Regional President Speech

BUSINESS DEVELOPMENTS AND PROSPECTS by KARL R. BOPP before Group V, Pennsylvania Bankers Association Penn Harris Hotel, Harrisburg, Pa, April 13, 1957 * * * * * * Introduction Pleasure to be here - Paul Swab, Secretary, Group V Two weeks at trading desk in New York - preparation for defense Manager executes directives of Federal Open Market Committee. Federal Reserve System interested in stable economic growth. Involves Judgment as to state of the economy I. The national product accounts A. A quick look at the breakdown 1. G.N.P. 2. Personal consumption expenditures a. Non-durables b. Services c. Durables 3» Gross private domestic investment a • Cons t ruct i on (1) Housing (2) Other b. Equipment c. Inventories 4. Net foreign investment 5. Government expenditures for G. + S. (exclude transfer payments, O.A.S.I., interest, etc.) a. Federal (1) Defense (2) Other b. State and local Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - H. Methods of analyzing economic conditions Inevitability of forecasting A. Assumption: General level dependent on activity in "key" lines 1. Illustration: a. Recovery from 195^ recession spearheaded by great expansion in (l) Construction - especially housing Consumer durables - especially autos $ Business inventories b. A year ago "steam" out of these - Depression? Many said yesI c. Actually G.N.P. was $21.5 billion or 5$ greater in 195 6 than in 1955 d. What happened? Other-factors acquired steam especially business investment - especially equipment and plant 2. Errors of the "key" area approach a. The "key" areas changeI Ignores dynamic character of economy (1) Same illustrations: (a) Res. construction down $2 QIII ’55 - QH '56 But com. construction up $1.0 dur. equip. up 2.5 inventories up 1.0 So - investment rose (b) Cons. Dur. (autos) - 4.0 But non-durables up more (2) You remember clamor year ago for easier credit - for autos - housing Where would we have been had that been done? People have choice in spending - don’t have to spend for autos b. "Double counts" some things Doesn't count others at all B. Arrange accounts in order in which we know something about their probable behavior Common sense: The ideally distributed economic good! Look at charts (Board pp. 1+6-47) Remember the general total 425 Q IV '56 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - C. Highly probables 1. Personal services 101 a. Nature of item Rents and imputed rents tend to make more stable utilities Financial services b. lip $4 l/2 - $5 billion a year + 6 regularly since end of war 2. State and local government 34 a. Up $2-3 billion a year since end of war + 3 Vftien will it stop? Schools - Highways - Sewers ___ ____ 135 + 9 3. Conclusion D. Probables 1* Non-durables 135 a. Nature Food - clothing Non-postponable if income holds up Seldom start decline Rarely accelerate much Exceptions:: Korea and QH 1951 Some decline 1949 b. Up $4-5 billion a year + 5 2, Federal Government 48 a. Nature Big changes over time But usually with clear-cut change in circumstances or policy Korea + 2 And inertia in short run b. Soane increase probable + 3 Highways 1ST + 7 Conclusion on highly probables and probables Personal services 101 + 6 State and local 34 + 3 Non durables 135 + 5 Fed. Gov’t 48 + 2 318 +16 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 4 - E. Possibles 1. Private fixed investment 64 a. Construction (l) Housing QIH 1955 17.2) on 1956 15.1) - 1 Now looks like 1.1 million higher priced Repairs - long run 1965 on F. The Great Unknowns 1. Consumer durables 35 a. Nature Can accelerate or postpone e.g. Korea 1950 QI 26.5 QH 34.0 QIII 30.0 e.g. 1955-56 OX 1955 34.7 qui 37.2 QII 1956 33.4 b. The automobile (6.3 - Edsel, New G.M. 's, esp. Chev.) - white goods - household c. No steel strike d. Conclusion Stable till QTV - then up 2 QIV 2. Inventories 1956 a. Nature 4 Role in the business cycle b. Inadequacies of the data voluntary vs. forced c. Turn around in a year QXV 1949 (*6) to Q,IV 1950 (+11) d. $8 billion -4 to +5 QIII 1954 to QIE 1955 e • Conclusion 1957 by Q’s Ave. 1 -3 2 0.0 1.0 2.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - G. General conclusions 4th Q 1. Highly probables 135 +9 2. Probables 183 +7 3. Possibles 64 -1 4. Great unknowns 39 5. Foreign inv. 3 424 +15 439 Year 1957 G.N.P. of 430-432 vs. 412 in '56 4th q 1957 439 vs. 424 in r56 (q4) Sentiment vs. Analysis Feelings vs. Mind Heart vs • Head Can't go up forever without setbacks - never have! Flexible Federal Reserve policy Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1957, April 12). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19570413_karl_r_bopp

@misc{wtfs_regional_speeche_19570413_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1957},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19570413_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}