Full text of Annual Report of the Federal Reserve Bank of Philadelphia : Recession in Perspective : 1954 Annual Report

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RECESSION
IN
PERSPECTIVE

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THE

IN

1953

-1954

RECESSION

ACTION

AND

IN

PERSPECTIVE

THE

FEDERAL

RESERVE

BANK

OF PHILADELPHIA

February 25,1955

Recent developments suggest that we take a look at
how attitudes toward the problem of controlling business
fluctuations are influenced by our economic environment.
Such a survey will be useful if it causes us to be on
guard against both the over-confidence sometimes inspired by extended booms and the excessive pessimism
engendered by prolonged depressions.
This Annual Report deals mainly
with business and
financial conditions in 1954. The leading developments
were the converging of recessionary forces on the durable goods sector, actions taken to counteract the decline, and the emergence of recovery. It also deals
briefly with bank examination.

Alfred H. Williams,
President.

CONTENTS

Page

i

RECESSIONIN PERSPECTIVE
"Boom and Bust" on the Way Out?

7

1954: Readjustment and Recovery

8

Defense - Inventory

12

Construction

13

Financial Stabilizers

24

Recovery

25

Third District Trends

30

Implications for the Future

31

Examining Banks

39

Reserve Bank Operations

44

Directors

45

Officers

46

Readjustment

and Consumer
Expenditures Rise

APPENDIX

Additional
upon

copies

request

Federal

to the

Reserve

Philadelphia

of

Bank

the

report

Department

are available
of

of Philadelphia,

1, Pennsylvania.

Research,

RECESSION
IN

PERSPECTIVE

The mildness of the two most recent recessions-in
1949
bust
belief
that a
can
and 19 53 -19 54-and
the widespread
now be prevented, prompt one to attempt putting the problem of business fluctuations
in perspective.

Real income per person in the United States has increased
fourfold in the
past eighty years, according to a study of the
National Bureau
of Economic Research. This is a remarkable record of growth, and it would probably have been
greater had it not been interrupted periodically by business
depressions. Growth has been
obscured by wave-like movements in business activity, with total output increasing an
average of 6.5 per cent annually in periods of expansion, but
declining 4.5
per cent annually in periods of contraction.
We have been
more successful in increasing output per unit
of resources used than in keeping these resources fully employed.
"Boom

and

Bust"

on

way

out?

be
the growing confidence that boom and bust may
become more stable?
on the way out-that
our economy has
built
One development
often cited is the automatic stabilizers
into the Government's
These include such
fiscal operations.
price
payments as unemployment
benefits and agricultural
The
fashion.
supports which tend to move in contracyclical
tax system, aided by highly
progressive income-tax rates, mops
up an increasing share of income as incomes rise, but a declining share
as incomes fall. These built-in stabilizers tend to
damp down
boom and
the flow of spendable funds during a
enlarge it during recession. The high level of Government
demand which helps
expenditures also
provides a hard core of
to sustain
a high level of business activity.
Why

I

A second structural development has resulted in a more
bank assets constable money supply. When commercial
loans and commercial paper the
sisted largely of short-term
deposits
was geared closely to changes in business
volume of
decline
in business activity was usually accomactivity. A
demand for credit, and
panied by a sharp reduction in the
loans
fell due and were redeposits dwindled as short-term
paid. There was less check-book money to spend, which
tended to bring a further decline in business activity. Bank
loan and investment policies, however, have changed materially in the past two decades. Bank assetsnow consist more
largely of Government securities and longer-term loans. These
assets are less sensitive to short-run changes in the volume of
business activity; in fact, bank holdings of Government securities instead of moving with changes in output tend to rise
during recessions and decline during periods of expansion.
Thus greater stability
in the total volume of bank credit
means that changes in the money supply are no longer such
a strong force intensifying booms and depressions.
Another

change often referred to as contributing
to
stability is that the debt structure has become less vulnerable
in long-tern
to a business decline. Amortization,
particularly
A good part
mortgage loans, has become standard practice.
of mortgage debt outstanding is insured or guaranteed by the
FHA
Regular repayments by the borrower
and the VA.
build up his equity.
A drop in employment
is
and incomes
less likely to touch off such a large volume of distress selling
days of the short-term,
loan.
unamortized
as in the

Growing confidence that the problem of business fluctuations has been pretty well solved also rests, in part, on the
belief that we are now better able to deal with the business
cycle. We know more about its causes and characteristics.
We have more and better statistics for checking the status
forecaster's tool
of our economic health. The present-day

2

kit bulges with
statistics and improved techniques-index
numbers, gross national product, time series, correlations,
sources and uses of funds, and model building. Consequently,
many believe that actions to prevent booms and busts can
be better timed.
The

problem

In

perspective

An interesting question is whether this optimism about
the business cycle may not stem largely from the buoyant
conditions that have generally prevailed since the beginning
of World War II. Experience demonstrates that good times
breed
There is a close
optimism; bad times, pessimism.
interrelation between
economic conditions and views about
the business cycle.
Until the
depresearly part of this century, booms and
sions were generally regarded as inevitable-the
product of
natural economic law. Acceptance of this view precluded
attempts to smooth out business fluctuations. But the hardship and loss inflicted by recurring financial crises caused
some to become impatient with a "do-nothing policy. " They
rejected the view that such crises were inevitable and that
nothing could be done to prevent or mitigate them.
A
first decade of
comprehensive
study was initiated in the
financial panthe present century to find
ways of preventing
ics and
crises-at
that time the most obvious aspect of the
business
cycle. A central bank was suggested as the remedy,
and the Federal Reserve System
in 1914. It
was established
became
soon
money panics
apparent though that preventing
did
in
not solve the problem of wide swings
and
production
employment.
The World War I boom and post-war depression, which was
in commodity
accompanied by sharp swings
prices, focused
level. Many
attention on stabilizing the price
believed
key
level
that a stable price
to stable levels
was the
3

Commodity
prices
were
and employment.
of production
decade
during
the
of
most of
stable and business was good
late twenties some esthe twenties; so much so that in the
had entered a new era of permanent
poused the idea that we
prosperity.

The dream of a new era was soon shattered by one of the
most severe depressions in our history. Prolonged economic
paralysis in the thirties affected our thinking as well as our
incomes. It gave birth to another type of new era-that
of
a "mature economy" which, because of limited private investment opportunities, posed the problem of chronic business stagnation and unemployment. It also brought a marked
shift in emphasis from monetary to fiscal policies as to the
best method of dealing with depressions.
War II generated another boom, but there
was
widespread belief that transition from a war to a peacetime
economy would once again pose the problem of depression
The Employment
Act of 1946
and large-scale unemployment.
be
stated that all governmental
activity should
coordinated
toward "maximum
production,
and purchasemployment,
ing power. " Full employment
became
objective
a primary
both
here and abroad. Post-war experience
of policy
thus
far has belied the thesis of stagnation
and chronic unemploy_
Inflation
ment.
and boom have been the more
serious,
War II, except
threats. Ever since the beginning of World
for minor post-war interruptions,
has
our economic machine
been going full blast to meet the tremendous
demand
for
led
goods and services. The persistent threat of inflation
to
the rediscovery of monetary policy both here and abroad.
Seeming success of actions to mitigate post-war contractions
has led to a rather widespread belief that depressions may be
World

a thing

of the past.

One of the lessons of history is to be wary of moods of
the moment. Prolonged depressions started us searching for
4

changes which would explain an apparent condition of chronic
stagnation; extended booms, on the other hand, have often
inspired explanations as to why depressions have become a
relic of the past. Realism demands that we avoid being
carried away by either extreme.
Achieving

stability

a

complicated

problem

Despite

to stability there
some developments
contributing
Shifts in inveninstability.
are still many sources of economic
tory policy tend to generate short-term
changes in business
Business expenditures
for plant and equipment,
activity.
high
level
in the post-war period,
although consistently
at a
Consumers
usually vary widely over a period of time.
are
fickle.
buying
borrowing
We
still
spree,
and
may go on a
for
example, as we did following the outbreak of hostilities in
Korea, or
suddenly tighten our purse strings. Consumers may
eagerly buy certain types of goods today and let them accumulate
The money supply,
on the merchants' shelves tomorrow.
formerly,
is still likely to
although perhaps more stable than
intensify business
unless appropriexpansion and contraction
ately regulated.
In these days of international
tension when
total defense outlays are necessarily large, a sharp change in
the flow of defense orders may stimulate or depress industries
producing military
equipment.

Economic progress itself
downsubjects the economy to
ward as well as upward pressures. Inventions and new products usually flow from
our research laboratories in waves
rather than in a constant stream. Invention of the new frequently brings obsolescence of the old. The automobile displaced the buggy, the mechanical refrigerator the ice box,
and the vacuum cleaner the broom, and so on. To meet the
expanding demand for new products requires more material,
capital, and labor. But less is needed to produce the products
that are becoming
outmoded and obsolete. A progressive
5

is marked by a decline of the old as
economy is dynamic; it
Maintaining
over-all stability
well as expansion of the new.
human and material
full-capacity
that
operations requires
and
from declining to expanding
resources be shifted promptly
by
industries.
Expansion
whether initiated
or contraction,
like a pebble thrown in a pond
is
cyclical or secular changes,
circles.
ripples spread in ever-widening
-the

Maintaining both a stable and a growing economy is a
complicated problem. It does seem that there has been prothis worthy goal. We have more
gress toward achieving
"know-how, " more tools, and apparently we are more adept
in using them than a few decades ago. Nevertheless, progress
will not be facilitated by overlooking the inherent difficulties
involved.
For one thing, it is impossible always to time monetary
and fiscal and debt-management
actions to apply just the
right amount of restraint or stimulus at the right time. With
business
impending
present knowledge
and techniques,
in
changes cannot be accurately forecast even a few months
if
advance; and
they could, the public would soon react in
such a way that the predicted event would be brought
about
sooner than was forecast. Yet, time is required to put countermeasures into effect, particularly fiscal policies which require
legislative action. And built-in stabilizers, although helpful,
cannot be relied on to offset swings in business activity.
Another

inherent difficulty is that the immediate problem
us is seldom, if ever, all black or all white. Actions
confronting
for meeting certain conditions
that are appropriate
may not
for others. For instance, cyclical and
be appropriate
strucIt may
be
tural changes usually are closely intermingled.
difficult at times to determine the extent to which depressed
from cyclical contraction or industrial decay.
conditions result
A cyclical decline calls for actions to expand the flow of
purSuch actions, however,
chasing power and total expenditure.
6

may or may not facilitate the prompt shifting of labor and
other resources from decaying to expanding industries. Actions to prop declining industries may delay the shifting of
resources and retard economic progress. In our efforts to
achieve stability, we must not overlook the effects on progress.
These illustrate some of the barriers on the road to our
goal of stable economic growth. This is not to imply that
They are
the barriers are believed to be insurmountable.
difficult to hurdle, however;
and success will require even
greater efforts to increase our knowledge of the causes and
Exthe best methods of dealing with business fluctuations.
cessive optimism, by causing a relaxation of efforts and possibly by inspiring speculative activity, will retard rather than
accelerate progress toward the goal.

