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AUGUST 1951
T H E
BUSINESS
REVIEW
FEDERAL
RESERVE
BANK
OF
PHILADELPHIA
CONSTRUCTION AND MORTGAGE FINANCE
UNDER PARTIAL MOBILIZATION
^winrg--.
in.mi'
Korea has created many uncertainties
for builders and mortgage lenders,
but one thing is still clear:
when resources are being fully utilized
excessive demand raises prices.
The problem in construction
is to divert resources
from civilian to defense needs
and to restrict nonessential demands.
The problem has been approached
through reduction of demand for construction,
mostly by regulating credit,
and through curtailment of supply
by materials controls and limitation orders.
Activity is still high, however,
even though the biggest segment
of the industry housing
has declined more than one-third.
It is likely that the near future
will be much like the recent past.
In most respects the atmosphere
appears favorable to a continued
high over-all level of construction
and mortgage lending activity.
—
—
THE MONTH’S STATISTICS
Business trends in the Third District
were relatively stable in June.
Production and employment were unchanged,
department store sales advanced slightly and
contract awards for construction declined.
THE BUSINESS REVIEW
*
CONSTRUCTION AND MORTGAGE FINANCE UNDER PARTIAL MOBILIZATION
Ever since the outbreak of fighting in Korea over a year
ago the construction and mortgage financing industries
have been functioning in an environment of partial mo
bilization. They have been operating under several kinds
of restraints, some encouragements, and many uncertain
ties. Peace in Korea, although it might affect the defense
program, would not remove the condition of partial
mobilization which has produced these restraints and
uncertainties.
In a sense, however, the Korean situation has made
clear once again, that so long as resources are being fully
utilized excessive demand, supported by credit, will cause
an inflationary spiral. This principle failed to receive the
attention it deserved during the post-war period. In each
successive year following World War II, construction
activity rose; but so did building costs—except, in some
cases, for a slight dip in 1949. Into the short period
between the end of World War II and the beginning of
the Korean conflict were packed huge accumulated de
mands of business, Government, and individuals for a
limited supply of labor and materials. Business spent
over $23 billion for new construction; Government paid
out about $21 billion for new roads, hospitals, schools,
and all sorts of public facilities; and individuals bought
$33 billion worth of new dwellings.
Many factors were responsible for the huge post-war
demands. Much of the demand by industry and Govern
ment represented plans which had to be postponed dur
ing the war. In the housing field, building had been low
all through the 1930’s and the war years; this, compared
with an accelerated rate of family formation and high
incomes, produced a severe housing shortage. National
housing policies to alleviate the shortage were a large
contributing factor in the rising volume of construction
activity and prices. Estimating a need for the construc
tion of more than one million new houses annually for
many years, Congress took steps through public housing
projects to assure better living conditions for low-income
families. Liberal credit was encouraged through loan
Page 2
guarantee and insurance to increase the supply of rental
housing and to make it easy for veterans and others to
buy homes. When the flow of mortgage money slowed,
a substantial volume of funds was put into the secondary
market by the Federal Government through the Federal
National Mortgage Association. With these encourage
ments, the volume of outstanding home mortgage debt
rose from $19 billion at the end of 1945 to $42.6 billion
in mid-1950.
The Korean crisis meant that large expenditures would
be needed for defense and that civilian expenditures would
have to be curtailed. Resources would have to be diverted
from civilian construction to defense activities. The prob
lem of restricting construction has been approached in a
wide variety of ways, both through reduction of the
demand for construction by cutting the demand for and
the supply of credit, and through curtailment of the
supply of construction through materials controls and
‘
limitation orders.
RESTRICTING DEMAND
By its very nature the construction process requires large
amounts of credit. As a result, the demand for construc
tion is especially sensitive to the quantity of credit avail
able and the terms on which it can be obtained.
Regulation X
Regulation X and its companion restrictions in the Gov
ernment-insured and guaranteed field, work on the de
mand for credit in the sense that they set up certain re
quirements which borrowers must meet to get loans.
Basically, they provide that borrowers must raise a certaih proportion of the cost of property out of their own
resources and must pay off the borrowed portion in instal
ments over a given period. The higher the down payment
requirement and the shorter the maturity requirement
I the latter increasing the necessary monthly payment),
the greater the restriction on demand.
These requirements tend to reduce demand in a num-
i
<
THE BUSINESS REVIEW
ber of ways. Some people are forced to buy smaller
homes than they might have been able to buy under
easier credit terms. Others, not satisfied with the type of
home they could obtain, or preferring to spend on other
things, cancel their plans completely and leave the hous
ing market. In either case the pressure on scarce materials
is lessened. At the same time the amount of credit ex
tended is less than would have been the case under more
liberal financing terms, and repayment of debt is faster.
It is unfortunate but true that the credit regulations—
if they are effective at all—must prevent some people
from having a new home who otherwise, under easier
terms, might have been able to buy. The important point
is that they are designed to achieve this end through
equitable means rather than, in the case of inflation, hit
ting hardest those least able to stand it. It is also true
that no credit restrictions can affect those financially able
to pay, if necessary, 100 per cent cash. This is one of the
areas in which credit regulations need an assist from
other types of control, such as a limitation order on lux
ury housing.
