Distarict dairy industry in transition

While it is common knowledge that there hasbeen a rapid transition in agriculture, the equallyrapid changes that have occurred in the relation-ship between agriculture, on the one hand, andmanufacturing and the entire business structure,vn the other, have not been as widely publicised.

In recent decades, applied tee:hnolngy has pro-vided the impulse for the accelerated transition .11ew equipment and improved methods have revo-lutionised the storage, manufacture and distribu-tion gelds . As a result, many activities which wereformerly farm operations are now performed inurban centers . In pioneer days, when farms werestill self-suflrcient units, farmers performed allphases of production, processing and distributionof food and fiber . Nnw farm operations arc limitedprimarily to production while the storage, rrranu-facture and distribution functions of farm prod-ucts are mainly performed by an axray of busi-ness firms.

Industrial activity in the Ninth district hasalways been heavily concentrated in the process-ing of agricultural products. Pleat packing, poul-try dressing, vegetable canning, dairy productprocessing and flour and other grain milling com-prise approximately half of the manufacture ofnondurable products in terms of value addedthrough the manufacturing process . In the fourstates wholly in the district, the number of em-ployees in the food processing industries has ag-gregated approximately G5,Q0(f or about a quarterof manufacturing employment, while in the. nationonly 11 percent of the total have been in thisindustry.Within the agricultural business complex in the

district, the production of milk on farms and themanufacture of dairy products traditionally have

been an important economic pursuit. Technolvgi-cal developrnerrts during the past decade havemade themselves felt on the dairy industry itselfand on tire regional economy .

Cammer~igl dairy regionsAs farming has moved toward greater speciali-

xation, dairying has been increasingly concen-trated in certain geographic areas . The greatestdensity of milk cows on farms is in a two county-wide band extending approximately from FergusT'alls acrd Detroit Lakes, 11linnesota, tv tho south-east corner of that state and the southern portionof that part of W7SCUnSin which is in the NinthFederal Reserve district . While there are otherscattered dairying centers, they are small andsome are adjacent tv the larger cities.

Natural, political and economic factors havecontributed tv the growth of the commercial dairyregions . The rainfall, terrain and type of soil inthese regions is favorable for livestock grazingand not, for example, for the intensive grain farm-ing carried on in western Minnesota, the Dakotasand Montana . In same areas where tire naturalsetting is favorable fox dairying, opportunitiesfar nif-farm employment have proven more at-tractive and dairying has become a secondaryoccupation . In nortlr~asicrn lllrnnesota, northernWisconsin and Upper l'Iichigan, when the demandfor iron ore was strung in the late forties andearly fifties, there was a sharp reduction in dairy-ing . Decently, there appears tv be some return todairying due to the lack of o£f-farm errrplvymerrt .Government legislation has had its impact on

this type of agriculture too . Federal grain pricesupport programs have made it prvfrtable forfarmers in grain producing sections to turn exclu-

si~~ely to gxaiu production . Higher health stand-ards established by legislation lxave required theinstallation of expensive equipment which, in turn,made it necessary to maintain large herds . Thishas led to the liquidation of small ine~cientoperators .

It is no longer necessary #ar dairy farmers to beclose to the market . The development of newmethods of storing and transporting milk, suchas bulk milk tanks and large specially designedtransports, makes it possible to delivrx milk overlonger distances . Thus, the market for the com-mercial dairy regions has been enlarged.

