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As Usual, An Unusual Year
Forecasting what lies ahead for the econom y is a com plex task, but once again econom ic seers have exam ined the business indicators and have com e up with what they set forth as a preview of 1969. As in all previous years the forecasters are again careful to point to the many im portant uncertainties that com plicate their task. But this time they note that C om the uncertainties are m ore difficult than usual.
T he forecasts exam ined here represent the best efforts of business and academic econom ists during autumn and winter of 1968 to predict the perform ance of the U . S. econom y in 1969. T his brief article at tempts to convey the general tone and pattern o f some 52 forecasts com piled in the Research D epart ment of the Federal Reserve Bank o f R ichm ond. N ot all o f these are com prehensive forecasts and some incorporate estimates o f the future behavior o f only a few key econom ic indicators. Several rep resent group, rather than individual efforts. T h e consensus of the forecasts exam ined in this article call fo r a 1969 G N P in the range o f $912-$915 billion. M any of the forecasts were made at a time when G N P grow th for the last half o f 1968 was being underestimated by a substantial margin. W hether m ost of the forecasters w ould revise their 1969 projection s upward in the light o f the final figures for the third and fourth quarters o f 1968 is problematical. to $922 billion. A t least tw o have recently increased In any event, in view o f the $888 their G N P estimates—-one by a substantial $8 billion billion annual rate in the final quarter o f 1968, the consensus forecast w ould represent a rate o f increase o f $10 to $11 billion per quarter. T his w ould be well below the quarterly increases in 1968. T he view s and opinions set jorth here are those of the various forecasters. N o agreem ent or endorse ment by this Bank is implied. be obtained from the A compilation of Bank of forecasts , with names and details of estimates, may F ederal R eserv e Richm ond. Prologue T h e fo re ca sts fro m w h ich a co n se n su s
plications like the Vietnam war, the uncertain fate o f the tax surcharge, the reaction o f consum ers to increased social security taxes, and the possibility o f further credit tightening have cast lon g over many a crystal ball. shadows A lso, the apparent failure But fore
o f the tax surcharge to have its anticipated effect on the econom y in 1968 added confusion. casters have braved these obstacles and have p ro ceeded with the annual excursion tow ard the end of the limb. M ost forecasters assume a stabilization o f the Vietnam hostilities during 1969, with some reduction in military commitments likely. T hey look fo r an extension of the 10% tax surcharge if the econom y is continuing to expand rapidly in early 1969, and its expiration on schedule if a slow dow n has m a terialized. T here is little agreement, however, co n cerning the reaction of consum ers to underwith holding of 1968 taxes follow in g passage o f the sur tax and to the increased social security tax. Som e expect the econom y to be so bullish that these re straining measures will have little effect on co n sumer expenditures. Other forecasters think that during the first half of the year the higher taxes will provide enough restraint to dampen the grow th o f consum er expenditures. A pparently com paratively
has been drawn w ere published during the last four months of 1968 and the first half o f January 1969. T he early predictions during this period generally
few forecasters expect a stringent credit p o lic y ; those that do, think it will last only a short while. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
assumed that the tax surcharge would exert a re straining effect during the last quarter of 1968. These generally concluded that a substantial slowing would take place during the first half of 1969, with the rate of expansion accelerating after the m id-year expiration of the surcharge. O f those w ho pre dicted quarterly grow th, the consensus seemed to be that G N P would g row approxim ately $10 billion in each of the first tw o quarters o f 1969 and $16 billion during each o f the last two. D uring the course of the forecasting season, the prognosticators have apparently becom e less sure of their standard saucer-like quarterly prediction. A number of the later predictions indicated that G N P would continue to expand strongly throughout the first half of 1969, with m onetary restraint probably producing some m oderation in second half grow th. Others forecast vigorous expansion throughout 1969, and at the time of this writing, only tw o foresee some sort o f mild recession during the com ing year. 1968 in Perspective O n e o f the fa cto rs g e n e ra t
an estimated $16.8 billion in the fourth represent a continuing moderation from the first half grow th, but considerably less than expected even in fore casts made relatively late in 1968. T he various com ponents o f G N P , as well as other im portant econom ic indicators which were projected for 1968, almost all show the same tendency on the part of observers to underestimate the 1968 expan sion. T he rate of unemployment, predicted to in 1968, actually fell to 3 .6 % 1953. G ross private do T his was the lowest yearly un crease slightly during from 3 .8 % in 1967. employm ent rate since
