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FEBRUA RY
1957
business review
FEDERAL RESERVE
BANK OF
PHILADELPHIA
DELPHIA IN TH E FIFTIES
been said about business conditions in this area,
some “ snapshots" of business activity for your album,
bet that some of what is revealed will surprise you.
ES IN A C O M PETITIVE M A RKET
Unit volume in W 5 6 increased more than dollar volume, reflecting
price competition and some shifts in consumers’ preferences.
TH IR D D ISTRIC T BA N KIN G — 195 6
Active business was reflected in expanding loans and in higher
bank earnings. Bank costs also increased.
C URRENT TREN D S
Shortly after this copy of the Business Review reaches you our Annual
Report for 1956 will become available. Entitled "Money and G rowth,"
the Report leads off with a brief analysis of the relationship between
changes in the money supply and the pace of economic growth.
It then turns to the most outstanding economic development of 1956
— tight money— and discusses two fundamental questions: W hat is it?
and W hy did we have it?
For those concerned with the more technical aspects of monetary policy,
the third section of the report goes a little beneath the surface of one of
the significant developments of the year— the heavy volume of borrowing
from Federal Reserve Banks. W e have used the case-example approach to
find out something about the why, who and how of bank borrowing.
In the fourth section we talk about an activity of this Bank that we con
sider important, particularly in a year like 1956— that is, creating a better
understanding of the objectives and problems of the Federal Reserve
System.
Finally, the remainder of the report presents pertinent facts about
operations of the Bank during the year.
Copies are available on request to the Department of Research, Federal
Reserve Bank of Philadelphia, 925 Chestnut Street, Philadelphia I, Pa.
PHILADELPHIA
IN THE FIFTIES
Philadelphians have long since become accus
This article hopes not to deal in easy general
tomed to reading easy generalities about them
ities— or at least only to generalize from factual
selves and their area. They’ve read that they eat
information. No one should belittle the impact
scrapple every morning, “ pull in their pavements’ '
every evening and have only descendants of sign
that the brave new words and resurgent spirit have
ers of the Declaration of Independence living on
had on the Philadelphia scene since the war. They
have helped immeasurably. But it is time for an
their Main Line. Of course, they’ve never taken
economic stock taking, a summing up to see just
seriously all the ribbing— mostly from New York
how much progress has been made— to see just
ers— about their perpetually somnolent state.
where Philadelphia stands in the fifties.
In the 1950’s, Philadelphians have been reading
At the outset it is well to remind ourselves that
different kinds of things about themselves and
no over-all measure of business activity— such as
their area. New labels and words are used. “ Dela
Gross National Product— exists for the Philadel
ware Valley. USA” describes the Greater Phila
phia Metropolitan Area. It is possible only to look
delphia industrial area. And words like “ renais
at various “ snapshots” of the business scene.
san ce,” “ sp irited ,” and “ buoyant” replace
“ somnolence,” “ complacent,” and “ stagnant.”
Indeed Philadelphians lor Delaware Valley-
P o p u la tio n g ro w th is ra p id
Probably one of the most comprehensive and
ansi would like to accept nearly all the general
meaningful measures of the general health of an
ities they read about themselves and their area
area is population growth. In a free society like
these days. But after years of reading generalities
ours people go where they want and they usually
that didn’t seem entirely appropriate, it is difficult
want to go where there are business and job op
suddenly to accept the new. Some Philadelphians
portunities and where it is pleasant to live. So this
can’t help being just a bit skeptical.
first “ snapshot” is an important one in the album.
3
business re v ie w
Population within this nation seems to be fol
seen in the chart, population locally grew only 2
lowing the sun. People are moving from the older
per cent from 1930 to 1940 as compared with the
industrial centers and farms to some areas of the
national gain of 7 per cent. From 1940 to 1950,
South and Far West. Moderate temperatures,
however, population in the Philadelphia area
ocean breezes, and space to stretch your legs
climbed at nearly the same pace as the rest of the
originally were the attractions. More recently,
nation. And in the years since 1950, growth of
movement of industry to these same areas has
population in this area has exceeded that of the
made job opportunities another lure to prospec
country as a whole.
tive “ settlers.”
The rate of growth of population in the Phila
delphia area is faster than in the New York, Chi
POPULATION IN THIS AREA IS NOW
GROWING FASTER THAN IN THE U.S.
cago, Boston, Pittsburgh, and St. Louis metropol
itan areas. Among the large metropolitan centers
INDEX
0 9 0 0 = 10 0 )
only Los Angeles, San Francisco, Washington,
220-
and Detroit are growing more rapidly. Los An
geles and San Francisco are “ sun centers,” Wash
'C :
ington grows with Federal Government activities,
200-
and gains in the Detroit area pretty much follow
the fortunes of the automobile industry.
100 -
Of course, within the Philadelphia area rates of
growth vary widely. The seven suburban counties
P H IL A D E L P H IA
have grown by an average of 28 per cent since
1950, the city of Philadelphia by just 5 per cent.
