The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
April 1956 Volume X X X V I I I Number 4 ++ The Structure of Battling hi the Eighth District Branches curd Mergers T HE NUMBER OF COM M ERCIAL BANKS in the United States reached a peak of about 30,000 in 1920 and has since declined to less than 14,000. Over the past decade, statistics on branch formation and mergers furnish evidence of further structural change. Eighth District states variously affect the spread of branch banking by their statutes. The rate of branch formation in the Eighth District has increased recently, the estab lished branches—largely new offices—being of varying size and function. In states per mitting branches Eighth District banks characteristically have less than Eve of them, but a few banks have more. The greater part of Eighth District mergers occurred in the decade 1926-35. Dis trict experience paralleled that of the nation up to 1950, but since 1950 the district has fallen behind the country in number of combinations. Recent branch formation and mergers in the district have not substantially changed either the number of banking institutions here or the larger banks' share of total resources. F e d e r iH fmcowte trt J955—p. 52 R e s e rv e Bank Su rvey o/ C u rre n t CoyttHtMMts—p . 54 %/?f%& 0/ /o /^y 30^000 %% 7920 74^00. F o R ALMOST A CENTURY and a half the striking characteristic of American banking structure has been the large number of independent units under separate managements. Branch banking, which showed signs of growth in the early nineteenth cen tury, failed to gain a Brm foothold, and by Civil War times there were more than 1,500 commercial banks of widely varying size and strength. By 1900 the total swelled to about 9,000, and between 1900 and 1920 the number of banks in the country more than trebled to nearly 30,000. Beginning in 1921 there was an abrupt reversal of the trend toward an ever larger number of banking establishments. Each year during the 1920's several hundred banks disappeared, some by merger but most of them through failure, and in the four-year span 1930-33 nearly 9,000 banks suspended. With the great reduction in the number of commercial banks which occurred between 1920 and 1933 the United States was left with approximately 15,000 banks in 1934. Since 1934 there has been a gradual further decrease as the number of new banks organized in most years has not quite equaled the number which went out of business as the result of mergers and absorptions, suspensions, and voluntary liquidations. Yet at the end of 1955 there were still 13,716 com mercial banks in the system, a Sgure which in itself indicates no overthrow of the American tradition of a large number of independent banks. But a simple counting of establishments engaged in the banking business does not tell the whole story about changes in banking structure. Since 1934 there may have been, by some measures, a ten dency toward concentration in banking. That is to say, independently managed banks may in some areas have come to control a decreasing proportion of banking resources, and in other areas relatively few banks may have acquired an increasing proportion of banking resources. SpeciBcally, concentration is ordinarily evidenced by growth of branch, group, and chain banking and by increases in the proportion of Th^i ^ on the cover depicts the "fam ily tree * of a targe Eighth District banking institution. Page 46 total banking resources controlled by the largest banks in the country on in some subdivision thereof, such as a Federal Reserve District, a state, or a metropolitan area. Of the three major types of multiple-ofBce banking, the easiest to describe is branch banking, under which a parent bank owns and operates one or more addi tional ofBces, either within the same city or within the same state. Some states prohibit branch banking. Others allow branches to be established within the city or county in which the parent bank is located, and still others permit state-wide branches. In gen eral, the Federal law regarding national banks per mits a national bank to establish branches in its main-ofBce city if competing state banks may do so, and within the limits of its state if the statutes of the state so explicitly authorize state banks. Thus, a wide variety of state laws has effectively determined the development of branch banking in the United States. Besides branch banking there are two other forms of multiple-unit banking—in common usage called groups and chains. These two types have largely arisen in an effort to avoid branch-banking laws which, even in their most liberal form, keep the branches of a bank within the boundaries of a state. A "group" of banks consists of two or more banks under the control of a holding company which itself may or may not be a bank. In contrast to a branch system a group of banks may operate in several states, though some groups are intrastate and are simply substitutes for branch systems in states which prohibit branch banking. A "chain" of banks is similar to a group but is distinguished by the fact that control over several independently incorporated banks is exercised by one or more individuals through stock ownership or common directors. Chains usually center about a "key" bank, often larger than the others in the chain, but a chain may consist simply of two or more coordinate banks linked only by the fact that some person or family owns a controlling interest in them. The traditional structure of American banking could most readily be changed by the wide-spread growth of one of the forms of multiple banking. Increased concentration can be achieved in another way, how