national income : third quarter of 1950
TRANSCRIPT
INSTITUTE of STATISTICSOxford
NATIONAL INCOME: THIRD QUARTER OF 1950(All tables contain figures in L millions at annual rates. For notes see earlier issues
of the BULLErIN, especially May 1950).
TABLE INational Income ai Current Factor Cost, Seasonally Corrected
TABLE IINaiicnal Income ai Average 1949 Factor Cosi, Sa.sosaI1y corrected
THE AGGREGATE
There has been one change in procedure here. The figures for agriculturehave been revised, because the Ministry of Agriculture has very kindly madeavailable to us the official estimates of the value of agricultural output inrecent crop-years. We are most grateful for this help, particularly as our
1948 1949 1949 1950
Iv I II III
Agriculture ......... 550 590 600 600 600 600Industry ............ 5380 5850 6120 6280 6440 6540Services ............ 2890 3130 3160 3160 3250 3320
Total Business ......... 8820 9570 9880 10040 10290 10460Government ......... 1060 1130 1125 1120 1115 1130Other ............ 420 425 455 460 465 475
Gross National Income 10300 11125 11460 11620 11870 12065Les5 Depreciation ......... -900 975 990 1000 1010 1020Net National Income ...... 9400 10150 10470 10620 10860 11045
1948 1949 1949 1950
IV I 11 lItAgriculture .. . 580 590 590 580 580 580Industry ............ 5470 5850 6040 6140 6290 6400Services ............ 3040 3230 3100 3100 3160 3220
Total Business ......... 9090 9570 9730 9820 10030 10200Government ......... 1105 1130 1120 1115 1105 1105Other ............ 420 425 455 460 465 475
Gross National Income ...... 10615 11125 11305 11395 11600 11780Less Depreciation ......... -935 975 990 1000 1010 1020Net National Income ... ... 9680 10150 10315 10395 10590 10760
Bulletin Vol. 13 January, 1951 No. 1
2 THE BULLETIN
previous estiniates were inevitably very uncertain owing to lack of evidence.No estimate is available for the value of output in the crop-year 1950-5 i, inwhich the third quarter of 3950 falls, and we have therefore taken the 3949-50figure for the third quarter.'
It will be noted that in 3950 the output of manufacturing at currentfactor cost moves parallel to that at fixed factor cost, implying stability offactor cost per unit of output. The movement of the 'unit factor cost' indexused to obtain the value of manufacturing output has been interesting, orperhaps one should say that its lack of movement has been interesting, thoughtoo much should not be expected from a study of it in view of the inevitablyrough way in which we put the index together.
The construction of an index for inflating the volume movements shownby the Interim Index of Industrial Production into a series which will reflectchanges in the value added by the manufacturing sector at current factorcost has always presented acute problems. The expedients which we haveadopted to overcome them have been described in previous papers.2 Inprinciple, we need an index which will reflect changes in the ratio
Value added in the Manufacturing Sector.Volume of output in the manufacturing Sector.
No published series is, in itself, satisfactory as an indicator of thechange in this ratio, but a combination of several series may give us a roughguide. Basically, our approach is to compare the output prices of the manu-facturing sector with input prices. But even at this level the data availableare inadequate. Our index of ' output ' prices is based on series from theWholesale Price Index, the Export Price Index, and earnings data: and eachof these series is unsatisfactory for our purposes. The Wholesale PriceIndex has a very high 'input' price content, the Export Price Index issubject to influences (particularly influences affecting profit margins) peculiarto foreign trade, and earnings data are belated and do not reflect profits orproductivity. And for ' input' prices we rely exclusively on Import Prices,which may move in a manner very different from the prices of non-importedinputs (such as the purchases of the manufacturing from the home agricultureand service sectors).
But when all the various qualifications are made, we can learn a little bystudying the final index of ' unit factor cost'. During 1949, the index rosebecause ' output ' prices rose relative to ' input ' prices. During 3950 how-ver, 'input' prices rose more rapidly than 'output' prices, and the index
snows a remarkable stability,3 suggesting a stability of unit factor cost. Sincethe wage bill rises in smaller proportion than the value of output, implying afall in unit labour cost, it also suggests a rising gross profit margin.
1 The new estimates for the first three quarters of 1949 are ¿590m., ¿590m. and ¿600m.respectively at current prices; and ¿610m., ¿580m., and ¿590m., at 1949 prices.
See BULLETINS for October 1949 and May 1950.'I.e. the rise in ' output' prices could just be explained by the 'input' price rise, the
latter having a relatively low (negative) weight in the final index.
