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SURVEY OF CURRENT BUSINESS

NOVEMBER 1967 / VOLUME 47 NUMBER

CONTENTS

THE BUSINESS SITUATION

Summary 1

National Income and Product Tables 4

Corporate Output, Prices, Costs, and Profits 8

ARTICLE

Financial Developments in 1967 11

NEW OR REVISED STATISTICAL SERIES

Indexes of Industrial Production, 1966 20

CURRENT BUSINESS STATISTICS

General S1-S24

Industry S24-S40

Subject Index (Inside Back Cover)

U.S. Department of Commerce

Alexander B. Trowbridge / Secretary

William H. Shaw / Assistant Secretaryfor Economic Affairs

Office of Business Economics

George Jaszi / Director

Morris R. Goldman Louis J. ParadiseAssociate Directors

Murray F. Foss / Editor

Leo V. Barry, Jr. / Statistics Editor

Billy Jo Hurley / Graphics

STAFF CONTRIBUTORS TO THIS ISSUE

Business Review and Features:David R. Hull, Jr.Francis L. HirtJohn A. Gorman

Article:Donald A. King

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the BUSINESS SITUATION

_T OR the second month in a row, thedirect and indirect effects of strikesdominated economic developments. Asmall drop in motor vehicle assembliesfrom the depressed September level,cutbacks in related supplying indus-tries, and decreases due to strikes inmining and machinery were mainlyresponsible for another decline in indus-trial output. These reductions helddown the gains registered in the morecomprehensive indicators such as non-farm employment and total personalincome. All told, it was a somewhatdrab performance but one that shouldbe regarded as temporary. Overall de-mand is fundamentally strong; outputshould reflect this strength once thedistortions due to labor disputes havedisappeared.

Revised third quarter GNP

Revised estimates of GNP put thethird quarter total at a seasonally ad-justed annual rate of $791 billion, a$1 billion upward revision from thepreliminary figure published last monthand a $16 billion increase over thesecond quarter. The upward revisionreflected an increase in the estimate ofthe change in business inventories thatmore than offset a downward revisionin final sales. It now appears thatinventory accumulation in the thirdquarter was at a seasonally adjustedannual rate of almost $4 billion, upfrom $% billion in the second. Mainlybecause of downward revisions in con-sumption expenditures and FederalGovernment purchases, the rise infinal sales over the second quarter isnow placed at about $13 billion insteadof $14 billion. Final sales in each of thefirst two quarters increased by $15%billion.

Third quarter profits up

According to preliminary estimates,corporate profits before tax and includ-ing the inventory valuation ad just-

Change in Business InventoriesInventory investment rose in the third quarterafter sharp declines in first halfThird quarter turnaround due mainly toless liquidation by trade firms

Billion $

5 -

10 -

MAN

•nUFA CTURING

—

1 -

1 — 1

nn"10

-5

TRADE

I II III IV I II III1966 1967

Quarterly, Seasonally Adjusted at Annual Rates

Includes small amount for industries other than manufacturing and trade.

U.S. Department of Commerce, Office of Business Economics 67-11-1

ment rose $1 billion to a seasonally ad-justed annual rate of $79.3 billion inthe third quarter. This was the firstsignificant rise in 1967; profits fellapproximately $6J£ billion in the firstquarter and were essentially unchangedin the second.

The third quarter pickup was fairlywidespread among industries. Impor-tant exceptions were the railroads,where a relatively low traffic volumeaffected earnings, and durable goodsmanufacturing and mining, wherestrikes had an adverse effect on profits.

Small rise in income

In October, private wage and salarydisbursements showed only a slightimprovement over the September rate,and personal income increased only$1% billion, the smallest monthly ad-vance since early spring. However, gov-ernment payrolls rose $% billion for thethird month in a row, and nonpayrollincomes were higher on balance.

Manufacturing payrolls, which wereabout unchanged in September after alarge increase the preceding month,dropped more than $% billion. This re-duction was attributable to a decreasein the average length of the workweekin combination with minor changes inemployment and average hourlyearnings. Payrolls rose in the serviceand distributive industries and inconstruction.

Proprietors' income showed a net de-cline over the month because of lowerfarm income. Interest incomes con-tinued to advance, but dividends werereduced for the second consecutivemonth.

1


SUEVEY OF CUERENT BUSINESS November 1967

Seasonally adjusted employment innonfarm establishments increased byabout 120,000 persons from Septemberto October after a decline of almost150,000 the previous month. A goodpart of the October gain was in Stateand local government, as teachers whowere on strike in September returnedto their classrooms. Employment inretail stores also showed a large in-crease, but in other industries employ-ment changes were generally small.Employment in manufacturing plantsrose very slightly in October as a declineof 30,000 workers in durable goodsindustries—due largely to a strike inthe machinery industry—was offsetby widespread but small gains inother durable and nondurable goodsindustries.

Unemployment increases

Gains in employment this autumnhave fallen short of increases in thelabor force, which have been unusuallylarge, and both the level and the rateof unemployment have risen perceptiblysince the spring and summer. Totalunemployment, after holding at about 3million persons from June throughAugust, increased by almost 200,000persons in both September and October,after seasonal adjustment. The rate ofunemployment advanced to 4.3 percentof the civilian labor force in Octoberfrom 4.1 percent the month before;these are above the average rates of 3.8and 3.9 percent in the second and thirdquarters and exceed the still lower levelthat prevailed in late 1966 and early1967. Even so, the demand for laborcontinues to be strong for those withskill and experience. Unemploymentrates for married men, for example, arestill below 2 percent; although a littlehigher than in the first quarter, theyhave changed relatively little sinceearly spring.

The recent rise in unemploymentcomes at a time when total output hasshown a clear-cut acceleration over thepace of activity in the first half of theyear. However, it is not unusual for animprovement in unemployment to lagbehind an improvement in output. Thisis what happened in the early recoveryperiods of the 1958 and 1961 upturnsas well as in the recovery after theeconomic slowdown in late 1962.

The most sizable increase in unem-ployment during the past 2 months hasbeen among adult women, mainly be-cause they entered the labor force inunusually large numbers. On a season-ally adjusted basis, the labor force ofwomen age 20 years and over wasmore than 500,000 higher in Octoberthan it was 2 months earlier; only halfof these entrants were able to find jobs.As a result, the unemployment rate forthe group has risen almost 1 fullpercentage point from the August rateof 3.9 percent. The recent large influxof women is in sharp contrast to theexperience in the first half of 1967. Atthat time, when real output was show-ing little growth, large numbers ofadult women left the labor force.

Unemployment among teenagers hasshown a progressive deterioration thisyear. The number out of work hasincreased fairly steadily since the firstquarter; although the teenage laborforce has edged down, employment hasfallen even more and in October wasbelow its year-earlier level. The unem-ployment rate, which was at a low (forthe current expansion) of 11% percentin the first quarter, has averaged morethan 14 percent in the last 2 months.

Auto production depressed

Production and sales of passengercars and trucks were held down for thesecond straight month by the Fordwork stoppage. Although the combinedoutput total of 750,000 units for Octo-ber was well ahead of the count in thestrikebound month of September, it waslittle changed on a seasonally adjustedbasis.

With the settlement of the Ford strike,production workers began to return toassembly plants in the week of Novem-ber 6, but assemblies for the industryas a whole continued to be adverselyaffected by wildcat strikes at plants ofother producers. As a result of thesewalkouts and a low level of output atFord, production of cars and trucks inthe week ending November 11 fell about8 percent from the average of the pre-vious 5 weeks.

Because of the substantial loss ofnew car sales by Ford, dealers' sales ofdomestically produced passenger carsdeclined in October to a seasonally ad-

justed annual rate of a little more than7 million from 7.7 million in September.Although the October rate of sales wasthe third lowest monthly rate for theyear, a reasonable allowance for the lossin Ford sales would suggest that Octobersales were—at the least—fairly good.

The automobile industry has not beenin a position to build up its inventoriesof the new 1968 models to desired levelsbecause of the labor disputes. Dealers'stocks of unsold cars at the end ofOctober held at the September level of1.1 million units, seasonally adjusted;this was close to the July low and340,000 units under the stock at theend of October 1966.

Wholesale prices

The overall index of wholesale com-modity prices changed little from Au-gust to October as increases in pricesof industrial commodities were offsetby declines in farm products, processedfoods, and feeds. The rise in industrialprices followed several months of sta-bility and coincided with this summer'squickening in the pace of economicactivity; in contrast, farm, and foodprices have been declining irregularlyover the past year. Eecent advances inindustrial prices have centered infinished goods. Prices of industrialcrude materials have declined quitesteadily this year and are at theirlowest point in 2% years (chart 2).

The reductions in crude materialprices this year, although substantial,have not been a major influence on themovement in the wholesale industrialindex because they comprise only asmall part of it. Improved suppliesof such items as hides and skins andoilseeds, as well as some lessening inthe demand for crude rubber and metalscrap, are mainly responsible for thedrop in this component. An importantexception has been crude petroleumprices, which have firmed.

Prices of intermediate materials(which account for about half theweight in the industrial price index)have changed relatively little through-out 1967, although increases have beenevident in the last 2 months. Higherlabor costs have been important inthe most recent advances, particularlyin steel; in addition, the recovery inhomebuilding has brought price in-


November 1967 SURVEY OF CUERENT BUSINESS

creases for lumber and other buildingmaterials. These increases have beenoffset by reductions in the prices oftextile fabrics, especially synthetics.

