Production of machinery has dropped from the index of 276 for November 1948 (1935-39 equals 100) to 218 for November 1949, a drop of 21 percent. This is one of the most important measures of basic long-term trends in the whole economy. Such drops have often in the past preceded general down-turns of economic activity by 1 to 3 years. Total transportation activity declined about 9 percent in 1949 from 1948 (Federal Reserve Board Bulletin, January 1950, p. 3). Total consumer credit rose rapidly from 1945 to 1948, but appears to have risen much less from 1948 to 1949, suggesting a leveling off, even with relaxation of controls on credit. 2. Income, national and personal National income in the third quarter of 1949 was at the seasonally adjusted annual rate of 223.4 billion dollars. This was the same as the total for the preceding quarter, but 5 percent below the peak rate of 234.3 billion reached in the last quarter of 1948 (Survey of Current Business, U. S. Department of Commerce, January 1950, p. 5). "Another of the dynamic forces which created the boom and which has now weakened is business spending for plant and equipment. We noted earlier a drop of 7 percent in these expenditures in 1949. The common opinion is that a further drop will occur in 1950. The SEC-Commerce Department survey. indicates that the total in the first quarter of the year will be 13 percent before the first quarter of 1949. * Many of the huge postwar projects planned by the industries are completed with nothing of equal size to take their place. In the general industrial field construction is falling off" (National City Bank of New York, Monthly Letter on Economic Conditions and Government Finance, January 1950, p. 3). * * Farm buying power weakening.-"It is also to be expected that farmers will be buying fewer industrial goods, as 1950 goes on, than in other recent years. In many farm products, stocks are accumulating, and production needs to be cut back. * It seems safe to assume that the farm situation will not be an inflationary influence on total demand in 1950, but rather the contrary" (National City Bank of New York, Monthly Letter on Economic Conditions and Government Finance, January 1950). 6. Unemployment Reported for October 1949 at 3,576,000 persons as compared with 1,642,000 in October 1948. This represents 5.6 percent of the estimated total labor force of 64,021,000. But there are three other important categories which actually represent underemployment: Worked 1 to 14 hours. With a job but not at work. October 1949 October 1948 2,027,000 1,726,000 5, 747, 000 1, 583, 000 These groups include a total of 9,938,000, about 15.5 percent of the estimated total labor force. There is certainly a large element of underemployment. The group described as "with a job but not at work" is defined in a footnote as "Includes persons who had a job or business, but did not work during the census week because of illness, bad weather, vacation, labor dispute, or because of temporary lay-off with definite instructions to return to work within 30 days of lay-off." Here is a total of the four groups of 21.1 percent of the labor force which is clearly unemployed or underemployed. The total of the four groups in 1949 (October) includes 13,514,000 persons as compared with a total for the four groups in October 1948 of 10,698,000, an increase for October 1949 of 26.3 percent. All four groups increased markedly during the 12 months. Accessions to the total labor force during this same 12-month period were reported to be 855,000 persons. Labor turn-over has decreased markedly: September 1946. September 1947. Per month per 100 employees 7.1 5.9 5.1 4. 2 September 1948. September 1949_. This is well below the rate for the same month of 1939, which was 6.2. 7. Wages and hours Average gross weekly earnings of production workers in total contract construction was reported to be $71.07 in September 1948 and $70.67 in September 1949 (Monthly Labor Review, December 1949, p. 711). Average hours were reported to be 38.9 in September 1948 but down to 37.7 in September 1949. The gross weekly earnings of all manufacturing production workers and nonsupervisory employees was reported as $55.16 in September 1948 and $55.72 in September 1949. Weekly hours were 39.8 in September 1948 and 39.6 in September 1949 (Monthly Labor Review, December 1949, p. 712). 8. Prices The Consumers' Price Index for moderate-income families in large cities showed the small drop from 173.6 on October 15, 1948, to 168.5 on October 15, 1949 (1935-39 equals 100) (Monthly Labor Review, December 1949, p. 730). (All the above from the January 1950, Survey of Current Business, U. S. Department of Commerce). 9. Exports declining United States merchandise exports have been in a declining trend since the second quarter of 1947. At that time they reached the unprecedented rate of 15.7 billion dollars annually. During the 3 months ending last October, the rate was down by one-third to 10.5 billion dollars. The export surplus also has contracted, from the peak rate of about 10 billion dollars annually to a current rate of 4.2 billion dollars. The current surplus of merchandise exports is actually somewhat smaller than our current foreign-aid expenditures. 