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IDAHO

A LAS K A

FEDERAL

RESERVE

1

TWELFTH

WASHINGTON

BANK

OF SAN

FRANCISCO

FEDERAL RESERVE DISTRICT

tinnuaL (Rswi&w
m

Q

u tc h . 1 9 6 3

a a u s l

UTAH

iEOO N


C A LIF O R N IA


A R IZ O N A

NEVADA

1962 . . . . Annual Review
hopes were held out for the national
Weakness in investment m ainly
economy at the beginning of 1962 be­
responsible for leveling off of GNP
adjusted)
cause of the upthrust generated during the pre­
Feb. 1961 trough = 100
ceding three quarters by a 7.5 percent increase
10
2
in gross national product, a 13 percent rise in

H

ig h

greater degree of optimism was being voiced
by many observers of the economic scene.
The slowdown in the rate of economic ex­
pansion in 1962 was most evident in the
weakness of total private investment and net
exports of goods and services. Consumer
spending and government purchases of goods
and services provided the principal support
for the upswing, but insufficient support to
stimulate investment very much. The reduc­
tion in net exports was due both to a leveling



\

\

GROSS PRIVATE DOMESTIC INVESTMENT

\

i

tained, although a number of major economic
indicators moved up to record highs. The lev­
eling off in economic activity, particularly
after mid-1962, fostered disappointment and
doubts about the strength of the recovery and
led to increased cautiousness on the part of
both producers and consumers (with the ex­
ception of consumer purchases of automo­
biles). The disappointment was reinforced,
moreover, by continued under-utilization of
plant capacity, a persistently high unemploy­
ment rate, and by a still sizable balance of
payments deficit, all of which received consid­
erable attention in the press. Nevertheless,
measured by the percentage gain from the
low point of the recession, business activity
was at about the same stage of recovery by the
end of 1962 as in previous upswings, because
the slower rate of expansion in 1962 followed
a sharp upsurge in 1961. The steadiness of
the economy at high levels over a period of
months tended eventually to temper fears of
a recession, and by year-end a somewhat

----- r
----- 1
—

industrial production, and a 27.5 percent
spurt in private investment which was paced
by a turnaround from inventory liquidation
to inventory accumulation. But, as the year
wore on, the rate of expansion was not main­

t
120
GO VERNM EN T PURCHASES OF GOODS A N D SERVICES

10
1

J

M

M

J

S

N

J

1961

M

M

J

S

N

1962

Source: United States Department of Commerce.

off in exports as major industrial countries
abroad expanded less rapidly and to higher
imports responding to improved levels of do­
mestic business activity.
Inventories were the chief contributor to
the lackluster performance of private invest­
ment in 1962. After the turnaround in inven­
tories from liquidation to net accumulation
in the second quarter of 1961, restocking
moved up smartly through the next three
quarters. Stocks of steel in particular rose
substantially in the first quarter of 1962 in
anticipation of a steel strike which failed to
materialize. Subsequently, these stocks were
worked down, and the decline in the rate of
inventory accumulation became fairly wide­
spread. By the end of 1962, inventory accu­
mulation had fallen to an annual rate of only
$1.2 billion, and stocks were relatively low

March 1963

MONTHLY REVIEW

in relation to the level of economic activity.
Rebuilding of stocks has been dampened both
by uncertainties regarding the near-term out­
look and by more efficient inventory prac­
tices.
Most of the expansive force in 1962 of
business outlays for plant and equipment, on
the other hand, was spent by the third quar­
ter, and in the fourth quarter, capital expend­
itures fell off. No change is expected in capi­
tal outlays in the first three months of this
year. The sluggishness of plant and equip­
ment spending was due in part to the reluct­
ance of many firms to undertake major capital
spending programs when there is substantial
excess capacity and narrowing profit margins.
The issuance by the Treasury in July 1962 of
more liberal depreciation guidelines and the
passage of an investment incentive tax pro­
gram later in the year, therefore, were de­
signed to stimulate investment by business,
both currently and over the longer run. New
construction— the other major component of
fixed investment— after declining in the first
quarter of 1962, rose to a record $45 billion
for the year. M uch of the increase, however,
was achieved in the first nine months of the
year.
Spending by consumers and government,
which constituted the chief sustaining factor
in earlier recessions, played a similar role in
the 1961-62 recovery. Government purchases
of goods and services accounted for 40 per­
cent of the rise in the nation’s output of goods
and services from the final quarter of 1961 to
the end of 1962. More than half of the in­
crease in this G N P account was due to higher
Federal government expenditures, mainly for
national defense and space programs, and the
rest was due to increased Government em­
ployment and a general wage hike for Federal
employees in October. State and local govern­
ment spending also rose steadily over the
year, with a fourth-quarter bulge caused by
stepped-up highway expenditures.
Personal income climbed 6 percent in 1962



1961 trough = 100
IN D U S T R IA L P R O D U C T IO N

10
0
------------ J
120*
NO N FARM EM PLO YM ENT

10
1
100

-------------- 1
P E R S O N A L IN C O M E

i

10
2
O U T L A Y S F O R P L A N T A N D E Q U IP M E N T
110

---------------------------- 1
N E W C O N S T R U C T IO N

...................................................... 1
J

M

M

J
1961

S

N

J

M

M

J

S

N

1962

Source: Council of Economic Advisers, Economic Indicators.

to a record high, but the rate of increase di­
minished in the latter half of the year. Since
all but a small proportion of disposable per­
sonal income generally is spent, consumer
spending was a major stimulus to the economy
in 1962. Spending on durables, nondurables,
and services all shared in the 1962 expansion,
in contrast to a decline in spending on dur­
ables in 1961. Automobiles contributed heav­
ily to durable goods sales, since both 1962
and 1963 car models were received favorably.
Domestic automobile sales reached 6.8 m il­
lion units in 1962, second only to the 1955
record.
Reflecting the rise in consumer, govern­
ment, and investment expenditures, industrial
production advanced 9 percent in 1962, but
the index was practically unchanged at 119
to 120 percent of the 1957-59 level after mid­
year. A ll of the major sectors shared in the
gain, but automobiles, machinery and equip­
ment, and defense industries showed greater

F E DE R A L

RESERVE

BANK

than average increases. The steel industry,
which had boosted output sharply in the early
part of the year, closed the year at a reduced
rate of production; output for the year as a
whole was about unchanged from 1961. After
a promising rise in the backlog of orders in
the spring months, new orders also began to
lag; by the end of the year, unfilled orders
generally were below their year-ago levels.
Steel users, for example, drew down stocks
accumulated earlier in the year, thus bringing
steel inventories into somewhat better balance
with orders and output.
Nonagricultural employment ended the year
at a record level, but the number of persons
employed showed little change after June, on
a seasonally adjusted basis. Although all sec­
tors participated in the first-half increase,
most of the improvement was concentrated in
durable goods manufacturing and in retail
trade. After June, employment in the service
industries and in state and local government
continued to rise, offsetting a drop in manu­
facturing employment. The jobless rate fell
through July but subsequently failed to main­
tain its earlier gains, averaging 5.6 percent in
1962 compared with 6.7 percent in 1961.
Productivity rose as output advanced more
rapidly than employment, and prices re­
mained fairly steady throughout the year.

Monetary and credit policy took
account of both internal and
external requirements
Fiscal and monetary policy in 1962 took
into account problems posed by both our do­
mestic economy and our international pay­
ments position. Upward pressures were m ain­
tained on short-term interest rates for balance
of payments reasons. Long-term rates mean­
while remained at levels that should tend to
encourage investment. The Treasury in­
creased its security issues in the shorter matu­
rities and conducted advance refundings in
the longer term area, building up its cash



OF

S AN

FRANCISCO

Net free reserves steady but lower
in 1962; spread between shortand long-term rates narrowed
M illions of dollars

Source: Board of Governors of the Federal Reserve System.

balances in the process by more than the
amount needed to cover its cash require­
ments in order to keep pressure on short-term
interest rates. Net Treasury borrowing of $7
billion from the market was about the same
as in 1961 and resulted in a more than $1
billion addition to securities due within 1
year, a decline of over $3 billion in the volume
of securities due in 1 to 5 years, and a rise of
$9 billion in bonds due in more than 5 years.
The Federal Reserve System, in seeking to
promote both internal and external balance
and economic growth, provided commercial
banks with an ample supply of funds during
the year. Net free reserves of member banks,
after a high of $555 million in January, ranged
from $375 to $470 million— except for a de­
cline to $265 million in December, compared
with a range of $420 to $550 million in 1961
(except in January).

March 1963

MONTHLY REVIEW

Federal Reserve System policy continued

held by banks kept down borrowing from

to be expansionary, but open market opera­

Federal Reserve banks, except in midsummer

tions were conducted with a view to offset­

and in the latter part of the year.

ting downward pressures on short-term rates.

Commercial bank credit meanwhile rose

Purchases of United States Government se­

$19 billion for a postwar record as Federal

curities, as in 1961, were carried out over the

Reserve operations kept commercial banks

whole maturity range. On balance the System

plentifully supplied with reserves. A ll of the

added $1.9 billion to its Government securi­

gain was accounted for by loans and by in­

ties portfolio, with securities in the 1- to 5-

creases in holdings of securities other than

year range accounting for most of the in­

United States Government obligations. The

crease. Near the end of 1962 when seasonal
credit demands were expected to increase,
the System reduced reserve requirements on

$ 15 billion expansion in time and savings de­

time deposits from 5 to 4 percent, releasing
about $780 million in reserves. This dimin­
ished the need to supply reserves through
purchase of Treasury bills, which would have
tended to raise their price and lower their
market yield. Relatively easy credit condi­
tions, adequate short-term accommodation
through the Federal funds market, and the
comparatively large volume of Treasury bills

posits at banks was a response primarily to
the higher rates paid on such deposits in 1962.
The combined impact of Treasury, Federal
Reserve, and commercial bank operations in
1962 operated in the same direction— 3month Treasury bill rates averaged 2.77 per­
cent compared with 2.36 percent in 1961.
while long-term Treasury bond rates were
comparatively steady at levels close to the
1961 averages.

A DESCRIPTION OF THE CHART FORMAT
O ne of the features of the Twelfth District econom y in 1962 w a s its steady,
if not spectacu lar, u p w ard m ovem ent throughout the ye a r, in contrast to a tend ­
ency for the United States econom y as a w h o le to level off after m id -year. Most
of the charts in this issue ha v e therefore been d esig ned to point up some of the
principal differences betw een District an d national b eh avio r over the past y e a r. In
addition, 1961 d ata h a ve been included (the shad ed blue area) to show d e v e l­
opm ents from 1961 to 1962 as the recovery progressed. Data on m an y of the
charts have been converted to an in d ex, with the trough month of the 1960-61
recession—February 1961—calculated as equal to 100. The trough month is that of
natio n al econom ic activity as determ ined by the N ational Bureau of Economic
Research — and not n e ce ssarily the cyclical low s of the in d ivid u al indicators
plotted. W here this method has not been fe asib le or relevant b ecause of the nature
of the d ata, absolute am ounts h ave been used instead .




F E DE R AL

RESERVE

B A NK

OF

SAN

FRANCISCO

Expansion in Business Activity Greater
in Twelfth District than in the
Rest of the Nation

A

ft er

an encouraging first half, the United

States economy began to show signs of
hesitation in the last half of 1962, a pattern
that was not repeated by the major indicators
of Twelfth District activity. Although this Dis­
trict lagged behind the nation initially after
the upturn in 1961, its performance improved
over the remainder of that year. In 1962 the
District produced an even more creditable
performance as activity expanded through­
out the year in most major sectors. The level­
ing off in business activity that characterized
the national scene in the second half of the
year was noticeably absent on the District
level. The upswing in the second year of re­
covery, however, probably was somewhat
weaker in the Twelfth District than it had been
in prior postwar recoveries.