mestic investment was expected to increase by 7 .7 % to about $120 billion, but it actually rose to $127.5 billion. O n the consum er’s side, 1968 personal consum p tion expenditures were expected to be between $523 and $527 billion, but indications now are that they totaled $533.7 billion. T he consum er price index Forecasters rose 4 .6 % from a 1967 average o f 116.3, com pared with year-ago forecasts of a 3 .2 % rise. were also short on their estimates o f sales o f domestic automobiles, which came to 8.6 million units against a predicted 8.2 to 8.3 million. T he forecasters underestimated the business sector of the econom y as well. C orporate profits before N ew taxes amounted to $92.1 billion in 1968, well above the estimated range of $83 to $87 billion. construction put in place, at $84.7 billion, was closer to the predicted range of $80 to $84 billion, but still underestimated. T h e forecasters’ estimates of Similarly, the in 1.4-1.5 million housing starts, on the other hand, were almost precisely on target. dustrial production index, which was predicted to average between 163 and 166 (1 9 5 7 -5 9 = 1 0 0 ) for the year, averaged 164.3. T he wholesale price index for the year, how ever, averaged slightly above the level foreseen by the prognosticators, 108.7 on the 1957-59 base as com pared with predictions of 108.0 to 108.5. In only one instance were the seers m ore T he net exports co m bullish than the 1968 results. 11.5%
ing some confusion am ong forecasters this year has been the unexpected perform ance of the econom y in 1968. T he continued buoyant perform ance o f the econom y in the last half, after passage o f the fiscal restraint package, confounded the experts and for the year as a whole, actual business expansion co n siderably overshot the forecasts made at the begin ning of the year. A year ago most predictions for 1968 were gen erally in close agreement that the 1968 G N P w ould range from $840 to $845 billion in current dollars, an increase of 7 .3 % over 1967. A fter allowance for T he forecasters e x expected price increases, the grow th o f real G N P was predicted at about 4 .0 % . pected rapid expansion during the first half o f 1968 to be follow ed by m ore moderate grow th during the last half. In fact, first half grow th was somewhat Latest C om 1968 larger and the second half m oderation considerably smaller than had been anticipated. merce Department estimates n ow indicate a of 9 .0 % over 1967.
ponent of G N P was supposed to range from $4.5 to $5.5 billion, but it now appears to have amounted to only $2.5 billion. In defense of the forecasters it should perhaps be noted that as the year progressed, those w ho made quarter-by-quarter estimates seemed to periodically revise these estimates upward. Even in late summer, A s it became ap many expected a substantial m oderation in business expansion during the second half.
G N P of $861 billion in current dollars, an increase A fter allowing for a 4 .0 % rise in the implicit price deflator, real G N P had an in dicated annual grow th rate of approxim ately 5 .0 % . During 1968 the quarterly expansion in G N P
measured on an annual rate basis was $20 billion in the first quarter and $21.7 billion in the second. A d vances of $18.1 billion during the third quarter and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
parent that the third quarter data w ould show no such moderation, many held on to an expectation o f a slow er fourth quarter. T h e unexpectedly strong perform ance of the econ om y in the closing months o f the year, when the business of forecasting 1969 was getting underway, led to several revisions of early predictions fo r the com ing year. Of this In period, A lbert T . Som m ers of the National
smaller increase than the 10.7% rise during 1968. Gains in both construction and plant and equipment expenditures are projected. M ost forecasters expect the increase in business inventories in 1969 to be somewhat smaller than in 1968. Industrial Production index of industrial M o s t p re d ictio n s ca ll fo r production (1 9 5 7 -5 9 = 1 0 0 ).
a 1969 average of 168-169 for the Federal R eserve T his represents an increase o f approxim ately 2 ^ % over the 1968 figure. A lthough m ost forecasters expect steel production to slow and autom obile out put to remain about the same, they predict increases in the output of other consum er durables, construc tion materials, capital equipment, and nondurable goods. Construction T h e v a lu e o f n e w c o n s tr u ctio n p u t R esi
dustrial C onference B oard n oted:
“ It is hard to
recall a time when the tone of sophisticated discus sion o f econom ic prospects has fluctuated with such volatility.” E conom ic policy during 1968 also played a role in explaining the disparity between the forecasts and the results for 1968. extent anticipated. T h e tax surcharge passed as Governm ent purchases totaling T here was also a expected, but did not dampen the advance to the $197 billion were somewhat above the predicted range of $193 to $196 billion. supply. fairly rapid and unexpected grow th o f the m oney A s prices continued to rise during 1968, the public apparently responded by increasing pur chases of g ood s as a hedge against future price in creases. These actions resulted in a sharp decrease in the saving rate in the third quarter, and at the very least postponed the slow ing effects o f the tax surcharge until 1969.