Real estate credit restrictions have been in effect for
more than a year. In July 1950, steps were taken to in
crease down payment requirements by five percentage
points on FHA and VA guaranteed loans. For purposes
of computing loan amounts, July 1 costs were required,
necessitating an additional cash payment by the bor
rower to the extent of cost increases after July 1. These
restrictions remained in effect until October 1950, when
Regulation X was issued by the Board of Governors
under authority of the Defense Production Act of 1950,
applying to non-Government-aided financing — the socalled conventional” loans—on new one- and two-family
houses and major additions or improvements to existing
structures. At the same time, restrictions were applied to
FHA insured loans and, with an allowance for veterans
preference, to VA guaranteed loans. In January 1951, the
restrictions were extended to financing of structures of
three-or-more family units, and in February to financing
of certain kinds of nonresidential structures.
The terms required by the regulations vary with the
type and value of the structure involved, but the restric
tion which has proved to be of greatest concern to most
people is the down payment requirement for single-family
homes. This rises gradually from 10 per cent for houses
valued at $5,000 to 50 per cent for houses valued at
$25,000 or more. A survey by the Bureau of Labor Sta
tistics of the Philadelphia-Camden metropolitan area in
dicated that down payments for new single-family houses
completed in the latter part of 1949—that is, under pre
Regulation X terms—averaged about 20 per cent. A large
proportion of the lower-priced houses, however, were
bought with no down payment at all or with less than
10 per cent.
Per cent of houses bought with
initial down payment of:
Price
Total
All houses.......... ...100
Under 18,500 ....
$8,500-110,499 ... ...100
$10,500-112,499
...100
$12,500-and over . ...100
0
1-5%
33
57
46
7
13
15
18
6
6-10% 11-25%
7
13
5
6
8
21
6
18
42
22
Over
25%
26
8
13
40
69
There is no way of knowing how many of those mak
ing small down payments could have met the stricter
terms required by Regulation X, but it is reasonable to
assume the restrictions would have cut out of the market
some families which were able to buy only on very easy
terms. A survey recently completed for the Federal Re
serve indicates that about one-fourth of those who bought
homes last winter on pre-Regulation X terms had remain
ing liquid assets averaging about $1,000 each; and about
one-tenth had liquid assets totaling $2,000 or more left
over.
One advantage of selective credit regulations of this
type is their flexibility in adjusting to different needs.
For example, the percentage down payment required
can be made larger as the value of the home increases
so that the regulation will have a relatively equal impact
upon all income groups. There are indications that some
shifts toward larger and higher-priced construction and
toward the purchase of relatively more homes by those
in the higher income brackets have occurred recently.
Proposals have recently been made in Congress to limit
the down payments required on loans guaranteed by the
Veterans Administration to 6 per cent in the case of homes
costing up to $12,000; on other loans down payment re
quirements would be limited to 10 per cent on homes
costing under $10,000. These proposals were not adopted
in the extension of the Defense Production Act, but ap- '
parently will be considered again in connection with the
defense housing bill. If any undesirable shifts in the
composition of construction occur, the regulations can
readily be changed to correct them. It is clear, though,
Page 3
THE BUSINESS REVIEW
that to be effective the regulations must restrict, and that
they are apt to be felt most in the area where terms had
been easiest. The aim of the regulations is to make the re
quirements effective enough to achieve their over-all ob
jectives, and at the same time keep the impact as equitable
as possible.
Another illustration of the adaptability of the regula
tions to different circumstances is the relaxation of credit
restrictions in defense areas. After intensive analysis
has been made of the nature of defense work, the avail
able housing supply, and the need for additional housing,
an area may be designated a critical defense area for
housing purposes. The Board of Governors and the Hous
ing and Home Finance Administrator may then relax the
credit restrictions to the extent necessary to facilitate the
needed new construction. To date the restrictions have
been relaxed for more than 23,000 dwelling units. This
careful procedure, while slower and less liberal than some
would like, has nevertheless been orderly and has been
successful in minimizing the inflationary impact of de
fense housing.
Open Market Policy
In contrast to Regulation X, the Federal Reserve’s gen
eral credit policies affect construction demand principally
through the supply of credit rather than demand for credit.
A basic problem confronting the Federal Reserve System
during the post-war period was its inability to take suffi
ciently effective steps through its general credit policies to
tighten the availability of credit, so long as the Federal
Reserve supported Government securities at fixed prices.
In effect this policy meant the System stood ready to pro
vide cash on demand and at fixed prices to holders of
marketable Government securities. Lenders availed them
selves of this opportunity to sell Governments and make
mortgage and other kinds of loans. The volume of funds
going into the home mortgage market thus was consid
erably in excess of the flow of savings into lending insti
tutions. During 1950, three of the largest institutional
lenders combined — life insurance companies, mutual
savings banks, and savings and loan associations put
roughly 70 per cent of their funds into mortgages. Al• most one-fourth of their funds available for investment
in all types of assets was derived from the liquidation of
Government securities.
The effect was doubly inflationary. In the first place,
the excessive flow of credit made it possible for many
Page 4
families to enter the housing market, converting a large
potential demand to effective demand at a time when the
supply of resources for housing was limited. In the sec
ond place, the sale of Government securities to the Fed
eral Reserve created additional bank reserves on the basis
of which more loans could be made and deposits—which
continued to be spent and respent—expanded.
