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191a
FEDERAL RESERVE BANK OF PHILADELPHIA
Capital S pend ing— A Sharp Increase
Uncle Sam ’s Jobs
A Time-Deposit Profile
BUSINESS REVIEW is produced in the Department of Research. Bertram W. Zumeta was primarily responsible
for the article “ Uncle Sam’s Jobs," Jack C. Rothwell for “A Time-Deposit Profile” and Evelyn E. Major for “Capital Spending
—A Sharp Increase.” The authors will be glad to receive comments on their articles.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania 19101.
UNCLE SAM’S JOBS
Federal employment is a significant stimulus to economic activity in some parts of the Third Federal
Reserve District— particularly in the Philadelphia and Harrisburg areas. Mr. McNamara’s recent de
cisions contained bad news, in the weight of the blow to Central Pennsylvania, and good, in the re
tention of the Philadelphia Naval Shipyard.
America’s metropolitan regions are mobilizing
new work is at the federal base; more is gen
their defenses against many ills. In the older
erated through the demands of base employees
communities
economic
and their families for local goods and services.
growth is a pressing problem. The threats are
The net result is a healthy stimulus to business
evident enough in the pathos of dilapidated
in a community.
particularly,
faltering
neighborhoods, idle men, the empty stares of
vacant buildings.
The federal lunch may not be free, however.
What comes, can go.
Threat provokes reaction. Regional defenses
are marshaled in bright new city centers, cleared
The o ther sid e of Uncle Sam
slums, industrial parks— and in a heightened
The agencies that administer federal facilities
tempo of competition for industry. Putting peo
have varied missions. Their decisions concern
ple to work is so obviously important that an
ing location and expansion of installations are
intense, almost desperate concentration on get
properly based mainly on considerations unre
ting or holding large employers has developed.
lated to local needs for work. That fact was un
Among these employers, Uncle Sam stands
derlined in the week this article was written,
tall. He runs establishments, outside Washing
when the news came that a large base near Har
ton, D. C., that employ three times as many
risburg, Pennsylvania, along with naval ship
people as work for the largest private corpora
yards and defense installations in other parts of
tion. The clean, well-kept offices, factories, bases
the country, will be “ phased out.” The Federal
and laboratories of the Federal Government are
Government is not necessarily a surer bet to
rightly considered to be high prizes in the re
stay in town than any other employer.
gional competition for jobs.
There is little reason to expect otherwise.
To be sure, many of the people employed in
Consider, for example, the Department of De
a new governmental facility come into a com
fense, which accounts for a great part of all
munity from
elsewhere, bringing with them
federal civilian employment. It must adjust to
some problems as localities are suddenly faced
changes in demand and the means of meeting
with the costs of providing for increased pop
demand, just as does any industry. When a gov
ulations. In areas having labor surpluses, these
ernmental facility is obsolete or redundant, it
costs appear small when matched against the
eventually will be closed, as an industrial plant
new jobs that become available. Some of this
would be in the same case. A community ex
3
business review
ceptionally dependent on federal employment
Yard and defense installations near Atlantic
runs risks little different from those faced by
City and Harrisburg serve the country as a
any place that depends heavily on one employer.
whole rather than any particular part of it.
In evaluating the impact of federal establish
The im pact of fe d e ra l em plo ym ent
ments on a region’s economy, the distinction
“ Exceptionally” is the key word, above. The
between local and other services is important.
national government is an actor in local econ
A local post office, for instance, is not an inde
omies in two ways. First, it is obligated to serve,
pendent generator of employment and income.
in a number of functions. Every community of
Rather, it is in the community because the com
any size at all has some federal workers: post
munity has other ways of generating employ
office people, perhaps weather forecasters or
ment and income. Remove the community, and
federal law enforcers of one kind or another.
the post office goes, along with other local serv
The accompanying graph shows that every met
ices: stores, schools, barbers. But, short of a
ropolitan area in the Third Federal Reserve
drastic shrinkage in population or an adminis
District contains a group of federal workers.
trative reorganization of postal services, the post
The graph indicates, however, that some met
office will not go while the community remains.
ropolitan areas have much more federal employ
It is not a cause of economic activity; it is a
ment than others. In these regions, the govern
resultant. It is in that dependent sector of the
ment is present to an exceptional degree; it is
economy which reacts to the impact of activity
there not only to provide local and regional
in establishments that serve more than local
services, but also to do or make things for' the
demand: manufacturing plants, national offices
United States generally. Examples abound. The
of corporations, air bases, naval shipyards.
