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F e d e r a l R e s e rv e B a n k o f C h ic a g o

Business
Conditions
1966

M ay

Trends in banking and finance—
Bank operating ratios, 1956-65

2

Crop insurance

7

Contents

Retailing—
rapid growth in suburbs

12

Federal Reserve Bank of Chicago

in banking and finance
Bank operating ratios, 1956-65*

A
xJLssets of member banks in the Seventh
Federal Reserve District climbed from 27
billion to 44 billion dollars between 1956
and 1965, a gain of 65 per cent. This was a
somewhat slower rate of growth than that
scored by all banks in the United States.

The rise in total assets at District banks
reflected growth in all major classes. Out­
standing loans more than doubled, climbing
12 billion dollars to reach the 22 billion dol­
lar mark. Investments, the next largest cate­
gory of assets, increased 3 billion dollars.

*The data on earnings and expenses used in this
article were derived from statements of earnings
and dividends submitted annually by Seventh Dis­
trict member banks. The figures on aggregate dollar
amounts of assets and liabilities were computed by
averaging amounts reported on condition state­
ments at the calls at midyear and fall of the current
year and at the end of the preceding year— except
for 1964 and 1965 when the fall calls had to be
omitted from the averages because they did not
include all the necessary data. The operating ratios
for the various groups of banks are arithmetic
averages of individual bank ratios, not weighted
averages of the totals for the groups.
The charts showing individual state data exclude
banks outside the five major cities with deposits of
50 million dollars and over, since there were im­
portant changes in the number of banks in this
group between 1956 and 1965.

Asset grow th
billion

d ollars

BUSINESS CONDITIONS is published monthly by the Federal Reserve Bank of Chicago. Charlotte H. Scott was primarily
responsible for the article "Trends in banking and finance—Bank operating ratios, 1956-65," Roby L. Sloan and David
W. Maaske for "Crop insurance" and Diane B. Revie and Lynn A. Stiles for "Retailing—rapid growth in suburbs."
Subscriptions to Business Conditions are available to the public without charge. For information concerning bulk
mailings, address inquiries to the Federal Reserve Bank of Chicago, Chicago, Illinois 60690.
Articles may be reprinted provided source is credited.




Business Conditions, M ay 1966

Asset grow th
by area and bank size
per cent, 1956 =100

Detroit

Milwaukee

Ind ionqpolis
--------C h ica g o

Growth of assets at the District’s major
banks exceeded gains at the smaller banks.
The Chicago banks as a group showed a sub­
stantial gain, although the increase was some­
what below those of banks in Indianapolis
and Milwaukee and far below that for De­
troit. Some of the largest asset gains were
experienced in Michigan areas, reflecting in
part the opening of new bank offices.

D es M o in es

Io w a

banks w ith deposits

-Michigan

—o f less than $50 m illion

-Indiana

100

= = = = £ Wisconsin
1965

Bank deposits
An 11 billion dollar increase in time de­
posits accounted for most of the 15 billion
dollar gain in total deposits at District mem­
ber banks. The doubling of time deposits
reflects not only a generally buoyant eco­
nomic climate but also an appreciable rise in
interest rates on time deposits and the devel­
opment of such new techniques of soliciting
funds as negotiable time certificates of deposit.

Time deposit grow th
Time deposit growth has been more rapid
at the large banks than at smaller ones, with
the upsurge at large banks chiefly attributable
to expansion in negotiable time certificates of
deposit held by business firms.
Rates of interest paid on time deposits con­
tinued to differ among areas and doubtless
accounted in part for differences in deposit
gains. Relatively lower rates of interest on
passbook savings in the smaller communities
apparently was related to the slower rise of
time deposits in these areas.
300
—i

billion dollars

1957

1959




1961

1963

1965

3

Federal Reserve Bank of Chicago

Trends in composition
of bank assets . . .
per cent of total

1957

1959

1961

1963

1965

. . . and sources of bank earnings
per cent of total operating revenue

Asset composition




Differences in rates of growth of various
bank assets were accompanied by changes in
portfolio composition. Loans and “other
securities” (mostly obligations of state and
local governments) became a greater propor­
tion of total assets while the share of U. S.
Government securities declined. A shift to
longer-term higher yielding assets thus took
place along with the restructuring of deposits.
Earnings on loans increased almost with­
out interruption. In 1965, the District mem­
ber banks obtained almost 60 per cent of their
total operating income from this source. The
proportion of earnings from “other securities”
rose also but still accounted for less than 10
per cent of the total.

