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ANNUAL REPORT

Federal Reserve Bank
of Chicago

BERT R. PRALL
Chicago, Illinois
C h airm an a n d Federal Reserve A g e n t

J. STUART RUSSELL, Farm Editor
Des M oines Register and Tribune
Des Moines, Iow a
D ep u ty C h airm an

ROBERT P. BRIG G S, Executive Vice President, Consum ers Pow er Com pany, Jackson, M ichigan
J O H N H. C RO CKER, Chairm an of the Board and President, The Citizens N ational Bank of Decatur, Decatur, Illinois
W ALTER J. C U M M IN G S , Chairm an of the Board, Continental Illinois N ational Bank and Trust C o m p any of Chicago,
Chicago, Illinois
W IL L IA M J. GREDE, President, Grede Foundries, Inc., Milwaukee, W isconsin
W IL L IA M A. H ANLEY, Director, Eli Lilly and Com pany, Indianapolis, Indiana
V IV IA N W . J O H N S O N , President, First N ational Bank, C e d a r Falls, Iow a
G ERA LD F. LA N G E N O H L, Treasurer and Assistant Secretary, Allis-Chalm ers M anufacturing Com pany,
Milwaukee, W isconsin

DETROIT

BRANCH

DIRECTORS

J O H N A. H A N N A H , President
M ichigan State University
East Lansing, M ichigan
C h airm a n

W IL L IA M A. MAYBERRY, President, Manufacturers N ational Bank of Detroit, Detroit, M ichigan
IR A A. M O O R E, General Vice President, O ld Kent Bank an d Trust Com pany, G ra n d Rapids, M ichigan
C. V. PATTERSON, Executive Vice President, Upjohn C om p any, Kalam azoo, M ichigan
ERNEST W. POTTER, President, Citizens Commercial & S a vin gs Bank, Flint, M ichigan
J. T H O M A S SMITH, President, Detroit Harvester Com pany, Detroit, M ichigan
D O N A L D F. VALLEY, Chairm an of the Board, N ational Bank of Detroit, Detroit, M ichigan

MEMBER

OF

FEDERAL

A D V IS O R Y

C O U N C IL

H O M E R J. L IV IN G S T O N , President, The First N ational Bank of Chicago, Chicago, Illinois

M E M B ER S

OF

INDUSTRIAL

A D V IS O R Y

COM MITTEE

C. H A R V E Y BRADLEY, Chairm an o f the A dviso ry Board, W . J. Holliday & Com pany, Division of Jones and Laughlin
Steel Corporation, Indianapolis, Indiana
JO H N W. EVERS, President, Comm onwealth Edison Com pany, Chicago, Illinois
E D W A R D M. K ER W IN , Senior Vice President, E. J. Brach a n d Sons, Chicago, Illinois
FRED L. M A Y T A G II, President, M a y ta g Com pany, Newton, Iow a
J A M E S L. PALMER, President, M arshall Field & Com pany, Chicago, Illinois
Jan u a ry 1, 1959

PTaa

C AR L E. ALLEN, President

j

ERNEST C. HARRIS, First Vice President

ERNEST T. B A U G H M A N , Vice President

ROBERT C. H O LLA N D , Vice President

N EIL B. D A W E S, Vice President and Secretary

C LAR EN C E T. LAIBLY, Vice President

W ILFO R D R. DIERCKS, Vice President

G E O R G E W. MITCHELL, Vice President

ARTHUR M. G U S T A V S O N , Vice President

H A R O L D J. N E W M A N , Vice President

H U G H J. HELMER, Vice President

ARTHUR L. O LSO N , Vice President

PAUL C. H O DG E, Vice President,

RUSSEL A. S W A N E Y , Vice President

G eneral Counsel and Assistant Secretary
LA U RENC E H. JO N ES, Cashier

E D W A R D A. HEATH, Assistant Vice President
and Assistant Secretary

BRUCE L. SMYTH, Assistant Vice President
C. PAUL V A N ZANTE, Assistant Vice President

H A R R Y S. SCHULTZ, Assistant Vice President

H. FRED W IL SO N , Assistant Vice President

CAR L E. BIERBAUER, Assistant Cashier

V IC T O R A. H A N S E N , Assistant Cashier

LE R O Y A. D A V IS, Assistant Cashier

W IL L IA M O. HUME, Assistant Cashier

LE R O Y W. D A W S O N , Assistant Cashier

R IC H A R D A. MOFFATT, Assistant Cashier

LESTER A. G O H R, Assistant Cashier

ROBERT E. SORG , Assistant Cashier

FRED H. G R IM M , Assistant Cashier

JO SEPH J. SRP, Assistant Cashier
G E O R G E T. TUCKER, Assistant Cashier

J O H N J. ENDRES, General Auditor

C HARLES J. S C A N L O N , Chief Exam iner

FRED A. D O N S, Assistant General Auditor

ELBERT O. FULTS, Assistant Chief Examiner

W IL L IA M C. G A LLA G H ER, Assistant Counsel

LELA N D M. ROSS, Assistant Chief Exam iner

DETROIT

BRANCH

RUSSEL A. S W A N E Y , Vice President

W. G E O R G E RICKEL, Assistant Cashier

R IC H A R D W. BLO O M FIELD, Assistant Vice President

ARTHUR J. W IE G A N D T , Assistant Cashier

PA U L F. CAREY, Assistant Cashier

G O R D O N W. LAMPHERE, Assistant General Counsel

Jan u a ry 1, 1959

To the Member Banks of the Seventh Federal Reserve District:

