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AUGUST 1956 J. business evi view FEDERAL RESERVE 0ANK OF PHILADELPHIA HW AYS: THE $33 BILLION W AY OF THE MUDDLE? ts a re a lre a d y p a y in g fo r $ 3 3 b illio n o f new highw ays structed d u rin g the n e x t 1 3 years. It's not thje size ta g th a t w ill b re a k up the tra ffic jams but o f the rig h t am ounts a t the rig h t places. TRICT BANKING W h ile e a rn in g assets in cre a se d little in the p a st y e a r, there was a m a rke d sh ift fro m investm ents to loans. This co n trib u te d to a sub stantia l increase in ea rnin gs. CURRENT TRENDS Business a c tiv ity ran a t just a b o u t the speed lim it th ro u g h June. For the rest o f the y e a r it looks as if m ore o f same is in o rd er. Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. OUT OF THE MUDDLE? Late in June, Congress passed a monumental $33 are authorized to meet 90 per cent of the cost of billion road-building bill. Sponsors of the bill completing the interstate system over a period of said that it sets in motion “ the greatest govern 13 years. State highway departments will do the mental construction program in the history of the actual construction and states will bear 10 per world,” and the American people “ will ride cent of the cost— almost $3 billion. The bill also safely upon many thousands of miles of broad, provides for a gradual step-up in the regular straight, trouble-free roads, four to eight lanes Federal-aid highway program by the authoriza wide, criss-crossing America from coast to coast tion of $2V2 billion in the next three years. For and border to border, built to the very highest this part of the program, Federal outlays are standards that our highway engineers can devise.” matched dollar for dollar by the states. Keystone of the program is a 41,000-mile net Construction of roads in national parks, forests, work of modern highways linking 42 state capitals and Indian reservations financed entirely by the and 90 per cent of all the cities of more than Federal Government involves additional outlays 50,000 population. Federal outlays of $26 billion of almost a half-billion dollars over the next b usin ess re v ie w years. Altogether, the program adds up to $28 THE COLOSSUS OF ROADS billion in highway outlays by the Federal Govern Most of the expenditures authorized in the new ment and approximately $ 5 ^ bill are to be used for the improvement of existing billion for the states. roads rather than for the construction of addi Before the ink had a chance to dry on the brand- tional mileage. This is as it should be because new bill, highway-user taxes were imposed to de we already have a vast network of roads and high The Federal gasoline tax was ways, and our most pressing problem is not addi raised from 2 cents a gallon to 3 cents; the diesel fuel tax was jacked up from 2 to 3 cents a gallon; tional mileage but relief from the appallingly overcrow ded con dition s on the most heavily taxes on tires were jumped from 5 cents a pound traveled sections of our road system. fray the cost. to 8 cents; a 3 cents-a-pound tax was imposed on The street on which your front door faces is rubber used for recapping and retreading tires; part of a continental network of 3.4 million miles the sales tax on the manufacturers’ prices of of city streets and country roads— enough to en trucks, buses, and truck trailers was raised from circle the world 135 times. Over 3 million miles, 8 to 10 per cent; and a tax of $1.50 per thousand or about 90 per cent, are rural or country roads pounds was imposed on motor trucks weighing in and the remainder consists of city streets. Qual excess of 13 tons. The new levies, which went into itatively, the network ranges from narrow and effect on July 1, the beginning of the Govern winding, gravelly pathways to broad, smooth ment’s new fiscal year, were referred to by the surfaced, high-speed expressways. On the basis of press as “ pay-as-you-ride” tax provisions, but in who builds, manages, and maintains the roads, there are several well-defined systems of highways. reality they are “ pay-before-you-ride” on the new roads yet to be built. According to early estimates, the average motorist will find his fuel and tire costs increased $6 to $9 a year. The Federal-aid primary system consists of about a quarter-million miles, predominantly rural, connecting all of the principal cities, The new highway bill represents a departure county seats, ports, manufacturing areas, and from traditional American highway policy in that other traffic-generating localities. These are the the bill provides for a much greater participation main state trunk-line roads. Examples are U.S. by the Federal Government than heretofore. To Route 1 which runs from Maine through Phila be sure, the Federal Government has been making delphia to Florida, and U.S. Route 30 which runs substantial contributions for the construction of from Atlantic City through Philadelphia to the our road system, but never before on the grand West Coast. The U.S. shield bearing the route scale provided in the new legislation. The greatly number of these roads has no particular signifi increased Federal participation is based, in part, cance except that it aids the motorist to find his on the huge construction job faced by the states way through unfamiliar territory. whose programs were interrupted by World War The Federal-aid secondary system, slightly over II. Meanwhile the volume of traffic soared. An one-half million miles