1941: Production And Trade

Reorganization to a War Economy.

The outstanding development in production and trade during 1941 was, of course, the fact that the entire industrial life of the nation was in the early stages of being completely reorganized in an effort to meet defense and wartime demands of an almost incomprehensible size and complexity. Indexes of production and trade show that in 1941, for the first time in 4 years, business activity climbed fairly steadily to new high levels, uninterrupted by any significant reversals of trend. The defense program which this country embarked upon in 1940 resulted in the attainment of a high level of production in the closing months of 1940. Expansion of defense efforts in 1941 carried business activity forward to levels never before attained in this country, and even higher activity is anticipated in the war program of the coming year.

The nature of the defense program is such that, while the index of general industrial production advanced to an important degree, the individual components of that index show wide variations. In general, production of durable goods advanced much more rapidly than that of non-durable goods. Certain defense industries advanced spectacularly while many non-defense industries showed little or no progress. The realignment of American industry is still in its early stages, and much more drastic shifts in production are contemplated during the coming year.

During the entire year 1941, industrial prices increased practically without interruption, agricultural prices increased more rapidly, but the increase was interrupted by a moderate decline in October which was more than offset by a sharp increase following our entry into the war. Construction increased sharply to the highest levels reached since 1928, the increase in non-residential construction being outstanding. Employment and payroll indexes followed the general pattern of industrial activity, with a particularly sharp increase in the payroll index as a result of wage increases granted during the year. Both imports and exports of merchandise were running ahead of 1940, although the nature and direction of the trade came almost completely under government control as a result of wartime regulation.

Increases in Durable Goods Production.

Indexes of production and trade for 1941 are significant rather as an indication of the realignment of American industry upon the first stages of which we are just entering, rather than as a physical comparison with results of previous years. In other words, the abnormal causes of developments in production and trade during the year suggest great caution in any use that may be made of indexes of such production. The Federal Reserve Board Index of Industrial Production (unless otherwise indicated, all index numbers used in this article are seasonally adjusted with the 1935-39 figures equaling 100), which had stood at 139 in December 1940 advanced to 167 in November 1941. The steady character of the rise is indicated by the fact that during no month of 1941, with one exception, was the index lower than that for the preceding month; the one exception was the month of April when, owing to almost complete cessation of the mining of bituminous coal, the index dropped 3 points. The importance of the role played by durable manufactures is shown by the fact that the index for such manufactures rose steadily from 164 to 213, while that for non-durable manufactures rose from 124 to 140. Mineral production was more irregular during the year as a result of the April coal strike; the index stood at 118 in December 1940, fell to 95 in April after reaching 125 in March, and then rose to 133 in November.

Primarily as a result of the varied impact of the defense program upon individual industries, their fluctuations departed drastically in many cases from the general averages, particularly in the closing months of the year when defense production was beginning to get into its stride. Pig iron and steel reached new high production levels during the year, with plants operating at practical capacity subject to minor interruptions resulting from temporary labor difficulties, and material shortages. Chiefly as a result of additions to productive capacity during the year, the Federal Reserve Board Index of steel production advanced steadily from 181 in December 1940 to 206 in October 1941; corresponding indexes of pig iron production were 173 and 184, respectively. The output of non-ferrous metals followed a pattern very similar to that of steel, being at capacity during the entire year. The index for such metals stood at 162 in December 1940 and advanced to 185 by October 1941. Lumber production was 133 in December 1940 and dropped slightly to 127 by the following October. Corresponding figures for cement were 155 and 159, and for plate glass were 117 and 102. The production of plate glass fell rapidly from a high of 152 in June as restrictions on residential construction and automobile production gradually became clear.

Those durable goods industries more closely connected with the defense program showed spectacular increases in output as capacities were rapidly increased. Comparing December 1940 with October 1941, aircraft production rose from 635 to 1354, shipbuilding in private yards from 263 to 632, railroad cars from 172 to 285, and locomotives from 186 to 378.

Non-Durable Goods Production Increases.

