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A review by the Federal Reserve Bank of Chicago

Business
Conditions
1958 Ju n e

Contents
"W h a t recession?"

5

The "Fed" reports

7

Interest rates show
Meat on the table,

sharpdecline
its price is up

The Trend of Business

10
14

2-5

Federal Reserve Bank of Chicago

OF

2

S i g ns that the downtrend in business may
have reached bottom are accumulating, but
are not yet conclusive. It now appears that
personal income moved up slightly in March
and April despite a continued fall in wage
and salary receipts. Retail sales ceased to
decline in March and rose appreciably in
April. Farm income showed gains largely as
a result of high livestock prices, and pros­
pects for a bumper wheat crop were stimu­
lating retail sales in areas afflicted with
drought in recent years.
Employment continued to decline in April,
but at a much slower rate than during the
first quarter of the year. Industrial production
dropped again in that month, but improve­
ment was beginning to appear in some im­
portant lines such as steel. In short, the busi­
ness decline was taking on some of the ear­
marks of the “rolling adjustments” of the
earlier postwar years, with increases in some
sectors offsetting, in part, declines elsewhere.
Recently released data show total spend­
ing, the gross national product, to have
fallen over 10 billion dollars between the
fourth quarter of 1957 and the first quarter
of the current year. This is a faster rate of
decline than the 7 billion dollar drop regis­
tered in the fourth quarter of last year, follow­
ing the peak reached in the third quarter. In
six months, the decline in total spending has
totaled 4 per cent. In the 1948-49 and
1953-54 recessions, the drop in over-all
spending was only about 3 per cent during
the first two quarters of the downturn, and




BUSINESS

that proved to be all or nearly all of the de­
cline in both cases.
In the April-June period of 1958, it ap­
pears that consumer spending will be main­
tained near the first quarter rate. Govern­
ment and state and municipal spending have
continued to rise. The remaining major area
of spending is business investment. There is
little question, judging by new orders, con­
struction contract awards and surveys of
managements’ plans, that outlays on new
plant and equipment will continue to fall in
the second quarter and probably longer. In­
ventory liquidation is likely to continue also,
but not at the extremely rapid annual rate of
9 billion dollars which occurred in the first
quarter. Any reduction in this rate of liqui­
dation would tend to serve as an offset to
capital goods spending.
On balance, it appears unlikely that the
second quarter will see a substantial drop in
general economic activity. This does not
necessarily mean that a plateau, if, indeed,
one is being formed, is necessarily the pre­
lude to a sharp rise in business such as began
in 1949 and 1954. In fact, the “standard
forecast” calls for only a moderate rise, at
best, in activity during the remainder of
1958.
On the other hand, the possibility that a
plateau might merely provide the spring­
board for a plunge to still lower depths as in
1930 and 1931 is generally discounted. Builtin stabilizers, including unemployment com­
pensation, pensions and price supports, to-

Business Conditions, June 1958

gether with the expectation of active inter­
vention on the part of the Government if
needed and a strong financial structure dif­
ferentiate the current environment from that
of 28 years ago.
Only a general financial collapse could
produce a decline in activity as extensive and
prolonged as 1929-32 and this possibility is
generally believed to be remote. The financial
structure — the heart of the economic mech­
anism— has continued to function effectively.
The suspensions and bankruptcies of
banks and other financial houses which ac­

Largest inventory declines occurring
in lines which saw most build-up




companied economic declines prior to World
War II have been absent from the postwar
scene. Furthermore, sober financial practices
have held business bankruptcies, particularly
of large organizations, well below the rates
prevailing during the 1920’s, although some
rise has occurred from the low levels of
early postwar years.
C a p ita l g o o d s continue d o w n

