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1969
cftMllaQ CRepollt

Federal Reserve Bank of Cleveland

Vo the

Banks in the
Fourth Federal Reserve District:

Albert

G. Clay

We are pleased to present the Annual Report of the
Federal Reserve Bank of Cleveland for 1969. We gratefully
acknowledge the cooperation and assistance of the aqricultural, commercial, financial, and industrial leaders of the
Fourth District, who have given unselfishly of their time
and energy to help us fulfill our responsibilities.
This year's Annual Report reviews the performance of
our economy during the decade of the 1960's against the
generally accepted economic goals of maximum growth,
full employment, stable prices, and equilibrium in the
balance of payments. The focus of the discussion is the
fiscal and monetary policies that were aimed at achieving
sustainable growth. This emphasis is not in any way meant
to minimize the contribution of the private sector which
accounted for the strength in economic activity throughout
this period.
During the first half of the decade, fiscal and monetary
policies were aimed at stimulating economic growth and
reducing unemployment, but by 1965, inflationary pressures emerged. As a result, economic policy shifted in the
1965·1969 period from expanding output to achieving
price stability. Balance of payments problems persisted
throughout the period. Despite this, the 1960's was a
period of remarkable economic achievement.

W. Braddock

Hickman

CHAIRMAN

OF THE BOARD

PRESIDENT

CONTENTS
Goals and Accomplishments

of Stabilization

Policies During the 1960's
Comparative Statement of Condition

3
17

Comparison of Earnings and Expenses

18

Directors and Officers

19

Branch Directors and Officers

.20

The unparalleled duration
sion distinguished

of the economic expan-

the 1960's_ By the latter part of

The discussion focuses on the contribution
tary

and fiscal policies

to

economic

of mone-

developments

Monetary

and fiscal policies attempted

to eliminate

excess aggregate demand and to bring rising prices and

1969, the expansion was well over 100 months old,

during the 1960's. The emphasis on public stabilization

exceeding by tar the previous record of 80 months

policies is not meant to minimize the contributions

estabtished between June 1938 and February 1945. The

the private sector, which accounted for the underlying

prolonged expansion has been, in part, a product of

strength and major thrust in the growth of economic

stantial resources to military

imaginative use of both

activity during this period. Rather, the focus reflects a

to programs reflecting increasing domestic social con-

policy, reflecting a shift in emphasis in public economic

concern with

cerns, such as efforts to improve housing, education,

policies from countering economic instability to achiev-

instrumental in the development of a climate conducive

ing noninflationary

to sustained economic growth.

monetary

policy

and fiscal

growth consistent with the expan-

sion of the productive capacity of the economy.

the public policy framework

that was

inflationary

expectations under control. From a purely

economic point of view, the broad range of demands on
the public sector-including

and health-has
economic stability

When the 1960's began, economic activity

This article reviews economic activity in the United

of

in the

the commitment

of sub-

activities in Vietnam and

increased the problems of achieving
in a high-employment economy. As

the decade drew to a close, the restrictive monetary and

United States was marked by relatively high unemploy-

fiscal pol icies followed

States during the 1960's, measured against the goals of

ment and stable prices. By the mid-1960's, public policy

small decline in real economic activity,

maximum economic growth, full employment,

was successful in stimulating

price pressuresshowed no tendency to weaken.

prices, and equilibrium
Although

in the balance of payments.

these are generally accepted as appropriate

goals of stabilization policy, it is difficult
of

the

stable

goals fully

at any

to achieve all

given time.

Therefore,

policymakers must establish priorities among the goals.

aggregate demand and in

moving the economy to a high level of employment.
Unfortunately,

the

problems

of

during

1969 contributed

to a

while upward

The data in Table I compare the record of the

managing a high-

current business expansion with that of previous expan-

employment economy became severe; and in the latter

sions in the post-World War II period. Real growth in

half of the decade, economic policy was shifted toward

Gross National

stabilizing the economy within a long-run growth path.

expansion fell short of the rate of growth achieved in

Product

(GNP) during

the current

3

TABLE

I

Selected

Indicators

of Stabilization

Goals in Four Post-World

War II Expansions

1949-1953

1954-1957

1958-1960

1961-1969

Trough
$255_2

$367.5

+12.6%

322.5

GROSS NATIONAL PRODUCT
Current dollars (Bil. of $)
Constant (1958) dollars
(Bi], of $)

Peak

Percent
Change

416.4

+ 7.3

402.1

455.2

+4.1

437.5

490.2

+6.0

482.6

729.8

+ 5.9

78.9

88.4

+ 3.4

89.5

98.0

+3.1

99.7

103.1

+1.7

104.3

130.5

+ 2.9

Peak

Percent
Change

Trough

$360.4

$446.3

+7.3%

$434.7

$504.7

Trough

Percent
Change

Trough

IVQ
1969'

Percent
Change

+7.2%

Peak

$503.6

$952.2

+10.2%

PRICES
GNP price deflator
(Index 1958=100)
Wholesale prices-industrial
commodities (Index 1957-59=100)
Consumer prices
(Index 1957-59=100)

79.0

90.7

+ 3.9

90.3

99.3

+3.1

99.1

101.2

+1.0

101.2

114.6

+ 1.5

82.7

93.5

+ 3.5

93.7

98.5

+1.8

100.7

102.9

+1.0

103.9

131.3

+ 3.0

UNEMPLOYMENT RATES-TOTAL
Men-20 and over
Women-20 and over
Teenagers
White
Nonwhite

7.9%
7.9
5.9
15.8
n.a.
n.a.

6.1%
5.5
5.9
14.0
5.9
10.5

3.7%
3.0
3.8
11.2
3.4

BALANCE OF PAYMENTS
Net exports of goods and services
(Btl, of $)

$

3.8

2.5%
2.1
2.5
6.9
n.a.
n.a.

$

0.3

$

7.5%
7.0
6.4
17.9
6.8
13.3

7.0

1.9

$

4.8%
4.1
4.5
13.1
4.3
9.3

5.5

$

2.4

$

7.1%
6.3
6.7
15.8
6.3
13.2

3.5

$

3.5%
2.2
3.5
11.8
3.2
5.7

6.6

$

there

was

2.7

NOTE: Percent change is expressed as an average annual rate of change. Percent
changes for GNP and for unemployment rates are based on specific cycle
trough to peak dates identified by the National Bureau of Economic
Research; percent changes for other series listed above are based on
reference cycle trough and peak dates.
n.a. Not available.
'The latest month for which data are used is December 1969, except for GNP
and net exports, which are based on the fourth quarter of 1969.
Sources: U. S. Department of Commerce and U. S. Department of Labor

1949-1953,
backlog

which

of pent-up

measured

against

performance
utilization

had

been

demands

other

stabi lization

in the current
showed

strong

1965, and unemployment
of the recent
1949-1953_

by

was mixed, Labor

improvement,
rates declined,

especially

after

although

most

lows fell short of the levels reached
Prices generally

a huge

goals, the record of

expansion

half of the decade, Inflation,

4

supported

after World War 11_ When

during

problem

during

the

shown

separately

greater

during

since

on the
Finally,

tion of the United

States

For this discussion,

were stable

during

the first

The performance

however,

became

a severe

reflected

through

attempts

half of the

table).

the 1965-1969

1949-1953.

periods-1960

second

Price

decade

increases

deteriorated

the decade
and

of the economy
to achieve

were

period than in any period

the international

1964

(not

trade

posi-

over the decade.
is divided

1965

into two

through

1969.

in the former

period

long-run

growth,

whi Ie in

the

latter

managing
The

period
high-level

performance

separately

of each

against

policies

during

reviews

economic

policies during
consider

prosperity

economic

the background
these

two

growth

to the other

concern

goal

and

The

fiscal

with

inflation.
is reviewed

of public

periods.

the two periods.

the achievements

with respect

a special

and controlling

economic

first

and

section

monetary

The remaining

sections

of public economic

policies

goals-full

employment,

price

stability,

and equilibrium

payments.

in the nation's

balance of

In the final section, some conclusions are

drawn from

the review of economic

developments

Chart

GROSS NATIONAL PRODUCT, ACTUAL and POTENTIAL
1958 Dollars
Billions

during the 1960's.

1.

argument for relying more on fiscal policy in the first
half of the decade was the supposed lessening in the
flexibility of monetary policy due to persistent balance

of dollars

800

of payments difficulties.

