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A r e v i e w b y t h e F e d e ra l R e s e rv e B a n k o f C hica go Business Conditions I9 6 0 June Hogs boost farm income outlook 5 Terms of home mortgage loans 7 Contents Debt expansion slows The Tre nd o f Business 15 2-5 Federal Reserve Bank of Chicago OF w» midyear looming on the horizon and the economy’s performance during the first quarter now analyzed and entered in the records, expectations as to the trend of business during the second half of 1960 ap pear to have moved toward a middle ground. Some of the exceptionally optimistic fore casts made at the beginning of the year have been scaled down, and some of the more bearish expectations generated by the slug gish first quarter have been boosted a bit. On balance, the unspectacular perform ance thus far this year is, in retrospect, inter preted by most analysts as a favorable omen. The adjustments taking place in recent months are thought to brighten the prospects for continuation of a high and gradually ris ing level of business. Although business in ventories were built up rapidly during the first quarter, as had been expected following settlement of the steel strike, the rate of ac cumulation has slowed and there is increas ing evidence that many firms are holding stocks closely in line with current needs. The depressing effects of a sizable liquidation of inventories, therefore, is not now considered a likely possibility any time soon. With some easing of credit demands, especially in the Federal sector, the avail ability of credit has increased somewhat. This has been evident, for example, in resi dential mortgages. And, with credit demands less exuberant than during most of 1959, interest rates in many sectors have been below those at the beginning of the year. BUSINESS Prices of individual commodities have shown diverse movements and the aggregate indexes of wholesale and consumer prices have been relatively stable, indicative of a more or less balanced supply-demand situation. In the words of one business economist, “We are currently operating in the most pros perous business environment our nation has ever known without symptoms of inflationary boom.” And, in the words of the chairman of the President’s Council of Economic Ad visers, since the end of March “the signs are good.” R e ta il sales ro se in A p ril Consumer spending at retail rose substan tially in March and April. Preliminary re ports indicate that April sales, seasonally ad justed, were 3 per cent above March and 5 per cent above April last year. Both durable and nondurable goods stores reported sales gains over the year-ago levels, but with the latter showing the greatest increase. Retail deliveries of new autos continued to exceed the year-ago pace, and in mid-May some production increases were announced even though the total inventory in dealers’ hands remained near the million car figure. The major exception to the general trend of retail sales was in building materials, which reflected the reduced activity in residential construction. The strong rise in retail sales in April was interpreted variously. On the one hand, it was taken to indicate that consumers had Business Conditions, June 1960 at last boosted spending in step Exports with the rise in personal income and that this higher level of spend ing would likely continue. On the other hand, some believed that the rise in sales reflected merely a catching up on purchases post poned during the winter—that one month of “springtime” sales doesn’t assure a summer of good business. Early in May, department store sales in the Midwest dropped below the high level of a year earlier. However, sales of house hold appliances, radios, television and floor coverings continued relatively strong, and the results of another nationwide survey of consumer buying plans appeared to indicate that sales of most “big-ticket” items would remain above the 1959 volume. Em ploym ent gained, fo llo w in g slump Despite layoffs in April in several hard goods manufacturing industries—autos, farm machinery, primary metals and electrical machinery— all of which are important in the Midwest, total employment rose sharply from the reduced level in March. Unemploy ment, estimated at 5.4 per cent of the labor force in March, declined to 5 per cent in April, about the same as a year earlier. New applicants for unemployment com pensation were substantially below the yearearlier number in the Seventh Federal Re serve District in January and February—a relatively better showing than for the nation. In March and April, however, new applica tions were about one-fourth higher than in the corresponding months of 1959 in both the Seventh District and the country as a whole. continue upward trend Unusually severe weather in March ap parently was responsible for a large part of the decline in employment in that month and the larger-than-seasonal rise in April. However, at 66.2 million, total employment in April was at a new high for the month and about 850,000 above the year-earlier level, with most categories showing increases. The average hours worked per week in manufacturing declined further for the fourth successive month, and the number of em ployees in nonagricultural establishments working part time (1 to 34 hours )was about one-third larger than in April last year. Un employment continued to be highest among young persons. Those under 25 accounted for one-third of the unemployed in April, twice their proportion in the labor force. Negro youths had an unemployment rate of 18 per cent. The number of long-term un employed (those out of work 15 weeks or longer) was about the same as a year earlier — 1.2 million. Weekly earnings of factory production workers, largely reflecting the decline in hours of work, averaged just under Federal Reserve Bank of Chicago $90 in April, more than $1 below March and about the same as in April 1959. E x p o rt demand helps out A year ago, there was a great deal of interest in the fact that merchandise exports were declining relative to imports. Through out the postwar period, merchandise exports had run substantially in excess of merchan dise imports. In 1959, however, the gap nar rowed substantially. Exports exceeded im ports by only 8 per cent. Reflecting the strong demand resulting from boom conditions in Europe, exports from the United States in the first quarter of 1960 were 20 per cent larger than in the same period of 1959, while imports had risen 6 per cent. Exports