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.

1940: Production And Trade

Recession and Recovery.

The recession in production and trade, signs of which were seen in the closing month of 1939, developed into a fairly sharp downswing in the early months of 1940, thus repeating to some extent in those months the pattern of 1938 and 1939. Recovery, which followed the low point reached in April, was delayed somewhat by the uncertainties connected with the French surrender. New high levels of production, however, were rapidly attained in the closing months of 1940 as a result of the rapidly accelerating pace of the defense program in the United States. The recovery was of broad scope, although as usual the major industries of the country were affected by it in varying degrees. The sharply increased level of industrial production was featured by the fact that the manufacture of durable goods reached relatively much higher levels than those reached by nondurable goods. During the first eight months of the year both agricultural and industrial prices followed a generally declining trend. This trend was reversed in the final four months although price levels were still substantially below those reached immediately following the outbreak of war in 1939. By the close of 1940, construction contracts awarded reached levels not seen since 1930, the increase in private construction being particularly sharp. Employment and payroll indexes followed the general pattern of industrial production, and throughout the entire year the volume of retail trade compared favorably with that in 1939. Both imports and exports of merchandise ran substantially ahead of 1939, although the excess of exports in 1940 was much larger than that in the preceding year.

The Revised Federal Reserve Board Index of Industrial Production (adjusted, 1935-39 = 100), which had stood at 126 in December 1939, dropped to 111 in April 1940. After recovering to 121 and holding steady at that level in June, July and August, the index advanced to 132 in November, and seems to be headed for still higher levels. As is customary, the fluctuations in manufacturing production were much more pronounced in the durable goods industries than in the nondurable. The indexes of production in the former were 140 in December 1939, 113 in April 1940, and 153 in November 1940. Corresponding indexes for manufacture of nondurable goods were 117, 107, and 120, respectively. Mineral production held remarkably steady at corresponding indexes of 115, 119, and 113, (October) thus departing from the pattern set by manufactures.

Industrial Production.

Fluctuations in the production of individual industries were of course much sharper than those of the general averages. Steel production, for example, stood at 167 in December 1939, declined to 97 in April 1940, and advanced to 165 in October 1940, the December rate being probably somewhat higher. Production at the close of 1940 was running at the rate of over 98 per cent of theoretical capacity; orders were running in excess of production, and fabricators were frequently unable to get prompt fulfillment of their demands. An industry in which for much the greater part of 10 years the most serious problem has been that of over-capacity has almost overnight been converted by the direct and indirect results of the war into an industry whose chief problem is one of inability to make all deliveries desired. Other durable goods industries following the same general pattern of production as steel were: lumber production, standing at 121 at the end of 1939, at 110 in April, and at 123 in October; cement at 128, 115, and 127, respectively; and plate glass at 124, 80 (June), and 111.

Certain of the durable goods industries showed rather marked departures from the general trend. Notable among such industries was that of aircraft production, which stood at 266 in December 1939, at 306 in April 1940, and at 565 in October 1940, the explanation of course being the huge volume of foreign orders as well as normal domestic requirements. New domestic defense orders had not yet had much effect on actual production figures.

Manufactures.

So far as nondurable manufactures are concerned, the fluctuations also were for the most part less pronounced, and they frequently departed from the general average. Leather and leather products, for example, dropped from 105 at the close of 1939 to 85 in April and recovered only to 95 in October. Manufactured food products showed very little variation during most of the year although the trend was upward in the closing months. Textile production followed the general pattern very closely, the index having been 125 in December 1939, 100 in April, and 123 in October. Petroleum refining dropped less than average, the low point came later in the year (July) and not all the lost ground was recovered. Sugar meltings were highly irregular during the year; the index stood at 96 in December 1939, at 86 in March 1940, at 112 in June, at 86 in September, and at 104 in October.

Building Construction.

Construction during 1940 has been marked by a sharp rise in residential construction to the highest levels reached since 1929. The Federal Reserve Board seasonally adjusted index (1923-25 = 100) of contracts awarded for such construction stood at 60 in December 1930, at 53 in January, and rose steadily to 82 in September. The 1930 index of 50 and the 1939 index of 60 had been the highest since 1929. Nonresidential construction fluctuated much more sharply than general business conditions. The index stood at 107 in December 1939, dropped to 65 in May and recovered to 102 in October. Further substantial recovery in this index may confidently be expected as a result of the defense program. A noteworthy trend in construction is shown by the fact that in the first 9 months of 1940 in 37 states east of the Rocky Mountains, contracts under private ownership exceeded those under public ownership by about 37 per cent, whereas the corresponding figure for 1939 was only 8 per cent. In 1938 public contracts had exceeded private by 14 per cent.