The fact that the industrial and commercial heart
of this area— the city of Philadelphia— is growing
more slowly than its suburbs is viewed as a bad
sign by some. This sort of thing, however, is hap
pening all over the United States. The truth is
:: :
1910
1900
1920
1930
1940
1930 1956
(E)
Source: U.S. Census and C h a m b e r o f C o m m erce o f G re a te r
P h iladelp hia
that among the ten largest cities, Philadelphia’s
rate of growth since 1950 is exceeded only by Los
Angeles and Washington.
In the face of this strong pull from the “ sunny
regions.’ population in the Philadelphia area is
now growing more rapidly than for the rest of the
nation. This is no small achievement and is con
crete evidence of the attractiveness of this area as
a place to live and work.
The faster growth in the Philadelphia area is
all the more heartening since it reverses the trend
that established itself in the 1930’s. As can be
4
The Philadelphia area includes 5 Pennsyl
vania and 3 New Jersey Counties. The Penn
sylvania counties are: Philadelphia, Mont
gomery, Bucks, Chester and Delaware. The
counties from New Jersey are: Camden,
Gloucester and Burlington. The label "Phila
delphia" is used in the charts to embrace
this 8 county region except where specifi
cally noted otherwise.
business review
E m p lo y m e n t tre n d n o t e n tire ly h e a rte n in g
Population movements can reverse themselves fast
and they usually do when jobs are scarce. So that
this “ snapshot” of our local economy showing
EMPLOYMENT HERE ROSE FASTER
AFTER THE KOREAN OUTBREAK
INDEX
JAN. 1950=100
employment trends is a critical one. It could tell
us if we may logically expect the Philadelphia area
to continue to grow faster than the rest of the
nation.
The chart below gives employment trends since
January 1950. Remember that it is over the same
period that local population gains have been
faster than the average for the country as a whole.
Over most of the period charted, employment
in the Philadelphia area showed more increase
than the rest of the nation. From September 1950
through March 1955, local employment was more
buoyant than the country as a whole. Unfortu
nately, since May 1955 local employment trends
Shipbuilding employment has always increased
have not been encouraging. In fact, employment
spectacularly during wars.
totals in the Philadelphia area averaged lower in
With all of this, during the Korean War period,
1955 and 1956 than in 1953. Nationally, employ
total manufacturing employment in this area did
not reflect the full impact of defense needs. Local
ment set a new record in 1956.
It is difficult to interpret accurately the influ
ences that have caused employment totals to be
have as they have. It could be, however, that the
Korean intervention and the resulting hike in de
fense spending was an important factor over much
of the period charted. The Korean fighting began
late in June 1950. Employment in the Philadelphia
area increased noticeably in the summer of 1950
and generally continued to push upward through
out the period of heavy defense spending.
Employment in the Philadelphia area usually
seems to benefit more than commensurately from
manufacturers of textile, leather, and tobacco
products were undergoing basic readjustments at
the same time that many producers of durable
goods were feeling the effects of increased federal
spending.
The chart following gives manufacturing em
ployment in the Philadelphia area since 1950.
Defense spending is superimposed on this “ snap
shot. ’ The chart reveals some correlation between
changes in defense spending and local employment
in manufacturing.
Manufacturing employment in the Philadelphia
area rose pretty much with defense spending in
wars. For one thing Philadelphia is a manufactur
1951, 1952, and 1953. As defense spending de
ing center, and manufacturers are likely to feel
clined in 1954 and levelled over much of 1955 and
more of an impact from war needs than other em
1956, so did employment in local manufacturing.
ployers. Within manufacturing, shipbuilding is
Total employment in the local economy failed
relatively more important locally than nationally.
to respond as rapidly as the rest of the nation in
5
business re v ie w
MANUFACTURING EMPLOYMENT IN THIS AREA
FOLLOWED FEDERAL SPENDING ON “ ARMS”
BILLIONS $
6 0 ---------------------------------------------------
swelled faster than for the rest of the nation. To
some extent this blunted the impact of the more
rapid increases in employment on the unemploy
ment totals.
Finally, a larger part of the total population of
the Philadelphia area is in the labor force. At
latest count about 43 per cent of the population in
the Philadelphia area was in the labor force
against about 40 per cent nationally. One reason
for this is that the local area has a larger propor
tion of its women in the work force.