So far as non-durable manufactures are concerned, the fluctuations were for the most part less pronounced. The index figures as yet reflect little or no indication of the severe restrictions upon various consumers goods which seem to be in store for us. During 1941, for the most part, increased employment and payrolls led to increased consumption of non-durable goods. Leather and leather products, for example, rose from 109 in December 1940 to 121 in October 1941, having reached an intermediate high of 130 in June. The index for manufactured food products rose fairly steadily from 121 to 133, while that for textiles and textile products rose from 140 to 151. Alcoholic beverages rose sharply from 101 to 131 (September), while tobacco products increased from 114 to 128. Petroleum refining stood at 116 in December 1940 and rose to 128 by the following September; paper and paper products rose during the same period from 130 to 144. Chemical production stood at 121 in December 1940 and rose to 148 in October 1941.

On the basis of figures through October, it would appear that residential construction during 1941 reached a volume not attained since 1928, and that contracts for non-residential construction were at a level never before attained. The index for residential construction stood at 90 in December 1940, advanced to 115 in July 1941, and then declined to 88 in October. For the full year 1940, the index stood at 72, compared with a 1928 high of 126 and a 1933 low of 11. The index of non-residential construction moved rather irregularly during the year. From a figure of 136 in December 1940, the index reached 206 in October after declining to a low of 109 in March. The figure for the full year 1940 stood at 89, as compared with a high of 142 in 1928 and 1929, and a low of 37 in 1933.

Employment and Payrolls.

The outdistancing of the non-durable goods industries by the durable goods industries, which has already been referred to, is further emphasized by Federal Reserve Board Indexes of Employment (seasonally adjusted, 1923-25 average = 100). These indexes had stood at 115.7 and 117.6, respectively, in December 1940 and had reached 142.0 and 123.5 by October 1941. The index for durable goods passed that for non-durable in November 1940 for the first time since the predepression era, and a further widening of the gap between them will undoubtedly develop as the war program gets into full swing. Both indexes advanced fairly steadily during the year, although that for non-durable goods declined by 3 points between July and October, when the durable goods increase was showing an increase of 1.2 points.

The unadjusted index of factory payrolls (1923-25 average = 100) brings out even more clearly the increasing relative importance of the durable goods industries. The payroll index for the durable goods industries increased from 123.4 in October 1940 to 191.6 in October 1941, whereas corresponding figures for non-durable goods industries were 108.1 and 138.9. Average hourly earnings in the durable goods industries increased by 10.6 cents between September 1940 and September 1941, whereas the corresponding increase for non-durable goods was 5.7 cents. The increase in average hours worked per week was almost the same for durable as for non-durable goods industries, the respective figures being 2.1 hours and 2.0 hours, respectively.

Labor and Labor Disputes.

In spite of continued emphasis during 1941 on the necessity of maintaining maximum production in the interest of national defense, labor disputes were much more serious in that year than at any time since 1937. Man-days idle through strikes in the first nine months of 1941 amounted to nearly three times the total for the full year 1940, the respective figures being 19,128,000 and 6,701,000. Labor seems to have capitalized upon the national emergency to achieve a great part of its objectives. Wage increases preceded a rising cost of living, and were indeed responsible in part for it. Attempts to secure the closed shop were responsible for many serious strikes during the year. Jurisdictional disputes led to much public indignation and to demands for legislative regulation. The participation of the United States in the war will presumably bring strikes to a sharp halt, although the price of accomplishing this is not yet clear.

Farm Income and Production.

As a result of increased farm production, coupled with substantially higher prices, farm income in 1941 is estimated to have increased by about $2,000,000,000 over the figure of $9,200,000,000 for the year 1940, and a further increase of about the same amount is anticipated for 1942. The Department of Commerce adjusted index of income from farm marketings (1914-29 = 100) increased quite steadily from 80.5 in October 1940 to 112.5 in October 1941. The index of prices received by farmers (1909-1914 = 100) increased from 99 in October 1940 to 139 in October 1941, whereas the index of prices paid rose from 122 to 133. The result is that for the first time in 16 years farm prices crossed the so-called parity level, and the relative buying power of the farmer increased sharply during the year.