in place is expected to be between $89 and $91 billion in 1969, an increase of 5 % to 7 % over 1968. dential outlays are expected to show the largest per centage g a in ; som e forecasters anticipate a rise o f 15% to 1 8 % . Private housing starts are m ost often Nonresidential and public housing predicted to rise to 1.65 or 1.70 million, an increase of 10% to 1 3 % . outlays are expected to advance at a rate below the 4 % to 5 % recorded in 1968. New Plant and Equipment E c o n o m is ts h ave
THE FORECASTS IN BRIEF Gross National Product F o re ca sts fo r 1969 G N P
been very bullish about business expenditures for plant and equipment during 1969. T h e consensus of the forecasts is that they will be $68 or $69 billion during 1969, representing an increase o f 5 % to 7 % over the expenditures made in shows an 8 % gain. Corporate Profits F o re ca s te rs w e re so m e w h a t 1968. O ne very prom inent survey of businessmen’s intentions even
are concentrated in the area o f $912 to $915 billion. T his w ould represent a 6 % yearly gain, substantially below the 9 % o f $933 billion. advance registered fo r 1968. T he forecasts ranged from a low of $895 billion to a high P rice rises are expected to account increase in w ere most for about half of the anticipated 6 .2 % current dollar G N P . Personal billion. consum ption expenditures often estimated to advance 6 .3 % to $567 or $568 T his represents about three-fourths o f the percentage increase that was registered during 1968. Governm ent purchases o f g ood s and services are e x pected to range between $210 to $212 billion. m idpoint of this range represents a 7 % over 1968 governm ent purchases. T his is T he sub T he increase
uncertain about 1969 corporate profits, but the co n sensus is that corporate profits before taxes w ould be about $90.0 billion. the 1968 figure. T his w ould be 2 .3 % below T he m idpoint o f P rofits after taxes are expected to
be between $50 and $52 billion.
this range represents no change from the 1968 figure. T h e apparent inconsistency between the estimates o f before- and after-tax profits results from the p ro pensity of m ost forecasters to estimate either b efore tax profits or after-tax profits, but not both. Unem ploym ent T h e fo re ca ste rs w e re u n a n im ou s in their opinion that the unem ployment rate w ould rise from the 1968 average o f 3 .6 % . T his 15-year
stantially smaller than the 10.5% gain in 1968. state and local governm ent expenditures.
larger part of this increase is expected to occu r in Gross private dom estic investment is expected to rise by about 5 .0 % Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis to $132-$136 billion, also a
ECO N O M Y IN 1968 AND EXPECTATIO N S FOR 1969 Unit or Base Gross national product ___________________________ ___ $ Billions Personal consum ption expenditures ___________ ___ $ Billions Governm ent purchases of goods and services .. ___ $ Billions Gross private domestic investment ____________ ___ $ Billions Net exports o f good s and s e r v ic e s _____________ ___ $ Billions 1957-1959 Index o f industrial production __________________ ...... M illions Sales o f dom estic a u tom ob iles____________________ ___ N ew construction put in place __________________ ___ $ Billions Private housing starts ___________________________ ___ M illions New plant and equipment ex p en d itu res__________ ___ $ Billions Change in business inventories __________________ ___ $ Billions Corporate profits before taxes __________________ ___ $ Billions Corporate profits after t a x e s ______________________ ___ $ Billions Rate o f u n em p loym en t_________ __ _______________ ___ W holesale price index ____________________________ ...... Consumer price index ________________________ — ‘"Estimated. **Rough approximations of typical forecast. Per cent 1957-1959 1957-1959 1968* 861 534 197 127 2.5 164 8.6 85 1.50 64 + 7 .3 92 51 3.6 108.7 121.7 912 567 210 132 2.0 168 8.9 89 1.65 67 + 6 .0 89 50 4.3 111.0 125.0 1969** to to to to to to to to to to to to to to to to 915 568 212 136 4.0 169 9.1 91 1.70 69 + 6 .5 91 52 4.5 112.0 126.0
low annual rate is generally expected to m ove up to a range of 4 .3 % to 4 .5 % for 1969. Since the D e cember 1968 unem ployment rate was at a seasonally adjusted low of 3 .3 % , the 1969 predictions appear to call for an average of about 900,000 m ore persons unemployed than was the case at year end 1968. Prices E stim a tes of co n su m e r and w h o le sa le