The switch from U. S. Govern­
ment securities to loans was most
marked at the largest banks.
While in 1956 loans accounted
for 38 per cent of total assets at
banks having deposits of more
than 200 million dollars, 10 years
later the ratio was up to 54 per
cent. The move into loans was a
response to strong and growing
customer loan demand and attrac­
tive yields.
Smaller banks maintained a
larger fraction of their assets in
U. S. Government securities,
partly as a hedge against unex­
pected cash needs. Small banks
find it less convenient than larger
banks to rely extensively on the
Federal funds market and similar
sources for highly liquid funds.

Business Conditions, M ay 1966

Bank expenses

Earnings distribution
per cent of total operating revenue, 1965

banks with deposits
lOOTof $ 5 0 million and more

banks with deposits
of less than $50 million

In 1965 banks in Michigan obtained
slightly more of their total operating income
from earnings on loans than their counter­
parts elsewhere in the District. Reported
rates of return on loans were somewhat
higher in Michigan as were ratios of loans to
total assets.
Earnings on state, local and corporate
securities became a more important source
of income at nearly all banks. Illinois banks
in 1965 had the highest proportion of earn­
ings from “other securities.”
Ratios of tim e deposits

bonks with
Des Moines

deposits

0

40

20

(per cent)

60

its of $50 million and more
56
1965

banks with deposits of less than $50 million
Iowa
Indiana
Wisconsin
Illinois
Michigon




80

per c e n t

of

to ta l

o p e ra tin g

re ve n u e

At most banks the proportion of deposits
in time form increased and a growing share
of earnings was paid
per cent of total operating revenue
0
20
40
60
80
out in deposit interest.
In Iowa, for example,
ZL125£_
] 1965
interest on time depos­
its rose from 11 per
cent of total operating
frtobooooooooa
revenue in 1956 to 27
interest on
per cent in 1965. In­
time
3 deposits I Itotol expenses
terest expenses were a
higher proportion of
.... ' .T... c
revenues in the other
. r
states, ranging up to 39
yaI wvsxa :
per cent in Michigan.

and operating expenses compared
time to total

Interest paid on savings and other time
deposits rose steadily between 1956 and
1965, consuming more and more of operating
revenue. Moreover, the climb in interest ex­
pense was faster than in most other expenses,
such as salaries and wages. The introduction
of automated equipment and growing use of
such equipment by banks undoubtedly con­
tributed to restraining the rise in payroll out­
lays and reducing processing costs per dollar
of deposits.

Federal Reserve Bank of Chicago

Trends of net earnings and expense ratios
per cent of total
Net earnings after taxes as a percentage of
operating revenue were smaller in 1965 than
a decade earlier. Operating expenses climbed
faster than revenues especially after 1961.

operating revenue

Some p ro fit factors, 1965
The shrinking operating margin tells only
part of the story on profits. For large mem­
ber banks in Detroit, for example, the margin
on each dollar of revenue was smaller than
in the other major cities, but because operat­
ing revenue per dollar of assets was greater
and the capital-to-asset ratio was lower, the
average rate of return on capital exceeded
that in Des Moines and Milwaukee and
matched that in Chicago.
Although average rates of return on capital
tended to rise with increasing bank size, no
such pattern was evident for rates of return
on total assets.
Operating
margin’

Average
rate of
return
on assets

Ratio of
capital
to assets

Average
rate of
return on
capital

(per cent)
Banks with deposits of $50 million and more2
Des Moines

16.8

.62

7.4

8.8

Indianapolis

18.0

.80

8.0

10.0

Milwaukee

15.0

.60

6.7

9.0

Chicago

13.1

.59

6.4

9.2

Detroit

11.0

.52

6.0

9.2

Banks with deposits of less than $50 million
Iowa

17.4

.85

9.1

9.6

Indiana

14.1

.68

8.1

8.5
7.8

Wisconsin

.57

8.6

14.7

.67

8.0

8.8

Michigan

11.7

.59

8.3

7.8

District average

6

12.5

Illinois

14.3

.67

8.2

8.7

1Margin refers to per cent of net current earnings after
income taxes to total operating revenue.
2Leading cities arranged by proportion of time to total
deposits as shown in the lower chart on page 5.




income.

