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JUNE 1955
busine ss revi
view
FEDERAL RESERVE
BANK OF
PHILADELPHIA
COW : A WARD OF THE STATE
last in the series on the d a iry cow , is about milk p rices.
, including many d a iry farm ers, know that in
arkets both the Fed era l and state governm ents
in p ricin g milk. D espite the heavy pricing
ill p rod u ce too much milk.
CURRENT TRENDS
Business activity is on the rise an d so is p erson a l d ebt.
Ea sier terms have a cco m p a n ied the rise in instalment debt.
Additional copies of this issue are available
upon request to the Department of Research,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pa.
A WARD OF THE STATE
Why is it that the consumer pays 22^2 cents a
milk is priced by one of the strangest and most
quart for milk and the farmer gets only 11 cents?
complicated methods in the whole realm of com
How often have we heard that question in meet
modity pricing.
ings where businessmen gather! The implication
You know how the prices of carrots or cucum
is that farmers get too little or that consumers
bers are determined. You also know how the price
are charged too much, or both.
Between the dairy farmer (discussed in the
of a cow or a share of National Dairy Products
Corporation is determined. But if you know how
April Business Review) and the consumer (dis
the price of a quart of milk is determined, you are
cussed in the May Business Review) is, of course,
indeed well informed— very well informed.
the distributor. The distributor is the firm that
According to a survey conducted by the Penn
buys milk from the farmer or the handler. The
sylvania State University, only one-fifth of the
distributor buys in bulk, does the processing,
consumers in Pennsylvania knew that a state
and delivers milk not only to stores, restaurants,
agency set milk prices; in fact, only one-half of
hotels, etc., but also to the doorstep and often right
the dairy farmers knew about it. Therefore, if
into the refrigerator of the consumer.
you would like to know how milk is priced, you
What many people do not know is that in some
may wish to read on.
areas like Philadelphia there are others, in addi
Milk sold in Philadelphia is subject to classi
tion to the distributor, who stand between the
fied pricing, seasonal pricing, formula pricing,
farmer and the consumer. They are the United
blended pricing, state pricing, and Federal pric
States Government and the government of Penn
ing. Believe it or not, every glass of milk you
sylvania. They too have a hand in determining
drink went over all these pricing hurdles, and it
milk prices; in fact, for Philadelphia milk con
still tastes good— if you like milk. This is not to
sumers, they appear to have the upper hand.
say that milk escapes the law of supply and de
Critics of governmental control of milk prices
mand. That too operates in milk. All the other
sometimes refer to it as a government monopoly,
pricing devices are designed to help the law of
but that is loose talk. It is true, however, that
supply and demand.
3
b usiness re v ie w
How all this happened is quite a tale, and that
is one of the chief purposes of this article. Aug
uste Comte, the French philosopher, said that no
conception can be understood except through its
history. A little of the history of milk pricing may
help to dispel much of the mystery.
Back in the early twenties, when Coolidge was
President, cows produced more milk than people
wanted— a situation similar to the corn surplus
when Joseph was prime minister of Egypt. In the
1920’s, dairy farmers sought relief from the dis
tress of surplus milk and low prices by forming
cooperatives. The cooperatives in leading milk
CLASSIFIED PRICING
“ What commodity other than milk,” asked one of
markets, including Pittsburgh and later Philadel
phia, hit upon the idea of pricing fluid milk at a
the people we interviewed, “ requires the producer
high level while accepting lower prices for the
to wait to see how the consumers use it before
milk that was produced in excess of fluid milk
he knows what he will get for his product?” Sup
sales. That is how it all began, and once widely
pose you went to your automobile dealer to buy
adopted, classified pricing has been retained. It
a new car. After deciding on the color and com
is now a deeply rooted milk-pricing custom. Here
bination of accessories and all that, you finally
ask the price. Suppose the dealer would reply:
in Philadelphia, for example, producers are cur
rently getting $5.24 a hundredweight for Class I
“ Well, that depends on how you are going to use
milk; $3.24 a hundredweight for Class II milk;
the car. Is it for business or pleasure?” You will
and $3.04 for milk going into butter, Cheddar
answer, no doubt, “ Both.” “ Very well,” says the
cheese, and other manufactured products. In some
dealer, “ in that case you keep a record of the
other leading milk markets there are four or five
pleasure miles, like driving to the golf course,
different classes and prices of milk.
