annual report/economic review

FEDERAL RESERVE BANK OF CLEVELAND

,

ANNUAL REPORT/ECONOMIC REVIEW

Contents

Income Growth and Industrial Changein the Fourth District 3

Financial Statement 22-23

Directors and Officers 24-27

The Economic Review is publishedquarterly by the Research Department ofthe Federal Reserve Bank of Cleveland,Post Office Box 6387, Cleveland, Ohio44101-

Free subscriptions and additionalcopies in reasonable quantities are avail-able upon request. Material in the Eco-nomic Review may be reprinted providedthe source is credited. Please provide thebank's Research Department with copiesof reprinted materials.

To Member Banks in the Fourth Federal Reserve District:We are pleased to present the 1978 Annual Report of the Federal Reserve Bank of Cleveland. This year's

report traces the income growth and industrial change of the district since 1949.As part of the industrialized Midwest, the Fourth District is largely viewed as a manufacturing economy.

National concerns such as rising inflation, oil and energy shortages, threats of recession, and controversies overwage and price controls, combine with local concerns over plant and mill closings and removals of national head-quarters to present a picture of uncertainty about the direction of the regional economy. All of these areas indicatethat an in-depth study of factors behind the apparent decline of the older industrialized areas is both appropriateand necessary. Remarks about outdated industrial equipment and changing consumer preferences do not provide anadequate explanation of the economy in transition; we must begin to look beyond the facile answers to the natureand causes of this economic change.

The study describes some aspects of the economic change in the Fourth District since World War II. Of partic-ular concern is the nature of the employment growth change that has occurred in the past thirty years. Each indus-try is examined further to determine the underlying factors that contribute to its performance and relate it to theoverall growth of the district. The results of this study show that although the Fourth District has clearly experi-enced slow growth, even, in some industries, negative growth, the economic environment of the region is far fromtotal collapse. Strengths have also emerged-for example, chemicals and petroleum. Further analysis is necessary,but the study is a first attempt to seek answers to the hard questions concerning regional economic growth. As such,it gives rise to a more balanced view of the Fourth District economy; where it has been and where it is going.

We take this opportunity to thank the member banks, the directors and officers, and the bank personnel fortheir support which allowed us to meet our commitments for 1978. We look forward to your continued assistanceand cooperation in meeting the responsibilities of the bank in the future.

Chairman of the Board

y/£ £i~d;' .!Z- a-h-.-:/

President

IN_'(~

Economic ReviewlAnnual Report 1978

ERRATA

page 10

page 13

page 21

2

The numbers 11 through 99 underManufacturing, Durable Goods should read1 through 9.

In the heading Structural andCompetitive Effects Combined:Selected Ohio Industrued, substitute"I ndustries" for the final word.

In the notation below the table,e = concentration of private nonagriculturalemployment in Ohio ...should reade* = concentration of private nonagriculturalemployment in Ohio ...

Federal Reserve Bank of Cleveland

INCOME GROWTH AND INDUSTRIAL CHANGEIN THE FOURTH DISTRICTRoger H. HinderliterRobert H. Schnorbus

The Fourth District economy isprimarily a manufacturing community-apart of the industrial heartland of theUnited States stretching from the eastcoast through the Midwest. The region'spresent economic role as a center ofheavy manufacturing evolved over manyyears. Past industrial expansion createdlarge interrelated complexes in steel,fabricated metals, mach inerv, and otherindustries, and placed the District amongthe highest income producers and largestemployers in the nation. However, inthe older industrialized regions of thecountry, including the Fourth District,the economic transition since WorldWar II must be sketched in terms ofrelatively slower income growth and arelative loss of industry and employment.The resulting loss of income and jobsfrom recent mill closings in Youngs-town, plant closings in Akron, andtransfers of headquarters from Clevelandare symptomatic of the trend of post-wareconomic events in the Fourth District.

Many factors underlie the post-warpatterns of income growth and industrialchange. Slower growth in the industrial-ized regions has been attributed to suchinfluences as higher wages, greater union-ization of the labor force, more stringentgovernment regulation and taxation, lossof entrepreneurial skills, unfavorableweather, and environmental and social

Economic Review/Annual Report 1978

decav.l Although the determinants ofregional economic activity remain contro-versial, it is clear that income growth isrelated to industrial change. Long-runshifts of resources among industries,which alter the industrial compositionof regions, are a primary channel throughwhich income growth patterns areshaped. These shifts take place in ahistorical context. Regions have notdeveloped at equal rates in the past, andregions that are now growing slowly weregrowing more rapidly 50 or 100 yearsago. Long-run tendencies, however, mustbe expected to narrow discrepancies thathave emerged among regions. In terms ofincome growth patterns, narrower dis-crepancies result as regional per capitaincomes converge to a norm or averageset by the national economv.F

1A discussion of possible determinantsof regional economic growth and alternativemodels for measuring their effects is containedin Harry W. Richardson's, "Empirical Aspectsof Regional Growth in the United States," TheAnnals of Regional Science (June 1974).

2Convergence over the longer term is awidely accepted hypothesis of regional eco-nomic behavior. A good discussion of long-termconvergent income growth that highlights theissues involved may be found in Harry W.Richardson's Regional Economics (New York:Prager Publishers, 1969), pp. 347-357. Thesearch for convergent growth has been a majortheme in many past studies of regional econ-omies. Two important studies that link incomegrowth and industrial change are: Harvey S.Perl off et al., Regions, Resources and EconomicGrowth (Baltimore: The Johns Hopkins Press,1960); and George H. Borts and Jerome l.Stein, Economic Growth in a Free Market(New York: Columbia University Press, 1964).

This report describes the nature ofincome growth and industrial change inthe Fourth District during the post-WorldWar II period. In the next section, incomegrowth patterns are examined for theDistrict states. Personal and per capitaincome growth in Kentucky, Ohio,Pennsylvania, and West Virginia is com-pared to national patterns. Per capitaincome in Kentucky and West Virginia,which were slower to industrialize andmove away from agricultural and mineralresource dependence, increased relative tothe national average, while per capitaincome in Ohio and Pennsylvania fell.Following this, the relationship betweenincome growth and industrial change isoutlined. Then, industrial change, asmeasured by employment growth rates, isexamined for 31 Ohio industries (orindustry groups) which were selected as acase study. General trends of industrialchange consistent with Ohio's relativelyslow income growth are apparent, butsome industries perform counter to thetrends. To understand the diversity ofindustrial change more clearly, growthrates of the selected Ohio industries arebroken down to indicate the forcesaffecting long-run industry performanceand to identify strengths and weaknessesamong industries.

