The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
IDAHO A LAS K A FEDERAL RESERVE 1 TWELFTH WASHINGTON BANK OF SAN FRANCISCO FEDERAL RESERVE DISTRICT tinnuaL (Rswi&w m Q u tc h . 1 9 6 3 a a u s l UTAH iEOO N C A LIF O R N IA A R IZ O N A NEVADA 1962 . . . . Annual Review hopes were held out for the national Weakness in investment m ainly economy at the beginning of 1962 be responsible for leveling off of GNP adjusted) cause of the upthrust generated during the pre Feb. 1961 trough = 100 ceding three quarters by a 7.5 percent increase 10 2 in gross national product, a 13 percent rise in H ig h greater degree of optimism was being voiced by many observers of the economic scene. The slowdown in the rate of economic ex pansion in 1962 was most evident in the weakness of total private investment and net exports of goods and services. Consumer spending and government purchases of goods and services provided the principal support for the upswing, but insufficient support to stimulate investment very much. The reduc tion in net exports was due both to a leveling \ \ GROSS PRIVATE DOMESTIC INVESTMENT \ i tained, although a number of major economic indicators moved up to record highs. The lev eling off in economic activity, particularly after mid-1962, fostered disappointment and doubts about the strength of the recovery and led to increased cautiousness on the part of both producers and consumers (with the ex ception of consumer purchases of automo biles). The disappointment was reinforced, moreover, by continued under-utilization of plant capacity, a persistently high unemploy ment rate, and by a still sizable balance of payments deficit, all of which received consid erable attention in the press. Nevertheless, measured by the percentage gain from the low point of the recession, business activity was at about the same stage of recovery by the end of 1962 as in previous upswings, because the slower rate of expansion in 1962 followed a sharp upsurge in 1961. The steadiness of the economy at high levels over a period of months tended eventually to temper fears of a recession, and by year-end a somewhat ----- r ----- 1 — industrial production, and a 27.5 percent spurt in private investment which was paced by a turnaround from inventory liquidation to inventory accumulation. But, as the year wore on, the rate of expansion was not main t 120 GO VERNM EN T PURCHASES OF GOODS A N D SERVICES 10 1 J M M J S N J 1961 M M J S N 1962 Source: United States Department of Commerce. off in exports as major industrial countries abroad expanded less rapidly and to higher imports responding to improved levels of do mestic business activity. Inventories were the chief contributor to the lackluster performance of private invest ment in 1962. After the turnaround in inven tories from liquidation to net accumulation in the second quarter of 1961, restocking moved up smartly through the next three quarters. Stocks of steel in particular rose substantially in the first quarter of 1962 in anticipation of a steel strike which failed to materialize. Subsequently, these stocks were worked down, and the decline in the rate of inventory accumulation became fairly wide spread. By the end of 1962, inventory accu mulation had fallen to an annual rate of only $1.2 billion, and stocks were relatively low March 1963 MONTHLY REVIEW in relation to the level of economic activity. Rebuilding of stocks has been dampened both by uncertainties regarding the near-term out look and by more efficient inventory prac tices. Most of the expansive force in 1962 of business outlays for plant and equipment, on the other hand, was spent by the third quar ter, and in the fourth quarter, capital expend itures fell off. No change is expected in capi tal outlays in the first three months of this year. The sluggishness of plant and equip ment spending was due in part to the reluct ance of many firms to undertake major capital spending programs when there is substantial excess capacity and narrowing profit margins. The issuance by the Treasury in July 1962 of more liberal depreciation guidelines and the passage of an investment incentive tax pro gram later in the year, therefore, were de signed to stimulate investment by business, both currently and over the longer run. New construction— the other major component of fixed investment— after declining in the first quarter of 1962, rose to a record $45 billion for the year. M uch of the increase, however, was achieved in the first nine months of the year. Spending by consumers and government, which constituted the chief sustaining factor in earlier recessions, played a similar role in the 1961-62 recovery. Government purchases of goods and services accounted for 40 per cent of the rise in the nation’s output of goods and services from the final quarter of 1961 to the end of 1962. More than half of the in crease in this G N P account was due to higher Federal government expenditures, mainly for national defense and space programs, and the rest was due to increased Government em ployment and a general wage hike for Federal employees in October. State and local govern ment spending also rose steadily over the year, with a fourth-quarter bulge caused by stepped-up highway expenditures. Personal income climbed 6 percent in 1962 1961 trough = 100 IN D U S T R IA L P R O D U C T IO N 10 0 ------------ J 120* NO N FARM EM PLO YM ENT 10 1 100 -------------- 1 P E R S O N A L IN C O M E i 10 2 O U T L A Y S F O R P L A N T A N D E Q U IP M E N T 110 ---------------------------- 1 N E W C O N S T R U C T IO N ...................................................... 1 J M M J 1961 S N J M M J S N 1962 Source: Council of Economic Advisers, Economic Indicators. to a record high, but the rate of increase di minished in the latter half of the year. Since all but a small proportion of disposable per sonal income generally is spent, consumer spending was a major stimulus to the economy in 1962. Spending on durables, nondurables, and services all shared in the 1962 expansion, in contrast to a decline in spending on dur ables in 1961. Automobiles contributed heav ily to durable goods sales, since both 1962 and 1963 car models were received favorably. Domestic automobile sales reached 6.8 m il lion units in 1962, second only to the 1955 record. Reflecting the rise in consumer, govern ment, and investment expenditures, industrial production advanced 9 percent in 1962, but the index was practically unchanged at 119 to 120 percent of the 1957-59 level after mid year. A ll of the major sectors shared in the gain, but automobiles, machinery and equip ment, and defense industries showed greater F E DE R A L RESERVE BANK than average increases. The steel industry, which had boosted output sharply in the early part of the year, closed the year at a reduced rate of production; output for the year as a whole was about unchanged from 1961. After a promising rise in the backlog of orders in the spring months, new orders also began to lag; by the end of the year, unfilled orders generally were below their year-ago levels. Steel users, for example, drew down stocks accumulated earlier in the year, thus bringing steel inventories into somewhat better balance with orders and output. Nonagricultural employment ended the year at a record level, but the number of persons employed showed little change after June, on a seasonally adjusted basis. Although all sec tors participated in the first-half increase, most of the improvement was concentrated in durable goods manufacturing and in retail trade. After June, employment in the service industries and in state and local government continued to rise, offsetting a drop in manu facturing employment. The jobless rate fell through July but subsequently failed to main tain its earlier gains, averaging 5.6 percent in 1962 compared with 6.7 percent in 1961. Productivity rose as output advanced more rapidly than employment, and prices re mained fairly steady throughout the year. Monetary and credit policy took account of both internal and external requirements Fiscal and monetary policy in 1962 took into account problems posed by both our do mestic economy and our international pay ments position. Upward pressures were m ain tained on short-term interest rates for balance of payments reasons. Long-term rates mean while remained at levels that should tend to encourage investment. The Treasury in creased its security issues in the shorter matu rities and conducted advance refundings in the longer term area, building up its cash OF S AN FRANCISCO Net free reserves steady but lower in 1962; spread between shortand long-term rates narrowed M illions of dollars Source: Board of Governors of the Federal Reserve System. balances in the process by more than the amount needed to cover its cash require ments in order to keep pressure on short-term interest rates. Net Treasury borrowing of $7 billion from the market was about the same as in 1961 and resulted in a more than $1 billion addition to securities due within 1 year, a decline of over $3 billion in the volume of securities due in 1 to 5 years, and a rise of $9 billion in bonds due in more than 5 years. The Federal Reserve System, in seeking to promote both internal and external balance and economic growth, provided commercial banks with an ample supply of funds during the year. Net free reserves of member banks, after a high of $555 million in January, ranged from $375 to $470 million— except for a de cline to $265 million in December, compared with a range of $420 to $550 million in 1961 (except in January). March 1963 MONTHLY REVIEW Federal Reserve System policy continued held by banks kept down borrowing from to be expansionary, but open market opera Federal Reserve banks, except in midsummer tions were conducted with a view to offset and in the latter part of the year. ting downward pressures on short-term rates. Commercial bank credit meanwhile rose Purchases of United States Government se $19 billion for a postwar record as Federal curities, as in 1961, were carried out over the Reserve operations kept commercial banks whole maturity range. On balance the System plentifully supplied with reserves. A ll of the added $1.9 billion to its Government securi gain was accounted for by loans and by in ties portfolio, with securities in the 1- to 5- creases in holdings of securities other than year range accounting for most of the in United States Government obligations. The crease. Near the end of 1962 when seasonal credit demands were expected to increase, the System reduced reserve requirements on $ 15 billion expansion in time and savings de time deposits from 5 to 4 percent, releasing about $780 million in reserves. This dimin ished the need to supply reserves through purchase of Treasury bills, which would have tended to raise their price and lower their market yield. Relatively easy credit condi tions, adequate short-term accommodation through the Federal funds market, and the comparatively large volume of Treasury bills posits at banks was a response primarily to the higher rates paid on such deposits in 1962. The combined impact of Treasury, Federal Reserve, and commercial bank operations in 1962 operated in the same direction— 3month Treasury bill rates averaged 2.77 per cent compared with 2.36 percent in 1961. while long-term Treasury bond rates were comparatively steady at levels close to the 1961 averages. A DESCRIPTION OF THE CHART FORMAT O ne of the features of the Twelfth District econom y in 1962 w a s its steady, if not spectacu lar, u p w ard m ovem ent throughout the ye a r, in contrast to a tend ency for the United States econom y as a w h o le to level off after m id -year. Most of the charts in this issue ha v e therefore been d esig ned to point up some of the principal differences betw een District an d national b eh avio r over the past y e a r. In addition, 1961 d ata h a ve been included (the shad ed blue area) to show d e v e l opm ents from 1961 to 1962 as the recovery progressed. Data on m an y of the charts have been converted to an in d ex, with the trough month of the 1960-61 recession—February 1961—calculated as equal to 100. The trough month is that of natio n al econom ic activity as determ ined by the N ational Bureau of Economic Research — and not n e ce ssarily the cyclical low s of the in d ivid u al indicators plotted. W here this method has not been fe asib le or relevant b ecause of the nature of the d ata, absolute am ounts h ave been used instead . F E DE R AL RESERVE B A NK OF SAN FRANCISCO Expansion in Business Activity Greater in Twelfth District than in the Rest of the Nation A ft er an encouraging first half, the United States economy began to show signs of hesitation in