Changes in earnings
Profits are enhanced when increases in ex­
penses are instrumental in producing still
greater increases in operating revenues.
All told, District member banks appear to
have made large additions to their net earn­
ings over the past decade, despite the rise in
interest expenses incurred to attract and re­
tain time deposits.
chortge, million dollars

Business Conditions, M ay 1966

Crop insurance
(_>rop failure is an ever-present risk in
farming. In adverse circumstances it can im­
pair solvency and the ability to repay bor­
rowed funds.
Because of improvements in technology,
the risks of crop failure attributable to natural
hazards, such as drought, disease or insects,
are smaller now than a decade ago. But the
possible financial loss in the event of crop
failure is greater because of the increase in
costs per acre of producing crops.
Costs per acre on typical Midwest cash
grain farms have risen nearly one-half during
the past decade, according to estimates by the
U. S. Department of Agriculture (USDA).
M o reo v er, c a sh e x p e n se s as a p o r tio n o f gross

income per acre have risen from about 40
to nearly 50 per cent during the same period.
Fortunately, many natural risks are insur­
able and therefore can be averaged through
the medium of insurance. Two general types
of crop protection are available to farmers:
crop-hail insurance, which is offered by both
stock and mutual companies, and all-risk crop
Crop insurance coverage has risen
1950

1955

1960

1962

1964

(million dollars)

P riv a te
1,057

2 ,0 6 7

2 ,4 9 5

2,651

2 ,9 1 8

P rem ium

40

77

103

108

110

In d e m n ity

17

45

59

81

67

543

C o v e ra g e

fd e ra l
240

309

266

357

P rem ium

14

22

18

22

34

In d e m n ity

13

26

16

24

30

C o v e ra g e

n.a. Not available.




insurance, which is offered by the Federal
Crop Insurance Corporation (FCIC), an
agency of the USDA. A small amount of
comprehensive weather peril coverage was
also sold by private companies during 1965.
The American Farm Bureau Federation has
announced that it will offer a limited amount
of all-risk coverage on an experimental basis
in conjunction with crop-hail policies issued
by an insurance subsidiary in 1966.
Crop-hail is, of course, the predominant
type of insurance purchased by farmers. In
1964, farmers purchased about 2.9 billion
dollars of such coverage. This was more than
1 billion dollars above that in force a decade
earlier. N e a r ly half of the total hail coverage
is in the Corn Belt. Corn and soybean crops
account for about two-fifths of the coverage
in the nation. Premiums on these policies
amounted to nearly 110 million dollars in
1964 while losses paid to farmers totaled
about 67 million dollars.
Estimates by the USDA indicate that the
FCIC insured crops in 1964 for about 542
million dollars. In 1965 about
591 million dollars of all-risk
Federal crop insurance was in
1965
force. Premiums in 1965 amount­
ed to about 36 million dollars
while indemnities were estimated
n.a.
at about 34 million dollars. In
n.a.
addition to its premium income,
n.a.
the FCIC receives financial sup­
port from the U. S. Treasury.
591
Congress appropriates a sufficient
36
amount of funds each year to
34
cover the administrative and op­
erating expenses of the FCIC. In

Federal Reserve Bank of Chicago

1965, 7.4 million dollars was budgeted for
this purpose. This subsidy is provided to re­
duce the cost of all-risk crop insurance and
to encourage farmers’ participation.
C ro p -h a il insurance

Crop-hail insurance can be obtained in
most areas by anyone having an interest in a
growing crop. Policies are designed so that
farmers may select various amounts of pro­
tection with the premium increasing as the
amount of protection rises. The basic pre­
mium rates vary with the experience compa­
nies have had with hail losses in the area. In
the Corn Belt, crop-hail premiums for corn
and soybeans range from about $1 to $12
per $ 100 of coverage.
Nearly all companies limit the amount of
insurance that may be obtained per acre.
Moreover, most policies limit the coverage
to the actual value of the crop that may be
lost from hail damage; that is, if the crop
is lost or reduced by other causes, such as
drought, the insurance may be cancelled or
reduced proportionally. Cancellation of a
policy early in the growing season (which
may be desired in an instance of crop losses
from other than hail damage) is permitted by
most companies and a few permit cancellation
at any time before harvest with some refund
of the premium. Many companies further
limit their liability until crops have reached a
certain stage of development or until a speci­
fied time has lapsed following planting. In
many cases, if hail damage occurs early
enough to permit replanting, the policy will
pay only for the cost of replanting.
While indemnity payments are often
limited during the early part of the season,
delaying the purchase of protection does not
reduce the premium costs since the proba­
bility of loss increases as harvest time ap­
proaches. A farmer, however, may want to