Following an accord in March between the Federal
Reserve and Treasury authorities, prices of Government
securities no longer have been maintained at fixed levels
and in some instances have gone below par. Lending
institutions now are more reluctant to sell Government
securities to make mortgage loans, partly because the
rate spread between Governments and mortgages is no
longer so attractive, but mostly because they are not will
ing to sell at a capital loss.
This change in policy has been a major factor con
tributing to a tightened supply, some would say short
age”, of mortgage funds. The concept of shortages is
a relative thing, however; the supply is “short” only
when compared with the huge demand. In reality, the
Federal Reserve’s action has tended to restore a more
natural situation in which the demand for mortgage
money is met from funds which lending institutions ob
tain from their inflow of savings and repayments of loans,
and this is still a large volume judged by anything but
boom standards. It is true, however, that the new open
market policy came at a time when lenders were heavily
committed to make mortgage loans. This combination of
circumstances has reduced the supply of mortgage funds
and the selling prices of FHA insured and VA guaranteed
mortgages. Yet, the supply of funds has not “dried up,”
as is sometimes stated, and should be in better balance
with demand as lending institutions absorb their back
commitments, as the volume of savings increases, and
as the demand for construction is curtailed.
In the meantime, it is possible that some shifts in the
nature of the mortgage market may take place. In view
of the fixed low interest rates on FHA and \ A mortgages,
a greater proportion of financing may be done on a con
ventional basis in the months ahead. There may also be
a tendency toward a greater share of lending to be car
ried on by the savings and loan associations which ordi
narily make a larger proportion of conventional loans
than other lenders and which are little affected by changes
in the Government bond market. Neither of these tenden
cies yet has been reflected in available data.
THE BUSINESS REVIEW
Voluntary Credit Restraint
Another method of restricting credit for construction and
real-estate purposes has been through the recommenda
tions of the Voluntary Credit Restraint Committee and
the numerous regional subcommittees established pur
suant to the Defense Production Act of 1950. In April,
the Committee issued a bulletin calling for restraint in
financing certain kinds of business capital expenditures.
“Among the non-essential uses of long-term financing
that in the judgment of the Committee might be post
poned to a more propitious time are those for such pur
poses as (1) construction of facilities to improve the
competitive position of an individual producer of non
essential goods, (2) expansion and modernization ex
penditures of concerns in distributive or service lines
where the distribution or service is not defense support
ing! (3) expansion and modernization programs for the
manufacture of consumer goods not related to the de
fense effort.”
In May, the Committee recommended careful screen
ing of loans, including those for construction purposes,
to state and local governments. At the same time Defense
Mobilization Director Wilson requested public bodies
to submit financing of $1 million or more to the regional
committee for a ruling as to conformance with the VCR
program before negotiation for private sale or advertis
ing for public sale.
Inasmuch as Regulation X applies only to the conven
tional financing of new construction, the Committee has
requested that lenders pursue conservative policies in
the financing of existing properties. Loan values on exist
ing one- to four-family homes are to be no more liberal
than those allowed under Regulation X for new homes.
Since most loans on existing properties were Usually made
for about two-thirds of appraised value, this would mean
a tightening in the case of higher-priced homes. On multi
family, commercial and agricultural properties (unless
the latter involves a residence), the Committee recom
mends that loans be limited to two-thirds of the fair value
of the property and should be amortized.
“Fanny May”
Still another potential source of funds—the Federal Na
tional Mortgage Association—is under close observation.
When the supply of mortgage money tightened a few
years ago and generated pressure to increase the rate
on VA mortgages, the restrictive consequences were over
come by means of “Fanny May” advance commitments.
By obtaining advance commitments from “Fanny May”,
builders and construction lenders were assured that per
manent financing would be forthcoming; in effect, they
obtained funds directly from the Government. FNMA pur
chases of VA mortgages rose sharply and in March 1950
monthly purchases reached $95 million. The Housing
Act of 1950, approved shortly thereafter, prohibited ad
vance commitments and after the outbreak of fighting in
Korea the President directed that “Fanny May” limit pur
chases and increase sales as much as possible. Sales have
begun to reflect the tighter situation in the mortgage mar
ket, dropping from $16 million in May to $3 million in
June. Sales may be facilitated, however, by the recent
announcement that FNMA will sell at par; and purchases
will be held down by the requirement that mortgages be
held by the originator for at least 60 days before they
are eligible for sale to “Fanny May” and by the fact that
mortgages insured or guaranteed before March 1, 1951
are no longer eligible for “Fanny May” purchase. FNMA
still has over $1 billion available for purchases but $350
million of this amount has been set aside to facilitate con
struction in defense areas from which the 60-day wait
ing period has been removed.
Accelerated Amortization
The relaxation of credit restrictions for defense purposes
is one way of encouraging construction for a specific pur
pose while pursuing a policy of general restraint. Allow
ing accelerated amortization for tax purposes is another
approach. Upon the approval of the Defense Production
Administration, businessmen may write off in five years
a certain percentage of the cost of plants and facilities.
Thus in the case of facilities which may be of little value
in peacetime, construction costs can be recovered much
more rapidly and there is a possibility of tax savings if
the tax rates are reduced in the future. By mid-July about
$8 billion worth of certificates had been issued involving
about 2,700 projects. More than three-fourths of the total
value represented plants producing and processing basic
materials.