the last half of 1962, a pattern that was not repeated by the major indicators of Twelfth District activity. Although this Dis trict lagged behind the nation initially after the upturn in 1961, its performance improved over the remainder of that year. In 1962 the District produced an even more creditable performance as activity expanded through out the year in most major sectors. The level ing off in business activity that characterized the national scene in the second half of the year was noticeably absent on the District level. The upswing in the second year of re covery, however, probably was somewhat weaker in the Twelfth District than it had been in prior postwar recoveries. Sustained growth in District employment In terms of employment, recovery from the 1960-61 recession began in the Twelfth Dis trict in February 1961 (as it did for general business activity in the nation as a whole) and proceeded almost without interruption through December 1962. Twelfth District nonagricultural payroll employment,1 which had declined only moderately during the re cession period, increased on the average by 1Nonfarm payroll employment data for the District exclude Alaska and Hawaii because data for these two states are not seasonally adjusted. In 1962, nonfarm employment averaged 57,600 workers in Alaska— up 2.9 percent from 1961— and 195,300 in Hawaii— up 0.5 percent, bringing total employment in the Twelfth District to an average of 7,522,000. Contract construction employment in both states fell on the average from 1961 and was well below the high level of construction activity in these states during 1960. Wholesale trade and Federal government employment also decreased in Alaska, but rose sig nificantly in Hawaii. Hawaii showed a year-to-year decline in the average number of workers in nondurable goods manufac turing, caused primarily by a 7.5 percent drop in food and kindred products. However, in both states, the finance, insur ance, and real estate and the service industries chalked up siz able gains which helped to offset losses in other sectors Nonfarm employment rose faster in the District than in the nation (Seasonallj adjusted) 1961 tro u g h = 100 TO TA L NO NFARM EMPLOYMEN1 TW E LFTH DISTRICT ................................. ......................... r S E R V IC E -P R O D U C IN G INDUSTRIES - 1 C O M M O D ITY -P R O D U C IN G INDU STRIES - r DIS TRIBU TIVE INDUSTRIES " . J : M i ................................................ M J 1961 S N ................................. ............................................. J M M J S 1962 N Note: Service-producing industries include finance, insurance and real estate; government; and services. Commodityproducing industries include manufacturing, mining, and contract construction. Distributive industries include transportation, communication, electric, gas, and sanitary services; and wholesale and retail trade. Source: State departments of employment and United States Department of Labor, 4.3 percent in 1962, after a rise of only 2 percent in the preceding year.1 New highs were established in each succeeding month except February and June, reaching a total of 7,660,000 jobholders by the end of the year. By mid-December 1962, every major sector of employment except mining was at, or above, its previous high. Nationally, how ever, payroll employment rose by only 2.3 1 The percentage changes cited in the discussion of employment and unemployment are based on the average number of people employed in each year, unless otherwise specified. MONTHLY REVIEW March 1963 percent in 1962, with all of the increase occur ring in the first seven months; by December, five of the eight major sectors of employment had fallen below their highs for the year. A g ricultural employment on the Pacific Coast, as in the nation, continued to shrink in 1962, as it has during the last several years, al though the decrease in the West was, as usual, smaller— 1 percent compared with 5 per cent for the nation. Employment in the service sector (includ ing Government), which accounts for nearly 40 percent of District wage and salary jobs, again expanded more rapidly than did other sectors of employment in both the District and the nation. Federal and state and local government added nearly 63,000 persons to District payrolls— a rise of 4.5 percent. Over 80 percent of this growth was at the state and local level; employment in California public school systems alone rose by 22,000. Services was the fastest growing component, increas ing by 5.4 percent over the year. Em ploy ment in finance, insurance, and real estate continued its steady climb and was up by 4.4 percent in 1962. Employment in defense-related industries moved up sharply Jobs in commodity-producing industries increased on the average by nearly 110,000, Table 1 or 4.7 percent, as both manufacturing and construction increased; mining declined slightly. M ining employment continued the (in thousands) 1962 (Average of monthly figures) Total 7 ,5 2 1 .5 Mining 68.0 slow absolute and relative decline which be 1962 change from 1961 Amount Percent + 3 08 .9 + 4 .3 — 0 .9 — 1.3 Contract construction 446 .1 + 1 5.8 + 3 .7 M anufacturing 1 ,9 0 5 .9 + 9 4.6 + 5.2 Durable g o o d s 1 1 , 2 0 6 . 9 + 7 6 .2 + 6 .7 + 10.2 + 1.9 6 .9 + 1.3 N ondurable 553.4 g oods1 Transportation an d public 5 31 .7 utilities 1 ,6 3 1.4 + 5 6.4 + 3 .6 4 34 .6 + 9 .6 + 2 .3 1 ,1 9 6 . 8 + 4 6.8 + 4.1 -J- 1 5 .6 + 4 .4 + 5 7.6 + 5 .4 + 4 .5 Trade W ho le sale trade Retail trade Finance, insurance a n d real estate 368.5 Service 1 ,1 2 4 . 3 G overnment 1 ,4 4 5.6 + 6 2.9 409.6 + 1 0 .5 + 5 2 .4 + 5.3 for less than 1 percent of total employment. In 1962, District manufacturers hired 94,600 additional employees, a rise of 5.2 per cent, and ended the year with a work force substantially equal to the record seasonally adjusted total of 1,936,000 reached in Octo ber. This pattern was in sharp contrast to the nation, where manufacturing employment rose only 3 percent in 1962 and by December was 233,000 below its June peak. Durable goods industries accounted for over 85 per cent of the District expansion as the West continued to benefit from heavy defense ex penditures. Employment in defense-related industries1 increased by 58,000 or 10.8 per cent and thus was responsible for over 60 per cent of the growth in total jobs in manufac turing. Lumber and wood products employ ment2 averaged 1.5 percent higher in 1962, + 2 .6 1 ,0 3 6.0 gan in the mid-fifties and accounted in 1962 Federal State a n d local 1Pacific Coast States only. Note: These data exclude estimates of Alaska and Hawaii. Source: State departments of employment. 1Defense-related industries include aircraft and parts, ordnance, and electrical equipment. 2 Includes data for Arizona, California, Idaho, Oregon, ^nd Wash ington only— the District states that report this category separately. F E DE R A L RESERVE B A NK OF S AN FRANCISCO but gains over a year-ago were concentrated at the beginning and end of the year. Scat tered strikes within the industry and a weak ening in demand, partly attributable to con ally processed in June— and reached a record seasonally adjusted high of 220,000 persons in October on the strength of a bumper toma to crop. Employment in printing and publish struction strikes in California, Nevada, and the Pacific Northwest, depressed employment ing continued its steady secular climb, in creasing by an average of 1.6 percent over the year. Other nondurable goods industries, below year-ago levels during the summer. De spite the slight overall improvement, employ ment still reflected the inroads of competi tion from other materials and from foreign producers because the number of jobs in 1962 was roughly 40,000 below the levels achieved in the early ’50’s. Employment in primary metals1 increased during the first six months of 1962 but de clined below year-ago levels for the remain ing six months. The net result was a decrease of nearly 1 percent over the year despite frac tional gains in California and Washington. This roughly paralleled changes at the na tional level, although in the rest of the nation the downturn following the signing of the steel wage contract occurred earlier. Primary metals employment in the West also failed to register the moderate December increase ex perienced in other parts of the country, pre sumably due to the fact that automobile pro duction is of lesser importance to steel mills in this District. Employment in industries producing non durable goods increased by less than 2 per cent, although every industry reported gains ranging from less than 1 percent for food and kindred products to 3.8 percent for textiles and apparel and also for paper products.2 Jobs in industries specializing in food and kindred products, the largest employer in the nondurable goods industries on the Pacific Coast, fluctuated erratically during the sum mer— as a result of late harvest of crops usu 1 Includes data for Arizona, California, Oregon, Utah, and Wash ington only— the District states that report this category separately. 2 The breakdown of manufacturing employment into durables and nondurables is available only for the Pacific Coast States. including chemicals, petroleum, leather, and rubber products, were up 2 percent in 1962. District employment in contract construc tion rose 3.7 percent in 1962, although se vere weather curtailed activity in February and a protracted labor dispute on the West Coast sharply reduced employment in the early summer. As in manufacturing, the Dis trict fared better than the nation as a whole; for the nation, the average number of con struction jobs decreased by 2.3 percent. In the distributive industries. District per formance was less impressive than the growth in the commodity- and service-producing in dustries, although it still was better than on the national level. Trade employment rose by 3.6 percent, while transportation and utili ties edged up 1.3 percent over the year. C om parable figures for the nation showed trans portation employment unchanged and a less than 2 percent increase in trade, which ended the year 57,000 below its peak level in July. Little change in Pacific Coast unemployment Notwithstanding the comparatively steady expansion of District employment, unemploy ment in the West, as reflected in Pacific Coast labor force data1, declined very little during 1962. The seasonally adjusted rate of un employment, after falling from 7.3 percent in May 1961 to 5.7 percent in January 1962, fluctuated within relatively narrow limits through December and closed the year at 5.6 1Since some states do not publish labor force estimates, the rate of unemployment for the entire Twelfth District cannot be ascertained. The discussion above is therefore based on data for the three Pacific Coast States only. MONTHLY REVIEW March 1963 the factory workweek increased more in the nation than in the District. Factory employees in the West, however, still earned 14.3 per cent more than the national average, while working 0.4 hours less per week. Income and consumption set new records in 1962 16 91 16 92 Source: State departments of employment and United States Department of Labor. percent. The District unemployment rate was the same as the nation’s at the end of the year, although, in the case of the United States as a whole, gains made earlier in the year had not been maintained. The stability of the District rate resulted largely from a growth of 2.3 per cent in the civilian labor force, which tended to cancel the favorable impact of increased employment on the level of joblessness. By contrast, the stability in the national rate of unemployment, especially in the latter half of the year, resulted more from a lack of growth in the demand for labor than from an increase in the labor force. Average weekly earnings rose moderately in 1962 Average hourly earnings of production workers in manufacturing industries in the District rose 2.6 percent in 1962. This in crease combined with a slightly longer work week of 40 hours to boost average weekly earnings to $110.40, a gain of 3.4 percent over 1961. For the nation as a whole, aver age earnings increased by 4.6 percent to $96.56; both average hourly earnings and During 1962, disposable personal income and consumption in the nation reached rec ord levels. The $19 billion or 5 percent in crease in disposable personal income was ac companied by a rise of $18.5 billion in per sonal consumption expenditures. In real terms, the rise in consumption was 4.5 per cent, double the 1961 gain, after adjustment for the slightly less than 1 percent increase in prices between the two years. Durable goods purchases, mainly automobiles, contributed heavily to 1962’s