upward pressure on prices should moderate but not disappear. The m ost com m on forecast fo r quarter-by-quarter grow th in 1969 calls fo r the rate o f expansion o f the econom y to slow during the first half o f 1969 and to accelerate during the second. T his prediction has been standard since autumn of 1968, and although most of the prognosticators continue to cling to the “ saucer-shaped forecast,” there have been som e im portant recent departures from that view. Som e forecasters now expect the econom y to co n tinue to expand at the present rate until the second half of 1969, when they foresee a slow dow n m a terializing. M oreover, a number o f these forecasters T w o o f the 52 think that the slow dow n, when and if it comes, may be somewhat m ore than moderate. forecasters at the time o f this w riting expected a
prices imply some reduction in inflationary pressures during the year, although m ost forecasters expect prices generally to continue their upward trend. The consensus is that consum er prices will advance 3 .0 % to 3 .5 % during 1969, and that wholesale prices will increase by 2 .1 % to 3 .0 % . These predictions com in the wholesale pare favorably to the 1968 increases of 4 .3 % in the consum er price index and 2 .5 % price index. Summary The ta x su rch a rg e e x e rcis e d som e
recession, although one o f rather mild proportions and brief duration. But a few others are predicting continued vigorou s expansion throughout the year. Finally, the m ore prudent are sim ply refusing to predict the quarterly perform ance of the 1969 econom y— and that means that it is, as usual, an unusual year. William E . Cullison
what less than its anticipated restraint during 1968 and the econom y advanced considerably faster than had been expected. T he 1968 econom y had the characteristics of a boom y e a r ; consumer prices rose rapidly and the unemployment rate m oved to a 15year low . Forecasters think that 1969 G N P will show a slow er rate of expansion than 1968 and that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
PERSONAL SAVING RATE
Since the passage of the 10% tax surcharge in June 1968 the personal saving rate has received much attention in the financial and econom ic press. M any econom ists expected the surtax to dampen the ebullient econom ic grow th o f the preceding twelve months. T his expectation was based in part on In fact, co n forecasts o f a sharp slow dow n in consum er spending follow in g the im position o f the surtax. sumer spending did not slow as expected in the third quarter, due in large part to consum ers reducing their saving rate. T h e personal saving rate expresses the fraction of disposable personal incom e which is not allocated by the consum er to personal consum ption expenditures. M any econom ists argue that this fraction should be expected to rise as per capita incomes m ove upward. Nevertheless, experience in this country since 1929
°L - J—
I— I— I— I___ I___ I____| ___ | ___ | ___ I
suggests that, looking at annual figures, there is no discernible upward trend. rate between 1929 and Sharp fluctuations in the 1945 are explainable by
I9 6 0
1968 datq a re quarterly. U. S. Departm ent of Com m erce.
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T he rate fell from
quarterly figures ranged from about 5 %
1929, the first year for which reliable data are avail able, to negative levels in the depression years of 1932 and 1933. In 1932 the saving rate was a negative 1.3% and in 1933 it stood at a negative 2 .0 % . In those tw o years incomes were so low that consumers in the aggregate had to draw dow n past saving to finance current consumption. Thus, the nation experienced net dissaving, that is, co n sumer expenditures actually exceeded current per sonal disposable income. In the middle and late 1930’s the average annual saving rate ranged in most cases from about 3^2% to about Sy2%. D uring W o rld W a r II the saving sharply, jum ping to 2 5 % rate rose in
8 .5 % and in the large m ajority of cases were be tween 6 % and 8 % . T he income tax surcharge, passed in June 1968 and designed in part to curb consum ption, did not immediately achieve that objective. Rather, co n sumers increased their consum ption by allow ing a decline in their saving rate to absorb the impact of the added tax. T h e saving rate dropped from 7 .5 % in the second quarter to 6 .3 % in the third quarter. T his drop is estimated to have accounted for about $7 billion of the $13 billion increase in third quarter consum er spending. Recently released figures for the fourth quarter o f 1968 indicate a significant increase in the personal saving rate to 6 .9 % while there was only a small increase in consum er spending. M . Grace H askins
in 1943 and 2 5 .5 %