in length, consists of im other reason for the increased Federal participa portant feeder roads linking farms, factories, tion is the need for a greatly improved highway distribution outlets, and smaller communities of system as part of the over-all national defense the nation with the primary system. They are program. commonly 4 called the farm-to-market system. b usin ess re v ie w Local examples are Route 3 out of Philadelphia length, which in the language of the act would be to West Chester, and Route 23 from Philadelphia so located as “ to connect by routes, as direct as to Lancaster via Phoenixville. practicable, the principal metropolitan areas, Responsibility for construction of these two cities, and industrial centers, to serve the national Federal-aid systems traditionally has been shared defense, and to connect at suitable border points in about equal amounts by the Federal Govern with routes of Continental importance in the ment and the states, in accordance with a formula D om inion o f Canada and the Republic of taking into account land area, road mileage, and Mexico.” This system, which came to be known population. Some sections of the primary system as the National System of Interstate Highways, are more important than others, from the stand joins 42 state capitals and 90 per cent of all cities point of national interest. over 50,000 population. Consequently, Con gress, in 1944, authorized the selection of a The interstate system of highways, which the special network not to exceed 40.000 miles in new bill extended to 41,000 miles, embraces only THE INTERSTATE HIGHW AY SYSTEM falls sc/rre mllings GRAND FORKS ILUTH BISM A RC K MlNNEAPOt SHERID/ POCAT^LO OMAH/ CHEYENNI IORTH ^n c in n a ^' denvei TOPEK/ WICHI1 O KLAH O I LITTLE R< IIN G H AI FORT WORTH ORLEANS rO NIO . 0 A r t O HA GALVESTON Source: A d a p te d from "Freedom o f the A m erican Road," published by the Ford M o to r Com pany, Dearborn, 1956 5 b usin est re v ie w 1.2 per cent of the total mileage, but carries about Turnpike trends one-seventh of all the traffic, serves 45 per cent of Florence, N. J., and Edgely, Pa., were united in the rural and two-thirds of the urban population. turnpike matrimony on May 25, 1956 with guber Actually, the interstate system is the most heavily natorial ribbon-cutting on the new bridge over the traveled portion of the Federal-aid primary sys Delaware linking the New Jersey and Pennsyl tem. It is a basic network from the standpoint of vania turnpikes. The press hailed the union by Federal interest, interstate commerce, and na pointing out that it is now possible for a motorist tional defense. Federal-aid highway systems make up about one-fifth of all the mileage, so it is appar to drive from Augusta, Maine, to the Ohio-Indiana ent that the great bulk of our highway mileage stretch in Massachusetts. border unimpeded by stoplights except for a short consists of country roads and city streets that are Just as glamor girls command attention out of outside the Federal-aid system. They have been constructed and are maintained and administered all proportion to their importance among their less well-favored sisters, so turnpikes— the glamor by a great diversity of political units. This may gangways— command attention out of all propor be illustrated with reference to Pennsylvania. Pennsylvania has 100,000 miles of highways and they are administered by more than 2,500 tion to their economic importance in our highway system. Turnpikes are just a small fraction of our highway mileage. governmental units. The state administers 41 per Pennsylvania, it was pointed out in the July cent of the mileage, the counties administer about Business Review, built the country’s first turnpike 1 per cent, cities 6 per cent, boroughs and towns from Philadelphia to Lancaster in the late 18th 5 per cent, first-class townships about 2 per cent, century, and Pennsylvania was also responsible and second-class townships 45 per cent. ( A firstclass township is one with a population of 300 or more per square mile; all others are second-class.) For the country as a whole, we have about 35,000 governmental units administering the entire network of roads. Approximately 17,000 of these units are cities, boroughs, and villages engaged in construction and maintenance of streets and highways within their borders. More for the revival of the turnpike movement in the present century. The original 160-mile section of the Pennsylvania Turnpike between Irwin and Middlesex was begun in the fall of 1938, with the help of an RFC loan, a PWA grant, and the partially graded right-of-way of an abandoned railroad, including tunnels bored through several mountains. Completion of the turnpike was inter rupted by World War II, after which Pennsyl vania built the Philadelphia extension between than 18,000 governmental units have some type of Middlesex and King of Prussia. In 1951 the turn jurisdiction over the local rural roads. pike was extended to the Ohio state line, and in Local road units vary in size from little districts that 1954 the eastern end was extended to the Delaware take care of a mile or two to very large districts River. Construction costs ranged from a half like California’s San Bernardino County which is million dollars per mile for the original section of larger than New Hampshire and Vermont com the turnpike to $2 million a mile for the Delaware bined. River extension. With such a diversity of governmental road builders, our network of highways has a surprising unity. 