I am pleased to submit to you the 1958 Annual Report of the Federal
Reserve Bank of Chicago. The Report includes the Bank’s statement of
condition, statement of earnings and expenses, and a review of developments
in business, agriculture and banking in the Seventh Federal Reserve Dis­
trict in 1958.
During the year, the following elections and appointments of directors
were announced, in each case for a term of three years:
Robert P. Briggs, Executive Vice President, Consumers
Power Company, Jackson, Michigan, a Director since
1956, was reappointed for an additional term.
John H. Crocker, Chairman of the Board and President,
The Citizens National Bank of Decatur, Decatur, Illinois,
was elected Director succeeding Nugent R. Oberwortmann,
President, The North Shore National Bank of Chicago,
Chicago, Illinois.
William J. Grede, President, Grede Foundries, Inc., Mil­
waukee, Wisconsin, a Director since 1947, was re-elected
for an additional term.
C. V. Patterson, Executive Vice President, Upjohn Com­
pany, Kalamazoo, Michigan, a Director (Detroit Branch)
since 1956, was reappointed for an additional term.
Donald F. Valley, Chairman of the Board, National Bank
of Detroit, Detroit, Michigan, was appointed Director
(Detroit Branch), succeeding Raymond T. Perring, Presi­
dent, The Detroit Bank and Trust Company, Detroit,
Michigan.

The following official promotions were announced:
Ernest T. Baughman, from Assistant Vice President to
Vice President
Hugh J. Helmer, from Assistant Vice President to Vice
President
Robert C. Holland, from Assistant Vice President to Vice
President
Harry S. Schultz, from Assistant Cashier to Assistant Vice
President
Richard A. Moffatt, from Senior Examiner to Assistant
Cashier
Elbert O. Fults, from Review Examiner to Assistant Chief
Examiner
The following officers retired:
William W. Turner, Vice President, Check and Collection
Departments, after 40 years of service
Phil C. Carroll, Assistant Vice President, Credit, Loans and
Safekeeping Department, after 26 years of service
E. D. Bristow, Assistant Cashier, Collection Department,
after 40 years of service
The following employees, with service records of over 25 years, retired:
Frank Gaik
Leslie Gates
Jack L. Goldberg
George E. Hornsby
Albert A. Merker
Walter G. Olson

Peter O’Neill
Walter A. Rentzsch
Joseph Sheerin
Martha Siegmund
Joseph Vavricka

The Bank is grateful for the contributions made by the retired directors,
officers and employees through their many years of faithful service.
The total number of employees of the Federal Reserve Bank of Chicago
averaged 2,866 during the year, of which 490 were employed at the
Detroit Branch.
On December 31, 1958, there were 1,021 member banks in the Seventh
Federal Reserve District. During the year, five banks were admitted to
membership, six were consolidated with other members and two banks
withdrew from membership.

#

The new member banks are:
First National Bank of Morton, Morton, Illinois
South Des Moines National Bank, Des Moines, Iowa
Peoples State Bank of Bloomingdale,
Bloomingdale, Michigan
Security National Bank of Manistee, Manistee, Michigan
Southgate Bank, Southgate, Michigan
Southgate National Bank of Milwaukee,
Milwaukee, Wisconsin
The First National Bank of Morton, Morton, Illinois, joined the System
upon its conversion from a State to National charter. With the exception
of the Peoples State Bank of Bloomingdale, Bloomingdale, Michigan, the
other new member banks were organized during 1958.
During the past year, the Federal Reserve Bank of Chicago initiated
arrangements with a number of commercial banks in the District for the
handling of cash distribution and check clearing activities during a period
of national emergency in the event that the Chicago and Detroit offices were
destroyed or rendered inoperable. This is part of the emergency planning
developed over the past several years. Since 1951, copies of records that
would be required for resumption of operations have been forwarded
daily to a relocation site outside probable “target areas.” In addition to
essential records, there is stored at the relocation site specialized equipment
and supplies which could be utilized for emergency operations.
For the purposes of handling distribution of cash and clearing of checks
in an emergency situation, the Seventh Federal Reserve District has been
divided into thirty-five areas for check clearing and sixteen for cash dis­
tribution. The check clearing areas have the same boundaries as the present
subdivisions of the state banking associations; the areas for cash distribu­
tion are somewhat larger. One commercial bank in each of the areas has
agreed to act as an agent of the Federal Reserve Bank of Chicago, if
needed during a national emergency, to perform certain check clearing
operations or the distribution of currency in its area.
On behalf of our Directors, Officers and Staff, I extend our deep apprecia­
tion to you, our stockholders, for your continued interest and cooperation
in the effective functioning of the Bank.
Respectfully submitted,

President

n

Assets
Gold certificates:
December 31, 1958
Redemption fund for Federal Reserve n o t e s .........................
167,633,985

December 31, 1957

Other h o l d i n g s .............................................................

3,326,227,453

157,089,620
3,805,144,656

Total gold ce rtifica te s.................................................

3,493,861,438

3,962,234,276

Federal Reserve notes of other b a n k s .....................................

40,267,000

37,731,000

Other c a s h .........................................................................

58,733,799

56,959,067

Total c a s h .................................................................

3,592,862,237

4,056,924,343

Member b a n k s .............................................................
O t h e r .........................................................................

3,885,000
2,559,700

8.750.000
710,000

Total discounts and a d v a n c e s .....................................

6,444,700

9.460.000

U. S. Government securities.....................................................

4,585,614,000

4.140.164.000

Total loans and securities.............................................

4,592,058,700

4.149.624.000

Uncollected cash i t e m s .........................................................

902,999,083

887,536,988

Bank p r e m is e s .....................................................................

11,823,635

6,823,365

Other assets

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

24,839,904

40,657,160

Total a s s e t s .............................................................

9,124,583,559

9,141,565,856

5,302,680,770

5,334,242,805

Member bank— reserve a cco u n ts.........................................
U. S. Treasurer— general a c c o u n t .....................................
F o r e i g n .....................................................................
O t h e r .........................................................................

