting of these needs would incite, will force
new patterns of resource management on the American
economy is a fascinating and as yet unanswered question.

The Consumer's Role

(Continued from page 2)

The expansion of debt represents a substantial current

stimulus to economic activity. Unfortunately, this kind of

stimulus tends to be unstable, and a mere reduction in the

rate of new debt creation represents a deflationary force.

The Consumer Balance Sheet

The foregoing account is not intended to convey the
idea that consumers have failed to acquire assets as fast
as debt. Net saving has consistently been positive, and in

most years since the mid-1950's, increases in financial as-
sets alone have exceeded the expansion of debt. In fact,
during the latest advance from the 1961 lows, the accu-
mulation of liquid assets alone has exceeded debt expan-
sion by a wide margin. The strong flow of funds into time
deposits and savings and loan shares has led financial
institutions into all-out competition for mortgage and
consumer loans, so the increase in liquid assets has a
direct counterpart in the borrowing described above.

Evidently the over-all balance sheet for consumers has
improved substantially during the postwar period, as
should be expected in years of high prosperity. Consumer
debt may reach a total of about $250 billion by the end
of the year. Liquid assets then held by the public, includ-
ing government savings bonds and other government
securities maturing within one year, will probably total
almost twice as much. This takes no account of other
financial assets, which are estimated to exceed liquid
assets by more than 50 percent, or of physical assets in
such forms as houses and cars. The debt is clearly well
covered for consumers in the aggregate.

The great accumulations of assets and debt are among
the most important changes that have occurred in the
postwar years. They may now be regarded as elements of
strength or of weakness, depending on whether one looks
at the liquid asset holdings on the one hand or at the
physical assets and debt on the other.

Those who view the situation optimistically regard
the stock of liquid assets as a source of support for the
economy should a decline occur. They also hold it to be
a source of potential inflation in the event that recovery
proceeds swiftly toward full employment.

Others express concern about deflation, pointing out
that in a country so definitely divided between high bor-
rowers and high savers, a large group of consumers is
without adequate coverage for their indebtedness. Many
families have no liquid assets to speak of, and their in-
comes provide no more than a minimum for current living
expenses in view of their high fixed charges. Except for
families that have suffered unemployment, there has been
a shift away from this position, but the growth in savers
offers no guarantee of continued prosperity, because
almost everybody who now has funds seems also to have
all the other things he needs. That, in fact, is why the
savings are being held as liquid assets, earning a satis-
factory rate of interest with the principal guaranteed by
the government. The question, then, is whether the dis-
savers will continue to extend themselves indefinitely into
the future and keep on borrowing enough always to put
the savings of the other group back to work.

The difficulty may be illustrated by an analogy: Sup-
pose there existed a community with two industries, each
employing half the workers, with one holding a great
excess of liquid assets and constantly adding to them, the
other holding little more than enough to maintain solvency
and borrowing to cover expenses. The workers employed
by the latter and the civic leaders might not feel entirely
comfortable under these circumstances, though the situa-
tion would remain satisfactory as long as prosperity
brought a sufficient volume of demand to cover the weaker
industry 's commitments.

So it is with consumers in the aggregate. Both bor-
rowing and saving are high, with the former likely to be
more volatile than the latter. Nevertheless, as long as the
over-all economic situation is strong enough to keep in-
comes moving up, there is no need to look for a change
in consumer behavior to produce a definite break in the
recent trend. vlb

[ 8

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

New Fact Book

The Bureau of the Census has released the 1963 edi-
tion of the Statistical Abstract of the United States. This
is the 84th edition to be issued and contains the latest
figures on the social, political, and economic aspects of the
country. There are 1,263 tables of statistics. Copies of
the 1963 Abstract may be obtained for $3.75 by writing
to the Superintendent of Documents, Government Print-
ing Office, Washington, D. C. 20402, or to the nearest
Department of Commerce field office.

Retirement Age Falling

During the 1950's the length of working life of Ameri-
can workers started to fall for the first time in our
nation's history. There are two reasons for this decline:
the longer training period required for young workers
prior to entering upon a career and the continuing drop
in the retirement age. In previous periods the effects of
earlier retirement and additional training on length of
working life had been offset by large increases in life
expectancy. During the 1950's, however, life expectancy
rose only one year.

One of the main causes of the decline in the age of
retirement has been the continuing liberalization of social
security benefits and the development of private pension
systems which contain compulsory retirement provisions.
Other factors, such as the declines in nonagricultural
self-employment and farm employment, plus the difficulty
of older persons in finding new jobs have contributed to
earlier retirement. As indicated in the chart, in 1940 only
70 out of 1,000 men 65 years old left the labor force as a
result of retirement. However, by 1950 this figure had

ANNUAL RATES OF RETIREMENT FOR MALES
1940, 1950, AND 1960

PER 10OO IN LABOR FORCE

20 0

' '

I.I

240

■

800

I960
\

160

120

y/\

1950

1940 f:

'■

-r*^ ,

Source: U.S. Department
July, 1963. pp. 11-13.

Labor, Manpower Report,

reached 83 per 1,000 and by 1960 the retirement rate at
65 was up to 234 per 1,000. With the expected increase
in the American work force during the next decade and
the problem of finding enough jobs for this work force,
the economic pressure to lower the compulsory retirement
age in many occupations is expected to continue.

Business Population Grows

At the beginning of 1963 the number of business con-
cerns in the United States reached 4.8 million, almost 1
percent higher than a year earlier, according to the
United States Department of Commerce. During 1962
approximately 430,000 firms started business whereas
390,000 businesses discontinued operations. A slight in-
crease in the number of new service concerns from the
previous year was balanced by a decline in contract con-
struction and retail trade establishments.

During recent years the growth in the number of
business establishments has occurred mainly in the serv-
ice and retail trade establishments. During 1961 and 1962
in the areas of manufacturing and contract construction
there were decreases in the number of new firms entering
the market. In all major areas of business there have
been continuing increases in the number of firms going out
of business during the last four years.

Strikes Decrease

The number of strikes and the amount of time lost
because of labor disputes during 1962 were below levels
for most postwar years but rose above the totals recorded
in 1961. The number of stoppages due to strikes in firms
of 1,000 or more employees totaled 3,614 during 1962, a
9 percent increase over 1961.

However, a comparatively low proportion of total
idleness, only 26 percent (a postwar low), resulted from
strikes involving 10,000 or more workers. In all postwar
years except 1951, 1953, and 1957, this rate has ranged
from 43.4 percent to 73.7 percent. There were 16 major
stoppages involving 10,000 or more workers in 1962 com-
pared with 14 in 1961 and 17 in 1960. Among the largest
stoppages last year were those involving the longshoremen
on the Atlantic and Gulf coasts, the construction workers
in northern California and in the Detroit area, the New
York newspaper workers, and the employees of the Lock-
heed Aircraft Corporation.

Disputes over general wage changes caused 42 percent
of all the strikes in 1962. Of the 16 major strikes, 10
resulted from this type of dispute. Disputes over union
organization and security were the next highest cause
of strikes, accounting for 16 percent of the total.

Housing in Metropolitan Areas

In only 6 of the 40 major standard metropolitan

statistical areas were more private housing units author-
ized for construction in the central cities than in the
suburbs in 1962. The central cities accounted for only 35
percent of the 695,100 units authorized in these 40 areas,
with New York having the largest percentage. Units in
structures for 5 or more families accounted for 41 percent
of the total, thus continuing the sharp increase of apart-
ment construction which has developed during the lasl
few years.

[ y ]

LOCAL ILLINOIS DEVELOPMENTS

Job Total Hits Peak

Nonfarm employment in Illinois rose to 3,632,100 in
mid-August, according to Director of Labor John E.
Cullerton. This was the highest total for any August in
Illinois history and second only to the all-time unadjusted
high set in June of this year. The total was 12,000 above
the July figure and 40,700 above that of a year earlier.
August marked the 22nd consecutive month in which
employment figures exceeded those for the same month of
the previous year.

The largest gain for August over July was the seasonal
rise of 5,100 in the food industries; 4,200 of this increase
was accounted for by firms engaged in the canning and
preserving of fruits and vegetables. A seasonal gain in
the construction industry which had been expected did not
occur because of a series of labor disputes involving
approximately 3,000 workers in downstate Illinois. After
adjustment for seasonal factors, Illinois employment
stood at an all-time high of 3,621,200.

New Growth Measure

A tabulation of "births" and "deaths" of establish-
ments employing 20 or more workers and subject to the
Illinois Unemployment Compensation Act during fiscal
1961 has been made by a division of the Illinois Depart-
ment of Labor as a partial measure of economic growth.
Cook County accounted for about 70 percent of total
births and deaths. The remaining 30 percent occurred in
47 downstate counties, with no single area showing any
significant degree of gain or loss.

Construction firms were excluded from the study.
Seasonal fluctuations in such employment are large and
widespread, and many of these firms become active on
relatively short-term and temporary contracts.

A total of 194 nonconstruction establishments with 20
or more workers began operations in fiscal 1961 ; this
exceeded the number of discontinued plants by 43. The
most significant contrary movement took place in manu-

PER CAPITA PERSONAL INCOME, 1950-62

Sonne: L'.S. Department of Commerce

facturing. Here losses of 44 outnumbered gains by 32,
and 3,400 employees lost their jobs.

More favorable changes in the trade and service in-
dustries offset manufacturing losses. The largest expan-
sions were in retail general merchandise and in eating and
drinking places. New jobs in the service industries were
concentrated in hotels and other lodging places and in
medical and health services.

Capital Improvements Program in Chicago

According to its recently announced 1963-67 capital
improvements program, the Chicago Department of City
Planning has allocated a total of almost $1.5 billion for
the construction of 950 projects in the city.

Projects to be built by city agencies are valued at $581
million. The total for these projects is 33 percent less
than the $869 million allocated for city agencies in the
1962-66 program, which has now been replaced. A factor
in the decrease has been the large number of previously
scheduled projects that have been completed. The re-
mainder of the new program consists of projects of var-
ious county, state, federal, and city agencies other than
the City of Chicago, such as the Park District and Board
of Education. Improvements planned by these groups are
valued at $867 million.

Major categories of capital expenditures to be made
by city agencies over the five-year period and the amounts
involved are as follows: water and sewer facilities, $141
million ; street improvements, including parking facilities,
$134 million; urban renewal, $127 million; expressways,
%77 million; public buildings, $57 million; and other, in-
cluding airports, rapid transit facilities, and Navy Pier
improvements, $44 million.

Improvements included for the first time in this year's
program will cost $130 million. Among them are the ex-
tension of a runway at O'Hare Field, installation of the
Eastwood Sewer System on the North Side, the relocation
of Halsted Street at 63rd, and engineering funds for the
Columbus Avenue overpass over 79th and Kedzie.

Personal Income Continues to Rise

Net personal income in Illinois reached a new high of
$28.9 billion in 1962, 5 percent above 1961. Wage and
salary disbursements and other labor income accounted
for $20.6 billion. Of this total, $7.2 billion was con-
tributed by manufacturing, $3.8 billion by wholesale and
retail trade, $2.5 billion by government, and $2.1 billion by
services. Farm and nonfarm proprietors' income totaled
$2.9 billion; property income, $3.8 billion; and transfer
payments, $2.2 billion. Personal contributions for social
insurance subtracted $643 million from the gross.

As in 1960 and 1961, Illinois ranked third among the
50 states and the District of Columbia. New York ranked
first and California second. On a per capita basis Illinois
ranked seventh; several smaller states such as Connecticut
and New Jersey as well as the District of Columbia had
higher per capita incomes. However, the 1962 Illinois per
capita income of $2,844 was a record high for the State,
4.4 percent above the previous year and an increase of 36
percent over the 1952-62 decade.

Illinois continued to rank well above the national aver-
age in per capita personal income (see chart). The in-
crease for the nation was also 4.4 percent in 1962 but the
gain for the 1952-62 period, 37 percent, was slightly
higher than that for Illinois.

Liu J

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
August, 1963

Building

Permits'

(000)

Electric
Power Con-
sumption2
(000 kwh)

Estimated
Retail
Sales3
(000)

Depart-

nent Store

Sales4

Bank
Debits5
(000,000)

ILLINOIS

Percentage change from {jj* gg"

NORTHERN ILLINOIS

Chicago

Percentage change from.
Aurora

/July, 1063.
/Aug., 1962.

Percentage change from. . . . j^^ {9()2 ■ ■
Elgin

Percentage change from.
Joliet

Percentage change from.
Kankakee

(July, 1963.
\Aug., 1962.

/July, 1963.
•\Aug., 1962.

Percentage change from. . . .{jj* gg-_
Rock Island-Moline

Percentage change from.
Rockford

(July, 1963.
I Aug., 1962.

/July, 1963..
(Aug., 1962..

/July, 1963.
(Aug., 1962.

/Julv, 1963.
(Aug., 1962.

Percentage change from. . . .{j^1* ^

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from .
Danville

Percentage change from.
Decatur

Percentage change from.
Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

Percentage change from.

/Julv, 1963.
(Aug., 1962.

/July, 1963.
■(Aug., 1962.

/July, 1963...
\Aug., 1962...

/July, 1963.
(Aug., 1962.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from. . . {xj,^ 1962

Alton

Percentage change from.
Belleville

Percentage change from.

/July, 1963.
(Aug., 1962.

$46,679'
+13.9

+2.1

$28,776

+19.2

-2.4

$ 1,169

+56.9

+54.4

$ 373

-36.5

-28.7

$ 724

+ 1.0

+8.5

$ 224

+0.2

-66.5

$ 1,591

+34.3

+ 78.0

$ 2,634

+54.2

-2.5

$ 680
-64.4
-41.9

$ 407
-86.6
—22 .5

$ 527

+135.7
-32.0

$ 5,382

+632.9
+1,184.8

$ 473
+56.3
-59.6

$ 1,616

+ 116.8
-52.0

$ 239
+ 13.3
-48.1

$ 843
-75.9
-46.6

$ 93
-74.5
-25.4
$ 340
-20.0
+151.2
$ 589
+ 139.7
+92.0

1,549,772"
+4.0

+ 10.9

,093,518

+2.5
+9.6

37,519

+12.4

+ 17.8

65,336=

+3.0

+9.7

15,222

+6.6
+ 11.6
23,664

+6.0
+24.7
22,680

+9.7
+ 14.5
49,107
+15.3
+23.2
13,633
+ 17.6
+22.6
80,994°
+13.9
+14.1
18,144

+3.1
+18.8
60,177

-1.7
+ 10.4

21,177
+5.9
+6.0
30,422
+7.9
+7.6
18,179
+13.0
+ 13.6

+25
+15

$23,237*
-9.4

+3.3

+9.9

$ 58

n.a.

-11.7

+7.0

$ 106

+ 18

-0.3

+3.1

n.a.

$ 143L

n.a.

-2.4

+15.0

$ 240

+24"

-0.2

+8'

+4.4

$ 102

n.a.

-12.4

+4.3

$ 102

n.a.

-14.4

+ 12.9

$ 57

+21

-7.9

+ 6.9

$ 141

+21'

-4.7

+ 12'

+ 12.0

$ 286

+33

-10.9

+ 7.7

$ 58

n.a.

-10.3

+6.0

$ 158

+23'

— 7 8

+ 10'

+4.3

$ 132
-6.3
-7.3

$ 49
-16.8

n.a.

"Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. - Local power companies. 3 Illinois Department of Revenue.
Data for July, 1963, not available. * Research Department of Seventh Federal Reserve Bank (Chicago). Percentages roui
source. 6 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending August 16, 1963, and August 17,
1962.

[11]

Illinois Historical "urvov

INDEXES OF BUSINESS ACTIVITY 4ia Lincoln h.u y

1957-1959= 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

\ s

* REVISED SERIES

^/f;

'j^y

* REVISED SERIES

1961 1962

)62 1963

DEPARTMENT

STORE

SALES

(ADJ.

)

/■'"""""

"~-^>-

COAL PRODUCTION

ILL

-j

'60 19 6 1

BUSINESS LOANS

CASH

FARM INCOME

150
100
50
0

Mis.

^WV

;V^V

ILL.

/u.s.

* REVISED SERIES

,,,,,,,,

..1..1..1..

CONSTRUCTION CONTRACTS

ELECTRIC POWER PRODUCTION

-r(M

U.S.

\wy

iuu^

/■""

_^us.

>-5

.C,3b^

c^tf -UL^<-*

?JJNOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

/.:.

0fc ik?

!:;■
HIGHLIGHTS OF BUSINESS IN OCTOBER

Production indicators showed mixed signs again in
October but in most cases changes were relatively small.
Electric power production and coal output were off
slightly, and petroleum showed virtually no change. Steel
ingot tonnage inched upward every week but one ; pro-
duction of 1,944,000 tons in the week ended November 2
was the highest since mid-July. Industry spokesmen
anticipate that output will continue at about the October
level for the rest of 1963, with an expected rise in con-
sumption by automobile manufacturers offset by the de-
cline in demand by the construction industry. The car
makers turned out 798,719 assemblies, the largest number
ever produced in one month, as they tried to build up
dealers' stocks. Freight carloadings rose substantially
above those of the previous month as a result of the
movement of harvested farm crops and of increased ship-
ments of manufactured goods. Paperboard production
was also somewhat higher than the month before. As a
result of fractional increases in most of the major com-
ponents, the FRB index of industrial production rose from
125.9 in September to 126.6 (1957-59 = 100), just above
the previous record of 126.5 last July.

Record Car Sales

Sales of American-made automobiles hit a new record
in October. At 771,350 units, car sales were about 6 per-
cent higher than the previous peak reached in October,
1962. It was the third time this year that monthly sales
had topped the 700,000 figure ; prior to this year monthly
sales had exceeded 700,000 only twice. General Motors
and Ford reported that their sales set records for any
month, and American Motors reported a record for the
month of October. An especially encouraging sign to the
automobile manufacturers was the fact that sales were
continuing at a fast pace late in the month.

Construction Drops Seasonally

Construction activity showed the expected seasonal
pattern in October, declining 3 percent from September
to $6.0 billion. Compared with October, 1962, however,
outlays were up 4 percent. The private and public com-
ponents both conformed to the usual seasonal movement.
Private spending for new construction totaled $4.2 bil-
lion, 2 percent less than in September but S percent
higher than in the year-earlier month. Nonfarm residen-
tial building accounted for $2 .4 billion, 12 percent more

than in the corresponding month of 1962. In contrast to
the strength shown by private construction, public con-
struction dropped 5 percent below October, 1962.

The F. W. Dodge Corporation has recently estimated,
on the basis of contracts awarded in the first nine months,
that construction activity will continue at a high level
for the rest of this year and will finish the year nearly 7
percent above the 1962 figure.

Stock Market Margins Raised

The Federal Reserve Board raised its margin require-
ments for stock purchases from 50 percent to 70 percent
on November 6. Besides requiring that buyers put up 70
percent of the price of new securities bought, the Fed
also provided that when stocks previously bought on
margin are sold, the seller must now apply 70 percent
of the proceeds, rather than 50 percent, toward reducing
his debt to his broker or bank. There had been some
speculation that such a move might be made in view of
the substantial rise in outstanding credit for stock buying,
the heavy volume of trading in recent weeks, and the high
level of stock prices. The change is intended to lessen
actual and potential speculative buying of securities listed
on the organized exchanges and is termed "precautionary"
by FRB spokesmen. The margin requirement was last
changed — from 70 percent to 50 percent — in July, 1962.
Since then, stock market credit has increased from $4.8
billion to $6.9 billion (at the end of September), a rise
of 43 percent to a new record. About 85 percent of the
advance has been in brokers' loans to their customers.

Instalment Credit Expansion Slows

September witnessed a further slowing in the rate of
increase in instalment credit outstanding. A seasonally
adjusted advance of $321 million was the smallest in 1963
and was well under the average monthly rise of $450
million in the first eight months. Lower rates of growth
in credit extended on cars and other consumer goods were
cited by the Federal Reserve Board as the chief factors in
the slowdown. The net addition to automobile loans in
September was only $60 million, owing partly to a drop
in car sales before 1964 models became widely available.
In contrast to these two categories of instalment credit,
personal loans were up by $193 million, the largest
monthly advance on record. Noninstalment credit showed
virtually no change.

THE GUAYANA IN VENEZUELA'S DEVELOPMENT

By J. D. Phillips

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurtox

Virginia G. Speers Giselle Chesrow

Relief from Wheat Subsidies

Our wheat surplus suddenly seemed to acquire un-
dreamed of value when the Soviet Union decided to buy.
By some accounts, it became worth not only a good price
but all kinds of supplementary economic and political
advantages.

The situation prevailing up to that point was that
several other producing countries also had large surpluses.
The surpluses existed, of course, only on the philosophy
of "pay for what you get." With hundreds of millions of
people near starvation, there was no lack of need for the
grain, but most of them lacked the ability to pay for it.
In fact, the very magnitude of their need substantiated
the principle of commercial distribution, because the
surpluses were not large enough to take care of all the
needs in any case.

What changed the situation was the failure of crops
in Europe and the Soviet Union. The resulting shortages
in those areas were apparently not of disaster propor-
tions, but they were embarrassing, and there was no need
for people who had foreign exchange to tighten their
belts severely when supplies were available elsewhere.
Purchases by the Eastern European countries have been
given the most attention in the news, but the Western
Europeans have also been in the market. Even France,
which is normally an exporter of wheat, had a poor crop,
forcing some purchases this year.

Selling at the World Price

The countries with surpluses are usually eager to sell
to buyers with cash or good credit ratings. The Com-
munist countries went elsewhere first and were able to
buy two to three times as much wheat from Canada and
Australia as they now propose to buy from us. Credit
was willingly extended. They have also bought sub-
stantial quantities of flour from Western European
countries, particularly Germany, and since we have ex-
ported large quantities of wheat to Western Europe,
particularly Germany, some of the flour may be considered
American wheat in processed form.

Most of the wheat purchases were made at the world
price of about $1.50 a bushel, which is substantially below
the price at which the same grade of wheat sells here.
The support price at which our government buys the
wheat from the farmers is $1.82, and except for some
weeks last summer, following the farmers' rejection of

proposed controls, the actual market price here has been
somewhat higher than the support price.

Nobody in other parts of the world would be willing
to buy wheat at our domestic price as long as supplies
could be obtained elsewhere. In order to retain a share
of export markets, therefore, our government has been
subsidizing exports. It does this by paying the exporter
the difference between prices here and abroad, in effect
absorbing the loss he would incur if he bought the wheat
here and sold it abroad. The export sale does not create
the loss, however; it merely realizes a loss that already
exists as a result of the price support program. In addi-
tion to sales on this basis, we have made some export
shipments under aid programs, for which no payment is
received, or on special arrangements where the only pay-
ment is in local currencies which cannot be transferred
and are therefore of limited use to our government.

Other producing countries have sometimes charged us
with unfair competition, since our subsidized exports may
be held to depress the market. We counter this charge,
however, by pointing out that we have not tried to break
the market, that if we really tried to sell off our surplus,
the greater supply thrown on the market would depress it
still further. In the last three years, we have reduced our
stocks only moderately despite non-cash sales, and the
price has remained well within the range established by
the International Wheat Agreement, which sets minimum
and maximum prices that must be observed by all parties
for the period specified. In other words, prices have been
supported internationally as well as domestically by agree-
ment among all the largest producing and importing
countries.

A Good Bargain

In selling to the Communist countries at the world
price, we seem to be making a good bargain in more ways
than one. They agree to pay in gold and dollars, and
with part of the 150 million bushels carried in American
ships and thus producing freight revenues, our balance of
payments should be improved by something like $250 mil-
lion. This should be considered a real gain in view of the
policy distortions that result from our preoccupation with
the balance-of-payments problem.

In addition, the surplus we have to carry over from
year to year would presumably be reduced, so that future
costs for handling, storage, and interest would be avoided.
It is estimated that the cost of carrying 150 million
bushels of wheat is about $30 million a year, and the
saving increases proportionally for larger reductions in
the surplus. The American taxpayer can be happy to
obtain this relief on a continuing basis.

At the moment, the transaction is held up by President
Kennedy's stipulation that the wheat be carried in United
States ships to the extent that they are available. The
Communist buyers have refused to pay the extra $10 a
ton in freight rates that would be required for transport
in our ships. This high rate results from earlier United
States cargo-preference policies which create a separate
market for our shipping industry and are in effect a price-
increasing subsidy. Since the justification for the subsi-
dies to our ship lines is national defense, that is, the need
to have ships available for a possible future military
emergency, we are in effect asking the Soviets to help pay
for part of our defense program. Apparently a compro-
mise is in the making, with a reduction in the premium
charged and a limitation on the proportion to be carried in
our ships.

(Continued on page 8)

[ 2

ILLINOIS INDUSTRIES AND RESOURCES

CHANGING EMPLOYMENT IN ILLINOIS

remain about 23 percent of our labor force in 1970 with
1.06 million in it. Private households make up the other
2 percent. There will be an actual decline in the number
of farmers. It is clear that more people will have to take-
full advantage of their natural abilities than do so at
present.

While there will still be sufficient openings for skilled
personnel, the unskilled positions will become highly com-
petitive. Predominantly light work will be shifted from
men to women. There is every reason to assume, however,
that machinery will increasingly make itself felt in office
work and sales, and reduce the number of unskilled women
workers. In 1970, it is expected that the ratio of men to
women in employment will remain at almost exactly 2 to 1.

One of the most controversial aspects of industrializa-
tion has been its effect upon the actual work performed by
the labor force. There have been many who felt that,
although productive, factory work eliminated the individ-
uality and the accompanying personal satisfactions of the
craftsman and substituted dull, repetitive, soul-destroying
tasks. In many instances this has been true, and it has
also often brought about a shift to urban living. But the
true benefits have also become apparent — the use of
power to remove exhausting drudgery from most activities
and the rise in our standard of living.

It seems that we are now entering another stage of
benefits, where the monotonous work becomes automated,
and the skilled role is returned to the worker in the form
of planning, designing, operating, and maintaining the
complicated machinery. Also, the number of working
hours will undoubtedly continue to decrease, while de-
mand for the accouterments of leisure will expand. In
view of these emerging characteristics, it is apparent that
the time spent in education for work and for leisure must
increase.

Although these pressures and changes come from
within the pattern of social development they are also
forced by the real business incentives of competition
among firms, states, and even countries. The application
of more advanced technology by one very often soon
obliges the others to follow suit or fall behind in sales
and profits. The upward pressures of wages are also
inducing more and more industries to turn to further
mechanization which will reduce the labor content of their
products. The sum total of pressures is thus toward a
continuing increase in both utilization and sophistication
of technology.

Employment Patterns

Between 1960 and 1970, the growing population of
Illinois may increase the present labor force of 4 million
by as much as 20 percent. The Illinois Department of
Labor has recently made detailed projections which result
in more conservative figures. The 1970 total labor force
is estimated by them at 4.5 million. It is significant that
about 70 percent of this extra half million will be in the
14 to 24 age group. At the present time, this is the age
group with the severest unemployment problem.

During this decade, when the labor force will probably
rise by about an eighth, there will not be the same rise in
the number of jobs in the various classifications of work.
The change in numbers engaged in work requiring no or
little skill — laborers, operatives, sales clerks — will ab-
sorb only about 8 percent of the growth in the labor force.
This group is now about 33 percent of the labor force,
and will be about 31 percent with 1.38 million workers.
The change in craftsmen, service, and clerical employees,
who require medium skills, will absorb 62 percent of the
increase, rising from 42 percent to become about 44 per-
cent of all people working. This group will have 1.99
million workers. The highly skilled professional and man-
agerial group will take 28 percent of the increase. It will

What Is Being Done

An immediate problem is that these changes in em-
ployment patterns are taking place almost continuously
and are having effects upon the current labor force. Al-
though the high school and university training available
in Illinois can satisfactorily equip the employee for many
occupations, vocational and technical training are inade-
quate, particularly the latter. The effects of this inade-
quacy have been felt in recent years in the shortage of
appropriate personnel both in industry and in other areas.
At the same time, there are also many cases of waste,
where qualified engineers are performing work which
could be done by technicians.

One of the deficiencies lies in the inadequate applica-
tion of a statewide or national standard of courses of
study and accreditation for technical schools and their
graduates, although attempts are being made to extend
standards which have been formulated. The method has
been found to produce good results in Europe and Britain.
A further area for improvement lies in apprenticeship
training. This often should be revamped to meet changed
needs, possibly combining theory and practical work, so
as to properly equip craftsmen to meet technological
changes in their own areas.

As a positive step the State, with federal assistance,
has undertaken manpower development and training pro-
grams in a number of cities. A start has been made by
giving a wide range of training to 9,000 persons under
these projects. It is expected that the federal assistance
available will almost double next year as a result of new
legislation, and with the State matching these contribu-
tions a much enlarged program is possible. A federally
sponsored research project at the University of Illinois
to determine the real curriculum needs for technicians
should help in determining allocations. The American
Society for Engineering Education, with headquarters at
Urbana, has for many years been active in stimulating
interest and providing reference data in this area.

It would seem that if the difficulties of our changing
employment pattern are not acted upon, then many of
our growing population may end up as costly unemploy-
ables instead of competent workers who can contribute to
the proper economic growth of our State.

YOUR STATE

L 3 J

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS*
Percentage changes, August, 1963, to September, 1963

COAL PRODUCTION

-Jl

ELECTRIC POWER PRODUCTION

W 1

EMPLOYMENT- MANUFACTURING

l i l

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

-t-

BANK DEBITS

¥•

■ ill.

FARM PRICES

El us.

ILLINOIS BUSINESS INDEXES

Kni{)loyment — manufacturing1. .
Weekly earnings — manufacturing

Consumer prices in Chicago*

Life insurance sales (ordinary)3. .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

1 111. Dept. of Labor; 2 U.S. Bur. of Labor Statistics; 3 Life Ins.
Agcy. Manas- Assn.; 'Fed. K<s. Hank, 7th Hist.; Mil. Crop Rpts.; E Fed.
Res. Bd.; ' F. W. Dodge Corp.; 8 Fed. Power Comm.; 'ill. Dent, of
Mines; 10 TH. C,eol. Survey.

» Preliminary. b Seasonally adjusted.

Dept.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Sept.
1963

Annual rate

in billion $

466. 4*

29 7

21.3
23.3

22. 9°
17. 5'
5.4°

66. 3h
51. 6b
41.9">
36.9=

Indexes
(1957-59
= 100)
126"
125"
127"
110"

100-

102
115
117
129
1 19-
107

100
95
101
101

100
106

77d

Aug.
1963

+ 5.1
- 2.9
+43.6

+ 0.3
+ 0.4
+ 2.8
+ 8.3

+ 0.1

0.0

+ 0.4

- 0.5

+ 0 1

+ 0.2
+ 1.2
+ 1.5

- 8.7

Sept.
1962

+ 5.0
+ 3.5

+ 7.1
+ 2.7
+ 10 9

+ 13.5
+ 7.8
+ 37.5

+ 10.3
+ 11.5
+ 7.5
- 1.2

+ 4 9
+ 5.0

+ 4.4
+ 4.4

+ 0 5

- 0 2
+ 2.9
+ 2.7
+ 13.3
+ 1.7
+ 0 9

- 0 9

- 5.2

- 2.3
0 0

2 9
+ 10

- 4.9

•U.S. Dept. of Commerce; : Federal Reserve Hoard; 3 U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; * F. \V. Dodge Corp,

" Seasonally adjusted. b End of month. « Data for August, 1963,
compared with July, 1963, and August, 1962. d Based on official indexes,
1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Oct. 26 Oct. 19

Sept. 28

Bituminous coal (daily avg.) thous. of short tons

Electric power by utilities. . mil. of kw-hr.. .

Motor vehicles (Wards) number in thous

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100. .

Freight carloadings thous. of cars. .

Department store sales 1957-59 = 100. .

Commodity prices, wholesale:

All commodities 1957-59 = 100. .

Other than farm products and foods. .1957-59 = 100. .

22 commodities 1957-59 = 100. .

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,592
17,261

213
7,608

102.8

625

112

100.4

100.7
96.2

1 ,603
17,173
210
7,610
102.4
626
122

100 3
100.7
95.7

36,282
303

1,619
17,255
203
7,584
102.8
636
118

100.4

100.8
96 0

36,121
257

1,617

17,106

194

7,596

101.1
632

122

100 3
100.7

94 9

36,145
287

1,646
17,285

183
7,578

100.9

620

119

100.3
100.8
93.8

35,944
254

1,448
16,149
192
7,341
94.9
615
116

100.6*
100.7*
93.8

34,009
290

Sou.

Survey of Current Business, Weekly Svpple

Monthly index for October. 1962.

[ 4 j

RECENT ECONOMIC CHANGES

Sales by Foreign Plants

Sales by foreign manufacturing plants operated by
United States companies rose $2.5 billion during 1962 to
a record $28.1 billion, according to a recent release of the
Department of Commerce. Of this increase, European
plants accounted for $1.1 billion, with Germany, France,
Italy, and the United Kingdom showing strong advances.
In Canada, American-owned companies reported a marked
upturn in sales after a relatively slow rate of growth in
the 1959-61 period, with the largest gains occurring in the
automotive products group. Growth of sales in Latin
America was led by the chemical industry.

Over 80 percent of the output from these foreign man-
ufacturing plants in 1962 was sold in the domestic markets
of the countries where the plants were located, as indi-
cated in the chart. Only $1.4 billion, or 5 percent of the
total, came to the United States, and 41 percent of these
imports consisted of paper and allied products. Transpor-
tation equipment, primarily automobiles, accounted for the
largest sales total ($6.7 billion) and the largest amount
sold in third countries ($865 million).

Gross National Product

The nation's output of goods and services rose to a
seasonally adjusted annual rate of $588.5 billion in the
third quarter of 1963, according to a preliminary estimate
by the Council of Economic Advisers. The gain of $8.9
billion over the previous quarter continued the steady
expansion into new high ground after recovery from the
1961 recession low of $501 billion.

During the third quarter of this year personal con-
sumption continued its upward movement, although dur-

SALES BY U.S.-CONTROLLED PLANTS ABROAD

MACHINERY

CHEMICALS

EXPORTS TO U.S.
EXPORTS TO OTHER COUNTRIES
SALES

able goods purchases showed a decline, the first in over
two years. Private investment again reached a high,
$83.9 billion, as construction surged up to a new record
and inventory accumulation continued.

GROSS NATIONAL PRODUCT OR EXPENDITURE

(Seasonally adjusted, billions of dollars at annual rates)

3rd Qtr.'
1963
588.5
374.3
50 5
168.5
155.3
83 9
47.7
31.7
4 5
4.0
4.3
26.0

2nd Qtr.

1963

579.6

370.4

51.0

165.9

153.5

80.7

45.8

30 7

4 3

3.6

4.8

123.8

3rd Qtr.
1962
556.8
356.7
47.7
162.5
146.6
78.9
46 0
29.3
3.6
2.8

117.0

455.5
444.5
386.5
29.7

BILLIONS OF DOLLARS

Source: U.S. Department of Commerce, Surve\
October, 1963, p. 20.

Gross national product

Personal consumption

Durable goods

Nondurable goods

Services

Domestic investment

New construction

Producers' durable equipment

Change in business inventories

Nonfarm inventories only. .

Net exports of goods and services

Government purchases

INCOME AND SAVING

National income n.a. 474.6

Personal income 465.2 459.9

Disposable personal income 404 4 400.0

Personal saving 30.1 29.6

* Preliminary estimates by Council of Economic Advi;
Source: U.S. Department of Commerce.

Current Monetary Policy

By the close of the third quarter of this year, total
bank loans and investments had increased $12.6 billion
since the first of the year to reach an all-time high of
$240.7 billion. This credit expansion has come during a
time when monetary authorities have been trying to pur-
sue the twin objectives of supporting the current business
recovery and minimizing our balance-of-payments difficul-
ties. This dual policy has been implemented by raising
short-term interest rates in order to induce foreigners to
hold short-term capital here while at the same time hold-
ing down long-term interest rates in order to encourage
domestic investment.

Long-term rates have held stable since mid- 1962 when
commercial banks were authorized to increase their in-
terest rates on time and savings deposits. The higher
rates paid on savings caused more money to flow in than
the banks needed for loans and the excess of available
funds led commercial banks to increase their investment
in municipal securities and mortgages, thus exerting down-
ward pressure on the rates of return on the
This shift in monetary policy lias placed the banking sys-
tem in a somewhat different position from that of other
postwar periods of business expansion. The usual trend
of an increasing demand for loans and a more restrictive
monetary policy has not materialized. The over-all loan-
deposit ratio now stands at a level comparable with the
1960 expansion peak, but bank holdings of short-term
Treasury securities have declined by $6 billion during the
year so that the ratio of such securities to deposits is
only a little above the low of the summer of 1960.

The international phase of our monetary policy has
been somewhat less successful. Treasury bill rates, which
wire held at about 2.3 percent from late 1960 to late
1961, moved up 1>> stage: I i 2.9 percent in the first five
months of this year and have recently gone up to 3.4
percent. However, the outflow of short-term capital ex-
ceeded $2 billion last year and for the first six months of
this year the net outflow was about $500 million.

[ 5

THE GUAYANA IN VENEZUELA'S DEVELOPMENT

JOSEPH D. PHILLIPS, Research Professor

Throughout Latin America, governments have recog-
nized the need for economic development to raise the
standard of living of masses increasingly impatient with
their poverty-stricken existence. This need is given formal
recognition in the treaties underlying the Alliance for
Progress. Although some of these governments have been
unwilling to take even the first steps necessary to achieve
the goals of economic development set forth, all of them
profess their dedication to the accomplishment of these
objectives.

Before World War I the Latin American countries
were mainly confined to primary production and depended
almost entirely upon imports to meet their demand for
industrial products. During the two World Wars, diffi-
culties in obtaining imports from the industrial countries
stimulated some light manufacturing. To a lesser extent
commercial policy had the same effect in the interwar
period. After World War II, the drive for expansion of
industry intensified. This development took place prima-
rily in the expanding urban centers and was largely con-
fined to the consumer goods industries.

However, the opportunities for economic development
through expansion of consumer goods industries have
been largely exhausted for the present. In many of these,
capacity exceeds the markets provided by present income
levels. Dependence upon imported raw and semifinished
materials and components strains the supply of foreign
exchange produced by the export of a few primary prod-
ucts. In addition, the unplanned concentration in the older
urban centers, particularly the capital cities, has attracted
the rural population to these areas in numbers beyond the
capacity of these industries to absorb them, creating
armies of unemployed workers living in shack settlements
in and around these centers. The hinterland was left to
agriculture and to mineral exploitation. The latter activity
is almost wholly in the hands of foreign enterprises pro-
ducing mainly for export, providing little domestic em-
ployment and contributing to the national
economy mainly through tax and royalty pay-
ments. In some cases the prospect for such
payments is one of absolute or at least rela-
tive decline; in others the day of exhaustion
of the raw material base is not far distant.

The resort, therefore, is to development of
heavy industry complexes that can supply a
major part of Latin American requirements
of basic metals, chemicals, and capital equip-
ment. In this way they hope to break loose
from their dependence on the advanced indus-
trial countries and embark upon the course of
economic development that everyone agrees is
necessary.

The Importance of Guayana

One such heavy industry complex now in
the course of development is located in the
sparsely populated Guayana region of eastern
Venezuela (see map). The development pro-
gram is centered on the new city of Santo
Tome de Guayana at the confluence of the
Orinoco and Caroni rivers. It is here that the
new government-owned steel mill and hydro-
electric power plant arc located. Here too

are the iron-ore loading facilities of Iron Mines of Vene-
zuela (Bethlehem Steel) and of Orinoco Mining Com-
pany (U.S. Steel). Both companies bring ore by rail from
mines in the rich reserves to the south for direct loading
of ocean-going ore ships. The town of Puerto Ordaz
developed by Orinoco Mining Company is now a part of
Santo Tome de Guayana, as is the old town of San Felix.
The population of this city area increased from about
3,800 in 1951 to over 50,000 in 1962.

Santo Tome de Guayana is destined to become the
major supplier of basic metals for the Venezuelan econ-
omy. The region will soon be an important source of
hydroelectric energy for other areas. Plans call for it to
become the principal supplier of certain types of heavy
machinery and equipment. These are all things that the
expanding Venezuelan economy needs. In the past, for-
eign exchange earnings from petroleum exports provided
essential imports. However, petroleum exports cannot be
relied upon in the future. Competition from the Middle
East fields and other new sources is exerting pressure on
the price of crude petroleum and cutting into Venezuela's
share of oil traded internationally. Exports of petroleum
will certainly decline in relation to the expanded economy
required to provide the growing population with a higher
standard of living. Industries producing other goods for
export and as substitutes for present imports must be
developed if Venezuela is to move ahead as planned.

The four-year "Plan de la Nacion" for 1963-66 and
the tentative projections to 1975 made by Cordiplan, the
government planning agency, anticipate that the share of
the petroleum industry in the gross national product of
the country will decline from 22 percent in 1962 to 20
percent in 1966 and to 12 percent in 1975. The share of
industrial production, including construction, power, gas,
and water, is expected to rise from 23 percent in 1962 to
28 percent in 1966 and 41 percent in 1975. A gross na-
tional product of $8.7 billion is projected for 1966, requir-

VENEZUELA AND THE GUAYANA REGION

[ 6 ]

ing an average yearly increase of slightly more than 8
percent during the four-year period. It is estimated that
an investment of $6.2 billion — $5.4 billion from internal
sources and $800 million from abroad — will be required
during the four-year period. Two-thirds of the total are
expected to come from private sources, supported by gov-
ernment credit of more than $440 million. The other third
is to be invested mainly by the government.

In 1960 the Guayana region, which accounts for more
than a fourth of the total area of Venezuela, had only 3
percent of the country's 7.5 million people and produced
about 3 percent of its goods and services. Iron ore mining
was the most important activity, accounting for 62 per-
cent of the region's output and 15 percent of its labor
force. Agriculture contributed only 6 percent to the
region's output, although it absorbed 30 percent of the
area's labor force. Preliminary programs anticipate that
by 1975 the region will account for about 5 percent of the
country's population, 7.5 percent of its total production of
goods and services, 21 percent of its industrial production,
and 19 percent of its exports. About 55 percent of Vene-
zuela's output of basic metals, chemicals, and capital
equipment is expected to be produced in the Guayana.
These figures clearly indicate that the region is expected
to play a leading role in Venezuela's industrial develop-
ment. In fact, the essential diversification of Venezuela's
industrial structure can only be achieved through the de-
velopment of the Guayana region industrial complex.

Organization of Guayana Development

The responsibility for the integrated economic, social,
and physical development of the Guayana region was
placed in 1960 in the hands of a newly created govern-
mental autonomous institute, the Corporacion Venezolana
de Guayana. The Corporacion has its own president and
board of directors. It was given a broad grant of author-
ity to organize the resources of the Guayana, including
the hydroelectric potential of the Caroni River, and pro-
mote the industrial development of the region.

The Corporacion, with its subsidiaries, owns and op-
erates the steel mill and the Macagua hydroelectric plant,
as it will the larger Guri hydroelectric plant. It has
entered into joint ventures on a 50-50 basis for the con-
struction and operation of an aluminum reduction plant
| and for feasibility studies and possible joint production of
elemental phosphorus, liquid ammonia, and ferroalloys.

The Corporacion also owns much of the land of the
city of Santo Tome de Guayana. One of its principal
tasks is the planning and development of the city, which
is expected to have a population of over 600,000 by the
1980's. In this it must attempt to integrate immediate
decisions with respect to the provision of services and the
location of residential, commercial, and industrial areas
for a rapidly growing population and economy with the
longer-term plans for a much larger city that will be an
attractive place to live. Fortunately, the two rivers, the
impressive Falls of the Caroni, and the rolling landscape
provide a dramatic setting for the city that few others
possess. To assist in the planning of the city ami in other
aspects of its work, the Corporacion obtained the services
of the Joint Center for Urban Studies of MIT and Har-
vard University.

Program for Metals and Power

The bases for the Guayana industrial complex are the
rich iron ores of the region, the hydroelectric power po-
tential of the Caroni, the nearby petroleum and gas fields

to the north, the deep-water shipping channel of the
Orinoco, and the abundant water available from the two
rivers. Proved reserves of iron ore amount to about
1.4 billion tons. The Cerro Bolivar mine of Orinoco Min-
ing Company is a mountain of ore amounting to 400 mil-
lion tons of proved reserves with an average iron content
of 58 percent. Shipment of ore began in the 1940's, but
the big outflow dates from the exploitation of Cerro Bo-
livar in the 1950's. In the peak year of 1960 some 19 mil-
lion tons were exported. Preliminary targets call for
exports of ore or its equivalent in reduced iron of 25
million tons by 1975. Emphasis will be placed increasingly
on processing more of the ore in the Guayana. Discus-
sions are under way with U.S. Steel Company and others
for a project to reduce iron ore by a low temperature
process using electric power or gas. It is expected that
by 1975 10 million tons will be produced, four-fifths of
which would be exported.

The Orinoco Steel Plant, construction of which was
begun in 1957, is now virtually complete as originally
planned. This fully integrated mill, one of the largest in
Latin America, has an annual capacity of 750,000 to
800,000 metric tons of ingot steel and is designed for
expansion of capacity to 1.2 million metric tons. It is
presently equipped to turn out 600,000 metric tons of
finished steel products; this capacity will be considerably
increased after construction of a strip and sheet rolling
mill scheduled to start in 1964.

The plant has nine electric iron ore reduction furnaces
with an annual capacity of 600,000 tons of pig iron. Steel
is produced in four 250 metric ton open-hearth furnaces.
At present the plant is still in the shakedown stage, with
a staff of more than 3,000 employees being trained by
Koppers Company personnel under a consulting contract.

It is expected that 1963 output will reach 300,000
metric tons of steel. The "Plan de la Nacion" calls for
an output of 1 million metric tons in 1966. Preliminary
projections anticipate a total of 4.5 million tons of ingot
steel from Guayana mills in 1975. Production of finished
steel products would amount to about 3.9 million tons, of
which 1.3 million tons would be for export. The latter
figure represents only a small fraction of the expected
increase in Latin American steel demand.

Aluminum reduction is another element of the metals
program for the region. The Corporacion has contracted
with Reynolds Aluminum for a joint venture in this field.
Present plans call for a plant that would produce alumi-
num directly from bauxite by an electrolytic process that
by-passes the conversion of bauxite to alumina. Produc-
tion of 50,000 tons of ingots is planned for 1966. Pro-
jections to 1975 anticipate an output of 200,000 tons, of
which 140,000 would be for export, primarily to other
Latin American markets. The decisive factor in this proj-
ect, one which is expected to give Guayana aluminum the
best competitive position in Latin America, is the abun-
dance of cheap electric power.

Production of several other metals is expected. Much
of the region is part of an old geological shield similar to
ones in other parts of the world that have proved to be
sources of a great variety of minerals. Although it has
long been exploited for its gold and diamonds, systematic
exploration for other resources has only begun.

The lower Caroni River is estimated to have a hydro-
electric potential of 10 million kilowatts, making it one of
the greatest potential sources of such power in the world.
The Macagua dam near the mouth of the river already
has an installed capacity of 360,000 kilowatts. Construc-
tion has started on Guri dam some sixty miles up the

[ /" ]

river; when its first stage is completed in 1968 it will have
a capacity of 1.75 million kilowatts, about half of which
will be available to the more populous regions of the
country. Plans call for increases in its capacity in two
stages, as demand for power warrants, to a maximum of
6 million kilowatts.

Within a radius of about 200 miles to the north of
Santo Tome de Guayana are located fields with proved
reserves of 2.2 billion barrels of oil and 320 billion cubic
meters of gas. An oil line to the city has been installed
and a gas line is planned.

A Heavy Machinery Complex

It is expected that the presence of the steel mill, the
aluminum plant, low-cost electric power, inexpensive
transportation, and other advantages will encourage the
establishment of a number of enterprises to produce the
simpler types of heavy machinery and equipment. The
program in this field anticipates that foreign firms experi-
enced in manufacturing these products will establish
plants in the region or that Venezuelan firms can make
licensing arrangements and obtain designs and technical
assistance from such firms. Various types of joint ven-
tures between foreign enterprises and private Venezuelan
companies are contemplated.

The market projections on which this program is based
reflect primarily anticipated increases in Venezuelan re-
quirements for these products and only secondarily ex-
pected exports within the Latin American Common Mar-
ket. Imports would still supply more than half of total
Venezuelan requirements of machinery and equipment in
1975. Export targets represent a marginal participation
in the Latin American market for these products.

Some Problems

A number of problems and uncertainties attend the
programs for the development of the Guayana region.
The Venezuelan economy may not grow at the rate re-
quired to provide the expected national market for the
region's products. The high rates of growth in the past
were largely the result of a growing volume of petroleum
exports. As the Venezuelan economy becomes more di-
versified and more dependent upon the home market, it
probably will be faced increasingly with the problem of
maintaining effective demand so familiar in the more
advanced industrial private enterprise economies. The
projected export market for Guayana products depends
heavily upon the development of the Latin American
Common Market, of which Venezuela is not yet a member
although the present government has indicated that it
intends to join.

In addition, the private enterprise orientation of the
Guayana program, as well as that of the national plan,
makes its success dependent in large part upon the success
of industrial promotion programs — that is, upon getting
private firms to undertake specific projects that may be
essential to further development. On the other hand, it
should be noted that, compared with most other Latin
American countries, the government has unusually large-
resources. More particularly, the Corporacion Venezolana
de Guayana owns the major industries presently operating
in the region, except for the two iron ore mining com-
panies. Its enterprises will generate increasingly large
sums for investment in the region.

Finally, there is the uncertainty arising from the po-
litical conflict in Venezuela. Here one can only venture
the opinion that whatever regime is in power is likely to
push the development of the Guayana.

Relief from Wheat Subsidies

(Continued from page 2)
Advantages to the transport industries, however, are
already evident. The expansion of tonnage carried applies
to domestic carriers as well as to the world's shipowners.
The big increase in demand for cargo space to carry
wheat that is needed to make up for the short crops
abroad has resulted in a 50 percent increase in interna-
tional freight rates since last spring. The new prosperity
for shipping, whether or not the ships sail under our flag,
is expected to continue through the winter.

What About the Subsidy?

Some of the objections to the wheat sale apparently
rest on the misconception that we shall be subsidizing
Communist consumption. The fact is that our price sup-
port program was in effect for years before there was any
proposal to sell to the Russians. It was adopted in the
depths of the Great Depression, at a time when prices of
primary products w-ere collapsing all over the world, for
the benefit of our own farmers, and this has continued to
be its aim for a generation.

To keep foreign competition from undermining the
high domestic market price, we have used import controls
to keep foreign wheat out. This, however, is fully in
accord with practices of other nations. Most countries
protect domestic farmers by tariffs or other import con-
trols or both. Even Great Britain, which imports about
half of its food supply, protects its farmers on a substan-
tial number of products, though not on wheat.

The victim of our price support system is the Ameri-
can consumer, who pays three ways in keeping prices
high: He pays more for the bread and flour he purchases ;
he pays taxes to make up the losses the government incurs
by buying high and selling low ; and he pays taxes to
cover carrying costs year by year as long as the wheat is
held in the government stockpile.

Government holdings of wheat under the price support
program reached a recent high in 1960 and have since
been worked down somewhat with the help of restrictions
on production as well as high exports. Even without the
Communist purchases, the stockpile was expected to be
reduced to about 1 billion bushels, or about 20 percent less
than a year's production, by next July. With the addi-
tional demands now in prospect, it will fall much faster
and may get down to about half a year's production, which
might be considered a desirable carryover.

The farmers have been restive under the production
controls, and last May they rejected an Administration
proposal for still tighter controls coupled with high price
supports. Therefore, no supports will be in effect on next
year's crop in the absence of new legislation, and as a
result, there has been some prospect that the price of
wheat might fall all the way to the level of feed grains,
or something not much above $1 a bushel. Currently, the
market has firmed somewhat and the price is above the
level at which the government makes support purchases.

With further reduction in stocks, some further firming
of prices is in prospect. If the w-orld price goes up enough,
there will no longer be any need to subsidize export ship-
ments. Such a development would create a situation
reasonably close to a satisfactory free market. This would
in effect be an opportunity to get out from under the
whole price support system for wheat, merely by letting
the decision of the farmers stand. Only once before, w ith
the end of price controls and the famine emergency in
1947, was there a similar opportunity. VLB

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Wages in Nonmetropolitan Areas

Nonmetropolitan area nonsupervisory workers living
in the North Central states, which includes Indiana, Illi-
nois, and Wisconsin, averaged $1.77 an hour in June,
1962. Of the 2.3 million nonsupervisory workers living in
this area, 26 percent earned less than $1.25 an hour, 40
percent earned between $1.25 and $2, and the remaining
34 percent earned more than $2. Approximately half of
the workers held jobs in manufacturing industries where
the average wage was $1.98 an hour. Fewer than 10 per-
cent of the manufacturing workers were being paid at the
federal minimum of $1.15 and almost 50 percent earned
more than $2 an hour.

In the nonmanufacturing industries the average pay
was only $1.55, and the distribution of earnings was quite
different from that in the manufacturing industries. Al-
most a third of the nonfactory workers earned less than
$1.15 an hour, and fewer than a fifth received $2. Data
for the three major nonmanufacturing industry groups
show that the 686,000 employees in retail trade averaged
$1.48, 8 cents less than those employed in wholesale trade
and 18 cents less than those engaged in finance, insurance,
and real estate.

State Tax Collections

Tax collections by state governments during fiscal 1963
totaled $22.1 billion, up 7.5 percent from fiscal 1962. All
principal tax sources shared in the upward movement
with the largest increase recorded by the general sales
and gross receipts taxes- — $422 million or 8.2 percent.
Altogether, general sales and gross receipts taxes brought
in $5.5 billion, as indicated in the chart. This represented
25 percent of total taxes collected by state governments

STATE TAX COLLECTIONS,
SELECTED SOURCES, 1959-63

BILLIONS OF DOLLARS

GENERAL SALES

1959 I960 1961

mrce: U.S. Bureau of the Cens

although only 37 states used these taxes. Illinois ranked
second in total collections of such taxes with $550 million.

The next ranking source of tax revenue was the sales
tax on motor fuels, which produced over $3.8 billion, 4.9
percent more than in 1962. Sales taxes on tobacco in-
creased 4.6 percent over 1962 to bring in $1.1 billion.
Motor vehicle license taxes yielded $1.6 billion, 5.9 percent
above the 1962 level. Revenue from individual and cor-
poration income taxes totaled nearly $4.5 billion, 10.6 per-
cent more than in 1962.

All states except Colorado reported higher tax re-
ceipts with California and New York reporting the largest
amounts of increase, $190 million and $177 million respec-
tively. The greatest rate of increase was recorded by Wis-
consin and Nevada, each with a 15 percent rise. Tax
collections totaled $1 billion or more in six states: Cali-
fornia, $2.6 billion; New York, $2.5 billion; Pennsylvania,
$1.3 billion; Michigan and Illinois, $1.1 billion each; and
Texas, $1.0 billion. Per capita state taxes ranged from
$208.37 in Delaware to $66.44 in Nebraska.

Home Mortgage Credit

During the past two to three years standards in resi-
dential financing have undergone some further relaxation
and the volume of outstanding home mortgage debt has
continued to increase, reports the Federal Reserve Bank
of Chicago. This has been the result of increased personal
savings and the continuing influence of the FHA and VA
programs for mortgage insurance and guarantee. Under
the FHA and VA programs down payment requirements
have fallen substantially and maturities have lengthened.

In addition, loans made during the past year and a
half have tended toward longer maturities. Of loans
issued on new properties in the Chicago area, 72 percent
reported in the first six months of 1963 carried maturities
of 22.5 years or longer, compared with 64 percent in early
1962. In the case of previously occupied properties, loans
with maturities of 22.5 years or longer accounted for 28
percent of the total issued in the first six months of 1963
compared with 21 percent for the same period a year
earlier. Moreover, loan-value ratios of 85 percent or more
were found in 10 percent of the loans issued in the first
half, compared with 6 percent a year earlier.

State and Local Retirement Systems

Retirement protection applies to nearly all full-time
employees of state and local governments and to a con-
siderable number of part-time employees, according to a
recent report of the Department of Commerce. The most
widespread form of coverage was through retirement sys-
tems administered by these governments, which reported
receipts of nearly $4.0 billion and assets of $23.3 billion
in 1962.

One notable development in recent years has been the
continuing shift of retirement system investments toward
nongovernmental securities. This trend continued in 1962,
with the increased holdings of nongovernmental securities
accounting for all but $153 million of the $2.4 billion rise
from 1961 in the total financial assets of these retirement
systems. At the end of fiscal 1962 nongovernmental se-
curities made up 55 percent of the total financial assets
compared with only 33 percent five years earlier.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Unemployment Insurance Claimants

The Illinois Department of Labor has recently pub-
lished a study of benefit claimants under the Federal
Temporary Extended Unemployment Compensation Act
(TEC), enacted in April, 1961, and effective until June
30, 1962. Long-term unemployment insurance was thus
provided to nearly 100,000 persons who had exhausted
their regular state claimant rights.

Differences in personal and family characteristics be-
tween the TEC and regular claimant groups in Illinois
were small. The median age for both groups was approx-
imately 41, although more TEC claimants were over 65
years of age. The TEC group also contained fewer women
under age 25 and more women in the 35-44 age bracket.
Roughly three-quarters of the TEC claimants were mar-
ried, compared with two-thirds of the regular claimants.

About a third of each claimant group had been en-
gaged in durable goods manufacturing, which accounted
for somewhat over a fourth of covered employment. The
construction industry accounted for 11 and 20 percent,
respectively, of the TEC and regular claimants but only
6 percent of covered jobs. In wholesale and retail trade,
transportation, communications, and public utilities, the
proportions of claimants were well below the proportions
represented in covered employment.

Within the period covered by the TEC act, important
shifts took place in the industrial and occupational distri-
bution of Illinois TEC claimants. The proportion of total
TEC claimants in durable goods manufacturing declined
from 41 percent at the outset to 26 percent in April, 1962.
The share of the construction industry increased from 9
to 14 percent. Unskilled TEC claimants declined from 36
to 27 percent, and the semiskilled group declined slightly.
The percentage in the skilled, clerical-sales, and service
categories rose from 35 to 45, and the proportion of those

REALIZED GROSS AND NET INCOME
PER FARM, 1956-62

THOUSANDS OF DOLLARS

GROSS INCOME

UNITED STATES

NET INCOME

-,-— .rrr~-

l»56 I9S7 1958 1059 I960 19c

U.S. I >.|>. utiiirnt of Agriculture.

in the professional-managerial group was also somewhat
higher.

Chicago's Electronics Industry

The July, 1963, issue of Chicago Area Labor Market
Trends reports that at the National Electronics Confer-
ence (NEC) in Chicago in October, 1961, attention was
called to the lagging research in new fields of electronics
by major electrical machinery firms in the Chicago area.
The per capita value of prime defense contracts awarded
in Chicago between 1958 and 1960 was only one-third of
the value of those awarded in Los Angeles; and electron-
ics manufacturers had gained 41,000 workers in the Los
Angeles metropolitan area in the two-year period as con-
trasted with only 11,000 in the Chicago area.

Chicago electronics manufacturers were reluctant to
engage in risky research projects at the expense of con-
tinued profitable operations in the existing consumer and
industrial markets. However, the NEC and various local
and state industrial development organizations have en-
couraged Chicago area firms to bid on defense contracts
to offset the loss of jobs in meat-packing and transporta-
tion equipment and also to help absorb the expected flood
of young people into the labor market.

Despite these efforts, Chicago added only about 7,000
electrical machinery workers between mid-1961 and mid-
1963, whereas Los Angeles had a net gain of 31,000.
During the same period, however, the number of electrical
machinery workers in Boston, Philadelphia, and New
York showed net declines of 6.000, 3,000, and 2,000 respec-
tively. Thus, in comparison with areas other than Los
Angeles, the Chicago area has done well. In terms of
production and profits, the electronics industry in Chicago
actually had one of its best years in 1962.

Farm Income Rises in 1962

The United States Department of Agriculture esti-
mates that realized gross and net income per Illinois farm
in 1962 stood at $16,095 and $4,810, respectively. These
figures represent advances of 9 percent and 4 percent
over 1961. For the nation, realized gross and net income
per farm rose to $11,061 and $3,414, with gains of about
7 percent and 4 percent (see chart). Net figures are de-
rived by subtracting farm production expenses from the
sum of cash receipts from farming, government payments,
the value of farm products consumed, and the gross rental
value of farm dwellings.

Higher Illinois farm income was due to higher grain
prices and crop yields, to record-level livestock numbers,
and to favorable feed-price ratios. Sales of crops held
over from 1961 also contributed, particularly in southern
Illinois. Cash receipts from farm marketings rose by 7
percent. Much of the increase came from high corn, soy
bean, and beef-cattle receipts. Government payments were
$724 per farm, about 6 percent more than in 1961. Farm
costs, however, have been rising consistently.

Percentage changes in farm income were greatest in
northern Illinois owing to high corn yields and high beef-
cattle earnings. In southern Illinois, less favorable weather
resulted in lower crop yields. Hog and dairy-farm earn-
ings were down in both areas.

Illinois farms have been growing fewer in number and
larger in size. There were 151,000 farms in 1962, roughly
5,000 less than in 1961. The number of farms in the 1,000-
plus acreage group increased by nearly 13 percent.

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
September, 1963

Building

Permits1

(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales3

(000,000)

Depart-
ment Store
Sales4

Bank
Debits5

(000,000)

ILLINOIS

Percentage change from.

Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

Pen entage change from.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from
Alton

Percentage change from.
Belleville

Percentage change from.

fAug., 1963.
(Sept., 1962.

(Aug., 1963.
(Sept., 1962.

/Aug., 1963.
(Sept., 1962.

NORTHERN ILLINOIS
Chicago

Percentage change from.
Aurora

Percentage change from. . • {g^ 1962'
Elgin

Percentage change from .
Joliet

Percentage change from.
Kankakee

Percentage change from. . . .{g^ \962'
Rock Island-Moline

Percentage change from. . . .{g^ \9%2
Rockford

Percentage change from. . . . (g^ ^'V

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from.
Danville

Percentage change from.
Decatur

J Aug., 1963.
(Sept., 1962.

(Aug., 1963.
(Sept., 1962.

Percentage change from. . . .{g^' "^

(Aug., 1963.
(Sept., 1962.

/Aug., 1963.
.Sept., 1962.

(Aug., 1963.
\Sept., 1962.

(Aug
Sep

(Aug., 1963.
' (Sept., 1962.

/Aug., 1963.
(Sept., 1962.

/Aug., 1963.
\Sept., 1962.

$58,733"

$4S,409
+68.2
+64.0

$ 1,671
+42.9

+209.4

$ 585
+56.8
+36.7

$ 685
-5 4
+ 14 4

$ 285
+27.2
+24.5

$ 903
-43.2
-41.6

$ 1,499
-43.1
-4.5

$ 303

-55.4

-66.3

$ 593

+45.7

+ 114 o

$ 271

-48.6

+37.6

$ 486

-91.0

+ 12.5

$ 140

-70.4

-47.4

$ 901

-44.2

+20 .3

$ 528

+ 120.9

+183.9

$ 474

-43.8

-31.4

$ 200
+ 115.1
+222 6
$ 568
+ 67.1
+ 70.2
$ 232
-60.6
-58.4

1,453.3"
-3 9
+4.9

,063.3
-2.8

+3.7

64 3'

-1.5
+8.2

14 6
-3.9
+ 11.5

22.3
-5.9
+ 17.4

21 1
-7.0
+5.0

46 6
-5.1
+9.4

13 0
-4.4
+ 10.2

74 7'
-7.8
+4.5

17 2
-5.0
+5.5

51 0
-15.3
+ 6.7

19 9

-6.1
+9.3
28.1
-7.6
±12. 9
17 2
-5.5
±12.4

$ 594 7
-17 .2
-0.2

-1.3

$ 10 8

-15 .0

+2.9

$ 7 1

-10.1

+0.0

$ 11.0

-19.1

-9.1

$ 6 1

-12.9

+1.7

$ 13.7

-16.5

+7.9

$ 21.6

-16.0

+4.9

$ 6 9

-11.5

+3.0

$ 10.1

-16 5

-1.0

$ 7 0

-15.7

+2.9

$ 13 1

-13.2

+7.4

$ 5 1

-13.6

+4.1

$ 18 8

-17.2

+11

$ 6 3

-8.7

+8.6

$ 16 3

-10.4

+0.6

$ 9 0
-15 1
-3.2
$ 6 0
-9 1
+ 17.6
$ 5 6
-17.6
+3.7

$24,473"
+5.3
+ 15.8

$22,743
+5.7
+ 16.1

$ 97
+1.0
+12.8

$ 56
-3 4
+7.7

$ 96
-9.4
+3.2

$ 138b

n.a.

-3.5
+ 10.4

-6'
0'

$ 228

-5.0
+ 10.1

n.a.

$ 99
-2.9
+ 16.5

n.a.

$ 106
+3.9

+ 15 2

-10
-1

$ 56
-1.8

+ 7.7

-8'

+ 7'

$ 144
+2.1
+9.9

n.a.

-13

$ 302

+5.6
+20.8

n.a.

$ 61

+5.2
+ 17.3

$ 162

$ 136

+3.0
+9.7
$ 51
+4.1
+ 15.9

"Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Data for July, 1963. Comparisons relate to June, 1963, and July, 1962. * Research Department of Seventh Federal Reserve Bank
(Chicago). Percentages rounded by source. 6 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending
September 13, 1963, and September 14, 1962.

[11]

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

I-'rofessor A. H. Trotier
302 Library

EMPLOYMENT - MANUFACTURING

ILL /
U.S.

* REVISE

3 SERIES

WERAGE WEEKLY EARNINGS

- MANUFACTURING

*UU

150

P*~

100

•«»"-

ILL_^/

U.S.

# REVISED SERIES

i i i i i ' .

i i i i

DEPARTMENT

STORE

SALES

(adj.)

ILL.

' US.

COAL PRODUCTION

LL/\

'53 '60

>62 1963

•s-irj'JAL AVERAGE

BUSINESS LOANS

CASH

FARM 1

NCOME

150
100

-^r

\ ,

^tisT

HaJV

mu'

50
0

ILL.

/u.1

Mill

1962 1963

CONSTRUCTION CONTRACTS

~r.ni

ill. r^

/u.s.

ELECTRIC POWER

3R0DUCTI0N

mJv

ILL.^

-^u.s.

'29 '37 '45

ANNUAL AVERAGE

1961 1962 1963

b^r

k^MJH i^iULSL.

KrlLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

—

December, 1963

DFn O i . Number 11

*~^

HIGHLIGHTS OF BUSINESS IN NOVEMBER «''*v»it

Most indicators of business activity received a double
jolt late in November — the usual one from Thanksgiving,
which is taken into account by seasonal adjustments, and
the unexpected, shocking one occasioned by the assassina-
tion of the President. The occurrence of two off-days in
the final week of the month cut unadjusted figures very
sharply in some cases. Aside from these declines, business
activity was pretty well maintained. Steel output showed
minor increases each week and finally reached a level of
2 million tons for the last week of the month. Automobile
assemblies totaled 746,641, nearly 9 percent higher than
in November, 1962, and the largest number for the month
since 1955. One piece of automotive news that caused
dismay was the announcement early in December that
Studebaker will soon discontinue building cars in the
United States. The FRB index of industrial production
upward from 126.6 to 126.9 (1957-59 =100).
Retail sales were off for the month, declining 1 percent
from October's level to $20.6 billion. This was still 2 per-
cent above the November, 1962, figure, however. Durable

| goods sales dropped 2 percent from October ; nondurable

| goods sales were less than 1 percent lower.

Capital Spending at Record

Business spending on plant and equipment during the
final quarter of 1963 is estimated at more than $40.7
billion (seasonally adjusted annual rate). This will be a
new record but is down about 1 percent from the pre-
liminary estimate. Nearly half of the $750 million increase
over the third quarter occurred in manufacturing, partic-
ularly nondurable goods, industries; a sizable advance was
also made in transportation. Compared with the fourth
quarter of 1962, capital outlays were up $2.8 billion, and
again nearly half of the rise was attributable to manu-
facturing.

For 1963 as a whole, the Department of Commerce and
the Securities and Exchange Commission estimate plant
and equipment spending at a little over $39 billion. Two
major manufacturing groups raised their investment
sights during the year — motor vehicle producers and oil
companies. Railroads also spent more than they originally
expected. Commercial firms, on the other hand, spent less,
and other industries acquired capital goods about as
planned.

Projections show the same over-all total for the first
quarter of 1964 as in the fourth quarter of 1963, $40.7

billion, but the rise is expected to resume in the second
quarter.

1964 Budget Still Stalled

With the end of the first session of the 88th Congress
in sight and with half of fiscal 1964 gone, the federal
budget for the year has yet to be passed by the Congress.
By late November only four of the usual dozen appropri-
ation bills had been passed ; most departments and agencies
were operating under authorization which permitted them
to spend at their fiscal 1963 rates.

The failure to act on the 1964 budget makes the 1965
budget, due in January, more than usually uncertain ; and
further uncertainty is added by congressional inaction on
the tax-cut bill. The most commonly quoted figure for the
total is about $102 billion, with much of the rise accounted
for by new programs and program expansions already
authorized by Congress. It is generally felt that even with
the most determined effort, it will be difficult for the
Administration to cut much from this total. A continuing
effort is being made to hold down defense spending, which
accounts for almost half of the budget.

Farm Income Outlook

Realized net farm income in 1963 is expected by the
United States Department of Agriculture to fall 2 or 3
percent below 1962's estimated $12.6 billion. The realized
gross is anticipated to be about $41 billion for the year, a
record high, but the increase in gross has been more than
offset by higher production costs. Income has been raised
chiefly by larger crop receipts which reflect both greater
volume and higher prices. Soybeans, corn, and wheat,
particularly, have increased this year's cash receipts. For
livestock and livestock products, lower average prices
offset a record volume. Government payments have also
been higher.

The prospect for 1964 is for a further decline in re-
alized net farm income resulting from an expected cut
in receipts ami further advances in production costs. It is
anticipated that lower receipts from wheat will more than
offset increases in cash income from other crops. A sub-
stantially larger volume and higher prices arc expected
for soybeans. Receipts from livestock and livestock prod-
ucts are also expected to be somewhat higher. Payments
to farmers under the various government programs will
probably be lower in 1964.

UNWANTED WORKERS AND MANPOWER PLANNING

By W. H. Franke

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois
The material appearing in the Illinois Business Reziew is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.

V Lewis Bassie
Director

Ruth A. Birdzell

Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

Inflation of Stock Prices

The quick rebound of stock prices from the sell-off
following news of the President's assassination has been
widely interpreted as an indication that business condi-
tions are still sound. Before that, with the drive of stock
prices to all-time highs in September, the market was said
to be signaling good business for 1964. These views are
in general accord with the practice of using stock prices
as a business "forecaster," for example, by listing them
as a "leading indicator."

At the same time, some analysts have been talking
about the market's "mistake" of 1962. By the middle of
that year, prices had dropped about 30 percent in some
indexes, but corporate profits and industrial production
merely leveled off for a few months and gross national
product continued to advance. Thus, 1962 was a kind of
mistake, or exception, but over the years the market has
made a number of such false starts. If business failed to
take the same turn, they have usually been short-lived.
One that was more prolonged was the unsupported break
in the summer of 1946; on that occasion, the high was not
fully regained for almost 4 years, and at the lows of 1949,
an extreme of undervaluation existed.

Reversal of such extremes has also been a recurring
feature of the market over the years. The strong postwar
uptrend that began from the 1949 lows multiplied average
prices fivefold or more, and at the 1961 highs, the over-
valuation was roughly as extreme as the undervaluation
of 1949. With the new advance of the last year and a half,
the 1961 jieak in price-earnings ratios has largely been
recovered.

The Shift in Valuation

The justification for the high valuations now being
placed on stocks is usually summed up in the word
"growth." This term encompasses both the progress of
the economy and the revaluation that has accompanied it
in the past decade and a half of prosperity. The strong
upward shift in valuation is compounded of two inter-
acting elements which correspond roughly to the distinc-
tion between investment and speculation: the first is the
expectation of future increases in production and profits;
the second is the belief that stocks bought today will bring
higher prices tomorrow. The justification for the second
lies in the first, that is, in the ever rising trend of earn-

ings and dividends. But faith in that trend is itself rein-
forced by the second, as noted at the outset.

For a while, through the middle 1950's, "inflation" was
cited as a primary reason for buying stocks. Prices were
rising and many believed stocks to be the best hedge
against depreciation of the dollar. This was also taken
to be adequate explanation for dividend yields below bond
yields, though the high yields on bonds were partly the
result of the tight money policy of the Eisenhower Admin-
istration. Since 1958, however, there has been stability in
the wholesale prices at which industry sells its output. So
the "inflation" thesis is no longer adequate. But this has
not kept the stock market from adding fifty percent to
earlier highs.

This bidding up of capital values in a period of stable
product prices is not confined to the stock market. The
price of farm land has risen consistently, with net farm
income barely holding steady and prices received by farm-
ers tending to drift lower. The great boom in commercial
construction is also symptomatic of a situation where
belief in future opportunities to realize on limited fixed
assets is widespread. If this belief is well founded, the
bidding up of capital values is not illogical. It may be
argued, in fact, that such action is better justified when
commodity prices are stable, because then it is based on
expansion of real production and there is less danger of
undue speculation in the economy generally.

Where this line of reasoning slips a cog is in the
possibility of overoptimism in the market itself. There is
simply no way of knowing before the fact that progress
will substantiate the current high hopes ; a market break-
ing into new high ground has no firm reference base and
is inevitably vulnerable. If progress falters, events will
prove record high prices to be the result of speculative
excesses. The latter was clearly the case in the late
1920's, a previous period in which stocks were bid up and
up despite moderate downward pressure on commodity
prices. Concern about the possibility of similar excesses
is reflected in the recent action of the Federal Reserve
Board in raising margin requirements to 70 percent.

Flow of Funds Into the Market

It would be a mistake, of course, to assume that psy-
chological abberrations alone could result in such large
shifts in market valuations. The philosophy of the market
has always been "money talks !" A prolonged rise is
hardly possible without a continuing net flow of funds
from purchasers who have no better use for their cash —
and credit.

Prior to the break of 1962, individual investors were
channeling $2 or $3 billion a year into stocks, which rep-
resented a relatively cautious movement in view of the
large volume of savings available. About a third of the
total went directly into holdings for personal account ; the
larger portion was used to purchase the shares of invest-
ment companies. After the spring of 1962, individuals
changed their policy sharply. They have since been with-
drawing funds on direct account and have greatly reduced
their buying through investment companies, so that there
was little net inflow or outflow for the past year or so.
Instead, the public has shown a strong preference for
safer investments, particularly savings accounts guaran-
teed by the government. Even government savings bonds
have had a renewal of popularity in this period, with sales
exceeding redemptions for the first time in years.

A more important, and steadier, flow of funds into
the stock market has been channeled through pension
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

A NEW YEAR FOR CHILD WELFARE

The plight of the unfortunate is always a matter of
concern to most people, but it is appropriate at this time
of the year to give particular thought to the welfare of
those children in our State who suffer misfortunes. This
year is more than usually appropriate in that the new
year will bring a change in government organization and
administration of child welfare, which will allow assist-
ance to be given to many who are now excluded from help.

One of the complicating factors in attempting to allevi-
ate the lot of the unhappy or handicapped child is the lack
of uniformity of cause. The types of situations which
contribute to child misfortune seem to be nearly as numer-
ous as the children involved. The effect of this is to make
the work of alleviation and prevention difficult to com-
prehend, complicated to administer, and often frustrating.
An unfortunate barrier is sometimes found in the parents
themselves, who may refuse to accept the existence of a
problem. On the other hand, oversimplification may occur.
A lower standard of living, for example, does not nec-
essarily bring unhappiness. Grinding poverty, however,
does usually result in misery and a hopeless future.
If child welfare involved a few clear-cut situations which
could be attacked in an apparently businesslike and rou-
tine manner, there would probably be greater support for
such programs. Unhappily, the complexities of healing
individual human beings sometimes causes some of us to
ignore them.

There are, of course, the clear-cut cases of orphaned,
abused, or cerebral-palsied children who evoke much nat-
ural sympathy and concern. But below this level of
critical misfortune there are the very many who struggle
with difficulties such as speech and hearing defects, gnaw-
ing emotional problems, retardation, or the despair and
indignities of material, cultural, and emotional poverty.
These too often constitute the hidden part of the iceberg,
the effects of which can be just as crippling as the more
drastic and visible part of solidified misfortune.

Developments in Illinois

Child care programs in Illinois go back over a hundred
years — a home for the deaf was authorized in 1839; in
1849 a residential school for the blind was started; in
1865 one for the feeble-minded; and in 1869 a home for
orphans of the Civil War. In the 1880's and 1890's the
provision of programs was smoothed by allocation of
funds to institutions on a per-head-per-month basis, and
this pattern has been continued since. During the last
20 years the State has reimbursed counties for half of
their dependent-children costs, but even so some counties
have never participated in this program. An additional
complication is that for some applications, federal match-
ing funds are available.

The entire pattern of child welfare in the State has
grown to complex proportions owing to the many govern-
ment branches and agencies and private institutions in-
volved. In some respects Illinois has become a "private
agency" state, with the public authorities purchasing care
from private agencies. Even with the support of such
funds, these institutions have in the past relied heavily

upon direct assistance from the interested public. Such
funds are now dwindling, however, and the government
must be turned to. The extent of past private participation
is reflected in the fact that there are at present 130 volun-
tary children's agencies in the State, the costs of which
are being borne more and more by the governments.

The functions of the Illinois Department of Mental
Health grew to encompass a wide range of services cover-
ing child welfare (which started in 1905), mental illness,
and handicapped children. In 1920 a vocational rehabili-
tation program was started with federal support. As early
as 1909, an Institute for Juvenile Research was estab-
lished; in 1953 coverage of delinquency was expanded by
the setting up of the Illinois Youth Commission. The
Northern, Southern, and Eastern Illinois universities
provide counseling and guidance, and the University of
Illinois has special services for crippled children.

The financial aid programs of the Public Aid Commis-
sion for children have increased to the point where it is
now the largest public or private agency involved. In
addition to assistance in maintaining the necessities of
life, the commission provides guidance and training which
contribute to the improvement of the family situation.

The newly created Department of Children and Family
Services will facilitate administration, and its legislative
authority allows it now to serve children whose parents
do not hold veteran status. The guidance services and
assistance to be administered by the department will in-
clude those which help to correct environmental deficien-
cies and will provide for a more wholesome future for
the children concerned.

The Size of the Problem

The numbers of children involved are not small —
they are, on the contrary, dreadfully high. There are up-
wards of 200,000 children on Public Aid Commission rolls
— more than 5 percent of all the children in the State.
The Child Welfare Division of the Department of Mental
Health is concerned with about 39,000 children. Some
3,600 of these are a direct responsibility in private homes
and institutions, while the remainder are in licensed insti-
tutions, day centers, and the 8,000 foster homes which are
such an important link in the chain.

In the area of mental health it was recently estimated
that there are 1,500 children in the State who should have
residential health care but who have nowhere to go. New
institutions will help to reduce this waiting list. The
mental health bill introduced by the late President, and
passed by Congress, should stimulate the establishment of
more local centers.

There is sometimes a tendency to think of all these
problems as almost exclusively those of the big cities.
The facts do not support this. Although concentrations
of population produce greater absolute numbers, the prob-
lems are actually widely scattered about our State. What
seems certain is that the cost to society of immediately
servicing all the demands of the problem would be far less
than the long-run cost of inadequate attention.

KNOW YOUR STATE

[3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, September, 1963, to October, 1963

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

+ N.A.

|n.a.

EMPLOYMENT- MANUFACTURING
l t l

1 \ l

CONSTRUCTION CONTRACTS

PARTMENT STORE SA

_ES

BANK DEBITS

FARM PRICES
J-

■ ill.

□ U.S.

1«

ally adjusted. N.A. No

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings— manufacturing1

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts7

Electric power8

Coal production9. ,

Petroleum production10

Oct.

Percentage

1963

change from

(1957-59

Sept.

Oct.

= 100)

1963

1962

99.8

- 0.3

+ 0.7

118.9'

- 0.2

+ 3.0

105.7

+ 0.1

+ 0.7

146.7

+ 17.0

+ 16.0

112. 0b

- 6.7

+ 2.8

96.0

- 2.0

- 3.0

163.4

+ 11.0

+ 7.2

122.1

+ 26.8

+ 55.3

121.6

+ 4.2

+ 1.4

124.5

+ 8.2

- 0.7

99.0

+ 3.7

- 4.6

1 111. Dept. of Labor; 2 U.S. Bur. of Labor Statistics; 3 Life Ins.
Agcy. Manag. Assn.; * Fed. Res. Bank, 7th Dist.; '111. Crop Rpts.; "Fed.
Res. Bd.; ' F. W. Dodge Corp.; 8 Fed. Power Comm.; » 111. Dept. of
Mines; 10 111. Geol. Survey.

• Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales....

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Oct.

1963

Annual rate

in billion ?

470. 3"

374.4"
59 4„.b

29.4
21.1
21.3

21.9"
16.8"
5.1"

67.1"
52.3"
41. 6b
43. 6°

Indexes
(1957-59
= 100)
127"
126»
128»
109»

100»

102
115
118
150
113»
107

101
95

102
101

100
106

77d

Percentage
change from

Sept.
1963

-10.3

+ 0.5

- 2.8

- 1.2

- 6.3

- 4.5

- 4.3

- 5.0

- 0.8

- 1.0

- 0.7
+ 19.5

+ 0.6
+ 0.8
+ 0.3

- 1.2

+ 0.1

0.0

+ 16.3

- 6.6
+ 0.1

+ 0.2

- 0.4
+ 1.3
+ 0.2

0.0
0.0
0.0

Oct.

