SCB_061945

JUNE 1945

UNITED STATES DEPARTMENT

BUREAU OF FOREIGN AND DOMESTI

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ContentsPage

THE BUSINESS SITUATION 1Impact of VE-Day 1Basic Materials 2Adjustment of War Controls 4Manufacturers' War Inventories . . . 4

PLANNED CAPITAL OUTLAYS BY MANU-FACTURERS 5

RECONVERSION IN THE METAL FABRI-CATING INDUSTRIES 10

R E V I S E D E S T I M A T E S OF WAGES ANDSALARIES IN THE NATIONAL INCOME,1929-43 17

STATISTICAL DATA:Monthly Business Statistics S-lGeneral Index . . . . Inside back cover

1 1 OtCConten t s of this publication are not copyrighted andmay be reprinted freely. Mention of source will be appreciated.

Published by the Bureau of Foreign and Domestic Commerce, AMOS E. TAYLOR, DirectorDepartment of Commerce, HENRY A. WALLACE, Secretary. Subscription price $2 a year; Foreign, $2.75. Single copies, 20 cents. Priceof the 1942 Supplement, the last issued, 50 cents. Make remittances direct to the Superintendent of Documents,

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United States Government Printing Office, Washington 25- D. C.Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Business SituationBy Division of Research and Statistics, Bureau of Foreign and Domestic Commerce

ICTORY IN EUROPE, officially pro-Y claimed on May 8, marked a defi-

nite turning point for the economy. Yetits significance is not at once apparentwhen viewing the economic indicators,since that particular day did not im-mediately bring the large downward ad-justments in the munitions programsimplicit in the fact of Germany's uncon-ditional surrender. Economic conditionsin May, therefore, did not differ in es-sentials from those of the precedingmonths, though the pressure on theeconomy very evidently had lessened.

During the month, successive decisionsregarding future production were fol-lowed by a series of announcementswhich in sum pointed to a slackening inthe tempo of activity in the latter half ofthis yearthe period which will witnessthe initial adjustments to the Pacific war.By the end of May, the announced reduc-tion in the size of the armed forces andthe accelerating rate of cutbacks inscheduled munitions production wereevidence that domestic economic policyactions must now be geared to a newsituation. Under this situation, expan-sion of civilian goods production will bethe keynote to both taking up the re-sources freed by lessened military re-quirements and meeting the civilianneeds which have accumulated duringthe full-war-economy phase of the past3 years.

Impact of VE-DayPortents of the coming change in the

economy were already in evidence. Em-ployment in munitions industries, whichhad declined 200,000 between March andApril, experienced an even sharper re-duction in the succeeding 30 days. Thepreliminary munitions employment esti-mate for May 15 was 8x/2 millionabout6 percent below January and February.

The actual flow of munitions, on theother hand, showed little evidence of thetwo-front war ending, for the heavyslashes in schedules had a negligible ef-fect on immediate operations. In fact,it will be several months before the majorimpact of the program cuts will be felt.

While April war production was 4 per-cent below March, this reduction wasmore than accounted for by the 2 fewerworking days in April. Further smallreductions are expected in May andJune, but over-all second-quarter muni-tions production will be only slightly be-low the first quarteran estimated 14billion dollars as compared with 14.4.

From the standpoint of the release ofresources, however, the great militaryvictory in Europe had a wider effect thanis shown by the quarterly productionfigures on the accompanying chart, sincethe mid-April munitions schedules forthe second quarter were 8 percent higher

64358745 1

than first quarter production. Even afterdiscounting the fact that part of thisprojected increase was unattainable, itis clear that May and June output willbe down from the expectations held inApril.

Moreover, the effects of the decliningwar program will be magnified in theearly stages of the production cyclesinthe raw material, components, and sub-assembly plants. In other words, theinitiating changes in munitions outputwill result in the same kind of decelera-tion that is associated with declining de-mand under usual business cycleconditions.Gross National Product

Full data for measurement purposesare not yet available on the status of thenational economy during the period justended. Nevertheless, it is clear that thisinitial half of 1945 will have witnessedthe high point in the gross national prod-uct. On the basis of preliminary esti-

mates, the value of goods and servicesproduced at current prices in the firstfour months was running at an annualrate of close to 205 billion dollars, afterseasonal adjustment. Last year's totalwas slightly less than 200 billion dollars.The chief reason for this added rise wasthe expansion of consumer expenditures,based, as reported in the analysis of lastmonth, not on a further rise in the vol-ume of goods available, but upon priceadvances and trading up, which waslargely of an involuntary character in sofar as the purchaser was concerned.

Income payments to individuals, on aseasonally adjusted annual rate basis,ranged between 160 and 165 billion dol-lars during the first four months of 1945,as compared with 157 billion dollars lastyear. An all-time high was reached inFebruary, with small declines being reg-istered in March and April. The lattermonth saw a continuing of the declinein manufacturers' pay rolls and a dropin income payments by retail trade.This was in contrast to the preceding

Chart 1.Actual and Scheduled Munitions Production(In August 1943 Standard Prices)

BILLIONS OF DOLLARS25

ACTUAL PRODUCTION

5 -

3 rd Qr. 4 th Qr.- 1944 ^

I st Qr. 2nd QrJ/ 3rd Qr. 4 th Qr.1945

D. D. 45-4021 Estimated by U. S. Department of Commerce.

Source : War Production Board.


SURVEY OF CURRENT BUSINESS June 1945month when the decline was attributableto agriculture.

Although there were two earliermonths in the war period when therewere small declines in nonagriculturalincome, the drop in April, in the light ofsubsequent developments, is likely to beof more significant character since in-comes will follow war production down*ward.Downtrend in Munitions Schedules

There are at this time major elementsof certainty and uncertainty in the eco-nomic outlook. As pointed out in lastmonth's issue, the second shoulder of theplateau in war production has now beendefinitely marked. Over-all munitionsoutput will now go downhow far andhow fast is as yet undefined. It is cer-tain, however, to be at a sharper ratethan that shown in chart 1, based as it isupon schedules as of May 26, which justhappened to be a statistical point in timefor measuring the changes as they werecoming through the official mill.

Whether developments in the civilianeconomy will effectively counterbalancethe sliding off of war production to thedegree consistent with orderly reconver-sion is now the question. Some factorsbearing on this are discussed in subse-quent paragraphs.

After a month and a half of repro-gramming, military procurement plansfor the third and fourth quarters of 1945stood 11 and 20 percent, respectively, be-low actual first quarter production. Theprograms implied a still sharper cut asof the year-end, since the reduction inthe initial quarter of 1946 was almost 30percent. But as previously indicated,the schedules as of May 26 were by nomeans scaled down to a one-front warbasis.

President Truman, for example, in hismessage to Congress on June 1 an-nounced that sharp cuts in the programof supplies for the ground forces are be-ing put into effect. These additionalcutbacks will further reduce the sched-ules for the end of this year.

Chart 1 illustrates the over-all magni-tude of the April and May cutbacks bycontrasting pre-V-E day schedules withthose as of May 26, just after the majorreduction in the aircraft program hadbeen announced. Immediately prior tothe German capitulation, the procure-ment programs still called for rising pro-duction during the remainder of 1945.The allocation of materials, the man-power program, and various aspects ofreconversion planning at that time weregeared to this projection. Hence, thereis still a considerable amount of un-scrambling to be done.Implications of Redeployment Plans

Consideration of the projected build-up of Army forces in the Pacific theater,as set forth in public statements of thePresident and the War Department, re-inforces in a general way the expectationthat considerable further cuts in themunitions production program will bemade in the near future.

Up to VE-day, virtually all overseastroopsboth in the European and Pacificareascould be considered engaged in

Chart 2.Monthly Rate and Effective Date of Munitions CutbacksMILLIONS OF DOLLARS6 0 0

5 0 0

4 0 0

3 0 0

2 0 0

100

T"MONTHLYRATE OFCUTBACK

NOT REDUCING CURRENT RATEOF PRODUCTION

I REDUCING CURRENT RATEOF PRODUCTION

SEPT.1945

NOTE.- DATE AT TOP OF BAR INDICATES WHEN CUTBACKWILL APPROACH ITS MONTHLY MAXIMUM.

DEC.1944

DEC.1944 MAY

1945

OCT.1944

JULY AUG. SEPT. OCT.1944

NOV. DEC' JAN. FEB. MAR. APR.1945

MAY JUNE

MONTH REPORTED TO PRODUCTION READJUSTMENT COMMITTEE 2 / -D. D. 45-409

1 Monthly rate of cutback is the value of the reduction in schedules for the month indicated at the

top of each bar. The data for May 1945 are preliminary.2 Cutbacks involving over $100,000 in any one of the succeeding 12 months are reported to the

Production Readjustment Committee.Source: War Production Board.

combat or combat-supporting activities.Immediately after the final and uncon-ditional surrender of Germany, however,only one-third of the overseas Armythose troops stationed in the Pacific,including China, Burma, and Indiaremained in the ''active" category andcontinued to require a steady flow ofcombat munitions. In addition, there isneed for a build-up of supplies in thePacific similar to that required beforecontinental operations in Europe.

