determine how different types of consumers' expenditures have responded, in the past, to changes in disposable income. In the October 1944 Survey of Current Business, for example, such relationships are shown for retail sales in 12 types of nondurable-goods stores and 9 durable-goods stores; in the January 1945 issue, some 174 consumer expenditure items are classified according to their sensitivity to changes in disposable income. While these analyses of past relationships can provide a first rough approximation of future consumer demand, the results must be adjusted to take account of various special factors that will influence the level of consumer spending during the transition and postwar years. The tremendous volume of liquid savings accumulated during the war, and the huge backlog of deferred demand, particularly for consumers' durable goods, are probably the most important of these factors. Estimates of the total volume of these abnormally high savings and of their counterpart in deferred demand can be derived from the Commerce data, but information is almost wholly lacking as to their allocation among various population groups and various income classes. To provide this information, there is urgent need of a Nation-wide survey of the distribution of consumer incomes and of consumer spending and savings at different income levels. An extensive study of this type, covering a 1-percent sample of households, was made in 1936 by the Department of Agriculture, the Department of Labor, the National Resources Planning Board, and the Works Progress Administration in cooperation. Since then no large-scale survey has been made, although several limited studies have been or are now being undertaken. Among these may be mentioned: A study of family spending and saving in wartime, covering the year 1941 and the first quarter of 1942, with a sample of 3,100 urban and rural households (Department of Agriculture and Labor). A survey of prices paid by consumers, covering family incomes and expenditures (but not family savings) for the year 1944, from a sample of 1,700 urban households (Department of Labor). A study of adjustments of rural families to economic change, covering family incomes, expenditures, and savings for the year 1944, with estimates of changes over 1943, from a sample of 600 Tennessee families. In addition, three surveys of consumer requirements, made by the Census Bureau for the Office of Civilian Requirements, have obtained information on wartime shortages and consumer purchases, with rough estimates of family income, from small samples of urban and rural households for three recent periods November 1943 and March and April 1944. Although these studies throw some light on changes in family patterns of spending and savings occasioned by the war, they provide an inadequate basis for estimating future consumers' expenditures and market demand, and include no information about accumulated savings. To supply adequate information, the program on basic economic statistics, recently developed at the request of the President, included plans for large-scale studies of consumer incomes and consumer expenditures and savings for the year 1944, covering representative samples of the Nation's households, with information on accumulated savings and on recent changes in income status for the consumer expenditures sample. No action was taken by the last Congress on these plans; they have been transmitted again in modified form to incorporate necessary changes in timing. Supplementing these plans, the Board of Governors of the Federal Reserve System has initiated a small pilot study of consumers' attitudes concerning the spending of war savings, and on the volume and forms of savings held by various economic groups. This study, conducted for the Board by the Bureau of Agricultural Economics in one rural county and one large city, will shed some light on the degree to which consumers may engage in abnormally high expenditures when durable goods again become available. Also, a number of private agencies, such as the United States Chamber of Commerce, have initiated surveys of prospective consumers' expenditures. The difficulty is, of course, that even contemplated extraordinary expenditures will materialize only if consumers feel secure in their jobs at the actual time of expenditures. Therefore, some degree of uncertainty will remain in these estimates for the transition period even with the necessary improvement of the statistical data. 3. Statistics for estimating future business expenditures Statistics for business expenditures can be reviewed under the following headings: Residential and private nonresidential construction. For farm use. For use by professionals (doctors, dentists, etc.). For use by incorporated business. Net addition to inventories. Net exports. There is, as has been said before, a fairly good statistical basis for estimating business investments of the past, but direct information about future expenditures is extremely scanty. The various projections of this item used in projecting future gross national product are based mainly on the observation of current trends and attitudes and conclusions from past experience rather than on direct statistical information. Residential and nonresidental construction.-Construction expenditures can be estimated over the short run, perhaps a quarter of a year in advance, by use of building permits and awards of building contracts. The Bureau of Labor Statistics compiles statistics of building permits issued, the National Housing Agency, statistics of construction authorizations for residential construction, and F. W. Dodge, statistics of contracts awarded, all of which can be used for such short-run forecasts. The Construction Research Division, of the War Production Board, has made estimates of probable future expenditures for residential construction, by quarters, on the basis of the National Housing Agency's estimates of housing needs in various areas and the War Production Board's forecasts of the availability of building materials. It has also made estimates of expenditures for nonresidential construction for future quarters, on the basis of priority and materials controls. When the controls over construction are dropped, forecasts of future expenditures for construction cannot be made by the present method. The Bureau of Labor Statistics has made a forecast of probable expenditures (converted to 1940 prices) for private, residential (nonfarm), nonresidential, farm, and utility construction, and also for expected public construction during a period of 12 months preceding the end of the war and for 5 years following the end of the war. This forecast for 6 separate years is essentially an informed opinion based on information on scheduled or contemplated programs obtained through personal interviews and in reports from utilities, professional associations, architects, trade associations, officials of Federal agencies, financial organizations, institutional investors, and the architectural, engineering, building, and financial press. The Bureau of Labor Statistics has proposed a study of all non-Federal construction projects authorized in 1944 having an estimated cost of $25,000 or more and a 10-percent sample of smaller projects. The information that will be requested includes the location of the project, the cost of construction under contract, the cost of construction by "force account," the estimated cost of movable machinery, the date and valuation of the building permit, the date on which construction was started, and the estimated date of completion. It is hoped that this study will enable better estimates of construction expenditures by State and area than are now available by thus refining and adjusting the present series. Producers' durable goods-for farm use.