The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Business Review Philadelphia's Lagging Loans Managing the Public Debt at High Interest Rates Prosperity Hits Home Philadelphia’s Lagging Loans: . . . Business loans made by Philadelphia bankers have lagged behind national experience in the present business expansion. Principal reason: Philadelphia’s trailing industrial growth. Managing the Public Debt at High Interest Rates: . . . The recent issuance of 5 per cent Government securities recalls the Magic Fives brought out more than six years ago. Prosperity Hits Home: . . . Third District metropolitan areas shared more fully than usual in the current business expansion. Prospects for 1966 are even better. BUSINESS REVIEW is produced in the D ep artm ent of Research. Donald R. Hulm es prepared the layout and artwork. Jack C. Rothwell and A rthur H. Darling were prim arily responsible for the article “ P hiladelphia's Lagging Loans,” Kathryn Kalm bach for “ M anaging the Public Debt at High Interest Rates,” and Bertram W. Zum eta for “ Prosperity Hits Hom e.” FRASER Digitized forThe authors w ill be glad to receive com m ents on th eir articles. Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia, http://fraser.stlouisfed.org/ Philadelphia, Pennsylvania 19101. Federal Reserve Bank of St. Louis During 60 months of solid economic expansion, bank loans to business firms have increased by well over 50 per cent. Despite the general strength in business loans, however, commercial banks in the Philadelphia area have lagged behind their counterparts in other major cities in lending to the busi nessman. Here we take a look at some of the reasons for . . . PHILADELPHIA’S LAGGING LOANS Bankers typically relish the prospect of lending most important: (1) is the shortfall in Philadel to businessmen. Indeed, business often gets the phia because Philadelphia bankers are less eager nod for credit even if funds can be employed than their counterparts elsewhere when it comes elsewhere at a higher interest rate, say, invested to making business loans, or (2) is it related in mortgages or in municipal bonds. more to demand, bankers in the Philadelphia For one reason, the businessman is an impor area being pressed less for loans by their busi provides raw material for loans and hence may ness customers. 1—ALLOCATION OF FUNDS often be accorded a privileged position in the The banker, it goes without saying, has options tant source of lendable funds. As a depositor he queue-up for credit. For another, commercial in putting the depositor’s dollar to work. Some bankers have traditionally been lenders to busi ness— the short-term business loan and its longer- portion of the funds he receives he will hold in cash or near-cash assets for liquidity purposes. term (but usually amortized) counterpart fit in The rest he can put into earning assets ranging well with the perennial liquidity. Yet as shown in Chart for from business loans to municipal and Treasury 1, banks in the bonds. Has the pull of liquidity and the attrac tiveness of other options drawn dollars away banking need regions in lending to the businessman. Out of from the businessman? Providing for liquidity every $100 increase in loans during the period While banks are in business to make a profit Philadelphia area* have lagged behind other 1961-1965, a fraction over $30 went to the busi (and must lend and invest to do so) they are nessman. Meanwhile, in the Boston area over also obliged to come up with cash when their $43 went into business loans and in the nation customers wish to exchange deposits for cur as a whole about $38 went to business. rency and when flows of funds to other banks This lag leads to several questions. Perhaps result in a net drain of deposits. To meet these liquidity demands, banks must * In this article the term “ Philadelphia-area” banks refers to weekly reporting member banks in the Third Federal Reserve District. Banks in the city of Philadelphia account for almost 80 per cent of the total assets of these banks and banks in the Philadelphia metropolitan area account for 85 per cent of total assets. Banking data for other geographic areas cited in the article also are for weekly reporting member banks and contain banks out side the central city. not commit all their funds to loans. They must hold some of their assets in cash and highly liquid investments such as Treasury bills. How bankers in fact weight these two factors — the need for earnings on the one hand and liquidity requirements on the other— will go far 3 business re v ie w CHART 1 PHILADELPHIA AREA COMMERCIAL BANKS HAVE LAGGED BEHIND OTHER REGIONS IN LEND ING TO THE BUSINESSMAN BOTH . . . . . . IN PERCENTAGE TERMS . . . AND IN RELATION TO THEIR TOTAL LENDING Per cent increase in business loans (February 1961— December 1965). Per cent For every $100 increase in total loans during the period 1961-1965, business loans increased b y: Dollars to determine lending policies. An arch-conserva