6 Despite the huge cost of construction, the Penn sylvania Turnpike operated at a profit from the b usin ess r e v ie w Outstanding bonds are being re to Sayre, from Norristown to the Delaware line, deemed years ahead of schedule. Since the open from Gettysburg to the Maryland line, from Pitts ing of the original section of the turnpike, revenue burgh north to Erie and south to the West Vir very outset. from vehicular traffic has increased every year ginia line, from the Pocono Mountains to the except for two years during World War II when Delaware Water Gap, and another turnpike all gasoline rationing restricted civilian motoring. the way across the state from Stroudsburg to The success of the Pennsylvania Turnpike started a stampede of toll-road construction. Over 1,800 miles of toll roads have been built. Most of Sharon. But these plans may be altered as a result of recent developments. Prior to the passage of the 1956 highway act, the mileage is in New York, New Jersey, Pennsyl investment ardor for toll-road bonds had already vania, and Ohio. Almost 1,400 miles of toll roads cooled off considerably because revenue on some are in process of construction, and about 5,000 of the various issues did not come up to expecta miles were proposed or at least were under consid tions. Sales of toll-road bonds declined from $1.6 eration at midyear. Among the toll roads in billion in 1954 to less than half that amount last operation, the Pennsylvania Turnpike is the old year. Even in Pennsylvania where the turnpike est, New York’s 427-mile Thruway from New boom started there is turnpike trouble. Despite York City to Buffalo is one of the swankiest, New continuing favorable earnings on the section of Jersey’s 118-mile turnpike running almost the full the turnpike from Valley Forge westward, which length of the state is the most profitable, and West is a good many years ahead of schedule on its Virginia’s 88-mile turnpike from Charleston to Princeton is most-often cited as a turnpike mistake bond-retirement program, the Delaware River extension and the uncompleted northeast exten because the road is losing money. Traffic on the sion to Scranton have thus far failed to earn their New Jersey Turnpike turned out to be more than three times the pre-completion estimates of the engineers. Ohio’s 241-mile turnpike, linking the Pennsylvania and Indiana turnpikes, has not had sufficient time to determine its profitability but thus far the results have been somewhat disappointing. Much of the success of the Pennsylvania and New Jersey turnpikes, and particularly the latter, may be ascribed to their location right in the heart sinking-fund reserve requirements. Consequently, the Turnpike Commission recently announced a system-wide toll increase of 41 per cent for pas senger cars and a 20 per cent cut in tolls for trucks to generate more revenue. The action precipi tated a storm of protest, whereupon the new sched ule of tolls was withdrawn awaiting further study. The new highway bill may well give the coup de grace to the languishing toll-road construction of the most heavily populated section of the coun boom. Under the new program, toll roads in use try, which assures an abundance of motor traffic. and those already under construction may be in Reinfected by its own success, Pennsylvania tegrated into the interstate system if Congress so drew up plans to add about 850 miles of toll roads decides at a later date. But with respect to new to its present 360-mile system. Presently under toll roads contemplated, what state would assume construction is the 110-mile extension from Phila the risk when, under the new highway act, states delphia to Scranton. can get 90 per cent of the construction costs from Authorized or ready to begin construction are extensions from Scranton the Federal Government? 7 b usin ess re v ie w THE ROAD TO CHAOS decades, spending on the wrong roads in Speaking before the 48th Annual Conference on the wrong places in the wrong ways, to Taxation, assembled in Detroit last October, Dick The increase in demand for highway facilities is said: easily documented by citing the multiplication of In the 50 years since the advent of the motor vehicles on the highways. During the dec automobile, public agencies have spent ade ending close to $80 billion on improving and doubled from 26 million to 52 million, and motor maintaining roads and streets. Despite truck registrations also doubled from 5 million to 1955, passenger-car registrations this vast outlay, correcting highway de 10 million. Thus, total motor-vehicle registrations ficiencies— that is, making possible the doubled from 31 million to 62 million. These cheap and rapid movement of passen doubles are the beginning of our troubles. gers and freight our growing economy The unusual lags in road outlays during the requires— is now the nation’s most ex 1940’s are clearly portrayed in the chart of high pensive governmental problem, aside way-construction expenditures. from defense. Our present difficulties War II, construction expenditures almost came to are the result of a combination of fac a standstill. Increased outlays since the end of the tors— unexpectedly large increases in war did not accomplish as much as the rising the demand for highway facilities over curve might indicate because higher costs of labor the past decade, unusual lags in road and materials did not produce as much roadway outlays during the 1940’s, and for most as in former years. In real terms, the progress governments