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federal reserve bank of bosfon




January 5, 1955
To

the

M em ber B a nks of the

F ed er a l R eser v e B a n k of B o sto n :

I am pleased to transm it the 1954 annual report of the Federal Reserve Bank
of Boston.
You w ill observe that much of this report is given to an analysis of New
Englan d’s economic grow th since 1920. We have chosen that year as our starting
point because detailed statistics on the region have only been generally available
since the end of World War I.
The heartening facts brought out in this report show th at a grow ing popu­
lation, expanding incomes, and increasing productivity provide a foundation on
which New Englanders m ay base sound expectations for the region’s continued
progress and development.
On behalf of the directors and officers, I w ish to express appreciation for
the cooperation received throughout the year from the staff of this institution,
from bankers, and from leaders of agriculture, commerce, and industry in the
First Federal Reserve D istrict.




table o contents
ff




A Review of N ew En glan d ’s Economic Progress.........................

5

Principal Operations of the B a n k ...................................

19

Summary of Principal Changes in Statem ent of C on dition . . . .

20

Com parative Statem ent of C on ditio n ........................

22

Com parative Statement o f Earnings and Expenses......................

23

L ist of Officers, Directors, and C om m ittees...................................

24




I n the sm allest of the country’s regions and w ith but meager m aterial
resources, the people of N ew England have built an outstanding economy —
complex, resilient and dynamic. Its com plexity grow s in part out of its more
than three centuries of development. Its resilience and dynamics stem from the
N ew Englander’s basic character and the society which he has created.
New En glan d ’s six sovereign and sometimes vehemently independent states
contain only six per cent of the country’s population — considerably less than
the New York-New Jersey m etropolitan area alone.
Yet, “ there were probably not 10 countries in the world w hose annual
income equaled N ew E nglan d’s , ” reported the Council of Economic Advisers
to the President in 1951.
“ If the country as a w h ole,’ ’ they continued, “ produced as much income
per square mile as New England . . . the national income would be raised to . . .
about three times the current income of the country.’ ’

a review of new england’s economic progress




The Y ankee’s w ays o f earning a living are as varied as the region’s land­
scapes. He fishes the blue A tlantic, raises everything from potatoes to wrapper
tobacco, quarries granite and marble, teaches the young in internationally
famous institutions, sells insurance around the globe, researches things and
ideas from atom s to public opinion, bankrolls businesses throughout the w orld,
and collects a handsome sum annually from vacation visitors to the region.
All these are im portant, and lend color and liveliness to the New England
economic scene.

5

S C H O O L AG E POPULATION

BY 1965 THERE W ILL BE
ONE M ILLION MORE N EW ENGLANDERS.




But for generations, the prime source of new money for N ew England
has been the processing of imported raw m aterials into an incredible array
of products sold to the nation and the world.
What keeps New England a vigorously goin g concern are its 24,000
manufacturing plants — up 50 per cent in number since 1939 — its m illion
and a half industrial w orkers, and its $6 billion m anufacturing payroll.
N ew Englanders take justifiable pride in their vast recreational
industry and in the products of their farm s, forests, and fisheries. But
manufacturing is the basic and largest source o f income in every New
England state.
New England, says the U. S. Departm ent of Commerce, is the most
mature, most high ly developed industrial area in the country — which
means of course in the western hemisphere.
The essence of all successful industrial economies is change, and in
New England there have been m ajor economic changes since World War I
that have conspicuously improved the w ell-being of N ew Englanders. To
explore New E n glan d ’s progress through change is the purpose o f this
report.