The part being played by producers’ dur­
able goods — machinery and equipment —
in the current recession has been widely
publicized. Spending on these
items dropped 10 per cent be­
tween the first quarter of 1957
and the first quarter of 1958, and
there is ample reason to expect
a further substantial decline.
New orders have picked up in
certain lines, machine tools for
example, but they are still far be­
low current shipments, and back­
logs of unfilled orders continue
to decline. Surveys of business
plans indicate further declines in
production of industrial machin­
ery and railroad equipment, and
it is expected that a substantial
decline in outlays on electric gen­
erating equipment will occur next
year. The farm machinery indus­
try, on the other hand, has been
improving, continuing a trend
evident during 1957.
It has been suggested recently
that developments in capital goods
mark this recession as a different
sort from those experienced in
1948-49 and 1953-54. Those de­
clines are said to have been “in­
ventory” and “defense cutback”
recessions in contrast to the cur-

3

Federal Reserve Bank of Chicago

rent situation which is “more deeply en­
trenched.” It is apparent that producers’
durable goods utilize resources which are not
easily shifted to other lines. Labor and ma­
terials utilized for new business buildings, on
the other hand, can be absorbed readily in
other types of construction.
Actually, the pattern of spending on capi­
tal goods in the earlier postwar recessions
was not strikingly unlike the present. The
difference is one of degree and not of kind.
In both of the earlier recessions, the decline
in spending on producers’ durable goods
continued for six successive quarters — long
after the upturn in total spending. In the
first instance — 1948-49 — the decline was
16 per cent, in the second — 1953-54 — 14
per cent. Doubtless, the present movement
will go well beyond the 10 per cent reduction
registered by the first quarter, but this need
not preclude a leveling off and subsequent
gradual rise in the economy. A 10 per cent
variation in equipment spending amounts

Producers' durable goods spending
slumped in earlier recessions also
billion dollar change from preceding quarter

4



1956

to a change in total national product of less
than 1 per cent.
Is con fid e nce s h a k e n ?

The importance of the state of business
and consumer psychology in initiating or
reinforcing trends in production and spend­
ing is obvious enough. But gauging the state
of confidence currently is another matter.
The strong price trend in the stock market
despite sharply lower corporate earnings
suggests that investors have not given up faith
in an early revival of sales and profits. A
recent poll of business executives taken by
Dun and Bradstreet indicates that 41 per
cent expect third-quarter sales to exceed the
same period last year, and only 19 per cent
foresee lower levels. Probably the best meas­
ure of consumer psychology is indicated by
current data on purchases of homes, mer­
chandise and services. Here, April data sug­
gest improvement.
One way in which the current recession is
different from the earlier postwar declines is
that it has been steeper and more widespread
than had been anticipated. Moreover, the
early, massive intervention on the part of
the Government in an “election year,” which
was almost taken for granted, has not taken
place.
This experience contrasts with 1948-49
and 1953-54 when the reductions in total
output and employment were less severe and
of shorter duration than most observers fore­
saw. The mildness of these earlier recessions
has helped to maintain confidence in the
face of adversity. It is widely believed that
the economy has become shock resistant to
a high degree.
Nevertheless, as a result of the develop­
ments of recent months, many consumers
and businessmen are evaluating the longerrun future more cautiously and have been

Business Conditions, June 1958

attempting to restore liquidity positions.
Spending decisions, particularly those which
involve the incurrence of debt, are being
made with less of the sanguine view that
mistakes cannot be serious in a setting of
a rising tide of inflationary prosperity. Fore­

casters, doubtless, are tending to lower their
sights on 1960, 1965 or 1970. This change
in long-run confidence will not be easily
overcome and constitutes one of the barriers
to a rapid resurgence of activity in the
months ahead.

“W h a t recession?^
X n the midst of the nation’s sharpest postwar decline in business activity, some cities
and states, even whole regions, have expe­
rienced only limited dips in income and em­
ployment. For the most part, these areas lie
south of the Ohio River and west of the
Mississippi. They are characterized, in the
main, by a relatively heavy reliance on farm
income and a smaller than average propor­
tion of employment in durable goods indus­
tries. This latter sector has accounted for the
bulk of the drop in manufacturing produc­
tion.
In the Seventh Federal Reserve District,
various cities and the state of Iowa as a
whole stand out as “centers of resistance.”
Cities in this region which report fairly good
levels of employment relative to last year
include Des Moines, Quad Cities, Waterloo,
Dubuque, Madison, Racine and Green Bay.
Milwaukee and Kalamazoo also were not far
from the honor roll in the spring.
Farm incom e rises

In the Midwest, as elsewhere, most of the
areas of greatest strength owe their good
fortune to the improvement in farm income.
U.S. net realized farm income is expected to
be 5 to 10 per cent higher in 1958 than last



Insured unemployment rises least
in Iowa
April
1957

April
1958

Per cent of
Per cent
covered
change employment

(thousands)
Illinois . . .