2,809,517,559
48,619,185
33,605,000
8,403,768

2,905,985,812
62,020,625
48,422,000
10,424,010

Total d e p o sits.............................................................

2,900,145,512

3,026,852,447

Deferred availability cash i t e m s .............................................

721,508,162

594,080,194

Discounts and advances:

Liabilities
Federal Reserve notes in c ir c u la t io n .........................................
Deposits:

Other liabilities

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

3,967,466

2.474.384

Total l i a b i l i t i e s .........................................................

8,928,301,910

8,957,649,830

Capital paid i n .....................................................................
Surplus (Section 7 ) .............................................................
Surplus (Section 1 3 b ) .........................................................
Other capital a c c o u n t s .........................................................

49,664,950
132,158,534
—
14,458,165

46,569,750
121,503,625
1.429.384
14,413,267

Total liabilities and capital a c c o u n t s .........................

9,124,583,559

9,141,565,856

C apital accounts

STATEMENT

OF

EARNINGS

AND

EXPENSES

1958

1957

.
.

1,219,562
128,023,207
41,270

5,656,908
127,819,903
53,469

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

.

129,284,039

133,530,280

Current expenses:
S a l a r i e s .....................................................................
Retirement c o n trib u tio n s ................................................

.

.

13,125,857
1,493,184
2,469,379
2,405,667
851,000
1,148,887
1,729,770

12,924,328
1,277,823
2,286,843
2,212,416
1,066,200
872,763
1,722,231

.

23,223,744

22,362,604

3,266,108
.

19,957,636
109,326,403

3,389,348
18,973,256
114,557,024

26,380

27,882

26,960

123,875
5,436

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

53,340

157,193

Deductions from current net earnings:
Reserves for contingencies................................................
Retirement system (adjustment for revised benefits)................

44,770

37,505
1,118,809
1,155

Current earnings:
Discounts and a d v a n c e s ................................................
U. S. Government s e c u ritie s ............................................
All o t h e r .....................................................................

Postage and e x p r e s s a g e .................................................
Provision and maintenance of f a c ilit ie s ............................
Assessment for expenses of Board of G o v e r n o r s ................
Cost of Federal Reserve c u r r e n c y ....................................
All o t h e r .....................................................................
Total

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

Less reimbursement for certain
fiscal agency and other e x p e n s e s ............................
Current net e x p e n s e s ................................................
Current net e a r n i n g s ................................................
Additions to current net earnings:
Profits on sales of U. S. Government securities (net) . . . .
Reimbursement for fiscal agency expenses
incurred in previous y e a r s .........................................
All o t h e r .....................................................................

All o t h e r .....................................................................

.

Total d e d u ctio n s........................................................
Net e a r n in g s .............................................................
Paid U. S. Treasury (interest on F. R. n o t e s ) ............................

.
.

D i v i d e n d s .........................................................................
Transferred to Surplus (Section 7 ) .........................................

.

________622
45,392
109,334,351
95,789,048
2,902,076
10,643,227

1,157,469
113,556,748
99,743,254
2,730,921

Surplus January 1 .................................................................
Transferred to Surplus— as a b o v e .............................................
Transferred to Surplus (Section 7) from Surplus (Section 13b) . . .

121,503,625
10,643,227
11,682

110,421,052
11,082,573

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

132,158,534

121,503,625

11,082,573

Surplus Account (Section 7)

The S e v e n th F e d e ra l R e se rv e District
now has 32 "standard metropolitan a re as”
as defined by the Census Bureau. These
are cities over 50,000 and the counties
which include them in their closely
related communities.

Waterloo |

1958
IN

R E V I E W

In b u sin e ss— decline a n d re c o v e r y

D

uring the early months of 1958, busi­
ness activity was in the midst of a sharp de­
cline which continued through April. In
contrast with earlier postwar recessions,
however, the transition from decline to re­
covery was clear cut. There was no period of
languishing at the reduced level.
Rapid recovery during the final two-thirds
of the year brought the pace of physical
production of goods and services to within
1 per cent of the previous record. Dollar
measures of personal income and spending
rose to new highs. Thus, the paths charted
by many measures of business activity tended
to be “V-shaped” and the recession over-all
was relatively short and mild.
Although the economy was operating at
or near record levels at year end, resources
were available to accommodate further addi­
tions to output in most sectors. The large
investment in new plant and equipment in
the 1955-58 period had added substantially
to capacity in basic industries and the num­
ber unemployed was still relatively high.
As in the earlier postwar recessions, total
consumer purchases of goods and services
slackened only moderately during the 195758 decline. For 1958 as a whole, consump­
tion spending was 2 per cent higher than in
1957, the previous record year, despite the
sharp decline in spending on automobiles.
Personal income was also higher by about
2 per cent.
Credit markets reflected the rapidly chang­
ing pace of business. During the period of
declining activity, from the fall of 1957 to

the spring of 1958, credit demand slackened.
The resulting increase in availability and
decline in cost of credit were augmented by
monetary actions. To this end, the principal
tools of monetary management— open mar­
ket operations, discount rates and required
reserves— were utilized.
Reduced demands for funds, aided by
an easier monetary policy, brought about
sharp declines in interest rates from the
highs of the previous year. However, coinci­
dent with the upturn in business activity in
late spring, private reappraisals of the out­
look and increased demand for credit, to­
gether with a gradual shift from the policy
of monetary ease, caused interest rates to
rise again. By year end, rates had largely
retraced their earlier declines.
M id w e st hit b y so ftn e ss in h a rd lines