better showing— reversing a decline in 1961, while spending for nondur able goods and for services also rose above 1961. Although there are no strictly comparable income and consumption data for the District, available data on retail sales of companies with 1-10 stores (Group I stores), depart ment stores, and automobile registrations in dicate that this area did as well as or better than the nation as a whole during 1962. A greater increase in District income and con sumption is more or less a corollary of the generally faster rate of growth in population and employment in the District, as compared with the nation, in 1962 and in earlier years. Sales of Group I stores in the Twelfth Dis trict in 1962 were 11 percent above 1961, compared with 8 percent for the nation as a whole. This type of pattern applied to both durable and nondurable goods stores. Sales of durable goods rose 19 percent above the year-ago level and, except for a relatively slow third quarter, showed a fairly stable growth pattern each month throughout the year. Sales by furniture and appliance dealers and by lumber and building suppliers, which F E DE R AL RESERVE B A NK had declined in 1961, rose in 1962 in line with increased activity in residential con struction, Most of the gain in sales of dur ables, however, was due to automotive stores, which account for about 70 percent of total durable goods sales. Spring automobile sales were brisk, and the fourth quarter broke all records. The third quarter, while above the year-ago period, was a slack period because of smaller than usual inventories in the hands of automobile dealers. This, in turn, may ex plain in part the spectacular reception accord ed the 1963 models when they appeared in the showrooms. A t any rate, by the end of the year, new car registrations for the year— an alternative measure of automobile pur chases— were at a record high for the District, while 1962 was only the second best year for the nation as a whole. Just over 14 percent of all new cars registered in the United States were in the nine District states, unchanged from 1961 but about 0.5 percent above 1960. While movements in District sales of dur able goods appear to have been more dra matic, sales by nondurable goods stores also rose at a faster rate in the District than na tionally— 9 percent compared with 6 percent. General merchandise stores, including depart ment stores, showed a greater than average sales growth as did eating and drinking es tablishments and gasoline service stations. Food stores, which have been experiencing a rising sales trend, continued to expand sales in 1962, but their sales grew at a less rapid rate than for stores which, in addition to sup plying necessity items, cater to purchasers of luxury goods and less essential articles. Consumers increased use of credit to finance purchases A n 11 percent increase in national con sumer instalment credit outstanding in 1962, in comparison with only a nominal rise in 1961, was again typical of a recovery period; consumer credit tends to lag in the early phases of a recovery but subsequently picks OF S AN FRANCISCO up significantly. During 1962, total outstand ings rose without interruption throughout the year except for a brief setback in February. From reports on consumer credit extended by commercial banks and by other financial institutions, it seems that consumer borrow ing in the District and the nation from both bank and nonbank lenders followed much the same pattern in 1962. Extensions exceeded repayments in each successive month; by the end of the year, outstandings at commercial banks in the District were 13 percent above the December 1961 figures. The national in crease was slightly smaller. Automobile cred it accounted for the largest part of the gain due to record sales, rising 17 percent between December 1961 and December 1962— one percentage point more than the national figure for commercial banks. Construction activity gained in 1962 Twelfth District construction activity had a fairly impressive increase in 1962 but somewhat less than for the nation as a whole. Measured by the volume of con struction contracts awarded during the year, Twelfth District states rolled up a 1962 total of $8.2 billion in contracts let for all types of construction— a rise of 10 percent above the 1961 figure.1 Nationally, however, the gain was 11 percent, and contracts totaled $41.3 billion. District performance in total residen tial construction contracts resulted in a gain of 19 percent, well in excess of the 12 per cent increase for the nation, but the 1962 rise in nonresidential building was slightly less than nationally. The major factor hold ing back the District was the failure of con tracts for public works and utilities construc tion to surpass their 1961 volume; depressed levels of utilities construction were respons ible for a decline of 4 percent in “heavy en gineering” contracts from 1961, compared with a 15 percent growth in the nation. 1 Construction contract data are those of the F. W. Dodge Cor poration and include figures for all District states except Alaska and Hawaii. March 1963 MONTHLY REVIEW Residential contracts were a major source of strength in District construction activity in 1962 Contracts for all types of residential build ing in 1962 were almost 19 percent above the preceding year. As was true nationally, the major element in this expansion was a sub stantial increase in the dollar volume of con tracts for multi-family dwellings, although awards for single-family homes also rose dur ing 1962. The relatively rapid growth of m ul tiple dwellings in the past several years has begun to arouse considerable comment from those interested in the housing market. The recent increase in apartment buildings has been interpreted by some as a shift away from home ownership in suburban areas back into central-city apartments because of increasing property tax rates in rapidly growing subur ban communities, the present age-group dis tribution of the population, increased com muting time and traffic congestion, and some disenchantment with the responsibilities of home ownership. This change in the pattern of demand for housing accommodation may be partly an outgrowth of urban renewal projects in central-city areas, many of which are providing new multiple-dwelling units in price ranges attractive to middle- and upperincome consumers, with the added advantage of convenient access to downtown shopping areas. Evidence of the upsurge in apartment building can be seen particularly in the San Francisco Bay Area and in the Los Angeles area, as well as in other metropolitan centers in the District. In several of these centers, the proportion of multi-family to total dwelling units started each year has at least tripled from 1955 to 1962. Multi-family units con stituted approximately 60 percent of the dwelling units for which building permits were issued in 1962 in the Los Angeles and San Francisco metropolitan areas, a ratio sub stantially higher than in other major District metropolitan centers. Data on housing vacan G row th in District construc back by h e avy engineering residential b uilding has be source of strength Feb. 1961 trough = 100 150 TO TAL CONTRACT AW ARDS 140 130 120 110 100 T W E L F T H D IS T R IC T 90 80 140 130 120 110 10 0 90 80 70 60 50 J M M J S N J M M J S N Source: F. W. Dodge Corporation. cies in the West also indicate that there was a decline in 1962 in the vacancy rate for ren tal units (which are mainly multiple dwell ings) and a slight rise in the proportion of vacancies in homes available for sale (prima rily single-family dwellings being sold by the owner-occupier) .* Nonresidential building contract awards in 1962 moved 6 percent ahead of 1961, somewhat less than the increase for the na tion over the same period. Elements of strength in this sector included both commer cial and manufacturing building awards; con tracts for institutional buildings also rose sig 1 Housing starts and vacancy rate data are compiled by the De partment of Commerce, The “ West” includes Montana, W y oming, Colorado, and New Mexico in addition to all of the nine District states. FEDERAL RESERVE BANK OF SAN FRANCISCO Ta b le 2 HOUSING S T A R T S AND MOUSING V A C A N C IE S IN T H E W E S T AND T H E UNITED S T A T E S H o u s in g V a c a n c ie s’ R e n ta l U n its H o u s in g S ta r ts 2 O w n e d H o m es U n ite d Period 1961 First Quarter Second Quarter Third Quarter Fourth Quarter 1962 First Quarter Second Quarter Third Quarter Fourth Quarter West* 11.0 U n ite d States 8.0 10.7 8.1 9.4 9.5 8.5 10.3 9 .0 8.3 W est® West* 1.1 1.2 7.9 7.7 1.2 1.4 1.3 1.4 1.2 7.7 7.4 7.3 7.4 U n ite d States 1.2 1.4 1.7 1.4 2 .0 1.3 1.3 1.4 States 7 4 ,4 0 0 8 f ,3 0 0 8 2 ,2 0 0 7 8 ,9 0 0 1.2 1 ,6 0 0 8 1 04 ,30 0 9 8 ,2 0 0 9 0,2 0 0 p 2 6 8 ,4 0 0 4 3 1 ,4 0 0 3 8 7 ,9 0 0 3 4 0 ,6 0 0 p ' Vacancy rate based on sample surveys, 3 Privately built, nonfarm housing units. •Includes Montana, Wyoming, Colorado, and New Mexico in addition to District states, p— Preliminary. Source: United States Department of Commerce. nificantly above 1961. In all three cases, rela tive gains exceeded those for the nation as a whole. Awards of heavy engineering contracts in the District in 1962, however, fell 4 percent short of their 1961 volume. There was a sub stantial rise in building of sanitation facilities, a lesser increase in contracts for public works, and only a slight improvement in contracts for streets and highways. But more than offset ting these increases was a substantial decline in District contracts for public utilities con struction, which contrasted with a sizable rise in this category for the nation. The speed-up in late 1962 in highway building under the Federal Interstate Highway program appar ently had little effect on this District. Mortgage credit continued to grow, with some easing in terms One of the most significant developments in the housing market in the past year was the ready availability of funds for mortgage lending, both in this District and throughout the country. Since mid-1961, rates on con ventional mortgages have been relatively stable at levels lower than had been charged since early 1959. Secondary market prices of FHA-insured home mortgages have risen fairly continuously in the West1 during the last two years and, more recently, in the na tion as a whole. Thus, in 1962, not only has mortgage credit been abundantly available, but substantial inflows of savings into mort gage lending institutions may have led to some liberalization of their credit standards. In the Twelfth District, one of the major lenders on mortgages is the large group of savings and loan associations located here, particularly in California. As an indication of their regional concentration, tabulations of the 100 largest of these savings institutions indicate that 37 are located in District states— 30 in California alone. These large savings and loan associations in California held 38 percent of the total combined assets of the 1 Includes Montana and Wyoming in addition to the nine Dis trict states. 