AMERICAN
INSTITUTE
for ECONOMIC RESEARCH
GREAT HARRINGTON
MASSACHUSETTS
RESEARCH
COMING EFFECTS OF CURRENT EVENTS
Significant Comparisons of Economic
Trends in This and Earlier Recessions
V. Retail Trade and Related Series
This fifth of a series of articles comparing significant
economic trends in this and earlier recessions reviews
trends in retail sales and related series. Except for department-store and mail-order sales, comparisons are not
available for the years 1929-30, and 5 of the 9 series are
not available for comparison for the years 1937-38.
Thus, for the most part, comparisons are limited to the
postwar recession years.
Although sales of department stores did not decrease
so markedly from those of a year earlier in January and
February 1958 as they did in the corresponding months
of 1930, department-store sales in March and April
1958 (with sales for April estimated) decreased at the
same rates as they did in March and April 1930. Contrarily, mail-order sales decreased from those of a year
earlier in January and February 1958 in contrast with
increases for these months in 1930. Thus, insofar as
sales of these two types of retail outlets are representative of all retail sales, the composite record of retail sales
in the first part of 1958 does not appear to be markedly
different from that of 1930.
All retail sales have not turned downward as much in
1958 as they did in either 1954 or 1938; but, after having increased 2 percent in January, they have decreased
2 percent in both February and March. Measured in
percentage points, the rate of deterioration in retail
sales, compared with those of a year earlier, was greater
from January to March than that in the corresponding
periods of either of the two preceding recessions and
two-fifths as great as that of the recession of 1937-38.
The impact of this recession on durable-goods sales
has been widely recognized and has been most conspicuous in lagging automobile sales. However, the rate of
decline in durable-goods sales has not been so great from
January through March as that of the recession of 193738, but it has been markedly greater than that of the
1948-49 recession; and, as compared with the recession
of 1953-54, it has become progressively worse instead
of progressively better.
Although data are not available to permit comparisons for prewar recessions, the impact of the decrease in
sales of durable goods at retail has been greater on manufacturers than that of either of the two preceding recessions. Manufacturers' sales of durable goods decreas-
69
WEEKLY
RTTT T F1 T T
May 5
1958
REPORTS
ed from those of a year earlier 15 and 24 percent in
January and February 1958 respectively. These decreases were more than twice those of the corresponding
months of 1954 and compare with increases for the corresponding months of 1949.
Decreasing retail sales of durable goods have been reflected in even greater rates of decrease in new orders
for durable goods placed with manufacturers. In both
January and February of this year new orders for durable goods placed with manufacturers were 25 percent
less than those of the corresponding months of last year.
The decreases for these months in 1954 were 16 and 27
percent respectively; in 1949 the decreases were only 5
and 6 percent respectively.
Retail sales, especially of durable goods, have decreased sufficiently in comparison with decreases of
earlier recessions to indicate a recession of serious magnitude. However, inventory data suggest that, in general, the impact of the decreasing sales has been reflected more largely in decreased manufacturing activity
than in the two preceding recessions, with the result that
there may have been better control of inventories recently than there was in the earlier recessions. This observation seems to be true at retail, wholesale, and manufacuring levels. Retail inventories at the end of March
were only 1 percent more than those of a year earlier,
compared with 3 and 6 percent for the corresponding
dates in 1954 and 1949 respectively. The same general
pattern applies for inventories of both wholesalers and
manufacturers.
The impact of the current recession on retail trade
has been large, compared with that of earlier recessions.
Moreover, there are indications that the effects of the
recession increased progressively through March at
least, more or less contrary to trends of the recessions
of 1948-49 and 1953-54. Also, contrary to experience
in these earlier recessions, there appears to have been a
greater tendency to curtail production and inventories.
This factor could promote a faster rate of recovery when
business activity turns upward. However, decreases in
sales, especially of durable goods, have tended to exceed decreases in inventories with the result that inventories have become more rather than less burdensome in
relation to the current rates of sales.
What the Indicators Say
Note: The indicators reported on below are seasonally adjusted.
Among the leading indicators, floor areas represented
by contract awards for residential and for nonresidential
buildings are both estimated to have increased in March.
crease at a rate somewhat greater than the increase in
March. In other words, the inverted index used as a
statistical indicator continued downward in April. Although we do not yet have the final figures on the employment index used as one of the statistical indicators,
present indications are that this likewise continued to decrease in spite of the Government's seemingly optimistic
report of a marked gain in employment from mid-March
to mid-April. Among the lagging indicators manufacturing inventories decreased further in March.
