Full text of Annual Report of the Federal Reserve Bank of Chicago : Annual Report 1962 : Construction: Big, Basic, Diversified

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FEDERAL

RESERVE

BANK

CHICAGO

CONSTRUCTION: Big, basic, diversified

To the Member Banks of the
Seventh Federal Reserve District:
It is our pleasure to submit to you the Annual Report of the Federal Reserve
Bank of Chicago for the year 1962.
Following the brief review of major developments in the District, we present a
discussion of the construction industry. Probably no other major type of industry is so
widespread or closely related to business activity and growth of individual commu
nities.
There have been a number of official appointments, elections and resignations
during the year. These are reported on pages 29-31. The Bank’s balance sheet and
operating statement are presented on pages 32 and 33.
Reflecting the continued economic growth in the Midwest and the rising demand
for financial services, the volume of transactions increased further in many depart
ments of the Bank (pages 34-35).
On behalf of the directors, officers and staff, I extend to you warmest thanks
for your continued cooperation and counsel.
Sincerely,

January 18, 1963

Hesitant expansion in business,
higher farm income,
large rise in time deposits and bank assets

Jl V ineteen hundred and sixty-two closed as it
began, on a note of optimism regarding business pros
pects. While there had been periods during the year of
widespread apprehension that a general decline in
activity was imminent, each time favorable trends
were reasserted and activity moved to higher levels.
Among the factors contributing to temporary set
backs in business confidence were the events touched
off by an attempt to raise steel prices in April and the
decline in common stock prices during the second
quarter, highlighted by a severe break in the market
on May 27. These spectacular developments, how
ever, may have had less effect on the trend of business
activity than some other forces.
The persistent efforts to reduce inventories of steel
and other goods provided a drag on activity during the
summer and fall. Another restraining influence was
the continued large deficit in the United States balance
of international payments. In the financial commu
nity, the expectations, widely held at the beginning
of the year, that demand for credit would strengthen
sufficiently to cause interest rates to increase were
not realized.
While these adverse developments hampered the
economy during 1962, the year brought substantial
gains in industrial production, construction, employ
ment, income, retail sales, personal saving and bank
credit. In most of these, gains in the Seventh Federal
Reserve District equaled or exceeded those at the
national level.
Autos, farm machinery in strong rise

Among the important Midwest industries in which
production in 1962 was 10 per cent or more above
1961 were autos and trucks, appliances, furniture,
industrial machinery, construction machinery and
farm equipment. Gains in production of autos and
farm equipment exceeded 15 per cent. A rise of about
6 per cent was recorded for television even though
production was reduced sharply after midyear in re
sponse to an inventory build-up. Steel production both
in the District and the United States was about the
same as in each of the two previous years.

A n n u al Report, 1962

Motor vehicles, the District’s largest industry,
operated at a record level in 1962. While the number
of vehicles sold was somewhat below 1955, cars
and trucks were sleeker, more powerful, more fully
equipped and more expensive than in the earlier year.
Although sales of autos were at a moderate level in
the first quarter, a stronger trend developed in the
spring and continued through the end of the year.
Altogether, 8.2 million cars and trucks were produced
and sold in 1962, 23 per cent more than in 1961.
Production by manufacturers of durable goods
exceeded the preceding year by 9 per cent, about twice
as much as the rise in employment at these firms. The
relatively small rise in employment reflects the con
tinued progress in mechanization, the concentration
of production in the most efficient plants and new
investment in plant and equipment in recent years
has been largely directed toward improving efficiency
rather than increasing basic capacity, although the
two are closely related.
Good year in agriculture

Farm income in the District increased somewhat
more than the national average. However, results
varied by type of agriculture. Cattle feeders reported
substantial income gains as prices of top grades of
slaughter cattle advanced. Income of cash grain farm
ers was up moderately as record yields per acre and
substantial Government payments more than offset
the effects of reduced acreage of feed grains. Also,
the acreage planted to soybeans was increased to a
record as acres were diverted from controlled crops.
Income of hog producers was about maintained with
both prices and production being close to the levels
of the preceding year. However, incomes of dairy
farmers declined as support prices for dairy products
were reduced. While production of milk continued to
expand throughout the year, this only partially offset
the effects of lower prices.
Prices of farm land rose further during the year to
equal or exceed previous record levels in most areas.
This rise in value of real estate, along with increases
in other farm assets, far more than offset a further

Most Midwest industries
reported substantial gains
in output in 1962

rise in farm debt. As a consequence, the value of
farmers’ equity in agriculture was at a record high
at year end.
Big increase in bank assets

Total bank credit rose at a record rate during 1962
even though business activity, over-all, expanded at a
somewhat slower pace than had been widely forecast
at the beginning of the year. Loans at member banks
in the Seventh District rose almost 12 per cent— more
than twice as much as in 1961— and banks’ holdings
of securities rose about 8 per cent.
Although demand deposits increased only moder
ately, time and savings deposits of member banks in
the District rose 20 per cent during the year with an
unusually large proportion of the increase in the form
of certificates of deposit. The rapid growth reflected,
in part, the effects of higher interest rates offered by
many banks after revision of Regulation Q by the
Board of Governors of the Federal Reserve System
and the directors of the Federal Deposit Insurance
Corporation. The change, effective at the start of the
year, permitted rates up to 4 per cent. Reserves to
support the growth of deposits were provided by the
System’s purchases of securities in the open market
and, in the fall, a reduction from 5 to 4 per cent in
reserve requirements on time deposits.
With time deposits rising rapidly and the Federal
Reserve System’s continuing policy of monetary ease
limiting any upward pressure on interest rates, banks
were hard pressed to put funds to work at yields which
would cover the additional interest expense. Demand
for short-term credit by business and consumers was
moderate until late summer. Consequently, banks
turned increasingly to real estate mortgages and taxexempt state and municipal securities. For the large
District member banks which report weekly, real
estate loans increased about 20 per cent while “other”
securities, mostly municipals, rose about 35 per cent
during the year.
Because of the ready availability of reserves, banks
were able to increase loans and investment in taxexempt securities without reducing holdings of Treas
ury issues. Total investments rose fairly steadily in
contrast with 1959 when investments declined as
loans rose. Although total holdings of Governments
changed little, banks shifted from short- and inter
mediate-term issues, which had been built up sharply
in 1961, to bonds with maturities of five years and
longer. Large Seventh District banks reported a net
decline of about 500 million dollars in Governments
maturing in five years or less which was offset by a
somewhat greater rise in holdings of longer maturi

Federal Reserve Bank of Chicago

ties. Although this shift was accomplished largely
through the Treasury’s advance refunding operations
rather than through purchases and sales in the mar
ket, it nevertheless reflected the banks’ desires to move
into higher-yielding issues.

Surge in time deposits supplied
funds for both loan and
investment gains in 1962
2o.or
billion dollars

Interest rates on long-term investments decline

The combined effect of the large accumulation of
savings and the ready availability of bank credit was
to increase the total supply of funds seeking invest
ment somewhat faster than the growth in demand for
credit. This was reflected in a fairly steady downward
pressure on interest rates. At year end, average long
term yields on outstanding Governments, corporates
and municipals were V* to ¥s per cent below the levels
at the beginning of the year and were close to their
lows for the year. Mortgage rates also declined
somewhat.
Rates on short-term money market paper remained
within a narrow range above 2.70 per cent— slightly
higher than the average maintained through most of
1961. Downward pressures in the short-term area
were offset by both Treasury and Federal Reserve
efforts to keep these rates competitive with yields
obtainable on comparable foreign securities. The pur
pose of such action, of course, was to reduce the
adverse effects on the United States balance of inter
national payments from short-term capital outflows.
A major factor in this effort was the Treasury’s policy
of financing its cash needs almost entirely by sales of
short-term securities. This was augmented to some
extent by System purchases of intermediate and long
term securities in its open market operations.

A n n u al Report, 1962

The discount rate remained at 3 per cent through
out the year. Member banks had little need to borrow
from the Federal Reserve Banks because of generally
easy monetary conditions. Outstanding borrowings by
member banks in the Seventh District averaged only
25 million dollars per day in 1962.

Big, basic, diversified

t the end of 1962 the value of all structures in the
United States was approximately 1,000 billion dol
lars.1 This total, well over half of the nation’s man
made wealth, is divided about equally between hous
ing on the one hand and business and government
structures on the other.
Construction stands with agriculture and textile
manufacturing as an industry supplying a fundamental
necessity of life. For the most part, construction pro
vides shelter— the homes, schools and churches in
which people live, study and worship, and the fac
tories, stores and offices in which they work. In addi
tion, it encompasses many specialized applications,
including defense installa
tions and the highways,
railroads, pipelines and air
Earth m ovin g costs lass
terminals serving the na
tion’s transportation re
quirements.
Unlike the production
of food and clothing, con
struction activity is not
concentrated in specialized
regions of the nation. In
each community there are
construction contractors
and men skilled in the
building trades who handle
most of the run-of-themill jobs. And, in large
c o m m u n itie s th e re are
firms with facilities and
skills to tackle even the
most complex projects.
Moreover, because of the
weight and bulk and wide
spread availability of raw
materials, factories for the
Estimate based on data de
veloped by Raymond W. Gold
smith and the U. S. Depart
ment of Commerce.

production or processing of such important* building
supplies as brick, tile, cement and gypsum products
are widely dispersed throughout the nation.
Growth rate— per cent
4

During the 17-year period since the end of World
War II, outlays on new construction have totaled
almost 670 billion dollars, or more than 10 per cent
of all expenditures on goods and services. In terms of
1962 prices, construction in this period exceeded 780
billion dollars. A rough comparison with the compara
ble period following World War I, 1919-35, indicates
that the volume of construction since 1946 was about

than in th e Tw enties

twice as great as in the earlier period and accounted
for a somewhat larger proportion of total spending on
goods and services.
Depreciation and demolition of existing structures
also have been at record rates since 1945. Neverthe
less, there has been a continuous rise in the nation’s
inventory of buildings and other structures. During
the postwar years the inventory has grown 75 per cent
compared with a 30 per cent increase in population.
The inventory of structures in constant-dollar per
capita terms is now about $5,500 compared with
$4,100 in 1945 and $4,600 in 1929. Nonresidential
structures have increased somewhat more rapidly than
housing.
On the commonly used “rule of thumb” that the
over-all average life for structures is about 50 years,
the annual depreciation of the current stock, at a rate
of 2 per cent, would be at least 20 billion dollars.
Population growth, about 2 per cent a year, requires
not less than 20 billion dollars of new construction if
the stock is to be maintained on a per capita basis.