Milk production

Although the number of dairy cows in the postWorld War II period has decreased sharply inmany areas of the district, the output of milk percow has risen almost universally . In Minnesotaand Wisconsin, the production of milk from 1954to 7.959 inclusively rose substantially more thanthe 2 percent increase in the nation as can beseen in Table 1 . In 1959, Wisconsin ranked firstand Minnesota second, the former state producing14 percent of the nation's milk supply and the lat-ter 8 percent . South Dakota experienced an in-crease of nearly 5 percent. While output in NorthDakota was still dawn in 1959 #rom the volume ofthe early $flies, it has risen recently . In Upper

TABLE 1-MILK Pfi017lfCT10l"1 IN [715TRICT STATESAND IN UNITED STATES, 1954-59

( Millians

of

Pounds ~

Source : U . 5 . aepartmant of Agriculture, Rgricul+ural Mar-keting Service, Washington, ~, C. "Dairy 5+a+isfics," Bulle-tin No . 218, pp.4-51 ; and "Supplement for 1959" to 5tatis-tica ¬ Bullefin No. 2i8 pp . I-5,

R'lichigan, the output of milk has remained stable,but in Montana, there was a noticeable fall-off inproduction during the past decade.

Mdrket for milk

Since the late thirties, there has been a con-tinuous reduction in the quantity of milk used onfarms. The transition started prior to World WarII but was greatly accelerated during war bythe relatively favorable prices paid for nonfatmilk solids . Less cream has been churned into but-ter on farms and the steady decline in the numbera£ agriculture workers employed has lowered theconsumption of fluid milk and cream on farms.Improved herd management practices have re-duced the feeding of skimmed milk to calves. 7nthe United States from 1954 to 1958 inclusively,the consumption of milk on farms declined by ~4percent . In all district states except Wisconsin,consumption declined by a comparable percent-age, In Wisconsin the trend toward using lesswhole and skimmed milk on farms began severaldecades ago because of the long tradition ofmarketing whole milk at cheese plants .

There are essentially two distinct markets formilk : the retail market, and the dairy plants pro-ducing manufactured products . Because of the dif-ferential in price which favors Grade A milk, thefluid market is supplied first and the remainingmilk supply is converted into ether dairyproducts .

In the district, except in the area around theTwin Cities, the consumption of fluid milk doesnot provide the substantial portion of the marketfor milk that it does in the densely populatedeastern states . The fluid market in the districtgrew slvwlp during the fifties due to the slowpopulation gxvtvth, at approximately half therate in the nation . According to the 7.95 and1960 population census, the district's populationincreased by 9.? percent, compared with 18.5percent in the nation . The fluid market outside ofthe district is largely beyond reach due tv theerection of artificial harriers . Even though equip-

DECEHSBER 1461

1954 1959Percenf Change

1954/1959Michigan 5,423 5,416 --- 4 .1Minneso+a 8,615 4,97D 4-15 .7Man+one 54D 4$5 -14 .2North Dakota 1,786 1,747 - 2 .2South lJakata 1,354 1,422 -}- 4 .6 :'Wisconsin 16,273 17,711 -F 8,8 ~'United Steles 122,494 (24,396 -}- 1 .9

rnent and processing methods are now availableto transport milk longer distances with less dangerto its quality, legal restrictions must he removedbefore large urban centers can he reached .The rise in consumption through natural popu-

lation growth arrd also through limited goaern-ment purchases has led to a str, :rdy growth in themarket far manufactured products . During 1~nrldWar II, a new outlet, dried milk products, sprangup. 1~Tany creameries installed milk drying equip-ment and others found a market for skimmed milkarnong the specialized milk drying plants . Theincrease in ~shole milk used for manufacturedproducts has been much greater in most districtstates than in the nation as a whole . In the UnitedStates, the volume from 1954 to 1.95$ rose onlyslightly, while in Minnesota . North Dakota. SouthDakota and Wisconsin, the increase was quitemarked as may be observed in Table 2 . In Mrchi-gan, the demand for fluid milk rose faster thanthe supply, and consequently, the amount of wholemilk used in manufacturing dropped. The declineof milk production in Montana was accompaniedby a decline in the use of milk for manufacturing .

Manufactured dairy productsThere has been a large production of hotter,

cheese, condensed, evaporated and dried milk

?'ABLE 2-WHOLE MILK ~1SfD iN THEMANUFACTURE OF CJAIRY PRODUCTS IN RISTRICTSTATES AND IN UNITED STATES, 1954-58

(Millions of Pounds}

Source : U. S. leper+ment of Agriculture, Agricultural Mar-keting Service, Washington, L}, C� "L)airy Statistics," pp .327 and 328 end "Supplement for 1959 iv dairy 5fatistics,'~p. $f .

