68
NOVEMBER 1961 survey of CURRENT BUSINESS U.S. DEPARTMENT OF COMMERCE OFFICE OF BUSINESS ECONOMICS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
NOVEMBER 1961
survey of
CURRENTBUSINESS
U.S. DEPARTMENT OF COMMERCEOFFICE OF BUSINESS ECONOMICS
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SURVEY OF CURRENT BUSINESSNOVEMBER 1961 VOL. 41, NO. 11
ContentsBUSINESS REVIEW PAGE
SUMMARY 1Business moves aheadProduction index regains peak.
RISE IN NATIONAL INCOME AND PRODUCT 3Consumer purchases riseInvestment expands.
SPECIAL ARTICLESExpansion of Government Programs-
During Fiscal Year 1962 7Federal Fiscal Position 7
Federal Purchases Reflect Defense Expansion 8
Consumption Expenditures in Recovery Phase nAllocation of Consumer Dollar 12
Goods and Services by Functional Distribution 13
Corporate Financing in 1961 and in Recent BusinessCycles
Investment Potential Increases 17Corporate Financing During Cycles 19
Investment and Financing by Industry 21
NEW AND REVISED SERIESGas 23Lumber 24
MONTHLY BUSINESS STATISTICSGeneral S1-S24Industry S24-S40
Subject Index Inside Back Cover
U.S. Department of CommercLuther H. Hodges
Secretary
Office of Business Economics
M. Joseph MeehanDirector
Louis J. ParadisoManaging Director
Murray F. FossEditor
K. Celeste StcStatistics Edit
Billy Jo DawkinsGraphics
STAFF CONTRIBUTORSTO THIS ISSUE
Business Review and Feature?
Genevieve B. WimsattHarold Wolozin
Articles:Helen B. JunzAnne N. ProbstJohn A. Gorman
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By the Office of Business Economics
A HE business recovery has extendedinto the fourth quarter with economicactivity recording better than seasonaladvances. Following the rapid upturnin the second quarter and the moderateincrease in the summer, October busi-ness gave indications of a quickening inthe tempo of the recoveryas seen inthe most recent data on retail sales,personal income and employment, thelarge order placements for durablegoods, and the current production plansof the automobile industry, now fullygeared for the 1962 model run.
A noteworthy feature of the monthwas the pickup in retail trade. Sea-sonally adjusted sales in October wereup some 2 percent over September onthe basis of the preliminary reports, anda like amount over the third quarteraverage. It was the best showing thisyear in this important area of mer-chandise sales, which so far in thecyclical expansion have respondedrather slowly to the general improve-ment in business and consumer in-comes.
While much of the October advancewas attributable to increased pur-chases of automobiles, durables otherthan autos were also up markedly.Nondurables rose approximately 1 per-cent over the month, after seasonaladjustment, due mainly to increasedsales by general merchandise and ap-parel stores. An extended discussionof consumption trends appears in aspecial article in this issue.Personal income at record
Reflecting primarily higher payrolls,personal income rose substantially toa new peak of $425 billion in October,an increase of $4 billion over Septemberat a seasonally adjusted annual rate.
This was as large a rise as had occurredover the entire three-month periodfrom June to September, and resembledthe monthly increases of last spring.Payroll advances, reflecting increasedhours of work and higher employmentas indicated further on, were ratherwidespread by industry. There weresignificant advances in durable goodsmanufacturing and government, andsmaller increases in trade and trans-portation. Proprietors7 income alsorose, paced by an increase in farmincome.
ADVANCE IN 1961 INGROSS NATIONAL PRODUCT
Rise in Final Purchases Continues at Steady Rate
But Inventory Increase Now Less Thanin the Initial Turnaround
Billion $ Change0 4 8 1 2 16
TOTALADVANCE
1st to 2d qtr
2d to 3d qtr
Change in Total
Pne^fnlen^orVes ty/*?,\
Wtftftfm^
GNP
>orehe,^ |
I
FINALPURCHASES
PersonalConsumption
Fixed Investment
Government
Net Exports 1st to 2d qtr.
p| 2d to 3d qtr.
U.S. Department it" Commerce, Office if Business Economics 61-11-1
This rise in purchasing power mustbe considered of significance with theholiday buying season approaching; abetter than seasonal gain may beanticipated as a result of the currentincome improvement.Auto production surges forward
The automobile industry is currentlyproducing at a high rate, now that workstoppages are no longer a drag on out-put, and is planning further sizable in-creases in production and sales for thebalance of the year. New passengercars produced in October totaled 557,-000 units, a substantial seasonally ad-justed increase over September. Ac-cording to trade sources the industry iscurrently scheduling an output of 1.8million units in the final quarter of thisyear. This is a seasonally adjusted an-nual rate of roughly 6% million cars and,if fulfilled, would add very substantiallyto the GNP in the fourth quarter.
The production schedules, of course,can be altered if sales differ markedlyfrom the industry's current expecta-tions, but dealers7 inventories have tobe rebuilt. Consumers have been re-sponding favorably to the new modelsthus far in the new model year. Deal-ers sold some 535,000 new units inOctober, a seasonally adjusted annualrate in excess of 6 million units; thismay be compared with an average salesrate of roughly 6% million units in thethird quarter.
At the end of October dealers heldsome 660,000 automobiles in inventory,a comparatively low figure which was250,000 below the number held at thistime a year ago. Given the productionschedules, the maintenance of the Oc-4o(ber sales rate suggests a moderate
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2 SURVEY OF CURRENT BUSINESS iXovember 196
buildup in dealers' stocks over thequarter.
Production index regains peakThe rise in automobile output to-
gether with increases in other industrieswas sufficient to bring about a smalladvance in the federal Reserve Indexof industrial production, back to itspeak in August. Steel mill operationswere an exception. In terms of thedaily average rate, the industry's out-put did not register the increase thattypically takes place from Septemberto October. Fabricated metals, ma-chinery, aircraft, instruments and non-durables were up over the month.Employment and hours up
Rising output brought about a betterthan seasonal rise in employment innonfarm establishments in October.Table 1.Percent Changes in Selected Indi-
cators, Seasonally Adjusted, First to Sec-ond Quarter, Second to Third Quarterand Third Quarter to October 1961
Employment in nonag. estahManufacturing _ _Nonmanufacturing
Total personal income
Durable goods marufaciuringNew orders8 ales
Retail sales _. .Durable goodsNondurable goods
Total industrial productionIron arid steelAutomobiles .
lst-2dqtr
0.71.6.3
2.1
10.18.0
1.80
S.fi24. 836.1
1961
2d-3dqtr
0.8.7.9
1.7
5.33.2
K
.0
.8
3.78.8-.4
3d qtr-Oct.1
0.4-. 1
.6
1.0
2.82.4
2.67.5.5
.9-.11.4
i Preliminary.Source: U.S. Department of Labor, Bureau of Labor
Statistics; Board of Governors of the Federal Reserve Sys-tem; and U.S. Department of Commerce, Office of BusinessEconomics and Bureau of the Census.
After seasonal adjustment employmentlast month totaled 54.6 million, upmore than 150,000 over September andalmost 400,000 above October 1960.The month-to-month advance was thelargest since June.
Most of the seasonally adjusted risecentered hi nonmanufacturing indus-tries, where small gams occurred intransportation and public utilities,trade, finance and service industries,while government employment, mainlyState and local, rose more markedly.Manufacturing employment was little
changed, and in fact has been on aplateau since June. However, the ex-tent of the recent improvement in theauto industry is not fully recorded inthe October employment data, whichwere temporarily reduced because ofthe work stoppage of a major producer.There was a noticeable increase inmachinery employment over the month,reflecting the step-up in capital expendi-tures now underway and the risingdefense program.
Hours of work in manufacturing,which had been abnormally depressedin September because of strikes, rose asa result of increases in both durablesand nondurable goods manufacturing.Neiv orders continue advance
As discussed in a following article,the latest review of the Federal budgetpoints to Federal purchases of goodsand services as an important stimu-lating influence in the present upturnand over the remainder of the presentfiscal year. Order placements fordefense goods have reflected the step-upin government expenditure programsand in turn have been responsible foran increase in underlying purchasingand production by business firms.The advance report on durable goodsproducers for October indicated aseasonally adjusted change of 1 percentover September.
The flow of new business for durablegoods producers has risen about one-fifth since last January, roughly thesame rate of rise experienced in the 1958upturn. Incoming business for iion-durables has risen about 5 percent overthe same period and is currently at anall-time high.
Substantial gains in incoming busi-ness have occurred in all hard goodsindustries, thus reflecting a broadly-based expansion in this volatile area.Large increases from the recession lowhave been recorded by producers ofelectrical machinery, transportationequipment, and primary metals. Ad-vances of more than one-fourth occurredin the first two industries, with stepped-up placement of defense contractsplaying a substantial role. Orders foriron and steel companies rose aboutone-third from the January low to
August, but have showed little changin the past 2 months.
New business placed with nonelectrical machinery manufacturing companics has risen about one-sixth thiyear to a new high; this compares wit]one-fourth in the first 8 months orecovery in 1958. Within the groupthe largest recovery in 1961 was iiindustrial machinery and more particularly in metal working.