Like most previous downturns, the 195758 decline was concentrated heavily in “dur­
able goods,” mainly the metal products.
From the peak of over-all output in August
of 1957 to the trough in April of 1958, pro­
duction of these hard goods declined 20 per
cent, in contrast to a drop of only 5 per
cent in the nondurable or soft goods lines
such as food, clothing and chemicals. As a
result, most centers in the Midwest under­
went a greater decline in activity than did
the country as a whole. The five states which
include the Seventh Federal Reserve Dis­
trict— Illinois, Indiana, Iowa, Michigan and
Wisconsin— account for less than 17 per
cent of the nation’s population but produce

Federal Reserve Bank of Chicago

9

about 28 per cent of the durable goods.
Within the District there was great varia­
tion in the impact of recession, depending
on the type of activity in which individual
areas specialize. In some centers the ad­
justment was severe; in others it was so mild
as to elicit the question, “What recession?”
For farmers, the entire year was relatively
G e n e r a l a c tiv ity m e a su re s
traced V-shapes in 1958
billion dollars

millions

prosperous. Abundant crops and high live­
stock prices boosted farm income. Reflecting
the rise in farm income and increased sales
to farmers, most Iowa cities witnessed only
a moderate rise in unemployment during
1958. In the fourth quarter of the year,
Iowa was almost alone among northern
states reporting higher total employment
than a year earlier.
Michigan, in contrast to Iowa, was one
of the hardest hit states in the nation. Al­
though Michigan’s proportion of the total
employment in the automotive industry has
declined over the past decade, that state
still accounts for one-half of all auto workers.
The depressed automobile market during
most of the year caused unemployment in
Michigan to average 14 per cent of the
labor force compared with less than 7 per
cent nationally.
Illinois, Indiana and Wisconsin fared
better than Michigan, but less well than the
rest of the nation. This is because of the
concentration of hard goods manufacturing
in these states, particularly in the machinery
lines, as indicated in the accompanying chart.
In v e n to r y adjustm en ts

per cent, 1947-49=100

per cent

10

Annual Report, 1958

An abrupt change from inventory accum­
ulation to liquidation played an important
role in the 1957-58 downturn, as in the
earlier postwar recessions; and this, too, had
an important impact on District states. Over
half of the drop in total spending for goods
and services between the third quarter of
1957 and the first quarter of 1958 was ac­
counted for by the shift in the inventory
sector.
In a period of inventory liquidation, cur­
rent production, of course, drops below con­
sumption. Since inventories of business firms
consist largely of processed goods, inven­
tory reductions have a greater effect upon

the manufacturing centers than those which
are primarily dependent upon trade, service,
construction and agriculture. In the United
States, manufacturing accounts for 34 per
cent of total wage and salary payments, but
it accounts for 51 per cent in Michigan, 48
per cent in Indiana, 45 per cent in Wisconsin
and 40 per cent in Illinois. Among District
states, only Iowa, at 30 per cent, is less de­
pendent upon manufacturing income than
the nation.
Inventories had been growing moderately
at the onset of the business decline in 1957,
but were being reduced at a rate of over
9 billion dollars per year in early 1958.
This was the most rapid liquidation in the
postwar period. Moreover, over 80 per cent
of the inventory liquidation during the 195758 adjustment took place in the durable
goods lines. Between September of 1957 and
October of 1958, the book value of total
business inventories declined by 6.4 billion
dollars, or 7 per cent. During this period,
inventories of durable goods alone dropped
H a r d g o o d s lin e s dominate
Midwest manufacturing

U.S.

Illinois

Indiana

Iowa

Michigan Wisconsin

by 5.2 billion dollars, or 11 per cent.
A slowing in the rate of inventory liquida­
tion occurred after the first quarter of 1958,
and this constituted one of the most impor­
tant plus factors in the recovery. By the
fourth quarter, the inventory situation was
about in balance, over-all, and restocking
was taking place in some lines. For exam­
ple, factory orders and sales of household
appliances and furniture— important Mid­
west industries— showed increases far in
excess of the rise in consumer buying, in­
dicating that a move to increase stocks was
under way again.
Im p ro v e m e n t in m a ch in e ry

Sales of machinery and equipment began
to rise in the fourth quarter of 1958, lagging
the upturn in total spending by about six
months. The emerging recovery in produc­
ers’ durables followed a decline of 22 per
cent in sales of these goods.
Among the nation’s large cities, Milwau­
kee concentrates most heavily upon capital
goods, turning out such products
as electrical generating equip­
ment, traveling cranes, diesel en­
gines, rock and ore crushers, ma­
chine tools, farm tractors and
power shovels. But other Mid­
west cities, including Chicago,
nondurabies
Indianapolis, Fort Wayne, Peoria,
Rockford, Racine, Muskegon and
Cedar Rapids, also depend heav­
ily upon sales of a wide variety of
other durables
capital goods. Not all of these
centers experienced heavy unem­
ployment during 1958, but in all
machinery and
cases there was a significant let­
transportation equipment
down in activity from the preced­
ing high levels.
Farm machinery sales had re­
sponded earlier to the gain in

Federal Reserve Bank of Chicago

11

farm income. For the first ten months of
1958, manufacturers’ sales of farm machin­
ery and equipment were about 15 per cent
higher than in the same period in 1957. This
was a great aid to activity in a number of
Midwest centers.
A related industry, construction machin­
ery, also heavily dominated by Midwest
firms, had gone through a period of reduced
sales during late 1957 and early 1958. An
improvement in orders for construction ma­
chinery was noted in the spring, however,
and at year end construction machinery
plants were pushing output back toward
earlier peaks. A large proportion of these
machines is used in highway construction.
Nationally, outlays on highways rose 8 per
cent in 1958 and are expected to rise another
12 per cent in 1959.
It is significant that total outlays on capital
goods were rising once again after a shorter
decline than had been expected. The need for
modernization and relocation of facilities,
E m p lo y m e n t c h a n g e s mirror
varying impact of recession