1962

+ 11.9
+ 3.4

- 4.5

- 1.5

- 9.9
-11.0

+ 6.4

- 2.3

+ 5.7
+ 4.0

+ 0.9

+ 1.0
+ 3.3
+ 4.4
+25.9
+ 2.7

- 0.1

- 3.6
+ 0.7
+ 0.2

- 1.0

- 3.7

1 U.S. Dept. of Commerce; 2 Federal Reserve Board; > U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; 5 F. W. Dodge Corp.

a Seasonally adjusted. b End of month. c Data for September, 1963,
compared with August, 1963, and September, 1962. J Based on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1963

1962

Nov. 30

Nov. 23

Nov. 16

Nov. 9

Nov. 2

Dec. 1

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

1,385
16,976
175
7,558
107.4
467
126

100.2
100.8
94.9

37,254
190

1,668

17,727
219

7,593

107.1
587
139

100.3
100.8
95.5

37,198
309

1,619
17,637

208
7,580

106.2

588

143

100.6
100.8
96.6

37,108
270

1 ,593
17,856

220
7,568

105.1

595

132

100.2
100.7
96.2

36,816
270

1,608
17,457

208
7,571

104.4

623

119

100.2
100.7
96.2

36,296
285

1,490

16,699

202

7,313

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

100.7

562
168

100.7*

Other than farm products and foods. .1957-59 = 100

100. 7»
92.9

Finance:

Business loans mil. of dol

34,680
322

Source: Survey of Current Business, Weekly Supplements.

for November, l'1r,.\

[ 4

RECENT ECONOMIC CHANGES

Balance of Payments

The balance of international payments during the third
quarter continued to show a net deficit, but the $250 mil-
lion adverse balance, after seasonal adjustments, was the
smallest since the last positive balance recorded in the
second quarter of 1961. This marked improvement in
the third quarter of 1963 was due chiefly to two factors.
First, capital outflow slackened temporarily as a result of
the Administration's request in midsummer for authority
from Congress to impose a tax on foreign securities. Sec-
ond, United States exports reached an all-time high of
$5.6 billion, seasonally adjusted, during the third quarter.

Since the economy began to expand from its recession
low in early 1961, exports have risen from just over $19.5
billion (excluding military sales) to about $22.0 billion
at annual rates. However, during the same period of time
imports of goods have risen from an annual rate of about
$13.5 billion to a rate approaching $17.5 billion. During
the first nine months of this year United States gold
reserves declined by only $420 million compared with
$720 million during the same period of 1962.

Investment Yields

This year has shaped up as another year of heavy
over-all demand for funds in the financial markets. How-
ever, because of ample supplies of loanable funds the
yields on long-term taxable obligations of corporations
and governments have edged up only slightly this year,
as indicated in the chart, and are still below early 1962
levels. Both the general decline of long-term interest
rates during 1962 and the advance of most of these rates
during 1963 can be attributed to factors affecting the
supply of funds, such as changes in the flow of funds to
financial intermediaries, changes in monetary policy, and

BOND AND STOCK YIELDS

PERCENT PER ANNUM

CORPORATE Aoa BONDS (MOODY'S)

DIVIDEND YIELD ON COMMON STOCK

1959 I960 1961 1962 1963

Source: Council of Economic Advisers, Economic Indi-
cators, various issues.

revisions in the interest rate expectations of lenders as
business conditions fluctuate.

The heaviest demands on the capital markets during
the first nine months of this year were made by state and
local governments and mortgage lending institutions ;
commercial banks were able to meet this demand since
corporate requirements for capital were met by increased
use of internal funds. However, the yields on common
stocks have fallen this year as stock prices have increased
faster than dividends. Nevertheless, common stock yields
have remained somewhat higher than they were in Decem-
ber, 1961, when stock prices were last at a peak. The
average yield on stocks, which at that time was just under
3 percent, increased to 3.8 percent in June, 1962, receded
to 3.3 percent in January of this year, and reached a low
of 3.06 percent in September.

Consumer Finances

Consumer purchases of houses and durable goods con-
tinued at record rates during the third quarter of this
year. Nonfarm residential mortgage loans reached an all-
time high of $38.5 billion at seasonally adjusted annual
rates, 3 percent above the second quarter and 20 percent
above the figure recorded for the third quarter of 1961.
Purchases of autos and other durables showed little
change, remaining at about the $51 billion rate of expendi-
ture for the second quarter. However, the willingness of
consumers to borrow continues to show an increase as the
ratio of consumer credit extensions to disposable personal
income reached 15 percent, compared with 14 percent a
year ago.

Consumers continued to cut back on their saving
through commercial bank deposits while adding to their
holdings in savings and loan associations. In addition, the
volume of debt repayments continued to move up during
the third quarter, reflecting the heavy volume of consumer
and mortgage debt incurred in the recent past.

Corporate Finance

Corporate investment in plant and equipment rose $2.0
billion during the third quarter to a total of $34.5 billion at
annual rates. Investment by public utilities, commercial
firms, and manufacturing firms showed substantial gains.
In addition, railroad outlays for investment purposes rose
20 percent over the previous quarter and reached a rate
equal to that of 1956. All industry groups participated in
this latest advance except other transportation.

At the same time, internal funds of nonfinancial insti-
tutions rose about $1.0 billion at annual rates during the
third quarter; advances in retained earnings and in de-
preciation charges each contributed half of the total.
External financing (including short-term bank loans) was
about the same during the third quarter as in the previous
quarter, although there were some shifts in its composi-
tion. Funds raised through bond and stock issues were
unchanged but short-term bank loans fell slightly and
mortgage financing increased somewhat.

Since the 1960-61 recession ended, corporations have
depended less on stock and bond flotations and on com-
mercial bank loans than for any similar postwar expansion
period. In addition, they have increased their liquid asset
holdings, whereas in previous postwar expansion periods
liquid assets were kept low by the relative scarcity of
internal funds.

[5]

UNWANTED WORKERS AND MANPOWER PLANNING

WALTER H. FRANKE, Associate Professor of Labor and Industrial Relations

In June, 1959, Armour and Company announced that
they would shortly close six of their meat-packing plants
located in various parts of the United States. One month
later they began closing down operations and terminating
workers, and within a month all but a few of the 5,000
production workers in these plants had been separated
from their jobs. Surveys of the workers in three of these
plants, located in East St. Louis, Illinois, Columbus, Ohio,
and Fargo, North Dakota, were made one year and again
two and one-half years after the shutdowns. The surveys
revealed unemployment rates among the displaced workers
up to 12 times the community unemployment rates as well
as extensive downgrading among those who had found
employment.1

After the Shutdowns

The impact of the shutdowns is shown most dramati-
cally in the unemployment rates of the displaced workers.
The following tabulation shows the percentage of those
still in the labor force who were without jobs one year
and two and one-half years after the shutdowns:

East St. Louis Columbus Fargo

One year after shutdown 65% 34% 31%

Two and one-half years

after shutdown 53% 25% 3 1 %

In these three situations, between one-third and two-
thirds of the displaced workers were unemployed after a
year in the job market. After two and one-half years,
over half were still without jobs in East St. Louis; and in
Columbus, where the most favorable labor market adjust-
ment was made, one-fourth were still unemployed. It
appears reasonable to conclude that many of those out of
work after two and one-half years would never hold a
regular full-time job again. They are among the "un-
wanted workers" whose skills and experience are in
insufficient demand.

The impact of the shutdowns had dimensions other
than unemployment and its economic consequences. Most
of those who did find jobs within a year were doing work-
far different from what they were accustomed to at
Armour. Most had spent all of their working lives in
Armour plants or other factories and preferred and looked
for work similar to their old jobs. Few, however, found
jobs either in the same industry or in the same occupation.
Only about one in ten found meat-packing jobs. Although
changes in skill level are difficult to measure, it is clear
that many downward shifts in skill occurred. As an ex-
ample, fully 10 percent of those working were employed
as janitors and custodians. Between 40 percent (Colum-
bus) and 65 percent (Fargo) described their jobs as being
entirely different from their work at Armour.

Average pay on the post-shutdown jobs was about 15
percent below hourly wage rates at Armour, and many
workers suffered much more substantial reductions. About
a third of the East St. Louis and Fargo workers had earn-
ings of less than $1.50 an hour. At Armour hourly wages
had been $2.20 on the average.

It is a difficult and often demoralizing adjustment for

1 The findings of these and similar studies in Oklahoma City,
Oklahoma, and Peoria, Illinois, together with an analysis of
worker displacement problems and their policy implications, are
contained in Richard C. Wilcock and Walter H. Franke, Un-
zetinted Workers — Permanent Layoffs and Long-Term Unem-
ployment (New York: The Free Press of Glencoe, 1963).

a worker to leave an occupation for which he has many
years of experience and to accept employment in a lower-
skilled job which offers little or no opportunity for any-
thing better. As unattractive as many of the jobs were,
however, the workers holding them were better off than
the unemployed.

Who are these workers who had such a difficult time
finding a suitable market for their labor? They had been,
first of all, long-tenure employees at Armour. On the
average they had worked for Armour from 10 (Fargo) to
17 (East St. Louis) years. Many had 20 to 30 years of
service. The typical worker was a married man with two
to three dependents, was at least 45 years old, and had
about a grade school education; the chances were better
than even that he owned or was buying a home. More
importantly, nearly all of his skill and experience was in
a relatively narrow line of work that had little applica-
bility in industries other than meat-packing. He lost his
job at a time when his financial obligations were still very
great, and he lacked the training and education to offer
the market the kind of service currently in demand.

The Problem of Worker Displacement

The Armour experience is illustrative of two major
problems often associated with the worker displacement
caused by technological and market changes: prolonged
unemployment and the downgrading of worker skills.
The forces that brought about the displacement of the
Armour workers are not unique to the meat-packing
industry. Technological and market changes are bringing
about displacement of workers in many industries and
causing drastic changes in the nature of labor demand.
Workers displaced in railroad transportation, mining,
agriculture, textile, and other industries have also found
little demand for their services.

The problem is complicated by the very drastic
changes occurring in the occupational distribution of
labor demand. In the six years from 1956 to 1962, em-
ployment in manufacturing declined by half a million.
Within manufacturing the number of blue-collar jobs
declined more than a million (8 percent) whereas em-
ployment in white-collar occupations increased more than
500,000 (14 percent). In all industries, blue-collar employ-
ment was at about the same level in 1962 as it had been
15 years earlier, whereas white-collar employment rose by
nearly 50 percent. The most rapid growth in white-collar
employment has been in the highly trained professional
and technical occupations.

The extent to which high levels of unemployment are
the result of rapid worker displacement and shifts in
labor demand cannot be measured with precision, but it
is almost certain that they are a contributing factor in the
difficulty this country has experienced in reducing unem-
ployment to "tolerable" levels. The year 1963 is the sixth
consecutive year that unemployment has equaled or ex-
ceeded 5.5 percent of the labor force. During the same
period the long-term unemployed, sometimes referred to
as the hard-core unemployed, have become a larger pro-
portion of total unemployment.

To what extent displaced and experienced workers are
downgraded in skills as a result of technological change
is also difficult to document. The worker with obsolete
skills does not show up in any statistical series. However,

[ 6 ]

Seymour Wolfbein, Director of the Office of Manpower,
Automation, and Training, estimates that 200,000 jobs a
month, or about 2.4 million a year, are "affected" by tech-
nological change and automation. Whether the "effect"
is unemployment, upgrading, or downgrading of workers
depends, among other things, on the nature of the innova-
tion and the qualifications of the workers involved. What
is certain is that the new jobs will consist of different
duties, and in some cases workers will not be qualified to
assume them. It can also be anticipated that as the rate of
innovation accelerates, the effects will not be confined to
blue-collar, manual workers. Office workers, and even
managerial and technical workers, are likely to find that
their skills and experience become obsolete as new appli-
cations of technology and science are introduced.

Two major questions are posed in considering the
likelihood that we will be able to meet the problems of
unemployment and downgrading of workers that are asso-
ciated with rapid worker displacement and shifts in the
demand for labor. One is whether the economy can
expand rapidly enough to provide the total number of jobs
required to employ a growing and more productive labor
force. The other is whether the qualifications of the labor
force can keep pace with a rapidly changing technology.

The Company's Role in Manpower Planning

Exploration of the many implications of these ques-
tions is not possible here. They get into important issues
of monetary and fiscal policy, such as the Kennedy tax-cut
proposal, and have many ramifications concerning the
future of a highly automated society. All that will be
attempted is a brief discussion of some approaches to
manpower planning that might merit immediate consid-
eration.

One of the lessons of the Armour experience is that
it is difficult to deal with the problem of displacement
after the worker has been separated from his job. Unem-
ployment itself is a severe handicap to finding a job. A
worker with a job is much more likely to be successful
in finding a new job than a worker without a job. And if
the displaced worker's experience has been largely con-
fined to tasks which require only a very narrow range of
skills, prospects for new employment are likely to be
bleak unless steps have been taken over a period of time
to prepare him for new assignments. When Armour
closed a plant in Oklahoma City in I960, the Armour
Automation Fund Committee conducted a special job-
search and retraining program on behalf of the displaced
workers. As a result of this experience, the Automation
Committee concluded that sudden "crash" programs were
likely to benefit only a small minority of displaced work-
ers, especially when the situation involved middle-aged
individuals with limited formal education. (See Progress
Report, June 19, 1961, p. 7.) If remedies for the conse-
quences of displacement arc delayed until the displace-
ment occurs, it appears that substantial investment of
resources will be required to prepare workers for new
jobs.

Clearly the best medicine for the problems associated
with displacement is preventative, that is, to prevent as
many permanent separations of workers from their jobs
as possible. While permanent separations cannot always
be avoided, it is not clear either that all of the displace-
ment that occurs is necessary. One might question, for
example, the propriety of layoff policies in many situa-
tions. Seniority rules often require layoff of experienced
workers in one department while new hires are occurring
in others. Or in multi-plant companies new workers are

hired in one plant while experienced workers are displaced
in another. In other situations, plants are shut down in
one location while new plants are built, opened, and
staffed with new and inexperienced help. Whatever the
reasons for these practices, they cannot be viewed as
necessarily the only or even the preferred method of
managing manpower.

The first requisite of rational manpower planning is
serious consideration of the manpower effects of pro-
jected technological changes. Some companies do give a
high priority to keeping displacement at a minimum. The
Wall Street Journal of December 18, 1962, reports, for
example, the deliberate policy of DuPont "to locate plants
for new products close to old plants where employment
is expected to decline." Such a policy demands careful
and long-term efforts to prepare workers for the new jobs.
While obsolete plants cannot always be replaced with new
plants in the same location, other methods of reducing the
amount of displacement associated with changes in tech-
nology are possible. Inter-plant and even inter-company
transfer of workers, while possessed of many difficulties,
might be feasible in a number of situations where reduc-
tions in manpower are necessary. In some instances, of
course, the necessary reductions in manpower can be ac-
complished through attrition.

It should be recognized that any gains in the reduc-
tion of displacement are made at the expense of new
entrants to the labor force ■ — primarily youngsters looking
for work for the first time — unless the total number of
jobs is expanding sufficiently to accommodate the growth
in the labor force. This, however, is a facet of the man-
power problem requiring other approaches for its
solution.

Adapting Workers to New Jobs

Regardless of efforts to reduce displacement of work-
ers, it will continue to occur. The challenge is whether
the work force can be prepared for the changes that will
occur so that unemployment and downgrading can be
minimized. The Armour Automation Committee con-
cluded that a "carefully planned, continuing education
program . . . would help employees develop abilities and
skills which would improve their positions in the labor
market in a time of crisis." Others have attempted to
develop the idea of "continuing education," but there is
little evidence yet that companies or unions generally are
giving the matter serious consideration. Some companies
apparently do conduct extensive training and retraining
programs designed to enable workers to shift to new
products and more highly skilled jobs. To increase the
mobility of its employees, for example, the DuPont
Chambers Works in Deepwater, New Jersey, "makes a
practice of moving its production workers into other jobs
for several weeks at a time to broaden their training."
The company also sponsors basic education courses for
workers with limited formal education and encourages
some of its older employees to enter apprenticeship pro-
grams to increase their skills.

It has been suggested that, as part of a "continuing
education" program, arrangements should be provided for
employees to return to school periodically — perhaps every
five years — to retool themselves for the new technology.
Most proposals of this kind are directed primarily to the
upgrading of managerial personnel, although the concept
of continuing education can be applied as well to manual,
clerical, and other workers.

The essential point is that workers can no longer
assume that they can plan, be educated for, and become

[7]

experienced in one occupation that will serve as a career
for a lifetime. A more realistic view is that many workers
can expect that their worklife will consist of two or more
careers. If extensive unemployment and severe occupa-
tional downgrading are to be avoided when these career
shifts become necessary, a continuous process of training
and education in relatively broad areas of competence
will be required.

The manpower planning required to bring about this
pattern of manpower upgrading will require the same
kind of advanced planning and information on the nature
of future demand that is more common in making business
decisions in other areas. Perhaps the most basic change
required is in attitudes toward manpower management.
Many technological innovations have been made with
little regard for their manpower implications. Worker
adjustment to change has been left largely to the im-
personal operation of the market. Manpower problems
have sometimes been allowed to drift unattended until
their solution is virtually impossible. When the day of
reckoning comes, a plant is closed or relocated, or attempts
are made to eliminate entire occupations. Such moves
are often met with massive resistance by the trade unions.
Perhaps if manpower planning were given a priority
similar to that given planning for capital investment, use
of our manpower resources would be accomplished more
rationally and we could yet attain the goal of a dynamic,
productive economy that we all desire.

Inflation of Stock Prices

(Continued from page 2)
funds and insurance companies. It has usually run to
$3 or $4 billion a year and merely wavered a little in 1962.
Endowment funds also have shifted policy drastically
since World War II and now have well over half of their
portfolios in stocks. In all these cases, investment policies
have pursued the lure of high returns which is implicit in
the theory that long-term growth will eventually more
than compensate for any losses incurred during temporary
setbacks.

Industry, too, has contributed to the advance. It
favored stocks for pension funds, since paper profits re-
duced the need for cash payments to meet funding require-
ments. It purchased stocks of other companies it wished
to control and perhaps to merge. It set up arrangements
to buy its own stock on behalf of executives, paying half
of the cost, with payroll deductions for the other half, and
in some cases these purchases have been a substantial
portion of the total trading in those stocks. More recently,
many companies have found themselves excessively liquid,
and some have bought their own stock, perhaps for no
better reason than the chance to pick up shares offered
at less than book value.

It seems clear that the general uptrend in prices has
had ample support from various sources of funds that
sought new or enlarged holdings. It is not essentially
different from the 1920's except in the consumer sector.
In that earlier boom, individual investors and speculators
strongly concentrated on stocks and borrowed heavily to
carry them. Borrowing is again high in absolute amount
but low in relation to total values, and the public generally
is holding aloof from the market. Nevertheless, the total
flow of investors' funds into other financial assets is very
high in comparison with the early postwar years. This
postwar shift reflects, as before, a situation in which other
uses for savings have been satisfied and the accumulation
of financial assets has gained offsetting emphasis.

The Role of Credit Expansion

The recent shift in saving policy has created another
similarity to the late 1920's, one that concerns the contri-
bution of the banking system to expanding business and
raising capital values. Again there has been a period of
relative stability in demand deposits and a relatively large
expansion of time and savings deposits. From the public's
point of view, the latter do not represent "savings" in the
true meaning of the term but rather liquid holdings that
gain an interest return (in contrast to demand deposits,
on which no interest is paid).

The result has been an inflation of bank credit and
debt. The savings institutions have been under pressure
to put consumer and business funds to work. The banks
did not wish to lose their share of money and capital
markets and were granted the right to pay competitive
rates on deposits. These they proceeded to lend, and in
the usual fashion, part was bound to come back to them
for relending. The money lent goes through the hands of
consumers and of business concerns, some of it even goes
through the stock market, until eventually it comes to a
saver who is content merely to hold it in his account at
the bank. It is unthinking to view the banks' role only in
terms of putting savings to productive use and to forget
that reserve ratios are lower on time than on demand
deposits. This kind of credit expansion is no different
from that which proceeds by way of demand deposits; it
is merely slower and more extreme.

Savers have in effect thrust the means for expansion
upon the banks, and the fact that the banks had to incur
interest costs merely made them seek loans with a higher
return. These were mainly mortgage loans and consumer
loans, and the stimulus to activity which the loans helped
to provide is apparent in the heights recently reached by
housing starts and auto sales.

Each loan, looked at from the other side, is also a
debt, so mortgage and consumer indebtedness has soared
correspondingly. In recent years, the gross increase in
these forms of debt has exceeded the total construction
cost of new houses on the one hand and the total sales of
consumer durables on the other. Furthermore, largely as
a result of these developments, total debt, public and pri-
vate, has been rising faster than gross national product.

There can be no doubt that the continued advance of
the economy in recent years has partly been bought with
the expansion of credit and debt. Whether or not this
represents a basis for permanent growth is a moot ques-
tion. Nevertheless, as long as the prospect of rising busi-
ness remains appealing, the bidding up of capital values
can continue. In a period of ample cash accumulation and
ready resort to credit, it does not take much evidence of
progress to stimulate confidence. It is the part of wisdom,
however, to recognize that trends in prices, and in the
flows of cash and credit which support those trends, may
be reversible. The short-lived correction of 1962 may have
eliminated some past excesses but has not eliminated the
possibility of future setbacks. If so little evidence of
business weakness could produce so large a correction, a
real decline could lead to a more basic change in market
appraisals.

As is usual in such situations, there are elements of
both solid economic progress and ephemeral speculative
psychology in the current inflation of stock prices. It is
not easy to recognize which may hold the upper hand at
any given moment or to determine how long it will take
to re-establish a position after it has temporarily deteri-
orated. VLB

[ 8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Business Leasing Expands

Increased leasing of business facilities and equipment
during the past five years is reported by the National
Industrial Conference Board. However, companies con-
tinue to approach leasing in a cautious manner, with ex-
pensive office equipment, automobiles, and trucks account-
ing for most of the growth. On the other hand, there
has been a tapering off in the leasing of such long-lived
facilities as office buildings, warehouses, and tankers. The
leasing of data-processing and automotive equipment
showed the greatest gains over the past five years, with
increases of 19 and 16 percent respectively.

Although the greater use of leasing is often attributed
to the general growth of business activity, certain specific
advantages are given for leasing rather than buying.
Those most frequently mentioned are the lack of financ-
ing available to purchase the desired equipment and the
need to avoid obsolescence, maintenance, service, and
administrative problems. According to the Conference
Board, the next five years will see a rise in equipment
leasing, and more firms will enter the market as lessors
as a result of an increase in funds for this purpose.

Job Mobility

In 1961, almost 8 million men and women changed
jobs, according to a recently issued report by the Depart-
ment of Labor. This job mobility affords one of the major
ways the individual may adjust to economic developments.
Among the many factors which impede or facilitate the
movement of workers from one job to another are per-

WORKING WIVES AS PERCENTAGE
OF HUSBAND-WIFE FAMILIES

PERCENT

TOTAL UNDER $3,000 57,000 510,000

53000 TO TO AND

56,999 59,999 OVER

FAMILY INCOME IN 1962 DOLLARS

Source: Bureau of the Census, Consumer Income, Octo-
ber 21, 1963, p. 10.

sonal characteristics such as age, sex, and race ; social
factors such as educational level, marital status, and in-
come level; institutional and environmental factors such
as employment practices and home ownership; and indi-
vidual desires such as job security and advancement
opportunities. Job-changing was more frequent for young
persons than for older workers, and men changed jobs
more often than women. Among men, nonwhites had a
higher rate of change than whites, but among women this
pattern was reversed with nonwhites having a lower rate
of shifting than whites.

During 1961 almost one-half of all job shifts reflected
a major change in occupation and industry groups, with
the largest proportion being concentrated among unskilled
laborers. Workers in the construction industry had the
highest rate of turnover of all industries (25 percent),
but not many shifted to other industries. Even though
two-thirds of all their changes resulted from job loss,
most of the construction workers found other jobs in that
industry. In manufacturing only 9.7 percent of the
workers changed jobs; half of these persons eventually
found jobs in other industries, which reflects the declining
position of production worker employment relative to
other employment. The highest rate of change for fe-
males in any major industry was 11.9 percent in the
trade group. Part-time work and seasonal employment in
retail trade help account for this high rate.

Working Wives

Some 13.5 million married women (one out of three)
are presently holding jobs outside the home, 50 percent
more than ten years ago when only one out of every
four wives was employed. Of the total growth in the
nation's labor force since the end of World War II, more
than 60 percent has been accounted for by women and
most of these are married.

This increase in the number of wives in the labor
force has been most pronounced at the upper income
levels, as indicated in the accompanying chart, which
suggests that the wife's contribution to the family purse
has been a major factor in moving families up the income
scale. Among the factors that help to explain this increase
in the number of working wives are the earlier age at
which women marry and bear children, the rising level of
education being achieved by women, and the need for
office and other white-collar help.

During the past ten years, while employment rose for
all categories, it rose most sharply for women over 35.
That age group accounted for 88 percent of the entire
increase in the married female labor force during the
past decade, and the median age of working wives ad-
vanced 3.5 years to 41.5. There is also a connection
between educational accomplishment and women's par-
ticipation in the labor force. Of all the women who have
attended college at any time, 50 percent go back to work
some time after marriage but among those whose formal
training never extended beyond elementary school only
25 percent return to work after marriage. Of all the
working wives, 33 percent are employed in clerical or
related jobs, 14 percent in professional and technical em-
ployment, and the same proportion in the service occupa-
tions. An additional 15 percent are classified as operatives,
only 10 percent work as sales persons, and the rest are
employed in miscellaneous occupations.

[9]

LOCAL ILLINOIS DEVELOPMENTS

School Construction Plans

The Illinois Teachers' College Board has recently
authorized numerous construction projects for the four
institutions which it governs. Western Illinois University
has been allotted $5.7 million, but its building plans have
not yet been made public.

Included in the $10.7 million allotment for Northern
Illinois University are $6 million for two 13-story resi-
dence halls and a food service center, a $2.3 million
stadium, and a $149,000 combination communications
center and campus security office. Final plans for a new
administration building have also been approved.

Illinois State University at Normal has been allotted
$9.6 million. Allocations include $1.9 million for a uni-
versity high school and a library addition and $1.5 million
for additions to classroom buildings.

An allotment of $5.4 million has been made to Eastern
Illinois University. Of this, $2.5 million is to provide an
addition to the student union, a food services building,
a physical plant building, residence hall improvements, and
half of the cost of a physical education and recreation
building. Preliminary plans indicate a 96-unit, $990,000
housing project for married students and a classroom
addition.

Public Aid Spending

According to the Illinois Department of Public Aid,
reductions in public aid spending have been sought in
order to avoid a predicted billion-dollar budget for 1970
and to hold current spending for 1963-65 below $640
million.

Beginning in May, 1963, combined rolls for the five
major public aid programs have been declining. In July,
total recipients numbered roughly 417,400, showing a
decline of about 3 percent over the two-month period.

UNEMPLOYMENT RATES

- \

\
\

PEORIA-PEKIN

-V. \

. \\

//\\

\ 7 •/ \ \

\ /J^-- \ \

//\\

■Xr '■■•.. \\,

\ \

// \\

> /jA \

V / ILLINOIS \

DAVENPORT -ROCK ISLAND-MOLINE

DEC. MAR. JUNE

Source: Illinois State Employment Service and Division
of Unemployment Compensation.

October relief rolls showed an insignificant decrease from
July (0.2 percent). Available estimates for November
show relief rolls numbering about 415,700. Important
here is the fact that the eligibility of 16,000 single recipi-
ents was re-examined prior to the issuance of November
relief checks. Increases in general assistance rolls, attrib-
uted largely to increases in unemployment in Cook County,
are responsible for the relatively small over-all rate of
decline taking place since July.

Ceilings placed on individual aid payments on July 1
were expected to save over 4 percent of public aid costs.
In November the estimated average assistance per person
was $53.42, compared with $54.36 in October, and $54.65
in July. Total public aid spending in October, at $22.7
million, showed only a slight decrease from the $22.8
million spent in July, but estimated spending for Novem-
ber, at $22.2 million, shows a decrease of nearly 3 per-
cent from July. Total and average amounts of spending
here are partially influenced by medical payments which
are excluded from the aid ceilings.

Drought Conditions in Southern Illinois

Drought conditions in southern Illinois have been
especially severe this year. Many areas have had record
rainless periods exceeding 40 days in September and
October. Farmers measure heavy losses in terms of re-
duced crop yields, fire damage, and money spent for water
and livestock feed.

Emergency relief for eleven stricken counties — Clay,
Gallatin, Hamilton, Hardin, Jefferson, Marion, Pope,
Massac, Saline, Wayne, and White — has been sought. If
relief is obtained, conservation reserve acreage can be
released for use. However, since the government has
already made payments to the farmers to put these acres
into the conservation reserve, the farmers using these
lands for grazing will have to make payments to the gov-
ernment equal to a fair value of the vegetation. Feed
grains could be purchased from the Commodity Credit
Corporation at 75 percent of federal support prices.

A positive measure to combat drought conditions over
a longer period consists of the development of the 22,800-
acre, $36 million Rend Lake near Benton, which would
serve roughly 30 communities in Franklin, Jefferson,
Perry, and Williamson counties.

Seasonal Employment Gains

According to Illinois Department of Labor releases,
the mid-September unemployment rate for Illinois de-
clined seasonally to 3.5 percent. This figure was below
earlier percentages for the current year and near the low
for 1962 (see chart). Changes for the Chicago area tend
to reflect the pattern for the State as a whole, but some
other cities, including those shown on the chart, showed
more rapid declines. The Davenport-Rock Island-Molinc
area shows consistently low unemployment rates.

Illinois nonfarm employment, approximately 3.7 mil-
lion in mid-October, showed a net increase of 28,700 over
October, 1962. Job losses in the construction and non-
durable goods manufacturing industries have been offset
by gains in durable goods manufacturing, and wholesale
and retail trade employment. Furthermore, for 24 suc-
cessive months, the employment level for each month has
exceeded the level for the corresponding month of the
preceding year. Thus consistent gains have been shown
for the State.

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
October, 1963

Building

Permits1
(000)

Electric
Power Con

sumption2
(000,000 kwh)

Estimated
Retail
Sales3

(000,000)

Depart-
ment Store
Sales'

Bank
Debits1

(000,000)

Percentage change from {oc^.'lQo^'.

NORTHERN ILLINOIS
Chicago

Percentage change from. . ■ ■ {oct!,"!^" "

Sept., 1963.
Oct., 1962.

Percentage change from. . . . Iqc^, 1962
Elgin

Percentage change from
Joliet

Percentage change from. . . . {gg^gg
Kankakee

Percentage change from. . ■ -{q^'^2.
Rock Island-Moline

Percentage change from. . . . {gg"^

Rockf ord

/Sept., 1963
(Oct., 1962.

Percentage change from

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from
Danville

Percentage change from
Decatur

Percentage change from
Galesburg

Percentage change from
Peoria

Percentage change from
Quincy

Percentage change from.
Springfield

[Sept., 1963.
\Oct., 1962. .

/Sept., 1963.
(Oct., 1962. .

/Sept., 1963.
\Oct., 1962. .

(Sept., 1963.
(Oct., 1962. .

/Sept., 1963.
(Oct., 1962.

/Sept., 1963.
Oct., 1962.

(Sent 196?
Percentage change from. |oct.,"l962 '

SOUTHERN ILLINOIS

East St. Louis

Percentage change from. . . . {gg'jjg^

Alton

Percentage change from. . . . {octf,' W62 . '.

Belleville

/Sept., 1963.
(Oct., 1962. .

Percentage change from.

$62,226='
+5.9
+49.8

$47,989

-0.9

+61.1

$ 1,637

-2 0

+57.0

$ 769

+31.5

+55.4

$ 1,063

+55.2

+53.2

$ 861

+202.1

+ 115.8

$ 1,473

+63.1

+22.5

$ 2,322

+54.9

+48.7

$ 335
+ 10.6
-47 3

$ 731
+23.3
+48.0

$ 178
-34.3
-56.8

$ 767
+ 57.8
+54.0

$ 72
-48.6
-51.4

$ 1,480
+64.3

+ 156.5

$ 215
-59.3
-79.6

$ 1,348

+ 184.4
+54.8

$ 166
-17 0
+33 9

$ 200
-64.8
+35.1

$ 620

+167.2
-55.1

,434 9»
-4.0

+6.1

,017 0

-4.4
+3.9

46. 0b

-3.0

±13. 9

64 6«

+0.5
hl5. 8

14 1
-3.4
+ 1.4

21 2
-4.9
+9.8

20 3
-3.8
+3.0

44 4
-4 7
+ 11.8

11.9
-8.5
+ 10.2

71. 1«
-4.8
+8.7

15 1
-12 2

+4.9
48 6
-4.7
+5.7

18 4
-7.5
+5.1

27 3
-2 8
+2.2

14 9
-13.4
+9.6

+ 10

$27,174"
+ 11.0

+ 7.2

$25,211

+ 10.9

+ 6.9

$ 103

+ 6.2

+ 9.6

$ 62

+ 10.7

+5.1

$ 110

+14.6

+8.9

1511'
+9.4

+8.6

236

+3.5

+6.8

$ 137
+29.2
+ 18.1

$ 68
+21.4
+4.6

$ 196
+36.1
+23.3

$ 321
+6.3
+ 9.6
$ 74
+21.3
+ 19.4
$ 182
+ 12.3
+9.0

$ 154
+ 13.2
+4.1

$ 56
+9.8
+9.8

' Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: » Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Data for August, 1963, not available. ' Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by
source. 'Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending October 11, 1963, and October
12, 1962.

[11]

Serials Department

University of Illinois Library
Urbana, 111.

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

200

„

• 100

^_-_-__

r./

vAy"

\ y

50
0

* REVISED SERIES

U.S.

* REVISED SERIES

'37 '-45 '53 '60 19 61

'53 '60 196

962 1963

ANNUAL AVERAGE ■

DEPARTMENT

STORE

SALES

(ADJ.)

ILL.

/ US

^"^

COAL

PRODUCTION

150

ILL/

u.s. \ £S.

100
50
0

\ V

\ /

BUSINESS LOANS

CASH FARM INCOME

-P-r

J'-

J[t

f\i.%.

* REVISED

SERIES

^u,~

h/Jv

vWv

1962 1963

CONSTRUCTION CONTRACTS

r /I

/ 1

l \

ILL. t^
/U.S.

ELECTRIC POWER

PRODUCTION

±Jxj

Vw^

ILL.^

-/Us.

1962 1963

dsp-

<? u%

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

January, 1964

HIGHLIGHTS OF BUSINESS IN DECEMBER

December figures indicate that the economy ended
1963 on a strong note. The steel industry turned out more
than 2 million tons of ingots in each full week of De-
cember, dropping to 1.8 million tons during the holiday
week. The automobile manufacturers turned out 744,550
cars, a new December record. Electric power production
reached peak levels. Output figures for coal, oil, and
paper and paperboard were steady. The FRB index of
industrial production stood at 127.2 (1957-59 = 100), a
fraction above November and another new record.

Congressional Action

In the closing days of its first session, the 88th
Congress finally acted on several bills. A three-year pro-
gram to aid education will provide $1.2 billion in grants
and loans to public junior colleges and to public, private,
and church-controlled colleges and universities. These
funds will be used for construction of libraries and class-
rooms for instruction and research in mathematics, sci-
ence, engineering, and modern foreign languages and for
building and improving graduate schools and cooperative
graduate centers.

Another bill appropriated $2.1 billion for public works
and $2.3 billion for activities of the Atomic Energy Com-
mission. After a great deal of acrimonious debate,
Congress passed a foreign aid bill appropriating $3
billion and giving the President authority to guarantee
credit, through the Export-Import Bank, to traders selling
wheat to the Soviet bloc. Lesser bills continued the man-
power training program and the Peace Corps and provided
further grants for vocational education.

Railroads Increase Car Buying

Lasl fall's shortage of freight cars, which was termed
the worsl in several years, has stimulated larger orders
for new cars. The number of cars on order at the end
iii 1963 was above 30,000, the highest level in four years;
and car builders expect the backlog to increase still
further. Several other factors are cited to explain the
improved outlook for car building: the railroads' con-
tinuing campaign to regain traffic lost to trucks and
barges, improved railroad traffic and profit positions,
higher per diem charges on cars belonging to some other
line, and changes in depreciation and tax deduction rules.

The problem of car shortages has become serious
enough to prompt the Interstate Commerce Commission

to launch a study of the over-all situation. It is pointed
out that some lines are not building new cars and that
more cars are being scrapped than are being built. There
have also been reports of wrangling among the railroads
regarding the return of empty cars to their owners.

1963 in Review

The past year was one of records or near-records in
many areas of business activity and substantial improve-
ments in others. Gross national product is estimated to
have moved up close to the $600 billion level in the final
quarter and to have averaged about $585 billion for the
year. The gain over 1962's $555 billion would thus be
roughly 5 percent. Since prices averaged U/2 percent
higher, the gain in real output was about 3i/£ percent.

Industrial production rose in the first half, steadied
during the summer, and crept upward again late in the
year to reach a record 124 (1957-59 = 100) for the year.
It too showed an advance of about 5 percent. Steel
production amounted to 109 million tons, more than 10
percent above the previous year ; not since 1957 had the
industry poured more than 100 million tons. The auto-
motive industry assembled nearly 7.4 million cars, 10
percent above the 1962 figure but 304,000 short of the
record. Electric power output increased 7 percent and
exceeded 1 trillion kilowatt hours for the first time.

The value of new construction put in place in 1963
totaled a record $62.8 billion, 6 percent above the pre-
vious high set the year before.

Personal income advanced in each month except
February and was near $475 billion in December. The
average of $463 billion was more than 4 percent above
the 1962 level. Consumers were not reluctant tei spend
money either. Retail sales for the year totaled more than
$247 billion, a new record 5 percent above 1962 sales.
Consumer short-term debt apparently increased about 10
percent during the year to $70 billion.

Corporate after-tax profits for 1962, according to
early estimates, totaled approximately $26.5 billion, ex-
ceeding the previous high (1962) by nearly 8 percent.

Despite all these signs of prosperity, at least two
major problems continue to nag the economy: unemploy-
ment in 1963 never fell below 5.5 percent of the labor
force: and the balance of payments, though improving
in the last half of the year, nonetheless wound up with
a deficit of $3 billion.

MALAYSIA: PURPOSES AND PROSPECTS

By Richard Butwell

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzeix

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

Technology Sets the Problems

Many of the world's critical economic problems are
recalcitrant. The most advanced and the least developed
countries alike face difficulties which persist or recur.
Yet nothing seems to dispel the widely held opinion that
there are "tried-and-true" policies or principles which
afford ready-made solutions.

Clinging to traditional "solutions" could suffice as
long as conditions remained unchanged. Unfortunately,
this approach reflects an attitude of mind that is inca-
pable of recognizing that the situation has changed, that
we live in a different environment, which requires re-
thinking of old problems and application of new methods.

Looking back over the last two revolutionary centuries
reveals that the important changes have been man-made.
Our power to do things has expanded greatly. We have
shrunk space and time, bringing all the world closer to-
gether. Some countries have made great progress in
raising living standards. All this has been achieved
through our own skills, through unremitting devotion to
the advancement of science and technology. We glory
in the prospect of pushing onward.

What, then, of those persisting problems? Our tech-
niques have apparently not been adequate to eliminate
all of them. As consumers we have reasonably succeeded
in adapting our lives to the new powers and products
that enable us to live comfortably and to move about and
communicate quickly. But our institutions, our basic
habits of thought, have not similarly been adapted to our
collective powers or to the social conditions created by
the new methods of operation being applied throughout
the realm of economic affairs.

The Basis for Economic Development

The problems of the underdeveloped countries are
largely tied up with their efforts to utilize advanced
technology or with partial successes they have so far
achieved. Gains are restricted because they lack the
skills and the capital equipment required for efficiency.

Modern methods have been successfully applied on a
partial basis only to defeat development goals. Advances
111 medical care and sanitation, for example, have often
lowered (lie death rale sufficiently to accelerate population
increases. Thin, with population increasing faster than
production, rial income per capita actually declines; anil
if a specific group succeeds in obtaining an especially

large share of the increase, the mass of the people may
be even more severely depressed.

Similarly, where they succeeded in expanding pro-
duction of primary products, the results have again often
been frustrating. For other countries also applied more
efficient techniques, and the increase in total output re-
sulted in world surpluses. Technology, increasing the
yields per acre, has been a prime factor in building our
own agricultural surpluses and in making Europe nearly
self-sufficient in farm products. When output cannot be
sold on world markets, foreign exchange cannot be read-
ily obtained. Reducing prices may then afford no solu-
tion, because the importing countries commonly raise
trade barriers to protect their own producers. But even
if sales are possible at depressed prices, the loss of export
earnings may leave foreign exchange insufficient to pro-
cure needed equipment.

Limited successes therefore offer no assurance of
over-all growth. The latter demands progress in accumu-
lating the stocks of productive capital demanded by tech-
nological efficiency. But when consumption rises as fast
as production, there is no increase in the savings available
for investment ; and when rising production for export
brings no greater return, the ability to expand is again
restricted. Foreign borrowing and aid programs may
help, but they may also aggravate political difficulties by
opening the door to charges that foreign exploitation is
keeping progress excruciatingly slow.

Success Is Never Complete

For us, the problems arise out of institutional lags
that surround our technical success and therefore take a
quite different form. We can readily produce surpluses
of almost anything but lack markets for all the goods we
are capable of turning out. If there were some way of
channeling all the potential earnings of our capacity-
production to potential buyers and investors, progress
would be speeded, but our established ways of doing
business and of allocating returns from production leave
some resources to w-aste in idleness. The situation has
not yet become critical but the trend suggests it is likely
to get worse rather than better.

The interrelated problems of unemployment and racial
strife must be attributed in large part to rising technical
efficiency. In recent years, the loss of jobs through in-
creases in productivity in all employment has been about
2 million per year. The increases in the labor force have
averaged less than half as large. Employment has in-
creased enough to absorb most of the additional workers,
but not enough to reduce unemployment below the exces-
sive rate of 5t/> percent. The prospect is that the rate of
unemployment will stay just as high or even rise in 1964
despite the production increase that can he anticipated
with the aid of the proposed tax cut. To employ any
dissatisfied group of the unemployed therefore means
taking jobs away from others, which no one can count a
real gain. Some shuffling around takes place in retraining
ami related programs, but no real solution is possible by
training workers for jobs that do not exist.

Furthermore, the slowdown which the tax cut is sup-
posed to avert this year will recur after a limited period,
probably sometime in 1965. Certainly, no other stimulus
is now in sight. The consequence of such a slowdown will
lend to be recession, with all the difficulty recession im-
plies for foreign affairs as well as for our own economy.
Much hopeful theorizing nowadays holds thai recessions
can he held to modest proportions into the indefinite
(Continued on page 8)

[ 2

ILLINOIS INDUSTRIES AND RESOURCES

J^"Y

CONSERVATION IN ILLINOIS

A definition of the work of conservation is not quite
so clear-cut as might be first thought. Essentially it
involves preserving, guarding, and maintaining, but just
what is to be conserved varies with time and circum-
stance. The whole process may perhaps be thought of as
the establishment of some primary objectives and then
continual but shifting action to retain the desired balance.
To complicate matters, the conservationist has not only
to contend with the changing behavior and works of man,
but also with the more subtle and unpredictable behavior
of nature.

The State of Illinois has undergone some remarkable
changes in the last century-and-a-half. Prior to white
settlement, and up to 1800, the State consisted of about
54 percent wild prairie, 39 percent forest, and 4 percent
marshland. The Indian population was approximately
10,000. There were fabulous supplies of deer, elk, buffalo,
goats, swan, geese, turkeys, and other wildlife. By 1900
the population had become almost 5 million. Cultivated
or urbanized land took 84 percent of the area, forests 11
percent, and prairie and marshland less than 3 percent
together. Subsequent changes in agricultural methods
and products and urbanization further intensified land
use and about doubled the population.

The Agencies of Conservation

As with many other government functions, the legisla-
tion and agencies required were developed gradually, to
meet needs as they arose. As a consequence, administra-
tion still involves some overlapping and cooperative
functions in addition to the individual responsibilities.

The participation of the state government in conser-
vation and use of resources had an early start. The
Canal Commission was formed in 1823, the Rivers and
Lakes Commission came into being in 1911, and then in
1917 they both moved into the newly created Division
of Waterways. In 1853 some legal restrictions were
placed for the first time upon hunting. The State Natural
History Survey was established in 1859 to study flora
and fauna and still continues its work as a research arm
of conservation. The Department of Registration and
Education was formed in 1916, under which the Natural
History Survey, the Geological Survey, the Water Sur-
vey, and the State Museum now operate.

The Department of Conservation was created in 1925
and is now the largest administrative body in the field,
with an annual budget of over $10 million. Its beginnings
can be traced back to the State Fish Commission of 1879
and the Game Commission of 1903. It now has its own
divisions of engineering, fisheries, game management,
forestry, land reclamation, parks, law enforcement, and
education.

In addition to the state agencies, the federal govern-
ment makes important contributions. The United States
Soil Conservation districts now include almost all agri-
cultural land. The United States Forest Service carries
out extensive work in the Shawnee National Forest in the
southern tip of the State.

rme,

per 7

of a X

Dond S

nost j

Conservation and Recreation

With such a range of conservation activity in the
State, it is perhaps surprising to find one most important
area with a significant deficiency. At the present time,
Illinois has the lowest recreational park acreage per
capita of any state in the Union, primarily because
shortage of funds, although there is hope that a bond
issue can be legalized to provide a source. With almost
11 million people visiting the state parks in 1962 and
with numbers of campers increasing, there would seem to
be justification for improvement.

The number of full-time fishermen on the Illinois and
Mississippi rivers is now less than 200, but as part of the
fish conservation program, over a million fish were
stocked last year. Debited against this, however, must
be the estimated 300,000 killed by pollution. The navi-
gable waterways are also becoming increasingly popular
for recreation, with approximately 750,000 people using
150,000 boats during the season; and public courses in
boat safety are being offered. The improvement and de-
velopment of these waterways continues.

Last year nearly 23,000 hunters turned out to kill 31,-
000 birds, and over 6,000 deer were killed. Closely con-
nected with the maintenance of wildlife is the preparation
of small pasture clearings and watering ponds, the
planting of millions of tree seedlings, and the recording
of the habits of wildlife in which school students and
rural mail carriers have participated. The propagation
services distributed 88,000 pheasant and 132,000 quail
chicks.

Conservation of Resources

The work conducted by the agencies ranges from
detailed scientific investigations to large projects. Into
the former category falls, for example, the work of
introducing new insects and fungi into the State to
combat pests that have appeared over the years. A para-
sitic fly has, for example, been introduced by entomolo-
gists to reduce corn borers all over the State. Further-
more, it is found that some insects change their eating
habits and have to be contended with as new dangers.

In the area of water resources, an analog computer
is now being used to simulate groundwater conditions, de-
tailed records are kept of rainfall and storms, and advice
is given on reducing runoff erosion on agricultural land.
Extensive hydrographic, topographic, and subsurface sur-
veys in connection with water, flood, and erosion control
are carried on throughout the State. As regards pollution,
the State does have effective powers, and progress is
certainly being made in encouraging cities to install
sewage plants and industry to control its deposits.

The minerals in the State are, of course, vital re-
sources, and conservation research is aimed at determin-
ing the amounts of these resources, obtaining the besl in
output and methods, and maximizing possible uses. Sub-
jects for these activities are coal, oil and gas, industrial
minerals such as pyrite and gypsum, fluorspar, zinc and
lead, limestone, sandstone, and pottery clays.

YOUR STATE

L 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, October, 1963, to November, 1963

Not seasonally adjusted.

N.A. Not available.

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing

Consumer prices in Chicago2

Life insurance sales (ordinary)3. .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

111. Dept. of Labor; 2 U.S. Bur. of Labor Statistic; Mil.- Ins.
Agcy. Manag. Assn.; * Fed. Res. Hank. 7th Dist.; 5 III. Crop Rpts.; "Fed.

• 111. Dent r,f

Dodge Corp.;
s; 10 111. Geol. Survey.
Preliminary. b Seasonally adjusted.

Power Comm.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures ....

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Nov.
1963

Annual rate

in billion ?

472.8'

28.6
20.3
19.6

25.0°
19.2"
5.8°

67. 7b
52. 7»
42. 5b
58.9"

Indexes
(1957-59
= 100)
127-
127-
128"
109"

100'

102
116
119
130
117"
107

101
96
103
101

100
106

77d

Percentage
change from

Oct.
1963

- 0.7

- 0.4

-17.8

+ 14.1
+ 14.3
+ 13.3

+ 1.0
+ 0.8
+ 2.2
+34.9

+ 0.2

+ 0.5

0.0

- 1.4

- 0.4

- 0.2
+ 0.8
+ 0.6

-13.1
+ 3.5
+ 0.2

+ 0.2

+ 1.2

+ 0.3

0.0

0.0
0.0
0.0

+ 3.5
+ 4.6

+ 13.5
+ 7.1
+ 6.2

+ 28.9
+ 11.1
+ 176.4

+ 10.7
+ 12.0
+ 7.5

+ 6.2

+ 6.5

+ 6.0

+ 2.6

+ 1.2

+ 0.5
+ 3.3
+ 3.8
+ 17.6

- 0.8
+ 1.3

0.0

- 3.1
+ 1.2
+ 0.2

- 1.0
+ 1.0

- 2.5

•U.S. Dept. of Commerce; : Federal Reserve Board; 'U.S. Dept.
of Agriculture; 'U.S. Bureau of Labor Statistics; » F. W. Dodge Corp.

» Seasonally adjusted. b End of month. c Data for October, 1963,
compared with September, 19b3, and October, 1962. d Babied on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Dec. 28 Dec. 21

Production:

Bituminous coal (daily avg.) thous. of short tons

Electric power by utilities mil. of kw-hr

Motor vehicles (Ward?.) number in thous.. .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. .1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

Soui

Survey of Current Business, Weekly Supplements.

1,196
17,932

154
7,603
96.8
376
162

100.5
101.1
95.5

37,851

158

[ 4 ]

1,499
19,814

216
7,597

107.5

498

287

100.2
101.1
94.6

37,999

232

7,619
109.3
540
265

100.2
101 0
94.5

37,476

257

1,583
18,427

218
7,597

109.6

558

232

100.1
100.9
95.1

37,326

265

Monthly index for December, 1962.

1,385

16,976
175
7,558
107.4
467
127

100.2
100.8
94.8

37,254
190

1,263
16,435
130
7,362
92.1
357
121

100.4*
100.7*
92.7

RECENT ECONOMIC CHANGES

Inventory and Sales Expectations

Manufacturers expect a continued rise in both sales
and inventory accumulation through the first quarter of
this year, according to the Department of Commerce. An
over-all sales increase of 1.5 percent is projected. If this
expectation is realized, sales will reach a new high of
$106.7 billion in the first quarter, on a seasonally adjusted
basis. Durable goods producers look for an advance of
about 2 percent and nondurable goods manufacturers for
an advance of 1 percent above the third quarter of 1963
during this six-month period.

Manufacturers anticipate that their inventory book
values will rise $600 million in the fourth quarter of 1963
and an additional $400 million in the first quarter of 1964.
This would bring book values to $60.1 billion, seasonally
adjusted, at the end of March. Durable goods producers
will account for three-fifths of the projected rise in total
factory stocks, about the same as in other recent quarters.

Price of Silver Rises

As a result of a continuing gap between world output
and consumption, the price of silver has reached its
highest level in 43 years and is now slightly above $1.2929
per fine ounce, the monetary value of silver. At the
$1.2929 price, the three-quarters of an ounce of silver
contained in a standard dollar coin has a market value
of one dollar; if the price moves higher, the metal con-
tent of the coin — disregarding costs of melting — would
be worth more than its value as money. Subsidiary coins,
such as half dollars, quarters, and dimes, would not be
worth their silver content unless the price of the metal
rose above $1.3824.

During 1963 Congress passed the first silver legisla-
tion since 1946. In it they authorized the sale of the
silver stored in Treasury vaults to the public in bar form
at the statutory monetary value. The price of silver in

TREASURY AND OPEN MARKET SILVER PRICES

CENTS PER FINE OUNCE _^___

MONETARY VALUE

LONDON MARKET PRICE <

TREASURY SELLING PRICE

source: First National City Bank of New York,
Monthly Economic Letter, December, 1963, p. 138.

the New York market, as indicated in the chart, increased
from $0.9162 an ounce in November, 1961 (when the
Treasury suspended sales owing to a fear of exhausting
its free or nonmonetized stocks), to $1.0453 in January,
1962, where the price held firm for about six months and
then began to rise till it reached the current level. Thus
in approximately two years, and at a time when other
metals have increased only moderately in value, the price
of silver has risen 41 percent.

Last year's legislation, which went into effect in June,
eliminated those provisions that required the Treasury to
purchase silver at $0,905 an ounce and to hold that silver
in its monetary reserves. However, the Treasury remains
obligated to redeem in bullion or coin any silver certifi-
cates presented for redemption and it may no longer dis-
pose of any silver to the public at a price lower than the
monetary value but may dispose of it when the market
price rises above $1.2929. Thus the United States Treas-
ury, through redemption of silver certificates, becomes a
residual supplier for demand in excess of commercial
offerings; and since exports from the United States are
free, the $1.2929 price, adjusted to cover freight and in-
surance costs, extends to world markets.

Consumer Buying

Consumer spending rose to a seasonally adjusted an-
nual rate of $374.9 billion in the third quarter of last
year, a $4.5 billion increase over the previous quarter
and a $17.8 billion increase above the third quarter of
1962. Purchasing by consumers has closely paralleled the
record flow of income during the past year, so that the
ratio of expenditures to disposable income has remained
at about 93 percent.

The demand for goods in the postwar period, though
increasing, has failed to match the growth of demand for
services. The share of the dollar spent for services,
which had climbed steadily until it was nearly 43 cents
in 1961, had fallen to 41.5 cents by the end of the third
quarter of last year. The share of nondurable goods,
which has shown an almost constant decline throughout
the post-World War II period, reached a historical low
of 45 cents. The durable goods share of the consumer's
dollar in the third quarter of 1963 was equal to that of
1962, although fractionally below the earlier quarters of
the year.

Unemployment

The number of unemployed in the United States was
3.8 million, or 5.5 percent of the civilian labor force in
December, 1963. During the recession of 1960-61 the
rate of unemployment reached 7 percent, remained at
that level during the early months of recovery, fell to
about 6 percent by the end of 1961 and subsequently to
5.5 percent in March, 1962, and since has remained be-
tween 5.5 and 6 percent. From the recession low of
1961 to the end of 1963, almost 3.6 million workers were
added to the payrolls of American industry, roughly three
times the number who lost jobs during the decline. Dur-
ing the current recovery, employment in nonfarm indus-
tries leveled off in mid-1963. By the end of 1963, joh
gains in the service industries and state and local govern-
ments had added about a million persons to the payrolls
since the recession low; but with industry adopting more
laborsaving techniques, manufacturing employment failed
to rise significantly above the previous peak.

[ 5 ]

MALAYSIA: PURPOSES AND PROSPECTS

RICHARD BUTWELL, Associate Professor of Political Science

Malaysia was formed on September 15, 1963, by en-
largement of the politically quiescent and economically
prosperous state of Malaya to embrace Singapore and the
northern Borneo territories of Sarawak and Sabah (for-
merly British North Borneo). (See chart.) The British-
protected sultanate of Brunei balked at the last moment
at federation with the other four territories, but its ulti-
mate accession is considered likely. The new federation,
a country of 130,000 square miles and close to 10 million
inhabitants formed of ex-British colonial territories, was
initially regarded as likely to add a strong stabilizing
influence in the region south of China and east of India.

Malaya had already formed the embryonic common
market known as the Association of Southeast Asia
(ASA) with Thailand and the Philippines in 1961. The
latter two countries are members of the eight-nation
Southeast Asia Treaty Organization (SEATO), along
with the United States. Thus, the new nation, joined with
Thailand and the Philippines, would form an anti-
Communist arc along the northern frontier of the archi-
pelagic state of Indonesia, separating that increasingly
aggressive and leftist-leaning republic from Communist-
threatened continental Southeast Asia.

The birth of Malaysia served initially, however, to
disturb the already troubled political waters of Southeast
Asia, provoking new expressions of Indonesian belliger-
ence. Indonesia termed the new state a manifestation of
"neo-colonialism" and pledged a policy of "confronta-
tion," which has expressed itself to date mainly in the
form of border raids into the northern Borneo territories
of Malaysia from Kalimantan (the southern two-thirds
of the island of Borneo belonging to Indonesia).

It also alienated the Philippines from its ASA partner,
the former Malaya, because the Philippines claimed
Sabah, the easternmost state in the new federation and
had sought settlement of its claim before Malaysia was
formed. This claim, aside from its actual merits, makes
little political sense, disturbing as it does the developing
pattern of region-wide cooperation among the
anti-Communist nations (a long-time goal of
Philippine governments). The United States
endorsed the establishment of Malaysia; Brit-
ain, Australia, and Japan all back the new
country, as does India.

Threat of a Communist Singapore

A primary proclaimed reason for Malay-
sia's formation was the threat of a Commu-
nist takeover in the British Crown Colony of
Singapore at the tip of the Malay Peninsula
in the economic heart of Southeast Asia.
This island of 225 square miles was being
isolated politically and was adrift in a sea of
mounting economic nationalism, which chal-
lenged iis traditional status as a regional en-
trepot. The ruling People's Action Party
government, which was leftist but not extrem-
ist, had a majority of only 27 in the 51-
member Singapore Legislative Assembly in
mid-1961. And new elections were scheduled
to be held by 1964, when independence might
also be granted the colony by Britain. If
Singapore gained its freedom and pro-Com-
munist elements gained control by ballot of

the strategic, largely Chinese-populated island, Malaya
would find itself separated by only a short causeway from
a "Southeast Asian Cuba," as Malayan officials put it.

Other officially offered reasons for Malaysia's estab-
lishment included the expectation that the northern
Borneo lands would become increasingly restive in an era
of general emancipation from colonial rule, requiring
some alteration in their status. Merger with Malaya and
Singapore seemed to offer a solution promising hoth
political stability and economic progress. In addition,
Britain, contented with its post-colonial ties with Malaya,
hoped that the merger would permit the kind of relation-
ship with northern Borneo that it already enjoyed with
Malaya.

Finally, Indonesia had at last wrested control of West
Irian (Western New Guinea) from the Netherlands,
and it was feared by Malayans and Britons alike that the
Sukarno government would subsequently seek absorption
of northern Borneo — which would be the easier if these
comparatively smaller territories gained independence
individually and remained separate.

Singapore had for several years pursued the goal of
merger with Malaya for economic reasons. But the
Malay leadership turned a deaf ear, realizing that absorp-
tion of Singapore's 1.1 million Chinese would disturb the
delicate balance among its main races — Malay. Chinese,
and Indian. The Malays (including recent ethnically
related migrants from Indonesia) accounted for 50 per-
cent of Malaya's total population of more than 7 million.
The Chinese made up 37 percent, and the Indians 11 per-
cent. Merger with Singapore alone would have given the
economically more advanced and aggressive Chinese a
small numerical predominance which would have resulted
(in Malay eyes) in political domination as well. Forma-
tion of a five-territory union, on the other hand, would
bring in another 1.2 million of population and result in
only a slight increase in the Chinese percentage of the
total population.

MALAYSIA AND THE SURROUNDING AREA

^^^^

[ 6 ]

Malayan Expansion Necessary

There were other reasons for launching Malaysia that
have not been widely discussed either officially or other-
wise. One of these was Malaya's precarious economic
dependence on the export of two commodities, rubber and
tin, of which it is the world's chief producer. These two
products accounted for more than 80 percent of export
earnings, 45 percent of total government revenues, and
a quarter of the Malayan gross national product. The
fall of rubber prices to a nine-year low in September,
1963, occasioned a major scare in Malaya, reflecting as
it did increasing competition from synthetics. As for tin,
Malaya's deposits are clearly in process of depletion. In
addition, the United States policy of disposing of surplus
from its government stockpile of the metal has had a
restrictive influence on the international price.

Malayan economic development, among the most spec-
tacular in Asia, is highly dependent on export earnings.
The Five-Year Plan issued in 1961 was based on the as-
sumption that rubber, then selling at 35 cents a pound,
would drop to about 27 cents in the subsequent half-decade
— but the price of rubber has already declined to 25 cents
a pound. The average Malayan's annual income of nearly
$300 a year is second only to Japan in Asia, and reduction
could bring serious political consequences.

Politicians and administrators concerned with eco-
nomic development have long urged some type of merger
with nearby British territories as a means of broadening
their country's economic base. Both Sarawak and Sabah
have substantial timber resources, while Singapore is a
major center of manufacturing facilities in the region and
has a population possessing modern technical and man-
agerial skills. Brunei would bring to the union one of the
most profitable petroleum deposits in Southeast Asia.
Bauxite, coal, copra, tobacco, pepper, hemp, rice, and fish
are among the other products of the northern Borneo
territories.

Fear of Communism not only to the south in Singa-
pore and Indonesia but also to the north in continental
Southeast Asia was another factor underlying the forma-
tion of Malaysia. A high Ministry of External Affairs
official, anticipating further encroachment, told me in
1962, "We hope that our friends the Thai and the Viet-
namese will be able to hold the line, but, if they cannot,
we ourselves will be on the front line. We must be as
strong as possible in such an eventuality. Malaysia will
give us new strength through union."

The Identity Crisis

An important pyschic influence behind the idea of
Malaysia — never mentioned openly in Malaya — was the
latter country's unique variant of the "identity crisis" so
prevalent in the "new states" of Asia and Africa. Leaders
and followers alike in such countries have suffered from
varying degrees of immobilization deriving in large meas-
ure from the twin factors of lack of perception of their
roles in the new era and lack of confidence in their abili-
ties effectively to discharge their various responsibilities.
The establishment of an independent Malayan national
government in 1957 preceded the formation of a Malayan
nation in which persons thought of themselves as Malay-
ans rather than as Malays, Chinese, and Indians living in
a place called Malaya.

Since 1961, Premier Tengku Abdul Rahman has been
skillfully using Malaysia as a device to help his "coun-
trymen" discover their identities in the challenging task
of developing the riches of northern Borneo in a new

partnership which will try the resources of the old
Malaya and leave little time for reflection along com-
munal lines. This at least is the Tengku's hope.

Finally, a factor of world-wide expression has already
revealed itself in Southeast Asia in the form of SEATO
and ASA and in Western Europe in the European Eco-
nomic Community and other pan-European institutions.
It is the growing realization of the inadequacy of exist-
ing national institutions to cope with some contemporary
problems. Malaya as previously constituted not only
lacked a broad enough economic base for continued sur-
vival, let alone prosperity, but also did not possess the
capability effectively to defend itself against external
attack. Malayan realization of the inadequacies of the
conventional limited nation-state was very real, if rarely
publicly articulated.

Once the decision to launch Malaysia was made, it
was imperative that the would-be partners move as
quickly as possible toward union. Tengku Abdul Rahman's
proposal to establish Malaysia in May, 1961, came as a
surprise to virtually all concerned, including pleased
Singapore Prime Minister Lee Kuan Yew, a long-time
advocate of a Malayan-Singapore merger. In contrast, it
greatly displeased Indonesian President Sukarno, who
sees his own nation (fifth most populous in the world)
as natural leader of the region. Speed was necessary to
establish Malaysia before the opposition could adequately
organize itself — meaning both Sukarno's Indonesia and
pro-Communist elements in Singapore. It was also nec-
essary to move quickly before nationalism developed in
the Borneo territories and demanded independence rather
than merger with Malaya and Singapore.

Importance of Malaysia

The importance of Malaysia is severalfold. The new
state is a strongly anti-Communist country born into a
world of many Marxist-inclined new nations. Malaya's
solid economic and political accomplishments since inde-
pendence in 1957 suggest that the enlarged polity will be
successful. Together with Thailand and the Philippines,
Malaysia, as Malaya's successor in ASA, can be con-
sidered part of a de facto regional economic counterpart
to SEATO, the American-led Southeast Asian security
alliance.

Secondly, Malaysia is probably the most important
regional counter to Indonesian imperialism, which is evi-
dent in absorption of West Irian but even more apparent
in recent moves designed to take over control of northern
Borneo. There are at least three reasons why Malaysia
has become a major obstacle to new "adventurism" on
the part of President Sukarno: first, by its very being
(incorporating as it does two of the three northern
Borneo territories and surrounding the third, Brunei) ;
second, by its possible future participation in a confederal
"Greater Malaysia" as proposed by Philippine President
Diosdado Macapagal ; and third, by partnership in antici-
pated future institutionalized diplomatic consultations
with both the Philippines and Indonesia in the new re-
gional grouping known as "Maphilindo."

Malaysia, in addition, can also be regarded as part
of a general process of coalescence in the region which
first expressed itself in the formation of SEATO in 1954
and subsequently produced the economically oriented
ASA in 1961 and the consultative Maphilindo pact in 1963.

Finally, and perhaps most importantly, Malaysia, like
Malaya before it, provides a model for other developing
nations of successful political management of diverse
ethnic and economic interests, including those of its large

[ 7 ]

Chinese minority (which has counterparts throughout
racially mixed Southeast Asia).

An event of such importance as Malaysia's establish-
ment could not help but provoke opposition. Both the
Chinese and the Soviets, particularly the former, have
been scathing in their denunciations, calling the new state
a means for the retention of British colonial interests in
Southeast Asia. Indonesia has also proclaimed its strong
opposition to Malaysia, although there were brief periods
in the spring and summer of 1963 when it appeared as if
President Sukarno might reluctantly reconcile himself to
the new state (as at the July 31-August 5 conference of
the Heads of State of Indonesia, the Philippines, and
Malaya in Manila when Maphilindo was formed). Given
Indonesia's strong anti-colonial bias, its posture is hardly
surprising. Lack of Western support for its claim to West
Irian contrasted sorely in Indonesian eyes with prompt
Western endorsement of Malaysia.

The Future of Malaysia

The future of Malaysia faces many uncertainties. It
remains to be seen whether Malaya can in fact be ex-
panded to absorb the other territories without overburden-
ing its political mechanisms for conflict resolution in view
of the even more diversified racial groupings of the new
state. Malays comprise only 17.3 percent of the popula-
tion of Sarawak and an even smaller 5.5 percent in Sabah.
Three-quarters of Sabah's population is neither Malay
nor Chinese and the same is true of half the population
of Sarawak. Malay, which was supposed to become the
only official language of Malaya in 1967, is not spoken
by most of the inhabitants of Singapore, Sarawak, Sabah,
or Brunei; and Islam (the state religion of Malaya) is
nowhere else in the federation the predominant faith.

There is also some doubt that its economic resources
for development purposes will prove adequate. Despite
acquisition of Sarawak's and Sabah's timber and expected
access to Brunei's oil, Malaysia will still need to diversify
its economy to lessen its dependence on flexible interna-
tional demand and prices for what is still a comparatively
limited range of exports.

Incapable at this stage of defending itself against
external attack or even of putting down without outside
help the kind of rebellion faced by Malaya between 1948
and 1960, Malaysia is by no means assured of tranquil
times in the years ahead. Cooperation with SEATO (of
which Malaysia is not a member) as well as with ASA
partners Thailand and the Philippines, if the dispute with
the latter country can somehow be ended, appears likely.
Indeed, this seems to be necessary, since the threat of
war with Indonesia remains an especially ominous possi-
bility in view of the size, equipment, and facilities of the
Soviet-aided Indonesian fighting forces. Border inci-
dents with Indonesian Borneo, at the very least, are likely
to continue for some time. Finally, it should be noted
that the threat posed by Singapore's pro-Communist ele-
ments has not been ended — only changed in form. The
Communists have been "allowed into the front parlor,"
as one Malayan politician has put it, "where they can be
contained and controlled." But it remains to be seen
whether they can be "contained and controlled."

Malaysia is clearly a bold and imaginative effort to
strike first in the struggle for survival and the free life
in Southeast Asia. The Malaysian leadership today has
the initiative in the battle with its opponents — something
that cannot be said for only too many of the United
States' friends in Southeast Asia. Malaysia's chances of
survival and success are good but not certain.

Technology Sets the Problems

(Continued from page 2)
future, because stabilizers have been built into our eco-
nomic system, but basic business practices and the struc-
ture of investment relationships have not changed enough
to make these assertions convincing. Instability is built
into the responses of a capital-using economy and remains
the concomitant of high prosperity.

Even if nothing goes wrong inside the economy,
shocks from without cannot always be avoided. Our
persistent balance-of-payments deficits, though tempo-
rarily reduced by the threat to tax purchases of foreign
securities, are essentially based on a loss of competitive
advantage in export markets. The reversal from the early
postwar years has not occurred by reason of any defi-
ciency on our part but has derived from the progress of
our industrial competitors. They have rebuilt their
industry in accordance with modern standards and, with
workers employed in new, efficient facilities, their ad-
vantages in wage costs make an important difference.
In other words, the technical improvements effected in
other industrial countries work against us as they do
against the developing nations; and the possibility of
restrictionism is evident in the chicken war and the other
tariff maneuvers of the last two years.

No Line of Retreat

Once an economy has embarked on the course of
growth supported by technological advance, there can be
no backtracking. Any letdown tends to set in motion
cumulative forces of deflation that tend to damage others
as well as ourselves. If we cut off aid and trade, we
cut off the basis for expansion of the export industries
and thus set ourselves on a course of self-destruction. It
is ridiculous to argue that someone else will be damaged
more. By reason of the greater heights from which we
may fall, our losses are pretty sure to be the largest.

Nevertheless, in the arrogance of our success, we show
the least concern about dealing with the problems that
may arise. Other countries more clearly realize that new
methods must be developed to deal with emerging prob-
lems, and they have been setting up planning mechanisms
to prepare the measures that will be needed. Most of this
planning is fairly short-term in character, running gen-
erally to a year or several years ahead, but it is a start
in facing the future.

intimately, the trends in technological advance seem
likely to require a more basic rethinking of our position.
They will call in question practices buried deep in our
present institutions. We may be forced to adjust not only
our ways of living — as we already have to the automo-
bile, the household gadgets, and the other facilities now
available for our use — but our ways of thinking about
life, work, thrift, and progress. For the changes we fare
arc not ephemeral. They are aspects of irreversible
technical and social currents.

With so many of the world's problems imbedded in
the newness of an environment that can never be put
back the way it was before, the genie of technological
advance may well say, "I am not the slave. I am the
Master!" In a sense we have conceded the point. We
have chosen his way as our goal. We cannot succeed by
violating his dictates but must ever adapt ourselves to
the conditions his work imposes. Some of our cherished
institutions may have to go. So, assuming we may have
some freedom of choice, it will be wise to consider which
we really want to retain. vi.n

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Life Insurance Premiums Fall

The average premium payment per $1,000 of life in-
surance in force with United States companies decreased
from $30.20 in 1940 to $27.00 in 1950 and to $19.10 in
1962, a reduction of 37 percent in 22 years. A number of
factors have contributed to this trend.

The decline in the average premium is partly a reflec-
tion of the expansion of group life insurance. Since
group insurance is chiefly term insurance, the premiums
are considerably lower than those for other types of pol-
icies. Of total life insurance in force with United States
companies at the end of 1962, nearly 37 percent was
group insurance (including group credit) as compared
with 13 percent in 1940.

For ordinary insurance, the premium per $1,000 of
insurance in force declined from $31.70 in 1940 to $24.00
in 1962. Reductions were made possible through lower
death rates and higher earning rates. The death rate for
ordinary life policy-holders dropped from 7.4 per 1,000
in 1940 to 6.2 in 1962. In addition, the earning rate on
companies' invested funds rose from 2.96 percent in 1948
to 4.34 percent in 1962. Additional reductions were ef-
fected as a result of the changing distribution of life
insurance ownership by type of insurance, with the more
expensive types of protection giving way to lower-
premium policies and a marked increase in recent years
in the size of ordinary policies purchased, since many
companies allow premium discounts on policies of larger
amounts.

Agriculture in 1962

On January 1, 1963, for the ninth year in a row, farm
assets and debts were larger than they were a year
earlier. Assets were valued at $216.5 billion, up $8.5

PRICES OF APPLIANCES AND ALL ITEMS

1
i

\
\

CPI APPLIANCES -
LESS RADIO AND

SETS

WP,

-APPLIANCES

v ■••■

WPI - ALL
COMMOD1T

,'/^

' f

^-A

/ c

PI -ALL ITEMS

I'.S. Bureau of Labor Statistics.

billion from the previous year. Farm debt rose from
$27.4 billion to $30.2 billion, but equities in farm assets
rose from $180.6 billion to $186.3 billion during the year.
Higher prices for assets and savings from income both
contributed to the advance in net worth.

As in the past, rising real estate values were the pri-
mary cause for the increase in assets but other assets
were also up. Larger numbers of cattle and hogs and a
higher price per head for cattle boosted the value of
livestock. Realized net farm income in 1962 totaled $12.6
billion, $100 million more than in 1961. Gross farm in-
come increased $1.6 billion but the advance was largely
offset by higher production costs and larger inventories.
A slight gain in the income of farm families from off-
farm sources occurred. These sources now account for
about one-third of the personal income of the farm
population.

On the debt side of the ledger, the growth in 1962 was
the largest recorded in some time. Underlying the in-
creases in both farm mortgage and non-real-estate debt
was the continued trend of farm consolidation as well as
the greater need for capital by farmers to purchase new-
equipment, and a rise in farm real estate values.

Appliance Price Trends

The continuing weakness in prices of household ap-
pliances since the early 1950"s, particularly at the retail
level, runs counter to the generally rising trend of prices,
as indicated in the accompanying chart. From December,
1951, when the consumer price index for appliances
reached a postwar peak of 125.6 (1957-59 = 100) to De-
cember, 1962, retail appliance prices declined 26.7 per-
cent. In contrast, the CPI itself rose 14.8 percent, the
index of prices for services advanced 34.3 percent, and
all other retail commodity prices rose 6.5 percent. As
measured by the wholesale price index, appliance prices
in June, 1963, were 10.9 percent below the December,
1951, level, whereas the all-commodities index increased
5.0 percent during the same period and prices of indus-
trial commodities rose 11.3 percent.

This price trend, even with simultaneous product im-
provements, has been caused by extremely competitive
retail markets combined with some overproduction.

Statistics of Income Tape Library

The Internal Revenue Service has recently announced
that it now has available a library of computer tapes
containing data from tax returns used in producing the
various Statistics of Income services. The purpose of the
library is to provide a source of historical data for leg-
islators, government officials, and business analysts. In
addition, since it includes data on an individual record
basis, it is possible to use the information or retrieve it
in forms not produced in the published reports.

This Statistics of Income tape library consists of two
related parts, a three-year library and a model library.
The library may be used on an actual-cost basis with
users having the option of paying to have their projects
run on Internal Revenue equipment, or, within certain
limitations, of purchasing tapes from the IRS. Requests
to purchase tapes or tabulations should be addressed to the
Assistant Commissioner (Planning and Research), In-
ternal Revenue Service, Washington 25, D.C.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Postal Receipts Increase

Total postal receipts for 18 major trading centers in
Illinois amounted to $21,084 million, an increase of 7.5
percent over the previous year (see chart). A new postal
rate schedule effective January 7, 1963, provided signifi-
cant increases for all classes of mailing rates, and par-
ticularly for third-class bulk items.

Gains were registered for all of the cities shown.
Elgin had an exceptionally high increase of 51 percent
owing to a large volume of bulk mail sent from a new
retail merchandising firm. A number of other cities
showed sizable increases also — Champaign-Urbana, 23
percent ; Quincy, 22 percent ; Danville, 20 percent ; Aurora,

19 percent; Galesburg, 17 percent; and Rockford, 15
percent. The smallest gains were for Alton (4 percent)
and Peoria (2 percent).

Decline in Apprenticeships

According to the Illinois Department of Labor, 9,300
apprentices from the State were registered with the
United States Bureau of Apprenticeship as of July 1,
1963. This number represents a drop of 2,500 persons or

20 percent since June, 1959.

Firms employ and train apprentices in order to meet
expected demands for the services of highly trained
craftsmen. Therefore, differing proportional changes be-
tween industrial groups are likely to reflect changes in
the employment of skilled workers in the labor force.
Over the stated four-year period, the largest change in
apprenticeships was in the construction industry, which
showed a 30 percent decline. Gains of 7 and 6 percent
respectively have taken place in the metalworking and
printing industries. In the category of "other selected

CHANGES IN POSTAL RECEIPTS, 1962 TO 1963

ELGIN

»5U i

CHAMPAIGN-URBANA

QUINCY

DANVILLE

AURORA

GALESBURG

ROCKFORD

•1

- ■ ■ 1

JOLIET

EAST ST. LOUIS

KANKAKEE

BLOOMINGT0N

Z_3

DECATUR

TOTAL

--i

CHICAGO

BELLEVILLE

• ■1

SPRINGFIELD
ALTON
PEORIA

12
1

Sources: Local

PERCENT INCREASE

office reports.

trades," including butchers and meat-cutters, linemen,
electrical workers, and pipefitters, apprenticeships de-
clined by 5 percent. Despite the net decline of 22 percent
that has been shown, however, prospects for apprentice-
ship opportunities are favorable inasmuch as the demand
for craftsmen is expected to increase at least until 1970
in response to advanced technology and automation.

New Generating Plant

The Commonwealth Edison Company has announced
construction plans for a new power plant in the central
Illinois coal district. The project is to cost over $100
million and the minimum power capacity of 1,120,000
kilowatts is to be supplied by two generating units.

The plant is to be located near Kincaid (in Christian
County) and near a large underground coal mine owned
by the Peabody Coal Company. A conveyor belt system is
to carry coal from the mine to the station. Two 345,000-
volt transmission lines are to extend 175 miles from the
station to the Chicago load center, with neighboring utili-
ties connected to the plant through a third high-voltage
line. The new project is to raise the net generating ca-
pacity of Commonwealth Edison to 8.7 million kilowatts.

Chicago Area Construction Employment

The Illinois State Employment Service states that
technological advances constitute a major problem for
construction employment. Building activity in general
now requires fewer men and less time than formerly.
Operational efficiency and cost controls have been im-
proved through the use of computer techniques in work
scheduling, better tools and equipment, and much better
quality materials.

Both workers and craftsmen are affected by a serious
unemployment problem. As of October, 1963, construc-
tion employment, at roughly 116,000 workers, showed
declines of approximately 4 and 11 percent since October,
1960, and October, 195S, respectively. The unemployment
rate averaged 5 percent during peak seasons of the late
1950's ; currently, the rate averages 20 percent. A sea-
sonal decline of 25,000 to 30,000 in the number of workers
takes place between October and February.

Illinois Crop Production

According to the United States Department of Agri-
culture, the Illinois all-crop production index for 1963
stood at 124 (1957-59 = 100), 10 percent above the high
level set for 1962. Large gains were realized despite
serious drought conditions; the value of crop output
advanced by nearly 14 percent to $2 billion. Illinois was
second only to California in national crop output.

Corn production, at 752 million bushels, was 10 per-
cent above the previous record set in 1962. Yields per
acre, averaging 85 bushels, exceeded the previous year's
high by 4 percent. The soybean crop of 164 million
bushels exceeded the 1962 high by 4 percent. The 1963
yield of 29.5 bushels per acre exceeded the record yield
set in 1962 by one bushel.

The oat crop totaled 81 million bushels, 1 percent over
the previous year. Winter wheat production, at 71.4 mil-
lion bushels, was 39 percent above the 1962 level and
set a new record. The hay crop, at 4.2 million tons, was
4 percent below the 1962 crop.

[io:

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
November. 1963

Building

Permits'

(000)

Electric
Power Con-
sumption2
(000,000 kwh)

Estimated
Retail
Sales3

(000,000)

Depart-
ment Store
Sales4

Bank
Debits5
(000,000)

ILLINOIS

Percentage change from /Oct., 1963.

\Nov., 1962.

NORTHERN ILLINOIS
Chicago

Percentage change from. . . . [N^ 1962_
Aurora

Percentage change from.
Elgin

SOUTHERN ILLINOIS
East St. Louis

(Oct., 1963.
(Nov., 1962.

Percentage change from .... *? *' ,„, ,
Joliet

Percentage change from. . . {^V., 1%Y
Kankakee

Percentage change from.. . -{nov'.X
Rock Island-Moline

Percentage change from
Rockford

(Oct., 1963.
(Nov., 1962.

Percentage change from. . . . {n^./i^oV.

CENTRAL ILLINOIS
Bloomington

Percentage change from. . . -{not!, 1962.
Champaign-Urbana. .

jrcentage change from .... {nov'./wM.

Percentage change from. . . fc^

Percentage change from. . . . (^'.,1962.
Galesburg.

Percentage change from ... N' 'x ' , 0( ;2

n . f (Oct., 1963.

Percentage change from Nw ,,)(i,

Quincy

o t u f Oct., 1963.

Percentage change from Noy' l962

Springfield .

D „ . , (Oct., 1963

Percentage change from. N()v ]f)6-.

r> i. f Oc( . 1963.

Percentage change from. . • • , N(lV ,,„,_,

D , , , Oct., 1963.

Percentage change from . .. . .y. ,

$24,782'
-60.2
-4.0

-15.5

$ 583
-64.4
-17.7

$ 415
-46.0

+ 171 8

$ 646
-39.2
-15.0

$ 289
-66.4
+9.1

$ 968
-34.3
-20.1

$ 1,316
-43.3
+27.1

$ 398

+18.8

-23.8

$ 632

-13.5

+36.2

$ 438

+146.1

+120.1

$ 500

-34.8

+ 100.8

$ 87

+20.8

-63.6

$ 1,137

-23.2

+35.7

$ 693

+222.3

+ 696.6

$ 1,776

+31.8

+53.2

$ 100
-39 8
-38.7

$ 130
-45.0
-76 2

$ 235
-62.1
+88.0

1,442 4'
+0.5
+5.8

1,020.3

+0.3
+4.9

53 51'
+16.3
+29.2
63.9=
-1.1
+4.8

21 2

+0 0
+11.0

21 7
+6.9
+ 6 4

45 0
+1.4
+ 11.9

12 0
+0.8
+ 9.1

70.7'
-0.6
+8.3

15 3
+ 13
+2.7

47 9
-1.4
+4 ft

17 4
-5 I

+ 2 ■/
25 2
-7.7
-1.2
15 0
+0.7
+ 7.9

+11

+ 1

$24,762"
-8.9

+ 7.4

$22,999
-8.8
+ 7.8

$ 99
-3.9
+8.8

$ 59
-4.8
+3.5

$ 102
-7.3
+0.0

$ 153''
+1.3
+ 7.7

$ 236
+0.0
+8.8

96
-15.0

-5.0

111

-19.0

+ 7.8
59

-/.?.?

-3.3

146
-25.5
-J.0

$ 303
-5.6
+8.6
$ 62
-16.2
-1.6
$ 154
-15 4
-0.0

$ 136

-11.7
-9 3
$ 47
-16.1
-7.8
n.a.

■ Total for cities listed. b Includes East Moline. ' 'Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 'Local] iwei Ill lis Department of Revenue.

Monthly data not available. ' Research Department of Seventh Federal Reserve Hank (Chicago). Percentages num. led by source.
6 Federal Reserve Board. ' Local post office reports. Four wnk accounting periods ending December 6, 1963, and Deo mber 7, 1962.