3

Post-War Income Growth inFourth District States

In early periods of economicdevelopment, the availability of naturalresources heavily influenced the locationof economic activity in District states.Such natural advantages as water transpor-tation networks stretching from the GreatLakes and the Ohio River Valley, abun-dant farm lands, and mineral depositswere important to the formation of earlyindustries. Often, the locating industrywas technologically tied to the resource,as with mines and farms, and costs werefrequently minimized by locating theindustry in the resource area, as withsawmills and iron works. As Districtstates grew, their locational advantagesoffered favorable profit opportunitiesthat attracted capital from the East andabroad to invest in the transport, pro-cessing, and service facilities needed todevelop local resources. The exploitationof these resources laid the groundworkfor the later formation of heavy manu-

4

facturing industries in the nineteenth andearly twentieth centuries.F

In states such as Ohio and Pennsyl-vania, where resources were abundant,early economic growth was rapid. Rein-forcements through transportation im-provements and market expansion sus-tained this growth for many years.Growth processes, however, involve manyelements that influence regional eco-nomic activltv-Investrnent and employ-ment incentives, product demand anddistribution, technological progress, andresource cost and availability. Theseelements exert long·term influences onthe mobility of productive factors (laborand capital), the diffusion of technology,and other equilibrating forces of the

3The interdependent elements importantto economic growth in District states forman interesting but highly detailed economichistory. For some elaboration, see: Roger H.Hinderliter, "The Origins of CommercialBanking in the Fourth Federal ReserveDistrict," Federal Reserve Bank of Cleveland,Economic Review/Annual Report (1976). Anillustration of the complexity of growth pro-cesses as they appeared to work in Districtstates is provided by railroads. An importantsource of investment and growth themselves,railroads extended market access for a varietyof goods produced in District states. Thegrowing demand for rails directly increased thedemand for iron and steel products and was anincentive for assimilating available technologywithin the primary metals industry. In addition,linkages were extended to such other industriesimportant in District states as mach inery andfabricated metal products. See: Peter Temin,Causal Factors in American Economic Growthin the Nineteenth Century (London: MacMillanPress, 19751. pp. 42·43; and for developmentsrelevant to the District, Louis C. Hunter,"Influence of the Market upon Technique inthe Iron Industry in Western Pennsylvania up to1860," Journal of Economic and BusinessHistory (1:1928·1929).

market economy that ultimately contrib-ute to a narrowing of regional economicdiscrepancies. As these discrepanciesbetween states narrow, income patternstend to converge to an average which isrepresentative of the national economy.By the beginning of the post-World War IIperiod, the cumulative effects of develop-ment in Ohio and Pennsylvania had pro-duced relatively high per capita incomes.Kentucky and West Virginia shared in thehistorical development to some extentbut, in general, were slower than theirlarger neighbors to move away fromprimary product ( land or resource )dependence. The tendency for regionalincomes to converge was already appar-ent, indeed relatively fast growth in Ohioand Pennsylvania probably ended in the1920's, when their share of personalincome relative to the nation as a wholereached a peak.

Since 1949, personal income ineach of the District states has risen, butthe states' combined share of totalpersonal income in the United Stateshas steadily declined from 15.1 percent in1949 to 12.6 percent in 1977 (Table 1,section A). Although Pennsylvania exper-ienced the most severe relative decline,income growth rates in Ohio and WestVirginia were also below the nationalaverage, thus reducing the income sharesof these states. Only Kentucky, with astrong surge of growth between 1963 and1977, increased its share of personalincome over the entire post-war period.Thus, personal income in Ohio andPennsylvania for 1977 represented about


TABLE 1Income in the District Statesin the Post-War Period*

1949 1963 1977(billions) (billions) (billions)Current $ %of U.S. Current $ % of U.S. Current $ % of U.S.

A. Total Personal Income

Un ited States 205.8 465.2 1,530.8Kentucky 2.7 1.3 5.8 1.2 21.0 1.4

Ohio 11.7 5.7 25.4 5.5 76.6 5.0Pennsylvania 14.6 7.1 28.2 6.1 84.1 5.5West Virginia 2.0 1.0 3.3 0.7 10.8 0.7Fourth District Total 31.0 15.1 62.7 13.5 192.5 12.6

B. Manufacturing Wages and Salaries

United States 44.6 100.6 266.3Kentucky 0.4 0.9 1.0 1.0 3.5 1.3Ohio 3.7 8.3 8.1 8.1 20.6 7.7

Pennsylvania 4.3 9.6 8.0 8.0 18.3 6.9West Virginia 0.4 0.9 0.8 0.8 1.8 0.7Fourth District Total 8.8 19.7 17.9 17.9 44.2 16.6

C. Per Capita Personal Income

United States 1,378 2,468 7,077Kentucky 943 68 1,863 75 6,050 85Ohio 1,475 107 2,545 103 7,157 101Pennsylvania 1,403 102 2,468 100 7,132 101West Virginia 1,032 75 1,835 74 5,825 82Fourth District Average 1,342 97 2,384 97 6,900 97

Source: See Appendix

*The Fourth District includes the state of Ohioand 56 counties in western Kentucky, 19counties in western Pennsylvania and 6 countiesin the panhandle of West Virginia. Income dataare, however, for complete states.

Economic Review/Annual Report 1978 5

5.0 and 5.5 percent, respectively, of theU. S. total, down from the 1949 propor-tions of 5.7 and 7.1 percent. West Vir-ginia's share over the period fell to0.7 percent from 1.0 percent, whileKentucky's share rose slightly to 1.4percent in 1977 from 1.3 percent in1949_

A similar pattern is indicated bymanufacturing wage and salary data(Table 1, section B). Again, the evidenceshows a steady decline in shares in thecombined states, with the largest slippageoccurring in Pennsylvania. Kentuckyclearly benefited from growth in themanufactu ring sector. Measu red by themanufacturing wage bill, Ohio surpassedPennsylvania in size, though Ohio's shareof U. S. wages and salaries in manufac-turing also declined from 1949. WestVirginia, unlike Kentucky, did not gen-erate growth through the manufacturingsector.

To the extent that growth ofabsolute income does not reflect anarrowing of regional economic dis-crepancies, population movements pro-vide an alternative adjustment. Thus, percapita income is an indicator that cap-tures the propensity for absolute incomesto converge and for populations to shiftamong regions in search of more reward-ing opportunities (Table 1, section C).Convergence of per capita incomes isindicated if state-to-national per capitaincome ratios approach unity. Between1949 and 1977, both Kentucky and WestVirginia approached unity from below,while Ohio and Pennsylvania approachedit from above. West Virginia's populationwas virtually stable over the entire period,thus offsetting its slow growth of abso-lute income.

6

The Relationship BetweenIncome Growth and Industrial Change

Income growth evidence from theDistrict states is fully consistent withthe convergence hypothesis of long-termregional economic development. Thepattern of per capita income growth overthe post-war period shows that all fourstates have drawn closer to the averageper capita income in the national econ-omy. These income growth patterns arelinked to changes in the industrial make-up of the states.

Two basic views of industrialchange and its impact on regional incomegrowth can be identified. According toone view, a regional economy progressesfrom a near-subsistence level of economicactivity, dependent on production ofprimary products, to higher standards ofliving through increased employment inmanufacturing and later through shiftsinto services, finance and related activ-ities. The gradual evolution of the indus-trial composition of the regional econ-omy raises income through the potentialfor larger and more rapidly growingmarkets and a more efficient allocation ofresou rces. 4 Although all regions areexpected to pass through the samesequence, regions may differ at any giventime in their cumulative development andin their rate of progress through thevarious stages.

41n "higher stages" of development,economic activity is more widely diversifiedand productivity gains are associated withincreased labor skills and accumulation ofphysical capital. Moreover, it is generallytrue that the potential for market growth isgreater in manufacturing and service activitiesthan in agricultural commodities or otherprimary products. For an expanded treatmentof this topic, see: Edgar M. Hoover and JosephL. Fisher, "Research in Regional EconomicGrowth," in Problems in the Study ofEconomic Growth (New York: NationalBureau of Economic Research, 1949', pp,180-188.