69

180

+ 160

6.4

Indiana

38

96

+ 153

8.2

Iowa . . . .

11

17

+ 55

3.8

Michigan .

90

305

+240

15.2

25

55

+ 120

6.2

1,577

3,592

+ 128

8.1

..

Wisconsin .
U.S.............

year. If the change in farm inventories is in­
cluded, the current year is likely to be the
second in a row to show such improvement.
In terms of the current situation, agriculture
is the only large sector which has moved
against the general downward trend.
The improvement in the farmer’s position
is reflected in the build-up in his holdings of
time deposits, which in March were 8 to 10
per cent above last year in Midwest states.
But he is also buying more vigorously than
other groups in the population. This is partic­

5

Federal Reserve Bank of Chicago

ularly true in the case of his production goods
— farm machinery and, in the Midwest, ferti­
lizer. Also, sales of consumer goods to farm­
ers are holding up much better than is true
for consumers generally. This helps to main­
tain income in those areas which supply
farmers with goods and services.
W h y fa rm incom e is h ig h e r

The explanation for the strength in farm
income is twofold: first the early months
of the year saw a reduction in the supply of
meat animals marketed, and, second, con­
sumers have shown a willingness to increase
the proportion of their spending which goes
to the grocery store.
The recent coincidence in the low points
of the production cycles for both hogs and
cattle is quite unusual. Moreover, farmers
have deferred marketings of hogs and cattle
in an effort to utilize supplies of high moisture
corn from the 1957 crop which could not be
placed under Government loan. As a result,
beef and pork production in the first quarter
averaged 9 per cent below the same period

Farm income in two-year rise
as other income declines from peak
per cent, 1953-55 -100




last year. Because of reduced supplies and
strong retail demand, hog prices averaged 16
per cent higher than a year ago and cattle
prices were up 33 per cent.
Unlike many other industries, the demand
for most agricultural products is relatively
inelastic. That is, if consumer income is
maintained, a reduced supply of the product
means an increase in cash receipts to the pro­
ducers. This development has been particu­
larly marked in the case of Iowa, the fore­
most meat producing state. Iowa’s farm cash
receipts exceeded 1957 by 13 per cent in the
first two months of 1958. The gain is helped,
of course, by the relatively low figures of last
year. In Wisconsin, cash receipts were 5 per
cent higher. In Illinois, Indiana and Michi­
gan, receipts were about 5 per cent lower,
due in part to the large marketings of grains
in the year-ago months.
Meat prices are expected to decline in
coming months as the number of livestock
marketed increases. Some economists with
meat packing firms expect that beef prices
will be down 15 to 20 per cent from recent
levels by the late autumn. Pork prices, too,
are expected to decline, probably somewhat
more than seasonally. These developments,
however, are not expected to prevent farm
income from sales of meat animals from
showing a significant gain for the year as a
whole. In addition, the nation’s wheat farm­
ers are expecting to harvest a bumper crop
during 1958 and Government price supports
will prevent a sharp price reduction. Hence,
income from that crop may show a substan­
tial gain.
C h aracte ristics o f sta b le a r e a s

The Midwest contains some of the most
depressed centers in the nation and some of
the most stable. There are few, if any, siz— continued on page 15