Sustained growth in District
employment
In terms of employment, recovery from the
1960-61 recession began in the Twelfth Dis­
trict in February 1961 (as it did for general
business activity in the nation as a whole)
and proceeded almost without interruption
through December 1962. Twelfth District
nonagricultural payroll employment,1 which
had declined only moderately during the re­
cession period, increased on the average by
1Nonfarm payroll employment data for the District exclude
Alaska and Hawaii because data for these two states are not
seasonally adjusted. In 1962, nonfarm employment averaged
57,600 workers in Alaska— up 2.9 percent from 1961— and
195,300 in Hawaii— up 0.5 percent, bringing total employment
in the Twelfth District to an average of 7,522,000. Contract
construction employment in both states fell on the average
from 1961 and was well below the high level of construction
activity in these states during 1960. Wholesale trade and Federal
government employment also decreased in Alaska, but rose sig­
nificantly in Hawaii. Hawaii showed a year-to-year decline in
the average number of workers in nondurable goods manufac­
turing, caused primarily by a 7.5 percent drop in food and
kindred products. However, in both states, the finance, insur­
ance, and real estate and the service industries chalked up siz­
able gains which helped to offset losses in other sectors




Nonfarm employment rose faster in
the District than in the nation
(Seasonallj adjusted)
1961 tro u g h = 100

TO TA L NO NFARM EMPLOYMEN1
TW E LFTH DISTRICT

................................. .........................
r

S E R V IC E -P R O D U C IN G INDUSTRIES

-

1

C O M M O D ITY -P R O D U C IN G INDU STRIES

-

r

DIS TRIBU TIVE INDUSTRIES

"

.
J

:
M

i

................................................
M

J
1961

S

N

................................. .............................................
J

M

M

J
S
1962

N

Note: Service-producing industries include finance, insurance
and real estate; government; and services. Commodityproducing industries include manufacturing, mining, and
contract construction. Distributive industries include
transportation, communication, electric, gas, and sanitary
services; and wholesale and retail trade.
Source: State departments of employment and United States
Department of Labor,

4.3 percent in 1962, after a rise of only 2
percent in the preceding year.1 New highs
were established in each succeeding month
except February and June, reaching a total
of 7,660,000 jobholders by the end of the
year. By mid-December 1962, every major
sector of employment except mining was at,
or above, its previous high. Nationally, how­
ever, payroll employment rose by only 2.3
1 The percentage changes cited in the discussion of employment
and unemployment are based on the average number of people
employed in each year, unless otherwise specified.

MONTHLY REVIEW

March 1963

percent in 1962, with all of the increase occur­
ring in the first seven months; by December,
five of the eight major sectors of employment
had fallen below their highs for the year. A g­
ricultural employment on the Pacific Coast,
as in the nation, continued to shrink in 1962,
as it has during the last several years, al­
though the decrease in the West was, as usual,
smaller— 1 percent compared with 5 per­
cent for the nation.
Employment in the service sector (includ­
ing Government), which accounts for nearly
40 percent of District wage and salary jobs,
again expanded more rapidly than did other
sectors of employment in both the District

and the nation. Federal and state and local
government added nearly 63,000 persons to
District payrolls— a rise of 4.5 percent. Over
80 percent of this growth was at the state and
local level; employment in California public
school systems alone rose by 22,000. Services
was the fastest growing component, increas­
ing by 5.4 percent over the year. Em ploy­
ment in finance, insurance, and real estate
continued its steady climb and was up by 4.4
percent in 1962.

Employment in defense-related
industries moved up sharply
Jobs in commodity-producing industries
increased on the average by nearly 110,000,

Table 1

or 4.7 percent, as both manufacturing and
construction

increased;

mining

declined

slightly. M ining employment continued the
(in thousands)

1962
(Average of monthly figures)
Total

7 ,5 2 1 .5

Mining

68.0

slow absolute and relative decline which be­
1962 change from 1961
Amount
Percent
+ 3 08 .9

+ 4 .3

—

0 .9

— 1.3

Contract
construction

446 .1

+

1 5.8

+ 3 .7

M anufacturing

1 ,9 0 5 .9

+

9 4.6

+ 5.2

Durable g o o d s 1 1 , 2 0 6 . 9

+

7 6 .2

+ 6 .7

+

10.2

+ 1.9

6 .9

+ 1.3

N ondurable
553.4

g oods1
Transportation
an d public

5 31 .7

utilities

1 ,6 3 1.4

+

5 6.4

+ 3 .6

4 34 .6

+

9 .6

+ 2 .3

1 ,1 9 6 . 8

+

4 6.8

+ 4.1

-J-

1 5 .6

+ 4 .4

+

5 7.6

+ 5 .4
+ 4 .5

Trade
W ho le sale trade
Retail trade
Finance, insurance
a n d real estate

368.5

Service

1 ,1 2 4 . 3

G overnment

1 ,4 4 5.6

+

6 2.9

409.6

+

1 0 .5

+

5 2 .4

+ 5.3

for less than 1 percent of total employment.
In 1962, District manufacturers hired 94,600 additional employees, a rise of 5.2 per­
cent, and ended the year with a work force
substantially equal to the record seasonally
adjusted total of 1,936,000 reached in Octo­
ber. This pattern was in sharp contrast to the
nation, where manufacturing employment
rose only 3 percent in 1962 and by December
was 233,000 below its June peak. Durable
goods industries accounted for over 85 per­
cent of the District expansion as the West
continued to benefit from heavy defense ex­
penditures. Employment in defense-related
industries1 increased by 58,000 or 10.8 per­
cent and thus was responsible for over 60 per­
cent of the growth in total jobs in manufac­
turing. Lumber and wood products employ­
ment2 averaged 1.5 percent higher in 1962,

+ 2 .6

1 ,0 3 6.0

gan in the mid-fifties and accounted in 1962

Federal
State a n d local

1Pacific Coast States only.
Note: These data exclude estimates of Alaska and Hawaii.
Source: State departments of employment.




1Defense-related industries include aircraft and parts, ordnance,
and electrical equipment.
2 Includes data for Arizona, California, Idaho, Oregon, ^nd Wash­
ington only— the District states that report this category
separately.

F E DE R A L

RESERVE

B A NK

OF

S AN

FRANCISCO

but gains over a year-ago were concentrated
at the beginning and end of the year. Scat­
tered strikes within the industry and a weak­
ening in demand, partly attributable to con­

ally processed in June— and reached a record
seasonally adjusted high of 220,000 persons
in October on the strength of a bumper toma­
to crop. Employment in printing and publish­

struction strikes in California, Nevada, and
the Pacific Northwest, depressed employment

ing continued its steady secular climb, in ­
creasing by an average of 1.6 percent over
the year. Other nondurable goods industries,

below year-ago levels during the summer. De­
spite the slight overall improvement, employ­
ment still reflected the inroads of competi­
tion from other materials and from foreign
producers because the number of jobs in
1962 was roughly 40,000 below the levels
achieved in the early ’50’s.
Employment in primary metals1 increased
during the first six months of 1962 but de­
clined below year-ago levels for the remain­
ing six months. The net result was a decrease
of nearly 1 percent over the year despite frac­
tional gains in California and Washington.
This roughly paralleled changes at the na­
tional level, although in the rest of the nation
the downturn following the signing of the
steel wage contract occurred earlier. Primary
metals employment in the West also failed to
register the moderate December increase ex­
perienced in other parts of the country, pre­
sumably due to the fact that automobile pro­
duction is of lesser importance to steel mills
in this District.
Employment in industries producing non­
durable goods increased by less than 2 per­
cent, although every industry reported gains
ranging from less than 1 percent for food and
kindred products to 3.8 percent for textiles
and apparel and also for paper products.2
Jobs in industries specializing in food and
kindred products, the largest employer in the
nondurable goods industries on the Pacific
Coast, fluctuated erratically during the sum­
mer— as a result of late harvest of crops usu­
1 Includes data for Arizona, California, Oregon, Utah, and Wash­
ington only— the District states that report this category
separately.
2 The breakdown of manufacturing employment into durables
and nondurables is available only for the Pacific Coast States.




including chemicals, petroleum, leather, and
rubber products, were up 2 percent in 1962.
District employment in contract construc­
tion rose 3.7 percent in 1962, although se­
vere weather curtailed activity in February
and a protracted labor dispute on the West
Coast sharply reduced employment in the
early summer. As in manufacturing, the Dis­
trict fared better than the nation as a whole;
for the nation, the average number of con­
struction jobs decreased by 2.3 percent.
In the distributive industries. District per­
formance was less impressive than the growth
in the commodity- and service-producing in­
dustries, although it still was better than on
the national level. Trade employment rose by
3.6 percent, while transportation and utili­
ties edged up 1.3 percent over the year. C om ­
parable figures for the nation showed trans­
portation employment unchanged and a less
than 2 percent increase in trade, which ended
the year 57,000 below its peak level in July.

Little change in Pacific Coast
unemployment
Notwithstanding the comparatively steady
expansion of District employment, unemploy­
ment in the West, as reflected in Pacific Coast
labor force data1, declined very little during
1962. The seasonally adjusted rate of un­
employment, after falling from 7.3 percent in
May 1961 to 5.7 percent in January 1962,
fluctuated

within relatively narrow

limits

through December and closed the year at 5.6
1Since some states do not publish labor force estimates, the rate
of unemployment for the entire Twelfth District cannot be
ascertained. The discussion above is therefore based on data
for the three Pacific Coast States only.

MONTHLY REVIEW

March 1963

the factory workweek increased more in the
nation than in the District. Factory employees
in the West, however, still earned 14.3 per­
cent more than the national average, while
working 0.4 hours less per week.

Income and consumption set new
records in 1962

16
91

16
92

Source: State departments of employment and United States
Department of Labor.

percent. The District unemployment rate was
the same as the nation’s at the end of the year,
although, in the case of the United States as a
whole, gains made earlier in the year had not
been maintained. The stability of the District
rate resulted largely from a growth of 2.3 per­
cent in the civilian labor force, which tended
to cancel the favorable impact of increased
employment on the level of joblessness. By
contrast, the stability in the national rate of
unemployment, especially in the latter half
of the year, resulted more from a lack of
growth in the demand for labor than from an
increase in the labor force.