What is "construction"?
New construction includes the design and engineer
ing as well as the production of all new structures and
major additions and alterations of those in existence.
Maintenance and minor repair work are excluded. In
addition to buildings, construction includes dams and
bridges, airfields, highways, canals and navigation
channels. Equipment which is an integral part of a
structure, such as plumbing, heating, air conditioning
and elevators, is included, but machinery and furnish
ings which can be removed readily are excluded. Costs
of site preparation are part of construction but the
acquisition of land, often an important part of the
total cost of a project, is excluded.
Obviously, there are difficulties of classification in
determining what is new construction and what is not.
The distinction between major alterations and repairs
is not always clear. Another difficulty concerns the
nature of such products as mobile homes and house
boats which may serve the same functions as other
structures and contain similar materials but are not
included in the estimates of total value of new con
struction. The various types of new construction may
be classified in many different ways. Often, as in this
article, they are grouped conveniently into three broad
categories: residential, private nonresidential and
public. In recent years the residential sector has
accounted for about 40 per cent of total construction

A n n u al Report, 1962

Since construction currently is running at a rate some
what in excess of 60 billion dollars per year, the inven
tory of structures is being increased on a per capita
basis at an annual rate of about 2 per cent. The current
level of construction activity, therefore, may be in
creasing the inventory as much as 4 per cent per year,
in line with the rate of economic expansion many
believe to be required for reasonably full use of the
nation’s labor supply and other resources.
A "local" industry

Since requirements for living space and other struc
tures are closely related to population, both the inven
tory of structures and the current level of construction
activity in any area tend to be proportional to the size
and volume of over-all economic activity. This is true
of the Seventh Federal Reserve District and, for any
fairly long period, tends also to be the case for most
communities within the District.
In recent years construction employment in the
five Seventh District states— Illinois, Indiana, Iowa,

and each o f the other sectors 30 per cent. Total construction often is divided into two other broad aggregates— private and public— as in the following table
showing new construction in the United States during

1962.
V a lu e
(billions)

Private constructio n ............... . $ 43.7
Residential (nonfarm ) . . . .
25.1
2.8
Industrial .....................................
Com m ercial ...............................
5.0
3.6
Institutional buildings . . .
1.6
Farm c o n s tru c tio n ...................
5.4
Public u t ilit ie s ............................
A ll other p r i v a t e ...................
0.3
Public co nstruction................. . $ 17.6
1.0
Residential ..................................
N onresidential .........................
5.1
M ilita ry fa c ilitie s ...................
1.3
H igh w ays ..................................
6.1
Sew er and w a te r systems .
Public service enterprises .
Conservation and
developm ent ......................
A ll other p u b l ic ......................
Total new construction . . . . . .

Proportion
71 .3%

41.0
4.6
8.1
5.8
2.6
8.8
0.5
28 .7%

1.8
0.5

1.6
8.3
2.1
10.0
2.9
0.8

1.5
0.4

2.4
0.6

$ 61.2

N o te : T o ta ls do not add due to rounding.
S O U R C E : U . S. D e p artm e n t of Com m erce.

100.0%

Michigan and Wisconsin—has averaged 15 per cent
of the total for the nation, about the same as the share
of the nation’s population residing in these states.
While larger than proportional shares of some types
of building materials are produced in the District, in
cluding the general categories of stone, clay and glass
products and plumbing and heating equipment, this is
not true of some other building materials. The lumber
industry, once of great importance in Michigan and
Wisconsin, has long since shifted to the South and
Far West where more ample stands of saw-timber
exist. However, the District produces about 25 per
cent of the nation’s millwork— windows, doors, wood
flooring, etc. — and about 70 per cent of the con
struction machinery.
Fifteen per cent of the economy

New construction of all types, including major addi
tions and alterations, has accounted for about 11 per
cent of total spending on goods and services in recent
years. If outlays for the repair and maintenance of
existing structures are included, the proportion is
boosted to 15 per cent. On this basis, construction
activity was at a record level of about 83 billion dol
lars in 1962, 7 per cent above the previous year.
Employment in contract construction averaged
about 4.1 million in 1962, somewhat more than 6 per
cent of total employment. In addition to those em
ployed by contractors, there are many thousands of
construction workers on the “force accounts” of busi
ness firms and governmental bodies.
About 2 million workers in manufacturing and
mining produce building materials and components,
and construction machinery. Other hundreds of thou
sands of persons are engaged in finance, transporta
tion, distribution and other services directly related
to construction.
Altogether construction and related activities pro
vide employment for, perhaps, 8 million workers—
about 12 per cent of the total. While these estimates
are for the nation, the proportion of Midwest employ
ment dependent upon construction is similar. Con
tract construction currently is somewhat less impor
tant in this region than in the nation, but production
of structural components and construction machinery
is relatively more important.
Production of construction materials accounts for
over 10 per cent of all manufacturing. Virtually all
of the nation’s output of cement, asphalt, wood prod
ucts and other building materials and a substantial
portion of all steel, aluminum, paint and glass are
used in construction. The level of construction activity
in large degree determines the demand for plumbing

C on stru ctio n uses most o f the n a tio n 's cem ent
a n d a la rg e p ro p o rtio n o f the ste el output

and heating equipment, electrical supplies, air condi
tioning equipment, water heaters and household
appliances.
Construction and business fluctuations

The demand for structures, basically, is similar to
the demand for most other goods and services and
depends very largely upon income, population and
taste. Families, businesses and public bodies continu
ally are weighing decisions to build, rent or lease.
These decisions in the aggregate determine the over
all pattern of total spending and, therefore, the alloca
tion of resources to construction and other uses.
Structures, however, have special characteristics
that make them different from other goods. Nor
mally immobile and often highly specialized, many
have limited marketability. Moreover, their long serv
ice lives mean that depreciation and other forces
working to diminish the total stock have only small
effect in any one year. The existence of a resale
market and the fact of long service life facilitate the
use of credit in the financing of construction and com-

Federal Reserve Bank of Chicago

monly a large share, often 50 per cent or more, of the
cost is financed with borrowed funds.
These characteristics caused construction activity
to be highly cyclical prior to World War II. Increases
in the inventory of structures during booms reduced
the need for new building in subsequent years. Fur
thermore, in periods of recession individuals and
businesses became more reluctant to borrow and
lenders more cautious in extending new credit to
finance building. Defaulted loans resulted in fore
closures which depressed market prices and reduced
the profit potential of new ventures. These factors
were at work between 1926 and 1933 when the dollar
volume of private construction declined almost 90
per cent.
Residential building has been more volatile than
either public or nonresidential private construction
throughout most of the past half century. Five year-

Construction has risen
at about the same pace
as total output

A n n u al Report, 1962

to-year declines have occurred in residential construc
tion since World War II. Public construction, non
residential private construction and the combined
total of all kinds of construction, however, have
declined in only one postwar year, 1960.
Demand for housing is closely related to family
formation, which during periods of recession usually
proceeds at a somewhat slower pace. Moreover, in
times of financial stringency families can and do
“double up.” Homebuilding is relatively more sensi
tive to credit availability than other types of construc
tion; rents and amortization payments comprise a
larger share of borrowers’ income than is the case for
business concerns. As a result, homebuilding tends
to be restricted when credit is “tight,” primarily be
cause of heavy demand for loans from other sectors,
and stimulated when money is “easy” or confidence
is high.
During the prosperous decade of the Twenties,
construction activity “peaked out” three years before
the start of the sharp general decline in business that
began in late 1929. At the top of the building boom
— the four-year period 1924-27 — construction ac
counted for more than 12 per cent of gross national
product. This proportion had dipped to 10 per cent
by 1929. Between 1929 and 1933 gross national
product shrank almost half. In the latter year new
construction was only a fourth as great as at the peak
and accounted for only 5 per cent of total production.
Public construction, less affected than private by
general economic conditions, did not reach a peak
after World War I until 1930. From then to 1933 it
dropped 42 per cent, as state and local governments
encountered severe financial difficulties.
Construction activity, measured in constant prices,
did not surpass the peak of the mid-Twenties until
1950, although there was a substantial recovery from
the low point of the depression by the late Thirties.
Public construction, strongly stimulated by various
Federal programs, moved well above the 1929 level
by 1936 and remained high until Pearl Harbor.
In the early postwar period the high and rising
volume of construction was attributed widely to the
“pent-up” needs inherited from the depressed Thirties
and World War II. A sharp decline was commonly
expected once the backlog of demand was exhausted.
Instead, construction activity continued to rise.
After the end of World War II, spending for con
struction increased faster than total spending, rising
from 6 per cent of the gross national product in 1946
to 11 per cent in 1954. Since then this proportion has
been maintained with only small variation. The sta
bility and growth of construction during the postwar

period have been both a cause and a reflection of the
stability and growth of the economy as a whole.
In both 1949 and 1954, years that brought slight
slowdowns in total economic activity, construction
outlays rose. Only in 1960 was there a slight drop in
construction from the year earlier, but activity in 1959
had been very high. In the postwar period, therefore,
construction can be described as a stabilizing rather
than destabilizing segment of the economy.

group in slack periods by accepting contracts esti
mated to cover out-of-pocket costs.
Many characteristics of the construction industry
are conducive to vigorous competition: the large
number of firms, ease of entry of new firms and ex
pansion of existing firms; the ready availability of
materials and technical knowledge; and the general
use of competitive bidding for contracts. Formations
and discontinuances of construction concerns, there
fore, are relatively higher than for other types of
business. In 1961, new firms amounted to 14 per cent
of those in operation at the start of the year and dis
continuances, 13 per cent. For all businesses these
ratios were 9 and 8 per cent, respectively.
The number of construction firms has continued to
rise in recent years but much more slowly than in the
earlier postwar period. The total now is on the order of
470,000, including both general and specialized con
tractors. This is about 10 per cent of the number of
operating businesses of all types.
Technological change and obsolescence

Before World War II, construction was looked
upon as an industry of slow technological change.
This view has changed. Construction firms that fail to

W in d o w le ss fa c to ry sim p lifies construction a n d in te rn a l a rra n g em e n ts

An industry of small firms

Like most industries, construction has its giants,
those that operate on a national and even international
basis, but most firms are very small. Average employ
ment is only nine compared with 50 in manufacturing.
Seventy per cent employ three or less.
Construction concerns can be created or expanded
easily. Many individuals after gaining experience
working for existing firms set out to operate as inde
pendent contractors. It is possible to start with a rela
tively small amount of capital. Materials can be ob
tained from suppliers on terms geared to progress
payments and new or used machinery can be leased
or purchased with a small down payment and the
remainder of the purchase price amortized over sev
eral years. Capital requirements also are minimized
by extensive use of subcontracting and technological
developments such as ready-mixed concrete and pre
fabrication of components which reduce investment in
equipment and inventory.
Contractors who have successfully handled small
jobs can expand operations rapidly by adding men
and equipment. Once a capable work force has been
assembled there is a tendency to try to maintain the

adapt to changes in technology soon find they are
priced out of the market.
Construction is affected not only by the develop
ment of new materials, designs and techniques in the
industry but also by outside developments that are
quite unrelated to the construction process. These
often have their major impact by hastening the obso
lescence of existing structures.
An outstanding illustration is the effect of improved
layout of industrial plants. This has affected both the
type and location of factory buildings. In many areas,

Federal Reserve Bank of Chicago

old multistory structures,
often located in the central
portions of large cities,
have given way to new
one-story plants on spa
cious tracts of land in the
suburbs accom m odating
not only the building but
p a rk in g a re a s as w ell.
These moves have been in
fluenced also by the in
creased reliance of workers
on automobile transporta
tion and the easier move
m en t of tru c k s w hen
“ d o w n to w n ” a re a s are
S p a cio u s se ttin g s com m only
avoided.
Sim ilar developm ents
have taken place on Midwest farms. Corn cribs are
gradually becoming obsolete as a result of the devel
opment and gradual adoption of the picker-sheller.
This machine eliminates the need for conventional
cribs, reduces the man-hours and greatly shortens the
time required in the drying, storing and marketing of
corn. On many dairy farms the most expensive struc
ture— the dairy barn— is being replaced by simpler
and cheaper structures which enable the farmer to
reduce the man-hours required to produce milk.
Similarly, many farmers have made substantial invest
ments in new types of storage structures which reduce
the amount of labor required in handling feed sup
plies. These changes are illustrative of the impact of
developments outside the construction industry upon
the kind, amount and location of structures required
in particular uses.
The improvements in lighting and air conditioning
have had different types of effects. Many factories, for
example, are now constructed with few if any win
dows thereby simplifying both construction and in
ternal arrangement. In sharp contrast, residential
structures and many office buildings have been de
signed with more and larger openings and in some
instances “all glass” exteriors.
Illustrative of changes in materials and construc
tion methods have been the rise in use of prefabricated
components, greater use of conveyors and new types
of cranes to handle materials “on the site” and the
spraying on of plaster and fireproofing materials. One
of the most impressive improvements in the construc
tion industry has been the use of larger equipment. A
given volume of earth, for example, can be moved at
lower cost today than was the case in the Twenties.
Concrete mixers perform their task enroute to the

