The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
review by the Federal Reserve B a n k o f C h ic a g o Business Conditions I 9 6 0 September Contents Bank debits— a measure of local business activity The outlook fo r U.S. foreign trade Loan ratios rise further The Trend of Business 5 9 16 2-4 Federal Reserve Bank of Chicago OF ^ T a k i n g in to a c c o u n t s e a s o n a l tr e n d s , th e p la te a u in in d u s tria l p r o d u c tio n r e a c h e d la s t s p rin g , a t a b o u t 1 0 9 p e r c e n t o f th e 1 9 5 7 a v e ra g e , c o n tin u e d th r o u g h J u ly a n d p r o b a b ly A u g u s t as w ell. T h is p e r io d h a s b e e n c h a r a c te r iz e d b y slip p a g e in th e h a r d g o o d s in d u s trie s a n d a n im p r o v e m e n t in so ft g o o d s. V ir tu a lly all m a jo r n o n d u r a b le s in d u s trie s BUSINESS J u ly lo w th r o u g h th e e a rly fa ll. T h is is th e n o r m a l s e a s o n a l tr e n d . T o ta l in d u s tria l p r o d u c tio n ty p ic a lly a d v a n c e s 9 p e r c e n t b e tw e e n J u ly — a lw a y s th e lo w m o n th b y a w id e m a rg in — a n d O c to b e r w h ic h u s u a lly c a n b e e x p e c te d to see th e h ig h fo r th e y e a r. A s a re s u lt, th e re c a n b e little d o u b t th a t b u sin e ss v o lu m e is m o v in g u p a t th e p r e s e n t in c re a s e d o r m a in ta in e d o u tp u t d u r in g re c e n t tim e . T h e q u e s tio n is, “ W ill th e rise b e m o re m o n th s . o r less th a n th e s e a s o n a l p a t t e r n ? ” W ith in th e d u r a b le s s e c to r th e T h e se c o n d f a c to r in th e p ic tu r e w h ic h s itu a tio n h a s b e e n m ix e d . W e a k n e s s h a s b e e n n o te d in a u to s , ste el, fa r m a n d c o n s tr u c tio n m a c h in e ry a n d a p c a n le a d to c o n f u s io n r e la te s to la s t y e a r ’s ste e l strik e . M a n y m e a s u r e s o f a c tiv ity a re p lia n c e s w h ile p r o d u c tio n o f a lu m in u m a n d c o p p e r p r o d u c ts , in d u s tria l m a c h in e ry a n d c o m m o n ly p r e s e n te d in te rm s o f th e c h a n g e fro m th e p re v io u s y e a r . T h e s e c o m p a r is o n s so m e ty p e s o f r a ilr o a d e q u ip m e n t h a s rise n . T h is is th e s o rt o f d e v e lo p m e n t f o r w h ic h a re d is to rte d c u r r e n tly b e c a u s e a b o u t 85 p e r c e n t o f th e n a t io n ’s ste e l c a p a c ity w a s th e te rm “ ro llin g a d ju s tm e n t”— a p e r io d in s tr ik e -b o u n d w h ic h to ta l a c tiv ity is fa irly s te a d y w h ile N o v e m b e r 1 9 5 9 . T h e ste e l firm s a n d th o s e u p s a n d d o w n s o c c u r in in d iv id u a l lin e s — in d u s trie s w h ic h s u p p ly th e m w ith m a te ria ls w a s c o in e d s e v e ra l y e a rs ag o . S o m e tim e s it is su g g e ste d t h a t a le v e lin g d ire c tly . L a te r , s te e l-u s in g in d u s trie s , p r in c i and b e tw e e n tr a n s p o r ta tio n m id - J u ly se rv ic e s and w e re m id - a ffe c te d off in th e e c o n o m y m u s t b e th e p r e lu d e to a p a lly c o n s tru c tio n m a c h in e ry a n d a u to m o g e n e ra l d e te r io r a tio n . B u t a g la n c e a t th e b ile s, w e re fo rc e d to c u t p r o d u c tio n . A s a lin e o f a g g re g a te in d u s tria l p r o d u c tio n d u rin g re s u lt, e v e n if th e p a c e o f to ta l in d u s tria l th e p o s tw a r p e r io d sh o w s t h a t th e r e w e re p la te a u s in 1 9 4 7 , 1 9 5 1 a n d 1 9 5 6 w h ic h w e re fo llo w e d b y r e n e w e d u p sw in g s r a th e r th a n m o n th s , a p p r e c ia b le g a in s le v e ls w ill b e re c o rd e d . a c tiv ity r e m a in s u n c h a n g e d in th e a u tu m n fro m y e a r -a g o d e c lin e s. A s th e te m p o o f e c o n o m ic a c tiv ity is r e v e a le d in th e c o m in g m o n th s b y th e v a rio u s 2 Em ploym ent sta b ilize s T o ta l n o n farm e m p lo y m e n t, s e a s o n a lly s ta tis tic a l in d ic a to rs , tw o q u a lify in g f a c to rs a d ju s te d , w a s a lm o s t th e s a m e in J u ly as s h o u ld b e k e p t in m in d . F ir s t, a c tu a l a c tiv ity , in c o n tr a s t to s e a s o n a lly a d ju s te d e s tim a te s , in A p ril. T h e to ta l w a s 5 3 .4 m illio n — a h a lf m illio n m o re th a n th e h ig h p re -s te e l c a n b e e x p e c te d to rise s u b s ta n tia lly fro m th e s trik e le v e l o f 1 9 5 9 . B e tw e e n A p ril a n d J u ly , Business Conditions, September 1960 F e d e r a l e m p lo y m e n t d ro p p ed by 1 5 0 ,0 0 0 ( m a in ly c e n s u s ta k e r s ) a n d th e ste e l in d u s try red u c ed T h u s, e m p lo y m e n t o v e r-a ll by s ta b ility about w as 1 0 0 ,0 0 0 . m a in ta in e d Major hard goods industries have reduced production as inventories were cut back . . . d e s p ite d e p re s s in g in flu e n c e s. A lth o u g h to ta l e m p lo y m e n t h a s re m a in e d per cent, 1957 = 100 a t r e c o rd le v els sin c e la s t s p rin g , u n e m p lo y m e n t h a s ris e n as a r e s u lt o f a d d itio n s to th e la b o r fo rc e , w h ic h in c lu d e s b o th w o rk e rs a n d th o s e s e e k in g w o rk . A b o u t 5 .4 p e r c e n t o f th e la b o r fo rc e w a s e s tim a te d to b e u n e m p lo y e d n a tio n a lly in J u ly as c o m p a r e d w ith a b o u t 5 p e r c e n t b o th in A p ril a n d a y e a r ag o . M o r e o v e r, th e n u m b e r o f p e r s o n s ag e 2 0 a n d o v e r w h o in d ic a te d th e y w e re u n e m p lo y e d ro s e in J u ly in o p p o s itio n to th e u s u a l s e a s o n a l p a tte r n . In th e la te s p rin g a n d in J u ly , n e w c la im s fo r u n e m p lo y m e n t c o m p e n s a tio n w e re ru n n in g a b o u t 3 0 p e r c e n t a b o v e th e re la tiv e ly lo w le v e l o f la s t y e a r in th e n a tio n a n d w e re a b o u t 5 0 p e r c e n t h ig h e r in th e M id w e s t. T o a la rg e e x te n t, th e s e c la im s re fle c t la y o ffs in m a n y o f th e h a r d g o o d s in d u s trie s . T h e e a s in g o f th e e m p lo y m e n t s itu a tio n in a n u m b e r o f M id w e s t c e n te rs w a s in d ic a te d in M a y a n d J u ly w h e n th e D a v e n p o r t- R o c k I s la n d - M o lin e a r e a , B a ttle C r e e k , K a la m a z o o , R o c k f o r d a n d R a c in e w e re re c la ssifie d b y th e D e p a r t m e n t o f L a b o r as h a v in g a s o m e w h a t h ig h e r r a te o f u n e m p lo y m e n t. N e v e rth e le s s , o n ly D e tr o it, B a ttle C re e k a n d T e r r e H a u te , a m o n g M id w e s t c e n te rs , a re c o n s id e r e d to b e in th e “ s u b s ta n tia l la b o r s u r p lu s ” c la ss — o v e r 6 