Labor costs are especially importantin the prices of finished goods, andincreases in these costs have been themain factor in the rise of finished goodsprices. The uptrend in prices of pro-ducer finished goods also reflects thecontinued high demand for machineryand equipment. Prices of consumerfinished goods, excluding foods, showmixed trends. On balance, durableshave been about unchanged since theincrease in passenger car prices in thefall of 1966; another rise in the index islikely this fall because of price boostsfor household appliances, color tele-vision sets, and new cars. The rise inprices of consumer nondurables otherthan foods is due mainly to large in-creases for clothing and automobiletires.

Third Quarter Inventories

Inventory investment by nonfarmbusiness rose from a $K billion annualrate in the second quarter to $3% billionin the third. It was the first quarterlyincrease in accumulation this year andwas the main reason for the acceleratedadvance in GNP this summer. Tradefirms on balance were responsible forvirtually all of the inventory shift(chart 1). Here, retailers (chiefly innondurables) continued to liquidatestocks—but at a slower rate than inthe second quarter—while wholesalersshifted from liquidation to accumula-tion. Manufacturers as a whole did notcontribute to the third quarter shiftbecause a step-up in investment bydurable goods producers was approxi-mately offset by a lower rate of accumu-lation—for the second quarter in arow—by producers of soft goods.

Manufacturers9 stocks

The increase in inventory accumula-tion by durable goods manufacturersfrom the second to the third quarterwas due mainly to the motor vehicleindustry, which liquidated stocks inthe second quarter and shifted to sub-

stantial accumulation in the third. Itmay be recalled that automobile man-ufacturers cut their output this springand then began to increase productionat a rapid rate until the strike in Sep-tember. Aside from motor vehicles,durable goods manufacturers showed alower rate of accumulation in the thirdquarter than in the second, continuingthe pattern in the first half of 1967.

The stock-sales ratio in durable goodsmanufacturing at the end of Septemberwas high on an overall basis whetherthe motor vehicle industry is includedor not. The overall ratio, which washigh in late 1966, has since increased,and the ratios of most of the majorindustry groups this September wereabove those of a year ago. Sales in thisgroup of industries have been depressedby the inventory adjustment; this hascontributed to the high inventory-salesratios.

The third quarter decrease in accumu-lation of nondurable goods manufac-turers centered mainly in the chemicalsindustry; in addition, food manufac-turers liquidated more stocks in thesummer quarter than in the spring.Relative to sales, stocks in late summerdid not appear to be especially high onan overall basis.

Trade stocks

Retailers as a group were the first toliquidate the excessive stocks con-fronting them last winter. Their stocksfell rather sharply in the first half of1967, and because sales were rising, theratio of stocks to sales fell morenoticeably. By midyear, this ratio didnot appear excessive and was perhapsa bit low. With stocks little changedand sales continuing upward, the stock-sales ratio has edged down sincemidyear.

Stocks of automobile dealers de-creased throughout 1967 and havedominated the movement in retailinventories. But stocks of furnitureand appliance and lumber dealers alsofell in the first half and approximatelyleveled off in the summer quarter. Foreach of these lines of trade, stocksappeared low in relation to sales atthe end of September, gaged by theratios of the past few years.

Most of the reduction in stocks ofnondurable stores was over by the endof the first quarter and there has beenlittle change since then. As of Septem-ber, stocks of apparel and generalmerchandise stores appeared to besomewhat low.

Stocks of wholesalers continued torise through the first quarter of 1967

(Continued on page 10)

Wholesale Prices1957-59 = 100

115

110

105

TOO

95

110

105

100

95

Farm Products, ProcessedFoods and Feeds

All Commodities

Industrial Commodities

INDUSTRIALMATERIALS

Intermediate

X

\Crude

90 I I i I I i I I I I I I i I I I I I I I I I I I I I I I I I I I I I I I I 1 1 I I I I I I

115

110

105

100

95

Latest d

U.S. Dep

FINISHED GOODS

Producer

^x «*— —I—-*''"

S**"^ ^"~

\ M 1 1 1 II 1 1 1 1 II 1 1 1 j 1 1 1 1 1

~-~'"''

/

^^ Consumer NondurableExcluding Food

VConsumer Durable

1964 1965 1966 1967

ata: Top panel, October (preliminary). pata; BI_$Other panels, September,

artment of Commerce, Office of Business Economics 67-11-2


SURVEY OF CUREENT BUSINESS November 1967

NATIONAL INCOME AND PRODUCT TABLES

1965 1966

1966

II III I IV

1967

II III

Seasonally adjusted at annual rates

Billions of current dollars

1965 1966

1966

II III IV

1967

II III


Billions of 1958 dollars

Table 1.—Gross National Product in Current and Constant Dollars (1.1, 1.2)

Gross national product .

Personal consumption expenditures

Durable goodsNondurable goodsServices

Gross private domestic investment

Fixed investment _ _

Nonresidential _. _StructuresProducers' durable equipment..

Residential structuresNonfarmFarm

Change in business inventoriesNonfarmFarm _

Net exports of goods and services

ExportsImports _ _

Government purchases of goods and services

Federal . _National defenseOther .

State and local

683 9

433 1

66 0191.2175 9

107 4

98 0

71 125 146 0

27 026 4

5

9 48 41 0

6 9

39 132 2

136 4

66 850 116 7

69 6

743 3

465 9

70 3207.5188 1

118 0

104 6

80 227 952 3

24 423 8

5

13 413 7

'3

5 1

43 037 9

154 3

77 060 516 5

77 2

736 7

461 6

68 2207.1186 3

118 5

104 5

78 727 551 2

25 825 3

5

14 014 4— 3

5 4

42 537 1

151 2

74 958 416 6

76 2

748 8

470 1

70 9209.5189 8

116 4

104 9

81 228 253 1

23 723 2

5

11 412 0— 5

4 6

43 739 0

157 7

79 563 016 6

78 1

762 1

473 8

70 6210.3192 9

122 2

103 7

82 827 755 1

20 920 4

5

18 519 0— 5

4 3

44 039 7

161 7

81 565 615 9

80 2

766 3

480 2

69 4214.2196 6

110 4

103 3

81 927 754 2

21 420 9

6

7 17 3

— 2

5 3

45 339 9

170 4

87 170 216 8

83 3

775.1

489.7

72 5217.2200 0

105.1

104 6

81 526 355 2

23 122 5

g

56

— i

5.3

45 139 8

175.0

89 572 517 0

85 4

791 2

495.3

72 7218.5204 1

112 2

108 4

82 826 656 2

25 625 0

Q

3 83 4

4

5 4

45 640 2

178 2

90 973 317 6

87.4

616 7

398.4

66 4178.9153 2

98.0

89 1

66 021 944 1

23 222.7

5

8 87 9

9

6.0

37 531 5

114.3

57 8

56.4

652 6

418.0

71 3187.7159 1

105.6

93 0

72 823 649 2

20 219 7

5

12 612 9— 3

4.4

40 836 4

124.5

64.7

59.9

649 3

415.2

69 3187.7158 2

106.5

93.1

71 723.448.3

21.421.0

5

13.413 7—.3

4.8

40 435 6

122.7

63.4

59.4

654.8

420.4

71 9188.8159.8

103.6

93.0

73.623.749.9

19.419.0

.5

10.611.1—.5

4.1

41 437.3

126.6

66.4

60.1

661.1

420.4

71 1188.4160.9

108.4

91.2

74.223.051.2

17.016.5

.5

17.217.7—.5

3.2

41.238.0

129.1

67.8

61.3

660.7

424.2

69 7191.8162.6

96.9

90.2

73.022.950.1

17.316.8

.5

6.76.8-.2

4.1

42 438.3

135.5

72.3

63.2

664.7

430.6

72.9193.6164.1

91.3

90.9

72.621.751.0

18.317.8

.5

.4

.5-.1

4.1

42.338.2

138.7

74.4

64.3

672.0

431.5

72.7192.8166.0

96.4

92.9

73.221.551.7

19.719.2

.4

3.53.2.4

4.2

42.838.6

139.9

75.1

64.9

Table 2.—Gross National Product by Major Type of Product in Current and Constant Dollars (1.3, 1.5)

Gross national product _

Final salesChange in business inventories

Goods output __ .

Final salesChange in business inventories

Durable goodsFinal salesChange in business inventories.