delay the purchase of insurance in order to
make a more accurate estimate of the poten­
tial crop yield; a poor crop may not merit
being insured while a bumper crop may jus­
tify the purchase of maximum coverage.
Probably the most economical use of in­
surance is to provide protection against un­
usual losses. Protection against all losses in­
creases the cost of insurance quite sharply.
Most companies offer a crop-hail policy with
a deductible feature. The cost of such policies
is reduced because small losses are not cov­
ered and only partial coverage is provided
against large losses. For example, if hail
damage was appraised at 25 per cent of the
value of the crop, a 20 per cent deductible
policy would pay only 5 per cent of the total
value.
In addition to the optional deductible fea­
ture of crop-hail policies, most companies
include a “minimum-loss” provision in order
to avoid very small claims and to reduce
costs. Under this provision, no payment
would be made unless the hail damage was
greater than a specified amount—typically 5
per cent of the value of the crop. Losses that
equal or exceed this amount, however, would
be paid in full.
Indemnities from crop-hail policies in the
event of hail damage are paid on an estimated
percentage reduction in the final yield of the
crop. For example, if the yield is reduced 20
per cent, the indemnity would be 20 per cent
of the value for which the crop was insured.
The estimated loss may be due to actual de­
struction of the crop, damage that would not
permit harvesting or damage to leaf surface
that would reduce the yield.
A ll-ris k crop insurance

Federal all-risk crop insurance, in contrast
to crop-hail insurance, covers losses from any
natural hazard, such as drought, flood, hail,

Business Conditions, M ay 1966

All risk crop insurance is available for corn
in most of the major agricultural counties in the District states

insects, freezing or plant disease. Variations
in rainfall (drought or excessive moisture)
accounted for more than half of the indemni­
ties during the period of 1939 through 1963.
Damage from hail, insects and freeze ac­



counted for most of the remainder.
The Federal crop insurance program was
authorized by Congress in 1938 after several
years of severe drought which necessitated
the extension of large amounts of emergency

Federal Reserve Bank of Chicago

10

credit to farmers in stricken areas. Originally,
insurance was made available only on wheat
in certain areas. In subsequent years, how­
ever, coverage was extended to include addi­
tional crops and areas. In 1965, 23 different
crops—including every major cash crop—
were insurable, and protection was available
in more than 1,200 counties in 36 states.
However, not all of these crops are insurable
in all counties. Generally, in areas where the
risk of crop loss from drought, freeze or flood
is exceptionally high, Federal crop insurance
is not available. In the Seventh Federal Re­
serve District states, the corn crop during the
current year is insurable in 246 of the 451
counties.
A landlord or tenant may apply for Federal
crop insurance separately, each on his share
in the crop, or they may insure the combined
shares jointly. The protection offered by the
FCIC is more limited than crop-hail insur­
ance, where the total value of the crop may
be insured. The amount of coverage of the
former is limited by law to no more than the
typical per acre investment in the crop in
the area or no more than 75 per cent of the
average yield for the farm. In other words,
FCIC insures a specified amount of goodquality production and pays an indemnity
when production falls below this level. In
Illinois, the level of corn production that may
be insured in these policies ranges from 19
to 60 bushels per acre, depending upon the
area in the state. While the FCIC establishes
the quantity of production that may be cov­
ered, the farmer has an option of the value
to be placed on that amount of production.
A farmer in Illinois, for example, may elect
to insure his corn production for 80 cents, $ 1
or $1.20 per bushel. Thus, the level of pro­
duction specified by the FCIC times the value
per bushel selected by the farmer determines
the amount of protection per acre.




