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REVIEW Annual Report Issue F E D E R A L R E S E R V E B A X sT K O F l U E I K T lS r E .A J P O L I S J A N U A R Y 1963 developments in 1962 O ur district’s economic performance this year differed in several important ways from its show ing last year. Some of these contrasts will be spelled out in this annual review edition. Most notable— and basic— of the region’s de velopments was the turn-around showing in the agricultural sector. Agriculture, you may recall, had been plagued by drouth in 1961. But this year, cash receipts from farm marketings were up 8 percent in Ninth district states from the levels of 1961 and approached the record levels of 1958. The taking into account of greater government payments to farmers raised the gross cash farm income in 1962 to an all-time high. Manufacturing, as well as many sectors of busi ness, also improved during 1962 and, within a setting of hesitant recovery on the national level, contributed further toward a more favorable rate of district expansion. On the financial front, district banks expe rienced a number of significant changes— but let’s let the record speak for itself: JANUARY 1963 3 Banking tiable time deposit certificates to corporate invest ors. Total time deposits at district city banks rose by more than 50 percent in 1962. The largest annual gain previously recorded was 18 percent in 1961. At the country banks time deposits rose by $188 million or slightly more than the previous record rate of 14 percent in 1957. In other years the country bank time deposit growth rate has been well below that figure. Time deposits amounted to only 30 percent of total deposits in the city banks at the end of 1962, despite the high growth rate during the year. At the country banks time deposits amounted to 45 percent of total deposits. Total deposits of both city and country banks rose about 8 percent in 1962 as a small decline of demand deposits par tially offset the increase of time deposits at the The outstanding feature of banking experience in the Ninth Federal Reserve district during 1962 was the virtual explosion of time deposits follow ing the change in Regulation Q on January 1, which lifted from 3 percent to 4 percent the max imum interest rate that member banks can pay on time deposits. Most banks responded to the change in the Regulation by offering higher rates, with the re sult that time deposits grew more rapidly— both absolutely and percentagewise— than ever before. This was true at both the city and country banks. At the city banks much of the $239 million increase in time deposits reflected the sale of nego Chart 1— Deposits and loans* of city and country district member banks. b illio n s of d ollars eity banks country banks deposits 1°____ I _____I____ I 1952 '53 '54 I '55 I '56 1 '57 1 '58 *Total loans after deducting v a lu a tion reserves and loans to other com m ercial banks MONTHLY REVIEW Digitized for4 FRASER 1 '59 I '60 i '61 '62 city banks. Country bank demand deposits were up somewhat for the year. Both the city and country banks in the district increased their loans proportionately more than their deposits in 1962. This raised the ratio of loans to deposits from 51 percent to 53 percent at the city banks and from 46 percent to 48 per cent at the country banks in the twelve months ended November 1962. Loans rose $143 million or 13 percent at the city banks and $163 million or 12 percent at the country banks. While the per centage gains were exceeded in a few previous years, the dollar gains were a record at both groups of banks. Country banks in the western states of the dis trict registered a significantly higher rate of loan growth in 1962 than did the city banks or the country banks in the eastern part of the district. Country bank loan growth averaged 18 percent in the three westernmost states and only 7 percent in the other district states or part states. Deposit growth rates were comparable in all district states except North Dakota, where the growth rate was half again as large as the district average. Chart 2— Index of daily average total de posits at district member banks. (January 1951=100) TABLE 1: CHANGE OF COUNTRY BANK LOANS AND DEPOSITS, NOVEMBER 1961-NOVEMBER 1962 Loans (percent) Deposits (percent) M ic h ig a n 7.3 M innesota 7.5 7.0 M o n tan a 14.5 7.5 N orth Dakota 23.0 South Dakota 16.6 11.7 8.8 6.1 5.6 W isco n sin 7.3 The interest expense of district member banks will, of course, rise in 1962 because of the increase of time deposits and because of the higher rates of interest paid on these balances. In an effort to recoup this addition to expense, many banks, both in the district and in the nation, appear to have changed their “ mix” of earning assets in an effort to boost the rate of return and to boost the pro portion of receipts not subject to the federal in come tax. These efforts have resulted in the sub stitution of less liquid for more liquid assets. Judging from an inspection of member bank call reports dated September 28, 1962 and September 27, 1961, the liquidity of district mem ber banks declined somewhat less during the in tervening twelve months than did the average