held a greater proportion of their deposits in tive assessment of liquidity needs will mean a the form of loans in 1965 than did banks in relatively large buildup of cash and near-cash the nation and also than in the other areas assets, perhaps at the expense of business loans. selected. Also, Philadelphia banks showed no A more liberal attitude toward liquidity would pronounced difference in comparison to the other tend to allow greater flexibility in lending to regions in their holdings of cash and short-term business. Government securities. Of course, liquidity needs differ among indi Another way of looking at liquidity, however, vidual banks depending, among Other things, on suggests that such pressures may have been at the nature both of their liabilities and their other least partially responsible for the lag in loans. assets. Despite this heterogeneity, two measures Philadelphia bankers, as shown in Chart 3, began have been widely used to gauge bank liquidity: the current business expansion back in 1961 with the ratios of loans to deposits and of cash and a higher ratio of loans to deposits. They also short-term Government securities to total assets. held a smaller portion of their assets in cash and As Chart 2 shows, Philadelphia banks appear short-term Governments than did most other to have stressed liquidity somewhat less than areas. Hence, they had less room to maneuver banks in the nation as a whole when loan-deposit in expanding the overall loan portfolio than ratios are compared. Indeed, Philadelphia banks did banks in several of the other areas. Still, New business review York and Boston banks also started off the delphia area bankers in particular. This option present period of business prosperity with a high is the consumer— king of the fishtailed automo level of loans relative to deposits (and with lower bile and lord of the color television set. His ratios of cash and short-term Governments to total demand for goods has seemed all but insatiable assets), yet out of every dollar of total loans these in the postwar period. And of special interest to banks earmarked over a third again as much for the banker, he has been willing to pay top dollar business loans as did Philadelphia area banks. in order to buy now, pay later. In short, the This behavior suggests that something other than consumer loan pays a higher rate of interest on liquidity considerations must be involved in the average than the business loan, a fact not over Philadelphia lag in business loans. looked in the meting out of the depositor’s dollar. The installment plan in the Philadelphia area represent by far a higher As shown in Chart 4, consumer loans at banks Once the banker has provided for liquidity needs proportion of total assets than do consumer loans he has several other options in putting funds to in the other regions noted. Moreover, during the work. Is it possible that these other options have period 1961 to 1965, banks in the Philadelphia pulled dollars away from business loans? One area earmarked a larger proportion of each option has been especially attractive to bankers dollar increase in assets for consumer loans. over the nation in recent years and to PhilaCHART 2 BANKS IN THE PHILADELPHIA AREA DO NOT APPEAR TO BE OUT OF LINE WITH BANKS IN OTHER AREAS IN THEIR PROVISION FOR LIQUIDITY . . . Loans as per cent of deposits— 1965 (weekly reporting member banks, yearly average of weekly data for selected districts) . Per cent CHART 3 . . . YET BANKS IN THE PHILADELPHIA AREA HAD LESS ROOM TO EXPAND LOANS COM PARED TO SEVERAL OTHER AREAS BECAUSE THEY BEGAN THE PRESENT BUSINESS BOOM BACK IN 1961 WITH RELATIVELY HIGH HOLD INGS OF LOANS TO DEPOSITS. Loans as per cent of deposits— 1961 (weekly reporting member banks, yearly average of weekly data for selected districts) . Per cent 5 business re v ie w CHART 4 BANKERS IN THE PHILADELPHIA AREA HAVE A RELATIVELY LARGE PORTFOLIO OF CON SUMER LOANS COMPARED TO OTHER AREAS . . . . . . AND THEY EARMARKED A HIGH PROPOR TION OF EACH DOLLAR INCREASE IN ASSETS BETWEEN 1961 AND 1965 FOR CONSUMER LOANS Consumer loans* as per cent of total assets— 1965. * Includes loans to individuals and other loans to churches, hospitals and charitable institutions, Source: Federal Reserve Board, weekly reporting member banks (yearly average of weekly data). Other uses of funds loans and pulled down by business loans— comes How about other uses of funds? Have Philadel out on balance with a commitment of funds phia bankers singled out areas in addition to about in line with what has happened in the rest consumer loans in which to concentrate their of the country. Clearly, the outstanding fact re lending and investing? vealed in Table 1 is that Philadelphia bankers, Table 1 provides some insight into this ques tion. A quick glance at the table reveals once while light on business loans, have a romance going with the consumer. more the lag in business loans and the relatively Still the question