RESTRICTING SUPPLY
While credit has been the principal instrument for re
stricting the demand for construction, the supply has
been curtailed through direct controls over materials and
by limitation orders.
THE BUSINESS REVIEW
NPA Order M-4
The most direct method of cutting unnecessary construc
tion, of course, is simply to prohibit it. In October 1950,
the National Production Authority issued its order M-4
which prohibited the construction of specified amusement
and recreation facilities. It later also required approval
for the construction of various types of commercial struc
tures. To be approved, a project must be necessary to
the defense effort; essential to public health, welfare or
safety; or necessary to alleviate or prevent a hardship
in a particular community. In May, the limitation order
was amended to require authorization for the construc
tion of “luxury” houses costing over $35,000 (later
amended to 2,500 square feetl, apartment buildings with
more than three floors and basement, and projects using
over 25 tons of steel. Early this month, Order M-4 was
replaced by Order M-4A which, in effect, put the limita
tion order on a materials-use basis. Generally speaking
the new order requires authorization for commencement of
any types of construction involving the use of more than
specified amounts of steel, copper and aluminum.
Materials Controls
When there are not enough materials to satisfy both large
civilian demands and defense needs, one way of bringing
about an adjustment is to reduce by various means al
ready described, non-essential demands to meet available
supply. Another is to allocate the supply of scarce mate
rials directly to essential purposes.
Until recently, scarce materials were channeled by a
priority system. Manufacturers engaging in essential pro
duction were given priority, or “DO” ratings which gave
them preference in securing needed materials. Industry
was limited in the amount of essential materials such as
steel, copper and aluminum which might be used in the
manufacture of non-essential products. The Controlled
Materials Plan which supplanted the priority system on
July 1 is now applicable, on a voluntary basis, to con
struction, but NPA has recently announced that CMP
will be mandatory in the last quarter of the year. With
some exceptions, builders using more than the specified
amount of critical materials must apply for allocations,
while builders using less than these amounts may selfauthorize their orders for materials. The materials con
trols and the limitation order have thus, in many respects,
been merged, authorization and allotments going hand
in hand.
CONSTRUCTION AND MORTGAGE TRENDS
The trends of construction and mortgage activity since
Korea are influenced by all of the above policy actions
and it is impossible to untangle the effects of specific
VALUE OF CONSTRUCTION PUT IN PLACE
BILLIONS
BILLIONS
MONTHLY AVERAGE
CONSTRUCTION
FECE
STATE AND
.CCAL*
.TOTAL ,
PRIVAJtj
wmm
OTHER
PRIVATE
RESIDENTIAL
NONFARM
1945 ”46
'47
'48
'49
'50
* INCLUDES PUBLIC RESIDENTIAL CONSTRUCTION
SOURCE DEPARTMENT OF LABOR
policies. During the first six months of this year, the
volume of building activity in the Third Federal Reserve
District, as indicated by contract awards, was one-fourth
above that of a year ago. That this was close to the na
tional expansion is revealed by the fact that awards in
37 Eastern states showed a gain of 29 per cent. Experi
ence has been far from uniform throughout the District,
however. In the first six months of this year compared
with the same period last year, changes ranged from an
increase of 159 per cent in Northampton County to a
decline of 22 per cent in Cumberland County.
CONSTRUCTION CONTRACTS AWARDED
Area
Percentage Change
First half 1951
from
year ago
Northampton County............................ .................. +159
.................. +30
.................. + 9
....................
8
Philadelphia (city) ............................ ....................
....................
....................
....................
- 3
- 15
- 17
- 22
THE BUSINESS REVIEW
These data reflect inflation in costs and prices as well as
changes in the number of units. Nationally, construction
cost increases were most rapid in the eight months follow
ing Korea, but since February they have been generally
stable at high levels. The two main items in building costs
are materials and labor. As the chart shows, wholesale
prices of building materials rose rapidly last summer but
leveled off subsequently and have been quite stable so far
this year. The various types of materials have behaved
PRICES AND WAGES IN CONSTRUCTION
efforts on building for defense at the expense of satis
fying the public’s demand for houses.
Home building, the back-bone of the post-war con
struction boom, not only has become a less important
segment of the industry, but has also declined in absolute
physical terms. Through July of this year, 670,000 new
dwelling units were started, compared with 849,000 during
the comparable period of 1950. As can be seen in the
following table, the decline in total starts has been increas
ingly severe except for June, and privately financed starts
show a progressive decline through July.
INDEX
DOLLARS
NEW PERMANENT NON-FARM DWELLING
UNITS STARTED
WHOLESALE PRICES OF
BUILDING MATERIALS
CSCALE AT LEFT)V^
Total
2.25
T hoiis.
of units
5
AVcmhPS.JS?UCONSTRUCTION IN
LY earnings
BUILDING
2.00
CSCALE AT RIGHT)
1950
1.75
quite differently. Lumber, which rose very substantially
after the war, has not yet regained the peak reached last
September. Since Korea the biggest increases have been re
corded by paints (+ 20 per cent) and by plumbing and
heating supplies f-f- 18 per cent). Cement, brick and tile
have risen less and are now hovering near the high points
attained early this year. Labor costs have not risen as
much as materials prices, but have increased without
interruption. In May the average hourly earnings of
building construction workers stood at $2.18 or 9 per
cent higher than the wage prevailing in mid-1950.