vacation trips, or Sunday ‘cruising,’ and also
What an individual farmer gets for milk de
keep a record of the business miles like driving
pends, therefore, among other things, upon how
to work or pursuing customers. You see, the car
the milk was consumed; that is, whether people
costs $3,500 if used for pleasure and $2,500 if
drank it or ate it or drank some and ate the rest
used for business. When the car is worn out,
as butter, cheese, etc.
give us a certified copy of the various kinds of
miles the car
travelled
and
we’ll
bill
you
accordingly.”
There are various ways to distribute the net
returns from the sales of milk among the farmers
who supply milk to a market like Philadelphia.
That is the way classified pricing works in milk
The apportioning process is known as pooling or
except, of course, milk does not go so far as a
equalization. Distribution is usually made by
motor car. For the milk that goes to market as
one of three methods: individual dealer pool
fresh fluid milk (called market milk) the farmer
ing,
gets one price— the highest— called the Class I
price. For milk from which the cream is sepa
equalization.
Individual dealer pooling— the system used in
rated for fluid use, the farmer gets a lower price,
Philadelphia— involves payment of a blended
called the Class II price. For milk that goes into
price by each dealer to the producers who deliver
cooperative
pooling,
and
market-wide
uses like butter, cheese, and other manufacturing
milk to him. Without going into the arithmetic,
products, he gets a still lower price. That is classi
let it be said that the blended price is uniform to
fied pricing. And how did it come about?
all, after adjustment for butterfat differentials,
4
business re v ie w
and the greater the proportion of milk delivered
diverted into other productive channels such as
that goes into Class I use, the higher the returns
poultry, truck crops or potatoes; moreover, sur
to the producers.
pluses hung heavy over the markets for prac
Cooperative pooling is a system whereby a pro
tically all farm products.
ducers’ cooperative collects from all dealers to
Milk producers’ cooperatives, formerly success
whom they sell, the amounts due for milk de
ful, had great difficulty weathering the storm and
livered by their members and pays a uniform
some came to grief. Under great stress, milk-price
price to them. Under this arrangement, the book
wars broke out in various markets, surplus milk
keeping and arithmetic are a bit complex.
was frequently poured down the drain, and it be
Under market-wide equalization, as so well de
scribed by Leland Spencer and S. Kent Christen
came utterly impossible to hold the line, pricewise.
sen in Cornell’s Agricultural Experiment Station
Following the example of New York, Pennsyl
Bulletin 908, “ All dealers (and pooling coopera
vania in 1934 passed a state milk-control law. The
tives) in the regulated market, report to the mar
law provided for the establishment of minimum
ket administrator at the end of each month the
prices for milk to be paid to producers and also
quantities of milk used in each class and show
minimum resale prices; that is, prices to be paid
the amount due for it, including adjustments for
by consumers. Administration of the law, passed
transportation, butterfat content, and the like.
originally as an emergency measure, was placed
The market administrator consolidates these re
in a State Milk Control Commission composed of
ports and computes a uniform price for the mar
ket.” Under this arrangement, the bookkeeping
three members appointed by the Governor with
the advice and consent of the Senate. Unlike the
and arithmetic are more than a bit complex.
laws of some other states where price fixing was
Reference has just been made to a market
administrator. He is the representative of the
permissive, in Pennsylvania the law required both
United States Secretary of Agriculture. Before
under all conditions.
discussing Federal milk-price control, however,
established as an emergency measure 21 years
let us consider state milk-price control in Penn
ago, is still with us.
sylvania.
resale prices and producer prices to be fixed
State milk-price control,
In the meantime, people have multiplied and
so have cows. What’ s more, the 1955 cow genera
MILK CONTROL IN PENNSYLVANIA
tion is much more productive than the 1934 gen
Remember the great business depression of the
eration. So cows still produce more milk than
early thirties? Well, dairying is a business and
people want.
the depression hit the dairy farmers also. And
how it hit them! Milk prices throughout the
The milk miracle-men
Northeastern States declined almost as sharply
as the tumble of prices in the stock market. It was
The Pennsylvania Milk Control Commission, as
painful to the dairy farmers. Dairy herds deteri
both the producer price and the resale price of
orated, dairy barns became shabby, and bank
milk. The Commission also received some “ sail
credit
for
dairymen
was exhausted.