PERSONAL INCOME HIGH
Billion $450
400
350 -,
300
200
Service Industries
150 -
100
50
150
100
50
Commodity-Producing Industries
.....I.....I.. 1 1, .ml... ..I. ....I l.m.l.,
Dividends, Interest, &Proprietors' Income
1957 1958 1959 1960 1961 1962Seasonally Adjusted
U.S. Department of Commerce, Office of Business Economies 61-11-5
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
Rise in National Income and ProductReview of National Accounts in Third Quarter
rpHE expansion in economic activitycontinued through the third quarter
with Gross National Product increasingabout $10 billion at an annual rate to anew high of $526 billion. The thirdquarter rise in output, though not solarge as in the preceding quarter, wasmore widely diffused than in the initialmonths of the advance. With changesin inventory investment playing a con-tinuing but lesser role in the thirdquarter advance, the increase in finalpurchases was of about the samemagnitude$8 billionas in the pre-ceding quarter.
Most of the GNP increase in thethird quarter, as in the second, reflecteda higher physical volume of output, asprices continued relatively stable. RealGNP thus rose approximately 4 percentabove the recession low and was 2 per-cent above the prerecession high in thesecond quarter of 1960.
About one-half of the third quartergain in GNP, $5 billion, was in con-sumer buying. In contrast with thespring quarter, when automobiles hadaccounted for a large proportion of thegain, the third quarter increase in con-sumer buying was about equally dividedbetween nondurable goods and services,with durables showing little change.Lesser gains in residential construction,business fixed investment, inventories,and government purchasesprincipallyState and localall contributed to theincrease in GNP. Net exports of goodsand services declined again in thisquarter by approximately $1K billion.
Comparable increases in income flowsaccompanied the third quarter rise inoutput. Employee compensation roseapproximately $6 billion, comparedwith the $7% billion increase in the pre-ceding quarter. Other distributiveshares also went up, although on thebasis of preliminary data it appearsthat the profit increase was not so large
as the $5 billion (annual rate) reportedfor the initial quarter of cyclical revival.Consumer purchases rise
Total personal consumption expendi-tures increased about $5 billion in thethird quarter to $341 billion at season-ally adjusted rates, roughly matchingthe second quarter increase. Over thepast two quarters about $10% billionof the $13% billion increase in disposableincome has been translated into con-sumption expenditures. This rate ofexpenditure of additional income isabout in line with the experience ofthe two quarters after the low pointin the 1957-58 recovery.
Durable goods outlays rose only $%
billion in the third quarter, with anadvance in furniture and appliancebuying offsetting a small decline inauto purchases. Auto buying showedthe influence of the model changeoverand remained relatively low. At anannual rate of $16.5 billion, it wasabout $3 billion less than in the secondquarter of last year, despite a $15billion advance in disposable personalincome over this period. Sales werepicking up at the end of the quarter,and auto production and sales maybe expected to contribute a substantialincrease to GNP in the final quarter.
The third quarter rise in furnitureand appliances$% billion at annualratesmatched the increase in the
Table 1.Gross National Product in Current and Constant Dollars (1-3, 1-5)[Seasonally adjusted at annual rates]
Gross national productPersonnal consumption expend-
itures.Durable goodsNondurable goodsServices
Gross private domestic invest-ment
Now constructionResidential nonfarm _Other --
Producers' durable equipment.Change in business inventories.
NonfarmFarm __ _
Net exports of goods and services.ExportsImports . ._
Government purchases of goodsand servicesFederal . -
National defenseOther -
State and local
1958 1959 19601960
III IV
1961
I II III
Billions of current dollars
444.5
293.237.3
141.6114.3
56.635.518.017.4
23,1-2.0-2.9
.91.2
22.721.5
93.552.644.88.35
40.8
482.8
314.0
43.5147.3123.2
72.4
40.222.317.925.96.36.2.1
-.7
23.123.8
97.153.546.27.85
43.6
504.4
328.944.3
152.4132.2
72.4
40.721.119.627.54.2
4.0.3
3.0
26.723.6
100.1
52.945.58.0
647.2
505.1
329.743.4
152.7133.6
70.540.421.019.427.72.4
2.0.4
3.0
26.823.8
101.9
54.045.49.16
48. t)
504.5
332.343.8
153. 1135.4
65.640.720.520.226.7
-1.9-2.2
.35.1
27.622.4
101.653.045.77.9
648.6
500.8
330.739.4
153.7137.5
59.839.619.320.424.2
-4.0-4.3
.35.3
27.622,3
105.054.747.28,0
K
50.3
516.1
336.142.0
154.1139.9
68.841.320.620.724.72.82.4.4
3.926.422.5
107.356.648.88.35
50.6
525.8
341.042.3
156.2142.4
73.242.722.120.626.04.54.1.4
2.6
27.024.3
109.057.449.08.9
6
51.6
1958 1959 19601960
III IV
1961
I II III
Billions of 1954 dollars
401.3
273.235.5
133.3104.4
49.031.116.214.819.4
-1.5-2.4
.8-.2
21.421.6
79.31.5
34.8
428.4
289.341.0
138.8109.5
61.134.319.414.821.35.55.6
-.0-2.1
22.224.3
80.143.9
36.2
440.8
298.341.8
141.8114.7
60.633.918.016.022.74.03.8.2
1.7
55.323.6
80.2
42.3
38.0
440.2
298.640.8
142.0115.8
58.633.617.915.722.72.32.0.3
1.625.423.7
81.342.9
38.4
438.4
299.641.6
141.3116.6
54.933.917.516.422.1
-1.1-1.3
.2
3.526.122.6
80.3
41.6
38.7
433.2
297.037.6
141.6117.8
49.632.916.516.419.9
-3.2-3.5
.33.3
25.722.4
83.3
43.1
40.2
445.5
301.639.8
142.6119.2
57.334.117.616.620.32.92.4.4
1.924.522.6
84.7
44.7
40.0
451.8
305.039.9
144.5120.6
60.435.118.716.421.43.93.5.4
.625.224.5
5.745.0
40. S
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SURVEY OF CURRENT BUSINESS November 1961
prior quarter, when outlays for thesegoods moved up with the advance inresidential construction. While stillbelow their peak sales rates in 1959when residential construction washigher, furniture and appliance outlayshave recovered to last year's pre-recession volume.
Higher purchases of clothing ac-counted for about half of the $2 billionincrease in expenditures for nondurablegoods in the third quarter. Purchasesof nondurables, generally, had shownlittle improvement in the second quar-ter, but as there had also been littledecline during the short recession,expenditures for most categories aresomewhat above their 1960 peaks.Expenditures for services have con-tinued their steady growth.Investment moves ahead
All components of gross privatedomestic investment continued to risein the third quarter with the exception
HOUSING STARTS UP
Thousand Units
2,000
1,500
1,000
500
Total Private HousingStarts
FHA Applications andVA Appraisals
\I J_
1959 1960 1961 1962Quarterly, Seasonally Adjusted, at Annual Rates
Data: Census & FHA-VA
U.S. Department of Commerce, Office of Business Economics 61-11-6
of nonresidential construction whichremained level with the prior quarter.(See table 1 on page 3.) Investmentin producers' durable equipment, inparticular, appears to have picked upunder the influence of rising sales andprofits.
Residential construction increasedby $1% billion to an annual rate of $22
billion in the third quarter. In thelast two quarters expenditures haveregained about two-thirds of the groundlost in the drop in residential activitywhich started in the summer of 1959.
Housing starts in the third quarteraveraged 5 percent higher than in thesecond. There was, however, no up-ward trend during the quarter andSeptember starts were little changedfrom June. Apartment house con-struction has been particularly activethis year, despite continuing highvacancy rates, with the total likely toset an all-time record exceeding eventhe peak reached in the late 1920's.Interest rates on home mortgages havebeen rising in recent months, but theadvance so far has been slight for aperiod of rising activity in the economygenerally, and in housing constructionin particular.
Responding to the continuing re-covery of economic activity, pro-ducers' investment in durable equip-ment, which had contributed little tothe second quarter expansion in totaloutput, increased approximately $1%billion during the third quarter. Al-though there was no comparable in-crease in new plant construction, capitalgoods demand appears somewhatstronger than is usual so soon after acyclical upturn. As discussed in theSeptember issue of the Survey of CurrentBusiness, projected capital spending forthe remainder of the year is expectedto strengthen.Influence of inventories
Inventories were accumulated at anannual rate of $4% billion in the thirdquarter, as compared with $3 billionin the preceding quarter, thus contribut-ing $1% billion to the third quarterGNP rise. In the previous quarter theshift from inventory liquidation to accu-mulation resulted in a $6% billion risein total output. The bulk of inventoryaccumulation in the third quarterwas in manufacturing, primarily dura-bles, whereas in the second quarter mostof the buildup was in trade. Durablegoods producers accumulated addi-tional inventories in the amount ofnearly $2% billion. In the precedingquarter inventories were being reducedin these industries.
Net exports down and governmentdemand up
Net exports of goods and servicesdeclined approximately $1K billion atan annual rate in the third quarter, afall of the same magnitude as in thesecond quarter. An import rise of $2billion and a $% billion increase inexports accounted for the third quarterdecline. The large increase in importsrepresented in part a response to in-creased production and incomes andin part a working off of theimport backlogs created by the water-front strike of last spring. The in-crease in exports was primarily attrib-uted to the rise in cotton shipmentswhich had been held back in the May-July period pending a rise in exportsubsidies.