While the total dollar volume of construction put in
place is now about one-seventh greater than last year, the
over-all figure fails to reflect shifts in the type of buildmg principally a more rapid growth in industrial and
public non-residential construction and a decline in pri
vate residential. For the first half of 1951, industrial and
public non-residential building registered gains of 109
and 50 per cent respectively over the corresponding
period last year, while residential activity declined 1 per
cent. This reverses the trend prevailing during the post
war period when residential building was the most rap
idly growing segment of the industry. In other words,
the construction industry is concentrating more of its
1951
Jan.
Feb.
Mar.
Apr.
May
June
July
Privately Financed
% Change
from. 1950
.... 86
Thous.
of units
% Change
from 1950
...81
...94
.... 96
...97
... 130
...86
+ 9
— 2
—20
—28
—35
—10
—40
82
77
90
92
94
88
83
-{. 5
— 6
22
30
—36
—39
—41
670
—21
606
—28
In the early part of the year activity remained high as
the large backlog of pre-Regulation X commitments, esti
mated to involve some 400,000 housing units, was being
worked off. The credit restrictions gradually became ap-
H0USING STARTS
THOUSANDS
THOUSANDS
1950
1947
J
F
M
A
M
J
SOURCE: DEPARTMENT OF LABOR.
SON
Page 7
plicable to a larger proportion of construction activity
and some builders report that the restrictions are now
having their full effect.
In the Philadelphia area the decline in housing starts
has been more severe than in the country as a whole.
During the first five months of the year starts locally
were one-third below a year ago, compared with onefifth nationally. One reason for the difference may be
able availability of materials and the inflationary outlook.
Such a volume of activity would constitute a decline of
about 40 per cent from the peak year 1950. Because of
the high level of activity earlier in the year, it would
be necessary for starts in the last five months to decline 67
per cent below 1950 in order to achieve the goal for the
entire year. While this might be possible, it would be im
possible for starts in the last five months to be enough
that relatively less pre-Regulation X commitments were
obtained at the last minute by builders in this area with
the result that the impact of the regulations was felt
sooner. At any rate, this is a reversal of the post-war
trend in which Philadelphia had experienced an excep
tional rate of home building compared with the United
States as a whole. A spot check of representative local
real estate men indicates that sales of existing properties
are also below the level of a year ago.
Despite the various efforts to restrict the expansion
of real estate credit, the volume of lending is still increas
ing, although not as rapidly as last year. Non-farm mort
gage recordings during the first five months of the year
were 15 per cent greater than in 1950. In the Third Dis
trict the volume of residential mortgage loans of member
banks rose 5 per cent in the first half of this year com
pared with 7 per cent during the first half of last year.
Contrary to expectations, there has not yet been a major
shift away from financing with FHA insurance or VA
guarantee toward conventional lending; the proportions
of housing starts accounted for by the three methods of
financing have changed very little. Recent data on FHA
and VA activities at the processing stage, however, may
provide a clue as to developments in the near future.
THE OUTLOOK
The figures on applications for FHA insurance and fo,
VA appraisal requests reflect at an early stage building
projects underway or to be started. In the case of FHA
financing of new houses, applications so far this year have
been two-fifths of a year ago. VA appraisal requests are
off even more, approximating one-fourth of last year.
It is largely on the basis of these figures that some ob
servers are forecasting total starts in 1951 of less than
850,000 units. The official figure established last October
as a suitable volume of housing starts for the year 1951
was between 800,000 and 850,000 units, approximately the
same as the 1947 volume. This target was set in the light
of the best information available at that time of the prob
Page 8
VA AND FHA NEW HOME ACTIVITY
VA APPRAISAL REQUESTS
THOUSANDS
OF UNITS
THOUSANDS
OF UNITS
(monthly)
(monthly}
FHA APPLICATIONS
1950
below a year ago to reduce the total volume of starts to
700,000—a level which some have predicted. At any rate,
there is nothing sacred about a figure of 850,000. If chang
ing circumstances warrant, the target could be revised,
perhaps to a current rate rather than a calendar year basis.
The Director of Defense Mobilization has indicated
that the volume of housing activity in 1952 should be
about the same as in 1951. “After allowing for the in
crease in military and defense construction, and for the
volume of essential civilian construction, the total volume
in all categories in 1952 may approximate in physical
terms about 80 per cent of the volume of construction
performed in 1950. In some categories of course, as utili
ties, the volume may not be far from what it was in 1950.
In others, such as public, industrial and military, it will
be far above what it was in 1950, and in still others,
such as housing, it should be below 1950 but not below
THE BUSINESS REVIEW
1951 levels.” Thus, barring any major international de
velopments, it is likely that the near future will be much
like the recent past. A spot check of local builders, lend
ers and real estate men seemed to suggest that their think
ing also is along these lines. Prices and costs, according
to those interviewed, are generally expected to remain
fairly constant, materials (with the exception of certain
metals) will not be so tight as to hamper activities, and
the shortage of mortgage funds—which many observers
indicate has been a stronger force than Regulation X—
should begin to ease somewhat by the end of the year.
In most respects the atmosphere will be favorable to a
continued high over-all level of construction and mortgage
lending activity.
Additional copies of this issue are available upon request.