V a lu e added by m a n u fa c tu re la g s
5 0 0 v/v----- 1--------- 1---------1---------1-------- 1---------1---------1
1950
1951
1952
1953 1954 1955
1956
Earlier in this article the fact that the Philadel
phia area is a manufacturing center was men
1955 and 1956 largely because employment in
tioned. Basically, what this means is that a larger
manufacturing followed the same course as de
portion of the resources of this area is devoted to
fense spending over that period.
manufacturing than to any other phase of business
activity. For example, about 34 per cent of all
U n e m p lo y m e n t is h ig h e r in th is a re a
local workers are in manufacturing. At the na
Many of those who are skeptical about the resur
tional level, just about 26 per cent work in manu
gence that has taken place in the Philadelphia area
facturing. Since this is the case, a second look at
point to the figures in the chart following. Unem
this phase of business activity is appropriate.
ployment in the 1950’s consistently has repre
Value added by manufacture is a comprehen-
sented a larger part of the labor force locally than
nationally. A comprehensive explanation for this
discouraging statistic is hard to come by. But
UNEMPLOYMENT CONSISTENTLY HAS BEEN
HIGHER IN THE PHILADELPHIA AREA.
there are a few factors that, pieced together, might
provide a partial answer.
First off, the Philadelphia area began the fifties
with a larger part of its labor force unemployed.
For example, in January 1950, 10 per cent of the
local work force was unemployed as compared
with about 7 per cent nationally. Even though
employment in the Philadelphia area picked up
faster than the nation after the outbreak of fight
ing in Korea, it was chipping away at a propor
tionally larger total of unemployment.
Another complication is that over much of the
period since 1950, the labor force in this area
6
PER CENT OF LABO R FORCE
business re vie w
sive measure of industrial growth. In some ways
of the nation. Manufacturing of machinery, fab
it is the best measure of manufacturing activity.
ricated metals, instruments, and printing has
When there is substitution of machines for men,
gained at about the same rate locally and nation
employment is an unreliable guide. But value
ally. Ten industries in this area have lagged
added is not distorted by this switch. Of course,
behind national trends.
since value added is measured in current dollars
It is not possible in this article to discuss all the
it inflates growth when prices rise and vice versa.
causes behind the slower growth of local manu
Since price rises locally and nationally have been
facturing. Perhaps, however, it might be well to
roughly the same, this distortion is unimportant
mention that some industries of more than propor
in comparing relative rates of growth.
tionate importance locally have not grown rapidly
here or in the rest of the nation. Also, the Philadel
phia area is the industrial and commercial center
VALUE ADDED BY MANUFACTURE
PER CENT CHANGE 1947-1954
INDUS TRI ES
Rubber ..................................
Primary m e ta ls....................
Food .......................................
Furniture ..............................
Petroleum ..............................
Machinery ...........................
Printing ..................................
Electrical m achinery.........
Instruments .........................
Fabricated metals ...........
Apparel ................................
Chemicals ............................
Stone, clay, and glass. . . .
Textiles ..................................
L u m b e r..................................
Paper .....................................
Leather ..................................
Transportation equipment
Tobacco ................................
Miscellaneous ....................
PH ILA D ELPH IA
METROPOLITAN
AREA
+
+
+
+
+
+
T
4+
+
+
+
+
+
+
—
v ,+
+
' ' +
72.5
86.5
63.5
59.0
32.6
57.9
45.7
91.1
83.2
55.8
7.0
63.8
56.6
25.2
1 1.3
35.9
25.0
101.3
3.4
48.7
of a region with a slower long-term rate of growth
than the nation.
U N ITED
STATES
4*
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
46.5
64.1
49.1
45.0
27.6
57.2
45.8
91.7
84.6
57.8
13.4
71.2
65.3
12.2
26.1
55.9
6.8
135.1
54.1
103.8
C ap ita l sp e n d in g ris e s s h a rp ly
So far in the fifties, manufacturing activity in this
area may not be up to expectations, but there are
some signs that better days are coming. One such
bright signal is flashed by trends in capital spend
ing. Manufacturers in the Philadelphia area spent
37 per cent more in 1954 than they did in 1947.
For the nation as a whole, spending increased by
just 29 per cent. What’s more, in 1954 manufac
turers in this area spent more per employee than
the nation. In 1947, just the opposite was true.
Of course this “ snapshot” is a particularly
fuzzy one. Capital spending is the sort of thing
that can be pretty far out of line in any given
Unfortunately, value added by manufacture is
year. Taking just 1954 and 1947 is rather thin
not something that is measured each year. The
evidence on which to base any conclusions about
most recent years for which we have figures are
what is happening in the fifties. On the other hand,
1954 and 1947. Over that span, value added by
information gained from this Bank’s surveys of
manufacture in the Philadelphia area increased by
capital spending plans leads to the conclusion that
46 per cent. Nationally, value added rose by 56
expenditures per employee in this area are run
per cent.
ning consistently high.
The table shows value added by type of manu
facture. The first five industries listed are those in
R e ta il sa le s kee p pace
which manufacturing in the Philadelphia area has
One good all-purpose “ snapshot” of business ac
grown considerably more rapidly than for the rest
tivity in an area is retail sales. People don’t buy
7
business re v ie w
much unless they have jobs and a reasonable de
gree of optimism about the future.