Nondurable goodsFinal sales _ ___Change in business inventories

Services

Structures

683 9

674 59.4

346 6

337 29 4

139 5132 8

6 7

207 1204 4

2 7

262 9

74 4

743.3

729.913.4

379 6

366 213.4

154 6144 7

9.9

225 0221 5

3 5

287 2

76 5

736 7

722 614.0

375 7

361 714 0

151 4141 6

9 7

224 4220 1

4 3

283 5

77 4

748 8

737 411.4

381 8

370 311 4

155 7145 8

9 9

226 1224 5

1 5

291 6

75 5

762 1

743 618.5

391 7

373 218 5

161 1148 312 8

230 6224 9

5 7

296 9

73 5

766 3

759 27.1

388 1

380 97.1

153 9150 5

3.4

234 2230 5

3 7

303 1

75 2

775.1

774 6.5

392.1

391 6.5

155 5156 0

— . 6

236 6235.5

1 l

307 8

75.2

791.2

787.43.8

398 7

394 93.8

161 4157 9

3.5

237 3237.0

3

313 5

79 0

616.7

607.88.8

330.0

321.28.8

136.3129 8

6.5

193 7191.4

2.3

222.3

64.4

652.6

639.912.6

353.7

341.012.6

150.0140 6

9.3

203 7200.4

3.3

235 2

63.7

649.3

635.913.4

351.0

337.613.4

147.3138 0

9.3

203.7199.7

4.1

233.5

64.7

654. 8

644.210.6

354.7

344.110.6

150.8141.6

9.2

203.9202.5

1.4

237.9

62.2

661.1

643.917.2

361.1

343.917.2

154.2142.311.9

206.9201.6

5.3

239.8

60.2

660.7

654.06.7

356.6

349.96.7

146.6143.6

3.0

210.0206.3

3.6

242.7

61.3

•664.7

664.3.4

359.5

359.1.4

148.3148.9-.6

211.2210.2

1.0

244.4

60.8

672.

668.3.

362.

359.3.

153.149.

3.

209.209.

246.

62.

Table 3.—Gross National Product by Sector in Current and Constant Dollars (1.7, 1.8)

Gross national product-

Private

Business _ _NonfarmFarm

Households and institutions

Kest of the world

General government

683 9

616 1

593 4569 823 6

18 5

4.2

67 8

743 3

666 7

642 4617 624 8

20 1

4 2

76 6

736 7

661 5

637 6612 824 8

19 7

4 2

75 1

748 8

670 6

646 2621 624 6

20 3

4 1

78 2

762 1

681 9

656 9633 023 9

20 6

4 4

80 2

766 3

683 9

658 7635 123 6

21 1

4 1

82 5

775.1

690.9

665 3641 923 3

21 4

4.2

84.2

791 2

705 2

679 6655 3

24 4

21 2

4.3

86 0

616 7

565 8

547.8524 223 6

14 0

4.1

50 8

652.6

597 5

578.9556 422.4

14.7

4.0

55.0

649.3

594 8

576.3554 422.0

14.4

4.1

54.4

654.8

599.0

580.2558.022.2

14.8

4.0

55.8

661.1

604.2

585.1562.722.4

14.9

4.3

56.9

660.7

602.7

583.6559.923.7

15.1

4.0

57.9

664.7

606.0

586.6563.023.6

15.3

4.0

58.7

672.0

612.5

593.3569.124.2

15.0

4.1

59.6


November 1967 SURVEY OF CUREENT BUSINESS

1965 1966

1966

II III IV

1967

I II III *


Billions of dollars

Table 4.—Relation of Gross National Product, National Income,and Personal Income (1.9)

Gross national product

Less: Capital consumption allowances .

Equals : Net national product

Less: Indirect business tax and nontaxliability .

Business transfer paymentsStatistical discrepancy _

Plus: Subsidies less current surplus ofgovernment enterprises -

Equals: National income

Less: Corporate profits and inventoryvaluation adjustment

Contributions for social insur-ance

Wage accruals less disburse-ments -.

Plus: Government transfer paymentsto persons

Interest paid by government(net) and by consumers

DividendsBusiness transfer payments

Equals: Personal income

683.9

59.9

624.0

62.22.6

-2.0

1.2

562 4

74.9

29 7

.0

37.2

20.419 82.6

537 8

743.3

63.5

679.8

65.12.7

-2.6

2.2

616 7

82.2

38 2

.0

41.2

22.321 52.7

584 0

736.7

63.1

673.6

64.72.7

-2.2

2.0

610 4

81.3

37 4

.0

39.2

22.021 62.7

577 3

748.8

63.9

684.9

65.92 7

-3.2

2.7

622 1

81 9

38 9

.0

41.3

22.421 62.7

589 3

762.1

64.7

697.4

67.02 8

-3.8

2.6

634 1

84.6

39 g

.0

44.7

23 221 22.8

601 6

766 3

65.5

700.8

67.92 8

—4.0

2.3

636 4

78 1

42 2

o

48 1

23 722 22.8

612 9

775 1

66.4

708 7

69.12 8

—2 8

2 0

641.6

78 3

42 5

o

48 6

23 923 12.8

619 1

791.2

67.6

723.6

70.22 8

—1.3

1 6

653 6

79 3

43 3

0

49 6

24 223 42.8

631 0

Table 5.—Gross Auto Product in Current and Constant Dollars(1.15, 1.16)

Gross auto product l .

Personal consumption expenditures.Producers' durable equipmentChange in dealers' auto inventories.

Net exportsExportsImports

Addenda:

New cars, domestic 2 _New cars, foreign _ .

Gross auto product »

Personal consumption expenditures .Producers' durable equipmentChange in dealers' auto inventories. -

Net exports ..Exports. _.Imports

Addenda:

New cars, domestic 2_ .New cars, foreign

Billions of current dollars

31.4

25.44.51.0

.31.0.7

29.01.2

29.8

24.94.4.4

.01.31.2

27.61.8

29.1

23.74.21.1

-.11.01.1

27.01.6

28.2

24.74.4

-1.3

.31.51.3

26.11.9

29.6

24.54.3.6

.01.51.5

27.42.1

25.0

22.23.9

-1.1

-.31.31.6

22.82.2

27.8

24.64.3

-1.2

-.11.6

,1.7

25.32.7

27.9

24.54.3

-1.2

.11.91.7

25.42.6


31.4

25.44.51.0

.31.0.7

29.21.2

30.3

25.44.4.4

.11.31.2

28.21.8

29.7

24.24.21.1

.01.11.1

27.61.6

28.8

25.34.4

-1.4

.31.61.3

26.61.8

29.9

24.74.3.7

.11.51.5

27.82.1

25.3

22.63.9

-1.1

-.21.31.6

23.32.2

28.2

25.04.3

-1.3

.01.61.7

25.82.7

27.9

24.64.3

-1.3

.21.91.7

25.62.6

eiod^hownincludes Government purchases, which amount to$0.2 billion

r iS088 aUt° PJoduc* to*al ̂ the markup on both used cars and foreign cars.*** C0mponents and totals> are Preliminary

1965 1966

1966

II III IV

1967

I II III *


Billions of dollars

Table 6.—National Income by Type of Income (1.10)

National income

Compensation of employees

Wages and salaries

Private _. ..M ilitaryGovernment civilian

Supplements to wages and salaries. _ .Employer contributions for social

insurance _ . . . ... -

Other labor income -Employer contributions to pri-

vate pension and welfare fundsOther

Proprietors' income

Business and professional _Income of unincorporated enter-

prisesInventory valuation adjustment

Farm

Rental income of persons

Corporate profits and inventory valua-tion adjustment

Profits before tax

Profits tax liabilityProfits after tax _

DividendsUndistributed profits

Inventory valuation adjustment

Net interest.

562.4

393.9

359.1

289.812.157.1

34.9

16.2

18.6

15 53 1

56.7

41.9

42.3— 4

14.8

19 0

74 9

76 6

31 445.219.825.4

-1.7

17.9

616.7

435.7

394.6

316.714.763.2

41.1

20.3

20.8

17 33 5

59.3

43.2

43.6— 4

16.1

19 4

82 2

83 8

34 549.321.527.8

-1.6

20.2

610.4

430.7

390.2

313.814.262.2

40.5

20.0

20.5

59.3

43.3

16.0

19.3

81.3

83.6

34 549.221.627.6

-2.3

19.8

622.1

441.2

399.6

320.115.164.3

41.6

20.6

21.1

59.2

43.3

15.9

19.4

81.9

84.0

34.649.421.627.8

-2.2

20.4

634.1

450.2

407.4

326.115.865.6

42.7

21.1

21.7

58.6

43.4

15.1

19.6

84.6

83.9

34.649.321.228.2

.7

21.1

636.4

459.1

414.7

331.416.167.3

44.4

22.2

22.2

57.8

43.2

14.6

19.8

78.1

79.0

32.546.522.224.2

-.8

21.6

641.6

463.4

418.3

333.216.268.9

45.2

22.3

22.9

57.8

43.4

14.3

20.0

78.3

78.9

32.546.523.123.4

-.7

22.1

653.6

472.6

426.2

339.416.370.6

46.4

22.8

23.6

58.8

43.8

15.0

20.2

79.3

80.1

33.047.223.423.7

-.8

22.7

Table 7.—National Income by Industry Division (1.11)

All industries, total

Agriculture, forestry, and fisheriesMining and construction. . .Manufacturing .. .. _..

Nondurable goodsDurable goods _ _ .....

TransportationC ommunicationElectric, gas, and sanitary servicesWholesale and retail trade

Finance, insurance, and real estateServicesGovernment and government enter-

prises _ .Rest of the world

562.4

21.035.3

171.866.3

105.5

23.111.211.484.2

61.363.7

75.24.2

616.7

22.738.2

192.173.2

118.9

24.812.412.190.8

65.669.3

84.64.2

610.4

22.538.0

190.072.6

117.4

24.712.311.990.1

64.968.6

83.04.2

622.1

22.638.4

193.673.8

119.8

24.712.712.491.1

66.270.2

86.34.1

634.1

22.038.7

198.875.3

123.5

25.412.712.392.6

67.571.3

88.44.4

636.4

21.639.8

195.075.9

119.2

25.512.812.493.5

68.472.6

90.84.1

641.6

21.339.7

194.075.1

118.9

25.713.012.694.9

69.674.1

92.54.2

653.6

Table 8.—Corporate Profits (Before Tax) and Inventory ValuationAdjustment by Broad Industry Groups (6.12)

All industries, total

Financial institutions

MutualStock

Non financial corporations. _

M anufacturingNondurable goodsDurable goods ... ... .

