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Published Weekly by the FEDERAL RESERVE BANK of CLEVELAND
~-~:~-----_;-__..• November 17, 1959
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November 23, 1959
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Industrial production dropped only slightly
in October despite the steel strike. The
Federal Reserve Board reported that the output of the nation's mines and factories dropped one point last month
to 148% of' the 1947-49 average. The Board originally had placed the
September rate at 146'1,, but revised this upward to 149~ because the
outturn of sof't goods set a new high in September. In June, before
the steel strike began, industrial production had climbed to a record
155~. (Wall St. J., 11/17 p.1)
INDUSTRIAL PRODUCTION
DROPPED IN OCTOBER
Total personal income staged a strong comeback in
September and October, although wage and salary payments remained depressed as a result of the steel
strike. Department of Commerce figures showed that personal income
in October was at a seasonally adjusted annual rate of $38l.9 billion,
up $1 billion from the September rate. The pre-strike peak had been
$383.8 billion in June and the low was $380.0 billion in August. Thus,
total personal income has now regained half the ground it lost in the
first two months of the strike. (J. of Connn., 11/20 p.1)
PERSONAL INCOME
STAGES UPTURN
The Government reported a major drop in housing
starts for October. Private housing starts , at a
seasonally adjusted annual rate of 1,180,000, were
11~ below September, the Department of Connnerce said. Government
housing officials attributed the drop in starts on dwelling units
chiefly to the tight supply of mortgage money. They said the shortage
of steel due to the strike probably prevented some starts, particularly on large apartment projects requiring more heavy construction
than individual homes. For the first 10 months of this year, however, the seasonally adjusted annual rate of private housing starts
averaged 1,356,000. (Wall St. J., 11/17 p.3)
HOUSING STARTS
DECLINED SHARPLY
Selection of these items does not imply this bank's guaranty of their accuracy,
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nor agreement with the views expressed .
TEXAS RAISES
OIL ALLOWABLE
Texas crude oil production was put on a ten-day basis
for December--up from nine days the five preceding
months. State authorities set allowable output at
2.9 million barrels daily, 121,200 barrels above the current limit.
Recent reductions in crude oil supplies actuated the increase. (Wall
St. J., 11/23 p.1)
UNION TURNS DOWN
Secret negotiations last week-end resulted in a
new contract offer by the steel industry and its
speedy rejection by the United Steelworkers of
America. The developments appeared to leave the dispute where it
was two weeks ago, when 500,000 employes went back to work under an
eighty-day injunction under the Taft-Hartley law. The industry described the offer as worth about 30¢ an hour over a three-year period.
It said it contained a new plan for resolving the troublesome issue
of local working conditions, as well as revised improvements in employe benefits. {Levey. N. Y. Times, 11/20 p.1 )
NEW STEEL OFFER
SAVINGS BOND
EXCHANGE SET
The Treasury announced a plan under which the holders
of its Series F- and G-savings bonds, which mature next
year, will be able to exchange them, on extremely advantageous terms, for 4-3/4~ Treasury notes. This is an initial step
in what Wall Street calls "Operation Leapfrog." At the same time, the
Treasury unveiled its long-pending plan to permit holders of Series
E-savtngs bonds to exchange them, without· tax penalty, for Series Hsavings bonds, which pay current i nterest. Such an exchange has long
been sought, especially by retired persons, who wish current income
from their Government bonds. The E- for H-bond exchange will remain
open indefinitely. In addition, the Treasury announced that it will
complete its cash financing for this calendar year via the sale of
$2 billion worth of 320-day Treasury bills. (Shanahan. J. of Comm.,
11/20 p.1)
SUCCESS ASSURED
FOR A.T. & T. FINANCING
.American Telephone & Telegraph Company's
$250 million of debenture financing was
tabbed as a big success almost from the
time the mammoth issue reached the bidding block in Bell System headquarters. As soon as terms of the big offering got out over the news
tickers, there were reports of highly active demand from individual
investors for the 5-3/8% debentures at 102.25, where the yield to maturity is 5.2'c/o. For A.T. & T., the financing must have brought eomfort. The 5.27% annual net interest cost of the money, although the
highest for the company since 1925, still was lower than probably
would have been required had the issue reached the market at almost
any other time in recent months. It was the biggest piece of corporate bond financing on record for 1959. (Wall St. J., 11/18 p.22)
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ocrOBER DIVIDENDS
AT NEW HIGH