The Department of Agriculture's Nov. 1, 1941, crop estimates included the following: wheat 961,000,000 bushels (1940 production — 817,000,000 bushels), corn 2,675,000,000 bushels (1940 — 2,449,000,000); and cotton 11,020,000 bales (1940 — 12,566,000). Early in 1941 agricultural exports reached the lowest level in 74 years. However, a sharp rise took place thereafter as a result of the allocation of $1,350,000,000 of lease-lend funds to agricultural products. Further allocations were subsequently made for the same purpose, and it is expected that agricultural exports in 1942 will about double those of 1941. About 75 per cent of the total, or enough to feed 10,000,000 people, is destined for Great Britain. Rising exports, increased consumer demand in this country, continued Government crop loans, and increased production are expected to give the farmers in 1942 an exceptionally profitable year. The question might well be raised as to whether the farmers are being not only permitted, but actually encouraged, to exploit the industrial section of the country. (See also AGRICULTURE.)

Price Movements.

Largely as a result of Governmental pressure in one form or another, price movements during 1941, while important, were by no means so great as war and the increased business activity might have led one to anticipate. Indeed, with the two notable and important exceptions of farm products and labor, the Government has very effectively held down a wide range of prices. This is particularly true of strategic raw materials, though such consumers goods as refrigerators and cigarettes have also been affected. The Bureau of Labor Statistics all commodity wholesale price index (1926 = 100) was 93.8 during the closing week of 1941 as compared with 79.9 a year earlier. The increase was quite steady during the year, but so far as the component parts of the index are concerned, greater irregularity was shown. The most significant increase during the year was that in farm products from 69.7 to 95.5. Foods increased from 73.5 to 91.2, and all other commodities from 84.1 to 94.0. Largely as a result of Governmental restriction, the index for metals and metal products increased during the year only from 97.6 to 103.4.

Increased wages and wholesale prices finally began to be reflected during 1941 in a significant increase in the cost of living, further substantial increases in which may be confidently expected unless rigid and comprehensive price control policies are adopted. The Bureau of Labor Statistics unadjusted index of the cost of living (1935-39 = 100), which stood at 100.7 in December 1940, advanced to 109.4 in October 1941. The significance of this advance is shown by the fact that this index in the five years preceding 1941 fluctuated between a low of 98.1 for 1936 and a high of 102.7 for 1937. The all-time low was 92.4 for 1933. The range for 1919-1929 was a low of 119.7 in 1922 and a high of 143.2 in 1920.

Retail and Foreign Trade.

Department of Commerce estimates indicate an aggregate retail trade for 1941 of about $54,000,000,000, an increase of 18.4 per cent over 1940. The index of retail trade reached its high point in August, followed by a sharp decline, with some recovery in November and December. Practically our entire foreign trade came under Federal regulation during the year, no less than 95 per cent of our exports being under license even prior to the attack on Pearl Harbor. Exports during the first 9 months of 1941 totalled $3,318,000,000 as compared with a corresponding figure of $3,027,000,000 in the previous year. Comparative figures for imports were $2,417,000,000 and $1,942,000,000, respectively. The exports would be even greater were it not for the fact that domestic demand makes it impossible for us to export many kinds of industrial products needed by foreign countries, such as those in South America, whose normal sources of supply have been cut off. The British Empire is taking an increasingly large proportion of our total exports, the proportion having risen from about one-third before the war to about two-thirds at the present time. Exports under the Lend-Lease Act, however, as yet account for only a very small part of such exports. More than one-third of our imports in the first 9 months of 1941 came from Asia and Oceania and the outbreak of war with Japan may be expected to eliminate a substantial part of such imports.

In conclusion, it may be stated that we have as yet barely started to feel in a very preliminary way the effects of the tremendous readjustments of our productive and trading mechanism which our all-out war program will require us to face in the near future. Maximization of output in many important lines of production will be called for, together with elimination of output in many other important fields. The magnitude and scope of these readjustments are quite beyond anything of the kind that this country has ever before faced. See also BUSINESS; WORLD ECONOMICS.