Transportation, communication,and public utilities .

All other industries . . .

74.9

8.4

2.06 4

66.5

38.716.522.2

11.216.6

82.2

9.3

1.97 4

72.9

43.118.724.4

11.918.0

81.3

9.0

72.2

42.518.524.0

12.017.8

81.9

9.5

72.4

42.718.823.9

11.817.9

84.6

9.6

75.0

44.419.225.3

12.018.6

78.1

9.6

68.5

39.618.421.1

11.717.3

78.3

9.5

68.8

38.917.821.1

11.918.0

79.3

9.8

69.5


6 SUEVEY OF CUKRENT BUSINESS November 1967

1965 1966

1966

II III IV

1967

I II III*


Billions of dollars

Table 9.— Gross Corporate Product 1 (1.14)

Gross corporate product

Capital consumption allowancesIndirect business taxes plus transfer

payments less subsidies

Income originating in corporate busi-ness _ _

Compensation of employees-Wages and salariesSupplements _ _

Net interest

Corporate profits and inventoryvaluation adjustment

Profits before taxProfits tax liabilityProfits after tax

Dividends .Undistributed profits

Inventory valuation adjustment..

Cash flow, gross of dividendsCash flow, net of dividends.

Gross product originating infinancial institutions .

Gross product originating innonfinancial corporations

Capital consumption allowances.. _Indirect business taxes plus transfer

payments less subsidies

Income originating in nonfinancialcorporations

Compensation of employees.Wages and salariesSupplements _ _

Net interest .

Corporate profits and inventoryvaluation adjustment

Profits before taxProfits tax liabilityProfits after tax.

DividendsUndistributed profits

Inventory valuation adjustment. _.

Cash flow, gross of dividendsCash flow, net of dividends

Gross product originating innonfinancial corporations

Current dollar cost per unit of1958 dollar gross productoriginating in nonfinancialcorporations 2.

Capital consumption allowancesIndirect business taxes plus transfer

payments less subsidies...Compensation of employeesNet interest

Corporate profits and inventory valu-ation adjustment

Profits tax liabilityProfits after tax plus inven-

tory valuation adjustment. -

392.5

36.5

37.0

319.1

249.8224.625.2

-2.4

71.773.331.442.018.323.7

-1.7

78.460.1

16.2

376.3

35.5

35.3

305.5

236.4212.823.6

5.9

63.364.927.637.316.920.4

-1.7

72.855.9

429.6

39.0

38.2

352.4

275.9246.129.8

-2.4

78.980.634.546.019.926.1

-1.6

85.065.1

17.5

412.1

37.9

36.5

337.7

261.3233.427.9

6.7

69.771.330.341.018.522.5-1.6

78.960.4

425.5

38.7

37.9

348.8

273.2243.929.3

-2.4

78.080.334.545.920.125.8

-2.3

84.664.5

17.3

408.2

37.7

36.2

334.3

258.8231.227.5

6.6

69.071.330.341.018.622.3-2.3

78.660.0

433.0

39.2

38.6

355.2

279.0,248. 8

30.2

-2.4

78.780.834.646.220.126.1

-2.2

85.465.3

17.7

415.3

38.1

36.9

340.3

264.3236.028.3

6.8

69.271.330.341.018.622.4

-2.2

79.160.5

442.2

39.8

39.2

363.2

284.5253.530.9

-2.4

81.280.534.645.919.626.3

.7

85.666.1

18.0

424.2

38.6

37.5

348.0

269.5240.529.1

7.0

71.570.830.240.618.222.5

.7

79.361.1

441.5

40.3

39.7

361.5

289.1257.132.0

-2.5

74.975.732.543.220.722.5-.8

83.562.8

18.4

423.1

39.1

37.9

346.1

273.7243.730.0

7.1

65.366.128.138.019.218.8-.8

77.257.9

444.5

40.9

40.4

363.1

290.5258.032.5

-2.5

75.175.832.543.321.621.7-.7

84.262.6

18.6

425.9

39.8

38.6

347.5

274.6244.130.5

7.3

65.666.328.238.120.018.1-.7

77.957.9

452.6

41.8

41.1

369.7

296.2262.833.4

-2.5

76.076.833.043.821.921.9

o

85.663.7

19.3

433.3

40.6

39.3

353.4

279.8248.531.3

7.4

66.267.028.538.520.318.2-.8

79.158.8


356.1 383.0 380.9 384.6 389.0 384.7 385.3 388.1

Dollars

.057

.100

.099

.664

.016

.178

.078

.100

1.076

.099

.095

.682

.018

.182

.079

.103

1.072

.099

.095

.679

.017

.181

.080

.101

1.080

.099

.096

.687

.018

.180

.079

.101

1.091

.099

.096

.693

.018

.184

.078

.106

1.100

.102

.098

.711

.018

.170

.073

.097

1.105

.103

.100

.713

.019

.170

.073

.097

1.116

.105

.101

.721

.019

.171

.073

.097

1 Excludes gross product originating in the rest of the world.2- t h *fSt6dUal t0 the deflator for gross Product of nonfinancial corporations, with the decimal

"Third quarter 1967 corporate profits (and related components and totals) are preliminaryand subject to revision in next month's SURVEY.

1965 1966

1966

II III IV

1967

I II III


Billions of dollars

Table 10.—Personal Income and Its Disposition (2.1)

Personal income

Wage and salary disbursementsC ommodity-producing i n dustries -

ManufacturingDistributive industriesService industries -Government ..

Other labor income _

Proprietors' incomeBusiness and professionalFarm

Rental income of persons _Dividends - _ ._ _ _ .-Personal interest income

Transfer paymentsOld-age, survivors, disability, and

health insurance benefitsState unemployment insurance

benefitsVeterans benefitsOther --. -

Less: Personal contributions forsocial insurance -

Less: Personal tax and nontax pay-ments -

Equals : Disposable personal income. _ .

Less- Personal outlays _ ..Personal consumption expenditures-Interest paid by consumersPersonal transfer payments to for-

eigners - --

Equals* Personal saving.

Addenda:Disposable personal income :

Total, billions of 1958 dollars

Per capita, current dollarsPer capita, 1958 dollars

537.8

359.1144.5115.686 958.369.3

18 6

56 741 914 8

19 019.838 4

39.7

18.1

2 25.6

13.8

13.4

65.6

172.2

145.0433. 111.3

.7

27.2

434.4

2,4272,232

584.0

394.6159.3128.193 963.577.9

20 8

59 343 216 1

19 421.542 4

43.9

20 8

1 85.7

15.6

17.9

75.2

508.8

479.0465.912.4

.6

29.8

456.3

2,5842,317

577.3

390.2158.0126.993.062.976.4

20.5

59 343 316 0

19.321.641 9

41.9

19.6

1.65.4

15.3

17.3

74.1

503.3

474.6461.612.3

.7

28.7

J52.6

2,5602,302

589.3

399.6161.0129.794 964.379.4

21.1

59 243 315 9

19.421.642 8

44.0

21.0

1.85.4

15.8

18.4

76.9

512.4

483. 2470.112.5

.6

29.2

458.4

2,5982,324

601.6

407.4164.1132.696.565.581.4

21.7

58 643 415 1

19.621.244.3

47.5

23.2

1.86. 3

16.2

18.7

79.6

522.0

487.4473.812.9

.6

34.6

463.2

2,6392,341

612.9

414.7165.7133.198.767.083.4

22.2

57 843 214 6

19.822.245 2

50.8

24.7

2.16.5

17.6

20.0

80.2

532.7

493.9480.213.1

.7

38.8

470.6

2,6862,373

619.1

418.3164.8132.699.668.885.0

22.9

57.843 414 3

20.023.146 0

51.4

25 6

2.16.5

17.0

20.2

79.1

540.0

504.0489.713.3

1.0

36.0

474.9

2,7162,388

631.0

426.2167.4134.6101.770.286.9

23.6

58.843.815.0

20.223.446.9

52.4

26.2

2.26.6

17.4

20.5

82.8

548.2

509.6495.313.5

.8

38.5

477.5

2,7492,394

Table 11.—Personal Consumption Expenditures by Major Type (2.3)

Personal consumption expendi-tures _ _

Durable goods

Automobile sand parts ._ -Furniture and household equipment-Other

Nondurable goods

Food and beverages _Clothing and shoesGasoline and oil - - _ _ _Other

Services

HousingHousehold operationTransportation - -Other

433.1

66 0

29.927.09.1

191.2

99.036.115.141.1

175.9

63.625.712.674.0

465.9

70 3

29.829.910.6

207.5

106.740.316.244.3

188.1

67.127.013.680.4

461.6

68.2

28.529.110.6

207.1

107.039.816.244.1

186.3

66.526.913.579.4

470.1

70.9

29.830.610.5

209.5

107.341.016.344.8

189.8

67.427.413.781.3

473.8

70.6

29.630.610.4

210.3

107.240.816.645.7

192.9

68.527.714.082.7

480.2

69.4

27.331.410.7

214.2

109.341.517.146.3

196.6

69.627.814.484.8

489.7

72.5

29.731.910.9

217.2

110.143.217.546.4

200.0

70.628.114.686.6

495.3

72.7

29.932.110.8

218.5

110.943.717.546.4

204.1

71.928.114.889.2

Table 12.—Foreign Transactions in the National Income andProduct Accounts (4.1)

Receipts from foreigners

Exports of goods and services _.