exceeded imports by 22 per cent. This surplus of exports over imports was not adequate, however, to bal ance United States foreign accounts. Goods manufactured in the Midwest have played an important role in the export rise. Retail trade rose sharply in the spring billion dollars Shipments of autos and trucks to overseas customers during the first quarter were sub stantially higher than in the corresponding period last year. Manufacturers of machine tools report that foreign demand has been relatively stronger than domestic demand. There also has been a good foreign demand for some luxury goods. There are several reasons for the rise in exports. One factor has been the excellent trend in business in virtually all parts of the world. Another is the gradual lifting of trade restrictions against American goods. Throughout the postwar period, many coun tries have attempted to bolster their balance of payments position by holding down im ports from the United States. The third factor is the increased interest of American pro ducers in expanding their sales abroad. Ex port sales have been pushed by adaptation of product lines to the needs of foreigners and through increased selling effort. C onstruction to pick up? For several months, total construction contracts awarded have been below the yearearlier figures. However, in April, data re ported in Engineering News Record show a substantial rise in heavy construction awards —to a record level. This publication also re ported that the backlog of work “on the drawing boards” has been rising sharply, suggesting that the gain in awards will con tinue. Contract awards for new construction dur ing the first quarter have shown increases over the first quarter of 1959 in each of the states of the Seventh Federal Reserve Dis trict, in contrast with a decline of about 6 per cent for the United States. The largest gain in the District— 13 per cent—was in Iowa, followed by gains of 12 per cent in Michigan and 10 per cent in Indiana. The Business Conditions, June 1960 increases in Illinois and Wisconsin were nominal, 3 and 1 per cent, respectively. Housing permits issued so far this year in major Midwest centers have been far below the record year-ago figures. Actual housing starts may have been even lower than indi cated by the number of permits because of heavy snows, cold and floods in the first quarter. Producers of building materials have experienced declining orders, at least until quite recently. There is some indication that funds will become more available for home building in the months ahead. Savings and loan associa tions have reported a higher net inflow of funds, and the low level of corporate security issues has led some insurance companies to seek additional mortgage investments. The Federal Housing Administration recently re duced permissible down payments on insured mortgages. Moreover, the Congress is con sidering bills that are designed to further increase the supply of mortgage credit. More than most industries, home building is sensitive to changes in the availability of credit. This factor has been moving over to the plus side in recent months. Builders report that they are boosting their plans for new houses. Most “experts,” however, are sticking with their forecasts that 1960 will likely see a slightly larger total number of housing starts than was indicated by the level of activity during the first quarter of the year. Hogs boost farm income outlook arm income prospects in 1960 have taken a favorable turn. In 1959, farm income dropped as sharply as it had risen in 1958 and, at year end, a further decline was in dicated. However, prices of eggs and hogs have climbed substantially since then and are now estimated by the United States De partment of Agriculture to remain well above year-earlier levels through the remainder of the year. In addition, prices of beef cattle and milk have been holding up quite well and may remain relatively favorable through out most, if not all, of 1960. As a result, Government officials estimate that realized net income of farm operators from farming will be just “slightly short” of last year, as suming “average” or “normal” weather. If growing conditions are favorable and crop yields are higher than average, farm income might be “considerably augmented.” Of these changes, the most important by far is the shift in the outlook for hogs. Since hogs are the leading source of cash receipts from farm marketings in the Corn Belt— accounting for more than 30 per cent of the total in Iowa, 25 per cent in Indiana and 20 per cent in Illinois and Missouri—the great est upward revision in farm income estimates are for those states. In 1959, farm income in the Corn Belt declined relatively more than the national average largely because of the sharp drop in hog prices. But farmers have cut back hog production this year instead of increasing out put further as had been expected. The num ber of sows that farrowed for the spring pig 5 Federal Reserve Bank of Chicago crop of 1960 is now estimated to Cash receipts from hogs show inverse have been 13 per cent below last response to changes in marketings year. This will mean sharply re duced hog marketings in the fall b illio n d o lla rs 4.0 and winter of 1960. Usually, for each 2 per cent 3.5 change in hog marketings per capita there has been about a 3 per cent change in the opposite direction in farm prices for hogs. Using this relationship, the cut back of 19 per cent in farrowings in December through February could be translated into 30 per cent higher hog prices in July through September compared with the corresponding period in 1959. Similarly, the cutback of 10 per cent in farrowings, March through May, likely would result in 15 per cent higher prices from October through December. For 1960 as a whole, therefore, total cash receipts from hog mar 1951 1952 1953 1954 1955 1956 1957 1958 1959 ketings are indicated to be 5 to 10 per cent above 1959, assuming past relationships between supply and prices hold. In the Corn Belt states of tion cycle carries with it significant implica Illinois, Indiana and Iowa, the higher value tions for the pattern of income changes. As of hogs could increase total cash receipts the hog cycle has become largely independ from all commodities 1 to 3 per cent. How ent of fluctuations in corn production (see “The hog cycle in perspective,” Business ever, net farm income in these states could Conditions, February 1960), the length of rise relatively more since higher hog