ever, though admittedly with greater difficulty. Unit banks, by combining with other banks, can rapidly achieve a size which gives them greater strength relative to the area which they serve and, indeed, may enable them to expand the area of their opera tions. Combination may take the technical form of merger, consolidation, or purchase of assets of another bank; in any case the result is to make a larger unit of two or more previously existing smaller ones. Because the word "merger" has gained such common acceptance, it will be convenient to use it, albeit somewhat loosely, to denote any form of combination. During the past decade the most obvious evidence of structural change is furnished by the statistics on branch formations and mergers. Since 1945 more than 2,000 branches have been established nooo, and another 1,000 branches have resulted from the con version of banks into branches consequent upon mer ger. In many of the major cities of the country at least one example can be found of the creation of a very large bank following the combination of two already large institutions. The question which in evitably arises is this: have these changes brought about a signiBcantly greater degree of concentration of banking facilities in those areas where they have occurred? The answer may at Brst seem to be obvi ously afBrmative. Yet it may be that as large banks have grown larger smaller competing banks have grown in the same or even greater proportion. More over, it may be that, despite somewhat greater con centration of banking facilties in some areas, the economic power of the larger banks is actually lessening as a consequence of increasing competition from competing lending institutions. Final answers to the broad questions of changing bank structure in the whole of the United States will be forthcoming only after extensive investigation by many students of banking and regional research groups.^ It is the purpose of the present article only I See, for exam ple, the series of articles w hich appeared in the Rfp/fM-, Federal Reserve Bank of Philadelp hia, A ugust, September, N ovem ber, 195 4 , and Jan uary and M arch , 19 5 5 . and to examine certain aspects of the structure of bank ing in the Eighth Federal Reserve District. SpeciBcally it considers the changes wrought in the postWorld W ar II years by the establishment of branches and by mergers. There remain, of course, other im portant related aspects of structural change, such as the extent of group and chain banking in the Eighth District and the "interindustry" competition which has been created by the rapid development of build ing and loan associations, insurance companies, sales Rnance companies, and the like. The wide variations in state laws which, as indi cated above, shape the pattern of branches in any particular area are reflected in the statutes of the states of the Eighth District. Illinois forbids branches altogether, and Missouri permits them only in foreign countries. Tennessee and Indiana limit them to the county of the parent bank. Arkansas permits a bank to have an "ofRce" within its own or an adjacent county to handle deposits and perform "bank service" duties. * Until 1954 branches in Kentucky were op erated under a court decision sanctioning use of local "ofRces" to handle deposits; since 1954, a Ken tucky statute has speciBcally authorized county-wide branches with full banking powers. Mississippi divides branches into "branch banks" and "branch ofRces," the latter limited to handling deposits and receiving loan applications. Fifteen such "branch banks" may be placed within 100 miles of the parent, while "branch ofRces" may be located within the parent's own county or in adjacent counties. In addition to these limiting influences based on function and location, the growth of branches is also inhibited by the practically uniform condition of supervisory approval of establishment of a branch FtGURE 1 Page 47 and various capital requirements (Indiana, Missis sippi, and Kentucky)r Furthermore, branch activity is checked by certain restrictions as to location in towns with existing banking facilities (Arkansas, Indiana, Kentucky, and Mississippi). . . F!GURE 2 . The oldest existing branch in the Eighth District was established in Mississippi in 1899, and a few other isolated branches were formed in district states before 1927. In the late 1920's there was a little Hurry of branch formation in Kentucky, Tennessee, and Mississippi, and again in the mid-1930's there was a good bit of branch establishment in Mississippi and Kentucky. The late '30's and '40's saw the crea tion each year of from three to six branches scattered through Arkansas, Indiana, Kentucky, Mississippi, and Tennessee. Since 1951 there may have been some thing like a branch "movement" in the Eighth Dis trict; in the Rve-year span 1951-55 an average of 14 branches a year were established, with activity par ticularly heavy in Kentucky and Tennessee. Figure 2 charts district activity in branch* forma tion since the 1920's along with that of the country as a whole. Since the mid-1930's Eighth District banks have accumulated branches in the jurisdictions where they are permitted at about the same rate as the country as a whole. . . . — Of 100 branches formed in the decade 1946-55, 78 were nouo branches and 22 resulted from the con version of a bank into a branch through merger or absorption. In size branches vary from modest teller's windows carrying on only routine activities to bank ing oiEces exercising all of the functions, including the making of loans, normally performed by banks with several million dollars of assets. Even those branches which have been