U. S. Mint in Philadelphia probably devotes at
The graph of federal employment in the Third
least 95 per cent of its resources to providing
Federal Reserve District indicates that federal
coins for parts of the nation outside the region
activities account for a minimum of one to two
around Philadelphia. The Philadelphia Navy
per cent of paid employment in small and me
FEDERAL EMPLOYEES IN 13 C O M M UN ITIES, 19 63
Third Federal Reserve District
PER CENT OF TOTAL NONFARM W AGE AND SALARY EMPLOYMENT
dium-sized metropolitan areas. Only in places
containing federal establishments that are ex
ternally oriented, serving a larger region or the
entire nation, does the figure rise much above
two per cent.
The minimum apparently is higher in very
large metropolitan
areas. The second graph
shows federal employment in the nation’s 15
largest metropolitan areas as a percentage of
total nonagricultural employment in those areas.
These figures in every case exceed two per cent.
It is reasonable that they should. The big me
tropolis has advantages as a location for offices,
York data adjusted for transfer of U. S. Naval Ordnance
Depot.
4
laboratories and regional control centers. Fur-
business review
FEDERAL EMPLOYEES
IN THE 1 5 LARGEST METROPOLITAN AREAS, 1 9 6 3
metropolitan area. Its almost 9,000 employees
PER CENT OF TOTAL NONFARM WAGE AND SALARY EMPLOYMENT
base of the metropolis. Their loss would have
constitute no mean portion of the economic
hurt the region severely— how much, will be
discussed later.
There
are
some
externally
oriented
non
defense establishments in Philadelphia and its
environs. The U. S. Mint, and the Eastern Utili
zation Research and Development Division of
the
Department
of
Agriculture,
located
in
Wyndmoor, Montgomery County, are examples.
thermore, the concept of local service takes in
Several hundred people are employed at each.
a good deal of geography when applied to a
The total employment in these non-defense agen
very large metropolitan area.
cies is much less than the number of employees
at such places as the Frankford Arsenal and
The case of P h ila d elp h ia
the naval shipyard, however.
an d its N a v y Y a rd
Philadelphia is an excellent example of the vari
How much local em p lo ym en t is g e n e rate d
ous ways in which the national government af
b y e x te r n a lly o rie n te d a ctiv itie s?
fects the work force of a metropolitan economy.
There are more dependent than independent
There are eight counties in the Philadelphia
Metropolitan Area. Federal employment is not
economic activities in a metropolitan area. It
distributed among the counties according to
people did more things for themselves. Genera
population, because the region contains a large
tions came and went without benefit of anes
may not always have been so. In earlier days,
group of externally oriented government estab
thesiology, television and service stations, psy
lishments. Most of these are under the Depart
chiatrists, or universal education through most
ment of Defense. If employment in the estab
of the adolescent years. Now, in each commu
lishments of that department and the Veterans
nity, specialists do things for people and busi
Administration is not considered, then the re
nesses which people and businesses used to do
maining federal employment in the area turns
for themselves. The specialists launder and com
out to be distributed roughly according to pop
pute, deliver packages and probe the consumer’s
ulation. Defense installations account for most
subconscious. Their work now enters separately
of the federal employment in the Philadelphia
into the reckoning of sources of employment
area that exists independently of the national
and income, because it has become specialized
government’s obligation to provide local and
work which is explicitly remunerated.
regional services.
No one knows exactly how many local jobs,
The Philadelphia Naval Shipyard provides
in any particular community, depend on jobs
almost one-quarter of the employment at de
independently created to serve demand originat
fense establishments in the City of Philadelphia
ing outside that community. The ratio between
and perhaps one-fifth of the total in the entire
the two kinds of employment varies from place
5
business review
to place and from time to time. To pin it down
air force base established there between 1950
to a number, even once, would involve exam
and 1960, near Dover, now employs more than
ining every job in an area, and deciding in
1,500 civilian workers. By the reasoning above,
which category it belonged. Some attempts have
this should have induced more than 1,500 ad
been made to estimate these ratios, however.