during most of the past five made in the post-war decade was scarcely better HIGHWAY CONSTRUCTION EXPENDITURES B IL L IO N S paraphrase General Bradley. Netzer of the Federal Reserve Bank of Chicago $ During World than that prevailing during the 1930’s. “ Spending on the wrong roads in the wrong places in the wrong ways” has been hallowed by tradition. In the July issue of the Business Review it was pointed out how the advent of the auto mobile gave rise to the cause for good roads and the great emphasis that was placed on getting the farmer out of the mud. Most city streets had al ready been paved when the motor car appeared, so huge sums of money were spent in surfacing the vast network of rural roads, and the out moded area-and-population formula for sharing costs among the various levels of government has long survived its usefulness because it short changes metropolitan areas. Source: "M o d e rn izin g the N ation's H ighw ays," Research and Policy C o m m itte e o f the C om m ittee fo r Economic D evelopm ent, New York 8 The better-roads argument always made good campaign material for rural candidates to state legislatures. It is now quite some years since farmers have b usin ess re v ie w been pulled out of the mud, but much of the region, and the Pacific Coast. thinking and planning and spending for highways pected, traffic density coincides with population As is to be ex continues to be “ mud bound.” Approximately a density. It is the cities and their suburbs that are million miles of local rural roads serve no more choked with motor traffic. Here is where traffic than about a dozen vehicles a day; they are, in grinds to a stop-and-go crawl; here is where effect, little more than public driveways. Yet they fenders are bashed and bumpers are smashed; continue to get almost as much attention as the here is where the automobile becomes a great major highways. scientific frustration. Someone has figured out that if all the country’s Urban areas generate half or more than half of motor vehicles were evenly distributed over the all traffic; yet they have been receiving less than country’s entire network of roads there would be one-fifth of the highway-construction funds con one vehicle for every 650 feet on every lane in tributed by motorists in the form of Federal, state, both directions on all streets and highways. The and local taxes and tolls. Since funds for highway trouble is that cars are never so distributed. Too construction are not unlimited, it would seem to many of them crowd into too little of the mileage. make sense that most of the expenditures should Our major highway problems are no longer out be applied to the most heavily traveled roads. in the country but in the metropolitan areas. The While it is true that urban vehicle owners often unequal distribution of motor traffic on our over- use main intercity roads, which justifies some di expanded highway mileage is portrayed, in part, version of funds to the construction of these roads, there is, however, little justification for the TRAFFIC ON THE INTERSTATE ROUTES heavy diversion to local rural roads which has (Thick lines clustering around cities show where needs are greatest) been the practice for so many years. Traffic surveys indicate that most of the con gestion in the big cities is caused by local traffic, and in the smaller cities and towns most of the difficulty is caused by through traffic. In many instances, relief has been afforded for the smaller communities by the construction of by-passes and alternate routes so that the traffic is diverted from “ Main Street,” to the satisfaction of both the local communities and the out-of-town motorists. In the big cities, however, traffic problems are really acute. The ebb and flow of city traffic are as regular as Source: "F reedom o f the A m erican Road," published by the Ford M o to r Company, Dearborn, 1956 the tides. In the morning, suburban and country by the accompanying map showing traffic density city and particularly upon the downtown business on interstate routes. Note the heavy concentra district; and 5 o’clock in the afternoon touches commuters from all directions converge on the tion of traffic in southern New England, the off the big stampede to get home in an even Middle Atlantic states, the East-North-Central greater hurry. In the summertime the daily cycle 9 business re v ie w is supplemented by a weekly cycle to add to the tions has glamor and dramatic appeal, but the traffic confusion. On Friday night great hordes records of toll collection on our turnpikes show an of urban “ cliff dwellers” flee to the mountains or overwhelming predominance of shorter trips. The the seashore for a breath of air, and on Sunday heaviest traveled section of the New Jersey Turn night or Monday morning they fight their way pike is the 17-mile stretch between the tunnel and back through the traffic tribulation and arrive too ferry discharge points on the Hudson River and fagged out to work. the Secaucus interchange near Newark. Traffic experts and highway engineers have re sorted to every conceivable means to alleviate the short stretch accounts for almost half of the rev This enue of the entire 118-mile-long toll road. Spot chaos. The means are familiar to all motorists: checks made by the Pennsylvania Turnpike Com traffic lights, traffic circles, clover leaves, multiple mission indicate that the average trip is less than lanes, overpasses, underpasses, divided highways, 100 miles. stop signs, one-way streets, no left