PEN
THE THIRD FEDERAL
RESERVE DISTRICT
Page 9
THE BUSINESS REVIEW
CURRENT TRENDS
Trends in commercial and financial activity in the Third Federal Reserve District during June were comparatively stable,
with most business indexes showing little or no change.
Physical output of Pennsylvania manufacturing plants remained at the previous month’s level, although firms making
nondurable goods continued to curtail operations. With the June reduction, activity in factories producing soft goods fell
below that of a year ago for the first time since April 1950. Factory employment was also unchanged during the month
despite the adverse effects of the nondurable cutback. A number of firms reported that they were compelled to lay off
workers because of material shortages or conversion to defense production.
Department store sales rose somewhat during the month but failed to show anincrease over a year earlier for the
first time in thirteen months. The various soft goods lines, such as apparel, made a better showing than hard lines in
year-ago comparisons of sales. Preliminary figures indicate that July’s volume will be considerably beneath that of
last year when fighting in Korea precipitated a wave of consumer buying.
Building activity, as reflected by construction contract awards, declined in June but still showed considerable vital
ity. Residential and public works and utilities construction continued below 1950 levels, but nonresidential activity, sus
tained by the boom in the industrial field, recorded a gain of 144 per cent.
The cost-of-living index in Philadelphia was virtually unchanged for the fourth consecutive month. A slight increase
in fuel prices was offset by declines in housefurnishings and miscellaneous items.
Loans at Third District reporting member banks rose fractionally in the 5 weeks ending July 25. During the 4 months
from the end of 1950 to April 25, 1951 total loans increased by 8 per cent, whereas in the 3 months through July 25
loans have risen by only about one-half of one per cent.
For the country as a whole, loans at reporting member banks were down somewhat in the June 20 to July 25 period.
Total loans rose by almost 3 per cent in the first four months of the year, but the increase for the three months ending
July 25 was less than one-half of one per cent.
Third Federal
Reserve District
SUMMARY
United States
Per cent change
Per cent change
6
mos.
1951
from
year
ago
mo.
ago
6
mos.
1951
from
year year
ago
ago
0* + 10* + 15*
— 3 + 15 + 27
+5 - 9 - 6
0
+1
+4
+ 11
+ 32
- 4
June 1951
from
mo.
ago
OUTPUT
Manufacturing production. .
Construction contracts..........
Coal mining..............................
EMPLOYMENT AND
INCOME
Factory employment.............
TRADE**
Department store sales.........
Department store stocks....
BANKING
(All member banks)
Deposits.....................................
Loans..........................................
Investments.......... .. ................
U. S. Govt, securities.........
year
ago
OTHER
Check payments......................
Page 10
LOCAL
CONDITIONS
+ 18
+ 28
+ 11
Payrolls
Sales
Stocks
Per cent
change
June 1951
from
Per cent
change
June 1951
from
Per cent
change
June 1951
from
Per cent
change
June 1951
from
mo.
ago
mo.
ago
year
ago
year
ago
Per cent
change
June 1951
from
mo.
ago
year
ago
+2
-1
+i
+2
0
0
+1
0
+ 29
+ 3
+ 24
-10
-13
+ 4
+ 9
+ 4
+ 26
- 9
-12
+ 6
Ot + 91 +1 n
-1
+1
+ 6
+ 6
+ 16
+ 10
0
-3
+i
+i
+i
+i
+i
1
0
+3
+ 8
+ 1
+ 28
+ 6
+ 24
- 8
-12
+ 14
+ 15
+ 9
+ 13
year
ago
mo.
ago
year
ago
+20
+ 2
+ 40
+ 1
+ 9
-16
— 1
-17
+ 14
- 2
+ 13
+ i
0
mo.
ago
+ 10
+ i
+ 25
+ 2
+ 34
+ 10
+ 11
+ 34
- 2
+ 10
+ i
+ 8
+ 3
+ 21
-8
+2
- 7
+21
- 4
+ 9
Philadelphia...................... - 1
0* + 8* + 11*
0* + 23* + 28*
•Pennsylvania
.
♦Adjusted for seasonal variation. fPhiladelphia
June 1951
from
Check
Payments
Employ
ment
+ 1
PRICES
Consumers................................
Department Store
Factory*
+ 10
+ 1
+ 23
-5
-1
- 9
+ 30
- 3
+ 3
- 4
+ 1
- 5
+ 10
-5
+1
-10
+ 28
- 2
+ 10
0
1
+ 3
+ 6
+ 10
+ 13
+ 12
+ 9
Lancaster..........................
+ 6
+ 26
- 8
-12
+ 17
+ 19
+ 10
+21
Reading..............................
-5
-2
-10
+26
- 4
+ 2
-7
-8
- 7
+ 26
+ i
+ 10
0
- 3
+ 10
+ 12
_ y
+ 25
+ 4
+ 19
0
+ 8
- 1
+ 19
+ 20
+ 20
York.................................... + 2
0
+ i
+ 12
-15
- 2
Wilkes-Barre.....................
- 3
.......
Wl •
l
-6
+i
- 13
+ 20
♦Not restricted to corporate limits of cities but covers areas of one or more counties.
THE BUSINESS REVIEW
MEASURES OF OUTPUT
EMPLOYMENT AND INCOME
Per cent change
June 1951
6 mos.
from
1951
from
month
year
year
ago
ago
ago
MANUFACTURING (Pa.)....................