The increases reported above for 2 leading indicators
may be the beginnings of cyclical upturns for these indicators, although that seems improbable, especially in the
instance of commercial and industrial building. In any
event, we shall not expect a cyclical upturn of business
generally until at least 5 of the 8 leaders definitely have
turned upward.
The Iron Age composite price of No. 1 heavy melting
steel scrap, not one of the indicators, was $31.50 per ton
on April 29, compared with $31.83 on April 22.
PERCENTAGE YEAR-TO-YEAR CHANGES: SELECTED
SERIES BY MONTHS DURING RECESSIONS SINCE 1929t
Series and Years
Retail Sales
1938 vs. 1937
1949TO.1948
1954 vs. 1953
1958 vs. 1957
Jan.
Feb.
Mar.
Apr.
+ 1
+ 2
-
+2
+4
_ q
-12
+ 1
- 4
- 2
o
May
June
-16
-13
- 3
+1
- 1
- 6
- 5
+6
- 4
- 1
- 2e
- 2
+ 10
- 3
- 6
-10
+10
- 6
- 1
-13
+ 3
4
9
Department-Store Sales
1930 vs. 1929
- 3
1938 vs. 1937
*
1949 vs. 1948
+1
1954 vs. 1953
- 3
1958 vs. 1957
- 1
- 3
*
- 3
- 2
*
Mail-Order SalesJ
1930 vs. 1929
1938 vs. 1937
1949 vs. 1948
1954 vs. 1953
1958 vs. 1957
+8
- 3
-11
-13
- 4
+ 1
- 3
- 9
+ 11
- 5
-10
- 9
-14
-15
+2
- 9
- 7
- 3
+8
-14
- 2
-12
- 6
-11
- 8
- 7
Retail Sales:
Durable Goods
1938 vs. 1937
1949 vs. 1948
1954 vs. 1953
1958 vs. 1957
-13
-4
-11
- 3
-20
+4
-10
-11
-28
+5
- 7
-13
-28
+ 6
-31
+ 14
-29
+ 10
- 2
9
+ 3
5
Manufacturers' Sales:
Durable Goods
1949 vs. 1948
+ 5
1954 vs. 1953
- 6
1954 vs. 1957
-15
+ 1
-10
-24
- 1
-11
- 1
-12
- 4
-14
- 5
-12
Automobile Sales
1930 vs. 1929
1938 vs. 1937
1949 vs. 1948
1954 vs. 1953
1958 vs. 1957
-18
-48
- 1
-12
-13
-10
-44
+ 3
-7
-24
-21
-50
+16
- 1
-32
-26 -24
-50 -54
+18 +75
- 4
- 4
-31e
-32
-57
+75
+ 10
-5
-16
-25
- 6
-27
-25
-12
-30
-24
-18
-31
-13
-32
-27
-34
Retail
Inventories
1949 vs. 1948
1954 vs.1953
1958 vs. 1957
+ 15
+ 4
+ 2
+ 6
+3
+1
+12
+3
+ 9
+ 1
+ 9
+ 1
+ 8
Wholesale
Inventories
1949 vs. 1948
1954 vs. 1953
1958 vs. 1957
+9
+4
- 9
+9
+4
- 9
Manufacturers'
New Orders:
Durable Goods
1949 vs. 1948
1954 vs. 1953
1958 vs. 1957
The Bureau of Labor Statistics index of prices of
goods and services bought by moderate-income families,
known as the Cost of Living Index, increased during the
month ended March 15 seven-tenths of 1 percent to still
another alltime record. The index was nearly 3 percent
higher than that for March 1957.
Higher food prices, still affected by bad growing
weather in the South last winter and reduced meat supplies, accounted for most of the increase in the index.
Costs of transportation, housing, medical and personal
care, reading and recreation, and "other goods and services" all increased, but only slightly.
Prices of apparel were unchanged.
The Bureau of Labor Statistics reports that the weekly
average "take-home" pay of a factory worker in March
with three dependents was $73.71, virtually unchanged
from that for February. This average compares with
$74.99 in February 1957.
