Created: 7/22/1957

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MEMORANDUM FOR: Deputy Director/Intolligonce

Hid-Tear Economic Report

I. Summary

The progress of Soviot industry reported In thelan fulfillment report is somewhat better than expected, reflecting additions to tho labor force from demobilization and no significant deleterious effects from the industrial According(to the official report,production increasedercent in the first six months, compared to the7 planercent, and correspondingly large increases were reported forercent) and consumer (eight porcent) goods.

Nevertheless, the report has an optimistic tone wbfch is not fully Justified on balance. Although monetary allocations to capital Investment andousing construction are running well ahead of schedule, completion of physical productiveis still behind tbo7 schedules in rolling mills, coal, iron ore, and electric power while completion of housing is well behind planned goals. Again, production of coal and cement hasarked improvement thus far7 butis still lagging in ferrous metals, timber, probably in copper, and is Just barely satisfactory in electric power. Difficulties in ferrousarc highlighted by0 percent drop in the production of metallurgical equipmont, probably due to difficulties in producing rolling mill equipment. New capacity in iron ore production is still lagging in tho face of tight domestic supply and commitments for increased export to the Satellites.


- Annual

irst Half 7 Firstof Increase

Over 65 Over* equired

irst Half PTan 6 First Half0 Go



Goods Consumer

Goods lustrial Pro-iction- Cost iduction*

ProductivityConstruction >ital. Investment















Decreasethat full7 rate of increase will be/same as half year.


The report does little to clarify tho Soviet' intentions as0 industrial production goals. Tho strong noto of optimism ln tha report mayKhrushchev's deslro to Maintain tho goal5 percent Increase ln industrial output5hllo simultaneously trying to catch up with the OS in por capita production of moat and dairy products. Becauso the natural increment to the labor force in tho next three yoars will decline sharply and because little has been accomplished in making up the capacity 'shortfalls In baslotho0 goals will be voryto achieve.

The Industrial labor productivity goal0 is nov clearly out of the question. On tho other hand, the Increment to the labor force fromthus far has largoly offsot tho low growth of productivity. In light of declining naturalto the labor force, further demobilization or drastic reallocation of labor to industry from otbor sectors will bo roquirod to offset future slow growth of productivity.

Whilo substantial gains in agricultural output wero reported for the first six monthsn-croasos for tho full year are oxpoctod to belower. The most interesting trond ln agriculture was tho unprecedented growth ln the number of utato farms, suggestingrogram for llnltod conversion of colloctivo farms to state farms may bo la the offing. The objectivo ofrogram would bo to increase output by converting backward collective farmsinto state farms. this apparently lmpllos an Increase in total agricultural invostmont. If this is accomplished, labor could bo roleased for Industry toward the ond of tho current plan.

II. Industry

Ashe gonerally favorable trend io overall industrial production during the first six




(Percentage Increases)

irst Half5 First Half


First Half8 First Half


Annual Rato of Increase Required for0 Goals*



that full7 rate of Increase will be the same as half ptislslstlc assumption In nost cases.


This probably ls i


montbs7 was in sharp contrast to continued difficulties ln the basic natorlals industries. Stool production Increased only four percent and pig iron only throe percent, compared to tbo very modest plans for tho entire yoar of about six pur-cent for botb commodities. Electric powerwas also behind schedule, and Micro wereunderfulflllmonts In copper and timber Coal and cement shoood marked improvdmont. and were ahead7 plan schedulo whilo crudo petroleum, as usual, mot the planned targets.

7 plans for additions to capacity In coal, iron oro, rolled steel and electric power continued behind schedule. Underfulflllatont of iron oro capacity Is particularly serious in vlow of the domestic shortago of pig iron and increased export obligations to the Satollltes. In the faco of tho extremely short supply of metals, tho reported in-croase ofercent in machine building and metal working (which accounts for aboutercent of gross industrial output) was very surprising,inventories are not being built up to normal loveIs as plannod. It is difficult to eeo how the overall growth rate of the first half year can be maintained unless thereery rapid ln-oroase in output of ferrous and non-ferrous metals in the next six months.

Trends in the machine-building industries wore very similar to last yoar. Although someoccurred there wore still serious lags inof capital equipment for basic matorials Industries such as metallurgy and electric power. Tfaoretriking decline ofercent in tho production of metallurgical equipment. Production of transport and agricultural machlnory andcontinued to increase rapidly. No mention of tho ambitious program for production of automation equipment was made, suggesting continuing difficul- -tios.