NATIONAL INCOME : THIRD QUARTER OF 1950 3
The National Income continues to rise at a rapid rate, of about 800million per annum, of which some three-quarters seems to be due to volumeas opposed to price, increases. As before, this rise is mainly due to Industry,though the service sector also increased its output rather sharply in thesummer.1
The continuous and complete series of employment statistics sinceDecember 1948 allows us now to make a much more comprehensive analysisof productivity than previously. We can analyse the influences of employ-ment volume2 and output per man as follows:
Industrial Sector Indices for 1950(Corresponding quarter of 1949'=lOO)
Virtually the same story is shown for each quarter: Output is runningthroughout 8-9 per cent above 1949, employment is about 2 per cent higher,and output per man over 6 per cent higher. The stability of the impliedestimate of overall 'productivity' for the sector provides good confirmationof the rise in 'productivity ' and suggests that it is being sustained beyondthe expectations of all commentators, official or unofficial, including ourselves.Overall ' productivity 'in 1949 was 5.2 per cent above that of 1948, so thatthe increase in ' productivity ' has definitely accelerated this year. Since eachi per cent rise in 'productivity' in the industrial sector increases nationalincome by over 6o millions, the fast growth of' productivity 'in this sector isclearly the main force carrying the national income up at the present rapidrate. We can further analyse the output in the industrial sector by groupsas follows
Indices for Groups of Industries for 1950(Corresponding quarter of 1949=100)
Output Employment Productivity'
2 Due mainly to higher receipts from railway goods traffic and higher retail turnover.2 Including self-employed proprietors. In all these calculations the average employment
for the period is the weighted average of the employment at the end of the preceding period(weight 1). the end of the period concerned (weight 1) and the end of each month in theperiod (weights 2 each).
3Except of course that the use of limited information may introduce spurious stability,
Mining... First Quarter loi 974 1034Second Quarter 1024 974 105Third Quarter 1014 974 104
Manufacturing First Quarter 110 102 1074Second Quarter 109 102 107Third Quarter 1104 103 1074
Building First Quarter 1054 100 1054Second Quarter 1054 1004 105Third Quarter 106 100 106
Utilities ,.. First Quarter 104 106 984Second Quarter 106 106 100Third Quarter 1064 1054 101
Output Employment Productivity'First Quarter 108.8 101.7 107.0SecondQuarter 107.7 101.6 106.1Third Quarter 108.9 102.0 106.8
4 THE BULLETIN
The steadiness of the 'productivity ' estimates here too is encouragingevidence of their reliability. The main rise is still occurring in the manu-facturing sector, though there is good support from mining and building.The increased 'productivity' in mining was more than enough to offset thefall in the labour force for the three quarters, and in building it alone providedthe means of increasing output. in utilities, the rise in output has recentlybecome greater than the rise in employment, contrary to experience inprevious periods.
The above calculations use 'manpower' as a denominator, includingself-employed, whereas the calculations by industry below use 'employees'only, from statistical necessity. For the total of the manufacturing sectorwe can compare the two methods, since both 'manpower' and 'employee'totals are available. We have then two estimates for 'productivity'
(Corresponding period of 1949 = 100)
Jan-April May-JulyPer person occupied 107.5 107.4Per employee 107.4 107.4
It makes very little difference, in fact, because of the small number of self-employed.
In manufacturing there was some recruitment supplementing the increasesin 'productivity,' particularly for the third quarter. We cannot show thedevelopment by quarters for each industry, because of erratic fluctuations inseveral series. What we can do here is to show the figures for four-monthlyperiods (see Table on next page).
As before, the rise in productivity is still occurring mainly in a narrowgroup of industries, though there are still good performances shown byengineering, textiles, and 'other manufacturing' (mainly rubber products),and substantial improvements shown by non-ferrous metals and chemicals.On the whole the latter period does not suggest quite such a strong relianceon vehicles, precision instruments and paper and printing as the earlierperiod does.'
1 One might add that the amount of detail published in the index seems to be designedprimarily with an eye on what can be shown in a double page of the Digest of Statistics.It would be most interesting to have a little more detail, particularly separate indices forshipbuilding, passenger cars. cotton, wool, boots and shoes, rubber products and house-building. We know from the official account that such indices are prepared.