formed as a consequence of conversion of a bank into a branch have usually been small. &77;^ %% Table 1 summarizes the present status of branch banking in the district by states. Characteristically, banks in the states which permit branches have less Page 48 than Rve of them, and the banks with more than Rve branches are located in both large and small district cities. Of the 62 branches located in district Ken tucky, Louisville banks account for 42, one Louisville bank having fourteen branches, another twelve, and a third six, with the rest divided among four other banks. In district Mississippi, of a total of 55 branches, a bank in Grenada has eleven and one bank in Tupelo has six. In Tennessee the three large banks in Mem phis account for 24 of the 44 branches located in the district portion of the state, one of the Memphis banks having thirteen branches and another eight. Two country banks in the district portion of T en nessee have six branches and Rve branches respec tively; these banks furnish the only examples in the Eighth District of banks in small towns with Rve or more banking oiRces. D/y/Wr/ 77;^ ^ ? ^ % 7% 7926-3?. Inspection of Table 2 and Figure 3 makes it clear that the decade 1926-35 saw the greater part of such combination as has occurred in the Eighth Federal Reserve District. In that decade 250 of the total of 409 mergers in the history of presently existing banks occurred. Excluded from these Rgures are reorgan izations involving only one bank, changes in name, conversions from state to national charters or vice versa, and liquidations through existing banks of banks voluntarily going out of business. Excluded TABLE ! NUMBER OF BANKS AND BRANCHES E!GHTH FEDERAL RESERVE D!STR!CT DECEMBER 31, 1955 Ark. 111. Ind. Ky. Miss. Mo. Tenn. District 233 212 21 264 264 — 109 94 15 207 183 24 104 79 25 449 448 1 97 86 11 1,463 1,366 97 18 3 — — — 11 2 2 15 4 1 1 1 2 62 13 6 2 2 1 1 55 4 2 — 1 3 1 44 62 17 5 4 5 4 207 TotalNumberof Banks Total Number of Banks with No Branches Total Number of Banks with Branches Number of Banks with 2 Branches 3 Branches 4 Branches . — 24 10 to 14 Branches Total Number of Branches — — — — — — 21 ; areas as follows: also are combinations of banks which ultimately dis appeared for one reason or another. So far as presently operating Eighth District banks are concerned the decade of the late '20's and early '30's was the most important one in their combination history. But activity was moderately heavy, especial ly in Missouri, in the four years 1936-39, when 60 mergers took place. In the postwar decade there have been only 40 mergers or about 10 per cent of the total in the history of present banks since 1920. — — — — — l Arkansas 1; Illinois 1; Indiana 1; Kentucky 3; Mississippi 0; zation of the 20's simply made many of these banks unnecessary. Furthermore, banks which had acquired a substantial amount of farm mortgages made on the basis of high land values found far too many of them going into default. W ith the deterioration of assets which occurred when loans to farmers and to busi nesses dependent upon farmers went bad, literally thousands of banks found themselves by the middle and late 1920's in trouble, which the Depression turned to disaster. For a large portion of these banks there was no alternative to failure. But many were TABLE !! COMMNAT!ONS (MERGERS, CONSOUDAHONS, AND ABSORPTIONS) !N THE HISTORY OF PRESENT BANKS !N THE E!CHTH FEDERAL RESERVE DISTRICT, BY STATES AND YSASS, 1920 District experience paralleled that of the nation up to about 1950. A full story of the mer ger movement of the late '20's and early '30's is beyond the scope of this article, for it would require an examination of all the causes of banking weakness in the years preceding and during the Great Depression. It is sufRcient to observe that bank ing difficulties of the 1920's were in large part a reaction to the rapid bank expansion which dated from around 1900 and the consequence of the freezing of bank assets in predominantly agricultural areas. Banks had sprung up in nearly every vil[age and hamlet, small countyseat towns often boasting three 3r four, and the rapid urbani- District Annual Cum. No. Total 1920 21 22 23 24 1 4 12 16 21 1 3 8 4 5 1925 26 27 28 29 27 47 61 79 101 1930 31 32 33 34 Ark. 2 111. - 1935 Ind. Ky. 1 1 1 1 Miss. Mo. Tenn. 1 1 1 3 2 3 1 — 1 — 1 — 6 20 14 18 22 7 1 1 2 1 3 4 3 3 1 4 1 1 1 3 — 131 175 207 233 257 30 44 32 26 24 4 4 3 2 5 4 11 8 8 2 1 5 2 1 3 7 1 3 6 1 1 1 1935 36 37 38 39 277 292 308 324 337 20 15 16 16 13 3 2 1 1 3 1 1 1 2 — 4 2 3 1940 41 42 43 44 338 342 350 361 365 1 4 8 11 4 1945 46 47 48 49 369 374 376 378 381 4 5 2 2 3 1950 51 52 53 54 55 388 396 397 398 403 409 7 8 1 1 5 6 1 — 5 1 1 1 1 1 — 1 1 — 1 1 1 — 4 1 1 2 1 2 — 1 3 2 1 1 1 2 2 3 1 1 —- 2 2 1 4 7 3 12 12 -*2 11 19 15 6 10 2 3 1 2 6 10 9 9 6 2 — 1 1 — _ 1 3 2 — 1 2 1 1 1 1 3 2 4 1 1 — 3 2 2 1 1 ^2 . — 1 3 1 1 — 1 1 Total Combinations 409 42 59 29 59 27 169 24 Total Present Banks 1463 233 264 109 207 104 449 97 FtGURE 3 able to save themselves by combining with another bank and providing sufficient liquidity to ride out the storm. . . . with total resources in excess of $400 million and the other in excess of $250 million, brought into existence an institution substantially larger than either of the consolidating banks. In 1955 the merger of two other St. Louis banks likewise produced a bank of relatively great size for this district. Other mergers large rela tive to recent Eighth District experience include three in Louisville in which the absorbing banks ranged in size from $110 to $160 million and the absorbed banks averaged $8.5 million; two in Evans ville combining