prices the cycle has shortened and the fluctuations would greatly boost the net profit per hog, have become sharper. This pattern, together and, even with a smaller number being mar with evidence that many hog producers are keted, net income of hog producers could be rapidly increasing the size of their breeding substantially higher than in 1959. herds, would indicate that the current cut Cyclical p a tte rn back in hog production may last for only one year and that 1961 could see the beginning Cyclical fluctuations in hog prices and of a new upswing in output. Thus, the opti their effects on income of Corn Belt live mistic outlook for income of hog producers stock producers are well known. However, in 1960 may be reversed a year later. the changing character of the hog produc Business Conditions, June 1960 Terms of home mortgage loans EBusiness analysts are constantly sharpen ing the tools of their trade to increase the promptness with which significant move ments can be detected and evaluated. Among the many indicators which have come into widespread use are measures of changes in credit market conditions. Interest rates, of course, have long en gaged the close attention of economic ob servers. While doubtless the most meaningful single barometer of prevailing conditions in the credit market, rates do not always tell the whole story. Credit contracts have other features than rates. These also may be sensi tive indicators of changes in the credit climate. A shift in the structure of home mortgage interest rates, for example, may be foretold by some prior modification in terms pertain ing to maturity, loan-to-value ratio, loan commissions or fees, lenders’ standards rela tive to property quality and borrowers’ creditworthiness, or perhaps even by piece meal advances or concessions in contract rates before the adjustment becomes general. On the other hand, such developments may take place concurrently with or following the rate movement, thus in a sense confirming or accenting it. Because such changes are essentially equivalent to interest movements, it is necessary to take them into account no less than rate itself if mortgage market de velopments are to be evaluated adequately. The economic analyst seeks measures which are sensitive to changes in lending terms arising out of credit market develop ments. Terms, though, may change—or seem to change—for reasons unrelated to easing or restraint in the market climate. And they may appear to occur, moreover, simply be cause of statistical difficulties inherent in any effort to describe a market quantitatively and portray its behavior through time. M a rk e ts loca lized; loans v a rie d Many credit markets are national in char acter, notably those for Federal securities and the obligations of widely known corpora tions and municipalities. The Government programs of VA-guaranteed and FHA-insured loans have to some extent created a national market for home mortgages, also. The Government programs, however, have not entirely obliterated differentials in lend ing practices and rates. This is in part because conventional financing accounts for a much bigger share of the market than the Govern ment programs—twice as much last year for the nation—and conventional loans, unlike the FFTA’s and VA’s, are not standardized in quality and reflect to a significant degree differences in the supply of local savings available for investment in home mortgages. M a rk e t data a re scarce Detailed information on home mortgage terms is not readily available. Both the Federal Housing Administration and the publishers of House and Home magazine regularly poll lenders in order to obtain comparisons of mortgage interest rates and discounts in selected local markets and re gions. Of necessity, these roundups provide only general indications of the levels of going rates for a few broadly defined categories of home loans, among which conventional loans are treated as a single class. 7 Federal Reserve Bank of Chicago Business Conditions, June 1960 In order to secure more specific information than is available from other sources, the Federal Reserve Bank of Chicago, in cooperation with the Federal Home Loan Bank, initiated in the summer of 1958 a monthly survey of individual home mortgage loans made by a sample of savings and loan associations in the Chicago area. Shortly there after, the scope of the survey was broadened to provide representation for other lenders in the home financing field—commercial banks, mortgage companies and life insurance companies. During the year and a half of experience to date, a number of modifications in reporting and processing procedures have been made. The data, as a result, do not provide a completely consistent running account of developments in the Chicago mortgage market. They are, however, highly instructive on the intricacies of market structure and offer guidance to attempts to detect and evaluate changes in mortgage supply and demand conditions. Terms o f conventional bprrje loans on existing property, 1 9 5 8 -6 0 Oct. 1958-June 1959 M aturity in years 20 25 Total 15 20 25 Jan.-Mar. 1960 Total 15 20 25 Total (per cent distribution of number of loans) Contract rate and loan-value ratios (per cent) 4 5 -6 4 Less than 5Va 2 4 1 7 5Va 1 2 - 2 5/2 5 5 1 5Z A 1 - 6 3 - 1 1 - - - - - - - - 11 3 3 1 7 - - - - - 1 2 2 1 5 1 2 - - 3 5 4 1 10 5 6 1 3 12 4 6V a - - - - 1 1 - 2 2 2 - and over - - - - 2 - - 2 5 - - 11 11 2 24 13 11 2 26 13 10 Less than 5 ] A - 1 1 2 - - - - - - - 5V a - 1 - 1 - - - - - - - - 5/2 7 2 3 1 6 - - - - - - 12 3 21 Hom e le n d e rs in th e Chicago m a rk e t Among the classes of lending institutions serving the Chicago market, savings and loans associations have played a dominant role in recent years: Savings & lo a n assns. J5* July-Dee. 1959 p e r c e n t o f re c o rd in g s C o m m e rc ia l In d iv id banks u als 6/2 63% 66 71 6% 7 6 6% 5 6 25% 22 17 1959* 1960* 70 66 6 6 6 7 18 21 * F irst quarter. 