Another view, derived from in-dustrial location theory, emphasizesspecialization in production at an earlydate in a region's development. Special-ization irnpl ies that a region devoteslarge amounts of resources toward theproduction of "export" goods, and theindustries that emerge from specializationform an export base which becomes thesustaining force behind long-term growth.Regions differ initially by the amountand quality of their natural resources thatsupport economic activity and by theextent to which those advantages contri-bute to specialization. Over time, asnatural advantages are exploited, special-ization in export industries is reinforcedby growth of the market for exportedgoods, additions of infrastructure, andeconomies of scale in the production ofregional exports.f

Despite their differing historicalperspectives, these two approaches arenot mutually exclusive views of regionaleconomic developrnent.f Together, theyidentify key interrelated elements thatlink relative income growth and measures

5Gains in regional economic activity aretherefore associated with benefits of large scaleproduction. As the industries in which a regionis specialized expand, other activities areattracted in support of the export base. Laborand capital growth are thus spread over abroader set of industries. See: Douglass C.North, "Location Theory and EconomicGrowth," Journal of Political Economy (June1955', pp. 251-256.

6For a sy nthesis of these approachesto regional growth, see: J. C. Stabler, "Exportsand Evolution: The Process of RegionalChange," Land Economics (February 19681.


of industrial change. In the first view,industrial change is accompl ished throughinternal employment shifts, that is,relative changes in the distribution ofemployment among industries within aregion. The rise of manufacturing relativeto agriculture and, more recently, shiftsto service-type activities typify thisdistributional change. Such rearrange-ments are accompanied by more efficientallocation of resources and are thus animportant influence on regional incomegrowth.

In the second view, industrialchange is accompl ished through externalemployment shifts among regions, that is,through changes in the concentration ofemployment in one region relative toother regions or to the nation as a whole.In a region where particular industries aregrowing faster (or slower) than is typicalfor those industries in the nationaleconomy, the concentration of employ-ment is rising (or failing). Because largeconcentrations of employment signifyareas of special ization where a region islikely to produce for export as well as forits own consumption, changes in concen-tration reflect changes in a region'sexport base and, consequently, changesin the flow of export income?

7A region that is relatively large, likeOhio and Pennsylvania among Fourth Districtstates, will generally have large concentrationsof employment in many industries simplybecause of absolute size. Whether these con-centrations are significant in an export-gen-erating sense is another matter. Measuresof specialization are therefore evaluated againsta standard of "self-sufficiency" to determineexport capacity. It is assumed that in anyindustry a self-sufficient region will have aconcentration of employment equal to theproportional size of the region in the nationaleconomy and export industries will exceed thisstandard.


Industrial Change:Employment Growth Ratesof Ohio Industries

Income growth is associated with avariety of cumulative effects that alterthe distribution or concentration ofemployment within a region. To illustratethe details of industrial change thatunderlie the broad patterns of incomegrowth, Ohio, the only state completelyenclosed in the Fourth District, is used asa case study.

By 1949, more than 6 percent ofthe nation's private nonagricultural jobswere located in Ohio (see Appendix,Table A-1). The distribution of employ-ment was almost evenly split betweenmanufacturing and nonmanufacturingactivities, but it was in manufacturingthat large concentrations of employmentand important areas of specialization haddeveloped. The rubber industry providedabout 3 percent of Ohio jobs, a smallerdistribution than several other manufac-turing and nonmanufacturing industriesin the state, but more than 25 percentof all U. S. rubber industry jobs werelocated in Ohio. Thus, in 1949, Ohio wasspecialized to a high degree in rubber. Ahigh degree of specialization also existedin stone/clay/glass, primary and fabri-cated metals, nonelectrical machinery andelectrical equ ipment; all with employ-ment concentrations exceeding 10 per-cent. Other manufacturing industries--furniture, transportation equipment, pa-per and printing/publishing--though lessprominent, were also constituents of the

export base. With the exception ofrailroads, no specialization in nonmanu-facturing had developed.

If employment in all Ohio indus-tries grew at the same rate as employmentin the national economy, the distributionand concentration of employment wouldnot change. Like the Red Queen inThrough the Looking Glsss, each Ohioindustry must grow at the rate set by thenational average of all industries just tomaintain relative employment positions.Faster (or slower) growth implies arelative shift of jobs toward (or awayfrom) Ohio and changes industrial com-position in the state. Of course, fewindustries exactly match national growth.

Deviations from the national aver-age may be associated with two types ofevents. First, some industries in Ohio andelsewhere may participate in a generalflow toward or away from the outputof those industries. These "structural"effects relate to changes in the supply anddemand mix in the national economythat affects industries differently. On thesupply side, changing technology couldbenefit some industries relative to allothers, while on the demand side, some-thing as simple as changing consumertastes could unevenly affect industrygrowth prospects. Structural effects thuspull Ohio industries along in the wake ofnational economic movements and, in theprocess, alter the distribution of employ-ment in the state.

Secondly, deviations from the na-tional average rate of employment growthare produced by different growth rates inOhio industries relative to the same indus-tries located elsewhere. These "compet-itive" effects relate to such factors as

7

differences in production costs, theability to assimilate available technology,and local market demand. The primarymetals industry, for example, couldexpand faster (or slower) in Ohio thanprimary metals in the nation and thestate's economy would therefore bebetter (or worse) off as a result of itsrelative own industry growth, regardlessof the overall condition of metals. Com-petitive effects thus measu re regionaldifferences in individual industries' per-formance, and, in their simplest form,alter both the distribution and concen-tration of employment.

Viewed in this manner, employ-ment growth rates in Ohio industriescontain three pieces of information--theperformance of an industry relative to thenational standard, and the structuralcomponent and competitive componentof that pertormance.f Individually, the

8Th is analysis. referred to as "sh ift/share." is descriptive rather than determinative.but it does present a comparative frameworkfor measuring industry performance. The tech-nique adopted in this study is the classical formintroduced by Perloff. et al., Regions, Re-sources and Economic Growth. In this form,competitive components are gross effects in thesense that they alter both the distribution andconcentration of employment. Extensions ofthe analysis proposed by J. M. Esteban-Mar-guillas, "A Reinterpretation of Shift/ShareAnalysis," Regional and Urban Economics(August 1972) and examined further by HenryW. Herzog. Jr. and Richard J. Olsen, "Shift-Share Analysis Revisited: The AllocationEffect and the Stability of Regional Struc-tures," Journal of Regional Science (December1977), suggest "normalization procedures"that would reduce competitive effects to anet impact on concentration. Because theseparate net effects on distribution and con-centration are less important here than theoverall compositional changes. the simpleframework was adopted.

8 ,

structural and competitive componentsmay be either positive or negative.However, if observed growth in anyindustry is just equal to national growth,the structu ral and competitive compo-nents must sum to zero. If an industry isgrowing faster than the national rate,structu ral and competitive componentsmust sum to a positive number, whileadjusted growth less than the nationalrate requires a negative sum (see Inset).

Employment growth rates of Ohioindustries are shown in Chart 1 (seepp. 10-11) for two post-war subperiods,1949-1963 and 1963-1977.9 The rate ofgrowth of total (U. S.) private nonagri-cultural employment during these periodsis taken as the national growth com-ponent and serves as the standard ofcomparison for Ohio industries. Thestrength of an industry's growth relativeto the national standard is indicated by

9The value of any growth rate dependson the base selected for computing the percent-age change. The values shown in Chart 1 andused hereafter are an average of rates computedfrom the initial period and rates computedfrom the terminal period.

the position of an industry relative to thedotted diagonal lines (135 degree), threeof wh ich are labeled in Chart 1 forreference. Industries on any commondiagonal (e.g., paper and printing/pub-lishing in 1949-1963, or services andbituminous coal mining in 1963-1977)have the same growth rate. The structuralcomponent is measured by the verticaldistance from the origin and the com-petitive component by the horizontaldistance. Thus, for example, industrieslocated in the upper right-hand quadrantof the Chart are characterized by a fastergrowth rate than the national economy,and both the structural and competitivecomponents make positive contributionsto the performance.