Capital
already invested in dairying could not easily be
already indicated, has statutory instruction to fix
ing orders” as to how those prices are to be deter
mined.
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business re v ie w
In establishing the producer and resale prices,
or American way. It goes something like this.
the Commission is to take into consideration the
Open hearings are held to which all interested
following:
parties, including consumers, are invited. The
1. Cost of production.
hearings are held in several phases. The first is
2. Reasonable returns to producers.
directed toward the establishment of an equitable
3. Just and reasonable prices.
price for producers. In the second phase, dis
4. Assurance of an adequate supply of pure
tributors, handlers, retailers, or counsel for these
and wholesome milk.
5. Protection of the dairy industry.
interested parties appear with sheaves of statistics
and expert witnesses— accountants, economists,
6. Protection of the public interest.
and statisticians. By the time-tested process of
Consider cost of production for a moment. No
examination and cross-examination, the facts are
Shall the
brought out to assist in the formulation of a rul
Commission use an average and, if so, what
ing by the Commissioners, sitting behind the
kind of average? On this point the Commission
bench, conducting the hearing.
two producers have identical costs.
gets some statutory help. The law tells the Com
Upon hearing all the evidence, the Commission
mission to use a cross section representative of
establishes a tentative order. After a lapse of time,
the average or normally efficient producers. That
the Commission holds a preview where copies of
still leaves considerable latitude.
the tentatively amended orders are distributed to
Difficult as it may be for public servants to
all interested parties, any of whom may inter
ascertain what is a representative cross section
pose objections. And finally the amended order
of the average or normally efficient producers, the
Commission has all the other criteria, above
becomes law.
enumerated, to wrestle with. Without considering
cover that there is no state-wide producers’ price
each separately, it all boils down to this basic
for milk, nor a state-wide consumers’ price. At
dairy dilemma: producers want high prices, con
any moment of time, prices may differ from one
sumers want low prices, and the Commission is
region to another.
Getting around Pennsylvania, you may dis
supposed to make everybody happy. Impossible.
Pennsylvania is divided into 13 milk-marketing
Hence all the Commission can do is forever strive
areas, as shown in the accompanying map. The
to achieve the impossible under conditions that
major markets are, of course, Philadelphia and
are forever changing.
One thing almost never
Pittsburgh. The markets differ from each other
changes, however. There is usually a surplus of
not only in size but also in other ways, such as
milk. It changes in degree only. Sometimes the
the proportion of milk that is delivered to the
surplus is worse than other times.
consumers, the proportion sold in stores, etc. In
some areas, consumers have milk delivered to
Obviously, the Commissioners, whoever they
may be, are no miracle men, but they are expected
them by “ bobtailers,”
to perform miracles with milk.
ally small, who do no processing but operate their
that is, jobbers, usu
own trucks to deliver bottled milk. Obviously,
“ The Cow” in court
costs of production are not uniform among the
Milk prices are periodically established by the
producers supplying each market and that is one
Commission operating in a typically democratic
important reason why there are differences in
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b usiness re v ie w
MILK MARKETING AREAS IN PENNSYLVANIA
1
IA
2
4
5
6
Philadelphia
Suburban-Philadelphia
Pittsburgh
Schuylkill
Scranton
Lehigh
7
8
9
12
13
14
15
Source:
Erie
Harrisburg
Johnstown-Altoona
York
Williamsport-Sayre-Athens
Lancaster
Reading-Berks
Pennsylvania M ilk Control Commission
prices, established in the manner above indicated.
diction of the Federal Government. Partly for
Several of the marketing areas are divided into
that reason, Federal regulation of milk prices was
zones such as 8-1 and 8-2, but price differences
established.
between zones are usually small.