A n n u a l Report, 1962

p ro v id e d fo r new sch ools

construction site from the overhead bins containing
the aggregates and other ingredients. These and other
changes have reduced the man-hour requirements at
the construction site and shortened the over-all time
required to complete structures.
In the case of public works, modern four-lane,
limited-access highways have improved the speed and
safety of motor travel. New materials and designs
have vastly extended the clear, pillarless spans of ex
hibition halls and sports arenas. A spectacular devel
opment has been the new stadium which can be
enclosed in inclement weather, opened in fair.
Among the most striking examples of new struc
tural design in recent years have been in the architec
ture of banks, churches and schools. But equally
significant, if less apparent, have been the changes in
design of most other kinds of structures.
Probably the overriding force bringing about inno
vation in construction has been the continuing pres
sure to reduce costs and provide a more attractive and
serviceable product. One result has been to increase
the product per construction worker. Between 1947
and 1962, average construction per worker, in con
stant dollars, rose 52 per cent. In part, this reflects
the increased cost of materials, related undoubtedly
to the greater use of prefabricated components. It has
been estimated that about 36 per cent of the total
expenditure on construction represents “value added”
by construction firms compared with 42 per cent in
the early postwar period. Prefabrication has had its
most striking development in homebuilding where
factory-built homes now account for about 17 per cent
of the total number built annually.
In construction, the natural human instinct to re
sist change is strengthened by the complexity of build

ing codes and the great array of skills or “trades,”
each of which strives quite naturally to “protect” its
own role in over-all activity. With this setting it is
perhaps surprising that the pace of innovation has
quickened in the industry. This has been, in part, be
cause of the strong postwar demand for construction
— a factor intensifying pressures to overcome uneco

nomic practices. Probably more important has been
the resourcefulness of manufacturers in supplying new
building materials and components and of designers
and engineers in combining them into structures.
Increasingly, the slow, time consuming jobs such as
bricklaying, plastering and carpentry are being by
passed.

Residential construction—the provision of living space

Since World War II, nearly 20 million new houses
and apartments have been built in the United States.
This number compares with an estimated 60 million
units in the nation’s present-day inventory of dwell
ings.
The cost of the new homes has been nearly 225
billion dollars, or about a third of total expenditures
for construction of all kinds during the period. At
today’s costs, the total outlay would have been higher
still, by 30-35 billion dollars.
In addition, 57 billion dollars was spent on residen
tial alterations and additions, much of it providing
added living area to existing structures. The construc
tion of hotels, dormitories and motels has accounted
for a further outlay of 8 billion dollars.
Maintaining and repairing residential structures
amounted to roughly 100 billion dollars, or nearly
half as much as the cost of all the new homes built.
While not “construction” in the usual sense, repair
and maintenance make use of the same kinds of ma

terials and manpower and thus constitute a part of
over-all residential building activity.
Although the number of new homes built since
World War II is a third of the total now standing, this
overstates the net addition to the nation’s housing.
Between 1950 and 1960, for example, about 15 mil
lion new homes were built, but the total housing in
ventory grew only 12.2 million; demolitions and
alterations of existing structures made the difference
(see table).
In 1960 the five District states accounted for 16 per
cent of the nation’s housing units— the same as their
proportion of the total population in that year. During
both the Forties and Fifties the housing supply in these
states increased somewhat less, proportionately, than
in the nation— largely a reflection of the exceptionally
rapid growth in population and residential construc
tion in the South and Far West.
Michigan stands apart from the other District states
with a gain in housing units that exceeded the nation’s

Anatomy of the growth of housing
in the United States, 1950-60
Units added
15,0 0 0 ,000

N e w con stru ctio n .
C o n version o f n o n re s id e n tia l

1, 100,000

structures to d w e llin g s .
C o n version o f la rg e housing
units to s m a lle r

800 ,000
16,9 0 0 ,000

T otal a d d e d .

Units subtracted
D e m o litio n a n d o th e r
d e s tr u c tio n ...............
M e rg e r o f s m a ll

3 ,7 0 0 ,0 0 0

units in to la rg e r

T otal su b tra c te d .

Net a d d i t i o n ..............

1,0 0 0 ,000
4 ,7 0 0 ,0 0 0

12,200,000

Federal Reserve Bank of Chicago

in the past two decades. This, of course, was asso
ciated with the state’s substantial population increase,
particularly before 1957, under the impetus of high
levels of defense and automobile production.
Population gains have brought about the largest
part of postwar growth in the nation’s stock of hous
ing. During the Fifties, for example, three-fourths of
the 12 million net gain in housing inventory was re
quired to accommodate a 9 million increase in house
holds. The additional 3 million units enabled some
previously doubled-up families to find homes of their
own and served also to lessen pressure on the housing
supply and thus facilitate needed relocation of popu
lation.
New homes in growing areas

Mirroring closely the pattern of postwar population
growth, homebuilding activity has been considerably
more active and enlargement of the housing inventory
more pronounced in metropolitan than in nonmetro
politan areas. In the five District states as a group, the
stock of housing in metropolitan communities ex
panded 29 per cent between 1950 and 1960, while
the over-all gain in rural areas and smaller cities was
only half as large, 14 per cent. Within the large metro
politan areas growth was greatest, by far, in the
suburbs, which scored an over-all increase of 55 per
cent. The central cities of these areas gained also but
only about 16 per cent.

In the major Seventh District centers, expansion of
housing in suburban communities almost exactly
matched the rise in population, as would be expected.
Within the cities, however, moderate enlargement of
the housing supply took place alongside either out
right decline or considerably less-than-commensurate
growth in the number of inhabitants.
On balance, these tendencies are indicative of the
“loosening up” of urban housing that took place dur
ing the period. Undoubling of families and other
home occupants began as soon as building activity
resumed in the wake of the war and accounted for a
good share of homebuilding in the earlier postwar
years. Since the early Fifties, this factor has been of
dwindling significance. To the extent that homebuild
ing since then has outpaced population growth,
vacancy rates have tended to rise somewhat, not only
permitting easier movement of population within the
city but pushing the older, less desirable and often
dilapidated housing units closer to eventual demoli
tion.
The large majority of new homes built in the sub
urbs since the war have been single-family, detached
houses, spread out over huge acreages of one-time
farmland. In the past half dozen years, however, the
construction of apartments has greatly increased.
While much of the new apartment building has taken
place in the suburbs, a sharp upsurge in multi-family
construction has occurred inside the big cities.
Return to the city?

Many observers inter
pret the resurgence of in
city apartment construc
tion as a sign that the
“flight to the suburbs” has
passed its peak. Prospects
of a big increase in family
formations in the next few
years are cited as one rea
son. Newly married cou
ples ordinarily seek rental
housing — often in loca
tions close to work and the
recreational and cultural
attractions of downtown.
Furtherm ore, increasing
numbers of couples whose
children are grown and
away at school or married
are reported to be “escap
ing” from the cares of
homeownership by moving

A n n u a l Report, 1962

H igh -rise, lu x u ry ap a rtm en ts fe a tu re d in p o stw a r city H om ebuilding

into apartments.
In the early postwar years, suburban living often
was relatively inexpensive. Taxes were low and com
mutation expenses reasonable. With the passage of
time, however, conditions have changed. Growing
school enrollments and mounting demands for other
public services have sharply boosted local property
taxes, while transit and rail fares and automobile
parking charges have followed a similar pattern.
Moreover, growth has pushed out the limits of resi
dential development, often lengthening the distances
to and from downtown, and thereby adding to the
time and effort, as well as expense, connected with
commutation and other routine movement in the
urban area. Expressways built in recent years have
to some extent provided relief by reducing the time
needed to drive between home and downtown. But
often the gains have proved short-lived as even these
new and ultramodern thoroughfares have come to be
as heavily congested (particularly during the rush

Federal Reserve Bank of Chicago

hours) as the routes they have supplemented.
Another factor that appears to have dimmed the
luster of the single-family home has been the plateau
in market prices during the past few years. Resale
recently has often entailed either a capital loss or
little more than recovery of initial outlay. Homeownership, therefore, has lost some of the favor as a form

of investment that it enjoyed earlier.
With sluggishness in the market, families likely to
move from time to time have become less inclined to
buy than in the earlier postwar years, preferring
to rent in order to assure their ability to move
promptly when circumstances demand. In part, this
has simply shifted a portion of the supply of existing

Profiles of homebuilding in Midwest metropolitan areas
number of dw ellin g permits issued
ratio scale*

M adison

Rockford

Saginaw

I_____ L____ I
_____ I_____ I_____1
_____ I_____I
--------1
--------1
--------1
--------1
------- 1

1950 '51

'52

'53

'5 4 '55

'56

'57

'58

'59

'60

'61 '6 2 est.

N o te : D ata a re shown fo r each Seventh District standard m etropolitan statistical a re a (SM SA ) in which at least 80 p er cent o f building activ ity is co ve red
by Departm ent o f C o m m erce rep orts. C h ic a g o a re a includes N o rth w e st In d iana.
*O n a ratio s ca le equal in cre ase s o r d e crease s ind icate equal p erce n tag e changes.

A n n u a l Report, 1962

Population and the housing
inventory in major Midwest
metropolitan centers, 1950-60
S u b u rb s

C e n tra l city

H ousing
H ousing
P o p u la tio n units Po p u latio n units
(per cent change)

C hicago

D e tro it .