Employment.

So far as employment is concerned, a noteworthy milestone was passed in October 1940, when for the first time since the pre-depression era, the Federal Reserve Board index of employment (1923-25 = 100, adjusted for seasonal variation) showed that employment in the durable goods industries was at a higher rate than in the nondurable goods industries. Since lack of general recovery in the United States has been pretty generally attributed to the low level of activity in the durable goods industries, the significance of this milestone should not be overlooked. We may confidently expect that the defense program will result in a further substantial increase in employment in the durable goods industries and a consequent subsequent stimulation to employment in a wide range of other industries.

The recession in the early months of 1940 had almost identical effects upon employment in both durable and nondurable goods industries. Comparative indexes of employment in the two groups of industries were, respectively, 100.1 and 108.9 in December 1939, and 95.2 and 103.3 in April 1940. As already indicated the recovery went much further in the durable goods industries, the respective figures in October 1940 having been 108.2 and 106.9. The unadjusted index of factory payrolls shows even more clearly the much greater degree of recent recovery in the field of durable goods. In March 1940 this index stood at 97.6 for durable goods and 98.9 for nondurable goods; corresponding figures for October were 121.7 and 105.9, respectively.

Employment in those special industries that have had large British contracts, and, more recently, large defense contracts, has grown spectacularly, and further large increases may confidently be expected. For instance, the adjusted employment index for the aircraft industry stood at 2,121 in December 1939, and 4,289 in October 1940. Corresponding indexes for shipbuilding were 139 and 194 and for machine tools 191 and 257. In contrast, employment has actually decreased in most nondurable goods industries, where indexes for December 1939 and October 1940 have been, respectively, lumber and lumber products 72.4 and 71.3, textiles 105.8 and 102.7, leather 96.9 and 91.1, food and food products 131.4 and 129.7, and tobacco 64.7 and 63.3. Chemicals, petroleum and coal products increased only from 121.9 to 122.7.

Labor Disputes; Wages and Hours.

Labor disputes were much less serious in 1940 than they had been in 1939; the man-days idle through strikes was only one-fourth as great in the first eight months of 1940 as in the corresponding period of 1939. Great pressure will probably be exerted to avoid strikes in defense industries in the future. In October 1940, the third step in the reduction of hours under the Fair Labor Standards Act was taken when the 40-hour week was enforced in all industries subject to the Act. The reduction from 42 to 40 hours was facilitated by a rapidly rising level of industrial productivity, as had been true of the two previous reductions, in 1939 and 1938, respectively. The 40 cent hourly minimum wage provision of the Act will not take effect until 1945, but by October 1940 minimum wages ranging from 32½ to 40 cents had been established in 11 major industry groups employing on the average a total of more than 2,100,000 workers.

Prices.

Movements of prices in 1940 were not so great as might have been expected in view of the tremendously increased level of business activity in the final months of the year. Governmental pressures in one form or another was probably responsible for preventing substantially higher prices in certain lines of industry. The Bureau of Labor Statistics all commodity wholesale price index (1926 = 100) was 79.4 in the week ended Dec. 30, 1939, and 79.9 in the week ended Dec. 28, 1940. The lowest monthly average during the year was 77.4 in August. So far as the component parts of the index are concerned, a greater variation was shown. At the close of 1939, the farm products index was 68.5, having lost but little of its rapid rise from 61 to 69 following the outbreak of war in Europe. This index reached a low of 65.6 in August 1940 but recovered in December to 69.9. The foods index rose from 67.2 to 75.5 following the outbreak of war in 1939, but closed that year at 71.9, thus giving up about 40 per cent of its gain. This index declined further to a low of 70.1 in August 1940, but by December recovered to 73.1, somewhat above the level at which it closed the previous year.

The index for all other commodities, which had risen rather steadily following the outbreak of war from 80.1 to the year's high of 84.4 in December 1939, declined to a low of 82.0 in August 1940, recovering by November to 84.3. One of the most actively fluctuating components of this index is that for textile products, which rose in the latter months of 1939 from 67.2 to 78.6, declined by August 1940 to 72.3, and by November recovered only to 74.2, substantially below its level of a year earlier. The building materials index, on the other hand, stood at 98.8 in November 1940, as contrasted with 93.0 a year earlier.

