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Monetary Policy— How Decisions Are Made The Business Outlook— From a Returning Vacationist F E D E R A L R E S E R V E BANK OF P H I L A D E L P H I A MONETARY POLICY-HOW DECISIONS ARE MADE Decision-making is a vital and integral part of ment, and income. Although these are the goals the process of using Federal Reserve tools to toward which Federal Reserve actions are di achieve the goals of monetary policy. Federal rected, System officials recognize that they can Reserve actions are directed toward a threefold not be achieved by monetary policy alone. objective: (a) to help keep the purchasing There is no procedure or list of ingredients power of money stable; ( b ) to help maintain a that in themselves will lead to wise decisions. reasonably full use of resources by smoothing This is especially true in something as complex out the upward and downward swings in total as the formulation of monetary policy in which production, employment, and income; and (c)to human judgment necessarily plays an impor foster sustained short, tant part. Nevertheless there are certain basic Federal Reserve actions are directed toward factors that contribute to sound policy decisions. economic growth. In helping to keep total demand in balance with One essential requirement is competent, experi capacity to supply goods and services at a sta enced policymakers. A second is that the policy ble level of prices, and with a reasonably full makers have all of the data and other informa use of labor and other resources. For monetary tion relevant to the question up for decision. policy to contribute to the achievement of these Third, the procedure followed should encourage goals calls for restrictive action when credit a free and frank exchange of views in order that expansion threatens to cause total demand to all aspects of the question will be explored. outrun productive capacity, and for an easy This article deals with these main aspects of money policy when a deficiency in total demand how monetary policy decisions are made. It is threatens a decrease directed principally toward the Federal Open 2 in production, employ business review Market Committee, including preparations for marily the purchase and sale of Government the meetings of the Committee and the proce securities in the open market. This is an impor dure followed in arriving at decisions. tant policymaking body because open market operations is the tool most commonly used to WHO IS RESPONSIBLE FOR DECISIONS? Before going into the process of decision-making, influence bank reserves and the availability of credit. we should take a look at the distribution of The Federal Open Market Committee con responsibility for policy formulation. There is sists of the seven members of the Board of Gov no single group in the Federal Reserve System ernors and five of the presidents of the Reserve that is responsible for all policy decisions. The Banks. The president of the Federal Reserve Federal Reserve Act distributes the responsibil Bank of New York is a permanent member. ity for monetary policy decisions among the The other four president members are elected Board of Governors, the Federal Open Market annually on a rotation basis so that the presi Committee, and the Reserve Banks. dent of each of the other 11 Reserve Banks serves as an official member of the Open Market Board of Governors Committee every two or three years. The Com At the head of the Federal Reserve System is the mittee selects its chairman and vice chairman. Board of Governors of seven members. The Traditionally, the Chairman of the Board of members of the Board are appointed by the Presi Governors is elected chairman of the Committee dent, subject to confirmation by the Senate, for and the president of the Federal Reserve Bank of New York is elected vice chairman. a term of 14 years. The Board has general super vision over the policies and operations of the The Open Market Committee selects one of the Federal Reserve System. Statutory authority to Reserve Banks— the Federal Reserve Bank of change the reserve requirements of member New York— to act as its agent in conducting banks and to change the margin requirement open market operations. The Fed of New York for stock market credit is vested in the Board. in turn designates one of its senior officers as Changes in the discount rate, although usu Manager of the Open Market Account, subject ally initiated by the Reserve Banks, are subject to the approval of the Open Market Committee. to review and determination by the Board of The Manager has immediate supervision over Governors. The Attorney General has ruled that all transactions for the Open Market Account. under the Act the Board has authority to initi ate changes in the discount rate. The Board of The Reserve Banks Governors also constitutes a majority of the Under the Federal Reserve Act, responsibility members of the Federal Open Market Commit for establishing the discount rate is placed in tee which has supervision over