Durable goods industries.........................
Nondurable goods industries..................
0
0
- 1
+ 10
+ 19
1
+ 15
+24
+ 4
Foods.......................... .
Tobacco..............................
Textiles.............................
Apparel.................................
Lumber...............................
Furniture...................................
Paper...............................
Printing and publishing.........
Chemicals..................
Petroleum and coal products.................
Rubber............................
Leather............................
Stone, clay and glass......................
Primary metal industries........
Fabricated metal products ...........
Machinery (except electrical)...............
Electrical machinery....................
Transportation equipment . .
Inslruinent.9 and related products. . .
Misc. manufacturing industries.
+ 4
+ 5
- 6
- 2
-13
- 2
- 2
- 2
+ 4
0
+ 7
- 1
+ 2
0
0
0
- 2
+ 1
0
+
+
(1
3
12
3
6
22
6
1
12
2
18
1
12
18
24
22
22
23
34
21
+ 2
+ 4
- 1
+ 3
+ 2
- 6
+ 12
+ 1
+ 14
+ 4
+ 27
+ 2
+ 16
+ 23
+ 33
429
423
+ 27
436
424
COAL MINING (3rd F. R. Dist.)*
*
Anthracite...................
Bituminous................
+ 5
+ 4
+ 12
9
10
- 1
— 6
+ 21
CRUDE OIL (3rd F. R. Dist.)** ....
- 5
-
4
+ 2
CONSTRUCTION — CONTRACT
AWARDS (3rd F. R. Dist.) f...........
Residential.......................
Nonresidential................
Public works and utilities..............
-
3
3
2
6
+
_
_
_
+
+
4
+
+
+
4
+
+
+
-I- 15
- 17
4-14.1
- 57
+ 17
-33
*U.S. Bureau of Mines.
** American Petroleum Inst. Bradford field.
fSource: F. W. Dodge Corporation. Changes computed from
3-month moving averages, centered on 3rd month.
Pennsylvania
Manufacturing
Industries*
Indexes
(1939 avg. =100)
Err ployment
June
1951
(Index)
All manufacturing. .. .
Durable goods
industries...............
Nondurable goods
industries.................
Per cent
change
from
mo.
ago
mo.
ago
year
ago
1951
397
0
+ 23
$63.87
June
1951
+ 13
$1.59
%
chg.
from
ago
+ 8
170
0
+ 16
465
+ i
+ 32
70.37
+ 14
1.71
+ 12
|
308
0
+ 8
53.99
+ 9
1.40
+ 9
+ 4
+ 12
+ 12
+ 5
+ 6
+ 7
+ 8
+ 3
+ 9
1.36
.92
1.37
1.14
1.11
1.24
1.47
+ 10
4 8
+ 10
+ 8
+ 10
+ 5
+ 9
109
0
+ 6
+ 12
+ 3
148
+ 1
-11
- 1
117
152
- 1
0
159
244
86
+ 3
304
430
1
144
- 1
0
+ 6
+ 23
73.31
67.33
+ 7
+ 10
1.87
1.59
4 6
+ 10
+ 10
+36
83.04
76.28
46.01
+ 9
414
+ 8
1.99
1.81
1.22
+ 8
+ 14
+ 9
- 1
0
0
+ 12
364
+ 2
-18
+ 15
1 .»
+ 5
+ 2
147
- 1
- 3
- 5
-20
56.40
33.61
50.97
39.76
44.82
52.93
62.93
425
64.39
+ 13
1.62
+ 12
+ 3
90
75
Printing and
publishing..............
Chemicals...................
Petroleum and coal
Fabricated metal
products....................
Machinery (except
electrical)..................
Electrical
machinery................
Transportation
equipment................
Instruments and
related products. . .
Misc. manufacturing
industries.................
%
chg.
from
year
ago
change
from
0
161
Primary metal
June
1951
year (Inago dex)
Average
Hourly
Earnings
140
Tobacco......................
Leather.....................
Stone, clay and
Average
Weekly
Earnings
Payrolls
+ 32
77.63
+ 15
1.92
+ 12
- 1
185
0
+ 19
512
0
+ 38
65.85
+ 16
1.58
+ 12
246
+ i
+ 19
688
0
+ 34
71.00
+ 13
1.65
+ 11
264
- 2
+ 21
626
+ 1
+ 38
66.44
+ 14
1.61
+ 12
0 +24
440
- 1
435
75.16
+ 9
1.88
+ 9
166
189
+ i
+ 27
567
+ 1
+49
68.30
+ 17
1.62
+ 12
150
+ i
+ 20
390
0
+ 32
53.26
+ 10
1.28
+ 10
♦Production workers only.
TRADE
Per cent change
Third F. R. District
Indexes: 1935-39 Avg. =100
Adjusted for seasonal variation
SALES
Department stores..................
Women’s apparel stores........
Furniture stores..............
STOCKS
Department stores..................
Women’s apparel stores.............
Furniture stores..........
June
1951 June 1951 from
(Index)
month
year
ago
ago
285
230
+2
+7
— 9*
+ 29
+ 20
432*
ended
ended
ended
ended
ended
Third F. R. District
255
July 7
July 14
July 21
July 28
Aug. 4
Per
cent
change
from
year
ago
+ 21
- 2
-15
-21
Main store total......................