11954:

READJUSTMENT

AND

RECOVERY

in
Recession
the business trend
and recovery highlighted
The
1954. The
year began in an atmosphere of pessimism.
decline
which began in mid-1953
showed no signs of abating
and there were some who feared it might snowball into a
did
recession of considerable
Business activity
proportions.
continue to fall during the first quarter, but it held within a
narrow range for the next six months, and then, spurred by a
By the
recovery in durable
turned upward.
goods production,
half
had recovered
end of the year, industrial
of
production
the loss from its 1953 high
low.
to the 1954
Nineteen

fifty-four
was a good year. The value of all goods
and services produced
below 1953. The
was only 2 per cent
over-all slump in business
but the impact
activity was small,
was uneven. Some industries,
manufacturers
of
principally
durables,
were hard hit. Mining and transportation
also were

7

lesser extent than durable
affected but in most cases to a
hand, hardly felt the
goods. Some industries, on the other
impact at all. A few, such as construction, utility and service
industries, had a better year than in 1953. Regional differHeavy durable manufacturing
ences were pronounced.
more than the over-all decline
centers suffered most-much
little, and some not
would indicate. Other localities suffered
at all.
DEFENSE-INVENTORY

READJUSTMENT

The

recession resulted mainly from two related developliquidaments-a
cut in defense expenditures and inventory
by
Federal
Governtion. Purchases of goods and services
the
ment, which had risen sharply, began to decline in the latter
part of 19 53. Federal purchases in 1954 were $10 billion
below 19 53, the drop in national security purchases accounting for $8.4 billion.
Business firms, particularly
manufacturhad
large inventories
began to
ers, which
accumulated
liquidate stocks in the latter part of 19 53 and the liquidation
fall in
continued
through
most of 1954. The combined
defense and inventory spending from
mid-1953 to mid-1954
exceeded the drop in total output of goods and services.
Demand

slump

centers

in

durables

The slump in the demand for durable goods was spearheaded by a drastic fall in new defense orders. Manufacturers
were flooded with new orders as the rearmament program was
following the outbreak of hostilities in Korea.
pushed ahead
The flow of new orders began to subside in the latter part
of
1952, but a large backlog of orders cushioned most producers
decline until inid-19 53. In
against the effects of the
the
half
19
53,
new military orders for hard goods had
of
second
dwindled to $1.1 billion. Manufacturers
of hard goods, heavy
8

durables in particular, bore the brunt
of the impact. Producer
demand
for
durables
and consumer
eased also. Private producers
less
for
durable
in 1954
spent 9 per cent
equipment
than in 1953. The slump reflected completion
of much of
the tooling up for defense orders as well as some non-defense
expansion

and modernization

programs.

As production
began to fall off in the
and employment
latter
became
part of 1953, consumers
more selective in their
buying.
Some decided to use the old car or the old refrigerator a while longer and to postpone buying that new TV set
for durable goods
or dishwasher.
Consumer
expenditures
dropped 8
last
in
per cent
the
quarter of 1953, a good part
Consumer purchases
of the decrease being for automobiles.
hard
level
in the first quarter
of
goods continued at the same
1954
For the year as a
of
and then recovered somewhat.
for
durables than in
whole, consumers spent 2 per cent less
1953.

inventory

liquidation

As demand
became concerned
slackened, businessmen
about their inventories. Total stocks which had been built up
at a rate of $5 billion annually in the second quarter of 1953
were being liquidated at a rate of $4.2 billion in the fourth
quarter. The sagging demand of final purchasers was augmented by a drop in inventory demand.
The flow
influence
of defense orders has had an important
on inventory policy
of durable goods. Maof manufacturers
terials and supplies
were accumulated to fill the soaring volume
of defense contracts.
Manufacturers'
inventories rose 35 per
cent from the end
As order backlogs
1950
to mid-1953.
of
melted away the
sharp cutback in new orders began to affect
inventory
Manufacturers
first reduced their stocks
policy.
of purchased
supplies and materials,
then goods in process
9

deinventories
and finished goods. Total manufacturers'
being
durdecrease
in
clined $3 billion in 1954, most of the
able goods.
Stocks of trading establishments were much more stable
There was little change in inthan those of manufacturers.
There was
ventories of wholesalers either in 1953 or 1954.
in
in
inventories
1954,
most of it
retail
a small reduction
being in durable goods.
Production

and

employment

defense and consumer
The full impact of the dwindling
demand for durables hit producers. The cutback in production exceeded the decrease in sales in order that stocks could
be reduced. Industrial production dropped 8 per cent in the
last half of 1953; it continued to decline but at a slower rate in
the early months of 1954, and showed little change until the
latter part of the
year.
The slump in production,
as in demand, centered in durable goods. Output of durables dropped about 12 per cent
from mid-1953 to mid-1954, the bulk
of the decline coming
in the last half of 1953. Primary and fabricated
metals,
electrical and non-electrical machinery, transportation
equipment, and instruments and related products bore the brunt
of the recession. Producers of consumer durables were also
hard hit. Motor-car
In
production
slumped substantially.
14
fewer
about
per cent
mid-1954
cars were rolling
off
lines than in mid-19 5 3. Production of major houseassembly
hold appliances slumped sharply, output reaching its low
at
There was a gradual recovery in 19 54 but
the end of 19 5 3.
below 1953.
total output of appliances was considerably

The impact on nondurable goods manufacturers was less
severe. The softest spots in nondurables were textiles and
leather products. Some nondurables
apparel, and rubber and
10

such as paper and printing,
and
chemicals and petroleum,
food
and tobacco products showed strong resistance to the
downward
pressure. Output in these industries showed little
from
1953.
change
by a
The drop in industrial
production
was accompanied
decline in
Non-farm
reached its
employment.
employment
low in August
below the peak of
1954-nearly
2 million
Most of the decline was in manufacturing,
this
mid-1953.
decrease
in
for 90 per cent of the total
sector accounting
non-farm employment.
The heavy-goods industries, such as
transportation
and other machinery,
equipment,
electrical
primary metals, and fabricated
experienced
metal products,
Workers
the more severe reductions
were
in employment.
also laid off in other sectors, principally
mintransportation,
ing, and the Federal Government.
Unemployment
and March 1954.

1953
between August
rose substantially
Some of the rise in unemployment
was
in busiseasonal but most of it resulted from the contraction
ness activity, particularly
in the manufacture
of durable goods.
The impact
was uneven geoof the recession on employment
Insured
graphically, as well as among industries.
unemployment in 1954 ranged from less than 3 per cent of covered
in nine
employees in six states to
more than 7 per cent or over
hit much harder
states. Some communities
and regions were
than the state figures indicate.
in some cenUnemployment
ters reflected
long-run
more deep-seated causes, such as a
decline for
the products of some industries and the shifting
of industries to
demand for labor
other regions. The reduced
was reflected also in
a moderate decrease in the average number
of hours worked per week.

Wage payments
both as
arising from production declined
a result of fewer people
decrease
in
the numemployed and a
ber of hours
worked. Profits also decreased, particularly in
the depressed durable
goods industries.
11

in durThe extent to which the recession was concentrated
for
by
few
figures,
adjusted
a
able goods can be illustrated
March 1954, total
seasonal change. From July 1953 through
dropped 10.2 per cent, durables 14 per
industrial production
decreased
cent, and nondurables 5.8; non-farm employment
durable
9
2.9 per cent,
manufacturing
per cent, and nondurin manufacturing
4
total
manhours
worked
able
per cent; and
durables fell 14.4 per cent as compared to 7.2 per cent in
nondurables.
CONSTRUCTION

AND

EXPENDITURES

CONSUMER
RISE

Construction was one of the bright spots in 1954.

The

force
surprising strength in this industry was an important
impact
durable
in
counteracting
the
of the readjustment
goods. Total outlays for new construction
rose 5 per cent
to $37 billion, practically all of the increase being in private
construction. Expenditures for the construction of new homes
soared to 13 per cent above 1953. Public construction
showed
little change. State
and local governments spent 12 per cent
more on construction projects than in 19 53, mostly for highThe rise was just
ways, schools, sewers, and water facilities.
about offset, however, by an 18 per cent drop in Federal outlays-mainly
for defense construction.