[H]

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

llinois Historical Survey
116 Lincoln Hall

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

ILL /
• U.S.

# REVISED SERIES

U.S.

* REVISED SERIES
- ■' ■-I- 1 ■•■■

1961 1962 1963 '29 '37

1961 1962 1963

DEPARTMENT

STORE

SALES

("ADJ.)

7^^

.j\jAs

ILL.

COAL PRODUCTION

ILL J

\ ..

U.S. 1 iy

)62 196;

BUSINESS LOANS

_^-

L/'*

Al.s.

* REVISED

SERIES

CASH

FARM 1

NCOME

150
100
50

ILL^...-

^Aj.s.

Vyu '

1961 1962 1963

CONSTRUCTION CONTRACTS

/ k

J \

ILL. /^^
jTU.S.

ELECTRIC POWER

PRODUCTION

SMryZ

^ft

ILL.^

~^US.

-iJW.iWL JLWtT

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

February, 1964

HIGHLIGHTS OF BUSINESS IN JANUARY

year to $22.2 billion ; credit on other consumer goods was
9 percent higher, totaling $13.8 billion. Personal loans
rose 14 percent to $14.4 billion. Noninstalment debt in-
creased less than 7 percent over the year. Total consumer
short- and intermediate-term debt increased more than
$6.7 billion (11 percent) to $69.9 billion.

Major indicators show that business activity was well
maintained in January. Steel output rose each week and
exceeded 2.2 million tons of ingots the last two weeks of
the month. Demand continues to surpass expectations
and new orders have been well above production and ship-
ments. Electric power consumption, coal output, and
petroleum production were at high levels. The Federal
Reserve Board's index of industrial production made
another fractional advance, to 127.1 (1957-59 = 100).

Auto Sales Continue at Boom Level

Cars continued to sell at a fast pace in January, the
fourth month of record deliveries for the 1964 models.
Sales for the month totaled more than 572,700, a high for
the month which exceeded the previous record of Janu-
ary, 1963, by more than 5 percent. Chrysler showed the
biggest gain over the year before and had its best Jan-
uary in seven years. Ford's sales were up nearly 9 per-
cent and GM's 3 percent ; for these two companies, it was
the best January ever. American Motors bettered its
January, 1963, sales by a very narrow margin.

Production also hit a new high in January. Output
of nearly 743,800 cars was roughly 8 percent above the
year-earlier level and over the previous January peak.
General Motors and Ford both set new records for the
month; and Chrysler production was the highest since
1960. American Motors closed briefly to bring its dealers'
stocks into better balance. New car inventories rose
sharply by nearly 160,000 to 1,110,000 cars. At that level,
dealers had about 150,000 more cars in their stocks than
they had a year earlier.

Instalment Debt Hits New Record

Instalment debt of consumers continued its upward
climb in December to a new high of $53.7 billion. The
seasonally adjusted increase of $460 million, equivalent
to an annual rate of $5.5 billion, was well above the
November advance but fell below that of October. An
increase in loans on automobiles, contrary to the usual
seasonal movement, accounted for nearly half of the ad-
vance. Credit on other consumer goods and personal loans
were also up substantially.

Total consumer instalment credit outstanding at the
end of 1963 was $5.7 billion greater than it had been a
year earlier. The advance over the year was the largest
on record; the previous record expansion was $5.6 billion
in 1959. Credit on automobiles rose 14 percent during the

Sales Up

Sales of manufacturers and traders went to new highs
in December with a gain of 2.6 percent over November,
after seasonal adjustment. An unknown portion of this
sizable rise reflects the postponement of buying in late
November after President Kennedy's assassination. Man-
ufacturers' sales were up 2.2 percent to $35.8 billion; all
of the increase occurred in the nondurable goods category.
Retail sales showed the average advance, with nondur-
ables marked by more strength than durables. Most major
retail lines made substantial gains, particularly apparel
and general merchandise among the nondurables and cars
and appliances among the durables. Total retail sales for
December were slightly more than $21 billion.

For 1963 as a whole, manufacturing and trade sales
totaled $803.5 billion, 4.4 percent over the previous record
established the year before. Shipments by manufacturers
amounted to $417 billion, up 4.3 percent. Durables made
a larger-than-average advance ; nondurables rose less than
4 percent. Sales in nearly all major lines exceeded those
of 1962. Retail sales of $246.4 billion were almost 5 per-
cent greater than in 1962; here too durables were stronger
than nondurable goods.

Construction Moves Seasonally

New construction put in place in January was esti-
mated at $4.6 billion by the United States Department of
Commerce. The 13 percent drop from December was
approximately the expected seasonal change; after ad-
justment the annual rate for January was up fractionally
from that for December. The January value was, how-
ever, nearly 10 percent higher than the year-earlier
level. Outlays for new private construction were off by
the expected percentage to $3.3 billion but also remained
10 percent above those in January, 1963. The largest
category, residential building, showed a 9 percent increase
over a year ago. Public expenditures for construction fell
somewhat less than seasonally to a point 8 percent ahead
of the year-earlier figure.

PRESIDENT JOHNSON AND THE BUDGET

By Fred M. Gottheil

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie
Director

Research
Robert C. Carey
Virginia G. Speers

Ruth A.
Executh

BlRDZELL

e Editor

Assistants

At. A. S. Blurton
Giselle Chesrow

A Case of Over-Selling?

The whole effect of the year-end outpouring of review?
and forecasts is a highly optimistic picture of the econ-
omy. The impression conveyed may be summed up in two
points: First, there is one dominant factor in the out-
look, namely, the tax cut; its effects will override every-
thing else in carrying the economy upward in 1964. Sec-
ond, all the other factors are also favorable or at least
stable, ensuring a continuation of the recent pattern of
progress for an indefinite period.

The strong consensus among business analysts con-
ceals some serious weaknesses in this position.

Exaggeration of Tax Effects

Various analysts have estimated the total effects of the
$11 billion tax reduction in terms of increases in gross
national product ranging from $20 to $45 billion. The
Economic Report of the President speaks of "$35 to $45
billion." In earlier testimony before a Senate Committee
on Employment and Manpower, the Council of Economic
Advisers placed the figure at $30 billion and explained
its derivation as follows: Part of the $11 billion tax cut
would immediately produce an $8.8 billion direct increase
in personal disposable income, and over a billion more in
higher dividends would come from the $2.3 billion cor-
porate tax reduction, making a total of $10 billion. Since
consumers spend over 90 percent of their disposable in-
come, this would result in a direct increase in expendi-
tures of over $9 billion. Taking account of subsequent
effects on producers' incomes, this would be multiplied
by 2, making a total of $18 billion, or 60 percent of the
$30 billion estimate.

In addition, there would be indirect effects on home-
building, business investment, and state and local govern-
ment programs, totaling $5 to $7 billion. These also would
l>i' subject to the multiplier of 2, so that the other $12
billion of the $30 billion total would thereby be realized.
Other computations, with higher percentages, stronger
indirect effects, and larger multipliers, can produce sub-
stantially larger estimates without straining too hard.

Any such computation is subject, of course, to con-
siderable uncertainty. For example, the direct expendi-
tures from after-tax income may be questioned. In the
first place, theory indicates that the marginal rather than
the average propensity to consume is applicable. Orr
computations put this at 77 percent instead of the 93 per-

cent of disposable income which is spent on the average;
and there are other models which place it still lower.
Furthermore, the tax reduction will be of lower efficiency
than ordinary income, since the largest increases go to the
high income classes: the $5,000 income-earner will receive
an additional $2 a week, the $10,000 earner an additional
$6 a week, and so on, into the income classes where
weekly differences in take-home pay do not matter anyway.
These increments will be received, unfortunately, at
a time when circumstances are particularly favorable to
saving. The spenders can use them to pay off debt; and
the savers have already been showing a strong inclination
to put surplus funds into time deposits and other "safe"
outlets for savings. Suppose the percentage spent turned
out to be 60 instead of 93; then only $12 billion in higher
consumption would be realized. This shift to higher
saving would, of course, reduce the average propensity
to consume somewhat, but various methods of estimating
indicate a decline of only one-half percent of disposable
income, a difference that is well within the range of ordi-
nary fluctuations. Such a shift could well be less, for
example, than the adjustment that would result if con-
sumers cut back the current high rate of dissaving in the
form of credit expansion.

Assuming a Conclusion

There is some doubt also that any indirect effects can
be depended on at this point. Most observers are still
talking about the tax cut as if it were something entirely
new, when in fact it has been under discussion for two
years and its enactment in some form has appeared highly
probable for a year. Businessmen who have seen it com-
ing have not been sitting still during this period.

Within the course of 1963, business investment in-
creased by over 10 percent. At the rate of $41 billion in
the fourth quarter, it was roughly back to the 1957 high,
allowing for intervening price advances. Recent surveys
show that only modest further increases can be expected
in 1964. It should hardly surprise anybody that no invest-
ment boom is in sight. When the rate of investment is
already high enough to meet the requirements of the best
over-all growth that can be expected, there is no need for
it to go higher still.

A year ago, the housing market was being viewed as
a possible source of weakness in the economy. Instead it
moved up further. Encouraged by the prospect of rising
incomes and by the ready availability of mortgage financ-
ing, speculative homebuilding and apartment building
spurted in the fourth quarter to the highest rate of a
decade. The latest official forecasts place the 1964 total
as equal to 1963. This would seem to imply a decline
from the fourth quarter high in order to average 1964
down to the 1963 level.

The auto boom is moving into an advanced stage.
Sales are running somewhat above last year's high level
despite the tendency for an excess in one year to be offset
by a deficiency in the next. Extremely high output is also
due in part to the fact that increases in inventories are
being tolerated in anticipation of the forthcoming nego-
tiation of a new labor contract.

State and local government programs have also been
set in the light of expected higher revenues. The Treasury
put all the states on notice about what they should expect,
and although some felt the forecasts to be optimistic,
almost all agreed there would be some basis for expansion.
These expectations may be disappointed; they are not
likely to be further stimulated.

(Continued on page 8)

ILLINOIS INDUSTRIES AND RESOURCES

OIL IN ILLINOIS

Although Illinois produces only 3 percent of the na-
tion's oil output, it ranks eighth among the states, and
petroleum, as our leading mineral, does form an impor-
tant part of our diversified economy. It is interesting to
recall that in 1935 the State produced only about 0.4 per-
cent of the national total.

In 1962 there were 78.8 million barrels of crude oil
produced, giving a value at the well-heads of about $237
million. Fayette County contributed 20 percent of the
state's total output, Marion 13 percent, White 10, Law-
rence 9, and Wayne 8 percent. In addition to the crude
petroleum, an estimated 24 billion cubic feet of gas was
obtained from Illinois wells in 1962. Estimates for 1963
indicate an oil output of 75.6 million barrels.

Oil production may be said to have started in 1889
when the Litchfield pool was discovered in Montgomery
County. A drilling boom occurred in 1906-8, after oil
was found in Clark County, and proved to be the begin-
ning of the Southeastern Illinois Field. Drilling and
production then languished — after a peak of 34 million
barrels — until the discovery of the Clay City Field in the
Illinois Basin in 1937. In 1940 an all-time peak of 148
million barrels was produced, and over the last 20 years
output has ranged between 59 million and 82 million
barrels.

The main oil areas now lie in that part of the State
roughly southeast of Springfield to the Indiana border.
Although 41 counties are involved in oil production, that
with the highest output over the last 10 years is Fayette
(112 million barrels) followed by White, Marion, and
Wayne (65 million barrels). Historically, however, Mar-
ion County has produced the largest total, 340 million
barrels out of 2.4 billion, or 14 percent.

Information on the oil industry is constantly collected
by the State Geological Survey and the Interstate Oil
Compact Commission, both of which issue surveys on the
subject. Further details may be obtained from their
publications.

Current Developments

In total, 1,879 new tests for oil and gas were reported
completed in 1963, resulting in 898 oil wells. In addition,
79 former dry holes were recompleted as producers. Ap-
proximately 24 percent of the new tests were wildcats —
drillings greater than one-half mile from production —
and these produced 11 new pools and 20 extensions. The
proportion of successful wildcats was down slightly from
previous years. A recent development has been the dis-
covery of oil in DeWitt County, some 25 miles north of
previous production.

The importance of continuing exploration is realized
when it is noted that at present rates of production,
existing proven reserves in Illinois will last only about
6 years. More significant for the State has been the
introduction of other methods of oil recovery. Water-
flooding operations started in 1942 and have increased
consistently so that in 1962 almost 64 percent of total
production was by these methods. Although waterflood

output is expected to decline, the nature of Illinois oil-
fields — none, for instance, is at present deeper than 6,000
feet — is such that they are particularly suited to new
methods of recovery. Since 1955 the hydraulic fracture
treatment has become a normal completion process.

Oil and Gas Consumption

Much more crude oil is refined in Illinois than is
produced here: about 206 million barrels, or 2.6 times
local production. However, not all the local product is
refined in the State, since in 1961, for example, as much
as 61 percent was shipped out.

The imports of crude oil for refining come from 13
other states, with Texas supplying 54 percent of the im-
ports, Oklahoma 15 percent, Wyoming 10 percent, New
Mexico 9 percent, and Kansas 5 percent. Comparing 1961
figures with 1956-60 averages, the quantities imported
from Colorado, Louisiana, New Mexico, and Wyoming
have increased significantly, whereas those from the Da-
kotas and Utah have declined.

Of the total 86 million barrels of crude petroleum that
moves out of Illinois to refineries in other states, 73 per-
cent goes to Ohio, 12 percent to Indiana, and the re-
mainder to Michigan, New York, and Pennsylvania. The
largest local refineries are located in the Chicago-Gary
area and others in East St. Louis and the southeastern
I art of the State. Oil products refined here are exported
to Indiana, Wisconsin, Minnesota, Iowa, and Missouri, by
rail tank car, barge, or pipeline.

Broadly speaking, the refined products may be classi-
fied as gasoline, kerosene, distillates, and residual fuel oil.
The first amounted in 1961 to just over half of the total
refined products. There had in the past been a fairly
steady growth in gasoline consumption, but since 1957
signs of a declining rate of growth have become apparent.

The next largest product group are the distillates,
forming 29 percent of the total. This group has shown
significant increases over the last two decades, although
the rate has been flattening off more recently. The dis-
tillate product group had experienced considerable expan-
sion in use as a source for domestic and commercial heat-
ing, although the impetus has now declined and, in
addition, natural gas is proving a serious competitor. A
similar rapid expansion of distillates occurred through
the introduction of diesel-electric locomotives on the rail-
roads. This became significant after the second World
War, but by the middle 1950's, consumption had just about
leveled off.

Consumption of residual fuel oil has stayed much
steadier, and in 1961 represented 17.5 percent of the total.
It competes with coal and natural gas fuels in industrial
applications. Kerosene accounts for only 3.4 percent and
is used in some types of prime movers and in specialized
heating.

Of the natural gas produced in 1962, only about 3
percent was consumed here. When work is completed on
existing projects, it will be possible to store 366 billion
cubic feet of gas underground in the State.

OW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, November, 1963, to December, 1963

ELE

EMP

COAL PRODUCTION

I—

TRIC POWER PRODUC

jr.

OYMENT-MANUFACT
JSTRUCTION CONTRA

TION
RING
CTS
LES

PARTMENT STORE SA

BANK DEBITS
1

■ ill.
D u.s.

FARM PRICES

Not seasonally adjusted.

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing:

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts7

Electric power8

Coal production3

Petroleum production10

Dec.

Percentage

1963

change from

(1957-59

Nov.

Dec.

= 100)

1963

1962

99.2

+ 0.2

+ 1.4

120.8*

+ 1.1

+ 3.3

105.8

+ 0.3

+ 1.1

159.8

+ 18.5

+ 16.0

124. 0b

+ 6.0

+ 7.8

92.0

- 2.1

- 7.1

174.8

+ 17.3

+ 16.1

109.5

-11.3

+74.7

137.4

+ 11.6

+ 13.3

125.0

+ 10.5

+ 2.8

100.2

+ 5.1

+ 3.7

' III. Dept. of Labor; : U.S. ISur. of Labor Stati
Agcy. Manag. Assn.; * Fed. Res. Bank, 7th Dist.; "111. Cro
Res. Bd.; ' F. W. Dodge Corp.; » Fed. Power Comm.;
Mines; "> 111. Geol. Survey.

■ Preliminary. ■> Seasonally adjusted.

Life Ins.
p Rpts.; « Fed.

» 111 Dent of

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures ....

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked ....

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Dec.
1963

Annual rate

in billion $

475.2*

25.7
19.4
18.4

25.3=
17.2'
8.1"

68. 9b
53.7"
45. 3b
50. 7»

Indexes
(1957-59
= 100)
127*
127*
129*
107*

101*

103
117
120
119

127*

106
76d

Percentage
change from

Nov.
1963

+ 2.3

+ 3.8

- 8.0

- 4.5
-10.9

+ 1.2
-10.4
+39.7

+ 1.7
+ 2.0
+ 6.5

+ 0.4
+ 0.5

+ 0.3

- 10

+ 0.8

+ 0.7

+ 0.4

+ 1.1

- 9.0
+ 8.5
+ 0.2

- 0.4

- 3.0

- 2.0
+ 0.3

- 2.0
0.0

- 1.3

Dec.
1962

+ 6.5
+ 4.3

+ 13.7
- 1.4
+68.5

+ 10.8
+ 11.9
+ 9.1
+ 3.9

6.8
6.9
6.5
3.8

0.7
3.3
4.1
6.7
8.5
1.7

0.1
4.1
0.5
0.5

3.0
0.0
3.8

1 U.S. Dept. of Commerce; ! Federal Reserve Board; 3 U.S. Dept.
of Agriculture; « U.S. Bureau of Labor Statistics; 5 F. YV. Dodge Corp.

» Seasonally adjusted. b End of month. c Data for November, 1963,
compared with October, 1963, and November, 1962. d Based on official
indexes, 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Jan. 25

Jan. 15

Jan. 26

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (\Yards) number in thous. . . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Department store sales 1957-59 = 100

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,535
18,549
212
7,625
118.7
543
97

100.9
101.2
95.6

37,424
295

1,403
19,383
189
7,679
114.3
510
95

100.9
101.2
96.1

1,560

18,869

207

7,661

113.8
542

100.6
101.1
95.7

1,570
18,152

147
7,574

109.

500

100.6
101.1
95.4

38,793
204

1,245
17,932
154
7,603
96.8
376
163

100.5
101.1
95.5

37,858
158

1,259
18,321
179
7,245
100.0
462
82

100.5*
100.7*
93.7

34,291
321

Source: Survey of Current Business, Weekly Suppleme

Monthly index for January, 1963.

[ 4 ]

RECENT ECONOMIC CHANGES

Crop Production High

The Department of Agriculture reports that last year's
all-crop volume reached 112 percent of the 1957-59 aver-
age. This compares with 107 percent in 1962 and the
previous high of 108 in 1960. Output of feed grains —
corn, grain sorghums, oats, and barley — reached 156 mil-
lion tons, 9 percent more than in 1962. Leading the way
was the record corn crop, which passed 4 billion bushels
for the first time. This was 10 percent above 1962's crop
and 3 percent more than the previous record set in 1960.
The yield per acre of corn was 67.3 bushels, exceeding
the previous year's record yield by 3.1 bushels.

Soybean production climbed to 727.4 million bushels,
7 percent above the previous high. The wheat crop totaled
1.1 billion bushels, 3 percent above the 1962 crop and the
first increase in production in three years. The major
crop to show a decline in production from 1962 was hay,
which fell 4 percent from the record of 1962, but the
amount produced was equal to the average crop over the
last 10 years.

Gross National Product

The nation's output of goods and services rose in the
fourth quarter of 1963 to a seasonally adjusted annual
rate of $600 billion, the highest ever recorded. The ad-
vance brought the total for the year to a record $585
billion, 5.5 percent above the 1962 level. With prices
rising at the relatively slow rate of 1.5 percent per year,
national output increased 4 percent for the third consec-
utive year.

During the year disposable income increased 4.7 per-
cent over 1962 to $403 billion, and personal consumption
expenditures expanded about 5.0 percent to $373 billion.
Contributing heavily to the 1963 advance was a 6.9 per-
cent rise in spending for durable goods, mainly autos,

MANUFACTURERS' INVENTORY-SALES RATIOS

QUARTERS AFTER GNP LOW

which had their best year since 1955. In addition, spend-
ing on nondurable goods rose 3.6 percent, and service
expenditures continued their postwar expansion by in-
creasing 6.0 percent over 1962. Personal saving remained
at approximately $29 billion, or about 7.3 percent of dis-
posable personal income.

GROSS NATIONAL PRODUCT OR EXPENDITURE

(Billions of dollars)
1963

Gross national product 585.0

Personal consumption 373 . 2

Durable goods 51.5

Nondurable goods 167.2

Services 1 54 . 5

Domestic investment 82.3

New construction 46.9

Producers' durable equipment 31.1

Change in business inventories 4 . 7

Nonfarm inventories only . . 4.3

Net exports of goods and services 4 . 4

Government purchases 125. 1

INCOME AND SAVING

National income 478.4

Personal income 463 . 0

Disposable personal income 402.6

Personal saving

1962
554.9

355.4

48.2

161.4

145.7

78.8

44.4

28.8

5.5

4.9

3.8

117.0

453.7
442.1
384.4
29.1

4th Qtr.

1963*

600.0

380.0

53.5

168.8

157.6

87.0

50.0

33.1

5.3

4.4

5.0

128.0

473.0
411.3
30.0

Source : Seventh Federal Reserve Bank. Business Condi
tions, January, 1964, p. 4.

* Seasonally adjusted at annual rates.
Source: U.S. Department of Commerce.

Inventories Remain Stable

During the present business expansion the ratio of
business inventories to sales has gradually declined. In
1963 businesses increased their inventory holdings by
nearly $5 billion but, since sales increased about propor-
tionally, the inventory-sales ratio continued to remain
fairly stable. Early in 1963, a build-up in steel inventories
as a hedge against a possible strike had a stimulating
effect on steel production ; but the subsequent cutback in
orders due to the need to liquidate the accumulated stocks
caused a sharp decline in steel output that lasted till the
fourth quarter. The destabilizing effect of this liquidation
was offset however, by additions to stocks in other indus-
tries, mainly nondurable goods.

As the accompanying chart indicates, the inventory-
sales ratio has been less volatile in the current expansion
period than it was in previous periods. The downturn in
inventory accumulation during this period failed to go as
low as expected and the expected upturn in inventory
accumulation, which occurred in previous periods, has
failed to materialize.

Housing Starts

Construction was begun on over 1.6 million housing
units in 1963, compared with 1.5 million in 1962. Pri-
vately owned housing starts accounted for all but 30,000
of the total and were up 9 percent over the 1.46 million
starts recorded in 1962. During December, 1963, the
number of housing units started was 98,900, compared
with 120,600 in November and 94,900 in December, 1962.

Regional changes in housing starts were somewhat
mixed during the year. A drop of 4.1 percent was
recorded in the Northeast region but the North Central,
South, and West regions showed increases of 7.6, 12.5,
and 12.9 percent respectively. The West again had the
greatest number of starts with 410,000. The Northeast
meanwhile fell to last place with only 232,000 starts in
1963.

[5]

PRESIDENT JOHNSON AND THE BUDGET

FRED M. GOTTHEIL, Assistant Professor of Economics

President Johnson has demonstrated once again, and
to no one's surprise, his mastery in the art of politics.
For in the very short space of two months, he has man-
aged to construct one of the most vital pieces of contem-
porary presidential equipment — the dynamic image.

Almost immediately after assuming the high office,
President Johnson set down the pivotal points of his Ad-
ministration's trademark: economy and war on poverty.
This he was able to do without retreating in any way
from his commitment to the Kennedy program. The basic
ingredients are the same ; only the emphasis is altered.

The Johnson budget purports to reflect the image. It
calls for a total administrative expenditure of $97.9 bil-
lion, which is a half billion less than its predecessor.
Total receipts are estimated at $93 billion, generating a
federal deficit of $4.9 billion (see chart). This represents
a 50 percent cut in the deficit from 1964 and is heralded
as a giant step toward a balanced budget.

The new budget fulfills its defense commitment with
economy savings of over $1 billion. It promotes the
Kennedy-inspired space program by assigning $5 billion
to space technology, which is a half billion more than the
1964 expenditure. Its war on poverty, designed to elimi-
nate conditions that separate one-fifth of the American
people from the fruits of our expanding economy, calls
for $1 billion of new funds in the first year.

Presidential Autonomy

It would not be entirely correct to evaluate the Presi-
dent's position concerning the role of government in the
economy strictly on the basis of his budget. For much of
what constitutes the federal budget is determined by
forces operating outside his office. The restraints imposed
upon the President by the business community, specific
regional interests, our international obligations, national
security considerations, and by general expenditures as-
sociated with the ordinary practice of administration have
usurped a substantial percentage of federal money, and
consequently reduced presidential autonomy.

For example, consider the $11 billion outlay for inter-
est payments on the national debt. Of the $317 billion
debt estimated for 1965, approximately three-fourths is
directly related to World War II and prior periods.
These are long-standing federal obligations, and the Pres-
ident has no effective alternative on interest payments,
which are expected to rise by $400 million.

Government expenditures are, by nature, controversial,
but some are more controversial than others. Items such
as veterans' benefits, natural resources, general govern-
ment, commerce, and transportation, which account for
$13 billion in the budget, generate little congressional
heat. Some are expected to expand gradually.

Agricultural expenditures, somewhat more controver-
sial, are well endowed with political support. These came
under the Johnson economy knife and fell to $4.9 billion,
the lowest since 1960. The agricultural problems, how-
ever, remain unabated, and since most of these programs
operate on continuing authorizations, expenditures may
well be greater than the budget estimates.

The so-called welfare items in the 1965 budget total
$7.8 billion, and increases in many of these are parts of
the war-on-poverty program. Only $4.3 billion is directly
related to economic-aid expenditures, such as public as-
sistance, area redevelopment, manpower development, and

vocational rehabilitation. Although controversial, the
sums allocated to welfare are precariously minimal and,
if the war on poverty is to be taken seriously, will have
to be greater than the budget estimates.

Perhaps the most controversial but among the least
significant in value terms are the federal aid to education
and foreign aid items in the budget. These were strong
political issues in the Kennedy years. Together they
account for about $4 billion, and any change is likely to
have little influence on the budget as a whole.

Thus the freedom afforded the President in the prep-
aration of his budget is, at least on those items men-
tioned, greatly restricted. The natural movement, marked
over the years, has been upward. The probability is high
that, whatever the President's intentions, the actual ex-
penditures in 1965 on these items will be somewhat higher.

There remains, however, one important item in the
budget that may offer the President much greater oppor-
tunity for influencing both the size and the composition
of the budget. This item, whose dollar outlay exceeds the
combined total for all others, is defense spending.

The Defense Item

Federal defense spending, including outlays for space
technology, increased by $11.5 billion or by roughly one-
fourth during the three Kennedy years. There was "a
100% increase in the number of nuclear weapons avail-
able in the strategic alert forces" during this period.

THE FEDERAL BUDGET

(Billions of dollars)
EXPENDITURES

$97.9

ALL OTHER

RECEIPTS

$93.0

EXCISE TAXES

ALL OTHER

FISCAL YEAR 1965 ESTIMATE

Source : Executive Office of the President, Bureau of
the Budget.

[ 6 ]

The demands for national security, like demands for
any form of protection, depend largely upon the activities
of those against whom the protection is sought. Such
activities are not always clearly perceived. Among con-
siderations that determine the size of the defense item is
the counterpart action by the Communist world. When
Soviet military capability increases, our national security
is lessened, and we respond with larger programs to
preserve the pre-existing levels of security.

Attempts to increase security on our part have been
generally unsuccessful. For any real increase is short-
lived. Once discovered, it generates greater defense
efforts by the Soviets. When this occurs, the net increase
in security is offset, but the totals in defense spending by
both parties rise. Fruitless arms races spiral in such an
environment. So intensely have we engaged in this ac-
tivity that new concepts have been invented, for example,
"overkill," to describe the technical levels achieved by our
mounting defense item.

Another factor influencing the size of our defense
spending is the military-industrial complex. In his fare-
well address to the nation, President Eisenhower warned
against the growing influence in American life, and on
defense spending particularly, of an "immense military
establishment and large arms industry."

This "industrial-military complex," with its "poten-
tial for the disastrous rise of misplaced power," is an
outgrowth of the cold war. The enormous defense
demands have created new industries and committed
others to full-scale military production. These politically
powerful industries now depend upon defense contracts
for economic survival and are understandably ultra-
sensitive to changes in defense purchases. The recent
McNamara-Air Force controversy over the production of
the RS-70 aircraft is a classic example. At issue was not
simply the aircraft's contribution to national security,
but also its contribution to the Boeing corporation and
the state of Washington. But neither Boeing nor Wash-
ington is unique. In Kansas, New Mexico, California,
and Connecticut, as in Washington, 20 to 30 percent of all
manufacturing employment is based on defense contracts.

The Johnson defense budget, including space, is $59
billion. This represents a cut of $700 million from the
1964 defense budget, which was a postwar high. The
saving, if actually realized, will thus be little more than
1 percent, a token reduction. The President has empha-
sized that the defense saving in no way sacrifices our
"military capability. Instead, it reflects the diminishing
need for larger additions to force levels and stocks of
supplies and equipment . . . and increasing economies
under the cost reduction programs." The continued
phasing-out of the B-47 bomber program and the older
Atlas missiles provide examples; cutbacks in nuclear
materials are also consistent with military requirements.

The President's publicized economy drive in defense
spending seems, upon inspection, far less dramatic than
its advance billing. He does suggest the possibility of
further savings up to $4 billion in fiscal 1965, but this is
highly speculative.

Although little change has been recorded in the 1965
defense budget, it is still this item that unquestionably
offers the greatest potential. The $4 billion figure sug-
gested by the President is conservative. Budgetary sav-
ings in the region of $10 to $20 billion are possible with-
out agreements on disarmaments. The major obstacle
is the military-industrial complex. Yet the key to the
greatest source of savings is in obtaining an international
agreement on arms reduction that will put an end to the

arms race and begin the rational process of arms reduc-
tion. Professor Emile Benoit of Columbia, an authority
on the economics of arms and disarmament, describes as
realistic a $10 billion defense budget by 1977 if disarma-
ment could be attained.

War on Poverty

The President's war on poverty, like his economy
drive, is not forcefully demonstrated in the budget. New
obligational authority, the forerunner of federal expendi-
tures, of $500 million is specifically assigned to this item.
The actual estimated direct expenditure in the admin-
istrative budget is only $200 million. The detailed report
to the nation on the government's role in alleviating
poverty is still to come.

The budget has this to say on the so-called war on
poverty. "In a nation as rich and productive as ours we
cannot tolerate a situation in which millions of Americans
do not have the education, health, and job opportunities
for a decent and respected place as productive citizens.
The vicious circle of poverty — in which one genera-
tion's poverty, ignorance and disease breed the same
problems for the next — must be broken. I propose to
break that circle by raising the educational, skill and
health levels of the younger generation, increasing their
job opportunities and helping their families to provide a
better home life."

The extent of poverty in the United States depends
upon the accepted definition. The President's description
includes 20 percent of the American people. These people,
he reports, earn less than $600 per capita, far below the
$2,100 per capita average for the nation.

Concerned with the same problem, Wisconsin Pro-
fessor Robert Lampman, in a report to the Joint Eco-
nomic Committee of the Congress in 1959, estimated that
32 million Americans classify as low income people. This
figure is equivalent to the President's 20 percent. These
are people who, as single member families, earn under
$1,157; as two member families, earn under $1,638; as
three member families, earn under $2,106; as four mem-
ber families, earn under $2,516, and as seven or more
member families, earn under $3,750. The Lampman study
reveals that unlike the great majority of Americans,
these people are excluded from sharing the fruits of our
expanding economy.

The determinants of low income, he finds, are the
age, education, color, and sex of the breadwinner, the
location and number of family members. For example, he
discovered that although nonwhites are 10 percent of
total population, they are 22 percent of the low income
group. Ten percent of all family heads are females, but
they constitute approximately 24 percent of this group.
Also, although people over 65 years of age are only 8.5
percent of total population, they represent 25 percent of
the low income people. Two-thirds of this group have
had no more than grammar school education.

Many of these contributing factors to poverty will
persist. Lampman shows that in 20 years 9.5 percent of
the population will be over 65 years old. With decreasing
retirement age levels, this problem will become more
acute. Also, the percentage of nonwhites in the popula-
tion is steadily increasing. The solutions recommended by
Lampman are much the same as those set down in the
budget, that is, increased federal expenditures on edu-
cation, health, and welfare.

If we distributed the $500 million of new obligational
authority set down in the 1965 budget to war on poverty
among the low income 20 percent of our population, it

[ M

would amount to about $15 each, or roughly 30 cents a
week. Taking the lower figure of $200 million, the per
capita outlay is $6. As the New York Times remarked,
this is scarcely adequate for even an initial skirmish.

Size of the Budget

Although budget chopping is not an unattractive
activity in an election year, it seems unlikely that the
President will be able to carry off a real reduction. The
Wall Street Journal asserts that the budget's reduction is
"as filled with gimmicks as a Rube Goldberg invention."
In support of this statement, it cites several items that
could convert the half billion decline in expenditures to
a definite, but not large, increase.

But even to have contemplated an over-all reduction
in federal expenditures seems to put President Johnson
in the position of agreeing that too much of our national
product has been allocated to the public sector. Although
it is difficult to define an optimal-sized budget, many
economists are convinced that the opposite is true.

Alarming deficiencies have grown in the public sector.
Expenditures on education, health, urban renewal, natural
resources, low-cost housing, institutional care for de-
pendent and aged persons, and other vital social services
have not kept pace with growing demands. The Presi-
dent's commitment to war on poverty within a fixed
budget total makes the problem even more acute.

The federal expenditures on civilian items in the
estimated 1965 budget amount to $22.7 billion. This
represents a $100 million increase over the previous
budget. Since 1956, the percentage of gross national
product devoted to this item has remained fairly constant
(see table). The defense item in the table refers to
expenditures on defense and space technology. The past
wars item refers to expenditures on veterans' benefits
and interest payments. All remaining expenditures are
included in the civilian item.

The less than $2 billion increase in civilian expendi-
tures made during the Kennedy and Johnson administra-
tions points out the growing imbalance between the
private and public sectors. The additional federal expend-
itures required to make up deficiencies in this item
during the 1960's have been estimated at $50 billion. A
continuation of the present policy which seeks to satisfy
only the most pressing demands in the public sector can-
not make up this large deficiency. In fact, stability in
government spending may, by itself, frustrate the Presi-
dent's efforts to stimulate growth in the economy by
means of a tax cut. His report itself notes the sobering
fact that 11 percent of the increase in GNP since 1961
is directly attributable to federal spending.

If the tax cut is used to explain the Administration's
reluctance to increase expenditures on the civilian items,
then the tax cut may well have been the poorer choice of
the two alternatives.

COMPOSITION OF FEDERAL EXPENDITURES

(Fiscal years; billions of dollars)

1956

1960

1962

1964
59.7
16.1
22.6

1965

40.8
11.7
14 0

46.0

14.3

K, <l

52.4
14.6
20.8

22 7

66 5

77.2

87.8

98.4

97 9

Civilian a? percent of total
Civilian as percent of GNP

21.0
3.8

22.0
S.3

22.5
3.7

23.0

3.7

23.0
3.6

A Case of Over-Selling?

(Continued from page 2)
Advance discounting of the tax cut, therefore, makes
the picture distinctly mixed, with some items more likely
to go down than up. After the first few months of direct
impact, the effects of the tax cut will be distinctly lower.
At that point, moderate downturns in any of three factors
— homebuilding, inventory accumulation, or consumer
credit expansion — would be sufficient to bring the ad-
vance to a halt. To project its continuation, it is necessary
to assume that everything will stay high or continue up.
But this is a strained assumption.

Theory of Public Finance

None of the foregoing comments, it may be noted, is
an attack on the tax cut as such. If anything, they stress
the need for it. Even though the further effects of the
tax cut should be only a third of the $30 to $45 billion
now being talked about, its importance in adding to what
has already been gained should not be minimized.

There is another aspect of this affair, however, that
may not have such a happy outcome. In the recent theory
of public finance, it is commonly held that government
expenditures should be determined independently, in terms
of the need for various programs ; that the over-all total
of taxes should be set according to the need for speeding
or slowing the pace of economic activity; and that the
kind of taxes imposed should be designed to provide
equity among the various groups of taxpayers.

In its original form, the current tax bill took some
account of all parts of this theory. The primary goal was,
of course, faster economic growth. Nothing was said in
the first instance about expenditure programs, and a
certain amount of tax reform was proposed. In Congress,
however, all the logic became blurred.

There is a tendency on the part of proponents of any
important measure to feel that a certain amount of
equity and efficiency can be sacrificed for the main ob-
jective. As Congress stalled action through the months
of 1963, reforms were whittled away. The bill that has
emerged represents a substantial loss in progressivity in
the federal tax system. It aggravates a trend most clearly
displayed in the sharp rise in payroll taxes since 1950.

Another consequence of the delay was pressure on
expenditure programs. When passage could not be ob-
tained in 1963, the bill was carried over into the period of
the new budget, and it was made to seem that it could not
be passed then without some offsetting reductions in ex-
penditures. President Johnson's economy program is pat-
terned on this thesis. Expenditures are still moving up
because of certain built-in increases, but in the absence
of new programs, the stimulus of federal spending to
economic expansion will soon be lost. Few people seem
to realize how much the economic advance of the last
three years has depended upon rising expenditures at all
levels of government.

In a strong growth economy, the government may hold
back its spending and tolerate a certain amount of ineffi-
ciency or inequity in taxation. Today, many other parts
of the economy appear to be rather fully extended, and
the situation does not permit so much latitude. Any fail-
ure in the outcome, regardless of the merits of what was
proposed, is likely to be interpreted as a demonstration
of fallacy in the theories underlying the Administration's
program. Is it really a good idea, then, to tell the people
that everything will be all right if only the tax bill goes
through? vlb

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Food Spoilage Reduced

Several kinds of perishable foods have recently been
treated with light doses of gamma radiation in tests at
the United States Department of Agriculture laboratory
in Fresno, California, in order to reduce spoilage before
the foods reach the consumer. Preliminary results indi-
cate that this new technique is effective in controlling
decay organisms which attack produce during the mar-
keting period. The gamma rays used in the tests were
the "clean" type, which induce no radioactivity in the
products treated; and continuous radiological tests by a
separate testing team resulted in negative reports on
possible contamination during treatment.

Tests were also made with dried fruits and grains
and with products which tend to become insect-infested
in storage. This additional work is now being evaluated.

Occupational Change

The size and character of employment in industry,
business, and government have changed greatly over the
years. Bureau of Labor Statistics studies show some
groups of occupations growing rapidly, others declining,
and still others rising or falling from one decade to the
next without any consistent pattern.

Professional and other white-collar occupations have
grown fastest since 1900, while farm occupations have
declined most rapidly. Numbers of skilled, semiskilled,
and service workers have fluctuated from one generation
to the next, with net gains of 20 to 25 percent since 1900.

The further changes that are expected to take place
between 1960 and 1975 in the major nonfarm occupational
groups are indicated in the accompanying chart. In de-

PROJECTED CHANGES IN EMPLOYMENT, 1960-75

PERCENT CHANGE
-30 -20 -10 0 10 20 30 40 50 60 70

SALES WORKERS

SERVICE WORKERS

NO CHANGE

Source : U.S. Department of Labor, Occupational Out-
look Handbook, 1963-64 edition, p. 23.

veloping these projections the BLS took into account the
expected increase in the size of the labor force, the con-
tinuing changes in technology, the changing demands of
the population for goods and services, and the anticipated
future requirements of each industry. The outlook is
for all of the nonfarm occupations except operators and
kindred workers to expand more rapidly than the average
of 31 percent for all employment. The number of laborers
(excluding farm and mine) is not expected to increase at
all, and the number of farmers, farm managers, and farm
workers will continue to decline.

In addition to this over-all picture, career information
has recently been published in the latest Occupational
Outlook Handbook. The Handbook, now in its sixth edi-
tion, presents information explaining specific job patterns
and opportunities, characteristics of related occupations,
and trends affecting the nature and number of jobs.
Nearly 700 occupations, with their characteristics and
requirements, are discussed and analyzed in addition to
past, current, and future employment trends. The 792-
page Handbook is Bulletin No. 1375 of the Bureau of
Labor Statistics and may be obtained from the Superin-
tendent of Documents, U.S. Government Printing Office,
Washington, D.C. 20402, for $4.75.

Manpower Training

By mid-1963, over 1,600 training projects had been
approved for nearly 60,000 trainees and 300 different
occupations under the Manpower Development and Train-
ing Act of 1962. About 1,500 of the projects have been
developed by federal and state employment security and
state vocational education agencies to provide institu-
tional training for 57,000 trainees. So far the emphasis
of the program has been placed largely on aiding the
occupational shifts taking place in the economy because
of technological progress and changes in the structure of
industrial demand.

The most important test of the effectiveness of re-
training is found in the extent to which workers are
placed in appropriate jobs. So far nearly 70 percent of
the graduates of these programs are finding employment,
with nearly all of it being in training-related jobs. Of
the 7,300 graduates who have been placed, four-fifths have
obtained their jobs from state employment agencies.

Urban Research

The Urban Land Institute of Washington, D.C. an
independent research organization specializing in urban
land use and development, has just issued its annual
monograph, Urban Real Estate Research — 1962. This
monograph lists all the published works and research in
process dealing with the various phases of urban de-
velopment during 1962. According to the Institute, there
has been a 100 percent increase in the number of research
projects being done on urban land use in the past five
years, and there was a 10 percent increase in 1962 over
1961. The monograph covers such topics as community
analysis, central business districts, highways and express-
ways, effects of airports, and other subjects of interest in
urban land research, and lists bibliographies on these
topics. Copies of this publication can be purchased for
$4.00 from the Urban Land Institute, 1200 18th Street,
X.W.. Washington, D.C. 20036.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Chicago Area Business Outlook

A recent survey conducted by the Chicago Association
of Commerce and Industry shows that 639 firms employ-
ing about 171,500 workers in the Chicago metropolitan
area expect 1964 to be a good year as measured by sales,
profits, and employment. Increased sales are expected by
78 percent of all the firms, and lower sales by 5 percent
of the firms. Higher profits are expected by 57 percent
of the respondents and lower profits by 13 percent.

Employment increases in the Chicago area are antic-
ipated by 39 percent of all the firms and decreases by
only 6 percent. On an absolute basis, the estimated over-
all net employment increase comes to about 4,400 persons,
or 2.6 percent of the employees covered by the survey.

Educational Expenditures in Illinois

According to the National Education Association,
Illinois is a leading state in terms of public school spend-
ing. For the 1963-64 school year, total estimated gross
expenditures for the State stand at about $1.1 billion.
This represents the sum of expenditures for elementary
and secondary day schools; miscellaneous services such
as community colleges, adult education, and summer
schools; capital facilities; and interest on school debts.
Both gross and net outlays show increases of about 8
percent over the 1962-63 year.

Presently, the State spends an estimated net amount
of $900 million to educate approximately 2.2 million
pupils in the public schools. The outlay per pupil in
average daily attendance is $479, an increase of nearly 5
percent over 1962-63. In the Midwest region, Illinois
ranks behind Minnesota and Wisconsin, which spend
$509 and $498 respectively.

The average teacher's salary in Illinois is $6,645, an
increase of 4 percent over 1962-63. Furthermore, this
figure is about 11 percent over the national average of
$5,963 and about 2 percent above the $6,503 for Michigan,

ILLINOIS MINERAL PRODUCTION

MILLIONS OF DOLLARS

CRUDE OIL AND ASSOCIATED PRODUCTS

1938 '41 '44 '47 '50 '53 '56 '59 1962

Source: Illinois State Geological Survey.

the state second to Illinois in the Midwest area. On a
nationwide basis, Illinois ranks fifth. Alaska leads with
an average salary of $8,150, but high living costs there
in relation to those elsewhere in the United States in
effect reduce this figure by one-fourth. Other leading
states are California ($7,375), New York ($7,200), and
Connecticut ($6,675).

New City Planned

One of the most ambitious development projects ever
to be undertaken in the Chicago area is being planned
for the coming year. This spring, initial construction
activities are intended to begin for the $550 million de-
velopment of Weston, Illinois, by the Riley Management
Corporation. The completely preplanned city, to be
located 19 miles west of the Chicago city limits, is to
cover over 4,700 acres and is to have a population of
50,000. Upon completion (expected by June, 1965),
Weston is to be the tenth largest city in the State.

At the heart of the community will be a shopping
center with a capacity of 1,800 store units. Weston is
to offer a complete range of urban facilities and services.
Included are municipal buildings and a public library;
banking facilities; five elementary schools and one high
school; a hospital, a nursing and convalescent home, and
a high-rise medical office building; 1,000 acres of park
areas and other recreation facilities; a 105-acre small-
craft airport; and churches of major faiths.

Housing facilities, to be sold on conventional mort-
gage terms, are to range from low-cost single units to
$75,000 estate homes and a variety of apartment rental
units. Low tax and utility rates and ample power and
water supplies are among inducements to be offered
business to locate within the corporate limits of Weston.
A free bus transportation system is to serve all areas
of the city. A 688-acre tract, which is to be set aside for
industrial uses, is traversed by a main railway line.

Illinois Mineral Production

Mineral production was estimated by the State Geo-
logical Survey at a value of $624 million in 1963, about
1 percent less than the 1962 record production of $631
million (see chart). Since 1938, the value of minerals
produced in the State has shown an almost fourfold in-
crease, with the largest upsurges taking place during the
1940's. Since 1955 the value of mineral production has
remained fairly stable. About two-thirds of the total
value of all minerals produced has been accounted for by
crude oil and coal, and the remaining one-third by stone,
sand, and gravel ; clay products ; fluorspar, zinc, and lead.

Crude oil and associated products were valued at $225
million in 1963, $11.4 million less than in 1962. The
decrease was due partly to lower crude oil prices and
partly to the fact that less oil was produced even though
the number of wells drilled was about the same.

Coal production, valued at $195 million, showed an
increase of $8.5 million, or 4.6 percent, over 1962. Much
of the increase was due to higher demands for coal
for electric power generation. Illinois, the nation's fourth
largest coal producer, is exceeded only by West Virginia,
Kentucky, and Pennsylvania. Williamson, Christian,
Fulton, and St. Clair counties lead the State in production.

Stone products, sand, and gravel had a combined value
of $137 million. The gain of 11.4 percent over the $123
million recorded for 1962 reflects increased levels of
construction activity throughout Illinois.

[io;

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
December, 1963

Building

Permits1
(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales3

(000,000)

Depart-
ment Store
Sales4

Bank

Debits6
(000,000)

ILLINOIS

Percentage change from .

NORTHERN ILLINOIS
Chicago

Aurora .

Elgin

Percentage change from .
Joliet

Percentage change from .
Kankakee

Rock Island-Moline

Percentage change from .
Rockford

Percentage change from .

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from .
Danville

Percentage change from .
Decatur

Belleville

Percentage change from.

/Nov., 1963.
\Dec, 1962.

Percentage change from. . . . {*£;• »«;

Percentage change from. . . [Nov., 1MB.

/Nov., 1963.
I Dec, 1962.

/Nov., 1963.
\Dec, 1962.

Percentage change from. . . . {g£ »«■

/Nov., 1963.
•\Dec, 1962.

/Nov., 1963.
' l.Dec, 1962.

/Nov., 1963.
•/Dec., 1962.

/Nov., 1963.
/Dec, 1962.

/Nov., 1963.
\Dec, 1962.

Percentage change from. . . . {g^- »«;
Galesburg

Percentage change from .
Peoria

/Nov., 1963.
/Dec, 1962.

Percentage change from. . . . {g£-. «g-
Quincy

Percentage change from .
Springfield

/Nov., 1963.
/Dec, 1962.

Percentage change from. . . .{g°J ' gg;

SOUTHERN ILLINOIS

East St. Louis

Percentage change from.
Alton

/Nov., 1963.
\Dec, 1962.

/Nov., 1963..
•(Dec, 1962..

$38,126*

+53.8
+60.7

$23,849
+65.2
+44.9

$ 777
+33.3
+39.0

$ 378
-8.9
+ 78.3

$ 4,446

+588.2
-1,775.9

$ 143
-50.5
-52.5

$ 687
-29.0
-50.2

$ 1,405

+57.

$ 278
-30.2
+61.6

$ 580

+61.1

$ 259

-40.9

+82.4

$ 387

+22.6

+87.0

$ 694

+697.7

+207.1

$ 1,580

+39.0

+45.5

$ 840

+21.2

+260.5

$ 418

-76.5

-56.8

$ 1,034

+934.0
+2,854.3

$ 69
-46.9
+35.3

$ 302
+28.5
+45.9

,517 6»

+5.2
+5.9

,076 4

+5.5
+3.6

50. 9b
-4.9
+ 18.4

64 .1"
+0.3
+2.1

14.6

+ 9.8

-2.0

22.8

+ 7.5

+ 17.5

23 1

+ 6.5

+ 16.7

45 5

+ 1.1

+ 13.2

13 8

+15.0

+ 16.9

75.7'

+ 7.1

+ 9.1

16 9

+ 10.5

53 2

+ 11.1

+ 7.0

18 7

+7.5
+ 6.9

26 0
+3.2
+ 1.2

15 9
+6.0
±11. 2

+56
+8

+61

+ 7

+63'
+5'

+ 70

+ 5

+62

$29,056*

+ 17.3
+ 16.1

$27,232

+ 18.4

+ 16.9

$ 102

+3.0

+ 13.3

$ 63

+ 6.8

+ 10.5

$ 102

-0.0

-2.9

$ 1471'
-3.9

$ 238

+0.8
+4.4

+8.0

-0.0

-4.1
+9.4

$ 318

+5.0
+ 12.0
$ 67
+8.1
+ 11.7
$ 169
+9.7
+8.3

147

+8.1

±19.1
+5.7

a Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. * Research Department of Seventh Fedi ral Reserve Bank (Chicago). Percentages rounded by source.
6 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending January 3, 1964, and January 4, 1963.

[11]

INDEXES OF BUSINESS ACTIVITY

1957-1959= 100

Illinois Historical Survey
416 Lincoln Hall

EMPLOYMENT - MANUFACTURING

ILL./

u s

# REVISED SERIES

AVERAGE WEEKLY EARNINGS

- MANUFACTURING

„*==-—■-■'

ILL_y^

U.S.

* REVISED SERIES

1961 1963 1963

1962 196

JAL AVERAGE

DEPARTMENT STORE SALES (ADJ.)

?***

ILL.

/■ '"' U.S.

z^-'y

COAL

PRODUCTION

150

ILL^

\ '-

U.S. \ £.

V~V"

50
0

1961 1962 1962

BUSINESS LOANS

CASH FARM INCOME

200

__^

=f=sTJ

100

~J *

N^1"

lW^

wf"

# REVISED
,1. I..I ,

SERIES

■•' :

1961 1962

52 1963

CONSTRUCTION CONTRACTS

/ K

J H

/OI.S.

ELECTRIC POWER F

PRODUCTION

v^v

\avV

^~V

ILL.^

7 '45 '53
ANNUAL AVERAGE

1962 1963

'37 '45 '53 '60

)62 1963

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN FEBRUARY

estimated at $11.5 billion annually after the two-step cut
becomes fully effective in 1965.

In addition to the lowered rates, other changes will be
of particular advantage to low-income taxpayers, working
mothers, the elderly, and those with sharply fluctuating
incomes.

The new law has tightened the provisions relating to
the treatment of dividend income, sick pay, casualty
losses, the aggregation of oil and gas properties, personal
holding companies, multiunit or chain corporations, and
profits of real estate speculators. The law also seeks to
limit or curtail abuses of stock-option plans and of provi-
sions allowing deduction of charitable contributions and
interest payments. Deduction of some state and local
taxes is no longer permitted, but those on gasoline, general
sales, property, and income are still deductible.

The production of steel continued its upward move-
ment in February and exceeded 2.3 million tons of ingots
in the final week. By the end of February, steel output
had been rising steadily for nine weeks ; except for two
short-lived interruptions, production has been increasing
since mid-August. Automobile manufacturers assembled
675,000 units in February, 12 percent above the February,
1963, level, and only slightly below the record set for
the month in 1955. The automotive industry surpassed its
year-earlier figures in each of the first six months of the
1964 model year. Most other major production series
showed only minor changes up or down. The Federal
Reserve Board index of industrial production rose 0.4 of
a percentage point to 127.6 (1957-59 = 100).

Capital Spending Plans Expanded

The latest report on anticipated business plant and
equipment outlays indicates a 10 percent rise in 1964
over 1963 to a new record of $43.2 billion. Railroads plan
the largest relative increase, 25 percent; manfacturing
firms expect their expenditures to be 13 percent greater,
with near-average advances for both durables and non-
durables. Other industries project increases in the 6 to
8 percent range.

The Department of Commerce-SEC report also raises,
by about a half billion dollars in each case, the figures
previously reported for the last quarter of 1963 and the
first quarter of 1964. The estimate for the fourth quarter
is now $41.2 billion and for the current quarter $41.25
billion. Projections for the second quarter have also been
raised, to $42.7 billion, and a further rise is expected in
the second half. The modest advance in the present quar-
ter is centered mainly in motor vehicles, nondurablcs, and
nonrail transportation.

Tax Cut Passed

The tax cut proposed early in 1963 by President Ken-
nedy was finally passed by the Congress and signed into
law by President Johnson on February 26. Rates for
individuals' incomes, which have ranged from 20 percent
to 91 percent, will drop to a range of 16 to 77 percent
this year and 14 to 70 percent in 1965. When the cut
becomes fully effective next year, individual tax liabilities
will average about 20 percent less. The corporation tax
rate, formerly 52 percent, declines to 50 percent for 1964
and 48 percent in 1965 and thereafter. The total reduc-
tion in tax liabilities for individuals and corporations is

Payments Position Improves Further

The fourth quarter of 1963 witnessed a further slight
improvement in our balance-of-payments position, accord-
ing to the Department of Commerce. As measured by
changes in monetary reserve assets, liquid liabilities to
foreigners, and foreign holdings of nonmarketable
medium-term convertible securities, the adverse balance
amounted to a little more than $200 million (seasonally
adjusted). This was about four-fifths of the third-quarter
deficit. Monetary reserve assets showed their first in-
crease since 1957, rising by $5 million. This small gain
included, among other items, another small drop of $38
million in our gold holdings and an advance of $58 million
in official holdings of convertible currencies.

Special government transactions again contributed to
the over-all improvement. Advances on military orders by
several foreign countries amounted to $175 million in the
final quarter. Without these advances, the seasonally ad-
justed deficit would have been $375 million, compared
with the third quarter's $410 million.

Among the "regular" transactions, the trade balance
rose by nearly $300 million as the result of an increase
of $250 million in merchandise exports and a drop of $40
million in imports. The trade balance was thus raised to
an annual rate of $5.7 billion, the highest in three years.
These favorable changes in the merchandise accounts
were largely offset by increases in bank loans to foreign-
ers, especially short-term loans. New issues of foreign
securities declined as a result of the proposed interest
rate equalization tax.

POPULATION, POLITICS, AND REDISTRICTING

By James T. Murphy

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

Outlook for Higher Education

The Master Plan For Higher Education in Illinois,
recently submitted by the staff of the Board of Higher
Education, projects college enrollment in 1975 at 499,000,
more than double the 243,000 enrolled in 1963. The heavi-
est impact of the trend to college study is just a few years
ahead. It will bring a crisis for the State because nobody
clearly perceives how teaching faculties and facilities can
be increased fast enough to meet the need.

This report confirms the findings of a whole series of
earlier studies of the problem, not only in Illinois, but in
many other states, as well as some covering the national
picture as a whole. Without an immediate mobilization
of resources on a planned basis, there will be failures,
varying in magnitude and duration, throughout the
country.

The situation has a demographic background in the
postwar baby boom. The college students of the 1950's
were mostly born in the 1930's, but in the late 1940's
births were about half again as high, and it is the teen-
agers of that period who are now coming to the age of
college entrance. By the mid-1950's, births numbered al-
most twice the low years of the 1930's and have continued
to edge upward during the last decade. As a result, the
number of college age youth will be increasing into the
early 1980's, regardless of any future changes in the birth
rate. In Illinois, the expected increase from 548,000 in
1963 to 847,000 in 1975 is 54 percent, just over half of the
expected rate of increase in college enrollments.

Economic Pressures for Higher Education

The other half of the increase derives from rising
rates of college attendance. In part this reflects the long-
term trend toward higher living standards and advanced
educational attainments. It has been stimulated, however,
by economic pressures of the last decade, which restrict
the opportunities of those who have not been able to
acquire the skills demanded as industrial technology be-
comes increasingly sophisticated.

The appeal of higher income, of greater personal
progress, has long been an inducement to college study.
Not all college students are successful, of course, but on
the average the life income of college graduates has been
double that of other workers. That college degrees still
open the door to opportunity is attested by the brief report
on this year's college recruiting plans on page L&

But now a sharper note has been added. To do things
that matter in the new environment of economic progress,
it is necessary to understand the whys and hows of getting
things done efficiently. The advanced knowledge that
makes this possible is not quickly gained. It requires a
heavy investment of time and money. Nevertheless, in-
creasing numbers have come to realize that such an in-
vestment is the only way to opportunity, and some who
have already made and lost a career are again renewing
their efforts because automation has rendered some of
their skills inadequate.

The threat of unemployment has also been spurring
the reluctant. Lack of training has come to mean not
just an inferior job, but no job at all. Unemployment is
focused sharply on the older workers and the young. Many
of the former who have been displaced may never again
find regular employment; compensation or pensions of one
kind or another must take care of their needs. Yet it is
the latter, still pliant and capable of acquiring essential
skills, who suffer the highest rates of unemployment. The
average rate of unemployment for teen-aged boys has
recently been about three times as high as for men over
25, and for those who did not complete high school it was
twice as high as for those who did. Newspapers, radio,
and TV have put the point across. But to afford all who
are capable of college work the opportunities they need,
the doors to institutions of higher education must be
opened.

A Growth Industry

Even from the narrowest economic point of view, ed-
ucation has been a progressive force in the postwar pe-
riod. Its growth has contributed to the expansion of
employment in an economy that has offered no net in-
crease in total jobs in the production and distribution of
goods. From 1960 to 1963, total employment increased by
roughly 2 million, and practically all of this was in service
occupations, divided about equally between private in-
dustry and state and local governments. Education ap-
pears in both parts of this expanding sector. Its impact
so far has been mainly at elementary and secondary school
levels, but it is now shifting to the colleges and universi-
ties. Higher education promises to be an outstanding
growth industry of the next decade.

Efforts to direct the location of this growing industry
have arisen everywhere. Youth in all communities need
college places, and local business prizes the benefits of the
facilities and staffs of new institutions. Local financing,
however, is seldom adequate, and even state resources are
limited in relation to the over-all magnitude of the task.

Part of the economic pressure that is creating the
need derives from the economic situation as a whole, and
since the welfare of the over-all economy is a national
responsibility, there is justification for asking the federal
government to assume part of the burden. Looked at
from this point of view, higher education should be not
only a growth industry but, given financing, a depression-
proof industry. In a decline, the need for its scholastic and
employment opportunities would become even more acute,
and its value as a remedy for unemployment would be
augmented. The problem of its financing would then more
definitely be a federal responsibility.

The aid-to-education programs put before Congress to
date have had something less than a warm reception, but
it will be harder to deny them year by year. Perhaps
President Johnson's war on poverty will give them new
thrust ; the complex but close tie between poverty and
ignorance can hardly be overlooked. vlb

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

HOBBY MODEL ASSEMBLY KITS

Model construction has had appeal since time imme-
morial. The activity provides the therapeutic effects of
relaxation and diversion, and it also produces the satis-
faction of accomplishment. The modeler enjoys some-
thing of the rewards felt hy the original designer and
builder, but without so many of the frustrations and diffi-
culties. It is, however, the amount of difficulty which the
modeler wishes to overcome that generally divides these
hobbyists into various classes.

From the commercial point of view, the success of
the hobby industry is closely correlated with the spread-
ing of leisure time among the population, the standard
of living, and the initiative of enough potential buyers to
want to make things for themselves. While the first two
necessary conditions are certainly being increasingly met,
doubt has been expressed about the third. The recent
experiences of that part of the hobby industry in Illinois
which makes assembly kits for cars, planes, and ships
suggest, however, that the presence and strength of the
last condition should not be underrated. Furthermore,
the trend in offering industrial arts activities up to higher
levels in the schools may have additional effects in the
future.

The increase in hobby activities is not limited to the
United States, and our local industry is participating by
making significant exports to a number of foreign coun-
tries. The best customers are Canada, Britain, Sweden,
France, Italy, Germany, Australia, South Africa, Japan,
and various South American countries.

Most of the customers are in the broad teen-aged
group of 9 to 18 years of age, with the bulk at the lower
end of the range, although it is estimated that adults
make up perhaps 25 percent of the market.

The Firms in Illinois

The State has an unusual concentration of companies
in the business of producing these assembly kits — Mono-
gram, Lindberg, Hawk, Comet, Carl Goldberg, and Top
Flite. They are all located in the Chicago area. The
exceptional vitality of the industry is indicated in aggre-
gate sales figures for these companies, which are now
approximately five times larger than they were 10 years
ago. Those firms making plastic model kits have enjoyed
greater growth rates — with cars the best sellers at pres-
ent— although there are signs that the popularity of
balsa-wood flying model airplanes is increasing again.

The retail value of Illinois products is in the order of
$30 million. Some 650 persons are employed, mostly
women. Some of the companies are able to buy much of
their supplies within the State, although at the other
extreme balsa wood must be imported from Ecuador.

At one time it was possible to start this type of firm
with little capital and modest quarters. Hawk started a
diminutive store in 1928 and Comet in 1929; Lindberg is
another prewar firm of 1933. Top Flite began in 1945,
Monogram started production in a residential basement
in 1946, and Goldberg Models came into being in 1953.
Today, however, extensive use of large automatic ma-
chinery is involved, such as the presses for polystyrene

plastic parts, and the set of steel dies and molds for a kit
commonly cost $25,000. Monogram is particularly large,
and now has a plant with 120,000 square feet of floor
space.

To design a kit and prepare the necessary dies may
take from three months to a year. The project starts by
working from drawings and photographs, by visiting li-
braries, examining full-scale originals, and then making
prototypes from which production models are developed.
The original manufacturers, government bureaus, Jane's
reference books, and magazine articles may all be utilized.
Balsa flying airplane kits present rather different prob-
lems from the static models, for the ultimate measure of
success for the buyer is whether the plane is airworthy.
Inasmuch as a dozen kits may be introduced each year, a
significant research and development staff is required.

The Products

Monogram, Lindberg, and Hawk produce plastic as-
sembly kits for cars, planes, ships, and other specialty
items. Between the products of these three companies a
person could build about 180 plastic non-flying airplanes,
80 automobiles, 60 ships and boats, 35 rockets and space
vehicles, and a half-dozen military vehicles. Even this
does not end the possibilities, for customizing kits permit
many additional variations.

The trend is also toward greater sophistication of
individual models. Many parts have chrome-plated or
aluminized finishes. Automobile models may have electric
drives operating through a differential, and possibly also
workable steering. Aircraft are obtainable with retracting
undercarriages, moving control surfaces, folding wings,
and opening bomb-bay doors. Electric motors in some
planes spin propellers, operate the undercarriage, and
release bombs. There is even a ground-effect vehicle
which moves on a cushion of air. Battleship models in-
tended for water operation may include electric motors
to elevate guns and rotate turrets and also to change
helm at the same time as they drive the propeller. A
highly successful innovation by one of these companies
is a series of weird figures, the appeal of which is ap-
parently irresistible to many although it is somewhat
elusive to others.

In flying aircraft, Comet, Top Flite, Carl Goldberg,
Lindberg, and Monogram together offer about 130 models,
the majority by the first three firms. These companies
generally follow prototypes, although Carl Goldberg spe-
cializes in its own original designs. Top Flite started
with propellers and is today the largest manufacturer of
propellers in the United States. Comet has a program
intended to introduce this type of model building more
strongly into therapeutic, school, and club activities.

Some see the future possibilities for this area of the
hobby industry limited only by the ability of firms to
introduce new features ; others place more emphasis upon
stable growth of the market. Whatever the future, how-
ever, the model kit of today is still one place where the
spirit of workmanship can find hours of real enjoyment
for a modest 50 cents or a dollar.

NOW YOUR STATE

t 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, December, 1963, to January, 1954

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

ION

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

laity adjusted. N.A. Not available

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

» 111. Dept. of Labor; 2 U.S. Bur. of Labor Statistics; 3 Life Ins.
Agcy. Manag. Assn.; 'Fed. Res. Bank. 7th Dist.; » 111. Crop Rpts.; a Fed.
Res. Bd.; ' F. W. Dodge Corp.; » Fed. Power Coram.; » 111. Dept. of
Mines; >° 111. Geol. Survey.

■ Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures. . . .

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings. .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Jan.

1964

Annual rate

in billion $

478.7"

438.0*
59 9.. b

21.8
17.8
15.6

7.5°

69. 2b
53.6°
42.5°
41.5°

Indexes

(1957-59

= 100)

128'

127"

128"

101
96
102
101

101
107

78d

Percentage
change from

Jan.
1963

-15.7

- 8.6

-14.1

+ 2.4
+ 7.0

- 7.4

- 1.0

- 0.3

- 6.1
-18.1

0.0

+ 0.2

- 0.2
+ 0.5

+ 0.1

- 2.0
+ 0.4

- 1.6

- 2.0

- 4.0
+ 0.1

+ 0.7

+ 3.2

+ 2.0

+ 0.1

+ 3.0

+ 0.9

+ 2.6

+ 10.3
+ 4.4

+ 13.2
+ 12.7
+ 14.4

+ 10.8
+ 11.8
+ 7.6
- 6.3

+ 6.7
+ 7.1
+ 6.4
+ 4.6

+ 1.8

0.0
+ 3.7
+ 3.7
+20.4
+ 7.1
+ 1.6

+ 0.5

- 2.2
+ 1.6
+ 0.6

0.0
+ 0.9

- 1.3

"U.S. Dept. of Commerce; ' Federal Reserve Board; 'U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; 5 F. \V. Dodge Corp.

a Seasonally adjusted. b End of month. c Data for December, 1963,
compared with November, 1963, and December, 1962. d Based on official
indexes. 1910-14 = 100.

UNITED STATES WEEKLY BUSINESS STATISTICS

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Retail sales mil. of dol

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. .1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,421

18,740

206

7,655
125.2
529

4,572

100.4
101.1

94.8

37,590
337

1,395
18,661

203
7,706

123.4

516
4,320

100.4
101.1
94.2

37,619
316

1,411

18,727

196

7,653
122.2
528

4,331

100.5
101.1
94.4

37,368
294

1,435

18,542

200

7,675
119.2
529

4,365

100.5
101.2
94.5

37,314
288

1,511
18,659

195
7,661

119.0

543
4,410

100.7
101.2
95.1

37,195
307

1,400
17,505

179
7,417

114.3

533
4,410

100.2"
100.6"
93.2

34,564
311

Survey of Cu

Business, Weekly Supplements.

a Monthly index for February, 1963.

[ 4 ]

RECENT ECONOMIC CHANGES

Revised Consumer Price Index

The Bureau of Labor Statistics has just issued an
improved consumer price index. The new index includes
a modernized list of consumer goods and services which
reflects the urban spending patterns for wage-earner and
clerical consumers in the 1960's. A significant change in
the index is the extension of coverage, now limited to
families of two or more persons, to include single per-
sons, in order to make it more representative of the total
urban and clerical-worker population. Prices are obtained
monthly from an up-to-date sample of cities, retail stores,
and service establishments.

In the new index, food has considerably less impor-
tance than in the old index, whereas weights for housing
and transportation are relatively larger. These changes
reflect shifts in consumer spending habits during the last
two decades. Preliminary estimates indicate that the CPI
climbed 0.1 percent in January to a new high of 107.7
(1957-59= 100).

Credit Expansion

During 1963 the amount of consumer credit outstand-
ing rose $6.7 billion to just under $70 billion. Since the
low of the last recession in early 1961, consumer debt has
risen nearly 30 percent. Total consumer expenditures
during this period have increased only 15 percent to $380
billion.

Throughout this period, as earlier, there has been a
close relationship between the increase in consumer debt
and the advance in durable goods sales, since such sales
are based mainly on the use of new credit (see chart).
The seasonally adjusted annual rate of extensions of new

CHANGES IN INSTALMENT CREDIT AND
CONSUMER DURABLES PURCHASES

(Seasonally adjusted annual rates)

BILLIONS OF DOLLARS

* Auto paper and other consumer goods paper.

Sources : Federal Reserve Board and U.S. Department

of Commerce.

instalment credit for autos and other consumer goods has
risen $10.8 billion and the annual rate of consumer dur-
able sales advanced $12.3 billion from the first quarter of
1961 to the end of 1963.

Even with the length of credit terms being expanded,
a lowering of down payment requirements, and longer
payment periods, there has been no noticeable rise in loan
defaults. By the end of the year the delinquency rate on
instalment loans was no greater than that recorded at the
end of 1962 or 1961 and was lower than that recorded in
late 1960 and early 1961.

Plant and Equipment Outlays

During 1963 capital expenditures by business firms
totaled $39 billion, 5 percent above 1963, according to the
Department of Commerce and the Securities and Ex-
change Commission. Plant and equipment purchases by
manufacturing firms reached $15.6 billion in 1963, 6.4
percent above 1962. Capital outlays by durable goods
manufacturers, which rose 11 percent during the year to
a total of $7.8 billion, led the way. Producers of iron and
steel accounted for 41 percent of this increase as their
expenditures rose $300 million during the year. Outlays
by nondurable goods producers also reached $7.8 billion
last year, 2 percent more than in 1962.

Among nonmanufacturing industries the railroads re-
ported expenditures of $1.1 billion in 1963, 27 percent
more than in the previous year; public utilities and com-
mercial establishments showed more moderate gains with
3 and 5 percent increases respectively.

Retail Sales in 1963

Total 1963 sales of all retail stores in the United
States amounted to $246.4 billion, $11 billion more than
in 1962. Sales of nondurable goods stores increased 4
percent over 1962 and sales of durable goods stores were
7 percent higher.

All the major kinds of retail establishments showed
gains, with the automotive group and the furniture and
appliance group recording the largest increases, 7 percent,
over the 1962 level. The general merchandise group rose
6 percent; eating and drinking places, 4 percent; and the
food group and the lumber, building, hardware, and farm
equipment groups were 3 percent higher. Within the food
group, fruit stores and vegetable markets showed the
largest advance, with a gain of 10 percent, whereas candy,
nut, and confectionery stores had a 5 percent decline.

Dividend Payments

Dividend payments of corporations issuing public re-
ports during 1963 amounted to $16.3 billion, a 7.3 percent
increase over the previous year, according to the United
States Department of Commerce. Advances occurred in
both the manufacturing and nonmanufacturing areas,
with 11 of the 12 manufacturing groups reporting in-
creases over 1962. The largest percentage gain in manu-
facturing was recorded by the automobile group, with a
30 percent increase to $1.4 billion in 1963; the only de-
cline was recorded by the iron and steel group, whose
dividend payments fell 8.5 percent from the 1962 total of
$671 million.

In the nonmanufacturing sector, the electric and gas
utilities and the railroads were the pacesetters, with the
former showing a 7.2 percent increment to a total of $1.9
billion and the latter a 6.9 percent gain to $377 million.

[ 5

TABLE 1.

POPULATION SHIFTS, 1870-1950

Year

Downstate
population
(Thousands)

Percent
of total

Cook

County
population
(Thousands)

Percent
of total

1870

2,190
2,470
2,634
2,983
3,233
3,432
3,649
3,834
4,203

86
80
69
62
60
53
48
49
48

350
608
1,192
1,839
2,405
3,053
3,982
4,063
4,509

1880

1890...

1900

1910...

38
40

1920...

1930

1940

19S0

52
51
52

POPULATION, POLITICS, AND REDISTRICTING

JAMES T. MURPHY, Legislative Staff Intern
Institute of Government and Public Affairs

Population mobility, political tactics to increase or
maintain party strength in legislatures, and the desire of
legislators to ensure re-election or otherwise enhance their
political careers are the fundamental ingredients of the
legislative redistricting issue. The problem is not peculiar
to Illinois, as the May, 1962, United States Supreme Court
decision, Baker v. Carr, and the subsequent chain of de-
cisions across the nation attest. It has, however, produced
greater consequences in Illinois than in any other state.

In redistricting state legislatures, especially in two-
party states such as Illinois, the stakes are high: party
control of one or both chambers of the legislature and
the careers of incumbent legislators. Because of Chicago-
Downstate antagonism and divided government — a situ-
ation wherein one or both of the legislative chambers is
controlled by one party and the executive by the other
party — Illinois failed to redistrict the House of Repre-
sentatives in 1963.

As an immediate result of this political impasse, Illi-
nois voters will be faced with an unprecedented at-large
election of the 177 members of the Illinois House of Rep-
resentatives on November 3, 1964. The usual biennial
election of 3 members from each district will not take
place. The entire State will be considered one representa-
tive district, and each voter, instead of voting for 1, 2, or
3 candidates, with cumulative voting, will have a maxi-
mum of 177 candidates for which he may cast one vote
each, and any votes not cast will simply be lost.

An at-large election of a state's lower house has never
occurred throughout the history of the nation. The Illi-
nois election dilemma resulted when the Governor and the
General Assembly failed to agree during the 1963 regular
session of the legislature. The Governor then appointed
a 10 member bipartisan commission to redistrict the
House. Unfortunately, the commission also failed. Al-
though redistricting has never before reached the conse-
quential proportions it has presently attained, it has been
a problem in Illinois since the turn of the century.

Development of the Problem

Prior to 1901, the Illinois House and Senate were re-
districted 14 times — more than once every 10 years since
1818. Illinois did not become the victim of malapportion-
ment, the disparity which may exist between a state's
constitutional provisions and the prevailing apportionment
in that state, until after 1901. The malapportionment
developed because Illinois senatorial districts, which were
the districts for both the House and Senate, were undis-
turbed between 1901 and 1955.

Until 1954, the basis of representation for both the
House and the Senate was population. The tradition of
popular representation on the "one man-one vote" basis
was deeply imbedded in Illinois history, and it is in this
tradition that the redistricting problem has its roots.

Besides providing for a popularly represented bicam-
eral legislature, the 1870 Illinois constitution provided for
mandatory decennial redistricting of the senatorial dis-
tricts. The apportionment formula required the districts
to be as nearly equal in population as possible, or as near
to the representative ratio attained by dividing the popu-
lation of the State by the number of senatorial districts
(51) as possible. This principle was closely adhered to

[6 ]

from 1870 to 1901, and the districts for Cook County were
in accord with the constitutional apportionment.

This, however, was prior to the marked shift in pop-
ulation from Downstate Illinois to Cook County, as shown
in Table 1, which reflected the rapid industrial develop-
ment of Chicago. The consequences of this population
shift are shown in Table 2. Note the increasing malappor-
tionment from 1910 through 1950 in Cook County and in
the remaining 101 counties of the State, or Downstate.

Chicago-Downstate Conflict

The population shift does not, in itself, account for the
54-year silent gerrymander — the gross representational
disparities caused by failure to redistrict decennially.
Rather, the growing concentration of people and wealth
in a small area gave rise to an adverse attitude on the
part of the previously dominant rural population. This
attitude helped produce a Chicago-Downstate conflict
which was, and is at present, paralleled by a political
conflict reflecting Chicago-Downstate loyalties. The
"urban-rural" conflict, although not unique to Illinois
politics, is more deeply rooted here than in the politics of
any other state. In Illinois, it consistently underlies the
usual ingredients of redistricting: population mobility,
political party survival, and the legislative interest.

This sectional antagonism found early expression in
the 1920 Constitutional Convention debates. The Chicago-
Downstate encounter in the convention resulted in a
compromise measure by which representation in the
House was to be based on population, and representation
in the Senate was to be based primarily on area, but it
was rejected in the 1922 general election. Note, however,
that this early proposal for basing the House on popula-

TABLE 2. MALAPPORTIONMENT, 1910-50

Number of districts

1910

1920

1930

1940

1950

Cook County

Constitutional

apportionment

Actual apportionment. . .

Downstate

Constitutional

apportionment

Actual apportionment. . .

tion and the Senate primarily on area anticipated the
1954 reapportionment amendment. The idea was as ac-
ceptable to the Republicans in 1954 as in 1922 because it
did not threaten to upset their control of the legislature.

Although the controlling Republicans apparently in-
tended to maintain the silent gerrymander, there were
other factors contributing to the malapportionment of the
legislature. The desire for change was by no means
unanimous in Chicago. For example, the professional
politicians and the business interests had worked out a
mutually satisfactory modus vivendi which alteration
would modify. Additionally, the Chicago "drys" feared
redisricting would bring about control by the "wets."
Also, of course, the legislature itself was reluctant to
redistrict since it would mean some sitting members
would have to surrender their seats.

Since the legislature would not redistrict itself, some
felt that adjudication would bring about a redistricted
State. But a series of court cases in the 1920's and 1930's
failed to effect relief from the malapportionment.

Growth of the Country Towns

By mid-century, a remedy was made possible by the
population growth of the strongly Republican Country
Towns, which include all of Cook County outside of the
1954 Chicago city limits. As shown in Table 3, the Coun-
try Towns gained relatively faster than Chicago and
Downstate from 1940 to 1960. Chicago experienced its
first absolute decrease in the 1950's, and a majority of the
Downstate counties were also declining. By 1950 the
rapidly growing Country Towns were underrepresented
and it seemed to the Republicans' advantage to redistrict.

Republican Governor Stratton felt, no doubt, that by
redisricting he could gain political advantage, both by
sponsoring a popular issue and by strengthening his party
in the state legislature. Chicago Democratic Mayor Daley
supported Governor Stratton. Under Governor Stratton's
strong leadership the redistricting issue was finally
brought to a head in the 68th (1953) General Assembly.
Since 54 years of silent gerrymandering had made it clear
that redistricting under the original constitutional provi-
sion was impossible, a reapportionment amendment was
offered to the electorate by the legislature and was adopted
in the 1954 general election.

The amendment (a) changed the basis of representa-
tion for the Senate from population to area, (b) increased
the number of districts in the House to 59 and in the
Senate to 58, (c) provided that the population of House
districts could not be less than four-fifths of the represen-
tative ratio, (d) made decennial redistricting of the
House mandatory, (e) "insured" mandatory redistricting
of the House by providing that in the event of legislative
failure to redistrict, a 10 member bipartisan commission
appointed by the governor would redistrict, and, if the
commission failed, an at-large election for the legislature
would result, and (f) divided the state into three areas,
Chicago, the Country Towns, and Downstate, for the pur-
poses of redistricting the House every 10 years, and the
Senate in 1955. House districts must be drawn within
the boundaries of the three areas; no "overlapping" is
allowed. Each area is apportioned House districts com-
mensurate with its proportion of the state's population.

Decennial redistricting and the four-fifths lower limit
population requirement were carried over from the orig-
inal constitutional provision. Otherwise, the amendment
is basically a reflection of the Chicago-Downstate conflict.
Insurance of Republican control of the Senate is the
effect of basing its representation on area. Republican

TABLE 3. RELATIVE POPULATION CHANGES

(Thousands)

Year

Chicago

Country
towns

Down-
state

State
total

1940...

3,397
3,621
3,546

667

888

1,584

3,834
4,203

4,951

7,897

1950....

8,712

1960

10,081

Senate margins have been as follows: 70th, 30-28; 71st,
30-28; 72nd, 30-28; and the 73rd, 35-23. (The basis of
representation in the Illinois Senate has been challenged
in Gcrmano v. Kerner, a case presently before the federal
courts.) The tripartite division reflects both the desire to
check the extension of the Chicago Democratic organiza-
tion into the suburban area and the recognition of three
distinct political interest areas within the State. Both the
urban and suburban areas are given assurance of proper
representation in the House.

The amendment specified that the House and Senate
were to be redistricted in 1955. The House was to be
redistricted in 1963 and each 10 years thereafter. There-
fore, the 69th General Assembly in 1955 redistricted both
the Senate and the House. At that time, Chicago was al-
lotted 23 districts, the Country Towns were allotted 7, and
29 districts went to the Downstate area.

Proposals Rejected in 1963

In 1953 and 1955, the governor was Republican and
the legislature was controlled by the Republicans. During
these years of unified government, both the House and
Senate were redistricted. In 1963, however, because
Illinois had a Democratic governor and a Republican-
controlled legislature, or a divided government, and be-
cause the population had shifted considerably since 1950
in favor of the Republicans, House redistricting was ren-
dered nearly impossible.

According to the apportionment formula, the apparent
allocation of districts for the three areas was as follows:
Chicago, 21 ; Country Towns, 9 ; Downstate, 29. Thus, it
appeared, Chicago was scheduled to lose two districts and
the Country Towns were scheduled to gain two districts.
Although Downstate was not to experience a loss of total
number of districts, the population in Downstate Illinois
had shifted substantially, which called for considerable
change of district lines within the Downstate area also.

The situation in Chicago is shown on the map on page
8. The city is strongly Democratic (districts marked "D").
A strong Democratic district has returned 2 Democrats
and 1 Republican to the House in each election since the
1955 redistricting. The reverse is true for strong Repub-
lican districts (marked "R"). The lightlv shaded districts
(11, 12, 17, 20, 21, 28, and 29) are all below the four-fifths
requirement, and the loss of two districts will presumably
be focused on this central area.

The Country Towns, scheduled to gain 2 districts
even though Districts 3 and 4 are below the four-fifths
requirement, are sources of real Republican gains. All
arc strongly Republican except District 5 and it has
strong GOP leanings. District 6 has grown enough to
become 2 districts.

A general south-to-north population shift is apparent
in the map of Illinois, which shows that 8 Downstate
districts are below the four-fifths requirement. Three of
these districts are Republican (40, 45, and 51) and 1 is
Democratic (57) ; the other 4 are swing districts. The

[7]

only other Democratic district is 52, and the only other
swing districts Downstate are 39, 46, 47, 53, and 54. Note
also that Districts 31 and 36, Republican strongholds,
both qualify for two districts. At the very least, the
Republicans could gain 4 safe seats in these two districts,
while at most losing 2 and perhaps none at all Downstate.