Business Conditions, June 1958

The “FecT reports
ccnp
X he Board of Governors of the Federal
Reserve System shall annually make a full
report of its operations to the Speaker of the
House of Representatives, who shall cause
the same to be printed for the information
of Congress.” So states Section 10, paragraph
7, of the Federal Reserve Act. The report
covering operations for the calendar year
1957 has recently been transmitted by the
Board. Because 1957 saw the topping out of
the recent boom and the start of the most
severe business setback of the postwar era,
the record of monetary action in that year
is of particular interest.
The report begins with a summary of
general business developments and the ac­
companying credit environment. It charac­
terizes the first three quarters of the year as
being dominated by inflationary pressures
and continued heavy credit demands, cul­
minating in “the highest levels of interest
rates in more than two decades” before the
cyclical turning point was reached. “During
the fourth quarter, economic recession set
in,” accompanied by “rapid readjustment in
financial markets.”
Perhaps the most interesting feature of the
report — principally because it is an exclu­
sive one — is the record of policy actions of
the Federal Open Market Committee. This
committee, composed of the seven members
of the Board of Governors and five Reserve
Bank presidents, formulates the directive
which guides the System’s open market oper­
ations. Changes in the wording of this direc­
tive may signal significant changes in mone­
tary policy. The Board’s report describes in
full the alterations in the directive and traces



Major business indicators
remained strong through summer

the rationale behind committee decisions in
either changing or not changing its wording
from meeting to meeting.
As the year opened, the directive called
for transactions with a view “to restraining
inflationary developments in the interest of
sustainable economic growth, while recog­
nizing additional pressures in the money,
credit, and capital markets resulting from
seasonal factors and international condi­
tions.” Perusal of the entire record shows an
alertness to possible deterioration in the busi­
ness situation throughout most of the year,
but the basic policy of restraining inflation
was maintained through the third quarter.
Reduction in the pressure on bank reserves

7

Federal Reserve Bank of Chicago

began in October, and by year end a policy
of aggressive resistance to recessionary forces
was in effect.
Changes in the directive and in the stated
intentions as to its interpretation are sum­
marized in the brief digest on these pages.
Besides the shift in open market policy, of
course, the System has utilized all the other
anti-recession weapons at its disposal. Use of

these other instruments — reductions in the
discount rate, in reserve requirements and in
margin requirements — has been mainly in
the current calendar year. These steps taken
in 1958 are not covered by the Board’s re­
port, but are included in the digest. Since the
decision to ease credit in November, the
discount rate has been lowered in four steps,
— continued on page 10

Digest of Federal Reserve policy actions, January 1 9 5 7 -M a y 1958
Kind and degree of change

Date Effective*
January 8

FOMC1 action

Directive on open market operations maintained ob­
jective of "restraining inflationary developments in
the interest of sustained economic growth" but added
"while recognizing unsettled conditions in the money,
credit and capital markets and in the international
situation."

March 5

FOMC action

Revised "while recognizing unsettled conditions . . . "
to "while recognizing uncertainties in the business
outlook, the financial markets, and the international
situation."

August 9

Discount rate

Increased from 3 to 3V 2 per cent

August 20

FOMC action

Directive calling for restraint renewed without change
but "with the understanding that the System Account
would have latitude for flexibility in providing re­
serves during the next few weeks."

September 10

FOMC action

Directive again renewed but with understanding that
"in the immediate future doubts would be resolved on
the side of less rather than greater restraint."

October 22

FOMC action

Directive again renewed but the Committee agreed
that policy "should tend on the easier side from where
it had been in recent weeks."

November 12

FOMC action

Revised directive from "restraining inflationary de­
velopments" to "fostering sustainable growth in the
economy without inflation, by moderating the pres­

sures on bank reserves."
November 15

Discount rate

December 17

FOMC action




Reduced from 3 Vz to 3 per cent
Revised directive to "cushioning adjustments and

mitigating recessionary tendencies in the economy."

M B B

m illion dollars, reserves

commercial

billion dollars

110

commercial bank
earning assets V

net borrowed reserves

)Qn

feb

mar

apr

may

ju w ^ ju ly

! / change from corresponding month a year-ago

;

:

January 16

Margin requirements

Reduced from 70 to 50 per cent

January 24

Discount rate

Reduced from 3 to 2 3 per cent
A

February 27
and March 1

Reserve requirements

Reduced Vi per cent on demand deposits
A t CRC banks
from 20 to 19 Vi percent
A t RC banks
from 18 to17 Vi
A t Country banks
from 12 to 1 1Vi