Output of many consumer durables continued to rise rapidly, but the base, of course, is still



t^JJi" Production,ofprocessed foods6XC0PtlODally large har-

III. Investment

.the TOluffl8 of capital investmentsthe first six months7 increasedver the volume in the first halfndindustries wore under-xulfilled. In housing, completions for the first

ttr."mlng as far behind Module JiL irst half of last year despite the fact that

?oconstruction activity has in-half6 porC6nt lDwith the first

Planned completions of new productionhaye been fulfilled or overfulfilled for crude

pie,ironand several consumer goods industries. However, planned now capacities in other vital

r?sT0rerfulfilied as Dnderfulfillments occorred in plans for construction of new capacities for rolling millsoloctrlcand reinforced con-

results for the first half of the

ZmZ, ho^l> arc seldom reliable indicators of the achievement for the entire year- and the investment

the.roduction plan, of tenduring the .

I*". Agriculture

Increases, over the first halffercent for moat production andercent for milk production were announced. These increases refer


inV?^Jh nd state *arn> Production and do not Include the important share of production contributed by the private sector, which holds about half of tho cattle and aboutercent of the hogs. Private livestock production has probably not increased at vno tiamo rate.


Tho plan to ovoo out moat production throughout this year probablyeason why tho socialized soctorarge increase. In former years, meat production during the year was boavllyin tbe socond half of the yoar, andhird of tho annual meat output cane in the first half.

Although total production of moat and millc7 will bo substantiallyho increases for tho full yoar will probably be considerably loss than for tho first half, when livestock production benefited from the large grain harvost6 and good spring pasture conditions. Preliminaryindicates that weather conditions are not so favorable for this year's harvest.

The contlnuod rapid rise in output ofmachinery reflects not only the drive togroator harvests and more food for tbeprogram but also the continued high priority of agriculture in general. The greatest gains were ln machinery for corn production, and for two-stage harvesting to roduce harvest lossoa of small grains.0 grain0 corn and silage conbines,0 headers delivorod during the first half7 equal tho numbers received during all Those deliveries, which roflect the current orgont nood for all typos of agricultural machinery, are well ahead of the annual schedule implied in tho Sixth Five-Year Plan. Therefore, the agricultural machlnory park0 will bo much larger or noworesult of retirements) than planned, unless deliveries are reduced8

The number of state farms grow, six times the net increase ln the precoeding six yoars.arge number of new state farms were created in the Row Lands, thero was little net increase in tho number of state farms during that period. Tho roceot increase mayrendthe limited conversion of collective to state farms. The objectives ofrogram would be to




increaso output by bolstering backward farms wltb state aid In tho form of incroasod capitaland adoption of hotter technology. Ifof capital machinery and othorulpmont are correspondingly increased to agriculturehole, theretrong possibility Of labor savings toward the end of tho current plan. The agricultural machinory output trends thus farurther Increase in capital investment in

V. Labor.Force

Thero was an additionillion workers and employees during tho pastonths. Of thisillion represents merely tho bookkooplng transfer of members of producer. In addition, there was probably Borne transfer of collective farmers to stateesult of tho creation of new state farms. Because no data woro released on the not change in collective fara employment fromohe change in the total civilian labor force during this porlod cannot bo estimated. The mid-year plan fulfillment, therefore, does not provide anyinformation on probable demobilization. analysis of labor force data for tbe full6 does indicate an apparent demobilization of moroillion men during that period. Sorvice men demobilized6 would havo made acontribution to industrial output in the first half

VI. Transportation

The roports of railway freight traffic for the first half7 Indicate an Increase of nearlyercent in tho average longth of haul fromllomoters This may well reflect tho increasing remoteness-of raw material sources. Thegofil-to reduce the average longth of haulilometersborefore, appears unattainable.


VII. Retail Trade

Retail trodo volume,ercent larger than for tho first halfa veil ahead of plan. This rapid growth ls about double the increase in Output of food and nonfood industrial consumer goods. of perishable foods Increased because of tho6 harvest. In addition, however, itthat stocks and inventories of industrialmay havo been reduced. The rapid increase in availabilities of consumer goods is providing material incentives to the labor force and partly offsotsIncreases in disposable lncomo from wage and ponslon measures.


Assistant Director Research and Reports







Pull6 Over Full5

Percentage Increase

First7 Over First6


2 -5






8 25


7 6


Percentage Increase

Full6 Over Full5

Percentage Increase

First7 Over First6

Equipment (con't. )




Metal Cutting

chine Tools


Ball Bearings

Roller Bearings

Transport Machinery


for Main Railways

Diesel Englnos

Main Railways

Agricultural Equipment


, vator Tractors





Combines forSilage Crops


8 15






6 output with which comparison is madea relatively small part of the6 output.

Original document.

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