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04J1lJllual CJ:!.eport FEDERAL RESERVE BANK OF DALLAS 1962 To the Member Banks in the Eleventh Federal Reserve District: The Statement of Condition and the earnings and expenses of the Federal Reserve Bank of Dallas for the year 1962, with comparative figures for 1961, are shown herein. Lists of the directors and officers of the Bank and its branches as of January 1, 1963, are also included. A review of economic and financial developments in the Nation and the District during 1962 is being presented in the January 1963 Annual Report Issue of the Business Review of this Bank. Additional copies of these publications may be obtained upon request to the Research Department, Federal Reserve Bank of Dallas, 400 South Akard Street, Dallas 2, Texas. Sincerely yours, WATROUS H. IRONS President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Statement 01 eonclition Dec. 31, 1962 Dec. 31, 1961 ASSETS $ 540,732,347 39,527,686 $ 587,255,476 35,465,071 580,260,033 19,473,000 9,532,888 56,000 622,720,547 29,552,100 14,952,121 870,000 99,256,000 535,780,000 435,604,000 168,138,000 129,694,000 69,028,000 811,684,000 156,202,000 1,238,778,000 1,166,608,000 1,238,834,000 309,128,280 12,579,815 15,897,075 1,167,478,000 296,084,087 13,272,512 9,899,098 2,185,705,091 2,153,958,465 910,744,385 869,105,320 960,203,849 34,752,085 14,560,000 4,009,754 931,949,007 23,508,674 15,370,000 3,382,891 Total deposits Deferred availability cash items . Other liabilities . 1,013,525,688 178,701,992 2,537,026 974,210,572 233,680,479 2,248,744 TOTAL LIABILITIES. 2,105,509,091 2,079,245,115 26,732,000 53,464,000 24,904,450 49,808,900 80,196,000 74,713,350 $2,185,705,091 $2,153,958,465 Gold certificate account Redemption fund for Federal Reserve notes Total gold certificate reserves Federal Reserve notes of other Banks Other cash . Discounts and advances . U. S. Government securities Bills Certificates Notes . Bonds . Total U. S. Government securities Total loans and securities Cash items in process of collection Bank premises . Other assets . TOTAL ASSETS LIABILITIES Federal Reserve notes in actual circulation. Deposits Member bank - reserve accounts U. S. Treasurer - general account Foreign Other . CAPITAL ACCOUNTS Capital paid in . Surplus TOTAL CAPITAL ACCOUNTS TOTAL LIABILITIES AND CAPITAL ACCOUNTS 1962 1961 CURRENT EARNINGS Discounts and advances U. S. Government securities Foreign currencies All other . $ 269,378 42,036,531 196,133 18,072 $ 62,758 37,950,208 19,096 42,520,114 38,032,062 Current operating expenses Assessment for expenses of Board of Governors . Federal Reserve currency Original cost, including shipping charges Cost of redemption, including shipping charges 8,933,333 374,700 8,530,969 359,200 142,635 33,146 380,172 32,595 Total. Less reimbursement for certain fiscal agency and other expenses 9,483,814 9,302,936 936,767 935,083 8,547,047 8,367,853 33,973,067 29,664,209 80,701 129,938 140,482 94 Total additions. Deductions from current net earnings 210,639 82,713 140,576 1,979 Net additions 127,926 138,597 34,100,993 1,573,112 29,802,806 1,454,690 28,872,781 25,547,016 Transferred to surplus Surplus, January 1 . 3,655,100 49,808,900 2,801,100 47,007,800 Surplus, December 31 53,464,000 49,808,900 TOTAL CURRENT EARNINGS CURRENT EXPENSES NET EXPENSES . PROFIT AND LOSS Current net earnings Additions to current net earnings Profit on sales of U. S. Government securities (net) All other Net earnings before payments to U. S. Treasury. Dividends paid Paid U. S. Treasury (interest on F. R. notes) FEDERAL RESERVE BANK OF DALLAS WATROUS H. IRONS, President P. E. COLDWELL, First Vice President Vice President ARTHUR H. LANG, General Auditor JAMES L. CAUTHEN, Vice President GEORGE F. RUDY, General Counsel J. L. COOK, Vice President ROBERT H. BOYKIN, Assistant Counsel and RALPH T. GREEN, Vice President Assistant Secretary of the Board T. A. HARDIN, Vice President J. Z. ROWE, Director of Research CARL H. MOORE, Vice President JAMES O. RUSSELL, Chief Examiner G. R. MURFF, Vice President and LEON W. COWAN, Assistant Vice President Secretary of the Board E. H. BERG, Assistant Cashier JAMES A. PARKER, Vice President FREDRIC W. REED, Assistant Cashier T. W. PLANT, Vice President and Cashier E. A. THAXToN, JR., Assistant Cashier W. M. PRITCHETI, Vice President THOMAS R. SULLIVAN, Vice President E. W. VORLOP, JR., Assistant Cashier Roy E. BOHNE, EL PASO BRANCH Roy T. C. ARNOLD, E. Vice President in Charge BOHNE, Cashier E. CoLEMAN, Assistant Cashier RASCO R. STORY, Assistant Cashier FORREST HOUSTON BRANCH J. L. COOK, Vice President in Charge B. J. TRoy, Cashier W. C. HARTUNG, Assistant Cashier SAN ANTONIO BRANCH CARL H. MOORE, A. E. ALVIN E. RUSSELL, Assistant Cashier Vice President in Charge MUNDT, Cashier FREDERICK J. SCHMID, Assistant Cashier <:])irector~ FEDERAL RESERVE BANK OF DALLAS O. (Chairman and Federal Reserve Agent), President, Hondo Oil & Gas Company, Roswell, New Mexico MORGAN J. DAVIS (Deputy Chairman), Chairman of the Board, Humble Oil & Refining Company, Houston, Texas LAMAR FLEMING, JR., Member, Board of Directors, Anderson, Ciayton and Company, Inc" Houston, Texas D. A. HULCY, Chairman of the Board, Lone Star Gas Company, Dallas, Texas J. EDD MCLAUGHLIN, President, Security State Bank & Trust Company, Ralls, Texas J. B. PERRY, JR., President and Generat Manager, Perry Brothers, Inc., Lufkin, Texas RALPH A. PORTER, Executive Vice President, The State National Bank of Denison, Denison, Texas ROY RIDDEL, President, First NatiO/wl Bank at Lubbock, Lubbock, Texas H. B. ZACHRY, President and Chairman of the Board, H. B. Zachry Company, San Alltonio, Texas ROBERT ANDERSON EL PASO BRANCH FLOYD CHILDRESS, Vice Chairman of the Board, The First National Bank of Roswell, Roswell, New Mexico ROGER B. CORBEIT, President, New Mexico State University, University Park, New Mexico DYSART E. HOLCOMB, Director of Research, EI Paso Natural Gas Products Company, EI Paso, Texas JOSEPH F. IRVIN, President, Southwest National Bank of EI Paso, El Paso, Texas WILLIAM R. MATHEWS, Editor and Publisher, "The Arizona Daily Star," Tucson, Arizona CHARLES B. PERRY, President, First State Bank, Odessa, Texas DICK ROGERS, President, First National Bank in Alpine, Alpine, Texas HOUSTON BRANCH B. CAMPBELL, Works Manager, Sabine River Works, E. I. du Pont de Nemours & Company, Orange, Texas J. A. ELKINS, JR., President, First City National Bank of Houston, Houston, Texas