Payments to foreigners

Imports of goods and services

Transfers to foreignersPersonalGovernment

Net foreign investment

39.1

39.1

39.1

32.2

2.8.7

2.2

4.1

43.0

43.0

43.0

37.9

2.9.6

2.3

2.2

42.5

42.5

42.5

37.1

2.9.7

2.3

2.5

43.7

43.7

43.7

39.0

2.8.6

2.2

1.8

44.0

44.0

44.0

39.7

2.5.6

1.9

1.8

45.3

45.3

45.3

39.9

2.9.7

2.2

2.5

45.1

45.1

45.1

39.8

3.11.02.0

2.3

45.6

45.6

45.6

40.2

3.1.8

2.3

2.3


November 1967 SURVEY OF CURRENT BUSINESS

1965 1966

1966

II III IV

1967

I II III *


Billions of dollars

1965 1966

1966

II III IV

1967

I II III

Seasonally adjusted

Index numbers, 1958=100

Table 13.—Federal Government Receipts and Expenditures (3.1, 3.2) Table 16.—Implicit Price Deflators for Gross National Product (8.1)

Federal Government receipts

Personal tax and nontax receiptsCorporate profits tax accrualsIndirect business tax and nontax

accruals.Contributions for social insurance. ._

Federal Government expenditures

Purchases of goods and servicesNational defenseOther

To persons .. ..To foreigners (net)

Grants-iii-aid to State and local gov-

Subsidies less current surplus of gov-ernment enterprises

Surplus or deficit ( — ), national in-come and product accounts .

TiV»lr» 14, 'if-nf-^ Ti-irl T «*ril (

State and local government receipts

Personal tax and nontax receiptsCorporate profits tax accrualsIndirect business tax and nontax

accruals ... . _ .Contributions for social insurance...

State and local government expendi-tures.- _

Purchases of goods and services

Net interest paidLess: Current surplus of government

Surplus or deficit ( — ), nationalincome and product accounts

124.8

53.829.3

16.525.2

123.4

66.850.116.7

32.430.32.2

11.2

8.7

4.3

1.4

143.2

61.732.3

15.933.3

142.9

77.060.516.5

36.033.72.3

14.8

9.5

5.4

.3

141.6

60.932.2

15.932.5

138.4

74.958.416.6

34.131.92.3

14.6

9.4

5.3

3.2

145.6

63.132.4

16.234.0

146.3

79.563.016.6

35.933.72.2

15.3

9.6

6.0

-.7

148.6

65.232.3

16.334.7

151.9

81.565.615.9

38.836.91.9

15.6

10.0

5.9

-3.3

149.1

65.530.3

16.237.0

160.9

87.170.216.8

42.240.02.2

15.6

10.4

5.6

-11.9

148.1

64.030.3

16.537.2

162.8

89.572.517.0

42.440.32.0

15.3

10.4

5.3

-14.7

government Receipts and Expendil(3.3, 3.4)

75.1

11.82.1

45.74.5

11.2

73.9

69.66.9.5

3.1

1.2

84.7

13.52.3

49.24.9

14.8

81.8

77.27.5.3

3.3

2.9

83.6

13.12.3

48.74.8

14.6

80.6

76.27.3.3

3.3

2.9

86.0

13.72.3

49.84.9

15.3

82.7

78.17.6.3

3.3

3.3

87.9

14.32.3

50.65.0

15.6

84.9

80.27.8.3

3.4

3.0

89.3

14.72.1

51.75.2

15.6

88.3

83.38.1.2

3.4

1.0

90.4

15.12.1

52.65.3

15.3

90.6

85.48.3.2

3.3

-.2

Table 15.— Sources and Uses of Gross Saving (5.1)

Gross private saving. .

Personal savingUndistributed corporate profitsCorporate inventory valuation ad-

justment _Corporate capital consumption

allowancesNoncorporate capital consumption

allowancesWage accruals less disbursements

Government surplus or deficit ( — ),national income and product

FederalState and local _ _

Gross investment

Gross private domestic in vestment. .Net foreign investment

Statistical discrepancy.

110.8

27.225.4

-1.7

36.5

23.4.0

2.7

1.41.2

111.5

107.44.1

-2.0

119.5

29.827.8

-1.6

39.0

24.5.0

3.2

.32.9

120.2

118.02.2

-2.6

117.0

28.727.6

-2.3

38.7

24.4.0

6.1

3.22.9

121.0

118.52.5

-2.2

118.7

29.227.8

-2.2

39.2

24.7.0

2.6

-.73.3

118.1

116.41.8

-3.2

128.2

34.628.2

.7

39.8

24.9.0

-.3

-3.33.0

124.0

122.21.8

-3.8

127.7

38.824.2

-.8

40.3

25.2.0

-10.8

-11.91.0

112.9

110.42.5

-4.0

125.1

36.023.4

-.7

40.9

25.5.0

-15.0

-14.72

107.3

105.12.3

-2.8

152 8 Gross national product

57 5 Personal consumption expenditures30 7

Durable goodsIQ 7 Nondurable goods38 o Services

165 9 Gross private domestic investment

9Q 9 Fixed investment . . . _ _70 o17' g Nonresidential

43 5 Structures41' 2 Producers' durable equipment. .2 3

Residential structuresNonfarm

16 0 Farm

m * Change in business inventories

Net exports of goods and services

^' ^ ExportsImports. - - -

10 1

Government purchases of goods and

FederalState and local.. „ .. .. ...

110.9

108.7

99.5106.9114.8

110.0

107.7

114.6104.2

116.4116.5110.2

104.5102.4

119.4

115.5123.4

113.9

111.5

98.6110.6118/3

112.5

110.2

118.4106.2

120.9121.1114.1

105.4104.1

123.9

119.1129.0

113.5

111.2

98.4110.3117.8

112.2

109.7

117.7105.8

120.4120.5114.1

105.0104.0

123.1

118.3128.3

114.4

111.8

98.7111.0118.7

112.8

110.4

118.9106.3

122.0122.2114.6

105.4104.8

124.6

119.7129.9

115.3

112.7

99.4111.6119.9

113.7

111.6

120.1107.7

123.2123.4115.9

106.7104.3

125.2

120.2130.8

116.0

113.2

99.5111.7120.9

114.4

112.2

121.0108.2

123.8124.0117.3

106.7104.3

125.8

120.5131.9

116.6

113.7

99.5112.2121.9

115.0

112.2

121.5108.3

126.2126.4118.8

106.7104.3

126.1

120.3132.9

117.7

114.8

100. i113.3123. 0

116.8

113. 2

123.8108.8

129.9130.1122.4

106.7104.3

127.4

121.0134.7

92.6

15.42.3

Table 17. — Implicit Price Deflators for Gross National Product by5j? I Major Type of Product (8.2)

Gross national product

*7 Goods output -

8 \ Durable goodso Nondurable goods

o A Services.

Structures

~~ Addendum:

Gross auto product.. .- _ . ..

110.9

105.0

102.4106.9

118.3

115.5

99.9

113.9

107.3

103.1110.4

122.1

120.1

98.2

113.5

107.0

102.8110.1

121.4

119.6

98.1

114.4

107.6

103.2110.9

122.6

121.2

98.0

115.3

108.5

104.5111.5

123.8

122.0

99.0

116.0

108.8

104.9111.5

124.9

122.6

98.8

116.6

109.0

104.8112.0

125.9

123.8

98.8

117.7

109.9

105.5113.1

127.0

126.9

99.8

129.1

38.523.7 Table 18. — Implicit Price Deflators for Gross National Product by

8 Sector (8.4)— . o

8 Gross national product ...25-8 Private

Business.. .Nonfarm

19 o Farm ...— 13.2

1Q t Households and institutions— 13. 1~~ • General government

\\\ 5

110.9

108.9

108.3108.7100.0

132.3

133.5

113.9

111.6

111.0111.0110.7

137.0

139.2

113.5

111.2

110.6110.5112.9

138.1

114.4

112.0

111.4111.4110.8

140.0

115.3

112.9

112.3112.5106.7

141.0

116.0

113.5

112.9113.499.3

142.3

116.6

114.0

113.4114.098.8

143.4

117.7

115.1

114. G115.1100.6

144.5

n *Third quarter 1967 corporate profits (and related components and totals) are preliminaryLi%- % and subject to revision in next month's SURVEY.Z. O

-1.3


Corporate Output, Prices, Costs, and Profits

Prices, Costs, and Profits Per Unit ofReal Corporate ProductPrice per unit of real product continued upin the third quarter

Dollars

1.15

TOTAL PRICE PER UNIT

1.10

1.05

1.00 I i i i 1 i i i 1 i i i I i i i I i i i i i i i i i i I I

Unit labor costs advanced . . ..75

.70

COMPENSATION OF EMPLOYEES PER UNIT

.60 I i i I I i i I I i i I I i . i I . i i i i . i I i i i I i

as did nonlabor costs. . .