If this is the case, growth in the Philadelphia
CAR SALES ARE BETTER IN THIS AREA
THAN THE REST OF THE NATION
IN D E X
( 1949 =
100)
area pretty well mirrors what is happening all over
the nation. The table below shows that retail trade
both locally and nationally increased by about 32
per cent from 1948 to 1954. This remarkable sim
ilarity in rates of growth persists to some extent
down into the major categories of retail trade.
For example, food stores in this area and the
nation experienced similar gains, as did eating
and drinking places, apparel stores, and drug
stores.
But there are differences too. Automobile deal
ers and gasoline service stations have done better
in the Philadelphia area than their counterparts
throughout the nation— so have dealers in lumber,
building materials, hardware and farm equipment
Source: Pennsylvania M o to r List C o m pa ny
taken in total.
On the other hand, furniture, home furnishing,
in retail sales locally and nationally are still run
appliances, and other retail stores— which include
ning neck and neck. What evidence there is, how
liquor stores, fuel and ice dealers, garden supply
ever, indicates this could be the case. The charts
stores, and jewelry stores— didn’t do so well in
show that car sales in the Philadelphia area con-
this area as compared with the rest of the nation.
General merchandise dealers— mainly department
stores— have not done quite so well in the local
area either.
There is no sure way of telling whether gains
PER CENT CHANGE IN RETAIL SALES
1948-1954
________________________________ U N ITED STA TES
Total .......................................
Food .......................................
Eating and drinking places
General merchandise . . . .
Apparel and accessories..
Furniture, home furnishings,
& appliances ..................
Automotive .........................
Gasoline service stations. .
Lumber, bldg, matls., hardware, farm equip.............
Drug .......................................
Other ....................................
8
PH ILA D ELPH IA
+
+
+
+
+
32
36
23
13
14
+
+
+
+
+
32
34
24
11
14
+
+
+
31
49
66
+
+
+
24
64
84
+
+
+
18
31
24
+
+
+
31
34
12
LOCAL DEPARTMENT STORES ARE NOT
KEEPING PACE WITH THE NATION
IN D E X
4 9 = 100 )
( 1947-
b usiness re v ie w
tinue to outpace the nation, but that department
more dwelling units than the nation. It is a little
stores sales in this area are still lagging behind.
dangerous, however, to print a picture from a
negative that, at the local level, relies so heavily on
C o n stru c tio n a c tiv ity has been b ris k
permits for new residential building. (Permits are
One small “ snapshot” of construction activity al
not always reliable forerunners of housing starts.)
ready has been discussed. We found that spending
on capital equipment by manufacturers in the
Th e p o rt re -e m e rg e s
Philadelphia area has more than kept pace with
Struthers Burt once wrote: “ One can live in Phila
national trends. It is possible to look at another
delphia all his life and not know that it is a sea
picture of construction activity.
port.” Mr. Burt wrote this in the 1940’s. It is per
The chart below shows relative changes in total
haps one measure of the difference between the
1940’s and 1950’s in Philadelphia that this state
TOTAL CONSTRUCTION CONTRACTS AWARDED
HAVE HELD HIGH LOCALLY AND NATIONALLY
ment probably would not be made today.
The once long-neglected Delaware River Port
is re-emerging as a source of pride to residents of
IN D E X
0 9 5 0 = 100 )
the Philadelphia area. A big story in local news
papers and periodicals revolves about the “ fortyfoot channel.” Other stories in the local press keep
Philadelphians constantly aware that their port is
growing fast and is now the number-one port in
import tonnage.
BUSINESS OF THE LOCAL PORT
IS ADVANCING
IN D E X
0 9 4 6 = 100)
1950
1951
1952
1953
1954
1955
1956
* 6 COUNTIES
Source: D odge C o rp o ra tio n
construction contract awards for the Philadelphia
area and 37 Eastern states since 1950. From this
chart it appears that the local area has held its
own over most of the period.
Also the evidence on hand seems to indicate that
residential building in this area has at least kept
up with national trends. In fact, by piecing to
gether various and sundry bits of information it
is possible to develop a negative, at least, that in
dicates that this area has added proportionally
1946
1948
1950
1952
1954
9
business re v ie w
The chart shows how business in the Delaware
are disquieting. Our unemployment as a percent
River Port Area and business of the nation’s ports
age of the labor force consistently has been higher
have grown since 1946. In addition, the local port
in this area than for the nation as a whole. But
seems destined to continue to grow. A deeper
even unemployment is not so prevalent as when
channel enabling more iron ore to travel farther
Philadelphia entered the 1950’s. Manufacturing
up the Delaware is one big reason. Another has to
activity, particularly as reflected by value added
do with the ever-expanding capacity for refining
data, is not progressing so rapidly in the Philadel
petroleum located along the river.
phia area as in the nation. It is hoped that the high
Conclusions
level of capital expenditures by local manufactur
ers is a forerunner of better things to come.