M. M. GALLOWAY, President, First Capitol Bank, West Columbia, Texas JOHN E. GRAY, President, First Security National Bank of Beaumont, Beaumont, Texas EDGAR H. HUDGINS, Ranching - Partner in Hudgins Division of J. D. Hudgins, Hungerford, Texas MAX LEVINE, President, Foley's, Houston, Texas J. W. McLEAN, President, Texas National Bank of Houston, Houston, Texas DONALD SAN ANTONIO BRANCH G. C. HAGELSTEIN, President and GeneraL Manage" Union. Slock Yards San Antonio, San Antonio, Texas HAROLD D. HERNDON, Independent Oil Operator, San Antonio, Texas DONALD D. JAMES, Vice President, The Austin National Bank, Austin, Texas MAX A. MANDEL, President, The Laredo National Bank, Laredo, Texas FORREST M. SMITH, President, National Bank of Commerce of San Antonio, San Antonio, Texas JOHN R. STOCKTON, Professor of Business Statistics and Director of Bureau of Business Research, The University of Texas, Austin, Texas DWIGHT D. TAYLOR, President, Pan American State BOllk, Brownsville, Texas FEDERAL ADVISORY COUNCIL MEMBER JAMES W. ASTON, President, Republic National Bank of Dallas, Dallas, Texas business • review january 1963 FEDERAL RESERVE BANK OF DALLAS Annual Report Issue eontents nineteen hundred and sixty-two economic conditions . . . . . . . . . . . . . . . .. 3 financial developments . . . . . . . . . . . . . .. 7 district developments .....•......•... 11 nineteen sixty-two The Nation's economy began the year 1962 on a higWy optimistic note. To a large extent, this favorable outlook was based on an expected continuation of the upturn during the latter portion of 1961 from the shallow and short-lived 1960-61 contraction. An anticipated resurgence of construction activity and the expectation that Government purchases and consumer buying, especially of durables, would move upward sharply were additional factors contributing to the high expectations for 1962. By midyear, most of the broader measures of business activity had risen markedly to record or near-record levels. After midyear, however, the rate of advance slackened, and the economy moved along a high-level plateau until the final months, when signs of renewed strength were observed. economic conditions Although the economy failed to attain the levels expected by many individuals early in 1962, overall gains last year were noteworthy. Consumer income and buying reached new highs; output of mines and factories increased appreciably; and the modernization and expansion of existing productive facilities permitted a large outflow of final products with stable prices. Gross national product, the broadest measure of economic activity, rose about $35 billion, or 7 percent, during 1962 to a new high of around $555 billion. Such a gain is well above the 3-percent increase registered during 1961 and exceeds the annual advances noted in all but 3 years since 1950. Especially meaningful is the fact that, in constant dollars, gross national product rose nearly 6 percent. Business investment, principally in the stockpiling of steel, played a strategic role in prompting the marked gains registered during the first quarter of 1962. Throughout most of the period, steel users were faced with the possibilities of a work stoppage in the steel industry and steel price increases and with the potential impact of stockpiling on future production schedules. Inventory accumulation, $6.7 billion on an annual-rate basis in the first quarter of the year, boosted industrial production, with corresponding increases in employment, hours worked, and final income. The consumer utilized his increased buying potential to expand his purchases. This demand, especially for nondurable goods and services, and the high-level peacetime outlays for defense purposes provided the basic support for the continuation of the expansion into the second quarter of the year. In the spring, a new labor agreement was reached by steel producers and their employees without an interruption in work schedules. This agreement and subsequent events affecting the industry contributed to a slackening of inventory accumulation, which exerted its influence on the economy. Nevertheless, economic activity continued to increase through midyear, but some observers felt that business confidence was beginning to wane. The sharp downturn in stock prices in late May added another element to the uncertainty that was developing as to the economy's strength. During the summer months, business review/january 1963 3 most of the broad economic measures moved only within narrow limits at their advanced levels. The level of unemployment and the less than full utilization of plant capacity continued to cause concern. By late summer, there was mention of a recession in late 1962 or early 1963, and discussion increased about the possibility of a tax cut to provide a stimulant to the economy. In the early fall, the Treasury revised depreciation schedules, and Congress granted a tax credit to business as an investment stimulant. In addition, the Administration announced that it would not seek a reduction in taxes during 1962. A short time later, the possibility of direct military involvement arose with regard to Cuba. The impact of this crisis on the economy could have been great. Fortunately, the potentially dangerous situation eased quickly. Both scare buying and the shifting of resources from peacetime uses to the output of war goods were minimal. New orders for defense requirements, nevertheless, strengthened late in the year. In addition, widespread acceptance of the new-model automobiles contributed to the fourth-quarter advance; automobile sales during the period were at or near a record. Consumer spending for other durable goods continued at high levels, and buying of nondurables just prior to the year-end holiday season exceeded seasonal expectations. Certain elements of aggregate demand--e.g., state and local government spending and various consumer purchases, mainly in the service and nondurables sectors-have reinforced the Nation's economy during recent years regardless of the tone of business. Such factors contributed to last year's increases. Spending by state and local governments increased at an annual rate of about 9 percent during the 1950's and early 1960's, including 1962. Consumer purchases of services increased around 7 percent annually during the 1953-62 period. Nondurable goods acquisitions by individuals also have tended to 4 rise at a fairly constant rate last year was no exception. 