liquidity of all member banks in the nation. The table reveals that even though member banks in the Ninth district sustained about the JANUARY 1963 5 same percentage growth In total deposits as the national average, their percentage increase of holdings of relatively less liquid assets such as real estate loans and municipal bonds (included under “ other securities” ) was under the national average. And, in contrast to a decline in government secur ities held by all member banks in the nation, the holdings of district banks increased somewhat. One exception to the general pattern of a smaller decrease of liquidity in the district than in the na tion was the larger percentage decline in the dis trict of short term governments held. On Septem ber 28, 1962, the ratio of short governments to total deposits in the district and in the nation was 7.7 percent and 8.5 percent, respectively. The ratio of real estate loans to total deposits was 14.0 per cent and 12.7 percent, respectively, and that of non-U. S. government securities to total deposits was 10.0 percent and 11.2 percent, respectively. The ratio of total loans to total deposits was 52 percent in the district and 55 percent in the nation. Member bank borrowings at the Federal Re serve Bank of Minneapolis averaged less in 1962 than in any year since 1943. In the ten years before 1961, member bank borrowing averaged as much as $39 million for the year (in 1957) and as little as $7 million (in 1954). In 1961 daily average borrowing by district member banks averaged only $1.6 million, and in 1962 it aver aged less than a million, dollars. Borrowing by the reserve city banks in 1962 averaged well under a hundred thousand dollars, and in eight months of the year, not one reserve city bank was in debt to the Federal Reserve. Country bank borrowings were negligible, averaging less than a million dollars in all but three months of 1962. It is apparent that the lack of demand for ac commodation at the Federal Reserve Bank of Minneapolis in 1962 reflected in large measure the abundance of funds, particularly time deposits, placed by depositors at the disposal of member banks. Total deposit gains registered at both the city and country banks in the district were larger than in any year since before 1950, with the ex- 6 MONTHLY REVIEW TABLE 2: PERCENT C H A N G E IN SELECTED ASSETS A N D LIABILITIES AT MEMBER BANKS, SEPTEMBER 27, 1961-SEPTEMBER 28, 1962 D IS T R IC T (percent) U. S. O b ligatio n s H eld + 1.8 U. S. (percent) — 4.7 Short Term* — 27.0 — 17.1 + 2 3 .9 O ther Securities + 17.5 Total Loans + 8.1 + Real Estate Total Deposits + 5.1 + 12.1 Demand + 7.0 — .9 Time + 2 1 .8 + 9.4 7.8 + 3.3 + 16.5 *Due within a year. ception of gains recorded in 1958. It is likely that the lack of demand for loans at the Federal Reserve Bank of Minneapolis in 1962 also reflects the narrow range of quotations for U. S. Government securities, which has char acterized the money market since mid-1960. The opportunity of liquidating securities at little or no loss may well have prompted those few banks in need of cash to tap that source of funds rather than to secure accommodation at the Federal Reserve. Agriculture Favorable agricultural conditions throughout most of the Ninth district led to a marked im provement in the income position of farmers in 1962. Total, cash receipts from farm marketings are estimated at $3,580 million, up 8 percent from the $3,308 million received in 1961. The esti mated 1962 figure exceeds the previous record high marketings of $3,463 million set in 1958. Higher direct payments to farmers by the gov ernment will make 1962 a record year in terms of gross farm income. Crop marketing receipts estimated at about $1,260 million are 16 percent greater than those received in 1961, reflecting the substantial im provement in moisture conditions in the western states. The prime factor in this increase in receipts was a near 60 percent rise in wheat production over the 1961 output due primarily to improved yields. Other small grains showed similar increases in yields and production. Thus, the added volume more than absorbed slightly lower grain prices. The only crops that showed any decline in output from the 1961 totals were corn and soybeans, both of which registered smaller yields per acre compared to the exceptional yields of 1961 for those crops. Proceeds from the sale of livestock and live stock products totaled an estimated $2,320 million during 1962, an increase of over 4 percent above the 1961 total. Lower dairy incomes were more than offset by increased income from other live stock, particularly beef cattle. TABLE 1: ESTIMATED 1962 CASH RECEIPTS FROM FARM M ARKETING S (millions o f dollars) C ro p s livestock Total 1961 439 1,071 1,510 1962 430 1,100 1,530 Minnesota M ontana 1961 150 215 365 1962 210 240 450 1961 293 208 502 1962 435 220 655 North Dakota South Dakota 1961 179 484 663 160 520 680 1961 1,087 2,221 3,308 1962 1,260 2,320 3,580 1962 District Total* *lncludes those parts of Michigan and Wisconsin in the Ninth district. State Sum m aries North Dakota: The largest percentage increase in cash farm receipts of any of the district states occurred in North Dakota. This