Average weekly earnings rose
moderately in 1962
Average hourly earnings of production
workers in manufacturing industries in the
District rose 2.6 percent in 1962. This in­
crease combined with a slightly longer work­
week of 40 hours to boost average weekly
earnings to $110.40, a gain of 3.4 percent
over 1961. For the nation as a whole, aver­
age earnings increased by 4.6 percent to
$96.56; both average hourly earnings and



During 1962, disposable personal income
and consumption in the nation reached rec­
ord levels. The $19 billion or 5 percent in­
crease in disposable personal income was ac­
companied by a rise of $18.5 billion in per­
sonal consumption expenditures. In real
terms, the rise in consumption was 4.5 per­
cent, double the 1961 gain, after adjustment
for the slightly less than 1 percent increase in
prices between the two years. Durable goods
purchases, mainly automobiles, contributed
heavily to 1962’s better showing— reversing
a decline in 1961, while spending for nondur­
able goods and for services also rose above
1961.
Although there are no strictly comparable
income and consumption data for the District,
available data on retail sales of companies
with 1-10 stores (Group I stores), depart­
ment stores, and automobile registrations in­
dicate that this area did as well as or better
than the nation as a whole during 1962. A
greater increase in District income and con­
sumption is more or less a corollary of the
generally faster rate of growth in population
and employment in the District, as compared
with the nation, in 1962 and in earlier years.
Sales of Group I stores in the Twelfth Dis­
trict in 1962 were 11 percent above 1961,
compared with 8 percent for the nation as a
whole. This type of pattern applied to both
durable and nondurable goods stores. Sales
of durable goods rose 19 percent above the
year-ago level and, except for a relatively
slow third quarter, showed a fairly stable
growth pattern each month throughout the
year. Sales by furniture and appliance dealers
and by lumber and building suppliers, which

F E DE R AL

RESERVE

B A NK

had declined in 1961, rose in 1962 in line
with increased activity in residential con­
struction, Most of the gain in sales of dur­
ables, however, was due to automotive stores,
which account for about 70 percent of total
durable goods sales. Spring automobile sales
were brisk, and the fourth quarter broke all
records. The third quarter, while above the
year-ago period, was a slack period because
of smaller than usual inventories in the hands
of automobile dealers. This, in turn, may ex­
plain in part the spectacular reception accord­
ed the 1963 models when they appeared in
the showrooms. A t any rate, by the end of
the year, new car registrations for the year—
an alternative measure of automobile pur­
chases— were at a record high for the District,
while 1962 was only the second best year for
the nation as a whole. Just over 14 percent
of all new cars registered in the United States
were in the nine District states, unchanged
from 1961 but about 0.5 percent above 1960.
While movements in District sales of dur­
able goods appear to have been more dra­
matic, sales by nondurable goods stores also
rose at a faster rate in the District than na­
tionally— 9 percent compared with 6 percent.
General merchandise stores, including depart­
ment stores, showed a greater than average
sales growth as did eating and drinking es­
tablishments and gasoline service stations.
Food stores, which have been experiencing a
rising sales trend, continued to expand sales
in 1962, but their sales grew at a less rapid
rate than for stores which, in addition to sup­
plying necessity items, cater to purchasers of
luxury goods and less essential articles.

Consumers increased use of
credit to finance purchases
A n 11 percent increase in national con­
sumer instalment credit outstanding in 1962,
in comparison with only a nominal rise in
1961, was again typical of a recovery period;
consumer credit tends to lag in the early
phases of a recovery but subsequently picks



OF

S AN

FRANCISCO

up significantly. During 1962, total outstand­
ings rose without interruption throughout the
year except for a brief setback in February.
From reports on consumer credit extended
by commercial banks and by other financial
institutions, it seems that consumer borrow­
ing in the District and the nation from both
bank and nonbank lenders followed much the
same pattern in 1962. Extensions exceeded
repayments in each successive month; by the
end of the year, outstandings at commercial
banks in the District were 13 percent above
the December 1961 figures. The national in­
crease was slightly smaller. Automobile cred­
it accounted for the largest part of the gain
due to record sales, rising 17 percent between
December 1961 and December 1962— one
percentage point more than the national figure
for commercial banks.

Construction activity gained in 1962
Twelfth District construction activity had
a fairly impressive increase in 1962 but
somewhat less than for the nation as a
whole. Measured by the volume of con­
struction contracts awarded during the year,
Twelfth District states rolled up a 1962 total
of $8.2 billion in contracts let for all types of
construction— a rise of 10 percent above the
1961 figure.1 Nationally, however, the gain
was 11 percent, and contracts totaled $41.3
billion. District performance in total residen­
tial construction contracts resulted in a gain
of 19 percent, well in excess of the 12 per
cent increase for the nation, but the 1962
rise in nonresidential building was slightly
less than nationally. The major factor hold­
ing back the District was the failure of con­
tracts for public works and utilities construc­
tion to surpass their 1961 volume; depressed
levels of utilities construction were respons­
ible for a decline of 4 percent in “heavy en­
gineering” contracts from 1961, compared
with a 15 percent growth in the nation.
1 Construction contract data are those of the F. W. Dodge Cor­
poration and include figures for all District states except Alaska
and Hawaii.

March 1963

MONTHLY REVIEW

Residential contracts were a major
source of strength in District
construction activity in 1962
Contracts for all types of residential build­
ing in 1962 were almost 19 percent above the
preceding year. As was true nationally, the
major element in this expansion was a sub­
stantial increase in the dollar volume of con­
tracts for multi-family dwellings, although
awards for single-family homes also rose dur­
ing 1962. The relatively rapid growth of m ul­
tiple dwellings in the past several years has
begun to arouse considerable comment from
those interested in the housing market. The
recent increase in apartment buildings has
been interpreted by some as a shift away from
home ownership in suburban areas back into
central-city apartments because of increasing
property tax rates in rapidly growing subur­
ban communities, the present age-group dis­
tribution of the population, increased com­
muting time and traffic congestion, and some
disenchantment with the responsibilities of
home ownership. This change in the pattern
of demand for housing accommodation may
be partly an outgrowth of urban renewal
projects in central-city areas, many of which
are providing new multiple-dwelling units in
price ranges attractive to middle- and upperincome consumers, with the added advantage
of convenient access to downtown shopping
areas. Evidence of the upsurge in apartment
building can be seen particularly in the San
Francisco Bay Area and in the Los Angeles
area, as well as in other metropolitan centers
in the District. In several of these centers, the
proportion of multi-family to total dwelling
units started each year has at least tripled
from 1955 to 1962. Multi-family units con­
stituted approximately 60 percent of the
dwelling units for which building permits
were issued in 1962 in the Los Angeles and
San Francisco metropolitan areas, a ratio sub­
stantially higher than in other major District
metropolitan centers. Data on housing vacan


G row th in District construc
back by h e avy engineering
residential b uilding has be
source of strength
Feb. 1961 trough = 100
150
TO TAL CONTRACT AW ARDS

140
130

120
110

100
T W E L F T H D IS T R IC T

90
80
140
130

120
110

10
0
90
80

70
60
50
J

M

M

J

S

N

J

M

M

J

S

N

Source: F. W. Dodge Corporation.

cies in the West also indicate that there was
a decline in 1962 in the vacancy rate for ren­
tal units (which are mainly multiple dwell­
ings) and a slight rise in the proportion of
vacancies in homes available for sale (prima­
rily single-family dwellings being sold by the
owner-occupier) .*
Nonresidential building contract awards
in 1962 moved 6 percent ahead of 1961,
somewhat less than the increase for the na­
tion over the same period. Elements of
strength in this sector included both commer­
cial and manufacturing building awards; con­
tracts for institutional buildings also rose sig­
1 Housing starts and vacancy rate data are compiled by the De­
partment of Commerce, The “ West” includes Montana, W y­
oming, Colorado, and New Mexico in addition to all of the
nine District states.

FEDERAL

RESERVE

BANK

OF

SAN

FRANCISCO

Ta b le 2

HOUSING S T A R T S AND MOUSING V A C A N C IE S IN T H E W E S T
AND T H E UNITED S T A T E S
H o u s in g V a c a n c ie s’
R e n ta l U n its

H o u s in g S ta r ts 2

O w n e d H o m es

U n ite d

Period

1961
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1962
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

West*

11.0

U n ite d

States

8.0
10.7
8.1

9.4
9.5
8.5
10.3
9 .0
8.3

W
est®

West*

1.1
1.2
7.9
7.7

1.2
1.4

1.3

1.4
1.2

7.7
7.4
7.3
7.4

U n ite d

States

1.2

1.4
1.7
1.4
2 .0

1.3
1.3
1.4

States

7 4 ,4 0 0
8 f ,3 0 0
8 2 ,2 0 0
7 8 ,9 0 0

1.2 1 ,6 0 0
8
1 04 ,30 0
9 8 ,2 0 0
9 0,2 0 0 p

2 6 8 ,4 0 0
4 3 1 ,4 0 0
3 8 7 ,9 0 0
3 4 0 ,6 0 0 p

' Vacancy rate based on sample surveys,
3 Privately built, nonfarm housing units.
•Includes Montana, Wyoming, Colorado, and New Mexico in addition to District states,
p— Preliminary.
Source: United States Department of Commerce.

nificantly above 1961. In all three cases, rela­
tive gains exceeded those for the nation as a
whole.
Awards of heavy engineering contracts in
the District in 1962, however, fell 4 percent
short of their 1961 volume. There was a sub­
stantial rise in building of sanitation facilities,
a lesser increase in contracts for public works,
and only a slight improvement in contracts for
streets and highways. But more than offset­
ting these increases was a substantial decline
in District contracts for public utilities con­
struction, which contrasted with a sizable rise
in this category for the nation. The speed-up
in late 1962 in highway building under the
Federal Interstate Highway program appar­
ently had little effect on this District.

Mortgage credit continued to grow,
with some easing in terms
One of the most significant developments
in the housing market in the past year was
the ready availability of funds for mortgage
lending, both in this District and throughout



the country. Since mid-1961, rates on con­
ventional mortgages have been relatively
stable at levels lower than had been charged
since early 1959. Secondary market prices of
FHA-insured home mortgages have risen
fairly continuously in the West1 during the
last two years and, more recently, in the na­
tion as a whole. Thus, in 1962, not only has
mortgage credit been abundantly available,
but substantial inflows of savings into mort­
gage lending institutions may have led to some
liberalization of their credit standards.
In the Twelfth District, one of the major
lenders on mortgages is the large group of
savings and loan associations located here,
particularly in California. As an indication of
their regional concentration, tabulations of
the 100 largest of these savings institutions
indicate that 37 are located in District states—
30 in California alone. These large savings
and loan associations in California held 38
percent of the total combined assets of the
1 Includes Montana and Wyoming in addition to the nine Dis­
trict states.

372,

MONTHLY REVIEW

March 1963

100 largest associations and 37 percent of to­
tal combined savings accounts as of Decem­

new-home loans in 1962 from the 1961 total;
however, housing begun under F H A inspec­

ber 31, 1962.
Savings and loan associations in this Dis­
trict racked up some impressive gains in sav­
ings and lending during 1962, exceeding both
their own performance during 1961 and that
of the nation as a whole last year. During
1962 insured associations in District states
had a 22 percent addition to their savings ac­
counts, compared with 14 percent in the na­
tion, and they increased their holdings of real
estate loans by 24 percent, compared with 15
percent in the nation as a whole. Rates paid
by associations in California exceed those
paid elsewhere in the nation, while those paid
in other District states also tend to be higher
than rates paid in the East and Midwest by
comparable institutions.

tion in 1962 rose slightly. Several explana­
tions can be advanced for the reduction in

Government-insured housing activity
declined somewhat during 1962
Data from District insuring offices of the
F H A indicate that there was a decline of 1.5
percent in total applications for insurance on

Savings accounts and loans of District
savings and loan associations
outpace the nation
F ell. 1961 trcnifh » 100

housing activity represented by initial F H A
applications. One is the recent substantial
gain in savings at District commercial banks
and savings and loan associations and the re­
sultant pressure for higher earnings. Lenders
have actively sought mortgages, and the
abundance of funds has pushed down interest
rates on real estate loans. Under these circum­
stances, conventional mortgages, which carry
higher rates than do F H A and V A loans, have
become relatively more attractive to both
lenders and borrowers. Another factor may
have been somewhat greater caution by F H A
insuring directors in accepting or approving
applications for loan insurance on new homes,
especially in areas where substantial numbers
of new homes were unsold or where housing
vacancies were relatively high or rising. There
was also a decline in F H A applications na­
tionally, with 1962 applications 9 percent un­
der 1961; FHA-inspected housing starts in
the nation, in addition, were fractionally be­
low their prior-year levels.