4 percent - and In addition to the contribution made to the economy in 1962 by the sectors that have continued to trend upward, advances were recorded in the cyclically sensitive areas of economic endeavor. These more volatile areas include changes in business inventories, consumer purchases of durable goods, and certain types of construction. Business sales generally trended upward during 1962 and at the end of the year were well in excess of the 1961 monthly average of about $61.5 billion. Inventory accumulation usually is closely related to sales activity; throughout most of 1962, inventories were held at low levels relative to sales. During the first quarter of 1962, however, the possibility of a steel strike stimulated stockpiling. Stock accumulation during the first quarter amounted to an annual rate of $6.7 billion, and inventories grew at a rate of $4.0 billion in the April-June period. During the latter half of the year, inventory accumulation slackened as stocks again were closely keyed to near-term sales requirements. Industrial production advanced about 8 percent during 1962, but most of the gain occurred in the first half of the year. Manufacturing of nondurable goods continued its secular growth; and output of chemicals showed special strength, PRODUCTION AND INVENTORIES -'", INVENTORY CHANGE ~~r' UNITED STATES IS'Olonolly odjnled} '''"~'''' PROOUCTION INDEX 1957·59-100 -- ,"OO""'-ON-- 125 ._---jI20 +5 115 -5 105 -10 1961 --L-~-~19O;C62;;--'-----..J 100 ,·Ellimol,d. SOURCES: Boord of GOOIernorl, Fedenlll R.~rY' Sy.tem. U.S. Deportment of Commit". although declining prices of some major chemicals affected segments of the industry. A more rapid rate of increase was attained in durable goods industries. The transportation equipment, machinery, fabricated metals, and furniture industries were among those that enjoyed highlevel production throughout most of 1962. Steel output showed varying trends last year. Output was at an annual rate of about 120 million tons early in the year when rapid stockpiling occurred, but the rate diminished to about 75 million tons following the labor agreement. After bottoming in the summer, steel production edged upward; and toward the end of the year, the industry reached an operating rate of over 95 million tons. Automobile output in 1962, at almost 7.0 million units, was around one-fourth higher than in the previous year and was second only to the record output of 7.9 million units in 1955. Retail deliveries, including about 300,000 foreign-produced cars, approximated 7 million units; and inventories of motor vehicles at the beginning of 1963 were at low levels in relation to dealers' sales. Production of machinery advanced appreciably in 1962, as domestic machine tool bookings exceeded the previous year's total by about 20 percent. Foreign buying in some lines diminished, however, since overseas producers were able to reduce their order backlogs and shorten the time required for delivery. On the average, producers of major materials operated between 75 percent and 85 percent of capacity during 1962. Nevertheless, commensurate with the increase in output was an expansion in plant and equipment, with new investment for producers' durable equipment rising over 10 percent. Expenditures for all plant and equipment, at an estimated $37.4 billion, were about one-tenth above 1961. For many of the firms enjoying output growth sufficient to approach existing capacity, increased outlays were OUTPUT OF SELECTED KEY INDUSTRIES UNITED STATES PERCENT I Seasonolly adjusted indllll,19S1-59 aIOO) 150 140 MOTOR VEHICLES AND PARTS -----... 130 ~l 120 110 100 - 90 ,·E,timor,d. realized. Some firms whose output failed to advance appreciably, however, were forced to modernize in order to compete with both foreign and domestic firms. Expenditures for modernization accounted for about 70 percent of all plant and equipment outlays last year. Total new construction expenditures of about $61 billion in 1962 were up approximately 7 percent from 1961 and provided a strong stimulus to the economy. Spending for residential building expanded more rapidly than for the other construction categories, with private nonfarm housing starts-at over 1.4 million unitsone-tenth greater. Building of individual homes increased; the average price of homes moved upward; and a smaller proportion of new starts was made under the Government-insured and -guaranteed programs than in 1961. Expenditures for additions and alterations of existing property, as in the past few years, trended upward; and construction of multifamily units was maintained at a rapid pace. Outlays for commercial and industrial building rose about 5 percent last year. The growth in residential areas encouraged the construction of shopping centers and office space, and spend- business review/january 1963 5 ing for new industrial facilities also contributed to total commercial and industrial expenditures. Construction outlays by Federal, state, and local governments for highways, educational and recreational facilities, office buildings, and the like moved to higher levels; but the gain in this type of spending was less than the increases registered in the residential and commercial and industrial construction categories. Purchases of goods and services by all levels of government rose again last year. Net expenditures of the Federal Government, as indicated in the administrative budget, advanced nearly onetenth during 1962 to approximately $92 billion. Outlays for the military functions of the Department of Defense, the military assistance portion of the mutual security program, atomic energy, and other defense-related activities accounted for more than one-half of the total. Such expenditures, which reflect the international political environment, rose significantly over 1961. Gains also were recorded in other types of Federal Government expenditures, such EMPLOYMENT AND EARNINGS UNITED STATES (Slasonollyad/ullld) MILLIONS F EftS HS HOURS 41.5 17.0 16.8 MANUFACTURING EMPLOYMENT ", 16.6 ,l ' I I 16.4 40.0 I 39.5 16.2 FACTORY WORKWEEK 39.0 IS.8 L-_.L-_~_~_..l-_....L-_-'-_-'-_--'38.5 BILLIONS OF DOLL ARS BillI 'N~ nF' DOLI ARS I 00 100 MANUFACTURERS' PAYROLLS • 95 r-f- 90 90 85 80 ~ 85 1961 e-Estimated. SOURCES: U.S. O,porlmlnt of Commerce. U.S. Deportm.nt of Lobor. 