Any state milk-control law has one big weak
UNCLE SAM TO THE RESCUE
ness. While a state can control the price of milk
In Philadelphia, Federal regulation of milk pric
produced within the state, it has no authority to
ing began in 1942 when a majority of the pro
control the price of milk originating outside the
ducers shipping into this market voluntarily re
state. Milk that flows across state lines is inter
quested Philadelphia be placed under a Federal
state commerce and is therefore under the juris
milk-marketing order. Surplus milk and low pro-
7
business re v ie w
MILK MARKETING AGREEMENT AND ORDER PROGRAMS
In Effect as of January 1, 1955
S H A D E D S T A T E S H A D S TA T E M IL K C O N TR O L AS O F J U N E 1955
ducer prices were among the reasons why Uncle
Formula pricing
Sam was invited to take a hand in the Philadel
The Secretary of Agriculture issues orders or
phia milk market. For four years prior to 1942,
amendments to orders from time to time on the
producer prices in the Philadelphia market hov
basis of information obtained at public hearings.
ered around $3 a hundredweight, or about 6 cents
Producers, milk handlers, and dealers are always
a quart. At that level few, if any, dairy farmers
present at these hearings. Each group seeks to
were happy.
protect its own interests.
Philadelphia is one of approximately 50 milk
markets under Federal control as of January 1,
ducers is determined with the aid of a formula
1955. Most of them are east of the Mississippi
developed in Philadelphia. The current formula,
In Philadelphia, the Class I milk price for pro
and only one is west of the Rockies, as the map
if reduced to symbols as formulas usually are,
shows.
would indeed look formidable and might scare
8
business re v ie w
the average citizen out of his less-than-a-pint-a-
involves prolonged delays. Third, time and ex
day average consumption.
pense are saved by reducing the frequency of
A brief narrative description of the formula
hearings to consider price adjustments. Fourth,
may be more helpful than the mathematics. The
there is greater assurance that both the demand
price of milk is periodically readjusted with refer
side of the market and all significant factors on
ence to a base period (1936-1940) by applying
the supply side of the market will be reflected in
an arithmetic average of five factors:
the prices established. Fifth, it avoids higgledy-
1. The Bureau of Labor Statistics index of
wholesale prices— all commodities of the
United States.
2. Prices paid by Pennsylvania farmers for 20
per cent mixed dairy feed.
piggledy pricing procedure.
In Philadelphia, as in other Federally admin
istered markets, the Secretary of Agriculture has
jurisdiction over the establishment of producer
prices only. But thereby he also exercises indirect
3. Prices received by Pennsylvania farmers for
control over resale prices because the price paid
farm products, except dairy products— sea
by the ultimate consumer is naturally influenced
sonally adjusted.
by the price the producer gets.
4. Prices paid for milk by Midwest conden-
The price the farmer receives is always ad
justed for the butterfat content of the milk his
series.
5. Class I sales, except shipments to plants not
in New Jersey or Delaware.
herd produces. Prices are determined on the basis
of a minimum or standard butterfat content; for
By applying this formula, the producer price for
Class I milk for June 1955 comes to $5.24 per
example, 4 per cent in the Philadelphia market.
hundredweight.
at a discount, and milk with more than 4 per cent
Per quart, that amounts to a
fraction over 11 cents.
Thus it is apparent that farmers who ship milk
Milk with less than 4 per cent butterfat is priced
butterfat commands a premium.
Price adjustment for butterfat only— a custom
into the Philadelphia market get a price which
of long standing— may be obsolescent.
Most
is tied to or influenced by changes in all whole
people in this generation shy away from fat con
sale prices, changes in prices of some of the food
sumption but under customary pricing policies
cows eat, changes in prices farmers get for non-
farmers are urged to produce milk of high butter
dairy products, changes in prices paid for milk
fat, only to add to the difficulties of the Secretary
by Midwest condenseries, and changes in the vol
of Agriculture who has to buy up the surplus.
ume of milk shipments into the area.