'Constructed by applying the index weights for sub-groups to the sub-group indices.'1950 figures refer to MayJune only for the second period.'1950 figures refer to MayJuly only for the second period
DISTRIBUTIVE SHARES
TABLE IIINational Income by Distributive Shares, Ses5crn ally Corrected
Our estimate of wages in this quarter shows a slight increase over theprevious quarter, in spite of the stability of the wage-rate index over thisperiod. This is due partly to the fact that employment was somewhat higher,
Standard IndustrialClassification
Jan .-A ri1 May-.A ugust
Order Industry Output Employ-.nrent
'Produc- Output I Employ-tivity' ment
'Produc-tiv0y'
III Building Materials andPottery' ... ... 104 102 I 102 106 102 104
2lChinaand Earthenware 102 101 101 lOO 101 9922 Glass 98 104 95 1.12 103 10820, 23, 24, }iricks, Cernent,etc....... 106 102 104 106 103 103
IV Chemicals 107 103 104 117 103 114V Metal Manufacture' 104 100 104 108
I
101 10740-44 Ferrous ...... 105 100 104 105 101 10449 Non-ferrous ... 104 100 104 115 102 112
VI Engineering and Ship-building ......... 107 99 108 108 100 108VII Vehicles .. ... 119 102 117 114 102 112VIII Other Metal Goods' 105 101 104 (105) (101) (105)IX Precision instruments,
Jewellerv,t .., 137 103 132 (128) (103) (124)V-IX Total Heavy Industries
Group 110 700 ¡10 710 107 709X Textiles ......... 111 104 106 117 104 106XI Leather Goods' ...... 109 105 104 (107) (105) (102)XII Clothing ...... los 106 102 97 103 95X and XII Total Textile Group 770 105 105 105
1
103 102XIII Food, Drink and Tobacco 106 103 103 103 102 101
150-157, 162 Food .. 109 104 105 107 102 104163-169 Drink and to-bacco .......,. 100 101 99 95 100 98
XIV Wooden goods' ...... 109 105 104 (99) (103) (97)XV Paper and Printing ... 124 105 118 : 120 105 115XVI Other Manufacturing3 ... 116 102 114 (118) (104) (113)
Total Manufacturing ... 109.8 102.3 107.4- 109.5 102.0 107.4
1948 1949 1949 1950
IV I H III
Wages 4050 4280 4360 4415 4445 4470Sais ries 2140 2250 2270 2280 2290 2305Forces' Pay 245 245 235 230 220 230Rent 465 470 475 475 480 480Profits and Interest (2500) (2905) (3130) (3220) (3425) (3560)
Net National Income 9400 10150 10470 10620 10860 11045
NATIONAL INCOME THIRD QUARTER OF 1950 s
Indices for Manufacturing Industries n 1950(Corresponding period of 1949 = 1013)
6 THE BULLETIN
and partly to the allowance which we make for increases in earnings notassociated with wage-rate changes. The latest earnings data' covering earn-ings in April, 1950, show that up to that time earnings continued to riserather faster than wage-rates. In part at least this is a reflection of higherpiece-rate earnings consequent upon productivity increasesthe Ministryof Labour Gazette for March 1950 suggested that 29 per cent of the workerscovered by their earnings enquiry were employed under some sort of contractinvolving payment by results.
The estimate of Forces' pay shows an increase this quarter. Employmentin the Forces ceased to decline, and an allowance has been made for the effectof the increased rates of pay for the Armed Forces which were introduced onSept. ist. The profits residual is still rising at a steady and fast rate. Allowingas we do in these estimates for the inadequacy of depreciation allowances in1948, and ignoring inventory gains, total pre-tax profits and interest includingproprietors' profits have increased by about £I,000 millions in the past twoyears.
BAi.cE OF PAYMENTSThe estimates for 1949 and the first half of 1950 have been completely
revised in the light of information given in the latest White Paper on thebalance of payments (Cmd. 8o65). Previous White Papers have given thevalue of payments made for imports, and payments received for experts: now(to quote from Cmd. 8o6) 'the Current Account is based on estimates oftransactions, involving changes of ownership, as in national income statistics'.Our method of constructing quarterly estimates is unaffected by this change.The White Paper figures for exports and imports still differ from thosepublished by the Board of Trade, not only because imports are valued f.o.b.,but also because change of ownership does not always coincide with ship-ment. Even in the case of exports, therefore, it is still necessary to applysome correction factor to the Board of Trade figures in order to take accountof the lag between shipment and change of ownership.2 Indeed, since thislag seems to vary in a less predictable manner than the lag between shipmentand payment, the task of the estimator is actually rendered more difficult bythe change.
The results, however, are of course far more satisfactory. In our previousestimates, any increase or decrease in the value of goods shipped was partlyoffset by a corresponding change in the correction factors. As a guide to thecurrent situation, therefore, our figures were rather misleading, since theseries was unnaturally (though unavoidably) smoothed. Now that we are nolonger concerned with payments, there is no necessary connection betweenchanges in the value of shipments (as recorded by the Board of Trade) andchanges in the correction factors which we apply to these.
In estimating exports and imports for the third quarter, correction factorsof i 2.5 per cent (for imports) and i . per cent (for exports) have been used.
'M.O.L.G. September 1950.There are also other differences, of a curious nature, which would in any case make
some adjustment necessary. The Board of Trade statistics take no account of diamonds.silver, and second-hand ships, and treat the Channel Islands as a foreign country.