12

Annual Report, 1958

together with the expansion required in con­
nection with growth products, was beginning
to call forth a higher volume of capital
spending even though unused capacity re­
mained large in many sectors. Spurring such
a movement are higher profits and growing
depreciation reserves as well as the con­
tinued rise in wage rates.
C on struction sh o w e d stre n g th

Like all other years since World War II,
1958 produced a new record outlay for con­
struction, although only by a small margin.
Expenditures for private nonresidential
building declined by more than 5 per cent
nationally but this reduction was offset by
increases in residential and public construc­
tion.
The year started out at a reduced pace,
with new construction contract awards off 5
per cent from the previous year nationally
and by a much larger proportion in the Mid­
west for the January-May period. But an
abrupt turn came in the late spring, and for
the last seven months of the year construction
contracts nationally were more than 20 per
cent above the same months in 1957. The
Midwest also scored gains during this period
but, except for prosperous Iowa, increases
were smaller than the national average. Busi­
ness construction was the only sector which
made a poor comparative showing.
Home building benefited from the greater
availability of mortgage credit during most
of 1958. This was especially important in
the case of VA and FHA insured loans for
which maximum rates are prescribed by law.
The effect was somewhat less in the Midwest
than in other regions because of the greater
reliance upon conventional financing in this
area. Meanwhile, the volume of savings flow­
ing into financial institutions which invest
heavily in mortgages continued large.

Interest rates of all types were rising dur­
ing the summer and fall, and there was some
expectation that the rise in new home build­
ing would be dampened as a result. Never­
theless, based on the volume of contracts
awarded and construction permits granted
through December, home-building prospects
remained strong.
The vigorous pickup in residential con­
struction that began last spring carried the
nation’s housing starts upward from a yearly
rate just over 900 thousand to 1.4 million—
a four-year high— by December. Despite its
decidedly weak start, 1958 as a whole
accounted for 1.2 million units, a total ex­
ceeded only twice before—in 1955 and rec­
ord 1950— since the War.
The major centers in the Midwest, for the
most part, shared in the 1958 gain, but by
no means to the same degree as the nation.
Permits issued in the Chicago area were up
for the year by a modest 4 per cent, in con­
trast with the United States increase of 14
per cent. Detroit and Milwaukee, however,
showed declines of 5 and 13 per cent, re­
spectively. Indianapolis and Flint turned
up impressive gains, but against a relatively
weak performance the preceding year. Des
Moines scored an increase over 1957 of more
than three-fifths for its best home-building
year since 1950.
A u to m o b ile output

In 1958, the American auto industry as­
sembled only 4.2 million passenger cars, 30
per cent below 1957 and the smallest number
in ten years. Truck production, at 870,000,
was down 20 per cent from the previous year
and the smallest in the postwar period.
The reduced volume of automobile pro­
duction was primarily the result of reduced
buying by cautious consumers. For the
first ten months of 1958, new car registra-

U tilizatio n of steel capacity
in Chicago and Detroit exceeded
U. S. rate in 1958 second half

tions in the United States were 25 per cent
below the same period in 1957. Wisconsin
and Illinois reported declines of about this
magnitude. In Michigan and Indiana, the de­
clines were substantially greater— in Iowa,
much less. But the decline in production re­
sulted also from reduced exports and a
rapid increase in imports of foreign cars,
which accounted for 8 per cent of total
domestic sales. Although hampered by work
stoppages from September through year end,
auto production was much higher in late
1958 than in earlier months. Nevertheless,
unemployment in auto centers remained
heavy.
Auto sales in December of 1958 were
about equal to the year-earlier pace, after
lagging about 30 per cent below 1957 in the
first eleven months of the year. Inventories
at year end amounted to less than 600,000
compared with 750,000 the previous year.
A vital issue in the automotive industry
concerns the greater interest displayed by

Federal Reserve Bank of Chicago

13

consumers in smaller cars, a factor pointed
up by the rapid rise in imports and the rela­
tive success of certain compact domestic
models. But Detroit observers were unani­
mous in the belief that production and sales
of both cars and trucks would rise in 1959
from last year’s depressed levels. While
there were differences of opinion concerning
the extent of the rise, there was general
agreement that the industry would show im­
provement.
S te e l prod uction

At the end of 1958, steel capacity na­
tionally amounted to 147.6 million tons. This
total reflected an increase of about 7 million
tons or 5 per cent during the year. Capacity
in Detroit rose 11 per cent and in Chicago
over 9 per cent. The latter center increased
to 20 per cent its margin over Pittsburgh, the
second largest producer on a metropolitan
area basis.
Steel output was running at less than 60

per cent of capacity at the start of 1958, both
in the Midwest and the nation as a whole.
By April, the operating rate dropped as low
as 47 per cent nationally, 55 per cent in
Chicago and 12 per cent in Detroit.
At those levels of output, inventories of
steel users were being liquidated rapidly.
After April, steel production began to rise.
By December, the operating rate was 75 per
cent nationally, 87 per cent in Chicago and
97 per cent in Detroit. The higher operating
rates in the Midwest are characteristic of
periods of improving business activity and
reflect the fact that steel consumption in this
area exceeds local production.
Although there was still a substantial
amount of unused steel capacity at year end,
a number of steel products were in short
supply. Galvanized sheets, cold rolled sheets
and tin plate were being informally rationed
to buyers, and projects were being imple­
mented to increase facilities to produce these
items.