The Republicans in the House, who controlled by a
90-87 margin, passed a partisan bill which the Republican
Senate approved. The bill would have provided nearly
100 safe Republican seats in the House if adopted. But
owing to the intra-party struggle, highlighted by individ-
ual legislators attempting to secure their political futures,
the bill contained questionable population disparities (as
great as 112 percent) among the new districts. Thus,
Governor Kerner was offered an opportunity to exercise
the veto. If the Republicans had negotiated a bipartisan
bill, they might have been ensured both gubernatorial ap-
proval and a House Republican majority until 1973.

The Republican decision to pass a partisan bill through
the legislature allowed the Democrats to employ the veto,
the only weapon at their disposal in endeavoring to sal-
vage some party strength in the House. Since the legis-
lature had adjourned, a veto meant that a redistricting
commission would be appointed. A commission of 5 Re-
publicans and 5 Democrats offered more favorable odds
to the Democrats than they had in the legislature.

No Solution in Sight

Aside from the professional politicians, the supporters
of the 1954 reapportionment amendment generally viewed
the measure as a guarantee for redistricting. The threat

of a commission to redistrict the House in case the legis-
lature's plan were rejected, and the threat of an at-large
election in the event of a commission's failure to redistrict
the House, were generally considered sufficient to effect
decennial redistricting by the legislature. But the 1963
experience seems to indicate that the amendment does not
guarantee that redistricting will occur decennially. What
the 1963 experience does seem to indicate is the possibility
of relatively frequent at-large elections until a constitu-
tional redistricting is effected.

The chances of a constitutional redistricting in 1965
will be enhanced if the electorate returns a unified gov-
ernment. If, however, a divided government is returned,
the chances of a redistricted House in 1965 will be seri-
ously hampered. Since Republican dominance in the
Senate seems assured, a unified government can only be a
Republican government. Therefore, given the relatively
high degree of party competition in Illinois, the tendency
to have divided government is strong.

Perhaps it can be said that as long as the House is
based on population and the Senate primarily on area,
and the population continues to shift, Illinois will con-
sistently experience acute redistricting difficulties. It ap-
pears that if the chances of unified government were
increased, the chances of redistricting would also be in-
creased. At the present time this would involve changing
the basis of representation in the Senate to population.
But as long as the Chicago-Downstate conflict underlies
the redistricting issue in Illinois, it is mere daydreaming
to anticipate any change in the Senate's basis of repre-
sentation short of federal adjudication.

REPRESENTATIVE DISTRICTS, COOK COUNTY AND ILLINOIS

^T" |33

-■ ■ r I R

i?Hr

37l —

j 40 ,

38b-
R j

□ district must be changed
because its population is
under 4a of the representa-
tive ratio.

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Congressional District Data Book

The United States Department of Commerce has just
issued a new edition of the Congressional District Data
Book. This 603 page book lists the latest political, eco-
nomic, and social information for every congressional dis-
trict. For each district the book includes over 200 items
concerning population, housing, births, deaths, marriages,
bank deposits, veterans, agriculture, business, and indus-
try. All of the districts are grouped by states and the
statistics are accompanied by maps showing the districts,
counties, and important cities and towns. This book may
be obtained for $4.75 from the United States Government
Printing Office, Washington, D. C. 20402.

College Recruitment

The National Industrial Conference Board has just
released the preliminary results of studies of the current
employment outlook for 1964 graduates. Findings from
the Endicott, Midwest College Placement Association, and
College Placement Council surveys indicate that both the
demand for graduates and the salaries to be offered them
will reach new highs.

The major problem facing recruiters, according to
these surveys, is the increase in the number of students
who are continuing their education in graduate school.
An ever increasing number of college graduates who rank
high in their graduating classes are going on for further
education. With many of the more able students entering
graduate schools, companies are recruiting more among
holders of graduate degrees. One survey reports that
company quotas for persons holding masters' degrees are
up 32 percent this year over 1963.

All the surveys indicate that the average salaries for
most types of occupations will increase this year over

FARM-RETAIL SPREAD IN FOOD PRICES

Source : U.S. Department of Agriculture.

1963, particularly in technical areas. The average begin-
ning monthly salary for a person with an engineering de-
gree will be about $610. For accounting the starting
salary is expected to be $530, and for sales and general
business administration graduates about $500. Other fields
will vary according to the demands placed on the partic-
ular firm for new persons, but the average salary for
technically trained individuals will probably be between
$590 and $620 and for nontechnically trained persons
about $100 a month less. Persons with masters' degrees
are being offered between $80 and $90 more per month.

Mortgage Debt Increases

Mortgage debt outstanding on one-to-four-family
homes reached $185 billion by the end of 1963, a $45 bil-
lion increase since the end of 1960. This form of debt is
now equivalent to 45 percent of disposable personal in-
come. Gross new mortgage debt financing totaled $26.4
billion in 1962. A growing amount of mortgage money is
being used to buy existing homes; this share has risen
from 29 percent of total new mortgage debt in 1956 to
39 percent in 1962.

In addition to the increase in borrowing on existing
homes, the value of mortgages contracted for the pur-
chase of new homes has continued to rise since 1959 de-
spite a decline in the value of new construction of one-to-
four-family homes. This narrowing gap between the
value of new residential construction and the issuance of
mortgages on new housing units seems to reflect a decrease
in down payments and an upward trend in land prices.

Along with this rise in mortgage activity in the last
three years has gone a rapid rise in personal saving. Be-
cause of the increased volume of saving, mortgage inter-
est rates have tended to decline. The credit expansion
induced by the rise in sales of existing homes utilizes the
savings, but some of the funds produced do not go back
into housing but may be used for the purchase of automo-
biles, major appliances, and other goods and services.

Cost of Food

The difference between the retail cost for farm-
originated food products and their farm value was 4
percent greater in 1963 than in 1962. This increase was
the largest since 1958 and was twice the average annual
increase in the last decade. Much of the increase came
when prices farmers received for beef decreased 6.5
cents a pound while retail prices fell only 1.4 cents. In
addition prices received by growers of oranges lagged
behind rising retail prices of processed orange products.

Part of the reason for this increasing difference be-
tween farm value and retail cost since 1958 (see chart)
is the rising cost of labor and of fixed costs such as state
and local taxes. An example of the influence of labor
costs can be seen in the average retail price of bread,
which was at an all-time high of 21.6 cents in 1963, 40
percent higher than the 1957-59 average. The output per
man-hour by production workers in the baking industry
rose less than their hourly earnings and output per man-
hour by nonproduction workers declined.

Farmers received only 37 cents of each dollar con-
sumers spent on farm-originated food products in retail
food stores last year, 1 cent less than in 1962; this was
the smallest share farmers have received since 1934.

[9]

LOCAL ILLINOIS DEVELOPMENTS

Bank Debits Rise in 1963

The total bank debits of 15 major metropolitan areas
in Illinois rose to $298 billion in 1963, an increase of 9
percent over the total of $274 billion for 1962 (see chart).
Monthly totals, all of which exceeded those for corre-
sponding months of the previous year, ranged from $21.2
billion in February to $29.1 billion in December.

Champaign-Urbana and Aurora, with increases of 11
and 10 percent respectively, showed the largest gains.
Increases of more than 6 percent were shown by Danville,
Elgin, Springfield, Alton, Quincy, Moline-East Moline-
Rock Island, and Peoria. Bank debits in the other cities
rose by smaller percentages, except in East St. Louis,
where they declined by 1.7 percent.

1 964 Highway Program

The 1964 Illinois Primary Highway Improvement Pro-
gram announced recently by Governor Otto Kerner is
expected to be one of the largest programs of its kind in
the history of the State. An estimated $295 million is to
be spent. Of this, $203 million is designated for interstate
and $92 million for non-interestate highway projects.

The interstate highway program comprises construc-
tion and improvements for 468 miles of highway, includ-
ing 93 miles of new construction, 92 grade separations,
and 11 new bridges. Right-of-way is to be acquired for
334 new interstate highway miles. Emphasis is being
given to the completion of sections within the system,
including Interstate 70 in the East St. Louis and Vandalia
areas; Interstate 74 in the Bloomington and Champaign
areas; Interstate 80 at Rapids City in Rock Island County;
and the completion of the Southwest Expressway (Inter-
state 55) in the Chicago metropolitan area.

With respect to the non-interstate highway program,
emphasis is being put on modernization of the existing

CHANGES IN BANK DEBITS, 1962 TO 1963

CHAMPAIGN- URBANA
AURORA

NTACE CHANGE

Source : Federal Reserve Board.

system. Improvements, as listed for 462 highway miles,
include 123 miles of new construction, 69 new bridges,
and 37 grade separations. Right-of-way is to be acquired
for 678 miles of new non-interstate highways.

Automobile Insurance

According to Thomas F. Reynolds, the manager of the
Illinois Insurance Information Service, estimated over-all
automobile insurance payments as shown for 24 principal
Illinois-based companies reached a new record level of
$250 million in 1963. This figure shows an increase of 4
percent over 1962 payments of $240 million. The affiliated
companies insure three-quarters of the 4 million privately
registered cars in the State. In 1963, various upward rate
adjustments were far outweighed by a higher frequency
of highway deaths, accidents, and injuries and by conse-
quent increases in claims and incurred physical damage
losses.

Growth in Savings and Loan Activity

The Illinois Savings and Loan League reports that
the state's 477 insured savings and loan associations have
achieved considerable growth. The combined assets of
federal and state associations totaled $9.6 billion, at the
end of 1963, an increase of more than 10 percent over the
year-before figure.

Despite a large decline that took place in July, a
year-end advance of $783 million was shown for net new
savings. This gain exceeded that shown for 1962 by 4.5
percent.

An increase of nearly 8 percent was shown for total
reserves and surplus, which reached $586 million. Here,
however, higher taxes caused a slight decline in the ratio
of reserves and surplus to savings capital.

Mortgage lending, at a volume of $1.8 billion, showed
a gain of about 4 percent over the previous high level
set in 1962. Loans for new construction declined by
nearly 4 percent in 1963, but this loss was more than
compensated for by increases in home purchase and other
loan categories.

Finally, liquid assets rose by about 10 percent to $907
million, showing a ratio of 11.3 percent to savings capital.

Area Resource Development in Illinois

Rural Area Development committees, sponsored by the
Area Resource Administration on a nationwide basis, are
organized in 37 counties of Illinois. Federal assistance
funds are directed to areas which have unemployment
rates of 6 percent or more and where unemployment con-
ditions are persistent. Over 6,000 jobs have been added
to the Illinois economy as a result of federal aid received
during the past two years.

Specific undertakings for which both federal and
local sources of financing are sought are technical assist-
ance projects; the development of new industries and the
expansion of existing industries; improvement of the
agricultural economy, as through the development of
watershed projects; development of public facilities; and
job training and retraining programs. At present, nu-
merous projects have been established in all of the organ-
ized counties. In addition, over-all economic development
plans have been prepared and approved for federal assist-
ance in 6 counties. Similar plans are being prepared for
the remaining organized counties. To date, federal in-
vestment in Illinois projects has totaled $3.8 million.

[10

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
January, 1964

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000,000 kwh)

Estimated
Retail
Sales3

(000,000)

Depart-
ment Stoi
Sales'

Bank
Debits5
(000,000)

Percentage change from.

(Dec.
'(Jan.,

NORTHERN ILLINOIS
Chicago

Percentage change from. . . . {j^ •' lg63
Aurora

Dec, 1963.
an., 1963.

Percentage change from. . . jj^1 lg^j
Elgin

Percentage change from. ... ,
Joliet

Percentage change from. . . . L*^ 1963
Kankakee

Percentage change from. . . . {j.^' 1963
Rock Island-Moline

D , t (Dec, 1963.

Percentage change from. . ■ \jan./ 1963.

Percentage change from. . . . jj^"' 196j '_'

CENTRAL ILLINOIS
Bloomington .

{Dec 1963
Ian 1963
Champaign-Urbana .

Dec, 1963.
1963.

(Dec, 1963.
(Jan., 1963.

/Dec, 1963.
(Jan., 1963.

Percentage change from ...A tJ~£''
Danville

Percentage change from
Decatur

Percentage change from
Galesburg

Percentage change from
Peoria

Percentage change from. . . lj^' 196}
Quincy

Percentage change from
Springfield

Percentage change from

(Dec, 1963.
\Jan., 1963.

(Dec, 1963.

Jan., 1963.

(Dec, 1963.
Jan., 1963.

SOUTHERN ILLINOIS

East St. Louis

Percentage change from.
Alton

(Dec,
\jan„

Percentage change from. ... ,. L" ,q, ^

Belleville

Percentage change from. . .

(Dec, 1963.
\Jan„ 1963. .

$98,260"
+ 157.7
+266.3

$90,069

+277.7

+439.9

$ 777

+ 76.2

+23.7

$ 867

+ 129.4

+755.8

$ 489

-89.0

-90.7

$ 207

+44. 8

+475.0

$ 349

-49.2

+27.4

$ 1,657

+17.9

+38.1

$ 360

+29.5

+429.4

$ 188

-67.6

+487.5

$ 229

-11.6

-69.5

$ 467

+20.7

+130.0

$ 25

-96.4

+92.3

$ 628

-60.3

-45.3

$ 170

-79.8

+261.7

$ 1,303

+211.7

+69.0

$ 89
-91.4
+29.0

$ 136
+97.1

+257.9

$ 250
+ 17.2
+30.9

,519 0»
+3.6

+3.7

,114 9

+3.6
+3.1

73. 1°

+14.0
+6.6

14.6

+0.0
-8.2

23.9
+4.8
+ 16.0

21.3
-7.8
-2.7

44 9
-1.3
+ 5.4

13 7
-0.7
+18.1

77 7°
+2.6
+9.6

18 1
+ 7.1
+ 7.7

52.0
+0.0
-2.3

19.5

+4.3
+6.0

28.6
+ 10.0
+4.0

16 7
+5.0
+8.4

-57
+12

-63

+ 13

$28,333"

-2.5
+ 10.8

$26,477
-2.8
+ 11.1

$ 105
+2.9
+ 15.4

$ 63
-0.0
-1.6

$ 111
+8.8
+8.8

$ 150b

+2.0

+ 10.3

$ 241

+ 1.3
+9.5

108
+0.0
-1.8

112
+3.7
+1.8
62
+5.1
+ 1.6

147
+5.0
+2.1

307
-3.5
+8.1
65
-3.0
+0.0

183
+8.3
+9.6

144
-2.0
+2.1
58
+3.6
+5.5

" Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. * Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. 4 Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending January 31, 1964, and February 1, 1963.

[11]

Illinois Historical Survey
416 Lincoln Hall

INDEXES OF BUSINESS ACTIVITY

■■

1957-1959 = 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

\ /

ILL. /

* REVISEC

SERIES

ILL^/

U.S.

PREVISED SERIES

1962 1963 1964

ANNUAL AVERAGE

'61 19 62 1963

DEPARTMENT STORE SALES (ADJUSTED)

CASH FARM INCOME

200

T*+

■pjAs

100

\ i

r^z-

\llv

50
0

BUSINESS LOANS

CONSTRUCTION CONTRACTS

ft i

150

f*/*

IA0

f \i

J H

,LL>~J

U.S.

* REVISED SERIES

/U.S.

ELECTRIC POWER

3RODUCTION

Vwy^

kfo

IL>

COAL

PRODUCTION

ILL./

\ ,

1962 1963 196

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN MARCH

For the most part business indicators were steady or
up a little in March. Steel output, about the only excep-
tion, leveled off early in the month but rose again during
the second half of March to a rate of 2.4 million tons of
ingots a week. This was the highest level reached since
mid-June, 1963. The pace of automotive production was
somewhat slower than in February, but assemblies for the
month still exceeded 723,000 units, 12 percent more than
in March, 1963. Outputs of electric power, petroleum,
and gas were little changed. Paper and paperboard
production was steady or up slightly. Freight carloadings
continued at about the level of February. The Federal
Reserve Board's index of industrial production rose an-
other half point from 127.7 to 128.2 (1957-59 =100).

Record Car Sales and Inventories

Sales of American-made cars continued at a record
pace in March with the delivery of nearly 680,000 new
cars, 4 percent more than in March of 1963. Last month's
sales also surpassed the previous March record set
in 1955. General Motors and Ford deliveries were 5 per-
cent above last year's level; Chrysler had a 13 percent
advance. However, American Motors trailed considerably
behind its March, 1963, showing.

Stocks of new cars on April 1 stood at 1,205,000, after
an increase of 30,000 during the month. This level was
a fifth higher than that of a year earlier. The large
stocks do not, however, appear to be causing any great
concern, partly because of booming sales and partly be-
cause of possible work stoppages.

Construction on the Upgrade

Preliminary estimates of the Department of Com-
merce indicate that construction activity rose somewhat
more than seasonally in March. An increase of 7 percenl
between February and March is expected, but the advance
this year amounted to about 9 percent. The gain over
March, 1963, was 12 percent. The value of new building
totaled $4.7 billion, equivalent to a seasonally adjusted
annual rate of $67.0 billion, a new record.

Private construction accounted for $3.3 billion, not
quite 1 percent above the February level after seasonal
adjustment. The largest categories, nonfarm residential
building and nonresidential construction, showed above-
average gains, but these were partially offset by fractional
declines in farm and public utility building activity. All
except one class of private construction showed substan-

tial increases over March, 1963; farm construction was
off from the year-earlier figure by 3 percent.

The value of public building activity exceeded $1.3
billion, and after adjustment, was 4 percent higher than
in February.

New Antitrust Decisions

Two recent decisions by the United States Supreme
Court are expected to have widespread effect on future
corporate mergers. In both cases the Court declared un-
lawful mergers which had been approved by federal reg-
ulatory agencies. In its finding on a bank merger case,
the Court held that the elimination of significant compe-
tition between major competitive factors in the relevant
market violated Section 1 of the Sherman Act. The two
banks, after merger, had more than half the commercial
banking business in their area. In the other case, two
natural gas companies which were potential competitors
in California had merged. The Court held that the
merger violated Section 7 of the Clayton Act, barring
mergers that may substantially lessen competition.

In the first case, the banks had depended on a 1948
decision by the Supreme Court which indicated that fac-
tors other than the size of a merged company should be
considered. In the current decisions, the Court held that
the 1948 decision must be limited to the special facts of
that case. It is expected that as a result of these deci-
sions, companies contemplating merger will scrutinize
much more carefully the antitrust aspects of their situa-
tions. Regulatory agencies may also be more reluctant
to approve mergers.

Consumers Increase Instalment Debt

The nation's consumers added $579 million (seasonally
adjusted) to their outstanding instalment debt in Febru-
ary, the largest increase since September, 1959. The ad-
vance is equivalent to an annual rate of nearly $7 billion,
well above 1963's record ^5.7 billion ; it was also substan-
tially larger than the average of 1963's first quarter,
which was the highest of the year. All types of instalment
credit contributed to the February expansion. Credit on
consumer goods other than automobiles showed the largest
relative growth, $183 million to $13.5 billion. A rise of
$237 million in automobile debt to $22.3 billion reflected
the continuing strong demand for cars. Personal loans
rose by $144 million. The total of instalment debt out-
standing was $53.55 billion at the end of February.

ARE RETAIL FIRMS OVEREXPANDING?

By Richard M. Hill

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzf.ll

Director Executive Editor

Research Assistants

Robert C. Carey M. A. S. Blurton

Virginia G. Speers Giselle Chesrow

The Nature of Unemployment

Economic policy is marking time to see how the ef-
' — " fects of the tax cut will work out.

Confident in a job well done is the Council of Eco-
nomic Advisers, which was primary sponsor of the tax
cut. The current, strong upsurge in activity, with contin-
uing stability of commodity prices, affords seeming con-
firmation of its views on policy and the outlook. It wants
no upset of a winning strategy.

Also keeping close tabs on the situation is the Federal
Reserve Board, which is edgy about the adverse balance
of payments, interest rate increases abroad, and potential
inflation. The Fed is ready to act if tighter money seems
appropriate but so far has merely let interest rates creep
upward slowly and allowed net free reserves to drift
toward the zero point in the first quarter of 1964.

The seasonally adjusted rate of unemployment has also
drifted downward a little, but the current 5.4 percent of
the civilian labor force is still above the low for the
current recovery recorded in 1962. Oddly enough, this
failure of unemployment to show greater improvement is
consistent with the views of both the Council and the Fed.

Debate About Structural Unemployment

Chairman Heller of the Council has advocated over-
all economic expansion as a way of reducing unemploy-
ment. In his view, much of the unemployment is just the
ordinary variety that results when production falls, as in
a recession, or when the labor force grows more rapidly
than the demand for labor, so that there are not enough
jobs to go around. But it would take at least two years
of rapid growth in the economy to bring unemployment
down to the target rate of 4 percent, and he did not ex-
pect much in the first month of the tax cut.

Chairman Martin of the Fed, on the other hand, has
argued that much of the unemployment is structural,
meaning that the location and skill characteristics of the
unemployed workers do not match the location and skill
requirements of the available jobs. Insofar as this has
been the case, the unemployed workers could not be em-
ployed, and if the new pattern of location and skill re-
quirements prevail in an upswing, they could not be
employed even then. Hence, the main effect of any over-
all expansion brought on by fiscal measures would be
inflationary, and unemployment would continue high.

Some advocates of the "structural" view have argued
that we could not even have rapid expansion, because the
lack of an adequately trained labor reserve would leave
too many jobs unmanned. This is in all probability the
acid test of the structural unemployment hypothesis,
namely, that production should actually be held up by lack
of the right kind of manpower. If so, it is a test for the
future ; for there is no evidence to date that any signifi-
cant volume of production has been lost anywhere because
of labor shortages at any level of skills.

For the time being, an inescapable deficiency of the
structural thesis lies in its static character. The idea
necessarily rests on a comparison of the structure of the
unemployed, specified by location, age, sex, color, train-
ing, education, and other relevant characteristics, with
the structure of job vacancies, similarly specified. Unfor-
tunately, realistic job vacancy data are lacking, so the
point is impossible to test. In any case, such point-of-time
comparisons can give only limited indications of what
brought about the existing situation and even less about
how it is likely to change in the future.

Dynamic analysis is needed to explain how unemploy-
ment may persist even when production is rising, and the
dynamic approach indicates that technological unemploy-
ment is the real source of the difficulty. Since the workers
displaced may be unacceptable for other jobs, or unwilling
to accept inferior jobs, some of the unwanted workers
will be seeming victims of structural unemployment; but
technological change produces not merely structural un-
employment, but also just plain ordinary unemployment.
Considering the problem in terms of the over-all influence
of technological change on employment opportunities
leads to the conclusion that the whole controversy about
structural unemployment is misdirected.

Mechanisms of Technological Unemployment

Technological advance has implications both for
growth and for instability. From a long-run point of
view, its important effect lies in making production more
efficient. Costs and prices tend to be lowered ; consumers'
income may be partly diverted to purchases of other
goods and services; new opportunities for employment
open up, and the resulting growth of the market raises
the real income of the whole community.

At the outset, however, there are necessary adjust-
ments in production and employment, and these disturb
the even course of development. The improvement in
efficiency is typically obtained by installing machines that
displace men, and the cost saving is a saving in wage
income. There tend to be some, but only partial, offsets
to the wage loss ; so the decline in income depresses con-
sumer expenditures, there is a reduction in demand for
other products, and the loss of jobs may be aggravated.
Only in the absence of these deflationary effects could it
be said that technological unemployment is wholly struc-
tural in character.

The possible resolution of these conflicting tendencies
may at any moment be in doubt. Time is needed for
prices to be lowered, for purchases to shift, for new lines
of production to be expanded. Time is also required for
workers to find other jobs, move to new locations if
necessary, and acquire new skills. For a while, growth
cannot be at a maximum, and unemployment of both
kinds is experienced. Stimulants for economic growth
may then be applied; but if productivity rises rapidly, it
will tend to reconstitute a high level of unemployment
(Continued on page 8)

[ 2

ILLINOIS INDUSTRIES AND RESOURCES

DECATUR — A GROWING CITY

The changes taking place in the city of Decatur com-
prise both an example of the sort of problems which can
befall such an urban area and also what can be done about
solving them.

The city is located in a pleasant, flat area of rich
farmland, very close to the geographical center of the
State. It is a city which has enjoyed fairly steady growth
over the years — the population in 1910 was 31,000, and
today the urban area includes about 90,000. The future
is rather more challenging, however, for by 1980 this
population is expected to grow to 120,000. A significant
characteristic is that the actual labor force projected will
be 46,000, which is very little changed from the present
figure and is partly a reflection of the expected effects
of automation.

The city itself presents a not unexpected mixture. A
downtown which has both good stores and attractive lay-
out is being surrounded by unbecoming areas. Many of
the older sections are not well-maintained, but new devel-
opments are occurring in the suburbs. Some areas have
pleasant parks, but others do not. Lake Decatur, which
was formed by damming the Sangamon River in 1922,
provided a magnet for industry in the form of adequate
water supply; but it is now being destroyed by silting
which has been aggravated by changes to soybean and
corn crops in the surrounding farmland.

A further important influence for the city has been its
location on four major railroads. The Wabash has also
been a significant employer, although dieselization has
attenuated this. It also provides an important mainline
service, linking Decatur with Chicago, Detroit, and St.
Louis, which has assisted the city in gaining increased
importance as a supplier in the automotive industry. Ad-
ditional transportation services are provided by Ozark
Air Lines and good long-distance bus services.

Industry

The main base of industry in Decatur used to be the
processing of soybeans and corn to produce syrups,
starches, and chemical products. The most important com-
pany in this area was Staley Manufacturing. In addition,
there were certain specialist metal-product companies,
such as Mueller, which supplies most of the nation's fit-
tings for service connections to water and gas lines. The
inexpensive ready-to-wear washable-dress industry also
started here just before the turn of the century.

During the second World War some new defense
plants were located in Decatur, and this has had a lasting
effect. Food processing is no longer the leading activity,
its place having been taken by national firms in metal
products. The result is that exports have become even
more important in the economic life of the city, which is
now very closely tied to the fortunes of the construction
and automobile industries.

Some of the large companies which have moved in
include Caterpillar (tractors and graders), Borg-Warner
(automatic transmission equipment), General Electric
(control equipment), and Firestone. There are now over
100 plants of various sizes in the urban area, and it is

expected that expansion in the manufacturing of durable
goods will continue. The observed trend is to a labor
force of which something like 30 percent are in manufac-
turing, 20 percent in trade, 12 percent in business and
service, and the remainder in a variety of other categories.

The Future

The city of Decatur has become increasingly aware of
the fact that the future does not automatically take care
of itself. Planning has been attempted in the past but has
not always been carried through sufficiently. Plans were
produced in 1920 and again in 1938, with the latter being
revised in 1957. An over-all highway plan was prepared
in 1952 and subsequently revised. This highway planning
has assumed increasing importance as there is a notice-
able increase in the use of truck transportation by newer
firms locating on the periphery.

Decatur has long had a mayor-and-commissioners form
of government, and more recently effectively established
the posts of city manager and city planner. By endowing
adequate authority to professional staff and by choosing
the right people and properly supporting them in their
plans, the city is obtaining a better understanding of its
problems and a better chance of overcoming them.

More research has been carried out to discern the real
workings of the city — of the people from whom it is
created. One such project was a study of the aged, and
another examined the in-and-out migration of population,
which was felt to be a matter of some concern. Some
concrete projects have been undertaken, such as trans-
portation experiments in cooperation with the bus system.
An over-all long-range downtown plan is now being made,
and the provision of an additional 3,000 off-street parking
spaces is under discussion.

By the early 1970's the nearby Oakley Dam and Reser-
voir should be completed. This will re-establish an ade-
quate water supply for industry in the future, and the city
and the State are cooperating in a joint development pro-
gram. The surrounding area could become an important
recreational facility for the entire central Illinois region
and further strengthen the economy of Decatur.

Current plans for construction of private plants and
buildings run to $33 million, and private housing will
likely total $10 million for 1964. Investment in public
works is generally higher than in other comparable cities,
and current highway and sewer improvements total over
$6 million.

Decatur has long drawn both employees and buyers
from surrounding areas. The labor force includes many
living within a 25 mile radius, and annual retail sales of
$170 million indicate it is a leading retail center for the
region. The strength of the city will grow as the present
program of voluntary annexation of adjacent areas
continues.

The potential for further development is apparent
from the changes of the past few years. That Decatur
expects to meet the future is apparent from the growing
participation and strength of citizen groups and the posi-
tive actions of the city administration.

KNOW YOUR STATE

[ -5 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, January, 1964, to February, 1964

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts'

Electric power8

Coal production9

Petroleum production10

Feb.
1964

(1957-59
= 100)

96.8
120.6"
105.7
134.0
119. 0b

94 0
140.3

92.9
127.2
113.0

87.2

Percentage
change from
Jan. Feb.

1964 1963

- 7.1

- 0.6

- 0.1
+ 5.9
+ 4.4

- 1.1
-17.7
-20.6

- 7.3
-12.9
-11.3

+ 0.8
+ 3.5
+ 0.6
+ 16.0
+ 16.7

- 3.1
+ 10.2
+48.2
+ 6.1
+ 5.8

- 2.5

Dept. of Labor;

Bur. of l.nliur Si

Life

Agcy. Manag". Assn.; 4 Fed. Res. Bank, 7th Hist.; » 111. Crop Rp

Res. Bd.; ' F. W. Dodge Corp.; "Fed. Power Comm.; » 111. Dept. of

Mines; 10 111. Geol. Survey.

» Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Percentage

Feb.

change from

Item

1964

Ian.

Feb.

1964

1963

Annual rate

in billion $

478.3"

+ 0.0

+ 5.6

Manufacturing1

Sales

435 . 6"

- 1.1

+ 6.8

60.1»b

+ 0.2

+ 4.2

New construction activity1

Private residential

19 7

- 8.9

+ 10.7

Private nonresidential

17.3

- 3.9

+ 13.7

Total public

14.2

- 9.5

+ 12.4

Foreign trade1

Merchandise exports

25. 3<

- 2.3

+ 108.5

Merchandise imports

17. 5C

- 5 0

+30.3

Excess of exports

7.8°

+ 4.5

Consumer credit outstanding2

68 8b

- 0 6

+ 11.0

53.6"

- 0.1

+ 11.9

43. lb
41. 5°

+ 1.5
+ 0.1

+ 8.2

- 1.4

Indexes

(1957-59

Industrial production2

= 100)

128"

+ 0.3

+ 6.2

Durable manufactures

128"

+ 0.4

+ 6.5

Nondurable manufactures. . .

129"

+ 0.2

+ 6.3

107"

- 0.4

+ 2.6

Manufacturing employment4

101"

+ 0.4

+ 2.1

Factory worker earnings4

Average hours worked

101

+ 1.3

+ 0.8

Average hourly earnings

117

0 0

+ 3 3

Average weekly earnings. . . .

119

+ 1.3

+ 4.1

Construction contracts5

148

+ 27.5

+46.2

Department store sales2

n.a.

Consumer price index4

108

- 0 1

+ 14

Wholesale prices4

101

- 0.5

+ 0.3

- 1.9

- 2.1

101
101

- 1.6
0 0

+ 0.4

+ 0.7

Farm prices3

Received by farmers

- 2 0

- 1.0

107

0 0

+ 0.9

77.1

- 1.3

'U.S. Dept. of Commerce; 'Federal Reserve Board; 3 U.S. Dept.
of Agriculture; 'U.S. Bureau of Labor Statistic; ''' Y. W. Dcidcie Cur;..

» Seasonally adjusted. b End of month. c Data for January, 1964,
compared with December, 1 9 1. 3 . and January, 1963. J Based on official
indexes. 1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1964

1963

Mar. 28

Mar. 21

Mar. 14

Mar. 7

Feb. 29

Mar. 30

Production:

Bituminous coal (daily avg.)

Electric power by utilities

Motor vehicles (Wards)

Petroleum (daily avg.)

Steel

Freight carloadings

.thous. of short tons

mil. of kw-hr

number in thous

thous. bbl

.1957-59 = 100 .

thous. of cars

1,458
17,972

199
7,571

129.2

528
4,968

100.5

101.2
94.2

38,172
299

1,419
18,140

198
7,592

126.8

537
4,708

100.5

101.2
93.9

38,137
289

1,315
18,240

197
7,626

124.3

521
4,511

100 6
101.2
94 4

37,507
306

1,318
18,226

194
7,631

124.1

518
4,477

100 4
101.2
94.0

37,599
300

1,425
18,740

206
7,655

125.2

529
4,583

100.4
101.1
94.8

37,590
337

1,474

16,425

189

7,478
128.1
559

4,822

Commodity prices, wholesale:

.1957-59 = 100

1957-59 = 100

.1957-59 = 100

mil. of dol

99.9"

Other than farm products and foods

100.6"
92.1

Finance:

Business loans

35,208
329

Survey of Current Business, Weekly Su/flements.

■ Monthly index for March, 1963.

[ 4

RECENT ECONOMIC CHANGES

Consumer Instalment Credit

With the cyclical advance in consumption expendi-
tures, especially in durable goods, new consumer instal-
ment credit has been rising. Instalment credit outstanding
at the end of 1963 totaled $54 billion, an increase of $5.7
billion or 12 percent over the previous year. This com-
pares with an increase of $4.5 billion in the preceding 12-
month period, and $700 million in 1961, which included
part of the last recession and only the earliest stage of the
recovery.

The rate of increase in personal income was only 5.3
percent last year; thus consumers are continuing the post-
Korean War trend of expanding their debt faster than the
increase in their income. However, there are significant
differences between the rate of debt accumulation in this
last upward movement and in the two previous recoveries.
The increase in debt in 1962 was not so rapid as that
which occurred in either 1955 or 1959, despite a signifi-
cantly higher level of personal income. On the other hand,
in 1963 there was not the rapid tapering off that occurred
in 1956 and 1960, and the average monthly change in debt
outstanding increased slightly in the first three months
of 1964.

Plant and Equipment Outlays

Businessmen expect a continued rise in purchases of
new plant and equipment during 1964, according to the
Department of Commerce. An over-all increase of 10 per-
cent is projected (see chart). If this expectation is real-
ized, purchases of new plant and equipment will reach a
new high of $43.2 billion for the year.

If these plans are completed, the present investment
expansion will have lasted three and one-half years. Such
continued advance would exceed that recorded in 1955-57

CHANGES IN CAPITAL EXPENDITURES

3N,

ANTICIPATED

BUSINESS

1 >

63 ACTUAL

:::::::xj l36,:

ACTUAL

-■

MANUFACTURE

COMMERCIAL A
COMMUNICATIO

wmmmm

TRANSPORTATI
INCL. RAILROA

)

PUBLIC

UTILITIES

:i-l

. i

PERCENTAGE CHANGE FROM PRECEDING YEAR

Source : U.S. Department of Commerce.

in duration and would show about the same degree of rise
as measured in physical volume though not in current
dollar terms. The investment programs now outlined for
1964 will provide a substantial stimulus to business activ-
ity. Most directly affected will be the equipment-producing
industries and their suppliers, where the inflow of new
orders has increased to record levels in the past six
months. In addition, the cut in individual and business
tax rates will tend to increase the over-all demand and
aid in completing investment projects in process.

Gold Situation

During 1963 gold output in the Free World reached
the highest level on record, about 39 million ounces valued
at $1.3 billion. Of these enlarged supplies, $520 million
moved into the monetary stocks of governments and
central banks; the arts, industry, and private holdings
took $780 million.

In the same year the United States gold stock declined
to its lowest level since 1939, but at $15.5 billion it was
still about 39 percent of the world's total monetary gold
outside the Soviet Union. However, last year's decline
was the smallest since 1958, only $465 million as compared
with $911 million in 1962. The reduction was brought
about in part by new forms of international cooperation
worked out by the United States Treasury and the Federal
Reserve Board.

As in earlier years, the rise in world gold output was
attributable to further gains in South African production
(which accounts for 70 percent of world output) through
the development of new mines and improved technology.
Canada, the second largest gold producer in the world,
mined only $138 million worth, 5 percent less than in 1962,
despite the rise in the Canadian dollar price of gold
brought about by devaluation in May, 1962. Russia's gold
output is not known but Western observers place it at
$350 million to $600 million a year. Russian gold sales
during the year were estimated to be approximately $400
million.

Housing Activity

In 1963 private nonfarm housing starts reached 1.6
million units, continuing the recovery that began in early
1961. This recovery has been spread over the entire
country with no one region showing outstanding gains.
A significant aspect of the present advance is that it has
increasingly focused on apartment building. Multi-
family units started rose 23.5 percent last year. Single-
family housing starts, though up about 1 percent last
year, are still running about 20 percent below the peak
1959 total of 1.2 million units. Multifamily starts, how-
ever, have risen 105.8 percent since 1959 to a total of
581,900 units. This pattern of growth in housing starts
has applied to all regions but particularly to the Pacific
Coast area, where the number of multifamily starts is
roughly the same as single-family starts.

Automobile Output

Automobile output continued to support the growth of
business by accounting for 20 percent of the over-all rise
in the gross national product during 1963. According to
the United States Office of Business Economics, the value
of passenger car output was about $24 billion, 12 percent
(Continued on page 8)

t 5 ]

ARE RETAIL FIRMS OVEREXPANDING?

RICHARD M. HILL, Associate Professor of Marketing

One of the most dramatic developments during the
postwar period has been the expansion of retail shopping
facilities. Almost without exception our larger cities
have become ringed with shopping centers which include
hundreds of new retail outlets. This expansion has been
prompted by a growing population, rising per capita in-
come, and increasing reliance on private automobiles.
Personal consumption expenditure has doubled in the last
quarter of a century and our most prosperous middle-class
families have moved to the suburbs. These developments
have not only prompted a spirit of optimism among retail
merchants, but have forced an expansion on all who
wanted to share the fastest growing markets.

Investment in Retail Trade

While physical evidence of the growth in retail facil-
ities can be seen in every locality, there is little in the
form of statistical evidence which adequately portrays
its extent. Some notion of the rate and magnitude of the
expansion, however, can be gained from the amount of
investment in depreciable assets and land by corporations
in retail trade. Investment in depreciable assets (build-
ings and fixtures) tripled between 1948 and 1961. Invest-
ment in land nearly doubled over the same period (see
Table 1).

The rate of increase in depreciable assets from 1958
to 1961 has been slightly more than $750 million a year.
Investment in land has increased by about $33 million a
year during this period. These average increases were
almost one-fourth higher than in the preceding four years.
Because of the increasing base, the percentage growth
rate in the total advanced more slowly, from 5.0 percent
per year to 5.3 percent.

Investment in inventory also increased over $750
million a year from 1958 to 1961. This was more than
double the average increase for the 1954-58 period
(Table 2).

Growth in Numbers and in Failures

However one may react to these data, they suggest a
fundamental question. How many retail stores are really
needed to adequately serve a nation of 200 million people?
The answer in general terms can be provided by almost
any college sophomore who has taken a basic economics
course. In our system the people decide how many retail

TABLE 1. INVESTMENT BY RETAIL
CORPORATIONS

(Millions of dollars)

Total depreciable assets

and land

Depre-

Year

ciable

Land

Average

assets

Dollar
investment

rate of

increase

(Percentage)

1948

5,544

687

6,231

1954

10,872

987

11,859

16.6

1958

13,354

1,095

14,449

5.0

1961

15,693

1,196

16,888

5.3

TABLE 2. INVENTORY INVESTMENT
(Billions of dollars)

Year

Average
end-of-month
book value

Average rate
of increase
(Percentage)

1954

22.2
24 0
26.8

1958

1961

1.9

3.7

Source: Survey of Current Business, Annual Review Num-
bers, 1955, 1959, and 1962. Series prior to 1954 not comparable
with later period.

stores we should have by their willingness to patronize
them. So long as new stores are added and all or most of
them can continue to make an acceptable profit, there is no
economic waste involved. Under these conditions, the
expansion of retail facilities might be justified on grounds
that consumer demand for their product offerings is suffi-
cient to more than cover the cost of making them avail-
able.

Data seem to indicate that the expansion to date has
been justified. Business failures in retail trade have been
reduced to a rate of increase of less than 1 percent a year,
and the proportion of retail failures to total retail estab-
lishments has been less than 1 percent a year throughout
the postwar period. It thus appears that the consuming
public has given retailers a resounding vote of approval.
(See Tables 3 and 4.)

An examination of the failure record in retail trade
nevertheless reveals some ominous tendencies. The num-
ber of retail failures has continued to increase absolutely.
Although there have been some deviations, the upward
trend of failures in retail trade which began in 1945 has

TABLE

3. BUSINESS FAILURES

, 1948-62

Year

Number of
failures

Number of

retail

establishments

(Thousands)

Percentage of

all retail
establishments

1948

2,185
5,491
7,514
7,552

1,770
1,722
1.78S
1,828

0.12
0.32

0.42

1962.. .

0.41

Source: Ibid., 1949, 1955. 1959, and 1963.

TABLE 4. LOSSES TO CREDITORS OF

BANKRUPT FIRMS, 1948-62

(Millions of dollars)

Source: U.S. Treasury Department, Statistics of Income,
Corporation Income Tax Returns, 1948, 1954, 1958, and 1961.

Sources: Ibid.; Statistics of Income, op. cit.
n.a. Not available.

[ 6 ]

never been reversed. The number of retail failures more
than tripled from 1948 to 1962, a period during which the
number of retail establishments increased by less than 15
percent.

Losses to creditors of retail businesses have increased
more than eight times since 1948, from $40 million to $350
million (1962). The fact that even the $350 million loss
to retail creditors in 1962 represented less than 1 percent
of the total liabilities of retail merchants does not lessen
the significance of such a loss experience. Data are not
available to put the loss in percentage terms for 1948, but
there was a steady rise in this percentage from 1954 to
1962.

The trends in retail failures are approaching a level at
which the risks from adding new outlets can increase
sharply. If retail failures should reach significant propor-
tions of the total number of retail outlets and total retail
liabilities, it would be evident that the expansion of retail
outlets had been exceeding the number which consumers
were willing to support.

Sales per Store Leveling Off

A particularly significant change of another kind has
been occurring since 1948. The rate of increase in the
average size of the retail store has been declining, giving
evidence that a trend which has continued since 1935 may
be coming to an end. Since the mid-1930's the average
size of the retail store has been increasing as the efficiency
of larger units became more apparent. However, the
increase in retail sales has not kept pace with increases
in the number of retail outlets. This slowing of the in-
crease in sales per store has been especially noticeable
since 1954 (Table 5).

It is possible, of course, to place more than one inter-
pretation on the leveling off of the upward trend in the
average size of retail outlets. The typical suburban shop-
ping center, which has demonstrated its popularity, is
generally composed of one or two large stores surrounded
by a cluster of smaller, more specialized outlets offering
complementary rather than directly competing merchan-
dise. Coupled with this has been a reaction of the con-
sumer against shopping in mammoth sales floors with its
attendant inconveniences of having to search for desired
merchandise, jostling by crowds, and the impersonal at-
mosphere of self-service — which is so often associated
with the large outlets. It can be argued, therefore, that the
slowing of the increase in sales per store merely reflects
a change in retail merchandising as retailers seek to cater
to the suburban shopper with smaller, more personalized
outlets.

TABLE 5. RETAIL SALES AND
ESTABLISHMENTS, 1935-62

TABLE 6. CONSUMER EXPENDITURES
AND RETAIL SALES, 1948-62

(Billions of dollars)

Year

Retail

sales

(Billions

dollars)

Retail
estab-
lishments
(Thou-
sands)

Average
sales per

estab-
lishment
(Thousands
of dollars)

rate of

increase

in sales-size

(Percentage)

1935

1939

1948

1954

1958

1962

34.8
42.0
130.5
170.0
199.6
235.3

1,587
1,770
1,769
1,721
1,788
1,827

20.6

23.8
73.8
98.7
111.6
123.3

10
209
34
13
10

Sources: Statistical Abstract of Die United Slates, 1963, p.
965; estimate of number of retail establishments in 1962 by
Bureau of the Census.

Expenditures

Retail sales

Retail

Year

Total
amount

Per-
centage
change

Amount

Per-
centage
change

as per-
centage
of ex-
penditures

1948

1954

1958

1962

178.8
236.5

293.2
355.5

+32
+ 24
+ 21

130.5
170.0
199 6
235.3

+30
+ 17
+ 18

70
72
68
66

Source: Survey of Current Business, op. cil.

On the other hand, advances in retail sales have shown
a tendency to lag behind increases in personal consump-
tion expenditure (see Table 6). Personal consumption
expenditure has increased 98 percent since 1948 while re-
tail sales have increased 80 percent. Although this is not
an alarming discrepancy, it is significant that the propor-
tion of personal consumption expenditure spent in retail
stores has been receding from a high point reached in
1954. This should give pause to retail planners whose
optimism is based on projections of personal consumption
expenditure. The service industry is becoming competi-
tive with retail trade as the consuming public is beginning
to show some preference for services over goods.

Another disturbing tendency has been the behavior of
retail profits. Expense and income data are not available
for partnerships and proprietorships in retail trade prior
to 1954. However, profit data for retail corporations,
which account for the major share of all retail sales, show
14 years of continuous decline in relation to sales. (See
Table 7.)

The only alternative in the face of declining profit
margins is to increase sales volume. Yet growth in aver-
age sales per store has been declining. The "pinch" in
which retail corporations find themselves is indicated by
the contrary behavior of their total sales and average
profits. Although sales of retail corporations have more
than doubled since 1948, the average profit margin in 1962
was less than one-third of its value in 1948. This is partly
the effect of price behavior. Services have been in in-
creasing demand and their prices have been put up while
retail prices of commodities have been fairly steady.

Conclusion

In view of these tendencies, it becomes pertinent to
ask whether demand for the convenience of additional
retail stores may be approaching a point of satiation be-
yond which there is likely to be a severe weeding out of

TABLE 7. NET PROFIT OF RETAIL

CORPORATIONS, 1948-62

(Millions of dollars)

Year

Net profit

Sales

Net profit

as percentage

of sales

3,347
2,330
2,287
2,152

55,564
82,237
105,010
132,437

5.8

1954. .

2.8

1958

2.2

1.6

Source: Statistics of Income,

[ 7 ]

the weaker merchants. If present trends continue, there
is some likelihood that consumer demand will not support
so much retail trade and the number of outlets may have
to be shrunk. Since an investment in store buildings and
fixtures is not a short-run undertaking, those who plan
such investment must anticipate demand for these facili-
ties for a long period into the future.

Present indications seem to forewarn that a time is
approaching when investment in retail facilities should
concentrate on the modernization and improvement of
existing facilities rather than the net addition of new-
facilities. The alternative would seem to be a bitter com-
petitive struggle as firms compete for survival in a market
they have collectively overestimated. While the resulting
price reductions might delight consumers, losses to cred-
itors could be substantial. The recent reduction in taxes
may serve to salvage the situation if it produces increased
spending at retail. Reversing a trend, however, is rather
difficult.

Recent Economic Changes

(Continued from page 5)
higher than in 1962 and 38 percent greater than in 1961.
In addition, auto product reached a record $26 billion at
a seasonally adjusted annual rate during the final quarter
of 1963.

The current models set new records for the first
quarter of the 1964 model year with production at an
annual rate of about 8.0 million cars (see chart). During
the 1963 model year (October, 1962- September, 1963)
manufacturers assembled a record total of 7.3 million new
cars. On a calendar-year basis, output of domestically
produced cars during 1963 was 7.4 million units; this was
exceeded only by the 1955 total of 7.9 million cars.

CAR OUTPUT AND IMPORTS

(Selected peak model years)

IMPORTS
INTERMEDIATES

i STANDARDS

Source : U.S. Department of Commerce, Survey of Cur-
rent Business, February, 1964, p. 6.

The Nature of Unemployment

(Continued from page 1)
despite the increase in production. The period of transi-
tion then becomes semipermanent, and there always
appears to be some "structural" unemployment.

The disturbing effects of rising productivity do not
necessarily stop with the slowing of growth. Too rapid a
displacement of workers may leave consumer markets
sufficiently out of balance with industrial capacity to pro-
duce a slowdown in business investment. This may result
in recession, which tends to become cumulative, and then
the unemployment from insufficient demand predominates.
If the decline in investment becomes severe enough, it
will slow the growth in productivity, and even the
research from which the new technology derives may be
curtailed.

Complaints About Automation

The worker who has been displaced has no thought of
any such extreme economic threat when he complains
about "automation." He is not concerned either with the
philosophy of growth or with complications of fiscal and
monetary policy but only with his own difficulties in ob-
taining employment that returns an adequate income.

Similarly, technological changes have been undermin-
ing the position of the labor unions for at least a decade.
The decline in production workers relative to manufactur-
ing production has been more than one-fourth in the last
10 years. Although the actual production-worker decline
has been offset by increases in nonproduction workers,
the latter are mostly technical, professional, executive,
and other salaried employees who are not members of
the unions. The loss in union membership and the inabil-
ity of displaced union members, especially older workers,
to find other employment creates a critical situation for
union leadership.

Faced with this situation, labor has sought in despera-
tion for measures that could reduce the excess of unem-
ployment. Many of the union proposals are clearly ex-
pansionary— extension of social security, expanded public
works, higher incomes for the poverty-stricken, with as-
sistance for similar programs abroad, and a truly national
employment service, with better facilities for testing,
counseling, retraining, and relocating workers. The "war
on poverty" has already been included in a small way in
the federal budget for fiscal 1965. Measures of the last
type are in use in other industrial countries.

Other proposals, such as the 35-hour work week, have
controversial aspects, but past experience affords at least
some warrant for the idea that the long-term decline in
working hours may have been a significant part of the
complex of adjustments necessary to re-establish growth
against the inroads of technological displacement. Presi-
dent Johnson has requested that further studies of the
question be made. He takes the reasonable position that
the logical way to look at labor's proposals is to regard
them as possible solutions of problems with which labor
has a great deal of experience.

The demands of organized labor for new programs to
overcome the effects of technological unemployment are.
in the present circumstances, quite forthrightly self-
seeking in that the unions would certainly benefit from
them. With some minor exceptions, such as the requests
for tariff protection by some unions, other groups would
also gain from any increase in real national income. A
detached appraisal of the situation indicates that on the
whole the benefits to the unions would be incidental to
those realized by the community as a whole. VLB

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Multiple Jobholders

According to the latest national survey of multiple
jobholders conducted by the Department of Labor, 3.9
million persons held two or more jobs in May, 1963. This
number was 18.2 percent greater than a year earlier and
represented the first substantial increase since 1956.

Persons whose primary jobs were in agriculture, pub-
lic administration, education, or mining were more likely
to hold an extra job than those in any other industry
group and most of the second jobs were concentrated in
trade and service industries or in self-employment. Pro-
tective service workers, professional and sales workers
(other than retail trade), farmers, and craftsmen had the
highest rates of multiple jobholding.

The increase in the number of persons holding two
or more jobs has raised the question of whether these
extra jobs could be made available for unemployed
workers. However, nearly all dual jobholders work rela-
tively few hours at their second jobs, averaging only 13
hours a week. In addition, many such secondary jobs are
of short duration or are available only intermittently.
Even if all of these second jobs were available for the un-
employed, other problems would have to be overcome.
There would have to be a matching of jobs usually held
by men or by women, a willingness for unemployed
workers to relocate geographically, and the necessity for
the unemployed to have the skills or physical abilities to
fill the available jobs.

The jobless worker would not often be able to step
into the supplemental occupations of 1.6 million persons
because these positions have been created by the workers
for themselves or because of stringent job requirements.
Another 1.3 million were self-employed as farmers, pro-
fessionals, or businessmen, and the unemployed would
lack the required training, experience, education, or
finances. The remaining 1.0 million persons were employed
in professional, technical, or managerial employment and

FARM POPULATION AND OUTMIGRATION

MILLIONS PERCENT

Departments of Labor and Commerce.

it is highly improbable that many of the unemployed in
other occupational categories could meet the training
qualifications necessary.

Pensions for Salaried Workers

A recently completed study by the Bureau of Labor
Statistics indicated that pension plans for salaried em-
ployees are more advantageous than those for production
workers. They tend to provide a greater range of benefits
(such as earlier retirement, investment opportunities, and
death payments) and larger benefits for the same earnings
and service levels. However, salaried-employee plans fre-
quently require employee contributions, stipulate more
restrictive participation requirements, and provide for
more involuntary retirement than is the case with pro-
duction-worker plans.

The study also pointed out that participation by a
salaried worker is not necessarily automatic but depends
on such factors as required minimum period of employ-
ment, age requirements, and minimum salary reached.
Basically, pension plans for salaried workers require that
such workers be 25 to 35 years of age, have 6 months to
5 years of service, and receive at least $4,200 to $4,800 in
annual wages. In addition, some plans, by requiring the
completion of a specified length of credited service, pre-
vent newly hired older workers from qualifying for the
pension — either by not crediting service after a specified
age or by automatically retiring all employees at a speci-
fied age.

The companies studied place company and employee
contributions in trust funds or in purchased annuities to
be paid each worker at retirement. Generally trust funds
were administered by either a bank or a trust company
or were underwritten by an insurance company.

Rural Population Changes

For over a century farm people have been moving to
urban centers and to nonfarm jobs. This shift has acceler-
ated in the last two decades. Of the country's 54 million
rural residents 75 percent do not now live on farms and
30 percent of the male workers in farm areas work pri-
marily in nonagricultural jobs.

In 1960 only 67 percent as many people were employed
in agriculture as in 1860 but these 4.7 million persons pro-
duced more than enough food, feed, and fiber to meet the
needs of six times as many people. Increased produc-
tivity through technological advances, larger farms, and
well-paying jobs in the urban areas have all influenced the
population movement away from the farm.

Another factor contributing to the movement has been
the persistently high fertility rate in the rural population.
The Department of Agriculture has estimated that the
rural population would have risen by 11 million during
the 1950's instead of falling by 500,000 if it had not been
for migration to the cities and the spread of cities into
the rural areas. Between April, 1940, and April, 1962, the
net migration from rural areas totaled over 23 million
(see chart) but the population fell by only 16 million dur-
ing this period because of a natural increase of about 1
person for every 4 or 5 who left the farm. The persons
who have left the rural areas are predominantly young
adults, and the remaining population is heavily weighted
with persons in their nonproductive years.

[ (> )

LOCAL ILLINOIS DEVELOPMENTS

Electric Power Consumption Up in 1963

Electric power consumption for 14 Illinois metro-
politan areas totaled 17.6 billion kilowatt-hours in 1963,
an increase of 5.8 percent over the previous year's level of
16.6 billion kilowatt-hours (see chart). For the entire
State, approximately 49 billion kilowatt-hours were con-
sumed in 1963, also an increase of nearly 6 percent over
1962. For the nation, electric power consumption rose to
a total of 914 billion kilowatt-hours, a gain of more than 7
percent over 1962. These figures do not include electricity
produced by private industrial utilities.

Electric power consumption rose in all of the cities
shown. The increase of 14.3 percent for Champaign-
Urbana reflected, among other things, the entry of a new
425,000 square-foot Kraft Foods plant into the area in
April, 1963. Significantly large increases were realized
also by Galesburg (13 percent), Rock Island-Moline-East
Moline (12 percent), Belleville (11 percent), Danville
(10 percent), and Decatur (10 percent). Gains exceed-
ing 6 percent took place in Bloomington, Rockford, Peoria,
and East St. Louis. In the other cities, electric power
consumption rose by smaller percentages, the smallest
rise being 3.3 percent for Alton.

Hospital Construction Projects

Since the beginning of 1964, Governor Otto Kerner
has announced a number of new hospital construction pro-
jects, located largely in central and southern Illinois. The
total value of the projects is estimated at $3.8 million.
A large proportion of these funds is to come from the
federal government through the Public Works Accelera-
tion Act.

A new 45-bed Union Hospital, costing slightly over $1
million, is to be constructed in West Frankfort. Other

specific projects include $935,000 for the construction of a
central dietary facility at the Illinois School for the Deaf
at Jacksonville ; $336,000 for an addition to the Pinckney-
ville Community Hospital; $329,000 for the construction
of the University of Illinois Rehabilitation Center at
Champaign-Urbana ; and $305,000 for the construction of
an all-faiths chapel and other improvements at the East
Moline State Hospital. Allocations have also been made
for additions and other improvements for the Memorial
Hospital in Mattoon; the Anna State Hospital; the Rich-
land Memorial Hospital in Olney; the Carlinville Area
Hospital; and the Kankakee State Hospital.

Prospective Crop Plantings

The United States Department of Agriculture reports
that Illinois farmers plan a very slight increase in total
crop acreage for 1964. Plantings are expected to com-
prise 20.8 million acres, a gain of less than 1 percent over
the previous year. Increases in acreages for corn, soy-
beans, and wheat are expected to be partially offset by
declines in oats and hay.

Corn plantings are expected to come to 9.4 million
acres. This is an increase of 2 percent over both 1963 and
the 1958-62 average, but is 10 percent below the high set
in 1960. For soybeans a record of 5.8 million acres is
anticipated, up 3 percent from 1963 and 11 percent from
the 1958-62 average. The estimate of 1.9 million acres for
winter wheat shows an increase of 5 percent over the pre-
vious year. The wheat crop is in good condition in nearly
all areas of the State.

Oat acreage is expected to be at its lowest level since
the 1870's, down 13 percent from 1963 and 26 percent
from the five-year average. Hay acreage is to be 4 per-
cent less than in 1963 and 9 percent below the 1958-62
average.

INCREASES IN ELECTRIC POWER
CONSUMPTION, 1962 TO 1963

-URBANA

GALESBURG

■ ^M

mm®

£3

:---;-— —.'-

: y. h

i^n

PERCENTAGE INCREASE

Sources : Local power companies.

Movement of the Meat-Packing Industry

Beginning in the early 1950's, major meat-packing
companies have undertaken to locate slaughter operations
away from Chicago and closer to supply sources in
smaller centers in Illinois and in other areas of the nation.
This trend reflects new developments in motor transporta-
tion and the existence of strong upward wage pressures
in the city area.

This major industry movement continues to create a
significant unemployment problem in Chicago. About
1,100 or approximately 5 percent of the 23,000 stockyard
workers who were displaced are still registered with the
Illinois State Employment Service. Owing to limited
educational background, lack of transferable skills, and
the fact that a large percentage of them are in the over-40
age bracket, these workers are difficult to place in jobs.

At present, ten packinghouse companies maintain
slaughter operations in the reduced yards area. These
operations have been greatly modernized and consolidated.
The number of firms processing and packaging meat pro-
ducts in the city area has increased from 172 firms in
1957 to 182 firms in 1963, but operations are highly auto-
mated and relatively small numbers are employed.

Other Illinois communities have benefited from the
movement of the industry. In 1962, slaughtering plants
were opened in the Sterling-Rock Falls area, Momence,
and Rochelle. In addition, plans to build new plant
facilities in Bureau Junction and Monmouth were an-
nounced early this year.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
February, 1964

Building

Permits1

(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales'

(000,000)

Depart-
ment Store
Sales1

Bank
Debits5

(000,000)

r, t u i flan- 1964

Percentage change from VFeb., 1963

(Jan., 1964.
IFeb., 1963.

NORTHERN ILLINOIS
Chicago

Percentage change from
Aurora

Percentage change from. . . . j]^* ^
Elgin

Percentage change from. . . jpgu''
Joliet

19o4.
1963.

(Jan., 1964.
'(Feb., 1963 .

{Ian 1964
Feb'.', 1963'

Kankakee

Percentage change from .

Rock Island-Moline

Percentage change from .

Rockford

Percentage change from .

/Jan., 1964.
\Feb., 1963.

(Jan., 1964.
\Feb., 1963.

CENTRAL ILLINOIS

Percentage change from .
Champaign-Urbana

iFeb.,

/Jan., 1964.

Percentage change from .... ||?£_' 196j-

Danville

flan 1964
Percentage change from. . . . jp^ lg63'

Decatur

Percentage change from {pe'h 19hV

Galesburg

Percentage change from. . . . jp^ 1963'
Peoria

Percentage change from
Quincy

Percentage change from. . . . |]^' ^3
Springfield

Percentage change from

Jan., 1964.
Feb., 1963.

/Jan., 1964.
(Feb., 1963.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from .
Belleville

/Jan., 1964.
(Feb., 1963.

(Jan., 1964.
\Feb., 1963.

(Tan 1964
Percentage change from. . . |Feb' 19W"

$26,737"
-6.9

$18,703
-79.2
+25.0

$ 490
-36.9
-S3. 5

$ 316
-63.6
+45.0

$ 752
+53.8
+26.4

$ 217
+4.8

+382.2

$ 399
+14.3
+32.6

$ 1,263
-23.8
+27.2

$ 240
-33.3

+63.3

$ 1,138

+505.3

+2,131.4

$ 120

-47.6

+57.9

$ 388

-16.9

+ 167.6

$ 202

+708.0

+2,785.7

$ 486

-22.6

-73.2

$ 267

+57 . 1

+251.3

$ 501

-61 6

-92.0

$ 34

-61.8

-17.1

$ 1,072

+688.2

+ 1,065.2

$ 149

-40.4

+60.2

1,519.8"
-3.4

+2.4

1,093.8
-1.9

+ 1.3

51. 3b

-6.4

+16.1

69.7°

-4.7
+5.4

13 8

-5.5

-11.5

22.7

-5.0

+12.9

22 2

+12.9

+1.8

46.6

+3.8

+10.7

13 3

-2.9

+6.4

58.9°

-24.2

-15.5

16 8

-7.2

+ 7.0

49 7

-4.4

+3.8

18 4
-5.6
+2.2

26.7
-5.6
+4.7

15.9
-4.8
+1.9

-2
+21

+ 12'
+25'

+ 13
+20

$23,319»
-17.7
+ 10.2

$21,683
-18.1
+ 10.0

$ 91
-13.3
+18.2

$ 55
-12.7
+ 17.0

$ 97
- 12 . 6
+ 12.8

$ 137b
-8.7
+ 16.1

$ 230
-4.6

$ 96

-11.1

+ 10.3

$ 102

-8.9

+ 12.1

$ 54

-12.9

+3.8

$ 139

-5.4

+ 13.0

$ 264
-14.0
+ 11.9
$ 56
-13.8
+9.8
$ 149
-18.6
+6.4

$ 117
-18.7
+2.6
$ 49
-15.5
+ 6.5

" Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory- n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. J Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. * Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
6 Federal Reserve Board. • Local post office reports. Four-week accounting periods ending February 28, 1964, and March 1, 1963.

[11]

niinoi. Historical Survey

416 Lincoln Hall

INDEXES OF BUSINESS ACTIVITY

1957-1959= 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

\ >

ILL. f

* REVISED SERIES

^-*

U.S.

PREVISED SERIES

'29 '37 '45 '53 '61 1962

'37 '45 '53 '61 1962 1963 I96*

ANNUAL AVERAGE

DEPARTMENT STORE SALES (ADJUSTED)

CASH FARM INCOME

200

150
100
50
0

■>f±<^A

^A/

/•'U.S.

^us"-

;UV

x...~~

BUSINESS LOANS

CONSTRUCTION CONTRACTS

■ i

.*/*

100

'V \

/r"

' \

\ \

ILL

fc£

i i/TnT

"777m ii

,, ,

i r>r-i-Tt"

TmiV

.,,..,

1962 1963 1961

ELECTRIC POWER PRODUCTION

COAL

PRODUCTION

|w\w

SA'

\ /

l~A&

~^\f

)

V'^v' -..

;<?JLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE ' UNIVERSITY OF ILLINOIS

May, 1964

Number 5

HIGHLIGHTS OF BUSINESS IN APRIL

Production activity continued at a fast pace in April,
with most major industries sharing in the rise from March.
Steel production was stepped up somewhat over March,
the weekly rate in April hovering around 2.45 million tons.
Automobile output set a new record for the month of
April ; the 786,200 cars produced were nearly 14 percent
above the year-earlier mark and 4 percent above the pre-
vious record set in 1955. Paper production showed a
further increase and is reported to be nearing capacity.
Fuel and energy series remained strong. The Federal
Reserve Board's index of industrial production was up a
full point to 129.2 (1957-59 = 100).

Retail sales for the month were generally disappoint-
ing, dropping from a seasonally adjusted $21.3 billion to
$21.2 billion, but auto dealers at least had no complaints.
They delivered 751,000 new cars last month, with their
daily rate of sales setting a record for any month.

Progress in Rail-Labor Disputes

Some progress was made in April in the long-standing
disagreements between the nation's railroads and the five
operating brotherhoods. Under sustained urging from
the White House, negotiators for management and labor
arrived at the broad terms of a settlement on April 22,
with the specific details to be worked out thereafter. The
agreement gives seven paid holidays annually to all hourly
employees, provides for payment of "suitable lodging"
costs and an allowance for meals for workers on away-
from-home layovers, sets up a new rule to reduce the
number of train crewmen, and allows the railroads some-
what more flexibility in assigning road crews to yard
work. One major point of disagreement was left for
further consideration by the neutral mediators — the
question of crew changes on interdivisional runs.

In separate proceedings, the railroads were enabled to
start reducing train crews. These reductions were allowed
by the compulsory arbitration board set up by Congress
last August, but implementation of their ruling has been
postponed by the unions' legal challenges of the law setting
up the board. The United States Supreme Court in late
April declined to review lower courts' findings that the
law was constitutional, thus opening the way for the rail-
roads to start eliminating firemen's jobs on freight and
yard engines. In general, the railroads may discharge,
with severance pay, workers with less than two years'
seniority and must continue to employ firemen with two
to ten years' seniority, but may transfer them to compa-

rable work. Employees with 10 years' seniority will be re-
tained as firemen but their jobs will gradually be elimi-
nated. Some other crewmen are also affected.

Trade Negotiations Open

Negotiations for the so-called Kennedy Round of tariff
reductions have started in Geneva, Switzerland. Rep-
resentatives of more than 60 countries are participating in
the conference, which has been set up under the auspices
of the Contracting Parties to the General Agreement on
Tariffs and Trade (GATT). The aims of the negotia-
tions, whose success is far from assured, are to reduce
tariff restrictions on trade, to reduce or eliminate non-
tariff barriers such as quotas, to lessen restrictions on
trade in agricultural products, and to promote trade of
underdeveloped countries.

These negotiations are the broadest ever held, involv-
ing more countries and more products than ever before.
They also involve two facets which are extremely sensi-
tive for some countries- — tariff disparities (involving dis-
proportionately high tariffs levied by key countries) and
the protection of domestic agriculture. Unfortunately it
appears at this point that agricultural products may be
virtually excluded from negotiations; the Common Mar-
ket countries seem unable to agree among themselves on
agricultural policy and unlikely to make worthwhile con-
cessions to other countries. The United States is partici-
pating under the authority of the Trade Expansion Act
of 1962, which permits further reductions in our tariffs of
up to 50 percent of present levels in return for concessions
by other countries relative to barriers against our prod-
ucts. Our representatives are aiming for an across-the-
board cut of 50 percent.

Employment Up

Employment rose 1.4 million in April, about 750,000
more than usual for the month, to a total of 69.9 million.
Much of the gain occurred among adult women, many of
whom took part-time jobs as domestic workers or baby-
sitters. Unemployment dropped 400,000 to 3.9 million,
about as expected for the season. Included in the cut in
unemployment was a reduction of 100,000 in the number
of workers who had been without jobs for 15 weeks or
more. The seasonally adjusted rate of unemployment
remained at 5.4 percent, despite the large increase in em-
ployment, because the labor force also expanded by ap-
proximately a million workers.

CIGARETTE ADVERTISING AND THE NATION'S WELFARE

By Julian L. Simon

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Ihisincss Kcziezu is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey John P. Myers

Virginia G. Speers Giselle Chesrow

Leisure Without Value

Civilization, history tells us, appeared with the devel-
opment of leisure classes. The great achievements of
science and culture required that some men's time be
freed from the necessity of grubbing out a mere subsist-
ence.

In the earliest times, slaves or other workers with
inferior status produced the economic surplus that made
leisure for some possible. As the ability to utilize mechan-
ical power expanded, the possibilities for free time wid-
ened. Average hours of work have been declining sharply
and steadily during the last century. Great accumulations
of productive capital, expanding sources of energy, and
the development of "thinking" machines to make processes
automatic now promise to eliminate routine work in fac-
tories and offices.

The affluence created by the machine was supposed to
make leisure available to everybody; but the approach of
Utopia seems somehow delayed, because progress has not
included our ability to use leisure effectively. In philo-
sophical discussions, four uses of free time have been
distinguished: aimless relaxation or loafing; amusement
or recreation ; participation in group activities ; and inter-
ested pursuit of creative technical or cultural activities.
The first of these has commonly been excluded from the
definition of leisure. In economics, these distinctions have
generally been ignored, and it has been customary to
regard "leisure," unspecified as to form, as the alternative
to additional income. However, the individual has seldom
had control over his working hours, and even casual in-
spection of how free time is spent suggests that theorizing
about the value of leisure needs to be reconsidered.

Neither Desired Nor Accepted

The greatest obstacle to leisure is poverty. People who
lack the means cannot go where they wish or do what
they want. Amusements usually have to be purchased.
Even passively sitting out the hours in front of the TV
set requires instalment payments and electricity.

Among all our people, those with the most free time
are the unemployed. But they are also the ones who have
lost the means of indulging their inclinations. The jobless
worker is denied employment, denied recreation, and de-
nied companionship except in play or loose relaxation.
He has no way of understanding a complex situation that

denies all he desires. In this kind of idleness, frustration
overrides fruition.

Among the employed, the great bulk conform without
question to the hours they must work. Many develop
special interests and enjoy opportunities afforded by time
off, but the division of their time is not commonly a
matter of choice. In the general trend over the years,
higher incomes and shorter hours do go together. But if
it is a trend determined by technology, if gaining the
benefits of higher productivity requires a reduction of
hours to avoid the growth of technological unemployment,
the desires of the individual lack significance.

Some workers specifically reject free time in favor
of higher incomes. Workers who hold more than one job
are about as numerous today as the unemployed, and their
numbers may increase with shorter hours. The moon-
lighter in effect makes acquisitiveness a standard superior
to any values he might achieve on his own initiative.

The really well-to-do are not encumbered by the need
for extra income but drive themselves through hours as
long as the moonlighter's. They commonly find themselves
"too busy to think," and one may sometimes suspect that
they keep so busy because they do not want to think.
Thus, the rich man also may reject leisure, want no time
for higher self-development, and remain satisfied with a
show of affluence as the symbol of his superiority. Behind
the wheel of his power boat he enjoys a temporary sense
of freedom, but it is no more than an elemental form of
recreation, the thrill of the moment, and it serves no more
than to give him the feeling of renewal that enables him
to return once again to his self-imposed toil. His flight
into luxury spending shows he can have everything the
poor man would like, but he has little time to use or enjoy
his armory of possessions. It is in contrast to the wants
of the unemployed that the standards for the well-to-do
are set.

Paradox of Free Time

It has been said that "the tone of a society is deter-
mined by the quality of its leisure." To appraise accord-
ingly what most people do today would seem to lead away
from the conclusion that the progress of civilization is
continuous. In this topsy-turvy world, the groups that
can afford leisure avoid it and those who are idle seek
mainly the forms they can ill afford. Neither seeks satis-
faction in the "highest" forms of creative leisure. What
saves the situation is that certain activities — those of the
scientist, the artist, and the writer — are built into the
structure of employment. But leisure, as such, instead of
being an opportunity, has become a problem.

While automation destroys jobs, the gospel of work is
maintained as the sole route to progress. Saving time,
like saving money, is viewed as a kind of moral duty. We
must build supersonic planes to get more quickly from
here to there even though we are already overburdened
with busyness and with unemployment.

The traditional dogma that imposes industry upon us
as a way to personal salvation has been complicated by
recent theories of growth. These theories insist upon
ever-accelerating production. The most sophisticated tech-
nology must be used, but the choice automation puts before
us is not merely higher output but also shorter hours.

That is why free time is becoming a paradox of mod-
ern economic philosophy. Technology opens the door to
widespread enjoyment, but the institutions that have been
at least partially responsible for its advance seem to be
slamming the door shut again. vlb

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

FOREST PRODUCTS

Before the first settlers arrived in Illinois, some 14
million acres of forest covered about 40 percent of the
State. Most of the southern third and extensive areas
along the western and northern borders were forested.
By 1940 this area had been reduced to 3.5 million acres.
Much of the wood cut was put to use which by present
standards would be uneconomical. Walnut now valued
for furniture and interior finish was used for beams and
fence posts. Oak now used in flooring, cooperage, and
finish was used as fuel or simply burned to clear land.

Improved forest management has reversed this trend
and today there are well over 4 million acres of forest in
Illinois. The southern part of the State remains the most
heavily forested, with over 25 percent of the southern
16 counties in forest. The heaviest concentration lies
along the Ozark ridge, which extends through Union,
Johnson, Pope, and Hardin counties. The western and
northern border regions contain most of the remainder.

The two sections of the Shawnee National Forest, one
along the Ohio River and one along the Mississippi in the
southern part of the State, include most of the govern-
ment-owned forest, which amounts to only 5 percent of
the total. The other 95 percent is privately owned, chiefly
by farmers.

Virtually all the timber in Illinois is hardwood. White,
red, black, and post oak make up 50 to 60 percent, with
nearly 20 percent in white oak alone. Hickory, ash, wal-
nut, elm, soft maple, yellow poplar, and Cottonwood are
also important.

Primary Industries

Lumber is the most valuable timber product of the
State, accounting for $4.4 million of the $12.4 million total
value of timber products harvested in 1958. This lumber
is cut by the state's 314 sawmills, which in 1961 cut 122
million board feet. Of these mills, 141 produce less than
50,000 board feet each year. These are primarily small,
portable mills powered by gasoline engines and run by
farmers a few days a year. In 1947 there were over 700
of these small mills in the State, but many of them have
not been maintained. About 250 mills, or 80 percent of
the mills in operation in 1961, cut less than 500,000 board
feet. The state's two largest mills each produced over
3 million board feet of lumber in 1961.

The sawmills are located in the same counties in which
the forests are concentrated. In 1961 production was over
2 million board feet in 15 counties and in three — Wayne,
Union, and Clinton — production exceeded 5 million board
feet. Soft maple was the leading type of wood sawed with
over 18 million board feet cut. Next were white oak
(over 17.8 million board feet), red oak (17 million),
black oak (13.5 million), cottonwood (12.5 million), and
elm, (10 million). These five species accounted for over
50 percent of the lumber sawed.

Fuelwood production approaches that of lumber in
value and exceeds it in volume. However, fuelwood is
unique in that about 60 percent of it is produced from
dead trees, tops of trees cut for lumber, and scrap. It
therefore represents a much smaller reduction of growing

stock than its total volume might indicate. For example,
in 1947 fuelwood made up 44 percent of wood cut but
caused only a 24 percent decrease in the number of grow-
ing trees.

Cooperage for barrel and box manufacture is a third
important use of timber. In 1960, 27.4 million board feet
of timber, valued at $1.1 million, were cut by the state's
25 cooperage mills. Nearly all the wood used was white
oak, with bur and post oak, elm, and cottonwood account-
ing for the remainder. The rough staves and heading pro-
duced in Illinois are almost all consumed in the State.
Consumption was 26.9 million board feet, leaving net ex-
ports of only 520,000 board feet.

Veneer production, chiefly for bushel baskets and light
boxes, was 9.1 million board feet in 1958. Cottonwood
production of 5.4 million board feet made up 59 percent
of the total. Walnut was second with 1.5 million board
feet ; and white oak, poplar, and gum were next in impor-
tance. More than 3.4 million board feet, or 38 percent of
veneer production, went to other states.

Economic Importance

Primary wood manufacturing provides substantial em-
ployment and income in Illinois. In 1958, timber harvest-
ing provided 2,500 jobs, and forest protection and man-
agement, 800 jobs. Some 5,800 people were employed in
lumber, cooperage, pulpwood, veneer, fuelwood, fence
post, charcoal, and mine timber production, and total value
of shipments from those industries was $110.6 million.
Secondary timber-using industries such as furniture and
construction have also been extremely important sources
of income and employment in the State.

Important as these uses are, they do not provide an
adequate demand for Illinois-grown wood. The require-
ments of the secondary industries are 75 percent for soft-
wood and they import 90 to 95 percent of their total con-
sumption. The primary industries simply are not large
enough. An indication of the underutilization of forest
resources is the fact that only 4,370 cords of pine and
various hardwoods were cut out of a total of nearly
33,000 cords available for harvest in the Shawnee Na-
tional Forest in 1962.

One cause of the problem facing woodland owners is
the fact that the hardwoods grown are generally of low
quality and are consequently difficult to market. Trans-
porting unprocessed timber over 100 miles to mills is
uneconomical. A possible solution currently under study
is locating pulp mills in the timber-growing regions. Pulp
producers are increasingly turning to this type of wood to
meet their needs. It is felt that power, water, transporta-
tion, and labor resources are adequate in these areas, and
that pulpwood consumption could be increased substan-
tially above its current annual level of $1.3 million.

The future of the forest industry in Illinois is uncer-
tain. Reforestation, combined with better forest manage-
ment, is re-creating timber as a resource, but this is
necessarily a long-range project since trees mature slowly.
Whether or not more timber-using industry will be at-
tracted to the State is undetermined.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, February, 1964, to March, 1964

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

DEPARTMENT STORE SAL

BANK DEBITS

□ us.

nally adjusted. N.A. Not

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

■111. Dept. of Labor; 'U.S. Bur. of Labor Statis
. Manag. Assn.; 'Fed. Res. Bank, 7th Dist.; '111. C
lid.; ' F. W. Dodge Corp.; 8 Fed. Power Coram,
s; 10 111. Geol. Survey.
1 Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2. . . .
Cash farm

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Mar.
1964

Annual rate

in billion $

480.4'

436. 8»

60.2^°

22.2
17.6
16.2

25.1°
16. 1°
9.0°

68.9>>

53. 8b
44.4°
30.8°

Indexes
(1957-59
= 100)
128"
129»
129»
107-

101"

102
117
119

100
95
100
101

99
107

77d

Percentage
change from

Feb.
1964

+ 11.5
+ 1.9
+ 14.8

- 0.2

- 0.5

- 3.0

■25.8

+ 0.4
+ 0.3
+ 0.4

- 0.5

+ 0.3

+ 0.2

0.0

+ 0.2

- 1.2

Mar.
1963

+ 6.4
+ 3.6

+ 12.2
+ 13.2
+ 11.5

- 0.3

- 3.5
+ 5.9

+ 10.9
+ 11.9
+ 9.2

+ 3.1

+ 5.7

+ 6.0

+ 5.6

+ 1.6

+ 0.5
+ 2.9
+ 3.3
+ 17.6

+ 1.4

0.0

+ 0.9

0.0

'U.S. Dept. of Commerce; 'Federal Reserve Board; » U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; 5 F. VV. Dodge Corp.

» Seasonally adjusted. b End of month. * Data for February, 1964,
compared with January, 1964, and February, 1963. d Based on official
indexes, 1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1964

1963

Apr. 25

Apr. 18

Apr. 11

Apr. 4

Mar. 28

Apr. 27

Production:

Iiii uminous coal (daily avg.) thous. of short tons. .

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous

1,497
17,852

218
7,652

132.3

572
4,858

100.4

101.1
96.4

38,015

276

1,586
17,590

218
7,622

131.9

581
4,845

100.3
101.1
97.0

38,252
289

1,322
17,870

210
7,649

131.4

530
4,696

100.3
101.0
95.9

37,964
288

1 ,306
17,876

209
7,575

131.4

519
4,804

100.5
101.1
95.5

38,308
267

1,458

17,972

199

7,571
129.2
528

4,892

100.5
101.2

94.2

38,172
299

1,508
16,495

186
7,493

136.8

577
4,647

Steel 1957-59 = 100

Freight carloadings thous. of cars

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

99.7"
100. 4»
93.4

34,996

312

Business, Weekly Supple,

[4]

RECENT ECONOMIC CHANGES

Trade Balance Improves in 1963

The balance of international payments during 1963
continued to show a net deficit but because of improve-
ments in both trade and capital flows the total deficit
declined $270 million from the 1962 total to $3.3 billion.
During the second half of the year the adverse balance on
all "regular transactions" fell to a seasonally adjusted
annual rate of $2 billion after averaging $4.6 billion in
the first half.

The improvement in the second half of 1963 reflected
the decline in the outflow of private capital, from a $5
billion annual rate in the first half to less than $3 billion
in the second, and an enlargement of the trade surplus
during the second half of the year (see chart). During
the last six months of 1963 the trade surplus increased
$600 million in response to stronger foreign demand for
industrial supplies and machinery and increased sales of
grain. Accordingly, exports rose by almost $1.8 billion in
the second half from their average annual rate of $21
billion in the first half.

Much of the advance in exports during the year re-
flected an unusual coincidence of strong cyclical move-
ments in most major industrial nations. In Great Britain
and the Common Market nations industrial production
rose 8 percent from the first to the last quarter, and in
Japan and Canada increases in industrial activity began
in April and August and continued through the end of the
year. Agricultural exports reached a seasonally adjusted
annual rate of $6 billion during the second half of the
year, 11 percent above the first half and 16 percent above
the total for 1962, as Europe and Japan took extra quan-
tities of wheat, tobacco, and cotton.

MERCHANDISE EXPORTS AND IMPORTS

BILLIONS OF DOLLARS

1 1 ■ ■ 1 1
MERCHANDISE EXPORTS"

K '

--/WVAA/fl

f\._A"^-

''"vX-<'"'"' 1

■ 1

GENERAL IMPORTS'

960

IS-J2

363

15 6.;

■ Total exports less Department of Defense shipments of
grant-aid military supplies and equipment under the Mili-
tary Assistance Program.

* Imports for immediate consumption plus entries into
bonded warehouses.
Source : U.S. Department of Commerce.

This favorable trade balance was achieved in spite of
a strong rise in imports during the first half of the year.
Manufacturers' demands for imported raw materials de-
clined during the second half. Since July, imports have
remained fairly stable and as a result the ratio of imports
to GNP has fallen back to 2.7 percent after rising to more
than 3 percent in the first half of the year. Advances in
imports during 1963 were concentrated in consumer goods,
particularly automobiles (which were 15 percent greater
in value than in 1962), capital equipment, and some types
of steel. A rise in the value of food imports reflected
mainly a higher price for sugar.

Gross National Product

The nation's output of goods and services rose to a
seasonally adjusted annual rate of $608.5 billion in the
first quarter of 1964, according to preliminary estimates.
The gain of $8.4 billion over the previous quarter was
somewhat smaller than the prior quarterly advance of
$11.6 billion, largely as the result of a slowing in inventory
accumulation. Even with a rise of $8 billion in dispos-
able income, the rate of saving fell from 7.5 percent in
the fourth quarter of 1963 to 7.4 percent of disposable
personal income, but this was still slightly higher than the
7.3 percent recorded for the entire year of 1963.