79
42

M ilw a u k e e
In d ia n a p o lis
Des M oines

78
19

71
79
45
75
20

-1 0
16

single-family houses from owners to tenants. Even
more significantly, it appears to have constituted one
more reason for the switch in emphasis in new build
ing from single-family homes for owner occupants to
multi-family units for rental occupants.
Some indication that living in the city has regained
favor on its own merits, and not solely because it gives
access to a greater variety of rental housing, appears
in the return to popularity of cooperative apartments.
“Co-ops” call for much the same form of “equity”
investment and assumption of ownership risks and
responsibilities as single-family houses. Under the
relatively new and thus far little used device of
“condominium,” the position of the occupant of a
unit in a multi-family structure even more closely re
sembles that of the individual homeowner; each occu
pant has a mortgage loan financing his “property”
and each makes an equity investment. This has the
added appeal that real estate taxes and mortgage
interest, unlike monthly rent, are deductible under the
individual income tax.

number of multi-family starts was only about a third
of the combined total of new single- and multi-family
homes; during the Twenties, apartments accounted
for nearly 40 per cent of all the homes built.
Among the larger Seventh District centers, Chicago
has seen the most vigorous expansion in apartment
construction in the past few years. By a succession
of yearly gains that began in 1957, the number of new
apartments built in the area in 1962 pulled abreast
of the number of single-family homes. Even so, the
pace of multi-family construction last year was well
below levels reached in the Twenties. In that earlier
boom period, new apartments generally were confined
to Chicago, where they spread throughout the city—
although such large, close-in suburbs as Evanston,
Oak Park and Cicero also had a sizable volume.
The contemporary upsurge, in contrast, has ex
tended far into the outlying suburban area, while
leaving many sections of the city comparatively un
affected. During both periods, the construction of
multi-story buildings, generally in the high-rental

S in ce W o rld W a r I I —n e a rly 1.4 m illion m ob ile hom es

Revival in rental housing

The pickup in apartment construction of the past
five years already has carried the annual volume of
multi-family starts well above the peak rate of the
Twenties. Nationally, multi-family volume in 1961
totaled 375,000 units— 10,000 more than in 1925—
while last year’s total is estimated at nearly a half mil
lion. Cumulatively, however, the postwar period has
fallen far short of matching the 4.3 million apartments
constructed during the 10 years from 1920 to 1929.
From 1947 through 1962— a span of 16 years— the
total was considerably smaller, at about 3.6 million
units.
In a relative sense also, the current upsurge has
failed to match the earlier boom. Last year’s record

category, reached substantial proportions— especially
along the lakefront, both north and south of the Loop.
High-rise structures have also been characteristic of
much of the public and low-to-moderate-income
privately owned urban renewal housing built in the
recent period. Large areas of the South Side and por
tions of the Near North and West Sides have been
transformed by new construction of this type.
Detroit, by tradition a city of single-family homes,

Federal Reserve Bank of Chicago

experienced a sharp increase in apartment building in
1962. A number of sizable high-rise structures close
to the downtown section have highlighted this devel
opment. Among these are three multi-story buildings
under way— along with a number of low-rise townhouses— in the extensive Lafayette Park urban re
newal area. Several more are in progress at riverfront
sites that offer easy access to the central business
district. Altogether, however, the postwar period has
lagged far behind the Twenties in the volume of multi
family homebuilding.
In Milwaukee more multi-family housing units have
been built in recent years than in the Twenties. With
the volume of apartment construction relatively small
in both periods, Milwaukee continues to have a pre
ponderance of owner-occupied dwellings. Only the
low level of single-family homebuilding in the past
few years accounts for the high proportion— 50 per
cent in 1962, or about the same as in Chicago— of
multi-family to total starts. In both of the past two
years, moreover, apartment construction in Milwau
kee has declined, in contrast to experience in the other
large centers in the District.
Construction of apartments in Indianapolis has
moved somewhat erratically in the postwar years, fall
ing considerably short of the pace of the Twenties.
Since 1959, there has been a sharp advance, however,
with considerable emphasis in the past year or so
upon high-rise, luxury units.

Conventional mortgages steadily widen
share in postwar home financing—
FHA and VA activity highly volatile
thousand units

In Des Moines apartment construction has picked
up in the past three years. In 1961, permits were
issued for 213 units— up from 147 the year before.
Indications are that about 250 apartments were built
during 1962, with 100 units in a single 11-story luxury
building. Among the larger centers of the District,
Des Moines, as Detroit, displays a pronounced pref
erence for the owner-occupied home. In both areas,
roughly two-thirds of all homes were owner-occupied
at the time of the 1960 Census of Housing. This ratio
compares with 48 per cent for Chicago, 55 per cent
for Milwaukee and 61 per cent for Indianapolis.
Manufactured homes

Conventional on-site construction continues to
account for the overwhelming bulk of new housing.
Nevertheless, prefabrication— essentially a process of
factory production of housing components needing
little more than assembly on prepared sites— has
developed rapidly in the postwar years. Sales of
prefabricated homes in 1962 are estimated to have
reached a record 175,000 units, up from 156,000 the
preceding year. For the whole postwar period through
1962, sales totaled about 1.4 million units. If sub
stantially all of these are still standing, prefabricated
homes built since 1945 make up about 2 per cent of
the nation’s present-day housing inventory. Factorybuilt units now account for about a sixth of new
homes. The largest market for prefabricated homes
has been toward the lower end of the price scale but
this by no means includes all of these structures. In
the past few years, spacious and luxurious models
selling in the middle and upper-middle price brack
ets have been widely marketed.
The mobile home is even more completely a factory
product. Since World War II, nearly 1.4 million of
these wheeled, movable dwellings— defined as units
measuring at least 25 feet in length, or weighing 4,500
pounds or more— have been manufactured. These
have been in addition to the production of the sub
stantial number of smaller vehicles designed for less
permanent use and not ordinarily classed as housing.
The Midwest is an important producing area in the
prefabricated and mobile home industry, with Indiana
and Michigan together accounting for more than a
third of the national output of mobile homes.
Credit terms affect homebuilding

The supply and cost of credit have an important
influence on homebuilding. In part, this is because of
the effect of interest rates upon the cost of financing.
At 5 V2 per cent, the monthly payment needed to
amortize a $10,000 loan in 25 years is $61.41; at

A n n u a l Report, 1962

Mortgage debt outstanding
T y p e o f p ro p e rty

Dec.
31

T o tal
a ll
p ro p e rtie s

T yp e o f m o rtg a g e h o ld e r

1M onfarm re sid e n tia l C o m m e rcial
T o tal

1 to 4 fa m ily
h ouses

M ultifa m ily

an d
o th e r

Farm

T o tal

In d i
Life
Com m er- M u tu al G o v e rn
S a v in g s
v id u a ls ,
m ent
s a v in g s
in su ra n c e
c ia l
an d
b a n k s iag encies o th e r
co
lo a n s < m p an ies b a n ks
(p e r cent) ...................

. (b illio n d o lla rs ) . . .

1946

100

32
30

1947

100

51
57

6
7

100

1949

56
63

18
19

1948

100

1950

100

1951

100

1952
1953

91
101

76
84

59
66

10
11

100

17
17

13
13

5
5

13
14

1954

114

106

100

1955

130

121

100

1956
1957

145

135

88
99

100

156

146

108

100

172

1958
1959

161
179

118

100

131

100

15
15

191

1960

207

194

141

100

1961

225

211

153

100

6 V2 per cent the monthly instalment rises to $67.53.
Moreover, when interest rates are relatively high, loan
maturities often tend to be somewhat shorter. With
amortization in 20 years instead of 25, the monthly
instalment on a 6 V2 per cent, $10,000 loan rises to
$74.56. The combined effect of a one-point rise in the
contract interest rate and a five-year reduction in
term, therefore, is an increase of about $ 13— or onefifth— in the monthly mortgage payment.
Under a rule commonly followed by mortgage lend
ers, a borrower’s income must be equal to at least five
times his monthly housing expense (monthly mortgage
amortization plus provision for insurance and real
estate ta x ). In the example given above, the shift from
“ease” to “tightness” in the mortgage market would
increase the income needed to qualify for the mort
gage about $65 a month. From this it is evident that
credit terms can have a substantial effect on the num
ber of potential home buyers who qualify as borrow
ers. Of course, conditions giving rise to higher mort
gage interest rates may also lead to smaller loans
relative to property values. The effect of this would
be to lower monthly mortgage payments but at the
expense of larger down payments.
Credit market conditions are influential in other
ways as well. With an upward movement in market
rates of interest, new Federal Housing Administration

(FHA ) and Veterans Administration (VA) loans,
which are subject to statutory or administrative maxi
mum rates, often are “discounted.” While this keeps
their effective yields in line with yields on other invest
ments, the aversion of some life insurance companies
and mutual savings banks to discount transactions
reduces the supply of funds available for FHA or VA
financing. This may be offset by greater availability
of money for “conventional” mortgage loans, but only
partially, since most of these funds come from differ
ent institutions than the money for FHA and VA
loans. In 1961, for example, nearly 94 per cent of all
single-family home loans made by savings and loan
associations were conventional mortgages; the asso
ciations’ share of the 24.6 billion dollar total of con
ventional home lending exceeded one-half. On the
other hand, FHA and VA loans made up 53 per cent
of the 8.9 billion dollars in home mortgages originated
by the life insurance companies, mutual savings banks
and mortgage companies, as a group, and this consti
tuted 72 per cent of all FHA-VA home financing.
Loan-to-value and maturity requirements typically
are somewhat less liberal in conventional mortgage
lending than under the insured and guaranteed pro
grams, so that some would-be borrowers are excluded
from the market when the supply of FHA-VA loans
declines. Changes in credit conditions, therefore, in-

Federal Reserve Bank of Chicago

Before

fluence residential con
struction, both because of
the importance of interest
in the monthly payments
and because of differences
in the way that rate move
ments affect the availabil
ity of the various types of
mortgage credit.
A conspicuous feature
of postwar experience in
home financing has been a
progressive lengthening of
loan maturities and reduc
tion in down payments. In
the early years after the
war, conventional residen
tial mortgage loans com
monly were limited to 15
or 20 years, with required down payments of a third
to a half of purchase price. Today, maturities in con
ventional lending frequently are 25 years and more,
with down payments of 20 to 25 per cent and, in some
instances, as little as 10 per cent. In FHA and VA
financing, “terms” in general have been easier than in
the conventional end of the market, and this continues
to be true, although the margin has narrowed.
Many observers credit the postwar upsurge in
homebuilding in part to the easing in mortgage loan
terms and contend that this impetus now is largely
past. The equity investments or down payments cur
rently required of home buyers are about as small as
practical, especially in view of the flattening out in
home prices during the past two or three years. Fur
thermore, extension of loan maturities has a progres
sively smaller effect on monthly mortgage payments
the longer terms are to begin with. Thus, extending
the maturity on a 4 ‘ per cent loan from 20 to 25
/2
years reduces the monthly payment 12 per cent, while
stretching it out another five years effects a further
reduction of only 9 per cent. If the interest rate is 5 Vi
per cent instead of AV2 , the effect is smaller still in
an extension from 25 to 30 years—roughly IV 2 com
pared with 9 per cent.
Savings finance housing

The principal suppliers of credit used to finance
housing are such savings-type financial institutions as
savings and loan associations, life insurance compa
nies and banks. At the end of 1961, more than 75
per cent of the 225 billion dollars in all mortgage debt
then outstanding— 174 billion of it secured by resi
dential properties— was held by these three categories

A n n u a l Report, 1962

of institutions (see table on page 17).
Savings and loan holdings of mortgage loans have
increased tenfold in the postwar period and since
1954 have constituted the largest single share of
mortgage debt outstanding. This rapid growth has
been intimately related to the strength in single-family
homebuilding, as the associations confine their mort
gage lending predominantly to this type of property.
Financing of multi-family structures lately has grown
in importance to the savings and loan associations.
For the greater part, however, this field, calling for
the capacity to extend sizable individual loans, is
dominated by the larger life insurance companies
which have the necessary lending powers.
The share of total mortgage lending by both life
insurance companies and commercial banks has in
general narrowed in the course of the postwar period.
During the past year, however, the commercial banks
have displayed renewed interest in residential financ
ing. This, in part, is attributable to the relaxation of
Regulation Q early in 1962 to authorize higher inter
est rates on savings deposits. In the face of vigorous
competition for loan volume from other suppliers of
funds, the commercial banks’ share of total mortgage
holdings apparently has changed little during the past
year despite a substantial gain in dollar terms.
In the financing of home construction, the commer
cial banks play an important part in extending short
term credit to developers and builders to finance their
operations during the stage of building activity. This
is in addition to their role as suppliers of permanent
mortgage financing. Frequently the banks hold the
permanent loans only up to completion of construc
tion activity, when they are turned over to such long-