O n th e fa r m s— re co rd cro p s a n d h ig h liv e sto c k p rice s b o o st incom e
B umper crops and high prices for hogs
and cattle highlighted Midwest agriculture in
1958. The result was increased farm income,
especially in the Corn Belt states.
The agriculture of the District states di­
vides roughly into two types— Corn Belt and
Dairy Belt. Illinois, Indiana and Iowa are
predominantly of the Corn Belt type, with
corn, soybeans, hogs and cattle as the major
products. Farm income in Michigan and Wis­
consin, on the other hand, is predominantly
from dairy products, supplemented with spe­
cialty crops, poultry and meat animals. The
experience in these two agricultural areas
differed greatly in 1958.

14

Annual Report, 1958

Iowa, the leading livestock state in the
Seventh Federal Reserve District and the
nation, had cash receipts from farm products
nearly 13 per cent above the preceding year.
Most of the increase was from livestock. The
other two Corn Belt states— Illinois and In­
diana— also showed higher sales of farm
products, but the gains were somewhat
smaller than the 10 per cent rise shown for
the United States. The dairy states turned in
only small increases. Over-all, the five Dis­
trict states had total cash receipts from farm
marketings of about 7.5 billion dollars, a
gain of about 8 per cent over 1957 and
equal to 23 per cent of the national total.

C a sh re ce ip ts in Com Belt states
show greatest increases over 1 95 7
billion dollars

Illinois

Indiana

Iowa

M ichigan W isconsin

The regional differences in farm income
gains affected the manufacturing and service
establishments for whom the farm market is
important. Farm machinery sales, for exam­
ple, showed substantial gains in Iowa and
nominal gains in Illinois and Indiana, while
sales in the dairy states held about even with
the preceding year.
While farm land values increased 6 per
cent during the year for the nation, most
states in the Midwest showed increases of
5 per cent. Michigan, however, showed only
a 3 per cent rise. Since 1954, farm land
values in District states have gone up 20 per
cent or more, according to estimates of the
United States Department of Agriculture.

Illinois
Indiana
Iowa
M ichigan
Wisconsin
United States

At year end, country bankers quite generally
reported that the higher farm income in the
Corn Belt had boosted demand for land and
the trend of values was still upward.
The record harvest of grains in 1958
would have depressed prices severely except
for Government supports. Much of the in­
crease in output of crops will move into the
Government’s inventory of agricultural sur­
pluses. But since the support programs kept
prices from sagging greatly, farm income
from sales of crops showed changes roughly
proportional to the changes in output.
At the end of the year, over 8.5 billion
dollars of commodities were in Government
hands or under price support loans, and a
record 9.1 billion was expected before the
1959 crops are harvested. The expenditures
of the United States Department of Agricul­
ture for stabilization of farm prices and in­
comes increased from 3.2 billion dollars in
1957-58 to an estimated 5.4 billion in 1958­
59. Thus, gains in farm income from sales of

C a ttle a n d h o g producers
received higher prices
dollars per cwt.

1954November 1957November 1958
1958
(per cent change)
+27
+ 5
+ 31
+ 5
+ 23
+ 5
+ 27
+ 3
+20
+ 5
+ 27
+ 6

Federal Reserve Bank of Chicago

15

Price d e clin e s offset by production
increases for most major commodities
per cent change, October-december 1958 from October-december 1957
H O ________ 0 __________H O ________ +20 ________ +30 ________ + 40
+50

U.S.
Illinois
Indiana

16

Annual Report, 1958

crops reflected in large part the
increase in Government expendi­
tures for price support.
Livestock p la y k e y role

Sales of livestock and livestock
products account for about twothirds of the cash receipts from
farm marketings in the Seventh
District states. Moreover, this
area accounts for more than onefourth of the nation’s total out­
put of these commodities. In the
case of hogs, more than half the
total output is in the District
states with Iowa alone accounting
for nearly one-fourth.
It is evident, therefore, that
changes in prices of livestock can
have a strong impact on Midwest
farm income. Prices of both cattle
and hogs were relatively high in
1958.
A reduction of 10 per cent in
number of cattle marketed helped
to push cattle prices up more than
25 per cent over 1957 to the high­
est level since 1952. Drought­
breaking rains enabled ranchers
to withhold cows and calves for
rebuilding herds in the grazing
areas, and Corn Belt farmers re­
tained feeder cattle longer than
usual for additional gains in
weight. The gross return for labor
and overhead in a typical Illinois
cattle feeding program in 1957-58
was above $50 per head com­
pared with a 5-year average on
the order of $40.
This favorable return, plus the
large production of feed grains
in 1958, caused farmers to ex-

pand cattle feeding even though
Farm lo a n s post large increases,
the cost of feeder cattle rose
deposits rise at "agricultural"
sharply. At the end of the year,
banks in District states
the number of cattle being fat­
tened for market was 11 per cent
per cent increase, 1957 -1958
above year earlier in the nation,
s e ttin g a new re c o rd . Iow a
Illinois
showed a gain of 7 per cent; Illi­
nois showed a decline of 1 per
cent. The largest increases were in
the western states.
Hogs are as important as cattle
and calves in the farm income of
Iowa
the Seventh District, accounting
for nearly one-fourth of the total.
Prices of hogs in 1958, strongly
M ichigan
affected by the reduced marketing
and higher prices of cattle and a
reduction of 2 per cent in num­
W isconsin
ber of hogs slaughtered, were 11
per cent above 1957 and reached
their highest mark since 1954.
Seventh District
Under the stimulus of very favor­
able prices and abundant supplies
of com and other feed grains,
Government purchases of butter and cheese
farmers farrowed 17 per cent more pigs in
under the price support program had been
the fall months than in the corresponding
substantially reduced.
period of 1957 and reported plans for further
Agricultural exports in 1957-58 totaled
increases in 1959.
about 4.0 billion dollars, down nearly 15
Production of milk in Wisconsin and
per cent from the record level in 1956-57.
Michigan increased somewhat in 1958 even
Most of the decline was in Government pro­
though output in the nation declined for the
grams under Public Law 480 which provides
first time in six years. Price support on milk
for sales of United States surpluses for “soft”
products was lowered in April, and the
currencies, barter for “strategic” materials
average price received by farmers was below
and gifts to needy countries. While soybeans
1957 during the remainder of the year. Re­
and lard are the only District commodities
flecting the higher prices for livestock and
which move into world trade in substantial
the moderate increase in production of milk,
volume, the District feels repercussions of
farmers in the District’s dairy states realized
changes in exports of other commodities. Re­
larger cash receipts even though milk prices
ductions in cotton in the South and wheat
were lower. Consumption of cheese increased
acreage in the West have brought expansion
as consumers sought substitutes for highof feed grain and livestock production in
priced meat, and at the end of the year the