1944. Production in that period was geared to the war effort, with many consum er good s in short supply and under strict rationing. Consumers had little choice but to save larger shares o f their g ro w ing incomes. T h e saving rate rose, therefore, not so much because of increased incentives to save as because of decreased opportunities to spend. W a r bond sales and appeals to individual patriotism were also factors influencing saving. F ollow in g W o rld W a r II the rate m oved back dow n to m ore normal levels, with annual figures fluctuating between 4 .3 % and 7 .1 % in the period from 1947 through 1950. A t the outset of the K orean W a r the rate dropped sharply for several quarters as consumers, remembering the rationing and short supplies of W o rld W a r II, m oved swiftly to lay in a hoard of key consum er items. A fter the war began in the early summer o f 1950, the saving rate dropped to 2 .2 % in the third quarter o f the year. T he spate of consum er buying was short lived, however, as popular fears of a repetition of W o rld W a r II scarcities subsided. curb consum er spending. quently jum ped to 7 .8 % Restrictions on consumer credit, im posed in late 1950, also helped T he saving rate subse in the fourth quarter of
PERSONAL CON SUM PTION AND S A V IN G
1950 and for the years 1951, 1952, and 1953 re mained in the narrow range of 7.2 % to 7 .6 % . Since the middle 1950’s the rate on an annual basis has seldom been below 5 % and seldom above 7% . Quarter-to-quarter changes have seldom e x O ver this period the ceeded one percentage point. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
then, is where farm ers and other rural landowners fit into the ou tdoor recreation picture. Recreation on Fam ily Farms T h e r e w e re 2,428
“ Golf courses are replacing cotton fields, barns are becom ing vacation cabins, duck blinds crouch at the edge of rice fields, and tents are being pitched in farm w oodlands.” These are the w ords used by form er Secretary of A griculture O rville Freeman a few years ago in describing rural recreation, a co m paratively new in com e-p rodu cin g enterprise for farmers and an aid in rural area development for many communities. Growing Need for Outdoor Recreation W it h the grow in g desire of urban residents to get away from the pressures o f crow ded city life and to en joy the ou t-of-d oors, demand for open space fo r outdoor recreation is multiplying with each passing year. T he President’s O u tdoor Recreation R esources R e view Com m ission ( O R R R C ) reported in 1962 that 130.4 million people 12 years old and over took part in 17 specified form s o f outdoor recreation on 4 y$ billion separate occasions during the summer of 1960. T he report anticipated that participation in these activities will increase to 7y 2 billion occasions by 1976 and to 1 4 }i billion by the year 2000, p ro vided facilities are available to meet the demand. T his w ould be m ore than a threefold increase by the turn o f the century. T he survey concluded that the expanding market for outdoor recreation is the result o f four m ajor factors— population, disposable income, auto travel, and leisure time— all of which are expected to in crease in the years to com e. Population, the most basic factor, is expected to double by the year 2000. Disposable consum er incom e is expected to qua druple. A n d m ore than a fourfold increase is an T h e grow th in leisure ticipated for auto travel.
Fifth District farm ers— around 1% o f the total— w ho reported receiving recreation incom e in 1964, according to the Census o f A griculture. O f this number, 252 were located in M aryland, 573 in V ir ginia, 303 in W est V irginia, 863 in N orth Carolina, and 437 in South Carolina. T otal recreation incom e reported amounted to some $2.6 million in the D is trict as a whole. F o r the farms involved, recrea tion incom e per farm averaged $1,089 and ranged from $758 in N orth Carolina to $1,849 in M aryland. T he accom panying chart shows the proportion o f farm ers reporting recreation incom e by amount re ceived. F o r the District, 3 8 % of all farm ers re porting recreation incom e received under $ 1 0 0 ; onethird reported from $100 to $ 4 9 9 ; 10% were in the $500 to $999 classification ; 8 % reported from $1,000 to $ 1 ,9 9 9 ; while 11% received $2,000 and over. Data for N orth and South Carolina reveal a similar picture to that in the District, while M aryland data show the greatest departure. W ith by far the greatest proportion of the D istrict’s farm ers report ing less than $500 in this type income, it is apparent that m ost o f them consider their recreation enter prises to be only a supplementary source o f income. F rom a study of county data, it w ould appear that farms receiving the largest average amount o f recrea tion incom e are generally located near large popula tion centers. T he kinds of rural recreation enterprises which farmers can develop vary widely, running the gamut from nature walks to fishing, cam ping, and “ hunting preserves.” A study made by the Department o f These are logical A griculture lists seven categories.