Piece goods and household textiles. . .
Small wares.....................
Women’s and misses’ accessories........
Women’s and misses’ apparel
Men’s and boys’ wear. . .
Housefurnishings..............
Other main sLore.....................
* Not adjusted for seasonal variation.
Slocks (end of month)
% chg.
June
1951
from
Ratio to sales
(months'
supply)
June
1951
1950
+ 5
0.0
2.6
0
412
D.U
2.9
3.6
3.7
2.9
ago
0
0
2.0
440
+ 53
Basement store total......................
Domestics and blankets............. ,
Small wares.....................
Women’s and misses’ wear.............
Men’s and boys’ wear...............
Housefurnishings..................
Shoes...........................
5.5
3.5
2.1
+ 7
429
418
-18
Nonmerchandise total...............
% chg. % chg.
June 6 mos.
1951
1951
from
from
year
year
ago
ago
Total — All departments..............
Recent Changes in Department Store Sales
in Central Philadelphia
Week
Week
Week
Week
Week
Sales
Departmental Stales and Slocks of
Independent Department Stores
- 5*
-1
+5
-7*
6 mos.
1951
from
year
ago
- 1
2.0
3.7
2.6
2.6
3.6
2.5
1.5
2.1
1.6
1.2
1.4
2.0
2.1
+ 4
p—preliminary.
Page 11
THE BUSINESS REVIEW
BANKING
CONSUMER CREDIT
Receiv
ables
(end of
month)
Sales
Sale Credit
June
United States (Billions $)
1951
four
weeks
year
174.2
+ -5
+ 4.3
89.5
59.8
25.0
0
+ .5
+ .1
+ 4.4
+
i
- .2
% chg. % chg. % chR.
June
June 6 mos.
1951
1951
1951
from
from
from
yearago yearago year ago
Third F. R. District
Department stores
+ i
- i
-12
+ 4
+ 11
- 5
Changes in—
MONEY SUPPLY AND RELATED ITEMS
0*
22.0*
+ 14
- 2
+ 10.0*
126.2
+ 11
+ 5
+ 6
+ 10
+ 31
+ 14
Loan
bal
ances
out
standing
(end of
month)
Loans made
Loan Credit
Third F. R. District
+ i
% chg. % chg. % chg.
June
June
6 mos.
1951
1951
1951
from
from
from
year ago year ago year ago
Consumer instalment loans
Industrial banks and loan companies.........................
-13
-23
+ 8
-16
- 7
+ 2
+ 13
+ 4
+ 4.5
+ .6
+ -5
+ .1
+ 10.3
- 7.2
+ 1.4
+ .6
+ 3.1
18.6
.5
I oai
+ 1.2
55.0
58.6
12.6
19.1
Furniture stores
+ .4
+ .2
+ 3.1
0
_______
Changes in reserves during 4 weeks ended June 27
reflected the following:
Effect on
(Billions $)
reserves
Increase in Reserve Bank holdings of Governments. .
Increase in other Reserve Bank credit.............
Net payments by the Treasury..........................
Increase of money in circulation........................
- 5
+ 6
+ 11
+ 15
+ .5
-.3
+ .3
+ .2
+ .6
* Annual rate for the month and per cent changes from month and year ago
at leading cities outside N. Y. City.
PRICES
July
OTHER BANKING DATA
1951
Per cent change
from
June
1951
(Index)
Index: 1935-39 average = 100
month
ago
225
261
236
210
All com
modi
ties
223
222
221
221
Source: TJ.S. Bureau of Labor Statistics.
Page 12
+ 15
+20
+ 15
+ 15
0
0
0
0
+ 9
+ 0
+ 9
+ 13
151
224
170
Weekly Wholesale Prices—TJ.S.
(Index: 1935-39 average = 100)
-1
0
-1
-1
186
186
221
205
Consumer prices
year
ago
+i
-1
-1
Weekly reporting hanks—leading cities
United States (billions $):
Loans—
.
Commercial, industrial and agricultural...................
+ 7
+ 17
+ 11
Farm
prod
ucts
258
252
249
250
Changes in—
five
weeks
year
Foods
Other
235
236
234
235
207
207
207
206
Federal Reserve Bank of Phila. (millions $):
+
+
+
+
- .2
- .2
- .8
+ 6.2
- 4.1
+ 3.9
+
+
+
2
2
i
5
3
+ 236
— 1
+ 25
- 4
+ 52
1,348
1,198
Member bank reserves and related items
United States (billions $):
Member bank reserves held..........................................
Reserve Bank holdings of Governments..................
- .3
+ -2
0
- .1
0
33.0
37.6
80.1
Third Federal Reserve District (millions $):
Loans—
.
.
18.9
2.2
5.6
.4
5.9
+ 5
- 12
- 82
+ 308
-284
4- 28
19.1
23.1
21.8
27.7
.4
- .4
+ .3
0
+ .2
0
+
+
+
-
+11
+ 22
- 10
- 10
-1.2%
+ 261
+ 69
+m
-134
- 7.9%
758
42
147
11
390
1,462
1.671
873
1.188
44.8%
5.0
.5
.8
.1
.8
2.7
5.1
2.4
.8
.1
@FedFRASER