A fte r

P u blic housing has a id e d u rban red ev e lo p m en t

term investors as life insurance companies, pension
and welfare funds and mutual savings banks. In
other cases, however, mortgage loans originated by
the banks are held in investments for the full term of
their amortization.
Government housing

Since the Thirties, the Federal Government has
financed the construction of roughly 1 million housing
units, about half of them for rental occupancy by lowincome families. State and local governments financed
an additional 41,000 low-income rental units during
this period. Government financing also has provided a
sizable supply of housing connected with defense and
other Federal installations; about 125,000 such dwell
ings remained on hand at the end of 1961, a substan
tial proportion of the total erected at Government
expense during the war years having been sold sub
sequently to private owners.
Provision of housing by the Federal Government at
low rentals is a form of subsidy-in-kind to needy per
sons. The bulk of public housing has been built in the
big cities, often on sites cleared of dilapidated pri
vately owned residential structures. Thus, public
housing has served not only to improve the economic
position of some families but also to aid in removing
urban slums.
Urban renewal is another form of Federal partici
pation in slum clearance. Under this program, local
governmental agencies acquire title to dilapidated
property— if need be by condemnation— clear the
land and sell it to private owners for redevelopment.
Financial losses incurred in the process are shared by
the Federal Government and sponsoring local agen

cies in the ratio of $2 in
Federal money to $1 of
local funds (three to one,
in some smaller communi
ties).
At the end of 1961,
urban renewal activities
were under way in 66 com
munities in the Seventh
D is tric t s ta te s — 26 in
Michigan, 19 in Indiana,
16 in Illinois, 3 in Iowa
and 2 in Wisconsin. Alto
gether 300 million dollars
had been set aside as the
F e d e ra l G o v e rn m e n t’s
share in the estimated cost
of 111 separate projects;
five of these, all within
Illinois communities, had been completed.
Mortgage insurance—
aid to financing

Perhaps the most important form of participation
by the Federal Government in housing is the protec
tion extended to residential mortgage lenders or in
vestors under the FHA and VA programs of home
mortgage insurance and guarantee. The FHA and VA
programs have tended to standardize mortgage loans
and thereby widen the market for them. This has stim
ulated the flow of private capital into residential
property, especially single-family owner-occupied
houses, which have been so important in postwar
homebuilding.
Since 1959, FHA and VA have insured or guaran
teed mortgage loans on between 25 and 30 per cent
of all privately owned new homes built. In the earlier
postwar years, the proportion had been generally
higher, exceeding 50 per cent in both 1950 and 1955,
two of the biggest homebuilding years of the period.
Serving to facilitate FHA and VA mortgage financing
have been the activities of the Federal National
Mortgage Association (Fannie M ae), which provides
a secondary market for Government-underwritten
loans as well as direct financing for special types of
property. Fannie Mae’s mortgage portfolio of about
6 billion dollars accounts for half of all mortgage
debt held at the present time by Federal agencies.
Much of the year-to-year variation in homebuilding
activity has been associated with swings in the volume
of Government-underwritten mortgage financing.
Year-to-year changes in housing starts under conven
tional or noninsured and nonguaranteed mortgage
financing have been comparatively moderate.

Federal Reserve Bank of Chicago

New space for businesses and institutions

Just under one-third of all construction during the
postwar period has been accounted for by stores, fac
tories, office buildings, hotels, power plants, churches
and a wide assortment of other privately owned nonresidential structures. In 1962 prices, expenditures
for such facilities have totaled 240 billion dollars, 20
per cent less than outlays on homes but 14 per cent
more than the dollar volume of public construction.
About three-fourths of the nonresidential total
represents construction by commercial (and indus
trial) enterprises, including farms. The building of
structures accounts for about a third of the capital
expenditures in these sectors with the remainder
largely for machinery and equipment. Other nonresiM e ch a n iz a tio n o f sto ra g e a n d fe e d
h a n d lin g ch a ra cte riz e ca ttle fe e d in g la yo u t

dential construction is made up of outlays by such
nonprofit organizations as schools, hospitals, churches
and private clubs.
Expenditures on certain categories of nonresiden
tial private construction have risen in some postwar
years when others have declined. As noted earlier,
this component of construction has been relatively
more stable in the aggregate than homebuilding.
Because of the prominence in recent years of new
office buildings and shopping centers in and around
urban areas, there is some tendency to exaggerate the
importance of structures of this type in the over-all
construction picture. Total “commercial” construc
tion in 1962 was 5 billion dollars, about equally
divided between office buildings and warehouses on
the one hand and stores, restaurants and garages on
the other.

A n n u a l Report, 1962

During both 1961 and 1962, commercial building
amounted to 8 per cent of total construction. This
proportion had been about 5 per cent in the 1947-54
period. Commercial construction started slowly in the
postwar period partly because of the still fresh mem
ories of the many projects of the late Twenties in
which investors suffered losses. In 1929 commercial
construction had risen to 11 per cent of the total in a
boom which saw a wave of skyscraper building in
major centers.
Commercial construction rose sharply in the midFifties. Requirements for new work space became
more pressing and changes in the tax laws permitted
faster depreciation, thereby enabling investors to look
forward to capital gains on property sales. Moreover,
these years witnessed the rapid development of inte
grated shopping centers with ample parking space that
increasingly drew consumers from established shops
in downtown and neighborhood areas. The suburban
shopping center has enabled retailing to follow the
movement of population (especially consumers with
relatively high incomes) to outlying areas.
The postwar boom in office construction has been
somewhat more concentrated than that of the Twen
ties, with half of all new skyscraper construction since
1945 taking place in New York City alone. Several
major midwestern centers, however, have witnessed a
substantial pickup in this type of construction, par
ticularly during the past few years. In Chicago, almost
a seventh of all present-day downtown office space is
in buildings erected during the last dozen years. The
downtown Detroit area also has seen a sizable volume
of new office and other commercial construction in the
wake of a number of civic improvements— principally
Cobo Hall and the Ford Auditorium and new city and
county office buildings— facing the Detroit River.
S u b u rb a n sh o p p in g ce n ters e n a b le re ta ile rs to fo llo w custom ers

Indianapolis and Des Moines also have gained a num
ber of new downtown office buildings, with govern
mental facilities a big part of the total in Indianapolis.
The riverfront Marine Plaza project in downtown
Milwaukee has been another major development.
The peak postwar year for capital expenditures in
manufacturing and public utilities was 1957, when
industrial and utility outlays amounted to 7.4 and
11.3 per cent, respectively, of total construction.
These proportions had been exceeded in the Twenties,
especially in utilities. In 1962, despite increases from
the previous year, factory construction was only 4.6
per cent of the total and the building of public utility
plant facilities 8.8 per cent.
Farm construction rose rapidly after the end of
the war and amounted to 7.8 per cent of total con
struction in 1947. After that year, however, it de
clined as a proportion of the total and shrank in dollar
terms from 1952 to 1960, a period when farm income
was substantially lower than earlier. In 1961 and
again last year farm construction rose somewhat but

accounted for only 2.7 per cent of the 1962 total.
Many nonresidential private structures are financed
in much the same manner as housing. Because of the
specialized nature of nonresidential improvements,
the ratio of loan to value for these properties typically
is smaller than for homes. Most banks, savings asso
ciations, insurance companies and other lenders
finance the process of business construction and make
mortgage loans on finished structures. Growth in the
supply of funds available to financial institutions for
investment in long-term obligations in recent years has
stimulated interest in commercial and industrial
mortgages.
About 37 billion dollars of the total noncorporate
mortgage debt of 225 billion outstanding at the be
ginning of 1962 was secured by commercial and in
dustrial properties. Nevertheless, the largest share of
credit used to finance business structures probably is
not designated as mortgage credit but constitutes part
of borrowings obtained through general purpose
bonds and loans.

Construction in the public sector

Postwar construction outlays by governmental units
— Federal, state and local—have totaled almost 190
billion dollars, or about 28 per cent of combined

private and public construction. Projects under state
and local ownership— mostly highways, schools and
public utilities— have accounted for three-fourths

Federal Reserve Bank of Chicago

of all public construction. Military installations and a
variety of conservation and resource development
undertakings have been the principal categories in the
Federal Government’s 25 per cent share.
Construction has been quite stable as a proportion
of total public expenditures since 1949, moving within
a range of 9.5 to 11.4 per cent. During World War II
and the first years that followed, government building
activity was at low ebb; available supplies of materi
als and manpower were devoted primarily to higher
priority uses. Before the war, however, construction
had constituted a considerably larger proportion of all
public spending. In 1927, for example, the share was
nearly 19 per cent—largely under impetus of the hard
roads program in which the states were engaged— and
only slightly lower in the Thirties and early Fifties.
The main reason for the relatively lower level of
public construction in recent years has been the tre
mendous expansion since the Thirties and Forties in
government expenditures for current as opposed to
capital purposes. Much of this growth reflects the
adoption or enlargement of expenditure programs
entailing transfer payments to individuals (social
security and interest on the public debt, for example)
that require no accompanying outlay on public
“plant” facilities.
New streets and highways

Measured in dollar terms, spending on new roads
and streets is the most important segment of public
construction. In 1962, an estimated 5.9 billion dol
lars— more than a third of total government construc
tion expenditure— was for highway building. Annual

A n n u a l Report, 1962

expenditures under this heading have climbed rapidly
since the war and have more than doubled in the past
decade.
Growth in outlays for new city streets and local
roads— facilities mainly to provide access to major
urban and interurban traffic arteries— has been in
curred largely as a result of the continuing outward
sprawl of the nation’s urban centers. A big share of
public spending for construction of streets and roads
has been in new housing developments. The rising
demand for intercity highway facilities on the other
hand has been traceable largely to the rapidly growing
number of highway vehicles in use, although popula
tion growth and migration have been influential also.
An important stimulus to highway expenditure has
been the Federal Interstate Highway Program
launched in 1956. Scheduled for completion in 1972,
but lagging currently, the 41,000 mile interstate net
work will link most of the nation’s metropolitan areas.
Cost of the entire system of ultramodern, dividedlane and limited-access roads was estimated initially
at 41 billion dollars, or an average of 1 million dollars
per mile.
Through September 30, 1962, some 7 billion dol
lars had been spent on the nearly 7,900 miles of new
road completed and opened to traffic. Roughly 2,300
miles of existing toll roads and 3,000 miles of modern
independently developed and financed, but not fully
standard, nontoll highways also had been absorbed
into the system. Altogether, 32 per cent of the pro
jected mileage was in operation. At the same date,
work was under way on nearly 16,000 miles of addi
tional roadway expected to cost nearly 7 billion dol-

Spending on new school facilities

M ilw a u k e e 's w a r m em orial se rv e s as civic ce n ter

lars; 4,900 miles were under construction and 10,800
miles more were at the engineering or right-of-way
acquisition stage. Work remained to be started on
slightly more than 12,000 miles of the system, includ
ing a considerable amount in built-up urban areas
where progress is expected to be slow and costs high.
The Seventh District states have been allotted
almost 5,000 miles of the projected network. Four of
the five states are reported to have made somewhat
faster than average progress toward completion of
their portions. Both Michigan and Wisconsin, with
1,079 and 453 miles, respectively, of interstate roads
projected, had reached almost the halfway mark by
the end of last September. Moreover, virtually all the
mileage classed as completed was new and in full
compliance with interstate standards.
Unlike most other classes of public construction,
new highway facilities are largely “self-financing.”
Fuel taxes, tolls and vehicle licenses provide revenues
related quite directly to highway use. The more
vehicles there are on the road and the more they are
driven, the greater the revenues available to pay for
the highway plant (and current operations) serving
users. This is, of course, less true of local access streets
than of intercity and urban arterial highways. Prop
erty taxes and other general revenues commonly are
utilized to provide a substantial share of the funds
needed to build and maintain the essentially local
facilities.
Highway construction in the United States has
totaled roughly 60 billion dollars since World War II.
In the District states, expenditures have been in ex
cess of 9.5 billion, or about a sixth of the national
total. This ratio is in close agreement with the five
states’ share of the nation’s 3.6 million mile street and
highway network and its total population.