March 7

Discount rate

Reduced from 2 3 to 2 V4 per cent
A

March 20
and April 1

Reserve requirements

Reduced Vi per cent on demand deposits
At CRC banks
from 19 Vi to 19 per cent
At RC banks
from 17 Vi to 17
A t Country banks
from 1 1 Vi to 1 1

April 17

Reserve requirements

Reduced Vi per cent on demand deposits
At CRC banks from 19 to 18 Vi per cent

Discount rate

Reduced from 2 Vi to 1 % per cent

Reserve requirements

Reduced Vi per cent on demand deposits
From CRC banks
from 18 Vi to 18 per cent
From RC banks
from 17 to 16 Vi

April 18

April 24

* For discount rate changes, date effective at Reserve Banks first announcing change.
1 Federal Open Market Committee




Federal Reserve Bank of Chicago

"F e d " reports continued from page

8

from 3 Vi to l 3 per cent. Moreover, succes­
A
sive reductions in reserve requirements
against demand deposits have released rough­
ly 1.5 billion dollars of reserves. This, plus
the effect of open market operations, has

permitted an easing in the free reserve posi­
tion of member banks of close to 1 billion
dollars since the end of October, in addi­
tion to providing the base for a 7 billion
dollar expansion in bank assets and de­
posits.

Interest rates show sharp decline
(C o n su m e r and wholesale price indexes
have not receded along with business activity
in recent months. But one set of prices im­
portant to all sectors of the economy has
declined sharply — the prices paid for the
use of money and capital. Since the peaks
reached by interest rates in the fall of last
year, both supply and demand factors have
contributed to substantial easing in the mar­
kets for both short- and longer-term credit.
Successive moves by the Federal Reserve to
augment the supply of bank reserves to­
gether with continued heavy or even rising
flows of savings have increased the supply
of loanable funds. On the demand side, busi­
ness needs for credit have slackened with the
reduction in inventories and the tapering off
of plant and equipment outlay plans.
A fa s t decline —

10

The rapid easing in credit conditions after
the onset of recession in mid-1953 has been
given a good deal of credit by many observers
for the mildness of that setback and the
economy’s swift recovery. Since last fall, the
easing in credit — as evidenced by the de­
cline in interest rates — has been even
more pronounced than it was four years
earlier. In fact, the recent drop in rates has




been as rapid as any in the country’s financial
history. For example, the rates on short­
term Treasury obligations (maturities under
one year) have declined about two-thirds
since last fall. In contrast, such rates fell only
about 45 per cent over a seven-month period
from their mid-1953 peaks. Similarly, the
rates on prime commercial paper have fallen
over 50 per cent recently, but in the com­
parable 1953-54 period declined only about
20 per cent. Long-term rates too have de­
clined more rapidly in the current than in
the earlier recession; for example, the yields
on high-grade municipals declined about 25
per cent and 20 per cent, respectively, in the
two periods. Thus the costs and availability
of credit and capital have changed swiftly, to
a financial climate which can foster the in­
creased use of credit for a resurgence in pro­
duction, income and employment.
A fte r a slo w rise —

The drop in the price of money since
September and October has been a good deal
faster than was the rise under the preceding
conditions of heavy credit demands and re­
strictive monetary policies. Money market
rates — the yields on such instruments as
short-term Treasury issues, prime commer-

Business Conditions, June 1958

Recent decline in rates sharper than in 1 9 5 3 -5 4 recession
rate or yield-per cent

cial paper and directly placed finance com­
pany paper — were last at current levels
back in the winter and spring of 1955. It
took them thirty months or more to rise as
much during the boom as they have fallen
during the last seven or eight months. Market
rates on money market instruments are now
quite generally less than half as high as they
were at their peaks.
Market yields on longer-term securities
issued by the Treasury, state and local gov­
ernments and corporate borrowers have not
fallen nearly as far as money market rates
but nonetheless have declined much faster
than they had risen in 1955, 1956 and early
1957. Bond yields have dropped one-half
to three-quarters of a percentage point, rep­
resenting a decline of about one-sixth for
long-term Treasury issues, one-eighth for
high-grade corporate issues and nearly onefourth for high-grade state and local gov