The National Industrial Conference Board index of the cost of living advanced only very slightly during the year, having stood at 84.6 (1923 = 100) in December 1939 and 85.5 in October 1940. Retail food prices, likewise, have shown little significant variation during the year. Retail trade was more prosperous in 1940 than in 1939, which in turn had been more favorable than 1938. The Federal Reserve Board seasonally adjusted index of department store sales (1923-25 = 100) stood at 106 in December as compared with a 1939 high of 96 in December and an average for the year of 90 as compared with 85 in 1938.

Abundant farm production, coupled with average farm prices higher than those of the preceding year, combined to produce the second largest cash farm income since 1929. In the first 9 months of 1940 farm income from marketings amounted to $5,633,000,000, while income from government payments was $542,000,000. Corresponding figures for the first 9 months of 1939 were $5,233,000,000 and $558,000,000, respectively. The Department of Agriculture index of prices received by farmers advanced from 96 (1910-14 = 100) in December 1939 to 99 in October 1940, whereas a similar index for prices paid by farmers was 122 on both dates. The result is a slight increase in the buying power of farm products. The Department's seasonally adjusted index of the value of agricultural marketings fluctuated rather erratically during the year. From the year's high of 84 (1924-29 = 100) in February the index declined to 70.0 in June and advanced to 80.5 in October as compared with 76.5 in the previous October. The Department's Nov. 1, 1940, crop estimates included the following: wheat 792,000,000 bushels (1939 — 755,000,000), corn 2,434,000,000 bushels (1939 — 2,619,000,000), and cotton 12,847,000 bales (1939 — 11,817,000 bales). The problem of huge crop carryovers of these three major products remains a serious one; government crop loans continue to be the means of financing a substantial part of such carryovers, and thus are an important factor in the maintenance of agricultural prices.

Foreign Trade.

United States merchandise exports totalled $3,703,000,000 in the first 11 months of 1940 as compared with $2,809,000,000 for the corresponding period of 1939. Corresponding imports were $2,372,000,000 and $2,071,000,000, respectively. It is expected that exports for the full year 1940 will exceed $4,000,000,000, the largest total since 1929. The expected excess of exports over imports of more than $1,400,000,000 is the largest since 1921. Foreign wars, of course, have dominated both the direction and the content of our foreign trade. Agriculture has been hard hit by the fact that certain markets for the products have been completely closed off by blockade and that certain other major markets are seeking other sources of supply in order to conserve their dollar exchange for the purchase of vital war materials. Those industries whose output consists of materials directly needed in the conduct of war have had a great increase in exports. Any steps tending towards advancing credit to Britain will probably result in a distinct further stimulus to exports of both agricultural and industrial products.

Efforts have been made to stimulate trade with South America by means of loans made by the Export-Import Bank to finance trade, as well as by loans to support the currency of certain South American nations. The expiration of our Commercial treaty with Japan did not have any immediate or direct effect upon our trade with that country. However, our trade with Japan as well as with other countries, has been directly affected by the requirement that certain strategic materials, important among which are machine tools, scrap iron and aviation gasoline, can be exported only by Federal permit.

In conclusion, it may be stated that the current outlook is for an indefinite period of expansion of production and trade in this country, subject to a continuation of existing war conditions. See also BUSINESS; WORLD ECONOMICS.

1939: Production And Trade

Recession and Recovery.

The year 1939 began with another recession in production and trade which lasted throughout the spring. Recovery from this decline had been under way for several months when the outbreak of the war added even greater impetus causing production and prices to increase rapidly. The volume of new construction was greater than it had been in 1938 and a larger proportion was for private rather than public undertakings. Employment and payrolls remained steady during the period of recession and advanced slowly in the fall. Labor disputes proved more numerous than they were in the previous year. The agricultural problem was alleviated in the fall by the rise of prices, but the carry-over of surplus stocks continued to rise and presented a problem of ever increasing seriousness. The government continued its system of crop loans and bonuses for curtailment of acreage and added an export subsidy for another crop, cotton. Retail trade improved a little compared to last year while foreign trade moved within fairly narrow limits until fall. The war, of course, caused a disruption of many normal trade channels, but provided advantageous openings in South America. In the field of international relations, the year brought several changes in treaty obligations, extension of credits to subsidize our trade and two international conferences on the stabilization of certain agricultural products.

Industrial Production.