increase of more than 30 percent over the 1961 total represents a total cash receipt figure of an estimated $655 mil lion. Cash receipts from the sale of crops were up by about 50 percent. Virtually all of that gain is attributable to the increase in wheat yields from 11.9 bushels per acre in 1961 to 28.7 bushels per acre in 1962. The total wheat output in North Dakota was over twice the 1961 production. The generally favorable crop conditions during 1962 are reflected in increased output of almost all of the grains. For example, the output of oats and rye was over three times the 1961 figure, while barley and flax production more than doubled. Livestock receipts advanced more than 5 percent over the 1961 receipts due primarily to improved beef cattle prices. Montana: The increase in cash receipts in Mon tana closely parallels the experience in North Da kota. Total cash receipts advanced over 20 percent to total an estimated $450 million. This figure surpasses the previous high cash receipt mark set in 1958. Again, much of the increase is attrib utable to significant improvement in crop pro duction, as cash receipts from crop marketings are estimated to be 40 percent higher than those of 1961. Higher cattle prices raised cash receipts from livestock about 12 percent, the largest per centage gain in the district. South Dakota: Cash receipts from farm mar ketings in South Dakota are estimated at $680 million for 1962, up almost 3 percent from 1961. A 7 percent increase in the sale of livestock and livestock products more than offset a reduction in the proceeds from crop sales. While yields of grain crops were generally higher than those of 1961, a severe rust infestation in winter wheat re duced the output of that crop to about one-half the total 1961 output. The damage to the winter wheat crop was sufficient to reduce all wheat pro duction about 10 percent below the 1961 total which, in turn, was the main factor in a 12 percent decrease in crop receipts. Minnesota: An estimated 1 percent gain in cash farm receipts, while being the smallest in the district, was sufficient to move the total for the state to $1,530 million. This sets a new record high for cash receipts. Crop receipts, which JANUARY 1963 7 usually amount to less than half the income de rived from livestock, were off about 2 percent due mainly to a decrease in crop yields from the levels attained in 1961. Some of the reduction in crop output was the result of excessive moisture condi tions in the western part of the state and in the Red River Valley. Income from the sale of live stock and poultry offset lower dairy incomes as the total livestock receipts advanced an estimated 2 percent over the 1961 total. TABLE 2— BUSHEL YIELDS PER ACRE Minn. A ll wheat M ont. No. Dak.So. Dak. 1961 1962 1961 1962 1961 1962 1961 1962 24.0 24.6 28.714.4 14.7 22.6 11.9 Corn for grain 64.5 59.5 58.0 50.0 33.0 Soybeans 24.0 Barley 30.0 26.0 18.0 30.5 O ats 46.0 45.5 Flaxseed 12.0 19.5 10.0 — 31.0 36.5 42.5 14.0 13.5 18.0 20.5 18.0 35.0 24.0 27.0 34.0 41.0 23.0 52.0 34.0 41.0 4.0 — 17.3 10.0 6.2 12.0 9.5 10.5 Production expenses While net incomes of farmers in the district ad vanced, some of the increase in gross farm in comes was absorbed in the continuing rise in production expenditures. The index of prices paid by farmers stood at an all time high in mid-Octo ber, about 2 percent higher than 1961 levels. While much of the increase is due to higher prices —particularly feeder cattle prices— farmers con tinued the trend toward purchasing more inputs from off-farm sources. Farm wage rates ad vanced moderately while other purchased goods and services advanced only slightly during the year. Business During 1962, the economic expansion in the Ninth district proceeded at a rate faster than the national. The stimulus for much of the expanding volume of district business activity in the latter half of the year came from the improvement in farm income. As an integral part of the national 8 FRASER MONTHLY REVIEW Digitized for economy, the district’s economy, of course, was tied closely to developments in the nation. This was the situation for the many district manufac turing and mining firms serving national markets. In the U. S., the economic recovery which began in February 1961, continued through 1962. How ever, the expansion during the past year slowed down to such an extent that it has puzzled many businessmen and economists. The slow movement is reflected by the gross national product, which measures the volume of all goods and services produced. GNP rose (on a seasonally adjusted annual rate) from $545 billion in the first quar ter of 1962 to only $562 billion in the fourth quarter, a small increase of about 2 percent after allowance for price changes. In 1961, the in crease was 7.5 percent. As a result of the slow rate of economic expansion, industrial plant capacity has gone unused and a higher level of unemployment has been recorded than in former periods of economic recovery. Em ploym ent Measures of employment and unemployment constitute major sources of information on the economic health and well-being of individuals in communities, in states and in the nation as a whole. It