time, much o f which can be expected to g o into outdoor recreation, is indicated by both a shorter workw eek and an increase in paid vacation. W ith the surging demand for ou tdoor recreation estimated to be only a foretaste of what is to com e in the years ahead, considerable expansion is planned for recreation facilities in national, state, and local park and forest areas. Even with the planned e x A ccord in g to a study pansion, the anticipated demand reportedly cannot be met on public land alone. made by the U . S. Department of A griculture, the greatest potential for meeting future outdoor recrea tional needs is on private rural land. M ost privately owned land is in farm s, forests, and rangeland. This. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
groupings, but they do not cover fully all kinds of incom e-producing recreation enterprises. V acation farms are prim arily a type o f operation in which paying guests live at the farm during their stay, which may vary from a week to an entire summer. A reasonably m odern farm home, with G ood home c o o k climate, enough sleeping, eating, and living space for a few visitors, is the basic requirement. ing is a top attraction. A com fortable
country air, pleasant surroundings, and a chance to participate in some farm activities are also co n sidered essential. Generally, there are other fa
cilities, such as ponds for fishing and swim m ing or horses for riding, which add to the pleasures o f the guests. Charges are generally moderate when co m pared to those for other vacations. Vacation farms have special appeal for those who want to escape from the confinements of city life. T hey also provide the opportunity fo r city-bred children to experience country life such as their parents or grandparents did. V acation farms can he found scattered throughout the District. P icnic and sports areas offer a com bination of recreation facilities, often to groups for part or all of a day. Charges can be made either separately or on a daily fee basis. Such areas are usually within about an h our’s drive from cities and near g ood highways. Fishing can be provided in natural waters such as streams, lakes, and rivers, or in man-made lakes or farm ponds. A farm er whose land adjoins public water— a lake or river— can offer access privileges for a fee. B y adding the rental of boats and m otors and the sale of tackle, bait, and supplies, it is p os sible to develop a sizable business. Farm ponds built for irrigation, watering livestock, and fire p ro tection are becom ing increasingly important fo r fish ing. F or the privilege o f fishing in private water, fees charged are generally per pole or per fisher man on a daily basis. But for a specialty such as trout fishing, charges are usually based on the weight • ' *!! ,-rp . ; ■
or length of the fish caught. T he eager trout fisher man w ho wants to keep his catch can find a number of “ catch-out” lakes in the mountain counties o f N orth Carolina and V irginia. Camping, scenery, and nature recreation areas re quire a rather special environment. A ccess to scenic attractions, a variety of wildlife habitat, special plant or animal attractions, and varied topography are som e o f the essentials. T h e m ajor source o f incom e com es from privilege fees, although additional in com e may be derived from sales o f supplies and from guide or outfitting services. M ost farmland produces w ild gam e o f one kind or another and can be used as hunting areas. M ore and m ore farm ers are marketing hunting privileges by charging for the privilege o f entering their p rop erty to hunt. Perm its can be sold to individual hunters by the day, or they can be sold in the form of a seasonal lease to a grou p o f sportsmen. W h ere individual farms are too small, neighboring farmers can com bine their properties into a single hunting area for lease to a grou p o f hunters. Quality o f the hunting will determine the rates which can be charged. A “ hunting preserve,” unlike a hunting area, is a com m ercial operation which offers guaranteed shoot ing o f pen-raised game fo r a fee. porting activity. H unting It is usually the are usually main business of the operator, with farm ing a sup preserves
RECREATION INCOM E RECEIVED BY FARMERS Proportion of Farm s Reporting by Amount
Fifth District by States, 1964
$2,000 and over $1,000 to $1,999 $500 to $999
$100 to $499
W est Virg in ia
North C aro lin a
South C aro lin a
U. S. B ureau of the Cens
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licensed and regulated by state laws. Large p re serves may find it profitable to raise their ow n game, but as a rule the game are bought from a com mercial producer. Operators usually provide hunting dogs and a handler as part of the service. Selling cottage and recreation sites, or recreation use rights, is another type of enterprise considered suitable for farmers. It involves the development o f an attractive recreation area on farmland which provides the opportunity fo r selling cottage, camp, or hom e sites, or leasing rights to use the facilities built by the owner. Land in the mountains, along a stream, or around a lake may be divided into lots for sale or lease. A nother possibility is the sale or lease of land with interesting natural features to school districts for “ outdoor classroom s” or science study. Some Pros and Cons W h ile p riv a te ly ow ned