The 31 Ohio industries that areplotted on Chart 1 fall into three classi-fications: about an equal number in eachsubperiod matched or surpassed thenational growth rate; experienced zeroor negative growth; and fell onto themiddle ground between zero growth andthe expansion rate of the national econ-omy. As would probably be expected, the

7 economic problems that Ohio encoun-tered after World War II do not appear asa uniform decline in industrial capability.Some industries have accomplished muchin terms of expanding employmentopportunities. In 1949-1963, for ex-ample, banking, other finance, and trans-portation equ ipment were especiallyrobust growth industries, and in 1963-1977, services and bituminous coalmining were prominent growth industries.

Federal Reserve Ban k of Cleveland

INSETA Technique of RegionalIndustry Analysis

The employment growth rate ofany industry in a region can be decom-posed into three parts: the nationalgrowth component, the structural com-ponent and the competitive component.

The national 9rowth component is therate of growth in total (U. S.) employ-ment. This captures the influence of thelarger economy and serves as the standardof comparison.

The structural component is the rate ofemployment growth for an industry inthe nation as a whole, minus the nationalgrowth component. This captures theinfluence of shifts within the nationaleconomy (e.g., from manufacturing in-dustries to nonmanufacturing industries).

The competitive component is the differ-ence between the rate of employmentgrowth in a region's industry and thegrowth for that industry in the nation as


a whole. This captures the extent towhich a regional industry enjoys anadvantage (or suffers a disadvantage)relative to the same industry outside theregion. thus experiencing faster (orslower) growth than is characteristic ofthe industry in general.

Algebraically. an observed rate ofemployment growth in ariy industrywithin a region (gi) may be representedas an identity-- the sum of the nationalgrowth component (gn), structural com-ponent (gs), and competitive component(gc):

gj = gn + 9s + 9c

To focus on the contributions of thestructural and competitive componentsof industry growth, the identity maybe slightly rearranged:

9i 9s gc--1.0 =-+- (gn> 0)9n gn gn

This relationship is diagrammed inChart 1.

The general course of employmentgrowth indicated by Chart 1 emphasizesnonmanufacturing industries as the morerapidly growing areas of the Ohio econ-omy. Services, banking, other finance,other transportation/public utilities(which includes communications, airtravel and other functions) and sometrade industries expanded employment atfairly rapid rates. Negative growth indus-tries in nonmanufacturing are few andonly rail roads consistently contractedemployment over both subperiods. Thiscontrasts to the performance in manu-facturing industries where employmentcontracted in several industries, mostnotably textiles/apparel, other nondur-able goods, manufacturing (primarilyleather products) and furniture. Inindustries where Ohio was specialized andenjoyed an export advantage, includingprimary metals in 1949-1963 and elec-trical equ ipment in 1963-1977, negativegrowth rates were also registered.

Although general tendencies areapparent in Ohio industry performance,it is important to qualify these tenden-cies. Some industry growth rates werefairly constant but others, like electricalequipment in manufacturing and otherfinance in nonmanufacturing, changesubstantially. A number of other indus-tries experience clear, if less substantial,differences in employment growth ratesbetween 1949-1963 and 1963-1977 sub-periods.

9

CHART 1Industry Growth Rates in Ohio

•71-

-. '.9c/9t;

14 •• •• :21~'. 23e ".

' •• 20

2

-1_

..~-Ie •

/I

-3-

--4 -

-5-

-6-

•-3 -2 •-1

1949-1963On= 1.62 % per year

10

lis IOn

••. 30

••...

16 " •

sr= 29n

gj= g;"

gj= it

29 •I

2

Manufacturing

Durable Goods

11. Lumber/wood products

22. Furniture

33. Stone/clay/glass

44. Primary metals

55. Fabricated metals

66. Nonelectrical mach inerv

77. Electrical equ ipment/suppl ies88. Transportation equipment

99 . Instruments

10. Other durable goods

Nondurable Goods11. Food

12. Textile/apparel

13. Paper

14. Printing/publishing

15. Chemicals

16. Petroleum

17. Rubber

18. Other nondurable goods

•3


Nonmanufacturing

Transportation/Public Utilities

19. Railroads

20. Electricity/gas/sanitary services

21. Other transportation/pu bl ic uti Iities

Trade

22. Wholesale

23. General merchandise retail

24. Apparel retail

25. Other retail

Finance/Services

26. Banking

27. Other finance

28. Services

Mining/Construction

29. Bituminous coal mining

30. Other mining

31. Construction

Key:

gi = Industry growth rates

gn = National growth component

gs = Structural component

gc = Competitive component

gi gs gc--1.0=-+-gn gn gn



1--.

-. '~::""'2.9••

26.

'.7~

--, -

-2-

-3-

-4-

---5 -

I-3

1963-1977gn = 2.50 % per year

.2,.· .

.9i= 29n'

.. 9i= 9;;.

9i='6

•72

•7879

-2•

-1 lis /9nI2

•3

11

Structural and Competitive Componentsof Ohio Industry Growth

The structural and competitivecomponents of employment growthexpand the picture of Ohio industryperformance and further sharpen theperspective on regional industrial change.In some cases, the structural componentof growth, indicated by the verticalposition on Chart 1, is qu ite large, oftenthe dominant influence on Ohio industryperformance. For example, large negativestructural effects clearly account for thelack of overall growth in railroads. Inboth subperiods, the Ohio railroadindustry experienced negative growth,essentially because of general shiftsaway from rail transport throughout theUnited States. On the other hand, strongemployment growth in banking and inservices in both subperiods was relatedprimarily to the forces that causedbanking and services to expand rapidly inthe national economy.

In the earl ier su bperiod of 1949-1963, it is difficult to identify anygeneral model of structural componentsamong the Ohio industries. Of 14 indus-tries with positive structural growthcomponents (those lying above thehorizontal axis on Chart 1), six were indurable goods manufacturing, three innondurable goods manufacturing, andfive in nonmanufacturing. The durablegoods industries included fabricatedmetals, nonelectrical machinery, electricalequ ipment, and transportation equ ip-ment; nondurable goods industries in-cluded rubber. All of these industrieswere among the areas of Oh io's exportspecialization in 1949. In the earlier

12

subperiod, then, national economicevents working through structural effectswere favorable to a number of Oh ioindustries, several of which were areasof specialization. This changed in 1963-1977. In the later subperiod, structuraleffects clearly favored nonmanufacturingindustries.

Competitive effects on industryperformance reflect the extent to whichOhio industries outpaced (or fell behind)their counterparts in the nation. Thecompetitive component of employmentgrowth rates, measured in the horizontaldimension on Chart 1, can reinforce oroffset the structural component. Bitu-minous coal mining in Ohio, whichexperienced the most severe structuraldrag on growth in the 1949-1963 sub-period, nevertheless performed consider-ably better than coal mining in general.On the other hand, textiles/apparel inOhio, which also experienced unfavorablestructural effects on growth in the1949-1963 subperiod, faced a seriouscompetitive disadvantage that pulled theoverall employment growth rate downfurther.