Government purchases of goods andservices rose $1% billion to an annualrate of $109 billion, with most of theincrease occurring at the State andlocal level. Rising defense expendituresby the Federal Government had ac-counted for much of the $2% billion risein the second quarter. Such purchasesleveled off in the third quarter althoughit is expected that with the activation of
TOTAL PRIVATE INVESTMENT RECOVERS
Business Fixed Investment Picks Up Major Change in Past Six MonthsWas the Inventory Turnabout
Billion $100
80
60
40
20
Gross Private DomesticInvestment
New Construction - ResidentialNonfarm
X.
Change In Business Inventories
-20 I i i i I i i i I i i i I i i i I1957 1958 1959 1960 1961 1962
Quarterly Totals, Seasonally Adjusted, at Annual Rates
U.S. Department of Commerce, Office of Business Economics 61-11-7Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
November 1961 SURVEY OF CURRENT BUSINESS
National Guard Units and progress onother phases of the defense buildup, thefourth quarter will see a further sub-stantial rise in defense spending. Theoutlook for advancing government pur-chases in the current fiscal year isdiscussed in a following section.National and personal income higher
In line with the increase in output,national income also rose to a new high.Compensation of employees increased$6 billion, at an annual rate, proprie-tors' income and net interest roseslightly, and corporate earnings con-tinued to advance.
The rise in employee compensationreflected mainly higher employmentlevels, although increases in hourlyearnings, and in the workweek alsocontributed to the rise. Manufacturingpayrolls showed some decline from Julyto Septemberlargely attributable tothe auto changeover mentioned earlier,and labor-management disputesbutfor the quarter as a whole advanced byabout $1% billion from the second quar-ter with metal and machinery industriesshowing the largest gains.
Payrolls in the auto industry were offwith declining production for the quar-ter as a whole but are now moving aheadagain. Contract construction payrolls,reflecting the improvement in residen-tial activity, moved up $X billion.Trade payrolls advanced, and the serv-ice industries and government rosefurther. In transportation, communi-cations, and public utilities, payrollswere little changed.
The third quarter advance in corpo-rate earnings was, on the basis of in-complete data now at hand, less thanthe sharp initial cyclical rebound of $5billion (annual rate) in the secondquarter and appeared to be centered inmanufacturing, transportation, finance,and public utilities.
Largely reflecting the increases inemployee earnings, consumer incomesmoved up from $413 billion (annualrate) in the second quarter to $420billion in the third. Transfer paymentsalso increased, although the $K billionrise was somewhat less than that in thepreceding quarter, owing principally toa drop in unemployment insurance pay-ments. Veterans' readjustment pay-ments declined considerably as fewer
veterans enrolled for the fall semester.Dividend payments under the Na-tional Life Insurance Program, whichincluded a special disbursement, in-
creased by $1 billion at an annual rateand offset the declines noted above, andSocial Security benefits continued toincrease.
Table 2.Personal Income and Its Use (II-2)[Billions of dollars]
Personal income
Wage and salary disbursements
Commodity-producing industries. .Manufacturing only
Distributive industriesService industries..Government
Other labor income
Proprietors' income
Business and professionalFarm
Rental income of persons
Dividends -. - -
Personal interest income
Transfer payments _ _
Old-age and survivors insurance benefitsState unemployment insurance benefits _Veterans' benefitsOther - -- -
Less: Personal contributions for social insurance.. _
Less: Personal tax and nontax payments
Federal -- - - - -State and local
Equals i Disposable personal income
Less* Personal consumption expenditures
Equals* Personal saving
Addendum: Disposable personal income in constant(1954) dollars
1958
360.3
239.8
97 976.763.834.843.2
9.4
46.1
32.513.5
12.2
12.4
21.0
26.3
8.53.94.69.4
6.9
42.3
36.65.7
317.9
293.2
24.7
296.3
1959
383.3
258.5
107.284.768.237.745.3
10.3
46.3
35.011.3
11.9
13.4
23.6
27.2
10.22.54.5
10.0
7.9
46.0
39.66.4
337.3
314.0
23.4
310.6
1960
402.2
271.3
110.487.471.840.748.4
10.9
48.2
36.212.0
11.7
14.1
26.2
29.1
11.12.84.6
10.6
9.3
50.4
43.27.2
351.8
328.9
22.9
319.0
1960
III IV
1961
I II III
Seasonally adjusted at annual rates
405.1
273.2
110.587.272.541.249.0
10.9
48.7
36.312.4
11.7
14.1
26.4
29.3
11.32.94.5
10.6
9.3
50.8
43.57.3
354.4
329,7
24.6
321.0
405.4
271.3
108.085.272.141.549.7
11.2
49.0
36.312.7
11.7
14.3
26.7
30.6
11.43.84.6
10.8
9.3
50,5
43.17.4
354.9
332.3
22.7
320.1
404.7
270.1
106.183.871.841.850.4
10.8
48.9
36.012.9
11.5
14.2
26.8
32,0
11.83.84.7
11.7
9.5
50.3
42.67.7
354.3
330.7
23.7
318.4
413.2
277.3
110.787.572.842.551.3
10.8
49.2
36.312.9
11.5
14.2
27.0
32.9
12.54.54.8
11.1
9.7
51.4
43.67.8
361.8
336.1
25.8
324.8
420.3
282.7
112.888.974.343.652.1
11.2
49.4
36.612.8
11.5
14.3
27.4
33.5
12. T4.04.8
11.9
9.8
52.5
44.58.0
367.8
341.0
26.8
329.6
Table 3.Gross National Product by Major Type of Product in Current and ConstantDollars (1-6, 1-7) 1
[Seasonally adjusted at annual rates]
Gross national product
Final sales -Inventory change..
Goods output -
Inventory change
Durable goods outputFinal sales.Inventory change.-
Nondurable goods outputFinal sales.Inventory change
Services _
Construction _- -
1958 1959 19601960
III IV
1961
I II III
Billions of current dollars
444.5
446.5-2.0
229.4231 4-2.0
80.483. 3
-2.8
149.0148.1
.9
164.2
50.9
482.8
476.56.3
250.3244.0
6. 3
94.991.33.6
155.4152.8
2.6
176.2
56.2
504.4
500.24.2
258.5254.3
4.2
96.794.32.5
161. 8160.0
1.8
189.3
56.6
505.1
502.72.4
257.2254.8
2.4
94.694.2
.4
162.6160.6
2.0
191.2
56.7
504.5
506.4-1.9
252.8254.6-1.9
89.593.4
-3.8
163.2161.3
2.0
194.6
57.2
500.8
504.8-4.0
245. 7249.7-4.0
81.687.4
-5.8
164.1162.3
1.8
197.9
57.2
516.1
513.22.8
257.1254.3
2.8
90.991.2-.3
166.2163.0
3.2
201.1
57.9
525.8
521.34.5
261.4256.9
4.5
96.192.63.5
165.3164.3
1.0
205.1
59.2
1958 1959 19601960
III IV
1961
I II III
Billions of 1954 dollars
401.3
402.8-1.5
211.5213.1-1.5
71.774.1
-2.4
139.8139.0
.8
145.2
44.5
428.4
422.95.5
228.6223.1
5.5
82.979.83.1
145.7143.3
2.4
151.7
48.1
440.8
436.84.0
234.6230.6
4.0
84.782.42.3
150.0148.3
1.7
158.7
47.5
440.2
437.92.3
233.3231.1
2.3
82.582.1
.4
150.8148.9
1.9
159.447.4
438.4
439.5-1.1228.9230.0-1.1
79.082.0
-3.0
149.8148.0
1.9
161.647.9
433.2
436.5-3.2
221.9225.2-3.3
71.476.5
-5.1
150.5148.7
1.8
163.2
48.0
445.5
442.62.9
232.5229.7
2.9
79.479.6-.2
153.2150.0
3.1
164.7
48.3
451.3
447.93.9
235.4231. 6
3.9
83.580.83.0
151. 151.0
.9
167.1
49.2
i For quarterly data beginning in 1947, see SURVEY OF CURRENT BUSINESS, July 1961, pages 34 and 35.Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
SURVEY OF CURRENT BUSINESS November 1961Table 4.-Relation of Gross National Product, National Income,
and Personal Income (1-18)[Billions of dollars]
Table 6.Personal Consumption Expenditures by Major Type (II-6)[Billions of dollars]
Gross national product _ _
Less: Capital consumption allowance ._
Equals: Net national pi oduct
Less: Indirect business tax and nontaxliabilityBusiness transfer paymentsStatistical discrepancy
Plus: Subsidies less current surplus ofgovernment enterprises
Equals' National income
Less: Corporate profits and inventoryvaluation adjustmentContributions for social in-suran ceExcess of wage accruals overdisbursements
Plus: Government transfer paymentsto persons -Net interest paid by government.DividendsBusiness transfer payments
Equals: Personal income
1958
444. 5
38.6
405.9
39.31.8
-1.5
1 l
367.4
37.2
14.8
0
24.56.2
12.41.8
360.3
1959
482.8
40.8
442. 0
42.71.8
-1.7
.4
399. 6
46.4
17.6
0
25.47.1
13.41.8
383.3
1960
504.4
43,1
461.4
45.61.8
-2.6
.5
417. 1
45.1
20.7
0
27.37.8
14.11.8
402.2
1960
III IV
1961
I II III
Seasonally adjusted at annualrates
505. 1
43.2
461.9
45.51.8
-4.0
419.0
44.1
21.1
0
27.57.8
14.11.8
405. 1
504. 5
43.7
460.9
45.91.8
-2.9
5
416 5
42.9
20.8
0
28.87.7
14.31.8
405. 4
500. 8
44.2
456. 6
45.71.8
-2.6
412 2
40.0
21.2
0
30.17.5
14.21.8
404.7
516.1
45.0
471.1
46. 41.8
-1.7
1.4
426.0
45.5
21.7
0
31.07.3
14.21.8
413. 2
525. 8
45.5
480.3
47.51.8na
1.8
na
na
22.0
0
31.67.2
14.31.8
420.3
Table 5.Government Receipts and Expenditures (III-3, III-4)[Billions of dollars]
Federal Government receipts...
