tinued the more rapid climb begun earlier, while government purchases of goods and services rose moderately.

Earnings. Business earnings reflected the change in the pattern of general economic activity. Corporate profits before taxes in the first half of 1952 were slightly above the levels to which they had fallen in the latter part of 1951. Rising costs in relation to prices, and lagging sales volume, joined with continued increases in depreciation allowances to prevent a more substantial improvement. During the third quarter of the year, profits before taxes remained approximately unchanged. Considering, however, the sharp drop in third-quarter profits of auto manufacturers and many steel producers and fabricators, the maintenance of over-all profit levels meant that many firms not affected by the steel strike improved their profit positions noticeably. (See appendix tables B-34 through B-38.)

The rapid rise in business activity during the closing months of the year showed up in substantially higher profits. (See appendix table B-34.) The rise in profits was not due, however, to any general rise in price levels, although in some areas higher profits reflected price increases permitted by the Office of Price Stabilization under its relief standards. And in other areas they reflected lower prices of raw materials. Profits after taxes in 1952 averaged about the same as in the second half of 1951, but well below the level of 1951 as a whole.

Investment. During 1952, gross private domestic investment was about 7 billion dollars lower than in 1951. (See chart 16 and appendix table B-5.) All of this decline was due to a drop in the rate of inventory accumulation from over 10 billion dollars in 1951 to 2 billion in 1952. Investment in fixed capital actually rose during the year by about 1 billion dollars. New construction, both residential and other, remained relatively constant in 1952, while producers' durable equipment rose by 1 billion. Investment expenditures for nonfarm producers' plant and equipment rose during the first half of the year to an annual rate of 31 billion dollars, 3 percent more than it had been in the final half of 1951. In the third quarter of 1952, however, delays in shipments of producers' durables and slower rates of progress on construction projects, under the impact of the steel strike, caused investment outlays by business to decline moderately. The quick recovery of steel operations and equipment deliveries made possible an increase in expenditures for nonfarm plant and equipment in the fourth quarter to a new record level.

The largest increases in investment during 1952 were made by manufacturing industries, which added 1.3 billion dollars to their expenditures. (See appendix table B-20.) This new investment was fairly evenly distributed between manufacturers of durable and nondurable goods. In nonmanufacturing, only public utilities showed increased plant and equipment expenditures for the year as a whole, with mining, transportation, and commercial firms showing a decline. Beginning in the fourth quarter of 1951, and until the third quarter of 1952, expenditures for plant and

equipment by the commercial, communication, and construction group of industries declined, responding to restrictions on the use of steel, aluminum, and copper. The final quarter of 1952 found these firms once again increasing their expenditures.

TABLE 2. Changes in business expenditures for new plant and equipment, 1951 to 1952

Industry

¡Percentage change, 1951 to 1952

All industries: total...

Selected manufacturing industries:

Primary iron and steel..

Primary nonferrous metals.

Electrical machinery and equipment..

Machinery except electrical.

Motor vehicles and equipment..

Transportation equipment excluding motor vehicles.

Chemicals and allied products..

Petroleum and coal products..

Public utilities..

Sources: Department of Commerce and Securities and Exchange Commission.

One of the important factors influencing the heavy investment program in 1952 was the Government's policy of allowing accelerated tax amortization for defense or defense-supporting types of investment. Since Korea, investment programs amounting to 25 billion dollars have been aided in this manner, about 60 percent of this total being subject to accelerated amortization for tax purposes. It is estimated that during 1952 approximately 10 billion dollars in facilities were put in place under this program. Table 2 lists industries showing the most significant increases in plant and equipment expenditures.

As 1952 drew to a close, most industries increased investment expenditures, and civilian industries increased their relative share in the total. A few of the defense-supporting industries cut back moderately, reflecting the substantial expansion accomplished since 1950. The combination of increased allotments, immediate or prospective, of metals for less essential uses and the beginning of a decline in accelerated amortization-type investments was partly responsible for this changing pattern.

Business financing. Business borrowing from commercial banks expanded about 1.8 billion dollars or 7 percent during 1952, compared with 4 billion or 18 percent during the previous year. A breakdown by halfyears reveals that business loans increased 1.7 billion dollars during the first half of 1951, but declined 0.6 billion during the first half of 1952. During the second half of each year, which includes the period of seasonal expansion, business borrowing rose-but somewhat more rapidly in 1952 than in 1951. (See appendix table B-28.)

