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CHART 21

INDUSTRIAL PRODUCTION IN
WESTERN EUROPE
During 1952, industrial production averaged about the same as
in 1951.

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100
J FM А M

J А S
NOTE: INCLUDES AUSTRIA, BELGIUM, DENMARK, FRANCE, FEDERAL REPUBLIC OF GERMANY, GREECE,

IRELAND ITALY, LUXEMBOURG, NETHERLANDS, NORWAY, SWEDEN, TRIESTE, TURKEY,
AND UNITED KINGDOM.

SOURCES: ORGANIZATION FOR EUROPEAN ECONOMIC COOPERATION AND MUTUAL

SECURITY AGENCY.

June 1950 injected considerable distortion into their economies—especially in their external position—which required much subsequent correction.

The serious inflation that developed in France, for example, tended to divert production from exports to domestic markets. In other Western European countries, the previous rapid expansion in the output of consumers' goods had made more difficult a shift of resources to defense output. Thus, the decline in demand for soft goods, which developed in mid-1951 while the output of the machinery, coal, steel, electric power, and defense industries was rising, has aided in facilitating these adjustments.

Wholesale prices were generally lower at the end of 1952 than at the beginning of the year. Cost-of-living indexes either remained the same or moved somewhat higher. (See appendix table B–26.) Unemployment, while higher during the first half of 1952 than during previous years, was of significant size only in Italy, Germany, and Belgium. In Germany, unemployment at the end of 1952 was the lowest in the postwar period and was ceasing to be a serious economic problem.

United States imports. United States commodity imports in the second half of 1952 were slightly higher in value than those in the second half of 1951 after the sharp decline had occurred. (See appendix table B-45.) The relative constancy in the value of imports, however, conceals the substantial recovery in volume that has meanwhile occurred. The index of import unit values (1936-38=100) has declined from 299 in the fourth quarter of 1951 to 280 in the same quarter of 1952, while the quantity index has risen from 136 to 154 (1936–38=100). (See appendix table B-46.) The lower level of commodity prices throughout the world is responsible for some of the increases in volume of imports, for when prices were at their peak in early 1951 price ceilings in this country served to keep United States prices below those elsewhere, and thereby to discourage imports of some commodities into the United States. The higher level of imports in 1952, however, can also be accounted for in part by the previous working off of inventories of imported goods which had been accumulated earlier.

The relative constancy of aggregate foreign dollar earnings from commodity sales in the United States between the second half of 1951 and of 1952 was not shared by all areas. United States imports from Latin America were substantially higher in value than in the previous period. The value of imports from a few countries, including Japan, Italy, and the Netherlands increased somewhat, but lower imports from some other areas offset these rises.

Other means of financing exports. The level of foreign economic and defense-support aid was slightly lower in 1952 than in the previous year, since a substantial rise in military aid did not counterbalance the decline in economic aid. (See appendix table B-42.) United States Government purchases of goods and services abroad, largely in Western Europe and Japan, continued to play an increasingly important role in financing United States exports. Direct investment of United States capital abroad reached the record amount of 560 million dollars in the first half of 1952, almost equal to the entire outflow of the previous year. Total net outflow of private capital was smaller in 1952 than in 1951, however, chiefly because of sales of Canadian securities by United States residents in the last half of the year. Again in 1952 the largest part of private investment abroad occurred in Canada and Latin America, but the capital outflow to countries in Africa, the Near East, and Far East increased somewhat.

In the first quarter of 1952, the size of the export surplus of goods and services forced foreign countries to sell gold and draw on dollar balances in order to cover their dollar payments; in the latter part of the year this situation was reversed. With a considerable reduction in the export surplus, other dollar receipts proved sufficiently large to enable foreign countries as a whole to accumulate gold and dollars. (See appendix table B-40.)

Chapter II.

Near-Term Prospects and

Policies

THE OUTLOOK

A year ago, the official estimates of the prospective pace of defense expenditures were higher than the developments which actually followed. This led the Council and other business observers to expect somewhat stronger inflationary pressures and civilian shortages in 1952 than in fact developed. By midyear 1952, the Council's reexamination of short-run prospects led to a modification of its earlier view in the light of the revised mobilization program. At that point, the Council foresaw a 12-month period not likely to differ markedly from the period of high-level stability which had preceded it for a year and a quarter. It seemed that production and incomes were apt to keep rising and unemployment to stay low, without substantially augmenting inflationary pressures. But the Council stated that there might be a shift, in the event of incalculable changes in inventory investment and consumer buying—for which funds were amplewhich might for a time accentuate the risk of inflation. Moreover, it appeared that, at some point beyond the short-run outlook as then defined, new demands might be necessary to protect the economy from deflationary dangers.