Alta in Preston County, W est V irginia, illustrates the cooperative approach. T his year-round recrea tion com plex form ally g ot underway in July 1965 with an $820,000 loan from the Farm ers H om e Adm inistration and $180,000 contributed by 1,200 farm er and rural resident members. W ith most m ajor developments com pleted, it opened fo r busi ness in July 1967. Encom passing more than 2,000 acres of land with a 6 5 -acre lake for boating and fishing, the p roject includes a lodge, winterized guest cabins, swim m ing pool, g olf course, a cam ping area for tents or trailers, and a ski lift. Both b ow and arrow and regular hunting seasons are observed. T he com plex supplies recreation to its members and to the public as well. Fees for use of the facilities have been set up, with members getting special dis counts and nonm embers paying the full fee. T he association’ s prim ary aim is to aid the econom y of this rural area by drawing vacationers to it. Evidence that rural com m unity recreation facilities aid in rural area development is shown by an illustra tion from N orth Carolina. Near Scotland N eck, in H alifax County, a recreation association has built a new 175-acre recreation area. Included in the com plex are an 18-hole g olf course and p ro shop, tennis courts, playgrounds, and a m anager’s quarters. Designed to serve nine nearby comm unities, it is al ready credited with contributing to the decisions of two new industries to locate in the area. Summary G r o w in g p o p u la tio n , in co m e , leisu re
rural recreation enterprises can be profitable, they sometimes involve problems. On the plus side, they offer farmers opportunities to increase their incomes without leaving their fa r m s ; they frequently aid in diverting cropland from surplus production to a more profitable u s e ; and they contribute to the prosperity of other local business establishments. A t the same time they d o not rem ove land from private ow n er ship or reduce the tax base. O n the other hand, a rural recreation enterprise is likely to involve an individual farm er in a set of management problem s quite different from those ordinarily associated with farm operation. A m on g the m ost frequent of these a r e : the need to learn the skills required in meeting the general p u b lic ; a changed tax situation; a changed position with re spect to other local ordinances and state la w s ; re cruitment of la b o r ; adequate liability insurance co v e ra g e ; and vandalism. Rural Community Recreation Facilities M a n y o f the limitations inherent in an individual’s efforts to establish a successful rural recreation enterprise can be overcom e by the form ation of a recreation c o operative. A dvocates of the cooperative approach It can provide the means o f o b argue that it has many advantages over the indi vidual approach. taining the larger land area and the larger amounts of other resources often needed for development of rural recreation facilities. It can make possible a Other advantages m ore diversified recreation program and often af fords greater management skills. include joint prom otional efforts, joint purchasing, more efficient use of equipment, and limited lia bility and risk. A rural user-controlled cooperative near T erra
time, and travel are increasing the demand fo r ou t door recreation. T his boom ing market and its an ticipated future expansion cannot be met by public facilities alone. T here is considerable potential, therefore, in the development o f rural recreation enterprises on private land. Farm ers and other rural landowners may find it profitable to convert some or all of their land into some form o f outdoor recreation. Selling recreation privileges to vacation ers and weekend visitors can be a tricky business, however. B efore an individual invests heavily in a recreation enterprise, he should carefully study his situation— his potential market, his resources, and his own aptitudes. a “ specialty cro p .” Rural recreation appears to be Farm ers with the right talents, Others
in the right location, and with the needed resources will succeed in reaping a profitable harvest. will fail. proach. W h ere a privately ow ned enterprise is not A com m unity-developed recreation co m
feasible, it may be possible to use a cooperative ap plex can, in fact, aid in the econom ic development of the surrounding rural area. Sada L . Clarke
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The Fifth Di s t r i c t
Usury Ceilings, M ortgage Funds, and Residential Construction Until m id -1967, four Fifth District states had statutory limits of six per cent per annum on the contract interest rate for hom e mortgages. South Carolina and the District o f Columbia, with limits of seven and eight per cent, respectively, were the only exceptions. These so-called usury laws had been on the books for a number of years. It has long been argued in many quarters that at times these legal ceilings, and especially the six per cent limit, had the effect of channeling funds away from m ortgage markets with resulting cutbacks in the pace o f private residential construction. Experience during the sharp credit stringency in 1966 lent substance to this argument. O ver the first eight months of that year, interest rates in most credit markets rose steeply and in some markets m oved well above the statutory ceilings. Typical sources of funds for hom e mortgages were nearly choked off and residential construction faltered badly. A s a result plans of som e individuals to build or buy homes were curtailed or delayed. A t the same time costs of construction were rising, aside from the cost of money, driving up prices of new and existing houses and making hom e ownership correspondingly m o re d iffic u lt. In som e ca ses actu al h o u s in g shortages developed. A n Uneven Impact It was contended by some observers o f the construction industry in 1966 that the dim inution of the supply of m ortgage funds, while general, was irregular as to its impact in various states. T hose states which had the lowest ceiling rates appeared to suffer most. Because of sharply rising rates payable on bonds and other market instruments, some types of financial institu tions that ordinarily supply large amounts o f funds to m ortgage markets found it increasingly difficult to raise funds. Banks and savings and loan associa tions, restricted as to rates they could pay on cer tificates of deposit, time deposits, and savings ac counts, not only found it hard to attract new savings but also experienced great difficulty in holding onto old accounts. M oreover, with yields on alternative investments at unusually high levels, the attraction of six per cent m ortgages fo r life insurance com panies and mutual savings banks diminished sharply. H ence, the flow o f funds into m ortgage markets fell off sharply. T his was true throughout the country after the early months o f 1966, but especially true in those states where substantially low er limitations on m ortgage rates existed. New Statutory Ceilings A s a resu lt o f the 1966 experience many state legislatures undertook search ing restudies of their usury laws and o f the pos sible implications of the low legal ceilings fo r resi dential construction and fo r hom e ownership. F rom these studies there emerged num erous revisions of longstanding legal ceilings. M any states which had maintained the six per cent limit on hom e m ortgages