turns, no right One of the major defects of our highway system turns, no U turns, no parking, pigeon-hole park heretofore was the diffusion of highway-user ing, underground parking, rooftop parking, park funds; that is, spending on the wrong roads. What ing lots, parking really happened was that the lightly traveled roads counts, meters, parkaterias, traffic origin-and-destination traffic direction, radar were subsidized by the heavily traveled roads. safety drives, traffic courts, surveys, The latter produced a “ profit” in the sense that drunken-driver crusades, education, and exhorta they yielded user revenue in excess of their cost, tion. Despite all these and other devices, the and the “ profit” was used for the construction and swarming mob of motor cars continues to grow, maintenance of the lightly traveled roads that and traffic queues get longer and longer because operated at a “ loss.” of the elementary law of physics that no two ob The heavily traveled roads will continue to be jects can occupy the same space at the same time. those in our metropolitan areas, and they are the BREAKING THE BOTTLENECKS They are also the roads that will be the most The question is, will $33 billion and 13 years costly to rebuild because of the high cost of mov break the traffic ja m ? ing public-utility installations, building bridges ones that should receive the major overhauling. This depends upon whether the money is spent at the right places. If and overpasses, and acquiring the more expensive most of the money goes into the construction of rights-of-way. great intercity super-expressways without opening the congested streets and highways in metropoli In 1969 tan areas, we shall be little better off than we are now. While the roadbuilders are busily calculating the We do not need high-speed, transcontinental the man-hours of labor required to perform the highways nearly so much as we need wider streets $33 billion road-building job, we, the people who millions of tons of cement, steel, and stone, and and open roads in and around our cities where drive on the roads, may be prone to look upon the most of the motor traffic is constantly milling job as 13 years of detours while the reconstruction around. The possibility of long-distance motor is in progress, after which we shall emerge in 1969 trips unobstructed by traffic signals and intersec with handsome highways and no more traffic 10 b usin ess re v ie w problems! That is probably expecting too much. In the next 13 years the motor industry can put are creating cross-country expressways that dump more traffic into them.” * a great many additional vehicles on the roads. In other cities, traffic conditions are essentially During the past 13 years the number of motor- like those in New York except that they are not vehicle registrations increased 100 per cent. Con quite so acute. In Philadelphia, for example, we tinued growth at that rate would give us 124 haven’t gone skyscraper mad but we have our full million registrations by 1969; sustained growth share of traffic troubles. Even here bulldozers are at only half the rate would give us 93 million chewing away at the edges of Fairmount Park to motor vehicles. That would be bad enough even make way for another major traffic artery that will with a $33 billion improved highway system. feed more traffic into the narrow downtown streets overrun with private motor cars, trolleys, buses, SKYSCRAPERS AND ROADSCRAPERS and great motor trucks hauling squealing pigs and Look at New York City where people are piled cackling chickens to market. Some day we may higher than anywhere else in the world. What a have to adopt the proposal that downtown Chest traffic tangle! Cross-town motoring in Manhattan nut Street be closed to vehicles and reserved en is frequently slower than walking. tirely for pedestrian traffic— as New York has Incoming trains often pour people into the stations faster done in the Wall Street district. than the taxis can take them away, whereupon the The common carriers— the street railways and astute traveler checks his bag on arrival, walks bus lines— are an integral part of the entire met out along the avenue to capture a taxi discharging ropolitan network of transportation. its fare, and then returns to the station to pick up instances the common carriers are fighting a los his bag and goes on his way. Nothing but sheer brute strength prevents the subway commuter ing battle with the private motor car. The common carriers face ever-rising costs of operation and from being shoved into the wrong train by the they are constantly losing traffic to the private surging mob during the rush hour. Anyone who has ever been caught in the Manhattan maelstrom of motor cars, trucks, buses, taxis, pushcarts, and pedestrians will avoid driving through the city if possible. Basically, it is the mass of skyscrapers that makes the mess of traffic. The higher the sky scrapers go the more people they accommodate and the farther out into the country the road- In many motor car, with the result that they are forced either to raise fares or curtail service— policies ill-designed to attract traffic. Strategically located bus garages, truck terminals, railway stations, street-car and bus lines, and transfer points are at best temporary palliatives. The skyscrapers are too far ahead of the road scrapers. What shall we do then— tear down our cities and rebuild them to accommodate the motor age? That is obviously impossible, but it does raise scrapers must go to build roads to accommodate some very basic questions. Should new urban the commuters. “ It would take a great mind in buildings be required to provide parking facilities deed,” said Lewis Mumford, “ to decide which set for the motorists they will be housing? Do new of planners is more irrational— the people who facilities like vehicular tunnels, off-street parking, are piling up high structures in the overcrowded business districts of our cities, or the people who * “ From the Ground Up,” by Lewis Mumford (Harcourt, Brace and Company, Inc., New York, 1956). 