Couldn’t the scientists who are wise in cross
Except for citizens who are nimble with num
breeding develop a strain of cow that would pro
bers, formula pricing seems a trifle complex.
duce milk with less butterfat and more nonfat
Formula pricing, however, has much to be said
solids? The market for nonfat milk solids is con
in its favor. First, statistics always have an aura
stantly improving.
of stern and eternally irrefutable precision. Sec
Suppose, as it may well be asked, the Federal
ond, a formula affords more prompt adjustment
administrator establishes one price and the State
of prices to reflect changes in economic condi
Milk Control Commission establishes a different
tions than can be accomplished through the usual
price. Then what? The higher of the two prices
hearing-and-amendment procedure which often
prevails. In actual practice, however, this seldom
9
business re v ie w
occurs, or the difference in price is very small.
Most of the state milk-control agencies in the
to pick on milk? Prices of all other commodities
have gone up considerably since 1940, but milk
Northeast have in the past fixed their Class I
is always the favorite target. Take bread, for
prices in close relationship to Class I or uniform
example. Bread, another wholesome food, is de
prices determined by the Federal orders for
livered like milk and, like milk, its price is also
well above the pre-war level. But do people com
major milk markets in the region.
Spencer and Christensen, in their comprehen
sive analysis of “ Milk Control Programs of the
Northeastern States/’ previously cited, say:
In general, the milk control programs
plain about the price of bread?
Is the spread between what the producer gets
and what the consumer pays for milk too big?
Volumes of testimony, tables, and charts could
have been looked upon as a means of im
be introduced to show that it is or that it is not.
proving the economic position
The issue could be and has been debated for days.
of dairy
farmers. The milk control agencies have
It is doubtful whether a judge with the wisdom
given much more emphasis to production
of Solomon could hand down a decision satisfac
costs and related factors than to the demand
tory to all parties concerned.
side of the market or to the balancing of
To begin with, milk is a unique commodity.
production and consumption. An important
Unlike wine that improves with age, measured in
reason is that the producers’ organizations
years, milk degenerates with age, measured in
have taken a very active interest in the milk
minutes. It must get to market in a frightful
control programs and have exerted per
hurry. Did you ever try to pass a milk tank truck
sistent and effective pressure for the main
on the way to market?
tenance of high prices. On the other hand,
Moreover, milk must reach the market in
with some exceptions, consumers have been
wholesome condition. No other commodity has
either apathetic or poorly represented in the
to conform to such rigid health standards as are
price-making procedure.
imposed on milk. What an array of inspectors,
examiners, testers, and sniffers! People would
Consumers like to gripe
not buy milk that did not smell sweet. Not only
A peculiar bird is the consumer. He is apparently
is milk inspected and re-inspected but so are the
happiest when he has something to gripe about.
He gripes at the umpire at whom he can throw
cows, the cans, the tanks, the barns, and every
thing connected with the product. All this goes
pop bottles and he gripes about the weather,
into the cost and therefore the price of milk.
about which he can do little. He gripes about the
Then comes the processing and bottling and
price of milk, about which he can do something
finally delivery, and of course the collection of
but seldom does. He could attend milk-price hear
bottles and bills. The consumer easily forgets all
ings but in Philadelphia he prefers to stay away
the service that comes with a bottle of milk.
and gripe. Occasionally, the consumer is repre
On the other hand, the housewife, operating on
sented by a labor organization or a professional
a close budget, cannot understand why, if it costs
“ do gooder” but usually the consumer has no rep
so much to deliver milk, she gets milk for only a
resentative at the hearings.
cent or a cent-and-a-half less per quart when she
Furthermore, why is it that the consumer likes
10
buys it at the store and carries it home. Large
b usiness re v ie w
users of milk in the home also feel they are en
tory must. However, milk is a designated non-
titled to a quantity discount. The duplication of
basic commodity like tung nuts and honey for
delivery routes by competing concerns is another
which price support is also mandatory.
often-cited form of unnecessary expense.