Lumber output only slightly better
than depressed 1961 level
Lumber production and employment in the
Twelfth District, which failed in 1961 to re­
gain their 1960 levels, showed only nominal
improvement in 1962. Boosted by rising hous­
ing starts, which reached a peak in the second
quarter of the year, and by hedge-buying in
anticipation of a possible strike in the lumber
industry, mill orders in the District showed
steady improvement in the opening months of
1962 through July. In response to the quick­
ening pace of construction across the nation,
lumber prices rose during this period; the na­

llil

1942

Note: Data cover only Federally insured savings and loan asso­
ciations.
Source: Federal Home Loan Bank of San Francisco and Federal
Home Loan Bank Board.




tional wholesale price index for softwood
lumber in July was 97.6 (1957-59 =

100),

2.7 percent higher than its level a year earlier

F E DE R A L R E S E R V E B A N K OF S AN F R A N C I S C O

and 5.6 percent higher than in December
1961.1 Orders, however, failed to maintain
their earlier pace during the remainder of the
year and lagged behind production. Lumber
prices reflected the drop in demand; they de­
clined in the last six months of the year but
by December were still 2.8 percent above De­
cember 1961.
Orders in the Douglas fir region in 1962
were 6 percent higher than in 1961, while or­
ders in the Western pine and Redwood re­
gions showed only slight gains. Douglas fir
and Western pine production surpassed their
1961 levels by 3 and 1 percent, respectively,
but production was cut back in the California
redwood region. By the end of the year, how­
ever, the industry was in a somewhat better
position as production was geared more close­
ly to orders. Inventories were reduced signifi­
cantly by December, and unfilled orders were
up substantially over year-ago levels. E m ­
ployment in the lumber and wood products
industry increased slightly over the year but
at a slower rate than other manufacturing sec­
tors in the Twelfth District.
The failure of the lumber industry to share
more substantially in the 1961-62 recovery
in economic activity and to regain its 1959
output level has been attributed by the indus­
try to three principal factors: (1 ) Canadian
import competition, (2 ) the trend toward
multi-family dwelling units, and (3 ) substi­
tution of other materials for lumber. The
trend toward multi-family residential build­
ing is particularly detrimental to lumber man­
ufacturers because their volume market for
decades has been dependent on single-family
units which require more lumber in con­
struction. Since W orld W ar II, plywood and
particleboard have also furnished stiff com­
petition for lumber, a situation which has
been aggravated in recent years by depressed
prices for plywood.
1 Crow’s composite lumber price for the Pacific Coast reached
its peak for the year in the two-week period ending July 5 at
$77,39 per thousand board feet, up $5.34 from December 21
and $2.40 above the same period in 1961.




The competition encountered by the do­
mestic lumber industry from foreign produc­
ers is a somewhat more complicated problem.
Waterborne shipments of lumber from the
Pacific Northwest and California to Atlantic
Coast ports declined 12 percent in 1962,
while shipments from British Columbia to the
same destination rose 7 percent. A t the same
time, softwood imports into the United States
— mainly from Canada— are accounting for
an increasing proportion of domestic soft­
wood consumption. Because developments in
1962 were but a continuation of recent trends,
the industry filed an application with the U nit­
ed States Tariff Commission asking for im ­
port quotas and higher tariffs. The plea was
turned down in February 1963 on the grounds
that the trade agreement concessions on lum-

District lumber stocks fell and prices
rose, w hile output increased slightly

B illio n s of B oard Feet
25

1956

1957

PRODUCTION

1958

1959

1960

1961

1962

Note: The price index for softwood lumber is the softwood lum ­
ber component of the wholesale price index for the United States
Source: United States Department of Labor, Bureau of Labor
Statistics, and National Lumber Manufacturers Association.

March 1963

MONTHLY REVIEW

bcr were not “the preponderant cause” of in­
creased imports of softwood lumber. The
Commission found high labor, stumpage, and
rail costs in this country mainly responsible
for the successful foreign penetration of do­
mestic markets.

1961 trough = 100

Plywood production expanded
again; prices low
Plywood production in the District in 1962
expanded for the 17th consecutive year, to
9.7 billion square feet. The 7 percent increase
in output was the combined result of an 8 per­
cent rise in softwood plywood, to 9.2 billion
square feet, and a 3 percent reduction in the
output of hardwood plywood, to 511 million
square feet. Although a record output, the
industry on the average operated at only 80
percent of capacity. Prices consequently re­
mained depressed. The price of quarter-inch
sanded stock, which was at a post-World W ar
II low of $60 per thousand square feet at the
beginning of the year, was raised in April to
$64. The price could not be held at that level
in face of a weak demand situation, however,
and it fell back to the $60 level in May where
it stayed through the rest of the year.

Defense spending spurred District
business activity
Outlays by the Federal government for na­
tional defense activities continued to make an
important contribution to economic activity
in the District in 1962, with firms throughout
the District— but particularly in California—
benefiting from these Federal expenditures.
The bulk of the spending for defense in the
District consists of maintenance and opera­
tion of military facilities and procurement of
materials and services by the Department of
Defense.
Although not strictly classified as defense
expenditures, space technology outlays relat­
ed to space exploration and flight have in­
creased considerably in recent years under
the National Aeronautics and Space A dm in­
istration (N A S A ) and have supplemented



T W E L F T H D fS T R tC T

\

Source: State departments of employment and United States De­
partment of Labor,

Defense Department expenditures in the
Twelfth District. Contract awards by the
N A SA to business firms in the United States
jumped 143 percent from fiscal 1961 to 1962,
with District firms participating heavily in the
expanding activities of the N ASA . In fiscal
1962, the direct award of contracts of $25,000 or more to District firms constituted al­
most half the dollar volume of such awards
nationally and totaled $452 million. This
amount was larger than the total of all such
awards to business firms across the nation a
year earlier.
As a measure of defense expenditures with­
in a region, attention generally is focussed on
prime contract awards by agencies of the De­
partment of Defense for the purchase of such
items as aircraft, missiles, ships, and other
military equipment. Even larger, however, in
terms of the budget of the Department, are the
outlays for military personnel and the opera­
tion and maintenance of equipment and fa­
cilities. Some idea of the importance of such
expenditures in the District can be gathered
from the large number of military personnel
stationed in the nine-state area. In mid-1961

F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O

INDEXES OF INDUSTRIAL PRODUCTION— TWELFTH DISTRICT
(1957-59 =

INDUSTRIAL
PRODUCTION

1957

1958

100)

1959

I960

1961

1962?

Copper
Lead
Zinc
Silver
Gold
Steel Ingots
Aluminum

113

1 01

86

112

119

128

116

92

93

76

99

104

109

94

96

86

97

1 02

105

102

94

91

105

106

106

104

90

99

92

15

114

94

92

102

111

100

112

87

101

101

97

107

Crude Petroleum
Refined Petroleum
Natural Gas

106

98

96

95

96

96

1 02

96

1 01

104

108

111

1 01

96

104

112

121

124

93

99

108

101

105

111

93

98

1 09

98

95

97

99

98

103

106

109

114

83

97

120

119

131

141

Cement
Lumber
Wood Pulp
Douglas Fir Plywood
Canned Fruit
Canned Vegetables
Meat
Sugar
Flour
Creamery Butter
American Cheese
Ice Cream

97

91

112

111

114

119

97

107

95

101

89

106

104

95

1 01

107

111

113

1 01

91

108

105

107

115

96

102

1 02

102

99

101

102

96

102

112

120

119

1 00

97

1 03

112

111

111

96

101

1 03

1 02

106

105

p— Preliminary.
Note. Data given above supersede all previously published annual indexes. To make these indexes comparable to most other statistical
series, the base period has been changed from 1947-1949 = 100 to 1957-1959 = 100.
Source: Federal Reserve Bank of San Francisco.

(the latest data available), approximately
500,000 military personnel were stationed in
District states, more than one-fourth of the
total stationed in the United States. Also of
importance in the defense budget are research
and development expenditures. Although
data are not available for these outlays on a
state basis, the relatively large volume of
awards to business firms in the District by the
N A S A suggests that research and develop­
ment expenditures in the District by the De­
partment of Defense may be substantial.
The District economy has derived benefits
from the increased emphasis on the procure­
ment of missiles and electronic equipment in
recent years. During the Korean conflict, the
Pacific and M ountain states received 19 per­



cent of the prime contract awards in the coun­
try. In fiscal 1961 almost one-third of total
military prime contracts went to these states.
Awards to District firms during the first three
quarters of 1962 totaled $6.1 billion. This
was 18 percent or $839 million larger than
during the comparable period of 1961 and
represented a larger share of the expanding
dollar volume of awards. A ll District states
shared in the increase except Alaska and Ore­
gon. The magnitude of the prime contract
awards to District firms thus points up the
significance of these awards to the District.
It should be noted, however, that the vol­
ume of prime contract awards in the District
does not necessarily represent final defense
purchases in the area because of the practice

March 1963

MONTHLY REVIEW

of subcontracting— possibly to firms outside
the region— by prime contractors. But the
flow of payments on subcontracts is not ex­
clusively from District firms; firms in the
West also act as subcontractors on jobs
awarded to other areas.
Despite problems of translating purchases
of goods and services precisely into direct

F«b. 1941 trough = 100

employment, it is clear that defense and space
exploration expenditures are a major source
of jobs within the District. Defense-related
manufacturing employment in District states
advanced steadily from the low of 523,000
workers in April 1961 to 617,000 in Decem­
ber 1962. O n a monthly average basis, jobs
in defense industries increased almost 11 per
cent from 1961 to 1962. The employment
gain over 1961 was shared among District
states, with the largest gain registered in em­
ployment by electrical equipment firms in
California. Almost 30,000 employees were
added by these California firms in 1962,
about 50 percent more than in 1961. Employ­
ment by aircraft firms in Washington, al­
though averaging higher than in 1961,
dropped by more than 4,000 workers from
its
1962 peak to the end of the year,
apparently due largely to a decline in the
order backlogs for commercial jet aircraft.
There were also some losses in aircraft em­
ployment in California. O n the whole, how­
ever, the increase in employment in defenserelated industries added significantly to the
expansionary forces in the District economy
in 1962.