open market op the Reserve Banks but subject to the review and erations. determination of the Board of Governors. The Act provides that each Reserve Bank shall act on Federal Open Market Committee the discount rate at least every 14 days. Thus The Federal Open Market Committee has sole establishment of the discount rate is a joint re authority sponsibility between the Reserve Bank and the over open market operations— pri 3 business review Board, final legal authority being vested in the and 12 presidents of the Reserve Banks— who latter. participate in the discussions of the Open Mar ket Committee. Decentralization but coordination The Federal Reserve Act provides for substan Education tial decentralization of responsibility for mone Formal education is not a reliable indication of tary policy decisions. In fact, if one’s views the knowledge and understanding of men of were based solely on looking at an organization many years of experience. Self-education and chart, he might well conclude that there is so the wisdom one acquires on the job may be far much decentralization that coordinated use of more important. Nevertheless it may be of in the tools is made difficult, if not impossible. Such terest to see how our policymakers measure up is not the case, however. Authority vested in in this respect. the Board of Governors together with proce Practically all of them have degrees from a dures that have been developed for decision college or university. Nearly two-thirds of these making provide for a coordinated use of the men have done some graduate work, nine have tools of monetary policy. the master’s degree, and five have the doctor’s Federal Open Market Committee meetings degree. From the standpoint of formal educa have become a forum for policy discussion. Dis tion, this “ Supreme Court of Finance” is well- cussion at the meetings is not limited to open qualified for decision-making. market operations, but ranges over the entire field of monetary policy— whether current policy Experience is appropriate and if not, which tools might be Of even greater significance, perhaps, than for used to bring about the desired change. These mal education is the training acquired through meetings are usually held every three weeks in experience. Our policymakers embrace a wide Washington and are attended by all of the Re variety of experience before entering the Fed serve Bank presidents, even though only the five eral Reserve System. For example, sixteen had who are official members of the Committee are some experience in at least one phase of finance entitled to vote. such as a commercial bank, savings bank, insur ance, or a securities or commodity exchange; WHO ARE THE POLICYMAKERS? six taught in a college or university; three had First let us take a look at the policymakers extended experience in agriculture or industry; themselves. Journalists have sometimes referred three were practicing lawyers; and two did pub to the Federal Open Market Committee as the lic accounting work. It is significant that the “ Supreme Court of Finance” and the “ twelve policymaking group brings together men with mighty men of finance.” Actually, as pointed experience in many different types of economic out above, all of the presidents of the Reserve activity. Banks usually attend the meeting of the Open Experience in the Federal Reserve System is Market Committee and participate in its deliber also important. Those who formulate monetary ations. So let’s have a look at the qualifications policy should be thoroughly familiar with the of these 19 men— seven members of the Board responsibilities and the operations of a central 4 business review bank. Experience in the Federal Reserve Sys ness expenditures, and Government receipts and tem, of course, varies rather widely among the expenditures. individual members of the policymaking group. The need for comprehensive data on business The number of years of experience of these 19 and financial developments was recognized early men in the Federal Reserve ranges from a high in the history of the Federal Reserve System. To of 44 to a low of four. The average number of meet this need the Board of Governors and the years’ experience is 18. Thus our policymakers Reserve Banks built up research departments are men of experience— experience covering a and staffs of economists to collect, process, tab variety of activities in other fields and extended ulate, and analyze a great variety of financial experience in dealing with the operations and and business data. policies of the Federal Reserve System. Sources of information GETTING THE FACTS The Federal Reserve collects directly certain fi A prerequisite for reaching a wise decision is to nancial data and other information, and uses a have at hand all available data and other infor vast amount mation relevant to the problem to be considered. sources. A large amount of data is collected reg Adequate information does not assure a wise ularly from member banks and other institu decision but it eliminates guesswork. But