TA
BL
E 1
V
Fore
ign
Tra
de a
t Cur
rent
Pri
ces,
NO
T S
easo
nally
Cor
rect
ed
Doe
s no
t equ
al d
iffe
renc
e be
twee
n pa
ymen
ts a
nd r
ecei
pts
beca
use
of r
ound
ing.
TA
BL
E V
Fore
ign
Tra
de a
t Cur
rent
Pri
ces,
Sea
sona
lly C
orre
cted
* D
oes
not e
qual
díf
iere
nce
betw
een
paym
ents
and
rec
eipt
s be
caus
e of
rou
ndin
g.
z -3 o z t-, z r, o ri
III
III
IVI
IlII
I19
4819
4919
4919
50
Vis
ible
Im
port
s17
9019
6518
4019
9019
6520
6521
7024
3022
20In
visi
ble
Impo
rts
475
540
510
515
605
535
515
500
590
2265
2505
2350
2505
2570
2600
2685
2930
2810
Tot
al P
aym
ents
......
..V
isib
le E
xpor
ts15
8518
2018
8517
7517
0019
1021
0020
7022
35In
visi
ble
Exp
orts
600
650
620
640
665
675
785
870
915
Tot
al R
ecei
pts
2185
2470
2505
2415
2365
2585
2885
2940
3150
Surp
lus
(+)
or D
efic
it (-
) ...
S040
e+
155
9020
515
+20
0+
10+
340
III
HE
IVI
IIII
I19
4819
4919
4919
50
Vis
ible
Im
port
s...
...17
9019
6519
1519
1019
3021
1022
6023
2021
90In
visi
ble
Impo
rts
.....
475
540
525
530
555
555
530
520
535
Tot
al P
aym
ents
...22
6525
0524
4024
4024
8526
6527
9028
4027
25
Vis
ible
Exp
orts
......
1585
1820
1865
1790
1735
1875
2080
2090
2280
Invi
sibl
e E
xpor
ts...
...60
065
062
064
566
068
078
587
091
0
Tot
al R
ecei
pts
......
2185
2470
2485
2435
2395
2555
2865
2960
3190
Surp
lus
(+)
or D
efic
it (-
) ...
8040
+45
- 5
--90
110
+75
+12
0+
465
8 THE BULLETIN
It appears that during the quarter the United Kingdom had a large favourablebalance on current account, particularly when allowance is made for seasonalvariation. Our figures also indicate that even after seasonal correction thebalance of trade was positivecertainly for the first time in the twentiethcentury, and probably for the first time in seventy-five years.1 However, theseconclusions must be accepted with some reserve, since the correction factorwhich has been used for imports may prove to have been unduly high, andthe apparent fall in imports in the third quarter is largely the result of ahigher correction factor.2 It is doubtful whether the favourable visible balance,even after seasonal correction, falls outside the margin of error in the esti-mates. But there can be no doubt that there was in this quarter a strikingimprovement in the international position of the United Kingdom, and thatwe were roughly in visible balance.
Further, the Board of Trade returns for October and November suggestthat the balance of trade continues to be favourable. Unless the balance oninvisible account has been appreciably worsened as a result of the Koreanwar, it seems likely that the current account surplus for the year 1950 wasin the region of £250 million.
CONSUMPTIONTABLE VI. Final Consumption at current trices, seasonally corrected
* Detail does not add to total because of rounding.
TABLE VII Final Consumption at average 1949 prices, seasonally corrected
* Detail does not add to tota because of roundng.'It vill be seen that the visible balance was probably favourable in the first quarter
of 1949. but that if we allow for seasonal influences it is likely to have been unfavourable.t The value of shipments (seasonally corrected) falls only slightly in the third quarter.
1948 1949 1949 1950
IV I II III
Food 2280 2380 2400 2415 2430 2450Drink 755 720 730 735 740 750Tobacco 785 765 765 765 765 765Rent and Rates 600 615 615 620 620 625Fuel and Light 345 350 355 360 365 370Household Goods 525 580 590 605 610 620Clothing 895 950 965 975 975 1000Other 2075 2050 2055 2060 2060 2065
Total 8260 8405* 8475 8535 8565 8645
1948 1949 1949 1950
IV I II III
Food 2220 2380 2515 2635 2610 2500Drink 760 720 725 685 715 750Tobacco 775 765 745 730 775 825Rent and Rates 600 615 615 620 630 630Fuel and Light 340 350 355 365 370 355Household goods 520 580 610 635 605 615Clothing 855 950 990 950 945 1045Other 2045 2050 2045 2085 2120 2090
Total 8110 8405* 8600 8705 8770 8810
NATIONAL INCOME : THIRD QUARTER OF 1950 9
In our construction of seasonally corrected consumption estimates, weare essentially abstracting from the experience of a particular quarter in anattempt to show the sort of trend which is operating when specificallyseasonal influences have been eliminated. The seasonal influences affectingvalue data may be of two types: seasonal quantity movements and seasonalprice movements. These two seasonals are evidently not independent. Ongeneral grounds, we should suspect that seasonal price changes would be ina reverse direction to seasonal quantity changes : that prices would tend tobe high when supplies are limited, and that prices would tend to be low whensupplies are abundant.