After climbing rapidly in the first 10 years follow
ing the war, annual expenditures for construction of
new public primary and secondary schools have
fluctuated between 2.0 to 2.4 billion dollars since
1956. For the entire postwar period, outlays have
exceeded 26 billion dollars. Publicly owned colleges
and universities, too, have participated in the rising
outlay for new construction, with expenditures total
ing 5.6 billion dollars. The rise in construction outlays
for schools and colleges, of course, has been in re
sponse to the surge in school age population and rise
in the proportion of young people continuing with
formal education beyond high school.
Pupil enrollment in public grade and high schools
has grown more than 60 per cent during the Forties
and Fifties, but the growth has been uneven, with
especially sharp gains in many newly settled residen
tial areas and often much smaller increases, or even
decreases, in older communities. Thus, the over-all
climb in enrollment does not fully reflect the growth
in demand for new school facilities. Nevertheless, the
huge sums poured into new construction have in
creased the number of classrooms more rapidly than
enrollment in recent years and has partially satisfied
the backlog of demand in this sector.
Enrollments have grown even more rapidly at
institutions of higher learning than at the elementary
and high school levels. Degree-credit students in the
fall of 1961 totaled nearly 3.9 million, nearly twice
the number in 1946. Bearing the brunt of the upsurge
during the past 10 years have been the publicly sup
ported schools. In the first postwar years, total attend
ance at colleges was divided almost evenly between
public and private institutions. Now, however, the

F o rd A u d ito riu m —p iv o ta l fe a tu re o f riv e rfro n t re d e v e lo p m e n t in D etroit

Federal Reserve Bank of Chicago

S ch o o l d e sig n has
ch a n g e d strik in g ly in
re ce n t y e a rs

A n n u a l Report, 1962

number of students at state and municipal colleges
and universities is almost half again as great as at
private schools. The burden of supplying structures
to accommodate the rising college enrollments has
been shifting increasingly to the public sector of
construction.
Michigan has maintained the largest system of
publicly financed higher education in the Midwest.
The state’s three major universities and score of other
tax-supported schools have enrolled more than three
times as many students as in-state private institutions.
In Illinois, enrollment in state colleges and universi
ties has been about equal at tax-supported and private
institutions. In Iowa, private school enrollment has
exceeded that at publicly supported institutions and
Iowa stands alone among the District states in ex
periencing far greater postwar growth in attendance
at private colleges and universities than at state and
community supported schools.
Other public works

The building of new water and sewerage facilities
ranks third in importance among the broad categories
of public construction. Expenditures for this purpose
have shown sharp gains in the past two years and are
expected to continue rising for at least a few years.
Public construction of water supply and sewage
disposal works in the postwar years has totaled more
than 17 billion dollars— 10 per cent of all public con
struction. This huge bill has been part of the price of
population growth and mobility and the residential,
industrial and commercial development taking place
concurrently.
Illustrative of the diversity of public construction
are a number of important postwar projects in the
Midwest. A 67 million dollar suspension bridge span
ning the Straits of Mackinac to afford a direct highway
link between the two peninsulas of Michigan is one
Tax fu n d s h a ve fin a n c e d a b ig
sh a re o f m e d ica l fa c ilitie s

N e w je t-a g e a irp o rt n e a rs co m p letion

example. The huge air terminal at O’Hare Field in
Chicago, now approaching completion at an outlay
in excess of 145 million dollars, and the jet-age
Metropolitan Airport serving Detroit are other largescale undertakings of an out-of-the-ordinary charac
ter. In addition, there are the new water filtration
plant which will serve the North Side of Chicago at a
cost exceeding 100 million dollars, new exhibition and
convention halls in Detroit, Chicago and Milwaukee
and a variety of lake and waterway improvements and
new port facilities in the Great Lakes.
Paying for public construction

Federal Government outlays for construction are
indistinguishable from expenditures for “current”
purposes, from the standpoint of their financing.
Although early plans for the interstate highway sys
tem called for the use of borrowed funds with princi
pal and interest payments to be met from the proceeds
of “user charges” rather than general revenues, the
borrowing feature of the plan was dropped and
revenues from the charges serve simply to pay cur
rently for the construction. The Interstate Highway
Program, therefore, illustrates the use of “earmarked”
revenues to finance specific undertakings— a device
employed sparingly by the Federal Government but
quite widely by the state and local governments.
In state and local, or “municipal,” financing it is
common for construction and other capital costs to
be met by borrowing. Debt service is met from special
or earmarked revenues (as in revenue-bond borrow
ing), general tax funds (general obligation or full
faith and credit borrowing) or a combination of
the two.
Since World War II, state and local long-term bor-

Federal Reserve Bank of Chicago

rowing for capital purposes, including land acquisition
and the purchase of existing improvements as well as
new construction, has totaled nearly 80 billion dol
lars. By the end of 1962, state and local indebtedness
stood at 70 billion dollars, after a more than fivefold

increase since the termination of the war.
The Seventh District states account for nearly
15 per cent of the total debt of all state and local
governments in the nation, only slightly under their
proportion of United States population.

The future of construction

Although the dollar volume of construction has
risen in each postwar year except one and for a decade
has remained a relatively stable proportion of total
spending, unused capacity has become increasingly
evident both in the building industry and in the indus
tries supplying materials and equipment. In recent
years prices of building materials have declined as has
the number of construction workers, and builders have
complained of narrow or nonexistent profit margins.
Throughout most of 1962, prices were under down
ward pressure for virtually all types of building ma
terials, especially cement, glass, aluminum products,
roofing and siding, wallboard and ceiling and floor
tile. Quoted prices for all construction materials in
1962 averaged 3 per cent below the 1959 peak, while
the average for all wholesale prices was about the
same in both years.
The rise in capacity to produce construction materi
als is illustrated by the case of cement. Production in
1962 was about equal to the 1959 record of 339 mil
lion barrels, but this was only 77 per cent of estimated
capacity at the beginning of 1962. As late as 1956,
with production substantially below recent levels,
operations were at virtual capacity. This story is re
peated in varying degrees in most kinds of building
materials and structural components.

P o stw a r b a n k b u ild in g s fe a tu re a d v a n c e d a rch ite ctu ra l d esig n

With some materials such as glass, hardwood ply
wood, reinforcing bars, nails and screws, imports have
supplemented domestic sources to a considerable de
gree. By and large, however, foreign supplies are rela
tively unimportant, and more intense competition in
markets for construction materials is the result of
additions to domestic productive capacity at a rate
outpacing increases in usage.
Wage scales of construction workers have contin
ued to rise in recent years while prices of building
materials have declined. In 1962 average weekly earn
ings in contract construction were $121 compared
with $63 in 1947— an increase of 92 per cent, about
the same as in manufacturing. Wage increases have
more than offset declines in material prices, gains in
productivity and reductions in contractor profit mar
gins in recent years so that total construction costs
have continued to edge upward.
Because of the great importance of construction
and its vulnerability now that urgent needs developed
in the depression, World War II and the postwar
boom in population growth have been largely satis
fied, questions are being raised again about future

prospects. For the nearer term, the official Construc
tion Outlook for 1963— released in November 1962
by the U. S. Department of Commerce—projects a
rise of about 3 per cent in total construction activity
between 1962 and 1963. But, what about the years
beyond 1963?
For the late Sixties there is little question that de
mand for homes will rise along with family forma
tions, which are expected to reach 1.2 million per
year— 20 per cent above the current level— by 1969.
This would imply a total need for 1.5 or 1.6 million
new housing units annually, allowing for replacement
of those to be demolished or abandoned, along with
the needs for added space to house the growing popu
lation. Over and above this is likely to be additional
demand traceable to a continued rise in personal in
come, a factor influencing the pace of quality upgrad
ing of the nation’s housing stock. On balance, homebuilding appears to be headed for an annual volume
during the later years of the Sixties above the 1.4
million units started in 1962.
Public construction, aided by a strong rise in high
way building, is expected to increase about 5 per cent
next year. Although great progress has been made in
satisfying public needs in the past 17 years, many
observers believe that a substantially greater effort
will be required to bring public services up to “accept
able” standards. The actual level of public construc
tion, of course, will continue to depend upon the
willingness of legislators and taxpayers to provide the
necessary funds. Continued population growth and a
high level of private construction activity would
appear to call for further gains in the volume of public
construction in the coming years.
Many believe that the boom in stores and office

buildings soon will peak out and that outlays will
level off or decline. Surges of construction always
have given way to reactions in the past. For 1963,
however, the Government projection estimates an 8
per cent rise in outlays for office buildings and a 3 per
cent increase for stores. Gains also are expected for
industrial and utility construction. In total, nonresidential private construction is expected to be up 4
per cent in 1963, climbing to a new record.
Between 1957 and 1962 the share of total construc
tion contracts accounted for by the five District states
declined from over 16 per cent to 13 per cent. Al
though most areas of the Midwest continue to be
relatively prosperous, income and population in these
states have not been rising as rapidly as in other
regions, notably the Far West, Texas and Florida.
Areas which are gaining population most rapidly, of
course, have the greatest need for new housing,
schools, stores and municipal and utility services.
Although the need for additional structures has
been less pressing in the Midwest than in some other
areas, the desire to replace dilapidated or obsolescent
structures has been strong. In all the large District
centers, and in many smaller cities as well, demolition
of the old to make way for the new is taking place on
an unprecedented scale. Sites for new projects are
being cleared, often with the aid of Government sub
sidies. At the same time some stores, factories and
residences stand vacant as individuals and economic
activities move to outlying areas.
Construction activity, like most other kinds of pro
duction, depends only in part upon current or pros
pective “need.” Trends in income and shifts in the
willingness of investors and lenders to channel funds
into new buildings and other structures, as well as
changes in price and cost relationships, also have
important effects.
Government officials have estimated that construe-

tion outlays will increase more than 70 per cent be
tween 1962 and 1975, a considerably greater rise than
is foreseen for total economic activity. If these pro
jections are realized, construction activity in the Mid
west will show substantial gains even if the region
continues to grow at a slower pace than the nation.
However, Midwest producers of construction machin
ery and construction materials and components can
look forward confidently to a substantial expansion in
the demand for their products.
An increase in the proportion of construction to
total activity probably will require an even greater
relative increase in the proportion of loanable funds
channeled to this use. Much of this money is supplied
by savers, in part directly, but usually through
financial institutions. The funds that will be required
to finance further expansion of the big, basic and
diversified sector of the economy occupied by con
struction can be expected to rank importantly among
the outlets for savings and credit in the years ahead.