During the first part of 1939, as in 1938, industrial production declined. The high point for 1938 according to the Federal Reserve Board's index (1923-25 = 100) was 104, reached in December. In January 1939, the index was only 101, and by April it had fallen to 92. These figures reflect primarily a decline in manufacturing. By June, there was general recovery in production and the index moved to 98 and was 103 in August. The outbreak of war provided a great impetus to recovery and the index rose to 111 in September and 120 in October. Decline and recovery were much more rapid in the durable goods industries than in the non-durable group. The index for durable goods industries dropped from 94 in November 1938, to 71 in May, was 92 in August and 122 in October. For non-durable goods the drop was from 114 in December to 105 in April, after which the index rose to 115 in August and 117 in October.

Production in many industries naturally followed the pattern of the general index but with varying degrees of intensity. The index for steel production dropped from 108 at the end of 1938 to 73 in the spring of 1939, rose to 105 in August, and 157 in October. At the end of November, mills were running at 94 per cent of capacity; the textile index dropped from 117 to 97 in April and rose to 123 in October; meat packing declined from 94 to 87 and was at 99 in October; petroleum refining dropped from 208 to 202 in March and was 221 in September. But there were other industries in which the pattern was different. The index for automobile production was 99 in December 1938 and 105 in January 1939, declined to 73 in May, rose to 87 in August but declined again to 78 in October. Wheat processing rose high in the spring, declined in the summer, but jumped again in September. Sugar meltings reached their low point only in June and even in October were well below the level at the end of last year. The production of minerals was well sustained throughout the year and rose considerably in the fall. The strike in the bituminous mines had cut production to less than half in April and May and anthracite production increased somewhat at that time. The effects of the war on the production of individual commodities were various, Steel ingot production increased nearly 50 per cent between August and the end of October; bituminous coal nearly 40 per cent; cotton consumption 20 per cent; paper production 18 per cent; wheat flour only 11 per cent and sugar melting some 4 per cent.

Construction.

The volume of new construction in 1939 will be higher than in 1938 although the recession in the building trades lasted longer than in industrial production. The Reserve Board index of value of contracts awarded (1923-25 = 100, adjusted) reached its high points, 96, in December 1938, and then declined to 63 in June 1939. In August, it was 73 and, after the outbreak of war, the advance continued to 77 in October. For residential construction there was little change in the level of activity from September 1938, when the index reached 56, until July 1939 when it was 62. In August, it improved to 67, a level maintained through the fall. An encouraging feature of the development of construction this year was the fact that the relative proportion of private construction has been mounting. Last year, public construction was greater than private construction. In February of this year, the amounts were practically equal and since then, except for the month of August, private construction has been considerably greater than public. Public utility projects still remain a very small part of the total volume.

Employment and Payrolls.

Employment and payrolls at factories remained remarkably steady during the recession of the spring. For employment, the Reserve Board's index (1923-25 = 100 adjusted), which was 94 in December, declined only to 93 in May and rose to 96 in August. The payroll index (unadjusted) dropped from 87 to 84 from December 1938 to January 1939, and then fluctuated within narrow limits until August when it rose to 90. In October, the indexes for employment and payrolls both stood at 101. The steadiness in employment during the first half year and the rise in the fall were common to both durable and non-durable goods industries, though employment in October in the former group of industries (index 94) was still far below the level prevailing for latter group (index 108). Even among individual industries the variations were slight. The exceptions were industries making automobiles, wearing apparel, and lighting equipment, all of which suffered a real recession in the spring. A few industries expanded rapidly during the year even before the impetus to production from the war had begun. Prominent among these was the aircraft industry, the index for which grew steady from 759 in August 1938 to 1606 in October 1939, and the shipbuilding industry whose index rose steadily from 93 in September 1938 to 132 in September 1939.

Labor Disputes.

Labor disputes were more numerous in 1939 than they had been in 1938. The number of man days idle in 1938 had never exceeded 1,200,000. In 1939, with the strike in the bituminous coal fields, the number of man days idle in March reached 4,877,000 and, in May, 3,516,000. Again in July, the total reached 1,137,000. In the fall a very long and costly strike tied up the Chrysler Motor Company. Meantime, no general modifications of the National Labor Relations Act were made. The second phase of the Fair Standard Labor Act went into effect in the fall raising the minimum wage for industries selling products in interstate commerce to thirty cents an hour and setting the normal working week at 42 hours. Again as in 1938 a rise in general productive activity made the transition to the new standards more easy.

Prices.