372, MONTHLY REVIEW March 1963 100 largest associations and 37 percent of to tal combined savings accounts as of Decem new-home loans in 1962 from the 1961 total; however, housing begun under F H A inspec ber 31, 1962. Savings and loan associations in this Dis trict racked up some impressive gains in sav ings and lending during 1962, exceeding both their own performance during 1961 and that of the nation as a whole last year. During 1962 insured associations in District states had a 22 percent addition to their savings ac counts, compared with 14 percent in the na tion, and they increased their holdings of real estate loans by 24 percent, compared with 15 percent in the nation as a whole. Rates paid by associations in California exceed those paid elsewhere in the nation, while those paid in other District states also tend to be higher than rates paid in the East and Midwest by comparable institutions. tion in 1962 rose slightly. Several explana tions can be advanced for the reduction in Government-insured housing activity declined somewhat during 1962 Data from District insuring offices of the F H A indicate that there was a decline of 1.5 percent in total applications for insurance on Savings accounts and loans of District savings and loan associations outpace the nation F ell. 1961 trcnifh » 100 housing activity represented by initial F H A applications. One is the recent substantial gain in savings at District commercial banks and savings and loan associations and the re sultant pressure for higher earnings. Lenders have actively sought mortgages, and the abundance of funds has pushed down interest rates on real estate loans. Under these circum stances, conventional mortgages, which carry higher rates than do F H A and V A loans, have become relatively more attractive to both lenders and borrowers. Another factor may have been somewhat greater caution by F H A insuring directors in accepting or approving applications for loan insurance on new homes, especially in areas where substantial numbers of new homes were unsold or where housing vacancies were relatively high or rising. There was also a decline in F H A applications na tionally, with 1962 applications 9 percent un der 1961; FHA-inspected housing starts in the nation, in addition, were fractionally be low their prior-year levels. Lumber output only slightly better than depressed 1961 level Lumber production and employment in the Twelfth District, which failed in 1961 to re gain their 1960 levels, showed only nominal improvement in 1962. Boosted by rising hous ing starts, which reached a peak in the second quarter of the year, and by hedge-buying in anticipation of a possible strike in the lumber industry, mill orders in the District showed steady improvement in the opening months of 1962 through July. In response to the quick ening pace of construction across the nation, lumber prices rose during this period; the na llil 1942 Note: Data cover only Federally insured savings and loan asso ciations. Source: Federal Home Loan Bank of San Francisco and Federal Home Loan Bank Board. tional wholesale price index for softwood lumber in July was 97.6 (1957-59 = 100), 2.7 percent higher than its level a year earlier F E DE R A L R E S E R V E B A N K OF S AN F R A N C I S C O and 5.6 percent higher than in December 1961.1 Orders, however, failed to maintain their earlier pace during the remainder of the year and lagged behind production. Lumber prices reflected the drop in demand; they de clined in the last six months of the year but by December were still 2.8 percent above De cember 1961. Orders in the Douglas fir region in 1962 were 6 percent higher than in 1961, while or ders in the Western pine and Redwood re gions showed only slight gains. Douglas fir and Western pine production surpassed their 1961 levels by 3 and 1 percent, respectively, but production was cut back in the California redwood region. By the end of the year, how ever, the industry was in a somewhat better position as production was geared more close ly to orders. Inventories were reduced signifi cantly by December, and unfilled orders were up substantially over year-ago levels. E m ployment in the lumber and wood products industry increased slightly over the year but at a slower rate than other manufacturing sec tors in the Twelfth District. The failure of the lumber industry to share more substantially in the 1961-62 recovery in economic activity and to regain its 1959 output level has been attributed by the indus try to three principal factors: (1 ) Canadian import competition, (2 ) the trend toward multi-family dwelling units, and (3 ) substi tution of other materials for lumber. The trend toward multi-family residential build ing is particularly detrimental to lumber man ufacturers because their volume market for decades has been dependent on single-family units which require more lumber in con struction. Since W orld W ar II, plywood and particleboard have also furnished stiff com petition for lumber, a situation which has been aggravated in recent years by depressed prices for plywood. 1 Crow’s composite lumber price for the Pacific Coast reached its peak for the year in the two-week period ending July 5 at $77,39 per thousand board feet, up $5.34 from December 21 and $2.40 above the same period in 1961. The competition encountered by the do mestic lumber industry from foreign produc ers is a somewhat more complicated problem. Waterborne shipments of lumber from the Pacific Northwest and California to Atlantic Coast ports declined 12 percent in 1962, while shipments from British Columbia to the same destination rose 7 percent. A t the same time, softwood imports into the United States — mainly from Canada— are accounting for an increasing proportion of domestic soft wood consumption. Because developments in 1962 were but a continuation of recent trends, the industry filed an application with the U nit ed States Tariff Commission asking for im port quotas and higher tariffs. The plea was turned down in February 1963 on the grounds that the trade agreement concessions on lum- District lumber stocks fell and prices rose, w hile output increased slightly B illio n s of B oard Feet 25 1956 1957 PRODUCTION 1958 1959 1960 1961 1962 Note: The price index for softwood lumber is the softwood lum ber component of the wholesale price index for the United States Source: United States Department of Labor, Bureau of Labor Statistics, and National Lumber Manufacturers Association. March 1963 MONTHLY REVIEW bcr were not “the preponderant cause” of in creased imports of softwood lumber. The Commission found high labor, stumpage, and rail costs in this country mainly responsible for the successful foreign penetration of do mestic markets. 1961 trough = 100 Plywood production expanded again; prices low Plywood production in the District in 1962 expanded for the 17th consecutive year, to 9.7 billion square feet. The 7 percent increase in output was the combined result of an 8 per cent rise in softwood plywood, to 9.2 billion square feet, and a 3 percent reduction in the output of hardwood plywood, to 511 million square feet. Although a record output, the industry on the average operated at only 80 percent of capacity. Prices consequently re mained depressed. The price of quarter-inch sanded stock, which was at a post-World W ar II low of $60 per thousand square feet at the beginning of the year, was raised in April to $64. The price could not be held at that level in face of a weak demand situation, however, and it fell back to the $60 level in May where it stayed through the rest of the year. Defense spending spurred District business activity Outlays by the Federal government for na tional defense activities continued to make an important contribution to economic activity in the District in 1962, with firms throughout the District— but particularly in California— benefiting from these Federal expenditures. The bulk of the spending for defense in the District consists of maintenance and opera tion of military facilities and procurement of materials and services by the Department of Defense. Although not strictly classified as defense expenditures, space technology outlays relat ed to space exploration and flight have in creased considerably in recent years under the National Aeronautics and Space A dm in istration (N A S A ) and have supplemented T W E L F T H D fS T R tC T \ Source: State departments of employment and United States De partment of Labor, Defense Department expenditures in the Twelfth District. Contract awards by the N A SA to business firms in the United States jumped 143 percent from fiscal 1961 to 1962, with District firms participating heavily in the expanding activities of the N ASA . In fiscal 1962, the direct award of contracts of $25,000 or more to District firms constituted al most half the dollar volume of such awards nationally and totaled $452 million. This amount was larger than the total of all such awards to business firms across the nation a year earlier. As a measure of defense expenditures with in a region, attention generally is focussed on prime contract awards by agencies of the De partment of Defense for the purchase of such items as aircraft, missiles, ships, and other military equipment. Even larger, however, in terms of the budget of the Department, are the outlays for military personnel and the opera tion and maintenance of equipment and fa cilities. Some idea of the importance of such expenditures in the District can be gathered from the large number of military personnel stationed in the nine-state area. In mid-1961 F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O INDEXES OF INDUSTRIAL PRODUCTION— TWELFTH DISTRICT (1957-59 = INDUSTRIAL PRODUCTION 1957 1958 100) 1959 I960 1961 1962? Copper Lead Zinc Silver Gold Steel Ingots Aluminum 113 1 01 86 112 119 128 116 92 93 76 99 104 109 94 96 86 97 1 02 105 102 94 91 105 106 106 104 90 99 92 15 114 94 92 102 111 100 112 87 101 101 97 107 Crude Petroleum Refined Petroleum Natural Gas 106 98 96 95 96 96 1 02 96 1 01 104 108 111 1 01 96 104 112 121 124 93 99 108 101 105 111 93 98 1 09 98 95 97 99 98 103 106 109 114 83 97 120 119 131 141 Cement Lumber Wood Pulp Douglas Fir Plywood Canned Fruit Canned Vegetables Meat Sugar Flour Creamery Butter American Cheese Ice Cream 97 91 112 111 114 119 97 107 95 101 89 106 104 95 1 01 107 111 113 1 01 91 108 105 107 115 96 102 1 02 102 99 101 102 96 102 112 120 119 1 00 97 1 03 112 111 111 96 101 1 03 1 02 106 105 p— Preliminary. Note. Data given above supersede all previously published annual indexes. To make these indexes comparable to most other statistical series, the base period has been changed from 1947-1949 = 100 to 1957-1959 = 100. Source: Federal Reserve Bank of San Francisco. (the latest data available), approximately 500,000 military personnel were stationed in District states, more than one-fourth of the total stationed in the United States. Also of importance in the defense budget are research and development expenditures. Although data are not available for these outlays on a state basis, the relatively large volume of awards to business firms in the District by the N A S A suggests that research and develop ment expenditures in the District by the De partment of Defense may be substantial. The District economy has derived benefits from the increased emphasis on the procure ment of missiles and electronic equipment in recent years. During the Korean conflict, the Pacific and M ountain states received 19 per cent of the prime contract awards in the coun try. In fiscal 1961 almost one-third of total military prime contracts went to these states. Awards to District firms during the first three quarters of 1962 totaled $6.1 billion. This was 18 percent or $839 million larger than during the comparable period of 1961 and represented a larger share of the expanding dollar volume of awards. A ll District states shared in the increase except Alaska and Ore gon. The magnitude of the prime contract awards to District firms thus points up the significance of these awards to the District. It should be noted, however, that the vol ume of prime contract awards in the District does not necessarily represent final defense purchases in the area because of the practice March 1963 MONTHLY REVIEW of subcontracting— possibly to firms outside the region— by prime contractors. But the flow of payments on subcontracts is not ex clusively from District firms; firms in the West also act as subcontractors on jobs awarded to other areas. Despite problems of translating purchases of goods and services precisely into direct F«b. 1941 trough = 100 employment, it is clear that defense and space exploration expenditures are a major source of jobs within the District. Defense-related manufacturing employment in District states advanced steadily from the low of 523,000 workers in April 1961 to 617,000 in Decem ber 1962. O n a monthly average basis, jobs in defense industries increased almost 11 per cent from 1961 to 1962. The employment gain over 1961 was shared among District states, with the largest gain registered in em ployment by electrical equipment firms in California. Almost 30,000 employees were added by these California firms in 1962, about 50 percent more than in 1961. Employ ment by aircraft firms in Washington, al though averaging higher than in 1961, dropped by more than 4,000 workers from its 1962 peak to the end of the year, apparently due largely to a decline in the order backlogs for commercial jet aircraft. There were also some losses in aircraft em ployment in California. O n the whole, how ever, the increase in employment in defenserelated industries added significantly to the expansionary forces in the District economy in 1962. August District steel industry suffered setback in 1962 The District steel industry looked forward to 1962 with some anticipation, after having experienced a more successful year in 1961 than steel producers outside the District; how ever, the outcome in 1962 was reversed. Dis trict production of 4.9 million tons was 9.5 percent below 1961 and about equal to 1960 Source: American Iron and Steel Institute. output, while national production of 98 m il lion tons was 0.3 percent higher than in 1961. The year started off on an encouraging note, with orders and output expanding rap idly in