'When we correct value data for seasonal influences, in principle weeliminate the effect of both price and quantity seasonals by applying correc-tion factors which reflect the combined effect of the two types of seasonal.On this approach, our series for ' consumption at current prices, seasonallycorrected' would reflect the operation of price and quantity trends. Nowthese two latter trends may show a divergent movement, and for certainpurposes it is interesting to separate them out. One way of doing this is toeliminate the price trend from the seasonally corrected value data to obtaina series which reflects the quantity trend : and this is what our series ofseasonally corrected fixed-price estimates of consumption attempts to do.Alternatively, if we are given a fixed-price series from which all price changes.whether seasonal or trend, have been eliminated, we can obtain the quantitytrend by correcting the fixed-price series for seasonal quantity movements.
Thus when both a value and a fixed-price series are available, and if wecan ignore (or correct for) ' random ' fluctuations (i.e. those which representneither trend nor seasonal movements) our calculations can proceed in twostages
I. We can correct the value series by a factor which combines the effectof both price and quantity seasonals.
z. We can correct the fixed-price series by a factor reflecting thequantity seasonal.
Prior to the last set of estimates, our procedure was as follows. Wecalculated seasonal correction factors from series of fixed-price consumptiondata obtained by deflating consumption value data over a period of years byprice-indices derived from the Interim Index of Retail Prices. The consumergoods and services covered by this Index are likely to be less sensitive toseasonal fluctuations of price than are the goods and services which fallwithin the White Paper definition of consumer expenditure, and it is there-fore possible that our fixed-price series and the derived seasonal correctionfactors reflected to some extent the operation o! both price and quantityseasonals. We used these factors to correct current value data to obtain ourseries of consumption at current prices, seasonally corrected '. \Ve thendeflated these series by price-indices from the Interim Index of Retail Pricesto obtain our estimates of seasonally corrected consumption at fixed prices,
10 THE BULLETiN
which were of course accurate only in so far as the index is a suitable deflatorfor consumption aggregates.
Since the summer of 1950, ofIcial fixed-price estimates of consumptionhave been published, which will provide a more accurate basis for our season-ally corrected fixed price estimates than could be obtained by our previousroundabout methods. In particular, it will enable us to abandon the InterimIndex of Retail Prices, which is in many respects unsuitable as a deflator forconsumption aggregates. However, before this official series can be satis-factorily incorporated, we need to calculate seasonal correction factors whichwill reflect the operation of quantity movement alone. This cannot be doneat present, because the official fixed price series are only given from the firstquarter of 1949 onwards.
For the present set of estimates, we retain our original method of calcu-lating the series of ' consumption at current prices, seasonally corrected '.As indicated above, the seasonal correction factors which we use reflect partof the price seasonal as well as the quantity seasonal, and therefore their usehere is not entirely inappropriate as a means of correcting a value series. Weobtain our seasonally corrected fixed price series by roughly smoothing theofficial fixed-price data, in the hope that by so doing we shall secure anapproximation to the quantity trend. These are temporary expedientswhen full information for 1950 is available we shall calculate two sets ofseasonal correction factors. The first will be based directly on value data toshow the combined effect of price and quantity seasonals, and will be usedin the construction of our series of ' consumption at current prices, season-ally corrected '. The second will be based directly on fixed price data toreflect the operation of the quantity seasonal, and will be used in the con-struction of our series of' consumption at fixed prices, seasonally corrected '.
The use of two different methods of removing seasonal influences meansthat comparison between current-price and fixed-price estimates must bemade very cautiously. We can for example attribute the fall in the value offood purchases to the seasonal price fall, which was particularly marked thisyear. But we cannot attribute the fall in drink expenditure at the beginningof the year to a price fall, even though there is no corresponding fall in thefixed-price series. The reason is that the seasonal changes in drink expendi-ture, particularly on spirits, have become more marked as the supply positionhas improved, and are not adequately reflected in the correction factors forTable VI. The upward trend in quantity of alcoholic drinks is howeverfairly firm (if we allow for the strengthening of beer) and the quantity is nownear 1948 levels once more. Slight upward trends in quantity are in factevident for all commodity groups, though the evident marked rise in clothingexpenditure was apparently partly due to price rises. The total at currentprices rises smoothly, though rather slowly.