new england’s progress through! change
Today there are nearly 10,000,000 persons in N ew England, w ith
some 2,000,000 of these added during the last 34 years. M ost o f these new
residents were born here, though there have been periods o f grow th by
in-migration. And this population increase is in itself a dem onstration of

economic progress, for had New England been unable to compete in the
m arkets of the w orld, its people would have sought opportunity elsewhere.
The decade ahead is likely to add still another m illion to the number
of persons living in the six states. Probably no other single economic fact
w ill be of more importance to the region. This grow ing population w ill
demand still further expansion of public and private facilities, and w ill
provide new m arkets for many of the region s producers. In this fact lie
both the need and the opportunity for a continuing expansion of economic
activity. Another million people by 1965 w ill necessitate New England s
finding 400,000 new jobs, and of alm ost every im aginable variety.
The region’s labor force is made up of the 4,000,000 persons w ho w ork
outside their homes. It is the productivity of this w ork force which largely
determines how much the people of New England can buy and save.
B y anticipating and meeting the changing requirements of their
highly developed economy — and in this they have shown commendable
foresight and ag ility — New Englanders have constantly put more people
to w ork and increased their productivity. Since 1920, some 780,000 workers
have been added to the region’s total employment roll. And this grow th
in productive manpower has, in turn, enabled N ew England to m aintain
its income grow th.
But the sim ple statistics of employment gains hide vital changes
w hich have taken place since 1920 in the w ays by which N ew Englanders
earn a living.
Over the last 34 years, about 830,000 workers have joined the ranks
of the region’s service industries. This 70 per cent increase grew prim arily




N EW EN G LAND EM PLOYM ENT EXPANSION CO N TIN U ES

7

1920

30

INCREASING PRODUCTIVITY ALLO W ED




40

50

*54

SHIFT T O SERVICE INDUSTRIES.

out of two factors. Of first importance were the demands of industry and
the swelling population for additional facilities and service by agencies
of transportation, communication, utilities, finance, insurance and govern­
ment. The second factor w as further demand for doctors, lawyers, teachers
and other personal services resulting from higher personal incomes.
These two factors combined to absorb N ew E n glan d ’s increased labor
force into the service industries.
There is nothing unique to N ew England in this greatly enlarged
relative importance of service employment. It is part of a process going
on in most economies where income is steadily rising. In fact, the propor­
tion of New England workers presently engaged in these occupations is
sligh tly smaller than that of the country as a whole.
The unusual feature in the grow th of the service industries in New
England w as the w ay it came about. W hile the n ation ’s service industries
could draw from the farm labor force, this w as not possible in New
England.
In 1920, N ew England had only seven per cent of its w orkers in
farming, forestry and fishing, in contrast to the national proportion of

growth patterns o service industries
ff
28 per cent. The grow th o f the region’s service industries had to come,
therefore, at the expense of m anufacturing grow th. Indeed, between 1920
and 1954, the proportion of New E n glan d ’s w ork force employed in
manufacturing dropped from 53 per cent to 42. But the latter figure is

8

still one-third greater than the national average. And it is not only con­
firmation o f N ew Englan d’s dependence on m anufacturing, but also evi­
dence of the region’s manufacturing strength in generating higher incomes
to support expanding service employment.
By the sale o f New England manufactured articles to the rest of the
nation and the w orld, the region is able to pay for the foodstuffs and raw
m aterials which it must im port. And it is the incomes earned in manu­
facturing operations which provide the basic m arket for a large portion
o f N ew E nglan d’s service industries. Unless there is discovered w ithin
the region some tremendously valuable raw m aterial, New England must
look to its manufacturing skills for maintenance of its income.
The average level of m anufacturing employment in New England in
1953 w as about the same as the 1920 level. Yet during these years, indi­
vidual incomes o f an expanding population increased by one-half, even
after adjustment for changes in price levels. O bviously a fundamental
change in the character of N ew En glan d ’s m anufacturing activity took
place during that period to enable the same number of workers to support
more people at higher income levels.
T his change, the m ost striking development in the region’s manu­
facturing history, has been the shift in labor force to higher-paying, more
productive industries — to industries in which N ew E nglan d’s m anufac­
turers hold a better position in relation to their com petitors in other areas.
The transition in m anufacturing activities has been marked by the
significant increase in the relative importance of m etalw orking activities
— up from 30 per cent of the total m anufacturing employment in 1919 to




M ETA LW OR KIN G JOBS EXPANDED SHARPLY;

9

SOME NONDURASLES C O N TR A C TE D .

WORKERS SHIFTED IN TO INDUSTRIES W ITH HIGHER LABOR PRODUCTIVITY.