New-home starts totaled 1.2 million, compared to the
alltime record of 1.4 million in 1950. Why this surprising
strength in new-home construction? Such underlying factors
as the backlog of demand accumulated during the war, a high
rate of new-family formation, and a high level of personal inkept home building at a high level during
come have
much
of the post-war period. These factors, however, do not explain
the rise in home building in 1954. An important reason was
the liberalization of credit terms on Government-guaranteed
be explained later.
and insured mortgages, as will
12

The consumer also played a significant
part in cushioning
his
the readjustment.
Percentage-wise,
role does not look
impressive-only
over
a2 per cent increase in expenditures
for
1953. But
we should remember that consumers account
The
for goods and services.
two-thirds of total expenditures
small percentage rise in consumer spending was sufficient to
offset one-third of the dollar decline in defense and inventory
spending.
The consumer did
tighten his purse strings a little, especially
in the last
declined
quarter of 1953. Sales of automobiles
considerably but began to rise in the early part of 1954.
Consumers
durables but
reduced their purchases of other
for
decline
did
the
not continue for long. Their expenditures
hard
less
than in
goods for the year were only moderately
for
1953. They
spent more for food and about the same
other nondurable
items. Service expenditures,
such as rent
and utilities, continued to rise but at a somewhat slower rate
than in 19 5 3.
The moderate
in 1954 is
rise in total consumer spending
hard
not
Consumers had more money to spend
to explain.
inthan in 1953. How
explain this seeming paradox of an
crease in consumers' spendable funds and a decrease in production
For the answer we must turn to
and employment?
developments
financial
front.
along the

FINANCIAL

STABILIZERS

Financial developments
played a significant role in cushioning the decline
in
and
checking its spread throughout the
economy. These developments
builtreflect the operation of
in stabilizers, but
more significantly positive actions taken by
fiscal
and monetary authorities.
13

Fiscal

and

debt-management

policies

have
The financial operations of the Federal Government
influence
become so large that they have an important
on the
have to spend. Every tax dollar paid
amount of money people
into the Treasury means someone has a dollar less to spend.
Every dollar paid out by the Treasury gives someone another
dollar to spend. If the Treasury pays out more than it takes
in, the net effect is an increase in spending money; if it takes
in more than it pays out there is a decrease.
Consumers spent more and saved as much in 1954 as in
1953, despite the drop in industrial production
and employFiscal
income
tended
to
and
spending
ment.
policy
sustain
last year in two important ways.
One was the operation of the so-called built-in stabilizers.
Unemployment
incompensation
payments automatically
declined.
Total
creased as employment
payments to the unemployed were $1 billion more last year than in 19 5 3. Transfer payments of a similar nature added another billion dollars
to income. The tax system operated automatically
to reduce
the tax take. With progressive income tax rates, the loss of
income in the depressed industries put some taxpayers into a
lower income bracket. As a result, the
effective tax rate was
lowered and tax receipts fell by
than
a greater percentage
income.
A significant factor bolstering disposable income
was the reduction in tax
rates. Personal income tax rates were reduced
and the corporate excess profits tax was terminated,
effective
January 1,1954.
Lower excise tax rates on a number of comThe Tax Revision
modities also became effective in April.
Bill of 1954 introduced many changes but had little effect
on
tax receipts last year. The effect of these tax reductions
was
offset somewhat by the increase from 1 %Z to 2 per cent in
14

old-age insurance contributions.
The net reduction in tax
receipts as a result of these
changes was estimated at $6 billion
for a full
but
decrease
for 1954 was less.
year,
the
The built-in
stabilizers and tax reductions were important
forces
sustaining spendable income. Total personal income
continued at about the same level as in 19 53 but income after
taxes actually increased $3.5 billion. Despite
a slump of over
$4 billion in
corporate
taxes decreased
profits,
profits
after
lessthan
one-half billion. The Government, however, reduced
its expenditures
as well as its tax income. A substantial decrease
in actual cash
payments held the cash deficit to $1 billion.
The over-all
effect of Federal cash receipts and expenditures
was a small increase in funds
put at the disposal of the public.
With

a substantial part of the large Federal debt maturing
have
each year, debt-management
operations of the Treasury
a significant influence
By
seoffering
on economic activity.
banks, the
curities which
are attractive
to the commercial
Treasury
can encourage an increase in bank holdings which
in turn increases
On the other hand, if
the money supply.
the Treasury
offers securities that are attractive to non-bank
investors,
the tendency is to siphon off savings, leaving the
money supply
Despite its long-term objective of
unchanged.
lengthening
debt, the Treasthe maturity
of the outstanding
last
ury offered only
securities
short- and intermediate-term
year. The expansion in
bank holdings of Govcommercial
for the
ernment securities last
year was mainly responsible
increase in
the money supply.
Another
advantage of offering only
short- and intermediate-term
securities was that the
Treasury did
long-term
borrowers
not compete with
seeking
funds.
It was to
that the
avoid this sort of competition
Treasury
in
issues
from bringing
refrained
out long-term
for
1954. The
result was a larger supply of funds available
mortgages
securities, which
and corporate
and municipal

15

OF WEAKNESS

SOURCES
BILLIONS

(1947-49=100)

INDEX

1953
1954

50-

ý

i

1953
1954

-

40-

1403020-

0

NATIONAL
SECURIIY

CONSUMER
DURABLFS

PRODUCERS
DURABLE
EOUII'

1. National

security,
consumer durable purchases,
and producers
declined in 1954.
cyuiprnent

{1 1( 1 Ir)IJ,

t,

( SF A`J )fJALLY

AU, JUS'711)

TOTAL

"'
most of the decrcasc
was in durables.

1. As a result,
production

MANUFACTURERS'

INVENTORIES

--

100-

o-

)

41,
4",

I

120-

ýMl

ý

TOTAL

NONDURABLES

TOTAL IND. PROD.

z,ý

RETAIL

INVENTORIES

INSTRUMENTS

WHOLESALE

i? -

Ip ýLýA ýIIIIIIIIIIIIIII
Ilý9

2. '1'1

iIltenslhcd

as

of final
ºº1aº11º

users

lacturers

sold more than they produced
they Iillui(lilt ('d inventories.
HILL

IL FJ

$

("t

n". 11Nnt

II

AI,

JlJ

TRANSR EQUIPMENT
'ERY
MACH]
NONELEC.
MAC
ELECTRICAL

iý

19.`i4

drop in demand

was

TOTAL DURABLES
METALS
FABRICATED
FI%TURES
FURNITURE 8

.,ý.

INVENTORIES

PRIMARY METALS
-25

-20

It

-15
f(

LtN

-101

-5

0

P°to I,
grotty'
the durables
Ittct'AI`
tentage changes from 1953
to
1954 low show
rimary
downturtl.
most affected byithe

5. Within

1U)

NONFARM

DURABLE

GOOD5
+Zw

UNEMPLOYMENTI
ýI

NONDUHAUý(ýý

lliii

iiii
eýiiI
",

-lb

iiiiiiiii

3. Inventory
liyutdutioii
iuoktly in durable8.

I4

-10

G. And
centered

-5
PER

I kA-

05
CENT

I0

15

0
20
21

,m'

employment declined
ehnployznent rose-fronº a
1.2 million to 3.7 million"

slow
0

AND

STRENGTH

1111.1i')N",

2w,

$

(SEASONALLY

-

1953-1954
THOUSnNI15

ADJUSTED)

UNITýJ

()F

PERSONAL
INCOME
AFTER
TAXES

CORPORATE
INCOME
AFTER
TAXES

f,

_

60 IIIII

ýýý

19ý3

iD1 5

t954

(SEASOHALLV

HOUSING

STARTS

A-

in residential
investment
5. Consumer
strong the
Housing was particularly
year.
past

ADJUSTED)

$

f31LLIONS
PERSONAL

NONFARM

IIIIIiI'I

1.1n spite of the dip in employment,
Consumer income held at high levels and even increased somewhat.
XL

NEW

M-

TAXES

80NONFARM
RESIDENTIAL

DEBT

70/()

.

TRANSFER

PAYMENTS

60-

ýiýe>3

10
2. The

I1

l

ýýI
ia
li I

ä

19ý

by
6. This demand was sustained
credit.
huge volume of mortgage

came about
as the
in transfer
an increase
tax bite.
and a smaller

(SEASONALLY

iý

-j

increase

result of
payments
IfILLIONS

ý.,,,.

1954

THOU5AN05

ADJUSTED)

OF

UNIT'ý

1953
TOTAL
CONSUMER
EXPENDITURES

S(l:

)-

zý-, "ý

IIIIII

S,.
-

i

ýM
1954

i.

a

tý... l
......

.................
.,....
ou.

by

creased

" .......,
1. cuu.

uc.

just

1:....
r. jý

$4 billion

195:1.

n(
... -_
...

over
300-

BILLIONS

TOTAL
CrREDI
CREDIT

RI

I ,.

CONSUMER

200. oo

INSTALMENT

CREDIT

C
1953

4. Ilut
consumers
their Instalment
in 1951.

I I

IIII
191.

did not
borrowing

ii

ýý.

increase
much

',

-,,., <ý,"I",
7. The relaxation
of terms oll VA aq(I
FHA
probably
stittnu.
mortgages
lated most of the rise.

11

Ii

helped to sustain the high levels of construction
expenditures.
Federal

Reserve

and capital

policy

The ultimate goal of Federal Reserve policy is to adjust
the flow of credit in such a way as to promote stable economic
growth. In other words, the objective is to prevent credit
expansion from lifting spending so high that it tends to raise
prices and generate inflation; and to prevent credit contraction from going so far that insufficient demand tends to bring
on deflation and depression. To achieve this objective, System
from restraint to ease
credit policy must be flexible-shifting
in accordance with changes in the business situation.
The

focal point of Federal Reserve actions is on the reloans
serves of member banks. When commercial banks make
these checkand purchase securities, they create deposits-and
The
ing accounts constitute the bulk of our money supply.
loans
amount of
and investments that member banks can
depends
on
the supply and the availability
make
of reserves
to support the creation of additional deposits. By increasing
the supply of reserves, the System can increase the lending
capacity of the banks; by decreasing the supply it reduces
The System can also encourage or
their lending capacity.
discourage
bank lending by making reserves more
or less
readily available.
The Federal Reserve moved promptly to increase the
supply
of bank reserves in mid-195 3 as soon as evidence appeared of
Once it became clear that
a decrease in business activity.
a
business readjustment
was under way, the System adopted
a credit policy of "active ease." In general, this policy meant
that banks would be supplied with ample reserves to meet
all
sound credit needs.
18

Several
last year in carryactions were taken by the System
ing out this
Reserve Banks
policy. The discount rates of the
were reduced from 2 to 13/4 per cent in February
and from
13/4 to 1 %Z per cent in April and May. These reductions made
reserves available at lower rates-they
made it less expensive
for
member banks to borrow reserves to support credit exby
The reductions also brought
pansion.
the rates charged
the Reserve Banks closer in line with short-term
rates prevailing in the
were
In mid-year,
reserve requirements
market.
reduced; that is, member banks were required to hold a smaller
percentage reserve against their demand and time deposits.
$ 1.6
The reduction
in reserve requirements
released about
billion
better
banks in a
of reserves, thus putting
member
in
position to meet the seasonal increase
the private demand
for credit
Treasury,
needs of the
as well as the borrowing
System
openwhich are larger in the second half of the year.
semarket operations
(purchases and sales of Government
other
actions
curities in the market)
with
were coordinated
Free reto keep member banks
reserves.
with
supplied
well
from
borrowings
less
serves of member banks (excess reserves
$500
to
Reserve
the
million
Banks) generally ranged from
$800
million in 1954.
The
effects of the System's policy of active case permeated
the credit market.
part
These developments
are an important
during
the past
of the story of readjustment
and recovery
year.