facts tions to provide a continuing picture of signifi in themselves are not enough. They must be cant financial developments. Special surveys and analyzed and their significance interpreted in relation to the question at issue. studies are often made to get additional infor mation on some current problem or to obtain The need for data and other information in of data assembled from other information requested by Congressional com Federal Reserve decision-making is especially mittees. acute. Federal Reserve policymakers are con studies of how small business is financed, the Recent illustrations are the special tinually facing such broad questions as whether federal funds market and its uses, the Govern credit and the money supply are expanding too ment securities market and its operation (in slowly or too rapidly; whether total demand is cooperation with the Treasury), and the effect deficient or excessive, or pretty well in balance of high interest rates on state and local govern with our total capacity to produce goods and ment financing. services; and whether unemployment reflects System officials are fully aware of the fact too little total demand or changing wants and that regular reports and special surveys impose other structural adjustments. To arrive at some burdens on respondents. They try to limit re reasonably accurate answer to such questions quests to essential information for policymaking requires comprehensive data on current business and and financial developments such as incomes, the requests from Congress. But time devoted to pro for other purposes such as answering use of credit, wholesale and consumer prices, viding information needed in making monetary total output of goods and services, inventories, policy decisions is time well spent; and Federal industrial production, construction, investment Reserve authorities appreciate the fine spirit of in business plant and equipment, employment cooperation of the many respondents who help and unemployment, consumer expenditures, busi provide this information. 5 business review In addition to the data collected directly, the developments at the meetings of the boards of Federal Reserve has access to statistics collected directors of the Reserve Banks and their by various Government departments and agen branches provide information that cannot be cies, and by many private associations and obtained from statistics alone. Reserve Bank institutions. Most of the data collected by the directors make a valuable contribution to the Federal Reserve System and the Government de policy-formulating process by bringing to the partments and agencies is published and hence is discussions the knowledge and points of view of available to the public as well as to the agencies themselves. A perusal of such monthly publica men embracing a great variety of practical ex perience. tions as the Federal Reserve Bulletin (Board of The Federal Reserve Act provides for a Fed Governors of the Federal Reserve System), the eral Advisory Council, consisting of one repre Survey of Current Business (U. S. Department sentative from each Federal Reserve District. of Commerce), Economic Indicators (Council The representative of each district is selected of Economic Advisers), and the Treasury Bulle annually by the board of directors of each Re tin (U. S. Treasury Department) will show the serve Bank. great variety of data available on various aspects of business and finance. The Council serves in an advisory capacity. It meets at least four times a year in Washing Despite the large amount of statistical infor ton, additional meetings being subject to the mation available, policymakers are more fre call of the Board. The views of the Council on quently confronted with the problem of inade monetary policy and other questions of impor quate rather than too much information. One of tance to the System are thus made available to the greatest shortcomings of economic data is the Board of Governors for its consideration. that they necessarily show conditions in the past. Policymakers must make decisions looking to Analysis and interpretation ward the future. The time lag before data are A physician makes an examination and obtains available varies rather widely. For some impor certain data in order that he may diagnose the tant types of data it is several months. state of his patient’s health. Analysis and inter Because of the time lag and other reasons, policymakers need to supplement data with other pretation of the data are essential steps in mak ing the diagnosis. types of information. One of the advantages of Economic data reflect the state of our econ the organization of the Federal Reserve System omy’s health— unfortunately only with a time is that it affords access to information from men lag. The data must be diagnosed and interpreted, engaged in a great variety of economic pursuits. especially with respect to their significance for Each of the 12 Reserve Banks has a board of monetary policy. The Board and the Reserve directors of nine members, and