a $60 million bank with a $7 million bank and a $50 million bank with an $8 million bank; one in Madison, Illinois, combining a $5 million bank and a $6 million bank; and one in Clarksdale, Missis sippi, combining a $19 million bank and a $3.5 million bank. The remaining Eighth District mergers during the 1945-55 period have tended to involve the absorption of small banks by much larger ones for the purpose of converting the smaller bank into a branch. But even where the objective is a single institution with greater resources, the absorbing bank ordinarily has had resources from three to Rve times those of the absorbed bank. 7930 During the decade of the 1940's the cumulative total of mergers in the Eighth District grew at about the same rate as the total of the country. Since 1950, however, Eighth District banks have not shown the tendency toward combination of banks in the nation as a whole. A closer look at events of the last decade reveals that of 16 combinations accomplished in the years 1945-1949, four, or one-fourth, resulted in the estab lishment of branches and twelve resulted in larger banking units in the cities of the absorbing banks. Since 1950 the proportions have been reversed. Of 28 combinations in the years 1950-55, 21, or threefourths, resulted in the establishment of branches and only six in larger banking units in the cities of the absorbing banks. Of the Eighth District mergers occurring in the years between 1950 and 1955, the period of recent re markable national activity, only a handful involved the combination of large institutions. For example, the consolidation in 1951 of two St. Louis banks, one Page 50 The foregoing data on post-World W ar II branch formation and mergers in the Eighth District cer tainly leave no startling impression of change in dis trict banking structure. The number of institutions involved was not large relative to the total, and in only a few cases have the resulting banks been large. It is pertinent, nevertheless, to inquire whether the observed combinations have resulted in a concen tration of banking facilities in the chief areas of change. The simplest way of measuring changes in con centration is to compare the percentage of total bank ing resources controlled by the largest banks in an area as of one date with the percentage controlled by the largest banks at a later date. Consider, for example, changes in the St. Louis metropolitan area over the decade from Decem ber 31, 1945, to D ecem ber 31, 1955.3 At the end of 1945, as shown in Table 3, the largest three banks in St. Louis as of that date controlled a slightly smaller percentage of total re sources in the metropolitan area than did the largest three of ten years later. A comparison of the four largest banks as of the two dates indicates a slight drop in concentration, and a comparison of the Rve largest banks suggests a somewhat greater lessening of concentration. In 1945 the predecessor banks of the present three largest banks in St. Louis controlled 61 per cent of metropolitan area banking resources as compared with 53 per cent in 1955. Like comparisons for Louisville banks as of June, 1945, and June, 1955, yield similar results. In 1945 Banks A, B, and C in Louisville controlled 67 per cent of metropolitan area banking resources, and in 1955 the Rgure stood at 64 per cent. In 1945 the predecessor banks of the present three largest banks controlled 69 per cent of metropolitan area resources as compared with 64 per cent in 1955. In Memphis the three largest banks in 1945 con trolled 97 per cent of metropolitan area resources, and at the end of 1955 the Rgure had dropped to 93 per cent. In Evansville, on the other hand, the percent age of metropolitan area resources controlled by Banks A, B, and C rose from 68 per cent to 76 per cent, though here again a comparison of the present largest three with their predecessor institutions indi cates a slight fall in the relative size of these interests. Thus, in the major cities of the Eighth District where an increase in concentration of banking facili ties might be expected following recent mergers or substantial branch formation, there seems to be no trend toward such an increase. However, in a few smaller cities and towns of the district, combination has resulted in the formation of a substantially larger bank than previously existed. Apparently, recent rapid increases in suburban populations have resulted in growth of neighborhood banks proportionately greater than that of "downtown" banks. , . . <%7?J f (97%D/J/W/ %?;%72^77g Such branch formation and combinations as have occurred in the Eighth District over the past decade have had little influence on district banking struc ture in terms of number of institutions involved or share of total resources controlled by large banks in particular areas. Yet as observed above, groups and chains may be substituted for branch systems, and it might be added that they can likewise take the place of mergers, consolidations, and absorp tions. Thus, the recent growth in group and chain banking should be examined as part of the study of changes in the structure of Eighth District banking ROSS M . ROBERTSON TABLE Ht PERCENTAGE OF BANKtNG RESOURCES CONTROLLED BY THE TEN LARGEST BANKS !N THE ST. LOUtS METROPOLITAN AREA/ 1945 AND 1955* 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Per Cent of Total Resources December 31, 1955 Individual Cumulative (Bank A + Bank B, etc.) 22.6 22.6 44.9 22.3 7.9 52.8 57.0 4.2 60.7 3.7 63.5 2.8 66.2 2.7 2.3 68.5 70.2 1.7 1.6 71.8 Bank A Bank B Bank C Bank D Bank E Bank F Bank G Bank H Bank 1 Bank J Others (53 in 1955, 56 in 1945) 28.2 * 1955 data preliminary 100.0 