It is easy enough to see how a sack of rice or
Of course, the price spread could be reduced.
bag of peanuts got tossed up on the parity band
But would consumers be satisfied if there were
wagon, but how did the cow get up there, espe
no choice of dealers, less frequent or no delivery,
cially in view of the difficulty of storing milk and
reduced standards, poorer quality, and all that
the still greater difficulty of teaching cows birth
would go with reduction of the spread?
control? While market milk is too perishable to
be stored, the Federal Government can and does
W ith malice toward none
and parity fo r all
store butter, cheese, and dry milk solids. In the
Milk is not a basic commodity like cotton, corn,
ment bought unprecedented amounts of dairy
wheat, peanuts, rice, and tobacco. Prices of the
products under the price-support program. It
“ big six” Uncle Sam must support. It is a statu-
bought an estimated 375 million pounds of but
twelve months ended March 31, 1954, the Govern
ter, 369 million pounds of cheese, and 660 million
pounds of nonfat dry milk solids. Some people
advocated the export of surplus butter stocks to
A BIBLIOGRAPHIC NOTE
India where butter is melted down to be con
It is a custom hallowed by tradition to shore up
the end of a treatise with a list of references used
by the author. If we were to append a list of all
the sources consulted on the cow, the tail would
stick so far out behind the cow as to lift her fore
feet off the ground. Books, encyclopedias, Gov
ernment reports, pamphlets and magazines all
stacked up on a pile measured a yard high.
sumed in the form of a product called ghee. Fur
In addition, we consulted dairy farmers, dairy
equipment manufacturers, veterinarians, the dean
of a school of veterinary medicine, an inseminator, a gastro-enterologist, dietitians, presidents,
vice presidents, and economists of dairy com
panies, officials of producer cooperatives, bankers,
milk delivery men, land-grant colleges, trade
association officials, milk price fixers, U. S.
Department of Agriculture officials, professors,
housewives, county farm agents, and a cow auc
tioneer. W e also attended a hearing of the Penn
sylvania Milk Control Commission.
W e heard a lot of stories that can't be told,
heard a lot of conflicting evidence that was care
fully weighed, and saw some beautiful cows. Stu
dents desiring a more conventional bibliography
will be accommodated upon request.
thermore, some African tribes use rancid butter
as a hairdressing in their native beauty parlors.
All the basic crops will be under production
control this year for the first time. Moreover, all
of them except corn will be under both acreage
allotment and marketing quota.
Cows are under neither allotment nor quota.
They may produce all the milk and reproduce
all the calves they can. Perhaps that is one reason
why the Secretary of Agriculture, April a year
ago, reduced parity on dairy products from 90 to
75 per cent. The rising flow of milk, as shown by
a chart in the first article of this series, attained
an all-time peak of about 124 billion pounds in
1954. Something had to be done, so the Secre
tary, acting on the courage of his convictions,
did it. He knew full well that his action would
win him no popularity prize.
Maybe it is only wishful chart reading, but the
latest dairy statistics are already beginning to
11
business re v ie w
look better. Sales of dairy products to the Gov
Act authorized the expenditure of $50 million a
ernment amounted to the equivalent of nearly 6
year over a period of two years to increase milk
billion pounds of fluid whole milk in the year
consumption by school children. The armed serv
ended March 31, 1955 compared with 11 billion
pounds a year earlier. Reduction in retail prices
for dairy products in 1954 helped to increase con
sumption. People ate more butter and cheese;
they drank more milk, but ate a little less ice
ices are getting more milk, and the needy are
receiving more dairy products.
So the dairy surplus seems to be diminishing.
The situation looks more hopeful. There are those
in the industry who believe that, given another
cream in 1954 than in 1953.
The Government is helping the consumption of
year, the cow will no longer be a ward of the
milk in various ways. Last year’s Agricultural
state. Let’s wait and see.
CURRENT
TR E N D S
Business activity is bouncing back faster from
course, in consumer credit easier terms mean
the 1953-1954 recession than was anticipated.
lower down payments and longer maturities— not
Incomes are high and rising. Retail sales— espe
necessarily lower interest charges.
cially automobiles and department store sales—
idly. Debt is rising too but everybody seems well
Pressure on terms
strongest in Philadelphia
pleased with the basic solvency of the economy.