In his special message to Congress,President Truman announced that Armystrength in the Pacific would eventuallydouble. In other words, this means thatthe number of troops in that area willbe increased from one-third to two-thirds of the total number in both thea-ters of war on VE-day. If, as is likely,it will take about a year to do this, aver-age troop strength in the Pacific duringthis period would be about 50 percent ofthe VE-day overseas force.

Before the end of the European War,the total pipeline was adequate to sup-port a considerably larger number of"active troops" than will be engaged inthe Pacific during the coming year. Evenafter allowing for a somewhat longerpipeline in the Pacific theater than inthe European, and for the unsuitability,obsolescence, or disrepair of some muni-tions items, substantial stocks should stillbe available for transfer to the Pacifictheater.

The foregoing analysis suggests someof the basic considerations which makeit possible to reduce munitions produc-tion schedules by considerably more thanthe 15 percent reduction in the over-all

s:ze of the army which is planned for thenext 12 months. While a simplifiedanalysis of this type obviously cannotyield any accurate measure of the reduc-tion in munitions requirements implicitin the redeployment plans, it does pointto the likelihood that the cuts still to beannounced are sizable. Several monthsmay pass, however, before procurementplans are finally geared to the latest re-deployment plans and before full allow-ance is made for the availability ofinventories.Upsurge of Cutbacks

The extent to which the shift to one-front war production was initiated inApril, the month of final destruction ofthe German forces, is shown in chart 2,which traces the monthly trend in mu-nitions cutbacks since July 1944.

Cutbacks present a difficult problem ofmeasurement since both the total valueof the reduction in future productionschedules and the monthly distributionof the reduction should be taken intoaccount. The technique embodied inthe chart is to compute the cutback rateon the basis of the reduction in sched-ules in the "effective month", which isdefined as the first month in which thereduction approaches its monthly max-imum. In the period covered in thechart, the monthly maximum reductionwas not approached until from 2 to 8months after the date when the cut-backs were reported to the ProductionReadjustment Committee of the WarProduction Board.

Chiefly because of the large scaling-down of the aircraft program, theDigitized for FRASER

http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

June 1945 SURVEY OF CURRENT BUSINESS

monthly rate of cutbacks in April wasmore than twice the previous high pointof last September, following the rout ofthe German army in Prance. Almosta third of the April cuts, however, were''paper cutbacks"that is, they elimi-nated projected increases rather thanmaking an actual cut in production.Moreover, the "effective date" was 8months ahead.

The month of May saw an accelerationof the cutback rate and a marked re-duction of the "paper" portion of thecutbacks. Only 20 percent of the Maycutbacks, however, will have an effectbefore September. The number ofplants (prime-contractors) cut backduring the month was 979, comparedwith 308 plants in April.Revisions of Major Programs

The areas where the recent munitionscutbacks have been largest are indi-cated in chart 3, which relates third andfourth quarter schedules to actual pro-duction in the initial quarter of this year.

Striking point on the chartin viewof the announced reduction in the size ofthe fighting forcesis that the May 26schedule for ammunition was still higherthan actual first-quarter production.This simply means that the adjustmentsby the Army still have a considerabledistance to go, and June changes willalter this as well as the other bars onthis chart.

While a large percentage reduction isprogrammed for guns and fire control,the cuts in aircraft and ships are muchmore significant in terms of the physicalvolume of resources that are involved.The latter programs account for three-fourths of the dollar cut between the firstand fourth quarters.

In the case of the ship program, how-ever, it may be noted that the down-trend was determined long before theend of the war in Europe and that theship production schedules have not yetbeen readjusted to the fact that we nowhave a one-ocean, as well as a one-front,war.

While the bulk of war production isscheduled to slide off in future months,there still remain a number of individualprogramsnotably jet propelled planes,the B-29, and rocketsthat are rising.With the general easing of the war pro-duction picture, however, there canreally be no "critical" or "must" pro-grams in the broad sense in which theseterms have been used up until recently.Expediting actions will still be requiredto accelerate production of particularitems for short periods, but from nowon these will proceed under conditionsof easing materials, components, andmanpower stringency and so cannot pre-sent the same problems as they did in1944.

Prom the standpoint of industrial fa-cilities, the cutbacks thus far announcedand those anticipated shortly can permita substantial resumption of consumermetal goods production. The explana-tion for this situation is not so much theactual size of the cutbacks, but ratherthe tremendous expansion of industrialfacilities during the war. Only a frac-tion of existing facilities is needed to

produce the prewar volume of most con-sumer metal goods other than automo-biles. This aspect of reconversion plan-ning is explored in detail in the article,"Reconversion in Metal Fabricating In-dustries," appearing in this issue.

Basic MaterialsThe basic metals, particularly steel,

contain the key to what reconversion willtake place over the remainder of the year.It is obvious that additional amountswill become available for new civilianproduction, but estimates of the quan-tities to be released are still highly ten-tative. It is not yet known, for example,to what extent depipelining and inven-tory absorption will contribute to theavailable supply.Release of Steel

On the basis of the recent allocationsof steel for the third quarter of 1945, itis apparent that the downward revisionof military requirements is lagging be-hind the adjustments in munitionss c h e d u l e s . The reductions in theamounts of carbon steel allocated to theArmy and Navy are small when relatedto the program cuts which have beenannounced.

Reductions nonetheless permitted ad-ditional allocations to the Office of De-fense Transportation, the War Food Ad-ministration, and certain durable goodsindustries (e. g., machine tools, mechani-cal refrigerator, and washing machinemanufacturers) which are given priori-ties assistance to speed resumption ofessential civilian production.

Existing allotment schedules, however,appear to provide little leeway for theoperation of the "open-ending" programfor steel. While it is certain that moresteel will actually become available forcivilian production than is now indi-cated by the official determinations, thecontinued large allocations to the mili-tary agencies will interfere with in-creased deliveries to other claimants.This situation, together with the slownessof many war contractors in cancellingtheir materials orders when contractsare cut, is a potentially serious impedi-ment to the speedy absorption of work-ers discharged from war production.

Moreover, steel mills, being unable todistinguish between those orders whichwill later prove to be "paper" and thosewhich will still be real when it comestime to roll the final products, are im-peded in adjusting delivery schedules to

Chart 3.-Munitions Schedules for the Third and Fourth Quarters, 1945,as Percentages of Actual Production, First Quarter, 1945

SCHEDULES AS OF APRIL 14 >

SCHEDULES AS DECREASE BETWEENOF MAY 26 APRIL 14 AND MAY 26

SCHEDULES

PERCENTMUNITIONS GROUP

TOTAL:

50 100 150

AMMUNITION:

3rd Qr.4th Qr.

3rd Qr.4th Qr.

AIRCRAFT:3rd Qr.4th Qr.

COMBAT ANDMOTOR VEHICLES:

3rd Qr.4th Qr.

COMMUNICATION ANDELECTRONIC EQUIPMENT:

3rd Qr.4th Qr.

GUNS AND FIRECONTROL:

SHIPS:

3rd Qr.4th Qr.

3rd Qr.4th Qr.

OTHER EQUIPMENTAND SUPPLIES:

3rd Qr.4th Qr.

I st Qr."PRODUCTION

^INCREASE

D. D. 45-403

Source : War Production Board.Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

SURVEY OF CURRENT BUSINESS June 1945

the particular shapes and sizes that willbe required to enlarge the flow of civiliangoods.

The steel outlook is also clouded by theprospect of a particularly tight situationfor sheet and strip steel, where the re-quirements of the industries on the vergeof resuming civilian production areheavily concentrated. Deliveries on theunrated orders for these shapes may belong delayed.

While copper and copper base alloysand aluminum will be in relatively largersupply for expanding civilian produc-tion, the current tight situation in theso-called soft goodscotton, leather, andwoolen goodsis not expected to easeappreciably in the near future.

Adjustment of War ControlsVE-day brought a release of war con-

trols on production and on the distribu-tion of basic materials in anticipation ofthe release of industrial capacity, mate-rials, and manpower through the reducedmunitions schedules.

As a matter of basic policy to be fol-lowed in the reconversion period, thegeneral decision has been made to relaxcontrols to the full extent permitted bythe reduction in military requirementsand to give manufacturers broad accessto released materials, rather than to at-tempt to schedule the resumption ofcivilian production in most lines on thebasis of essentiality.

This fundamental decision has beenimplemented by two types of policy ac-tions. In the first place, the War Pro-duction Board has revoked more than 150limitation, conservation, and related or-ders affecting a large number of civilianitems, such as alarm clocks, cutlery,cooking utensils, lamps and bicycles.Generally speaking, the products affectedrequire only small amounts of steel intheir manufacture.

Of course, such revocations give no as-surance that early resumption of produc-tion will be possible. They merely clearthe way for expanded activity as therequisite facilities, materials, and man-power become available. In addition,they permit the manufacturer to utilizeingenuity in making substitutions andtaking advantage of idle or excess stocks.

The second course of action is re-flected in the "open-ending" of steel,copper, and aluminumthis means thatthe mills are permitted to accept unratedorders and to fill them after all the pri-ority orders are completed.

This procedure is effective July 1,1945,with the exception that immediate de-livery of brass mill products on unratedorders has already been permitted.

Reconversion planning has also beenimplemented by other measures whichprogram a few essential civilian productsand give priorities assistance for the ac-quisition of bottleneck machine tools andequipment and for necessary construc-tion, in order to start production at min-imum economic rates.