In the 1949-1963 subperiod, com-petitive components of employmentgrowth rates were positive in nine Ohioindustries (those lying to the right of thevertical axis). Transportation equipmentexperienced highly favorable competitiveeffects on growth and Ohio's special-ization in transportation equipment in-creased as a result of expansion in theearlier post-war subperiod. Another im-portant industry that grew faster in Ohiothan in the nation was petroleum. Severalnonmanufacturing industries, bankingand other finance among them, experi-enced modest positive competitive effectson growth. No industry in which Ohio

enjoyed a high degree of specialization atthe beginning of the subperiod had acompetitive advantage. Negative com-petitive growth rate components werelargest for electrical equipment andrubber, but stone/clay/glass, primary andfabricated metals, and nonelectrical ma-chinery in Ohio all expanded employ-ment more slowly than these industriesdid in the nation.

In 1963-1977, eight industries grewfaster in Ohio than in the nation as awhole. Several industries with positivecompetitive components of growth in theearl ier subperiod retained or even im-proved their competitive advantage.These included bituminous coal mining,other transportation/public utilities, andpetroleum. Chemicals emerged as arelatively strong industry in Ohio, as didinstruments. In nonmanufacturing, ser-vices and general merchandise retailtrade had positive, though relativelysmall, competitive components ofgrowth. On balance, it was again true in1963-1977 that few Ohio industriesexpanded employment faster than theirnational counterparts, and no industry ofspecialization did so. Transportationequipment lost its competitive edge--theOhio industry expanded no faster thantransportation equipment in general.Even so, some areas of strength wereapparent; Ohio chemicals and petroleumwere notable growth centers in the latersubperiod, as was the collection ofindustries in other transportation/publicuti Iities.


Structural and Competitive Effects Combined:Selected Ohio Industrued

Structural and competitive com-ponents of employment growth areindicators of Ohio industry performance.These growth rate components implychanges in the distribution and concen-tration of employment and are related tostate income growth. Although the forcesunderlying industrial change are moredifficult to specify, the growth ratecomponents are suggestive evidence ofwhere to look for the key determinantsof industry performance. At this level ofanalysis, judgments on performance re-tain a highly speculative quality.

Even so, two basic observationsfrom the analysis can be emphasized.To a greater extent than either overallemployment growth rates or the struc-tural component of these rates, thecompetitive component in Ohio indus-tries underscores the state's economicproblems in the post-war period. FewOhio industries, whether manufacturingor nonmanufacturing, experienced favor-able competitive effects on growth.Moreover, employment growth rates andtheir structural and competitive compo-nents shift over time. To extend theseobservations, a subset of industries isexamined further, and, for emphasis,growth rates and their components arecompressed into a single diagram (seeChart 2 pp.14-15).


Shifts in the structural and compet-itive components of employment growthrates emphasize the structural rearrange-ment away from manufacturing that hasintensified in recent years (Chart 2,section A). Competitive effects onemployment growth rates, however, gen-erally improved between 1949-1963 and1963-1977. As already noted, chemicalsand petroleum in the 1960's and 1970'swere among Ohio's fastest growingindustries. The driving force behind theseindustries' performance is to be found toa greater extent in production and marketcharacteristics of the local industriesthan in charactistics of the nationaleconomy.

In the major durable goods indus-tries of export specialization, the largestshifts between subperiods in Ohio oc-curred in transportation equipment andelectrical equipment. After World War II,transportation equipment appeared as themost rapidly expanding durable goodsindustry in the Ohio economy. Theearly post-war growth was accompaniedby structural pull from the nationaleconomy. More significantly, expansionstemmed from competitive growth of theOhio industry. However, a substantialdecline in the structural componentof growth and a loss of competitiveadvantage in 1963-1977 left the industryin Ohio with an employment growthrate below that of the national economy.Automobiles and auto parts are thelargest product lines in the Ohio industryand post-war developments are likely tobe associated with factors influencing the

automobile markets. In the later sub-period increased popularity of importedautos is an obvious structural factorcontributing to slower expansion. Thesource of the competitive decline in the1963-1977 subperiod, is however, lessclear.

Electrical equipment experienced astrong structural pull on growth duringthe earlier post-war subperiod, perhapsattributable to the electronics boom afterthe war. If this was the cause, however,the Oh io industry was on the periphery;it may have benefited from spill-overs,but it expanded at a much slower ratethan the industry as a whole. In 1963-1977, the structural pull on electricalequipment dissipated and the growthrate relative to the expansion of totaljobs in the national economy fell. How-ever, there was some increase in thecompetitive component of employmehtgrowth in Ohio's electrical equipmentindustry. Thus, although employmentgrowth in electrical equipment slowedin the United States in the later sub-period, and the Ohio industry expandedmore slowly still, Ohio producers wereable to improve their position relative tothe overall industry. To some extent, itappears that the improved competitiveposition was accomplished by acquiringtechnological capabilities in electronicsareas where Ohio industries were by-passed earl ier.

13

CHART 2Changes in Industry Growth Rates:1949-1963 to 1963-1977

A. Manufacturing

3. Stone/clay/glass

4. Primary metals 1-

5. Fabricated metals

6. Nonelectrical machinery

7. Electrical equipment/supplies 9c/9n

8. Transportation equipment

15. Chemicals

16. Petroleum-1_

17. Rubber

-2-

-3-

--4 -

-5-

---6 -

I-3

Key:

-2I

-1 lis I gn

1949-1963growth rate

1963-1977growth rate


14

/ .....16

9j= gn

I2

I

3


B. Nonmanufacturing

19. Railroads21. Other transportation/public utilities 1-

22. Wholesale trade 3723. General merchandising retail trade

26. Banking 9c/9n

27. Other finance28. Services

29. Bituminous coal mining ---1 _31. Construction

-2-

-3-

--4-

--5 -

-6-

I-3 -2


•-1

gi~ gri·

•2

•3

29

15

The remainder of the durable goodsmanufacturing industries where Ohio washighly specialized in 1949 recordedimproved competitive components ofemployment growth rates in 1963-1977,and generally higher overall growth ratesrelative to the national average as well.These heavy industries have often beencharacterized as burdened with aging orobsolete capital facilities and as vulner-able to market incursion by foreignproducers or substitute products. Evi-dence developed for Ohio in the early1970's suggests the possibility that

obsolete productive facilities in primarymetals may have exceeded 40 percent oftotal capacity, and obsolescence instone/clay /glass, fabricated metals, andnonelectrical machinery may have beenbetween 20 and 30 percent. Theseestimated obsolescence rates are high,relative to the nation; an aging capitalstock may well be an ongoing problemfor Ohio industries.10 Considering suchcircumstances, Ohio industries may havedone well to improve their position.

10Rubber also had estimated obsoletefacilities in excess of 20 percent, but so didchemicals, a more rapidly expanding industry.The smallest proportion (6 percent! of obsoletecapital was in transportation equipment. See:Wilford L. L'Esperance and Arthur E. King,"The Age Distribution of Ohio's ManufacturingPlant and Equipment," Bulletin of BusinessReSllsrch, Part I (April 1975), p. 4; Part II(May 1975), p. 4.