Ewan Clague, Commissioner of Labor Statistics, is reported as expecting the March increase in food prices to
be "the last big bulge as a result of bad weather." Threefourths of the increase in the index for March, which increase was as large as any in the current upward trend
in the index that commenced 2 years ago, was accounted
for by food prices alone. Mr. Clague expects food
costs to trend lower next month when supplies of fresh
vegetables begin increasing. He also said that prices of
both durable and nondurable goods had begun to
weaken, but that the effect of this weakness on the index
was being offset by increased costs of services.
Because of the large number of workers whose wage
rates are tied through contracts to the cost of living index, each monthly increase in the index brings increased wage rates to many workers. The latest reported
increase in the index will result in such contractual
wage increases for more than 1,000,000 workers.
Although living costs, as measured by the index of
consumer prices, have increased 20 percent during the
past decade, there has been a wide disparity in the increases of the components of the index. Medical care
and transportation (including automobiles) costs increased the most, 41 and 38 percent respectively. Apparel prices increased the least, only 3 percent. None
+ 1
+ 2
+ 6
+ 1
Manufacturers'
Inventories
1949 vs. 1948
+10
+10
+8
+6
1954 vs. 1953
+4
+3
+1
-1
1958 vs. 1957
+ 1
- 1 - 2
t For all years for which the data are available.
* Less than one-half of one percent.
t Sales of Montgomery Ward and Sears Roebuck.
e-Estimated.
PRICES
Consumer Prices
+ 4
- 2
+ 1
o
However, new orders for durable goods decreased further in March.
Among the coincident indicators
unemployment
(without seasonal adjustment) decreased somewhat in
April. Unfortunately, the Government report released
last week may have given many readers an overoptimistic impression of the facts. When seasonally adjusted,
the unemployment figures reveal a further marked in70
(
SUMER PPICE<
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partment stores decreased about 1 percent in April from
the indices for March and for April 1957.*
The potential physical volume of department-store
sales, as measured by the production of goods sold in
department stores, decreased about 3 percent from February to March, and was almost 10 percent less than that
in March 1957.f The index has decreased almost without
interruption since July 1957.
Increased unemployment and the declining trend of
wage and salary payments appear to be affecting department-store sales directly and indirectly. Not only
have the unemployed curtailed their purchases sharply
but also others, aware of the uncertain future course of
business activity, seem to be buying more cautiously.
These effects on store sales are reflected in the view of
Myron S. Silbert, vice president of Federated Department Stores, expressed before the Congressional Joint
Economic Committee. Mr. Silbert told the subcommittee that in the absence of any upturn, "which we cannot
see at present," retail sales in 1958 will average 3 to
4 percent less than those in 1957, even though the longterm growth in retail sales is between 3 and 4 percent.
(At the projected rate, sales this year would average between 6 and 8 percent less than they would had they
followed their long-term trend upward from 1957 levels.)
He thought the percentage downturn in sales in July and
August might exceed 3 to 4 percent.
Developments during the last month strengthen our
view that department-store sales will trend downward
during the next several months.
of the other 5 components increased less than 16 nor
more than 27 percent.
The rising trend of consumer prices continues to receive powerful support from contractual wage increases
based on the consumer price index and implemented
through the large amount of inflationary purchasing media still available. However, counter influences of the
recession are increasing steadily. Although we cannot
measure the relative strength of these opposing influences, the latter are expected to gain in relation to the
former as the recession deepens. Our expectation is,
therefore, that further increases in the index during the
next several months will be small and some decreases
are probable.
Commodities at Wholesale
1957
1958
Index
April 30 April 23 April 30
Spot-market, 22 commodities
271
258
258
Commodity futures
326
328
323
Note: The indexes are respectively those of the United States
Bureau of Labor Statistics and Dow Jones. Both indexes are
converted so that their August 1939 daily averages equal 100.
DEMAND
Department-Store Sales
We estimate that the seasonally adjusted sales of the
department stores reporting to the Federal Reserve
Board were 1 percent less in April than those in March
and were the same percentage less than those in April
1957. Post-Easter sales have followed the usual downward course, but decreases were larger than those expected.
Our index of department-store prices remained substantially unchanged from February to March. The
March index was approximately equivalent to that for
March 1957; apparently, the tendency toward lower
prices initiated in January clearance sales and encouraged by manufacturers' abandonment of "fair trade" policies is beginning to offset the price increases that occurred last year.
Our index of the physical volume of goods sold in de-
*The index is derived by dividing the seasonally adjusted sales
by our index of department-store prices.
tThe index is a 3-month moving average of production, plotted
at the third month to allow for the lag between the production
of the goods and their receipt at the stores.