5 24 6 5 -7 4 O th e r 1957 1958 1959 1 11 3 21 - 5% 1 - 3 1 1 1 3 - 8 1 - 9 7 9 2 18 6 6/4 6/2 2 6 - - - - 2 1 - 3 3 2 1 and over - - - - 6 1 - 7 10 2 - 12 4 36 17 15 3 3 5 19 17 4 40 - V7 15 6 75-84 In Cook County, which includes Chicago and much of the populous, rapidly developing suburban ring, the associations lately have ac counted for about two-thirds of all mortgage recordings of $20,000 — continued on page 10 - - 1 1 - - - - - - - 5V a - - - - - - - - - - - - 5/2 $ 14 7 1 3 2 6 - - - - 53 /4 1 3 2 6 1 2 3 6 5 2 1 8 5 9 4 6/4 NOTES TO TABLE: Less than 5 ] A - - - - 1 2 and over - - - - 3 2 6/2 1 7 V i y e a rs a p p e a r as 1 5 - y e a r lo a n s, th o s e o f 17'/2 to 2 2 V i y e a rs a s 2 0 - y e a r lo a n s and th o s e o f 2 5 - y e a r lo a n s. A fe w lo a n s a re o m itte d b e c a u se t h e ir te rm s w e re ra n g e s s h o w n lo a n s m ade. o r b e c a u se th e ir c a te g o rie s fa ile d 8 to llV i y e a rs and m o re as o u ts id e th e lo a n - v a lu e and m a tu rity c o m p rise a t le a s t '/ i o f 1 p e r cent o f 6 - - 1 1 18 3 8 4 15 1 4 2 4 2 8 1 6 6 4 1 11 9 D a ta b a se d on r e p o r ts fro m a sa m p le o f C h ic a g o - a re a sa v in g s a n d lo a n a s s o c ia tio n s . Each m a tu rity c la ss c o v e rs a ra n g e : m a tu ritie s o f 1 2 V i t o 24 Total 19 11 39 10 18 10 38 12 16 8 36 37 45 17 99 40 44 15 99 44 43 13 100 Loans in sample (monthly average num ber) 400 325 275 9 Federal Reserve Bank of Chicago continued, from page 8 a lte rn a tiv e s . T h e r e s u lt is t h a t th e sa v in g s a n d le ss— a c a te g o r y w h ic h ty p ic a lly is ta k e n to m e a s u r e th e v o lu m e o f 1 -4 fa m ily r e s id e n a n d lo a n a s s o c ia tio n s a r e m o r e o r le ss c o n tin u o u s ly “ in th e m a r k e t” f o r m o r tg a g e lo a n s , tia l fin a n c in g . w h e re a s a c tiv ity in m o r tg a g e s o n th e p a r t o f T h e d is tr ib u tio n o f re c o rd in g s b y le n d e r o th e r le n d e rs te n d s t o v a r y w ith s h ifts in r e c la s s d o e s n o t c le a rly in d ic a te th e s o u rc e s o f tu r n s o n in v e s tm e n ts o th e r t h a n m o rtg a g e s . m o r tg a g e f u n d s . O n e r e a s o n f o r th is is th a t A t tim e s w h e n y ie ld s o n r e s id e n tia l lo a n s a re so m e le n d e r s m a k e a n d r e c o r d lo a n s o n b e c o m p a r a tiv e ly h ig h , th e flo w o f fu n d s in to th e h a lf o f o th e rs . C o m m e r c ia l b a n k s , f o r e x m a r k e t fro m th e life c o m p a n ie s , th e c o m a m p le , o f te n o r ig in a te lo a n s th e y la te r se ll to m e rc ia l b a n k s a n d t h e m u tu a l sa v in g s b a n k s in s u r a n c e c o m p a n ie s , p e n s io n fu n d s , m u tu a l in c re a s e s . A n d w h e n r e tu r n s o n o th e r u s e s s a v in g s b a n k s a n d in d iv id u a ls . O rig in a tin g o f fu n d s a re th e m o r e a ttr a c tiv e , m o r tg a g e m o r tg a g e lo a n s f o r in v e s to r s , o f c o u rs e , is a c q u is itio n s b y th e s e in v e s to r s , o f c o u r s e , th e s p e c ia lis t ro le o f th e m o r tg a g e c o m p a n ie s , w h ic h a re in c lu d e d u n d e r th e “ O th e r ” h e a d in g . A ls o in th is c a te g o ry a r e th e fe w life in s u r a n c e c o m p a n ie s w h ic h m a k e lo a n s d i m a y te n d to d e c lin e . W h o are th e b o rro w e rs ? re c tly r a t h e r th a n t h r o u g h m o rtg a g e c o m p a n y A m o n g th e p r in c i p a l u s e s o f m o r tg a g e c r e d it is th e fin a n c in g o f n e w c o n s tr u c tio n . c o r r e s p o n d e n ts . T h e b o r ro w e r m a y b e a n in d iv id u a l w h o h a s T h e p r o p o r ti o n s g iv e n fo r th e sa v in g s a n d lo a n a s s o c ia tio n s , h o w e v e r, p r o b a b ly m e a s u r e c o n tr a c te d to h a v e a h o m e b u ilt t o h is o r d e r , re la tiv e ly w e ll a g e n c ie s as th e im p o r ta n c e s u p p lie r s c r e d it in th e of hom e sin c e t h e th e s e m o rtg a g e o r h e m a y b e a b u ild e r w h o p la n s to p u t u p o n e o r m o re h o m e s , in d iv id u a lly , o r in g r o u p s , f o r sale. a s s o c ia tio n s A ls o im p o r ta n t a m o n g th e u s e rs o f r e s i u s u a lly h o ld lo a n s u n til th e y a re re p a id . T h e sa v in g s a n d lo a n a s s o c ia tio n s a re th e d e n tia l fin a n c in g a re th o s e w h o b o r r o w in o r d e r to p u r c h a s e e x is tin g p r o p e r tie s . I f th e o n ly m o r tg a g e le n d in g in s titu tio n s w h o s e in h o m e a n in d iv id u a l b u y s is n e w a n d h e b e v e s tm e n ts a r e la rg e ly c o n fin e d to m o rtg a g e s . c o m e s th e first o c c u p a n t, th e c h a n c e is g o o d t h a t h is lo a n re p la c e s o n e a lr e a d y o u ts ta n d in g In d eed , are a, of th e ir e a r n in g a s s e ts g e n e ra lly in clude. o n ly r e a l e s ta te lo a n s a n d G o v e r n m e n t s e c u ritie s . S a v in g s banks, in s u r a n c e com in th e n a m e o f th e b u ild e r se llin g th e h o m e . In d e e d , th e b u y e r m a y b o r r o w s im p ly b y p a n ie s , p e n s io n f u n d s a n d c o m m e rc ia l b a n k s , a s s u m in g th e s e lle r’s d e b t. I f t h e h o m e is o n e o n th e o th e r h a n d , h a v e a m u c h w id e r ra n g e p re v io u s ly o c c u p ie d , it is lik e ly t h a t a “ n e w ” o f c h o ic e . A b a n k , f o r e x a m p le , w ill w e ig h lo a n w ill re su lt. th e p r o fita b ility o f m o rtg a g e le n d in g a g a in s t th e r e la tiv e a ttr a c tiv e n e s s o f y ie ld s o n G o v e r n m e n ts , m u n ic ip a l s e c u ritie s , c o r p o r a te b o n d s a n d b u s in e s s a n d p e r s o n a l lo a n s , as w e ll a s a s e t o f liq u id ity re q u ir e m e n ts q u ite d iffe re n t f r o m t h a t c o n f r o n tin g a sa v in g s a n d lo a n a s s o c ia tio n o r a n y o th e r ty p e o f m o r t g a g e le n d in g in s titu tio n . A life in s u r a n c e c o m p a n y h a s a n e v e n m o r e e x te n d e d ra n g e o f T h e n th e re a re th e lo a n s t h a t h o m e o w n e r s o b ta in in o r d e r to p a y o ff o ld o n e s . I t m a y b e th a t m a rk e t r a te s a re lo w e r th a n w h e n th e o rig in a l b o r ro w in g o c c u r r e d so t h a t r e fin a n c in g p ro m is e s a s a v in g in in te r e s t e x p e n s e . O r, th e h o m e o w n e r m a y b o r r o w a n e w , n o t o n ly in o r d e r to p a y off a n o ld d e b t b u t a lso to o b ta in s o m e e x t r a c a s h f o r o th e r u se s. Business Conditions, June 1960 Some le nd e rs specialize b e a rs . T h e c o n t r a c t r a te , o f c o u rs e , is o n ly M o s t sa v in g s a n d lo a n a s s o c ia tio n s , b a n k s o n e o f th e f a c to rs d e te r m in in g th e tr u e o r e ffe c tiv e ra te . T h e lo a n c o m m is s io n o r fee a n d m o rtg a g e c o m p a n ie s m a k e lo a n s o f all th e s e ty p e s. T h e r e a re