A n n u a l Report, 1962

Appointments, elections, resignations and retirements

Z-^uring the year 1962 the following appointments
and elections were announced:
Robert P. Briggs, Executive Vice President, Con
sumers Power Company, Jackson, Michigan, a Direc
tor since 1956, Deputy Chairman in 1960 and Chair
man and Federal Reserve Agent since 1961 was
redesignated Chairman and Federal Reserve Agent
for 1963.
Max P. Heavenrich, Jr., President, Heavenrich
Department Store, Saginaw, Michigan, was appointed
Director of the Detroit Branch Board on November 5
to complete the three-year term expiring December
31, 1963, of Carl A. Gerstacker, Chairman of the
Board, The Dow Chemical Company, Midland,
Michigan.
James H. Hilton, President, Iowa State University,
Ames, Iowa, a Director since 1960 and Deputy Chair
man since 1961 was reappointed Director for a threeyear term ending December 31, 1965, and redesig
nated Deputy Chairman for 1963.
C. Lincoln Linderholm, President, Central Bank,
Grand Rapids, Michigan, was reappointed Director of
the Detroit Branch Board for a three-year term ending
December 31, 1965.
James W. Miller, President, Western Michigan
University, Kalamazoo, Michigan, was designated
Chairman of the Detroit Branch Board effective Jan
uary 1, 1963, succeeding J. Thomas Smith, President,
Dura Corporation, Oak Park, Michigan.
Guy S. Peppiatt, President and Director, FederalMogul-Bower Bearings, Inc., Detroit, Michigan, was
appointed Director of the Detroit Branch Board for
a three-year term ending December 31, 1965.
Harry W. Schaffer, President, The Citizens First
National Bank of Storm Lake, Storm Lake, Iowa, was
elected Director for a three-year term ending Decem
ber 31, 1965, effective January 1, 1963, to succeed
Vivian W. Johnson, Chairman of the Board, First
National Bank, Cedar Faffs, Iowa.
Kenneth V. Zwiener, President, Harris Trust and
Savings Bank, Chicago, Illinois, member of the Fed
eral Advisory Council from the Seventh Federal
Reserve District in 1962 was reappointed member of
the Council for 1963.

Charles J. Scanlon, formerly First Vice President,
was elected President of the Federal Reserve Bank of
Chicago on January 4.
Hugh J. Helmer, Vice President, was promoted to
First Vice President on April 1.
Leland M. Ross, formerly Chief Examiner, was
named Vice President on May 1.
James R. Morrison was appointed Chief Examiner
and Harris C. Buell and Carl W. Weiskopf were
appointed Assistant Chief Examiners on May 1.
George W. Cloos and Lynn A. Stiles, Senior
Economists, were elected officers of the Bank, effec
tive January 1, 1963.
Ward J. Larson came to the Bank as Assistant
Counsel and Assistant Secretary on July 1 following
the resignation of Joseph B. Lederleitner as of
April 30.
Louis J. Purol was appointed Assistant Cashier at
the Detroit Branch on June 6.
Vivian W. Johnson and J. Thomas Smith retired
as directors on December 31, 1962. Mr. Johnson was
a Director of the Bank since 1945. Mr. Smith, was a
Director of the Detroit Branch Board since 1956 and
Chairman since 1961.
Arthur J. Wiegandt, Assistant Cashier, retired on
May 31 after 30 years of service at the Detroit Branch.
The employees listed below, all with service records
of more than 25 years, retired in the course of the
year from the Head Office and Detroit Branch:
Norman S. Allen
Dell A. Berriman
Nevin Black
Florence Crosell
Mary E. Daly
Lawrence A. Dow
Peter H. Gronley
Laura A. Gustafson
Lionel H. Hansen
Helmer C. Henrickson
Agnes M. Januszewski

Raymond C. Kelly
Arthur R. Monson
Veronica K. Normile
Kathryn T. Plummer
Arthur Rogers
Robert W. Schumacher
Howard I. Singleton
Minor B. Smith
Otto Widemark
Arthur C. Zimmerman

These retired employees of the Bank represent a total
of 769 years of service to this institution.

Federal Reserve Bank of Chicago

ROBERT P. BRIGGS, Executive Vice President
Consumers Power Company
Jackson, Michigan
C h a irm a n a n d F e d e r a l R e se rv e A g e n t

JAMES H. HILTON, President
Iowa State University
Ames, Iowa
D e p u ty C h a irm a n

JOHN H. CROCKER, Chairman of the Board
The Citizens National Bank of Decatur
Decatur, Illinois

GERALD F. LANGENOHL, Treasurer
and Assistant Secretary
Allis-Chalmers Mfg. Co.
Milwaukee, Wisconsin

WILLIAM A. HANLEY, Director
Eli Lilly and Company
Indianapolis, Indiana

WILLIAM E. RUTZ, Director
and Member of the Executive Committee

VIVIAN W. JOHNSON, Chairman of the Board
First National Bank
Cedar Falls, Iowa

Giddings and Lewis Machine Tool Company
Fond du Lac, Wisconsin

DAVID M. KENNEDY, Chairman of the Board
Continental Illinois National Bank
and Trust Company of Chicago
Chicago, Illinois

JOHN W. SHELDON, President
Chas. A. Stevens & Co.
Chicago, Illinois

DETROIT

BRANCH

J. THOMAS SMITH, President
Dura Corporation
Oak Park, Michigan
C h a irm a n

MAX P. HEAVENRICH, JR., President
Heavenrich Department Store
Saginaw, Michigan

JAMES W. MILLER, President
Western Michigan University
Kalamazoo, Michigan

C. LINCOLN LINDERHOLM, President
Central Bank
Grand Rapids, Michigan

FRANKLIN H. MOORE, President
The Commercial and Savings
Bank of St. Clair
St. Clair, Michigan

WILLIAM A. MAYBERRY, Chairman of the Board
Manufacturers National Bank of Detroit
Detroit, Michigan

MEMBER

FEDERAL

DONALD F. VALLEY, Chairman of the Board
National Bank of Detroit
Detroit, Michigan

ADVISORY

KENNETH V. ZWIENER, President
Harris Trust and Savings Bank
Chicago, Illinois
D ecem ber 3 1 , 1962

A n n u al Report, 1962

COUNCIL

CHARLES J. SC A N LO N , President

HUGH J. HELMER, First Vice President

ERNEST T. BAUGHMAN, Vice President

CLARENCE T. LAIBLY, Vice President

JOHN J. ENDRES, General Auditor

RICHARD A. MOFFATT, Vice President

ARTHUR M. GUSTAVSON, Vice President

HAROLD J. NEWMAN, Vice President
LELAND M. ROSS, Vice President

PAUL C. HODGE, Vice President,
General Counsel and Secretary

HARRY S. SCHULTZ, Vice President

LAURENCE H. JONES, Vice President and Cashier

RUSSEL A. SWANEY, Vice President

CARL E. BIERBAUER, Assistant Vice President

BRUCE L. SMYTH, Assistant Vice President

FRED A. DONS, Assistant General Auditor

ROBERT E. SORG, Assistant Vice President

ELBERT O. FULTS, Assistant Vice President

JOSEPH J. SRP, Assistant Vice President

EDWARD A. HEATH, Assistant Vice President
and Assistant Secretary

GEORGE T. TUCKER, Assistant Vice President

JAMES R. MORRISON, Chief Examiner

CHARLES G. WRIGHT, Assistant Vice President

HARRIS C. BUELL, Assistant Chief Examiner

VICTOR A. HANSEN, Assistant Cashier

JOHN J. CAPOUCH, Assistant Cashier

WILLIAM O. HUME, Assistant Cashier

LE ROY A. DAVIS, Assistant Cashier

ERICH K. KROLL, Assistant Cashier

LE ROY W. DAWSON, Assistant Cashier

WARD J. LARSON, Assistant Counsel
and Assistant Secretary

DANIEL M. DOYLE, Assistant Cashier
FRANCIS C. EDLER, Assistant Cashier

KARL A. SCHELD, Assistant Cashier

LESTER A. GOHR, Assistant Cashier

CARL W. WEISKOPF, Assistant Chief Examiner

DETROI T BRANCH
RUSSEL A. SWANEY, Vice President

PAUL F. CAREY, Assistant Cashier

RICHARD W. BLOOMFIELD, Assistant Vice President

LOUIS J. PUROL, Assistant Cashier

GORDON W. LAMPHERE, Assistant General Counsel

W. GEORGE RICKEL, Assistant Cashier
Decem ber 3 1 , 1962

Federal Reserve Bank of Chicago

S T A T E M E N T OF C O N D I T I O N

Assets

D ecem b er 3 1 , 1962

D ecem b er 3 1 , 1961

Gold certificate a c c o u n t .....................................
Redemption fund fo r Federal Reserve notes
Total gold certificate reserves .
Federal Reserve notes of other Banks .
O ther c a s h ...........................................................................
Discounts and ad van ces:
Secured by U.S. G overnm ent securities

$ 2 ,3 6 3 ,3 9 9 ,1 16

$ 2 ,5 6 4 ,6 8 1 ,8 9 8

2 2 1 ,3 9 3 ,1 0 0
$ 2 ,5 8 4 ,7 9 2 ,2 1 6

21 1 ,6 3 6 ,8 9 0
$ 2 ,7 7 6 ,3 1 8 ,7 8 8
3 8 ,8 9 3 ,0 0 0
5 8 ,3 2 8 ,5 0 5

O ther ...........................................................................
Total discounts and ad vances .
U. S. G overnm ent securities
. . .
Total loans and securities .

Cash items in process of collection .
Bank p r e m is e s .................................................................
O ther a s s e t s .................................................................
Total assets.............................................

4 3 ,7 9 0 ,5 0 0
5 1 ,0 1 8 ,2 7 9
$

2 5 0 ,0 0 0

3 5 0 ,0 0 0

2 ,1 1 5 ,0 0 0
2 ,4 6 5 ,0 0 0

1 39,000
$

3 8 9 ,0 0 0

5 ,1 6 0 ,1 9 7 ,0 0 0
$ 5 ,1 6 0 ,5 8 6 ,0 0 0

4 ,9 0 7 ,6 6 7 ,0 0 0
$ 4 ,9 1 0 ,1 3 2 ,0 0 0

1 ,3 2 9 ,0 3 2 ,2 1 3
23 ,8 0 6 ,6 4 1
5 7 ,6 2 1 ,5 8 5
$ 9 ,2 5 0 ,6 4 7 ,4 3 4

1 ,2 3 8 ,9 4 7 ,3 3 7
2 4 ,2 4 9 ,9 5 6
4 0 ,3 0 9 ,6 0 2
$ 9 ,0 8 7 ,1 7 9 ,1 8 8

$ 5 ,5 2 8 ,4 5 6 ,4 3 5

$ 5 ,3 6 1 ,5 3 4 ,1 7 0

$ 2 ,6 7 1 ,6 0 1 ,9 7 1

$ 2 ,5 3 9 ,8 0 0 ,7 3 8
6 6 ,4 0 0 ,6 4 7
3 7 ,3 6 5 ,0 0 0
1 2 ,0 1 5 ,2 1 6
$ 2 ,6 5 5 ,5 8 1 ,6 0 1
8 7 4 ,1 6 7 ,8 1 6
10,622,801
$ 8 ,9 0 1 ,9 0 6 ,3 8 8

Liabilities
Federal Reserve notes

...............................................

Deposits:
M em ber bank reserves
. . . .
U. S. T reasu re r—general account .
Foreign
.
.
.
.
.
O ther ...........................................................................
Total d e p o s i t s ...............................................
D eferred a v a ila b ility cash items
O ther l i a b i l i t i e s ........................................................
Total lia b ilitie s .....................................

