March 1965 SURVEY OF CURRENT BUSINESS

Manufacturers' Sales and Inventory Expectations-First Half 1965

MANUFACTURERS expect sales torise by 4 percent from the fourthquarter of 1964 to the first quarter ofthis year, to a record seasonally ad-justed rate of more than $118 billion.Sales are then expected to fall 1 percentin the second quarter. These pro-jections were reported in February bymanufacturers cooperating in the quar-terly inventory and sales expectations

survey. The larger-than-average firstquarter sales gain and the secondquarter decline reflect to a largeextent developments in the durablegoods industries, particularly in motorvehicles and steel. Nondurable goodssales are expected to rise moder-ately in each quarter, after seasonalallowances.

Inventory additions of $700 million

CHART 3

Manufacturers' Inventory and Sales Expectations• Inventories up in first and second quarters• Durable goods sales rise sharply in first quarter, off in second

Index, 1st Qtr. 1961 —100

' DURABLE GOODS MFRS-uo , ; , - . - - ' - • ; - .

NONDURABLE GOODS IFRS.,

130

120

no

,SALESC

Index, 1st Qtr. 1961 =100

140

130

120

110

; 100

INVENTORIES;;

90 i i I I ' i •. ( i I M ' i .1 - I A ,'\ V ' l - f [- -\. . " ,\ 'i...'\- -1 - \ " . i-.s'.'-l \ -i , V / i ; i ,Vf Ji 1 ; ' i t ; ) 90

Only small proportion of inventories considered "high" at end of 1964

Percent of total inventories (book value)30 , - , , - - , , • " ; ,

DURABLE GOODS MFRS. ' - , ' • ' /

Percent of total inventories (book value)

" : - / . - ' . " • • . : ; ' " . • ' • • . ' • ; ' • • • •:•' - , - • . - 30

NONDURABLE GOODS

20

62 64 65 19611961

• Expectations Quarterly, Seasonally Adjusted

Note.—Sales, quarterly total; inventories, end of quarter.

U.S. Department of Commerce, Office of Business Economics

63 64 65

in the first quarter and $900 million inthe second quarter, seasonally adjusted,are expected to raise inventories to$64% billion by midyear. These ratesof accumulation are well below the$1.9 billion in the fourth quarter of1964, but are greater than the in-creases in the earlier quarters of lastyear. According to present reports,the quarterly rate of accumulation bymetal fabricators in the first half of1965 will be less than it was in thefourth quarter of 1964, when steelstockpiling began on a large scale.

If current expectations materialize,the stock-sales ratio will decrease inthe first quarter, continuing the declinewhich has characterized the currentbusiness expansion, but will rise in thesecond quarter. Mid-1964 inventorieswould be equivalent to 1% months ofshipments, slightly higher than inthe two middle quarters of 1964 andabout equal to the year end ratio.

With shipments at an all time highand the backlog of unfilled orders thelargest since 1957, manufacturers gener-ally were satisfied with their inventoryposition. Companies holding 84 per-cent of total stocks classified theirinventories on December 31, 1964 as"about right." Firms holding 13 per-cent of producers' stocks categorizedtheir stocks as "high," about thelowest ratio for this classification re-ported since late 1961; the "low"proportion has remained relatively in-significant at about 3 percent.

Durable goods firms expect firstquarter sales peak

Durable goods producers expect salesto rise 7 percent from the fourthquarter to the first quarter of this year,after seasonal adjustment, and then todecline 3 percent in the second quarter.

The projected rise in the first quarteris the largest in the present expansionwhich began in 1961, and is traceablemainly to the aftermath of the Octoberand November automobile strikes.After a 10 percent sales decline in thefourth quarter, motor vehicle producersare now projecting a first quarter salesimprovement of more than one-third.They are attempting to make up for

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March 1965

SURVEY OF CURRENT BUSINESS March 1965

deferred retail deliveries and depleteddealer inventories at a time when de-mand for autos and trucks—asidefrom the present temporary stimulus-is at record rates. In January andFebruary dealers' sales of domesticallyproduced new cars were at a seasonallyadjusted annual rate of close to 9%million. The projected second quartersales decline for durable goods manu-facturers is due largely to expectedcutbacks in steel and automotiveshipments.