4 7NC3NTHLY REV3EW

products and ice cream and other froxcn productsin Minnesota and Wisconsin . During the latefifties, creameries in 1\'vrth and South llakotaT ere converting from the purchase of farm sepa-rated cream to whole milk . At the same time,

Dairy products production in district statesand in the United States, 1954 and 1958 .

6 i if ions of pounds4,5

54 'SB

'S4 'S8

'S4 '58

'S4 'S8

'Sd 'S8~reemery

cheese

cottage

~andensed,

ice creambarter

[heese

e~oparored &

B otherdried milk prod . waxen prod

i~ The Six Ninth Disfric! Slofes ;_ ...i United Sf¢fes"6illians of gallons

Percent Change1954 1958 19541958

Michigan 2,194 1,917 -12 .6Minnasota 6,927 8,212 +i8.6Montana 206 173 -16.flPlorth 17akota i ,107 I ,3~9 -[-18.2$oufh ~ekota 754 988 +3f .aWisconsin 12,13fl 13,452 -}-10.9United States 58,74 58,243 + p.3

several plants were established in those statesto produce cheese and some of tlrc dried milkproducts. The sharp decline in butter productionbottomed out in 1Vlontana during 1958 and a fewdairy plants turned to the production of otherproducts .

In spite of the 4 percent drop in the nation'sbutter production from 1954 to 19513 inclusively,the output during this period continued to expandirr all district states except Montana. Productionin Wisconsin expanded sharply, by 32 percent .Ilvwever, the 1958 output proved to be an ex-ceptional volume in the above state which wasnot equaled in the two subsequent years . On thebasis of the tatter annual volume, output in-creased by 26 percent from the 1954 total . Pro-duraivn in Minnesota, the nation's leading butterproducing state, rose by 16 percent between 1954and 19513 . C3utput subsequently= has risen furtheranrf in 19G0 exceeded all hrevivus records exceptthe 1941, total . Production in North and SouthDakota is small in comparison with the districtdairy states, but it rose by 1,3 and 21 percentrespcraivelyr between 1934 and 1958 . Productionin i4lontana declined by 27 percent during thisperiod and has increased slightly since that time .

Cheese production in the nation rose onlyslightly during the latter half of tha ffties . Wis-consin, the leading cheese producing state, ac-counted for 45 percent of the nation's total in1958 and has enjoyed a small but steady increasein the two subsequent years, Production in Min-nesota has declined, and iu 1953 turned out only4.G percent of the nation's total . Output is smallbut rising in the other district states .

Cottage cheese production in the nation rose byone-third from 1954 to 1958 inclusively . Produc-tion in the dairy states of Minnesota and Wiscon-sin rose by 29 percent and 2U percent respectively .In the other district states, dairy plants turned tothe production of cottage chc~ese during thefifth ; in Montana, North and South I3akvta,output rose over $Q percent from 1954 to 1958inclusively.

Percent change in dairy prodders productionin disfri~f states and in the United States,1954 to 1958 .

MICHIGAN I

MINNESOTR

MONTRNR

NORTH DAKOTA

SUtiTF! DAKOTA

wISCONS~N

~1NIT~D STRTES

six 9~ DISTRIcr sTAT~s

-3Q -20 -19 0 +10 +20 +30 +4q +SGpercent

There was a sharp increase in tire production ofcondensed, evaporated, and dried milk hrvductsduring ~rorlrl War lI tv supply the needs of thefederal go~rernment. Following the termination ofhostilities, the market dropped abruptly. Since theearly" fifties, the civilian demand in the nation,plus a federal government storage program, hasresulted in a slow expansion of about 3.5 percentin production from 1954 tv 19a8 inclusively. Wis-consin . a hea~ry producer of these products duringthe war. while still ranking first in 1958, in-areased production only 1 percent in the four yearperiod . At the same time, Minnesota shifted tothese products and expanded output by nearlythree-fourths of the 1954 total .