700

argued that one cause of the persistent underutilization

Active

ECONOMIC GROWTH AND
PUBLIC POLICY: 1960-1964
was marked by two business recessions and increased

rates were generating a level of revenues that would

600

balance the budget before the economy reached high

but the period was also characterized

by extended

policy

employment.

price stability. The principal aim of the

stabilization

specified

of fiscal action

of resources in the United States was that Federal tax

Economic activity in the late 1950's and early 1960's
unemployment,

Fiscal Policy. Proponents

by

the

Council

of

This condition

is referred to as a "fiscal

drag." A fiscal drag restricts the growth of aggregate
demand immediately

500

Economic Advisers in early 1961 was to utilize the price

subsequently

stability

through its effect on income and

investment.

of the recent years as a base to accelerate

growth in aggregate demand in line with the growth of
the

economy's

Economic

potential

Advisers in the

output.

The

Kennedy

Council

lead to a reduction in unemployment,
lead to a proportionate

ADJUSTED ANNUAL RATE~QUARTERLY

400

but would not

1960

'61

'62

'63

*

Trend line of 3.5 percent to fourth quarter
quarter of 196.5, and" percent thereafter.

'64

'65

'66

of 1962, 3.75 percent

'67

'68

from fourth quorler

'69

SourU$

of dolo:

Council

of Economic

Advisers

and U. S. Deportment

tion

performance

reliable. Nevertheless, various estimates suggest that the

Potential

output

is an estimate of the real value of

goods and services that could be produced as a result of
the growth of the nation's productive capacity-which
normally

is

its actual

size is not particularly

income

basis if the

level; that is, the

assumed in estimating

GNP. The high-employment

budget is con-

sidered by many economists to be a useful analytical
measure of the effects of changes in fiscal policy on

business expansions that followed the 1957·1958 and

economic activity because adjustments are made for the

1960-1961

changes in revenues and expenditures

recessions

high-employment

failed to push output

level. As indicated

to the

in Chart 1, the

result of fluctuations

that occur as a

in the level of economic activity.

in terms of the increase in the

decade of the 1960's opened with a gap between actual

The adjustment

in revenues is made by compensating

supply of labor, the decline in average hours of work,

and potential GNP. The gap widened during the brief,

for the decline

in corporate,

and the estimate of growth in output per manhour. The

but mild, recession of 1960-1961. Despite some narrow-

payments when the actual level of economic activity

ing during the early 1960's, there was a gap between

departs from the projected high-employment

actual and potential GNP until after mid-1965.

expenditure adjustment is made principally by elimina-

difference

described

procedures,

on a national

level of unemployment

potential

is a concept frequently used to measure the economy's
the goal of high employment.

surplus

economy were at the high-employment
target

of Commerce

The relationship between potential and actual output
against

budget surplus, which is an estimate of the Federal
budget

of 1962 to fourth

last entry: 4Q '69

increase in prices.

and

economic activity can be seen in the high-employment
SEASONAllY

argued that the expansion of aggregate demand would

its effect on consumption

The budgetary restraint implied by the fiscal drag on

of

Administration

through

between potential

and actual GNP is corn-

monly referred to as the GNP gap. If actual output is
below potential output, expansive public policy is called

The principal means selected to achieve the high-

for to stimulate spending to close the gap. At some

employment

point

a restrictive

before

full employment

is reached, however,

further expansion in aggregate demand begins to qener-

goal was stimulative fiscal policy, because
Federal budget was considered

by the

Council of Economic Advisers in the Kennedy Adminis-

personal, or other tax

ting any increase in unemployment

compensation

occurs as the actual level of unemployment
the high level unemployment
or decrease

in the

level. The
that

falls below

target. Thus, any increase

high-employment

budget deficit

ate upward pressures on prices. Since the gap is only an

tration to be one of the major causes of insufficient

reflects the effects of discretionary fiscal policy changes

estimate and can vary considerably

aggregate demand

on Federal revenues and expenditures.

because of estirna-

in the early 1960's. A supporting

5

plus remained at about the level experienced during the

Chart 2.

HIGH·EMPLOYMENT

BUDGET

Chart 3.

MEMBER BANK RESERVES and BORROWINGS

1960-1961 period.
The next phase of fiscal action included the Revenue

Billions of dollars
220~~------------------------------~

Act of 1964, which lowered individual and corporate
surplus was reduced

28

the gap between actual

26

tax rates. The high-employment

200

sharply in 1964. Subsequently,

180

and potential
160

GNP narrowed during early 1965 (see

Chart 1).
Monetary Policy. At the begin-

ning of the business expansion
120

monetary
reconciling

100

24
22

"Accommodative"

140

Billions of dollars
30

authorities

in early 1961, the

were faced with the problem of

the nation's

domestic

economic goals. An underemployed

and

international

20
18
16

domestic economy

indicated the need for an expansive monetary policy
that would include low interest rates and ample bank
reserve expansion

o

necessary
'62

lasl

enhy,

'63

'65

'66

'67

'68

'69

economists

Federal

Reserve

to achieve

the additional

long-run economic

contrast, the international

4Q '69

Source of dolo,

to support

situation

credit

growth.

In

-1

indicated to some

that restrictive monetary policy, including

high interest rates and limited bank reserve expansion,

Bonk of St. louis

+1

was necessary to reduce the outflow

1960

'61

entry,
Dec, '69
Source of data:
Board

'62

'63

'64

'65

' 66

'67

'68

'69

LOSI

of Governors

01 the Federal

Reserve

System

of short- and

long-term capital from the United States and to keep
the rate of domestic economic expansion within bounds
the impact of the Federal budget on

that would restrain imports and discourage price in-

initiated to provide additional foreign exchange reserves

overall economic activity during the early 1960's was

creases. The compromise policy solution was to encour-

on a temporary
support operations.

In retrospect,

probably not as stimulative as widely believed. Between

age low long-term interest rates to stimu late domestic

the fourth quarter of 1960 and the fourth quarter of

capital

1963, the high-employment

short-term

unchanged

(see Chart

budget surplus was virtually

and to keep upward

pressure on

Because of these actrvrnes.

monetary policy was an

rates to offset short-term capital outflows

important stimulative factor during the first half of the

the

from the United States. To implement this policy, open

1960's as evidenced by the rapid growth of bank credit.

surpluses for calendar

market operations in long-term U. S. Treasury securities

For example, from the beginning of 1960 through the

2). Nevertheless,

background of high-employment

formation

basis to carry out official currency

years 1960 and 1961, the Administration's

against

aim was to

reduce the fiscal drag by reducing tax rates, rather than

were used to put downward

pressure on long-term

interest rates; bank reserve requirements were reduced

fourth quarter

of 1964, bank credit expanded by an

by increasing Federal spending. The initiation of the

to supply reserves in order to minimize the direct

average annual rate of 8.5 percent.
Monetary actions during this time generally resulted

investment tax credit and the liberalization of deprecia-

effects of open market purchases on short-term

in a smooth

tion allowances in 1962 were attempts

and commercial

business investment

to accelerate

banks were permitted

rates;

to pay higher

expansion

of bank credit,

the money

supply, and the reserve aggregates and in reasonably

spending. The tax benefits, how-

interest rates on time and savings deposits to provide for

ever, did little to reduce the restrictive nature of the

the expansion of bank credit. In addition, swap agree-

mid-1960 through the end of 1961, the expansion in

budget. During 1962-1963,

ments

bank credit and the money supply was sufficient to

6

the high-employment

sur-

in foreign

currencies

by central

banks were

stable

interest

rates

(see Charts

3 and 4).

From

accommodate rising demands for funds. Between late
1962 and the third quarter of 1964, when growth in

Fiscal Policy in a High-Employment

Chart 4.