TA
BL
E V
III
Prov
isio
nal E
stin
,nfi
's o
f N
atio
nal I
ncom
e an
d E
xpen
ditu
re f
ov 1
950
1949
1950
1949
1950
1949
1950
Agr
icul
ture
..59
060
0W
ages
- -.
. -.
4280
4460
Con
sum
ptio
n--
----
8405
8800
Indu
stry
...58
5064
80Sa
lari
es -
----
----
2250
2300
Gov
t. C
urre
nt S
pend
ing
2035
2250
Serv
ices
...31
3032
80Fo
rces
Pay
245
235
Net
Inv
estm
ept
...13
85(1
425)
Ren
t--
----
---
470
480
9570
1036
0T
otal
Bus
ines
sPr
ofits
and
Int
eres
t(2
905)
(347
5)E
xpor
t Def
icit(
_)40
Gov
ernm
ent
1130
1130
or S
urpl
us (
+)
+25
0O
ther
...42
547
5
Gro
ss N
atio
nal I
ncom
e11
125
1196
5N
et N
atio
nal P
rodu
ct11
785
1272
5L
ess
Dep
reci
atio
n..
975
1015
Les
s ne
t Ind
irec
t Tax
es16
35 1
775
Net
Nat
iona
l Inc
ome
1015
010
950
Net
Nat
iona
l Inc
ome
1015
010
950
IN
et N
atio
nal I
ncom
e10
150
1095
0
12 THE BULLETIN
PRovIsIoNAL ESTIMATES FOR THE YEAR 1950
We have attempted to estimate the main components for the calendaryear 1950, based on the estimates for the fourth quarter, and it seemedworthwhile to attempt some early provisional estimates in preparation for thebig economic debates of Easter. (See Table VIII)
One change we have introduced in the official estimates for 1949 is thatwe have taken the revised balance of payments deficit from the latest Balanceof Payments White Paper, with a corresponding adjustment to the estimatefor internal capital investment. Since there is a major definitional change inthe latest official estimate (see above), which in effect reclassifies some invest-ment as' external' instead of' internal', it seemed advisable to assume thatno change was implied in the aggregate national income, but that the revisionswere wholly attributable to this reclassification.
Our first estimate is that the National Income has been about £800million higher in 1950 than in 1949much the same as the increase between1948 and 1949 (if ve correct lor inventory gains and the abrupt change inlegal depreciation allowances). The difference is that this year the rise hasbeen almost wholly a ' real ' one, whereas the 1948-9 increase was moreinfluenced by price rises. Over half this rise appears to have gone to profits,and, since inventory gains must now he rising once more, company profitsresults published in the future should show a substantial ílnprovement. Onthe expenditure side, nearly half the increase vent into increasing personalconsumption. The remainder was divided between achieving a substantialexport surplus and supporting a rise in Government current outlay, capitalinvestment at home (including stockbuilding) apparently being about un-changed.
ANALYSIS OF NATIONAL EXPENDITURE
The detailed quarterly estimates of outlay suggest that the increase innational output, substantial though it was, has not been enough (quite) tocarry the enormous improvement in the foreign balance, which was achieveddespite a sharp deterioration of the terms of trade, plus the rises in con-sumption and Government spending. 'I'his is shown in our estimates by thesharp fall in the investment residual that accompanies each big rise in theexport surplusvide the first and third quarter experience shown in 'fable X.Since fixed capital investment has not changed much, this suggests a fall instocks, which is quite comprehensible, because a sudden rise in exports orfall in imports would he met in the first instance out of stocks.
The year 1949 saw substantial stockbuilding throughout the economy1950's economic successes have been to some extent achieved by reversingthis process, following the reversal ol the previois downward trend in thepressure of demand on the nation's resources. Wholesale and retail stocks oftextiles do indeed show a fall in the third quarter, but the destocking must heoccurring mainly at an earlier stage along the industrial pipeline, and willpresumably mean shortages on the shelves of shops in 1951.
Cousu mptionGovt. current spendingNet InvestmentExport deficit ()
or surplus (+)
Net National ProductLess Net Indirect Taxes
Net National Income
TABLE X. National Expeudiltoe at Current Prices, Seasonally corrected
ConsumptionGovt. current spendingNet InvestmentExport deficit ()...