There are, however, some differences in terms
To some, it is a strange paradox that during
being offered in various sections of this Federal
periods of business expansion such as this our
Reserve District. A spot check indicates that as a
personal indebtedness climbs more rapidly. The
fact is that in any year a good part of retail sales
general rule lenders in and around Philadelphia
is not cash sales, and in years of rising business
more lenient. One lender in Philadelphia told us:
activity an increasing part of sales is usually “ on
“ Instalment volume is rising at a fast clip. This
exceed expectations. Optimism is spreading rap
are under the most pressure to make their terms
the cuff.” In other words, debts do tend to rise
increases pressure for speed in writing loans.
faster as business gets better.
There is steady pressure for easier terms. Every
You have only to read newspaper advertise
ments to get the feeling that the recent rise in
consumer
body seems to be taking a share of the 36-month
automobile paper that is around.”
debt has been accompanied— some
Those who are holding the line on terms feel
would say stimulated— by easier credit terms. Of
that they are losing business in the process. For
12
busii
iew
COLLECTION RATIOS— DEPARTMENT STORE INSTALMENT ACCOUNTS
PHILADELPHIA*
OUTSIDE
PHILADELPHIA
RATIO S
I
J
example, a Philadelphia banker had this to say:
I
F
I
M
I
vw 1
A
tion ratios for Philadelphia stores are noticeably
“ We are being hard pressed to give easier terms
below a year ago. Outside of Philadelphia, the
but we are resisting with very few exceptions. Our
volume of consumer credit could be much higher
collection ratio is running about the same as in
1954.
if we would upgrade some credit risks.”
It is difficult to ascertain all the causes of the
Outside the Philadelphia area there is pressure
lag in collections in Philadelphia. A rapidly in
too. In most sections, easier terms are the order
creasing volume of instalment sales coupled with
of the day. But the changes do not seem quite so
somewhat smaller monthly repayments resulting
large. For example, a Williamsport lender said:
from a lengthening of terms are probably factors
“ There is not much tinkering with down pay
lowering the level of collections in relation to
ments in this area; but 30-month automobile
sales. In addition, there is some evidence of ris
paper has become common over the past few
ing delinquencies. This does not seem to have
months.” From a Reading banker we heard that:
become a real problem as yet.
“ Automobile dealers want speed above all else
Collection ratios are holding up well in other
and that leaves little chance for proper credit
parts of the district. The fact that repayment
investigation.”
periods have not been lengthened so much outside
of the Philadelphia area is probably a reason for
Collections seem to be holding up
the difference.
Easier terms bring to mind the subject of collec
Some lenders dealing in automobile paper
tions. The charts above show the collection ratios
notice a slowly growing volume of delinquencies.
for department stores in the Philadelphia area
This is particularly true in the Philadelphia area;
and outside over the first four months of 1955 as
however, none of the lenders indicated that delin
compared with 1954. As can be seen, the collec-
quencies had reached a critical level. “ Relative to
13
business re v ie w
the increased volume of lending, delinquencies
appliance paper a year or so ago. The second
and repossessions have not increased,” we were
reason is that the appliance-store business is
told by one lender.
Collection reports on automobile instalment
pretty slow right now, so there is not much pres
sure on lenders for speed. Lenders can appraise
paper outside Philadelphia vary sharply. In some
the prospective borrowers more carefully. Appli
areas, reports are excellent— much better than a
ance dealers mention discount houses and the
year ago. In others, collections are slow, with
increasing volume of appliances going directly
plenty of kick-backs. Reports tend to vary
directly with employment. In areas where em
to builders on new operations as two causes for
the slowing of store sales.
ployment is off from a year ago, collections are
slowing up. Where employment is up, collections
An over-all impression
are running smoothly.
A year ago at this time, instalment lenders were
Collections on appliance paper are very good
not being pushed to “ write paper.” As a result,
in all parts of the district. A Philadelphia banker’s
they investigated credit risks more adequately
reply is typical for the city. He said, “ Collections
and were generally more selective. This tended to
are very good on appliances. We had a shake-
make instalment credit harder to come by twelve
down a year or so ago and straightened out some
months ago than it is today.
accounts. The delinquency picture is the best ever
The pressure of competition has made instal
on appliances.” A Bethlehem appliance dealer
ment terms more liberal in all sections of the dis
said: “ Delinquencies and repossessions are about
as low as they could be.”
trict. As might be expected, down payments tend
to be a little smaller and maturities somewhat
There appear to be two principal reasons for
longer in the Philadelphia area than in other sec
the favorable reports on collections of appliance
tions. The easing of terms has occurred even
paper. One was given in the quote from the Phila
though general monetary policy is becoming
delphia banker. Many banks “ shook down” their
somewhat less expansionary.