For the full year 1965, durable goodsmanufacturers who cooperate in theOBE-SEC plant and equipment surveyare projecting a 6% percent rise in sales.While the two surveys differ somewhatwith respect to reporting companiesand other technical considerations, acomparison of all the expectations datasuggests that sales in the second halfof the year will be only slightly abovethe second quarter rate.

Durable goods manufacturers expectto add $400 million to their inventoriesin the first quarter and $500 million inthe second quarter. This accumulationrate matches that of the two middlequarters' of 1964, but falls far short ofthe $1.4 billion rise in the final quarter.External data indicate that roughlyone-third of the fourth quarter ac-cumulation reflected stocking of steel,

chiefly in anticipation of a possiblesteel strike later this year.

Nondurable goods producers9 salesand inventories expected toexpand

Nondurable goods producers are pro-jecting a 1 percent sales gain in both thefirst and second quarters of 1965, whichwould bring their sales volume to about$56X billion in the second quarter,after seasonal adjustment. These ex-pected advances mark a slowdown fromthe rate of increase in 1964, when salesrose 2 percent per quarter, but theyequal the 1963 experience and exceedthat of 1962. Most component in-dustries expect sales to rise in the firsthalf of 1965 over the final half of 1964.Furthermore, the 6 percent sales gainanticipated for 1965 by the panel offirms submitting annual sales expecta-tions in the plant and equipment surveysuggests continued sales increases fornondurable goods producers during thesecond half of this year, at about 1% per-cent per quarter.

Inventory book values of nondurablegoods producers, which had shownlittle change in the first 9 months of1964, rose $% billion, seasonally ad-justed, in the fourth quarter of 1964.Further additions of $300 million inthe first quarter and $400 million in

Table 1.—Manufacturers' Inventories and Sales: Actual and Anticipated[Billions of dollars]

Inventories, end of quarter

Unadjusted

All manufacturingDurablesNondurables

Seasonally adjusted

All manufacturingDurablesNondurables

Sales, total for quarter

Unadjusted

All manufacturingDurables __ _ _Nondurables

Seasonally adjusted

All manufacturingDurables _Nondurables

I

56.333 722 6

56.033 422 6

98 851 147 7

99 651 747.9

19

II

56.634 122 5

56.733 822 9

102 554 348 2

100 251 848.3

62

III

57.134 023 1

57.334 123 2

97 849 148 7

100 051 548.5

IV

57.433 923 5

57.834 323 4

100 651 749 0

99 951 148 7

I

58.434 923 5

58.134 623 5

101 051 949 1

101 952 649 3

19

II

59.035 523 5

58 735 223 6

107 057 050 0

104 454 250 1

63

III

58.835 423 5

59.135 523 6

102 552 250 4

105 054 850 2

IV

59.735 624 2

60.136 024 1

106 855 851 0

106 255 350 9

I

60.736 424 3

60 336 124 2

108 056 351 7

109 157 152 1

19

II

60.736 823 9

60 436 523 9

114 260 653 6

111 157 553 6

64

III

60.736 923 8

61.037 024 0

109 655 454 3

112 458 354 1

IV

62.638 024 6

62.938 424 5

113 758 655 2

113 658 555 2

19

Ii

64.039 124 9

63.638 824 8

117 562 055 5

118 362 555 8

65

III

64 839 625 2

64 539 325 2

120 764 256 5

117 260 856 4

the second quarter are currently planned.Inventories in the hands of soft goodsproducers are expected to exceed $25billion for the first time by midyear.