or surplus (+)
Net National ProductLess net Indirect Taxes
Net National Income ... 9400 10150
TABLE Xl National Expenditure at Average 1949 Prices. Seasonally Corrected
1949 19501948 1949 IV I II III
ConsumptionGovt. current spendingNet Investment ......Export deficit ()
or surplus (+) ......Net National ProductLess Net Indirect Taxes
Net National Income
NATIONAL INCOME : THIRD QUARTER OF 7950 13
TABLE IXNational Expenditure at Current Prices NOT Seasonally Corrected
1949 19501948 1949 IV I II III
8110 8405 8990 8220 8735 89901770 2035 2120 2170 2210 22601215 1385 (1220) (1605) (1730) (1075)80 40 15
+200 +10 +340
11015 117851615 1635
9400 10150
12315 12195 12685 126651745 1565 1755 1890
10570 10630 10930 10775
1949 19501948 1949 IV I II 111
8110 8405 8600 8705 8770 88101770 2035 2120 2170 2210 22601215 1385 (1525) (1305) (1520) (1340)80 40 110
±75 +120 +465
11015 117851615 1635
8260 84051840 2035
(1270) 138560 4011310 11785
1630 1635
12135 12255 12620 128751665 1635 --1760 1830
10470 10620 10860 11045
8475 8535 8565 86452100 2135 2155 2190
(1420) (1275) (1210) (1050)--30
+110 +325 +550
11965 12055 12255 124351650 1660 1665 1675
9680 10150 10315 10395 10590 10760
DUDLEY SEERS.
In association with P. D. HENDERSON and D. G. HOLLAND.
APPENDIX: PERSONAL INCOME AND SAVING
We can now make some tentative quarterly estimates of personal incomeand saving. Total personal income was reached in four steps. First, incomefrom work was taken from Table III. Secondly, distributed property incomewas assumed to be slightly rising: it has been LI,462m., I,463m. and£ I,465m. in the three years before 1950, hut there may have been a slight
¡4 THE BULLETIN
acceleration recently with some relaxation of dividend limitation.1 Thirdly,transfer incomes were extrapolated, with the help of the Econothic Surveyforecasts. Fourthly there are mixed incomes: professional earnings wereassumed constant, farming income was taken to change pari passu withoutput of the agricultural sector, and an estimating function was sought forsole traders' profits.
The basic assumption was that these profits (P) are a linear function ofthe value of turnover (T) of businesses controlled by sole traders, thus:
P=bTa.Since most sole traders' business is conducted on a gross profit margin
which is a constant proportion of turnover, we would expect their grossprofits to vary directly with turnover. Net profits would be related to turnoverin the manner indicated by the above function, provided salary, rent andother costs are constant in the short run, as indeed may be reasonablyassumed.2 (They are of course then equal to a).
This function can only be reached very indirectly. Sole traders controlbusinesses in retailing, wholesaling, catering, entertainments, transport,building, finance, manufacturing, etc.,3 and while we have data for the turn-over of some of these activities, we have no separate information for thebusinesses which are unincorporated. By far the most important activityfor sole traders is however the sale of consumer goods and services. Thosewho are not directly engaged in this are mostly in ancillary activities such asthe transport or advertising of these goods, and even those in manufacturingare mainly engaged in the final stage of processing consumer goods (especiallyclothing). Consequently let us take value of turnover in the consumers' marketas an indicator of T. But we need to limit the consumers' market slightly.Fuel and light are hardly handled by sole traders,4 nor is rent; and to includethe value of drink and tobacco turnover would be to expose these calculationsto fluctuations in the overall profit margin for all commodities, because theprivate traders' margins on these commodities are so small.5 Consequentlylet us use C', the value of consumption expenditure excluding these com-modities, and assume: T = cC'
Then P=bcC'a i.e. 4P=bcJC'We can obtain two points for estimating the parametric product ' bc '.
Unfortunately the sole traders' profits shown in the National Income WhitePaper include inventory gains, which we exclude by definition from ourquarterly estimates, and which are only distantly a function of T. TheWhite Paper shows in fact only io million increase from 1948 to ¡949 insole traders' profits. If we eliminate the effect of inventory gains (and also
1 And a slight jump at end-1949 because of the increase in the sterling value of dividendsfrom some oversea countries after devaluation.
Though of course this relation may break down if the composition of the turnovervaries with respect to profit margins.
* For a full analysis of the self-employed see BuLs.EnN, Vol. 12, p. 298.Except for some private handling of coal (for which quarterly consumption estimates
are not available).i may of course lead to some downward bias in the estimating coefficient (see below).
NATIONAL INCOME : Ti-URD QUARTER OF 1950 15
the change in the legal definition of depreciation)1 we obtain the followingrelation for 1948-9: 125 = 321bc
.. = 0.4 1C' is our estimating equation.We cannot use data for earlier years because of the lack of information on
inventory gains. This relation must therefore be considered a very tentativeone, and yields only very rough estimates of sole traders' profits. Howeverwe have good quarterly estimates of C', and the estimate of personal incomedepends mainly on the estimates of other components, particularly thewage-bill (built on the firmer foundation of data on wages, earnings andemployment).