ditional jobs. The establishment of the base
Although the estimates differ, most of them
probably accounted for one-half or more of the
cluster between one and two; that is, from one
total added employment in the county over a
to two local jobs depend on each worker em
ten-year period, for employment in Kent County
ployed to produce goods or services that satisfy
demand originating outside the local area. It
only increased by about 5,000 between 1950
and 1960. This estimate of the base’s effect
is probably safer to assume ratios nearer the
may be low, for it neglects jobs created to pro
low end of this range. Most estimates do not
adjust for local employment that is basically
vide goods and services to families of military
supported by transfer payments: pensions, wel
In developing these local services, the area
fare payments, and so on. The effect is to over
has assumed a risk. If activity at the base should
state the extent to which local jobs depend
be sharply curtailed, there would be an over-
directly on jobs that serve external demand.
supply of local service establishments and peo
personnel who may live nearby.
The ratio fluctuates as basic demand fluctu
ple. This might not be a great problem in a
ates. A rapid buildup in basic functions over
rapidly growing area. But if the base accounted
strains local services; the ratio drops until local
for a large part of the area’s employment, and
facilities can be expanded. If the increase in
if other kinds of primary activity were not in
production for outside use is temporary, as in
creasing, a reverse leverage would come into
some places that suddenly find themselves with
play. Each job lost would subtract demand that
large defense establishments during a war, the
formerly supported one or more other jobs.
ratio may remain low until the temporary pro
Without growth in other basic industries to
duction stops. But if the increased activity lasts
replace the lost demand, the induced jobs also
long enough, opportunities in local service in
would go. They could not be spread for long
dustries will become apparent to enterprisers
over a smaller supporting group of independent
and the ratio will rise again.
industries.
The objective of the current scramble for
Almost precisely this situation has just de
basic employers, of course, is to get them into
veloped in the Harrisburg Metropolitan Area
a community permanently. Assuming a local
and some regions adjacent to it.
job ratio of one or more, every worker so ob
tained represents local demand that will eventu
Uncle S a m ’s o ther sid e a g a in —
ally create one or more additional jobs— indeed
the case of H arrisb urg
a powerful leverage.
Of all the major labor markets in the Third
Federal Reserve District, the one most depend
The avun cu lar sm ile— D over A ir Force Base
ent on federal jobs was hardest hit by recent
One of the most remarkable cases in point is
decisions to close military bases. This is the
in the middle of Delaware, in Kent County. An
Harrisburg area, consisting of Dauphin and
6
HOW
FAST HAVE TIME DEPOSITS G R O W N ?
Member bank time and savings deposits in recent years have spurted rapidly ahead both . . .
. . . in the Nation
. . . and in the Third District
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
Of the total of time and savings deposits, the time deposit component has shown the most rapid growth
both . . .
. . . nationally
. . . and in the Third District
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
A TIME-DEPOSIT PROFILE
Portrait of a Dynamic Financial Asset: Growth, Distribution, and Return
An article appearing in most major newspapers on November 24, 1964, provided interesting reading for bankers and their c.'s$mers, especially for those who got a bit further than the first paragraph. This latter group learned not only that the Federal
Reserve discount rate had been raised (from 3J to 4 per cent at five Federal Reserve Banks) but also that commercial banksAvhich are members of the Federal Reserve System would be allowed to pay higher interest rates on the time and savings deposits
/2
left with them by individuals, businesses and the like.1
With this new discretion, bankers will be taking a second look at the savings market. As they analyze their own situation, may be helpful to have a general picture of the nature of time deposits— how they have grown, who owns them, size, maturities,
interest rates, and so on.
The Federal Reserve Bank of Philadelphia recently completed a survey of Third District time deposits which explores some] of these questions. The results of this survey are what follow.2
Within the Third District, negotiable certificates of
deposit account for the largest share of time deposits.
Larger banks hold more negotiable C.D.’s relative to
their total time deposits.
Banks by
Deposit Size
Under $2 mil.
$2 m il.-$5 mil.
$5 m il.-$10 mil.
$10 m il.-$20 mil.
$20 m il.$100 mil.
Over $100 mil.
Non
Negoti negoti
Savings
able
abie
C.D.
C.D.
Certs.
All
Other
Time
2.6%
18.3
26.9
6.0
59.9%
44.4
47.2
64.8
14.0%
27.8
12.1
11.8
23.5%
9.5
13.8
17.4
32.2
50.6
30.2
5.9
19.1
7.5
18.5
36.0
Total
H O W BIG IS THE TYPICAL TIME DEPOSIT A C C O U N T A N D W H E N DOES IT MATURE?