16

Shifts in employment growth ratesbetween the earlier and later subperiodsamong nonmanufacturing industries inOhio form a diversified pattern betweenthe earlier and later subperiods, andgeneral tendencies are less readily identi-fiable (Chart 2, section B). Structuraldrag eases in some industries (railroads),but begins to affect others (construction).At first glance, many of these structuralchanges seem to be associated with theenergy problems that emerged in theearly 1970's. Railroads continued tobe faced with competition from othermodes of transportation, governmentregulation of freight rates, labor prob-lems and deteriorating capital stock;nevertheless, they benefited from heaviertraffic through increased coal shipmentsin the 1970's. The decline in the struc-tural growth component of the construc-tion industry reflects, in part, the with-ering away of the interstate highwayprogram.

The largest structural change thatoccurred among all Ohio industries wasthe shift in bituminous coal mining. Ohiocoal mines were relatively strong compet-itors in both subperiods, but the elimi-nation of the large structural drag in the

1963-1977 subperiod, especially from1972 on, transformed the industry's em-ployment growth prospects. The impor-tance of exogenous situation shocks toindustries is most apparent in coal min-ing. The energy crisis benefited coalmining even if it did not benefit theeconomy in general. The developmentsin coal also suggest the possibility ofinterdependence among the structuraland competitive forces that affect indus-trial change. Ohio mines enjoyed a largercompetitive edge in the depressed mar-kets of 1949-1963 than in the morebuoyant setting of the later subperiod.As coal's importance as an energy sourcegrew, even marginal facilities presumablyshared in the gains.

Of course not all structural changesare the effects of sudden shocks thatquickly change industry behavior. Indeed,most such changes are long-term move-ments that affect industries gradually.Perhaps the most widely recognizedaspect of long-run industrial change is thepost-war shift into service-type activities.Banking, other finance services and sometrade industries were growth centers inthe post-war economy of Ohio as well asthroughout the nation. Structural effectswere the dom inant influences on theirgrowth rates and it is likely that laborintensive production processes were im-


portant determinants of these industries'growth.11 However, competitive com-ponents of growth rates have beenrelatively small in the Ohio industries.The competitive component becamepositive in services and in general mer-chandise retail trade in the 1963-1977subperiod, but it became negative inbanking and other finance. Thus, al-though Ohio participated in the generalmovement toward services, finance, andtrade, it did not develop any consistentadvantage in these individual industries.

Service-type activities, at least tosome extent, are anchored to the localmarket, and competitive advantages thatwould contribute to more rapid expan-sion of Ohio industries may be difficultto develop independent of this market.Other transportation/public utilities inOhio (which includes a number of activ-ities), is an exception. The competitivecomponent of growth in this industrygroup increased substantially in the1963-1977 subperiod. Unfortunately, itcannot be determined where the strengthlies. Trucking/warehousing and communi-cations, the largest members of theindustry group, appeared to expand inOhio at about the same rate as in thenation as a whole, but information isvery sketchy and further analysis isnecessary.

111n a detailed study of the serviceindustry, Fuchs concluded that relativelyslow increases in output/labor ratios wereinstrumental in the growth process (i.e.. agiven expansion of service output seems torequire more labor than does manufacturingoutput). See: Victor R. Fuchs, The ServiceEconomy (New York: National Bureau ofEconomic Research, 1968),pp. 3-5.


Summary and Conclusions

Industrial change between 1949and 1977 in Ohio produced a substan-tially different industrial composition(Appendix, Table A-1). The distributionof employment shifted toward nonmanu-facturing activities, which accounted forover 60 percent of Ohio's jobs in 1977.Distributional gains were largely confinedto industries in the trade and finance/ser-vices groups, which benefited from thestructural effects working through thenational economy.

Concentration of employment inOhio also changed significantly between1949 and 1977. By 1977, private non-agricultural employment in Ohio was 5.3percent of the nation's total, downnearly a full percentage point from 1949.In the industries of high specializationin 1949, employment concentrationswere all lower by 1977. Concentrationin electrical equipment declined by 55percent, and the measured degree ofspecialization was reduced as a result ofthis large shift away from Ohio manu-facturers. In rubber, employment con-centration fell by 44 percent and inthe other key manufacturing industriesthe relative decline ranged from 11 per-cent in primary metals to 28 percent innonelectrical machinery. Yet, in each

of these industries, Ohio retained a highdegreeof specialization.

A few Ohio industries ran counterto the trend. Transportation equipmentstrengthened, and here Ohio developed ahigh degree of specialization by 1977.The expansion in transportation equip-ment was, however, a result of the strongperformance in 1949-1963, and morerecent growth has been less robust.Chemicals held its own in terms ofconcentration and Ohio's petroleumindustry increased its employment con-centration fairly substantially between1949 and 1977. Employment in Ohio'snonmanufacturing industries generallyincreased, but concentration remainedlow and, in most cases, decreased. Coalmining strengthened sufficiently to de-velop moderate export specialization forthe state by 1977. Ohio banking andservices were less concentrated in 1977than in 1949, and other finance remainedunchanged.

Structural and competitive effectson industry employment growth havebeen complex, and vary from industry toindustry. General observations aboutindustrial change that emphasize. onlystructu ral developments, such as theswitch from manufacturing to nonmanu-facturing activities, at best tell only partof the story. Competitive effects on re-gional industries are equally importantand must also be carefully considered inan analysis of industrial performance.

17

Industrial change has not beenuniform over time. In the case of Ohioindustries, both structural and competi-tive components of industry growth ratesgenerally shifted between the subperiodsfor which they were examined. In partic-ular, competitive disadvantages, measuredby relatively slower growth in Ohioindustries, were often reduced in thefaster-paced economy of the later sub-period. In Ohio, this was especiallytrue for manufacturing industries. Onereason may be that the long-term growthprocess leaves a residual amount ofmarginal capacity which, in a fast-movingeconomy, can be brought into pro-duction.

The image of the Fourth Districteconomy, and in particular, the State ofOhio, is that of a region in relativeeconomic decline. In a sense, evidencepresented in this study confirms thatimage. The evidence suggests, however,that the nature of the regional economictransition is often misinterpreted. Con-vergence to a national standard is clearlyindicated by post-World War II incomepatterns in District states, but conver-gence does not mean a collapse of the re-gional economy. There are, of course,burdens associated with any economictransition. In a state like Ohio, these may

18

seem to be great because both the distri-bution and concentration of employmenthave been gradually adjusting away fromthe manufacturing industries where thehighest degree of specialization hadhistorically developed. However, special-ization in heavy manufacturing wasdetermined early in Ohio's economicdevelopment and will continue to be itseconomic foundation in the future.Further research of the factors deter-mining the structural and competitivecomponents of growth rates in thesespecialized industries will provide valu-able insights into the ongoing growthprocess of the Fourth District.

Data Append ix

Data SourcesThe income and employment data

developed for this study were compiledfrom the following sources:

Table 1

U. S. Department of Commerce, Bureauof Economic Analysis (Local AreaPersonal Income)

U. S. Department of Commerce, Bureauof the Census (Current PopulationReports, Series P-25)

Chart 1, Chart 2, Appendix Table A-1

U. S. Department of Labor, Bureau ofLabor Stastistics (Employment andEarnings)

Ohio Bureau of Employment Services(Employment, Hours and Earnings inOhio)


Industry DefinitionsThe analysis of employment growth

rates utilized establishment survey em-ployment data for Ohio and the nation atthree periods in time: 1949,1963, and1977. The three years were selected toyield comparable time intervals for theanalysis and to provide cyclically similarpoints that minimize short-term impactson employment levels. To focus onindustrial composition in the privatesector, government employment was sub-tracted from nonagricultural employmentto obtain a measure of total employmentfor the study.