Also, unlike crop-hail insurance, Federal
crop insurance must be purchased prior to
normal planting dates when the expectation
may be for a normal crop. Moreover, protec­
tion must be purchased for all the acreage of
each of the insurable crops in which a farmer
has an interest within any one county. With
crop-hail, a farmer can generally purchase
protection at almost anytime during the grow­
ing season and can insure any crop or any
field. Federal all-risk insurance indemnities,
however, are usually determined by the farm­
er’s average per acre yield on his insured
crops in the county. Extensive crop loss on
one part of the farm may be offset by higher
production on another part of the farm. Con­
sequently, the average production per acre
may be greater than the insured amount and
no indemnity would be payable under the
Federal all-risk insurance. With crop-hail
insurance, the loss would be determined on
an acre by acre basis regardless of what hap­
pened to the rest of the insured crop.
Premium rates are generally set for coun­
ties or parts of counties but vary widely by
areas, depending upon the crop insured, the
risk of the area and the value placed on the
production. As a rough indication of the rates

Federal crop insurance
assignments held by lenders
in 1965
Number

Dollar amount
(thousands)

Illin o is

11

In d ia n a

2

7

Io w a

6

35

M ic h ig a n
W is c o n s in
U n it e d S ta te s

35

0

0

244

105

5 ,5 2 2

3 7 ,6 8 1

Business Conditions, M ay 1966

in the Midwest, the premiums for insuring
corn or soybean crops for the guaranteed
yield (at $ 1 or $2.25 per bushel, respectively)
range from slightly less than $2 to over $5
per acre. Premiums are payable at harvest
time but if paid shortly after the planting date
are subject to a discount—usually 5 per cent.
In an effort to attract a permanent group
of participating farmers and to reduce selling
costs, the FCIC uses a continuous insurance
policy. That is, once a farmer’s application
has been accepted, the policy remains in force
until one party or the other cancels. Another
feature to encourage long-term participation
is the premium discount for farmers who have
not incurred losses. There are two types of
discounts: one provides for a discount of 5
per cent per year from the basic rate if no
losses have been incurred for three years, up
to a maximum discount of 25 per cent after
seven years of no losses. (For the 1967 crop,
this provision will be revised to permit a 5 per
cent discount after the first year and a 10
per cent discount following the third year; the
maximum discount of 25 per cent will re­
main unchanged.) An alternative, applicable
only on certain crops, is a 25 to 50 per cent
lower premium for those farmers who have
paid net premiums in an amount larger than
the full coverage on the crop.
Adjustments for losses under Federal all­
risk insurance are determined by the amount
that the crop falls short of reaching the in­
sured production. Assume, for example, that
the bushel guarantee for corn in a county was
50 bushels per acre. The expected production
may be well above that level, but the yield
would have to fall below this insured amount
before indemnities would be paid. If drought
or any other hazard reduced the yield to, say,
30 bushels per acre, the loss would be 20
bushels. Had the farmer elected to insure the
crop for $50 per acre ($1 per bushel) the



payment would be $20 per acre. In most
cases a damaged crop would be harvested and
the actual yield reported so that the indemnity
might be accurately determined. If the crop
was damaged to the extent that harvesting
costs would exceed the value of the produc­
tion, the loss would be estimated and the
indemnity adjusted accordingly.
C o lla te ra l assignm ents

An important feature of the Federal allrisk policies and of most crop-hail policies,
which is of special interest to bankers and
other lenders, is the provision whereby
the insured may make an assignment of the
policy to a creditor. In this circumstance, the
indemnity for a crop loss is generally paid
jointly to the farmer and the creditor holding
the assignment. In four of the Seventh Dis­
trict states, less than 20 Federal all-risk poli­
cies were assigned to lenders during 1965. In
Wisconsin, however, 244 policies were as­
signed to lenders. For the nation, more than
5,500 assignments with coverage totaling
nearly 40 million dollars were processed by
the FCIC. Similar information is not avail­
able for private insurance companies.
The use of crop insurance and the assign­
ment feature could make possible in some
circumstances the extension of credit to
finance a greater portion of a farmer’s pro­
duction expenses. The maximum loan a lend­
ing institution could grant to a farmer with a
small net worth may be determined by the
amount the farmer would be able to repay in
the poorest crop year likely to occur. How­
ever, with the risk of crop failure transferred
largely to others, as in the case of crop insur­
ance, farmers of proven ability may qualify
for more credit relative to their net worth.
The purchase of crop insurance, of course,
cannot substitute for demonstrated ability to
produce a crop efficiently.