The largest dollar volume of District time deposits
matures in a year, with another large block maturing
in six to eight months.
Deposits accounts of $500,000 and over account for
almost half of the dollar volume of total District time
deposits.
PER CENT OF TOTAL TIME DEPOSITS
AMOUNT OF DEPOSIT
PER CENT OF TOTAL TIME DEPOSITS
O
10
20
30
50
60
1
1
$1,000—
$4,999
100.0
100.0
40
---------- 1
---------- 1
---------- 1
-----------1
100.0%
100.0
100.0
100.0
$5,000—
$9,999
UNDER $1,000
$ 10 ,00 0-$2 4 ,9 9 9
As of June 1964.
n o n n e g o t ia b ie c e r t if ic a t e s o f d e p o s it
$25,000—
$99,999
W ffl
$ 100,000—
$499,999
H O W ARE THIRD DISTRICT TIME DEPOSITS DISTRIBUTED?
The larger banks hold the greatest dollar volume of
time deposits . . .
. . . but time deposits have been growing faster at
smaller banks.
$500,000 AND OVER
UNDER 3
3 -5
6 -8
9-11
12
OVER 12
MONTHS TO MATURITY
W H A T RETURN DOES THE TIME DEPOSITOR GET O N HIS M O NEY?
By far the largest proportion of District time deposits
earn interest at a rate of 4 per cent a year.
Negotiable C.D.’s carry the highest interest return . . .
PER CENT INTEREST
* Less than 0.5 per cent.
The largest contributors to the stock of time deposits
are businesses, individuals, and state and local gov
ernments.
TYPE OF DEPOSITOR
PER CENT OF TOTAL TIME DEPOSITS
0
10
20
30
40
50
Though big banks hold the largest share of business
time deposits, smaller banks hold the lion's share
of the time deposits of individuals.
PER CENT
2.50
2.99
3.24
3.49
3.74
3.99
PER CENT INTEREST
* Less than 0.5 per cent.
----------1 ----- 1
---------- ---------- 1 ----- 1
---------- ---------------------------------- ------ 1 1------1 1 ----- 1 ----1
-
m
BUSINESS
INDIVIDUALS
\
i 1i
STATE AND LOCAL
TRUST
FOREIGN
MISCELLANEOUS AND UNKNOW N
BANK
SAVINGS AND LOAN
CERTIFICATES
OF DEPOSIT
CERTIFICATES
O F DEPOSIT
CERTIFICATES
TIME DEPOSITS
m
□
□
]
]
!T h e Board’s press release read in part: “The Board of Governors also increased the maximum rates that member banks
are permitted to pay on savings deposits and time deposits—including certificates of deposit—to the following levels: (1) On
savings deposits, 4 per cent, regardless of tim e the funds have been on deposit. The maxim um rates previously permissible
were 3'A per cent on savings deposits in the bank for less than one year and 4 per cent on those on deposit for one year or
more. (2) On tim e deposits and certificates of deposit, 4 per cent for maturities of less than 90 days and 4'/2 per cent for all
longer maturities. The maximum rates previously permissible were 1 per cent for m aturities of less than 90 days, and 4 per
cent for longer m aturities.”
2 The term “savings deposits" is used in the charts which follow to mean the savings accounts of individuals and others
evidenced by a passbook or its equivalent. The term “time deposits” refers to all other tim e accounts. The survey reflects
conditions as of June 17, 1964 and includes reports from 184 banks.
. . . and time deposits that mature in 12 months
earn a higher rate of interest than other maturities.
As the size of the bank increases, the average interest rate paid on time deposits declines— that is,
until we get to the largest size class.
PER CENT INTEREST
UNDER 3
PER CENT INTEREST
3 -5
6 -8
9-11
12
OVER 12
UNDER 2
MONTHS TO MATURITY
2 -5
5-10
DEPOSIT SIZE -
10-20
20-100
OVER 100
MILLIONS OF DOLLARS
The highest average interest rates are paid to indi
viduals, foreign official accounts and to savings and
loan associations, the lowest rates to trusts, other
foreign accounts, banks and state and local gov
ernments.
TYPE OF DEPOSITOR
PER CENT INTEREST
0
1 2
3
4
5
There is considerable variation as to what average interest rate different size banks pay to the several classes
of time depositors.