41 per cent o f the total in 1954. Other durable-goods m anufacturing also
increased sligh tly, so that the proportion o f total m anufacturing accounted
for by nondurable-goods industries decreased from 63 to 51 per cent of
the total.
The slow , steady contraction of N ew E n g lan d ’s textile industry has
been the m ost publicized, and certainly the dom inant factor, in the
dim inishing importance o f nondurable-goods industries in the region.
The loss in 34 years of 275,000 textile m anufacturing jobs w as especially
difficult for the region because of its reliance on the industry, and the
degree of dependence on textiles by m any com munities.
Despite this long record of contraction, the textile industry is still
New Englan d’s largest single em ployer group. And those firms which
remain have demonstrated their ab ility to produce effectively in New
England. N ew E nglan d’s em ploym ent gain s in the years ahead w ill be
facilitated if jobs lost in the textile industry do not have to be replaced.
The im pact of the n ation ’s defense program helped speed the transi­
tion in New E nglan d’s m anufacturing activity . M ilitary needs are pre­
dominantly of the hard-goods variety. T heir procurem ent, together with
the construction o f productive capacity for defense, further stim ulated the
expansion of-durable-goods m anufacturing in N ew England.
Between 1947 and 1953, 63 per cent o f all new m anufacturing jobs
added to the region ’s economy were in just tw o product categories
electrical machinery and transportation equipm ent. The demand for
electronic parts, radar, aircraft instrum ents, fire control devices, aircraft
and naval ships all energized expansion o f the m etalw orking branch of

lO

N ew England manufacturing.
The transition in m anufacturing activity means that New England is
m aking improved use of its m ost im portant resource — manpower. The
N ew England labor force is being steadily “ up-graded.” Output from an
hour of labor in the durable-goods industries now exceeds output from a
com parable hour in the nondurables by 10 per cent. The average net
product per man-hour in New En glan d ’s expanding industries in 1952 was
$3-94 as against $2.86 in the industries which have contracted since 1919.
There is encouraging evidence, too, that New England is im proving
its com petitive position in the national m anufacturing economy. In those
industries where New England is grow ing the fastest, the net product per
man-hour is also advancing the m ost rapidly.
G ains in net output per worker in the region exceed those of the nation
in six of the eight industries w hich are increasing net output per worker
m ost rapidly in the United States. Those six industries — prim arily
m etals — account for 41 per cent of all N ew En glan d ’s manufacturing
employment. T his record is partially explained by the fact that New
England manufacturers, except those in the textile industry, generally
enjoy com petitive w age advantages over manufacturers in other areas.
For the region as a w hole, the transition to durable-goods m anufac­
turing has also raised the annual income of the w orkers. The average w age
and salary income per worker for the years 1950 through 1952, in the
industries w hich have shown long-term employment increases in New
England, was about $3,500. In the industries w hich have been declining
it w as only $3,000.




11

PER CENT INCREASE IN NIT OUTPUT f i t MAN-HOUR 1M7-U

0

20

40

60

EXPANDED lf lf -5 3

N ON ELECTRICAL
M ACHINERY

C O N TR A C TE D 1919-53

PRODUCTIVITY G AIN S ARE H IG H ES T

IN TH E EXPANDING INDUSTRIES.




INDUSTRIES.
EXPANDING
ENGLAND'S
NW
E
I
N
HIGHER
ARE
WAGES
ANNUAL
AVERAGE

Unfortunately individual w orkers’ sk ills are not generally or easily
transferable between industries. The social costs of the transition, as
measured in unemployment, loss of sk ills, forced retirement, and forced
worker m igration, have been great. These social costs w ill be reduced by
strengthening New En glan d ’s rem aining textile firms, by retraining d is­
placed employees, and by other measures now being taken to relieve the
stress of the transition.
The rise in individual incomes in N ew England, in dollars of constant
buying power, has continued throughout the transition period and has
consistently exceeded the United States average. The region ’s per capita
income is now $1,824, seven per cent higher than the national average of
$1,709. In terms of 1954 dollars, per capita income in New England has
grown by one-half since 1929, reflecting the expanded output from each
man-hour of labor.
New Englanders still practice their traditional thrift. Individual
holdings of U. S. savings bonds, savings deposits and life insurance equities
continue to expand. These liquid savings in the region now total about
$2,033 per person, a level some 43 per cent above that for the country.
And the Y ankee’s steadily rising income has enabled him not only to
save more, but to spend more as well. After adjustm ent for price increases,
the record shows that retail expenditures per person in New England have
climbed by about 57 per cent since 1929, and have been constantly above
the national average since then. It is the com bination of a concentrated
area and a large m anufacturing population, w ith both high incomes and
high savings, that makes the area so rich a m arket for both consumer and
industrial products.