The automobile industry is the out-standing case where this latter type ofaction has been taken, but the washingmachine and refrigerator industries areother examples. Permission has beengranted to produce approximately 200,000

passenger cars during the remainder ofthis yearbut priorities for the neces-sary raw materials have not been ac-corded to the industry. Washing ma-chine and mechanical refrigerator man-ufacturers, on the other hand, have beengiven priorities for steel.

Brief mention might also be made ofseveral other actions which have beentaken, such as the granting of specialpreferences to small manufacturers, in-cluding veterans and new enterprises,and the relaxation of inventory controls.

Orders covering textiles, lumber,leather, many chemicals, containers,pulp and paper, and other materials andproducts in short supply are expected tobe continued. In addition, the orderswhich apply to the important consumerdurable goods will be retained for sometime, at least in the modified form al-ready indicated for passenger automo-biles.

The net effect of the reconversion pro-cedures is to open the door for resump-tion of civilian output in heretofore re-stricted areas. What will get throughthe door will depend, in the primary in-stance, on the incidence of cutbacks byplants and, secondly, on the ingenuity ofthe individual business men in acquiringthe requisite materials and parts. Bythe end of this year and early next year,however, these interferences to expand-ing civilian output will be substantiallyreduced.

Manufacturers' War InventoriesThe stepped-up rate of contract ter-

minations has focussed attention on thevalue and composition of the inventoriescurrently held by manufacturers for usein war production. Aside from enteringinto settlement arrangements, these in-ventories offer wide possibilities of beingdiverted to civilian channels once theyare no longer needed in war production.Termination stocks of a more specializedcharacter, on the other hand, give riseto problems of plant clearance andeventual disposal by the Governmentprocurement and surplus property agen-cies.

No direct information is available al-locating manufacturers' inventories be-tween war and nonwar uses, but some

Table 1.Estimated War and NonwarInventories of Manufacturers, March31, 1945

[Billions of dollars]

Durable goods industries,total

Raw materials and goodsin process

Finished goods .

Nondurable goods indus-tries, total

Raw materials and goodsin process

Finished goodsTotal, all manufacturers

War

6.7

5.31.4

3.0

2.01.0

9.7

Nonwar

2.1

1.5.6

4.6

3.11.56.7

Total

8.8

6.82.0

7.6

5.12.5

16.4

Source: U. S. Department of Commerce.

indication of the general magnitude ofthe war portion can be obtained by as-suming that the inventories were dis-tributed in the same proportion as existsbetween war and nonwar production inthe different industries.

Total stocks held by manufacturers atthe end of March 1945 were valued at16.4 billion dollars. Application of thewar-nonwar percentages by individualindustries yields an estimate of warstocks of almost 10 billion dollarsroughly three-fifths of the total. Thedistribution between durable and non-durable goods industries and betweenraw materials and goods in process andfinished goods is shown in table 1.

It should be noted that the figures inthe table represent book value, which isstated on a cost basis, and are not anaccurate measure of the obligationwhich the Government would assume onthe termination of war contracts. Underpresent termination procedure, manu-facturers are entitled to an allowance forprofit on completed and partially com-pleted work.

Industrial DistributionWar inventories are considerably more

important in the durable than in thenondurable goods industries, both fromthe standpoint of the absolute magni-tudes involved and, to a much greaterextent, the relative size of the war por-tions. Within the durable goods indus-tries, the heaviest concentration is in themetal fabricating plants, which are war-time producers of guns, ammunition,tanks, aircraft, ships and other materiel.

Rough estimates indicate that four in-dustry groups in the metal-fabricatingcategoryelectrical machinery, machin-ery (excluding electrical), automobilesand parts, and transportation equipment(excluding automobiles)account for45 percent of all war inventories. Thisconcentration is significant because ofthe likelihood that a large portion of theinventories in these industries will havevery limited use in civilian productionafter the war.

The metal-producing industries alsohold large war inventories, but thesestocks are less specialized and will bemore useful in civilian production.Among the nondurable goods industries,war inventories are most important, inboth relative and absolute terms, inplants manufacturing chemicals and al-lied products.

Magnitude of the Disposal ProblemThe problem of disposal of termina-

tion inventories held by manufacturersnarrows down to considerably less thanthe 10-billion dollar estimate of war in-ventories on March 31, 1945.

In the first place, some reduction ininventory accumulation can be expectedas a result of the current shift to one-front-war production. Moreover, a largeportion of the war inventories will createno disposal problem because they can bereadily channelled into civilian produc-tion. This is true of the bulk of the 2

(Continued on p. 24)Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


Planned Capital Outlays by ManufacturersBy D, Stevens Wilson

DURING the next fiscal year, a greatmany of our postwar readjustmentswill be initiated. The timing of thoseadjustments is uncertain. We do notknow how long the war in the Pacificwill continue to absorb a large part ofthe national output. It is important,however, to have some measure of thepresent thinking of businessmen with re-gard to this period.

One important question is the amountof capital outlays necessary to put facil-ities in shape for expanding output forcivilians as war production is cut back.This includes not only reconversion butalso postponed replacements and addi-tions where these were not permittedduring the war. Closely related are thequestions of the size of the civilian mar-ket for producers goods during the post-war transition and of how these outlaysare to be financed.

Reconversion KeyBecause of the importance of these

questions various business and financialgroups requested that the Department ofCommerce undertake a survey of busi-ness plans on reconversion. The keydesigned to open the door for the analysiswas the planned capital outlays andfinancial requirements during the 12months following the end of the war inEurope. The returns, therefore, may beaccepted as broadly indicative of theplans covering the July-June fiscal yearwhich is about to start.

While there has not been time forcomplete analysis of the returns, enoughinformation with regard to manufactur-ingwhere the reconversion problemcentersis at hand to permit a prelim-inary over-all discussion. This articledeals briefly with the general summaryof the capital outlays currently projectedby manufacturing companies. Theseare the manufacturers' own estimates,though we have developed these intomeaningful aggregates for all manufac-turing; and for the major industrygroups.

A more comprehensive statement cov-ering probable requirements for mainte-nance and for increasing inventories andtrade receivables, and the sources of thefunds required to finance these expendi-tures, whether internal from companyresources or from outside sources, will bepublished in a later issue. In the lattercase, the type of financing will be indi-cated for the aggregate of those com-panies whose plans have advanced to

this stage. Obviously, the method offinancing is subject to changeor laterdeterminationdepending upon marketconditions at the time.

A later report will also cover the publicutilitiesrailroad, electric power, andgas companies.

Nature of the SurveyThe survey requested information on

the capital outlays planned for the next12 monthsthat is, new construction andequipment, maintenance and repairs,and outlays for increasing inventoriesof civilian goods and trade receivables.The sources from which funds for mak-ing these outlays were to be obtainedwere also requested.

To serve as a general index to businessthinking and to provide a common basisfor appraising composite answers, thequestionnaire also asked for the plannedsales objective of each company, definedas the annual rate of sales which theyanticipated for a period of a year to ayear and a half after VE-day. Thereason for this is that it was consideredthat capital expenditures for the year

after VE-day would be geared to salesexpectations for the period shortly be-yond that date.

Data for 1939 sales and capital outlayswere also included as a benchmark orreference point so that the returns couldbe aggregated into composites for themanufacturing as a whole, and for majorgroups of industries. The year 1939 wasselected for the base period not only as amatter of convenience, but also becauseit represented the last year uninfluencedin a major degree by the impact of thewar.

The results which are given belowwere developed from a mailed question-naire returned by representative groupsof manufacturing companiesnearly7,000 in number. A supplementary fieldcanvass was made to check for possiblebias in the mailed returns.

The survey returns indicate that arecord volume of private capital expend-itures is contemplated for the ensuingyear. The magnitude of these planstakes on added significance in view of thelarge additions to manufacturing facili-ties made during the war period.

Chart 1.-Manufacturers' Capital OutlaysBILLIONS OF DOLLARS

4 -

3 -

2 -

1929*30 '31 '32 '33 '34 '35 '37 '38 '39 '40 '41 '42 '43 *44 PLANNED^NOTE.-Mr. Wilson is a member of the Nat-

ional Economics Unit, Bureau of Foreign andDomestic Commerce.

1 "Planned" outlays are for the first 12 months following the end of the war in Europe.

Source : U. S. Department of Commerce. See text footnote 1 on page 6.

45-394


SURVEY OF CURRENT BUSINESS June 1945

Planned Capital OutlaysIn the coming year the survey dis-

closed that manufacturers are planningto spend approximately 41/2 billion dol-lars for plant, equipment, and altera-tions. As pictured on chart 1, this wouldbe nearly three times the prewar, or 1937to mid-1940, average and far above the1929 peak of 2% billion dollars.1 How-ever, it is still considerably below thewartime level of expenditures for newmanufacturing facilities if public andprivate outlays are combined.

Nearly 30 percent of the planned capi-tal outlays are for plant. This total interms of dollars is roughly three timesthe prewar rate and about 35 percentabove the 1929 peak. Over 50 percent ofthe planned capital outlays are for ma-chinery and equipment. This is about75 percent higher than prewar andabout 35 percent above 1929.