BANKS BY DEPOSIT SIZE
(Millions $)
Type of
Depositor
Business
Individuals
State and local
Bank
Foreign official
Other foreign
Trust
Miscellaneous
Unknown
Savings and loan
Under $2
$2-$5
$5-$10
$10-$20
3.40%
3.97
2.98
3.54%
3.82
2.68
3.43%
3.92
2.64
4.00
3.10%
3.87
3.02
3.45
3.22%
3.89
3.22
3.00
4.00
3.83
2.00
3.00
3.39
3.73
1.00
3.70
2.97
3.68
2.69
3.47
3.36
3.23
3.31
2.50
4.00
3.07
$20-$100
3.82
Over $100
3.78%
3.78
3.80
3.56
3.82
2.53
1.98
3.85
3.98
3.83
business review
Cumberland counties. Olmsted Air Force Base
on, because growth in other primary employ
is located in the southern part of Dauphin
ment could take up the slack. The electrical
County, about ten miles from Harrisburg. It
machinery, chocolate and shoe manufacturing
will be phased out over a period of five years.
industries have been growing in the area. State
As of the middle of 1964, over 10,000 civilians
government employment may continue to in
were employed at the base. Several hundred
crease. A large research hospital is planned near
more worked at a satellite establishment in
Hershey. Furthermore, the air base is not going
Marietta, Lancaster County. The satellite also
to drop out of the economy overnight. The blow
will go.
will strike in slow motion, over a period of five
The Harrisburg region, with total employ
ment
approximating
165,000,
employs
years.
over
The direct loss of wage and salary employ
17.000 persons in federal establishments. Not
ment from the closing of the air force base
all are drawn from the local labor force, how
amounts to about 1.3 per cent of the area’s total
ever. Ten per cent or more come from outside
employment per year, for five years. The region
the area, either as daily or weekly commuters.
added jobs between 1953 and 1963 at slightly
Of these, a great number come from places
more than half that rate— 0.7 per cent per
hard hit by years of declining anthracite pro
year. Without growth in federal employment,
duction.
the rate would have been even lower. It is clear,
The closing of the air base will remove from
therefore, that the region will have to more
the Harrisburg region 10,000 jobs of the type
than double the recent rate of growth in em
which support induced employment in the re
ployment outside the federal category if it is
gion. In this case, estimates of induced local
to replace the federal jobs that will go during
employment should be reduced to allow for the
the next five years. If it does not, there will be
fact that some of the workers at the base come
a double penalty, in that induced employment
in from other areas and demand little from the
will drop off in response to the federal jobs
local economy. There is an offset to this, how
being lost and not replaced by new jobs in
ever, in the presence of several hundred mili
other functions. This decline, added to the pri
tary personnel at the base. These people and
mary decrease of 10,000, could increase the
total loss by several thousand.
their dependents create some business for local
establishments.
It need not be so. Harrisburg has only to
It is quite reasonable to suppose that closing
look south across the Susquehanna River to
the air base eventually may subtract 20,000 jobs
take heart from its neighbor, York. Last year
from an economy that only provides 165,000
York faced the same threat, albeit in miniature.
jobs altogether. A loss of 10,000 is certain, for
A naval ordnance depot employing about a
10.000 civilians work directly at the base, and
thousand people was about to close. But it re
the base is going to close. The others are not
mained open as a private enterprise doing the
certainly lost.
same kind of work, and has since actually in
The reason for saying “ not certainly lost”
creased the number of people it employs.
is that the 10,000 or so induced jobs exist in
The factory in York is a special case. It took
dependently of governmental fiat. They may go
over a large backlog of government contracts.
7
business review
It is, in effect, still an externally oriented facility
— it could have amounted to another 9,000.
of Uncle Sam. But it also is part of a large,
diversified manufacturing company, and there
W h at attracts Uncle also
fore has possibilities for diversification of its
attracts A m a lg a m a te d
own efforts that did not exist when it was a
There would seem to be a moral here. There
government establishment. Obviously, convert
is no magic security in having or acquiring fed
ing an air base poses a larger and less simple
eral employment. Uncle Sam’s jobs can come
problem. It has been done, however. Abandoned
and go, of course, in response to technological
air bases in South Carolina and Maine have
changes or strategic considerations. But they
been recently and successfully converted to in
also are affected by influences not very different
dustrial uses.