so m e , h o w e v e r, w h ic h d o n o t. A few o f th e a s s o c ia tio n s , fo r in s ta n c e , le n d o n ly o n c o m p le te d s tru c tu re s . T h e y m a k e a d v a n c e c o m m itm e n ts to p ro v id e th e lo n g - te rm “ p e r m a n e n t” fin a n c in g o f a n e w h o m e , o r a n u m b e r o f th e m , b u t r e q u ir e th e b u ild e r to fin a n c e h im s e lf, o r o b ta in o u t sid e s h o r t- te r m fin a n c in g f ro m a bank or o th e r s o u rc e , f o r th e p e r io d u p to c o m p le tio n a n d sa le. S im ila rly , life in s u r a n c e c o m p a n ie s ty p ic a lly m a k e lo a n s o n ly o n c o m p le te d s tr u c tu r e s , a lth o u g h e n te r in g in to c o m m itm e n ts to d o so b e fo re b u ild in g is b e g u n a n d le a v in g to th e m o rtg a g e c o m p a n ie s o r b a n k s o r ig in a t in g th e lo a n s th e r e s p o n s ib ility o f fin a n c in g a n d o v e rs e e in g th e c o n s tr u c tio n sta g e . T h is e n ta ils a d m in is te r in g th e a d v a n c e s to b u ild e rs a n d m a k in g c e r ta in th a t lo a n c o n tr a c t p r o v isio n s a n d z o n in g a n d o th e r c o d e r e q u ir e m e n ts a re c o m p lie d w ith . S p e c ia liz a tio n o c c u rs , to o , w ith re s p e c t to th e ty p e s o f fin a n c in g o ffe re d b y le n d e rs . W h ile sa v in g s a n d lo a n a s s o c ia tio n s c o n c e n tr a te o n c o n v e n tio n a l le n d in g , th e m o rtg a g e c o m p a n ie s a n d c o m m e rc ia l b a n k s a re r e la tiv e ly a c tiv e in F H A fin a n c in g . A n d w ith in th e s p h e re o f c o n v e n tio n a l le n d in g , th e c o m m e rc ia l b a n k s te n d to m a k e re la tiv e ly m o re s h o r te r - te r m , la r g e r - d o w n - p a y m e n t lo a n s th a n th e sa v in g s a n d lo a n a s s o c ia tio n s . T h e te rm s in c o n v e n tio n a l le n d in g o ffe re d b y th e la tte r in s titu tio n s , in d e e d , o fte n c o m e c lo se to m a tc h in g th e g e n e ro u s ly lo w d o w n p a y m e n ts a n d lo n g m a tu r itie s a s s o c ia te d w ith G o v e r n m e n t- u n d e r w r itte n lo a n s. W h a t are m ortgage "te rm s ” ? P r o b a b ly th e m o s t o b v io u s c h a r a c te r is tic o f a m o r tg a g e lo a n is th e in te r e s t r a te it a n d th e d is c o u n t, if a n y , m u s t b e ta k e n in to a c c o u n t also . B o th a re ta n ta m o u n t to a d d i tio n a l in te r e s t c h a r g e s c o n n e c te d w ith th e lo a n tr a n s a c tio n . A n o th e r im p o r ta n t a s p e c t o f a n y m o r t g a g e lo a n is th e a m o u n t, in a n a b s o lu te se n se a n d in r e la tio n b o th to th e v a lu e o f th e p r o p e r ty w h ic h s e c u re s it a n d to th e b o r r o w e r ’s in c o m e . N o le ss p r o m in e n t is th e d u r a tio n o f th e c r e d it, a n d th e p ro v is io n s g o v e rn in g re p a y m e n t, i.e ., w h e th e r th e p r in c i p a l is to b e c o m p le te ly o r p a r tia lly re p a id d u rin g th e life o f th e lo a n o r th e fu ll a m o u n t is to fall d u e a t th e c o n tr a c t m a tu r ity d a te , a n d th e siz e o f th e p e n a lty , if a n y , c h a rg e d f o r p r e p a y m e n t. O th e r s o f th e s a lie n t f e a tu r e s o f a sp e cific tr a n s a c tio n a re th e q u a lity , c o n d itio n , ag e a n d lo c a tio n o f th e p r o p e r ty s e c u rin g th e lo a n — to th e e x te n t t h a t th e se a re n o t im p lic it in th e v a lu a tio n — a n d th e c irc u m s ta n c e s o f th e m o r tg a g o r, o th e r th a n in c o m e , th a t is, a g e , o c c u p a tio n a n d q u a lity o f h is r e fe re n c e s . C e rta in a d d itio n a l a s p e c ts o f th e c r e d it its e lf m a y v a ry , su c h as c o lla te ra l p le d g e d in a d d itio n to th e m o rtg a g e d p r o p e rty a n d th e w illin g n e ss o r u n w illin g n e s s o f th e le n d e r to c o u n te n a n c e s e c o n d a ry fin a n c in g o r c o n tr a c t sa le in c o n n e c tio n w ith th e tr a n s a c tio n . T h e c o n tr a c tu a l s tip u la tio n s , e ith e r e x p lic it o r im p lie d , w ith re s p e c t to all th e s e m a tte rs c o n s titu te th e te rm s o f a lo a n , th e c o n d itio n s u n d e r w h ic h a b o r r o w e r o b ta in s m o rtg a g e c re d it. T o c o m p a r e th e te rm s o f a n y tw o lo a n s — a n d p a r tic u la r ly th e w a y in w h ic h th e ir r a te s a re r e la te d — m e a n s th a t so m e ju d g m e n t m u s t b e m a d e o n p a irs o f r e la tio n sh ip s in v o lv in g a f a ir n u m b e r o f ite m s o f in fo rm a tio n , so m e q u a n tif ia b le a n d so m e n o t. T h e a n a ly s t, n o t d ir e c tly in v o lv e d in th e d e - 11 Federal Reserve Bank of Chicago ta ils o f th e tr a n s a c tio n s , m u s t n e c e s s a rily m a k e d o w ith th e q u a n tif ia b le ite m s o n ly . T h e lo a n -v a lu e r e la tio n s h ip , siz e o f lo a n , te r m to m a tu r ity , d a te o f tr a n s a c t io n a n d ty p e o f lo a n — i.e ., w h e th e r G o v e r n m e n t- u n d e r Movements of interest rates in the Chicago mortgage market, August 1958-M arch 1 9 6 0 average contract rate on loans closed per cent w ritte n o r c o n v e n tio n a l, o n th e s e c u rity o f n e w o r p r e v io u s ly o c c u p ie d p r o p e r ty — a re c h a r a c te r is tic s s u s c e p tib le o f o b je c tiv e a n d in so m e c a s e s q u a n tita tiv e e x p re s s io n . T h e b o r r o w e r ’s c r e d itw o rth in e s s a n d th e q u a lity o f th e p r o p e r ty s e c u rin g th e lo a n ( o t h e r th a n as th is f a c to r m a y b e re fle c te d in its v a l u e ) , o f c o u rs e , a r e n o t r e a d ily e x p r e s s e d q u a n ti ta tiv e ly . Th e stru c tu re o f te rm s T h e r e la tio n s h ip b e tw e e n r a te , o n th e o n e h a n d , a n d lo a n -v a lu e r a tio o r te r m to m a tu r ity , o n th e o th e r, is n o t a s im p le o n e . A t any g iv e n tim e — o th e r th in g s e q u a l— th e lo n g e r th e te r m o r th e s m a lle r th e b o r r o w e r ’s 1958 1959 I9 6 0 e q u ity , th e r is k ie r th e lo a n , a s th e le n d e r se es it, a n d , th e r e f o r e , th e h ig h e r th e r a te . T h is , in d e e d , is th e f o rm o f th e “ v a r ia b le - r a te ” in c o m e s or in c o m e p r o s p e c ts are b e lo w s c h e d u le s u s e d b y m a n y sa v in g s a n d lo a n s ta