branches of the Banks have staffs of economists and statisticians Reserve Banks also have boards of directors. who are continually analyzing and interpreting The 108 directors of the Reserve Banks, together economic data in order to determine the nature with the directors of the branches, include men and significance of current developments. If un engaged in practically every type of economic employment is increasing, for example, it is of activity. Discussions of business and financial vital importance to try to find out why. Are the 6 business review unemployed concentrated in declining indus some of his senior officers and economists to get tries, or have many of them been temporarily their views as to whether current policy con displaced by a shift in demand, such as from tinues to be appropriate. aircraft to missiles? Diagnosis of the cause of The staff of the Board of Governors prepares an increase in unemployment or of some other a statement on recent national business and fi significant economic development is all-impor nancial developments. This is a comprehensive tant from the standpoint of policy formulation. review and analysis which is usually upwards of A rise in unemployment caused by a deficiency 30 double-spaced, typewritten pages in length. in total demand arising from a restricted credit It covers a wide range of topics, such as total supply would definitely indicate an easier money output of goods and services, industrial produc policy. On the other hand, a rise in unemploy tion, inventories, plant and equipment expendi ment caused by a shift in demand or some other tures, commercial and residential construction, type of adjustment involving only particular in employment and unemployment, consumer ex dustries, although of concern to System officials, penditures for durables and nondurables, whole is not a problem that can be solved by monetary sale and consumer prices, consumer credit, bank policy. credit^ mortgage credit, Treasury finahcing, bank reserves, the money market, and selected inter Preparation for O.M.C. meeting national developments. A copy of this staff paper Preparation for a meeting of the Federal Open goes to the members of the Board of Governors Market Committee affords a good illustration of how information is assembled for the use of the and the presidents of the Reserve Banks before the meeting of the Open Market Committee. policymakers. There are also frequent discussions among the Procedure varies somewhat among the Re serve Banks but, in general, the principal steps in getting ready for a meeting are similar. The re Board of Governors and between the Board members and their staff. The Manager of the Open Market Account data, prepares a weekly report of the operations of makes a detailed analysis of district business and the Open Market Account together with an anal financial trends. District developments are usu ysis of the factors affecting bank reserves and ally compared with national trends to determine conditions in the money and Government secur whether there are significant differences. Thus ities markets. A supplemental report covering the president has the facts— about both district operations and conditions since the last meeting and national economic conditions. of the Committee is also made available to mem search department, utilizing available The president does not rely on data alone. Current business and financial trends, including bers of the Board and the presidents of the Re serve Banks before each meeting. monetary policy, are usually discussed at the meetings of the board of directors. Directors, as HOW DECISIONS ARE MADE already indicated, have first-hand information Actually, the formulation of monetary policy is on developments and problems in their special a continuous process. It is the major responsi fields. The president is also likely to discuss bility of the Board of Governors and the presi business conditions and monetary policy with dents of the Reserve Banks. Monetary policy is 7 business review an important topic for discussion at many of the rent business situation. This is followed by an meetings of the Board of Governors. Special analysis of the financial situation by one of the studies of various problems of monetary policy Economic Advisers to the Board. Frequently, — such as use of the tools, current and prospec the Director of the Division of International tive business and financial developments, and Finance gives a brief review of significant inter the effects of actions already taken—-are always national under way among the staffs of the Board and those relating to the United States’ balance of the Reserve Banks. Informal discussions relat international payments. financial developments, particularly ing to monetary policy occur daily among mem The chairman then conducts a “ go around,” bers of the Board and the presidents. In other calling on each member of the Board and each words, members of the Board and the presidents of the presidents. The vice chairman of the “ live with” the