from those that attract or repel economic ac
tivity in general. Two major reasons were cited
for retention of the Philadelphia Naval Ship
The N a vy Y a rd a g a in
yard. One was a kind of accident— layout and
According to official statements, the Philadelphia
size. The other resulted directly from local effort
Naval Shipyard was retained because of its lay
-—the yard was efficient. Employers seek out
out and efficiency. Intensive efforts to increase
advantages inherent in geography and topog
production and cut costs paid off handsomely,
raphy; localities can do little about such things.
not only for the workers at the shipyard, but
Employers also seek out the cost advantages that
also for the region’s businesses and their em
accompany high productivity. Local people—
ployees, who sell goods and services to the Yard
local labor and local management and local
or to the people who work in it. Like Harris
mores and attitudes— control these. If the Phil
burg, the Philadelphia area is not growing rap
adelphia Yard’s natural advantages had not
idly enough to replace readily almost 9,000 pri
been accompanied by this locally produced ad
mary jobs. The area therefore was in danger of
vantage, the decision might have been different.
losing several thousand more work opportunities
Free lunches remain rare.
CAPITAL SPENDING A SHARP INCREASE
Manufacturing industries in the Philadelphia
spending. In the survey conducted by this Bank
Metropolitan Area will spend an estimated $389
in September, 1963, projections based on re
million on plant and equipment in 1964. For
sponses from over 500 firms indicated 1964
1965, the outlook is even brighter; preliminary
capital expenditures of $321 million. In May,
plans call for a 16 per cent increase over this
1964, this estimate was increased to $383 mil
year’s expenditures.
lion. Now manufacturers have raised their sights
Philadelphia manufacturers have raised their
sights with each new estimate of 1964 capital
8
again.
Durable goods industries plan a 32 per cent
business review
ESTIMATED CAPITAL EXPENDITURES OF MANUFACTURERS
DELAWARE A N D LEHIGH VALLEYS
Expenditures
(millions of dollars)
Region and Industry
1964
1965
Percent
Change
1964-1965
$389.1
$451.0
Durables
Lumber & furniture
Stone, clay, & glass
Primary metals
Fabricated metals
Machinery (excl. elect.)
Electrical machinery
Transportation equipment
Instruments & miscellaneous
156.9
2.1
21.6
30.7
18.4
27.8
25.9
12.2
18.2
207.0
5.7
14.1
75.5
16.4
29.1
27.9
17.9
20.4
Nondurables
Food & tobacco
Textiles
Apparel
Paper
Printing & publishing
Chemicals
Petroleum & coal
Rubber & leather
232.2
53.1
14.1
2.5
34.0
11.8
74.6
41.2
0.9
244.0
62.0
7.3
5.3
39.2
12.2
74.3
42.6
1.1
5.1
16.8
- 48.2
112.0
15.3
3.4
0.4
3.4
22.2
Lehigh Valley
All Manufacturing
63.9
65.5
2.5
Trenton
All Manufacturing
35.4
25.6
Wilmington
All Manufacturing
45.0
64.0
Philadelphia Metropolitan Area
All Manufacturing
15.9
31.9
171.4
34.7
145.9
- 10.9
4.7
7.7
46.7
12.1
-
-
27.7
42.2
increase in their capital expenditures for 1965,
and business optimism in planning for 1965 can
with primary metals, transportation equipment
be found in large measure in the current eco
and lumber and furniture makers recording ex
nomic environment. Like the brisk autumn days
ceptionally large increases.
that raise one’s spirits, the buoyant business
A less optimistic attitude prevails in Trenton
climate this fall has encouraged manufacturers
and the Lehigh Valley. Trenton manufacturers
to commit additional dollars to the expansion
project a 28 per cent decline in capital spending
and modernization of their enterprises.
for next year; those in the Lehigh Valley area
express cautious optimism with an estimated 3
Nineteen sixty-four has brought a record flow
of before-tax profits to American business.
per cent increase. Wilmington respondents, on
Moreover, the effects of the increase in depre
the other hand, predict a whopping 42 per cent
ciation allowances in 1962 are still generating
rise in capital spending for 1965.
additional internal funds to finance capital in
The survey this fall was conducted in October
vestment. The 1964 corporate tax cut is a fur
rather than September. Pushing back the sur
ther source of increased internal funds. All this
vey month may have eliminated some of the
means that a necessary condition of capital in
uncertainties in capital spending plans which
vestment is present in today’s economy— the
often have characterized responses made in the
money is available, and good profits provide an
earlier month.
incentive to invest it.