remains whether this ro heavy commitment of funds to consumer loans. mance is one of convenience or of love, whether It also shows an allocation of funds to “ all — given sufficient demand for business loans— other” loans (all others but consumer and busi the banker’s affections would really lie with the ness) about in line with experience in the na businessman. The consumer loan department will tion and a relatively lesser commitment of probably do its best to influence banking policy funds to municipal securities compared to the toward lending more to the consumer, but when nation. Summing up the loan portfolio, the table shows that total loans— pulled up by consumer 6 the chips are down it may be the businessman who gets the nod. The lag in business loans in the Philadelphia business re v ie w TABLE 1 FOR EVERY $100 INCREASE IN TOTAL ASSETS DURING THE PERIOD 1961-1965, COMMERCIAL BANKS IN THE SELECTED AREAS INCREASED . . . . . . this asset . . . , by this amount Nation Total Loans Business Loans Boston New York Philadelphia Cleveland Chicago 74.0 76.9 72.6 74.2 70.1 73.2 79.1 28.0 33.5 33.1 22.1 24.7 28.8 24.8 San Francisco Consum er Loans 15.9 16.9 9.8 22.1 21.8 14.5 18.1 “All other” Loans 30.2 26.4 33.1 30.0 23.5 29.9 36.2 23.4 26.3 26.8 19.5 36.0 20.5 19.9 M unicipal Securities * Individual loan items are shown gross, whereas total loans are exclusive of loans to domestic commercial banks and after deduction of valuation reserves. Source: Federal Reserve Board, weekly reporting member banks. area may thus be related less to factors on the differ enough from its national counterpart to supply side— liquidity considerations, preference create a lag in loans concerns the particular for other areas of lending and the like— and more “ mix” of local industry. Simply put, if the local to factors on the demand side. In short, the queue- area were top-heavy with industries which gen up o f commercial borrowers at the loan officer’s erally borrowed less actively from commercial desk (and the size of their credit needs) may have banks, then the demand for business loans would lagged behind that in other regions. 2— THE DEMAND FOR BUSINESS LOANS the opposite kind of industry mix prevailed. Is this Why should business demand for loans at Phila kind of top-heavy mix typical of the Philadelphia delphia area banks grow less rapidly than de area? tend to lag here relative to that in areas where mand at other commercial banks across the As a matter o f fact, the Philadelphia area nation? Many factors might help answer this enjoys a favorable industry-loan mix.1 Phila- question but two points seem particularly rele (Continued on Page 10) vant, both having to do with the behavior of the Philadelphia area economy relative to its na tional counterpart. For even though Philadelphia banks lend outside the immediate area (and thus are affected by economic developments across the nation and in many foreign countries), still a very large proportion of their business is trans acted closer to home. Hence, the structure and behavior of local industry are likely to have a pronounced effect on the demand for business loans, possibly accounting for much of the lag apparent since 1961. Industry mix One way industry in the Philadelphia area might 1 To determine the nature of the industry-loan mix in the Philadelphia area, the national growth rate for all commercial and industrial loans was computed (for the period November 1961 to June 1965) and the growth rate in loans for 16 different industry categories was compared to it. The comparison provided an indication of which in dustry groups were heavier borrowers, on average, from commercial banks and which were lighter-than-average borrowers. It was then determined that the Philadelphia area was slightly top-heavy in the industrial categories which borrowed more heavily from commercial banks. ( This determination was made by the simple procedure of multiplying (a) the difference observed between total loan growth rate in the nation and growth rates in the several industrial classes by, ( b) the average loans outstanding in the Philadelphia area in each of the industrial classes in the 12 months beginning in November 1961. The result ing dollar amounts were then summed. On balance, Phila delphia area banks were able to lend $8.5 million more than they otherwise would have because of a favorable industry-loan m ix) . 