p e r c e n t c u r r e n t a n d p ro s p e c tiv e u n e m p lo y m e n t. O n th e b r ig h te r sid e , five M id w e s t c e n te rs — M ilw a u k e e , K e n o s h a , M a d is o n , C e d a r R a p id s a n d D e s M o in e s — a re r a te d b y th e D e p a r tm e n t o f L a b o r as b e in g in th e re la tiv e ly fu ll e m p lo y m e n t g r o u p , h a v in g le ss th a n 3 p e r c e n t u n e m p lo y m e n t. O n ly f o u rte e n o th e r c e n te rs in th e e n tir e n a tio n a re so d e s ig n a te d . while output in most soft goods industries has risen along with the rise in personal income per cent, 1957 = 100 Federal Reserve Bank of Chicago e x p e c ta tio n s . C u r r e n t u sa g e o f ste e l is w ell a b o v e 5 5 p e r c e n t o f c a p a c ity . In v e n to ry a d justm e nt completed? T h ro u g h th e s u m m e r th e re w a s g ro w in g e v id e n c e b ro u g h t th a t p r o d u c tio n in v e n to r ie s in lin e c u tb a c k s w ith had m anage m e n t’s g o a ls fo r a n in c re a s in g n u m b e r o f lo w e r re c e n tly th a n in th e sp rin g . M a in ly , firm s. In a few s e c to rs su c h as a u to m o b ile s a n d a p p lia n c e s , s to c k s o f fin ish e d g o o d s h a v e th is re fle c te d re d u c e d sa le s o f d u r a b le g o o d s. In J u ly , sa le s o f d o m e s tic a lly produced b e e n q u ite la rg e b y h is to ric a l s ta n d a r d s . B u t c a rs w e re b e lo w th e y e a r -a g o le v el fo r th e first tim e d u rin g 1 9 6 0 . T h e first six m o n th s in m o s t in d u s trie s in v e n to r ie s h a v e n o t b e e n h e a v y , p a r tic u la r ly if h o ld in g s a t b o th th e m a n u fa c tu r in g a n d d is trib u tio n le v e ls a re c o n s id e re d as a w h o le . N e v e rth e le s s , th e e a sy s u p p ly s itu a tio n in v irtu a lly all lin e s a n d th e h o p e fo r p ric e c o n c e s s io n s r a th e r th a n p ric e in c re a s e s in d u c e d m a n y b u s in e s s m e n to p a re in v e n to rie s . T h e fa c t th a t so m e firm s h a v e h a d w itn e sse d a n 11 p e r c e n t in c re a s e . T h e r e w a s o n ly slig h t im p r o v e m e n t in e a rly A u g u s t. S lu g g ish sa le s c a u s e d th e a u to m a n u f a c tu r e r s to slo w p r o d u c tio n s c h e d u le s o n 1961 m o d e ls. D e s p ite p r o d u c tio n c u tb a c k s , o n A u g u s t 1 th e n e w c a r in v e n to r y re m a in e d n e a r th e 1.1 m illio n le v el — a b o u t 1 0 0 ,0 0 0 b e e n o n a h a n d - to - m o u th b a s is f o r s e v e ra l m o n th s is re fle c te d in th e la rg e r v o lu m e o f m o re th a n a y e a r e a r lie r w h e n s to c k s h a d b e e n b u ilt u p in a n tic ip a tio n o f th e ste e l fre ig h t in le s s - th a n - c a rlo a d a n d le s s - th a n tr u c k lo a d lo ts a n d th e in c re a s e in a ir e x p re s s s trik e . b u sin e ss. In J u ly , 9 3 p e r c e n t o f th e P u rc h a s in g e x p e c te d in th e c a s e o f m o s t h o u s e h o ld a p p lia n c e s . In p a r t, th is is a re fle c tio n o f th e A g e n ts o f C h ic a g o w e re a b le to o b ta in g o o d s lo w e r le v el o f h o u s in g s ta rts , b u t sa le s a t r e S ale s a lso h a v e b e e n le ss v ig o ro u s th a n o n a le a d tim e o f le ss th a n 6 0 d a y s . L a s t ta il o u tle ts a lso h a v e b e e n slo w . A t th e s ta r t J a n u a r y , 7 5 p e r c e n t w e re in th is c a te g o ry o f th e y e a r, m a n u f a c tu r e r s e x p e c te d la rg e a n d a y e a r ag o , 6 9 p e r c e n t. T h is s h o rte n in g o f th e o r d e r le a d tim e h a s h a d th e effec t o f g a in s d u rin g 1 9 6 0 f o r m o s t ty p e s o f a p p lia n c e s . H o w e v e r, to ta l s h ip m e n ts d u rin g r e d u c in g th e v o lu m e o f n e w o r d e r s re la tiv e th e first h a lf w e re d o w n s u b s ta n tia lly . to th e v o lu m e o f p r o d u c tio n a n d s h ip m e n ts , R e c e n t s u rv e y s o f c o n s u m e r b u y in g in te n tio n s in d ic a te th a t little im p r o v e m e n t is a n d it h a s a lso e n a b le d c u s to m e r firm s to re d u c e s to c k s o n h a n d . 4 Consum er durables sales o ff T h e lev el o f r e ta il sa le s w a s s o m e w h a t in s to re fo r m o s t h a r d g o o d s. O n ly in th e A s a re s u lt o f in v e n to r y a d ju s tm e n ts a l c a se o f n e w c a r s is th e p u r c h a s e o f a la rg e r re a d y a c c o m p lis h e d , it is n o t s u rp ris in g th a t n u m b e r o f u n its c o n te m p la te d . In e v a lu a tin g th e re h a v e b e e n r e p o r ts o f m o d e s t o r d e r im p r o v e m e n ts in a v a r ie ty o f lin e s s u c h as ste e l, th a t a p p lia n c e s a re n o t as im p o r ta n t in o v e r s u rv e y s o f th is ty p e , it s h o u ld b e re m e m b e r e d m e ta l fa s te n e r s , to o l a n d d ie sh o p s , p a p e r all c o n s u m p tio n e x p e n d itu r e s as th e y w e re c a r to n s a n d e le c tric a l c o m p o n e n ts . In th e c a se o f ste e l, h o w e v e r, n e w o r d e r s in J u ly a few y e a rs ag o a n d th a t c o n s u m e r a ttitu d e s c a n c h a n g e q u ic k ly as th e ir v ie w s o n in c o m e w e re n o t m u c h a b o v e th e p r o d u c tio n r a te o f p r o s p e c ts sh ift. T h e r a th e r fa v o r a b le b u y in g o n ly 5 5 p e r c e n t o f c a p a c ity . T h e s tr e tc h o u t in a u to in d u s try o r d e r s h a s b e e n la rg e ly in te n tio n s s u g g e ste d b y su rv e y s ta k e n in th e e a rly m o n th s o f 1 9 6 0 h a v e n o t b e e n r e s p o n s ib le f o r k e e p in g to ta l o r d e r s b e lo w re a liz e d . Business Conditions, September 1960 Bank debits— a measure of local business activity T - j ik e m o st b u s in e s s m e n , b an k ers have a re la tiv e ly few banks. B a n k e r s in m a n y f o u n d th a t a m o n g th e m o s t u se fu l y a rd s tic k s c itie s h a v e lo n g b e e n a w a re o f th e u se fu ln e ss fo r a p p r a is in g th e c u r r e n t b u s in e s s s itu a tio n o f b a n k d e b its as a c o m p re h e n s iv e in d ic a to r o f lo c a l s p e n d in g a c tiv ity . a re m e asu res sp e n d in g . not of V e ry a v a ila b le c o n su m e r and b u sin e ss o fte n , h o w e v e r, th e se fo r th e p a r tic u la r a re a s a re in A v a ila b ility o f sales fig u re s w h ic h a b a n k o p e r a te s , a n d o fte n it is im A la rg e p r o p o r tio n o f c o n s u m e r e x p e n d i p o ssib le to in fe r fro m n a tio n a l a n d re g io n a l tu r e s is m a d e a t r e ta il s to re s . O u tla y s fo r d a t a a re lia b le in d ic a tio n o f tr e n d s in lo c a l r e n t a n d se rv ic e s a re