Per Cent of Total Resources December 31, 1945 Individual Cumulative (Bank A + Bank B, etc.) 22.9 22.9 17.9 40.8 11.2 52.0 6.3 58.3 6.0 64.3 3.0 67.3 2.5 69.8 2.1 71.9 73.4 1.5 1.4 74.8 25.2 100.0 TABLE !V PERCENTAGE OF BANKtNG RESOURCES CONTROLLED BY THE FtVE LARGEST BANKS tN THE LOUtSVtLLE METROPOLtTAN AREA, 1945 AND 1955 Per Cent of Total Resources Per Cent of Total Resources, June 30,1955 June 30, 1945 Individual Cumulative Individual Cumulative (Bank A + (Bank A + Bank B, etc.) Bank B, etc.) 33.2 33.2 29.0 29.0 1. Bank A 48.9 20.1 53.3 2. Bank B 19.9 13.2 66.5 3. Bank C 14.7 63.6 78.1 4. Bank D 10.1 73.7 11.6 7.9 86.0 82.2 5. Bank E 8.5 Others (17 in 1955, 100.0 14.0 23 in 1945) 17.8 100.0 TABLE V PERCENTAGE OF BANKtNG RESOURCES CONTROLLED BY THE FtVE LARGEST BANKS !N THE MEMPHtS METROPOLtTAN AREA, 1945 AND 1955 Per Cent of Total Resources Per Cent of Total Resources, June 30, 1945 June 30,1955 Individual Cumulative Individual Cumulative (Bank A + (Bank A -}Bank B, etc.) Bank B, etc.) 47.2 45.1 47.2 1. Bank A 45.1 78.2 32.3 79.5 33.1 2. Bank B 17.3 92.8 96.8 14.6 3. Bank C 95.2 98.3 2.4 1.5 4. Bank D 99.2 97.5 0.9 2.3 5. Bank E Others (4 in 1955, 100.0 0.8 100.0 2 in 1945) 2.5 TABLE V! PERCENTAGE OF BANKtNG RESOURCES CONTROLLED BY THE FOUR LARGEST BANKS !N THE LtTTLE ROCK METROPOLtTAN AREA, 1945 AND 1955 Per Cent of Total Resources Per Cent of Total Resources, June 30,1955 June 30, 1945 Individual Cumulative Individual Cumulative (Bank A + (Bank A + Bank B, etc.) Bank B, etc.) 1. Bank A 33.0 33.0 35.6 35.6 2. Bank B 29.1 62.1 31.8 67.4 3. Bank C 16.7 78.8 19.4 86.8 4. Bank D 16.0 94.8 9.3 96.1 Others (2 in 1955, 1 in 1945) 5.2 100.0 3.9 100.0 TABLE Vtt PERCENTAGE OF BANKtNG RESOURCES CONTROLLED BY THE FOUR LARGEST BANKS !N THE EVANSVtLLE METROPOLtTAN AREA, 1945 AND 1955 Per Cent of Total Resources Per Cent of Total Resources, June 30,1955 June 30, 1945 Individual Cumulative Individual Cumulative (Bank A + (Bank A + Bank B, etc.) Bank B, etc.) 32.6 32.6 1. Bank A 28.5 28.5 2. Bank B 22.4 55.0 20.8 49.3 20.6 75.6 3. Bank C 18.9 68.2 4. Bank D 10.4 86.0 9.2 77.4 Others (5 in 1955, 8 in 1945) 14.0 100.0 22.6 100.0 Page 51 DISTRICT Per Cent of United States D/y/w/ In contrast to the national experience, which saw a drop of almost one-tenth, district farm income fell less than one per cent below 1954. This divergency reflects largely the high receipts from the 1955 cotton crop, almost one-Bfth above the level of 1954 due to record yields on a reduced acreage. Arkansas and Mississippi farm operators, therefore, considerably improved their income receipts over the preceding year. The resultant heavy pledging of cotton from the 1955 crop for CCC loans, however, brought total government stocks to 13.5 million bales at the end of 1955, limiting in all probability the new produc tion that can be absorbed by the market in the future. Increasing production abroad and declining American exports have necessitated already some change in our trade policy. 6)/ 7 9 3 ^ %M 79^4. 3 /?^r (9/ D!STR!CT PERSONAL !NCOME (Millions of dollars) Labor Income M anufacturing...................... Other 1955 1954 C hange' 9,345 8,826 + 5.9 3,031 6,314 2,739 6,087 + 10.7 + 3.7 1,382 1,396 — 1.0 Crops........................................ Livestock 757 625 731 665 + 3.6 — 6.0 Nonfarm Proprietors' Income 1,521 1,441 + 5.6 Property Income + 5.9 Farm Proprietors' Income 1,715 1,620 Transfer Payments 978 922 + 6.1 TOTAL INCOME 14,941 14,205 + 5.2 Population (thousands).......... 10,634 10,580 + 0.5 Per Capita Income (dollars) 1,405 1,343 + 4.6 E SID E N T S of the Eighth Federal Reserve Dis trict participated in the general income advances which characterized the national economy in 1955. District personal income reached for the first time the $15 billion mark, carrying the income of district residents (in current prices) 5 per cent above 1954 and 3.5 per cent above 1953. All major types of income recipients, with the ex ception of farm proprietors, shared in the income growth of last year. The largest increase was shown by manufacturing payrolls, up 11 per cent from 1954, while other income components advanced from 6 to 10 per cent. Net income of farm operators, on the other hand, was down, as the further weakening in agricultural prices more than offset the rise of farm production to a record volume. Page 52 . . /73f<9773^ . % j/<9t^7* 7*%/^. Per Cent of United States Total compensation of employees in 1955 was roughly 6 per cent higher than in either of the two preceding years. The bulk of the advance was in private industry payrolls, resulting from the combined effect of higher average hourly earnings, a lengthened workweek, and a rise in employment. Full-time equivalent employment in the district economy rose by almost 2 per cent in 1955. A substantial part of this increase was in the manufacturing industries although the peak of 1953 was not recovered. Large employment gains were registered also in the trade and service industries, with smaller advances in finance, transportation and public utilities. In manufacturing, the employment gains (like the increases in hours and hourly wage rates) were most pronounced in the durable goods industries which have traditionally shown the widest cyclical swings. As the district share of these industries is relatively small, its economy did not fully participate in the sharp rebound of the 1955 expansion. Beyond these cyclical variations, however, it appears that the dis trict has not kept pace with the longer-term national rate of industrial growth. Thus, the share of district payrolls in the national total has consistently fallen since the time of the last peak in 1953. 