Ice crearxt, ice milk and other frozen productsare produced primarily for a local market . Qutputof most of these products rose during the fftiesin all district states .

Dairy indusfiry and districif economyThe dair_y~ industry is an important part of the

district economy and the transition in the past

~ECfN~BER 1941

1~Vorld War 11 period has had a significant impact.The gross receipts received by dairymen reveal

the importance of the industry to district agri-culture . The trend of expanding production, onthe one hand, and of using less milk and cream onfarms, on the other, has increased marketingssignificantly, especially in the comzxtercial dairyregions from 1954 to 1959 inclusively. Marketingsin Minnesota rose 18 percent and in both SouthDakota and Wisconsin XO percent compared withan increase of fr percent in the nation . 1n iffichi-gan and North Dakota, they rose by a nominalpercentage and in Montana actually dropped by8 percent.The marketing of a larger quantity of milk and

cream with 30rY1P r15C rn price increased grossreceipts from the sale of dairy products to dairy-men in the four states entirely in the district fromX312 million in 1954 fo ~37G million in 1959, anincrease of 20 percent . wer three-fourths of theincome was realized by Nlinnesota farmers, Thereceipts derived from decrying in fhe other threestates were small, in 19.59 ranging from X61.5 rrril-lion in Montana to X39 million in North Dakota,only a negligible increase from 1954 .A cnmpariso~t of these xeceipfs with total re-

ceipts from all farm marketings reveals the im-portance of the dairy industry to district agricul-ture . As may be observed in Table 3, about halfof the receipts in Wisconsin have been from thesale of dairy products . They have keen approxi-znately nor.-fourth in l~Iiclzigan and nearly onefifth in Minnesota . They have been less than lapercent in the three western district statc,s .

From town to cityThe transition in the manufacture of dairy

products during the past two decades leas reducedoperations in small communities and expandedthem in larger urban centers . 14fany small com-munities in the commercial dairy regions of ~'iin-nPSnta and Wisconsin have lost processing plantsas operations were integrated into larger units,As plants were consolidated, many long estab-

i~i6ivTH~.r kEVlEw

rAElLE 3---CASfrf RECEtFTS FRC+M E3A1RYPltDI7UC75 ANR ALL FARM MARKETihIG5, hifhiTFt~157RICT STATES Al<1D l1t~IITED STATES

~i~lillions of Dallars~

Source : rtJ . $, t7opartment of Agriculture, Agricultural Mar-keting $ervica, Weshingfon, D. C., "Dairy SPatist;cs," pp .ID1-149 and "Supplement for 1959 to t:airy 5fiatistics," Pp,I1-15,zU . 5. bepartm®nt of Agricuffure, Economic Research 5er~-ice, "Farm Income, A Supplement to the Farm Income 5ifu-a;ion far July 1951," pp, 4-25 .

lislred creameries and cheese plants were clnsrdin small Lawns as the processing was transferredto larger centers . Tn the brief span of four' years,from 1954 to 1958, fhe number of creameries mA~Finnesota declined from 580 to ~1~79, acrd tirenumber of cheese plants from 45 to 31, . In L~'is-cnnsin, creameries declined from 235 to 183 andcheese plants from 1,078 to 853 . Qn the", otherhand, during the fifties there was practically nvchange in the number of operating dairy plantsin iVlonfana, and in bntlr Dakotas cheese and milkdrying plants have sprung up in recent years .The tendency has been for larger urban centers

to be the beneficiaries of the trend toward con-solidation into fewer and larger plants and someintegration into multiple unit firms . While thenumber of establishments in the industry between195x1 and 195$ inclusively declined 'rn all stateswholly or partly in the district with the excep-tion of 'flinnesofa and South Dakota t~"here numer-ous plants to produce new products sprang up,the number of establishments with 2D or moreemployees increased in these states witlr the ex-ception of Alontana and North Dakota where