th e m a jo r e x c e p tio n s . a re a s . It is p o s s ib le , o f c o u rs e , to c o m p ile p u re ly A lso , c o n s u m e r s m a k e so m e p u r c h a s e s fro m lo c a l m e a s u r e s o f c o n s u m e r a n d b u sin e ss s p e n d in g f ro m a n y o n e o f a n u m b e r o f s o u rc e s . P u rch a sers th e m s e lv e s m a y b e s u r v e y e d a t r e g u la r in te rv a ls a n d a s k e d to give a n a c c o u n tin g o f th e ir e x p e n d itu r e s , c u r r e n t a n d p la n n e d . B u t th e c o s t a n d d iffic u ltie s in v o lv e d in o b ta in in g u p - to - d a te , re lia b le s p e n d m a n u fa c tu r e rs a n d w h o le s a le rs , a n d th e se , o f c o u rs e , a re n o t in c lu d e d in sa le s o f re ta il e s ta b lis h m e n ts . I n all, r e ta il sa le s as c o n v e n tio n a lly m e a s u r e d , e v e n if a v a ila b le o n a c o m p re h e n s iv e a n d c u r r e n t b a s is , w o u ld n o t b e a c o m p le te m e a s u r e o f c o n s u m e r s p e n d in g in a n a re a . In e a c h o f f o u r m e tr o p o lita n a re a s in th e in g d a t a d ire c tly fro m in d iv id u a ls is so g re a t t h a t th is p r o c e d u r e is u tiliz e d o n ly ra re ly . T h e jo b is r e d u c e d c o n s id e ra b ly if th e in f o rm a tio n is c o lle c te d fro m se lle rs. S ale s S e v e n th D is tric t, th e tr e n d o f re ta il p u r c h a s e s , c a n b e r o u g h ly tr a c e d in th e m o n th ly to ta ls f o r a lim ite d n u m b e r o f re ta il o u tle ts C e n s u s d a ta a re m u c h m o re u se fu l fo r th e p r o v id e a u se fu l in d ic a tio n o f c o n s u m e r e x p e n d itu r e s o n c e r ta in k in d s o f ite m s. H o w n a tio n as a w h o le t h a n fo r in d iv id u a l a re a s , p e rc e n ta g e c h a n g e s p r o v id e d b y B u r e a u o f th e C e n s u s r e ta il tr a d e s u rv e y s . B u t th e p r im a rily b e c a u s e th e n u m b e r o f re ta ile rs e v e r, if c o m p re h e n s iv e c o v e ra g e is d e s ire d , in c lu d e d in a n y g iv e n a r e a is sm a ll. M o r e th e n u m b e r a n d k in d s o f re ta il o u tle ts th a t o v e r, m u s t b e s u rv e y e d b e c o m e q u ite la rg e . F u r th e r m o r e , m o s t b u s in e s s p u r c h a s e s a re n o t- e le v e n o r m o re s to re s ( a n d in so m e citie s a c c o u n t f o r a s u b s ta n tia l p o r tio n o f s a le s ) m a d e a t r e ta il s to re s . a re r e p o r te d A th ir d s o u rc e is to ta p in a t th e p o in t th r o u g h w h ic h m o s t e x p e n d itu r e s in a c o m h e n c e , a re n o t in c lu d e d in th e fig u re s fo r in d iv id u a l a re a s . sa le s of th e o n ly c h a in s w h ic h o p e r a te a s n a tio n a l to ta ls and, m u n ity flow , n a m e ly , its b a n k s . M e a s u rin g In d e x e s o f sa le s a t d e p a r tm e n t s to re s a re th e to ta l w ith d r a w a ls — d e b its — fro m th e a c c o u n ts o f n u m e ro u s s p e n d in g u n its c a n b e v irtu a lly th e o n ly o th e r m e a s u r e re g u la rly a v a ila b le o n c o n s u m e r s p e n d in g in in d iv id u a l a c c o m p lis h e d b y r e c o u rs e to th e r e c o rd s o f a re a s . C u r r e n t in f o r m a tio n o n d e p a r tm e n t Federal Reserve Bank of Chicago s to r e sa le s is p r o v id e d f o r 3 5 m e tr o p o lita n a re a s a n d c itie s b y th e 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 . B u t d e p a r tm e n t s to re s a c c o u n t f o r o n ly a sm a ll p a r t o f to ta l sa le s; th e p r o p o r tio n v a rie s by a re a , e s p e c ia lly in th e s m a lle r c e n te rs . I n th e a b s e n c e o f in f o rm a tio n o n c u r r e n t sa le s tr e n d s in a p p a r e l s to re s , d is c o u n t h o u s e s a n d f u r n itu r e a n d h o m e f u rn is h in g s Could de bits f ill th e gap? A s n o w c o m p ile d , b a n k d e b its in c lu d e th e d o lla r v o lu m e o f c h e c k s w ritte n o n d e m a n d d e p o s it a c c o u n ts o f in d iv id u a ls , b u s in e s s e s a n d s ta te a n d lo c a l g o v e rn m e n ts . T h e s e d a ta a re c o lle c te d a n d p u b lis h e d m o n th ly f o r 4 5 m e tr o p o lita n a re a s a n d c itie s in th e S e v e n th s to re s — th e d e p a r tm e n t s to r e s ’ c h ie f c o m p e tito rs — sh ifts in sa le s o f d e p a r tm e n t s to re s m a y n o t b e a n a c c u r a te in d ic a to r o f c h a n g e s in Bank debits and retail sales in selected Michigan areas, 1 9 5 3 - 1 9 6 0 monthly demand debits m illion d o lla r s d a ily o v e r a g e taxable retail s a le s billion dollars 8 c o n s u m e r s p e n d in g in in d iv id u a l a re a s . I n so m e sta te s , sa le s ta x c o lle c tio n s o f th e ty p e sh o w n in th e a c c o m p a n y in g c h a r t fo r M ic h ig a n a re a s p ro thousand d o llars million dollars tho usand d o llars million dollars th o u san d million dollars v id e g o o d e s tim a te s o f e x p e n d itu r e s a t r e ta il. U s u a lly , h o w e v e r, th e s e fig u re s a re a v a il a b le o n ly a f te r a n in te rv a l o f s e v e ra l m o n th s , and hence, a re o f lim ite d v a lu e as in d ic a to rs of cu rren t tre n d s . I n a d e q u a te as in f o r m a tio n on lo c a l c o n s u m e r s p e n d in g is, it is f a r b e tte r t h a n th a t a v a ila b le o n b u s in e s s s p e n d in g . W ith few e x c e p tio n s , th e r e a re n o lo c a l d a ta r e la tin g to b u s in e s s e x p e n d i tu r e s o n p la n t, e q u ip m e n t a n d in v e n to rie s . d o llo rs Business Conditions, September 1960 T h e c h a rt on the p rec ed in g page co m p ares b an k deb its w ith ta x ab le reta il sales in M ich ig an ’s fo u r largest m e tro p o lita n are as: D etro it, F lin t, G ra n d R ap id s an d L ansing. Sales d a ta w ere deriv ed fro m sales ta x co l lection statistics com p iled by the M ichigan D e p a rtm e n t o f R evenue. D eb its w ere c o m piled fro m reg u la r m o n th ly rep o rts su b m itted by m ost o f the b an k s in these areas. T h e c h a rts illu strate several p o in ts re ferre d to previously. T h e g re a te r in crease in d ebits th a n in retail sales fro m 1953 to 1960 can be seen fo r each o f th e areas. In general, how ever, th e co rre sp o n d e n c e b e tw een the series in th e ir rea ctio n s to cyclical ch an g e is n o tew o rth y . T h e series m ove ro u g h ly to g e th er, w ith th e ex ception of L ansing d u rin g 1953-54, w h en som e o n e tim e ch an g es in b an k in g co n n e ctio n s o c c u rre d w hich w ere u n re la te d to spending activity. D ebits o f D e tro it b an k s typically include a h ig h er p ro p o rtio n o