11

Federal Reserve Bank of Chicago

Retailing—rapid growth in suburbs
§ hoppers continue to shift their patronage
from downtown and other retail stores within
the large cities to competing outlets in the
suburbs (see box). Data from the 1963 Cen­
sus of Business released recently indicate
that the decentralization of retailing shown
by earlier postwar censuses continued during

In connection with its periodic surveys of
retail sales, the Bureau of the Census in
1954 specified central business districts
(CBDs) for nearly 100 standard metro­
politan statistical areas (SMSAs) and re­
ported sales for stores in these sections
separately. In 1958, in response to the
rapid growth of suburban shopping cen­
ters, the surveys were enlarged to include
separate data for major retail centers
(MRCs) other than the CBDs.
The CBD is characterized as an area of
high land valuation and traffic flow with
a large concentration of retail and service
businesses, offices, banks, theaters and
hotels. Such an area is relatively compact
and is the hub of a city’s mass transporta­
tion network.
MRCs are areas outside the central
business district (but within an SMSA)
where concentrations of stores exist, in­
cluding at least one general merchandise
or department store. These centers include
not only planned suburban shopping cen­
ters of postwar origin but also the older
neighborhood shopping areas, both within
the central city and in adjoining suburbs.




the five-year period 1958-1963.
In a group of the larger metropolitan cen­
ters of the Seventh Federal Reserve District,
stores in the central or core cities registered a
dollar sales gain of only 4 per cent between
1958 and 1963—the same increase as be­
tween 1954 and 1958—while suburban sales
jumped 46 per cent, compared with 31 per
cent over the preceding 4 years. Total area­
wide sales climbed 13 per cent between 1954
and 1958 and went on to rise by 20 per cent
in the five years following. By 1963, suburban
stores in these Midwest centers accounted for
46 cents of the metropolitan area retail sales
dollar, up from 38 cents in 1958 and 31
cents in 1954.
U n d e rly in g facto rs

The declining role of retailing in the cen­
tral cities has accompanied a variety of popu­
lation and technological changes that have
been especially pronounced since World War
II. The proportion of metropolitan residents
living within central cities has dropped below
50 per cent, from a level of 60 per cent in the
late Forties, and this trend is expected to con­
tinue in the present decade. From the down­
town retailer’s point of view, potential cus­
tomers are living farther away. This change
in the distribution of metropolitan popula­
tions, with increasing density in the suburbs,
has created a faster growing potential for
merchants in outlying locations than for their
older downtown rivals.
The shift in residence patterns has been
more than a matter of numbers; the suburbs
have attracted a disproportionate share of
middle- and upper-income families, leaving

Business Conditions, M ay 1966

the cities more concentrated with families of
lower income. Thus, the suburban stores have
become more convenient to the consumers
with most to spend, while city retailers have
become more and more remote from this
important class of customer.
Differences between suburban and down­
town shoppers have been illustrated by nu­
merous surveys. A Cincinnati study in 1959,
for example, showed that 43 per cent of
downtown shoppers were from households
with incomes of less than $4,000, whereas
only 21 per cent of shopping center patrons
were in that category.
Population developments in the metropoli­
tan areas have been influenced greatly by
changes in transportation. Without the auto­
mobile and the roads and streets to go with
it, extensive suburban development could
scarcely have occurred on the scale that has
been experienced. Because of the automobile,
shoppers are to a large extent independent of
Suburbs' share of retail sales
rises in major Midwest centers
per cent of sale s, 14 metropolitan areas
0
20
40
60
80
100
1 --------■
--------- 1
------------------- 1
--------- ---------- 1
--------- ---------- 1
---------■
---------1