Until the outbreak of the war, movements of prices had been downward throughout the year. At the end of 1938, the all commodity index of the Bureau of Labor Statistics had stood at 77 (1926 = 100). It declined without interruption until it stood at 75 in August. The decline was caused almost entirely by changes in the prices of farm products and foods, the indexes declining from 68 to 61 and 73 to 67 respectively. The index for other commodities remained stationary at 80 throughout the whole period. At the outbreak of the war, there was a sharp revision upward. The all commodity index rose from 74.8 on Aug. 26 to 79.5 on Sept. 23. The prices of farm products and foods moved upward more rapidly than other commodities, the index for the former rising to 70 and the latter to 76. Later, however, they again declined slightly. The prices of other commodities moved up steadily to 84 at the end of October. This movement of prices was somewhat surprising since stocks of goods on hand especially of agricultural products, were exceptionally large, having declined but little since the crisis of 1937. Moreover, the movements were very different from those in 1914. At that time, the prices of tin, rubber, and sugar more than doubled in the course of a few days and lost nearly half the gain in a few weeks thereafter. Some other commodities also rose in price but few reached 20 per cent while the prices of other products like lard, copper and lead dropped in price. In September 1939 many products rose between 25 per cent and 50 per cent during the first week of the war. Rubber and tin were included together with cocoa, zinc, sugar, lard, corn, hogs and wheat. The revision afterwards affected mostly agricultural prices though even they did not return to former levels. Prices of imported and of industrial articles continued to rise throughout October and November. The higher prices, of course, were a factor in the favorable industrial developments of the fall.

Retail Prices.

Retail prices for food followed patterns similar to those of wholesale prices. The index of the Bureau of Labor Statistics (1923-25 = 100) dropped from 79 in December 1938 to 75 in August 1939. The index of cost of living (National Industrial Conference Board, 1923 = 100) covering food, clothing, housing, fuel and light remained practically stationary at 86. Fairchild's index of prices at department stores (December 1930 = 100) also remained stable at 90. With the exception of food prices, these figures reflect the stationary state of purchasing power and the fact that sales were not being pushed by a lowering of prices in spite of the recession of industry. In the fall, however, even retail prices rose and certain products, notably sugar, reflected the speculative demand of consumers for products of which there had been a scarcity during the World War.

Agricultural Prices.

Declining agricultural prices served to reduce farm income again this year until the time when war broke out. The index of value of agricultural marketings of the Department of Agriculture (1924-29 = 100 adjusted) which had been 68 in December 1938 declined to 60 in June. In the fall, the rise of prices occasioned by the war served to improve the situation for the farmers and the index rose to 79. It had been 73 in September 1938. However, the volume of products stored is so great that no rises in prices such as developed in the World War can be anticipated and, thus, even speculative rises are limited. This is particularly true of wheat, cotton, and corn. To be sure cotton production this year was no greater than last year, the October estimate being 11,928,000 bales while last year's crop was 11,943,000 bales. The corn crop, too, remained unchanged but the production of wheat declined. The winter wheat crop is expected to be 550,710,000 bushels compared with 686,637,000 bushels last year, while spring wheat is 188,735,000 bushels compared with 244,164,000 bushels. Already a reduction in corn acreage of 12 per cent has been announced under the control program for next year though many farmers feel that the minimum cultivation consistent with efficient farming has been reached already. The Government again subsidized the farmers directly, as well as attempting to raise prices through curtailment of production. The Commodity Credit Corporation made loans on a basis of 80 cents a bushel for wheat at Chicago and 57 cents for corn. Cotton loans were made at 8.3 cents per pound. Again this year the Government will be called upon to take up and store large parts of the crops covered by these loans thus swelling the carry-over of crops which is already large. To the export subsidy for wheat is now added a subsidy of 1½ cents a pound for cotton.

Retail Trade.

Retail trade this year was, on the whole, more prosperous than last year. Sales of department stores declined a little in the spring with an index of 89 (1923-25 = 100) in December 1938 and of 85 in May 1939. The recovery of the summer brought it to 92 in September. Chain store sales for the first seven months of the year averaged 111 (1929 = 100) compared with 106 for the same period last year. Sales of rural merchandise expanded considerably with an index which averaged 111 for the seven months compared to 100 last year. Automobile sales were even higher with an average index of 86 compared to 61 last year.

Foreign Trade.

