Regional President Speech

before the Annual Conference of Trust Division. P.B.A.. Penn Harris Hotel. Harrisburg. Pa. CURRENT ECONOMIC PICTURE APi£l 2t 1954 by Karl R. Bopp INTRODUCTION 1. Necessity for looking ahead 2. Impossibility of accurate prediction in human affairs a. Population (1) N.S. Pritchett - Washington University mathematician and astronomer Method - 3° parabola to census data 1790-1890 - excellent fit Forecast - by 2900 U.S. population would = 41 billion Three errors - (a) Population growth can be expressed in mathematical formula (b) Population function of time only (c) That shape of formula revealed by experience 1790-1890 (2) Population projections of 1930’s and 1940’s Woytinsky’s judgment: "Their projections deserve a place of honor in the history of statistical methodology as specimens of unsurpassed skill and patience. Their only weak point is that they proved to be false." Highest estimates for 1952 1937 projection............... 146.8 1943 " ............... 147.3 1947 " ............... 149.3 Actual July 1, 1952 Bur. of Census. 157.0 1947 projection gave "probable1* of 160.6 in 1975- Reached in Sept. 1953 Extrapolated decline in natality in 1920’ s and 1930’s is permanent. b. Business prospects Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 * I. Some rough relationships G.N.P. - all time high of 2nd quar. 1953 $371.4 billion Consumed (roughly 60%)................... 230.4 Gov‘t (60% of remaining 40% = 23%) . . . . 85.0 Private investment remainder (17%) . . . . 58.5 Net foreign investment ................... - 2.5 II. What has happened in the past year? A. Method of approach; Systematic Go from the over-all to the components B. G.N.P. has declined not over 5% C. Which major sectors? 1. Last three quarters of 1953 in Private Investment 2. First quarter 1954 in Government Purchases This may surprise you: You may ask what about the consumer? D. Personal consumption expenditures 1. Three-fold division Durables Non-durables Services-Jokers $30 Ml. $120 bil. $80 bil. 2. vhat has happened to each Durables down 7-8 % but it is relatively small Nbn-durabies down 1-2% but it is large Services up £-9% 3. Total has not changed much - yet. E. Gross private investment - the big decline in last three quarters of 1953 1. Three-fold division New construction Equipment Inventories 2. What has happened to each? New construction - holding up remarkably well New durable equipment - also holding up remarkably well INVENTORIES! from +6.7 to -3*4- A turnaround of $9-10 billion with G.N.P. down $8 billion! in last three ^ quarters of 1953 That is why it has been called an inventory adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 3 - - II. F. Government purchases of goods and services 1 • Two-fold breakdown Federal State and local 2. Federal gradually getting reductions in military expenditures At first offset by other expenditures In first quarter of 1954- & $4-5 billion reduction in total 3. State and local have been increasing at a rate of $2 billion a year since end of the war G. Conclusions on where we have come 1. Roughly one can say we have had a decline of roughly % in over-all level of activity. Quantitatively one can say this decline is equal roughly to the turnaround in inventories and to the decline in defense spending 2. Actually, the picture is more complicated We have had declines especially in durable consumers , goods, but also in non-durables, though this has been almost offset ty the increase in services Declines in employment and in output have been widespread through industry Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 4 - XII. Where do we go from here? Everyone looking for something DECISIVE one vay or the other e.g. Pres. Eisenhower said March is the critical month March is now over - and the evidence is still inconclusive Industrial production probably down a bit but rate of decline less than February down 1 pt. Non-durables picked up (largely seasonal) Durables down especially steel (this week 68%) but probably overdid earlier; e.g. steel companies lessened inventories but no definite signs of pick-up in orders producers* goods military equipment New construction 1st two months 1954 highest ever recorded Inventories Purchasing agents report substantially larger number of films have completed their adjustments and 44% are down Exceptions Autos - in anticipation of spring pick-up in sales Unemployment No labor market now has a shortage 23% of areas have substantial surplus old estimate up 1.0 to 3*4 new estimate up.0.6 to 3«7 Spending intentions Plant and equipment (Feb.-Mar. estimate) 27.2 only 4% less than *53 Manufacturers ( Durable goods expect. down 8% from 1953 Expectations ( - to present rate ( Non-durables expect. somewhat higher than present rate Consumers Intentions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - III. Where do we go from here? (continued) A. No crystal ball B. How can we ascertain probable behavior of consumers, businessmen, and Government? C. Consumer Finances Survey 1. Plans versus behavior 2. Plans for 1954 3. Plans for 1954-1955 D. Capital Investment Survey D. of C. 8nd S.E.C. Plant and equipment in 1954 within 4% of last year - and most recent more optimistic than earlier Inventories Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 6 - TTI. E. Government - have left till last - shift from Product to Finance Eisenhower consolidated cash budget 1953 Estimated Fiscal years Actual 1954 1955 Receipts 71.3 74-9 70.8 Expenditures 76.6 75.2 70.7 - 5.2 - .2 + .1 Conventional - 9*4 - 3.3 - 2.9 Based on assumption that level of economic activity will continue as in 1953 Effects of reduced level of activity 1. On income 2. On expenditures Fiscal 1953 Federal Revenue structure Income taxes Indiv. income . 33.4 ) 55.0 Corp. ........21.6 3 Excise...... 10.0 S.S. & other... 9-5 71 Reduction of, say, $15 in G.N.P. J in corp. profits = 7.5 i of that in corp. tux 3.75 Personal income tax liability 1.50 S.S. Receipts down - payments up over-all 1.50 Other factors: other Fed.estate taxes down expenses; support up 1.50 Total........................................... ...8.25 Also Jan. 1 tax reductions..........................4*50 New excise bill.............................. ...1.00 F. Conclusions: 1. It doesn’t seem to me we have yet reached the low point 2. We shall not establish any over-all records in 1954 3. Still 1954 is likely to be our second best year - somewhere between *52 and *53 4* Some underlying long er—teim strength Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1954, April 1). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19540402_karl_r_bopp

@misc{wtfs_regional_speeche_19540402_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1954},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19540402_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}