formulation of monetary policy. Committee (president of the Federal Reserve It may be of interest to describe the more for Bank of New York) leads off, devoting a part mal procedures followed in the meetings of the of his statement to conditions and recent devel Federal Open Market Committee and the daily opments in the money and capital markets. Each telephone meeting with the Manager of the president reports briefly on business and finan Open Market Account. cial conditions in his district, discusses other developments that he considers of significance, Typical meeting of O.M.C. and then gives his views as to whether monetary The Federal Open Market Committee usually policy continues to be appropriate. Board mem meets every three weeks in the board room of bers usually emphasize certain aspects of the the Board of Governors’ building in Washing business and financial situation which they con ton. The seven members of the Board and the sider to be of crucial importance and then give 12 presidents of the Reserve Banks sit around their views on current monetary policy. a long, oval table. The Chairman of the Board Following the go-around, the chairman gives of Governors, who is chairman of the Commit his own views and states what he considers to tee, calls the meeting to order promptly at be the consensus expressed around the table. 10 a.m. The first order of business is a report by the Manager of the Open Market Account on open Usually a clear majority is in favor of certain policies; if not, there is further discussion, and agreement is finally reached. market operations and money market conditions It should be pointed out here that a unani since the last meeting of the Committee. Follow mous vote does not mean that there are no dif ing the Manager’s report, there is an opportu ferences of opinion among the members of the nity for questions and discussion. Committee. A free and frank exchange of views, Next there are brief analyses of the business, such as takes place at the meeting, often reveals financial, and international economic situations differences of opinion as to what current policy by senior members of the Board’s staff of econ should be. But the differences are frequently omists. The Director of the Board’s Division of relatively minor and relate to degrees of restraint Research and Statistics gives a talk of about 10 or ease. Divergences are usually not sufficient minutes dealing with the highlights of the cur for dissenting members to vote formally in op 8 business review position to the position represented by the con sensus. conditions in the market and open market oper ations. Occasionally, the chairman may arrange a telephone meeting of the full Committee to Daily telephone meeting consider some more serious question which re The Manager of the Open Market Account at quires immediate decision. tends the meetings of the Federal Open Market Committee. Hearing the discussion leading up CONCLUSIONS to the adoption of the directive for the conduct To one accustomed to responsibility being cen of open market operations for the next three tralized in one person, the decentralization of weeks gives the Manager a clearer understand authority and the policymaking procedure of ing of the Committee’s intentions. The directive the Federal Reserve System may appear confus is necessarily in somewhat general terms. Quan ing and cumbersome. The form of organization titative indicators of restraint and ease are not is one in which a relatively large number par sufficiently reliable so that the Committee’s in ticipate directly in policymaking decisions. It is tentions can be achieved under changing condi not so conducive to prompt actions and flexibil tions by setting specific quantitative targets. ity as when responsibility is centralized in one Neither is it possible to forecast accurately what person. Then, too, group decisions usually repre conditions will be, especially in the rapidly sent compromises, as some critics have pointed changing money and credit markets. out. A technique that helps maintain closer liaison The policymaking procedure of the Federal between the Committee and the Manager is the Reserve has important offsetting advantages. It daily telephone meeting at 11 a.m. This meeting brings to bear on any question up for decision includes a member of the Board of Governors much more information than any individual or one of the Economic Advisers to the Board, could possibly possess. The procedure makes one of the presidents currently serving on the available to the policymakers regional condi Committee, and the Manager of the Open Mar tions and problems as well as national, and pen ket Account or one of his officers engaged di etrates all the way down to the grass roots, rectly in supervising operations of the trading tapping the views and the experience of men desk. The meeting usually starts off with a sum actually engaged in a wide variety of economic mary of the current situation by the Manager activities. Group discussions among the policy of the Account or