Foreign trade, on the other hand, changed but little in value until fall. In the first seven months of 1939, exports amounted to $2,157,000,000 compared with $2,268,000,000 last year, while imports were $1,622,000,000 compared with $1,435,000,000 a year ago. Among imports, increases in crude materials and semi-manufactured articles account for most of the rise, while the decline in exports was in cotton and foodstuffs. When adjustment is made for seasonal variations the export trade proves to have been very steady except for a low month in January and a distinct rise in August and September. Import trade was low in the first four months and rose thereafter. The excess of exports over imports was much lower this year than last.

The outbreak of the war naturally disrupted the normal channels of trade. Yet in the early fall imports and exports increased much more than seasonally. Exports of cotton were especially heavy in both September and October. The arms embargo cut off the shipments of aircraft but after its repeal in November the volume rose again. Exports of other raw materials of war expanded earlier. In September, increases in exports went mostly to England and France; in October exports to these countries declined, while exports to Canada reached higher levels than in any recent year. Although the import trade expanded also, its expansion was at a relatively slower rate. As a consequence the excess of exports expanded and was more than $100,000,000 a month in both September and October.

The United States Government continued to foster foreign trade actively during 1939. The program of foreign trade agreements was extended in the spring by agreements with Turkey and Venezuela. The whole program thus covered 60 per cent of the trade of the United States. In the summer, however, the United States denounced her commercial treaty with Japan. This action will take effect in January 1940. The export trade of the United States has been extended through loans made by the Export-Import Bank to finance the purchase of American goods. Loans of this type have been made to Poland to purchase cotton and copper, to Paraguay and Brazil to stabilize their currencies and to buy American goods, to the Argentine to buy American cars, and to Portugal to buy railroad equipment. International conferences were held to attempt to regulate world production and marketing of wheat and corn. The Wheat Conference, held in London, dissolved on Aug. 29 because the problem of agreeing on the fair share of each nation in the export market proved unsolvable. The Cotton Conference met in Washington in the first week of September, but immediately adjourned because war conditions seemed to make any solution of a world marketing problem impossible. See also AGRICULTURE; BUSINESS; WORLD ECONOMICS.

1938: Production And Trade

Recession and Recovery.

The recession, which was so sharp during the latter part of 1937, lost its momentum in the early months of 1938, and recovery set in by summer. In the fall, this recovery became exceedingly rapid in spite of the political crisis in Europe. The improvement in production was general to most lines of industry. Both durable and non-durable goods industries were affected; though the former recovered but slowly. New construction began to increase early in the year and reached a volume greater than in 1937. Employment and payrolls suffered heavily in the early months of the year, but rose again by the late fall. This recovery helped ease the introduction of the Fair Labor Standards Act passed in the spring and put into operation in October (see also LABOR LEGISLATION). This law set maximum hours and minimum wages for all industries operating in interstate commerce. Prices at wholesale were still declining at the end of the year, with agricultural prices severely depressed. The farm situation remained serious, and drastic curtailment of acreage for most crops is probable for next year. Retail trade, though on a lower level than in 1937, rose rapidly in volume after June. The export trade remained above its 1936 level, but the import trade declined to its position in 1934; only at the end of the year did it recover again. Until October excess of exports remained continuously at about $100,000,000, a figure previously reached only in one month since 1929. New reciprocal trade treaties were negotiated with Czechoslovakia, Ecuador, England, and Canada.

Industrial Production.

Industrial production during the first quarter of the year continued the downward movement of 1937 at a very much slower rate. The index of the Federal Reserve Board (1923=100, adjusted for seasonal variation), which had stood at 118 at its high point in May 1937, declined to 80 in January 1938 and was at its lowest point of 76 in May. Recovery was apparent by July, when the index reached 83 and became rapid thereafter. In November, the index stood at 96. The decline had been much less drastic in the non-durable goods industries, and recovery began earlier with them. Their low point came in April, compared with June for the production of durable goods. Even at the end of the year the durable goods industries lagged far behind.

For the most part, the industries which suffered the most severe declines during 1937 recovered most rapidly in 1938. The index for steel had declined from 144 in August 1937 to 49 in March 1938. In October, it was 93. At the end of 1937, steel mills were operating at 25 per cent of capacity; in December 1938, at 40 per cent. The recovery in textiles was also rapid. The index for woolen cloth, for instance, rose from 50 in April to 91 in October. It had been as high as 106 in August. The automobile industry, which was affected by the recession late in 1937, suffered eventually very severely with a decline from 157 in August 1937 to 43 in July 1937. Its recovery came late, beginning only in October. The index for that month was 84 and for the rest of the year was higher. Certain industries such as petroleum refining and the manufacture of tobacco suffered hardly at all from the recession and advanced but little during the recovery. The production of minerals was well sustained. The Reserve Board Index declined from 116 in September 1937 to 92 in June 1938, and rose to 100 in October.