n d a r d — th e b ig g e r th e d o w n p a y m e n t, th e a s s o c ia tio n s in th e C h ic a g o m a rk e t. O n c o n v e n tio n a l lo a n s s e c u r e d b y e x is tin g p r o p e r ty , s m a lle r th e m o n th ly r e p a y m e n t b u r d e n . L o a n s o f b o th k in d s a r e d e e m e d ris k y a n d th e “ g o in g ” r a te in th e D e c e m b e r 1 9 5 9 s u r b e a r re la tiv e ly h ig h r a te s . I n th e D e c e m b e r v ey , f o r e x a m p le , w a s 6 p e r c e n t f o r a c c o u n ts 1 9 5 9 c o m p a r is o n , lo a n s o f le ss th a n o f n o t m o re t h a n 6 5 p e r c e n t o f p r o p e r ty v a lu e a n d te rm s n o t to e x c e e d 2 2 1 4 y e a rs . y e a r s m a tu r ity , a g a in c o n v e n tio n a l a n d s e A n 8 0 p e r c e n t lo a n in th e s a m e m a tu r ity in te r e s t ra te s r e p o r te d , th e a v e r a g e e x c e e d in g 614 p e r c e n t. c la ss a t th e s a m e tim e c a r r ie d a n a v e ra g e r a te 17 Vi c u r e d b y e x is tin g h o m e s , c a r r ie d th e h ig h e s t o f c lo se to 614 p e r c e n t ( s e e a c c o m p a n y in g c h a rt). T h e lo w e s t r a te s ty p ic a lly g o w ith th e Te rm s in a changing m a rk e t B ecause m o r tg a g e lo a n c o n tr a c ts a re la rg e s t d o w n p a y m e n ts a n d s h o r te s t m a tu ritie s, b u t th is is n o t a lw a y s th e c a se . C e r ta in tic e s to sh ifts in c r e d it s u p p ly a n d d e m a n d o f th e s h o r te r - te r m lo a n s a re s e c u r e d b y s u b m a y ta k e a v a r ie ty o f fo rm s . P r in c ip a l a t te n s ta n d a r d p r o p e r tie s . M a tu r i ty is s h o r t b e 12 m a n y -f a c e te d , th e re s p o n s e o f le n d in g p r a c tio n f a s te n s o n th e b e h a v io r o f ra te s , b u t it is c a u s e th e le n d e r fe a rs a d e c lin e in p r o p e r ty v a lu e . S o m e o f th e h ig h d o w n p a y m e n t lo a n s , in tu r n , a re a d v a n c e s to b o r r o w e r s w h o se c o m m o n f o r le n d e r s to m o d ify o th e r te rm s o f m o rtg a g e c o n tr a c ts a s w e ll. I n a tim e o f tig h te n in g in th e m a r k e t, f o r in s ta n c e , a Business Conditions, June 1960 h ik e in r a te s m a y b e th e in itia l re s p o n s e . ta k e n o n e s s e n tia lly th e ir fin a l f o rm a t a n T h is m a y b e b r o u g h t a b o u t d ire c tly b y a n e a r lie r d a te — u s u a lly th e d a te o f fo rm a l a p e x p lic it in c re a s e in th e s c h e d u le o f p re v a ilin g c o n t r a c t r a te s o r in d ir e c tly b y u p w a r d a d p lic a tio n b y th e b o r r o w e r a n d a p p r o v a l b y th e le n d e r . ju s t m e n t o f c o m m is s io n s o r d is c o u n ts . L a t e r I n g e n e ra l, a p p r o v a l a m o u n ts to a firm o n , c u r ta ilm e n t in m a tu r itie s , r e d u c tio n s in c o m m itm e n t o n th e p a r t o f th e le n d e r to lo a n - to - v a lu e r a tio s a n d th e im p o s itio n o f m a k e th e lo a n , w h ile s u b m is s io n o f a sig n e d s tr ic te r r e q u ir e m e n ts r e la tiv e to p r o p e r ty q u a lity o r b o r r o w e r c r e d itw o rth in e s s a p p lic a tio n in e ffe c t c o m m its th e b o r r o w e r m ay to ta k e th e lo a n if h is r e q u e s t f o r it is a c fo llo w to fo rtify th e r a te m o v e m e n t o r, in c e p te d . T h e a p p lic a tio n , b e a r in g s ig n a tu re s e ffec t, to s u b s titu te f o r f u r th e r a d ju s tm e n t o f o f b o th p a r tie s to th e tr a n s a c tio n , sp e cifie s ra te s . T a k e n b y its e lf, a n o b s e rv e d r a te in th e a m o u n t o f th e lo a n , th e te r m o f a m o r tiz a tio n a n d th e c o n t r a c t r a te a n d d e s c rib e s th e cre ase m ay u n d e r s ta te th e e x te n t o f th e tig h te n in g b u t b y a m a rg in s u s c e p tib le in p r in c ip le to m e a s u r e m e n t, in a s m u c h a s lo a n a m o u n t, p r o p e r ty v a lu e a n d d u r a tio n o f th e a m o r tiz a tio n p e r io d a r e a ll n u m e ric a l m a g n i tu d e s . T h e e x te n t to w h ic h th e s e m a g n itu d e s re fle c te d tig h te n in g m o r tg a g e c r e d it a v a il p r o p e r ty a g a in s t w h ic h th e lo a n w ill b e c o m e a lie n . At a n e v e n e a r lie r s ta g e , as m u c h as six m o n th s o r m o r e b e f o r e w ith c o n s tru c tio n lo a n s , c e r ta in c h a r a c te r is tic s o f th e c re d it, in c lu d in g th e c o n tra c t in te r e s t r a te , m ay a b ility , e s p e c ia lly in th e s e c o n d h a lf o f 1 9 5 9 , is s u g g e s te d b y th e d a t a in th e a c c o m p a n y in g h a v e b e e n e s ta b lis h e d as th e le n d e r e n te r e d in to a n a d v a n c e lo a n a g r e e m e n t w ith th e ta b le . T h e y in d ic a te t h a t a m o v e to w a r d s h o r te r m a tu r itie s a n d lo w e r lo a n -to -v a lu e b u ild e r o r sim p ly is s u e d a q u o ta tio n o f h is p re v a ilin g te r m s — a n in f o rm a l c o m m itm e n t r a tio s a c c o m p a n ie d th e r a te rise. T h e s e d a ta , o f c o u rs e , s h e d n o lig h t o n th e e x te n t o f a n y — to a n in d iv id u a l. W h e n m o n e y m a r k e t c o n d itio n s a re tig h te n in g , th e p r e s e n c e o f a f u r th e r tig h te n in g a ttr ib u ta b le to s y m p a th e tic a d ju s tm e n ts in le n d e r s ’ s ta n d a r d s as to p r o p b a c k lo g o f a d v a n c e c o m m itm e n ts c a n , if th e s e a re in c lu d e d w ith r e p o r ts o f c u r r e n tly e r ty q u a lity o r b o r r o w e r c r e d itw o rth in e s s , o r , f o r th a t m a tte r , o n th e p o s s ib ility t h a t th e s e n e g o tia te d a g r e e m e n ts , b lu r a n y e v id e n c e t h a t m o r tg a g e r a te s a r e b e in g a d ju s te d to “ te r m s ” c h a n g in g c o n d itio n s . T h e r a te s sp e c ifie d in m ay have u n d erg o n e o ffse ttin g c u r r e n t c o m m itm e n ts , o n th e changes. o th e r h a n d , a re k e e n ly s e n s itiv e to th e p re v a ilin g s itu a Detecting changes in th e m a rk e t tio n . a I f th e d a te o f c lo s in g is ta k e n a s th e e v e n t a se rie s o f w h ic h b rin g s a g iv e n lo a n in to th e te rm s s ta g e s t h a t u s u a lly s tr e tc h o u t o v e r a p e r io d se rie s, th e a p p a r e n t le v e l o f ra te s w ill te n d o f a m o n th o r m o r e a n d f re q u e n tly a still lo n g e r p e r io d . N o t u n til a lo a n is “ se t u p ” o n to la g b e h in d th e tr u e le v e l— th a t is, th e r a te p a t te r n e x p r e s s e d in c u r r e n t c o m m itm e n ts th e le n d e r ’s b o o k s , a s te p o c c u r rin g a t o r to le n d — d u r in g a p e r io d o f tig h te n in g . T h e a b o u t th e tim e th e r e q u is ite s ig n a tu re s a re r e a s o n f o r th is is t h a t th e te rm s o f a la rg e p r o p o r tio n o f th e lo a n s c lo s e d a t a n y g iv e n tim e The e x te n s io n c o m p lic a te d o f m o rtg a g e c r e d it is p ro c e s s in v o lv in g affix ed to th e m o rtg a g e a n d n o te , is th e tr a n s a c t io n fin al. “ C lo s in g ,” h o w e v e r, is a n tic lim a tic b e c a u s e te rm s o f th e lo a n w ill h a v e te n d to re fle c t m a r k e t c o n d itio n s a t so m e p a s t d a te . 