August

District steel industry suffered
setback in 1962
The District steel industry looked forward
to 1962 with some anticipation, after having
experienced a more successful year in 1961
than steel producers outside the District; how­
ever, the outcome in 1962 was reversed. Dis­
trict production of 4.9 million tons was 9.5
percent below 1961 and about equal to 1960



Source: American Iron and Steel Institute.

output, while national production of 98 m il­
lion tons was 0.3 percent higher than in 1961.
The year started off on an encouraging
note, with orders and output expanding rap­
idly in January and February to meet sea­
sonal increases in consumption and substan­
tial purchases for inventory by steel users as
a hedge against a possible strike in the steel
industry by mid-year. Both District and na­
tional output increased approximately 12 per­
cent from December 1961 to February 1962.
The pace of production slowed in March,
however, as expectations of a peaceful settle­
ment of contract negotiations spread, but
nationally the industry still operated at 80
percent of capacity.
The settlement reached at the end of March
set off a wave of inventory liquidation which
had adverse repercussions on the industry
for the remainder of the year. The industry’s
unsuccessful attempt in April to raise prices
by $6 a ton further clouded the outlook for
steel. The impact on the District was consid­
erably milder than in the rest of the nation
bccause much of the build-up in stocks had
centered on types of steel used primarily by

F E D E R A L R E S E R V E B A NK OF S AN F R A N C I S C O

automobile

and

appliance

manufacturers,

who are relatively much less important in the
Twelfth District. Steel output in the West,
however, was depressed somewhat by a con­
struction strike in June and early July. After
the usual vacation slowdown in July, District
steel output increased through the remaining
months of 1962, with the exception of Octo­
ber. By December, prospects had brightened
considerably due to demand arising from
Government defense contracts and a build­
up in mill inventories in expectation of an im­
proved level of orders in early 1963.
The most important development in the
District steel picture in 1962 was an average
$12 per ton reduction in prices of steel mill
products by Western steel producers. The
move, of both long range and immediate sig­
nificance, was designed to enhance the com­
petitive position of Western steel mills over
their Eastern rivals in the Western market
and to combat rising foreign steel imports.
The cuts removed most of the historic price
differential between steel prices on the West
and East Coasts and resulted in some addi­
tional absorption of freight charges by East­
ern mills. W ith the price advantage of for­
eign steel significantly reduced by the cut, im ­
ported products tended to become less attrac­
tive to domestic steel consumers. Foreign
steel imports, particularly from Japanese
mills, have made substantial inroads into the
West Coast market in recent years. Steel im­
ports through West Coast ports have almost
trebled since 1958 when imports first ap­
peared in volume on Western markets. By
1962 imports from foreign sources account­
ed for more than 10 percent of total steel re­
ceipts in the seven Western states.

Stable prices and record output
for District copper producers
The copper situation in the District in 1962
was characterized by record mine output,
stable prices, and high levels of consumption.



Increases in mine production that began in
the fourth quarter of 1961 continued through
the first quarter of 1962, and District pro­
duction reached its peak for the year in April.
Continuing large orders for refined copper by
brass and wire mills kept mine production at
high levels.
Subsequent developments in the world
copper markets (where production was at
record levels), accompanied by increases in
domestic inventories and declines in ship­
ments, aroused concern that world produc­
tion might be significantly in excess of fore­
seeable world demand. Voluntary reductions
in mine production were announced by the
three leading United States producers and
several African producers at the end of June
and again in September, reducing output al­
together by 5 percent of free world produc­
tion. Despite the fact that stocks of refined
copper held by prim ary producers in the
United States rose 51 percent in July, the
price of 31 cents a pound for refined cop­
per that had been set on May 19, 1961 held
firm and was unchanged throughout 1962—
the longest period of price stability since
World War II when price controls were in
effect. For the entire year, production of cop­
per from District mines was almost 8 percent
above its previous record established in 1961
and accounted for 77 percent of national pro­
duction, about the same as in 1961.

Output of other nonferrous metals
also increased
District production of zinc, lead, and alu­
m inum in 1962 surpassed 1961 levels by
approximately 10, 4, and 11 percent, respec­
tively. Zinc and aluminum output were the
highest since 1957, and lead output set a new
record.
As in the case of copper, the market for
nonferrous metals is affected by both national
and international developments. The failure
of the International Lead-Zinc Study Group
to agree on limitations on production, and

MONTHLY REVIEW

March 1963

thus on exports, exerted a depressing effect
on prices and resulted in a Vi cent a pound
reduction in the price of zinc to 11 Vi cents a

Petroleum refining continued
to increase in 1962

the basic forms of the metal, ingot and billet,

Refining activity in District V 1 increased
in 1962 for the fourth consecutive year. O p ­
erations were up 3 percent from 1961; a daily
average of 1,252 thousand barrels of crude
petroleum was processed at this area’s re­
fineries. The national increase was at the same
rate. Much of the rise in refining activity in
District V came during the last seven months
of 1962, following unseasonally low levels of
activity in March and April.
Domestic demand in District V for refined
petroleum products increased by less than
2 percent in 1962. This was considerably
smaller than in 1961 and contrasts with the
situation nationally where the increase in de­
mand was much sharper in 1962 than in the
previous year. Gasoline demand in the West­
ern states was relatively strong, rising 4 per­
cent from 1961; nevertheless, gasoline stocks
increased. Stocks of residual oil totaled 23
million barrels at the close of 1962 and were
almost 60 percent greater than a year earlier,
largely because of a fall-off in deliveries. Pro­
duction of this product accounts for 20 per­
cent of the refinery output in District V.
Practically all of the additions to year-end
stocks occurred during the high level of re­
fining activity in the latter part of the year.
The production of crude within District V
increased slightly in 1962 to 840,000 barrels

in early December. Ingot prices were reduced

per day. Expansion of output in Alaska was

1 Vi cents a pound to 22Vi cents, and the

sufficient to more than offset the downward

price of soft extrusion billet also was cut. The

trend of production in California. Neverthe­

price reductions were posted by the major

less, with refining activity expanding at a

United States producers, including those with

faster pace than the production of crude pe­

mills in the District. Foreign imports of alu­

troleum in Western states, processors relied

m inum ingots and alloys into the United

more heavily in 1962 on supplies of crude

States in the first eleven months of 1962 were

from outside the area than a year earlier.

pound (East St. Louis). Zinc buying, how­
ever, continued dull through July until orders
for zinc from the steel industry for galvaniz­
ing operations and from the automobile in­
dustry for die castings picked up in the second
half of the year.
The market for lead in the first quarter of
1962 was depressed, resulting in three reduc­
tions in lead prices of

Va

cent each in January

and February to bring the price to 9 Vi cents
per pound, the lowest quotation since 1946.
The District’s share of the nation’s lead out­
put rose, however, from 48 percent in 1961
to 58 percent in 1962 because of a strike in
southeast Missouri which brought national
production for the year below 1961. The re­
duction in stocks due to the strike resulted,
in turn, in a V i cent increase in the price of
lead in November.
Although output and consumption of alu­
minum products were at very high levels in
1962, increased foreign competition was re­
sponsible for price reductions in the fourth
quarter. Price cuts in fabricated aluminum
sheet initiated in late September spread to

almost 41 percent higher than imports in the

These imports were equivalent to one-third

comparable 1961 period, while exports of

of crude petroleum input at District V re­

these products by United States producers

fineries— about 3 percentage points greater

showed only a 9 percent increase during the
same period.



1District V consists of Alaska, Arizona, California, Hawaii,
Nevada, Oregon, and Washington.

F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O

than in 1961. The expansion in District V
refinery operations in 1962 was supported
primarily by imports of crude from foreign
sources. Imports of crude petroleum also in­
creased nationally, but the rate of increase
was much less than in the western part of the
country where nonquota imports from Can­
ada rose by more than one-third. Foreign
crude is of much greater importance as raw
material for the refining industry in District
V than in the country as a whole. These im ­
ports were equivalent to about one barrel in
every eight of crude input at the nation’s re­
fineries, compared with a ratio of one in four
at Western refineries.

Harvested acreage of principal field
crops declined in most District states
from 1961 to 1962
P e r c e n t C hange

More cash for District farmers
After leveling off in 1961, cash receipts of
farmers rose to a record level in 1962 in the
District and the nation. The rate of increase
from 1961 was 4 percent for the District,
however, compared with a rise of less than
3 percent for the country as a whole. Higher
cash income in the District was due to an
increase in returns from marketings to a rec­
ord $5.5 billion and to larger Government
payments.
Although returns from livestock market­
ings edged up slightly, a rise of $190 million
in receipts from crop marketings accounted
for the bulk of the gain. Crop output in the
District rose from 1961 in spite of increased
participation in the Government Feed Grain
and Wheat Programs, which removed addi­
tional acreage from crop production. Yields
of a number of important field crops in the
District were at or near record levels, more
than offsetting a 4 percent, or 800,000 acre,
reduction in harvested acreage. H alf of the
net decrease in acreage occurred in Washing­
ton, where the mandatory 10 percent reduc­
tion in acreage allotments plus participation
in the voluntary portion of the Wheat Pro­

Note: Data for Nevada are not included. Harvested acreage of
principal crops in Nevada increased 68,000 acres or 21 percent
from 1961 to 1962.
Source: United States Department of Agriculture.

was reduced by more than 100,000 acres as
this crop was added to the Feed Grain Pro­
gram for 1962. Preliminary estimates indi­
cate that crop prices for the year were about
the same as in 1961. The modest advance in
livestock receipts, on the other hand, appears
to have resulted largely from somewhat
higher prices.
Because of increased emphasis on G ov­
ernment agricultural programs that utilize di­
rect payments to farmers, the importance of
cash from this source rose sharply in 1961
and 1962. Government payments nationally
increased 17 percent from 1961 but rose even
more sharply in the District— 35 percent.
Heavier payments, primarily from the Feed
Grain and Wheat Programs, raised the flow
of cash to District farmers from the Federal
government to $106 million in 1962.
Net income of District farm operators is es­
timated to have risen somewhat in 1962, after
dropping in 1961— a year of recovery and

gram combined to reduce the harvest of wheat

expansion in general business activity. The

in the State by 277,000 acres. In addition,

growth of more than $200 million in cash

the acreage of barley harvested in that State

receipts is greater than recent year-to-year




March 1963

MONTHLY REVIEW

increases in production expenses. Costs in­
curred by farm operators for production pur­
poses approached $4.1 billion in 1961 and
undoubtedly rose further in 1962.
Although District farm income improved
in 1962 along with business activity, little of
the im provem ent can be attributed to a
strengthening in the demand for food that
might be associated with advancing levels of
business activity. Increases in personal in­
come, however, have never been fully re­
flected in purchases of food and related
services during the entire postwar period, and
1962 was no exception. Disposable personal
income nationally rose by more than 5 per­
cent from 1961, while the rate of increase in
outlays for food was somewhat smaller. The
domestic market for food has expanded as
the population has grown, but the proportion
of per capita disposable income spent for
food and related services has dropped from
26 percent in 1947-49 to 19 percent in 1962.
Spending for services has been accounting
for a rising share of consumer disposable in­
come. Despite this downtrend in the farmer’s
share of retail expenditures for food, there
was no further deterioration in his share in
1962.

Increased activity in fruit and
vegetable canning
District canning activity continued to ex­
pand in 1962, with the pack of both fruits
and vegetables larger than a year earlier. As
inventories entering the 1962 marketing sea­
son also were somewhat higher, total supplies
of canned products were more abundant.
However, supplies apparently were not large
enough to depress prices, despite the heavier
movement of most major items into market
channels during the first half of the market­
ing season. Tending to offset the economies
of a larger pack were increased cannery costs
for containers and for raw materials (except
tomatoes) and higher wage rates. Neverthe­
less, the pickup in canning activity bolstered



(in percent)

Note: Each can in the chart represents 1.0 percentage point in­
crease in production from 1961 to 1962.
Source: Canners League of California and Northwest Canners
and Freezers Association.

employment in the District, with Pacific Coast
employment in canning and preserving rising
to its highest level since 1956.
The canned fruit pack in the District
reached a record volume of over 65 million
cases during the 1962 canning season. A rec­
ord pack also is indicated nationally. The
increase in the District fruit pack was general
for most major items and was led by an 11
percent increase in cling peaches. The Dis­
trict pack of 31 million cases of peaches rep­
resented 96 percent of all peaches canned in
the United States during 1962. Peaches also
dominate fruit canning in the District.
Vegetables contributed to the expansion in
District canning activity in 1962 largely as a
consequence of a heavier pack of tomatoes
and tomato products, which occupy a posi­
tion in District vegetable canning more or less
similar to that of peaches in fruit canning.
Supplies of tomato products processed in the
District also are of considerable significance
nationally. About half the nation’s supply of
canned tomatoes and tomato products is
packed in California.