measures the extent of the utilization of the labor force. Since 1957, unemployment in the nation has been high in comparison with the period follow ing World War II, and a 4 percent unemployment level has become widely accepted as approximat ing reasonably full employment. Unemployment as a percent of the civilian labor force, in figures compiled by the Bureau of Labor Statistics, has not averaged as low as 5 percent on an annual basis since the 4.3 percent rate achieved in 1957. These figures have been watched anxiously each month as the economy has moved upward from the low point in economic activity reached in February 1961. In Ninth district states, as in other agricultural states, the technological transition occurring in agriculture continues, year after year, to reduce the labor required on farms, as the chart shows. In the first half of 1962, employment on farms in the four district states (Minnesota, Montana, North Dakota and South Dakota) averaged 2.6 percent below the number employed on farms one year earlier. Beginning in June, however, some increase occurred as preparations were being made for the harvesting of a near record crop; employment on farms rose significantly, and through November it continued to remain above the year earlier level. In Michigan and Wisconsin, where crop production is not so important a part of agriculture, workers on farms continued to decline in 1962. While farm employment has been going down for many years, urban employment has risen, ex cept during periods of economic recession. Since the mid-1950s, even in prosperous years, employ ment has declined in metropolitan areas where manufacturing is heavily concentrated. In highly industrialized Michigan, for instance, nonfarm employment was at a peak in 1953; then it began to decline slowly as manufacturers installed new automatic equipment. SIMPLE ANNUAL AVERAGE RATES OF CHANGE OF NINTH DISTRICT EMPLOYMENT, 1953-1962 Nonagricultural (percent) Agricultural (percent) M innesota 1.34 — 2.41 M o n tan a 1.04 — 2.59 North Dakota 1.48 — 2.89 South Dakota 2.20 — 2.46 — 1.77 — 2.34 1.06 — 2.24 M ic h iq a n W isc o n sin Nonfarm employment in the Ninth district as a whole rose slowly in 1962, from January through August, and then declined slightly. The seasonally adjusted index (1957-59=100) rose from 105.6 percent in January to 106.6 percent in August and subsequently declined to 106.2 per cent in November. The decline is too small to re veal a turning point in any major industry cate gory except iron ore mining. Chart 1— District employment by states, 1953 and 1962. tho u san d s o f w o rke rs (lo g sc a le ) 4,000. 2,000-*; x” ■ '-A -:1 ,0 0 0 • — I . ■ ... ' d—I 800600400— ' : ini 2 00 '1 3 1 ';: — 100 80- ' 0; • Si 60S lilllS 40— ■ ■ 1 - 20_ :1 farm employment . . thousands of workers (log scale) 4QC— mich. wise. minn. mont. no.dak. so.dak. *1962 figures are estimates JANUARY 1963 9 INSURED U NEM PLO YM ENT A S A PERCENT OF AVERAGE COVERED EM PLOYM ENT* February** Septem ber** 1961 1962 1961 1962 1961 1962 8.8 6.9 2.5 1.9 2.4 2.1 Montana 15.1 9.7 2.6 2.1 3.0 1.9 North Dakota 12.6 11.5 2.0 0.8 2.2 0.7 Minnesota O ctober 7.3 5.8 0.8 0.9 0.8 0.9 Michiqan 13.6 6.7 4.1 3.0 3.9 2.6 Wisconsin 7.3 8.4 4.4 2.5 2.0 2.3 5.9 3.8 3.3 3.8 2.1 3.4 South Dakota United States *The averaqe is insured unemployment as a percent of averaqe covered employment in a 12-month period endinq 6 to 9 months prior to month of reference. **The seasonal peak in unemployment usually occurs in February and the seasonal low in September in the Ninth district. The growth in the district’s nonseasonal em ployment in 1962 was small, only approximately 7,100 workers.1 Even so. the recent employment growth within the district and the job opportunities in other regions, especially in neighboring states, have gradually reduced the unemployment in this area. In Michigan, Minnesota, Montana and North Dakota, insured unemployment as a percent of the covered employment in October was significantly below that of a year earlier. In South Dakota, such unemployment was below 1 percent and in Wis consin, slightly over 2 percent during both Octo bers. Compared with the nation, Ninth district un employment falls to a lower level in the summer — but it also rises to a higher level in the winter. but after deduction of individual contributions for social insurance programs. Total personal income in the U. S. during 1962 rose from $428.8 billion in January to $445.6 bil lion in October, an increase of 3.9 percent com pared with a 5,4 percent increase during the com parable period in 1961. These estimates also re flect the slowing down in economic growth. Ninth district personal income grew at a faster rate in 1962 than during the preceding year. The seasonally adjusted personal income from January to October, inclusively, rose by 6.2 percent as compared with 3.4 percent in the corresponding months of a year earlier. In the first half of 1962, the adjusted income was quite stable, averaging about 5 percent above the level of one year earlier. Beginning in July it rose significantly, and by October it was 8.5 percent above the year earlier total. The rise in income in the latter half of the year