7 MANAGING THE PUBLIC DEBT AT HIGH INTEREST RATES y^ v The Magic Fives of 1964 aroused widespread interest among investors when the Treasury brought them out in October, 1959. The new 5 per cent notes of 1970 suggest that the situation now facing managers of the public debt is similar in many ways to that of six years ago. ' 1. Yields on Government securities are about as high as at their peak in 1959. Long-term Bonds Per cent * , 4 . YIELDS ON GOVERNMENT SECURITIES 3-5 Year Issues 3-month Treasury Bills Per cent ♦ 4. A large part of the debt will have to be placed with nonbank in vestors. During periods of strong credit demands and high interest rates, commercial banks usually reduce their holdings of Govern ment securities. Nonbank investors, however, also face large com peting demands for their funds. OWNERSHIP OF GOVERNMENT SECURITIES Per cent Per cent \ 3. The Treasury needs little new money in the rest of this fiscal year, and cash expenditures and receipts a « budgeted to be about in balance in fiscal 1967 as a whole. But even assuming spending for Vietnam does not exceed present ex pectations, a substantial volume will have to ^ fra is e d in the first half of the coming fiscal year and, in addition, the Gov ernment is scheduled to sell sizable amoants»of financial assets. NET CASH BORROWING (+) OR REPAYMENT ( - ) OF DEBT (January-June; July-Decembei^ 6. And so long as the limitation of 41 per cent in terest rate on new long-term debt prevails, high interest rates mean that the Treasury will have to confine its financing to short- and intermediate-term issues. This will tend to shorten the average matu rity of the debt once more. AVERAGE MATURITY OF MARKETABLE INTEREST-BEARING PUBLIC DEBT Years Billions of Dollars 2. The yield pattern again takes the shape characteristic of a period of high interest rates. YIELD PATTERNS ON GOVERNMENT SECURITIES Per cent ‘ Less than $100 million. e— estimated. < * * > 5. Renewal of the present temporary debt limit will be required. DEBT OUTSTANDING SUBJECT TO LIMITATION Billions of Dollars e— estimated. business re v ie w (Continued from Page 7) nation or the Philadelphia area) is accompanied delphia is slightly top-heavy in industries which by an edge in loan growth. tend to borrow more, not less, on average from A second important fact about Chart 5 is that commercial banks. Thus, if “ industry mix” were the edge in loan and employment growth most the only factor on the demand side affecting often is claimed by the nation (employment in area would 14 of the 16 industries has grown faster in the have tended to lead rather than lag the nation nation than in the Philadelphia area; loans in business loans, the Philadelphia in growth o f commercial and industrial loans in 12 of the 16 industries have grown faster in recent years. We must look elsewhere to find the nation than in the Philadelphia area). reasons why demand for loans in the Phila Moral of the story: Bankers who wish to make delphia area has lagged behind the nation. business loans (and secure business deposits) Competition strong, competitive growth of firms in the area An area where employment, sales, construction, which they serve. Indeed, had growth in employ and other economic activities are growing faster ment in the Philadelphia area more closely than average will probably have a greater de approximated that in the nation during the should do all within their power to encourage mand for business loans than will areas growing 1961-65 period (and in turn had this growth less rapidly. Among other reasons: there are spurred a business loan expansion in the Phila likely to be more plants to build, more inventory delphia area that matched the rate of growth of to finance, more machinery to purchase and loans in the nation) then Philadelphia area banks many other activities which require business would have loaned over $120 million more to credit. business customers than in fact they did. To As has been pointed out several times in the Business Review,2 the Philadelphia area is lag the banker, the price of lagging growth comes high. ging behind the rest of the nation in the com IN CONCLUSION petitive scramble for jobs and income. Could Philadelphia’s loan lag be related in one way or Factors on both the demand and supply sides of another to differences in economic growth? the equation doubtless have interacted with one Chart 5 shows the differential rates of growth another to produce the lag in business loans in of employment and business loans turned in by the Philadelphia area. We have mentioned sev 16 different industry groups in recent years in eral possible explanations on the supply side, the nation and the Philadelphia area. Two main including facts stand out in Chart 5. the banking industry’s traditional need for liquidity (and consequent pressures to First of all, business loans tend to follow steer to the conservative side in making loans), employment growth as a faithful dog does its and the alternatives inherent in allocating funds master. In 12 of the 16 industry groups, an edge among a wide spectrum of borrowers in employment growth (either in favor of the businessmen to the consumers). On the demand 2 See Business Review, “ Philadelphia’s Missing Jobs,” September, 1964 and Business Review, “ Philadelphia and Its Competitors,” November, 1965. the Philadelphia area and the area’s competitive (from side we have looked at the industry-loan mix in 10 performance compared to that of the nation. business review CHART 5 BETWEEN 1961 AND 1965 BUSINESS LOANS AND EMPLOYMENT