13 Federal Reserve Bank of Chicago C le a rly , th e r e a re d iffic u lt q u e s tio n s o f tim in g to b e re s o lv e d b y th e a n a ly s t o f m o r t a v e ra g e r a te s on e x is tin g p r o p e r tie s over ra te s o n p re v io u s ly n e g o tia te d lo a n s s e c u re d g ag e m a r k e t tr e n d s a n d c o n d itio n s . D e p e n d b y n e w p r o p e r tie s w a s n o m in a l f r o m M a rc h in g u p o n th e sta g e o f th e le n d in g p ro c e s s th r o u g h J u n e , b u t it ro s e to a b o u t .1 0 o f 1 fro m w h ic h m o rtg a g e r a te d a ta a re o b ta in e d p e r c e n t w h e n sig n s o f tig h te n in g b e c a m e — q u o ta tio n o r a d v a n c e c o m m itm e n t, lo a n g e n e ra lly e v id e n t, a n d w id e n e d to b e tw e e n a p p r o v a l, o r lo a n c lo s in g — re la tiv e tim e li n e ss, ta rd in e s s o r m a r k e d slu g g ish n e ss w ill .1 5 a n d .2 0 p e r c e n t in N o v e m b e r th r o u g h J a n u a r y o f th is y e a r. T h e re la tiv e ta rd in e s s o f b e o b s e rv e d in th e re s p o n s e o f ra te s o n h o m e th e rise in ra te s o n lo a n s s e c u r e d b y n e w m o rtg a g e s to tig h te n in g o f c r e d it in g e n e ra l. O n th e e a s in g sid e , o f c o u rs e , th e e ffe c t w ill p ro p e r tie s , th e re fo r e , re fle c te d th e m a n n e r in w h ic h in f o rm a tio n w a s g a th e r e d a n d n o t th e b e le ss m a rk e d ; a d v a n c e c o m m itm e n ts to re a l b e h a v io r o f in te r e s t r a te s in n e w lo a n c o m m itm e n ts . le n d a t ra te s th a t p r o v e to b e a b o v e th e m a r k e t a t th e sta g e o f fin a l n e g o tia tio n g e n e ra lly a re a llo w e d to la p s e . A m e a s u re o f th e e ffe c t o f a d v a n c e a g r e e C ontinuing su rve y A ll ty p e s o f le n d e rs a re c u r r e n tly re p o r tin g te rm s as o f th e d a te o f lo a n a p p r o v a l. F r o m m e n ts u p o n th e m o v e m e n t o f m o rtg a g e ra te s d u rin g a tim e o f in c re a s in g tig h tn e s s in th e th e s e r e p o r ts , s e p a r a te ta b u la tio n s a re m a d e m a rk e t is p r o v id e d b y th e sa v in g s a n d lo a n f o r F H A , V A a n d c o n v e n tio n a lly fin a n c e d d a t a fo r th e C h ic a g o a re a . L o a n s s e c u r e d b y m o rtg a g e s , w ith a f u r th e r b r e a k d o w n o f lo a n s e x is tin g o n n e w a n d e x is tin g h o m e s . T h e ta b u la tio n s p r o p e r tie s ty p ic a lly in v o lv e o n ly s h o rt-liv e d c o m m itm e n ts , th e e ffe c ts o f w h ic h sh o w w o rk p a y m e n t lo a n s o n n e w p r o p e r tie s — o fte n in p r o p e r ty ra tio s a n d c o n tr a c t a n d e ffe c tiv e in te re s t ra te s . In a d d itio n , th e lo a n s a re t a b la rg e -s c a le d e v e lo p m e n ts — e x e m p lify u la te d b y “ b u n d le s ” o f c h a r a c te r is tic s , i.e ., th e k in d o f le n d in g in w h ic h th e a d v a n c e c o m b in a tio n s o f in te r e s t ra te s a n d lo a n -v a lu e off p r o m p tly . L o n g -te r m , lo w d o w n tr a c t a v e ra g e m a tu r itie s , lo a n -to -v a lu e of c o m m itm e n t p la y s a k e y ro le . In th e first r a tio s fo r v a rio u s m a tu r itie s . S u rv e y fin d in g s q u a r te r o f 1 9 5 9 , c o n t r a c t r a te s o n 17V i to w ill b e m a d e a v a ila b le to th o s e in te r e s te d in 2 2 Vi y e a r, 2 0 to 2 5 p e r c e n t d o w n p a y m e n t th e s tr u c tu re o f th e r e s id e n tia l m o rtg a g e m a r c o n v e n tio n a l k e t a n d a c c o m p a n y in g sh ifts in m a r k e t c o n d itio n s. lo a n s on e x istin g p r o p e r tie s a v e ra g e d 5 .5 8 p e r c e n t. F o r th e sa m e th r e e m o n th s , th e c o m p a r a b le a v e ra g e f o r lo a n s o f th e sa m e m a tu r ity and dow n paym ent c h a r a c te r is tic b u t o n n e w p r o p e r tie s a v e ra g e d 5 .5 4 p e r c e n t, o r v e ry n e a rly th e sa m e . In b o th c a se s, o f c o u r s e , lo a n s w e re ta k e n a t th e sta g e o f c lo sin g . B u t, b e c a u s e th e in te rv a l b e tw e e n c o m m itm e n t a n d c lo s in g is s h o r te r f o r lo a n s o n e x is tin g p r o p e r ty th a n it is fo r lo a n s o n n e w c o n s tr u c tio n , r a te s o n lo a n s c lo s e d te n d e d to r e s p o n d to c r e d it tig h te n in g m o re p r o m p tly in th e c a te g o ry o f e x is tin g p r o p e r ty t h a n in t h a t o f n e w . T h e s p r e a d o f B u s in e s s C o n d i t i o n s is pu blish ed m o n th ly by the f e d e r a l r e s e r v e b a n k o f C h i c a g o . Sub scription s are available to the pu blic w ith ou t charge. F or in form ation con cern ing bulk m ail ings to banks, business organ ization s a n d ed u cational in stitutions, w rite: Research D e p a rt m ent, F ederal R eserve Bank o f C hicago, Box 834, C hicago 90, Illinois. A rtic le s m a y be re p rin ted p ro v id ed sou rce is credited. Business Conditions, June 1960 Debt expansion slows T, first few m o n th s o f 1 9 6 0 h a v e b e e n a g o , in th e c a p ita l a n d c r e d it m a rk e ts , h a s m a r k e d b y a s iz a b le d e c lin e in th e d e m a n d f o r c a p ita l a n d c r e d it. D u rin g th e first b e e n in th e fisc a l p o s itio n o f th e F e d e r a l G o v e r n m e n t. I n th e firs t q u a r te r o f 1 9 5 9 , q u a r te r , th e in c re a s e in th e p r in c ip a l ty p e s o f in d e b te d n e s s a m o u n te d to o n ly o n e - th ir d th e T r e a s u r y o b lig a tio n s h e ld b y th e p u b lic — in c re a s e in th e firs t q u a r te r