was due to the marked improvement in farm income. AVERAG E A N N U A L INCREASE IN PERSONAL IN C O M E IN DISTRICT STATES, 1953 TO 1962* Michiqan Percent 3.04 Minnesota 7.17 M o no na 4.12 Norlh Dakota 5.26 Sou'h Dakota 6.28 Wiecorsin 5.15 *Annual esiimaler. for 1962 woro not available for M'chiqan and Wisconsin. The avc-raqo was computed on nine years. Income The level of personal income constitutes another major source of economic intelligence. The broad patterns of income flow to individuals and fam ilies gauge the pulse of our economic life. Income includes all current receipts received from all sources by the residents in a political subdivision or in the nation. It is measured before deduction of income taxes and other direct personal taxes, 1 The estimate includes the four full states and Upper Michiqan but not northwestern Wisconsin which is part of the Ninth district. 10 MONTHLY REVIEW Total personal income from 1953 to 1962, in clusively, in the states wholly or partly in this dis trict fluctuated widely due to the rise and decline of income from primary industries, such as agri culture and manufacturing. In this ten-year period, the average annual increase in total income ranged from 3.04 percent in Michigan to 7.17 percent in Minnesota. The rise in per capita income in the district states reveals a different picture than do the state totals. Per capita income depends, in a large meas ure, on the rise in productivity by industry, while the state total depends largely on the economic growth. The accompanying chart plots the per capita income in 1953 and 1962 by district states and the average annual percent of increase. In the past ten years, the rise in per capita income has been rapid in Minnesota and the Dakotas, with the annual average exceeding 4 percent. Chart 2— Per capita personal income in Ninth district states, 1953 and 1962.* C on su m e r e x p e n d itu re s Personal income is the primary factor control ling consumer expenditures. After the payment of taxes, which is the first obligation, consumers have the balance at their disposal. During the past eight years, the quarterly rate of consumer expen ditures has varied between 91.5 and 94.5 percent of disposable personal income, which is, after payment of taxes, a variation very significant in the final demand for products and services. In the most recent quarter, the ratio stood at 93.1 per cent. Consumer expenditures in the U. S. from the first to the third quarters inclusively in 1962, rose by 2.3 percent as compared to 2.9 percent in 1961. Expenditures for nondurable goods and for services rose by almost the same percentages in the two periods. The smaller rise in consumer expenditures in 1962 as compared to 1961 is traced to the durable goods field. Sales of new automobiles rose sharply in the fourth quarter of 1961, and the level was maintained in 1962 with little further increase. The high sales of new automobiles was a major factor in supporting the increased level of busi ness activity achieved last year. Total retail sales in the Ninth district were quite high in 1962. However, the increase occurred at the beginning of the year, with only a small further rise during the year. The Bureau of Cen sus’ sample of sales by retail stores, which ex cludes sales in large retail chains but is the broadest coverage available in the district, rose only a fraction of a percent in the first nine months of 1962 on a seasonally adjusted basis. In The annual average increase or decrease was derived from the algebraic sum of the annual increases or decreases, which was divided by the number of years. The beginning of the period 1953 was used as a base to turn the average into a percentage. the preceding year, the adjusted index rose by 5 percent. On the basis of the information on employ ment, unemployment, personal income and ex penditures, a vast majority of residents in the Ninth district were prosperous in 1962. The cur rent outlook for 1963 is favorable in large part, according to developments in major industries. M a n u fa c tu rin g District manufacturing expanded significantly in 1962. The seasonally adjusted index of indus JANUARY 1963 11 trial use of electric power— an indicator of manu factured products output— in October was 10.6 percent above the January figure. Much of the in crease occurred in the output of durable products, which is subject to cyclical fluctuations larger than the output of nondurables. The rise in em ployment also reflects the expansion in durable manufacturing. In October 1962, employment in plants producing durable products was up 4.9 percent, while in nondurable plants it was up only 1.6 percent from a year earlier. An important factor in the larger demand for durable products has been the value of contracts awarded by both civilian and defense agcncies of the federal government. The dollar amount of contracts awarded in this region as a pro portion of the total, has remained quite stable from the beginning of the Korean War to the present time, so the rise reflects the steady increase in federal government expenditures. These expenditures will continue to rise in 1963. Previously scheduled increases plus new legisla tion now