With the exception of the miscel-laneous "other" categories, which arebalancing groups in each aggregate sector,two-digit SIC's were selected as theappropriate level of industry disaggre-gation. In part, this was dictated bydata availability and by the method ofanalysis itself. A preferred industrialbreakdown would perhaps correspondmore closely to specific markets orproduct lines, but such delineationsare seldom attained, even at higherSIC classification levels. Further, inshift/share analysis the results seemto depend on the level of industrialaggregation of the data. As the numberof industrial categories is broken downmore finely, eventually reaching anindividual firm or plant definition, the


competitive component will tend tovanish.12 Even though they represent alarger collection of products under asingle classification than might be desir-able, two-digit SIC's appear to be areasonable empirical compromise.Revisions and Adjustments to the Data

The income data (Table 1) wererevised extensively at the source in 1974,but no attempt has been made in thisstudy to adjust for the revision back to1949. Prior to 1974, the Bureau of Eco-nomic Analysis computed its estimates of"Personal Income and Components" ona place of residence basis. In 1974, themethod of compiling personal incomefigures was changed to a place of workbasis in order to provide a proxy for

12See, especially: David B. Houston,"The Shift and Share Analysis of RegionalGrowth: A Critique," Southern EconomicJournal (April 19671, pp. 579-580. A firm orplant definition of "industry" or "sector"would, of course, be quite different froma market or product line definition. Althoughdisaggregation along firm or plant lines wouldultimately result in uniqueness between aregion and the nation, and hence in a vanishingcompetitive component, it is not at all clearthat such dissaggregation is a meaningfulproposition.

industry output at the state level. Becauseof backdating, the revision was availablefor 1963 as well as 1977; but the oldseries was used for 1949.

The employment data were com-parable except for SIC classification in1977. The national employment data for1949, 1963 and 1977 were derived fromthe same source and therefore used thesame SIC classifications. Ohio data for1949 and 1963 were comparable to thenational data. In 1977, Ohio revised itsindustry groupings to conform with the1972 SIC classifications. In order tomodify the 1977 Ohio data to conformwith the national data, an overlap ratioto, adjust for differences between the1967 and 1972 SIC classifications wasconstructed using the following formula:

Overlap Ratio equals:

January 1976 Ohio employment (1967 SIC)January 1976 Ohio employment (1972 SIC)

This overlap ratio was computed for eachindustry grouping and multiplied by thatgrouping's 1977 employment average toderive an annual figure in 1967 SICterms.

Industrial Composition 1949 and 1977Industrial composition in Ohio is

tabulated for 1949 and 1977 in TableA-1.

19

TABLE A-1Industrial Composition in Ohio1949 and 1977t

1949 1977Distribution Concentration Specialization Distribution Concentration Specialization

Private Nonagricultural Employment 6.2 5.3

Manufacturing 48.7 7.9 37.1 6.8

Durable Goods 33.5 10.4 26.2 8.11. Lumber/wood products 0.5 1.5 HNS 0.3 1.8 HNS

2. Furniture 1.0 7.5 MS 0.5 3.5 MNS

3. Stone/clay/glass 2.9 13.4 HS 1.8 10.0 HS

4. Primary metals 7.5 15.5 HS 4.6 13.7 HS

5. Fabricated metals 5.4 14.2 HS 4.4 10.9 HS

6. Nonelectrical machinery 6.7 13.3 HS 5.9 9.6 HS

7. Electrical equ ipment/suppl ies 4.7 12.6 HS 3.1 5.7 MS

8. Transportation equipment 3.5 6.7 MS 4.3 8.5 HS

9. Instruments 0.4 3.9 MNS 0.6 3.8 MNS

10. Other durable goods 0.9 5.2 MNS 0.6 3.8 MNS

Nondurable Goods 15.2 5.2 10.9 4.811. Food 3.8 4.9 MNS 2.1 4.3 MNS12. Textile/apparel 1.8 1.8 HNS 0.7 1.1 HNS13. Paper 1.3 7.0 MS 1.1 5.6 MS14. Printing/publ ishing 2.2 7.0 MS 1.7 5.6 MS15. Chemicals 1.6 6.1 MNS 1.8 6.1 MS16. Petroleum 0.4 4.3 MNS 0.4 6.5 MS17. Rubber 3.3 27.8 HS 2.9 15.5 HS18. Other nondurable goods 0.7 3.5 MNS 0.2 2.0 HNS

20 Federal Reserve Bank of Cleveland

1949 1977Distribution Concentration Specialization Distribution Concentration Specialization

Nonmanufacturing 51.2 5.1 62.8 4.7

Transportation/Public Utilities 7.8 4.6 6.0 4.619. Railroads 3.9 6.6 MS 0.9 6.2 MS20. EIectric ity /gas/san itary services 1.3 5.8 MNS 1.0 4.9 MNS21. Other transportation/publ ic uti I ities 2.6 3.0 HNS 4.0 4.3 MNS

Trade 21.7 5.4 25.6 5.022. Wholesale 4.9 4.5 MNS 5.8 4.7 MNS23. General merchandise retail 3.7 5.9 MNS 4.1 5.7 MS24. Apparel retail 1.2 5.0 MNS 1.0 4.2 MNS25. Other retail 11.9 5.8 MNS 14.7 5.0 MNS

Finance/Services 15.3 5.0 26.4 4.726. Banking 0.7 4.1 MNS 1.5 3.9 MNS27. Other finance 2.6 4.2 MNS 3.7 4.2 MNS28. Services 12.0 5.3 MNS 21.2 4.9 MNS

Mining/Construction 6.4 4.8 4.8 3.829. Bituminous coal mining 0.8 4.8 MNS 0.4 7.4 MS30. Other mining 0.4 1.8 HNS 0.3 1.8 HNS31. Construction 5.2 5.6 MNS 4.1 3.8 MNS

tDistribution is the percentage of Ohio employment in each industry.Concentration is the percentage of U.S. employment in each industry located in Ohio.Specialization is measured by comparing the concentration of industry employment in Ohio toconcentration of total employment in Ohio:Let e = concentration of employment in individual Ohio industries

e = concentration of private nonagricultural employment in Ohio [the proportional size ofthe Ohio economy)


ThenHS = High Specialization: e/e*> 1.5

HNS = High Nonspecialization: e/e*<0.5MS = Moderate Specialization: 1.0<e/e*< 1.5

MNS = Moderate Nonspecialization: 0.5<e/e*<1.0

Comparison of Earningsand Expenses

1978Total Current EarningsNet Expenses .....

$ 694,814,24241,962,628

Current Net Earnings 652,851,614

Additions to Current Net Earnings:

All Other ..... 25,033

Total Additions 25,033

Deductions from Current Net Earnings:

Loss on Sales of U.S. Government Securities (Net)Loss on Foreign Exchange Transactions (Net)All Other .