f financial p ay m en ts and th e re fo re w ould have been ex p ected to show m o re p ro n o u n c e d div erg ences fro m sales th a n d eb its in o th e r areas, b u t this did n o t o ccu r. Federal Reserve District. The debits data include most of the payments by these groups. Even the payments made with cur rency are included in part since much of the currency is obtained by cash withdrawals from demand deposits. Indeed, the major weakness of debits as a measure of consumer and business spending for goods and services is that they encompass too much — not too little. Debits include not only the expendi tures from checking accounts on goods and services for current use, but also the dis bursements for purchases of bonds, stocks, real estate and other property — transfers O n a m o n th -to -m o n th basis, th e re are irre g u la rities an d in co n sisten cies betw een th e series w h ich d isa p p e a r if th e figures are co m b in ed fo r a p erio d o f tw o o r th ree m o n th s. D ifferences in tim in g o f p u rch a ses an d final p ay m en ts, b ec au se o f th e use o f ch arg e ac co u n ts o r in sta lm e n t c re d it, o fte n cause su ch m o v em en ts. T h e re a re n u m e ro u s in stan ces w h ere d eb its a p p a re n tly lag sales by a m o n th o r so. T h is, h o w ev er, is b u t one o f th e fa c to rs ca u sin g differences in the sh o rt ru n . T h e m o st significant rela tio n sh ip to be o b serv ed is th e cy clical co rresp o n d e n ce th ro u g h o u t th e e n tire p erio d . T h e ch a n c e ap p e ars to be sm a lle r w ith sales th a n w ith d eb its th a t a cy clical ch an g e m ay be o b sc u re d by irre g u la r fluctuations. T his suggests th a t som e seg reg atin g o f debits arisin g fro m tra n sfe r p ay m en ts, d eb t and asset tra n sa c tio n s is d esirab le. In th e case o f debits, it is alw ays possible th a t th e u n usual, th e aty p ica l tra n sa c tio n will be large en o u g h to o v ersh a d o w ch a n g es in tra n s a c tions resu ltin g fro m final p u rch a ses o f co n su m ers a n d businesses. which are not related directly to current pro duction and consumption of goods and serv ices. Such transfers contribute significantly to debits totals for both individuals and busi nesses. For example, if an individual sells a house, common stocks or bonds and deposits the proceeds in his checking account before reinvesting, the debit to his account at the time of reinvestment may be several times as large as his annual expenditures for current consumption. Transfers of funds from one place to another, unrelated to transfers of owner ship, make up a significant proportion of Federal Reserve Bank of C hicago c h e c k s w ritte n o n b u s in e s s a c c o u n ts . L a r g e r le c te d c o m p a n ie s in p a r ti c u la r a re lik e ly to h a v e n u m e ro u s d e p o s it a c c o u n ts a n d to tr a n s f e r in h e re n t lim ita tio n s . A t th e c o s t o f so m e d e p o s its fro m o n e to a n o th e r in a w a y th a t b e a r s little o r n o r e la tio n s h ip to “ s p e n d in g ” in te r p r e te d w ith a w a re n e s s of a n a ly sis o f th e fin a n c ia l a c tiv itie s o f a lim ite d n u m b e r o f d e p o s ito rs , m o r e o v e r, b a n k in g in a sp ecific a re a . s ta tis tic s c a n b e m a d e to b e tte r p ic tu r e o f s p e n d in g . T h e a ll-in c lu s iv e n a t u r e o f b a n k d e b its w o u ld n o t in its e lf c o n s titu te a m a jo r w e a k A r e la te d a p p r o a c h t h a t se e m s lik e ly to b e fru itfu l is a n a ly s is o f th e m a rk e d ly le ss y ie ld an even n ess o f d e b its as a n in d ic a to r o f s p e n d in g if n u m e ro u s c r e d its o r a d d itio n s to th e d e m a n d th e v a rio u s ty p e s o f p a y m e n ts th e y r e p r e s e n t w e re a c o n s ta n t p r o p o r ti o n o f th e to ta l. B u t d e p o s it a c c o u n ts o f c e r ta in ty p e s o f b u s i n e sse s. C r e d its o f r e ta ile rs r e s u ltin g f ro m su c h is n o t a lw a y s th e c a se . D e b its a t N e w Y o r k C ity b a n k s , f o r e x a m p le , s h o w e d a s tro n g in c re a s e d u r in g 1 9 5 4 , a p e r io d in b u s in e s s w h ic h e c o n o m ic a c tiv ity , in c lu d in g c o n s u m e r sp e n d in g , w a s d e c lin in g in m o s t a re a s . T h is o f th e s e e s ta b lis h m e n ts . B a n k d e b its h a v e b e e n in c re a s in g s e c u la rly rise in d e b its re fle c te d p r im a rily g r e a te r fin a n c ia l a c tiv ity , e s p e c ia lly tr a n s a c tio n s in s u m p tio n as m o re a n d m o r e b u s in e s s e s a n d th e s to c k m a rk e t. in d iv id u a ls h a v e tu r n e d to th is c o n v e n ie n t T o ta l b a n k d e b its c a n h a r d ly b e e x p e c te d to se rv e as a n in d ic a to r o f s p e n d in g in th e w a y o f m a k in g p a y m e n ts . T h u s , w h e n p e r n a t io n ’s la rg e fin a n c ia l c e n te rs w h e re sw in g s in fin a n c ia l d e b its m a y a t a n y p a r tic u la r tim e f o r a la rg e n u m b e r o f M id w e s t a r e a s a re e x o v e rs h a d o w m o v e m e n ts in c h e c k p a y m e n ts in sa le s a t r e ta il e s ta b lis h m e n ts b e tw e e n th e re c e ip ts , f o r e x a m p le , a re fa irly re a d ily d is tin g u is h a b le f ro m o th e r ty p e s o f c re d its a n d b e a r a c lo se r e la tio n s h ip to sa le s a t a m o re r a p id r a te t h a n p r o d u c tio n o r c o n c e n ta g e c h a n g e s in d e b its to d e m a n d d e p o s its a m in e d w ith c o m p a r a b le p e r c e n ta g e c h a n g e s a s s o c ia te d p r im a rily w ith c u r r e n t p ro d u c tio n 1954 and a n d c o n s u m p tio n . B a n k d e b its as p re s e n tly c o m p ile d b e a r a m o re c o n s ta n t re la tio n s h ip th a t d e b its in e a c h a r e a in c re a s e d sig n ifi c a n tly m o re t h a n sa le s. B u t m o re im p o r to s p e n d in g in th e sm a lle r c itie s. I t w o u ld a p p e a r t h a t d e b its ca n p ro v id e ta n t, fro m a n a n a ly tic a l s ta n d p o in t, th e r a n k a re lia b le in d ic a tio n o f c h a n g e s in c o n s u m e r a n d b u s in e s s s p e n d in g if th e d a ta a re c o l- is Buslne ss C ond itions is p u b l i s h e d m o n t h l y b y th e federal reserve bank of s c r i p t io n s a r e a v a ila b le to Chicago. S u b th e p u b l i c w i th o u t 1 9 5 8 C e n s u s y e a rs , it is f o u n d in g o f a re a s in te rm s o f size o f d e b its in c re a s e v e ry sim ila r in c re a se . I n a d d itio n , to th e a. b e tte r r a n k in g by sa le s u n d e r s ta n d in g of th e s e a s o n a l p a t te r n s — in tra -w e e k ly , i n tr a m o n th