6 95 1962 80 as those for public works and highways in 1962, and state and local spending maintained its secularly upward movement. Production increases stimulated hirings of factory workers in 1962, principally during the first half of the year; manufacturing employment leveled off during the second half, as the tempo of industrial activity moderated and the effect of laborsaving devices was felt. Total employment was generally higher throughout most of the year; however, the civilian labor force also edged upward, and the seasonally adjusted rate of unemployment failed to decline below 5 percent, fluctuating between 5 percent and 6 percent of the civilian labor force. Although some improvement was shown in the unemployment pattern of married males, which is especially strategic because of family dependence, many teen-agers and women workers had difficulty, at times, in finding employment. The unemployment total also was expanded by persistent pockets of unemployment. A retraining program was implemented recently in an attempt to reduce extended unemployment and to provide industrial mobility. Nevertheless, the general level of unemployment continues to be a problem. Manufacturers' payrolls moved to higher levels in 1962 as a result of increased employment, an extension of the factory workweek, and greater hourly earnings. The average workweek rose to almost 41 hours in April but receded to slightly lower levels later in the year. Average hourly pay, fluctuating within a fairly narrow range and attaining a new high, averaged about 3 percent above 1961. Personal income advanced 6 percent during 1962 to approximately $440 billion. Pacing the 1962 income gain were labor income; rents, interest, and dividends; and nonfarm proprietors' receipts. Despite additional veterans' payments and higher social security benefits, Government transfer payments advanced only moderately, while farmers received slightly less CONSUMER INCOME AND SPENDING UNITED STATES (5eOI0"01l)' adjusted) BIUIONS OF DOL.L.ARS 400 380 360 340 320 L--..L--"'19""6------'--.-.JL--~-;i196o;;2.---'-----' • ·Eatimoled. SOURCE: U.S.o.portmlnl of Commerce. income than in the prior year. With this additional buying potential, consumers expended more for goods and services last year. In addition to the increase in spending for nondurable goods and services, consumer outlays for durable goods were up almost one-tenth - centered principally in automobile acquisitions. Prices of final goods and services advanced slightly in 1962, with most of the rise centered in the service area. Wholesale prices rose only fractionally in 1962, while average prices of industrial goods were little changed. Sensitive material prices trended downward throughout 1962. financial developments The supply of loanable funds advanced steadily during 1962 and was fully adequate to meet credit demands in the economy. With the volume of reserves available to the commercial banking system being sufficient throughout the year to support further expansion of credit and the money supply, bank reserve positions were generally easy. Savings flowed into commercial bank time and savings accounts at a record rate, partially reflecting changes in permissible interest rates payable on time and savings deposits; and substantial cash inflows were recorded at nonbank financial institutions. Borrowings at commercial banks moved significantly higher during the year, with consumertype loans and loans for real estate purposes increasing appreciably. Although commercial and industrial loans moved only slightly higher during the first three quarters of the year, notable strength was evident in the final quarter. Demands for long-term funds increased moderately, with much of the impetus stemming from mortgage credit requirements. State and municipal governments borrowed a record amount, and offerings of long-term Treasury issues were of substantial proportions. Corporate requirements for external funds were significantly reduced. Total loans at all commercial banks in the United States increased about $15 billion during 1962 and approached a level of $140 billion by the end of the year. About one-half of the advance occurred in real estate and consumertype loans. Commercial and industrial loans were paced by the credit requirements of trade and service establishments and accounted for about one-third of total loan expansion. Loans for purchasing or carrying securities declined during the first half of the year - a development which was related, in part, to the sharp downward movement of prices in the stock market. After midyear, however, loans to brokers and dealers rebounded somewhat under the stimulus of rising stock market prices, reductions in margin requirements, and expanded financing needs of Government securities dealers. Loans to nonbank financial institutions showed little change over the 12 months. Total investments at commercial banks in the Nation advanced approximately $4 billion during 1962 to a level of almost $95 billion. Holdings of municipal bonds increased about $5 billion, and average maturities of investment portfolios were lengthened, as banks placed greater emphasis upon return. To an increasing extent, acquisitions of municipal issues were extended to include medium-grade securities. Commercial banks reduced their holdings of Government securities during 1962, with notable reductions in Treasury bills. The desire to offset rising operating and interest costs was among the considerations inducing smaller short-term Government holdings. Average ma- business review/january 1963 7 SELECTED FINANCIAL INDICATORS turities of Government portfolios were lengthened during the year. UNITED STATES PERCENT PER ANNUM Reserve positions of member banks were comfortable during 1962 as free reserves ranged from a low of $256 million to a high of $657 million, based on weekly averages of daily figures, and averaged over $400 million during the year. Borrowings from Federal Reserve banks were nominal during the year, exceeding $100 million in only 3 months. Moreover, only on infrequent occasions did the money market banks in the 37 major financial centers have a net borrowed reserve position. 