8 6 ,3 2 1 ,3 2 7
3 6 ,1 4 0 ,0 0 0
1 9 ,3 4 3 ,6 2 2
$ 2 ,8 1 3 ,4 0 6 ,9 2 0
6 9 9 ,2 8 7 ,8 5 7
1 1 ,3 8 7 ,4 7 2
$ 9 ,0 5 2 ,5 3 8 ,6 8 4

Capital accounts
C ap ital paid i n .................................................................
Surplus ....................................................................................
Total liabilities and capital accounts

6 6 ,0 3 6 ,2 5 0
1 3 2 ,0 7 2 ,5 0 0
$ 9 ,2 5 0 ,6 4 7 ,4 3 4

$ 9 ,0 8 7 ,1 7 9 ,1 8 8

3 1 .0 %

3 4 .6 %

Ratio of gold certificate reserves to deposit
and Federal Reserve note lia b ilitie s c o m b in e d ........................................................

6 1 ,7 5 7 ,6 0 0
1 2 3 ,5 1 5 ,2 0 0

Contingent lia b ility on acceptances purchased
fo r foreign c o r r e s p o n d e n t s .......................................................................................................$

A n n u a l Report, 1962

1 1 ,6 8 9 ,9 0 0

1 7 ,6 2 5 ,0 0 0

S T A T E M E N T OF E A R N I N G S A N D E X P E N S E S

Current earn in gs:

1962

Discounts and a d v a n c e s .................................................................

875,033

1961

608,563
160,030,217

U. S. Governm ent s e c u r i t ie s ........................................................

175,591,640

Foreign c u r r e n c i e s ..........................................................................

486,831

A ll o t h e r ......................................................................................................

44,435

46,602

Total current e a r n in g s .................................................................

$176,997,939

$160,685,382

O perating e x p e n s e s ..........................................................................

$ 26,460,163

$ 25,363,764

Federal Reserve c u r r e n c y .................................................................

1,250,370

1,040,334

927,100

886,200

$ 28,637,633

$ 27,290,298

and other e x p e n s e s .................................................................

3,806,210

3,726,826

Current net e x p e n s e s .................................................................

$ 24,831,423

$ 23,563,472

Current net e a r n i n g s .................................................................

$152,166,516

$137,121,910

Current expenses:

Assessm ent for expenses of Board of G overnors .
Total

....................................................................................

Less reim bursem ent for certain fiscal agency

A dditions to current net earnings:
Profit on sales of U. S. Governm ent securities (net)

Total a d d it io n s ...................................................................................

336,027
134,433

A ll o t h e r ......................................................................................................

470,460

Net a d d i t i o n s ....................................................................................

Net earnings before paym ents to U. S. Treasu ry

$152,406,426

239,910

632,499
2,851

629,648

$137,751,558

3,849,832

Paid U. S. T reasu ry (interest on Federal Reserve notes)

3,613,523

139,999,294

Dividends p a i d ......................................................................................................

Transferred to s u r p l u s ....................................................................................

40,031

230,550

Deductions from current net e a r n i n g s ...............................................

592,468

126,275,435

8,557,300

7,862,600

Surplus account
Surplus, Ja n u a ry 1 .............................................................................................

$123,515,200

$1 15,652,600

Transferred to surplus—as a b o v e ........................................................

8,557,300

7,862,600

Surplus, December 3 1 ................................................................

$132,072,500

$123,515,200

Federal Reserve Bank of Chicago

1962

*£ f
*

Dollar amount (in millions)

Cl ear in and
lection

1961

Commercial bank ch e ck s.........................

208,015

192,380

Governm ent ch e ck s*.............................. ..

17,379

15,600

Other items. . . . .......... |[. .T . . . f . . . .7

476

Number of pieces (in thousands)
Commercial bank ch e ck s......................

600,109

561,251

. v.............

94,677

94,278

Other items...................................................

1,666

1,777

5,057

5,026

209

211

Government checks*. . |.

Dollar amount (in millions)
Currency received and co un ted ............... ..

Currency and
coin

Coin received and counted........................ .
Coin wrapped . . . . . . . .

r: ,rt .

183

162

Unfit currency withdrawn from circulation.

86 7

844

Number of pieces (in millions)
Currency received and counted. . . . . . . \
Coin received and c o u n te d ...
Coin wrapped

847

1,897

1,733

.................. .~7...........................

828

1,850
I

*J.j-

1,615

Unfit currency withdrawn from circulation.
Dollar amount (in millions)

Safekeeping of
s ^ c u H

217

Securities received . .

t i b

17,623

18,965

Securities released . . .T .

17,289

18,606

j
Coupons d etach e d .........

In safekeeping on Decern

241
r 31

Number of pieces (in thousanas
Securities r e c e iv e d ................

n r

379

309

2,330

1,355

274

2,582

In safekeeping on December 31

j I

412

...

Coupons detached

8,436

............... r . : . . : . . . . .

Securities released

Discoun
credit

226

8,541

1,239

I ft I

Dollar amount (in millions)
Total loans made during y e a r .............

4,665

Daily average outstanding, ..- ............

Number of banks accommodated during y ea r.

174

188

*lncludes postal money ord ers.

H ead O ffic e

A n n u a l Report, 1962

3,573

1962

1961

Purchases and sales of securities for member banks

Investment

1,788

1,342

15,800

14,200

Dollar amount of funds transferred (in millions).....................

392,429

333,998

Number of transfers (in thousands)..............................................

498

461

16,002

15,285

Securities re c e iv e d ..............................................

14,610

14,946

Securities delivered ..........t ................................

Transfer of
funds

Dollar amount (in millions)....................................................
Number of transactions.........................................................

18,461

16,640

19,353

15,627

327

349

Marketable securities
Dollar amount (in millions)
Issued..................................................................................
Servicing:

Redeem ed................................................
Number of pieces (in thousands)

-if

Issued..............................
Servicing:

i*ftlL

Securities re ce iv e d . . .

194

Securities d e liv e re d ................ r

emed
Redeemed
Savings bonds

Services to the
U. S. Treasury

.............

. i

410

. ! . !. . . J

626

. .

104

Dollar amount (in milti

lssued: ..................
ived for rdisslie. . . . ..v.h . .

x>
V
V
1

delivered on reissue

Number of pieces (in thousands)

:I . i ;:

issued.......................

T r i1

.....

a i
.. J „ J
Bonds received for re ssu e. . . .

Servici rg:

j |

Bonds delivered on reissue

^674

677

14,867

14,561

Dollar amount (in millions)............

7,346

6,695

Number of pieces (in thousands)

1,783

1,696

Bonds delivered on replacement.
D e tro it B ran ch

Federal tax receipts processed

Federal Reserve Bank of Chicago

Acknowledgments

The p h o to g ra p h s u sed in the co nstruction section o f this A n n u a l

E n g d a h l, H ed rich -B le ssin g ; D e tro it-W a yn e Jo in t B u ild in g

A u th o rity ;

R e p o rt w e re : p a g e 5 —C o u rte sy o f In te rn a tio n a l H a rv e ste r C o ., C h i

In d ia n a B u ild in g , In d ia n a p o lis ; p . 2 2 — In d ia n a T o ll R o a d C om m ission;

c a g o ; p . 7 —A p o llo S a v in g s B u ild in g , C h ica g o , co u rtesy A lb e r t Car-

M ir ro r L a k e , W isco n sin , co u rtesy W isco nsin H ig h w a y C om m ission; p . 23

r ie r e ,

—M ilw a u k e e C ou n ty W a r M e m o ria l C e n te r, In c ., co u rtesy " M ilw a u k e e

In c .; p .

9—F id e lity

B u ild in g ,

In d ia n a p o lis ;

R elia n ce

E lectric

C o m p a n y, co u rtesy A lb e r t C a rr ie r e , In c .; p. 10—N ile s Tow nship C om

J o u r n a l" ; F o rd

m unity H igh

p . 2 4 —M e n 's D o rm ito ry, U n iv ersity o f C h ic a g o ; In d ia n a S ta te C o lle g e

S c h o o l, S k o k ie , Illin o is , co u rtesy

H o la b ird

and

R oot,

A u d ito riu m , D e tro it, co u rtesy " T h e

D e tro it N e w s " ;

C h ic a g o ; p . 11—Don M ills, co u rtesy H untin g S u rv e y C o rp o ra tio n , L td .,

A re n a a n d P h ysica l E d u ca tio n B u ild in g , T e rre H a u te ; C o lle g e o f E d u

T o ro n to , C a n a d a ; p .

Ryan a n d

cation B u ild in g , W a y n e S ta te U n iv e rsity , D e tro it; In d e p e n d e n c e S ch o o l,

N o rth w est e x p re ss w a y s , co u rtesy C h ica g o D e p a rtm e n t o f C ity P la n

In d e p e n d e n c e , Io w a , co u rtesy P ella R olscreen C o ., P e lla , Io w a ; C h ica g o

12—In te rse ctio n

o f C o n g re ss, Dan

R ile y C e n te r, In d ia n a p o lis , co u rtesy

T e a ch ers C o lle g e -N o rth , co u rtesy C h ica g o B o a rd o f E d u c a tio n ; Law

M . R. H okan son C o m p a n y ; H uron Tow ers A p a rtm e n ts, A nn A rb o r,

Q u a d ra n g le , U n iv ersity o f C h ic a g o ; p . 2 5 — Io w a Lu th e ra n H o sp ita l,

M ic h ig a n , co u rtesy M o rto n L. S ch o ln ick an d A sso cia te s; P ra irie S h o re s

Des M o in e s ; O 'H a re A irp o rt , co u rtesy C h ica g o D e p a rtm e n t o f C om

n in g ; p .

13—Ja m e s W h itcom b

A p a rtm e n ts, C h ic a g o , co u rtesy D ra p e r a n d K ra m e r, In c ., M a rin a C ity ,

m ercia l A v ia tio n ; p . 26— M e rch a n ts N a tio n a l B a n k a n d Trust C o m p a n y,

C h ic a g o , co u rtesy B ill E n g d a h l, H ed rich -B le ssin g ; p . 15— C o u rte sy M o

In d ia n a p o lis ; M a rin e P la z a , M ilw a u k e e ; p . 2 7 — N a tio n a l B a n k o f D e

b ile Hom es M a n u fa ctu re rs A sso cia tio n , C h ica g o ; p p . 18-19— 13th a n d

tro it, co u rtesy " T h e D e tro it N e w s " ; D e tro it B a n k a n d Trust B u ild in g ;

B lue Isla n d , C h ic a g o , co u rte sy C h ica g o D epartm en t o f C ity P la n n in g ;

p . 2 8 — G e n e ra l M o to rs C o rp o ra tio n , W a rr e n , M ic h ig a n ; C o v e r—O h io

p . 2 0 —S . H . C a ssid y F a rm , D a rlin g to n , W isco n sin , co u rtesy H e lg e se n 's

a n d O n ta rio In te rc h a n g e , C h ic a g o , C o u rte sy C h ica g o D e p a rtm e n t of

G la ss L in e d S to ra g e C o m p a n y , J a n e s v ille ; R andh urst C e n te r, M ou n t

C ity P la n n in g .

P ro sp e ct, Illin o is ; p . 2 1 —In la n d S te e l B u ild in g , C h ic a g o , co u rtesy Bill

Requests for additional copies of this report sh ould be addressed to:
F ederal Reserve Bank o f C h ica g o
Box 834
C h ica g o 90, Illin o is

A n n u a l Report, 1962

Full text of Annual Report of the Federal Reserve Bank of Chicago : Annual Report 1962 : Construction: Big, Basic, Diversified

FRASER