Exports through Twelfth District
ports steady in 1962;
imports rose sharply
Foreign trade m oving through Pacific
Coast customs districts in 1962 tended to

F E DE R A L R E S E R V E B A NK OF S AN F R A N C I S C O

weakness in export trade was partly attribut­

tion of the shipments out of West Coast ports
than for the United States as a whole. Exports
to Canada, on the other hand, are more im­
portant outside the San Francisco Federal
Reserve District, with the consequence that
the recovery in exports to Canada in 1962
had relatively little im pact on shipments
through this District. Both Pacific Coast and
United States exports were strong from M ay
1961 through the first half of 1962 but drop­
ped off as 1962 drew to a close. The impact
of exports on economic activity therefore
tended to diminish at the same time that gen­
eral business activity in the nation leveled off.
The Los Angeles customs district had the
sharpest decline in export activity as ship­
ments abroad fell 18 percent below the 1961
total. The Oregon customs district suffered
a small reduction in the dollar volume of its
exports, while exports from Alaska to foreign
countries also declined slightly. Shipments
from the rem aining customs districts rose
above 1961 levels.
Imports entering the United States through
the Twelfth District customs districts in 1962
were 17 percent above 1961, almost 6 per­
centage points more than the rise in United
States imports as a whole. This was in rather
sharp contrast to the behavior of imports in
1961, when both West Coast and United
States purchases abroad were slightly below
the 1960 figure because of the sluggish re­
sponse of imports to the upswing in the
economy. In 1962 the lag was more than com­
pensated for by the sharp increase in imports
of industrial raw materials, manufactured
foodstuffs, and capital and consumer goods.
Even after industrial output leveled off after
June 1962, imports in the Twelfth District
and the United States continued to rise in a
somewhat belated response to the recovery,

able to a slowdown in the rate of economic

although imports as a percent of gross na­

expansion in the major industrial countries

tional product have remained more or less

abroad and, in the case of this District in

unchanged. Because of a decline in the prices

particular, to the payments difficulties of

of foodstuffs and industrial materials over the

Japan. Japan accounts for a larger propor­

year and steadiness in the prices of finished

Exports through District ports
stable in 1962, but imports far
exceeded national gain

IMPORTS

Note: Data exclude Alaska and Hawaii.
Source: United States Department of Commerce.

follow a pattern quite similar to that in 1961,
with exports declining and imports continu­
ing to increase. Export shipments through
Pacific Coast ports again exercised little ex­
pansionary influence on the Twelfth District
economy to the extent that these exports origi­
nated within the region. The total value of
exports handled by Twelfth District ports was
1 percent below 1961, compared with a decline
of 5 percent from 1960 to 1961. But United
States merchandise exports were 4 percent
larger than in the preceding year, and the gain
exceeded the rise from 1960 to 1961. The




March 1963

MONTHLY REVIEW

manufactures, most of the rise in the dollar
value of our imports accrued to the industrial­
ized countries.
The greater expansion of imports through
Twelfth District ports than of imports into
the United States as a whole was shared by
all customs districts in this region. Increases
of 20 percent or more were recorded by San
Diego, Los Angeles, Oregon, and Alaska;
Washington and Hawaii exceeded the aver­
age rate of growth for the nation, while San
Francisco was slightly below the national
average. Part of the explanation for the sig­
nificantly larger increase in imports on the
West Coast, according to limited commodity

data available, lies in the upsurge in imports
of steel products and petroleum. The physical
volume of steel product imports through Ore­
gon ports increased by almost two-thirds,
while imports through the Los Angeles dis­
trict rose by almost half. Stiffer competition
for District steel mills from foreign producers
was thus responsible in part for the reduction
in steel prices by major District steel pro­
ducers in October 1962. Crude petroleum
imports also rose 17 percent as the Canadian
pipeline into the Pacific Northwest came into
full operation and as District production con­
tinued to provide a declining share of refinery
supplies.

Continued Ease Influenced Bank Loans
And Investments in the Second
Year of Recovery
Although the accelerated pace of activity
in some sectors of the economy and continued
secular growth in the District contributed to
the expansion in loan portfolios and deposits
at Twelfth District member banks in 1962,
bank performance during the year was also
influenced by other factors. Reserves were
supplied to member banks by the Federal
Reserve System through open market opera­
tions so that District banks were under rela­
tively less reserve pressure throughout most
of the year than is normally characteristic of
the expansionary phase of the business cycle.
Reserves also were made available through
the reduction from 5 to 4 percent in reserve
requirements against time and savings de­
posits in late 1962.1 This action had a rela­
tively greater impact on Twelfth District
banks, since such deposits constitute a far
higher percentage of total deposits at District
banks than at other member banks in the
rest of the nation.
1 Effective October 2 5, 1962 for reserve city banks and Novem­
ber 1, 1962 for ail ocher member banks.




The development which had the most farreaching effect on District bank operations,
however, was the increase in interest rates
paid on time and savings deposits. Most mem­
ber banks in the District raised rates from 3
percent to the new maximum permissible rate
under Regulation Q of 3 Vi percent on regular
savings on deposit for less than one year,
while some banks also posted the new maxi­
mum rate of 4 percent on savings held for
one year or more. Most banks also adjusted
their rates upward on time certificates of de­
posit. In October, the interest ceilings estab­
lished by Regulation Q were temporarily
suspended for three years for time deposits
of foreign governments and certain interna­
tional financial institutions. The higher rates
on savings and time deposits, combined with
the larger volume of funds attracted by these
rates, substantially increased bank costs and,
as a consequence, led to modifications in loan
and investment policies as banks attempted to
minimize the adverse effect on bank profits.
Despite efforts to increase earnings, the 36

F E DE R A L R E S E R V E B A N K OF S AN F R A N C I S C O

pcrccnt increase in interest payments in 1962
was mainly responsible for the 6.4 percent
decline in the net income of all member banks
in the District. For other member banks in
the nation, net income in 1962 was only 0.5
percent lower than in 1961.
Reflecting these developments, District
member banks ended 1962 with total loans
and investments 9 percent higher than a year
earlier and 20 percent above the cyclical
trough of February 1961. The increase in
bank credit in 1962 was due to an expansion
in loan portfolios, whereas investment in se­
curities had accounted for most of the gain
in 1961. The 7 percent increase in total de­
posits in 1962 was less than in the preceding
year. The supply of reserves in 1962 and the
increase in deposits were sufficient to permit
District member banks to expand the volume
of outstanding loans without reducing total
security holdings. The percentage increases
in loans, investments, and total deposits of
Twelfth District member banks from Febru­
ary 1961 through 1962 were greater than for
all other member banks in the nation. Only
in the case of time deposits did the District
gain fall below that of the rest of the country.

ated pace, whereas in 1961 business loans did
not expand materially until the fourth quar­
ter. December tax borrowing by these firms
in 1962, however, was not so large as in 1961,
and, as a consequence, the fourth quarter
gain was smaller than in the comparable yearago period.
The general availability of loanable funds
during 1962 kept average interest rates on
short-term business loans by District banks
around 5.35 to 5.40 percent. Surveys con­
ducted during the first 15 days of the final
month of each quarter showed that rates on
new business loans moved within a rather
narrow range of 3 to 11 basis points above
average rates for the same periods in 1961.
The prime rate— the rate charged business
borrowers with top credit rating— was un­
changed at 4 Vi percent.

District bank credit continued to
increase in 1962; loans accounted
for most of the rise
1941 t r o u g h * 10 0

Business demand for credit
strengthened in 1962
A more than 10 percent increase in com­
mercial and industrial loans in 1962— almost
twice as great as in 1961— contributed to the
overall expansion in District bank loans. By
the end of the first 22 months of the current
cyclical upturn, business demand for credit
appeared to be about as strong as in the com­
parable period of the 1958-60 cycle.1 But
most of the expansion occurred in 1962 as
business loans remained substantially above
levels of a year earlier throughout the year.
After the usual seasonal decline in the first
quarter, borrowing by commercial and indus­
trial firms increased at a gradually acceler­
'D a ta for the first 12 months of the 1958-60 cycle are not alto­
gether comparable with more recent commercial and industrial
loan data because of reclassification of certain categories.




1*
T1

12
H

Note: Loans adjusted are total loans less valuation reserve*.
Data are for member banks only.
Source: Federal Reserve Bank of San Francisco and Board of
Governors of the Federal Reserve System.

MONTHLY REVIEW

March 1963

Search for higher returns on earning
assets also stimulated mortgage
financing by District banks

Increase in automobile instalment
loans in 1962 concentrated m ainly in
second and fourth quarters

P ercent change
-40

-20

0

+20

440

+60

+80

+100

+120

Source: Reports of condition of member banks.

Banks made substantial additions
to their mortgage holdings
The major divergence in loan activity in
1962 from a year earlier was in real estate
lending. District banks, confronted with
mounting interest costs on rapidly expanding
time deposits, actively sought mortgage loans
as a source of higher earnings. Mortgage
holdings increased 15 percent, compared with
3.5 percent in 1961. The increase was
achieved in the face of strong competition
for mortgages from savings and loan associ­
ations and other lenders. From June 1962 to
the end of the year, the dollar volume of real
estate loans held by District weekly reporting
member banks exceeded outstanding com­
mercial and industrial loans. Even substan­

to reach a total of $1.5 billion outstanding by
the end of 1962. After a small first quarter
decline, loans secured by residential proper­
ties registered gains in excess of $200 million
in each of the three succeeding quarters. A
24 percent increase in conventional mort­
gages brought outstandings at the end of D e­
cember 1962 to $2,485 million, a level only
$61 million under bank holdings of FHAguaranteed mortgages. District banks also in­
creased their holdings of mortgages secured
by farm land by $40 million in 1962, a 24
percent gain over 1961. Only VA-insured and
guaranteed mortgages declined during 1962
in line with the declining trend of these hold­
ings in recent years. Due to their lower yields,
they have become relatively less attractive in
comparison with other types of loans.

tial tax borrowing by business in December
failed to close the gap as real estate loans
continued their steady rise.

Record District automobile sales
boosted consumer loan totals

Mortgages secured by commercial and in­

Consumer borrowing was also a plus fac­

dustrial properties accounted for almost all

tor in bank loan expansion in 1962. The 12

of the increase in real estate loans in the first

percent gain in consumer loans held by Dis­

quarter of 1962 at member banks in the Dis­

trict banks reflected the generally high level

trict, and this type of lending continued at a

of retail sales in 1962 and the increased in­

substantial rate through the rest of the year

terest by banks in the relatively high rates of




F E DE R A L R E S E R V E B A NK OF S AN F R A N C I S C O

return on this type of lending. District banks
participated actively in the financing of rec­
ord District automobile purchases, with the
result that more than half of the 1962 dollar
gain in consumer loans was in automobile
instalment loans. The 17 percent increase in
automobile credit compares with a gain of
only 1.5 percent in 1961.

Loans to brokers and dealers and to others
for purchasing and carrying other types of
securities, on the other hand, remained above
year-ago levels during all of 1962, although
the spread narrowed somewhat in the last
half of the year. Loans for purchasing and
carrying securities fluctuate widely over short

New extensions of credit for other types of
retail consumer instalment loans, however,
barely offset repayments during the year.
Other types of instalment loans, including
loans for residential repair and moderniza­
tion, rose about 10 percent in 1962 compared
with a reduction in 1961. The 11 percent
increase in single-payment loans for the year
was identical with the increase a year earlier.

any one date to another may not be particu­

periods, however, so that comparisons from
larly meaningful.