4.2 4.0 3.6 3.2 f- ------I F.R. DISCOUNT RATE 2.8 2.4 TREASURY BILLS (91-DAY) MILLIONS OF DOLLARS Public ownership of liquid financial assets advanced significantly during the year. Higher interest rates paid on savings deposits and expanding personal income encouraged savers to build up their holdings of time deposits at commercial banks, savings and loan shares, and time deposits at mutual savings banks. Time deposits adjusted at commercial banks (total time deposits less time deposits of banks and the Government) increased approximately $14 billion during the year, compared with an expansion of $10 billion in 1961. Banks in major financial centers added significantly to their negotiable time certificates of deposit in an effort to attract more corporate and public funds, and a secondary market for these certificates developed during the year. Savings and loan shares at all operating savings and loan associations advanced only about $6 billion during 1962, this growth being about 4 percent less than in 1961. Time deposits at mutual savings banks moved up about $2 billion during the year, or at an annual rate of approximately 5 percent. While commercial bank credit advanced in 1962, the effective money supply (demand deposits adjusted plus currency in the hands of the public) declined in the first half of the year and expanded only slightly during the last half. For the year as a whole, the money supply ad- g 800 1962 e-Eslimoled. p-Pr.liminarr. vanced almost 2 percent, compared with a 3percent growth in 1961. The decrease in the money supply during the first 6 months of the year reflected a reduction in the demand deposit component, which was related, in part, to a shift of funds from demand deposits to time and savings accounts. After midyear, the rate of growth of time deposits slackened, and demand deposits adjusted increased moderately. The currency component of the money supply expanded steadily during 1962, growing slightly over $1 billion. Viewing the money supply in a broader context by including time and savings deposits at commercial banks, the growth during 1962 was 7 percent, compared with 6 percent in 1961. The demand for mortgage funds expanded during the year, mainly in response to increased private construction activity. Adequate funds were available, however, as most mortgage lenders were actively seeking outlets. Total mortgage debt outstanding in the United States approached $250 billion by the end of 1962, or almost $25 billion above the amount outstand- ing at the beginning' of the year. Rates on conventional, FHA-insured, and VA-guaranteed mortgages declined slightly during the. year; while fees, commissions, and charges as a percentage of loan value moved lower. Less stringent credit requirements and smaller downpayments also gained in importance. Foreclosures increased during 1962 but remained a relatively small percentage of total mortgage debt outstanding. State and local government borrowings reached 'about $8.5 billion during 1962, or approximately the same as in 1961. This debt financing continued to reflect capital outlays for public improvements, as well as the increased pressures upon general property. taxes as a source of funds. Interest in new municipal issues was especially notable at commercial banks. The Federal Government, in financing its cash deficit during the year, was a significant borrower of long-term funds in 1962. The Treasury raised around $7 billion through sales of marketable securities, with issues having original maturities of 5 years and beyond expanding about $3 billion. Treasury accent on long-term borrowing had the effect of raising the average maturity of marketable public debt by about 6 months to a level of approximately 5 years at the close of December. The Treasury also raised substantial amounts in the short-term maturity area through new issues of bills. Refundings and advance refundings of $50 billion were effected during 1962, with long-term issues usually included in the exchange offerings. The Tre~sury was successful in placing a large portion of its new issues outside the banking system. Corporate securities offered for cash during 1962 reached a level of around $10.4 billion, or $2.8 billion below the 1961 level. About $2.1 billion of the decline in offerings centered in common stock sales, with the remainder occurring principally in the issuance of debt obliga- tions. Increased earnings and depreciation allowances permitted corporations to meet' a growing proportion of capital financing needs internally. Throughout most of 1962, uncertainties in stock prices prevailed, and corporate sales of common stock were inhibited. The marketing of corporate bonds also declined as some enterprises reached what they considered maximum debt levels with respect to corporate liquidity, interest expense coverage, and an optimum debt-equity structure. Refundings in advance of maturity were infrequent since coupons on outstanding corporate bonds were generally favorable in comparison with prevailing market rates. Interest rate movements during 1962 responded to market demand and supply devel~ opments and to official action aimed at limiting international flows of funds, which are induced by interest rate differentials between U. S. and foreign centers. Relatively moderate demands on the capital markets, reflecting the pace of economic recovery, combined with substantial increases in the supply of funds to reverse the upward movement in long-term rates that developed early in the year. As a consequence, long-term interest rates in the' Government, corporate, and municipal markets all closed the year near their 196~ lows. After being relatively stable in the first half of the year, shortterm rates moved noticeably higher, partially reflecting a significant increase in the supply of Treasury bills. These additions were partly in response to official concern over short-term interest rate differentials between the United States and financial centers abroad. Upward pressures on domestic short-term interest rates, combined with relatively stable long-term interest rates, led to narrowing yield differentials between maturities during 1962. Federal Reserve operations in the money and credit markets during 1962 were conducted with a view to furthering domestic economic growth business review/january 1963 '9 and, at the same time, moderating near-term balance-of-payments pressures partially arising from capital movements of a speculative nature. In response to domestic economic developments, the System sought to stimulate and then support an expansion of credit by supplying the banking system with reserves through open market operations. Economic and financial conditions prompted the Board of Governors to change three of its regulations. As a result of a change in regulation Q, member banks were permitted, effective