Corporate dividend payments last month were the
largest for any October in history. Cash disbursements spurted to $833 million, from $819
million in October 1958, the Department of Commerce reported. Dividend checks are now going out to stockholders at an annual rate of
nearly $14 billion, compared with just above $9 billion five years
ago. But dividend income, which was 6.7~ of total personal income
30 years ago, is only 3.5i today. (Wall St. J., 11/20 p.1)
STOCK MARKET
REBOUNDED
After touching a new low since September 23, the stock
market rebounded last week, and the recovery erased
all of the earlier losses. The quick reversal in trend
followed reports of a more hopeful outlook for a negotiated settlement in the steel dispute; an abundance of favorable dividend announcements, and optimistic forecasts for the economy next year. Four consecutive days of declining stock prices were climaxed on Monday by
the worst break in the market since August 10. Tax selling and uncertainty regarding labor problems were advanced as reasons for the
sinking spell. Prices steadied on Tuesday, setting the stage for a
strong rally in mid-week. (Forrest. N.Y. Times, 11/22 III p.1)
FEDERAL RESERVE SYSTEM
IN "NEUTRAL"
The makers of Federal Reserve monetary policy,
which determines in large measure what everyone pays for his loans, have been static
since September when rediscount rates were raised to 4%. Instead of
moving energetically to tighten rates further and to make money less
available, the Federal Reserve now is lackadaisically moving in purely
routine fashion to offset unusual humps and valleys in the money market such as are caused by equally routine expansions and contractions
in such things as currency and the reserve credit given automatically
against uncollected check volume. Also the "Fed," by accident or
design, in recent weeks has been a little easier on member banks' net
borrowed reserve positions, which have been allowed to get down to
under $450 million from a July high average of above $550 million.
While there is definite evidence in the Reserve System's own figures
that it is favoring no tighter money, there is as yet little evidence
that it has swung to the easier side. In short, it is back in
"neutral" and may stay there until after Christmas. (Tyng. J. of
Comm., 11/18 p.4)
Increased capital and inventory spending
will cause an erosion of corporate liquidity next year. As a result, corporations
can be expected to become substantial sellers of U.S. Government securities in 1960. Large sums will be needed for expansion of inventories and receivables in the coming year, especially following the
CORPORATIONS TO SELL
U.S. SECURITIES HOLDINGS
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inventory cutbacks caused by the steel stoppage in the last half of
this year. Since the middle of last year, corporate investors have
been a mainstay of the market for short-term Treasury issues. Holdings of such securities were increased by over $6 billion during this
period. (J.I.B. J. of Connn., 11/17 p.1)
PARCEL POST RATE
TO INCREASE 17.1~
The Post Office Department received authority today to increase parcel rates by about $88 million
a year. There appeared to be no likelihood that
the higher charges would affect this year's Christmas mailing rush.
The increases, approved by the Interstate Commerce Commission, will
average 17 .l~. The Department said the question of the effective
date was under advisement, and probably would be announced next week.
The last parcel rate rise, averaging 36%, occurred in June 1953.
(N.Y. Times, 11/21 p.14)
NEW TRADE BLOC
FORMED IN EUROPE
A second West European preferential trading bloc
became a reality last week with disturbing implications for American exporters and foreign investors. The new group, popularly known as the "Outer Seven," took
official form as the European Free Trade Association with the signing
of a convention in Stockholm on Friday. It consists of Britain,
Sweden, Norway, Denmark, Austria, Switzerland and Portugal. Under
terms of the Stockholm agreement, the seven nations are to eliminate
trade barriers toward each other on a gradual basis designed to bring
full free trade by 1970. An initial tariff cut of 2~ is to be made
next July 1. (Jones. N.Y. Times, 11/22 III p.1)
FRANCE PLANNING
BOND ISSUE HERE
Bonds bearing the backing of the French Government
will be offered soon for the first time since · 1930
in the United States public ·market. The borrower
will be Credit Fancier de France, an official corporation of the
French Government, principally engaged in the financing of various
Government housing programs. A registrat, ion statement concerning the
issue was filed yesterday with the Securities and Exchange Commission.
The proposed issue consists of $50,000,000 of loan bonds due in 1979.
They are unconditionally guaranteed by the Republic of France as to
principal and interest. The offering is expected to take place
about December 9. (N.Y. Times, 11/19 p.59)
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