7726* /7%f<9772^ 777^7*6)^#///%% . . . Per Cent of United States Within the district, a wide variety of growth pat terns among income areas offered new evidence that people continue to be "on the move." The long-run trend toward industrialization and urbanization of our economy was maintained in 1955. Income in the seven metropolitan areas of the district (St. Louis, Louisville, Memphis, Little Rock, Evansville, Spring field and Fort Smith) expanded faster, therefore, than in rural communities, and most of these urban cen ters further improved their relative position in the national economy. M ///? 72%/76>73. Per Cent of United States In spite of substantial growth in many urban areas, district income as a whole advanced less than the nation. Expansion proceeded at a faster rate outside the Eighth District, many of whose people continued to search for new opportunities beyond the district lines. As a result, the district portion of national income was at its lowest point in 1955, forming but 4.96 per cent of the national figure. The ratio of dis trict to United States population dropped even faster, however, from 6.56 per cent in 1954 to 6.47 per cent in 1955. District total income was divided therefore into relatively fewer shares, and its per capita income in the same year reached a new peak of $1,405 or more than 76 per cent of the national norm. The unexcelled year of 1955 thus maintained the historical role of the district in the national economy: district total income and product advanced in response to the pervasive forces of national growth, some district workers facilitated more rapid expansion elsewhere through out-migration, and district per capita income further approached the standards set in other sections of the nation. W ER N ER HoCHW ALD Page 53 OF CURRENT CONDtHONS J ) u R I N G March there was fresh evidence of in creased conRdence in the future course of business, but economic activity generally showed little change from the high level reached in the first two months of the year. ConRdence was expressed in business plans for record spending on new plant and equip ment, and in the rise of stock prices to new peaks. Consumers, too, were optimistic about general busi ness conditions during the coming year, and their plans to purchase houses and major durables were about the same as a year earlier. Further indicating faith in the future, new construction undertaken re mained at an advanced rate, well above a year ago. While optimism increased, the pace of industrial activity generally, as shown by weekly indicators for coal, oil, electric power and paperboard production, showed little change from seasonal patterns. Steel production averaged close to rated capacity. Auto mobile assembly and freight cars loaded, however, showed less than the customary increase from Feb ruary to' March. Consumers, seemed to be spending a little less freely. In February, retail sales declined 2 per cent from January after adjustment for seasonal factors and trading day differences. Department store sales in the Rrst four weeks of March failed to advance as rapidly as usual in the pre-Easter season. Furthermore, the seasonal drop in insured unem ployment failed to appear this year, the number re maining virtually unchanged from early February to early March. Business is planning outlays for new plant and equipment of $35 billion this year, 22 per cent more than the record spending in 1955, according to a survey conducted by the Department of Commerce and the Securities and Exchange Commission. While some increase, had been anticipated, this survey re vealed even larger dimensions than were previously indicated. All major industries are planning sub stantial increases in investment with the sharpest advances by railroads and manufacturers, particu larly of durable goods. Expenditures are scheduled to rise from a seasonally adjusted annual rate of $31 billion in the fourth quarter of last year to a rate of $33 billion in the Rrst quarter of this year and $35 billion in the second quarter. Page 54 In a survey of consumer Rnances conducted by the Board of Governors of the Federal Reserve System in cooperation with the Survey Research Center of the University of Michigan, about the same propor tions of consumers as a year ago reported plans to buy new and used automobiles, other durable goods, and new and used houses, and to undertake home improvement and maintenance programs. However, considering the widely distributed rise in income and increase in liquid asset holdings over the past year, together with the expectation of further gains this year, the lack of increase in plans to buy may be worth noting. Moreover, the number planning to buy new cars this year is less than the number who made purchases last year, although it should be point ed out that plans to buy, expressed early in the year, are not to be taken as a forecast of what consumers actually will purchase during the year. Commodity prices strengthened during March, with all major groups showing some advances. Some of the strength was partly seasonal, as in the case of prices of farm products. But continued large de mands and optimism about the future course of busi ness, coupled with rising wage and material costs, bolstered prices of industrial commodities generally. In the Eighth Federal Reserve District business activity generally remained at a high level. Indus trial output was maintained and unemployment in surance^ claims declined seasonally. But construc tion contracts awarded in the Rrst half of March in the St. Louis territory of the F. W. Dodge Corpo ration were off from the comparable period a year ago, and department store sales