14
FOR THE R E C O R D . . .
B IL L IO N S *
M EM B ER
BANKS
3RD E R D .
BUSINESS
O RY e m p l o y m e n t , d i s t .
*• 0 .)-------10
Xjc
(W M IH O )
■X
Zi
+
>ARTMENT
STO RE
S A L E S . D IS T ._
«0O, SEASONALLY ADJ.}
---A P R IL
1955
2 YEA RS
AGO
Factory*
Third Federal
Reserve District
Per cent change
SUM M ARY
United States
Per cent change
A p ril
1 9 5 5 from
mo.
ago
year
ago
4
mos.
1955
From
year
ago
A p ril
1 9 5 5 from
mo.
ago
year
ago
Employ
ment
Department Store
Payments
Payrolls
Stocks
Sales
LOCAL
4
mos.
1 955
From
year
ago
CHANGES
Per cent
Per cent
Per cent
Per cent
Per cent
change
change
change
change
change
A p ril
A p ril
A p ril
A p ril
A p ril
1 9 5 5 from 1955 from 1 9 5 5 from 1 9 5 5 from 1 9 5 5 from
mo. year mo. year mo. year mo. year mo. year
ago ago ago ago ago ago ago ago ago ago
O U TP U T
Manufacturing production. . . - 2
Construction contracts*........... + 7
Coal mining................................ + 9
EM PLO YM EN T AN D
IN C O M E
Factory employment ( T o ta l) .. .
TR A D E**
Department store sa le s............
B A N K IN G
( A ll member banks)
Deposits.......................................
Loans............................................
Investments..................................
U .S . Govt, securities..............
O th e r.........................................
Check payments.........................
+ 2
+21
+23
- 2
+20
+ 6
- 1
+13
+ 1
+ 11
+32
+24
+ 8
+34
+15
16
+3
+10
-
3 +
9
-
8 -
2
+
2
5
-
+3
+3
+
+
4
2
+
4
+
+
2
-
1
6
0 -
8 +
4
5
0
+
+
7
3
+
9 -1 7
-3
+1
+
9
Lancaster. . . .
0
+1
0
+
9 -
7 -
1
0
-3
-1
+
2 +
3 -
3 +
3 +
1 -
Reading..........
0
4
0
0
Philad elp hia ..
0
-1
0
+1
-1
+
9 +12 +
5 +
7 +
3 -
8 +16
1 +
8 +
6 +
5 -
6 +
5 +14 +
6 +
8 +30
7
Scranton.........
+ 4 + 4
+11
+ 8
+ 1 + 4
- 1 + 1
+ 9 +14
- 1 0 t + 2t
2
1
2
3
0
-1 2
+ 6
+10
+ 7
+ 6
+12
+ 2
+ 5
+ 7
+ 8
+ 7
+13
+ 5
0
0
0
0
0
1
+
+
+
+
ot
+
11
ot
t2 0 C ities
{Philadelphia
-
0
-1
-5
-
Trento n...........
0
+2
-3
+
8 +19 -
W ilk e s -B a rre . - 1
0
-5
+
+2
+2
+10 +
-1
-5
-1
+
Y o rk .................
1 -
+
6 +13 +10
Wilmington. . . + 2
+2
+2
0
+1
-1
-9 t
•Based on 3-month moving averages
“ Adjusted for seasonal variation.
0
FHarrisburg. . .
PRICES
Consumer.....................................
A lle n to w n . . . + 1
0 +18
-
7 +
8 +
2 +
9 +
3 -1 8
1 +19 -
1 +
4 +
2 -
6
5
+11
8 -
8
•Not restricted to corporate limits of cities but covers areas of one or
more counties.
@FedFRASER