.25

.20

.15

NONLABOR COSTS PER UNIT

i i i

and unit profits were unchanged

.20

.15

.10

PROFITS (BEFORE TAX) AND IVA PER UNIT

I i ! I I i1960 61 62 63 64 65

Quarterly, Seasonally Adjusted

Note.—Nonfinancial corporations only.U.S. Department of Commerce, Office of Business Economics

67

VjrROSS product originating in non-financial corporations rose $7^ billionin the third quarter to reach a total of$433 billion. Of the 1% percent increase,about 1 percent represented higherprices and the rest a rise in real product.It was the first significant gain thisyear in real corporate output, which fell1 percent in the first quarter andchanged little in the second.1

The price rise from the spring to thesummer quarter was principally a re-flection of higher costs in a setting ofrelatively high resource utilization. La-bor costs per unit of real corporateoutput rose approximately 1 percentand unit nonlabor costs somewhatmore. Profits per unit, which fellsharply in the first quarter and stabi-lized in the second, showed a veryslight pickup in the third.

With an increase in real volume and aslight gain in profits per unit, dollarprofits of nonfinancial corporations reg-istered a modest pickup this summer.However, the level was still well belowthe peak rate reached in last year'sfinal quarter. In current dollars, profitsas a percent of nonfinancial corporateoutput was below the recent highsreached in 1966 (chart 4).

Production moves up

The steep reduction in the rate ofinventory accumulation in the firsthalf of 1967 had a pronounced impacton corporate output. This is becausethe inventory correction required areduced flow of goods to businessfirms and thus a cutback in man-

1. The statistics for 1967 on which this report is based maybe found in table 9 on page 6 of this SURVEY. Figures for1963-66 are in table 1.14 of the July 1967 SURVEY. Statisticsfor 1948-62 are on pages 14 and 15 of the May 1967 SURVEY.

ufacturing production—and becausemanufacturing accounts for more thanhalf of total gross corporate product.Consequently, corporate product hasbeen much weaker than GNP thisyear. Measured in constant (1958)dollars, it fell $4% billion in the firstquarter, when total GNP similarlymeasured declined by $% billion, andwas virtually unchanged in the secondquarter, when real GNP rose $4 billion.

Past experience has shown thatcorporate output is more variablethan total output. During the boomyear of 1966, nonfinancial corporationsaccounted for three-fourths of therise in real GNP; during the earlieryears of the expansion, from 1961 to1965, such firms accounted for morethan seven-tenths of the expansionin real GNP. In the second half of1960, corporate output fell $9 billion,while total output declined only $6billion.

Price rise continues

The 1 percent price rise for corporateproduct registered in the third quartercontinued the rapid upward movementthat began in the early part of 1966.Over the past seven quarters, corporateoutput prices have risen at an averageannual rate of 3.1 percent; in contrast,from the beginning of 1961 throughthe opening quarter of 1966, corporateoutput prices rose at an average annualrate of about 1 percent. Since 1948,sustained increases averaging 4 percentor more (annual basis) occurred onlytwice: in late 1950-mid 1952 and fromthe middle of 1955 through the endof 1956.

The principal similarity between thepast seven quarters and the other two


November 1967

periods of rapid rise in the price ofcorporate product is that all of thesewere periods of intensive utilization ofthe labor force, as evidenced by rela-tively low unemployment rates. Pricesrise more rapidly when unemploymentrates are low mainly for two reasons:First, unit labor costs tend to acceleratewhen labor markets are tight partlybecause increases in wage rates accel-erate and partly because productivitygains taper. Second, the conditions ofhigh aggregate demand associated withlow unemployment rates make it easierfor corporations to recoup their in-creased costs by raising prices.

When demand is very intense, as itwas in late 1965-early 1966, business-men are able not only to recoup costincreases through higher prices but alsoto increase their profit margins. Thisyear, businessmen have found it pos-sible to pass on cost increases in theform of higher prices but only at somesacrifice of their margins.

Rise in labor costs

The third quarter rise in unit laborcosts of nonfinancial corporations con-tinued the accelerated advance in thesecosts that began in 1966. The speedupin 1966-67 came after a long period ofstability in unit labor costs: At theend of 1965, unit labor costs were littledifferent from their level at the be-ginning of 1960.

A rise in unit labor costs is a reflectionof a more rapid advance in hourly ratesof compensation than in output perman-hour, i.e., productivity. Stable unitlabor costs mean that rates of pay andproductivity are increasing at the samepace. During the long period of stableunit labor costs earlier in the currentexpansion, the pressure of output oncapacity moved up only slowly, theunemployment rate declined at a veryslow pace, and productivity gains weregenerally large. At the same time,gains in employee compensation perman-hour tended to be low as thegeneral slack in the labor marketworked to slow down wage increases.

This situation changed in 1966 aslabor markets became increasingly tight,gains in hourly compensation acceler-ated, and productivity growth slowed.

SURVEY OF CUKKENT BUSINESS

Last year, the combined effect of thefaster growth in hourly wage rates thanin labor productivity was a 2% percentspurt in unit labor costs over 1965.This year, both the establishment andlabor force series on output per man-hour for nonfarm business as a wholeindicate that the rate of gain in laborproductivity has slowed even more thanlast year, while the percentage increasein compensation per man-hour hasapparently been greater this year thanlast. Thus, unit labor costs of nonfinancialcorporations rose more from the end of1966 through the third quarter of 1967—5.4 percent at an annual rate—thanfrom 1965 to 1966.

The drop in corporate output in thefirst quarter of 1967 and its levelingoff in the second had the effect of

9

increasing unit labor costs substantially.Declines in output are typically associ-ated with sharp advances in labor costs,and the recent experience was no ex-ception. However, an acceleration inoutput is ordinarily associated with aslower rate of increase in unit laborcosts. It is noteworthy that unit laborcosts continued to show a large increasein the third quarter of 1967 even thoughthere was a resumption of the growth incorporate output.

Nonlabor costs move up

Nonlabor costs per unit of non-financial corporation output rose \y±percent in the third quarter. In thecontext of the national accounts, non-labor costs consist of capital consump-

Corporate Profits Before Tax Related toGross Corporate Product— Nonfinancial Corporations

80

70

60

50

5 40

30

20

10

12%

NOTE.—Percentages represent the ratio of corporate profitsbefore tax and including IVA to gross corporate product.

100 150 200 250 300 350

Gross Corporate Product

(Billion $)

NOTE.—Data are seasonally adjusted at annual rates and exclude profits originating in the rest of the world.

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

400 450 500

279-483 O - 67 - 2


10 SURVEY OF CURRENT BUSINESS November 1967

tion allowances, indirect business taxes,and net interest. The third quarterrise in nonlabor costs extended thepattern of increase evident last yearand ended a period of stability thatlasted from the beginning of 1962through the opening quarter of 1966.

Higher indirect business taxes perunit contributed importantly to therise in nonlabor costs both in the thirdquarter and over the past six quarters.The third quarter gain in indirecttaxes reflected principally increases insales tax rates introduced by State andlocal governments. Over the past yearand a half, the rise in indirect taxes alsoreflected the restoration of certainFederal excise taxes in the secondquarter of 1966.

Indirect business taxes grew from 10cents per unit of real corporate outputin early 1962 to 10% cents in early 1963.After peaking in early 1963, thesetaxes moved in line with the rise inoutput until Federal excise taxes werereduced in mid-1965 and early 1966.These reductions caused indirect taxesper unit to decline to 9% cents in thefirst quarter of 1966.

Capital consumption allowances perunit rose 2 percent in the third quarterof 1967, continuing a rise that has beenevident since the beginning of this year.After the increase associated with theintroduction of the depreciation guide-lines in 1962, these costs remained quitestable through 1966.

With a steady long-term rise in theprices of capital goods, there is a ten-dency for aggregate depreciationcharges to increase, as capital goodspurchased at relatively low prices areremoved from the stock of capital andare replaced by higher priced goods.Apparently the rapid rise in outputearlier in the expansion offset the effectof higher capital goods prices and unitcapital consumption costs were stable.This year, the growth in output hasnot been strong enough to offset thiseffect fully.

Unit interest costs showed littlechange in the third quarter of 1967 buthave moved up faster than other non-labor costs over the past six quarters.This figure is the net difference betweeninterest paid and received. The recentgrowth in net interest costs per unithas reflected increases in interest ratespaid on corporate debt and a faster risein interest-bearing debt and slower risein interest-earning assets than in theoutput of nonfinancial corporations.

Unit profits unchanged

Profits (before tax and includinginventory valuation adjustment) perunit of nonfinancial corporate outputhave shown relatively little change thisyear after a sharp drop of 7K percentfrom the fourth quarter of 1966.