Personal tax and nontax receipts. .Corporate profits tax accrualsIndirect business tax and nontax
accrualsContributions for social insurance.
Federal Government expenditures
Purchases of goods and services..,.
Transfer paymentsTo personsForeign (net)
Grants-in-aid to State and localgovernments..
Net interest paid
Subsidies less current surplus ofgovernment enterprises
Surplus or deficit ( ) on incomeand product account
State and local government receipts. _ _
Personal tax and nontax receipts..Corporate profits tax accrualsIndirect business tax and nontax
accrualsContributions for social in su ranee _Federal grants-in-aid
State and local government expendi-tures
Purchases of goods and servicesTransfer payments to personsNet interest paid _Less: Current surplus of govern-
ment enterprises
Surplus or deficit ( ) on incomeand product account
1958
78.5
36.617.7
11.912.4
87.9
52.6
21.320.01.3
5.4
5 6
3.0
-9.4
42.0
5.71.0
27.42.55.4
44.1
40.84.5.6
1.9
-2.1
1959
89.4
39.621.9
13.014.9
91.2
53.5
22.220.61.5
6.6
6.4
2.6
-1.8
46.5
6.41.2
29.62.76.6
46.9
43.64.8.7
2.2
-.4
1960
96.0
43.221.2
14.017.7
92.8
52.9
23.722.21.6
6.1
7.0
2.9
3.3
49.2
7.21.2
31.63.06.1
50.6
47.25.1.7
2.4
-1.4
1960
III IV
1961
I II III
Seasonally adjusted at annualrates
95.6
43.520.3
13.818.0
94.2
54.0
24.022.41.5
6.2
7.1
2.9
1.4
49.4
7.31.1
31.73.16.2
51.3
48.05.0.7
2.4
-1.9
94.6
43.120.0
13.817.6
94.2
53.0
25.323.71.6
6.0
7.0
2.9
.4
49.7
7.41.1
32.13.26.0
52.0
48.65.1.7
2.5
-2.3
92.5
42.618.6
13.318.0
98.0
54.7
26.524.81.6
7.1
6.8
3.0
-5.5
51.4
7.71.0
32.43.27.1
53.8
50.35.3.7
2.5
-2.4
96.8
43.621.2
13.618.4
101.1
56.6
27.125.71.5
6.8
6.6
4.0
-4.3
51.9
7.81.2
32.93.36.8
54.2
50.65.4.8
2.6
-2.3
na
44.5na
14.018.7
102.4
57.4
27.826.11.7
6.4
6.4
4.5
na
na
8.0na
33.53.36.4
55.3
51.65.5.8
2.7
na
Goods and services, total
Durable goods, to ta l__
Automobiles and parts
Furniture and household equip-ment
Other
Nondurable goods, total
Food and beverages
Clothing and shoes-
Gasoline and oil
Other _
Services, total
Housing
Household operation-.
Transportation.. _
Other
1958
293. 237.313.9
17 4
6.01 11. 676.625. 710.528.8
114.3
37.716.99.2
50.6
1959
314. 043.518.1
18 96.6
147 3
78.0
11.030.9
123.2
39.918.1
10.055.2
19GO
328. 944. 318.6
18 8
6.9
152 4
80.1
28.1
11.6
32.6
132. 2
42.2
19.6
10.5
59.9
1960
III IV
1961
I 11 III
Seasonally adjusted at annualrates
329. 7
43.4
17.8
18.7
6.9
152 7
79.9
28.3
11.6
32.9
133. 6
42,7
19.7
10.5
60.8
332. 3
43.8
18.6
18.3
6.8
153 1
80.8
27 7
11.8
32.7
135. 4
43.1
20.0
10.5
61.7
330. 7
39.4
14.8
17.8
6.8
153. 7
81.1
27.9
11.7
33.0
137.5
43.6
20.6
10.5
62.8
336. 1
42.0
16.7
18.3
7.0
154. 1
81.4
27.6
11.7
33.4
139.9
44.2
20.9
10.7
64.1
341.0
42.3
16. 4
18.8
7.0
156. 2
81.9
28.6
11.8
33. 9
142.4
44.8
21.2
10.9
65.5
Table 7.Foreign Transactions in the National Income Accounts(IV-2)
[Billions of dollars]
Receipts from abroad
Exports of goods and services
Payments to abroad
Imports of goods and servicesNet transfer payments by Government.Net foreign investment
1958
22.7
22.7
22.7
21.51.3-.1
1959
23.1
23.1
23.1
23.81.5
-2.3
1960
26.7
26.7
26.7
23.61.61.5
1960
III IV
1961
I II III
Seasonally adjusted at annualrates
26.8
26.8
26.8
23.81.51.4
27.6
27.6
27.6
22.41.63.6
27.6
27.6
27.6
22.31.63.7
26.4
26.4
26.4
22.51.52.4
27.027.027.024.31.7.9
Table 8.Sources and Uses of Gross Saving, Seasonally AdjustedQuarterly Totals at Annual Rates (V-2)
[Billions of dollars]
Gross private saving _ _
Personal savingUndistributed corporate profitsCorporate inventory valuation
adjustment.. _ _ _ _ .Capital consumption allowance. _.Excess of wage accruals over dis-
bursements.-- _
Government surplus on ircome andproduct transactions
FederalState and local
Gross investment
Gross private domestic invest-ment
Net foreign investment _
Statistical discrepancy _ __ __
1958
69.5
24.76.4-.338.6
.0
-11.4
-9.42. 1
56.6
56.6-.1
-1.5
1959
74.0
23.410.3
-.540.8
.0
-2.2
-1.8 . 4
70.1
72.4-2.3
-1.7
1960
74.6
22.98.6.0
43.1
.0
1.93.3
1.4
73.9
72.41.5
-2.6
1960
III IV
1961
I II III
Seasonally adjusted at annualrates
76.4
24.67.6.9
43.2
.0
5
1.4 1.9
71.9
70.51.4
-4.0
73.9
22.77 2
.343.7
.0
-1.9
.4-2.3
69.1
65.63.6
-2.9
74.0
23.75.8.4
44.2
.0
-7.9
-5.52.4
63.5
59.83.7
-2.6
79.7
25.88.6.3
45.0
.0
-6.6
-4.3-2.3
71,3
68.82.4
-1.8
na
26.8na
na45.5
.0
na
nana
74.1
73.2.9na
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
BY HELEN B. JUNZ
Expansion of Government ProgramsDuring Fiscal Year 1962
Gov:VERNMENT purchases of goodsand services, mainly under the impactof expanded defense programs, areexpected to play a major role in thebusiness recovery during the currentfiscal year. The 1962 Budget Review,recently released by the Bureau of theBudget, shows that Federal Govern-
FEDERAL FISCAL POSITION
Administrative Budget Deficit of $6.9Billion for Fiscal Year 1962
Translates to a Deficit of $0.2 Billionon National Income Account Basis
Due to Excess of Tax Accruals OverCollections in Economic Upturn andExclusion of Loan Expenditures
Billion $10
5 -
-5 -
-10
-15
1953 55 57 59Fiscal Years
61 63
Fiscal 1962 estimate from 1962 Budget Review
U.S. Department of Commerce, Office of Business Economics 61*112
ment purchases, on a national incomeand product account basis, are slated torise by $5 billion from the fiscal yearended last June to the fiscal year endingJune 30, 1962.
This prospective rise, combined witha projected $4-billion increase in pur-
chases by State and local governments,is one of the major stimuli behind the$40-billion increase, to about $545 bil-lion, in the Nation's output of goodsand services which underlies the Bureauof the Budget's estimates of Federalrevenues and expenditures for fiscalyear 1962.
Fiscal positionbudget and nationalincome bases compared
Table 1, based on the 1962 BudgetReview, presents a summary of theFederal Government's receipts and ex-penditures in terms of the administra-tive budget, the cash budget, and thenational income and product accounts.It will serve as a starting point for atranslation of the two budgets into na-tional income and product categories,and for a discussion of the impact ofGovernment programs on the flow ofincome and production.
Total administrative budget expend-itures are estimated to reach $89 billion,an increase of $7% billion over fiscalyear 1961, while receipts, at $82 billion,are on the basis of advancing incomescalculated to rise by $4% billion. As aresult, the budgetary deficit is estimatedto increase by $3 billion to a total ofabout $7 billion. This compares witha $1% billion surplus estimated in theJanuary Budget, when receipts were setforth at about the same total, and ex-penditures were projected at about $8billion less than the current estimate.The major differences between the twoestimates of expenditures are due to in-creases in programs for defense, space,and international purposes, larger farmsupport outlays, and to anti-recessionmeasures such as the temporary ex-tended unemployment compensationprogram. Revenues are now expectedto reach the January Budget estimates,
because of the vigorous recovery in busi-ness that has occurred since the begin-ning of the year. The fiscal and mone-tary policies of the Administration werean important factor in this recovery.