District bank credit to farmers
expanded in 1962
Agricultural loans outstanding at District
member banks at the close of 1962 were 13
percent above year-end 1961 outstandings,
about 3 percentage points less than the gain

Credit to financial intermediaries and
for purchasing and carrying securities
remained above year-ago levels
throughout 1962
The volume of outstanding loans to non­
bank financial institutions held by District
banks at the close of 1962 was 25 percent
greater than at the end of December 1961,
rem aining above 1961 levels throughout
1962. The margin over a year-ago widened
in the last half of the year, with particularly
heavy borrowing in December by sales and
personal finance companies and other finan­
cial intermediaries.
W hile 1962 year-end figures indicate a
reduction from December 1961 in District
bank loans to brokers and dealers for financ­
ing United States Government securities, the
volume of such credit extended throughout
1962 was greater than in 1961, except for the
first quarter. Borrowing around quarterly tax
dates was particularly heavy in 1962 as more
bank credit than usual was needed by dealers
to finance their larger inventories. Corpora­
tions had been providing much of the addi­
tional financing through repurchase agree­
ments, which were made with maturities
designed to run off on tax payment dates.



a year earlier. However, bank loans to farm­
ers, excluding CCC-guaranteed loans, rose
12 percent in 1962 compared with a 6 per­
cent gain in 1961, and the dollar volume of
such loans outstanding remained higher
throughout 1962. The m ajor increase oc­
curred in the second quarter, when seasonal
borrowing needs of farmers are greatest.
Bank holdings of CCC-guaranteed loans in
1962 reflected both the ready availability of
funds and the relatively attractive yield on
these loans compared with alternative short­
term investments. D uring the first h alf of
1962, C C C loans held by District banks far
exceeded outstandings in the comparable pe­
riod of 1961 as bank portfolio managers fol­
lowed a somewhat different policy in regard
to C C C loans. C C C loans are customarily
made in the latter part of the year and pre­
sented to the Commodity Credit Corporation
for redemption as the need for funds for other
purposes arises. But a large proportion of
the $100 million in C C C loans extended by
District banks in late 1961 was, contrary to
usual practice, held until they matured in
August 1962.

March 1963

MONTHLY REVIEW

Loan-deposit ratios increased in 1962
Since the rate of loan expansion at Dis­
trict member banks in 1962 surpassed the
7 percent increase in deposits, the ratio of
loans to deposits rose. A t the end of 1962,
the ratio was 63.2 percent, up from 58.7
percent at the end of 1961. The loan-deposit
ratio at the end of 1962 compares with a
ratio of 62.3 percent 22 months after the
trough of the preceding cycle. Because a
larger proportion of District bank deposits
in 1962 than in 1960 was in the form of sav­
ings and time deposits, which are less volatile
than demand deposits, banks had somewhat
greater leeway to expand their loan activity.

Feb. 1961 trough = 100
120

U . S. G O V E R N M E N T S E C U R IT IE S

10
1

10
0

O T H E R S E C U R IT IE S

140

130

District bank investment portfolios
held more tax-exempts and longer
term Treasury issues in 1962
In 1961, District member banks increased
their total investment in securities by $1.6
billion, with United States Government se­
curities and other securities rising at about
the same rate. In 1962, on the other hand,
total security holdings at year-end were less
than $100 million above December 1961, a
gain of only 1 percent compared with a 17
percent increase in 1961. This difference was
due largely to the greater expansion in loans
and to a smaller gain in deposits in 1962 than
a year earlier.
The need to offset higher interest costs on
savings and time deposits encouraged banks
in 1962 to switch from United States Gov­
ernment securities into tax-exempt issues
yielding higher net rates of return. As a re­
sult, District bank holdings of United States
Treasury issues declined 7 percent, while
other security holdings (chiefly state and lo­
cal government securities) rose 23 percent—
5 percentage points above the gain in 1961.
By the end of 1962, other security holdings
accounted for slightly over one-third of total
securities held by D istrict member banks,
compared with one-fourth of the total at the
beginning of 1961.



130

no

10
0
J

M

M

J
1961

S

N

J

M

M

J
S
1962

N

Note: ‘‘Other securities” are chiefly state and local government
issues. Data are for member banks only.
Source: Federal Reserve Bank of San Francisco and Board of
Governors of the Federal Reserve System,

Sizable shifts also occurred in 1962 in the
maturity distribution of United States Gov­
ernment securities held by member banks in
the District. Treasury bill holdings declined
17 percent, while notes and bonds maturing
i n i to 5 years and within 1 year also dropped
sharply. A lthough certificate holdings in ­
creased, the major gain— $551 million— was
centered in holdings of long-term bonds. This
reallocation of funds was partly a result of
the Treasury’s financing and refunding oper­
ations during the year. The search for higher
yields, however, also influenced bank man­
agement of United States Government secu­
rity portfolios, as it had affected their other
holdings. The continued availability of funds
to meet loan demand added to the banks’

F E DE R A L R E S E R V E B A NK OF SAN F R A N C I S C O

willingness to shift into longer term securi­
ties. As a result of these shifts in investment
portfolios, the ratio of District bank holdings
of United States Government securities ma­
turing within one year to total deposits (less
cash items in process of collection) de­
clined from 8.3 percent in December 1961
to 6.6 percent in December 1962. This li­
quidity ratio, however, was still far above the
2.3 percent ratio 22 months after the April
1958 cyclical trough.

The largest dollar gain was the $1.5 billion
rise in savings deposits, an increase of 13
percent over 1961. Increases exceeded $300
million in each quarter of 1962, with the
largest gains occurring in the second and third
quarters. Other time deposits of individuals,
partnerships, and corporations rose $300 m il­
lion in 1962, but the gain was concentrated
in the first two quarters of the year.

Higher interest rates attracted
$2 billion in savings and
time deposits

time deposits $160 m illion in 1962. Net

A lthough member banks in the District
gained demand deposits in both the second
and fourth quarters of 1962, the net increase
for the year was under 1.5 percent, well be­
low the 8 percent increase in 1961. The small
increase at District banks was, nevertheless,
in contrast to a 2 percent decrease for mem­
ber banks in the rest of the nation. The major
difference in demand deposit behavior in the
District in 1962 compared with a year earlier
was the smaller increase in deposits of indi­
viduals, partnerships, and corporations, due
mainly to sizable net withdrawals in the first
quarter of the year.
As mentioned earlier, most District mem­
ber banks raised their rates of interest pay­
able on savings and time deposits at the start
of 1962. This action, combined with the
adoption in 1961 by many large District
banks, particularly in C alifornia, of daily
computation of interest on savings accounts,
permitted District banks to compete more
successfully with savings and loan associa­
tions and other investment outlets for savings.
As a result, total time deposits at District
banks rose $2 billion, a 13 percent gain over
December 1961. By the end of 1962, savings
and time deposits of District banks consti­
tuted 47.9 percent of total deposits. Although
a portion of these funds may have been trans­
fers from demand deposits, much of the gain
reflected net new deposits.

tutions throughout the year brought the year-




States and political subdivisions also found
the higher rates attractive and increased their
additions to time deposits of foreign govern­
ments, central banks, and international insti­
end gain in this category to $62 million.

District deposits rose faster than
in rest of the nation despite slower
growth in time deposits
Feb. 1961 trough =100

1961

196*

Note: Demand deposits adjusted include all deposits except in ­
terbank and United States Government deposits, less cash items
in process of collection. Data are for member banks only.
Source: Federal Reserve Bank of San Francisco and Board of
Governors of the Federal Reserve System.

March 1963

MONTHLY REVIEW

T a ble 3

(dollar amounts in millions)

Total loans and investments
Net loans and investments
Loans and discounts— net
Commercial and industrial
Real estate
Agricultural
Domestic commercial and
foreign banks
Nonbank tinancial institutions
For purchasing or carrying securities
To brokers and dealers
To others
Consumer
All other loans
Total investments
I). S. Government securities
Treasury bills
Certificates
Notes and bonds maturing:
Within t year
1 to 5 years
After 5 years
Other securities
Total deposits
Demand
Time
Capital accounts
Total assets/liabilities and
capital accounts

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

+
+
7 ,2 2 6 .6

1,029.5
4 1 5 .4
1,132,3
156.9
120.7
3 13 .2
1 1 ,1 8 1 .4
7,653.1
1,045.2
409.3

3 ,59 4.2
1,617.1
3 ,52 8.3
18,7 40 ,7
2 ,6 6 2 .9
4 0 ,0 6 0 .0

Percent change
From Dec. 31, 1960
to Dec. 30, 1961

Change from
Dec. 30, 1961
Dollar amount
Percent

As of
Dec. 28, 1962

+

+
3 ,9 5 0 .8
+
+

—
+

+ + 9.1 9.3
S + 2 ,7 5 8 .3
+ 2 ,7 3 4 .2
+ 9.3
+ 2 ,6 3 4 .5
+ 14.4
+ 10.5
+ 5 .8
665.3
9 3 9 .6
+ 15.0
+
+
117.7
+ 12.9 + 15.7
+
171.3
2 2 4 .4
+ 2 4.7
—
4.3 —
18.8
4 2 4 .4
101 .4
+
99.7 +
—
5 4 8 .6 —
2 2 0 .8
101.1

987.3 —
5 5.5
—
9 2 4 .6
+
551 .2
+
648 .3
3 5 ,9 9 3 .5 2 ,3 0 0 .3
+
+
2 5 8 .5
1 7 ,2 52 .8 ,0 4 1 .8
+ 2
+
141.1
+ 2 ,9 5 9 .3

2.7
+
+
+
0.9
6.7
—
+

+ 70.2

The growth in savings and time deposits in
1962 resulted in a 36 percent increase in
interest costs of District member banks. In ­
terest paid on deposits exceeded total salaries
and wages for the first time and was largely
responsible for the 18 percent increase in



3.5

0.5

+ 16.1
18.5
12.0
47.9

+ 26.7
+

2.9

+ 11.8
+ 17.0

17.4
3 2.8

9.1
4.8

+ 13.4
—

+ 16.8
+ 7 9.5
+ 10.4

— 53.2
— 2 0.5
+ 5 1.7
+ 22.5

— 46.9
+ 5 7.3
— 11.3
+ 17.7

+
+

6.8
1-4
+ 13.4

+ 10.2
+ 8.3
+ 12.5

+

5.6

+ 10.5

+

8.0

+

9.7

Source: Reports of condition of member banks.

Lower net income in 1962 for
District banks as interest costs
on time deposits soared

+
+

total expenses in 1962. Although banks were
successful in increasing earnings from both
loans and securities, total revenue in 1962
rose only 11 percent and did not fully offset
the increase in expenses. As a result, net in­
come of District banks declined $15.6 million
in 1962, a drop of over 6 percent from 1961.
Net profits of individual District banks varied
widely in 1962, but profits were generally

F E D E R A L R E S E R V E B A NK OF S AN F R A N C I S C O

less favorable compared with 1961 for the
larger banks and for those banks having a
high proportion of savings and time deposits
to total deposits. As the year progressed, how­
ever, most banks found themselves in an
increasingly better position to offset higher
expenses by increased earnings. By the end
of 1962, consequently, the profit outlook for
1963 had improved materially.