January 1, 1962, to increase interest rates paid on time and savings deposits to a maximum of 4 percent. Legislation enacted during 1962 suspended for a 3-year period the restrictions of regulation Q pertaining to foreign official time deposits. Effective in July, margin requirements were reduced from 70 percent to 50 percent. In October, reserve requirements on time and savings deposits were changed from 5 percent to 4 percent. However, it should also be noted that the discount rate remained at 3 percent throughout 1962 - unchanged since the third quarter of 1960. Continuing a trend evident for the past few years, economic relations between the United States and the rest of the world gained in importance during 1962. The necessity of moderati-!1g or eliminating persistent deficits in the Nation's balance of payments and maintaining the strength of the international position of the dollar is now generally recognized. More importantly, efforts designed to assist in the accomplishment of these ends assumed a more significant place in economic policy. In an effort to reduce the balance-of-payments deficit, Government expenditures abroad were limited wherever possible, and the countries of western Europe were encouraged to shoulder a greater proportion of the military and economic aid burden of the free world. Government efforts to expand exports received increased attention, and legislation was adopted which reduces the 10 tax incentives to invest in developed foreign countries. Although foreign central banks have long intervened in foreign exchange markets to protect their currencies against speculative disturbances, the Federal Reserve has refrained from such operations for many years. In 1962, however, for the first time since the early 1930's, the Federal Reserve System undertook operations in the foreign exchange markets for its own account. These operations supplemented those of the Treasury and were aimed at maintaining orderly conditions in the foreign exchange markets, contributing to the maintenance of confidence in free-world currencies, and facilitating an orderly flow of international trade and payments. The cooperative arrangements among western European central banks which were of such importance following the German and Dutch revaluations were strengthened in 1962. Arrangements were made among monetary authorities of leading industrial countries to prevent conditions in the London gold market from becoming disorderly. The Nation's balance of payments showed a modest improvement in 1962. Responding to the increase in domestic income levels attending economic recovery, imports expanded approximately 11 percent over 1961, more than offsetting the favorable effects of a high level of exports. The net result was a surplus on trade that was almost $1.0 billion below that recorded for 1961. A reduction in the recorded net outflow of short-term private capital, however, was a significant plus factor in the balance of payments during 1962. The improvement in this sector resulted principally from a reduction in short-term loans. The deterioration and subsequent recovery of the Canadian dollar had substantial repercussions on the international payments position of the United States. The effects of the Canadian experience were observable in virtually every type of transaction and significantly influenced the quarter-by-quarter movements in the U. S. balance of payments. Certain special transactions, notably prepayments of loans, had a particularly favorable effect on the balance of payments during 1962. The overall deficit last year approximated $2.0 billion, compared with $2.5 billion in the previous year. About 40 percent of the deficit was settled in gold, compared with 30 percent in 1961; and the remainder, through a buildup in foreign short-term claims on the United States. district developments A favorable economic climate prevailed in the Southwest during 1962. Some measures of southwestern business performance expanded markedly last year, and even those indicators that moved up slightly were at record or nearrecord levels. Similar to the Nation, the southwestern states (Arizona, Louisiana, New Mexico, Oklahoma, and Texas) showed greater economic strength in the first half of 1962, especially in industrial output, employment, and earnings. A broadly based expansion was experienced in southwestern industrial output last year, as most types of manufacturing firms boosted production from the 1961 levels. The rate of gain in industrial production, however, was only about one-half as large as in the Nation, principally because mining production (which acINDUSTRIAL PRODUCTION TEXAS (S.osonoll~ ,·E.ti/'ftlll.d. adjust.d ind,.u,19~7·~9'IOO) counts for about one-half of total industrial activity in the Southwest) edged up about 1 percent. The national advance was only slightly greater, but mining output accounts for less than 10 percent of the Nation's output. The Texas industrial production index, which basically represents District production trends, rose about 4 percent during 1962, with gains centered principally in the manufacturing area. Output increases of about 6 percent were recorded for both durable and nondurable goods - gains that compare favorably with those in the Nation. Thus, despite the expansion of factory output, the rate of gain in total production was limited in the Southwest by the slight advance in the heavily weighted mining segment. Crude oil processing in both the District and the Nation rose moderately during 1962 in response to an expanded demand for refined petroleum products. Crude oil output in the Nation rose about 2 percent, and imports of both crude oil and refined products advanced appreciably. However, District crude oil production - which accounts for about one-third of the national total- failed to share in last year's demand increase. Output, at 2,965,000 barrels daily, was little changed in the region in 1962; while allowable schedules of Texas producers were restricted to a new low of 97 days, or 4 days less than in 1961. The District drilling picture, nevertheless, was brightened by increases in the number of wells completed and total footage drilled. In part, this improvement came as a consequence of industry efforts to develop offshore properties. The trend toward the use of less, but more effective, equipment was extended last year since more and deeper wells were completed with fewer rigs. Agriculture's contribution to the