There are other “ snapshots” that could be pasted
It is disquieting too, in a sense, to see that some
in this album. But most of them are blurred by
of the things most frequently said about the area
age or otherwise lack clarity. None would change
have been implicitly refuted by the preceding
very much the total picture that emerges from the
preceding pages.
What is the total picture? That might depend
to some extent on the reader’s preconceptions. To
some it is disappointing. To others much better
than expected.
Progress has not been so rapid nor come so
easily as many prophesied right after U. S. Steel
announced it was going to construct a massive new
works in this area. But for progress to come at
all in the face of an exodus of textile firms— long
Philadelphia’s leading industry— is to others quite
remarkable.
To a person without any preconceptions— and
“ snapshots.”
For example, it has repeatedly been written that
“ the Philadelphia area’s economy is so diversified
that it is safe to say it will go as the nation goes.”
But it hasn’t. The nation’s employment peak was
set in 1956, the area’s in 1953. Employment in the
Philadelphia area rose more rapidly than employ
ment in the rest of the country after Korea. It
declined more slowly here than in the nation in
1954. And employment here declined further in
early 1955 while employment nationally was ris
ing. In 1956 employment here came back much
more slowly than for the nation as a whole.
no one who lives or works in or around the Phila
Needless to say, employment behavior over this
delphia area is that— Philadelphia in the fifties
period casts doubt on another frequently used
may look pretty good. The area is being peopled
axiom, “ Diversification in this area makes booms
faster than the rest of the country and faster than
and busts gentler than for the nation as a whole.”
most other large metropolitan areas. Port business
Of course, the album isn't nearly complete. The
is progressing at a good pace; and retail sales and
1950’s are only 70 per cent finished. But what will
construction activity are at least keeping up with
happen in 1957, 1958, and 1959 will be condi
national trends.
tioned at least by what happened over the vears
A few very important “ snapshots” in this album
10
measured.
b usiness review
APPLIANCES IN A COMPETITIVE MARKET
Appliances, like automobiles and houses, fought
In the area of entertainment, while the relatively
hard for their share of consumers’ dollars in 1956.
new high-fidelity sound units were making note
Appliance dealers, department stores, and the now
worthy gains, demand for portable television re
firmly established discount houses all were push
ceivers was showing considerably more strength
ing harder than ever for volume sales, so that com
than large-screen sales. And in record players,
petition was about as keen as any ever experienced
demand rose much more sharply for small port
in the merchandising field. Among major appli
ables than for combination radio-phonographs.
ance lines— the traditional white goods, television,
Last year’s experience in appliance merchandis
radio, high-fidelity sound, and air conditioning
ing at the national level and in the Philadelphia
equipment— several that had been leaders and the
Federal Reserve District appears to have been
“ bread and butter” for the trade became replace
similar. We learned about the local situation
ment market items when their position was taken
chiefly from representative dealers in some of our
by new favorites.
larger city areas.
U n it v o lu m e inc rea se d
T h ird D is tric t d e a le rs a re se llin g
From the standpoint of number of units sold, most
m o re se rvice
lines of appliances had a pretty good year. And on
Competition is just as tough here as elsewhere in
this basis alone, gains over 1955 were quite im
the country. The chief complaints are the cash
pressive in some instances. Measured in dollars,
however, last year’s increases were not so spectac
a matter of course by so many customers. Mr.
ular; in fact, total dollar sales seem to have fallen
Average Dealer tells us he must play a game of
short of the merchants’ expectations. One leading
give and take or risk losing the sale to a competi
discounts and high trade-in allowances taken as
merchandiser who handles all lines of appliances
tor. Sometimes this means shaving the profit mar
calls the value of sales out of line with the year’s
gin too close, so that business may be passed up.
high-level economy.
But more often a dealer manages a sale on the
strength of the service he has to offer. This is par
B u y e r p re fe re n c e s s h ifte d
ticularly true if he is one of the many who have
Price concessions, including cash discounts and
installed adequate service departments within the
high trade-in allowances again played a signifi
past year. Such facilities have become especially
cant role in sales of all major appliances. More
important in smaller areas where factory servicing
over, shifts in buyer preferences that frequently
of an appliance is less readily available.
ran to less expensive items also figured impor
tantly in the 1956 sales picture. Washers and
R e frig e ra tio n w a s a s lo w m o v e r
dryers, for example, moved into top places
In this District, sales of both refrigerators and
formerly held by refrigerators and home freezers.
home freezers seem to have made a particularly
11
business re v ie w
poor showing last year. Undoubtedly, fewer hous
line. But there also were dealers who felt that port
ing starts had some bearing on this situation.
ables had eaten into their large-set replacement
Figures from the Electrical Association of Phila
market, so they were more of a curse than a bless
delphia covering wholesale deliveries in the five-
ing.