10. Consumer finances The use to which consumer savings are likely to be put is of significance as well as the quantity of savings. Those families in need of homes, furniture, equipment, and automobiles, are those most likely to spend if they have the money. The top 10 percent of families who hold two-thirds of the liquid assets are an important source of expenditure, but much or most of these funds are not likely to be used for housing or consumer goods. Dissaving or going into debt has been a more widespread characteristic of middle-income families during the last 2 years. (See the 1949 Report on Consumer Finances, Federal Reserve Bulletin, January 1950.) The 1949 Survey of Consumer Finances was issued recently by the Board of Governors of the Federal Reserve System. This data has important meaning for the problem of decent homes for Americans. A family spending unit is defined as all persons living in the same dwelling and related by blood, marriage, or adoption, who pooled their incomes for their major items of expense. Out of a total of about 50,000,000 spending units, 14,000,000 had no liquid assets whatsoever, no bank accounts, bonds, or other similar assets. A fourth had only from $200 to $999, and about a third had $1,000 or more. Of those spending units holding liquid assets in 1949, the median amount held was approximately $790. When these family units are ranked by amount of liquid assets, the top 10 percent held roughly two-thirds of all liquid assets, reported. During 1948 about 13,000,000 added to their liquid assets, while about 16,000,000 reduced their holdings during the year. (Liquid assets are defined as including United States Government bonds, checking accounts, and savings accounts in banks, post office, or savings and loan associations. Does not include currency, cash values in life-insurance polices, or investments in securities other than Federal bonds.) CONSTRUCTION OUTLOOK FOR 1950 IS LESS HOUSING A total production of only 800,000 dwellings was predicted for 1950 in the real-estate section of the Washington (D. C.) Post on January 29, 1950. But there is an average annual need of over 1,500,000 units, agreed upon by a number of diverse sources as shown in the table attached as exhibit A. Estimates of homes needed for new family formation alone vary generally from 500,000 to more than 600,000 per year. “The total value of private construction to be put in place in 1950 probably will be about 13.1 billion dollars, nearly 7 percent less than the anticipated total for 1949 of just over 14 billion dollars. Declines are expected next year in all major classes of private construction-residential building, nonresidential building, farm construction, and public utility construction. "In 1950, the number of privately financed new dwelling units started is expected to be down to about 830,000, and the value of private residential constructure put in place will drop to around 6.5 billion dollars (from 7 billion dollars in 1949). "The outlook is for a decrease of about 7 percent in 1950 in the total value of private nonresidential building to be put in place. Industrial construction probably will drop about 26 percent from this year's total, continuing the downtrend that has been so marked during 1949, as immdeiate postwar expansion plans were completed. Construction of new churches and of social and recreational facilities also is expected to decline next year from the high levels of 1948 and 1949." "Farm construction probably will continue to ease off, following the trend of farm income. Railroads and telephone and telegraph companies are believed to have passed the peak of their immediate postwar construction programs and are expected to spend less money for new construction in 1950 than they spent this year. Electric light and power companies, likewise, probably will begin to curtail their new construction outlays next year." (Construction and Construction Materials, U. S. Department of Commerce, November 1949, pp. 5-6.) DOLLAR VOLUME OF MORTGAGE FINANCING DECLINING It is highly significant that the dollar volume of nonfarm residential mortgages recorded of $20,000 or less has shown a decline during 1949 even though the 61731-50-29 number of dwelling units completed was slightly higher than in 1948 (1,019,000 in 1949 to 930,000 in 1948). While this is due in small part to the decline in costs of building (down 2.8 percent from 1948, Housing Statistics, HHFA, December 1949, p. 1).1 It is apparently due to the decrease in size of units, both in fewer bedrooms, and smaller rooms as typified in the "economy house" and rentat housing insured under Section 608 of FHA. Dollar volume of mortgages under $20,000 (nonfarm) For this type of mortgage recorded, which includes most residential mortgages, it is seen that there was a drop in dollar volume from 1948 to 1949 of about 4 percent. REMOVING FHA SECTION 608 RENTAL HOUSING AND MORTGAGE PURCHASES BY FNMA WILL SHARPLY LESSEN AMOUNT OF MORTGAGE FINANCING Out of the total of 902,600 units started in the first 11 months of 1949 as reported by the Bureau of Labor Statistics, 330,390 were FHA insured or 36.6 percent (non-farm permanent dwelling units, p. 26, Housing Statistics). Of these 102,017 were insured by FHA under section 608 of the National Housing Act, or 31 percent of all FHA insured units in this 11-month period. By