The cash budget differs from the con-ventional budget primarily because it-includes trust fund transactions and netexpenditures of Government-sponsoredenterprises. Receipts on this basis areestimated at $103 billion and expendi-tures at $111 billion, resulting in a defi-cit of $8 billion.
On national income and product ac-count, receipts are $2% billion higher,while expenditures are $5% billion lower
Table 1.Federal Government Receipts andExpenditures, 1960-62
[Billion dollars]
Administrative Budget:ReceiptsExpendituresSurplus or deficit ( )
Cash Budget:Receipts _ _ _ . _Expenditures. .Surplus or deficit ( )
National income and product ac-count:
ReceiptsExpendituresSurplus or deficit ( )
Fiscal years
1960
77.876.51.2
95.194.30.8
94.191.92.2
1961
77.681.5
-3.9
97.199.3-2.1
94.996.9
-2.0
1962, Oct.1961
estimate
82.189.0
-6.9
102.8111.1-8.3
105.2105. 4-0.2
Source: Bureau of the Budget; Treasury Department; andU.S. Department of Commerce, Office of Business Eco-nomics.
than on a cash basis, resulting in ap-proximate balance for the fiscal year asa whole. The difference between thetwo concepts as to receipts is primarilydue to timing (see table 2). The cashbudget includes taxes at the time theyare collected, while the national incomeaccounts record most of them at thetime the liability is incurred. Thus,changes in economic activity are re-
7
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
8 SURVEY OF CURRENT BUSINESS November 1961
fleeted more promptly in the nationalincome accounts and large differencesmay occur owing to changes in the paceof economic activity.
On the expenditure side, the majordifferences arise because all transac-tions in financial assets and liabilitiesprivate as well as Governmentareexcluded from the national incomeaccounts. These accounts register onlyexpenditures that directly enter theincome stream of the recipient. How-ever, the effects on current economicactivity of the omitted transactions infinancial claims show up under theparticular type of expenditure whichthey stimulate, such as private in-vestment, consumption or exports.
The 1962 Budget envisages particu-larly large increases in financial trans-actions, primarily in secondary marketmortgage purchases by the Federal
National Mortgage Association andin urban renewal and other housingprograms. In addition many existingloan programs, especially the SmallBusiness Administration's activities,are being expanded and new programs,such as the Area RedevelopmentAgency, are starting up.
As shown in table 3, the FederalGovernment's deficit on national in-come and product account has nar-rowed from an annual rate of $5%billion in the first quarter of calendaryear 1961 to about $3 billion in thethird quarter, as an increase in taxaccruals brought about by the businessrecovery outpaced the rise in expendi-tures. If the fiscal year totals of theBudget Review are realized, the currentexcess of expenditures over receipts onnational income and product accountwill be replaced by an excess of receipts
Table 2.Reconciliation of Estimated Federal Receipts and Expenditures, Budget andNational Income Accounts, Fiscal 1962
over expenditures later in the fiscalyear.
Federal receipts raised by businessrecovery
The more than $10 billion projectedincrease for fiscal 1962 in Federal re-ceipts, on a national accounts basis,would come from all areas of Govern-ment revenues and is based upon theexpectation of continued business re-covery.
The 1962 Budget Review assumes arise in personal income during thefiscal year with the total averaging$425 billion in the second half of cal-endar year 1961 as against $409 billionin the first half. (The annual rate ofpersonal income in October was $425billion.) Personal taxes will rise inline with incomes and are expected toyield over $3 billion more in fiscal 1962than during the preceding year. Cor-porate profits, under the Bureau of theBudget's assumptions, would rise from$42% billion during the first half of1961 to over $50K billion during the
RECEIPTS l lon ars second half, and would increase furtherBudget receipts _ $82.1 in 1962. On an accrual basis, corpo-
Less: Intragovernmental transactions.. - 4.0 rate UlCOHie taxes in the fiscal year 1962Receipts from exercise of monetary authority .1 wnnlrl viplrl $4.V hillirm mnr^ than in tVmPius: Trust fund receipts 24.8 would yield $41 >2 Diiiion more inan in ine
Equals: Federal receipts from the public (consolidated cash receipts) 102.8 preceding fiscal year.Increases in payroll tax ratesone-Adjustments for agency coverage: x ^
Less: District of Columbia revenues.... .3 eighth of a percentage point for OASIAdjustments for netting and consolidation Contributions and a temporarv
Plus: Contributions to Federal employees retirement funds, etc.. 1.8 ALess: Interest, dividends, and other earnings 1.2 tenths of a percentage point to
Adjustments for timing the costs of the temporary extended un-Plus: Excess of corporate tax accruals over collections; personal taxes, social insurance contributions, etc 3.2 .
employment compensation programAdjustments for capital transactions ! i T i i 11
Less: Realization upon loans and investments, sale of government property, etc 1.1 and higher employment WOUld raiseEquals: Receiptsnational income accounts.. 105.2 SOcial insurance Contributions by about
EXPENDITURES $2 billion. Excise taxes, CUStomS re-Budget expenditures 89.o ceipts and other indirect business taxes
Less: Intragovernmental transactions 4.0 are Projected almost $% billion higherPIUS: TrSf^l^ 2^7 than fiscal 1961 liabilities.
Government-sponsored enterprise expenditures (net) ,5Federal purchases reflect defense
Equals: Federal payments to the public (consolidated cash expenditures) 111.1 expansion
AdjLSiT^ .4 Outlays for national security, whichAdjustments for netting and consolidation in the January Budget were scheduled
Plus: Contributions to Federal employees'retirement funds, etc 1.8 , 4. u 4.U i no 1 l lLess: Interest received and proceeds of government sales _ 8 tO remain at aDOUt tne lybl level, are
Adjustments for timing programed to increase by $4% billion,Plus: Excess of interest accruals over payments on savings bonds and Treasury bills .4 j *n i J.T p , ,1
Excess of deliveries over expenditures . . .3 and Will be the prime factor in theLess: ^mW^dV^cre^ i',3 fiscal 1962 rise in Federal buying. The
Adjustments for capital transactions 1 bulk of this rise about $4 billion is toLess:
^ -s-^ *-* go for Department of Defense military
Purchase of land and existing assets .1 outlays (table 4).
Equals: Expenditures-national income accounts.... 10^4 Increases m the number of active
1 ConsisTof transactions in financial assets and liabilities, land and secondhand assets. Acquisition of newly produced duty personnel are a ma]Or factor in thetangible assets are included in expenditures for goods and services as defined in the national income and product accounts. pal mil a fprl ridA rf
November 1961 SURVEY OF CURRENT BUSINESS 9increase in operation and maintenanceexpenditures. Purchases of equipmentare scheduled to rise by $1% billion,with the larger share going for conven-tional weapons and equipment itemswith comparatively short delivery pe-riods. Outlays for aircraft, missiles,and ships are expected to rise some-what less in the aggregate. Expendi-tures for research and development andfor military assistance to other nationsare programed to increase moderately.Military construction is the only majorcategory of defense spending scheduledto decline.
Aside from actual defense purchases,the economy in the current fiscal yearwill be affected by the placement ofdefense orders which will be paid for inthe following fiscal years. Total ordersto be placed during the fiscal yearwould amount to $52^ billion andexceed planned expenditures by about$4 billion. This constitutes an increaseof about $5% billion over the value oforders received by business during fiscal1961. In addition, the Defense De-partment expects to make commitmentsto business for $3 billion worth oforders to be placed during fiscal year1963.
Other national security programs,with the exception of atomic energydevelopments, are also to expand. Theactivities of the National Aeronauticsand Space Administration and CivilDefense spending are to be stepped upconsiderably. While no net additions tothe physical stockpile of strategicmaterials are planned, the cost of theprogram will go up because of higherreplacement costs.
Nondefense purchases are programedto increase by about $% billion overfiscal year 1961. As compared with theJanuary Budget, the projected increaseis somewhat larger for non-defensepurchases other than those of theCommodity Credit Corporation. Forthe Commodity Credit Corporation theprojected increase is somewhat lessthan in the January Budget. This isprimarily due to a continued shift inthe Commodity Credit Corporation'sactivities away from purchases ofcommodities to programs designed toreduce output through the withdrawalof land from production. Expenditures
61623961 - 2
under these programs are reflected inthe national income accounts as subsidypayments rather than purchases ofgoods and services. In spite of thisshift, net CCC purchases are estimatedto exceed fiscal 1961 levels because ofthe large 1961 crops, and becausecotton sales are expected to fall belowfiscal 1961 levels.
Relatively small increases for theconduct of foreign affairs, the conserva-tion and development of naturalresources and the improvement andmodernization of the Federal airwayssystem account for the remainder of theincrease in Federal purchases.
While a significant part of the futurerise in GNP will come from the directpurchases of goods and services by theFederal Government, the stimulusduring the remainder of the currentfiscal year will not be quite so large asthe fiscal year 1961 and 1962 totals
would indicate. As may be seen fromtable 3, Federal purchases in the thirdquarter of calendar 1961 had alreadyreached an annual rate of about $57%billion, as compared with the fiscalyear average of $54% billion; the excessof second quarter 1962 purchases overthe 1962 fiscal year average of $59%billion is expected to be somewhat less.