Economy. On

INTEREST RATES

balance, fiscal policy was more expansionary during the

economic activity showed signs of slowing, bank credit

second half of the 1960's than during the first half of

and the money supply expanded vigorously.

the decade. The period from mid-1965 to mid-1968 was

The Growth

Record of 1960-1964. During the first

half of the 1960's, stimulative

public policies contrib-

uted to an increased rate of growth
economic activity

in both overall

and per capita disposable personal

income; prices remained relatively

stable. From the

trough of the business contraction in the first quarter of

- MONEY RATES-

marked by a rapid expansion of Federal Government
spending-in

connection

activities

in

with

Vietnam

programs-that

our increased military

and

expanding

was superimposed

on

domestic

rising private

PRIME COMMERCIAL PAPER

I.~

(4-6 Month.)

demands, especially in the capital goods sector. Because
the economy was at, or slightly

1961 to the fourth quarter of 1964, real GNP grew at

potential output

an annual rate of 5.4 percent, a rate which exceeded the

believe that

above, the level of

6

,

after mid-1965, many observers now

fiscal

policy

should

I
I

have been more

growth for any period since the end of World War II

restrictive, either in the form of higher taxes or reduced

except for the 1949-1953 business expansion. Real per

Government spending. The combined effects of insuffi-

capita disposable income, measured in 1958 dollars,

monetary

\
\
\
I
\
\

and Expenditure Act was passed). a generally expansive

twice the rate in the 1950's.

I
I
I
•...
__ -1

:

\

cient fiscal restraint (until mid-1968 when the Revenue

rose at an average annual rate of 3.2 percent, or about

,

,

I
I
I

policy

I

4

r

in 1967 and in the second half of

1968, and persistently rising private spending generated

ECONOMIC GROWTH AND
PUBLIC POLICY: 1965-1969
By

mid-1965,

the economy

productive

had begun to move

rapidly toward the high-employment
high rate of unemployment,

a level of aggregate demand that exceeded the nation's

level. The overall

although at 4.6 percent in

capacity. The result was the fourth

wave of inflation

in the United States in the post-World

War II period.
From the second quarter of 1965 to the second

June 1965, was approaching the 4 percent level speci-

quarter of 1968, the high-employment

fied by the Council of Economic Advisers at that time

from a $7 billion

as the high-employment

swing of $22 billion).

capital spending boom,

target. The emergence of a
in combination

with

soaring

major

expenditures

that

budget shifted

surplus to a $15 billion deficit

(a

7

due to a $64 billion increase in

was only

partially

offset

by an

defense purchases for Vietnam, boosted GNP by about

increase in revenues. Thus, when viewed against the

8.2 percent in 1965, and the gap between actual and

prevailing background of high employment

potential GNP was closed by the end of the year.

6

prices, fiscal policy was an extremely stimulative force.

With the economy already near the high-employment
level, inflationary

and rising

Defense spending, which amounted to $49 billion in the

pressures began to build during 1965,

second quarter of 1965, rose by almost $29 billion, or

and the rate of price increases began to accelerate.

58 percent, between the second quarter of 1965 and the

These inflationary

second quarter of 1968. Federal nondefense spending,

pressures persisted during the second

.half of the decade, and as a result, the emphasis of

especially for education

stabilization

4

rose rapidly.

policy

was shifted from stimulating

growth of aggregate demand and full employment
restraining inflation and inflationary expectations.

the
to

and transfer payments, also
MONTHLY

1960

Reflecting the rapidly rising level of Federal Government spending, the high-employment

budget hovered

last

entry:

Source

'61

'62

'63

'64

'65

'66

'67

'68

'69

Dec. '69

of doto:

Board

of Governors

of the Federgl

Relerve

System

7

around a surplus or deficit of $1 billion from the middle

budget message to 10 percent. In June 1968, Congress

economic activity, the period from 1965 to 1969 was

of 1965 through the first half of 1966. The Adrninistra-

finally approved

largely

marked

by wide swings in monetary

tion tried to shift toward fiscal restraint in 1966 by

under pressure of sharply rising interest rates, growing

attempt

to offset changes in fiscal policy. Monetary

policy shifted

reinstating some of the earlier excise tax reductions and
some changes in withholding of individual income taxes

international financial markets generated by the devalu-

and by temporarily

ation of the pound sterling in November 1967.

the

investment

tax

credit. However, early in 1967, as economic activity

payments

fiscal program,

balance

suspending

of

a restrictive
deficits,

and uncertainties

The Revenue and Expenditure

in

duced the final phase of fiscal action in the second half

restraint

of the

and

1960's.

Federal

in an

late 1965, late

1966, 1967, mid-1968, and late 1968, with the most
substantial changes occurring in the periods 1966-1967

Act of 1968 intro-

weakened in response to the lagged effects of monetary
in 1966, Federal spending accelerated

at least five times-in

actions

revenues were expected

and 1968·1969.
From early

1966 to mid-1968,

to

completed

a cycle from restraint

surcharge on

November

1966)

monetary

pol icy

(February

1966 to

(December

1966 to

offset spending declines in the private sector. For the

increase as a resu It of a 10 percent

first time since the mild recession of 1960-1961, real

corporate

GNP receded slightly in the first quarter

of 1967.

spending was to be checked by a ceiling of slightly more

1968) first to check an excessive rate of economic

Between the fourth quarter of 1966 and second quarter

than $186 billion for fiscal year 1969, or $6 billion

growth and rising prices during most of 1966 and then

of 1967, the real gain in GNP amounted

below the January

to avert a possible contraction

percent

at an annual rate, compared

to only 0.7

with a rate of

and personal

income taxes, while Federal

1968 budget estimate.

tween the second quarter

of 1968 and the second

quarter of 1969, the high-employment

increase of 3.9 percent during 1966.
From mid-1967 to mid-1968, fiscal policy remained
expansionary despite renewed acceleration

in real out-

Thus, be-

budget position

to expansion

November 1967) to restraint (December 1967 to June

in economic activity in

1967 and finally to counter the reemergence of inflationary pressures. From February 1966 to November

shifted from a deficit of about $15 billion to a surplus

1966, monetary

of about $11 billion, despite the fact that the ceiling on

The reserve aggregates showed virtually no growth from
while there

were outright

continued growth in expenditures. The initial impact on

Bank credit increased at an annual rate of 4.7 percent

the economy of the sharp and rapid shift in the Federal

from February 1966 to November 1966, and the money

price

supply grew at an annual rate of only 1.3 percent (see

Federal

budget

During this period,

the

budget

in terms

(measured
budget

hiqh-

November,

1967 to 3.5 percent in the second quarter of 1968, and

high-employment

The

to

expenditures

employment budget remained in surplus in 1969 despite

intensified.

exceeded.

February

put. The level of real output again exceeded potential
output (see Chart 1). In addition, the unemployment
rate moved from 3.7 percent in the second quarter of
pressures

was moderately

actions were increasingly restrictive.

the

Consumers

responded

temporary

increase in taxes by reducing the rate of

or

the

of either

national

income

was, however,

less than generally expected.
to what they believed was a

declines in the period from July through November.

Table II). Reserve requirements

against time deposits

were increased in July and September 1966; Regulation

accounts) remained in deficit by a substantial amount.

personal saving and, therefore, maintained their spend-

Q ceilings were also raised in July and September. As a

Federal revenues and expenditures

rose rapidly, but the

ing at close to the pre-surtax rate. Also, the shift to the

result of the scarcity of credit, interest rates increased

level of revenues was far short of the level of expend-

surplus budget position was accompanied by an expan-

sharply

itures. The only discretionary

sionary

to

investments sharply reduced savings flows into fi nancial

Economy.

the mortgage and housing markets bore a dispropor-

fiscal policy action that

was taken to increase receipts during this period was in
connection

with higher social security contributions.

monetary

policy,

which

acted

partially

nullify the tax program.

(see Chart

institutions,

Monetary Policy in a High-Employment

4). Higher rates on alternative

especially thrift

Against the background of growing Federal deficits and

Monetary policy in the second half of the 1960's was

tionate

a possible repetition

faced with the delicate assignment of restraining aggre-

institutions.

