Friday, December 30, 2011

1951: Investment

This post is part of the Bonddad economic history project.

The above chart shows the contributions investment made to GDP in 1951.  The big story above is the massive inventory draw down that occurred throughout the year.  Remember, that in 1950 we saw a massive inventory build as businesses stockpiled items in anticipation of the Korean war demand.  Also note the drop in residential investment, which was caused by the Fed tightening money supply and raising reserve requirements during the year.

The above chart from the 1952 Economic Report to the President puts the investment situation into perspective.  The dotted line at the bottom shows the huge drop in inventories.  Also note the drop in new construction.  However, there is an increase in producer's durable equipment, which shows businesses upping their industrial plant in anticipation of war purchasing.

The above chart shows the overall increase in plant and equipment on the part of business during 1951.  Most of this was war related spending, as businesses anticipated the war effort would increase demand for heavy goods.  This explains the large increase in primary metals, machinery and non-auto transportation equipment.