11 b usiness re v ie w limited-access expressways, and parkways relieve have not built in Philadelphia, but in the outlying traffic congestion in urban areas, or attract more districts. Examples of firms that came into the traffic making for bigger traffic jams in the area but not into town are the steel mills, rubber future? Are we spending too much for roads and tire manufacturers, office machinery builders, not enough for other forms of transportation? scientific laboratories and research organizations. The motor car is one of the most powerful Still more recently, the big downtown depart forces hastening the obsolescence of cities. The ment stores have joined the out-of-town movement evidence is readily apparent on comparing the by establishing suburban branches. The dozen stunted growth of cities with the lush growth of suburban branches already established are pros their suburbs. Since 1920, the population of Philadelphia grew 18 per cent, but the population downtown. Suburban customers prefer to do their pering more than their parental headquarters o f the seven surrounding counties grew by shopping at the neighborhood branches which amounts ranging from 54 per cent in Chester offer parking facilities rather than become em County to 183 per cent in Delaware County. Com broiled with downtown traffic where parking is- mercial and industrial activities are also spilling inconvenient, costly, and sometimes impossible to over the city limits. Industries that formerly flourished in the city, increasingly cramped for find. The situation in Philadelphia is not unique; it is typical of all big cities. space, moved out into the neighboring counties The planning of urban highways and ap where there is more “ elbow room.” First to move proaches cannot or should not be considered were the heavy industries, like the manufacturers apart from the over-all problem of city planning. of locomotives and some of the printing and pub The street system, which ordinarily takes up about lishing concerns, which needed more space and one-third of a city’s land area, is part of the larger found it more economical to move their heavy problem of land use. A city, however, is more metal presses and printing presses out into the than a heap of concrete, steel, and glass. It is also country rather than upstairs on their city prem a heap of living together with diversified activities ises. More recently, manufacturers of scientific — industrial, commercial, financial, cultural, civic, instruments, storage batteries, radio, etc., joined religious, educational, and political. But in giving the industrial migration into the suburbs. New maximum expression to all of these activities, the firms that have come into the area in recent years street system plays a very essential role. THIRD DISTRICT B A N K IN G Banking operations in the Third District over the $4,046 million was one of the largest in any twelve- year ended June 30 show substantial changes in month span on record. Approximately two-fifths the composition of bank assets; little change in of this increase was in accommodation to business the over-all volume of deposits; higher earnings; concerns. Growth in business loans doubtless re pressure on reserve positions; and numerous bank flected a need for funds to help pay the costs of mergers. modernization and additions to plant and equip Member bank loans expanded month by month ment, carry larger inventories, and meet other ex and the aggregate increase of $486 million to penses incident to high level operations. Details 12 b usin ess r e v ie w provided by a group of large banks indicate that responding period last year. expansion was concentrated in loans to manu also rose considerably, but not as much, so that Current expenses facturers,, but included substantial increases in ad earnings after current expenses moved up $7.4 vances to utilities and trading concerns. Sizable million, or nearly 14 per cent, to $62.1 million. An increases also were reported in loans to finance increase of several millions of dollars in net losses real estate and in consumer instalment paper, al and transfers to reserves reflected in part the though growth in the latter slowed materially in building up of valuation reserves on loans. Income the first half of 1956. tax payments changed little. After all of these Sharply rising loans were accompanied by transactions are taken into account, the prelimin heavy sales of securities, with the result that total ary record showed net profits of $29.3 million earning assets of member banks in this district available for distribution, a figure $4 million show an increase over the twelve months of only higher than in the first half of 1955. Dividends Si 15 million to $7,089 million. Holdings of Fed were larger, but absorbed little more than one-half eral Government securities declined $294 million of the net profits. and other investments, $77 million. The over-all At mid-year, 553 commercial