hairyPraduefsa

asPercent

Dairy Praducfsf Tataiz of Total1954 1959 1954 1954 }954 1459

Mich, $ 174 .5 $ 184 .6 $ 675 .9 $ 698 .9 25 .8 26 .4Mien . 231 .3 287 .2 1,237 .2 1,379 .1 18,7 2Q .8Man+ena 15 .5 l4 .8 386 .3 418 .3 4.0 3,5N . D, 36,8 38 .5 471 .5 575 .1 7 .8 6 .75 . D, 27 .9 35 .3 567 .7 621 .6 4.9 5 .7Was . 491 .5 555 .5 995 .5 1,071 .2 49 .4 51,4U . 5 . $4,114 .! $4,6Q4 .0 $29,953 .0 $33,452 .Q 13 .7 l3 .8

dairyirrg has been a secondary type of fanning .In milk drying plants, there has been practically

no expansion since World War II as plant ca-pacity has been more than ample. The greatlyincreased demand £nr dried milk products duringthe war led to the construction of drying plantsand to the installation of drying equipment inmany creameries in 114innesota and Wisconsin,many of them financed by the war-time lend-leaseprogram, ) mphasis was placed an volume of out-put regardless of cost, which led to over-expansionof plant capacity. Although the average annualoutput of plants in operation increased signifi-cantly during the late forties, in the early fiftiesthere still was same unused plant capacity in thedistrict .

In spite of the mechanixatian which has takenplace in the industry, it has been a source of in-creased employment in the district. In 14linne-snta, tire industry irr I958 had over IU,OU(l em-ployees, an increase of over S percent from 195 .In Wisconsin the industry had nearly 24,444 em-ployees, an increase of 9 percent over the fouryear period . In the western hal£ n£ the district,emplayrrrent in the industry is small --- less than1,444 employees in each of the states of 1flon-tana, North and South T]akota . In the nation,

while employment in the industry has expandedslowly, rising by 5 percent from 1954 to 1958inclusively, tha number of workers in the pro-duation end declined by 6 percent, typical of thegeneral trend in manufacturing .

Payrolls are tangible evidence of the impor-tance of the dairy industry in cities and towns .The 195& payrolls in tha manufacture of butter,cheese, condensed, evaporated and dried milk iniVlinnesota aggregated X21 .2 million, an increaseof 42 percent from 19:i~, and X43.5 million inWisconsin, an increase of A~4 percent from 195'x .In the western half of the district where the manu-facture of such products is a minor industry, ag-gregate state payrolls are insignificant . Neverthe-less, they are important to specific urban centerswhere such plants are located .

'fhe value of the £rnislred dairy products, whichare in a large measure exported from the region,reveals the importance to the economy of the en-tire district. It is important that this region havecommodities as well as sr;rvices sn that it can com-mand imports. Income from industries such asthis one provides the funds for the purchase ofcommodities such as automobiles from Iaetrait,steel from Gary and shoes from St . Louis.

----scar I+ . Ilitterer

Turkey g~r~wers face eurplue

llIirrnesuta turkey groxvers, wl-ro last yearstrutted to the top in U. S . turkey production witl-ra record I .49G,44D birds, axe finding themselveswith an embarrassing surplus of the traditionalThanksgiving treat thi :~ year . An even larger num-ber o£ the birds, 19,I32;444, cvas raised by 17in-

nesata growers in 19G1, a 3Z percaut increaseover a year ago .

Growers say they- made relatively large profitson last year's flocks and this year they set crutto increase production . The result is ovexprvduc-tion that has sent prices skidding and has prarnpt-

t~eceNSex rvat

7

ed a nation-wide advertising campaign to per-suade the American housewife to serve moreturkey mare often .