January and February to meet sea sonal increases in consumption and substan tial purchases for inventory by steel users as a hedge against a possible strike in the steel industry by mid-year. Both District and na tional output increased approximately 12 per cent from December 1961 to February 1962. The pace of production slowed in March, however, as expectations of a peaceful settle ment of contract negotiations spread, but nationally the industry still operated at 80 percent of capacity. The settlement reached at the end of March set off a wave of inventory liquidation which had adverse repercussions on the industry for the remainder of the year. The industry’s unsuccessful attempt in April to raise prices by $6 a ton further clouded the outlook for steel. The impact on the District was consid erably milder than in the rest of the nation bccause much of the build-up in stocks had centered on types of steel used primarily by F E D E R A L R E S E R V E B A NK OF S AN F R A N C I S C O automobile and appliance manufacturers, who are relatively much less important in the Twelfth District. Steel output in the West, however, was depressed somewhat by a con struction strike in June and early July. After the usual vacation slowdown in July, District steel output increased through the remaining months of 1962, with the exception of Octo ber. By December, prospects had brightened considerably due to demand arising from Government defense contracts and a build up in mill inventories in expectation of an im proved level of orders in early 1963. The most important development in the District steel picture in 1962 was an average $12 per ton reduction in prices of steel mill products by Western steel producers. The move, of both long range and immediate sig nificance, was designed to enhance the com petitive position of Western steel mills over their Eastern rivals in the Western market and to combat rising foreign steel imports. The cuts removed most of the historic price differential between steel prices on the West and East Coasts and resulted in some addi tional absorption of freight charges by East ern mills. W ith the price advantage of for eign steel significantly reduced by the cut, im ported products tended to become less attrac tive to domestic steel consumers. Foreign steel imports, particularly from Japanese mills, have made substantial inroads into the West Coast market in recent years. Steel im ports through West Coast ports have almost trebled since 1958 when imports first ap peared in volume on Western markets. By 1962 imports from foreign sources account ed for more than 10 percent of total steel re ceipts in the seven Western states. Stable prices and record output for District copper producers The copper situation in the District in 1962 was characterized by record mine output, stable prices, and high levels of consumption. Increases in mine production that began in the fourth quarter of 1961 continued through the first quarter of 1962, and District pro duction reached its peak for the year in April. Continuing large orders for refined copper by brass and wire mills kept mine production at high levels. Subsequent developments in the world copper markets (where production was at record levels), accompanied by increases in domestic inventories and declines in ship ments, aroused concern that world produc tion might be significantly in excess of fore seeable world demand. Voluntary reductions in mine production were announced by the three leading United States producers and several African producers at the end of June and again in September, reducing output al together by 5 percent of free world produc tion. Despite the fact that stocks of refined copper held by prim ary producers in the United States rose 51 percent in July, the price of 31 cents a pound for refined cop per that had been set on May 19, 1961 held firm and was unchanged throughout 1962— the longest period of price stability since World War II when price controls were in effect. For the entire year, production of cop per from District mines was almost 8 percent above its previous record established in 1961 and accounted for 77 percent of national pro duction, about the same as in 1961. Output of other nonferrous metals also increased District production of zinc, lead, and alu m inum in 1962 surpassed 1961 levels by approximately 10, 4, and 11 percent, respec tively. Zinc and aluminum output were the highest since 1957, and lead output set a new record. As in the case of copper, the market for nonferrous metals is affected by both national and international developments. The failure of the International Lead-Zinc Study Group to agree on limitations on production, and MONTHLY REVIEW March 1963 thus on exports, exerted a depressing effect on prices and resulted in a Vi cent a pound reduction in the price of zinc to 11 Vi cents a Petroleum refining continued to increase in 1962 the basic forms of the metal, ingot and billet, Refining activity in District V 1 increased in 1962 for the fourth consecutive year. O p erations were up 3 percent from 1961; a daily average of 1,252 thousand barrels of crude petroleum was processed at this area’s re fineries. The national increase was at the same rate. Much of the rise in refining activity in District V came during the last seven months of 1962, following unseasonally low levels of activity in March and April. Domestic demand in District V for refined petroleum products increased by less than 2 percent in 1962. This was considerably smaller than in 1961 and contrasts with the situation nationally where the increase in de mand was much sharper in 1962 than in the previous year. Gasoline demand in the West ern states was relatively strong, rising 4 per cent from 1961; nevertheless, gasoline stocks increased. Stocks of residual oil totaled 23 million barrels at the close of 1962 and were almost 60 percent greater than a year earlier, largely because of a fall-off in deliveries. Pro duction of this product accounts for 20 per cent of the refinery output in District V. Practically all of the additions to year-end stocks occurred during the high level of re fining activity in the latter part of the year. The production of crude within District V increased slightly in 1962 to 840,000 barrels in early December. Ingot prices were reduced per day. Expansion of output in Alaska was 1 Vi cents a pound to 22Vi cents, and the sufficient to more than offset the downward price of soft extrusion billet also was cut. The trend of production in California. Neverthe price reductions were posted by the major less, with refining activity expanding at a United States producers, including those with faster pace than the production of crude pe mills in the District. Foreign imports of alu troleum in Western states, processors relied m inum ingots and alloys into the United more heavily in 1962 on supplies of crude States in the first eleven months of 1962 were from outside the area than a year earlier. pound (East St. Louis). Zinc buying, how ever, continued dull through July until orders for zinc from the steel industry for galvaniz ing operations and from the automobile in dustry for die castings picked up in the second half of the year. The market for lead in the first quarter of 1962 was depressed, resulting in three reduc tions in lead prices of Va cent each in January and February to bring the price to 9 Vi cents per pound, the lowest quotation since 1946. The District’s share of the nation’s lead out put rose, however, from 48 percent in 1961 to 58 percent in 1962 because of a strike in southeast Missouri which brought national production for the year below 1961. The re duction in stocks due to the strike resulted, in turn, in a V i cent increase in the price of lead in November. Although output and consumption of alu minum products were at very high levels in 1962, increased foreign competition was re sponsible for price reductions in the fourth quarter. Price cuts in fabricated aluminum sheet initiated in late September spread to almost 41 percent higher than imports in the These imports were equivalent to one-third comparable 1961 period, while exports of of crude petroleum input at District V re these products by United States producers fineries— about 3 percentage points greater showed only a 9 percent increase during the same period. 1District V consists of Alaska, Arizona, California, Hawaii, Nevada, Oregon, and Washington. F E D E R A L R E S E R V E B A N K OF S A N F R A N C I S C O than in 1961. The expansion in District V refinery operations in 1962 was supported primarily by imports of crude from foreign sources. Imports of crude petroleum also in creased nationally, but the rate of increase was much less than in the western part of the country where nonquota imports from Can ada rose by more than one-third. Foreign crude is of much greater importance as raw material for the refining industry in District V than in the country as a whole. These im ports were equivalent to about one barrel in every eight of crude input at the nation’s re fineries, compared with a ratio of one in four at Western refineries. Harvested acreage of principal field crops declined in most District states from 1961 to 1962 P e r c e n t C hange More cash for District farmers After leveling off in 1961, cash receipts of farmers rose to a record level in 1962 in the District and the nation. The rate of increase from 1961 was 4 percent for the District, however, compared with a rise of less than 3 percent for the country as a whole. Higher cash income in the District was due to an increase in returns from marketings to a rec ord $5.5 billion and to larger Government payments. Although returns from livestock market ings edged up slightly, a rise of $190 million in receipts from crop marketings accounted for the bulk of the gain. Crop output in the District rose from 1961 in spite of increased participation in the Government Feed Grain and Wheat Programs, which removed addi tional acreage from crop production. Yields of a number of important field crops in the District were at or near record levels, more than offsetting a 4 percent, or 800,000 acre, reduction in harvested acreage. H alf of the net decrease in acreage occurred in Washing ton, where the mandatory 10 percent reduc tion in acreage allotments plus participation in the voluntary portion of the Wheat Pro Note: Data for Nevada are not included. Harvested acreage of principal crops in Nevada increased 68,000 acres or 21 percent from 1961 to 1962. Source: United States Department of Agriculture. was reduced by more than 100,000 acres as this crop was added to the Feed Grain Pro gram for 1962. Preliminary estimates indi cate that crop prices for the year were about the same as in 1961. The modest advance in livestock receipts, on the other hand, appears to have resulted largely from somewhat higher prices. Because of increased emphasis on G ov ernment agricultural programs that utilize di rect payments to farmers, the importance of cash from this source rose sharply in 1961 and 1962. Government payments nationally increased 17 percent from 1961 but rose even more sharply in the District— 35 percent. Heavier payments, primarily from the Feed Grain and Wheat Programs, raised the flow of cash to District farmers from the Federal government to $106 million in 1962. Net income of District farm operators is es timated to have risen somewhat in 1962, after dropping in 1961— a year of recovery and gram combined to reduce the harvest of wheat expansion in general business activity. The in the State by 277,000 acres. In addition, growth of more than $200 million in cash the acreage of barley harvested in that State receipts is greater than recent year-to-year March 1963 MONTHLY REVIEW increases in production expenses. Costs in curred by farm operators for production pur poses approached $4.1 billion in 1961 and undoubtedly rose further in 1962. Although District farm income improved in 1962 along with business activity, little of the im provem ent can be attributed to a strengthening in the demand for food that might be associated with advancing levels of business activity. Increases in personal in come, however, have never been fully re flected in purchases of food and related services during the entire postwar period, and 1962 was no exception. Disposable personal income nationally rose by more than 5 per cent from 1961, while the rate of increase in outlays for food was somewhat smaller. The domestic market for food has expanded as the population has grown, but the proportion of per capita disposable income spent for food and related services has dropped from 26 percent in 1947-49 to 19 percent in 1962. Spending for services has been