Regional President Speech

ECONOMIC PROSPECTS June 2, 1953 by Karl R. Bopp, Vice President Federal Reserve Bank of Philadelphia before the Combined Service Clubs Valley Forge Hotel, Norristown, Pa. Student: Failed all courses Except E in post-defense planningl Boy! is he confused! Can't avoid looking ahead - always difficult. 20/20 vision on past- what has happened - inevitablej any fool could have foreseen. Topics: I. The road we have traveled since Korea. II. Where we have arrived - where we stand today. III. A short- and a longer-gaze into the mist. ■ * * * * * ■ # I. The road we have traveled since Korea A. Korea to the Treasury-Federal Reserve accord of March 1951 1. Three quarters - private spending spree 2. G.N.P. 272 -4 319 = 17% 47 bil. (a) But wholesale prices + 18% consumer prices + 10% i.e., most of the + was inflation (b) Only 1/4$$} of the increase went to Government (c) 3/4 went into private spending spree + $22 into consumption + 12 " investment e speci ally equipment+inventori es Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - B. The Accord to the fall of 1952 1. Six quarters - the defense build-up 8 2. G.N.P. 319 -»343 = % 24 (a) Wholesale prices - l& Consumer prices + l$> i.e. the expansion was "real" (b) Government took it all - $25 billion Private - 1 Consumption +7 -8 Investment especially inventories C. Since last fall 1. Two quarters - non-defense expansion 6 2. G.N.P. 343 -4 363 = % 20 (a) Wholesale prices - 2% Consumer prices 11 i.e. again expansion was real" (b) Government took 1/4 but not for defense! Private took 3/4 almost entirely consumption II. Where we stand today A. A remarkably flexible economy for last two years. rolling readjustments with individual price movements but fairly stable level Profit - and loss economy B. An "overtime" economy 1. March unemployment: 1.7 million lowest post-war March 2. 40-41 hours in non-duraU.e) .. 1-42 ¿ “ " durable ) w Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - II. C. Some current rates Industrial production 242 (only 3 points below peak Nov. 194-3) Auto - late April rate 7.5 mill. (50$o above year ago) T.V. 7 mill. (Cf. 9-10 last autumn and 4 a- year ago) Housing 24.5*000 starts in 1st quarter - same as last year III. A look ahead Two political imponderables 1. Malenkov and Mnew" Russian situation 2. Our own change in administration B. In an overtime economy, one looks for weak spots 1. Agriculture Reduced demand for industrial products BUT lower food costs 2. Transition from sellers to buyers market Elimination of overtime incomes especially automobiles and household durables 3. Exceptional increases in private credit C. On the other hand: sustaining but not expansionary forces 1. Defense spending will not be cut - deficits? 2. Prices have been flexibly adjusting in a rolling fashion 3. Business capital expenditures will remain high 4. Consumers fickle Some later weakness - not immediate, not too severe Fiscal and monetary policy 1. Fiscal outlook not good 2. Debt-management difficult but progress is being made 3. Monetary policy - flexible Should it be based on what is now going on? or on what we fear may happen? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 4 - E. Our fear (fixation) on economic instability 1. Evidences of it - really since 1930*8 (a) Predictions of post-war unemployment (b) Recurring fear of depression (c) Current fears (1) Prosperity depends too much on defense (2) Ve have overexpanded our plant (3) Inventories are excessive (4) Too much private debt - yet oust hare even more to maintain prosperity (5) Post-war expansive forces have spent tha&selves (6) Down movement accumulates (7) Won* t go to trade not aid * end vlth neither (8) International repercussions 2. Effects of our fears (a) On publio policy We have ohosin probable Inflation to (b) On private actions We hay«* t gone through the celling f. Some long-run factors 1. Define# 40-50 billion a year Tax relief from growing economy 2. Other Government - especially state and local Roads, schools, other public, hospitals 3. Business Capital izxvestaenb - Depreciation ♦ obsolescence recent levels not exceptionally high RELATIVELY Individuals Population - No. and age distribution Standard of living - long run Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - Conclusion: Very short run - strong Very long ran - optimistic Intermediate - we haven't licked the cycle Migh standard living society can postpone accelerate Flexible fiscal and monetaiy policy can mitigate KKB - 6/2/53 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CHANGES IN GROSS NATIONAL PRODUCT 2nd Quarter 1st Quarter 1st Quarter 1950 1951 Change 3rd Quarter Change 1953 Change Annual Rates Korea Accord 3 Quarters 1952 6 Quarters Last 2 Quarters Jo *?3 + 1*1 V- ^0 ■! ,*0 •> 228 ¿20 ¿61 Gross National Product & 18 Personal consumption 189 210 21 211 5 226 11 Durable 27 31 24 30 100 122 Non-durable 113 119 62 66 Service 72 74 Private investment JSSL 60 10 -J 2 - 8 Jtk 2 22 Construction 25 23 25 22 Equipment 25 25 27 Inventory 6 10 4 2 -n. 2 12 26 Government JÛ. _J 78 -82 4 21 Federal 31 55 57 National Security* 17 28 50 51 ss 21 State and local 19 23 25 *1 ■y Prices (194-7-49 = 100) May 1950 March 1951 Sept. 1952 April 1953 Wholesale Index 100 116 + 16 % 112 - 3% 109 - 3% 101 110 0 Consumer Price Index + 9% 114 + 4% 114 * Military services, international security and foreign relations (except foreign loans), atomic energy, merchant marine, promotion of defense production and economic stabilization, and civil defense. - Economic Indicators Digitized for FRASER 5/29/53 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1953, June 1). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19530602_karl_r_bopp

@misc{wtfs_regional_speeche_19530602_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1953},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19530602_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}