Bank

credit

X 10
Loans and investments
of member banks increased
billion in 1954, despite
The
business
activity.
the slump in
bulk of the increase
Member
banks added
in
investments.
was
$5.5 billion
$
billion
1.5
Government
of other
of
securities and
securities to their investment portfolios.
19

Loans increased much less than investments, the total inbillion. Loans of central reserve city banks to
crease being $3
firms decreased, mainly because
commercial and industrial
inventory liquidation supplied business firms with cash and
for short-term credit. Business loans of
reduced their need
banks,
especially country banks, increased.
other member
Mortgage loans on real estate, loans to purchase and carry
loans to consumers also rose.
securities, and
How did the increase in bank loans and investments help
to stem the decline in spending and business activity? For
one thing, it put additional funds at the disposal of borrowers.
The ready availabiliy of mortgage money enabled more people
to buy and build homes. Banks supplied mortgage funds
through direct loans to borrowers. They also supplied funds
indirectly through bank purchases of Government securities.
Such purchases enabled life insurance companies and mutual
savings banks, which sold Governments on balance last year,
to obtain additional funds for mortgages and other investments. Non-financial corporations and individuals were also
net sellers of Government securities. Thus bank purchases
of Government and other securities supplied funds for new
construction, corporate outlays for plant and equipment, and
state and local expenditures for public improvements.
The increase in bank loans and investments
was the principal reason for the $4 billion increase in the money supply
Checking
(demand deposits plus currency).
inaccounts
$4
billion,
but
little
creased
there was
change in currency
Time deposits rose more than in 19 53,
in circulation.
the
being
$5.2
billion.
increase
Money

rates

The policy of credit ease was also a significant factor
reducing the cost of borrowed funds. As pointed out above
keeping banks supplied with adequate reserves enabled them

20

to expand their loans and investments.
The flow of savings
into
The net
savings institutions
was also well maintained.
result was an increase in the available supply relative to the
demand for
decline in
credit-a
which brings a
condition
interest
rates.
Interest

The market
rates began to decline in mid-1953.
in
rate on Treasury bills-the
rate most sensitive to changes
from 2.2 per
the supply and demand for
credit-dropped
cent in June 1953 to considerably less than 1 per cent in June
1954. The
and then
rate firmed somewhat
after midyear
leveled
off at around 1 per cent. The market rate on highgrade commercial paper-the
instrument
used by some sales
finance
large
business
firms
to borrow moneycompanies and
dropped
long-term
also
The rates on
securitiessharply.
Treasury,
but not
bonds-declined
municipal,
and corporate
so much as short-term
rates to customers
rates. Bank-loan
is greater than openare stickier and the regional variation
market rates; but there was some easing in rates in the past
year, particularly
on business loans.
Both the increased
availability
and lower cost of credit encouraged the use of borrowed funds. The incentive of lower
rates is stronger in the case of long-term credit where interest
cost usually constitutes a more important
part of total costs.
Rising
(lower
securities prices
market rates) also encouraged
The strong
the sale of
finance
long-term
projects.
securities to
market for municipal
securities was certainly
and corporate
a factor in the rise in state and local public works expenditures
for
and in sustaining
a high level of corporate expenditures
plant and
equipment.
New

securities

Issues

State and local
borrowed
governments and corporations
large
sums last year to finance a variety of long-term projects.
The total
amount of new securities issued was substantially
21

New offerings of state and local governments
above 1953.
One of the reasons for the increase was a
rose 25 per cent.
large volume of revenue bonds issued by state authorities
Financing was also needed
for the construction
of turnpikes.
buildings,
for other highway construction,
and other public
The total volume of new corporate offerings
improvements.
however, offerings for new
also exceeded the previous year;
declined.
Corporate securities issued to finance plant
money
but
and equipment expenditures dropped about 5 per cent,
for
dropped
those
raising working capital
over one-fourth.
As pointed out previously,
inventory liquidation
was an imfactor
portant
reducing working capital needs. There was a
took adsharp rise in refunding
operations, as corporations
vantage of lower interest rates to sell new securities, the proissues.
ceeds being used to retire some of their outstanding
Mortgage

credit

The ready availability of mortgage
credit was a significant
factor in the rise in
construction expenditures in 1954. Total
mortgage debt on non-farm
property increased $11 billion.
The bulk of the rise was in home mortgages,
although mortgage debt on large apartments and commercial
properties
increased $2.5 billion.
An ample supply of mortgage funds
and more liberal lending terms were the significant
forces expanding
mortgage
Savings institutions
credit and residential construction.
such
as life insurance companies, mutual savings banks, and savings
and loan associations continued to receive a large inflow
of
These sources, together with the
banks,
commercial
savings.
provided an adequate supply of mortgage money to meet the
home financing.
rising volume of

A significant factor stimulating home construction was the
easing of terms on which credit was made available. Down
payments were reduced and borrowers were given a longer
22

for veterans were made esperiod for repayment.
Terms
down
pecially easy-no
payment and as long as 30 years to
This
pay.
meant that a veteran wanting to buy a home could
borrow
the full purchase price and, with repayment
of principal and interest spread over 30 years, his monthly payments
would be relatively small. FHA loans were also made available
with smaller down payments and a longer period of repayment.
There is
evidence that the more liberal terms for Governbuyment-guaranteed
and insured loans brought many new
into
last
ers
Requests for VA appraisals
the market.
year
were 1 10 per cent above 19 5 3. They rose sharply in the first
high level until
part of the year, remained
at an exceptionally
Applicathe last quarter, and then declined only moderately.
tions for FHA loans
Last year,
1953.
were one-third above
48 per
by VA and
cent of new-home
starts were financed
FHA loans
as compared to 37 per cent in 19 53.
Consumer

credit

Only
a small part of the increase in consumer expenditures
last
year was financed by credit.
Consumer credit rose less
$4
than a billion dollars, in
contrast to an increase of almost
billion in
1953. In the first
quarter of 1954, consumer credit
absorbed income
loans. Beginas repayments
exceeded new
for
ning in April,
instalment
loans
new
exceeded repayments
the remainder
of the year. The increase in the second and
third quarters, however,
was less than during the same period
of 1953, while
expansion in the last quarter was about the
same.
One

reason for the small increase in consumer credit last
year was the
slump in demand for durable goods. Instalment
credit for the
for
purchase of automobiles,
which accounts
about one-third
of the total, was little changed in contrast to a
28 per
cent increase in 1953. There was a slight decline in
instalment
credit for the purchase of other consumer durable
23

loans. Charge accounts
goods but an increase in personal cash
little change.
and other forms of non-instalment credit showed
RECOVERY

The readjustment
turned out to
which began in mid-1953
be milder than many had expected. One reason was that it
for reasons which have
never spread over the entire economy,
been
indicated.
Some
types of business activity
only
already
flattened out; others continued to expand. Production
of durbore the brunt of the decline.
able goods

Recovery in the depressed industries did not begin all at
once; rather it was staggered through most of the year. Production of nondurable goods turned upward at the beginning
of the year. There was a slight decline after midyear and then
a more pronounced rise beginning in September. Output of
major household appliances reached a low at the end of 1953,
and then climbed during most of 1954.
The continued decline in defense
purchases and inventory
liquidation,
which centered in the heavy durables, delayed
Defense
decreased
recovery in these industries.
purchases
1954,
but
decline
less
in the
throughout
the rate of
was much
last quarter. The
in
inventories,
reduction
manufacturers'
which had been going on steadily since the third quarter
of
19 53, ceased in the fourth quarter of 1954. The cessation
of inventory liquidation and slower rate of decline in defense
purchases were important factors bringing about an upturn
in
durable
Manufacturers'
the heavy
goods industries.
new
for durables turned up sharply in the latter
part of the
orders
Production
of heavy durables began to climb slowly
year.
in August and then more rapidly in the last quarter.
Automobile production moved up very sharply in the last two months
had
of the year. By the end of the year, industrial production
drop
from
the
19
53
of
midto the
regained about one-half
1954 low.
24

It seems likely
output in
that the sharp rise in automobile
the last two months of the year exaggerated the extent of the
basic
low in September
Production
and
recovery.
was very
October
In
as companies shut down for model change-over.
November, however,
December output
output rose sharply.
Factories were turning out
was 15 per cent above November.
cars at a rate far in excess of that needed to meet even the
most optimistic estimate of sales for 1955. This sharp rise in
automobile output was an important
stimulus to the production of steel and other materials used by the industry.
Prices

were

stable

An unusual feature
recession was the
of the 1953-1954
Both indexes
stability of wholesale
prices.
and consumer
showed little change, either in the latter part of 1953 or in
1954.
One reason for
the stability in the wholesale and retail price
indexes was that final demand for goods and services was well
sustained. Government
supported prices of some
stockpiling
strategic materials,
and the price support program cushioned
the decline in
agricultural
prices.

THIRD

DISTRICT

TRENDS

In the past,
Federal
conditions in the Third
Reserve District economic
have followed pretty closely national trends.
Post-war developments, however, have brought some significant changes in the character of the district's economy. Most
important perhaps are the growth of heavy industry in the
Philadelphia
in the
metropolitan area and the steady decline
anthracite mining industry. Manufacturing is more important
and agriculture less important in the district than in the country as a whole.
25

Business

activity

declined

District,
as in the nation,
activity in the Third
downward in the first part of the year. Inasmuch
continued
in manufacturing,
the district was
as the decline centered
A larger
affected somewhat more than the country as a whole.
district
labor
force
in
is
in
this
employed
part of the total
Also the chronic distress in coal mining-an
manufacturing.
important district industry-had
an adverse effect on employBusiness

ment.