accounting for a rising share of consumer disposable in come. Despite this downtrend in the farmer’s share of retail expenditures for food, there was no further deterioration in his share in 1962. Increased activity in fruit and vegetable canning District canning activity continued to ex pand in 1962, with the pack of both fruits and vegetables larger than a year earlier. As inventories entering the 1962 marketing sea son also were somewhat higher, total supplies of canned products were more abundant. However, supplies apparently were not large enough to depress prices, despite the heavier movement of most major items into market channels during the first half of the market ing season. Tending to offset the economies of a larger pack were increased cannery costs for containers and for raw materials (except tomatoes) and higher wage rates. Neverthe less, the pickup in canning activity bolstered (in percent) Note: Each can in the chart represents 1.0 percentage point in crease in production from 1961 to 1962. Source: Canners League of California and Northwest Canners and Freezers Association. employment in the District, with Pacific Coast employment in canning and preserving rising to its highest level since 1956. The canned fruit pack in the District reached a record volume of over 65 million cases during the 1962 canning season. A rec ord pack also is indicated nationally. The increase in the District fruit pack was general for most major items and was led by an 11 percent increase in cling peaches. The Dis trict pack of 31 million cases of peaches rep resented 96 percent of all peaches canned in the United States during 1962. Peaches also dominate fruit canning in the District. Vegetables contributed to the expansion in District canning activity in 1962 largely as a consequence of a heavier pack of tomatoes and tomato products, which occupy a posi tion in District vegetable canning more or less similar to that of peaches in fruit canning. Supplies of tomato products processed in the District also are of considerable significance nationally. About half the nation’s supply of canned tomatoes and tomato products is packed in California. Exports through Twelfth District ports steady in 1962; imports rose sharply Foreign trade m oving through Pacific Coast customs districts in 1962 tended to F E DE R A L R E S E R V E B A NK OF S AN F R A N C I S C O weakness in export trade was partly attribut tion of the shipments out of West Coast ports than for the United States as a whole. Exports to Canada, on the other hand, are more im portant outside the San Francisco Federal Reserve District, with the consequence that the recovery in exports to Canada in 1962 had relatively little im pact on shipments through this District. Both Pacific Coast and United States exports were strong from M ay 1961 through the first half of 1962 but drop ped off as 1962 drew to a close. The impact of exports on economic activity therefore tended to diminish at the same time that gen eral business activity in the nation leveled off. The Los Angeles customs district had the sharpest decline in export activity as ship ments abroad fell 18 percent below the 1961 total. The Oregon customs district suffered a small reduction in the dollar volume of its exports, while exports from Alaska to foreign countries also declined slightly. Shipments from the rem aining customs districts rose above 1961 levels. Imports entering the United States through the Twelfth District customs districts in 1962 were 17 percent above 1961, almost 6 per centage points more than the rise in United States imports as a whole. This was in rather sharp contrast to the behavior of imports in 1961, when both West Coast and United States purchases abroad were slightly below the 1960 figure because of the sluggish re sponse of imports to the upswing in the economy. In 1962 the lag was more than com pensated for by the sharp increase in imports of industrial raw materials, manufactured foodstuffs, and capital and consumer goods. Even after industrial output leveled off after June 1962, imports in the Twelfth District and the United States continued to rise in a somewhat belated response to the recovery, able to a slowdown in the rate of economic although imports as a percent of gross na expansion in the major industrial countries tional product have remained more or less abroad and, in the case of this District in unchanged. Because of a decline in the prices particular, to the payments difficulties of of foodstuffs and industrial materials over the Japan. Japan accounts for a larger propor year and steadiness in the prices of finished Exports through District ports stable in 1962, but imports far exceeded national gain IMPORTS Note: Data exclude Alaska and Hawaii. Source: United States Department of Commerce. follow a pattern quite similar to that in 1961, with exports declining and imports continu ing to increase. Export shipments through Pacific Coast ports again exercised little ex pansionary influence on the Twelfth District economy to the extent that these exports origi nated within the region. The total value of exports handled by Twelfth District ports was 1 percent below 1961, compared with a decline of 5 percent from 1960 to 1961. But United States merchandise exports were 4 percent larger than in the preceding year, and the gain exceeded the rise from 1960 to 1961. The March 1963 MONTHLY REVIEW manufactures, most of the rise in the dollar value of our imports accrued to the industrial ized countries. The greater expansion of imports through Twelfth District ports than of imports into the United States as a whole was shared by all customs districts in this region. Increases of 20 percent or more were recorded by San Diego, Los Angeles, Oregon, and Alaska; Washington and Hawaii exceeded the aver age rate of growth for the nation, while San Francisco was slightly below the national average. Part of the explanation for the sig nificantly larger increase in imports on the West Coast, according to limited commodity data available, lies in the upsurge in imports of steel products and petroleum. The physical volume of steel product imports through Ore gon ports increased by almost two-thirds, while imports through the Los Angeles dis trict rose by almost half. Stiffer competition for District steel mills from foreign producers was thus responsible in part for the reduction in steel prices by major District steel pro ducers in October 1962. Crude petroleum imports also rose 17 percent as the Canadian pipeline into the Pacific Northwest came into full operation and as District production con tinued to provide a declining share of refinery supplies. Continued Ease Influenced Bank Loans And Investments in the Second Year of Recovery Although the accelerated pace of activity in some sectors of the economy and continued secular growth in the District contributed to the expansion in loan portfolios and deposits at Twelfth District member banks in 1962, bank performance during the year was also influenced by other factors. Reserves were supplied to member banks by the Federal Reserve System through open market opera tions so that District banks were under rela tively less reserve pressure throughout most of the year than is normally characteristic of the expansionary phase of the business cycle. Reserves also were made available through the reduction from 5 to 4 percent in reserve requirements against time and savings de posits in late 1962.1 This action had a rela tively greater impact on Twelfth District banks, since such deposits constitute a far higher percentage of total deposits at District banks than at other member banks in the rest of the nation. 1 Effective October 2 5, 1962 for reserve city banks and Novem ber 1, 1962 for ail ocher member banks. The development which had the most farreaching effect on District bank operations, however, was the increase in interest rates paid on time and savings deposits. Most mem ber banks in the District raised rates from 3 percent to the new maximum permissible rate under Regulation Q of 3 Vi percent on regular savings on deposit for less than one year, while some banks also posted the new maxi mum rate of 4 percent on savings held for one year or more. Most banks also adjusted their rates upward on time certificates of de posit. In October, the interest ceilings estab lished by Regulation Q were temporarily suspended for three years for time deposits of foreign governments and certain interna tional financial institutions. The higher rates on savings and time deposits, combined with the larger volume of funds attracted by these rates, substantially increased bank costs and, as a consequence, led to modifications in loan and investment policies as banks attempted to minimize the adverse effect on bank profits. Despite efforts to increase earnings, the 36 F E DE R A L R E S E R V E B A N K OF S AN F R A N C I S C O pcrccnt increase in interest payments in 1962 was mainly responsible for the 6.4 percent decline in the net income of all member banks in the District. For other member banks in the nation, net income in 1962 was only 0.5 percent lower than in 1961. Reflecting these developments, District member banks ended 1962 with total loans and investments 9 percent higher than a year earlier and 20 percent above the cyclical trough of February 1961. The increase in bank credit in 1962 was due to an expansion in loan portfolios, whereas investment in se curities had accounted for most of the gain in 1961. The 7 percent increase in total de posits in 1962 was less than in the preceding year. The supply of reserves in 1962 and the increase in deposits were sufficient to permit District member banks to expand the volume of outstanding loans without reducing total security holdings. The percentage increases in loans, investments, and total deposits of Twelfth District member banks from Febru ary 1961 through 1962 were greater than for all other member banks in the nation. Only in the case of time deposits did the District gain fall below that of the rest of the country. ated pace, whereas in 1961 business loans did not expand materially until the fourth quar ter. December tax borrowing by these firms in 1962, however, was not so large as in 1961, and, as a consequence, the fourth quarter gain was smaller than in the comparable yearago period. The general availability of loanable funds during 1962 kept average interest rates on short-term business loans by District banks around 5.35 to 5.40 percent. Surveys con ducted during the first 15 days of the final month of each quarter showed that rates on new business loans moved within a rather narrow range of 3 to 11 basis points above average rates for the same periods in 1961. The prime rate— the rate charged business borrowers with top credit rating— was un changed at 4 Vi percent. District bank credit continued to increase in 1962; loans accounted for most of the rise 1941 t r o u g h * 10 0 Business demand for credit strengthened in 1962 A more than 10 percent increase in com mercial and industrial loans in 1962— almost twice as great as in 1961— contributed to the overall expansion in District bank loans. By the end of the first 22 months of the current cyclical upturn, business demand for credit appeared to be about as strong as in the com parable period of the 1958-60 cycle.1 But most of the expansion occurred in 1962 as business loans remained substantially above levels of a year earlier throughout the year. After the usual seasonal decline in the first quarter, borrowing by commercial and indus trial firms increased at a gradually acceler 'D a ta for the first 12 months of the 1958-60 cycle are not alto gether comparable with more recent commercial and industrial loan data because of reclassification of certain categories. 