12




N ew Englanders have displayed self-reliance and organizational
ability in attacking the trouble spots which inevitably appear in a rapidly
changing economy.
As employment opportunities in certain areas dim inished, primarily
because of displacement in the textile industry and shifts w ithin the
region in the shoe industry, many communities devised economic re­
development program s. Through the commendable ingenuity of local
committees, they have appraised community resources, effectively sized
up their problems, and moved energetically to secure newer and more
diversified employment opportunities. In many instances the community
industrial base has been reconstructed on a firmer footing, frequently
through the activity of a local industrial foundation. By using locally
contributed funds, these foundations have often been able to erect new
buildings and lease them to enterprises requiring expanded quarters.
A pioneering effort in New England is represented by the form ation
of development credit corporations. The establishment of new firms and
the grow th of sm all enterprises has long been recognized as im portant

a new tool - development credit
in the region’s economic development. Faced w ith the fact that equit)
capital and long-term loans were needed by small enterprises to expand
their activities, N ew Englanders moved w ith forthrightness to establish
organizations to meet those financial needs.

13

Five of the New England states have active development credit
corporations and the sixth has such a corporation in the form ative stage.
By buying stock totaling $1,000,000, originators of the development credit
corporations have been able to secure pledges of loans from financial
institutions totaling $15,000,000. These organizations, still in their
infancy, have only begun to tap the $61,000,000 fund which is potentially
available. The $5,000,000 of loans and commitments which they have
already made represents a revolving fund which w ill be loaned again as
repayments build up. The effectiveness of credit corporation activities is
magnified by the additional loans often granted by commercial banks after
the credit corporation has investigated a loan application and made a
favorable report.
Successful establishm ent and operation of these development credit
corporations is a striking testim onial to the alertness of the N ew England
business and financial communities in meeting their responsibilities to
promote the grow th of sm all enterprises.
Still another example of action to assist industrial and technological
grow th is N ew En glan d ’s development of venture-capital organizations.
These corporations, designed to aid the financing o f new companies based
on new products with technological prom ise, supply either equity funds
or credit as required. U sually they w ork closely w ith the companies in
which they invest to help assure their success.
The forces which brought about the economic changes in New
England described in these pages have not yet spent their energy. Indeed,

REAL IN C O M E PER PERSON IN NEW ENGLAND




14

change is inevitable in the w ays in which New England people work,
and in the goods and services they offer in domestic and world markets.
Over the last generation the region has been able to expand its income
by sh iftin g its m anufacturing operations to more productive industries.
A t the same tim e, many of the area’s traditional industries have survived
the transition by means of improved management techniques, by the
in stallation of new equipment in new or modernized plants, and by the
development o f new methods and new products.
One may expect the N ew Englander to continue indefinitely the
ad ap tab ility he has demonstrated for three centuries. As new economic
problems arise — and problems are inherent in change — he is certain
to find new devices and processes for solving them. And in many cases the
rigors of the present transition have whetted his foresight and brought
him to the point of deliberately forcing “ the shape of things to com e.”
N ew England is singularly fortunate in its facilities for breeding
ideas for new things and for new w ays of m aking old things. While the
region has only six per cent of the country’s population, it has eight per

adaptability plus new ideas
cent of the n ation ’s institutions of higher learning, and 13 per cent of
th o se-aw arding higher degrees. These establishments are now training
some 14 per cent of the n ation ’s scientists. Though not all specially




15

0--------------------------------------1938

*40

‘45

*50

SAVINGS PER PERSON IN NEW ENGLAND
HAVE EXPANDEO BY 40°o SINCE 1938.