indicate that purchases by the govern ment may total $4 billion to $ 4 billion above the 1962 total in the U. S. Of course, the demand from consumers for manufactured goods is more im portant in the total final demand, but it is dif ficult to predict. The employment and income accruing from larger government expenditures may expand the consumer demand. Construction District residential building held up well in 1962. The number of dwelling units authorized by building permit during the first nine months of 1962 was up 9 percent from the comparable period one year earlier. Much of the building was con centrated in Minnesota, especially in the Twin Cities metropolitan area, which recorded an in crease of 18 percent in units built. The trend toward the building of more apartments con tinued. Multiple dwelling units comprised 59 per cent of the total, while in 1961 they were only 40 percent. 12 MONTHLY REVIEW Other types of building— commercial, indus trial, educational, hospital and public buildings— approximately equaling the volume of residential building, declined during 1962. The amount of contracts awarded in the district during the first nine months was down 11 percent from the pre ceding year. According to the awards made in recent months, there is still no indication of an increase in activity during 1963. The construc tion of public buildings may rise, as the amount of bond issues approved in the November election was high in many localities. In contrast, the activity on public work projects, which includes largely the construction of streets, highways, bridges and sewerage systems and the expansion programs of the private and public utilities, rose significantly in the latter half of 1962. Furthermore, the outlook is for a continued high volume of construction in 1963. since in creased appropriations have been made for high way construction. M ining In the mining field, Montana’s 1962 copper production was interrupted by a labor dispute, which accounted for the decrease in copper pro duction. Except for this work stoppage, a stable level was maintained in the output of copper in both Montana and Upper Michigan. Iron ore shipments from U. S. ports on Lake Superior totaled 53.6 million gross tons in 1962. slightly less than the 53.8 million tons shipped in 1961, when output was also low. The increase in pellet production has been offset by cutbacks made in other types of ore. In northern Minnesota, the 70-year-old Zenith mine at Ely was abandoned by the W. S. Moore Company and North Range Mining Company in late 1962. The Oliver Iron Mining Division of U. S. Steel abandoned Minnesota’s first iron ore mine, the Soudan, and a ten million ton ore re serve which it had never developed, located at Hibbing. Such developments point to a further reduction in iron ore production. BanR operations in 1962 JPL t year end the number of people employed in the bank had grown to the highest number, 684, of any postwar year. The increasing volume of operations faced in the Check department, and the demands for more complete, detailed reports and analyses to be furnished by the Planning depart ment, are examples of greatly increased workloads faced by the bank, resulting in higher employment. Except for the developing capability of the bank to use electronic processing of data and handling of checks, the employment figure might have been even higher. The number of checks handled by the bank has been increasing annually, and this year the in crease jumped 7.9 percent over 1961. The new electronic equipment installed in October in the Check department enabled a substantial portion of these checks to be handled at high speed. At the present time, the checks so processed have to be manually processed once on proof machines to encode in magnetic ink the amount of the checks. As the Magnetic Ink Character Recognition pro gram progresses, magnetic encoding will be done by forwarding banks, and the initial manual han dling to prepare the checks for electronic process ing will be reduced. Due to very careful preparation prior to installa tion of the equipment, satisfactory results were achieved within a short period of time. By the end of the year more than five million checks had been handled by the high speed division. The availability of the general data processing electronic computer enabled additional programs to be devised and developed for handling the com pilation of data for many different departments in the bank. Such diverse reports as the expense report by the Accounting department submitted to the Board of Governors, efficiency reports on staff in the Check department, calculation of salary ex penses and deductions, and payroll tax including Social Security and Unemployment Compensation for the Personnel department, the reclassification of Treasury Tax and Loan Accounts, and func tional distribution of employee time in the Check department, are examples of reports that either consumed considerable time previously or were not even attempted prior to the availability of the equipment. While time and expense are involved in preparing programs for such compilation, once developed they make the repetitive task much sim pler and