Because of the necessary shiftingaround of production facilities for warpurposes the planned outlays include arather large expenditure for altera-tions. A small amount of alteration ex-pense charged to capital account occursin almost every year. In the past thishas been included in the estimates forconstruction or equipment. During thereconversion period, however, it will bea major item, and will account for a goodpart of the increase in planned outlaysover the 1929 amount.

Chart 2 shows the variations in totalcapital outlays as between industrygroups, and provides a comparison withthe industry outlays for the year 1939.A comparison of outlays with any oneyear has limited significance since manyfactors would combine to influence out-lays in that particular year which may,or may not, be present in other years.The year 1939, however, is the only onefor which complete information is avail-able on private capital expenditures byall industry groups.

Every industry group plans outlayswell above the 1939 level. This break-down by industry group, however, mustbe used with caution. It is considerablyless precise than the total because ofqualifying factors in certain industries.These are discussed later.

Chart 2.Manufacturers' Capital Outlays, by Industry Groups x

1 The historical data or benchmarks used

to project the data developed in the surveyare the inclusive series developed by LowellChawner in an article, "Capital Expendituresfor Manufacturing Plant and Equipment1915-40," which appeared in the SURVEY OFCURRENT BUSINESS, for March, 1941. Minoradjustments have been made to exclude, asfar as possible, publicly financed expendi-tures. Data for the war years as well asthose derived from this survey comprise, asfar as possible, an extension of the Chawnerseries.

These plant expenditures, therefore, aremore inclusive than the figures on industrialconstruction currently issued by the Depart-ment of Commerce. The difference lies pri-marily in the fact that the concept of indus-trial construction excludes such things asboilers, power plants and other fixed installa-tions, as well as auxiliary buildings such ascafeterias which are included in the planttotal. These are included in the Chawnerconcept used here.

INDUSTRY GROUP

CHEMICALS a ALLIED PRODUCTS;PRODUCTS OF PETROLEUM a COALa RUBBER PRODUCTS

FOOD a KINDRED PRODUCTS (INCL.BEVERAGES) a TOBACCO

IRON a STEEL a THEIRPRODUCTS

TRANSPORTATION EQUIPMENT,INCL. AUTOMOBILES

TEXTILE-MILL PRODUCTS a OTHERFIBER MANUFACTURES^ APPARELa OTHER FINISHED PRODUCTS; aLEATHER a LEATHER PRODUCTS

MACHINERY, INCL. ELECTRICAL

PAPER a ALLIED PRODUCTS; aPRINTING, PUBLISHING, a ALLIEDINDUSTRIES

STONE, CLAY, a GLASS PRODUCTS

LUMBER a TIMBER BASIC PRODUCTS;AND FURNITURE a FINISHEDLUMBER PRODUCTS

NONFERROUS METALS aTHEIR PRODUCTS

MISCELLANEOUS INDUSTRIES

MILLIONS OF DOLLARS200 400 600 800

1 Industry groups are arranged in decreasing order of magnitude of outlays in 1939

2 "Planned" outlays are for the first 12 months following the end of the war in EurSource : U. S. Department of Commerce.

rope.

Deferred ConstructionIn chart 3 a comparison is made be-

tween capital outlays in what are calledthe war and nonwar industries as broad-ly defined. Throughout the war years,the expenditure in nonwar industriesfor construction had to be restricted, andhence they accounted for only a smallpart of the new facilities. Outlaysplanned for this segment of the economyaccount for nearly half of the contem-plated total and are far above the pre-war rate.

In these nonwar industries the highrate at which they have operated duringthe war period has subjected the equip-ment to extreme wear for which replace-ments have been generally inadequate.The inefficiency and the high cost of themarginal facilities have also beenbrought forcibly "to light. Furthermore,these industries have not been able toexpand, to develop new products, or totake advantage of new developments.

The combination of these factors re-sults in some very high increases inplanned outlays. The largest gain over

the prewar figures are in the paper andprinting group and the textile, apparel,and leather groups. Similarly, the foodindustries are projecting record out-lays.Capital Outlays Related to Sales

A comparison of these increases inplanned outlays and the increases an-ticipated in sales volume yields someinteresting results. (See chart 4.) Thetextile group, for example, has experi-enced a very large rise in output through-out the war period and this volume isexpected to continue or increase. Sincelittle new equipment has been producedfor textile or apparel output, the resultis that to achieve this high volume a verylarge increase in capital investment willbe necessary, giving the industry a rela-tive importance in terms of outlays neverbefore attained. Several other nonwarindustries have planned sales objectivesvery close to the 1944 level of output andare also planning capital expendituresat a very high rate, notably the paper,and stone, clay, and glass groups.



War Industries Also Plan OutlaysIn contrast to the nonwar industries,

the war industries experienced an ex-tensive over-all expansion in facilitiesduring the past few years. Even so,planned outlays for this group exceedthe 1944 amount for both public andprivate expenditures and are well abovethose of prewar.

The explanation of this lies partly inthe fact that within the war industriesthemselves there is considerable varia-tion. The industry groups as given arenecessarily very broad and tend to coverup differences as between segmentsthemachinery group, for example, includesboth machine tools and refrigerators, onwhich the effect of the war has been com-pletely opposite.

It also appears to reflect a judgmentby business management that some ofthe Government-owned war productionfacilities have little utility for normalpeacetime production requirements.

In some sections of the war industries,of course, the wartime facilities will havedirect peacetime use. Thus within theiron and steel industry the large expendi-tures for new ingot and pig iron capacityare apparently considered sufficient topreclude the necessity of any sizableadditions in the near future. For thisreason the iron and steel group plansfor a comparatively small increase incapital outlays during the reconversionperiod. Even so, plans envisage an ex-penditure which is large in terms ofprewar years. There are many consumerlines of steel productshardware, stoves,etc.which have been curtailed by thewar, and expect to make substantial out-lays to take advantage of the large po-tential consumer market.

There are differences between the vari-ous parts of other war industries as theyhave been affected by wartime plant ex-pansion. In the chemical industry alarge investment has been made for ex-plosives, ammunition and other warproducts, in contrast to the anticipatedpeacetime requirements for cosmeticsand toilet goods, plastics, synthetic fibersand other civilian products. There hasbeen a large expansion of the capacityfor producing aluminum and magnesium,while the facilities for producing certaincivilian products from nonferrous metalshave been restricted.

Large outlays are planned also by thetransportation equipment group whichincludes automobiles and the machineryindustry despite the very large outlaysin these fields during the war and thesharp drop in the sales from the 1944level which is anticipated in the salesobjective. This volume of capital ex-penditures is made necessary by the ex-tensive reconversion which must takeplace before the production of automo-biles, refrigerators, washing machines,and countless other consumer durableitems can be reestablished.Plans Cannot Be Final

In appraising the large volume of an-ticipated outlays indicated by the fore-going summary, it should be kept in mindthat plans have varying degrees of defi-

niteness. They range all the way fromfirm commitments or the very necessaryexpenditures which cannot be -avoidedunder any circumstances, through thedesirable expansion or modernizationwhich will take place if general condi-tions are more or less in line with presentexpectations, to those tentative projectswhich depend on technological or com-petitive developments.

Within this wide range of probabilities,the stated plans tend to be best approxi-mations. In other words, this surveycan in no sense be considered a forecaston the part of business or on the partof the Department of Commerce. Itconstitutes merely a composite pictureof business plans in various stages offormulation as they appeared at a pointof time.

The survey was made with full recog-nition of the difficulties involved in giv-ing quantitative expression to futureplans which must in the nature of thecase be tentative and contingent uponfuture developments. Even in normaltimes business plans are subject to sud-den chages but under present conditionsthe term "plans" must be considered ina very informal sense.

There are many factors, in addition tothose ordinarily influencing business de-cisions, over which management has verylittle control, and the effect of these can-not in many cases be predicted. Whenthe survey was made, for example, thetiming of victory in Europe was still un-certain. In view of these difficulties, thecooperation of those firms which madereturns is greatly appreciated.

Assumptions Were Not GivenThe brief questionnaire used in the

survey deliberately avoided setting upany assumptions as a basis for the an-swers or attempting to specify the prob-able factors which might influence theanswers. It was felt that the surveycould make the greatest contribution ifit produced a picture of current businessthinking on the questions of capital out-lays and financial requirements and thatany light shed on this subject would beuseful even with a considerable marginfor error.

As a consequence businessmen wereleft to make their own assumptions onsome very important questions and topick from a range of "plans" one figurewhich would represent, in the light ofthose assumptions, the most probablemagnitude of capital outlays. Even thenotion of what constitutes capital out-lays was left to the questionee.