ly a n d m o n th - to - m o n th — w o u ld e n h a n c e th e u s e fu ln e s s o f th e d a ta . W ith th e a id o f e le c tro n ic c o m p u te r s , v a r io u s f a c to rs c h a r g e . F o r i n f o r m a t io n c o n c e r n i n g b u lk m a il a ffe c tin g th e v o lu m e o f d e b its c a n b e te s te d a n d th e d a ta a d ju s te d w ith le ss d ifficu lty in g s to b a n k s , b u s in e s s o r g a n iz a t io n s a n d e d u th a n p re v io u s ly . A p p a r e n tly , in a d e q u a te a t c a tio n a l in s titu tio n s , 8 3 4 , C h ic a g o 9 0 , I llin o is . A r t i c l e s m a y b e r e te n tio n to th e s e s e a s o n a l f a c to rs is b e h in d m u c h o f th e c h o p p in e s s o r e r r a tic b e h a v io r o f th e se rie s t h a t h a s h a n d ic a p p e d th e ir u se p r i n t e d p r o v i d e d s o u r c e is c r e d it e d . th u s fa r. w r ite : R e s e a r c h D e p a r t m e n t, F e d e r a l R e s e r v e B a n k o f C h ic a g o , B o x 8 and Business Conditions, September 1960 o f c h e c k s m a y m a k e fe a s ib le a c o n tin u o u s Can d e b its se rie s te ll even m ore? T h e re a l h o p e fo r th e f u tu re u s e fu ln e ss m e a s u r e m e n t o f s p e n d in g b y v a rio u s s e c to rs in in d iv id u a l a re a s . T h e te c h n iq u e k n o w n o f b a n k d e b its as a id s to e c o n o m ic a n a ly sis as a n d in k e e p in g ta b o n tr e n d s in in d iv id u a l a re a s lies in d isa g g re g a tio n o f th e d a ta , se e m s lik e ly to g a in w id e s p re a d a c c e p ta n c e M a g n e tic In k C h a ra c te r R e c o g n itio n th a t is, s e p a r a tin g th e in f o rm a tio n in to its te c h n iq u e (s e e B u sin e ss C o n d itio n s , A p r il 1 9 6 0 .) T h is p ro v id e s f o r m a c h in e id e n tific a p a r ts . A first im p o r ta n t s te p lie s in th e d ir e c tio n o n c h e c k s o f th e c u s to m e r ’s a c c o u n t tio n o f s e p a r a tin g c h e c k p a y m e n ts o f in d i a lo n g w ith th e ro u tin g s y m b o l-tr a n s it n u m v id u a ls fro m th o s e o f b u s in e s s e s a n d , s e c o n d b e r a n d th e a m o u n t o f th e c h e c k . I n s o fa r as a rily , so m e k in d s o f b u s in e s s e s fro m o th e rs . W ith th is in f o rm a tio n a v a ila b le , d e b its c o u ld sh ip d e s ig n a tio n , it so lv e s th e in p u t p ro b le m b e u s e d n o t o n ly to f o r th e c o lle c tio n o f v e ry u se fu l in f o rm a tio n e n v iro n m e n t in d e s c rib e th e sp e cific w h ic h in d iv id u a l banks “ c h a r a c te r r e c o g n itio n ” in c lu d e s a n o w n e r b y s p e n d in g s e c to r. T h is a n d o th e r re c e n t o p e r a te , b u t th e d e ta ils o n s p e n d in g in p a r d e v e lo p m e n ts tic u la r lin e s w o u ld a lso b e u se fu l to o th e r th a t in f o rm a tio n o n lo c a l e c o n o m ic c h a n g e s b u s in e s s e s , m a n y c u s to m e rs . m a y b e a v a ila b le b e fo re to o lo n g , in c o n s id e ra b le d e ta il a n d as a b y - p r o d u c t o f o th e r o f w h ic h m ay be ban k A d v a n c e s in a u to m a tio n in th e p ro c e s s in g in d a ta p ro c e s s in g in d ic a te o p e r a tio n s a t a n o m in a l c o st. The outlook fo r U.S. foreign trade T b . p e r s is tin g d e fic it in th e U n ite d S ta te s in te r n a tio n a l b a la n c e o f p a y m e n ts h a s fo c u s e d m u c h a tte n tio n o n o u r fo re ig n tr a d e p o s itio n . In 1958 and 1 9 5 9 , th is c o u n try e x p e r ie n c e d a 7 .3 b illio n d o lla r d e fic it in its o u r p a y m e n ts to f o re ig n c o u n trie s fo r im p o rts , se rv ic e s , lo a n s a n d in v e s tm e n ts , m ili ta r y e x p e n d itu r e s a n d G o v e r n m e n t a id . T h is is s h o w n in th e a c c o m p a n y in g ta b le . T h e d e fic it is c o v e re d th r o u g h n e t d o lla r in te r n a tio n a l a c c o u n ts . L a te s t e s tim a te s fo r p a y m e n ts 1 9 6 0 in d ic a te a d e fic it o f a b o u t 2 .5 b illio n b a n k s , c o r p o r a tio n s a n d in d iv id u a ls . T h e s e d o lla rs , p a y m e n ts m a y b e r e ta in e d w h ic h w o u ld push th e th r e e -y e a r to fo re ig n a g e n c ie s , in c lu d in g in th e U n ite d c u m u la tiv e d e fic it to a b o u t 10 b illio n . T h is r e p r e s e n ts a m a r k e d c o n tr a s t w ith th e e a rly S ta te s as w o rk in g b a la n c e s in th e fo rm o f 1 9 5 0 ’s w h e n o u r d efic its a v e ra g e d o n ly 1.5 b illio n d o lla r s p e r y e a r. s e c u ritie s to s u p p o r t tr a d e a n d o th e r a c tiv I n its s im p le s t te rm s , a b a la n c e o f p a y m e n ts d e fic it m e a n s w e a re n o t se llin g e n o u g h g o o d s a n d se rv ic e s a b r o a d a n d e a r n in g e n o u g h o n o u r o v e rs e a s in v e s tm e n ts to c o v e r b a n k d e p o s its a n d in v e s tm e n ts in s h o r t- te r m itie s, o r th e y m a y a c c ru e to c e n tr a l b a n k s a n d b e c o n v e r te d to g o ld , c a u s in g a g o ld o u tflo w . R e g a r d in g th e la tte r , s e v e ra l E u r o p e a n c e n tr a l b a n k s u se th e ir n e t f o re ig n e x c h a n g e re c e ip ts to b u y g o ld b e c a u s e th e y p r e f e r to 9 Federal Reserve Bank of C hicago U.S. balance of international payments, 1959* Payments Receipts (b illio n d o lla rs ) Merchandise imports 15.3 Income on foreign investments in U.S. .8 16.2 Merchandise exports Income on overseas investments 3.0 4.2 Other services, private remittances and pensions 5.1 Other services M ilita ry expenditures 3.1 Foreign long-term investments in U.S. .6 Private U.S. capital outflow, net 2.3 Unrecorded transactions, net .8 Government grants and loans, net 2.0 28.6 24.8 Deficit 3.8 Covered by: Gold sales to foreigners Increase in dollar assets held by foreigners * E x c lu d e s $ 1 .4 b illio n .7 3.1 3.8 a d d itio n a l su b s c rip tio n to In te rn a tio n a l M o n e ta ry Fund in se c o n d q u a rte r. A ls o e x c lu d e s m ilita ry su p p lie s and s e rv ic e s fin a n c e d by g ra n ts. h o ld th e ir o fficial r e s e rv e s in g o ld . O th e r 10 T h is a ro s e fro m a m a r k e d ta p e r in g off o f c o u n trie s th a t m a in ta in b o th g o ld a n d d o lla r e x p o r ts a n d a v ig o ro u s rise in im p o rts . I n re se rv e s m a y u se p a r t o f th e ir n e t re c e ip ts to b u y g o ld w h e n th e y h a v e siz a b le re s e rv e c o n tra s t, o u r m ilita ry e x p e n d itu r e s , c a p ita l in v e s tm e n ts a n d o th e r tr a n s f e r s a b r o a d r e g a in s. G o ld m o v e m e n ts a re a lso in flu e n c e d b y in te r e s t r a te tr e n d s in v a