As a result,

policy during this period.

of the severe credit stringency of

1966, the Administration

renewed its request to Con-

gress in August 1967 for enactment

of an income tax

surcharge and increased the proposed surtax rate from
the original 6 percent rate that was in the January 1967

8

gate demand in order to bring inflation under control
without

causing a contraction

in output and employ-

ment. In contrast to the first half of the decade when
monetary and fiscal policy worked together to stimulate

share of the effects of restrictive

monetary

Federal Reserve policy eased slightly in late 1966,
and for the next several months the task of monetary
policy was to prevent an inventory adjustment
developing into a business contraction.

from

Open market

TABLE II
Changes in Selected Reserve Aggregates, Bank Credit, and the Money Supply
Annual

19651966

February
January

19661966

February
November

December
November

19661967

Rates of Change'

1967-

December

June 1968

July

19681968

December

November

December

19681969

IQ 1965IVQ 1969

Reserve Aggregates

+4.6%
+5.0
+5.3

Bank Credit

and the Money

average of daily

+13.3%
+11.3
+11.4

+1.6%
+4.7
+4.7

+10.4%
+10.9
+11.1

-1.5%
-0.1
+0.4

+ 4.5%
+ 5.2
+ 5.4

+4.7
+1.3

+11.9
+ 6.9

+6.5
+7.2

+12.9
+ 6.3

+ 0.7:1:
+ 2.5

+10.3
+ 5.2

Supply

Ban k Creditt
Money supply
, Monthly

+0.1%
+1.0
+0.6

+9.9
+5.4

Nonborrowed
reserves
Tota I reserves
R eq u i red reserves

figures,

seasonally

adjusted.

t End-of-month
series, all commercial
banks.
:I: Because of revision of bank credit series in June 1969, rates of change for bank
credit
are measured from June 1969 to December 1969 and from the first
quarter of 1965 to the second quarter of 1969.
Source:

operations

Board of Governors

of the Federal

became expansionary;

Reserve System

reserve requirements

proposed tax increase, which was under active consider-

growth in nonborrowed

reserves amounted to less than

on certain time deposits were decreased in March 1967;

ation and debate in Congress. In addition, interest rates

2 percent

and the Federal Reserve discount rate was reduced in
April. Between December 1966 and November 1967,

were already at high levels, a situation that tended to

while growth of total reserves and bank credit deceler-

support

ated sharply to 4.7 percent and 6.5 percent, respectively

total reserves rose at an annual rate of 11_3 percent,

policy would trigger an outflow of funds from thrift

while

nonborrowed

reserves rose by

13.3 percent.

the argument that any further

.institutions.

Moreover,

higher

interest

tightening
rates

in

in the

between

December

1967 and June 1968,

(see Table II). On the other hand, the money supply
increased at a rapid pace, due in part to a downward

During this period, both the money supply and bank

United States could have posed a serious threat for the

shift in Government deposits and to a sharp increase in

credit expanded sharply (at annual rates of 6.9 percent

pound sterling.

financial transactions.

and 11.9 percent, respectively).

sought to follow a policy of "even keel" during the

Economic activity began to accelerate gradually in
the spring of 1967. In retrospect, monetary policy may
have been

too

expansionary

in view of the then

Finally, the Federal Reserve System

frequent Treasury financing operations in this period.
Toward

the end of 1967, monetary

policy again

The obvious intent of monetary

policy was restrictive in the first half of 1968, however.
Fiscal restraint

was instituted

Revenue and Expenditure

as a result of the

Act of June 1968, and this,

in an attempt to slow down

coupled with other factors, such as the liquidation of

unrecognized underlying strength of the economy and

renewed aggregate demand and rising prices. Reserve

steel inventories and slowing in capital spending, was

concurrent

requirements

expected to weaken economic activity in the second

inflationary pressures. There were, however,

a number of considerations

that influenced monetary

shifted toward restraint

on demand deposits were raised in Janu-

ary 1968, and the discount

rate was increased to 5

half of the year. Consequently,

monetary policy was

policymakers to maintain an expansionary posture until

percent in March 1968 and 5% percent in April 1968.

shifted to accommodate

late in 1967. These considerations included the desire to
avoid actions that might impede the Administration's

Moreover,

sures and to provide for some easing in the money and

reducing

open

market

operations

were aimed at

the growth of bank reserves. Accordingly,

credit

markets.

restrictive fiscal policy mea-

Bank credit

and the

bank reserve

9

restraint on their operations, while special

percent in the second and third quarters of 1969. In the

and the discount rate was cut 'j., percent in August. It is

Government programs supported a continuing, though

final quarter of the year, real GNP actually declined by

now widely

declining, flow of mortgage credit. Bank deposits fell

one-half of 1 percent.

aggregatesgrew sharply during the second half of 1968,
accepted that this policy shift after mid-

1968 was excessive in

that

it

reflected

an over-

monetary

sharply during 1969 as a result of a runoff of nearly $13

estimation of the restraining effect of the income tax

bi IIion in certificates of deposit from December 1968

surcharge.

through December 1969. Banks liquidated holdings of

Against a background of a resurgence in inflationary

U. S. Government securities as well as state and local

expectations, the discount rate was raised in December
1968 as the Federal Reserveshifted again to a restrictive

activity.

monetary

posit sources, including Eurodollar borrowings, sales of

high-employment goal was reached, however, inflation-

loan participation

ary pressures accelerated rapidly.

policy,

a policy

which

was maintained

1969. Between December 1968 and May

mortgage loan

As discussed earlier, the goal of economic policy in

securities and sharply

throughout

reduced their

EMPLOYMENT: A COMPARISON OF
GOALS AND ACCOMPLISHMENTS

Banks aggressively sought funds from nondecertificates, and sales of commercial

the first half of the 1960's was to stimulate aggregate
demand in order to reduce unemployment.

Once the

Inflation

persisted

1969, bank credit declined; the growth of the reserve

paper by their subsidiaries and affiliates. The increased

throughout

aggregates was moderated; and the money supply rose

reliance on nondeposit sources of funds allowed banks

stability

at about half the rate of the previous year. Between

to continue their lending activity during 1969, although

policy. Public policymakers were faced with the delicate

May and December 1969, severe restraint was imposed.

at reduced levels. In an attempt to limit the availability

task of scaling down the pace of economic expansion

There were substantial outright

of

sufficiently

to eliminate

Governors of the Federal Reserve System placed a 10

inflationary

expectations without

credit and the money supply during this period (see

percent reserve requirement on Eurodollar borrowings

contraction in real economic activity.

Table II).

by United States banks beyond a specified baseamount.

aggregates and a virtual

declines in the reserve

halt in the growth of bank

these types

of

funds to

banks, the

Board of

the second half of the decade and price

became the principal

1960, the unemployment

Deposits were redefined to include funds derived from

markets rose to record levels during 1969, reflecting

assets sold under repurchase agreements, except for

reflecting

both the extremely

salesof U. S. Government and Federal Agency securities

unemployment

monetary

pol icy and

upward price pressures and
inducing a prolonged

1960-1964: Ample Labor Supply. During each quarter of

Interest rates in each maturity range of all financial
restrictive

goal of stabilization

the relatively

rate rose gradually,

mild business recession. The

rate continued to rise through the first

persistent strong demands for funds. As an illustration,

and all such transactions between banks. In October

half of 1961 when the growth of economic activity

the average monthly rate on new issues of three-month

1969, the System proposed placing reserve requirements

resumed (see Chart 5). The upswing in business activity,

Treasury bills moved from 3.8 percent in January 1965

and interest rate ceilings on funds secured through

however, did not result in proportionate

to 6.2 percent in January 1969 and to 7.7 percent in

commercial paper sales by bank holding companies and

employment.

Between 1960 and 1963, nonagricultural

December 1969. A simi lar upward shift also occurred in

banking subsidiaries, but this proposal has not been put

employment

rose by

yields on long-term bonds. For example, the average

into effect.

2.7 million

increases in

workers,

only

a

moderate gain after allowance for the addition of nearly
0.9 million

employees to

Federal, state, and local

yield on new Aaa rated corporate bonds rose

The Growth Record of 1965-1969. The rate of real

from 4.4 percent in January 1965 to 6.9 percent in

growth fluctuated widely during the second half of the

government payrolls. The unemployment

January 1969 and to 8.8 percent in December 1969 (see

1960's.

real GNP expanded by 6.3

from the high reached in the second quarter of 1961,

Chart 4).

percent, slowed to half that rate during 1966, and came

but still averaged 5.5 percent in 1962 and 5.7 percent in

monthly

The extremely restrictive monetary policy in effect
during

1969 did not produce a rapid slowdown in

During

1965,

to a virtual halt in the first half of 1967. From the third

1963, or virtually

quarter of 1967 through the second quarter of 1968,

the unemployment

rate receded

the same as in 1960. The stability of
rate during the early years of the

were

real growth again accelerated rapidly. Since mid-1968,

current

apparently deeply imbedded in the economy. Moreover,

growth has moderated in each quarter, from an annual

part, to the growth in the labor force and a shift of the

financial institutions took steps to soften the impact of

rate of about 7 percent to an annual rate of about 2

population

aggregate spending.