failed to pick up the seasonal amount. Bank loans, however, increased as Rrms borrowed to pay their taxes, and farm product prices strengthened. The rate of output of district factories and mines appears to have risen in early March after the very slight decline earlier in this year. Steel ingot output, after allowance fot additional plant facilities added during the past year, was still above 100 per cent of rated capacity in March. Auto assembly increased, the national gain over February being estimated at over 5 per cent. Southern pine lumber output rose 8 per cent in the Brst two weeks of the month and narrowed the 2 per cent decline it had shown from last year to less than 1 per cent. Southern hardwood output, however, declined somewhat. Livestock slaughter at St. Louis was at a particularly high vol ume, over one-fourth above early March, 1955. Coal mines Bnished the winter season at a somewhat lower level than in 1955, but crude oil output in district states rose slightly to regain its January level. Conditions in the labor markets in the district's major metropolitan areas changed about seasonally from mid-February to mid-March. In the previous two months unemployment insurance claims had risen more than in the comparable periods of the previous year, but in the four weeks ended March 17 the number claiming unemployment insurance de clined in all of the major metropolitan areas. In Memphis, the decline was somewhat greater than a year ago. In St. Louis and Louisville, the decline was about of the same magnitude, but in Evansville, the decline was less than in the like 1955 period. The picture, however, was darkened by announce ments of a few plant closings or layoffs. At Louis ville, International Harvester Company announced that in March it would lay off 500 of 3700 workers employed in the manufacture of tractors. Reduced defense production caused a layoff of 250 workers in Evansville, and the closing of two plants in the St. Louis area affected about 800 workers. Reduced requirements for ordnance led to announcements that a defense plant in St. Louis, where some 2500 persons are now employed, and another at Camden, Arkansas, where 1900 persons are employed, would be closed in 1957. New construction contracts awarded in the district in February continued above year earlier levels. Residential construction, however, continued to lag behind the unusually high levels in February 1955. The most recent seasonally adjusted rates of both total and residential construction contracts awarded declined from the month before, but were still above the averages for 1955. In the Brst half of March con tracts awarded in the St. Louis territory of F. W. Dodge Corporation were slightly less than in the comparable period a year ago. Residential contracts, however, were somewhat larger. Consumer buying at district department stores slowed in February and early March. The seasonally adjusted sales index fell from 126 per cent of the 1947- 49 average in January to 122 per cent in February. , After allowance for the one week earlier arrival of Easter this year than last, district department store sales in the Brst four weeks of March failed to gain the full seasonal amount. Seasonally adjusted inventories at the end of Feb ruary were about the same as a month earlier. Be cause sales fell in the month, the stock-sales ratio increased somewhat. New car sales showed some further seasonal im provement in the Brst part of March, but the number sold remained less than a year earlier. The demand for credit was strong at district banks during the four weeks ended March 21. Total loans (excluding interbank lending) expanded $14 million at district weekly reporting banks. The increase reBected greater than seasonal net borrowings by busi nesses, partly to meet heavy income tax payments. The bulk of the increased demand for credit came from Brms in the manufacturing and mining group. Within this group, processors and manufacturers of food, liquor and tobacco increased their outstanding indebtedness $5 million in contrast to average net repayments of $6 million during the like weeks of 1952-1955. Sales Bnance companies, which had been reducing their indebtedness earlier in the year, bor rowed more than they repaid. Trade concerns, both retail and wholesale, increased their indebtedness more than usual during the four weeks. Another fac tor of strength was the smaller net repayment by commodity dealers than customary at this time. Loans on real estate and securities rose moderately in the period. On the other hand, "other," largely con sumer, loans declined $4 million. Normally, "other" loans change only slightly at this season^ The average interest rate charged on short-term business loans made during the Brst half of March at the four reporting banks in St. Louis was 3.78 per cent. This compares with an average rate of 3.85 per cent charged during the Brst half of December at these banks. District agricultural prices strengthened during the four-week period ending March 16. Broilers moved upward 7 per cent, soybeans 5 per cent, hogs 4 per cent and corn 3 per cent. All other major district commodities showed some gain with the exception of eggs and milk which declined 2 per cent and 1 per cent, respectively. However, district prices of most major commodities remained well below those of the previous year. Page 55 F e b . 1 956* VAR!OUS !ND!CATORS OF !NDUSTR!AL ACT!V!TY Feb. Jan.^l956^^Fe^l955 1956 Coal Production Index— 8di Dist. (Seasonally adjusted, 1 9 4 7 -4 9 — 100) ........ Lumber Production— S. Pine (Average weekly production— thousands of bd. f t .) . . Lumber Production— S. Hardwoods. (Operating rate, per cent of capacity)............. N.A. 102 92 p 377.6 + 3 + 7 N.A. — 1 N.A. + 7 — 3 109.0 116.3 211.5 92 -0 — 16 + 2 -0 - + 11 + 21 + 4 + 8 + 5 * Percentage change is shown in each case. Figures for the steel ingot rate, Southern hardwood rate, and the coal production index, show the relative percentage change in production, not the drop in index points or in percents of capacity. ,* = « * * CASH FARM INCOME BANK DEBMS* millions) Six Largest Centers East St. Louis— National Stock Yards, 111. . .................... $ Little Rock, Ark. . . Memphis, Tenn. St. Louis, Mo......... Total— Six Largest Alton, 111................ ^ . 118.6 149.8 171.8 8 34.6 700.5 2 ,1 4 2 .5 T^tal— Other Total— 22 Centers Feb. 1955 1956 — — — — — — 9% 19 14 5 12 11 + 2% + 3 + ^ + 12 + 9 + 15 $4,1 1 7 .8 — 11% + 12% $ — 9% — 19 — 14 — 10 — 11 — 15 — 27 — 13 — 24 — 21 — 9 — 7 — 17 — 15 — 17 — 12 + 7% + 10 35.6 14.2 27.8 51.6 27.9 9.4 7.5 26.0 68.1 4 3.7 25.5 36.4 34.2 14.0 72.6 18.4 El Dorado, Ark............ Fort Smith, Ark............ Greenville, Miss. Hannibal, Mo................. Helena, Ark................... Jackson, Tenn. Jefferson City, Mo. Owensboro, Ky.............. Paducah, Ky................... Pine Bluff, Ark.............. Quincy, 111...................... Sedalia, Mo.................... Springfield, Mo........... $ !NDEX OF CONSTRUCTION CONTRACTS AWARDED EtGHTH FEDERAL RESERVE D!STR!CT* Feb. 1956 Feb. 1956 of dollars) 1956 Arkansas . $ 4 4 ,598 156,783 Illinois.......... Indiana . . . 82,698 Kentucky . 62,962 Mississippi . 4 7 ,550 Missouri . . 72,024 Tennessee . . 37,827 7 States. . . 8th District Jan. *56 Jan . 55 +43% + 6 —0— — 42 +17 + 6 + 8 Jan. '54 — 23% — 19 — 19 — 45 — 3 — 11 — 26 — 2 + 2 — 22 — 21 Mar. 21, 1956 Loansl .......................................... Business and Agricultural . Real Estate + 9 ................. + 10 + 15 5 12.9 — 16% + $ 4 ,6 3 0 .7 — 11% + 12% I Debits to demand deposit accounts of individuals, partnerships and corporations and states and political 877 45 $3,673 8th F.R. District Total Fort Smith Area, A rk.l. Little Rock Area, Ark. Quincy, 111.......................... + + 183.9 p 226.1 p 164.2 p 197.0 254.7 170.2 189.0 309.9 132.9 T o ta l. ^ Residential A llO th e r ... 242. 5 p 305.5 p 213.2 p 2 53.9 318.4 223.9 250.7 418.8 172.6 Feb. 22, 1956 Feb. 29, 1956 $ + 14 — $— 27 1,882 487 58 2 1,386 71 $6,332 + 2 $—111 2 + 15 + 29 - 0$ + 55 Jan. 25, 1956 $2,506 + + 2 + 1 — 4 — 1 26 Stocks RETA!L FURNITURE STORES Percentage of Accounts Stocks- and Notes Receivable Sales Outstanding Feb. 1, '56, Excl. Instal. Installment Accounts Accounts + 12 7 + 1 39 2 + 9 + 8 + 10 12 + 16 39 + 10 — 1 — 5 + 4 + 6 + 2 + 11 + 10 19 46 6 +13 Louisville Area, Ky., Ind. — 7 + 23 + 12 Paducah, Ky........................ + 12 18 56 — 5 8 St. Louis Area, Mo., 111. + 25 + 18 + 9 13 35 4 + 9 + 5 + 10 — 3 9 All Other C ities-............... 1 In order to permit publication of figures for this city (or area), a special sample has been con structed which is not confined exclusively to department stores. Figures for any such nondepartment stores, however, are not used in computing the district percentage changes or in computing depart ment store indexes. 2 Fayetteville, Pine Bluff, Arkansas; Harrisburg, Mt. Vernon, Illinois; Vincennes, Indiana; Dan ville, Hopkinsville, Mayfield, Owensboro, Kentucky; Chillicothe, Missouri; Greenville, Mississippi; and Jackson, Tennessee. + + + + IN D EXES O F SALES AND STOCKS— 8TH D ISTR IC T Jan. Feb. Dec. Feb. 1956 1956 1955 1955 95 95 R 208 89 Sales (daily average), unadjusted^............................................... 122 126 125 114 Sales (daily average), seasonally a d ju ste d S ....................................... N.A. 120 120 114 Stocks, unadjusted^............................................................................. N.A. 138 133 120 3 Daily average 1 9 4 7 -4 9 = 1 0 0 4 End of Month average 1947-49 = 100 N. A. Not available. Outstanding orders^of reporting stores at the end of January, 1956, were 16 per cent larger than http://fraser.stlouisfed.org/ Trading days: Federal Reserve Bank of St. Louis T o ta l............ Residential A llO th e r Liabilities and Capital Demand Deposits of Banks ................. $ 648 10 $— 49 $$ + 682 2 ,135 + 65 Other Demand Deposits ......................... 3,849 — 100 Time Deposits .......................................... 567 +1,222 4 + 8 Borrowings and Other Liabilities . . . 52 — 24107 + 26 271 —0— Total Capital Accounts ........................... 472 + 4 $6,332 Total Liabilities and Capital .......... $3,673 $ + 55 $— 111 l For weekly reporting banks, loans are adjusted to exclude loans to banks; the total is reported net^ bi^akdowns are imported gross. For all member banks loans are reported net and include loans DEPARTMENT STORES Net Sales Feb., 1956 2 mos. '56 $1,578 823 57 275 446 918 233 22 9% IN D EX O F BANK D E B IT S— 22 Centers Seasonally Adjusted (1 9 4 7 -1 9 4 9 = 100) 1956 1955 Feb. Feb. 152.4 170.3 (1 9 47-1949 = 100) Jan. 1956 Dec. 1955 J an. 1955 ASSETS AND L!AB!L!T!ES E!GHTH D!STR!CT MEMBER BANKS + 8 + 11 + 5 + 15 — 2 + 20 + 14 + 2 — 8 + 27 + 2 $504,442 $238,914 Jan. '5 6 Feb., 1956— 25; Jan., 1956— 25; Feb., 1955— 24. Net Sales Feb., 1956 Feb., 1956 Jan°*56r^b^55 8th Dist. T otall . + 2 1 % . + 23 . + 14 — 1 + 63 SpringSeld Area. . + 4 0 + 4% 4 — 5 — 4 + 47 + 36 + Jan., '5 6 Feb., '55 + 3% + 3 + 11 + + 11% + 13 + 11 4 2 + 27 + 5 * Not shown separately due to insufficient coverage, PERCENTAGE D ISTRIBU TIO N OF FU RN ITU RE SALES Cash Sales .................. Credit Sales ............... Total Sales ............. Feb., '56 13% 87 100% Jan., '56 14% 86 100 % Feb., '5 5 14% 86 100 %
@FedFRASER