T a ble 4

(m illions of dollars)

1962

1961

1960

Discounts
D a ily a v e r a g e

Higher earnings and increased
volume of operations for the
Federal Reserve Bank of
San Francisco in 1962
The Federal Reserve Bank of San Fran­
cisco registered an 18 percent increase in net
earnings in 1962 as income from both dis­
counts and securities rose. Although mone­
tary policy was generally easy throughout the
year, discounts held by the Federal Reserve
Bank of San Francisco rose from a daily
average of $2.5 million in 1961 to $5.9 m il­
lion in 1962. Earnings on the B ank’s share of
United States Government obligations held
in the Federal Reserve System’s Open M ar­
ket Account were 16 percent greater in 1962
than a year earlier. The gain was attributable
to larger holdings of securities in the Account,
higher average yields on the Treasury issues
held, and an increase in the percentage allo­
cation to this Bank of securities in the A c­
count.
The increase in the volume of service op­
erations performed by the Bank in 1962 re­
flected rising levels of business and financial
activity in the District and in the nation. The
dollar volume of check collections handled
by the Bank rose 12 percent, accompanied
by a significant increase in the use of elec­
tronic equipment for check processing. The
number of electronically sorted checks ex­
panded at head office from a daily average
of 79,000 items in January 1962 to 130,000
in December. Sorting was facilitated by the
fact that by mid-year approximately 80 per­
cent of cash items were preprinted with mag­
netic ink, compared with approximately 57



amount held
Checks handled

6

2

24

1 47 ,27 3

1 31,908

1 19 ,85 7

133

129

137

3 ,9 9 6

3 ,9 4 6

4 ,3 6 1

Coin a n d currency
Coins received
an d counted
Currency received
an d counted
Trea su ry issues
Other than savings bonds
Issued
E xchang ed
Redeemed
Sa vings bonds
Issued
Redeemed

8 ,5 0 4

6 ,8 3 9

6 ,2 5 5

2 3 ,6 3 0

1 9,923

1 5,7 71

9 ,7 6 0

8,0 4 1

8 ,4 2 1

473

466

449

673

689

801

percent in 1961. Use of telegraphic and mail
transfer facilities also rose and was 14 per­
cent above the year-ago level, while coin and
currency operations continued at about the
same level as in 1961. Although more coin
was received from the M int in 1962, periodic
and extended shortages of coin throughout
the year necessitated rationing of nickels and
pennies during some months. A t the close of
1962, $3,219 m illio n in Federal Reserve
notes issued by the Federal Reserve Bank of
San Francisco were in circulation, a gain of
$253 million from the preceding year.
D ue to extensive new financing by the
Treasury in 1962, the dollar am ount of
United States Government obligations (ex­
cluding United States savings bonds) origi­
nally issued by this B a n k increased 24
percent, while redemptions were 21 percent
higher. The number of pieces issued declined,
however, indicating some increase in the av-

March 1963

MONTHLY REVIEW

erage size of subscriptions. There were two
advance refundings in 1962, and the dollar
amount of Treasury issues exchanged rose
! 9 percent. Purchases of savings bonds in the
District increased in 1962, while redemptions
declined, continuing a trend which has pre­
vailed since 1959 of reducing the excess of
redemptions over sales.

The situation at year-end
The rapid economic expansion of the
Twelfth District in the postwar period and
the steady influx of population into the area
stood the District in good stead in the second
year of the 1961-62 upswing. The impetus
supplied by this long-run growth was respon­
sible in large part for the better showing of
the District in 1962, with employment— the
most comprehensive indicator of general eco­
nomic activity on the District level— continu­
ing to rise throughout the year. Activity in
the defense-related industries, as measured
by employment and defense contracts, was a
major factor in the sustained upward move­
ment of the area’s economy as the District
maintained its pre-eminent role in national
defense work. Increased employment in the
service industries and in government, on the
other hand, reflected the rising needs of an
expanding population. Personal income, re­
tail sales, new car registrations, residential
construction, and bank credit, all of which
are closely linked with higher employment
and population, also developed more favor­
ably in the District than in the nation in 1962




— providing additional evidence that the
growing population has been a major element
in the District’s achievements.
Not all sectors of activity in the District,
however, were equally strong in 1962. The
steel industry fared less well in the District
than in the nation, mainly because of a lesser
dependence on the autom obile industry,
which is a major steel user. The absence of a
close relationship with auto production, how­
ever, has made the District steel industry
somewhat more stable over the business cycle
and thus less subject to the ups and downs of
the relatively volatile demand for cars. Dis­
trict steel producers, on the other hand, like
other steel producers across the nation, were
confronted during the year by a growing vol­
ume of foreign imports. Strong import com­
petition was also encountered by lumber,
plywood, copper, and aluminum producers
in the District. The situation is of relatively
recent origin and has emerged gradually as
foreign producers re-entered world markets.
The extent to which both District and na­
tional producers succeed in maintaining a
competitive position will contribute to longer
run domestic growth as well as to a better
balance in our international payments.
Although the vigor of the current upswing
regionally probably was somewhat weaker
than in previous postwar recoveries, the Dis­
trict’s experience in 1962 was better than
that of the nation as a whole, and the area is
in a good position to register further gains
in 1963.

59

F E DE R AL

RESERVE

BANK

OF

SAN

FRANCISCO

BANKING AND CREDIT STATISTICS AND BUSINESS INDEXES— TWELFTH DISTRICT'
( I n d e x e s : 1 9 5 7 - 1 9 5 9 — 1 0 0 . D o l l a r a m o u n t s in m il l i o n s o f d o l l a r s )

Condition items

o all member banks2' 7
f

Bank debits
index
31 cities1 1
'

Demand
deposits
adjusted3

Total
time
deposits

495
720
1,450
6,639
7,942
7,239
6,452
6,619
8,003
6,673
6,964
8,278

1,234
951
1,983
10,515
11,196
11,864
12,169
11,870
12,729
13,375
13,060
14,163

1,790
1,609
2,267
7,997
8,699
9,120
9,424
10,679
12,077
12,452
13,034
15,116

19
8
14
69
71
80
88
94
96
109
117
125
141

18,622
18,906
19,070
19,328
19,625
19,669
20,017
20,165
20,460
20,589
21,102

7,820
7,776
7,811
7,582
7,689
7,532
7,309
7,471
7,471
7,501
7,608

13.163
13,235
13,706
13,945
13,101
13,535
13,255
13,446
13,969
14,012
14,431

15,647
15,939
16.091
16,352
16,511
16,587
16,655
16,772
16,934
16,827
17,093

135r
138
140r
140
143r
144r
144r
143
142r
144r
146

21,035
21,403

7,454
7,130

13,917
13,527

17,390
17,532

Bank rates
on
short-term
business
loans*' 7

Total
nonagricultural
employ­
ment

146
149

Year
and
Month

Loans
and
discounts

1929
1933
1939
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962

2,239
1,486
1,967
9,220
9,418
11,124
12,613
13,178
13,812
16,537
17,139
18.499

1962
February
M arch
April
M ay
June
July
August
September
October
November
December
1963
January
February

U.S.
Gov't
securities

1929
1933
1939
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1962
January
February
M arch
A pril
M ay
June
JulyAugust
September
October
November
December

1963

January

Crude

Refined

Copper7

i6
92
105
85
102
108
114
94
92
102
111

89
15
70
100
98
90
104
114
113
101
86
112
119

124
138
130
140
136
130
112
115
119
128
127

91
54
70
112
114
111
111
109
106
98
96
95
96
96

61
39
49
90
95
92
96
100
103
96
101
104
108
111

34
17
35
77
82
83
90
97
93
99
108
101
105
111

91
97
97
93
96
94
97
94
98
98
104r
103

94
94
95
95
96
96
96
97
96
97
97
97

108
110
106
105
108
112
115
114
113
112
113
113

107
96
105
113
111
94
115
117
115
120
115
121

18
11
19
74
74
82
91
93
98
109
110
115
123

53
34
38
93
93
92
94
97
101
101
103
104

111
112
112
112
112
113
113
114
114
114
115

5^52
5.49
5.50

107
107
108
108
108
109
109
110
111
110
111

105
104
104
102
102
106
105
107
104
102
101

120
123
118
121
123
123
124
122
121
128
127

105
105
105
106
106
105
105
106
106
105
106

116
116p

5!50

86
84
90
96
101
96
103
103
103
109

111
U lp

90
105

127
128

107
107

96

113

122

Electric
power

1
mports

Total

Dry Cargo

Tanker

Total

Dry Cargo

13
11
17
61
69
73
82
89
95
97
107
115
124

96
55
82
86
71
67
84
101
117r
89
95
122
126

61

193

55

43
81
56
57
72
105
124
86
90
123
134

i90
lO lr
113
96
117r
91
96
96
108
120r
104

20
12
16
33
51
44
52r
75
95
92
112
133r
134

'H r
61 r
70
71
80
86
93
95
113
117r
116

" i
18
41
28
35
69
97
91
112
142r
145

132
126
130
129
131
128
128
134
134

123
137
133
107
134
104
82
116
105
96

131
143
124
121
145
121
85
130
121
105

lO lr
122r
129r
67
104r
59
74
76
61
72

125
94
120
140
137
156
154
168
137
158

111
107
128
117
138
132
122
136
122
154

133r
86
116

Tanker
*

102p

104

78
.

Waterborne Foreign Trade Index7 ■ 1
* » 0

Steel7

84
35
62
101
102
101
107
104
93
98
109
98
94

Retail
food
prices

56
83
108
103
112
112
103
96
101
95
94
104

Exports
Cement

Dep’t
store
sales
(value)6

86
85
90
95
98
98
104
106
108
113

4.14
4.09
4.10
4,50
4.97
4.88
5.36
5.62
5.46

Petroleum’
Lumber

Carloadings
(number;6

no

Industrial production (physical volume)6
Year
and
month

Total
mf’g
employ­
ment

lOOp

119
120
112
98
107
103
84
89
90
88

SI

154
137
170r
172
186
145
161

1 Adjusted for seasonal variation, except where indicated. Except for banking and credit and department store statistics, all indexes are based upon
data from outside sources, as follows: lumber, National Lumber Manufacturers’ Association, West Coast Lum berm an’s Association, and Western
Pine Association; petroleum, cement, and copper, U.S. Bureau of Mines; steel, U.S. Department of Commerce and American Iron and Steel Institute;
electric power, Federal Power Commission; n onagri cultural and manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state
agencies; retail food prices, U.S. Bureau of Labor Statistics; carloadings, various railroads and railroad associations ; and foreign trade, U.S. D epartm ent
of Commerce.
* Annual figures are as of end of year, m onthly figures as of last Wednesday in month.
3 Dem and deposits, excluding
interbank and U.S. Government deposits, less cash items in process of collection. M onthly data partly estimated.
4 Debits to total deposits
except interbank prior to 1942. Debits to demand deposits except U.S. Government and interbank deposits from 1942.
* D aily average.
®Average rates on loans made in five major cities, weighted bv loan size category.
7 N ot adjusted for seasonal variation.
8 A new
index now combining not only Los Angeles, San Francisco, and Seattle food indexes b ut also Portland. Reweighted by 1960 Census figures on popu­
lation of standard metropolitan areas.
• Commercial cargo only, in physical volume, for the Pacific Coast customs districts plus Alaska and
Hawaii; starting with July 1950, “ special category” exports are excluded because of security reasons.
1 Alaska and Hawaii are included in
0
indexes beginning in 1950.
p— Preliminary.
r— Revised.
* Less than 0.5 percent.

60



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