1* T1 12 H Note: Loans adjusted are total loans less valuation reserve*. Data are for member banks only. Source: Federal Reserve Bank of San Francisco and Board of Governors of the Federal Reserve System. MONTHLY REVIEW March 1963 Search for higher returns on earning assets also stimulated mortgage financing by District banks Increase in automobile instalment loans in 1962 concentrated m ainly in second and fourth quarters P ercent change -40 -20 0 +20 440 +60 +80 +100 +120 Source: Reports of condition of member banks. Banks made substantial additions to their mortgage holdings The major divergence in loan activity in 1962 from a year earlier was in real estate lending. District banks, confronted with mounting interest costs on rapidly expanding time deposits, actively sought mortgage loans as a source of higher earnings. Mortgage holdings increased 15 percent, compared with 3.5 percent in 1961. The increase was achieved in the face of strong competition for mortgages from savings and loan associ ations and other lenders. From June 1962 to the end of the year, the dollar volume of real estate loans held by District weekly reporting member banks exceeded outstanding com mercial and industrial loans. Even substan to reach a total of $1.5 billion outstanding by the end of 1962. After a small first quarter decline, loans secured by residential proper ties registered gains in excess of $200 million in each of the three succeeding quarters. A 24 percent increase in conventional mort gages brought outstandings at the end of D e cember 1962 to $2,485 million, a level only $61 million under bank holdings of FHAguaranteed mortgages. District banks also in creased their holdings of mortgages secured by farm land by $40 million in 1962, a 24 percent gain over 1961. Only VA-insured and guaranteed mortgages declined during 1962 in line with the declining trend of these hold ings in recent years. Due to their lower yields, they have become relatively less attractive in comparison with other types of loans. tial tax borrowing by business in December failed to close the gap as real estate loans continued their steady rise. Record District automobile sales boosted consumer loan totals Mortgages secured by commercial and in Consumer borrowing was also a plus fac dustrial properties accounted for almost all tor in bank loan expansion in 1962. The 12 of the increase in real estate loans in the first percent gain in consumer loans held by Dis quarter of 1962 at member banks in the Dis trict banks reflected the generally high level trict, and this type of lending continued at a of retail sales in 1962 and the increased in substantial rate through the rest of the year terest by banks in the relatively high rates of F E DE R A L R E S E R V E B A NK OF S AN F R A N C I S C O return on this type of lending. District banks participated actively in the financing of rec ord District automobile purchases, with the result that more than half of the 1962 dollar gain in consumer loans was in automobile instalment loans. The 17 percent increase in automobile credit compares with a gain of only 1.5 percent in 1961. Loans to brokers and dealers and to others for purchasing and carrying other types of securities, on the other hand, remained above year-ago levels during all of 1962, although the spread narrowed somewhat in the last half of the year. Loans for purchasing and carrying securities fluctuate widely over short New extensions of credit for other types of retail consumer instalment loans, however, barely offset repayments during the year. Other types of instalment loans, including loans for residential repair and moderniza tion, rose about 10 percent in 1962 compared with a reduction in 1961. The 11 percent increase in single-payment loans for the year was identical with the increase a year earlier. any one date to another may not be particu periods, however, so that comparisons from larly meaningful. District bank credit to farmers expanded in 1962 Agricultural loans outstanding at District member banks at the close of 1962 were 13 percent above year-end 1961 outstandings, about 3 percentage points less than the gain Credit to financial intermediaries and for purchasing and carrying securities remained above year-ago levels throughout 1962 The volume of outstanding loans to non bank financial institutions held by District banks at the close of 1962 was 25 percent greater than at the end of December 1961, rem aining above 1961 levels throughout 1962. The margin over a year-ago widened in the last half of the year, with particularly heavy borrowing in December by sales and personal finance companies and other finan cial intermediaries. W hile 1962 year-end figures indicate a reduction from December 1961 in District bank loans to brokers and dealers for financ ing United States Government securities, the volume of such credit extended throughout 1962 was greater than in 1961, except for the first quarter. Borrowing around quarterly tax dates was particularly heavy in 1962 as more bank credit than usual was needed by dealers to finance their larger inventories. Corpora tions had been providing much of the addi tional financing through repurchase agree ments, which were made with maturities designed to run off on tax payment dates. a year earlier. However, bank loans to farm ers, excluding CCC-guaranteed loans, rose 12 percent in 1962 compared with a 6 per cent gain in 1961, and the dollar volume of such loans outstanding remained higher throughout 1962. The m ajor increase oc curred in the second quarter, when seasonal borrowing needs of farmers are greatest. Bank holdings of CCC-guaranteed loans in 1962 reflected both the ready availability of funds and the relatively attractive yield on these loans compared with alternative short term investments. D uring the first h alf of 1962, C C C loans held by District banks far exceeded outstandings in the comparable pe riod of 1961 as bank portfolio managers fol lowed a somewhat different policy in regard to C C C loans. C C C loans are customarily made in the latter part of the year and pre sented to the Commodity Credit Corporation for redemption as the need for funds for other purposes arises. But a large proportion of the $100 million in C C C loans extended by District banks in late 1961 was, contrary to usual practice, held until they matured in August 1962. March 1963 MONTHLY REVIEW Loan-deposit ratios increased in 1962 Since the rate of loan expansion at Dis trict member banks in 1962 surpassed the 7 percent increase in deposits, the ratio of loans to deposits rose. A t the end of 1962, the ratio was 63.2 percent, up from 58.7 percent at the end of 1961. The loan-deposit ratio at the end of 1962 compares with a ratio of 62.3 percent 22 months after the trough of the preceding cycle. Because a larger proportion of District bank deposits in 1962 than in 1960 was in the form of sav ings and time deposits, which are less volatile than demand deposits, banks had somewhat greater leeway to expand their loan activity. Feb. 1961 trough = 100 120 U . S. G O V E R N M E N T S E C U R IT IE S 10 1 10 0 O T H E R S E C U R IT IE S 140 130 District bank investment portfolios held more tax-exempts and longer term Treasury issues in 1962 In 1961, District member banks increased their total investment in securities by $1.6 billion, with United States Government se curities and other securities rising at about the same rate. In 1962, on the other hand, total security holdings at year-end were less than $100 million above December 1961, a gain of only 1 percent compared with a 17 percent increase in 1961. This difference was due largely to the greater expansion in loans and to a smaller gain in deposits in 1962 than a year earlier. The need to offset higher interest costs on savings and time deposits encouraged banks in 1962 to switch from United States Gov ernment securities into tax-exempt issues yielding higher net rates of return. As a re sult, District bank holdings of United States Treasury issues declined 7 percent, while other security holdings (chiefly state and lo cal government securities) rose 23 percent— 5 percentage points above the gain in 1961. By the end of 1962, other security holdings accounted for slightly over one-third of total securities held by D istrict member banks, compared with one-fourth of the total at the beginning of 1961. 130 no 10 0 J M M J 1961 S N J M M J S 1962 N Note: ‘‘Other securities” are chiefly state and local government issues. Data are for member banks only. Source: Federal Reserve Bank of San Francisco and Board of Governors of the Federal Reserve System, Sizable shifts also occurred in 1962 in the maturity distribution of United States Gov ernment securities held by member banks in the District. Treasury bill holdings declined 17 percent, while notes and bonds maturing i n i to 5 years and within 1 year also dropped sharply. A lthough certificate holdings in creased, the major gain— $551 million— was centered in holdings of long-term bonds. This reallocation of funds was partly a result of the Treasury’s financing and refunding oper ations during the year. The search for higher yields, however, also influenced bank man agement of United States Government secu rity portfolios, as it had affected their other holdings. The continued availability of funds to meet loan demand added to the banks’ F E DE R A L R E S E R V E B A NK OF SAN F R A N C I S C O willingness to shift into longer term securi ties. As a result of these shifts in investment portfolios, the ratio of District bank holdings of United States Government securities ma turing within one year to total deposits (less cash items in process of collection) de clined from 8.3 percent in December 1961 to 6.6 percent in December 1962. This li quidity ratio, however, was still far above the 2.3 percent ratio 22 months after the April 1958 cyclical trough. The largest dollar gain was the $1.5 billion rise in savings deposits, an increase of 13 percent over 1961. Increases exceeded $300 million in each quarter of 1962, with the largest gains occurring in the second and third quarters. Other time deposits of individuals, partnerships, and corporations rose $300 m il lion in 1962, but the gain was concentrated in the first two quarters of the year. Higher interest rates attracted $2 billion in savings and time deposits time deposits $160 m illion in 1962. Net A lthough member banks in the District gained demand deposits in both the second and fourth quarters of 1962, the net increase for the year was under 1.5 percent, well be low the 8 percent increase in 1961. The small increase at District banks was, nevertheless, in contrast to a 2 percent decrease for mem ber banks in the rest of the nation. The major difference in demand deposit behavior in the District in 1962 compared with a year earlier was the smaller increase in deposits of indi viduals, partnerships, and corporations, due mainly to sizable net withdrawals in the first quarter of the year. As mentioned earlier, most District mem ber banks raised their rates of interest pay able on savings and time deposits at the start of 1962. This action, combined with the adoption in 1961 by many large District banks, particularly in C alifornia, of daily computation of interest on savings accounts, permitted District banks to compete more successfully with savings and loan associa tions and other investment outlets for savings. As a result, total time deposits at District banks rose $2 billion, a 13 percent gain over December 1961. By the end of 1962, savings and time deposits of District banks consti tuted 47.9 percent of total deposits. Although a portion of these funds may have been trans fers from demand deposits, much of the gain reflected net new deposits. tutions throughout the year brought the year- States and political subdivisions also found the higher rates attractive and increased their additions to time deposits of foreign govern ments, central banks, and international insti end gain in this category to $62 million. District deposits rose faster than in rest of the nation despite slower growth in time deposits Feb. 1961 trough =100 1961 196* Note: Demand deposits adjusted include all deposits except in terbank and United States Government deposits, less cash items in process of collection. Data are for member banks only. Source: Federal Reserve Bank of San Francisco and Board of Governors of the Federal Reserve System. March 1963 MONTHLY REVIEW T a ble 3 (dollar amounts in millions) Total loans and investments Net loans and investments Loans and discounts— net Commercial and industrial Real estate Agricultural Domestic commercial and foreign banks Nonbank tinancial institutions For purchasing or carrying securities To brokers and dealers To others Consumer All other loans Total investments I). S. Government securities Treasury bills Certificates Notes and bonds maturing: Within t year 1 to 5 years After 5 years Other securities Total deposits Demand Time Capital accounts Total assets/liabilities and capital accounts $ 3 2 ,5 1 2 .5 3 2 ,1 6 4 .2 2 0 ,9 8 2 .8 6 ,9 8 5 .7 + + 7 ,2 2 6 .6 1,029.5 4 1 5 .4 1,132,3 156.9 120.7 3 13 .2 1 1 ,1 8 1 .4 7,653.1 1,045.2 409.3 3 ,59 4.2 1,617.1 3 ,52 8.3 18,7 40 ,7 2 ,6 6 2 .9 4 0 ,0 6 0 .0 Percent change From Dec. 31, 1960 to Dec. 30, 1961 Change from Dec. 30, 1961 Dollar amount Percent As of Dec. 28, 1962 + + 3 ,9 5 0 .8 + + — + + + 9.1 9.3 S + 2 ,7 5 8 .3 + 2 ,7 3 4 .2 + 9.3 + 2 ,6 3 4 .5 + 14.4 + 10.5 + 5 .8 665.3 9 3 9 .6 + 15.0 + + 117.7 + 12.9 + 15.7 + 171.3 2 2 4 .4 + 2 4.7 — 4.3 — 18.8 4 2 4 .4 101 .4 + 99.7 + — 5 4 8 .6 — 2 2 0 .8 101.1 987.3 — 5 5.5 — 9 