-The Bureau of Agriculture Economics of the Department of Agriculture makes an annual estimate of production expenses of farm operators for the current calendar year in July of each year, including expenditures for maintenance or depreciation of buildings, motor vehicles, machinery, and equipment. The Bureau is planning to collect quarterly figures on capital expenditures on the farm for construction, maintenance, and equipment in connection with its proposed survey of farm income and expenditures which will cover a national sample of farms. No direct survey of farmers' future capital expenditures has been made or is contemplated at the present time. Producers' durable goods-for use by professionals and other unincorporated business. For this type of investments, less information is available than for any other type. Experiments have been made to obtain business data from professionals and unincorporated business groups as part of a survey of consumers' expenditures and savings. The income and expenditures survey proves to be a valuable source of information in the case of farm investments. With respect to business outlays of professionals and nonfarm unincorporated business, however, the results of test surveys have not been encouraging. Further exploration of adequate methods of obtaining such data is needed. Producers' durable goods—for use by incorporated business.-No official surveys of future corporate expenditures on capital account have been made. Such unofficial estimates as are available are not sufficiently scientific in their sampling method to be very useful. The Bureau of Foreign and Domestic Commerce of the Department of Commerce recently sent a single-time questionnaire to a sample of 32,000 manufacturers requesting information on anticipated capital outlays during the first year following the end of the war in Europe on the following items: (a) Construction; (b) machinery or equipment; (c) alteration of plant or equipment; (d) repairs or maintenance; (e) increased inventories of nonmilitary goods; (f) the carrying of increased trade receivable. For the main items, comparable information for 1939 is also requested. Opinion on expected financial requirements for both working capital and fixed capital is also asked for. It is as yet not possible to evaluate the returns which are now coming in. When available, the returns will be tabulated by industry, by size of firm, and by area. The Bureau of Foreign and Domestic Commerce is proposing to obtain similar information from railroads and power companies. In addition to these single-time surveys, the Bureau of Foreign and Domestic Commerce is proposing to collect from a sample of 4,000 corporations quarterly data on (a) corporate expenditures for plant, (b) corporate expenditures for machinery and equipment, and (c) budgeted capital expenditures for two quarters in advance. There are, however, still a number of industries not covered by these contemplated surveys, such as the mining, distribution, and transportation industries other than railroad. No plans for these fields are contemplated at the present time. A number of private agencies have made some sample surveys of capital outlays which corporations expect to make when materials become available. In addition, business analysts and investment counselors might be able to provide much information concerning private investment plans. An effort should be made to tap this source. Net addition to inventories.-Some data on future developments of inventories will be forthcoming from the studies of the Department of Commerce referred to above. They will not give, however, a complete coverage of future inventory developments, particularly with respect to inventories in wholesale and retail trade. Industry Survey, a publication of the Department of Commerce, gives an up-to-date running account of orders, shipments, and inventories which is being used as a basis for forecasts in the absence of information about future plans. Net exports.-The prediction of important developments in foreign trade again must be of an indirect nature. Forecasts, as they are made in the various projections, are based on the analysis of general economic conditions in the United States and foreign countries, on dollar balances available, and on expected capital transactions. There is probably available considerable information in consular reports and economic intelligence that might be useful for purposes of projections. This review indicates a great scarcity of direct data on probable future business expenditures. There is need for periodic information at perhaps quarterly intervals on the probable future outlays on capital account by at least the more important industries with which to check and correct projections made on the basis of more general considerations. 4. Statistics for estimating future State and local expenditures The work of the Government Division, Bureau of the Census, provides basic information about revenues and expenditures of State and local governments. However, its statistical reports are all retrospective and appear with a considerable time lag. The Bureau of the Budget has recently established a Federal Interdepartmental Advisory Committee on State and Local Government to help guide the further development of programs in this field. One of the main questions raised by the committee referred to the possibility of getting comprehensive statistics of State and local expenditures more frequently and more currently in a classification closely related to the needs of national income estimators. Pending the avilability of direct forecasts of State-local expenditures, some help, at least with respect to projecting Federal and State public-works expenditures, may be derived from a recent survey made by the Federal Works Agency and the Bureau of the Census at the request of the House Committee on Postwar Economie Policy and Planning. Statisitics on the current status of public works planning and financing were compiled from replies to a questionnaire sent to all State and a broad sample of local governments. Information was requested on public works by stage of plan preparation: (1) completed stage, (2) design stage, (3) preliminary stage, and (4) idea stage. The findings of this survey are of great help in estimating the probable volume of State and local public works in the reconversion and immediate postwar period. Conclusion Although it cannot be said that there is now in existence "a