10

Inflationary

expectations

business expansion was attributable,

in large

out of the rural areas to the cities. One

Chart

S.

rates are typically

RATES of UNEMPLOYMENT

O~~--------------~
Percent

of Civilian

Labor

~

Force

high. The unemployment

rate for

real economic

growth

moderated after

nonwhites also remained high during the first half of the

mid-1968, the labor market showed no signs of easing

1960's, despite a downward drift throughout the decade

until the second half of 1969, when the rate of growth

(see Chart 5).

in employment

1965-1969: Tight labor Market. Labor markets had
4

Although

begun to

tighten

by

mid-1965,

as real growth

in

slowed and unemployment

increased

slightly. The overall unemployment rate was 3.4 percent
in the fourth quarter of 1968 and the first quarter of

economic activity accelerated, and the unemployment

1969 and 3.6 percent in the third and fourth quarters of

rate dropped below 5 percent. The intensified demand

6

1969.

for labor occurred in manufacturing, trade, government

1960's would seem to indicate

tl-1

(civilian and armed forces), and service industries. From
NONWHITE

~.A~
1'"

12
t
1\

tl-Y'"

r,

14

I

I'

I

~\

;\1

il

i'

-,/'1 \ J\ I
I \ ••••. "
V

1\

IV

\~r\f'V\It~)

INVERTED SCALE

1960
entry,

Source

'61

'62

TEENAGERS

\'

'64

'65

'66

AOJUSTED-MONTHl

Y

U. S, Oeportment

as the

economy

moves

'68

'69

of lobor

the

high-

employment

demand do not generate enough additional employment

unemployment rate continued to easethroughout 1965,

opportunities

Therefore,

and in January 1966, it fell below the 4 percent rate for

ployed

additional

After the relative stability that marked the first half

range possess only

into

training.

the first time since early 1957.

'67

Dec. '69

of dato,

1965-1969 period. Many of those who remain unemployed

the labor force and a gradual reduction in the number

II

I II

SEASONALLY

'63

persons annually. The increased

most of the decade, especially in the

of unemployed. Adult women provided an important

>

1

:::::::

average of 1.7 million

demand for labor was met by continued large gains in

,I

11'1I·1/
i \/~ ~

18

States during

share of the increased supply of labor. The overall

lit,

•

t

1

/'

i,

1,1:1\

16

All ~ v,~Il.!'v"~
I

I

'~l

it

1\

that there was a shortaqe of skilled labor in the United

1966 to 1969, nonagricultural employment rose by an

10

last

The experience of

but

additional

marginal skills or

increases in aggregate

to cut deeply into this pool of unemmarginal workers.

educational

It would

and training

needed to reduce unemployment

of the 1960's, an upward surge in unit labor cost in

minimum

manufacturing began in 1966. The upward pressureson

seem that

opportunities

are

much below earlier

expand, and this is a slow process.

manufacturing

costs persisted throughout

levels even if the economy continues to

the second

aspect of this structural shift in the demand for labor

half of the 1960's as a result of rising prices for material

was the continued

long-term decline in agricultural

resources and higher labor costs. Increased wage costs

made possible by large gains in produc-

reflected, in part, union attempts to capture an increas-

employment
tivity

in agriculture. There was a net decline of nearly

one-half million agricultural workers between 1961 and

ing share of material output.
Tight conditions

PRICE PERFORMANCE
Between

1960 and

measures-the

in the labor market were tempo-

1964, the three broad price

GNP implicit

price deflator, the whole-

sale price

index,

rarily alleviated during the first half of 1967, when real

remained

relatively

Continued increases in aggregate demand during the

gains in GNP were sharply reduced. The growth in

expansion. Toward

first half of the 1960's generated additional jobs, but

nonagricultural employment slowed, and the unemploy-

accelerated rapidly as full employment was achieved,

in high

ment rate edged up from 3.7 percent in the fourth

however. Although the original inflationary

unemployment rates. Although there were marked gains

quarter of 1966 to 3.9 percent in the second quarter of

largely the result of excess aggregate demand, upward

1967. The increase in unemployment

cost pressures soon reinforced the inflationary

1963.

rapid

growth

in employment,

in

the

labor force

resulted

the overall unemployment

rate aver-

aged 5.2 percent in 1964, compared with 5.5 percent in

was centered

and the consumer price
stable

despite

rapid

index-

economic

the end of the period, pressures
thrust was
spiral,

mainly in manufacturing; however, continued expansion

and by late 1968, inflationary

1960. The expansion in the labor force occurred mainly

of employment

further strength to the spending and cost pressures on

among women and teenagers, for whom unemployment

stabi lized the overall labor market.

in government,

services, and trade

expectations provided

prices.

11

Chart 6.

and metal products and for machinery and equipment

WHOLESALE and CONSUMER PRICES

began to firm
temporarily

late in 1963, but these increases were

offset by price declines in numerous other

industries, mainly fuel, related products, and power;
pulp, paper, and allied products;
products;

125

and rubber

aggregate, upward

lumber and wood

and rubber

more rapid rate of inflation

to the

(as reflected in the GNP

deflator) ,
Wholesale prices for farm and food products and for
industrial commodities also increased rapidly during the

In the

1965-1969 period. In response to intensified demands

industrial

for industrial commodities, the prices of a broad range

factor during the

of industrial goods began to edge up late in 1964 and

pressures on prices of

commodities were not an important

120

products.

local government employees have contributed

1960-1964 period, because most industries were oper-

labor costs and other costs of production were relatively

of capacity and the unit cost of production remained

stable through

stable.

110

the rate of increase accelerated until mid-1966. Unit

ating considerably below their preferred (optimal) rate

115

1966-one

In the

corporate

employee per unit

105

between the first

sector, compensation

of output
quarter

per

late 1965, but

turned

year later than the upturn

up early

in

in prices of

was nearly unchanged

of

industrial commodities.

1960 and the fourth

rapidly accelerating wage increases added further pres-

Continuing labor scarcity and

quarter of 1964, while non labor unit costs edged up
95

sures to unit labor costs, resulting in renewed upward

slightly.

movements in prices. The sustained rise in industrial

Consumer prices, which tend to lag behind changes
1960
last entry:

'61

'62

'63

'64

'65

in wholesale prices, rose at an annual rate of 1.2 percent

'66

has been the longest in the

post-World War II period.

between 1961 and 1964, compared with a 1.6 percent

U. S. Department

of lobo,

Price pressures showed little tendency to moderate

rise during 1960. The continuing increases in the cost of

Dec. ·69

Saurce of data:

prices since mid-1967

even though real gains in GNP decelerated after mid-

services and, to a lesser extent, in the cost of food were

Relative Price Stability.

affected in large part by wide fluctuations in the prices

prices during this period.
1960-1964:

1968. The behavior of prices during

major factors in the upward movement of consumer

of lumber and plywood and by marked increases in the
prices of nonferrous metals, steel mill products, and

Between the

first quarter of 1961 and the fourth quarter of 1964,

1968-1969 was

1965-1969:

Major

Inflationary

Wave. The rapid

in economic activity

in the 1965-1969

producers'

equipment.

Less intensive utilization

of

the GNP price deflator rose at an averageannual rate of

acceleration

about 1.3 percent, The major factors contributing

period was accompanied by a sharp rise in all price

production

the rise in the GNP deflator during this period were the

measures. The GNP implicit

gap between real and potential output, may help slow

increases in

average annual rate of 3.3 percent during 1965-1969,

government

the

price

employees'

of

consumer

to

services, in

wages and salaries, and in

construction costs.

compared with

price deflator rose at an

1.3 percent during 1960-1964. Price

increases moderated

during

the

brief

slowdown

resources, as suggested by the contraction in industrial
since July 1969 and the reemergence of a

price advances in the industrial sector during 1970.
During 1965-1969, consumer prices increased faster

in

than at any time since the 1949-1953 business expan-

in early 1967, but resumed at an

sion. The rise in consumer prices was climaxed by a

unchanged between the first quarter of 1960 and the

accelerated rate along with the renewed expansion in

6-percent annual rate of increase in 1969. The wide-

fourth quarter of 1964. The overall stability in whole-

business activity.

spread increases in consumer prices were led by sharp

sale prices was a reflection of the relatively unchanged

rising costs of construction

level of prices of farm and food products and prices of

bulk of the upward thrust to prices. Recently, substan-

and home mortgage interest rates), food, apparel, and

industrial commodities (see Chart 6). Prices for metals

tial increasesin wages and salaries for Federal, state, and

automobiles.