District's economy in 1962 was fairly well sustained as compared with 1961. Agricultural production in the five southwestern states failed to attain the record level achieved in the previous year, as a slight gain in the output of livestock and live- business review/january 1963 .11 stock products was more than offset by a small crop outturn. However, average prices received by southwestern farmers and ranchers last year were slightly above those in 1961, and Government payments were somewhat higher as a result of increased participation of farmers in acreage diversion programs. As a consequence, total cash income of southwestern farmers and ranchers in 1962 will compare favorably with the all-time high of $4.4 billion reached in the previous year. Construction was an especially strong element in the southwestern advance during 1962. Strength in all three major construction categories (residential building, nonresidential building, and public works and utilities) had pushed the value of total contracts to a new high during 1961, and the 1962 level exceeded this record by about 8 percent, reaching about $4.3 billion. Both residential building and nonresidential construction were stimulated by relatively low interest rates and the availability of mortgage funds, but such other factors as income and population also contributed to the expansion. The largest increase among the major construction categories in 1962 occurred in residential building. Contracts for such construction were valued at over one-tenth higher than FIVE SOUTHWESTERN STATES TOTAL RESIDENTIAL PUBLIC WORKS AND UTILITIES ---' ....... f---- ~ ~ _ D 2 4 6 8 PERCENT INCREASE. 1962' OVER 1961 .·Portioll" "rimol'd. SOURCES F. W. Dodg. Corporation. F.dtrcll R... 12 f'I' Bonk of Dallol. 10 As in the Nation, major industries in the Southwest responded to output advances by expanding outlays for plant and equipment. In addition, plant and commercial building increases, which were about 8 percent greater last year, reflected the overall growth of the southwestern economy; and outlays for equipment partly represented efforts to acquire cost savings through automation and modernization. Government-supported highway programs and continued growth of public utilities in the area also boosted public works and utilities construction. The beginning of new subdivisions in major cities not only generated a demand for shopping centers but created a need for highway and utilities construction. The value of contracts for this type of activity last year was an estimated 5 percent above the previous year. Employment trends in the Southwest in 1962 basically mirrored the overall movement of economic activity. Total employment in the five states increased slightly to a new high of about 4.5 million, and unemployment was reduced. The number of jobless workers in Texas averaged 4.8 percent of the State's labor forcebelow the 5.6-percent rate recorded for 1961, less than the national level, and the lowest annual rate since 1959. Only one major labor market had a substantial labor surplus at the end of 1962, but a few other smaller markets faced "long-term unemployment" problems. VALUE OF CONSTRUCTION CONTRACTS NONRESIDENTlALI-~ in the previous year. Inventories of new homes were not overly excessive since most builders were able to move houses shortly after their completion. While foreclosure rates were held at comparatively low levels, foreclosures were high in a few areas. Erection of multi-unit dwellings, including luxury apartments, continued to show strength; and the vacancy rate during 1962 was, for the most part, little changed from the preceding year. 12 Total nonagricultural employment in the southwestern states expanded slightly in 1962, averaging about 2 percent higher than in 1961; however, in line with long-term trends, the number of workers in agriculture receded to a somewhat lower total. Government employmentprincipally at the state and local levels - expanded more than any other major nonagricultural category, although finance and service employment rose appreciably. Employment in mining, construction, and transportation and public utilities, however, declined during the year, with mining employment receding to the lowest level in 8 years in the five states. The higher outlays for construction were not directly reflected in an increase in the number of workers engaged in the building trades. Construction employment was reduced to the lowest total since 1957. The 1962 decline in construction employment is part of a longerterm trend that has been under way for several years. Laborsaving techniques, coupled with a greater use of fabricated components, have played an important role in the decline. In addition, the construction of more expensive buildings, with an accent on luxury appointments, has boosted total construction outlays without providing a comparable stimulus to employment. The number of southwestern manufacturing employees advanced slightly last year, with the gain being less than in the Nation. The increase in southwestern manufacturing employment, an expansion in the average workweek of manufacturing employees, and a 3-percent advance in hourly earnings contributed to a moderate rise in income received by southwesterners. Personal income in the District states rose about in line with that in the Nation - largely because of gains in wages and salaries. Nevertheless, most of the other major income components increased. Commensurate with the rise in individual income and an expansion in consumer credit, consumer buying in the Eleventh District increased significantly during 1962, with the gain centered principally in durable goods purchases. Total retail sales of durables may have been around one-fifth larger than in 1961, while the steadily growing sales of nondurables likely rose somewhat less than 5 percent. Similar to the national picture, automobile buying contributed appreciably to 1962 gains. New automobile registrations in Dallas, Fort Worth, Houston, and San Antonio were about one-third greater than in 1961 and exceeded the record established in 1955. Other durable goods which showed sales strength included furniture, household appliances, and lumber and building materials. This pattern of sales was consistent with the higher level of construction in the Southwest. Among retail outlets for nondurables, gasoline service stations and general merchandise group stores showed the largest sales gains. Department