his representative, covering makers bring out all angles of the problem be such factors as the availability of reserves, and ing considered, and a decision emerges only the tone and conditions in the money and Gov after the implications have been thoroughly ernment securities markets. Following this sum explored. Last, but not least, group decisions mary and a discussion of the situation, a de arrived at through a democratic process of frank cision is reached as to what action, if any, and free discussion among informed and respon should be taken in the market that day. sible men are much less likely than one-man In addition to the daily telephone meeting, decisions to result in colossal blunders. The im members of the Board and the presidents are portance of a system of checks and balances, in often in contact with the Manager regarding preference to responsibility being centered in 9 business review one person or one group, was recognized in the ernment with legislative, executive, and judiciary establishment of our democratic form of gov branches. 10 NEW PUBLICATION THE SEASONAL SQUEEZE " A t this time of year," the banker explained, "things are always tight. Loan applications pile up faster than we can process them. W e can't tell where our next deposit dollar is coming from ." Th is is a typical description of the seasonal problems faced by the typical banker. As spring gives way to summer, summer to fall, and fall to winter, the volume of business activity ebbs and swells. Reflecting these changing conditions in agriculture, industry, and commerce, bankers ex perience periodic ups and downs in credit de mands and cash reserves. Recently the Federal Reserve Bank of Philadel phia has completed a detailed study of the seasonal patterns involved in Third D istrict bank ing. The study uncovers a two-way seasonal squeeze in the Third D istrict— a seasonal expan sion of loans roughly from May through Septem ber compounded by a simultaneous loss of reserve funds. The study explains the different types of loans involved in the seasonal credit expansion and the factors responsible fo r the contraction in reserves. The objectives of the study are threefold: (I) to show the individual banker the seasonal forces at work on his bread and butter— on his ioans and deposits; (2) to explain a simple method by which bankers can anticipate future seasonal require ments; (3) to illustrate the position of the Federal Reserve System with respect to the seasonal prob lems of both the individual banker and the bank ing system. Copies of the study may be obtained by w rit ing to the Bank and Public Relations Department, Federal Reserve Bank of Philadelphia, Philadel phia I , Pennsylvania. 11 THE BUSINESS OUTLOOK From a Returning Vacationist A few weeks at the seashore would seem to be This year not so. Big issues were discussed— a peculiar way to prepare yourself to write an even argued. There was talk of foreign trade article concerning the outlook for business. Of problems, the growing tendency for American course, this preparation could be overcome by manufacturers to put new facilities overseas, and a few days of intensive study of all the facts the feeling some had that our prestige and and figures that were missed while fishing, swim influence were slowly waning throughout the ming, and boating. But, somehow it seemed to world. Others talked of problems in education. the writer that he may have learned something They wondered how we might better permit at the shore away from the statistics— something knowledge to be brought to bear with greater he had better say before becoming immersed efficiency on the major issues of our times, how again in facts and figures. we might better select and develop first-rate in First off, let me say that the “ national mood” tellectual talent, and how we might more favor is changing. Now here is a big statement. Per ably project our philosophies on other peoples haps only an economist who hasn’t conferred in the world. The political conventions sparked with any of his associates for a few weeks or so discussions concerning economic growth, inter would make it. But I believe it to be true, even est rates, support for farm prices, our position though the statement is made on the basis of with Russia, and our national purpose. pretty flimsy evidence, i.e., on-the-beach con versations. Suddenly, it seems, people are vitally inter ested in what is going on around them, in the Parenthetically, I might say that the beach bigger issues of our times. This is good. But is a peculiarly good place for conversation. For momentarily, at least, it may be producing a the men, at least, the only status symbol is the mood of pessimism. depth of their tan. Everybody tends to feel at The first things that people tend to look for one with the rest. Free expression is encouraged. when they think of hard problems are easy an For some years now most of the vacationers swers. But easy answers to the big issues are to whom I talked seemed preoccupied with their not forthcoming. We