From early 1961 to early 1966, profitsrose faster than the real volume of out-

put and profits per unit showed asteady increase. Indeed, with the com-parative stability in labor and nonlaborcosts discussed earlier, the rise in profitmargins accounted for the moderateprice rise that did occur. As pressureson costs intensified during 1966 and asdemand grew more slowly after thefirst part of the year, corporations foundit difficult to increase their unit profitmargins; margins were essentially nohigher in the fourth quarter of 1966than they were in the first quarter ofthat year. This year, with demandincreasing much more slowly than in1966, corporations have been forced toabsorb part of their sizable cost in-creases, and profit margins have shrunkas compared with the relatively highmargins enjoyed in 1966 as a whole.

(Continued from page 3)

but declined in the second and roseslightly in the third. The stock-salesratio for all wholesalers has fallen abit since late last winter, but it is stillabove the average ratio of recent years;this applies to both the durable and thenondurable group.

In summary, it would appear that,gaged by the experience of recentyears, stocks are still high in relationto sales in the case of wholesalers anddurable goods manufacturers but appearto be somewhat low for retailers.


By DONALD A. KING

Financial Developments in 1967

iN early 1967, stimulative monetarypolicy and a slowing in the pace of eco-nomic activity combined to improveflows of funds to credit markets. How-ever, the thawing in credit markets

Interest Rates and Bond YieldsMoney market rates remain below last year'shighs but most long-term yields are above

Percent

INTEREST RATES

Prime Commercial Paper(4-6 Months)

• 3-Month Treasury Bills(New Issue)

i i . .

BOND YIELDS

New Home FHA Mortgages

State and Local(Moody's Aaa)

1965 1966 1967

Latest data: October. Data: FRB, FHA, Moody's & Treas.


was short lived, and by early spring,strains were once again clearly evidentin long-term capital markets. Aftertheir brief and modest decline from thefourth quarter of 1966, long-term ratesbegan rising in late February and havesince pushed past their 1966 highs. Thepattern in money markets has beendifferent. Short-term rates declinedsharply until June, but recovered there-after. However, the levels reached thisfall are considerably below the peaks oflast year.

Early rise in long-term rates

The early firming of long-term .ratesand their subsequent sharp advancesrelate largely to pressures exerted incapital markets by a record volume ofnew corporate and State and localsecurity offerings. In each quarter ofthis year, corporate security offeringshave set new records. Over this period,corporations have offered an estimated$18.8 billion in new securities, $4.4billion more than was offered in thecomparable period of 1966—also a peakyear—and $6.8 billion more than duringthe first 9 months of 1965. States andlocalities have also raised a recoidvolume of new capital in 1967. ThroughSeptember, these governments offerednearly $11 billion in long-term securitiesas compared with issues of $8% billionand $8 billion in the correspondingperiods of 1966 and 1965.

The heavy volume of new securityofferings by these sectors were to alarge extent an outgrowth of the tightcredit markets of 1966. In 1967, cor-porations and State and local govern-

ments moved quickly to take advantageof lower long-term rates and to makeup for the reduced availability of fundsresulting from last year's credit scarcity.In addition, the demand for long-termfunds has been heightened this yearby growing expectations of an accelera-tion in business activity, of a furtherexpansion in the Federal deficit, anda return to credit shortages.

Money market rates

A number of developments contrib-uted to the decline in short-term interestrates in the first half of 1967. Demandsfor short-term assets were particularlystrong at this time, partly as a resultof the increased availability of fundsproduced by the shift in monetarypolicy. Financial institutions and othersaggressively sought these assets, eitherto put themselves in a position tobenefit from expected higher yieldslater this year or to restore impairedliquidity positions. Furthermore, someof the first-half borrowing in capitalmarkets was apparently reinvested—at least temporarily—in short-termsecurities.

At the same time that demands forshort-term assets were rising, pressureson the supply side emerged which alsoserved to raise prices and lower yieldson these assets. Largely because ofmaturing bills, the volume of short-termTreasury debt declined some $8 billionin the second quarter. Moreover, thesupplies of Treasury bills to privateinvestors were reduced even furtherbecause large quantities of these securi-ties were absorbed by Federal Reserveopen market operations and because

11


12 SUEVEY OF CUERENT BUSINESS November 1967

Changes in Selected Bond Yields and Short-Term Interest Rates

[Percent]

Long-term yields:

U.S. Governments _ . _ _Corporate AaaState and local Aaa

Short-term interest rates:

Federal funds _3-month Treasury bills

(new issues)Prime commercial paper

(4-6 months)

August 1966to

February 1967

-0.33-.28-.53

September1966 to

June 1967

-1.42

-1.88

— 1.24

February 1967to

October 1967

0.71.79.50

June 1967to

October 1967

-.11

1.11

.42

Federal Home Loan Banks made heavypurchases of these assets subsequent toloan repayments by member savingsand loan associations. Aside from theattrition in Treasury bills, FederalAgency issues declined by slightly morethan $1 billion over the first half of thisyear, largely because maturing short-term debt of the Federal Home LoanBanks was retired.

By midyear, the decline in moneymarket rates came to an abrupt halt andrates turned sharply higher. This oc-curred partly because corporations soldoff liquid assets in order to meetdividend payments and unusually largeJune income tax payments and partlybecause new Treasury bill offeringssubstantially increased the supply ofliquid assets.

Monetary Policy and Commer-cial Banks

In late 1966, the Federal ReserveSystem began to shift open marketoperations in older to increase suppliesof reserves to the banking system.After the tuin of the year, policy actionbecame more aggressive, and a step-upin open market purchases of U.S.Government securities was accom-panied by a lowering of reserve re-quirements on certain classes of timedeposits and a reduction in the Re-serve bank discount rate.

In moving to a stimulative stance inits open market operations, the FederalReserve System made substantial ad-ditions to its holdings of U.S. Govern-

ment securities. During the first 9months of this year, the System ac-quired $2.5 billion of bill and couponissues, nearly $1 billion more than theacquisitions for the corresponding periodlast year when the authorities werepursuing a policy of credit restraint.Moreover, with declines in the goldstock and increases in currency incirculation less this year than last, thefunds supplied by open market opera-tions were not absorbed by theseoffsetting factors and, for the mostpart, served to expand member bankreserves.

In March, the Board of Governorsauthorized a reduction—from 4 to 3percent—in reserve requirements onpassbook savings deposits and on thefirst $5 million of time deposits at mem-ber banks. This increased member bankreserves by an estimated $850 million.In April, the authorities took anotherstep in the direction of easier creditconditions by lowering the Reservebank discount rate from 4% percentto 4 percent. This action brought thediscount rate into better alinementwith other market interest rates andoffered a positive signal regarding theSystem's policy intentions.

Mainly through these actions, thetotal reserves of member banks in-creased sharply, by $1 billion in the firstquarter, $200 million in the second, and$690 million in the third. With reservesplentiful and with some moderation indemands for bank credit, commercialbanks slashed their indebtedness to theFederal Reserve banks. Member bankindebtedness has posted successivequarterly declines this year, averagingonly $89 million over the July-to-September period. This was substan-tially below the $753 million for thethird quarter of last year and was thesmallest quarterly average for theseborrowings since the spring of 1962.

Reflecting increases in bank reservesand reductions in member bank bor-rowings, "free reserves/7 the differencebetween excess reserves and borrowings,have recorded a steady quarterly im-provement since monetary restraintreached its peak of last year. Thiswidely watched indicator of monetarypolicy averaged a negative $373 million

in the third quarter of 1966, but turnedpositive by end of the first quarter ofthis year and averaged a very high$280 million for the recent June-to-September period.

Rapid growth in bank deposits

This year's expansionary credit policyhas produced a rapid expansion inmoney supply (currency and demanddeposits) and time deposits. Afterdeclining from June to November lastyear, the money supply resumed itsgrowth this February. Since then,growth has been pronounced; throughthe third quarter, seasonally adjustedmoney stock has risen at a 7 percentannual rate, considerably above the3.5 percent trend rate from 1961through 1965.

Since the beginning of this year, timedeposits at commercial banks (season-ally adjusted) have been posting un-usually large monthly advances. Thegrowth in time deposits has been at anannual rate of 17 percent from Januarythrough September—very close to thepostwar record in 1962. Along with thegeneral improvement in money flowsproduced by easy monetary policy,the surge in time deposit growth hasbeen spurred by an especially high rateof personal saving and by a markedshift in individuals' investment port-folios from market securities to savings-type deposits.

Large negotiable certificates of de-posit (in denominations of $100,000 ormore and typically held by corpora-tions) made significant contributions totime deposit growth mainly during thefirst and third quarters of this year.From April to June, banks were lessaggressive in seeking CD funds becauseof some slackness in loan demand andbecause of substantial inflows of othertypes of time and demand depositliabilities.

Commercial bank credit

The rapid growth inmoney supplyand time deposits this year has beenaccompanied by a large expansion inloans and investments at commercialbanks. From January through Septem-ber, bank credit rose $29 billion, almost


November 1967 SUEVEY OF CUEEENT BUSINESS 13

twice the increase in the comparableperiod last year. During the year,however, growth in bank credit hasbeen uneven. After a very sharp re-covery from the fourth quarter of lastyear, the expansion slackened in thesecond quarter, but came back ex-ceptionally strong in the third. Theincrease from July through Septemberwas about as large as in the first 6months of this year.