county area indicate that unit sales in 1956 were
down considerably from a year earlier. Freezers,
Sa le s o f h i- fi e q u ip m e n t enc oura g ing
selling in good volume earlier, made the poorest
High-fidelity sound, the newest item in appliance
showing. Retail appliance dealers here and in
lines, gained considerable ground last year. More
other city areas also seem to have experienced a
and more dealers are coming to regard it in much
smaller demand for refrigeration. Although room
the same light as air conditioning when it made
air conditioners were a disappointing item with
its post-war debut. Very few are handling hi-fi in
many dealers last summer, subsequent promo
anything except package units, but in this form
tional sales boosted volume sharply.
the price makes it a very attractive item to the
La u n d ry e q u ip m e n t in good dem and
dollar-wise, and profit-wise. Color television, an
Many dealers appear to have been agreeably sur
other costly item, showed a small increase last
dealer. Sales of only a few units can mean a lot
prised by sharp increases last year in sales of
year and then in only a few areas where recep
clothes washers and dryers. Dish washers also
tion was best.
were in active demand. Although most washers
are less costly than either large refrigerators or
1 9 5 7 o u tlo o k is p ro m isin g
freezers, high unit sales went a long way toward
Third District appliance dealers are expecting a
building total dollar appliance volume. In another
good year in 1957. Most of them think last year’s
white goods sector— ranges— consumer interest
leaders again will be on top. All are hoping for an
varied widely from one area to another. In gen
improvement in the market for white goods lines
eral, neither unit nor dollar volume gave an im
like refrigerators, freezers, and ranges, but here
pressive comparison with 1955 sales.
much seems to depend on trends in home building.
In te le v is io n th e re w a s a sw itc h
have been excessive at the turn of the year. In that
Some dealers seemed satisfied with the over-all
line, sharp production cutbacks have been made
demand for television. But there were only a few
and more are probable. As both manufacturers
Inventories, except in television, do not appear to
who could regard their sales of large-screen re
and some distributors have heavy stocks of black-
ceivers with any degree of complacency. Portable
and-white receivers, price cuts on this “ distress”
television was the most active item in entertain
merchandise are in prospect. In most other lines,
ment equipment in 1956. Unit sales in this line
appliance dealers in this area see a good chance of
chalked up large increases everywhere but these
holding the price line. Over-all sales volume in
lower-price sets did little for dollar volume, and
January is said to have been pretty much in line
profit-wise were not a great asset to dealers. There
with seasonal expectations, and a few dealers re
were dealers who regarded portables as a blessing
port that last month’s business held up unusually
because they held up unit sales of their television
well.
12
business re v ie w
THIRD DISTRICT BANKING -1 9 5 6
High-level activity in business during 1956 was
But current expenses also were markedly higher.
reflected in the reports of member banks in the
Year
Third Federal Reserve District. Loans reached
been rising, as well as the miscellaneous costs
by
year, salary and wage costs have
new peaks and gross earnings of the banks were
of operation, and in 1956 interest payments
at record levels. Increases over 1955 in total bank
on deposits moved up considerably, a reflection
credit and in the net profits of banks, however,
of growth in time deposits and, in many cases,
were not as outstanding.
the payment of higher rates of interest. After
Loans totaling $4.1 billion at the end of 1956
meeting current expenses, $125 million remained
were up more than a quarter-billion dollars from
as “ net current earnings” — an increase of less
th a n $ 1 2 m i l l i o n o v e r 1955.
the previous year. This increase, while substan
tial, was only about half that reported in the
previous year. The slowing up was most marked
at reserve city banks, with head offices in Phila
delphia, which accounted for only about onefourth of the increase, although at the opening
of the year they had nearly one-half of the loans
at all member banks in the District. Reserve city
banks led in the expansion of business loans but
they added much less to real-estate loans than
did the country banks and reduced their loans in
some of the other classifications.
To help meet the demand for credit, both re
serve city and country banks sold securities or
allowed them to run off at maturity, with the
result that the increase in total earning assets
was less than $100 million— little more than 1
per cent.
The growth in deposits was larger,
approximating $250 million. Nearly half of this
was in time balances of individuals and business
concerns and relatively little in demand deposits
similarly owned.
Earnings reports for the year show total earn
ings up $36 million in 1956 to nearly $332 mil
lion, according to preliminary tabulations. Rela
tively few banks failed to share in this increase,
which was due mainly to the growth in loans.
M EM BER B A N K S
Th ird Federal Reserve
D istric t
( Dollar amounts in
millions)
Dec. 3 1,
1956*
Change in year**
Amount
Per cent
Loans .................................... $4,1 13
U .S. Gov't securities . . . . 2,368
Other se c u ritie s................
787
+ $271
- 151
— 24
+ 7%
— 6
— 3
Total earning assets. . $7,268
Deposits, total ..................
8,557
Capital a ccounts..............