Other Federal expenditures to riseGovernment expenditures, in addition
to influencing GNP through the pro-curement of goods and services, con-tribute to the flow of income throughvarious other types of programs, e.g.,grants-in-aid to States, social securitybenefits and other transfer payments,subsidies, etc. These programs arebudgeted to rise by a total of about$3^ billion, which is considerably morethan the average expansion registeredin the preceding couple of years.
FEDERAL RECEIPTS AND EXPENDITURES ON NATIONALINCOME AND PRODUCT BASISRise in Receipts Expected to Exceed Increase in ExpendituresFrom Fiscal 1961 to Fiscal 1962
RECEIPTS EXPENDITURES
Billion $$105.2 $105.4
Indirect BusinessTax Accruals
$13.6
(Social Insurance5\ Contributions c
Net Purchasesof Goods
and Services$59.7
* Fiscal 1962 estimate from 1962 Budget Review
U. S. Department of Commerce, Office of Business Economics 61-11-3Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
JO SURVEY OF CURRENT BUSINESS November 1961
The main factor in this change is a$1 billion rise in subsidies resultingfrom the new programs for the retire-ment of land from feed grain and wheatproduction mentioned above. Becausethe proposed postal rate increase wasnot enacted, government enterpriseswill continue to show a deficit of atleast the past year's magnitude.
Transfer payments to persons arescheduled to rise by slightly under $2billion, primarily because the SocialSecurity Amendments Act of 1961liberalized existing, and made availablenew, benefits. In addition, veterans7pensions and defense research grantswill rise slightly. These increases willbe partially offset by a decrease in
GOVERNMENT PURCHASES OF
GOODS AND SERVICES
Up in Fiscal 1962
Billion $60
40
20
FEDERAL
COMPENSATION OFEMPLOYEES
1956 58 60 620
Estimate from 7962 Budget Review
STATE AND LOCAL
Estimate based on trend of recent year:
40
20
t years
Total
COMPENSATION OFEMPLOYEES
1956 58 60FISCAL YEARS
U.S. Department of Commerce
62
payments for unemployment compen-sation as the business situation contin-ues to improve.
While cash grants for foreign aid,which are reflected as transfer pay-ments to foreign countries in thenational income accounts, are notscheduled to change materially fromtheir 1961 levels, other activities underthe foreign aid programs are budgetedto increase by under $% billion. Abouthalf of this will be in financial capitalassistance, such as development loansand the subscription to the Inter-American Development Bank, itemswhich by their nature are excludedfrom the national accounts. The re-mainder, which includes grants ofsurplus commodities to other nations,is included in the purchases of goods andservices.
The decline of interest rates duringfiscal 1961 brought interest paymentsby the end of the year down to about$K billion below the annual average of$7 billion. Although the increase inthe national debt will bring about anincrease in interest payments from theend of fiscal 1961 level, it is not expectedby itself to be quite large enough tobring the year as a whole up to thepreceding year's average.
Grants-in-aid to State and localgovernments are estimated to rise by$1 billion. The bulk of this is accountedfor by the highway construction and newpublic assistance programs, such as the
Table 4.Defense Department MilitaryBudget Expenditures, Fiscal Years 1960-62
[Billion dollars]
Total
Military personnelOperation and maintenance-Defense procurement
Research, development, test,and evaluation
ConstructionMilitary assistance
Revolving funds and unallo-cated
Civil Defense
Fiscal Years
1960
42.811.710.214.3
3.71.61.6
-0.4
1961
44.7
12.110.614.7
4.51.61.4
-0.3
1962Jan-uary1961Esti-mate
44.712.410.714.4
4.41.31.8
-0.2
1962Octo-ber1961Esti-mate
48.413.311.616.1
4.71.21.5
-0.20.2
Source: Bureau of the Budget and Department of Defense.
medical care for the aged programenacted last year and the new tem-porary program for dependent childrenof unemployed parents enacted thisyear.
(Continued on p. 16)
Table 3.Federal Government Receipts and Expenditures on National Income and ProductAccount Basis Fiscal 1960-62
[Billion dollars]
Federal Government receipts
Personal tax and nontax receipts . _-Corporate profits tax accrualsIndirect business tax and nontax accrualsContributions for social insurance
Federal Government expenditures
Purchases of goods and servicesMajor national security
Transfer payments - -To personsForeign (net)
Grants-in-aid to State and local governments
Net interest paid
Subsidies less current surplus of governmententerprises
Surplus or deficit ( ) on income and productaccount -
Fiscal
1960 1961
Actual
94.142.121.713.816.691.952.945.822.721.21.66.56.8
2.8
2.2
94.943.220.113.618.096.954.646.825.724.21.56.56.9
3.2
-2.0
Fiscal i1962
estimate
105.246.524.614.319.8
105.4
59.751.227.425.81.67.56.7
4.1
-0.2
1960
III IV
1961
I II III
Seasonally adjusted at annual rates
95.643.520.313.818.094.2
54.045.424.022.71.56.2
7.1
2.9
1.4
94.643.120.013.817.694.253.045.725.323.71.66.07.0
2.9
0.4
92.542.618.613.318.098.054.747.226.524.81.67.1
6.8
3.0
-5.5
96.843.621.213.618.4
101.156.648.827.125.71.56.86.6
4.0
-4.3
99.7
44.5na
14.018.7
102.557.449.027.826.11.76.46.4
4.5
'-2.8
6MI-4i1962 estimate from 1962 Budget Review. e=estimate.Sources: Bureau of the Budget, Treasury Department, Department of Commerce.
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
by ANNE N. PROBST
Consumption Expenditures in Recovery Phase
V^ONSUMPTION expenditures havemoved up since early this year, and aspointed out in the opening businesssummary are now an important factorin current trends. The decline fromthe late 1960 peak was moderate, andthe 3 percent rise from the first quarter1961 low brought third quarter outlaysto a new high. Early indications forthe final quarter suggest a further gain,paced by a rebound in auto purchasingfrom the relatively low summer volume.There has been considerable variationof demand in particular lines of busi-ness, and durable goods sales have onthe whole been low relative to thecurrent level of income.
Consumer purchasing over the cycleIt is the purpose of this article to
analyze the current tendencies and thelonger-term structural changes in con-sumer purchasing of goods and services.The chart clearly shows that fluctua-tions in total consumer spending havebeen of limited amplitude around agrowth tendency, though the durablegoods segment shows a much moresensitive pattern than the other twomajor segments. This volatility intotal consumption is one of the majorcharacteristics of its cyclical pattern,and its declining relative size in recentyears is an important factor in thelonger-run pattern.
Outlays for durable goods have notbeen showing the buoyancy of theearlier postwar period. Unsatisfieddemand for durables remaining afterWorld War II and the effects of theKorean hostilities no doubt had a liftingeffect on these purchases, although thecyclical swings have been pronouncedin each of the postwar recessions. Inthese same years consumer expendituresfor nondurable goods continued up-
ward, although at a somewhat lessrapid pace than in the earlier period.The high growth rate of outlays forservices has been maintained but, asmay be seen from the chart, the propor-tion of consumer expenditures for serv-ices is now back to the 1929 proportionof 40 percent, after two decades of warand reconstruction distortions duringwhich it has been much lower.
Buying and incomeExamination of the relationships of
the relative changes in consumption ex-penditures and its major components todisposable personal income in the post-war period suggests that changes indisposable personal income account fornearly all the variation in total con-sumer purchases of goods and services.Indeed, the relationship is one of directproportionalityi.e., on the average forthe postwar period each 1 percent changein income has been associated with a 1percent change in expenditures. Therelationship is quite stable, with onlyminor deviations during cyclical turns,although wider fluctuations occurredduring the Korean hostilities.
Nondurable goods demand has showna high degree of constancy in its rela-tionship to income in the period sinceKorea. The slope suggested by thisrelationship is 0.75, with those for foodand clothing somewhat lower, and thosefor other major nondurable goodsslightly higher.
Fluctuations around a logarithmicregression covering the postwar periodare appreciable in the case of durablegoods purchasing. Substantial devia-tions are apparent in cyclical periodsand in response to Korean developmentsand the special factors in the 1955 auto-mobile market. The slope for the1948-61 period as a whole is slightly
under one; the instability of the rela-tionship is such, however, that theaverage is not typical of any particularset of years in the postwar period.The slope has been well below unity inmore recent years, with the flatteningCONSUMER SPENDING AND CREDIT
Consumers' Outlays Rise in 1961 asServices and Nondurables Reach New HighsDurables Purchasing Improves but LowVolume Keeps Credit ExtensionsBalanced With Repayments
Billion $ (ratio scale)500
400
300
200
100
80
60
40
30
60
40
30
Personal ConsumptionExpenditures
Nondurables
7Services
Durables
INSTALLMENT CREDITExtensions
RepaymeJftS
20 I ... I ... I ... I . . i I ... I ... I ... I ... I ... 1 . i ..
1953 55 57 59 61Quarterly, Seasonally Adjusted, at Annual Rates
Data: FRB & QBEU.S. Department of Commerce. Office of Business Economics 61-11 13
11Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
12 SUEVEY OF CURRENT BUSINESS (November 1961
noticeable in both autos and the furni-ture-appliance group.
Outlays for services do not respondmuch to cyclical influences and relationsto incomes are highly unsatisfactorysince the correlations really are withtrendsthe average growth rate hasbeen 7 percent per year.