quicker. Activities of the Fiscal Agency department in creased and those of the Discount department decreased as short term money rates remained relatively stable throughout the year. With the Treasury Department offering an increased amount of Treasury Bills, the total of securities handled by the Fiscal Agency department at Minneapolis Federal Reserve Bank increased. Even though dis trict member banks increased their loans propor tionally more than their deposits, most of them were able to finance the increase without recourse to the Discount window. As noted in the Banking review, those few commercial banks that found themselves short of funds, rather than borrowing from the Federal Reserve Bank, may have liqui JANUARY 1963 13 dated securities in the stable money market. As commercial banks in the Ninth district added to their investment portfolios during the year, an additional number of securities were sent to the Federal Reserve Bank of Minneapolis in Safekeep ing for them. In the past decade there has been a significant increase in the securities pledged to secure public deposits, so that by year-end more than 55 percent of the dollar volume of securities held in safekeeping were pledged either to public deposits, government deposits, or Treasury Tax and Loan accounts. Although a shortage of coin continued during the year, the Federal Reserve Bank of Minneapolis was able to meet the coin requirements of Ninth district banks. It was necessary, however, to reduce the period between the time that coin was received at the bank, proven, wrapped and shipped out to member banks. Compared with last year, there was an increase in the number and dollar amount of outgoing coin shipments to member banks. In addition, the out going shipments during the year have exceeded the incoming, resulting in a net outflow of coin of close to $5 million. Incoming shipments of cur rency, however, exceeded outgoing even though the dollar amount of the outgoing shipments in creased over 1961. The year-end decrease in Federal Reserve Notes of the Federal Reserve Bank of Minneapolis reflects part of this net inflow. In total, the number of currency shipments de creased during the year due to a change in postal regulations which permitted combining shipments of various denominations. Further steps were taken during the year to provide for staff protection and the carrying on of essential banking services in the event of attack on this country. The Emergency Operating Letters and Instructions Manual of the bank has been completed and distributed to all commercial banks in the district, who have been continually urged to advance their own preparedness plans. Agreements have been entered into with 51 commercial banks in the district to act as cash agents or check agents for the Federal Reserve Bank of Minneapolis dur ing a national emergency, and non-member emer gency services were offered to qualified non-mem ber banks in the district. By the end of the year more than half of the non-member banks in the district were in a position to receive such emer gency services. At year end the chairman of the board of directors announced the appointment of Chris topher E. Bjork and Ralph J. Dreitzler as assistant general auditors effective January 1, 1963. In the election for new directors of the Federal Reserve Bank of Minneapolis, Curtis B. Mateer, Executive Vice President of the Pierre National Bank, Pierre, South Dakota, was elected as a Class A director and Hugh D. Galusha, Jr., Lawyer and Certified Public Accountant, Helena, Montana, as a Class B director. The Board of Governors of the Federal Reserve System reappointed Atherton Bean as a Class C director for a three-year term and Harry K. Newburn as a director of the Helena Branch for a two-year term. Atherton Bean was redesignated as chairman and Federal Reserve Agent and Judson Bemis as deputy chairman for 1963. The Board of Directors of the Federal Re serve Bank of Minneapolis reappointed Roy G. Monroe and Harald E. Olsson as directors of the Helena Branch for two-year terms and re-elected John A. Moorhead as the Federal Advisory Coun cil member for 1963. □ i ' L E |" 0 i a 0> :i. 5E . ? a ci 14 MONTHLY REVIEW Volume of Operations Number Discounts and advances Currency shipments, outgoing Coin shipments, outgoing Checks handled, total Collection items handled Issues, redemptions, exchanges of U. S. Government securities Securities held in safekeeping Transfers of funds 1962 195 17,290 27,866 160,131,976 838,541 1961 341 20,400 25,258 148,965,493 793,890 245,229 159,751 89,713 248,776 146,872 86,149 Dollar amounts 1962 1961 196,975,000 $ 118,793,000 423,501,000 431,578,000 27,264,000 30,068,000 43,495,220,000 46,443,008,000 649,153,000 628,666,000 7,837,183,000 1,682,810,000 35,362,708,000 6,896,235,000 1,587,494,000 35,843,000,000 Earnings and Expenses CURRENT EA R N IN G S Discounts and advances United States Government securities All other Total Current E arn in gs CURRENT EXPENSES Operating Expenses Assessment for expenses of Board of Governors Federal Reserve Currency Total Current Expenses 1962 $ 53,485 21,999,161 92,056 22,144,702 $ 1961 51,912 21,648,273 10,893 21,711,078 6,734,047 152,100 245,505 