On balance, the wholesale price index was virtually

12

economic activity

As in the first half of the decade,
and services provided the

gains in the prices of services (especially medical care

TABLE III

payments

United States Balance of Payments
1960-1969
(Bil. of $)

specific factors has changed over time. Between 1960

Furthermore,

1961

1963

1962

1964

1965

1967

1966

1968

1969

+ $27.5 + $28.8 + $30.5 + $32.6 + $37.3 + $39.4 + $43.4 + $46.2 + $50.6 + $55.4
23.4
25.4 - 26.6 - 28.7 - 32.3 - 38.1 - 41.0
23.2
48.1 - 53.3
5.2 +
8.6 +
7.1 +
5.3 +
2.5 +
+
4.1 +
5.1 +
6.0 +
2.1
5.6 +
0.8 1.0
1.2
0.7 0.9
1.2
0.6
0.8 1.2
0.6

+

2.8
3.9
0.4 +
1.2

2.8
4.2
0.7 +
1.1

3.0
3.4
1.0
1.2

+
-

3.6
4.5
0.7
0.5

3.6
6.6
0.7
1.1

+
-

+
-

3.4
3.8 0.3 +
0.6 -

3.4
4.3
2.5 +
0.5 -

4.2
5.7
3.4 +
1.0 -

4.0
5.2
8.6 +
0.6

3.9
5.0
3.9
3.0

3.9

2.4

2.2 -

2.7 -

2.8

1.3 -

1-.4

3.5 +

0.2

7.1

3.4

Liquidity basist
Official reservetransactions
basis:j:

1.3

2.7 -

2.0 -

1.6

1.3 +

0.3

3.4 +

1.6 +

2.7

degree, with

Federal Government

aid rose from $2.8 billion in 1960 to $3.6 billion in
1964.
Outflows of private capital were of importance in the
persistent weakness in the international
1960-1964

position of the

(see Table

III and

Chart 7). United States businesses had been increasing
their investments abroad since the mid-1950's. The bulk
of investment during the early 1960's was directed to
Economic Community.

• Excluding transfers under military grants.
t Equals changes in liquid liabilities to foreign official holders, other foreign
holders, and changes in official reserve assets consisting of gold, convertible
currencies, and the U. S. gold tranche position in the International Monetary
Fund.
:j:Equals changes in liquid and nonliquid liabilities to foreign official holders and
changes in official reserve assetsconsisting of gold, convertible currencies, and
the U. S. gold tranche position in the International Monetary Fund.

Income received from previous

direct investments abroad exceeded United States direct
investment
addition,

outflows during the 1960-1964 period. In
short-term

loans to Japan by United States

banks jumped sharply in the early 1960's. Long-term
loans, particularly to countries in western Europe, rose
sharply in 1963-1964.

Source: U. S. Department of Commerce

Between 1960 and 1964, the United States experienced an improvement

BALANCE OF PAYMENTS

the domestic
policies, but

$8.6 billion in 1964, with merchandise trade accounting

since the United States economy had been operating at

for $1.9 billion of the increase and interest income from

less than full employment

investments

a chronic

economy

The United States has had a deficit in its overall
since 1950.

in its balance on goods and

services. The surplus rose from $4.1 billion in 1960 to

with

GOALS

almost consistently

aid and grants to

foreign countries. Net outflows of Federal Government

Canada and the countries that make up the European

NOTE: Data for 1969 are preliminary.

balance of payments

of

private capital from the United States, and, to a lesser

United States during

Overall Balance of Payments

AND STABILIZATION

the importance

and 1964, the deficits were associated with outflows of
1960

Total exports of goods and services'
Total imports of goods and services
Balance on goods and services'
Remittances and pensions
U. S. Government grants and
capital flows (Net)
U. S.private capital flows (Net)
Foreign capital flows (Net)
Errors and omissions

deficits.

For most of this period, one useful aspect of the deficits

approach

was to enlarge the official foreign exchange reserves of

deficit

through

alternative,

was not

is to deflate

restrictive

felt

economic

since the late 1950's, that
to

be appropriate.

As an

abroad

accounting

increase in the merchandise

for $1.6 billion. The

trade surplus was largely

measures and programs

centered in machinery and chemicals (see Table IV). In

other countries. After 1958, however, large deficits in

were put into effect to boost United States exports and

contrast, the United States trade deficit in mineral fuels

the

to constrain capital outflows. Table III presents data on

deteriorated

the

products swung from surplus to deficit between 1960

United

States

balance

outflows of Government

of payments,

reflecting

and private capital that sub-

stantially exceeded income from merchandise trade and
other current transactions, were often accompanied by

various regulatory

United

States

balance

of

payments

for

the

and 1964.

1960-1969 period.
1960-1964:

further, and the trade balance for steel mill

Deficits Due to Capital Flows. Because

Other

components

of the

United States current

large gold outflows and became a constraint on domes-

of the complex interrelationships

of international trans-

transactions showed varying trends during the first half

tic stabilization

actions, there are many causes of the overall balance of

of the 1960's. The deficit in the net balance on mi litary

policy. One accepted way of dealing

13

Chart

expenditures

7.

NET FLOWS in UNITED STATES
INTERNATIONAL TRANSACTIONS
Billions

spending

abroad
for

foreigners'

of dollars

travel

TRADE BALANCE (GOODS and SERVICES) -

share

overall deficit

States

balance

primarily
export

1960's,

(consisting

-2

trtS+-"'.,.,.,.,.:----------__I

LOANS and LONG· TERM ASSETS -

----r--------------~------------- -

-4

-6

f--:::

GRANTS and CAPITAL FLOWS

-8~··_MI·· ~I_I
__

I

-

I ~I__ ~I__ ~I__ ~I~
__

market

by United

banks)

in certain
States,

world

machinery,

+8

surplus

+6

and animal

to deficit

1964,

+4

I

+2

reflected

a
than

the volume
percent

-4

from

Lost entry,
Source

'64

1969

of d e to r

U. S. Deportment

of Commerce

'65

'66

'67

'68

'69

the

faster

rate

of

in exports

1965-1969.
the

United

(steel,

and

fuels) as shown

in Table

direct

guidelines

that,

investments

increase

States

accounted

for

3.9

demand

of

offset

Historically,

Escalation

has averaged

3

1965

a 4 percent
and

United

1969.
States

of GNP.

has played

some

exports
trend
During

these

1965,

balance

of

spending

abroad.

and

buildup

prior to expiration

widening

of the United
trade

balance

to

programs.
boosted

In 1967, the domestic
of a steel

inventory
in

of the trade deficits

(see Table

In part,

States

to hold

of the steel labor contract

lagged effect
United

was broad-

in Vietnam

beginning

in further

program

a

investments

payments

activities

strike

commodities

announced

direct

tended

States

resulted

limited
In March

period.

United

1968

sharply
States.

of developments

copper

for those

Federal

in the 1962-1964

a number

the

The

to no more than 90 percent

ment of 1965 had its greatest

in

on
this

the

restraint

firms were requested

abroad

military

and

and to restrict

of Commerce

exports
role

United

Program

various
of

the

to banks and other

in effect,

the

business

Unfortunately,

merchandise

merchandise

percent

balance

rose to 3.5 percent

fell below

volume

nearly

domestic

in

imports

In addition,
States

the

trade

and

a voluntary
abroad.