Construction.

New construction, which had lagged in the recovery of 1934, improved early in the recovery from this recession. It was especially encouraging that residential construction should have led in this forward movement. According to the value of contracts awarded in 37 Eastern states (reported by the F. W. Dodge Corporation) residential building reached a low point in January with contracts of $36,200,000. In February, contracts increased to $40,000,000, and continued to rise thereafter. In October, they amounted to $112,700,000, compared with $65,500,000 the year before. Public construction increased rapidly under the impetus of the renewed Federal spending program, initiated in April. In the six months from May to October, $634,400,000 of contracts were awarded for public works and public utility construction, compared with $482,300,000 during the same period of 1937. Thus, although commercial and factory construction has been small in volume, the Department of Commerce estimates that the value of total construction in 1938 will be $8,790,000,000 compared with $8,675,000,000. This is a high point for the post-depression period. In the pre-depression period (1920-29), the average value of construction per year was $11,583,000,000.

Employment and Payrolls.

Employment and payrolls broke sharply just at the end of 1937, a movement which continued, except for a brief interruption at the beginning of this year, until August. The decline in payrolls was more severe than in employment; for payrolls declined by 35 per cent while employment fell by 26 per cent. At the end of October, the Reserve Board Index of employment (adjusted for seasonal variation, 1923-25 = 100) stood at 88, and that for payrolls (unadjusted) at 84. At their high points for the post-depression period they had been 109 and 110 respectively. The decline in employment for the durable goods industries was more severe and more prolonged than for the non-durable goods industries. The index for durable goods industries declined from its high point of 109 in July 1937 to a low point of 71 in July 1938, while that for non-durable goods declined from 110 in July 1938 to a low of 92 in June. Although recovery, once begun, was more rapid for the durable goods industries, in October (the latest available figure) the index for this group was still only 78 compared with 97 for the non-durable group.

Labor disputes were less numerous during 1938 than during 1937. Although during the months of May and August the number of man-days idle was more than a million, still the year's record was no worse than that of other years since the recovery movement began. A general railroad strike threatened during most of the year in protest against announced cuts in wages. However, these cuts were postponed during prolonged negotiations between Carriers, Brotherhoods, and the Government, and finally, in November, abandoned altogether.

A feature in the employment situation in the fall was the introduction of the initial step in the Fair Labor Standards Act. A minimum wage of 25 cents an hour was established for all industries selling products in interstate commerce. The normal working week was set at 44 hours, but this could be extended if time-and-a-half was given. Certain exceptions to the regulations with regard to hours were allowed to seasonal industries. When the Act went into effect on October 16, the Federal Administrator estimated that only some 200,000 employees were affected by the wage provisions. Of these, some 50,000, chiefly in the pecan-shelling industry, were discharged. That the introduction of the provisions of the Act caused so little disturbance can be attributed in part to the recovery in industry which had taken place during the fall, bringing wage levels more nearly in line with those of the Act.

Prices.

The revival of activity in industry was not accompanied by generally rising prices. The index of wholesale prices for all commodities computed by the Bureau of Labor Statistics (1926 = 100), which stood at 81.7 in December 1937, declined without significant interruption until in November it was 77.3. The decline was not restricted to any group of commodities. The prices of farm products, however, were much more severely affected than those of other goods. Their index, which averaged 86.4 in 1937, declined to 67.8 by November. Among the prices of agricultural products, the price of grains suffered most with a decline from 92 in September 1937 to 51 in October 1938. Prices of food products dropped from 85.5 in 1937 to 73.9 in November 1938. Of this group, meat prices were affected most. The prices of 'other commodities,' including most manufactured goods, declined comparatively little. The general index for the group dropped from 85 in 1937 to 80.9 in November 1938. The behavior of prices in this revival is significantly different from that of prices in 1933. At that time they responded quickly to changes in basic conditions.

Retail prices declined only moderately during the year. The index for foods (Bureau of Labor Statistics, 1923-25 = 100) was 83 at the end of December 1937 and 78 in October 1938. For prices at department stores, the index (Fairchild's, January 1931 = 100) was 93 at the end of December 1937 and 89 at the end of October 1938. For the general cost of living, the drop was even less. The Bureau of Labor Statistics index (1923-1925 = 100) dropped from 85 in the last quarter of 1937 to 83 in the third quarter of 1938. Thus the lower levels of money wages were not compensated by changes in prices.