853
+ $ 96
+ 252
+
31
+
+
+
— $ 0.6
0.7
32.1
5.5
1%
— 4
+ 18
+ 12
+ $36.3
+ 12%
+ $ 7.7
+
E a r n in g s ,
p r o fits
exp e n se s,
and
1%
3
4
Year
1956*
Earnings:
On U.S. Gov't
securities .............. $ 54.9
On other securities. .
19.0
On loans ..................... 206.5
A ll other .....................
51.3
Total earnings . . . . $331.7
C urrent expenses:
Salaries and wages.. $ 95.4
Interest on deposits.
33.2
A ll o t h e r .....................
77.6
—
+
+
+
+
7.5
9.5
9%
+ 29
+ 14
Total current
expenses ............ $206.2
+ $24.7
+ 14%
Net current earnings. . . $125.5
+ $ l 1.6
+
10%
Recoveries, profits, and
transfers from
reserves ..................... $ 6.8
Losses, charge-offs, and
transfers to reserves.
39.6
Taxes on net income. . .
35.9
— $ 0.9
-1 2 %
+
+
5.0
2.1
+
6
Net profits ..................... $ 56.8
34.2
Cash dividends declarec
+$
+
3.6
1.6
+
+
7%
5
+ 14
*Prelim inary tabulations.
**Adjusted for mergers, etc.
13
b usiness re v ie w
Further adjustments were still to be reckoned
charge-offs, and transfers to valuation reserves.”
with— recoveries and charge-offs on assets, trans
After these changes are taken into account, the
fers to and from valuation reserves, and income
record shows about $57 million of net profits
taxes.
heavier tax payments in the aggregate and larger
available for dividends, an increase of some $31/2
million over 1955. Approximately three-fifths of
amounts than in 1955 under the heading “ losses,
the profits were paid out in cash dividends.
The figures for 1956 show somewhat
CURRENT
T R E N DS
Some of the excessive enthusiasm about the busi
are a few of the many controversial subjects
ness outlook seems to be giving way to a more
discussed:
restrained and realistic optimism. Analysts are
Tight Money
now going beneath totals for this year to the pat
Selective vs. General Credit Controls
tern of activity throughout 1957. More of them
Independence of the Federal Reserve System
are questioning whether business might slow
Money and Production
down or even decline toward the end of the year.
They are keeping their fingers crossed about
automobile sales and are watching closely for
Money, Wages, and Inflation
Money on the Move
Their common denominator was money. And
any signs of a change in business plans for capi
while discussion about them turned up nothing
tal expenditures. Those who based their earlier
particularly new about money, it did bring the
predictions on the assumption of continued tight
nature of money into sharper focus. It was par
money may be starting to realize that such an
ticularly helpful in pointing up two attributes
assumption is putting the cart before the horse.
of money— its power and its limitations. These
Whether money is tight or not certainly will
characteristics emerge as one looks back over
affect business activity;
each of these topics of discussion.
but, more basically,
whether it is tight or not will depend on busi
Those who experienced tight money at first
ness activity. In any case, businessmen are likely
hand were impressed by the power of money.
to be more sensitive to changes in monetary
They found that money, like most things, takes
policy than they have been in the past. We arrived
on greater importance when it costs more and is
at this conclusion in preparing our Annual Re
harder to get. Those who had difficulty getting
port for 1956.
it learned once again that we use money in our
economy to allocate resources.
R e fle c tio n s on M o n e y in 1 9 5 6
And because
some found it harder than others to get money,
Looking back on 1956, we were impressed by
they found it harder to compete for resources.
the importance of monetary matters during the
So it was really a recognition of the power of
year. Probably more people talked, thought, and
money in distributing resources that was behind
learned more about money than in years. Here
most complaints about tight money.
14
b usiness re v ie w
Similarly with the controversy over selective
but also because it challenges something we often
versus general credit controls.
Those who felt
take for granted amid constant optimistic refer
that the impacts of general controls were un
ences to long-run growth— we tend to feel there
equal, unfair, and produced a maldistribution of
is no limit to how far our economy can go in
resources, argued for selective controls.
turning out goods and services.
Those
who felt that resources should be distributed
But with the
economy operating close to capacity, more money
through the market mechanism favored general
put at the disposal of one businessman could
controls.
enable him to increase his output only by giving
But the arguments of both groups
him the power to bid scarce resources away from
rested ultimately on the power of money.
With greater recognition of the power of
another. More money and credit, no matter how
of the
“ productive” for the borrower, could not squeeze
power of the agency that regulates money— the
more goods and services out of the economy. It
Federal Reserve System. And this raised anew
would simply have brought forth higher prices.
questions about the relationship of the Federal
This was the main limitation of money apparent
money
came
increased
consciousness
Reserve to Government. Should steps be taken to
“ coordinate”
monetary policy
with economic
policies of the Executive Branch? Or should the
Federal
Reserve
continue
an
“ independent”
agency responsible only to Congress?