1 9 6 3

1 9 5 8

----- City

CBDs

» Jl*

_______ L.
1 9 5 4

*Central business districts




public transit service and downtown stores no
longer have a sharp locational advantage. In­
deed, many customers now find that automo­
bile-oriented suburban shopping facilities are
more accessible than stores downtown, where
traffic is congested and parking is expensive
or inadequate.
In the last few years, many efforts have
been made to revitalize the central cities. In
virtually every major center, work has pro­
ceeded on the redevelopment of blighted
areas situated in or close to the downtown
business districts. Construction of attractive
intown apartments, newly designed commer­
cial and entertainment centers, shopping
malls, expressways and mass transit improve­
ments are projects that are widely expected
to stem or even reverse the outward move­
ment of population.
The full effects of these measures will only
be evident in the years to come. While im­
portant to the downtown merchants and their
employes, many other groups will be affected
also. Families and business establishments of
all kinds located in the big city have an im­
portant stake in the economic health of the
entire community and of its vital central area.
Commercial banks—particularly those not
having branch operations—have a natural in­
terest, not only as suppliers of credit to down­
town stores but in their ability to attract
deposits.
C h anging consum er e x p e n d itu re s

Alterations in residence patterns have been
accompanied by significant changes in con­
sumer expenditures. A preference for con­
venience shopping has favored the growth of
suburban shopping centers. While higher in­
comes have supported increased spending of
all types, the consumer has tended to devote
a smaller share of his income to goods that
are largely sold at retail stores and more to

13

Federal Reserve Bank of Chicago

services, such as education, travel and medi­
cal care. Rising retail sales have not kept pace
with gains in disposable personal income.
Changes in the make-up of retail pur­
chases, moreover, have left downtown stores
at some disadvantage. Although some stores
have partially adapted to new tastes by re­
modeling and adding departments, substan­
tial improvements often are all but ruled out
by high costs and limited space. At the same
time suburban outlets have been able to move
quickly to satisfy emergent needs by adding
such attractions as automotive service cen­
ters, garden shops, child-care facilities and
convenient parking.
In th e S e ve n th D istrict

Experiences in individual cities are bound
to be unique in many respects. For the most
part, however, retail trade patterns in the
large Seventh District metropolitan areas
have paralleled those in other regions.1
Mostly because of increasing competition
from suburban retail outlets, downtown or
central business district sales in the Midwest
centers fell 6 per cent in the 1958-63 period.
This was the same relative decline as had
occurred between 1954 and 1958.
Varying rates of retail decentralization be­
tween 1958 and 1963 in some of the Midwest
metropolitan areas are partly explained by
differences in their stages of development.
Downtown stores in Indianapolis had a ma­
jor decline in sales for the period, but unlike
CBD stores in certain of the other major
cities, the sales of these stores remained
steady between 1948 and 1958. Stores in the

14

J
The standard metropolitan statistical areas cov­
ered are Chicago, Peoria, Rockford, Fort Wayne,
Gary-Hammond-East Chicago, Indianapolis, South
Bend, Des Moines, Detroit, Flint, Grand Rapids,
Lansing, Madison and Milwaukee. Combined, they
account for 60 per cent o f total retail sales in the
Seventh District.




Chicago CBD, by comparison, experienced
a sales decline of only 3 per cent in the re­
cent period, but volume had declined more
than twice as much between 1948 and 1958.
Cumulative changes over a number of
years present a more accurate picture of sales
trends in central business districts. Down­
town areas in the three largest cities—De­
troit, Milwaukee and Chicago—have had the
greatest relative declines in sales in the post­
war period, as might be expected, since the
largest cities were among the first to feel the
impact of rapid population growth in the
suburbs. The shift in sales in all three of the
largest areas began much earlier and the ero­
sion has continued to the present, although
percentage declines have been smaller in re­
cent years.
In some cities in the District, downtown
retailing has evidently just begun to encounter
severe suburban competition. Indianapolis,
Des Moines and Grand Rapids downtown
stores recorded appreciable declines in the

Sales in Chicago' S CBD
have declined as a share
of metropolitan area sales
1958

1963

(pisr cent)

D e p a rtm e n t s to re s
F o o d s to re s

38

26

1

1

22

20

8

6

12

11

A p p a re l and
a c c e s s o ry s to re s
F u rn itu re a n d
a p p lia n c e s to re s
E a tin g a n d
d rin k in g p la c e s
D ru g s to re s

6

5

T o ta l s a le s

9

8

Business Conditions, M ay 1966

have been well below those at suburban
stores. Rockford CBD stores accounted for
18 per cent of total metropolitan retail sales
in 1963, down from 22 per cent in 1958.