GREW FASTER IN: 50 40 NATION 30 20 10 Per cent 0 10 20 PHILADELPHIA 30 40 50 60 70 N ote: employment data are for all nonfarm wage and salary workers in the nation and in the Philadelphia Metropolitan Area. The period of comparison is November 1961 to June 1965. There are many other factors as well which credit needs), and the fact that Philadelphia in may have had something to do with the lag in recent years has lost some head offices of major loans. Included among these are Philadelphia’s firms through the merger route and otherwise. proximity to New York (hence the physical ease However, one should realize that Boston too is of traveling to the nation’s financial capital to near New York (and so is Houston in the jet negotiate a business loan ), the smaller size of age), that banks in many other areas are no Philadelphia’s banks relative to their New York larger than those in Philadelphia, and that many cousins (which means that New York banks can Eastern cities have lost head offices of major loan more in one chunk to the firm with larger firms to other areas. Yet it is Philadelphia where 11 business re v ie w business loans have lagged the most and where Damon Runyan once said that the race is not always to the swiftest nor the prize to the fair growth also has fallen behind. That is not to say that these other factors have est but, all things considered, that’s the way to no bearing on Philadelphia’s loan lag. Indeed, bet. In the race for business loans (and business in many loan transactions they may be decisive. deposits) Yet the statistical evidence seems to point to may well put their money on economic growth odds makers and statisticians alike Philadelphia’s lagging growth as a very im as a major factor in explaining Philadelphia’s portant reason for its lagging loans. lagging loans. New Release Forecasts for 1966. The D ep artm en t of Research has com piled and analyzed a num ber of pred ictio n s m ade by businessm en, econom ists, and G overnm ent officials. This c o m p ila tio n includes a sum m ary of forecasts for th e econom y as a w hole and p a rtic u la r sectors of the econom y. The more im p o rta n t in d i cators are presented in c h a rt form . Copies o f th is release are a v a ila b le on request from B ank and P ublic R ela tions, Federal Reserve B ank of P h ila d e lp h ia . PROSPERITY HITS HOME Last week, good business got Mike Hatlik a job. Experiences of this kind are being reproduced Mike comes from a labor surplus area. A quar all over. February, 1966, marks the fifth con ter-century back, the chief industry in his home secutive year of what now ranks as this nation’s town was mining. Now the mines have closed. longest business expansion. During this time, For years people have been moving away, and total employment in the U. S. has risen 13 per not enough industry has grown up at home to cent, compared with 8 per cent in the strongest keep busy everybody who remained. previous postwar rise. When a recruiting team from a big machinery plant in Philadelphia came through recently, Employment expansion in the Third Federal Mike answered their ad. He was hired. The Reserve District company will train him on the job. The Third Federal Reserve District contains a The recruiting trip, and the training, too, are number of areas that often fail to participate expensive. Last year the company wouldn’t have fully in economic upturns. Most of them have done it. Last year the demands for their product, done unusually well in this business expansion. and for people in their machine shop, were not They illustrate the force with which economic so intense. A year ago, Mike might have been activity has advanced in the 1960’s. among those people called “ structurally un employed.” 12 The charts show how strong the advance has been. Each bar represents the percentage rise in business review This chart shows percentage gains in employment were less in the business expansions of 1954— 1957 and 1958— 1960 in most Third District areas than in the U. S. Also, employment gains in these expan sions dropped off more in the District than in the nation. (This is evident on the chart in the pro nounced sag of the middle two bars for most areas in the Third District.) But in the 1960’s, most District areas have recovered smartly. Furthermore, the current expansion has used up unemploy ment pools more and therefore has stimulated more labor force expansion— a healthy sign. STAFFING BUSINESS EXPANSIONS Percentage increases in employment during four business expansions.* NEW EM PLOYEES OBTAINED BY: □ Net additions to labor force, □ Employing persons previously unemployed. Altoona, Pa. Philadelphia, Pa.-NJ. 10 m JZL i-IH L o York, Pa. 105- Allentown- BethlehemEaston. Pa. -N.J Wilmington, Del.N.J.