o f 1 9 5 9 , th e th a t is, o u ts id e G o v e r n m e n t a g e n c ie s a n d tr u s t fu n d s a n d th e F e d e r a l R e s e rv e B a n k s — r e c o r d y e a r th u s f a r f o r e x p a n s io n o f d e b t. T h e e a s in g o f c r e d it d e m a n d s h a s b e e n a s in c re a s e d slig h tly , in c o n t r a s t w ith a u s u a l s o c ia te d w ith a le ss e x u b e r a n t b u s in e s s c li y e a r, in th e first q u a r te r , th e p u b lic ly h e ld s e a s o n a l d e c lin e d u r in g t h a t p e r io d . T h is m a te th a n e x is te d a t th e tu r n o f th e y e a r, a n d d e b t d e c lin e d b y 2 .6 b illio n d o lla rs , as th e to g e th e r th e s e h a v e r e s u lte d in le s s e n e d in G o v e r n m e n t’s fla tio n a r y p r e s s u r e s a n d lo w e r in te r e s t ra te s . fro m a m a ssiv e d efic it in fisca l 1 9 5 9 to a n e a r T h e m o s t d r a m a tic c h a n g e f ro m a y e a r b a la n c e in fisca l 1 9 6 0 . T h is c h a n g e in th e T r e a s u r y ’s r e q u ir e m e n ts a c c o u n ts f o r th e b u lk o f th e s h ift to slo w e r d e b t e x p a n s io n c o m p a r e d w ith Debt changes in the firs t quarter b u d g e ta r y p o s itio n sh ifte d la s t y e a r, b u t o th e r d e m a n d s fo r c a p ita l a n d c r e d it h a v e m o d e ra te d 1959 1960* (billion dollars) as w ell. N e w s e c u rity iss u e s, e s p e c ia lly 1.9 th o s e o f s ta te a n d lo c a l g o v e r n m e n ts , h a v e b e e n w ell b e lo w la s t y e a r ’s le v e ls, a n d , as a re s u lt, th e Increase in outstanding securities: Corporate 2.0 State and local governments 1.3 1.1 U. S. Government, public heldly 0.3 -2.6 0.4 0.3 1 9 5 9 in c re a s e in th e first q u a r te r. 4.1 3.3 T h e la rg e s t r e d u c tio n in c r e d it d e m a n d s in th e p r iv a te s e c to r h a s -0.7 -0.9 -1.1 -1.1 h o u s in g s ta r ts r u n n in g a t a ra te n e a r ly o n e - f o u r th b e lo w 1 9 5 9 , th e 2.0 in c re a s e in o u ts ta n d in g m o rtg a g e c r e d it h a s b e e n m u c h s m a lle r th is Other (Federal agency, foreign government, and international organizations) Increase in outstanding mortgages Change in consumer credit w a s a b o u t 10 p e r c e n t b e lo w th e Change in bank loans other than mortgages and consumer loans Total increase in above types of debt in c re a s e in o u ts ta n d in g se c u ritie s, a s id e fro m T r e a s u r y o b lig a tio n s , 6.3 b e e n in th e m o rtg a g e a r e a . W ith y e a r. A ls o , c o n s u m e r c re d it, w h ic h *Estimafed. u s u a lly d e c lin e s in th e first q u a r te r o f th e y e a r , d r o p p e d o ff s o m e w h a t 15 ederal Reserve Bank of Chicago \ . • m o re th is y e a r t h a n la s t. T h e d e c lin e in o th e r e a rly 1 9 5 9 p u s h e d y ie ld s u p a t t h a t tim e . b a n k lo a n s w a s a b o u t th e sa m e a s in th e E a r ly la s t y e a r , y ie ld s ro s e o n b o th s h o r t- first q u a r te r o f 1 9 5 9 . a n d lo n g - te rm in s tr u m e n ts b y a m o u n ts r a n g in g u p to n e a rly o n e - f o u r th o f a p e r c e n ta g e F a ste r rise in second h a lf W h a t a b o u t th e . r e s t o f 1 9 6 0 ? E v e n in 1 9 5 9 , w h e n c r e d it d e m a n d s w e re h e a v ie r t h a n e v e r b e f o r e , f ir s t- q u a r te r d e b t e x p a n sio n w as lo w re la tiv e to th e re s t o f th e y e a r d u e to th e s e a s o n a l p a t te r n s o f b o r ro w in g b y p o in t. B e tw e e n la s t D e c e m b e r a n d A p r il o f th is y e a r , y ie ld s d e c lin e d m o d e s tly o n lo n g - te rm b o n d s a n d v e ry s h a rp ly o n s h o r t te rm in s tru m e n ts , w ith la rg e f lu c tu a tio n s w ith in th e p e r io d ra n g in g f r o m v e ry h ig h and y ie ld s in e a rly J a n u a r y to q u ite lo w y ie ld s in la te M a rc h . A ls o , th e a v e ra g e in te r e s t r a te s b u s in e s s . A s 1 9 6 0 w e a rs o n , s e a s o n a l f a c to rs , e s p e c ia lly th e T r e a s u r y d e fic it in th e s e c o n d o n n e w lo a n s to b u s in e s s m a d e b y la rg e b a n k s d e c lin e d slig h tly in th e e a rly m o n th s o f th is h a lf o f th e y e a r , w ill c a u s e d e b t to e x p a n d y e a r, w h e re a s th e y h a d ris e n in 1 9 5 9 . H o w m u c h m o re r a p id ly t h a n in th e first q u a r te r . e v e r, in te r e s t ra te s h a v e r e m a in e d a b o v e th e th e F ed era l G o v e r n m e n t, c o n su m ers B u t f r a g m e n ta r y e s tim a te s f o r A p r il a n d y e a r -a g o le v els. M a y su g g e st t h a t o v e r - a ll c r e d it d e m a n d s c o n tin u e to b e w e ll b e lo w th o s e o f la s t y e a r. C o r p o r a te a n d s ta te -lo c a l g o v e r n m e n t s e c u rity issu e s in A p ril a n d ' M a y a re e s tim a te d to h a v e to ta le d a r o u n d 4 0 0 m illio n d o lla r s le ss th a n in 1 9 5 9 , a d e c lin e o f o n e -e ig h th . In A p ril, to ta l b a n k lo a n s in c re a s e d 1 .4 b illio n Intere st yields dropped in early 1 960, while they rose in early 1 959 per cent 41.00' d o lla rs , 5 0 0 m illio n le ss th a n a y e a r e a rlie r, la rg e ly b e c a u s e o f s m a lle r in c re a s e s in re a l e s ta te a n d c o n s u m e r lo a n s . T h e T r e a s u r y ’s dec 1958-april 1959 (monthly averages) 4 .5 0 - c a s h d efic it f o r A p ril, tr a d itio n a lly a d efic it m o n th , w a s 0 1.2 b illio n d o lla r s s m a lle r in n n 1 9 6 0 th a n in 1 9 5 9 , a n d th e in c re a s e in th e 3-m onth treasury bills p u b lic ly h e ld d e b t w a s 1.5 b illio n d o lla rs le ss th is y e a r. A ll in a ll, if th e e c o n o m y c o n tin u e s to e x p a n d a t a m o d e r a te p a c e , as p r o je c te d in m o s t fo re c a s ts f o r th e re s t o f th e y e a r , d e b t e x p a n s io n in 1 9 6 0 c o u ld v e ry w ell to ta l 2 0 o r m o re b illio n d o lla r s le ss t h a n la s t y e a r ’s r e c o rd 6 6 .7 b illio n d o lla rs . 0 - prim e long-term commercial treasury paper bills corporate Aao bonds o — n— n 50- In te re s t ra te s decline T h e e a s in g o f c r e d it d e m a n d s so f a r th is -1 .0 0- y e a r h a s b e e n re fle c te d in a p a r a lle l e a s in g o f in te r e s t y ie ld s o n o p e n m a r k e t d e b t in s tr u m e n ts , ju s t a s in c re a s in g c r e d it d e m a n d s in -1.50 state 8 local Aaa bonds dec 1959-april I9 6 0 (monthly overages)
@FedFRASER