r io u s in te r m a in e d fa irly s ta b le . N a tu r a lly , o n e w o u ld e x p e c t th e 3 .2 b illio n n a tio n a l fin a n c ia l c e n te rs . W h e n th e in te re s t d o lla r d e c lin e in o u r e x p o r ts fro m r a te s p r e a d b e tw e e n th e N e w Y o r k a n d E u r o p e a n m o n e y m a rk e ts w id e n s d u e to an 1 9 5 9 to b e la rg e ly a ttr ib u ta b le to d is a p p e a r a n c e o f te m p o r a r y h e a v y s h ip m e n ts o f c r u d e e a sin g in o u r r a te s o r s tiffe n in g in E u r o p e , o il, p e tro le u m p r o d u c ts a n d o th e r b a s ic c o m fo re ig n e rs m a y c o n v e r t th e ir d o lla r b a la n c e s m o d itie s to E u r o p e in c o n n e c tio n w ith th e 1 9 5 7 to to o th e r c u r r e n c ie s in o r d e r to re in v e s t th e ir S u e z c risis. H o w e v e r, n e a rly 4 0 p e r c e n t o f fu n d s a t m o re a ttr a c tiv e r a te s a b r o a d . T h e th e d e c lin e s te m m e d fro m a 1.2 b illio n d o lla r d o lla r s th e n a c c r u e to fo re ig n c e n tr a l b a n k s , w h ic h m a y b u y g o ld . d r o p in e x p o r ts o f fin ish e d g o o d s, w h ic h c o n s titu te th e T h e c o n c e r n a b o u t o u r b a la n c e o f p a y m e n ts p o s itio n in 1 9 5 8 -5 9 p r o b a b ly s te m m e d c o m p o n e n t in o u r e x p o r t tr a d e . T h e im p o r t b o o m , o n th e o th e r h a n d , w a s fro m th e f a c t th a t th e la rg e d e fic its c o u ld b e d ire c tly r e la te d to a s h rin k a g e in o u r la rg e ly th e re s u lt o f a s h a r p rise in im p o r ts o f fin ish e d m a n u f a c tu r e d g o o d s. T h e s e in m e rc h a n d is e tr a d e s u rp lu s a f te r m id - 1 9 5 7 . c re a s e d fro m 3 .5 b illio n d o lla r s in 1 9 5 7 to m a n u f a c tu r e d la rg e s t sin g le Business Conditions, September 1960 1 9 5 9 . A s a re s u lt o f th e se w ell k n o w n g ro w th in p o p u la rity o f E u r o m o v e m e n ts , n e t e x p o r ts o f fin ish e d m a n u p e a n c a rs a m o n g th e A m e r ic a n p u b lic . I m f a c tu re d g o o d s d e c lin e d fro m a h ig h o f 6 .9 p o r ts b illio n d o lla r s in 1 9 5 7 to 4.1 b illio n in 1 9 5 9 , 5 7 ,0 0 0 5 .2 b illio n in th e la tte r s u rp lu s sw in g fig u re sin c e of re p r e s e n tin g 1950. n e a rly 3 C le a rly , b illio n of fo re ig n cars m u sh ro o m e d fro m u n its in 1 9 5 5 to 6 6 8 ,0 0 0 in 1 9 5 9 , o r sm a lle st n e a rly tw e lv e fo ld , w h ile e x p o r ts o f A m e r ic a n a d o w n w a rd c a rs d e c lin e d o v e r 5 0 p e r c e n t d u rin g th e th e d o lla rs in net sa m e p e rio d . In re c e n t m o n th s , h o w e v e r, e x p o r ts o f fin ish e d m a n u fa c tu r e d g o o d s c a n im p o rts o f fo re ig n c a r s h a v e d r o p p e d s h a rp ly b e v ie w e d as a m a jo r f a c to r in o u r b a la n c e p r o b a b ly o w in g to k e e n e r c o m p e titio n fro m o f p a y m e n ts d efic its in 1 9 5 8 a n d 1 9 5 9 . th e n e w A m e r ic a n “ c o m p a c t” m o d e ls. T h e b r u n t o f th e d e c lin e in n e t e x p o r ts o f fin ish e d m a n u f a c tu r e d goods la rg e ly T h e r e d u c tio n in o u r e x p o r ts o f c a p ita l fell g o o d s ite m s w a s p a r tly c y c lic a l in n a tu re , u p o n th e a u to m o b ile in d u s try a n d p r o d u c e rs re fle c tin g a le v e lin g o ff o f b u s in e s s a c tiv ity o f m a c h in e ry a n d o th e r c a p ita l g o o d s. N e t in W e s te rn E u ro p e in 1 9 5 8 a n d a s u b s ta n tia l e x p o r ts o f a u to s a n d p a r ts d r o p p e d fro m 1 b illio n d o lla rs in 1 9 5 7 to d e c lin e in c a p ita l in v e s tm e n t e x p a n s io n in C a n a d a a n d L a tin A m e r ic a a s s o c ia te d w ith less th a n 0 .3 b illio n in 1 9 5 9 , w h ile n e t e x p o r ts o f c a p ita l g o o d s, in c lu d in g c o n o f U n ite d S ta te s fu n d s in to m in in g a n d oil a p p r o x im a te ly re c e ssio n a n d a slo w in g d o w n o f an in flo w s tr u c tio n e q u ip m e n t, e n g in e s , e le c tric a l m a v e n tu re s . T h e d e c lin e in o u r c a p ita l g o o d s c h in e r y , m a c h in e to o ls , tr a c to r s a n d fa rm e q u ip m e n t, e tc ., d e c lin e d fro m 3 .6 b illio n e x p o r ts c a n a lso b e a ttr ib u te d in p a r t to g ro w in g c o m p e titio n f ro m fo re ig n s u p p lie rs to 3.1 b illio n d o lla r s d u rin g th e sa m e p e rio d . T h e a u to e x p o r t s itu a tio n n e e d s little e la b o r a tio n . P rim a r ily , it re fle c ts th e sa m e in o v e rs e a s m a rk e ts . T h is c o m p e titio n se em s to h a v e h it A m e r ic a n p r o d u c e rs o f p o w e r fa c to rs t h a t a c c o u n t fo r th e tr e m e n d o u s a n d g e n e r a tin g e q u ip m e n t, e le c tric a l m a c h in e ry a n d fa rm e q u ip m e n t p a r tic u la rly h a r d sin c e Rising U.S. imports, falling exports o u r s h a re o f th e to ta l w o rld e x p o r t tr a d e o f th e se ite m s h a s s lip p e d m a te r ia lly sin c e 1 9 5 3 . cause deficit in balance o f payments beginning in 1 9 5 8 in on billion dollars T h e d e te r io r a tio n in o u r e x p o r t p ic tu re 1 9 5 8 -5 9 h a s e lic ite d m u c h d isc u ssio n th e c o m p e titiv e p o s itio n o f A m e r ic a n g o o d s in in te r n a tio n a l tr a d e . In th e la tte r p a r t o f 1 9 5 9 , w h e n th e re w a s m u c h c o n c e rn a b o u t p o s s ib le in f la tio n a ry e x c e s se s in th e A m e r ic a n e c o n o m y , th e v ie w w a s f re q u e n tly e x p re s s e d th a t firm s in th is c o u n try had p ric e d th e ir p r o d u c ts o u t o f th e in te r n a tio n a l m a rk e ts . It w a s s u g g e s te d th a t o u r m a n u f a c tu re rs c o u ld not hope to c o m p e te in o v e rs e a s m a rk e ts a g a in s t fo re ig n s u p p lie rs w h o h a d a c c e ss to lo w -c o s t m a te r ia ls a n d la b o r. V ig o ro u s r e s tr a in ts o n p ric e a n d w ag e in c re a s e s w o u ld b e n e c e s s a ry o n th e h o m e f ro n t if w e w e re to r e c o u p o u r f o rm e r w o rld 11 Federal Reserve Bank of C hicago tr a d e p o s itio n . I t w a s a lso m a in ta in e d th a t c o m p le te d b y th e e a rly 1 9 5 0 ’s, th e s e n a tio n s g ro w th o f o u r e x p o r t tr a d e w a s c u r b e d b y m a in te n a n c e a m o n g o v e rs e a s n a tio n s o f su c h w e re a b le to c o m p e te a g a in f o r in te r n a tio n a l d is c rim in a to ry im p o r t re s tr ic tio n s as e x c h a n g e c o n tro ls a n d q u o ta s o n A m e r ic a n v o lu m e . T h e ir r e tu r n w a s f u r th e r c h a r a c t e r g o o d s. n a tio n s , A lth o u g h th