-Md. 10 10 T 5' 10 5- 5- 0 0 10 ■ 10 - -510 Harrisburg, Pa. Reading, Pa. 5 5- 0 0 Wilkes-Barre, Pa. 5 0 -5 -J * In each case the shaded portion of the bar represents the proportion of new jobs filled by persons previously unem ployed. The unshaded portion represents new jobs staffed by net additions to the labor force. Data refer to labor market (standard metropolitan) areas, not cities. employment for each area in each of four post States, there is a suggestion of a sag in the war economic upturns, beginning with October, middle, as the economy developed slack in the 1949.* On the chart representing the United 1950’s. In most Third District areas, this sag is very pronounced. * The periods referred to here follow the chronology of the National Bureau of Economic Research, Inc., as re corded in Business Cycle Developments, U.S. Department of Commerce, December, 1965.They are: October, 1949July, 1953; August, 1954-July, 1957; April, 1958-M ay, 1960. The final period covered here runs from February, 1961 through November, 1965. These regions participated much less in the later business expansions of the 1950’s than in the rise during the Korean War period, from 1949 to 1953, when there was little slack in the U. S. economy. Even the more prosperous parts of the Third District— the Lan 13 business re v ie w caster area, for example— show this sagging pattern. But in the 1960’s every one of the eleven order of their condition in this respect. Third District areas in the first column characteristi cally have little surplus labor; those in the mid metropolitan areas has shown significant im dle column have not usually been quite so fortu provement. A number of them have enjoyed nate; those in the right-hand column have had expansion in employment more than double the surpluses of labor and high unemployment rates rise experienced during the previous business in most recent years. upturn, thereby surpassing the nation’s relative improvement. Many have had percentage in cyclical expansions of employment have been The bars are divided according to how much creases greater than the percentage growth of staffed by hiring the unemployed (shaded por employment nationally. tions of bars) and how much by inducing more The current increase in economic activity has, new entrants to offer their services for employ in short, penetrated the Third District more than ment than the number who withdrew because any rise since the Korean War period. In many of age, sickness, discouragement or for other regions, it has had even more effect than the reasons. The difference— new entrants minus expansion during the Korean War. Labor force expansions evidence pressure for withdrawals— is the net change in a region’s more producers indicate the extent to which added jobs have When demand grows rapidly for the goods and been filled in this way, by net expansion of labor services an area makes, jobs become plentiful. forces. Unemployment is low; people are attracted to labor force. The unshaded portions of the bars In the areas with substantial labor surpluses, the region; its employment and labor force in job crease. Conversely, when demand for an area’s entirely covered by declines in unemployment, product drops, its unemployment increases and so there are no unshaded parts on the bars. This people do not move in so readily. They do not does not mean there were not new entrants in necessarily move out. If they continue to seek these labor markets. There were more withdraw work, the labor force, which consists of those als than new entrants, however, so labor forces employed plus those seeking work, may remain in total contracted. During the abortive business large but contain a disproportionate number of rise of 1958-1960, some regions in the second unemployed. column also exhibited this sort of pattern. This situation will eventually be relieved in part by withdrawals of unemployed from the needs during business expansions were But this time it has been different. The current upturn has gone on long enough and developed labor force. They may move away, or they may sufficient strength so that in the nation and in simply stop looking for work, and so cease to the more active economic regions of the Third be part of the region’s labor force. But the relief District labor force expansion provided half or will be only partial. more of the new employees required. This means In business expansions, industries in such a those regions made deep inroads into their pools region are able to hire many people from the of unemployed, still needed more workers, and ranks of the unemployed. The chart accompany got them through labor force expansion. ing this article arranges regions roughly in Digitized for 14 FRASER Even the regions with labor surpluses have business review made unusually large inroads. In such regions, is experiencing population gains at close to the if employment is to expand, unemployment must national rate, and in-migration. Its potentially go down (1) enough to cover the continuing productive people therefore should be more decrease in the region’s labor force and (2) plentiful. Consequently, it is not quite clear why enough more to provide