Far several years the national turkey growersassociation has warned growers that improvedproduction methods which make it possible for asingle grower to produce thousands of birds eachyear would ultimately create a surplus if bettermarketing techniques were not adopted to makethe gobbler a year~raund seller .

Jleeding the prophesy, some hrvducer-proccs-svrs have developed a variety of new ways tomarket turkey, sometimes irr such unlikely guisesas turkeyburgers, turkey sausage anti er°en tur-keylnney turkey baloney? . Fryers {small turkeysweighing less Than lfl pounds} and turkey roasts(a quarter of a 15 to 2D pound bird} are in-creasing in pnpularit_y with both prnr3uccr-hrnc-essors and consumers . Fiut the "turkey image"xemains that of a 2D to 30 pound tom, stonedand roasted tv perfection, served with "all thetrimmings" to a happy gathering of the clan dur-ing the holiday season . Although a homemakercan buy a turkey for ronsiderabIy less per poundthan hamburger, she typically thinks of turkey as"special"---and consetluerrtly infrequently adds itto her menu .

In Minnesota during Sepfenaber prices paid tvproducers for toms dipped to a Iow of I3 cents apound, ~i=bile hen prices werrt as low as 16.5 cents .The at=erage September price, hn~a=ever, vas 1~cents per pound in Minr~rsota, compared with 1_8 .4cents in the rest of tlse country . Tttrk~y growersestimate the break-et'en point is 24 to 22 cents perpound, a dramatic improvement over the 25 to 3Dcent break-even point of ID years ago, but stillnot low enough to make a profit in a surplus year .Table I trams the" monthly prices of turkey overthe past year in °ffinnesnta and in the nation .

In an all-nut effort to eliminate this year's tur-key surplus . the :1'Iinnesota Turkey Growers Asso-ciation in September launched a statewide promo-tion campaign that they hope will catch an na-tionally . Thr" fanfare hraan in the small A'Iinnesata

$

M013THLY REVIEW

TABLE 1-MONTHLY AVERAGE PkiCES C7F LIVETUR1fEY5 RECEt~IED BY FARMERS

r Unit3d $tales I]eF7erf,r,anf of Agriculture fguras .

Average number of turkeys per were inMinnesota, T959, and location of prv~essingplants .

bale U.S . lvlinnesota19GQ (cents per pound}pct. 25 .6 26Now. 25 .9 25ties . 26 .6 271961Jar, . 25 .4 25Feb. 23 .7 23Mar. 23 .5 22Apr- 22 .I 20May 21 .5 2QJuna 2Q .5 19.luly 19 .5 i$Auq . 19 .8 195ept . 18 .4 17

to ha~~e a retarding izrflucnce on cash farm incomeover the next several months. Offsetting this tosome extent, however, is the favorable corn andsoybean crop heavily marketed in the fourth quar-ter, a high level of marketings of livestock andlivestock products, and relatively favorable agri-cultural prices .The question frequently posed in recent months

has been whether reduced faun income would sub-stantia~ly retard general economic recovery in theNinth district compared with that of the nation asa whole . The available evidence indicates thatNinth district economic rernvery through the thirdquarter has nol been stopped and that it has aboutparalleled that of the nation . This is true in spiteo£ the fact that agriculture's role in the districteconomy is :3 to ~~ times more significant than itis far the U. S . Personal incomes during the thirdquarter increasedi about the same percentage hereas in the nation . District nonagricultural employ-rnent shows about the same trends as far the U . S .Improvement in employment levels, both here andnationally, has been disappointing rn~ith the ratesof unemployment remaining relatively high . Someincrease in retail sales, both here and nationally,and an increase in over-all economic output sug-gests productivity per worker has improved, butthis is not an unusual phenomenon in the earlystages a£ a cyclical recovery .

In banking, continued improvement in liquidityis noted through the end of Dctober . Loans at thedistrict city banks were below year-ago levels by2 percent and demand deposits were up by thesame percentage . 'Time deposits grew by J.9 per-cent . The loan-deposit raliv, one measure of liquid-ity, declined 4I. points from year-ago levels .At the country banks. similar trends are noted .

boons changed little . Demand deposits were upabout 3 percent and time deposits up 7 percent.Liquidity, as measured by the loan-deposit ratio,had unproved 2 points .