In December
900

of

The reasons

rates

flows

from

Restraint

abroad.

to worsen

of commodities.

to GNP between

period,

excessive

14

announced

1965, the U. S. Department

ened,

of

into the United

investment

institutions
of capital

Voluntary

purchases

net capital

direct

food,

vehicles,

in the merchandise

of United

relationship
'63

tended

of GNP, but the proportion

during
-6

'62

balances
chemicals,

larger

balance

Administration

of their average investments
The deterioration

-2

'61

financial
exports

IV.

imports

1960

in

oils, swung from

in motor

and mineral

clothing,

to improve

supply

and vegetable

copper,

Reserve System

issued voluntary

shortages

their

interest

the

States

domestic-foreign

of

in stock prices during this period.
1965,

Reserve

except

or the deficit

exces-

States

inflows

domestic

United

the net trade

(particularly

and live animals).
NET FOREIGN CAPITAL INFLOWS

to offset

prevented

and equities.

surge of capital
rising

February

the volume

In 1967 and 1968,

increased

securities

movements

In

inflows

in the United

loss of competitive

commodities,

maj or

upward

Eurodollar

Federal

unfavorable

After

a II

income

were

has been a major

to hold down

substantially

States

in those parts of

States

1965 and 1969.

both

for the sudden

since

and changing

since the mid-1960's.

foreigners
fixed

markets

(particularly

United

rise in capital

between

program

markets,

and

the

from occurring

surplus

for

PRIVATE CAPITAL FLOWS -

net

to the

reflected

exports

where

payments

of corporate

rose sharply

apparent

price relationships.
-

in the

in world

have also tended

deficits

and 1969

in the

supplier)

account.

in the trade

demands,

United

1965

purchases

in world

United States exports

in the United

of United States exports

Loss of position

A substantial

In contrast

borrowing

States

The weakening

the

of private capital from abroad

of foreign

1965.

the world

States

1964,

holdi ng back the volume
patterns

in that period

deterioration

in the current

sive domestic
position

and

position

between

a sharp

expanded

the deterioration

the

deficit

net inflows

and

than

transactions,

for goods and services,

mainly

securities

o ~~~--------------------------~GOVERNMENT FLOWS -

United

1960

in current

chronic

reflected

but

rapidly

loss in the

between

of payments

balance

early

more

in the balance of payments

The seemingly
4

grew

some

markets

was not due to weakness

6

improvement,

for travel in the United States,

despite

of world

some

abroad

expenditures

Nevertheless,
-

showed

IV). Moreover,

States-Canadian
impact
in motor

the

auto agree-

in 1968, when the
vehicles

swung to

TABLE IV

In essence,the decade of the 1960's closed in much

United States Merchandise Trade Balance
Selected Commodities
1960-1969
(Bil. of $)
1960

TRADE SURPLUS COMMODITIES
Machinery
Transportation
equipment
Motor vehicles and parts
Chemicals
Animal and vegetable oil
TRADE DEFICIT COMMODITIES
Other manufactured
goods
Iron and steel-mill
Copper

minerals

Food and live animals
TOTAL
NOTE:

NET BALANCE
Total

the balance of payments.

SUMMARY

1961

1962

1963

1964

1965

1966

1967

1968

1969

+ $3.8
+ 1.8
+ 0.5
+ 1.0
+ 0.2

+ $4.2
+ 1.8
+ 0.6
+ 1.1
+ 0.2

+ $4.5
+ 1.9
+ 0.6
+ 1.1
+ 0.2

+ $4.6
+ 1.8
+ 0.6
+ 1.3
+ 0.2

+ $5.2
+ 1.9
+ 0.7
+ 1.7
+ 0.3

+
+
+
+
+

$5.1
2.1
0.6
1.6
0.4

+ $5.0
+ 1.3
+ 0.9
+ 1.7
+ 0.2

+ $5.2
+ 1.6
- 0.1
+ 1.8
+ 0.2

+ $4.9
+ 1.6
1.0
+ 2.2
+ 0.1

+ $5.4
+ 1.2
1.6
+ 2.2
+ 0.2

+
-

1.4

- 0.8
+ 0.1

-

0.8
0.2
0.1
0.1
0.2
0.1
0.2
0.7
0.3

0.1
0.1
0.2
0.9
0.1

-

5.3

+ 6.0

+

-

0.1
0.2
0.2
0.1
0.2
1.1

5.0

-

1.5
0.1
0.1
0.2
- 0.3
- 0.1
- 0.2
0.9
+ 0.3

-

-

+

1.4
0.1
0.2
0.1
0.3
0.1
0.2
1.1
0.6

+

+

7.5

+

5.9

+ 0.5

0.2
- 0.4
- 1.3
+ 0.6

-

3.6
0.8
0.4
0.3
0.5
0.3
0.4
1.1
+ 0.1

- 5.4
-1.4
- 0.6
0.4
- 0.7
- 0.4
- 0.5
- 1.5
0.7

5.8

+ 4.4

+ 4.4

+

-

2.6
0.5
0.1
0.3
0.4
0.2
0.3
1.3

-

3.3
0.6
0.3
0.4
0.4

1.0

-

+

5.0
0.8
0.2
0.4
0.9
0.5
0.6
1.7
0.8
1.4

least under conditions where a margin of underutilized
resources had existed. Conditions in the second half of
of

reconciling high employment with stable prices. Expansionary monetary and fiscal policies in the first half of
the decade did stimulate total spending and increased
aggregate demand did generate additional jobs at about
the same rate as the increase in the civilian labor force.
Unemployment,

however, remained at about 5 percent.

Unemployment was pushed below 4 percent in January
1966, but

severe inflationary

pressures emerged at

about the same time.

balance

is based on Census classification
rather than balance of
basis; commodity
groups above do not add to totals because of
of smaller commodities.
Net trade balance is the difference
between exports and imports; commodities
in surplus and deficit groupings were selected on basis of most recent experience, except for motor
vehicles and parts, which is included in the trade surplus list because it is a
component of transportation
equipment.
U. S. Department

and used successfully to accelerate economic growth, at

the decade, however, underscored the difficulty

payments
exclusion

Source:

The experience of the early 1960's demonstrated
that monetary and fiscal policies can be coordinated

+

products

Textiles, other than clothing
Clothing
Footwear
Nonmetallic
Mineral fuels

the same way that it opened: with a persistent deficit in

Moreover, although stabilization

policy appears to

have accelerated growth and reduced cyclical fluctuations

in

the

contributed

1960's,

shifts

policy

have

to imbalances in various sectors of the

economy. The destabilizing

of Commerce

in public

were apparent

effects of public

in the credit

crunch

of

policy

1966, the

mini-recession of early 1967, excessive growth in real
a deficit of nearly $1.0 billion from a surplus of nearly

and private investment abroad. In 1968, the first surplus

economic activity

$0.9 billion in 1966.

in more than ten years was recorded in the balance of

credit squeeze in 1969, and an actual decline in real

payments (on the liquidity

economic growth at the close of the decade. In the

Against the background of further deterioration

in

basis), but the improvement

the overall balance of payments and the devaluation of

was largely associated with a temporary swing in capital

second half

the pound sterling in November 1967, an enlarged

flows and serious disturbances

frequently

program aimed at correcting the international financial

markets. On the official

position

of

the

United

States was announced

on

in foreign

exchange

reserve transactions

basis,

of

in 1968 and early 1969, another

the

decade, monetary

policy

was

influenced by the need to offset inadequate

fiscal policy, and such efforts were occasionally marked

which does not include changes in short-term liabilities

by excessive restraint or expansion in the growth of

January 1, 1968. The program was expected to result in

to the private sector in foreign countries, the balance of

bank credit and the money supply.

an annual improvement

payments accounts surplus was nearly $3 billion during

of about $3 billion

in the

The

economic

performance

of

the

1960's also

overall balance of payments, with corrective measures

1969. Despite the program to boost current account

underscores the difficulty

aimed toward

transactions, the United States trade surplus showed

goals with

only minor improvement in 1969.

housing goals expressed in the Housing and Urban

improvements

in merchandise trade,

Government spending, foreign travel, foreign lending,

other

national

of reconciling stabilization
goals. For example, the

15

Development
behind

Act of 1968 have already fallen well

schedule.

The massive shift of funds from

Despite persistent

balance of payments difficulties

and the failure to control

inflation and inflationary

technology, education, and other activities. Despite the
rapid economic growth, policymakers

were forced to

deposit-type financial institutions limited the supply of

expectations

credit that was available to the mortgage market and

the 1960's was, on balance, one of significant economic

contributed

achievement. As an example of the enormous stride that

how ample, are limited, and that priorities must be

nation's housing goals are to be met, it will be necessary

was taken

established and followed. The legacy of the 1960's, of

to improve the mechanisms for channeling funds into

disposable income increased by 33 percent during the

substantial

the mortgage market and to reduce capital flows into

1960's, compared with an increase of 15 percent in the

unresolved economic

other markets commensurately.

1950's. This vigorous and uninterrupted

solutions must be found.

16

to a contraction

in housing activity. If the

in the last half of the decade, the period of

vided the resources to support major gains in science,

in material

prosperity,

real per capita

growth pro-

come to grips with the fact that resources, no matter

economic expansion,

carries with it many

and social problems for which

COMPARATIVE

STATEMENT

OF CONDITION

December 31,
1969

LIABILITIES
1969

December 31,
1968

Gold Certificate Reserves . . . . . . . . . . . . . . .