store sales in the District during 1962 registered the largest annual advance in 3 years, with most of the increase occurring during the third quarter. The rise in the number of service employees last year indicates that consumer spending for these activities expanded. In addition, the growth of tourism in certain parts of the Southwest provided added stimulus to the 1962 expansion. Banking in the District during 1962 generally followed a course similar to that in the Nation. Loan demand expanded, reflecting the improvement in District business activity, and a large increase in time and savings deposits augmented the supply of loanable funds. Commercial banks lengthened average maturities of their investment portfolios last year, as considerable purchases of long-term obligations contributed to a moderate rise in total security holdings. Real estate, consumer-type, and commercial and industrial loans paced an 8-percent increase in total loans outstanding at the District member banks during 1962. Country banks accounted for approximately 75 percent of the advance in total District member bank loans, business review/january 1963 13 MEMBER BANK DEPOSITS, LOANS, AND INVESTMENTS ELEVENTH FEDERAL RESERVE DISTRICT :~r~'"' DEMAND DEPOSITS 79 7.5 6.3 59 LOANS 5.5 5.1 4.7 4.5 4.1 INVESTMENTS 3.7 L..-_ _- - ' 3.3 2.9 TIME DEPOSITS ,-Eslomoled although these institutions account for less than one-half of total loans outstanding. Loans for real estate purposes at all the member banks advanced significantly at a stable rate; and consumer-type borrowings moved moderately upward, despite reductions during the summer months. The rates of increase in District real estate and consumer-type loans, however, were smaller than in the Nation. During the first three quarters of 1962, commercial and industrial loans were little changed from the end of 1961. However, such loans showed marked increases in the final 3 months of 1962 and at the year-end were about 6 percent above a year earlier. Loans for purchasing or carrying securities and loans to nonbank financial institutions rose in 1962, primarily during the second half of the year. Investments at District member banks rose approximately 6 percent during 1962, with an advance of about 17 percent occurring in 14 municipal bond portfolios. Reserve city banks increased their holdings of municipal obligations significantly and added moderately to their Government security portfolios. Country banks, on the other hand, augmented their municipal portfolios somewhat but made little change in their Government security holdings. Both reserve city and country banks lengthened the average maturities of their Government and municipal portfolios in an effort to increase income and cover higher operating and interest costs. Total deposits increased approximately 6 percent at member banks in the District during 1962; time and savings deposits advanced about one-fourth, but gross demand deposits were virtually unchanged. About 56 percent of the gain in savings-type accounts occurred at country banks. Most banks in District financial centers raised their rates on time and savings deposits to the maximum permissible limits, and the movement of funds from demand to time and savings accounts was more noticeable at these institutions than at country banks. Reserve positions of commercial banks in the District remained comfortable during 1962, with the major portion of excess reserves usually held by country banks. Borrowing from the Federal Reserve bank was nominal, as reserve pressures on member banks were modest. Banks in major financial centers continued to engage actively in money market transactions, with District banks on balance being net purchasers of Federal funds. District bank partIcIpation in Treasury financing operations was relatively small last year, except when the "tax and loan" feature was present in offerings. Shorter-term issues usually generated the greatest interest. The lengthening of Government security portfolios by banks was accomplished both through subscriptions to new securities and through secondary market acquisitions. The First National Bank of Stinnett, Stinnett, Texas, a newly organized institution located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, opened for business December 1, 1962, as a member of the Federal Reserve System. The new member bank has capital of $100,000, surplus of $50,000, and undivided profits of $50,000. The officers are: John C. Bergner, Chairman of the Board; Bill King, President; B. C. Drinkard, Vice President; and John A. Harris, Cashier. netv .netnber bunks The Stonewall National Bank of Corpus Christi, Corpus Christi, Texas, a newly organized institution located in the territory served by the San Antonio Branch of the Federal Reserve Bank of Dallas, opened for business December 15, 1962, as a member of the Federal Reserve System. The new member bank has capital of $200,000, surplus of $100,000, and undivided profits of $50,000. The officers are: Robert H. Flato, Chairman of the Board and President, and J. D. Nelson, Executive Vice President and Cashier. The American National Bank of Killeen, Killeen, Texas, a newly organized institution located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, opened for business January 2, 1963, as a member of the Federal Reserve System. The new member bank has capital of $200,000, surplus of $200,000, and undivided profits of $100,000. The officers are: C. w. Duncan, Chairman of the Board; W. E. Curlee, President; K. R. Cook, Vice President and Cashier; and Colonel A. H. Hopkins, Vice President. new pur bunks The Security State Bank, Farwell, Texas, an insured nonmember bank located in the territory served by the Head Office of the Federal Reserve Bank of DaHas, was added to the Par List on January 1, 1963. The officers are: G. D. Anderson, President; R. W. Anderson, Vice President; L. S. Pool, Cashier; Mrs. Nina Glasscock, Assistant Cashier; Joe W. Jones, Assistant Cashier; and Irene Dyer, Assistant Cashier. The University State Bank, Denton, Texas, an insured nonmember bank located in the territory served by the Head Office of the Federal Reserve Bank of Dallas, was added to the Par List on its opening date, January 9, 1963. The officers are: Thos. E. Noel, Chairman of the Board; Byron R. Smith, President; and James H. Little, Vice President and Cashier. business review/january 1963 15
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