While this lack of uniformity of con-cepts and assumptions presents someproblems of interpretation, the results ofthe survey reflect the composite of man-agement thinking on such very importantquestions as the length of the war, theavailability of materials and supplies, thenature of the government controls dur-ing the transition period, and the prob-able price levels at which constructionor equipment will be available.Implicit Assumptions

While the assumptions were not given,these had to be implied in each returnthe company had to have its own pat-tern of the future war requirements. To

Chart 3.Private and Public Capital Outlays in War and NonwarManufacturing Industries 1

BILLIONS OF DOLLARS4 6 10

1 1

JHBBBIHIi^

rh=

1

Y//////////////A

///////////////////////////////

V///////////////////////////A

1I

1

1

HHHPRIVATE

1

1

y/////////A

PUBLIC

| >.>. 45-410

1939:WARNONWAR

1940:WARNONWAR

1941:WARNONWAR

1942:WARNONWAR

1943:WARNONWAR

1944WARNONWAR

PLANNED &WARNONWAR1 War industries include chemicals and allied products, products of petroleum and coal, and rubber

products ; iron and steel and their products, except machinery ; transportation equipment, includingautomobiles ; machinery, including electrical; nonferrous metals and their products ; and miscellaneousindustries.2

"Planned" outlays are for the first 12 months following the end of the war in Europe.Source : U. S. Department of Commerce.


SURVEY OP^ CURRENT BUSINESS June 1945a considerable degree, therefore, thevariations among the companies arisefrom differences in the assumptionswhich underlie the plans. But this iswhat was wantedthe plans of the com-panies based on their own operating con-siderations.

The thinking on the length of thew7ar and the effect which munitions cut-backs will have on the distribution ofthe product as between civilian and mili-tary lines can only be assumed from thegeneral answers. However, the com-posite of underlying ideas can be de-duced from an analysis of the sales ob-jective which the companies are antici-pating a year to 18 months ahead. Thelevel of economic activity indicated bythe sales totals reflects the general toneof business feeling about the future.

The planned sales objective refers tothe annual rate which is expected to bereached sometime within this 12 to 18months period, and not to the volumeof any particular 12-month interval.

The over-all volume of sales which thecompanies have given as the objective forthis period is more than double the 1939amount, but about 20 percent below therecord level of 1944. This includeschanges in price as well as physical vol-ume.

A breakdown of the sales reveals thatvolume in civilian or prewar lines isplaced at 80 percent above 1939. Witha rough adjustment for price the physicalvolume is perhaps 40 percent higher.ProductNot Market Distinction

The distinction between sales of civil-ian lines and of military products relatesto the character of the product, not toits market. Tanks, guns and aircraft aremilitary products, but not the iron andsteel or nonferrous metals from whichthey are made. To some extent thevolume of sales in prewar lines will becontingent upon the reduction in the de-mand for munitions items. Most indus-tries, however, have little or no militaryproduct as such; the large variable willbe the distribution as between militaryand civilian use of the normal products.

Although there was wide variation asbetween individual companies regardingsales of military products, it is clear fromthe composite results that the respond-ents in general do not expect that Japanwill be able to stave off unconditionalsurrender beyond the Summer of 1946.The level of munitions production antici-patedabout one-third of the annualrate indicated by the first quarter 1945totalsis that which might be expectedas war contracts are in their final orliquidating stage.

Gross National Product IndicatedThe aggregate sales objective derived

from the survey corresponds to a grossnational product of roughly 150 billiondollars at that time as compared withjust under 200 billion dollars in 1944.The amount of capital formation in-duced from the survey is large. It ap-parently reflects the stimulating effectof accumulated needs, for capital re-

placement and expansion as well asmanagements' confidence that the de-mand for their products will be high inthe immediate postwar period.Back to Comparative Sales

There is considerable variation as be-tween industries in the anticipated salesvolume, particularly with respect to the1944 levels. (See Chart 4.) As wouldbe expected, those industries more closelyconnected with munitions output con-template the largest decline from 1944.On the other hand, sales even larger thanthe 1944 totals are anticipated in thetextile and paper groups. The influenceof military products is still quite appar-ent in the sales volume indicated by thetransportation equipment, nonferrousmetals, and the machinery groups. Inother industries where the output is ofthe same basic prewar lines, anticipated

increases with relation to 1939 are muchmore uniform.Can Expenditures Actually Be Made

In discussing the assumptions whichunderlie the figures for planned outlaysit is impossible to avoid the question asto whether the volume, industry by in-dustry, as indicated by the survey wasreasonablenot only in terms of theprobable availability of materials andsupplies to produce the equipment, butalso with respect to the ability of thesuppliers of equipment in any particu-lar field to meet the demand implicit inthese outlays.

In some instances it is known that thefigures given cover only that part of therequired outlays which the managementbelieves can be made within the nextyear. In other cases, plans appear to in-clude necessary and desirable expendi-

Chart 4.Sales of Manufacturing Companies, by Industry Groups

BILLIONS OF DOLLARS10 20 30INDUSTRY GROUP

FOOD a KINDRED PRODUCTS (INCL.BEVERAGES) 8 TOBACCO

CHEMICALS a ALLIED PRODUCTS;PRODUCTS OF PETROLEUM a COALa RUBBER PRODUCTS

TEXTILE-MILL PRODUCTS a OTHERFIBER MANUFACTURES; APPAREL8 OTHER FINISHED PRODUCTS-, aLEATHER a LEATHER PRODUCTS

IRON a STEEL 8 THEIRPRODUCTS. EXCEPT MACHINERY

MACHINERY, INCL. ELECTRICAL

TRANSPORTATION EQUIPMENT,INCL. AUTOMOBILES

PAPER 8 ALLIED PRODUCTS; aPRINTING, PUBLISHING, a ALLIEDINDUSTRIES

LUMBER a TIMBER BASIC PRODUCTS:a FURNITURE a FINISHEDLUMBER PRODUCTS

NONFERROUS METALS 8THEIR PRODUCTS

STONE, CLAY, 8 GLASS PRODUCTS

MISCELLANEOUS INDUSTRIES

1 Industry groups are arranged in decreasing order of magnitude of sales in 1939.

2 "Anticipated" sales are at an annual rate for the first 12 to 18 months following the end of the

war in Europe.Source : U. S. Department of Commerce.


June 1945 SURVEY OF CURRENT BUSINESS 9tures without too much regard for theprobable difficulties involved in complet-ing the projects. This is understand-able, however. The plans of any onecompany and perhaps of one industry willnot seem unduly large or likely to strainthe material and supply situation, whilethe aggregate of all plans might wellprove unreasonable. It is in the presen-tation and analysis of these aggregativeamounts that the survey can be mosthelpful.

On an over-all basis the total volumeof outlays is within reason since our war-time outlays were well above the con-templated levels; however, it may wellbe that many of the facilities and mate-rials will not be available within the pro-jected period for the production of newplant and equipment. As for particu-lar industries, the amount indicated forthe textile, apparel and leather group,and the paper and printing group raisessome reasonable doubts as to whethermakers of this type of equipment couldproduce that volume within a year pe-riod even were the necessary materialsavailable.

Size of the SampleJust over 6,800 replies to the survey

were received. Firms returning thequestionnaire accounted for almost 50percent of the 1939 total volume of salesand nearly 60 percent of total 1939 capi-tal outlays. Of these returns, however,only 63 percent gave figures for plannedcapital outlays and planned sales ob-jectives. The others were either unwill-ing or unable to project their plansquantitatively.

Because of the importance of largecompanies, a special effort was made tosecure complete coverage of the largest.As shown in chart 5, the 192 largest com-panies in 1939 accounted for one-thirdof the total sales volume and over 40 per-cent of the capital outlays. Plannedoutlays and planned sales objectives werereported by 62 percent of these compa-nies.

In deriving a total for this group, plansfor the remainder were estimated bycomparing the nonreporting companiesindividually with other companies in thesame industries which were subject toapproximately the same conditions.Based on these results, the proportion ofplanned outlays attributable to thisgroup is expected to decline while the an-ticipated sales volume remains at aboutone-third of the total objective. (Seechart 5.)

One-third of the 1939 sales were byfirms with output of less than 2 y2 milliondollars in that year, and the other one-third by firms with output of over 2V2million dollars, but excluding the 192largest companies. These two groupsaccounted for nearly 60 percent of the1939 outlays. Returns were receivedfrom 6,614 firms in the two groups.Reliability of Sample

Certain very general observations canbe made as to the reliability of this sam-ple. The mailing list was notably defi-cient in printing and publishing, and inlumber. In these industries the returnsmay not be representative. There was

no attempt to get coverage for any newfirms which have come into existenceduring the war period, but this bias tendsto be offset by exclusion of those whichhave gone out of business.

In general, the smaller companies, interms of 1939 sales, were less well rep-resented. Returns were received fromfirms representing a little less than one-fifth of the total 1939 sales of companieswith output of less than 2Y2 million dol-lars in that year. Returns from firmswith output of over 21/2 million in 1939,but excluding the 192 largest, representedabout 30 percent of the 1939 sales of thisgroup. This bias is greater in the verysmall companies and in those industrieswhere small companies account for alarge part of the total.

This difference in coverage is impor-tant only if the aggregate plans of thesmaller companies differ materially fromthe larger companies. On the average,the returns indicate that the smallercompanies, some of which are no longersmall, plan larger percentage increasesover 1939 than do the larger companies.There is some evidence, however, to indi-cate that those small companies withplans for major expenditures tended toanswer the questionnaire while thosewithout particular plans did not file areturn.

Field Survey CheckAs a possible check against the repre-

sentativeness of the returns, in compari-son with those companies which did notreport, a small sample of about one per-cent of the mailing list was selected forpersonal interviews. This group con-sisted of companies to whom the ques-tionnaire had been mailed but fromwhom no reply had been received.