Tracking dow n the m otives
The reasons for increased spending this year
Secondly, many industries find that they need
additional capacity, and thus will make in
9
business review
creased
capital
expenditures,
particularly
on
construction. There has been a shift in the pat
tern of capital spending; more money is now
being spent on construction than in recent years.
Production increases have outpaced gains in
capacity since the end of 1961, as additional
demand has been generated by the long busi
The chart shows that year-ahead, projections tend to be
realized in years when business is good. Except in the
recession years, 1954, 1958 and 1961, manufacturers’
initial estimates of capital spending have been under
estimates. Furthermore, in every year when increases
were projected, the final result has been an increase.
CAPITAL SPENDING BY MANUFACTURERS
IN THE PHILADELPHIA AREA
MILLIONS OF DOLLARS
ness expansion. To meet this new demand, some
industries must
increase
their
capacity.
Al
though the over-all rate of capacity utilization
in the nation is still short of the 92 per cent
which the McGraw-Hill capital spending survey
states as the preferred rate, some individual in
dustries are nearing that goal.
Pressure for modernization of existing ca
pacity continues strong, however, as competi
tion, both foreign and domestic, increases. The
introduction of new products and processes also
necessitates some extensive renovation of exist
ing plants.
Recent and prospective increases in consumer
pace has been steady but not sensational. This
spending are a third factor contributing to the
moderation may help to prolong the expansion.
optimism of manufacturers. The maturing of
So far there have been no glaring excesses in
the war babies marks the beginning of heavy
either business or consumer spending. The rela
buying years for a record number of people in
tive stability of wholesale prices and the con
the young-adult age group. Improved business
tinuing rise in before-tax corporate profits are
conditions and tax cuts have given consumers
further favorable indications.
additional dollars. The historical pattern of con
Experience with this and other surveys shows
sumer behavior suggests that, after a short
that optimistic capital spending projections ma
pause to adjust for insufficient withholding of
terialize only in good years. The Philadelphia
taxes during 1964, consumers will continue to
area has been a lagging region in recent years,
spend more than 90 per cent of their additional
recovering slowly from national business re
take-home dollars.
cessions. In the results of this survey there is
tangible evidence that the long-continuing busi
ness recovery is finally taking full effect in the
This is the boom th at is
The current business expansion has already out
Philadelphia area. If business continues to be
lasted
good
the
upswing
of
1954^1957
by
nine
throughout
1965, the high projections
months, making it the longest in the postwar
may well be realized. The weight of evidence to
period. From its inception in 1961, the upward
date indicates that they will.
10
b u s i n e s s r e v ie w
F E D E R A L
R E S E R V E
B A N K
OF
P H I L A D E L P H I A
TA B LE OF C O N TEN TS- 1 9 6 4
JANUARY
W h e r e Is th e Fed H e a d in g ?
(A n n u a l R e p o r t Issue)
8 T ill 5— T he 4 0 - H o u r W o rk w e e k A f t e r 2 5 Y e a rs
19 63 : Im a g e in th e L o o k in g G la ss
FEBRUARY
19 63 : T he Y e a r th e T o rc h W a s Passed
S ta te m e n t o f K a rl R. B o p p B e fo re C o n g re s s io n a l C o m m it te e
H o w D oes O u r R e g io n G r o w ?
MARCH
C o n s u m e r S p e n d in g a n d th e In v e rte d W e d d in g C a k e T h e o ry
H o m e , S u ite H o m e
T he M a r k e t f o r O f f ic e S p a c e in P h ila d e lp h ia
A P R IL
A im in g a t a M o v in g T a r g e t: E n v iro n m e n t a n d th e G o a ls o f
F e d e ra l R e serve P o lic y
T he C u r r e n t Business E x p a n s io n : W h e r e fr o m H e re ?
MAY
M is tre s s M a r y vs. T h e M ills to n e Inn
H ig h e r G o a ls f o r C a p it a l S p e n d in g
JU NE
T he M u d d le in Bank S u p e rv is io n
T he U.S. B a la n ce o f P a y m e n ts — P re s e n t a n d F u tu re
H o w th e Fed H e lp s C h e c k s t o " H u r r y B a c k "
JU L Y
T he L ife a n d T im e s o f th e N o r th e a s t
W h a t A t t r a c t s T o d a y 's G r o w t h In d u s trie s ?
