Impact of Defense Procurement

13 Advice from the manufacturer of the C-46 aircraft and the Aircraft Industries Associa-
tion indicated that the sale of these 116 aircraft would be helpful to the manufacturing
industry in that there would be an increased demand for spare parts. Therefore, on Nov.
18, 1957, BDSA recommended to DOD that the sale of these aircraft would not cause an
adverse market impact.

Subsequently, it developed after the Air Force sold 4 of these aircraft, that further sales
could possibly have a very substantial adverse impact upon other segments of aviation
primarily the airline industry and companies involved in aircraft modification and sales.
It was also apparent that the sale of C-46 surplus aircraft could possibly be the initial part
of a much broader problem relating to impact from surplus sales of other transport and
utility type aircraft.

On Jan. 15, 1958, BDSA advised DOD of this possible impact and recommended that
future sales be postponed for further impact study and other recommendations submitted.
From advice received during a special conference on this subject, held by BDSA on
Mar. 19, 1958, and from a Government interagency committee, BDSA on May 14, 1958,
made recommendations to the DOD:

1. None of the remaining C-46 aircraft should be sold on the domestic market, except
as provided in item 2 below.

2. 60 of the least desirable of these airplanes should be made available for spare parts
purposes, with appropriate stipulation on sales contracts to preclude their use as flyable
aircraft and in such manner as to be consistent with civil safety considerations.

3. The remaining 51 should be stored for at least such temporary period as may be neces-
sary to permit exploration of the extent of potential usefulness in connection with Gov-

4. If it is found upon appropriate reexamination that the retention of some or all of the
51 C-46 aircraft would serve no useful purpose from the standpoint of Government pro-
grams and that continued storage would present substantial difficulties, we would recom-
mend that these be destroyed for salvage purposes.

None of the anchors to be sold as anchors until such time as the industry and the area
had recuperated from the economic recession and could accommodate to the disposal
without adverse effect. Consideration should be given to selling the anchors for scrap
purposes only, if it was found that the Government had not received sufficient return
above the price of premium scrap to warrant their being sold as anchors.

15 Sulfuric and nitric acid facilities.

16 Both plants had formerly been leased to private industry, Cactus in 1948 and Morgantown in 1952. Lease of Morgantown was terminated in July 1958.

17 Balance carried over from 1958. See above.

18 Initiated by BDSA from various DOD excess property lists. 19 Verbal.

20 Supply-demand study forwarded.

21 Impact of sale of all pallets at one time would have been severe in some areas. Im-
pact varies from slight to severe, depending on economic conditions and season.

22 Recommended schedule of sales: Oct. 10, 1958, 76,210 pallets; Jan. 23, 1959, 72,145
pallets (after adjustment of Mar. 18, 1959); Apr. 14, 1959, 55,250 pallets; and July 20, 1959,
45,000 pallets.

29 Diesel propulsion only. Disposal program covered landing ship medium (LSM),
landing ship medium rocket (LSMR), and landing ship tanks (LST) each class equipped
with twin diesel propulsion engines. If vessels not placed in active service, equipment
and components would be salvaged and offered on the open market and hulls would
be scrapped, in which case there would be severe impact on the diesel engine industry
then operating at 40 percent capacity.

30 Agreement was made to stretch out the ship disposal program as much as possible
and offerings were made at the rate of 10 to 13 ships per month.

31 We suggested that DOD recirculate this item at a reduced price with the thought
that most of them would be picked up by other Government agencies and thus not
appear on the commercial market. This was done and most of the binoculars were picked
up-those remaining for public sale were not enough to create a market impairment.
32 We contacted manufacturers of aerial cameras who reported that this type of camera
was now obsolete and its sale would have no unfavorable impact on the market; we so
advised DOD.

FEDERAL STATISTICS USERS' CONFERENCE,
Washington, D.C., January 22, 1960.

Hon. PAUL H. DOUGLAS,

Chairman, Joint Economic Committee,
New Senate Office Building,

Washington, D.C.

DEAR SENATOR DOUGLAS: I have noticed with considerable interest that the Joint Economic Committee has scheduled hearings late this month on the impact of defense procurement on the national economy.

It has long been recognized that defense expenditures have an important effect on the level and trend of overall economic activity. Considering the importance of these expenditures it is curious that there has been no detailed examination of the available statistical information relating to this important part of the economy.

The adequacy of information on Federal Government procurement has been a matter of growing concern to users of Federal statistics. User interest has led to the establishment of a committee on Federal Government procurement statistics in the Federal Statistics Users' Conference. This committee, of which I am chairman, is just now getting underway. Although its work has been essentially of an exploratory character so far, some observations on the adequacy of existing data and the need for statistical improvement which has been brought to the committee's attention may also be of interest to you.

Generally speaking, available data provide a reasonable good historical expostion of the broad importance of defense procurement to the national economy. They do not, however, furnish much assistance to public and private decision makers who are concerned with the current and future impact of defense procurement upon the economy.

For example, available public information does not reveal how the impact of defense procurement activities will be felt by the economy over time. Appropriations and contract awards information provide a rough guide to the impact of defense procurement activities for some indeterminate future period, but they give no indication as to what the impact will be in 3 months, in 6 months, in 9 months, and so on.

It has been suggested that effective debt and budgetary management as well as the implementation of the Employment Act of 1946 would be promoted by quarterly estimates of anticipated expenditures for defense procurement. In furnishing such quarterly estimates, the Federal Government would be supplying information akin to that which business supplies on its anticipated expenditures for plant and equipment. Such quarterly information would undoubtedly be of considerable importance in evaluating the short-run impact of defense procurement on the national economy.

It has been argued that inadequacies in existing data contribute to economic instability in industries which serve defense needs. The budget cycle within the military services stretches over more than an 18-month period. Part of this process within the services involves firming up plans for the forward procurement of specific quantities of individual items.

Manufacturers, too, have a lead time between the decision to produce and the time when goods become available. To learn of procurement decisions after the crucial manufacturing decisions have been made introduces obvious instabilities into the economy. Statistical information which would make possible a higher degree of coordination between procurement decisionmaking and private decisionmaking would help to mitigate the instabilities which defense procurement introduce into the economy.

In this connection, it has been pointed out that the effectiveness with which procurement statistics can be used by management varies directly with the amount of industry or product detail that is supplied. Manufacturing plants are committed to the production of specific items and manufacturers find it increasingly difficult to make practical use of information as the categories which describe it become broader.

The impact of defense procurement on the national economy is of such importance that it would seem to be worth while for the Joint Economic Committee or its Economic Statistics Subcommittee to consider whether the presently available information is adequate to meet public and private needs.

Should the committee decide to embark upon such an inquiry, the Federal Government procurement statistics committee of the Federal Statistics Users' Conference would be glad to lend every possible assistance to the committee's work.

Sincerely yours,

HOWARD L. STIER.

Data on depot activities and inactivations since 1947

DEPARTMENT OF AIR FORCE DEPOT ACTIVATIONS