Federal Reserve Bank of Chicago

17

M e a t a n im a ls a n d feed cro p s are major sources of Corn Belt income; in
Michigan and Wisconsin dairy products lead
Cattle

Hogs

Dairy

Poultry
and eggs

Corn

Soybeans

Other

(percentage of total cash receipts from various
commodities, average 1956 and 1957)

e
Ill in o i s ........................... . .

21.6

20.8

8.7

4.8

19.8

12.7

11.6

I n d i a n a ......................... . .

17.0

2 4 .2

12.7

10.0

12.4

9 .5

14.2

10.2

5.2

4.9

I o w a ............................. . .
M i c h i g a n ...................... . . .
W i s c o n s i n ..................... . .

32.1
11.7
12.0

32.1
5.8
10.4

8.0
28.4
52.6

7.5
9.1
9.0

6.0
2.3

*
*

3 9 .0
13.7

"■Included in "Other."

those areas and have made inroads on the
markets of traditional Midwest commodities.
In c re a se In fa rm d e b t

The volume of farm real estate loans made
in the first half of the year was below the
year-earlier figure. During the second half,
however, lower interest and greater avail­
ability of funds combined with increased
optimism of farmers brought the volume of
farm mortgage loans granted by major lend­
ers back to the 1956 level and nearly 50 per
cent above the low level in the second half
of 1957. For 1958 as a whole, farm real
estate debt increased and at year end lend­
ers reported a large volume of commitments.

Farmers’ non-real estate debt also in­
creased during the year. On December 31,
agricultural loans of this type from District
member banks showed an increase of 22 per
cent over year ago. Most of the increase was
due to higher prices for feeder cattle com­
bined with larger numbers of cattle on feed.
Farmers’ financial situation remained
strong at year end. Total farm assets and
farmers’ equities in those assets increased
proportionately with the rise in debt. Also,
farmers apparently added to their savings
during the year. Time deposits in a sample
of “agricultural banks” in the District in­
creased 13 per cent during the year; demand
deposits increased 7 per cent.

In b a n k in g a n d credit— d e v e lo p m e n ts re fle ct b u sin e ss a d ju stm e n t
T T h e deposits and earning assets of mem­
ber banks in the Seventh Federal Reserve
District increased about 7 per cent during
1958. Total loans and investments of these
banks rose by more than 1.5 billion dollars

18

Annual Report, 1958

— the largest annual gain in the postwar
period— compared with a slight increase of
only 40 million dollars in the previous year.
More than 90 per cent of the rise in mem­
ber bank assets consisted of investments,

mainly Government securities. Total loans
increased in the second half of the year,
but the gain did little more than offset the
loan liquidation of earlier months. These
developments reflected both the changing
pace of business and associated credit de­
mands and the monetary actions taken dur­
ing the period of declining output and em­
ployment.
The first of four cuts in the discount rate
charged member banks on borrowings from
the Federal Reserve Bank of Chicago was

made in November 1957. During the spring
of 1958, the reserves which member banks
are required to keep on deposit at the Fed­
eral Reserve Banks were reduced in a series
of steps. Open market operations of the Fed­
eral Reserve System were adjusted in keeping
with changes in economic conditions. The
timing and amounts of changes in discount
rates and reserve requirements are listed in
the table below.
In the three years prior to 1958, commer­
cial and industrial loans had been the most
expansive sector of
bank assets. But these
loans declined 8 per
Discount rate. The rate charged on advances to member banks by
cent at large District
the Federal Reserve Bank of Chicago was changed five times during
banks during 1958.
1958 in line with current credit policy and market developments. The
Real estate and agri­
rates applicable to advances secured by Government obligations and
cultural loans, on the
discounts of and advances secured by eligible paper were as follows:
other hand, rose ap­
In effect as of
All member banks
preciably.
January 1, 1958
The reduced bor­
3%
January 24
2%
rowing by business
March 7
2'/«
firms reflected the cut­
April 18
1%
back in spending for
September 5
2
new plant and equip­
October 31
2%
ment and the smaller
a m o u n ts of fu n d s
Required reserves. The Board of Governors of the Federal Reserve
needed to carry lower
System announced a number of reductions in the percentage of net
inventory and receiv­
demand deposits member banks are required to hold as reserves at the
ables. Furtherm ore,
Federal Reserve Bank of Chicago. This was accomplished in a series of
businesses continued
steps as indicated below and, in total, released roughly 50 million dollars
to r a i s e a l a r g e
of reserves to banks in the Seventh Federal Reserve District.
amount of funds from
Central Reserve
Reserve
Country
nonbank sources. Cor­
In effect as of
City banks
City banks
banks
porate security issues
January 1, 1958
20%
18%
12%
for new capital were
February 27
19%
17%
only 13 per cent below
March 1
11%
the 1957 record and
March 20
19
17
were larger than in
April 1
11
1956. In this environ­
April 17
1816
April 24
ment, many corpora­
18
16%
tions strengthened