7,131,652 6,198,860 144,000 108,015 6,450,875 634,389 655,147 Net Expenses 6,497,263 5,795,728 CURRENT NET EA R N IN G S 15,647,439 15,915,350 Less: reimbursement for certain fiscal agency and other expenses NET A D D IT IO N S TO CURRENT NET EARN IN G S Profits on sales of U. S. Government securities (net) Transferred from reserves for contingencies (net) All other Total A d d itio n s 80,994 41,395 - 0 - 0 - - -1 3 ,3 5 9 - 1,746 NET EA R N IN G S BEFORE PAYM ENTS TO UNITED STATES TREASURY 15,675,375 15,994,598 PAID TO U. S. TREASURY (Interest on Federal Reserve Notes) 13,564,350 14,005,314 634,325 582,284 1,476,700 1,407,000 SURPLUS January 1 20,232,500 18,825,500 SURPLUS December 31 21,709,200 20,232,500 DIVID EN D S PAID TRANSFERRED TO SURPLUS JANUARY 1963 15 Statement of Condition ASSETS G old certificate account Redemption fund for Federal Reserve Notes Total Gold Certificate Reserves Federal Reserve Notes of other Federal Reserve Banks Other cash Discounts and advances Secured by U. S. securities Dec. 31,1962 Dec. 31,1961 $ 360,614,670 $ 346,376,982 28,295,783 26,898,018 388,910,453 373.275.000 31,637,000 17.931.500 9,963,666 9,186,228 - 0- - 0- 23,000 345,000 628.151.000 615.774.000 628.174.000 616.119.000 1,854,917 313 209,142,027 199,663,497 Bank premises 4,285,704 4,629,742 Other assets 5,689,567 5,132,216 1.279.657.334 1.225.937.496 $ 577,402,225 578,877,280 431,532,606 443,282,324 32,983,176 15,623,073 Foreign 5,980,000 6,095,000 Other deposits 1,682,795 893,902 472,178,577 465,894,299 195,753,021 148,271,847 1,759,711 2,545,320 1,247,093,534 1,195,588,746 CAPITAL A C C O U N T S Capital paid in 10,854,600 10,116,250 Surplus 21,709,200 20.232.500 1.279.657.334 1.225.937.496 Other United States Government securities Total loans and securities Foreign currencies Cash items in process of collection Total Assets LIABILITIES Federal Reserve Notes in actual circulation Deposits: Member bank — reserve accounts United States Treasurer — general account Total deposits Deferred availability cash items Other liabilities Total Liabilities Total Liabilities and Capital Accounts Ratio of gold certificate reserves to deposit and Federal Reserve Note liabilities combined 16 MONTHLY REVIEW 3 7 .1 % 3 5 .7 % } r ....-.............1 —i Officers of the Federal Reserve Bank of Minneapolis Frederick L. Deming President Albert W. Mills First Vice President Kyle K. Fossum Vice President Clarence W. Groth Vice President and Cashier Melvin B. Holmgren Vice President Arthur W. Johnson Vice President Harold G. McConnell Vice President and Secretary Franklin L. Parsons Vice President Maurice H. Strothman, Jr. Vice President and General Counsel Roger K. Grobel Chief Examiner Arthur J. McNulty General Auditor Frederick J. Cramer Assistant Vice President John J. Gillette Assistant Vice President Oscar F. Litterer Assistant Vice President Milford E. Lysen Assistant Vice President Orthen W. Ohnstad Assistant Vice President John P. Olin Assistant Vice President Earl O. Beeth Assistant Cashier Carl E. Bergquist Assistant Cashier William C. Bronner Assistant Cashier Howard L. Knous Assistant Cashier John A. MacDonald Assistant Cashier William A. O'Brien Assistant Cashier Marcus O. Sather Assistant Cashier Officers at the Helena Branch Clement A. Van Nice Vice President John L. Heath Assistant Cashier Robert W. Worcester Assistant Cashier At of December 31, 1962 JANUARY 1963 17 Directors of the Federal Reserve Bank of Minneapolis Class A: Harold N. Thomson Harold C. Refling Rollin O. Bishop Vice President, Farmers & Merchants Bank Presho, South Dakota Cashier, First National Bank in Bottineau Bottineau, North Dakota Chairman of the Board The American National Bank of Saint Paul St. Paul, Minnesota Term expires December 31 1962 1963 1964 Class B: Alexander W arden Ray C. Lange T. G. Harrison Publisher, Great Falls Tribune-Leader Great Falls, Montana President, Chippewa Canning Company, Inc. Chippewa Falls, Wisconsin Chairman of the Board, Super Valu Stores, Inc. Minneapolis, Minnesota 1962 C H AIRM AN A N D FEDERAL RESERVE AG EN T President, International Milling Company Minneapolis, Minnesota DEPUTY C H AIRM AN President, Bemis Bro. Bag Co. Minneapolis, Minnesota President, Upper Peninsula Power Company Houghton, Michigan 1962 1963 1964 Class C: Atherton Bean Judson Bemis John H. W arden 1963 1964 Directors of the Helena Branch Appointed by Federal Reserve Bank: Roy G. Monroe Harald E. Olsson O. M. Jorgenson Chairman of the Board and President The First State Bank of Malta Malta, Montana President, Ronan State Bank Ronan, Montana Chairman of the Board Security Trust and Savings Bank Billings, Montana 1962 1962 1963 Appointed by Board of Governors H. K. Newburn John M. Otten C H AIRM AN President, Montana State University Missoula, Montana VICE C H AIRM AN Farmer and Rancher Lewistown, Montana Member of the Federal Advisory Council John A. M oorhead As of December 31, 1962 18 MONTHLY REVIEW President, Northwestern National Bank of Minneapolis Minneapolis, Minnesota 1962 1963 Subscriptions available from Monthly Review, Research Department, Federal Reserve Bank of Minneapolis, Minneapolis 2, Minnesota
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