Nondurable goods manufacturers'sales rose throughout 1964. By Sep-tember the stock-sales ratio had fallento the equivalent of \% months ofshipments, and historic low whichpersisted through the end of 1964.The anticipated inventory additionsin the first half of 1965 are in line withthe expected sales gains, so that thestock-sales ratio shows little changefrom September 1964 to June 1965.Inventory condition on December 31,

1964Durable goods manufacturers hold-

ing 15 percent of stocks in hard goodsindustries classified their yearend in-ventories as "high." The ratio wasunchanged from September 30, butwas 2 percentage points lower thanMarch 1964, and also fell below the17-18 percent average of 1962 and1963. More than four-fifths of durablegoods manufactures continued in the

(Continued on page 23)

Table 2.—Manufacturers' Evaluation of theCondition of Their Inventories l

[Percent distribution]

1. Anticipations reported by manufacturers in February 1965.in anticipatory data.

Inventories have been corrected for systematic tendencies

Sources: U.S. Department of Commerce. Anticipations, Office of Business Economics; actuals, Bureau of the Census.

inin

1959Mar. 31_ „ _June 30

Dec. 315

WfiOMar. 31 ...

II * June 30Sent. 30 ..Dec. 31

1961Mar. 31June 30

64 8 Sept. 30 .39 6 Dec. 31 _- .

imMar. 31 .. -June30_ _ __

64 5 Sept. 3039 3 Dec. 3126-2

Mar 31June 30Sept. 30Dec. 31 .

120. 764.2 196456 5 Mar. 31 _ _

June 30. _.Sept 30Dec 31

117. 260.856.4 1. Condition of

unfilled orders pos— Percent dlslribulkencies companies' classifi<

Total

§W

15201620

26292424

18141010

14141514

15151713

16131413

|l

80727275

72697575

81858888

84848384

82838185

82848284

1

58

125

2211

1122

2222

3222

2343

Durables

5

18261924

33343027

20151110

19171817

17181914

17161515

11«!

77656670

65656972

79848788

80828182

81808084

81818182

jj

59

156

2111

1122

1111

2212

2343

Nondurables

•Ss

11111215

15221517

161399

89

1111

12101410

149

119

it«i84838082

83768381

83858889

89898686

85888387

84888487

1

5683

2222

1232

3233

3233

2354

actual inventories relative to sales andition as viewed by reporting companies.>n of inventory book values according tosation of inventory condition.

Source: U.S. Department of Commerce, Office of BusinessEconomics.

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March 1965

March 1965 SURVEY OF CUREENT BUSINESS 23

issued guidelines for the voluntaryprogram set forth by the President.

The Federal Reserve Board has re-quested that each U.S. bank voluntarilylimit foreign credits, unless they .wereguaranteed or arranged by the Export-Import Bank, so that at the end ofMarch 1966 the amount outstandingwill be no more than 5 percent greaterthan their level at the end of 1964.Dollar loans of foreign branches of U.S.banks are to be included within the 5percent limit. Within that total, prior-ity is to be given first to export credits,and then to loans to less-developedcountries. Special care is also to beexercised to avoid cutbacks in creditsto Japan and Canada, which are heavilydependent on U.S. finance, and to theUnited Kingdom, which has recentlygone through a difficult period in itsbalance of payments. In 1964 foreignassets reported by banks had advancedby nearly $2.5 billion. (Not all of thisamount represents the banks7 ownfunds, however.) The 5 percent guide-line for maximum expansion in 1965would permit a net outflow of about$0.5 billion. This would represent anappreciable improvement from the pre-ceding year.

The Federal Reserve Board has alsorequested institutional lenders and in-vestors other than banks to limit for-eign investment. The amounts out-standing abroad are to be limited to agrowth of 5 percent in 1965, the samegoal set for banks. Deposits and otherliquid funds placed abroad are not toexceed the level at the end of 1964, andduring 1965 attempts are to be made toreduce them to the 1963 yearend level.

The Secretary of Commerce has askedthat U.S. industrial concerns limit de-posits and other liquid funds placedabroad, and wherever possible, withoutcausing undue strain on countries sub-ject to balance of payments problems,to repatriate such funds rapidly.