Federal Reserve Bank of Chicago

19

banks located in Chicago, Detroit,
Milwaukee, Indianapolis and Des
Moines. Total loans and invest­
ments of these weekly reporting
banks are approximately equal
million dollars
so_____ o
-200
to the loans and investments of
the other 983 member banks in
metals and other metal
products manufacturers
the Seventh District, but they ac­
count for about 80 per cent of the
seasonal borrowers
total dollar volume of commercial
(food processors,trade and
textile firm s)
and industrial loans.
During 1958, loans and invest­
public utilities and coal,
ments of weekly reporting banks
oil and chemical producers
rose by 5.3 per cent, considerably
less than the 8.5 per cent increase
sales finance companies
for other District member banks.
total commercial and
industrial loans declined
However, the most striking dif­
3 4 9 million at District
member banks
ference appears when loans and
all other-net
investments are viewed separate­
ly. Loans declined by 4 per cent
at the large banks during 1958,
* A s reported by a sample of large banks in five leading cities.
A s of September 1958, these banks accounted for 85 per cent
whereas they rose by 8.5 per cent
of commercial and industrial outstandings in these cities.
at the smaller banks. Moreover,
loans declined sharply at the large
banks in the first half, while at smaller banks
liquidity positions which had been weakened
the loan rise was fairly continuous during the
somewhat during the 1955-57 expansion. As
year. Investments of large banks, on the
a result, business loan demand showed only
other hand, rose somewhat more rapidly
a limited response to the rapid improvement
than at small banks as would be expected in
of business in the second half of the year.
view of the loan differences.
The la rg e vs. th e sm alle r b a n k s
Both large and small banks in the District
There was a marked difference in the
added importantly to their real estate loans
during 1958. This was consistent with the na­
experience of the largest and the smaller
tional increase of nearly 15 billion dollars in
Midwest banks during 1958. This is mainly
total mortgage debt last year. Because nearly
because large banks do an important part of
half of country banks’ outstanding loans con­
their business with large firms; whereas small
sist of real estate credits, this accounted for
banks serve primarily smaller businesses,
much of the greater relative loan strength
consumers and farmers and make relatively
at the smaller banks. Since real estate loans
more real estate loans.
constitute only 14 per cent of large city
In the Seventh Federal Reserve District,
banks’ total loans, an increase of about 10
there are 38 banks which provide a detailed
per cent in their outstandings last year had
condition statement to the Federal Reserve
relatively less effect on their loan total.
Bank of Chicago each week. These are large

A ll m ajo r cla sse s of business borrowers
reduced bank debt in 1 9 5 8 *

20

Annual Report, 1958

Consumer loans declined somewhat at
weekly reporting banks and, although rising
sharply toward year end, showed less
strength than at other banks. Loan activity
at the country banks was boosted also by
the increased demand for agricultural loans,
as noted earlier in this report.
The decline in business loans reflected re­
duced borrowing by nearly all kinds of firms.
However, metals and metal products firms
accounted for a large share of the total de­
cline. After a brief rise in the first three
months of 1958, the amount of loans to these
borrowers declined steadily. Borrowing by
businesses whose needs are primarily sea­
sonal— food, farm product and textile manu­
facturers and trade establishments— was
moderately lower for the year as a whole, but
in the second half of 1958 exceeded the
same period of 1957. Borrowing by public
utilities and petroleum firms also declined
substantially, a development which was re­
lated to large sales of securities by these

B a n k s increased their holdings of
Government securities as loan demand
declined and reserve pressures eased
billions

A s s e t sh ifts were sharper
in the District's major cities
__

-10

0

per cent change during 1958
*10
*20 0
+
10

—
~i--------1

weekly reporting

banks

other

+20

member banks
total loans and
investments

L

loans and
discounts
U.S. Gov't,
securities

other securities

demand deposits

time deposits

firms. Borrowing by sales finance companies
declined in the first half of 1958, as these
firms obtained a relatively large amount of
funds from nonbank sources. From June to
December, however, these companies bor­
rowed more than in the corresponding period
of 1957.
As District banks increased investments,
the maturity distribution of their portfolios
changed significantly. During the first half
of the year, almost the entire amount of
Governments acquired was in the longer ma­
turities— notes and bonds. This was partly
due to the Treasury’s efforts to finance a
larger part of the debt with longer issues. In
addition, the unusually wide spread between
the yields on short- and long-term securities
encouraged some to lengthen portfolios be­
cause of the earnings differential and the pos­
sibility of further price adjustments in the
long-term area. After midyear, the large
banks reduced their holdings of notes and

Federal Reserve Bank of Chicago

21

bonds and increased
M e m b e r b a n k b o r r o w in g at the Federal Reserve Bank
their holdings of bills
of Chicago in 1 9 5 8 was at a low level compared with
and certificates. Small­
other recent years, but showed a rising trend
er banks, however, re­
tained their holdings
million dollars
of long-term issues.
For the year ended in
September, about 90
per cent of the Gov­
ernments acquired by
country banks was in
bonds and notes.
T h e 7 p e r cent
growth in m em ber
bank deposits during
1958 contrasts sharply
with the one-half per
cent rise recorded in
1957. Gross demand
balances were up 6 per
cent in 1958, while
time accounts rose 10
per cent. The relative­
ly greater gain in time
when some slowing became apparent. Move­
deposits was particularly noticeable outside
ments in demand deposits, on the other hand,
the large cities.
were more erratic during the year, in pan
Time deposits had begun to move up
because of heavy participation by the banks
rapidly in 1957, and this rise continued un­
in Treasury financings.
diminished into the third quarter of 1958

22

Annual Report, 1958

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