GROSS NATIONAL PRODUCT OR EXPENDITURE

(Seasonally adjusted, billions of dollars at annual rates)

lstQlr.* 4th Qtr. IstQtr.

1964 1963 1963

Gross national product 608.5 600.1 571.8

Personal consumption 388.0 379.9 367.4

Durable goods 55.5 53.6 50.6

Nondurable goods 172.5 168.7 165.3

Services 160.0 157.7 151.4

Domestic investment 85.0 87.1 77.8

New construction 49.7 49.2 43.7

Producers' durable equipment 32.3 32.5 29.0

Change in business inventories 3.0 5.4 5.1

Nonfarm inventories only. . 2.8 5.1 4.3

Net exports of goods and services 6.5 5.4 3.6

Government purchases 129.0 127.7 123.0

INCOME AND SAVING

National income n.a. 489.1 466.7

Personal income 479.1 473.0 453.9

Disposable personal income 418.9 410.9 394.5

Personal saving 30.9 31.0 27.1

* Preliminary.

Sources: U.S. Department of Commerce and Council of Eco-
nomic Advisers.

Corporate Profits Up

Corporate profits before taxes in the closing quarter
of 1963 rose to a record annual rate of $54.3 billion. This
was an increase of $2.1 billion over the previous high
reached in the third quarter.

For the entire year 1963, profits before taxes, exclud-
ing inventory gains and losses due to price changes, to-
taled $51.5 billion, 10 percent above 1962's previous
record. Taxes took nearly half of total corporate profits,
leaving after-tax income of $27.1 billion compared with
$24.6 billion in 1962 and $21.8 billion in 1961. A further
gain is anticipated during the current year because of the
cut in corporate tax rates from 52 to 50 percent and
because of an expected rise in output and sales. If profits
do increase in 1964, it will mark the first time since the
war that this has occurred three years in a row.

[ 5 ]

CIGARETTE ADVERTISING AND THE NATION'S WELFARE

JULIAN L. SIMON, Assistant Professor of Advertising

The Federal Trade Commission is now holding hear-
ings about whether cigarette companies should be required
to post a "danger to health" warning on packs of ciga-
rettes and in advertisements. These hearings are an out-
growth of the recent report by the Surgeon General on
the health hazards of cigarette smoking.

Some individuals and groups, including Senator Mau-
rine Neuberger and Consumers Union, favor the proposed
regulation. Some want cigarette advertising prohibited
completely. However, no responsible person has suggested
outlawing the manufacture or sale of cigarettes them-
selves.

People who oppose the warning proposal and the ban
on advertising base their opposition on grounds of legality
as well as of economics. This article will consider only
the economics of a warning requirement or a ban. It will
not consider other economic alternatives such as an in-
crease in cigarette taxes.

I shall discuss the possible effects on cigarette use, and
the consequent economic impacts, of these two proposals
on the groups that have a stake in what happens. Mostly,
I shall talk about the ban on advertising, because its effect
is better understood. The effect of a warning requirement
would probably be much less than an advertising ban, but
of the same general nature.

Effect on Cigarette Consumption Rate

Opponents of a warning or ban will say that forbid-
ding cigarette advertising, or requiring a danger warning,
will have "practically no effect" on consumption. Support-
ers of the warning, however, argue that advertising has a
"substantial" effect in influencing people to start smoking,
and in keeping them smoking. Where is the truth?

It is perfectly clear that advertising has the power to
influence the purchase of particular brands of cigarettes.
The $220 million spent annually for cigarette advertising
is proof-positive of that. But we are not interested in
the power of advertising to shift smokers from one brand
to another. We want to know how cigarette advertising
as a whole starts people smoking or keeps them smoking.

Neil Borden examined the role of cigarette advertising
in the astounding growth of cigarette smoking starting
about 1900, when the annual per capita consumption of
cigarettes was 49. By 1962 the rate had risen to 3,958
cigarettes per capita. Borden did not say that advertising
cawed the rise in cigarette consumption. He argued that
if the public had not been ready to take up cigarette smok-
ing, advertising could never have caused such a large
increase in consumption. Nevertheless, Borden concluded
that advertising was an important factor in the size and
speed of increase in cigarette smoking.

But we want to know the effect of advertising noiv,
when cigarette smoking is a very prevalent habit. We
want to know what would happen if advertising were
banned, or if a warning were required.

Robert Basmann carried out an intricate statistical
study of the rise and fall in cigarette advertising from
year to year in the United States, and its apparent effect
on cigarette consumption. He found that for each 1 per-
cent change in total cigarette advertising, the number of
cigarettes smoked changed 1/20 of 1 percent. In other
words, the consumption of cigarettes is affected by the
amount of advertising, but it takes a big change in the

amount of advertising to make much of a difference in
consumption. This is typical of an industry once it has
become well established, but it may also result from the
degree to which the smoking habit takes hold of people
and the fact that nothing else is a good substitute for
smoking.

What would happen if all cigarette advertising were
cut off? An extension of Basmann's finding would sug-
gest that if there had been no cigarette advertising last
year, consumption would have been about 5 percent less
than it was. If the ban on advertising continued, we might
expect further decreases in the amount of consumption
each year, but the absolute decrease would be less each
year. These predictions are subject to many technical
reservations, and they go far beyond the data. But they
are the best that we can do at this time.

A required danger-warning in the ads would be a type
of negative advertising. We cannot estimate how much
the warning would cut smoking, but certainly the effect
would not be as drastic as a ban on advertising, or no
firm would continue to advertise. Our inability to come
up with any better prediction is testimony to how little
scientific knowledge we have about the effect of different
forms of advertising copy. But it should certainly be
possible to pretest ads that contain warnings, just as
other ads are pretested, in order to obtain an estimate of
the effect of a warning.

Now let us estimate the health effect of an advertising
ban and the resulting reduction in cigarette consumption:

(1) For each cigarette smoked, someone's life is short-
ened by 5 to 9 minutes. We shall figure 7 minutes per
cigarette.

(2) About 523 billion cigarettes were smoked last year.
A decrease of 5 percent in consumption for just one year
would mean an increase of human life in the United
States of about 183 billion minutes, or 349,000 years of
life. Remember, this is the amount of lifetime increased
by a decrease of 5 percent in smoking for just one year.

(3) People who are kept from starting smoking will
live, on the average, 5 years longer than if they had
started smoking.

Effect on Employment and Local Economies

An estimated 225,000 people make a substantial part of
their living in tobacco agriculture, earning approximately
$600 million last year, of which about $450 million came
from cigarettes. Some 31,000 factory workers earned
$150 million last year from cigarette manufacture. In
total, then, cigarette purchases put about $600 million into
the pockets of workers and farmers. How will a ban or a
warning affect them?

Notwithstanding the frantic reactions of Southern
state officials, however, a drop in consumption would
have no immediate effect on farm earnings, because of the
government subsidy program. Unless the government re-
moved the subsidy, the taxpayers at large, rather than the
farm population, would take the loss. But let's assume
that the subsidy would be cut.

If the subsidy were cut, the effect of a loss in earnings
would probably be worse than the figures show, because
the effect would be concentrated in a few states that are
already economically backward. Many tobacco farmers
are already poor and would find it hard to find new jobs.

[6]

Consumption of Tobacco Products,'
Selected Years, 1900 to 1962

Year

All
tobacco
(Pounds)

Ciga-
rettes

ber)

be™

Pipe

tobacco
(Pounds)

Chew-
ing

tull.H < M

(Pounds)

Snuff
(Pounds)

7.42
8.59
8.66

8.88
8.91
11.59
10.97
11.15
10.85

49
138
611
1,365
1,828
3,322
3,888
3,986
3,958

111
113

117
72
56
50
57
56
55

1.63

2.58
1.96
1.87
2.05
.94
.59
.59
.56

4.10
3.99
3.06
1.90
1.00
.78
.51
.51
.50

1910

1920

1930

.50

.50
.46

1950

.36

1961

.27

For example. North Carolina is an agricultural state and
almost half of its farm income comes from tobacco.

Using our estimates above, employment and earnings
would be cut by 5 percent at most during the first year of
an advertising ban. In subsequent years, the further cut
in jobs and/or dollars would be less. I say "5 percent at
most" because there is good reason to believe that an
important proportion of smokers who quit smoking ciga-
rettes, or young people who never start, would use other
forms of tobacco instead. The accompanying table shows
that cigarettes largely replaced other forms of tobacco
and did not create much new demand for tobacco. To the
extent that smokers switch to pipe tobacco, cigars, chew-
ing tobacco, and snuff, the damage to tobacco farming
would be reduced, even though cigarette tobacco is a more
expensive product than other types of tobacco.

Furthermore, some or many tobacco workers who are
thrown out of work would get other jobs, so we are over-
estimating greatly when we assume that the equivalent of
lost cigarette-industry wages would be lost to the economy
as a whole. But we assume the worst, or close to it, for
the sake of argument. Later we shall look at the potential
effects on employment again, when we consider the over-
all picture.

Effect on Cigarette Companies

To understand the effect of a ban or a warning re-
quirement on the cigarette companies, we must first under-
stand the nature of advertising as a business investment.

When a firm spends a dollar in advertising a brand
of cigarettes this year, the advertising bought with that
dollar increases cigarette sales this year. But it also in-
creases cigarette sales next year, and the year after, and
in subsequent years. Customers get into the habit of
buying a given brand, a habit that may continue for many
years. To say it another way, a dollar of advertising may
create some goodwill or brand-loyalty that persists long
into the future, though each year the effect of that single
dollar of advertising is less than the year before. Ciga-
rette advertising is really an investment, just like an in-
vestment in a new machine that will produce for many
years after it is bought.

Lester Telser studied the pre-World War II cigarette
market in considerable detail. He found that only 15 to
20 percent of the advertising investment is used up in the
year in which the advertisements appear. This means that
for each dollar of sales created in the advertising year,
much more than $3 of sales will be created in subsequent
years. (However, because of the chaos in the postwar
cigarette market, investment is probably used up faster
than Telser's estimate.)

Therefore, even if all cigarette advertising were
stopped tomorrow, the established cigarette brands would

continue to sell well for many years, though at continu-
ally diminishing rates. During that time the cigarette
companies would be recouping the investments they have
already made. Furthermore, since all the firms would have
to stop advertising, the investments already made would
not be used up as fast, which would give the cigarette
companies a better return on their invested dollars than
they expected to earn when they made the investments.

The total effect, then, would be that in future years
the sales of any brand would gradually decrease. But the
gross profits on a brand would be at a very high rate for
a while, because the firm would not be making any further
investment in advertising. The cigarette companies would
have a fine opportunity to "milk" their brands for profit.

The cigarette companies already know how to milk a
brand after they cease advertising it. For example, sub-
stantial quantities of non-filter Old Golds have been sold
in the last couple of years despite the fact that Lorillard
practically quit advertising them.

If advertising were stopped, the cigarette companies
would generate large amounts of cash each year, which
they could either liquidate to stockholders or use to di-
versify. The former is not likely because of our tax
structure and because no executive likes to liquidate him-
self out of a job. In the latter case, much of the capital
would go to create new jobs in other industries.

Either way, I would guess that a cigarette stock would
have a very solid value if advertising were banned. The
same type of predictions would apply if a warning were
required, but the effects would not be as sweeping.

Effect on Advertising Media

The advertising media have already been hit by the
Surgeon General's report. Some radio and television sta-
tions have voluntarily restricted cigarette advertising to
certain hours of the day, while others have cut it off
completely. Some magazines and papers have always re-
fused to accept tobacco advertising, notably the Reader's
Digest. And now the cigarette advertisers have set up an
authority to regulate copy and media.

A warning requirement would not hit the media as
hard as a ban, of course. But a warning that really af-
fected consumption would make advertising less profitable
for the firms, and they would therefore advertise less.

Television would lose more than $120 million in adver-
tising revenue, about 7 percent of its total revenue last
year. But that would not represent a dead loss to televi-
sion stations and networks. Television time is limited,
especially on networks, and the time is therefore rationed
among potential advertisers. If cigarette advertising were
banned, the television time could be sold to other adver-
tisers, though at a somewhat lower price.

Television stations are charged with the public interest
to a greater extent than are other communications media,
because they are given a free franchise for a channel.
This franchise gives them some monopoly power. There-
fore, the television people should be particularly slow to
complain about the loss of cigarette advertising revenue if
it is in the public interest.

Radio would lose an estimated $20 million in cigarette
advertising revenue, less than 3 percent of its total rev-
enue. Other advertisers would not replace this revenue.
But radio stations also have a free franchise granted by
the public.

The $34 million loss to general and farm magazines
would be a complete loss, about 7 percent of their total
revenue. The magazines would not find other advertisers
to replace cigarettes, and some magazines would feel a

[ 7 ]

considerable strain. But since it would hit them all, they
could all be expected to reduce their editorial cost some-
what, without fear of losing advertisers or circulation to
competition. This might cushion the impact somewhat.

The $18 million lost to newspapers would be only
one-half of 1 percent of their advertising revenue.

Effect on Advertising Agencies

The advertising-agency business would take a beating
if cigarette advertising were banned. Agencies would
also be hurt if a warning were required, because in that
case total cigarette advertising would decrease. Madison
Avenue-type agencies would lose approximately $200 mil-
lion billing of their total of perhaps $4 billion, about 5 per-
cent of their total. (Actually, only 15 percent of the $200
million — $30 million — stays with the agencies. The rest
goes to the media.) Perhaps a thousand copywriters, ac-
count executives, and other agency people would be scur-
rying about looking for jobs, and the job market would be
glutted for a while.

It is interesting to note that some major advertising
agencies have said, after the Surgeon General's report
came out, that they would refuse to handle cigarette
advertising, because they now consider it immoral. Ex-
pectedly, none of those agencies now has a cigarette
account. But their statements do mean something, never-
theless.

Effect on the Economy as a Whole

The total cigarette market is about $6.8 billion. Ex-
cluding taxes, the industry accounts for $3.6 billion, much
less than 1 percent of the gross national product.

We have some evidence that Americans tend to spend
a fairly constant percentage of their total yearly income,
year after year. This suggests that a decrease in cigarette
sales would lead to a compensating increase in other
spending. If so, the effect on the economy as a whole
would be lessened. Exactly how much the first impact
would be, we cannot say. It would be somewhere between
no effect and $180 million (5 percent of $3.6 billion).

On the other side of the ledger, the "multiplier effect"
would magnify the ill effects of whatever decrease in
spending does take place, by a factor of 2 or 3. This
effect is due to the spending of money again and again
by people in the business chain. In other words, if people
saved half of the $180 million drop in cigarette sales, the
drop in national income would then be between $180 mil-
lion and $270 million.

In any case, a small yearly decrease in cigarette sales
and cigarette advertising, made even smaller by a shift to
other forms of tobacco, would not be even a drop in the
bucket for the economy as a whole.

Cigarette smoking does affect the federal economy and
the economies of the states and some cities, too, by way
of taxes paid on cigarettes. Federal excise taxes amount
to $2 billion, state taxes are above $1 billion, and munici-
pal taxes are $40 million. These taxes are important to
the tax-collecting bodies. But at first the loss would only
be 5 percent of taxes that represent 2 percent of total
government revenues. Furthermore, if taxes are not col-
lected one way, they can be collected another way, at the
same total cost to the public.

On the other hand, cigarettes may cost the economy
far more than they contribute. Louis Lublin, a retired
vice-president of Metropolitan Life Insurance, estimates
that cigarettes cost the nation $10 billion annually in the
lost services and earnings of men killed prematurely by

cigarettes. My own estimate is a loss of more than $4 bil-
lion, based on 1.1 years of life lost by the average smoker
before the age of 65, half of the men in the United States
being smokers, and an annual payroll of $322 million.

In sum, then, we must balance the expected effects on
health against the expected effects on employment and
earnings.

Putting together our previous estimates, we can say
that it takes a reduction of 880 cigarettes to produce a
drop of one dollar in tobacco-worker's earnings. And a
drop of that many cigarettes means that someone's life
expectancy goes up by 880 X 7 minutes = 104 hours. The
drop in both consumption and earnings would be less in
subsequent years. But they would stay in step with each
other, so the same type of dollars-for-hours-of-life rela-
tionship would hold.

When we consider the $4 billion to $10 billion in earn-
ings lost each year by men killed prematurely by ciga-
rettes, it is clear that the country will gain more in live
men's earning power than it will lose in revenue. And in
fact, the gain in earning power for people kept alive by
not smoking would be 10 to 20 times the loss in earning
power of tobacco-industry workers.

Then, too, deaths caused by smoking decrease con-
sumption spending. In the 104 hours lost by each dollar
of cigarette-industry earnings, a live person would spend
more than $20. This consumption spending is important
to the economy.

This, then, is the decision that will eventually be made,
if our assumptions are correct. Should the nation de-
crease employment temporarily to gain 104 hours of life
per dollar of earnings lost? Should the nation reduce the
tobacco industry revenue, gaining two dollars in earnings
from live men for each dollar decrease in tobacco industry
revenue, and a gain of $10 to $20 in earnings of men kept
alive for each dollar of tobacco-workers' earnings lost?

Conclusion

There is much to gain, little to lose, by stopping the
advertising of cigarettes. My chain of reasoning goes like
this:

(1) Advertising could be banned without prohibiting
smoking ;

(2) A ban on advertising would bring about no boom-
erang noneconomic ill effects and the economy's overall
vitality would hardly be affected;

(3) A prohibition on cigarette production could have
harsh repercussions, as with the prohibition of alcohol in
the twenties ;

(4) There are other commodities (e.g., contraceptives,
medical services, liquor on radio and television, and many
others) that are sold but cannot be advertised, so this
would be no new precedent ; and

(5) Therefore, let's ban cigarette advertising.

Postscript

If the nation wishes to decrease cigarette consumption,
raising the tax on cigarettes is an obvious alternative or
additional measure that might be taken. There is no doubt
that fewer cigarettes will be bought if the price is higher.
However, the tax would take a larger proportion of some
people's income than of others. And if the price of ciga-
rettes goes up, people will smoke the butts closer to the
end. The more of a cigarette that is smoked, the more
dangerous it rapidly becomes. So an increase in taxation
may not be a good alternative solution.

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Result of Manpower Training

By the end of 1963 about three-fourths of the persons
originally enrolled in training programs had successfully
completed institutional training under the Manpower De-
velopment and Training Act (MDTA). Of the 27,459
graduates, 70 percent has successfully found employment.
Almost 9 out of 10 of those who had obtained employment
found work in the field of their training. During the
year the percentage of graduates who obtained employ-
ment remained at a fairly consistent 70 percent of the
enrollment figure. According to the Department of Labor
many of the 8,200 graduates who reportedly had not ob-
tained employment when these figures were released have
since found jobs or will find jobs in the near future.

A study of the 9,000 dropouts disclosed that about 60
percent were men ; 26 percent of the original men enroll-
ees dropped out whereas only 19 percent of the original
women enrollees quit. Among the factors which contrib-
uted to trainees' decisions to terminate training were per-
sonal reasons, such as difficulties in adjusting to a learning
situation, inability to support themselves and their de-
pendents on the training allowance, problems in arranging
for supervision of children, and job offers which had to
be weighed against the chances for a future and better
job resulting from the training.

Expenditures of State Governments

The general expenditures of state governments rose
10 percent in 1963 to a record total of $34.4 billion. Edu-
cation outlays were nearly 11 percent greater than in
1962 and accounted for the largest share of state spend-

STATE GENERAL EXPENDITURES
FOR SELECTED FUNCTIONS

BILLIONS OF DOLLARS

EDUCATION.

PUBLIC WELFARE-

HOSPITALS-

Source : U.S. Bureau of the Census, Summary of State
Government Finances in 1963, G-SF63-No. 1.

ing, $11.9 billion. Of this $11.9 billion, state fiscal aid to
local governments for support of public schools amounted
to $7.0 billion, 8 percent more than a year earlier. Ex-
penditures for state-supported institutions of higher learn-
ing also increased, from $3.6 billion to $4.2 billion.

Highway expenditures totaled $8.8 billion, 11 percent
more than in the previous year as purchase of land for
and construction of the interstate system moved into high
gear. Expenditures for public welfare continued their
climb, as indicated in the chart, increasing 8 percent in
1963 to a total of $4.6 billion. Of this amount, $1.9 billion
was transferred from the state to local agencies for wel-
fare services. In turn, the states received $2.7 billion from
the federal government for welfare programs. State out-
lays for hospitals rose 7 percent to $2.1 billion in 1963.

New Labor Publications

The United States Department of Labor has started
publication of two new periodicals, Unemployment Insur-
ance Review and Employment Service Review, to replace
the Employment Security Review and The Labor Market
and Employment Security, both of which were discontin-
ued with their December, 1963, issues.

The Unemployment Insurance Reviciv features articles
dealing with various aspects of the unemployment insur-
ance program and information on pertinent research ac-
tivities and brief summaries of state judicial and admin-
istrative decisions on appeals. Also included are brief
analyses of economic trends and monthly reports of un-
employment insurance programs and other income-mainte-
nance programs. The Employment Service Review con-
tains articles on employment service operations in the
area of manpower development and utilization, including
articles on occupational developments, manpower trends,
community and industry surveys, and training.

Both publications may be purchased from the Superin-
tendent of Documents, U.S. Government Printing Office,
Washington, D. C., 20402. The subscription price of each
new journal is $3.00 a year or 30 cents a copy.

Family Personal Income Rises

The total personal income of families and unattached
individuals reached $441 billion in 1963, an advance of
5 percent over 1962. The average family income rose
$250 to $7,510, resulting in a further upward shift of
family units along the income scale. In 1963 the number
of consumer units earning less than $4,000 declined 1.1
million, while the total number of consumer units actually
rose 800,000 over 1962.

The largest concentration is found in the income class
of $4,000 to $5,999, which contains approximately 20 per-
cent of all consumer units. This modal class and the
classes below and above it ($2,000-$3,999 and $6,000-
$7,999) account for almost 56 percent of all units.

With the rise in family personal income and the up-
ward shift of units along the income scale, it is interesting
to note the growing percentages in the income classes
above $6,000. The percentage of consumer units having
incomes above $6,000 has increased from 17 percent of
44.7 million consumer units in 1947 to 49 percent of 58.7
million consumer units in 1963. During the same period
of time the percentage of consumer units living on less
than $4,000 has declined from 63 percent to 29 percent.

[9]

LOCAL ILLINOIS DEVELOPMENTS

Higher Tollway Revenues Expected in 1964

The Illinois State Toll Highway Commission reports
that fare revenues from commercial and passenger ve-
hicles on the Illinois Tollway totaled $26.8 million in 1963.
This shows an overall decrease of about 1 percent since
1962. As shown on the chart, the Tollway achieved a
steady rate of growth from the opening of the completed
network in 1959 through 1962. Lower revenues for the
first three quarters of 1963 are attributed to the opening
of the Dan Ryan (South) Expressway in mid-December,
1962. This route diverted a considerable amount of
traffic from the central and southern sections of the Tri-
State Tollway.

A new schedule of charges was put into effect October
1, 1963, to increase revenues and to offset a lower abso-
lute volume of traffic. For the first three months of 1964,
revenues totaled $5.9 million, an increase of more than
23 percent over the same period of 1963. About $31 mil-
lion in toll revenues, or a gain of about 16 percent, is
expected for 1964.

Illinois Economic Study

The Illinois State Chamber of Commerce has recently
issued the first of its series of reports pertaining to the
economic growth of Illinois. This first report studies the
economic characteristics of the State and the attitudes of
executives toward doing business here. A strong economic
position for Illinois is based upon economic diversification,
lower unemployment relative to the nation, a favorable
union environment and competitive labor costs, and a high
sales potential derived from the fact that Illinois com-
mands a sizable percentage of the national consumer and
industrial markets.

A mail survey replied to by 722 firms has indicated a
generally favorable outlook for economic growth. Over
half of the firms expect to hire more workers and less

ILLINOIS TOLLWAY REVENUES

1ILLIONS OF DOLLARS

Source: Illinois Toll Highway Commission.

than 3 percent anticipate decreased employment. Regional
variations in employment gains are expected. Good labor
relations were reported by about 84 percent of the firms.
Location factors are shown to be favorable on the whole.
Increases in plant facilities are anticipated by nearly 63
percent of the firms and most of this expansion is expected
to occur within Illinois. In addition, favorable community
assets for industrial location and expansion can be used
advantageously by local development groups.

Civil Service Salary Program Expansion

An expansion of the 1963-65 wage and salary program,
announced recently by Governor Otto Kerner and made
effective on March 1, 1964, has increased monthly salary
ranges for about 28,000 state and civil service employees.
The revision is intended primarily to improve the com-
petitive position of the State vis-a-vis private sources of
employment for personnel, and especially for persons in
technical and professional capacities. Two other major
changes in the program are largely administrative: au-
thority to make merit increases in salaries has been de-
centralized to the individual agencies and more flexibility
has been provided by the elimination of salary steps
within pay grades ; payroll processing procedures have
also been streamlined. The revision in salary schedules
does not affect approximately 12,000 employees who are
hired irregularly and are paid on an hourly basis.

Salary changes have been made according to individ-
ual pay grades. Maximum monthly salaries have been
increased, while minimum salaries remain the same. Al-
though changes vary somewhat according to pay grade
and occupational grouping, the average spread between
minimum and maximum salary figures has been widened
from 21 to 39 percent.

Chicago Area Has Fewer Jobless

The Illinois Department of Labor reports that the
unemployment rate for the Chicago area has remained
below the national rate for more than a decade. In 1952,
during the Korean War, the rate for the area was 2.1
percent, compared with 3.1 percent for the United States.
As of 1963, the rate was 4.3 percent for Chicago and 5.7
percent for the nation.

This lower unemployment rate has prevailed despite
a large lag in the rate of job creation. From 1952 to 1963,
average employment in Chicago showed a gain of slightly
more than 6 percent compared with a gain of 17 percent
for the nation. The most significant factor in the lower
Chicago rate of gain is the 7.6 percent decline in manu-
facturing jobs that took place over this period. Sizable
declines also took place in the fields of construction, trans-
portation, communications, and public utilities.

Three factors help to explain the lower rate of un-
employment for the Chicago area. First, young people
have been encouraged to remain in school for longer
periods, delaying their entry into the labor force. Second,
a lowering in the number of married women on employ-
ment rolls is attributed mainly to the decline in manufac-
turing jobs. Third, area workers have more frequently
retired at 65 years of age, generally with more extensive
coverage by Social Security and private pension plans.
These influences tend to minimize the unemployment rate,
but they indicate that a considerable job expansion is
needed. Young workers can be expected to flood the labor
market during the coming years.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
March, 1964

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000,000 kwh)

Estimated

Retail

Sales3

(000,000)

Depart-
ment Store
Sales1

Bank
Debits5
(000,000)

ILLINOIS

Percentage change from {Mar.', 1963.

NORTHERN ILLINOIS

Chicago

Percentage change from. . . . [^1, m^'.
Aurora

Percentage change from. . . . {jf^ ^q5^'/

Elgin

Percentage change from. . . . |Mear'_ \g^
Joliet

Percentage change from. . . .{jj^ 1963'
Kankakee

Percentage change from. . . . {m^ \g£3

Rock Island-Moline

Percentage change from. . . .{jj^ 19&63
Rockf ord

Percentage change from. . . .{jj^ 1963

CENTRAL ILLINOIS

Bloomington

Percentage change from . .
Champaign-Urbana

Percentage change from. .
Danville

Percentage change from. . . . |Mear' \96643'
Decatur

Feb., 1964.
Mar., 1963.

/Feb., 1964.
\Mar., 1963.

/Feb., 1964.
•\Mar., 1963.

Percentage change from. . . . {jy^ 1963
Galesburg

Percentage change from . .
Peoria

Percentage change from . .
Quincy

Percentage change from. .
Springfield

/Feb., 1964.
\Mar., 1963.

/Feb., 1964.
[Mar., 1963.

Percentage change from .... jMear' 1963

SOUTHERN ILLINOIS
East St. Louis

{Feb 1964
Mar.', 1963.'

(Feb 1964
Percentage change from. . . •jMar'| 1963

Belleville

Percentage change from .

/Feb., 1964..
•\Mar., 1963.

$36,787"

+37.6

$22,797

+21.9

-6.1

$ 1,420

+ 189.8

+73.4

$ 1,476

+367.1

+178.5

$ 840

+11.7

-23.3

$ 324

+49.3

-54.3

$ 2,526

+533.1

+62.0

$ 1,253

-0.8

+ 1.1

$ 177

-27.2

-49.4

$ 964

-15.3

+49.9

$ 253

+110.8

-39.6

$ 1,011

+ 160.6

+59.5

$ 87

-56.9

+148.6

$ 932

+91.8

+85.7

$ 439

+64.4

+240.3

$ 1,659

+231.1

+27.6

$ 22
-35.3

-52.2
$ 143

-86.7

-23 9
$ 464
+211.4

+22.4

1,540 0»
+1.3

+4.0

,101.2
+0.7

+2.2

51. 0b
-0.6
+ 15.9

68.4°
-1.9
+2.5

14.1

+2.2

-3.4

21.8

-4.0

1-11.2

20.9

-5.9

+ 6.1

44 8

-3.9

{■15.8

13.6

+2.3

{-12.4

76.3°

{-29.5

{-12.9

16 2

-3.6

+4.5

50.1

+0.8

+8.7

17.6
-4.3

+2.9
27.8

+4.1

+ 4.5
16.3

+2.5
+13.2

+20
+5

+28
+5

+ 14"

+5'

$28,848"
+23.7
+ 16.8

$27,058
+24.8

+ 17.2

$ 97

+6.6

+3.2

$ 57

+3.6

+5.6

$ 101

+4.1

+3.0

144b
+5.1
+5.9

241
+4.8
+9.0

$ 112

+ 16.6

+14.2

$ 108

+5.9

+ 18.6

$ 56

+3.7

+ 1.8

$ 150

+ 7.9

+ 10.3

$ 303

+27

+ 14.8

-1

+ 19.3

$ 63

n.a.

+ 12.5

+12.5

$ 170

+28"

+ 14.1

+4"

+ 14.1

$ 134

n.a.

+ 14.5

+ 7.2

$ 54

n.a.

+10.2

+8.0

" Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. * Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending March 27, 1964, and March 29, 1963.

[11]

INDEXES OF BUSINESS ACTIVITY

1957-1959= 100

EMPLOYMENT - MANUFACTURING

\--~v

\ /

V^us

*REVISEC

SERIES

AVERAGE WEEKLY EARNINGS

- MANUFACTURING

iLL.y

U.S.

# REVISED SERIES

)63 1 96

DEPARTMENT STORE SALES (ADJUSTED)

CASH FARM INCOME

200

-r^

pj^

100
50

vyr

,,,„,,

I..MM

,,,,,,,,

,..,..

1 1 1 1 1 1 1

I.....M

VNUAL AVERAGE

962 1963

'29 '37 '45 '53

sINUAL AVERAGE

BUSINESS LOANS

CONSTRUCTION CONTRACTS

=s^

•£.

U.5.

* REVISE

3 SERIES

- *

'29 '37 '4 5 '53

ANNUAL AVERAGE

>2 1963

ELECTRIC POWER

3R0DUCTI0N

COAL

PRODUCTION

200

iiy

VW\/V

\ >

<6'U.S.

SO
0

V v

'53 '61 1962 1963 196

ANNUAL AVERAGE

'29 '37 '45 '53 '61 1962 1963 1964
ANNUAL AVERAGE

iiujnuio niOIUIUUHl oukki

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN MAY

Business activity was well maintained in May. Steel
production rose slightly each week early in the month to
just over 2.5 million tons of ingots, then dropped back
somewhat the last week. Output was at the highest level
since June of last year, when steel stocks were being built
up in anticipation of a strike. Automobile manufacturers
continued to set records, turning out 725,300 cars for a
new May high. Output of the Big Three ran well ahead
of May, 1963, and for the first five months posted gains
ranging from 10 percent to 17 percent compared with a
year ago. Manufacturing as a whole showed a minor
increase over April. Activity in the mining and utility-
industries was up about 1 percent. The Federal Reserve
Board index of industrial production rose from 129.6 to
130.3 (1957-59 = 100), another new record.

Retail sales rose to $21.7 billion in May, after seasonal
adjustment, surpassing the previous record set in Febru-
ary and moving 7 percent over the year-earlier figure.
Sales of nondurables were reported to be particularly
strong.

The value of new construction in May was estimated
at $5.7 billion, 11 percent above the previous month's
figure and 10 percent higher than the May, 1963, value.
The change from April corresponded to the expected
seasonal advance. Outlays in the three major categories
were all higher than in May last year, but private non-
residential building and public construction showed much
larger gains than private residential construction — 17
percent and 16 percent compared with 6 percent.

Business Increases Capital Outlays

American businesses have again expanded their actual
and planned expenditures for plant and equipment, ac-
cording to Department of Commerce-SEC figures. Out-
lays for the first quarter at a seasonally adjusted annual
rate reached $42.55 billion, well above the $41.25 billion
anticipated three months ago; and the second-quart < I rate
is now placed at $43.35 billion instead of $42.7 billion. In
the first three months, all the major industries except com-
munications and the commercial group (trade, service.
finance, and construction) spent more than they expected
to when the survey was made in February. For the sec-
ond quarter, only the mining and transportation industries
have scaled down their proposed capital acquisitions.

The expenditures projected for the second half have
also been raised, from an annual rate of $44.45 billion to
one of $44.85 billion. Third-quarter spending is antici-

pated at $44.3 billion and fourth-quarter outlays at $45.4
billion. The estimate for the year as a whole is now a
record $43.9 billion, 12 percent above the 1963 level. Man-
ufacturers currently plan to spend 16 percent more than
last year (compared with 13 percent in February), with
durables and nondurables planning nearly equal boosts.
Railroad companies plan an increase of 31 percent over
1963, and other transportation firms a rise of 15 percent.
The advances for mining, public utilities, and commercial
and other companies range from 5 to 8 percent.

Unemployment Rate Drops

The seasonally adjusted unemployment rate declined
in May to 5.1 percent, compared with the 5.4 rate of the
three preceding months. The May level was the lowest
since February, 1960. The drop reflected improvements
both in employment and in unemployment. There was no
change in the labor force. The number of workers with
jobs rose 1.2 million, about 200,000 more than expected
for the season, to an all-time record of 71.1 million. The
increase was about evenly divided between agricultural
and nonagricultural work, both of which showed greater-
than-expected gains. Nonfarm jobs totaled 66.1 million.

Unemployment fell 281,000, about 200,000 more than
expected, to 3.6 million. It was reported that all of the
reduction occurred among people hunting full-time work.
For adult men the unemployment rate declined from 3.8
percent to 3.6 percent, the lowest point in nearly seven
years; the rate for adult women dropped from 5.4 to 5.0
percent, the lowest since September, 1960. As m past
months, the rate for teen-agers was stuck at a high level.
15.9 percent, not significantly lower than in April.

Further Improvement in Payments Position

The balance-of-payments position showed further
improvement in the first quarter. After seasonal adjust-
ment, the adverse balance was about $40 million, a low
figure compared with most other recent quarters. In the
main, the latest figures reflected two things: (1) a net
contribution to receipts of $100 million from "special"
government transactions such as advance foreign debt
repayments and military sales contracts, and (2) an
adverse balance of $141) million on "regular" types of
transactions, including exports and imports. The deficit
on "regular" transactions was considerably lower than
the $1.1 billion level of the first quarter of 1963 and the
$455 billion figure for the last three months of 1963.

AGRICULTURAL ECONOMICS IN THE U.S.S.R.

By C. B. Baker and E. R. Swanson

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
imdmons. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request. . .

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie
Director

Ruth A. Birdzell
Executive Editor

Research Assistants
Robert C. Carey John P. Myers

Virginia G. Speers Giselle Chesrow

Technology Versus Nationalism

The world is pervaded by nationalism. It is seen
everywhere — in the liberation movements of the new
countries, in the quarrels between allies, and in attacks
on the United Nations. Even the regional alliances have
self-seeking protective features.

Two notions seem inevitably to accompany national-
ist patterns of thinking: the first is that national author-
ity is really supreme; the second is that the country can
"go it better alone." It is in the weakest, least developed
countries that the dictatorial mind seems most definitely
to dominate. Their leaders have a propensity for a kind
of "God complex" and may make a mockery of the
promises of freedom and democracy that helped bring
them to power. But all countries have elements belonging
to that same school of thought.

Along with the authoritarian view goes the belief
that if independence is really complete, the ability to
set policies without outside consent will automatically
lead to a solution of the country's problems. Even in the
most powerful countries, the belief that the "strong man"
can somehow work wonders has wide acceptance. Both
developed and underdeveloped nations may succeed at
times in accelerating economic growth in disregard of
their policies' effects on others. But when this practice is
carried to extremes, it can only lead to international
disintegration, as exemplified in the economic warfare
of the 1930's. In today's world, no nation can profitably
retire behind a great wall that shuts out foreign influence.
International goodwill increasingly becomes the basis
for economic progress as well as political protection.

Quite apart from political considerations, however,
there is a reason why nationalistic policies cannot pro-
duce lasting success: without advanced technology, a
nation cannot grow, or even remain secure in its inde-
pendence. It is not enough that there be a few thinkers
sophisticated in scientific knowledge and a handful of
automated factories. Accumulated human experience and
knowledge must be built into the structure of the economy,
into the abilities of its workers, and into a huge accumu-
lation of capital in the form of machinery, power sources,
and guidance systems. Without continuing gains along
this front, the dreams of achievement cannot be realized,
and continual failure is bound to topple regimes that
cannot deliver against promises made to the people.

Sources of the Conflict

For many countries, the needed technology alreadj

exists, though to borrow and assimilate it may require
some kind of research and development effort, if onl\ to
adapt what is known to local conditions. Nationalistic
attempts to preserve local language and customs may
interfere with this somewhat, but the really great obstacle
is the lack of real capital. Capital can still be accumu-
lated in small increments by depressing the living stand-
ards of the people. But this is so far short of what is
possible and feasible through international cooperation
that it is no longer considered an acceptable approach.
Capital, like scientific knowledge itself, has to be acquired
in the countries where it is available. But nationalistic
policies are more likely to set up barriers than to en-
courage the international flow of available capital.

Some other countries — the United States in particular
— have at least periodic surpluses of capital. These
surpluses tend to be embarrassing, because the reactions
of accumulating stocks on flows of income and produc-
tion spread retrenchment throughout the economy. As a
result, there is persistent unemployment even when activ-
ity progresses to new peaks. It would be advantageous
to make the capital surpluses available for export, even
if they had to be given away, because the additional
employment in the capital goods industries would lift
incomes and consumption at home as well as abroad. But
the commercial principles which dictate making each pay
for what he gets restrict giving, so that foreign aid and
lending programs have been held to very modest levels.

What technology requires is the widest possible free-
dom for world trade and unrestricted flows of informa-
tion and capital. Rich countries and poor alike seek
markets for their goods. Even the poor are often con-
fronted with world-wide surpluses and depressed prices
for the few commodities they can produce, for several
reasons: the competition in those commodities is severe;
technology is constantly finding substitutes for them; and
the wealthy protect their own producers against outside
competition.

But the poor need capital, whereas the rich have
capital, and must produce more in ever-expanding
quantities, needing only markets. So it would be a kind
of "natural" to bring the two together. Nevertheless,
nationalistic policies remain restrictive on both sides. The
underdeveloped countries feel they must accept, if neces-
sary, retardation and temporary setbacks in order to
establish the right to trade and profit on terms of equality
and mutuality. And the wealthy do not consider it good
business to send capital where unstable politics may
result in its loss.

In the Communist world, too, disparities of wealth
and poverty prevail, and a country's success there as else-
where lies in the accumulation of technology and real
capital. The problems faced are similar to those of
other countries in comparable stages of development. But
at the roots of its ideology lies the economics of scarcity,
in much the same relationship as to capitalist doctrine,
and it makes aid again contingent on "good behavior."

All the nations accept goals of industrial development
and improved living standards that can only be realized
by playing the game according to technology's rules.
Under these rules, political leaders do not have as much
latitude as they believe they have, let alone as much as
they would like. Recurring problems constantly leave
their hopes unfulfilled, and these problems derive from
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

SAVINGS AND LOAN ASSOCIATIONS

When Comly Rich borrowed $375 in February of 1832
he became the first man in the United States to finance
the purchase of a home with money borrowed from a
savings and loan association. The lender was the Oxford
Provident Building Association, of Frankford, Pennsyl-
vania, which had been formed a few months earlier.

The idea soon spread and associations were formed in
all parts of the country. The first state west of the
Alleghenies to have an association was Illinois, the first
association in the State being formed in Chicago in 1851.
By 1927 the number of associations in the country had
reached 12,804, the all-time high. From 1927 to 1949 the
number steadily declined to 5,983, but in 1950 the trend
again reversed and at the beginning of 1963 there were
6,277 associations in the United States.

Although the number of associations continued to de-
crease throughout the 1940's, the total value of association
assets reached its Depression low in 1939 when assets
totaled $5.6 billion, down from the 1930 high of $8.8
billion. Since 1939, assets have increased constantly to
their present level of over $107 billion.

In view of the early entry of Illinois into the field,
it is perhaps not surprising that the State is still a leader
in savings and loan activity. The state's 600 associations
make it second only to Pennsylvania in number of asso-
ciations. Total assets of nearly $8.8 billion at the end of
1962 were surpassed by but one state, California.

Protection for Savers

Associations may be established under either federal
or state charter. Of the 600 associations in Illinois, 464
operate under state charter. Federal charters are issued
by the Federal Home Loan Bank Board (FHLBB),
which controls the Federal Home Loan Bank System
established in 1932 by the Home Loan Bank Act. This
act set up provisions under which the 12 district Federal
Home Loan Banks can channel funds from associations
with excess reserves to those which have a shortage. Also,
the district banks can advance funds to an association
which is experiencing unusually heavy withdrawals. This
permits the association to meet its demands without hav-
ing to liquidate loans. In 1963, advances of $5 billion
were made.

The Federal Savings and Loan Insurance Corporation
(FSLIC) was established in 1934. All federally chartered
associations must be members, and over half of the coun-
try's state-chartered institutions have elected to join.
The FSLIC insures each account up to $10,000. An
attempt was made in Congress this year to increase the
amount to $20,000, but the bill failed to pass. In its
30-year history the FSLIC has had to pay on only about
40 savings and loan failures.

Association Income

About 80 percent of an association's gross income
comes from interest on mortgage loans. In 1962 savings
and loan associations originated about half of the nonfarm

mortgages in the country. In Illinois, associations origi-
nated 69 percent of the total of $1.5 billion.

An association's net income is derived from the differ-
ence between the interest it must pay on deposits and
the interest it earns on loans. This "spread" has been
decreasing over the past few years, putting pressure on
association income. In 1955 the spread was 2.56 percent-
age points. In 1959 it had dropped to 2.20 points. Cur-
rently, the average interest rate is above 4.25 percent and
average mortgage rates are 5.8 percent or less, resulting
in a spread of less than 2 percentage points.

Part of the cause of the declining spread has been
the increased competition for savings. In order to attract
savings, higher interest rates must be offered. The aver-
age rate was about 2.5 percent in 1950. The competitive
pressure has pushed the rate up so that now most Illinois
associations must pay 4.25 to 4.5 percent.

Lending Powers

Generally, an association is limited to making con-
ventional 25-year loans on up to 80 percent of the ap-
praised value of one-to-four-family dwellings within 100
miles of its office. However, certain exceptions are al-
lowed by the FHLBB. In 1961 power was given to grant
30-year loans of up to 90 percent of the appraised value
on single-family dwellings. These loans are not to exceed
20 percent of the association's total assets. Since 1957,
associations have been able to participate in mortgage
loans of associations in other parts of the country by
purchasing an interest up to a 75 percent limit. Starting
July 1, the amount of participation will be limited to 50
percent. Also becoming effective July 1 is a new rule
which permits an association to invest up to 5 percent of
its total assets in conventional loans outside its own
lending area.

Since 1961, loans on housing for the aged, business
development corporations, and urban renewal investment
trusts have been allowed. Associations are also permitted
to make property improvement loans, loans to acquire and
develop land, loans on developed building lots, and loans
on commercial and multifamily structures.

Of recent concern in the industry has been the pres-
sures on the dividend rate and the expansion of total
savings which the associations have available. In order
to make money the associations must find outlets for these
funds, and some observers have felt that the quality of
loans approved has been deteriorating. Delinquency rates
and foreclosures are increasing. The foreclosure rate
was 4.44 per thousand last year, up for the fourth con-
secutive year.

In an attempt to relieve the upward pressure on
dividend rates, the FHLBB recently issued some new
regulations. Reserve requirements on some rapidly ex-
panding associations are raised above the normal 10 per-
cent. The amount of fee income which can be used to
pay dividends has been reduced. Finally, requirements
for advances from the Federal Home Loan Banks have
been stiffened. It is still too soon to tell whether or not
these measures will be effective.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, March, 1964, to April, 1964

PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

r sto

DEI

I PI

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing1

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

Apr.

1964

(1957-59

= 100)

Percentage
change from
Mar. Apr.

1964 1963

+ 0.3

+ 0.5

0.0

+ 4.5
+ i.3

- 1.1

- 0.4
-14.8

- 7.8

- 2.4
-11.8

+ 2.2
+ 4.9
+ 0.3
+ 17.0
+ 11.6
0 0
+ 19.3
-23.1
+ 12.9
+ 2.5

'111. Dept. of Labor; ' U.S. Bur. of Labor Stati-I
Agcy. Manas. Awn.; 'Fed. Res. Hank, 7th hist.; 5 111. Cr
Res. Bd.j 'F. W. Dodge Corp.; "Fed. Power Comm. ;
Mines; 10 III. Geol. Survey.

» Preliminary. b Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Item

Apr.
1964

Percentage
change from

Mar. Apr.
1964 1963

Annual rate

in billion $

483.1»

445. 2"
60.5»->>

26.1
17.7
18.0

26. 2"
19.1 =
7.0°

69. 8b
54.4°
43.9°
31. 1°

+ 0.5

+ 2.5
+ 0.3

+ 17.3
+ 16
+ 12.6

+ 4.2
+ 19.0
-22.1

+ 1.3
+ 1.1
- 1.3

+ 1.1

+ 5.6

Manufacturing1

+ 6.3

+ 4.1

New construction activity1

Private residential

Private nonresidential

+ 9.5
+ 10.3
+ 16.8

Foreign trade1

Merchandise exports
Merchandise imports

+ 2.6
+ 8.8
-11.2

Consumer credit outstanding2

+ 10.5

+ 11.4

+ 7.5

+ 6.3

Industrial production2

Indexes
(1957-59
= 100)
129"
131"
130"
109"

102"

102
118
120
152
n.a.
108

100
95
100
101

98
107
75d

+ 0.8
+ 1.0
+ 0.5

+ 1.2

+ 0.2

0 0
+ 0.4
+ 0.4

+ 3.4

+ 0.1

- 0 1

- 0.7

- 0.1
0.0

- 1.0
0.0

- 2.6

+ 5.5

Durable manufactures

Nondurable manufactures . . .

+ 6.4
+ 5.0
+ 1.0

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings

Average weekly earnings ....

Construction contracts6

Department store sales2

Consumer price index4

Wholesale prices4

+ 1.5

+ 1.3

+ 3.3
+ 4.6
+ 9.4

+ 1.5

+ 0 6

- 0.9

+ 1.1

Other

Farm prices3

Received by farmers

+ 0.7

- 2.0
+ 0.9

- 3.8

■U.S. Dept. of Commerce; ! Federal Reserve Heard; * U.S. Dept.
of Agriculture; * U.S. Ilureau of Labor Statistics; s F. W. Dodge Corp.

•Seasonally adjusted. B End of month. 'Data for March, 1064,
compared with February, 1964, and March, 1963. d Based on official
indexes, 1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1964

1963

May 30

May 23

May 16

May 9

May 2

June 1

Production:

Bituminous coal (daily avg.)

Electric power by utilities

Motor vehicles (Wards)

Petroleum (daily avg.)

Steel

Freight carloadings

.thous. of short tons.

mil. of kw-hr

number in thous

thous. bbl

.1957-59 = 100

.thous. of cars

1,665
18,037

194
7.637

132.2

577
5,078

100.1
101.0
94.8

38,305
236

1,545
18,277

206
7,640

134.8

595
5,047

100.1

101 1
95.1

38,416

255

1,527
17,812

208
7,629

134. 4

591
5,007

100.1

101.1
95.4

38,394

277

1,531

17,836

213
7,642

133.8

582
5,131

100.1
101.1

96.0

38,307

257

1,509

17,663

216

7,647
131 8
568

5,118

100.3

101.1
96.1

38,057

278

1,514
16,105

164
7,453

140.0

548
4,760

Commodity prices, wholesale:

.1957-59 = 100

100 0"

Other than farm products and foods

22 commodities

Finance:

100.5"
95.6

35,068

235

Source: Surz'ey of Current

Weekly Supplements.

Monthly index for May, 1963.

[ 4 ]

RECENT ECONOMIC CHANGES

Highway Construction

The Department of Commerce in its annual summary
of construction outlays for 1963 has estimated that capital
expenditures for all roads and streets during 1964 by
all levels of government will increase 5 percent over the
$6.7 billion spend last year.

Of the 1963 outlays, slightly over $2 billion was for
the Interstate Highway program, for which the federal
government contributes 90 percent of the cost. As of the
end of 1963 more than $17 billion had been spent on this
new system of national roads ; completed work had cost
$8.8 billion, of which $7.1 billion had been used for con-
struction and $1.7 billion for engineering and right-of-way
acquisition. The 41,000 mile system approached the half-
way mark in 1963, as 16,600 miles were open to traffic
and construction was under way on another 5,000 miles.

In addition to expenditures on the Interstate System,
more than $18 billion has been spent or authorized under
the ABC program of federal assistance for the improve-
ment of primary, secondary, and urban roads and streets
since July 1, 1956. Included in this amount are outlays
totaling $4.7 billion last year. Highway construction
provided over 300,000 jobs on road and bridge construc-
tion sites and generated about 500,000 off-site jobs in pro-
duction, supply, and transportation of highway
construction materials and equipment last year.

Housing Activity

During the first four months of 1964 private nonfarm
housing starts reached a seasonally adjusted annual rate
of 1.6 million units, about 10 percent greater than that
recorded for the same period in 1963. A significant
aspect of this movement in residential construction has
been the continuing shift from single-family to multi-

PRIVATE NONFARM HOUSING STARTS

(Numbers in thousands)

PERCENT OF

Source: U.S. Department of Commerce, Construction
Review, April, 1964, pp. 6-7.

family units, particularly three-or-more-family structures,
as indicated in the chart. The number of multifamily
units started last year, 581,900, was the greatest ever
recorded.

This strong demand for multifamily housing units in
the 1960's has resulted from the rising number of young
families, as the war babies reach marital age; from the
new emphasis being placed on special housing for the
independent elderly; and from the growing demand for
improved quality of housing accommodations. In addi-
tion, apartment house construction has been spurred on
by the expanding programs of urban redevelopment,
increasing scarcity of land, continued abundance of loan
funds for residential construction, and the strong profit-
ability of rental investment.

Supply and Price of Beef

Cattle producers since World War II have marketed
younger, higher quality, and more uniform animals and
have grain-fed an increasing proportion of the cattle
slaughtered. In addition, consumers with rapidly advanc-
ing incomes have developed a growing taste for beef to
barbeque, grill, and roast. Last year, according to the
Department of Agriculture, per capita consumption of
beef reached an all-time high of 95 pounds, up more than
50 percent from 1950. Between 1958 and 1962 per capita
consumption rose from 80.5 pounds to 89.1, with the
retail price of beef remaining about 81 cents a pound.
But when beef supplies advanced by over 7 percent in
1963, retailers had to lower prices in order to sell all the
beef produced.

This shift in the livestock-meat situation has affected
the various segments of the industry very differently.
In 1954 the farmer who sold a 1,000 pound choice steer
received about $237 for it. The butcher and packer re-
ceived $263 for the carcass and salable by-products; and
the retailer, who paid $242 for the carcass, received
$313 for the cuts of beef it produced. In 1963 a similar
steer sold for $237.50 by the farmer, $270 by the packer,
and $352 by the retailer.

Whereas the farmer received 65 cents of each con-
sumer dollar spent for beef in 1954, he received only 56
cents in 1963 and over the same period of time the farm-
retail spread rose from 12 cents a pound to a record
high of 35.7 cents a pound. This rapid increase in the
farm-retail spread for choice beef accounts for much of
the rise in the consumer price index for the same period.

Despite a rise in the marketer's share of the retail
price of beef, overall profits per dollar of total sales
reported by packers and retailers have not been large in
recent years. Profits per dollar of sales have changed
considerably from year to year, but data for the past 15
years shows no significant trend.

Personal Income Rises

Personal income for April was at a seasonally adjusted
annual rate of $480.3 billion, $25.5 billion above the rate
recorded for April, 1963, according to the United States
Department of Commerce. About 75 percent of the rise
resulted from an increase in wage and salary disburse-
ments in all industries and services. The largest source
of personal income, the commodity-producing industries,
accounted for $103 billion at seasonally adjusted annual
rates, with half of the payroll advance occurring in manu-
facturing.

[ 5 ]

AGRICULTURAL ECONOMICS IN THE U.S.S.R.

C. B. BAKER and E. R. SWANSON,* Professors, Department of Agricultural Economics

The difficulties of increasing agricultural production
experienced in the U.S.S.R. were brought to public atten-
tion by the poor crop harvest in 1963 and the subsequent
importation of wheat. These problems offer a strong
contrast to those of United States agriculture, where a
number of factors have combined to generate surpluses
in at least some commodities. In this article, we report
our impressions of how the Soviet agricultural economists
are responding to the way they view their agricultural
problems. By the emphasis given in the advanced train-
ing of agricultural economists and by the types of research
undertaken, one can infer, at least to a limited extent,
what are thought to be the important problems relating
to the economics of agricultural production. A sketch of
the Soviet farming system precedes the description of
the research orientation in agricultural economics.

Organizational Structure of Agriculture

Farms in the Soviet Union are organized as either col-
lective or state farms. The number of collective farms
declined from about 250,000 in 1950 to 40,600 in 1962
(see table). The number of state farms increased from
about 5,000 in 1950 to 8,600 in 1962. This pattern results
from mergers of smaller collectives, absorption of col-
lectives by state farms, and new state farms in the "New
Lands." The average sown area for collectives in 1962
was about 7,000 acres, for state farms about 25,000 acres.

Although Soviet authorities expect a single type of
farm to prevail eventually, its exact nature has not been
made explicit. State farms appear highly favored in
principle. Yet there is considerable pride in the relative
independence of the collectives despite government limits
on independence through prices, norms for indivisible
funds, negotiations for loans for new investments, and
other controls. In any event, collectives are, for the
present, indispensable. The collectives employ a large
number of workers who otherwise would have little
alternative employment. In a society that "guarantees"
everyone a job, this point is important. They "require"
smaller allocation of investment per worker than do state
farms, although investment per acre is about the same.
Collectives apparently provide the larger percentage of
investments from their own resources.

On state farms, workers are employed on an "as
needed" basis. This fact, along with the larger capital
investment per worker on state farms, accounts for the
reported 1.8 times higher productivity per worker on
state farms than on collective farms. Also state farms
have expanded relatively more rapidly in areas of exten-
sive agriculture (the "New Lands" areas, for example).

On state farms, wages are guaranteed whereas on
collectives, wages depend on the level of net income for a
particular year. The difference is easily overstated since,
in practice, state farm workers are paid bonuses for
such items as cost reductions below established targets
and over-fulfillment of quotas. Further indication of the
diminishing difference between state and collective labor
payments is that the most efficient one-fourth of the

* During the spring of 1963 the authors participated in the
U.S. -U.S.S.R. Cultural Exchange Program by lecturing at a
number of institutions in the U.S.S.R. and holding discussions
with Soviet agricultural economists. This article is based pri-
marily on observations from this trip.

collectives (in the Ukraine, the top one-third) pay work-
ers guaranteed minima as do state farms.

Small private plots, on both collective and state
farms, occupy about 3 to 4 percent of the sown area (see
table). They average about 0.7 acre per household on
collectives. The objective of the private plot is to provide
subsistence to the worker through the year, pending pay-
ment of his share of the farm's collective output. In fact,
as many have observed, it is the source of a considerable
fraction of the income of workers and the source of a
large fraction of agricultural output in the U.S.S.R. For
example, about 45 percent of the meat, milk, and vege-
tables was produced in the private sector in 1961. In all,
30 percent or more of agricultural production comes from
private plots. This phenomenon continues to attract con-
siderable attention. It must be said, however, that private
plots absorb significant inputs formally ascribed to the
socialized fraction of the farms, thus leading to an over-
statement of productivity in the case of the private plots
and an understatement of productivity for the socialized
segment of agriculture. Also, this apparent productivity
of the private sector needs to be interpreted in light of
the kind of production. It is somewhat misleading to
talk of livestock production per unit of area of land.

Planning Agricultural Production

The planning of agricultural production, along with
other aspects of the economy, starts with the Supreme
Council of National Economy where general production
goals are outlined. These production goals are given to
the State Planning Commission, the staff of which works
out by trial-and-error methods the implications for each
republic. These aggregate plans are passed through re-
public, region, and territory levels on down to the director
of the individual state farm and the executive council of
the individual collective farm. These plans are not de-
veloped in a completely one-way system ; there is appar-
ently some interaction and negotiation in the planning
process.

Percentage Distribution of Land, Livestock, and Output,
by Farming Sector, U.S.S.R., 1962"

r ,, Total

,. State .;'!. social- Private

It6m «"» b f Vms " Plots

sector

Agricultural land area 49 5 49 1 98 6 1.4

Sown area 42.7 54.0 96.7 3.S

Cattle 26 45 71 29

Cows 20 35 55 45

Swine 29 45 74 26

Sheep and goats 28 47 75 25

Agricultural output 24 44 68 32

Field crops 27 57 84 16

Livestock products 22 31 53 47

Number of farms

(thousands) 8.6 40.6 49.2 25,800

0 U.S. Department of Agriculture preliminary estimates
based on official Soviet data.

b Includes a number of small state-owned agricultural en-
terprises not classified as state farms.

Source: U.S. Department of Agriculture, Soviet Agriculture
Today, Foreign Agricultural Economic Report No. 13-1, Decem-
ber, 1963, page 10.

Such financing as may be possible is negotiated by
farm officials with regional authorities and the local rep-
resentative of Gosbank. Apparently, the interest rate
charged the borrower is nominal, designed only to pay
bookkeeping costs. It seems likely that the bank official
is more or less passive in the negotiations, being largely
an accounting official. This leaves the state farm director
or the executive council of the collective to negotiate
with the regional authorities on size and length of loan.
On these points no clear conclusions are possible from
interviews held with ministry officials and a farm official.
Criteria for loans are alleged by some officials to favor
farms whose earning records are relatively weak, such
farms tending to receive comparatively large loans for
a term longer than average. Reports on this were not
uniform, however. No information was obtained on the
incidence or consequences of default.

The state farm manager receives goals or targets for
each of the following: physical production, cost of pro-
duction, capital investment, number of workers, and
total wages. The collective farm receives targets for only
the first two. Bonuses for state farms are sometimes paid
for over-fulfillment of targets.

In addition to the formal government hierarchy, Com-
munist Party members play important roles in implement-
ing policy. This includes giving technical advice at the
individual farm level, as well as advice on methods of
providing for the social welfare of farm workers. On the
technical side, Party activities supplement extension-type
services that comprise a part of the program of the All-
Union Institute of Agricultural Economics. Interviews
with Institute officials revealed a growing awareness of
the importance of this type of activity. Indeed, the begin-
nings of a research program to investigate alternative
methods were reported by persons at the Institute.

Research Emphasis

A convenient way to classify the possible research
areas is by the various levels at which resource allocation
is performed: between nonagricultural industry and agri-
culture, among regions within agriculture, among farms
within regions, and within farms. The special problems
of labor incentives are in a class by themselves.

Very few of the agricultural economists visited were
actively involved with research problems relating to re-
source allocations at the first two levels — between agri-
culture and nonagricultural industry, or among regions
within agriculture. This does not mean, of course, that
these problems are not being actively studied by other
groups. It may, however, reflect what is considered appro-
priate research for the economist specializing in agricul-
ture. It is hardly likely that the recent announcement of
plans for an approximate doubling (1965 over 1961) of
state capital investment in agriculture was done without
at least some research base. In any event, it seems clear
that agricultural output has lagged substantially behind
nonagricultural output, despite the fact that investment in
agriculture has remained at about the same percentage
of the total throughout the post-World War II period
(see chart).

In addition to problems of reporting accuracy, the
indexes arc subject to serious upward bias. The bias
arises from failure to eliminate output that occurs in the
form of intermediate products. Thus in agriculture, crop
production is simply added to livestock production to
yield agricultural output. As feed supply shifts from
grazing to cultivated crops, the upward bias is obvious.

Similarly, mining output is simply added to metal manu-
factures in computing nonagricultural output.

Resource allocation among farms within a region was
receiving attention at a number of institutions. Some
sample thesis topics at this level of analysis were "Pros-
pects for Developing Agriculture in the Pskov Region"
(a war-ravaged region in northwest Russia), "Special-
ization in Agriculture of the Latvian Soviet Republic,"
and "Determination of Optimal Cropping Pattern for the
Leningrad Oblast." There was some interest in problems
of optimum farm size, both for state and collective farms.
Some Soviet agricultural economists view the problem
of farm size as a critical one for analysis by the pro-
fession; others spoke of size of farm as a political deci-
sion, outside the legitimate scope of their study. Some
concerned with farm size tended to see the problem as
one of how best to organize labor, including size and
control of work brigades. Others were concerned with
the bureaucracy associated with increased size, and hence
the increase in problems of communication. Still others
seemed naively confident that optimum size meant essen-
tially larger size.

Resource allocation within farms is receiving con-
siderable research attention from Soviet agricultural
economists. A number of studies are directed toward
reducing cost of production either by introducing new
technologies or by reallocating the present resources.

New Methods in Planning

Linear programming, a method of planning, is cur-
rently attracting much interest in the U.S.S.R. It is
explored methodologically in a thesis, "Mathematical
Methods of Planning Agricultural Production on Farms
in the Moscow Region." Although the original paper on
linear programming was published in 1939 by a Soviet
mathematician, this increase in interest dates from the
late 1950's.

Since linear programming offers a method for increas-
ing the internal consistency of complex plans, it may
prove to be a breakthrough in planning, both at the
individual farm level and at higher levels. However,
problems of changing the bureaucracy of the present plan-
ning systems as well as obtaining accurate data are
substantial obstacles to rapid adoption of such planning

PRODUCTION IN THE U.S.S.R.

GROSS NONAGRICULTURAL OUTPUT

GROSS AGRICULTURAL OUTPUT

1952 I9S4 1956 1958 I960 1962

Source: U.S.S.R., Handbook of Statistics, 1963, p. 34.

[7 ]

methods. The large number of students majoring in
mathematical planning methods (for example, about one-
half of those studying economics at Leningrad State Uni-
versity) indicates how strongly the Soviets feel that these
methods hold promise.

A popular view in the West is that one of the chief
factors in the lagging production of Soviet agriculture is
the organization of labor and its lack of incentive. This
is not without recognition among Soviet research workers.
More efficient organization of work brigades and other
units is being investigated. Topics of theses in this prob-
lem area were "Rational Use of Labor Force on Collective
Farms" and "Effects of Progressive Wage Payments on
Efficiency in State Farms."

In one sense, more significance might be ascribed to
the Soviet thesis topics than to a sample of United States
graduate theses in, for example, agricultural economics.
The typical Soviet graduate student is employed in a
government institute wherein the topic is originated and
developed. Together with the formidable bureaucratic
process of obtaining approval of a thesis, one feels quite
certain that most topics are so selected as to minimize
the risk of being found to be irrelevant. One fears also
that the student is well advised to avoid projects that,
though with high payoff from success, have a substantial
probability of failure.

Concluding Remarks

The Soviets devote substantial effort and resources to
observing research work in "advanced capitalist econ-
omies." A large corps of specialists makes available to
Soviet scholars the technical literature from agricultural
experiment stations in the United States and Western
Europe. In observations about their own country, they
seemed naively confident (with some exceptions) of the
quality of statistics gained from annual reports of the
state farms and collectives.

The general pattern of research observed is relevant
in implementing the new policy for agriculture announced
at the February, 1964, Plenum of the Central Committee
of the Soviet Communist Party. This policy involves the
shift away from land expansion to intensive methods in-
volving mineral fertilizers and machinery. The Soviets
have made agronomic studies of regions and crops to
estimate the yield increases. Scientists of the United
States Department of Agriculture have indicated that
expected increases are roughly correct.

Whether or not the greater use of fertilizers and
chemicals in general, now being given new emphasis, will
perform the feats claimed by the Soviets remains to be
seen. Despite a long-term effort to mechanize agriculture,
only a beginning has been made in many sectors. The
general tendency to slight spatial problems is a bit
puzzling in a country with the geographic characteristics
of the U.S.S.R. But perhaps the greatest paradox is the
nearly universal lack of concern for managerial talent:
its development, nurture, and reward. With only an
exception or two, among interviewed respondents, man-
agement was assumed "available," much as the air one
breathes. And seldom was the problem of management
identification and use related to the size of farm. In a
society prideful of ubiquitous application of "science,"
this may be the most important gap in remedying agri-
cultural problems. If so, it is likely to become more and
more evident with the adoption of production techniques
less tolerant of managerial error. It is also likely to be
increasingly evident as livestock production is emphasized.

Technology Versus Nationalism

(Continued from page 2)
the necessities of technological advance. They are in
their basic nature the same everywhere but appear differ-
ent to the various nations because some nations have
progressed further in development than others.

At the same time, the political decisions handicap
achievements that are technically possible: the under-
developed countries refuse to bow before the superior
technology of the developed ; the wealthy fear to ship
capital into anarchy; the capitalist-communist clash keeps
the situation disturbed, and the only choice it offers
appears to be spurious, since, if accepted, it might lead
again to the kind of domination all countries are now
trying so hard to avoid. Thus, nationalism and technology
are locked in a conflict of mutual frustrations.

Enduring Conquest

Since generations of men, their leadership, and their
institutions are transitory, it must be expected that tech-
nology will triumph in the end. The environment of the
future will be different, as ours is from that of the past,
and human institutions will have to be adapted to it.
We can try to bring about this adaptation intelligently
and peacefully or we can continue to let it develop as
it will, each seeking only his own advantage, in which
case necessary reforms will be forced upon us or inter-
national disintegration will lead ultimately to disaster.

There are, in other words, several ways in which
technology may enforce its victory. One possibility is
that it may destroy us all. There is still no assurance
that the weapons of total destruction will not be used
to wipe out the human race.

Another is that it may put the means to dominate
into the hands of a group ruthless enough to enforce its
will on the others. Today, there exists a kind of balance
in the control of destructive forces. Whether no one dares
use or each reserves his power to prevent its use by the
other does not matter. The two great powers of the
present-day world are feeling out an accommodation that
permits others to enjoy freedom to the point of abuse.
But in the future this could change, letting one nation
with overwhelming power take over control and dictate
the terms upon which others may live.

A third possibility, more in line with our ideals, is
that the technical dangers and opportunities may lead to
international cooperation in establishing control in accord-
ance with democratic principles. The world would then
find that the technology and capital available are adequate
to accelerate the progress of all nations willing to adapt
to the new conditions and accept mutuality in the realiza-
tion of benefits. This is the one way for free men to
realize the promise of technology, and its essence is the
increase in international interdependence. The standards
and procedures of nationalistic control must give way
in order that international discussion and negotiation
may hold sway in realizing a wider set of values. Only
in a stable "one world" environment will man be able to
achieve the productivity which the processes of discovery
and invention make possible.

For success in this venture, the partial accommodation
between the world's strong nations has to be preserved
and expanded. There is a chance of approaching the
vision of abundance if the great nations will refrain
from using the destructive power they have acquired and
bar the use of such power as it may be acquired by others.

VLB

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Sugar Price Stays High

United States farmers are raising more sugar beets
and sugar cane than ever before in response to a decrease
in world sugar stocks that began in 1960. This turnabout
from excess world sugar stocks and low prices to a short-
age of sugar and high prices can be traced to a decline in
sugar production in Cuba (formerly the world's largest
producer), to poor sugar beet crops in Western Europe,
and to continued increases in world sugar consumption.
In order to meet the rising demand for sugar, domestic
farmers are increasing their output of beets and cane;
but even though acreage controls no longer exist, produc-
tion has been controlled indirectly by government-
established marketing quotas and by lack of enough
processing plants.

Government control of domestic sugar supplies was
established by the Sugar Act of 1937 (amended in 1951,
1956, 1960, 1961, and 1962) and was an outgrowth of the
International Sugar Agreement of 1937. Under this act
the United States government tries to protect domestic
sugar producers and consumers from volatile price adjust-
ments by rigidly controlling supplies. Despite the agree-
ment and act, the period between World War II and 1960
was characterized by surplus world supplies and low
sugar prices, although domestic consumers and producers
were insulated to some extent from world price move-
ments through the administration of the Sugar Act.

However, with world production of sugar falling
short of consumption during the last three years and with
the world price rising above the domestic control level
of 6.6 cents per pound, the domestic market has been
forced out of its isolation. From January, 1962, to May,

AVERAGE PRICES, RAW CANE SUGAR

CENTS PER POUND

Sources : International Sugar Council, Sugar Yearbook,
1962, and Standard & Poor's Corporation.

1963, world sugar prices rose from 2.5 cents per pound
to 10 cents per pound and subsequently to 11.7 cents per
pound in October of 1963, as indicated in the chart. On
the basis of the reasonable assumption that world con-
sumption of sugar will continue to advance at about the
same rate, world production of sugar is likely to be
stimulated by the high sugar prices. But since cane,
from which most of the world's sugar comes, matures
slowly and since domestic sugar production is hampered
by lack of processing plants and mills, the price of sugar
is expected to remain high for the next two or three
years.

Insurance Personnel in the U.S.

The total number of persons employed in the insur-
ance industry decreased 2.8 percent in 1963 to 1.1 million
workers, according to the latest survey by the United
States Bureau of the Census. Sales personnel advanced
14.6 percent but nonsales personnel fell 4.3 percent. The
rise in sales personnel was principally among those deriv-
ing more than 50 percent of their income from the sales
of non-life types of insurance. The decline of almost
11)0,01)11 persons in nonsales positions occurred mainly
among home office personnel as a result of increased use
of electronic data processing equipment; there was no
change among local agency nonsales personnel or among
nonsales persons employed by insurance rating bureaus or
trade associations. About 10 percent of all nonsales per-
sonnel worked part-time and practically all of these part-
time workers were women.

Among sales personnel 85 percent worked longer than
35 hours a week and over 33 percent worked 51 or more
hours a week. The survey found that women sales work-
ers were much more likely to work less than 35 hours and
men were more likely to work 51 or more hours. Among
other characteristics it was found that a higher propor-
tion of all young persons employed in insurance (aged

24 or less) worked in life insurance areas only; about
half of all women insurance employees were in this
younger age group.

Pleasure Trips by Americans

Almost 68 million pleasure trips were taken by Ameri-
cans during the first half of 1963. Such trips accounted
for 56 percent of all trips taken, according to figures just
released by the Bureau of the Census from its 1963
Census of Transportation. A trip was counted if it in-
cluded one or more persons from a household journeying
out of town at least overnight or to a destination at least
100 miles away.

Approximately 70 percent of all pleasure trips were
taken principally to visit friends and relatives; another
16.5 percent were for outdoor recreation ; and the remain-
ing 13.5 percent were taken for a variety of reasons such
as entertainment, sightseeing, and other pleasure. The
principal means of transportation used was the auto-
mobile, which accounted for 87 percent of the trips to
visit friends and relatives, 96 percent of the trips for
outdoor recreation, and 77 percent of all other pleasure
trips. A comprehensive report titled National Travel Sur-
vey Report — First Six Months of 1963 is available from
the Bureau of the Census, Washington, D. C. 20233, for

25 cents.

[9]

LOCAL ILLINOIS DEVELOPMENTS

S ^

Manpower Development Training in Illinois

The Illinois Department of Labor reports that the
State has participated extensively in the program set up
by the federal Manpower Development Training Act
(MDTA) in mid-1962. As of February, 1964, Illinois had
established a total of 152 programs covering about 10,000
trainees, or roughly 10 percent of all programs and
trainees in the nation. Another 75 programs, to cover an
additional 11,000 persons, are awaiting approval.

The MDTA is a positive means for coping with the
problem of hard-core unemployment and thus reducing
regional and local disparities in unemployment rates.
Labor market environments are improved through job
training and retraining and through educational programs.
A large variety of programs prepare disadvantaged work-
ers for skilled and semiskilled jobs. In addition, other
programs are offered to give trainees a basic sixth-grade
level of education and essential job skills or to assist them
in obtaining jobs for which little schooling is needed.

New Industrial Developments

Progress in industrial development is indicated by
new plants opening in communities throughout Illinois.
At Belvidere, a new automobile assembly plant of the
Chrysler Corporation is being constructed. The plant, to
begin operations in April of next year, will employ about
5,000 persons. In Naperville, Bell Telephone Laboratories
has purchased a 200-acre tract upon which a $9 million
communications research and development center is to be
built. Upon completion sometime in 1966, the new facility
will employ about 1,200 engineers, scientists, and tech-
nicians. Libertyville is to be the location of a $6 million
research and development center planned for completion
in 1965 by International Minerals and Chemicals of
Skokie. Over 200 persons will be employed there.

A company manufacturing soil-testing equipment has
located recently in Evanston, and a plant now being built

CASH RECEIPTS FROM LIVESTOCK
MARKETINGS

IONS OF DOLLARS

Source : U.S. Department of Agriculture.

in Elgin is to produce flexible packaging materials; in
each of these plants, about 150 persons arc to be hired.
Plans have been announced for the construction of a
plant at Kankakee for the manufacture of paperboard
folding cartons. Upon its completion late in 1965, 125
workers are to be hired. A new firm will begin to produce
wooden kitchen units this summer in Gillespie (Macoupin
County). A new firm is to begin production of food
additives and pharmaceuticals this month in Granite City.
Other new developments include a new lingerie factory
in Des Plaines, to open early next year; a facility for
nuclear analysis and measurement instruments located in
Schaumburg, to open this July; and an abrasives manu-
facturing plant in Fox Lake, to open this month.

New Tourism Study for Southern Illinois

Governor Otto Kerner has recently announced plans
of the Illinois Board of Economic Development to under-
take an extensive seven-month study of the southern
Illinois economy. Emphasis is to be placed especially on
use and employment possibilities of natural resources with
respect to tourism and outdoor recreation facilities. Of
the 29 counties to be covered, 25 have a problem of high
and persistent unemployment. The study is to be financed
by a $65,000 grant from the federal Area Development
Administration and by $25,000 in state funds.

At present, the area receives about $4 million a year
from tourism. Along with the goal of increasing this
revenue, the study is to be oriented toward expanding
existing recreation facilities and developing new ones and
toward making recommendations for additional promo-
tional programs and financing.

The new study, as part of a state-wide plan, is to
supplement other projects in southern Illinois. The state
Department of Conservation is developing an informa-
tion center there. The Crab Orchard Wildlife Refuge is
being improved, three new state parks are being estab-
lished, and all-weather roads through these areas are
being provided.

Farm Marketings Lower in 1963

The United States Department of Agriculture reports
that cash receipts from crop and livestock marketings
came to approximately $2.2 billion, a decline of 1 percent
from 1962.

As shown on the chart, receipts from livestock and
livestock products amounted to about $1.1 billion, showing
a drop of 7 percent from the previous year. Receipts from
cattle and calves, the largest source of livestock income,
were 6 percent lower than in 1962. Along with a slight
decrease in numbers marketed, producers were adversely
affected by lower prices. Hog receipts were down by
6 percent ; an increase in numbers marketed did not offset
lower prices. Declines in marketing were registered also
for dairy products and eggs and other livestock, the latter
comprising mainly sheep and lambs, farm chickens, and
commercial broilers.

Cash receipts from crops, at $1.1 billion, showed a
gain of 5 percent over 1962 and represented slightly more
than half of the combined receipts from farm marketings.
Although cash receipts data for individual crop items are
not yet available, higher sales values for corn, soybeans,
wheat, and oats for the 1963 crop year indicate that
increased income was realized.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
April, 1964

Building

Permits1

(000)

Estimated

Retail

Sales3

(000,000)

Depart-
ment Store
Sales4

Bank
Debits6

(000,000)

ILLINOIS

Percentage change from

fMar., 1964.
\Apr., 1963.

NORTHERN ILLINOIS
Chicago

Percentage change from.
Aurora

Percentage change from
Elgin

Percentage change from .
Joliet

Percentage change from .
Kankakee

Percentage change from.
Rock Island-Moline

Percentage change from .
Rockford

Percentage change from .

CENTRAL ILLINOIS
Bloomington

Percentage change from.
Champaign-Urbana

Percentage change from.
Danville

Percentage change from.
Decatur

Percentage change from.
Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

Mar., 1964
(Apr., 1963.

Mar., 1964.
[Apr., 1963.

(Mar., 1964.
'(.Apr., 1963.

(Mar., 1964.
■\Apr., 1963.

fMar., 1964.
(Apr., 1963.

(Mar., 1964.
\Apr., 1963.

(Mar., 1964.
(Apr., 1963.

(Mar., 1964.
Apr., 1963.

I Mar., 1964.
'(Apr., 1963

(Mar., 1964.
Apr., 1963.

(Mar., 1964.
Apr., 1963

(Mar., 1964.
'(Apr., 1963.

(Mar., 1964.
■(Apr., 1963.

[Mar., l')64.
Apr., 1963.

Percentage change from. ^ ,,„''.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from
Alton

Percentage change from.
Belleville

Percentage change from.

Mar., l''f,4.
\Apr., 1963.

Mar., 1064.
Apr . L963.

Mar.. 1964.
(Apr., 1963.

$35,049'
-4.7
-11.9

$22,0Q1
+0.9
+ 10.5

$ 1,237
-12.0
-41.6

$ 447
-69.7
-53.8

$ 998
+18.8
-8.6

$ 317
-2.2
+23 3

$ 1,927
-23.7
-18.1

$ 1,611
+28.6
-20.0

$ 442

+149.7
-51 5

$ 817
-15.2
+53.3

$ 1,057

+317.8

+333.2

$ 753
-25.5
-39.8

$ 131
+50.6
-93.9

$ 492
-47.2
-40,3

$ 227
-48.3
-83.6

$ 631
-62 0
-50.8

$ 83
+277.3

+31.7
$ 452
+216.1

-38.5

$ 434

-6.5

-49.5

1,466 2"
-4.8

+ 7.0

,033 4
-6.2
+4.6

50 8''
-0.4

+30.0
68 4'
-0.0

+ 13.1

-2.

-3.

+3.

+ 16.

+ 5.

+11.

-0.

+ 17.

-3

+ 15.

-;.

+14.
15
-6.

+ 10.

17 8
+ 11
+6.0

27 9
+0.4
+ 9.8

14 9
-8.6
+4.9

$28,720"
-0.4

+ !<> 3

$26,914
-0.5
+20 . 1

$ 95
-2.1
+5.6

$ 60
+5.3
+9.1

$ 102
+ 10
+3 0

$ 1481'
+2.8
+9.6

$ 243
+0.8
+ 15 2

$ 109
-2.7
+4.8

$ 109
+0.9
+ 18.5

$ 57
+ 1.8
+ 1.8

$ 153
+2.0
+ 19.5

313

+3.3
+8.7
62
-1.6
+0.0
170

-0 o
+6.3

131

-2 2
-4.4
53
-1.9
+ 19
n.a.

» Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. No1 available.

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. * Illinois Department of Revenue.
Monthly data not available. * Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending April 24, 1964, and April 26, 1963.

[11]

INDEXES OF BUSINESS ACTIVITY £"£™£"£ijeal Survey

1957-1959 = 100

EMPLOYMENT - MANUFACTURING

\ /

* REVISED SERIES

AVERAGE WEEKLY EARNINGS

- MANUFACTURING

150

'■ "'

ill y

US.

* REVISED SERIES

1962 1963

DEPARTMENT STORE SALES (ADJUSTED)

ywA/

•s

ILL

'■•■ U.S.

CASH

FARM 1

NCOME

ILL.

\h^

-vtir

BUSINESS LOANS

CONSTRUCTION CONTRACTS

.*r-

ILL.

US.

PREVISE

3 SERIES

/ u.s

'61 1962 1963 196'

ELECTRIC POWER PRODUCTION

vwV

HA7

ILL,

/us.

COAL

PRODUCTION

BOO

iiy

\ ,

UA&

^¥

V~V~.

u V

IUMUK MMUKOl SMW

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN JUNE

Seasonal slowdowns appeared in some lines of pro-
duction in June, but on the whole industrial production
continued at a strong pace. The Federal Reserve Board's
index of industrial production inched up a little further,
from 131.2 to 131.8 (1957-59 = 100). This new record
represented a gain of 5 percent over the 125.5 of June,
1963.

Steel was one industry in which a summer letdown
appeared, as output dropped a little each week to 2.3 mil-
lion tons the last week of June. It then stood slightly
above the corresponding week of 1963, reflecting the
strength of this year's demand in comparison with the
usual summer letdown. Car manufacturers have main-
tained their orders at a higher level than anticipated ; and
the construction and rail equipment industries have also
been taking unusually large amounts of steel.

Automobile makers set a record for June, for the
second quarter, and for the first half. June output was
nearly 777,200 cars, well above the previous June high of
717,000 units. Cars assembled during the second quarter
numbered nearly 2.3 million, 9 percent more than the
previous record for the quarter. For the first half, pro-
duction totaled 4.4 million cars, a tenth more than in the
first six months of 1963 and well above the 1955 high.

Construction Up Seasonally

New construction in June was estimated at $6.1 bil-
lion; the 11 percent increase over the previous month was
the expected seasonal change. In comparison with June,
1963, building expenditures were up 5 percent. Both
private and public construction showed approximately the
anticipated change between May and June. Private con-
struction, valued at $4.2 billion, was 5 percent higher than
in the corresponding month last year; and public con-
struction, at $1.9 billion, was up 3 percent. In private
construction, most of the year-to-year advance was con-
centrated in nonresidential buildings, with industrial, com-
mercial, and other nonresidential construction all 14 or
15 percent higher.

For the first half of 1964, new construction outlays
totaled $30 billion, 8 percent above the figure for the first
six months of 1963. Private expenditures advanced by
8 percent to $21.3 billion, reflecting a 7 percent gain m
residential building and a 12 percent rise in nonresidential
construction. Public construction spending, at $8.7 billion,
was 9 percent greater than in the first half last year.