2 4 .6 + 551 .2 + 648 .3 3 5 ,9 9 3 .5 2 ,3 0 0 .3 + + 2 5 8 .5 1 7 ,2 52 .8 ,0 4 1 .8 + 2 + 141.1 + 2 ,9 5 9 .3 2.7 + + + 0.9 6.7 — + + 70.2 The growth in savings and time deposits in 1962 resulted in a 36 percent increase in interest costs of District member banks. In terest paid on deposits exceeded total salaries and wages for the first time and was largely responsible for the 18 percent increase in 3.5 0.5 + 16.1 18.5 12.0 47.9 + 26.7 + 2.9 + 11.8 + 17.0 17.4 3 2.8 9.1 4.8 + 13.4 — + 16.8 + 7 9.5 + 10.4 — 53.2 — 2 0.5 + 5 1.7 + 22.5 — 46.9 + 5 7.3 — 11.3 + 17.7 + + 6.8 1-4 + 13.4 + 10.2 + 8.3 + 12.5 + 5.6 + 10.5 + 8.0 + 9.7 Source: Reports of condition of member banks. Lower net income in 1962 for District banks as interest costs on time deposits soared + + total expenses in 1962. Although banks were successful in increasing earnings from both loans and securities, total revenue in 1962 rose only 11 percent and did not fully offset the increase in expenses. As a result, net in come of District banks declined $15.6 million in 1962, a drop of over 6 percent from 1961. Net profits of individual District banks varied widely in 1962, but profits were generally F E D E R A L R E S E R V E B A NK OF S AN F R A N C I S C O less favorable compared with 1961 for the larger banks and for those banks having a high proportion of savings and time deposits to total deposits. As the year progressed, how ever, most banks found themselves in an increasingly better position to offset higher expenses by increased earnings. By the end of 1962, consequently, the profit outlook for 1963 had improved materially. T a ble 4 (m illions of dollars) 1962 1961 1960 Discounts D a ily a v e r a g e Higher earnings and increased volume of operations for the Federal Reserve Bank of San Francisco in 1962 The Federal Reserve Bank of San Fran cisco registered an 18 percent increase in net earnings in 1962 as income from both dis counts and securities rose. Although mone tary policy was generally easy throughout the year, discounts held by the Federal Reserve Bank of San Francisco rose from a daily average of $2.5 million in 1961 to $5.9 m il lion in 1962. Earnings on the B ank’s share of United States Government obligations held in the Federal Reserve System’s Open M ar ket Account were 16 percent greater in 1962 than a year earlier. The gain was attributable to larger holdings of securities in the Account, higher average yields on the Treasury issues held, and an increase in the percentage allo cation to this Bank of securities in the A c count. The increase in the volume of service op erations performed by the Bank in 1962 re flected rising levels of business and financial activity in the District and in the nation. The dollar volume of check collections handled by the Bank rose 12 percent, accompanied by a significant increase in the use of elec tronic equipment for check processing. The number of electronically sorted checks ex panded at head office from a daily average of 79,000 items in January 1962 to 130,000 in December. Sorting was facilitated by the fact that by mid-year approximately 80 per cent of cash items were preprinted with mag netic ink, compared with approximately 57 amount held Checks handled 6 2 24 1 47 ,27 3 1 31,908 1 19 ,85 7 133 129 137 3 ,9 9 6 3 ,9 4 6 4 ,3 6 1 Coin a n d currency Coins received an d counted Currency received an d counted Trea su ry issues Other than savings bonds Issued E xchang ed Redeemed Sa vings bonds Issued Redeemed 8 ,5 0 4 6 ,8 3 9 6 ,2 5 5 2 3 ,6 3 0 1 9,923 1 5,7 71 9 ,7 6 0 8,0 4 1 8 ,4 2 1 473 466 449 673 689 801 percent in 1961. Use of telegraphic and mail transfer facilities also rose and was 14 per cent above the year-ago level, while coin and currency operations continued at about the same level as in 1961. Although more coin was received from the M int in 1962, periodic and extended shortages of coin throughout the year necessitated rationing of nickels and pennies during some months. A t the close of 1962, $3,219 m illio n in Federal Reserve notes issued by the Federal Reserve Bank of San Francisco were in circulation, a gain of $253 million from the preceding year. D ue to extensive new financing by the Treasury in 1962, the dollar am ount of United States Government obligations (ex cluding United States savings bonds) origi nally issued by this B a n k increased 24 percent, while redemptions were 21 percent higher. The number of pieces issued declined, however, indicating some increase in the av- March 1963 MONTHLY REVIEW erage size of subscriptions. There were two advance refundings in 1962, and the dollar amount of Treasury issues exchanged rose ! 9 percent. Purchases of savings bonds in the District increased in 1962, while redemptions declined, continuing a trend which has pre vailed since 1959 of reducing the excess of redemptions over sales. The situation at year-end The rapid economic expansion of the Twelfth District in the postwar period and the steady influx of population into the area stood the District in good stead in the second year of the 1961-62 upswing. The impetus supplied by this long-run growth was respon sible in large part for the better showing of the District in 1962, with employment— the most comprehensive indicator of general eco nomic activity on the District level— continu ing to rise throughout the year. Activity in the defense-related industries, as measured by employment and defense contracts, was a major factor in the sustained upward move ment of the area’s economy as the District maintained its pre-eminent role in national defense work. Increased employment in the service industries and in government, on the other hand, reflected the rising needs of an expanding population. Personal income, re tail sales, new car registrations, residential construction, and bank credit, all of which are closely linked with higher employment and population, also developed more favor ably in the District than in the nation in 1962 — providing additional evidence that the growing population has been a major element in the District’s achievements. Not all sectors of activity in the District, however, were equally strong in 1962. The steel industry fared less well in the District than in the nation, mainly because of a lesser dependence on the autom obile industry, which is a major steel user. The absence of a close relationship with auto production, how ever, has made the District steel industry somewhat more stable over the business cycle and thus less subject to the ups and downs of the relatively volatile demand for cars. Dis trict steel producers, on the other hand, like other steel producers across the nation, were confronted during the year by a growing vol ume of foreign imports. Strong import com petition was also encountered by lumber, plywood, copper, and aluminum producers in the District. The situation is of relatively recent origin and has emerged gradually as foreign producers re-entered world markets. The extent to which both District and na tional producers succeed in maintaining a competitive position will contribute to longer run domestic growth as well as to a better balance in our international payments. Although the vigor of the current upswing regionally probably was somewhat weaker than in previous postwar recoveries, the Dis trict’s experience in 1962 was better than that of the nation as a whole, and the area is in a good position to register further gains in 1963. 59 F E DE R AL RESERVE BANK OF SAN FRANCISCO BANKING AND CREDIT STATISTICS AND BUSINESS INDEXES— TWELFTH DISTRICT' ( I n d e x e s : 1 9 5 7 - 1 9 5 9 — 1 0 0 . D o l l a r a m o u n t s in m il l i o n s o f d o l l a r s ) Condition items o all member banks2' 7 f Bank debits index 31 cities1 1 ' Demand deposits adjusted3 Total time deposits 495 720 1,450 6,639 7,942 7,239 6,452 6,619 8,003 6,673 6,964 8,278 1,234 951 1,983 10,515 11,196 11,864 12,169 11,870 12,729 13,375 13,060 14,163 1,790 1,609 2,267 7,997 8,699 9,120 9,424 10,679 12,077 12,452 13,034 15,116 19 8 14 69 71 80 88 94 96 109 117 125 141 18,622 18,906 19,070 19,328 19,625 19,669 20,017 20,165 20,460 20,589 21,102 7,820 7,776 7,811 7,582 7,689 7,532 7,309 7,471 7,471 7,501 7,608 13.163 13,235 13,706 13,945 13,101 13,535 13,255 13,446 13,969 14,012 14,431 15,647 15,939 16.091 16,352 16,511 16,587 16,655 16,772 16,934 16,827 17,093 135r 138 140r 140 143r 144r 144r 143 142r 144r 146 21,035 21,403 7,454 7,130 13,917 13,527 17,390 17,532 Bank rates on short-term business loans*' 7 Total nonagricultural employ ment 146 149 Year and Month Loans and discounts 1929 1933 1939 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 2,239 1,486 1,967 9,220 9,418 11,124 12,613 13,178 13,812 16,537 17,139 18.499 1962 February M arch April M ay June July August September October November December 1963 January February U.S. Gov't securities 1929 1933 1939 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1962 January February M arch A pril M ay June JulyAugust September October November December 1963 January Crude Refined Copper7 i6 92 105 85 102 108 114 94 92 102 111 89 15 70 100 98 90 104 114 113 101 86 112 119 124 138 130 140 136 130 112 115 119 128 127 91 54 70 112 114 111 111 109 106 98 96 95 96 96 61 39 49 90 95 92 96 100 103 96 101 104 108 111 34 17 35 77 82 83 90 97 93 99 108 101 105 111 91 97 97 93 96 94 97 94 98 98 104r 103 94 94 95 95 96 96 96 97 96 97 97 97 108 110 106 105 108 112 115 114 113 112 113 113 107 96 105 113 111 94 115 117 115 120 115 121 18 11 19 74 74 82 91 93 98 109 110 115 123 53 34 38 93 93 92 94 97 101 101 103 104 111 112 112 112 112 113 113 114 114 114 115 5^52 5.49 5.50 107 107 108 108 108 109 109 110 111 110 111 105 104 104 102 102 106 105 107 104 102 101 120 123 118 121 123 123 124 122 121 128 127 105 105 105 106 106 105 105 106 106 105 106 116 116p 5!50 86 84 90 96 101 96 103 103 103 109 111 U lp 90 105 127 128 107 107 96 113 122 Electric power 1 mports Total Dry Cargo Tanker Total Dry Cargo 13 11 17 61 69 73 82 89 95 97 107 115 124 96 55 82 86 71 67 84 101 117r 89 95 122 126 61 193 55 43 81 56 57 72 105 124 86 90 123 134 i90 lO lr 113 96 117r 91 96 96 108 120r 104 20 12 16 33 51 44 52r 75 95 92 112 133r 134 'H r 61 r 70 71 80 86 93 95 113 117r 116 " i 18 41 28 35 69 97 91 112 142r 145 132 126 130 129 131 128 128 134 134 123 137 133 107 134 104 82 116 105 96 131 143 124 121 145 121 85 130 121 105 lO lr 122r 129r 67 104r 59 74 76 61 72 125 94 120 140 137 156 154 168 137 158 111 107 128 117 138 132 122 136 122 154 133r 86 116 Tanker * 102p 104 78 . Waterborne Foreign Trade Index7 ■ 1 * » 0 Steel7 84 35 62 101 102 101 107 104 93 98 109 98 94 Retail food prices 56 83 108 103 112 112 103 96 101 95 94 104 Exports Cement Dep’t store sales (value)6 86 85 90 95 98 98 104 106 108 113 4.14 4.09 4.10 4,50 4.97 4.88 5.36 5.62 5.46 Petroleum’ Lumber Carloadings (number;6 no Industrial production (physical volume)6 Year and month Total mf’g employ ment lOOp 119 120 112 98 107 103 84 89 90 88 SI 154 137 170r 172 186 145 161 1 Adjusted for seasonal variation, except where indicated. Except for banking and credit and department store statistics, all indexes are based upon data from outside sources, as follows: lumber, National Lumber Manufacturers’ Association, West Coast Lum berm an’s Association, and Western Pine Association; petroleum, cement, and copper, U.S. Bureau of Mines; steel, U.S. Department of Commerce and American Iron and Steel Institute; electric power, Federal Power Commission; n onagri cultural and manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state agencies; retail food prices, U.S. Bureau of Labor Statistics; carloadings, various railroads and railroad associations ; and foreign trade, U.S. D epartm ent of Commerce. * Annual figures are as of end of year, m onthly figures as of last Wednesday in month. 3 Dem and deposits, excluding interbank and U.S. Government deposits, less cash items in process of collection. M onthly data partly estimated. 4 Debits to total deposits except interbank prior to 1942. Debits to demand deposits except U.S. Government and interbank deposits from 1942. * D aily average. ®Average rates on loans made in five major cities, weighted bv loan size category. 7 N ot adjusted for seasonal variation. 8 A new index now combining not only Los Angeles, San Francisco, and Seattle food indexes b ut also Portland. Reweighted by 1960 Census figures on popu lation of standard metropolitan areas. • Commercial cargo only, in physical volume, for the Pacific Coast customs districts plus Alaska and Hawaii; starting with July 1950, “ special category” exports are excluded because of security reasons. 1 Alaska and Hawaii are included in 0 indexes beginning in 1950. p— Preliminary. r— Revised. * Less than 0.5 percent. 60