10,852,01442,982,973

58019

Total Deductions 53,893,006

Net Deductions

Assessment for Expenses of Board of Governors

53,867,973

4,522,400

$ 594,461,241

$ 5,408,170584,291,421

4,761,650

Net Earnings before Payments to U.S. Treasury

Dividends Paid . . . . . . . . . . . . . . . . .Payments to U.S. Treasury (Interest on F.R. Notes)Transferred to Surplus

Total $ 594,461,241

22

1977

$ 564,269,12840,378,337

523,890,791

1,026,394

1,026,394

4,185,45612,589,053

48,584

16,823,093

15,796,699

4,057,700

$ 504,036,392

$ 5,142,729496,089,263

2,804,400

$ 504,036,392


Comparative Statement of Condition

ASSETS Dec. 29, 1978 Dec. 301 1977

Gold Certificate Reserves $ 921,035,900 $ 933,870,100Special Drawing Rights Certificates 112,000,000 107,000,000Coin .......... 32,976,197 39,702,072

Loans to Member Banks 31,050,000 1,550,000Federal Agency Obligations - Bought Outright 657,107,398 669,970,000U.S. Government Securities:

Bills 3,508,654,478 3,478,894,000Notes 4,565,303,131 4,227,966,000Bonds 1,037,381,316 740,668,000

Total U.S. Government Securities 9,111,338,925 8,447,528,000

Total Loans and Securities .. 9,799,496,323 9,119,048,000

Cash Items in Process of Collection 808,062,973 460,882,397Bank Premises ......... 23,137,140 22,825,499Other Assets . . . . ..... 298,083,638 140,423,451Interdistrict Settlement Account (437,629,820) (41,750,722~

Total Assets ....... $11,557,162,351 $ 10,782,000,797

LIABILITIES

Federal Reserve Notes

Total Deposits

$ 8,551,157,177 $ 7,986,742,657

1,797,890,606 1,649,739,882388,312,886 450,724,792

17,229,500 23,710,20035,6402685 43,8222984

2,239,073,677 2,167,997,858

445,532,329 361,023,439137,838,568 92,199,543

$11,373,601,751 $ 10,607,963,497

Deposits:Member Bank - Reserve AccountsU.S. Treasurer - General AccountForeign .....Other Deposits .

Deferred Availability Cash ItemsOther Liabilities ...

Total Liabilities

CAPIT AL ACCOUNTS

Capital Paid in . . . . .Surplus .

91,780,30091,780,300

87,018,65087,018,650

Total Liabilities and Capital Accounts $ 11,557,162,351 $ 10,782,000,797


Federal Reserve Bank of ClevelandOfficers

WILLISJ. WINNPresident

WALTER H. MacDONALDFirst Vice President

As of April 1, 1979

24

JOHN M. DAVISSenior Vice Presidentand EconomistROBERT D. DUGGANSenior Vice PresidentWILLIAM H. HENDRICKSSenior Vice PresidentROBERT E. SHOWALTERSenior Vice PresidentDONALD G. BENJAMINVice PresidentJOHN E. BIRKYVice PresidentGEORGE E. BOOTH, Jr.Vice PresidentPAUL BREIDENBACHVice President andGeneral CounselR. JOSEPH GINNANEVice PresidentHARRY W. HUNINGVice PresidentR. THOMAS KINGVice PresidentELFER B. MILLERGeneral AuditorTHOMAS E. ORMISTON, Jr.Vice PresidentLESTER M. SELBYVice President and SecretaryHAROLD J. SWARTVice PresidentDONALD G. VINCELVice President

OSCAR H. BEACH, Jr.Assistant Vice PresidentMARGRET A. BEEKELAssistant Vice PresidentTHOMAS J. CALLAHANAssistant Vice Presidentand Assistant SecretaryGEORGE E. COEAssistant Vice PresidentPATRICK V. COSTAssistant General AuditorJOHN J. ERCEGAssistant Vice Presidentand EconomistROBERT J. GORIUSAssistant Vice PresidentNORMAN K. HAGENAssistant Vice PresidentJAMES W. KNAUFAssistant Vice PresidentBURTON G. SHUTACKAssistant Vice PresidentROBERT VAN VALKENBURGAssistant Vice PresidentROBERT F. WAREAssistant Vice Presidentand EconomistCHARLES F. WILLIAMSAssistant Vice President


Federal Reserve Bank of ClevelandDirectors

Chairman

ROBERT E. KIRBYChairman and Chief Executive OfficerWestinghouse Electric CorporationPittsburgh, Pennsylvania

Deputy Chairman

ARNOLD R. WEBERProvostCarnegie-Mellon UniversityPittsburgh, Pennsylvania

Member, Federal Advisory Council

MERLE E. GILLIANDChairman of the Board andChief Executive OfficerPittsburgh National BankPittsburgh, Pennsylvania

As of April 1, 1979


JOHN W. ALFORDChairman of the Boardand Chief Executive OfficerThe Park National BankNewark, Ohio

JOHN A. GELBACHChairman of the BoardCentral National BankCleveland, Ohio

J. L. JACKSONPresidentFalcon Coal Company Inc.Lexington Kentucky

CHARLES Y. LAZARUSChairmanThe F. & R. Lazarus Co.Columbus, Ohio

EVERETT L. MAFFETTPresident and Chief Executive OfficerEaton National Bank and Trust Co.Eaton, Ohio

WALTER J. ROBB, Sr.,Chairman and Senior PartnerProctor, Robb & CompanyGranville, Ohio

HAYS T. WATKINSChairman and PresidentChessie SystemCleveland, Ohio

25

Pittsburgh BranchDirectors

Chairman

G. J. TANKERSLEYPresidentConsolidated Natural Gas CompanyPittsburgh, Pennsylvania

Officers

ROBERT D. DUGGANSenior Vice President

As of April 1, 1979

26

WILLIAM E. BIERERPresidentEquibank N.A.Pittsburgh, Pennsylvania'

ROBERT W. FISCUSPresident and Chief Executive OfficerThe Savings & Trust Companyof PennsylvaniaIndiana, Pennsylvania

R. BURT GOOKINVice Chairman andChief Executive OfficerH. J. Heinz Co.Pittsburgh, Pennsylvania

WILLIAM R. TAGGARTVice PresidentPAUL E. ANDERSONAssistant Vice President

WILLIAM H. KNOELLPresidentCyclops CorporationPittsburgh, Pennsylvania

LLOYD M. McBRIDEPresidentUnited Steelworkers of AmericaPittsburgh, Pennsylvania

PETER MORTENSENPresidentF.N.B. CorporationSharon, Pennsylvania

JOSEPH P. DONNELLYAssistant Vice PresidentCHAR LES A. POWE LLAssistant Vice President


Cincinnati BranchDirectors

Chairman

LAWRENCE H. ROGERS, IIPresident and Chief Executive OfficerOmega Communications, Inc.Cincinnati, Ohio

Officers

ROBERT E. SHOWALTERSenior Vice President

As of April 1, 1979


MARTIN B. FRIEDMANPresidentFormica CorporationCincinnati, Ohio

LAWRENCE C. HAWKINSSenior Vice PresidentUniversity of CincinnatiCincinnati, Ohio

WALTER W. HILLENMEYER, Jr.Chairman and Chief Executive OfficerFirst Security National Bankand Trust CompanyLexington, Kentucky

CHARLES A. CERINOVice PresidentJEAN H. DEANAssistant Vice PresidentROSCOE E. HARRISONAssistant Vice President

ELDEN HOUTSPresidentThe Citizens Commercial Bankand Trust CompanyCelina, Ohio

WILLIAM N. LIGGETTChairman of the Board andChief Executive OfficerFirst National Bank of CincinnatiCincinnati, Ohio

SISTER MICHAEL LEO MULLANEYPresidentSt. Joseph HospitalLexington, Kentucky

DAVID F. WEISBRODAssistant Vice PresidentJERRY S. WILSONAssistant Vice President

27

annual report/economic review

Documents