Auto Industry Contract Talks Open

Negotiations for new contracts between the United
Auto Workers union and the Big 3 automobile manufac-
turers opened at the end of June and the first of July,
with American Motors starting a week later. Approxi-
mately 580,000 workers are covered by the negotiations.

Although wage increases are of course included in the
union's demands, greater attention is centered on demands
relating to working conditions. Two important aims of
the union are additional relief time for assembly line
workers and a slower pace on assembly lines. With re-
gard to the latter, there have been numerous charges of
speedup. The management position is that unworked time
already accounts for a sizable fraction of industry costs
and that the pace of the assembly line is not something
which can be written into a contract and is in any case
a management matter. These two points are expected to
be the subjects of the hardest bargaining between the
parties. In addition, the union is asking for earlier retire-
ment, more vacation time, a reduction in overtime worked,
and a shorter workweek — all intended to add jobs in the
automotive industry.

Unemployment Rate Still High

After a welcome drop in May, the unemployment rate
was back up in June as younger workers flooded into the
labor market. Tecnaged workers actually did somewhat
better than expected in finding jobs, and their unemploy-
ment rate dropped from 15.9 percent to 15 percent; none-
theless, teenagers accounted for 800,000 of the 1,050,000
increase in unemployment. Young adult men between 20
and 24 accounted for 100,000 of the workers who were
added to the jobless ranks. This increase was mainly
responsible for the rise from 3.6 percent to 4.0 percent in
the unemployment rate of adult men, which in turn ex-
plained the rebound in the overall rate from 5.1 percent
of the labor force in May to 5.3 percent in June. The
ratr among adult women was practically unchanged. Total
unemployment was 4.7 million, about 150,000 less than in
June, 1963.

Employment rose by approximately 850,000 between
.May and June to a total of 71.95 million. Virtually all of
the gain occurred in farm work; nonagricultural employ-
ment was unchanged at 66.1 million. The total number of
workers employed was about 1.6 million above the year-
earlier figure.

THE KENNEDY ROUND: A TURNING POINT?

By Robert W. Gillespie

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
I'.usiness Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
conditions. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-cla^s mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Executive Editor

Research Assistants

Robert C. Carey John P. Myers

Virginia G. Speers Giselle Chesrow

Basis for Coexistence

communist countries, too, have some surpluses for trad-
ing and are short of other commodities needed for devel-
opment ; so they, too, seek trade and credit in the West.

In the developed countries of the West, policies for
economic growth also call for additional capital expan-
sion. Tax concessions, investment allowances, accelerated
amortization, and other subsidies are provided to stimu-
late business investment. In addition, these countries face
the instability that derives from high rates of investment
and large stocks of capital goods. Persistent unemploy-
ment and the threat of recession indicate that ability to
have enough for all does not mean that all will have
enough. The methods devised for dealing with this prob-
lem consist in most countries of measures for stimulating
private investment still further, supplemented by plans to
fall back on increased public investment if necessary.

Even the consumers want to be capitalists. To live in
the new world and enjoy its amenities, they must have
houses, automobiles, and all the latest gadgets, and they
are willing to use credit to the hilt in order to obtain
them. These are desires that governments find it hard
indefinitely to deny.

Too much emphasis has been placed on the ideological
aspects of the Cold War. Nationalistic aspects have
been especially played down, or ignored entirely, by-
leaders who feel the need for a clear-cut ideology as a
basis for gaining social cohesion. Everywhere "freedom
lovers" and "anti-imperialists" have thus attempted to sell
their programs to the world.

What becomes increasingly clear is that the power of
an ideology is limited. The common man judges its worth
by how well his wants are served. He may be carried
away by enthusiasm for a cause, but it must work out as
promised in terms of what he sees and feels or he will
again seek change — not necessarily to deny basic ideolog-
ical premises but at least to adapt policies to the realities
of the practical situation.

A World of Capitalists

This forces all governments — despite verbal differ-
ences proclaimed to be "irreconcilable" — to adopt the
goal of higher living standards for the people; even we
have our war on poverty. Accepted theory, somewhat
oversimplified, holds that the way to success is to increase
productive efficiency through industrialization, which re-
quires the accumulation of real capital in the form of
industrial plant and equipment. Ownership and control
of real capital is thus the key to growth, and in this most
meaningful sense all the world seeks to be capitalistic.

The scale of operations of an efficient modern industry
is often so large that a small economy cannot provide an
adequate market for its output. That is why the under-
developed nations, in the recent UN Conference on Trade
and Development, appealed for special concessions so that
their new industries could sell without restriction in es-
tablished world markets.

Playing the development game inevitably brings world
leaders up against technological constraints that circum-
scribe their discretion. The underdeveloped countries are
literally starved for capital, and the urgency of their need
forces them to make compromises they do not consider
desirable. The recent trade deal between the United States
and Rumania, while it partly reflects the weakening of
centralized control ovei Eastern Europe as a result of the
Chinese-Soviet spin, exposes needs in the communist bloc
not unlike those of the underdeveloped countries. The

The Organization of Production

The problem to be solved everywhere, therefore, is
how to organize large aggregates of real capital, special-
ized as necessary to make them competitive with other
producers but flexible enough to keep in step with new
technological developments. For best results, operating
units must have a degree of independence, detached at
least partially from close political or financial control and
able to experiment with new products and methods of pro-
duction. Communist theories of planning have been veer-
ing toward decentralization of control for such purposes.

In the West, the corporate form of organization was
an inevitable outgrowth of technological advance. Mass
production, adapted and guided by research, could not
long remain the province of the individual manager or
inventor. The unification of the factory and the research
laboratory in the corporate structure requires highly or-
ganized team activities backed by a huge investment in
equipment and instrumentation and makes any return to
individual ownership and control unthinkable.

We cling to the thesis that corporate enterprise repre-
sents capitalism in the old sense, and corporate manage-
ments find it convenient at times to maintain their re-
sponsibility to the stockholders. Nevertheless, we cannot
escape the fact that the average stockholder is without
power to decide the affairs of the corporation, which has
become a separate entity with its own self-perpetuating
management group. The legal fiction that the corporation
stands as a person before the law is used to convey the
impression that government regulation could take away
the liberties of all of us. But government has not hesi-
tated to intervene when it appeared desirable to do so and
has declared itself a partner in corporate profits. It is an
outcome that places the real capital of the economy in the
control of enterprises which are semipublic in character
but without direct responsibility to either shareholders or
government.

The differences from developments elsewhere are
largely differences in degree. Corporate action cannot be
completely free in the West any more than it can be
completely controlled in the East. The planning mecha-
nisms that have been set up in some Western industrial
countries are intended partly to indicate what business
(Continued on page 8)

[ 2 j

ILLINOIS INDUSTRIES AND RESOURCES

BUTTONS AND BADGES

Recently, a Chicago disk jockey conducted a rather
whimsical campaign for the salvation of a nonexistent
heroine. Soon "Save Rose Bimler" buttons appeared on
lapels all around the Chicago area. People unfamiliar
with the radio program and unaware of the joke probably
accepted this as yet another of the causes supported by
that miniature mobile billboard, the lapel button. Had he
tried, the disk jockey probably could have collected funds
on Miss Binder's behalf — such is the persuasive power
of a message to which one is repeatedly exposed, and this
is the kind of exposure a lapel button can give.

This year being an election year, all of us will see
countless campaign buttons extolling the virtues of the
various candidates. It is not unlikely that some people
view the claims of some of these candidates as being as
farfetched as the disk jockey's campaign. Be that as it
may, the candidates themselves do not consider the but-
tons the least bit humorous. Their use is serious business
and has a long tradition in American politics as a means
of promoting a candidate. It has become a virtually
indispensable part of any major candidate's campaign and
has been supplemented in recent years with toys, novel-
ties, and other devices for attracting attention.

Promotion through lapel buttons is by no means lim-
ited to politics. Products and ideas of all kinds can be
found mentioned on these little disks. Promoters of every-
thing from Easter Seals to horse racing have used lapel
pins and buttons to convey their message. Nor is their
use limited to advertising. Countless humorous and nov-
elty buttons arc produced each year. Union members
wear identification buttons, as do many employees of large
firms. Students wear homecoming buttons, conventioners
wear identification buttons, and ball fans support their
favorite team by wearing buttons.

Badges and emblems are also used for many purposes.
Law enforcement officers have long used them for identi-
fication. The armed forces use them to identify the
branch of service, rank, unit, and so. Firemen and post-
men must wear official badges and emblems. Here, too,
the list of uses is long and varied.

Sales

There are 15 Illinois firms which derive a major part
of their income from button and badge production. Alto-
gether, these firms employ over 500 people, although not
all of this employment can be attributed exclusively to
button and badge manufacture since most of the firms
produce other items as well.

Generally, these firms are small. Five of them have
fewer than 10 employees and 9 of the 15 employ fewer
than 15 people. Four firms have employment ranging
from 20 to 100, and the largest two employ 150 to 200.

Thirteen of the state's 15 firms are located in Chicago,
one is in Springfield, and one, the largest in the State, is
in Greenville.

In addition to buttons and badges, several of these
firms produce athletic clothing, uniforms, banners, and

flags. A few of them make novelty items of all kinds.
One is a metal-stamping firm and one produces other
public relations materials in addition to buttons.

Total sales of buttons and badges by these Illinois
firms run into millions of dollars each year. Although it
is impossible to say exactly what the total figure is — be-
cause of the other products of the firms — an estimate
based on available information gives a probable range of
$5 million to $10 million a year.

Not surprisingly, individual orders range from very
small to very large. One firm indicated that it receives
orders of as little as $50 and as much as $75,000. Some
of the companies interviewed reported that sales generally
seemed to be heaviest in the summer. Most said that
because their customers were so varied, orders followed
no regular seasonal pattern, though in some years special
events require production by a specified date.

Production

Variation in investment in plant and equipment paral-
lels the variation in employment. The total investment is
between $1.5 million and $3 million. Three firms have
estimated total capital of less than $25,000, and nine of
less than $50,000. Four are in the $100,000 to $250,000
range and the two largest have between $500,000 and $1
million invested in capital.

Most buttons are made of plastic, steel, and tin-plated
steel. Many badges and some buttons intended for only
short use, for example at conventions, are made of plastic,
paper, or cardboard. At the other extreme, the better
badges, since they are expected to last a long time and
also generally to serve as symbols of some kind of author-
ity or rank as well as serving as identification, are usually
made of more expensive metals such as brass, silver-
plated brass or steel, and gold-plated or gold-filled metals.

Production of buttons involves many steps and proc-
esses, such as metal stamping, lithographing or printing,
plastic laminating, and assembling. Some companies per-
form only some of the steps — for instance a few do not
do the metal stamping — but some perform all the steps
in the production process. One of the medium-sized com-
panies questioned even makes the dyes and inks it uses.

Metal badge production also involves several steps.
The first step is stamping or casting, which incorporates
the legend. After this comes polishing, then perhaps plat-
ing and more polishing. When one thinks of some of the
intricate badges that are worn, it is not surprising that
one of the unions found in many of the plants is a
jewelers' union. Polishing can be a skilled operation that
is very difficult.

High quality badges are expected to last for a great
many years. On the other hand, buttons usually have
served their purpose after a few days or months, some a
few years. Political campaigns come to a definite end
and buttons that are worn with enthusiasm the last week
of October will be meaningless after the first week in
November.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"

Percentage changes, April, 1964, to May, 1964

COAL PRODUCTION

■L

ELE

TRIC POWER PRODUCTION

J ft

EMPLOYMENT- MANUFACTURING

1 i 1

1 f 1

CONSTRUCTION CONTRACTS

PARTMENT STORE SA

.ES

BANK DEBITS

FARM PRICES

■ ill.
D us.

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufact uring1

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts'

Electric power8

Coal production9

Petroleum production10

May
1964

(1957-59
= 100)

99 3
123.6"
105.9
147.2
129. 0b

92.0
164.1
130 9
128.9
112.9

78.0

Percentage
change from
Apr. May

1964 1963

+ 0.5
+ 0.5
+ 0.2

- 6.8
+ 3.2

- 1.1

- 5.0
+22.3
+ 4.7

- 3.3

- 0.6

+ 2.4
+ 4.6

+ 0 6
+ 9.0
+ 16.2

- 2.1
+ 12.4

- 0 6
+ 14.9

- 3.4
-21.2

Dept

.abor; = U.S. Bi

of Labor Statistics; 3 Life Ins.
ik, 7th Hist.; <■ 111. Crop Rpts.; "Fed.
Fed. Tower Coram.; "111. Dept. of

Seasonally adjusted.

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Indust rial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment-1

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. .

Average weekly earnings. .

Construction contracts5

Department stores sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other.

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Annual rate

in billion J

484.8'

447 . 6'
60.4s- '•

28.8
18.7

26 5°
18 7"
7.7"

70. 9b
55 1»

44. 2b
29.1°

Indexes
(1957-59
= 100)
130"
132"
131»
111"

102*

100
94
99

101

97
107

75<*

Percentage
change from

Apr.
1964

+ 0.5

+ 0.3

+ 0 5

+ 1.3

+ 0.5

+ 0 4
+ 0 9

+ 64

0 0

- 0 2

- 0 7

- 1.0

- 0.1

- 10
0 0
0.0

May

1963

+ 6.9

+ 3.4

+ 6.1

+ 9 9

+ 16.3

+ 7.2

+ 7.4

+ 6.8

+ 9.5
+ 4.9

+ 4.8
+ 2 0

+ 14

+ 0 5
+ 3.3
+ 3.8

- 4.4

+ 1.5

+ 0.1

- 0 7

- 2.3
+ 0.5

- 2.0

+ 0 9

- 2.6

■U.S. Dept. of Commerce; 2 Federal Reserve Board; 3 U.S. Dept.
of Agriculture; 'U.S. ISureau of Labor Statistics; '■ F. \V. Dodge Corp.

8 Seasonally adjusted. b End of month. c Data for Aprii. 1964,
compared with March. 1964, and April, 1963. d Based on official indexes,
1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

June 27 June 20 J

June 6 May 30

June 29

Production:

Bituminous coal (daily avg.) thous. of short to

Electric power by utilities mil. of kw-hr. . . .

Motor vehicles (Wards) number in thous.

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100. . .

Freight carloadings thous. of cars. . .

Retail sales mil. of dol

Commodity prices, wholesale:

All commodities 1957-59 = 100. . .

Other than farm products and foods. .1957-59 = 100. . .

22 commodities 1957-59 = 100. . .

Finance:

Business loans mil. of dol

Failures, industrial and riMiiniercial. . number

1,664

19,785

213

7,680
124.5
609

5,021

100 4

101 1
95.3

38,748

262

1,635

19,223

212

7,699

126.1
603
5,140

100 2

101 1
95.2

38,885
238

1,588
18,938

217
7,702

129.7

611
5,051

100 1
101.1
95 1

1,568
17,834

210
7,624

131.2

580
5,149

100.1
101.0

95.2

1,683
17,734

194
7,637

132.2

577
5,119

100,1
101.0
94 .8

1,670
17,925

200
7,508

124.2

602
4,991

100.3"
100.7"
92.7

Source: Survey of Current

Weekly Supplements.

I 4 |

RECENT ECONOMIC CHANGES

Changes in the Financial Market

The year 1963 shaped up as another year of heavy
overall demand for funds in the financial markets. The
pattern of sources, uses, cost, and availability of capital
funds last year was quite similar to that of 1961 and 1962
but differed significantly from previous postwar periods
of business expansion. A record $62 billion of funds was
channeled through credit and equity markets with only
modest upward pressure on long-term interest rates, as
rising credit demands were met by continued large flows
of savings.

With federal monetary and debt management policies
oriented toward the dual goals of encouraging domestic
growth while protecting the international position of the
dollar, in an economy of persistently high unemployment
and relatively stable price levels, a degree of credit ease
for economic expansion was in existence. In such a cli-
mate mortgages continued to dominate the flow of private
capital funds to an even greater degree than in other
recent years, accounting for almost 75 percent of total
private long-term capital flows, as indicated in the ac-
companying chart. This continued expansion in mortgage
flows in recent years contrasted with reductions in net
corporate security issues and federal borrowing, and sub-
stantially surpassed increases in consumer credit, business
loans, and state and local government borrowing.

The record net mortgage flow of nearly $30 billion in
1963 was 17 percent greater than in 1962, the previous
peak year. Business and other private short-term loans
reached a new record of $15.3 billion, 12 percent above
the 1962 figure, as working capital needs of corporations
and unincorporated enterprises expanded along with the
general economy. However, corporate demands on the
long-term capital markets declined in 1963, as in the pre-
ceding year, reaching the lowest level since 1950. An

NET FLOW OF CAPITAL MARKET FUNDS

BILLIONS OF DOLLARS

US. GOVERNMENT SECURITIES

Source: National Association of Mutual Savings Hanks.
Mutual Savings Hanking Annual Report, May 1964, p. 4.

additional decline in net corporate security issues was
concentrated in equities and stemmed mainly from the
increased liquidity of corporate businesses.

State and local governments increased their borrowing
in 1963 ; the volume of new issues set a record and re-
fundings also increased. By contrast, federal government
borrowing declined, despite the large deficit in the federal
budget. Finally, foreign borrowers obtained $3 billion,
30 percent more than in 1962, as credit ease in this coun-
try prompted an upsurge in foreign security issues and
short-term borrowing in the first half of the year.

Dividends and Personal Income

Aided by larger cash flows, partly generated by
changed depreciation rates and the investment credit on
capital spending, dividend payments have increased faster
than other types of personal income since 1950. Since
1950 personal income has risen from $208 billion to nearly
$480 billion while dividends have gone from $7.5 billion
to $19.1 billion.

Dividend payments lagged behind the growth of per-
sonal income in the early 1950's, primarily as a result of
the excess profits tax which was in effect from mid- 1950
to 1954. During that time dividend payments rose only
20.5 percent whereas all other personal income increased
40.1 percent. Some of this loss was recouped during the
1954-57 business expansion when dividends rose 33 per-
cent while other income climbed only 22 percent, but much
of that gain was lost during the following business reces-
sion when dividend payments declined 7 percent while
personal income was rising nearly 4 percent.

The subsequent recovery in dividend payments during
1959-60 was interrupted twice, once by the steel strike of
1959 and again by the 1960-61 recession. The 1961-64
upswing, however, has been a relatively long uninter-
rupted period of prosperity during which dividend pay-
ments have climbed 32.6 percent while all other personal
income has moved only 18.7 percent higher. Further divi-
dend increases in the second half of 1964 are also quite
probable, since profits are expected to be even higher be-
cause of the recent tax cut, the general stabilization of
prices, and a rising sales volume.

Public and Private Debt

Outstanding debt rose $75 billion during calendar 1963
as consumers, businesses, and governmental units contin-
ued to borrow more than they repaid; the total amount
owed by all persons and governments reached $1,100 bil-
lion at the end of the year.

During 1963 the increase in the net indebtedness of
the federal government was $5.3 billion as compared with
an $8 billion rise in 1962. Also, substantially smaller ad-
ditions to debt were recorded for state and local govern-
ments, with a total advance of only $6 billion in 1963 as
compared with one of almost $9 billion in 1962.

Most private debt categories, however, grew at a
faster pace in 1963 than in the previous year. Individuals
added $14.5 billion in mortgage debt on onc-to- four-family
homes, 12 percent more than the increase recorded in
1962. Consumer credit rose $6.5 billion, $1.3 billion more
than in the previous year. Individual farmers and non-
farm proprietors expanded their obligations by $15.5 bil-
lion. $2 billion more than in 1962. And both long- and
short-term corporate debt rose at a faster pace last year
than in 1962.

[ 5 ]

THE KENNEDY ROUND: A TURNING POINT?

ROBERT W. GILLESPIE, Assistant Professor of Economics

Even in this era of international conferences and
meetings the "Kennedy Round" of tariff negotiations
stands out because of the complexity and scope of the
economic issues to be dealt with. In brief, the goals set
for the negotiators are to reduce average nonagricultural
tariffs of the major trading nations by 50 percent; to
identify and eliminate as many of the nontariff barriers
to trade as possible; to harmonize and liberalize national
agricultural support policies in order to permit freer in-
ternational trade in agricultural commodities; and to shift
the emphasis of the economic relations of developed
countries with the underdeveloped countries from direct
aid to trade, by permitting enlarged imports of their
products into the developed countries.

The forces that brought this conference into being are
varied and interrelated, but two deserve special recogni-
tion. One of these was the establishment of EEC (the
European Economic Community or Common Market) in
1958 and its subsequent evolution — particularly the
changes in tariff structures associated with it. By 1970,
at the latest, and perhaps by as early as 1967, all internal
tariffs will have been reduced to zero and a common
schedule of external tariffs based on average member-
country rates in 1958 will be in force. This restructuring
of tariffs is now approximately two-thirds completed. The
proposed structure, if unchanged, will result in a substan-
tial reshaping of international trade. In particular, the
traditional exporters to the EEC nations (among them
the United States) see a serious reduction of their ex-
ports to this market.

The second influence favoring the negotiations has
been the continuing United States balance-of-payments
problem. By 1960 this problem was influencing the for-
mation of our economic policy, both domestic and foreign;
and the continuing implementation of the EEC tariff
goals made some action advisable. In 1961 the EEC made
a unilateral 20 percent reduction in the proposed level of
their ultimate common tariffs in order to show that the
motivating spirit of the EEC was not inward-looking and
protectionist. This reduction, however, was made con-
tingent upon subsequent reciprocal reductions by their
trading partners. At that time the tariff-cutting powers
held by President Kennedy were insufficient to allow
matching these cuts, but he accepted in principle this
offer to negotiate reductions. He subsequently requested
the necessary tariff-cutting powers and they were granted
by Congress in the Trade Expansion Act of 1962.

This act gave the President power to cut all tariffs by
50 percent and to eliminate tariffs completely on certain
items. Among these were commodities which had only
very small tariffs and tropical agricultural products which
are not produced here in any significant quantity. In ad-
dition, for those products of which 80 percent of world
exports were accounted for by the United States and the
EEC, tariffs could also be cut to zero. At the time of
passage in 1962, this last power appeared to be most im-
portant. However, the 80 percent figure was arrived at
on the assumption that England would be a member of
the EEC. With this not the case, only a very few prod-
ucts can meet the 80 percent rule, and consequently the
general 50 percent cutting power becomes the most im-
portant for United States negotiators.

Although there are 62 member nations of GATT —
and most will participate in the conference — the main

focus of the negotiations will be between the United
States and the EEC; consequently, attention will be con-
fined to the issues between these two. It should be noted,
however, that since the basic feature of GATT is the
most-favored-nation principle, tariff cuts will extend to
all members. Although the negotiations will last one to
two years, some major issues have already been outlined.

The Tariff Disparities Issue

The general method for cutting industrial tariffs was
tentatively established as an across-the-board cut for all
items, or in the terminology of the conference, linear
tariff reductions. This method is new to tariff negotia-
tions and it was devised to simplify the negotiating pro-
cedures. In previous GATT rounds, cuts had been nego-
tiated item by item and country by country — a very slow
process. However, the EEC has subsequently wished to
modify this linear approach where for specific items
tariffs of countries were greatly different. They argue
that where one country's tariff is very high, a 50 percent
cut will still leave a larger protective effect than will
remain for the low-tariff country. This suggested modi-
fication has been labeled the "tariff disparities" issue.

The EEC would like to have a disparity defined as
existing when a tariff is both twice as high and at least
10 percentage points higher than the tariff of another
country. In such cases the lower tariff would be cut by a
smaller percentage than the higher tariff. Although it
was conceded that some disparities may call for a depar-
ture from the linear method, the United States wishes to
restrict the definition of a disparity to situations in

U.S. AND COMMON MARKET TARIFF RATES"

PERCENT OF ALL TARIFFS

COMMON MARKET

TARIFF RATES (PERCENT)
* Classified according to the Brussels Tariff Nomencla-
ture. Do not include 8 higher rates for the U.S. and 8
higher rates for the Common Market.
Source : First National City Bank, Monthly Economic
Letter, May, 1964, p. 54.

t 6 ]

which the low-tariff country is a major exporter of the
product and the high-tariff country's protection is signifi-
cant in limiting imports of the commodity. A large vol-
ume of imports would be taken to indicate that the high
tariff did not have any "water" in it so that a 50 percent
cut would substantially reduce its protective effect. The
basic problem is that the height of a tariff is not neces-
sarily a good measure of the protective effect it affords.

The chart indicates how this issue would apply to
existing tariff structures. The fact that the United States
has more very high tariffs than the EEC would mean that
the EEC, using only their criterion, would claim more
disparities against the United States than vice versa.

There is also concern that if the EEC criterion is used
without the provision that the low-tariff country also be a
major exporter, the effect will be inequitable for the
major exporting country. For example, under the EEC
criterion, watches would certainly be claimed as a dis-
parity against the United States, and the EEC would be
permitted a smaller reduction. The smaller reduction by
the EEC would not directly affect the United States, but
Switzerland, the major exporter, would suffer.

Exceptions and Nontariff Barriers

The final settlement of this issue is still being negoti-
ated and it may not be decided until after each nation
presents its list of exceptions. These lists designate items
which each member wishes to reserve from negotiations
for reasons of overriding national interest, such as na-
tional defense or severe hardship. The negotiators tend
to tie the exceptions lists and disparities issues together,
because if the disparities formula is decided before the
lists are presented, a country could then place items that
would be disparities on its list of exceptions. The date for
submitting the exceptions list has been set as November
16 — safely after the United States and British elections.

These lists themselves will constitute an issue for ne-
gotiation. In the preliminary negotiations it was agreed
that there should be only a bare minimum of exceptions
and that these should be subject to justification.

The inclusion of nontariff barriers to trade in the
negotiations is without precedent, but success in this area
could also have a great impact on liberalizing trade.
These barriers are difficult to quantify and are a very
heterogeneous group. Some examples are the "Buy
American" legislation, which affects purchases of the
United States government; quotas on specific imports
(for example, the United States quota on crude oil im-
ports) ; and the European practice of remitting to manu-
facturers the turnover tax on goods which are exported.
The United States makes no such distinction in tax policy
between domestically consumed goods and exported goods.

Whether or not great success is achieved in this area,
it is a significant step forward that countries now explic-
itly admit that there exists a great variety of techniques
for restricting trade other than tariffs and are willing to
negotiate their removal.

Treatment of Agricultural Trade

The negotiations on agricultural trade promise to be
the most difficult and crucial of all for several reasons.
In most countries the interrelation between trade policy
and domestic agricultural policy has serious political im-
plications. The United States has made known that it will
sign no agreement unless there is a satisfactory solution
of the agricultural trade negotiations. And finally, the
EEC nations themselves have not agreed upon all the
important details of their common agricultural policy.

The EEC nations have agreed that their generally
higher-cost agriculture is to be provided protection from
imports. The machinery to be used will be variable levies;
these tariffs will be adjusted day by day so as to bridge
the gap between world prices and the EEC domestic sup-
port prices. At present, domestic support prices vary
widely and the final step in establishing the common
agricultural policy is the determination of "target" prices
for each agricultural commodity. Many of these prices
have been established, but negotiations within the EEC
to establish grain prices, which are the key to the whole
structure, are proving very difficult. Originally, cereal
prices were to be agreed upon by July 1, but — much to
the distress of the EEC Commission — the EEC Foreign
Ministers have postponed this decision until December.

The major problem is caused by the large difference
between grain prices in France, the lowest-cost producer
in the EEC, and grain prices in Germany, the highest-
cost producer. Target prices set close to German prices
would mean higher food prices for consumers in other
EEC countries; target prices set close to French prices
would force a reduction in the grain production of Ger-
man farmers. Also, prices set close to the German level
would induce increased production in other EEC coun-
tries, particularly France, with a consequent fall in grain
imports. The table gives estimates of the impact on im-
ports in 1970 of the EEC grain policy using several as-
sumed target prices. United States exports of wheat and
feed grains to the EEC run approximately 4^4 million
tons a year, approximately 40 percent of total EEC im-
ports of these commodities. This gives the United States,
along with other grain-exporting countries, a keen inter-
est in the final target prices decided upon by the EEC.

The United States would like to reach an agreement
with the EEC which would guarantee continuing access
to the EEC agricultural market and on a basis that would
assure some share in the probable growth of that market.
Such an agreement has recently been negotiated with
Great Britain for United States grain exports.

Trade and Development

The final goal of the conference — improving the trade
opportunities for the less developed countries — has re-
ceived less attention to date than the other goals. Con-

EEC GRAIN PRODUCTION, CONSUMPTION, AND
TRADE, 1957-59 AND PROJECTIONS FOR 1970"

1957-59
average

Projections for 1970. with

Item

I
Continua-
tion of
national
policies'1

EEC

policy and

I .-■: man

level

III

EEC

policy and

average ol

German-
French

level

EEC

polirv and

French

feveT

(Million m

etric tons)

Production

Consumption. . . .

50.5

VI H

64.9

73.7

69.4
72.8

67.9
73.7

65.8
74.6

Balance

'1 1

-8.8

-3.4

-5.8

-8.8

Total EEC
Imports*

11.4

10.9

3 4

5.8

8.8

» Excludes rice.

b Projections by UN Food and Agriculture Organization.

c Gross import projections assume gross exports at the sam<
1957-59 (2.1 million tons! in Situation I and at zero in all other :

Source: U.S. Department of Agriculture. Foreign Agricultural Trade of
the U.S., January, 1963.

level

[ 7 ]

sequently, issues here are less well defined. Some modest
ways in which this goal could he implemented would be
for the developed countries to remove all tariffs and in-
ternal excise taxes on tropical agricultural imports and
to be less strict regarding most- favored-nation treatment
when groups of less developed countries wish to form
their own common markets or free trade areas.

Politics enters here too, because at present the EEC
gives preferential treatment to the tropical products of
the 18 African states associated with the EEC — mainly
former French colonies. If the EEC were to eliminate
tariffs for these products on a nondiscriminatory basis,
the ties of these African states to the EEC would be
weakened.

Any steps which go further than those just mentioned
are unlikely to be taken by the GATT conference. How-
ever, the recently concluded United Nations Conference
on Trade and Development established a permanent UN
body which will make a continuing study and prepare
recommendations on how to facilitate economic develop-
ment by trade.

Conclusion

The foregoing discussion indicates the complexity of
the issues facing the negotiators, so it should not be sur-
prising if the negotiations are difficult and slow. Suc-
cessful accomplishment of the goals of the conference
will have substantial long-run benefits for all GATT
members. It will produce an improved international divi-
sion of labor along the lines of greatest comparative ad-
vantage. It is granted that there may be problems of
adjustment for particular firms and industries during the
five-year or longer period over which any major tariff
reductions will be put into effect. But both the EEC and
the United States, under the Trade Expansion Act, have
established methods for aiding the shift of labor and
capital from noncompetitive to productive uses.

Greater international competition should also result,
and the benefits need not be any less when the competitive
pressures come primarily from abroad rather than from
domestic sources. This is, of course, provided that the
economy has not lost all ability to adjust to change.

To make an overall assessment of the probability of
success of these negotiations is very difficult. Two years
ago the probability would certainly have been high. At
that time the EEC appeared eager to negotiate substantial
across-the-board cuts, and the passage of the Trade Ex-
pansion Act in 1962 represented a sweeping victory for
a liberal trade policy in the United States. Since that
time the mood seems to have changed. The EEC now
wishes to qualify substantially the linear approach and,
at the urging of France, would not accept a 50 percent
cut in tariffs as a "goal" of the negotiations, but rather
only as a "working hypothesis." Also, the United States
demand that a satisfactory solution of agricultural trade
be a sine qua non for any settlement at all places a heavy
burden on the negotiations.

In addition, these negotiations have far greater impli-
cations than economic ones, because any increase in eco-
nomic interdependence through greater trade would facil-
itate, if not encourage, political cooperation. Conversely,
if President de Gaulle really wishes Europe lo be a third
force in world politics, a corollary goal would then be
substantial economic independence. The conference is
thus, in a sense, a test as to whether President de Gaulle's
vision of Europe as a third force or President Kennedy's
vision of an Atlantic Community is to prevail.

Basis for Coexistence

(Continued from page 2)
must do to foster steady growth and to impress upon
business its ultimate responsibility to the community. In
this country, the greater degree of detachment from pub-
lic responsibility and control has stimulated fears of ex-
treme economic and political instability ; investment and
employment might drop too sharply in a recession and the
growing strength of an "industrial-military complex" is
said to represent a trend toward a corporate state.

Enforcement of Social Responsibility

In effect, the whole world is engaged in a process of
working out what types of facilities are to be privately
owned and used. The world does not want a doctrinaire
answer. The conditions that will be accepted are those
which will achieve efficiency in production and still pre-
serve the rights and freedom of individuals. Nobody ad-
vocates denial of property rights for goods in the hands
of the consumer. The important differences of opinion
concern the basic productive facilities of the economy.
Since immediate operating control must in any case be
vested in the managers of enterprises, the issue really
concerns the way in which operating policies will be de-
cided and the degree to which management will be held
socially responsible for its actions.

Communist doctrine claims that its system holds the
winning hand. Since the state has taken over direct own-
ership, there is supposed to be no incentive for the
adoption of antisocial practices. Nevertheless, the owner's
control remains imperfect, and penalties against black-
market operations for personal gain are severe.

The underdeveloped countries present no uniform pat-
tern. Generally there is some conflict arising from needs
and obstacles to progress. Governments must assume a
large measure of responsibility for promoting develop-
ment but have very limited resources, especially of foreign
exchange. They want help but do not want to have inad-
equate exchange drained off into high profits of foreign
corporations. Hence, they frequently both court foreign
investment and oppress successful enterprises.

In the Western industrial countries, there is also a
certain ambivalence of relations. The greater freedom
allowed enterprises to operate and develop as they see fit
opens the door to monopolistic pricing and other objec-
tionable practices, so governments stand ready to prohibit
these as well as to aid and protect industry when neces-
sary. They are willing to incur deficits to promote growth
but do not want them drained off into excess profits or
savings of special groups. Therefore, they both stimulate
activity and try to hold down prices, profits, and the in-
comes of the wealthy. There is constant experimentation
with procedures to permit the widest latitude for initia-
tive without relaxing too much the enforcement of social
responsibility.

What seems to predominate is the pragmatic approach
to achieving optimum solutions under the given condi-
tions. In the drive for efficiency, leaders typically find
themselves with less authority than they desire, and the
terms on which they may succeed are set by the technical
requirements for development. When in conflict with
these, efforts to control or coordinate are likely to prove
self-defeating, however colorful their ideological trap-
pings may be. Since technology sets the same rules for
everybody, all must conform to similar patterns, and in
this universal similarity exists the basis for coexistence
as well as for economic progress. vlb

[ 8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Widows' Pensions

In a recently reported survey by the National Indus-
trial Conference Board, it was discovered that only 10
percent of 1,213 privately financed pension plans studied
made any provision at all for the widows of employees
and relatively few of these provided benefits for widows
of employees who died before actual retirement.

Of the pension plans studied, only 1 percent of those
negotiated by unions for their members included widows'
pensions and only 5 percent of all manufacturing concerns
studied had pension plans that included benefits for
widows. In contrast to this low rate of providing benefits
to widows of manufacturing employees, persons who
worked for life insurance companies or banks had a much
greater chance of having widows' benefits included in
their pensions. Of the insurance companies and banks
studied 23 and 39 percent respectively included such bene-
fits. Another point brought out by the study was that in
all types of business, widows' pensions were no more
common among contributory plans than among noncon-
tributory plans.

Social Security Expansion

Social security is one of the fastest-growing federal
government programs, with more than 75 million wage
and salary workers and 5.5 million employers participat-
ing in the program and a total yearly outlay second only
to that for national defense. Benefit payments under the
Old Age and Survivors Insurance program (OASI) will
total about $15.4 billion this year, and contributions to the
trust fund are expected to climb to $15.8 billion, as indi-
cated in the chart.

Expenditures for OASI have exceeded receipts in five
of the years since 1958. The assets of the trust fund have

OLD AGE AND SURVIVORS INSURANCE

BILLIONS OF DOLLARS

1937 '40 '45 '50 '55 '60 1964

Source : First National Bank of Boston, New England
Letter, June, 1964.

fallen from a peak of $23 billion in 1957 to $19 billion at
the end of 1963. Social security tax rates are to increase
1 percent each for employees and employers by 1968 and
will bring the percentage withheld from a person's pay-
check to 4^i percent on a taxable earnings base of $4,800.
When the program was first established by Congress, and
for the first 12 years of the program, the tax rate was
only 1 percent each on the employee and the employer on
a maximum tax base of $3,000.

Among numerous suggestions for liberalizing social
security, the one with the best chance of obtaining the
approval of Congress this year is an across-the-board in-
crease in benefits for retired workers, survivors, and dis-
abled participants. In order to finance this proposed
increase in benefits and to balance the yearly receipts and
expenditures of the program, Congress is considering
raising the tax rate an additional one-fourth of 1 percent
each on employer and worker and raising the maximum
tax base from $4,800 to $5,400.

City Employment and Pay Rates Increase

The number of people employed full-time by municipal
governments increased 4 percent and the amount spent by
municipalities on payrolls rose 7 percent during 1963.
The number of persons employed full-time, other than for
city-operated schools, totaled 1.3 million, an average of
112 employees for each 10,000 inhabitants. However, the
ratio of municipal employment to population was consid-
erably higher in larger cities; the five largest municipali-
ties in the nation averaged 190 employees for each 10,000
inhabitants as compared with an average of only 99 per
10,000 persons in municipalities of 50,000 to 100,000.
Much of the difference was accounted for by the number
of operating and protective persons employed. The num-
ber of employees in variable city functions such as health,
hospitals, airports, and public housing ranged from 75 per
10,000 in the five largest urban areas to 14 per 10,000 in
the 50,000-100,000 size; the number of police ranged from
35 per 10,000 in the five largest metropolitan centers to
18 per 10,000 in cities of 50,000 to 100,000.

Monthly earnings of full-time city government em-
ployees in common city functions averaged $439 a month,
but the average in the five largest municipalities was $529
a month as compared with $426 a month for those work-
ing in municipalities of 50,000 to 100,000 persons.

World's Cropland

Of the earth's surface of nearly 33 billion acres, ap-
proximately 3 billion are currently being utilized for agri-
cultural crops, according to the United States Depart-
ment of Agriculture. About 71 percent of the yearly
harvested acreage of 2.3 billion is used to produce grain ;
wheat alone accounts for over 22 percent. Nearly 13 per-
cent is planted in rice, the world's second largest crop.
Roots and tubers, a category which includes potatoi s, ac
counts for 5 percent of all cropland; and land used to
produce sugar takes up 1.5 percent of the available acres.

Another 7 percent of the world's cropland is used to
grow oilseeds (principally soybeans) and nearly 5 per-
cent to produce fibers (mostly cotton). Beverage crops
such as coffee, tea, and cocoa, though looming large in
world agricultural trade, account for only 1 percent of the
cropland area.

[9 ]

LOCAL ILLINOIS DEVELOPMENTS

Job Openings Increase in 1963

The Illinois State Employment Service reports that
numbers of unfilled nonagricultural job openings on file
rose in 1963 (see chart). This rise took place mainly
during the second half of the year. The average number
of unfilled openings in 1963 was 9,700, about 6 percent
above the corresponding figure for 1962, and at the end
of the year it was almost double the number available
at the beginning. Consistently high levels of unfilled job
openings are shown also for the first four months of 1964.

The increase in job openings has reflected generally
favorable economic conditions. In late 1963, seasonal in-
creases in trade and post office hiring were supplemented
by important nonseasonal increases in hiring by three
major industries — nonelectrical machinery, primary met-
als, and printing and publishing. Through April, 1964,
rates of hiring have remained high, except that the num-
ber of job openings dropped sharply in February as a
result of a labor dispute in a major machinery firm.
Significant gains in manufacturing jobs have been main-
tained since mid-1963.

Community Mental Health Grants

Governor Otto Kerner has announced that over $3
million is to be spent for mental health purposes in Illinois
during fiscal 1965. Most of the financing is to be effected
through the state mental health fund, with about $300,000
coming from federal funds. Emphasis is to be placed also
upon local participation in program financing.

Of the state funds, over $2.5 million will be spent for
the operation of 49 community mental health clinics, in-
cluding two new clinics at Evanston and Belleville. A
nearly equivalent amount is to be provided from local
funds. A large increase in the number of new patients
served in 1963 has indicated a need for enlarged local

JOB OPENINGS

THOUSANDS

Source: Illinois Department of Labor.

mental health services. About $522,000 is to be spent by
the State for 24 programs to train the mentally retarded.
Local funds for this purpose are to provide an additional
$1.1 million. Finally, slightly over $82,000 in state funds
will be used for two rehabilitation centers, training pro-
grams, and mental health education.

Illinois Participation in Space Programs

The Illinois Department of Labor reports that the
State, with outstanding capabilities in the electronics field,
has favorable prospects for increasing her share of na-
tional contracts for space research and development. On
the basis of the state's current rate of participation in
contract allocations, Illinois may expect to receive about
1 percent of the estimated $6.6 billion to be spent annually
from fiscal 1964 to 1970 by the United States government.
Since 1953, a declining participation in defense contracts
has represented heavy losses for Illinois.

The state's position for participation in space contracts
is based upon a heavy orientation of electronics firms
toward research and development; adequate professional
personnel ; a high-quality, semiskilled work force ; a prox-
imity to markets and sources of supply ; and supporting
institutional facilities. Within the aerospace program,
numerous Illinois electronics firms are now engaged in
basic research and in producing equipment for rockets,
probes, and spacecraft.

Contracts are awarded through competitive bidding.
A number of services are available to aid firms seeking
contracts. About 45 Chicago area companies list their
capabilities with the Mayor's Committee for Economic
and Cultural Development. The committee matches these
capabilities with items for which bids are sought and also
provides other assistance to simplify the bidding process.
The Chicago office of the Small Business Administration
maintains extensive listings of potentialities of small
firms seeking subcontracts. In addition, the Chicago As-
sociation of Commerce and Industry and the Illinois
Board of Economic Development provide informational
services to encourage space research and development.

Chicago Area Community Renewal

The Chicago Department of City Planning has re-
cently announced a long-term program for community
renewal and other capital improvements. The new pro-
gram is to extend through 1975 and supplement current
urban redevelopment activities. In doing so, it will raise
further the standards of existing neighborhoods and im-
prove opportunities for industry location in the metropol-
itan area. The expected net project costs of $300 million
are to be financed by $100 million in local funds and $200
million in federal funds.

An expected $180 million, or 60 percent of total allo-
cations, is to be directed into community renewal and
elimination of substandard housing units. Emphasis is to
be placed upon rehabilitation and limited clearance rather
than on total redevelopment in such neighborhoods. Other
allocations for housing purposes are $30 million to clear
concentrated slum areas and $15 million to clear non-
residential areas for the construction of new housing
units. A total of $60 million is expected to be spent to
make about 1,000 acres of land available for industrial
development or expansion. Finally, $15 million is to be
set aside for special unspecified projects.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
May, 1964

Building

Permits1

(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales'
(000)

Depart-
ment Store
Sales*

Bank
Debits5
(000,000)

Percentage change from (May, 1963'.

NORTHERN ILLINOIS
Chicago

Percentage change from .... L^y! 1963'

Percentage change from. . . .{{££• g*|-

Elgin

Percentage change from.
Joliet

(Apr., 1964.
(May, 1963.

Percentage change from. . . . (M^ lg^-

Kankakee

Percentage change from.
Rock Island-Moline

/Apr., 1964.
•(May, 1963.

Percentage change from. . . . (M^ lg63'

fr^in

from

Rockford

Percentage change from.

CENTRAL ILLINOIS
Bloomington

Percentage change
Champaign-Urbana .

Percentage change
Danville

Percentage change
Decatur

Percentage change
Galesburg. . .

Percentage change
Peoria

Percentage change
Quincy

Percentage chan
Springfield

Percentage change from

/Apr., 1964.
'/May, 1963.

ii.im

from

In mi

Apr., 1964
.May, 1963

{«G

Apr., 1964
ay, 1963

Apr., 1964
May, 1963

/Apr., 1964
\May, 1963

(Apr., 1964
[May, 1963

/Apr., 1964
[May, 1963

SOUTHERN ILLINOIS
East St. Louis

Percentage change from. ... ', P '.'
Alton

Percentage change from .
Belleville

Percentage change from.

1963.

/Apr., 1964.
[May, 1963.

/Apr., 1964.
/May, 1963

$57,232"
+63.3
+36.9

$41,332

+ 79.8

+61. S

$ 2,609

+110.9

+156 3

$ 713

+59.5

-67.5

$ 1,089

+9.1

-42.0

$ 234

-26.2

-65.3

$ 1,349

-30.0

-9.5

$ 1,711

+ 6.2

-43.1

$ 629

+42.3

+29.2

$ 897

+9.8

+54.9

$ 316

-70.1

+ 74.6

$ 2,884

+283.0

+402 . 4

$ 248

+89.3

+68.7

$ 1,180

+ 139.8

+98.3

$ 418

+84.1

-44 0

$ 1,131

+79.2

$ 39
-53.0

+0.0
$ 298

-34.1

+37.3

$ 183

-57 8

-77 5

,469 3»

+0.2
+7.8

,032 4
-0 1
+6.1

55. 7b
+ 9.6
+38.6
68.4'
+0.0
+12.9

13 1

-5.1

-9.7

22 2

-1.3

+ 16.2

21 2

-4 1

-14.2

44 3

-0 9

+ 13.0

11 5

-12.2

+3.6

76 3"

+ 12

+ 17.0

16 0

+ 6.0

+ 18.5

49 5

+6.5

+ 12.5

17 5

-1.7
+6.1

26 3
-5.7
-1.9

15 0
+0.7
+6.4

+ 11

$27,279"
-5.0
+12.4

$25,486
-J.J
+ 13.2

$ 99
+4.2
+5.3

$ 58
-3.3
-3.3

$ 104
+2.0
-3.7

$ 159b

+ 7.4

+10.4

$ 237

-2.5
+ 4.9

105
-3.7
+2.9

109
-0.0
+3.8
57
-0.0
-3.4

139
-9.2
+ 1.5

314
+0.3

+5.7
62
-0.0
-4.6
168
-1.2
+5.7

$ 127
-3.1
-8.0

$ 54
+ 1.9
-8.5

■ Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: ' Local sources. Data include federal construction projects. : Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. 4 Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending May 22, 1964, and May 24, 1963.

[11

INDEXES OF BUSINESS ACTIVITY ^l,ols Historical Survey

416 Lincoln Hall

1957-1959 = 100

EMPLOYMENT -

- MANUFACTURING

AVERAGE WEEKLY EARNINGS

- MANUFACTURING

100

ILL. /

"- >?

\ /

V/u.s.

a \_S

* REVISEC

SERIES

U.S.

* REVISED SERIES

JNUAL AVERAGE

'53 '61 1962 1963

DEPARTMENT STORE SALES (ADJUSTED)

CASH FARM INCOME

r^^

^A/

//us.

ILL

{

V,^'

362 1963 1964

BUSINESS LOANS

CONSTRUCTION CONTRACTS

200

ISO

/UP

,*r-

100
50

"x_

■ U.S.

* REVISE

3 SERIES

mWtT

rrA

/ U.S

ANNUAL AVERAGE

'29 '37

ANNUAL AVERAGE

ELECTRIC POWER PRODUCTION

"■>

COAL

PRODUCTION

ILLys

\ ,

us I

,,,,,,

ANNUAL AVERAGE

1962 1963 1964

162 1963 1964

«»nwH.« WTFf

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

September, 1164

HIGHLIGHTS OF BUSINESS IN AUGUST

The economy continued its strong upward movement
in August with a booming automobile industry and record
capital expenditures assuring rising activity and general
optimism during the election campaign and probably for
some time afterwards. Bolstered by an earlier-than-usual
model change and major restyling, auto production in
August was running about a third above the year-earlier
figure. Steel output, pushed by the requirements of the
auto industry and by the high business outlays for plant
and equipment, was up more than a third from the August,
1963, level.

Some signs of pressure on prices were beginning to
appear. The wholesale price index was up only 0.3 of a
point at the end of August as compared with the year-
earlier figure, but the index of selected industrial raw
materials had risen 14 percent. A number of industrial
firms reported price increases in their products. In July
the consumer price index advanced 0.3 of a point to a
record 108.3 percent of the 1957-59 average. Sharp in-
creases in the prices for meat, fresh fruits, and vegetables
were primarily responsible.

Consumer Debt Still Climbing

The expansion of short- and intermediate-term con-
sumer debt continued in July, going up $673 million on a
seasonally adjusted basis to a total of $72.5 billion. The
increase consisted of $483 million in instalment debt and
$190 million in single-payment loans, charge accounts, and
service credit. Automobile paper accounted for $215 mil-
lion and personal loans for $152 million of the expansion
in instalment debt.

Total instalment debt at the end of July amounted to
$56.5 billion, about 9 percent above the total outstanding
a year earlier. This rate of increase was about half again
as great as that for personal income over the year.

Capital Outlays Continue Rise

The August survey of projected expenditures on new
plant and equipment by business firms indicates that they
plan to spend more in the second half of this year than
in the first six months. Outlays in the third quarter are
expected to rise from the record seasonally adjusted an-
nual rate of $43.5 billion in the second quarter to $44.6
billion in the third quarter and $46.1 billion in the fourth
quarter. This would carry total capital spending for L964
to a record $44.2 billion, 13 percent more than in 1963.

The May survey had projected an increase of 12 percent
over 1963 and that of February had indicated a rise of
10 percent. The upward revision from the May survey
was primarily the result of increases expected by non-
manufacturing industry groups.

Capital outlays by manufacturing firms are expected
to total $18.3 billion in 1964, about one-sixth more than in
1963. In nonmanufacturing, the sharpest increase over
1963 is projected by transportation companies, the result
of large equipment purchases. Railroads anticipate an
increase of one-third over last year and other transporta-
tion firms expect to spend one-fifth more. Other non-
manufacturing groups — commercial, communication, pub-
lic utility, and mining — plan to spend about 8 percent
more for plant and equipment than they did in 1963.

Auto Settlement

An agreement between the United Auto Workers
Union and Chrysler Corporation just before the Septem-
ber 9 strike deadline appeared not only to have ended the
threat of an indefinite interruption of production but also
to have set the pattern for new contracts with the other
auto companies. The value of the contract was estimated
at 53 cents an hour for each worker by the union and as
high as 57 cents by the company.

An early retirement provision will give the average
worker with 30 years service a monthly company-paid
pension of $381 if he retires at 60. At 62 the company-
paid pension will drop, but Social Security will hold his
combined pensions at the same figure until he is 65, when
they will decline to $316. Pensions of workers now retired
will be raised $1.45 a month per year of service.

Another provision raised the paid relief time of work-
ers on assembly lines and automatic machines from 24
minutes to 36 minutes daily. An extra week of vacation
pay and two additional paid holidays were provided. The
company agreed to pay all the cost of its life and accident
insurance program and of hospital and medical insurance
for retired workers, instead of the present half payment
for both types.

The annual pay increase, which amounts to 2.5 per-
cent or 6 cents an hour, whichever is greater, was con-
tinued with the provision that in the first year of the
contract it be diverted to help pay for the other gains and
be increased to 2.8 percent in the third year. Thus the
workers will get no direct pay raise in the first year.

FINANCIAL DEVELOPMENTS OF THE CURRENT EXPANSION

By C. T. Arlt

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Diane L. Lewis John P. Myers

Virginia G. Speers

Economic Importance of Waste

Such occurrences as earthquakes in Alaska or hurri-
canes in Florida may lead people in other places to con-
gratulate themselves on their escape from disaster. Dam-
ages are usually included in news reports, perhaps running
to hundreds of millions of dollars; the areas are declared
"disaster areas" for federal assistance; and it is made to
appear that the country has suffered losses of startling
magnitude.

No doubt these events are indeed disasters for some
who are involved in them. For the economy as a whole,
however, the result is no loss but rather a gain. It is
literally a case of "lose more, have more" in an economy
with unutilized manpower and capacity.

The way this works out when idle resources are avail-
able is now a commonplace of elementary economics,
though many people, including some who really know
better, refuse to accept the idea. The investment needed
to rebuild and repair represents a definite contribution to
economic prosperity. It raises the incomes of workers, the
consumption of their families, and the sales and profits
of business concerns. The destruction is soon remedied,
and the higher rate of production provides not only for
this remedy but for the welfare of all who benefit from
the additional employment it creates.

Programs That Promote Prosperity

The same effects are realized from many other kinds
of expenditures devoted to destructive, wasteful, or un-
economic purposes. Anything that transfers funds to
buyers without an offsetting withdrawal from the income
stream spurs activity. As we are currently witnessing,
tax cuts without corresponding reductions in government
spending help to push the economy forward.

War is potentially the most destructive force of all.
We decry it as senseless and immoral but regard prepared-
ness as a necessity. Our Cold War programs have undeni-
ably bolstered the postwar economy, since $60 billion a
year represents a potent influence. It is always possible
to say, of course, that if we had been relieved of the need
for military programs, we could have spent these funds
for other urgent purposes, but the practical feasibility of
reaching agreement on alternatives cannot be demon-
strated. Hence, there is no way of knowing just how

important an influence these programs have been in main-
taining the long postwar prosperity.

In comparison, expenditures on foreign aid have been
a minor factor, but they, too, must be counted on the plus
side. It is simply incorrect to contend that these "give-
aways" have reduced our own ability to consume —
though possibly it was true in some of the early postwar
years. For a decade they have helped to sustain incomes
and consumption here as well as to provide benefits to
the recipients abroad. Many of those who oppose the
programs do so for political reasons, but often they at-
tempt to give their objections a fiscal flavor.

Currently, the war on poverty remains a subject of
controversy. What some seem to overlook is that helping
the poor also benefits the rich, since incomes are lifted
throughout the economy. Opponents call it "waste" ; some
complain about "the loss of personal initiative," but they
cannot show that opportunity for the exercise of initiative
existed before retraining and other aids were provided ;
others speak of "the deterioration of moral fiber" and fear
the development of new class distinctions, but this is a
long-term concept not unlike others that led to similar
fears all through the course of history.

The point here is not to discount entirely the objec-
tions to all these programs, but rather to make clear that
they are based on social, political, and moral considera-
tions. Expenditures that in themselves accomplish nothing
may nevertheless accomplish something through their ef-
fects in expanding incomes and activity. The economy
does not abhor waste and destruction; within limits, it
thrives on them; and we are not yet close to the limits.

Design for Better Living

A related misconception is the idea that waste is con-
fined to the public sector. The structure of the economy
incorporates many forms of waste. Many of them may be
judged deleterious but the sudden elimination of all of
them would be ruinous in its deflationary impact.

The field of competitive selling is full of waste and
inefficiency. A large proportion of advertising accom-
plishes nothing useful, though perhaps offsetting the other
fellow's efforts, and much is designed to lead consumers
into futile extravagance. Packaging is carried to extremes
of elaboration and imposes the necessity of disposing of
waste materials. But all this creates jobs which industry
does not provide in its automated factories.

The private ownership and use of automobiles has
transformed and distorted the whole economy. The wastes
in making this form of transportation dominant are in-
numerable and practically immeasurable. But a booming
auto industry, supported by its satellites in financing, re-
pairing, parking, and insuring the cars produced, is a
prime factor in the current upswing.

An affluent society can afford a great deal of unneces-
sary production and consumption. Trouble arises, how-
ever, when in spite of all its wastes and extravagances,
it fails to offer opportunity to a substantial portion of its
people. Then it cannot command the respect or obedience
of its numerous underdogs.

Responsible government cannot permit such a situation
to become acute but must constantly seek measures to
improve the general welfare and reduce social tension.
If the measures it adopts serve no purpose but to sustain
prosperity, they still afford the maximum opportunity for
everyone to improve his lot. Measures conceived to go
beyond that, to make a positive contribution and not just
to protect the private economy against its own weaknesses,
can be part of a design for better living. vlb

ILLINOIS INDUSTRIES AND RESOURCES

ELGIN— SUBURBAN CITY

Elgin is in a rare and enviable position for a small city.
It is close enough to Chicago (36 miles) to give its resi-
dents the advantages of other suburban Chicago dwellers
— the symphony, museums, major league ball teams —
and at the same time is a city itself, offering occupational,
educational, cultural, and recreational opportunities and
providing the heart for a suburban complex of its own.

Over one hundred years ago settlers were attracted to
the beautiful rolling country of the Fox River Valley.
The location was naturally suited to dairy industry activ-
ity with Chicago close by on the southeast and the Wis-
consin and northern Illinois dairy farms to the northwest.
From 1854, when the city was incorporated, to the turn
of the century, Elgin was prominent in the dairy industry
and related activities. Production of farm products, silos,
cream separators, butter tubs, and similar items dominated
the economy of the city.

Since 1900 there has been considerable diversification
of the city's economic activity. Elgin is no longer de-
pendent on the dairy industry. The city now has a very
diversified manufacturing industry. Approximately 37
percent of the people working in nonagricultural industry
are employed by the city's durable and nondurable goods
manufacturers. (The comparable figure for the whole
State is 32 percent.) Durable goods manufacturers ac-
count for about two-thirds of this employment. Types of
products made include furniture and other wood items,
primary metal and fabricated metal products, machinery,
and parts for transportation equipment. Foods, textiles,
printing, and chemicals are also important.

Labor Situation

The people to man these industries are found among
the city's population of 51,700 and the several hundred
thousand people living in nearby surrounding areas. Di-
versified industry has created a labor force trained in
many different skills. This in turn makes the area attrac-
tive to new industry, which develops further its trained
labor force.

Nevertheless, the city is not without labor problems.
The Illinois State Employment Service reported June
unemployment at 2,100. This was 13 percent lower than
the April figure of 2,425 but was 10 percent higher than
the June, 1963, level of 1,925. Much of the unemployment
has been caused by declines in two industries. Electrical
machinery manufacturing has been in the downward phase
of a cyclical movement, and a more permanent decline in
employment in the professional-scientific instruments field
has been experienced. A major concern in the latter
business is in the process of a gradual shutdown. An
increase in activity in the fabricated metals industry in
the past year has helped, but has not been strong enough
to overcome the downward trend in employment.

Of those people who are actively seeking work through
the Elgin office of the Illinois State Employment Service,
women constitute about 60 percent. An age breakdown of
registrants shows that 11 percent are under 20; 25 per-
cent, 20-34; 19 percent, 35-44; 17 percent, 45-54; 18 per-

cent, 55-65; and 10 percent over 65. Most of the unem-
ployed are thus of an age that can usefully be employed
if the opportunity presents itself.

A majority of all the unemployed are rated at employ-
able skill levels. Some 13 percent are skilled; 31 percent
semiskilled; 15 percent clerical-sales; and 8 percent serv-
ice. One-third are in unskilled, entry, or other classes.
Whether or not the current unemployment figure can be
reduced and whether or not Elgin can grow economically
depends on the city's ability to attract new industry into
the area.

Confidence in the Future

There is every indication that the next few years will
be good ones for Elgin. The city is favored by various
means of transportation. The Illinois Northwest Tollway,
which runs along the north part of the city, brings the
Chicago Loop to within 40 minutes of Elgin. O'Hare
International Airport is only 25 minutes away on the
Tollway. Other good roads run through the city, east and
west as well as north and south.

Trucking service is provided by 90 carriers of general
freight. Of these, about two-thirds connect Elgin with
major cities from coast to coast. The others connect the
city with nearby industrial and commercial centers. Rail-
road service is provided by the Milwaukee Road, the
Illinois Central Railroad, the Chicago and Northwestern
Railway, and the Elgin, Joliet, and Eastern Railway. The
latter is directly connected to every railroad entering
Chicago and therefore provides for easy rail shipping to
all parts of the country. These transportation facilities
afford excellent service to local industries.

Also in Elgin's favor is the sprawling growth of Chi-
cago's industry. More and more firms are establishing
plants in the area surrounding Chicago rather than in the
city itself. In order to promote the advantages of Elgin as
a site for these plants an Industrial Development Com-
mission has been formed. In the three-year period before
the commission began its operations only three firms lo-
cated in the Elgin area. After the commission started
work, the first six months of 1963 saw seven new firms
locate in the city.

Another influence improving Elgin's future prospects
is the proposed Civic Center which is to cover 25 acres
of downtown Elgin. Planned for the center are a new
city hall, new post office, new library, new appellate court
building, and a new community building. In conjunction
with the new buildings, parking facilities will be con-
structed to serve the downtown area. Landscaping along
the Fox River is also planned to be added to the city's
existing 306 acres of parks. Park facilities now include
swimming pools, picnic areas, tennis courts, golf courses,
and general playgrounds. In addition, a zoo, the Audubon
Museum of Natural Science, and the Botanical Gardens
are found in the city's parks. The park system, the Civic
Center, and new employment opportunities all should en-
hance Elgin's attractiveness as a place to live and work.

YOUR STATE

L 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"
Percentage changes, June, 1964, to July, 1964

COAL PRODUCTION

SS|S 1

ELECTRIC POWER PRODUCTION

j z.

EMPLOYMENT- MANUFACTURING
l it

1 T 1

CONSTRUCTION CONTRACTS

—J

'ARTMENT STORE SA

.ES

BANK DEBITS

FARM PRICES

■ ILL.

Bus.

lly adjusted. N.A. Not available

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing1

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts'

Electric power8

Coal production9

Petroleum production10

July

1964

(1957-59

= 100)

100.5
122.2"
106.6
144.1
135. 0b
93.0
170.0
120.7
139.2
84.9
91.9

Percentage
change from
June July

1964 1963

- 0.5

- 0.8
+ 0.4

- 1.2

+ 7.1
+ 2.2
+ 2.2
-13.4
+ 5.3
-28.3
+25.7

+ 2.7
+ 3.0
+ 0.3
+ 13.0
+ 18.4

- 7.0
+ 10.1

- 6.6
+ 7.2
+ 18.7

- 8.6

'111. Dept.

Labor; -U.S. Bur. of Labor Statist
; 'Fed. Res. Hank, 7th Dist.; w- III. Cr
Dodge Corp.; "Fed. Power Comm.;

Hd. ; ' F. W
s; "111. Geol
' Preliminary. b Seasonally adjusted,

ip Rpts.; " 1
Mil. Dept,

UNITED STATES MONTHLY INDEXES

Percentage
change from

July

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential. . .

Total public

Foreign trade1

Merchandise exports. . . .

Merchandise imports. . . .

Excess of exports

Consumer credit outstandii

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures.

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. .

Average weekly earnings

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paitl by farmers

Parity ratio

■U.S. Dept. of Commerce; 2 Federal Reserve Board; "U.S. Dept.
of Agriculture; ' U.S. Bureau of Labor Statistics; '- F. W. Dodce Corp.

u Seasonally adjusted. b End of month. c Data for June, 1964, com-
pared with May, 1964. and June, 1963. ■» Based on official indexes,
1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Aug. 29 Aug. 22 Aug. 15 Aug. 8

Aug. 1

Aug. 31

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Retail sales mil. of dol

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . number

1,662
19,563

123
7,652

129.6

605
4,934

101.0

101.2
98.9

1,607

9,103

7,668

128.4

594
4,898

100.5

1,655

19,109

7,656

127.7

582

4,900

100.4

101 1
97.9

1,585

20,105

7,631

123.

574

4,940

100
101.

96.

1,600

20,036

7,657

121.9

572

5,074

100.2
101.0
96.2

1,622

18,181

7,635

94.7

583

4,763

100 4"
100. 8"
91.9

Sour

Survey of Cv

Weekly Supplements.

' Monthly index for August, 1963.

[ 4 ]

RECENT ECONOMIC CHANGES

Foreign Investment Booming

Private investment abroad by United States firms and
individuals, like domestic investment, has been taking
place at a high rate. During 1963, the total of overseas
investments increased by a record $6.3 billion to nearly
$66.4 billion. Included in this growth were advances in
capital outflows (a peak $4.3 billion), reinvested earnings
($1.5 billion), and an increase in the market value of
securities ($500 million). The major classes of invest-
ment all showed greater gains than they had in 1962.
Figures for the first half of 1964 are not yet complete,
but preliminary data indicate a capital outflow at an an-
nual rate of $5 billion. This figure reflects a sharp ad-
vance in short-term lending, no significant change in di-
rect investment, and a considerable cutback in portfolio
investment as a result of the proposed tax to equalize
interest (see chart). Much of the short-term lending
represents commercial credit by banks.

American companies added more than $3.4 billion to
their direct investments abroad in 1963 to bring the total
to $40.6 billion ; this amount was surpassed only in 1957.
Net capital outflows accounted for almost $1.9 billion and
reinvested earnings for nearly $1.6 billion. Canada and
Europe received large amounts, particularly in the man-
ufacturing and petroleum industries. Direct American
investments in Australia and Japan also showed larger
advances than in 1962 — mainly in manufacturing and
petroleum refining, respectively. Within manufacturing,
the sharpest increases in United States foreign investment
have occurred in automobile manufacturing and chemicals,

PRIVATE CAPITAL OUTFLOW

BILLIONS OF DOLLARS

-SHORT-TERM

I9VJ

l!) a

' Net purchases of foreign securities and lo;

maturity of more than one year.

" Estimated first half of 1964 at seasonally adjusted an

nual rate.

Source : U.S. Department of Commerce, Survey of Cur

rent Business, August, 1964, p. 8.

and large gains have also taken place in nonelectrical
machinery and primary and fabricated metals.

Gross National Product Advances

The gross national product continued to rise and to
set new records in the second quarter. At a seasonally
adjusted annual rate of $618.6 billion, GNP was up 1.6
percent from the previous three-month period and 7.1
percent from the corresponding quarter of 1963. When
allowance is made for price changes, the increases are
somewhat more than 1 percent and 5 percent respectively.
Gains over the first quarter occurred in nearly all the
major components. Two notable exceptions were new con-
struction, where there was some slackening in the building
of multifamily housing, and net exports of goods and
services, where exports fell and imports rose.

GROSS NATIONAL PRODUCT OR EXPENDITURE
(Seasonally adjusted, billions of dollars at annual rates)

2nd Qtr. 1st Qtr. 2nd Qti
1964

Gross national product 618.6

Personal consumption 396. 1

Durable goods 57. 0

Nondurable goods 175.3

Services 163 . 8

Domestic investment 87 . 2

New construction 48.9

Producers' durable equipment 34.6

Change in business inventories 3 7

Nonfarm inventories only. . . 3.4

Net exports of goods and services 5 . 7

Government purchases 129.6

INCOME AND SAVING

National income 506 6"

Personal income 487 . 9

Disposable personal income 431 .3

Personal saving 35 . 2

1964

608.8

390.0

55.9

172.9

161.1

85.9

49.2

34.2

2.5

2.2

7.7

125.2

498 4
480 9
419.5
29.5

1963

577.4

372.0

51.5

166.6

153.9

80.2

45.9

30.7

3.6

3.2

4.3

120.9

474.6
460.2
399.1
27.1

a Preliminary.

Source: U.S. Department of Commerce.

Consumer demand continued high and accounted for
more than half of the total rise in GNP. In the first two
quarters, demand was particularly strong for household
furniture and appliances, apparel, and food. In the gov-
ernment sector, state and local spending continued up-
ward, and federal government expenditures moved higher
for the first time in a year.

Housing Vacancy Rates Steady

The most recent Census Bureau report indicates that
there were only small changes in the second quarter in
the vacancy rates for housing. Of the total stock of for-
salc units, 1.4 percent were vacant ; and of the rental
units, 7.4 percent were unoccupied. The homeowner rate
varied from 1.1 percent in the North Central and North-
east regions to 1.8 percent in the South. The vacancy
rate for rental units was lowest in the Northeast ('4.4
percent) and ranged upward to 10.7 percent in the West.

The characteristics of vacant units are not very dif-
ferent from those in the second quarter of 1963. The
chief changes have been an expansion in the number of
vacant rental units built since the beginning of 1960, es-
pecially in metropolitan areas, and an increase in the
number of vacant units renting for $100 or more. Among
vacant houses for sale, the rise in new units took place
outside the standard metropolitan statistical areas and a
rise in prices is evident.

[ 5 ]

FINANCIAL DEVELOPMENTS OF THE CURRENT EXPANSION

CARL T. ARLT, Professor of Banking and Finance

Among the many unique features of the current eco-
nomic upswing are the financial developments that have
taken place since February, 1961. Market interest rates
have failed to rise in a manner which had characterized
other periods of recovery and expansion. During 1961
the short-term Treasury bill rate was marked by unusual
stability in the face of an easy money policy combined
with strong demand for short-term assets. In 1962 the
interest rate patterns were distinguished by a decline in
long-term rates while short-term rates rose slightly. In
1963, a year of vigorous expansion, the bill rate rose
substantially, but the rise in the long-term rate was mod-
erate. During the first half of 1964 with the economy
still expanding, both long- and short-term rates remained
quite stable.

Time deposits have risen at a remarkably high and
steady rate since mid- 1960. This continuous rise in time
deposits differs from patterns of previous expansions,
which were marked by a slowing down in such deposit
growth as the economy moved from the recession phase to
recovery and expansion.

The current upswing has been accompanied by a vig-
orous and steady growth of commercial bank credit
marked by bank pressures to acquire higher-yielding and
longer-term assets in both loan and investment categories.
This change in the composition of bank assets has been
an important influence in moderating upward pressures on
long-term interest rates as well as inducing a decline in
bank liquidity.

The nation's money supply (demand deposits plus cur-
rency outside banks) has been increasing during the cur-
rent upswing for a much longer period than in earlier
expansion phases. From December, 1963, to July, 1964,
the money supply increased at an annual rate of 4 per-
cent, or more rapidly than in any of the preceding three
years. The continuing increase well into the fourth year
of an expanding economy differs strikingly from earlier
cyclical experience. During the final 12 months of the
1954-57 expansion the money supply increased only 0.7
percent. In the 1958-60 expansion the money supply ac-
tually declined 2 percent during the final 12 months.

The focus of this article is on the forces underlying
these developments. Because the various financial ele-
ments are so closely interrelated, it is not feasible to
discuss each one separately. It seems more appropriate
to review the combination of financial developments as
they unfolded through the years since February, 1961. It
will be noted that the emerging financial patterns are the
net product of the credit demands of the economy, the
asset preferences of institutional and other investors, and
government policies together with the actions to imple-
ment such policies.

Monetary Policy in 1961

In early 1961 the Federal Reserve and the Treasury
were seriously concerned with two aspects of the eco-
nomic picture. On the one hand, the economy called for
a stimulative monetary policy to encourage recovery and
expansion. Such a policy generally involves substantial
Federal Reserve purchases of Treasury bills with down-
ward pressures on short-term rates. On the other hand,
the continuing deficits in the United States balance of
payments and resulting pressures on the position of the
dollar (see Chart 1) called for measures to reduce the

flow of dollars into foreign hands. Of particular concern
to the United States was the fact that some short-term
capital outflows were sensitive to interest rate differen-
tials. Since foreign short-term rates were higher than
comparable rates in the United States, the policy prescrip-
tion was directed to the avoidance of downward pressures
on United States short-term rates.

In the interest of stimulating the domestic economy
the Federal Reserve maintained a policy of ease through-
out 1961. Federal Reserve open market operations more
than offset the drains on reserves associated with gold
losses and other factors. Total member bank reserves
grew sharply, particularly at the end of the year. Total
loans and investments at all commercial banks rose by
about $15 billion. About 40 percent of the increase was
in loans, 40 percent in United States government securities
— concentrated in the short-term area — and 20 percent in
other securities, mainly state and municipal issues. Bank
liquidity as measured by the ratio of liquid assets to de-
posits increased over the year. Member bank borrowings
remained low, and free reserves (excess reserves minus
borrowings) remained at about $500 million during most
months of the year.

The money supply (demand deposits plus currency out-
side banks) also increased over the year by 3.5 percent.
Thus, according to all measures of monetary policy, Fed-
eral Reserve operations were stimulative throughout 1961.
The maintenance of an easy money policy well beyond
the upturn in business contrasted with the previous up-
swing, when the Federal Reserve moved toward reduced
ease within four months after the business trough.

To minimize the downward impact of its purchases on
short-term rates, the Federal Reserve System in Febru-
ary, 1961, extended its open market buying to include
longer-term securities. A first step in this direction had
been taken in October, 1960, when System Account oper-
ations were extended to include short-term certificates,
notes, and bonds, in addition to Treasury bills.

Treasury debt management policy supplemented Fed-

CHART 1. U.S. BALANCE OF TRADE AND
NET PAYMENTS POSITION

[ 6

CHART 2. MOVEMENTS IN TIME DEPOSITS
AND THE RATE DIFFERENTIAL

J_ L 1 11 .

...

Rales of Cha

irae and Savings Deposits'fX

\i\j\

1 ! i

Baits Paid

on lime Deposits Minus Yield on Thiee-Monlh Treasury Bil

1 " TA

^ J

v ■ r I i ^.^v/^

-^4

' s^ W

1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963

eral Reserve efforts to maintain short-term rates. Govern-
ment trust funds and investment accounts used additional
funds accumulated during the year to purchase long-term
securities. As an additional support to the short-term rate,
these accounts also sold short-term securities to acquire
longer maturities. Treasury cash financing in 1961 and
during much of the current economic upsurge has been
concentrated largely in the Treasury bill market.

Treasury short-term financing was particularly signifi-
cant in the early months of 1961. By adding to the stock
of short-term Treasury bills, the Treasury was able to
meet the strong demands for liquid assets normally pres-
ent during the recession and early recovery. In the ab-
sence of the added supply of bills, short-term bill rates
would have tumbled below their late 1960 lows. At the
trough of the two earlier recessions, the supply of short-
term debt had been substantially reduced by Treasury
debt-lengthening operations.

Throughout the 1961 recovery time deposits main-
tained a high rate of growth. In earlier postwar cycles,
growth in time and savings accounts declined as the econ-
omy moved from recession to recovery. During reces-
sions, declining short-term market rates usually produce
a rate differential in favor of time deposits, whose rates
tend to be insensitive to changing economic conditions.
As the economy moves out of the recession, yields on
Treasury bills and other short-term credit instruments
normally rise above the rates which banks are permitted
to pay on time deposits under Regulation Q, and this
actually brought the growth in time deposits to a halt for
short periods in early 1956 and early 1960. (See Chart 2.)

Commercial banks were able to attract time deposits in
1961 because short-term interest rates did not rise appre-
ciably until late in the year. As shown by Chart 2, the
interest differential remained in favor of time deposits.
The development of a secondary market for negotiable
certificates of deposit contributed to the attractiveness of
time deposits as an investment medium for those manag-
ing liquid funds. As a result, time deposits at commercial
banks continued to expand rapidly after February, 1961,
at a rate only slightly below the recession rate.

Developments in 1962

A most important feature of 1962 developments was
the tremendous increase in time and savings deposits

amounting to $15 billion or an increase of 18 percent, the
largest increase for any postwar year. The volume of
time deposits responded quickly to the higher interest
rates offered by commercial banks early in the year. The
stage had been set for this time deposit growth by the
revision of Regulation Q which raised maximum permis-
sible rates in January, 1962. The Board of Governors
stated that the rise in rate ceilings was "to enable banks
to compete more effectively for savings and other time
deposits, including foreign time deposits, thus moderating
pressures on the U. S. balance of payments . . ." (48th
Annual Report).

The rapid advance of time deposits throughout the
year was strengthened by the fact that short-term market
rates advanced only slightly through the year. The grow-
ing popularity of negotiable certificates of deposit with
their relatively high interest returns, their flexible maturi-
ties, and the availability of a secondary market made
banks, particularly large banks, effective competitors for
the liquid reserves of corporations and other large par-
ticipants in the market.

The higher rates on time and savings balances estab-
lished in 1962 channeled a large volume of funds that
would otherwise have been invested in short-term assets
(Treasury bills and demand deposits) into the capital
markets. This development helped not only to depress
rates in the long-term market but also to raise rates in the
short-term markets.

Commercial banks, in an effort to increase earnings in
the face of rising amounts paid on a larger volume of
time deposits and at higher rates of interest, pushed into
longer-term and higher-yielding investments. Bank hold-
ings of state and local government securities grew by $5.3
billion, virtually 90 percent of the year's increase in state
and local bonded debt. Banks increased their holdings of
longer-term United States government securities while
decreasing their holdings of those maturing within a year.
At the same time, banks displayed intense interest in real
estate loans, increasing their holdings by $4 billion.

This shift in the composition of bank portfolios not
only reduced the liquidity position of individual banks, it
also provided a supply of funds in the capital market
that outstripped the demand at existing rates. The net
result was a decline in long-term rates (see Chart 3.)

The increase of total bank credit amounted to a

CHART 3. YIELDS ON U.S. GOVERNMENT
SECURITIES

PerCent „„.u- .«.=,_«:.

5.0

pTT , i ,, i ,, i . tt~. , i ,. i .. i ■ rr; . i ,, i ., i , rr, , ; ■ ■ r

1961 1962 1963 1964

[ 7 ]

record-breaking $19 billion. Although total bank reserves
did not increase in 1962, the large shift to time deposits
with lower reserve requirements released reserves for
further credit extension. Additional reserves were re-
leased when in the fall of 1962 the Federal Reserve
lowered the legal reserve requirement on time deposits
from 5 to 4 percent. This action released $780 million in
reserves.

In 1962 Federal Reserve policy reflected continuing
concern over the balancc-of-payments situation. It con-
tinued to move into longer maturities in its open market
purchases so as to lessen downward pressures on the
Treasury bill rate. Against the background of a contin-
uing large deficit in the United States balance of pay-
ments and the possibility that sudden changes in payment
flows might disrupt exchange markets, the Federal Open
Market Committee on February 13, 1962, authorized
transactions in foreign currencies for System Account.
The details of actions in this area are beyond the scope of
this paper, but the decision to authorize such operations
is significant in that it points up the official concern ex-
pressed over the international position of the dollar.

Balance-of-payments considerations again influenced
policy late in the fall. The Federal Reserve, instead of
buying securities to increase bank reserves to meet sea-
sonal credit requirements, reduced the legal reserve re-
quirements on time deposits from 5 to 4 percent. This
action released reserves for further credit extension. In
the words of the Board of Governors, this move was
"To help meet seasonal needs for reserves, while mini-
mizing downward pressures on short term interest
rates . . ." (49th Annual Report).

Reflecting this concern over the balance of payments,
Federal Reserve policy was not as directly expansive as
in 1961. Total bank reserves did not increase and the
money supply increased only moderately, at the rate of
1.5 percent.

Recent Financial Trends

In some respects, 1963 was an extension of 1962.
Commercial banks continued to compete for time deposits,
achieving a growth rate of 15 percent, greater than in
any other postwar year except 1962. In their search for
earnings, commercial banks continued their heavy pur-
chases of longer-term, higher-yielding assets, thus further
reducing bank liquidity.

Monetary policy, in response to the general concern
over the need for further stimulation of the economy and
freed from the fear of rising prices and pressures on
scarce resources, continued its easy posture. When meas-
ured in terms of the increase in total reserves and the
money supply, monetary policy turned out to be somewhat
easier than in 1962.

In mid-1963, however, the Federal Reserve policy was
influenced by the growing evidence of a sharp second-
quarter worsening in the United States balance of pay-
ments and by Treasury urging that a rise in short-term
interest rates was needed to arrest the outflow of short-
term capital. In July the Federal Reserve discount rate
was raised to 3i/£ percent. The higher cost of reserves
borrowed at Reserve Banks was reflected in other money
market rates such as those on federal funds and rates
charged to security dealers for financing security inven-
tories. The Treasury bill rate rose and exceeded the dis-
count rate by a small margin at year-end.

It is interesting to note that short-term rates actually
recorded some advance before the mid-July action of the

Federal Reserve. This showed the sensitivity of the
money market to government statements and actions.

Other factors contributed to the rise in short-term
rates. The Federal Reserve in mid-July also increased the
ceiling rates to 4 percent on time deposits maturing in 90
days to one year. This made it possible for commercial
banks to offer more competitive rates on time certificates
— particularly those with maturities of three to six
months, on which the ceiling rate had previously been
only 2i/£ percent. The resulting competition for short-
term funds operated to support the general advance in
short-term rates. Increased business activity combined
with the government actions reinforced the feeling that
interest rates were on the rise.

Long-term rates rose only moderately. The continued
flow of funds into the capital market acted to moderate
the growing demand for funds which developed in the
continuing upsurge of business.

The unique feature of the first half of 1964 was the
stability of interest rates after the rise in the last half of
1963. With output, employment, incomes, spending, and
investment showing strength, one might expect growing
credit demands to put upward pressure on rates. That
rates have not moved upward may reflect the continuing
easy money policy, the still-heavy (though slightly re-
duced) flow of institutional funds into the capital market,
and the large volume of internal sources of funds avail-
able to business in the form of undistributed profits and
depreciation allowances. The 1964 tax cut, which increases
the funds available to individuals and corporations, may
be one of the reasons why demand pressures have not in-
creased credit to the point where rates would rise.

Some Policy Questions

The financial experience of the past 3i/2 years raises
some important questions. To what extent is it possible
for the Federal Reserve and the Treasury to alter the
structure of interest rates? We note that short-term rates
did rise while long-term rates declined and then rose
moderately. To this extent interest rates moved in the
direction desired by the government. But a review of
financial patterns during recent years also shows that
other factors had a lot to do with the course of interest
rates in the current upswing. Among these were the na-
ture of the credit demands, including an unusually mod-
erate business demand for outside financing; the desire
of a growing number to hold their liquidity reserves in
the form of depository-type savings rather than in check-
ing accounts and equity securities ; and the large volume
of institutional savings flowing into the capital markets.
This is not to deny the impact of Treasury and Federal
Reserve actions on interest rates; it merely suggests that
government influence is less than complete.

Another question concerns bank liquidity. We have
observed the tremendous growth of time deposits and the
resulting shift in hank asset composition toward longer-
term, higher-yielding loans and investments. The ratio of
loans to deposits is now at a high level and the ratio
of riskless assets to deposits has been declining. What is
the position of banks in the event of a sharp increase in
the demand for business loans? Are banks liquid enough
to meet the demands of their preferred customers? What
happens to individual banks that would be pinched if
market rates of interest should rise to the point where
certificates of deposit lose their attractiveness? Are banks
in a position to meet a switch from time deposits to other
market assets, or to demand deposits?

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Aerospace

The Aerospace Industries Association indicated in
their 1963 report that approximately 85 percent of the
industry's estimated total revenues of $20 billion stemmed
from government contracts. Roughly 74 percent of fed-
eral funds for defense and space projects were channeled
through 100 companies in fiscal 1963. An estimated 10,000
first-tier subcontractors and 200,000 vendors took part
directly in this government business. About half of prime
contract dollars were parceled out to suppliers.