e s e c o n s id e r a tio n s m a y b e v a lid f o r c e r ta in c o m m o d itie s o r in sp e cific J a p a n , p la c e d p rim e e m p h a s is o n e x p a n d in g d o m e s tic p r o d u c tio n a n d e m p lo y m e n t tr a d e a re a s , th e y d o n o t a d e q u a te ly e x p la in th e m a jo r p a r t o f th e 1 9 5 8 -5 9 d e te r io r a tio n th r o u g h d e v e lo p m e n t o f o v e rs e a s m a rk e ts . D e m a n d in d o m e s tic m a rk e ts w a s r e s tr a in e d in th e in te r n a tio n a l tr a d e p o s itio n o f th e U n ite d S ta te s . T h is d e c lin e , as re fle c te d in m a rk e ts , o ffe rin g b r o a d lists o f g o o d s in la rg e iz e d b y v ig o ro u s se llin g te c h n iq u e s . M a n y and n o ta b ly G erm a n y , su p p lie s w e re lim ite d B e lg iu m by and stiff im p o r t th e s h r in k in g m e rc h a n d is e tr a d e s u rp lu s , w as in la rg e p a r t a d ir e c t r e s u lt o f th e m a rk e d re s tr ic tio n s a n d a llo c a tio n s o f o u tp u t fo r e x p o rt. S u c h p o lic ie s re fle c te d a d e s ire to s tre n g th e n b a d ly d e p le te d g o ld a n d d o lla r r e s u rg e n c e in th e p r o d u c tiv e c a p a c ity o f th e W e s te rn E u r o p e a n n a tio n s a n d J a p a n . A s re s e rv e p o s itio n s a n d th e r e b y a lle v ia te p o s sib le b a la n c e o f p a y m e n ts c rise s. th e s e n a tio n s w e re re b u ild in g th e ir e c o n o m ie s fo llo w in g W o r ld W a r I I , w ith im p o r ta n t E u ro p e a n a s s is ta n c e fro m th is c o u n try , U n ite d S ta te s s ta n tia lly to th e ir g o ld a n d d o lla r re se rv e s. W ith in th is fra m e w o r k , n a tio n s and th e Japan W e s te rn added su b m a n u fa c tu r e rs d o m in a te d in te r n a tio n a l e x In th e la s t six y e a rs , th e g o ld a n d d o lla r p o r t c h a n n e ls . I t c a n b e s a id th a t e x p a n d in g re se rv e s o f c o n tin e n ta l W e s te rn e x p o r ts v irtu a lly c o u n trie s d o u b le d , in c re a s in g fro m 10 b illio n g u a r a n te e d b y th e M a rs h a ll P la n a n d o th e r d o lla rs a t th e e n d o f 1 9 5 3 to n e a rly 2 0 b illio n a id p ro g ra m s . W ith th e ta s k o f r e c o n s tr u c tio n e s s e n tia lly th a t th e rise in fo re ig n d o lla r h o ld in g s sin c e Sharp rise o f foreign auto imports Foreign holdings o f gold and slowed by competition o f U.S. dollars show large increase since 1 9 5 3 fro m th is c o u n try w e re E u ro p e a n a t th e e n d o f 1 9 5 9 . I t is in te r e s tin g to n o te compacts in 1 9 5 9 billion dollars change in: th o u s a n d u n its foreign countries 12 Western Europe area Latin America other Business Conditions, September 1960 1953 has exceeded the increase in foreign gold reserves. Even during the first half of 1960, as the gold outflow accelerated owing to the pull of high interest rates in European money markets, foreigners continued to add to their dollar holdings at the rate of more than 150 million dollars per month. What is the outlook for U.S. exports today? There are several encouraging signs. For one, the robust recovery of Western European nations and Japan to pre-eminence in world trade and the concomitant strength ening of their foreign exchange reserves have contributed to a marked relaxation in dis criminatory restrictions on imports of Ameri can goods. Principal indications of this have been the establishment of freer con vertibility of currencies and a general loosen ing of quantitative import quotas on Ameri can goods throughout the free world. In its 1960 Annual Report on Exchange Restric tions, the International Monetary Fund noted the majority of its member nations had “achieved the elimination of dollar discrim ination.” Many European nations, however, still maintain stiff quantitative restrictions against the import of products important to the United States — fruit, wheat, barley, tobacco, canned meats and poultry, for example. Another reassuring aspect, a study of price and wage movements in this country and abroad suggests the competitive posi tion of American industry in world trade may be improving. Since 1953, the consumer price level in the United States has risen much less rapidly than in our principal com petitor nations in international trade. Hourly wages in manufacturing industries, too, ap pear to be increasing at a much slower pace here than abroad, at least as measured in percentage changes. These trends mirror possible inflationary pressures in Western U.S. share in total export trade of selected capital goods items produced by leading industrial countries 1 9 5 3 1 9 5 6 1 9 5 8 ( p e r c e n t) Metal working machinery and machine to o ls ............... 4 3 3 6 3 9 Power generating machinery 2 9 2 7 2 5 Electrical machinery and appliances.............................. 3 3 2 8 2 6 Agricultural machinery and tra c to rs........................... 61 5 5 4 7 Europe and Japan where heavy demand has pushed production to near capacity levels. Reports of increasing shortages of labor and plant capacity in these countries are fre quently heard today. The economic picture in Western Europe and Japan at mid-1960, as described above, contrasts sharply with the American scene where unused capacity exists in a number of our major industries. This idle capacity, along with ample dealer stocks, has prob ably contributed to recent price weakness on such items as steel products, chemicals, con sumer appliances, portable typewriters and electrical apparatus. The evidence of price weakness may also reflect to a certain extent keener competition exerted by foreign sup pliers. Foreign competition, for example, probably was a factor in the 40 per cent price cuts announced recently by major manufacturers of portable typewriters. These developments should help Ameri can producers to hold their own against foreign suppliers in domestic markets, as well as compete more effectively in overseas 13 Federal Reserve Bank of Chicago 14 markets. Moreover, the presence of excess capacity should serve as a strong stimulus to American manufacturers to seek to expand sales abroad so as to help absorb the slack. The Government’s national export expan sion program launched last spring may also be of considerable help to exporters. Briefly, the principal features of the program are: (1) arousing greater foreign trade interest among American business firms by stepping up the trade promotion activities of the Depart ment of Commerce and other Government agencies; (2) improving and enlarging ex isting Government trade services to provide more detailed information to American firms on export possibilities in overseas markets; (3) greater U.S. participation in