Some conclusions can be drawn fromthis small check survey. For example,the fact that a company did not reportapparently did not mean that it had noChart 5.Manufacturers' Capital

Outlays and Sales, by Largestand Other Manufacturing Com-panies *

1939 PLANNED

OUTLAYS SALES

1 "Planned" outlays are for the first 12

months, and "anticipated" sales are at anannual rate for the first 12 to 18 months follow-ing the end of the war in Europe.

Source : U. S. Department of Commerce.

plans. The major reasons given by thisgroup for not having filed the return vol-untarily were simple neglect or a reluc-tance to answer. There seemed to be nogreat differences in the nature of theirplans or their thinking.

The returns from this small checkgroup also appear to indicate that noserious bias is present in the total sample.

A further problem is presented byroughly one-third of the returns whichreported no plans. In some instancesthis meant that they were planning notto make any capital outlays, or that theamounts involved were thought to be toosmall to be significant. In other in-stances it simply reflected the inabilityor unwillingness to resolve the plans toa specific figure. Since the returns didnot clearly distinguish between these twoattitudes the decision as to their relativeimportance was quite arbitrary. Theassumption adoptedthat if plans hadbeen stated, they would amount to nomore than the 1939 outlays for thisgroupis probably conservative.

In view of the various qualificationsand adjustments, the over-all conclu-sions drawn from the survey can only beapproximate. On the whole, however,the problems presented by the samplingprocess do not appear as important inmodifying or qualifying the results asdo the difficulties implicit in reducingplans to a definite figure.

SummaryManufacturing firms are planning

large outlays for plant, equipment andalterations over the next 12 months.The total of approximately 4y2 billiondollars is nearly 3 times the 1937 to 1940average and more than half again aslarge as in 1929.

These are plans, not commitments.They are being kept flexible to meet arange of possible conditions and con-tingencies. They do, however, reflectthe considered judgment of an adequatecross-section of American industry. Theverbal and written comments and quali-fications accompanying the returns sug-gest that the total is not inflated by in-clusion of nebulous plans or those whichwill be consummated only under unex-pectedly favorable conditions.

The indicated market for construction,for producers, equipment and machinerywill be an important influence favoringthe transition from war production to ahigh output of civilian goods. Theplanned outlays are greater than thetotal of public and private expenditureson manufacturing facilities in 1944, al-though well under the war-time peak.The recent thinking of business manage-ment is that these outlays for reconver-sion, expansion, modernization and post-poned replacements are necessary ordesirable in spite of the large outlay onwar production facilities.

In some industries the planned outlaysare so large as to raise doubts as towhether the supplying industries canproduce the desired equipment withinthe next year. They suggest that theproduction of many producers' goodswill be limited less by demand than bythe time necessary to resume or expandproduction of those goods.

64358745-Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10 SURVEY OF CURRENT BUSINESS June 1945

Reconversion in Metal Fabricating ^Industries

SIGNIFICANT cutbacks in war pro-^ duction already announced have fo-cused attention on the reconversion ofindustry. The metal fabricating indus-tries constitute the major segment of theeconomy affected, though others will beconcerned to a lesser degree by reductionsin government orders. Even after pro-viding everything necessary for thearmed forces to press the subjugation ofJapan, there will now be considerablecapacity available fornonmilitary prod-ucts. This is so because of the tremen-dous wartime expansion of the factorsof productionlabor, plant and mate-rials.

A few summary statistics place theproblem in its setting. In 1944 shipmentsof metal fabricated products exceededthose of 1939 more than five times, which,even after allowing for the wartime risein costs, represents a tremendous ex-pansion. They comprised 45 percent ofmanufactured products as contrastedwith 25 percent in the prewar year. Em-ployment in these industries in 1939 was2 million; in 1944 it was 7 million, theincrease comprising 80 percent of theincrease in employment in all manufac-turing industries over the 5-year period.

Converting this highly expanded groupof war industries to the best purposes ofpeace is but one part of the main post-war issuehow to utilize the enlargedproducing power of the nation so as toprovide a higher standard cf living.

The purpose of this article is to re-view the data which have been assem-bled ir> the furtherance of mobilizing ourresources for war, but which have notbeen generally accessible. Since PearlHarbor, the War Production Board,through the facilities of the Departmentof Commerce, has been collecting reportsfrom some 10 000 producers of metalfabricated goods on value of shipments,by major class of product, and on utiliza-tion of facilities.

The quarterly reports for 1944 havebeen combined in this study and com-pared with 1939 Census data for com-parable industries in order to deduce themore significant highlights of thechanges that have taken place in theseindustries. Since changes in these in-dustries have been relatively minor thusfar this year, the data presented for 1944can be considered to represent the situa-tion in the first 5 months of this yearas well.

The Over-All ChangesThe main outlines of the wartime

changes in the metal products industriesare summarized in chart 1. The five-foldincrease in the dollar value of shipments

NOTE.Mr. Danhof is a member of the Cur-rent Business Analysis Unit, Bureau of For-eign and Domestic Commerce.

By Clarence H. Danhofbetween 1939 and 1944 consisted of thefollowing elements:

1. A doubling in the aggregate valueof shipments of civilian-type goods (re-ferred to in the chart as 1939 type prod-ucts). This occurred despite the exten-sive restrictions after Pearl Harbor inthe production for civilian use of almostall finished metal goods. The increasewent, therefore, to meet the needs of themilitary for products, such as repair partsfor metal goods in the hands of consum-ers, and selected essential civilian needs,(e. g., agricultural transportation, andelectric power equipment).

2. Greatly expanded shipments fromprivate plants of special war goods (re-ferred to here as combat materiel) whichamounted in 1944 to more than three-:afths the total shipments of metal fabri-cating plants in 1939. There was onlyan insignificant amount of such goodsturned out in 1939, and there is nomethod of adjusting these shipments forprice changes after 1939.

3. The production of metal goods byGovernment plants, mostly new, withdollar shipments in 1944 that were two-fifths above those of the entire privateindustry in 1939. The Governmentplants accounted for close to 30 percent

of the total metal fabricated productsshipped in 1944. Again, there is no 1939production of sufficient magnitude tocall for either comparison or concernwith problems of price change.

Leaving aside the Government plants,the companies in the metal fabricatingfield quadrupled their 1939 dollar salesafter 5 years of defense preparation andwar.

The only price adjustment that canbe made in this chart to improve thecomparison, is to adjust the output tothe higher 1944 cost basis. If doneroughly, the bar for 1939 would be raisedby a third or more to 17 billion dollars.If this very rough estimate of pricechange is used, the increase in shipmentsfrom the private plants in this field wasthree-fold times in the same years.New Facilities Made Record Possible

The basis of the rise in output duringthe war was primarily the addition ofnew facilities and, secondarily, the moreintense use of prewar facilities. Multiple-shift operation and longer work weeksobtained a much larger output from theprewar machines and equipment thatremained in use.

Over and above this, with private andGovernment financing, floor lay-outs

Chart 1.-Output of Metal Products IndustriesBILLIONS OF DOLLARS75

5 0

25

GOVERNMENT-OWNEDPLANTS U

COMBATMATERIEL 1/

1939PLANTS

1939 TYPEOF PRODUCT

!939PRODUCTION

S944SHIPMENTS

D.D. 45-310

1 Data include shipments of combat materiel and other products from Government-owned plants,

whether operated by the Government or by private management. Data do not include shipmentsfrom those Government-owned facilities or equipment that are located in, or closely integrated with,privately owned plants, nor output of Government-owned and operated navy yards. The relativelynegligible output of Government arsenals, docks and navy yards is not included in 1939 production.2

Includes ammunition : guns and fire-control equipment; combat vehicles ; aircraft, parts, andequipment: and ships and equipment.3

Both 1939 production and 1944 shipments are based upon the plant classifications in the 1939Census of Manufactures.

Sources : U. S. Department of Commerce and War Production Board.


June 1945 SURVEY OF CURRENT BUSINESS 11

were rearranged, plants were enlarged,and more efficient and new equipmentwas brought in. This was especially truefor the plants engaged in the manufac-ture of new types of combat equipmentfor which considerable special machineryand new assembly techniques had to beintroduced.Machine Tools a Bellwether

Some indication of the enormous ex-pansion in the facilities of these warindustries can be gathered from the in-stallations of new machine tools. Themachines that cut and grind metal com-prise about 90 percent of metal-workingequipment. At the end of 1939 therewere about 930,000 machine tools in thiscountry. Between 1939 and the end of1944 there were more than 730,000 newtools installed in metal-working estab-lishments.

The new machine tool installations donot represent a net increase in the ma-chine tool population, since there wassome obsolescence of old tools and awithdrawal from use of many tools for-merly engaged in civilian output thatwas restricted during the war. A veryrough estimate of these withdrawals,and taking into account that averagehours worked on machine tools per weekincreased more than 2x/2 times during theperiod, would indicate that the numberof machine tool hours in the metal work-ing industries in 1944 was more thanfour times as large as in 1939.Output Per Employee Rises

Although labor input did not increaseso rapidly as the value of output ormachine hours in the combined metal-working industries, the man hoursworked increased by more than 3V2 timesbetween 1939 and 1944. Aside from pricefactors, the dollar value of output peremployee increased from the changednature of the special war productstheincreased machining, more complex as-sembly, and higher precision require-ments.