Lockheed Aircraft Corporation was the top military
prime contractor in fiscal 1963, receiving new contracts
amounting to slightly more than $1.5 billion. Other com-
panies that obtained contracts totaling over $1 billion
were Boeing, North American Aviation, General Dynam-
ics, and General Electric. Martin Marietta Corporation,
American Telephone and Telegraph, and United Aircraft
were in the $500 million to $1 billion group, as reported
by Standard and Poor's Industry Survey.

In recent defense budgets aircraft remains the largest
procurement item. The manufacture of aircraft, aircraft
engines, and components accounts for 50 percent of the
aerospace industry's current dollar revenues. This per-
centage includes commercial jet transports, helicopters,
and general aviation planes.

Missile systems spending first became a billion-dollar
item in 1952. The upsurge began in 1956 when major
technological advances were made. In fiscal 1964 annual
outlays reached $6 billion (not including expenditures for
site construction and maintenance costs). With various
projects completed and the rate of Minuteman installations

SPACE EXPENDITURES
(Fiscal years)

BILLIONS OF DOLLARS

^■-•—DEPARTMENT

I960 1961 1962 1963 1964° 1965°

* Atomic Energy Commission, National Science Founda-
tion, and Weather Bureau.
b Estimate.
Source : U.S. Bureau of the Budget.

reduced, missile spending in 1965 will total approximately
$4.5 billion.

The current administration is shifting emphasis away
from space exploration (see chart). Total expenditure in
1960 was $960 million. It grew each year from 1960 to
1963 by 53 percent, 63 percent, and 71 percent respectively.
From 1963 to 1964 spending rose 51 percent, increasing
by approximately $2 billion to $6.2 billion. The estimate
for 1965 is $6.7 billion, a growth of roughly 9 percent.

Research and development account for at least 75 per-
cent of federal appropriations in the aerospace industry.
Government officials estimate that half of all highly tech-
nically trained personnel in the United States are indi-
rectly involved in advanced programs of defense and that
80 percent of all electronic specialists are engaged in
national security programs to some extent.

Mutual Funds

Most mutual funds this year have invested heavily in
blue chip stocks and have performed approximately the
same as the leading averages, perhaps slightly better.

From January 2 to July 1 the Dow-Jones industrial
average went up 8.5 percent and Standard and Poor's list
of 500 stocks increased 8.3 percent. The net asset value
per share of a sample made by Business Week of common
stock funds indicated that most of them rose roughly 9
percent in value, with a range of 6 to 12 percent. Growth
stock funds also gained about 9 percent in value, but with
a wider range of 6 to 16 percent. Balanced funds did not
keep up with the averages, showing a median increase of
6 percent.

Small Business Consultants

The Service Corps of Retired Executives (SCORE)
started by the Small Business Administration (SBA)
officially began operations in Boston in August. By late
fall the program will be functioning in all 14 SBA re-
gional offices. The aim of SCORE is to give assistance
to small companies that are not showing much progress or
are having difficulty meeting loan payments. These small
businesses will be advised only if they request it.

Four-man teams of retired executives will be used.
Boston will have eight teams. As presently planned they
will not be paid. It is felt that these volunteers will not
be in competition with professional consultants, since they
will deal mostly with businesses too small to pay for con-
sulting services. Most volunteers are over 60 and retired,
but a few are still actively employed.

Voters

( In November 1 there will be about 114 million people
of voting age in the United States. In addition there are
500,000 people of voting age in the armed forces overseas.

Eligible voters actually number about 111 million, since
3 million in the above total are ineligible to vote because
of such conditions as alien status or failure to meet state
requirements of residence. Of the 114 million total, it is
estimated that 55 million arc men and 59 million women;
102 million are white and 12 million nonwhite.

In the 1960 presidental election 63 percent of the pop-
ulation of voting age exercised their right to vote. A
similar percentage this year would produce a vote of
approximately 72 million.

[ 9 }

LOCAL ILLINOIS DEVELOPMENTS

Life Insurance in Force

Illinois families owned $48 billion of life insurance at
the end of 1963, up $3.3 billion from a year earlier. Dur-
ing each of the last two years, the increase has amounted
to somewhat more than 7 percent. On a nationwide basis
life insurance in force totaled nearly $731 billion, a gain
of 8 percent over 1962. Average ownership per insured
family has now reached $15,300. Illinois continues to rank
fourth among the states in total life insurance ownership.

Ordinary life insurance remains the major method of
protection, accounting for $28 billion or 58 percent of the
total ownership in the State at the end of 1963 (see
chart). This is similar to the United States as a whole
where 57 percent of total ownership, or $419 billion, is in
the form of ordinary life.

The second largest form of insurance owned in the
State is group insurance. The amount in force is $15.5
billion, 31 percent of the total. This is a gain of 8.4 per-
cent over 1962. The largest percentage increase has been
in credit insurance, which is usually associated with con-
sumer debt. Over the past few years this item has risen
steadily, with the 1963 figure 17.3 percent above that for
1962. The absolute amount remains small, however, at
about $2 billion, or only 4 percent of the total. Holdings
of industrial insurance showed a very slight decline.

Nonagricultural Employment

Nonagricultural employment in Illinois rose 1.7 per-
cent between May, 1963, and May, 1964, when nonfarm
jobholders totaled 3,648,000. The greatest increase oc-
curred in the number of government workers. In May,
1964, there were 471,000 employees in this category. This
was an advance of 2.8 percent or 13,000 over May, 1963.

In the largest category, manufacturing, total employ-
ment went up by 2.4 percent to 1,222,000. A similar gain
occurred in mining, quarrying, and petroleum production,
where there was an increase of 2.6 percent to 27,000.

LIFE INSURANCE IN FORCE

itute of Life Insurance.

In the service and miscellaneous group a rise of 2.2
percent over the previous year brought the total to
539,000. For the two categories of wholesale and retail
trade and finance, insurance, and real estate, employment
went up about 1 percent to 765,000 and 197,000 respec-
tively. There was virtually no change in the number em-
ployed by the transportation and public utilities industries.

Construction was the only area in which a decline oc-
curred. Here the total decreased by 3,000 to 153,000.

Coal Mining

The number of employees in Illinois coal mines rose
slightly in 1963 for the first time since 1946, when there
were 32,476 coal miners working in the State. Employ-
ment decreased fairly steadily from 1946 to a low of
8,774 in 1962. In 1963 employment totaled 8,891, a gain
of 1.3 percent. Of the total, 62 percent were working in
underground mines and 38 percent were employed in strip
mines.

There has been a steady increase since 1959 in average
days worked. In that year the average number of days
worked was 162; in 1963 the figure was 187.

The number of mines operated in the State has re-
mained the same for two years, after declining from 159
in 1959 to 116 in 1962. In 1963, 34 counties in Illinois
were listed as coal producers by the State Department of
Mines and Minerals.

Output of coal went up to 51.6 million tons in 1963, an
increase of 6.8 percent over 1962. From 1959 through
1961 output averaged slightly more than 45 million tons.

Production Workers' Earnings

Illinois production workers on manufacturing payrolls
earned gross wages averaging $113.39 per week in May.
This represents a 4.6 percent gain in average weekly
wages over May, 1963; the average workweek amounted
to 41 hours, an increase of only 0.7 percent.

Peoria area production workers were employed an
average of 43.7 hours a week, up 7.9 percent, and re-
ceived wages averaging $136.25, a gain of 14.7 percent.
This was the largest increase in the State.

Davenport - Rock Island - Moline area production em-
ployees worked 4.2 percent more hours and earned aver-
age wages of $120.94, up 9.7 percent. In the Rockford
area, weekly pay increased by 7.5 percent to $116.31 while
hours worked rose only 2.4 percent to 43.5.

Workers in the Chicago area had gross earnings of
$114.49, up 3.8 percent, for working 40.9 hours, about the
same number as a year ago. Since this is the biggest
region, its lower rate of increase chiefly accounts for the
low state average increase of 4.6 percent.

Farm Land Use

About 65 percent of the total farm land in Illinois
was devoted to crop raising in 1963. Corn was planted on
8.5 million acres or 28 percent of the land available. This
was a decrease of 1.7 million acres since 1960. Still, Illi-
nois was second only to Iowa in total acreage devoted to
corn. Soybeans were raised on 16 percent of the farm
land. The acreage for this crop has increased steadily
over the years to a 1963 total of 5.5 million acres. Hay,
wheat, and oats were grown on 17 percent of the farm
land. The State also produced tomatoes, asparagus, and
green peas for processing. Leading fresh market crops
were cabbage, sweet corn, and strawberries.

[io:

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
July, 1964

Building

Permits1

(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits6

(000,000)

.LINOIS

Percentage change from {Jjjj£- g**-

NORTHERN" ILLINOIS
Chicago

Percentage change from .
Aurora

Percentage change from.
Elgin

(June, 1964.
July, 1963.

Percentage change from. . . . [■j^' j1^4

Joliet

Percentage change from. . . . j-Jjjj^ ' lg^'

Percentage change from. . {{u{£ gg;
Rock Island-Moline

Percentage change from.
Rockford

(June, 1964.
July, 1963 .

Percentage change from. . . {jU{£' gg;

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from .
Danville

(June, 1964.
July, 1963.

June, 1964.
July, 1963.

Percentage change from. . {]"]£' g**;

Decatur

Percentage change from.
Galesburg

June, 1964.
July, 1963.

Percentage change from. . . ■, j","e' 1963 '

Peoria

Percentage change from .
Quincy

Percentage change from.
Springfield

June, 1964.
July, 1963.

(June, 1964.
July, 1963.

, June, 1964.

Percentage change from. . . ■ JU]V| 1953

SOUTHERN ILLINOIS
East St. Louis

Percentage change from .
Alton

Percentage change from .
Belleville

Percentage change from.

(June
July

June, 1964.

July, 1963.

(June, 1964.
July, 1963

$44,526-'
-13.2

+8.6

$23,111

-41.4

-4.3

$ 883

-36.2

+18.5

$ 483

-6.0

-17.9

$ 951

+36.2

+32.8

$ 390

+83.1

+74.9

$ 2,741

+ 164.6

+131.5

$ 2,382

+14.1

+39 . 5

$ 925

+5.1

-51.5

$ 1,170

+69.6

-69.6

$ 310

+55.0

+38.4

$ 2,446

+175.1

+233.2

$ 195

+12.7

-35.6

$ 321.2

+ 172.2

+330.6

$ 676

+238.0

+220.4

$ 2,278

+ 101.4

-34 9

$ 1,526
+1,654 0
+259.1
$ 846
+69.2
+243.9

,644.2°

+7.5
+9.4

,154 5

+ 7.5
+8.2

58.2l>
+5.2
+24.1

71. S«
+ 11.0
+12.8

15 1

+ 7.1

+5.6

25 3

+8.1

+ 13.5

22 7

+3 7

+9.6

47.7

+2.1

+ 12.0

13 5

+ 7.1

+ 16.4

85 0'

+6.0

+ 19.5

17.7

+7.3

+0.6

64 7

+ 12.9

+5 7

21 0
+ 12.9
+5.0
29 4
+2.4
+4.3
17 .9
+10.5
+11.2

$28,257°
+2.2
+ 10.1

$26,290
+2.3
+ 10.5

$ 100
-1.0

+1.0

$ 62
-3.1
-6.1

$ 107

+4.9
+0.9

$ 166^
-2.4
+ 13.7

$ 263
-0.8
+ 9.6

$ 118
+37.2
+0.9

$ 121
-7.6
+ 1.7

$ 67
+ 6.3
+8.1

$ 175
+6.7
+18.2

$ 332
-10.3

+3.4

$ 67
-9.5
+3.1

$ 184
+8.9
+ 7.0

144

+5.1
+2.1
61
+ 7.0
+3.4

a Total for cities listed. b Includes East Moline. ° Includes immediately surrounding territory, n.a. Not ;

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.
Monthly data not available. 4 Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
6 Federal Reserve Board. • Local post office reports. Four-week accounting periods ending July 17, 1964, and July 19, 1963.

[11]

Robert K. Sutton
'Ji'tana, Ill«

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

(^j^^//3^<l^^c

EMPLOYMENT - MANUFACTURING

AVERAGE WEEKLY EARNINGS - MANUFACTURING

200

150

ILL

" k

-/"*

\ /

U.S.

ILLy/

I I i I i i i i

* REVISED SERIES

, ,

U.S.

, ,

* REVISED SERIES

'61 1962

1962 1963 1964

DEPARTMENT STORE SALES (ADJUSTED)

yv^V

ILL.

'US

CASH FARM INCOME

ILL

^u.s~

■wv

'29 '37 '4S

1962 196

BUSINESS LOANS

CONSTRUCTION CONTRACTS

_J^

us.

♦ REVISE

3 SERIES

J H

ihrrrf

7tt

1963 1964 '29 '37 '45 '53

ANNUAL AVERAGE

1962 1963 1964

ELECTRIC POWER

'RODUCTION

vwv7

kfo

,L>

/us.

COAL PRODUCTION

ILL/,

\ ,

v^v ..

'29 '37 '45 '53 '61 1962 1963 1964 '29 '37 '45 '53

ANNUAL AVERAGE ANNUAL AVERAGE

1963 1964

i^,W-iar :."

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

HIGHLIGHTS OF BUSINESS IN SEPTEMBER

Business activity continued its upward course to new
records in September. The strike at General Motors plants
came as something of a surprise after the agreements with
Chrysler and Ford and the apparent success of bargaining
over the general terms of the contract. However, it now
seems probable that conflicts over working conditions in
individual plants, which had been underestimated both by
the corporation and top union officials, will be settled in
the near future.

Despite the shutdown at General Motors, steel produc-
tion was at a high level in the latter part of September,
and other suppliers of the automobile industry had not
found it necessary to curtail output. Almost 573,000 pas-
senger cars were produced during the month. This was
nearly 16 percent more than in the year-earlier month,
when the start-up of production after the model change-
over came a little later.

Little Change in Construction

Total new construction put in place in September was
valued at $6.1 billion in preliminary estimates. This was
1 percent less than in August and 3 percent above the
September, 1963, total. Expressed as an annual rate and
adjusted for seasonal variation, the latest estimate was
virtually unchanged from August, and in 1957-59 dollars
it was only 2 percent above the year-earlier September.

The value of total new private construction expendi-
tures was estimated at $4.2 billion, also down 1 percent
from August and up 3 percent from the year-earlier
figure. Spending for construction of new private non-
farm residential buildings amounted to $2.4 billion, 3 per-
cent less than in August and about the same as in Septem-
ber, 1963. On a seasonally adjusted basis, the decline from
August was less than 1 percent.

Jobless Rate Unchanged

The seasonally adjusted rate of unemployment in Sep-
tember was estimated at 5.2 percent, essentially the same
as in August. For the past five months it has been fluc-
tuating around 5 percent, whereas for many months be-
fore it stayed close to 5.5 percent.

The number of unemployed dropped 337,000 from mid-
August, almost exactly the amount expected for this time
of year, to 3.3 million. Employment also declined about
seasonally to 70.8 million from 72.1 million in mid- August.
Thus the labor force was down 1.6 million to 76.8 million.

A large reduction in the teen-aged labor force as school
began was only partly offset by an influx of women work-
ers. The seasonally adjusted rate of unemployment for
teen-agers dropped from 15 percent in mid- August to 14.2
percent and that of adult women was about the same as
for the past four months at 5 percent. However, the job-
less rate for adult men rose to 3.9 percent from 3.7 per-
cent in July and August and the rate for married men was
up from 2.6 percent to 2.9 percent.

Inventories Steady

Business firms as a whole made little change in their
inventories during July or August. Stocks held by all
businesses at the end of August were estimated at a
seasonally adjusted $106.6 billion, about the same as for
June and July. With total business sales in August
amounting to $73.2 billion, the ratio of inventories to sales
was at 1.46, up slightly from the 1.45 for July because of a
drop of $500 million in sales from the record purchases in
July. Department of Commerce analysts said that the
stability suggests that business firms do not expect sales to
change much in the near future.

Stocks held by retailers at the end of August amounted
to $29.94 billion, down $190 million from the month be-
fore. Automobile dealers accounted for $40 million of the
decline as they cleared out 1964 models in preparation for
the 1965 cars. Furniture and appliance dealers reduced
their stocks $50 million. Wholesale inventories declined
$50 million to $15.97 billion. However, manufacturers'
stocks rose $230 million in August to $60.72 million. Most
of this increase was in materials used by durable goods
producers. Stocks of finished goods on hand at factories
were down slightly.

Farm Prices Improve

During the month ended September 15, the index of
prices received by farmers rose 4 points (2 percent) to
236 percent of its 1910-14 average. Higher prices for
wholesale milk, cattle, and hogs contributed most to the
increase. These were partly offset by a decline in potato
prices. The index of prices paid by farmers was un-
changed over the month at 313 (1910-14 = 100).

With prices paid by farmers unchanged and farm
product prices advancing, the parity ratio rose 1 percent
i hiring the month to 75. Thus it was 1 point above the
lowest ratio since 1939.

THE GENERAL FRAMEWORK OF CONSUMER SPENDING

By Robert Ferber

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

Box N, Station A, Champaign, Illinois

The material appearing in the Illinois Business Review is derived from
various primary sources and compiled by the Bureau of Economic and
Business Research. Its chief purpose is to provide businessmen of the
State and other interested persons with current information on business
. i.tihhuns. Signed articles represent the personal views of the authors
and not necessarily those of the University or the College of Commerce.
The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Elaine Goldstein Diane L. Lewis

John P. Myers Virginia Speers

Fallacies About the
Federal Debt

A generation ago, Keynes showed that some govern-
ment expenditures which accomplished practically nothing
in themselves were useful as a stimulus to the economy.
Galbraith now explains why emphasis ought to shift to-
ward expenditure programs that will improve the quality
of life (See Science, July, 1964). A sorry symptom of
these confused times is that precisely this type of govern-
ment expenditure is most bitterly opposed. Outspoken
critics of government spending support wasteful expendi-
tures but oppose those which are the most productive and
beneficial.

These very general comments on government programs
are offered as prelude to a discussion of the federal debt
because it is expenditures in excess of receipts that force
the government to expand its debt by borrowing. Citing
the evils of debt is therefore a way of attacking expendi-
tures, at least the kinds one does not like. This kind of
argument, however, is basically diversionary. Neither the
debt nor its alleged burdens are a basis for deciding
expenditure programs on anything but their own merits
or tax programs on anything but their specific effects.

Economic Role of Financial Assets

To see the meaning of debt in its broadest perspective,
we must keep in mind that claims against existing or
future real values are a basic goal of economic action.
The possession of money represents such a claim. Every-
one wants to be wealthy, but unless the supply of money
is kept within reasonable limits, it will not be accepted
as an indicator of wealth by anybody. It is the govern-
ment's function to supply and regulate money in the
interest of a vigorous economy.

The government also originates near-money claims in
the form of short-term Treasury bills and notes. These
are promises to pay at specified dates in money. The
money alone has the status of legal tender but, like the
other kinds of financial paper it supports, is of no value
in itself. In earlier times it represented the government's
promise to pay specified amounts of gold or silver on
demand, but this metallic content has been eliminated for
a generation. In practice the dominant form of money

today consists of checks drawn on bank deposits, that is.
claims against banks. Nevertheless, money and money
substitutes are important in making it possible for a
highly specialized, industrial economy to function effec-
tively.

Similarly, a substantial amount of federal debt in other
forms helps to keep money and capital markets healthy.
Regulating and controlling the supply of this debt may
also be important to the economy, but only a few of the
most direct and basic effects can be considered in the
short space available here. One well-established principle
is that the government should borrow when it wishes to
spend in excess of its receipts in order that the value of
money be most completely guaranteed.

The creation of all these claims, whose value inheres
in their power to command goods and services, is part of
the process by which we put the resources of the com-
munity to work. Mobilizing savings and undertaking real
investment by means of credit results in a higher level
of national income. Accumulation of the real wealth
which our paper assets represent — the factories, houses,
public works, and all our productive equipment — is an
essential part of the history of our economic growth. For
all of us considered together, the only way the debt
would be a threat is if we tried to liquidate it.

Since the end of the war, the federal debt has been
comparatively stable — in contrast to private debt, which
has been growing sharply. Even if we go back a quarter
of a century, to 1939, the growth in the federal debt,
which occurred mostly during World War II, has been
no greater relatively than the growth in private debt.
Total debt, public and private together, has increased
about sixfold but its growth now just about matches the
increase in gross national product over the same period.
The aggregate debt is tremendous but so is the economy
that stands behind it.

The Analogy With Personal Finance

If the national economic accounts were consolidated
for the economy as a whole, most of the financial assets
and liabilities would cancel out, leaving some rela-
tively small claims against and indebtedness to the rest of
the world and revealing our aggregate real wealth as the
productive capital supporting our high standard of living.
To some extent the situation would be similar to that of
the family in which a son has borrowed from his father.
The debt is purely internal, and the family as a whole
may still present a clean balance sheet to the outside
world. The son might use the funds thus obtained as the
down payment on the purchase of a house, and his eligi-
bility for a mortgage loan on the property would be con-
sidered satisfactory. Similarly, the federal debt, which
was incurred on behalf of all of us and is payable to a
great many of us, is internal to this larger family and
cannot threaten the economy with bankruptcy.

There are also important differences between private
and government finance. The son would presumably have
to repay his father in currency whose supply he cannot
influence. This legal tender, however, is the product of
the government and could be created in sufficient volume
to pay its debt if it were considered desirable to change
the legislation and policies by which the money supply
is controlled — which almost everybody agrees, of course,
is not the case.

Another important difference is overlooked by the
opponents of government borrowing who assert that "the
(Continued on page 8)

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

AUTOMATIC MERCHANDISING

It was over 2,000 years ago that man first hit upon
the idea of sales without salesmen. The first known
vending machine was used in ancient Greece about 200
B.C. It was a coin-operated temple urn which issued holy
water to Greek worshipers. The oldest surviving vending
machine is a brass box dating from 18th century England,
which dispensed tobacco and snuff.

During the late 19th and early 20th centuries many
ingenious machines were developed. Taking a mechanical
bull by the horns would result in a little puff of perfume
being wafted over the machine's operator. The sign on
another device proclaimed it to be "For One Night Jags,
Headache, Rheumatism, Neuralgia, Debility, and All
Nervous Disorders." The machine's doubtful curative
power consisted of a mild jolt of electricity which the
patient received by grasping a pair of handles after
inserting a dime in the slot. One unusual vendor was a
cast iron hen which clucked and laid a hard-boiled egg
when a crank was turned. Other machines developed
around the turn of the century offered cigars, cigarettes,
beer, wine, coffee, sweetmeats, stamps, stationery, hand-
kerchiefs, books, and divorce application forms (in Utah).

Two Chicago companies were early entrants into the
field. In 1902 the White Vending Machine Company
came out with a head-shaped gum vendor called Smilin'
Sam from Alabama, and three years later the Mills
Novelty Company offered the electronic treatment de-
scribed above.

Problems in the Past

During the industry's infancy, food was seldom sold
through machines. One device did sell sandwiches, but
they were unrefrigerated and had to be replaced at the
start of each day. Over the past 60 years, advances in
refrigeration and more sophisticated mechanical and
electronic devices have made possible the sale of many
types of cold and frozen foods.

However, the industry has yet to develop a really
satisfactory method of handling most types of hot foods.
Coffee, cocoa, soups, and other easily heated items are
now sold but more complete meals such as meat, potatoes,
and vegetables, which take longer to heat, still present
a problem. In some cases the time of consumption can be
predicted — for instance in a factory or school cafe-
teria — and the food can be heated just prior to expected
consumption. However, there is still a problem in that
any meals not purchased must be discarded at the end of
a short period. The problem is compounded if a machine
is to be located in an area where the time of use cannot
be predicted — such as along a tollway. The industry is
currently experimenting with quick heating frozen food
through radiation, a process which can produce a cooked
meal in a matter of seconds. If successful, this process
will mark a major breakthrough in the sale of hot foods
through vending machines.

Another problem that had faced the industry since the
beginning was recently solved. It is no longer necessary
for customers to have enough money in coin for their

purchase. Machines are now available which can read
and change paper money in denominations of $1, $2, $5,
$10, and $20.

One difficulty which recently beset the industry was
partly self-inflicted. During the late 1950's and early
1960's both machine manufacturers and operating com-
panies were enjoying record sales. It appeared that
virtually anything could be sold by machine if it was
mechanically feasible. Heavy investments were made in
several new ideas. Many of them did not succeed. The
public was apparently not as willing to purchase some
items from machines as was thought. For example, an
agreement between a major oil company and a large
Chicago operator to provide automatic eating places in
gas stations failed. An indication of the severity of the
shock is the fact that the net profit of one Chicago-based
manufacturer went from $5 million in 1961 to $633,000
in 1962.

Potential in the Future

It did not take long for the lesson to be learned,
however. The industry is booming again, with annual
sales of merchandise through vending machines currently
amounting to about $4 billion. This represents a tre-
mendous growth in the industry over the past two decades.
In 1946 sales through vending machines were $600 million.

Machine manufacturers located in Illinois, and Chi-
cago in particular, are getting a major share of the
industry's business. There are 23 firms in the State
engaged in the manufacture of vending machines, 16 of
them in Chicago. Two Chicago firms employ over 1,000
people and are among the largest in the industry. In
total, the state's 23 firms employ over 6,300 people and
represent an investment of more than $12 million.

Most vending machines are operated by small com-
panies. About 80 percent of the business is done by firms
with six or fewer employees. There are indications that
this industry pattern is changing, however. In the past
few years the industry has been marked by an extensive
merger movement brought about by changing patterns in
the demand for service. Establishments providing space
to operators want a larger variety of goods sold through
machines. At the same time they prefer to do all their
business with a single firm and this has forced many
small firms to expand or merge with others to reach a
size large enough to handle a complete line of machines.
By the same token the operators are demanding that a
manufacturer be able to provide an extensive line, causing
many mergers at the manufacturing level.

The setback suffered a few years ago has not darkened
the outlook of most industry executives. One top execu-
tive sees the hot food market as holding great potential
for the industry. The development of an efficient hot
meal vending machine would permit extensive industry
penetration into this market. Other factors such as
recent successes in new ventures in coin-operated car
washes and dry cleaning machines have indicated that
the market's full potential is yet to be reached.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'

Percentage changes, July, 1964, to August, 1964

UNITED STATES MONTHLY INDEXES

1 1
COAL PRODUCTION

ms=m

ELECTRIC POWER PRODUCTION
1

EMPLOYMENT- MANUFACTURING

1 i 1

1 r 1

CONSTRUCTION CONTRACTS

'ARTMENT STORE SA

_ES

BANK DEBITS

■ ill.

Has.

FARM PRICES

ally adjusted. N.A. Not available.

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices6

Bank debits6

Construction contracts'

Electric power8

Coal production9

Petroleum production10

'111. Dept. of Labor; 'U.S. Bur. of Labor Statistics; 'Life Ins.
Agcy. Manag. Assn.; 4 Fed. Res. Bank, 7th Dist.; « 111. Crop Rpts.; 'Fed.
Res. Bd.; ' F. W. Dodge Corp.; " Fed. Power Comm.; » 111. Dept. of
Mines: >• 111, Geol. Survey.

» Preliminary. b Seasonally adjusted.

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked ....

Average hourly earnings. .

Average weekly earnings .

Construction contracts5

Department store sales2. . . .

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices*

Received by farmers

Paid by farmers

Parity ratio

Aug.
1964

Annual rate

in billion $

493.9"

30.2
20.9
23.4

25.1 =
19.3'

73. lb
57. 1>>
45. 0b
32.7=

Indexes
(1957-59
= 100)
134*
136"
133"
113"

102-

103

118
121
131

100
94
101
101

96
107
74d

Percentage
change from

July
1964

- 1.3

+ 2.4

+ 1.9

+ 1.0

+ 1.1

+ 0.8

+ 1.0

• 0.7

• 0.4
0.3

■18.3

+ 6.9

+ 2.9

+ 6.1
+ 2.1

+ 16.2
+ 7.3
+61.5

+ 10.2
+ 10.7
+ 9.9
- 6.7

+ 6.5
+ 8.6
+ 4.9

+ 2.2

+ 1.0
+ 3.7

+ 4.7

- 7.4

+ 1.0

- 0.1

+ o!i

+ 0.3

- 4.0
+ 0.9

- 5.1

'U.S. Dept. of Commerce; 2 Federal Reserve Board; 'U.S. Dept.
of Agriculture; »U.S. Bureau of Labor Statistics; « F. W. Dodge Corp.

■ Seasonally adjusted. b End of month. c Data for July, 1964, com-
pared with Tune, 1964, and July, 1963. d Based on official indexes,
1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Sept. 26

Sept. 19 Sept. 12 Sept. 5

Sept. 28

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous.. . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59 = 100

Freight carloadings thous. of cars

Retail sales mil. of dol

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. .1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

of Cu

Weekly Surrlcments.

1,707
18,775

179
7,747

133.1

623
4,918

100.7
101.1
100.3

39,711
242

[ 4 ]

1,692
18,498

189
7,734

134.5

632
4,770

100.7
101.1
99.7

39,802
230

1,736
18,937

143
7,734

132.3

531
4,535

100.6
101.1
99.2

39,031
213

1,664
19,792

153
7,741

130.8

610
5,163

100.6
101.1
99.3

39,091
240

Monthly index for September, 1963.

1,662
19,563

123
7,652

129.6

605
4,934

100.9
101.2
98.9

38,902
263

1,673
17,285

183
7,578

100.9

622
4,725

100.3"
100.7"
93.8

35,944
254

RECENT ECONOMIC CHANGES

Industrial Production Up

Industrial production rose in August for the 12th con-
secutive month, reaching a record level of 133.5 percent
of the 1957-59 average after seasonal adjustment. This
was 1 percentage point above the previous month and 8
points higher than the year-ago level (see chart).

Nearly all major industries shared in the July-August
advance. Manufacturing was up somewhat more than the
average, mainly on the basis of a strong showing by
durables. Among durables, the largest increase occurred
in motor vehicles and parts. Mining production and
utilities were also slightly above the July level.

Small month-to-month gains added up to an increase
of 6.4 percent between August, 1963, and August, 1964.
Manufacturing production rose more than the average,
again with durables leading the way. Primary metals and
fabricated metals both advanced over the year by nearly
15 percent, and the production of machinery was up
slightly more than 7 percent. Among the nondurables, the
chemicals-petroleum-rubber grouping showed the greatest
growth, increasing by 6.8 percent.

Youth Unemployment

Unemployment rates are generally highest among
workers who recently began their careers. The young
workers are more likely to be laid off because of lack of
experience or seniority. Also, they often become dissatis-
fied, quit, and attempt to find a better job.

The 16-21 age group who are not in school (dropouts
and graduates) account for 1 out of every 14 persons in
the labor force, but 1 of every 5 persons seeking a job.

In 1963 there were 1.7 million high school graduates,
55 percent of whom did not enroll in college. Of this 55
percent, 79 percent or 755,000 entered the labor force. In
this group 136,000 or 18 percent did not obtain employ-
ment by October, 1963, according to a recent report by

INDUSTRIAL PRODUCTION

1957-59=100

**— 1964

1963-^

"^-1962

„.-""' ~~'V_|961

I960— * "^^

JFMAMJJASOND

Source: Federal Reserve Board.

the Bureau of Labor Statistics. Roughly one-third of
those who dropped out of school in 1963 and entered the
labor market remained without jobs. At that time, unem-
ployment among dropouts was approximately 80 percent
higher than the rate for new graduates.

By October, 1963, all but 10.6 percent of the 1962
graduating class that entered the labor market were
working. Of those who dropped out in 1962, one-fourth
were not employed.

Downturn in Housing Starts

From 1960 to 1963 housing starts were in a strong
upward trend, owing mostly to a flood of apartment build-
ing. Last fall and winter housing starts turned down
irregularly, but since March of this year the downtrend
has been almost continuous. Structures for three or
more families started in the first half of this year were
less than 10 percent greater than for the same period in
1963. During the preceding three years annual gains
ranged between 25 percent and 40 percent.

The downturn is concentrated in the Northeast and
the West. Housing in the South and North Central areas
continues to gain.

It is felt that the downturn may be a brief one, since
mortgage money is still in ample supply and national
vacancy rates have remained fairly stable. The Bureau
of the Census estimates that net new housing starts for
mid-1964 through 1967 will be roughly 10 percent above
the annual average for 1961-64.

Foreign Investment Earnings and Income

Earnings by United States corporations from direct
investments abroad moved up 9.5 percent to $4.6 billion
in 1963. These earnings represent the share of United
States parent companies in foreign branches, affiliates,
and subsidiaries. The largest share of these earnings
were from the petroleum industry, with total earnings of
$1.8 billion. United States manufacturing interests abroad
earned $1.5 billion.

Income from direct investments remitted to this
country as dividends, interest, and branch profits
amounted to $3.1 billion in 1963, approximately the same
as in 1962. Higher income receipts of the petroleum
industry were about matched by a decline in income
receipts of manufacturing affiliates. Royalties and fees
received from foreign interests rose 20 percent to $600
million in 1963, continuing to grow faster than returns
in the form of profits and dividends.

Second Quarter Merchandise Trade

Seasonally adjusted nonmilitary merchandise exports
decreased by roughly 1 percent to $6.04 billion during
the April-June quarter. The small decline was due mainly
to a temporary dip in exports in June. The trend in
monthly exports appears almost fiat since December, 1963,
when the June and July figures are averaged together.

Part of the decrease reflected a fall in special grain
shipments to the Soviet Bloc. Existing contracts for these
shipments were virtually completed in May.

Nonmilitary merchandise imports increased by ap-
proximately 5 percent to $4.58 billion during the second
quarter. Part of the rise can be attributed to a rise in
final demand and to inventory accumulation here. Overall
import prices remained stable.

[ 5]

THE GENERAL FRAMEWORK OF CONSUMER SPENDING*

ROBERT FERBER, Research Professor

The allocation of consumer spending among major
categories of goods has been remarkably stable during
the current upswing. Approximately 14 percent of the
dollars spent by consumers have gone into durable goods,
44 percent into nondurable goods, and 42 percent into
services. Some shifts have taken place within these
broad categories. For example, less of the consumer dol-
lar has been going into clothing and shoes, and more into
housing, home maintenance, automobiles and parts. But
these shifts do not appear to be particularly large.

In contrast, there has been a pronounced shift in the
proportion of disposable income that is not being spent.
In terms of the customary approach of dividing disposable
income, minus total consumption expenditures, by dis-
posable income, we find that the saving ratio this year
might be close to 8 percent. By comparison, the saving
ratio for 1963 was 6.8 percent and, at the start of this
decade, was only 6 percent. A shift of 1 percent may not
sound large. In terms of dollars, however, it means that
consumers this year are putting into savings roughly $5
billion more than they put into savings last year (see
chart).

The extent to which income is being put into savings
takes on even more significance when we realize that a
certain proportion of consumption expenditures are made
not out of income but out of borrowing. Hence, in a
gross sense, to get a more realistic measure of the extent
to which saving is made out of income, we should reduce
consumption expenditures by the amount by which such
expenditures are being financed by credit.

Although the available data are not suited for this
purpose, rough estimates of the necessary magnitudes
can be made. Doing so, we find that saving during the
current year represents not 8 percent of disposable income
but is more of the order of 22 percent. In other words,
it appears that more than one-fifth of the disposable
income of consumers during the current year is going into
saving. (Actually, this percentage overstates the saving
ratio insofar as borrowed funds are used for investment
purposes, but such uses are of relatively minor impor-
tance.) By comparison, corresponding figures for this
adjusted saving ratio are 17.4 percent for 1960 and a
little over 21 percent for last year.

Even in a net sense, the true extent of saving out of
disposable income exceeds that shown by government
statistics, to the extent that new consumer credit exceeds
repayments. For example, if during the current year new
borrowing exceeds repayments by about $7 billion, as
seems likely, this means that in a net sense these $7 billion
represent a source of funds used for purchases other than
disposable income. As a result consumption expenditures
made out of disposable income should be reduced by $7
billion, and saving increased accordingly. Hence, a more
accurate estimate of the proportion of personal income
after tax being saved in the current year is not 8 percent
but more of the order of 9 percent.

What underlies consumer propensities to spend or save
out of income? Some idea of these influencing factors
can be obtained if we consider what are perhaps the three
basic forces underlying consumer behavior. These are

* Based on a talk given at the Conference on the Economic
Outlook of the National Industrial Conference Board, New
York City, September 17, 1964.

(1) The structural changes that are taking place in
the economy.

(2) The factors influencing the ability of consumers
to purchase goods and services.

(3) The willingness of consumers to purchase goods
and services.

Structural Changes

Perhaps the most pronounced structural change affect-
ing consumer spending is the continuing increase in size
of our population and the rapid changes that are taking
place in its composition. Within a few years, our total
populaton should pass the 200-million mark. In the first
four years of this decade alone nearly 12 million people
have been added to our population. At the same time, the
nation's households now exceed 56 million, with this
number rising by nearly 1 million a year so far in the
1960's.

Supplementing these population increases is the very
high mobility and changing composition of the population.
It is interesting to note that every year in the past few
years nearly one-fifth of our population has moved to a
different house. Over a five-year period, from 1955 to
1960, nearly half of our population had moved at least
once. These moves are not random and generally reflect
a continuing migration into the urban areas, which offer
greater job opportunities and rising levels of income.
Thus, by the beginning of this decade, 70 percent of our
population lived in urban areas as compared with only 64
percent in 1950 and 56 percent just before the start of
World War II.

The composition of the population is also undergoing
significant changes. In particular, the proportions of
youths, 18-24, and of younger people in the main working

AGGREGATE EXPENDITURES
AND SAVING, 1960-64

BILLIONS OF DOLLARS

_______ — -

NONDURABLE GOODS -^

V- SERVICES

DURABLE COOOS-^ ^ "

■

— ^ "" SAW^

i _ m i

I960 1961 1962 K

Source : U.S. Department of Commerce.

[ 6 ]

ages, 25-44, are expected to rise substantially in the next
two decades. Those aged 18-24 should increase by nearly
1 million per year during the remainder of this decade.
As a result, the size of the labor force is expected to
increase from roughly 75 million at the present time to
over 85 million by 1970 and possibly to as high as 95
million by 1975. Assuming that we can maintain rea-
sonably full employment, these figures suggest a tre-
mendous increase in consumer purchasing power out of
current income, not to mention purchasing power out of
consumer assets.

Ability to Spend

That consumers have increasing resources with which
to purchase goods and services is clear when we consider
the three principal sources of funds for such purchases ■ —
income, assets, and the credit available to consumers.
In theory, the funds available for spending represent the
sum of all three magnitudes. In practice, however, people
are inherently reluctant to spend much out of assets,
although this reluctance may be breaking down with the
rising levels of income and the ever increasing financial
resources. In addition, consumer credit is a fairly vola-
tile source of funds and this magnitude can be altered
quickly if consumers so choose. However, since the post-
war period, with few exceptions, consumer credit out-
standing has moved in only one direction, upward.

The fact remains that in terms of all three of these
sources of funds, consumers have been increasingly well
off during the past year, and things are likely to continue
that way at least well into next year. The disposable
income of consumers should rise nearly 7 percent this
year to about $430 billion. Part of this rise is due to
price increases, but most of it still represents a real
increase in purchasing power. The average consumer unit
this year should earn nearly $8,000 before taxes, and there
are nearly 60 million such units. Moreover, nearly 80
percent of consumer units should earn over $3,000 this
year and the percentage earning over $10,000 should be
close to 20 percent. Clearly, therefore, current purchasing
power is of a very high order of magnitude.

Nevertheless, even these figures tend to be dwarfed
by the increase in the amount of savings in the hands of
individuals. Although exact figures are not available,
indications are that the financial assets in the hands of
individuals have roughly doubled in the past decade.
At the beginning of this year the net worth of individuals
was approximately $1 trillion, or an average of over
$5,000 per capita. To be sure, such holdings are highly
concentrated, but estimates suggest that more than one-
half of American families will have net worth of $5,000
or more by the end of this year.

This increase in financial assets of consumers has, if
anything, been more pronounced than the increase in dis-
posable income. Whereas 10 years ago consumer net
worth was less than twice the amount of the year's dis-
posable income, at the present time net worth appears to
be more than 2\/i times the annual rate of disposable
income. In other words, net worth has risen half again
as fast as disposable income.

Moreover, substantial amounts of these assets arc in
relatively liquid form. At the beginning of this year
nearly $375 billion was in currency, demand deposits,
savings bonds, or savings accounts. These are substan-
tial amounts if consumers should decide to use them for
purchasing goods or services.

The third principal financial resource, consumer credit,
has been rising also. Total short-term credit outstanding

at the beginning of this year amounted to nearly $70
billion while mortgage debt outstanding amounted to $174
billion, both figures representing increases of roughly 10
percent over the preceding year. It should be noted that
these increases are somewhat more than the increases in
disposable income ; this means that the ratio of income to
short-term credit is declining to less than 6 in the current
year, and the ratio of disposable income to mortgage debt
is declining to roughly 2.3. For comparison, the ratios in
1959 were 6.5 and 2.8, respectively.

Willingness to Spend

So far as we can tell from recent surveys of consumer
buying plans and consumer attitudes, people continue to
be in a buying mood. The tax cut undoubtedly helped;
altogether tax cuts during the current year have amounted
to about $10 billion. This figure is composed of an esti-
mated $6 billion cut in personal income tax liabilities, a
reduction of $1.5 billion in corporate income tax liabilities,
and a $2.5 billion reduction to business made possible
through the investment tax credit and various administra-
tive changes in depreciation tax rules. In addition, the
Revenue Act of 1964 provides for an automatic further
tax cut of roughly $3 billion in individual income tax
liabilities and of $750 million in corporate tax liabilities.

The main effect of the cut was apparently to increase
most expenditures more or less uniformly; it does not
seem to have produced any major shift in expenditure
patterns. Actually, much, if not most, of the proceeds
of the tax cut appear to have gone into savings rather
than into the purchase of goods and services. This is
reflected by the substantial increase of $5.7 billion in
personal saving at an annual rate between the first
quarter of this year and the second quarter. By compari-
son, expenditures for durable goods, which average twice
the size of personal savings, increased only $1.1 billion
during the same period ; and even expenditures for serv-
ices, which average more than five times the size of
personal savings, rose by only $2.7 billion. Primarily as
a result of this shift, we have witnessed from the second
quarter of 1962 to the second quarter of 1964 a jump
of over 30 percent in personal saving, while personal con-
sumption expenditures were rising only 6 percent.

In terms of buying plans, consumer reports continue
to be optimistic. This applies to durable goods generally
— to some even more than to cars. Moreover, as of this
summer, an increasing proportion of consumers reported
that they were better off than ever before.

To be sure, people's thinking can change quickly, and
it is therefore not wise to place much reliance on these
attitudinal factors alone. However, when these factors
point in the same direction as the more tangible influ-
ences of population growth, income, and wealth, they
would seem to reinforce the significance of the very high
purchasing power in the hands of individuals. Under the
circumstances, continuation of the very high levels of
consumer spending and saving would seem to be a logical
expectation.

At the same time, it would not be surprising if further
shifts were to be made by consumers in putting a larger
share of their earnings into savings. This is particularly
so in view of the increasing aggressiveness of the major
types of savings institutions, many of which seem to be
making effective use of modern marketing methods. The
year, and years, ahead, therefore, should witness increas-
ing financial resources in the hands of consumers but
also an increasingly fierce battle to influence the consumer
between spending and saving.

[7 ]

Fallacies About the Federal Debt

(Continued from page 2)
debt will have to be paid up sooner or later." They
reason by analogy with the position of the individual.
For the latter, death and taxes are sure, and if death
comes too soon, other creditors will join the tax collector
in levying on his estate. Organizations, however, may
plan never to die. The corporation may sometimes find it
convenient to reduce its debt; but if it is expanding and
continually acquiring new assets, it may go on expanding
its debt along with its business, year by year. The gov-
ernment is also a going concern. It need never pay off its
debt, and in fact can go on increasing it indefinitely if
the average rate of increase does not far exceed that of
the national income.

Significance of the Debt Burden

In other words, neither the present nor any future
generation has to be burdened with repaying the debt.
All that has to be paid is the currently due interest on the
debt, and our ability to pay these charges grows with the
income we earn.

In the national economic accounts, federal interest
payments are carried as a kind of transfer payment
rather than as income earned through current production
of goods or services. The government collects taxes and
pays the interest due the bondholders. It transfers the
funds from the one group to the other. Someone gives
and someone receives, and for all of us combined, the
position remains the same. Although the transfers could
have various kinds of economic effects, no matter how
high they get, we cannot all go broke.

The problem, if any, is political rather than economic.
One can imagine a situation in which the taxes collected
from one group were so oppressive and the payments
to the other so extremely beneficial that the former would
rebel against so radical a worsening of its position. But
such conditions do not apply here. Practically all of us
pay taxes, and the recipients of interest payments, di-
rectly or indirectly, are so widespread that many people
are in effect merely transferring the funds from one
pocket to another. In point of fact, it is more commonly
the bondholders rather than the other taxpayers who
complain about "the burden of the debt."

For the average taxpayer, the amount of taxes col-
lected for other purposes is so large that he gives hardly
a thought to interest charges as an item aggravating his
tax bill. These charges have roughly doubled in the post-
war period, with most of the increase resulting from
higher interest rates rather than from additions to the
total debt. But during this period, gross national product
more than doubled, and total government receipts also
advanced more rapidly than interest payments. The
latter, at $10 billion, were only one-tenth of total budget
expenditures in fiscal 1964.

No Present Danger in Deficit Finance

Many analysts now feel that the total of the federal
debt is no longer important, since it is only half as large
as our annual gross national product, instead of something
more than the total, as it was at the end of the war.
Some of them nevertheless fear that changes in the debt,
if they are not carefully controlled, might still pose sub-
stantial dangers. Naturally enough, in the course of this
long postwar prosperity, these fears have become focused
mainly on the possibilities of renewed inflation.

The fears would certainly be justified if one could

conceive of large federal deficits, say, of the wartime
magnitude of $50 billion a year, at a time when the private
sector was experiencing strong expansion. Such a pros-
pect, however, is farfetched. Prosperity in the private
economy holds down government deficits because pro-
gressive taxes on personal and corporate incomes rapidly
expand government receipts. The experience of recent
months shows how growth in income holds down the
increase in the deficit otherwise to be expected from
enactment of the tax cut. It would be a mistake, of
course, to think that there is some kind of magic in
deficits which makes them self-eliminating, but their
increase is always bound to be less than an increase in
government expenditures or a reduction in taxes because
the response of the economy produces higher tax receipts.
In the early 1960's, yearly budget deficits have aver-
aged about $5 billion, or only 1 percent of gross national
product. If the public debt continued to grow by the same
amount each year, it could continue to fall further in
relation to our national income. Despite the fact that the
deficit is larger than average this year, no overall infla-
tionary pressure has developed. Furthermore, there is
little prospect that unemployment will be brought down to
the desired level in the year ahead. This leads some to
conclude that the federal budget is still biased toward
deflation and will put too much "fiscal drag" on the
economy as full employment is approached.

Danger in Private Borrowing

If there is any difficulty to be faced from the increase
in debt, it lies in the private sector. Annual increases in
private debt have been about 10 times as large as the
increases in federal debt during the last few years. The
danger here lies in the possibility that this debt expan-
sion will be cut back sharply, bringing on another
recession in business activity. The federal deficit would
then rise with the fall in private incomes, and the debt
would then expand faster, offsetting part of the savings
no longer used in the private sector.

When savings are used to pay off debt instead of
to finance investment and consumption, the economy is
depressed. Any decline tends to deflate prices of capital
goods and to undermine the foundation of security for
our huge private debt. If incomes and prices of real
capital goods should fall, any substantial forced liquida-
tion of debt would aggravate the increase in unemploy-
ment and tend to crack the structure of private credit.

Anyone who advocates tight money and a balanced
budget is implicitly willing to have us assume the risks
of deflation. Perhaps there are some who want deflation.
More likely, confusion leads some holders of claims to
think that they could benefit from both higher interest
rates and growing real values per dollar of credit. They
do not see that they are risking the country's basic social
and political system. It is a paradox that this kind of
policy should be referred to as fiscal responsibility.

Through almost two decades of prosperity, the status
of the federal debt has improved while the private econ-
omy has been losing liquidity. In a period of adversity,
many illiquid parts of the latter could become insolvent,
but the government could not be threatened with insol-
vency in the same way. Our position will be best preserved
if the government continues to borrow the savings of
those who want to save in order to keep investment high
and to pay what is due those who want to spend their
past savings. Economic disaster would be the result if we
permitted policy to shift from the prosperity path by
reason of fallacies about the federal debt. vlb

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Motels

The average motel in the nation had 20 guest rooms,
annual gross receipts of slightly over $23,000, a market
value of approximately $136,000, and annual profits of
roughly $6,800, according to the results of a study of
the motel industry begun in 1960 and released this sum-
mer by the University of Arizona's Bureau of Business
and Public Research. Interviews were held with 2,000
motel operators in 45 states. The sample area for the
Illinois region included 9 counties around Rockford.
Often in small motels profits are overstated as the owner
fails to charge himself a managerial salary. Receipts
per room varied with the number of rooms in the motel.
They averaged $1,080 in motels with under 10 rooms and
$2,225 in motels with over 100 rooms.

The average motel guest interviewed had an income
of $9,100. Slightly over half of the guests were traveling
for pleasure, one-fourth were on business trips, and one-
ninth were on combined business-pleasure trips.

The most-often-stated reason for selection of a par-
ticular motel was appearance. Location and recommenda-
tions of others were also frequently mentioned. About
one-fourth of those interviewed used guidebooks as a
source of information. The AAA Tour Books were used
by over half of these people.

The number of motels first exceeded hotels in the
early 1950's. Hotels, of course, are much larger indi-

SALES RECEIPTS OF HOTELS AND MOTELS

ilLLIONS OF DOLLARS

1948 1954 1958 1962

• ESTIMATE

Source : University of Arizona, Bureau of Business and
Public Research.

vidually. In 1939 there were 13,500 motels and 28,000
hotels. By 1954 the number of motels more than doubled
to 29,400, whereas the number of hotels declined to 24,800.
It was estimated in 1962 that there were approximately
30,000 hotels and 49,000 motels.

From 1948 to 1962 sales receipts of motels climbed
over 650 percent to an estimated $1.5 billion. Sales
receipts of hotels over the same period rose 41 percent
to about $3.0 billion (see chart).

People in the motel business feel that the industry's
most important problems are overbuilding, highway re-
location, and the competition from group or chain
motels. Chain and voluntary associations accounted for
18 percent of all motel rooms (1.5 percent of all motels)
in 1962.

State Finances

Total revenue of all state governments was $41 billion
in fiscal 1963 or 9 percent greater than fiscal 1962 revenue.
State expenditure rose 8.7 percent and amounted to
$39.6 billion or $1.4 billion less than aggregate revenue
for 1963. This spending amounted to approximately $211
per person in the nation. In the last ten years, there were
four years in which expenditure exceeded revenue. The
largest overall deficits were in 1958 and 1959 when spend-
ing exceeded income by $1.9 billion each year.

Major sources of revenue were as follows: inter-
governmental revenue from the federal government, $7.8
billion; general sales taxes, $5.5 billion; income taxes,
$4.5 billion; motor fuel sales taxes, $3.8 billion; and
motor vehicle licenses, $1.6 billion.

The major item of expense was education. Spending
on education totaled about $11.9 billion. Highway ex-
penditure amounted to roughly $8.8 billion ; public wel-
fare, $4.6 billion; and hospital spending, $2 billion.

Shifting Consumer Spending

Consumer spending rose over 60 percent from 1953
to 1963, but expenditures on services climbed 90 percent.
Services now account for over 40 percent of all consumer
expenditures.

Soft goods consumption has increased an under-
average 42 percent over the decade. Consumer hard goods
spending has gone up about as much as total spending.
Hard goods still represent approximately 14 percent of all
purchases.

Within the services category, spending on a number
of items went up more than 100 percent. Among these
are medical care, telephone charges, legitimate theater,
foreign travel, radio and television repair, private educa-
tion, and research. Personal business spending, which
includes life insurance expenses and interest on personal
debt, is also in this group.

Money spent on recreational equipment climbed the
most in the hard goods category. Books, boats, toys, and
pleasure aircraft rose over 100 percent.

In soft goods, outlays went up slightly more than 50
percent for magazines, newspapers, and tobacco. Expend-
itures for shoes and clothing increased 40 percent.
These two items comprise about one-fifth of all soft goods.
Over half of all spending in this group is for food (in-
cluding restaurants). This rose 34 percent in the decade,
much less than the soft goods group generally.

[9]

LOCAL ILLINOIS DEVELOPMENTS

Changing Manpower Requirements

Automation and improved production techniques will
greatly alter industry demands for technically skilled
workers in the next 15 or 20 years. Recent and future
developments in seven basic industries in the Chicago
area are discussed in Technological Change — Its Impact
on Industry in Metropolitan Chicago. This study, con-
ducted by Corplan Associates of the Illinois Institute of
Technology Research Institute, incorporates the views of
scientists, businessmen, and economists.

The report's predictions for Chicago include a drop
in the employment of machinists from 12,000 in 1960 to
6,000 in 1980 and a decline in the number of tool and die
makers from 9,000 to 6,000. Chicago presently has an
acute shortage of men in both of these fields. During the
two decades, employment of machine operators is likely
to increase from 36,000 to 50,000. The greatest rise, how-
ever, is expected in the number of part-programmers
(workers who prepare machining instructions for com-
puter-controlled machine tools). It is estimated that the
number employed in this relatively new occupation, al-
though currently very small, will reach 15,000 by 1980.

These workers will probably require more training
than the local metalworking industry will be able to
provide. The report suggests that interested local in-
dustry, unions, and civic and educational organizations
start working together to provide the necessary training
facilities to meet the impending demand. Corplan Asso-
ciates also recommend the introduction of technical and
engineering courses on numerical control manufacturing
for presently employed engineers.

Industry Expansion Covers the State

New manufacturing facilities are being planned and
constructed throughout the State. One of the largest is a

PER CAPITA PERSONAL INCOME

-UNITED STATES

1950 1952 1954 1956 1958

Source : U.S. Department of Commerce

$20 million ammonia plant to be located in East Dubuque.
The Illinois Commerce Commission has approved a proj-
ect submitted by the Apple River Chemical Company, a
subsidiary of Aurora's Northern Illinois Gas Company.
The proposed 700-acre riverfront plant will employ 100
workers and produce about 1,000 tons of ammonia a day.

Toward the other end of the State, Commercial Sol-
vent Corporation's Marion plant is undergoing expansion
programs totaling over $1 million. The plant produces
ammonium nitrate for agricultural use and various
nitrogen products used in special purpose explosives.

Federal-Mogul-Bower, Inc., is building a $5 million
plant in Macomb to manufacture cylindrical roller bear-
ings. These will be sold to Midwest construction and
farm equipment producers. The 275,000 square-foot
facility, expected to be completed late in 1965, will em-
ploy about 500 men.

Sewer pipe production will begin at Carol Stream
early next year when the Streator Clay Pipe Company's
new $3 million plant starts operating. Eighty men will
be employed initially in the plant, which will produce 3Vi
million feet of pipe annually. The building will occupy
147,000 square feet on a 40-acre site.

Stanray Corporation has broken ground in Danville
for the largest small-boat manufacturing and warehousing
facility in the country. The $4 million plant will produce
fiberglass and aluminum boats, employing an initial work-
force of 300 men early next year.

Olin Mathieson Chemical Company is constructing a
$1 million plant in the Wheeling Industrial Center. The
factory, which will cover 120,000 square feet, will manu-
facture paperboard boxes.

Higher Levels of Personal Income

United States and Illinois personal income figures —
on both total and per capita bases — continued to reach
new record highs in 1963. Total personal income in the
United States reached $461.6 billion, with Illinois ac-
counting for slightly over $30 billion or 6.5 percent of
the total. New York and California were the only states
with larger shares of the total.

Illinois remained considerably above the national aver-
age in per capita personal income. However, the United
States showed a slightly higher rate of increase over 1962.
(See chart.) Nevada, the District of Columbia, Delaware,
Connecticut, New York, and California had the highest
per capita incomes in that order, with Illinois ranking
seventh. These positions have been quite stable over
recent years.

Chief sources of civilian income for current produc-
tion as percentages of the total were as follows:

United
Illinois Slates

Manufacturing 33.32 29.22

Wholesale and retail trade 19.91 19.06

Services 13 04 13.53

Government 10.10 13.23

Contract construction 5 73 6.36

Finance, insurance, and real estate 5 30 5.23

All other 12.60 13.37

Total 100.00 100.00

In the "all other" category, Illinois had a higher per-
centage than the United States in transportation, and
lower percentages in farming, mining, communications,
and miscellaneous.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
August, 1964

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000,000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales1

Bank
Debits5

(0(10,0(10)

Percentage change from {jg- ^

NORTHERN ILLINOIS
Chicago

Percentage change from. . . . {jg* »«*•

i'JuIv, 1964.
\Aug., 1963.

Aurora

Percentage change from
Elgin

Percentage change from. . . . {^j^ lp63
Joliet

Percentage change from.
Kankakee

Percentage change from. . . .{{j* ^
Rock Island-Moline

Percentage change from. . . . j^'' l963'
Rockf ord

fjulv, 1964.
I Aug., 1963.

(July, 1964.
I Aug., 1963.

fjulv, 1964.
[Aug., 1963.

Percentage change from. . . {{*£ gJ*-_

CENTRAL ILLINOIS
Bloomington

Percentage change from .
Champaign-Urbana

Percentage change from .
Danville

Percentage change from .
Decatur

Percentage change from .
Galesburg

Percentage change from.
Peoria

Percentage change from .
Quincy

Percentage change from .
Springfield

fjulv, 1964.
■ [Aug., 1963.

(July, 1964.
' tAug., 1963.

fjulv, 1964.
■'/Aug., 1963.

/July, 1964
[Aug., 1963.

/July, 1964.
[Aug., 1963

Percentage change from.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from .
Alton

Percentage change from .
Belleville

fJulv, 1964.
[Aug., 1963

I ul v. 1964.
'[Aug., 1963.

I July, 1964.
\Aug-, 1963.

Percentage change from. . {AUUg'_ ig6V.

$30,884'
-31.1
-33.8

$18,156
-21.4
-36.9

$ 1,048
+18.7
-10.4

$ 313
-35.2
-16.1

$ 580
-39 0
-19 9

$ 182
-53.3
-22.2

$ 1,289
-53.0
-19.0

$ 1,697
-28.8
-35.6

$ 269
-71.0
-60.4

$ 683
-41 6
+67.8

$ 300
-3.2
-43.1

$ 815
-66.7
-84.9

$ 194
-0.5
-59.0

$ 1,511
-53.0
-6.5

$ 391
-42.2
+63.6

$ 2,960

$ 110
-65.3
+ 18.3

$ 134
-91.2
-60.6

$ 252
-70.2
-57.2

1,719 3'

+ 4.6
+ 10.2

,183 3

+2.5
+8.2

70. S1'
+21.1
+46.3

72 0«
+0.7
+ 10.3

16.4

+8.6

+7.9

27 3

+7.9

+ 15.2

25 4

+ 119

+ 11.9

55 9

+ 77.2

+13.8

IS 7

+ 16.3

+ 15.4

91.9=

+8.1

+ 13.5

21 0

+ 18.6

+ 16.0

63 3

-2 2

+5.1

22 9

+9 0
+8.0
32 3
+9.9
+6.2
21 4
+ 19.6
+ 17.6

+ 10

+ 11

$25,320"
-10.4
+ 9.0

$23,501

-10.6

+9.3

$ 106

+ 6.0

+ 10.4

$ 66

+6.5

+ 13.8

$ 109

+1.9

+4.2

$ 249

-5.3
+3.8

n.a.

$ 107
-9.3

+ 4.9

n.a.

$ 108
-10.7

+5.9

+19

$ 66
-1.5
+15.8

+ 17'

+4'

$ 153
-12.6

+8.5

n.a.

+22
-4

$ 288
-13.3

+0.7

n.a.

$ 58
-13.4
-0.0

+14'

-2'

$ 171
-7.1

\-& :

$ 137
-4.9

+3.8

$ 50

-18.0

+2.0

a Total for cities listed. b Includes East Moline. ■ Includes immediately surrounding territory, n.a. Not available.

Sources: > Local sources. Data include federal construction projects. 2 Local power companies. » Illinois Department of Revenue.
Monthly data not available. * Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending September 11, 1964, and September 13,
1963.

[11]

NDEXES OF BUSINESS ACTIVITY SluiLS'SS*1 SurVey

1957-1959 = 100

EMPLOYMENT- MANUFACTURING AVERAGE WEEKLY EARNINGS. - MANUFACTURING

200

150
100
50
0

«,...-,

\ /

\/u.s.

-"'*

*REVISEC

SERIES

US.

PREVISED SERIES

DEPARTMENT STORE SALES (ADJUSTED)

CASH FARM INCOME

200
150

ILL.

f^fV

-s

100

^US.^

vJ-j

'•■''U.S.

BUSINESS LOANS

CONSTRUCTION CONTRACTS

.*A

-\^

ILL.

# REVISE

3 SERIES

\fti

J H

nWrf

/u.s

ELECTRIC POWER PRODUCTION

\AaV

, ■ '^'y

'L>

£.

COAL

PRODUCTION

200

\ ,

X~f4fc£

V*l4

V^-".

ANNUAL AVERAGE

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

#!-'' V\ PUBLISHED BY ... .

li(C-V%\ BUREAU OF ECONOMIC AND BUSINESS RESEARCH

\*3fc2&7 COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

N'uvi mbi-:r, 1'»>4

HIGHLIGHTS OF BUSINESS IN OCTOBER

The current phase of business expansion continued
moving toward the longest of the postwar period in Octo-
ber. The strike at General Motors plants held down pro-
duction of automobiles to 411,000 units, little more than
half the output of the year-earlier month and the lowest
October total since 1958, but most other industries ran
well ahead of October, 1963, and subsequent months.
Sales of new American-built passenger cars were down
27 percent from October last year to 566,000 units, but
other retail lines did well.

Pressure to increase prices was evident in some indus-
tries, most notably in steel. Despite indicated opposition
by President Johnson to a steel price rise, higher prices
on certain steel products have been instituted. Higher
prices for meat, housing, and apparel were responsible for
a 0.2 percent increase in the consumer price index for
September; the index stood at 108.4 percent of the 1957-59
average with another advance expected for October.

Construction Steady

The value of total new construction put in place dur-
ing October amounted to $6.1 billion, nearly the same as
the estimate for September and only slightly higher than
that for October a year ago. The seasonally adjusted an-
nual rate was up less than 1 percent from September,
1964. In 1957-59 dollars, the October total was down
1 percent from the year-earlier figure.

Private construction expenditures accounted for $4.1
billion of the October, 1964, total. This was 2 percent
below the preceding month and about the same as October
a year ago. Spending for construction of new private
nonfarm residential buildings amounted to $2.3 billion,
down $100 million from September and from October,
1963. In 1957-59 dollars the decline over the year was
equal to 6 percent. Public construction expenditures re-
mained at the September, 1964, figure of $2 billion, but
were 3 percent higher than in October a year ago.

Capital Spending Up

The McGraw-Hill survey of anticipated expenditures
for new plant and equipment indicates that outlays in
1965 may reach a record $46.8 billion, about 5 percent
more than preliminary estimates for this year. Manufac-
turers generally plan to raise their capital spending more
than do firms in other industries. The former expect to
spend $20.1 billion in 1965, 8 percent more than in 1964,

with plans ranging from a 3 percent cutback by nonfer-
rous metal producers to a 24 percent increase by chemical
manufacturers. Among nonmanufacturing industries, ex-
pected changes in capital outlays vary from a cutback of
4 percent in mining to a 9 percent increase over 1964 by
airlines.

The survey also found that manufacturers were oper-
ating at 86 percent of capacity in September, about 1 per-
centage point higher than at the end of last year and 6
percentage points under their preferred operating rate.
A rise of 6 percent in sales next year is anticipated by the
manufacturers surveyed.

European Common Market Threatened

Movements toward European economic integration
were buffeted by two blows in October. France announced
that it will "cease to participate" in the European Eco-
nomic Community or Common Market if the West Ger-
man government does not agree to lower its wheat prices
to a common figure of $106.25 a ton, as agreed by the
experts of the Common Market. Fearful of the farm
vote in next year's election, the West German government
has been reluctant to lower its support price. However,
after the French threat it did agree to some reduction.

Also in October Britain's new Labor government in-
troduced a temporary 15 percent surcharge on imports
other than foodstuffs and basic raw materials and also
provided tax incentives for exports as part of a program
to meet Britain's balance-of-paymcnts deficit of about
$2 billion this year. The Labor government stressed the
temporary nature of the measures and insisted that they
would not affect Britain's determination to seek world-
wide tariff reductions in the Kennedy round of negotia-
tions under GATT or elimination of tariffs in the Euro-
pean Free Trade Association (in which she is a member
along with the Scandinavian countries, Portugal, Switzer-
land, and Austria).

Despite these assuranci n in Europe to the

measures was generally critical. Many pointed out that
they were in violation of the GATT and EFTA charters.
The duties more than offset the reductions that had been
made over the years in the rates on some commodities by
the EFTA. There was some fear that other countries
would retaliate, since the exports of most members of
PEC and EFTA will be affected and some of them buy
more from Britain than they sell to her.

SIGNIFICANT TRENDS IN AGRICULTURE

By Harold G. Halcrow

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

408 David Kinley Hall, Urbana, Illinois

Review is derived from
ireau of Economic and
ide businessmen of the

The material appearing in the Illinois Busin

various primary sources and compiled by th

Husiness Research. Its chief purpose is to

State and other interested persons with current information on busine

conditions. Signed articles represent the personal views of the autho

and not necessarily those of the University or the College of Commerc

The Review will be sent free on request.

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Elaine Goldstein Diane L. Lewis

John P. Myers Virginia Speers

The Investment Boom

Both business investment and the flow of funds avail-
able to business have been rising sharply. New plant and
equipment expenditures will exceed $44 billion in 1964,
after an increase of $5 billion from 1963. The rise in
corporate profits after tax has accelerated this year and
will more than match the $5 billion increase in capital
outlays, bringing total profits to about $32 billion. In ad-
dition, depreciation and similar charges have been rising
about $2 billion a year and will exceed $53 billion this year.
Business is thus amply supplied with internal financing.

This business affluence was largely a matter of policy,
and the Administration has openly boasted of the success
of its policies in stimulating business investment. The
1962 revision of depreciation guidelines and the invest-
ment credit adopted at the same time added $2.5 billion a
year to an already record corporate cash flow. As part of
this year's tax reduction program, the rates on corporate
income were lowered by 2 percent this year and a like
percentage next year, so that after-tax income will be
increased 8 percent when the reductions are fully effec-
tive. Terborgh has shown that these are indeed high
benefits to investment. (See Incentive Value of the In-
vestment Credit, the Guideline Depreciation System, and
the Corporate Rate Reduction, Machinery and Allied
Products Institute, 1964.) He finds that the three meas-
ures combined have the effect of raising the after-tax rate
of return on equity investment by 35 percent. This is
equivalent to a reduction of the corporate tax rate by
18 percentage points, from 52 to 34, or to a reduction in
the price of capital equipment of 16 percent.

More Cash for Management

An additional benefit from these three incentive meas-
ures derives from speeding up the cash recovery from
investment. Recent theory of business operation has
placed great emphasis on quick recovery, since "flexibil-
Eacilitates shifting to new product lines or undertak-
ing new projects when opportunities are encountered.
I ash tlow has also gained increasing attention in the stock
market, where analysts often consider it more significant
than just the pari reported as earnings (the latter being
reduced, of course, by the accelerated amortization).

Management definitely has a greater flow of funds to
play around with and is able to use them in many ways.

Investment in new facilities is one: paying higher divi-
dends is another; buying up somebody else's assets and
merging them into a larger corporate entity is another;
purchasing government or other securities is another; and
investing in foreign enterprises is still another. All of
these alternatives have been adopted to some extent. Ob-
viously, their effects vary widely.

The question may be asked, "What should business be
expected to do?" The answers to this question are gen-
erally given in such terms as produce for customers'
needs, improve efficiency, keep prices down, maintain ca-
pacity, build new facilities, and conduct research to de-
velop new products or new processes of production. Per-
haps all these various objectives may be summarized by
saying that the community should be able to expect busi-
ness to use the available resources productively.

Is this the case? Clearly, few observers have been
inclined to pass harsh judgment on the developments of
the last few years. Even allowing for numerous excep-
tions, corporations seem to be living up to their tasks
fairly well. Given the goals, standards, and methods of
American business, it is an effective system for fast
progress when the demands for its products are adequate.
One is therefore inclined to be tolerant of the policy-
makers' pride in recent economic successes.

Growth of Instability

There is, however, a serious fallacy m this line of
thinking. It lies in the assumption that what is now going
on will continue indefinitely. A long period of prosperity
always induces hope for a constantly rising future. Cur-
rently, the foundation for those hopes is bolstered by
overconfidence in fiscal policy, based on a single outstand-
ing success, and by too-easy identification of available
funds with new investment expenditures.

Overlooked is the built-in instability of an investment
boom that results from a spurt in final demand or other
temporary stimuli. The basic cyclical problem of an in-
dustrial economy derives from the potential overstimula-
tion arising from such developments. Some subsequent
letdown is typically experienced because the additions to
stocks of productive facilities are cumulative, continuing
to mount as long as the high rate of investment is main-
tained, while the increased demand arising from the in
vestment expenditures is held to the level set by the rate
of investment and the income multiplier.

A further difficulty has to be faced. Depreciation
charges are closely tied to the capital stock and tend to
remain high after pressure of demand eases. Profits also
tend to be held high by cost-reducing investments and by
the ability to cut back high nonoperating expenditures.
With the flow of funds thus sustained, any reduction in
new investment tends to expand corporate cash saving
sharply, leaving at least some with idle balances. If con-
ditions change, this could occur in spite of any policies the
government might adopt.

What cannot be seen so long as conditions of high
prosperity prevail is that instability has grown — with
high investment, with the expanded flow of funds in-
tended to stimulate investment, with business practices
relating to prices and control of nonoperating expendi-
tures, and with the extreme diversion of credit to financ-
ing of consumers' capital formation. At some point, the
entire burden of maintaining activity is likely to he
thrown on the government. The potential magnitude of
the load calls in question the assurance with which our
ability to stabilize the economy is being asserted. VLB

[ 2 ]

ILLINOIS INDUSTRIES AND RESOURCES

GRAIN PRODUCTION ON ILLINOIS FARMS

During the same period the quantity used for oil or meal
increased from 195 million to 474 million bushels.

Grain crops of Illinois farms make up an important
part of total national grain production. In 1963, 23 per-
cent of the nation's soybean crop was grown on Illinois
farms, as were 18 percent of the corn, 8 percent of the
oats, and 6 percent of the wheat. Grain sales account for
about 40 percent of gross farm income in the State.

Corn the Leader

Corn is the major cash grain crop in Illinois. In 1963,
a record crop of 752 million bushels of corn was grown
on Illinois farms with heaviest production in the northern
two-thirds of the State. This amounted to 53 percent of
the total value of Illinois crops. With a record average
yield of 85 bushels per acre on 8.8 million acres and an
average price of $1.09 a bushel, the harvest had a value
of $820 million.

About 375 million bushels a year, or over one-half of
the state's corn crop, is sold off the farms on which it is
grown. These sales account for about 20 percent of the
gross farm income in the State.

Corn sales are heaviest in the months at the end of
harvest, averaging 13 percent in October and 15 percent
in November. They are little more than one-third as
high in the summer months preceding the new harvest and
hold close to a twelfth of the total in each of the inter-
vening months. This seasonal pattern has been regular
from year to year, though there is an increasing tendency
for more sales at the end of harvest as a result of chang-
ing methods. New picker-shellers and corn combines shell
the corn as it is harvested. The majority of the state's
farms do not at present have adequate drying and storing
facilities for shelled corn and must sell it directly to
country elevators. Price fluctuations, unlike sales, show
no regular seasonal pattern.

Soybean Demand Increasing

Soybeans are the second most valuable grain crop to
Illinois farmers, bringing in about 15 percent of gross
farm income. Slightly over 5.5 million acres have been
harvested in each of the past three years with the average
price ranging from $2.33 in 1961 to $2.65 in 1963. The 164-
million-bushel crop of 1963 had a value of $436 million.

Prices of soybeans vary considerably from month to
month and the pattern of monthly change shows consid-
erable variation from year to year. Aside from a general
tendency for low prices during harvest and moderately
higher prices during the spring, no consistent pattern is
evident. These irregular fluctuations increase the chance
that carrying costs will not be recovered if the crop is
held. One factor lessening this risk somewhat is the long-
run increasing demand for soybeans.

This rising demand for soybeans has been a boon to
Illinois farmers. With overproduction in the other major
grains keeping prices low and causing acreage restric-
tions, the farmers would be in serious economic trouble
were it not for soybeans. An indication of the extent of
this increased demand is the fact that from 1949 to 1962,
exports rose from 13 million bushels to 180 million bushels.

Other Grain Crops

Wheat, oats, barley, rye, and sorghums are the other
grains raised in Illinois. In 1963 there were 3.3 million
acres of these crops harvested, of which wheat was the
most important, with 1.8 million acres. Most wheat is
grown in the area between the center and the lower one-
sixth of the State. Nearly all of the wheat not used for
seed is sold off farms. At an average price of $1.80 a
bushel the record 71 million bushels sold last year had a
value of $129 million, or 8.3 percent of total crop value in
the State and about 5 percent of gross farm income.

Because it is difficult to maintain quality, wheat is
seldom held beyond harvest. Sales averages from 1952 to
1962 show that 81 percent of the wheat crop is sold during
the harvest months of July and August.

The oat crop is the fourth most valuable grain crop in
the State, with a 1963 value of $51 million, but its impor-
tance is declining compared with that of corn, soybeans,
and wheat. Although a record yield of 57 bushels per acre
was produced in 1963, the total output of 81 million bush-
els on 1.4 million acres was only slightly greater than in
1962, which was the lowest in 34 years. A good explana-
tion for this decline may be found in the fact that the
average value per acre of the oat crop was $36 in 1963,
compared with $93 per acre for corn. The two crops are
grown in the same area of the State.

Most of the oat crop remains on farms. Only about
37 percent of it, or an average of 30 million bushels per
year, is sold. These sales account for 1 percent of gross
farm income.

Barley, rye, and sorghums are of much less economic
importance than wheat or oats. Combined production of
these three in 1963 amounted to only 2.7 million bushels
from 96,000 acres. Their total value was $2.6 million.

Department of Agriculture estimates of 1964 grain
production in Illinois indicate that it will be below that of
last year. The principal reason has been the summer-long
drought, which has reduced yields on all grains. Corn
yield is estimated at 78 bushels per acre (85 in 1963) and
total production for this year is estimated at 697 million
bushels. Soybean yield is expected to average 24.5 bushels
per acre, down from 29.5 bushels per acre last year. Out-
put will be about 141 million bushels. Wheat output is
estimated to be 69 million bushels, with a yield of 37 bush-
els per acre, down from last year's 40 bushels per acre.

In spite of the lower yields this year, total production
will still be relatively high. The corn output is expected
to be the second greatest ever recorded in the State. The
estimated wheat output is the second largest since 1919.
Even tin- expected soybean production, down 16 percent
from 1963, will be greater than outputs up to 1960. And
in light of the strong demand for soybeans, prices will
probably be high this year, enabling soybean farmers to
earn nearly as much as they did hist year. It appears that
even a very dry year cannot do much to slow the ever
increasing output on Illinois farms.

KNOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS"

Percentage changes, August, 1964, to September, 1964

COAL PRODUCTION

ELECTRIC POWER PRODUCTION

EMPLOYMENT -MANUFACTURING

CONSTRUCTION CONTRACTS

■MENT

DEPARTMENT STORE SALES

BANK DEBITS

FARM PRICES

ILLINOIS BUSINESS INDEXES

Employment — manufacturing1. . .
Weekly earnings — manufacturing1

Consumer prices in Chicago2

Life insurance sales (ordinary)3. . .

Dept. store sales in Chicago4

Farm prices5

Bank debits6

Construction contracts7

Electric power8

Coal production9

Petroleum production10

'III. Dept. of Labor; 2 U.S. Bur. of Labor Statistics
Agcy. Manag. Assn.; 'Fed. Res. Hank, 7th Dist.j '111. Crop
Res. Bd.; ' F. W. Dodge Corp.; 8 Fed. Power Comra.; »
Mines; 'Mil. Geol. Survey.

» Preliminary. » Seasonally adjusted.

Rpts. ; ' Fed.'
ill. Dept. of

UNITED STATES MONTHLY INDEXES

Percentage

Sept.

change from

1964

Aug.

Sept.

1964

1963

Annual rate

in billion $

Personal income1

497.1"

+ 0.4

+ 6.0

Manufacturing1

Sales

447. 6»

+ 0 3

+ 7.5

+ 0.5

+ 3.2

New construction activity1

29.1

- 2.7

+ 02

Private nonresidential

21.1

+ 0.9

+ 5.9

+ 5.5

Foreign trade1

Merchandise exports

23.3'

- 7.0

+ 3.3

Merchandise imports

17.9"

- 7.5

+ 2.3

5 4"

+ 6.8

Consumer credit outstanding2

Total credit

73. 5b

+ 0.6

+ 10.5

57. 4b

+ 0.7

+ 11.1

Business loans2

46. 0b

+ 2.3

+ 9.9

41.2"

+ 25.9

+ 10.7

I ndexes

(1957-59

Industrial production2

= 100)

Combined index

134"

+ 0.1

+ 6.5

Durable manufactures

136"

- 0.3

+ 8.0

Nondurable manufactures. . .

134"

+ 0.5

+ 5.3

Minerals

113"

+ 0.4

+ 2.8

Manufacturing employment4

103"

+ 0.5

+ 2.7

Factory worker earnings4

Average hours worked

102

- 0.7

- 0.2

Average hourly earnings

120

+ 1.6

+ 3.6

Average weekly earnings. . . .

122

+ 0.8

+ 3.4

Construction contracts5

131

+ 0.1

+ 1.5

Department store sales2

n.a.

108

+ 0.2

+ 1.2

Wholesale prices4

All commodities

101

+ 0.4

+ 2.1

+ 1.2

0.0

+ 0.1

+ 1 3

102
101

Other

+ 0.4

Farm prices3

Received by farmers

+ 2.1

- 2.0

107

0.0

+ 0.9

Parity ratio

75d

+ 1.4

- 3.8

'U.S. Dept. of Commerce; : Federal Reserve Board; s U.S. Dept.
of Agriculture; 4 U.S. Bureau of Labor Statistics; » F. \V. Dodge Corp.
Seasonally adjusted. b End of month. c Data for August, 1964,

UNITED STATES WEEKLY BUSINESS STATISTICS

Item

1964

1963

Oct. 31

Oct. 24

Oct. 17

Oct. 10

Oct. 3

Nov. 2

Production:

Bituminous coal (daily avg.)

Electric power by utilities

Motor vehicles (Wards)

Petroleum (daily avg.)

Steel

Freight carloadings

.thous. of short tons. .

. mil. of kw-hr

. number in thous

1,758
18,411

142
7,716

141.9

657
5,006

100.5
101.4
102.9

39,886
249

1,728

18,341

108

7,658

140 7

646

4,879

100.6
101.4
102.6

39,913
232

1,690

18,074

101

7,652

139.5

639

4,939

100.6
101.3

102.1

39,964
233

1,678

18,245

7,638

138.0

633

5,005

100.6
101.3
101.6

39,743

246

1,637

18,331

101

7,621

137.6

619

5,311

100.5
101.1
101.1

38,153
268

1,628

17,457

208

7,571

.1957-59 = 100

.thous. of cars

104 4
623
4,946

Commodity prices, wholesale:

.1957-59 = 100

Other than farm products and foods
22 commodities

100. 9»
96.2

36,296

285

Surrey of Current Business, Weekly Supplements.

1 Monthly index for October, 1963.

[ ^ ]

RECENT ECONOMIC CHANGES

State Unemployment Insurance Programs

From January to September the number of insured
unemployed under state programs declined from roughly
2.4 million to 1.15 million. The September figure is about
137,000 less than the year-earlier total. The number of
insured unemployed has been approximately 10 percent
less so far this year than in 1963 (see chart).

Insured unemployment usually decreases about 44 per-
cent from January to September but this year the decline
over that period was 52 percent. The seasonally adjusted
rate of insured joblessness fell to 3.5 percent in Septem-
ber, which is the lowest adjusted rate for any month since
August, 1957.

Family Incomes

From 1962 to 1963 median money incomes of families
increased 5 percent, or $290, to $6,200. The 1963 figure is
more than double that for 1947, when the median was
approximately $3,000. Because of price increases, how-
ever, purchasing power has risen only about 60 percent
since 1947.

There were 47.4 million families (groups of two or
more related persons living together) in the United States
in 1963. Slightly more than 20 million families, or 42 per-
cent, reported money incomes of $7,000 or more, a gain
of about 2 million families in this class from 1962. Fam-
ilies with incomes between $5,000 and $7,000 numbered
10.1 million, or 21 percent. About 8.8 million families, or
19 percent, received money incomes below $3,000. The
number of families in this income class declined by
roughly 500,000 between 1962 and 1963.

Family income tends to rise as the family head ap-
proaches middle age and declines thereafter. The 1963
median for families in which the head was under 25 was
$4,200, whereas families with heads between 45 and 54

STATE PROGRAMS OF INSURED
UNEMPLOYMENT

Source: U.S. Department of Labor.

had median incomes of $7,400. The median then declined
to $3,400 for those over 65.

Level of education is also reflected in income levels.
The median income of families whose heads had no more
than 8 years of education was $5,300. The median money
income of families whose heads had only a high school
education was $6,800 and that of college graduates' fami-
lies was $9,700.

Wholesale Price Movements

Preliminary reports indicate that wholesale prices gen-
erally remained fairly steady in September, despite the
long period of business expansion. The index for Septem-
ber stood at 100.7 (1957-59 = 100) ; this was 0.4 percent
above the August figure and the same percentage above
the September, 1963, level.

Prices of farm products rose 1.6 points in September
to 99.3 after falling 0.4 point in August to 97.7. The
September index was 0.8 percent above the year-earlier
figure. Processed food prices increased 1.2 points to 102.2.
Metal prices remained at the 38-year high of 103 reached
in August. Nonferrous metals climbed to 107 owing to
the strong demand and tight supplies of copper scrap, tin,
mercury, and brass.