workers as new jobs growth in the I960’s has been insufficient to open up. In Johnstown, Scranton, and Wilkes- produce a pattern more like, say, Reading’s, Barre-Hazleton, employment has increased more where labor force expansion played a much and unemployment has decreased more in the greater part in staffing employment increases in 1960’s than in any previous postwar expansion. the current business rise. An impressionistic reading of the chart serves Some of the explanation undoubtedly lies in to sum up these points. A sweep from left to right metropolitan Philadelphia’s larger supply of very reveals darker and darker bars indicating the young people. Young persons (college age or tendency of labor-surplus regions to draw down below) have lower rates of participation in the their pools of unemployed workers first as busi labor force, because they are busy training them ness improves. A second look, comparing the selves for later participation. Some of the ex latest two expansions, reveals strength this time planation lies in the Philadelphia area’s larger as the economic advance called up more re group of persons with less training, particularly sources, even to the extent of practically using in the old cities of the region. up the unemployment rolls in some places. This Whatever the reasons, it is clear that substan contrasts with the previous business upswings when in areas such as Reading or Allentown tial concentrations of potential producers re main in some portions of the Third District, with very little expansion of labor forces occurred. Unused resources remain Philadelphia the outstanding example. New demands in 1966 That this business expansion has not used up New demands sparked by military needs will put all potential producers is evident not only in some of these people to work in 1966. These new labor-surplus areas, but also in Philadelphia, needs, and the accompanying strengthening of the Third District’s most important region. The Philadelphia Metropolitan Area contains close forecasts on which economic decision-makers base their judgments, promise an even closer to half the Third District’s total economic activ approach to full utilization of resources this year ity. Its improved performance in the 1960’s is than last. clear from the chart, which implies somewhat The United States as a whole has enjoyed many greater inroads into the pool of potential work prosperous years since World War II, but not ers because it shows somewhat more expansion every region has participated fully in this pros in the labor force. perity. In 1965, in the Third District, more areas But the Philadelphia area differs from the came close to full participation than at any time regions having labor surpluses. It has a younger in more than a decade. In 1966, it might be population. Unlike the labor-surplus regions, it unanimous. 15 FOR THE R E C O R D . . . m BILLIONS $ Third Federal Reserve District United States Per cent change MEMBER BANK5, 3RD F.R.D. Per cent change Factory* Employ ment Payrolls Department Store Salest Check Paymentst Per cent change Dec 1965 from Per cent change Dec 1965 from Per cent change Dec 1965 from Per cent change Dec 1965 from SU M M A RY mo. ago year ago 12 mos. 1965 from year ago mo. ago year ago 12 mos. 1965 from year ago — 2 Dec. 1965 from + + 9 Dec. 1965 from LO CA L CH A N G ES mo. ago M A N U FA C T U RIN G Electric power consumed. . . . Man-hours, tota l*............... Employment, total................ W a ge income*................... - 1 4 0 3 + + + 4- 9 1 3 5 + 4" + + 8 9 6 4 9 Lehigh V alle y... . 0 year ago mo. ago year ago + 7 — 2 + 10 mo. ago year ago mo. ago year ago •• •• - 1 +18 + 7 +23 - 4 +12 C O N S T R U C T IO N " ............... +38 +40 + 7 - 1 + 3 + 4 Harrisburg........ + 2 + 4 + 1 + 7 C O A L P R O D U C T IO N ............. 0 + 19 + 3 - 3 + 10 + 7 Lancaster.......... - 2 + 5 - 3 + 9 - 2 + 1 + + Philadelphia...... 0 + 3 + 1 + 8 + 3 + 10 - 1 + 13 Reading............ 0 + 4 - 1 + 9 - 5 + 4 + 3 + 0 + 17 - 4 + 7 + 4 + 15 1 + + 5 + 8 + 5 + 18 + 3 +31 0 +30 6 +27 T RA DE*** Department store sales.......... + B A N K IN G (All member banks) Deposits............................ Loans................................ Investments......................... U.S. Govt, securities........... Other.............................. 9 6 + + + + + 3 4 1 0 2 2 + 8 + 14 + - 1 8 +15 + 15 + 9 + 14 + 2 - 6 +15 + 11 i •Production workers only ••Value of contracts •••Adjusted for seasonal variation ot + 2J + 2t + 1 0 + + 3 2 + + t ! 5 Cities ^Philadelphia 2 2 Scranton.......... 0 + 5 Trenton............ 0 + 3 W ilkes-Barre.... 0 + 4 0 + 10 - 3 + 6 Wilmington.. . . . . + 8 + 7 + 13 + 11 0 0 - 8 - 7 + 12 + 1 3 + Jt + I6t + 1 6 t + 3 + 3 - 1 - 2 PRICES Consumer.......................... 9 0 + 2 - 2 - 1 + 1 + 5 3 - 1 + 11 - 8 + 9 York................ - 1 + - 5 + 8 •Not restricted to corporate limits of cities but covers areas of one or more counties. t Ad justed for seasonal variation.
@FedFRASER