interna tional trade fairs and trade missions; (4) expanding the role of the Export-Import Bank to include export credit insurance; and (5) accelerating efforts to get foreign gov ernments to remove remaining restrictions and discrimination on American imports. This program has received widespread sup port from business and trade organizations, many of which have begun to urge their own member firms to investigate export possi bilities abroad. Los Angeles and Pittsburgh business groups have started “world trade clinics,” and Chicago has launched a drive to promote area products in Europe. Encouragingly, our export picture has shown a healthy improvement since the second half of 1959. Exports of automo biles, commercial aircraft, industrial ma chinery and steel products are up signifi cantly over last year. The Department of Commerce estimates merchandise exports totaled 9.6 billion dollars for the first half of 1960, up 21 per cent over the first half of last year and not far off the record pace set in 1957 when exports were stimulated by the Suez incident. Meanwhile, merchandise Wages and prices abroad showed larger percentage increases than U.S., 1953-59 per cent, 1953 = 100 imports have risen at a much slower pace— totaling 7.6 billion dollars in the first half of this year versus 7.4 billion in the first half of 1959. Based on these trends, merchandise ex ports for 1960 are now expected to climb to 19 billion dollars, up 2.7 billion over 1959, with imports expected to total 15 billion, about the same as last year. This will pro vide us with an export trade surplus of 4 billion dollars versus only 1 billion in 1959. Largely owing to this marked improve ment in our export picture, Government and interested private sources have scaled down their projections of the U.S. interna tional balance of payments deficit for 1960. Estimates of the deficit now cluster around 2.5 billion dollars compared with a deficit figure of 3 billion projected by the Depart ment of Commerce earlier in the year. Although these are encouraging signs, it Business Conditions, September 1960 merchandising of new products such as the is too early to say the United States has “compact” cars, however, may help to check solved its export and balance of payments this rise in the months ahead. problems. The buoyancy in our export pic As we enter the second half of 1960, the ture during the first half of 1960 reflected outcome of our export picture will depend in part unsustainably heavy shipments of heavily on whether areas of recent strength raw cotton and new commercial jet aircraft show continued improvement. It will also to Europe. Our exports of machinery and depend on whether exports to Canada and steel products, in addition, have undoubtedly Latin America, currently well below 1957 received a further boost from the high level levels, pick up. Pursuance of non-inflationary of business activity in Western Europe. If domestic economic policies will be vital to business activity overseas were to level off our maintaining a strong competitive posi or decline, our exports would probably taper tion in international trade. Success of our off as they did in 1958. national export promotion drive will re The outlook for exports to Latin America, quire unfailing support from the Govern which account for roughly 20 per cent of our total export trade, is clouded by political ment and private groups. Securing further uncertainties and possible balance of pay reductions in tariffs and quantitative im port restrictions needed to facilitate maxi ments problems. A marked decline in basic commodity prices since the Korean War, mum international free trade will require plus a slowdown in United States private the cooperation of the rest of the free investment, contributed to a steady diminu world. tion of Latin American foreign exchange reserves which, in turn, seriously impaired the region’s ability to finance imports. Re Growth in exports of principal industrial flecting these developments, our countries was greater than fo r the U.S., 195 3-59 exports to Latin America fell from 4.6 billion dollars in 1957 per cent in crease to 3.5 billion in 1959, or 23 per cent. This downward trend has Japan continued through the first quar W est ter of 1960. G e rm a n y On the import side, despite a It a ly leveling off of total imports, the inflow of finished manufactured N e th e rla n d s goods still displays a tendency to increase. In the first quarter of F ra n c e 1960, imports of finished manu a ll factured goods amounted to 1.4 c o u n trie s billion dollars, up 24 per cent B r it a in over the first three months of 1959. Recent price cutting by American firms and aggressive Federal Reserve Bank of Chicago Loan ratios n s© f Ul \ I ) ©I FEDERAL R E S^ i*B A N K G i* S T . o per cent of total deposits 60 i960 $Fp 21 prf 2 o utside Chicago the midyear call date, total loans of all Seventh District member banks amounted " '"111 __ • r ^ ** y A f ift H (i i to 49 per cent of their aggregate deposits, ■• 1 r u. compared with 44 per cent a year earlier. Indiana 60 This higher ratio of loans to deposits re flected a 15 per cent expansion in loans, coupled with a gain of only 4 per cent in deposits. However, the loan rise was con centrated in the latter half of 1959. The first six months of 1960 saw little further loan growth, while deposits declined somewhat. Although increases in loans were quite Iowa general, ratios of loans to deposits for various 60 groups of banks continued to be spread over a wide range and were even more diverse, of course, for individual banks. The ex 40 tremes were in the city of Chicago, where loans at midyear averaged nearly 60 per 30 cent of deposits at the largest banks but were well under 40 per cent at most of the Michigan smaller institutions. 60 In general, loan ratios tend to be higher 50 in the major cities than in other areas and at large banks as compared with smaller ones. In Michigan, however, ratios of even the smaller country banks exceeded those in Detroit. The high ratios at Michigan country banks can be explained, at least in Wisconsin part, by the relative importance of time 60 deposits, which are mainly channeled into mortgages. Only in Michigan did loans at banks outside the major cities average more than half of deposit volume. City banks show the greatest impact of 30 cyclical variability in loan demand—falling most in recession years and advancing faster in periods of rising activity. p 16 .. J p P P S o s t t m Chicago (under 2 0 0 ) t outside Indianapolis over 15 u nd er 15 o utside Des Moines over 15 under 15 outside D e tro it o ve r 15 under 15 M ilw aukee outside M ilwaukee o v e r 15 ^ u n d e r 15 1958 1959 june call dates I960 * deposit size in millions
@FedFRASER