Each industrial concern has also beenrequested by the Secretary of Commerceto make special efforts to improve itsindividual balance of payments oncertain of its foreign transactions in1965 as compared with its actualperformance in 1964. The programprovides for great flexibility, leaving thechoice of methods to improve thebalance of selected foreign transactions

to the executive of each of the cooperat-ing enterprises. The selected trans-actions include (1) receipts from exportsto all countries; (2) receipts from fees,royalties and income on direct andother investment from developed coun-tries other than Canada; and (3) out-flows of capital through direct or otherlong-term investments to developedcountries other than Canada. TheSecretary has suggested that care betaken to minimize balance-of-paymentseffects of large investments. Prefer-ence by the companies might be givento those investments which can befinanced by borrowing in foreign coun-tries or will result in quick return flowsof funds through higher exports orinvestment earnings. Where appropri-ate to the company and the hostcountry, the balance could also beimproved by local sales of equityinterests in American subsidiaries. Theprogram is not to inhibit investmentsof U.S. companies in less-developedcountries.

Methodological NoteBalance of Payments Adjustments to

Merchandise Trade Data as Recordedby Bureau of the Census

JMillions of dollars]

EXPORTSRecorded exports, excluding military

grant-aidExports, adjusted to balance of pay-

ments basis —Adjustments (net) to recorded ex-

ports

Additions to recorded exports __SilverPersonal remittances in kindOther, incl. electrical energy _

Deductions from recorded exports * _ _ _

Special adjustments for timing andvaluation (net)

IMPORTSRecorded general imports „ _Imports, adjusted to balance of pay-

ments basis __. _ _ _Adjustments (net) to recorded im-

ports .

Additions to recorded importsSilverGold, nonmonetary imports and

net domestic consumption _Other, incl. electrical energy _

Deductions from recorded imports.. _ _Nuclear material imports of Gov-

ernment agencies -Other imports (mostly military) of

Government agencies __Other

Special adjustments for timing andvaluation (net) 2

1962

20, 945

20, 576

-369

114145149

-530

47

16,389

16, 134

-255

15073

707

-437

-259

-170-8

32

1963

22, 287

21, 989

-298

149424463

-516

69

17, 151

16, 996

-155

15771

797

-346

-193

-144-9

34

1964

25, 522

25, 219

-303

2121444523

-455

-60

18,698

18, 638

-60

17366

1007

-242

-111

-124-7

9

1. Includes principally Government sales and transfersof military goods; also includes exposed motion-picturefilm for rental, trade with the Canal Zone, and U.S. grainsexported for storage in Canada.

2. Includes adjustments for undervaluation of bananasas follows: 1962 (+$54 million); 1963 (+$34 million); 1964(Jan.-May), (+$9 million); after May, recorded data wereproperly valued.

Source: Office of Business Economics, Balance of Pay-ments Division.

Manufacturers9 Sales and Inven-tory Expectations

(Continued from page 4)"about right" category at yearend.This ratio has shown little change in3 years.

Metal fabricators have reported asteady decline in their "high" ratio,from 19 percent in March 1964 to 16percent in December. Primary metalsproducers continue to view their stocksas satisfactory, with only 7 to 8 percentof stocks considered to be in the "high"category during 1964.

Most nondurable goods producers'stocks—87 percent—were considered"about right" on December 31, 1964.Nine percent of such stocks wereclassified as "high" at the yearend,matching the relatively low June ratio.In the year and a half prior to June1964 the "high" ratio had ranged from10 percent to 14 percent. Most majorsoft goods industries showed a declinein the "high" percentage during 1964.

The stock-sales ratio of firms whichjudged their inventories "high" as ofDecember 31 was 2.2 on that date, ascompared with a ratio of 1.6 for firmswith "about right" inventories. Forthe durable goods manufacturers,"high" inventory firms reported astock-sales ratio of 2.3; firms in the"about right" group reported a ratio of1.9. The nondurable goods manu-facturers in the "high" group had aratio of 1.9, well above the 1.3 for the"about right" group. The small num-ber of firms in the "low" category didnot yield meaningful results.

As can be seen in table 2, there wereonly minor shifts between September30 and December 31 of last year in theevaluations of inventory condition bymanufacturers as a whole. When theseshifts are examined on a companybasis, however, it is found that about17 percent of the reporting panel ofcompanies changed their classificationbetween these periods. More thanhalf of these firms shifted their classi-fication from an unbalanced position(mostly "high") on September 30 to"about right'' on December 31. Almost45 percent shifted the opposite way,from "about right" to an unbalancedposition; two-thirds of these moved tothe "high" category. Shifts between"low" and "high" were negligible.

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