rate or yield - per cent

ernment bonds. Most, if not all of these de­
clines had occurred by late January. Thus,
in four or five months, bond yields declined
as much as they had risen in the previous
year.
Back in the fall when rates were at their
highs, the differences between yields on
short- and long-term instruments were un­
usually small. In mid-October, market yields
on 90-day Treasury bills and Treasury bonds
maturing or callable in ten years or more
were roughly equal, at 3.6 to 3.8 per cent,
and rates on intermediate Treasury issues —
in the 9 to 12 month and 3 to 5 year classes
— were higher, around 4.0 per cent. Rates
on prime 4 to 6 month commercial paper
were fractionally higher than yields on highgrade corporate bonds. The much sharper
drop in short- than in long-term rates since
then has restored the spread in rates usual
during much of the past 20 years. Treasury

11

Federal Reserve Bank of Chicago

bill yields are now only about 30 per cent
of the yields on long Treasury bonds, for
example.
Yields on long-term instruments almost
always fluctuate less widely than those on
short-term obligations, in part because a large
change in the price of a long-term security is
equivalent to a small change in yield. In
recent months, the heavy volume of new
long-term financing has also operated to limit
declines in market rates. In the first four
months of 1958, new money municipal offer­
ings were at record rates and corporate offer­
ings at near record rates. In addition, since
mid-November the Treasury has added
nearly 8 billion dollars to the market supply
of Treasury bonds in the course of refunding
and cash financing operations.
B a n k cred it shifts

Changes in bank portfolios reflect the
change in credit markets. At the weekly re-

Rates drop sharply from fall peaks,
especially on short-term instruments




porting member banks in leading cities, busi­
ness loans reached a peak in late September.
From then until the end of April, business
loans declined by almost 2.5 billion dollars.
Meanwhile, holdings of U. S. Government
securities rose by around 5.5 billion dollars.
The contrast with these banks’ experience in
the corresponding 1956-57 period is sharp.
From late September 1956 to the end of
April 1957, business loans rose nearly 2
billion dollars and holdings of Governments
declined slightly. Also, in the recent period,
the weekly reporting banks increased their
holdings of other securities, largely munici­
pals, by over 1.2 billion dollars, while a year
earlier holdings of other securities declined
by about 200 million dollars in the compar­
able period. Thus, in recent months, with the
slack demand for business loans and the eas­
ing of bank reserve positions due to monetary
policy measures, bank purchases of securi­
ties have contributed to the strength in the
markets for Governments and
municipals, and to the reductions
in their market yields.
Moreover, recent changes in
bank portfolios indicate greater
credit ease than was the case in
the 1953-54 recession. From the
seasonal peaks reached in the fall
of 1953, business loans at the
weekly reporting banks had fallen
by about 1 billion dollars by the
spring of 1954, but holdings of
Governments and other securities
had risen only about 1.5 billion
dollars, far less than the 6.7 bil­
lion dollar September 1957 to
April 1958 rise. In consequence,
total loans and investments at
these banks declined during the
winter and spring of 1954 by
about 1.5 billion dollars, while

Business Conditions, June 1958

on April 30 of this
Long-term yields less responsive
year total loans and
to changed credit conditions
in v e s tm e n ts of th e
weekly reporters were
per cent
about 2.5 billion dol­
lars higher than at last
fall’s peak.
I n te r e s t rate s on
short-term bank loans
to business respond a
good deal more slowly
th a n do ra te s on
m oney an d c a p ita l
m arket instrum ents,
due to the large num­
ber of loans made on
terms which are “con­
ventional” for individ­
ual institutions. But
even here, the decline
has been noticeable. In the first 15 days
points, with the exception of rates on inter­
of March, rates for all sizes of business loans
mediate Governments which declined much
were below those in September and Decem­
more sharply. For the short-term obligations,
ber of 1957, with the largest declines in rates
this represented a relatively small portion of
on the larger loans. For all short-term busi­
the total decline of 2Vs to 2 Vi percentage
ness loans, the average rate in 19 large cities
points from mid-November levels to present
declined from 4.85 per cent to 4.49 per cent.
yields. However, about two-thirds of the total
With the reduction in the prime rate since
decline in market yields on capital market
that time, average rates have undoubtedly
instruments had occurred by the end of
December.
declined further. In contrast, a year earlier,
From then until the next announced Fed­
bank rates on short-term business loans
changed little from the fall of 1956 to the
eral Reserve action, the cut in discount rates
in late January, short-term rates eased fur­
spring of 1957, the changes mostly increases.
ther. The reductions ranged from one-fourth
Tim ing o f d eclin es
of a point for commercial paper to about
Most money and capital market yields had
three-fourths of a point for Treasury bills.
receded somewhat from their September and
The yields on municipal and corporate bonds
October peaks by the time the shift in
also declined, but by lesser amounts, and
Federal Reserve policy to the less restrictive
were approximately at current levels by that
posture was signalled in the reduction in the
time. Long-term issues have fluctuated in a
discount rate in mid-November. During the
relatively narrow range since then, except for
next six weeks, until the end of 1957, most
a further easing in yields on long Treasury
market rates declined .30 to .40 percentage
issues in late March and April.