banks in this dis level of deposits was up even less than earning trict were members of the Federal Reserve System. assets, showing an increase of only $45 million to Over the twelve months from June 1955, 7 non $8,011 million. member banks merged into member institutions, Some pressure on reserve positions was evi while only 3 members merged into nonmembers. denced in this district by a lower volume of excess reserves than in the preceding year and borrow There were 21 instances of mergers or consolida tions between member banks. ings from the Reserve Bank in greater amount than excess reserves. This “ net borrowed reserve” position was due chiefly to reserve city banks, located in Philadelphia, the money center of the district. Semi-monthly averages for the “ country” banks of the district show lower excess reserves MEMBER BANKS Third Fed. Res. D istrict (M illio n s $) June 30, 1956* Loans ............................................ U .S . G o v 't se cu ritie s.................. O th e r securities ........................ 4,046 2,269 774 +486 — 294 — 77 Total earning a s s e ts ......... Deposits, to ta l .......................... 7,089 8,01 1 + 115 + 45 E a r n in g s , e x p e n se s an d p ro fits First half 1956* Changes in one ye a rf and somewhat larger borrowings from the Re serve Bank than in the preceding year, but in all of the periods excess reserves were larger than borrowings from the Reserve Bank. The natural result of the substantial growth in loans and somewhat higher interest rates was a material rise in income from this source. Higher earnings also were reported from service charges, Changes in one ye a rf Earnings: On securities ...................... On lo a n s ............................... Service chgs on deposits. . Trust d e p a rtm e n t ............. O th e r earnings .................. 36.6 98.6 5.9 12.2 6.7 — 0.1 + 16.9 + 0.6 + 1.4 + 0.4 Total earnings ............... C u rre n t expenses .................. 160.0 97.9 + 19.2 + 1 1.8 N e t current e a rnings............. 62.1 + 7.4 N e t losses and transfers to reserves ............................... Taxes on in c o m e .................... 1 1.0 21.8 + — 3.5 0.1 this district reached $160 million in the first half N e t profits ............................... Cash dividends de cla red. . . . 29.3 15.3 + + 4.0 0.9 of 1956, an increase of $19 million over the cor *P relim in ary tab ulatio ns. fA d ju ste d for m ergers, e tc. trust operations, and miscellaneous sources, but not from investments. Preliminary tabulations show that the total earnings of member banks in 13 business re v ie w CURRENT TRENDS It’s been quite a year so far! For a while, busi shipments declined at the same time while busi ness analysts couldn’t tell whether the economy ness activity, on the whole, zoomed along at the was still booming or undergoing a mild recession. speed limit. Activity in two or three industries, which have These three industries have been important in been bellwethers of the post-war business boom, the post-war business boom. In fact they have been used, to some extent, as barometers of busi was falling noticeably short of year-ago levels. Conversely, other industries felt a reassuring ness activity. With automobile production 25 per surge of demand for their products over the first cent below 1955 levels, housing starts 18 per cent half of the year. There was uncertainty in the down, television and radio shipments off 10 per minds of many as to whether increases or de cent, it is no wonder that many business analysts Recently, however, the were surprised to find gross national product run question was resolved. The increases were larger ning at so high a rate in the second quarter of this than the decreases. The Commerce Department year. creases were dominant. reported successive rises in total spending over Obviously, some areas of business were running very fast to make up for the lagging sectors. Busi the first two quarters of 1956. Gross national product in the second quarter of ness spending on plant and equipment was con 1956 approximated $408.5 billion at an annual siderably up from a year ago, and might possibly rate. This was $5 billion higher than in the first have been higher still were it not for shortages of quarter— an all-time high. An average of about some strategic materials. State and local govern 64 million people were working over the first half ment spending, mainly on highways and schools, of the year out of a civilian labor force of 67 mil continued upward. This kind of spending has gone lion. This represented an all-time record for em up each year since 1944. Consumer spending on ployment, and meant that just 4 per cent of the services, another old stand-by of strength, in labor force couldn't fin'd work. In short, our creased for at least the 68th and 69th consecutive economy ran at the speed limit over the first half quarters. Consumer spending on food and cloth of 1956. But we did it the hard way. We did it ing has been strong, too. despite a few knocks in the engine. All in all, the pluses have been larger and the The year through June probably was not the economy generally has not had to even slow down first six-month period during which we had a de for repairs. Now the big question is, how does cline in the demand for automobiles and a sizable the second half of the year shape up? rise in business activity. Nor was it the first time In December 1955, this Business Review made that new housing starts ran below year-ago levels its