The annual changes in employmentand average hours worked are pre-sented in chart 2. The 25 percent in-crease in average hours worked per week,with the big jump occurring after PearlHarbor, reflects not only intensified useof labor but of the equipment that wasworked upon as well.

Caution is necessary in interpretingthe increase in employment and hours ofwork from 1941 to 1942.

The over-all figures cover up the shiftin employment during the year in thoseplants where major conversion of fa-cilities to war work was under wayThere were temporary declines in em-ployment in many of the plants duringthe process of conversion. But thesimultaneous expansion of employmentin plants already engaged directly or in-directly in munitions output and thesubsequent rapid strides in hiring whenthe converted plants became ready formass production of military goods ac-counted for the upward movement ofaverage employment in 1942.

In the case of average hours worked,there were no restrictive factors, sinceeven in the plants where employment

Chart 2.Employment and Hoursin the Metal Products Indus-tries *

MILLIONS OFWAGE EARNERS8

6 -

2 -

1939 1940 1941 1942

- 40

361943 1944

CD. 45-3111 Data for "wage earners" represent the in-

dustries as defined in chart 3, footnote 1 ; anddata for "average hours per week" representthese industries and others included in the U. S.Department of Labor classification of "metalsand their products."

Sources: Average hours, U. S. Departmentof Labor; wage earners, U. S. Department ofCommerce based upon U. S. Department of Labordata.dropped during the period of productionreadjustment, the hours of those re-maining at workin large measureskilled tool and die and machine set-upworkersincreased considerably.

The reconversion ahead for the re-mainder of this year and next will occurin an environment far different thanthat which prevailed during the periodof reconversion. Whereas in the con-version months following Pearl Harbor,cost factors were subordinated to con-siderations of speed, cost as a competi-tive and profit factor will play a moreimportant role in shifting to peacetimeproduction.

Qualifications of DataBefore presenting the information for

individual industries, several character-istics and qualifications of the datashould be noted. The privately-ownedmetal fabricating plants were classifiedaccording to their prewar (1939) majorproduct. Hence, a former automotiveplant now wholly engaged in producingaircraft engines was classified in themotor vehicle industry. This procedureis most useful in an analysis of wartimedevelopments geared to the questions ofthe return to civilian output.

However, while the 1939 data are fromthe Census of Manufactures and hencecover in each case the entire industryas defined by the Census, the 1944 dataexclude some of the small plants thatare included in the Census. In general,the 1944 data represent reports fromapproximately 90 percent of this in-dustry. The effect of this is to under-state somewhat the increase in ship-ments between the two dates, but it haslittle effect on comparisons of rate ofexpansion between different industries.The data presented in chart 1 include anestimate for this lack of coverage. Thesource of the 1944 data is the War Pro-duction Board.

The 1939 Census data measure produc-tion; the 1944 data are for shipments.It is believed that shipments in 1944 inthe industries studied are virtuallysynonomous with production and no ad-justments have been made to accountfor inventory changes in finished prod-ucts. Furthermore, the data representgross production. This means that thevalue of those components and subas-semblies that are produced in plantsseparate from those in which final as-semblies are made will be included morethan once in the gross value figures usedhere.

Table 1.Distribution of Metal Fabricating Industries by Percentage Increase inValue of Output, 1939 and 1944 1

Percentage increase1939 and 1944

No increase_ __1 to 100101 to 200201 to 300301 to 400401 to 500501 to 600601 to 700701 to 800801 to 900.901 to 1 000Over 1,000

Total

Producers' goods

Num-ber ofindus-tries

26

12147

12

2

2

48

Value of ship-ments

1939 1944

Millions ofdollars

133302878

1,6481,292

6201

86

158

4, 7C31

114513

2,1705,6705,693

401,492

835

1,94818, 474

Consumers' goods


199

1

1

21

Value of ship-ments

1939 1944

Millions ofdollars

55676

4,627

5

276

5,639

381,053

10, 592

22

1,768

13, 472

Intermediate products


18

52

23

Value of ship-ments

1939 1944

Millions ofdollars

76934838403193

2,444

491,3982,0561,428

806

Aircraft, hipband firear


1

1

5,738

2

3

Valuem

1939 1

uildiiigms

of ship-ents

1944

Millions ofdollars

18

607

625

154

9,584

9,737

'The industry classification is according to the major end-use of its product.Detail will not necessarily add to totals due to rounding.Sources: U. S. Department of Commerce; basic data for 1944 from War Production Board.Digitized for FRASER

http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12 SURVEY OF CURRENT BUSINESS June 1945Growth by Industries

Although rapid and huge expansionwas the rule for the metal fabricatingplants, the rate of growth has been quitedifferent for the separate segments.

Largest of these is the group of Gov-ernment plants engaged primarily in themanufacture of special weapons of warand, to a relatively smaller extent, onequipment for components of thoseweapons which are similar to normalpeacetime products. Such plants wereof negligible importance in 1939. Cur-rently their products comprise 30 percentof total shipments.

Among the private industries, therewas wide disparity in wartime expansionas may be seen in table 1. Among theseindustries the giant aircraft, shipbuild-ing and firearms industries are a cate-gory which share with the Governmentplants both very great expansion andreconversion problems. Relatively un-important in 1939, the aircraft and ship-building industries by 1944 had expandedsome 15 times and accounted for a fifthof the vastly larger output of metalproducts.

Aside from these two groups, the dif-ferential rate of growth among the pri-vate industries was important. As maybe seen in the frequency distribution intable 1, the difference between the manu-factures of producers', intermediary andconsumers' goods was marked.

The contrast followed from the natureof the military demand for the peace-time products of these industries. Theproducers' goods industries had to supplythe machinery and equipment for theextraction of minerals and the manu-facture of munitions.

The normal products of some of theseindustries were required in expanded vol-ume for direct military demand and forthe support of the domestic economy sothat it could cope with the additionalstrains of war, as in the case of agricul-tural, railroad and electrical generatingequipment. In addition, there existed inmany of these industries the facilities orthe managerial ability and experience tomanufacture complicated weapons ofwar.

For the producers' goods industries asa whole, dollar shipments in 1944 werefour times as large as in 1939. The ma-jority of the individual industries in thiscategory tripled the value of their outputduring the same years, and two indus-triesinternal combustion engines, andlocomotives and partsexpanded theirshipments ten-fold.

In contrast, the percentage rise inshipments of the consumers' goods in-dustries was a little more than half thatof the producers' group. Consumers'goods represented an area where restric-tion of the peacetime output was feasibleand hence the resources devoted to themprovided a source of facilities, manpower,and materials for war production.

The military demand for consumer-type goods, plus the value of parts forreplacement and repair of civilian equip-ment, permitted by the production au-

Chart 3.Output of Major Groups of Metal Products Industries,Excluding Government-Owned Plants x

INDUSTRY

MACHINERY, EXCEPT ELECTRICAL

TRANSPORTATION EQUIPMENT,EXCEPT AUTOMOBILES

AUTOMOBILES AND AUTOMOBILEEQUIPMENT

ELECTRICAL MACHINERY

IRON AND STEEL PRODUCTS

NONFERROUS-METAL PRODUCTS

MISCELLANEOUS

BILLIONS OF DOLLARS5 10 15

- 1944 SHIPMENTS -

!939 TYPE COMBATOF PRODUCT MATERIEL i /

1939 PRODUCTION

_L J_ D. D. 45-3141 Both 1939 production and 1944 shipments are based upon plant classifications in the 1939

Census of Manufactures. The first four industry titles in this chart are those used in the Censusreport, but the coverage differs slightly as follows : "Machinery, except electrical" excludes machine-shop repairs ; "transportation equipment, except automobiles" excludes boatbuilding and repairing ;"automobiles and automobile equipment" excludes automobile trailers (for attachment to passengercars) ; "electrical machinery" excludes electric lamps. The last three industry titles in this chartare not those used in the Census report, but cover Census industries as follows : "Iron and steelproducts" includes tin cans and other tinware, not elsewhere classified ; wire products, except wiredrawn from purchased rods ; cutlery, tools, and hardware ; heating apparatus and plumbers' sup-plies ; vitreous enameled products, including kitchen, household, and hospital utensils : automobilestampings ; stamped and pressed metal products (except automobile stampings) ; fabricated structuralsteel and ornamental metal work ; bolts, nuts, washers, and rivetsmade in plants not operated inconnection with rolling mills ; wrought pipes, welded and heavy rivetedmade in plants not operatedin connection with rolling mills ; springs, steel (except wire)made in plants not operated in connec-tion with rolling mills : screw-machine products and wood screws ; steel barrels, kegs, and drums ;firearms ; and safes and vaults. "Nonferrous-metal products" includes clocks, watches and materialsand parts (except watchcases) ; silverware and plated ware ; lighting fixtures; aluminum ware;kitchen, hospital, and household (except electrical appliances) ; collapsible tubes ; sheet-metal worknot specifically classified : and nonferrous-metal products not elsewhere classified. "Miscellaneous"includes professional and scientific instruments, photographic apparatus, and optical goods : surgical,medical, and dental instruments, equipment and supplies ; toys and sporting and athletic goods(except dolls) : pens, mechanical pencils, and pen points; soda fountains, beer dispensing equipment,and related products ; and fire extinguishers, chemical.