The contraseasonal rise of commercial and industrial loans in the first 6 months of 1951 was in large measure due to the build-up of inventories. The somewhat greater expansion in the second half of 1952 than in

CHART 16

BUSINESS INVESTMENT

The increase in business investment during the second half of
1952 was due largely to a rise in the rate of inventory accumu-
lation. Expenditures for producers' durable equipment were at
record levels for the year as a whole.

SOURCES: DEPARTMENT OF COMMERCE AND COUNCIL OF ECONOMIC ADVISERS.

the previous year reflected the higher rate of inventory building and the increased tempo of consumer buying. Loans to wholesalers and retailers were greater than in the comparable period of 1951, and borrowing by manufacturers of textiles declined slightly compared to the very sharp drop the year before. Sales finance companies, which had reduced their bank debt in 1951, increased it substantially in the second half of 1952. On the other hand, there was a sharp falling off in the rate of increase in loans to manufacturers of metals and metal products and the public utility and transportation industries--activities generally considered to be defense-related.

Corporations increased bank loans in 1952 at a much less rapid rate than in the previous year, but they floated a record volume of new securi

ties. Outstanding bank loans and mortgages of corporations increased 1.5 billion dollars in 1952 compared with 5 billion in 1951, while net new security issues, which totaled 7 billion dollars in 1952, exceeded the previous high reached the year before by 9 percent. The relatively greater importance of long-term external financing last year reflected the fact that corporate outlays for plant and equipment were also running at a new high, while net investment in inventories was negligible in contrast with inventory expansion of more than 10 billion dollars in 1951. The total volume of corporate funds available from retained earnings and depreciation allowances was about the same in both years. (See appendix tables B-11 and B-39 and chart 17.)

CHART 17

SOURCES AND USES OF CORPORATE FUNDS

Internal sources of corporate funds totaled about the same in
1952 as in 1951, while funds from external sources were con-
siderably less. The large decline in corporate inventory
accumulation was the greatest change in uses of funds.

PROFITS ESTIMATES FOR THIRD AND FOURTH QUARTERS 1952 BY COUNCIL OF ECONOMIC ADVISERS.

NOTE EXCLUDES FINANCIAL CORPORATIONS

SOURCE: DEPARTMENT OF COMMERCE ESTIMATES BASED ON SECURITIES AND EXCHANGE
COMMISSION AND OTHER FINANCIAL DATA (EXCEPT AS NOTED).

Developments in selected industries. The improvement in the level of business activity, although fairly general, was especially noteworthy in some industries. Table 3 compares the sales of a few of these industries with total business sales.

The first half of 1952 found the textile industry still in the doldrums. Just before midyear, a gradual improvement set in and it continued throughout the rest of 1952. Retail inventories of apparel, and in turn producers' inventories of textiles, had been reduced throughout the latter part of 1951 and early 1952, and some retailers and textile product manufacturers found themselves understocked as sales began to rise.

Prices, production, and employment in the industry responded to the increase in sales. On the other hand, a sizable cotton crop, sharply reduced exports of cotton, large capacity for producing rayon, and the absence of large-scale military buying of wool kept raw material prices from rising. The end of 1952 found the textile industry in a much improved position.

The automotive industry also showed fluctuation of considerable magnitude during the year. Reduced from the peaks of late 1950 and early 1951 by materials restrictions, credit controls, and moderate consumer demand, automotive production and sales in the early part of 1952 were at good but not record levels. Producers took advantage of available price increases to advance average prices about 5 percent. While buyers accepted these increases during the spring, there were some fears of market softening until the steel strike cut sharply into production. Production fell from 394,000 cars in May of 1952 to 160,000 in July, and as a result inventories and sales of cars at the distributor level fell off.

The comeback was equally rapid. By September, production reached 441,000 cars, retail sales were increasing rapidly, automakers were pressing for greater allotments of metals, and looking forward to further improvement in sales throughout 1953. During the second half of 1952, they did not apply for further ceiling price increases which were available under