S4

qualified graduates of New England institutions can remain here, the
area’s cultural background provides a powerful stim ulus to scientists to
seek employment opportunities w ithin the region.
New England is recognized as an outstanding center o f advanced
research. And research-based industries offer expanding employment and
investment opportunities as well as im portant new m arket developments.
The region has more than 11 per cent of the n ation’s industrial
research laboratories, and more than 13 per cent of the laboratories in the
instruments, electrical equipment and machinery industries. These
facilities ably serve the New Englander in building new ideas.
The scientist-businessman is pointing the pathw ay to the region’s
industrial grow th. As an illustration, the plastics industry w as born here.
And from sm all beginnings, it has expanded to the point where the region
now produces about one-third of the national output of fabricated plastics
and provides about one-quarter of the national employment in plastics
fabrication.
Another industry w ith exceptional promise for New England is
electronics. Between 1939 and 1953 the industry provided about one-fifth
of the total grow th in the region’s manufacturing employment. At
present an estimated 15 per cent of the n ation ’s electronic firms are located
in New England.

P R PERSON
E

I 1»S4
N

DOLLARS

1200

RETAIL

SALES

A field w ith a vast potential for New England is that o f applied
nuclear science. The region is already actively engaged in exploring this
potential, but to maxim ize the possibilities New Englanders must be
constantly alert to development patterns which are changing rapidly.
0

------- --------------------------------

1»2»

'35

'40

'45

'SO

'54

RETAIL SALES PER PERSON IN N EW EN G LAND

 INCREASED 5 7 %
HAVE


SINCE 1929.

16

M l MILLION

W ithin the area is a sizeable reservoir of nuclear experts w ho have
gained experience in regional and national laboratories. New England
has received 12 per cent of the domestic shipments of radioactive isotopes
and 15 per cent of the concentrated stable isotopes during the first five
years of A E C ’s distribution program . These radioactive m aterials are
being used in the fields of medicine, instruments and industrial applications
o f many types.
New England has gained experience, too, through constructing the
w orld ’s first atom ic submarines, and a broadening of the application of
atom ic propulsion to other vessels would certainly insure expanded
activity in the region ’s shipyards.
Even as this report is written, New England is deep in the design of
an atom ic power plant for aircraft. When construction of atom ic motors
for land vehicles becomes economically feasible, the region should thus
have secured a substantial head start.
T w o N ew England universities are now building research reactors
and nuclear science laboratories, and are insuring the area’s continued
participation in the fruits of atom ic research. And finally, a company

P O TEN TIAL MEMIERS
M AY PLEDGE AN
A D DITION AL FOkTY
MILLION D OLLA tS.

P




17

S TOCK AUTHORIZED — FIVE M ILLION
S TOC K SOLD — ONE MILLION

CREDIT C ORP ORATIONS LOANED $5 MILLION
O F A PO TE N TIAL $41 MILLION FUND.

atomic possibilities for the region
formed by several New England utilities has associated w ith a m ajor
chemical producer to exploit atom ic energy for electric power and other
purposes as soon as it becomes com mercially feasible.

FUNDS PLEDGED BY M E M B E R S -.
FIFTEEN MILLION DOLLARS

GROWTH

OF FIRMS I lUSINISS — A SAMPLE O 1 * FIRMS
N
F 3

ISO ---------------

1900

'1 0

20

*30

’40

‘52

ELECTRONICS FIRMS HAVE INCREASED RAPIDLY IN NEW ENGLAND.




It is obviously too early to foresee all the new production that w ill be
required to support the harnessing of atom ic energy for peacetime uses.
But certainly the region’s instrument industry w ill play a critical role in
developing devices for use in treatment, measurement, control, and safety
in medicine and in the laboratories and industrial plants related to nuclear
development.
New England’s economic strength is perpetually self-renewing —
based on the vitality and resourcefulness of its people. New E nglan d’s
vitality is evidenced by new procedures and organizations w hich have
strengthened its industrial activities and promoted the establishm ent
and grow th of new enterprises. New E nglan d’s resourcefulness is demon­
strated in shifts of its manufacturing activities into industries w ith higher
productivity which, in turn, generate higher incomes for the region’s
grow ing population.
The New England story is a dynamic demonstration that a mature
industrial civilization can contain the seeds of rebirth and revitalization.
And it confirms those words written more than 100 years ago by John
Low ell, founder of the Low ell Institute:
“ The prosperity o f my native land, New England . . . must depend
hereafter, as it has heretofore depended, first on the moral qualities, and
secondly on the intelligence and information of its in h abitan ts.”