Investments at both city and country hanks hadalso shown substantial growth from year-earlierfigures-----up 19 percent and 34~ percent respr",etively .

h4DIVFHLY REVIEW

The ~otlawing selecded topics describe purlicutu.ra.sr.rerts of tlxe cra.rr~nt ecnnnrnir .scene :

R~r~ar~ s~L>~s uPNetail sales in the nation turned up in October

following a period of five months in which thevolume had been on a plateau . The seasonally ad-justed volume rose to ~18,fi billion, up 2 percentfrom the September level . Sales of durable goodsin October rose G percent . with the automotivegroup up even more. while sates of nnndurablegoods rose 1. percent .

Department stare sales in the nation increasedslightly in October on a seasonally adjusted basis.The index rose to 1~1 percent o£ the J.947-49average as compared with 1~0 percent in Septem-her . Sales during the first eleven days of Novem-ber continued at about the October level, Anunseasonably warns October depressed sales inseveral major departmexrts . Retail merchants inthe second week of ll7ovember were still waitingfor the first winter weather to spur sales o£ heavyapparel .

Prior to October, lagging retail sales had oatbeen an expansionary" force in the economic re-covery . The recovery had been stirrrulatcrl largelyby government and business spending rather thanby" consumers in retail markets . Frorn February,which marks the trough of the business cycle andthe beginning of the recovery, to September, sea-sonally adjusted retail sales rose only by 2.2 per-cent, while adjusted personal income rose by 4.2percent . Consumers hoof: also used credit conserv-atively. Total installment credit outstanding inthe nation £rom February thro~rgh September roseonly by D.7 percent. The amount of automobilepaper outstanding actually declined by 1 percent,the tenth consecutive month of decline .

In the Ninth district . monthly estimates on totalretail sales are not available . The Bureau of Cen-sus' sample of sales o£ retail stares in the districtwhich excludes sales of large retail chains, is thebroadest coverage available. From 11'ebruary

through August, the latest figures available, saleshave been down significantly mare from a yearago here than in the nation . They were down morethan in the nation in a majority of the vategvriesincluding general merchandise, apparel, furni-ture and appliances, lumber and building hard-ware, automobile and drugs .

District department store sales, on a seasonallyadjusted basis, declined in Dctvber to 134 percentof the 194?-99 average from 139 percent in Sep-tember. As in the nation, an unseasonably warmOctober depressed the sale of heavy wearing ap-parel . From February, the beginning of the re-covery period, district department store saleshave declined slightly on a seasonally adjustedbasis and, since June, they have Preen even lowerthan in the first half of the Fear .

LGANS Sf.lJGGlSH !N DCT~BERDistrict member bank loans continued to fall 'rn

October after falling by rrrare in the third quarterthan in any other third quarter since the rear.The October decline of $1 million compares withan average increase in loans of $I0.4 million inprevious Octobers since the war. City bank loansdeclined $G million and country bank loans ruse~aa million this Oetobcr in contrast to averagechanges of minus X2.4 million and plus $12.8million respectively in the previous fourteenOctobers.

In the twelve months ended in October, districtcity bank loans fell almost 2 percent while theirtotal deposits rose by more than 5 percent ; theratio of loans to deposits fell from 54.8 percentto 51.1 percent . In the same period voitntry bankloans rose almost 2 percent and their depositsrose almost 5 percent, bringing the ratio of loansYo deposits from 47.5 percent tv 4.G .J. percent .Time deposits and demand deposits were both atretard highs in October at the city and country11~IZ~4

Change in district member bank Eaans, Julythrough October, 194T-61 .