The greater decline in farm prices, though a familiar factor in most recessions, brought renewed pressure to solve the farm problem. Production, under the restricted acreage plans, was less in the year 1938 than in 1937. The cotton crop was 12,000,000 bales compared with 19,000,000 last year; corn, 2,500,000 bu. compared with 2,600,000 bu., and wheat, 940,000 bu. compared with 874,000 bu. This low production, combined with low prices, led to a substantial decline in farm income. The Government responded by a variety of actions intended to steady market prices. Cotton loans were made at 8.3 cents per pound for standard grade cotton. Since the market price has not reached this point, the Government will have to take over 3,000,000 bales. Added to the carry-over of 7,000,000 bales which the Government already has, this is equal to the average yearly production of cotton during the last ten years. Even though the crop in 1938 was not what would be considered a large crop normally, yet the market prices were very low. This is the result of the hangover of surplus stocks and the competition of foreign grown cotton, the volume of which is rapidly increasing at the subsidized price level. The situation with respect to wheat was similar, except that there was no heavy carry-over from previous years. Loans were made by the Government at 60 cents a bushel at the farm and at as much as 77 cents a bushel in marketing centers. An export subsidy of 17 cents a bushel was paid on all wheat exported. The acreage for next year will be curtailed to the limit allowed by law, and benefit payments will be raised from 16 cents to 26 cents a bushel. The corn supply was large in 1938 in comparison with the animal population. The Government made loans ranging from 57 cents to 61 cents a bushel. Meantime, they sold old corn, on which they made loans last year, at the market rate of some 35 cents per bushel. The Government also supported the price of butter by buying through the Commodity Credit Corporation. A large amount of this butter will be distributed through relief channels. The pegged price, high compared to those of other agricultural products, may well stimulate even greater production next year. All these measures afford temporary relief to the farmers, but give no solution to the underlying problems.

Trade.

Retail trade followed the same general course as production, though with narrower fluctuations. Department-store sales declined early in the year but increased in the fall. The index of the Department of Commerce (1923-25 = 100, adjusted for seasonal variation) declined from 89 in December 1937 to 78 in May 1938 and revived to 84 in October. Their stocks of goods on hand had declined sufficiently to allow a relatively normal volume of new orders to manufacturers. The index of chain store sales (1929-31 = 100, adjusted for seasonal variation), which stood at 112 in December 1937, was 108 in October 1938. Rural sales of general merchandise dropped similarly. The index was 126 in December 1937, 100 in February; rose to 114 in August, and 122 in September. It dropped again to 115 in October. The curtailment of farm income in the fall of 1938 did not affect farm buying seriously. Sales of automobiles declined very rapidly. For the first eleven months of 1938, they amounted to only 2,101,202 cars, compared with 4,482,740 cars during the same period of 1937. At the end of the year, however, sales were in greater volume than they were in 1937. In November 1938, for instance, 372,358 cars were sold, compared with 360,055 last year.

Foreign trade, of course, declined. During the first 10 months of the year, exports amounted to $2,542,800,000 compared with $2,667,900,000 for the first 10 months of last year. Imports fell off a great deal more proportionally. During the first ten months of 1938, they amounted to $1,613,700,000 compared with $2,597,200,000 last year. Among exports, a heavy rise in the volume of exports of food and a lesser rise in the exports of machinery compensated in part for the declines in other products. Among imports, all classes of products declined. For exports, when adjustment is made for seasonal variation, the decline was continuous throughout the year to October (latest available figure). For imports, the low point came in May, while September and October were the highest months of the year. Throughout the year, the excess of exports, a feature which developed at the end of 1937, continued. At the high point in April, the excess amounted to $115,000,000; and although it declined somewhat thereafter, it was still substantial.

Several new trade treaties were negotiated during the year. That with Czechoslovakia was signed in March and went into effect in April; that with Ecuador in August, operative in October; and that with England and Canada in November, operative in January. The lowering of duties is, in each case, on such products as are of special importance in the trade with the country negotiating the treaty, but through most-favored-nation agreements they are extended to other countries. The treaty with England and Canada is of special significance because these two countries are the most important foreign buyers of American goods. The United States granted concessions primarily on textiles, liquors, paper pulp and various agricultural products, while Great Britain and Canada lowered duties on foods and a wide variety of manufactured products. The drop in the value of the pound sterling at the end of the year, if continued, will have the effect of nullifying some of the advantage to the United States. (For trade treaties, see individual countries.)