PERCENTAGE CH A N G E IN VALUE OF CO N TRACTS AW ARDED FOR RESIDENTIAL CON STRUCTION From Corresponding Y e ar-Ea rlie r Period
Fifth District by States and the U. S. 1966 1st Half M aryland District of Colum bia V irgin ia W est V irginia North C aro lin a South C aro lin a Fifth District United States 16.2 - 5 0 .5 - 9.4 21.3 9.1 15.9 2.2 2.5 2nd H alf - 3 8 .7 - 5 0 .2 - 4 4 .8 - 2 0 .8 - 2 3 .8 - 2 1 .3 - 3 4 .9 - 3 0 .8 Ye ar - 1 4 .4 - 5 0 .4 - 2 6 .6 1.9 - 7.8 - 4.2 - 1 6 .9 - 1 6 .6 1st H alf - 3 0 .0 - 7 3 .9 - 2 7 .5 - 6.7 - 8.3 - 2.5 - 2 1 .6 - 1 2 .1 1967 2nd Half - 1 9 .5 - 3 0 .7 39.8 45.1 30.6 47.8 19.1 41.4 Y e ar - 2 5 .8 - 5 7 .8 - 2.9 16.3 8.2 19.8 5.2 10.1 1st H alf - 1 1 .8 108.1 34.7 39.6 36.6 51.3 26.1 33.3 1968 2nd* Half 27.2 45.1 37.6 - 2 3 .0 20.1 2.8 21.6 22.8 Y e ar* 3.9 73.1 36.1 7.2 28.7 26.3 24.0 28.1
Data upon w hich this table and the accom panying article are based a re furnished by and a re used w ith the permission of the F. W . Dodge Co. ‘ Decem ber 1968 d ata a re not a v a ila b le . totals, respectively, for both y ears. Per cent changes for the second h alf and for the yea r a re calculated from five- and eleven-month
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raised the ceilings, in some cases as high as eight per cent, in the hope that this would make m ore funds available to finance local residential construction. N orth Carolina was the first D istrict state to act when on June 21, 1967 the raised to seven per cent on loans secured by a m ortgage on M arch 1, 1968, V irginia contract rate limit was residential construction or deed o f trust. Then raised its contract rate
tion contracts in the Fifth District and throughout the United States suffered large declines in 1966, with m ost o f the cutback com ing in the second half of the year. R ecovery began in 1967 but it de veloped m ore slow ly in the D istrict than in the nation at large. F or the first half of 1967 awards were low er than in the corresponding year-earlier period for both the D istrict and the nation, with the drop considerably sharper for the District. T h e figures show im provem ent in 1967’s second half although it should be noted that this com parison is with the extrem ely poor perform ance o f the second half of 1966. F or 1967 as a w hole the District experienced a further decline while the United States at large began to recover and recaptured a substantial portion of the previous year’s loss. Data for 1968, though still incomplete, show a continuation o f the recovery. In each half, gains over the corresponding yearearlier period w ere substantial fo r the D istrict as for the nation as a whole. District percentage gains were not as great, however, as those for the entire United States. A state by state examination of the table also points up som e interesting com parisons. T he D is trict of Columbia does not provide a g o o d exam ple since the value of its residential construction is rela tively small and tends to m ove erratically. B y the end of 1968, N orth and South Carolina and W est V irgin ia had m ore than regained the decline they had experienced in the earlier part o f the three-year period. V irginia had almost done so, and, excluding D . C. from the analysis, the only remaining e x cep tion was M aryland, where special legal difficulties arose over the interpretation of laws regarding in terest ceilings. T his may have been a factor in the apparent reluctance o f some lending institutions in that state to participate in the hom e m ortgage market until a court clarification was obtained. W illiam H . W allace
limit to eight per cent, and on July 1, 1968, the co n tract rate limit in M aryland m oved to eight per cent. Finally, W est V irginia m oved its contract rate ceil ing to eight per cent on September 14, 1968. N o changes w ere made to the limits applicable in the D istrict of Columbia and South Carolina. T hese legislative changes apparently have had the effect of increasing the flow o f funds into residential building. H ow ever, some observers maintain that as interest rates have risen further, particularly in recent months, even the new ceilings may not prove high enough to provide a sufficient flow of funds into m ortgage markets. In this connection, it should be noted that ceiling rates on F H A and V A m ortgage loans were raised to six and three-fourths per cent last M ay and to seven and one-half per cent in January o f this year. Residential Building Contracts Since 1966 The
construction industry in any given area is of course affected by changes in general econom ic conditions. In m ost im portant respects, changes in the general econom ic climate during the past three years were similar for the District and the nation at large. It is beyond the scope of this article to exam ine the impact o f such factors. N or is it the intention to explain differences in construction activity entirely by state interest rate ceilings. It is inform ative, h ow ever, to examine the relative changes in value of residential construction during the 1966-68 period. T h e accom panying table underscores the generality of the problem s that occurred. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Residential construc
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