the BUSINESS SITUATION - Bureau of Economic Analysis

J. HE business expansion continued
through October and appeared to be
as robust as ever. Total wages and
salaries showed the largest monthly
advance of the year as employment,
hours of work, and rates of pay increased.
The strong demand for labor
brought about another decline in unemployment.
Despite the large cutback
in steel output, industrial production
increased following a dip in September.
Retail sales rose to a new peak.
Rising outlays by business for new
plant and equipment, increasing government
purchases of goods and services
and the recent increases in Social
Security payments are providing the
main stimulus to the advance this fall.
So far at least, their effects on income,
production, and sales outweigh the
dampening influences of the adjustment
in steel by a good margin.
Payrolls up sharply
Reflecting gains in a broad range of
industries, payrolls rose $3 billion at
an annual rate from September to
October. Business and property income
also advanced—by about $1
billion—but transfer payments, which
jumped $10.6 billion (annual rate) in
September because of the lump-sum
retroactive payment of the Social
Security increase, fell back by $9.5
billion. As a result, total personal
income declined $5.7 billion; however,
if the lump-sum payment is excluded
from the September total, the October
change was an increase of approximately
$5 billion.
The increase in total wages and
salaries was divided about equally
the BUSINESS SITUATION
among manufacturing, nonmanufacturing,
and government. It was due in
part to a seasonally adjusted employment
rise of about 225,000 (according
to preliminary figures) in nonagricultural
establishments—the largest
gain since early summer. In most
Billion $
70
60
55
50
30
15
Construction Expenditures
Private Residential
CHART 1
10 I I I I I I I I I I I I I I I I I I I
1961 1962 1963 1964 1965
Quarterly, Seasonally Adjusted, at Annual Rates
Data: Census
U.S. Department of Commerce, Office of Business Economics 65-11-1
manufacturing industries, employment
and weekly hours of work both rose,
with increased overtime hours of some
importance. Almost half of the large
advance in government payrolls reflected
a pay raise for Federal civilian
workers; the rest, increases associated
with the war in Vietnam and rising
State and local employment.
October marked the first month of
the regular 7-percent (average) increase
in Social Security benefits. This rise,
which permanently affects the level of
income, added $1.1 billion to the
October income flow.
Industrial production higher
Industrial production rose about onehalf
of 1 percent last month as increases
in most durable goods industries
offset a sharp decrease in steel.
Steel output fell about 10 percent after
seasonal adjustment for the third
straight month of decline. The cutback
from the July peak has now
amounted to 25 percent, slightly more
than the overall reduction that occurred
in the 1963 steel inventory adjustment.
Weekly figures for late October and the
first 2 weeks in November suggest that
the rate of decline has diminished.
With consumption strong and steel
production falling, manufacturing consumers
are now liquidating the large
inventories of steel they accumulated
over the year. At the end of September,
these stocks totaled 17.0 million tons,
some 7K million more than the carryover
of a year earlier. The reduction in September,
the first in 16 months, was
only 200,000 tons, but it is quite likely
that a much larger reduction took place
in October.