$ 862,419,422

$ 739,174,302

Federal Reserve Notes of Other Banks . . . . .
Other Cash. . . . . . . . . . . . . . . . . . . . . . . . . .

67,979,120
10,155,756

66,500,994
23,827,000

Discounts and Advances. . . . . . . . . . . . . . . .
U. S. Government Securities:
Bills. .. .. . . . . . . . . .. . . .. . . . . . . . . ..
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds

4,300,000

11,200,000

1,726,079,000
2,433,591,000
271,052,000

1,479,245,000
2,263,966,000
431,758,000

Total U. S. Government Securities

4,430,722,000

4,174,969,000

4,435,022,000

4,186,169,000

870,360,729
6,459,804
208,440,448

806,896,292
4,789,980
224,264,090

$6,460,817,279

$6,051,621,658

December 31,

ASSETS

...

Total Loans and Securities
Cash Items in Process of Collection
Bank Premises
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets

December 31,
1968

$3,952,758,371

$3,700,086,690

Federal Reserve Notes

.

Deposits:
Member Bank-Reserve Accounts
U. S. Treasurer-General Account
Foreign
Other Deposits

.
.
.
.

1,551,356,278
93,748,489
11,570,000
24,423,951

1,538,328,399
512,836
19,800,000
17,856,952

.

1,681,098,718

1,576,498,187

.
.

662,792,878
44,383,712

632,266,337
30,755,044

Total Liabilities. . . . . . . . . . . . . . . . . .

$6,341,033,679

$5,939,606,258

Total Deposits
Deferred Availability Cash Items
Other Liabilities

CAPITAL

ACCOUNTS

Capital Paid In
Surplus

.
.

Total Liabilities and Capital Accounts
Contingent Liability on Acceptances
Purchased for Foreign Correspondents.

...

59,891,800
59,891,800

56,007,700
56,007,700

$6,460,817,279

$6,051,621,658

$

$

12,985,100

9,828,000

17

COMPARATIVE

STATEMENT

OF EARNINGS AND EXPENSES

1969

1968

.
.

$260,819,520
19,410,681

$211,217,526
17,607,834

.

241,408,839

193,609,692

.
.
.

521,047
338,504

-0-

61,657
724,448
3,254

.

859,551

789,359

.
.

471,314
560,092

-017,631

.

1,031,406

17,631

NET DEDUCTIONS
NET ADDITIONS

.
.

171,855
-0-

-0771,728

Net Earnings before Payments to U. S. Treasury

.

$241,236,984

$194,381,420

Dividends Paid
Payments to U. S. Treasury (interest on F. R. Notes)
Transferred to Surplus

.
.
.

$

.

$241,236,984

Total Current Earnings
Net Expenses
Current Net Earnings
Additions to Current Net Earnings:
Profit on Sales of U. S. Government Securities (Net)
Profit on Foreign Exchange Transactions (Net)
All Other
Total Additions
Deductions from Current Net Earnings:
Loss on Sales of U. S. Government Securities (Net)
All Other
Total Deductions

Total

18

3,544,719
233,808,165
3,884,100

$

3,296,071
188,962,249
2,123,100

$194,381,420

As of March 1, 1970

FEDERAL

RESERVE BANK OF CLEVELAND
OFFICERS-1970

OIRECTORS-1970

President

Chairman

W. BRADDOCK

ALBERT G. CLAY, President
Clay Tobacco Company, Mt. Sterling, Kentucky

First Vice President

Deputy Chairman

WALTER
J. WA RD KE ENE R, Chairman of the Board and Chief Executive
The B. F. Goodrich Company, Akron, Ohio

DAVID

L. BRUMBACK, JR.
President
Van Wert National Bank
Van Wert, Ohio

JOHN L. GUSH MAN
President and Chief Executive Officer
Anchor Hocking Corporation
Lancaster, Ohio
J. WILLIAM HENDERSON, JR.
Henderson & Associates
Columbus, Ohio

R. STANLEY LAING
President
The National Cash Register Company
Dayton, Ohio
SEWARD D. SCHOOLER
President
Coshocton National Bank
Coshocton, Ohio

Officer

ROGER R. CLOUSE
Senior Vice President and Secretary
CLYDE HARRELL
Senior Vice President
JOHN J. HOY
Senior Vice President
FRED O. KIEL
Senior Vice President
CLIFFORD G. MILLER
Senior Vice President
GEORGE E. BOOTH, JR:
Vice President and Cashier
PAUL BREIDENBACH
Vice President and General Counsel
ELMER F. FRICEK
Vice President
R. JOSEPH GINNANE
Vice President
WILLIAM

MEMBER, FEDERAL ADVISORY COUNCIL
JOHN A. MAYER
Chairman of the Board and Chief Executive Officer
Mellon National Bank and Trust Company
Pittsburgh, Pennsylvania

H. MacDONALD

Officer

GEORGE F. KARCH
Chairman of the Board
and Chief Executive Officer
The Cleveland Trust Company
Cleveland, Ohio

HORACE A. SHEPARD
Chairman of the Board and Chief Executive
TRW Inc.
Cleveland, Ohio

HICKMAN

H. HENDRICKS
Vice President

WILLIAM J. HOCTER
Vice President and Economist
HARRY W. HUNING
Vice President
FRED S. KELLY
Vice President

ELFER B. MILLER
General Auditor
MARGRET A. BEEKEL
Assistant Vice President and Economist
LESTER M. SELBY
Assistant Vice President
and Assistant Secretary
LARRY R. SHOTWELL
Assistant Vice President and Economist
ROBERT E. SHOWALTER
Assistant Vice President
H. MILTON PUGH
Chief Examiner
HAROLD J. SWART
Assistant General Auditor
OSCAR H. BEACH, JR.
Assistant Cashier
ANNE J. ERSTE
Assistant Cashier
THOMAS E. ORMISTON,
Assistant Cashier

JR.

DONALD G. VINCEL
Assistant Cashier
DAVID J. WEITZEL
Assistant Cashier

19

As of March 1, 1970

CINCINNATI

BRANCH

DIRECTORS-1970
Chairman
GRAHAM E. MARX, President and General Manager
The G. A. Gray Company, Cincinnati, Ohio
ORIN E. ATKINS
President
Ashland Oil, Inc.
Ashland, Kentucky
EDWARD W. BARKER
President
First National Bank of Middletown
Middletown, Ohio
ROBERT B. JOHNSON
President
Pikeville National Bank
& Trust Company
Pikeville, Kentucky

FRED O. MacFEE, JR.
Vice President and General Manager
Aircraft Engine Operating Division
General Electric Company
Cincinnati, Ohio
FLETCHER E. NYCE
Chairman of the Board
and Chief Executive Officer
The Central Trust Company
Cincinnati, Ohio
PHILLIP R. SHRIVER
President
Miami University
Oxford, Ohio

OFFICERS-1970
FRED O. KIEL
Senior Vice President
ROBERT D. DUGGAN
Cashier

DONALD G. BENJAMIN
Assistant Cashier
HOWARD E. TAYLOR
Assistant Cashier

JERRY S. WILSON
Assistant Cashier

20

PITTSBURGH

BRANCH

DIRECTORS-1970
Chairman
LAWRENCE E. WALKLEY, President and Chief Executive Officer
Westinghouse Air Brake Company, Pittsburgh, Pennsylvania
ROBINSON F. BARKER
Chairman of the Board
and Chief Executive Officer
PPG Industries, Inc.
Pittsburgh, Pennsylvania
JOHN W. BINGHAM
President
The Merchants and Manufacturers
National Bank of Sharon
Sharon, Pennsylvania
CHARLES H. BRACKEN
President
Marine National Bank
Erie, Pennsylvania

GEORGE SCULL COOK
President
Somerset Trust Company
Somerset, Pennsylvania
RICHARD M. CYERT
Dean
Graduate School of
Industrial Administration
Carnegie·Mellon University
Pittsburgh, Pennsylvania
BOB RAWLS DORSEY
President
Gulf Oil Corporation
Pittsburgh, Pennsylvania

OFFICERS-1970
CLYDE HARRELL
Senior Vice President
JAMES H. CAMPBELL
Cashier

CHARLES E. HOUPT
Assistant Vice President
J. ROBERT AUFDERHEIDE
Assistant Cashier