R e s o rt Business H e a d s f o r a N e w R e c o rd
AUGUST
M o n e tiz in g M o le c u le s
T he B a b y B oo m T h a t Is n 't
SEPTEMBER
W h a t P rice L iq u id ity ?
P h ila d e lp h ia 's M is s in g J o b s
OCTOBER
C a p a c it y a n d In fla tio n
W h a t Is B re w in g ?
T h e G o o d E a rth A t h ir s t
NOVEM BER
E c o n o m ic G r o w t h a n d L o c a l A c t io n
T he E gg a n d th e C h ic k e n
R e na issan ce o f th e R a ils?
T he F e d 's F iftie th A n n iv e r s a r y
DECEM BER
U n c le S am 's J o b s
A T im e -D e p o s it P ro file
C a p it a l S p e n d in g — A S h a rp In c re a s e
F O R THE R E C O R D . . .
Departm ent
S to re f
Facto ry*
Employ
ment
Payrolls
Sales
Check
Payments
Per cent
change
O ct 1964
from
Per cent change
Per cent change
Per cent
change
O cl 1964
from
Per cent
change
O cl 1964
from
Per cent
change
O ct. 1964
from
SUMMARY
10
mos.
1964
from
ye ar
ago
mo.
ago
ye ar
a go
mo.
ago
ye ar
ago
10
mos.
1964
from
ye ar
a go
— 1
O ct. 1964
from
+ 4
+ 4
LOCAL
CHANGES
+ 6
O ct. 1964
from
mo.
ago
MANUFACTURING
0
3
+ 8
+
+
1
-
3
+ 6
+ 12
+
7
-
+
6
+ 6
+ 4
+
7
+ 5
Electric p o w e r consum ed. . . .
Man-hours, t o t a l* ......................
Employment, t o t a l........................
W a g e in c o m e *.............................
-
C O N S T R U C T IO N **......................
COAL P RO DUCTIO N...................
TRADE***
Department store sales..............
B A N K IN G
(All member banks)
D eposits..........................................
Loans................................................
Investments.....................................
U.S. G o v t, securities.................
O th e r............................................
Check paym ents...........................
-
3
+ 14
1
Lehigh V alley. . .
7
+
1
+ 10
0
+
+
+15
4
-
2
0
0
— 1
+ 1
+ 6f
+ 6
+ 10
+ 6
+ 9
+ 2
- 3
+ 12
+ 3t
+ 2
- 5
+ 15
+ 5+
-
1
+
2
-
2
C onsum er.......................................
•P roduction w orkers only.
••V a lu e o f contracts.
•••A d ju ste d fo r seasonal va ria tion .
mo.
ago
ye ar
ago
mo.
a go
-
1
+
3
+
2
+22
-
2
1
0
0
0
4
+ 8
+ 12
+ 2
- 2
+ 10
+ 5
-
1
+
1
-
1
+
1
ye a r
ago
+ 7
+ 13
S cra nto n .............
-
0
- 7
+ 13
+ 10
T re n to n ...............
ot
+
It
+
2t
0
0
+
0
1
+
f2 0 Cities
{P hiladelphia
0
1
0
2
+
+
3
1
-1 8
+ n
+
2
+ 16
1
+
5
-
9
+ 14
+
7
-
1
0
+
2
+ 15
+ 18
-
2
-
2
1
+
3
+
6
+ 13
+
3
+ 13
-
6
+
9
+ 15
+21
0
+
4
+ 12
+
0
+
6
+ 15
+
+ 13
+
9
+25
+
6
+44
1
+
2
+
0
-
2
-1 0
W ilk e s -B a rre . . .
-
1
+
1
W ilm in g to n . . . .
+
+
+ 10
Lancaster............
Philadelphia. . . .
-
2
H a rrisb u rg ..........
Reading...............
PRICES
ye ar
ago
3
3
-1 3
2
- 6
-
+
mo.
ago
+ 8
1
ye ar
ago
-
6
-
1
-1 3
0
Y o rk .....................
-
1
+
9
+
1
-
3
4
+
5
8
+28
• N o t restricted to c o rp o ra te limits o f cities but covers areas o f one o r more
counties.
{A dju ste d fo r seasonal va ria tion .
@FedFRASER