1958-63 period but little in the 10 years be­
fore 1958. Although comparable earlier fig­
ures are not available for Madison, South
Bend, Lansing and Peoria, CBD sales in
those communities also declined in the recent
period. Downtown stores in a few cities regis­
tered greater sales in 1963 than in 1958. In
Flint the gain followed a sharp decline dur­
ing the mid-Fifties. Similarly, sales in Ft.
Wayne rose somewhat between 1958 and
1963 after dropping between 1954 and 1958.
Rockford is the only one of the 14 large
District cities where central business district
sales have continued to gain but increases

CBD vs. suburban shopping centers

Retailing in Midwest centers:
downtown volume fell in most areas
as area-wide sales scored gains
| m e tro p o lita n

area

per ce n t
-10

^ ^ H c e n tra l

ch a n g e




0

b u s in e s s

in s a le s , 1958-63
*10

*20

d is tric t

*30

The character of a city’s hinterland has
an important influence on its retail trade. In
the largest cities, population density has been
sufficient in locations outside downtown areas
to encourage the development of competing
trading centers. In 1963, there were 74 ma­
jor outlying retail centers in the Chicago
metropolitan area (29 inside the city and 45
in the suburbs), 42 in Detroit and
1 1 in Milwaukee.
Small community and neigh­
borhood shopping centers have
been common for many years but
have had limited market areas
and generally accommodated con*40
venience purchases. Planned re­
gional shopping centers, offering
a broad assortment of goods and
designed to compete with down­
town stores, did not appear until
the early Fifties. Major stores,
usually one or more large depart­
ment stores, serve as traffic gen­
erators for small tenants, just as
a typical downtown department
store does.
Through the years, such cen­
ters have grown substantially in
size. Two of the earliest and larg­
est retail centers are located out­
side Detroit. In 1963, they con­
tained nearly 140 stores with
annual sales of more than 2 0 0
million dollars—double the 1958
volume and almost equal to down­
town sales. Detroit is typical of
many large cities that have been

15

Federal Reserve Bank of Chicago

ringed by major shopping centers. While
some areas are too small to support such a
pattern of development, it seems likely,
nevertheless, that the growth of competing
trading centers will continue in areas where
potential markets exist.
Downtown department stores

The growing importance of retail sales in
suburban areas is not confined to a few types
of stores, but seems to apply in varying de­
grees to most lines of trade. Department
stores, which have sparked the growth of ma­
jor suburban shopping centers through the
development of branches, have experienced
especially vigorous growth in sales volume
outside the CBDs, with downtown accounting
for a dwindling share of total metropolitan
area sales. In the Chicago area, for example,
department stores in the CBD in 1963 ac­
counted for only one-fourth of metropolitan
area department store sales, down from 38
per cent in 1958. Notwithstanding this, total
dollar volume downtown was as great in
1963 as in 1958. Sales of apparel and acces­
sory stores and outlets selling mainly home
furnishings and appliances also grew at a
faster rate outside the central business dis­
trict, but the trend was less pronounced.
Department stores typically account for a
major share of total sales in the central busi­
ness area. These outlets have a high sales
volume per square foot and are generally able
to pay the high rentals demanded by a central

16




Sales trends
in central business districts
of selected Midwest SMSAs
1948-58

1954-58

(per cent
F lin t
R o c k fo rd
F o rt W a y n e
In d ia n a p o lis
G r a n d R a p id s
D e t r o it
C h ic a g o
M ilw a u k e e
D es M o in e s

+ 2
+ 13
- 3
+ 2
+ 1
-27
- 7
-16
- 2

1958-63

change)

-23
+ 2
- 8
- 2
- 2
-17
1
-16
- 2

+ 11
+ 6
+ 5
-14
- 7
-13
- 3
- 8
- 9

city location. Indeed, the presence of such
stores in the CBD, and their ability to thrive
in such locations, is one important reason for
the high land values and high rentals found
in downtown areas. Outside the heart of the
CBD, retailing typically is spread among a
greater variety of retail stores.
Many observers believe there will be a
stabilization of retailing’s spillover into
suburbia. Continuing revitalization of the
core cities is cited as the key factor behind
an expected slowing of the outward push. Al­
though over-building has undoubtedly oc­
curred in some instances, in none of the
Seventh District areas would it appear that
the relative growth of suburban retailing has
come to an end.

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