In broad outline, this general approach is still applicable for the months now ahead. The principal change thus far has already been underscored in the discussion of 1952. It is the relative shift in emphasis from rising public to rising private demand, reflected in the volume of consumer and inventory buying in the final quarters of 1952, accompanied by the absence of a significant rise in defense spending during recent months. Before evaluating to what extent this shift may continue, and the significance thereof, it is desirable to examine the components in some detail. Government expenditures and the fiscal outlook

In 1953, as in the 2 preceding years, the course of national security expenditures constitutes the best starting point for an analysis of prospective developments. Under the present national security program, expenditures are expected to rise gradually during most of this calendar year, and thereafter to level off on a plateau which will carry well into next year. While most of the growth in this sector of demand has already occurred, the annual rate of expenditures in the fourth quarter of 1953 may be 4 or 5 billion dollars higher than in the fourth quarter of 1952.

Government outlays at State and local levels probably will continue to increase slowly, as defense-related restraints diminish and the pressure to meet long-term developmental needs grows stronger. Some recent surveys of State and local government spending plans indicate increases in 1953 of from 1 to 2 billion dollars over the 1952 level of 23.3 billion.

The fiscal outlook is for a moderately larger Federal deficit in 1953 than in the calendar year just closed. The Budget of the President estimates a Federal deficit of about 2 billion dollars on a consolidated cash basis in the fiscal year which ends June 30, 1953; it indicates a cash deficit of 6.6 billion dollars in the succeeding fiscal year. If the post-Korea tax increases are not allowed to run off as provided by present law, the cash deficit in fiscal 1954 would be about 2 billion lower. The State-local deficit has ranged between 1 and 2 billion dollars a year in the recent period, and will probably continue at that level in calendar 1953. Private domestic investment

There are strong indications that, taken as a whole, private expenditures for new fixed capital assets will hold up to the very high 1952 level during all or most of 1953. In the case of plant and equipment outlays, while most of the private projects “programmed” under the Government's industrial expansion effort had been approved and more than half put in place by the first of this year, the expansion in many "nonprogrammed” areas probably will prevent any significant weakening in the total this year. This follows from the recent survey of business investment intentions for 1953 made by the Commerce Department and the Securities and Exchange Commission, just reported in detail in the Commerce Department's study of “Markets After the Defense Expansion,” and summarized in table 9.

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1 Estimates for the fourth quarter of 1952 and for 1953 are based on anticipated capital expenditures as reported by business in October and November 1952. i Includes trade, service, finance, communication, and construction. NOTE.- Detail will not necessarily add to totals because of rounding.

Sources: Department of Commerce and Securities and Exchange Commission. (See appendix table B-20.)

The same survey indicates that commercial and recreational construction, much of which up to now has been held back by materials controls,

a

should rise in 1953. In housing, the removal of credit restrictions last fall, together with rising incomes, seems likely to keep 1953 starts fairly close to the 1952 figure of 1.1 million.

Inventory accumulation, as already has been emphasized, will play an unpredictable role in the months ahead. An acceleration of the rates of inventory-building estimated to have occurred in the last 2 quarters could lead to some pressures on prices. Excessive stocks could, in turn, lead reversal of the inventory movement later in the year. Net foreign investment

If United States imports and private investment abroad in 1953 follow the trends of 1952, and if Government expenditures for foreign aid conform to the pattern now in prospect, foreign countries will be able to continue rebuilding their depleted dollar reserves, and perhaps even to relax somewhat their import restrictions. However, assuming no change in United States international economic policies, it seems unlikely that the dollar positions of foreign nations will permit United States exports to rise greatly from present levels before the end of 1953. Agricultural exports during 1952-53 will be down substantially from the record levels of the crop year 1951–52. A general increase in foreign output of farm products is largely responsible for the reduced foreign demand for United States farm products. Personal income and consumption

Personal income will probably rise in 1953 at a more moderate rate than in the last half of 1952. Wage rates can be expected to increase under present and prospective high levels of employment. Business earnings should exceed the levels of 1952. The income of farm operators, which decreased moderately in 1952, threatens to decline further in the absence of countervailing policies, as a result of rising costs and somewhat lower farm prices.

Spendable income will not increase as much as personal income, under present tax rates, because personal taxes and other types of taxes will absorb part of the income increases. Nevertheless, moderate gains in consumption expenditures are likely, since there is no reason to forecast an early increase in the rate of personal saving.

Expenditures on services should continue to mount. In addition to the effect of income changes, prices are still rising in this area, and the rapid rate of new home construction requires expansion of all types of utilities.

The demand for automobiles may exceed total sales in 1952, and lead to a further increase in instalment debt. If prewar patterns are followed, many persons who bought a new car in the peak years of 1949 and 1950 will again be in the new-car market in 1953. Supplies

In general, the condition of supply, which proved ample along with restraining measures to prevent inflationary trends during 1952, should certainly continue in 1953. In fact, the productive power as well as the actual

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