Gasoline prices were lower because of a high rate of
crude production and sharp competition. Lumber prices,
at 100.6, were 0.3 percent below the August level and 0.7
percent below the September, 1963, level, reflecting the
slowdown in residential building. Prices of rubber and
rubber products remained virtually unchanged from Au-
gust but were 1.5 percent below the year-ago figure. Price
movements of other commodities were generally not
significant.

Retail Sales

September retail sales decreased by about 1 percent to
a seasonally adjusted figure of $22 billion from the August
total of approximately $22.3 billion. The September total
was 8 percent higher than retail sales for the correspond-
ing month of the preceding year, however.

Sales of nondurable goods declined by 3 percent from
the August level of $14.6 billion. Food store sales were
up slightly, but this increase was more than offset by de-
clines in other soft goods such as apparel. Durable goods
sales rose 2 percent to a seasonally adjusted $7.4 billion.
This increase was mostly in auto sales and in lumber,
hardware, and farm equipment.

Moderate Rise in Inventories

One of the characteristics of the current business ex-
pansion is the apparent lack of excessive inventory build-
ing. Stocks are being accumulated moderately but they
have drifted lower relative to sales (see chart, p. 8). Ad-
ditions to nonfarm stocks this year have been at an aver-
age below that of the previous two years. At a seasonally
adjusted annual rate, additions to business inventories
in the first three quarters of 1964 have averaged $2.4 bil-
lion. This is less than half the rate of accumulation in
1962 when inventories increased by $5.3 billion and well
below the $3.9 billion rise of 1963.

Since early 1963 the difference between the current
pattern of inventory change and those of other postwar
business cycles has been marked. Stock-sales ratios have
(Continued on page 8)

[ 5 ]

SIGNIFICANT TRENDS IN AGRICULTURE

HAROLD G. HALCROW
Head of Department of Agricultural Economics

ignifii economic changes are occurring

in agrii nihil' .1 nil "i (1) thi i trong growth in

outpul and mai kel , I !) majoi shift: in produi tion and
marketing practices, and (3) the decrease in farm pop
illation and growing urban influences in the farm com
n ity.

Growth in Output and Consumption

G i farm outpu ha increased by about one third in
iii' 20 rean thi i loi i ol W*oi Id War II. This up-
ward tr< rid is continuing al the rate oi about 2.5 | nt

a year | see Charl 1). Since the population of the United
States is increasing al less than 2 percenl a year the

growth in production provide significant improv nts

in dirt al dei n I 1 he proportion oi co

:,. omi spi nl ("i food has l» i n di i lining -lowly until
food now takes less than one fifth of the disposable in
come. By any measurement, the high-quality diel avail
abli i" ' he Ami i ii an pi opli ii chi ap i ompa i ed w ith thai
- ii mosl oilier advanced count! ies,

This increase in outpul has, on the other hand, weak
ii" the terms of trade of our farmers. Thai is, farm

i lui i i :s are low in relation to prices paid foi goodi

used in farm production. This facl is observed in the
thi ratio oi pi i< < i paid to pi ii i

eei ed, F i 1942 through 1951, the pai ity ratio a • i

ag< 'i .'i i n poinl aboi e the 1910 I I base, set al 100.

In 1952, it was ai 100. In the nexl five years ii fell by
ilio ni on. huh and is now fluctuating a little below 80
(see ( hart 2).

'I hei e is little in tl n nl outlook to sugg I

farm prices will increase significantly. We havi e peri

i ted rather boldly with crop production control in an

attempt to raisi prices. We have subsidized exports

in an atti mpl to i tpand i all 9 abroad, and to a

more modi I di gi 1 1 , wi havi mi1im.Ii/. d cei tain i lasses of

' "n inn. n in thi hopi oi im 1 1 a ing I hi - onsumption of

it thi ' p rams have hi Ipi d to cli ■■

kcis, liui they have not improved and, barring stronger
in. a in. , Hi. . an nol likely to improve the terms of
ii adi "i i. inn. i 'l his is trui in i pit< of the fa< I that
the I •epartmi nt oi f\gi ii ultun is spi nding about $7 bil-
lion a year, or marly 60 priii ni of the estimated nel
in. omi 1 1 ..in i. ii ming. A di i ade ago thi i ompai able oul
lay was less than $2 billion a .

CHART 1. CROP AND LIVESTOCK PRODUCTION

I Dep i \;'in uiiiiir.

'I he pai ity pi ice ratio i likely to n main near the
'■in rent l< ve\ in spite of thi facl thai « ithin the nexl

10 yeai United I Itati - on i i ■ ill 1 1 1 an

50 to 60 perci nt more foi food th in thi . an no i i pi nd
ing. Growth in population aloni will account foi 22 pei
'■'•nt of this increai e. 1 he rest -.■.ill comi from ■
in food habits and highei pei capita incomes, young
people in the teens and twentiei will make up a larger
share of the total population; they eat more food than
. i ' The shift toward urban living is changing food
in ih. direction oi high i quality fooi
o ..ii farm product will shari equally in this ex-
panded market. I onsumi rs will want mon Ii
produi ts and higher quality produi I . and farmi rs will
ii. . .1 to shift toward feed am is to i upply thi

market. Mon- products will bi proci ed, packaged, pn
cooked, and stored from .iron to '.a. on SO thai con-
sumers will have a more constant year-round supply of

nearly every product.

■a immodities will encounti r a slow growing mar-
ket, other a shi inl ing di mand Per i apita consumption
of dairy products has dropped because of competition
from lo "mi ..in. m.'.i.iI.i. fats and oils, but perhaps this
procesi oi Milr ni ni ion li.r now nearly run its course.
Cotton has had, and probably will have, growing pn
from synthi tic fibi rs and from increasi d fori ign produi
tion. The domestic demand for wheat has been highly
stable; but, because outpul is aboul double domestic r<
quin mi nt i, .■. heat growei are dependent on export sales,
which have been heavily sub idized,

Foreign Markets

'i hi fori ign . icporl market is e panding, but its di vel
opmi ni will di pen. I in. i eai ingly on 1 1 adi and
policy. Hunger is the most crucial problem in the under
developed countries. Since these countries have about

iin.i i th of the world's population, hunger has truly

become a world problem. The prospect thai the world
population will double in 10 < an ii then fori • au i Eoi
alai m Even in the pasl 1 5 years the incn ai e in •■ oi Id
farm output has not kept pace with the increase in pop
ulation. If <■un.ni population trends continue, then- will
be a widening of this "food gap" in the underdeveloped
countries.

Many former exporting areas Russia, China, South

. i : \ ' , and m ii,. N. . i. ,n". i is. ... in ".■ amount

of food to export Latin America, onci thi world's larg
iortei ..i gi im. no longi i con i ti ntl . produi ■

ni plus.

E pe has a fai I grow in lui ti ial economy, and it

nol like! that its agriculture will long keep pace with
. ..ii urn, i demand, In i pite of efforts to bi i ome more

sell suffii a ni, thi i ounti ii ■ in the European * oi n

Market w ill im rea i theii di mand Eoi i omi I I im]

i hi bi i bi i is thai I urope ■•■ ill • hifl toward impoi ting
mon . . 'i grains foi livei toi i Although drei ed mi at
might l" more economical in the long run, polit ical fori -

lit ill limit this type of import trade.

[■hi i I 'i.ii. 9 and l anad i an bei oming the only

in i joi "i mi ■ poi ting i on, in i, ■ in the world. Just before

World Wai [I, thesi tv tuntries wen exporting aboul

5 million tons of grain a year, which was aboul one fifih
of the world grain trade. Now they are exporting i Ii i

I '- I

to 40 million tons a year, an amount equal to about
four-fifths of total international trade.

The growth of the world market for United States
agricultural commodities depends on a growing dollar
market in industrialized countries and potential demand
among the less developed countries. In other words, it
depends directly on the extent to which economic de-
velopment takes place.

Shifts in Farm Production and Structure

United States agriculture has considerable growth
potential. Most of this comes from products that are
industrial in origin: machinery, electrical power, motor
fuel, chemical fertilizer, insecticides, new feed ingredi-
ents, weedicides, and new materials for controlling dis-
ease. Most of these are reflected as cash production
expenditures.

Between 1940 and 1960 cash production expenses mul-
tiplied three times (in constant dollars they almost
doubled). The objects of these expenditures have re-
placed labor to such extent that since about 1940 the
total inputs of agriculture have remained almost con-
stant. In 1940 labor represented about 59 percent of the
total inputs employed in farm production, land 9 percent,
and capital 32 percent. In 1960, labor had decreased to
30 percent, capital had increased to 61 percent, and land
was about the same proportion of the total. In the next
decade labor will continue to decrease and operating
capital inputs — fertilizer, lime, weedicides, insecticides,
hybrid seeds, and other general items — will increase.

The number of farms, which has declined from more
than 6.5 million in 1920 to about 3.3 million now, will
drop to 2.5 million about 1975. Grain farms will continue
to increase in size through farm consolidation and re-
combination of farm units. General grain-livestock farms
also will increase, although the increase will not be so
pronounced. Specialized livestock farms will expand, but
because of confinement methods of producing livestock
the land area will be a less significant indication of size
of business than the capital structure and organization.

As farms increase in size and output, they will use
more operating capital inputs rather than more labor.
They will be more specialized and will need more
specialist advice, more precise accounting procedures,
and more efficient programming tools.

In the Midwest no rapid or substantial shift away
from the present structure of farm businesses appears
imminent. For the next decade or two, we can expect
the typical farm unit to be organized around the labor
and management resources of a single household, or in
some instances around a two-family enterprise. There is,

CHART 2. PRICES RECEIVED BY FARMERS,
PARITY INDEX, AND PARITY RATIO

% OF

910-14

eJityind.J .

- yJ —

200
100-

100-

AHCi.

\ -•"«-

v,. .;....

L^,

^~k^~~

r. T.rrr

~rrv,,,

Source : U.S. Department of Agriculture.

of course, some potential for large corporate units, espe-
cially in livestock feeding. In crop production, increases
in efficiency of the multiple-man unit over the one- or two-
man unit are now limited, at least with current tech-
nology.

Mechanization of livestock and farmstead operations
will become more general, inducing further specialization
in livestock enterprises. This trend will apply particularly
to cattle feeding, production of hogs in confinement, and
large-scale poultry enterprises. Such changes are affected
by the tenure and capital status of the individual farmer
and by the ability of livestock farmers to finance expan-
sion. The economies of scale of automation in livestock
and poultry enterprises will force many small producers
out of business unless they are willing to sell their labor
at an extremely low price.

Demand prospects for livestock products will permit
beef cattle, hogs, and poultry to expand at a faster rate
than the total agricultural production. The over-all trend
will be toward greater concentration of feed production
in specialized areas and heavier marketings of livestock.

Changes in Marketing Practices

Important changes in market structure and organiza-
tion are accompanying and sometimes preceding changes
in farm organization. The grain industry in Illinois, for
example, has a large amount of flat storage that is not
suited to handling high-moisture corn. With growth of
field-shelling operations, much greater capacity is needed
for handling and drying corn and other feed grains. In
the livestock business there will be more direct selling to
packer and processor. During the past ten years, receipts
of hogs at terminal markets have declined by one-third,
cattle receipts by one-fourth, and sheep receipts by
almost one-half. In the future there are likely to be no
important terminal markets for poultry or eggs, milk, or
other perishable farm products. Direct marketing will be
encouraged by the growth of larger commercial opera-
tions in cattle and hog feeding.

The number of egg marketing agencies also will con-
tinue to decline. The trend toward larger producing units
will decrease the need for local egg assembly points.
More eggs will move directly from farm through grading
stations, and size of grading plants will increase. More
plants will have contracts requiring producers to sell a
given quantity of eggs in return for a guaranteed price
based on central market price reports.

There will be a continued decline in the number of
private and cooperative dairy-processing plants as more
farms take advantage of economies of scale induced by
modern mechanization and processing. Between 1950-51
and 1961-62, the number of fluid milk plants in Illinois
decreased from 696 to 209, but this decrease was accom-
panied by an increase in number of plants processing
more than ten million quarts annually. Further sharp
declines in plant numbers arc to be expected, particularly
among small plants. Illinois will lose from 25 to 40 per-
cent of its existing milk plants in the next five years.

In the handling of fresh fruits and vegetables, specifi-
cation packing and sales will become more common,
increasing the efficiency of direct-buying organizations.
The volume handled by organized markets in the central
states will continue to decline. The market structure for
processed fruits and vegetables will not change, but a
larger percentage will be sold through mass-market outlets.

The main significance of these trends is that agri-
culture will become increasingly specialized in the loca-
tion of, as well as within and among, firms producing and

[ 7 ]

marketing agricultural commodities. Crop yields will
continue upward, and in crop production the family farm,
enlarged and more highly capitalized, will largely main-
tain its current dominant position. Livestock feeding will
involve a growing number of large-scale units. There will
be some growth in vertical integration and in the coordi-
nation of production with service and marketing firms.

Growing Urban Influence

There was a time, not long ago, when farm people
were in the majority in most communities outside incor-
porated towns and cities. This is no longer true. Not
only are the strictly rural areas losing population rapidly,
but the rural areas within easy driving range of cities
are becoming increasingly dominated by people who earn
their living in cities and who are primarily urban- or
city-oriented in their thinking, habits, and interests. Fur-
thermore, as the commuting range widens, the isolation of
the farm community diminishes and farm people take on
the habits, standards, and thinking of urban families.

Urban values are coming to dominate the farm com-
munity. We can see this change in the pressure for school
consolidation, for more group-oriented recreation such as
"little leagues," bowling facilities, public swimming pools,
and golf courses, and for private sports facilities such as
hunting or fishing preserves and camping facilities. For
a few farm people this trend opens opportunities for new
enterprises, but for most of them it means that they and
their children must adjust to new ways of living and to
different ways of doing things.

A major problem for farm people is widespread under-
employment and failure of their children to achieve
educational levels comparable with those of children in
cities. The difference in early training places at a dis-
advantage those who do continue in higher education.
It also means that those who do not attend regularly and
the larger percentage who drop out before graduation
are even further disadvantaged and less able than urban
youth to fit into our increasingly highly skilled society.
Most studies of farm manpower requirements show that
a family farm economy will provide profitable employ-
ment for only a small percentage of the boys and girls
growing up on farms. Usually it is suggested that only
one or two in ten can be profitably employed in farming.
We have not sufficiently emphasized the fact that invest-
ments in education have a high rate of return. The main
value is in upgrading, improving, and expanding oppor-
tunities. Improvements in education and counseling are
necessary for solving the problem of excess labor re-
sources in agriculture. The trend toward urbanization of
the farm community will hasten this change.

In summary, the significant social and economic trends
in agriculture suggest that the farm cost-price squeeze
will continue, even with continued growth of the national
market and expanded exports due to government subsidy.
Operating capital inputs will increase, continuing the
trend of the past few years. Labor will flow out of agri-
culture, but not fast enough to bring farm incomes up to
those of persons outside agriculture. Unless education in
rural communities improves substantially, rural young
people will not have the skills to compete equally in the
urban labor market. The farm community will increas-
ingly give way to urban influences. The political power
of farmers will decline, but policy will be designed to
make necessary adjustments easier, so that the real in-
comes of commercial family farm operators should con-
tinue to increase substantially with the continued growth
of the economy.

Recent Economic Changes

(Continued from page 5)

risen in the advanced stages of earlier upturns, but this
time sales and output continue to gain faster than in-
creases in stocks.

The decrease in the ratio is attributable mainly to
manufacturing. The stock-sales ratio of trade firms has
been fairly stable for the past three years. Most of the
decline in manufacturing inventories relative to sales has
been in materials and supplies. The lower ratio for ma-
terials shows up mostly in the durable goods group, pri-
marily in metals and machinery. With rising demand for
steel, inventories of iron and steel producers have been
moving up fairly steadily since late 1963. Steel ware-
houses and manufacturing consumers also added a little
to their inventories. Stocks of nondurable goods pro-
ducers have changed little so far this year.

The rise in inventories at the retail and wholesale
levels was halted at the middle of the year. In the first
half, retailers' stocks had gained at a rate of almost $1.5
billion and merchant wholesalers had been increasing
their stocks at an annual rate of about $1 billion. How-
ever, there was little increase at the wholesale level in the
third quarter and a small decline in retailers' inventories
because of reductions at durable goods outlets.

INVENTORY-SALES RATIOS

i I i I l I I i I I l illinium

I I I I I I I i I iilmn

MERCHANT WHOLESALERS

i I 1 i i i i i

I I I I liiiiilinii

1959 60 61 62 63 64

Quarterly Month!/

Source: U.S. Department of Commerce.

[8]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Steel

In 1963 steel ingot production totaled 109 million
tons, 1 1 million tons over 1962. This was the first time
since 1947 that production had passed the 100 million
mark. United States production represented 26 percent
of the world total of 422 million tons. For the fifth con-
secutive year the United States was a net importer of
steel, as imports rose to 5.5 million tons from a 1962 total
of 4.1 million tons, and exports were up 167,000 tons to
2.2 million.

The American Iron and Steel Institute reports that
in recent years there have been important changes in the
types of furnaces used in steel-making. Although open-
hearth furnaces still produced 81 percent of steel in
1963, production by electric furnaces increased to 10
percent of all output and the use of the basic oxygen
process rose to 8 percent of the total (50 percent more
than in 1962). In the basic oxygen process a retractable
water-cooled lance is lowered into the molten metal, and
oxygen forced through the lance under extremely high
pressure quickly burns off impurities.

The largest single user of steel is the auto industry,
which consumed almost 17 million tons last year, 10 per-
cent more than in 1962; its share represented 22.4 per-
cent of total shipments. Construction and contractors'
products took 12.5 million tons (16.5 percent) and ma-
chinery and equipment 7.7 million.

Coin Shortage

The shortage of small change today is acutely felt by
most cash businesses. Vending machines, coin collecting
(a booming hobby), and piggy bank owners are most
often blamed for the shortage. Machines vending cig-

MEDIAN INCOME OF PROFESSIONAL WORKERS
(With 5 or more years of college)

THOUSANDS OF DOLLARS

\r-PH

TSICIANS AND
SURGEONS

■

-'lawyers and

•A

/ ,,--''

JUDGES

,/.--""

^T^

:ngineers
ofessors and

(1^

^ ACCOUNT

-..INSTRUCTORS "
»NTS AM)

AUD

TORS

Sources : U.S. Census of Population, 1960, and National
Industrial Conference Board.

arettes, candy, food, and beverages had sales of roughly
$3 billion in 1963. The frequency with which the ma-
chines are emptied and the coins put back in circulation
is of great importance. Phone booths and some vending
machines, for instance, are emptied every two or three
days in busy locations.

The value of coins in circulation as of June 30, 1964,
amounted to $2.7 billion (excluding $500 million in silver
dollars). In July of this year, the Treasury Department
doubled the coin volume planned for 1964 and 1965. The
original quota of John F. Kennedy half dollars will be
more than doubled since many are being held as souvenirs
and few are returned to circulation. Congress has ap-
proved the building of a new mint in Philadelphia and
full-time operation of existing mints was approved.

All 12 Federal Reserve Banks now ration the coins
paid out to member banks. As commercial banks have
found themselves with fewer excess coins, the return
flow to Reserve Banks has dwindled. Deliveries of new
coins from the mint have risen, but not enough to offset
the drying up of return flows of coins from circulation.
Some banks and merchants at times have resorted to
"green sales" (giving a dollar bill for 99 cents in change).
The American Bankers Association is sponsoring tele-
vision and radio spot announcements urging coin hoarders
to mend their ways.

Median Professional Income

The National Industrial Conference Board has calcu-
lated 1959 median incomes of some types of professional
workers, using data presented in the Census Bureau's
report issued this year. The median incomes of profes-
sionals in medicine, law, higher education, engineering,
and accounting are shown to vary with age and level of
education.

Doctors and lawyers with 5 or more years of educa-
tion and in the 45-to-64 age group had the highest median
incomes, $18,500 and $15,500 respectively. Engineers'
highest median income was $11,508. The median income
of professors with 5 or more years of higher education
(90 percent of all professors and instructors) peaked at
$9,567 and declined less than that of other groups after
65. (See chart.)

For all the occupations the peak earnings occurred
in the 45-to-64 age group, but for doctors and accountants
the difference in earnings between the 35-44 and 45-64
age groups was small. Doctors' median income rose
quickly after their long training but also fell the most,
by about $5,300, for those over 65.

Income generally was higher for the most educated
individuals. Approximately 85 percent of all accountants
had 4 years or less of college. Those in the 35-to-44
group with 1 to 3 years of higher education earned $7,245
or about $1,500 less than those with 5 or more years of
college and $700 less than those with 4 years. However,
in the 45-to-64 age group there was a difference of less
than $100 between those with 4 years and those with 5
or more years of higher education.

Engineers aged 45 to 64 with 5 or more years of col-
lege had incomes of almost $800 more a year than those
with 4 years of higher education. There was a difference
of $2,500 between the incomes of engineers with 1 to 3
years of college and those with 5 years or more.

LOCAL ILLINOIS DEVELOPMENTS

Watersheds Being Developed

Construction and planning of small watersheds
reached a new high in Illinois in fiscal 1964. A progress
report issued jointly by the conservation agencies of
Illinois and the United States lists a total of 3 watershed
projects completed, 5 under construction, 7 approved for
planning, 11 in preliminary investigation, 15 awaiting
preliminary investigation, 3 awaiting the governor's ac-
tion, 7 not active, and 11 terminated. Watersheds in the
first four classes are shown on the map below.

These watersheds are being developed in accordance
with the Small Watershed Act (Public Law 566) passed
in 1954. The major purpose of the act is to encourage the
building of small watersheds to provide flood control, to
prevent erosion and sediment damages, and to improve
drainage in areas with recurring water problems. The
act has been amended to include assistance to multi-
purpose watersheds, which also serve as recreational
facilities or as municipal and industrial water supplies.
At least 50 percent of the land involved in each of these
projects is designated for a conservation program.

The watersheds are sponsored by local groups who re-
ceive government assistance. The State Conservation
Division helps with the original planning. Applications
approved by the governor are forwarded to the United
States Soil Conservation Service (SCS) for preliminary
investigation. If the project appears beneficial and feas-
ible, the SCS draws up more definite plans for the pro-
posed structures, which the local sponsoring groups use

WATERSHED LOCATIONS

■ PROJECT COMPLETED
□ PROJECT IN PROCESS
„ PROJECT APPROVED FOR

Illinois Department of Agriculture and U.S.
Department of Agriculture.

as a base for activating the project. The SCS provides
continuing direction as construction progresses.

The largest project completed or currently under con-
struction is the Shoal Creek Watershed, which covers
192,400 acres in Montgomery County. This watershed
will include 5 floodwater-retarding structures, 2 multiple-
purpose structures for municipal water supply, and 24
miles of channel improvement.

Wheat Program Expands

A total of 51,300 Illinois farms have been signed up
for the 1964 Voluntary Wheat Program, according to the
State Agricultural Stabilization and Conservation Service
Committee. This number represents 39 percent of the
132,200 wheat farms in Illinois. In 1964, there were
24,200 farms enrolled, or 18 percent of the new total.
(There are approximately 700 fewer wheat farms in the
State now than at this time last year.) The 1965 allot-
ments total 930,900 acres, of which 120,400 acres (12.9
percent) will be diverted to conservation rather than
being used for wheat or other crops. Corresponding
figures for 1964 were 553,700 acres allotted and 65,500
acres (11.8 percent) diverted.

Farmers who have signed up for minimum diversion
(one-ninth of their allotted acreage) are eligible to re-
ceive price supports averaging $1.32 a bushel in the
State ($1.25 is the national average). If an additional
10 percent of the allotment is diverted to conservation,
the farmer also receives a diversion payment averaging
$22.44 per additional acre. The maximum additional di-
version is 20 percent, except for farms of less than 15
acres, which may be entirely diverted. Total diversion
payments in Illinois in 1964 amounted to $638,400.

Welfare Payments Reported

Public assistance in Illinois amounted to slightly over
$140 million in the first six months of 1964. The number
of persons receiving aid ranged from a high of 439,200
persons to a low of 420,600 persons, and the number of
cases handled monthly varied from 185,900 to 181,200.
The greatest reductions were due to a drop in unemploy-
ment, which affected the aid to dependent children and
general assistance programs most heavily. Aid to de-
pendent children still accounted for almost half of total
payments, although assistance to the medically indigent
aged was the program with the highest cost per person.
The following tabulation is based on June expenditures.

Percentage Average

of total assistance

payments per person
Federally-aided programs

Old age assistance 21.9% $88.03

Aid to dependent children 48. S 43.46

Blind assistance 1.0 90.21

Disability assistance 11.2 93.01

Assistance to the medically indigent

aged 3.2 518.47

General assistance 14.2 48.49

The number of persons receiving public aid in June
averaged 40 persons per 1,000 population, largely deter-
mined by Cook County's average of 53 persons per 1,000.
Rates were lower than the state average in 74 counties
and higher in only 28, with the extremes ranging from
3 recipients per 1,000 to 223 per 1,000.

Precise percentages vary monthly, but in June, the
State contributed 51.3 percent of the total; the federal
government, 45.5 percent ; and local units, 3.2 percent.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
September, 1954

Building

Permits1

(000)

Electric

Power Con

sumption2

(000,000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits5

(01)0,000)

Percentage change from [£& ^

NORTHERN ILLINOIS
Chicago

Percentage change from .
Aurora

Percentage change from.
Elgin

Percentage change from.
Joliet

Percentage change from.
Kankakee

Percentage change from.
Rock Island-Moline

Percentage change from.
Rockford

Percentage change from .

CENTRAL ILLINOIS
Bloomington

Percentage change from.
Champaign-Urbana

Percentage change from.
Danville

Percentage change from .
Decatur

Percentage change from
Galesburg

Percentage change from.
Peoria

Percentage change from.
Quincy

Percentage change from.
Springfield

Percentage change from.

SOUTHERN ILLINOIS
East St. Louis

Percentage change from.
Alton

Percentage change from .
Belleville

Percentage change from .

(Aug., 1964.
\Sept., 1963.

(Aug., 1964.
Sept., 1963.

(Aug., 1964.
(Sept., 1963.

/Aug., 1964.
[Sept., 1963.

(Aug., 1964.
[Sept., 1963.

(Aug., 1964.
(Sept., 1963.

(Aug., 1964.
[Sept., 1963.

/Aug., 1964.
(Sept., 1963.

/Aug., 1964.
/Sept., 1963.

(Aug., 1964.
(Sept., 1963.

(Aug., 1964
[Sept., 1963.

[Aug., 1964.
/Sept., 1963.

(Aug., 1964.
'(Sept., 1963.

[Aug., 1964.
(Sept., 1963.

(Aug., 1964.
[Sept., 1963.

(Aug., 1964.

Sept . l')63

(Aug., 1964.
/Sept., 1963.

$38,428'
+24.4
-34.6

$25,000
+37.7
-48.4

$ 1,157
+10.4
-30.8

$ 403
+28.8
-31.1

$ 706
+21.7
+3.1

$ 135

$ 966
-25.1
+ 7.0

$ 1,327
-21.8
-11.5

$ 137

-49.1

-54.8

$ 915

+34.0

+ 54.3

$ 2,038

+579.3

+652.0

$ 2,700

+231.3

+455.6

$ 92

-52.6

-34.3

$ 4

-99.7

-99.6

$ 275

-29.7

-47 .9

$ 1,243

-58.0

+ 162.2

$ 118
+ 7.3

-41.0
$ 1,021
+ 661.9

+79.8
$ 191

-24.2

-17.7

1,148 9
-2.9

+8.1

59. 51'
■15.6
-25.5

71 6'
-0 6
-11.4

15 1
-7.9

+3.4

24 5

-10.3

+9.9

23 2

-8.7

+ 10.0

54.4

-2.7

+ 16.7

14 1

-10.2

+8.5

82 2-

-10.6

+ 10 0

20 1

— 1.3

+ 16.9

53 8

-15.0

+5.5

21 6

-5.7

-23.1

29 6

+5'.3

18 0

-15.9

+4.7

$28,725"
+ 13.4
+ 17.4

$26,839

+ 14.2

+ 18.0

$ 110

+3.8

+ 13.4

$ 67

+ 1.5

+ 19.6

$ 98

-10.1

+2.1

$ 152''
+2.0
+ 10.1
$ 252
+1.2
+ 10.5

$ 115

+ 7.5

+ 16.2

$ 119

+10.2

+ 12.3

$ 60

-9.1

+ 7.1

$ 166

+8.5

+ 15.3

$ 317
+ 10.1
+5.0
$ 64
+ 10.3
+4.9
$ 180
+5.3
+ 11.1

$ 132
-3.6
-2.9

$ 54
+8.0
+5.9

* Total for cities listed. •> Includes East Moline. ' Includes immediately surrounding territory, n.a. \m

Sources: ' Local sources. Data include federal construction projects. 2 Local power companies. 3 Illinois Department of Revenue.

Monthly data not available. 4 Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.

6 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending ( Irtober 9, l<)(,|, and October 1 1, 1963.

[HI

INDEXES OF BUSINESS ACTIVITY

1957-1959 = 100

Illinois Historical Survey
416 Lincoln Kail

EMPLOYMENT- MANUFACTURING

\ •

V/us

* REVISED SERIES

AVERAGE WEEKLY EARNINGS

- MANUFACTURING

^l/

U.S.

* REVISED SERIES

'29 '37 '45 '53 '61

ANNUAL AVERAGE

'29 '37 '45 '53

52 1963 1964

DEPARTMENT STORE SALES (ADJUSTED)

r^^

yvWV

ILL.

/ US.

CASH

FARM INCOME

150

,00

^Vu.s.^

*v#

'29 '37 '45 '53

ANNUAL AVERAGE

962 1963 1964 '29 '37 '45 '53 '6 1 1962 1963 l96-<

ANNUAL AVERAGE

BUSINESS LOANS

£p

J-

=s^

ILL

U.S.

# REVISE

3 SERIES

CONSTRUCTION CONTRACTS

i\ i

J \

>7cf

ELECTRIC POWER PRODUCTION

Vw\/v

.LU,

(Fas.

COAL

PRODUCTION

!ly

\ >

US \ i"-

\^ifT

1963 1964

ILLINOIS BUSINESS REVIEW

A MONTHLY SUMMARY OF BUSINESS CONDITIONS FOR ILLINOIS

PUBLISHED BY ... .

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

COLLEGE OF COMMERCE • UNIVERSITY OF ILLINOIS

December, 1964

HIGHLIGHTS OF BUSINESS IN NOVEMBER

The settlement of the General Motors strike, which
had been the primary factor in a 2-point decline in the
October index of industrial production, helped to raise
business activity to a new high in November. Automobile
output jumped 65 percent to nearly 680,000 units. Steel
production held around 83 percent of estimated capacity,
promising a record output of about 125 million tons for
the year. The index of industrial production rose 3 points
to 134.9 percent of the 1957-59 average.

Construction Decline

Construction outlays in November were estimated at
$5.8 billion, down 5 percent from October, but up 1 per-
cent from the year-earlier November. The decline from
October was less than seasonal, in part owing to the un-
usually mild weather in the first half of November.

Private construction put in place in November was
valued at $4 billion, a decrease of 2 percent from October
and about the same as in November, 1963. Spending on
nonfarm housing construction continued to decline. At
$2.2 billion, it was 4 percent below October and 6 percent
below the year-earlier figure. Public construction in No-
vember fell 12 percent to $1.8 billion.

Unemployment Rate Down Slightly

Unusually warm weather in mid-November helped to
push the seasonally adjusted rate of unemployment down
from 5.2 percent in October to 5 percent in November.
At mid-November there were 3.4 million unemployed,
121,000 more than a month earlier but the lowest number
for mid-November since 1957. Employment was esti-
mated at 70.8 million, down 330,000 from October. Non-
farm employment showed an increase of 251,000 instead
of the usual decline of about 200,000 at this season of the
year.

The jobless rate for adult men declined to 3.5 percent
in November from 4 percent in October. The rate for
married men dropped from 2.8 percent to 2.5 percent.
However, the rate of unemployment for teen-agers, at
14.9 percent, and the rate for women, at 5 percent, failed
to show any significant changes from October.

Upward Revision of Capital Outlays

The Commerce-SEC survey of plant and equipment
expenditures anticipates a fourth-quarter, 1964, rate of

$46.7 billion, which would raise the figure for the year to
$44.7 billion, 14 percent above the 1963 outlays. The ini-
tial 1964 estimate in February projected a 10 percent rise
from 1963 to 1964, and each successive survey indicated a
small upward revision in the 1964 total. Actual outlays in
the third quarter were greater than anticipated in the
August survey, mainly because of upward revisions in
nonmanufacturing, while the higher estimates for the
fourth quarter of this year were the result of higher an-
ticipations by manufacturers.

The survey also indicates that businessmen anticipate
larger plant and equipment expenditures in 1965 than the
results of the McGraw-Hill survey reported here last
month showed. Although the government survey covers
only the first two quarters of next year, the seasonally
adjusted annual rates for those two periods, $47.9 billion
and $48.7 billion, are considerably higher than the $46.8
billion estimate for 1965 given by the McGraw-Hill sur-
vey and average 8 percent above the full year 1964 as
presently estimated.

International Repercussions

Britain's late-October moves to meet its balance-of-
payments problem by imposing a temporary 15 percent
surcharge on imports other than foodstuffs and basic raw
materials and by providing tax incentives for exports
were still eliciting unfavorable reaction from other coun-
tries when a major attack on sterling by foreign specula-
tors forced further action by the beleaguered Labor gov-
ernment. The bank rate was raised from 5 percent to
7 percent and credits amounting to $3 billion were hur-
riedly arranged with hading foreign central banks and
international agencies to protect the pound. By the end
of November it appeared that the speculative raid on
sterling had been rebuffed. However, the threat to the
pound was still present.

The increase in the London bank rate led the Federal
Reserve to raise the discount rate from 3i/£ percent to
4 percent. This step was intended, primarily at least, to
discourage an outflow of short-term funds from the
United States to London that would worsen the United
States' balancc-of-payments position. It was followed by
increases in interest rates on loans by some banks, al-
though a move toward higher prime rates was reversed
aftei President Johnson urged banks to avoid general

THE PROBLEM OF POVERTY

By Paul Wells

Page 6

ILLINOIS BUSINESS REVIEW

Monthly except July-August when bimonthly

BUREAU OF ECONOMIC AND BUSINESS RESEARCH

UNIVERSITY OF ILLINOIS

408 David Kinley Hall, Urbana, Illinois

Second-class mail privileges authorized at Champaign, Illinois.

V Lewis Bassie Ruth A. Birdzell

Director Editor of Publications

Joseph D. Phillips, Research Professor

Research Assistants

Elaine Goldstein Diane L. Lewis

John P. Myers Vircinia Speers

Price Policies and Profits

Since 1958, the index of wholesale prices has remained
extraordinarily stable. This year's 100.5 percent of the
1957-59 average is at the mid-level of a seven-year pla-
teau, and not one of the intervening annual averages devi-
ated from this level by as much as 0.5 percent.

For over a year, many forecasters, especially those in
the financial field, have expected prices to move up —
that is, for "inflation to be resumed." Industry executives
in some lines of manufacturing have cited the need for
higher prices to bolster earnings and have made attempts
to raise them, but in many cases were unable to make the
increases stick. Those becoming effective in some lines
have been offset by decreases in others where competition
has been more exacting. Both financial analysts and ex-
ecutives have shown a tendency to decry "the failure of
profits to keep pace with the rise of gross national prod-
uct" in the postwar period.

The government has been sympathetic but not entirely
so. It has given industry a lift by tax concessions to
make more funds available for investment, as indicated
here last month, but has opposed price increases. The
Administration has constantly reaffirmed its guidelines for
collective bargaining, which were intended to limit in-
creases in labor costs to a rate that would be offset by
increases in productive efficiency. Implicit in this policy
is the view that profits are high enough to preserve favor-
able incentives for investment.

Factors in Price Stability

Despite the income tax cuts enacted early in 1964 to
speed economic growth, the increase in demand has not
been sufficient to bring about the full utilization of re-
sources, which alone would put upward pressure on prices.
During the past year, nonagricultural employment has
increased by almost 1.5 million, but the rate of unemploy-
ment has been little reduced and still stands at 5 percent
of the labor force.

Underutilization of industrial capacity also persists.
The McGraw-Hill survey reported that manufacturers
were operating at 86 percent of capacity in September,
only slightly up from 85 percent at the end of 1963. With
new investment continuing high, the increase in 1965 will
be of similarly small magnitude, leaving operations still
well below the preferred rate of 92 percent. Where out-

put and efficiency can be lifted with relatively small in-
vestment outlays, as in the steel industry, there is a sub-
stantial restraint on prices even though volume progresses
to new highs. The restraint does not apply, of course, to
the special shapes and forms that are in comparatively
short supply. Moreover, in the event of a strong build-up
of steel inventories in the early months of 1965, prices of
steel products could advance more generally, but such
inventory boomlets are short lived.

In the course of an extended period when new capacity
is being brought into operation, competition may intensify
sharply. The new capacity has to claim a share of the
market to make the investment pay, but each established
producer strives to keep the market share which he held
while the new capacity was being built. Unless demand is
increasing across the board, downward pressure on prices
is felt in areas where growth is inadequate.

The coming to maturity of new products also runs
counter to inflationary influences. New products are com-
monly priced high, so that they are restricted to selected
uses or to particular classes of buyers. Subsequently, as
efficiency improves and output is stepped up for the mass
market, prices are brought down and competition may
even drive them temporarily below a level that is fully
remunerative. Such changes have recently been illustrated
by some plastics and transistors, for which capacity was
expanded very rapidly. Where products have been stand-
ardized longer, as in the primary metals, price increases
have been more common this year.

Still another factor in keeping prices low has been the
rise of low-margin retailers, known as discount stores.
Their growth has probably affected retail prices more
than wholesale prices, but these retailers buy on a price
basis and require as good a bargain as they can obtain
from the manufacturers. This development, too, like the
others already mentioned, has depended on the develop-
ment of new capacity — in this case, the building of shop-
ping centers and other distribution facilities.

Profit Expansion with Stable Prices

During short periods in which prices and costs are
stable, profits tend to vary primarily with changes in
volume of output. Their fluctuations are wider than those
of output because they move, not in proportion to total
volume, but in proportion to that part of volume above the
"break-even point." In the upswing from 1961 to 1964,
total corporate profits before tax increased from $44 bil-
lion to $58 billion, or almost one-third, while gross na-
tional product increased only one-fifth. After 1961, record
highs were being recorded annually in both series.

If one goes back further, to earlier cyclical peaks, the
rise in profits makes a less favorable showing. From 1959
to 1964, the percentage increase for profits actually fell a
little short of that for GNP. This is the basis of com-
plaints about "the attrition of corporate earnings."

Each short period, of course, is part of a longer run
during which capacity may be expanded. Reflecting the
larger base of operations and the higher level of fixed
charges, the break-even point is then typically shifted to-
ward higher volume, and the line measuring the relation-
ship between output and profits shifts downward. Whether
profits increase proportionately with volume depends upon
the extent to which this downward shift offsets the up-
ward movement along the new line of relationship. In a
situation where the increase in demand is not adequate to
(Continued on page 8)

[2]

ILLINOIS INDUSTRIES AND RESOURCES

COMMERCIAL BANKING

Commercial banks play an indispensable role in the
economy of the United States. Far beyond merely provid-
ing a safe place for storing savings, they accumulate
funds for financing investments in everything from furni-
ture to foundries. Performing this function throughout
the country are over 13,000 banking establishments. These
banks have total deposits of over $200 billion and cur-
rently have loans and investments of nearly as much.

The banking industry in Illinois has grown tremen-
dously in this century. At the start of 1964 all banks in
the State had combined assets of $23.7 billion, as com-
pared with the pre-Depression high of $5 billion. These
assets consist principally of loans ($11.1 billion at the
start of 1964) and investments ($8.9 billion). The re-
mainder is primarily cash assets, which totaled $3.3 billion
last year. The banks' liabilities consist almost exclusively
of the deposits of individuals, business organizations, and
governments. At the start of this year Illinois banks had
deposits of $21.1 billion ($12.0 billion in demand deposits
and $9.1 billion in time deposits).

There are over 1,000 commercial banks in Illinois to-
day. They provide employment for over 45,000 people,
and with average weekly earnings at about $84, the com-
bined yearly income payments to their employees amount
to almost $200 million. As might be expected, banking
activity is centered in areas of high population and busi-
ness concentration ; three-quarters of the people employed
in the banking industry in Illinois work in the Chicago
metropolitan area.

Although the number of banks in the State is at its
highest point since the mid-thirties, it is not at an all-time
high. There were over 1,000 banks in the State by 1901
and the number increased fairly steadily each year up to
1923, when there were 1,921. By 1929 the number of
banks in the State was down to 1,808, and by 1933 it had
dropped to the Depression low of 851. The new forms of
government regulation of banking brought on by the
Depression resulted in a decline in bank failures and
suspensions in Illinois from 245 in 1933 to two in 1934,
and the number of suspensions has remained at a practi-
cally negligible level since then.

Regulation of Banking

Banks operate in Illinois under either federal or state
charter. Through the twenties, about 25 percent of the
banks operating in the State were national banks. Since
then this percentage has been increasing and currently
some 45 percent of the state's banks operate under federal
charter. While less than half the banks in the State are
national banks, the national banks have accounted for
more than half of total deposits and total assets in the
state's banking industry since the thirties and currently
account for over two-thirds.

All national banks are required to be members of the
Federal Reserve System (FRS) and are regulated by the
Federal Reserve Board (FRB). The FRB also regulates
state banks that elect to become members of the FRS. At
the beginning of 1964, 523 of the state's 1,006 banks were

members of the FRS. Additional control is achieved
through the Federal Deposit Insurance Corporation
(FDIC) which insures deposits up to $10,000 on each
account in those banks which elect to participate in the
insurance program. Almost all banks in Illinois are thus
insured; $21,119 million of the $21,164 million on deposit
at the end of 1963 were protected by the FDIC.

Operations of banks in the State are very much alike
whether or not they are members of the FRS. One reason
for this is the similarity between state and federal rules,
and another reason is a willingness of federal authorities
to go along with state rules where possible. For example,
state banks in Illinois may not operate branches of any
kind while in general, national banks are not so prohibited.
However, federal authorities have not allowed branches
to be established by national banks operating in states
where branch banking is forbidden to state banks.

The issue is one that is hotly debated in Illinois.
Bankers have made several attempts to persuade legisla-
tors to permit branches and the legislature remains firm
in its opposition. Should branch banks ever become legal
in Illinois it is likely that national banks would be al-
lowed branches as well. The result of this flexibility in
federal regulations is that state and national member and
nonmember banks operate under the same rule.

Bank Operations

Like that of any other business, a bank's income is
derived from the difference between its revenue and its
expenses. The chief source of bank revenue is interest
on loans (60 to 65 percent of the total).

Loan volume in Illinois has more than doubled since
1955, rising from less than $5 billion to over $11 billion.
Of the total outstanding, about 45 percent are commercial,
industrial, or agricultural loans. Real estate loans com-
prise about 15 percent of the total; loans for purchases
and sales of securities, 9 percent; other loans to individ-
uals, 16 percent; and all other loans, 15 percent.

The second greatest source of bank revenue is interest
received on investments, which accounts for 20 to 25 per-
cent of the total. Bank investments have increased over
the past few years but not so much as loans. From 1955
to 1963 investments of Illinois banks rose from $7.6 bil-
lion to $8.9 billion. Government obligations accounted for
90 to 95 percent of the total, with United States govern-
ment obligations amounting to 60 to 80 percent and state
and local obligations comprising the remainder.

A bank's expenses are made up of salaries, interest
payments on deposits, and various other operating costs.
Total expenses have more than doubled since 1955, in-
creasing 135 percent in eight years. A major factor in
this rise has been the more than threefold increase in in-
terest payments since 1955. Interest payments have risen
from 20 percent of expenses in 1955 to 37 percent in 1963.
During the same period, salaries decreased relative to the
total from 47 percent to 34 percent. Although the result
of the rapid increase in costs has been a slight pressure
on profits, banks continue to prosper.

NOW YOUR STATE

[ 3 ]

STATISTICAL SUMMARY OF BUSINESS ACTIVITY

SELECTED INDICATORS'
Percentage changes, September, 1964, to October, 1964

ELECTRIC POWER PRODUCTION

EMPLOYMENT- MANUFACTURING

CONSTRUCTION CONTRACTS

r sti

DEPARTMENT STORE SALES

BANK DEBITS
,RM PF

FARM PRICES

Bus.

adjusted. N.A. Not available.

ILLINOIS BUSINESS INDEXES

Oct.

Percentage

Item

1964

change from

(1957-59

Sept.

Oct.

= 100)

1964

1963

Employment — manufacturing1. . .

101.2

- 1.6

+ 2.5

Weekly earnings — manufacturing1

124. 0"

- 1.1

+ 4.0

Consumer prices in Chicago2

106.4

+ 0.1

+ 0.4

Life insurance sales (ordinary)3. . .

149.4

+ 9.3

0.0

Dept. store sales in Chicago4

133. 0b

+ 3.1

+ 15.7

93.0

- 4.1

- 2.1

168.4
118.7

- 2.5

+ 14.7

+ 3.1

- 2.8

140.2

+ 11.3

+ 12.6

90.6

+ 4.6

- 7.7

'111. Dept. of Labor; : U.S. Bur.
Agcy. Man.ig. Assn.; • Fed. Res. Bank, 7
Res. Bd.; ' F. W. Dodge Corp.; 8 Fed.
Mines; '» 111. Ceol. Survey.

a Preliminary. b Seasonally adjusted.

of Labor Statistics; 3 Life

th Hist.; 5 III. Crop Rpts.; «

Power Comm.: • 111. DeDt

UNITED STATES MONTHLY INDEXES

Personal income1

Manufacturing1

Sales

Inventories

New construction activity1

Private residential

Private nonresidential

Total public

Foreign trade1

Merchandise exports

Merchandise imports

Excess of exports

Consumer credit outstanding2

Total credit

Instalment credit

Business loans2

Cash farm income3

Industrial production2

Combined index

Durable manufactures

Nondurable manufactures.

Minerals

Manufacturing employment4

Production workers

Factory worker earnings4

Average hours worked

Average hourly earnings. . .

Average weekly earnings . .

Construction contracts5

Department store sales2

Consumer price index4

Wholesale prices4

All commodities

Farm products

Foods

Other

Farm prices3

Received by farmers

Paid by farmers

Parity ratio

Oct.

1964

Annual rate

in billion J

498. 6»

440. 4"

61.6"'1'

27.7
21.3
24.3

25.3'
18.7=
6.6=

73. 9^
57. 8b
45. 5b
44.9=

Indexes
(1957-59
= 100)
132"
130»
134"
112"

102"

101
94
102
102

98
107
76<i

Percentage
change from

Sept.
1964

+ 4.7
+22.3

+ 0.6
+ 0.7
- 1.0
+ 9.1

Oct.
1963

+ 4.3
+ 3.9

- 4.0
+ 5.0
+ 2.9

+ 17.2
+ 11.7
+36.4

+ 10.2
+ 10.7
+ 9.4

- 2.6

+ 4.4
+ 3.5
+ 5.1
+ 2.9

+ 1.0

0 0
+ 2.4
+ 2.4

- 6.6

+ 1.2

+ 0.3

- 1.4

- 0.5
+ 0.6

- 2.0
+ 0.9

- 2.6

'U.S. Dept. of Commerce; * Federal Reserve Board; ' U.S. Dept.
of Agriculture; « U.S. Bureau of Labor Statistics; « F. \V. Dodge Corp.

a Seasonally adjusted. b End of month. e Data for September, 1964,
compared with August, 1964, and September, 1963. d Based on official
indexes, 1910-14 = 100. n.a. Not available.

UNITED STATES WEEKLY BUSINESS STATISTICS

Nov. 28 Nov. 21 Nov. 14

Nov. 7 Oct. 31

Production:

Bituminous coal (daily avg.) thous. of short tons.

Electric power by utilities mil. of kw-hr

Motor vehicles (Wards) number in thous. . . .

Petroleum (daily avg.) thous. bbl

Steel 1957-59=100

Freight carloadings thous. of cars

Retail sales mil. of dol

Commodity prices, wholesale:

All commodities 1957-59 = 100

Other than farm products and foods. . 1957-59 = 100

22 commodities 1957-59 = 100

Finance:

Business loans mil. of dol

Failures, industrial and commercial. . .number

1,410
18,640

177
7,669

140.2

513
5,130

100.8
101.6
103.3

1,660
19,133

189
7,741

141.4

608
5,228

100.7
101.6
101.8

40,651
271

1,747
18,558

209
7,684

140.2

627
4,996

100.7
101.6
102.1

40,295
197

1,707
18,408

181
7,722

141.4

628
4,948

100.4
101.4
102.8

40,192
277

1,743
18,411

142
7,716

141.

657
5,039

100.
101.
102.

1,410
16,976

176
7,558

107.

467
4,765

100.7"
100.9"
94.9

Source: Survey of Cm

liusin

Weekly .S'i</7'I,»i,-»tt

Monthly index for November, 1963.

[ 4

RECENT ECONOMIC CHANGES

Retail Sales Down Slightly

Because of the automobile strike, October retail sales
dropped 3 percent from the September level to an esti-
mated $21.5 billion. This was the second month of decline
as sales were down about 1 percent from August to Sep-
tember.

The strike at General Motors caused a sharp slowdown
in automotive dealer sales. Automobile sales in October
rose only a fraction of a percent from September to
approximately $3.7 billion, whereas in 1963, October sales
jumped almost 50 percent from the preceding month to
$4.4 billion. Because of the temporary slump in autos,
durable goods sales fell 7 percent from the October, 1963,
level. In most other lines there were moderate advances.
Sales of nondurable goods were up 10 percent from 1963.
Retail sales are expected to advance to record highs with
the strike ended and the holiday season near.

United States Manufactures Overseas

United States manufacturing plants in foreign coun-
tries had sales of $31.3 billion in 1963, up 13 percent from
the previous year. The increase from 1960 was 34 per-
cent. In Europe, sales rose 46 percent from 1960 to 1963,
reaching a total of $13.6 billion (see chart). The leaders
there were automobiles, chemicals, and electrical ma-
chinery. The largest absolute gains occurred in Germany
and the United Kingdom.

Also above average were gains in sales from plants in
Asia, Africa, the Far East, and Australia, which grew
36 percent from 1960 but totaled only $3 billion in 1963.
Sales of Latin American subsidiaries increased 34 percent
over these years ; but the 1962-63 gain was only 7 percent,
indicating a slowdown. Canadian sales made a somewhat
better showing, rising 8.5 percent to $10.4 billion.

SALES OF MANUFACTURES BY AMERICAN
DIRECT-INVESTMENT ENTERPRISES ABROAD

BILLIONS OF DOLLARS

LATIN AMERICA^

^-ASIA, AFRICA, FAR EAST, AUSTRALIA

962 I96S

Source: U.S. Department of C

About four-fifths of the sales of foreign affiliates were
made in the countries in which the plants were located.
Most of their export sales went to third countries abroad.
Exports to the United States totaled $1 billion last year,
much the same as in other recent years.

Sales of transportation equipment in 1963 totaled $8
billion, by far the largest amount for any products manu-
factured overseas. Sales of chemicals approached $5 bil-
lion. Sales of machinery, including electrical equipment,
totaled $6.5 billion and food products ^3.7 billion.

Gross National Product Advances Steadily

The gross national product continued its upward
movement to a new high in the third quarter. The season-
ally adjusted annual rate of $628.4 billion was 1.6 per-
cent above the previous quarter. This year's third-quarter
rate was $41 billion or 7 percent above the third-quarter,
1963, figure.

GROSS NATIONAL PRODUCT OR EXPENDITURE

(Seasonally adjusted, billions of dollars at annual rates)

3rd Qtr. 2nd Qtr. 3rd Qtr.

1964 1964 1963

Gross national product 628.4 618.6 587.2

Personal consumption 404.6 396.1 377.4

Durable goods 58.7 57.0 52.2

Nondurable goods 179.5 175.3 168.6

Services 166.4 163.8 156.6

Domestic investment 87.3 87.2 82.8

New construction 48.9 48.9 47.2

Producers' durable equipment 35.6 34 6 31.4

Change in business inventories 2.8 3.7 4.2

Nonfarm inventories only .. . 2.7 3.4 3.7

Net export of goods and services 7.0 5.7 4.2

Government purchases 129.5 129.6 122.8

Source: U.S. Department of Commerce.

Gains occurred in nearly all major components. Con-
sumer purchases of goods and services rose about $8 bil-
lion. Automobile demand was one of the strongest areas.
Expenditures for producers' durable equipment gained by
$1 billion. Inventory accumulation slowed to $2.8 billion
from the second-quarter rate of $3.7 billion.

Drought

Industries, towns, and farmers in the United States
have been hard pressed by the lack of rain this year and,
in some areas, by the low rainfall of the past three years.
Reservoirs and lakes in the northeastern states have
dropped to extremely low water levels, with resulting in-
creases in pumping costs.

The water level in four of the five Great Lakes has
dropped two to twelve inches so that ships have been
forced to reduce their loads. This has increased the num-
ber of trips needed to transport goods, thereby raising
shipping costs.

Farmers as far west as the Rockies are facing severe
water shortages. The United States Department of Agri-
culture has estimated that corn production dropped sharply
from last year's 4.1 billion bushels to 3.5 billion bushels
this year. At the beginning of August the country's soy-
bean crop was estimated at 784 million bushels for the
year, but because of dry weather that figure was cut in
November to about 700 million bushels. In over one-half
of the states the Agriculture Department is offering
drought aid through which farmers may obtain surplus
livestock feeds and emergency loans.

[5 ]

THE PROBLEM OF POVERTY

PAUL WELLS, Associate Professor of Economics

In the midst of this country's Great Depression, Presi-
dent Roosevelt saw "one-third of a nation ill-housed, ill-
clad, [and] ill-nourished." Since those almost forgotten
days of widespread idleness and distress, this nation has
gone on to realize three decades of highly advantageous
economic progress.

Today more people are at work than ever before, earn-
ing higher incomes and enjoying higher standards of
living than ever before. In the past 30 years the level of
employment has almost doubled, while unemployment, the
chief cause of poverty among the industrially advanced
nations of the world, has fallen from a record high of
13 million persons, or one-fourth of the labor force, to 3.8
million persons, or one-twentieth of the labor force. Gross
national product has risen from a Depression low of $150
billion (in 1963 prices) to $623 billion, and the nation's
per capita disposable income has more than doubled, rising
from a low of $900 in 1933 (in 1963 prices) to well over
$2,000 in 1964.

By all measures, then, the nation is prospering today
as it never has before, and for this reason alone we might
expect our economy to do today what it failed so miser-
ably to do in the decade of the 1930's: To provide jobs
for all those who seek work; to make rates of pay ade-
quate to cover family needs for food, shelter, and cloth-
ing; and to furnish suitable educational opportunities for
those who wish to work in this way to improve their lot.

The Persistence of Poverty

It comes as a shocking surprise, therefore, to learn
that fully 9.3 million of this nation's 47 million families
still live in poverty. These millions of unfortunate fami-
lies earn or receive an annual pre-tax income of less than
$3,000, which is not enough at current prices to furnish
the 30 million persons in those families with the necessi-
ties they must have in order to lead a tolerable life.

Many of the nation's impoverished are over 65 years
of age and so have benefited very little, if at all, from the
economic progress of the recent past. Because of their
age they have little to look forward to and their only hope
lies with the generosity of the various public assistance
programs operated by the federal, state, and local gov-
ernments.

Worse still, however, is the unhappy fact that, of this
country's poor, 11 million are children. One-sixth of our
youth live in serious want, and because they do they have
a good chance of living out a life of hopeless idleness,
giving little to society and receiving in return only what
the public dole allows them to have. For these 11 million
youths, the escape from poverty will not be easy, and
many of them will not make it by their efforts alone.

An important and largely unrecognized fact about
poverty is that although the poor have always been with
us, they certainly need not always be with us in such
abundant numbers. The 1964 Annual Report of the Presi-
dent's Council of Economic Advisers estimates that
transfer payments of $11 billion a year would suffice to
bring all low-income families up to the $3,000 minimum
income level. If the public were agreeable, it would be a
simple matter for our governments to raise taxes by this
amount and distribute the proceeds among the poor.

Certainly this country has the economic capacity to
alleviate hardship if it so wishes, for the $11 billion sum
required amounts to less than 2 percent of GNP. But a

program of massive doles would, at the very best, only
alleviate poverty; it would not cure poverty. Large-scale
grants to the poor would leave untouched the sources and
causes of low incomes in this nation. The poor must have
higher incomes if their indigence is to be relieved, but
they must be able to earn the higher incomes they need —
to contribute to the nation's output as well as share in the
nation's output — -if their indigence is to be eliminated.

Characteristics of the Poor

To take action against the sources and causes of pov-
erty society must know who the poor are, their occupa-
tions and employment records, their race, the amount of
education they have had, the skills they possess, and where
they live. Much of this needed information has been all
too embarrassingly visible to society for too long a time.
The knowledge to deal effectively, though not perfectly,
with poverty is at hand. The resources are also available,
and now that a favorable public consensus seems to be
forming perhaps the "unconditional war on poverty"
which President Johnson so grandly called for in his
State of the Union Message can soon begin.

A cursory inspection of the data on low-income fami-
lies shows that the most distinctive, though hardly sur-
prising, characteristic of the poor is the large amount of
unemployment their family heads suffer. Almost one-third
of all low-income families are headed by an unemployed
person. Although some of these family heads are women
with young children to care for, the conclusion that
clearly emerges is that unemployment, plain and simple,
is responsible for a good deal of this country's poverty.

Of this country's poor, 22 percent are nonwhite. This
high percentage means that nearly one-half of our non-
white population lives in poverty. Discrimination, then,
is a contributing cause of the indigence of one-fifth of
our families, and is the reason why an inordinate amount
of poverty is centered on this minority group.

A further noteworthy trait of the poor is that they
have had very little education. The heads of over 60 per-
cent of low-income families have had no more than a
grade-school education, and this crippling lack largely dis-
qualifies them from holding all but the lowest-paying jobs.

Finally, it has been found that about one-half of the
poor live on farms or in rural nonfarm residences. Few
new and better-paying jobs are opening up for these
people in the areas in which they live, and many of them
lack the resources and information needed to enable them
to move to other, often distant, parts of the country where
better jobs might be available.

Unemployment, discrimination, the lack of education
and marketable skills of the poor, and the inability or un-
willingness of low-income families to move from one part
of the country to another, or from one occupation to
another, are the chief causes of poverty in this nation.
If the poor are to work their way out of privation, action
must be taken against these root causes of poverty.

Full Employment Essential

No anti-poverty program can well succeed unless the
economy enjoys full employment. This is because the
poor need jobs if they are to work and to earn decent
incomes, and for the poor to find jobs, full employment
must obtain. It would be no solution at all if the unem-
ployed were to find jobs at the expense of those who are

[6]

already working. This would simply shift the incidence
of poverty from previously unemployed persons to newly
unemployed persons. The number of jobs available must
be increased if the total of society's earned income is to
rise and the number of society's low-income families is
to fall.

To increase permanently the level of employment
throughout the economy, the total spending of consumers
for the satisfaction of family wants, of business firms for
newly produced capital equipment, and of the federal,
state, and local governments for collectively consumed
goods and services must keep on increasing. Business
firms respond to increasing demand by producing a
greater volume of output, and to produce more they need
to hire more labor. As the level of employment and out-
put rises, so also will the flow of incomes to families, of
profits to business, and of tax revenues to governments.
The expansion itself thus provides most of the financial
means needed to maintain the volume of spending at its
higher level.

The federal government has recently effected several
tax-reducing measures which were specifically designed
to increase private demand throughout the economy. The
depreciation guidelines and the investment allowances of
1962 have had the effect of increasing the after-tax in-
comes of business. The 1964 federal tax reduction in-
creased the after-tax incomes of both individuals and
corporations. With the aid of these policies, spending has
increased over the past two years, bringing with it a $40
billion increase in GNP, a 3 million increase in employ-
ment, and about a one-half million reduction in unemploy-
ment. Whether full employment will be reached in the
near future, though, is still an open question. If full
employment is not realized, then further tax cuts or
higher federal expenditures will be needed.

A level of spending that suffices to bring the economy
to full employment will not, however, be sufficient to
maintain the economy at full employment. Because busi-
ness firms are continually purchasing more and tech-
nologically improved capital equipment, and because the
productivity of the labor force is increasing as its level of
education, skills, and health improve, the economy is able
to produce given levels of output using less and less labor.
Furthermore, a constant level of spending will not create
the millions of new jobs that are needed to employ the
increasing numbers of young people who come out of our
schools and onto the labor market each year. Conse-
quently, in order for the economy to operate continuously
at or near full employment and so prevent the poverty-
generating force of unemployment from operating, total
spending must rise year after year.

Making Workers More Productive

Another attack on the problem is to make it possible
for the poor to earn incomes adequate to support a decent
standard of living. Their earnings are low because their
productivity is low. They lack the education, skills, and
job training needed to acquire and hold higher-paying
jobs. A sufficiently high level of spending will make jobs
available to all who wish to work, but it will not neces-
sarily make higher-paying jobs available to all who need
them. If the heads of low-income families are to earn
the incomes they need, they must acquire new skills, more
training, and experience so that they can fill jobs with
greater responsibility and greater pay.

At present society is notably lacking in the facilities
needed to upgrade unskilled workers and to retrain those
workers made redundant by the advance of technology.

Except for a few years during World War II this nation
seems to have been largely unable to teach its unemployed
coal miners, indigent sharecroppers, and disadvantaged
Negroes how to lay bricks, do sheetmetal work, wire a
house or a computer, sell hardware, operate machinery, or
any of a thousand other skills needed by our advancing
economy.

The Equal Opportunities Act of 1964 is a modest first
step by society to improve the employment fortunes of the
unskilled and the inadequately educated. Congress has
allocated $800 million to implement this act, and soon an
initial $35 million will be spent to (a) establish Job Corps
conservation camps where impoverished and illiterate
youths will be elevated to employable status, (b) make
grants to local communities so that they can wage their
own attacks on poverty, (c) establish Neighborhood
Youth Corps projects to provide jobs and training oppor-
tunities for young men and women, and (d) establish
four-week-long experience programs to train unemployed
parents.

Living Up to Democratic Ideals

It is especially important for society to provide better
educational opportunities and more vocational training
for the 1 1 million children of the poor. The value of
education and training to these youths can hardly be
emphasized enough, for they afford about the only effec-
tive means by which the young can work their way out
of poverty. Unfortunately, our impoverished youth are
not now receiving the kind of help they need to become
productive members of society. It is an unhappy fact of
life in present-day America that the children of the poor,
who need education the most, receive only the poorest of
educations.

Part of the reason for this is that these youths often
live in financially stricken school districts and attend
schools that are antiquated and crowded, study under
teachers who are overworked and sometimes insufficiently
trained, and are offered curricula which are out of date
and fail to meet both their needs and the needs of society.
When this situation is coupled with a home life that
allows little emphasis to be placed on the value of an
education, large numbers of these youths drop out of
school and so come of age ill-equipped to earn the living
they need. The American goal of equal educational op-
portunities for all is not being realized and probably will
not be realized until the many local communities which
are too poor to provide first-rate schooling for their
citizens receive financial aid from the federal and state
governments and curriculum guidance from our univer-
sities, trade unions, and businesses.

Even though an expanding level of employment and
improved educational opportunities will do much to raise
the incomes of this nation's 9.3 million indigent families,
it is doubtful that the problem of poverty can satisfac-
torily be solved unless a special effort is made to reduce
discrimination. Because of racial prejudice, members of
the nonwhite minority in this country labor at the most
menial jobs and earn the lowest incomes, suffer heavy
unemployment, live in substandard housing, are inade-
quately educated, and have little opportunity to improve
their position in life. Discrimination not only wastes the
lives of this one-ninth of our population, but it also robs
the nation of their considerable talents and the contribu-
tions they could make to the well-being of our society.

The fight to decrease the poverty of the nonwhite
population is one of the most critical social issues of the
day. Society must remove the barriers that have been

[7 ]

erected and now prevent this minority from functioning
to the fullest of their abilities. The Civil Rights Act will
help ; so also will a more general recognition of the simple
fact that it is man's ability and performance which are
important, not his color.

dollars and reported profits before taxes dropped by the
same amount. But since this shift increased the total
corporate take by way of the reduction in corporate in-
come taxes, it is essentially a distortion of the facts to say
that profits did not benefit fully in the upswing.

Conclusion

Unemployment, discrimination, a slowly expanding
economy, inadequately educated young people, and a lack
of retraining facilities for adults are the main causes of
poverty in this nation. These separate causes of poverty
jointly reinforce one another and together they operate
to form a single complex of forces which holds one-fifth
of our families in want and severely limits the oppor-
tunities of millions of Americans. Because these causes
coalesce in mutual support of each other, a comprehensive,
well-coordinated, and continuing attack by society on the
whole structure of poverty is needed, and would likely
prove more effective than any number of separate pro-
grams, each directed toward a single cause alone.

The recent Presidential election offered the voter a
choice — a choice between an administration which would
take steps to solve the problem of poverty or an admin-
istration which would passively allow the market forces
of supply and demand either to reduce or increase pov-
erty as the future would have it. The choice has been
made, and the present administration has a mandate from
the electorate to get on with the serious business of con-
structing and putting into action an effective, efficient
anti-poverty program.

Price Policy and Profits

(Continued from page 2)
absorb the output of the expanded facilities, profits may
not rise at all, or may even fall.

During the postwar period, with prices and costs at
record highs, industry has installed or reconstructed al-
most its entire plant and equipment, and depreciation
charges have moved up correspondingly. Fixed charges
in other forms, such as indirect business taxes, have also
spurted. The total of these fixed or prior charges against
sales has in fact risen a little faster than GNP.

Profits, depreciation, and indirect business taxes are
all correlated with sales volume and with the stock of
tangible productive facilities in use. In all cases the
correlation with sales is positive, but in the case of profits
the correlation with the capital stock is negative. In a
period of rapid growth, therefore, the expansion of cap-
ital stock and the associated rise in fixed charges puts a
drag on the increase in profits.

For the aggregate of profits, depreciation, and indirect
taxes, the correlation with volume as measured by GNP
takes the form of a constant percentage of the total. This
constancy holds, with minor deviations, all the way back
to 1929, as far as comparable data are available. What it
implies is that the pricing practices of industry have con-
sistently resulted in the addition of a fixed percentage
markup on outlay costs to obtain the prices at which out-
put is sold.

Within the aggregate markup, profits had been claim-
ing the full share specified by the relationships until the
new guidelines were instituted in 1962. At that time, cap-
ital consumption allowances increased by several billion

The Sensitivity of Profits

There is no reason to think that pricing policy has
changed in the last few years from the pattern that has
prevailed for a generation. All that stability indicates is
that, on the average, outlay costs per unit of output have
also been stable. Several studies bearing on this point
have revealed a downward drift in labor costs per unit in
the last few years, as increases in productivity have more
than offset higher wage rates.

In the past, stress has been laid on the inflexibility of
costs, particularly wage costs, but the established pricing
methods imply a corresponding insensitivity of prices to
fluctuations in business. Hence, on the upswing business
may be complimented on its maturity, on restraint and
self-discipline in not taking all it can get, or on helping
to prevent inflation; and on the downswing it may be
criticized for holding prices at levels that aggravate the
decline in volume produced and the increase in unem-
ployment.

Stability in pricing policy eliminates some of the un-
certainties of completely competitive market forces but
cannot eliminate all. When total receipts decline, some-
thing has to give, and present practice dictates that it has
to be profits. Profits are particularly sensitive in reces-
sions because they are squeezed between declining total
revenues and rising fixed charges. Investment outlays lag
at the turning points. After the peak, they are held high
for a while by commitments made earlier, and during this
period the overhead charges against the accumulating
capital stock continue to rise. Similarly, property taxes
continue to rise, and certain other indirect taxes may
even be increased after the turn. Declines in profits under
these conditions tend to be severe even in minor setbacks.

Business evidently fears the uncertainty of uninhib-
ited price competition more than the instability of profits.
It seeks the same "contractual security" which is said to
exist for wages in the negotiated labor contracts, by at-
tempting to make sure that the wage increases not offset
by productivity increases are fully incorporated in the
prices charged.

It is said that modern industry is forced into this kind
of policy by high capital requirements and unavoidably
heavy fixed charges. The intensification of capital use for
industrial efficiency is clearly a factor in economic prog-
ress, but that fact in itself does not establish any specific
profit margin as appropriate. The margins actually pre-
vailing have facilitated the financing of expansion ; on the
whole, they have produced internal sources of funds for
about three-fourths of all business needs through the post-
war period. They have not eliminated the instability of
profits, which will again become apparent whenever a
decline is experienced.

In summary it may be concluded that the forces keeping
prices stable are potent and will continue to operate in
1965 and that the sensitivity of profits will aggravate the
instability of the economy as a whole. On declines, the
drying up of profits will join with idle capacity in depres-
sing new investment. The burden of responsibility for
sustaining prosperity is thus increased. The government
cannot relax its efforts but must ever stand by with meas-
ures to sustain steady growth. vlb

[8 ]

BUSINESS BRIEFS

PUBLICATIONS AND DEVELOPMENTS OF BUSINESS INTEREST

Private Pension Plans

Private pension plans are a comparatively young
institution. Salaried workers and executives were the
first groups to be covered. About 30 percent of the present
plans were established between 1940 and 1949, spurred on
by favorable tax laws and wartime wage stabilization
measures. During that time plans for blue-collar workers
became more prevalent. Since 1949 growth has continued
because of union pressure and the recognition by many
firms of their social obligation to provide pensions, which
are beginning to be an important form of employee com-
pensation and a more significant influence on the labor
market.

The United States Department of Labor has been
studying pensions since 1960, when reports of 16,000 plans
covering over 15.5 million active workers and 1.2 million
retired workers were filed with the department. Programs
covering fewer than 26 workers were not included in the
study. Over half the workers involved were covered by
plans which included 5,000 or more workers. However,
90 percent covered fewer than 1,000 employees each.

Since 1958, over one-half of new plans negotiated have
included vesting provisions, which guarantee an equity to
the worker even if he terminates his employment with the
firm before retirement. Through vesting, a worker can
build up retirement benefits from more than one employer.
The traditional purpose of a retirement program was to
attract and keep workers on the job until retirement.
Vesting contradicts this, but with increasing mobility it
has become desirable to a prospective worker. The
contradiction has been resolved mainly by restricting
vesting to workers who have attained a specified age or

MINIMUM SERVICE REQUIREMENTS
OF PRIVATE PENSION PLANS

PERCENT

LESS^THAN |Q „ 20

YEARS OF SERVICE

Source : U.S. Department of Labor.

number of years of employment. A minimum service
requirement of 15 years was required by 32 percent of the
plans studied. (See chart.)

Plans for salaried workers were more likely to provide
for vesting than those for production workers. About 80
percent of the white-collar workers in the plans studied
had vesting protection, whereas less than 50 percent of
the production workers had such protection.

Mobility and Employment

A study by the Bureau of Labor Statistics, based on a
national sample of men aged 18 to 64 in 1962 and 1963,
has provided new information on migration patterns. In
general, age was found to be a strong determinant of
migration. Those under 45 had a greater propensity to
move and to make moves of longer distances. Among
older workers, job seniority rights, fear of prolonged un-
employment, and family and community ties tended to
reduce movement.

The migration rate for heads of families was one-third
lower than that of single men, indicating that marriage
tended to make a man less willing to move. However, the
migration rate was the same whether or not there were
children under 18 in the family.

Professional and technical workers represented 19 per-
cent of the migrants but only 12 percent of all employed
men. Because of their skills and higher education these
workers were more likely to be moved by their employers
or to be aware of job opportunities elsewhere.

Some 11 percent of those unemployed in the spring
of 1962 had moved to a different county by the spring
of 1963 compared with only 6 percent of the total em-
ployed. The unemployed who moved found jobs more
readily than those who did not. About three-fourths of
the jobless men who migrated were employed a year later.
Slightly over half of those who did not move had jobs a
year later.

Americans Residing Abroad

About 762,000 American civilians were living outside
of the United States when the 1960 census was taken.
There were also 610,000 members of the armed forces
stationed overseas. Approximately 463,000 of the civilians
were dependents of members of the armed forces. Fed-
eral employees and their dependents numbered 76,000. The
"other" group, which included businessmen, contract
workers, missionaries, students, and teachers, totaled
191,000.

Recently the first separate census report on civilians
living outside of the United States was released. Almost
one-half the civilians abroad were under 15 years of age;
most of these were children of servicemen. The median
age of overseas Americans was 17.4 years compared with
29.5 years for the United States population.

The overseas population had more education and those
employed generally had jobs higher on the occupational
scale than the resident United States population. Over
one-third of the overseas civilians were employed in a pro-
fessional or technical capacity, whereas only one-tenth
of the resident United States population was in this group.
Americans abroad who were over 25 had a median of 12.6
years of schooling, compared with 10.6 years for this age
group in the United States.

[ 9 ]

LOCAL ILLINOIS DEVELOPMENTS

Electricity Usage Rises

Sales of electricity to ultimate consumers in Illinois
totaled $791 million in 1963, a 4.5 percent gain over 1962
sales. Behind this are some partially offsetting changes.
Total kilowatt hours, 44.7 billion in 1963, increased 6.1
percent over the previous year, while the average number
of customers rose only 1.6 percent. On the other hand,
average revenue decreased by 3 cents per 100 kilowatt
hours over the same period. Among the six classes of
service, residential and rural sales contributed the largest
percentage to total revenue in 1963 (36.5 percent), but
manufacturing and industrial establishments consumed a
greater portion of kilowatt hours than any other class
(33.6 percent). The difference is accounted for by the
lower bulk rate available to large industrial consumers.

More detailed information is available in the Illinois
Commerce Commission's recently issued bulletin, Illinois
Electric Utilities — A Comparative Study of Electric
Statistics, Calendar Years of 1962 and 1963, which is
based on data from annual reports the commission re-
ceives from the thirteen companies furnishing electric
service in Illinois.

Oil Production Substantial

Illinois produced 2.8 percent of the nation's crude oil
in 1963. This amounted to 74.8 million barrels and sold
for $221.8 million, giving Illinois the rank of eighth in the
nation.

Nine pools accounted for 70 percent of the state's pro-
duction, with five counties (Fayette, Marion, White, Law-
rence, and Wayne) contributing 60 percent of the total.
The yield in 1963 was down 6 percent from the previous
year and well below the 1955-62 annual average of 80
million barrels. However, some recovery has been expe-

YIELD PER HARVESTED ACRE

* Preliminary estimates as of November 1, 1964.
Sources: U.S. and Illinois Departments of Agriculture.

rienced this year, as the figure for the first 10 months of
1964 was 5 percent higher than that for the corresponding
period of 1963. Peak production totaled 148 million bar-
rels in 1940, while the lowest in recent years was 59 mil-
lion barrels in 1953. An estimated 2.5 billion barrels have
been produced in Illinois since the opening of the Litch-
field pool in Montgomery County in 1889.

Last year, 1,878 new tests for oil and gas were made
in 65 Illinois counties. Of these drillings, 898 became oil
wells, 32 were gas wells, and 948 were dry holes.

Sales Taxes Collected

The Illinois Department of Revenue has reported the
collection of sales taxes amounting to $564.8 million for
the fiscal year ending in June, 1964. Taxes included in
this total are retailers' occupation tax, service occupation
tax, use tax, and service use tax.

The 1964 collections were 8.1 percent greater than the
1963 collections, although the number of returns (153,800)
increased only 4.8 percent over the previous year.

The table below, showing the percentage distribution of
the 1964 tax returns and receipts by type of business and
by location, indicates that the average receipts per return
were considerably higher in Cook County than downstate,
reflecting a higher average volume of business. (The
average for all classifications was $4,895 in Cook County
and $2,880 downstate.)

Percent Percent

of returns of receipts

Business Down- Down-

classification Cook state Cook state

General merchandise 2.4 5.7 7.3 5.2

Food 5.4 6.8 9.9 9.6

Eating and drinking places... 7.2 7.2 4.9 3.4

Apparel 2.3 1.9 2.9 1.7

Home furnishings 1.9 3.1 1.9 1.6

Building materials 2.5 5.7 3.6 5.2

Automotive 5.0 12.8 9.2 10.6

All other stores 5.9 8.1 5.8 4.3

Miscellaneous services 3.0 4.8 1.6 1.5

Manufacturing (direct sales) . . 3.7 4.6 5.2 4.6

Total 39.3 60.7 52.3 47.7

Taxes reported but not counted in the figures above
included $71.1 million collected for municipalities and
$4.7 million collected for counties.

Crop Productivity Falls

Adverse weather conditions in 1964 interrupted the
long-run rise in crop productivity on Illinois farms. The
state's four major crops — corn, oats, wheat, and soy-
beans— all experienced a decline in bushels per harvested
acre, according to preliminary estimates issued by the
Illinois and United States Departments of Agriculture.
(The accompanying chart shows the annual averages
since 1953.) However, the productivity estimates for
Illinois are still considerably above the corresponding
estimates for the United States as a whole, ranging from
10 percent more bushels per acre for soybeans to 36 per-
cent more bushels per acre for wheat.

Along with the long-term rising productivity per acre,
the average value of farm real estate is increasing. Value
per acre in Illinois increased from $316 in 1960 to $348
in 1964, bringing the total for Illinois to about $10.4 bil-
lion, which is the third highest in the nation. California
leads with a valuation of $16.8 billion, followed by Texas
with $15.4 billion.

[10]

COMPARATIVE ECONOMIC DATA FOR SELECTED ILLINOIS CITIES
October, 1964

Building

Permits1

(000)

Electric
Power Con-
sumption2
(000,000 kwh)

Estimated
Retail
Sales3
(000)

Depart-
ment Store
Sales4

Bank
Debits5
(000,000)

Percentage change from {oct.,''l963

NORTHERN ILLINOIS
Chicago

Percentage change from .
Aurora

Percentage change from.
Elgin

/Sept., 1964.
\Oct., 1963.

/Sept., 1964.
\Oct., 1963. .

Percentage change from {oct', 'l963

Percentage change from {oct', 'l°63

Kankakee

Percentage change from .
Rock Island-Moline

/Sept., 1964. .
(Oct., 1963. ..

(SeDt 1964
Percentage change from .... (oct.,"l963

(SeDt I'^il
Percentage change from. . . • |oct.,"l963.'.

CENTRAL ILLINOIS

Bloomington

Percentage change from ^

Champaign-Urbana . . .

I'm!

(Sent 1964
Percentage change from. . . . joct., 'l963

Danville .

(Sent 1964
Percentage change from \Oct., 1963

(Sent 1964
Percentage change from \bct.,1963

Galesburg.

(Sent 1964
Oct., 1963

Peoria.

Percentage change from. . . . {o^'t\96Sm\

Quincy

Percentage change from .
Springfield

(Sept., 1964. .
\Oct., 1963. .

(SeDt 1964
Percentage change from. . . |oct.,'l963 ' '

SOUTHERN ILLINOIS

East St. Louis

Percentage change from .
Alton

/Sept., 1964.
\Oct., 1963.

(Sent 1964
Percentage change from. . . . joct.,'l963 '.

$34,797"
-11.4
-44.1

$17,670
-29.3
-63.2

$ 640
-44.7
-60.9

$ 663
+ 64.5
-13.8

$ 1,156
+63.7
+8.7

$ 363

+ 168.9
-57.8

$ 1,891
+95.8
+28.4

$ 2,152
+62.2
-7.3

$ 1,312
+857.7
+291.6
$ 824
-9.9

+12.7
$ 265

-87.0

+48.9
$ 897

-66.8

+ 16.9
$ 160

+ 73.9
+122.2
$ 2,738
+224.0

+85.0
$ 367

+33.5

+ 70.7
$ 2,518
+ 102.6

+86.8

$ 685

+480.5

+312.6

$ 64

-93.7

-68.0

$ 432

+126.2

-30.3

1,600 5»

-2.5
+ 11.5

1,072 3
-6.7

+5.4

131. 2b
+ 120.5
+ 185.2
69.0
-3.6
+6.8

14.1

-6.6

0.0

23 6

-3.7

+ 11.3

22.5

-3.0

+10.8

50 5

-7.2

+ 13.7

14 2

+0.7

+ 19.3

75.9

-7.7

+6.8

16 5

-17.9

+9.3

47.8

-18.0

-1.6

20 1
-6 9
+9.2

29 1
-1.7
+6.6

13.7
-23.9

+23
+11

$28,006"

-2.5
+3.1

$25,952
-3.3
+2.9

$ 112

+ 1.8

+8.7

$ 72

+ 7.5

+ 16.1

$ 124

+26.5

+12.7

n.a.

$ 171
+12.5
+ 13.2
$ 255
+1.2
+8.1

$ 109

-5.2

-3.5

$ 139

+ 16.8

+ 1.5

$ 81

+35.0

+19.1

$ 210

+26.5

+ 7.1

$ 326

+2.8
+ 1.6

$ 75
+17.2
+1.4

$ 184
+2.2
+ 1.1

139

+5.3
-9.7
57
+5.6
+ 1.8

" Total for cities listed. b Includes East Moline. c Includes immediately surrounding territory, n.a. Not available.

Sources: l Local sources. Data include federal construction projects. 2 Local power companies. s Illinois Department of Revenue.
Monthly data not available. ' Research Department of Seventh Federal Reserve Bank (Chicago). Percentages rounded by source.
5 Federal Reserve Board. 6 Local post office reports. Four-week accounting periods ending November 6, 1964, and November 8, 1963.

[11]

Illinois Historical Survey

INDEXES OF BUSINESS ACTIVITY *' ' °In fcu

1957-1959 = 100

EMPLOYMENT - MANUFACTURING AVERAGE WEEKLY EARNINGS - MANUFACTURING

\ /

* REVISED SERIES

U.S.

* REVISED SERIES

i3 196/

DEPARTMENT STORE SALES (ADJUSTED)

CASH

FARM 1

NCOME

yS*

200
150

J&-

-^^

pen

./^v

100

/,-' us

1962 1963

BUSINESS LOANS

CONSTRUCTION CONTRACTS

r*f

=s^

ILL.

♦ REVISE

5 SERIES

(": 1

%ru

1963 196

ELECTRIC POWER PRODUCTION

COAL PRODUCTION

\Avy

"■>

£.

VvS^:

362 1963 196/

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