'44

'So

'5l

'sx

`53

,sa I

=ss

' S6

'57

'S8

'59

'60

-30 -20 -10 0 +ID +21D +3t0 +40 +5Q +5t0 +7Umillions of dollars

'61

city hankscountry banks

u . s. sALArlcE a!~PAY~ENrs ~~dEl.o~~EN~rsThe balance of payments deScit for the third

quarter of 19F~1, according to the preliminaryestimate of the U. S . Department of Commerce,was about $3 million, at a seasonally adjustedannual rate. This cvrrrparcs with a X1.9 billiondeficit in the second quarter (ex.cluding advanveprepayments of $G50 million nn U. S . governmentloans}, and a $1 .4 billion deficit in the first quar-ter . Far ilre {first nine months of 19G1 the deficitwas at an annual rate of $2.1 billion, not countingthe special transactions in the second quarter . For

pECEMBER 1461

the whole of 19G3 it now al+hears that the balanceof paymr:nts deficit wilt be somewhat above thisrate .To be sure, the 39G 1 balance of payments defi-

cit ~aill be appreciably below the $3.9 billiondeficit in the preceding year. Yet, there is littleground for comblacency, considering drat most ofthe improvement materialised in the early part ofthe year and since thin the trend has been re-vr".rsed again . In one sense a balance of paymentsdeficit of more than $2 billiar this year could bea greater cause £vr concern than was the ~~3 .9billion defir:it last year, lu 19GD nearly ~2 billionof tkre over-all deficit resultrxl from an outllnrv ofunrecorded capital and of U . S. short-term funds,mntir-ated partly by higher interest rates abroadand partly by speculative exprectations rr# changesin major exchange rates . The "hard-core' deficit{the excess of net government larans and grantsplus net private long-term capital nutHow over thecurrent arr:nunt surplus) was vzzly about 1x1.5billion . Thus, a major portion v# the ov=erall defi-cit was caused by short-term factors capable of aspiel reversal . Moreos~er, due to rising exportsand falling imports, tl+c trade surplus continuedto grow throughout 19G[), raising tropes that theupward trend would continue into I9G1. .None of these conditions exact at the present

time. I3y the middle of this year, the out#low o£Lr. S . short-term and unrecorded capital was re-duced to negligible propnrtaons, while" tire trade

C~Srrf3scrrptiwts availuhGe `rare+.1#nnthly l .icoir:w, lif' .serrrcl+. 1]r. "po.rZrr~crtl.,Fedr"ra2 Reserve" Liar+1.- of ~tilir+nr~ahnli.s .11+.'rr.rt.erthoJi.s 2. [llirrrr.r .solr+.

surplus, after reaching an all-time peak of ~6.Gbillion {seasonally adjusted annual rate} in thefirst quarter, began to decline . It follows that inthe future there is only a limited possibility toar:hieve any significant reduction in the balance ofpayments deficit tirrerugh further gale+s can theshort-term capital account . bn the enntrarF-, con-ditions whirl+ r'snulcl create irrccrrtiycs for a re-newed large scale outflow of szreh funds mightreappear . Moreover . there is little likelihood thatthe rer :ent decline in the trade surplus w ill reverseir+ the Foreseeable future, i'or one thing, merchan-dise imr~nrts, after rising almost 35 percent ir+ thethird quarter, are expected to increase still furtl+r.ras economic conditions in the U . S . imlrrrn=e . Al-though merchandise exhorts have rlr°.creased onlyslightly thus far from their peak level of X20.2billion ire the first quarter . i n view of possibledeclines in economic activity abroad and increas-ing competition in the world markets, a furtherdecrease is not unlikely .

Flnw ei=er, barring a curtailment of either thegovernment foreign aid program or of privatelong-term foreign investment, any major improve-ment in the bash : balance of payrucnts positionwill leave. try he realized on the currer+t accr~rrnt .Essentially this means increasing exports in excessv# any possible increase. ire imports . It is clear tl+atthis is a long-run solution ~+bleb will require anall-cut competitive effort on the part n£ U . S .producers in both dornestrc and world markets .