Evaluation of current positionThe course of consumption expendi-
tures so far in 1961 has not been too farout of line with their average relation-ship to after-tax income, consideringthe cyclical as well as the trend posi-
Table 1.Behavior of Consumption Ex-penditures During Postwar Cyclical Turns
[Percentage changes in seasonally adjusted data]
Consumption expenditures
Durablegoods
Nondurablegoods
Services Total
A. From peak to trough in total consumption
1948-491953-541957-58 .1960-61 .
3 0
7 1
-10.8
-10.0
1 4
0 3-0.10.4
0 51 i
3.1
1.6
1 0
0 8-0.5-0.5
B. From trough in total consumption to second followingquarter
1948-491953-54 _1957-581960-61
12.1
3.2
0.57.4
2.61.22.2
1.6
2.2
2.2
3.43.6
0.8
1.82.5
3.1
Source: U.S. Department of Commerce, Office of BusinessEconomics.
tion. This is also true of nondurablegoods spending as a whole, and for foodand clothing; gasoline and oil outlaysappear somewhat low. Durable goodsare somewhat below their averagepostwar relationship with income, whileservices are higher as would be expectedfrom the low position from which theyrose during the postwar period.
The deficiency in durable goodspurchases, as noted earlier, is attribut-able to both the automobile and partsand the furniture-appliance groups.While the downward deviation in thesedurables is typical for early stages ofcyclical recoveries, the deviations in1958 and 1961 were substantially largerthan in 1949 and 1954.
Outlays for furniture and equipment
have tended to follow residential con-struction activity, generally with ashort lag. The latter series peaked inmid-1959, and the former in the finalquarter of that year. Both types ofdemand fell through the first quarterof 1961. The subsequent rise in furni-ture and equipment purchases hasbeen relatively less than in housinginvestment.
Consumers' demand for services inrecent years of "catching up" has beenrelatively stronger than the demandfor goods. Growth has not merelybeen confined to those consumptionitems which are classified as services.Among goods, growth has been aboveaverage for processed foods, new typesof fabrics, and other items which econ-omize on such household services ascooking and laundering.
The recovery of the service compo-nent of personal consumption expendi-turefrom the abnormally low war-endpositionis measured on the charts.From 1948 through 1960 dollar ex-penditures for services were up 133percent compared to 95 percent fordurables and 54 percent for nondura-bles; the rise in disposable personalincome was 86 percent.
Part of the explanation for this isthe more rapid price advance for serv-ices in the postwar period, about twiceas much as the rise in prices of eitherdurable or nondurable goods. Hereagain, one must keep in mind the in-fluence of price controls, their relativeincidence, and the different time peri-ods over which they were lifted. Thus,this represents in some measure a catch-ing up of service prices from the warrestraints. After adjusting to constantdollars, the expansion of service expend-itures from 1948 to 1960 while sub-stantially in excess of nondurable goods,was not quite so large as the growth indurable goods purchasing from its stillabnormally low level in 1948.
Table 2 presents these changes inconsumption and compares them withthe prewar period. In addition, theperiod 1953 to 1960 is shown to avoidthe distortions of the early postwaryears. Again the greater rise in serviceprices was presenttwice as much asthe increase in goods pricesbut evenafter adjustment for price changes,service expenditures advanced half
again as much as either durables ornondurables.Allocation of consumer dollar
The result of this differential move-ment in consumption expenditures forthe various goods and services in themost recent period has been a change inthe proportion of the consumer dollarexpended for such items. Comparedwith 1953, the consumer today is spend-ing 7 cents more on services, and thishas been offset by a decline of 2 centson durable goods and 5 cents on non-durables.
As is shown in the chart, this shift
CHANGING DISTRIBUTION OFCONSUMER SPENDING
Percent of Total60
40
20
Nondurables
Durables
3d quarterI I I I I I I I I I I 1 I I
1929 41 48 50 55 60U.S. Department of Commerce, Office of Business Economics 61 11-14
from goods to services has been quitepervasive; the overall result is only toa small extent the result of diverse andoffsetting trends.
Among the nondurables, the portionof the dollar spent for food has shownthe largest decline in the last 7 years,falling by nearly 4 cents. It must benoted, however, that the largest sharestill goes for foodalmost 21 cents.Clothing and semidurable housefurnish-ings also have declined in relative im-portancethe former by about 1 cent.Increases in the shares spent for gasolineand oil, and for drugs, cosmetics, andnondurable toys and games were notenough to offset the declines in the othermore heavily weighted types of non-durables. After a sharp rise in theearly postwar years, the proportionallotted to gasoline and oil has tendedto level offi.e., dollar expenditures forDigitized for FRASER
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November 1961 SURVEY OF CURRENT BUSINESS 13
these products are now moving in linewith total spending.
The overall durables pattern is some-what clouded because of the partplayed by automobiles. As is shownin the chart, the proportion of expend-iture going to autos and parts hasshown considerable volatility and verylittle trend, though perhaps slightlydownward, in the last 7 years. Furni-ture and household equipment outlayshave had a downward drift, but thishas been offset by an advance in otherdurables which include such items asjewelry, toys, and ophthalmic products.Thus, the share going to all durables iscurrently slightly below the average inthe postwar years.
Among the services, all of the majorgroups except personal services andtransportation show rising proportions.Interest payments and medical carehave shown larger-than-average growth.Over the longer term, however, it maybe noted that the consumer in 1960spent about the same proportion of hisconsumption dollar on services as hespent in 1929 (see chart). The ser-vices proportion rose in the early de-pression years of the thirties, thengenerally fell until the end of WorldWar II, and has risen since.
The distribution of the service dollar,however, has changed significantly inthe three decades since 1929. Amongthe more important shifts was thedeclining relative importance in rentpaid by tenants, and the increasingproportion of imputed rent as homeownership grew. In aggregate, however,housing in current dollars takes almosttwo cents less of the current consumerdollar than it did in 1929. This reduc-tion has been offset by increases ofone cent each for medical care andhousehold operation (more particularlyfor the enormously increased servicesprovided by gas, electricity, and tele-phone facilities).Goods and services by function
A different and illuminating per-spective of developments in consumerdemand is obtained by comparinggoods and services by function orwithin related budget groups. Itshould be borne in mind, however, that
SHIFTS IN SPENDING PATTERNSWith Only Few Exceptions, Services Take Increasingly More, andGoods Less, of the Consumer Expenditure Dollar
Cents per Consumer Dollar
26
24
22
20
18
16
10
CONSUMER GOODS
Clothing
/*****
Autos and Parts
Furniture andHouse Furnishings
\
Books, Toys, & Sporting Goods
I I I I I I I
SERVICES
Housing and HouseholdOperation
V
Personal Business
V
Medical Care
Auto ServicesRec/eation
Purchased Transpoi
1 I I I I
station ^
l i l t
1953 55 57 59 61 1953
U. S. Department of Commerce, Office of Business Economics
55 57 59 61
61-11-15
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
14 SURVEY OF CURRENT BUSINESS 'November 1961
while the following discussion is con-cerned with categories accounting fora significant proportion of all consump-tion expenditures, many importantitems in the consumer budget cannotbe so grouped.
The data indeed suggest that to alarge extent the recent differentialtrends in goods and services areattributable to those groups where sub-situtability between goods and servicesis quite limited. Food expendituresis one of these, and as one wouldexpect, it has risen only slightly morein real terms than has population.The high priority food outlays growrelatively slowly with conditions ofadequate supply, and these have alarge weight (in dollar terms accountingfor over two-fifths of goods expendi-tures.) The steady progress in suchpurchasing is of importance in thecomparative advance in aggregate goodsrelative to services. In marked con-trast are the rapid increases in spendingfor personal business (which includessuch items as interest on debt, lifeinsurance expenses, and bank servicecharges), foreign travel, and privateeducation.
The chart gives certain broad com-parisons of related goods and services,grouped by budget function. Specialnote should be taken of the dual scales,which in the case of clothing and jew-elry, for example, is 10 to 1 for goods.Within many of these categoriestransportation, recreation, arid cloth-ingthe goods component has beenrising relatively faster than services.
In the case of recreation, for example,purchases of commodities such astelevision sets, phonographs, records,and toys have shown strong postwargrowth both in dollars and in physicalvolume, while admissions to motion
pictures and spectator sports havetapered off, holding down the servicecomponent. The differential move-ments within groups reflect in large partthe substitutability of some goods andsome services.
On a volume basis, clothing expendi-ture has kept pretty well in line withthe growth of population though asevident from the preceding chart ithas constituted a continually decliningshare of consumer outlays. On theother hand, the much less importantcategory of services related to cloth-ingwhich include such categories asshoe repair, and cleaning and launderingof clothingwhile rising in dollar termshave actually declined in real terms.Such developments as the increase inhome laundry equipment, the spread oflower cost self-service cleaning andlaundering establishments, and im-proved fabric finishes which requireless professional care, have all beenmaterial factors in this maintenancecategory.
The greater rise in the goods portionof transportation expenditures, andmore particularly automobiles and parts,has been a major factor in the pictureshown in the top right grid, eventhough there has been some weaknessin new car sales at times. The growingstock of cars has provided a readysubstitute for many forms of masstransportation, and declines in pur-chased transportation have been sharpin real terms. Airline travel has, ofcourse, been a conspicuous exception.Those services associated with user-operated transportation, such as autorepairs and auto insurance, are respon-sible for the recent growth in totaltransportation services.