can’t just lower prices to own problems. Sending children to college, their sell more products in foreign countries, raise health, and the re-runs on summer TV were tariffs to protect our home market, order our discussed loud and long. Of course, the latest colleges to develop more first-rate intellects, popular movies and novels also came in for make the world believe it should like everything some considerable discussion and every now and about the United States. So that for the mo again a critical moment was devoted to inflation ment our sudden awareness of the big issues is and communism, but mostly the talks were light producing a feeling of discouragement. and airy. 12 The stock market reflects and then its be business review havior reinforces the more or less gloomy mood. what happened during the last cycle. Clearly the Business conditions have been influenced by the recovery that has come about is not like that market. The year to date has not proceeded the which took place in 1955 and 1956. At that time way most economists and businessmen thought it was fairly clear that the seeds of the next it would— 1960 has not come up to expecta recession were being sown in the excesses of tions. the boom attendant to the recovery. In 1958 and Spending by businessmen and consu mers is not so buoyant when a feeling of dis 1959, however, it would be difficult to describe couragement is pervasive. the business totals intensifies Disappointment in that discouraged feeling. It is within this over-all mood that we try to business environment as having been “ boomy.” The rate of recovery was stepped up as the economy prepared for the steel strike, to be sure, but if that was a “ boom” we had our see what’s ahead for business. When I left for offsetting “ bust” during and just following the vacation most of the analysts to whom I talked strike. For the most part, since the low point in felt the economy was proceeding through a nor 1958, upward movement in the economy has mal business cycle. The pattern was similar to seemed somewhat restrained. that which occurred in the 1953 through 1957 What many economists are thinking now, if period— recession, growth, leveling, recession. not actually saying, is that our economy has All felt the economy was leveling at that time, moved into a new secular phase. The earlier and that the recession phase would begin mani post-war period— where recoveries were long festing itself in gross national product figures at and strong and recessions shallow and brief— the latest by mid-1961. When pressed for more is over. The new secular phase will see recover precise timing most people said they thought ies of somewhat less strength and staying power, the recession would strike just after the turn of and somewhat deeper and longer recessions. the year. The recession, it was said, would be Again, I have a certain reluctance to accept a modest one— not so severe as in 1957-1958. this notion. Recessions are caused, they don’t The consensus was that the relative shallowness just happen. No one has adequately explained of the anticipated recession could be predicted what is causing the recession we are to have. from the modest proportions of the boom that It’s being predicted largely because this is what would have preceded it. happened before. Last time the cycle went: re Upon returning, a few changes are perceptible cession, recovery, level, recession. But it doesn’t but mostly things are the same. A few now say have to repeat itself. This time, after level, why that the recession has already begun. A small can’t we go up? We can! But upturns must have minority expect it to show itself clearly in third- causes, too. quarter statistics. There is also more of a tend From where will the additional strength ency to prophesy a recession of about the same come? Probably not from business spending. proportion and duration as in 1957-1958. A surge in* inventory spending would be un Perhaps it’s only because of my just-completed warranted— even dangerous— without a clear sig vacation, but I have a certain reluctance to ac nal that total demand is rising well beyond the cept the consensus. It strikes me as just too easy present ceiling. Any sizable increase in spending to liken what is happening and will happen to by business for plant and equipment is virtually 13 business review ruled out by the current overhang of excess ca for the next year or so. The rise that is expected pacity. But both of these areas of spending at this time is a modest one. State and local should remain firm to slightly higher, if demand government spending has been pressing higher from for some time now through recessions, booms, consumers and governments bounces higher. and periods of leveling. It doesn’t always have How about consumers? Consumer spending to hold to that pace, but it probably will for has not come up to the expectations of the con the next year or so. Federal Government spend sensus of forecasters for the past few years, de ing is expected to rise only very modestly. Of spite