Paradoxically, 1956 revealed just as clearly the
limitations of money, but this was a side fewer
people recognized, because most looked at money
from their own particular point of view. The
businessman knew that if he had more money
in the full-employment economy of 1956.
Moreover, since the money supply rose very
little and prices advanced nevertheless, more and
more observers raised questions about the role
of money in inflation. Some described the price
increases of 1956 as a “ cost-push” inflation
caused by wage boosts, rather than a “ demandpull” inflation caused by excessive money. The
distinction probably is not as sharp as it often
is made out to be, yet does suggest another limi
tation of money.
Events in 1956 reminded us
he could command more resources and increase
once more that an enlarged money supply is not
production. Then why not make it possible for
the only thing that can cause prices to rise.
everyone to have more money and thus increase
They reminded us, too, that narrow concentra
total production? Or, put it another way. People
tion on the money supply itself can be mislead
want to live better, travel, educate their children,
ing.
and enjoy more goods.
Why let tight money
creased velocity— can achieve the same results
stand in the way of building the houses, roads,
as the addition of new dollars. Because velocity
schools, and factories we need to meet their
rose during 1956 some concluded that restraint
wants?
of the money supply was ineffective.
More rapid use of existing dollars— in
Others
What these questions overlooked is that no
pointed out that it is reasonable to expect the
matter how powerful money may be in distribut
economy to use its money supply more efficiently
ing the output pie, sometimes it is powerless to
when money becomes more expensive and harder
increase the total size of the pie. This is hard to
to get, and that the effects of faster turnover can
see, not only because we tend to analyze the total
be offset by greater restraint on the money
economy in terms of our individual problems,
supply itself.
15
F OR T H E RECORD
INDEX
Departm ent Store
Factory*
Third Federal
Reserve District
Check
Payments
U n ite d States
Per cent change
Employ
ment
Per cent change
Sa es
Payrolls
Stocks
LOC AL
SUMMARY
December
1 95 6 from
mo.
ago
year
ago
12
mos.
195 6
from
year
ago
December
1 95 6 from
mo.
ago
year
ago
12
mos,
1956
from
year
ago
CHANGES
Per cent
change
December
1 95 6 from
mo.
ago
O UTPUT
M anufactu rin g p ro d u ctio n . . . + 1
- 9
C o a l m in in g ................................ - 1 2
EM PLOYM ENT A N D
IN C O M E
Factory employment ( T o ta l) .. .
+
1
-2
+
2
+
3
6
5
-8
-
9
+
7
+
+
1
5
+
1
+
2
4
-2
+1
+
+
5
6
+
4
+2
+2
0
+1
-1
+9
+ 2
+ 11
- 6
- 7
- 4
+ 1
+
0
2
+
0
4
0
1
+
+
3
5
+
+
2
1
0
1
1
51
+
+
+
3
7
5
6
3
3t
+ 1
+13
-1 0
-1 0
- 8
+ 8t
TRADE**
Departm ent store sa le s............
B A N K IN G
( A ll member banks)
Deposits.......................................
Loans............................................
Investments..................................
U.S. G ovt, securities..............
O t h e r . .......................................
Check paym ents.........................
- 4
-3 2
-1 1
+
+
+
+
0
+ 2
+15
- 9
-1 1
- 4
+ 8
Consum er.....................................
01 +
*Based on 3-month moving averages.
**A d ju s te d fo r seasonal va ria tio n .
16
31 +
11
|2 0 C ities
{P h ila d e lp h ia
+
+
4
3
+
+
3
1
year mo.
ago ago
-1
+ 1
0
0
+4
0
-2
-1
P h ila d e lp h ia .. + 1
+1
-1
-3
Lancaster. . . .
R e ading..........
PRICES
0
0
0
Per cent
Per cent
Per cent
change
change
change
December December December
1 95 6 from 19 5 6 from 19 5 6 from
year mo.
ago ago
year mo.
ago ago
Per cent
change
December
195 6 from
year mo.
ago ago
+10
+12
year
ago
-
1
+
3 +10
+
4
+
1 +34
-
2 -2 3
+
4 +
7 +11
+3
+
7 +26 +
2 -2 1
+
6 +
4 +
2
-1
+
1 +30 +10 -2 6
+13 +
4 -
2
1 +
6
S cranton.........
0
+3
0
T re n to n ...........
+1
+1
+4
+
1 -2 3
+
7 +
+
7 +49 +
7 -2 4
-
2 -1 3
+11
+50
+13
W ilk e s -B a rre . + 1
-4
0
+
3 +54
+
1 -2 1
+
1 +
8 +
9
W ilm in g to n . . . + 1
-4
+6
+
7 +34
+
4 -2 4
+
4 +48 +
9
Y o rk .................
+1
+2
+
4
+38 +
1 -2 7
0
5
0
0 -
* N o t restricted to c o rp o ra te limits of cities but covers areas o f one or
more counties.
@FedFRASER