The growing importance of the com-pact cars in the auto market is begin-ning to have its impact on the distri-
Table 2.Changes in Personal Consumption Expenditures, 1929-60
TotalDurable goodsNondurable goods _ - _ . -Services
Current dollars
1929-48 1948-60 1953-60
Constant (1954) dollars
1929-48 1948-60 1953-60
Percent change
12614716277
849554
133
41352962
56666145
50703565
27262037
Source: U.S. Department of Commerce, Office of Business Economics.
bution of transportation costs. As thepenetration of compact sales hasmounted, the average price paid fornew cars has fallen for the first timesince the mid-fifties and is having aneffect upon total auto expenditures.Moreover, the fastest growing compo-nent of total consumer spending foruser-operated transportation in thepostwar period has not been automobilesales, but rather their operation andmaintenance. The recent tendency ofbuyers not only to veer toward theeconomy cars, but concurrently forsome purchasers to exhibit a preferencefor the more luxurious, dressed-upmodels suggest that the purchase of acar is considered as a flexible invest-ment in transportation. The initialcost of a car is only a part of the totaltransportation bill. The compact carbuyer hopes to make savings, notmerely on the purchase price, but onexpected reductions in gasoline, de-preciation, repairs, taxes, and insurancecosts. To the extent to which these ex-pectations are realized and consumeracceptance of the smaller cars grows,the proportions allocated to autos,gasoline and oil, and transportationservices will of course be affected.Housing and household operations
lake large shareThe chart also shows groups which
are more characteristic of the overalltrend. Services related to housingand household operation, which accountfor almost one-half of total outlaysfor services, have far outstripped house-hold goods in postwar growth. Partof the reason for the marked differentialin the rate of growth of these servicesand goods stems from the way in whichthe items are classified. First, andimportantly, over 18 million new unitshave been added to the housing supplyover the period shown in the chart.The purchase of a residence is con-sidered as an investment and not in-cluded with the purchase of consumerdurable goods. The value of rentimputed to owner-occupied housing isclassified as a service along with therents actually paid. Since this is notonly a large item, but growing rapidlyowner-occupied homes have increasedfrom about 50 percent to 60 percent ofthe increased stock of housing in the
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November 1961
postwar perioda vigorous upwardpush is given to what is classified asservices.
The other purchases in this servicegroup include spending for such itemsas gas and electricity, which have shownrapid growth in the postwar period,mainly through the large increase involume. Prices of electricity havedeclined over the period when measuredin terms of average cost per kilowatt-hour consumed. The rise in the pur-chase of electric power can thus beattributed completely to increasedvolume. As the number of householdappliances run by electricity has in-creased, and electric power has beensubstituted for other forms of energy,the number of residential customershas risen about two-thirds over thepostwar period while residentialelectric power consumption has risenover fourfold.
Outlays for gas have also increasedsharply over the postwar period as theinstallation of large interstate gaspipelines has brought natural gas intomost metropolitan markets. This de-velopment and that in electrical usehave both tended to lower consumerexpenditures for coal and ice whichregistered volume declines over thepostwar periodan instance where"services" have been substituted forgoods.
Both goods and services in this groupare related to the number of house-holds, but both have expanded morerapidly in volume. However, thisshould not be too surprising since ex-penditures for housing and householdequipment do not consist merely offirst-time purchases by new house-holds; they also include replacementpurchases by existing familly groupsand quality increases in both housingand its equipment.
Emplacement and obsolescence cur-rently play major roles in the case ofsuch older types of applicances asrefrigerators and stovesaccountingfor the bulk of their yearly sales. Forinstance, while the number of nonfarmdwellings increased about 12 millionsince the early 1950's, the number ofrefrigerators sold in the same periodwas over 35 million. In addition, re-placement demand expands with thegrowth in consumer stocks. Since the
SURVEY OF CURRENT BUSINESS
average life of a house exceeds that ofthe "acceptable life'' of most homeproducts, this factor would not con-tribute as much of an upward push tohousing services.
Another reason why this group ofexpenditures has been rising faster thanthe number of households has been theintroduction of new products andchanging patterns of household life.The initial spurt in buying of itemssuch as home freezers and clothes driersas they first appear on the market hastended to give a boost to total goodsbuying. As the market for these prod-ucts matures, however, the maintenanceand repair costs gradually swing thebalance toward service outlays.
Quality improvements are also par-tially responsible for the rise in house-hold goods and services. But here as inmany other instances the growth of
15
"real" family income is important. Inthe case of housing this quality factor isespecially important, since consumershave been able to buy higher qualityresidences as real disposable personalincome has increased. The averageprice for kitchen appliances over thisperiod has declined, so that dollarspending for these items has grownrelatively less than the volume ofpurchases.
Quality improvements, rising in-comes, and the spread of hospitalizationand medical insurance are among thefactors behind the rise in medical careexpenditures, with the increasing use ofthe newer more expensive but highlyeffective drugs. The great spread ofhospitalization insurance by employersis increasing; this and the spread ofmedical und hospitalization plans havebeen instrumental in providing a large
EXPENDITURES FOR SELECTED GOODS AND SERVICES, BY FUNCTION
Growth Rates in Goods Purchasing Are FrequentlyHigher Than in Related Services
Billion $ (ratio scale) Biliion $ (ratio scale)
706050
40
30
20
10
40
30
20
.. HOUSING AND HOUSEHOLDOPERATION
Goods
CLOTHING AND JEWELRY,Services
(right scale)
PERSONAL CARE
MEDICAL CARE
Services(right scale)
Goods(left scale)
20
15
10
1947 49 51 53 55 57 59 61 1947 49 51 53 55 57 59 61
U. S. Department of Commerce, Office of Business EconomicsDigitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
16 SURVEY OF CURRENT BUSINESS (November 1961proportion of the population with medi-cal care and hospitalization on a partlyprepaid basis. The larger base, moreadequate care, and increasing costs haveall tended to substantially increaseoutlays for medical care and createddemand for constantly expandingfacilities.
The upward movement in the volumeof private education expenditures in thepostwar period is due primarily to thelarger proportion of young people en-rolled in collegefrom 15 percent of
the 18-24 year group in 1947 to 21percent in 1960. The number of per-sons in this age bracket is just gettingback to the 1947 level, having declinedthrough 1952 and risen steadily since.The recent rise in the college age grouphas accelerated the growth in outlaysfor private education. The rise in cur-rent dollars has been much sharper astuition costs have advanced substan-tially. The steadily rising contribu-tions by Government units to educationis, of course, not included here.
Table 3.Consumption Expenditures: Distribution by Major Groups
Total goods and services *Durable goods
Autos and parts. _ __ ._Furniture and. household equipmentOther
Nondurable goodsClothing and shoosFood and alcoholic beveragesGasoline and oil _ . _Semidurable house furnishingsTobaccoOther - -
Services _ _ _ _ _ -Household operation _ .Housing _ _ ._Personal servicesRecreation _Transportation. _ . ._ _ _ . . _ _ . _ _ . _ . _Other
1929 1939 1948 1953 1960 3dqtr1961
(Percent of total)
100.011.7
4.16.01.5
47.7
11.924.72.3
0.92.15.8
40.65.1
14.52.32.13.2
13.3
100.09.93.25.21.5
52.010.628.43.2
1.02.66.2
38.15.6
13.32.1
2.33.0
11.8
100.012.7
4.16.71.9
55.411.331.42.51.32.36.5
31.94.59.92.2
2.13.39.9
100.014.1
6.06.31.8
50.79.4
28.03.2
1.12.36.6
35.25.0
11.81.91.83.5
11.2
100.013.55.75.72.1
46.38.5
24.33.50.92.36.7
40.2
6.012.81.81.93.2
14.4
100.0
12.4
4.85.52.1
45.88.4
24.03.4
0.92.36.7
41.86.2
13.11.92.03.2
15.3
i Detail may not add to total because of rounding.Source: Office of Business Economics, Dept. of Commerce.
Growth in personal business outlaysThe category of consumer expendi-
tures labeled personal business includesoutlays for many household financialtransactions such as interest paymentson consumer debt, brokerage and bankcharges, life insurance, legal expensesand others. The increased share ofsuch outlays in total consumer spendingis attributable in large part to thegrowth of interest charges on consumerdebt. Such payments have shown athreefold rise over the postwar periodand have been one of the fastest grow-ing components of consumer spending.
This large increase is, of course, asso-ciated with the growth in borrowingrelative to purchases. In 1948 con-sumer borrowing on durable goods rep-resented almost one-half of consumerexpenditures for such goods; in 1960such borrowing accounted for almostthree-fourths. Over this period therewas also an increase in the average termof consumer installment loans whichfurther affected interest charges.
The growing personal use of bankingfacilities and heightened public partici-pation in the financial markets were alsoresponsible for some of the increase inpersonal business outlays. The steadilyrising volume of life insurance pro-grams, many sponsored under labor-management contracts, has furthercontributed to this growth.
Expansion of Government Programs(Continued from p. 10}
State and local expansion to continuePurchases of goods and services by
State and local governments would, on acontinuation of recent trends, exceed$53 billion in the present fiscal year.Increases in purchases by these govern-mental units have been steady and haveaveraged more than $3K billion overthe last 5 f