18

principal operations

Transaction

Volume in Pieces or Units
(Daily Average)
1954

Volume in Dollars
(Annual Total)

1953

1954

Discounts and A dvances..................................

5

6

Currency Sorted and C ounted........................

1,056,935

Coin Counted and W rapped...........................

1953

834,305,220

$ 1,926,457,250

1,057,553

1,703,123,671

1,778,727,854

3,280,546

3,344,290

74,989,550

73,115,150

Check C ollection s..............................................

1,016,110

995,002

57,643,213,535

58,105,459,486

Noncash Collections:
N otes, D rafts, and Corporate Coupons

3,866

3,527

318,975,982

296,276,805

Safekeeping of Securities:
Pieces Received and D elivered..............
Coupons Detached for C ollection ........

1,214
1,303

1,166
1,304

9,992,654,000
29,772,054

12,342,150,000
27,094,151

Transfers of F u n d s.............................................

281

268

40,816,881,124

29,517,680,170

Issues, Redemptions and Exchanges:
U. S. Securities (Direct O b lig a tio n s)..
U. S. Savings B o n d s.................................
A ll O ther......................................................

931
41,637
11

12,690,282,822
875,591,079
18,589,000

U. S. Government Coupons P a id .................

2,051

953
38,678
5
2,161

112,360,033

10,117,570,851
786,123,549
12,307,325
106,864,142

Federal T axes: D epositary Receipts and
Direct R em ittances...................................

1,885

1,806

1,173,206,132

1,124,427,612




19

$




The decrease of $6.5 m illion in our gold certificates reflects the net of
transactions w ith other Federal Reserve Banks and of member banks w ith
the other districts. A favorable balance on private account by member
banks was more than offset by losses on inter-Reserve bank transactions
and on Treasury transactions.
Because we may now hold and pay out Federal Reserve Notes of other
Federal Reserve Banks, as authorized by Congress in Ju ly , our holdings of
notes of other Federal Reserve Banks increased about $11 m illion.
Loans and Advances at year-end were alm ost entirely loans on gold to
foreign central banks. Our member banks borrowed relatively little
during this year because ample reserves were made available through
open m arket purchases by the System in the first h alf of 1954 and later
through a reduction in required reserves.
U. S. Government Securities represent our allocation of the holdings
o f the System Open M arket Account.

summary off principal changes
Uncollected Cash Items decreased $29 m illion. Aside from the usual
seasonal forces affecting this account the decline reflected greater ef­
ficiency in operations and improved transportation facilities.

20

With regard to our liabilities, Federal Reserve Notes declined $24
m illion, due in part to the new provision regarding Federal Reserve Notes,
as mentioned previously, and to a moderate decline in issue since the
record peaks in 1953.
Member Bank Reserve Accounts dropped $53 m illion, reflecting largely
reduction in reserve requirements, as well as the Treasury's call in late
December on Member Bank T ax and Loan Accounts. The latter accounts
for the increase in the U. S. Treasurer’s Account.
Our ratio of gold certificates to note and deposit liabilities combined,
improved sligh tly, to 43-5 per cent.
Net Earnings of $16.2 m illion were $7.8 m illion less than in 1953, the
result prim arily o f a lower average earning rate on our holdings of U. S.
Securities, and of lower average holdings of securities during the year.
Net Expenses were $800,000 less than in 1953.
After dividend payments of $883,000 to our member banks, 90 per

in statement off condition




cent, or $13.8 m illion, w as transferred to the U. S. Treasurer in payment
of interest charge on Federal Reserve Notes levied under Section 16 of the
Federal Reserve Act. The rem aining $1.5 m illion w as added to surplus
(Section 7).

21


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102