13

Federal Reserve Bank of Chicago

In contrast to the relative stability in long
issues, money market yields have experi­
enced most of their decline from the fall
peaks since the January action. The declines
,in short-term rates were particularly sharp
between then and the reduction in reserve re­
quirements at the end of February, ranging
from .80 to 1.15 percentage points. In March

and April, along with successive Federal
Reserve reductions in discount rates and
reserve requirements, the rates paid by prime
private borrowers — the rates on commer­
cial and finance company paper and the
prime rate at large banks — declined moder­
ately further, but the yields on shorter Treas­
ury issues declined only slightly on balance.

M eat on the table, its price is up
supplies of meat animals and the
R.educeddesire of consumers to have meat
continuing

14

per cent below the corresponding year-ago
months. Imports of both meat and cattle
have increased, but this has had only a minor
on their tables have resulted in a persistent
effect on total domestic supplies. Retail
rise in meat prices since last November.
prices in March were 16 per cent above
Allowing for “usual” seasonal effects, the
March 1957. The effects of reduced levels of
price advance dates back to the winter of
employment and wage income on the demand
1955-56 when larger supplies severely de­
for meat have been more than offset by the
pressed livestock prices, provided bargains at
reduced supply. Consumer expenditures for
retail meat counters and caused farmers to
meat apparently have been running about 5
scale down future production.
per cent above the first quarter of 1957.
Meat output in January-March was 8
Important exceptions to the
general trend in meat prices in
recent months are provided by
Meat prices respond to supply changes
chicken and fish. Ready-to-cook
million pounds
per cent, 1947-49=100
frying chicken, for example, has
been available at retail stores at
prices only slightly above yearago figures, while fish prices have
shown diverse changes with some
kinds higher and other kinds
lower than in March 1957.
The per capita supply of meat
is estimated to total 151 pounds
in 1958, plus about 32 pounds of
poultry. For. the “red” meats,
1954
1955
1956
1957
this would be the smallest supply




Business Conditions, June 1958

since 1951; including poultry, the smallest
since 1954.
But the gap between current and year-ago
supplies has been narrowing, and output of
meat in the second half of 1958 is expected
to be somewhat larger than in the preceding
year. Thus, some price decline is indicated.
A large number of cattle is being fattened
for market; the number on feed April 1 was
a record and 12 per cent above April 1957.
Even though there is a strong move to with­

hold cattle for herd expansion, the beef
supply should show some gain in the re­
mainder of 1958. Hog production has turned
upward and the pork supply is expected to
exceed the year-ago volume in succeeding
months. As to poultry, the production of
broilers, too, is increasing. During recent
months, the number of broiler chicks hatched
exceeded the corresponding months of 1957
by 11 per cent, and the number of eggs in
incubators May 1 was up 20 per cent.