The next estimate required is that of direct taxes on personal income.One would like to make this separately for each type of income, but we arerather defeated here by the difficulty of allocating the effect of the change intax rates between each type of income. However, since the tax lates did notchange violently in 1948 or 1949, we can work separately with tax paymentson employees' income and on the remainder. It appears from Table 33 inCmd. 7933 that income tax and sur-tax on wages, salaries and forces' payrose by £28 millions between 1948 and 1949. But the 1948 Budget introducedmajor tax concessions which of themselves reduced employees' tax paymentsby about £21 million between 1948 and 1949 (because the first quarter of1948 was taxed at the old rates), while the 1949 Budget, by its differenttreatment of National Insurance, was responsible for a rise of about £7millions between the two calendar years. Thus changes in the rates would inthemselves have reduced the taxes on employee incomes by about £14million on balance. Since the total effect of changes in rates and in theincomes themselves was to raise the taxes by £z8 millions, the increasedincomes must have been responsible for a rise of £42 millions in taxes (at1948-9 financial year rates). The change in employee income was £339millions between 1948 and 1949, and the marginal incidence of taxation onemployee income in 1948-9 was thus .125, which would also have appliedin the financial year 1949_50,2 The 1949-50 budget cut marginal income taxon lower incomes by one-sixth and in view of the lack of change in marginalrates on higher incomes, the marginal incidence overall will be taken tohave been reduced to .11. Proceeding similarly for taxes on other personalincome, we find that the change in tax liabilities due to changes in incomewas about £25 millions or .35 of the change in income (assumed to havedeclined to .33 after the 1950 Budget)3. There was little point in attemptingto use 1947 information as well, partly because of difficulties in analysing the
1 See Appendix A to The levelling of incomes' (BULLETIN, Vol. 12, No. 10).This may seem rather low, but much of the increase in wages is tax-free since
about one-third of the number of employees appear to pay no income tax; and the effectivestandard rate on earned income is only .36 (ailowing for the earned income allowance), arate paid by a minority of salary-earners and very few wage-earners. Needless to say, thisco-efficient depends on what section of employees is getting increases in income, andit may therefore be rather unstable.
These calculations were made (perforce) without excluding inventory gains, but theycan be taken as applicable to income arising from trading activities only, because themarginal rate of tax is the same however the income arises.
THE BULLETIN
influences on the total tax bill, and partly because it was only early in 1948,with the virtual end of demobilisation and the greater emphasis on incomestabilisation, that an economic situation capable of yielding results relevantto 1949 and 1950 emerged. Using these coefficients, the quarterly changes intax liabilities due to changes in incomes could be estimated and the additionof estimates of the effect of changes in the tax rates provided the quarterlyestimates of taxation required.
These calculations yielded thç following estimates.1
(Seasonally corrected annual raies, ai £m.)
'Since tax liabilities exclude taxes on capital, the savings residual is implicitly gross ofprovision for such taxes.
To interpret this table is very difficult since we do not know whether toattribute the changes in savings to changes in the propensity to save or tochanges in the availability of consumer goods.2 On the whole our view is thatthe economy was still suffering from excess demand sufficient for us to putthe main emphasis on the latter. Certainly the high savings early in 1949appear to have been due to the success of the export drive, which was drawingoff the increased output (but not of course the increased income generatedby that output). Thenceforward savings varied little for a year, and turnedupward again in mid-i 95o. This may have been in part due to a change inthe propensity to save, as the resources of some dis-savers became depleted,and as deficiencies of durables were made good. But a big share of responsi-bility must also be placed on the renewed successes of the export drive,which stopped consumption expenditure from rising much, while the reduc-tion in income tax released more purchasing power.3 There is therefore somereason to believe that the situation became slightly more inflationary in thespring of 1950, after a year of little change in this respect.
'Inventos-y gains and taxes thereon are as far as possible excluded throughout.I For a discussion of the theoretical basis for using the saving-income relation as a
measure of inflationary pressure see BULLETIN for Ja.n..Feb. 1950.Consumption did not rise as much as might have been expected after the other feature
of the budget, higher petrol prices, came into force (even though petrol was derationed).Doubtless some of the increased expexlditure on petrol was offset by consumer economieselsewhere, while the higher prices paid by business probably did not affect total costssufficiently to be passed on, at least until product prices were changed on other grounds.So the Budget was to a mild extent inflationary, at least in its initial impact, despite theapparent balance between the value of concessions and the additions to taxation.
1948I
1949II HI IV I
1950II III
Personal Income ... 9615 9910 10115 10185 10350 10480 10510 10590Less Tax Liabilities' ... 1135 1280 1330 1350 1390 1425 1345 1365
Disposable Income ... 8480 8630 8785 8835 8960 9055 9165 9225Less Consumption ... 8108 8170 8410 8445 8600 8705 8770 8810
Personal Savings'...... 372 460 375 390 360 350 395 415