dollar volume of the face amount of the mortgage insurance written, the 608 rental housing was $910,000,000 out of the FHA total of $2,913,930,000 for the 11 months, or 31 percent of dollar volume. The Veterans' Administration guaranteed loans on 249,594 homes during the first 11 months of 1949, which was a marked decline from the 323,470 for the same period of 1948 and 498,572 for 11 months of 1917. While not all of these were new homes, this number of guaranteed mortgages had a sizable effect upon the economic demand for housing and hence upon the construction over a longer period. The principal amount of the mortgages partially guaranteed during 11 months of 1949 was $1,479,985,773,000 (of which about half or $653,487,053,000 was guaranteed). The purchase of mortgages by the Federal National Mortgage Association, allegedly for resale, also had a major effect upon the volume of money available from private lending institutions for mortgage financing and hence directly upon the volume of construction. As of November 30, 1949, the outstanding balance of mortgages purchased was $767,000,000 with commitments undisbursed of an additional $791,917,000. Another $940,662,000 was reported available for commitment (Housing Statistics, December 1949, p. 40). Of the $767,000,000 already committed at that date, $409,070,000 was used to purchase FHA-insured mortgages, and $357,930,000 to purchase Veterans' Administration mortgages. The effects of these FNMA purchases of mortgages will certainly continue into 1950, but once the funds are exhausted, a sharp decline in the total amount of mortgage financing may be expected. Builders will no doubt bring heavy pressure to have additional funds allocated to the FNMA. This type of mortgage purchasing is the most inflationary procedure possible. Speculative builders have full opportunity to obtain FHA and VA commitments, to reduce their standards of construction and quality of materials and workmanship to a minimum and include in their "cost" estimates a maximum of "water" by inflated estimates of the price or value of land, architects' services, overhead and other costs. Such known FHA procedures (Architectural Forum article, January 1950) are in 1 A decline of 4.2 percent is reported in construction costs by the composite index of the U. S. Department of Commerce, from October 1948 to October 1949 (p. 18, December 1949, Construction and Construction Materials, U. S. Department of Commerce). All construction materials were reported to have dropped 7.1 percent in price during the same period. The index of the quantity of production of all construction materials is reported to have dropped from 160.8 in October 1948 (1939 equals 100) to 141.2 in October 1949. sharp contrast to the interest of consumer members of cooperatives in keeping costs down and quality and standards up, as envisaged in the Cooperative Housing Act. CAPACITY OF THE CONSTRUCTION INDUSTRY A principal measure of the capacity of an industry is the size of the labor force. The increase in general unemployment has been noted. Employment has also been declining in the construction industry, as shown in the following tabulation of estimated employment in contract construction (Housing Statistics, December 1949, p. 18): From the above data, it can be seen that the average of 2,162,000 persons employed in contract construction during the first 11 months of 1949 was lower than the peak of 2,340,000 in August 1949 by 7.6 percent. In view of the fact that the American economy was capable of employing more than 65,000,000 persons in the civilian labor force and in the armed forces at the same time during the war years is also indication that there is considerable reserve capacity in the labor force. In the case of the production of construction materials, it is important to note that the quantity produced declined 10.1 percent during the first 11 months of 1949 as compared with the same period in 1948 (Housing Statistics, op. cit., p. 1). The month of November 1919 was 12.2 percent lower than the same month a year preceding. It is apparent that the production of construction materials is not now at capacity. A significant comparison is contained in the percent which new nonfarm residential private investment is of gross private domestic investment. In the attached exhibit B, it is shown that residential construction investment was as much as 32.8 percent of gross private domestic investment in 1925, but was as little as 12 percent in 1946. This proportion rose to 17.5 percent in 1947 and only slightly continued to increase to 18.6 percent in 1948. The prediction that investment in new plant and equipment will decline during coming years has been previously noted. If this does happen, it is apparent that there would be a somewhat corresponding increase in the proportion of the building industry which might engage in residential construction. However, the dollar volume of mortgages under $20,000 has already declined as shown above. The dollar volume of residential building has also declined during 1949, as follows: It can be seen that all privately financed construction declined and all residential building declined although the total of all construction increased slightly from the first 11 months of 1948 to the same period of 1949. |