annual forecast for 1956, called “ 1956: Driv in the midst of a general boom. And sometimes ing at the Speed Lim it?” At that time the Review in the past, television and radio sales have not looked for G.N.P. in the fourth quarter of 1955 followed the general trend upward; but try to find to be about $400 billion, and said that a speed- a previous peacetime period when automobile limit rate for the four quarters of 1956 would be sales, new housing starts, and television and radio $404 billion, $408 billion, $412 billion, and $416 14 b u sin ess re v ie w billion. The projection for the year of a G.N.P. of $410 billion was considerably higher than most ment spending will be somewhat larger over the other forecasts. diminution in state and local government expend latter half of 1956. And who would look for any Actually, according to the revised series, G.N.P. itures? Pressures from all sides for bigger and was $401.9 billion in the fourth quarter of 1955, better-equipped schools and more and wider high and $403.4 billion and $408.5 billion, respectively, ways seem to assure further hikes in government in the first two quarters this year. Is it too much to outlays. believe that total spending in the final two quarters Finally, it is altogether possible that some of of the year will approximate $412 billion and $416 the industries that have been suffering by year- billion, or that for the year as a whole spending ago comparisons will improve their positions later will total $410 billion? Maybe not. this year. The automobile industry, by cutting The figures look high but they don t look as back production, has helped its dealers to trim high now as they did last December. The steel inventories. The prospect is for an orderly intro strike, of course, took something out of the third duction of 1957 models. Style changes are ex quarter but it may put more back into the final pected to be more extensive, so that sales could part of the year. A shakedown in steel inventories spurt in the final months of the year. Appliance was coming in any event. The strike caused the makers seem to have a good thing going for them paring-down process to take place much more in portable television sets. A second set that can rapidly than otherwise would have been the case. be moved from recreation room to bedroom to Certainly, on the basis of the McGraw-Hill and patio is becoming “ a must” for many middle- S.E.C.-Commerce Department surveys, it is ex income families. pected that business spending on plant and equip It is still— as it was in December— difficult to ment will continue strong for the foreseeable see how the economy can drive at the speed limit future. The present shortage of steel may put a for the entire year. But this trick was pretty much little crimp in this spending in the third quarter accomplished over the first part of the year. A of the year, but expenditures over the final months total spending figure for 1956 of $410 billion of 1956 may more than make up for this. Nearly everyone expects that Federal Govern looks a lot more possible in August than it did last December. 15 F O R THE R E C O R D . . . 1 INDEX BILLIONS $ MEMBER B A N K S 3R D ER.D. B A N K IN G . D| EP0SITS J ± j /\X/ \ _J \f X J i t CHECK PAYME NTS (2 0 CITIES) IN VESTM EN T! -------------------~ V ^ . """ | _______ LOANS 2 YEARS AGO Third Federal Reserve District Factory* Per cent change LOCAL June 19 5 6 from mo. ago year ago 6 mos. 195 6 from year ago June 19 5 6 from mo. ago year ago 6 mos. 195 6 From year ago Employ ment EM PLOYM ENT A N D IN C O M E Factory employment ( T o ta l)... TRADE** D epartm ent store sales............ B A N K IN G ( A ll member banks) D e posits....................................... Loans............................................ Investments.................................. U.S. G o v t, securities............. O t h e r ......................................... C heck paym ents........................ - 2 + 3 +19 + 2 + 3 +13 0 -1 -1 + 1 + 4 +14 +10 +16 0 +1 + + 2 9 0 + 1 + 3 + 0 6 +3 +4 +10 + 8 + 7 +2 +2 + + 8 7 + 6 +1 +2 -1 -1 -2 -4 t + 1 +15 -1 1 -1 2 - 9 + 4f + 1 +17 -1 2 -1 2 -1 2 + 9f +1 +2 -1 -1 0 +1 + 2 +17 -1 0 -1 2 - 4 H~ 5 + 2 +17 -1 1 -1 2 - 3 + 9 +1t + ot 0 +1 -f 4 + 2 -f 3 + 1 Per cent change June 19 5 6 from ‘ Based on 3-month moving averages. “ A d juste d for seasonal variation. 16 1t f 2 0 C ities tP hiladelphia Check Payments Payrolls Sales Stocks Per cent Per cent Per cent Per cent change change change change June June June June 19 5 6 from 1 9 5 6 from 1 95 6 from 195 6 from year mo. ago ago +4 + 1 0 0 year mo. ago ago year mo. ago ago year mo. ago ago +14 +2 +6 L an caster. . . . 0 +1 -1 + 3 -1 5 P h ila d e lp h ia .. 0 -1 +2 + +17 R e a d in g .......... -2 -2 -2 + S cranton......... +1 year ago - 3 + 9 - 2 + 3 9 -6 + 7 + 1 +11 6 - 4 +10 -8 + 9 - 6 + 5 5 - 4 + 9 -9 + 1 - 5 + 1 3 + 1 +6 +3 +15 + 9 -6 + 8 - 0 +2 -2 +10 + 9 + 7 +2 - 1 -2 4 W ilk e s -B a rre 0 -6 +1 - 2 - 4 0 -6 - 3 - - 1 0 +16 -6 +12 +23 + 1 + 6 +11 -1 + 11 + 3 Y o r k ................. 0 -4 0 0 +1 -1 0 + T re n to n ........... W ilm in g to n .. . - 1 PRICES C o nsum er.................................... Department Store CHANGES mo. ago O UTPUT M anu fa ctu rin g production . . . 0 C onstruction con tra cts*........... - 3 C o a l m in in g ................................ + 2 JUNE 1956 U n ite d States Per cent change SUMMARY YEAR AGO +24 - 3 5 - 7 4 + ‘ N o t restricted to corporate limits o f cities but covers areas of one or more counties.
@FedFRASER