The decline in district employment touched bottom about
May. At that time, 12 of the 18 labor-market areas within
the district were classified as having a substantial labor surplus.
Philadelphia
Of these twelve, six including the largest-the
labor-market area-had more than 6 per cent but less than
12 per cent of their work force unemployed. The other six
areas had unemployment in excess of 12 per cent.
The decline in manufacturing
and the rise in unemployment
had a depressing effect on other types of business activity.
department-store
District
sales and automobile
registrations
however, was a strong spot in the
Construction,
slumped.
district as well as nationallly.
Business stabilized during the summer months.
In most
instances the decline had been arrested and there were
some
New claims for unemployment
signs of improvement.
cornpensation dropped and continued
claims began to recede
Department-store
slowly.
sales improved
somewhat,
and
dealers were selling more cars. Contracts for new
construction
began to rise markedly.
Business activity began to pick up in the fall. As
production picked up, more workers were taken back and unemployment declined over most of the district. The anthracite region,
however, continued to be an area of "substantial
labor
surChristmas
plus. " Department
stores had a record-smashing
26

season which brought
19 54 sales to the 19 53 level. Following
the introduction
of new models, automobile
sales rose sharply.
New
construction
to be awarded in uncontracts continued
usually heavy volume.
Bank

credit

expands

Financial developments in the Third District
were similar
to the national pattern. Credit was easy with an adequate
supply available to meet both short- and long-term needs.
Third

District

Member

Banks

(In millions of dollars)
Amount
Dec. 31,1954

Change
Amount

in year
Per cent

Loans
Commercial
and industrial ...
Agricultural
To purchase ...............
or carry securities
Real estate
Other loans .................
to individuals
.....
All other
.
Total loans-gross
Investints
U. S. Government
securities ...
State
and local government
...
Other
securities
............
.
Total investments
........
Total
earning assets
...........
* Lessthan I
per cent.

1,208
71
136
925
843
90

+5
-}+27

8

-}-- 92
+ 43
10
+

+ 13
+ 25
+ 11
}5
+ 13
+6

3,273

185

2,812
680
248

+1 18
+ 155
29
-

+4
+ 30
- 10

3,740

+ 244

+7

6,953

+ 424

+6

27

TRENDS

DISTRICT

THIRD

INDEX
1AiLl

(1447-49=100

SE ASUNALLY

ADJUSLFD)

ý(ýNS

120-

1953

14-

4'

/ý 1rý
\!

n-ý

%I

11-% .
L, L1,

ýiI1III1tillIIII11I1L,
ýýý
iý

ý`

ý

1954

de1. And so were departmentstore sales, but they rose
sharply in the latter part of
the year.

iL5]

ý/1

\v'-.

,, ý, -)

I(iS-

-ý"

1. Factory employment
clines, then levels off.

IIIIIIII(...

r.

1
1

1

I,k1

`ý

..

li.

2. And laborers
worked fewer
hours per week in 1954.
5. Member
1954.

bank

credit

rose

in

ý1 tp-

I',-

--

,. J

II1III11

ý

3. As a result, weekly earnings
below
in 1954 were mostly
1953.

28

6. Loans

to business
and
consumers showed small change
for the year, but
mortgage
credit climbed.

banks rose 6 per
Loans and investments
of district member
cent in 1954, as compared to about 8 per cent for all member
banks. The $424
district
million increase in earning assets of
banks
largest
for
in
was the
the post-war period. Total
any year
$7
billion
earning assets reached
at the close of the year-a
record high.
The demand for business loans
3.
was not so strong as in 195
Commercial
but
loans rose slightly
considerably
and industrial
less than in
the previous year. Business loans held up better
in the Third
latter
District,
however, than nationally-the
loans rose
showing a small decline for the year. Agricultural
13 per cent,
probably reflecting bank purchases of Commodity
Credit Corporation
inpaper. Consumer loans showed some
The
high level of district building activity generated
crease.
Real-estate loans of
a strong demand for mortgage
credit.
district
the
member banks rose 11 per cent, approximately
same as nationally.

The bulk of the
district, as
expansion in bank credit in this
nationally, was in the form of investments. A notable feature
in the district
was the sharp rise in member-bank holdings of
state and local government securities. The rise, both in dollar
amount and percentage-wise, was greater than for Government securities. District member banks reduced their holdings
of corporate securities.
The supply
of mortgage credit was ample to meet the strong
demand in
this district. Insurance companies, savings banks,
and savings and loan associations were active in this field as
well as the commercial banks. Lending terms were easier, particularly for FHA
form of
and VA loans, but mainly in the
lower down
Interest
rates on
payments and longer maturities.
mortgages not insured
Government did
by
the
or guaranteed
soften somewhat. There was a substantial rise in VA no-downpayment, 30-year loans. But in the latter part of the year, lenders were becoming more insistent on a5 to 10 per cent down
29

The secfor the 30-year maturity.
payment, particularly
but
buyers
for mortgages was good,
were beondary market
drew to a close.
coming more selective as the year
IMPLICATIONS

FOR

THE

FUTURE

In looking back on the 1953-1954 recession, what are the
for the future?
One question which naturally
implications
be so mild.
arises is why the recession turned out to
For one thing, the downward pressures in this latest recesimpinged mainly on heavy dursion were concentrated-they
for soft spots here and there, economic health
ables. Except
industries
was generally good. More important,
outside these
perhaps, were the strong forces tending to sustain economic
The demand for goods and services by the Federal
activity.
level.
Government,
although declining,
was still at a high
Automatic and positive actions tended to sustain personal and
corporate spendable incomes and the credit policy of active
ease resulted in an ample supply of credit available on liberal
terms. These were strong snubbing forces. The timing
of
these actions, although motivated somewhat by other reasons,
involved.
was also good considering the inherent difficulties
The Federal Reserve shifted promptly to
an easy-money policy
once evidence of recession began to emerge. The bulk of the
tax reductions became effective January 1,1954;
rather good
timing considering that legislative action was required.
Another

question is whether cycle downturns have lost their
Most theories of the business
cumulative
character.
cycle
decline
stress that once a
starts it tends to spread and deepen.
It touches off a chain of reactions which tend to depress
other
industries and push the depressed industries further
down.
Recent evidence seems to indicate not that the cumulative
type
has been eliminated but rather that
of reaction
under certain
blunt its impact.
In 1954,
conditions snubbing actions may
consumer spending rose somewhat more than the increase
in
personal income after taxes, and commercial banks made use
30

of the bulk of the reserves made available to them. It is significant that the business climate was generally favorable to
the use of funds made
had not been
available-confidence
shattered nor had profits disappeared. To what extent the
snubbing actions would have been effective had the business
climate been far less favorable is a moot question. Experience
in the thirties, however, is
not reassuring.

The
principal lesson to be gained from the 1953-1954
recession is not one
of essential changes in the nature of cyclical
be
movements but that
coordinated
and timely actions can
boom.
effective in cushioning
a decline as well as in arresting a
Monetary, fiscal,
debt-management
and
operations were coordinated
toward the common objective of arresting the recession. Monetary
actions were promptly
and debt-management
adjusted to counteract the downward pressures. It would have
been better had
3.
tax reductions become effective in mid- 19 5
But tax
They
rechanges are more difficult to time properly.
quire legislative
preparation
action as well as considerable
before
changes can be put into effect. The results, however,
seem to justify
concerted effort to make better use of this arm
of fiscal policy in
booms and depressions than in
combating
the past.

EXAMINING

BANKS

If We
ever lick the business cycle completely, some of the
credit should go to the
bank exunsung, often unpopular,
aminer. Fighting
he does
the business cycle is not his job, but
have
the task of fostering a sound banking system. And strong
banks
are an important requisite for economic stability.
Examining banks
is only one aspect of the Federal Reserve's broad
to economic
responsibility for contributing
31

But it is one of the oldest. A basic
stability and growth.
Federal Reserve System over four
motive for setting up the
decades ago was to put an end to the recurring money panics
One of the purposes
which had been plaguing the economy.
Act which Congress actually spelled
of the Federal Reserve
"to establish a more effective superout in the preamble was
banking
United
States."
in
the
vision of
Painful experiences had made it clear that banking was not
like other businesses. When banks failed, repercussions were
widespread; when banks were strong and healthy, they helped
the economy grow. In the area of responsibility delegated to
them, the forty-six men and women who work in this Bank's
Department of Bank Examination contribute to economic
stability and growth by working toward strong banks.
This job is being carried on in the field by an examination
force of twenty-six men and at this Bank by an additional
twenty people. It has two main aspects: bank examination
and
bank supervision.
No one can say for sure where the dividing
line runs, but in general bank examination
has to do with
facts
bank
has
do
getting
and
supervision
to
with acting
on
the facts. Much of the time of the Department
of Bank Examination is taken up with analyzing bank reports of condition
and earnings and expenses, considering proposed changes
in
functions
banks,
capital structures and corporate
of
considering applications for the exercise of trust powers, implementing
In
examination reports, and other such supervisory activities.
department
has been particularly
busy rerecent years the
for bank branches
viewing applications
and mergers.
A large part of the man-hours of the department,
however,
is spent in examining the 77 state member banks in the Third
At the end of 1954 these banks had
Federal Reserve District.
department resources of
31/2 billion, they held
commercial
in fiduciary, agency, or custody capacities resources of $3.8
billion and, with their branches, operated 175 banking offices.
32

The job of examining banks has a number of objectives,
depending on how
you look at it. We have already described
the objective in over-all terms. But while he must keep this
in mind, the bank
examiner must also think in more specific
terms. His day-to-day objective is to get facts-facts
which
can help him verify and evaluate a bank's assets and liabilities,
including management. This is highly technical, often delia
cate, in some ways tedious but frequently stimulating job.
No one but
an examiner knows exactly what it is like. To
the extent that words can describe it the following may give
some idea.
A "typical"

examination

In order to do this
we shall try to describe something that
doesn't
exist-a typical examination. The banks which this
Bank examines
are as large as $744 million in deposits and as
small as $1.3 million. The largest take several weeks to examine; the smallest perhaps only a week. So if we were to
look at typical day in
Bank
a
the work of the Department of
Examination it
would probably involve the examination of
a fairly large bank. In fact, some of the toughest problems
which the department has confronted in recent years has been
in handling the
additional work load imposed by the growth
of large state member banks through mergers. Today, seven
large banks hold
three-fourths of the resources of all state
member banks in this district.
Yet,
over half of all state member banks have deposits of
between $2
Because most banks are
million and $10 million.
be
relatively small and because the
process can
examination
traced more
bank
out of
clearly, we shall pick a hypothetical
this group for
our typical examination.