2 See chart 1, footnote 2.Sources ; U. S. Department of Commerce and War Production Board.

thorities, was with but few exceptionsequal to or less than prewar civilian de-mand. The increase in war shipmentswas made, therefore, in part at the ex-pense of reduced shipments of civilian-type goods.

Half of the individual industries in thisgroup experienced increases of less than100 percent and only one-tenth of themexpanded shipments by more than 300percent. The outstanding exception inthis group was radio. The military de-mand for radio and radar products re-sulted in a six-fold growth in the ship-ments of this industry between 1939 and1944.

The output of the intermediate prod-ucts, or components, industries went tocombat equipment, and producers' andconsumers' goods. On the whole, the ex-pansion in this group was parallel withthat of the consumer goods industries.The restriction of metal production forcivilian use made possible here, more sothan in the other industries, a diversionof its products for war use.

Wartime Changes in ProductNext in importance to the expansion

of the output of metal-fabricating indus-tries has been the marked change in the


June 1945 SURVEY OF CURRENT BUSINESS 13Table 2.Metal Products Industries

Classified by Percent of CombatMateriel Production

GROUP I

[Combat materiel 80 percent and over]Shipbuilding and repairFirearmsAircraft and parts

GROUP II

[Combat materiel from 50 to 80 percent]Professional and scientific instruments (ex-

cept surgical and dental)Safes and vaultsAutomobile stampingsLaundry equipment, domesticGames and toysPrinting trades, machinery and equipmentAluminum ware, kitchen, hospital and house-

holdVending, amusement and other coin-

operated machinesOil burnersFood products machineryClocks, watches, and materiels and partsSewing machines, domestic and industrialLighting fixturesMotor vehicles and partsRefrigerators and refrigeration machineryOffice and store machineryElectrical appliances

GROUP III

[Combat materiel from 20 to 50 percent]Measuring and dispensing pumpsVitreous enameled productsOptical instruments and lensesStokers, mechanical, domestic and industrialFabricated structural steel and ornamental

metal workCars and car equipmentrailroad, street,

and rapid-transitStoves, ranges, water heaters, and hot-air

furnacesHardwares, n. e. c.Metal door, window sash, and trimSpecial industry machinery, n. e. c.Paper-mill, pulp-mill and paper products

machineryStamped and pressed metal productsMotorcycles, bicycles, and partsSporting and athletic goods, n. e. c.Machine shop products, n. e. c.Children's vehiclesPhotographic a^naratus and materials and

projection equipmentOil-field machinery and toolsTextile machineryEnamelediron sanitary and plumbers sup-

pliesSheet-metal work, n. e. c.Wirework, n. e. c.Industrial machinery, n. e. c.Heating and cooking apparatusPumping eauipment and air compressorsSteam and hot-water heating apparatusSilverware and plated wareMeasuring instruments, mechanicalElevators, escalators and conveyorsSteam fittingsWrought pipes, welded and heavy rivetedInsulated wire and cableSteel barrels, kegs and drumsSoda fountains, beer dispensing equipment

and related productsElectrical measuring instruments

GROUP IV

[Combat materiel less than 20 percent]Ophthalmic goods: lenses and fittingsWoodworking machinerySprings, steel (except wire)Agricultural machineryScrew machine products and wood screwsMining machinery and equipmentNonferrous metal products, n.e.c.Electrical products, n.e.c.Nails, spikes and related productsPower boilers and associated productsGenerating, distribution and industrial ap-

paratus

Surgical, medical and dental instruments andequipment

Fire extinguishers, chemicalMachine toolsScales and balancesLocomotives and partsConstruction and similar machineryTin cansWiring devices and suppliesAutomotive electrical equipmentCutlery and edge toolsPens, mechanical pencils and pen pointsMetalworking machinery and equipment,

n.e.c.Hand tools, files and sawsMachine tool and other metal-working ma-

chinery accessoriesMechanical power transmission equipmentCommercial laundry, dry cleaning and press-

ing machineryTractorsX-ray and therapeutic apparatus and elec-

tronic tubesCommunication equipmentSteam engines, turbines and water wheelsRadios, radio tubes and phonographsBatteries, storage and primary (dry and wet)Bolts, nuts, washers and rivetsBlowers: exhaust and ventilating fansInternal combustion enginesCars and trucks, industrialCollapsible tubesCarbon and artificial graphite for the elec-

trical industryTransportation equipment, n.e.c.

SOURCE: U. S. Department of Commercebased upon data from the War ProductionBoard.

product. Automobile plants have beenengaged in the production of tanks andaircraft engines, refrigerator plants inthe manufacture of propellers, and sew-ing machine plants devoted to the pro-duction of guns, whereas the tractor in-dustry continued to produce tractors, andthe radio industry continued the pro-duction of radio equipment, as well asradar and special war-types of commu-nication devices.

In order to aid in the analysis of thechanged composition of products, a newtwo-fold classification, necessarily some-what arbitrary, is here introduced. Thecurrent products of the metal-fabricat-ing industries have been divided intocombat materiel and prewar types (theyear 1939 being used as the referencedate for prewar type).

Combat materiel includes the ammu-nition, guns and fire control equipment,combat vehicles, aircraft and ships whichcomprise the specialized weapons of war.

The prewar type goods include goodsidentical to those made in peacetime aswell as those produced to military speci-fications and which, while frequently notidentical to those produced in prewaryears, are nevertheless basically akin,differing usually no more than do differ-ent models of the same product.

While in general no distinction be-tween prewar-type goods produced for

Chart 4.Output of Selected Producers' Metal Products Industries,Excluding Government-Owned Plants *

BILLIONS OF DOLLARS.5 1.0 1.5

INDUSTRY

METALWORKING MACHINERY

AGRICULTURAL MACHINERYAND TRACTORS

SPECIAL INDUSTRY MACHINERY

CONSTRUCTION AND SIMILAR MACHINERYEXCEPT MINING AND OIL-FIELDMACHINERY AND TOOLS

OFFICE AND STORE MACHINES

OIL-FIELD AND MINING MACHINERY,TOOLS, AND EQUIPMENT

W///////////A

W//////////A

- 1944 SHIPMENTS -

1939 TYPE COMBATOF PRODUCT MATERIEL?/

- 1939 PRODUCTION *-

V//////////7///MMI D. D. 45-313

1 Both 1939 production and 1944 shipments are based upon the plant classifications in the 1939

Census of Manufactures. The industry titles in this chart are those used in the Census report, exceptthat "office and store machines" is specified as not elsewhere classified. These industries are includedin the "machinery, except electrical" group shown in chart 3.2

See chart 1, footnote 2.Sources : U. S. Department of Commerce and War Production Board.


14 SURVEY OF CURRENT BUSINESS June 1045the civilian economy and those producedfor military use is necessary, in certaininstances it is important to recognizethat military goods may involve recon-version difficulties of the kind thoughnot of the degree faced by combat ma-teriel producers.

The character of the wartime prod-uctwhether it be similar to past pro-duction or markedly differentis indica-tive in a general manner of the ease ordifficulty of industrial reconversion.Combat goods were for most plants com-pletely new items of manufacture, re-quiring different machines, changes inplant lay-out, new tools, jigs and fix-tures, and unique shapes and forms ofmaterial. To a lesser extent this wastrue of some of the products classifiedhere as of prewar type, but redesignedfor war use, as in the case of heavy trucksand radar.

Although not an absolute guide, theproportional distribution of an indus-try's manufacturing activity on combatmateriel and prewar-type products is ageneral indicator of the relative amountof technical or engineering reconversionthat will be required.

In 1944, less than 15 percent of metalproducts shipped by private industry wereof peacetime type and available to thecivilian economy. About half of totalshipments were of combat materiel, theremainder being prewar types of prod-uct shipped for military use and in manyinstances modified to meet military re-quirements.

The incidence of expansion for indus-tries by reason of combat materiel pro-duction is illustrated in chart 3 in thecase of transportation equipment. Onthe other hand, two other producers'goods industries shownthe two ma-chinery groupsowed their growth not

Chart 6.Output of Selected Consumers9 Metal Products Industries,Excluding Government-owned Plants a

.5BILLIONS OF DOLLARS

1.0 1.5 2.0INDUSTRY

RADIOS, RADIO TUBES,AND PHONOGRAPHS

REFRIGERATORS ANDREFRIGERATION MACHINERY

LAUNDRY EQUIPMENTAND SEWING MACHINES

ELECTRICAL APPLIANCES

D.D. 45 -3!21 Both 1939 production and 1944 shipments are based upon the plant classifications in the 1939

Census of Manufactures. The titles for the first and fourth industries are those used in theCensus report. The fuller title given in the Census report for the second industry is "refrigerators,domestic (mechanical and absorption), refrigeration machinery and equipment, and complete air-conditioning units." The third title is a combination of the ''laundry equipment, domestic" and"sewing machines, domestic and industrial" industries shown in the Census report. These industriesare included in chart 3, the first and fourth in "electrical machinery" and the second and thirdin "machinery, except electrical."2

See chart 7 for the percentage distribution of the 1944 shipments for these industries.Sources : U. S. Department of Commerce and War Production Board. .

so much to combat materiel p

SCB_061945

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