DEPARTMENT- STORE
71
SALES
Latest Weekly Data
Sales of the 325 department stores reporting to the
Federal Reserve Board compare with those of corresponding periods a year earlier as follows:
Period
Percent Change
Week ended April 26
+4
Four weeks ended April 26
—3
Year to date
—3
During the first 3 months of 1958, about 11 percent more enterprises failed than did during the corresponding period last year; the increase was greatest
in wholesale trade, Which was followed by retail trade
and mining and manufacturing. Liabilities of business
failures in the first 3 months of 1958 were 15 percent
more than those during the corresponding period last
year. The greatest increases were in retail trade, in
which failure liabilities were one-third more than those
in the first quarter of 1957.
As percentages of all monthly failure liabilities, liabilities among the various divisions of industry and trade
changed from February to March as follows: construction from 13 to 17; wholesale trade from 9 to 12;
commercial services from 5 to 6; retail trade from 35
to 33; and mining and manufacturing from 37 to 33.
Dun's Failure Index, seasonally adjusted and expressed as an annual rate per 10,000 active enterprises, increased from 54.1 in February to 60.0 in March, compared with 54.9 a year ago.
The number of failures in the 4 weeks ended April
24 was 1,369, about 24 percent more than those in the
corresponding period last year.
Liabilities of business failures continued its almost
uninterrupted sharp rate of increase, begun last August, to a record level exceeding the recession peaks attained in 1953, 1949, and all other years back to 1932.
As a key leading indicator of cyclical changes in business
activity, during the last 8 months the series has consistently and increasingly warned of an adverse business
trend. Because upturns in general business have usually not begun until 6 or more months after downturns
in failure liabilities have become established, precedent
suggests that prospects for business recovery before
1959 are poor.
Current trends in number and liabilities of business
failures reflect an accumulation of inflation-obscured
managerial shortcomings. Until the trend is clearly reversed it will point toward a further downward trend in
business activity.
SUPPLY
Industrial Production
Production of steel, automobiles, lumber, and electric
power (1) in the 1- and 4-week periods ended on the
indicated dates in the current year and (2) in the corresponding periods of earlier years was as follows:
1929 1932 1953 1954 1957 1958
Steel
Ingots—million tons
Week: May 3
1.39 0.36 1.80 1.26 2.28 1.29p
Four weeks: May 3
5.37 1.38 7.18 5.03 9.18 5.17p
Automobiles
Vehicles—thousands*
Week: April 26
143
37 195 158 160
85p
Four weeks: April 26
561 159 704 605 637 382p
Lumber
New York Times Index
Week: April 19
135
41 118 114 109 103
Four weeks: April 19
107
41 119 115 109 100
Electric Power
Kilowatt-hours—billions
Week: April 26
1.70 1.47 8.02 8.26 11.72 11.21
Four weeks: April 26
6.77 5.90 32.15 33.46 47.03 44.96
p Preliminary. * Cars and trucks in U. S. and Canada.
BUSINESS
Business Failures
Liabilities of business failures in March were $71,600,000, about 10 percent more than those in February
and 28 percent more than those in March 1957. Our
3-month moving average of failure liabilities for February was $67,100,000, about 15 percent more than that
for January, which was the same as that for February
19574
There were 1,495 failures in March, about 21 percent
more than those in February and 12 percent more than
rhose in March 1957. In March as compared with February, failures were more numerous in all divisions of
trade and industry, the increases ranging from 53 percent in commercial services to 13 percent in retail trade.
Liabilities per business failure averaged $47,900 in
March, compared with $52,700 in February and with
$41,800 in March 1957.
BUSINESS FAILURES: NUMBER AND LIABILITIES
BY TYPE OF BUSINESS
March 1957 and 1958
Number
Liabilities*
Percent
Percent
1958 Increase
Business
1957
1958 Increase 1957
31
18
17.8
23.3
Mining and mfg. 239
281
141
17
6.0
8.3
39
Wholesale trade
121
32
750
12
17.8
23.6
Retail trade
672
14
202
11.9
Construction
205
It 10.4
22
17
121
Comm. services
99
3.8
4.5
$This article is based on data reported by Dun & Bradstreet. Reported liabilities exclude long-term deibt publicly held. Our 3month moving average is centered and plotted at the second
month.
Total
1,336
1,495
12
* In millions of dollars, t Decrease.
55.8
71.6
28
L- I A B I L I T I E S OF BUSINESS F A I L UR ES
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