"Recession?" — continued from page 6
able areas in which employment in the spring
exceeded last year. Two of the areas in the
Midwest in which the decline in over-all em­
ployment has been quite small are Madison
and Des Moines.
Madison is the seat of the state govern­
ment and the state university, and contains
a substantial service industry catering to the
surrounding territory. Des Moines also has
substantial employment in finance, trade
and other service lines. The service indus­
tries, including finance and trade, have main­
tained employment close to last year’s levels.
In addition, Des Moines has some farm ma­
chinery manufacturing and both cities are
centers of relatively large trading areas. Man­
ufacturing employment in both of these cities
is down over 10 per cent from last year. But
manufacturing accounts for only about onefourth of total employment as contrasted
with 40 to 50 per cent in most other Midwest
centers.
In Milwaukee, March employment was off
only 4 per cent from a year ago, about the
same as Des Moines. However, the con­
tinued drop in orders for capital goods may
affect this center more severely as the year
moves on.

Terre Haute and Kenosha have witnessed
very little decline in employment compared
to last year. However, in these areas unem­
ployment was then very high. So they can
hardly be classed as bright spots. Kenosha
is holding up better than other auto centers
because of the rising sales of the Rambler
automobile.




Farm m a c h in e ry im p ro v e s

The Seventh District contains about threefourths of the nation’s farm machinery indus­
try. An upswing in production and sales of
these goods has been largely responsible for
maintaining a number of centers in the above
average group.
The Quad Cities area, which includes
Davenport in Iowa and Rock Island, Moline
and East Moline in Illinois, appears strong
relative to most other Midwest centers for
the first time in several years. Farm machin­
ery accounts for about half of manufacturing
employment there, and this industry reported
the number of persons on its payroll in March
to be about 10 per cent above 1957. Over­
all manufacturing employment in the Quad
Cities, including the important Rock Island
Arsenal, is down only 2 per cent from last
year. This experience can be contrasted with

15

Federal Reserve Bank of Chicago

drops of over 20 per cent in Detroit and
Flint, 9 per cent in the nation as a whole.
In Waterloo, Iowa, where the principal
employers are a large packing house and a
tractor plant, employment during March was
less than 2 per cent below a year ago. The
payroll of the meat packer was lower. But
this was about balanced by increases in farm
machinery and equipment. Waterloo, there­
fore, is one of those centers where the ques­
tion, “What recession?” is likely to be asked.
In Dubuque, another Iowa city heavily de­
pendent upon a packing plant and a farm
machinery operation, the picture is similar.
Racine, Wisconsin, also can thank its farm
machinery firms for maintaining total em­
ployment within a close margin of last year.
Racine has two important farm equipment
producers which account for almost onethird of the city’s manufacturing.
Unfortunately, there are no current figures
on employment and output for the farm ma­
chinery industry in the nation as a whole.
Official data group this industry with tractors
used in construction and mining. For several
years following 1951, the expansion of con­
struction machinery tended to hide the de­
cline in farm machinery. During the past
year, the table has been turned — a sharp
decline in road-building equipment has ob­
scured the rise in production of farm equip­
ment.

Bu sine ss C o n d itio n s is published monthly by
the federal reserve bank o f Chicago . Sub­

16

scriptions are available to the public without
charge. For information concerning bulk mail­
ings to banks, business organizations and edu­
cational institutions, write: Research Depart­
ment, Federal Reserve Bank of Chicago, Box
834, Chicago 90, Illinois. Articles may be reprinted provided source is credited.




Bank debits show Iowa strong
relative to other District states

Sales of farm machinery improved during
April, according to trade reports. Neverthe­
less, seasonal layoffs in the industry in the
next few months could cause some of the
centers now reporting a relatively stable em­
ployment situation to slip to a lower position.
However, it now appears that 1958 as a
whole will see some rise in the production
and sales of farm machinery. This repeats
the 1957 performance when factory ship­
ments of implements and tractors to U. S.
dealers were about 15 per cent higher than
in 1956. This rise was offset in part by a de­
cline in exports which usually account for
about one-third of the industry’s volume.
Food processing is also important in many
of the centers which have seen relatively
small declines in employment. Although
these industries tend to be relatively stable,
meat packing employment was down 7 or 8
per cent from last year in March, in both
Iowa and in the U. S. as a whole. This was
because of the drop in receipts of meat ani­
mals. All other types of food processing were
within 1 per cent of last year.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102