It is always
a state member bank. National banks are examined by examiners working under the Comptroller of the
Currency. State banks
which are not members of the Federal
33

Reserve System but are insured by
surance Corporation are examined
banks which
state authorities. State
Federal Reserve System and are not
examined by the state.

the Federal Deposit
by the FDIC and
are not members of
insured by the FDIC

Inthe
the
are

feasible, examiners of this Bank examine state
Whenever
The FDIC
banks jointly with the state examiners.
member
and does not
usually accepts reports of these examinations
The
Chief
Examiner
Bank
and the
of this
conduct its own.
bein
touch
authorities
are
close
with
each
other
and,
state
tween them, decide when to examine certain banks and how
much man power each agency should
amination.

contribute

to the

ex-

On the chosen day the examiners show up at the bank unannounced. They start the examination either in the morning
before the bank opens for business or in the afternoon after
the bank has closed. In either case, they face at the outset a
major problem of examining the bank without disrupting
the bank's operations. It is a little like measuring the pistons
of a car without stopping the motor.
The first thing the examiners do is to take control of the
bank's assets and certain records. Assets
which they can't
immediately place and keep under visual control are sealed
until later. Then the examiners verify teller cash. In an examination starting in the morning, they must do this quickly
so that customers are not kept waiting in the lobby. After
verifying teller cash, the examiners check cash in the vault
and other cash items.
Speed is also important in checking the deposit account
records. While some examiners are still counting cash, others
are starting the adding machine listings of checking and savings ledgers. They compare the totals of these listings with
the general ledger controls in order to determine whether the
deposit ledgers are in balance.
34

This

early phase of an examination can be wearing on the
nerves. Much of it is routine. In a bank the size we are talking about, for example, it means counting thousands of individual pieces of currency. In the examination of a large bank
the force is largest
is
at this point; before the examination
force
In
over the
has shrunk to only a few men.
our typical
example, however, the force is much smaller and continues
about the same throughout the examination.
Fortunately,
this early phase lasts only a day or two and
once the cash and ledger listings are out of the way, pressure
for speed
abates somewhat. The notes in the loan portfolio
must also be checked against the several ledger controls. but
this does not have
to be done quite so quickly.
The examiners
from under
now start to get the vault out
seal. They open the compartments of the vault which hold
collateral and the bank's investments, and inspect and comjobs left to do
pare these items
against the records. Other
are verifying other deposit liabilities and the shares comprising the bank's capital.
Thus

far the
than
involves more procedure
examination
judgment
judgment.
It is in the
of assets that
evaluation
comes into play. In
investments
the examiners
evaluating
first look
(United
at maturities,
then the type of securities
States Governments,
railroads, public utilities,
municipals,
into
etc. ), and finally
divide
They
the investments
quality.
four
bonds,
(1) high-grade
groups, depending
on quality:
(2) bonds
but are not
have
which
characteristics
in default, (3) defaulted speculative
bonds, (4) stocks.

In making
use their own
judgment but these evaluations, the examiners
by
quality ratings pub.
are aided considerably
lished by investment
job
is also much easier
Their
services.
than it once
because
hold
banks now
a much larger prowas
portion of Government
Neversecurities in their portfolios.
35

theless, this phase of the typical examination still requires the
examiners to look at several million dollars worth of securities
and come up with a considered judgment as to their quality.
A more severe test of the examiners' judgment, however,
is in the evaluation of loans. They have no problem with
many loans. For the loans secured by life insurance or marketable securities, for example, it is easy to tell simply by the value
of collateral whether the loans are covered. But many loans
are unique in themselves and require individual analysis. And
because examiners rarely can specialize in one or a few industries, they must have a wide background against which to
appraise the great variety of loans they encounter. Their
background is broadened by the fact that they are constantly
going from bank to bank, absorbing the composite opinion
of many bankers as to the business outlook and conditions in
specific industries.
Examiners are also helped by material in the bank's files.
The more complete the
credit files the easier the examiners'
job becomes and the more accurate their
In fact,
appraisals.
most examiners of long experience believe that loans almost
classify themselves as to quality if all pertinent
credit data
are available. Unfortunately,
information
is not always
credit
complete and examiners must form their judgment
without
from
all the facts. Some examiners,
experience
acquired
over many years, have an almost uncanny credit sense and
can gauge accurately the quality of loans for which information is scarce.

Examiners classify all loans of inferior quality into
three
groups: (1) loans involving more than a normal risk, (2)
loans on which collection in whole or in part is doubtful,
and
(3) loans which in whole or in part are uncollectable. These
are placed under captions headed "substandard, " "doubtful, "
and "loss. "
36

Everything we have said up to now has to do with the
commercial department of the bank. Since 55 of the 77 state
member banks in this district exercise trust powers, however,
chances are that our typical examination includes the examination of a trust department. Of the twelve examiners in the
Department of Bank Examination, seven specialize in examining commercial departments and. five specialize in trust examinations. The fourteen assistant examiners do not specialize so much. Over
one-third of examination man-hours is
Most of the trust
spent in examining trust departments.
examiners' time, however, is spent in the trust departments
of several very large banks. It would take only a few days to
examine the trust operations of our typical bank.
During

this time, the examiners
mine whether the trust department
A bank, like
any other fiduciary,
does not discharge its duties
within
examiners bring to management's
which the institution's
performance

deterattempt mainly to
being
is
operated properly.
is liable to surcharge if it
The
of law.
requirements
in
attention any instances
be questioned.
could

Perhaps the
is in
greatest test of the examiners' judgment
defense
evaluating the bank's management. The first line of
for a bank's deposits is its
capital structure. But management
is also very important;
good management will be able to avoid
most losses. From this point of view alone the examiner has
a responsibility to determine the capability of management.
Ordinarily, he
bank's
can get some idea from the quality of the
assets. If asset quality is satisfactory, it usually indicates that
management is satisfactory.
Good

however, is
management,
vigorous and
institution
growing
that
The
examiner must judge how well
adequate succession
and is meeting

builds a
also one which
its community.
can serve
management is providing
the needs of the area.

Altogether, the
best
examiners have spent perhaps the
part of a week getting facts. Now they must make their re37

This is a document of about sixty pages, containing
port.
figures and the examiners' judgments
and recomtables of
The examiners first review their findings
with
mendations.
draft
bank
and then submit a
management of the examined
in charge of the Department
of
the
to
officers
of the report
After necessary additions and corrections
Bank Examination.
final draft is prepared.
Copies of this report go
are made, a
Banking
files
Bank
into the
of this
and are sent to the State
Board
Governors
in
Washington,
Department,
and
the
of
the examined bank. This Bank also receives copies of reports
which
are
of examinations
of national banks in this district
reviewed and analyzed.

At this point, bank examination leaves off and bank supervision takes over. With the copy of the examination report
sent to the examined bank is a letter from the officer in charge
of bank examination. This summarizes the important findings of the examination and recommends whatever action
may be necessary. It requires the charge-off of all items classified in the "loss" category. Of the total "doubtful"
classification, one-half is deducted from capital structure in the
examiners' report, but usually no actual charge-off is required.
If the volume of doubtful assets is significant, however, management may be requested to set up adequate reserves. If
the volume of classified assets is large, management is urged
to make every effort to improve the quality of assets and, in
some cases, to obtain more capital.
Conclusions
How

much

influence

do

examiners

really

exert

on

the

banks? Ask the banker. On the first day
operation of
of an
he may feel that
examiners were created simply
examination
life more complicated than it
to make his
already is. But by
the last day the conscientious banker is welcoming
the examiners' objective, unbiased view of his bank. He is anxious
conditions revealed by examin_
to correct any unsatisfactory
38

ations. He knows that it is not only good business but is
good for the economy for his bank to be strong and healthy.
For
Of course, bank
examiners can't solve all problems.
one thing, they constantly
to make the public
are trying
A full
is riot an audit.
understand that a bank examination
liabilities
audit would involve verifying
as well as assets,
all
checking all depositors' accounts by getting in touch with depositors, verifying the genuineness of signatures on every note
and the accuracy of every figure entered on the books. This
is the auditors',
Yet examiners do
job.
not the examiners'
try to uncover fraud and, more important,
try to encourage
They review audit and
measures which will prevent fraud.
internal
control procedures and make suggestions, when necessary, for improving
internal safeguards.
Examinations

be used as a tool of
also are not intended to
banking policounter-cyclical
By encouraging
sound
policy.
to
cies and procedures,
however, bank examiners contribute
a healthy economy.
And by drawing on their experience and
knowledge
of the economy,
they can guard against overconfidence in booms and over-pessimism
in recessions. They
play an important part in the achievement of the objective of
the Federal Reserve System-the
of a stable
encouragement
and growing economy.

RESERVE
BANK
OPERATIONS-1954
The Federal Reserve Bank
of Philadelphia made several
changes in procedures to improve efficiency. Adaptation of
the punch card to the
operations of the Bank is constantly
being
The
latest
development relates to member-bank
studied.
reserve accounts. Handled heretofore on accounting
and
39

is being transferred
to punch
adding machines, this operation
in 19 55. This change is expected to reduce
beginning
cards
banks with more uniform statements of their
costs, supply the
balances, and facilitate routine checking of the adereserve

by individual banks.
quacy of reserves carried

in the collection department was speeded by a shift
in the sorting of checks from an alphabetic to a numeric basis
by the fact that over 95 per cent
change made possible
-a
in to us now carry the combined A. B. A.
of the checks coming
corner.
number and routing symbol in the upper right-hand
The cash department began to pay out the notes of other
Reserve Banks, under an amendment to the Federal Reserve
Act permitting this to be done without penalty, with the result
that the work of sorting currency was reduced considerably
and a substantial saving was effected in shipping costs. Service
to member banks was improved by extension of the armoredcar service for the delivery of currency and coin to additional
communities.
Work

Operations of individual departments
of the Bank involve
"banking
such large amounts as to warrant the description
at
"
For
214
wholesale.
example,
million checks-Government
handled in 1954, an average of over 800,000
and other-were
day.
This record volume ran about 3 per
each working
cent
1953.
Somewhat
ahead of
smaller quantities of both currency
and coin were handled in 1954. But here, too, volume
remained very heavy as nearly 300 million pieces of currency
and 372 million coins were counted in the course of the year.
Issues and redemptions of Federal Government
securities
increased further in 1954. In the case of marketable
issues,
the number of pieces rose from 209,000 to 260,000;
for
bonds,
issues
by
the
total
of
Bank
and redemptions
this
savings
13,400,000
and issuing and paying agents increased from
Beginning in August, a major
pieces to 13,900,000.
part of
the processing of paid savings bonds was transferred
to the
40

i

regional office
of the Treasury, but the Reserve Bank continues
to receive shipments
This reof bonds from paying agents.
duction in
one phase of the fiscal-agency work was countered
in part by
bea new duty-the
processing of postal receipts
ginning in January.
Postmasters throughout
the district send
us surplus funds in the form
of cash, money orders, savings
albums, and checks. We
prove each deposit and render an
accounting to the Post Office Department.