some flurries that brought about excited course, world events and other matters could claims to the contrary. Some people, at the turn greatly change that prophecy. of the year, observing this consumer lethargy Thus, if the future doesn’t look overly strong, said the time was ripe in the first half of 1960 neither does it appear terribly weak. It is not for a really big buying spree. It didn’t come. at all unlikely that the economy which was Will it come in the latter part of 1960 and on “ leveling” — moving upward at a sluggish pace— into 1961? Probably not. The consumer is a dif when I left for vacation, leveling when I re ferent sort from his earlier post-war self. He’s turned, will be leveling at the turn of the year. older, better stocked with consumer goods, and Possibly, too, a recession by mid-1961 still will more debt-ridden, among other things. In gen be predicted by the consensus of forecasters. eral his spending isn’t so responsive as before, But I can’t help feeling that what I learned on whether to increases in income, more readily the beach is heartening. If the national mood is available credit, or to more attractive goods. changing and people are coming to take more Although it is unlikely that consumers will go interest in the big issues that surround them, and on a buying spree, it is possible that their spend if discouragement at this moment arises out of ing will rise rather strongly from current levels. their inability to find easy answers to these Housing, automobiles, and appliances are each hard problems, then soon more realistic solu areas of potential stimulus for the economy. Even tions will manifest themselves. As this happens modest increases in spending on these goods our society will get on with the jobs that must would virtually rule out the “ inevitable” reces be done. When we do, the spark that has been sion that almost everyone expects. missing will return, and then our cycle could Government spending will quite likely rise 14 read: recession, recovery, level, up. NEW PUBLICATION Industrial Production— 1959 Revision (225 pages) is now avail able from the Board of Governors of the Federal Reserve System, Washington 25, D.C. It provides descriptive ma terial and statistical tables on the revision of the industrial production index and its method of computation. Analyti cal aspects of the revised index relating to industrial classification, market groupings, output-per-manhour ad justments, and seasonal fluctuations and weighting are presented. The price is $1 per copy up to 10 copies, and 85c each for 10 or more copies in a single shipment. FO R TH E R E C O R D . . . B U S IN E S S y, W t FA C TO RY PA Y RO LLS, D IS T. 140- FA C TO RY EM PLO Y M E N T, DIST. (1949 = 100) !1 | D E P A R T S E N T STO RE SA LES, D IST. I! ^ (194749 = 1 > SEASONALLY AOJ.) 0, *- A Ay VV C O N SU M ER PRICES, PHILA . --------------------------------YE AR A 30 C 2 Y EA RS AGO JUNE 1960 Third Federal Reserve District United States Per cent change Per cent change SUM M A RY June I960 from year ago mo. ago 6 mos. I960 from year ago 6 mos. I960 from year year ago ago June I960 from mo. ago Factory* Employ ment LOCAL CHANGES Department Storef Check Payments Sales Stocks Per cent change June I960 from Per cent change June I960 from Payrolls Per cent Per cent change change June I960 June I960 from from Per cent change June I960 from mo. year mo. year mo. year mo. year mo. year ago ago ago ago ago ago ago ago ago ago O UTPUT Manufacturing production. Construction contracts . . . Coal mining ...................... 0 + 8 - 7 - 3 - 3 -1 2 0 — 8 — 3 - 1 + 4 - 5 — i — 5 - 7 + 4 — 7 - 1 0 0 TRADE* Department store sales . . . Department store stocks .. + 6 + 2 B A N K IN G (A ll member banks) Deposits ............................. + 1 Loans ................................... + 2 Investments ........................ - 2 U.S. Govt, securities....... - 2 Other ................................. - 1 Check payments ............... + It PRIC ES Consumer ............................ 0 0 1 + 3 + 3 + 2 + 0 0 + 6 + 3 + 2 3 + 3 - Lancaster ___ + 1 - 1 + 1 - 0 + 1 0 + 2 + 4 - Reading ....... 0 + 1 - 2 — 1 + 10 + 2 Scranton ....... + 1 1 + 5 + 13 +13 2 + 8 + 3 1 + 5 + 6 + 4 + 6 2 0 0 - 0 + 2 2 + 4 0 + 2 + 4 + 10 + 2 + 1 - 1 - 2 0 + 8 + 1 + 10 - II -1 3 - 5 + 10 0 + 1 1 -1 3 — 15 - 4 + 7 ot + 2f + 2t 0 0 0 + 2 0 + 2 |20 Cities JPhiladelphia 3 + 3 + 2 + 7 + 1 - 0 - 2 - 0 + 2 + 4 - Wilkes-Barre . 0 0 - Wilmington . + 1 - 1 + 3 + 2 + 10 + 5 + 5 + 3 +25 + 13 York ............. + 1 + 1 1 — 8 — II - 2 + 7f + 3 + 10 — 6 - 7 - 2 + 5t •Adjusted for seasonal variation. + 2 + 3 1 - Philadelphia . 0 — 1 0 + 3 - Flarrisburg . . . - EM PLO YM ENT AND IN C O M E Factory employment (Total) ............................... Factory wage income....... Lehigh Valley 1 0 — 1 - Trenton ......... + - 1 - 3 - 5 3 + 1 + & - 4 + 8 + 4 - 1 2 - 3 + 13 + 9 4 + 2 2 + 2 + 7 + 6 0 0 + 2 + 2 *Not restricted to corporate lim its of cities but covers areas of one or more counties. fAdjusted for seasonal variation.
@FedFRASER