comprehensive system of estimating future expenditures," considerable progress has been made and is being made. In spite of the sparsity of direct forecasts of individual expenditure items of consumers, business, and government, projections of the totals by major groupings are being made on the basis of current trends and past relationships. These projections are useful as approximations of general orders of magnitude. But a considerable improvement of statistical information is needed if these projections are to become reliable also with regard to the details. In the recent development of sample surveys, a technical tool is evolving which can be of great use in this respect. Hon. CARTER MANASCO, DEPARTMENT OF AGRICULTURE, Chairman, Committee on Expenditures in the Executive Departments, House of Representatives. DEAR MR. MANASCO: I am glad to reply to your letter of March 20, asking for my opinion on H. R. 2202, a bill to establish a policy for assuring continuing full employment, since I believe this is a matter of very great importance to all groups in the Nation. Assurance of continuing full employment is of great importance to farmers. As I indicated in a letter to Senator Murray last December: "Your draft bill 'to establish a national policy and program for assuring continuing full employment' is a proposal of real importance and significance. Any proposal to relate our Federal fiscal policies to our national economy in such a way as to maintain full employment and insure high levels of business activity is worthy of our deepest consideration. Such a proposal is of equal significance to all segments of our economy, including agriculture. "As I have stated many times before congressional committees and elsewhere the first essential to solving postwar farm problems is maintaining full industrial production and employment of workers, because farmers sell and will continue to sell most of what they produce on the domestic market. Only through full employment at good wages can they have plenty of customers able to pay fair prices for their products. "The consequences of widespread unemployment in this country in the postwar period could well prove to be detrimental not only to the welfare of our citizens who are unemployed, but would be most costly to the rest of our people and to the Federal Government itself. As a matter of fact, another depression might strike at the very foundation of our entire political economy * * The Association of Land Grant Colleges and Universities recognized the importance of high employment to farmers in the recent report of their Committee on Postwar Agricultural Policy, as follows: "We need high-level employment and production. "Towering above all other considerations is our need for nearly full employment and unrestricted production. These are important to everyone, and not the least to farmers. The amount of money that urban people have to spend largely determines how good customers they are for farm products. In addition, highlevel industrial production brings a large supply of goods to farmers at reasonable prices, and it also provides job opportunities for those who are not needed in agriculture. Urban people in turn are benefited by good farm income and high-level farm production. "High-level employment in nonagricultural industry means very much more to farmers than any farm program the Government may attempt. Manipulations of agricultural production and prices are no substitute for good consumer markets Our Bureau of Agricultural Economics has recently completed a study of What Peace Can Mean to the American Farmers. According to that study, if the Nation can maintain full employment, farmers should continue to receive cash income of around $17,000,000,000 annually from the sale of their products, or more than twice prewar. With moderate depression this would drop to around 121⁄2 billion, and with severe depression would drop to around 61⁄2 billion. (These estimates were made after extensive consultation with interested experts in other departments, and of course are subject to revision in the light of further study.) The table enclosed summarizes these estimates of the effect of prosperity or depression on the welfare of farmers. At full employment, it is estimated agriculture would provide work for about 8,000,000 people, as compared to about 9,300,000 on the average before the war (many of whom were not fully utilized). Full employment would also give farmers and their sons not needed in agriculture, good opportunities for work off the farm either full time in industry or as part-time farmers. Farm land values have increased sharply during the war period, and many farms have changed hands at the higher prices. With continuing full employment, farmers who have bought farms on mortgages at present prices should have relatively little difficulty in paying for them. If there should be moderate or severe depression with corresponding great reductions in prices of farm products and in farm incomes, land values will be certain to decline. Farm foreclosures and bankruptcies would rise, and great distress would spread through th farming regions much as it did in the two decades after the last war. Most of the activities covered by this bill are beyond the competence of this Department. We have noticed, however, that in discussions of such measures, the question has often been raised as to whether flexible taxes could not be used as one of he control devices as well as flexible expenditures. Section 6 (b) already recognizes that there is need for administrative flexibility with reference to the rate of Federal expenditures and investment, subject to such principles and standards as may be set forth in appropriate legislation. It therefore occurs to me to ask whether the committee might not feel it worth while to explore the issue as to whether or not it might be desirable to have this section cover tax flexibility as well as expenditure flexibility. Merely to illustrate the idea, it would be possible for Congress to authorize that withholding taxes could be reduced temporarily whenever the President found that such reduction was necessary in order to maintain sufficient buying power, pending the enactment by Congress of other measures to correct the situation. No doubt there are many alternative devices by which such tax flexibility could be provided which the committee might find it worth while to examine and consider. The proposal involves making the maximum effort to stimulate employment by private business first, and then providing employment from Federal funds only to the extent necessary to supplement private employment. This provides private enterprise scope to employ as many workers as it possibly can, which seems to me to be the wise policy. Enactment of such a bill would, in my opinion, constitute a great landmark in the establishment of a modern economic policy by this Nation. It would be in the interests of all our citizens-farmers, laborers, and businessmen. The Bureau of the Budget has informed me that it has no objection to the submission of this report. Sincerely, (Enclosure) CLAUDE R. WICKARD, Secretary. |