Borrowing from
the Reserve Bank declined considerably,
as reflected in a decrease from $31 million in 1953 to $8
million in 1954 in the average daily amount of credit being
extended to member banks. The number of banks accommodated
167 to 138. The
also fell off, but not so sharply-from
lighter
use of Federal Reserve discount facilities reflected general easiness in the credit market, due partly to lessened demand in some sectors
and also to the System policy of making
reserves readily available.
Among
in the table on page 49
the operations summarized
is the
transfer of funds, which increased in number to a new
high
involving
of $43
of 86,000 transactions
the movement
billion.
deExpansion
also was recorded in the processing of
however,
positary receipts for
taxes. Some decline,
withheld
was reported in
coupons redeemed, in coupons clipped, and
in debit
and credit entries incident to direct sendings and the
group and wire-clearings
plans.

More than 800 bank directors
from all parts
and officers
of the district attended a series of twenty "at-home" meetings
held during
1954. They had the opportunity to inspect reserve banking in action and to witness the results of constant
efforts to integrate large-scale and diversified operations. In
the course of the programs-which
included addresses supplemented by flannel-board and other visual aids-the
structure and workings of the Federal Reserve System and the
41

discussed, as well as the instruments
of
credit market were
in the banking field, and the outdevelopments
credit policy,
look for business conditions.
of
to wider understanding
objective of contributing
in
banking
in
particular
system
general and the
the economy
by numerous addresses before other groups, tours
was served
by educators and students, and such media
of the Bank
data on banking
as the monthly Business Review. Valuable
being assembled and
and business conditions constantly are
This
is
done
for
of those
primarily
the information
analyzed.
formulation
and administration
of bankcharged with the
ing and credit policy. Disseminated through publications,
releases, and by word of mouth, this information
also serves
the useful purpose of putting into the hands of businessmen
and bankers data helpful to them in working
out their own
The

problems.

Directors

and

officers

The terms of Wadsworth Cresse
as a Class A director
and
of Andrew Kaul, III, as a Class B director terminated
at the
close of 1954. Banks in Group 2 elected W. Eibridge Brown,
President and Trust Officer
of the Clearfield Trust Company,
Clearfield, Pennsylvania, to
3
succeed Mr. Cresse, and Group
banks elected Bayard L. England, President
Atlantic
City
of the
(New Jersey) Electric Company to succeed Mr. Kaul.
Their
terms are for three years beginning January 1,1955.
J. Meinel was reappointed by the Board
of GovFederal Reserve System
the
Class
C
director
of
for
ernors
as a
beginning
January
1,1955.
term
He
a three-year
will continue to serve as Chairman and Federal Reserve Agent during
1955, and Henderson Supplee, Jr., will continue as Deputy
Chairman.
William

42

The Board of Directors of this Bank appointed William
R. K. Mitchell, Chairman
of the Board of the Provident
Trust Company
of Philadelphia as the district's representative
Federal
on the
Advisory Council during 1955. He succeeds
Geoffrey S. Smith, President
Exof the Girard Trust Corn
change Bank, Philadelphia, Pennsylvania, who served over
the years 1952,1953, and 1954.
James V. Vergari,
formerly
Counsel and Assistant SecreThe
tary, was named Vice President and General Counsel.
Assistant Counsel, Murdoch
K. Goodwin,
was appointed
Assistant General Counsel
Their
Secretary.
Assistant
and
appointments
were effective January 1,1955.

43

DIRECTORS

as

of

February

1,1955

Term expires
December 31

Class A

Group

1956

WILLIAM FULTON KURTZ

I

ComChairman
of the Board, The Pennsylvania
Pennsylfor
Banking
Trusts,
Philadelphia,
and
pany
vania

W. ELBRIDGE BROWN
President and Trust Officer, Clearfield Trust Company, Clearfield, Pennsylvania

2

1957

1955

BERNARDC. WOLFE

3

President, The First National Bank of Towanda,
Towanda, Pennsylvania
Class B

1955

CHARLES E. OAKES
President and Director, Pennsylvania Power and
Light Company, Allentown, Pennsylvania

2

WARREN C. NEWTON

1956

President, O. A. Newton and Son Company,
Bridgeville, Delaware

3

BAYARD L. ENGLAND

1957

President, Atlantic City Electric Company, Atlantic City, New Jersey
Class C

44

WILLIAM J. MEINEL, Chairman
President and Chairman of the Board, The
Heintz Manufacturing Company, Philadelphia,
Pennsylvania

1957

HENDERSON SUPPLEE, JR., Deputy Chairman
President, The Atlantic Refining Company, Philadelphia, Pennsylvania

1955

LESTER V. CHANDLER
Professor of Economics, Princeton
Princeton, New Jersey

1956
University,

OF f-; c_.;;:a

ý ,..

=a>ýaFn ar7ýr
.

1,1955

ALFRED H. WILLIAMS
President
W. J. DAVIS
First Vice

President

EVAN B. ALDERFER
Industrial Economist

KARL R. BOPP
Vice President

CLAY J. ANDERSON
Financial Economist

ROBERT N. HILKERT
Vice President

K. GOODWIN
MURDOCH
Assistant General Counsel and
Assistant Secretary

ERNEST C. HILL
Vice President

EDWARD A. AFF
Assistant Cashier

WILLIAM G. McCREEDY
Vice President and Secretary
PHILIP M. POORMAN
Vice President

HUGH BARRIE
Machine Methods Officer
ZELL G. FENNER
Chief Examiner

JAMES V. VERGARI
Vice President and General
Counsel

RICHARD G. WILGUS
Cashier and Assistant Secretary

RALPH E. HAAS
Assistant Cashier
ROY HETHERINGTON
Assistant Cashier

JOSEPH R. CAMPBELL
Assistant Vice President

FRED A. MURRAY
Director of Plant

WALLACE M. CATANACH
Assistant Vice President

HENRY J. NELSON
Assistant Cashier

NORMAN G. DASH
Assistant Vice President

HARRY W. ROEDER
Assistant Cashier

GEORGE J. LAVIN
Assistant Vice President

HERMAN B. HAFFNER
General Auditor

45

APPENDIX

tables

-statistical

low"
Page
FEDERAL RESERVEBANK OF PHILADELPHIA
47

Statement of Condition

48

Earnings

49

Volume

and Expenses
of Operations

MEMBERBANKSTHIRD FEDERAL RESERVE DISTRICT
50

Combined Statement

50

Earnings, Expenses, and Profits

51

FACTORY EMPLOYMENT AND

HOURS

51

INCOME AND PRICES

52

DEPARTMENT STORE SALES AND INVENTORIES

STATEMENT

OF
CONDITION
Federal Reserve Bank of Philadelphia
(000's omitted

End of year
in dollar

figures)

1954

1953

1952

$1,300,725

$1.271,008

61,085

57,278

ASSETS
Gold

certificate reserves:
Gold certificates
Redemption fund-Fed.

$1,220,496
Res. notes
...........

Total gold
certificate reserves ..............
Fed. Res.
notes of other Fed. Res. Banks.........
Other cash
.................................
Loans and
securities:
Discounts
and advances
.....................
Industrial loans
......
..............
United Stetes Government
securities.........
Total loans
and securities
.................
Due from foreign banks
.......................
Uncollected items
.....
..................
Bank premises
..............................
All other
assets
............................
Total assets
............................
LIABILITIES
Federal Reserve
notes ........................
Deposits:
Member

bank reserve
accounts ...............
States Government
..................
Foreign
................................
Other deposits
............................
Total dePosits
............
Deferred
availability
items
...................
All other liabilities
.... . .........
. ...........
United

Total liabilities

Capital

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

58,928

$1,361,810

$1,279,424

$1,328,286

17,291

17,104

16.086

16,199

26,837

18,316

13,767

4,555

612

1,380

1,514,656

1,525,491

$1,529,035

$1,531,426

5.476
3,469
1 510.542
,

$1,519,487

2

2

235,683

253,896

252,296

5,164

4,734

3,269

7,915

8,845

2

9,762

$3,090,713

$3,204,654

$3,147,504

$1,845,959

$1,896,948

$1,857,370

884,622

959,879

929,318

39,713

30,135

33,091

35.668

30,690

40,833

14,134

8,688

7,093

5974,137

$1 029,392

$1,010,335

190,709

201,073

205,923

685
$3,011,490

875
$3,128,288

702
$3,074,330

CAPITAL ACCOUNTS

paid in
Surplus-Section .............................
7
.........................
Surplus-Section
13b
........................
Reserves for
contingencies ....................
Total liabilities
and capital accounts.......
.
Ratio
of gold certificate
reserves to deposit and
Federal Reserve
note liabilities
combined...

Commitments

to make industrial advances.......

$18,982

$18,017

$17,186

47,773

45.908

43.578

4.489
7.952

4,489

4,489
7,979
$3,090,713

45.4%
$128

$3,204,654

7,921
$3,147,504

46, S%

46.3%

$1,724

$1,136

EXPENSES
AND
EARNINGS
Federal Reserve Bank of Philadelphia
(000's omitted)

1

1954

1953

$26,360

; 30,649 I

1952

Earnings from:
U. S. Government
Other

sources

Total

securities .................

earnings

747

260

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

$26,620

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

$27,455
738

1

$31,396

$28,193

Not expenses:
Operating

expenses"

Cost of Federal

$ 5,923

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

Reserve currency............

$ 5,286

$ 5,612

634

817

1,041

Assessment for expenses of Board

of Governors ...........................
Total
Current

net expenses .......................
net earnings .........................

Additions

to current

311

310

322

$ 6,868

$ 6,963

$ 6,425

$19,752

$24,433

$21,768

net earnings:

Profits on sales of U. S. Government
securities (not) .........................
All other

30

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

from

Retirement

current

other
Total

30

$

126

$

133

net earnings:
for

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

Reserves for contingencies
All

$

System-adjustments

revised benefits

132

--1

Total additions .......................
Deductions

126

159

27

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

-

31

29

....................
deductions

$

..........