So far during 1967, commercial bankshave added $17 billion to their holdingsof U.S. Government and "other" se-curities; growth in these assets hasaccounted for 60 percent of the increasein total bank credit. This emphasis onsecurities stands in sharp contrast tothe experience since 1961 and particu-larly to that of last year, when banksliquidated security holdings to meetloan demands. It is a pattern of bankcredit expansion found in periodsmarked by pronounced shifts from gen-eral credit restraint to credit ease.

A large part of this year's growth ininvestments at commercial banks hascentered in the acquisition of State andlocal securities. Throughout the 1960's,the high yields on tax-exempt securitieshave made these assets attractive tobanks. After making virtually no addi-tion to their holdings of these securitiesin the second half of last year, whenbank credit grew relatively little, banksmade record acquisitions during thefirst half of 1967. Through June, bankholdings of municipal bonds increased$7 billion and accounted for more than75 percent of the rise in commercialbank investments.

During the third quarter, acquisitionsof municipals eased somewhat as com-mercial banks began absorbing some ofthe increased flow of U.S. Governmentsecurities. During the 3 months endingin September, banks added $5.8 billionto their holdings of U.S. Governmentsecurities, the largest quarterly increasesince the spring of 1958.

The loan component of bank creditincreased $5J^ billion during the first6 months of this year. The growth inloans during the first half of 1967 wasat a slightly faster pace than in thesecond half of 1966, but was consider-ably below the advances of other recentyears. Through midyear, the modera-

tion in loan expansion extended to allmajor categories of loans. Although theadvance in business loans was strongrelative to other loans, it was onlyabout half the rate for the comparableperiods in 1965 and 1966, and much ofthe expansion that did occur was associ-ated with corporate needs for funds tomeet accelerated income tax payments.

The expansion in loans acceleratedin the third quarter, increasing morethan during the entire first half. Therewere two noteworthy developmentsassociated with the expansion in loansin the summer quarter: First, with theend of tax acceleration, growth inbusiness loans slackened appreciably;second, while consumer and real estateloans picked up somewhat, most of thetotal increase was concentrated insecurity loans.

The modest rise in business loansthis year as compared with other recentyears is related to several factors: tothe fact that demands for funds tofinance investment (notably inventoryinvestment) have slackened in 1967; toefforts by business to improve liquidityby reducing short-term indebtednessrelative to long-term; and to a stepped-up use of alternative sources of short-term credit, particularly in the com-mercial paper market.

Changes in Commercial Bank CreditBillion $

Other Financial Institutions

The forces that have generated un-usually large time deposit growth atcommercial banks this year have alsoproduced record flows of funds to thriftinstitutions. Over the 9 months endingin September, savings accounts at mu-tual savings banks increased $3.7 billion.This exceeds the earlier record growthof $3.4 billion for the comparable periodin 1964 and represents a substantialimprovement over the unusually low$1.6 billion addition to deposits duringthe first 9 months of last year. So farduring 1967, shares at savings and loanassociations have increased $9.1 billion,which is slightly higher than the recordgain of $8.5 billion posted in the firstthree quarters of 1963 and much abovethe depressed $2.5 billion increase re-

LOANS, TOTAL

nn.r— |

. r— i

n,nn

10

BUSINESS

OTHER LOANS

nn.nn.rim.r-,—

10

5

Q

-5

.10

5

0

-5

INVESTMENTS, TOTAL

ni 1 1 , i — i , i — i , 1 1

U.S. GOVERNMENT SECURITIES

1 I 1 rii i i i i i — » ' j | i — i •

OTHER SECURITIES

mm ,nri,n .fin1st 2d 1st 2d 1st 2d 1st 3d

Half Half Half Half Qtr.

1964 1965 1966 1967

Seasonally Adjusted Quarterly Averages Data: FRB



14

corded from January to September of1966.

Although the improvement in savingflows has been pronounced from thebeginning of this year, it did not stim-ulate an immediate pickup in mortgagelending activity by thrift institutions.This was partly because thrift institu-tions started the year with low levelsof outstanding mortgage commitments,partly because demand for new mort-

Major Sources and Uses of FundsNonfinancial Corporate Business

SOURCESBillion $

20 -

40 -

20 -

SELECTED EXTERNAL FUNDS

F-Stocks, Bonds, & Mortgages \

r|3

1 1 1

r

?>-

\ „

-

USES80

60

40

20

FIXED INVESTMENT

20CHANGE IN BUSINESS INVENTORIES

^ n nnn.r l.On1961 62 63 64 65 1966 1967*

Quarterly, SeasonallyAdjusted at Annual Rates

Data: FRB


*3d qtr. estimate by QBE.

SURVEY OF CURRENT BUSINESS

gage funds was still sluggish, and partlybecause these institutions adopted acautious attitude toward lending andutilized higher deposit and share growthto restore liquidity positions. As theyear progressed, the demand for mort-gages rose, and with their liquidity posi-tions somewhat improved, institutionsbecame less cautious about their lendingpolicies. Mortgage lending by thrift in-stitutions rose to a $10 billion seasonallyadjusted annual rate in the second quar-ter and $11.8 billion in the third, aftera rise of only $6.8 billion in the firstquarter. This increase in lending nodoubt contributed importantly to therecovery in homebuilding this springand summer.

As indicated above, a major part ofthis year's improvement in the flows ofnet saving to thrift institutions hasbeen used to restore liquidity. This hasbeen particularly true of the savingsand loan associations, which havesharply reduced their indebtedness tothe Federal Home Loan Bank System.As a result of consecutive monthly netrepayments, the volume of loan ad-vances outstanding declined $2.8 billionthis year to reach $4.1 billion—thelowest level since September 1963. Inaddition, by the end of the thirdquarter, savings and loan associationshad reduced other loans outstanding inhalf—most of it borrowing from com-mercial banks.

The step-up in repayments of loanadvances by savings and loan associa-tions has been important to the FederalHome Loan Bank System insofar asthis has enabled the System not only toreduce its indebtedness but also tomake additions to its holdings of short-term assets and thereby improve itsliquidity position. In retiring its debt,the Federal Home Loan Bank Boardwas reducing the supply of short-termassets while adding to demands forother types of short-term assets. Thesetransactions contributed importantly toreducing money market rates during thefirst half of this year.

An important concern facing thethrift institutions and one that hasbecome increasingly serious in recentmonths is the fear of a return of dis-intermediation—the outflow of savingsfrom thrift institutions to market

November 1967

securities. To date, this developmenthas not been apparent, despite therecord highs for long-term rates and themidyear turnabout in short-term rates.Short-term interest rates, althoughhigher than during the first half of theyear, are considerably below their levelsof last year. Thus, the spread betweenrates payable by thrift institutions andthose that can be earned on alternativeinvestments is considerably smallerthis September than last. If the limitpayable on regular share accounts iscompared with the yield on 1-yearTreasury bills—assuming this to be aproxy for the alternative employmentof the funds invested in savings andloan shares—it appears that the spreadnarrowed between September 1966 andSeptember 1967.

Although the possibility of a recur-rence of disintermediation is a real one,there have been developments in 1967that would serve to cushion its impacton thrift institutions. First, legislationhas been enacted regulating maximuminterest rates payable by commercialbanks, savings and loan associations,and mutual savings banks on time andsavings-type deposits. This legislation,passed in September of last year andextended for 1 year in September 1967,has the effect of restraining competitionfor deposits between commercial banksand thrift institutions. This competitionwas particularly troublesome for thethrift institutions and contributedgreatly to the instability they faced in1966. Also, the steps taken so far in1967 by financial institutions and theFederal Home Loan Bank System torebuild liquidity has placed them in amuch better position for modifying theimpact from disintermediation shouldit appear.

Life insurance companies generatedan enlarged flow of investment fundsin the first quarter of this year, but in acounterseasonal movement, this flowdeclined in the second quarter—thelatest period for which data are avail-able. An important factor in the springdip in the flow of investment funds wasthe additional acceleration in incometax payments by life insurance com-panies. Growth in policy loans—a drainon investment funds—has tapered off


November 1967 SURVEY OF CURRENT BUSINESS 15

this year as compared with the secondhalf of last year, but remains con-siderably above normal.

Life insurance company investmentpatterns in 1967 also reflect efforts toimprove liquidity positions. To achievegreater flexibility with their investmentfunds, these companies drastically cutback their acquisition of directly placedcorporate securities. (Directly placedcorporate securities are usually privatelytransacted between borrower and lenderand generally represent a long-termcommitment of funds by the lendinginstitution.) Moreover, their invest-ments this year have centered mainlyin purchases of industrial issues withmaturities of less than 1 year.

Mortgage investments of life insur-ance companies have amounted to $5.3billion in the first 8 months of this year,$1.7 billion less than during the sameperiod of 1966. This year's reduction inmortgage lending relates to low levels ofoutstanding commitments at the begin-ning of 1967 and to the very low levelsof new commitments during the earlypart of this year. In the first quarter,ne\v commitments were at about halftheir volume a year ago; however, theypicked up sharply this spring.

Corporate Finances

Investment expenditures of nonfi-nancial corporate business declinedthis year as a result of severe inventoryadjustments. The decline was con-siderably larger than that in internalfunds, and some narrowing of the gapbetween internally generated fundsand investment expenditures resulted.Despite this development, corporationsremained heavily dependent upon ex-ternal financing as they made un-usually large tax payments and tooksteps to improve their liquidity posi-tions.

Corporate investment

Fixed investment of nonfinancialcorporations remained hig

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