Net additions

or deductions

(-)

27

$3

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

Not earnings before payments to
United States Treasury
.....................

$
-$

194

$

30

68

$

103

$19,755

$24,365

16,779

20,974

$21,871

Paid to United States Treasury (interest on
Federal

Reserve notes)

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

Dividends

. ..............:...............
Transferred to surplus (Section 7)

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

18,763

1.111

1,060

1,023

$ 1,865

$ 2.331

$ 2,085

'After deducting reimbursements received for certain fiscal-agency and
other expenses.
48

VOLUME

OF
OPERATIONS
Federal Reserve Bank of Philadelphia
1

1952

1954

1953

175,300
38,800
23,100
900

171,300
35,400
23,100
900

169,300
33,000
23,600
800

1,078
86

1,191
82

1,260
73

Number of pieces
(000's omitted)
Collections:
Ordinary

checks
Government checks (paper and card)
Post Office money orders
card
Non-cash items
........................
Clearing
with
operations in connection
sondings and wire and group clearings
Transfers of funds
Currency counted .. ........................
...........................
Coins counted
..............................

Discounts
Depositary

direct

...

plans'.

I

and advances to member banks.......

receipts for
Fiscal-agency activities:

withheld

taxes.........

Marketable

securities delivered
or redeemed.
Savings bond transactions(Federal Reserve Bank
and agents)
Issues (including
re-issues) ..............
P-A-__.: --0 0. N
.........................
Coupons redeemed (Government
and
eqencies)
. ý".
.. .........................

304,200

319,100
439,700
21

299,200
372,400

412,800

336

361

349

260

209

7,042

6.815

6,247

6.889

6,609

6,132

915

944

61-t

1

157

Dollar amounts
(000,000's omitted
Collections:
Ordinary

counted

Coins

339
172

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

counted
...
Discounts
and advances
Depositary
for
receipts
Fiscal-agency
activities:

.................
banks...
member
taxes..........
withheld
to

Marketable

.
..

securities delivered or redeemed.
Savings bond transactions(Federal Reserve Bank
and agents)
Issues (including
re-issues) ..........
Redemptions
..,
.......
..............
Coupons
and
redeemed (Government
agencies)
.. ...................

'Debit

$48.264

$51,747
5.025

$51,376
6,313

check;
Government check; (paper and card)..
Post Office money orders (card)
..........
Non-cash items
... ......
...
Clearing
operations in connection
with direct
sendings and wide and group clearings plans'
Transfers of funds
.. .....................
Currency

4.364
331
149

338
159

25,512

26,532

43,1 76

33,963

22,873
30,798

2,084
57

1,943
50

4,028
1.24S

5,115
1.059

1,931
47
759
1,289
1 1,036

8,970

495

406

477

412

89

89

1

I

8,405

388
321

1

87

and credit items.

49

BANKS

MEMBER

Third Federal Reserve District
Statement of Condition
Dollar

amounts

Change

Dec. 3 1,
1954*

in millions)

Assets
Loans and discounts ..........................
U. S. Government securities ...................
Other securities
............................
Cash assets
................................
Fixed assets
................................
Other assets
................................
Total assets
............................
Liabilities and Capital Accounts

in year"
Per cent

Amount

$3,213

+$180
+ 118
+ 126
74
12
+
+4

2,812
928
1,832
95
30
$8,910

+ 6%
±4
+16

-4
+14
+13
+
4%

-{-$366

Deposits:
Individuals,

partnerships, and corporationsDemand
...............................
Time
...................................
U. S. Government
..........................
Other
....................................
Total deposits
...........................
Other liabilities
Capital accounts .............................
............................

$4,660
2,169
202
1,010
$8,041
83
786

Total liabilities and capital accounts
........
Earnings,

$8,910

Expenses,

and

(Dollar amounts in millions

+$126
+ 139

+3
±6

13
71
+
+$323
+
II
+
32

-6
+7
+ 4%
0
+16
+4

+$366

+4

Profits
Change in year"

1954

Amount
Earnings
On U. S. Government securities
...............
On other securities
...........................
On loans
...................................
Other earnings
..............................
Total earnings
..........................
Expenses
Salaries and wages
...........................
Interest on deposits.
.........................
Other expenses
.............................
Total current expenses
Net current earnings before income taxes.......
Recoveries, profits on securities, etc. t........
Losses, charge-offstt
Taxes on net income
..........................
Net profits
.................................
Cash dividends declared ......................

$ 54.4
19.2
151.0
42.6
$267.2
$ 81.6
24.0
60.4
$166.0
$101.2
..

'Proliminary.
for mergers and changes in membership.
"Adjusted
}Includes transfers from valuation reserves.

it Includes transfers to valuation reserves.

50

$ 18.8
23.3
38.1
$ 58.6
30.9

-$
.2
+
1.4
+
8.0
+
2.8
+812.0

I

Per cent

+

+6

a%

+7
5%

-%-

+$ 5.8
+
2.8
+
4.0
+$12.6

+

-$
.6
+i11.0

1%
T11

+

.7
5.5

-3
+ 17

+$
+

5.6
3.8

+

a%
-{- 13
-}- 7
±-o/.

II%

14

I

FACTORY
Third

EMPLOYMENT

Federal

Reserve

1949

..............
19S0
.............
1951
,,,,,,,,,,,
1952
..............
1953
..............
1954
.
...........
1954 January

Wookly
hours

February
Merck
...........
April
..............
May
..............
June
July
...............
August
............
September
.........
October
November ...........
.........
December
Estimates
Average

40.2
38.9

1,265.5
1,256.7

38.1
39.2

1 244.0
,
1,222.9
1,197.5

39.3
3 7.8
38.5
38.8

1,191.9
1,193.3
1,202.3
1,204.0
1,199,4
1,197.4
1,196.0

Weekly
hours
worked
39.1

606.9
660.0
583.4

41.7
41.2
39.5

623.5

38.9

613.9
604.3
594.9

39.9
39.9
39.1

576.8
567.6

39.2
39.4
39.0

572.5
569.2
569.9
571.4

38.6
39.2
39.1
39.0
39.4
39.6

AND

Factory Payrolls:
1949=100
Farm incomePrices: 1947-1949=100
1949
1950 ..............
1951
1952
..............
1953
..............
1954
..............
1954 January
February
March
............
April
...............
May
June ..............
..............
July
August
............
September
October
November ...........
December

.........

Employment
662.9
677.5

40.9
41.8

675.3
665.1
667.5
630.8
642.0
642.8
639.7
628.0
620.7
624.3
620.8

39.3
39.5
39.8
40.2

568.3
568.6

633.1
634.1
628.0
629.1
627.4

40.0

include production
of employment
and nonproduction
hours cover
only production
workers.

INCOME

Sources:

498.4
512.7
584,2

40.0
40.3
40.4
I

Nondurable

Durable Goods
Employment

38.8

1,259.5
1,272.0
1,327.5
1,214.2

'

worked

1,161.3
1,190.2

*

District

All Manufacturing
Employment

HOURS

AND

Goods
Vee
v
hours
worked
8.6
39.4
39.2
39.4
39.3
38.4
3 7.4
38.7
38.8
3 6.8
38.0
38.4
38.4
39.1
38.7
38.3
38.8
39.2

workers.

PRICES
Factory Payrolls-Production
Workers
Third Federal Reserve District
All Manufecturing

Durable
goods

100

100

III
127
131
145
129

112
140
150
174
147

132
134
133
125

156
156
152
146
142

125
125
125
128
129
129
131
131

U. S. Dept.
of Agriculturo.

140
142
142
144

i Nondurable
goods
100
110
116
117
122
115
114
118
118
109
112
114
113

146
149

IIS
118
116
117

149

119

}U. S. Bureau of Labor

Income
from farm
marke ings
N. J., Pa.,
and Del. *
96
93
III
110
108
100
95
88
98
93
96
98
115
121
108
107
96
88

Consumer
prices in

Phile. t
io:
102
11z
114
115
116
115
IIS
IIS
115
115
I16
116
116
116
116
116

116

Statistics.

51

DEPARTMENT
1947-49=100
(Adjusted
for

Third
District

seasonal
variation)

1949
1950
1951
1952
1953
1954

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

1954 January
...
February
..
March
....
April
..
May
......
June
......
July
.......
August
....
September.
October
...
November.
,
December
..

vnrintin

99

100
106
109
109
111
108
106
III
06
109
105
109
109
107
107
105
III
113

WilkesBarre

Trenton

Reading

Scranton

99
102
104
104
107
104

100
109
110
114
116
115

caster

104
106
104
106
106

100
IOB
110
III
115
111

102
108
103
107
102
110
106
108
107
100
110
109

115
105
107
110
114
109
117
110
104
113
III
116

103
96
105
103
101
104
107
101
107
105
108
107

STORE

100
106
114

98
101

105
116
121
122
121
114

114
114
110
124
110
114
III
III
120
114
III
121

York

100
99

117
129
122

99
94

; II
114
110
121
104
118
118
109
114
116
114
118

123
120
121
130
123

91
95
85
94
89
91
91
93
98
89
98

121
131
120
III
121
115
125

104

INVENTORIES

I
Third
District

Rikdolphin

Lancastor

99
108
127
113
119
116

97
107
125
I10
114
112

99
108
124
114
121
125

n)

1949
1950
1951
1952
1953

......

......
......
......
......
1954
......

1954 January
...
February
March
....
April
......
May
......
Juno
July
.......
August
....
September
.
October
...
November
December

52

Lan-

Philadelphia

DEPARTMENT
1947.49-100
(Adjustod for
soasonal

SALES

STORE

114
112
112
114
116
117
116
115
117
116
118
120

I10
III
I10
I10
113
114
114
110
112
112
114
116

125
124
122
125
125
126

Reading IScrantonlTrenton

00

05

WilkesBarre

105
55
105

131

114
134

110
10

127

126

114

116

113

109

122

121

116

113

116

129

103

101

113
III
III
115
121

117
113
123

98
94
102
113
103
101
101
98
107

109
100
104

106

128
126
125
123

117
113
117
118
119

125
132

118
123

131
134
37
34
133
132
121
132
133

103
107
114

97
98
97
97
99
102
100
105
109

York

101
112
128
119
132
126
129
119
124
128
128
125
131
124
124
121
124
131